Mortgage adviser client upset over $2500 bill

A man who received a $2500 bill from his mortgage adviser after he refinanced his loan had the fee waived when he complained – but the industry says clawbacks represent a real cost to brokers that clients should understand.

The man asked his mortgage adviser to arrange a home loan for him when he moved in 2018. In early 2020, he wanted to refinance to take advantage of low interest rates.

The adviser prepared a breakdown of the costs of refinancing for the client, but there were some delays obtaining offers from banks, as the adviser was particularly busy. The man approached another adviser who did the refinancing for him, instead.

A few weeks later, he received a bill for $2500 from his original adviser, who said because the loan had been refinanced within 24 months of being issued, the bank had clawed back her commission. She was entitled to recover that from the client with a clawback fee.

The client complained to disputes scheme Financial Services Complaints Ltd (FSCL). He said he received a copy of the mortgage adviser’s terms of engagement, but he had not realised the fee could be so large.

He thought the section of the agreement setting out the clawback was so vague that it was unfair for the adviser to try and enforce it. He was also upset that the mortgage adviser had provided him with a breakdown of the costs of refinancing, but had not mentioned the clawback fee.

He thought it was inappropriate for the adviser to tell him about his bank’s break fees, but not the adviser’s own clawback fee. He said that if he had known about the clawback fee, it might have affected his decision to refinance.

FSCL said the adviser was entitled to a fee but the terms of engagement were too vague to be enforceable. ‘‘The clause did not set out how much the clawback fee could be, or how the fee would be calculated. It simply said that, if the client fully repaid their loan within 24 months, the adviser would be entitled to charge an early repayment fee. For all [the client] knew, it could be a $25 fee, as opposed to $2500.’’

The adviser agreed to waive the fee.

Katrina Shanks, chief executive of Financial Advice New Zealand, which represents mortgage brokers, said clawback fees represented a real cost to the adviser which they were entitled to recoup from their clients. When deals were done direct with banks, banks would sometimes claw back any cash contribution offered.

Sometimes, clients had to make changes to their lending structures which were outside the adviser’s control, or which they could not have predicted when the loans were set up, she said.