TMM Challenging year ahead 01/2023

Challenging year ahead

Reforms possible over clawback

How external disputes schemes rule on clawbacks is a point of contention with advisers, but there are now signs decisions may change.

Up front

Features

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30

How to do better with your comms: clients are suffering, yet there’s next to nothing in most financial advisers’ newsletters and blogs to actually help them.

32 INSURANCE

Is a million dollars a lot? How you answer this. question may mean your client ends up dangerously uninsured.

Back to the future

The first month of the New Year will be done and dusted by the time you read this.

We hope it has started off well for you.

It’s always dangerous to try to predict what lies ahead over the next 11 months - and we’ve seen the perils of trying to predict things when New Zealand suddenly got a new Prime Minister in January.

To add unpredictability into the mix, there’s a general election coming up in October. But in this issue, we’re giving crystal-ball-gazing a go.

One of the big challenges for mortgage advisers is going to be around business volumes.

For many years the sector has grown strongly on the back of a roaring housing market.

The housing market is taking one of its biggest falls ever at the moment, with volumes and prices down – so, too, your income.

Will there be sufficient business to sustain all current advisers?

We will only find the answer to that question in time.

One thing that may help this capacity issue is that some advisers have chosen to hang up their shingle entirely, or to step back from the day-to-day advising and focus on running the business.

The other big issue, of course, is regulation. The March deadline for full licensing is not far away now.

When that day arrives, we will get a better sense for what the shape of the advice world will look like.

One prediction that I would make is that the composition of the dealer-group sector will change significantly.

We know of one new entrant coming to market soon, and in the past year or so new players wuch as Wealthpoint and The Adviser Platform (TAP) have rolled out mortgage-adviser offerings.

Added to this, relatively new player Kiwi Adviser Network (KAN) has reportedly seen good growth in adviser numbers.

Other players like MortgageLink and Mike Pero Mortgages are openly talking about growth.

I am told by the former head of a group that it’s a difficult business and hard to make a dollar.

How all this plays out will be something to watch this year.

Better Business Conference

We hope to see you at the TMM Better Business Conference at the Novotel Auckland Airport on February 28.

Our conference is unique, as it is 100% focused on mortgage advice.

It is also is one of the only conferences where you can mix and learn from your peers who work in different dealer groups to you.

It will be a good day, so book your tickets today

See you in February!

Philip Macalister Publisher

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Sourcing non-bank finance for your prime clients? If the rates are double digits, there may be a better fit.

Keen to know more? Contact the property lending specialists at Resimac.

Adoyen of mortgage advice has announced he is stepping back from the mortgage front line to oversee other advisers and achieve a better work-life balance.

Geoff Bawden has spent 40 years in the finance industry, 26 of them as a mortgage adviser.

He currently owns and runs two businesses, the mortgage practice Bawden Consulting and aggregator, Q Advisor Group.

Bawden says much of the day-to-day running of Bawden Consulting will be put in the hands of two colleagues, Tammy Hooper and Alison Mealing, and he will put some of his spare energy into mentoring new talent.

“I would like to spend a bit more time on what can be done to support new advisers entering the industry,” he said.

“Having spent over 40 years in finance, it would be great to be able to give a little back to the industry and share my

VETERAN ADVISER GEOFF BAWDEN STEPS BACK

experience with new-to-industry advisers who would like a helping hand."

Bawden will continue to own Q Advisor Group but operate it via a manager, so in that sense it will be business as usual.

Last year, the group combined with The Adviser Platform (TAP) to offer a mortgage aggregation business.

Bawden says the last few months have taken a toll, with the loss of two important people in his family. He also faces further health challenges.

“I think what has happened in the personal arena in the last six months in particular has re-emphasised for me the importance of family,” Bawden says.

“I want to find a better work-life balance.”

So what is his view on the state of the mortgage business now?

“I think the industry today is far more complex than it has ever been before. It requires a much more professional approach from advisers and attention to a lot more detail.

FORMER AVANTI BOSS BECOMES A BROKER

Six months after leaving Avanti, Stephen Massey has a new gig – this time on the other side of the lending business. Massey, who spent 19 years at Avanti and finished heading distribution, is now into the distribution game.

He has joined Loan Market as a mortgage adviser working in Auckland's North Shore/North Western area. Since leaving Avanti, Massey had done his Level Five papers through Strategi's

“It is a harder industry to work in – and I don't think the banks make it easy for advisers – but I think it is still an industry with a huge amount of potential.

“It's not that long ago that mortgage advisers were being dismissed as just a channel (for money). But now people are increasingly looking at mortgage advisers for advice, and those professionals who do that well and manage their customer relationships well stand to be able to build a very good business for the future.”

Bawden has been an influential player in the mortgage advice industry chairing the NZ Mortgage Brokers Association (NZMBA) and taking part in industry events such as TMM's Round Table discussions.

The NZMBA was subsumed into the Professional Advisers Association which was one of the groups which established Financial Advice NZ.

Image: Geoff Bawden

classroom programme and is now looking for his first deal.

He tells TMM that some people may be surprised at the move and thought he may have gone for another corporatetype role. However, he wanted to do something for himself and get close to customers again rather than dealing with policy, compliance and other matters.

Many people "assumed I go for another big role or title but that wasn't what it was about for me."

"I wanted to be closer to the customer."

Massey talked to a number of groups but settled on Loan Market as it had good systems and support.

THE LATEST BILLION DOLLAR BROKER A

46-year-old adviser has become Loan Market's latest Billion Dollar person, despite running his brokerage from afar for the last several months.

Cameron Marcroft has been handling Loan Market's Auckland Central office from a home in Wanaka for much of 2022, augmenting on-line lending work with a once-a-month commute to check things out at the Remuera Rd office. This absence did not stop him from passing the $1 billion milestone less than seven years after setting up the Central branch of the Loan Market franchise. Two other Loan Market operators, Bruce Patten and Robyn Ashkettle, have also sold mortgages worth that same amount. So how did Cameron pull it off?

'I have seen many other mortgage models in my career – the good, the bad and the ugly – and I saw the best way for Loan Market to grow its business was

to align with Ray White real estate in Remuera.

“I also invested into the business and employed good people who have stayed with me.”

Marcroft says in reaching the big number he had a bit of luck in that Remuera house prices were higher than elsewhere and so people had to borrow more to buy a property. He also spread his business a bit wider, though mainstream banks still took the vast majority of his business compared with non-bank lenders.

Marcroft adds in the early days, Ray White provided about 50% of his leads, but this had since dropped to 20% as business started coming in from a wider range of sources.

He started working in the finance sector when he took a job with a job in the old National Bank, and joined the ANZ when the two banks merged.

He later worked in sales for the New Zealand Financial Services Group (NZFSG) before setting up Loan Market's Central Auckland Branch in Remuera.

His goal is now to build up his team of advisers to run the business and “get their names up in lights”. He is also moving back from Wanaka, but will not be so hands-on as a mortgage adviser. That does not however mean he will stop.

“I am many years away from retiring, however, a change of scenery like Wanaka helps you evaluate what you want in life.

“I want to evolve my business so it is not so much about me, but it is about my staff. I want to oversee them, to mentor them ….. that is how I see myself.”

Image:Cameron Marcroft

LIBERTY FINANCE APPOINTS NEW BDM

Liberty has appointed a new business development manager to replace Jack Patel. Former Avanti business development manager Matt Thomas is taking over Jack Patel's former role at Liberty.

Patel is now a business development at small business lender Prospa.

Thomas says; "I look forward to introducing more advisers to Liberty’s flexible lending solutions. To be part of an organisation that’s free-thinking and innovative in its approach to finding smarter loan options is an amazing opportunity."

Liberty general manager Adrian Chase, says "Matt brings immense knowledge and expertise to the business and will be invaluable in continuing to build great relationships with New Zealand advisers."

WESTPAC GETS NEW CHIEF ECONOMIST

Westpac gets a new chief economist following the departure of Dominick Stephens.

It has appointed Kelly Eckhold as its new chief economist in New Zealand. Eckhold will join the bank following a long career at the Reserve Bank of New Zealand and most recently the International Monetary Fund (IMF). He worked at the IMF for 11 years on central banking policy in both advanced and emerging markets economies and was recently involved in the IMF’s five yearly Financial Sector Assessment Program reviews for both the US and UK.

Prior to his time at the IMF, he worked with the RBNZ for more than 20 years in the economics and financial markets areas and provided advice to the governor as part of the Monetary Policy Committee.

Eckhold will take up the role in March, filling the role vacated by Dominick Stephens.

Since Stephens left Michael Gordon has been the acting chief economist.

AVANTI SNARES LONG-TERM ASB EXEC

After a long career with ASB, Ian Boyce has joined Avanti Finance as the new general manager property. He will also join the executive team. Boyce has been brought on board.

He has spent most of his career at ASB, most recently as general manager Business Banking. Over his time at ASB, he helped successfully launch ASB in the South Island, and has held senior roles in retail, business and commercial, insurance and third-party banking, developing, and implementing new operating and distribution models.

Boyce has extensive senior leadership experience, as well as being a member of numerous risk and governance committees.

He says he’s looking forward to this new chapter at Avanti. “I’m really excited about joining the Avanti team to support its growth ambitions and its relentless focus on customers and people.”

“Ian is well-known in the finance industry and his expertise is key for Avanti to grow our mortgage distribution channels,” acting CEO Paul Jamieson says.

OMEGA CAPITAL ADDS EXPERIENCED PROPERTY FINANCE SPECIALIST

Commercial mortgage broking house Omega Capital has added a new property finance specialist.

It has appointed Nadine Lazzara to its property finance consultant team. Lazzara is an experienced property finance specialist, having worked for more than five years in corporate banking prior to joining Omega Capital, specialising in complex residential and commercial property development and investment projects. She studied in Canada before to moving to New Zealand in 2012.

“I have a deep knowledge of the wider market, and property-specific insights that are valuable for both experienced and new property professionals,” she says. This knowledge is supported by a “keen interest in the property industry.”

One of Lazzara’s biggest strengths is her ability to foster and maintain genuine relationships, while ensuring her clients achieve their short and long-term development goals. Her background includes time in a relationship manager role, solidifying her ability to provide her clients confidence and comfort in their property lending experience.

Omega Capital general manager Noni Martin says, “Nadine’s background in corporate banking coupled with her deep knowledge of property finance makes her a perfect fit for the Omega Capital team.”

The removal of mortgage interest as a tax-deductible expense for property investors with older existing property is already starting to affect rental property.

NZ Property Investors Federation executive committee member Tim Horsbrugh told Parliament’s Finance and Expenditure Committee at the end of last year that although the Government’s objective of removing interest deductibility was to improve affordability for first-home buyers, by knocking back investor demand for existing housing, this has not happened.

“Instead, the shortage of rental property has been made worse,

The overall market share for mortgaged investors by number of properties owned after their latest purchase means many are essentially new investors – in most cases, owning their own home and just recently buying their first rental.

The spike in overall investor activity post-Covid 19 was driven by smaller players: investors with two to four properties.

However, since early last year, this group’s market share has been sliding lower, along with investors who own five to nine properties.

leading to higher levels of homelessness, reduced availability of rental property and higher rents.”

He pointed out that allowing large build-to-rent developers, investors and operators to claim mortgage interest as a deductible expense if they allowed tenancies of 10 years flew in the face of the plan the federation had already put to the Government.

The federation’s plan to fix the rental crisis included a new long-term tenancy option, in addition to the existing periodic and fixed-term options available.

This option would then be more widely available to tenants wanting security of tenure.

INVESTOR TAX BURDEN ALREADY AFFECTING RENTAL PROPERTY BREAKDOWN OF INVESTORS’ PURCHASING BY SIZE

Kelvin Davidson, chief property economist at CoreLogic, says this seems logical.

The “newbie” investors probably had the most anxiety about all of the regulatory changes, he says, as well as probably having less equity behind them and a greater eye on alternative “safer|” investments, such as term deposits, which are again starting to pay better returns.

“That said, the slight caveat is that although investors-with-two-properties market share has fallen quite sharply, they started higher, and their market

The new tenancy would be for a minimum of three years, allowing the tenant to decorate the property as of right - as long as the property is returned to its original state when the tenant leaves.

There would be no obligation for the landlords to provide floor coverings, curtains, light fittings or appliances, including stoves.

In return for a long-term tenancy, landlords could charge a bond of 12 weeks, and tenants must pay all insurance premiums, rates, and the costs (both fixed and variable) of services to the property, including water.

share is still comparable to past troughs.”

By contrast, apart from the really large buyers – investors with 10 plus properties – the cash investor groups have pretty much raised their market share lately across the board.

Davidson says with credit conditions set to remain testing for a while yet – especially with formal caps on debtto-income ratios now needing to be added to medium-term considerations – cashed up investors may well hold on to a decent market share this year, although the number of property sales are expected to stay fairly low.

Image: Tim Horsbrugh

A couple of positive developments in the GST rules have implications for property investors, says Anthony Lipscombe, a partner at GRA.

Last year a long-standing issue which prevented GST from being claimed on asset transfers within a group structure was resolved.

Lipscombe puts the issue in context by explaining the problem:

“[Let’s say] somebody owned a large piece of land that was originally bought with the intention to hold long-term.

POSITIVE GST DEVELOPMENTS FOR PROPERTY INVESTORS

“Now that person wants to exploit the development potential by subdividing and building multiple dwellings on the land, with the intention of selling them.

“This is an activity that is subject to GST and also one that entails risk, so the owner wants to shift the land into a GSTregistered limited liability company.

“Under the old rules, though, the GSTregistered company would be prevented from claiming any GST at all on buying the land from an associated long-term owner.”

From April last year, that is no longer the case, Lipscombe says. A GST-registered company can claim GST on buying land from a non-registered associated vendor. “An important point of detail is that the amount of GST able to be claimed is limited to the original cost of the land incurred by the associated vendor, but that is infinitely better than getting no claim at all,” he says. ✚

Image: Anthony Lipscombe

Adviser numbers set to decline

It will be illegal to provide financial advice without a licence after March 16, yet around a quarter of advisers still do not have one. What will the pending drop in overall adviser numbers mean for the industry?

BY ERIC FRYKBERG

There are only a matter of weeks before new financial-adviser rules come into effect, yet around a quarter of Financial Advice Providers are still not operating under a full licence.

Some have not even yet applied for one.

The Financial Markets Authority (FMA) says as at December 11 last year, 73% of the total number of 1750 FAPs were either operating under, or had applied for, an FAP Full licence.

Without a full licence by March 16, it will be illegal to provide financial advice.

The issues involved in full licensing have been repeatedly argued about, with many advisers saying it was yet another case of regulatory overreach wearing everyone down.

The FMA itself, along with a number of advisers, argued the process was not as hard as often claimed.

In addition, the FMA went out of its way to help advisers attain full licensing, with special on-line sessions to provide people with assistance.

Adviser numbers to decline

Despite this, the number of advisers working in the business will necessarily decline from March 16.

So what impact will that have?

Financial Advice NZ chief executive Katrina Shanks thinks it will not bring too many difficulties to the mortgage industry.

“There are about 70-odd FAPS that are still to get their full licences,” Shanks says.

“That’s not really a lot. There’s a pool of 1900, and we have 70 that have not got their licences.

“And that 70 covers about 120 advisers in total.

“So it is relatively small. We have a membership of 1500, and this problem affects only 120 of them.”

Shanks concedes that not all advisers are members of her association, so there may be non-members missing the FAP deadline and causing difficulties which are not captured by Financial Advice NZ's own reporting.

The regulatory returns issue

Connected with this is the question of regulatory returns for FAP licence

holders, as well as other groups which work in the industry under a range of rules and regulations.

At issue are the sorts of questions which will be asked of financial practitioners, when these will be asked, and how often.

These issues were raised late last year and feedback was sought from the industry.

There was criticism of this process, with some saying it was another bureaucratic layer on top of many others.

But the FMA argued it was all very well for advisers to get a full licence, or to comply with other rules, but what then?

Should they hang their certificate on the wall and forget about it?

No, they had to continue to fulfil its conditions and prove that they had done so.

“The information [provided in regulatory returns] helps us consider whether licence holders continue to meet the eligibility criteria and market service obligations,” the FMA said.

“[It helps us] to understand the people and businesses we regulate in greater detail, to determine the focus and priority of our supervision and monitoring activities, and to identify themes across the market that might require further exploration.”

The information from the regulatory returns was needed to provide updated data on the nature, size and complexity of any particular financial service, the FMA added.

It would also allow the FMA to evaluate the risk of “material issues”, to get a better understanding of stakeholders in a business, and to understand the methods used by a company to consider the needs of a client.

‘There are about 70-odd FAPS that are still to get their full licences. That’s not really a lot’

Katrina Shanks

As part of its consultation on regulatory returns, the FMA put forward a sample question sheet as an indication of how the system might operate, and the sort of questions that the regulator might be expected to ask.

Bankers Association warnings

The Bankers Association warned that the proposal as written would involve a lot of work, and even require changes within the operating systems of its own members. It argued the FMA should require only the information that was necessary, and should not create an undue compliance burden.

Furthermore, the association said, some of the information being sought was of questionable usefulness, and there was a risk of overlapping obligations with other licences or other regulatory requirements. There will be more work on this subject in the current year.

CCCFA changes in place by autumn

The Government's final word on the Credit Contracts and Consumer Finance Act (CCCFA) is due in February, with the new rules in place in March.

In August, the Government issued a second set of proposed CCCFA changes. These will be finalised in February before the March implementation.

The changes will narrow the costs considered by lenders to exclude discretionary expenses more explicitly.

The aim is to alleviate the disproportionate number of inquiries made by lenders - and to reduce the overestimation of a borrower's expenses.

The new rules will also ease the number of conservative assumptions lenders are required to make about how revolving credit contracts, such as credit cards and “buy-now paylater” schemes, can affect the offer of a loan.

The proposals will also allow for debt refinancing and consolidation where it would make debt more manageable and debt processing faster.

Opportunity missed

The Bankers Association thinks the changes could have some merit, but says an opportunity was missed to target the rules at the appropriate people - vulnerable consumers, for example - instead of using a onesize-fits-all approach.

In addition, the timeline leaves few opportunities for further refinement, with the final version of the new rules scheduled to be in force by March.

There will be little time available for financial institutions to install the systems needed to make the whole thing work.

Financial Advice NZ chief executive Katrina Shanks produced a cynical shrug when asked about the latest changes, suggesting they would not achieve very much for advisers.

“They will just keep on giving the advice that they give,” she said.

“Really, the Government is just going to have to look at that core legislation.

“If they really want to move the dial significantly, they should change the core legislation.” ✚

‘As at December 11 last year, 73% of the total number of 1750 FAPs were either operating under, or had applied for, an FAP Full licence’

Faint light at the end of the tunnel

Despite construction looking set to decline for the next couple of years, and house prices predicted to fall 25% in total, the latest housing-confidence survey suggests a rise in optimism – at least amongst Aucklanders.

BY SALLY LINDSAY | PHOTO: TONY ALEXANDER

ASB has revised its house-price prediction to a total fall of 25%.

That’s a sizable price fall. In inflation-adjusted terms, it is nearly as large as the 1974-1980 slump.

It comes after ASB’s Housing Confidence Survey to the end of October, released at the end of last year, showed the housing market moved out of the red, thanks largely to Aucklanders.

The latest confidence survey results suggest people are seeing a faint glimmer of light at the end of the tunnel after a year’s worth of house-price declines.

The ‘is it a good or bad time to buy a house’ responses swung back – just –into ‘good’ territory, due to a bout of optimism from Aucklanders.

Price expectations moved up fractionally, though remain distinctly negative. And the large group of people expecting interest rates to rise did get a bit smaller.

Is a train still coming?

There is, however, the possibility a train is still approaching The survey results were

taken just before the Reserve Bank put on an express service for the official cash rate (OCR), lifting it by 75 basis points in November and talking even tougher on inflation.

Additionally, house sales and price data from the REINZ showed accelerated deterioration, with prices now down 14% overall.

House sales have fallen markedly in recent months and, in seasonallyadjusted terms, are the lowest since 2008 (putting aside the 2020 lockdown pause).

There are scenarios under which the price fall may not be that large.

Immigration is potentially picking up faster than has been anticipated.

And if people start to heed the RBNZ’s message to spend cautiously, the OCR may not need to hit 5.5% to get inflation under control sufficiently quickly.

For the time being, however, the RBNZ looks like it is still going to have the throttle wide open on the OCR Express.

Good time or bad time?

Amidst the recent doom and gloom, respondents are increasingly less downbeat on whether now is a good time to buy a house. On a net basis, 1% of respondents think now is a good time to buy.

In contrast, in the three months to January last year, a net 28% thought it was a bad time to buy - a new record in the survey’s 25-year history.

The optimism is, however, solely confined to Auckland at net +9%.

The rest of the North Island is technically on the ‘bad’ side of the ledger, with the South Island at net -6%.

The good/bad-time-to-buy responses are influenced to some extent by the affordability of buying a house.

With house prices down considerably in some parts of the country, and incomes starting to get boosted by strong wage growth, required minimum deposits are a smaller share of income.

That puts housing more within reach from that perspective, particularly if that relativity is sustained.

Interestingly, first-home buyers’ share of new mortgage borrowing, at 20%, has crept up marginally over the past year.

But, as respondents will be aware, rising interest rates are reducing purchasers’ borrowing capacity during the current tightening cycle.

Construction expected to head south

Economist Tony Alexander has been warning about a widespread weedingout of businesses in the residential building sector since early-2021, but says he did not expect that it would take until now for the pullback in activity to really get underway.

Construction is expected to be one of the major swings south this year in the housing market.

Alexander believes change will come shortly.

“There is a lot of weakness to come in the townhouse building sector; summer is going to bring many examples of building companies going under, and projects being left half-completed, with people losing their money.

“Like excessively high inflation, and a boom/bust cycle in house prices, this is another way in which the Reserve Bank has worsened stability in our economy.

“It seems to have become a net negative for the country.”

He says it seems reasonable to expect the following this year:

• falling consumer spending for the first half of the year and retail business failures

• house prices edging lower until the middle of the year

• fixed mortgage rates for periods beyond one year falling before the middle of the year

• house construction embarking on a two- to three-year period of decline

• falling numbers of properties listed for sale

• firm net migration inflows

• the Kiwi dollar either rising or falling against the currency of your choice –or the other way around.

Alexander says mortgage borrowers would be best to fix at one- or two-year rates.

“Three years feels too long given the likely easing in monetary policy over 2024 and 2025.

“The environment is going to be one of high instability and borrowers need to be careful not to get overly fixated on what the general themes are from one week to the other,” Alexander says.

“You run the risk of panicking and locking in for a long-term fixed rate at the worst time in the cycle for doing so.”

Tough year for Auckland property sellers

Last year ended on a troubling note for Auckland’s biggest real estate agency, Barfoot & Thompson, which sold 37% fewer homes during the year than in 2021, with the average number of homes

sold each month at 706 its lowest for 12 years.

Just 527 properties were sold in December and overall 8,469 during the year, the lowest number since 2010 when 7,987 were sold.

Half of the properties sold last month were in the $1-2 million range, 32% were in the $750,000 to $1 million bracket, while sales of houses priced at more than $2 million accounted for just 7% of the total number (37 houses).

Barfoot & Thompson managing director Peter Thompson says while sellers are listing, they are cautious about offers.

“While the drivers putting pressure on prices remain, such as rising interest rates and inflation, concerns over future economic activity and more properties for sale than there have been for a decade, vendors have become cautious about accepting what they consider to be too low an offer.

“In December the effect of this reluctance was particularly felt in the under-$750,000 price category, and we sold only 90 homes in this price segment.”  ✚

‘Summer is going to bring many examples of building companies going under, and projects being left halfcompleted, with people losing their money’

Tony Alexander

Challenging year ahead

Your guide on how to navigate it.

BY ERIC FRYKBERG ADDITIONAL REPORTING BY SALLY LINDSAY AND PHILIP MACALISTER

If 2022 was a tough year for advisers, 2023 looks set to be another challenge.

It will also be a very busy one, with new regulations, a tight housing market, reformed banking systems and an election all lying in wait for the adviser community.

“This will be one of the most challenging years we have had in a long time,” says Edge Mortgages founder Glen McLeod.

One of the big issues is the fall-off in the number of houses being sold, along with a decline in price.

This necessarily reduces the amount of work available for mortgage advisers, and limits their earnings from each deal.

ANZ is now forecasting a drop in house prices of 22% from their peak, while

mortgage applications are already down 27%.

Squirrel chief executive David Cunningham says this is bound to have an impact on the mortgage business.

“There is an over-capacity in the industry, no surprises there,” he says.

“In 2021, there was an under-capacity, now there is an over-capacity. Borrower numbers are down probably about 30%... and that is starting to affect revenue industry-wide.”

Cunningham said he would not be surprised if people left the industry because of this problem.

He says while Squirrel is not laying off advisers, “we are not hiring.”

Financial Advice NZ chief executive Katrina Shanks says the difficult state of the housing market weighs on the industry as a whole.

“Where you’ve got a double whammy - reduced prices and a quieter market - it has an impact on the remuneration for a mortgage adviser, because it is totally related to the volume of houses that are on the market and the price at the time.

“It is very stressful on advisers when there are factors outside their control that impact on their ability to earn an income.”

Numbers down anecdotally

So what sort of effect is this having on adviser numbers?

At this stage, mortgage companies are keeping quiet about how many staff they have lost, but anecdotal evidence suggests quite a few advisers have left

the industry - primarily due to changing business conditions and new regulations. But there might be an unexpected solution to this problem.

The fast-approaching deadline for the financial advice provider (FAP) regime is believed to hold an unintended fix.

Despite assurances from the Financial Markets Authority (FMA) and some advisers that full FAP compliance is not hard to achieve, many advisers have dragged their feet.

If their complaints are borne out by action, or inaction to be more precise, these unhappy advisers could take the need for full licensing as their cue to leave the industry.

In many cases, they will be older people, possibly sole operators, and if they leave in any significant numbers, then the available work during the economic downturn will be consolidated on fewer competing companies –meaning the need for job losses in the remaining firms could be reduced.

It is not known how many people will take this opportunity to leave the industry.

Figures are expected to be released by the FMA when the system is mandatory from March 16.

But there could easily be scores or even hundreds of people leaving, and the overflow from their work could top up the coffers of surviving companies.

This scenario is not certain, however, and will only be confirmed later in March.

Time to revisit processes

Glen McLeod says the slowdown in the housing market has allowed firms like his to spend more time on preparing for the new licensing regime.

“It’s given us time to revisit and look at all our processes.”

At Edge Mortgages, advisers are concentrating on their database this year. While they already do annual reviews, they want to build more touchpoints into their processes.

With the state of the housing market and high inflation, “everyone’s hurting out there,” McLeod says.

Edge does only mortgages, referring fire, general and life insurance to partners.

However, sometimes in the past while clients had been referred to partners, come settlement time the meetings hadn’t been held, McLeod says.

More work has been done to make sure these meetings take place, to ensure they are giving good and proper advice.

Industry veteran and owner of Q Group, Geoff Bawden, says one of the biggest things for mortgage advisers this year and in the new regime will be “getting their heads around the advice process.”

“I still don’t think advisers really get it completely,” he says.

Many of the new-to-industry advisers come from banks.

Bawden’s observation is that while these newbies have excellent lending and analytical skills, they don’t have experience giving advice.

“In the past they were order takers.”

Now they need to upskill around advice.

An added challenge is that dealer groups face a massive increase in accountability. The oversight they have to have on a member, and what that adviser does, will create conflict.

Particularly, he suggests, for the older advisers: they are used to doing things their own way and may well have a “no one’s going to tell me what to do” kind of attitude.

Under the new rules, FAPs will face legal liabilities, and commercial liabilities will be shared between the FAP/ aggregator and the adviser.

No doubt this will create some tension.

Bawden says Q Group has been taking its members on a journey through the changes. His view is that “we’re here to help you, not to tell you what to do.”

Meanwhile, advisers report an advantage of the lower level of mortgage business right now: banks have sped up processing times dramatically.

Clients need help refinancing

As recent home-buyers start to see their interest rates spiralling, advisers’ focus this year is likely to be on helping existing clients refinance rather than chasing more lucrative new business.

Clients who bought a house two years ago on a fixed rate of two to three per cent will now be watching aghast, as the approach of their reset date signals a doubling or more.

Almost 89% of all mortgages were on fixed rates at September 30, and more than 55% of homeowners will this year face re-fixing their mortgage rates at much higher levels.

Squirrel’s David Cunningham says there is already “a fair bit of helping customers who are finding it a bit tough to navigate through a belt-tightening process in terms of the structure of a loan and things like that.

“For some people, it is going to be tough, but others are miles ahead on their payments.”

Regarding the latter, Cunningham says some people who have been in the home-ownership business since the mid-

2010s saw interest rates drop markedly, especially during the Reserve Bank's Covid-19-driven policy of quantitative easing, and took the chance of using that freed-up money to pay back some principal.

In that way, they built up a buffer to protect themselves against rising rates.

Mortgage People managing director Simon Fisher says loan term and structure are going to be big issues this year.

With interest rates more than doubling in the past 18 months, borrowers coming off fixed rates are going to face a significant increase in overall repayment costs.

“It may mean that in some cases people need to refinance, or extend their existing loan terms [if they meet the criteria], to be able to afford the new repayments,” says Fisher.

“Determining the right period to fix for, to give people certainty, with inflation still being high and further expected rate increases indicated for February and April 2023 at this stage.”

He also says advisers need to educate clients to look at fixed options two months out, especially at the present time where rates have been increasing on each OCR announcement and are currently expected to do so up to April 2023.

Borrowers can lock in rates for 60 days before settlement or before a fixed rate expires, thus ensuring they do not get caught with an increase after an OCR announcement.

More time on education

Glen McLeod agrees: with the changes in the market, particularly around regulation, advisers need to spend more time educating clients.

In his new office premises, there is a seminar room just for this purpose.

“A lot of our job is about educating.”

Reports out of Australia show the same trend, with many advisers starting up podcast services.

McLeod says New Zealanders are not particularly financially literate with mortgages, and seem to have it in their heads that rates as low as two or three percent are normal.

When he started as an adviser in 1998, he had a saying: “Eight is great, seven is heaven and six is ridiculous.”

Katrina Shanks says some advisers have focused mainly on getting a deal for a customer to be able to buy a house in the first place – but now need to also “walk with them on the journey” during this period of high inflation and high interest rates.

“If there is financial pressure on a family because of interest rates, advisers

may be able to help them make some short-term adjustments, such as how they can reset their budgets or what kind of savings they could make, to take the pressure off.

“Advisers do have a duty of care in a relationship with a client, one that doesn't end once the advice is given,” she says.

“But the question is, how long does that duty of care continue after they have placed their client with a product and met their needs at that point in time?”

Cunningham points out that the latest woes need to be kept in historical perspective: the level of mortgage business may have slipped, but it is still comparable with that of 2017-2018.

He adds that there were some people who took out a five-year, fixed-rate loan less than two years ago for around 3%, which gives them a lot of breathing space - possibly long enough to outlast the current downturn.

Shanks sees hope: the economic downturn may not turn out to be serious enough to force people out of their homes.

That’s because banks have been stresstesting mortgage applicants for years, to make sure they could pay a mortgage at a far higher level of interest than the one which applied when the mortgage was signed.

“At the moment, banks are stresstesting at around 8%. This ensures that if there’s an increase in interest rates, the family will still be able to afford it.

“It has already been built in before they advance the money, as part of the affordability criteria, providing a useful buffer for home-owners facing difficult times.”

‘In 2021, there was an under-capacity, now there is an overcapacity. Borrower numbers are down probably about 30%... and that is starting to affect revenue industry-wide.’

David Cunningham

‘It is very stressful on advisers when there are factors outside their control that impact on their ability to earn’

Katrina Shanks

How tough will tough be?

The big question is how tough those difficult times will turn out to be.

Cunningham is one man who thinks they may not turn out quite as bad as is commonly believed, and that interest rates may not go as high as some people think.

This is despite the Reserve Bank of New Zealand (RBNZ) predicting its Official Cash Rate (OCR) could go as high as 5.5% before levelling out. Normally, that would have pushed retail interest rates towards, and past, the 8% mark.

They went to 7.99% for many banks, as a result of the RBNZ's big jump in November to an OCR of 4.25%.

Floating rates would normally rise again this year if the RBNZ follows through with the two further jumps in the OCR, as is widely forecast.

But Cunningham says floating rates are just a small part of the market.

The outlook for fixed rates is different, he says, providing a moment of hope.

“I am optimistic that fixed rates are pretty much at the highest level they will be.

“The reason for that is that the swap rates upon which those fixed rates are priced are pricing in at 5.50%,” he says, citing December figures.

“So fixed rates will peak in my opinion soon. Floating rates have still got some way to go.”

ASB senior economist Chris TennentBrown expects floating rates to peak at a range between mid-eight per cent and mid-nine per cent.

But this will not have as much of an effect on mortgage borrowers, because only a small portion of home-loan lending is on floating rates.

Tennent-Brown says he expects one- to five-year fixed rates to peak in the high six per cent to mid seven per cent range. Two-year special rates for borrowers with 20% equity at the main banks range from 6.15 per cent to 6.74 percent.

Infometrics chief forecaster Gareth Kiernan expects mortgage rates to sit between 7.25 per cent and 7.5 per cent between the middle to end of this year.

He says the shorter-term fixed rates will be more affected, as about 80 per cent of OCR movements pass through

to one-year fixed rates - down to 45 per cent passing through for four- and fiveyear rates.

Kiwibank chief economist Jarrod Kerr says if the Reserve Bank follows its forecast track, all interest rates will end up above seven per cent and some as high as eight per cent, putting a great deal of stress on some households rolling off the low fixed-interest rates of two years ago.

An eight per cent rate on a $500,000 loan will cost $3,859 a month over 25 years.

We may be over the hump

Meanwhile, independent economist Tony Alexander says there is a 90 per cent probability fixed rates have already peaked, based on softening business confidence, dwelling consent numbers being down, and prices softening.

ANZ’s economists say while inflation is not yet in the bag, and borrowers need to be aware of the risk of higher rates, there is light at the end of the tunnel.

They say slowing credit growth may leave banks in less of a hurry to raise mortgage rates, and that we “are nearer to the end than the beginning of the interest tightening cycle”.

However, it adds a caveat: “A lot can happen over the next year or so.

“It is possible the RBNZ will need to reverse course sooner, given local and global headwinds, which means lower interest rates coul d come sooner rather than later.”

Is Cunningham right? David Tripe, a Massey University banking expert, agrees fixed rates may have peaked.

‘Everyone’s hurting out there’

Glen McLeod

‘90 per cent probability fixed rates have already peaked, based on softening business confidence, dwelling consent numbers being down, and prices softening.’

Tony Alexander

“Although short term rates [like the OCR] are going to rise, that’s already largely built into the swap rates,” he says.

“Because swap rates have a forwardlooking element to them, they are inclined to reflect what is going to happen.”

Tripe cites data from mid-December which showed the one-year swap was 5.16% and the five-year rate 4.4%. Typically, that would add two percentage points onto a fixed-rate mortgage.

If that turns out to be the case for the coming year - and Tripe insists it is a complex business with many factors –then current fixed rates could plateau at or near current levels, which are in the early sevens for mainstream loans from many banks.

Where’s the new business?

Advisers spoken to are saying that first home buyers are their bread and butter at the moment.

McLeod says upgraders have become “really frightened”, especially after the Reserve Bank hiked the OCR 75 basis points in November.

But there are signs that property investors are starting to stir and there may be some good deals emerging.

While 2023 is shaping up to be a challenging year, especially for newer advisers who have only seen good times, old hands like Bawden and McLeod say it’s cyclical: they’ve been through it before.

Bawden says things will be tight for a while, but the outlook is good.

“One in every two bank mortgages is written by advisers,” he says.

The adviser market share will only grow, he predicts, like it has in other jurisdictions.

It’s getting harder and harder to get a mortgage through a bank now, and the regulators want consumers to have choice - which all augurs for further growth in third-party distribution.

After having a good holiday break, McLeod says he’s “definitely pumped for this year’s challenge.” ✚

‘if the Reserve Bank follows its forecast track, all interest rates will end up above seven per cent and some as high as eight per cent, putting a great deal of stress on some households rolling off the low fixed-interest rates of two years ago. ’

Jarrod Kerr

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Top 10 tips for 2023

Ben Kelleher, ANZ managing director of personal banking shares his top 10 tips for mortgage advisers to navigate the year ahead.

Regulation is an automatic inclusion.

With the licensing safe-harbour period closing on 15 March, advisers should focus on meeting their minimum qualification requirements, and just as importantly, consider what additional training they require over the next couple of years to remain current and compliant.

Advisers could consider adding another string to their bow. For example diversifying into other markets such as commercial property, or developing new skills and advising on different product categories such as insurance or KiwiSaver or home equity release.

On that theme, interest rates are expected to remain elevated for the foreseeable future.

Besides being compliant, keep up with regulatory changes. Advisers need to ensure they are across future regulatory changes expected later this year. The CCCFA revisions are expected in April. Then there is CoFI. This knowledge will ensure advisers are making sound financial recommendations as well as reducing lender credit response times.

Internally ANZ’s best home lenders really understand the wider national trends but also their local property markets well. And so taking the time to know the local market by attending open homes and registering for property seminars/ webinars, etc can help with great customer conversations. “This really sets them apart from others.”

Advisers need to adjust their conversations and get clients used to the “new normal” which is really the old normal. Advisers need to prepare for working with clients potentially struggling from cost of living increases. Accordingly, it’s important advisers take the time to understand the hardship processes with each lender they work with.

Properties are taking longer to sell in the current market so advisers need to be prepared to work with clients over a longer time period. Generally speaking, home buyers and property investors are being more pragmatic requiring advisers to invest more time with each client than has been necessary in the recent past.

It’s an old cliché, spend time on your business rather than in the business. The property market is expected to remain relatively subdued this year so advisers should take this opportunity to do training, review marketing and strong business development initiatives such as establishing, or re-connecting with, referral partners. This is important for creating consistent business opportunities and sets the business in great shape when things pick up.

Advisers should develop a strategy to attract first home buyers as declining property values are increasing their prominencein the market. “Unfortunately, high interest rates are not helping but I’m hopeful we will see more of this group.”

In this changing market strong communication and relationships with lender business development managers (BDMs) is essential for advisers. BDMs provide important expertise and support which help advisers navigate bank requirements and deliver positive client outcomes.

Advisers should conduct regular reviews with their clients. These check-ins could provide insight into potential hardship concerns and/ or provide new business and referral opportunities.

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Adviser Outlook 2023

MARCHY PANG

SUPER CITY MORTGAGES

What is your general outlook and predictions in the industry for 2023.

At Super City Mortgages we have our licensing sorted, we know a lot of advisers are still rushing through before the deadline early March.

Last year we had a lot of challenges with the FMA, regulation changes etc and in hindsight everything slowed down in the market. This year we’re quite positive. We’ve got first home buyers wanting to get into the market so they are looking at different avenues and asking the right questions and using advisers more. I think the theme this year (for first home buyers) will be getting advice because it’s not easy for them to go to one bank and get the right answer. I know our advisers are really focused on giving back, giving advice and education.

Interest rates are also still a hot topic for clients that need advice in the housing market, if they should be selling or buying. I think it will be a very positive but challenging market this year with the main thing being the LVR and interest rates being very tight, these two things aren’t going to change anytime soon this year so that will remain challenging, but that’s why we are here, that’s why we see opportunity.

We are seeing more old hands retiring and the financial industry is changing. What changes are you seeing?

I can honestly say we have first-hand experience, one of our advisers, Andrew Chong has worked in the industry for 25 years including banking, mortgages and he took an early retirement and will be leaving us at the end of this month. With all the changes like requirements and compliance in the industry has put him off a little bit and he has passed the buck to me.

How are you finding the banks with inflation and those interest rates?

The banks are in line with us which is a great thing because they want to lend money and those are positive things already. Anything else we could hopefully do in the industry would be making the CCCFA better. Banks are trying to make things better but there is still a lot of work.

Making sure those LVRs will be relaxed a little bit because first home buyers are still really struggling with those limits. They are the ones really impacted because the banks aren’t lending money if first time buyers have less than 20% deposit. Last year a lot of first home buyers got shut out the door and pushed to buy a new build and we know that new builds aren’t the only solution. Not everyone likes new builds and we know many that have gone into receivership.

Kerry Meadows-Bonne speaks to three mortgage advisers about the year ahead.

SARAH BLOXHAM

LET’S TALK MORTGAGES.

What things have you been seeing with regards to the ongoing changes in the industry?

Well we are talking more with clients about interest rates and looking ahead but its speculative that in 2-3 years the rates will go down so that is where our focus has been in refinancing. In addition, we are having those more in depth, honest conversations with clients,, “Hey this is what the numbers could be today, but won’t be in the future.”

There is no perfect time to buy a house but when you do, you ride the waves and

ELYCE PETERS THE MORTGAGE

GIRLS

What is your outlook and predictions for 2023?

I think with the new standards coming in to be enforced by March it’s going to be interesting to see what happens for those that haven’t got things sorted. We were probably one of the top 5% that got our FAP licences early and we’ve done two

the conversations have become much longer with clients.

Also, I am seeing more people finding completing new builds instead of waiting two years, so when you can get a pre approval for a new build now, they can find something quicker that’s three-quarters started, or all finished and waiting and settle quicker. That is something in the last year we have seen in the market.

We are doing a lot more first home loans and are quite active with those which require a lot of precision.

What changes would you like to see in the industry moving forward?

I really want the main big banks to go back to lending over 80% for existing houses. A lot of people want to be in existing, not new builds. ✚

audits externally already so we’re quite in front of the eight ball it will be quite difficult to get things sorted between now and then (for other advisers in the industry) with the amount of time they’ve got.

The housing market has slowed a little and with less business in that area and more focus on things like refinancing, what are you seeing there?

We have slowed a little, however we are still very busy. Speaking from the mortgage advising realm, the importance of what we do is even more important now being that the market is harder because there is a lot more need for mortgage advisers because if a client goes into a bank they’re only getting one bank’s perception, but we all know there may be other options they haven’t looked at.

I think there is going to be a little more hardship around with inflation and rising interest rates, however at the same time there are people who have got themselves in a really good position and will be able to take

advantage of the market the way it is.

It’s going to be an interesting year because it’s also about educating clients and making them really look at their budgets and making sure the lending they are doing is affordable and not putting people in bad positions. A year ago in this market you couldn’t put a subject to sale clause in on a contract because they would laugh at you, whereas you can do that now.

We have a lot of what were our first home buyers selling and buying and getting some good deals, and while they may not be making the same amount of money selling, but they’ve already made that capital gain. So, they’ve been able to sell and rebuy in a market and some have even been able to ‘steps up’- buying a bigger property while some are doing sideway steps- buying a property in the same kind of level, but being able to release some of that equity to get rid of other debt, so its putting them in a better financial position moving forward. Amongst that there are also people who are downsizing to freehold some of their cash.

What changes have you or may consider changing for the year ahead?

The only constant in our business is change. We are consistently evolving how we do things, why we do things and the way we do them and as a business you have to do that, whether it’s a change of regulations or change of policies within the bank. ✚

Reforms possible over clawback

How external disputes schemes rule on clawbacks is a point of contention with advisers, but there are now signs decisions may change.

BY ERIC FRYKBERG

Image: Susan Taylor

‘FSCL urged advisers to make absolutely sure that the clawback rules were clearly understood by clients’

Clawbacks are a contentious issue for mortgage advisers – one that’s even more problematic when borrowers challenge them.

Some advisers are finding it hard to get their money back, even if they have a good case.

Chief executive of Financial Services Complaints Ltd (FSCL), Susan Taylor, admits there is a problem with rulings made around complaints; she knows of examples where an adviser had a good argument to make when a complaint was lodged, but then chose not to defend it.

Advisers often make a pragmatic decision not to proceed with a case because of the high costs involved.

Taylor says she is examining the issue and plans to make a statement about it early this year.

There is no information at this stage as to what she will say, or whether it will be sufficient to fix the problem.

Getting paid remains difficult

Achieving settlement of a clawback can be very difficult, according to the head of business initiatives at Maurice Trapp group, Rupert Gough.

He cited the case of a client whose previous career had been in the financial advice business – a person who knew exactly which mechanisms might work effectively to avoid having to pay the clawback, despite obvious liability.

“We had a record of texts acknowledging that there would be a clawback, as well as the usual disclosures,” said Gough, speaking to an industry webinar.

“But this person basically ignored the invoices we were sending, and dodged telephone calls, until the debt collectors became involved.”

Gough said the client – the original mortgage holder - was thought to be delaying resolution of the case deliberately, in the hope that it would proceed to a hearing.

The reasoning was that the cost of a hearing could be higher than the money being sought, so the complainant – the adviser - might discontinue the case.

And in this case, the strategy worked.

“In the end, and I know this is common, we had to zero the invoice,” Gough said.

“The cost of proving we were right was more than the monetary value of the invoice.”

Gough said many clawback claims were for just a couple of thousand dollars. This could make advisers nervous about the benefits of pursuing a case, even if their arguments were strong.

Despite these concerns, Gough was not opposed to the system as a whole. He was adamant the public needed to have the right to complain free of charge.

But he admitted it was a big issue – one to which he did not have the answer.

“It's a tough one.”

Susan Taylor says she knows of cases where an adviser had to accept a settlement even if it were unfair.

“Sometimes an adviser has to take a pragmatic approach and think it is better to settle a case, even though they know the [clawback] fee was fully disclosed and justified,” she says.

“[They think it’s] better to write off the fee rather than incur the cost of an investigation.

“I know that’s frustrating for advisers, when they feel they have done everything correctly.

“It is something that we are listening to and looking at possible ways to help with, which I will expand on this year.”

Echoes across the ditch

Clawbacks are attracting controversy on the other side of the Tasman too.

An Australian report by the Finance Brokers Association of Australia (FBAA) suggested annual clawback payments by the average broker had risen by 50% in three years to pass A$15,000.

One adviser complained about “working for free”.

“I don't have a fee-for-service, and I don't know of any other business where it would be OK to operate under a model where, if your client decides to sell or refinance within two years, you have to give back every cent you earned,” the adviser said.

The Australian Government has meanwhile voiced support in principle for the current mechanism of broker remuneration, but indicated clawback might need to be looked at further.

In particular, Assistant Treasurer Stephen Jones said he wanted to be sure that banks were not getting more in clawback than was justified by the costs of establishing a loan in the first place.

Focus on fees

In New Zealand, much of the focus has been on the fees charged by disputes resolution schemes. These range from $450 plus GST to $2200 plus GST, depending on complexity.

FSCL says most disputes are settled at Level 2 of its multi-tiered resolution system, which costs $1450 pls GST.

Taylor has defended the fees her organisation charges, but acknowledged such costs could be challenging.

That was one of the reasons her team sought to help adversaries get together relatively early in the process and reach a mediated settlement.

Advisers themselves frequently sought to de-escalate a dispute before it reached arbitration - but not always.

In some cases, they wanted to know for sure that their argument was the right one - because even if a hearing cost them more than they would win back, they gained certainty about their procedures.

“There are times when you want the case to go to adjudication... to know whether you are right,” Gough said.

Clawback complexity

Clawbacks can often be generated during a time of intense emotional crisis.

For example, a separating couple may have to sell a house early, and then have to deal with a clawback bill when at a very low ebb.

In other cases, advisers become convinced they are dealing with a vexatious litigant, who uses the letter of the law to advance a disingenuous argument. Vexatious litigation is legal action brought solely to harass or subdue an adversary.

Suspecting it is one thing, however; doing something about it is quite another, according to Gough.

He says a lot of proof is needed before someone is deemed a vexatious litigant.

Taylor agrees: there’s a high bar to get over to prove a client is vexatious.

“When a complaint comes to us, bearing in mind that we have to be completely independent and not take sides, we don't know necessarily whether a case is vexatious or potentially vexatious, so we have to treat the complainant fairly.”

To resolve this dilemma, Taylor says her organisation, one of New Zealand’s four external dispute resolution schemes (EDRs), has to do a lot of checking of both complainants and advisers.

“We do occasionally get vexatious people, particularly people who become quite abusive,” she says.

“And so we do occasionally say to those people, ‘We are not going to further investigate your complaint because you are behaving very unreasonably’.

Taylor says sometimes people just want the opportunity to be heard.

“They want to get an apology and just to have the assurance that the adviser has learnt from the complaint, so that whatever happened to them won't happen to anyone else in the future.”

FSCL urged advisers to make absolutely sure that the clawback rules were clearly understood by clients. ✚

Hometown boy mixes business with charity

BY ERIC FRYKBERG

‘No matter how long it takes, I just love being on the journey with the customer.’

Oli Keogh is a Wellingtonbased adviser who combines a busy work life with charity – most recently pounding the pavement to raise money for dementia patients.

The 31-year-old commutes from his home in Mirimar to Squirrel's office in Manners St each morning, and wouldn't have it any other way.

That’s because he is a hometown boy - born, bred and schooled in the windy city - and is now back serving his own community.

How did you get into this job?

I previously worked at Kiwibank, starting there when I was about 22 years old and got into mortgage finance.

I then moved on to ANZ and started as a mobile mortgage manager there when I was about 27, before joining The Home Loan Shop.

The Home Loan Shop has since been purchased by Squirrel - so here I am, working for Squirrel in Wellington.

I’m glad about where I live; this is my home town.

I’m Wellington born and bred, and I went to school at St Pats Town [St Patrick’s College in Kilbirnie]. This is my home.

What do you like about the business?

I love helping people into their next home or their first house.

I absolutely love helping people. No matter how long it takes, I just love being on the journey with the customer.

Helping them achieve home ownership is the thing I really love.

That’s why we are successful at Squirrel: we are really good at what we do for the customer at the end of the day.

When it comes to self-employed people, the bank is asking a lot more questions these days and that can sometimes frustrate the customer. So it’s a matter of putting the customers at ease, convincing them that what they are going through is short-term pain for long-term gain.

What do you like least about the job?

I don't dislike anything very much about the job, but I guess there are challenges.

In the current environment, the challenge we face is a lot of back and forth with questions and information

from the banks - that frustrates the customer.

As mortgage advisers, I think we are experienced enough to be able to go back to the bank without disturbing the customers too much.

What we are doing is taking on some of that pain as opposed to passing it on to the customers.

Sometimes the banks are coming back to us with some pretty ridiculous questions and we know what to tell the banks first without having to bother the customers.

That is something I do because it is the best way to work.

What is a typical working day like?

I start pretty early in the morning, say around 7 o'clock. I have got a young family, so I try to get back in time for the school pickup and then I get back into work at about 4 o'clock.

My mornings usually consist of answering the emails from the night before and then I start going into meetings from, say, 9 o'clock.

I generally have five or six meetings with clients and I then prepare the applications for mortgages and send them off to the bank.

Once we have got all the information from the clients, we usually send them to the bank on the same day of receiving all those documents - so we can get an outcome as quick as possible.

I can pretty much guarantee that once we have the client's information, we can have it sitting with the bank the same day.

If you had your life over, would you do this job again?

Man, yes, absolutely, 100%.

I don't think I could do another job. We are pretty lucky in this role.

We have just transitioned from The Home Loan Shop over to Squirrel, which has a lot of the qualities that we had at The Home Loan Shop.

Earlier this year, at The Home Loan Shop, we had an adopted charity, Dementia Wellington, and I committed to running 10 kilometres a day for 100 days to raise money for them.

We raised over $20,000. That’s the beauty of the job, being able to do that.

It is a pretty frantic, 24/7 sort of job, so being able to do things like running on the side has been pretty amazing.

I wouldn't change this job for anything.

Is running be your main pastime or hobby?

Yes, 100%. So, I turned the hobby into, 'How could we do something good for this charity that we have adopted?'

I don't think I would have been able to do that sort of thing for any other job.

Both Squirrel and The Home Loan Shop supported me in this charity work and we were able to raise a lot of money for Dementia Wellington, which is awesome.

And your home life?

I am married with two children, aged four and three.

I spend my weekends with my family, swimming and taking them to the parkyou know, going on bikes and scooters, those sorts of things.

Do you have a favourite type of food?

That's a tough one… maybe a roast chicken, or a barbecue. Barbecues are my favourite,

I don't think I have a particular favourite food, but if I had my way I would have a barbecue every night.

Do you have a favourite book, or type of music and do you like watching sport?

Sorry, I’m not much of a reader, and I am not really into music; really, I’m a shocker.

I am more into sport. I like every type of sport; I would watch everything if I could.

Any chance I can get I’ll be watching rugby, cricket and soccer.

I loved watching the Football World Cup, it was so good.

And the women's rugby in New Zealand?

Yes, that was awesome, I was loving it; we followed most of the games.

The quality was amazing at the end, it was so good.

It was almost more entertaining than the men's rugby. It was phenomenal.

All the commentary and feedback was that everyone was loving it, it was so good to see.

And we will be able to watch the Men's World Rugby cup in France this year, so that will be pretty good too. ✚

So what? How does this affect my life?

Clients are suffering, yet there’s next to nothing in financial advisers’ newsletters and blogs which will actually help them. Paul Watkins explains how to do better on client comms.

BY PAUL WATKINS

Iam on the mailing list for several broker’s newsletters. Late last year they talked about how the OCR has gone up and how that’s designed to curb inflation.

They also said to expect interest rate rises in 2023, plus a continued but slow decline in house prices.

The problem is that this stuff is all over the news almost every day, and in the economic commentaries sent out to clients from the major lenders and KiwiSaver providers.

So, what are you trying to tell them? Or, more critically, what value are you adding to their financial lives?

Let me quote from one newsletter: “Global share markets had a strong month in November, rising 5.6%... Investors were encouraged by inflation in the US of 7.7%, down from 8.2% in the prior month.”

So what? How am I supposed to react to such news?

To make some of them even less relevant to the reader, I read Christmas recipes, along with ideas for keeping the kids entertained over the summer school-holiday break!

Seriously? Those are such ‘last century’ things to include.

How are clients feeling?

How are your clients feeling right now? Are they happy? Stressed? Relaxed?

Worried? Had their life plans thrown into chaos?

Well, maybe Westpac has an indication:

“The Westpac-McDermott Miller consumer-confidence index for New Zealand tumbled to a record low of 75.6 in the last quarter of 2022...

“Confidence has only come close to these sorts of lows twice before: first during the recession in the early 1990s, and during the Global Financial Crisis in 2008/09.

“Mounting financial pressures are a major concern that is worrying households, as living costs have been skyrocketing and borrowing costs increase sharply.

“The drop in confidence has been widespread across all age groups, income brackets and regions.” [Source: Westpac Banking]

Accepting that ‘happiness’ levels have noticeably declined, and that financial stress is rising, I have not been seeing any elements of real help being offered in any broker newsletters or blog posts in recent months.

In many cases, you accept a trail commission, which is supposed to pay for you to have a supportive, continual dialogue with clients.

Sorry, people – I’m just not seeing it. (Apologies to those of you who genuinely do offer ongoing proactive thoughts and ideas.)

Verbalise their stress

What do I think should be in your client comms? Start by verbalising their main stress points.

Here are some, from straw-poll research on my part:

• How does the mortgage fit with the rest of my financial life? Budgeting? KiwiSaver? Insurances?

• Got any budgeting advice?

• Can I stretch the time of the mortgage to cope with increased payments?

• What happens if the value of my house falls below the mortgage total I still have left?

• Should I stop my KiwiSaver contributions to make the additional mortgage repayments?

• What if I retire with a mortgage?

• What do I do when my fixed term ends and new interest rates are three times higher than when I took it out?

• At my age, my life insurance is getting too expensive. I might stop it and put the premiums towards the mortgage.

An interesting addition to these was a conversation with a real estate agent in December. She told me she usually

averages four or five listings at any one time and selling them at the asking price, or close to it, was not overly difficult.

As 2022 ended, however, she had eleven listings and not one offer to date.

(Disclaimer: I have no idea how widespread such thoughts and houseselling patterns are, but it’s not a rosy picture).

The ‘CIA’ model

So, what can you do about it?

There are three kinds of problems –often called the ‘CIA’ model.

‘C’ = the problems you have complete control over. ‘I’ = those you can influence, and ‘A’ = those you can’t do anything about and just must accept.

The ‘A’ problems here include the war in Ukraine, the price of petrol and the price of cabbages.

Some you can have an influence over include your income (looking for a higher paying job) and working your broker to restructure your home loan.

The ‘C’ problems are primarily how you manage your spending.

Offer ideas, thoughts, help

Work with these categories to offer ideas, thoughts and help to your clients.

Allay their fears as much as you can. Be their mortgage “adviser” in the real sense of the word.

Talk to them about restructuring their loans to mitigate the interest rate

rises; offer budgeting tips; explain how mortgages fit into their financial lives overall, along with KiwiSaver, insurance and managing the increasing cost of living.

If they want to change houses but are hesitating, remind them that they will be buying and selling in the same market; don’t let fear stop them changing abodes.

The title of this article is “So What?”

In marketing, this is often referred to as ‘Tell me WHY, not WHAT.’

I don’t care that the share market is rebounding, or that the OCR jumped 75 basis points, all I care about is how it personally affects me!

So tell me how to manage my financial life such that I can pay my bills and cope with higher mortgage repayments.

This article is my start-of-the-year rant, because I see so much more that you can be doing for clients in the form of your client comms.

Short and frequent is the key – to a segmented database of clients.

Sort them into as many groups as you think is appropriate.

Perhaps one group for property investors, one for recent first-home buyers and those you helped change houses.

To each of them you would send slightly different messages, which resonate with the readers in each case.

Do not mention such things as the

OCR, since few even know what that means.

If you quote inflation being down from 8.2% to 7.7%, talk about how that impacts their lives. If you can’t answer that, don’t mention it.

Talk about things they can genuinely do now!

If you sent them quarterly updates, move this to monthly.

Just two or three, jargon-free, chatty, short articles each time is fine.

Write like you are in front of them talking to them.

Time to shine

We are now in an election year, so promises to curb inflation and fix the health system will be front and centre in the news, along with prices at the pump and what you can expect to pay for your mortgage.

This is your time to shine since you helped them make the biggest financial decision they are likely to make in their lives.

The brokers who take a genuinely helpful stand with their clients will stand out in the marketplace.

And, as an endnote, if you are not sure what to write each time, seek help. It’s out there.

Paul Watkins is a marketing adviser to the financial services industry.

‘You accept a trail commission… to pay for you to have a supportive, continual dialogue with clients. Sorry, people – I’m just not seeing it.’

Is a million dollars a lot?

BY STEVE WRIGHT

Along time ago, one million dollars was a lot of money. Is a million dollars still a lot of money today?

Some say it is, others say it’s not.

How do our perceptions of ‘a lot of money’ compare with each client’s needs?

Do our own perceptions of what is a lot of money cause us to make inadequate recommendations?

Naturally, ‘how much’ of any insurance a particular client needs to compensate them (or their family), for the financial consequences of a life, disability or health risk, should be objectively determined using a suitable risk analysis.

This is easier done for some risks than others, and the possibility remains that our own perceptions can have a detrimental influence - either in the risk analysis itself or the resultant recommendation.

Advice tainted by unreasonable perceptions can result in inadequate recommendations, particularly regarding sums insured.

This can result in clients being underinsured - potentially severely underinsured.

Bias can harm

Our own perceptions may also affect recommendations made if we regard the premium required as being ‘a lot’ and, as a result, adjust recommend benefits or sums insured downward, again leading to underinsurance of the client.

Our bias is something that could cause a client financial harm, something we all need to identify and deal with.

Life cover needs (death risk) are usually quite easy to calculate with some accuracy.

Usually, the surviving dependents’ needs are based in large part on the ongoing income lost, along with that needed to cover family expenses and generally allow the continuation of the family’s current and expected lifestyle.

This is primarily determined by the life insured’s income, which would be lost on death, and so is relatively easily quantified.

One million dollars is not a lot for life cover.

Even modest incomes are worth more much than a million dollars over a 20- to 30-year working life.

A $60,000 annual income after tax is

worth $2.85 million to the family over thirty years, assuming only 3% inflation each year!

Terminal illness separate risk

One complication with death risk is the very real possibility that death comes after a period of terminal illness. While many life-cover products will pay the sum insured early on terminal illness, utilising life-cover benefits to fund the terminal illness costs of the life insured will deplete money meant to protect the survivors after death.

This could have disastrous financial consequences resulting in the complete failure of the client’s death-risk protection strategy.

Terminal illness, and its associated expenses, is a separate risk in my view, needing separate identification and cover.

Disability risk is also relatively easy to quantify, especially temporary disability risk, which, aside from medical expenses (which should ideally be covered by private medical insurance), is based almost exclusively on income lost.

This is mainly because temporary disability products restrict sums insured to a percentage of income earned.

Be aware: your own opinion as to what constitutes “a lot” of money may mean your client ends up dangerously underinsured.

A trickier area to quantify is serious temporary disability.

Serious cases of disability may require more than the limited monthly benefits a typical temporary disability product like income protection may pay.

The costs associated with a very serious and debilitating disability, especially one requiring full-time care, for example, can be very high.

Temporary disability and permanent disability can also be seen as somewhat separate risks, requiring separate insurance solutions.

Most people need cover for permanent disability in addition to temporary disability products such as income cover.

Here again, a million dollars, in addition to any monthly income cover payable, is probably not a lot of money for those seriously or permanently disabled.

Trauma tricky to quantify

Trauma may be the trickiest need to quantify, especially for children.

At a recent adviser association meeting, I mentioned that I had considerable trauma cover on my young son - as much as I could get.

A comment was made that this was “a lot of money”.

Later I got to thinking about just how unconsidered that comment was, because it took no specific information into account.

It was probably a simple case of the exact bias I’m suggesting we all begin to notice.

Imagine for one moment the financial consequences of a five-year-old going totally and permanently blind.

How many insurance claim dollars would that child’s family, and later that child themselves, require?

When one considers the lost income opportunity of the child alone, I’d suggest millions, not thousands, of dollars would be lost.

Here again, a million dollars is not a lot.

Trauma cover for adults

A million dollars of trauma cover for adults would probably be regarded as ‘a lot’, but is that just because a million dollars of trauma cover is typically unaffordable?

In previous editions of The Mortgage Mag, I’ve argued that trauma risk may be more accurately assessed and quantified if broken down into separate risks (based on the likely financial consequences suffering a trauma condition might bring).

Separately insuring severe trauma risk from less severe trauma risks is possible now in ways which make the necessarily high sums insured required to protect against severe trauma conditions much more affordable.

Like death and terminal illness risk, and temporary and permanent disability risk, which all require their own cover and sums insured, trauma risk also can be broken up and separately insured, allowing more cover where it is needed at more affordable premium.

Insurance is about indemnifying people against financial loss.

Any sum insured less than the actual likely loss suffered is underinsurance.

So, is a million dollars a lot? ✚

Steve Wright is the general manager

at Partners Life.

product

‘Do our own perceptions of what is a lot of money cause us to make inadequate recommendations?’

The TOP 10 stories

A lot has happened in the market since the last edition of the magazine. Here are the most-read industry stories from tmmonline.

tmmonline.nz

01

The Prime Minister has confirmed that the Minister of Commerce and Consumer Affairs, David Clark, will retire at the next election.

02

A 46-year-old adviser has become Loan Market's latest Billion Dollar person, despite running his brokerage from afar for the last several months.

06

ADVISERS CAN RIDE ON NONBANK COAT-TAILS, SAYS BROKER

A long-standing mortgage adviser and head of iLender Mortgages has an optimistic message for Christmas which contrasts with the prevailing gloom.

07 AVANTI SNARES LONG-TERM ASB EXEC

Avanti Finance's new general manager property has had a long career with ASB.

08

Kiwibank

09

Speculation is mounting that retiring commerce minister David Clark will be replaced in [this] year's cabinet reshuffle. But who could take over?

10

Economists are forecasting lower but still significant economic growth when GDP figures come out from Stats NZ on Wednesday.

To keep up with all the news make sure you check www.tmmonline.nz regularly. Or you can get the news and rates update sent to you each day.

New figures from research by ASB Bank show households staggering under the pressure of rising interest rates.

Finance companies are making big profits despite having official policy stacked against them, according to the latest annual survey by KPMG.

Tony Alexander Independent Economist

Nick Goodall CoreLogic

Jeff Royle iLender

Sarah Johnston Astute

Lisa Hatfield Heartland Bank

Greg Munt Lifetime

Rob Klenner Mike Pero Mortgages

Josh Bronkhorst MortgageLink

Chuck Slogrove KAN

Ralph Stewart Lifetime Retirement Income

John Bolton Squirrel Mortgages

Andries van Graan Partners Life