45 minute read
REGULATION CHANGES
LEGALREGULATION By Susan Edmunds
Small adviser firms’ voices ‘lost’ in review
MBIE says it tried to tackle the concerns of independent operators when it rewrote advice legislation but industry commentators are unconvinced.
The review of the Financial
Advisers Act has been resoundingly a win for the big end of town, says veteran financial adviser Murray Weatherston.
Weatherston, one of the founding members of SiFA, has been a strong voice for independent advisers through the review process. But he was sceptical about whether that had been heard at official levels – and whether it was worth fighting now in a last-ditch attempt for change to the Financial Services Legislation Amendment Bill.
“The people doing the review didn’t actually have much experience in the financial sector, let alone financial advice, and I just think they’ve been captured completely by the big end of town,” he said.
Weatherston said the review would make it easier for banks, insurance companies and big institutions to sell their products but would make life harder for smaller operators.
He said big providers were being offered the chance to sell their products under the guise of offering “advice”.
But James Hartley, Ministry of Business, Innovation and Employment manager of financial markets policy refuted his claims.
“We heard from many small businesses and industry associations that the current regime is inequitable to small providers. For example, QFEs are currently able to coordinate their licensing and compliance activities at the firm level, while others are not, and QFEs and RFAs are not currently held to the same standards of conduct and client-care as AFAs,” he said.
“Many features of the new regime are a direct response to these concerns. For example, all firms will be able to be licensed
at the firm level to reduce compliance costs. Licensing requirements will be proportionate and will depend on factors such as the nature and size of the firm. In addition, anyone giving advice will be held to the same standards. “Throughout the review we engaged extensively with a range of stakeholders, including small operators and consumer representatives. All feedback was considered equally against the objectives for the new regime.” The outlook for one-man- band-style advice firms was not good, Weatherston said. The cost to AFAs of regulation so far had been more than $100m, with very little to show for it.
“If I was 40 years of age as a sole practitioner, I would say, ‘There is no way in Hades that I have a chance of continuing to age 60 in my current shape’. The cost is just too large. The requirements that they seem to think you have to have – I mean, as a sole practitioner, should I need procedure manuals?”
But Weatherston said too many advisers had sat on their hands through the review process. Many had hoped that someone else would argue for them, he said, or assumed it would not matter whether they engaged with the process or not.
Institute of Financial Advisers chief executive Fred Dodds said his organisation had tried to lobby for small operators.
“The Institute in its submissions did its best to try and give some clarity and definition to the sales versus advice issue and adviser world
“Throughout the review we engaged extensively with a range of stakeholders, including small operators and consumer representatives.” – James Hartley, MBIE
in general has voiced their views on this.
“In my opinion sole practitioners will and should continue to survive and the career of a Financial Adviser needs to be promoted strongly. But Murray’s comments on costs and time are very valid. I am sure we are going to see a growing number of Camp Mother businesses which will offer a safe harbour for a large part of the compliance process for advisers. Even now some of these businesses are positioning themselves for that role and are staffing up accordingly. I am sure that Jeff Page for example will want to keep Kepa.”
He said adviser associations would have a role to play but advisers would need to understand that any organisations taking over their compliance would expect to be paid for the service.
David Ireland, current chair of the Code Committee, said people should wait and see what the outcome was of the consultation process before they decided how effective it had been.
“We will hopefully see that in the form of an updated bill within the next couple of months. Bear in mind that if a submission point you have made has not been adopted it does not mean that you have not been heard or that your input has not influenced the outcome in some way – there are a lot of different perspectives on what is best for the MBIE team to take into account, from both the small end of town and the big end, as well as from all the places in between and from those who prefer the countryside... But the one way to guarantee your voice is not heard in this process is to say nothing.” ✚
Murray Weatherston was interviewed as part of the new Good Returns TV show. Watch Murray's full interview and more episodes of GRTV by visiting www.goodreturns.co.nz/grtv
industry set for revolution
Mortgage brokers face more change with new regulations and moving lender appetites. But industry participants at a recent roundtable say the client is still at the centre of everything they do.
What are the biggest issues you see in the industry today?
Adrienne Church: I think that the market is changing rapidly with regulation, banks lending and everyone’s policies and products. I think one of the biggest issues is everyone keeping aware and educated as to what’s going on.
Shaun Drylie: Margins have compressed somewhat, funding challenges across the banks, capital, and you’ve got regulation that’s sitting over the top of that with the Reserve Bank, for instance. Then you’ve got the market just starting to soften. From a medium to long-term point of view, I think what we’re going to see are banks looking at cost structures and banks will be challenging themselves around how they provide services for lower costs. I think for the adviser network, there are some threats around how banks and businesses look at distribution models. That will be primarily digital – how’s digital going to change the face of the advisory network?
Jenny Campbell: The biggest challenges that we see is probably the difficulty of getting deals done. Certainly, the lending conditions that we’re experiencing now are some of the tightest that I’ve seen since the GFC. There seems to be plenty of consumer activity out there, but getting the deals
done is really difficult. There are some issues around that with service delivery levels from our partners at the lenders. That whole broker experience is becoming somewhat compromised by lack of service, I hate to say. I think it’s a great time to be an adviser; people need an adviser more than ever, given the difficult lending conditions and the LVR restrictions and the rest of it. As an industry, we need to be working closely together, because we’ve got to be sticking up for the smaller advisers.
Tony Kinzett: I think a real issue for the advisers right now - to give good advice to their clients, to place the applications – is for the lenders, such as ourselves and the banks, to come out clearly and consistently and advise the advisers on what we will or won’t do and what our appetite is. That will bring more professionalism to the advisers, to the clients and also create a better relationship between lenders and advisers.
Penny Burgess: I think that need to ensure good customer outcomes is paramount. Any industry is better off if we can demonstrate, through systems and processes, not only that it’s not happening, but that a poor customer outcome couldn’t happen in the industry.
ADRIENNE CHURCH RESIMAC
SHAUN DRYLIE SBS BANK
JENNY CAMPBELL MORTGAGE SUPPLY CO
TONY KINZETT FIRST MORTGAGE TRUST
CHRISTINE LOCKIE LOANPLAN
PENNY BURGESS ANZ
GLEN MCLEOD EDGE MORTGAGES
KAREN TATTERSON PAA
I think the conversations are quickly turning to that. An industry that faces into those will be better off in the future, irrespective of whether there’s a regulator saying those things or not.
Glen Mcleod: What we’re seeing is so many articles that are affecting the clients. They’re scaring the clients, whether or not that’s to sell papers or whatever it may be. It certainly doesn’t give the full picture of what’s really happening. There are so many aspects within the legislation that enable us to do the deals that the clients are looking for, it’s actually just trying to find where they fit in to that picture.
Karen Tatterson: One of the scariest things as an individual adviser is certainly what’s happening with regulation. We don’t know what’s going to happen. In fact, I know FMA are currently meeting with mortgage, investment and insurance advisers at the moment to get their feedback, so that they can revise and review what they are proposing. Also, from an industry point of view, we’re looking at some major changes with the potential development and introduction of Financial Advice New Zealand.
Why hasn’t there been more engagement from mortgage advisers with the changes in regulation and legislation?
Karen: I think a lot of people get quite insular and you get so busy doing your own stuff that you forget about that external stuff. I’m like Christine; I’m an AFA, but I trade as an RFA, because there was no logical reason for me to prevent myself as an AFA. If you talk to a client, they don’t know what an AFA is, or an RFA, or a QFE, or whatever. When we go into the new system, whether you’re going to be a financial adviser or a financial adviser representative, again, the consumer doesn’t care about that sort of stuff.
Glen: If we go all the way back, every time we’ve gone and been proactive and actually started doing the education, we’ve got there and they’ve gone, “No, we’re going to change that now.”
Christine Lockie: There’s also some proactiveness behind the scenes, trying to work with the draft and what is proposed.
REGULATION How ready are mortgage advisers for change?
Christine: I’m working under an aggregator which is being proactive. There are some out there that are not being proactive and they may find it very difficult when the hammer comes down. I would say within the industry there are very few, if any, individual advisers who are totally compliant.
Jenny: I think the branded teams that work together really closely - like my Mortgage Supply guys and Loan Market, for example - they’re entities that could very easily be licensed on their own and keep a pretty tight control over what their advisers are doing. The disconnect is for those guys that work outside under their own brands. What do we do with them? We’re going to struggle to find groups that would be willing to take on the liability for those people and it’s a real shame, because these are people that might be working in the regions, that have really successful businesses that have been going for a really long time, but they may really struggle to find a shelter with this regulation. Can they do it on their own? What’s the cost associated with your own licence? Who’s going to take care of their compliance? We know we’ve got a couple of the educational providers putting their hands up now, saying, “Oh, we’ll do it!”, but of course they will, that’s so self-serving because they’ll charge you for it!
Penny: Coming from a bank point of view – the compliance requirements that are in proprietary channels are pretty extreme, too. There’s training, there’s file checking, there’s observation. There’s a lot of compliance requirements in any channel, which has the
ultimate goal of making sure the customer outcome is the right outcome for the customer. I actually agree with Jenny that there is a tension between the paperwork and systems and tick-the-boxes versus actually giving people scope to recommend the right product and doing a good job. The challenge is, though, that there has to be some system, some process, some absolute pointing blackand-white, that we can go, balance it out, any customer walking into a branch or seeing an adviser gets a good outcome for them. I think that’s the tension that everybody’s talking about. We’re worried that it won’t be at that right level. My challenge a little bit is why are we waiting for regulation to say, “This is what we should do”? Where does the obligation sit right now, without regulation, to make sure that customer gets great advice?
Christine: Ultimately, we’re going to see very few single-person operators and more of the larger companies.
Jenny: How is that better for the consumer? It doesn’t leave any scope for
that bespoke business and there’s a lot of those around. These are people that have been around for a long time, offer a fabulous service to their clients and give really good advice. Everyone that works in the mortgage industry as an adviser has made that giant leap of faith in themselves to leave a bank, usually, or something like that, to go out for self-employment purposes, to take control of their own destiny, and we’re going to push all of those guys back into a corporate environment. I just think that’s really unfair.
Glen: The advisers that are out there that are really passionate about the industry and give a lot back, that deal with their clients extremely well - they have businesses now. We’re not running around out the back of a car like it was in the 90s. We are so passionate, we’re not fearful – well, I’m not fearful – of legislative change. I see that as being of benefit to us, because it means that the type of advice that’s going out to the clients is good. We want that. The consistency that Penny was talking about across a level playing field needs to come. I don’t think it will mean that the smaller businesses will disappear, they might just go under an aggregator that will assist with that.
Jenny: The big issue around that, too, is that nobody knows what that cost is going to be. And with all due respect Glen, you can probably afford it! But others will really struggle.
Glen: But isn’t that being responsible about the business itself? And always keeping yourself prepared for change? It hasn’t been a silent situation, it has been creeping. We now have trail books that are assisting with actually employing team members to assist with creating businesses that are more robust, that are there for the longer term as well.
There are hundreds of people taking the course to become brokers and we are about to go to this different model. Is that a problem?
Penny: ANZ changed its accreditation process. Accreditation was always subject to doing some sort of external qualification. Rather than giving people their accreditation on this understanding that they would complete that, we actually held the accreditation back until they had completed the course. The number of people that we had to have pretty strong conversations with and say, “You have to submit your files. You have to get this done”. It worries me that if people aren’t managing their own accreditation process, for something as simple as that, the regulation will be a really big shock. There were some people that we cancelled their accreditation. Something as simple as that.
Jenny: I think that course was the best thing that happened for our industry. It made a new adviser put some skin in the game from the get-go, because it’s not the cheapest course in the world and they actually have to make a time commitment, not to just turn up to the classroom but to actually complete the assignments and do the work. I think it has weeded out a lot of people who were just looking for an easy way to get into a new career.
Christine: Westpac and ASB have done the same. They’ve culled, so to speak.
Are all these new people being mentored?
Jenny: I don’t know if there really is a group that is doing the “newbie experience” overly well. I’d much rather take on someone who has already got some really good lending experience and community networks, all that sort of stuff, so they can hit the ground running.
Should they have to do level five?
Jenny: That doesn’t teach you how to be a mortgage adviser.
Karen: It just says that you’ve done some study and passed.
That’s what regulation might say you have to do.
Glen: If regulation says it, then you go with it. But having the regulation there in that way doesn’t actually give you the skills to be an adviser.
Jenny: It would be really great to see more programmes around professional development, specifically for mortgage advisers as well. Trying to get specialised mortgage training is really difficult.
Shaun: I think part of it is a benchmark on, from my point of view, people making a commitment to put the work in and to make a statement that this is what they want to do for some time. It’s not an in-and-out game. When you need to achieve a certain level, you actually have to make a commitment to be in the game. So, there is some value in that, but I think you can overdo some of this and just create stress in an industry that actually has some really good things in place. That’s the danger.
Penny: I think the banks have a pretty high standard of what’s required under legislation. The bigger question in my mind is actually the ongoing accreditation. Just because somebody passed an accreditation setup on Monday, doesn’t mean that on Friday they’re giving great advice, or even that they’re still meeting those obligations. I think that is probably the big thing that worries me.
Adrienne: I think there’s a responsibility with all of us, especially lenders, to call it out when you see something that’s wrong.
Tony: It’s probably the 80/20 rule. It really just comes back to that. I think some groups are doing an incredibly good job in bringing the younger ones through and training them. But I do say “some”. It really comes back to the commitment of the owner of that group.
Adrienne: And I think that the environment and the market has been so strong that a lot of people have come to the industry, because it has been so prosperous.
Should we be concerned about the fact that we’re at this point where the market’s changing, we’ve got a sudden influx of all these new people and when it turns, it might not be good for the industry?
Karen: PAA did some research on the people that have been through the PAA five-day course. I can’t remember the exact statistic, but I believe about 60 of them have stayed in the industry, but within a year 40% of them have gone. So, they’ve come in all guns blazing, thinking they’re going to set the world on fire and then realised it’s a pretty tough row to hoe. I always laugh when you talk to someone from the bank and they go, “I’m going to be a mortgage broker because I can work nine til three! And I’ve got the rest
of the year off!” They really have no idea how hard some of us work out there and the hours they put in.
Penny: I think that’s a really good point, because what I’m certainly seeing is that my own appetite is changing and I’ve become more and more concerned about making sure that the customer is getting great advice. An adviser that is not giving quality - even if it’s one file that I’m worried about, that there’s potential fraud there – their whole accreditation is on the line. It’s so high-risk. It really worries me when you’ve seen great lenders that are used to an employeeemployer relationship moving into their own business model. High return, high risk. It can be difficult.
Adrienne: We have disaccredited advisers and told some aggregators and they’ve done nothing about it. They will continue to write with other lenders.
Karen: But the adviser thinks that they will be able to get that across the line. Some advisers – I have to generalise – believe that providing you with “minimal” information will be sufficient to get across the line. If they get away with that once, they’re going to try and do that on a regular basis. I think it’s about setting your expectations, Penny.
Penny: We do that.
Karen: We see that coming. And you’re saying, “We’re not going to assess a deal until you provide us with this information.” It’s the whole quality-quantity thing, I believe. There’s a lot of people that think they can get away with it, throw you in a Sale and Purchase Agreement and say, “Client wants to buy a house”, which I believe is the calibre of some deals that have come through over the years. Whereas now, you’re saying, “well, we want to know why; how; what for; what they had for breakfast last Wednesday…” which puts the responsibility on us…so that when I present a deal, you go, “Oh, it’s come from Karen, I know she writes quality business, I know we can check it and it’ll all be okay and everything will be there”, as opposed to going, “Oh god, here’s another one from Mary-Jane.”
Penny: Part of the challenge is that we’re not particularly digitally savvy, as Shaun was saying. It’s this incredible inefficient machine. We’ve got over 130 people focused on the adviser channel and our service levels are still not what I’d like them to be, but the fix isn’t just throwing more people in it. It’s actually about having better systems and processes. The challenge is, our defer rates – so we call a defer rate when we have to go back to the adviser to get more information, which could be, “You haven’t told us how much income they’ve got” – can reach up to between 40%-60%. On something like a defer rate, we recognise that there may be a new adviser to the market and they may be learning. So, we get the BDM to go and visit them, they sit down and walk through a whole training pack, we walk through what an application should look like. We’re doing that at the moment. What’s happened to their mentor? Where’s the aggregator?
Glen: Is there also a degree of the shotgun approach, where they put up an application and then they send it to five different places…Penny, you must be able to see, as a bank, that this broker has put in 50 applications…
Penny: Yeah, absolutely.
Glen: …and 10 have crossed the line. What’s happened to the other 40? Are we just going with that one because they’ve given more, A, B or C? Those are the things where I think there’s got to be a push back and say, well, one in five of your deals is actually getting accepted.
Penny: Absolutely, all banks will look at conversion, but there’s a bit of a doubleedged sword with conversion, because a reason why a customer comes to you (in all of the surveys that I’ve read) is because you do have access to different banks. Now, your knowledge of the different banks and the
products and services that they offer will be the best fit for the client. Like Glen says, you don’t necessarily need to submit an application across all. It’s pretty frustrating when the whole system slows down and there also isn’t a valid reason why they’ve submitted a couple of different applications.
Karen: There is. I’m sorry, there is. Because they have no idea who’s going to approve it, so they just scattergun them through the banks and hope like hell someone’s going to approve it.
Jenny: It’s credit appetite too, though, isn’t it? It’s such a fine line. I spend a lot of time talking to the newbies about this because that’s the impression that they get when they come out of the course; “Well, now I send this off to five different lenders.” No! The problem that the advisers have got at the moment in particular is if it takes three days for the deal to get picked up, if they’re on a really tight
deadline, the temptation to get some back-up offers is so strong because they don’t want to lose that client. It’s a really fine line between doing the absolute right thing by the lenders and protecting your stats - because we talk a lot about stats now, your conversions and all that sort of stuff is really, really important – but you’ve also got to keep your client.
Penny: If we could resolve actually having a clean application, something that has a great statement of position, that has the customer’s proper name, a really good application, then we don’t worry. The conversions, in those instances, fall right down on the priority list to worry about.
Tony: But as lenders, if we’re serious about having an adviser business model, don’t we have an obligation to be out there training these advisers? And are we really doing it very well? I think, as a lender, that we’ve got a huge responsibility to be putting time and effort into the adviser market, explaining where our appetite is, what we will and won’t do on a regular and consistent basis. Obviously, technology is the quickest way to do that.
Adrienne: It’s the new ones, it’s the ones you don’t get a lot of business from that are coming to market. What we’ve done, which most people here know, we did a lot over the last year with segmentation. So, we have our top advisers, our platinum advisers that we deal with all the time. Their process is different. The 80/20 rule - 20 that can do it that way and 80 that do it this way. That 80, we insist that they use our system, so they have to log it online. That system has in there policy rules, it has servicing, it has dollar amounts, it has postcodes. We’re using technology where we can. I know that’s double-keying and it is painful, but it’s actually an education process. Then, if all the information that goes into it is true and correct, they have an approval at the end of it within 20 minutes.
Glen: The other thing is that our aggregators are there; you’ve got statistics, Penny, those statistics should obviously be passed on to the aggregator, I’m imagining that they are. So, when the aggregator’s got them, if they’re identifying, “Oh, look at that conversion ratio”, or “Look at that quality ratio”, at that point, you’ve done your job. It’s then, I believe, the group’s job to get in there and go and do the training and things, because the brokers pay for that service, whether it be by a percentage of commission or paying an upfront fee or whatever it is. We’ve got our CRM system which is absolutely fabulous. There is no reason why an application shouldn’t come absolutely crystal clear. The approach that Penny and ANZ has taken, saying “We won’t accept anything that’s handwritten” - bang on.
Penny: Oh, to be fair, some individual advisers were worried about it, but we worked with some of the industry players to get an editable form for people that didn’t have their own form. We’re able to supply them with an option.
Jenny: The only grumble I heard about that from advisers was that they were concerned about transposing information that a client had filled out by hand.
BANKS Are there other things that can be done to improve turnaround times?
Penny: Having a really well-written application, the diary note being nice and clear about what the customer needs and wants, making sure that statement of position is broken down and is complete. If there’s just one thing, that would be my one thing, because credit policies, appetites and pricing will change, sometimes on a day-to-day basis between the banks, particularly with pricing. We expect that flows will peak depending on what’s happening. That’s sort of an uncontrollable thing from an adviser point of view. They can, though, control the quality of the application.
Adrienne: We still get applications with no diary note. We go, “What are we trying to achieve here?!” It goes back to the BDMs. They work with them, talk to them. You will still get that, you’ll still see it.
Shaun: I think banking, especially on the fringes, has become quite complex for some of the deals that have been put together. A lot of banks are using scorecards to approve and it’s not good old policy as it used to be. At times, the degree of complexity does extend the process because you’ve got credit sitting behind not only the offices that are taking the deals, but you’re having to go through credit, etc. Firstly, the quality of the broker relationship with the lender is paramount, because there is some forgiveness when people can trust information. Secondly, it’s quality of information and just the understanding of (particularly) where a bank is. With some of the scorecards, it’s not too clear now. That does delay and defer things.
Tony: When we talk about turnaround times for a broker, what are we talking about? Are we talking about the turnaround time that the loan is approved and the documents are out? Or are we talking about the turnaround time to be able to go back to that adviser and say, “Yes, we think that could well be a deal”? When you’re looking at a vanilla residential loan - pretty simple. When you’re looking at a commercial property - quite different. When you’re looking at a development loan - quite different. When you’re looking at a rural loan - quite different. An industrial piece of dirt - very different again. I don’t believe for one minute the advisers saying to us, “Are you gonna approve it?” I think what the adviser just wants is a steer; “Am I going to be wasting my time putting this application together and submitting it to A, B, C?”
Penny: My frustration with it is that it’s not just the length but it’s also the inconsistency. The adviser is sitting in front of the customer going, “Well, crap, yesterday it was two days, last week it was three days, I better go five days just in case.” I think that’s something that we’re very focused on improving - just the consistency. I think generally if it’s two to three days and it’s consistent, then that helps the advisers. Everybody’s expectations are really clear.
Christine: Way back, it was just normal to have a week’s turnaround or whatever. Then we reached a period of time where banks were giving one-day turnarounds. It became a consumer expectation that it would take 24-48 hours to get an approval. That was driven, effectively, perhaps by the real estate market who put tight timeframes on their agreements. They have very much driven the urgency and still do. I think it’s up to us to educate clients - “Hey, it’s not likely we’re going to get an approval in that period of
❝It worries me that if people aren’t managing their own accreditation process, for something as simple as that, the regulation will be a really big shock. ❞ – Penny Burgess
time. You’re going to need to go back and look at this realistically.”
Karen: But it’s the expectation that we submit a deal and it takes five days to come back from ANZ. However, the same client can walk into an ANZ branch and see the people over the counter and have a decision in half an hour. The fact that it’s an uneven playing field makes it really hard.
Penny: My goal is to get to an immediate or one-day. Like most big lenders, we will get intraday reporting; we know exactly where everything is going, we shuffle resources around. We’ve fundamentally changed our structure on how we assess to try and get service levels at best. My view on why customers go to advisers is actually not to do with the turnaround, it’s the advice that you offer. Rather than the customer negotiating with the bank on price, it’s the adviser negotiating. I think that’s the biggest selling point. If you’ve got reliable turnaround, that’s a great setup.
Christine: Why is there such a difference in timing between someone going over the counter versus us presenting an application?
Penny: It’s just pure volumes. We’ve got a lot of people, but with a 50% deferral rate. We don’t have that in the other channels.
Christine: There seems to be a big discrepancy between what that person behind the counter needs in the way of hardcopy information or evidence versus what we have to provide.
Penny: There shouldn’t be. I can only speak for ANZ, but certainly the policy is completely channel neutral.
Glen: Is there an online system in Australia that ANZ has? Is there no way that could be shifted here?
Penny: We’ve looked at it a lot and other banks have too. Some banks have done it well, some banks haven’t done it as well. The thing that worries me the most, that we’re trying to achieve, is the double keying.
Karen: Didn’t Westpac have one for a while?
Jenny: They withdrew it last week.
Christine: The problem is that it becomes a Clayton’s approval, because it is still conditional on this, that and the other thing.
Jenny: It’s a shame, though, because it was a great initiative. It was great to see a lender really moving forward, but I think that was driven by some previous managers there, then that project just kind of stagnated after that. It was a bit of a shame.
Adrienne: The tools in Australia - so Nextgen and Simpology - they’re gateway providers. So, they just sit in the front and then they connect to all of the lenders. That’s why it works, because they connect to all of the lenders. Our conversion rate in Australia with that is in the 70%/80%, whereas here we used to be under 20%, now we’re in the 40%, but that’s with a lot of blood, sweat and tears it’s taken us to get to that stage.
What are your views on trail commission, is that likely to get bigger and bigger as a revenue source every year?
Christine: I’m very sceptical about trail from banks. We’ve been through it before and just overnight the banks said, “We’re not paying trails anymore.” So, the trails disappeared. Whatever our remuneration is, it’s driven by what the banks decide to do. We can’t change that, it’s the nature of the industry. I am sceptical about relying on, “Yay! Trail income coming in!” It’s not going to change my mind about where I send that deal and neither should it.
Penny: Christine’s just said the milliondollar statement – it won’t influence where she sends the deal. It shouldn’t [influence advisers]. That’s a fundamental breach of their obligations. If they’re sending deals based on how they’re being paid, not what’s in the best interests of the customer, that’s alarm bells in our current legislation, morally strange and will certainly come unstuck in the future.
Jenny: But trail does encourage great adviser behaviour in the long term, because it just removes that churn. I see people advocating now for the lender, which is really quite unusual for an adviser.
Shaun: To a large degree, it’s a competitive question for banks. You offer trail in order to build more business, but it comes at a greater cost. I think that lenders have to think about sustainability, because without sustainability the industry could be impacted. Advisers are a very important channel to lenders, without a doubt. Channels are going to change, too, in the future, as banks become better at digital channels and offering services. Robo-advice is coming. The danger is if the tides rise too high, you’ll find that those other channels will be explored more aggressively, because cost is such a big factor.
Glen: The interesting thing around that is if we talk about cost and the evolution of the adviser channel. If you ask advisers where they see their businesses going in the future – it would be that we have a book of our clients that we service, that we look after for the long-term, which actually reduces the costs from the bank.
Christine: But that then creates a situation where you’re valuing your book based on the trail they do, which, in a mortgage advisory industry, historically is not possible. We haven’t been able to do it because the trail value is only of value for as long as those trails are being paid. It’s different to the insurance industry.
Christine: That’s why so many brokers have written through Sovereign. Sovereign still puts a high value on the trail value of the business.
Glen: But if you look at the servicing aspect of Sovereign, Christine, they give you access to their system. So, we can actually go in, we can see whether the loan is in arrears or not and we can manage that. We can also make sure we get a notification on the refix, which goes in line with our CRM anyway. We’re actually managing that upfront. There’s no churn basis on that.
Penny: Funnily enough, we do an annual review on our commission and we check a couple of things. We check what’s happening in the market and cost analysis. We’ve also pulled in, this time, a lot of the work that’s been done with ASIC and Sedgwick review over in Aussie. Generally, we’re pretty comfortable with where we’re at. It doesn’t look like there’s any particular behavioural drivers happening between different models, which is one thing we look at. It’s not that trail is a bad model, it’s just not one that we’re interested in going to right now. We’ve had it in the past and we’ve stopped it, as Christine pointed out - sorry! The thing I do like in upfront, which is a really simple advantage over trail day-in-day-out, is that it’s so simple.
How worried should brokers be about digital disruption?
Shaun: A lot of it is about advice, confidence and relationship with your clients. The advisers that are focused around that, I don’t think need to be worried at all. The brokers that are very transactional and perhaps haven’t built those relationships or those influences, I think it will be more challenging for. Lenders are there to be able to promote their products and to be able to do it with the best service at the lowest cost.
Christine: This is what we’re seeing with ASB at the moment and their online digital refix tool. The issue I have, as an adviser, is that doesn’t offer the customer any advice at all.
Glen: I think just as much as the banks are trying to spend money on digital, so are our businesses. We’re looking at our businesses and promoting online applications through our own websites. That’s about business growth and commercial reality just as much. Yes, it’s harder for someone newer coming in to be able to do that, but that’s normal. You’ve got to start somewhere.
Shaun: And again, it’s all about customer choice, isn’t it? What do the customers value? If it’s ease of transaction, or ease of relationship, or depth of relationship, all those things come into play. These [robo] tools will be built on very quickly. The advice that people may be able to get through the digital
space may be enhanced advice, that might be almost as good as your advice down the track. Things are moving quite quickly.
Christine: So, what you’re effectively saying is that there may not be a need for an adviser?
Shaun: For many people who are looking for a transaction to be completed at the lowest price, maybe not - in the future. For people who are not very well-versed and for whom trust is a big factor (because it is a major transaction), or it’s quite complex, I think advisers will always exist. It’s where that sits.
Are we seeing a seachange happening in the industry around lenders, with more business going to non-banks?
Christine: We’ve got to be careful now, once again, with regulation, that we’re not going to be digging a hole for a customer. We’re not going to go to a non-bank lender even if the non-bank lender is going to do it (because nobody else is going to do it) if it’s going to be digging a hole for that customer.
Glen: Sometimes it’s time-bound as well.
Jenny: Yes, that’s right. Transitioning to those lenders (and I hate the word secondtier and all that sort of stuff) I always think it’s alternative solutions. Particularly when we’re in a complex environment right now, where we have got a lot of rules that we have to work with – LVRs and what have you – I think using that wider panel of lenders is where we really add value as advisers to the consumer.
Adrienne: I was doing something for the board and of that information that we have (I obviously don’t have all the groups or all the lenders), stats for 2016 for non-banks - not limited to my business, that’s other non-banks that I had the data for – was 1.9% of industry and for 2017 that’s up to 4.5%. It’s growing. There’s an opportunity for growth and it is growing and that’s with people taking choices, changes in credit appetite, it’s the changes and opportunities that creates.
Penny: There’s a good element of the RBNZ with the LVR. The investor market has completely changed. It’s definitely reduced, the flipping. Even though there are media articles, as Glen said, about the flipping, the haircut on that flipping is enough to make people pause. The LVR bands make the returns a little bit different.
Glen: The investors that are actually in it for the long-term won’t buy into doing deals like that because they’re not seeing the yields. Yes, there might be capital gain, but if they’re holding long-term you’ve got to have a yield to keep that going, otherwise you have to stop your investing.
Tony: What’s very interesting is that there’s this perception that non-bank lenders are doing high LVR loans. We’re actually not. It’s anything but. Because we’re a mortgage trust, we’re fairly limited to the LVRs that we can go to anyway, which are typically less than where the banks have always been. In fact, they still are in some cases. It’s not the LVRs, it’s the way we structure the transactions. I still think that it’s very much people doing business with people to ensure that the customer gets the absolute best result and that the broker is provided with the absolute best options that we can provide. I don’t believe for one minute that we can do that through technology. I really don’t.
What do you think of the state of the mortgage market?
Christine: You look after your clients and they will continue to come with you. We’ve got to know what’s around in the market and we like to be told what lenders are offering. We’ve got to be aware of the lenders out there and, once again, it comes down to the lenders. It’s a matter of keeping up, going with the flow and ensuring that our customers are getting the best advice.
Tony: It’s a time of great opportunity. It’s a fantastic business to be in. It’s up to us as lenders to get closer to our adviser network, see them as an extension of our sales force, an extension of our business. It’s up to us as lenders to find the best possible, quickest, most consistent way to communicate any changes so that we’re not wasting the advisers’ time.
Jenny: I think the reason we all love this business is because it constantly changes. It’s the old story – cream always rises to the top. I think if you operate your business with ethics, transparency and professionalism, you’re going to do well in any market. We just need to consistently keep up those standards.
Shaun: It’s a great industry with great people within the industry. I think the industry needs to continue to look forward and that’s always the challenge when the industry is quite fragmented in places. It is about partnerships with your clients and partnerships with us as lenders. That is particularly strong with the likes of our organisation – when people get our story and we get to understand the advisers well, and them us, then it works really well.
Adrienne: How do we make sure that everyone is abreast with what’s going on? I think there’s a huge opportunity in the industry and in the market and I think the good ones, the larger businesses, will succeed through it.
Penny: We’ve talked a lot about the customer in these conversations and I think it’s a good reminder that we’re in these businesses because there is a customer. If we keep that at the centre of everything we do and also run really good businesses, whether it’s from a compliance point of view or a revenue-cost point of view, things will be fine and things will continue to grow.
Glen: We all care about the industry. It’s making sure that the synergy between lender, adviser and client is smooth and clear and that we can go forward as one voice. We’re all clients of the banks, with the houses that we have and so on and so forth. Our role and responsibility is to actually really educate our clients and help them to grow. We do that as a team rather than separately. That’s the thing that I’d really like to see. ✚
LEGAL SALES & MARKETING
By Paul Watkins
DAY BY DAY OR YEAR BY YEAR?
When setting goals, it pays to consider if chasing short-term gains could ultimately damage the long-term health of your business.
Many tend to look at understanding of marketing. perceived by your market. Such descriptors as their sales and marketing The best way to think of marketing is that it ‘experienced, client-focused, one-stop-shop, activities on a day to should be designed to replace your worst professional, service first and client satisfaction day basis. When I talk to clients with more of your best clients! This is our goal, are all clichéd and are in fact brokers, I hear, “Hey Should means that it should be focused on your best expectations. (These are all real from broker’s I give this a try!” or “This could be a great event” kind only. You will of course pick up all sorts of web sites by the way) Think of them in reverse. or “Well my last newsletter got no responses, clients along the way, but your goal is to get A client would never deal with a brokers who is so we may as well not do one.” Very tactical, more of the best kind. NOT professional, NOT client-focused and one short term thinking and obviously unplanned. So now define your “best” kind of client. It who does NOT have their interests at heart. This is not a direct criticism, but an observation should be easy to work out the 20 or 30 you And what does a ‘one-stop-shop’ mean? In about how many do not think long term, would most like to replicate. It isn’t necessarily the main, you are a single product service which you need to do. the ones that gave the biggest commission, so – mortgages. You may offer life and general
It’s easy to focus on filling the appointment much as the ones you genuinely enjoyed insurance and may even offer investment book for the following week and not looking dealing with and know you can be of the advice, but why does the client call you in the beyond that. But sustainable growth requires a greatest service to. You may be surprised how first place? For a mortgage! So how do you long term view of marketing. It all starts with narrow pattern is that they fall into. position yourself within the very crowded setting yourself a goal for the year. Then your How do you wish to be known to this clearly marketplace? The easiest way is to focus on a time needs to be spent working out how you defined target market? In marketing terms this market segment or to re-position your offer. will get to that goal. This requires a broad is called ‘Positioning’, which is how you are Some have done the latter by offering a
‘debt-reduction’ service. This works for those who do. Others target investors wanting to finance rental properties.
What’s important to note is that this does not stop others outside your focus contacting you. It just gives your marketing a shaper edge that can cut through the over-filled internet chatter. We live in an online world and at random, I Googled “Mortgage Broker Hamilton” to see what came up. The top four and bottom three are paid ads, through Google AdWords, which include some banks. Under those I didn’t detect any immediate points of difference, until I can across “Stop Renting, Buy Sooner” as one headline. Clearly aiming for first home buyers, this broker has chosen a position that sets them apart from others.
It doesn’t matter if you do not want first home buyers, the point is that this broker does. If you were a first home buyer and were a little afraid to see a bank for fear of being declined, then you are highly likely to click on this search listing. Get the idea? It’s worth taking time to find your own ‘position’ based on your preferred client base.
An adjunct to this is that not everyone is a client. You may be called by someone, who after hearing their situation, you realise they could be a difficult case. But you may have a clear desk at that time and the commission would be appreciated. The problem here is that the time to deal with this case distracts you from finding a new much more preferable client. This is incredibly hard to do, but turning down undesirable clients is without doubt in your best interest long term.
On the subject of search rankings, posting blogs, newsletters, articles and new content to your web site is the fastest and by far the cheapest way to do this. Google penalises static sites and rewards frequently updated ones in terms of rankings.
In keeping with looking at the long game of client hunting, keep in mind that you are selling your expertise and not a service. There is a definite distinction. Prospective clients already know what your service is – it’s providing them with a mortgage. But why go to you? Because you are the ‘expert’! A first home buyer would probably contact the broker mentioned above, as that person is perceived as the ‘expert’ for first home buyers, despite every other broker and bank being able to help them.
This means not promoting interest rates, a shopping list of services (which many do) or your flash new office with great parking. It means working out how to show your expertise. Examples are explaining case studies in your blog, (no names of course), making comments on issues of the day and putting all this in jargon-less terms reflecting the ‘pain’ you are solving for your clients.
A term you may have heard is ‘Dolphin Marketing’. This is only promoting yourself when things slow up. Popping you head above water now and again to breathe. As we move more and more online, this doesn’t work. High search ranking do not find themselves, getting across a perceived expertise is a constant activity and looking closely at your market position (or reaffirming it) should be at least a quarterly exercise.
I heard this whole idea of a long game put very well one day on the radio. Marcus Lush (Former Radio Live presenter) was interviewing a café owner who had added a 15% surcharge to dining on a Public Holiday. He pointed out that the short term gain of the 15% could cause damage to the long term health of the business. The owner of the café disagreed and cited staff costs on such days.
Marcus was right. As a customer, I might buy from the café if I was on a trip and had already stopped, not knowing where the next one was. But I would never go back. Sting me once and the damage has been done. That café owner should have factored the public holidays into the whole year. But she chose to take each day as it came to ensure that on that individual day she made a profit.
Very short sighted. ✚
Paul Watkins writes blog content and
newsletters for financial advisers.
