5 minute read
SALES AND MARKETING
How to handle anxious clients
Advisers need to discuss rate increases with clients, says Paul Watkins.
The worst market research is anecdotal, but recent conversations with friends highlighted an issue with mortgages which I am sure you are more than aware of.
A home-owning couple I know in their mid-thirties have a large mortgage but are terrified of what will happen a couple of years from now. They can make the payments perfectly well now as they both earn well, but they want to start a family.
Giving up one income for a short time has already been factored into their finances. However, they know that interest rates and therefore repayment rates will go up in the not-too-distant future, which is quite a concern to them.
Another couple are first home buyers and have accumulated a healthy deposit. They told me they are stunned at how much they can borrow at current rates, which has allowed them to look at higher priced homes. The mortgage broker they have dealt with has cautioned them on this and has done some modelling to show the impact of a rate rise. This now has them in the dilemma of, “should we just go for it and see what happens?” or, “let’s assume the rate rise will happen and act accordingly”.
The third couple are about to renovate as “money is so cheap”. Adding to their mortgage, they are adding a pool, deck, Archgola, new fences and a new kitchen. Six-figure additions. Are they right to do so?
I can imagine that such conversations are going on in large numbers of households right now. Even at the higher end, say a $1 million mortgage, which of course is quite common in Auckland, if rates jump by say 2%, that could mean an extra $1,000 or more a month in repayments.
We all know interest rates are at an all-time low, but we also know that they can’t stay this way. Is it causing any notable concern among your clients? Or are they quietly hoping that it will all be fine and they will easily cope when rates rise?
Press headlines right now are contradictory. “Rates predicted to rise early next year”; “Government wants to see rates hold until the economy stabilises after Covid” and similar. The banks have differing opinions on when rates will rise.
How should you approach this issue with clients?
The key here is to keep in touch and offer ideas on how to cope with the rate increase (yes, I know, it's me on my wornout-record line of sending newsletters, emails, creating Facebook and LinkedIn posts, or making regular phone calls). But the alternative is to ignore them, which will increase their anxiety and not prepare them for the future changes.
With the majority of mortgages in New Zealand apparently coming off a fixed term during the next twelve months or so, what do they do? Fix again? And if they fix, then for how long? Should they pay the break fees and refix right now? Or maybe they need the flexibility of being able to make extra payments. Should they perhaps change lenders? Stretch the term?
I doubt many of your clients have more than 5% of the knowledge you have about mortgages and what options may exist. All they know is how much they borrowed and what the repayments are. It's unlikely many will even remember the interest rate they originally signed up to, or their current balance. They live in ignorant bliss – for now. The panic will follow in the next year or two.
Some perspective: An interesting study, published at https://journals.plos. org, looked at stress, anxiety, depressive symptoms, alcohol consumption, family relationships, suicidal thinking that came from Covid and its impact on New Zealand. The study found that “New Zealand’s lockdown successfully eliminated Covid-19 from the community, but our results show this achievement brought a significant psychological toll.” We live in anxious times, so don’t accidentally add to this.
You could also note that issues around money are often cited as the number two reason for marriage failures (behind infidelity), with the mortgage of course being at the heart of this.
We are living in a strange time. Covid has affected a lot of our lives in many different ways, including seeing soaring house prices and very low interest rates. My message is to take the time to educate clients on options for the future. We also live in the “how-to” generation, where YouTube is catching up to Google as a search engine. Your clients can find anything they ever wanted to know on the internet, with many now choosing Facebook as their primary news source over television or the press (which is not so good).
Your best bet is to be seen as the expert. Explain re-fixing, break fees, do some longer-term modelling, show options for when the fixed term expires and, of course, the changing investment property rules. You will not run out of ideas for two-paragraph articles or twominute videos.
I know the objection to doing this is that they will learn too much and not see any value in using you again. In fact, the complete opposite occurs. They see you as the guru and when they need help, they know that they can trust you as the one who knows what to do.
Turn your cell phone camera on and hold it up to your face. Talk in casual language as if they are sitting in front of you. Tell them example case studies (no real names or circumstances of course) or explain some of the jargon or give a quick update based on what you may have recently learned from a lender’s economist. Do not sell! Educate.
I have talked about this before, as educating your clients will serve three significant purposes. First, it will help you stand out from the myriad of brokers who simply offer their services in blatant advertisement format. It will show you as the one who knows what they are doing and can be trusted.
The second reason is that it makes you eminently referable, and referrals are the best way to gain new clients. We all like boasting about “we have found the perfect …” (complete the sentence with plumber or electrician or barber or mortgage broker).
And the third reason is that it will help alleviate anxiety and mortgage worry among your clients – which is very real, as I was surprised to learn from my random group of friends recently. ✚
Paul Watkins is a marketing adviser to the financial services industry.
