TMM_01_2022

TMM 01 • 2022 • WWW.TMMONLINE.NZ

THE YEAR F THE PRESSURE COOKER What proposed new conduct rules mean

Meet one of the rising stars

Covid-19 makes medical insurance essential

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TMM 01

Contents

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PAGE 22

The year of the pressure cooker

The rise and rise of near-prime loans

2022 will be a challenging year for advisers: new regulations and more work, amidst an explosive rate of change.

The answer for the growing number of clients who don’t meet the stringent requirements for a regular loan.

Up front

Features

04

EDITORIAL

16

HOUSING COMMENTARY

06

NEWS

26

ADVISER WELLBEING

10

PEOPLE

The current CCCFA changes go too far.

Banks flood advisers with policy changes; Who is the biggest non-bank lender?

Mike Pero CEO leaves the finance industry; Aurora appoints head of mortgages; SBS names chief executive.

12

PROPERTY NEWS

14

REGULATION

41% of advisers putting mental health at risk.

Columns 28

MY BUSINESS

30

SALES AND MARKETING

32

INSURANCE

Property managers to be regulated; Further restrictions for landlords.

A close look at the CoFI Bill.

Bank predicts a 7% fall in house prices.

Multiple-award winner Lauren Hunter.

Digital marketing platforms: who uses what and how to juggle them all.

Covid-19 makes private health insurance even more critical.

WWW.TMMONLINE.NZ

03

UP FRONT • EDITORIAL

Thorny issue to start the year

I

The Treasurer Josh Frydenberg said after the case that the principles-based responsible lending framework had become “an overly prescriptive set of obligations” that had stifled the flow of credit.

“Borrowers, irrespective of their financial circumstances, have subsequently faced a longer and more intrusive approval process.”

While the Australian government pledged to repeal the law, moves to achieve this have been bogged down in parliament and appear to be stalemated.

The New Zealand parliamentary system is unlikely to be so difficult, but Labour will have to agree to changes as it has a majority in parliament.

The law was the brainchild of former Commerce Minister Kris Faafoi, and he used to talk about how it was designed to protect vulnerable borrowers, such as his constituents.

Protecting borrowers from predatory lending such as that offered by third tier lenders, payday lenders and the likes who charge unconscionable rates to consumers who, probably, don’t understand the true cost is something that should be supported.

The current CCCFA changes go too far and need to be changed quickly.

t would be a foolish man to try and predict what the next 12 months has in store for mortgage advisers, but a wild guess would be that there will rarely be a dull moment.

We are only at the start of the year and it's been full on with many large and public outcries over the impact of the Credit Contracts and Consumer Finance Act (CCCFA) changes which came into effect in December.

The impact should be of no surprise to readers of TMM and TMMOnline as we have been warning of this for months.

While the banks are firmly in the spotlight they are only doing what they have been told to do, and no doubt they are being extremely diligent and vigilant as no one wants to be the first to be pulled up for so-called “irresponsible lending”.

The good news is that it appears the Minister of Commerce, David Clark, is listening. He has ordered the Council of Financial Regulators to look into the problems.

If there is one silver lining to this cloud is that it will drive more people to seek advice.

Interestingly, New Zealand is repeating mistakes made in Australia.

Australia introduced a set of responsible lending laws which culminated in a court case where the regulator, the Australian Securities and Investments Commission (ASIC) took Westpac to court.

The so-called, “wagyu and shiraz” case focused on whether or not the lender had been writing unsuitable loans.

However, the court did not agree with the regulator’s interpretation of what lenders should be doing to adhere to the responsible lending laws.

Philip Macalister Publisher

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Sub-Editor

1448A Hinemoa Street, Rotorua PO Box 2011, Rotorua P: 07 349 1920 F: 07 349 1926 E: philip@tmmonline.nz

Publisher

Philip Macalister

Staff writers

Matthew Martin, Eric Frykberg

Contributors

Steve Wright, Paul Watkins and Sally Lindsay

04

TMM 01 • 2022

Sandra Paterson

Design Samantha Garnier

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All contents of TMM are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited.

TMM welcomes opinions from all readers on its editorial.

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

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The Credit Impaired

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05

UP FRONT • TMMONLINE.NZ/NEWS

Advisers inundated with bank policy changes Changes in bank procedures are coming through thick and fast as banks scramble to keep up with a flood of regulatory changes.

Mortgage Lab founder and chief executive Rupert Gough says one bank alone made 37 policy changes in the past three months.

Some of these stem from the Credit Contracts and Consumer Finance Act (CCCFA), which has been widely accused of smothering borrowers and brokers in red tape. But others come from new rules such as tighter restrictions on lowdeposit loans, imposed on banks by the Reserve Bank as an inflation-fighting tool.

Gough noted that while one bank had altered 37 policies in the last quarter, others had made changes numbering in the low 30s.

“Changes included splitting a few expense categories into many, and new rules for low-deposit lending.”

Gough found banks were varying quickly between red and green traffic lights for low-deposit loans; at present, most are sitting on a red light. But he was careful about allocating blame - insisting the flood of new rules was not the fault of the banks, who were simply responding to new laws and requirements from Government and regulators as best they can.

The New Zealand Bankers Association (NZBA) attributes the rush of changes to the detailed nature of regulations stemming from the CCCFA law change.

An NZBA statement noted the changes required banks to gather and verify a large amount of information about the loan applicant’s income, outgoings and expenses.

“The list is long, and includes things like accommodation, insurance, school fees, child support, debt repayments, utilities, food, clothing and personal care, medical

and transport expenses, savings and investment contributions, entertainment, and tithing.”

The NZBA said the complexity of the new system required banks to design and implement changes, and to train their staff to apply them properly, to ensure they are complying with the new rules.

Some advisers have also complained about different systems from different banks: the multiple changes come in many forms depending on which bank they are dealing with. But the NZBA has ruled out a uniform approach for competition reasons.

“Banks are very much in the business of lending. They are also responsible lenders and take requirements to comply with the law very seriously.”

Avanti maintains its credit rating Credit ratings agency S&P has retained its existing assessment of Avanti Finance as ‘stable’.

Avanti is now the second biggest nonbank lender in the country, having risen tenfold in a decade to sit behind UDC Finance.

The company has a BB/Stable rating, which was unlikely to change in the near term, the agency said.

Avanti’s total assets were $1.62 billion according to a survey late last year, with S&P finding the company was in good shape.

“Our ratings on Avanti reflect its very strong capitalisation and defendable niche position as a finance provider 06

TMM 01 • 2022

to those not actively serviced by mainstream banks.

“We view Avanti's lending activities as inherently higher risk than those of mainstream banks, but expect Avanti's diverse product offering and lack of single name concentration to keep its credit losses relatively stable, albeit elevated relative to New Zealand's banks.”

S&P said Avanti's warehouse funding model – securing loans against existing operations – left it susceptible to banker confidence, but the company was making progress to diversify its funding base.

“The stable outlook reflects our expectation that Avanti Finance will maintain a very strong risk-adjusted capital (RAC) ratio of above 15% for the next 12 months, despite continued strong growth in its loan book.

“We also expect Avanti to maintain its underwriting standards and pricing for the risks it assumes, and refrain from entering significant new and higher-risk business segments that may expose the company to materially higher credit losses.”

WWW.TMMONLINE.NZ

07

UP FRONT • TMMONLINE.NZ/NEWS

Avanti and FMT numbers revealed The two non-bank lenders included in a recent KPMG survey – Avanti and FMT - show strong growth in lending and profitability.

Avanti is now the second biggest non-bank in the survey, with total assets of $1.62 billion, while First Mortgage Trust (FMT) has surpassed the $1 billion mark.

Avanti’s total assets increased 29.09% compared to the previous year, while FMT was up 17.58%.

However, it was a different story when it came to net profit after tax (NPAT). Avanti was up 42.16% to $30.16 million while FMT saw its NPAT fall 2.08%. Despite the drop, the NPAT was still $43.52 million, compared to $44.70 million in the previous year.

Across the Financial Institutions Performance Survey (FIPS) survey of 26 firms, the average increase in net profit after tax was 3.24%.

Avanti saw a good increase in its net interest income, rising 11.73%, while FMT was lower at 3.09%. Both were ahead of the sector average of -8.27%.

The survey also found Avanti pushing ahead of Latitude, while UDC maintained its clear lead, with twice the assets of the next biggest contender.

FMT managed 9.83% growth in gross loans and advances, achieving assets worth $1.099 billion.

Formed in the 1990s after three law firms - Sharp Tudhope, Cooney Lees Morgan and Holland Beckett Law merged their nominee companies into a mortgage trust, FMT also had a net interest rate margin of 6.12%, comfortably ahead of the industry average of 5.69%.

That was a slight fall from 6.93% a year ago, but it still helped the company into fifth ranking overall in its assets.

Avanti recorded an increase in gross loans and advances of 26.65%.

Avanti chief executive Mark Mountcastle says the company has grown rapidly since he joined it seven years ago; its balance sheet at the time was about $150 million, one tenth of its current level.

“The way we went about [getting this growth] was by cultivating the long-standing relationship we had with our introducer base, and broadening our product offering to increase our relevance and give a service to a broader client group.

“In the finance market there are limited opportunities outside of the main banks. We are one of them and we want to extend our reach.”

Mountcastle adds that while Avanti may be second in ranking, the leader, UDC, is owned by Japan's Shinsei Bank, while his firm is owned and run by a New Zealand board. ✚

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09

UP FRONT • PEOPLE

Collins leaves Peros Mike Pero Mortgages chief executive Mark Collins has accepted a new role outside of the finance industry.

Collins, who also headed up Liberty Finance and Mike Pero Real Estate, is the new chief executive at ChildFund.

ChildFund New Zealand was established in 1990, to help children and young people to thrive in communities impacted by poverty.

After working in the finance sector for more than 20 years, it’s a big move - but one that is close to Collins’ heart; as well as leading large multi-national organisations in his career, he has also initiated small start-ups, including his own charitable enterprise.

“Starting a business that helps people gift their tax rebate back to charities opened my eyes to the hugely valuable work being done by charities.”

Collins says it’s an exciting time to take the helm at the not-for-profit.

“There is an amazing opportunity to build on the work that has already been done by the ChildFund team and to move forward in addressing the many challenges facing the international development and charity sector.

“Not least the impact of COVID-19, and now Omicron, on the work in the field, but also driving forward funding initiatives to ensure we can keep delivering impact to the children and communities we serve.”

Collins, who has also held roles Sovereign and NZ Home Loans, says stepping into the international development sector is an opportunity not only to utilise his experience to deliver impact, but an opportunity to grow personally.

“I have the commercial and leadership skills - and I look forward to helping ChildFund optimise its funding and new innovations, to lead to even more impact for the children.

“I can think of no higher calling than making an impact to the lives of children to help them achieve their potential.”

Aurora establishes head of mortgages Digby Butcher has been appointed to the newly-created role of Director of Mortgages and Lending at Aurora Financial.

Aurora is an Auckland-based firm which recently launched its own KiwiSaver scheme. It is now looking to grow mortgage advice, thus the new role.

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Previously, Butcher spent nearly seven years with Threefold Advisors as an adviser and client services manager.

Aurora managing director Simon Rolland says Butcher brings “a huge skillset and knowledge as we look to scale our mortgage business.”

“Digby is passionate about giving

clients the best advice and deals around their home loans, and is looking forward to the challenge of growing our team across the country.”

The new role includes growing the business, overseeing tricky transactions, ensuring advisers provide a high standard of advice and looking after the back end of the business.

SBS Banks has named Shaun Drylie's successor

Mark McLean has been appointed chief executive at SBS Banks following the recent resignation of Shaun Drylie.

A member of the SBS team for more than 10 years, McLean has held various roles, including Chief Risk Officer and acting Interim CEO. Most recently, as General Manager Member Experience, he headed up the Branch Network, Contact Centre and Marketing and Customer Insight divisions, as well as sitting on the board of SBS Bank’s subsidiary company, Finance Now. Originally from Southland, McLean is a well-respected member of the community in both Southland and Otago. He brings a wealth of business experience and knowledge through his working career prior to SBS, which included international banking leadership roles in Europe and Asia.

As a long-serving member of the SBS Bank Senior Management team, McLean has been heavily involved in developing and delivering the SBS strategy. The SBS Board believes that his appointment will ensure the organisation has continuity, as well as ongoing momentum in terms of future direction and strategy.

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SBS Chairman Joe O’Connell says McLean’s broad exposure within SBS gives him a well-balanced understanding of the group – and of what makes it unique.

“He has an undeniable passion for SBS. He believes strongly that member ownership is important and that being a mutual sets us apart. We believe Mark is a real asset to the organisation and have every confidence that his leadership will ensure the continued growth and success of SBS into the future."

McLean says his belief in SBS remains as strong as when he joined the group in 2011.

“I knew that I had joined a special organisation, and my passion for providing the very best experience for our members has never waned. Being a member-owned bank is pretty unique.

We’ll continue to keep our members at the heart of everything we do.”

He will remain in his current position as GM Member Experience until December, when current SBS Group CEO Shaun Drylie leaves the organisation, after five years, to be closer to family and business interests in Canterbury. ✚

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011

UP FRONT • PROPERTY NEWS

Property managers to be regulated Associate Housing Minister Poto Williams has released a discussion document for consultation on what a new licensing regime will look like for property managers in order “to make things fairer for renters and landlords”.

The new legislation will cover property management companies but not private landlords. New Zealand is one of the few countries in the OECD that does not regulate property managers.

About 59% of the country’s private rental properties are under management.

At the beginning of 2020 this was 49% but there has been a significant swing to property management companies by private landlords since new government legislation and Reserve Bank tax rules have been introduced over the past two years.

Williams says property managers will have to comply a code of conduct, professional entry standards, established industry practice standards be accountable through an independent, transparent and effective disciplinary and complaints resolution process, under the new regime.

A regulator independent of the property management industry is to be appointed.

Under the professional entry requirements property managers must be 18 years of age, pass a fit and proper 012

TMM 01 • 2022

person test and undertake education/ training with a basic course of 15 hours.

Industry standards include 20 hours a year of continuing professional development, indemnity and public liability insurance and trust accounts (including independent review with periodic audits as required by the regulator).

If a property manager commits an offence under the new legislation to be introduced this year, they can be fined up to $40,000 and if a companies does the same, it can be fined up to $100,000.

Cost recovery is a major issue for the new regime. It is expected a mixed model will be used involving full cost recovery of some services, partial recovery of others and no recovery of public good regulatory stewardship costs/initial establishment costs.

A significant portion of the costs associated with the delivery of the new system will be through fees and levies rather than being funded by the Crown.

Te Tuapapa Kura Kainga is to be appointed to oversee and report on the performance of the regulatory authority.

New Zealand Property Investors chief executive Sharon Cullwick says the federation is pleased property managers will be licensed. “There have been a number of calls for the industry to be regulated and we agree with it,” she says.

“Independent landlords are dealing with only their own rental income but property managers are often dealing with income from hundreds of properties She says the industry also has a high turnover of staff. On average property managers last about eight months. “If it is regulated and becomes more professional it will be a massive improvement for landlords and renters.”

Willlisms says the Government is committed to improving the wellbeing of all New Zealanders and housing plays a fundamental role in that.

“We have heard the calls of the sector, which has said the lack of regulations mean renters feel reluctant to complain to, or about, their property manager for fear of losing their homes or jeopardising their ability to rent houses in the future.

“Property owners are also vulnerable to poor conduct by property managers, and we know of some instances where unregulated property managers have misused rental income and bonds and provided little or no property inspection and maintenance.

“Today’s proposals are part of a suite of initiatives designed to improve the operation of the residential tenancies market and ensure New Zealanders have access to secure, healthy, and affordable housing,” Poto Williams said.

Landlords to be belted again

by Government Private landlords could be faced with further restrictions on running their properties as a business.

Associate Housing Minister Poto Williams has asked her officials to look at rent controls and rental indexing as a way to help renters struggling with the cost of accommodation.

She told TV1’s Breakfast programme nothing is off the table as far as controls on rents are concerned.

“I’ve charged officials at HUD (Ministry of Housing and Urban Development) to go away and look at what are the options we can put in, in the short term to support renters.”

She has asked officials to come back with a list next week of things that can be looked at. “Nothing is off the table.”

Williams says there are a lot of proposals, such as rent controls and indexation and there are other things she has asked officials to look at. “With some of the measures being proposed a balance needed to be struck to ensure inequities weren’t created in other place.

“Proposals around rent controls and the like overseas have shown that while

it will alleviate issues in one area, it sometimes causes problems in others.

“So whatever measures are put in place there is a trade-off and a balance that’s to be struck.”

Property Investors Federation chief executive Sharon Cullwick has a 10 minute scheduled phone call with Williams on 14 January with other stakeholders and believes it will involve Williams outlining what the Government is going to do.

“I believe she already has most of the information and plans are basically in place. It will be a case of no negotiation with anybody and having to swallow yet more Government legislation belting landlords.”

She says the Government has implemented many pieces of legislation over the past couple of years to limit house price increases and in turn rents to little avail.

“The Healthy Homes Standards were introduced when there was a housing crisis and this reduced private rental stock as some landlords across the country baulked at the cost of bringing

their houses up to the standards and sold properties, many to first home buyers, taking them out of the renal pool.

“The introduction of 90-day notices to terminate a tenancy under limited conditions has meant landlords are unwilling to rent to a marginal tenant and give them a chance, while Tenancy Tribunal powers to grant name suppression to tenants means landlords cannot do checks on potential renters.

“The recent CCCFA changes and LVR requirements means getting a mortgage is infinitely more difficult for landlords and borrowers.

“On top of all this they are going to face a sticky situation in April when their tax returns are filed and they realise the enormity of the Government’s phasing out of mortgage interest tax deductions.

This may prompt a wave of selling.”

Cullwick says she has been advising landlords to immediately make sure their properties are rented at market rates, even if the rent has to be increased for long-established tenants. “The federation could see some form of rent controls coming.” ✚ WWW.TMMONLINE.NZ

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UP FRONT • REGULATION

The next piece of the puzzle

I

Matthew Martin takes a closer look at the ‘CoFI’ Bill – the latest in a series of moves to overhaul the financial services sector.

t's probably the last thing mortgage advisers and lenders want to think about right now, but by mid-2022 it will probably become a reality.

The Financial Markets (Conduct of Institutions) Amendment Bill, known as CoFI, will be back for its second reading in the first few months of the year, adding – if passed - to the ever-increasing list of regulations covering the sector.

Advisers and industry experts say they understand the basis of the bill, but are not so pleased with the additional costs it will impose on practitioners. But, they say, it's a bridge they will cross when they come to it.

First, however, a bit of background on CoFI and what it means for the institutions and advisers will oversee.

Regulating conduct of financial institutions Introduced by Government in December 2019, the legislation intends to regulate the conduct of financial institutions.

CoFI will require banks, insurers, non-bank deposit takers and lenders to be licensed in respect of their general conduct towards consumers. It means that financial institutions will need to establish, implement and maintain effective, fair-conduct programmes throughout their businesses, to ensure they treat consumers fairly.

It will also require financial institutions and intermediaries involved in the chain of distribution to comply with regulations which regulate incentives.

These regulations will be able to prohibit sales incentives based on volume or value targets – for example,

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soft commissions such as overseas trips, bonuses for selling a certain number of financial products, or leader boards.

If passed, the bill will see businesses needing to apply for another licence from the Financial Markets Authority (FMA), and to set out what is required for the conduct of intermediaries.

From April to June 2021, the Ministry of Business, Innovation and Employment (MBIE) consulted on two discussion documents relating to CoFI. The bill was discussed briefly in Parliament in June, with National Party list MP Nicola Willis (now deputy leader) immediately criticising it as "...a compliance heavy, box-ticking exercise".

Willis said her party opposed the bill, but acknowledged the fact that "... financial institutions, banks, insurers and the like should have controls in place to ensure they are focused on the best interests of their customers".

Multiple concerns MBIE said in a statement that stakeholders had raised several concerns, including the proposed requirements for financial institutions to oversee and train any intermediaries distributing or managing their products to ensure good outcomes for consumers.

"They have also raised concerns about the overlap with the obligations that apply to some intermediaries under the new financial advice regime – the Financial Services Legislation Amendment Act (FSLAA).

"Stakeholders' concerns have centred around the breadth and scope of the definitions and obligations, and the potential cost and burden of compliance."

‘Industry experts say they understand the basis of the bill, but are not so pleased with the additional costs it will impose on practitioners’ MBIE sought feedback on options for amending the bill to address the concerns, particularly concerning the definition of an intermediary, the obligations for intermediaries, and the obligations for employees and agents.

"Feedback on these proposals will inform officials' advice to the Minister of Commerce and Consumer Affairs to enable policy decisions."

The FMA says it, like everyone else, is waiting on the outcome of those amendments and the completion of the second reading.

"The Government will need to decide whether amendments should be made to the Bill (via Supplementary Order Paper) and whether regulations are necessary to support the new regime, taking into account the feedback received from the consultation,” the agency said in a statement.

"The FMA will continue to engage with industry before and after the policy decisions are confirmed by Government to ensure that the expectations on financial institutions are clear."

Necessity questioned Mortgage adviser Cameron Marcroft, from Loan Market Central, says he questions whether CoFI is necessary right now. He hopes it won't appear on the scene before the issues with the Credit Contracts and Consumer Finance Act (CCCFA) are sorted out.

"I'm hoping CoFI doesn't impact our customers and clients like the CCCFA has.

"Compliance costs are always an issue and we will look at this when we need to.

We can't control that at the moment."

Marcroft says everyone will need more clarification when it comes to how CoFI will affect intermediaries.

"I don't think we have an issue with the soft dollar in New Zealand like they do in Australia, so are we going to achieve anything with this in the end?"

Aurora Financial chief executive Simon Rolland hopes the Government has been listening to the industry's concerns about the proposed legislation.

"I know there's a lot more scrutiny from providers, which is welcome because they need to know that what we are doing is correct.

"But if it's going to create more barriers to financial advice, we really don't want to make it any more costly.

"We are pro the industry getting better and pro having better advisers - but if the barriers are so high, it will continue to put people off."

Rolland says CoFI will inevitably add more costs to the business, especially in terms of compliance, on top of all of the other regulation issues the industry is facing.

"It would be nice for things to quiet down for a few years. But it’s another bridge we will need to cross when we get to it. We'll hope to turn it into a positive,

important, and we look forward to the revised piece [of legislation] landing.

"The Government and MBIE have been at pains to work closely with us, and with the sector as a whole."

Clear definitions required

‘We are pro the industry getting better and pro having better advisers - but if the barriers are so high, it will continue to put people off’ Simon Rolland as we have done with other pieces of legislation.”

Puzzle piece about to be put down Financial Services Council chief executive Richard Klipin says CoFI is the next piece of the puzzle in the Government's overarching conduct regime.

"It's important for it to land well and land correctly.

"It's also part of the emerging trend that financial advice is good for New Zealanders, and that all those regulations need to ensure that professional standards lift for consumers in terms of access to good advice."

Klipin says the implementation of CoFI will be critical and he commends the Government for taking its time to get it right.

"The conduct requirements on the large institutions are significant and

Lawyer Tim Williams, a partner at Chapman Tripp, says while a lot of detail is yet to be revealed, especially on how CoFI will affect intermediaries, he expects linear commissions will still be acceptable. He would like to see more guidance on the definition of the term "fairness".

He says due regard has been given to the “interests of the consumer”, but describes this as a very open-ended definition.

“Leaving it to the courts to determine would be a very poor outcome.

"Fairness should take account of both sides’ interests - but there is no recognition balancing the needs of providers."

The FMA's director of banking and insurance, Clare Bolingford, says the regulator wants to work with the industry, and that it is preparing a dedicated team to support the implementation of CoFI. She says the FMA learned a lot from FSLAA, and will try not to double up on information already collected for the financial advice licencing process.

The FMA will use a tailored approach, depending on the type of entity it is dealing with, its size, and the risk posed to consumers.

"This is not just saying the customer is always right, but there is a balance, and all sorts of considerations are taken into account. We will share good-practice examples when we see them." ✚

WWW.TMMONLINE.NZ

015

FEATURES • HOUSING COMMENTARY

Soft landing but 7% fall in house prices

A

NZ Bank is predicting house prices to fall 7% over the next year in a soft landing.

In its latest Property Focus, chief economist Sharon Zollner says numerous house price headwinds are expected to make for a different housing market vibe over this year and any market that was this nutty on the way up has to be at risk of a few unpleasant bumps on the way down.

Annual house price inflation slowed another 2.3% points in December to a still-bananas pace of 26.5%, and broader market conditions suggest there is plenty more moderation to come, she says. “The market is past its peak.”

Figure 1. House price forecast

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BY SALLY LINDSAY ANZ’s previous forecast was for prices to fall 3% and that has now that has increased to a 7% fall, but Zollner says it would take a significant household income shock - forcing the sale of properties - for house prices to experience a severe contraction.

“That said, anecdotes regarding the impacts of the Credit Contract and Consumer Finance Act (CCCFA) have certainly made ears prick up, and the 0.5% month on month contraction in December suggests this may be biting hard. It’s entirely possible this is the straw that breaks the housing market’s back, contributing to a sharper fall in prices than assumed.”

Zollner says significant house prices declines in New Zealand have previously coincided with global recessions. “This year, we’re expecting, for the first time, to see a period of house price declines without an associated recession.”

She says this reflects that the New Zealand housing market is in a unique place. A convergence of factors, including market forces (massive supply response), Covid disruption (the closed border) and regulatory responses (LVRs and consumer protections legislation) mean house prices are quite likely to decline due to factors specific to the housing market, rather than a wider economic shock.

Figure 2. Housing supply and demand imbalance

“The question we’ve tried to disentangle is whether this kind of house price decline is predestined to take economic momentum down with it. The answer appears to be no.

Sure, house prices are a key driver of household consumption spending – but so is household income, which is being supported by a record level of labour market tightness.

“So long as the labour market remains robust, and the economy isn’t hit by some unforecastable global or domestic shock, the modest house price declines we’re expecting over this year seem unlikely to derail the economy in and of themselves.

To be clear, lower house prices will probably weigh on demand for consumption and building activity compared with a scenario where the market continues to boom, she says.

However, the economy is so supply constrained that weaker demand may just mean less inflation, but similar growth. This kind of slowdown could do some of the RBNZ’s job for it, by taking heat out of the domestic economy at a time when underlying inflation pressures are at the risk of rising even further than expected at the end of last year.

“There are downside risks to keep track of. In particular, lower house prices will weigh on the construction industry, and could see large enough falls in consumer confidence that households pull back too much on spending,” says Zollner. But at this point, these remain as risks to ANZ’s central view that the economy can handle a period of moderately declining house prices (Figure 1. House price forecast).

Supply is a building headwind too.

By our estimates, the closed border alongside gangbusters construction activity means New Zealand’s housing deficit is closing to the tune of around

6,000 houses per quarter (Figure 2.

Housing supply and demand imbalance).

Supply continuing to outstrip new demand limits the likelihood that house prices will get wind in their sails again any time soon. But while there is still plenty of work to do before supply and demand are in balance once more (we estimate a housing shortfall of around 60,000 houses), a severe contraction in house prices and sentiment could certainly put the brakes on construction activity in time (not that we’re seeing much evidence of that at the moment!). In other words, unless the Government really ups its house- building game during the next construction cycle downturn, we’re doubtful NZ will end up with a sustained housing surplus.

But it’s not just new supply. Listings data also suggest that 2022 may be a better year for home buyers than 2021 was. Seasonally adjusted properties available for sale climbed a little further out of their record-low hole in December.

That’s a trend that buyers will be hoping to see continue through 2022.

But the housing and economic cycles in New Zealand are very closely related.

When the housing market is booming, the economy usually is too – and when house prices drop sharply, it’s always been at the same time as an economic recession Given the strength of the historical correlation between house prices and economic momentum, is it even possible to experience a period of declining house prices without seeing domestic demand stall?

Falling house prices would reduce building activity.

While household consumption may escape relatively unscathed from a moderate decline in house prices, it’s a different story for the construction

Figure 5. Median house hold disposable income (less housing costs) to median house prices

industry. Even if house prices simply grow at a slower rate, rather than falling as in the central and low scenarios, consents would be expected to slow significantly over the next few years. That’s not too surprising – building consents have been setting back-to-back records in recent months, so some moderation is expected (not least due to the extreme capacity constraints weighing on activity in the industry).

But the model does show that the slowdown in new building consents is likely to be considerably faster if house prices are also declining rapidly (Figure 5.

Median house hold disposable income (less housing costs) to median house prices).

Construction has been a key driver of economic momentum over the course of the pandemic – and even in the year to November, the 8.6% year on year rise in construction jobs was the largest of any industry. A larger contraction in construction activity could therefore act as a significant drag on overall economic momentum.

At this point, it’s worth remembering that the economy is more than just the housing market and construction industry, with residential investment making up less than 10% of the economy (Figure 6. Residential investment share of GDP). With jobs growth and labour shortages widespread across many industries, it’s not clear that a softening in the housing market will actually take the rest of the economy with it.

Labour shortages are widespread across most industries – primary industries in particular. So if a slowdown in construction did cause job losses, they would most likely be short lived as firms desperate for staff snap up anyone that lost their job. And that means the overall economic damage from construction activity slowing likely would be less in the medium term. ✚

Figure 6. Residential investment share of GDP

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LEAD

2022 promises to be a challenging year for advisers, with new regulations, more work, and an explosive rate of change.

BY ERIC FRYKBERG

THE YEAR F THE PRESSURE COOKER 018

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‘Every time I think it is going to slow down, and get back to some level of normality, it doesn't. The next thing just stacks up behind it.’

John Bolton

W

hat’s in store for advisers this year? A mass of challenges, that's what: from the large to the small.

The large problems include how to deal with the inflationary snowball and how to cope with the over-the-top requirements of the Credit Contracts and Consumer Finance Act (CCCFA).

The small problems include finding a system to separate out the important emails - those which so easily get lost amid a mountain of messages which don’t matter.

Then there’s re-establishing normal procedures after months of working from home in Auckland, not to mention getting ready for full licensing, dealing with a shortage of staff, and managing to somehow shrug off the burden of unpaid regulatory compliance work with a laugh and a beer at the end of the day.

New complexities Most brokers spent last year bracing themselves for state regulation, anticipating adding hours of work to every transaction for little real gain. They will spend this year actually having to deal with all this complexity.

Bruce Patten is one of them. A mortgage broker with Loan Market in Auckland, he is already getting pushback from the banks over loan applications which don't fit the detailed requirements of the CCCFA. This means he spends long hours sifting through bank statements, to try to help his client satisfy the bank.

He is working on a technological solution to make this task easier.

“In the New Year, we are working with a couple of companies to start running some pilot programmes. If we can do this work up front, the banks can run their analysis over the loan applications and hopefully everything will marry up.”

Patten says the software required to smooth out mortgage applications under the rigours of the CCCFA is pretty

technical, but he is confident of making progress in the long run.

“It's not a perfect science, but it'll get better. Soon we'll be running statements straight through a system that will automatically determine a person's debtservicing capability.”

What Patten is referring to is the few-beers-at-the-pub which might now have to be factored in to a person's debt-servicing ability. Sorting through this detail requires hours of hard work, but Patten is optimistic about an eventual solution.

“I am not talking about the next few months, but in the next few years our job will be more about advising and structuring. Everything else will be automated in terms of deciding what a person can borrow based on their spending habits.”

The rate of change Patten's observations are not unique.

Many similar points were made at a webinar organised by the umbrella body for advisers, Financial Advice New Zealand.

Speakers there included John Bolton, from Auckland firm Squirrel. For him, coping with the rate of change will be one of his big challenges for 2022.

“It's just getting faster and faster. Every time I think it is going to slow down, and get back to some level of normality, it doesn't. The next thing just stacks up behind it.”

Bolton cites rapidly increasing interest rates, the removal of tax deductibility on property investments, the CCCFA changes, and other stringent regulations.

Unexpectedly, he is also finding himself deluged with paper - voluminous sheets of it - despite the promises and expectations of the digital economy.

“We are bombarded with more and more paperwork, different types of forms left right and centre, a myriad of processes across lenders, new calculators, plus the CCCFA legislation – I won't talk about this, but it’s clearly a mess.”

Like Patten, however, Bolton endorses - rather than despairing over - digital solutions. He just thinks there needs to be more of them, and they need to work better.

One such solution has already been adopted: an app which gives his clients access to his own diary, to streamline the process of booking meetings or zoom calls. It forestalls procrastination and reduces the number of unnecessary emails in his inbox.

Bolton describes the system as “epic”.

“It is honestly the best tool I have ever used. I’ve sold it to my whole team… it has changed our lives and it helps with email control, which is a major issue for us.”

Another technological solution was to digitise all staff handover forms. And even though this process had to be redone for CCCFA compliance – a “pain in the ass” in Bolton's words – it still made a huge difference.

The impact of LVR restrictions Along with the technical and compliance issues around getting loans approved, another problem faces the industry in the coming months: many loans will just not be available.

Bruce Patten explains further: “With LVR [Loan to Value Ratio] restrictions, it is very hard to get preapproval for a 90% borrower at the moment - because the banks have all run out of money.

“They are restricted to doing a maximum of 10% of their lending to anyone with a low deposit. Pretty much all the banks are getting close to their caps, because they already had a lot of pre-approvals in place that are now coming to fruition, so a lot of them have shut their doors to new business.”

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‘The amount of work we will have to do for every mortgage application has probably gone up by 30 to 40%’ Bruce Patten

high-LVR loans, which means good, safe borrowers who arrive later are forced to miss out.

The impact of this is already being felt at the low end of the property market. A report by Quotable Value New Zealand (QV) found the cheaper segment of the industry was faltering: “Real estate agents are reporting a significant upswing in listings, while open home attendance rates are falling.

Some properties are being passed in at auctions, which was unheard of a few months ago,” the report found.

This was happening even as property prices soared ever higher, pulled skyward by upper-end buyers with lots of ready money.

Patten has witnessed the problem for cheaper houses first-hand.

“I was watching Barfoot's auctions: out of 20 auctions, they got only about eight away, a really low number. So we will see more properties on the market, we will see the market slow, which is what the Reserve Bank wants.”

This, however, is one process which might be self-correcting. “[The Reserve Bank] will say, ‘OK, we can move that indicator from 10% of all our lending to 15%,’ and I see that happening towards the end of the year, which will free things up for first home buyers.”

In other words, the current LVR logjam might not last too long, if only because it does its job far too well in the short term.

Getting a full licence: a massive undertaking All this augurs for a busy year, with a serious weakening of the lower end of the property market perhaps starting to correct itself by next summer. While that is happening, advisers will be busy surmounting yet another compliance hurdle: getting a full licence.

Bruce Patten says the interim licences were very basic. Anyone who applied for one could get it. But the full licences will 020

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have to describe not just office procedure in detail, and how brokers will comply with the rules, but also how they will audit all their work.

“We are going through that full process at the moment, and will be applying for our full licence next year.

“It is a massive undertaking. We’ve got to give the Financial Markets Authority (FMA) everything, in order to have them sign off on how we go about things.

“And then, of course, once we start on full licencing, the first thing the FMA will do is come in and start auditing our auditing. So that is why it’s important to get it right.”

There will be a greater quantum of work than previously for the brokerage firm itself to audit, and for the FMA to counter-audit.

“The amount of work we will have to do for every mortgage application has probably gone up by 30 to 40%, so it is going to require more staff to make sure we are processing applications efficiently and correctly.”

That points to another problem: the sector is already short of staff - and noone knows exactly where reinforcements will be coming from.

More lending by non-bank sector Another likely development this year is an increase in lending by the nonbank sector relative to the main banks, who will lose their dominance in home lending. This dominance has been put at 93%, but is likely to come down.

This was foreshadowed by economist Cameron Bagrie during a recent webinar.

He said banks were increasingly focusing on straight-forward lending, and would leave “anything a bit imaginative” to the non-bank sector.

Lyn McMorran heads the professional body representing non-bank financial institutions - the Financial Services Federation - and she basically agrees.

‘Getting a loan from a bank will become such hard work that the ordinary citizen will need a broker more than ever’ “A lot of the non-bank housing lenders are now receiving applications that are pretty good quality, but for whatever reason just don't fit the banks' criteria.

“But [non-bank lenders] are subject to CCCFA requirements as well, so it doesn't mean, automatically, that if you are turned down by a bank, a non-bank lender will be able to help you, because they might not.

“You have to feel very sorry for people who had pre-approval from a bank and thought they were going to be able to buy their first home, and now, because the rules have changed, are being told, ‘We cannot help you.’

“These are people who would genuinely meet their commitments… because it is important for them to keep a roof over their heads.”

According to McMorran, both the credit squeeze from LVR rules and the new CCCFA regulations will hamper the ability of people to access credit in order to recover from economic damage caused by the Covid lockdowns.

A silver lining For some advisers, layer upon layer of new impositions will bring a bonus of sorts. Getting a loan from a bank will become such hard work that the ordinary citizen will need a broker more than ever, just to be able to understand what is going on.

John Bolton: “I see from the ANZ that 50% of their business is coming from a broker. It's amazing, because, if you go back seven or eight years, the percentage was probably in the high twenties.

“If Australia is any gauge, we’ll be heading for 60%. Probably higher. Things like the CCCFA are going to push more people to work with advisers.”

The extra business this will bring the industry will be offset by a big increase in the amount of unpaid compliance work per transaction. But, like all business people, brokers welcome greater custom.

Many of them speak of personal as well as professional satisfaction from treating clients well.

One such person is Richard Thomas, of the Share network of financial advisers.

He says he gets pleasure from giving advice to clients “who probably need it more than ever.”

“Some of the discussions you have with clients are not always profitable from a monetary sense, but are certainly profitable from an enjoyment sense.

“That might sound a bit woke, which I am not, but that has certainly been the highlight for the last year. This year I’m looking forward to more of the same.”

In other words, guiding an otherwise helpless client through a bureaucratic labyrinth makes Thomas feel he’s doing the right thing.

Doing better David Whyte of DCW Management puts it another way, saying the response to

the challenges caused by the lockdown could set an example for future behaviour.

“I know that at Lifetime, the advisers and the care sector contacted 8000 clients during the lockdown to ask how they were.

“It was not a sales pitch, it was not do-you-want-fries-with-that, it was just, ‘How are you doing, how are you going, are you feeling good?’

“It was not about the mind, it was all about the heart, and it worked. It put a stake in the ground for the regulators in terms of how advisers conduct themselves.”

Simon Manning of Wealthpoint has a similar perspective: he thinks the industry needs a strategic rethink - but adds that the coming year will provide a turning point for his company.

He sees a bright future for the financial advice industry, despite its difficulties.

“We have to think about what this business looks like in the next three to five years, so this is a very exciting time for us.

“We are just seeing complexity, challenge and change. The economy of New Zealand is going through a pretty challenging period, with inflation and lots of other pressures.

“But this means it is a great time for advice. It’s a great time for advisers.

‘It’s a great time for advisers. Whenever there is complexity, whenever there is uncertainty, advisers come to the fore’ Simon Manning Whenever there is complexity, whenever there is uncertainty, advisers come to the fore.”

In other words, many brokers see a silver lining of sorts, but they all remain aware of the cloud: a bureaucraticallydriven increase in the amount of work they have to do, from which they don't earn income.

“We have lenders who will pay us an upfront commission and no trail, and yet we are managing that customer through his whole life journey,” said one.

“That includes fixed-rate rollovers and regular advice, which is getting higher and higher as regulatory complexity increases.”

This leaves brokers with the greatest professional challenge of all: keeping the regulator happy, and doing right by their clients, while somehow still earning a living. ✚

Lending People Opportunities We’re looking for a new Senior Mortgage Adviser.

We’re in the business of backing people to create brighter futures. That could include yours.

Do you have: • Considerable experience in home loan lending and/or brokering?

• Cert 5?

• Established industry relationships?

• A relevant tertiary degree or qualification?

• A solid understanding of systems in the Fintech space?

Yes? Then read on…

If you like the sound of joining a successful (and growing) finance brokerage in the FinTech space, then you’ll love this: • • • • • •

No hunting for leads Your very own support team A state-of-the-art CRM system Fully compliant under our FAP Uncapped incentives Cross marketing opportunities with personal loans and risk insurance • A modern office • A flexible, inclusive company culture • A negotiable package

Think we could be a good fit?

Send your CV through to Richard — richard@lendingpeople.co.nz

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SECOND LEAD

Near-prime loans on the rise Designed for those with less-than-perfect credit credentials, near-prime lending fills a growing need.

BY ERIC FRYKBERG

P

ractically everyone has to borrow money at some stage in their lives.

For some, however, a health scare, relationship breakup or business failing can make them an unwelcome presence in the bank manager’s office.

Even a few missed bill payments due to absent-mindedness can incur a bank manager's lingering frown, long after the bill-payer has reformed and made a point of paying attention to daily financial obligations.

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‘We think the nearprime segment will grow massively’ Sue Griffiths Add to that the recently introduced Credit Contracts and Consumer Finance Act (CCCFA), which makes it harder for people to get a home loan from a mainstream lender: deep dives into

applicants’ expenses have seen loans declined, because too much was spent on coffees or going to the gym.

The result of it all? A section of society which fails to meet the stringent requirements for a regular loan.

For clients with less-than-perfect credit credentials The non-bank sector has long recognised that there’s a market in lending money to these people, and it set out to serve

them with what are commonly known as ‘near-prime loans’. Designed for those with less-than-perfect credit credentials, these loans have a role in New Zealand – a role that is growing.

Estimates put the current, nonbank market share at around 4.5% - a proportion which, according to some industry experts, may triple in coming years.

Sue Griffiths, head of sales for finance company Bluestone, serves many nearprime customers.

She says their financial backgrounds are often complex, with bank statements showing payments from a variety of sources. There is often a mixed history of full-time and part-time work, for example, topped up by money from benefit payments or from Working for Families.

“They often have multiple incomes, or different sources of income, and sometimes the [mainstream] banks don't like that kind of thing.”

Self-employed people can encounter the same problem, Griffiths adds. They often have variable earnings, coming in fits and starts, and factors like the Covid-19 lockdowns gave a distorted picture of their real, long-term income.

“We’ve been seeing a lot more nearprime loans starting to come through in the last six months, and a lot of that has been on the back of self-employed businesses which don't have the full financials.

“We think near prime will grow massively. There is a lot of credit tightening going on with the main banks, and that’s a great opportunity for nonbank lenders.”.

Massive need for alternative loans Pepper Money sales manager Michelle Sargeant says near prime is a huge part of their business.

“When we first thought about coming to New Zealand, we looked at the market and saw a massive need for clients who don't fit in prime.

“If you look at our product range, near prime is our biggest product at 70%.”

Non-banks tend to price their loans on a risk-assessment basis; while they can be more costly than a mainstream bank, in some cases they can also be cheaper.

For instance, Resimac’s floating rate is lower than what banks are offering. iLender adviser Jeff Royle, who is one of the biggest writers of non-bank loans in New Zealand, says the important question remains whether the client can afford it.

Sargeant says the actual level of the interest rate will vary from customer to customer, based on risk – and on an assessment of whatever led to the customer’s credit impairment.

She notes Pepper commissioned a survey which showed that 40% of people who had been declined by a mainstream bank had not looked elsewhere.

‘Near prime works for good people who have had bad luck. They are not irresponsible wastrels who spend hours in the pub every night’

For good people with bad luck Resimac New Zealand general manager Luke Jackson says the company was a leader in developing the near-prime market in this country.

“We do a prime offering and compete with the banks in that space. Then on the other side we also do credit-impaired.

“Bad things happen to good people.

People come out of matrimonial splits and all sorts of things where they end up with adverse credit, and we have facilities that work for them.”

The way Jackson describes it, near prime works for good people who have had bad luck. They are not irresponsible wastrels who spend hours in the pub every night, and the non-bank lenders would not be reckless enough to advance money to such people.

He says near-prime customers are mainly decent people who have run into strife and need some help to put it behind them. Or they may have fallen victim to the new CCCFA rules.

“They may have a couple of credit issues which have aged, or which are of minor amounts, but they still don't fit the banks' appetite because of them. You wouldn't say they’ve got extreme credit issues, they are just in the near-prime space.”

Jackson says prime still makes up the lion's share of what his company does.

But he wants Resimac to have something for everyone, and near prime helps them do that.

More satisfaction helping people Michelle Sargeant sees another advantage to near-prime lending: it is a more fun.

While she insists on being as careful with money as anyone else, she says there can be satisfaction in helping people get out of a mess. She cites the case of one of her clients, who had recently gone through breast cancer.

“She didn't have any trauma insurance or income-protection insurance, so she had to do what she could to pay her medical bills and feed her children.

“When you know you’re helping people to keep their homes, it is rewarding.

Absolutely rewarding”.

Another client, Daniel, had recently finalised his divorce.

“Daniel was keen to use his small matrimonial settlement to get back into a home to provide stability for his children, of whom he had joint custody.

“His savings weren't quite enough… and he also got hit with two defaults due to his separation.

“His parents agreed to come on board, to split both the deposit and the loan.

But because they were in their 60s, the mainstream lenders were unable to approve a 30-year loan.”

Griffiths says this is the sort of detail that non-bank lenders can and do work through, to the benefit of themselves and their clients.

Price depends on risk

New regulations may mean more near prime

Like Pepper Money, Resimac’s nearprime loans vary in price.

“If you are less leveraged, like buying property with a 60% LVR (loan to value ratio), it is priced cheaper than if the LVR is 80%. It depends on the customer and on the level of risk.”

Resimac has two main types of mortgages - full doc and alt doc - which are adapted from American ways of assessing income. Alt-doc loans incur a slightly higher rate than full doc, and near prime would be about half a percentage point on top of those.

At present the mortgage market is overwhelmingly dominated by the big five banks. That leaves a relatively small amount of total mortgage custom available to non-bank lenders.

But there’s speculation that the volume of paperwork required by the CCCFA will cost time and money, pushing some loan applicants, who are marginal anyway, below the threshold of acceptance by the mainstream banks.

If that happens, there could be more custom for non-banks, some of which could end up as near-prime lending. ✚ WWW.TMMONLINE.NZ

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FEATURES • SPONSORED CONTENT

Pepper Money to deliver transparency, confidence, and efficiency in 2022

A

s we welcome the new year, Michelle Sargeant, National Sales Manager at Pepper Money reflects on the remarkable year that was 2021 along with the challenges and opportunities faced by the non-bank industry.

Opening the doors in 2019, Pepper Money is a relative newcomer in the New Zealand market and has already helped hundreds of families achieve their home ownership goals. Faced with what has arguably been the most challenging period of our times, Pepper Money has established itself as a lender that truly

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embodies the spirit of the non-bank sector.

Navigating uncertain times We all faced another year of challenges in 2021 and despite COVID’s disruption in the lending market and tighter lending restrictions, Pepper Money never wavered on their values of ‘can do’, ‘balanced’ and ‘real’, says Ms Sargeant.

“With thousands of households impacted by the pandemic, Pepper Money wanted to make sure those who needed hardship support or financial help could access it easily. Our Financial Hub provided

guidance to hundreds of online visitors and their team personally supported a number of families along the way.”

And, with the changing lending landscape and economic impacts of the global pandemic, Ms Sargeant adds, “Chances are many Kiwis that have never needed to consider an alternative lender in the past are now finding themselves needing a specialist solution.

This unknown territory combined with increased turnaround times and paperwork from some lenders, can increase a customer’s unease when applying for a home loan.”

The Pepper Money approach Pepper Money provides a variety of flexible home loan solutions designed to meet customer needs, including some the banks won’t. “We think that all Kiwis should know their options and too many have been turned down for a loan without knowing there could be an alternative available,” says Ms Sargeant. Pepper Money brings much needed choice, and competition to the non-bank market in New Zealand, and if they can find a way to help – they will.

“We aim to connect with the customer’s goals, acknowledge that they are not defined by their situation, and find a win-win outcome. And despite the individual assessment process, we maintain a one-day turnaround for home loan enquiries,” she said.

Pepper Money’s unique underwriting assessment enables one application access to their three credit policies attached to a range of home loan products. This unique process can increase the probability for advisers to find a solution for their customers.

A service, financial advisers can count on Ms Sargeant and the Pepper Money team know that their responsive BDMs are one of the top reasons they have been able to establish themselves as a trusted lender with advisers. She comments, “While building strong relationships with our partners has always been part of our mission, it was even more important last year as we were disrupted by the pandemic. Our team went above and beyond to make sure adviser felt supported.”

This was achieved on a number of levels, from personalised service, efficiency through our unique technology platforms, and a strong focus on education.

Of course, this is strongly supported by market leading one day turnaround times for credit approvals. “While our competitors can take multiple days, we can offer one-day credit reviews, so financial advisers can focus on what matters most – helping Kiwi families succeed,” she said.

Credit expertise to count on Pepper Money’s service and flexible approach to lending is enabled by a team of credit experts who are passionate about taking time to understand a customer’s personal circumstances to ensure they get the most appropriate product and rate for them. Ms Sargeant says, “That’s why we increased the

number of credit assessors on our team last year and worked harder than ever to maintain our industry-leading turnaround times.”

Financial advisers have direct access to these Pepper Money credit decisionmakers who provide early feedback and information to address any applicant questions quickly and easily. It’s this kind of decision making that makes a rea life difference for advisers and customers alike.

A shifting regulatory environment Despite upcoming changes to regulation, Pepper Money maintains focus on keeping processes and documentation requirements as simple, easy and fast as possible for financial advisers and their customers.

In a landscape where legislation continues to evolve, Ms Sargeant says Pepper Money is committed to working closely with their adviser network and supporting them through the changes.

Thanks to an innovative and digitally enabled mindset, they are potentially better placed than many to support brokers in complying with their existing and new regulatory obligations.

Efficiency and opportunities with technology Now more than ever technology is creating opportunities in non-bank lending, and Pepper Money has been relentlessly focused on the way they deliver value to advisers and customers.

Commenting on what’s to come in 2022, Ms Sargeant says, “We will continue to leverage technology this year to make it even easier to work with us and provide scalable growth opportunities for financial advisers.”

She adds, “We’re always on the lookout for how technology and process efficiencies can help make our financial adviser’s life better.” Pepper Money’s suite of digital tools helps financial advisers and distribution partners better serve their customers, enabling them to identify available loan products faster and more accurately – while offering a seamless application experience.

The non-bank continues to invest in improving their platforms, drawing on best practice from beyond the financial services sector, and embedding financial adviser and customer needs into every aspect. A prime example of one of these tools is the Pepper Product Selector (PPS) – an innovative online tool that lets financial advisers assess the customer’s borrowing capacity and see indicative home loan rates and fees quickly and easily.

‘We think that all Kiwis should know their options and too many have been turned down for a loan without knowing there could be an alternative available’ Michelle Sargeant

In less than five minutes, a financial adviser can calculate their client’s indicative borrowing power upfront, check their credit history with no impact to their credit score and have an indicative offer – with the product, rates, fees and repayments, and if there are Pepper Money home loan options for the customer.

“We continue to optimise Pepper Product Selector and consult regularly with advisers who use the tool. We will continue to do this to help give advisers and borrowers a seamless, effortless experience,” Ms Sargeant says.

What’s next in 2022 The Pepper Money team are set to build on the solid foundations from last year and are poised to support more advisers help even more customers with their home loans dreams. “We are energized for what 2022 will bring, both for Pepper Money and our instrumental industry,” says Ms Sargeant.

“As we embark on 2022, we are excited for the opportunity to leverage our core capabilities, including the knowledge and strength of our BDMs, consistency of credit service levels and lending capabilities. This is underpinned by the consideration of broad income types and credit history profiles – which are all the important building blocks to support advisers and their customers through a successful year.” ✚

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FEATURES • ADVISER WELLBEING

Study finds pre ures on advisers

BY ERIC FRYKBERG

W

hat’s the biggest task facing advisers? Reading and answering emails according to a new survey.

The percentage of time spent on emails was 15.54%. Answering phone calls and texts took up a further 8.82%.

Adding admin and government compliance to the mix came to almost half of most advisers' working day.

By contrast, their core business, dispensing financial advice, took up 10.72% of working time, and drumming up new business a mere 4.63%.

This imbalance contributed to a high level of stress among many advisers.

In some cases, they had sleepless nights.

These are among many findings of a new study of the financial advice industry.

The study comprised a survey of 500 advisers in New Zealand. It was funded by the insurance company AIA and carried out by the Australian research firm E-Lab and an academic from Deakin University in Victoria.

Their research produced some dramatic results, including 41% of advisers having either moderate or high risks to their mental health.

Broken down further, the three most significant categories of risk were people who said they were ‘tired out for no reason’, they were ‘nervous’ and they found that ‘everything is an effort’.

The next two most significant categories were people who said they were “depressed ' or felt 'hopeless'.

Despite these trends, New Zealand advisers can take some comfort from the fact that the situation is even worse in Australia.

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In this country, the moderate and high risks to mental health affected 30% and 10% of financial advisers respectively. In Australia, the figures were 38% and 19%.

This was attributed to the bureaucratic complexity of running a brokerage being even worse across the Tasman than it is here.

Sticking with the New Zealand figures, the study goes on to look at just how stress affects financial advisers.

The biggest single impact was the ability to sleep. Just on 17% of advisers strongly agreed that work stress kept them awake at night, while 28% 'somewhat agreed ' with the same statement.

The stress level led 10% to strongly feel that they might quit their job while 16% somewhat agreed they might.

Stress was also affecting their weight, with 10% believing that strongly, and 22% thinking it was somewhat true.

The survey did go further into this, so it is unclear whether advisers were putting on weight by eating comfort food during trying moments, or losing weight from stress and worry.

Despite these negatives, financial advisers revealed some positives in the survey. They were usually absorbed by their work, or fully engaged by it, for much of the time. They were 'in the zone', and time in the office did not drag.

Even so, financial advisers' mental involvement in their work fell short of two occupations that were compared, school principals and partners of companies such as law and accountancy firms.

Work-life balance also fared quite well.

Just on 67% of advisers could achieve home and work expectations, often or

Insights from the New Zealand adviser wellbeing research 2021.

mostly. Around 24% could achieve this balance sometimes and 9% managed this goal rarely or never.

Again, the figures were worse in Australia.

The survey then went on to look at the sheer quantity of work imposed on advisers and the record in New Zealand is poor, though again, less bad than in Australia.

A clear majority agreed, or strongly agreed that they had no time or energy, that they needed more hours in the day and that they never seemed to catch up.

And the source of all that pressure appears to fit in neatly with life in a post CCCFA world. The difficulty of complying with Government rules was the worst bugbear by far for those who found work stressful or very stressful. The figure was 61%, way ahead of the next worst factor, work overload, at 42%.

And a clear majority of advisers felt emotionally drained, burnt out or frustrated by all this.

Exercise was the most common way of dealing with these feelings, followed by a 'debrief' with others. The survey does not say what form this debrief takes, but it is likely to be a beer with buddies after work in at least some cases. Another outlet from pressure at work was private hobbies or pastimes.

The survey revealed other factors, such as people with higher education qualifications generally doing better in nearly all areas. Stress is lower for people

with degrees and much lower for postgrads.

Age played a part as well. People over 60 had a better work-family balance, less stress and higher overall wellbeing.

Gender also affected people's work.

Female advisers had less work-family balance, and a higher work overload than males, they also had more stress.

In another finding, women made up 40% of loan advisers but only 29% of all other adviser roles.

In another positive from the survey, the majority of New Zealnd advisers were proactive in terms of seeking industry support. Overall, more than 50% were receiving moderate to high levels of support, and in that, they did better again than their Australian counterparts, The largest source of support was from industry peers – 53%. Product manufacturers helped provide support in 51%, of cases and FAPs or other groups came through in 46% of cases.

Advisers were generally proactive around using recovery and self-care both at work and at home to manage their stress levels, with around 61% of advisers undertaking exercise often to very often, and 54% undertaking a hobby or other interest often to very often.

In a sign that the use of alcohol to ease work stress may be a problem for some advisers, the survey results showed that 6.8% of NZ Advisers used alcohol most of the time and a further 12.1% used it frequently to reduce stress. Of less

concern, 24.1% used alcohol sometimes to relieve stress. However the majority either did not use alcohol at all (33.1%) or rarely (23.9%) used alcohol for stress relief.

However the figures did show a reliance on alcohol by a significant portion of advisers.

In terms of cognitive skills to manage the challenges of the job, the advisers scored reasonably well. In another development, they did not differ significantly from Australian advisers in terms of openness to change, capacity to embrace and drive innovation and ability to be adaptive in their behaviour.

Where they did differ was in their mindset towards their work. New Zealand advisers were more hopeful (10% higher), more resilient (9%), and more optimistic about the future (14%) than Australian advisers.

In a final comment, the advisers said the increase in compliance and regulation had already had a negative impact on them.

They were very concerned that New Zealand would go down the same road as Australia where regulatory demands were not only having a negative impact on their mental health and wellbeing but were also leading to advisers becoming disengaged and more likely to leave the industry.

They said that for this profession to flourish in New Zealand, the regulators in New Zealand should be careful not to follow the same path taken in Australia. ✚

Identified key sources of stress

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COLUMNS • MY BUSINESS

The sky is the limit Rising star Lauren Hunter has already achieved more than most in her short career as a mortgage adviser.

BY MATTHEW MARTIN

L

auren Hunter works for the Hamilton branch of Mike Pero Mortgages, where she has had to make more room for numerous

awards.

In 2021 alone, these included the Financial Advice New Zealand Rising Star award, the Mike Pero Best Practice Award, and the New Zealand Mortgage Awards Young Gun of the Year. The year prior, she picked up the Mike Pero Mortgage and Insurance Rookie of the Year award.

Judges at the Financial Advice NZ awards said the 28-year-old had a passion for people and for helping them achieve their goals.

"In her brief tenure in the industry, her client-first approach and diligence have seen her reputation grow quickly."

One referee believed she was a role model, describing her as “the benchmark for new advisers entering the industry".

"We are truly excited to watch the development of this passionate lending adviser. The sky is the limit for this rising star."

What prompted you to get into the mortgage advice industry?

I decided I wanted to pursue a career in finance when I was in year 12 or 13 at school. At that time, it was about making a decision about what to do when we left school.

The problem-solving aspect, goal setting, and enjoyment of working with numbers is why I made this decision.

From there, I enrolled to study a Bachelor of Business Development, majoring in finance, at Waikato University – and while studying I secured a part-time job as a bank teller, meeting a great bunch of people.

My favourite paper at uni was a financial planning paper. This prompted me to start thinking about future roles which would 028

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enable me to help others with financial literacy, planning and achieving goals.

After graduating, I worked at Heartland Bank, in the retail team, where I gained a lot of skills in presentation, people skills and promoting their products and business.

One of my colleagues from the bank had moved on to Mike Pero Mortgages as an assistant. When he became an adviser, I was contacted and asked to join the team.

I joined in an assistant role to the franchise owner, with a goal of becoming an adviser – and I did that within a couple of years.

Why are you passionate about financial advice?

Our finances are a really important part of our lives. I enjoy helping people with their goals and guiding them to achieve them.

The judges of the Financial Advice NZ Rising Star award commented on your communication skills and habitual processes. How do you approach the business differently from other advisers?

I am really focused on customer service – it’s the most important part of my job and communication is a huge part of this.

I'm an organised and structured person, but I can also cope with being flexible.

I haven't focused a lot on marketing, rather on the people I am helping. This in turn has resulted in a word-of-mouth customer base.

You have received a lot of accolades in your short career so far. What lies behind your success?

The franchise owner in the Waikato has helped a lot along the way and has been a great mentor.

He has set up good systems for our team, such as templated emails, Trello and Formsite application forms.

We also lean on each other a lot with scenarios, and with working through complicated applications.

Building relationships with the BDMs [business development managers] and broker teams has been good too. It's great to be able to call someone to talk through scenarios.

In addition to this, probably my structured way of working and a humble, caring approach with my customers. And I have put a lot of hours in.

Who has inspired you in business and in life?

My parents. They are the hardest working people I know. Both are selfemployed and moved to New Zealand from South Africa to give my siblings and me the best life possible.

They started their lives over for us, and left their family behind. I am very grateful, and their work ethic has inspired me.

My partner is also a large part of my success. He is always encouraging and challenging me to be the best person I can be.

What is the best advice you have received? And the worst?

The best advice I've had so far is that no one deal is worth your accreditation.

As for the worst, I can't really remember any.

What does a typical working day look like for you?

I'll skim through my inbox first thing, update my jobs list, and prioritise my work for the day.

Next, I'll clean out my sent items: follow up on anything I am still waiting on and work through my jobs list and emails based on what is most urgent.

I always aim to reply to people on the same day. If I can't get back to them on the same day, I'll give them a timeframe.

I prepare meetings at least the day before where possible, so I am prepared and already a day ahead.

What challenges do you see for the industry moving forward - and how do you plan on tackling them?

Mainly technology constraints. I like to provide constructive feedback to technology providers. And there's always client expectations to live up to, so I'll have conversations about their concerns and discuss what options are available to them.

What are your long-term business goals?

Long term, I would like to continue to work with my existing clients and build up my client base.

I've recently decided to take on an assistant. She'll start early next year.

Do you have any words of wisdom for young advisers?

Focus on your customer's needs, work hard on your communication, and set up good systems. ✚

QUICKFIRE QUESTIONS Where are you from?

Born in South Africa, grew up in Hamilton.

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Out of work interests?

The beach, gardening, spending time with family and my dog, Max.

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Favourite film or TV show?

Brooklyn Nine-Nine.

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Favourite book?

Typically, any Jodi Picoult book.

•

Favourite music?

Assorted.

I have a very mixed playlist.

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Philosophy?

I am a strong believer in opportunity costs: you need to give something up to get something else. And work hard while you are young, play hard when you're older.

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COLUMNS • SALES & MARKETING

‘What used to work is the thing that will put you out of business’ Gary Vaynerchuck

Paul Watkins is a marketing adviser to the financial services industry.

How to communicate… let me count the ways!

Paul Watkins takes a look at who uses what forms of digital marketing and how to manage multiple platforms.

I

n recent months there’s been the ‘perfect storm’ of changes, adversely impacting both existing and prospective clients. As you know, these include changes to LVR (Loan to Value Ratio), the introduction of the CCCFA (Credit Contracts and Consumer Finance Act), interest rate rises, and of course the ever-rising (and apparently not able to be checked) price of houses. Added to the list are Brightline tests, high density-enabled plans for Auckland, a nationwide foreignbuyer ban, the current building boom, the failed KiwiBuild scheme and tax changes targeting property investors and speculators.

While any one of these could have an impact on the home-buying public, all at the same time can cause stress and frustration. So what is your role in all of this? The answer is by communicating these changes to clients and empathising with them, thereby being seen as the sympathetic expert in their eyes.

How to communicate is also changing.

The proven platforms are your website

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blog, client newsletters, LinkedIn and Facebook. I do hope you are using all of the above, as not only do they all work well, they are how the world now gets information. Using them also helps draw search results in Google. Add in the new kids on the promotion block, such as Pinterest and TikTok, and it can all become confusing.

Who uses what This article will briefly explain each of these platforms, who uses them, and what your message should be, in light of recent changes.

Facebook is still the 90-pound gorilla in the room. The biggest users are those aged 25-34 (first-home buyers) followed by 35-44-year-olds. If you also offer investment products, the 55+ group accounts for 11% of all daily users, so don’t write them off on this medium.

Gender-wise, Facebook is 43% male and 57% female. This should form the basis of your promotional activities.

‘Facebook is still the 90-pound gorilla in the room’ As discussed many times, short videos on Facebook are very powerful.

Instagram is owned by Facebook and its use is steadily rising (up 18% in the last two years). When you place Facebook ads, you can click on Instagram during the placement and your short video will show there too. The biggest users are those aged 25-34 (once again, first-home buyers), with females representing 57% of those who look at it daily and males 43%.

Twitter is, I think, an annoying platform, or at least the last US President made it so; interestingly, it has an above-average number of users with degrees, at 42%, and two-thirds of its users are male, aged 30-49. Its growth has been static, but I’m not sure how it fits with a mortgage broker’s promotional plan.

YouTube is massive. It’s used regularly by nearly 75% of all internet users, with each person on it for an average of 41 minutes per day, and men and women almost equal in the demographics. It covers all age groups, with 77% of those aged 26-35 using it, 70% of 46-55-yearolds and 67% of those aged 56 or above.

Ignore it at your peril.

LinkedIn holds two million profiles from Kiwis, which is most of the educated working public. The largest users are aged 40-55, with males and females almost equal. According to LinkedIn themselves, it’s the top-rated social network for lead generation. Once again, short educational videos are the key to being noticed on it.

Pinterest is hugely gender-skewed - 80% of users are female - and is product-focused. It attracts those with an aspirational nature, such as those seeking home design or home renovations.

And do not forget the exponential use of podcasts, which are worth considering for the more educated market. TikTok and Snapchat, on the other hand, attract much younger audiences and are best used to post fun thoughts which entertain rather than ads. Don’t bother with these two.

How to manage multiple platforms You now have a bewildering range of options, but all is not lost. Let me explain how you can manage all of them easily, by using slightly edited variations on each other.

The critical first step is to know who you are targeting. One size does not fit all when it comes to messaging. A couple in

their fifties worried about refixing their loan at a higher rate will not respond to the same message as a first-home buyer. You can use different messages on different platforms.

The example I’ll give here is for couples aged 35-55 wanting to buy a new house or re-fix, but it’s exactly the same process for a different stream aimed at first-home buyers if that is your chosen market: 1 First, make some YouTube videos.

These can be casual cell-phonein-the-face-filmed and chatty. Do not over-rehearse it, just talk as if a client were sitting in front of you.

Make them educational and not promotional – the implied expertise is your advertising. Research the best headlines, as these will show up in search results.

2 Now extract the audio from these YouTube videos, which then becomes your podcast.

3 Transcribe the videos into text (Microsoft now has this function) to publish as blog posts on your website.

4 Edited versions of these text articles can become some of your newsletter articles.

5 Edit the videos to less than 60 seconds and post these to your social media accounts, notably Facebook and Instagram.

6 The longer YouTube version you created can become your LinkedIn post. Notice how one thing has now become many?

7 Create a “Six critical things to consider” type picture-post for Pinterest. I might do an article on how to do this in the next issue, as Pinterest is a very underrated platform – one which is mostly ignored by advertisers.

8 If you then collect these articles up, in no time you’ll have enough to turn them into a free e-book for use as a ‘lead-magnet’ to build your email and therefore lead - list.

Each medium is highly targetable, so tailor your message to suit. No one size will ever fit.

So, how do you do all of these steps in a cost-effective way? None is expensive, but all are labour-intensive. First, make the raw YouTube video. Then find someone on Fiverr.com or Upwork.com to edit, transcribe, turn into a podcast, turn into an e-book and all the other bits.

This will not cost you much at all. In no time, you’ll be across multi-media platforms with targeted messages.

The landscape may have changed in terms of house prices and the hoops client have to jump through to borrow, but so has the promotional landscape.

It’s worth taking the time to get a new promotional plan together and to then find some inexpensive ways to implement it.

In the words of the great marketer, Gary Vaynerchuck, “What used to work is the thing that will put you out of business.” ✚ WWW.TMMONLINE.NZ

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COLUMNS • INSURANCE

With qualifications in law, economics, tax and financial planning, Steve Wright is General Manager Product at Partners Life.

Covid-19 makes medical insurance essential Steve Wright discusses why private health insurance is even more important in a Covid World.

W

hile it’s unlikely private medical insurance will pay for treatments associated with acute or life- threatening Covid-19 infections – that’s a function for the public health system - it may fund private treatments for non-acute complications caused or exacerbated by the disease.

Private medical insurance will also fund most non-Covid-19-related, elective and non-acute treatments provided by the private health system. These treatments would ordinarily be reasonably available

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through the public health system, but may become unavailable due to capacity constraints.

Capacity constraints in the public health system are of concern around the world. Caused by a combination of factors - the numbers of Covid-19 patients, restrictive hospital protocols required during a pandemic, and staff shortages when isolation is required - these added burdens increase the time taken by the public health system to perform non-Covid-19-related treatments.

‘Covid-19 has forced its way to the front of the public health medical queue, pushing other important treatments aside’

Unambiguously Committed to Independent Advisers

‘In a pandemic, we are less likely to be able to get the treatment we need from the public health system within an acceptable timeframe’

Of course, one solution is private medical treatment, but you have to pay for it. Private medical insurance provides the money for approved private treatments, allowing quicker access, often with a greater choice of treatment, than might be offered through the public system.

Private medical treatment also relieves the public health system from having to provide a great deal of medical treatment - in particular, diagnostic tests and elective surgery - for the insured public.

This takes pressure off the public system and allows it to perform its part pretty well for the uninsured.

What would happen if significant numbers of people gave up on medical insurance and relied solely on the public health system? Wouldn’t it be completely overwhelmed, even without Covid-19, at least for many years? What kind of access to public medical treatment would be available if this happened? Giving up medical insurance might simply mean we can’t get treatment in the public health system and still need to access private medical treatment, but now would have to pay for it ourselves – somehow!

As I mentioned above, treatment of Covid-19 will add significant stress on the public health system. Media reports already tell of the public system falling behind in performing elective procedures, many of which will probably not happen at all, since “catching-up” is nigh on impossible due to limited resources

which were already close to capacity before Covid-19. If you need a hip or knee replacement or, indeed, cancer surgery or any other non-emergency treatment, how long will you now have to wait for it in the public health system? Covid-19 has forced its way to the front of the public health medical queue, pushing other important treatments aside.

In a pandemic, we are less likely to be able to get the treatment we need from the public health system within an acceptable timeframe. Having medical insurance will provide the funds to get covered treatments done in the private system. In short, private medical insurance was important before Covid-19, but is even more so in a Covid World.

An adviser I spoke with recently asked me what would happen if Covid-19 completely overwhelmed our public health system? Would Covid-19 then be treated in the private system?

I don’t know the answer, and I hope this does not happen, but let me speculate.

I suspect the Government may have emergency powers to requisition private health resources, to relieve extreme pressure on the public system. What happens if we can’t get our knees, hips or cancer surgery done in an acceptable time in either the public or the private health systems? Here is the next reason why medical insurance remains especially relevant in a Covid World: good medical insurance will pay for covered treatments overseas if the

required treatment can’t be accessed in New Zealand within the medicallyrecommended time periods.

I’m confident we will conquer Covid-19 in time, and I really hope the public health system can continue to cope with the added pressure of Covid-19. In New Zealand’s two-tier health system public and private - we need both health sectors to be strong. They rely on each other to provide us with the best medical treatment.

Right now, even though my medical insurance won’t pay for acute Covid-19 treatment, I am aware of all the other health problems which may arise unexpectedly, as they have always done. It is of great comfort to know that if I need surgery in the private health system, or even overseas, my medical insurance will make the funding of it possible.

Every adviser should ensure that every client, or potential client, understands the value – indeed, the increased value - of having private medical insurance in place during a pandemic. ✚ This article is for information purposes only, its content is intended to be of a general nature, does not take into account your circumstances, situation or goals, and is not a personalised financial adviser service or legal advice. It is recommended you seek advice from a suitably qualified professional before you take any action or rely on anything stated herein.

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The TOP 10 stories on www.tmmonline.nz A lot has happened in the market since the last edition of the magazine.

Here are the most-read industry stories from tmmonline.

01 EXCLUSIVE: REGULATION AND WORKLOADS DRIVING ADVISERS TO DRINK Preliminary results from the recent AIA Adviser Wellbeing Survey have uncovered some concerning results with around half of those surveyed saying they are using alcohol to cope with stress.

02 NON BANKS TO BE RUN OFF THEIR FEET Non-bank lenders will be run off their feet in the coming months, partly because banks are too traditional, according to economist Cameron Bagrie.

03 CCCFA NOT UNDERSTOOD BY POLITICIANS The ACT Party believes the Credit Contracts and Consumer Finance Act (CCCFA) was not properly understood when it went through parliament and is now asking for a review.

04 INDUSTRY WANTS MINISTER'S EAR OVER CCCFA Financial Advice New Zealand is seeking an urgent meeting with the Minister of Commerce and Consumer Affairs as the impact of the CCCFA continues to snowball.

06 WESTPAC ISSUES ITS FORECAST FOR 2022 Westpac economists are expecting the official cash rate to peak at 3% next year, but it will be a temporary peak.

07 LOW KEY CCCFA ENQUIRY STARTS The enquiry into the Credit Contracts and Consumer Finance Act (CCCFA) has started but it appears to be reasonably low key.

08 ADVISERS INUNDATED WITH POLICY CHANGES BY BANKS Changes in bank procedures are coming through thick and fast as banks scramble to keep up with a flood of regulatory changes.

09 MINISTER ORDERS ENQUIRY INTO CCCFA Minister of Commerce and Consumer Affairs David Clark has acknowledged concerns with the CCCFA and ordered an enquiry.

10 BASECORP SECURES MORE FUNDING TO INCREASE ITS LENDING Basecorp is the first non-bank issuer to complete two securitisations in a calendar year since the GFC.

05 ROBERTSON DEFENDS CCCFA CHANGES The Minister of Finance has mounted a defence of the Credit Contracts and Consumer Finance Act (CCCFA).

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To keep up with all the news make sure you check www.tmmonline.nz regularly.

Or you can get the news and rates update sent to you each day by signing up to the TMM email newsletter.

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