TMM - The NZ Mortgage Mag Issue 3 2015

Issue

03

2015

PAUL WATKINS

GREAT MARKETING TIPS

BROKER PROFILE MARK PULLAR

A LOOK INSIDE

ANZ'S LENDING BOOK

CONTENTS

16

UPFRONT 04 EDITORIAL

Advice comes of age.

06 NEWS

BNZ decision easy, RESIMAC’s new products, Peer to Peer lending for advisers and more.

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

26

Mark Pullar

FEATURES 14 HOUSING COMMENTARY Feeling the heat yet?

26 MY BUSINESS

Meet Mark Pullar from Roost in Queenstown.

28 CONFERENCE BENEFITS How to get the best from conferences and roadshows.

34 INTELLIGENCE

A look inside ANZ’s lending book.

COLUMNS 20 INTEREST RATES

BNZ’s Kymberly Martin looks at the OCR cuts mean for borrowers.

22 PAA NEWS

Pride, professionalism, passion and pictures.

24 SALES AND MARKETING

Paul Watkins offers some great marketing tips.

30 INSURANCE

Advice on premium structures.

32 LEGAL

Response and responsible use of words.

EDITOR’S LETTER

Advice comes of age I think it is also a point in time where we can say mortgage advice has reached a watershed in New Zealand. People don’t just go to an adviser because they have a problem. BNZ noted in a presentation to investors that part of the reason for its re-entry into the market as that advisers are valued for their expertise, independent advice and clients have a perception of better pricing.

T

here is so much going on the mortgage market at the moment it is a little hard to know where to start with this editorial.

But I’ll take a crack at it and suggest one of the biggest surprises of recent times has been the changing economic fortunes of New Zealand.

It wasn’t that long ago that we start on a tightening cycle with monetary policy and for the next few years there was only one way the OCR was going. That was up.

Now, quite abruptly it’s falling and there are predictions it will get as low as 2.50%. My guess is this is going to create a lot more discussion and enquiry from customers and the question of whether to fix or float will come up more regularly.

That’s good for business and with rates now below the 5% market that’s good news for borrowers.

The ones which aren’t so lucky at the moment, and face an uncertain future are property investors, particularly those in Auckland. They will need bigger deposits from October 1 and also lending may get tougher as new capital adequacy rules kick in. Again this is good for mortgage advisers.

04

Awards and gongs I can’t finish this editorial without congratulating the winners at the PAA Conference this year. Westpac, deservedly, took out Lender of the Year Award, while RESIMAC picked up Specialist Lender of the Year. Both these organisations are well-led and are constantly looking for ways to help mortgage advisers.

Paul Fuller, a serial award winner, was named Mortgage Adviser of the Year. Paul is no stranger to winning awards and runs an excellent business in Blenheim.

The new name to emerge at the awards was Loan Market’s Simon Maule who was named Rookie Adviser of the Year. We will have more on Simon and what he does in a future issue of TMM. And finally a reminder to enter TMM’s Top Mortgage Adviser of the year feature.

This feature, which we started last year, has proved to be very successful.

We are looking to find the top writes in New Zealand and find out about their success.

In this feature they share some of their secrets to help the whole market go.

Judging on last year’s figures you’d need to have written around $35 million worth of loans in the year to March 31 to qualify. If you’ve done this then please go to mortgagerates. co.nz/topbrokers

Philip Macalister Publisher

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

In the next issue of TMM we will publish our annual list of the country's top brokers. The feature will celebrate the success and good work mortgage advisers do for their clients. It is also an opportunity to profile the biggest writers in the business and find out what makes them successful.

We would like to invite all mortgage advisers to take part in this feature.

The main criteria will be the volume of loans settled over the past 12 months.

To take part in this feature either contact.

Philip Macalister (Ph) 0274-377527 (E) philip@goodreturns.co.nz or go to www.mortgagerates.co.nz/topbrokers

05

NEWS

BNZ broker return ‘easy’ decision

B

NZ’s decision to re-enter the mortgage broker market was “pretty straight-forward”, chief executive Anthony Healy said.

“It was a pretty easy decision for me to be honest,” he told TMM. He said he was not at the bank 12 years ago when it decided exit the market, but a return was a simple decision.

Around a quarter of all home loans were written through third party channels and BNZ needed to be part of that market.

Many customers in New Zealand wanted to work with mortgage advisers, he said.

“We wanted to extend our reach to all New Zealand home loan customers.”

BNZ is entering the market in “a measured way”, he says, initially working with NZ Financial Services Group brokers in Christchurch and Auckland. Over time BNZ will add more NZFSG advisers to its distribution and then other groups.

“It will take a couple of years [to fully roll out the offer], he says.

Healy won’t disclose how much BNZ will pay advisers; the bank has, however, confirmed it will use a trail commission model.

“We’re not going in with some aggressive or differentiated proposition in terms of commission. It’s pretty standard in the market,” Healy said.

He confirmed the offer was similar to Westpac’s payment.

NZFSG chief executive Brendon Smith said that 100 brokers from NZFSG and Loan Market would be the first on board.

06

“We’re not going in with some aggressive or differentiated proposition in terms of commission.”

– Anthony Healy Smith acknowledges the staged roll out will be “challenging and frustrating for some of our members.”

It was common sense and important to acknowledge, however, BNZ was making a long-term move.

“It’s not a pilot [scheme]; it’s a commitment,” Smith says.

He said if the bank “opened the floodgates it could be a disaster.”

Smith says there is customer demand for BNZ products and the bank has “quite unique products” including its offset product Total Money and Home Advantage.

In its half year results for the six-months to March 31, BNZ reported its profit had risen almost 28% with income up nearly 17% and expenses slightly lower.

The bank's profit for the period rose $109 million, or 27.7%, to $502 million from $393 million in the corresponding period last year.

Total housing lending rose from $30.6 billion to $31.4 billion. But its share of the

Anthony Healy market remained flat. Healy said that was a “good result” as the bank was only competing in 75% of the market. As it moved into the broker space he expected to see the bank’s market share increase.

He would say by how much, however, it was forecast to grow.

Healy said BNZ was “skewing investment to Auckland where there’s more growth and we are a bit under our natural share in Auckland.” ✚

NEWS

Putting down a deposit without cash

R

ESIMAC has added Deposit Bonds to its product suite in an effort to make the process of buying a home easier for borrowers.

A Deposit Bond guarantee is a substitute for the cash deposit purchasers need when buying a property and can be issued for all or part of the deposit required, up to 10% of the purchase price.

Home buyers using a deposit bond does not have to pay the deposit in cash when the contracts are signed. The purchaser simply pays the full purchase price at settlement.

Deposit Bonds are offered through an Australian subsidiary of CBL Insurance, called Deposit Power. They were last available in the New Zealand market around seven years ago.

Since then CBL has changed hands and is now New Zealand owned.

RESIMAC Home Loans general manager Adrienne Church says: “In many cases, customers may prefer a more cost-effective

08

“Another segment of the market that can really benefit from Deposit Bonds are customers who have sold their current home but funds are not yet available for the deposit on their new home.”

– Adrienne Church

Adrienne Church

alternative to using their own cash.”

“This product will have broad appeal with investors, who are using the equity in their current property and wanting to maximise their borrowings. Borrowers who would otherwise have to break a term deposit or sell their shares to obtain a cash deposit are also great candidates for a Deposit Bond.”

She says RESIMAC introduced Deposit Bonds after encountering hundreds of situations where a potential purchaser may not have ready access to the cash deposit required to secure their ideal property, yet are genuine purchasers.

“Deposit Bonds can also add significant value to those buying at auction. When a customer intends to purchase a property at auction and pay the deposit using a Deposit Bond, the property details are left blank on the Guarantee Certificate which allows the customer to attend numerous auctions and have the option to use a single Deposit Bond Guarantee Certificate at any one of them.”

“Another segment of the market that can really benefit from Deposit Bonds are customers who have sold their current home but funds are not yet available for the deposit on their new home. This will allow them to proceed with the purchase and provide the necessary time for funds to become available to complete the purchase on their new home,” Church said.

If the purchaser were to default under the terms of the contract, CBL Insurance will pay the vendor in the contract within two working days after the receipt of all required documentation and information, and would seek reimbursement from the purchaser.

A $40,000 deposit guarantee will most likely cost the customer less than $1,000. This is often much cheaper than short-term finance and they can continue to earn interest on their savings until settlement. If the customer does not use the Deposit Power Guarantee within 30 days of the date of issue, an administration fee will be deducted and the balance refunded to the borrower. ✚

Mystery consumer survey nets brokers

M

ortgage brokers in Australia have come under fire after consumer advocacy groups published the results of a mystery shopping survey.

CHOICE (the equivalent of Consumer in New Zealand), Consumer Action Law Centre and Financial Rights Legal Centre want increased funding for the regulator, ASIC, so it could investigate the mortgage broker market.

CHOICE shadow shopped at three of the country’s largest mortgage brokers and said it found examples of undisclosed commissions and that bad information was provided.

“From pressure sales tactics to failure to openly disclose commissions, the CHOICE investigation found brokers from Aussie Home Loans (owned by CBA), Mortgage Choice and Australian Finance Group (AFG) often failed to adhere to best-practice benchmarks and give appropriate advice,” CHOICE chief executive Alan Kirkland said.

Kat Lane, Financial Rights Legal Centre, said: "For consumers to have confidence, mortgage brokers need to act as professionals acting in the interests of clients, not as salespeople driven by commissions. Interest rates are low now but they will go up, mortgage

brokers need to help borrowers choose an affordable mortgage, by discussing the impact of potential interest rate increases and understanding a borrower’s ability to repay long term.”

In Australia mortgage brokers originate 50.4% home loans.

CHOICE sent five home buyers to three of the biggest mortgage broker businesses in Australia. Of the 15 brokers visited, seven rated as “poor” by a panel of experts and only one earned a “good” rating.

“Our sample was small, but we found very few examples of good practice,” Kirkland said.

“Instead, our prospective borrowers were often pressured into poor product choices.”

Issues it found included: ➤ Advising a homeowner who wanted to refinance her home loan and was in an unsecure employment situation to use the equity in her home to invest in new property or go on a holiday. ➤ Pushing his own company’s product even while acknowledging that other lenders offered a cheaper loan. ➤ Advising a couple to borrow $1 million against their home when they only needed $600,000 to buy an investment property. ✚

09

NEWS

Kepa signs up with P2P lender

010

D

ealer group Kepa has inked a deal with allows its members to access peer-to-peer lending for their clients.

It has done a deal with Harmoney where the company will pay a fee to mortgage advisers who refer business to the company.

Harmoney was the first P2P lender to get a licence in New Zealand and it offers personal loans up to $30,000.

Under the arrangement it will pay mortgage advisers a $200 fee for any deals referred and settled. Harmoney has the right to clawback’ any commissions paid from loans that are cancelled.

Kepa Head of Home Loans, Heather Royle says her goal is to make sure members of the group have access to all lending products in the market place.

Meanwhile peer-to-peer lender ThinCats Australia has unveiled a new commission structure for brokers in Australia.

It already pays brokers a commission of 25 basis points for a lead on settlement of a loan (without a fully completed application) and a trail commission of 15 basis points.

Under its new model ThinCats will now pay a commission of 60 basis points for a lead with a fully completed application, with a trail commission of 15 basis points.

The group has also announced no clawback, and borrowers are allowed to repay the full amount of the loan at any time without penalty.

“We are keen to develop our relationships with brokers and believe our commission structure will attract more of them to our platform,” ThinCats Australia CEO Sunil Aranha said.

Thin Cats provides secured business loans to SMEs. The second firm in New Zealand to get a P2P licence, Lendme, will offer secured loans on property transactions. ✚

011

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

Scot Bailey

Bailey calls it a day

Well-known business development manager Scot Bailey is leaving RESIMAC after 11 years with the company and its predecessors.

Bailey is joining Westpac where he will replace Tim Hurley. Hurley has decided to leave the bank and work as a mortgage adviser.

Westpac director of third party banking, Kylie Kneale, says: "Scot is well known to many (mortgage advisers). We are excited to have someone of his experience and calibre joining our team."

Bailey has been with RESIMAC and before that NZF for 11 years. He spent some time with Baycorp but originally started his working life at Westpac in 1991.

He starts with Westpac on August 10.

Brad Mower

FMT adds another Auckland BDM

Brad Mower is joining Tauranga-based First Mortgage Trust (FMT) as a business development manager in Auckland.

He will work alongside FMT's current BDM, Evan Barnes.

Mower is well-known in the financial sector with more than 30 years’ experience in the

012

industry, having worked with North South Finance, DBR Limited and more recently, Kris Pedersen Mortgages in its Specialist Lending Division.

Since its establishment in early 1996, First Mortgage Trust has built a niche market with the ability to remain flexible within its lending criteria and undertakes first mortgage advances across a range of residential, commercial and rural properties.

First Mortgage Trust’s manager has been granted a licence by the Financial Markets Authority as a managed investment scheme manager. It is one of the first companies to be granted such a licence and currently the only licenced manager of a Mortgage Trust.

effective property portfolio.

After a very successful career at the BNZ, Rohit Rup is welcomed to the Auckand Mortgage Supply team. He has previously worked with fellow Mortgage Supply members in his bank role, and is a valued addition to the team.

Daniel Chen

Raewyn Thomas

Group adds to its supply of advisers

New dealer group, the Mortgage Supply Company has added four advisers, bringing the group membership to XX Raewyn Thomas is based in Wellington and has many years of lending experience.

She is an expert in property investment structure, and offers her clients quality expertise and advice. Thomas is a very welcome addition to the Wellington Mortgage Supply team.

David Xu has many years of lending experience at ANZ. Xu recently joined the Auckland Mortgage Supply team, and is already helping clients achieve their home ownership goals.

Glenn Neil comes to The Mortgage Supply Co. with a variety of life experience. He has built a substantial property portfolio over past 13 years, and has done this by educating himself on finance and building wealth through property investment at a fairly young age. Now a qualified mortgage adviser, he is able to offer his clients great solutions and show them the pathways to building an

Ting Wang

Mortgage Express continues to add

Daniel Chen, joins the team of Aucklandbased mortgage advisers. Originally from China, Chen has lived in New Zealand for 10 years and holds a New Zealand Diploma in Business Management. He is fluent in Mandarin and speaks some Cantonese.

His previous experience includes a customer service role at Sky City and a sales position with an electrical supplies company.

Through his own property investment experience, he has cultivated an interest in finance and real estate.

Eric Ou Yang also joins this team. He has more than nine years working at ASB and ANZ, three years of which were spent in a lending environment.

Originally from Taiwan, Yang has lived in New Zealand for over 20 years and is fluent in Mandarin.

A third new appointment at Mortgage Express is Ting Wang. Originally from China, Wang comes from a financial background, with three years’ experience in the banking industry in China and a further two years as an Assistant Accountant for an accounting firm in New Zealand.

Ting is a member of NZICA and has a Master Degree in Professional Accounting. Based in East Auckland, Ting is fluent in both English and Mandarin.

Loan Market’s new advisers

Annette Chalmers has taken up the opportunity of establishing Loan Market in Invercargill, operating out of the newly merged Ray White office will give her a great base to launch her business. She is an established adviser from a strong banking background out of SBS Bank and her presence rounds out the group’s full coverage of the South Island.

Colin Davis has left the ANZ bank to join Loan Market. Davis has had a long and successful career at the bank and felt the time is right for him to establish his own business.

He has a wide range of contacts and referrers and will be operating in the Shirley area in Christchurch.

Pravin Chandra has moved to Loan Market from more than 20 years in the finance industry having worked with some of the major New Zealand banks. He's made the leap of faith to become a mortgage adviser and is

based in Auckland.

Anna McClure comes with over 10 years experience in the Banking industry and will be joining Bob Llewellyn's Loan Market business in sunny Nelson. No doubt between them both they will grow their market share in the Nelson/Richmond region.

Andre Oertel, is originally from South Africa, where his father ran a family mortgage broking business. He and his family arrived in New Zealand in the late 1990s and has decided to pursue his career passion in the financial services industry. He is based in East Auckland and will based out of Karen Tatterson's office.

Wayne Percival

ANZ boss moves on

The head of ANZ's mortgage adviser distribution channel has moved to a new role.

Wayne Percival is new UDC Finance chief executive. He has served in the financial services

sector for more than 20 years, and brings extensive experience in asset finance, sales, people leadership and business growth to the role.

In his present role Percival heads the Specialist Distribution team for ANZ’s Retail and Business Banking division, which includes the mortgage adviser channel.

Percival worked for UDC Finance between 1993 and 2004 where he held a number of senior roles. He also spent four years with Esanda Fleet Partners in New Zealand and Esanda Finance in Australia.

Percival returned to New Zealand in 2008 when he joined ANZ as a District Manager for the business banking division.

“Wayne has a great deal of experience and knowledge of asset finance and will provide strong leadership for New Zealand’s leading asset finance company,” ANZ managing director commercial and agri and director UDC Finance Graham Turley says. ✚

?!

Got a new appointment you would like to tell advisers about?

Email details and a pic to tmm_editor@tarawera.co.nz

HOUSING COMMENTARY

By Miriam Bell

Smashing the

RECORDS Auckland’s market continues to defy expectations and interpretations. Miriam Bell takes a look at the SuperCity’s record-setting trends and what they might mean.

I

t is the best of times, it is the worst of times. It is the age of capital gain, it is the age of unaffordable prices. It is an epoch of profitability, it is an epoch of unsustainability. It is the season of light in the cycle, it is the season of a dark bubble.

All these sentiments have been expressed on the topic of Auckland’s current housing market. And, depending on the commentator, each one has been argued passionately. For the average punter, it adds to the sense of mania in the market.

As SuperCity prices continue to rise exponentially, they are accompanied by fevered media reports. Accusations fly, political controversies – about everything from foreign investors to the release of Crown land – flare.

The situation doesn’t seem sustainable, yet it is hard to see an end in sight.

RECORD GROWTH All the latest data shows that Auckland’s residential property prices just keep increasing.

Further, each time a set of data is released it seems another Auckland record is smashed.

According to the latest Quotable Value (QV) statistics, once adjusted for inflation, Auckland values are now 31.9% higher than their previous peak in 2007 and, over the past year, they have increased by 16.9%.

014

When inflation is not taken into account, Auckland’s house values increased by 5.5% over the past three months, 17% over the past year and are 53.7% higher than in 2007. This means that QV’s average value for houses in the SuperCity has now topped $1 million to sit at $1,003,144.

QV national spokeswoman Andrea Rush said that while market activity levels remained buoyant the SuperCity had a severe shortage of properties listed for sale, increasing competition among buyers which was adding to upward pressure on values.

“Looming LVR deposit and investment property tax changes also appear to be creating some urgency among buyers wanting to purchase before the changes come into effect,” Rush said.

Records also fell in the latest Real Estate Institute of New Zealand (REINZ) data.

The figures show that Auckland’s median price hit a new high of $755,000 in June 2015.

Over the last year, the SuperCity’s median price has gone up by $155,000, or 26%, from $600,000 in June 2014. Compared with May 2015, Auckland’s median price rose by $6,000 (+1%).

REINZ chief executive Colleen Milne said the Auckland region continued to experience low listing numbers and strong demand across the

spectrum. Although some vendors were leaving Auckland, as many new buyers were entering.

Overall, the supply/demand situation remained more or less static, while the overall trend for the region was improving, she said. “Prices are continuing to rise within Auckland and the inventory situation is very tight, with less than 10 weeks of stock available,” Milne said.

DATA SPLIT NECESSARY Meanwhile, such is the divergence between Auckland property prices and those around the rest of the country, Trade Me Property has opted to split its SuperCity data from its national data, for the foreseeable future, to avoid skewing the results.

Trade Me Property’s June Price Index shows that, over the last year, Auckland’s average residential property asking price has increased by $130,950 to reach $834,300. Over the same period of time, the average asking price for residential property outside Auckland increased by just $13,950 to $404,550.

This means that Auckland’s asking prices are rising at 10 times the rate of everywhere else in the country. Further, the average Auckland house now has an asking price double its equivalent elsewhere in New Zealand.

"Prices are continuing to rise within Auckland and the inventory situation is very tight, with less than 10 weeks of stock available."

- Colleen Milne Head of Trade Me Property Nigel Jeffries said Auckland’s property market was continuing to experience high demand and significant price increases. It is at odds with much of the rest of the country, showing New Zealand has a twospeed market.

“The ‘Auckland effect’ is casting a huge shadow over the residential property market as a whole as it continues to go mad,” Jeffries continued. “The New Zealand property market can no longer be thought of as a single market: it’s Auckland on one hand and the rest of New Zealand in the other.”

POSSIBLE SLOW-DOWN? Yet, in the midst of all the record-breaking price data, there were some figures which indicated the Auckland market might be slowing.

According to Barfoot & Thompson managing director Peter Thompson, Auckland house price growth is losing some of its heat. While his agency’s data shows the average sale price hit an all-time high of $826,474 in June, the rate at which average house prices rose slowed considerably.

The average sale price increased by only 0.5% on that for May yet, over the previous three months, prices increased by an average of 3.2% a month, he explains. This means the June year-onyear increase was now 15.7%, considerably lower than that of the first five months of the year.

Thompson said the looming LVR and tax measures, along with the traditional winter slowdown, could possibly have some impact on prices. “But there is also a growing feeling among buyers and sellers that homes are close to being fully priced,” Thompson said.

But ASB senior economist Chris TennentBrown isn’t convinced, however, Auckland house price growth was slowing.

He expects continued strength in Auckland house price inflation, reflecting the still-low level of listings, strong population growth, high demand and the extra boost from declining mortgage rates.

The Reserve Bank was likely to cut the OCR three more times over the coming months, he said, adding to the downward pressure on mortgage rates and providing an opposing influence to the impending Auckland investor lending restrictions and tax changes.

ON THE GROUND Meantime, the ongoing heat in the Auckland

market means a sense of urgency is at play.

Mortgage brokers say with so much going on many people are finding it difficult to know what to do.

“The market is ridiculous at the moment, with none of the normal winter effects at play,” Loan Market’s Bruce Patten said. Limited listings, rising prices and the impending LVR and tax changes were all having an influence.

Mortgage calculations for investment properties were “quite difficult” to work out now, he said. “You need to have a clear understanding of how to calculate those LVRs correctly. You need to be careful that people really do have enough equity.”

Go2Guys’ Campbell Hastie said that, with rates falling and new specials all the time, people wanted to lock in one mortgage rate on a Friday then found they wanted to change it the next week.

It was essential for people to be careful and really consider when they wanted to fix, he warned. “If you lock in a rate, you have locked it in. And you are likely to face charges if you try to break the arrangement,” Hastie said. “There may be a tiny bit of leeway when it is a day or so but, generally, it is likely to be too late.”

Hastie said the best way for investors to take advantage of the current rates was to float their mortgage, wait till they think rates have hit the bottom, and then fix.

REINZ SALES: UP

Sales were slightly down on May, but up on June 2014.

INTEREST RATES: DOWN Many banks dropped their rates following the Reserve Bank’s OCR cut.

OCR: DOWN

The Reserve Bank cut the OCR from 3.5% to 3.25% in June and again to 3% in July.

LOOKING NATIONWIDE When it comes to the rest of New Zealand, the property market is largely moving along at a more sedate, but healthy, pace.

The REINZ data shows that the national median price hit $450,000 in June 2015. This was an increase of $23,000, or 5.4%, compared with June 2014, but a decrease of $10,000, or 2.2%, from May 2015.

Once the impact of the Auckland region was excluded, the national median price was steady at $340,000 as compared to June 2014.

Westpac senior economist Michael Gordon said the REINZ data suggested that the nationwide housing market continued to strengthen.

He said the stratified median sale price has risen sharply – and was now up almost 15% on a year ago, the fastest annual rate of growth since May 2007. “House sales were up 0.7% in seasonally adjusted terms, while average days to sell fell to their lowest since June 2013,” Gordon said.

At the same time, the QV data shows Auckland’s skyrocketing values drove nationwide residential property values to an inflation adjusted 9.2% year on year increase in June, which left national values at 7.8% above the 2007 peak.

QV national spokeswoman Andrea Rush said the shortage of properties listed for sale across all main centres was severe, yet sales volumes were higher than this time last year. “High migration and the forecast of lower interest rates are fuelling increased levels of activity in the housing market in many parts of the country,” Rush said. ✚

IMMIGRATION: UP

Record levels of migrants continue to arrive in New Zealand.

BUILDING CONSENTS: NEUTRAL

Up in Auckland, but the trend is declining nationwide.

MORTGAGE APPROVALS: UP

Bank lending data remains strong.

RENTS: NEUTRAL

Rents are going up slowly but, in Auckland, they are not keeping pace with house prices.

015

Auckland's property market is experiencing unprecedented heat and it’s creating a feverish atmosphere. So how best to manage the pressure? In this article, we present some expert tips on how to keep cool and get good deals in the current market.

BRUCE PATTEN Careful calculations The current Auckland market is ridiculous, The Loan Market’s Bruce Patten says. “It’s winter, so it should be a quiet time of the year. But there is so much going on that it’s very difficult to catch your breath!”

Rising prices, a lack of listings and low interest rates created the environment. Once the upcoming LVR changes and the government’s new tax measures were thrown into into the mix, the situation grew in intensity.

Calculations are getting harder to work out now, Patten says. “As an adviser, you need to be careful that people really do have enough equity, and you need to have a clear understanding of how to calculate those LVRs correctly.”

As October draws closer, banks are starting to articulate their boundaries, particularly with regard to property investors.

For example, ASB recently said it will no longer

016

❝ As an adviser, you need to be careful that people really do have enough equity❞ -Bruce Pattenissue pre-approved mortgages for property investors in Auckland with less than 30% equity.

It will honour existing pre-approvals providing the deal is settled by 1 October.

Patten points out this has the potential to complicate dealings further. For this reason, advisers need to be fully appraised of lenders’ evolving policies around the changes.

“Remember, the LVR and tax changes might have some impact, but there are still plenty of people out there who have lots of equity who can do things and who want to.”

017

JOHN BOLTON Don’t rush in

JENNY CAMPBELL: The Mortgage Supply Company Keep tabs on the banks Understanding what is going on with the major banks is crucial, agrees The Mortgage Supply Company’s Jenny Campbell.

It is important to note that the banks also have little idea about what the final look of the Reserve Bank’s new rules will be, she says. “The Reserve Bank tends to give a broad remit - and then sees what the fishhooks are, picks them out and tries to fix them before the change takes legal effect.”

This makes life difficult for lenders, advisers and investors alike. Campbell says the current lack of detail is frustrating for mortgage brokers because it makes it harder to provide people with expert advice.

For this reason, it is necessary for advisers to ensure their clients know that all the major banks have recently come out and said that pre-approved mortgages with LVRs of over 70% will expire on 30 September. “Banks are now trying to contact people in such situations because their offers will need to be rescinded or renegotiated.”

018

In the current environment, it is sensible to hold back a bit, Squirrel Mortgages founder John Bolton says. “Making sense of the interest rate environment is key - and then it’s about being patient and not rushing into anything.”

Advisers should be more cautious and reflective than usual. Bolton recommends not locking clients in to anything too quickly. “Don’t rush in to locking a deal in. In this environment, it’s not the best way. As opposed to a different, more sedate environment when you might go the other way.”

In his view, the new LVR rules are causing a note of caution to creep into the market - in contrast to the last two to three months which have been a crazy buying spree. This is because the rules have yet to be formalised, so no-one has a clear understanding of what they might involve or how they might pan out.

“The banks could have a knee-jerk reaction to the new rules and close down - like they did in 2013,” Bolton says. “And there is likely to be collateral damage: People who shouldn't be caught out by the new rules, will be.”

Cautious appraisal is, again, the best way for an adviser to work through the potential issues in different situations. For example, they might need to establish what the rules mean for clients who are buying a second property as owneroccupiers and want to rent out their old home, or for new builds generally.

❝ Don’t rush in to locking a deal in. In this environment, it’s not the best way. As opposed to a different, more sedate environment when you might go the other way. ❞ -John Bolton-

CAMPBELL HASTIE Think before fixing Go2Guys’ Campbell Hastie also notes that advisers need to be careful before they lock anything in for a client, With so much going on in the market and rates falling on such a regular basis, he is seeing clients vacillating wildly in their decisions.

People need to be careful and really consider when they want to fix, he says. “It can be tough because if a client asks to lock in a rate, you have locked it in. And they are likely to face charges if you try and break the arrangement.”

Hastie recommends that clients who want to take advantage of the current rates, should float their mortgage, wait till they think rates have hit the bottom, and then fix.

“But it might be best to let clients know they can split their loan into a few bits. They can lock down some of it and then play with the rest.

Then their adviser can help them adapt with the market and take advantage of the specials on offer - because every day there is a new special.”

have as much time as possible to go out and get a good deal with a bank and really sort out the finances and structure of the loan.”

A good deal is not always about the rates, Pedersen continues. “It is often about the structure of the loan too. If a deal has been structured properly, it can make a big difference to how a client pays their mortgage and it can reduce their costs considerably.”

In his view, all the banks are under the pump at the moment. This means processes and turn around times are slower - which makes it harder to get good deals.

“But there is only so much an adviser can do before the client needs to make decisions themselves. Preparing your clients is the key. If clients are properly prepped by their adviser, then they will allow for the time necessary to ensure negotiation with the banks to get the best deal.”

KRIS PEDERSEN Preparation is key Being prepared is crucial in today’s crazy market, says Kris Pedersen - who heads his namesake mortgages company. “Too many people leave things to the last minute, so we have been trying to encourage our clients to be better prepared.”

He believes that to get the best deals it is necessary to have adequate time in hand.

Without it, by the time a client has approval the time available to an adviser to go back and push the banks on finance is far more limited.

This impacts on negotiation scope and on the final deal.

“Advisers need to let their clients know that.

As an advisor, you need to make sure that you

INTEREST RATES Kymberly Martin

Outlook for

BORROWERS

BNZ economist Kymberly Martin reviews the recent OCR cut and predicts more to come.

T

he RBNZ lowered the Official Cash Rate (OCR) at its July meeting, from 3.25% to 3.00%. It stated that some further cuts “seem likely”.

The bank downgraded its assessment of current annual GDP growth to 2.5%, from 3.0% previously. It highlighted the recent sharp fall in global dairy prices, and that rebuild activity in Canterbury appears to have peaked.

By contrast, it revised up its forecasts for CPI inflation. The bank now sees annual inflation getting back to close to the midpoint of its target range (2%) by early next year. Previously, it had expected inflation would not reach this level until the end of next year.

The Reserve Bank no longer refers to the NZD as being “over-valued” but still expects further depreciation will be necessary given weakness in commodity export prices.

Floating Rate Outlook In light of recent developments, including relentless declines in global dairy products, we now expect the RBNZ will deliver at least one more OCR cut. We see it as likely that the OCR will be cut to 2.50% by October, back to its cyclical lows of 2011-2014. Floating rates will closely follow these moves lower.

However, we see it as unlikely the OCR will be cut below this level. That would

020

take material negative domestic and global surprises, in our view. Recall, the OCR was sustained at 2.50%, during the most severe impacts of the Global Financial Crisis (GFC) and Canterbury earthquakes.

After a prolonged period of reduced floating rates, borrowers should expect that the OCR will rise again before this cycle is complete.

But this is unlikely to be before late 2016, when inflation finally looks to test the upper end of the RBNZ’s 1-3% target range. The recent sharp fall in the NZD adds to inflationary pressures over the medium-term as the cost of imports will rise.

Short-dated wholesale fixed rates Short-dated wholesale fixed rates have fallen over the past couple of months as the market has factored in the prospect of RBNZ rate cuts. The market now almost prices our view the OCR will fall to 2.50%. However, the market does not see this happening until early next year.

If we are correct that the RBNZ delivers cuts somewhat earlier, we could yet see wholesale fixed rates fall further. NZ two-year rates are at their lowest level since May 2013, but are still some 0.50% above the lows achieved in 2012.

We do not see the all-time lows being revisited, but anticipate downward pressure will remain in the near-term as incoming dairy data remain

soft and broader confidence indicators come off the boil.

It may be almost a year before we see a material turn in short-end fixed rates, in anticipation of late cycle rate hikes. We therefore see no rush to fix short-end rates.

Longer-dated wholesale fixed rates The decision whether to fix over a longer period, such as 5-years, will be highly dependent on perceptions of where the ‘neutral’ OCR lies. i.e. the level where the OCR can be expected to gravitate over time, where the economy’s resources are not over or under-utilised and inflation is close to target (2% in NZ’s case). Prior to the GFC, this level was thought to be around 6%. More recently the RBNZ has assessed this level may have fallen to around 4.25%. We suspect it could possibly be lower still.

However, current five-year wholesale fixed rates are consistent with an OCR that is cut to 2.50% in the near-term and only reaches a peak of 3.50% by 2019. A borrower who has a higher OCR track in mind, would therefore see ‘value’ in paying 5-year fixed rates. In addition, five-rates are now within 0.25% of their all-time lows seen in mid-2012.

Of course ‘value’ is only one concern for borrowers. The other key considerations include (i) how much a borrower prioritises

➤ The RBNZ lowered the Official Cash Rate to 3.00% ➤ We expect the Bank will cut the OCR back to 2.50% ➤ Suggesting lower floating rates near-term ➤ No urgency to fix short-term rates ➤ NZ 5-year wholesale fixed rates currently within 0.25% of all-time lows ➤ And they provide certainty at limited upfront cost

wholesale funding has matured and been replaced at lower rates. It has also occurred as competition for domestic deposits has been muted. The result is, if the OCR is cut to 2.50% as we expect, borrowers may face overall borrowing costs that are 0.25-0.50% lower than when the OCR was previously at 2.50% (early 2011- early 2014).

However, we believe that the reduction in bank funding costs has now largely run its course.

As economy-wide asset growth has picked up modestly so too may competition for deposits.

Reduced global risk appetite in the wake of Eurozone concerns has also seen increased costs to banks of new issuance. Over the next couple of years it is not difficult to see scenarios where slightly wider offshore funding spreads become entrenched, after their recent lows.

We therefore believe that while borrowers may yet see a further dip in wholesale fixed rates, they should not count on this being augmented by further falls in bank funding costs. Most of these benefits have already been enjoyed.

Summary

‘certainty’ (ii) how much ‘upfront cost’ a borrower is willing to bear for the benefits of certainty. Currently there is little upfront cost to fixing, as five-year wholesale rates are only marginally above floating rates.

On our forecasts this situation will not last.

Floating rates will fall further, but the likes of five-year rates will feel upward pressure from rising offshore rates. We expect the US Federal Reserve will finally raise rates this year after keeping the Fed funds rate close to zero for

almost seven years. We anticipate this will push US long rates higher. Historically this would also see the likes of New Zealand five to 10-year wholesale fixed rates move higher. We see this time as no exception.

Bank funding costs In recent years, borrowers have enjoyed some reduction in costs independent of moves in the OCR, due to declines in bank funding costs.

This has occurred as banks’ expensive GFC

Our central forecasts see the OCR being cut to 2.50%

by October, back to the lows seen from 2011-2014.

Borrowers may enjoy lower overall floating rate costs than at the previous OCR trough due to reduction in bank funding costs in the intervening period.

Short-dated wholesale fixed rates likely still have a little further to fall in the near-term, so we see no urgency to fix over this period. However, New Zealand five-year wholesale rates are now consistent with an OCR that is cut to 2.50% in the near-term and reaches no more than 3.50% by 2019. Borrowers who see risk that the OCR path ends up higher than this, will see value in fixing over this time frame. In addition, there is currently little difference in five-year wholesale fixed and floating rates. We suspect this situation is unlikely to last. ✚ Kymberly Martin is an economist at BNZ

021

PAA LEGAL

2020: Pride, Passion and Professionalism More than 600 attendees, 30 industry partners and sponsors and 28 advice and business development sessions... 2020, co-hosted by the PAA and IFA at The Langham in Auckland on June 11 and 12, lived up to the bill.

“T

he first of its kind, 2020 certainly delivered,” says Rod Severn, CEO of the PAA. “As well as a programme packed with advice and business development, we wanted to put on an event with a high level of interaction and opportunities for advisers to connect with colleagues and providers. From the buzz on the floor, 2020 did just that.”

Attendees selected from 20 business development sessions, and heard from eight plenary speakers including international and New Zealand financial advice and business experts, closing with an inspiring presentation

by Willie Apiata. “Catering for all types of advice and stages of business was a big ask and we strove to deliver a programme that had something for everyone - and importantly, the opportunity for a few ‘light bulb moments’ to take back to the business week,” says Severn.

“Thanks to everyone who attended in making 2020 a great event. We’re very happy with the response from attendees as well the great suggestions we’ve received for the next Conference. Keep them coming; these events are for you and your business.”

AND THE AWARDS GO TO… Hotly contested, the PAA Excellence Awards in mortgage advice exemplify what it takes to succeed. Nominated by industry partners, nominees were first scored across a range of criteria by an independent panel of judges and then asked to provide case study information for the final selection.

022

Westpac Director of Third Party banking Kylie Kneale collects Lender of the Year award from PAA President Bruce Cortesi.

“A huge amount of work goes into being a quality mortgage adviser, every day and in all interactions with clients: energy, commitment, professionalism and an absolute focus on doing the best for clients. Our winners thoroughly deserve the acknowledgement of these awards,” says Severn. ✱ Mortgage New Adviser of the Year: Simon Maule from Loan Market Christchurch ✱ Mortgage Adviser of the Year: Paul Fuller from Mortgage Room in Blenheim

Nominated and selected for the top prize by members, the PAA Industry Awards were also announced at the Gala Dinner. “It was an enthusiastic selection process with many PAA members in keen support for those they nominated. Congratulations to our all Industry Awards Winners for 2015,” says Severn. ✱ Lender of the Year: Westpac Bank ✱ Lender BDM of the Year: Tania Ropati from Westpac ✱ Specialist Lender of the Year: RESIMAC

Paul Fuller collects another award.

Rocking and rolling at the Awards Dinner.

RESIMAC's Adrienne Church and Bruce Cortesi.

Rookier Mortgage Adviser of the year Simon Maule with Bruce Cortesi.

Guest speaker, and former Wallaby player, Peter Fitzsimmons provides an entertaining after dinner speech.

023

SALES & MARKETING LEGAL

By Paul Watkins

Has advertising become more confusing?

The changing face of technology has introduced a form of IT klingons. Change is quicker and just as deft as Floyd Mayweather’s footwork. It is hard to keep up. Almost. Paul Watkins offers key tips.

I

f you read about marketing and advertising, you will know that it’s becoming more confusing. Headlines tell us that radio is dying with the Internet based stations taking over. Then the press offer amazing deals to homeowners, like half price and a magazine subscription, just to maintain their dwindling subscriber base.

What about television? The most powerful medium invented … well, is it? With the 100 plus channels available, the stations will tell you that it’s so much easier to target your exact audiences now.

But what about Lightbox, Netflix, Quickflix and 3Now? Haven’t they all added to the one time monopoly SkyTV to add confusion? Then

024

there is the issue that a few years ago time in front of computer screens and video games exceeded time in front of a TV screen.

Other traditional options include billboards and letterbox drops. Brokers tell me they have had success with both alternatives in recent times. Worth a try? Read on.

So now that we have listed the plethora of traditional advertising mediums, what about the ‘new’ formats? Yes, the Internet based options, which seem to grow daily. The most basic is a website, of course, and good search engine optimisation (SEO). Your website must be interactive, informative, regularly updated and responsive. The last mentioned just became critical.

Smaller screen ‘Responsive’ means that it is mobile friendly.

Your site should automatically adjust itself to the size of the screen on tablets and phones. You will have no doubt heard or read the announcement from Google that, “NZ websites face getting bumped from Google if not mobile-friendly.” If your site doesn’t automatically resize itself to smaller screens, then Google will progressively ignore it in searches. This came into effect in May. On the last point, if your site is not mobile friendly, call your developer now. It may not cost much to fix and if you don’t, your ranking will drop like a stone over the next few months. It is estimated that over 60% of all searches are now done on a phone. As we search for professional service providers more frequently online, this cannot be ignored.

Now back to the advertising options. There is Google Ad Words. These small adverts appear on the right hand side of your search results and are the top three or four little orange boxes with “Ad” inside it. These are paid for advertisements, where you pay per click to a predetermined budget.

Facebook can be annoying, invasive and omnipresent. It can also be an incredibly effective advertising medium that targets your prospects with pinpoint accuracy as long as you know how to use it.

Often, you don’t realise you are reading advertising in some of the posts. They are cleverly disguised as case studies, news stories and funny pictures. You need to know that very few of these are on your page by accident, they were mostly posted by someone with a commercial motive.

Promotional mix Then there is Twitter. Is this an advertising medium? Are you serious? Aren’t they rants from celebrities and others who want to be celebrities? Yes they are, but it can also be used for promoting business. I am working for a firm which uses Twitter in their promotional mix with good results. And I have met someone who makes over $1 million a year simply through

❝ Your website must

be interactive, informative, regularly updated and responsive. The last mentioned just became critical ❞ understanding how to make Twitter work for him as a promotional tool.

What about Tumblr, Postr, Instagram and Pintrest? These are all relatively new as promotional mediums, but extremely effective when utilised in the right context. On the face of it, they are all free to use, but are in fact an advertisers delight.

Forbes Magazine comments To put it in perspective, the value of a company is based on its revenue, which for such internet companies as Pintrest is clipping the ticket on advertising. An excerpt from an article in Forbes Magazine reads: “Facebook values Instagram at $1 billion and LinkedIn has a market cap of $10 billion. Twitter claims it is worth $8 billion while Pinterest can pin $7.7 billion on its value.”

Forbes also comments that Pinterest is known for its magazine quality images, primarily appealing to university-educated women aged between 25 to 44 - a demographic known for its spending decisions and habits. Worth consideration as an advertising medium?

Youtube is a daily visit for most now. It may surprise you to know that it is the second most used search engine after Google. I am sure you have typed “how to…” at least once into Youtube.

You will have noticed the ads that appear at the start of nearly every video now, with increasing numbers not allowing you to skip the advert.

They are pay per click and I work with firms who use such ads to huge advantage. It is amazing how many people do click on them.

Relevant messages Almost all brokers have a LinkedIn page, some adding comments or posts regularly while others simply have their name and current profession, but no photo. LinkedIn recently changed the way to advertise on the site. It is easier to target prospects and send relevant messages now. For business to business sales it is generating good leads for a firm I know.

And to end this list (which is not complete) I should mention hashtag - the little symbol ‘#’. Rather than explain it, visit Youtube for excellent explanations and examples.

So what have I just done? Confused you? You will have heard of most of these, with a few perhaps new to you. My point is that they can work for you. Such traditional options as radio and billboards can still have a very important place in promoting your business, equal to that of Facebook and/or Pintrest.

But only if you take the time to learn how. Each has its unique peculiarities and pitfalls.

Other options We are in a new era of advertising now and what worked five years ago no longer offers the same impact. Spend time on Youtube and type in,“How to use …” and add the word Instagram, then Pintrest, then Youtube, then all other options. Each comprises a myriad of videos.

The trick is to first be very clear on your target market. Then find the markets that are the most cost effective in reaching that target group. It is rare that it would be just one, but one will be the dominant or lead medium. Next, enlist help in making it work for you. It would take too long to work it out and then maintain it yourself. Such services are not expensive.

If you are dissatisfied at the results of the marketing you seek, a better option probably exists. Take the time to bring yourself up to speed with the new and expanding range of options. ✚ PaulWatkins Watkinswrites writesblog blogcontent contentand and Paul newslettersfor forfinancial financialadvisers advisers newsletters ..

025

MY BUSINESS

By Phil Campbell

BUOYANTQUEENSTOWN PROPERTY MARKET NOT ONLY FOR STAR GAZERS With the ripple effect of property upsurges in Auckland and Christchurch benefiting other parts of the country, Queenstown has been having its own revolution.

Arrowtown, and environs (central Otago), is a haven for those with an idle dollar. How and why were you attracted to the area?

Mark Pullar: I should say I have been all over the world and the Queenstown lakes area remains the most fantastic place on earth ...

I could also admit that my wife, Emma, dragged me back here from London…

A précis of your background?

MP: I used to be a physiotherapist [University of Otago] which was a great profession to travel with (and a great excuse to spend a few years in Dunedin) but started dabbling in property investment when we returned home (Dunedin student flats – stick with what you know) and realised quickly that getting your head around smart financing strategies was key to being successful in growing wealth; I thought what better way to learn it than by doing it. So I quit my job, bought a franchise from Miranda Caird Consulting Ltd and started Roost Queenstown from scratch from my garage about three months before the financial crisis hit in 2008. Great timing.

In hindsight, a blessing in disguise. You have to learn your value proposition pretty fast to make a living in that environment.

026

" Your success is down to you, not the market” From afar, you look with envy at the booms in the building industry in Auckland and, through unfortunate circumstances, in Christchurch?

MP: It’s all residential with a bit of rural residential/ lifestyle block thrown in. My stuff’s pretty vanilla, I don’t do much outside the box or difficult. I just try to add value to the easy stuff.

North Islanders tend to look further south with a jaundiced eye. The migration of movie stars – and rich-listers – over the last 40 years must have raised the profile and been, concomitantly, good for business?

MP: Are you assuming I don’t have clients in those locations? Seriously, though, we are having a bit of a building boom here in Queenstown with the release of the Shotover Country and Bridesdale Farm subdivisions which are encouraging first home buyers to take advantage of the RBNZ LVR restriction exemption for new builds – so we have plenty to do there and that is driving volume. That said, I’d be lying if I didn’t say I’d be very happy to have an average loan size of some of your Auckland brokers though yes….

MP: Yes. Everyone wants their piece of paradise and if your Michael Hills and your Sam Neills and your Russell Coutts have decided this is the place to live then we can’t be going too far wrong.

That is the best thing about being in business here. On one hand you have the local tradesman buying his first home, next minute you get your expat purchasing a top-end holiday residence, or your Aussie ski tourist grabbing a managed apartment while they are here, or your Invercargill retiree buying their retirement home – a very diverse market.

Mortgage brokerage governance does not seem to allow for “local” conditions or circumstance, as it were. What types of clientele does your business attract – mainly rural with a bit of urban?

Last year’s election caused a wee dither or two as the financial world cogitated possible government scenarios.

What was the feeling in your part of the world?

MP: Yes, we had a rocking first three quarters last year. But the last [quarter] was a bit slower due to the election. Uncertainty kills activity. However, we have roared out of the blocks this year and it feels like it is going to be a big one. There seems to be an air of confidence and we always get busy when all the media can talk about is how much competition there is among banks to offer discounts, or if the message is “rates lower for longer”.

All mortgage brokers we’ve contacted seem to be busy, whatever the climate – have you experienced inert periods, wondering whether growth has stopped, or are the markets quite flexible among purchasers and vendors?

MP: We have grown volume year-on-year every year and have always had more work than we can do. At the end of the day, if you are always growing your share in the market then that protects you from fluctuations in sales volumes.

Your success in this game is down to you – not the market.

Late last year, farmers were bracing themselves for a reduced Fonterra payout. Any negative vibes in your region?

MP: From my very narrow perspective as a broker I would say it hasn’t had a significant impact. In my industry the high Kiwi versusthe Aussie dollar has had more of an impact.

Annual house price inflation has reportedly dropped from 10% to around 4% partly through - it is said - restrictions on low-deposit home loans. Is this good for the market/prospective buyer?

MP: I think a nice steady healthy consistent market is good for everyone.

Most satisfactory element of your profession, and deal(s) struck?

MP: I still get a kick out of delivering a loan approval to every single client. You feel like Father Christmas. Can there be anything better than helping a family purchase their first home? I still remember the day we bought ours. Just the best day. Every day I get to get up and go to work to help people move their lives ahead by buying a property. I never tire of that. ✚

Family/children: Wife, Emma; kids Oscar (8) and Ruby (6) Hobbies outside work: Social cricket, travelling and drinking wine.

Sporting interests: Social skiers. We have mountain bikes but they are clean.

Type of vehicle: Jeep Cherokee, Subaru Outback and a Belladonna scooter I ride to work which is 500 metres from our house.

Favourite restaurant: The Chop Shop Food Merchants – Arrow Lane, Arrowtown.

r a l l u P Mark

027

CONFERENCE BENEFITS

By Miriam Bell

How to get full value from a CONFERENCE Miriam Bell seeks to discover how to best maximise the benefits of a conference. Thanks to a panel of experts, here her top five tips to ensure advisers can garner real value from an event.

T

alk to any group of people Talk to any group of people and you will find mixed views of conferences abound. While most people like to get out of the office to meet their peers, many will also question how much value a conference can provide.

This is unfortunate as conferences can provide useful learning experiences along with a host of new contacts. They also require a significant investment of money and time from participants. Both factors mean that conferencegoers should absorb as much of the event’s offerings as possible to ensure a good rate of return on their investment.

However, it is easy for attendees – even those with the best of intentions -- to be swamped and slip into information overload. Too often the main takeaway will be the conference pack and some notes which are quickly forgotten.

Strictly Business coach Tony Vidler says most delegates will attend conferences and let it wash over them. “They just hope for an ‘aha’ moment to hit them at some point, but that’s not the way it works,” Vidler says. “It is necessary to have a solid plan to get the most out of your conference experience.”

028

Indeed, the experts we spoke to agree: maximising the benefits of a conference comes down to practical objectives, clear strategy and sensible planning. Based on their wisdom, the following are the top five ways to evince value from a conference

➊ CAREFUL SESSION SELECTION THOUGHT When selecting sessions, a conference-goer’s number one consideration should be how a particular session might benefit them and their business. For authorised financial advisers, this is made easier by their Continuing Professional Development (CPD) plan.

Professional Advisers Association learning and development manager Angi Mann says advisers should check their plan, see what their goals and professional development needs are, and then choose sessions accordingly. “Remember, it is possible to get structured credits if you go to certain sessions covering areas required in the CPD,” Mann says.

Institute of Financial Advisers chief executive Fred Dodds says an adviser should think about the innovations and assistance they need in their business when picking sessions.

“For example, is it about understanding underwriting better? Is it a bit of basic motivation?

Is it about where the economy is heading? Do you need to know more about the housing situation?

Or do you want to know where to invest for yield in a low interest rate environment?”

It is always critical, however, to put conference sessions into a relevant framework for the business outcomes a delegate wants to achieve, Vidler says.

“You should aim to walk away with three things – a good contact, a new piece of technology or technical solution which will be effective for your business, and a fresh marketing idea that you could use next week. Select the sessions which you think will help you get these things.”

Analysis of a conference agenda is required to identify the sessions most likely to contain the desired content. But, Vidler says, it means a delegate will know exactly what they want from a session beforehand, rather than letting the content flow by and trying to grab it when they attend it.

➋ COLLECT KEY TAKEAWAY POINTS Conventional wisdom has it that a conference should generate a few good ideas for an attendee.

Conference-goers should aim for several good

ideas from each session.

Mann says presenters are often instructed to provide three key takeaway points for their session. “This means that you may have 17 pages of notes but you will also have those three key points to help you process the information provided,” Mann says.

If a presenter doesn’t have some takeaway points, she suggests that people should jot down their own key points which they believe can benefit them, their business and their clients.

Vidler says sessions should be about finding inspiration and new ideas a delegate can apply to their work. “Presenters tend to lay out the framework of the session at the front end,” Vidler says. “Isolate the part you think will be of most interest to you and focus when it gets to that point.”

He also recommends checking information provided by the presenter, as the session goes on, by Google. “Often the value is not something the presenter said, but rather a direction they pointed you in,” he says.

“And you have to chase that down right away before you lose it.”

Delegates should use the available technology, Vidler says. “For example, use your smartphone as a tool. Rather than take notes, you can record or film the sessions that you want. It is okay to do this for your own use.”

Some apps were also helpful, too. “Pocket Reader is great for bookmarking links, websites and so on, while Simple Mind is good for mind mapping. These apps assists the recreation of ideas and trains of thought.”

➌ ALWAYS ACTIVELY PARTICIPATE Mere presence does not qualify as active participation. Too many conference attendees opt to simply fill their chair. Yet the experts agree that offering comments, asking questions, discussing hot topics and engaging with others will greatly enhance the value a conferencegoer gets from that session.

Mann says it is a good idea to go along to each session with some pre-prepared burning questions. “For example, if you are attending a marketing session, you might want to ask about how to best use social media and whether Facebook or Twitter would be better for your business.”

To do this, a participant has to establish what they want to draw from a particular session before attending. From there, they can develop relevant questions to ask in that session.

Full participation in each session is essential, Mortgage Supply Company CEO Jenny Campbell agrees. She says delegates not only have to pre-think questions, but they should prepare an interesting topic to discuss at each session.

“If you find that what a presenter has to

say particularly resonates with you, ask that presenter for a suggested reading list – which includes work they have produced before. Most presenters will be more than happy to expand on what they have talked about in their presentation.”

➍ NETWORK EFFECTIVELY All conferences offer a host of networking opportunities. These events provide a great chance for peer-to-peer learning and effective business interaction. But it is important not to just network for the sake of networking.

When it comes to the upcoming advisers’ conference, Mann says it will be replete with experienced people with valuable information and insights to share. Conference-goers should make an effort to meet as many of these people as possible, she says.

“You never know where you will get the ‘aha’ moment you are looking for at a conference,” Mann says. “It may not be from an official presentation. It may be from a fellow adviser who really gets you and what you are trying to do with your business.”

Campbell also recommends that delegates should make an effort to meet new people. She suggests, however, talking to all exhibitors as well. “Visit some you would not normally check out and collect as much interesting information as possible.”

➎ ENSURE POST-CONFERENCE IMPLEMENTATION Failure to implement learning gleaned from a conference is a common mistake. Campbell says her best piece of advice is that delegates should reread and review their notes and material when they return to ordinary life.

“Go home and update your professional development plan with details of the sessions you attended and what you got out of them,” Campbell says. “Note the key takeaway points.

Write up your networking – the people you met and the topics you discussed.”

Don’t just let all that useful information slip away, she says. “You have to go home, review what you learnt, think about how you can apply it and then put it into practice.”

Vidler thinks it is advisable for delegates to put aside implementation time before attending the conference. “Put an action plan in place for after the conference. Get out of the office so you have some distance and can focus on how to best implement and use what you have learnt.”

➏ Don’t forget to have fun While the professional development and networking opportunities are important, delegates shouldn’t forget to enjoy themselves.

Campbell says part of the conference experience is the stimulating emotional response evoked by the event. ✚

Tony Vidler:

➤ Don’t attend every minute of the conference. Take some down time to refresh, but pick your times to do so carefully. ➤ Allow some time to do a bit of day-to-day work. If you can make some phone calls, check emails and so on you won’t feel that you are losing control of your business. ➤ Remember that you are still working. It’s just not in the same way as you usually do – which should be invigorating

Angi Mann:

➤ Leave your work at the office. To get a value difference for you and your clients from the conference, you have to be 100% present and focussed on what you are learning. ➤ Don’t go along to sessions which might get you CPD points but which you are not really interested in - you’ll just tune out. ➤ Don’t try to take on board everything everybody says. Attempting to do so will lead to information overload.

Jenny Campbell:

➤ Manage the expectations of your clients. Let them know you will be offline for a few days and will only be able to respond in between sessions. You don’t want to be distracted. ➤ It might sound obvious, but stay well hydrated; make sure you eat and get some decent sleep in between each day of the conference.

029

INSURANCE

By Steve Wright

KEEPING THE CLIENT SATISFIED Advice on premium structures – what should you be doing to be compliant, asks Steve Wright.

030

P

remium structures for life, trauma and disability insurance in New Zealand range from YRT (also known as “rate-for-age” or “stepped”) to “Level Premium” and other options in-between.

Some are guaranteed, meaning they come with a guarantee that the underlying premium rate will not change and others do not, meaning premium rates can be increased.

Understanding the various options and explaining their relevant strengths and weaknesses is essential for providing clients with compliant advice. Remember that the general rule is that you must give the client information that enables them to make an informed decision.

YRT is the purest form of premium in the sense that the client is paying the exact amount required to cover the risk they pose based on their current age. As such it is the cheapest option at application time, which is useful for younger families because they are more likely to be able to afford the sums insured they need.

Client expectations YRT premiums will go up, though, usually every year as the client ages. These increases can become relatively large at older ages (so careful management of client’s expectations at policy review and a reminder of how valuable their cover is, is recommended!)

“Level” premiums, at the other end of the spectrum, usually “smooth” or average the cost of cover over a “term”, typically five, 10 or 15 years or to age 65 or 80 or even longer, in some cases. This means clients pay more in the early years (and, sometimes, much more) and less in the later years making up the “term”.

Level premiums can often save client’s money over the long term but only if they hang on to their policies long enough. Clients do need to be made aware that if they make a claim, switch providers or change cover types early on in the term they probably will have overpaid significantly.

It is also very important to determine whether the premium rate is guaranteed.

Increased sum insured A guaranteed rate means the insurance company cannot increase the underlying premium rate it charges that client during the “term” (premiums might still go up due to increases in sum insured from indexing but this is payment for increased sum insured, not an increase in underlying rate).

Many assume level premiums are guaranteed and YRT or stepped are not. The reality is both stepped and level premium structures can be guaranteed or not. If premiums are not guaranteed, the insurance company can increase the underlying rate, thereby increasing the client’s premium. It is really important to understand whether a premium, particularly a level premium,

❝ It is also

very important to determine whether the premium rate is guaranteed.❞ is guaranteed and make sure the client understands what they have.

A client who has accepted paying higher premiums initially, to pay less later on, will be banging very loudly on your door if they do not have a guaranteed rate and the insurer increases the client’s premium.

What should you be disclosing to the client (in writing preferably so you can prove you did it sometime in the future)?

If you are recommending a YRT premium structure: ➤ You should explain that although the premium is currently the cheapest it will ever be, it will go up with age. ➤ And that at younger ages these increases may be very small but increases will become larger at older ages, larger than current CPI inflation for example. (Clients will logically refer to the CPI inflation rate for comparisons but in reality the inflation rate is different to the additional risk that age poses and so not directly relevant.). ➤ And, finally, that over time, assuming the client continues to need cover long term, does not claim or change cover or providers, a level premium structure may prove cheaper, although the extent of this may be lower if the level premium is not guaranteed and premium rates go up.

If you are recommending a level premium structure: ➤ You must compare the initial premium with YRT and explain why the level premium is higher. ➤ You should show the client how many years it will take for the level and YRT premiums to reach parity. ➤ Show the client how long it will take before total level premiums paid since inception equals YRT premiums payable (break-even) (and don’t forget to factor in the time value of money). ➤ You must also confirm whether or not premiums are guaranteed. If they are not guaranteed, explain that premium rate increases by the insurer can be passed on to the client and that if this happens the premium parity and total premium “break-even” points will be pushed out to even later ages. ➤ And finally that over time, if the client

does not need cover long term, makes a claim or changes cover or providers, a level premium structure may prove more expensive.

So what is the right premium structure for the client? It depends on the client’s needs and circumstances. Several matters should be considered, though: ➤ How long the client is likely to need the cover and how long before the cover expires (income protection, TPD and even some trauma policies expire as soon as age 65 or 70, for example)? ➤ A level premium structure does require a long term commitment to remain on the same policy with one provider. ➤ If the only way a client can afford level term premiums is to accept a lower sum insured then that is very dangerous territory for both the client and the adviser. ➤ If the right level of cover is taken but the premiums are much higher with a level term structure it can look suspiciously like a mechanism simply to increase an adviser’s commission. This, again, is something we would not want, so full disclosure to the client is essential. ➤ On the other hand, YRT premiums can become expensive in old age, which can create affordability problems if the client still needs as much cover at older ages. Fortunately cover requirements usually decrease with age once clients get closer to retirement, pay off their mortgages and the children grow into adults.

Whatever structure you recommend, make sure you explain all the pros and cons and various scenarios to the client. You don’t want to set yourself up so that the client can point an accusing finger at you, so make sure that they understand the consequences of accepting your recommendation and have sufficient information to make a fully informed decision.

Premiums guaranteed My personal cover is on a guaranteed stepped premium structure, available from some providers with, for example, five or 10-year terms. For me they work well because I feel I get the best of both worlds: the premiums are guaranteed for this term, which I value, and, as the structure is stepped (premiums are not smoothed and although they don’t go up by age, they do go up by a fixed 5% each year), I don’t end up paying more than I need in the early part of the term as the stepping allows initial premiums similar to the YRT equivalent.

While I think advice on premium structures is important, the premium structure can never be more important than the right benefits (necessary sum insured, right benefit mix and most appropriate policy) because at claim time, which is why we have insurance in the first place, the wrong product, provider or level of cover, can never be put right by the premium structure chosen. ✚ Steve Wright is general manager product at Partners Life.

031

LEGAL

By Jonathan Flaws

Response & responsible

use of words Using words responsibly is an act of being responsible which can attract an apt response. Be aware of possible consequences.

H

ave you ever noticed how words look similar but can mean quite different things?

Response is a word that indicates an action. Something happens, a question is asked, and then a response is made to that thing or question. A response is always the second thing in a series of events. Generally just two events. The first event is an action and the second event is the response to the action.

But responsible is built on the same word – or at least it looks like it is. We don’t think of responsible as being something that indicates an action yet in many ways it is closely linked.

Which is why it is built on the same word base.

Being responsible for something means acting in a particular way. Responsible is the second thing in a series of events. Generally three events. The first event is an action, the second event is taking responsibility for that action and the third event is the consequence of being responsible.

A responsible lender is one who is responsive to an application by a borrower for funding and one who takes responsibility for the decision to respond favourably to the borrower’s request.

The Lender Responsibility Principles legislate and the Responsible Lending Code explains how a lender reaches the nirvana of being a responsible lender.

Not all borrowers want to have a close and responsible relationship with their lender. They see the lender as a commodity. A commodity

032

that advertises for their business and offers them incentives to come and do business with them.

These are the types of borrowers who prefer to use an intermediary – a broker or adviser to sit between them and the lender.

When this happens, the mantle of responsibility is pushed down the line and the a broker, on behalf of the lender assumes the task of ensuring that the Lender Responsibility Principles are adhered to and the Responsible Lending Code is followed.

This is how section 5.18 of the code allows the mantle to be passed on: A lender may ask for or receive information from brokers or other intermediaries acting on behalf of the borrower. Where that is the case: a) a lender may rely on the information provided to it by a broker or intermediary as though it had been provided to it by the borrower; b) a lender should require brokers to implement and maintain appropriate policies and procedures to collect information from the borrower and verify it, and for the broker to train staff on the Code and the lender responsibility principles.

Although the lender remains responsible for ensuring that the Lender Responsibility Principles are met, section 9C(7) of the Credit Contracts and Consumer Finance Act 2003 allows the lender to rely on information provided by the borrower (and by section 5.18 of the Code) from the broker unless the lender has reasonable grounds to believe the

information is not reliable.

An interesting question will be how far down the chain of command does section 5.18 of the Code allow the lender to pass the responsibility for adhering to the Code and the Lender Responsibility Principles. Does it mean that when the principles require the lender to assist the borrower to make an informed decision a lender can pass some of this responsibility on to the broker? Can a lender accept and rely on information from the broker to the effect that the broker has assisted the borrower and the borrower has made an informed decision to borrow?

And does this responsibility stop at the broker?

Assisting the borrower/guarantor to make an informed decision The lender responsibility principle that requires the lender to assist the borrower to make an informed decision is one where the division of responsibility between the lender and the broker could become quite confusing.

It may become even more confusing when you layer over the top of the responsibility the requirement to recommend or require a borrower or a guarantor to take independent legal advice.

If independent legal advice is recommended but not obtained, does this put more or less responsibility on the lender or broker to assist the borrower to make an informed decision?

If independent legal advice is obtained, does this relieve the lender or broker from any

responsibility if the borrower does not make an informed decision?

The code now introduces two new concepts which are useful and help the lender and broker deal with the issue of scalability. All through the code it refers to scalability but particularly in the area of assisting the borrower to make an informed decision.

Scalability is a risk based concept. The lower the risk of the borrower not being able to meet the commitments, the lower the level of assistance. At each end of the risk scale, the code has defined types of borrower:

A vulnerable borrower or guarantor: This is a person who the lender knows or the lender ought to know that the borrower is unlikely to understand the nature of the transaction or the information provided - e.g. English as a second language or is a senior citizen taking out a reverse mortgage, or is under significant pressure to obtain credit or give a guarantee.

A well-informed user of credit: This is a person who a lender can reasonably expect to have a good pre-existing understanding of credit agreement or guarantees – this could be due to previous experience with credit agreements or

guarantees of the type. The well informed user of credit cannot be a vulnerable borrower.

A non benefit borrower/guarantor: The code also provides guidance on recommending independent legal advice to borrowers where there are multiple borrowers but only one of those parties will receive the direct benefit of the money lent. This also applies to guarantors

Unduly influenced borrowers/ guarantors: Again, a person who appears to be under the undue influence of another borrower or guarantor should also be advised to seek independent legal advice.

Identifying the type of borrower/ guarantor: When the lender does not meet the borrower and is unaware of the circumstances – for example when a broker is involved and only the broker meets with the borrower - the broker under 5.13 will become the person responsible for identifying under which, if any, of these categories the borrower or guarantor falls.

The importance of this identification of the type of borrower is because if the person is of a type that a recommendation for independent legal advice is recommended under the code, the person who is responsible for making the

identification may become exposed if that information is not passed on to the lender and if the recommendation is not made.

One large bank has already changed its instructions to lawyers requiring them to make this identification. I don’t think that is adhering to the Lender Responsibility Principles because the identification of the borrower type is best made at the coal face, by the lender or the broker who is taking the application and meeting the borrowers.

One of the other principles requires the lender to understand the borrower’s needs and objectives. It is at that point that the identification of the borrower type can best be made – not at the end of the transaction when the documents are being signed up.

The responsible broker Which brings me back to the issue of response and responsible. The correct response of brokers to the Responsible Lending Code should be to grab hold of it, read it and take the responsibility for applying it. Responsible lending is all about knowing and understanding the borrower and the best person to do this is the broker, sitting in front of them and discussing their needs in person. ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir.

Intelligence Lending book details

WHAT ANZ’S HOME LOAN BOOK LOOKS LIKE

New Zealand’s largest home loan lender, ANZ, provided a breakdown of its home loan book as at March 31. Here’s what it looks like.

{289,000} {490K}

Average loan size at origination

TOTAL NUMBER OF MORTGAGE ACCOUNTS

{75%}

OWNEROCCUPIED LOANS

{73%} OF MORTGAGES ON FIXED RATES

64% AVERAGE LVR AT ORIGINATION

49%

AVERAGE DYNAMIC LVR OF PORTFOLIO

64 BILLION {59%} {27%} {22%}

TOTAL MORTGAGE LENDING 034

% OF TOTAL NEW ZEALAND LENDING

OF MORTGAGES ON FLOATING RATES

% OF PORTFOLIO PAYING INTEREST-ONLY