TMM - The NZ Mortgage Mag Issue 4 2018 by TMM - The NZ Mortgage Mag

Issue

2018 Working together to create tomorrow's advisers today

TMM Round Table

THREATS and OPPORTUNITIES ABOUND

FROM BANK MANAGER TO BROKER

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UPDATED:

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CONTENTS

TMM’S ANNUAL ROUND TABLE

TMM has gathered together a panel of experts to debate and discuss all the hot industry trends and developments. In this Special Feature you get a good insight into what’s happening in the market.

UP FRONT /// 04 EDITORIAL

It’s an exciting, but challenging time to be in the mortgage advice space at the moment.

FEATURES /// 18 PROPERTY NEWS

Tax time for property investors, A meth update and why Airbnb is the new norm.

20 HOUSING NEWS

Miriam Bell makes sense of the latest housing statistics.

28 MY BUSINESS 10 NEWS We wrap up some of the important news including Avanti’s first securitisation; details on Loan Market’s growth and Westpac's commission changes.

16 PEOPLE The latest comings and goings in the mortgage world.

Tauranga mortgage adviser Marie Scawboard spent 30 years as a banker, but then decided it was time to become an adviser. Here’s her story.

34 SECOND MORTGAGES

TMM has updated its second mortgage lending table with a new player.

12 REGULATION

One thing the Australians have got right is a dedicated body to support mortgage advisers. Find out what the MFAA is up too.

15 GOOD RETURNS TV

Two recent guests on GRTV were the new CEO of Financial Advice NZ, Katrina Shanks, and the Minister of Commerce, Kris Faafoi. Here’s what they had to say.

COLUMNS /// 14 KIWISAVER

In our new feature NZ Funds Management provides some great information to help you with KiwiSaver.

30 SALES AND MARKETING

Marie Scawboard

Marketing expert Paul Watkins says content is the new black.

32 INSURANCE

Life, disability and trauma insurance: How much is enough?

EDITOR’S LETTER

CHALLENGES AND OPPORTUNITIES

The world is changing but good advisers will flourish.

n this issue of TMM, we bring you our annual round table discussion. In it, we bring together some of the best brains in the industry to discuss topical issues for mortgage advisers. This year we asked our nine guests for three words that summed up the state of the mortgage advice industry in New Zealand. The list was long but some themes emerged. One, not unsurprising, theme was encapsulated by words like “challenging”, “trouble” and “disruption”. At the heart of these worries is regulation and conduct. This flows from the Financial Services Legislation Amendment Bill, which is currently before Parliament. But it also captures many of the findings flowing out of the Royal Commission in Australia. Banks in New Zealand are now on notice from our regulators and their behaviour and conduct is under the spotlight.

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But one of the other sets of words put up to describe the industry was a phrase I love: “large opportunities.” I’ve always taken the view that problems are really just opportunities dressed up another way. Every problem can be turned into an opportunity. SBS Bank chief executive Shaun Drylie summed it up when he said: “Advisers that have a good brand, systems, client networks and quality people, continue to do well. Brokers who do not have these attributes, battle.” The message here is that now is the time to review your business, how it operates and where you want to go with it in the future. Advisers who do that have nothing to fear from the changes. Getting your business fit is also one of the themes of this year’s TMM Mortgage Adviser conference. We are holding this on October 30 at the Novotel Hotel, Auckland Airport. By having it at the airport it’s easy for outof-town advisers to come in for a day, meet their peers and learn new ideas. Another theme we are hearing more about is that mortgage advisers need to be thinking about other revenue streams they can add to their businesses. In keeping with this theme we have added a new KiwiSaver column into TMM. The section is being done in conjuction with NZ Funds Management. There will be additional KiwiSaver content, specifically for mortgage advisers, online at tmmonline.nz I hope you enjoy this issue and the round table article as much as we did when we put it together.

Philip Macalister Publisher

PUBLISHER: Philip Macalister SENIOR WRITERS: Miriam Bell, Susan Edmunds, Daniel Dunkley CONTRIBUTORS: Paul Watkins, Steve Wright GRAPHIC DESIGN: Debbie Morgan ADVERTISING SALES: Philip Macalister 0274-377527 philip@tmmonline.nz

MOVED OFFICES? Make sure you don't miss an issue by changing your address. Go to www.goodreturns.co.nz/coa SUBSCRIPTIONS: Alison King subs@tarawera.co.nz 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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OPINION By Jon-Paul Hale

It's time for RFAs to make some noise If you are an RFA and you intend to be a business owner that's more than just a salesperson into the future, you need to make your voice heard, Jon-Paul Hale says.

rom what I have seen to date, of the changes that are coming, the attitude of the advisers in the industry towards it and each other is the most concerning. It is the same bit that I was offended by back in 2010 when we looked at the legislation with the change to the FAA and FSP that we now have. Back in 2010 there was a lot of noise about advisers, and there was a lot of contention around investment versus mortgage versus insurance, and as we well know, the bulk of the legislation in 2010 focused on investments. Which to be fair after the 2007/2008 financial crash, investment was where the government’s focus was, because a lot of money was lost by investors. However, what seems to be transpiring is a continuation of this debate in the form of AFA vs RFA, in a way that isn't constructive, nor in a way that is helpful, to engage the various players in the industry. I had a situation in one forum where it was suggested by an AFA that your typical RFA would not be capable of reading the FAA, let alone understand its requirements. Which is laughable given many AFAs started in this industry in the same way most RFAs did. As an insurance adviser, I 'sell' legal contracts, if we don’t understand those legal contracts we can get it very wrong. Add to that; most insurance contracts are more complicated than the FAA. So to suggest that because we are RFAs somehow, we are subhuman bottom feeders that cannot read the legislation, is highly offensive. The second part as advisers of category two products, we weren't required to be AFAs, so why go through that additional pain and expense, rather we just got on with it. The ref said it's ok, so it's ok. It didn't mean our businesses were necessarily any less compliant than an AFA one, though we do know many haven't lifted the bar to the AFA level yet.

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What also surprised me, and to some extent was good to see, are investment advisers who are specialists in their area who solely focus on it, who also expressed they don’t understand life insurance. These advisers added to the discussion positively with an approach to learning and understanding about what we do. So it's not all bad, but I have had both the best and the worst attitudes shown in the last couple of weeks, particularly towards life insurance advisers. Which for me was quite disappointing and also demonstrated that as RFAs, we need to be present in the conversation around the legislation changes and the direction our industry is going to go in the future. At the same time we need to pull our collective heads out of our collective arses; and understand that wherever you happen to be in the financial services sector, it is a profession in a chosen specialty. Just because you’ve selected a discipline that another discipline doesn’t understand, doesn’t mean you’re a bottom feeder! All of the insurance products that we have in our financial market are not only produced by providers; the government licenses them. They are deemed not only to be fit for purpose, but necessary for our population at large, to ensure their financial security, the growth of their financial wealth, and protection of their lives and the outcomes of their families. Not to mention the other RFA disciplines covering the need for funding, finance, general insurance, as well as more obscure situations like foreign exchange and currency. Also various other specialist markets, that to be fair I don’t have a lot of knowledge of because they don’t fit, or don’t come near, the areas that I typically work. So the message to those that are in our industry, who are looking at other specialties, maybe rather than throw stones in the glass house, pick the phone up. Have a chat with

Jon-Paul Hale someone who's professional in another discipline, who is doing a damn good job in their area, and catch up for a coffee. Understanding them will help you understand how you might be able to interact with them for the benefit of you and your clients, and maybe you might be able to help them in areas you specialise in too. Either way, a better understanding will help you be a better adviser wherever in the industry you sit. I’m proud to be in life insurance, and we do a significantly valuable job for families. Yet we remain misunderstood and measured by a stick that is not necessarily that well aligned with the principles of life insurance and what we actually do. Those that have been around tables in more recent times are starting to show understanding that the various disciplines are different in their approach, and there might be different approaches to licensing as a result, as too with the documentation to date talking about various streams. Let's see how this develops. The industry at large needs to hear more from the individual practitioners, as the dealer groups and professional associations are the ones currently making the most noise on our behalf. RFAs are mostly silent in this discussion. If you are an RFA and you intend to be a business owner that's more than just a salesperson into the future, you need to make your voice heard. Be it at the discussion meetings or through the submissions process, its time for RFA advisers to be heard. ✚

MARK YOUR DIARY The 2nd Annual TMM Better Business Conference is being held on October 30.

2018 Registrations are open now - for more info go to www.tmmonline.nz 08 WWW.TMMONLINE.NZ

OUT AND ABOUT

WINNERS

at Mortgage Link conference Mortgage Link handed out awards to its top advisers at its recent conference held on the Gold Coast.

he growth and ongoing success of Mortgage Link has come as no surprise to the team working tirelessly behind the scenes promoting and growing the business and advisers within. Managing Director Josh Bronkhorst says there have been some significant milestones for the company over the last 12 months; The first being the appointment of Graham Clarke late in 2017 as its National Sales Manager to boost the support on ground level. The second has been the development of their own CRM – Advice link and most recently hosting its first international conference and awards at the Marriott in Surfers Paradise, Australia. Bronkhorst attributes the achievements to the support and commitment of his loyal and growing adviser network, his team at Mortgage Link head office and the resilient relationships with their lender partners. The black-tie awards function saw a large number of advisers being recognised for individual achievements, whilst the overall top performers were appropriately rewarded with trophies to recognise and celebrate their accomplishments achieved in a challenging year.

Sarah Bloxham, Josh Bronkhorst, Judy Steiner

SOME OF THE TOP PERFORMERS ON THE NIGHT WERE: Michael Walters, of Mortgage Link Otago achieving Adviser of the year Michael Walters, Josh Bronkhorst, Glenda Walters

Mortgage Link Manawatu, achieving the Top Office Award Wendy Yorke, of Mortgage Link Taupo, achieving Individual Adviser – Highest loan re-fix’s award Sarah Bloxham, of Let’s Talk Mortgages achieving New Adviser of the year Judy Steiner, of Mortgage Link Hawkes Bay, achieving the Top Personal Loan writer reward

Wendy Yorke, Josh Bronkhorst

Michael Walters, when asked to offer the silver bullet to his amazing success, commented that most important for him was to remain consistent in his approach as he has been for over 15 years. He believes in getting the basics right and always putting his clients first.

Phil Christmas, Josh Bronkhorst

TMMONLINE.NZ/NEWS

WESTPAC MAKES MAJOR COMMISSION CHANGES

estpac has made a series of sweeping changes to its commission structure for New Zealand mortgage advisers, including removing discretionary quarterly commission payments. In late June, TMM Online revealed the bank contacted bosses of New Zealand's biggest adviser groups to inform them of wide-ranging changes. On July 1, the bank increased upfront commission to mortgage advisers from 45 basis points to 60 basis points, and removed discretionary commissions previously paid up to 15 basis points quarterly. Westpac also toughened up commission clawback periods. Loans repaid between 0-16 months will see 100 per cent of commission clawed back. Loans repaid between 16-26 months will have 50 per cent of commission clawed back. The changes come after Westpac conducted a major review into the way it pays commission to financial advisers. It is unclear whether some of the changes were motivated by Australia’s Banking Royal Commission, which has placed a spotlight on commission models across the Tasman. In a statement, a Westpac spokeswoman said: "These changes are intended to simplify the commission structure and administrative processes for our mortgage advisers as well as streamline our internal operations. We expect the increased upfront commission to be positively received by the industry." Commission has been a talking point in Australia for several years. Last year, a review by the Australian Bankers' Association recommended commissions for mortgage brokers be replaced with a fee-for-service model. During this year’s Australian Royal Commission, bank executives, including those at Westpac, were grilled about their relationships with financial advisers.

ADVISER HITS OUT AT COMMISSION DISCLOSURE PROPOSALS

amish Patel of Mortgagesonline.co.nz has warned that proposals to make advisers disclose commission could “skew things towards lenders” and leave the industry on an uneven playing field. The Auckland-based adviser responded to a discussion document released by the Ministry of Business, Innovation & Employment as part of work to develop regulations within new financial advice laws. MBIE has proposed that advisers make information about the fees they charge, such as commission, publicly available. MBIE has previously said “consumers will benefit from being aware of these commissions and incentives". In his response, seen by TMM, Patel said he feared the proposals would not be “fair” for advisers. He said the move would favour lenders providing direct mortgages, as they would not be forced to disclose their own fee structures, thus appearing cheaper to the customer. Patel said: “A broker like me under the new regime may disclose that to obtain a 4.5% on a home loan it will cost the bank .65% in commissions. The client could go to the bank direct and it would seem that the home loan would cost 4.5%, with no mention of [the] associated costs. Under both scenarios, the cost to the client is 4.5%.” Patel’s response was made in a personal capacity and not on behalf of the Financial Advice NZ lending advisory committee, of which he is a member. Hamish Patel

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TMMONLINE.NZ/NEWS

AVANTI SECURES NEW FUNDING

on-bank lender Avanti Finance has closed out its first securitisation which will enable it to continue its growth in the adviser

market. Avanti says there was very strong investor interest in the Westpac arranged deal, and the issue ended up increasing from an initial amount of $150 million to $200 million in residential-backed mortgage securities. “The issue has been achieved on the back of outstanding support from the adviser market,” head of sales Stephen Massey says. “The term issue assures us good funding capacity and a desire to continue to grow further with the adviser market this year and beyond.” Avanti now has the goal of continuing to originate good quality loans and to have a second issue in the next two to three years. Massey says Avanti continues to broaden its offering in both short-term bridging solutions and in the long-term mortgage space and will offer policy enhancements in the next month.

❝ The term issue assures us good

funding capacity and a desire to continue to grow further with the adviser market this year and beyond. ❞ - Stephen Massey To keep up with the latest industry news, views and opinions visit

tmmonline.nz

LOAN MARKET SETTLES RECORD AMOUNT

oan Market has settled a record amount of home loans in the past financial year and opened a new head office in Auckland. Loan Market settlements in its recently completed financial year were 24% higher than the previous year, reaching $2.53 billion. Chief executive Brian Greer says its advisers helped 1365 customers secure finance during the year. This was a 4% increase on the previous year. This week the company opened its first collaborative working and client hub in Ascot Park, Auckland. The hub will give advisers and clients a space to meet, learn and work. The Loan Market Hub will also act as a co-working space for advisers, where they can work alongside their peers without the pressures of owning their own office space. For advisers just starting out, the Hub will provide an incubator environment. There are already several top Loan Market professionals working in the hub. Powerhouse Irene Zheng and her team of six advisers work from the 426 sq m space on their business, which has achieved “chairman’s” status the highest accolade afforded to a Loan Market business.

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REGULATION By Dan Dunkley

AUSSIE ADVISERS FIGHT BACK In the wake of Australia’s Royal Commission, the nation’s advisers are battling to defend their industry.

ustralian mortgage advisers are under siege. This year’s Royal Commission into banks and financial services has put a spotlight on lender behaviour, leading to uncomfortable questions about the commission fees charged by advisers. Bank bosses haven’t helped advisers’ cause. In April, Westpac chief executive Brian Hartzer suggested Aussie advisers should charge a fee for their services instead of taking commission from banks. He hinted such a move could improve transparency. Hartzer said “brokers, auto dealers, non-bank financiers, financial planning firms, insurance companies, superannuation funds, and the regulators” all had to do more to make fees more visible to consumers. Hartzer’s comments hit a nerve. The trade body for Australia’s mortgage advisers, The Mortgage and Finance Association of Australia, lashed out at Hartzer’s “selfserving” comments. Amid the bad publicity, the MFAA has launched a fierce defence of the adviser industry. The MFAA has turned to celebrity endorsements, billboards, TV adverts and social media campaigns, backed by the slogan “Your Broker Behind You”. The campaign is said to have cost the MFAA

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❝ Brokers, auto

dealers, non-bank financiers, financial planning firms, insurance companies, superannuation funds, and the regulators❞ all have to do more to make fees more visible to consumers. Brian Hartzer

millions of dollars. MFAA’s chief executive Mike Felton sees the battle for hearts and minds is more than just a publicity stunt. He believes a fee-forservice charge would play into the hands of the major lenders, reinforcing a system already skewed towards the big banks. Felton believes brokers keep banks honest and help push interest rates down. Felton has taken his fight public over the past month. At a series of industry forums across the Tasman, the MFAA chief has asked Australian regulators to look at the evidence, rather than overreacting to horror stories about the misconduct at the major lenders and assuming advisers are also culpable. Felton believes there are “entrenched interests” at play: “While the decimation of the broker channel would be very good for the profitability of some traditional lenders who want a return to branch-based lending, it would automatically destroy competition. This would mean genuine choice for consumers – particularly those in regional areas – would be drastically reduced, and of course mortgage interest rates would immediately come under upward pressure,” Felton said in a recent speech. The MFAA campaign follows a series of

❝ While the

decimation of the broker channel would be very good for the profitability of some traditional lenders who want a return to branch-based lending, it would automatically destroy competition.❞ Mike Felton, MFAA investigations into Australian mortgage advisers. Arguably the most in-depth review, the Australian Securities and Investments Commission’s review of mortgage remuneration in 2017, found “current mortgage broker remuneration and ownership structures create conflicts of interest that may contribute to poor consumer outcomes”. MFAA says the review did not produce any evidence of “systemic harm or poor outcomes”. In recent years, ASIC has also launched reviews into advisers’ influence on the interest-only loan market and conducted a “shadow shopping” exercise to keep brokers on their toes. To help its defence, the MFAA has reviewed available data on the broking industry. More than 50% of Australia’s mortgage lending is originated by brokers, and 92% of customers say they are satisfied with their adviser’s performance, according to the trade body. The Net Promoter Score for the adviser industry, a key metric on consumer confidence, is currently 70. Anything above 50 is considered excellent, while scores above 70 are “world class”. Felton adds: “While consumers benefit from the service brokers provide, we continue to be criticised as though the broker channel is systemically rotten. So, we decided to examine additional real data for answers, to bring an accurate presentation to Government and to ASIC. The numbers don’t lie.” The MFAA also highlights the small number of complaints advisers receive. While brokeroriginated loans have doubled since 2008, complaints referred to the MFAA by the Credit and Investment Ombudsman and the Financial Ombudsman Service have fallen by 78% over the past decade. Mortgage advisers represent just 6.1% of complaints made to the

CIO. ASIC’s own data shows it made just 15 convictions of mortgage advisers between 2010 and 2017. “Within a broken mortgage broking industry, complaints and arrears would be high, competition and consumer support would be shrinking and prices would inevitably begin to rise. Is that the case? Absolutely not. The indicators point to a strong channel, producing good consumer outcomes and value for consumers and the economy. While this data is likely to partially reflect the impact of the NCCP Act in 2010, it is also because brokers simply fill a vital need,” Felton says. Felton believes Australia’s big banks are deflecting attention, as the growth of the broker channel causes them to lose market share. Smaller lenders now have a 28% share of the Aussie market, compared to 21% four years ago. Felton adds: “We believe recent criticisms are a clear reflection of the pressure being felt by the entire financial services sector to drive revenue and margins – and to respond to the Royal Commission. It is tough for the sector, but that same pressure and increased competition is great for consumers. “While certain lenders have supported changes that would rationalise the broker channel and drive increased traffic into their branch network, this would have an immediate negative impact on consumer outcomes,” Felton says. Like most advisers in New Zealand, Felton believes self-regulation and reform is the answer. Australia’s brokers created the Combined Industry Forum to discuss reform with regulators in 2017. Felton adds: “We are working hard to address the legitimate

Your Broker Behind You TV advert and data-driven issues raised by ASIC and other regulatory bodies. We see this as a key opportunity to show leadership and maturity as the sector comes under increased scrutiny.” The Australian industry’s woes are likely to cause concern in New Zealand, as advisers brace for the indirect impact of the Royal Commission. As the MFAA continues its PR offensive, Australian advisers will soon discover if they are fighting a lost cause. ✚

BROKERS DRIVE COMPETITION AND ACCESS TO CREDIT FOR ALL AUSTRALIANS Brokers drive more competition by increasing the market share of smaller lenders. Market share for smaller lenders not affiliated to the four major banks has grown from 21.5% to 28% over just the last four years. As lending competition has increased, the Net Interest Margin of the major lenders has decreased significantly in line with increased broker activity.

21.5% 2013

28%

Growth of small lenders 2017 013

KIWISAVER By Michael Lang

KIWISAVER: What

New Zealanders want Forget what the experts say we should be doing, what do New Zealanders actually want?

here has been a lot of conjecture in the media about what KiwiSaver investors should focus on, but less research into what they like and what motivates their decision. Recent media, and to a lesser extent regulatory focus, has been on fees, but fees came last in a list of attributes ranked through NZ Funds’ inaugural KiwiSaver survey. Members of the NZ Funds KiwiSaver scheme, as well as the employees of over 200 firms from NZ Funds Wealth at Work programme, were asked five questions in total. The questions were limited in number to encourage as large a response as possible, but through the survey’s thoughtful design, information was gathered on 19 topics. Respondents were asked to rank what appealed to them most when selecting a KiwiSaver scheme. Interestingly, responsible investing ranked highest, ahead of: returns; New Zealand ownership; lower risk and fees, with 35% of the vote. Returns from most schemes have been strong, reflecting a period of global synchronised growth, so investors have been able to focus on how their returns are being earned. It will be interesting to see if investors continue to value a responsible investment approach during a financial market downturn. Less surprisingly, returns were ranked the next most important factor with 29% of the vote. This is consistent with investors wishing to see their savings compounding at a faster rate than term deposits, and a corresponding shift away from default schemes toward more growth orientated schemes. What is surprising is that despite the acknowledged importance of returns, 16.4% of KiwiSaver members are still invested with default schemes. As financial literacy improves, this group should decline. Another surprise of the survey was how highly respondents ranked New Zealand ownership. The success of the New Zealand Superannuation Fund, managed by its New Zealand investment team, the Guardians of New Zealand Superannuation,

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has demonstrated that New Zealanders can manage money very well indeed. It might also be the case that what works for Australian or Japanese owned organisations might not be what New Zealanders are looking for, and as a nation we’re cottoning on to that.

❝ Interestingly,

responsible investing ranked highest.❞ Seven per cent of respondents rated lower risk as the most important attribute, while only 3% ranked fees as the most appealing factor in a scheme. It is surprising to see risk receive such a small allocation of the votes. That may change after a market correction. However, it does show that the FMA has done an excellent job in re-establishing trust between investment managers and the public; and in the idea of KiwiSaver. Fees ranked last out of five factors. While fees are an important factor, they are only one factor. After 10 years it is becoming clear that investors’ asset allocation and contribution rate are the two most important factors. NZ Funds’ research shows that investors’ contribution rate can be nearly three times more significant than fees. It also reflects that across the board, KiwiSaver fees are fair and reasonable. While different providers provide a different level of fees, they also provide different levels of service. If you want to be diversified by asset type and/ or geographic region, use a multi-manager approach, ensure your funds are responsibly invested and perhaps use an automated rebalancing process as well as have access to a personal financial adviser to help you build your retirement wealth, these things will end up costing you slightly more. The survey shows that New Zealanders get that.

HOW DID YOU PICK YOUR SCHEME?

Adviser...................................................................... 66.97% Work............................................................................. 21.41% Advertisement........................................................5.20% Default..........................................................................4.59% No response............................................................. 1.83%

WHAT APPEALED MOST?

Responsible investment................................ 33.03% Returns.......................................................................27.22% New Zealand owned manager..................26.91% Lower risk....................................................................6.73% Fees................................................................................3.36% No response............................................................. 2.75%

CURRENT SAVINGS RATE?

4%................................................................................. 33.94% 3%.................................................................................26.30% 8%................................................................................ 20.49% Self employed...................................................... 13.46% No contribution......................................................4.59% No response.............................................................1.22%

WOULD YOU INCREASE TO 8% FOR A FEE DISCOUNT?

Yes................................................................................ 62.69% No................................................................................. 33.33% No response.............................................................3.98%

WOULD YOU SWITCH IF OFFERED A FEE DISCOUNT FOR A HIGHER SAVINGS RATE?

Yes.................................................................................59.02% No..................................................................................39.45% No response............................................................. 1.53% * New Zealand Funds Management Limited is the issuer of the NZ Funds KiwiSaver Scheme. Download the Scheme’s product disclosure statement at www.nzfunds.co.nz. ✚ Michael Lang is Chief Investment Officer at NZ Funds. New Zealand Funds Management is the issuer of the NZ Funds KiwiSaver Scheme.

Here are some of the latest mortgage videos you can watch online at goodreturns.co.nz/grtv MEET FINANCIAL ADVICE NZ’S FIRST CEO KATRINA SHANKS

Financial Advice NZ’s new boss Katrina Shanks joins Good Returns TV to talk about the association’s purpose, how its Quality Service Mark will work and why the group wants a seat at the table with the Code Working Group. To watch the interview go to goodreturns.co.nz/grtv

THE FUTURE OF INSURANCE COMMISSIONS

Commerce Minister Kris Faafoi talks to Philip Macalister on Good Returns TV about the future of commissions, proposed insurance law changes and churn. To watch the interview go to goodreturns.co.nz/grtv

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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.

FROM WAREHOUSE TO TSB

Donna Cooper TSB Bank has hired the former head of Warehouse Group’s short-lived financial services unit to become its new chief executive. Donna Cooper will take over the role following the retirement of long-serving CEO Kevin Murphy. The Warehouse’s short experiment in financial services finished after it sold the operations to SBS Bank. TSB board chairman John Kelly said Cooper brought to the role the right range of skills and experience needed as the

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bank implemented its growth strategy and continued to evolve to meet customer expectations in the context of a changing banking landscape. “Our priority in appointing TSB’s new CEO was demonstrable leadership capability to contribute to our vision, drive strategy execution through technology and customerled innovation and build relationships with all of the bank’s stakeholders.” He said the appointment “also enables us to benefit from a fresh perspective at a time when the spotlight is on banks to put customer interests first”. Before her role at The Warehouse Financial Services Group, Cooper was a director and general manager of Baycorp Holdings (NZ), following more than a decade working internationally with American Express.

BAILEY MOVES TO NEW ROLE AT WESTPAC

Well-known Westpac business development manager Scot Bailey has moved to a new role within Westpac. Bailey has spent 18 years in various frontline and BDM roles, working with mortgage advisers, but has taken on a new role at Westpac as its conduct manager in thirdparty banking. His new role will be responsible for working with head groups and the industry

Scot Bailey to ensure that fair outcomes are achieved for customers. Although excited with the new role and challenge ahead, Bailey said he would miss the direct contact with mortgage advisers and helping their customers’ needs and solutions. Shirley Reynolds joins the Westpac third-party banking team as the business development manager for the Waikato and Bay of Plenty areas. She has been in banking for many years having held roles in retail and business at Westpac. Her recent role was business manager covering the wider Waikato area. Before that, she was a bank manager in Hamilton. Reynolds will be based in Cambridge.

ANZ MAKES MORTGAGE APPOINTMENTS

GRIFFITHS BACK IN NZ FOR BLUESTONE

Sue Griffiths Sharyn Pask ANZ has appointed two new business development managers this year. Sharyn Pask has been appointed to a new Auckland-based BDM role with the ANZ mortgage adviser distribution team. She had previously been senior business manager for a number of years with the ANZ North Shore team. During her time with ANZ, Pask has established strong relationships with a number of top advisers and has been the recipient of numerous ANZ “top achievers” awards. She brings outstanding sales performance, extensive credit knowledge and relationship management skills to the BDM role. Bridgitte Turner has been appointed to the North Shore and Northland BDM role left vacant after Mike Tunai left to join First Mortgage Trust. Turner has considerable banking experience and has held branch manager roles with both National Bank and ANZ since 2009. Prior to joining the bank, she was a mortgage adviser for 10 years with Mike Pero Mortgages and Mortgages By Design.

LOAN MARKET EXPANDS IN AUCKLAND

Loan Market has grown its team in Auckland. Ammon Acarapi has moved to the branded group from NZFSG and is looking to grow his own Loan Market business in Auckland. He has two advisers going through accreditation at the moment. Laura Mao-Jha has joined Loan Market from ASB Bank. She has an extensive mortgage and insurance background. Shaun Bay has been a mortgage adviser for two years with New Zealand Home Loans. He is based in East Auckland In Wellington, Jo Vivian and Helen Wilks have joined the group.

Sue Griffiths has returned to New Zealand from the Gold Coast to roll out Bluestone Mortgages. Griffiths has accrued more than 30 years of experience in the finance industry on both sides of the Tasman. After 16 years with Westpac, then two years as a broker, she took the opportunity to help build the NZMBA in her role as executive secretary, followed by a stint as a BDM at PLAN NZ (now NZFSG). After the acquisition of PLAN NZ to the Ray White Group, she took the opportunity to work for NAB as credit advice manager in Queensland. This role involved training and supporting mortgage brokers and staff from three aggregation groups, Plan, Fast and Choice, and rolling out new compliance documents and processes required to ensure brokers adhered to the new NCCC legislation. For the last five years, she worked for ALI, providing brokers access to a packaged life insurance product that protected the customers’ home loans. “I am so excited to be rolling out the Bluestone business across New Zealand. Non-bank lending is such a huge growth opportunity that has taken off in Australia and the same will happen here. Being back working with brokers and industry peers that I have known for quite some time is just the icing on the cake.”

THE MORTGAGE SUPPLY CO GROWS

Richard Trounson & Mike Simpson

The Mortgage Supply Co has two new advisers, servicing the North Shore of Auckland. Richard Trounson has 32 years’ experience in the finance industry including financial markets, corporate and investment banking and private wealth management. With a teaching background in economics, he is well versed in providing quality financial solutions and explaining things in a simple and pragmatic way. Mike Simpson, a former police detective, has more than 20 years’ experience in retail, renewable energy and property businesses. He has a strong interest in property and property finance, and is looking forward to helping borrowers find the best deals and right solutions

GONG ADDS TO MORTGAGE EXPRESS STABLE

Ray Gong Ray Gong is the latest adviser to join Mortgage Express. Prior to joining Mortgage Express, he owned and managed his own export business and worked in the mortgage industry for more than two years. He is a property investor and understands how challenging the lending process can be. “As a property investor, I understand that the process and procedure for obtaining lending can be complex. I also know how important it is to work with a good adviser.” Gong will be based in Auckland, is fluent in English and Mandarin, and can assist both local and Chinese clients with residential and commercial lending advice, advice for first-home buyers, and provide help with commercial loans, refinances and credit impaired lending. ✚

Got a new person in your team? Let us know by sending an email to editor@tmmonline.nz with details. 017

PROPERTY NEWS By Miriam Bell

Taxing times

Changes to tax and housing policy, meth contamination standards and rising costs are all weighing heavily on property investors. We find out why.

ntroduction of a capital gain tax would lead to increased rents rather than lower house prices, the NZ Property Investors Federation says, Westpac recently released a report that analysed whether various property tax changes would have a major impact on house prices and concluded they would. Westpac chief economist Dominick Stephens said property was more lightly taxed than other forms of investment because income from investments was taxed but capital gains were tax-free and investors’ expenses were tax-deductible. “This feature of the tax system is especially useful for property investors, who find it easier to borrow against their investments than other businesses. It has made property investment incredibly popular. And that popularity has been one factor pushing house prices higher.” Westpac estimated that the introduction of a capital gains tax of 10%, which exempts the family home, would reduce house prices by 10.9%, while a deemed rate of return tax of

❝ Rental property

pays tax on gross income less expenses just like every other business or investment. ❞ - Andrew King

5% would reduce house prices by 19.5%. But NZPIF executive officer Andrew King said the claim that property was more lightly taxed was flawed. He refuted Stephens’ claim that rental property owners had tax advantages over home-buyers. The two situations were different. “Claiming expenses against taxable income is a tax law that exists for all. Rental property pays tax on gross income less expenses just like every other business or investment. Home-buyers do not have an income stream from which to deduct their expenses. When buying a home they receive the benefit of accommodation.” Changing the tax systems would not lead to a reduction in house prices, King said. “Other countries with a capital gains tax have also had high levels of house price growth. Why would New Zealand be different, especially when owner -occupied housing is exempt? But Stephens is right that a capital gains tax will increase rental prices.”

Banning foreign buyers

ajor changes to property taxes are still in the future, but the Government’s proposed ban on foreign property buyers is drawing ever closer – although in an amended version. The Finance and Expenditure Select Committee recently reported back to Parliament on the Overseas Investment Amendment Bill, recommending changes. While foreign buyers will still be banned from buying existing residential properties, the ban will be watered down to allow foreign investors to invest in new housing development. Duncan Cotterill special counsel Christina Lefever said this meant foreign investors would not be able to buy or build one-off houses to live in. But they would be able to invest in

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new larger-scale housing developments, particularly apartments. “Foreign developers will be able to retain interests in new projects if they are over 20 dwellings but as a landlord or as part of a rent-to-buy arrangement. “Also, developers of apartment blocks will be able to apply for an exemption certificate. This will allow them to sell 60% of the apartments to foreign buyers without those buyers requiring OIO consent, but those buyers will not be permitted to occupy the apartments.” The Select Committee’s recommendations address concerns raised about the need for investment in the development of new housing stock. “But in doing so, they have created a very complex piece of legislation which has some rules in it that mean that similar transactions could be given very different treatment.”

Christina Lefever

Meth report fallout

nvestors have not yet noticed significant change as a result of the Gluckman report into meth contamination safety standards. While Sir Peter Gluckman might have called for a new meth testing regime, with higher levels and tighter regulations for the testing industry, no such regime exists yet. Rather the levels set by the NZS 8510: 2017 standard remain in place and it is these levels which both the Tenancy Tribunal and insurers continue to operate by. Tenancy Tribunal principal adjudicator Melissa Poole said where the law and the scientific evidence on meth contamination had evolved, the Tribunal had responded by amending its approach. “All adjudicators receive ongoing training and education about meth contamination and Professor Gluckman’s report will form a part of future training.” But, to date, there have been no tribunal rulings on meth contamination in the wake of the report. That means exactly how adjudicators might apply the recommendations it contains remain unknown. Insurance Council chief executive Tim Grafton said current policy wordings generally referred to remediation to the levels that were in force under the existing standard. “Insurers will make their own calls going forward, but current policies will need to be honoured relative to that current standard. If the standard is revised and the levels are raised, the wording in policies will have to change too.” In contrast, the Real Estate Authority has already issued new disclosure guidelines. Agents now only have to tell potential buyers if a property has a meth contamination reading of 15 micrograms per 100cm2 or above. They do not have to disclose any confirmed meth contamination results below that level unless they are asked. REA chief executive Kevin Lampen-Smith said the risk of buying a meth contaminated house was extremely low, but if buyers were worried they should ask for a reputable meth test to be conducted.

Airbnb industry thriving

eanwhile, Airbnb and Bookabach hosts around the country are facing increased costs – but the sectoris growing in size and professionalism. Councils in Queenstown and Rotorua now impose commercial rates on short-term rental accommodation providers when their properties are rented out for over a certain number of days a year. Tauranga, Christchurch, Westland and Auckland Councils are also poised to introduce similar systems. Auckland Council plans to apply higher commercial rates to properties let on short-term rental platforms for more than a certain number of nights a year although the rate charged will vary. Short-term rental hosts will now have to pay the targeted accommodation rate, or “bed tax”, already levied on hotels and motels in the region. Plans to impose new charges and levies on short-term rental providers have come to the fore as rental markets around the country have become increasingly stretched by supply shortages. Global property tech business Airsorted, which facilitates the management and marketing of Airbnb rentals for property owners, set up shop in Auckland three months ago. Auckland manager Frances Mannion said it had doubled its business and the number of properties it managed as demand for the service continues to rise. It plans to expand into Wellington and Queenstown by 2019. A Deloitte report found that, in 2017, New Zealand’s Airbnb community hosted 1.4 million guests and those guests spent approximately $781.4 million. In turn, the community contributed around $660 million to the economy supporting 6006 full-time equivalent jobs.

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HOUSING COMMENTARY By Miriam Bell

IN MODERATE TIMES It’s a far cry from the heady boom times of the recent past, but slow and steady is now the name of New Zealand’s housing market game, reports Miriam Bell.

imes have changed for New Zealand’s housing market. Moderate growth and steady sales activity - with a touch of seasonal slowdown in the mix - are the name of the game. Across the board, the latest data shows the national property market is in pretty solid, albeit unexciting, shape. QV’s June data records that, once adjusted for inflation, nationwide values were up by 4.6% year-on-year and just 0.3% over the past quarter. This left the national average value at $675,680. In similar style, REINZ had May’s national median house price up by 4.5% year-onyear, and by 1.1% on April, once seasonally adjusted, to a new record of $562,000. But national sales activity in May, once seasonally adjusted, was up by just 1.8% year-on-year, and down by 1.8% on April. It’s all a far cry from the days of spectacular price growth and the corresponding predictions of doom. These days it is the Government’s housing and tax policy changes which are generating the most speculation and uncertainty. With a two-speed market and a regional lag still at play, it seems timely to take a closer look at the state of play in markets around the country as those changes start to become a reality.

CENTRES TAKE IT EASY

It’s impossible to ignore the implications of the Auckland market’s slowdown. That’s not only because of oversized impact on the national market overall, but because it is an indication of what is likely to come in regional markets. And the SuperCity tale told by May’s data is one of declining prices and a market which is taking a break. According to REINZ, Auckland’s median house price was down by 0.8% year-onyear and by 0.4% on April, once seasonally adjusted, to $852,000 in May. But it also reveals that, once seasonally adjusted, sales activity in May was up by 5.2% year-on-year and by 1.1% on April. REINZ chief executive Bindi Norwell says the Auckland market looks to have found a

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❝ We expect the

housing market to cool further. ❞ - Dominick Stephens middle ground around the $850,000 mark, as three out of the past five months have seen a median price in this range. “This suggests that the standoff between buyers wanting a bargain and sellers wanting an unrealistic price is coming to an end.” QV’s June data has values in the Auckland region dropping by 0.2% over the past quarter; leaving the region’s average value at $1,053,575. Further evidence of the region’s static value growth can be seen in a 0.3% year-on-year drop in values, once they were adjusted for inflation. At the same time, new Trade Me Property data suggests that demand in Auckland is cooling. It shows that the average number of buyer views on Auckland properties for sale is down by almost 6% on May last year and by 20% as compared to May 2016. Head of Trade Me Property Nigel Jeffries says these are signs the Auckland market is settling back to a more stable rhythm after years of frantic growth. “Auckland’s growth has been dramatic but that growth has finally died down and we’re seeing a more normal market with dips and fluctuations.” But it’s not just the Auckland market that

is taking it easy. QV general manager David Nagel says quarterly value growth across the Wellington region has also come virtually to a standstill. It dropped by 0.8% over the quarter to June, leaving the average value at $639,112. Quarterly values growth across the other regional centres of Hamilton (up 0.2%), Tauranga (down 0.9%) and Christchurch (up 0.1%) remains flat, he says. “With a lower expectation of capital gains, particularly in Auckland, we’re seeing people show less urgency when it comes to selling or buying property." QV’s valuers in these centres all highlight a general decrease in demand, a fall back in investor activity, and a slowing of growth in their respective markets. The May data from REINZ was more positive on the Wellington front. It shows year-on-year price growth of 8.0% in the Wellington region, but prices were up on April by just 1.2%. This left the median price at $567,000. But, like QV, it records a pattern of moderating price growth in Hamilton, Tauranga and Christchurch.

STAR PERFORMER: DUNEDIN

However, there is one star performer among the main centre markets. In both the QV and the REINZ data, Dunedin is the only main centre to buck the flat-lining growth trend. According to QV’s data, values in Dunedin continue on an upward trend. They went up by 3.0% over the past quarter and by 9.2% in the year to June, leaving the average city’s value at $409,898. QV’s Dunedin spokesperson Aidan Young says the market is robust, with entry-level prices comparatively low, all property types selling reasonably quickly if priced right and multi-offer scenarios common-place. “As we approach the usual winter slowdown period, I’d anticipate that the amount of property listings will drop. But, with demand showing no signs of dropping significantly, values should still steadily grow or at least hold their value.” Likewise, the REINZ data shows that Dunedin’s median price was up by 15.2% year-on-year to $409,000 in May. This was also

WHAT’S DRIVING HOUSE PRICES?

REINZ HOUSE SALES: UP

a 2.2% increase on April’s median price. REINZ’s Otago commentator Liz Nidd says that rental returns remain high which is keeping investors interested in the Dunedin market. “Properties that are in demand still attract many attendees at open homes, and home-and-income properties are incredibly sought after.”

REGIONS STRONG BUT SLOWING Meanwhile, that oft-cited regional lag remains firmly in place and regional markets across the country continue to perform strongly – for now. QV’s data shows that growth in regional New Zealand is continuing, with Napier, Hastings, Invercargill and Whangarei turning in particularly strong results. But Nagel says that even these provincial towns are showing signs that the growth observed in the past few quarters will be difficult to maintain. “With interest rates due to remain stable coupled with increasing costs faced by investors, I would anticipate the current trends will remain mostly the same over the coming months.”

❝ We’re seeing

people show less urgency when it comes to selling or buying property.❞ - David Nagel Again, the REINZ data provides a rosier picture. It shows that three regional markets reached record high median prices in May. They were Northland (up 6.7% year-on-year to $475,000), Tasman (up 16.2% year-on-year to $612,000), and Manawatu/Wanganui (up 11.9% year-on-year to $305,500). Norwell says that of the country’s 16 regions, 13 saw year-on-year price increases. “Five of which were double-digit increases showing that the demand for good property continues unabated and highlights the buoyancy of the housing market across the country.” Trade Me Property’s May data also has regional markets performing strongly. It has six regions reaching record asking prices. Hawke’s Bay was the standout performer: it’s asking price was up by 17.9% year-on-year to hit $534,850. But Jefferies says Marlborough, Taranaki, Northland and Bay of Plenty also all had solid price rises. “Anecdotally, we’re hearing of more and more people looking to the

regions for a better work-life balance so it’s not surprising that we’re seeing areas like Marlborough, Hawke’s Bay and Northland becoming very popular with Kiwis.”

Once seasonally adjusted, sales volumes were up nationally in May as compared to April – but they were down year-on-year. In Auckland, May sales volumes were up on the month earlier as well as year-on-year.

OUTLOOK MOVING FORWARD

Among market commentators the general school of thought is that, regional variances aside, the national market is slowing down and stabilising. Westpac chief economist Dominick Stephens points out that behind the headline price rises in the REINZ data there are marked differences across regions. The slowdown in the housing market has been most keenly felt in Auckland and, to a lesser extent, Canterbury, he says. “Outside of Auckland, house prices rose a touch in May, and are up 6.8% on a year ago. But even that’s still a much more gradual pace of growth than we’ve seen in recent years. A year ago, annual house price inflation outside of Auckland was running at a rate of 11%, and two years ago it was almost 16%.” The housing market’s trajectory in recent months has matched their expectations that the changing policy backdrop would be a significant drag, Stephens says. “Looking ahead, we expect the housing market to cool further as more of the Government’s policies designed to slow the housing market move from the drawing board and into practice. Combined, these policy changes, along with a gradual rise in mortgage rates and slowing population growth, are likely to see annual house price inflation fall to 0% by the end of the year.” ANZ chief economist Sharon Zollner the factors that have been dampening house price inflation (investor caution, credit availability and affordability constraints) are expected to be continuing headwinds. But strong population growth and pent-up demand remain supportive while interest rates also remain low, she says. “We expect that demand will continue to be robust outside of Auckland, supporting nationwide house price inflation, while the Auckland market remains subdued. In previous cycles, regional catch-up has taken a long time to play out, so this dynamic may be a persistent theme.” Their current forecast is for stability in the housing market but they suspect there could be some bumps in the road ahead, Zollner says. “We expect that offsetting forces will continue to balance out, leading to stability in house sales and gradually moderating house price inflation. But we acknowledge that stability cannot persist indefinitely – and a change in conditions could easily tip the balance in either direction.” ✚

INTEREST RATES: DOWN

Interest rates remain low and banks have been battling it out with cuts to short-term rates of late. But it is expected rates will rise over the next year.

OCR: DOWN

The Reserve Bank left the OCR on hold at the record low of 1.75% in May and most commentators expect it to stay on hold until mid to late 2019.

IMMIGRATION: DOWN

Monthly net migration dropped in May as compared to April. Annual net migration was down in May for the fourth month in a row and commentators say the rate is easing.

BUILDING CONSENTS: UP

Building consents were up in May as compared to April. This was driven by a strong increase in Auckland consents. Year-on-year consents also remained up and the growth trend is positive.

MORTGAGE APPROVALS: UP

Reserve Bank data shows mortgage lending overall was up to a two year high in May. New lending to investors was up, as compared to April, and their share of the lending was also up slightly.

RENTS: NEUTRAL

The average national rent remained unchanged from April in May, while average rents in Auckland, Wellington and Christchurch all flat-lined. 021

ROUND TABLE - Sponsored by: By Dan Dunkley

ADVISERS SPOT

OPPORTUNITIES IN DIFFICULT TIMES

New Zealand’s top lenders, advisers, and groups met for this year’s TMM Annual Roundtable to debate commission, regulation, credit tightening and fears for the future, writes Dan Dunkley. 022 WWW.TMMONLINE.NZ

INDUSTRY EXPERTS

C Names L to R Front Row: Bruce Patten, Sarah Johnston, Adrienne Church, David Windler Back Row: John Bolton, Daniel Dunkley, Philip Macalister, Shaun Drylie, Glen McLeod, Adam Ward, Mark Collins

redit tightening. Tougher servicing calculators. Regulatory change. Scrutiny on commission. Familiar problems like turnaround times. 2018 has proven to be far from easy for New Zealand’s mortgage advisers, who face a series of challenges to keep their businesses profitable and clients happy. The New Zealand mortgage adviser industry looks set to experience some radical changes over the next few years. Leading figures from across the industry sat down in Auckland for this year’s TMM Annual Roundtable to discuss problems old and new, and fears and hopes for the future. Participants in this year’s annual roundtable were [Glen’s place], Mike Pero Mortgages, NZFSG, Mortgage Express, The Mortgage Supply Company, Edge Mortgages, BNZ, SBS Bank, RESIMAC, and a representative of the newly-incorporated trade body Financial Advice New Zealand. The debate looked at the impact of Australia’s Royal Commission on New Zealand, Financial Advice New Zealand’s launch, and the sustainability of the commission model. The panel also debated how well-prepared advisers are for technological change. Also considered were the Responsible Lending Code, and potential solutions to problematic turnaround times. The participants agreed that the weight of regulatory pressure is growing in New Zealand, but said the adviser industry was well-placed to fight its cause. Financial Advice NZ representative John Bolton said the new body was dedicated to making sure mortgage advisers’ voices are heard. To listen to this year’s TMM Annual Roundtable, please visit https://tmmonline.nz/.

Q: HOW DO YOU VIEW THE CURRENT CLIMATE FOR ADVISERS?

Panelists view the ever-increasing regulatory focus on the adviser industry as the key issue at the moment. The Royal Commission into Australia’s financial services industry has unearthed some shocking examples of misconduct from banks and advisers, and panelists fear the New Zealand industry will be under review. The country’s major banks recently met with the Reserve Bank to discuss the Royal Commission findings. The central bank and Financial Markets Authority recently said there was “no evidence” to warrant a similar commission in New Zealand, but did not close the door on the possibility entirely. Bruce Patten, head of growth at NZFSG, described the industry as “ever-evolving”. He

BRUCE PATTEN NZFSG

SARAH JOHNSTON Mortgage Express

ADRIENNE CHURCH RESIMAC

DAVID WINDLER Mortgage Adviser

JOHN BOLTON

Financial Advice NZ

SHAUN DRYLIE SBS Bank

GLEN MCLEOD

Mortgage Adviser

ADAM WARD BNZ

MARK COLLINS Liberty Financial

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ROUND TABLE - Sponsored by:

said revisions to financial advice regulations had begun to deter new entrants to the industry. “From our perspective, we rebounded after a bit of a quiet period leading into and after the elections last year. Certainly, the numbers are still up. Recruitments probably slowed a little bit on the back of increased requirements of what you have to go through.” Patten added: “It can be a three-month process to get accreditation now which isn't a bad thing because if they’re 100% keen on coming into the industry then they'll spend the time going through the process but it can be drawn out by the time they do the course and post coursework and get the certificate.” Patten said he believed the industry was “in reasonably good shape” but would rely on figures like John Bolton to promote its cause within Financial Advice NZ: “Depending on what JB does with the new industry body and whether they can get themselves into a position where we can move forward and perhaps look at some self-regulation in years to come, which the FMA has made it very clear that they're definitely interested in looking at. And no pressure on you mate but the ball's in your court!”

Sarah Johnston, of Mortgage Express, said the group was thinking about the Australian Royal Commission and how it might impact Kiwi advisers. “We tightened our compliance and regulation space up 18 months ago. I'm pretty confident about what we're doing, although we're revising it now, yet again. Just to even tighten it even further. We spent a lot of time, probably like Bruce does, learning what they're doing over in Australia. How we can pick the eyes out of that and bring the best over here.” She agreed with Patten on self-regulation: “Again, I'd like to see self-regulation too. I think, from my view, the mortgage industry has actually been quite good,” Johnston added. John Bolton of Squirrel Mortgages, who sits on the Financial Advice New establishment board, representing advisers, said he shared concerns about Australia. “Because our four major banks are common across the Tasman that a lot of what potentially will happen here, will get the tethered by Australia.” Bolton said Financial Advice NZ was “really heavily engaged” in the conversation with Australian regulators, but said FANZ may have “little influence” over it. David Windler, of the Mortgage Supply

❝ From our

perspective, we rebounded after a bit of a quiet period leading into and after the elections last year.❞ Bruce Patten

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Company, described current conditions as “really challenging”. He said: “It's really going to be interesting to watch how we rise to that challenge. There's only ever two ways you go. You either give it up or you actually rise to the challenge.” Windler said tightening credit conditions were the most problematic issue for the industry, making it difficult for brokers to serve customers. “[It’s] unlike a couple of years ago when credit was high and people could just go and get it done. We're having frustrated customers and it's not easy for us to get it done either. I think every day now it's a lot harder than it used to be and that's tough.” He said customers finding it difficult to secure loans with their banks were flocking to advisers for help: “It has increased our proposition in the marketplace. We're busy … and a lot of that is because our customers that we're engaged with are finding it difficult to get things done themselves,” he added. Glen McLeod of Edge Mortgages said the industry was grappling with an “overreaction” with credit policy “particularly around servicing, that's flowing through to what we're actually putting in front with. We've got servicing rates that are in the high sevens that we're having to work with”. Mark Collins of Mike Pero Mortgages said he believed credit tightening had created “huge” opportunities for the sector. He said: “Opportunities for advisers now are massive. To not just doing the traditional big four [banks] but actually look wider. And that's where real advice has to come in. From our perspective, there's a huge opportunity. If advisers are willing to take it. “ Windler agreed with Bolton that the industry needed to come together for the common good, in the face of growing regulatory uncertainty: “I think as an industry, we put a great consumer proposition, that will be great to collaborate with JB and the team. Taking that to market. I think that's still our biggest challenge, is collaborating well enough together that the adviser proposition is recognised by the consumer. “I think we've been writing for a time and a place where our industry body is up front and centre in the leading and we tuck in behind it.” Panelists agreed that advisers need to learn some lessons from Australia and work more closely together on certain issues. NZFSG’s Patten said: “They do it in Australia, it’s almost like a union. New Zealand’s terrible at it. The way they collaborate in Australia when it comes to industry issues is so much better than New Zealand. They will just jump on the bandwagon. You saw that when CBA changed their commission model. Their volumes just crashed through the floor.”

Supporting Mortgage Advisers Since 1991

Thinking Mortgages? Think Link

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❝ Opportunities for advisers now are

massive. To not just doing the traditional big four [banks] but actually look wider. And that's where real advice has to come in.❞ Mark Collins Q: HOW WILL NEW ZEALAND BE AFFECTED BY THE AUSTRALIAN ROYAL COMMISSION?

Banks in attendance expect adviser industry standards to improve following the Royal Commission. Extra focus on customer outcomes and fairness for clients would change the way advisers operated, panelists said. The way banks paid advisers commission was set to change as lenders assessed whether they were fair to clients. The Sedgwick Review into retail banking remuneration was also likely to encourage a change of culture within Australian banks and their New Zealand subsidiaries. Shaun Drylie, chief executive of SBS Bank, said: “Anything that encourages an adviser to take a direction that is not in the customers’ best interests, you will see firm and strong lines taken. On volume commissions and sales incentives, they have been prescriptive. We are reviewing our piece at the moment to comply with the Sedgwick report. That is a stance to make sure we are acting in a way that is consistent with the Australian approach.” Adam Ward, head of third-party distribution at BNZ, said the Royal Commission and Sedgwick report would lead to “change in culture”. “That is not an easy thing to change,” he said. “One of the recommendations is for banks to manage

the adviser force in a similar way to how we performance manage internal staff. That is quite challenging and we are working through that.” Ward said the Sedgwick Report would also lead to more transparent reporting, forcing advisers to disclose more information about their lender relationships, and banks to reveal more about their links to adviser groups. Ward said the adviser and lender sectors needed to improve how they shared information. “I’ve no problem with transparent reporting, but our reporting as an industry is rubbish and something we all need to work on. We need to get together.” Lenders on the panel said they would need more information on how advisers sold their products. Ward said the onus would be on advisers to provide information. “There will be more weight on the groups, the Loan Markets of the world, to explain how they trade. “The aggregators will have to lift what they do, the lenders will have to lift what they do, and some of it will sit with the lenders too. It has to be a combined approach.” Adviser groups said they were taking the necessary steps to deal with regulatory changes and additional demands on the banks. Bruce Patten said: “I think everybody's doing the same thing to varying degrees. I was saying to Adam, we reckon we're going to have to spend $1 million a year on compliance. “ Patten said NZFSG would significantly

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expand its compliance operation in light of the changes in Australia, and the anticipation of further change in New Zealand: “That's going to be a big expense to any business. It's going to depend on how people can manage that side of things and it's going to be a big expense and the expense will be passed on to the adviser.” Mortgage Express’s Johnston said the group already segmented advisers into “low”, “medium” and “high” risk categories. Where they rated would affect what action was required. Actions could include additional training, requiring five clean files through the vetting process, coming back in for a retraining day, or three testimonials for a lender. Johnston said Mortgage Express would begin to “tier” prices for advisers depending on their level of risk.

Q: HOW CAN FINANCIAL ADVICE NEW ZEALAND HELP THE INDUSTRY?

John Bolton, who represents the mortgage advice industry within the newly-formed trade body Financial Advice NZ, said it was still in the early stages of recruiting members to fight the industry’s corner. The body’s Quality Service Mark (QSM), a recognised signal of quality advice, is set to be a key part of Financial Advice NZ’s proposition. Financial NZ’s new chief executive Katrina Shanks has outlined plans to help influence the new code of conduct being drawn up by the Code Working Group. Financial Advice NZ has asked the Minister of Commerce for a seat within the group to represent independent advisers, as it continues its ongoing consultation. Bolton said Financial Advice NZ had 1500 members. He added: “Historically industry bodies have struggled financially and resourcing has been a

challenge. One of the first opportunities is that we hopefully have adequate resources. This could be a big improvement on where we have been historically. “Regarding the QSM, it is about raising industry standards and putting a line in the sand. Ultimately, the idea is that it will become compulsory.” RESIMAC’s Adrienne Church agreed it was a “perfect time” to set up the industry body: “There is so much happening and it is the perfect time. It should be compulsory. We used to say you had to be a PAA member for us to accredit you, but it lost its relevance.” Bolton said it was not Financial Advice NZ’s intention to “create a whole load of work” for advisers. “CPD is a classic example of that. It would be easy to create an industry of CPDs but it would be incredibly inefficient. We need to be able to point to the places where people can get CPD. and create a common currency for that.” He added it was a “challenge” to bring new advisers into the industry and get them accredited.

Q: IS THE REMUNERATION MODEL SUSTAINABLE FOR NEW ZEALAND ADVISERS?

The debate about the future of commission for mortgage and financial advisers continues over the Tasman and the outcome will surely affect New Zealand. The merits and pitfalls of trail commission, upfront commission, and fees for service paid by customers have been discussed. Lenders on the roundtable said the way Kiwi advisers received commission was likely to change, either because of developments in Australia or changes to banks’ distribution models. BNZ’s Ward said: “I keep saying the only time one of these commission models was a problem was when the adviser is not doing the right

thing by the customer. “ Ward said standardised upfront commission could remove the potential for conflicts of interest. “Is there a better way with upfront? In Australia, it is more standardised. You simplify that and take the perceived conflict out, that I’m only going to give it to a certain bank because they pay the most.” SBS Bank’s Drylie said the current system worked well for the bank and contributed 40% to 60% of its mortgage lending business. “If it is around regulatory compliance and being seen to be doing the right thing, I think there will probably be an evening-out of commissions. Long-term we just need to ensure it is viable, and you [advisers] need to ensure it is viable. It becomes a cost-benefit analysis.” Drylie said technology was the factor most likely to put pressure on broker commissions. “Technology will be a game-changer in our industries and we have got to be brave enough to step into that thinking, rather than just protecting what we have got from a physical distribution business. In five to ten years’ time, that’s when commissions will come under pressure, if banks can distribute products more cheaply and connect to the customer and keep costs down they will do it. “My suggestion would be to think about your models and how you evolve. Lenders will play a game to ensure they protect their flow and customers. Volume is king and has been in NZ banking for some time, but could change as technology becomes more able to deal with customer needs.”

Q: HOW WELL PREPARED IS THE ADVISER INDUSTRY FOR TECHNOLOGICAL CHANGE? Members of the roundtable were quick to admit that advisers and lenders alike were not yet prepared for a wave of technological change. From using artificial intelligence to win customers, to electronic lodgement of loan applications, panellists admitted they had some way to go, particularly when compared to the Australian industry.

❝ One of the first

opportunities is that we hopefully have adequate resources. This could be a big improvement on where we have been historically.❞ John Bolton 026 WWW.TMMONLINE.NZ

and then the client will go direct because it's taken five or six days and then they walk out and they go, "We got it from the same bank”. And that's the part that is extremely frustrating.” In response, SBS Bank’s Drylie said lenders faced challenges with operating costs and maintaining staff numbers to process applications. Drylie said tightening credit conditions meant deals were “becoming more complex”, adding to turnaround times and the “to-ing and froing” between lender and adviser. He said advisers were guilty of “shopping between two or three banks”, which meant conversion rates were lower.

❝ We used to say

you had to be a PAA member for us to accredit you, but it lost its relevance.❞ Adrienne Church “In terms of the wider industry, a lot of people have their heads in the sand,” said NZFSG’s Patten. “I think the banks have been one of the biggest problems in getting to digital because they haven't known how to get the heat around it or spend the money and we've been as equally slow at developing our software to get our sales to that point as well. I think we've all got a to play in that.” BNZ’s Ward said “budgetary constraints” had prevented his bank and others from investing in technology to smooth the loan application process. Ward pointed to recent work with Australian software firm Simpology, which is expected to result in e-lodgement for New Zealand advisers. Ward said this would improve the customer experience and cut down frustrating turnaround times, a common problem across the sector. McLeod added: “It’s scary when you hear a major bank say, "We're not going to accept handwritten applications anymore within the last 12 months. That's ridiculous. We live in a technological age and we should be using that technology to assist our clients.”

Q: WHY ARE TURNAROUND TIMES STILL A PROBLEM?

Q: HOW WELL IS THE RESPONSIBLE LENDING CODE OPERATING?

Advisers had mixed views on the code. Some said they had experienced an increase in business, as tighter credit conditions forced customers to look beyond their bank for specialist advice. Others said the code had caused greater uncertainty for clients. Patten said: “I think it's working right into our hands, to be honest. Take out the little things, but it's not understood. And so we're actually getting more business out of it because people are getting declined.” The Mortgage Supply Company’s Windler said the code left him unsure about credit policy at the major banks. He added: “We're operating in a period of time where I feel less sure about credit policy than ever. I'm unsure about what's going to happen when I send in that deal.” Adrienne Church of RESIMAC agreed: “I think it’s going to get worse before it gets better.” Mortgage Express’s Sarah Johnston said credit tightening, caused in part by the Responsible Lending Code, had changed

the behaviour among her adviser members, forcing them to lodge applications with multiple banks. “They say ‘I can’t afford to send to only one lender and wait five days’. It could go either way with any of those lenders.”

Q: IN A COUPLE OF YEARS’ TIME, HOW WILL THE LENDING SPACE LOOK FOR BROKERS?

Panellists agreed that the “big four”dominated lender market looks set to diversify, a development likely to be a good thing for advisers. They said non-banks and smaller banks, such as the Co-operative Bank and TSB would continue to take market share, particularly in the near-prime space. Bluestone and RESIMAC have expanded in the market in recent months amid ongoing credit tightening. NZFSG’s Patten said it was “a good thing” alternative lenders were growing in the market. He said New Zealand would be different to the Australian market, still dominated by a small handful of lenders. Patten said banks struggled to “price for risk” in the current market due to the weight of regulation. BNZ’s Ward said the lender was up against rivals that slashed rates in an attempt to build market share. “Capital got tight about 12-18 months ago and we were looking at LVR levels and pricing. But as soon as it tightens up, someone drops their price to build market share. You’re thinking, ‘for god’s sake, here we go again.’” ✚

❝ They say ‘I can’t

afford to send to only one lender and wait five days’. It could go either way with any of those lenders.❞ Sarah Johnston

Advisers said turnaround times remained a huge problem for the industry and had yet to benefit from technology. Advisers said they had often lost business due to the amount of time banks took to process loan applications. McLeod said: “We'll put it up to a bank

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MY BUSINESS By Miriam Bell

Relationship builder Helping people into home ownership and all that it brings with it is what drives Tauranga Mortgage Adviser Marie Scawboard - and her passion for the business. WHAT PROMPTED YOU TO GO INTO MORTGAGE ADVISING?

I worked in the banking industry for 30 years with my last 10 years as a business banking manager. But - due to the LVR regulations and tighter lending controls - I could see how complex the lending environment was getting for some people. Getting a mortgage has become so daunting for some people, especially first home buyers, that it can put many off buying a home. The part of banking that I loved was helping people achieve their financial goals. So it seemed like an opportune time to start doing more of that and move into the mortgage advising niche.

HOW HAVE YOU TAKEN TO THE BUSINESS?

In 2016 I took up a mortgage advising role which had a relationship with a group housing company. Given direct referrals would be involved, I thought it would generate leads and get me started in the industry. It provided me with a great transition to advising. Then, at the beginning of 2018, I moved to Tauranga Mortgage Brokers Ltd to widen my opportunities. In terms of learning the business, I already had the necessary credit skills and knew what the banks were looking for because I used to assess home loans myself. That made the transition much easier!

WHY ARE YOU PASSIONATE ABOUT THE INDUSTRY? Iâ&#x20AC;&#x2122;m passionate about the industry because I want to see people become financially successful in life. And helping people into the stability and security of owning their own home and all that that means and being an adviser gives me the chance to do that.

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HOW DO YOU APPROACH BUSINESS DIFFERENTLY TO OTHER ADVISERS?

I do a needs analysis right at the beginning of the process before offering any solutions. I did that for many years as a banker so it’s a natural progression. It is all about having a good relationship with your clients and putting the clients’ interests first. Being an adviser means I don’t have to sell a particular product or brand, so I can focus on really advising the client to do the right thing for them. I think clients should be encouraged to consider what is in their best interest rather than having something sold to them.

DO YOU DO ANY MORE COMPLICATED OR UNUSUAL LOANS IN THE COURSE OF YOUR WORK?

I do some commercial lending and business bank lending as well. I have business clients that have followed me from my bank days so I work with them. For example, the other day I did a loan for a client that was for a child care centre. But residential housing loans, that’s the bread and butter work. Also, I do make use of non-bank lenders too because I have a few asset rich, cash poor clients and non-banks work well for them. I work with a mortgage trust company here in Tauranga quite a bit for those clients.

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

Yes, but I should probably do more. I have a big referral base of my own so I don’t need to rely on social media only to generate them. I have plenty of referrals to keep me occupied at the moment!

WHAT HAVE BEEN YOUR BEST AND WORST TIMES IN THE BUSINESS?

I haven’t really had any bad times yet. To date, it’s all been positive. One of the best times for me came from working with a Filipino couple and their three teenagers. They had been in New Zealand for seven years and thought they would never get their own home here. It took us a year of planning, but I got them into their own home in the end. It just meant the world to them and to their kids. It was a big buzz and very emotional.

WHO IS THE INDIVIDUAL THAT HAS MOST INSPIRED YOU IN BUSINESS?

Richard Goodall who is a former ASB regional manager. I worked with him in my last few years at the bank and he was great. His faith in me made me believe that as a middle-aged woman in a male dominated environment, I could do the job and do it well. He could see the worth in me being able to guide and help people because I had the life skills as well as the knowledge. Ultimately, he gave the confidence to go out on my own.

WHAT’S THE BEST ADVICE YOU’VE RECEIVED?

WHAT ARE YOUR TOP TIPS FOR THOSE STARTING OUT AS AN ADVISER?

Know your business because every bank has different products, scenarios and lending criteria. Advisers need to make sure they know all the products there are available that may work for a client. Just because a client usually banks at a particular bank it doesn’t mean that that bank is going to be the best one for their mortgage and overall financial situation. It is ultimately the client’s decision but guide them with your recommendations. Also, be open and honest, quick and efficient. And remember reputation is the most important thing in the world when it comes to your referral business. ✚

It was some advice from a tutor, Susan Grant, on one of the professional development courses I’ve done. She said to make sure to follow the rules on the regulatory side of things, to be thorough, to keep good records, and to only give advice to clients that is right for them. And, in connection with that, to not be afraid to tell a client if something was not in their best interest.

WHAT ARE YOUR GOALS AS AN ADVISER? I enjoy the relationship side of the work and I appreciate support for the administrative work. I’m happy to work under the umbrella of a company that believes in me and lets me get on with doing the job I love. I hope to stay doing what I’m doing until I retire. Although I can take this job into retirement too – which was always my plan. The long working hours at the bank, finally got to me in the end, so I went for this change sooner rather than later and I’m pleased that I did.

LOOKING AHEAD, WHAT ARE THE CHALLENGES FACING THE INDUSTRY? For me, last year I got my qualifications completed in preparation for the looming changes with FMA. So now I have them under my belt and I’m confident I can deal with what may come going forward. Generally, I think the challenges for advisers will be in staying up to date with what is going on and keeping up with all the regulations. But New Zealanders will never stop buying houses so there will always be a place for advisers in that space. Probably the more regulated it becomes the more important it will be for people to have advisers to guide them through the whole process.

FROM: I’m a dairy farmer’s daughter from Matamata originally. Since then I’ve lived and worked all over the North Island. I’ve been in Tauranga for six years now.

FAMILY: I have a husband and one wonderful son. • INTERESTS: Music, particularly country music. Also, golf these days as we recently built a home near a Golf course. • FAVOURITE FILM: Anything with Hugh Grant in it. •

FAVOURITE TV SHOW:

I like music shows – but only ones that are genuine about finding and showcasing talent. • FAVOURITE BOOK: I love historical romances. • MOTTO: Always look to leave a person in a better place than when you met them, be it financially or otherwise, and use any skills that you have to help and support people.

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SALES & MARKETING LEGAL By Paul Watkins

THE PETERSON PHENOMENON TMM's sales and marketing expert Paul Watkins says content is the new black when it comes to marketing.

ow did an obscure professor of psychology in Toronto go from nowhere to world-wide acclaim in two years? Many of you may have heard of the now very famous Dr Jordan Peterson. He created headlines when he opposed a Provincial Government bill to force the use of genderneutral pronouns for the trans-gender community. But many people have made the news based on single events and then immediately become yesterday’s fish-and-chip wrapper as they say. Is opposing the use of genderneutral pronouns for trans-genders enough to propel someone to stardom? Of course not. It’s what happened next that was the reason. When Dr Peterson made the deadlines, many Googled him to find out what all the fuzz was about. And what did they find? Over 500 hours of his university lectures on his own YouTube Chanel. He had been recording them for years. He also had downloadable papers, and comments on other peoples work. People found Jordan Peterson’s lectures and watched one, then another, then another, and then surprise, surprise, they bought his book. He is very engaging. At the time of writing this, he was making a reported NZ$120,000 a month from his YouTube channel, had sold over 1.2 million copies of his book and was on a highly lucrative world speaking tour. Probably quite a jump from his salary as an academic.

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HOW DOES PETERSON RELATE TO FINANCIAL SERVICES?

We can start by asking why most financial service websites or Facebook pages don’t generate large numbers of leads. There could be a range of reasons of course, such as no attention being paid to improving search engine rankings, bad design, hard to understand information on them, clichéd content or the site not containing the stuff people are really searching for. This leads to the bigger question, what are prospective clients really wanting to learn from your website? Before we go any further, it’s worth noting that in today’s world, no website can equal no credibility. I know several brokers who do not have websites, or only very basic online listings, and still do okay, but this number will continue to diminish.

CONTENT IS THE NEW BLACK In marketing terms, the hundreds of hours of Peterson’s lectures and online papers are known as ‘content’. You will hear some say that ‘content marketing is the new black.’ In its simplest form, content on your website should answer prospects questions or concerns. Think like your clients. What do they want to know before they engage your services? What are the steps they will have to go through? What is the lender liable to ask them? What documentation do they need? You will know yourself what they want to

know from your own conversations with prospective clients. Start writing these questions down. Make a note of the answers as they apply to most. This is the basis of what your website should contain. The more of this that your site has, the more you are perceived as the expert in your field. And no, you are not giving away everything that a client would come to you for, and therefore takes away the need to visit you. I know the whole idea of telling them what they want to know in the public arena, looks like you are giving away your IP, but you are not. This is how the Internet has changed business. Advertising is giving way to information. There is an outstanding example of how this worked for a pool company that was on the edge of bankruptcy. Go to YouTube and search for “How a Pool Company Used Content Marketing to Save Its Business”. In four minutes you will see this process in action, with spectacular results. Act like a publisher. Publishers want great material that will appeal to readers and is worthy of the investment required to publish and distribute it. No one publishes advertisements, they publish valuable information.

WHAT ‘CONTENT’ DO YOU PUT ON YOUR WEBSITE?

It should be posted once or twice a week (yes, that frequently) and could include: ‘How to’ guides; Case studies; Frequently Asked Questions; live webinars; Infographics of the process; Memes; videos of yourself speaking (keep them short); Quizzes (people

❝ Search for “How a

Pool Company Used Content Marketing to Save Its Business”. In four minutes you will see this process in action.❞ love these); Podcasts; Press releases about the state of the market; Surveys; Your opinion piece; Newsletter articles; Charts and graphs; Cartoons; Review someone’s book on mortgages; Quotes; Photos of you and new team members; A step-by-step guide to taking out a mortgage; How to work with a real estate agent; The state of the housing investment market; Your thoughts on the city or town you live in or your thoughts on a recent council decision. Turn some into multiple formats. You might make a short video of yourself speaking, so include a transcript so they can read it if that’s their preference. Create an infographic of it or add a short quiz. These are just examples. There is no right or wrong way to do this. Just do it – a lot! You may want to write a longer piece, say 1,500 words now and again. Google is rewarding long form content by ranking it higher in search results. Have a ‘Subscribe to my regular tips and thoughts on getting the mortgage you want’ highly visible, along with social media sharing buttons, so readers can share on

their Facebook or Instagram accounts. On this point, Facebook is not dead! Despite the rumours, it is still very much alive and well, the only change is that the demographic has grown up. Most users are now over 30 – your target market.

BACK TO DR JORDAN PETERSON.

Dr Peterson had created the necessary content in the form of his recorded lectures before he made the media headlines. There is a clue in this. The more content, the more traffic, the more sales. In your case, put a continuous stream of new content on your website, so that it not only pushes you up the search rankings, but when prospects find your site, they stay, subscribe to your blog and ultimately build up enough trust in you to call you. It may take a while to build momentum, but it will happen. Each entry does not have to be big, just addressing a concern of questions prospects have in their minds. And while adding content to your website and/or Facebook and LinkedIn pages is almost free, the trade-off against paid promotional activity is that it can be time consuming. Get someone to do it for you if you prefer to talk to clients, which will not be as closely as paid promotion. I have touched on this subject before, but recent experiences have prompted me to write about it again, after witnessing notable results in other industries. Bit by bit, this stuff works! ✚ Paul Watkins writes blog content and newsletters for financial advisers.

More Referrals More Loyalty Newsletters are a powerful way to increase referrals. They also generate loyalty to reduce the number of existing clients who go direct to their lender for future requirements. I can offer high value, low cost newsletters, filled with lending and lifestyle articles. They would feature your own logo and masthead, along with a space for your own comment. Frequency to suit. Email or call me for an example.

Contact Paul Watkins 0274 747 285 paul@paulwatkins.co.nz

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INSURANCE By Steve Wright

Life, disability and trauma insurance

– how much is enough?

A critical piece of the advice puzzle is properly assessing a client’s financial risk, or, put another way, their needs.

recommendation for suitable product and sums insured then follows. Now I am acutely aware many clients don’t take what is recommended, usually because they don’t want to spend the money on the premium necessary and this is where more great advice can help. Advisers who know their stuff can often reduce premiums in a way that minimizes the attendant reduction in cover, by eliminating duplication, adjusting

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product configuration and adding or removing optional benefits. It is my opinion that basing a recommendation on the premium the adviser thinks the client can or will pay is not compliant. Advisers are required, amongst others, to give the client enough information to make an informed decision. I believe the client is entitled to be shown the full financial consequences of death, disability, or poor health no matter how scary. Pre-positioning the process of showing the truth and reducing cover if

needs be, with the client in advance, can prevent shock terminal to the process!

DEATH

There are basically two ways to determining the financial consequences of death: • Determining the amounts required to enable the surviving members of the family to maintain the financial lifestyle they expected; or • Determining the lost income of the life assured (which incidentally amounts to seven

figures even for modest incomes at younger ages!) I personally like the idea of combining some lump-sum Life Cover to get rid of debt, for example, with Life Income Cover to provide an ongoing income (for up to 30 years, as necessary).

TERMINAL ILLNESS

Terminal illness costs have historically been settled out of death benefits (Life Cover). The downside of this approach is that money carefully set aside for the family, after death, may be completely eroded. One way to avoid this is increase the Life Cover sum insured but this is inefficient because the client also must pay for the attendant increase in death benefits. A new product in the market, Terminal Illness Cover, solves this dilemma because it only pays on terminal illness, not death and as such, is considerably less expensive than Life Cover. Terminal Illness cover is particularly useful for retired persons wanting to protect their nest egg against terminal illness but who have no need for death benefits. How much cover required will depend on the anticipated needs if terminally ill. This may be acceleration of goals (the so-called ‘bucket list’) and costs of medical treatments. Less is needed if a good medical insurance is in place but even then, experimental treatments overseas may be tempting. My guess is 6 figures is required as a minimum.

DISABILITY

Disability, not being able to work, could be temporary or permanent. Permanent disability is much more severe financially. This really means two products are required: • Income Cover or Mortgage Repayment cover type products that pay monthly benefits on both total and partial disability regardless of whether it is permanent or temporary; and • Total and Permanent Disability Cover that pays a benefit on total and permanent disability. So how much should you recommend? For temporary disability I believe clients must have the maximum replacement ratio you can get (percentage of income replaced) payable at least until expected retirement, age 65 or 70. Anything less is under-insuring.

❝ I believe the

client is entitled to be shown the full financial consequences of death, disability, or poor health no matter how scary. ❞ Most companies allow full replacement of mortgage replacements or income replacement ratios of between 55% and 75% depending on the type of product. Cover for shorter payment terms, 5 years or 2 years, for example, may not the best option in my view. This is because I can’t see myself telling a permanently disabled mum or dad, still many years from retirement, with school aged children and a mortgage, that their benefit will be stopping next month! If premium is the issue, as it often is, I prefer taking a longer waiting period rather than shorter payment term, especially if benefits are paid in advance – the financial risk is lower. Monthly disability benefits like these must also be indexed for inflation – this is very important because inflation can significantly erode the purchasing power of fixed benefits. As monthly disability benefits typically replace less than 100% of income and because expenses can rise, not decrease with disability (especially if special help or equipment or spouses time off work is needed, for example) something more is required. This is where Total and Permanent Disability (TPD) Cover and Trauma Cover become particularly important. By using TPD and Trauma Cover with TPD included or added (‘own occupation definition’) to protect the 25% or more of income not covered by income protection or mortgage cover, we can cover 100% of the client’s lost income earning potential efficiently. I think this is what we should be doing as a minimum, anything less must be recognized as under-insurance. You do not need to take standalone TPD Cover, some Income cover

and Mortgage Repayment Cover products include TPD benefit options which can do this for very little or no extra premium.

SEVERE INJURY OR HEALTH EVENT (TRAUMA)

Selecting a sum insured for trauma insurance is particularly tricky. I think this is because the financial consequences of suffering a covered trauma event or condition is impossible to quantify - we don’t know what trauma condition the client will suffer. Some clients suffer very severe trauma events with massive ongoing financial consequences and others, trauma events that have limited or even no financial impact. If we recommend cover for the worst-case scenario (likely to require many hundreds of thousands of dollars), which I believe we must, most would not be able to afford all of that with typical comprehensive trauma insurance. Fortunately, relatively recent trauma product developments allow us to separate severe trauma needs from less severe trauma needs. This allows us to design trauma solutions for clients that don’t force them to pay for less severe traumas and which allow cover for severe traumas at a significantly reduced premium. Couple this with comprehensive trauma for less severe trauma and we achieve the right combination of covers to properly look after the client as an acceptable premium. ✚ Steve Wright is the manager of professional development at Partners Life.

❝ For temporary

disability I believe clients must have the maximum replacement ratio you can get (percentage of income replaced) payable at least until expected retirement. ❞

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INTELLIGENCE

YOUR GUIDE TO SECOND MORTGAGES TMM has updated its lending guide for second mortgages. In this updated table we have now added a fourth lender, Finance Direct. Bank consent or Deed of Priority First Home Buyer Self Employed with 2 years financials Self Employed with no financials Loan Purpose

Income Source Loan Amounts LVR Requirements

Regions Loan Terms

Not required

Yes

Required

Yes - open bridge deposits Yes

Yes Yes

No No

Yes

Possibly

Bridging Finance, Deposit, Refinance, Debt Consolidation, Working Capital, Subdivision, Renovations, Business GST/Tax arrears All

Varied and broad

Mainly owner occupied house purchase

Bridging Finance

Varied income sources (need to be verifiable) $100,000 (higher considered) Up to $50,000 loan max overall LVR 90% loans >$50,000 max overall LVR 80% All

All

Any verified source

No cap For seconds 10%

Up to $1 million 80% main centres, otherwise 60%

All.

All Region - Rural always 60% Max 12 months I/O only or 5 years P & I

$10,000 - $500,000 Restricted to 70% - could stretch to 75% for the right deal Main cities 70%, Other areas adjusted accordingly Max term 12 months I/O, capitalised max term 6 months, P&I max term 3 years

Interest Rate Types Credit History Clawbacks

Fixed Adverse credit acceptable in most cases No

Up to 2 years interst only or upto 10 years P & I ; partially or fully capitalising loans considered case by case Fixed from 14.95%p.a

max 5 years P&I

All considered

Will consider with explanation N/a

Fixed

Purchase

Yes - open bridge deposits

N/A adviser charges a fee which is capitalised onto the loan Yes

Refinance

Yes

Construction Asset Lend Debt Consolidation

No Yes Yes

Case by case Yes Yes

Yes No cap Yes

Cash Out Business Purposes Discharged Bankrupt

No Yes Yes - in some cases

Yes Yes Yes

Interest-only Principal & Interest Bare Land/Sections Interest Only Period

Yes Yes Yes 1 month - 12 months - with the right to roll for a further term Yes Yes Yes Yes - lower LVR Yes No No Full application and supporting documentation required

Yes Yes Yes Up to 2 years

No cap Case by case Will consider with explanation No Yes Yes No

Investment Owner Occupied Commercial Apartments Leasehold Leaky Buildings Probation Application Requirements

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Yes Yes Yes Yes, if freehold and good quality/size No No Yes (review against balance of profile) All typical application documents and amount will also depend on type of loan requested.

Yes

No Yes Yes Yes Yes No No Full application

Interest Only or Principal and Interest Exc ellent / Good Not Poor None Not often - specialise in bridging Only if a clear exit and bridging No Yes with a clear exit stretegy Yes with a clear refinance or exit Yes Yes No Yes Yes Only 50% LVR on land 12 months Yes Yes, but not essential Yes Yes No No No No

THE TOP 10 STORIES on www.tmmonline.nz There was a wide variety of stories on TMM Online since the last issue of the magazine. Here’s what mortgage advisers have been reading.

1 TSB APPOINTS NEW CHIEF EXECUTIVE

6 OCR WORDS OPEN DOOR FOR CUT

FACTS ABOUT TAX AND RENTAL 2 THE PROPERTIES

MAKES MAJOR COMMISSION 7 WESTPAC CHANGES

The New Plymouth-based bank has appointed Donna Cooper as its new chief executive after the retirement of long-serving CEO Kevin Murphy.

The NZ Property Investors Federation has produced research which shows property investors pay their fair share of tax.

CHANGES WOULD SLASH HOUSE 3 TAX PRICES

A capital gains tax would reduce house prices by 10.9% while taxing property investors on a deemed rate of return would cut them by 19.5%, Westpac estimates.

ELIGIBILITY CRITERIA 4 KIWIBUILD REVEALED

The government has revealed which customers will be able to snap up one of the 100,000 new homes being built as part of the KiwiBuild programme.

MARKET SETTLES RECORD 5 LOAN AMOUNT

Record amount of home loans are settled in the past financial year and a new head office opens in Auckland.

Subtle change of tone in the OCR announcement suggests the Reserve Bank may now be more willing to cut the OCR if need be, commentators say.

Westpac has made a series of sweeping changes to its commission structure for New Zealand mortgage advisers, including removing discretionary quarterly commission payments.

HITS OUT AT COMMISSION 8 ADVISER DISCLOSURE PROPOSALS

Hamish Patel, of Mortgagesonline.co.nz, has warned that proposals to make advisers disclose commission could “skew things towards lenders” and leave the industry on an uneven playing field.

BAYWIDE TO OFFER 95% 9 NZCU MORTGAGES

Hawke’s Bay credit union NZCU Baywide has increased its LVR limit to 95% and will now lend up to $600,000.

VERDICT FOR MORTGAGE 10 GUILTY FRAUD TRIO

A former BNZ employee, a lawyer and the wife of a property developer have been found guilty of involvement in a $54 million mortgage fraud case.

TMMONLINE ALSO HAS ALL THE LATEST MORTGAGE RATES AND CHANGES.

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

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