FEATURES

PROFILE

By Susan Edmunds

Severnkeeps on rolling...

Rod Severn wants a bolder approach from his members as he tries to increase financial literacy.

New Professional Advisers

Association chief executive Rod Severn admits he approached his new job with a bit of anxiety and trepidation.

He was new to the industry, relatively new to the country and wasn’t sure how he’d be welcomed by the 1200-strong membership of the association.

But he says he needn’t have worried.

Being an outsider coming in has been seen as a benefit rather than a hurdle and he’s been warmly welcomed by advisers around the country. Many pointed out that it was good to have someone with a fresh perspective in a key role.

Severn came to the PAA top job from

Smartpay, where he was chief operating officer. Before that, his career was in Australia, in senior management in organisations mainly operating in the IT arena.

“The largest had $150m turnover and 135 staff members and I was responsible for all of that, it kept me busy. I have been a sales director and chief operating officer here,”

Severn said.

He was approached about the PAA job by a board member and decided to put his hand up. “It stacked up and I got the role. It’s been terrific, I’ve been warmly welcomed to not only the PAA but the industry as a whole.”

Severn has been travelling the country, talking to advisers at a series of meetings and roadshows. He says he’s been impressed by the passion he has seen so far from the industry.

A key focus for the PAA at the moment is its learning and development offering. “There’s huge scope for myself and the PAA to get involved with a range of opportunities and platforms we want to take forward to members. We’re broadening the content and accessibility of our learning and development offerings.”

He says the PAA will offer 35 to 40 structured credits over the next two years so members can pick and choose what works for their businesses. Under the new code of professional conduct for authorised financial advisers, they have to complete 30 hours over two years. “We’re increasing our business value-add for members,” Severn says. “Advisers can choose what they do for their 30 but it will all be from the one place.”

Severn said the PAA would also offer training that would not count as structured hours but would help advisers improve the performance of their businesses, such as IT courses and sales tips. “Members may struggle to get that elsewhere.” There is a growing role for financial advice in New Zealand, Severn says, as KiwiSaver balances grow and people take more interest in their investments.

❝ I use a quote from our chairman ‘if you think a professional is expensive, wait until you try an amateur’. I think that’s a great tagline.❞

NOT AWARE

“You can get [products] online but it’s not going to give that knowledge you need. The younger generation join organisations and get KiwiSaver but they’re not aware of where

their money is going to go or how it’s invested. They need a trusted adviser to tell them they have options. A lot of funds are costing people to have money in them. The reason to have advisers is to impart that knowledge.”

A lack of financial literacy is a big problem that the PAA is keen to work on, Severn says.

“Kids leave school and go to university and they’re lumbered with a massive debt and they have no idea what to do with it. They carry it for years not understanding the damage it’s doing to them. There’s a place for the industry to create financial literacy at school level. That’s something we’ll be looking at over time.”

Advisers should also see a pick-up in their businesses on the back of a more buoyant economy. “From an economic point of view, the New Zealand economy is going quite well and there’s an opportunity for advisers to prosper and that’s going to get stronger as the economy is going well. The future is quite bright.”

But there’s still a lack of knowledge about advisers and what they offer, he says. “There can be a lot of work done around getting information about that to consumers.”

The PAA would need to lead that effort, he said. “I use a quote from our chairman ‘if you think a professional is expensive, wait until you try an amateur’. I think that’s a great tagline. If ever there was a message to get out to consumers, it’s that.”

TOUGH PERIOD

Asked what challenges individual advisers have identified in their early conversations with him, Severn says he’s quickly come to realise that authorised financial advisers in particular have been through a tough period of transition with regulation – and there is more to come. “RFAs are not quite in the same situation, and they’re hoping they won’t get into it but I suspect they might.”

PAA staff try to stay ahead of the game by working work closely with the Financial Markets Authority on regulation, Severn says.

Board member Angus Dale-Jones undertakes a lot of background work talking to authorities about legislation and required regulation, Severn says. “He’s made it plain to them that advisers need to run their businesses, not get bogged down.”

The chief executive’s role is about getting out to the adviser force around the country. “I’ve got a lot to learn and advisers will be teaching me. I’ll be learning from them, talking to them and understanding the issues, telling them the PAA is here.”

He says it’s an exciting time for the organisation and the industry. “It’s all about the 1200 members and their wider community, their families and communities.”

He wants a bolder approach for members and has identified projects that will be launched over the year. “We’re ramping up the

regional operation to get better representation out to the regions. It’s one thing to send out an email saying what we want to say, it’s another to turn up. I’m going to organise a trip to Invercargill and let advisers know that from 9 til 3 I’m going to be at this café, come and talk to me and let me know what you want from us. That’s the biggest value I and the PAA can offer, to be there. To listen and be accountable.”

A lot of time has been spent on the road so far, Severn says, but he doesn’t mind. “They didn’t tell me when I started that travel would be involved but I’m okay with that. I’m not going to sit on my chair in my office in Queen St all the time. It adds no value to advisers in Mt Maunganui or Dunedin South. I’m also meeting product suppliers and heads of groups and it’s vitally important to develop those relationships.”

Severn said he was handed a clean slate when he came into the job, and didn’t have any preconceptions of what it might entail. So far, he hasn’t had one negative comment about the fact he is new to the industry. “Most can see that’s something good, that I’m bringing new ideas and willing to ask questions that a veteran adviser might not.”

Things are looking bright for the PAA, Severn says, and he’s relishing his new role now that the initial worry about entering a new industry has gone. “I’m yet to wake up in the morning and think ‘I don’t want to go to work’. I bound of out bed and I’m in to work early.” ✚

PERSONAL LENDING

By Susan Edmunds

Peerless lending

Personal lending has taken an innovative turn in NZ following overseas leads, writes Susan Edmunds.

Peer-to-peer lenders will start

to open their doors to the public over coming months, and one is already considering ways to involve mortgage brokers.

Under the Financial Markets Conduct Act, peer-to-peer lending services, described as a kind of “dating agency” matching up people with money to lend and those who need to borrow, and crowdfunding services have been made possible for the first time.

Peer-to-peer lending services are popular overseas, such as the LendingClub in United

States and RateSetter in Britain, which has its eye on international expansion. In Australia, Westpac recently invested A$5 million in SocietyOne, a peer-to-peer lender.

Previously, they were only possible in New Zealand when they worked on a charitable basis, and those lending money expected nothing in return, or where a new prospectus was issued for every individual borrower, making the process unworkable.

Since April 1, services hoping to act as peer-to-peer lending and crowdfunding intermediaries have been able to apply for a licence from the Financial Markets Authority. The FMA says that so far 12 expressions of interest have come from companies wanting to offer crowdfunding, and four for peer-topeer lending.

The FMA said it has received one application for a purely peer-to-peer lending service, three from crowdfunding services and one application from a provider wanting to offer both crowdfunding and peer-topeer lending.

Applications

The FMA has said it expected a decision on whether to grant licenses to be made in weeks rather than months after the applications were received. But some would-be providers are finding the process of getting their applications across the line onerous.

The FMA’s rules allow each borrower to raise up to $2 million a year through peerto-peer lending. But a spokeswoman said individual providers could set lower limits.

Roger Wallis, of Chapman Tripp, said peerto-peer lending and crowdfunding were generating interest because technology had progressed to the point where it was much easier to run. “You’re not going to be able to use peer-to-peer funding to buy a mansion in Takapuna but you might to kickstart funding for a small business, which is the lifeblood of our economy,” Wallis said.

Wayne Croad, majority owner of Finance Direct, said he hoped to have his peer-to-peer service, Lending Crowd, operating this year.

He said peer-to-peer lending was an inevitable next step in the evolution of the finance industry. He said the internet was “disrupting” a number of industries, and it was just the next in line.

“It’s one of those ‘you can’t stop progress’ moments,” Croad said.

Croad said his company was well positioned to take advantage of the opportunity, as Finance Direct already had a good understanding of lending and risk. “It’s an area where we want to participate.”

Peer-to-peer services would target business that was currently the domain of the big banks, he said. “It’s a direct play against bank customers. The rates will be more competitive that what banks are offering for debt consolidation, credit cards, and car and boat loans. That’s the space we’ll be looking at.”

He expected to offer loans up to $50,000 and said the market would decide the interest rate.

Commission

Croad said he expected to see opportunities in peer-to-peer lending for mortgage brokers. “We deal with a number of mortgage brokers now. I think the right thing to do would be for mortgage brokers to refer customers to the site. If they can’t use their property as security for a loan, I hope [brokers] would refer them through and put together a different type of arrangement, with commission paid for the referral to the site.”

Mortgage brokers were a valuable source of business, Croad said, and eventually peerto-peer lending could even be expanded to be used when people were looking for home loans. “Mortgage business does lend itself to peer-to-peer as well. But there’s no model to follow overseas, no one is doing peer-to-peer mortgage products.”

Credit cards and personal loans tended to be higher-margin offerings for the banks, he said, which was why they were the usual peer-to-peer targets.

“They’re not targeting lower yield mortgage business but they may do in future,” Croad said. “We’d want to see a successful model operating before launching it ourselves.”

Wayne Croad

❝ It’s one of those ‘you can’t stop progress’ moments. ❞

Croad said peer-to-peer lending seemed a good fit for him because Finance Direct was already operating as a non-bank lender. He said the barrier for entry to the market was slightly higher than for crowdfunding providers. “We tick the regulatory boxes anyway. We understand the market. Crowdfunding is for venture capital, the entrepreneurial market. That’s not what we have experience in.”

Massey University banking expert Claire Matthews said peer-to-peer lending was very popular overseas. Some lenders could offer better interest rates because the company running the platform did not have banks’ big operational costs. In Britain, a survey found 9% of respondents to a consumer association survey had invested via peer-to-peer lending.

Traditional loan

Peer-to-peer platforms did not tend to do as much analysis of the borrower, she said, so the risk to those investing their money could be higher. Some borrowers were those who could not get a traditional loan while others were people who did not want to participate in the standard banking system.

But John Walley, who is working through the process of applying for a licence for Lendit. co.nz, said the risks were being overstated.

He said the key for the peer-to-peer market was the difference between what banks pay on deposits – currently about 3.5% - and what they charge for unsecured lending, upwards of 15%. “Between those two numbers is our space to play,” Walley said.

He said good, quality borrowers would be able to approach Lendit.co.nz for a cheaper loan than they would get from the bank and people with money to deposit would be able to earn more on their cash. “The person borrowing it wins a bit and the person lending it wins a bit.”

Walley said he would not consider borrowers without a good credit rating. Because the loans were unsecured, borrowers had to have some skin in the game, he said. If they already had a bad credit rating, they had nothing to lose.

But the process of obtaining a licence is not straightforward. He said the system seemed to be geared towards big organisations and existing non-bank lenders, not small start-ups. “The FMA is using a sledgehammer to crack a nut and don’t seem to appreciate some risks and fails to grasp other risks.”

Additional

He had been told that his application would take more than the 40 hours allocated in the $6238.75 peer-to-peer application fee, and each additional hour would be charged at $230 for board members’ time and $178.25 per hour for staff. Lendit is also seeking to offer crowdfunding.

Walley said that as a start-up, it was important for Lendit to manage its resources, and the FMA process seemed onerous for the amount of risk that would be taken. “I’m not sure what risk they’re trying to avoid or prevent. We’re working through the licensing process and opening more and more esoteric conversations. We could go live tomorrow if we were licensed.”

The size of lending would be small enough to keep the risks down, he said. He expected that the type of lending by his site would be similar to overseas examples, where a typical loan was $4000, supplied by a group of lenders each lending $100. “All borrowers and lenders are choosing to use the platform, borrowers’ information is entirely available to lenders and investment information is entirely transparent to investors and all risks are clear. The quantum of loans is relatively small.”

Borrowing

Walley said he did not expect anyone providing peer-to-peer or crowdfunding platforms to make a lot of money. “I’m much more interested in getting this end of the market working beyond borrowing from friends and family.”

He said peer-to-peer lending appealed to him because it would bring people into the idea of using their money in a more creative way than just leaving it on deposit with the bank. “I hope it will lead people into crowdfunding. That’s where I see the benefit.”

Another group eyeing a peer-to-peer license is Harmoney, fronted by Rob Campbell and Neil Roberts. Snowball Effect is operating crowdfunding for small businesses and “money matchmaking” service Nexx is believed to have been working on its launch for some years. ✚