Westpac is restructuring the way it pays and incentivises mortgage brokers in a move designed to secure long-term loyalty from both brokers and borrowers.
Shane Howell, Westpac’s chief product officer, told interest.co.nz the bank is reintroducing trail commissions after a break of about nine years.
It'll pay a 45 basis points upfront commission to brokers, and ongoing 20 basis point trail commissions kicking in 12 months after a loan is drawn down.
When loans are refixed, or have their value increased, trail commissions may also be paid.
Westpac has been paying brokers and financial advisers upfront commissions of up to 85 basis points.
Howell said although the upfront payment is reducing, over the overall life of the loan, in a market currently dominated by fixed-term mortgages, Westpac's new structure was a "much better outcome" for advisers and brokers.
Among Westpac's big three rivals, neither ASB nor ANZ pay trail commissions, although ASB affiliate Sovereign does. BNZ doesn't work with mortgage brokers at all.
"A customer comes in, goes to see a mortgage adviser or broker, and a lot are fixed rate deals at moment," Howell said.
"(You come to the end of the life on fixed rates, then it's out to renegotiate. There's no real incentive for a broker or adviser to give Westpac the deal again given it's a very small cash amount that we pass them on if it's redocumented with Westpac. A trail commission structure tries to build longevity for us, the customer and advisers," said Howell.
The change comes after a strategic review by Westpac of its adviser and mortgage broker channel that involved bank staff interviewing some 250 advisers around the country, Howell said.
"For us it is about building a sustainable partnership model," he said, rather than necessarily reacting to a competitive, soft market.
Westpac currently gets about 25% of its home loans through advisers and brokers, and Howell said it's comfortable with this level. The bank had stopped paying trail commissions in about 2005.
"We're also putting in different volume and conversion rewards so we're tiering our broker channel as well. We're coming up with a top tier and will have different service level requirements, all the rest of it."