01
2020
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Wo rk in g t o g e the r t o c re a t e t o mor row's a d vis e rs t o da y
Coping with Covid 19 What yo u can do Sponsored by
How to help clients through Covid 19
Outstanding advice from top broker
How to carve out a niche
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CONTENTS
BRAKES GO ON; WHAT TO DO NOW
Sponsored by
The year started well, but Covid 19 has slammed the brakes on the mortgage industry. TMM looks at how things have changed and what advisers are doing now.
FEATURES
UP FRONT 04 EDITORIAL
What can we expect from 2020?
05 NZFUNDS KIWISAVER
22
How active is your KiwiSaver manager?
16 REGULATION
New lender conduct rules coming, impacts for advisers.
20 HOUSING COMMENTARY
Experts predict what the year will bring for the property market.
28 MY BUSINESS
10 NEWS Newpark CEO resigns; ANZ increases security; Kiwibank to join adviser market
Maria Thackwell’s secret to success: never give up!
14 PEOPLE Who’s moved where in the industry?
18 PROPERTY NEWS
Miriam Bell with the latest news impacting property investors.
COLUMNS 30 SALES AND MARKETING
How to carve out your niche with Paul Watkins.
32 INSURANCE
What does ‘treating clients fairly’ mean in real terms?
This magazine has been designed using resources from Freepik.com and Unsplash.
13 OPINION
Coping with Covid 19 by Adrienne Church
03
EDITORIAL
From the Publisher
Time to rethink your business This issue has been a challenge to put together as much of it has been rewritten over the past couple of weeks. The original editorial painted a positive picture of the year ahead. Why the use of mortgage advisers would continue to grow and how non-banks are increasingly becoming more important. Those things are still true, but also advisers, like many other businesses, are having to review their operations. It’s exactly the same for us as publishers. When the printer was closed down as it was deemed to be a non-essential service, we are moving to digital publishing. It’s something we have played with previously but is now a reality. I would value your feedback on how you have found this and any thing we should change. You can email your thoughts to philip@tmmonline.nz It’s the same for mortgage advisers too. With the housing market stopping dead in its tracks there is next to no new mortgages being written. For advisers who have built their business on upfront commissions, their income has dried up. It will be pretty hard to live on $150 for each remix done; and we understand there is no revenue when a borrower chooses to do down the repayment deferral option. Interestingly, as we report in the lead story, ANZ isn’t planning to change its remuneration model. It will be interesting to see if there is a shift towards lenders which pay trail once we get through this lockdown. During this lockdown period much of the regulatory change that was happening in financial services has been delayed. Transitional licensing has been pushed back a year.
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That is unfortunate as it gives people who had not engaged in the process sufficiently more time to procrastinate. Many players have been late to the party in announcing what their plans were for the new environment. The biggest player, NZ Financial Services Group, only announced it’s plans last month when we were halfway through transitional licensing. Newpark, which has more than 150 members, also changed its thinking around FAPs late in the piece. It’s a shame that these regulatory changes are now going to drag on for even longer. But at least there is time to make some good decisions. Stay safe out there.
PUBLISHER: Philip Macalister SUBEDITOR: Dawn Adams SENIOR WRITERS: Miriam Bell, Daniel Dunkley CONTRIBUTORS: Susan Edmunds, Joanna Jefferies, Michael Lang, Paul Watkins, Steve Wright, Adrienne Church GRAPHIC DESIGN: Amy Bennie, Samantha Garnier ADVERTISING SALES: Amanda Ellery 027 420 2083 amanda@tarawera.co.nz
MOVED OFFICES? Make sure you don't miss an issue by changing your address. Philip Macalister Publisher
Go to www.goodreturns.co.nz/coa SUBSCRIPTIONS: Jill Lewis jill.lewis@tarawera.co.nz HEAD OFFICE: 1448A Hinemoa St, Rotorua PO Box 2011, Rotorua Phone: 07-349 1920 Fax: 07-349 1926 editor@tmmonline.nz
TMM is published by Tarawera Publishing Ltd (TPL). TPL also publishes online money management magazine Good Returns www. goodreturns.co.nz and ASSET magazine. All contents of TMM are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited. TMM welcomes opinions from all readers on its editorial. If you would like to comment on articles, columns, or regularly appearing pieces in TMM, or on other issues, please send your comments to: editor@tmmonline.nz
KIWISAVER
SPONSORED CONTENT
By Michael Lang
How active is your KiwiSaver manager? Active v passive – a popular discussion topic. Michael Lang discusses the features and benefits of both options. FMA ISSUES REQUEST FOR INFORMATION
Late last year, KiwiSaver managers received a request for detailed financial information on the investment management of the KiwiSaver funds that they are responsible for. Initially this request came from a private organisation, but was followed up shortly afterwards by a more formal email from the Financial Markets Authority (FMA). The purpose of the exercise? To determine how active each KiwiSaver manager is.
IS ACTIVE MANAGEMENT NOW A CRIME?
The short answer is no. Worldwide, the investment management industry has long debated the merits of active management (managers actively altering asset allocation, managers and securities) versus passive management (a more static mix of assets, managers and securities, the allocations of which are determined by an index). Neither form of asset management is wrong and, in NZ Funds’ view, both have merit.
WHAT ABOUT CLOSET INDEXING?
Again, the short answer is no. Closet indexing is the practice of having the mandate to make active decisions, but in practice following an index very closely. Many institutional mandates, used in the management of large sums of money, put constraints on the managers to ensure the funds do not deviate too far from an agreed index. This is a valid and prudent asset management approach. What may be misleading is marketing a fund as active (or passive) when the opposite occurs in practice. For example, a manager could attract investors to an actively managed higher fee fund, and then only provide lower cost, passive management, pocketing the difference. Late last year, the regulatory authority in the United Kingdom fined a large fund manager for doing just that.
WHO IS ACTIVE AND WHO IS NOT?
How active or passive a KiwiSaver manager is can be estimated by calculating how much
their investment performance deviates from an index. This measure is called a tracking error. The lower the tracking error, the closer the fund is likely to perform to its index. In the attached table, NZ Funds has estimated selected KiwiSaver growth funds' tracking errors using the funds’ disclosed performance and target asset allocation.1 The data shows NZ Funds, QuayStreet and Generate have been more active than their peers and on average charge more as a result. In contrast, the major banks and larger institutional managers like AMP and Mercer have both a lower tracking error and a lower management fee. Booster’s High Growth Fund is an interesting exception.
A FINAL WORD ON FEES AND STYLES
The difficulty with comparing degrees of activeness with levels of members’ KiwiSaver fees is that fees go to pay for a lot more than investment management. For example, for the same annual fee some managers are providing access to financial advisers, financial planning software, research on responsible
investing, and superior client communications and service levels, while others are not. These additional services may be of considerably more value in helping clients achieve their long-term financial objectives than whether a manager is active or passive, or the degree that their fees are marginally higher or lower than a competitor’s. Source: FMA, FE Analytics, Bloomberg. Total annual fund fees sourced from September 2019 fund updates. For more information on indices used and calculation methodology, contact NZ Funds. 1. The tracking error calculation is an estimate only. The tracking errors are calculated against a proxy market index using historical monthly data for three years to September 30, 2019. An otherwise passive manager, like Simplicity, may exhibit a higher than usual tracking error due to month end pricing times and dates, the choice of asset class indices in the calculations, and assumptions about currency hedging ratios, amongst other things. Disclaimer: Michael Lang is Chief Executive of NZ Funds and his comments are of a general nature. New Zealand Funds Management Limited is the issuer of the NZ Funds KiwiSaver Scheme. A copy of the latest Product Disclosure Statement is available on request or by visiting the NZ Funds website at www.nzfunds.co.nz.
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The fourth option High profile mortgage adviser Jeff Royle of iLender is offering an alternative service for brokers who want to exit the industry.
Although the deadline for transitional licensing for financial advisers is the end of June, just 15% of mortgage advisers had applied for or received their transitional licence as at the end of February. Part of the reason is that a number of groups, including the largest player, NZ Financial Services Group, had not disclosed their proposition to the market. Royle says advisers had been told there are three possible outcomes post June 29 transitional licensing deadline; exit the industry, become a FAP or become a licensee under someone else’s FAP. “Until now these seemed to be the only options for all mortgage advisers, he said. “The good news is there is a fourth option.” Royle and his wife Heather, who used to head Kepa’s mortgage offering, have
developed a service called ‘Refer Direct’. It is based on their experiences in the United Kingdom when regulatory changes turned the industry on its head in the early 2000s. Jeff Royle says brokers exiting the industry, for whatever reason, found that the value of their client books fell off a cliff, due mainly to the large number of books available. Also, the relatively few number of adviser firms able to take on another adviser's clients was small, as the cost of due diligence was too high and the compliance risk too great. Their Refer Direct model proved to be a viable alternative. The introducer simply referred a client and the regulated firm dealt directly with the client, providing the appropriate advice. This stopped the slightly uncomfortable conversation of “sorry, I’m not in business anymore, so I can’t help”. The introducer received a percentage of the revenue generated and so continued to receive an
income stream. In this way the introducer was still able to benefit from years of previous work in developing their client bank. iLender will provide a service to introducers using a tried and tested system that enables introducers' clients to be given ongoing advice and introducers an ongoing income stream. Jeff Royle says Refer Direct will be limited to 100 introducers to ensure quality of advice and consistency of client service. ✚
Jeff Royle
HANGING UP YOUR BOOTS? Special Invitation For All Mortgage Advisers, Opting Out Of The Industry By End of June 2020 As an industry we know there are 3 possible outcomes post 29th June 2020. 1. Exit the Industry 2. Become a FAP 3. Become a licensee under someone else’s FAP Until now these seemed to be the only options for all Mortgage Advisers. The good news is there is a 4th option and we call it ‘Refer Direct’. If you are keen to discover how • You can still assist your clients after ‘D-day’, despite deregistering • Continue an Income Stream, with no compliance or regulatory costs • Learn about ‘Refer Direct’ – a tried and tested referral system Contact Heather Royle at iLender to discuss how iLender can help on ‘The Road Ahead’, on 021 754 130 or email heather@ilender.co.nz with details of your name, business name and contact phone number.
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Scott promoted at Newpark after sudden CEO resignation Andrew Scott has taken over running Newpark Financial Services after the sudden departure of Melanie Purdey. Purdey, who joined the dealer group in April last year is the second chief executive to resign from the group. The first CEO, Dean McDougall, also resigned his position after about a year in the role. Purdey says: "I have been privileged to have learned so much from my tenure at Newpark, and most especially from the relationships we have started to build. The support and feedback from advisers has been humbling. I am pleased to know I have made a difference for so many.” "It has become clear to me that the vision the Board and I share for Newpark as to the quantum of change required in the areas of conduct and culture moving into the regulated future is disparate to that of the shareholder/s and meaningful influencers at Newpark. "I will be looking to my future now as a passionate advocate for bringing quality trusted financial advice to New Zealanders," she said. Chairman Burton Shipley said "I am disappointed to see her resign but differences of opinion between boards and CEOs do occur and a way forward must be found. I wish Melanie well in whatever challenge she
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takes up.” Scott says his main priority is to ensure that advisers in the group are getting prepared to get their transitional licence by June 29. The licence for the home loans company was granted on March 13, but given the length of time it took for the FMA to process I have concerns that not all advisers will be set by the due date.” “The next step will be educational to keep them within the eight duties and obligations side lines as a newly minted FAP.” Newpark appointed McDougall as its first chief executive after founder and general manager Darren Gannon said he would be stepping down from this leadership role in late 2017. “I’m not retiring but I’m definitely handing over the reins," Gannon said at the time. “After 32 years selling insurance and helping others to sell insurance it’s time for a change of ideas, energy and people. Andrew Scott “I’ve done
everything I can, it’s time for new blood,” he said. Meanwhile, Shipley is stepping down from the board. "I was elected a Vice President of FIBA, the International Basketball organisation in August last year and my workload there has increased dramatically with a large amount of travel," he said. "I began talking to fellow directors about retiring from Newpark last year and announced to the board at our January 2020 meeting that I would like to stand down and if possible the end of the financial year would suit me and Newpark well." ✚
Melanie Purdey
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Kiwibank set to ANZ gets enter adviser market tough on data security
ANZ has introduced stringent new security standards for adviser customer relationship management systems, as it looks to safeguard customer data. The bank will monitor CRM systems to ensure they are robust enough to keep customer data safe. It comes as global regulators place more emphasis on data protection laws. According to one adviser, a FAP that holds ANZ customer data will need a CRM that meets both SOC2 and ISO75k standards. "The bank wants to make sure CRMs meet data security and integrity standards, and businesses across the country are working to meet those standards," the adviser said. The adviser warned businesses could lose their supplier accreditations if CRMs fail to meet high standards. An ANZ spokesperson said the bank would review standards across the industry. "Due to tightening regulations, ANZ is reviewing customer relationship management software security standards to best ensure our customers’ information is safe. As always we will continue to work collaboratively with our advisers to ensure data safety," the spokesperson told TMM Online. ANZ's review of CRM systems will likely see advisers weigh up their own choice of CRM, as the new regulatory environment comes into play. Brendon Smith, chief executive of NZFSG, said banks are expected to put more focus on data protection in the coming years. "My personal opinion is that all lenders will introduce more stringent data security/protection requirements, including ISO certification, to ensure that confidential customer data is protected, adviser CRM systems will need to meet these new requirements over time."
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Kiwibank will enter the mortgage adviser market later this year.
for good." Currently, third party distribution is a pretty small proportion of Kiwibank's business, he says, but "I could see a time where over the next couple of years it would easily be 20% of Kiwibank chief executive Steve Jurkovich our flows". says the bank is in the process of setting up a "Part of our strategy is to make sure we are fully-fledged broker unit and expects it to be supporting [mortgage advisers]." up and running later this year. He says it is very important the bank has "By the end of this financial year I expect the right service proposition for the broker. us to have a strong, competitive, dedicated "What I don't want to do is let people down." broker unit." Kiwibank has appointed a head of its broker "We are three to six months away from unit and has done a global search for tools being out there in full force." that the bank can invest in which would make He says customers have made it clear the life of the customer, the broker and the that they want to bank better. use mortgage "We've got some interesting ideas there and advisers. they need to be worked up with third party." "The market He says technology will play a big part in has spoken. the proposition. They really Kiwibank currently originates mortgages value what through its own branch network and through third party its fully-owned subsidiary NZ Home Loans. brokers and It doesn't disclose the split between the intermediaries two channels, and when asked again at its offer. It's here half year results last week declined to disclose the figure. "I wouldn't go into a breakdown. I will pass on that one," Jurkovich said when asked. In the six months to December 31 NZHL "played a very important part" in helping Kiwibank grow its lending book. "They are a significant Steve Jurkovich contributor."
ASB reveals its position on FAPs ASB Bank will work with adviser businesses that hold a FAP licence as well as group FAPs under the new regulatory regime. The big four bank has formally declared that it will work with individual businesses that choose to operate under their own FAP (financial advice provider) licence, as well as those who work under the umbrella of an aggregator group's. ASB notified groups of its decision over the past week. The decision will be welcomed by groups keen to offer members a chance to handle their own FAP and regulatory requirements under the FSLAA regime. ASB confirmed its position to TMM Online. A spokeswoman said in a statement: "The financial advice regime is changing due to the implementation of FSLAA and from June
2020, regulated financial advice will only be able to be provided to retail clients by a licensed financial advice provider on its own account, or by a financial adviser or nominated representative on behalf of a FAP. "ASB’s standard broker terms and conditions already require head groups to comply with, and ensure any of their nominees comply with, all applicable laws. Therefore, it will be the responsibility of the head groups to ensure FSLAA is complied with, which includes ensuring advice provided to the end customer is provided by or on behalf of a FAP. "ASB will continue relationships with [brokers] who are lawfully able to provide regulated financial advice to retail clients either under their own FAP licence, or under another entity’s FAP licence," the spokeswoman added.
Newpark hits 150 adviser milestone
A year on from its launch, more than 150 individual advisers are now part of adviser group Newpark Home Loans.
The group says it has on-boarded and accredited more than 150 advisers into its ranks, just over a year after it formally launched in the market. Newpark launched last year after breaking away from former partner Mortgage Link. It claims it is now the "fastest growing mortgage group in the country". The group has pitched itself against larger rivals by encouraging members to become their own FAP under the new regulatory regime. In contrast, large groups like Astute Financial want their members to come under a group FAP. Newpark wants lenders to work with adviser FAPs and group FAPs under the new
regime. In an email to advisers, the group says it has "received confirmation from ANZ and BNZ that you can keep your autonomy and brand as a standalone FAP". In the year ahead, the group plans to launch a training and adviser mentoring programme. In 2020, the group will also change its commission payday from Friday to Thursday, implement a 12 month review of its fee model, and facilitate access to CPD learning content, it said. Other initiatives planned for 2020 include a roadshow with supplier partners, redrafting broker agreements, and working with businesses to get CRM software SOC2 and ISO75k compliant. "The bottom line is that we're focused on assisting advisers control their aggregation costs, control their CRM, and take control of their continued professional development," said Andrew Scott, Newpark Home Loans general manager.
Heartland launches reverse mortgages for investors Heartland has expanded its reverse mortgage business and will now lend against investment properties and second homes, as the product becomes more popular in New Zealand. The lender has launched its new product, the Second Property Loan, off the back of strong growth. Heartland will provide reverse mortgages to over 60s on second homes, investment properties and holiday homes. The product is aimed at people who may not want to release equity from their main residence. The money can be used for home improvements, debt consolidation, travel or bills, and the firm is offering the same guarantees as its main reverse mortgage lending products. The new product line comes amid significant growth for Heartland, as reverse mortgages become more popular on both sides of the Tasman. Heartland Bank announced its halfyear results and recorded a 10% increase in its New Zealand reverse mortgage book as consumers become more aware of equity release products. ✚
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NZFSG rolls out its FAP NZ Financial Services Group has invited all its 1,100 nmembers to join its FAP and has released pricing to the market. Loan Market chief executive Brian Greer says the new regulations "are the single biggest thing that has ever happened for us in the industry". He told delegates at the recent roadshow it was an opportunity to put "distance between us and the competitors". NZFSG has a transitional licence and has invited all of its 1,100 members to apply to come under its FAP. Greer says advisers can have their own FAP. The key to the group's FAP is that advisers
will need to use NZFSG's MyCRM software which has been upgraded to a new version. This will allow the group to monitor advice given by advisers under its FAP. Greer says the group will probably not allow advisers to use different CRMs. "You are either pregnant or not pregnant," he says. But he did leave the door open: "Talk to us." Under the audit process NZFSG plans to use a traffic light system. Green means an adviser is all good for six months; amber means there will be some areas of advice which need fixing and the review period is three months. If an adviser turns up red there are problems and if they are not fixed they won't be able to stay in the FAP. Greer was at pains to point out the audit process "is nothing to be scared of".
He says the group has to be running the audits as it is taking on the liability of the advice: "We, the NZFSG directors, are in the gun." Greer says under the FAP advisers will be charged $300 plus GST a month for audit and compliance, on top of their existing fees. Advisers will need their own websites, they need to complete level five financial planning papers and they still need to belong to an external disputes resolution scheme. Meanwhile, Newpark Financial Services has changed its stance and is now planning to establish a FAP, even though it had been encouraging members to have their own FAPs. Newpark’s mortgage broking business has been granted a transitional licence, as has NZFSG.
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OPINION
By Adrienne Church
Coping with Covid-19
As New Zealand deals with the economic impact of the Covid-19 pandemic and learns to live under level four restrictions, small businesses in particular are facing unprecedented levels of uncertainty. In times such as these, advisers and accountants have an important role to play as a source of knowledge, guidance and support for their small business clients. If you’re wondering what you can be doing to help your small business clients during this difficult time, consider these three tips.
1. EDUCATE YOURSELF ON THE SUPPORT THAT’S AVAILABLE
Most business owners have already been dealing with disruptions to their day-to-day operations over the last few weeks – impacted by changing customer behaviours, remote working arrangements, and questions over staffing and supply levels. So, chances are they may not have had time to look into the details of the financial support that’s available and will be wondering whether (or how) they can access it. With new announcements made every day, it’s important that you stay across these updates and what they could mean for your clients (and even your own business). Make sure you familiarise yourself with eligibility criteria and application processes. This will enable you to provide fast recommendations and connect customers with the best option for them – whether that’s Government support, or alternative funding solutions. There are a number of websites you can refer to, to make sure you’re working with the most up-to-date information. The financial
support page on the official Covid-19 website, Work and Income New Zealand and the Inland Revenue Department should be your first port of call to stay across financial updates – including income support and tax reliefs. Lenders like Prospa are committed to responsibly supporting small businesses that are facing cash flow pressures due to the spread of Covid-19. Make sure you’re regularly checking their websites or contacting your business development manager, to stay across this as well.
changes to your office arrangements. For example, your office DDI may no longer be the most reliable way of getting in touch. Now is also the time to be looking at technologies which can help you adapt – lessening any negative impact as a result of changes to where and how you’re working. Services like Zoom, Skype or Google Hangouts are great (and free) videoconferencing options to replace face-to-face meetings. Make use of your social media channels, too, as a great way to keep clients across any updates. Keeping in regular contact is an important way of minimising any disruption or concern during times of turbulence – for both your clients, and your business.
3. BE THERE FOR YOUR CLIENTS
These are highly unusual and stressful times, which are already starting to have an impact on people’s overall wellbeing. That’s why it’s important that we’re all doing our part to look out for one another. Whether it’s a phone call, a simple message of support, or a collection of articles with helpful tips to get through the next few months – taking the time to check Adrienne in with your clients could make a Church positive difference for them. We’ll be updating our How to Prospa blog with useful resources and articles that you can freely share with your clients. Over the next few months (and beyond) small businesses will need to be more agile and adaptable than ever, to stay on top of their financial health. 2. KEEP COMMUNICATION Advisers have a vital role to play as partners CLEAR in helping them achieve this Clear communication is always important, – so it’s important to look for new and but even more so in times of uncertainty. additional ways to support your clients If you’re still operating your business as going forward. ✚ usual remotely, make sure to let your clients know that – and reassure them you will Adrienne Church is the continue to be available to offer support general manager of Prospa and advice. New Zealand, the small Be clear about the best ways for people to business lending reach you – particularly as you’ll be making specialist.
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PEOPLE
SIX NEW FACES AT MIKE PERO MORTGAGES Adviser business Mike Pero Mortgages has bolstered its presence across the country with six new hires. Raj Lalhall joins MPM in Manukau, Auckland. Lalhall has a wealth of experience in the banking and finance sector and joins Team Khan. He said: “I possess an in-depth understanding of the local property market. I also have considerable real estate experience across the wider Auckland area, adding value to my service.” Nafiz Ali joins the Auckland business. Ali has more than 19 years of experience in the accounting and finance sectors. Ali is a chartered accountant and has experience in wealth investment, tax advice, business management and financial planning. Logan Judd joins the Palmerston North business, bringing more than seven years of experience in banking and finance. MPM said "Logan’s objective is to provide pathways towards a stronger financial future for his clients and he understands how important it is to find the right
lending solution". Bianca Aiono is another new face in the Auckland team. Aiono joins the Lance Mulu franchise in the Auckland team. Aiono said: “From first home buyers to experienced property investors and everything between. I strive to achieve outstanding customer outcomes on every occasion and I’m committed to going the extra mile to help clients reach their goals.” Lisa Aull also joins in Palmerston North. She has 25 years of experience in banking and finance. MPM said Aull is "highly passionate about helping customers on their financial journey" and wants to “support kiwis to buy their first home, consolidate debt, and gain their financial independence.” Nickie Werkhoven takes up a role in Wellington. Werkhoven joins the Mike Pero Mortgages team adding her 12 years’ experience in the finance industry to the group. MPM said Werkhoven is "well-equipped to find the best solution that works for her clients and having recently embarked on her own personal property journey, Nickie understands exactly what clients need". ✚
Raj Lalhall
Nafiz Ali
Logan Judd
Nickie Werkhoven
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Lisa Aull
Bianca Aiono
PEPPER HIRES NEW BDM Australian non-bank giant Pepper has hired a business development manager to cover the Auckland market.
TWO NEW HIRES AT LOAN MARKET Loan Market has drafted in two new advisers.
building skills to this role. Raj is extremely excited to be back in the mortgage industry and looking forward to reconnecting with you all, and helping grow your business and look after your clients."
Raj Suman has joined the Pepper Money team to build its business in New Zealand's biggest city. Suman has 20 years of sales experience, including a role as a senior personal banker at Lloyd's TSB, the UK retail bank. Since moving to New Zealand in 2012 Suman has been a BDM for OnePath Insurance and Perpetual Guardian, before moving to Bluestone in January 2018. According to his LinkedIn page, Suman worked at Bluestone Mortgages for seven months in 2018. Melinda Hoffman, corporate affairs manager at Pepper, said: "I am sure a lot of you have worked with Raj in the past. He is an experienced BDM and brings fun, honesty, integrity and great relationship
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Raj Suman
Marie Donovan has joined the Mission Bay, Auckland, team. Donavan has 35 years of experience in the financial services industry and has spent the last 12 years in senior private banking roles "I am local, qualified, experienced, knowledgeable and motivated. I can do the leg work for you and use my experience to tailor the right solution," Donavan said. Alan Groat, meanwhile, joins the Parnell, Auckland, team. Groat is an experienced lending specialist, with over 30 years of experience in the banking and finance industry. Groat said: "I have always been led to deliver the very best of results for my clients I work seven days a week so that I am always available and I have a very good understanding of the Auckland market being both a property owner and investor for many years."
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REGULATION
By Susan Edmunds
Conduct rules coming for lenders There are warnings mortgage advisers could be affected by another round of regulation. New rules are coming for financial institutions, including banks and other lenders, and there are warnings there could be an impact on mortgage advisers. The Conduct of Financial Institutions Bill is working its way through Parliament. The bill introduces new conduct obligations for banks, insurers and nonbank deposit takers, and will require them to be licensed. Financial institutions and their intermediaries will have to comply with a principle to treat consumers fairly, and institutions will have to ensure their intermediaries – such as advisers – comply with their conduct programme. The bill also requires that banks, insurers and non-bank deposit takers meet obligations in relation to how they design their incentives for staff and advisers. That will mean understanding the risk of missale they created and working to reduce that risk. Regulations will be able to prohibit sales incentives based on volume or value targets, eg soft commissions such as overseas trips, bonuses for selling a certain number of financial products, leader boards, and performance management based on volume of sales. The Ministry of Business, Innovation and
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Employment (MBIE) noted that could mean a reduction in some commissions paid to advisers. It has now released submissions made by the industry on the bill, which reveal concerns about how it could play out. Mortgages Online founder Hamish Patel said there could be farreaching consequences. He said requiring mortgage advisers to disclose what was considered to be conflicted remuneration at the point of sale could mean other costs were disregarded. “A focus on a particular portion of the costs may be confusing for a client. If you were to compare a mortgage broker to a bank to obtain a home loan at 3.89%. A broker may seem more expensive if the only costs disclosed would be variable costs such as brokerage. A bank branch which carries larger fixed costs such as office and fixed salaries may seem cheaper as none of these costs would be disclosed. This is despite the fact that the end cost to the consumer is the same.” It is likely that brokers would have to disclose their commissions under the Financial Services Legislation Amendment Act regulations, anyway. Patel said a customer’s interests would often seem to conflict with lenders’ interests if they were viewed in the traditional way and that would be something difficult for banks and advisers to reconcile under the new rules.
“At the heart of this conflict between lenders and clients is the question of if lending is a good thing. Is having a longer lending term worse than a shorter term? Is a higher loan amount worse than a lower loan amount? At the core of this; what is beneficial in a low or high inflation environment?” He said there was an assumption that many issues had arisen from adviser remuneration but that had not been proved. “Of the many mentioned issues which were uncovered in the Australian Royal Commission, virtually none were from independent mortgage brokers. The actual case for removing remuneration for third parties was based on many assumptions and a very narrow view of the industry.” Patel said if the industry had to set commissions too low it would reduce the amount of time that could be spent on each client. “This reduces the possible service level for first-home buyers and for those marginalised clients with poor chances of obtaining finance, such as clients struggling with cashflow requiring debt restructures. Currently in the mortgage space, many mortgage advisers operate with no fees to the client and no obligation work. Often clients may see multiple houses before picking one, the value of the service before the purchase is made is important especially when dealing with first-home buyers. Clients who are cash-strapped
and in need of some type of advice or debt restructure will struggle to raise money to compensate a mortgage adviser. These clients become less preferable to deal with if the average commission becomes too low. When taking into account the clients which do not settle with a mortgage adviser, on average an adviser may spend up to 30 hours per paid client, without taking into account possible advice and restructure after the initial purchase.” He said mortgage and insurance advisers were consumer advocates as well as small businesses and many people relied on them to make life decisions. “Reducing income for small businesses seldom leads to better quality output. There was very little evidence in the Australian review of actual poor outcomes for home buyers due to dealing with intermediaries. There was an assumption that [a] slightly higher level of debt may lead to poor outcomes. The industry in New Zealand differs quite heavily as we have had direct control of LVR by the RBNZ. We have to provide full disclosure and evidence of underlying paperwork to get a loan approved. With an intermediary in New Zealand, you have two layers of eyeballs, once with the broker and secondly with a loan assessor at the bank. Sometimes even a third set of eyes, the credit team, may also be involved. Mortgage brokers do not decide how much a borrower can borrow. In fact there is more scrutiny with third party loan
applications, currently with many banks we are unable to submit an application unless we have almost all the evidence of the application upfront.” Mortgage broking firm Squirrel said it was important the bill did not duplicate the duties of care that would already apply to advisers through the Financial Services Legislation Amendment Act. “Any new duties should be limited to duties of product suitability and allow FSLAA to provide the framework for the duties of care for advice.” Its submission said that it was already paying advisers in a way that promoted fair customer outcomes. Squirrel mortgage advisers were permanent employees paid base salaries ranging from $80,000 to $150,000 a year. In addition to that, advisers were paid incentives based on their activity. These were designed to be less than 20% of overall remuneration. “We are also looking to include customer satisfaction metrics into the remuneration model, however data capture in this area is complicated. In the last financial year adviser incentives were 18.4% of total adviser remuneration, 9.7% of total company employee costs and 5.6% of the business’s total revenue. Our mortgage advisers have no incentive to place business with any particular lender to avoid any commission bias. All commission revenue is paid to Squirrel directly with mortgage
advisers having no incentive tagged to commission structures. Squirrel is therefore one of the only mortgage advisory businesses in Australasia that pays its advisers the majority of their annual income as a salary. We believe our salary model is very strongly customer-centric and having advisers operating within the Squirrel entity enables strong governance and control to be applied to the advisory process. This risk that we see with being overly prescriptive with the remuneration structures of an adviser who operates as an employee within a company like ours is that it will effectively encourage those advisers to transition to a ‘freelancing’ model where they receive commissions directly. This obviously removes the governance and oversight that our model provides, but also transitions to an environment where the adviser is arguably incentivised to do exactly what the legislation was trying to avoid. We do not think that is in the interests of customers at all.” Squirrel said a ban on target-based remuneration was unnecessary. “We do however support including an overriding intent to encourage good customer outcomes and experiences with incentive schemes.” AMP Wealth said that it was possible reverse mortgages could be caught up in concerns about products not giving optimal customer outcomes. ✚
017
PROPERTY NEWS
By Miriam Bell
Belief in rental returns shaky Rental property owners don’t seem to be feeling particularly optimistic right now. That’s prompted us to take a look at some of the news which could be impacting on their mood.
The housing market might be experiencing a healthy rebound, but confidence in rental returns is not. According to the latest ASB Investor Confidence Survey, the belief that rental property will provide the best investment returns has fallen to a 15-plusyear low. The bank’s survey, which covers the three months to the end of December, shows that investor confidence overall rose by 3%, from 8% to 11%, as 2019 wound to a close. Investor confidence in Auckland was as upbeat as the rest of the country, but it was still up by 2% to 6%, from 4% last quarter. It’s the improving state of the housing market which is driving investor confidence – but that confidence is resting in investors’ own homes. The view that one’s own home provides the best returns rose by 3% to 22% nationwide. In contrast, views of rental property as providing the best returns declined this quarter, falling from 17% to 13%. ASB senior economist Chris TennentBrown says while the overall increase in confidence is encouraging, the details behind the lift are slightly disappointing. “I struggle with the idea of investor confidence being driven by an investors’ house rather than things like KiwiSaver, the share market or investment property. It’s problematic, because we know that simply relying on your house going up in value isn’t an investment strategy.” They would like to see more diversification in investments, particularly as both KiwiSaver and the sharemarket had a stellar year in 2019, and are likely to continue providing solid returns over the long run.
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But the divergence between perceptions of rental property versus own homes is interesting, given the positive drivers for rental property as an investment, TennentBrown says. “The lift in the housing market, signs of increasing rents and low interest rates don’t seem to be offsetting some of the other issues that rental property investors have faced over recent years. Nevertheless, there is still a core group of investors who continue to believe and invest in rental property – it’s just smaller than the survey showed in earlier years.”
STRUGGLING WITH BAD BEHAVIOUR
One of the major issues bothering rental property investors is tenant behaviour, especially in the face of looming changes to tenancy law. And one recent Tenancy Tribunal case highlights how terminating the tenancy of badly behaving tenants can be a dangerous and difficult business. The case involved a tenant who rented a unit in a complex owned and operated by the Tauranga Community Housing Trust. Jillian White’s tenancy commenced in 2017 and was characterised by a string of complaints from other tenants and neighbours about the anti-social behaviour of White and her family members. She was eventually issued with a 90-day notice in early December 2019, where upon the abusive and threatening behaviour directed at the Trust was stepped up. After a serious threat of assault was made to the general manager, the Trust applied to the Tribunal for immediate termination of the tenancy. In presenting their case to the Tribunal, the Trust’s tenancy manager provided evidence showing that, since the start of White’s tenancy, she had been issued with six 14-day notices for interference with the reasonable peace, comfort or privacy of other tenants
and neighbours. He said at least five neighbours had reported feeling unsafe and intimidated by the tenant and their visitors. One provided a statement describing multiple disturbances, intimidating behaviour and feeling afraid. Further, police confirmed at least 18 registered events at the premises involving assaults, violence and/or family harm. The Tribunal adjudicator, A Macpherson, found that allegations of threats to assault a landlord are a serious matter but that the landlord had proved a threat to assault on the balance of probabilities. Under the Residential Tenancies Act, such a threat by a tenant to a landlord is enough to terminate a tenancy. However, Macpherson also found that White had breached her obligations by interfering with the quiet enjoyment of her neighbours on multiple occasions. “The behaviour has continued despite repeated warnings and visits from the tenancy manager and support workers. The disruptive behaviour has recently escalated and cannot continue. It would be inequitable to refuse to terminate the tenancy in these circumstances.” This led Macpherson to terminate the tenancy and to order White to pay the Trust $1,231.65 (for utilities arrears and to refund the bond) immediately.
FINANCIAL GET-OUT CLAUSE NEEDS PROOF
Home buyers – take note: it is no longer possible to use a finance clause to pull out of a property purchase without proof, the Real Estate Institute of New Zealand (REINZ) has warned. The warning comes after the recent launch of the tenth edition of the ADLS/REINZ Agreement for Sale and Purchase. Major changes will affect the way buyers can use finance clauses. Traditionally, if a finance condition is
inserted into a sale and purchase agreement and the buyer struggles to obtain finance, their word is usually enough to pull the plug. But under the new changes to the finance condition, buyers will need to show proof if they can't raise finance, REINZ says. Buyers may need to show a letter or correspondence from their bank, confirming finance has been declined. REINZ chief executive Bindi Norwell says this means borrowers could be forced to complete a purchase even without finance, posing a danger to any buyer entering into a sale and purchase agreement. “This is a significant change to the sale and purchase agreement and it’s imperative that consumers understand the implications as if they can’t provide evidence they can’t raise the finance, they could be forced to proceed with the purchase or face other legal action by the vendor.” She called on customers to seek legal advice before they enter into a sale and purchase agreement and receive confirmation from their lender. “It’s also essential that anyone looking to purchase a property takes legal advice and talks to their financial provider so that they understand exactly what they’re signing or else the implications are pretty significant." A host of other changes were also made to the Agreement. These include optional toxicology report conditions included on the front page; revised GST clauses; and a clarification on when deposits may be released. Norwell adds that the changes are the biggest for several years, so anyone looking to buy a house should take note as they impact on consumers directly.
BACHCARE CONVICTED OF MISLEADING CONSUMERS
Meanwhile, misleading consumers – via the editing and withholding of online reviews – has earned holiday rental accommodation company Bachcare a conviction and a hefty fine. Bachcare was handed down a fine of $117,000 by the Auckland District Court after pleading guilty to two charges under the Fair Trading Act. The charges came after a Commerce Commission investigation into conduct that took place between June 1, 2017 and September 28, 2018. According to the Commission, Bachcare edited customer reviews published on its website and removed negative comments about properties listed and/or Bachcare’s maintenance and management of properties. It also withheld from publication reviews for properties which customers had given a star rating of lower than 3.5 out of 5. The Commission alleged that, as a result of this conduct, Bachcare misled consumers through the creation of artificially positive impressions about certain properties and its services. This prompted the Commission to take Bachcare to court early in 2019. In his judgment, Judge Ajit Swaran found that the offending conduct infringed the purposes of the Fair Trading Act. “It compromised the interests of the consumers, fair competition and an environment in which consumers and businesses participate confidently.” Commerce Commission chair Anna Rawlings says online reviews are an important source of information for consumers, particularly in markets like short-term property rentals. “Consumers have a right to expect that reviews solicited from past customers will be published in a way that accurately represents the feedback received.” In the Bachcare case, consumers had no way of knowing that star ratings were inflated, or that the text of some reviews had been edited to cast the property in a more positive light, she says. “This type of conduct undermines the trust that consumers will place in reviews of products or services. All businesses who collect and present online reviews must faithfully present genuine customers reviews.” ✚
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019
WHAT’S DRIVING HOUSE PRICES?
HOUSING COMMENTARY
By Miriam Bell REINZ HOUSE SALES: UP
In February, sales volumes nationwide were up by nearly 10% year-on-year while in Auckland they were up by over 40% yearon-year. Nationally, sales numbers were the highest for a February in four years and in Auckland they were the highest in five years.
INTEREST RATES: DOWN
The Reserve Bank’s emergency OCR cut in March was passed on by the banks. Rates are now dropping to unprecedented new lows and the situation is unlikely to change in the near future.
OCR: DOWN
Prompted by the Covid-19 crisis, the Reserve Bank made an emergency 75 basis point cut to the OCR in March. This took it to a new record low of 0.25% - and it’s set to stay there for at least 12 months.
IMMIGRATION: DOWN
In a bid to contain Covid-19, the Government closed New Zealand’s borders in March. This means that what will happen with migration, which was high but trending lower, is in unknown territory.
BUILDING CONSENTS: UP
January saw consents nationwide fall by 3% from the month before, but that was on the back of a 10% rise in December. In annual terms, consent issuance was at the highest level since the mid-1970s.
MORTGAGE APPROVALS: UP
Reserve Bank data shows mortgage lending overall in January was up to the highest level of any January in the last five years. Investor lending was at its highest level since January 2016.
Cliff Carr
RENTS: UP
Statistics NZ’s rental price index shows rents were up by 3.4% year-on-year in February. Trade Me Property’s latest data WWW.TMMONLINE.NZ 020 also has rents on the rise, with Auckland and Wellington rents at record highs.
Gamechanger hits market New Zealand’s housing market was going gangbusters as the Covid-19 crisis struck but that was then and this is now – and the outlook has got much quieter, reports Miriam Bell. It’s been a rollercoaster of a month. As the Covid-19 pandemic has swept across the world, Government responses to the developments have come thick and fast. And, in tandem, the economy has plummeted into recession. The situation has not unravelled as quickly in the world of residential property though. In fact, the periodic release of the latest housing market data throughout the month stood in stark contrast to the dire situation elsewhere. That’s because it shows the national market was rebounding, with exuberance, from the quieter times seen last year. Even Auckland’s market, long in the doldrums, was on the rise. The data was a bright spot in the economic gloom. But Covid-19 means the game has changed, and the future of the market is little more uncertain now. Most commentators are not expecting a crash, but they do say quieter times lie ahead.
SALES RESURGENCE BEFORE COVID-19 CRISIS
Given the current economic state of play, it’s easy to overlook just how strong February’s market data was. Of that data perhaps the most notable was a widespread resurgence in sales activity. According to REINZ, the number of properties sold nationally in February was up by 9.2% year-on-year, from 6,132 to 6,694. This was the highest number of properties sold in the month of February in four years.
The re-energised Auckland market was a major driver in this. It saw sales volumes lift from 1,390 to 1,968 in February. That was a 41.6% year-on-year increase in sales and also represented the highest number of sales in the month of February for five years. Gisborne, Tasman, Hawkes Bay, and Bay of Plenty all saw double-digit increases in sales volumes. Although, in contrast, Nelson, Taranaki, Southland and the West Coast all saw double-digit declines in sales. Barfoot & Thompson’s latest data also shows that Auckland sales activity soared back to life in February, with the agency recording its highest number of sales in five years. The real estate agency saw 804 sales, which was a 69.6% increase on the number of sales at the same time last year and an 18.6% increase on January. Additionally, QV general manager, David Nagel, says their data confirms sales activity picked up significantly in Auckland, and most parts of the country, as more buyers committed to property decisions in a busy market. However, the amount of housing stock available for sale remained low. Realestate. co.nz’s February data had 22.3% less houses available for sale, as compared to February 2019. In Auckland, there were 22.5% fewer homes available as compared to the same time last year. This decrease was mirrored in other regions. Marlborough reached an all-time low since records began 13 years ago with 35.9% fewer homes available when compared to February 2019. In Taranaki and Wairarapa, total stock was down by 42.6% and 36.3% respectively. REINZ chief executive Bindi Norwell says that with new listings remaining critically low it wasn’t surprising there was such a mixed
sales result around the country in February. “This is only the second time since records began that we’ve seen fewer than 11,000 new listings come to the market during February. Some years have seen as many as 18,000 new listings come to the market at this time of the year. This outlines just how low listings are.”
SOLID PRICE GROWTH – FOR AWHILE
The combination of demand pushing up sales activity and limited stock means that all the different data recorded prices were up substantially in markets round the country. Realestate.co.nz had the national average asking price up by 4.0% year-onyear to $702,510 in February. Asking prices were also up to all-time highs in five regions. They were Northland, Hawke’s Bay, Canterbury, Wairarapa and Manawatu/Whanganui. Likewise, in QV’s data the average national value rose by 5.3% year-on-year and by 2.6% over the past quarter, leaving it at $722,475 in February. For the third month in a row, all 16 of the major cities they monitor saw quarterly value growth, which indicated strength across the country. And, while Wellington and Dunedin were the stars of the main centre markets, it had Auckland’s market firmly on the rise again. The region’s average value was up by 1.2% year-on-year and by 1.8% over the past quarter to $1,057,556 in February. The story was the same in REINZ’s data, with the national median price up by 14.3% year-on-year to a new record median price of $640,000 in February. Seven regions (Northland, Gisborne, Manawatu/Wanganui, Wellington, Tasman, Marlborough and Canterbury) saw new record median prices, while Auckland house prices rose by 4.3% to $888,000 in February, as compared to $851,000 at the same time last year. There can be no doubt the market was buoyant prior to the intensification of the Covid-19 crisis, both in New Zealand and globally.
MARKET EXPECTATIONS DIMINISH
But apprehension about the virus and the impact it might have on the economy was rising rapidly. Not long after the Government introduced strict travel bans, commentators started to revise their outlook for the market. ASB senior economist Mike Jones says the backdrop of generalised economic
uncertainty, plunging business and consumer confidence, doubts about employment prospects, and wealth and income declines will have implications for the property market. “Both demand and supply are likely to take a knock. Demand is likely to tail off first and listings to follow as sellers pull back and await better conditions.” For this reason, ASB has slashed their house price inflation forecasts. They are expecting small declines in house prices for the June and September quarters (of 0.5% and then 1.0%) and they are clipping a full five percentage points off their annual house price forecasts. This means they now expect annual house price growth to slow to zero by March 2021, as compared to the 5.3% growth predicted previously. Jones says that assuming the outbreak can be brought to heel and economic activity recovers, they expect house price inflation to turn higher from around the last quarter of this year. “However, given we’re in the eye of the storm, longer-term forecasts should be taken with a grain of salt. We have more confidence in our short-term, more negative, view.” It’s worth bearing in mind that the last four times New Zealand experienced or skirted economic recession, annual house price inflation in New Zealand went negative, he adds. “There are some cushioning effects this time around from current record-low mortgage rates (which could go even lower), a sturdy labour market, and a starting point of strong excess demand. But risks are nevertheless to the downside.” ANZ economists also believe the housing market will be weighed down by the recession. They now expect house prices to fall 3½% this year as the impact of the global downturn weighs on business conditions, sentiment, incomes and household wealth.
Sales volumes might drop and sellers might also hold back, which could mean fewer listings. But, even so, I doubt that house prices will fall very far.” The Reserve Bank’s record 75 basis point OCR cut will help keep interest rates low, with the big five banks all committing to passing on the rate cuts, so the cost of borrowing remains attractive, Davidson says. “Banks are likely to stick to tough servicing criteria for mortgages so borrowers will have to jump through hoops to get the lending. But if you can satisfy their requirements, there is money there to borrow and at a lower cost.” Given the recent volatility of the share market, for investors on the search for yield property could well represent a safe asset haven, he says. “The upshot is that many market participants will sit tight for a while, but the market will keep ticking over at a more modest pace.” Norwell agrees that in times of economic uncertainty people can tend to take a wait and see approach to the housing market, which is what could happen with COVID-19. As a general rule, house prices tend to either hold or have a slight dip and volumes tend to fall as people take that wait and see approach, she says. “Looking at a past recession period with a global reach, the GFC provides for some comparatives. “One year after the GFC started, median house prices across New Zealand fell 5.9% year-on-year. But prices started rising again after January 2009. In the year ending January 2010, median prices increased 9.4% and were sitting $10,000 above where they were in January 2008 when prices started falling.” This highlights that the market did recover reasonably quickly, she says. “The reality is that people always need to buy and sell houses, so we don’t expect the market to come to a complete stop.” ✚
QUIET, MODERATE TIMES AHEAD
For CoreLogic senior property economist Kelvin Davidson, the ongoing drivers of limited supply and strong demand remain at play so while an economic downturn might reign in the current exuberance of the housing market, it’s unlikely to cause it to crash. “We’ll see a bit of a hit to market activity, with auctions and open homes likely to see reduced numbers.
021
BRAKES GO ON; WHAT TO DO NOW
By Daniel Dunkley and others
Brakes go on; What to do now The year started well, but Covid 19 has slammed the brakes on the mortgage industry. TMM looks at how things have changed and what advisers are doing now. This feature started off as something quite different. We originally had headlined it Reasons to be cheerful in 2020. Oh how things can change in such a short time. Thanks to Covid-19 the world has been thrown on its head. A busy mortgage advice sector has ground to a halt when it comes to new business. The first couple of months things were looking all good, as we like to say in New Zealand. Now we are in lockdown, thousands of people are out of 022 WWW.TMMONLINE.NZ
jobs and many businesses won’t survive. Last year there was uncertainty for the mortgage advice sector. But it was around how adviser businesses and groups grappled with how to approach the new regulatory regime; while banks also weighed up their response to the new way of doing things and the big issue of conduct and culture. The uncertainty now is economic. The clear view is that New Zealand is headed for a sharp, and deep recession.
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Mortgage rates
This section is small (like rates). The Reserve Bank governor Adrian Orr put his stamp on the central bank during his first full year in charge last year, making a series of cuts to the Official Cash Rate. At the start of the year the OCR stood at just 1%. The central bank’s response to Covid-19 was a 75 basis point cut and a promise to keep it at that level for at least a year. Lenders have passed on much of these cuts. At the time of writing The lowest floating rate was 3.95%; one-year fixed rates were available sub 3%; two-year fixed specials from the big banks were sitting at 3.35%.
taking between "7-10 days to see applications". Wong believes advisers should focus on existing clients' needs during the crisis. "That is a service we can offer. The banks are still open, and we need to look after our clients." Kris Pedersen, of Kris Pedersen Mortgages, said clients were keen to shift to interest-only to cut costs.
Glen McLeod of Edge Mortgages says his business is "geared to operate from home" as long as necessary. "Our team will be still able to complete all the normal functions and we will do a lot more Skype calls," McLeod says. Edge has been in contact with NZFSG to discuss customers' requests. Adrian Orr
"With most of our customers being investors we are mainly seeing interest-only requests, and now a move to the mortgage holiday scenario as tenants not being able to pay picks up.
For a full list of rates go to tmmonline.nz/
Advisers say clients are asking for debt consolidation, moves to interest-only lending, and mortgage holidays, as the Covid-19 financial crisis takes hold. The coronavirus has now put New Zealand into a Level 4 alert shutting non-essential businesses across the country. The fallout has led to huge redundancies, with economists predicting another global financial crisis. In the wake of the turmoil, advisers say clients are asking for moves to conserve capital and cut expenditure. Mike Wong, an adviser at Mike Wong Financial Services, says customers were focused on refinancing and debt consolidation to save cash. "I'm concentrating on existing clients, who are looking to cut debt and clear credit card [balances], to save money for school fees. Most were paying up to 17% or 18% on things like car loans, and I have managed to reduce their rates and move their home loans to 3.05% for one year." Wong says clients had also asked for mortgage holidays, but banks were
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Cashflow is king right now and everyone is trying to preserve it.
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What are advisers doing?
Craig Pope, of Pope & Co Mortgages in Wellington, says most of his clients have weathered the storm so far, but fears the situation could deteriorate if tenants stop paying. I think most of our investors have a buffer. Though it may change if their tenants don’t pay rent! Adviser businesses have shifted to online and remote working models to continue working through the crisis. They say customers are making enquiries about changing their loan structures as the economy comes to a standstill.
"We are waiting to hear back on things like changing from principal and interest to floating payments and the protocols on how to deal with requests," he adds. McLeod adds: "To us it’s about helping our clients through this time and either allaying fears or putting things in place to enable a degree of stress to be relieved. As an industry we are all in this together. The greater service we can provide our clients in times like these shows the value in having a financial adviser. With fewer sales, auctions and new listings in the market, adviser businesses will also be looking at their bottom line. Geoff Bawden, director of Q Group, says it is "time for advisers to be closely monitoring cashflow". "They should also have a clear understanding about the primary sources of income which for many will come from within their existing client base," Bawden says. "Those who have established strong customer relationships and are proactive at managing them will do best. It is never too late to start." Bawden believes it is time for aggregator groups "to step up to the plate and earn their keep": "They need to be working closely with their advisers to help them manage their business." Bawden says Q Group has "contingencies in place" if any of its members need to selfisolate in the coming weeks. Stephen Wilton, of The Advice Group, believes the adverse market conditions can create opportunities for the sector to show its worth.
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"It's times like these that clients really appreciate a quality adviser. There is still effectively 60% of the market who deal direct who could do with our advice. The workflow might not be new-purchasemarket driven but the reviewrestructurerefinance market comes even more alive," he adds. "Setting clients up now to handle the next 12 months will pay huge dividends, as eventually the rest of the world will work out that we have actually got it pretty good here," Wilton adds.
Regulators pull on the handbrake
Transitional licensing for the mortgage advice industry’s new regime opened in November, and adviser businesses had until June to make key decisions on their setup and designation under the new system. Thanks to Covid-19 this has now been pushed back a year. It is one of many pieces of regulation which have been put on hold for now. Others to be impacted include the Financial Markets (Conduct of Institutions) Amendment Bill (CoFI) and the Credit Contracts Legislation Amendment Act 2019 (CCLAA) and draft Credit Contracts and Consumer Finance Amendment Regulations 2020 (draft regulations). As a result of significant disruption and other impacts of Covid-19, the following changes will be made: • The commencement of new Part 5A of the Credit Contracts Legislation Amendment Act relating to fit and proper person certification will be delayed from 1 September 2020 to no earlier than 1 March 2021. • Commencement of the new regulations and other remaining provisions of the CCLAA will be delayed from 1 April 2021 to no earlier than 1 October 2021.
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By Daniel Dunkley and others
“Further consultation is on hold for the time being. MBIE officials will continue to work on the revised draft regulations and further consultations with industry will take place at a more appropriate time in the future,” Glen Financial Services McLeod Federation chief executive Lyn McMorran says in an email to members. “The financial reforms will have a positive impact on New Zealand’s wellbeing. For now, however, it’s important the financial sector focuses on supporting its customers as well as its own workforce and their families.” Adviser businesses and groups expressed frustration with the lack of clarity from regulators and banks last year. Some banks, including ASB, Westpac, and Kiwibank, are yet to decide how they will work with Financial Advice Provider (FAP) licence holders under the new regime. Both ANZ and BNZ say they will work with group FAPs and individual businesses with FAP licenses. The teething period for the new regulation is likely to continue into 2020 and beyond. Still, advisers say the new regime is a chance for the industry to demonstrate its professionalism, value to customers, and impact on positive outcomes. Glen McLeod of Edge Mortgages, an NZFSG member, says his business will fall under the NZFSG FAP license, allowing the group “will take the pressure off us”. “The reality is we could do it ourselves, but that would take away from what we want to do, which is giving advice. Once the new regulation is implemented, we think it is a big tick for the industry.”
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It [the new regulatory regime] has been hanging around for so long, like a sword of
Damocles. But it’s there for the protection of clients, and you can’t argue with that.
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BRAKES GO ON; WHAT TO DO NOW
Once it is implemented we can get on with it, give excellent advice, and standards will be lifted across the industry. The industry has to lift its game, so it’s a good thing.” “Yes, there’s more compliance and auditing, but that’s life,” McLeod says. “We’re in a position where we are dealing with people’s most valuable assets and looking after their finances, so we need to do it well. The majority of the industry is doing it already, and the rhetoric is now catching up. We want to make sure we’re getting the best outcome for clients.” Craig Pope, of Wellington-based firm Pope & Co, believes small businesses will face an increased regulatory burden this year.
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“We are trying to get our head around the new legislation and the new regime and what it means for how we operate as a business,” Pope said. “We have six staff here, so we have to work out how the regime affects that. We will know more in March and believe we have good processes in place,” Pope said. However, Pope believes the new regime is a chance for the industry to upskill and “lift standards”.
A buoyant housing market; Not anymore
“There is definitely an opportunity,” Pope said. “It will be interesting to see how long it takes to write business and how we
approach what we do with the customer. Everything will be harder and will take longer. Brokers might need to be more selective about how they work with customers and what they spend time on,” he added.
During this lockdown there are no sales happening. Predictions for house price inflation are now in the negatives. Westpac economists say: “For now we are pencilling in a 7% decline over the second half of 2020, based on the house price declines seen in past New Zealand recessions. Beyond 2020 we expect ultra-low interest rates and a recovering economy to slowly return house prices to their pre-Covid-19 trajectory, so we are
forecasting house price inflation of 8% in 2021 and 12% 2022.”
At the start of this year the outlook for the housing market was buoyant. Kiwibank chief economist Jarrod Kerr believed there could be a 7% uplift in house prices by the end of 2020.
ASB expects nationwide house prices to be around 5-6% below their likely March 2020 peak by the end of the year. Other economists are less willing to put a number on it. Back in January CoreLogic Head of Research, Nick Goodall, said there could be a “window of opportunity” for mortgages over the first six to nine months of the year, as serviceability tests become more favourable for borrowers, banks compete, and rates remain low.
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By Daniel Dunkley and others
“This means being able to support their clients across a wider range of funding needs and educating themselves on alternatives to the banks and traditional lenders who are tightening their credit conditions,” she adds.
“The combination of solid underlying demand and better access to credit bodes well for the property market for at least the first half of next year,” Goodall says. Now it’s all about Adrienne mortgage holidays Church and switching to interest-only loans. Goodall says it was interesting that there was a spike in new listings a week before anyone knew about the inability to transact property for four weeks during the lockdown. “This could be a sign that people were already worried about their jobs/income/security, so were looking to rush in and deleverage. The question then, given they essentially can’t sell, is going to be what happens during the lockdown? “And once it’s over, how desperate will they be to sell? Because that will influence the price they accept, assuming there’s still enough demand to want to buy. “At least there’ll be some extra help provided via the mortgage repayment holiday option, and the business finance support package – both initiatives should help to mitigate forced property sales.” “Our simple forecasting model for overall sales volumes indicates that there might be a 15-20% decline in activity this year (relative to 2019), whereas we were previously projecting a 2-3% increase. “We have to hope the effects of the virus will be relatively short-lived, with any impending transactions simply deferred, leading to a catch-up in the following months. But clearly there is going to be a significant slowdown in property market activity to get through until an eventual recovery begins.”
Growth of non-banks
Meanwhile, non-banks are expected to play a pivotal role in 2020. Adrienne Church, general manager of SME non-bank lender Prospa New Zealand, says advisers should use the new year to “grow a more sustainable, holistic business that’s resistant to market and regulatory changes”. She believes advisers need to look at helping clients in new ways and working with new suppliers.
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base. The more holistic your services, the more you can support your clients.
“
BRAKES GO ON; WHAT TO DO NOW
Church believes the non-bank sector, including the likes of Prospa, will continue to grab market share as the lending landscape changes, particularly in the SME sector.
Hopes for 2020
“Non-bank lending in NZ grew by nearly 10 per cent in the last year, and we estimate the potential small business lending opportunity to be around $4 billion per annum,” she adds. “Savvy advisers will be looking at how diversification and fintech partnerships can grow their business this year and help them deliver better, faster outcomes for clients.
Loan Market chief executive Brian Greer says the new regulations "are the single biggest thing that has ever happened for us in the industry".
“
There are around 500,000 SMEs in New Zealand, making up 97% of all businesses. This means that most mortgage and insurance advisers already have small business owners in their client
Although regulatory reform has been pushed back there is an emerging view it will be good for mortgage advisers.
He told delegates at the recent roadshow it was an opportunity to put "distance between us and the competitors". Greer says its one of the best things to happen for mortgage advisers. Aseem Agarwal, head of the mortgage division at Global Finance, believes the industry will “change for the better” when new regulations come into effect, “because advisers will now be required to demonstrate and evidence that the outcome they have delivered to the customers through their advice and work is in the customers’ best interest”. Agarwal added: “This means advisers will need to take the customers through evaluating all the available options, make the customer understand the parameters on which they should compare the options, and then help them make an informed decision.” “Overall, this will lift customer satisfaction and ensure customers are taking lending that they can afford and choosing the lender and product which meets their financial needs in the long run,” he said. Agarwal hopes LVR speed limits for first home buyers are relaxed in 2020, “so most first home buyers can get on the property ladder than in previous years”. Banks including ANZ have begun to place more emphasis on data security in 2020.
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Andrew Scott, general manager of Newpark Home Loans, said the increased focus on technology and compliance would prove a challenge for many dealer groups. “Advisers will have to critique the CRM they are using to ensure it meets suppliers’ data and security standards. They will have to make sure suppliers are comfortable with it. Certifications will not be easy to get, and it will be timeconsuming and costly. Your choice of CRM provider will be critical in order to future proof your business,” Scott said.
advisers to build businesses and improve customer outcomes. “The way advisers in New Zealand work with trail books, they build teams and create even better outcomes. They can build Bruce sustainable Patten businesses. If trail was the status quo across the banks, they could save some money by not having to service clients, and let us serve them correctly.” Bawden those advisers who have looked after their clients and built passive income streams in their businesses will survive the Covid-19 crisis.
He believes 2020 presents a chance for advisers to forge closer relationships with suppliers and deliver a better service for their members.
“They will not struggle as much as those who have been opportunistic.”
“There are opportunities for dealer groups to perform tasks that suppliers and companies have traditionally spent time and resources on, such as the onboarding and vetting of advisers. That has usually fallen on the BDM.
Use this time to work on your business rather than in it. Go and finish the papers which are needed under the new advice regime.
“You will see groups performing a lot of the tasks that lenders or insurers have done, and we will be addressing their pain points, and working more closely with suppliers. More will be done on the ongoing management of advisers, and I can see dealer groups working in conjunction with suppliers,” Scott added. NZFSG’s Patten would like to see the banks hire and deploy more staff to help process loan applications and cut down turnaround times. “There’s been a decline in turnaround times for a couple of years, and it is time banks realise that as we write a high percentage of mortgages, they need to employ more people to lift standards. We are becoming a bigger part of what they do, and that will only continue,” Patten said. Like many in the market, McLeod hopes banks will change their tune on servicing tests in 2020. He calls the current system “antiquated”, and hopes technology will eventually enable banks to take a more appropriate view of clients’ finances. McLeod hopes trail commission will become a “status quo” across the industry, helping
His message to advisers during this time is: “Take time to care for yourself.”
A big bank view
While the brakes have gone on new mortgage business the lockdown is a great time for advisers to demonstrate their value. ANZ’s new head of third party distribution Andrew Webster says advisers with good relationships with their customers will be helping them through these tough times. He says there are three key options: • Restructuring debt: This could include changing to longer terms or different repayment frequencies. • Moving from principal and interest to interest-only • Accessing the loan repayment deferral schemes being offered. Webster says the preferred option is to restructure debt as it means the borrower is still making headway on repayment, albeit at a slower pace. While the Australian regulators have been forcing banks to pull back their interest-only books these are exceptional times, Webster says, and the bank is allowing this to happen.
He says the least preferred option is the repayment deferral scheme. It’s not a holiday and interest is capitalised. Under these schemes the interest bill increases and in the long term it will be harder for borrowers. “Loan balances will get bigger over time,” he says. While advisers are not earning income by writing new loans, they are getting paid a set fee when they help a customer. Webster admits there will be some impact for advisers who have relied on upfront commissions for new loans. However, ANZ has no plans to change its remuneration model. “Trail isn’t something on our agenda.” “There’s been no discussion (of introducing trail commission) in the current situation,” he says. Like Bawden, Webster says mortgage advisers should be taking this time to “sit back and reevaluate their own position and ask does their model need to change.” Webster recently took over heading up ANZ’s specialist distribution. The role was formerly held by Penny Burgess. Burgess was put into a new role following the appointment of Antonia Watson to acting chief executive, and subsequently CEO. In the interim period David Thomas had been acting head of specialist distribution. Webster also looks after the bank’s insurance operations. ✚
MY BUSINESS
By Miriam Bell
Outstanding
advice Christchurch adviser Maria Thackwell took home the outstanding adviser award at last year’s Financial Advice NZ conference and it all comes down to her refusal to give up, along with an unwavering client focus. TELL US ABOUT YOUR BACKGROUND: WHAT PROMPTED YOU TO BECOME A MORTGAGE ADVISER?
I was a branch lender at Westpac and loved the VW the mobile manager drove. Plus I thought the role seemed really exciting, especially the part which involved being out and about and networking. I was at Westpac for 26 years. Nine years ago, I went out on my own as an adviser and established the Maria Thackwell Mortgage Company.
HOW DID YOU GO ABOUT LEARNING THE BUSINESS? & HOW DID YOU FIND THAT PROCESS?
I learnt by being on the job, perseverance and tenacity, relationships with those who had been doing the job longer and some online training. Initially, it was a case of “here's the keys to the car, now write the business”. I thought I knew lending but, at that point, I realised I had lots to learn. I found the process stressful but I’m not one to give up easily. Setting up my own business was also
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The earthquakes got me thinking about my values and what I wanted to do. quite a shock to the system and very hard work. The Christchurch earthquakes were in February 2011 and I set up my company in June 2011, so it was a difficult time generally. People thought that I was nuts and, in hindsight, I probably was. I didn’t really have a plan to set up my own business. But the earthquakes got me thinking about my values and what I wanted to do. And it all just fell into place.
YOU RECEIVED THE OUTSTANDING ADVISER AWARD AT LAST YEAR’S FINANCIAL ADVICE NZ CONFERENCE. HOW DOES THAT FEEL?
There are always two sides to a story or success. It was so awesome to be
It was so awesome to be recognised, especially as my business is a small business. recognised, especially as my business is a small business. And it has really helped my business growth. But, for several months, I felt like I was in a fishbowl and that added to my own pressure as I felt under the spotlight.
TELL US ABOUT YOUR BUSINESS & WHY YOU ARE PASSIONATE ABOUT BEING AN ADVISER?
People are so scared of finance and insurance and I hate that as they shouldn’t be. It’s all about education though. I like to break down the barriers for people, educate them in this area and help them feel more comfortable about it all. Making people feel they have a say in their financial futures – that is what drives and inspires me.
DO YOU THINK YOU APPROACH BUSINESS DIFFERENTLY TO OTHER ADVISERS? &, IF SO, HOW?
The majority of advisers do a great job. It's not an easy job as there’s so much to balance. But I think spending a considerable amount of money on a business consultant is not something every adviser does. For me, the money isn't everything. I want to feel I am doing the best I can and he provides me with expertise I don't have and that gives me confidence. We can't be good at everything.
IS THERE A PARTICULAR AREA OF THE BUSINESS THAT YOU SPECIALISE IN?
We will help with any finance request, large or small. It can be a challenge keeping up with policy due to this but putting all your eggs in one basket isn't wise either in my belief.
WHAT’S YOUR TAKE ON SOCIAL MEDIA & NEW TECHNOLOGY? DO YOU USE IT MUCH IN YOUR BUSINESS?
We use Facebook and have a great following. I love that you can be more casual with it as finance traditionally isn't like that. We plan to expand this in 2020. There are so many different technical platforms out there to help run the
business smoothly. Plus we are lucky to have a technical guru in one of our younger staff members: that helps.
WHAT HAS BEEN THE HIGH POINT OF YOUR TIME IN THE BUSINESS? AND THE LOW POINT?
The high point has been keeping on going despite some challenges. The low point has been getting through those challenges.
DO YOU HAVE A MENTOR? IF NOT, WHO HAS MOST INSPIRED YOU IN BUSINESS & IN LIFE? I had several bosses at Westpac Linda Sullivan, who is now head of consumer southern at Westpac, and Graeme Soper, who is now my business partner. Both were great leaders and very inspiring. They always wanted to push me forward and they were always caring and fair but firm with staff. They modelled what I see as a great balance as leaders. I wanted to do well for them as well as myself. And, in life, there’s my mum. She's 80 this year and still raring to go. She's had some terrible blows but just dusts herself off and carries on with a smile.
WHAT’S THE BEST ADVICE YOU’VE RECEIVED?
That’s hard to say. So many people have given me good advice over the years. I do always come back to words from my mum. She used to say, “everyone has something to offer” and I think that is important. But, ultimately, the best advice has been to not give up easily and to be aware that things will work out.
IS THERE A TYPICAL DAY ON THE JOB FOR YOU?
There's no typical day. It's long hours and each day always turns out differently to what I expect.
WHAT CHALLENGES – BOTH FOR YOURSELF AND FOR THE INDUSTRY – DO YOU SEE AHEAD?
Balancing work and my personal life is something I'm conscious of this year. I like to stay visible but as I get older I need more down time. I have challenged myself to remember that I'm no longer 20. I think the compliance changes will be a challenge for some advisers this year but they are something I'm ready to embrace. I like to stay informed and I believe learning something new keeps our brains young and helps our clients.
WHAT ARE YOUR BIGGEST LONG-TERM BUSINESS GOALS? WHAT WOULD YOU LIKE TO ACHIEVE GOING AHEAD?
Retirement. Seriously, I want to nail my processes this year and fine tune them. Once that’s done I will look at what next.
AND HOW ABOUT YOUR PERSONAL GOALS? WHAT DOES THE FUTURE HOLD?
This year I want to do more stuff at home and in New Zealand. I've travelled a lot over my life and sometimes just a break at home is priceless. I'm hoping for a second grandchild – but no pressure on my children.
FINALLY, DO YOU HAVE SOME WORDS OF WISDOM, OR TIPS, FOR OTHER ADVISERS?
Remain client focused and the rest will follow. Get a great team around you and outsource what you're not good at. ✚
FROM: I was born in Wellington but I’ve lived in Canterbury for most of my life. FAMILY: My partner Peter. We have a daughter each. One works for me, is married and has given us our beautiful granddaughter, Hannah. The other has a lovely partner and teaches in Christchurch. OUT OF WORK INTERESTS: Interior
design, camping and travel, doing up old furniture, biking and friends and family.
FAVOURITE FILM &/OR TV SHOW: Thrillers. FAVOURITE BOOK: I’ve
read so many I couldn't say.
FAVOURITE MUSIC:
Lady Gaga currently – but it changes.
MOTTO: If at first you don't succeed, try, try, try again! My mum used to say it.
029
SALES & MARKETING
By Paul Watkins
The pharmacy approach to being a mortgage broker Paul Watkins on how to carve out a niche that you or your brokerage can become famous for. A road our pharmacies are also traveling.
I visited my local pharmacy today to pick up a prescription and an over-the-counter retail item. I walked past various dump bins of items, discounted at between 30% and 50%. At the counter I was offered smaller discounted items in counter displays, and the assistant asked if I had seen their amazing special on fish oil. Except for the restricted pharmaceutical products, almost all their big selling retail lines were discounted. I do some work with pharmacies, and when asked why so many do this, their answer is invariably that since nearly all their retail lines are available elsewhere, such as supermarkets, health shops, department stores and some are even at $2 shops, they need to be seen to be competitive. These competitors don’t include mail-based sales from some very aggressive online discounting retailers. Pharmacies don’t offer any unique or proprietary products. To add to their challenges, the suppliers
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of those products are forever trying to find new distribution points, so you could argue that their suppliers are one of their biggest problems. So how do they compete? How do they stand out in an increasingly crowded marketplace? How do they drive up customer count and customer spend? (While maintaining gross profits.) In the same way that mortgage brokers can. The fundamental difference between pharmacies and other retailers offering the same lines is advice. The reason for writing about this, is that I have had smaller brokerages contact me in recent months, asking how to compete against the larger well-branded, high-profile brokerages. Mortgage brokers may be able to learn from pharmacies. You do not offer any unique products. While you can search out great rates for clients (price), so can all brokerages and even direct contact with lenders can usually get the same result. So, what do you offer? The answer is advice or guidance or whatever you choose to call it. But then all brokerages say that. Come back to lessons learned from pharmacies. As a rule, they cater for customers within a notable radius of their store, with most being deemed “community”
The pharmacy has had to make changes in light of fierce and increasing competition and it's working for those who have responded. pharmacies for that reason. When they put dots on a map of their customer’s home addresses, the dots are often tightly grouped in specific suburbs. Most enjoy high levels of customer loyalty. Many pharmacies have chosen to be specialist stores for groups of customers such as young mothers, retired people (home care products), sports-minded (offering supplements and workout powders), those with addictions or chronic illnesses requiring close care or other such niches. Brokers can do the same and I’m sure you agree with that. However, what I rarely see is evidence of this. Advertising, websites,
social media posts, billboards and other forms of media for brokers focus on how they can get the “best rate”, “we negotiate with the lenders”, “take the hassle out of getting a mortgage”, “we are an award winning brokerage” and similar. There is nothing wrong with such statements, as those are what prospective clients expect to see. But nearly all brokers use the same statements or explanations of what they do, from the one-person operation to the nationwide franchises. So, let’s come back to the smaller brokerages that have asked how to stand out from the bigger ones. Smaller pharmacies with their own local brands that do well have a clearly defined target market, and this is something I rarely see in mortgage brokers. Who do you want for customers? What group of clients do you see as one you can genuinely help and that you enjoy dealing with? The most common objection I hear to this approach is, “but I don’t want others to not use me. By saying I am an expert in X market that might stop others calling me”. Wrong. It won’t stop people outside of that niche calling at all. I can explain. If I am looking to finance an investment property, surely I would want a specialist in that field, not the one that got my workmate into his first home, as I would see that one as a first-home buyer specialist. The easiest way to think of this is to consider how people search. Rather than search for the generic, “mortgage broker”, many would search for “rental property mortgage” or “investment property finance” or “what is the required deposit for buying a rental property?”. Most search in sentences, specific to what they wish to know, otherwise there
Have dedicated website pages for [your] areas of speciality and have them optimised for search terms and phrases. are too many results. To make this work, you can have dedicated website pages for the areas of speciality and have them optimised (search engine optimisation or SEO) for search terms and phrases. This will require some expertise, but it's not expensive. It comes back to thinking like a client. It's not hard to segment your clients into like-minded groups, from which you can create dedicated pages, social media posts and other marketing activities. If I did one of those searches above, then I would click on pages that answered the question I was asking. You may well have pages for other services, such as first-home buyers, or even in other languages if that’s your target group (I saw one like this recently – well done). Your website aside, the biggie in promotion is still social media and this is not going away. Be aware that over the Christmas break, Facebook made some significant changes to what you can and can’t advertise now and there are new rules around advertising mortgages and financial products. For example, the word “mortgage” is no longer an accepted word in Facebook ads. Ask your
social media person about this. The most powerful way around this is to offer “advice” in the form of education, not ads. Offer short videos or downloadable guides or slide shows on the steps to buying an investment property, the “4 critical things to do before applying to buy your first home”, “Are houses in xxx suburb really unaffordable?”, “What to do before attending a house auction” and similar. It's not hard to meet Facebook's new rules with a bit of thought. So back to pharmacies. The big growth area for a pharmacy is services, not products. They are moving to offer consultations on minor medical issues, immunisations, low iron count, ECP, smoking cessation, managing stress, travel health and a range of specific medical problems. And it's working. The successful ones are adding to offering purely discounted products, by becoming the one you go to for “advice” in the areas they are becoming famous for. They still have a strong local base in their immediate community, but over the top of this is their speciality area, which brings people in from a far wider field. In conclusion, my suggestion to the smaller brokerages who wish to stand out, is that you segment your current client base into groups based on their reason for contacting you. Then pick one or two of these to become famous in and devise a strategy for that group. This could include website pages, SEO, social media, informative downloadable guides and similar. The pharmacy has had to make changes in light of fierce and increasing competition and it's working for those who have responded. The same concepts apply equally as well to brokerages. ✚
What used to work is always the thing that is going to put you out of business - Gary Vaynerchuk
IN THIS BOOK YOU WILL LEARN: •
A new book from Paul Watkins. Uber disrupted the taxi industry, Airbnb disrupted the accommodation industry, and social media is disrupting how financial advisers gain clients.
• • •
How the old ways of prospecting for clients have been seriously disrupted by social media How trust is the new currency Why websites don’t generate leads The 5-steps to growing your perfect client-base using social media
WANT TO BUY? Buy from: intelligentinvestor.co.nz or direct from Paul at: paul@paulwatkins.co.nz
031
INSURANCE
By Steve Wright
Insurance adviser conduct obligations Steve Wright takes a closer look at Code Standard 1 and what "treating clients fairly" means in real terms. Code Standard 1 of the Code of Professional Conduct (the code), which all advisers are required to comply with under the FMC Act, requires all financial advisers, including life and health insurance advisers to treat clients fairly. In the commentary section, the code confirms that what is fair depends on the circumstances and the nature and scope of the financial advice being given. It goes on to explain that treating clients fairly should include:
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• Treating clients with respect • Listening to clients, considering their views and responding to their concerns and preferences • Communicating in a timely, clear and effective manner • Not taking advantage of clients’ lack of knowledge or other vulnerabilities • Not applying undue pressure. The commentary also confirms that … “treating clients fairly does not mean that clients are not responsible for their own decisions or that they are not exposed to risk”. I think treating clients with respect means some obvious things, like being friendly and showing respect; turning up when agreed (or calling ahead if you are running late). But it can also include some not so obvious things, like setting a client’s expectations clearly; not making
Treating clients fairly also means telling them the limitations of your service and what you can’t do for them. promises you can’t or don’t intend to keep; making sure you give them clear and proper information (like about their insurance disclosure obligations and the possible consequences of non-disclosure). Making sure your scope of service clearly matches what you are agreeing to do for them, along with the service they need and want, and
then delivering exactly what you agree. Treating clients fairly also means telling them the limitations of your service and what you can’t do for them, as well as any possible consequences of these limitations. Communication with the client must be “on-time” and clear and effective. “Clear and effective” to me means direct, honest and comprehensive, but also as simple as possible and “speaking the client’s language”. Avoid jargon and explanations that are likely to be confusing. I think it is all too easy for all of us in the industry to use words and phrases very common to us but that are not known to, or understood by, clients. Effective communication must not only be clear and precise and understandable, it must also be delivered in a suitable way. It’s no good, sending emails to clients who live in remote areas with no internet access, for example. Treating clients fairly means consciously identifying client vulnerabilities and not taking advantage of them. Vulnerabilities may not only be due to limited information and understanding. There may be many other issues causing vulnerability in clients which you will need to understand, identify and take into account in some appropriate way. Causes of vulnerability are many and varied and may include, for example, illness, recent bereavement, stress, work or home situation, age and physical impairment. To some extent all clients are “vulnerable” because there is asymmetry of information. Most clients will have very little understanding of why they need your advice, what their risks are and what the possible solutions might be. Advisers are required to do more than advise, they really must also educate. The level of explanation and education required will depend on many things, including the service being given, the client’s education, training, sophistication and financial literacy. In some instances, you will need to take enough time to explain some very basic concepts so that clients can understand enough to make an informed decision. Obviously, this must be done carefully and with
sensitivity and compassion. Client vulnerabilities can present themselves in many ways and not always as a personal vulnerability. Cultural factors could leave clients vulnerable to the way we do things in NZ. For example, some cultures may be more conservative, and, convention may dissuade them from disclosing various matters, in particular, sensitive health issues, either to the adviser or in front
Advisers also need to be very cautious when English is not the client’s first language. of family. Advisers should be especially cautious and sensitive to the fact that full disclosure may be compromised. There are alternatives to the disclosure of health matters to family and the adviser, many insurers will deal directly with the client in such situations. Advisers also need to be very cautious when English is not the client’s first language. Treating clients fairly means not applying undue pressure. Not applying undue pressure might mean, for example:
• Giving clients enough time to formulate and ask questions and then answering those questions fully and patiently • Not scheduling repeat appointments too soon • Making whatever time it takes to deal with client concerns or understanding • Not rushing clients when filling out application forms • Not bullying clients into something they don’t want or understand. It does not, however, mean you should not explain the inherent danger in unneccesarily delaying putting insurance cover in place. In fact, not explaining that urgency could be “unfair” amongst other things. Treating clients fairly also means, in my view, being impartial in your product and provider recommendations. It also means giving clients accurate and relevant information and not making it up or confusing things with irrelevant facts. Provider selection must be for the client’s benefit, not yours. Make sure you can back up your representations and statements. If you are not sure, find out and get back to the client once you are sure about it – remember, “don’t guess; check”. Treating clients fairly means you must be honest with them. Honesty is not only the absence of lies, but also dealing openly and accurately with clients on all matters. Dealing honestly with clients means not shying away from uncomfortable or inconvenient topics. It also means giving impartial advice which doesn’t overinflate or downplay the value or importance of features, benefits or other aspects of the advice to suit a particular agenda. It may also include potentially disappointing clients by correcting their own misunderstandings. By avoiding direct honesty, you may deny the client the opportunity to fully understand and make informed decisions. This can’t be fair! In the next issue of TMM we will take a closer look at an adviser’s duty to be competent: to act with due care, diligence and skill. In the meantime keep putting the client’s interests ahead of your own; ensure you know what you are talking about – check, don’t guess; practice direct honesty and give the client enough information to make an informed decision; do the right thing. Oh, and don’t forget to document all of this. ✚
033
The TOP
10 stories
on www.tmmonline.nz There was a wide variety of stories on TMM Online since the last issue of the magazine. Here’s what mortgage advisers have been reading.
1Kiwibank BNZ takeover talk grows
Kiwibank is lining up a multi-billion dollar takeover of big four bank BNZ, according to reports.
2
OCR decision revealed
The Reserve Bank has kept the official cash rate on hold. Here's what the central bank said.
3
Housing market boom won't last long: Westpac
goes direct to customers with 6Heartland 2.89% mortgage
Heartland Group has launched a direct-to-consumer digital mortgage with a one year rate of just 2.89%, as it takes on the established banks.
7Kiwibank set to enter adviser market
Kiwibank says it will be fully entering the mortgage adviser market later this year.
Westpac economists say the recent boom in the housing market won't last much longer due to upward pressure on mortgage rates and a lack of funds in the banking system.
8
4
Non-bank sector growth is an 9Comment: opportunity for advisers – Prospa
5BNZ targets investor market
10ASB reveals its position on FAPs
Coronavirus will lead to OCR cut this month: ANZ
The coronavirus outbreak could force the Reserve Bank to slash the official cash rate by 50 basis points this month, according to leading economists. BNZ has dropped investor home loan rates to the same level as owner-occupier rates, as competition for a resurgent investor market heats up.
Comment: What lies ahead in 2020?
GRA managing director Matthew Gilligan’s property market predictions for 2020.
Prospa New Zealand general manager Adrienne Church outlines some of the opportunities for mortgage advisers in 2020.
ASB Bank will work with adviser businesses that hold a FAP licence as well as group FAPs under the new regulatory regime.
TMM ONLINE ALSO HAS ALL THE LATEST MORTGAGE RATES AND CHANGES.
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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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