TMM - The NZ Mortgage Mag Issue 7 2019

07Issue

2019

SPECIAL

FERENCE I N S O

E SU

C

Working together to create tomorrow's advisers today

Better Business Business Conference

3RD ANNUAL 2019

Pepper: rethinking your Cx

Preparing for the new regime Full coverage of TMM Better Business Conference inside

Farewell from Jonathan Flaws

Licensing: are you organised?

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CONTENTS

PREPARING FOR THE NEW REGIME In this special issue of TMM we have comprehensive coverage of the year's Better Business Conference.

CONFERENCE FEATURES

UP FRONT 04 EDITORIAL

Shaping the future of advice

06 NEWS LVR speed limits on hold; New tech from Bluestone and NSFSG.

12

24

08 PEOPLE Keep up with movements within the industry.

10 PROPERTY NEWS

Miriam Bell on tenancy law reform and landlord conduct.

COLUMNS 26 MY BUSINESS

Sarah Bloxham: adviser and mortgage celebrant.

28 SALES AND MARKETING

Investment of time needed with Millennial clients.

PEPPER MONEY CUSTOMER EXPERIENCE COVERAGE Joanne Thrift on rethinking your Cx.

30 LEGAL

18 REGULATION

32 INSURANCE

20 HOUSING COMMENTARY

Farewell from Jonathan Flaws.

Adviser conduct obligations with Steve Wright.

Licensing: time’s running out – are you organised?

A gentle rise from the NZ market.

34 KIWISAVER

Michael Lang talks life-stages options.

03

EDITORIAL

From the Publisher

Shaping the future of advice Well here we are at the end of a very busy year; but at the start of transitional licensing for financial advisers.

This issue is devoted primarily to coverage from the TMM Better Business Conference.

With the start of transitional licensing it’s worth touching on comments from the Dealer Group panel at conference.

One of the good things about the mortgage advice sector is that advisers do have a good selection of providers they can choose to align with.

One comment was that advisers should belong to a group that is a good cultural fit with their business.

One concern which echoes through the market is that only two of the big banks, ANZ and BNZ, have outlined their thinking on how and who they will work with under the new regime.

It’s quite perplexing that after all this time these decisions have yet to be made – or communicated to advisers.

The other, related, concern is that it appears the banks are going to shape the future of the mortgage advice market.

This isn’t the intention of the law changes and I don’t believe it is particularly welcomed by the regulators.

On a more positive note, next year we plan to run the conference earlier so there is less cross over with the busy year end, other events and horse races!

The original date we picked this year was Melbourne Cup Day – so we moved – to Christchurch’s Cup Day! Considering Philip means “friend of horses” I should have known when the gee-gees were racing.

Mark the date for next year in your diary now.

It is October 6, 2020 and will be at the Novotel, Auckland Airport.

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SIGNING OFF

I want to sign off this editorial with heartfelt thanks to Jonathan Flaws for his legal columns in TMM. Jonathan started writing his columns for TMM from the very first issue. There haven’t been many issues he has missed – so all in all it’s a considerable body of work.

The risk with legal columns is they can be dry, wordy and boring. Jonathan has proved it is possible to write interesting, entertaining and informative columns.

He will be greatly missed as a valuable contributor to TMM. However, all good things must come to an end.

Thank you from all of us.

PUBLISHER: Philip Macalister SUBEDITOR: Dawn Adams SENIOR WRITERS: Miriam Bell, Daniel Dunkley CONTRIBUTORS: Paul Watkins, Steve Wright, Michael Lang, Jonathan Flaws, Joanne Thrift GRAPHIC DESIGN: Amy Bennie ADVERTISING SALES: Amanda Ellery 027 420 2083 amanda@tarawera.co.nz

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

Go to www.goodreturns.co.nz/coa SUBSCRIPTIONS: Jill Lewis jill.lewis@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

TMMONLINE.NZ/NEWS

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The non-bank lender and New Zealand's biggest aggregator group have gone live with Peter straight-through processing, Wood integrating the group's CRM system, MyCRM, with Bluestone's lending platform, under the "Select" brand.

The lender and group said the integration was "unique among NZ lenders", and will allow electronically submitted home loans to be approved faster than ever. Advisers can lodge directly from MyCRM to Select.

Peter Wood, Managing Director of Bluestone NZ said: "It’s a really exciting milestone for our business and demonstrates our commitment to delivering best-in-class product, process and systems to enable better outcomes for our business partner and its customers."

Westpac in turnaround time overhaul

Westpac has introduced a new mortgage approval system to cut turnaround times, sending loan applications to local branches for completion.

Westpac will process applications, to the conditional stage, at its central mortgage operations unit. After that, loans will be sent to a local branch.

Staff members at Westpac branches will take on the customer relationship and become the adviser/customer's point of contact.

The lender hopes the system will forge closer links between advisers and its branch network.

Speaking at the TMM Better Business Conference in Auckland, Tania Ropati, business development manager for third party banking at Westpac, said the new system was designed to cut turnaround times. She said the bank had made the changes over the past several months.

“Advisers and customers will need to deal with that person [at the branch] directly. If you have a sale and purchase agreement signed off, it will have to go through the branch and the contact person for assessment," she said. “The goal of this is to improve our turnaround times and our customer outcomes, and everyone is on board with the new system."

Ropati said the bank was “committed to making it work, although there may be a few hiccups along the way". She added: "But we feel this is a long-term solution to the problem. We want to provide a clear, smooth customer journey and to see the best outcomes for our customers."

Aaron Milburn

Group FAPs could limit choice of suppliers: Newpark Mortgage advisers could find their selection of available lenders limited by their financial advice provider under the new regulatory regime, Newpark’s Andrew Scott has warned.

Newpark Home Loans general manager Andrew Scott believes group FAPs, with responsibility for diligence on lenders, are likely to have an “approved product list” for their advisers, controlling who they can

place business with.

“Advisers may join a group thinking they have open access to every lender, but they might be in for a shock, and there could be restrictions on what they can and cannot do,” Scott says.

Scott believes group FAPs will be cautious about which lenders and insurers they deal with, and will “determine criteria for which products make it onto approved supplier lists”.

He adds group FAPs

may not be able to approve smaller second tier lenders due to a lack of publicly-disclosed information, and are likely to stick with retail banks and large second tier lenders.

“That could change the landscape somewhat for second tier lenders, for owners of a FAP, and advisers underneath that licence, and ultimately for customers, as there will be restricted choice, not getting access to a solution,” Scott says.

LVR speed limits kept on hold The Reserve Bank has kept LVR speed limits on hold amid fears low interest rates "could lead to a resurgence in higherrisk lending".

The RBNZ has made the call as part of its latest Financial Stability Report.

LVR limits have been "successful in reducing the more excessive household mortgage lending", The Reserve Bank said. The central bank added LVR rules have improved the resilience of banks to a deterioration in economic conditions.

Yet fears of excessive high LVR lending have made the central bank decide against loosening rules from current levels.

The central bank said financial system vulnerabilities remain "elevated" and

international risks have increased.

NZFSG’s Bruce Patten said the decision “wasn’t a surprise, given the low interest rates and renewed market activity”.

He added: “It would have been a little irresponsible to make any changes, although a change in the first-home-buyers LVR allowance would have been a nice Christmas present for some.”

RBNZ Governor Adrian Orr sounded caution about the low rate environment leading to increased debt and inflated asset prices.

The FSR report added: "Long-term interest rates have declined in a number of countries, including New Zealand, and are expected to remain low for a prolonged

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"Over the longer term, prolonged low interest rates could lead to some borrowers taking on too much debt and for asset prices to become overheated.

This could increase the vulnerability of the economy and borrowers to future economic downturns."

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PEOPLE

NEW BDM FOR PROSPA Australia-based non-bank SME lender Prospa has hired a new BDM for the New Zealand market.

Adam Fasi is tasked with supporting Prospa’s growing adviser network.

Fasi will work closely with new and existing partners to increase awareness of the Australia-based alternative lender, and help deliver funding to small businesses across the country.

Prior to joining Prospa, Fasi was sales development manager at Eclipx Commercial New Zealand, and area manager at FlexiGroup NZ Limited.

He will be based in Auckland, and has more than a decade’s experience in sale.

Adrienne Church, general manager of Prospa New Zealand, said: “We’re excited to have Adam on board at Prospa as we continue to expand our New Zealand operations. Adam has great industry experience and a proven track record that will help us deliver our vision to keep small business moving.“In the past three months alone, we’ve increased our maximum loan amount to NZ$300,000, expanded the Express Path limit to applications up to NZ$150,000 and launched a range of marketing and education resources for partners. It’s fantastic to have someone as passionate as Adam to help us deliver those ‘wow’ moments for advisers and their small business clients.”

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NEW OWNER, MD FOR CENTURY 21

Julius Capilitan has become the new owner of Century 21 Financial New Zealand, and will take on the role of managing director of the firm. Capilitan, formerly the general manager of the financial services company, has bought out Joseph Lupi, former owner of Century 21 First Choice Realty.

Capilitan has broad retail and business banking experience, including residential and commercial lending, insurance and investments. He has held funds management and specialist roles at ANZ Bank, Kiwibank, AXA Group Investment and NZX. The new owner said: “A lot of bankers become brokers, but I’m now fortunate to take it another step and become the New Zealand master franchise owner for C21 Financial. It’s hugely motivating helping Kiwis and providing expert solutions. Clients may be seeking advice on how to build a property portfolio through to having had challenges securing funding. Our value is in helping people to navigate and secure a life-changing outcome.”

NEWPARK BOLSTERS ADMIN TEAM Newpark has grown its administrative team with the appointment of Tara Cudby.

Cudby will take the role of analyst administrator.

She joins Newpark with considerable crossindustry experience – including four years in the financial services sector, the group said.

Cudby has experience in running administration and operations for large businesses, and will be responsible for “informing the creation and management of those services across Newpark”.

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09

PROPERTY NEWS

By Miriam Bell

Reform worries

Concerns about new tenancy law reform proposals have dominated property market discourse of late, but they’re not all that’s worthy of note ... So we cast our eye over what’s been happening.

The Government’s long-awaited tenancy law reform proposals are now out and, if adopted, they will make it much harder for landlords to get rid of bad tenants.

Associate Minister of Housing Kris Faafoi recently announced a suite of changes to the Residential Tenancies Act. For landlords, the most concerning of the proposed changes is the removal of a landlord’s right to use 90-day, “nocause” terminations to end a periodic tenancy agreement.

While antisocial behaviour and rent arrears will still be cause for eviction notices, it is proposed that landlords will have to apply to the Tenancy Tribunal in such cases.

Other changes include allowing fixed term tenancy agreements to automatically roll over into periodic agreements unless otherwise agreed; limiting rent increases to once a year; banning rent bidding; and allowing tenants to make minor changes to rental properties like babyproofing and hanging pictures.

Additionally, financial penalties will be increased; and new tools to take direct action against people not meeting their obligations will be introduced to improve compliance with the law.

Faafoi says that greater security of tenancy and less regular rent increases, coupled with the ability to make minor improvements, mean renters will be better placed to make their house a home.

“The reforms are balanced and provide certainty to both renters and landlords about their respective roles and responsibilities.”

However, NZ Property Investors’ Federation executive officer Andrew King says the

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changes do more than punish landlords – they will punish anyone living next to a tenant with antisocial behaviour.

“The Government has tried to provide a tool for landlords to manage tenants with antisocial behaviour, but it requires neighbours to put themselves at risk of retaliation from their antisocial neighbours.”

Currently, the landlords of badly behaving tenants can efficiently end these tenancies without involving the neighbours or the Tenancy Tribunal, by issuing a no cause 90day notice, King says.

“But if the changes go through, neighbours will have to provide three notices to the landlord before the landlord can apply to the Tenancy Tribunal for permission to end the tenancy.

“If neighbours don’t want to put themselves at risk to provide the landlord with proof of antisocial behaviour, landlords cannot move their tenants on and it is the affected neighbours who will have to move."

Nothing is set in stone yet though: the Bill containing the reforms will be introduced to Parliament in the first half of 2020 and will have to go through parliamentary process before becoming law.

GAINING KNOW-HOW

Landlords concerned about the increasing amount of rules and regulations it’s necessary to comply with can now get training to help them out.

In a New Zealand first, property management consultancy Real-iQ recently launched an online education platform which provides comprehensive training for landlords as well as property managers.

Real-iQ director David Faulkner says landlords are nervous about the changing regulatory environment around rental property and many want training on it so they

can manage their portfolio well.

“We deliver the NZ Residential Property Management Level 4 (NZRPM L4) and found lots of landlords were approaching us to see if they could do that training too.

“But it’s a workplace qualification so you have to be working in the property management industry to do it. So we decided to try and help them out.”

And that’s how the company’s RealiQ Academy – which is a step-by-step, interactive course to teach people how to manage property portfolios successfully – came about.

Faulkner says there’s about 25-30 hours of learning involved and, once signed up, participants have 12 months to make their way through the modules at their own pace.

“Landlords need to be aware tenants are customers who are paying for a product (accommodation) that landlords provide.

So landlords have a responsibility to provide them with a good product.

“We wanted to ensure that landlords are educated about this and know what they are doing – and that’s what the Real-iQ Academy aims to do.”

The initiative is timely as there is increasing focus on the property management side of landlording.

That's largely because the swathe of new Government policy around rental properties has made for greater expectations for, and pressure on, landlords.

SMALLER IS BETTER

For Auckland investors, smaller could be better as new data reveals that two-bedroom properties and central city apartments are seeing the strongest rental growth in the region.

Rents across the Auckland region have increased, with the average weekly rent

coming in at $579 at the end of September, according to Barfoot & Thompson’s latest quarterly rental update. That’s an increase of 2.95%, or about $16 per week, on the same time last year.

But the rate of rental increase is slowing.

Barfoot & Thompson director Kiri Barfoot says it’s the second quarter in a row the average rate of increase has held under 3%.

“It is in keeping with a downward trend on price increases since early 2018, when weekly rent increases were typically closer to 5% year on year.”

However, there are some property types and locations that are bucking the trend, she says. “Most notable are the smaller properties, with weekly rents for twobedroom homes growing by 4.06% year-onyear to a regional average of $488 per week.

“This is driven in part by the growing number of higher-end apartments in and around the central city that fall into the twobedroom category, although demand for this sized home elsewhere in the city remains strong also.”

Barfoot says the price growth in the twobedroom sector of the market is particularly stark when compared to larger homes, which have seen flat or declining rents over the year.

Alongside two-bedroom properties, central city properties, all of which are apartments, are doing well.

Over the quarter ending September, they attracted weekly rents that are 6.15% higher year-on-year which left the weekly average

at $527. But rental growth in these properties has softened since last quarter when the rate of increase surpassed 8%.

Barfoot says that although there has been some softening of rental yields, they remain attractive when compared to many other investment opportunities, particularly bank interest rates.

CRACKING DOWN ON CONDUCT

Meanwhile, financial conduct enforcement agencies have been busy disciplining some rogue property investors this month.

First up, the Commerce Commission issued a formal warning to property trader Peter Meng Huat Lee and PWG Limited (trading as Property Wise and Auckland House Buyers) for conduct likely to have breached the Fair Trading Act. The Commission investigated Lee after receiving a complaint concerning PWG’s conduct. It focused on whether claims made

by PWG to convince customers to make use of its services were accurate.

The claims included that the price PWG offered for property was “fair market value” and that vendors would be better off selling to PWG rather than through a real estate agent because of savings in agent fees and marketing fees.

It was also claimed that PWG trading as Property Wise had 20 years’ experience and Auckland House Buyers over 14 years’ experience; that Property Wise was the recipient of a “Property Professional

of the year 2013/2014” award; and that endorsements on PWG’s websites were from genuine, satisfied customers.

However, the Commission’s investigation found that PWG’s business was premised on purchasing property for less than fair market value, that the business did not exist prior to September 2016, and that the endorsements related to the previous owner of each brand name.

Commission Chair Anna Rawlings says Lee and PWG did not have reasonable grounds to make any of the claims at the time they were being made, that they were misleading and were likely to breach the law.

The Commission is not taking further legal action against Lee and PWG, but will take its warning into account if the conduct continues.

A week later, four Auckland property investors were charged with fraudulently obtaining millions of dollars in home loans following allegations by the Serious Fraud Office (SFO).

The SFO alleges that Bryan Martin, Viki Cotter, Sian Grant and Joshua Grant deceived banks into providing them with loans for the purchase of residential properties mostly located in Auckland.

The defendants each face multiple charges of “obtaining by deception” and “attempted obtaining by deception”, but have all pleaded not guilty to the charges. They have been remanded on bail to reappear in the Auckland District Court in February. ✚

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Better Better Business Business Conference Conference

3RD 3RD ANNUAL ANNUAL 2019 2019 u o y k n a Th TMM would like to say a big thank you to all the sponsors of our BETTER BUSINESS CONFERENCE

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Better Better Better Business Business Business Conference Conference

3RD 3RD ANNUAL ANNUAL 2019 2019

TMM BETTER BUSINESS CONFERENCE

Preparing for CHANGE Change and how mortgage advisers deal with it was the theme of this year’s TMM Better Business Conference.

There is no doubt that financial advice is at a series of major crossroads, whether it be regulatory change, digital innovation or banks changing their lending criteria.

At a big picture level there was good news for mortgage advisers. Independent economist Tony Alexander painted a picture that was positive.

Indeed he suggested the Reserve Bank’s proposed capital requirements will be good for the housing market.

Likewise, CoreLogic senior property economist Kelvin Davidson provided a good update on where the housing market was heading.

He says the market is looking up, but don’t expect a boom.

A new addition to the conference was a main bank lending panel with representatives from ASB, BNZ, SBS and Westpac (ANZ was invited but refused to take part in the event or anything to do

with TMM).

A poll of the audience showed that turnaround times continue to be their major concern. All the banks acknowledged this.

Westpac business development manager Tania Ropati took the opportunity to acknowledge the bank’s turnaround times had been very poor recently, but then outlined a new process which should address the issue. (For more see page 7.)

However, when it came to how the banks will work with financial advisers and FAPs in the future this remains unknown. Only ANZ and BNZ (at the time of the conference) had communicated their position to dealer groups. ASB head of third party distribution, Marc Oliver, said the bank will make its position known soon and Westpac said its decision was with the bank’s legal team.

The other key panel, made up from representatives from six dealer groups, showed there were a range of options for advisers to consider.

When it came to the thorny issue of how much advisers would have to pay under the new advice regime, Newpark’s Andrew Scott shocked the room, suggesting it could

Better Business Conference

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cost advisers $21,000 a year.

Other groups were reluctant to put a number on the cost, suggesting it was still a little of an unknown how much monitoring and auditing a member’s advice would cost.

A theme TMM is keen to explore is digital disruption and how it will impact on mortgage advice. It is very clear that the big banks are strongly pushing ahead in this area. It is a space advisers need to think about and consider options.

In a keynote presentation delivered by video, Valocity founder and chief executive Carmen Vicelich provided case studies of what was happening overseas. She also said that advisers need to work with bigger players to find opportunities to better service customers.

Vicelich offered to run a workshop with mortgage advisers to explore ideas. Any mortgage adviser who is interested in taking part should contact Philip Macalister (philip@tmmonline.nz or 0274 377527).

Next year’s conference will be held on October 6, at the Novotel Auckland Airport.

You can register your interest on the conference page of www.tmmonline.nz ✚

MARK YOUR DIARY The 4th Annual TMM Better Business Conference is being held on October 6.

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TMM BETTER BUSINESS CONFERENCE

By Dan Dunkley

Reserve Bank rules to boost home lending: Alexander Economist Tony Alexander believes the Reserve Bank’s new capital proposals will boost the mortgage market.

The Reserve Bank’s new capital rules will see lenders reallocate more funds to home lending and away from risky sectors, according to leading economist Tony Alexander.

Alexander, now an independent economist after leaving BNZ, believes fears over increased rates and tightening lending are misguided. He predicts the changes could even boost the mortgage market.

Speaking at the TMM Better Business Conference, ahead of the Reserve Bank’s final capital announcement in December, Alexander said lenders were more likely to tighten lending in high-risk areas, rather than shrinking their mortgage book.

Alexander said: “Some analysis suggests the big banks need to find another $20 billion in capital, and they won’t get that from their owners in Australia. They will probably only be able to raise $8-10 billion, and maybe they can raise some kind of special securities.

What you’ll see is tightening in certain areas of lending.

“When people first started to hear about this, they said it is going to come along and make the banks really pull in mortgage lending, and that’s what is gonna cause the 40% fall in house prices that some people were begging for in 2008 and 09, before they eventually gave up. No, it’s not. It’s going to have the opposite impact.”

Alexander said sectors like dairy were likely to see the biggest changes in lending availability, and other industries, such as

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property development. He said banks rarely to people why it’s a permanent change.” lost money lending to owner-occupiers, and He added: “Here are some of the factors mortgages required less capital to be held in why it is a permanent change. One, there are reserve than high-risk sectors. two incomes bidding at auction, with women "The banks still want to be in business. If coming into the workforce. A structural lift you need to raise capital, that is going to hit because of that. Credit availability changed your margin, so what are banks likely to do? dramatically from the 1980s. Before that, a When you’re a bank and when you’re lending lot of people wanted to work in a bank so they 100 bucks, you have to hold some capital could get a mortgage. Building standards in reserve. If you’re lending to a risky sector have gone up, toilets are on the inside, and where historically it is easy to lose money, you that’s all different. need to hold a lot of capital. If you’re losing “People have had a message for three $11 million, it’s probably a dairy farm, if you’re decades you better save for retirement, so losing $40 million it’s probably property they have invested in property. Net migration development. If it’s lending on a house, it’s has radically changed, we used to lose people probably 10 cents. Banks hardly ever lose in the 1970s and 80s, and now there are net money lending to owner-occupiers. Investors, gains. And interest rates are permanently yeah, but even then ...” lower than they were before.

Alexander expects banks to refocus He added: "Land prices, because of all of towards home lending and away from higherthe commuting difficulties and infrastructure risk sectors. “We will see them reallocate costs", have also contributed to rising house away from high risk, high capital areas to prices: "And also older low risk, low capital areas. I can’t help but people divorcing, they think that’s why we’re seeing the return of the don’t want to become cashback offer. Banks worked so hard to get flatmates, they want rid of them, and boom, they’re back into play. their own place.

I think there will be more money available on There’s a whole list of the housing side over the next few years, but things.” ✚ it will tighten up in other areas.”

Alexander said current house price to income ratios were a “permanent thing” in New Zealand.

“It wasn’t cyclical. It wasn’t totally unsustainable. It wasn’t just driven by offshore markets. Chinese buyers. Baby Boomers. People have been searching for a reason for it [the price increases] and what I’ve been Tony Alexander doing since 2011 is trying to explain

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Dealer groups count costs of new regime They gave their assessment of how much the new regime will cost advisers.

Dealer groups say the cost of membership is likely to rise under the new regulatory regime, with estimates ranging from $3,000 to $21,000 extra per year.

Speaking at the TMM Better Business Conference in Auckland this week, most groups in attendance said the demands of the regime would require extra costs to cover audit and compliance. Groups gave varying estimates of the potential impact.

Andrew Scott of Newpark Home Loans said Newpark had conducted “financial modelling” to assess the cost for advisers working under a group FAP. Scott claimed the new regime would cost advisers an additional $21,000 per year under a group FAP. Scott said: “That’s a conservative estimate, and not to make a profit, but just to break even. If you come under someone else’s licence, it will cost you about $21,000 per annum per adviser. That’s consistent with what’s happening in Australia.”

Newpark wants individual businesses to take their own FAP and their own legal and compliance responsibility.

Other groups in attendance dismissed Newpark's prediction.

Brian Greer, CEO of Loan Market in NZ, rejected the Newpark estimate. “We will be a long way away from that. I don’t know where you got your numbers.”

Greer said Loan Market and NZFSG would introduce a separate audit and compliance fee rather than changing its existing membership flat fee or commission model.

Greer said: “The Loan Market model is a variable price model, a percentage of commission, and the NZFSG model is a flat

fee or hybrid. Those fee structures won’t change at all, but we will have to introduce an audit and compliance fee. We’re working through what that is going to look like. I can’t give a firm number, but there's going to be additional costs. There’s no hiding from that.”

Greer added: “Audit and compliance is the glue that holds the whole thing together. If you’re running that under your own FAP you are going to have to build that, or outsource it, which will be costly, in our belief. That’s where economies of scale will win through.”

Rupert Gough, of Kepa, would “not commit to a number” on the expected additional costs, but agreed with Greer that “economies of scale”, and operating under a group FAP licence, would benefit advisers.

I can’t give a firm number, but there's going to be additional costs. There’s no hiding from that.

Brian Greer Gough said: “If you come under our licence, using the CRM we recommend, it will be a nice smooth process, with economies of scale coming in. We have a set price model, and that will increase per month, that’s obvious. We are doing the reviews in-house. There’s nothing you should be worried about.”

Q Advisor Group’s Geoff Bawden said there were currently “no plans to move the level” of its fixed-price fee model, but added: “Having said that, it is priced reasonably finely. One thing we know is that compliance is likely to

push the costs up for all of us, and if it does, we will need to share the cost.”

Mortgage Link’s Josh Bronkhorst gave a clear estimate of the additional costs, but said it would be cheaper than advisers handling audit and compliance under their own FAP. He added: “We have communicated to our members that we believe to come under our FAP you’re looking at an annual cost of between $3,000 and $6,000. Some might look at that and think it’s quite heavy, but we maintain if we can save you some money and give you back time, you have to consider what that time is going to cost you.”

Bronkhorst added: “We’re looking at a way to ensure the cost of being part of our FAP is less than the cost of setting up your own licence.

The time you would need to spend maintaining your own FAP would be given back to you with the efficiencies we create at group level.”

Sarah Johnston, of Astute Financial Management, said the group had set out its fee structure when it first came to market, and it had not changed. She said the group’s CRM would allow it to efficiently monitor audit and compliance.

Johnston added: “We’re also fortunate that we are supported by our shareholder companies that represent 500 advisers in the Australian market, so we already have scale.

We are a fee share model, and we charge $100 per adviser per month for the compliance part of the business. That’s dictated by the fact they are using our CRM, which is non-negotiable. That allows us to do remote checking on a bulk number of our advisers. A minimum of 5% of their work will be vetted.”

Cost of membership is likely to rise under the new regulatory regime, with estimates ranging from $3,000 to $21,000 extra per year. ✚

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TMM BETTER BUSINESS CONFERENCE

By Miriam Bell

Putting customers

to the fore

There’s no escaping that it’s a time of change for those in the business of mortgages and focusing on the customer is one of the key ways to navigate it.

The importance of customer centricity and choice was the most notable theme to emerge from the conference bank panel discussion.

Each of the bank representatives returned to variants of this theme throughout the wideranging conversation, but it came to the fore in the discussion on the way banks work with mortgage advisers.

ASB head of third-party banking Marc Oliver said that how things have been done historically won’t be how things are done in the future.

“The core of our business is customercentricity and choice and that means we need to start thinking about what customer drivers, understanding, and experiences will be going forward.”

Likewise, to ensure they maintain engagement

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and relationships with customers, advisers need to think about what they want and where they want to be in 20 months, he said.

“There are lots of disruptors out there, trying to think about how to get a slice of the pie.

Advisers need to figure out how to stay ahead of the market.”

BNZ broker relationship manager, Marcus Merrilees agreed that for those in the mortgage sector it is, increasingly, all about how they engage with customers – but added that digital disruption and transparency is a big part of that.

“This is all relevant to how advisers do their business. Because it is about the evolution of technology and how people interact with others. The whole industry will have to look at themselves to see what they can improve in this area.”

For Westpac’s Tania Ropati, who is business development manager for third party banking, getting better customer outcomes will be a focus for the bank going forward.

Technology is one aspect of that but so too is the introduction of a new

mortgage approval system to cut turnaround times, which Ropati said were too long.

“We hope the system helps to forge closer links between advisers and our branch network. But the goal is to provide a clear, smooth customer journey and to see the best outcomes for our customers."

The panel agreed that the changing mortgage lending environment needs to be embraced and means there is lots of growth in the third-party market, with advisers integral to growth in the wider sector.

SBS general manager customer experience Mark McLean said it comes down to giving customers choice and making sure they get the right advice.

“Reliable data, how we use it and what we can provide for the customer is key. The need to provide good solutions for our customers is only going to get stronger, so there’s a strong future for advisers in New Zealand.”

While the panel was united and provided clear answers on this front, there was less continuity and certainty in evidence when it came to more adviser-industry-specific questions.

One example was their respective banks’ stance on accredited FAPs. Oliver and Ropati said the relevant departments at their banks were still working through their position so they were unable to comment.

McLean also said they were still working on it, but their preference was to work with FAPs at an aggregator level. Merrilees said they will require aggregator companies to be a FAP, but couldn’t answer on an individual adviser level at this stage.

Optimal commission models and accreditation processes for advisers were also discussed by the panel. ✚

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The future of advice No sector is safe from the digital disruption sweeping the world but, rather than running scared, mortgage advisers can navigate it successfully by embracing it and leveraging off it.

In a video presentation to the conference, Valocity CEO Carmen Vicelich said we now live in the age of the customer and they expect global standard experiences.

That means it is necessary for companies and professionals to leverage technology and data to transform the experience they provide for their customers.

“It’s critical to recognise that disruption

is happening, to understand that nothing is standing still and change is happening right now. And, as advisers, to think about how do you adapt, evolve and learn?”

To that end, there are three key things advisers should do, she said.

“First up, embrace data. You have access to lots of data, use it, action it because it has no value unless you use it. You need the flow of information to improve the customer experience. But trust and transparency is critical so you need to work, and share with, customers.”

It is also necessary to appreciate that

digital and technology are enablers, to harness them and leverage off them, Vicelich said.

“But it’s really interconnectedness that changes the game. So embrace openness to partnerships, relationships and collaboration.

Because you need to keep innovating and you can’t innovate in isolation. The secret to success is partnerships.”

Advisers need to think about all this and what it means for the future because it is a race and you have to evolve and break down the barriers to succeed, she added. ✚

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REGULATION

By Dan Dunkley

Time running out for licensing: Strategi Advisers need to make some big decisions on their future amid the transitional licensing period, says Daniel Relf, chief executive of Strategi.

“Time is running out” for New Zealand advisers to make critical decisions on their future as the market enters transitional licensing, according to Strategi CEO Daniel Relf.

Speaking at this year’s TMM Better Business Conference, Relf presented on some of the key issues facing mortgage advisers.

The presentation came days before transitional licensing officially opened on November 25. The transitional period runs until next June, giving advisers a matter of months to make crucial decisions.

The Strategi boss said advisers should use the Christmas and New Year period to prepare and familiarise themselves with the new regulatory environment.

“You’re going to have your beer and wine on the beach, contemplating your life, but you are going to have to start thinking about your business. Don’t continue to kick the can down the road. Think seriously about it.

Time is running out.”

Relf added: “The time will fly by very quickly, so you’ll want to go into next year and hit the ground running and start building your business. Start thinking about where you want to be landing under the new FAP regime.”

Relf stressed the importance of getting

level five training completed and told advisers to “hurry up” if they had not yet finished the training.

Relf said companies planning to become a FAP had four steps to consider: • decide how their company will be structured • identify systems and processes the business needs to meet the requirements of a full licence • apply for a transitional licence • apply for a full FAP licence.

Relf said advisers had three steps to consider: • whether to become a FAP or join another company’s FAP • should they become a financial adviser or nominated representative • whether to undertake training to demonstrate competence, knowledge and skill.

“Whatever your licence states, you are going to have to deliver that to the regulator, so don’t overcook it, and don’t undercook it. Get advice.”

Relf said.

Relf called on advisers to seek specialist advice on their approach to the new regime but warned against “overcooking” or “undercooking” their application.

“What is right

Daniel Relf

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for someone that is a large FAP may be different for someone who is a small FAP. If you’re a one-man-band, you do not want to overcook it and spend thousands on compliance. You can do it with a small business ... You are able to create the licence that fits your business,” Relf added.

Advisers and companies have to get their licensing “just right”: “If you don’t do what you say you are going to do on your licence, then you are gonna be in trouble,” Relf added.

“As of June 2020, you will have to be compliant, other than the training, which has a safe harbour of two years.

You have to start thinking about the systems, processes, and controls.”

Ethical behaviour, IT systems, HR policies, and governance all have to be in place by June 2020, Relf said.

Relf said the regulator would become more stringent with its review process the longer the licensing period went on. He encouraged advisers and companies to get their application in early to boost their chances of success.

“The key thing with the regulator is, they

Better Better Better Business Business Business Conference Conference

3RD 3RD ANNUAL ANNUAL 2019 2019 don’t know what a good [application] is at the moment,” Relf said. “The first application that goes in will probably pass; the tenth will probably fail. Based on our experience, 10,000 FAP licences will be going through there.

“Based on our experiences, looking at Australia, a lot of applications go through in the first tranche. And then after a year or two, it whittles down a little bit more, so you have a core group of FAPs in the marketplace,” he added.

Relf said businesses needed to assess their risk profile as they considered their move under the new regime.

“You need to talk to your business partner about where you want your business to be.

There’s an opportunity, for those who take hold of a FAP licence, to do more than you’re doing right now. It will have value. But you have to weigh up all the pros and the cons.

You need a business plan for where you’re going in three to five years’ time.”

Under the new regime, adviser businesses will need to clean up their act and “get rid of

the scallywags” in their business, Relf said.

“At board level or management level, you will have to have a conversation with them. It all comes down to conduct. You need to have the right people on your board as well, not just tapping shoulders with people; they need the right experience.”

Compliance officers will be integral to businesses under the new regime, Relf said.

“It’s a newly created role. A lot of people don’t know what that person needs to do.

There’s a lot of information out there, and we have a compliance officer course.”

Operational infrastructure will also be a key consideration for adviser businesses under the new licensing regulations, Relf said.

“This comes down to systems, processes, and software. Software is very important.

This is where you can have controls in place.

With humans in control of oversight, you can miss things. You need the right automated systems to alert you to what is not being done, as well as what is being done properly.”

Adviser businesses planning to become a FAP should also consider their financial

resources. “People will be selling up, and you might want to see your business grow. You need the right resources behind you.”

Governance was a further matter to think about, Relf said: “Governance is more than just a meeting every now and again. It has to be documented. You have to write notes down. They need to be regular meetings; it can’t just be a meeting on the beach.

"You have to have the right amount of separation between the team and the governance team as well.”

Relf said regulators would also emphasise data protection under the new regime, and warned adviser businesses to protect customer information.

“IT infrastructure is really important, and cybersecurity. Your client’s details are important. When you sign up to a FAP, it is your undertaking to keep things private and confidential. Your laptop needs to be password-protected, for example. Your staff need to be aware of these things. It may sound overwhelming. It is just good business practice.” ✚

Look after what’s most important – your clients.

We’ll look after the rest.

WHAT WE DO • • • •

We’ll handle your Compliance Ongoing training A cloud-based bespoke CRM Help you to diversify your business with multiple income streams

YOU’RE IN SAFE HANDS WITH ASTUTE

JOIN US | CALL 0508 4 ASTUTE

019

WHAT’S DRIVING HOUSE PRICES?

HOUSING COMMENTARY

By Miriam Bell

REINZ HOUSE SALES: UP

Sales volumes nationwide were down yearon-year in October, but up from September.

In Auckland, sales were slightly down yearon-year but up on September.

INTEREST RATES: DOWN

The Reserve Bank’s decision to hold the OCR in November means rates remain low but there’s speculation they may inch up.

Commentators say a long-term low rate environment is still at play.

OCR: DOWN

The Reserve Bank kept the OCR unchanged at its record low of 1.0% in November. But economists believe that at least one more cut is likely to come in this cycle and it’s likely to be in February 2020.

IMMIGRATION: DOWN

Migration data remains volatile and, although annual net migration remains high, commentators says it appears to be trending lower.

BUILDING CONSENTS: UP

Consents nationwide were up in September, as compared to August. They remain at levels not seen since the 1970s and demand is high. Auckland consents also remain at all-time highs.

MORTGAGE APPROVALS: UP

Reserve Bank data shows mortgage lending overall was up in September. Investor lending was slightly up on August as well as September 2018, but their share of new lending is still much reduced.

Cliff Carr RENTS: UP

The average national rent dropped slightly – but from a record high – in September and Auckland rents are flatlining at a record high.

WWW.TMMONLINE.NZ 020 Wellington rents remain at historic highs and may rise further.

On the rise

Things are looking up for New Zealand’s property market but that doesn’t mean it’s set to boom – rather economists are picking a gentle rise, writes Miriam Bell.

The old joke goes something like this: if you put 10 economists in a room, you’ll get 11 opinions.

So it’s rare that you get two economists agreeing with each other on the state of the property market. Yet at the recent TMM Better Business Conference the unthinkable happened.

The two economists speaking, newly independent economist Tony Alexander and CoreLogic senior property economist Kelvin Davidson, were in broad agreement on the outlook for the property market. Both talked of positive signs in the latest data and suggested that the tide might be turning for Auckland’s market. But both also said this did not mean another boom was on the way.

Alexander’s presentation was a macroeconomic overview of New Zealand, which included the housing market, while Davidson’s took a close look at the fundamentals of the property market. For that reason, in this month’s commentary, we report on what Davidson had to say.

the main centres, apart from Auckland.

Even Auckland – which has an average value of $1,031,447 – saw monthly (0.4%) and quarterly (0.6%) growth, although not annual.

In the data, it is Dunedin that remains the star performer with quarterly growth of 6% and annual growth of 14.7%, which left its average value at $486,395. Tauranga and Wellington also saw strong annual growth, of 7% and 6.4% respectively which left their average values at $757,521 and $730,019.

Davidson points to Christchurch’s long-dormant market as one which could see good growth going forward. But it’s Auckland’s market that is most interesting, he says. It too has been flat for a long time, but the data suggests it might have reached a turning point.

Meanwhile, in provincial markets, there is slow growth, but it’s still growth, Davidson says. “Averaged out across the market there’s growth of about 8-10% and in some areas it’s much stronger. Hastings is up 20% year-on-year to an average value of $540,583, for example.”

There are a couple of markets – including Napier, Nelson and Palmerston North – which have become less affordable and they could be poised to slow now, he adds.

VALUES TICKING ALONG

SIGNS OF SALES UPTICK

It’s values, or prices, and their trajectory that people tend to look to first. And they appear to be ticking along in a reasonable fashion. October was a decent month for values around the country, with even Auckland “less bad” than it has been for a long time, Davidson says.

CoreLogic’s latest data shows monthly, quarterly and annual value growth in all

When it comes to sales, Davidson thinks national volumes seem to have bottomed out. “They have been sliding since 2016, but they may have hit a floor and, over the last month or so, there seem to be signs of an uptick.”

This month’s REINZ data also suggests this. While sales volumes around the country were down by 4.0% year-on-year

Better Better Better Business Business Business Conference Conference

This suggests the negative view around prices is not well founded. There’s still more people than new houses so demand is outpacing supply.

And that equals price growth.

Kelvin Davidson in October, they were up by 12.1% from September. In Auckland, where sales activity has long been subdued, sales were down by just 0.1% annually, but they were up by 8.5% on September.

Davidson says sales activity could level again, but there is more evidence of positive activity. This was particularly notable in Auckland as the Super City tends to be a market driver.

The latest data from Barfoot & Thompson provides support for this. The agency reported that it saw 824 sales in October, which was an increase of 6.9% on September’s 771 sales. It was also 3.1% higher than the average number of sales for the previous three months, but it was still 2.4% down on the number of sales in October last year.

On top of the more positive sales activity, listings are still generally low around the country and in Auckland they have fallen.

“While there are some signs of a post winter seasonal increase, there’s a feel of more buoyancy created by shortage. In Auckland, the market is tightening.”

This all adds to the feel that the market might be picking up, he says. But it’s worth noting there are different patterns evident in different markets around the country.

“Why wouldn’t they return now?” he says.

“There are low rates on deposits so people are looking to property investment again.

There’s been a confidence boost due to the scrapping of the capital gains tax proposal.

We’ve also seen rental growth of about 5% per annum and yields starting to rise a little.”

That means the environment is starting to look better for mortgaged investors. In CoreLogic’s data, the investors’ market share tends to fall away as the property gets more expensive. Yet, despite this, investors’ share of the market runs across all tiers and types of properties.

Interestingly, it is smaller investors who are leading the charge back, Davidson says. “We have seen a big spike in multiple property owners (MPOs) with just two properties (aka mum and dad investors). That is where we have seen the change in terms of investor share.”

In recent months, MPO 2s share of purchases round New Zealand has gone up to 12% as compared to MPOs with 10 plus properties who account for a 5% share. In Auckland, MPO 2s also have a 12% share, but there’s less of a contrast with MPO 10s who have a 7% share.

For Davidson, this highlights that smaller players have driven the pickup in mortgaged investors in the market. “It will impact.

Things have been flat for a while, but it’s starting to change. These investors will bring a harder nosed approach to pricing offers.”

It makes for a bit more market strength coming into next year, he says. “Maybe 2020 will be the year of the investor and investors will be driving the market.”

RECOVERY – OF SORTS

Going forward, there are also a number of other issues at play when considering the outlook for the market. These include the construction pipeline, population growth and the

INVESTOR COMEBACK

It’s widely accepted that following the introduction of the Reserve Bank’s third round of LVRs, back in 2016, mortgaged investors fell away from the market. Now, there’s evidence they’re returning.

Davidson says their data shows that mortgaged investors are coming back to the market, both in Auckland and across New Zealand. In his view, this is one of the big changes of the last three months.

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macroeconomic fundamentals (which are generally supportive albeit softening).

Davidson says dwellings consents are at high levels and projected to rise another 15% out to 2024 from the current high level. If that translates into construction there’ll be an increase in stock, but infill housing and the demolition of existing stock lowers the stock change.

“It is only changing by about half as much as the consents. This suggests the negative view around prices out there is not well founded. Particularly as there’s still more people than new houses so demand is outpacing supply. And that equals price growth.”

Adding further support to the market is the lending environment. Record low interest rates and many lenders’ relaxing of serviceability criteria means it has eased a bit recently. While some have been picking that the Reserve Bank will further loosen the LVRs later this year, Davidson says the latest strong lending figures put a question mark over that.

“The coming extra capital requirements for banks could impact longer term: mortgage rates could be as much as 1% higher than they would otherwise be by 2023. But, overall, we are looking at a gently easing lending environment that bodes well for sales and demand next year.”

There are looming headwinds but across the country there is more sales activity and that will support price increases, he says. “Things are looking more positive for the market. But don’t expect a boom. And I’m not sure about those predictions of 7-8% growth that we’ve seen. I think we are more likely to see a gentle rise and a return to more normalised trends.” ✚

Kelvin Davidson

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TMM BETTER BUSINESS CONFERENCE

All the action from another successful conference.

Sponsors Karmen de Wet and Huia Manuel from Prospa

Amanda Ellery and Philip Macalister

The Resimac sponsor team – Dilip Patel, Ashlene Prasad, Dannie Wang and Victoria Kernohan

An "Awesome" message from Cam Calkoen

Adrienne Church's Prospa sponsor spotlight

Valocity CEO Carmen Vicelich's engaging video presentation

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Better Better Better Business Business Business Conference Conference

3RD 3RD ANNUAL ANNUAL 2019 2019

Dealer Group panel discussion

It's not all "serious stuff"

Bank panel discussion

Pepper Money sponsors Dan Gummer and Joanne Thrift

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CUSTOMER EXPERIENCE

By Joanne Thrift

Rethink your customer experience The emotions behind customer experience.

Today’s consumers are more informed and have more choice than ever before. In an experience economy, our expectations are fluid as different industries set new benchmarks for simplicity and convenience.

Joanne Thrift

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But beneath all this, the fundamentals of consumer behaviour remain the same. Our decisions are driven by emotional impulses.

“Customer experience is not just about managing the customer’s transaction, but managing their emotions,” Joanne Thrift, Pepper Money’s chief customer experience officer, told the audience at the recent TMM Better Business Conference.

Almost 40% of borrowers turned down for a home loan in New Zealand in the last two years were not made aware that there was an alternative to the main banks. Mortgage advisers have a tremendous opportunity to help these people and to grow their business by opening up the market of choices and solutions for their customers.

The key is to recognise that borrowers who have been knocked back by a bank in the past may require a different customer experience.

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BEHIND THE SCENES OF A TRANSACTION

Throughout the typical home loan journey, emotions run deep. A borrower might feel frustrated, angry and shocked (why was I knocked back by my main bank?), or uncertain and doubtful (why is my rate higher?) They may even become frantic, losing sleep because the approval seems to be taking forever, they don’t know what’s happening and their dream home is at risk.

Advisers play an important role as the customer’s guide through the ups and downs of this emotional rollercoaster, reassuring them and helping them find a way through any hurdles.

“It’s not enough to provide a good quality product and service,” explained Thrift. “How can you make it easy and show value for money? This is critical to establish trust.”

4 STEPS TO A BETTER CUSTOMER EXPERIENCE

Quoting Maya Angelou, Thrift reminded us that: “People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

This emotional layer underpins a great customer experience.

Pepper Money recently asked a group of leading mortgage advisers from a range of aggregator groups about what they do differently to provide a “five-star experience”. Thrift shared these insights, within the context of the four stages of a typical home loan.

Customer experience is not just about managing the customer’s transaction, but managing their emotions.

1. EMPATHISE

When you show you care and pick up on their needs beyond the loan, you also encourage clients to be more open. If they don’t trust you or feel embarrassed about aspects of their situation, they may hold back.

“For example, one adviser who deals with specialist lending needs designs his process around the customer’s story,” explains Thrift.

“He captures the emotion of a previous (negative) borrowing experience, and then tells them what he will do to ensure they don’t feel like that again.”

2. MAKE IT EASY

Make sure clients feel a part of the process, by giving them a clear outline of what will happen and by when. “The best experience involves completing forms face-to-face in a client’s home. Good advisers are very clear and specific about what documents are needed and by when, and they pick up the

phone at least once a week,” says Thrift.

3. REASSURANCE

In general approvals are taking longer.

“One broker told me, ‘We are no longer selling a rate, we’re selling approval.’” said Thrift.

“Another makes sure he is in contact every 48 hours, and stays in touch with the client’s solicitor and real estate agent.”

4. ADDING VALUE

The experience doesn’t end with the signed contract. “One adviser told us she makes sure the direct debit is set up properly – including the calculation for the first monthly payment.

Another says ‘thank you’ with a houseplant for the new home – which is still a living reminder when the client needs to refinance in a few years.”

WHAT’S YOUR CX FACTOR?

Thrift says customer experience can be intuitive or deliberate. The most important thing is to think about how your customer will feel two to three steps ahead in the journey. For more ideas on how to make customer experience your business X-factor, you can learn more about Pepper’s 5 Step Process from your Pepper Money BDM. This is a highly successful approach to take your clients on the functional and emotional journey when they need an alternative lending solution.

If you’d like more information about Pepper Money and how we can help you in offering an alternative to your clients, talk to us today.

Joanne Thrift is the Chief Customer Experience Officer at Pepper Money. www.adviser.peppermoney.co.nz scenariocentre@peppermoney.co.nz 0800 945 658

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MY BUSINESS

On the rise

By Miriam Bell

Sarah Bloxham, from Let’s Talk! Mortgages & Insurance, received the rising star award for lending at this year’s Financial Advice NZ conference – and her love of the business means she’s aiming to reach further highs.

WHAT PROMPTED YOU TO GO INTO THE MORTGAGE ADVICE BUSINESS?

I’ve always had an interest in property: along with my own home, I have investments in Dunedin, Auckland and Waiheke. I knew I could offer a great service to clients with a focus on communication as key.

In lots of businesses, lack of communication loses clients, so I wanted this to be my thing.

Plus I’m a number cruncher – give me spreadsheets and I’m happy.

TELL US ABOUT YOUR BUSINESS & WHY YOU ARE PASSIONATE ABOUT BEING AN ADVISER?

Let’s Talk! Mortgages & Insurance offers our clients the full property package; including mortgages with over 30+ lenders, personal insurance and KiwiSaver. I’m passionate because I know we can make a difference for clients from first home buyers to investors with multiple properties

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and developments. After our second year in business, we added in risk insurance so we can now truly offer the best client outcomes should a client’s circumstances change moving forward.

YOUR RECENT AWARDS’ SUCCESS SUGGESTS YOU’RE DOING PRETTY WELL IN THE BUSINESS. HOW HAVE YOU FOUND THE BUSINESS SO FAR?

Every week I am excited that we are so active in helping our clients into property and covering them with insurance. It was hard, and lonely, learning to be an adviser. There have been lots of long days, with friends telling me I work too hard, but the non-monetary rewards make it worthwhile. I’ve found my thing and I’m sure it shows when I talk to clients. You can hear it in my voice.

HOW DO YOU APPROACH BUSINESS DIFFERENTLY TO OTHER ADVISERS? I’m direct with clients: there’s

lots of conversations and explanations. I like to clearly articulate the A-Z of buying a home.

This can include breaking the conversations up so the client is not overwhelmed. It’s all about education. My goal is that the client should be better educated on property after having met me.

It’s nearly all technology-driven, which helps make good use of time. All clients come into my office or connect via the web. We only ask for information once and make it as simple as possible. Sometimes engaging with the client is not about a “now” solution, rather it’s a plan for the future. So it’s all about keeping in touch for a really personal connection.

IS THERE ANY PARTICULAR AREA OF THE BUSINESS THAT YOU SPECIALISE IN?

First home buyers are a passion of mine, along with new builds. Those lovely families then turn into investors looking after their future incomes. But it’s something which definitely takes time as some clients aren’t ready for one to two years before we progress an application.

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

I am a Facebook junkie with lots of live posts and tips, across the mortgages and insurance space, for anyone who listens. I’m all about educating clients, not just doing a deal. As I have a background in IT, any new technology needs to work really fast or it doesn’t get a look in. It’s all about being real to people rather than just photos.

WHAT HAS BEEN THE HIGH POINT OF YOUR TIME IN THE BUSINESS? AND HOW ABOUT THE LOW POINT?

The high point has been this year as it has been full of wins. My goal was my own office and a first employee: that was achieved this year. October saw me celebrate four years in the business. And I also received two top “rising star” awards at industry events, in September and then November respectively.

In every business there always has to have been a low. Mine was in April 2018 when business just stopped. I couldn’t work out why so I plucked up the courage to ask for help – and business then boomed into this year with the high points just described.

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

In April 2018 when I reached out for help it was to Doug Bennett, who is a lifetime Million Dollar Round Table (MDRT) member.

He was a speaker at a conference in the Gold Coast but resides in the UK. It turned out that Doug’s West Sussex office is just two miles from my previous home in the UK. How small a world is that? On Saturday/Sunday evenings from April onwards, we talked.

Doug has believed in me and helped me get to where I am today.

WHAT’S THE BEST ADVICE YOU’VE EVER RECEIVED? & THE WORST?

The best advice has been that when you are first engaging with a client, listen to your gut instinct and think about whether they will be a client for life. In terms of the worst advice, many people tell me I work too hard and should work less hours …

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

There is no typical day! A general day starts at 6am with an hour’s walk and then I’m at the office in St Heliers by 8ish-am.

The day is filled with mortgages, insurance analysis and client meetings along with networking. Clients come to us or meet on Zoom. The less driving the better.

I head home for tea from 6pm to 7pm.

Then there’s calls or client meetings most evenings with the day finishing around

8.30pm. And then its spa time. I avoid seeing clients in the weekends unless its Saturday morning by appointment.

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

There still doesn’t seem to be answers to everything on the new regulatory changes. I am excited about them because some advisers will leave the industry and the standard of advice will be raised.

Exciting times.

YOU ARE ALSO A MARRIAGE CELEBRANT. ARE THERE ANY CROSSOVERS OR SIMILARITIES BETWEEN YOUR TWO ROLES?

Saturday, November 30 marked my 500th wedding over 11 years. And, along the way, couples have turned into clients for mortgages, insurance and KiwiSaver. What an awesome circle of life and trust.

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

My long-term business goal is to continue to help people throughout New Zealand into homes and investment property and to make sure they are covered with personal insurance.

That insurance is key to making sure they keep their homes and way of life.

My personal goal is to go to Los Angeles in June for the annual MDRT conference and to continue that on over the years to come. I went to one in Sydney in September and the speakers were very inspiring for all parts of your business.

WHAT ARE YOUR TOP TIPS FOR OTHER ADVISERS?

Learning to be an adviser is not a quick win: you need to have a “can-do” mindset and be forever learning. That’s because everything changes continually and you need to know to ask those around you.

There are enough clients for all of us – but make sure you look after the clients you have. ✚

FROM: I’m from Dunedin

originally. But I’ve travelled the world, which included living in the UK for seven years. I now reside in East Auckland.

FAMILY: I’m a mum of two

teenagers.

OUT OF WORK INTERESTS: I love

active adventure sports, live concerts (I always have some booked ahead to attend), chick-flick nights at the movies, spending time at the beach and walking all around our fabulous waterfront.

MOTTO: Learn something new every day.

027

SALES & MARKETING

By Paul Watkins

MILLENNIALS – have you got the patience?

This potential client group makes up about a quarter of the population. Paul Watkins gives you an overview of how best to meet their advice needs.

The last edition of TMM had an article about Millennials as a target group for your services. This article follows directly on, offering ideas on how to attract such prospects.

Who are they? Millennials make up about a quarter of the population and are defined as those aged between 23 and 38. Clearly these are first home buyers and at that age, your future second time buyers.

But they think a little differently to those of the older generation. They live on their phones, they have lofty ambitions, suffer from FOMO (fear of missing out), and prefer to trade with

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brands they trust. They are also avid seekers of information, which they do constantly through the internet. Ask any doctor about how they bring in a printout from the internet about their illness.

ACCESSIBILITY

The first and obvious thing is to be accessible. Millennials live in a 24/7 world and expect instant feedback. “Business hours” have little meaning to them. If you prefer not to be accessible after hours or weekends, then have auto responses set up. During business hours, if it’s practical, have an instant chat function on your website.

HOW DO YOU GET TO THEM?

You get to them online, as that’s where they live their lives! Which means having a significant online presence. Start with a highly informative, non-selling website. Have information-filled blogs, calculators, thoughts on how to get their first home and similar. Many of these posts can come from your social media activity, and if they have the right headlines, can significantly improve your search rankings.

Millennials, like most others, search in sentences, such as: “How do I buy my first home?” or “How can I use KiwiSaver to help get into my first home?” or “Can I get a mortgage while still having a student loan?” They do not search single words. Therefore, put as many of these sentences into your website content as possible.

THE SOCIAL ASPECT OF MILLENNIALS

Which brings me to social media. The most important of these are LinkedIn, Facebook, Instagram, Snapchat and the fast-growing Pinterest. Each of these has a different viewer profile, although they do cross over. As Facebook owns Instagram, it’s easy to do both of those platforms together. Think about using each one.

YOUR MESSAGES

With the platforms understood, what do you post? Start by thinking about what fears they have and what concerns them most about their finances. When it comes to buying a house, there is one very large and several other smaller questions.

The very large question is how do they organise their lives? A study by Deloitte, dated September 2019, found that the main life aspirations of Millennials were (in this order): travel around the world, earn a high salary/be wealthy, buy their own home, make a positive impact on the world and start a family. So, you are fighting their life’s priorities to some extent.

Social media posts (preferably videos as they have many times the impact of static posts) could address this dilemma. Show them a plan or way to have these things over time. I’ll leave it to your imagination to work out how, but I want you to appreciate that unless you get into their heads, then you won’t win them over.

American financial firm, Credit Karma, surveyed Millennials to find that 61% of them say money is their top source of daily stress, with more than half (55%) saying they frequently feel stressed about paying the bills. While you are not a budget service, you can offer thoughts on how to manage their money, notably all debt, not just mortgages.

EMOTION RULES

Millennials work more on emotions than logic. How else can you explain their purchase of $2,000 iPhones? Ain’t no logic there at all!

Emotional appeal topics include addressing their student loans, money management practices, how they can afford to have a family with a mortgage and the desirability of owning their own home over renting.

TELL THEM A STORY

Their FOMO complex is best addressed by case studies (sometimes referred to as storytelling). People only post the good parts of their lives on social media – their travels, new cars, weekends away, new furniture, new phones, parties and so on. This builds up a serious level of resentment as well as FOMO. But showing them how they can have a house is a big part of overcoming this.

From the same Deloitte survey, more than half of Millennials admitted to struggling to make ends meet and felt their financial goals were out of reach. Show them that they may well be able to afford the house, by explaining how they can raise the required deposit (usually the stumbling block) and educating them on “progress, not perfection”. This means that their first house is not their last house. Show or explain case studies of Millennials who achieved this, from a more modest house to their desirable home.

THEY WANT ADVICE

A broker’s point of difference is advice, not product or rates, which is what Millennials want. A survey showed that around 60% of Millennials look for advice on budgeting, credit card management, achieving financial goals, buying homes, and how to save money. They do so through Google searches and through social media, notably on LinkedIn, which is considered

Start with a highly informative, non-selling website. a credible source of knowledge.

This brings me to a key issue. Millennials hate to be “sold” to and according to US marketer and author Barry Feldman, are “relentless rejecters of traditional advertising, which they both filter and ignore”. So how do you advertise to them? You don’t. You educate them. I have seen lengthy videos (10 minutes plus) from mortgage brokers in LinkedIn, explaining the market to first home buyers and my guess is that they get good viewer numbers and calls.

THEY WANT TRUST IN YOUR BRAND AND OFFER

Build long-term relationships through showing you are the expert, which in turn generates trust in your brand. Millennials want to trust brands and value relationships over “deals”.

MILLENNIALS – HAVE YOU GOT THE PATIENCE?

This was the title of this article and is important, as what I have explained is not short term. It may take time to build a client base of Millennials, but it’s worth pursuing as they are surprisingly brand loyal and tell a lot of friends (more boast) about their service providers. ✚ Paul Watkins writes blog content and newsletters for financial advisers.

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

IN THIS BOOK YOU WILL LEARN: •

A new book from Paul Watkins.

Uber disrupted the taxi industry, Airbnb disrupted the accommodation industry, and social media is disrupting how financial advisers gain clients.

• • •

How the old ways of prospecting for clients have been seriously disrupted by social media How trust is the new currency Why websites don’t generate leads The 5-steps to growing your perfect client-base using social media

WANT TO BUY? Buy from: intelligentinvestor.co.nz or direct from Paul at: paul@paulwatkins.co.nz

029

LEGAL

By Jonathan Flaws

The Roads Ahead Jonathan Flaws gives us an analogy to help explain some of the many three letter acronyms (TLAs) on the legal road ahead.

The “F” word (Financial) is the first word in over 180 pieces of legislation: Acts, Regulations, Orders in Council.

There are over eight statutorily defined terms that start with the “F” word. It’s a word that indicates you are in a lane on the “F” road that regulates the financial world and keeps consumers safe from highwaymen.

But there are so many lanes it is easy to get confused and move out of your lane. I strayed in my last article when I referred to a FAP as an FSP. I got confused using the F word in a new TLA (three letter acronym). Sorry if I sent you into opposing traffic.

The new “financial advice provider” is of course different to the old and continuing “financial service provider”. It’s easy to get confused because although these definitions occur in two different Acts, a FAP in one Act is also an FSP in the other. The use of the “F” word has become so clichéd it is very easy to

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get confused by the terms, expressions and TLAs that incorporate it.

But alongside the “F” road there is also a “C” road. This is the road that regulates credit. Unlike our colleagues across the ditch, only lenders and not intermediaries are directly allowed on this road. I say directly because although only lenders are directly required to be responsible when lending, when an intermediary is involved between the lender and the consumer, lenders require the intermediary to adhere to and in some cases undertake the lender responsibilities on their behalf.

The F road is a wide multi-lane motorway and some lanes are C lanes. The lenders’ C road runs parallel to the F road and while some of its lanes look like the C lanes on the F road, many rules that apply to lenders on the C road differ from the rules that apply to FAPs in the C lane on the F road Borrowers only see one road and rather than drive it, are taken for a ride along it.

Parliament regulates to ensure they are not

taken for a metaphorical ride.

Borrowers are not regulated and don’t see two roads.

My confusion with FAPs and FSPs led me to the road metaphor when I tried to reconcile the product advice/financial advice division and the responsible lender advice exemption from regulated financial advice from the potential for lenders to need a FAP when interacting with their customers.

THE C ROAD

In the world of residential home mortgages only lenders drive this road. If they stick solely to this road they need not obtain a licence to travel on the F road The lender is a product provider and only provides advice when the rules of the C road require it to interact with the borrower in a way that appears like its giving financial advice. It needs to understand the objectives and requirement of the borrower and ensure it can repay without substantial hardship. It also needs to assist the borrower to make

an informed decision so that the borrower understands the implications of accepting the loan.

But the lender only needs to consider what is in the lender’s best interests. It is required to do only what its C road licence requires. A lender does not need to consider the borrower’s best interest, which might be not to take the loan and get a better loan elsewhere. It just needs to be a responsible lender.

This is why it is exempt. To be exempt and responsible, it must now tell the borrower it is not giving financial advice. It is only responsible for itself and if the borrower wants to be a responsible borrower then it should take regulated financial advice from a FAP.

responsibilities solely on the lender. To the extent that the Responsible Lending Code suggests lenders can outsource some responsibilities to intermediaries, it leaves it up to the lender to decide how this is done and controlled. Each could decide to adopt a different approach.

It raises the interesting question, does a FAP carrying out part of the lender's responsible lending information gathering, and verification fall within the responsible lending exemption?

I think not. An activity that is an exemption for a person driving on the C road is not necessarily an exempt activity on the F road.

This is the same as a driver on the C road giving advice outside its exemption being required to be licensed for the F road.

THE F ROAD

RESPONSIBLE BORROWERS

In contrast, the driver on the F road is obliged to consider what is in the best interests of the borrower and tailor its advice to ensure the borrower understands this.

In contrast to the lender the FAP’s brief is to help the borrower be a responsible borrower.

This means the FAP and those it engages to provide advice to its customers, needs to be qualified. If not otherwise qualified, (whatever that means) this requires a New Zealand certificate in Financial Services (level five) which includes the financial advice strand for that part of the F word that the individual is licensed to talk about.

CHANGING LANES

But the roads are going in the same direction and sometimes a lender may switch roads. It may, for example, stay on the C road for its product but cross into a lane on the F road when it recommends or advises on a third-party product.

If it strays from factual advice about its product and advises the borrower about restructuring its product for a better result it may be falling outside the no-advice exemption.

In contrast, a FAP or an individual engaged by a FAP, may be asked by the lender to carry out some of the lender’s responsible lending activities. This may be to obtain and verify information as to the borrower’s identity and financial position to help the lender understand the borrower’s requirements and objectives. When a borrower engages an intermediary, the lender must often do things required by its licence to drive on the C road at a distance. Hence the delegation of these tasks to the FAP. In the Australian context, the credit law recognises advisers and gives them specific responsibilities under the credit law to carry out these tasks and take responsibility for them.

Our credit law does not. It lumps these

The primary purpose of the CCCFA is to protect the interests of consumers in connection with credit contracts, consumer leases, and buy-back transactions of land. But you could argue that all of the obligations to achieve this are placed on the shoulders of the lenders and there is nothing in that Act that obliges borrowers to be responsible borrowers.

The CCCFA requires lenders to assist borrowers to make informed decisions and understand the implications of what they are doing.

But an irresponsible borrower could still make an informed decision and understand the implications of a decision that is nevertheless an irresponsible decision.

If the lender sticks to the C road and doesn’t shift gears into financial advice mode, it need not be concerned if the borrower’s decision, informed as it may be is nonetheless irresponsible.

If lenders are required to be responsible and assist the borrower to make an informed decision, then perhaps the objective of the new financial advice regime, when it comes to consumer credit contracts, is for FAPs to assist borrowers to be responsible borrowers.

It does this by requiring FAPs and the parties they engage to give advice, to be licensed and have financial advice qualifications.

The new regime may also mean that by only dealing with licensed FAPs and their qualified advisers, lenders can have confidence that when they delegate the responsible lending tasks of understanding the borrowers’ requirements and objectives and collecting and

There are over eight statutorily defined terms that start with the ‘F’ word. verifying information, the adviser is following standards of conduct that the lender can rely upon to get reliable information.

There are two roads heading in the same direction. One road is travelled by the responsible lender and the other by the intermediary whose job is to provide professional advice to help the borrower become a responsible borrower.

I have been travelling this road, writing a legal piece for The NZ Mortgage Mag since 2003, about as long as we have had the CCCFA. It has been an interesting and enjoyable journey for me. I hope you have found it the same. Much has happened in 18 years and the mortgage industry today is quite different to what it was back then. I don’t intend to retire from law or disappear from the mortgage industry for some time yet. Indeed, if anything, I am more likely to become more involved both here and in Australia.

Verofi Ltd started as a special servicer looking after residential mortgage arrears and recoveries for a New Zealand bank.

It moved into standby servicing a few years ago and is developing a wider constituency of clients for this and independent third-party servicing in both New Zealand and Australia.

My references from time to time about the Australian environment have been driven by my activities there. I now understand what 20 hours annual CPD in financial services topics means as I am a Responsible Manager for Verofi Australia’s Credit licence. I have seen and understand the industry and its regulation on both sides of the Tasman. As a result, I think it is fair to say that with the licensing of all financial advisers under the new regime, apart from the differences, both countries are pretty much the same.

Thanks for your patient reading of my articles over the years. I hope you found something of use in them. ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir

031

INSURANCE

By Steve Wright

Insurance adviser conduct obligations Ethical behaviour, conduct and client care in a nutshell.

A life and health insurance adviser's conduct duties and obligations are becoming increasingly formalised.

The new legal framework imposes conduct obligations on all financial advisers (advisers) at several levels. While this may seem daunting at first, I suspect it will not be so in practice for many advisers. It seems to me the conduct duties and obligations really boil down to one thing when it comes to our clients – do the right thing.

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According to the FMA, good conduct matters because at its most basic level, “conduct is how people behave … Conduct is what the customer actually experiences … At its core, good conduct means focusing on customers. The result is good customer outcomes.”

So, what are some of these “conduct” obligations and what are these “levels”?

Firstly, there is the Financial Markets Conduct Act itself, the first level. This imposes several duties on advisers, including some in Section 431.

• Section 431G requires that people are neither to call themselves a financial

As you can see, most of this is simply doing the right thing. adviser, financial advice provider (FAP) or nominated representative, nor hold themselves out that they can give financial advice, unless they are duly appointed or authorised to do so.

• S ection 431I requires advisers to meet minimum standards of competence – this is why many advisers are doing or have done, the level five qualification.

• Section 431J requires advisers to ensure the client understands the nature and scope of the advice they give.

• Section 431K requires advisers to give priority to client’s interests.

• Section 431L requires advisers to exercise due care, diligence and skill.

• Section 431M requires advisers to comply with the Code of Conduct (which introduces the second level of obligations).

• Section 431O requires advisers to make disclosure of information prescribed in regulations (the third level of obligation).

• Sections 431Q and 431R require advisers who are FAPs to take reasonable steps to ensure their advisers comply with the above duties and any restrictions, controls or processes the FAP imposes.

The Code of Professional Conduct for Financial Advice Services (the Code), the second level, currently approved by the Minister but not yet in force, sets out five conduct standards as well as competence, knowledge and skill requirements.

• Code Standard 1 requires advisers to always treat clients fairly.

• Code Standard 2 requires advisers to always act with integrity.

• Code Standard 3 requires advisers to give advice that is suitable for that client.

• Code Standard 4 requires advisers to take reasonable steps to ensure the client understands the financial advice.

• Code Standard 5 requires advisers to protect client information.

The third layer is the regulations published under the Act, for example, disclosure regulations.

The fourth layer could be licensing conditions and the directives and suggestions from the FMA, your PI insurer, disputes resolution service and any court or other rulings that may impact, shape or explain adviser conduct obligations.

As you can see, most of this is simply doing the right thing: doing what is right for the client, even if this disadvantages you.

Doing what is right for the client will depend on the circumstances and requires each adviser to exercise their own professional judgment to ensure good client outcomes.

Give the client enough information to make an informed decision.

We usually know when something is not the right thing for the client, even if it is just an uneasy feeling. It also means giving them the help they need.

Thinking about your obligations, understanding what they mean in practice and accepting them, can take away any angst that uncertainty about your obligations can cause. Consider “baking” good conduct into your services, advice, documentation and administrative controls and procedures, so that they become second nature.

Every adviser has a personal, professional obligation to understand and adhere to their conduct obligations, no one else can take this responsibility for you.

Advisers are expected to have sufficient knowledge and skill to properly advise their clients. Make sure you know what you are talking about and if you don’t, tell the client you will find out, then go find out. Don’t make it up or guess – always check. Make it a mantra – “don’t guess; check”. If you don’t have the necessary skills or knowledge you cannot act unless and until, you get them.

Treating clients fairly means you must be honest with them. Honesty is not only the absence of lies, but also not withholding relevant information. Honesty and good faith are closely linked and require dealing openly, frankly and accurately with clients

on all matters. I recently heard the phrase “direct honesty” and I like that. It means we don’t shy away from uncomfortable or inconvenient topics. Direct honesty should result in no nasty surprises later on and less opportunity for confusion and misunderstanding. I think it will serve you and the client well and build trust.

Another mantra I like is “give the client enough information to make an informed decision”. This is very important and probably a requirement under several conduct duties, like treating clients fairly and ensuring clients understand the advice you give them.

I know many advisers do not like paper work, heck I don’t. But documentation, clear, precise (not jargon) and contemporaneous, is your best friend. If done properly it can clearly demonstrate: • what you agreed to do for the client • how and indeed that, you did do all the things you agreed to do • what your recommendations were and what the client chose to do about them • that you gave the client enough information to make an informed decision • that you judiciously warned them of the pros and cons of various courses of action • that you have complied with all your conduct obligations.

My third mantra is “documentation is my best friend”.

Over the next few issues of The NZ Mortgage Mag I will explore, in a little more detail, just what some of these conduct obligations might mean for life and health advisers.

In the meantime keep putting the client’s interests ahead of your own; ensure you know what you are talking about – check, don’t guess; practice “direct honesty” and give the client enough information to make an informed decision: do the right thing.

Oh, and don’t forget to document all of this. ✚ Steve Wright has qualifications in Law, Economics, Tax and Financial Planning and is General Manager Professional Development at Partners Life.

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

033

KIWISAVER

SPONSORED CONTENT

By Michael Lang

Mirror, mirror on the wall, who has the best lifecycle of them all?

A recent NZ Funds-commissioned survey by MyFiduciary gives interesting insights into the KiwiSaver life-stages options available.

Most advisers know that around 90% of the variation in a KiwiSaver member’s returns is due to asset allocation and that younger investors should have a greater exposure to growth assets than older investors.

They also know that KiwiSaver is a scale game, as member balances are too low to adequately compensate financial advisers for providing much more than a cursory financial overview.

It is therefore logical that the legislation is supportive of lower-cost robo alternatives and that the Ministry of Business, Innovation and Employment (MBIE) and the Treasury have announced they will be considering making the default option a lifestages approach.

NZ Funds recently commissioned independent experts MyFiduciary to review the life-stages options available in New Zealand. Here are some selected insights from their report.

LIFE-STAGES MANAGERS

Nine out of 22 managers offer a life-stages option. Of these, four managers – AMP, ANZ, Generate and Lifestages – change allocations infrequently and by a large amount. The other managers – NZ Funds, AON Russell, Fisher Funds and SuperLife – have smoother adjustment paths.

Leaving a member’s allocation to growth assets unchanged for five to ten years, then dropping their weight substantially overnight, can be a major problem if the rebalancing date coincides with a bad period for equity markets. A smoother glidepath with, for example, annual rebalancing reduces the chance of de-risking at a bad time.

ALLOCATIONS TO GROWTH

A common theme from academic research into optimal life-stages strategies, and from

reviews of actual products in the market, is that current life-stages options are too conservative, with investors being better off if their portfolios did not become less aggressive until much later in their lives.

The glidepaths of managers in New Zealand tend to be very conservative. At age 65 the average allocation (excluding NZ Funds) is 26% growth / 74% fixed income.

In contrast, NZ Funds starts the de-risking process at age 55 from a higher growth allocation. Clients have more than half their portfolio in growth assets until they are in their mid-80s.

EXPECTED OUTCOMES

MyFiduciary modelled a person who starts saving at age 25, has an income of $75,000 that grows through time, and saves 4% of their income (plus a 3% employer contribution) in a life-stages strategy across different managers.

The average of all balances at 65 years of age was $426,000. Savers who choose NZ Funds, Fisher Funds or SuperLife achieved a higher level of expected wealth at retirement after fees. For example, a saver who invests in the NZ Funds’ LifeCycle strategy would expect to have $459,000 at age 65 (adjusted for inflation, ie measured in today’s dollars). In contrast, savers who selected

kiwisaver kiwisaver scheme scheme

AMP Lifesteps, AON Russell or Generate Stepping Stones had less expected wealth at retirement of between $395,000 and $399,000 – approximately $64,000 or 14% less.

The MBIE and Treasury Discussion Paper notes that if the Government chooses a life-stages option as the default option, the Government would set the investment mandate of each stage and the ages at which each stage would apply. They also note that a conservative final stage would be too conservative for those approaching retirement, given average life expectancy is much higher than the retirement age.

Advisers need not wait for the Government to make a decision. Life-stages options which have high expected retirement value are already available in the market. ✚ Michael Lang is Chief Executive at NZ Funds and a member of the NZ Funds KiwiSaver Scheme. New Zealand Funds Management Limited is the issuer of the NZ Funds KiwiSaver Scheme. A copy of the latest Product Disclosure Statement for the scheme is available on request and at www.nzfunds.co.nz. Michael's comments are of a general nature, and he is not responsible for any loss that any reader may suffer from following them.

growth growth assets assets growth growth assets assets 1 1 at age at age 55 55 post post retirement retirement

asset asset allocation allocation adjustments adjustments

average average average average amount amount at at amount amount at at ageage 703703 ageage 652652

AMPAMP Lifesteps Lifesteps

47%47%

24%24%

StepStep downdown every every ten years ten years

$395,000 $395,000

$413,000 $413,000

ANZANZ

50%50%

0% 0%

StepStep downdown every every 5-105-10 yearsyears

$403,000 $403,000

$409,000 $409,000

AONAON Russell Russell

33%33%

20%20%

Annual Annual steps steps

$399,000 $399,000

$408,000 $408,000

Fisher Funds Fisher Funds

61%61%

36%36%

Annual Annual steps steps

$457,000 $457,000

$485,000 $485,000

Generate Stepping Stones Generate Stepping Stones

56%56%

33%33%

StepStep downdown every every five years five years

$398,000 $398,000

$409,000 $409,000

Generate Stepping Stones Growth Generate Stepping Stones Growth

73%73%

33%33%

StepStep downdown every every five years five years

$418,000 $418,000

$434,000 $434,000

Lifestages Lifestages

39%39%

23%23%

StepStep downdown every every ten years ten years

$424,000 $424,000

$438,000 $438,000

NZ Funds NZ Funds

91%91%

56%56%

Annual Annual steps steps

$459,000 $459,000

$489,000 $489,000

SuperLife Age Age Steps SuperLife Steps

65%65%

32%32%

Annual Annual steps steps

$480,000 $480,000

$521,000 $521,000

Average Average

57%57%

29%29%

$426,000 $426,000

$445,000 $445,000

1. Post 1. Post retirement retirement is the is the average average from from ageage 65 to 6580. to 80.

2. Terminal 2. Terminal wealth wealth is measured is measured in today’s in today’s dollars, dollars, i.e. adjusted i.e. adjusted for inflation. for inflation.

Based Based on aon Monte a Monte

Carlo Carlo simulation simulation person aTerminal person whowho starts starts saving saving at age at age 25 with 25 a starting a starting salary salary ofie$75,000. of $75,000.

Based Based on 4% on 4% contribution contribution plusplus 3%3% employer employer Source: MyFiduciary. 1. Post retirement is the average from age 65 to for 80.afor 2. wealth is measured in with today’s dollars, adjusted for inflation.

Based onrate a rate Monte contributions.

Thesalary The terminal terminal wealth evaluation evaluation includes each scheme's scheme's estimated estimated charges charges including including performance performance feeterminal fee andand administration administration Carlo simulation for a person who starts saving at age 25 contributions. with a starting ofwealth $75,000.

Based onincludes 4%each contribution rate plusfund 3%fund employer contributions.

The charges.

3.including Average 3. Average amount amount at age at age 70 assumes 70 assumes the client client stops stops making making contributions contributions at age at age 65 but 65 but does does not not draw draw down down on their on their capital capital untiluntil ageage 70. 70. wealth evaluation includes each scheme's estimated fundcharges. charges performance fee and the administration charges.

For more information contact NZ Funds.

For For more more information information contact contact NZ Funds NZ Funds

034 WWW.TMMONLINE.NZ

Michael Michael Lang Lang is Chief is Chief Executive Executive at NZ at NZ Funds Funds andand a member a member of the of the NZNZ Funds Funds KiwiSaver KiwiSaver Scheme.

Scheme.

New New Zealand Zealand Funds Funds Management Management Limited Limited is the is the issuer issuer of the of the NZNZ Funds Funds KiwiSaver KiwiSaver Scheme.

Scheme.

A copy A copy of the of the latest latest Product Product Disclosure Disclosure Statement Statement forfor thethe scheme scheme is available is available on request on request andand at www.nzfunds.co.nz. at www.nzfunds.co.nz.

Michaels’ Michaels’ comments comments areare of aofgeneral a general nature, nature, andand he is henot is not responsible responsible forfor anyany lossloss that that anyany reader reader may may suffer suffer from from following following it. it.

035