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A home loan borrower who complained that his mortgage adviser should not have charged him $2500 when he changed banks has been told the broker acted appropriately.
The man applied to Financial Services Complaints Ltd (FSCL), an external disputes resolution service for the financial sector.
He had taken out a loan through a mortgage adviser in January 2023. The bank that gave him the mortgage paid the adviser a commission of $2500.
FSCL does not identify the people who complain or the subject of the complaints.
In August the next year, the man contacted the adviser to top up the loan. The adviser was told that this was not possible.
The following October, the man switched his loan to another bank.
The next month, the original bank clawed back the commission it had paid the adviser. Through the rest of the year, the adviser asked the man to repay him for the clawed-back commission.
He received a letter from a debt collection agency in January this year, asking him to pay $2500. Debt collection fees had been added.
The man complained to FSCL that he had been told the service was free.
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The adviser did not accept he had acted incorrectly.
FSCL said it was satisfied that the adviser had clearly disclosed that switching to another bank within 30 months would incur a fee.
"The adviser had explained to[him] he was paid by the bank when the loan was drawn down, and he specifically referred [the client] to the relevant terms of his business document that covered the commission claw back charge. [The client] signed a document confirming he had read the terms of business, including the section outlining the charges.
"The adviser documented the January 2023 meeting where he presented the bank offer to [the client], noting that he verbally explained the charges for switching banks within 30 months.
"When [the client] contacted the adviser in August 2024, he indicated he wanted a loan from another bank with a lower interest rate. The adviser reminded [him] in writing about the charge if he moved banks before the 30-month period.
"We found that the adviser had worked hard to secure [him] a loan and fully disclosed the 'clawback' fee."
Nick Hakes, chief executive of Financial Advice NZ, said the adviser had done everything right in this case, with full disclosure.
He said it was an issue with the way that lenders designed products rather than advisers' systems.
It was addressed in [https://www.rnz.co.nz/national/programmes/nights/audio/2018952158/what-you-need-to-know-from-the-report-into-banking-in-nz the Commerce Commission's report into the banking sector\, which said the clawbacks of both commission and the cashback incentive that some banks offer new customers could be a disincentive to borrowers switching.
The Commerce Commission recommended that home loan providers should claw back both the commission and cash back offers on a pro-rated basis.
But advisers say there are many different ways that it is calculated.
One major bank has moved to a straight line clawback over 24 months, so that if someone switched banks after nine months, 15 months' worth of cash back or commission would be clawed back.
But David Cunningham, chief executive at Squirrel, said other banks had rules such as 100 percent claw back in the first six months, 75 percent up to a year, 50 percent for 13 to 18 months and 25 percent claw back out to 24 months.
Others clawed back 100 percent in the first 15 months and 50 percent out to 26 months.
Karen Tatterson, an adviser with Loan Market, said many clients either misunderstood or completely overlooked the potential for a fee when they changed banks.
"The other common situations is where the client approaches the bank direct to see if there are any fees and the bank quotes their fees, if any but does not state that there may be a clawback if the loan was originated by adviser Consequently when the adviser approaches the client regarding the clawback the conversation is around the bank advising them there were no fees.
"As we are seeing clients move banks more regularly for a myriad of reasons without the adviser's knowledge the adviser has the right to claim the clawback.
"In my situation, where this has happened - only once or twice in the last year - I have actually phoned the client to discuss before sending the invoice therefore it does not come as a surprise and the client is aware of their obligations. The clawback is then paid and we are all happy."
Glen McLeod, head of Link Advisory, said the clawback amount from the lender to the adviser did not directly determine the amount the client was invoiced because advisers cannot charge commission back to clients.
"Instead, a service fee, typically capped at $300 per hour, up to a maximum of $3000, may be charged for work completed. It's important to note, lender policies can change, and sometimes clients may no longer qualify for a top-up due to servicing criteria.
"In such cases, advisers will explore refinancing options. If successful, no invoice is issued, as the new commission replaces the clawed-back amount. This is a common practice across the industry.
"Above all, open communication and transparency between adviser and client are essential to avoid misunderstandings. Financial advisers are committed to delivering better customer outcomes. While their services are often covered by lender-paid commissions, they may apply when substantial work has been completed."
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