These three groups have the ability to influence your wealth significantly, but they all hold secrets: Financial advisers, product manufacturers, and regulators.
At an organisational and individual level, incentives abound in each of these three groups. Incentives which may or may not be aligned with yours. Each group contains imperfect people, working in their part of the industry with ‘growth’ in mind. Each group does good, but can cause harm to the very people they claim to serve, too. Financial advisers—like mortgage, insurance, or investment specialists—must build better revenue models for the advice they offer, and not rely exclusively on the next group for remuneration. Product manufacturers, such as banks, who dominate as a stable oligopoly in New Zealand but exhibit mild cartel-like symptoms, insurance companies passing on more than just rising costs, and fund managers acting as gatekeepers rather than a source of innovation – each group falls short on perfection. Oh yes, one more… Regulators, including the RBNZ, FMA, DIA, IRD, ACC, and Commerce Commission, claim to protect you, but their growing bureaucracy distorts free markets by creating cost with no benefit. Any group involved with the decisions around money you’ve earnt, should be examined.
To help aid in my ’60-minutes’-esque meets ‘Gong Show’ version of an expose, I’ve roped in Jeff Royle, founder of iLender, and David Hart, a former mortgage adviser.
Oligopolistic forces and bureaucratic empire-building risk pushing human advisers out of the way.
Do Financial Advisers Put Their Wealth Before Yours?
Financial Advice New Zealand’s 2020 ‘Trust in Advice’ report offers insight: 72.2% of non-clients view advisers as trustworthy, while 81.3% of clients across mortgage, insurance, investment, and planning services report better outcomes than going direct. This suggests advisers add value, not extract it.
Untrustworthy and greedy. These are partially valid concerns. It wasn’t that long ago finance companies collapsed causing many to lose their life savings. When it was clear they paid commissions to distribute faulty products (that shouldn’t have existed in the first place) the advice industry lost a bit of trust. Were commissions the single point of failure? No, but it likely didn’t help.
But everyone makes a living by giving up their time, right? What’s so bad about income being linked to outcome? If the consumer values the outcome, what’s so bad about commissions? And if these advisers operate small businesses that employ people and pay tax and spend in their local communities, is that a bad thing? Would it better if this money went to the big 4 Australian banks instead?
No one’s perfect, but shouldn’t financial advisers be trustworthy?
Show me where in the wallet the salesman touched you.
Trust hinges on incentives: Money, market share, or complete control.
Advisers often earn commissions from banks, raising concerns about bias toward higher-paying lenders. But, commission differences between major banks are negligible—maybe 0.1%—and advisers are bound by a code of conduct to prioritise your interests. In a competitive market, 9 out of 10 banks will match interest rates. But getting ‘a good deal’ is not the sole function of an adviser – it’s about hand-holding through complicated financial transactions, and it’s about peace of mind. The notion that advisers favor high-commission options is as old as the trauma from from a completely different part of the industry. Untrustworthy product salesmen of the past shouldn’t be an endless excuse to unfairly judge the majority of honest financial advisers.
Assuming the least qualified people migrate over time to highest echelons of bureaucracy, let’s assume that commissions to mortgage and insurance advisers will be banned. It’s a reasonable assumption I do not like. If commissions were banned, would consumers pay? Some definitely would. The borrower who can’t get a mainstream bank to lend them money will. The self-directed investors in need of a strategy will. What about first-home buyers, who benefit most from mortgage advisers? Often they can’t afford any more upfront costs, and what about the solo parent in need of life insurance? Commission-based remuneration is often the only way consumers gain access to advice that can genuinely make a difference.
Research consistently shows that financial advice leads to better financial outcomes, higher satisfaction, improved financial behavior, and stronger long-term returns. So anything that’s in the way of that, isn’t good, right?
The Adviser’s Struggle: A System Tilted Against Them, Is A System Against Wealth
Mortgage advisers face a stacked deck – they’re the weakest group standing next to the product manufacturers and the regulators. Bank response times for adviser-led mortgage applications for example: They’ve ballooned from two days to two weeks, while direct applicants report faster turnarounds. Advisers complain of files stuck in queues, with clients mistakenly blaming them for the poor service! Underinvestment in bank technology is one culprit, but some advisers suspect banks are engaged in deliberate “throttling” to push borrowers away from using advisers. ‘Sources familiar with the matter’ suggest banks have a policy to warn borrowers that approvals will be withdrawn if they use an adviser. If these [presumably baseless] allegations were true, is this ethical? Debatable. Illegal? Not likely. The Commerce Act 1986 prohibits anti-competitive behavior (acting like a cartel), but proving that banks are formally colluding over price, lending policy, or distribution would be tough (if it was indeed occurring). Plus, who wants to do that job?
Has the banks cozy oligopoly gone too far?
Many advisers, myself included, have urged consumers to bypass intermediaries and go directly to banks when time is of the essence. This hurts our business, but I know other advisers who do the same. Some leniency is warranted given the monetary policy shifts and property market dynamics since March 2020. It’s crazy, but it often feels like banks are prioritising short-term profits over fostering long-term partnerships. The real problem for consumers, is that they miss out on exploring other bank offers and receiving advice that could save them more than a temporary discounted rate. With banks favoring direct channels and regulators imposing heavy compliance costs, access to proper advice is increasingly at risk. From the Secret Commissions Act 1910 to the Financial Services Legislation Amendment Act 2019, alongside 38 regulatory bodies and nine specific laws in between, the financial services industry is far from a regulatory wasteland.
The Commerce Commission: Misguided or Misinformed?
The Commerce Commission’s suggestion that advisers present three loan offers to each borrower has sparked outrage among both the advisers, and the banks. Chairman John Small believes it ensures more competition, but many suggest it’s a ‘solution looking for a problem’. It’s not that hard to get a bank to match a competitors interest rate. Cozy-oligopolies have some benefits. The issue is the number of bank-hours it takes to approve a loan. Further, as long as there’s a loan structure and a firm settlement date, you can negotiate interest rates without even submitting an application (any active mortgage advisers knows the market). Submitting three applications means more paperwork, delays, and costs—likely passed on to consumers. So why the emphasis on multiple offers? Does the regulator understand this industry?
The Commission’s response to queries clarifies: “We recognise it won’t always be possible to present three offers – the characteristics of the borrower or time constraints may mean three isn’t feasible. So, to be clear we have never suggested that advisers should be forced to present three offers, full stop. And nor are we expecting an over-night turn around on this. But we are setting expectations, and we continue to engage with the sector to drive change.”
Mortgage advisers might feel targeted during a time they’re stressed about poor service from the banks. Why isn’t the Commerce Commission looking into banks’ practices—like favoring direct channels. Should whistleblowers be protected, by the way? Supporting open banking, supporting smaller lenders like Kiwibank, and using mortgage advisers who don’t work for the bank – THIS is how to keep competition pumping, not tweaking adviser rules any further. If anything, we need less regulation.
The Bottom Line
Financial advice should be about looking beyond the pricing of financial product to your goals, risks, and opportunities. How can we make you wealthy over time? That’s the only thing I want to think about. Banks, as mortgage manufacturers, offer product advice at best, not impartial guidance.
Systemic biases—banks prioritising direct channels, regulators overreaching—risk limiting access to advice that genuinely makes everyday people wealthier. For consumers, the message is clear: trust advisers who earn it, ask hard questions, and don’t let a stacked system steer you wrong.
Disclaimer: This is an opinion piece by one industry participant and does not reflect all views. Questions are not allegations, and this should not influence your investment decisions but aims to spark thought.
