‘We aren’t a free service’

Some would-be borrowers have been getting a shock when asked to pay for mortgage adviser services – but there’s a warning that people shouldn’t expect the service to be free.

In one recent case, a young couple were handed a $3500 bill by their mortgage adviser soon after the birth of their first child. They had repaid a loan early when they moved to a new house, and the broker charged the fee to recover the resulting commission clawback from the bank.

Mortgage advisers are usually paid on commission by the lender and if the borrower does not hold a loan for sufficient time, the lender can ‘‘claw back’’ the commission it paid to the broker. The broker then often tries to recover this from the client.

In another case, mortgage adviser Glen McLeod said he did hours of work for a client over two years and was not paid.

He said he helped the client get preapproval for a home loan but they were initially not able to find a house to buy. He suggested they come back later and try again when they were ready, which they did.

‘‘We got to the point of setting up the rate structure and then they just stopped getting back in touch.’’

When he finally reached the client, he was told that they had decided to take a loan from HSBC instead, because they felt they would get better rates. But McLeod said he had not even been given a chance to explain what rates were available for the loans he had arranged.

‘‘The service is not free, it’s just usually paid for by the bank. We have to be licensed – it costs a fortune to get a licence – we provide a professional service like an accountant or lawyer. At some point someone has to stand up and say ‘enough is enough, it’s not a free service’.’’

Glen McLeod

Mortgage adviser

McLeod said his terms of engagement clearly stated that his services could be charged at $250 an hour for a maximum of 10 hours, if work was done for a client who then decided not to go ahead.

But when he sent this client an invoice for $1500, which he said he discounted out of goodwill, the man refused to pay it. ‘‘I’ve sent an invoice every month for four months and on the last one I said ‘this has been sent to a debt collection agency’.’’

He said the client argued that he could not do that but McLeod was confident he was within his rights. He said a significant investment of time was involved.

‘‘It’s two years of follow-ups and collection of data.’’

He said it seemed to be an industrywide problem that people expected mortgage advisers to work for nothing.

‘‘The service is not free, it’s just usually paid for by the bank. We have to be licensed – it costs a fortune to get a licence – we provide a professional service like an accountant or lawyer. At some point someone has to stand up and say ‘enough is enough, it’s not a free service’.

‘‘I employ five people to assist with the work I do. If [a client] went to a lawyer and got advice, they would receive a bill and if they didn’t pay, they would be crucified.’’

Financial Advice NZ chief executive Katrina Shanks said mortgage applications could be time consuming and had a level of complexity that required knowledge and skill to perform.

‘‘Some financial advisers do apply a fee for the use of their professional services if an application process is not completed using their services. This would have been part of the disclosure statement that the financial adviser would have provided at the beginning of the conversation. If a client is unsatisfied there is a very robust complaints process and access to disputes resolution schemes which a client can follow.’’

If the client took a complaint to McLeod’s external dispute resolution service it could cost him $1000 – or two-thirds of the bill amount. But McLeod said it was a matter of principle.

Susan Taylor, chief executive of Financial Services Complaints Ltd, said her organisation received complaints about fees charged by mortgage advisers from time to time.

‘‘Our view is that mortgage advisers are entitled to be paid.’’

She said fees should be reasonable and be adequately disclosed. ‘‘Most mortgage advisers’ terms of engagement set it out clearly that they will charge a fee in certain circumstances.’’

She said people were probably used to not paying for mortgage advisers’ services, which created the issue.

‘‘That’s one of the reasons we emphasise to advisers that they should make sure their fees are not just disclosed but discussed with the client so there are no surprises later on.’’