Mortgage brokers and insurance advisers have seen an increase in the number of “excessive” incentives offered to them by developers and builders to recommend their new-builds to clients.
They say it is “dodgy” practice which they would not be entertaining.
In the past few months, building firms appear to have upped the ante and gone from offering several thousand dollars to up to $30,000 to financial advisers and mortgage and insurance brokers for referrals.
EasyStreet Mortgages financial adviser Gareth Veale was aware of at least three Canterbury building companies and developers who had become more aggressive in their promotion of incentives and were now offering up to $30,000 for a referral.
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Veale said the incentives had gone from several thousands of dollars to “excessive” levels.
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As a financial adviser it was not something he had done or would ever feel comfortable doing.
“In the environment of doing what’s right by your client, any referral fee would have to be disclosed to the client and if there’s no level of work done in securing or justifying why that property is a good deal, the fee isn’t justifiable.”
While some advisers did offer additional services, negotiated a price reduction on their clients’ behalf or put together an extensive investment proposal, Veale didn’t think getting a large wad of cash just for a referral passed the “acid test”.
EasyStreet Mortgages financial adviser Gareth Veale labelled the incentives "excessive". Photo / Supplied
Total Mortgages Jordan Cameron was aware of incentives being offered, but said it was something he simply ignored and would never engage in.
“That’s more of a real estate agent’s role.”
Squirrel Mortgages founder John Bolton hadn’t been approached about so-called “secret commissions” and said anyone who did try would be given a short shift. He would prefer any discount be passed on to the customer.
“I hate that stuff. I reckon it’s dodgy,” he said.
“That’s not good practice at all. This stuff always happens, and it’s always probably happened, but it’s the fringe side of the industry and everyone who is a reputable adviser wouldn’t entertain that sort of thing.”
Anyone who did take up an incentive would definitely need to disclose it to the client and probably the lender as well, he said.
“Financial advisers are supposed to be looking out for the best interest of their customers, if that sort of stuff was going on I would be reporting it straight through to the regulator. It’s just not acceptable.”
Financial Advice New Zealand chief executive Katrina Shanks said financial advisers were required to always put the client first regardless of the remuneration being offered.
Shanks had not been made aware of any of these deals circulating, but would be concerned if it was influencing the advice clients were receiving.
Anyone who felt they had the right skill base to recommend where clients should be investing money could, she said. “But they’ve got to be very careful that they navigate the legislation correctly and they aren’t turning into pseudo real estate agents and they are giving financial advice, and there is a big difference.”
Real estate agents pointed out that recommending properties was a specialist role that could not be done by just anyone.
SM Property director Scott Muirson said if the buyer was going on the mortgage adviser’s recommendation then they could be limiting themselves to just one or two building firm’s offerings without weighing up the pros and cons just so the broker could get an additional kickback.
The advantage of using a real estate agency or a firm like his which specialised in new-builds, he said, was they had access to a much larger range of properties on the market so people could get a much better insight on all the properties on the market.
“Because every developer thinks their property is the best, but who can actually tell these people the pros and cons of this one and the pros and cons of the other developers.”
Lodge Real Estate managing director Jeremy O’Rourke agreed the variety would be very limited compared with what a real estate agency could offer.
It was also hard to know what they were being paid for and if the advice they were giving was impartial, he added.
“We will be offering a number of brand-new builds from a number of developers and builders, and we will also be showing existing properties that they may want to consider that will meet their needs. So, they will get a good feel for where the market actually is as opposed to being referred to one group builder and that’s all you're going to be shown and you can choose one of these two or three different plans.”
