TMM - The NZ Mortgage Mag Issue 4 2016

Issue

04

2016

FINGERS CROSSED FOR RULES

HEADING WEST

STUART WILLS

SEEKING THE

DESIRABLES

CONTENTS

16

UPFRONT 04 EDITORIAL

Making changes

05 NEWS 06 PAA - IFA

Single adviser body - what’s in it for mortgage advisers?

08 PEOPLE ON THE MOVE The latest appointments and people news.

24 Newcomers: Mortgage advisers are enjoying the smorgasbord of offers with smaller banks now joining the table.

Stuart Wills

FEATURES 10 HOUSING COMMENTARY

The Auckland market is surging and the regional market continues to grow.

12 PROPERTY NEWS

A round-up of property news and events from New Zealand Property Investor.

14 REGULATION

Mortgage advisers are in for a regulatory change - so why is in the industry so quiet?

20 RECRUITMENT

Mortgage brokers are in demand with the industry on the hunt for desirable operators, Jenny Keown writes.

24 MY BUSINESS

Stuart Wills is at the helm of The Mortgage Supply Co’s second office in West Auckland and is thriving in one of the fastest growing communities in the country.

COLUMNS 22 SALES AND MARKETING

Paul Watkins explains how lucrative LinkedIn can be when advisers take the time to understand it.

26 INTEREST RATES

Tony Alexander of BNZ explains why it's the moments of issue that's causing a problem.

28 PAA

A taste of what its conference has in store.

30 INSURANCE

Steve Wright examines the sanctity of insurance contracts especially in the area of trauma.

32 LEGAL

Greater disclosure is needed to ensure consumers they’re no worse off when changing insurer, Johnathan Flaws writes.

EDITOR’S LETTER

Making changes

T

he theme in this issue of TMM is really about change.

When I reflect on what is happening in the mortgage advice market at the moment I’d characterise it as a time of significant change.

One of these changes the ever-increasing menu of lenders who want to work with mortgage advisers.

It’s always been, to me anyway, somewhat surprising how three banks (ANZ, Westpac and ASB- which includes Sovereign) have dominated the third party distribution space.

Now we have pretty much all the banks, except HSBC, wanting to to work with advisers.

The lead feature this month looks at the smaller banks and what they have to offer advisers The next change is the creation of the a new association, Financial Advice New Zealand.

This entity is being formed by the Professional Advisers Association and the Institute of Financial Advice.

At this stage it is really still a concept and a reasonably blank sheet of paper which needs to be drawn on.

From my understanding it is mainly focussed on being voice for all advisers in New Zealand It’s hard to argue against a concept and here at TMM we support the idea.

If there is a key warning that would be: Make sure all advisers are being looked after. Clearly insurance advisers are the biggest group in the market, followed by financial planners.

Mortgage advisers are the smallest of these three groups.

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It is no secret that many mortgage advisers feel they have been treated as poor cousins following the merger of the PAA and the NZ Mortgage Brokers Association.

The creation of Financial Advice New Zealand leads into the the third area of change - that is the review of the Financial Advisers Act (FAA).

By the time this edition of TMM lands on your desk the Minister of Commerce, Paul Goldsmith, should have, or won’t be far away from releasing details of planned changes to the FAA. He said recently the changes shouldn’t be a big shock to people and he has outline areas of commonality in the submissions.

One of the main issues which has been identified is that advisers are currently being held to different conduct and competency standards.

I have flagged this before and believe there will be change here impacts on Registered Financial Advisers.

Indeed at a recent conference an official from the Ministry of Business, Innovation and Employment said there was “majority agreement around competency requirements for all advisers and the removal of the category one and two distinctions.

Where this links into the previous change is what role will the adviser associations have in a changed regulatory environment.

The PAA has argued that it should have a greater role in supervising its members. In someways this is going back to what was proposed before the FAA was originally introduced.

While there is merit in this idea, it would be hard to see the ministry or the Financial Markets Authority wanting to cede too much of the supervision role to these associations.

Also it is unclear whether this is something Financial Advice New Zealand would do or whether the IFA and PAA would still exist and undertake these roles.

To finish this editorial off I have to add in the regulatory changes being introduced around lending and LVRs. While these make it hard for borrowers they do open the door for increased demand of good quality advisers. Added to that it brings into play non-bank lenders even more. The feedback we are hearing is that non-bank lenders will play a bigger part in helping develop lending solutions for advisers and borrowers.

While change can be unsettling it also presents new opportunities.

Philip Macalister Publisher

PUBLISHER: Philip Macalister SENIOR WRITERS: Susan Edmunds, Miriam Bell, Dana Kinita SUB EDITOR: Phil Campbell CONTRIBUTORS: Paul Watkins Steve Wright Jonathan Flaws Jenny Keown Kymberly Martin GRAPHIC DESIGN: Jonathan Harding ADVERTISING SALES: Freephone: 0800 345 675 sales@tarawera.co.nz SUBSCRIPTIONS: Dianne Gordon Phone 0800 345 675 HEAD OFFICE: 1448A Hinemoa St, Rotorua PO Box 2011, Rotorua Phone: 07-349 1920 Fax: 07-349 1926 tmm_editor@tarawera.co.nz

The NZ Mortgage Mag is published

by Tarawera Publishing Ltd (TPL) in conjunction with the Professional Advisers Association. TPL also publishes online money management magazine Good Returns www.goodreturns.co.nz and ASSET magazine. All contents of The NZ Mortgage Mag are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited.

The NZ Mortgage Mag welcomes opinions from all readers on its editorial. If you would like to comment on articles, columns, or regularly appearing pieces in The NZ Mortgage Mag, or on other issues, please send your comments to: tmm_editor@tarawera.co.nz

NEWS

BRACE FOR THE UPHEAVAL

M

ortgage brokers who are currently registered financial advisers are in for significant upheaval.

The Ministry of Business, Innovation and Employment has released its recommendations for changes to the Financial Advisers Act. A key change is that all existing distinctions will be removed between advisers and the types of advice they offer.

There will no longer be class and personalized advice and the RFA, AFA and QFE designations will be dropped.

Instead, all advisers will be required to work under the same requirements. They can choose to either be financial advisers, dealing with their compliance and licensing direct with the Financial Markets Authority, or agents to a financial advice firm, which will handle their compliance requirements for them.

All will be required to place the interests of the consumer first and provide advice only when they are competent to do so.

They will all have to work under an industry code of conduct that will have specific requirements tailored to their advice strand.

Competency, knowledge and skill standards will be introduced and all advisers will have to meet continuing professional development standards. Disclosure will be standardized and simplified across the industry.

A blanket requirement for all advisers to have a level five certificate is not being suggested in the legislation although the Code Committee chairman did not rule it out as a possibility in the code of conduct.

Commerce Minister Paul Goldsmith said the changes were designed to facilitate the provision of advice to consumers.

“The basic thrust is to ensure that more Kiwis get access to financial advice. The main point of contact with the capital markets for many New Zealanders is KiwiSaver. The worry is about people leaving it somewhere and not thinking about it for 20 years.”

The changes mean, in theory, that a client who has a relationship with a trusted mortgage adviser could ask that person for advice on their KiwiSaver fund selection too, if the adviser was competent to offer it.

“All providers of financial advice are now required to be more transparent about limitations on their advice and disclose information regarding conflicts of interest, such as commissions.

Focusing on consumer interest and improved transparency will improve confidence in the regulation of the financial advice industry,” he said.

Goldsmith acknowledged that it would be a significant step up for people who were operating as RFAs under the current conditions and said it would be interesting to see whether the changes affected adviser numbers. “It does raise the bar for RFAs in terms of disclosure of conflicts of interest and remuneration. I think it’s appropriate that we should be consistent there.

“But if you look around the world that’s broadly the direction that everyone is going and what consumers expect. Anyone who is wanting to be a financial adviser needs to be thinking in that way.”

He said all advisers and agents would have to make any limitations on their advice clear to consumers. Those who only dealt with a particular suite of products would have to disclose that. ✚

05

NEWS

SEEKING A STRONG VOICE

M

ortgage brokers hope their sector of the industry will still have a strong voice in a new, combined professional body.

The Professional Advisers Association (PAA) and Institute of Financial Advisers (IFA) have revealed their desire to work together to form a new organisation, Financial Advice New Zealand.

Mortgage brokers are a big component of the PAA since it merged with the New Zealand Mortgage Brokers Association (NZMBA) and are the fastest growing segment of its membership.

The details of how the new organisation will be structured are yet to be determined. But both the IFA and PAA said the focus would be on promoting financial literacy and the benefits of advice.

The IFA and PAA hope that the new body would eventually attract advisers who are not currently part of any association. The two have about 2000 members between them.

Geoff Bawden, New Zealand Property Finance manager, said the idea of a single body to represent advisers made sense, and the proposal to change the associations’ emphasis to one of promoting advice was logical.

But he said a lot of its success would come down to whether the structure was right, with each strand of advice fairly represented.

There was a danger that mortgage advisers in particular could feel left out, he said.

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Geoff Bawden

“My personal view is that I don’t think the amalgamation between the NZMBA and the PAA was well managed, I think it was a shambles” – Geoff Bawden

“My personal view is that I don’t think the amalgamation between the NZMBA and the PAA was well managed, I think it was a shambles,” he said.

“This is a new opportunity for the industry to get it right. To do that we need to set up a process and structure where everyone feels they have the opportunity to have input on an ongoing basis. That’s the challenge they have. But I’m supportive of the concept. It’s a huge opportunity to fix something that’s a bit broken.”

Mortgage adviser Craig Pope agreed. He said it would be important to make sure the mortgage broker voice was not diluted in Financial Advice New Zealand.

“I don’t see it having a major great benefit to my business, I’d rather have a separate mortgage broking association.”

Jenny Campbell, former general manager of the PAA and now chief executive of the Mortgage Supply Company, applauded the IFA and PAA’s goal. She said she supported the boards of each organisation and advisers were in good hands.

“The general public is not hugely financially literate, they don’t know what financial advisers do, or value the rule of advisers so it’s good to promote that.”

But she said she was not convinced that it should be the role of professional bodies to take on consumer education.

“My personal view is that they are there for the adviser, not necessarily for the public,

Timeline: June 9

Idea reveald to members.

June 20

Roadshows around the country to discuss the idea with members.

June 25

Special general meeting for IFA members. Each of the IFA’s 11 branches will have held meetings to survey their members and the councilor from each branch will vote accordingly.

June 28

Special general meeting forPAA members to vote on the idea.

2016/2017:

Working group development, in consultation with IFA and PAA memberships, of the new body’s mandate and constitution .

although the two go hand-in-hand. Their first focus should be the adviser. My concern is that the professional bodies could be stepping out of that role with this new venture.”

There could also be issues in bringing the cultures of two quite different organisations together, she said.

“IFA is largely AFAs and PAA is largely RFAs. I’m not sure one can look after both. The regulator has made it clear it wants one professional body and it seems like the professional bodies are going along with that,” Campbell said.

“I would like to think that the role of the professional bodies is to stick up for advises, not kow-tow to the regulator. I still don’t think the regulators have a clear idea of the differences between types of advisers and advice strands. If you lump them all together it might great for AFAs but it really could overcomplicate life for the mortgage and risk advisers.”

She said it would be easier to make a judgement on the plan once more details were revealed. ✚

07

PEOPLE

PEOPLE ON THE MOVE

Got a new appointment you would like to tell advisers about? Email details and a pic to tmm_editor@tarawera.co.nz experience, I believe in providing good old fashioned customer service and looking after every client.”

Lawrence will be servicing the Waikato/Bay of Plenty region, assisting clients and brokers with financing for residential, commercial and rural properties.

New role at NZHL Lawrence Russo

Banking on experience

Lawrence Russo has recently joined First Mortgage Trust (FMT) as its business development manager, based in Tauranga.

Russo is well-known in the banking industry, having worked for four major banks -- ANZ, National, Westpac and ASB -- for nearly 30 years. For the past four years, Lawrence has worked as a mortgage adviser.

“I treat every client and referral the way I would like to be treated, ensuring the loan process is simple and as stress-free as possible,” Russo says. “As well as my finance and banking

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New Zealand Home Loans (NZHL) has appointed Chris Wong as head of distribution.

NZHL chief executive Julian Travaglia said the position was a newly-created, future-focused role within NZHL’s management structure.

“Chris’s appointment is the final addition to our new management structure, which has been designed to provide the business with a solid platform as we drive the business forward,” Travaglia said..

“In this newly created role, Chris will cover the strategic development of franchises, lead the sales and distribution team and drive profitable and sustainable sales, business growth and client retention across the NZHL network.

He said Wong brought a wealth of business growth experience, along with exceptional

leadership skills, infectious enthusiasm and future-thinking persona.

Wong was most recently regional manager for the central North Island at Kiwibank, responsible for the development of regional strategies aimed at increasing market share.

In his earlier roles, Wong was the banking channel manager for New Zealand Post, business manager for ANZ Bank and a Company second in command in the Singapore Armed Forces as a Commissioned Infantry Officer, responsible for 200 plus military personnel.

Mortgage Express adviser

Mortgage Express recently appointed Yvonne Hong as a mortgage adviser based in Auckland.

Hong graduated from the Central University of Finance and Economics with a degree in Finance. He has experience in accounts, credit control and payments.

Zhang has a sound background in banking with more than nine years’ experience in personal banking and four years’ experience in

Skilling for GFS

Yvonne Hong lending. Based in Auckland.

A strong negotiator with an all-round knowledge of banking products, Zhang, fluent in Mandarin and English, believes good communication is essential to building longstanding customer relationships.

Mike Skilling is a professional director who is currently serving on several New Zealand company boards, including SBS Bank.

In the past, Skilling has been BNZ’s general manager of business and rural banking and PGC Wrightson’s general manager of customer service.

He has worked across retail, private, rural and business banking sectors, as well as with insurance, managed funds and finance companies.

Supporting

Mortgage Advisers

Since 1991

In case you missed it...

Mortgage Express has appointed Sarah Johnston to the role of chief executive for the company’s New Zealand operations.

Johnston, who has been with Mortgage Express since 2004, was previously the financial advisory company’s general manager.

Mortgage Supply lassos brokers out West

Kelly Brough

Nelson linked in

Kelly Brough has recently bought the licence to run Mortgage Link Nelson. She has been with Mortgage Link for more than five years.

“At this stage I’m a little one-man-band while I grow the Mortgage Link brand in the Nelson region which has not had a presence since May 2013,” Brough says.She had previously worked in the banking industry (Westpac) for six years.

Talent score for Squirrel

Shaun Harkins joins the Squirrel Mortgages team at their Takapuna branch as a mortgage adviser. An active property investor for more than 15 years, Shaun previously worked as a mobile mortgage manager for both ANZ and BNZ so he’s well versed in all types of home loans and the various scenarios that can crop up. Shaun’s a family man who likes nothing better than seeing people settled into their new homes, and he’s already receiving rave reviews from the clients he’s dealt with.

Emma Wallace has been welcomed to the Squirrel Mortgages team in central Auckland as a mortgage adviser. Squirrel stole her away from Air New Zealand where she was previously a market analyst for the last eight years, working to maximise revenue.

Prior to that Wallace spent four years as a mortgage underwriter, so she’s come back to her roots with Squirrel. She’s a strong strategist and brings a wealth of financial acumen to her clients as well as a degree in business and economics.

The Mortgage Supply Co has opened another branded office in West Auckland The well-respected adviser team of Stuart and Erica Wills, and Clive Brumby, have joined Mortgage Supply. They are rebranding their new office in the town centre of Hobsonville, one of Auckland’s fastest growing communities.

SBS appoints Drylie

Former ASB executive Shaun Drylie has been appointed as SBS's new group chief executive, following the sudden death of Wayne Evans earlier this year.

“Shaun’s extensive background across the New Zealand banking industry, innovative thinking and international experience are vital components in the mix and breadth of the skill base that he will contribute to the management of our business, ” chairman John Ward says.

He said SBS wanted someone with the right balance of industry experience, strategic thinking and proven leadership.

Drylie grew up in the South Island towns of Blenheim, Dunedin and Hokitika, starting his banking career in Greymouth 30 years ago. Progressively moving into more senior and strategic roles, his diversity of experience includes retail banking, business development and transformation of business services in New Zealand and abroad.

He has been part of ASB since 1994 and in 2014 moved to Vietnam to take up a banking growth and development role with Commonwealth Bank VIB (Vietnam) as Head of Interim CEO Mark McLean returns to the bank's executive team in his capacity as chief risk and innovation officer.

Drylie returns to New Zealand in mid-July to take up his new role on August 1.✚

Branded and Non-Branded Options Promotion on Website Advice Process and Flowchart Market Leading CRM’s Iress incl Mortgage Tool & Finware Leads PD Days and Conference New to Industry Adviser Training Compliance Support Business Planning and Support Succession Planning and Support PI Cover and Disputes Resolution Scheme Package Access to Insurance Link and Insurance Link General

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Think Link

mortgagelink.co.nz 09

HOUSING COMMENTARY

By Miriam Bell

Debate around Auckland’s housing issues is feverish, but the city’s market is now lagging behind some star regional performers, explains Miriam Bell.

C

risis or challenge? The issues confronting the Auckland housing market have been dominating public discourse for weeks now. And yet the latest data indicates the SuperCity market is currently taking it easy.

Regional markets stand in stark contrast. Many just keep getting stronger as supply and demand pressures grow. Experts say the big centres of Auckland and Christchurch are no longer driving the country’s housing market – it is certain regional centres.

Across the board, May’s data showed the country’s housing market was trucking upwards solidly. Trade Me Property recorded a small 0.1% drop in the average asking price compared with April, but rising prices dominated the story otherwise.

Realestate.co.nz’s May statistics showed the national average asking price hit an all-time high of $570,971 which was a 7.2% year-on-year increase. At the same time, new stock on the national market dropped 7.1% on April, while the long term average also fell.

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NORTH, SOUTH DEMAND This means May saw national stock at an all-time low, Realestate.co.nz spokesperson Vanessa Taylor says. “It’s a classic supply and demand situation and it’s definitely a sellers’ market.”

Heightened real estate activity was evident across both the North and South Islands, she adds. “The Central Otago/Lakes region and Nelson in the South are notable stand-outs, while Wellington, Waikato and Auckland in the North continue to feature strongly.”

The May data from REINZ backs this up. It showed the national median price broke the $500,000 mark for the first time to hit $506,000 in May. This was an increase of 3% on April and a year-on-year increase of 10%.

But REINZ spokesperson Bryan Thomson said regional markets, not Auckland, were driving the national median price up, with five reaching new record highs in median price.

Growth in regional activity is now exceeding the influence of Auckland on national statistics, he says. “This is shown in the fact that Auckland’s median price is rising slower than the national

median price – at 7.5% it is now well below the national median price increase rate of 10%. Also, its share of sales over the past two years has fallen from 40% to 34%.”

DEMAND DRIVERS While most of the data showed that Auckland’s market slowed in May, QV’s data was slightly out of step. It recorded strong value growth in housing markets around the country – including Auckland.

Residential values nationwide increased by 3.9% over the past three months and by 12.4% year-on-year, leaving the average national value at $577,829. This is 39.5% above the 2007 market peak. Once adjusted for inflation, the annual increase dropped to 11.9%, which leaves values 18.9% higher than in 2007.

QV national spokesperson Andrea Rush says values are continuing to accelerate in many parts of the country, with Tauranga, Hamilton, Wellington, Dunedin and Queenstown values doing particularly well. “Population growth, coupled with growing demand from investors,

means housing supply, particularly in Auckland and Queenstown, is not able to keep up with demand and this is driving values ever higher,” Rush says.

$1 MILLION AVERAGE Going against the grain, QV’s May data suggested a resurgent Auckland market.

It showed average property values increased by 3.3% over the past three months and by 15.4% year-on-year, leaving the average Auckland value at $955,793. This is 74.9% above the 2007 market peak. Once adjusted for inflation, the annual increase dropped to 14.9%, which leaves values 49.1% higher than in 2007.

QV’s Auckland values James Wilson says buoyant market conditions are leading to rapidly rising values across the city as agents report a shortage of listings and well-presented good quality stock is moving increasingly quickly.

“We are also seeing numerous examples of properties transacting within short timeframes by property speculators,” Wilson says. “Vacant sections within new developments are extremely popular, with the on-selling of vacant sites purchased off plans providing strong capital gains.”

Rush says that if Auckland values continue to rise at the same rate during 2016, then by this time next year the average value will top $1 million dollars. “It is clear Auckland needs more housing, both within the existing urban metropolitan boundary and on ‘future urban’ zoned land, as well as new infrastructure to service it.”

New measures aimed at curbing investor activity in the market haven’t made much of a dent in demand from investors, she says. “It appears to be investor demand that’s driving the rapid value growth in Auckland.”

STABILISING PRICES Signs, however, that Auckland’s market rebound might be flattening are characterised REINZ’s May data.

It showed the SuperCity’s median price dropped by 1% (or 0.6% once seasonally adjusted) to $805,000 in May, from $812,000 in April. While Auckland’s median price rose by 8% year-on-year, the rate of its annual price growth has slowed.

Once seasonally adjusted, the number of sales in the Auckland region fell by 2% on April.

Auckland was also the only region in the country where days to sell increased and, at the same time, its share of auction transactions dropped significantly in May (to 65% from 77% in April).

Auckland’s prices have lost their upward momentum, Barfoot & Thompson managing director Peter Thompson agrees. His company’s data showed it has been five months of trading since the all-time high average price of $876,075 was set.

The city’s average sales price has remained static for two months, he says. “The average price in May was $874,623 which is up only 2.4% compared to that for the previous three months,” Thompson says. “Further, the year-on-year increase for May was up only 6.4%. This is well down on the 12% increase we saw in the 2015 calendar year.”

In May, Barfoot & Thompson’s median sales price also fell by 1.3% to $809,500 – although this was up 3.1% on the average for the previous three months and up 7.9% year-on-year.

Thompson says the stabilisation of prices is not a result of lack of buyers, as sales numbers are up on April and up 31.4% on the average for the previous three months. “In May, turnover was high and in April turnover was low, yet for both months prices remained relatively static or fell,” he said.

REINZ SALES: DOWN

Once seasonally adjusted, sales were down both nationwide, and in Auckland, in May.

GOING GANGBUSTERS In contrast to Auckland, as noted, a number of regional markets around the country are booming with double-digit price growth and busy sales activity.

According to Realestate.co.nz, May’s star was the Central Otago/Lakes region, which hit at average asking price of $819,778. The region topped New Zealand in terms of year-on-year average asking price growth at 17.2%. It also recorded the largest drop in new property listings down 32.9% year-on-year.

QV’s data highlighted the Hamilton and Tauranga markets as having particularly strong value growth. Hamilton’s average values were up 4.9% over the past three months and 26.2% year-on-year, leaving them at $478,323. Tauranga’s average values were up 4.9% over the past three months and 23.1% year-on-year, leaving them at $591,942.

Trade Me Property and REINZ both pointed to the Bay of Plenty as the leader of the pack.

Head of Trade Me Property Nigel Jeffries says the average asking price in the Bay of Plenty hit $533,600 in May. Not only has it seen a 23.4% yearon-year increase in average asking price, it has also seen a 46% increase over the past five years.

The Bay of Plenty has seen “rocket-fuelled growth” for the past year as a flow-on effect of Auckland’s super-charged property market, he says. “The region’s price has increased by $101,250 over the past 12 months, which surpasses the $95,100 lift in Auckland’s average asking price over the same period. It is fast becoming the new kid on block, challenging Auckland in terms of growth.”

INTEREST RATES: DOWN

Interest rates remain at historic lows.

OCR: DOWN

The Reserve Bank left the OCR unchanged at the record low of 2.25% in June.

IMMIGRATION: UP

The annual net gain of migrants hit another record high in May, but Statistics NZ say there is now a declining monthly trend in the net gain of migrants.

BUILDING CONSENTS: DOWN

Once seasonally adjusted, building consents fell nationwide in May – and, in Auckland, the new consent trend is flattening, Statistics NZ says.

RED HOT Inevitably, the housing market continues to draw the attention of economists.

ASB economist Kim Mundy says Auckland is no longer the sole driving force of New Zealand’s house price growth, with the regions continuing to pick-up pace. “New Zealand’s housing market activity is increasing strongly on the back of robust demand. Outside of Auckland, low interest rates and displaced Auckland demand is responsible for driving demand.”

Westpac chief economist Dominick Stephens says the country’s house market is red hot and a wide tableau of indicators indicate house prices will continue to rise rapidly over the coming months.

This means Westpac has revised its house price forecast for the year from 10.5% to 14.2%. “That includes an allowance for more restrictions on mortgage lending from the Reserve Bank, which may slow the market for a time, but are unlikely to constitute a circuit-breaker,” Stephens says. ✚

MORTGAGE APPROVALS: UP

Reserve Bank data shows that mortgage lending hit yet another record high in May.

RENTS: UP

High demand meant that rents continued to rise around the country in May.

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INVESTMENT

By Miriam Bell - Brought to you by New Zealand Property Investor

Too busy to keep up with everything that is going on in the property sector? TMM is here to help. Read our round-up of property investment news and events in each issue of the magazine.

Fireworks and pointing fingers have dominated the last couple of months. As Auckland’s various housing issues – supply shortage, house price to income ratio, homelessness - reach crisis point, recriminations have flowed. And property investors, alongside the Auckland Council, have borne the brunt of much of the anger.

Blame for surging house prices nationwide and the pressure on Auckland’s housing market has been directed at investors, both domestic and overseas-based, for some time.

But, in May, much-anticipated data on overseas buyers was released. While far from definitive, it showed that just 3% of New Zealand’s property transfers in the first three months of 2016 involved overseas buyers.

Following the release of this data, the focus turned to domestic investors.

Speculation that further macro-prudential policy, aimed at investors, is on the way gained momentum. Frontrunners for such policy quickly became more LVR restrictions on investors lending or the introduction of a maximum debt-servicing-to-income ratio.

19-year old range,” Thompson said.

Reserve Bank concerns On June 9, Reserve Bank Governor Graeme Wheeler expressed the Bank’s concerns about the financial stability risk posed by the country’s hot housing market. He said property investors were responsible for 46% of lending in Auckland and about 40% around the rest of New Zealand.

This was adding pressure to the market and, for this reason, the Reserve Bank is analysing various macro-prudential measures. Wheeler said no decisions had been made to date.

“However, analysis on debt-to-income ratios will take some time. So it is possible that LVR

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changes [aimed at investors] could come sooner,” Wheeler said.

When asked about a possible timeframe for the introduction of any lending measures, Wheeler said it is possible the Bank would be moving before the end of the year or before that.

To many industry commentators, it seemed that investors were being unfairly targeted.

NZ Property Investor Federation executive officer Andrew King said stopping investment in property would not help the problems.

“Making it harder and more expensive for people to provide rental homes for tenants is not the answer,” King said.

Meanwhile, Property Institute chief executive Ashley Church warned the introduction of debt-to-income ratios could have serious and unintended consequences for the Auckland property market.

In his view, it could exacerbate the existing

Graeme Wheeler housing shortage by stifling construction, leading to a possible dramatic increase in rents over a relatively short space of time.

“In an environment where every extra dollar enhances borrowing power, landlords will want to maximise income from their rentals.”

However, Finance Minister Bill English’s eighth Budget contained no surprises when it came to property and little in the way of property related spending. Given the concern about Auckland’s supply shortage, perhaps the biggest announcement was the $100 million funding boost for the Government’s surplus Crown land programme.

English said that the new funding is intended to free up more land and increase housing supply in Auckland. “The Government’s longstanding view is that obstacles to the supply of land and housing are the main issues facing the housing market. It is essential these obstacles are removed.”

The Budget also allotted $36 million for warmer, drier and healthier homes in a bid to address another area of recent housing-related concern – the quality of housing, particularly rental stock, available. Of the total, $20 million will go to insulating around 20,000 rental homes occupied by low-income families Some commentators said more could have been done to address Auckland’s housing issues in the Budget. For example, the government could have made further adjustments around the KiwiSaver Home Start grant and/or reinstated depreciation incentives for property investors who build new dwellings.

Others said the funding intended to boost New Zealand’s supply of warm, dry rental properties was not all it’s cracked up to be. NZ Property Investors’ Federation executive officer Andrew King said the Warm Up New Zealand programme should cover the entire cost of insulation for vulnerable tenants, not just 50%.

He said it would have been better if insulation and energy efficient heaters had been made tax deductible expenses. “This would have improved rental properties and minimised the required rental increases for all tenants. It is the increasing cost of providing rentals, not the desire to make large profits, which is driving up rents.”

The announcement followed weeks of central government pressure on the Auckland Council over the city’s severe shortage of housing supply. It also came followed the Labour Party’s call for Auckland’s urban boundaries to be removed to allow the demand for housing to be met.

Response to both the Government’s NPS and Labour’s suggestion were mixed.

However, property commentators responded to the government’s move positively – albeit with some reservations.

For example, prominent Auckland investor David Whitburn said he understood why the

Government wants to make Auckland council release more land. But he said they had taken a sledgehammer approach when a more surgical method, to encourage a change of culture at the council, would have been better.

In his view, the release of more land for development needs to be carefully thought through, due to current infrastructure constraints and costs. “Infrastructure bonds as suggested by the Labour Party could be one part of the solution to this problem.”

Releasing more land for development might slow the rate of price growth eventually, but it won’t show much effect for the next couple of years, Whitburn – and others – said. ✚

NZ Property Investors’ Federation executive officer Andrew King said the Warm Up New Zealand programme should cover the entire cost of insulation for vulnerable tenants, not just 50%.

Government Budget moves The Reserve Bank might have a focus on reining in investors, but it seems the Government is taking a different tack. Before the Budget at the end of May, it was thought the Government might introduce new spending or taxes to address housing issues.

Auckland under pressure The Budget didn’t deliver taxes or policies directed at individual property market participants, but it did herald the looming arrival of a National Policy Statement (NPS) on Urban Development Capacity. Building and Housing Minister Nick Smith duly released the NPS a week later.

While the NPS will apply to all councils around New Zealand, it is most relevant to councils in high-growth areas – particularly Auckland. Smith said the policy is carefully nuanced to the different growth pressures across New Zealand’s towns and cities.

Under the NPS, councils have to provide sufficient land for new housing and business to match the projected growth in their region. They will also need to co-ordinate their infrastructure; ensure their consenting processes are customer focused; and recognise the national significance of ensuring sufficient land is available over local interests.

Smith said the NPS, with the Resource Management Act, gives the Government the power to direct changes if the Auckland Council does not agree to a Unitary Plan that meets its long term development capacity requirements.

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REGULATION LEGAL

By Susan Edmunds

Fingers crossed for review of rules Mortgage advisers are in for a regulatory shake-up...so why has the industry kept so quiet?

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ew Zealand financial advisers, including mortgage brokers, are staring down the barrel of more regulatory change.

By this time next year, the new version of the Financial Advisers Act will be in force. Recommendations from the Ministry of Business, Innovation and Employment, which will form the basis for the new rules, were to go to the Commerce Minister on July 1.

Mortgage brokers are arguably one of the groups of advisers most likely to be affected by the looming changes.

While most investment advisers are already working under more stringent compliance and competence requirements, mortgage brokers have – until now – been operating in a comparatively lighter-touch regulatory regime.

But with fast turnaround times and demanding clients, they might be the ones who find it hardest to handle any extra administrative workload.

It could seem surprising, then, that the latest round of submissions on MBIE’s options paper – outlining the direction the review could take – did not garner more comment from the mortgage industry.

Banks made comment, insurance adviser groups and professional associations made comment.

But none of the big mortgage broking groups was represented among submissions.

Jenny Campbell, chief executive of the Mortgage Supply Co, said she now wished she had made a submission.

But she said there had not been time and much of what was said by others, including representative groups such as the PAA, echoed her thoughts anyway. As former head of the PAA, she felt she had engaged sufficiently in previous rounds. “I’ve done my dash doing these submissions. My views are pretty well known.”

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But others’ reasons for staying out of the process were more cynical.

Ian Webb, an adviser and former PAA mortgage chair, said there did not seem any point because the last round of submissions had resulted in advisers being “steamrolled” into what the regulator wanted, anyway.

“Last time around they didn’t listen to us. I figure I’m not going to jump back in and get beaten up again.”

While regulation was usually well-intended, he said, it had not always served its stated purpose of improving consumer outcomes. Each subsequent change had been about stopping gaps, looking to Australia for guidance and backfilling what was already in place. “Instead of going back and saying ‘let’s lighten the load a bit. The bureaucratic process is so huge – we’ve got the FMA, the EDRs, the Commerce Commission and we’re just sitting out here trying to provide our clients with quality advice.”

He said MBIE had not made much of an effort to engage the mortgage broking fraternity in this round of consultation.

“If they really wanted to they would have been knocking on our doors. I know a lot of people who have been in the industry 25 years or more and they haven’t made one ounce of effort to ask us what’s working, what’s your opinion.”

Compliance concerns Campbell has previously said she worried that mortgage advisers would struggle to keep up with the paperwork required of documenting things such as advice suitability – as authorised financial advisers are required to do at present.

What she has seen of the review so far has not alleviated that concern. She said the new Code of Conduct put up for approval recently had made it very easy to capture every adviser and broker under the AFA umbrella.

But she said if mortgage brokers had to start

complying with things such as the anti-money laundering legislation, which requires regular audits, that would be “total overkilll”. “I hope they think back to the smaller advisers and make it practical and workable from their end.”

Webb said, whatever the final result, the review needed to tackle the issue of advice versus sales.

He said advisers were working in an unequal environment, where banks were unfairly circumventing the rules.

Webb, who previously worked for ASB, said banks had done a good job of making it appear they were giving advice when they were really just pushing a product.

People were drawn in by the idea of getting the cheapest interest rate on offer, he said, but did not give any thought to what they were signing up to, beyond that.

“There’s a general belief that all products are much of a muchness and the decision is only around cost and that’s simply untrue.”

He said banks purported to offer advice but did not do so in anything like the way brokers could.

“Banks are contracting out of the advice process but advertising that it’s what they do. But it is impossible for the bank to say ‘here is advice that is contrary to what will allow us to make money off you’.

“Consumers need to be aware when advice is advice and when it isn’t advice. How can a bank offer advice if it does not understand what you have currently got? They’ve structured rates to drive you to a particular part of the market that suits them not you. They think that’s advice and you think that’s advice but it’s neither.”

He said the industry needed more emphasis on advice and the benefits of that to consumers, and if the FAA review could support that it should be welcomed.

“If our advice is sufficiently good enough we get remunerated. But we don’t directly get remunerated for the advice. That’s the

Mark Collins complication we have in the industry.”

Share, a group covering insurance, investment and mortgages, supported the call to help advisers stand out from the sales market.

Chief executive Scott Black said a salesperson who could only represent one provider should not be allowed to describe themselves as an adviser.

“An adviser who can recommend products or services from a number of providers has the opportunity to present the best product in the market to meet their client’s needs. They are representing the client, not the provider. The former should be clearly defined as agents or employees whose advice is conflicted by their relationship to the product provider. It is not necessarily bad advice, but it is limited, and the customer should be made aware of that.”

There was more support for education requirements being imposed on all advisers. It looks likely that everyone will be required to hold at least a level five certificate.

Campbell said she did not think many in the mortgage sector would have a problem with a uniform competence standard.

She said the level five certificate was a good qualification and attainable. “I would be happy with the idea of everyone having to get the certificate as long as the lead-in time is reasonable. I would like to see recognition of prior

❝ The public

deserve it, I believe the barriers to entry should be higher as that will improve the overall advice to the public. That’s a good thing all day long.❞ - Mark Collins learning and experience. I don’t think anyone minds education as long as it’s not teaching them to suck eggs.”

She said there was also support for ongoing CPD requirements if what was offered was relevant and useful to mortgage broking business.

Webb also supported education and worthwhile CPD but said he was not sure of the relevance of the level five certificate for mortgage brokers. “I went through that process a number of years ago and 98 per cent of it was

utterly irrelevant.”

But some in the industry were more optimistic about the outlook and said consumers and advisers could end up better off as a result of the review.

Mark Collins, chief executive of Liberty, which owns mortgage advice franchise Mike Pero, said it was right that all advisers have to work to the same regulatory standard. He said the AFA/RFA distinction was confusing.

But he said advisers should be then be authorised to provide advice on a particular type of product, such as mortgages or investments.

And he said the standard required of mortgage advisers should be higher than what was currently required.

“The public deserve it, I believe the barriers to entry should be higher as that will improve the overall advice to the public. That’s a good thing all day long.”

He said it would mean that Mike Pero’s advisers had to do more study and CPD but that was something that would help them to service their clients. “I believe they are getting the best advice possible already but education is always good.”

Webb said the industry would adapt to any new rules before long. “Things are changing all the time and this is just another change. It is always unsettling but I don’t think this is any different.” ✚

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For many years mortgage advisers have had a limited menu of bank options to use with their customers. This has changed considerably and there is now a smorgasbord of offers. Phillip Macalister surveys what’s on offer.

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his feature started out as a look at the smaller banks and how they have become far more active in the mortgage broker market In the past prime home loan offers were limited to ANZ, ASB (including Sovereign) and Westpac. BNZ’s re-entry to the market is clearly the highest profile move, but The Co-operative Bank, SBS, TSB and Kiwibank now all are far more active in this market.

Of the other banks active in the residential lending market HSBC has deliberately chosen not to work with mortgage advisers.

In recent years a number of Asian and Indian banks have become registered banks in New Zealand but they do little residential lending. ICBC is the biggest with residential lending totaling $122 million as at March 31.

“Our bank is genuinely different than any other bank in the market, therefore it is offering a choice which has genuine different factors to it.”"

– Bruce McLachlan

KIWIBANK’S ODD POSITION

Kiwibank also plays in the mortgage broker market. It owns NZ Home Loans which generates a significant volume of business for the bank.

Originally when we approached Kiwibank its head of communications Bruce Thompson said: “We don’t use brokers.” TMM is aware of a number of brokers who do have agencies with Kiwibank.

When this was pointed out the company line then changed to: “Kiwibank has for some time been running a pilot with a small number of mortgage brokers.” “This activity continues, albeit on a small scale and does not signal a change in direction to cater to the wider mortgage broker market.”

TMM understands it is called a partnership model which works with selected mortgage advisers. A key point of differentiation in the market is its remuneration model. TMM understands Kiwibank pays a 45 basis point

the smaller banks.

A key reason is around the service levels they offer, she says. Another is because customers want to deal with local banks.

“Never under-estimate how parochial New Zealanders are,” Campbell says.

One of the group’s members, Rohit Rup, says around 70% of the loans he conducts go to either SBS, TSB or The Co-operative Bank.

His clients are mainly property investors and, while the rates are good, they are not particularly rate sensitive in this environment.

He says a 0.2% rate differential doesn’t matter that much when an investor stands to make $100,000 over a 12-month period.

What does make a difference is that the smaller banks have better affordability ratios or servicing calculators compared with the bigger banks.

RATIOS OF AFFORDABILTY

upfront and a 15 basis point trail. What further differentiates it is that the trail commission kicks in after just two months.

BIG BANKS ACCENT

It is clear the smaller banks are very happy with the level of business from mortgage brokers, but the support varies across the groups.

NZ Financial Services Group’s monthly breakdown of lending volumes show business is concentrated on the big banks. Meanwhile, Jenny Campbell says the bulk of loans done by the Mortgage Supply Company advisers goes to

Rup says with the smaller banks advisers generally have only one person to deal with while with the big banks applications go off to broker units and the results can be variable.

“I can send off 10 different deals, deal with 10 different people and get 10 different outcomes.”

A key factor he likes is that the smaller banks have better affordability ratios or servicing calculations than the big banks. Also, smaller banks tend to be better at looking at such mitigating factors as how rents and income are assessed.

With the big banks it’s a case of, “If it doesn’t fit the box, it doesn’t fit the box.”

Campbell says Mortgage Supply encourages its members to use each bank’s individual servicing calculators rather than relying on those in CRM systems.

By taking this approach “advisers and assessors are looking at the same data”.

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Rup says a lot of value is to be had by using some of the smaller banks.

While the approval process is better than with the big banks, the main drawback is that “after sales service can be a bit lacking”.

Paul Fuller, of the Mortgage Room in Blenheim, says around 25% of his loans go to the smaller banks.

“Not as much as I would like [goes to the smaller banks],” he says. That is partly because the bigger players have commoditised the market, making it harder for others to compete.

Also the decision is client driven. One thing he has found is that clients like the technology the bigger banks supply such as mobile banking and apps.

BANK EXTOLS BROKER MARKET SUCCESS

The Co-operative Bank is nearly at the stage it has as much lending as it wants from mortgage advisers.

Chief executive Bruce McLachlan says the bank has managed to grow its lending book at more than two times system growth for the second consecutive year.

It is up 16% to $1.8 billion and the bank has had two strong months in start of the financial year.

The Co-operative Bank has a target of originating between 30-35% of loans from third party distribution, but it has been running at around 40%.

“Our growth in the last two years has been at the limit of what can reasonably cope with in terms of capacity.”

McLachlan said the bank had received “great support” from advisers and the business they wrote was “really material” to the bank. “(The Co-operative Bank) is a very viable alternative to the major banks,” he says and it strengthens an adviser’s portfolio.

KEY DIFFERENCES

“Our growth in the broker market is one of our real success stories,” he said.

He says the goal is preserve and build on the relationships it has built with advisers so far.

McLachlan says: “Our bank is genuinely different than any other bank in the market, therefore it is offering a choice which has genuine different factors to it.” ● Choice around interest rate and most people acknowledge big banks are peas in a pod and

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“What really makes us stand apart is we are a mutual. We are giving back to them every day."

– Martine Milicich

offering the same things. ● Different proposition in product, service and participate in running the co-op and getting rebates ● Choice of something which is genuinely different. ● Strong pull factor in terms of offering to customers.

McLachlan says a key point of differentiation is that The Co-operative Bank operates a “localised distributed model for servicing brokers.”

Instead of processing applications through a big processing centre it is done in branches “with people in their local environment.”

“Big banks are impersonal,” he says.

The bank’s expectation is that all it branches will work with brokers.

“We expect everyone of our branch locations to have broker contacts.”

Under this distribution model branches have “decisioning” rights around credit and pricing discretion.

“You’ve got to treat every customer as an individual and therefore you can’t have one blanket pricing regime.”

He knows it is below levels brokers can earn from a number of the big banks. “We are not trying to be like a big bank,” McLachlan says.

A key consideration in setting the remuneration level is that it has to be sustainable.

“I don’t think the current level of brokerage, at the higher end, is sustainable in this market.”

He said it wasn’t much point in increasing brokerage and using up more capital when the business being written would become marginal.

He doesn’t like volume bonuses as it impinges on an adviser’s independence.

TRAIL DYNAMICS

“A broker should be neutral…but in reality that is what people are looking for, an independent voice to represent them, not purely driven by whether they are going to get a volume bonus or not.”

“I’m not a great believer in trails,” he says.

Once locked into trails you are not dynamic enough when markets change. It might be right one day but not the next. It is needed, certainty, but there isn’t any in the market at the moment.

“It’s not a model we would even consider at the moment,” McLachlan says.

The Co-operative Bank paid out $2.1 million to its members in the form of a rebate in the year to March 31, 2016.

McLachlan says the rebate is important to customers and can range from $10 to $600 each depending on how much business they have with the bank.

Customers continue to get their annual rebate as long as they are with the bank.

SOUTHLANDERS HEAD NORTH SECOND CHANCE FOR CLIENTS

He says it is impossible for big banks to do this because of volume of deals and turnover of staff.

“Big banks struggle to run a relationship model.”

The Co-operative Bank also offers a “second chance” product for people who have a single flaw in their credit history.

“We actually look through where there is a reasonable explanation,” he says.

“It’s a nice thing to add because you look beyond the formulaic approach [to lending].”

The Co-operative Bank’s remuneration model is “very simple – we don’t give volume bonuses and pay 70 basis points up front”.

SBS has actively been in the broker market for two years.

SBS general manager member banking, Martine Milicich says the bank often has a leading rate in the market and that is a deliberate move.

SBS, although a bank, is also mutual-owned by its members – just like The Co-operative Bank.

Milicich says while the bank still has to make a profit it is not so focused on shareholders as it is owned by members. These members get benefits from being owned.

“What really makes us stand apart is we are a mutual,” she says. “We are giving back to them every day.”

Yes, SBS does a rebate and has sharp pricing but it also offers other “specials” to members.

Putting a value on membership is “very hard

“A broker should be neutral...but in reality that is what people are looking for, an independent voice to represent them, not purely driven by whether they are going to get a volume bonus or not" – Bruce McLachlan

to quantify”.

“We are working to being able to define that better.”

In the mortgage adviser channel SBS established its virtual branch, or broker unit, in Invercargill several years ago.

ADVISER DIRECT TALKS

SBS national manager intermediaries James Tufui says SBS encourages its assessors to talk directly to advisers and advisers are not forced to use a platform. He says loans are being placed with a bank looking after its members.

“Customers are asking brokers to give us a go,” Tufui says.

While prices are important service rates very highly, too. SBS current turns around applications in 48 hours but is aiming to get that down to 24 hours with the advent in the next few months of some new technology.

Milicich also notes the bank is trying be far more consistent with its proposition.

Like The Co-operative Bank, Milicich acknowledges it is very hard for a lender to differentiate itself on product. “It’s very hard for a bank to differentiate on product,” she says.

In its product suite, however, SBS has Welcome Home Loans and a reverse equity mortgage product.

Currently SBS has around 1100 accredited advisers nationwide.

As with other smaller banks, SBS’s assessors, or lenders as it calls them, have some discretion. “We are not relying on a computer say yes, a computer says no,” Tufui says.

Commission upfront Currently SBS has five broker lenders,

and they are overseen by Tufui. A national manager in Auckland is used from time to time to work with dealer groups.

SBS pays an upfront commission of 70 basis points.

Martine Milicich says the bank wants to remain competitive and that is not just in loan pricing but also broker remuneration.

While former chief executive Wayne Evans talked about introducing a trail commission model, Milicich says the bank “hasn’t got a firm view on that”.

“There is some preference to remain with an upfront model,” she says.

The key reason is so that the bank doesn’t end up with a book on which it will continue to pay trail.

In saying that Milicich also says: “We do want to review our commission structure and that’s probably the most relevant thing for this channel.”

TSB EYES NOW MARKETS

TSB has operated in third distribution for many years but has a much smaller footprint than either SBS or The Co-operative Bank.

The bank’s general manager of sales and distribution, Steve O’Shea, says in the past it mainly operated in the Taranaki region, but in recent years it was expanding its network as “brokers are a really important part of our growth strategy”.

O’Shea is reasonably new to the bank and is working in this area and Mel Cadman, who helped BNZ re-enter the broker market, is currently consulting to TSB. The bank has around 100 advisers accredited currently and is being “quite selective at this stage” about who it signs up.

PRICING, FEES COMPETITIVE

The use of third party distribution gives the bank opportunities to look at new markets, O’Shea says.

He says TSB’s points of differentiation are its competitive pricing and fees, “great service” and good turnaround times.

Like the other small banks, it offers quite a personalised service which it comes to assessing loan applications.

O’Shea wouldn’t disclose TSB’s remuneration structure, but advisers TMM spoke to said it, like its peers, pays a 70 basis point upfront trail commission.

While other banks are generating up to 40% of their loan originations via mortgage brokers their contribution to TSB’s book is much smaller around the 25-30% mark.

O’Shea says TSB is taking a measured approach to this distribution channel and “doesn’t want to turn on the tap too fast.”

However, it recognises the international trends showing the importance of the mortgage adviser channel. ✚

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2nd LEAD Recruitment

Time for a clean-up

With the latest housing boom mortgage brokers are in demand; the industry is seeking desirable operators, writes Jenny Keown

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t’s official. A mortgage broker perceived to be hot job, once again.

As always happens in the boom times, more people than usual are attracted to the industry, and this can have its upsides and downsides.

As Mike Pero chief executive Mike Collins says with the current regulatory framework there are low barriers to entry and exit from the mortgage borrowing market.

“I believe this will mean that the industry will attract people worthy and not so desirable,” he says.

His thoughts are echoed by NZ Financial Services deputy chairman Bruce Patten who says there is “definitely a concern” in the sector that substandard people are being brought in to meet the demand.

“We need to clean it up somewhat,” he says.

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The growth Collins says it has experienced significant volume with results up 30% up on last year.

Over the last six months, Mike Pero has hired 10 advisers, with half based in the regions including Hamilton, Tauranga, Palmerston North and Dunedin, driven by renewed vigour in the regions part of the halo effect from the Auckland housing market.

Mortgage Link & Insurance Link managing director Josh Bronkhorst says a low interest rate environment and a sizzling property market has created a lot more interest in the mortgage business and mortgage advertising.

Mortgage Link has contracted 30 plus new advisers in the last year. While bulk of the growth has been in Auckland, it has hired new advisers in Christchurch, Nelson, Wellington, Rotorua, Tauranga, Hamilton, Warkworth and Whangarei.

“The demand for and the opportunity for mortgage advisers will continue to grow in the regions in line with migration to the regions and the associated increased demand for lending,” Bronkhorst says.

Global Financial Services mortgage team leader and co-director Aseem Agarwal says it has increased its staff from six to 30 people since 2012.

The company is writing $900 million to $1 billion in mortgages, up from $200m in 2012, driven by customers increasing their investment portfolio, and a concerted marketing effort by the firm.

There appears to be a growth in the number of insurance advisers and financial planners who are taking on mortgage brokers.

Bronkhorst says: “We’ve seen a lot of interest from insurance advisers keen to add mortgage advising to their existing businesses, but also a lot of interest from new industry people,” he says.

2nd LEAD Recruitment Jenny Campbell, the CEO of The Mortgage Supply Company, says while this is understandable in the regions where there is a greater need to diversify income stream, she prefers that advisers work together in their own speciality stream – especially where there is so much activity in the market.

“Loan sizes are large and the deals are more difficult because of LVR restrictions, the responsible lending code, and often clients are up against big deadlines. To run an insurance business at the same time is really tricky,” Campbell says.

Recruitment processes There appears to be a range of approaches to recruitment of advisers, with some firms taking a stricter stance than others.

Bruce Patten says that in an effort to develop transparency in the sector, it keeps a registry of people they have turned away, and shares that with the banks, and the reasons why.

“That way if the same person applies to be a broker with another group, the bank can see we have already declined to take them and why, and helps improve the quality of people entering the broker market,” he says.

The company has declined more than 100 applications to join the group in the last 12 months for a number of reasons, Patten says.

Some were poor account conduct, bad credit check and no background in the financial services sector and no-one who was prepared to be a mentor for them to ensure they develop and remain in the industry long-term.

When recruiting, aside from the mandatory qualification requirements, NZ Financial Services looks at a person’s integrity and ethics, and whether they have a sound business plan.

Agarwal says for every job vacancy, it gets about 20 to 30 applications and makes a short list of three to four candidates.

“There are challenges with every deal, whether that be the customer is coming to you to get the best rate or the banks have not given them the desired loan or declined the loan. First home buyers are especially nervous and you should be able to calm them down,” he says.

The job applicants they turn away often come from completely different fields, and would struggle to understand the nuances of finance and how lending works, he says.

They aren’t keen on people who have jumped companies often, says Agarwal, or who don’t appear, based on their experiences and personality, like they would be able to multi-task or handle the pressure of the role.

“This is not the traditional 9-5 job, so you need to have an understanding from the family that you will be working late nights and weekends,” he says.

Jenny Campbell says applicants don’t necessarily have to come from a financial background as the job is essentially a relationship business. “People expect really high levels of service, you never hear that they have mucked up the numbers – it’s more around the customer-facing service,” she says.

Angie Mann, a trainer with PAA and IDS, says

Training

“A lot of the (mortgage broker) groups seem to be outsourcing the initial training of advisers, and if there isn’t the support in-house, it’s a big ask..."

– Jenny Campbell

a good mortgage broker will be able to talk to customers and understand their needs.

“They need to be sensitive and put the interests of the client first, not everybody is in a position to get a mortgage, so you’ve got to be able to say, ‘That isn’t in your best interest right now’,” she says.

Bronkhorst says the bulk of its recruitment is conducted word of mouth, either through existing adviser networks or through industry contacts and some advertising.

It has a firm recruitment process, including a minimum of two initial interviews, credit check, criminal record check, reference checks and adviser commitment to partake in all in-house fortnightly training, use of all systems and process, attendance of professional development days and conference and annual compliance audits, he says.

Qualification needs shift To become a mortgage adviser is still relatively straight forward, says Bronkhorst, yet mainstream lenders have tightened up on entry requirements.

Apart from having to be a registered financial adviser, belonging to a disputes resolution scheme, and have personal indemnity insurance most lenders also require advisers, regardless of previous related experience, to do either the fiveday PAA or the Strategi lending course.

Until recently, lenders were happy to accredit advisers provided evidence of completion of the course was provided within a few months of becoming accredited. Advisers now have to provide proof of completion of one of the two approved courses before the lenders will allow advisers to become accredited.

From June 1 this year, requests to ANZ for new advisers must contain evidence of completion of an ANZ-approved industry specific qualification – the mortgage advice module of the New Zealand Certificate in Financial Services. ANZ used to accept proof of enrolment and payment of an approved course, provided the course was completed within three months of accreditation.

ANZ’s general manager of specialist distribution Penny Burgess says this streamlines their accreditation process and eliminates the requirement for post-accreditation follow-up.

Campbell says that lenders used to be more involved in the training of mortgage advisers, and she wishes they would increase training again, with a formal course and a training programme in collaboration with the lenders.

“A lot of the (mortgage broker) groups seem to be outsourcing the initial training of advisers, and if there isn’t the support in-house, it’s a big ask for a new person, especially if you are not sitting close to somebody and the work becomes timeconsuming,” she says.

Mann says IDS provide three-month refresher courses, and PAA provides a six day follow up workshop - a good opportunity to check in with advisers and see how they are going.

“They are predominantly loving being out with their clients – the biggest challenge for new advisers is it will take a while for money to come in, and they need to find clients,” she says.

“It’s not like the advisers do the five-day course and then they are on their own. It’s a process of experience and getting feedback. You do take on so much new information in a week, and until you have been with some clients, you don’t get best practice,” she says.

Agarwal says it has every person who joins the company has goes through compulsory two week training in-house, where they learn not only the principles of lending, but the similarities and differences between the banks and the company’s internal processes.

Bronkhorst says while it takes every step possible to ensure the recruitment of quality people in the industry – there is never any guarantee, however providing regular training and a lot of ‘hand holding’ in the first six months certainly improves the success rate with new advisers and has the potential of highlighting any issues early.

Collins say the current market conditions make the need for good advice more important than ever.

“As banks continue to tighten lending criteria, mortgage advisers will be required to help people with “out of the box” solutions. Those that embrace this market change will be extremely successful going forward,” he says.

Meanwhile, the Ministry of Business, Innovation and Employment is reviewing the Financial Services Act 2008, and the Financial Service Providers (Registration and Dispute Resolution) Act 2008. These Acts aim to encourage public confidence in the integrity of financial advisers.

There is a lot of speculation about what, if any, barriers to entry will be applicable to mortgage brokers from this review, Patten says.

The industry needs to tighten its recruitment processes because it needs to demonstrate to regulators that it can self-regulate the industry and is capable of doing it.

The review that has just been completed is the next step in potentially regulating the industry further.

“If we are able to show the regulatory bodies that as an industry we are professional in our approach this may in some way help prevent further regulation that may restrict our industry moving forward,” he says. ✚

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SALES & MARKETING LEGAL

By Paul Watkins

The Power of

LinkedIn has many strengths but taking the time understanding it could prove lucrative, writes Paul Watkins.

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inkedIn just sold for US$42 billion. Was it worth it? Many of you will also know that the most valuable taxi company in the world does not own any cabs – it’s Uber. The most valuable hotel chain does not own a single hotel – it’s Airbnb. The planet’s two biggest retailer don’t own a single shop, being Amazon and Alibaba. The world is changing rapidly and it’s almost entirely because of the Internet.

Before we talk about LinkedIn specifically, I need to put social media in perspective.

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LinkedIn can be described as the business to business version of Facebook and is within the category of social media. Facebook is still the biggest by a country mile, with well over two million kiwis logging in every day!

Facebook is followed by Twitter, Google Plus, LinkedIn, Pinterest and Instagram for popularity in New Zealand.

When it comes to chatting and messaging, email is losing to other contenders. The big one here is WhatsApp, followed (in order) by Facebook Messenger, WeChat, Viber, Line and

Snapchat. I’m guessing that you haven’t even heard of some of these, which don’t include many others, too numerous to mention.

Some guidelines should be understood before diving into the social media space as a lead generator. The most important is to just choose one; whether it’s Facebook, or LinkedIn or Twitter or frequent blogs written to be found by Google, pick one and make it work for you. As they are all labour intensive, you cannot do justice to more than one.

❝ Facebook is

followed by Twitter, Google Plus, LinkedIn, Pinterest and Instagram for popularity in New Zealand. ❞ Social media pervasive The intention behind the comments above is to get you to appreciate how much social media is now totally pervasive in our lives and therefore can influence your brand and client prospecting ability. So now to LinkedIn. This is a big topic, but below are the most important things to know about it. Each one of these is highly searchable in Google and in YouTube to get the full rundown on how to use it. I highly recommend that you take the time to do so.

First, understand that trustworthiness of a brand is the most important brand attribute in the purchase decision. LinkedIn is a great way to help achieve this. LinkedIn stated life as a CV lister. It was used by recruitment agencies and job seekers. But it has significantly evolved since then. Now it is a well-used way to connect one business with another and generate brand credibility.

Targeting is the biggest single strength of LinkedIn. Think about it. On your own page you have your name, gender, education, employer, job title, job function, skills (endorsements) and connections, along with other defining identifiers such as languages, boards you might sit on, volunteer groups you work with and obviously your location. All are searchable. This should give you a clue as to why it can be so powerful. With all those factors listed on each page of LinkedIn, you can filter your prospects any way you wish.

Here is a quick case study. A firm I know offers in-house corporate training. They carefully target people with such job titles as HR manager, training and development manager and so on.

So it is highly defined by job responsibility. They also choose specific such geographical areas as West Auckland. They also refine the target group to companies of a certain type and size. This micro-filtering results in a very small but totally relevant band of prospects. The campaign is then put together with this very specific group in mind.

In a promotional sense, LinkedIn cmna be used in three main ways. The first is display ads. This is no different to advertising on Facebook or any other digital platform, with your ad appearing on the pages of the chosen target. Display Ads in LinkedIn have various forms, but at this stage, just know that they exist and so long as your headline and message is relevant and motivating to your chosen audience, the impact can be huge.

Ensure updates sponsored The second method is sponsored updates. These are from your company page and appear in the newsfeeds of your chosen prospects. There are

some guidelines here, too, if you want these to be successful. First, they must have a very strong WIIFM (What’s In It for Me) as LinkedIn is a business platform and not a consumer portal offering a new brand of coffee. As your chosen group is so heavily filtered, you can make the update very specific to them.

An example from the corporate training company is a headline that read, “Why supervisors promoted from the ranks struggle so badly with managing their teams.” While it is an advert designed to generate traffic to their campaign landing page, it is a headline that offers value to the reader. By the way – make sure it genuinely does add value when they click on your update.

Placing ads on LinkedIn can be achieved two ways. The first is Self-Service (DIY) and the other is fully managed campaigns, run by LinkedIn for you. These are called assisted campaigns. Which one you choose would be dictated by your time, expertise in using the platform and budget.

The third way is sponsored inmail. This is where your marketing message is delivered right into their assisted Inbox. It is 100% deliverable and drives excellent click-through rates. But, this one can only be accessed through an assisted campaign.

I hope I haven’t confused you as I wanted to give a heads-up on the opportunity. Its extreme targetability and what can be outstanding results.

But, before you rush headlong, start slowly. The first steps are to make sure your own personal page and business page are fully up to date, you have good relevant content on them, with links to your web site.

Feeds no accident Look to add endorsements and testimonials.

List all relevant qualifications and maybe leave off some very old jobs or background items that have no relevance at all.

Next, create some sponsored updates. If you go to your own news feed in LinkedIn, you will see these appearing from others who have you in their sights. Looking on my own, I see them from financial advisers and institutions (since I work on that industry) education (another area I work in) and surprise, surprise – marketing agencies and PR firms (my primary skill set). They are not there by accident.

Have a good look at which ones motivated you to click on them and which ones were too blatant in their advertising message, rather than adding value to you. Click on some to see where the take you. Some are just for your information, others will take you to landing pages to get the “White Paper” or report that you offered – for which they need to give you their email address. Sponsored updates are a great way to build brand credibility and presence in the minds of your target audience before you launch display ads or ask to do sponsored inmail.

This is a very powerful medium if you take the time to understand it, just like any promotional vehicle you might choose. LinkedIn offers high value clients by definition, because of who is in there. It is not for everyone, but worth a good look before you reject it as an option. ✚ Paul Watkins writes blog content and newsletters for financial advisers.

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MY BUSINESS

By Dana Kinita

Finding inspiration in the fast lane When a career in accountancy became dull, Stuart Wills struck upon the the ideal balance of working with numbers and people as an adviser. His team recently joined The Mortgage Supply Co. opening the company’s second office in West Auckland - one of the fastest growing communities in the country.

HOW DID YOU START? In 1997 I left a retail home appliance business and looked for an opportunity to use the sales skills that I had learnt which lead me to the insurance business. From doing insurance I sort of fell into mortgage broking and enjoyed being able to help people get the money they needed to fulfil their goals. I’ve been a mortgage broker for almost 20 years.

HAS IT ALWAYS BEEN A PASSION? My nana always said I would be an accountant as I loved numbers and money. When I left school I worked in an accounts department and started training for accountancy but I found it a bit dull and got into sales. When I look back I guess that mortgage broking was an ideal role as I get to work with money and have the pleasure of make people’s dreams come true – most of the time.

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WHAT IS IT ABOUT BROKING YOU LOVE? People always need money and mortgage broking is great way to help people get the money to fulfil their dreams. Over the years I have helped a lot of people change their lives for the better – to get a new home for the family, to fund a business purchase or expansion, to get into investment property and to help people out of financial messes and get back on track. It’s great to meet with people that have benefited from the help that I have been able to provide and to see the difference that this help has made to their lives.

HOW DID YOU LEARN THE BUSINESS AND EDUCATE YOURSELF? There is a lot of learning on the job and from experiences, learning from other brokers and lenders, and of course there is the more formal study. I am one of the few successful mortgage brokers to have not worked for a bank; I think that has helped me with a desire to learn and to question the way the banking world do things.

BEST AND WORST TIMES IN THE BUSINESS? The Global Financial Crisis would have to have been the worst time I have had since joining the world of mortgage broking. We had to downsize our business to survive and that meant making staff redundant. Income was impacted by the reduction in loans being written, but also we lost a lot of trail income as non-bank lenders ceased. From the excesses and successes before the GFC, what the GFC taught us and the recent changes within our own business, I think we now have a business that is working well and growing in a controlled manner and so am enjoying things at the moment more than I have before.

BEST AND WORST BUSINESS MOVES YOU’VE MADE? Over the past year we have made a lot of changes and hopefully they are all for the better. Moving to our new offices and then joining The Mortgage Supply Company was a huge thing for us but we are confident that this was the right move to make. We needed the support of a group with good systems and lender relationships plus the office space to grow our business and now we have that and are already feeling better with how things are going. In hindsight a few business moves have been put down to learning experiences.

BEST AND WORST ADVICE YOU’VE RECEIVED? The best advice came from my father when I was at primary school and he told me, “Life is not always fair and we have to accept that and do our best with the opportunities we have.”

In my life, and in business, there have been plenty of times where I have thought about that advice and repeated it for other including my kids.

BIGGEST CHALLENGE NOW? Definitely managing the technology and using it to deliver exceptional service to clients. Most mortgage brokers are not great with technology and the challenge is to use technology to help not hinder what we do which is helping people.

The banks have the resources and younger staff who can adapt to new technology faster, but tend to hide behind their screens and forget about the customer.

With the market changes mortgage brokers have the opportunity to elevate the profession so that we are seen as the true lending professionals. I fear that the industry might miss this opportunity as it is too easy to become a mortgage broker where you can work from home with no professional support.

The groups need to start focusing on upskilling their brokers to be professional and the banks and lenders need to support those groups so they can.

WOULD YOU DO IT ALL AGAIN? I would, but I would do things a little bit differently.

Best business book? I read a lot but mostly for relaxation and not business books or biographys. As far as a book I found inspiring I think it would have to be Niki Lauda’s book To Hell & Back which showed me that no matter what life throws at you a positive attitude can see you bounce back. I still admire him when I see him in the paddock at the Formula 1 races.

IS THERE A TYPICAL WORKING DAY? Not really – there are a lot of things that are similar but every day seems to throw up new scenarios and challenges. I’m generally an early starter and like to get as much done before the phone starts ringing.

TOP TIP? Put yourself in the shoes of a lender: before I submit an application I always think what it will look like to a lender and then try to make sure that I provide whatever is needed to support the application. There are times when I look at a scenario or person and think I wouldn’t do the deal and therefore will normally not submit it on that basis. I have also learned that we cannot help everyone and that we cannot get along with everyone, so if I am not comfortable I will walk away from the deal even if it means missing out on a large commission or fee.

WHO IS THE INDIVIDUAL THAT HAS MOST INSPIRED YOU IN BUSINESS? Niki Lauda – as mentioned, not solely for his business expertise, but for his resilience. In our business not everything goes the way we plan and we have to pick ourselves up at times and most successful business people need to do exactly the same. Life is not always fair, but there is always a new opportunity around the corner.

WHAT IS YOUR BIGGEST LONG-TERM BUSINESS GOAL? To grow the business with the right advisers to

Stuart Wills of The Mortgage Supply Co. – Hobsonville, West Auckland Age: 48 Born: Napier, a few years on a farm there.

We moved to King Country, Taumarunui.

Then I went to boarding school in Nelson and Cambridge.

Family: Wife, Erica, son Harrison, 11 and daughter Mackenzie, 10.

What do you do in your spare time?

I have two kids so don’t have a lot of spare time. We seem to be taxi drivers for sporting events and things like that.

But we enjoy boating, fishing, diving and water skiing. We’re quite social we like to have a barbecue, good food and a few beers and wines.

Do you remember your first client?

Not exactly the first one. I know one that I use a little bit. He was a truck driver in Pukekohe way; he had mortgage with the bank and needed $16,000 to get a hip operation. The bank turned him down because he wasn’t working at the time because he couldn’t get into the truck. So that was one of my first experiences of the bank saying no for what I thought was a dumb reason.

It’s a long term thing, to be honest.

When you meet with that client and five or 10 years later you see how much of their life has changed. It’s just a bit of a personal satisfaction more than anything. It doesn’t always happen but so often it is the privilege of what we do. We help people and changing lives.

ensure that it is not reliant on me. Unlike many businesses we want to keep the business small enough to ensure that we can maintain quality advice and advisers, but we do need.

HOW DO YOU USE SOCIAL MEDIA, DIGITAL TO INTERACT WITH CLIENTS? Newsletters. The intention is to do one a month at least via email. We are looking at texting but it’s probably a bit early for that.

We do have a Facebook page and do a little bit on that and LinkedIn but newsletters are probably the biggest.

I have certain passions but a lot of it is around what seems to be topical around, if there’s something on the news a lot I tend to put my opinion in there. There’s always a few tips on what people might do with their mortgages.

HOW ARE YOU PREPARING FOR REGULATION OF FINANCIAL ADVISERS THIS YEAR AND HOW WILL THIS AFFECT YOUR BUSINESS? Our business changes have forced us to review our processes and documents which has been great. It is always a little hard knowing what the changes are going to require, but I plan to finish the diploma which is almost done. ✚

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INTEREST RATES Tony Alexander

Don’t blame it all on Aucklanders The economy is in great shape but problems are building with 'matter of moment' issues, writes Tony Alexander.

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ur economy is in great shape, and while developments such as even lower interest rates and strong migration will propel house prices higher, deeper currents are stirring.

We’ve been here before and in the next 12 – 18 months old hands will be selling the lower yielding maintenance-due portions of their stock to the current wave of panicking, latecycle entering, bottom of the pyramid buyers.

Economic analysis cannot tell you when the price of a widely held and easily accessible asset like housing has reached a peak. It cannot tell you what the decline will look like. It cannot tell you when things will bottom out. This is because while economics deals with human interactions in the trading of goods, services, assets and labour, the motivators of these transactions change over time.

Over a year ago you could pick up good property for what people now consider to be a song. Now we see that prices are soaring, listings have collapsed, and people are flocking to open homes to buy something, anything.

All that has happened is that just over a year ago, or even less that that according to some people, Auckland buyers appeared.

Seeing these buyers purchasing properties at low prices relative to Auckland, offering good yields, the locals jumped on the bandwagon.

And around the country it is the locals driving

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regional housing markets. Not Aucklanders.

Not foreign buyers even though to reinforce their buying determination people swap stories of Chinese buying property – Rotorua being a favoured location apparently.

Collapse Prices?

An emailer asked me to make a comment regarding the call by an economist for the Government to facilitate construction of so many houses in Auckland that prices would fall 40%. The Prime Minister described the idea as “crazy”. I assign little probability of Gold Coast-like development along stretches of Auckland’s central waterfront therefore see no reason to alter my view that the shortage of houses in Auckland at current prices will continue to grow. This implies further upward pressure on prices to ration the limited quantity of houses. Nothing new.

Will the $1 billion fund to help speed up housing infrastructure development make a difference? Not in the next few years given the shortage of resources to develop the infrastructure and shortage of resources to then build houses on the land. Prices therefore rise further. But it is starting to feel like we are entering the end-game for the Auckland market’s period of very rapid price growth. Come late-2017 or earlier the range on offer is likely to be improved from what is there at the moment and time will be on the buyer’s side. But we are not there yet.

Crisis?

When oil prices soared in the early and late 1970s we suffered from two bouts of an oil price crisis.

When Marmite production was interrupted five years ago by the Christchurch earthquakes we suffered a Marmite supply crisis.

Is everyone negatively affected and experiencing intense difficulty because of the soaring pace of house price growth around the country? Definitely not. If you already own property you are experiencing a lift in paper and sometimes realised wealth. You are not having a crisis. In fact the vast majority of Kiwis are not in crisis. For which groups is soaring house prices a crisis? Here are a few. The Reserve Bank. They are worried that some lenders may advance too much money compared with their capital bases, secured against property which could fall in price should a shock come along such as a foot and mouth outbreak. The crisis element is that the Reserve Bank cannot use changes in the official cash rate to control this risk. They are having to scramble to develop new tools focussing on restricting credit supply rather than credit demand. First home buyers. They are struggling to find a home, competing against investors and each other, and decreasingly able to raise enough money to get a place they consider acceptable.

Low income renters Rents are rising faster than incomes and some

people are being priced out of the rental market. Some become homeless. These people are definitely in crisis. Groups not experiencing a crisis include all investors.

They are either sitting tight and seeing their wealth rise, or buying more to try and make money from rising house prices and/or renting the properties out.

Over-investment in housing? Is this what we Kiwis do? No. Anyone who has invested in extra property these past three decades and managed to keep debt well away from valuation levels has made a lot of money.

On that basis one could not say people have over invested. They did probably, and many of us do, have an investment portfolio heavily weighted toward housing. But this definition of over-investment is probably only applicable in the sense of being heavily exposed to the risk of house prices falling

and not applicable in the sense of having too much volatility in one’s portfolio value.

House prices are far less volatile than share prices. The definition is not at all applicable to the situation in Auckland where there is a housing shortage. Not enough houses have been built since the mid-2000s. Not enough subdivisions have been developed. Not enough infrastructure has been put in place to facilitate housing construction. There has been under-investment in housing in Auckland for over a decade and all government and council policies are geared toward boosting investment in housing – not cutting it back.

A Repeat of 1985-87?

Some property sector people are apparently opining that this is a repeat of the 1980s boom which ended with the October 1987 sharemarket crash and property market crash.

They reference Chase buildings, bankruptcies and so on. But this comparison is incorrect and here are a few reasons why. Back then borrowing costs soared as the Reserve Bank struggled first to fight inflation entrenched from the 1970s and then to reverse policy easing mistakenly undertaken in 1986 when they thought their job was done. First mortgage rates went from 13% in 1984 to 20% in 1986, dropped to 17.5% late that year, then were pushed to 20.5% mid- 1987. Many people paid higher. This time around borrowing costs are falling as are expectations for future borrowing costs with the average floating mortgage rate of 5.64% down from 6.22% a year ago and 6.7% two years ago, headed down to close to 5.25% soon Back then credit supply was booming as the banking system was deregulated in fits and starts from 1984-87. This time around more limits are being steadily placed on the ability of banks to supply credit and the regime for controlling lending risks as administered by the Reserve Bank is vastly superior to the lacklustre range of controls back then. Back then the economy was being shaken by massive deregulation (Rogernomics), including removal of protection from a manufacturing sector which had got increasingly bloated from the late- 1930s, and the removal of farm subsidies and price support schemes. This time and largely since 1992 the reform environment is minor and incremental.

No big changes shaking up specific sectors let alone the overall economy. ✚ Tony Alexander is a chief economist at BNZ

The views expressed in this article are Tony's own and do not purport to represent the views of the BNZ. This publication has been provided for general information only. Although every effort has been made to ensure this publication is accurate the contents should not be relied upon or used as a basis for entering into any products described in this publication. To the extent that any information or recommendations in this publication constitute financial advice, they do not take into account any person’s particular financial situation or goals. Bank of New Zealand strongly recommends readers seek independent legal/financial advice prior to acting in relation to any of the matters discussed in this publication. Neither Bank of New Zealand nor any person involved in this publication accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this publication.

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PAA LEGAL

A taste of conference for mortgage advisers With over 35 industry partners and more than 600 delegates expected, the National Advisers Conference (July 28/29) networking and business development opportunity should not be missed. And for our mortgage advisers, we have many sessions designed to deliver practical take-aways for your business. Here are just five of many sessions to whet the appetite:

Building strong relationships – Dr Alan Fayter There’s plenty of business to go round when the housing market is full-steam, but what happens when the heat dies down? Exceptional customer relationships are not only good business, they are key to sustainability in quieter times and to building a strong business based on referrals. Dr Fayter delivers a blueprint for building customer relationships for business success; an essential tool for mortgage advisers focused on growing through referral and repeat business.

SMART. FASTER. CHEAPER. BETTER - DEBBIE MAYO-SMITH TOGETHER IN A NEW WORLD – DR OLIVER HARTWICH Housing affordability is a big concern for many regions in New Zealand, particularly when you ask, “What happens when interest rates rise?”

Dr Hartwich looks at the waning “rock star economy” and the need to address housing affordability while the sun still shines.

SPOTLIGHT ON LENDING – CHRISTINE GREER As a nation of SMEs, helping self-employed Kiwis with their personal lending is an important service offered by mortgage advisers. But it can be complex and requires a different set of skills than when dealing with salaried clients.

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In this two-hour session, Christine gets into the detail of understanding the balance sheet and business trends of clients; a refresher on best practice loan application submission; and the factors that may affect client’s affordability.

WORKING TOGETHER TOWARDS THE FUTURE – AMANDA BRADLEY AND ANDREW WATKINS As a mortgage adviser, you’re helping your clients with what is potentially the biggest asset they will ever own. Using real life example, this seminar includes a brief overview of the Property (Relationships) Act 1976, the consequences of inappropriate ownership structure, and how to identify when to refer to clients to a specialist.

The life of a mortgage adviser is the opposite of a desk-bound 9 to 5 existence. Appointments in the evening and weekends; short turnaround times to meet pre-approval for auctions, or quick settlements. Without the right support structures the role can play havoc with time management and productivity, not to mention that elusive work/life balance. In this session Debbie delivers a cornucopia of 15 technology tips that will easily give you more time, more income and delighted clients. ✚

Book today for the adviser event of the year – July 28/29, 2016.

View the Conference programme, session outlines and more at www. nationaladvisersconference.co.nz

INSURANCE

By Steve Wright

Contracts set in stone or ‘living documents’?

The sanctity of insurance contracts, especially in areas of trauma, is vitally important, says Steve Wright.

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es, I’ll admit, it is many years ago since I was a law student.

I studied contract law, but I clearly remember that one of the founding principles of contract law is that contractual provisions needed legal enforcement, even if the outcome is inconvenient to one of the parties to that contract. In other words, contracts were set in stone.

These days, however, contracts appear to

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be increasingly regarded as something to be ignored or amended when it doesn’t suit us.

We have laws prohibiting unfair contractual terms and some are justifiable, but not all contractual terms should be outlawed or prescribed and, in my view, the sanctity of contracts is important for creating certainty.

Certainty is essential to modern commerce and civilisation and without it we would not be where we are today.

UNDERSTANDING ISSUES Recent events in Australia highlight this issue for insurance. Media reports of ‘concerns’ that trauma policy definitions were not updated and of claims not paid when the client clearly had a ‘heart attack’ highlight this issue. While I don’t condone the alleged bad faith conduct, I think it is important, as advisers in particular, to understand some issues.

The first is that insurance is intended to pay

benefits to people who can show they have suffered a loss. It is not designed to provide windfall gains.

Unfortunately the media reports in Australia gave limited details about the ‘heart attack’ suffered, its severity or the financial loss suffered by the claimant as a result. It also only focusses on the one product, trauma cover, it does not tell us whether the claimant had any disability cover – much better suited to disability risk and which would have paid regardless of condition if he was not able to work.

TRANSFERRING RISK Trauma cover is designed to pay benefits when someone suffers a serious, defined, medical condition that causes significant expenses or loss of income. It should not pay large amounts where little or no financial loss is incurred. This is expensive and represents unnecessary transfer of risk and not really insurance, it’s something else.

Why should trauma cover pay hundreds of thousands of dollars for a relatively mild heart attack that does not leave the client with permanent impairment or inability to work?

We don’t expect to get paid our full contents sum insured if a burglar steals one item!

Notwithstanding, there are calls for standard trauma definitions. I personally do not like prescription of this nature.

FREEDOM OF CONTRACT We live in a free society and freedom of contract is important. Without contractual freedom the danger is we wind up with either no options or a legally imposed one.

If trauma condition definitions were legally prescribed in NZ, product development would die.

The very concern raised in Australia that ‘definitions were not kept up-to-date’ would probably become entrenched as there would be no motivation for companies to innovate and introduce new products and benefits. People’s choice to accept contracts with differing benefits and hence different premium structures and costs would disappear. Competition has served New Zealand policyholders very well. Our products are among the very best in the world.

❝ Commercial

pressure is the best motivator for product development by companies ❞ Without competition we probably would not have seen the very improvements by some companies of their heart attack definition in trauma cover, the absence of which is being complained about in Australia.

We would also probably not have seen diagnosis benefits or Intensive Care definitions in trauma policies.

DETERMINING BENEFITS Neither would we have seen benefits paid monthly in advance (as opposed to monthly in arrears) under income protection and mortgage repayment policies. These are significant improvements we now take for granted but which came about only about a decade ago due to competition. Insurance companies must be free to determine the benefits they offer and the price they charge, just as policyholders should be free to select from a range of options.

It is true that insurance is very technical and complex – it needs to be if it is to do its job properly at a price people can afford. It is also true we can’t expect clients to have all the information at hand to make an informed choice: this is why they need a good adviser.

A good adviser should know which policies offer better benefits and which are simply cheap. A good adviser can recommend a replacement if a client’s policy becomes outdated. A good adviser can assist their client with making a claim.

Commercial pressure is the best motivator for product development by companies, but for this to work efficiently advisers need to be both able to offer a variety of providers products and be sufficiently knowledgeable,

so that companies with inferior benefits stop getting support (the commercial pressure).

VITAL INSURANCE CONTRACTS In my opinion, the sanctity of insurance contracts is important. No, vital! Without contractual sanctity none of us has any certainty and insurance is all about reducing uncertainty, isn’t it? If you don’t like the contract you are in, move on. (We know that sometimes moving on is not possible, usually because of existing health conditions, which is why selecting quality in the first place is important).

The alternative, where contracts are not upheld according to their provisions, where terms are fluid and enforced to suit one of the parties, would destroy the certainty that well drafted contracts strive to achieve and result in, at best, significant cost increases and, at worst, complete absence from the market.

Insurance is expensive enough as it is. No one would be well served by price increases necessary to fund the uncertainty brought about by failure to enforce the contract provisions.

AFFORDABLE PRICE It is my experience that insurance company staff, particularly those designing products and pricing the risk (setting the premium) work very hard at trying to provide products that work when clients need it (they have suffered a financial loss) at a price that they can afford.

Keeping it affordable means not paying claims that clients don’t need (that do not result in loss) or that they do not qualify for under the claims criteria. As long as this is done in the good faith expected of the parties then that should be the end of it.

As an adviser, properly educating and preparing your clients – and managing their legitimate claims expectations – can go a long way to reducing the inevitable disappointment that comes from unrealistic expectations when a claim is properly declined. ✚ Steve Wright has qualifications in law, economics, tax and financial planning and is general manager Product at Partners Life.

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LEGAL

By Jonathan Flaws

A churning desire to travel Steps are being taken in New Zealand to ensure consumers are no worse off should they change insurer, emphasising a greater need for disclosure.

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he FMA was sufficiently concerned about the extent of replacement business in the life insurance industry that following its research into the topic has released a report. This may have some interesting collateral effects on mortgage advisers.

Its research comprised exercising its statutory powers to require insurers to provide it with information. Its report indicates that: “It only considered authorised financial advisers (AFA’s and registered financial advisers (RFAs), because there is a higher risk of churn in this group. This is because they sell more than one brand of life insurance. Other types of advisers could still be mis-selling but because they only sell one brand, they are unlikely to be churning policies.”

The concerns that the FMA has with churn in the life insurance sector is that consumers may be worse off if they change their insurers because they could be denied claims that might have previously been accepted by their previous insurer; they might lose benefits that they might have previously received; the policies that appear cheaper may become more expensive in the long term; and consumers could become over- or underinsured through bad advice.

An extreme example of the potential danger to the consumer could occur if the existing life policy may have been taken out before a potentially life threatening disease was discovered. The insured may not fully disclose details to the new insurer or indeed to the adviser that this event had occurred or may think that the recent doctors visit was too preliminary to disclose. The failure to disclose could invalidate the new policy.

COMMISSION BUCKET LIST More significantly, the FMA suggests that life insurance premiums may well be more expensive because of commissions paid to advisers and it points to a report by the NZ Institute of Economic research that suggested that premiums could be cut by up to 12% if the commission bucket was reduced.

Interestingly, the FMA review showed a link between high upfront commissions and the rates of churn. If a policy is sold through and adviser the policy is more likely to be churned after the end of the clawback period. Policies with high upfront commissions and a lower trail were also more likely to be churned. The FMA also found a correlation between overseas trips provided to advisers as incentives and the rate of churn.

There is a link between life insurance and mortgages. Most young first home buyers are well advised to ensure they have sufficient life cover to protect their family and pay off the mortgage in the event of an untimely death of the main breadwinner. Many advisers selling mortgages will therefore cross sell a life insurance product.

Like life insurance churn, mortgage churn may not always be in the best interests of the customer. A mortgage adviser assisting a borrower to refinance a mortgage needs to be aware of the potential for a claim from

❝ Like life insurance churn, mortgage churn may not always be in the best interests of the customer.❞

the borrower that the only person really benefitting from the refinance is the adviser.

The FMA report indicates that the Australian Securities and Investment Commission (ASIC) published a report on retail life insurance advice in October 2014. ASIC has recently reviewed commissions paid to mortgage brokers and is now asking the banks to hand over detailed information on commissions and other non-benefits that are given to mortgage brokers for arranging loans. One thing it will be seeking to understand is how remuneration and other incentives influence brokers’ behaviour.

Given that the FMA followed ASIC in reviewing life insurance adviser behaviour, it is reasonable to assume that mortgage adviser behaviour could be next on the list.

OVERSEAS INCENTIVES REVIEWS The FMA commented on the practice of providing overseas trips to life insurance brokers as incentives. It found a correlation between the provision of trips and the likelihood of churn. ASIC in Australia made a similar comment in relation to mortgage advisers and churn. One large aggregator group in Australia is rumoured to be reviewing its practice of holding overseas conferences for brokers at exotic destinations such as Venice, Barcelona and Las Vegas.

Interestingly, the role that ASIC plays in Australia is split here between the Commerce Commission and the FMA. In Australia, ASIC administers the National Credit Code as well as the credit licence regime and financial adviser regime. As a result, the responsible lending regime and the regulation of those advising on credit products is linked.

For example, while the responsible lending regime in New Zealand targets lenders and leaves it for the lender to be responsible for the advisers that originate business for the lender, the National Credit Code in Australia places specific and direct responsible lending requirements on credit advisers as well as lenders.

The mortgage adviser in Australia is required to carry out an assessment to determine that the loan would not be unsuitable for the borrower. The adviser is specifically asked to ascertain and demonstrate that if the loan is for refinancing, the borrower will be better off as a result of the refinance. The assessment is required to take into account all of the costs of the refinancing. If there is no demonstrable tangible benefit then the loan is not, not unsuitable, or as we would say to avoid the implicit double negative, the loan is unsuitable If the assessment shows that the loan is

unsuitable then not only does the Australian adviser breach the responsible lending requirements but the Australian lender is at risk of doing the same.

REFINANCING BENEFITS In contrast, a New Zealand lender only has to determine that the loan meets the borrowers’ objectives and requirements and has to assist the borrower to make an informed decision to borrow. Where the Australian adviser (and by virtue of the responsible lending link between the assessment carried out by the adviser and the assessment or assessment review carried out by the lender), the lender has a similar duty to ensure that the borrower benefits from the refinance, it is arguable that the same position does not arise in New Zealand.

If the loan being refinanced is a fixed loan and significant break costs are payable to the outgoing lender, the full extent of these may be unknown to the New Zealand lender and it may be under no obligation to find out. It is not clear if the requirement to ascertain the borrowers’ objectives and requirements extends to obtaining the full detail of the break costs – particularly if these are unknown at the time of the loan application and if the application has originated through an adviser.

This means that the situation could arise where, because of unexpectedly high break costs the borrower in New Zealand does not really benefit from a refinance, even if the new interest rate may be lower. The lender could have met the responsible lending test because it is unaware of the costs. The adviser, on the other hand, may well be aware of the higher than expected break costs but may feel obliged to persuade the borrower to continue, either because it is too late to pull out or because, putting the adviser’s interests first, the adviser would like to collect a commission.

MORTGAGE ADVISER SANCTIONS If the report on life policy commissions is taken forward into a report into loan adviser commissions and if, as a result, the FMA establishes a set of guidelines to ensure that consumers don’t churn their life policy or their mortgage where it is not to their advantage, you could find that the mortgage adviser faces sanction from the FMA but the lender faces none from the Commerce Commission.

A mortgage is not a life insurance policy.

There are many good reasons why it may be in the best interest of borrowers to refinance rather than remain with their existing lender.

Now would be a good time for a prudent and professional adviser to look at the benefits of refinancing and establish a set of rules or guidelines to help the adviser determine whether any particular refinance will benefit the consumer.

It may also be a good time to consider whether accepting the overseas trip incentive offered is such a good thing or whether it may be seen by the adviser’s clients as putting the adviser’s interests ahead of the client. ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir.

033

Intelligence

Gaining approval W

hile property values are rising with the majority surpassing the peak 2007 market price - are the number of

same period last year. They remain well below 2007 figures. The six months to June 2016 had 68,400 fewer approvals, 30% less, than the six month period January to June 2007.

approved home loans following suit?

Housing Loan Approvals Housing approval numbers are up 6% in the six months to June 2016 compared with the

Half Year

Full Year

% Change from Prior Year

Jan - Jun

% Change from Prior Year

Jan- Dec

No.

$M

No.

$M

No.

$M

No.

$M

2007

231,255

30,501

8%

21%

420,415

53,709

-6%

-4%

2008

204,979

23,820

-11%

-22%

347,465

40,241

-17%

-25%

2009

182,323

22,026

-11%

-8%

354,180

44,248

2%

10%

2010

135,417

17,202

-26%

-22%

271,541

34,762

-23%

-21%

2011

127,173

18,151

-6%

6%

276,233

40,919

2%

18%

2012

164,594

27,259

29%

50%

340,141

56,768

23%

39%

2013

174,487

30,566

6%

12%

339,688

59,441

0%

5%

2014

153,474

27,289

-12%

-11%

303,667

56,478

-11%

-5%

2015

153,771

32,067

0%

18%

321,922

68,288

6%

21%

2016

162,851

37,005

6%

15%

NEW RESERVE BANK STATISTICS The Reserve Bank has started providing statistics on proportion of residential loans that are on interest-only versus those on principal and interest repayment terms.

These show that in May 2016, almost 60 percent of all new mortgage lending was on principal-andinterest payment terms, while 40 percent was on interest-only payment terms. These proportions have been fairly stable since July 2015 when the data was first available.

In May 2016,about 55 percent of new lending for investor purposes was on interest-only.

(Refer to Graph below) terms compared to about 33 percent for owner-occupier purposes.

Only 1% of interest-only lending for investor purposes is above 80% LVR and this has been declining over time.

May 2016 $M

Owner Occupiers

%

$M

New lending by payment type Interest only (incl revolving credit)

2,996

41%

Interest only

Principal and interest

4,291

59%

Principal & Interest

3,036

7,287

100%

Total

4,504

Owner occupiers (incl first home buyers)

4,504

62%

Investors

2,698

37%

Total

New lending by borrower type

Business purposes Total

034 WWW.TMMONLINE.NZ

85

1%

7,287

100%

%

Investors $M

%

1,468

33%

1,489

55%

67%

1,209

45%

2,698

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