TMM - The NZ Mortgage Mag Issue 6 2015 by TMM - The NZ Mortgage Mag

Issue

2015

Mortgage brokers face big change What's in the

BIG ISSUES OF 2015

FAA review

HAPPY TIMES DON'T IGNORE FOR MONIQUE RILEY

THE DIGITAL AGE

CONTENTS

UPFRONT 04 EDITORIAL

The world for Registered Financial Advisers is looking likely to change.

06 NEWS

SBS still baning on trails, Mortgage brokers have referred much of new peertopeer lender LendMe's early business and more...

10 PEOPLE ON THE MOVE The latest appointments and people news.

28 What's on the horizon for the country’s mortgage advisers in these uncertain times? Monique Riley

FEATURES 12 HOUSING COMMENTARY

There’s definitely a change in pace in the Auckland property market.

14 RFA’s NO LONGER?

What the revamped FAA means for mortgage brokers.

18 TOP BROKER

Susan Edmunds explores this year’s achievements of the top 10 brokers in the country.

28 MY BUSINESS: Monique Riley

It hasn’t been an easy road for Monique Riley but that’s what has made her even more determined.

COLUMNS 23 INTEREST RATES

Miriam Bell looks at the reaction in the industry following the OCR cut.

24 PAA NEWS

The main issues in 2015 and what is expected for the year ahead.

26 SALES AND MARKETING

Paul Watkins writes on how it’s not wise to turn your back on the digital age.

30 LEGAL

TMM’s resident legal expert Jonathan Flaws explains what is required for electronic signing to be valid.

32 INSURANCE

Steve Wright examines frequent clients’ objections and how to overcome them.

34 INTELLIGENCE

EDITOR’S LETTER

Bring on 2016

PUBLISHER: Philip Macalister SENIOR WRITERS: Susan Edmunds, Miriam Bell, Dana Kinita SUB EDITOR: Phil Campbell

he year ends, as it often does, in a flurry of activity. I doubt many would argue that 2015 is ending in that manner, too. While I’ll leave most of my 2016 predictions until next year, I can’t go past flagging that the world is likely to change significantly for registered financial advisers (RFAs). Ideas put up in the Options Paper for the review of the Financial Advisers Act include major changes to RFAs – since most mortgage advisers operate as RFAs it is an event readers need to be engaged with. The lead article in this issue highlights key items in the Options paper that mortgage advisers need to be thinking about. The other issue which can’t be ignored is what is happening around commissions and remuneration. Until now, the debate has largely been in the life insurance space. But a prediction is that people will start to think, and talk, about it in the home loan space. The remuneration structures in life insurance and home loans – namely high upfront commissions and smaller ongoing trail

commissions – is pretty standard. There is absolutely no doubt lenders like ANZ have used the commission lever to drive sales this year through mortgage advisers. We’ve noted before how advisers are using a mix of ANZ with upfronts as a way of generating cash flow, and using Westpac with its trail model to build business value. If the debate in the life insurance space moves to home loans expect more pressure to come on banks to introduce trail commissions. Over the next month or so we will be finalising our plans for next year for TMM. The first issue next year is scheduled for publication on February 8. In the past month, Dana Kinita joined us as a journalist. Her help in getting TMM together is tremendous. The second is to grow our news online. In the past we did a good job here via Good Returns. We will pick this up again, but brand it as TMM Online. The email newsletters we started this year under the TMM Online brand have been incredibly wellreceived and we will build on that work. In the meantime, it’s time to head to the beach. The only building going on there is likely to be sandcastles or bonfires. Enjoy the festive season and the holidays.

Philip Macalister Publisher

CONTRIBUTORS: Paul Watkins Steve Wright Jonathan Flaws Kymberly Martin GRAPHIC DESIGN: Jonathan Harding ADVERTISING SALES: Freephone: 0800 345 675 sales@tarawera.co.nz SUBSCRIPTIONS: Dianne Gordon Phone 0800 345 675 HEAD OFFICE: 1448A Hinemoa St, Rotorua PO Box 2011, Rotorua Phone: 07-349 1920 Fax: 07-349 1926 tmm_editor@tarawera.co.nz

The NZ Mortgage Mag is published by Tarawera Publishing Ltd (TPL) in conjunction with the Professional Advisers Association. TPL also publishes online money management magazine Good Returns www.goodreturns.co.nz and ASSET magazine. All contents of The NZ Mortgage Mag are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited.

The NZ Mortgage Mag welcomes opinions from all readers on its editorial. If you would like to comment on articles, columns, or regularly appearing pieces in The NZ Mortgage Mag, or on other issues, please send your comments to: tmm_editor@tarawera.co.nz

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NEWS

Rush on bridging finance as sales times slows down

hile urgency for Auckland property prices keep rising, the time it takes to sell an existing home has slowed down causing a sharp rise in bridging finance applications. New Zealand nonbank lender Southern Cross Financial, reports that three out of five applications are now for open bridge finance, compared to one in 20, just three months ago. Southern Cross financial chief executive, Luke Jackson, said people want to secure their new property before they’ve sold their existing asset, but mainstream banks were shutting the door on open bridge finance (which is characterised by a no fixed payoff date because the existing property has not been sold). “The Reserve Banks’ LVR (Loan to Value Ratio) restrictions and the Responsible Lending Code have made banks reluctant to assist homeowners when they can’t confirm their

exit on the existing property. “When you suddenly own two properties – even in transition – your equity is reduced because, technically the second property is classed as a rental and that means you need a lot more equity to comply with the LVR restrictions (70 per cent on rentals in Auckland and 80 per cent for own homes). “People still need to go to auction as cash buyers to get the property they want, so we anticipate that demand for bridging finance is only going to increase as the time it takes to sell properties also increases.” Mr Jackson said mortgage advisers were approaching Southern Cross Financial to approve an open bridge loan – as a short term stepping stone – to give the client time to sell their existing property. “If you must open bridge your finance, make it short term. Once your existing property sells, the end debt is reduced and a mainstream bank should be more than happy to take on the new mortgage.

“We have also seen some riskier behaviour from people who are holding on to their existing home for as long as possible after they’ve secured a new property, with the hope of realising more value from a rising market by holding out for the highest price they can get. That is not something we would encourage.”

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he work of top ANZ mortgage advisers was recognised recently at a gala end of year event at the ANZ Centre. The evening acknowledged the key mortgage advisers in the Auckland region with six awards given to the best providers in 2015.

Recipients:

Mortgage Adviser of the Year (Highest total production volume with ANZ) Ajay Kumar (Global Financial Services) Business & Commercial Adviser of the Year (Highest production volume with ANZ Business & Commercial) Emily Wang (21st Century Mortgages Limited) Mortgage Adviser Business of the Year (Highest production volume with ANZ) Mortgage Success Limited Valued Business Partner (Consistently delivering premium production) John Bolton (Squirrel Financial Solutions Limited) Valued Business Partner (Consistently delivering premium production) Ajay Kumar (Global Financial Services) Valued Business Partner (Consistently delivering premium production) Paul Wang (Mortgage Success Limited) ✚

SBS still banking on trails

BS Bank is still planning to move to a trail commission model for mortgage advisers, but its rollout has been pushed back because of other projects. SBS chief executive Wayne Evans says the change to its remuneration model is “definitely still in play”. He says he doesn’t need convincing it is the right thing to do, as it’s good for the bank and advisers. Also he has seen the model work when he ran SBS’s finance company, Finance Now. Evans says trail commission builds value in an adviser’s business and it makes the business more salable in the future. It’s easy to work out a business’ value using discounted cash flow when there is trail commission, compared to trying to value a business on its goodwill. SBS has just completed a brand refresh Financial Services Grouponeyear which is NZ being supported by a special fixed home loan rate of 3.99%.

Minimum deposit The rate is for residential, owneroccupied properties only and requires a minimum deposit of 20%. Evans said it was made owner occupied as the bank wanted to support its shareholder members. He says the bank has a “very low” profit margin at this rate and the strategy was to rewarded members (who are also shareholders). The bank would get value out of the members in three to five years time. “As a mutual, our members are our owners,”Evans says. “As a result, we are focused on giving back to them every day through a range of member benefits, such as marketleading lending interest rates.” While the Reserve Bank has adopted new capital adequacy ratios for bank lending to property investors, this wasn’t the reason why the SBS special was for owner occupied properties only. As well as a new visual identity to provide better integration and brand consistency

Wayne Evans across SBS Bank, the brand refresh has included streamlining the product suite and enhanced systems and member services. All branches have undergone some redesign and other new features will be rolled out across SBS Bank’s network over time to continue to build the brand and meet customers’ needs. “The brand refresh is a key part of realising SBS Bank’s growth strategy, which is focused on playing to our strengths in residential lending and deposits and meeting customers’ daytoday transactional banking needs,” Evans said. As part of the brand refresh the bank’s Hawke’s Baybased subsidiary, HBS was rebranded as SBS Bank. ✚

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NEWS

Mortgage brokers have referred much of new peertopeer lender LendMe's early business

he lender officially launched late last month, but has announced it already has $630,000 of lending on its books after months of development and beta testing. The first loans included residential mortgages and refinanced home loans. LendMe specialises in secured loans and will deal with amounts up to $2 million. It will most often take first mortgages over property. Investors can choose to back full loans or parcels of $1000. Chief executive Marcus Morrison said one of the first loans issued was to a couple with a blemish on their credit record, for a disputed

bill of about $400. They had been paying a high interest rate and rollover fees every six months but LendMe offered them a rate of 8.29% for the loan.

Attractive deal Morrison said that was an improvement on what they were paying and the 30% equity in their property made it an attractive deal from an investor perspective. The investor would get 7.74% from the deal. In another case, a couple relying on superannuation for their income were unable to obtain a loan from a bank, despite having 60% equity in their properties.

Morrison said they were able to service the loan so it was a safe proposition for investors, too. LendMe had received inquiries through mortgage brokers, Morrison said. "What mortgage brokers are saying is they are finding it harder to find for certain people a good deal with the mainstream banks and other lenders." They had indicated there were many more borrowers who would fit the model, he said. "The feedback we are getting from brokers if they have a lot more and their colleagues have numbers of these deals as well." ✚

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Mortgages declined over private school costs

ifestyle spending habits are seeing a growing number of mortgage applications rejected, despite having enough equity and a high income. New Zealand’s banks have now changed their credit policies, almost overnight, to comply with the Responsible Lending Code. Auckland mortgage broker and principal of integrated financial services provider LoanPlan, Christine Lockie, said she is getting calls from frustrated Kiwis whose mortgage applications have been turned down because their lifestyle costs are too high. For example, the may have children in private schools. “All of these clients have the equity and they all have high incomes and disposable cash, but the banks are looking first at lifestyle and the cost of that lifestyle, and if they think it’s a bit extravagant, they’re going to turn you down. They are taking the Responsible Lending Code very seriously,” she said.. “While we have historically low interest rates, and more first home buyers are beginning to emerge (there is finally better choice on the market for them), the banks have almost overnight become more strict on their credit policies than they have been in years. “Banks are not relying on equity positions now. Instead they focus almost solely on what is available at the end of the month, once all

expenses are accounted for. Your uncommitted monthly income is the primary measure. For example, a couple with a high income – and paying top rates for a rental property – may not have anything left over at the end of the month because they have private school fees,” Lockie said. Banks apply what they call living cost standards to each adult and child. On average it is $910 for an adult and $280 for a child. If the family is spending more than what their bank considers a standard amount per person, they will include the higher outgoings and this may determine whether they will approve the mortgage “I’ve even had cases where people have 80% equity. The banks still want to know what’s left over at the end of the month “Unarranged overdrafts, high credit card debt – even if you can reasonably service that debt – and how much you spend, and what you spend it on, are now very important criteria for securing a mortgage or further bank lending. Dare I suggest it’s a nanny state type of approach to lending? She said the days of using third party security was also fading fast. “I believe that home buyers will need to demonstrate clean and disciplined spending habits over about 18 months to have every chance of getting a mortgage.” ✚

Squirrel and Aspire join forces

uckland mortgage and property experts, Squirrel, has bought Takapunabased Aspire Advisors for an undisclosed sum. Aspire directors Peter Norris and Andrew Mackay said they wanted to break the mould of the traditional mortgage and insurance 'broker' and become trusted advisors. “Over the past couple of years we’ve achieved that but we realised that in order to grow the business to reach our full potential we would need to partner with someone who shared our culture and our aspirations,” Mackay said. Enter Squirrel. Squirrel is The mortgage brokers who have recently branched out into the persontoperson lending market with Squirrel Money. Founder and chief squirrel, John Bolton, said the next phase of Squirrel’s growth in the brokerage market means thinking outside the square.

“We’ve grown tremendously quickly in an organic sense and the next phase requires us to look at new business opportunities, like Squirrel Money, and also acquisitions where and when they fit our model. Aspire has a strong team with a culture and drive that matches our own and I’m delighted to welcome them to the Squirrel family.” Aspire staff included five mortgage brokers, two life insurance advisors as well as backoffice support staff, all of whom will continue to work out of the Takapuna office. “Our goal is to make sure customers get the best deal they can, whether they’re taking out a mortgage, investing through Squirrel Money or insuring their lives. By doing that, I believe we will double in size within the next five years,” Bolton said. Squirrel now has advisers serving the Waikato and Bay of Plenty regions and plans to open a regional office in the coming month. ✚

PEOPLE

PEOPLE ON THE MOVE

Got a new appointment you would like to tell advisers about? Email details and a pic to tmm_editor@tarawera.co.nz

Squirrel grows life insurance

Nicky Smit Nicky Smit joined Squirrel as a life insurance adviser in October. Smit has been in the financial services industry for the past 10 years, specialising in insurance at Sovereign/ ASB Group before joining the team at Squirrel. The plan is to grow the Squirrel Life offering alongside our mortgages brand with more life advisers soon to come on board.

Language no barrier at Mortgage Express

With a background in customer service and experience as a business owner, George Xuan brings a wealth of knowledge to Mortgage Express. The mortgage adviser said he was excited to share his expertise of the property market to his clients. “I strive to always do my best for my clients, ensuring they are completely happy and satisfied with the outcomes. Choose me, choose right!” Xuan said. A native Mandarin speaker, Xuan’s focus is on assisting his clients find the right mortgage solution and guiding them through the application process, particularly new arrivals into New Zealand who may be struggling with the language barrier. “I’m committed to my client’s care,” Xuan said.

New chief for Southern Cross

George Xuan

Luke Jackson

Devon Jones

Luke Jackson joins the team at Southern Cross Financial in the newly created role of chief executive. Jackson has many years’ experience in the banking arena with National Bank, ASB and more recently with BNZ. Also, Carlene Dredge joins the ever increasing sales team at Southern Cross Financial covering the rapidly growing Bay of Plenty region. Dredge has strong family ties in the area and has come from run her own consultancy business as well as recent banking experience at Kiwibank. Devon Jones has chosen SCFL to start his finance career having recently finished university. The Bachelor of Business, specialising in finance and international business, graduate became part of the lending and credit team earlier this year.

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“I will do my best to help my clients find the right financial solution.” Leon Li has also joined the team in Auckland. With a background in customer service and finance, Li believes a customercentric focus is vital to his role as mortgage adviser. Li spent seven years working as a contact centre team leader in the freight industry, before joining Mortgage Express. He also has two years’ experience in an accounts management role and three years’ experience working as an IT retail manager. “Leon is wellspoken, punctual and disciplined, key traits that have earned him a

Leon Li

Charley Sun

reputation as a role model in previous roles,” general manager of Mortgage Express, Sarah Johnston, said. “I was impressed with the way Sarah looks after us newbies. I do enjoy working with professionals and look forward to growing with the business,” he said. Charley Sun, who has also joined the Aucklandbased team, hails from Shanghai and is fluent in English and Mandarin. His background included three years’ in a personal credit role and a year working as a mortgage adviser for a local finance company. Sun is degreequalified with a Bachelor of Science in Mathematics from Massey University. Along with strong communication skills, dealing with people at all levels, Sun has an entrenched understanding of the mortgage and property industry in New Zealand. He believed by fully grasping each of his client’s particular needs, he is able to find the most suitable mortgage solution. “I'm the kind of person who knows how to execute difficult tasks with precision. I pay attention to the details of a project, making sure that every task is just right, and completed in a timely manner,” Sun said. “Charley’s experience in personal credit and knowledge of the finance industry affords him an advantage when it comes to helping his clients apply for a mortgage. He is patient, up front and particular about the details, qualities we highly regard,” Johnston says.

Mike Pero movements

Andrew Rood is the new owner of the Tauranga franchise having come from an extensive background in financial services. With experience with Public Trust, Tower Investments, St Laurence Group and AIG, Australia, he is a welcome asset to the expanding Mike Pero Mortgages team. Matthew Hooper, who purchased the Hawkes Bay Franchise, joins the team from Westpac Agribusiness. He has settled his young family in the sunny Hawke’s Bay and brings a great energy to the Mike Pero Mortgages team. Joining the franchise in Hamilton is Sam Kuruppuge, who has extensive experience in sales, marketing and customer service covering insurance, telecommunications and retail. Latest Mike Pero franchise owner, Alan Lee has joined the Christchurch team. The newest Mike Pero franchise owner to join their Christchurch team, Lee is a mortgage and insurance adviser and has

a business communications degree from Otago University. He had previously worked at Westpac Migrant Banking following a career in real estate. The Ashburton network has been expanded with new local franchise owner, Ashish Shah, who has a strong accounting background and is an experienced property investor. He looks forward to helping his local community with mortgage and insurance advice. Switching from insurance to mortgage is Lennard McLaughlin in Wellington. He has now joined the ranks as a mortgage adviser and franchise owner. He looks forward to using his wealth of experience gained in the insurance industry to assist Wellington clients with their home loan.

Rising in the ranks

Philip Walker is Mortgage Linkâ&#x20AC;&#x2122;s new adviser in Wellington. Coming from an extensive military background, and with more recent years as a commercial contract negotiator for the NZ govt, he brings a strong desire to develop winning solutions for all parties.

on its strong existing relationships. He will also be looking to grow through new key business alliances. He has more than 20 years of senior management experience and a strong understanding of the finance markets in New Zealand. His most recent role was with Heartland Bank as Chief Risk Office. He has had experience of banking over a number of years with ASB and Westpac, and finance having previously held the role of national lending manager for Speirs Finance. Through his varied roles Mountbatten has gained a good understanding of adviser channel and appreciates its importance to the Avanti business.

Philip Walker

New chief to lead Avanti forward Andrew Rood

Ashish Shah

Avanti Finance has recently appointed Mark Mountcastle as its chief executive. Mountcastle is working with Avanti to further develop and drive strategy, building

Mark Mountcastle

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HOUSING COMMENTARY By Miriam Bell

Runaway market slows After weeks of speculation, the relevant data is in and it points to a definite change in the pace of Auckland’s market, writes Miriam Bell.

t seems that reality has caught up with the rumours for Auckland’s runaway market. Following a bold call by CoreLogic’s Jonno Ingerson that the market had turned, speculation grew heated as observers waited to see if his call was correct. October’s data told a consistent story. Quotable Values’ (QV) data aside, it left little doubt that SuperCity price growth was slowing down. Now, the first of November’s data is in and it gives further weight to the body of evidence showing Auckland’s heady days are over.

CHANGE OF TUNE The release of QV’s data was confirmation the tide has turned. Before November, QV’s data has told a different story to that of other data. It has consistently showed strongly increasing values, while other data indicated slowing

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price growth. However, it appears this trend is changing. On releasing the November data, QV national spokesperson Andrea Rush said that, while it showed an increase in Auckland values, it also indicated a much slower rate of increase than in October. “It appears new rules to curb investors, along with restrictions on the capital flow out of China, have led to an easing in the market.” According to the QV data, in November, the average residential property value in the Auckland region rose to $931,807. This was up from $918,153 in October. Once adjusted for inflation, values went up by 23.9% over the past year and are now 44.9% higher than in 2007. QV’s Auckland valuer James Wilson thinks investors are waiting to see how the market reacts to the recent measures. “The decrease in rental yields achievable in the city also appears

to be further fuelling the more cautious mentality prevalent amongst buyers.” He said they are not seeing a drastic price easing in the statistics, but can tell that activity is well down on previous months. “Whether this will correlate to values decreasing across the board remains to be seen. But anecdotal evidence suggests value levels among some categories of housing, in particular investment housing stock, may have fallen.”

DECREASED MARKET ACTIVITY Hot on the heels of the QV data, came the November data from realestate.co.nz and Barfoot & Thompson - and both indicated a slower market. Realestate.co.nz’s data showed that Auckland’s average asking price was $849,882 in November. While this was up from $832,713 in October, it was down on September’s record

high of $851,531. Listings were also down. The Barfoot & Thompson data was less straightforward. It showed Auckland’s average sale price jumped by 4.2% to $876,075 in November, from $840,402 in October. The city’s median price went up by 1.9% to $795,000 from $780,000 in October. Barfoot & Thompson director Kiri Barfoot said it was necessary to go back to March 2014 to find a bigger monthly increase in the average sales price. “But we have seen a lot of properties in the over $1 million price category selling in November, and that tends to skew the price figures. While prices seem to have ignored Government and Reserve Bank measures designed to cool prices, however, there has been a measurable decrease in market activity, she said. November sales were down by 7.7% on October, while new listings were down 7.5% on October. Barfoot said it remained to be seen if November’s prices were the last remnants of momentum that built in the lead up to the introduction of the tighter measures. “The indicators are there that the market has slowed but, if people are waiting for a crash in prices, that’s not likely to happen.”

HANGOVER SETTLES IN Westpac chief economist Dominick Stephens thinks the Barfoot & Thompson data should seal the deal for the doubters who thought that October’s data was just a blip. He said that, once seasonally adjusted, the Barfoot & Thompson data showed a drop of 16% in sales activity in November. This followed a drop of 20% in October and left market activity at levels similar to those prior to the 2014 election – which was slow. In Stephens’ view, it is clear that the Auckland market is slowing. Heated activity in the Auckland market in recent months seemed to have been a rush to beat the government’s new tax rules which came into force in early October, he said. “REINZ’s October data – which was the weakest in many years – proves a hangover from the post-changes rush on the market is now settling in.” The REINZ data showed the Auckland region’s median price fell by 3%, to $784,250 in October, as compared with September. Median prices dropped around the region in October. In Rodney, they fell by 9%, on the North Shore they fell by 4%, and in both Waitakere and Manukau they fell by 3%. The sales volume around the Auckland region also fell in October compared with September. It was down by 19%. Stephens said the data is supported by corroborating evidence, like declining auction clearance rates, and weakness in mortgage approvals. “Even if the data overstates the case, there can be no doubting that the Auckland housing market has taken a knock.” While it is uncertain how long the market weakness will last, he doesn’t expect Auckland’s data to remain as dire as this batch for too long. “But the global and local economic slowdown means that, for now, we

are sticking to our forecast that the quarterly rate of increase in Auckland house prices will be zero in the March quarter, compared to 7% in September.”

ECONOMICS 101 BNZ chief economist Tony Alexander recently expressed a contrary view, however. In a newsletter, he wrote that Auckland house prices are unlikely to fall because the city’s population growth last year was about 3% which means an extra 15,000 houses are needed. Despite the small pause in the market, Auckland’s housing shortage is getting worse, he said. “But the economics 101 of the situation will shine through again, in an environment of sustained low interest rates, and prices will rise. They are probably still rising, though at a slightly slower pace than before.” Currently, the real action is in the regions, bar Christchurch, with buyers snapping up anything they can find, Alexander said. “They have a price range in their minds reflecting what they are used to in Auckland. Faced with much lower prices elsewhere, their willingness to buy easily exceeds that of the locals.” He doubts the Auckland market will see an “end” of the type seen in the past – instead it will have periods when some buyers back off for a while. “In the absence of any serious interest rates threat, the cycle is only likely to definitively head downward if we get a combination of booming supply, imposition of much tougher finance access rules, and a reasonable-sized economic shock right after tighter rules have been introduced.”

REINZ SALES: DOWN Sales volumes were down nationwide in October.

INTEREST RATES: DOWN Interest rates remain at record lows.

OCR: DOWN

The Reserve Bank kept the OCR at 2.75% in October. [This might need to be revised if TMM goes to print after Dec 10 OCR call.]

IMMIGRATION: UP

Migration reached yet another record high in October, according to Statistics NZ’s latest data.

REST OF NZ Meanwhile, growth prospects for a number of markets outside of Auckland are more upbeat. While the different sets of data made for mixed messages on price growth, they all noted the increasing strength of certain regional markets. QV’s Rush said the Wellington market is showing a definite upward tick in values – as is Dunedin, thanks to increased investor interest. The Christchurch market was steady, but showing more activity than it did over the winter months. “Increased interest and activity by investors or movers in regional markets around the country is leading to value rises in places with little growth over many years - including Rotorua, Taupo, the Far North and Invercargill.” However, QV valuers in Hamilton and Tauranga said that, after strong years for their respective markets, some heat appeared to be coming out of both markets. REINZ chief executive Colleen Milne said markets outside of Auckland were strengthening. New record median prices were recorded in Northland, Manawatu/Wanganui, Wellington and Nelson/Marlborough in October. Demand was increasing and prices around the country were rising as buyers of all types emerged to take advantage of low interest rates, she said. “It is further evidence of the ‘halo’ effect of Auckland-based buyers searching for value in regional markets.” ✚

BUILDING CONSENTS: UP

The number of building consents issued in November rose and Statistics NZ says the nationwide trend is rising.

MORTGAGE APPROVALS: DOWN

Reserve Bank data shows lending remained strong in October, but it is down on September.

RENTS: DOWN

Rents have stalled nationwide - even in Auckland where rents fell in October after two months at the same level.

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By Susan Edmunds

Mortgage brokers face big change RFAs no longer? Separate designations for authorised and registered financial advisers look set to disappear in revamp of Financial Advisers Act.

ualification requirements, higher ethical and disclosure obligations, set entry standards and continuing professional development. These are just some of the things that may be on the horizon for the country’s mortgage advisers if options outlined by the Ministry of Business, Innovation and Employment (MBIE) are introduced into law when the Financial Advisers Act is reviewed next year. It looks likely that mortgage brokers will soon have little option but to meet the more onerous regulatory requirements currently imposed only on authorised financial advisers (AFAs). MBIE last month released its Financial Advisers Act review options paper, which will guide the next stage of the process. In it, it outlines serious concerns about the role of registered financial advisers (RFAs). It asks whether consumers are getting adequate advice from RFAs, whether they understand the difference between an AFA and an RFA, and whether it is fair that AFAs are bound by different competence and disclosure requirements than RFAs. Recommendations for an update to the law will be delivered to Commerce Minister Paul Goldsmith in the middle of 2016. The options paper is high level and does not yet delve into the detail of how proposed changes might work. MBIE is carrying out workshops and other industry consultation to hone some of the finer points over the coming months.

RFAs in spotlight MBIE said the existing FAA regime had brought positive changes to the industry and had lifted

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professional standards. “Before the introduction of these [the FAA and Financial Service Provider] Acts, consumer confidence in the financial adviser profession was low. There was no comprehensive way to identify or monitor financial service providers, which caused issues for consumers, regulators and policymakers. The new regulatory regime aimed to increase investor confidence, ensure financial advice would only be offered by competent, ethical and accountable individuals, and promote the sound and efficient delivery of financial adviser and broking services.” But there was still some way to go, MBIE said. Consumers did not understand the difference between an RFA and an AFA, or what a qualifying financial entity (QFE) adviser might be obliged to do. “The term ‘registered’ is often seen as superior to ‘authorised’ and may be wrongly interpreted as being associated with particular competencies or active regulation, as is the case in other industries,” the issues paper said. Compliance requirements had had the unintended consequence of putting some advisers off offering certain types of advice, it said. “We have heard that the regime, which has created an uneven playing field by imposing different compliance obligations on different types of advice and advisers, is discouraging advisers from becoming authorised financial advisers. As a result, many advisers have made a conscious

❝ Those

people drop to the bottom and as the regulatory requirements move up you gradually lose more of them. It’s a natural process. ❞ – Darren Pratley

decision to stick to being registered financial advisers and providing RFA services, contributing to an ‘advice gap’ for personalised advice.” It made it clear that MBIE would like to see standardised competency requirements for everyone in the industry. “There is an imbalance between higher competency requirements for some advisers (AFAs) and low or nonexistent competency requirements on other advisers (especially RFAs). We hear that these competency requirements are not always proportionate to the risk or complexity of the financial advice services being provided,” it said. “This includes the concern that RFAs do not have to meet a competency standard, despite advising on financial products which can have a significant impact on consumers’ financial wellbeing. For an RFA to practise he or she must simply register as a financial service provider.” It said people might not be receiving advice from people with the right knowledge, skills and competence levels because the competency requirements do not apply to all advisers. MBIE said questions had been asked about the role of RFAs as a whole. “As well as potentially impacting the quality of advice there are concerns that the mixed competency requirements are a barrier to a clear career pathway, potentially compromising the future of the industry by not attracting new entrants. This is a particular problem due to New Zealand’s ageing and independent small and medium sized adviser sector.” Conflicts of interest were possibly leading to poor outcomes for consumers, because of the same problem that not all advisers had the same disclosure requirements to explain to clients how they were being paid.

Solutions The options paper outlines three key packages of potential changes. It said they were not set in stone and the final result could be a combination of all three. The first is described as including smallscale improvements on the current model. But these are things that will make a difference to RFAs, such as requiring all advisers to meet ethical obligations to put consumers’ interests first and undertake appraisals of the suitability of all advice offered. The other two packages introduce such things as an “expert financial adviser” designation, who can deal with complex matters. Another option proposed would introduce a category of sales people who are exempt from advisers’ requirement to put customers’ interests first, as long as they inform their customers of that. As well as the packages, MBIE has tackled its possible

options individually. Many would markedly change RFAs’ businesses. These include such options as amending restrictions on who could provide what advice, perhaps removing the distinction between personalised advice and class advice, or narrowing the number of complex services only some advisers can provide, or removing distinctions based on product complexity. It also suggests requiring all advisers to prove the suitability of their advice for clients, meaning mandatory paper trails. MBIE said it was aware of worries about the distinction between category one and category two products. “Concerns were raised about imposing lower requirements for advice on insurance products which can be very complex and can cause significant harm to consumers.” Another option suggested was that ethical requirements could be extended to all advisers and requiring all advisers to meet the same disclosure and competency requirements, including mandatory and structured continuing professional development programmes. It also proposes a

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minimum entry requirement for all advisers. While it wants more transparency around remuneration, MBIE says restricting or banning commission is not a preferred option. The options paper opens up the possibility of a greater role for industry bodies in regulation and providing guidance to their members but says it will not be a workable option with several different industry associations. A preferred option is to align regulatory powers in the FAA with those in the FMCA. This option would allow the FMA to take a more flexible and proportionate enforcement approach. It also clears the way for roboadvice from licensed entities. It indicates a move towards licensing of all adviser businesses, rather than the individual advisers themselves. This is in line with the approach in the Financial Markets Conduct Act but concerns have been raised that this will mean a new level of licensing for individual advisers but business as usual or the big QFEs.

have been introduced with the first wave of regulatory change if the Government had felt it was possible, he said. “Two classes of advisers is not really where they wanted it to be. “ He said increasing compliance requirements would slowly wipe out those mortgage advisers who were not as committed to the industry. But for most it would be just a natural evolution, he said. “It depends how high up the chain you are whether it gets you,” he said. Those who were not as passionate about staying in the industry did not have long until retirement or just could not be bothered to deal with more paperwork would be the first to leave because of the changes, he said. “Those people drop to the bottom and as the regulatory requirements move up you gradually lose more of them. It’s a natural process. Those who are committed, passionate and driven... for

Response Darren Pratley, director of the Home Loan Group, is already an authorised financial adviser. He said he made that decision because it was clear from the outset of financial adviser regulation that the two strands of adviser designations would not be able to continue indefinitely. “I always thought it was an interim step,” Pratley said. The requirement for higher standards of all advisers would

❝ There is

them it will be par for the course. Yes, it will be a bit more expensive and there is a bit more time spent working in your business rather than on it but [they will adjust].” He said mortgage broking services would likely become even more soughtafter by consumers as time went on.

Adjustments Jenny Campbell, chief executive of the Mortgage Supply Co, said it was clear that most advisers’ clients did not understand the difference between and RFA and an AFA, and adjustments to the regime were positive in that respect. But she said the options paper seemed to have largely ignored any problems related to advice from QFEs, such as banks. “QFEs have been largely left alone and seem to be escaping this regulatory trap altogether,” Campbell said. The vast majority of advisers were doing a good job, had put their clients’ interests first and offered a good service. “There is always the 1% who shouldn’t be in business but no amount of regulation is going to solve that, it’s the reality of human nature.” The industry could do better in lobbying for the interests of onemanband advisers, she said. “They are still largely being ignored, trying to do the right thing, but this has the largest effect on them. But you don’t see people working on their behalf, that’s something all the heads of groups need to be thinking about and have not been doing particularly well.” She said it was “quite likely” RFAs’ days were numbered. But whether that was a good thing for clients was not so clear.

always the 1% who shouldn’t be in business but no amount of regulation is going to solve that, it’s the reality of human nature... ❞ – Jenny More choice “From a consumer perspective, what does it Campbell matter? They don’t care what your designation

is. It’s more pertinent that they understand the person they are dealing with is independent rather than working for a QFE. Any adviser who is not in a QFE offers more choice and a brander offering.” Adviser David Windler said the difficulty in meeting a new standard could depend on how long advisers had been in the business and how entrenched their systems were. But he said it would be very hard for mortgage advisers to meet AFAstyle requirements, given the tight turnaround times they worked to. It was not unusual to receive a sale and purchase agreement on a Sunday that needed to settle on Friday.

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“If our regulations were to lift to that level it would put us under significant pressure. Things move quickly; you’ve got to go like the clappers.” He said it might mean more advisers had to employ greater numbers of back office staff to deal with the administrative side of the business. “They would be admin people capable of supporting the broker business, I see that becoming quite a specialised role, people who are capable of handling the pressure and taking care of the back end, doing everything except offering advice. Brokers will tell you that their support people are already invaluable to the business.” Windler said he hoped that whatever the changes, there was a sensible roadmap for applying them to the mortgage adviser industry. Submissions are open until the end of February but advisers have been urged to get involved with the process early. ✚

❝ If our

regulations were to lift to that level it would put us under significant pressure. Things move quickly; you’ve got to go like the clappers. ❞ – David Windler

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TOP BROKER LEGAL By Susan Edmunds

Closing the deal

The country's top brokers reveal why this year has been one of the most memorable in the industry.

uoyant brokers say 2015 was one of the best years they have had in a long time and cemented the thirdparty distribution model in New Zealand’s mortgage marketplace. The only downsides experienced through the year related to regulatory change: the introduction of a brightline capital gains tax test, the requirement for buyers to have an IRD number and the new 30% deposit limit for property investors buying in Auckland. While none derailed the year’s strong momentum, the brokers said in some cases they knocked buyer confidence briefly or deterred some segments of the market. The Mortgage Mag has conducted its annual analysis of the thirdparty distribution channel in New Zealand and found the top 10 brokers in the country did 19% more deals in the 2015 financial year than in the year previous.

Ajay Kumar 018

But those deals were all more profitable: the value of the deals rose 41%, or $500 million, to $1.77 billion. The average deal being done by the top 10 brokers in New Zealand rose 18% to $398,000 in the 12 months surveyed and steadily climbed throughout the rest of the year. The battle for the top spot in the country is hardfought, between two key contenders. On one side there is John Bolton, of Squirrel, and, on the other, determined to knock Squirrel off the top perch, is Ajay Kumar, of Global Financial Services.

Support staff Squirrel employs a staff of 20 advisers who write about $50 million a year on average. Kumar says his business is a oneman broking operation, with only support staff helping him to get the deals done. Bolton said the vast majority of his deals over the past year had been new business. His firm was closing in on $800 million in loans written at the beginning of December. “The last year has been fantastic. It’s been a stellar year,” he said. “The growth has almost doubled since last year. That’s partly marketrelated but there’s been a huge amount of momentum this year.” Kumar agreed it has been busy. He said he had also written $800 million in the year, largely on his own. “Our model is different to other brokers, others have franchises and people in different offices but all that $800 million is under my signature, from one office in South Auckland by

John Bolton Auckland Airport.” He cited other successes, including being named the year’s top broker by ASB. There had been some challenges, he said, such as the new regulations imposed on Auckland property investors and the brightline test for those who bought and sold properties within two years. Kumar said it was common for confidence to drop after such changes were introduced. But Global Financial Services had stepped up its marketing efforts and continued to get new business coming in, he said.

Growing fast “We have doubled publicity so far to maintain a flow of business. Most of the business is coming from the Indian community and that is growing fast. “It is mainly immigrants who have not purchased houses in the past but are now

Westpac is proud to support the Top Mortgage Adviser 2015 Having recently taken over the role leading our Third Party channel at Westpac, I am excited to confirm that we will be looking to further improve our service and processes to deliver to our goal of being the best in class Third Party partner. Some of the changes we have made include: • MA Lending App, which has had excellent up take in usage and an improvement in turnaround times. Westpac is about to embark on developing more functionality to the Lending Application and Mortgage Adviser Portal to provide market leading tools for you to service your clients. • A Code of Conduct which has since been adopted by others in the industry.

established and keen to buy. With house prices growing fast they have decided to purchase now otherwise they might never be able to,” he said. Glen McLeod, of Edge Mortgages, said it had been a solid year for his firm, too. But it had worked on developing business processes and support so it was not so reliant on the key brokers themselves for daytoday administrative functions. McLeod said he had taken his first real holiday in 17 years, where he was able to turn his cellphone off for the full 10 days he was away. Not only had the new level of support freed him up to focus on dealing with clients instead of paperwork but it meant the business was able to handle the increased level of activity associated with a busy year in the property market. “We’ve really hammered away on the basis of what we’ve done over the last two years, making sure our systems and everything is in a position that could take a whole lot more volume. I have a business now, I’m not just a broker anymore,” McLeod said. He might have been in trouble had those systems not been in place: in one week, he juggled 26 appointments. McLeod said seven or eight a day was more manageable. “That’s what we’ve been working towards for some time, 30 appointments in a week might be a bit much but it enables me to know that I’ve got a whole of volume I can bring in.”

Appointments McLeod said he had noticed an increase in loan amounts in the second half of the year, which reduced the need to have as many appointments. “If you get these large loans coming through then you’re able to start looking at more options around what you can do with your time to better the business, you’re not having to work as hard as you can to cover overheads.” McLeod said the company’s goal was to write $260 million for the year.

• Minimum requirements for new advisers that require specific training and standards to be adhered to prior to dealing with customers. • Continuing to grow and build sustainable partnerships with commitment to a trail based commission structure. Having launched our new trail model 12 months ago, the first of these new payments will next month with some very excited advisers. Another focus for us going forward is enhancing our service delivery across all of our distribution channels including Branches, Private and Business to ensure that your experience is as consistent as possible. The adviser market is a growing and important part of our business. We want to ensure that we are always looking at ways to make improvements. Be assured that we will continue to run our Advisory Boards to obtain feedback as well as looking at our business through our customer’s eyes. Congratulations to all that have made the Top Advisers ‐ my team and I look forward to working with you in the future. Colin Smith National Manager MMM & Third Party Channel Westpac New Zealand Limited

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TOP BROKER LEGAL

Glen McLeod Robyn Ashkettle was another broker in the top group who focussed on her A clients – the size of her deals was up 195% with 63% fewer deals but 9% higher value overall. Another of the top 10, Bruce Patten, said the past year was the biggest he had had. The only major hiccup had been slow turnaround times from the bank, he said, which meant brokers had to work harder to keep clients happy. “That’s been very slow, especially in the second half which has put more pressure on us in terms of trying to provide good service to clients.” Brokers who had been around a long time had built up active databases, he said, which were creating referrals and new deals relatively easily in a busy market. Patten said his average loan size was now about $450,000, up from $267,000 10 years ago. The average included smaller top up loans. In one month, he had written $23 million in loans.

Upfront commission But he said the mortgage broking market was changing with the reintroduction of trail commission from banks including Westpac and BNZ.. Brokers were focusing less on getting deals written to get the upfront commission and instead thinking about building sustainable businesses, he said. “You can start to see a change in the way people run their businesses, there is more succession planning and they are bringing new people to the industry.” Patten said he was doing that in his own business and bringing in a new broker who could help take on some of the workload. “It gives us the ability to do that, before that it was all cashflowbased but we are able to build a business around it [with trail commission] and it makes a lot more sense.” He said banks had realised that more people wanted to use an adviser. “There’s been a big shift for clients to want to go and see their adviser instead of the bank.” Kris Pedersen, who deals mostly with investment clients, said he had had to rein some clients in to slow them down as new regulations in the market prompted them to rush to secure properties. “Some were doing crazy things thinking, ‘if we don’t do it now we won’t ever be able to’,” Pedersen said.

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Regulations can create unusual behaviour.” But he said investors would have to get used to the property market becoming an increasing target for regulators. He agreed brokers were becoming a much more important part of the market for banks. The attitude of the lenders was changing, he said. “They are much more accepting of mortgage brokers being an important part of the market rather than looking at us as a necessary evil.” Some were even starting to think of brokers as commissiononly salespeople who could reduce their own costs, he said. Replacing deals done by staff with deals done by brokers would reduce fixed overheads and staff costs and free banks to only pay for deals that went through, he said. “If we don’t perform we don’t get paid.” Bolton agreed. He said banks were coming under increasing pressure because of a low interest rate and lowgrowth environment and were trying to reduce costs in any way they could, increasing their need for the broker channel.

Mortgage pricing “When it comes to mortgage pricing and churn some banks have a much better idea of the cost/ benefit to their business others quite simply don’t,” he said. Mortgages have very high acquisition costs, so much so that I’m convinced some lenders have no idea of the lifetime profitability of their clients.” But Bolton said he did not expect the rate of growth Squirrel had experienced over 2015 to continue through 2016. The heat had started to come off a little, he said. “We’re kind of regrouping at the moment and trying to figure out what the next level looks like.” That would likely mean bringing in good experienced advisers with solid networks, he said, which would lift capacity across the board. The company is also expanding into other parts of New Zealand and recently acquired Aspire Brokers. Bolton said his goal for the next financial year was to crack the $1 billion mark. “We should be able to do that even in a slower market. The target over the next three years is to get to $2 billion, which we will do through expanding the network.”

Tangible example Bolton said it was important to diversify so all parts of the market were covered. “If one part slows down there are other parts to cover it. A tangible example is the Chinese market, that’s literally died and if all we were doing was Chinese business it would be really tough but we’ve got a diversified business so the overall volumes are still okay.” He said the firm would invest in technology and improving its customer service delivery. There was still room for improvement there, he said. “Especially this year because it’s been so busy, we’re really good at the settlement process but often the service level is not up to the standards you would expect. There’s too much paperwork and manual process and reliance on people to know what to do and when to do it.” Really good technology would be a game changer for advice businesses, he said. Squirrel would set aside a budget of $1 million over the next year to improve its technology. “That’s something I’m keen to invest in and get much better at.” Bolton said the acceleration in business’ turnover had been swift. “It took the first five years of business to write $1 billion in total and now we are close to $1 billion a year.” Kumar said he was confident there would be no significant change in the pace of the market in 2016. “In Auckland there is an imbalance in demand and supply. Until that is rectified and while people still want to buy properties there will be more demand than supply. The confidence is there and interest rates are still low. I’m not seeing any factors to reduce demand.”✚

Kris Pedersen

BANDS ➤ $400m to $550m: Ajay Kumar, Global Financial Services and John Bolton, Squirrel. ➤ $150m to $200m: Ravi Mehta, Professional Financial Solutions ➤ $100m to $150m: David Windler, Mortgage Supply Co; Bruce Patten, Loan Market ➤ $90m to $100m: Kris Pedersen, Kris Pedersen Mortgages ➤ $70m to $80m: Mark Pullar, Roost Mortgage Brokers; Robyn Ashkettle, Ashkettle Financial Services; Glen McLeod, Edge Mortgages ➤ $60m to $70m: Phil Caldwell, the LIME Group

Why Westpac With Westpac your clients have the flexibility to deal with their life’s unpredictability, so they can be confident and reassured that they are making better financial decisions.

We help make it easy for you and your clients Westpac Home Loans have features and services available that help make it easy for your clients like: – 6 month conditional approval (under 80% LVR) to help customers go house hunting with confidence – Up to 85% LVR limit for apartment lending1 – Rate lock for 60 days to give customers future certainty – A Mobile Personal Banker can meet your customers at work, at home or at a cafe. They’ll meet at a time that works best for them and are available seven days a week. Keeping you informed every step of the way: – Online 90 second conditional approvals with the Westpac Mortgage Adviser Lending App – Service Alerts – Email updates of the progress of your clients application – Westpac Mortgage Adviser Portal (M.A.P) a ‘one stop shop’ online repository of information, the first place you can go to receive Settlement Alerts and access everything relating to your relationship with Westpac.

Help your clients to make smart choices Westpac provide a range of tools to keep Advisers informed and support the conversations you have with your clients such as: – Property Investor Hub with a market leading calculator, online tools & resources – Westpac Property Investor report with yield and capital gains by suburb – access to the full report is available for Mortgage Adviser partners – Keeping you up to date with the latest property news on REDNews Property – Monthly Home Truths report from our Chief Economist, Dominick Stephens

Apartment lending between 80-85% LVR, owner occupied only, minimum size and value restrictions and other special lending criteria apply. Westpac HomeSaver terms and conditions apply. For more details, refer to westpac.co.nz/homesaver. 3 A Westpac Welcome Home Loan can only be used for the purchase of owner-occupied properties. Income caps and regional loan caps apply. A Lenders Mortgage Insurance Premium applies. Current Welcome Home Loan and Westpac’s home loan lending criteria and terms and conditions apply. An establishment charge may apply. 4 No principal repayments will be required and interest costs will be added to the loan. The cost of interest capitalisation will be included in the approved total home loan amount and must not take the total LVR over 90%. The repayment holiday will end on the earlier of 12 months following the initial drawdown or one month following the final construction drawdown. 1

Westpac New Zealand Limited.

Flexible Options Westpac Home Loans offer great flexibility, recognising the needs of your clients: – Great interest only options to help your clients manage cash flow – a great option for property investors – Choices Offset - clients could save on interest and repay their floating home loan quickly by linking saving and transaction accounts – Clients can easily redraw funds on our floating loans – We offer discounts for the life of our floating loan unlike some other banks Range of low deposit options to help clients get into their first home sooner: – Westpac HomeSaver2 – Welcome Home Loans3 – Family Springboard Our construction loan is designed to help make building easier: – 12 month conditional approval to give plenty of time to plan a build – Up to 12 months repayment holidays4 to help keep outgoings to a minimum, especially helpful if clients are paying rent at the same time – Interest only for the duration of the build Flexible finance makes moving homes easier with: – Bridging finance to help buy that next home before they sell or – When your clients buy a new home they can usually take their home loan with them, keeping the same rate and term without paying any extra loan fees.

Extra added benefits and rewards for your clients – Annual fee waived on a Westpac credit card of the client’s choice for 2 years5 – For new lending over $100,000, your clients could have an Access Account with monthly accounts fees waived6 – Access to AirpointsTM earning products Excludes AirpointsTM World MasterCard® and hotpoints® World MasterCard®. Westpac’s current credit card lending criteria apply to all applications and transfers. Westpac’s Conditions of Use for the applicable card apply. 6 Service fees still apply, for example clearance fees, online bill payments and use of other banks’ ATMs. You can get a copy of the current disclosure statement for Westpac New Zealand Limited from any Westpac branch in New Zealand free of charge. Westpac’s current home loan lending criteria and terms and conditions apply. An establishment charge may apply. If you are applying for a mortgage with a low equity (i.e. your deposit is less than 20%), Westpac may charge an additional margin of between 0.25% and 1.5% per annum. The actual margin will depend on your level of equity. An additional fee or higher interest rate may apply to loans if the application is accepted but does not meet the standard lending criteria. 5

JN13212

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Global Financial Services Ltd

New Zealand’s top mortgage & insurance advisers

Highest Number & Value of loans settled in NZ by a single mortgage brokerage as per “The NZ Mortgage Magazine” in 2014

2015 - No.1 Mortgage Broker Award 2014 - No.1 Mortgage Broker Award 2015 - Winner, Excellence in Customer Service Delivery at Westpac Auckland Business Awards (Auckland South) delivered by the Auckland Regional Chambers of Commerce in partnership with Auckland Tourism, Events and Economic Development (ATEED) 2015 2015 2014 2013 2012

– -

Top Mortgage Adviser of the Year Valued Business Partner of the Year Strategic Partnership Award Business & Commercial Adviser of the Year Mortgage Adviser of the Year

2015 – Best Financial Adviser (Mortgage & Insurance) at Indian Newslink Indian Business Awards sponsored by BNZ Bank

16+ years of happy customers Arranged $3.5+ billion of loans, $2.5+ billion of insurance covers Single Brokerage Ajay Kumar, Global Financial Services

Loans Home, Business & Commercial Loan Restructuring

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Disclosure Statement available free of cost upon request

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INTEREST RATES By Miriam Bell

Reluctance to cut may be wrong Predictions of further cuts and analysis of changes in tone flow following the Reserve Bank’s OCR cut.

he RBNZ cut the OCR by 25bp to 2.5% but said it expected the cut to be the last one for some time. In the accompanying monetary policy statement (MPS), the RBNZ said its goal is to get inflation into the middle of its 13% target range and the current settings should achieve that. ASB senior economist Jane Turner said, while the MPS indicated a very mild easing basis, the RBNZ is clearly reluctant to make further cuts. “It expects that it won’t need to cut again. We disagree with this assessment. We don’t think the inflation targets set will be achieved – without further cuts. “We think there will be two further cuts and we anticipate that they will be in June and August.” She said it was surprising how reluctant the RBNZ is to cut, given that economic growth is still slow, unemployment is getting higher and that the New Zealand dollar remains high. “There is a risk that they will wait too long to cut when it is needed.” Westpac chief economist Dominick Stephens agreed. He said that while the RBNZ seemed to be indicating a willingness to cut if required, the detail of the MPS portrayed a central bank that is reluctant to cut. “We think the RBNZ will be surprised on the downside by inflation, GDP growth, and house prices and consequently, we remain steadfast in our view that the OCR will fall to 2.0% next year.” The RBNZ's current stance does call into question the timing of any move below 2.5%, he said. “We are currently forecasting OCR cuts in March and June, but we will consider whether this timing remains the most appropriate forecast as we digest the MPS more fully.” However, NZIER senior economist Christina Leung doesn’t think further cuts are on the cards.

She said the cut was in line with expectations and the RBNZ expects that it has done cutting for this cycle – although it will cut again if warranted. “We believe the OCR will now trough at 2.5% until 2017, after which it will start lifting gradually again.” Leung did think the RBNZ’s statement threw up some interesting changes of tone. For example, the fact the RBNZ is putting more bearing on asset prices was a change. “It is mindful of interest rates that are too low and their impact on asset prices and the economy. This indicates that, although inflation is the Reserve Bank’s main focus, it has a growing interest in financial stability and policy.” Another departure was Wheeler’s suggestion that Auckland could benefit from some infrastructure spending on the part of the government, she said. “There have been calls for the government to play more of a role in boosting activity. Making the Reserve Bank do all the work puts quite a burden on monetary policy and there is only so much it can do. The comment is an acknowledgment that there are limits.” The impact of the cut on rates will be interesting, Leung added. While floating rates will fall in line with today’s announcement, fixed rates tend to be more in

❝ We believe

the OCR will now trough at 2.5% until 2017, after which it will start lifting gradually again.❞ – Christina Leung

line with expectations of where they will go down the track. “The NZ dollar has edged up a bit following the announcement. That suggests markets were bracing for something more doveish. “It could be the case that fixed rates have a similar reaction and longterm effects will be more moderate.” Forsyth Barr senior economist Matt Sturmer said the main point of the RBNZ’s statement was that this cut was intended to be the last one. While he noted that ANZ and Westpac have cut their floating rates already, the immediate market response hasn’t been what the Reserve Bank might have expected. This suggested that the RBNZ won’t get the bang for their buck they were hoping for, he said. “It is possible everyone is still digesting the cut. We may not have a clear picture of the outcome for a bit. It might occur overnight.” However, much comes down to the exchange rate and that is largely dependent on what happens overseas, Sturmer said. “We will have a better idea of what might happen there next week when we see what the US Fed does.” There was general agreement among the economists that, although the RBNZ mentioned the Auckland housing market, it didn’t focus on it because it is too soon to tell whether the new LVR and tax measures will have an ongoing impact on house price inflation. ✚

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PAA LEGAL

Looking back, looking forward We asked mortgage advisers from different parts of New Zealand about their views on the big themes of 2015, and what we might expect in 2016. BRENT JASLARZ, MORTGAGE LINK, MANAWATU This year the main standout for us has been the continued increase of first home buyers using KiwiSaver and the HomeStart Grant. The announcements made by the Government in April certainly kept KiwiSaver top of mind, but I think the main reason is that clients have been in the scheme for some time now, and values have increased to a level where it can be used for a deposit for a house that they want. I also think the banks have been a lot clearer on the high LVR lending this year, which has enabled more clients who are using KiwiSaver/ HomeStart grant to get their lending approved. When the rules came in late 2013, the banks were a bit indecisive – can we do it; can’t we do it? In fairness, though, it did take a while to be able to accurately monitor it. Now that they have good systems in place, high LVR lending is definitely easier to achieve. Looking ahead to 2016, I expect it will be very similar to this year. It looks as if interest rates will stay relatively stable. While house prices in our region might rise slightly they, too, will remain stable. It should be business as usual for first homebuyers with further relaxing of the LVR restrictions. The only proviso I would add to that, is whether the RBNZ change any rules around servicing or lending criteria etc. PAUL FULLER, MORTGAGE ROOM, BLENHEIM The big theme of this year has been competition between lenders. Clients who are coming off fixed rates now expect to be offered incentives by their bank or other lenders. It’s really turned mortgages into a

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Paul Fuller

❝ While we try

to work with the existing bank, if a client can potentially get a $10,000 cash incentive or cheaper interest rates, you have to do the right thing for them. ❞ – Paul Fuller

commodity and driven high turnover behaviour from clients. When clients fix their rate, for example for three years, they expect that they will refinance at the end of that period. Of course, it creates business for us as well. But it is also creating a very price driven arena. The other issue it creates is while we try to work with the existing bank, if a client can potentially get a $10,000 cash incentive or cheaper interest rates, you have to do the right thing for them. I don’t like to refinance, but the client’s interests come first. It’s not sustainable and at some point needs to be looked at; it’s going to be interesting to see how they can solve it. As advisers, we need to focus on the advice process and supporting clients – continuously having the conversation and building that relationship. If clients become too price driven, they won’t seek the advice from the adviser. The advice process becomes more and more important all the time. KiwiSaver and the Home Start Grant have also played a major role in the market this year, helping many first home buyers enter the market. For us that has meant helping clients understand their entitlements and how it works. For 2016, we wait with a fair bit of anticipation about regulatory developments; always an area of interest to make sure that we are one step ahead. Otherwise, I don’t see too much changing. I think if interest rates stay at current levels, it is still going to be very competitive between the banks and if anything, I see clients’ expectations around bank incentives climbing. So for advisers, it will once again be about putting the advice process to work, supporting clients and making sure there is real value in the relationship for the client.

JENNY CAMPBELL, THE MORTGAGE SUPPLY COMPANY, AUCKLAND The key theme this year has been the tale of one city compared with the rest of the country. Which is great for Auckland advisers, but we have to be mindful that we are a nationwide industry – advisers in the regions are having to diversify and do things that Auckland advisers have the luxury of not having to do at the moment. It’s the usual story – make hay while the sun shines. But you have to continuously work on your business to make sure that when the downturn comes – because it always does – you have everything in place to pick your business up again. It’s really easy to let referral networks slip away when you are busy, but suddenly you’re looking at an empty pipeline. The banks haven’t done themselves any favours with all the cash incentives they are giving away. If you encourage that behaviour, people think it’s normal. So in two years’ time when their fixed rate comes up again, they look around for the next big bite of the cherry. The banks have encouraged the behaviour that they don’t want. And it’s a real concern for the industry because it does affect their bottom line. It worries me that people now look at their mortgages as not a debt, but as a commodity that can be traded. And why wouldn’t they if it’s offered? Anecdotally, though, it does appear banks are pulling back on the incentives as margins are being squeezed, which is a good thing. And of course, the competition between banks impacts advisers and what clients expect from the relationship. It’s important clients don’t see mortgage advisers as the negotiator of the cheapest and best deal; it’s about the right deal, not the cheapest deal necessarily. It’s about always adding the value of advice to that transaction – making sure the advice piece is in the middle of everything, not just chasing the cheapest dollar. Easier said than done, as many people still don’t know what a mortgage adviser does – how it works; how the remuneration works etc. Some people think it costs more to go through an adviser, or that they are not going to get the best deal - that sort of thing. Next year and beyond, the industry needs to do a lot of work around letting the public know what this service is; what clients can expect; how the remuneration works etc. We need to be upfront about it; talk about it; and be really clear about what everyone’s responsibilities are in the transaction. Technology will also become a big deal in the very near future. Using technology to interact with clients in a meaningful way; using data to create new opportunities; and offering a bespoke experience for clients rather than onesize-fits-all. Few advisers use technology well for business development at the moment. The technology available today is a big

opportunity to change this. Smart advisers will take a really good look at that and run a business model through technology, rather than using the CRM as a loan calculator. Advisers could use a lot of data and technology that can solve client experience issues, like the common one around communication. With the turnaround times we have at the moment, it’s difficult for advisers to be communicating as much as their clients would like when they haven’t heard anything back from the lender. But with technology, there are no reasons why we can’t have text message alerts and automated emails to advise the client about what is happening along the way. And taking that further, direct lodgement of application, CRM to CRM, which would deliver incredible benefit for everyone – adviser, lender and client.

JENNY CHEEVERS, WELLINGTON The market has certainly been busier this year than last year, mainly because there was no election. Last September the market went very quiet and our normal spring rush didn’t really happen. But with the election over, people feel more certain and this year has been good in terms of volumes. In fact, this is the first Spring since 2007 that I’ve had to tell clients that they need to be unconditional to get the house. The market is in Wellington is definitely changing. There’s certainly a lot more competition, and so it’s important to put my clients in the best possible position to get the property. Also, I’ve probably refinanced more clients this year than I have in my 18 years as a mortgage adviser – normally there just isn’t enough in it for the clients. But at the moment because the banks are giving out so much cash, even after paying their lawyer clients still have money in their back pocket. Next year I expect we’ll see more of the same market, and we’ll see what’s happening in Auckland spreading further down. PAUL WANG, MORTGAGE SUCCESS, AUCKLAND I think this year has been a big year for everyone in the industry for a number of reasons: We’ve had the lowest interest rates in decades; and we had changes to policy including the increase to 30% deposit for investment properties in Auckland, and requiring an IRD number from both the vendor and purchaser. Before the policy came in, the market was hot; busy. As soon as the policy kicked in, we saw the market slow down. Instead of buying properties, a lot of people decided to wait and see what is going on in the market. Looking ahead to next year, I don’t think it will be as busy as the last two years – it’s a supply and demand game. I think a lot of first home buyers will continue to buy, but investors will not be as active as before. I don’t have a crystal ball, but I think the market and interest rates will stabilise, allowing a bit of time to adjust to the new policies. ✚

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SALES & MARKETING LEGAL By Paul Watkins

Ignoring the digital age is not a good idea Banks are working online more smartly these days when it comes to mortgages, writes Paul Watkins. first was that borrowers see their mortgage relationship as transactional rather than advice driven, and that this is growing at a rapid pace. It is up by 10% in just one year from 2014 to 2015, to 79% according to the survey. Developing an advice based “relationship” when taking out a mortgage is either no longer valued or no longer anticipated.

PRIMARY DRIVER

he following quote from bestselling author Amelia Gray rings out very true in today’s world: “Everyone is so used to the comforting glow of the computer screen that no one can go so far as to say ‘good morning’ in public without being liquored up!” I found some 2015 research results online just before writing this. It was a North America

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Consumer Digital Banking survey and showed some very interesting attitudinal aspects of consumers when it came to mortgages. While it was a North American survey, covering the USA and Canada, it did make me think that we are not that different in New Zealand and so the lessons apply equally. The survey offered three significant insights into consumer attitudes and behaviours. The

It’s fair to say with so much information on the internet now many consumers would see it as securing a mortgage as easy and straightforward. As interest rates would be a primary driver of mortgages to many, this is where the internet comes into its own as a comparison medium. Many sites offer mortgage calculators; others list every lender and their rates; YouTube tells how to apply and most banks are more than happy to talk a client through the process on the phone. In the United States, ease of accessing loans via an intuitive step-by-step process on the internet is winning over clients. As this trend increases, the question of what value a mortgage broker offers beyond the transaction becomes increasingly important. Can consumers get a better rate or conditions through a broker than those published? Possibly. Can it be painless and easy as a result of the broker doing the work? Maybe. Is interest rate the only critical factor clients should think about? Of course not, but do they know that? That’s where you need to tell them this, repeatedly. Kiwis are notorious at one thing: accumulating and mishandling debt.

LEADING THE WAY The second insight from the survey was that while just on two-thirds of all United States borrowers have a mortgage with a lender other than their primary bank, nearly 70% of

Canadians buy mortgages from their main bank. In Canada, much like New Zealand, five banks dominate their economy. We are more like Canada in this respect, but the key is why do they choose their main bank for their mortgages? The survey found that speed and convenience lead the way, along with an eye on competitive rates and ease of handling the mortgage (e.g. transferring money and making payments between accounts). For many, it’s just easy to phone the bank they are with, as there is a feeling of familiarity and comfort. In New Zealand, you could add that many may be afraid to leave the lender they are comfortable with, or think that it may simply be too hard to change banks, or that they may even offend their current bank. Overcoming fears and reservations is a very powerful selling point. Do you do this? Again the question is: what value does the mortgage broker offer above the advantages seen by the client with their current bank? Can you make it easier? More convenient? Speedier? Offer a higher level of comfort? The third survey insight was that borrowers increasingly want to transact the whole mortgage process through online channels. They expect status of loan applications through email and text, text messaging with updates or questions and other items via digital channels. This was a particularly large percentage among consumers under the age of 29. This is hardly surprising as the world goes mobile and virtually no one under the age of 29 has known a world without the internet.

WEB SITE TRAFFIC Here is an interesting statistic: at a particular tertiary education institute, with students ranging in ages from 18 to 50, over 70% of all website traffic is on mobile phones, fewer than 10% on tablets and 20% on PCs/laptops. Website analytics can tell you the device from which traffic originates. This result means that if your web site is not ‘responsive’ then it is a waste of time. ‘Responsive’ means that it resizes itself if you view it on a smaller screen like a mobile phone or tablet. The better end of the 18-40 age group is your target market, so understand how they search. Banks are doing the online thing extremely well. Almost all transactions can be completed through a phone now, including payment of bills, transferring between accounts and making quick phone calls to their call centres to check something. Humans are only required now and again. Smaller loans have been available fully online for a while now. The three key survey insights offer significant implications for brokers. Deliver a compelling service experience that meets the expectation of the digital customer is now a must. Here is one way you can start to do this: First, map out all the touchpoints between the client and yourself, i.e. every point of contact you will ever have with them during the course of securing a mortgage. From the client first seeing you in an advertisement or online, through to your meetings, emails and finally securing the deal and beyond, i.e. how you keep in touch. Look at each point critically and ask yourself how you could be doing it better, more quickly, with more convenience and comfort on the part of the client and with more digital activity. Look critically at your web site. Is it responsive? Is it easy to navigate through? Does it promote confidence and answer some of the fears held by clients?

KEEPING IT SIMPLE How can they contact you through your site? Can they just push your phone number on the site and it will ring? Is it a cumbersome web form to fill out asking for name, email, cell and a message? They are unlikely to fill it in as it’s too much to do via phone. Keep it simple. Perhaps you can offer an automated set of texts or emails at various stages of the process to apprise them of progress. Maybe they never have to meet you! Maybe it’s all email, text and phone. I’m not saying you should do this, I’m just asking you to think laterally in this increasingly digital age in which we now live. To quote from the North American survey: “Those aiming to lead… must take decisive actions that optimise use of digital technology.” Consumers expect it and within the foreseeable future we will live almost our entire financial, services and working lives online. So work out ways to use it to your advantage. ✚ Paul Watkins writes blog content and newsletters for financial advisers.

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MY BUSINESS By Dana Kinita

Adviser does it

Determination and passion has seen Monique Riley balance a rewarding career while raising two young children on her own. She talks to Dana Kinita why, in her job as a mortgage adviser, she’s never been happier.

ow did you get started? When I was younger, I worked for ASB for nearly four years. Even then I had aspirations for lending, and wanted to be a personal banker. I’ve always had an affinity for numbers and would rather do equations then write an essay any day! I used a broker when I purchased my first home and I figured out then the advantages of using one, so the seed to be a mortgage broker was planted long ago. At the time I was working for ASB I was still young though, so I tried a few other things. I studied architecture for a year, then became a travel consultant, selling mobile phones, health and nutrition (which I really enjoyed) and for many years I was partner in a residential building company. I was a distributor for HerbLife, when I was working part time and doing the accounts and paperwork for the building industry. I had a young family and I wanted to do something for myself so becoming a distributor was something I could do from home. I was really passionate about it because I was able to help people lose weight and when you see the differences that makes in their life and you see how positive they’ve become because they’ve finally achieved that goal it was just really powerful so for me it was definitely about helping people achieve their goals. I can do that in the health and nutrition industry and I’m doing that now. Buying a house obviously in Auckland is an incredibly difficult feat for first home buyers, so being able to be part of that process and their excitement when it finally comes true, is pretty cool. What ultimately led you to enter the industry? It was a personal decision. It was very much a complete change in life. By the time I moved to Auckland and started studying I had left my hometown, Kerikeri, separated from my husband and I was starting a new life. It was all about what I wanted and how am I going to make that happen. Then planning backwards from there,

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I always knew it was going to be a long process studying my kids were six and one. Started afresh, went to university and just made it my mission to make it happen.

❝ The best times

are undoubtedly phoning people to tell them [the deal’s] approved ❞

Do you remember the first client you helped with a mortgage? I do, it was actually my best friend. I was still getting started. I was helping my boss with his deals. For this my friend had gone directly the the bank. They had put in an application and the bank was taking ages to get back them. She was really stressing out because there was a backup offer made, so they only had five days to do finance. So I said to her, a little bit hurt, ‘Why didn’t you come to me and let me help you?’ That evening, she gave me a call and asked, ‘Can you help me?’ I said, of course I can. So I went round got all of the information and got her approval with a couple of banks actually within 24 hours. So she was stoked and just to be part of, again, that process and helping my own friend buy their house was pretty exciting. We definately celebrated. What is it about broking you love/are passionate about? It has enabled me to combine my love of helping people and my affinity with numbers. I love what I do; it’s challenging and rewarding. I get to help people achieve their financial dreams and aspirations. Whether it’s a first home buyer, an investment buyer or anyone in between who just needs some tips or advice on their existing mortgage to help them understand how they can pay less interest on their mortgage overall, freeing them up to enjoy lifestyle. Educating people and giving them advice that helps them financially and the difference that alone can make to so many people is great. What does it personally mean to you when you are able to help clients buy their home? It’s really satisfying. It makes me feel like I’ve done a good job and I’ve helped someone. I know what that experience was like when I was younger and buying my first home. The broker helped us and it was such an easy process, he just took care of everything. That memory kind of stuck with me. So for me it’s really satisfying to be able to help people and the gratitude that you get, I’ve been given bottles of wine, been taken out to lunch and people appreciate the

her way help and it’s nice. How did you learn the business and educate yourself? Initially, a little bit of self education as it interested me. Then when I decided that I seriously wanted to become a financial adviser (and not a person to do anything by half, I wanted an all round knowledge of finances), I enrolled at Massey University to do a business degree with a major in finance. I added on a real estate certificate for good measure so that I understood the sales and purchase side of the property market as well. I started with a smaller firm as a PA to a mortgage broker but very quickly advanced into my own clients and deals. Soon after I joined the fantastic team at Aspire Advisors, who have just recently been acquired/merged into Squirrel Mortgages and here I am as happy as a tornado in a trailer park (and some days it is literally a little bit like that!) Do you have a mentor? When I was studying, it was just me so I was doing that full time and raising kids on my own. That was pretty tough but it was always the end goal of what I wanted for my family and being a financial adviser and be able to provide a career and good income for us. As a mentor, I started with a small firm, Real Mortgages... I learnt a lot of good tricks and fundamentals about the business. I was talking to people and had a few opportunities to join other firms but when I was offered the one at Aspire, their funloving culture and team mentality just stood out from the rest. It’s a fantastic place to work for, I’ve never been so happy in a job. How do you balance being a full time single parent while working in the mortgage industry? It’s hard but doable. I structure my time so that when I’m when I’m with family, I’m with family. I turn my phone off and prioritise family at that time. Same thing, when I’m at work, I’m at work. When I’m sitting at my desk I don’t fluff around. I don’t go out to a lot of appointments because travelling time is a lot of wasted time for me so I will try and do as much as I can over the phone with my clients rather than going out to their places. If clients say to me, ‘Can you come out to my house?’ I’m very honest with them and say, ‘Due to family commitments, I’m not able to do that unless I really have to’, and they’re quite understanding about it. I haven’t found it to be too big a problem. Best and worst times in the business? The hardest part was studying. I made a full time

commitment in addition to raising two kids on my own. It was at times overwhelming. Keeping the end game in sight and knowing it would benefit my kids in the long run as well got me there. In business, the worst times are when you have worked really hard on a deal, only for the client to use that against you to get a good deal elsewhere. That bites, though that hasn't happened in a while and I think I learnt very quickly that your relationship with your client needs to be more than just perfunctory. The best times are undoubtedly phoning people to tell them [the deal’s] approved. First home buyers always make my whole day with their response, especially in the Auckland market which is tough. Best and worst business moves you’ve made? So far, I've had the good fortune not to feel I’ve made any bad business moves. Best move was joining Aspire. The team there from the top down are like family. And when you enjoy who you work with, respect them and can share with them on a day to day basis, it makes the bad days almost negligible. Best and worst advice you’ve received? Worst advice I received was that it would be too hard to do this line of work around my family commitments. I feel there is still an old fashioned mentality around brokers, that we are required to work crazy hours including evenings. (That's why I didn't go into real estate...). But when you’re passionate about what you do, you figure it out. I’m glad I didn't listen. Best advice? Believe in yourself. Don’t chase the dollar and the dollar will come to you. Biggest challenge now, apart from the market? I need a carbon copy of myself to get more done. Would you do it all again? Absolutely! Best business book? Any book that resonates or inspires you to challenge yourself to doing just a little more. Ones of note that I benefited from reading are: Would you like Attitude with That? Justin Herald; Richard Branson's autobiography Losing my Virginity. Author: Napoleon Hill. Is there a typical working day? Coffee, emails, coffee, phone calls, coffee. Every deal is quite unique and different, everyone’s financial situation is quite different. Some people are really good at managing their money and are in a good, strong position to get

the application approved. Other people need a lot of coaching, their accounts aren’t very tidy, they’ve gone over the limit. You can also give them some tips to say these are the things you need to do to tidy up your accounts, to get yourself in a better stronger position and we can look at your application in two or three months when you have all that sorted. I do have to work after hours. I try to limit it as little as possible because when I go home I want to spend time with my family but there are occasions when I do have to make calls, I have to process applications, especially when it gets busy. There’s been times when I’ve had to come in on the weekends just to get a few extra things done to lighten up my load for the week ahead. Top tip? Get a good sales management tool to help manage your workflow. Be meticulous with your applications. Get all the information and get it right the first time. It’s efficient and saves everybody time. Which individual has most inspired you in business? Hmm. Anyone who just gets it done despite challenges. Peter Norris my manager/coowner of Aspire is a good example. He leads from the front and doesn’t just talk the talk. I'm also really excited about the new business merge with Squirrel as I’ve followed what they do as a company for a while. John Bolton is a savvy man who I look forward to being able to learn more from. What is your biggest longterm business goal? Be Squirrel’s top volume producer! Haha. At the end of the day, I’m completely happy doing my best, enjoying my job and hope the income that stems from that is ample to provide me and my kids opportunities to do the things we want in life. How are you preparing for regulation of financial advisers this year and how will this affect your business? I haven’t yet. I do hope that I have enough experience and credits between my business degree and PAA course that it won't be too much of an issue for me. However, I do think it’s a good thing for the industry. What do you do in your spare time? Spare time? Haha. What's that? When I'm not working, I'm a single parent of children aged 7 and 12. Movies, beaches, swimming, friends and loved ones is what we do on the weekends. Life is busy, full and fantastic. Who are your biggest supporters? My family. Also the work culture here at Aspire/ Squirrel as well they’re all extended family. Would you have done anything differently? No. I would have liked to have gotten into it sooner. I held back on the full time of things but no I’m really how things have panned out. ✚

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LEGAL By Jonathan Flaws

The signature game Pivotal to the mortgage industry, signatures have moved into the electronic age. Should we embrace e-signatures?

hen you play the game paper scissors rock, you are safe if both players produce the same item from behind their back. Otherwise one

player loses. Playing the electronic signatures game can have a similar result. If the electronic signature produced has the same functionality and characteristics as the paper signature than it is safe. Interestingly, the same operates in reverse. If a paper signature has the characteristics required by the Electronic Transactions Act 2002 (ETA) of an electronic signature then the paper signature is one that can be relied upon. Signatures are pivotal to the mortgage industry. A mortgage lender won’t advance funds until the loan agreement has been signed and it holds an undertaking from the lawyer it has instructed to act for it (normally the borrower’s lawyer) that the lawyer holds everything required to register the mortgage at Land Information New Zealand against the title to the property.

Pressure on e-signatures As the use of electronic commerce increases, you will no doubt be coming under increased pressure from others to accept an electronic signature. Provided the person who is going to be relying upon an electronic signature consents to relying on the signature, you should not be afraid to do so. But you need to understand what requirements need to be fulfilled first before you can rely on the electronic signature. You may also be under pressure for vendors of electronic signing systems to use these

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systems. They will all tell you their system is ETA compliant but none will give you a cast iron sign off that the specific systems used will be bullet proof in every case. And nor should they, for ultimately it is you or the person accepting the signature who has to be satisfied that it is legally compliant and can be relied on. This is no different to the current paper environment in which the lender will be relying on you to make sure that any signed document given to them is legitimate and valid and binding on the signer.

What is a signature? Put simply, a signature is an element of a document that is placed on or in that document by the person who is intending to be bound by the document. The person does not create the document – that is done by the lender or by someone on behalf of the lender.

If the document is a paper document then the signature is written in ink on the paper by the signer. If the document is an electronic document then the signer places into the electronic document either (a) a file either a graphic file of the ink signature or a specific text selected by that person – this is generally referred to as an electronic signature or (b) a file containing digital information, generally in the form of a digital certificate provided by a verification authority (such as Verisign) that can be independently verified. It is important to note the difference between an electronic signature and a digital certificate. The electronic signature is just a graphic that is part of the document whereas the digital certificate is both a graphic that is part of the document and a digital element in its own right that can has qualities and functions outside of the document, namely

the ability to be independently verified as authentic. In the paper environment you can also have two options. In the days when seal and sealing wax was common, the document might have a seal affixed to it by the person rather than a signature.

Signature importance A signature indicates that the person who wrote it or placed it into the document has done so to indicate that the person intends to be legally bound by the contents of the document and the document as signed can be used as prima facie evidence to this effect. If the person claims they are not bound by the contents of the document then the person needs to go to great lengths to establish that they are not. For example, they may not be bound if they can establish that: 1. the signature was fraudulently attached by someone other than themselves and without their knowledge or authority; or 2. they signed the document not knowing that they were signing a document that was intended to create legally binding obligations and did so because they were deceived; or 3. they were not legally competent to enter into the legal obligations at the time, or 4. the person who prepared the document did not comply with the relevant law at the time and despite the intention to be bound, the law does not make the information in the document binding; or 5. the document presented purporting to contain their signature is not the document that they in fact signed – it has been tampered with and has changed since they first signed it.

Legal requirement Contracts are entered into every day without the need for the contract to be recorded in writing and signed by the party bound by it. But these are generally low level commodity style contracts that rely on the acts of the parties and the circumstances in which they are carried out to prove the contract. buying something from a shop is the classic example of this type of contract. The Credit Contracts and Consumer Finance Act 20013 doesn’t actually define a “contract”. Indeed, a credit contract (under section 7 of the Act) can be made up of one or more contracts or arrangements that result in a transaction that is in substance a credit contract. So if a document is signed it may not in fact be the complete credit contract if other arrangements are an integral part of the transaction. What the CCCFA requires is that disclosure of the terms of the contract and other required information is made in writing. It doesn’t require that the contract is made or recorded in writing.

❝ But you need to understand what requirements need to be fulfilled first before you can rely on the electronic signature. ❞

Put another way, there is no legal requirement for a signature to be included as part of a credit contract. The requirement for a signature is therefore a requirement of the lender rather than a strict legal requirement.

Signature to a deed In contrast, a deed must be in writing and must be executed and delivered in accordance with section 9 of the Property Law Act 2002. The difference between a deed and a contract is that once a deed has been signed, it is binding on the person who signed it without the need to prove consideration. In the context of mortgage lending, any document recording obligations of a person who is not receiving a benefit form the transaction needs to be recorded by way of a deed because the absence of a benefit is equivalent to the absence of consideration. For this reason, guarantees are always required to be signed as a deed. The other legal requirement for a deed to be binding is that the signature of the person signing the deed must be witnessed by a person who: (a) is not a party to the deed. (b) must also sign the deed. (c) if the signing is in New Zealand must add the name of the city or town where he or she ordinarily resides as well as his or her occupation or description.

Electronic signature Under the ETA, a legal requirement for a signature other than the signature of a witness can be met by means of an electronic signature if: (a) the signature adequately identifies the signatory. (b) adequately indicates that he or she approves the information. (c) is as reliable as is appropriate for the

circumstances, and (d) the person relying on the signature consents to receiving the electronic signature. The ETA also provides that a legal requirement for a signature to be witnessed can be met by means of an electronic signature if the electronic signature to be witnessed meets the above requirements and the electronic signature of the witness (a) adequately identifies the witness. (b) adequately identifies that the signature has been witnessed. (c) is as reliable as is appropriate for the circumstances. (d) the person relying on the witnesses’ signature consents to receiving the electronic signature of the witness.

Reliability The ETA also presumes that a signature is as reliable as is appropriate if the means by which the signature is created is linked to the signatory and no other person and the person signing has control of the means of creating the signature on the document. There is also a requirement that any alteration to the signature or the information to which the signature relates that is made after the signature was created is detectable.

Readability The other key element to electronic signing is that the electronic form of the information must be readily accessible so as to be usable for subsequent reference. This means that the electronic document needs to be available and readable. Most lenders will accept that a secure, PDF document that has been locked down with a digital certificate and hashing algorithm that indicates if any change has been made will be readable and available in the future.

Functional equivalence Without going into any more detail about the ETA and its requirements, if you stop and consider what happens in the paper environment, all of the above requirements of the electronic environment are replicated. You need to identify the party signing – you need to be sure that the party signing is the party you have identified – you need to be sure that everyone understands what they are signing, why they are signing and the effect of signing the document. The signature is just the end result of the signature game. The process may well be different in the two environments but the requirements are exactly the same. So long as the signature game is played the same electronically as it is on paper you should not be afraid to play in either environment. ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir.

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INSURANCE By Steve Wright

Overcoming client objections Suspicions about insurance benefits are drawn mainly through lack of knowledge. Objections can be handled with trust and competence and pertinent questioning, says Steve Wright.

’ve heard it said that every life insurance sales appointment results in a sale – either you sell the clients on why they need it or they sell you on why they don’t (you buy the objection!) I’m no expert on dealing with client objections but it strikes me that all sales encounter objections, particularly when intangible, financial services, are concerned. Effectively and efficiently dealing with objections is essential also for selling life, disability and medical insurance – so I’d like to introduce it as something to consider and become better at, especially if your clients are being too successful in selling you! If you are not in a position to handle and effectively remove the client’s objections then your sales success rate is likely to be very low. In the main, objections indicate either a need for more information, a lack of understanding, a lack of confidence or a need for ‘confirmation to proceed’. If a client can see you as their ‘financial coach’, a trusted and competent adviser, then handling objections will become very easy.

Typical objections Clients raise objections for many reasons. Whatever that reason, it signals they are not ready to buy and you have more work to do. Objections typically arise because clients: ▶ Need more information but don’t know precisely what they need to ask or how to frame their query. ▶ May not fully understood their risks and needs or your proposed solution. ▶ May be suspicious and harbour misconceptions. ▶ Don’t have or want to spend the money. ▶ Simply don’t want to deal with you!

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❝ Another

suspicion or misconception is that insurance companies don’t pay claims. Nothing could be further from the truth. ❞ Whatever their objection, it is usually not immediately apparent simply from what the client says. Your first task is to understand what the objection really is. This takes patience, respect, compassion and skilful questioning. Skilful questioning makes use of open questions and includes careful listening. Only once you know the client’s real objection can you attempt to erase it. Erasing objections takes practice, skill and experience but most of all, knowledge and a strong belief in the value you bring.

Fear, objections Anticipating some common objections and developing and practicing the response needed to allay the client’s fear and objections (you

can’t bully a client’s objection out of them), is very useful. You are likely to come up against these common objections many times. Being able to confidently (but not arrogantly) dispel common objections can mean they are overcome quickly and without disrupting the whole process. Most objections from clients who will eventually buy are borne out of fear or uncertainty caused by a lack of knowledge. Quite obviously these objections are the easiest to overcome if you are suitably informed and can gently ‘coach’ (educate) the objection away. A typical example of an objection based on misconception and lack of knowledge may be: “We don’t need mortgage repayment cover; ACC or WINZ will look after us!” Knowing that ACC will only cover disability caused by accident (and that only around a third of disability is caused by accident) and that if the client’s partner works and earns even a relatively modest income, no WINZ benefits are likely, allows you to eradicate the objection though coaching (by education).

previously. “It won’t happen to me” syndrome is simply not true – it may – and if it does the financial consequences could be massive. How will the family cope? Being a knowledgeable and well informed adviser, one who understands the environment, understands the typical consequences of poor health and understands insurance product solutions very well, will put you in a much better position to coach (educate) clients, remove objections and get the client to commit. Educating the client also helps build trust and respect – two critical issues for overcoming a client’s objection to you!

Well informed Sometimes you will come up against an objection you cannot anticipate. If it is educational in nature being better informed will allow you to answer it there and then (and if you can’t, you can come back later once you’ve done some homework – don’t guess!).

Sometimes, however, you will come across and objection you could never have anticipated. In these circumstances, being well informed on all issues important to your business, drawing on your experience and having a deep belief and confidence in the value of your work will all contribute to ensuring you do the selling not the buying! ✚ Steve Wright has qualifications in Law, Economics, Tax and Financial Planning and is General Manager Product at Partners Life. This article is for information purposes only. Its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product.

$2 billion payout Another suspicion or misconception is that insurance companies don’t pay claims. Nothing could be further from the truth – in the last 12 months alone, life and medical insurers paid out about $2 billion in claims. That is a very big number – $2,000,000,000. That’s $2 billion dollars that flowed to families and businesses whose members were sick or injured or had passed away! Knowing this claim statistic will allow you to overcome the misconception and also allow you to introduce the dangers of non-disclosure! Sometimes your coaching involves adjusting the client’s attitudes and thinking patterns, rather than purely informing and providing facts. Have you ever heard a client say “We are healthy we don’t need it” ? Let’s face it: everyone is healthy until they become sick. The 54 people, on average, who today will be diagnosed with cancer, were all healthy

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Intelligence

SMALL BANK LENDING Attention on lending growth is often focussed on the big banks, however, TMM’s analysis of the smaller trading banks shows that they are showing handsome growth in their residential lending books.

Key points

▶ Small banks are on a roll with growth rates

outstripping the larger banks. Their average growth is around 10% while their larger counterparts are growing at around 5% ▶ The loan book of small banks has grown 48% in past four years. It has been helped by two new entrants. ▶ SBS and Heartland were stand outs in 12-month period to September 30 with growth

of 21% and 43% respectively. ▶ For SBS the quarter to June 15 was its best at 14.4% growth in just three months. For Heartland the September 15 quarter was its best with 18.4% growth in three months.

Residential Mortgages $Million Kiwibank TSB Bank SBS HSBC Co-op Heartland Total Excl Kiwibank

30/09/11 10,949 2,667 1,782 981 0 0 16,379 5,430

30/09/12 11,803 2,444 1,677 915 1,141 0 17,980 6,177

30/09/13 12,705 2,559 1,681 1,021 1,204 208 19,378 6,673

30/09/14 13,861 2,602 1,726 1,042 1,361 234 20,826 6,965

30/09/15 14,796 2,929 2,095 1,116 1,550 335 22,821 8,025

Annual Growth Rates Kiwibank TSB Bank SBS HSBC Co-op Heartland

30/09/12 8% -8% -6% -7%

NEW BANKS SLOW STARTERS

A number of Asian-headquartered banks have registered in New Zealand in recent years, however they are not particularly active in the

30/09/13 8% 5% 0% 12% 6%

30/09/14 9% 2% 3% 2% 13% 13%

residential lending market. Data from their respective GDS documents show nearly all lending is outside the low deposit area. While the Bank of China has no residential

30/09/15 7% 13% 21% 7% 14% 43%

lending, Industrial and Commercial Bank of China is the biggest with close on $100 million in loans. ICBC publishes its rates on mortgagerates.co.nz

Residential Mortgages $Million

Bank of Baroda Bank of China Bank of India China Construction Bank Industrial and Commercial Bank of China Kookmin Bank Total

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Date of registration Sept, 2009

not over 80% 32.69

80.1-90%

Over 90%

Total

9.17

0.00

41.86

Nov, 2014 March, 2011 July, 2014 Nov, 2013 July, 1997

0.00 32.52 22.07 91.05 32.57 210.91

0.00 4.77 0.00 0.00 0.00 13.93

0.00 0.00 0.00 0.00 0.00 0.00

0.00 37.29 22.07 91.05 32.57 224.84

A NEW OPPORTUNITY. AN ENABLEME FRANCHISE. WHO ARE WE? enableMe are a team of Financial Personal Trainers who help their clients get ahead faster. Clients are either ‘Starting Out’ wanting to manage their money smarter, ‘Building Up’ – wanting to be in control, kill their mortgage and build wealth faster or ‘Sitting Back’ – where they are working towards a comfortable retirement. All are capable of achieving a better financial result and they work with enableMe to achieve their potential. After eight years, a strong trading history, and a track record of helping thousands of clients achieve their financial potential, enableMe has established a new franchise business network.

“We have developed a unique methodology to help our clients achieve and maintain financial success. Using our patented formula, financial smarts, support and a proven framework we keep our clients accountable to their goals. When you are in control of your finances you are in control of your life”.

KEY BENEFITS YOU ENJOY AS AN ENABLEME FRANCHISEE • Being part of our well-known brand with a proven track record. • A competitive advantage in a challenging industry. • A service that offers real value and changes the lives of your clients. • A rewarding business with sound financial potential. • Running your own business with our support and expertise. • An assigned marketing territory with untapped potential. • enableMe Support Office assists with management of routine sales and marketing, administration, IT, report writing, client analysis and technical support matters, giving you more opportunities to grow your business. • On-going business advice and assistance from our supportive Franchise Management Team.

enableMe are taking a very measured approach with the rollout of their franchise network, capping the number of available Franchises to four per year. Target territories for 2016 include: Waikato, Otago, Hawkes Bay, Manawatu and Marlborough. For more information on this business opportunity please email Hamish Cowan, General Manager, hamish@enableme.co.nz (Subject: Franchise Summary Request)

www.enableme.co.nz

Hannah McQueen, its founder, is excited to bring this opportunity to the market and continue to grow a national network of financial personal trainers.

FRANCHISEE CHARACTERISTICS The enableMe business would suit a top-performer looking for a new challenge. enableMe is looking for appropriately qualified team players who share our vision and passion for helping people reach their financial potential. In particular, the following attributes are important in a potential Franchisee: • Motivated self-starter, willing to work hard to develop the enableMe brand locally. • Strong reputation for high standards and professionalism. • Experience in providing consultative solutions. • Ability to build and maintain strong customer and business relationships.

Note – Position is suited (but not limited) to a CFP, AFA, RFA or Chartered Accountant

TMM - The NZ Mortgage Mag Issue 6 2015

Articles inside

INTELLIGENCE