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Mortgage AdvisersTell It Like It Is

There’s a strong future for mortgage advisers, but clouds on the horizon and a few irksome issues are keeping them awake at night.

BY ERIC FRYKBERG

Dealing with banks is going to be difficult, dealing with bureaucracy even worse - but on the bright side it is a growing industry, populated by enterprising people. These were the latest findings from TMM’s annual survey of mortgage advisers.

The survey threw up a wide range of information about advisers: they were predominantly veterans, with more than half of them having been in the business for at least 10 years. Another 25% had between five and 10 years’ experience.

Interestingly, and perhaps worryingly, there were not a lot of new-to-industry advisers nor respondents with less than two years’ experience.

This may be due in part to new adviser regulations which came into effect on March 15.

The Financial Services Legislation Amendment Act has raised the bar for entering the industry – and having Auckland, the largest market, in lockdown for more than 100 days was hardly conducive to bringing new advisers into the fold.

The survey results were largely reflective of the make-up of the advice industry: TMM estimates there are between 1800 and 2000 practising mortgage advisers.

New Zealand Financial Services Group, which includes Loan Plan and Kepa, has a combined membership of around 1000 advisers. Around 50% of survey responses came from “The G”, as the group is known.

One of the changes from the previous survey was that SHARE/Newpark was now the second largest group, with around 250 advisers.

The other key change was the emergence of Kiwi Adviser Network, with 125 advisers. That puts it on par with the likes of Astute, Mortgage Link, and Mike Pero Mortgages, who all have similar numbers.

TMM expects that to change again next year when another group makes a push into the mortgage-adviser market in the first quarter of 2022.

Looking to the future

One of the survey questions this year aimed to gauge the outlook for the future. While there was plenty of optimism, with 17% going as far as to say the future was “bloody brilliant”, just on 61% said the outlook for the industry was “good, but there are a few clouds on the horizon”.

To understand what the clouds were, advisers were given a list of eight issues and asked to rank them: from what keeps them awake at night through to not being an issue.

In previous surveys, the biggest bugbear was always turnaround times from banks. That issue has still not been resolved, however this year it came in second. Regulation was the issue most likely to keep advisers tossing and turning between the bedsheets.

Their comments were often quite forceful: “It's going to be a bit rocky soon until all settles (hopefully), once the CCCFA beds in. It's definitely going to harder and more time-consuming regardless,” said one adviser.

Another spoke of the big picture being ignored while time was taken up dotting i's and crossing t's.

A third respondent was even more blunt: “I believe the industry is heading towards extremely tough times…. the compliance and regulation regime has been a complete balls-up, and is not creating any better outcomes for clients and advisers.”

But one adviser saw a silver lining around the cloud of rules and regulations: “More and more people are going to use a broker due to the minefield of policy restrictions.”

This view was echoed by another industry professional: “Clients need help to navigate the tough times so be prepared to help any way you can!”

Those with a positive outlook argued that the new rules were so complex only advisers could understand them, not the general public, meaning the industry was heading for a better future, not a worse one.

Listed numerically (see table), the looming regulatory burden was by far the issue most likely to cause sleepless nights, with more than 52% of advisers putting this at the top of the list.

Turnaround times were the next biggest headache - and preparing for full licensing and getting applications approved came in third.

High house prices were of some concern to a lot of advisers, succession planning was mildly concerning, while the prospect of working remotely was barely a problem.

In one interesting development, almost two thirds of respondents worked under their dealer group's Financial Advice Provider, or FAP. Slightly less than a third were their own FAPs.

However, it appeared advisers with their own FAPs were slow to apply for full validation:

The Financial Markets Authority (FMA) has set firm cut-off dates for businesses wanting to apply for a full licence.

Those applying for Class 1 or Class 2 licences have until September 30, 2022, to put their application in, while those applying for a Class 3 licence have until June 30, 2022.

All financial advice provider (FAP) transitional licences expire on March 16, 2023. By getting applications in before the relevant target date, applicants give themselves the best chance of ensuring the full licences are processed before their transitional licences expire.

Who is the favorite lender?

ANZ, the biggest lender in the market, also cemented its spot as the preferred big bank, a spot it held last year. This year 50% of advisers named it as their most preferred big bank.

At the other end of the scale, BNZ scored poorly, dropping from 7.66% support to just over 4%. This comes on the back of its recent decision to introduce debt-to-income limits on all loan applications received through the third-party channel.

Many advisers commented on BNZ’s processes, asking whether it really wanted to work with the broker channel.

The big mover in an upwards direction was Westpac, which has gone from 18.77% of advisers naming it as its most preferred big bank to more than 27%. Meanwhile ASB lost ground with advisers in the past year.

The comments section of this part of the survey was interesting. One adviser picked BNZ as her least favourite bank, saying it was cumbersome to work with. Another said ANZ had good turnaround times, while Westpac had good communication. But yet another commented that all banks had their idiosyncrasies, and that he had no preference: “horses for courses”.

Two of the small banks stood out against their peers. SBS retained its number-one spot, followed closely by The Co-operative Bank. Both saw their support rise since the previous survey.

TSB plummeted, with advisers dropping from 27% to 18% support, while Kiwibank sat unchanged in fourth place.

A new question asked respondents to rate the main non-bank lenders.

Avanti came out on top, ahead of AIA/ Sovereign (even though this is an ASB product, it is categorised as non-bank.) Bluestone/Select came out in third place. Arguably helping its ranking was the fact that Select is Bluestone’s white label product, exclusive to NZFSG, and that this group comprises around half the market.

The big winners

The big winners were advisers themselves, along with non-bank lenders.

Just on 76% of respondents reported that the volume of loans settled in the 12 months to September was higher than in the previous year. Only 17% had seen a decrease.

Broken down further, the survey found a third of brokers settled at least 25% more loans than in the previous year, while around a quarter settled 15% to 25% more. Less than 6% experienced no change; 13% settled fewer loans.

An interesting finding was that there had been no significant increase in the use of trail commission.

Trail commission is one way advisers can turn their business into saleable assets. A handful of advisers commented that they were trying to reach a 100% trail model.

Sixty-eight percent said trail commission represented between 0-25% of their income; this figure was nearly identical to last year.

The number who said trail accounted for 25-50% of their income increased just 1% to 20.55%.

Two advisers said trail provided all their income, while 4% at the other end of the scale said they were paid no trail commission.

The survey provided good news about the future for non-bank lenders. More than two-thirds of brokers predicted they would be doing more business with non-bank lenders in the next year; 20% thought non-bank lending would stay the same; and less that 1% thought it would shrink.

In other respects, there was less change. A majority of brokers thought they would not be offering a wider range of lending products this year. An analysis of the comments suggested this was because many were already doing things like life insurance or KiwiSaver, either directly or through referrals. And of those who thought there would be more offerings launched in future, there was no real stand-out product.

Of the 40% who added new products, the biggest addition was small-business lending with the likes of Prospa.

Finally, 48% percent of advisers said they were members of Financial Advice NZ, compared to 49% last year, while 43% were not. There reminder were undecided.

The last section of the survey gave respondents the chance to comment on the state of the industry in general. This opened up the floodgates to more complaints about growing bureaucratic regulation. Advisers were becoming “glorified bankers”, the job was “getting tougher by the day”, and “commissions don't reflect the workload of compliance”.

One broker said the job was “not for the faint hearted”. Another called it “challenging and stressful”, while another was “drowning in paperwork”.

However, another thought the new rules would “weed out more cowboys from the industry”, and a third said it was a “great industry to be in”.

There were some clear themes the industry needed to work on:

• Dealer groups needed to better support their members, with CRMs coming in for criticism

• Commission levels emerged as a new theme: many felt remuneration should be increased because of all the extra paperwork required to get a deal across the line

• Bank clawbacks were seen as a growing area of conflict

• Advisers wanted better advocacy for the industry, especially with Government and the banks wielding too much power over the sector

Just as clear, though, were the silver linings. One respondent suggested the new regime made advisers more essential than ever:

“It is crucial for first home buyers to get our help, because otherwise they will never know if they are being offered the right products or rates.”

And to sum up life as a mortgage adviser, this final comment: “It’s bloody tough, but I love it.” ✚