TMM - The NZ Mortgage Mag Issue 4 2019

Issue

04

2019 Working together to create tomorrow's advisers today

TMM's second annual survey reveals

SME financing solutions

Licensing looms: work still to do?

Property market: slow and steady

CONTENTS

Low rates with non-bank flexibility

YOUNG ADVISERS Advice industry's 'young guns' are optimistic for the future

24 SMALL BUSINESS

18

How advisers can help with SME funding needs

UP FRONT

FEATURES

04 EDITORIAL

Unprecedented times for mortgage

12 REGULATION

06 KIWISAVER

Risk indicators – the lowdown

16 HOUSING COMMENTARY

advisers

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07 NEWS

10 PEOPLE

The latest industry news

Who has moved where in the industry?

14 PROPERTY NEWS

Healthy Homes compliance talk

Licensing looms large on the horizon Slow and steady is the current outlook

28 MY BUSINESS Megin Wilton's 'addiction' for mortgage advice

COLUMNS 30 SALES AND MARKETING

How to make use of the ATM acronym

32 INSURANCE resimac.co.nz/advisers

0800 38 48 58

Available for new purchase and refinance applications.

View our interest rate disclosure at resimac.co.nz. Resimac NZ Home Loans Limited

Lessons to learn from non-disclosure cases

34 AWARDS

Photos from the recent Mortgage Link and Insurance Link awards night

03

UPFRONT

From the Publisher

Shake rattle and roll

It’s not hard to argue that we are in unprecedented times for mortgage advisers.

Where do I start?

With groups. The feedback we are getting from advisers and dealer groups is that there is a significant amount of movement going on.

It’s a trend we expected as advisers choose to line up with a group that better suits their needs under the new financial adviser regime.

What we didn’t expect is for this to happen this early.

This year’s TMM Better Business conference will have a great update on how the groups are preparing for regulatory changes.

Then there is the lending scene. The big banks and the Reserve Bank are clearly at war

over proposed requirements for the lenders to hold more capital.

Sometimes it gets a little hard to work out what the true picture is and whether banks are overplaying their hand on this one.

Then of course there is the ANZ fiasco, or should I say ongoing fiascos. You do have to wonder what is happening in this organisation and how it impacts on customers and advisers.

Will people become less likely to want to take a loan out with ANZ? Maybe when it comes to rollover time they may wish to take their business elsewhere?

Later this year ANZ is facing a massive quantity of one-year loans that come up for renewal.

Last year it ran a 3.99% campaign and the response was massive. How sticky will these loans be?

Anecdotally there seems to be a growing movement to support local banks.

Reducing the dominance of the big Australian-owned banks probably isn’t a bad thing for New Zealand, but you can’t see their market share diminishing too much.

SENIOR WRITERS: Miriam Bell, Susan Edmunds, Daniel Dunkley CONTRIBUTORS: Paul Watkins, Steve Wright, Michael Lang GRAPHIC DESIGN: Amy Bennie ADVERTISING SALES: Amanda Ellery 027 420 2083 amanda@tarawera.co.nz

MOVED OFFICES? Make sure you don't miss an issue by changing your address.

SUBSCRIPTIONS: Jill Lewis jill.lewis@tarawera.co.nz

Philip Macalister Publisher Email your thoughts to: philip@tmmonline.nz

The new date is November 12. The location remains the same, though.

Novotel Auckland Airport.

For more details and to register go to www.tmmonline.nz

Correction: In the previous issue of TMM on Pages 27 and 29, Adam Ward BNZ said "40/50% of its loan book came through brokers last year, up from 22% in 2015". This is incorrect and Adam was referring to the potential share brokers have overall in New Zealand. TMM apologises for this error.

04 WWW.TMMONLINE.NZ

SUBEDITOR: Dawn Adams

Go to www.goodreturns.co.nz/coa

DATE CHANGE We have, unfortunately, had to change the date for this year’s TMM Better Business conference.

When we booked the date last year we hadn’t anticipated a clash with various sponsor events.

PUBLISHER: Philip Macalister

HEAD OFFICE: 1448A Hinemoa St, Rotorua PO Box 2011, Rotorua Phone: 07-349 1920 Fax: 07-349 1926 editor@tmmonline.nz

TMM is published by Tarawera Publishing Ltd (TPL). TPL also publishes online money management magazine Good Returns www. goodreturns.co.nz and ASSET magazine. All contents of TMM are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited.

TMM welcomes opinions from all readers on its editorial. If you would like to comment on articles, columns, or regularly appearing pieces in TMM, or on other issues, please send your comments to: editor@tmmonline.nz

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TMMONLINE.NZ/NEWS

KIWISAVER

By Michael Lang

Non-bank Pepper teams up with Astute

Investors deserve clearer insights

Australian non-bank lender Pepper Money made its first big step into New Zealand by signing a partnership deal with Astute, TMM Online revealed.

The risk with risk indicators It is disappointing that a decade after the global financial crisis, New Zealanders continue to remain vulnerable because of the rules around risk indicators.

This is especially the case for bond investors, who are often conservative in nature and consider fixed interest a safe haven in times of volatility.

Unfortunately, after a decade of low interest rates, bond investors are also prone to “reaching” for higher yields, sometimes without understanding the risk they are taking.

This is when risk indicators play a vital role – by helping New Zealanders understand how risky their “income” product is.

Given this backdrop, should a portfolio whose largest investment, comprising approximately a fifth of the fund, is an offmarket, related party, private loan to a portfolio of shares, be given the same risk indicator as a term deposit from a major Australasian bank?

Sadly, this is what is happening. A portfolio (which we’ve chosen not to name) contains in its top ten holdings, an off-market, related party “geared investment loan” which makes up 19.09% of the portfolio. Of the top ten investments, seven are unrated. Yet its risk indicator is one, the lowest possible.

The fund is described as “entirely in income assets” and promoted as being “suited to investors looking for an on-call or term investment with a low level of risk and are willing to accept a relatively modest level of returns”. This is language which is commonly associated with bank accounts and term deposits. How is this possible?

Astute launched a new platform and home loan product range with the non-bank lender, one of Australia's biggest alternative home loan providers.

The Astute-Pepper

movements in price either up or down (called volatility) are an excellent measure of the risk. This is the case for listed (not privately held) shares, property funds, unit trusts and most commodities.

WHEN IS IT MISLEADING?

The Financial Markets Authority have done an excellent job establishing a standarised formula for risk which enables an “apples with apples” comparison. Risk is measured through a score of one (lowest risk) through to seven (highest risk). Risk is assessed by taking the actual annualised volatility of the fund or asset class over the last five years.

WHEN IS VOLATILITY USEFUL?

WHAT IS THE ALTERNATIVE?

Where an asset trades regularly, between a large number of willing buyers and sellers, with little transaction cost, then daily

06 WWW.TMMONLINE.NZ

Mortgage Express and Mortgage Supply Company as part of its New Zealand operations.

Astute NZ CEO Sarah Johnston said: "They are aligned closely to borrowers’ best interests and we believe they will appeal to borrowers in a lending market that is not uniformly well serviced. Certainly, the feedback received in the short time the loans have been available has been very positive."

To keep up with the latest industry news, views and opinions visit

tmmonline.nz

SBS changes broker model Unfortunately, volatility is a poor indicator of the risk of loss for assets that are priced infrequently and this includes bonds. For a start, most bonds including New Zealand Government bonds, are not listed, they trade off-market by appointment. Next, unlike perpetual assets, bonds are binary in nature: interest is either paid, or not, and at the end of the period your money is either repaid, or not.

In a 150-year study of corporate bond default risk, the authors found bond defaults were not normally distributed. Instead, there were long-periods of little volatility or default, which were then followed by short bursts of high volatility and a large number of defaults.

The investment grade bond credit default index is an excellent measure of the episodic nature of bond volatility and is shown below.

In the case of the income securities portfolio with its related party “geared investment loan”, the manager sets a “posted rate” in the same way as finance companies do. As a result, the volatility is low. Using the FMA’s current methodology for risk indicators, lower volatility equals a lower risk indicator.

HOW IS RISK MEASURED?

product range is called Ascenteon.

Astute said the products would bring a "new level of borrower choice and flexibility to New Zealand’s mortgage lending market".

A wider Pepper launch in New Zealand is expected at some point later this year, sources said. Pepper is likely to become a significant player in NZ, with backing from US private equity giant KKR. The deal is a significant partnership for Astute, the Australian-headquartered adviser group which counts

The alternative is to have risk indicators which reflect the type of assets a fund holds.

For example, a portfolio which is entirely

invested in listed shares should attract the highest risk indicator, whereas one that is equally divided between shares and bonds should have a medium to high risk indicator, say three to five.

Funds holding cash, government bonds with a duration of less than three years, bank bills and investment grade bonds should have a lower risk indicator. In contrast, funds holding unrated bonds and related party loans should be required to have a higher risk indicator.

Interestingly, the website Sorted, run by the Commission for Financial Capability, categorises funds by asset allocation and not with the FMA’s prescribed risk indicator.

1. For further details contact NZ Funds.

2. Giesecke, K., Longstaff, F., Schaefer. S., and Strebulaev, I., 2011. Corporate bond default risk: A 150-year perspective.

Journal of Financial Economics 102 (2011), 2 33-250.

NZ Funds KiwiSaver Scheme is designed for use by AFAs and RFAs and pays both planning incentives and an ongoing commission for advice. 96% of NZ Funds’ KiwiSaver members have a financial adviser. The average balance of members of the Scheme is $27,194 approximately one and half times the national average of $17,834. ✚ Michael Lang is chief executive of New Zealand Funds Management Limited (NZ Funds) and is a member of the NZ Funds KiwiSaver Scheme. Michael's advice is of a general nature, and he is not responsible for any loss that any reader may suffer from following it.

SBS Bank is changing the way it distributes home loans through advisers which will see it slash the number of brokers it deals with.

The Invercargill-based bank has about 1,700 broker agreements in place, but it plans to focus on a much smaller number of people. While the number hasn't been decided it could be as low as 100.

SBS chief executive Shaun Drylie said the bank wanted to play to its strengths and partnerPrintBanner_v2.pdf with advisers who buy1into11/04/19 the SBS story and its philosophy.

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"It's better to be more focussed on a relationship with a few," rather than everyone, he said.

"It’s unlikely we’ll remove brokers from current agreements. It will be about focusing on the brokers that like our story (quality business written or a connection with our brand) through improved service standards and empowerment, rather than saying ‘no’ to the rest," Drylie added.

12:53SBS PM is also looking to ramp up its home equity release (HER)

business. Drylie says it fits with SBS's mission of helping members.

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Prospa raises more than $100 million SME lender Prospa, led in New Zealand by former Resimac general manager Adrienne Church, completed a stock market listing in Australia, raising more than $100 million.

Prospa raised A$109.6 million on the Australian Securities Exchange to fund future growth plans, including expansion in the New Zealand market.

The Sydney-based company sold 29 million shares. Following the stock market listing it will have 161.4 million shares on the market worth $609 million.

About $50 million raised by the IPO will go to the company's founders, Greg Moshal and Beau Bertoli.

Prospa said its new firepower would also be used for "funding the equity portion of the company’s growing loan book and working capital, investment in new products and geographies and to repay corporate debt".

The stock market listing comes as Prospa plans to ramp up its lending in New Zealand. The online lender has already signed agreements with groups including NZFSG and Newpark.

Prospa has also hired business development managers to build awareness in New Zealand, including former Resimac head of sales Huia Manuel.

Conrad Funds targets mortgage book Non-bank mortgage lender Conrad Funds Management is looking to grow its mortgage book after opening up its fundraising to retail investors.

The firm’s mortgage fund, CFML Mortgage Fund was launched in March last year, but the firm has taken the recent step to raise from everyday investors.

The fund will lend on residential secured first mortgages, and CFML will lend to those looking to buy investment properties, apartments, as well as overseas buyers who meet certain legal criteria, CEO Patrick Middleton told TMM. Minimum investments are $25,000, Middleton said. He added the firm is planning a roadshow later this year with financial advisers. The fund is structured as a PIE fund.

The fund is not looking to lend more than 70% LVR in most cases, Middleton said. Typical rates are about 7.25%, he added. The fund is lending on interestonly and principal and interest terms.

Minimum loan sizes are $50,000, while its average loan size is currently more than $500,000.

08 WWW.TMMONLINE.NZ

Confusion over new advice regime Major banks are yet to clarify whether they will work with groups who are not financial advice providers under the new regulatory regime, leading to uncertainty in the sector.

The industry is waiting for guidance from the big four on how they will treat groups without FAP status, and for banks’ preferences on groups’ regulatory arrangements under the new financial advice regime.

Larger broker groups, such as Astute and NZFSG, will take on FAP status, with most of their members becoming FAs. Groups that decide to become FAPs will take on more auditing and compliance responsibilities for their members, with members using their group’s systems and processes.

Yet some smaller groups, such as Newpark Home Loans, plan on letting their members take FAP status instead.

They may be left in limbo if the banks

Andrew Scott

choose to work exclusively with FAP groups and decide against working with member businesses with FAP licences.

ANZ, BNZ, ASB and Westpac have not made a formal decision on how they will treat groups and individual businesses with FAP status.

Sources said the big four would likely favour groups with a FAP designation. It is believed the banks do not want to take on too many FAP relationships.

A Westpac spokesperson said the bank was “considering the implications” of the new regime, adding it “will be in touch directly with any mortgage adviser aggregator groups we have a relationship with once we have completed our assessment of the changes”.

ANZ said it was “considering our position”. “We plan to communicate our formal position to dealer groups in the coming weeks,” a spokesman added.

BNZ said it is “considering what impacts” the regulation will have. The lender added: “We’ll be talking to those advisers and groups more as the next steps become clearer over the coming weeks and months.”

The Financial Markets Authority told TMM it did not hold a view on groups’ or broker businesses’ designations, adding the legislation was “deliberately flexible”.

In a statement, the FMA said it “urges businesses to think about the upcoming changes and how they can best meet the requirements of the new law”.

Andrew Scott, general manager of Newpark Home Loans, warned against measures that might hurt smaller businesses. He said banks would “limit true independent choice” for consumers if they only worked with groups who held FAP status.

Scott added: “The overwhelming majority of mortgage broker businesses we work with wish to remain autonomous by operating as a FAP once full licensing comes into effect. All have invested significant time and resources into their own systems, procedures, policies, documents, CRM, IP and client-centric experience – many of which differentiate their offering in the market from the competition.”

Economists predict August rate cut The Reserve Bank has kept the Official Cash Rate on hold, but gave a clear signal rates may fall further.

The Reserve Bank's Monetary Policy Committee, led by Governor Adrian Orr, decided to keep its powder dry for now, but admitted a "lower OCR may be needed" due to weak growth here and overseas.

Economists say an August cut looks increasingly likely.

Weak domestic growth, construction activity, and softer house prices were key concerns, the Reserve Bank said.

Jeremy Couchman, Senior Economist, told TMM a cut in August, at the next MPS, looks "very likely", considering the downbeat language adopted by the RBNZ. Brad Olsen of Infometrics

Dominick Stephens said “a lack of confidence in the economic outlook sends a clear signal that the Bank intends to cut the OCR in August 2019”.

Westpac's Dominick Stephens said the Reserve Bank's announcement indicates a cut is on the way by the end of winter.

"Given the tone of this statement from the RBNZ, we remain of the view that the RBNZ will most likely cut the OCR in August," Stephens said.

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PEOPLE

THE LATEST NEW APPOINTMENTS TMM keeps you up to date with all the new appointments in the mortgage advice profession.

CCO ADDITION AT NZHL

Mel Cadman has been appointed Chief Customer Officer for NZ Home Loans. She is an experienced executive leader with proven results in commercial strategy and business execution and is an inspirational people leader, capable of driving positive change.

She is highly focused on improving the customer experience while remaining relevant to both internal and external forces. Mel has held several senior positions at NZ Post, BNZ and most recently was Head of Retail at Heartland Bank. Responsible for driving the day to day outcomes across customer experience, franchise network, marketing and supplier relationships.

Mel’s financial and commercial expertise will ensure a high level of customer focussed results will be a priority for NZHL going forward.

Mel Cadman NEW GM FOR NEWPARK

Newpark CEO, Melanie Purdey, is pleased to announce the appointment of Peter Lycett to the role of General Manager, Performance and Growth for Newpark Financial Services.

Peter comes to the role with several years’ experience as a successful adviser and business developer within the financial services industry. Peter’s personal brand aligns with Newpark’s vision to become the most trusted group brand in New Zealand for non-aligned financial advisers.

Peter is an Authorised Financial Adviser and a former litigator from the UK. His legal background will be immeasurably valuable as Newpark work with advisers to help translate the regulations, legislation and code in the new environment. Peter’s work developing new markets for financial advice in New Zealand will be integral in the build

010 WWW.TMMONLINE.NZ

and delivery of Newpark’s enhanced business development programmes.

Steve Parsons, newly appointed Adviser Success Manager will work closely with Peter, Melanie and the whole Newpark team to deliver their programmes. Steve has over 25 years’ experience in the industry as well as over two years’ experience with Newpark Financial Services.

APPOINTMENT FROM WITHIN AT ANZ

Elaine Lee-Gibbons has been appointed to the newly created role of Adviser Performance Manager with the ANZ Mortgage Adviser Distribution team.

Since joining ANZ in 2013, Elaine has been a Senior Business Banking Manager with the ANZ North Shore Business Banking team as well as a valued member of the ANZ Migrant Business Banking team. Prior to joining ANZ, Elaine spent 12 years in London working with various banking and financial institutions.

Elaine brings strong credit knowledge and relationship management skills as well as extensive industry experience to the mortgage adviser team. Most recently, Elaine was the recipient of the ANZ Top Achievers award in both 2017 and 2018. Elaine is looking forward to working in partnership with mortgage advisers to enhance the performance of the channel and provide positive adviser and customer outcomes.

RESIMAC ADDS AN UNDERWRITER

with the Ascenteon home loan range, and working with Astute advisers to understand the products.

Scott has prior experience with nonbank lenders and the adviser channel, having worked for Bluestone over the past year. Before that, she worked for Bank of Queensland and Bankwest in Australia.

experienced banker who brings knowledge and key skills vital in this ever changing world of risk and compliance. Ed holds a BA in political science and government from London South Bank University.

RECENT CHANGES AT SOUTHERN CROSS

Lauren Banks has 10+ years experience in the finance industry with the last five years spent in private banking. She specialises in the most complex home lending including construction loans, property development and commercial purchases.

After eight years working in the banking industry Nick Berry has experience gained in two different banks across many sectors including retail, business and corporate banking. He is passionate about helping his clients – whether it be getting them into their first home, helping them into their dream home, purchasing an investment property or even purchasing a business or other assets.

After nine years in the banking industry and six years in the business banking space William Clapham has decided to take the plunge into doing what he loves. He will do his absolute best to ensure clients understand the complicated world of finance.

Nikki Cox enjoys entertaining, cooking, socialising and making memories. Horse trainer turned financial adviser. After eight years of mortgage advising in the UK, she has been on this side of the pond for nine years coming out to train for the World Equestrian Games. She fell in love with NZ, met a Kiwi, got married March 2018, and is now living the dream on a lifestyle block in rural Carterton, getting back into what she loves doing [mortgages]. She's enjoying building her business and helping clients.

Teresa Payne 2018 Loan Market Client Services Manager of the year for New Zealand. Teresa prides herself on her customer service. Her goal is to help clients either purchase their first home, investment property or refinance their current lending and getting the right deal for their situation. She is a Mortgage Adviser working alongside several great advisers in the wider Wellington area.

She will help you achieve your finance goals.

Tracey Warner has a passion for mortgages and ensuring clients get the right mortgage for their needs. All clients' needs differ and not all lenders are the same. With access to NZ's widest range of banks and lenders Tracey can find you a solution at the best interest rate.

Southern Cross Partners has appointed Nick Miller as a new Property Finance Manager.

Nick brings with him a wealth of experience in the property finance industry with almost three years as a BDM with DBR Limited and two years with ASB Property Finance. As well as holding a Bachelor of Business from Massey, majoring in finance with minors in economics and property valuation. Nick is well connected in the property finance space at both bank and non-bank levels and has a passion for property and financial markets.

Recently Nick has been fulfilling the role of temporary credit manager with SCP and will be out meeting with advisers from July 1.

Hend Salam has been appointed as a new Investment BDM. She joins the investment team division of Southern Cross Partners after a successful nine-year career in account management within the financial services industry more recently with ASB and Generate KiwiSaver. With a Bachelor of Business majoring in management and finance conjoint with Bachelor of Health Science Psychology Hend brings vital skills and experience when talking with investors about the benefits of investing with the Southern Cross peer to peer investment platform.

Edward Lund has been appointed in the new role of Head of Risk and Compliance.

Ed who has close to 15 years of banking experience has embarked on this newly created role with Southern Cross Partners.

Previously a Branch Manager with CoOperative Bank and ASB, Ed is an

Non-bank mortgage provider Resimac has bolstered its New Zealand underwriting team with the appointment of a new Senior Underwriter.

Joining the business in Auckland is Dannie Wang.

Head of Resimac New Zealand, Luke Jackson, said Wang’s role was newly created to strengthen the underwriting team and to facilitate Resimac’s continued business growth.

AVANTI FINANCE

A spokesperson for Avanti Finance Michael Harrison previously in business development in the South Island has just been appointed as South Island Regional Manager. Avanti are taking the next step towards growing their Christchurch team and Michael will be managing this team and Avanti’s South Island presence. They are looking to find a new Property BDM to service the South Island soon. As part of this they have also just moved into a new office three times bigger than their previous space to accommodate the growing numbers. Avanti advise they are committed to the South Island and intend to keep doing a great job supporting Advisers and their customers with their diverse product suite.

BLUESTONE HAS APPOINTED TWO BDMS:

PEPPER MAKES NZ BDM HIRE

Australian non-bank lender Pepper Money has made a key BDM hire after taking its first steps into the New Zealand market.

Pepper has hired Melissa Scott, the former Bluestone BDM, as its "in-country presence", taking on the role of BDM. The hire comes after Pepper launched its NZ product range exclusively with adviser group Astute. Scott is tasked with helping

NEW ADVISERS LAND AT LOAN MARKET

Business Manager for the broker team at BNZ. Prior to this she spent several years working with both privately owned businesses and within retail and business banking, including 10 years as a Broker Relationship Manager in the NBNZ broker unit.

Bluestone's newest BDM, Mike Kinley, has joined the fast-growing NZ Sales Team.

Mike is ready to get out on the road and meet advisers, helping them expand their business reach, and find solutions for their end borrowers. Mike will look after advisers all over the South Island.

With eight years in banking already under his belt, Mike brings a wealth of experience from his past roles with ASB and most recently with ANZ as a Senior Business Manager. In this role he was responsible for a high-value portfolio of business customers, lending for residential and commercial properties, as well as cashflow and expansion.

Sue Griffiths has moved from Senior BDM NZ to Head of Sales NZ. Sue recently returned home to NZ after a number of years living on the Gold Coast. She has over 30 years industry experience gained both here and in Australia.

Hend Salam

If you’re an adviser in the North Island, chances are you’ve crossed paths with Donna Tames before. After all, she’s spent the last 17 years building relationships and honing her skills in banking and financial services Donna will be looking after the following regions: Central Auckland, East Auckland and Northland.

Most recently, she was an Auckland-based

Mike Kinley 011

REGULATION

By Susan Edmunds requirements in the proposed condition.

How you comply with this condition will depend on your personal preferences and the nature and scale of your business.”

The Ministry of Business, Innovation and Employment expects 900 RFAs and AFAs to drop out as part of the transition to the new regime. Vidler said that number could be too low.

Many older advisers would decide it was not worth going through years of change only to want to scale down their businesses, anyway, Vidler said.

Application fees for full licences will range from $612 to $922 plus an hourly rate for complex applications.

As the new licensing regime comes into play some advisers will step up and thrive while others may hang up their hat.

Advisers who are currently working as RFAs are being told to think about their business processes as licensing approaches.

Transitional licensing will open later this year for those who want to operate as a financial advice provider (FAP) under the new advice regime.

All financial advisers will need to work for a FAP as an adviser or a nominated representative by the time the new regime starts mid next year.

Adviser coach Tony Vidler said licensing would not be a major hurdle for AFAs but could be a significant step up for some RFAs who did not have the business processes in place.

He said people would need to think about their strategic objectives for their businesses and the degree of control they wanted to have in terms of such business decisions as branding and products.

Those who had been part of a QFE or were AFAs would have appropriate systems already, he said. But that was not true for everyone, particularly people who had been operating as a “lifestyle practice” or part-time.

“There’s a fair amount of RFAs out there who have a heck of a lot to do.”

The FMA said it would ask transitional licence applicants for information about the types of services and products they dealt with and who was providing advice.

It would consider whether directors and senior managers were fit and proper for their roles, whether there was any reason to believe obligations would not be met and

012 WWW.TMMONLINE.NZ

whether the business was registered on the FSPR. "Transitional licensing provides us with a better sense of who is operating in the market – enabling us to anticipate the number of full licence applications and resources needed for ongoing monitoring and supervision."

Full licensing would be more robust.

Conditions of licensing would be imposed by the legislation or the FMA. Some would be standard to all and others specific to a particular business.

The FMA is considering two standard conditions for transitional licensing: Requiring adequate written records and an internal process for resolving complaints.

These are two aspects of a financial advice business that are currently covered by the code of conduct for authorised financial advisers but will not be in the new code.

It is likely there will be additional standard conditions for full licences.

The record-keeping standard would require businesses to demonstrate how they gave regulated financial advice to retail clients, had complied with the FMC Act, the Financial Markets Conduct Regulations and the new code.

Records would have to be kept for seven years.

"This is to ensure licence holders (and any authorised bodies) continue to meet the requirements assessed at licensing and so we can effectively monitor compliance with their obligations. In addition, this requirement will ensure adequate information is available for retail clients about the financial advice services provided to them," the FMA said.

The complaints process standard would require an internal process for resolving

complaints from clients.

FMA said this would mean a process that meant complaints were acknowledged as soon as practicable; retail clients were given information about the process and how it worked; complaints were resolved and a response provided as soon as possible; and a written record kept of all complaints.

"This will ensure client complaints are adequately dealt with and there is a record of any issues arising in relation to the financial advice service. It will also enable us to effectively monitor whether licence holders and authorised bodies are complying with their obligations. Having this as a licence condition (even though external dispute resolution schemes may also require it) means we can take appropriate regulatory action against the licence holder and any authorised body if they do not comply," the FMA said.

"An internal process for resolving client complaints does not have to be complex or expensive. However, it must meet the four

Tony Vidler

There’s a fair amount of RFAs out there who have a heck of a lot to do.

Tony Vidler “The FMA will be required to consider a wider range of factors, including whether an applicant is capable of effectively providing financial advice services,” MBIE said.

"In addition, the application process will vary depending on the business model adopted by the applicant. For example, the Amendment Act introduces additional requirements on financial advice providers that engage financial advisers or nominated representatives, so those firms will need to go through additional assessment during the licensing process. While the process will be more robust than that used during transitional licensing, applicants will still use a streamlined licensing system, leading to an efficient process and relatively low estimated average processing times."

MBIE said the model of a flat application fee and hourly rate wold be most costeffective for the FMA. If the hourly rate was not an option, the flat fee would have to be higher.

The FMA receives an annual appropriation of $36 million, the majority of which is funded through a levy charged to financial service providers.

MBIE said all financial service providers would continue to pay $460 plus GST on initial registration under the new regime.

Financial advisers would be levied independently.

Its preferred option is then to introduce a base annual levy for FAPs with an additional amount for every nominated representative, or when the FAP gave advice on its own accord.

That would start at $225 a year then $137 per nominated representative, or $737 if the FAP gave its own advice.

Advisers would pay $265. ✚

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PROPERTY NEWS

By Miriam Bell

Compliance talk For property investors, it’s been compliance related issues which have dominated the discourse of late ... Starting with the new Healthy Homes minimum standards, we discuss the developments that have been making waves.

Radical, costly and with issues?

Yes. But the new Healthy Homes minimum standards – which became law on July 1 – are warranted and will improve New Zealand’s housing stock, according to one property management expert.

David Faulkner is the director of property management consultants Real-iQ. He says the standards have merit as all New Zealanders have the right to live in a warm, dry home. “If you are a landlord who thinks otherwise, you should sell up and put your money elsewhere.

And if you are a property manager who thinks otherwise you should leave the industry and get another job.”

While he disagrees with some of the things the Government is doing in the tenancy area, he’s in agreement with them over the standards, he says.

“The standards will lead to much better housing stock overall which means tenants will be happier and healthier which means less problems and fewer Tenancy Tribunal disputes over housing conditions. In turn, tenants are likely to stay longer and respect the properties more. And that means less issues with vacancies and having to regularly select new tenants.”

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On the other hand, there will be considerable costs for landlords to get their properties up to the level necessary to comply with the standards and that might lead to rent rises, he says. “There could be growth in the amount of derelict properties as landlords simply don’t do the work and leave them sitting there.

Many may landbank and wait for a developer, or just sell up.”

Overall, he thinks good landlords who maintain their properties should have no issue in complying with the new standards. But landlords need to ask what they need to do to comply and when they should get on to it.

Although the standards are now law, rental properties do not need to comply immediately: there’s a timetable with July 1, 2024 being the date all properties must be fully compliant.

But Falkner says the date that landlords should be working towards is July 1, 2021 as, from then on, rental properties have to comply with the standards within 90 days of the renewal of a tenancy or the start of a new tenancy.

It gives landlords plenty of time to get their rental properties up to the standard required, he says. “My advice would be to get on to it as soon as possible. Don’t wait, get compliant and the end result will be healthier homes.”

PRIVACY GUIDELINES FURORE

Another potential compliance issue to make waves of late has been the saga of the Office of the Privacy Commissioner (OPC) guidelines on what landlords could and couldn’t ask

potential tenants in the selection process.

The guidelines were intended to help landlords make decisions about what personal information it is reasonable to collect from prospective tenants, according to the OPC. They grouped information requests into three categories – “always justified”, “sometimes justified” and “almost never justified”.

Under this system, it was fine for a landlord to ask whether a prospective tenant has ever been evicted or for authorisation to perform a criminal check. Yet it was rarely okay for a landlord to ask about conflicts with previous neighbours and building managers or for credit card information or proof of insurance.

The guidelines were greeted with outrage and dismay by landlords and property managers who described them as confusing and contradictory in many areas. There was particular concern about the restrictions around running credit checks on tenants and the prohibition on asking someone’s age and/ or to see a driver’s licence number.

And, in this case, the OPC listened to what critics had to say. Not long after the release of the guidelines, OPC spokesman Charles Mabbett announced that Privacy Commissioner, John Edwards, had decided to withdraw the guidelines for landlords for the time being.

“We are going through the process of reworking and revising the guidelines to make them clearer and to remove any seeming contradictions in the existing guidance. We acknowledge that there are points which can

be clearer and more precise. It won’t involve wholesale changes, just some refinements, so there’s no confusion.”

Part of this process includes working with a number of groups – including the NZ Property Investors Federation and Tenancy. co.nz – which contacted the OPC with helpful feedback and they hope to have the new guidelines ready to go soon, Mabbett says.

LICENCE TO MANAGE

Meanwhile, in the wake of a recent Tenancy Tribunal ruling against a woman who failed to lodge bonds for 81 tenants, the Property Management Institute of New Zealand (PROMINZ) issued a call for the mandatory licensing of landlords.

The Tribunal ruling involved a South Auckland woman described as a landlord, who was a repeat offender, and who was fined nearly $180,000 for her failure. She had previously been found guilty of renting substandard properties.

PROMINZ chair Karen Withers says that a landlord licensing system would ensure only “fit and proper” landlords could operate as landlords – including being able to advertise properties for rent.

The Welsh Rent Smart model, which requires landlords to keep up-to-date on tenancy laws and legislative changes, would work well in New Zealand, she says. “Property managers and rental agents would also be required to be licensed, but the requirements

for them would be considerably higher.”

Withers says the majority of landlords are extremely competent, but the system would ensure that those who are not “up to scratch” would get educated or remove themselves from self-managing.

“There are already landlord organisations keeping their members regularly updated with tenancy information. These landlords would easily qualify as licensed landlords. We want tenants to have the reassurance that their landlords fully understand their obligations the same way they do with our members.”

Traditionally, New Zealand landlords have been opposed to the concept of mandatory licensing. But the NZ Property Investors Federation does support the idea of providing more education for landlords and, in particular, owner-managers.

NZPIF executive officer Andrew King says they are looking into developing a course to help their members carry out better, easier, more cost-effective management on their properties. “It’s a big task though and it is taking time. But we hope to have something developed before the end of the year.”

They have looked at the Welsh system and it revolves around a relatively easy test which landlords need to pass in order to manage their rental properties, he adds. “Its message is that landlords need to be educated to manage their properties and, if not, they should get a property manager.”

PROPERTY LOVE AFFAIR

Yet despite all of this, there seems to have been little let-up in Kiwis love for property, with nearly half believing that property is the best way to generate wealth for retirement.

That’s according to KiwiWealth’s first State of the Investor Nation survey, which looks at New Zealander’s perceptions of wealth and wealth creation. It reveals that 79% of the 2,101 survey respondents have some form of investment savings, with the median investment portfolio worth $27,000.

The asset class that most New Zealanders think will generate the most wealth for retirement is residential property, with 46% of respondents putting it first. But just 15% of the respondents actually had residential property investments.

It shows that New Zealanders also have the most wealth tied up in residential property.

The median investment value of those who have money in residential property is $500,000.

KiwiWealth general manager customer, product and innovation Joe Bishop says that property remains the prime investment focus and wealth indicator for many New Zealanders. “Prices have continued trending up for quite some time now. Increases in many places have been staggering, so it’s no surprise that Kiwis’ love affair with investing in property continues.” ✚

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WHAT’S DRIVING HOUSE PRICES?

UPFRONT – YOUR HOUSE

By Miriam Bell

REINZ HOUSE SALES: DOWN

Sales volumes both nationwide and in Auckland were down year-on-year in May. However, both national and Auckland sales in May were up on April.

INTEREST RATES: DOWN

The Reserve Bank’s recent OCR cut continues to fuel the mortgage rate war and banks just keep cutting rates. Commentators say a long-term low rate environment is now at play.

OCR: DOWN

The Reserve Bank cut the OCR to a new record low of 1.5% in May, after shifting to an easing bias in March. Economists believe another cut will come in this cycle, but they remain divided as to when.

IMMIGRATION: UP

Migration data remains volatile. The data for April shows that the level of annual net migration remains high. But commentators still expect migration flows to trend lower over the next few years.

BUILDING CONSENTS: DOWN

Once seasonally adjusted building consents nationwide fell in April, after also dropping slightly in March. But on an annual level consent issuance nationwide remains at historically high levels.

MORTGAGE APPROVALS: DOWN

Reserve Bank data shows mortgage lending in total, as well as to investors, was down in April. Lending to investors was also down annually and their share of new lending remains much reduced.

RENTS: UP

The average national rent hit a record high in April. Auckland’s average rent remained at its record high, while Wellington rents have eased slightly but remain at historic highs.

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Market cycles

steadily on Property market talk has switched from crash predictions to rebound expectations, but Miriam Bell finds that the likely trajectory remains slow, steady and far from dramatic.

Widespread talk of a looming property market crash seems to have evaporated in recent weeks.

In the wake of the Government’s ditching of the capital gains tax proposal and the Reserve Bank’s cut to the OCR, which has prompted even lower mortgage rates, public expectations have become more upbeat.

In fact, the question now being posed is could a market rebound be on the cards?

Westpac chief economist Dominick Stephens is an exponent of this outlook. He says that Westpac economists now expect nationwide house price inflation to lift from 2% at present to 7% over 2020.

The cancellation of a capital gains tax combined with lower mortgage rates will be game changing and the combination means the trajectory of the market is going to change accordingly – and immediately, Stephens says.

“Along with improved house price growth

nationwide, Auckland prices should flatline this year before rising by 5% next year. At the same time, the premium gap between prices in Auckland and elsewhere in New Zealand is expected to narrow to about 30% above the 1992 level, as compared to the 80% it reached at the height of the boom.”

The latest price data from REINZ supports this view. It indicates that price growth in many regional markets has stepped it up again. Around New Zealand house prices rose by 3.2% year-on-year to an average median price of $578,000 in May, as compared to $560,000 in May 2018.

While Auckland saw 1.2% annual price growth, which took the region’s median price to $860,000, it was regional markets that were driving the growth. Eleven out of 16 regions saw strong price growth with Gisborne leading the way with a huge annual increase of 54.4% in prices.

But the sales data was not as positive.

Nationwide, the number of sales in May fell by 7.8% year-on-year while Auckland sales were down by 21.8%. From a regional perspective, there was a 50/50 split with eight regions seeing an increase in annual sales and eight regions seeing a decrease.

REINZ chief executive Bindi Norwell says that it’s actually an improvement as in April

only four regions saw an increase in annual sales. “This suggests that the OCR and capital gains back down may be starting to have some impact on the market.”

MARKET TO REMAIN IN CHECK

However, the latest QV data stands in stark contrast to the REINZ data. This month’s QV House Price Index leaves little doubt that value growth continues to decelerate nationwide.

It has the rate of annual growth dropping from 6.9% in May last year to 2.3% in May this year and the rate of quarterly value growth falling to 0.1%. This left the average national value sitting at $686,954. At the same time, Auckland’s value growth decreased by 2.1% year-on-year and by 1.4% over the past quarter, leaving the region’s average value at $1,030,439.

Alongside Auckland, the other major centres are now seeing their markets soften.

Wellington values have plateaued over the last quarter with growth of just 1.0%, while the rate of value growth in Dunedin has now started to slow with quarterly growth of just 1.6%.

But QV senior consultant Paul McCorry does say that many regional centres are still very much in the upward stage of their growth cycle and continue to achieve strong yearly and quarterly value increases.

"These areas, which are generally more affordable such as Whanganui, Manawatu and Palmerston North, continue to attract plenty of buyer demand. Attractive lifestyle regions such as the Bay of Plenty and the Hawke’s Bay continue to post good year-onyear growth.”

Most commentators believe that regional markets continue to play catch-up with the larger markets, but they are not convinced that a strong market rebound is set to unfold. Even Stephens thinks that any price rebound will be temporary.

CoreLogic’s head of research Nick Goodall says that despite the signs of renewed

demand for property across most of the country, they are not expecting property prices to soar.

“True, some parts will see continued growth – primarily more affordable towns and cities in regional New Zealand – but with bank serviceability tests remaining stringent and growth in our economy slowing, any price changes will likely be gradual.”

For ASB senior economist Mike Jones, nationwide price growth should pick up to a modest 5-6% annual pace by year’s end, as the market navigates the various cross winds. “Rock-bottom mortgage rates will provide a powerful boost but we expect recent housing policies targeting investor demand to keep things in check. Auckland will remain an underperformer.”

POST-PEAK GROWTH HANGOVER

Likewise, at the GRA Property Leaders Event in late May, there was a noticeable theme running through the speakers when it came to the outlook for the market. And that theme was that the property cycle is on the downward leg, which means price growth is set to be muted going foward.

Kiwibank chief economist Jarrod Kerr told the audience that Auckland prices will fall by around 5-6%. “The regions are still playing catch-up but house prices are likely to be flat going forward. There’ll be a period of consolidation – although that is on the back of employment holding up and no recession.”

In GRA managing director Matthew Gilligan’s presentation, he said that this cycle peaked in 2017 and the market is now in the grips of a “growth hangover”.

“We are now heading to the bottom of the cycle. It will take a few years but expect to see reduced demand, declining asset values, and rents and yields on the rise. That’s because the property market always moves in cycles and much the same thing happens

Despite the signs of renewed demand for property across most of the country, we are not expecting property prices to soar.

Nick Goodall each time. The only question is how long will it all last?”

First up, it’s all about the ripple effect from Auckland, which always leads the way, booming and then declining first. Gilligan says last year the market reached the point where Auckland started to go down and the regions, even places like Tokoroa, started doing much better.

“That means you can make money in the regions right now but often the fundamentals are not that great. It’s necessary to look at the timing of the cycle because it is not about when are prices going to grow, it is about what happens when the cycle turns down.”

He adds that Auckland is highly unlikely to see the sort of price crash Sydney and Melbourne are seeing. That’s because the supply and demand equation at play in Auckland is very different to those cities where supply far exceeds demand.

“In Auckland, we need to build 5,000 new houses a year to keep up with the organic population growth of the city – and that doesn’t even include migration which remains high. We are building more dwellings now but, overall, I think the conditions in Auckland mean a soft landing is likely.” ✚

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90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

35 AND OVER

Advisers are bullish about the future of the mortgage advice sector. When asked “Where do you see the future of the industry going?”, advisers shared their views on the benefits of regulation to making the most of a lack of trust in the banking system.

“I can see financial advisers/brokers becoming more prominent as people want ease of access and banks are losing trust,” said one adviser.

Brokers are positive about the new financial advice regime and the focus on consumer outcomes, predicting an increased level of professionalism in the sector.

Rosie Glasgow, of New Plymouth-based Rosie Glasgow Home Loans, said financial advice would become more “regulated and professional”. She said the sector would be “even more sought after by clients as the banking environment changes”.

Johan Fritz, of Auckland-based New Zealand Risk Solutions, predicts the industry will “stand tall against the other professions seen as professionals, ie accountants and lawyers”.

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YOUTHFUL OPTIMISM

WHAT AGE BRACKET DO YOU FIT INTO?

21-25

TMM’s second annual survey of young advisers reveals brokers are embracing the challenge of new regulation and the increased focus on customer outcomes.

They believe extra regulatory focus will improve and professionalise the sector.

This year, we canvassed opinions from young advisers at groups including NZFSG, Mortgage Link, Kepa and Lifetime.

Young advisers believe new regulation will benefit the industry, and they also downplay the threat of roboadvice to the traditional mortgage advice model.

The survey respondents, made up of millennials and Gen Z-ers between the ages of 21-35, are bullish on their careers. Nearly half (48%) wish they had become mortgage advisers sooner.

While young advisers are overwhelmingly positive about their future prospects, they still need help in certain areas.

Respondents to our survey say they want support with regulation and lead generation, as well as the adoption of new technology.

Young advisers were also asked to pick their biggest challenges. They pointed to time and workload, as well as lead generation, echoing surveys of young advisers conducted by Australia’s MFAA in recent years.

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The adviser industry’s younger generation are positive about the future and believe customers will continue to ask for specialist help as banks come under more pressure.

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By Daniel Dunkley Fritz added: “Financial advice is becoming more and more valuable in the eyes of the client, which in essence is all that matters.”

Loan Market adviser Alex Matheson predicts the industry will be more “clientfocused, more regulated, [more] disclosures.

All this should hopefully lead to better outcomes for clients”, he added.

Young advisers downplayed the potential future impact of roboadvice.

“I believe financial advisers will always be a crucial part of the process as I believe people will always want to talk to people, not computers,” said Katie Rigby of Palmerston North-based

JK Finance Limited.

“I believe the shift towards roboadvice won’t be the game changer people believe. Human relationships and EQ are irreplaceable,” added one NZFSG adviser, based in Wellington.

PROFESSIONAL CHALLENGES When asked to select professional challenges they often faced, young advisers picked issues their older counterparts will be all too familiar with.

More than half of our respondents (58%) said time and workload

WHAT PROFESSIONAL CHALLENGES DO YOU OFTEN FACE? Lead generation a...

Staying up-to-date w...

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Financial advice is becoming more and more valuable in the eyes of the client, which in essence is all that matters.

Johan Fritz management was their biggest professional challenge, indicating the industry’s young guns are struggling to balance paperwork, clients and lenders.

Meanwhile, about 43% of respondents said lead generation and marketing were significant issues. Last year, 63% cited lead generation as a challenge.

Meanwhile, 38% said legal and regulatory compliance was a challenge. Compliance will become more important as advisers transition to the new financial advisers’ regime, with many needing to take on additional studies. Last year, 39% of young advisers cited challenges with regulation.

A total of 26% of young advisers said staying up to date with lender changes was a big challenge, slightly down on last year’s 28% figure.

A further 17% said earning trust and recognition was a significant challenge in their nascent career.

Others noted challenges with industry technology. One adviser bemoaned “below average CRMs across the board”, while another said their CRM system was “not user-friendly at all”.

make a difference and help young advisers “stand out in the crowd”.

“Brokers must have a strong online presence and strategy to gain followers,” Watkins said. “Websites need good SEO and have to have traffic driven to them by paid ads on social media. Video reigns supreme on social media and is the quickest way to build trust, as they can see you and hear you as the human that you are.”

He said young advisers should differentiate themselves by offering advice online: “If all you do is ‘sell’ rates and services then you are seen as untrustworthy and too pushy. Tell them specific stuff like how to buy your first home or should the recent OCR cut mean you should look to refinance.”

NZFSG’s Patten said lead generation was an adviser’s “biggest challenge”.

Patten added: “Their whole business is built on this. We spend a lot of time in our bi-annual conferences looking at lead generation. In our branded Loan Market business we generate around 1,200 online leads each year, and we are looking to ramp the online lead generation up over the next 12 months.”

Patten agreed that social media would begin to play a more prominent role in lead

generation. “Social media, Facebook and Instagram are becoming a very affordable way of marketing yourself to prospective clients,” he added.

Meanwhile, about one in three young advisers want more support with referrals and sales skills (30%) and starting and growing a business (27%).

CAREER PROSPECTS AND REGRETS

Strong salaries continue to drive young people to the industry. Three in four respondents said they became a mortgage adviser for income growth potential.

More than half (51%) said they joined the industry to improve their future prospects.

Young advisers remain ambitious – 31% of our respondents joined the industry to become their own boss one day. About 37% said they wanted “a challenge”.

Most young advisers wish they had joined the industry sooner. Nearly half (48%) of the respondents to our survey wish they had become a broker earlier in their career.

Others wish they had spent more time on marketing and lead generation.

Approximately 37% would like to have put more hours in on lead generation. A total of

I believe financial advisers will always be a crucial part of the process as I believe people will always want to talk to people, not computers.

Katie Rigby 32% wish they could have organised their workload better.

Meanwhile, 27% would like to have spent more time setting up better business systems and processes.

PATHWAY TO THE SECTOR Most young advisers joined the sector from elsewhere in the financial services industry. About 60% of respondents said

MORE SUPPORT WANTED

WHAT AREAS OF BUSINESS WOULD YOU LIKE MORE SUPPORT IN? Marketing , branding,...

Referals and sales skills Legislative changes...

Starting and growing a...

Service diversification Technology Other 0%

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Young advisers would like more support with regulation. More than half of the respondents to our survey (57%) said they would like more help dealing with legislative changes and regulatory issues.

Groups will be under pressure to help their younger members transition to the new financial advisers’ regime. NZFSG’s Bruce Patten said his group would take a FAP licence that advisers can operate under.

Patten added: “We’re also providing education and courses for the advisers to attend to update them on their level five.”

Marketing and branding was cited as another key area for support. A total of 47% want help with marketing and lead generation.

Marketing consultant Paul Watkins believes lead generation has changed in recent years with the rise of social media. He thinks a strong social media presence can

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WHAT WERE YOU DOING BEFORE YOU BECAME A BROKER? Financial institution...

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Brokers must have a strong online presence and strategy to gain followers.

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WHY DID YOU DECIDE TO BECOME A MORTGAGE ADVISER?

they worked in financial services before becoming a broker.

People are joining from a wide range of different backgrounds. About 6% joined the mortgage broking world from blue collar jobs, while 4% joined from the wealth knowledge industry.

University students continue to channel into the sector. A total of 11% of advisers joined after completing higher education.

Business funding just got simpler.

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Gender diversity has not improved in the mortgage advice sector over the past year. Only 31.1% of respondents to our young advisers’ survey were female.

This is broadly in line with 2018’s survey when just over 30% of respondents were female.

Female representation is significantly down on the global average for financial services. Women represent 54% of global financial services professionals, according to Mercer.

DESIGNATIONS

WHAT IS YOUR GENDER?

MALE FEMALE

Under today’s (soon-to-be-outdated) financial advisers’ regime, most young advisers have RFA status. A total of 91% of young advisers are RFAs, and just 2% were QFEs under today’s regime.

Just 7% of young advisers have AFA status. Advisers who are AFAs before the new regime comes into force in June 2020 will be deemed to have met the competence requirements of the new code, under the Financial Services Legislation Amendment Act.

NZFSG DOMINATES

Most of the young advisers have chosen to come under bigger groups for support as they start their careers in the industry.

More than 67% of our respondents are members of NZFSG, according to the data.

Mike Pero and Mortgage Link advisers made up about 8% of our survey respondents. ✚

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Small business

solutions

SMEs are struggling to access financing, so what can advisers do to help?

For tradies, small business owners, and everyday people looking to start up their own enterprise, it has been a tough time to get hold of a loan.

New Zealand’s big four banks continue to tighten available lending due to ongoing pressure from Australian regulators, while over here, LVR restrictions limit what – and to whom – banks can lend.

Advisers say there is an increasing funding gap for small businesses. Whether it’s cash to help with liquidity, funds for expansion, or a little extra money for new tools and equipment, SMEs have found it challenging to get the green light from their bank. Like so many mortgage borrowers turned away by the banks, more small business owners are looking at alternatives for muchneeded finance.

After LVR “speed limits” were loosened in January, advisers expected a small uplift in available financing for small business owners. However, advisers say banks are yet to put their foot down on the accelerator.

Conditions remain tight, and clients are looking for options.

As the current environment shows no sign of changing, how can advisers secure loans for small business owners? Who are the non-bank players in the market, and how can they be accessed? What are the pros and cons of looking beyond the banks, and what profile of customer is likely to be successful?

Alternative lenders have enjoyed an increase in SME business over the past 18 months as banks turn potential customers away. Martin Brennan, chief executive of Christchurch-based alternative lender Gold Band Finance, says LVR restrictions have had an unintended and damaging impact on small business financing.

“The average SME owner relied on equity in their house for further borrowing and overdrafts,” Brennan says. “But one of the consequences of LVR rules has been that the average person hasn’t been able to leverage that equity. Banks are saying ‘no, we can’t go over 80% LVR’. It is

One of the consequences of LVR rules has been that the average person hasn't been able to leverage home equity.

Martin Brennan having unforeseen consequences. Their interpretation of those rules has made it harder for SMEs to borrow through the banks.”

Brennan said the loosening of LVR ratio speed limits in January – which allowed lenders to lend more than 20% of loans to people with an LVR ratio of more than 80% – have not had a noticeable impact on the small business lending landscape.

“Loans are still more likely to go to that high income earner who’s been with them for 20 years, rather than the hard-working tradesman in need of an overdraft,” Brennan added.

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Lending conditions look set to stay as they are for the near-term, at least.

Last month, the Reserve Bank said it would keep LVR speed limits in place for residential lending to protect against risks in the property market. TMM understands that lenders have raised concerns about LVR’s effects on SME financing with Reserve Bank Governor Adrian Orr. For the time being, borrowers and SME owners may have to look at non-bank options with higher interest rates. Gold Band lends against businesses, provided their finances are strong enough, and also secures loans against residential properties – if banks allow the homeowner to do so.

“If you can’t access a vanilla solution, then reach out to us,” said Brennan. Gold Band offers financing with interest rates typically in the “low-teens”. Brennan said the firm lent to tradies and other businesses that could demonstrate a solid financial track record. He said advisers should pick up the phone before starting a formal application process.

“I like to talk to brokers conceptually and get an idea of what they want, to whiteboard it, and move forward from there,” Brennan said. “Don’t be afraid to have conversations with the likes of ourselves,” he added.

What issues can prevent SMEs from getting a loan? Grant Donoghue, of nonbank Core Finance, said financing could be particularly tricky for SMEs with a limited trading history. He said this presented opportunities to non-bank players.

“They [the banks] want 12-24 months of financials, and that’s not always possible for startups. We’ve seen a lot of opportunities, as the banks just don’t play in that space,” he said.

Core Finance has worked with a wide range of up and coming Kiwi businesses.

“A lot of import and export businesses, manuka honey producers, just a lot of businesses in need of capital to grow,” he added.

Core Finance secures its second mortgage finance loans against residential property, providing bridge financing for 12 months. This allows companies to build up a history of financial statements and get a bank loan at a later date, Donoghue said “A lot of good customers are coming to us from the banks, and we can fill that gap for 12 months,” he added.

Core Finance offers loans of between $50,000 and $800,000, with a typical maximum LVR ratio of 70%. Donoghue said his network of advisers already accounts for a large chunk of his business.

“As advisers know, getting money from the banks is difficult. There are options beyond

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the banks, so discuss your client’s needs, and we may be able to fill that gap for you,” he added.

Other changes in the market might free up lending for SMEs in the near future.

The Friendly Societies and Credit Unions Amendment Act, which came into effect on April 1, will allow credit unions to lend to small businesses for the first time. The law has been designed to increase potential sources of capital for SMEs and boost competition.

The banks want 12-24 months of financials, and that's not always possible for startups.

Grant Donoghue Advisers say there are a growing number of non-bank options for clients. Global online SME lender Spotcap is building its footprint in New Zealand and is cited as a strong option for fast, unsecured loans.

The firm provides unsecured loans of up to $250,000, and promises quick decisions within 24 hours. The application process takes about five minutes to fill out online.

Australian non-bank lender Prospa is also looking to build its SME lending book in New Zealand, using cutting-edge technology to make lending decisions.

The company, run in New Zealand by former Resimac general manager Adrienne Church, started working with advisers in March, after launching here last September. Church says Prospa wants to “serve a community that has been underserved for some time”.

Prospa has joined the NZFSG panel and is working with other groups including Mortgage Link, Newpark and Global Finance. Church says the lender is keen to draw on its experience in the Australian market, and fill the funding gap over here.

Prospa also offers resources to help advisers build their SME lending business.

Church says Prospa is available on an online portal and says the lender can be on the phone to advisers and clients within 10 minutes. She says Prospa can make loans available for drawdown within 24 hours in most cases.

“We have a partner portal on our website, and give advisers a bunch of resources on how to build small business lending and give them information to help reach more

clients,” Church adds.

Prospa promises quick decision-making for advisers and clients. The lender offers loans from $5,000 to $150,000, with terms of 3-24 months. The firm can lend to companies with a minimum six-month history, or three months if the business was acquired from someone else. Prospa offers unsecured lending up to $100,000, using its algorithm and data to help with decisions and loan terms and conditions.

“We look at customers who need funds quickly, and want to grow their business, whether they need the money for cash flow, or new staff for example,” Church says.

Church says there is a huge opportunity for alternative lenders like Prospa to capitalise and fill the funding gap for New Zealand’s small businesses. “There are 500,000 small businesses in New Zealand, and we believe the market opportunity is $4 billion a year. If they aren’t getting service from the bank, where are they getting it? It’s an opportunity to help people.”

She believes advisers have an opportunity to help small businesses thrive by seeking specialist SME finance: “We’ve had some great outcomes. One of our first clients, a hairdresser, has been back to us three times, and each time her turnover has grown. What would have happened to her if she hadn’t been able to do that?” ✚

Better Better Business Business Conference Conference

3RD 3RD ANNUAL ANNUAL 2019 2019 Grant Donoghue

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MY BUSINESS

By Miriam Bell

Passionate adviser After some early struggles, Loan Market’s Megin Wilton has worked her way up the chain and developed a life-long addiction to the mortgage advice business along the way.

addictive and I will be doing it until the day I die … I love the whole process. I love building and maintaining relationships with referral partners and BDMs as they are such an integral part of our businesses. I love meeting new people, hearing their stories and educating them about finance. I love the buying process and being a part of one of the biggest events in a person’s life.

HOW DO YOU APPROACH BUSINESS DIFFERENTLY TO OTHER ADVISERS?

I am not sure. Adviser businesses are all so different in the way they are run and the aspects they have. But with my business I start at home. I make sure my sidekick, Sarah, and I have a great flowing relationship in terms of how we work together. That is then reflected into the service my clients get.

I do what I say I am going to do for my clients and I make it easy for them. Buying a house is such an overwhelming process and if I can make it easy and simple, then I’ve done my job.

IS THERE ANY PARTICULAR AREA THAT YOU SPECIALISE IN?

Not really. I just specialise in getting loans approved!

DO YOU MAKE USE OF SOCIAL MEDIA AND NEW TECHNOLOGY OR PLATFORMS IN YOUR WORK?

I have a Facebook page. I used to post on it using a calendar with times and dates to post about certain things. But now I just post things when I feel like it: that’s because it is more a page to show my face than one I actively seek leads from.

WHAT HAS BEEN THE HIGH POINT OF YOUR TIME IN THE BUSINESS?

WHAT PROMPTED YOU TO GO INTO THE MORTGAGE ADVICE BUSINESS?

In 1997 I moved to Australia, with my partner, and got a job in a call centre. It was basically cold calling with Loan Market. Over the course of my years with the company I moved up the chain and learnt how to broker over the phone. Fast forward seven years and I was offered a job to work in Auckland as a mortgage adviser with Bruce Patten as my mentor and the rest is history.

HOW DID YOU GO ABOUT LEARNING THE BUSINESS? AND HOW DID YOU FIND THE PROCESS?

Being a face-to-face mortgage adviser compared to doing it over the phone are two completely different jobs. However,

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the skills I learnt in being able to build trust over the phone with a client – just through tone and language – have really helped me transition into the role here smoothly.

As I had been out of the country for many years I found it extremely hard at first as I had no contacts or relationships to help me get referrals. But I persevered with learning bank policy and building relationships with agents and that led to the referrals starting to come in.

WHY ARE YOU PASSIONATE ABOUT THE INDUSTRY? I’ve found this business to be

This year I achieved Platinum Elite Status which is something I never thought I’d be able to achieve. Not because I am not good enough but because I didn’t push myself enough before. That’s definitely a highlight of my career.

Bruce Patten has been my mentor since I have been back in New Zealand. Bruce is basically the GOAT (greatest of all time) of mortgage advising and I’ve learnt so much from him. Not just about mortgages and the business, but also how to be humble and to focus on the important things in life. It would be fair to say a lot of my success comes down to being given the opportunity to learn in the environment he gave me.

WHAT’S THE BEST ADVICE YOU’VE RECEIVED?

The best advice was from my husband when we first came back to New Zealand.

I wanted to quit as I thought I couldn’t do it here and I was struggling. He told me that I was good at what I do and I should stick at it and not give up … He was right.

IS THERE A TYPICAL WORKING DAY FOR YOU? WHAT DOES IT LOOK LIKE?

No, I don’t really have a typical day. It’s all just go from the start till the end with lots of laughs and lots of talking along the way.

WHAT CHALLENGES – BOTH FOR YOURSELF AND FOR THE INDUSTRY – DO YOU SEE AHEAD?

My biggest personal challenge will be to keep up the momentum and sustain a certain level of business without burning out. For the industry I think the biggest challenge will be to have fluid businesses that can move with the times in terms of banks' policy, trail commissions, other income avenues and so on.

WHAT ARE YOUR BIGGEST LONG-TERM BUSINESS GOALS? AND HOW ABOUT YOUR PERSONAL GOALS?

My long-term business goal is the same as my personal goal. And that is to make sure I sustain a good family/work/life balance. If I don’t have that then it all falls apart.

FROM: Auckland. I grew up

in Cornwall Park – literally. We lived in Cornwall Park as my Grandad ran it for 45 years.

There is a drive named after him in there (Hugh Latimer Drive). So Cornwall Park is very dear to my heart.

OUT OF WORK INTERESTS: Hanging

out in Whangamata with the family, eating, drinking, sleeping …

FAVOURITE FILM AND/ OR TV SHOW: I love any

renovation show but My House Rules is my fav.

FAVOURITE BOOK: Oh, the places you’ll go – Dr. Seuss

FAVOURITE MUSIC: Sad-sack rock or pop electronica.

MOTTO: The key to having it all is knowing that you already do.

WHAT ARE YOUR TOP TIPS FOR OTHER ADVISERS?

Have visibility over your business in every aspect, know your numbers, know where you want them to be, know who is on your team and what they can do for you, and treat them well. Also, have a great PA that can do everything you can’t. ✚

AND HOW ABOUT THE LOW POINT?

A low point would have to be back when I first started and I made some expensive mistakes. Yet while it was a low point then, it did make me learn a lot quicker.

DO YOU HAVE A MENTOR? IF NOT, WHO HAS MOST INSPIRED YOU IN BUSINESS AND IN LIFE? 029

SALES & MARKETING

By Paul Watkins

Accessing your ATM

The acronym ATM is a useful one to remember when looking to generate future leads. Paul Watkins explains.

You get cash from ATMs and it’s the same approach to getting cash from your business. Due to the massive impact of the internet on marketing in recent years, with social killing off traditional media, there is a new approach that is dominating the way to acquire clients.

Called “ATM”, this approach is easy to follow and gets good long-term results.

“A” stands for Audience. “T” stands for Trust and “M” stands for monetise. The order is important.

Start at A, with building an audience. You have one already of course, in the form of existing clients. If I had to make a small criticism of the mortgage broker community, it’s a lack of contact with existing clients. I speak to a lot of brokers who rarely stay in touch with clients, which I find strange, as

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your best next client is the one you already have or their friends.

So how do you build an audience? Lots of ways. First, through social media, I have discussed this on numerous occasions in these articles, so won’t got into it again in any detail. The bottom line is that social, notably Facebook and LinkedIn are highly targetable, not expensive and you can tailor your message to multiple audiences at the same time. Very few brokers use these to develop a following, but those who do see good results.

And audience is defined as anyone you can have regular contact with. If they don’t buy immediately, that’s not the issue, as I will discuss in the “Trust” section below.

The idea is to build a list of prospects and clients that you can develop long-term trust with. Social media activity can invite them to “find out more” and in return you get their email address for follow-up contact. Social media allows for “followers” who Like/Follow your business page and see your posts.

Most Facebook users Like or Follow large numbers of pages, so long as the content is

Once you have an audience, the next step is to develop trust. This means offering education, not just sales messages. relevant to them. This becomes a pseudonewsletter but be mindful that it will never replace a regular purpose-sent newsletter.

Before going on, a note about LinkedIn. LinkedIn is a social media platform, and is seen as a business to business platform.

However, in reality, it is still an individual talking to an individual. The vast majority of those on LinkedIn are paid employees who wish to have their profiles (or more specifically, online CV’s) out there with the

goal of being head-hunted.

Most LinkedIn members own or wish to own their own homes, so are no different to any other prospect you are after. We all think in terms of “WII-FM”, so they read posts in terms of how it benefits them as individuals and not the companies they represent. If you think of it this way, you can use it very much to your advantage, just like any other social platform.

Once you have an audience, the next step is to develop trust. This means offering education, not just sales messages. I see this as a fault in the industry, as so many messages are simply in-your-face “pickme” sales messages. If all you are doing is sending sales messages, why would they trust you?

While mortgages are a desirable purchase, as opposed to insurance which is a grudge purchase, your goal is to have prospects choose you over the myriad of alternate providers out there. You sell other people’s products, so you can’t stand out based on interest rates, or access to providers, as all your competitors can offer the exact same suite of options. So all you have is a prospect’s perception that they can trust you to get them what they want.

Not only is building trust a valid and successful method of winning new clients, as few brokers do this, you can stand out in the very crowded marketplace.

Building trust comes from offering genuine items of learning to prospects and speaks directly to their circumstances. By way of example, you might wish to target first home buyers, so your social media marketing would consist of short videos that address their pain points. Headlines and opening statements in the videos could be such things as, “The three main reasons first

home buyers get declined for a mortgage” or “Why using your KiwiSaver for a first home has significant fishhooks you must be aware of”.

Similarly, for those considering refinancing due to a fall in interest rates, the open lines and headlines could be, “Is it worth refinancing your mortgage just to save 0.25% in interest?”

I’m sure you could immediately think of a two to three-minute video that talks to each of these headlines. The point here is that they are informative, educational and not in-your-face sales talk. The sales hook comes at the end, where you could end with, “Call me to find out more” or “Click this link to go to …”, but their purpose is to build trust. If prospects in your chosen niche see a bunch of such videos covering a range of topics, they see you as knowledgeable, worth listening to and most critically, trustworthy.

A quick note, it doesn’t have to be video.

Many I work with struggle with the idea of a having a video camera in their face. It genuinely can be terrifying. Good pictures and text can work well too. A lot of people prefer to read rather than listen. Write such posts as you speak, that is, chatty and informal. Avoid jargon at all costs, for example don’t write “LVR”, spell it out.

Videos or text-based posts on social media are not the only way to build trust.

As already discussed, regular newsletters written to add value work very well too.

So, to recap, first build your audience through social media activity such as Facebook and LinkedIn, your existing clients, referrals, networking with your centres of influence and any other activity you are doing right now. Ensure that you segment your clients and prospects into clearly defined groups and offer messages

Building trust comes from offering genuine items of learning to prospects and speaks directly to their circumstances. appropriate to each group. If a prospect is a couple in their 40s with three children and a large mortgage, they won’t care about using KiwiSaver to buy their first home. Trust comes from talking to their specific needs as the individuals that they are – hence why you must segment your clients. If you don’t, they will see it as irrelevant cookie-cutter stuff. This is why most newsletters fail.

The third piece of the ATM process is the “M”, which is to monetise – turning them into paying clients. Breaking the trust barrier makes this considerably easier, as they see you as someone who can address their specific needs. Once you have their email address, trust can be systematically gained over time and the phone calls will happen.

The internet has damaged trust in society, due to scams and its pervasive intrusion (Big Brother spying) into people’s lives. But paradoxically it is also the main way to build trust.

Don’t be impatient. It’s a trust game now and in the immortal words of Rachel Hunter, “It won’t happen overnight, but it will happen”. ✚

What used to work is always the thing that is going to put you out of business

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031

INSURANCE

By Steve Wright

Adviser duties re client disclosure

Act anyway. In any case, under the new compliance regime, I believe these duties and obligations will apply to all advisers.

THE FACTS AS FOUND BY THE FADC

In short, this case hinged around the replacement of insurance policies for two clients and a level of non-disclosure subsequently uncovered. In the case of the second client, although there was a back exclusion on his existing policy, which was known to the adviser, the adviser relied on the client’s explanation that this was an error and in fact he had no problems with his back. The back exclusion (and several other problems) were not disclosed.

In my view the FADC has now confirmed that:

Advisers must make “reasonable inquiries” to facilitate full disclosure.

• Advisers may rely on what clients tell them but only if the adviser has made reasonable inquiries. The FADC said that advisers are not simply free to accept what clients tell them without question.

Advisers should actively ask questions and further enquiries may be required, particularly where clients seem forgetful, hesitant, unsure of specifics or don’t raise something which is clear to the adviser should be raised. (You can’t ignore the racing car you spotted in the garage or the crutches you noticed in the corner.); • To reduce the chances of nondisclosure, advisers should go through the application form question by question with the client to help them to properly understand and answer all questions; • Advisers are expected to uncover details relating to existing cover or previously made applications for insurance, because details like applications declined or special terms issued (exclusions, loadings, claims declined, etc) will need to be disclosed – advisers cannot simply leave this up to clients to do. Be especially vigilant if you are submitting application forms to more than one insurer. If one comes back with terms before the other issues a policy, these terms must be disclosed to the second insurer.

Advisers must make clients “sufficiently aware of the need for full disclosure”.

• Advisers should ensure all clients understand the importance of full and complete disclosure and also ensure that they fully understand the consequences of non-disclosure. (You may have to do this several times prior to policy issue!);

Advisers must properly deal with information known to them and make efforts to ensure they have up-to-date and accurate information.

• Advisers “cannot ignore information otherwise known to them”. Advisers must take strident efforts to ensure information known to them is

THE DECISION

The FADC ruled that the adviser was in breach of Code Standard 8 in both cases because he: • did not make the importance of full disclosure or its consequences clear enough to the client and he could, and should, have done more to ensure the client understood this; and • did not do enough to actively elicit information to enable full disclosure by the client.

In respect of the second client, the FADC found that the adviser could not simply accept the client’s word “that he had never had a back injury at all” and that: • the adviser should have taken further steps to warn the client that his refusal to disclose the back exclusion would inhibit the adviser’s ability to properly provide suitable services to the client; and • the adviser had not taken suitable steps to ensure proper disclose of the back exclusion.

WHAT LESSONS FOR ADVISERS?

The lessons advisers can learn from the recent non-disclosure cases.

Adviser duties around client disclosure obligations and nondisclosure is something I have written a lot about in recent issues of The Mortgage Mag and now yet more is needed.

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The FADC has delivered a decision against an adviser which clarifies what is expected from advisers and for some, raises the bar. While this decision lays down some duties, obligations and possible additional effort that advisers might need to comply with, the requirements seem reasonable to me and not as scary as some have made out. (Please note these are my views alone

and based only on my interpretation of the written FADC decision, I have no knowledge of facts outside of those described in the written decision.)

While this case involved an AFA and a breach of the existing Code of Conduct, these obligations arguably existed for all advisers under the due care, diligence and skill requirements of the Financial Advisers

• If an adviser feels a client is “glossing over” detail or “otherwise not being truthful”, they must again warn the client of the potential consequences of nondisclosure; • Advisers should give clients enough time to think about and disclose their health issues and also actively ask clients questions about their health (and other disclosure requirements like hazardous pastimes too, not just health).

You can’t ignore the racing car you spotted in the garage or the crutches you noticed in the corner. properly disclosed by the client. This includes, for example, checking the client’s application form to ensure they have correctly disclosed existing terms by answering the question relating to previous applications or insurance, “declined, deferred or offered with special acceptance terms”. It may also involve making the insurer aware of these details if the client does not.

ONE LAST THING – DOCUMENTATION

As usual, advisers should make clear and detailed file notes about each and every disclosure, warning, or explanation they give clients, so that details of their compliance can be evidenced later, possibly many years later. In this case, the clients concerned had been “sold” and records had been destroyed. This did not help the adviser defend his position. If you have any dealings with clients, even if you “sell” them, keep records for as long as reasonably possible.

It might be helpful to take the view that … if you don’t document it, you didn’t do it.

Steve Wright has qualifications in Law, Economics, Tax and Financial Planning and is General Manager Professional Development at Partners Life.

This article is for information purposes only, its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product. ✚

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OUT AND ABOUT

Awards Night It was an absolute honour and privilege to host the Mortgage Link 25th annual conference in Queenstown in May 2019.

This year for the first time the formal Awards Dinner was a joint Mortgage and Insurance Link affair. Congratulations to all the award winners.

The back to back Mortgage and Insurance Link conference was attended by 90 plus advisers.

A BIG thank you to all of our lender, insurer and other partners who attended and supported us to make the event a huge success.

Mortgage Link started operating in 1991, where it became one of the first mortgage aggregation adviser groups on the scene and played a significant role in the development of the financial adviser sector in New Zealand. Managing Director Josh Bronkhorst says the team is incredibly proud to have hosted this very special conference and that it represented a significant landmark in the growth and evolution of the company.

“Mortgage Link has been around for almost three decades, so this is quite a big milestone for us,” Bronkhorst said.

“Twenty plus of our mainstream and specialist lender, insurance and other business partners joined us for this conference; the focus was on training, education and workshops but we also made time to celebrate ... the programme included a main bank panel and a specialist lender panel, along with various presenters and speakers and a workshop dedicated to being licence ready.

Having made the decision in August last year to become a FAP we've been streamlining what that looks like and finalising terms, options and ‘rules of engagement’ for advisers wishing to be an adviser under our licence,” Bronkhorst explained.

The Mortgage Link conference ran from May 22-23, and included a range of panels and workshops focused on technology, CRM, licensing preparation and other learning opportunities. The main bank panel comprised of ASB, ANZ, BNZ, Westpac and SBS, and attending specialist lenders were Bluestone, Liberty, NZCU Baywide, Spotcap, and small business specialist lender Prospa.

Other specialist lenders in attendance were Resimac, FMT, DBR, Apricity, Avanti.

The Mortgage Link Conference concluded

on the evening of May 23 with the formal Awards Dinner.

The Insurance Link conference ran from May 23-24, and attendees heard from a range of insurer speakers including Tower, Fidelity Life, NIB, Partners Life and AIA/ Sovereign.

Respected local speaker Glen Sharkey was the MC.

Yang Gu

Reflect. Explore. Energise. Join us at Conference 2019.

We’re excited to bring members and advisers a bold, energy-packed programme this year.

Anthea Livingstone

It’s a big year for mortgage advisers, with plenty of changes ahead for our sector and the property market. So step out of ‘business as usual’ this August, and be ready to get a big dose of inspiration, learning and networking.

22-23 August 2019 A programme to energise and inspire.

Here’s a snapshot of what we have in store for you: • 37 speakers • A powerful line-up of international keynote speakers • 10 CPD points • Four exciting Icehouse business workshops • Bootcamp for new advisers • And more…

DON’T MISS CONFERENCE 2019

Two Amazing Days I 37 Speakers I 10 CPD Points Peter Wilmot

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SkyCity Auckland

Ray Sheath and awards presenter Josh Bronkhorst

FIND OUT MORE AND REGISTER TODAY financialadvice.nz/conference-home

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Development

Dwellings

Sections

funding approved Jan-June 2019:

under construction:

under construction:

$79m

151

248

Average weekly

Largest

progress payments:

development loan this year:

$6m+

$18.7m

ASAP - your development funding specialists. Call us today.

Kevin Zhou

Dan Liao

Ben Friedlander

Senior Lending Manager 021 910 704 kevin@asapfinance.co.nz 036 WWW.TMMONLINE.NZ

Senior Lending Manager 021 504 358 dan@asapfinance.co.nz

Lending Manager 021 063 7711 ben@asapfinance.co.nz

Parash Sarma Client Services Director 021 864 730 parash@asapfinance.co.nz