2018 Working together to create tomorrow's advisers today
Annual Mortgage Adviser Survey Results
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YOUR SALES AND MARKETING
ARE YOUR FRIENDS AND FAMILY COVERED?
TENZIN CHOEDON - RISING TO THE TOP
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WE BREAKDOWN THE MAIN ISSUES AFFECTING ADVISERS ACROSS NEW ZEALAND.
UP FRONT /// 04 EDITORIAL
Speak now or forever hold your peace, Philip Macalister says.
FEATURES /// 10 REGULATION
Working group outlines new rules
An adviser's guide to clawbacks.
16 PROPERTY NEWS
A round up of key property investment news stories.
06 NEWS Among the latest news, advisers face interest-only lending restrictions, RESIMAC applications up by 30% and Stategi and IDS merge.
14 PEOPLE New and old faces at Bluestone and Mortgage Express.
COLUMNS /// 26 SALES AND MARKETING
18 HOUSING COMMENTARY Experts predict the market will flatten out this year.
Quickfire ideas from Paul Watkins on how to get your Continuous Improvement started.
28 MY BUSINESS
Mortgage Supply Companyâ€™s Tenzin Choedon.
Are your family and friends covered? Steve Wright urges you to talk to them.
New verification rules in place, Jonathan Flaws gives you the rundown.
Speak now or forever hold your peace
s much as things change, the more they seem to stay the same. TMM’s annual survey of mortgage advisers shows that the number one issue keeping them awake at night it turn around times - even though bank volumes have, in all likelihood decreased. This issue was number one last year too. It’s a surprise that such an important issue remains a problem for the industry. But it may well be symptomatic of a bigger issue. Recently, when talking to a number of people who head up dealer groups, they voluntarily made the comment that the big banks seems to be not particularly engaged in the adviser market. It’s an issue we, at TMM, come across too. Getting engagement and support from banks is about as hard as winning Lotto. The dealer group bosses also noted that the banks have an iron-tight grip on advisers and they are not allowed to say anything negative or critical about them. Indeed a number of people have been told if they say something the bank doesn’t like they will be stripped of their accreditation.
It does suggest there are some deeper issues or points of conflict bubbling away in the relationships. The second biggest issue was regulation. Now I would have thought that it should be the number one issue. There still seems to be a lack of engagement from RFAs about what is looming for them. There is no better example of disengagement than the poor showing from RFAs at the recent Code Working Group roadshows around the country. Only 267 RFAs registered to attend compared to 246 AFAs. As you will see in the results of the TMM survey advisers acknowledge they only have some understanding of the changes happening. The excuse that there is still too much uncertainty just don’t wash any more. The Financial Services Legislation Amendment Bill is currently before a Parliamentary Select Committee which is the final stages in its approval. The Code Working Group, which is writing the future rules for advisers is actively seeking your input. If you sit back and say nothing then you can’t complain about the outcome. Yes, there are still lots of things that need to be decided with regards to accompanying regulations. But if there is one thing I would encourage it is find out more about what is happening and make your voice heard.
Philip Macalister Publisher
PUBLISHER: Philip Macalister SENIOR WRITERS: Miriam Bell, Susan Edmunds, Daniel Dunkley CONTRIBUTORS: Paul Watkins, Steve Wright, Jonathan Flaws GRAPHIC DESIGN: Debbie Morgan ADVERTISING SALES: Philip Macalister 0274-377527 email@example.com
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TMMONLINE.NZ/NEWS Adrienne Church
By Dan Dunkley
ADVISERS FACE INTEREST-ONLY LENDING RESTRICTIONS
eading New Zealand mortgage brokers have voiced their concerns about tightening restrictions on interest-only loans, as Australian lenders clamp down on the products. Brokers have noted an uptick in cases where customers have been unable to rollover or get new interest-only facilities. Kiwi advisers say established customers with existing facilities have been put through stringent new servicing tests, and later rejected. It comes after the Australian Prudential Regulation Authority (APRA), enforced a limit on Aussie lenders issuing interest-only mortgages last year. APRA allows up to 30% of a bank's loans to be interest-only. Interest-only lending has plunged in Australia since. The Advice Group’s Stephen Wilton says pressure from Australian regulators has forced banks to restrict the products in New Zealand: “Lenders are putting entire lending portfolios through a principal and interest repayment [calculation] at an inflated interest rate, significantly inflating the shortfall required to get these things servicing on banks’ calculators. They are getting declined, and the banks are telling us the
client can’t afford it.” The Mortgage Supply Company’s David Windler says there is “ongoing tightening”, particularly with interest-only revolving credit facilities. He says brokers are faced with extra paperwork to renew the loans: “Most banks have clamped down on accessibility. The primary reason has been the fact a number lenders are short on capital.” Windler adds: “Our property investor clients are used to interest-only products being granted and extended on an ‘asrequired’ basis. Now we have a situation where if you come to the end of an interest-only period you have to provide a full application. It has caused additional work for advisers.”
RESIMAC APPLICATIONS UP 30%
on-bank lenders continue to make inroads into the New Zealand market. RESIMAC enjoyed a 30% increase in New Zealand loan applications in the six months to January, as profits soared at parent company Homeloans Limited. Adrienne Church, General Manager at RESIMAC, says the mortgage provider benefited from a marked increase in applications, as well as a 35% increase in settlements, from July 2017 to this January. RESIMAC’s net portfolio growth was up 55% in the six month period, Church claims. The figures follow strong profits at Homeloans, RESIMAC’s Australian parent. Homeloans recorded a net post-tax profit of A$11.9m in the six months to December, up 111%, noting strong growth in New Zealand. Homeloans said total segment revenue in New Zealand rose in the half year to A$7.2m from from A$5.9m in the same period in 2016/17.
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STRATEGI AND IDS MERGE
arry Read's compliance business IDS agreed to merge with rival Strategi, run by David Greenslade. Read says Strategi has the scale, resources and systems to help take the financial advisory industry into the new age of technology and professionalism: “We are aligned in our thinking and values, so for us it was a simple decision to make. The IDS name will be replaced by the Strategi name, but other than that, it is ‘business as usual’ and there will be no interruption to the high level of service you expect from our people." Read believes the next two years will be stressful for many financial advisers, advisory firms and networks, as they transition into the new licensing regulatory regime and develop their business models for the future. He says the IDS/Strategi merger is all about capacity and cost-effectiveness: "With this merger, the intention is to use the two companies’ combined expertise, staff and systems to meet the needs of all segments of the advisory industry, while at the same time helping to keep adviser compliance costs to a minimum.
BLACKWELL EYES MARKET WITH NEW FUNDING LINE
inance company lender Blackwell Global entered the market with a new funding line, hoping to benefit from the reduced risk appetite from banks. Mark Thornton, chief executive of NZXlisted Blackwell Global Holdings, formed last July by Blackwell’s reverse takeover of NZF Group, says the company is looking to rampup its lending in New Zealand. The company’s new funding line was secured by a debt raise in February. Thornton believes it will help Blackwell gain market share amid a lack of liquidity in the market. He says Blackwell is also looking to take business from other non-traditional lenders with “funding constraints”. He adds: “We believe we have a robust funding mechanism in place, to grow bigger and better.” Blackwell began lending at the turn of the year, focusing primarily on Auckland residential property. Brokers say Blackwell is offering secured lending of 75%-80% on residential properties and 65% on commercial sites. Thornton says Blackwell was “happy to consider” 1% commission payments to brokers or negotiate as business came in.
Thornton believes New Zealand has a growing appeal to international investors. “New Zealand is seen as a politically stable country with good prospects, and residential property is viewed as safe and stable.”
Mark Thornton 07
TMMONLINE.NZ/NEWS By Dan Dunkley
ANZ TIGHTENS LENDING AFTER FRAUD CASE
NZ Bank enforced extra lending controls in the aftermath of a high-profile fraud case that saw it cheated out of millions of dollars. ANZ was one of three banks hit by Auckland property fraudster Kang Huang, who used false identities and the names of friends and family to obtain mortgages worth $52.5m. Huang’s fraud involved loans against more than 70 Auckland and Hamilton properties. Huang also bribed a banker with $7000 to approve loans. Huang pleaded guilty to 10 charges before Christmas. He was sentenced to four years and seven months by Justice Graham Lang at Auckland's High Court. ANZ provided a victim impact statement before Huang’s sentencing, warning it may become more difficult for ordinary Kiwis to take out loans: "The bank has had to enhance its lending policies, control environment and detection systems to prevent ongoing offending by this defendant. This can have an effect of making it more difficult for hard working New Zealanders to obtain lending for their own homes and businesses."
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❝ The bank has had to
enhance its lending policies, control environment and detection systems... making it more difficult for hard working New Zealanders to obtain lending for their own homes and businesses. ❞ - ANZ
HEARTLAND: AGEING POPULATION DRIVING REVERSE MORTGAGES
n ageing demographic in New Zealand is contributing to a rise in equity release products, according to Jeff Greenslade, the chief executive of Heartland Bank. Greenslade says retirement-age customers are increasingly turning to reverse mortgages to boost income, amid a growing awareness of the products: “The growth we’re getting is demographically driven. It is the ageing population, with most of their wealth tied up in the house and cashflow poor. Reverse mortgages are the ideal means for managing their retirement.” Heartland’s net operating income from reverse mortgages grew by $3.7m to $18m in the six months to December, up 26% from the same period in 2016. Much of the growth came from Australia, but net receivables in New Zealand reverse mortgages grew by $24.3m to $429.6m over the six month period. Heartland booked a post-tax profit of $31.3m in the half year, an increase of 7% on the same period in 2016. The lender recorded a 10.8% return on earnings, slightly down from 11.6% in the same Jeff Greenslade period in 2016.
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REGULATION By Susan Edmunds
Working group outlines new rules for mortgage advisers Proposals include level five minimum, record-keeping requirements.
new code of conduct that will apply to all financial advisers is likely to mean big changes for the mortgage sector. The code working group, which is developing the code, released its proposals last month. While it looks like business as usual for most authorised financial advisers, changes are coming for registered financial advisers in several key ways.
One of the proposals that has had the most attention so far is the move to introduce new qualification standards for everyone offering financial advice. Those giving product advice will need to work with the competence, knowledge and skill of someone who had passed the New Zealand Certificate in Financial Services, level five. If that did not mean actually having the qualification, the onus would be on the adviser to prove why it was not needed. Mortgage advisers who offered their advice as part of a full financial plan would need a degree. It will be possible for advisers to meet the competence requirement “in aggregate” with the financial advice provider they were working for. But working group chairman Angus Dale-Jones said that would usually apply in situations such as bank staff offering advice as part of a templated process, which would fill in any gaps in an adviser’s knowledge. The aggregation option would not be a viable shortcut for most smaller firms. “If you’re relying on someone to be the smiling face of an implemented system then there’s clearly not too many variances and it’s a more straightforward job but if you see it as a shortcut so the team doesn’t have to get qualifications, it’s not. It’s more complicated."
The new code of conduct will also outline ethical and conduct care requirements expected of advisers. The working group has outlined the idea of advice-giving standards, which apply when the advice is given, and organisational standards, which apply on an ongoing basis. Under the proposals, advisers would have to seek to identify any conflicts of interest that would apply to each client, avoid them if possible, manage those that were unavoidable due to the business model and communicate any actual or potential conflicts to clients. That would include communication about things that could be seen as conflicts unless they were adequately explained. Advisers will also have clear disclosure requirements set out by the Ministry of Business, Innovation and Employment. Authorised financial advisers already have requirements to document their advicegiving processes and the advice provided. Many of these carry through to the new proposed outline. For many mortgage advisers, this will be the first time they have had such set administrative requirement. The working group said all advisers should offer explanation of why the service or product was recommended, enough information for the client to make an informed decision and an explanation of the risks and benefits of the recommendation. “There should be an obligation for the advice-giver, where practical, to ensure the client actively acknowledges that they understand the risks and benefits of following the recommendation. Our view is that this should be recorded in internal systems, or in the Statement of Advice, depending on the type of advice process being followed.”
But the code working group also said it was looking for feedback on how those AFA standards would work if applied to all advice-giving situations. “If there are situations where they are not appropriate, are restrictive, or create a particular compliance burden we would like to hear about them.” Dale-Jones said the new code would allow for less paperwork in situations where advisers were helping clients with a simple product. If a financial advice provider could demonstrate how a good advice outcome was achieved without a full personalised suitability analysis, that could be skipped. That included situations such as where the type advice was limited to straight-forward recommendations about acquiring a financial advice product, and they were satisfied that the individual client’s broader financial situation was not material to the advice, and it was reasonable to conclude that the client understood that the advice scope did not include comparison with an existing or competing product, and the consequences of that.
Only a small number of RFAs have turned out to the roadshows held by the working group. Many of the mortgage advisers spoken to for this story said they had not yet looked at what could be required of them. Kris Pedersen, of Kris Pedersen Mortgages, said that was in part because some were burnt by their experience when regulation of the sector was first introduced. Then, advisers were told they would all need to be at AFA level and meet qualification standards but that was rolled back before the regulation was introduced. ”Now my approach this time has been to wait and see how everything is going to be before I invest too much in it.”
❝ We need a fair, measurable, quantifiable, way of being able to distinguish between people whose experience is good and peoples whose experience is not good. ❞ - Angus Dale-Jones
Dale-Jones said consultation was important, especially with RFAs. The group wanted to hear from the industry how it could best recognise the experience and prior learning of those who had been operating in the industry for some time. While AFAs are deemed to have met the competence standards, even if they did not have the qualifications expected, RFAs were not.
“It’s different with RFAs, even RFAs with many years of experience. We need a fair, measurable, quantifiable, way of being able to distinguish between people whose experience is good and peoples whose experience is not good. We don’t know what those are yet and part of the consultation is looking for an answer.” David Windler, director of the Mortgage Supply Co, said some recognition of prior learning and experience would be important. “There should be a method of being able to show competency through experience. Fifteen years in the industry has to count for something.” The fact of having a level five qualification did not “scratch the surface” of what was
needed to be a good broker, he said. “It’s no measure of interpersonal skills or life experience. There’s’ got to be a balance between formal and informal requirements. If that’s the only measure in the eyes of the industry and regulator then there’s no difference between someone with a week’s experience and someone who has been doing it 20 years.” ✚
What do advisers really know? Turn to page 24 to find out the results from our survey.
PRACTICE MANAGEMENT By Dan Dunkley
How to claim clawbacks FSCL chief executive says advisers need to be clearer about commission clawback or face losing out.
hen homeowner Ivan arranged a two-year loan for his property, his mortgage adviser warned about the consequences of breaking the deal. The adviser would lose out on valuable commission, and would have to claw back lost money by taking a fee from him. Despite the warning, Ivan refinanced with a new bank just six months later. The adviser billed Ivan for $4,300 in lost commission, but never received the money. Disputes resolution service Financial Services Complaints Ltd (FSCL) recently sided with Ivan in a dispute over commission clawback. Ivan complained his mortgage adviser’s contract did not detail the size of the $4,300 clawback fee, and contained confusing “jargon”. FSCL agreed, and said the contract was “difficult to understand”. The adviser withdrew its claim, and received no fees for its broking services. Ivan’s case is a cautionary tale for advisers, who often waive customer fees in favour of taking commission from lenders. The case underscored issues that divide the broking industry. If advisers do not charge an upfront fee, how should they recover money for their services when a contract is not fulfilled? What is an acceptable fee to charge? And should advisers be more transparent about clawbacks?
FSCL highlighted the issue in its December newsletter to members. The disputes service has called on mortgage advisers to make clawback clauses clearer for customers, to prevent disputes and avert cases where advisers are left out of pocket.
Susan Taylor, the chief executive of FSCL, said advisers are often guilty of loose wording. She said poorly-crafted clauses can make it easier for customers to contest clawback fees, even when they have “shopped around” for a new loan. The service has offered advice to advisers to help avoid future disputes. Taylor said advisers were “entitled” to be paid for their services, but said it was important they were transparent with customers. “If advisers are going to try and recover commission, rather than charging a fee based on their time with the client, it needs to clearly spelt out, and an estimated cost given during engagement.” Taylor said advisers should be as specific as possible concerning potential fees: “This is all about avoiding complaints. As long as advisers have spelt this out clearly, and given an idea about how much cost will be, it is difficult for the client to complain.” FSCL has offered advice to its members. The disputes service has called for advisers to write contracts in “plain English”, avoiding
❝ If advisers are
going to try and recover commission, rather than charging a fee based on their time with the client, it needs to clearly spelt out, and an estimated cost given during engagement.❞ - Susan Taylor, chief executive, FSCL
“jargon” such as ‘clawbacks’. It also recommends advisers ensure their customers initial the relevant sections of an agreement when signing. Taylor said other methods may prove more effective than attempting to clawback lost bank commission. “As an alternative to a clawback fee, some advisers say if you repay your loan early, they will charge based on time spent and their level of expertise. That is probably more transparent.”
Industry experts say advisers often inadvertently choose poorlyworded contracts with vague terms. Trevor Slater, Client Services Manager at the Financial Dispute Resolution Service, said he considers two main issues when assessing clawback disputes: whether advisers have been transparent, and whether fees were “relevant to the level of service provided”. He added: “If you are talking about charges, they need to be fully and specifically disclosed.” Slater said advisers should charge a proportionate “fee for their professional services”, rather than attempting to claw back huge bank fees. Advisers who charge a fee if a client surrenders a policy should relate it back to the level of service they have provided, not the level of lost commission, I have seen between $100 and $250 an hour or four or five hours’ work. If you had a situation where a adviser has lost $10,000 of commission and was trying to bill someone for that – you would want to see they had done a tremendous amount of hours. On the surface that amount would be not an appropriate fee for the level of service provided.” Barry Read, head of advisory compliance service IDS, regularly reviews advisers’ terms of engagement. He said there was a “naivety” about some of the contracts drawn up by advisers. “From a contract point of view, the client has no way of quantifying what a clawback could be, in many cases. It has to be quantifiable and the client has to agree to those terms.” Read said professional wording was key in avoiding disputes with customers: “Make sure your wording is suitable and fit for purpose. Be clear with your terms and there’s a good chance they will have a good outcome. If you have a poorly-worded clause, you’ll have a poor outcome.” ✚
HOW TO AVOID CLAWBACK COMPLAINTS • Good communication is key • Review your disclosure document • Make sure fee clause is written in plain English • Tell the client about the clause • Ask the client to initial the clause • Give the client the signed terms of engagement • Ensure the fee charged is reasonable Source: FSCL
THE LATEST NEW APPOINTMENTS
TMM keeps you up to date with all the new appointments in the mortgage advice profession.
David Gopperth Westpac's former head of third party distribution, David Gopperth, has returned to the industry in a regional sales manager role. He is joining Mortgage Express as its new Regional Manager for Wellington and the South Island regions. Gopperth has a long history in the finance industry, having worked at Westpac for 25 years, 11 years of those as the National Sales Manager Broker Channel. He has a strong track record of leadership and is highly regarded for his achievements in the industry,
most notably leading the Westpac team to win the NZMBA Lender of the Year for two years running in 2010 and 2011. More recently, Gopperth's passion for property saw him spending the past four years developing property, with a particular interest in project managing the rebuild of several “as is, where is” properties in Christchurch. In his new role at Mortgage Express, he will be working closely with mortgage advisers to support them in achieving their goals while assisting with compliance issues. He will also be responsible for liaising with product providers. “Joining Mortgage Express offers me the opportunity to work in an industry I’m passionate about, while supporting the mortgage advisers in an advisory capacity and working closely with real estate leader, Harcourts,” Gopperth says.
a senior business development manager in Queensland. There she recruited, trained and managed a portfolio of mortgage brokers’ skills to integrate insurance into their business. At Bluestone she oversees the Central North Island and South Island. She is responsible for the promotion and roll out of Bluestone's lending products to the New Zealand market working with mortgage advisers from the Bombay Hills down to Invercargill. Raj Suman is business development manager at Bluestone. He spent three years at Perpetual Guardian in Auckland as a business development manager.
NEW HOME LOANS MAN AT CENTURY 21
BLUESTONE DOUBLES UP
Bluestone Mortgages has two business development managers to help boost its New Zealand operation. Sue Griffiths is senior business development manager and Raj Suman a business development manager. Griffiths moved to Bluestone after five years with ALI Group in Australia where she was
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Century 21 has appointed Julius Capilitan as the New Zealand general manager of home loans. “We provide a comprehensive home loans service throughout the country as well as a full financial services’ offering. We’re helping clients who have low deposits through to those who want to build their property portfolios,” Capilitan said. “What’s more we’re giving risk advice around the likes of key person cover, shareholder protection and business lump sum cover, and we’re advising our selfemployed clients on ACC payments.” Capilitan said being in the business of mortgage broking gives all Century 21 clients access to a wide range of lending deals, as well as greater borrowing flexibility, opportunity and choice than what traditional mainstream retail banks can offer. “The big retail banks are generally still playing hard-ball when it comes to home loaning. However, we’re also working with smaller banks, credit unions and non-bank lenders which enables us to secure great results for the likes of first home buyers and investors.”
NEW HIRE AT MORTGAGE EXPRESS
Duane Aarts will be based in Christchurch Harcourts Grenadier offices and will provide a range of advisory services including mortgage finance and personal lending. “Nobody wants a home loan; they want their first home, they want to build a new home, they want an investment. My goal isn’t to get my clients a loan, it is to get them into the home they want,” says Aarts.
Prior to joining Mortgage Express, he spent 18 years in retail banking working for Commonwealth Bank in Australia and ASB and Westpac in New Zealand, with the majority of that time spent in a bank manager role. “Being a bank manager, there’s not many scenarios that I haven’t seen or been involved in when it comes to purchasing or refinancing. I have the experience to assist in all situations, but never lose sight of the fact that it is all about what the client needs.”
Mortgages franchise in Palmerston North. Stiven is a proud member of the Manawatu community, with over eight years experience in the insurance industry he brings a wealth of knowledge across all types of insurance and passion for helping first home buyers get into the proper market.
MORTGAGE FIRM EXPANDING
Mortgage Express has appointed Saad Hababa to its team of Auckland-based mortgage advisers. Hababa joins Mortgage Express with over 14 years’ retail banking and lending experience, with roles that include mobile mortgage manager at ANZ/National Bank, senior relationship manager at National Bank, and senior lending officer at GE/Wizard Home Loans. Based out of the Harcourts Takapuna offices in Auckland, Hababa will provide advice around mortgage lending with an emphasis on organising and streamlining his clients’ finances. “I work with a range of New Zealand's leading Banks and Finance Companies, so I can help you find a loan that's structured with your unique needs in minds,” says Hababa. ✚
Amelia Chamberlain Mike Pero Mortgages is expanding with a new franchise and an adviser in the provinces. Amelia Chamberlain has recently bought a Mike Pero Mortgages franchise in Auckland. With over nine years’ financial services experience working in both Australia and New Zealand she said she is very excited to be able to help people reach their financial goals in the Auckland region. Meanwhile, in the provinces, Zach Stiven has recently joined Russell Harrop’s Mike Pero
BANK MORTGAGE ADVISER JOINS AUCKLAND TEAM
Got a new person in your team? Let us know by sending an email to email@example.com with details.
Reward your clients with a one-year subscription to New Zealand Property Investor magazine. For bulk subscription enquiries call 0800 345675 or email firstname.lastname@example.org 015
PROPERTY NEWS By Miriam Bell
Promises of housing market change are becoming a reality and many investors are getting worried. Here’s our overview of what has beeh happening recently on the property front.
enancy law reform is now firmly on the agenda following a damning governmentcommissioned review of the housing market. “A Stocktake of New Zealand’s Housing” found that the housing crisis is deeper and more entrenched than previously revealed. Housing and Urban Development Minister Phil Twyford says it paints a sobering picture of the devastating impacts of the housing crisis. “It warns New Zealand is quickly becoming a society divided by the ownership of housing and its related wealth and finds recent housing and tax policy settings appear to have exacerbated this division.” For landlords, one of the major findings is that private rental housing tends to be of poorer quality than owner-occupied housing and the tenure of rental housing is more tenuous than home ownership. The review authors say private rental housing will feature prominently in the
Phil Twyford future housing landscape. They suggest a fundamental review of tenancy law, to provide greater security of tenure for tenants and to encourage professional landlordism, is an important and overdue social policy challenge. Twyford has confirmed he will be
introducing legislation to reform the Residential Tenancies Act and improve conditions for tenants by the end of this year. But targeting landlords as a blight on the housing market will not help resolve the problems highlighted in the review, according to investor advocates. Property Institute chief executive Ashley Church says the housing crisis can only be fixed by a significant boost in supply – not by piling more and more regulations on to private rental property providers. “The claim that it is all going to lead to more rental stock is nonsense. Rather it will make the problems worse as landlords seek to exit the market.” Reintroducing depreciation on new rental properties for the first 10 years and dropping the penalising of landlords would work to encourage investment in good rental stock, he says. “Recognising that landlords are part of the solution, not the problem or the blight that they are currently made out to be, would go a long way to boosting rental property stock.”
Bright line test extension
nother investor-focused change that the government is currently fast tracking through Parliament is legislation extending the bright line test on residential property sales from two years to five years. Revenue Minister Stuart Nash says the extension means that profits from residential investment properties which are bought and sold within five years will generally be taxable. The changes will help dampen property speculation and make homes more affordable, he says. "It will ensure that property speculators pay income tax on their gains and makes property speculation less attractive. We need investment which grows the economy and creates jobs, not the sort of investment which distorts the residential housing market.” But not everyone is convinced the tax change, which will come into force soon, will
achieve what the government hopes. Treasury and the IRD are on the record as saying it is difficult to quantify the benefits of the extension. They note there are several key risks, including “over-reach” and “lock-in”, and that it is likely to lead to a reduction in the supply of rental properties and upward pressure on rents. The National Party is not happy that the policy won’t be sent to Select Committee for examination. Former Finance Spokesman Steven Joyce says the extension of the bright line test is at odds with the government’s professed enthusiasm for lifting the supply of housing. “You don’t encourage more investment in housing supply by discouraging investors from putting their money in and treating them all like they are speculators. Whether it’s this, negative gearing or the proposed capital gains tax, it’s all designed to disadvantage legitimate property investors.”
Tackling Auckland’s issues
eanwhile, in Auckland, building regulations and development funding are set to get a shake-up following the news that the Government and Auckland Council will be tackling the city’s housing shortage together. The government has now formally committed to working with Auckland’s Mayoral Housing Taskforce. This commitment reflects its desire to increase the pace and scale of house building in Auckland. While the Council will be taking the lead, Housing Minister Phil Twyford says the work is a priority and government officials will be doing all they can to work with the Taskforce to implement the necessary reforms. Auckland Mayor Phil Goff says it means people from across the housing supply chain, council and government are working together to build more houses in Auckland. “We all share the view that the current regulatory regime for building products is not fit for purpose and holding development back.” The Taskforce agenda includes reviewing existing building regulations to support innovation in construction and land use; developing new revenue sources for infrastructure investment; speeding up consenting and delivery timeframes; and helping the Government deliver its Kiwibuild programme. Housing strategist Leonie Freeman, who has spent 19 months working on an independent initiative to address the issue, says she will now be stepping back as there is no point in having two groups doing the same thing. But she says would hate to see the momentum that they have built up on the issue dissipate. “We need to see that there is action on this issue, rather than just talk. Auckland is crying out for a solution to this problem. So this can’t be just a political stunt.” Freeman says she will keep a watching brief on the Taskforce’s progress and will speak out if work appears to be flagging. .
Investment lure for FHBs
espite the looming changes to tenancy and tax law, it seems owning investment property still retains its lure. BNZ’s latest Financial Futures Research shows that nearly half (44%) of first home buyers would consider buying a rental property in order to get on to the property ladder. BNZ director of retail and marketing Paul Carter says they are seeing a shift in the traditional path to home ownership, with many now believing that property investment is a more achievable path “We asked people what they were prepared to do to get on the property ladder and 44% of first home buyers said they want to buy an investment property, either in a cheaper suburb of the city where they lived or elsewhere in the country.” He adds other trends highlighted in the research were that 30% of buyers are considering joining up with family to make their property ownership ambitions come true, while 14% say they’d buy with friends. But NZ Property Investors Federation executive officer Andrew King suspects that many would-be property investors don’t realise just how hard it is to be a rental property owner these days. “They need to be warned to look at all the changing rules and regulations - in areas like building maintenance, tenant rights and tax – which are set to apply to the property investment area. It is simply not as easy to buy and maintain rental properties as many people think.” ✚
HOUSING COMMENTARY By Miriam Bell
Market fits & starts Price growth ups and downs may currently be the defining characteristic of the housing market but the experts are picking the market will flatten out as the year goes on, reports Miriam Bell.
ummer is nearly over, the slightly easing of the LVRs has been in effect for over a month, and banks continue to offer up historically low interest rates. Conventional wisedom would have it that this combination of factors should contribute to an ongoing resurgance in the housing market. But the market reality is more complex. The latest round of housing data presents a disparate picture: Price information is mixed although there are indications of some pick-up in sales activity. Markets in the main centres are moderating, while some regional centres are seeing double-digit growth. At the same time, uncertainty over exactly what will happen with the new government’s proposed housing policies is casting a shadow over the market – particularly for investors. The upshot of this appears to be a market now moving in fits and starts, but poised to flatten out.
After a quiet start to the year, some were anticipating that February’s data would show a solid return to the pre-Christmas resurgence of the market. In fact, taken as a whole, the data presented a somewhat subdued picture. It was the February data from REINZ which returned the most upbeat results in both prices and sales activity. According to REINZ, the national median house price crept up to $530,000 from $520,000 in January. Once seasonally adjusted, this amounts to a moderate month-on-month increase of 0.8%. But the year-on-year growth of the national median price was more significant: once seasonally adjusted, it was up by 7.1% on
February 2017’s median price of $496,000. Median house prices also increased in 14 out of 16 regions in February, as compared to February 2017. Only the West Coast and Gisborne saw decreases. Alongside the price growth, REINZ has sales volumes also increasing slightly in February. Nationwide there were 6,373 properties sold in January. Once seasonally adjusted, that’s a 1.2% increase on January and a 1.6% year-onyear increase. REINZ chief executive Bindi Norwell says that 9 out of 16 regions saw an increase in the number of properties sold, which points to strong regional growth in the majority of the country. “From a national perspective, we’ve seen the number of properties sold year-on-year increase for two months in a row now. It’s not quite enough data to call a trend, but with nearly 300 more houses sold for the year-todate when compared to 2017, it’s certainly a positive sign for the industry.” QV’s February data also indicated national growth. It shows that nationwide property values increased by 6.5% over the past year and by 1.2% over the past three months, leaving the average national value at $672,645. Once adjusted for inflation the nationwide annual increase drops slightly to 4.9%, but this is up on the 4.7% recorded in January. Meanwhile, the average asking price data from both Trade Me Property and Realestate. co.nz shows the national average remained nearly static, on $626,050 and $654,351 respectively, in February. But Trade Me Property had prices dropping in Auckland and Wellington, while Realestate.co.nz had prices up in all the main centres.
Taking the data as a whole, the major theme to emerge in February was the ongoing strength of many regional markets. This was evident not just in the REINZ data, but also in the Trade Me Property and QV data. QV national spokesperson Andrea Rush says values continue to rise faster in Wellington, Dunedin and many regional centres than in Auckland. “The Hamilton and Tauranga markets picked up in February after a sluggish start to the year while the Hawkes Bay continues to see some of the strongest value growth in the North Island.” While Christchurch saw its values drop over the past year, many regional areas of the South Island - including Nelson and Central Otago - continue to see values rise, she says. “Low interest rates and the easing in the LVR restrictions are the main reason for this activity.” Trade Me Property head Nigel Jefferies agrees that, outside the three main centres, provincial New Zealand was running hot in February. “Property prices in the Hawke’s Bay, Manawatu and Marlborough all reached new records in February after experiencing solid double-digit growth. Property in the North Island was in in hot demand with 51% more views for property in Taranaki and a 31% increase in Manawatu.”
In an off-shoot of the regional strength trend, one market emerged as a standout performer in most of February’s data. That market is the Hawkes Bay. Jefferies picks the region as a star, while
WHAT’S DRIVING HOUSE PRICES
REINZ SALES: DOWN
Norwell says it is proving extremely popular with the median price up by 18.4% to a record high of $444,000 in February from $375,000 in February 2017. “The Hawke’s Bay has seen record price increases for two months in a row now, with prices having increased $26,000 since the end of 2017. Additionally, the recent government announcement that nearly $9 million will be spent to reopen the Wairoa-Napier line for logging trains will bring significant development for the Hawke’s Bay region.” The QV data provides further detail. It shows that Napier property values increased by 16.5% year on year and by 3.1% over the past three months, leaving the city’s average value at $488,236 in February. Hastings values also shot up. They rose by 13.8% year-on-year and by 2.0% over the past three months, leaving the average value at $451,686 in February. QV Napier senior consultant Philippa Pearse says the Hawkes Bay market remains buoyant with strong value growth continuing and investors still active. Both first home buyers and investors are active in the lower valued areas of Napier and Hastings where properties under $400,000 are available, she says. “Central Hawkes Bay has seen value growth of more than 20.0% over the past year. This is mainly due to increased demand from lower income families priced out of Napier and Hastings who now have to look further afield to more affordable homes.”
The heady days of double digit property price growth might be over for Auckland, but the latest round of data suggests the city’s market is rebalancing to a more normal, albeit sluggish, state. According to QV, once adjusted for inflation, the Auckland region saw its value growth drop by 0.6% year-on-year and inch up by just 0.8% over the past three months, which left the region’s average value at $1,053,948 and indicates the market continues to run slow. The REINZ data was more positive. It shows that median prices in Auckland rose slightly in February. Once seasonally adjusted, they were up by up by 3.0% on January and by 3.9% year-on-year to $858,000. Likewise, once seasonally adjusted, sales increased by 2.0% on January and by 2.7% year-on-year. Norwell says Auckland’s median price continues to slowly creep upwards but is clearly showing signs of moderated growth, rather than the double digits seen throughout 2016 and 2017. “This is far more positive for the region as we know double-digit increases are not sustainable in the long term.”
Barfoot & Thompson’s latest sales data backs up the REINZ results. It has sales numbers up in February, with 665 sales. This was up by 12.1% on the 593 sales in January and by 19.6% on the 556 seen in February 2017. In contrast to REINZ, Barfoot & Thompson has the city’s prices easing on those of recent months. The average sales price was $919,454 in February – which was down by 1.6% on $934,793 in January and by 2.7% from $944,574 in February 2017. To ASB economists this suggests a change in seller expectations. They say that prices have held up for some time despite the falls in sales activity which indicates sellers have been holding out for higher prices and even withdrawing properties if expectations were not met. “The higher sales turnover combined with lower average price could be a sign that sellers are starting to lower their price expectations. Prices are often slow to adjust in a changing market so it would not be a surprise to only see this taking place now.”
While the market might be bubbling along, supported by strong growth in the regions, most commentators are still saying they don’t believe the current state of affairs will last. For Westpac senior economist Michael Gordon the REINZ data shows a further modest strengthening in the housing market and indicates the recent upturn remains on course. Lower mortgage rates and an easing of the Reserve Bank’s LVRS (effective from January) have helped to support the housing market in recent months, he says. “However, we still expect house prices to flatten out over 2018 as new government policies – including the extension of the bright line test and the foreign buyer ban - start to bite.” However, CoreLogic head of research Nick Goodall is not expecting a big drop in property values when the market slows down. That’s because of construction industry constraints in the face of ongoing strong population growth. Additionally, there is the kicker of still-low interest rates, he says. “While banks have tightened their lending standards, low interest rates mean borrowing higher sums to secure a desirable property are possible. All these things will continue to keep a stable foundation for property values.” “Still, the devil is in the detail and in a changing market with weakening sales volumes, the power can start to shift to buyers,” Goodall adds. ✚
Once seasonally adjusted, sales volumes were down around the country, including Auckland, in March as compared to February. Once seasonally adjusted, sales volumes were also down year-on-year.
INTEREST RATES: DOWN
Interest rates remain low and banks have been battling it out with cuts to short-term rates of late. But it is expected rates will rise over the next year.
The Reserve Bank left the OCR on hold at the record low of 1.75% in March and most expect it to stay on hold until mid to late 2019.
Annual net migration fell in February as compared to January. Further, monthly net migration was down in February after rising for the last few months.
BUILDING CONSENTS: UP
Once seasonally adjusted, building consents rose in February, as compared to January. Year-on-year consents remained up but commentators say the growth trend has slowed.
MORTGAGE APPROVALS: DOWN
Reserve Bank data shows mortgage lending overall went up in February – but that’s off the back of the lowest total in a year in January. New lending to investors crept up, but their lending share remains low.
The average national rent remained unchanged for the third month in a row in March. Average rents in both Auckland and Wellington have eased, while Christchurch 019 rents continue to flatline.
LEAD – SURVEY
ADVISERS FACE UNCERTAINTY This year's Annual Mortgage Adviser Survey has identified some familiar challenges, while regulation has cast a cloud over the industry. By Dan Dunkley
ew year, same problems for New Zealand’s mortgage advisers. The industry faces a challenging environment, with lending restrictions from the central bank, Australian lenders becoming more conservative, and looming regulatory changes in the shape of the Financial Services Legislation Amendment Bill (FSLAB). TMM has tapped into the mood of the nation’s advisers with its 2018 Annual Mortgage Adviser Survey. TMM asked advisers which issues were front of mind, with topics ranging from regulation, industry
representation, and hopes for the current year. More than 200 advisers completed our survey, providing a detailed insight into the industry’s concerns. This year’s survey reveals advisers’ main worries are familiar ones. Turnaround times remain the biggest problem for advisers, as they were in the 2017 survey. Regulation is rising up the agenda. Advisers say compliance and regulation is one of the main things keeping them awake at night. Many are uncertain about what FSLAB means for them as they prepare for it to come into effect later this year. Advisers are also unsure about the new
industry trade body, Financial Advice New Zealand. Many respondents said they did not know whether they would join FANZ, which is set to launch in July. Advisers are less worried about finding new clients in 2018. Just 8% said the problem kept them awake at night, compared to 14% last year. Overall, respondents have a mixed forecast for the year ahead. Some expect a difficult year, with tightening lending and a national housing shortage. While others remain upbeat, pointing to increased demand for specialist advice as banks turn down customers.
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A total of 20.5% of respondents said mortgage and insurance advice was the main area of their business, compared to 69% who said they solely focused on mortgages. The figures are in stark contrast to last year, when less than 10% of respondents said their main business was mortgage and insurance advice. Last year, an overwhelming 88.2% of respondents said mortgages were their main business.
NZ Home Loans
insurance Supporting Insurance Advisers
insurance insurance Thinking Insurance? Think Link insurance insurancelink.co.nz
ed e tiv
LEAD – SURVEY
Some idea of what’s going on
No An uncertain outlook
verall, the statistics paint a picture of falling confidence. A total of 32.3% said they do not expect to settle more loans than last year, up from 26% in last year’s survey. Advisers are divided over whether 2018 will be a more successful year than 2017. More than 21% of respondents to the survey said they expected to settle 25% more loans than last year, while 22% said they expected to settle fewer loans. Advisers expressed their concerns about the forthcoming year, citing the ongoing impact of lending restrictions and a lack of supply in major cities. One adviser responded: “It is just harder to get clients approved and it taking longer for them to find a property. Most clients are missing out, with the increase in the market value of properties.” The national housing shortage saw one respondent have his worst year in over a decade last year: “I had my worst year since 2003-04, seemingly entirely due to lack of stock in Wellington Region and reduced appetite from investors.” A common complaint was tightening lending from banks. One adviser said there “too many hoops to go through with all of the lenders and RBNZ”, while another said banks were “harder to deal with and lending less”. Unsurprisingly, respondents said they expected to place most of their business with the major lenders in the coming year. A quarter of respondents to the survey said they expected to place between 90% and 100% of their business with the big banks, ANZ, ASB, BNZ and Westpac. As major banks remain conservative, the re-emergence of non-bank lenders into the New Zealand market is having an effect, according to the survey. A total of 83.8% advisers said they expected specialist lenders such as RESIMAC, Liberty, FMT and Avanti to get up between 1% and 24% of their business.
Financial Adviser (FA)
Financial Advice Provider (FAP)
What will be the difference in the volume of loans settled this year?
Less than last year
No change from last year
010% more than last year
more than last year
15-25% more than 10- last year 15% more than last year
Will the volume of loans settled this financial year (to March 31) be higher than last year?
60 50 40 30 20 10 0
❝I want to know what the landscape is before I invest too much into it. ❞ - Kris Pederson on FSLAB
What is your biggest concern? REGULATION, REGULATION, REGULATION
Regulatory changes and compliance remain a headache for New Zealand advisers. A total of 14.95% of respondents said the issues kept them “awake at night”, compared to 13.07% last year. A further 47% said regulation and compliance were issues “of some concern”, compared to 48.7% last year. The ongoing worries can be attributed to ongoing uncertainty around the Financial Services Legislation Amendment Bill (FSLAB), currently in consultation and at the Select Committee stage. Barry Read, of compliance and training business Strategi, said the survey findings reflected a lack of clarity over FSLAB. Read said it was a “hot topic” among advisers: “It changes the way advisers engage with the regulator. Brokers are asking, ‘what does it mean for my business?’” Read said advisers were still unclear about the true cost of FSLAB compliance. “There are a whole lot of questions about requirements, costs, and the code of conduct for financial advisers.” NZFSG’s Head of Growth Bruce Patten said there were still plenty of “unknowns” around FSLAB: “There are concerns about what it might look like. We need a pathway on what education and licensing requirements are going to be. There is so much speculation out there.” Others are more concerned by potential government measures. Kris Pedersen, of Auckland-based Kris Pedersen Mortgages and Insurance, said the possible introduction of debt to income ratios (DTIs) was a more pressing issue. He said: “If the Reserve Bank introduces more macro tool like DTIS, it would have more of an effect on our business. DTIs would not work in the Auckland market.”
NO TURNAROUND ON TURNAROUND TIMES
Advisers ranked turnaround times as the issue most likely to make them lose sleep. More than 15% of respondents said the issue would “keep them awake at night”, compared to 18.5% last year. A further 43.2% said the issue was “of some concern”, compared to 46.2% last year. New Zealand’s major banks say they are hard at work on the issue. A spokeswoman for Westpac said the lender would “continue to review our policies, processes and workflow models”. ANZ, meanwhile, said it was “always looking to improve credit decision times”. The bank said it would commit more resources to “adviseroriginated business”. The Mortgage Supply Company’s David Windler said turnaround times were a familiar problem, but one that could be solved with technology. Windler said Australia was ahead of the curve: “If we compare ourselves with Australia, direct lodgement has been in place for many years. We are still a long way from cutting turnaround times using technology.” Windler said it was important for advisers to control the “quality of submissions” in the meantime. Technology to help slash turnaround times could come soon. BNZ is currently testing electronic lodgement in the hope of improving turnaround times. Mortgage Express and NZFSG are taking part in the trial, expected to lead to a full launch later in the year. NZFSG’s Bruce Patten said electronic submissions could stop the worsening
problem: “Turnaround times are as bad as they have been in my 15 years in the industry. It is a constant struggle with lenders, because it takes them time to staff up when resources are stretched. Banks moving to electronic lodgement should reduce processing times.”
concerns about what it might look like. We need a pathway on what education and licensing requirements are going to be. ❞ - Bruce Patten
What keeps you awake at night? KEEPS ME AWAKE
IT IS OF SOME CONCERN
NOT AN ISSUE
Regulation changes and compliance
Keeping up with policy changes
Getting applications approved
Securing finance for property investors
Finding new clients
LEAD – SURVEY other
FSLAB: What do advisers really know?
ar ke t
do not know if they would be a licensed FA as part of a group, or if they would have to become anYesFAP. ❞ - Barry Read
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No Under the proposed changes AFA, RFA and QFE designations will be replaced. Which one of the new categories will you apply for?
How well informed do you feel about the Financial Services Legislation Amendment Bill (FSLAB) and how it will impact your business?
Not well informed High level of understanding
Some idea of what’s going on
ted na tive i m No senta re ep
R 024 WWW.TMMONLINE.NZ
become FAPs, down from 10% who said they hile advisers claim planned to become a Financial Advice Firm to know plenty about last year. changes to the Financial Strategi’s Read said many advisers did not Services Act, many are know if they would be a licensed FA as part unclear about how the bill of a group, or if they would have to become will affect them, the survey shows. an FAP. “At the moment, no one can answer A total of 70.7% of respondents said they the question, because we don’t have enough had “some idea of what’s going on” with information,” Read added. FSLAB, while just 18% claimed to have a “high Pedersen of Kris Pedersen Mortgages said level of understanding”. More than one in ten he was keen to learn more about FSLAB, and respondents (11.3%) admitted they were “not would meet with his aggregator to get up to well informed”. speed: “I want to know what the landscape The findings hint at a lack of progress is for certain before I invest too much into it.” educating the adviser community about Advisers still get most of their regulatory FSLAB. The figures tally with last year’s survey, information from aggregators and dealer which found that 16% had a high level of Q understanding, 71% had “some idea”, and groups. A total of 74.4% picked up new Gr ou were “not well informed”. information through their groups. Industry 11.1% p associations kept 57.9% of advisers up to AFA, RFA, and QFE designations are set NZ speed, while 33% of respondents said they Ho to be replaced under the new regulatory PrAdvisers remain unsure about Loa meregime. accessed information through the media. os ns ero pe PYet some respondents said industry bodies e what new categories they will apply for. r k Mi were not doing enough. One adviser, Andrew One in three (31.96%) respondents said ress they did not know whether they would e Exp of Eightfold Financial Services gChambers a g t r Group, said he picked up news from his Undecided “own become a Financial Adviser (FA), FinancialMo networks”. Chambers added: “The Mortgage Advice Provider (FAP), or a Nominated Mortgag e Li k M sector isnweaker in comparison to wealth Representative. or and risk sectors at acting collectively, sharing A total of 45% of respondents said they tga ge information and forming lobby groups." planned to become FAs, down from 50% S G S last year. While /N upp ZF 19.3% said they planned to
Financial Adviser (FA)
Financial Advice Provider (FAP)
NZ Ho Loa
Do you intend to join Financial Advice NZ?
new trade body for mortgage advisers, Financial Advice New Zealand, is due to launch in July, formed from the old PAA, IFA and NZAA. Advisers are unsure whether they will join Financial Advice NZ. A total of 43% of respondents to the survey said they would join Financial Advice NZ, while 42% said they were currently undecided. Financial Advice NZ faces a host of challenges in its first year, after a Royal Commission placed an unwelcome spotlight on Australia advisers. Financial Advice NZ members have assured the market their voices will be heard alongside investment and risk advisers. Squirrel CEO John Bolton, who is on the Financial Advice NZ establishment board, said he was “not surprised” by the survey findings. He said: “We’ve got to demonstrate value. I think when they see us promoting the value of good advice and the benefits of using a professional advisor to the public, they’ll see the value in differentiating themselves from those that don’t belong to an professional industry body. Bolton called on advisers to join: “If any [advisers] read the Australian Financial Review and the Royal Commission they’ll quickly realise that we’ve got massive industry risks on the horizon. Now is the time for advisors to influence their future and for us collectively to get our ship in order. If they love their industry and occupation, they need to get involved and join the cause.”
Trail commission on the rise
significant trial books,” he added. Adviser (FA) Wilton believes trail commission is vital to help advisers pay for the upkeep of clients’ accounts. “It has always been a revenue stream required to provide a service. Trail income assists with covering Just 6% of advisers administration costs. It allows you to run a decent business and provide a decent said they moved Financial level of service.” adviser groups in the d e commission Advice Wilton said lenders withattrail e n past 12 months. i v Provider (FAP) ti relationships policies would buildm stronger a o t Advisers remained loyal to their with advisers inN the long en term: “ It is s e groups over the past year. More r about whether p the lender wants to have than 90% of respondents to our Re a working partnership with the broker survey said they did not move group businesses, in terms of the introduction in the past year. Just 6% of advisers and maintenance of the client. The banks moved group, with the remainder of that are prepared to remunerate that respondents new to the industry. arrangement are going to have a better For those that chose to move, relationship and a stronger book,” Wilton quality control was highlighted a added. key concern. One respondent said: “The old group’s model was wrong and they seemed to be signing anyone up. The quality of advisers was becoming an issue, and that Don't 0 25-50 0-25 reflected badly on all advisers, know especially in Auckland. When we 20.26 62.93 7.76 4.74 highlighted this we were informed that nothing was going to change. 12.32 69.95 8.87 4.43 Hence I resigned.”
Trail commission has become a much bigger revenue contributor for Kiwi advisers this year. A total of 20.26% of respondents said trail commission made up between 25% and 50% of their income over the past year. The figure is significantly higher than 2017’s Survey, when just 12.3% said trail commission made up 25%-50% of their income. The data is likely to alarm lenders including ANZ and ASB who do not pay trail commission. Other banks such as Westpac have moved back to a trail commission model in recent years. The TAG Team’s Stephen Wilton said the figures reflected BNZ and Westpac’s decision to reintroduce trail commission. “All of a sudden, the revenue streams are showing up in your survey,” Wilton said. “There are some businesses out there that will have very
What percentage of your income is trail commission? 100
SALES & MARKETING LEGAL By Paul Watkins
CONTINUOUS IMPROVEMENT IN ACTION Last month the phrase Continuous Improvement was discussed. This means no single big change, just lots of little improvement to everything you do, which add up to a big overall improvement. I had feedback asking what sort of things should be looked at, so this article will be a list of quickfire ideas that meet the criteria of Continuous Improvement.
one are big or revolutionary, just small changes that will cost little to nothing, but when made with others, can lead to big overall performance improvements. Headlines: If you advertise, be it in the press, on social media or billboards, the headline is the only thing that matters. So, if the ad is not performing, change the headline. For example, if your headline is “Best
mortgage rates” or “We can access 14 lenders” or “Not sure which bank to get a mortgage from?” (These are all real headlines I have seen), try one that is more educational in tone, like “Four ways to take years off your mortgage” or “Struggling to raise the deposit? Seven ways you may not have thought of that get you there.” Curiosity to such headlines generates the call. Social media: This is loved by some and hated by others. But it’s impossible to deny it
as a powerful promotional tool, particularly Facebook. Run short videos, offer downloadable e-books, explain key things to know about mortgages. Once again, make it educational in style and content and use video as the medium. More on video below. Your website: There is no such thing as a perfect website. It requires constant tweaks and improvements and a full redesign now and again. Is it responsive? Responsive means looks
❝ So, if you do not
currently have a blog or newsletter, start one. If you have one, increase its frequency❞
good on a cellphone as well as a big screen. If not, make that your number one priority. 70% of searches are on phones now. Next priority for a small improvement is to make it more searchable. Google “Mortgage brokers (your town or suburb)” and see where you rank. If you are not on the first page of results, this must be fixed. It’s worth buying a couple of hours of time from a reputable SEO (Search Engine Optimisation) expert. There are a lot around and the impact on search results could be considerable. The third priority for your website is the content, which ties into the next thing to improve, being your client communication, through a newsletter or blog. A significant factor in Google searches is the regularity of update to the website. The more you add new material, the more Google will push you up the rankings. So, if you do not currently have a blog or newsletter, start one. If you have one, increase its frequency. If you don’t know how
to or do not want to write it yourself, get someone to do it for you. Fourth website priority is video. Video is king online right now, so put some on your site. They could be of you chatting about your services in a casual manner, videoed on your phone, a quick testimonial style interview with a happy client, or links to someone else’s video of something like a market commentary (with their permission of course). Don’t believe me about video? When you scroll down the news feed of your Facebook, what do you stop on? Video! Practice by holding your phone up with video capture running and just speaking into it. Video of less than two minutes is perfect. Moving onto professional connections, how can these be improved? Can you join a business group? Can you connect with one more real estate agent than you have now? Can you connect with a new insurance adviser or financial planner? Making one new professional connection is a small improvement in the context of continuous improvement. Can you improve the number of referrals you get? How do you ask for them? Maybe you can change the script you use or the way you ask. Maybe the material you leave with them could be improved. Maybe… you should ask! Too many brokers simply don’t ask, as they feel too awkward or embarrassed or think it may offend the client. Practice a script and then use it. Referrals are critical to your long term success. About scripts, what do you say the first time a prospective client calls? Is it at the right tone and not too intimidating or overly-pushy? Get feedback and look to modify it if needed. Do you talk too much? This is a fault of many brokers, who end up talking the client out of the sale in some cases. Look at your marketing material. Lay it all out side by side. Which ones could do with
improvements? Identify them and get the changes made. Good graphic design is not expensive. What do you send as thankyou gifts for referrals? Could it be a stronger gift with more impact? You might send a bottle of wine, so perhaps change it to two movie tickets. Wine is a $10 supermarket commodity, whereas going to the cinema is an experience. Do you send Christmas cards? Some brokers I have met do. Maybe change these to a New Year cards. That would have more impact and by more relevant. Do you do letterbox drops? They went out of fashion for a while, but the few that use this as a promotional tool find they have impact. But once again, spend time getting a good design and most important, a good message. Test all the time. Send out 200 with one message and 200 with another. Which one made the phone ring? How do you treat clients if they call on your office? What can be improved? Perhaps you could direct them to suitable parking and pay for it if required. Do you always offer a coffee or tea? If you use instant coffee, an idea could be to replace it with a coffee pod machine. Instant coffee insults the client and the senses! Do you email clients with updates on progress? A better way could be to text them, as its instant and everyone carried their phone with them, so you know it will be received. Texting is an accepted form of business communication now. Whatever you do to keep them up to date, look to increase the frequency of contact and the style. Small improvements. Trace the client contact through from your prospecting tools to first call to happy client with the mortgage that they want. Typically, if you include emails and phone calls, there could be as many as 30 pints of contact or more. Look at each one and ask yourself if it can be slightly improved. Marketing now is no longer about advertising. Marketing in 2018 is based on trust, relationships, influencers (referrers), doing what you said you would (never disappoint a client) and having a very strong digital presence (a highly searchable website and blog). These are only suggestions, but you get the idea, which is to think up alternatives that are slight improvements on all your current practices. These small improvements will all add up to a big impact. ✚ Paul Watkins writes blog content and newsletters for financial advisers.
MY BUSINESS By Miriam Bell
The Mortgage Supply Company’s Tenzin Choedon might be new to the business but she is already making a name for herself as an expert in hard to place home loans. By Miriam Bell WHAT PROMPTED YOU TO GO INTO MORTGAGE ADVISING? I’d been working in the financial services industry for 14 years, ending up as a senior underwriter at Avanti Finance. As part of that role, I was doing some advising anyway and I enjoyed it. Then I worked on the delivery of Avanti’s long term mortgage product and I could see the impact of it on people. It opened up my eyes. Becoming a mortgage adviser – in an official capacity - seemed like a national progression from then on.
HOW HAVE YOU TAKEN TO THE BUSINESS?
I just started in May last year (2017), so I’m still getting my head around it in some ways! I’ve taken the time to really get to know and understand all the different policies from different lenders. In my view, familiarity with them all is key. But I’ve also had to undergo a bit of a shift in thinking. With the banks deals need to fit into their particular boxes. So I’ve had to learn what deals fit into what bank’s box.
WHY ARE YOU PASSIONATE ABOUT THE INDUSTRY?
It’s all about finding a solution to help people who need it. It’s a personal challenge for me – to find an answer to enable me to do a certain thing for a client. Now that I’m an adviser myself I see how much it affects
❝ I think about deals and how you can do them differently, more flexibly. Having the right attitude is critical.❞
clients, and how grateful they are, when you help them. The level of detail shared means that you almost become a part of the family, so I get invited to lots of family celebrations now. It’s very rewarding, and lovely, to experience that. And it prompts me to work harder.
HOW DO YOU APPROACH BUSINESS DIFFERENTLY TO OTHER ADVISERS?
I think that my non-bank background gives me a bit of an edge. Bank deals are quite easy: they fit into a box (the right box for a particular bank). But if a deal doesn’t easily fit into a bank box, I relish the opportunity to find a solution. Also, I can say right away if the deal will work (in or out of a box) or not. And I am upfront about the reality of a situation with my clients. If I feel a deal is not in a client’s best interest I will turn them away.
I HEAR YOU DO A LOT OF COMPLICATED LOANS: WHAT PROMPTED YOU TO WORK IN THAT SPACE? People say they are “complicated loans” but they are normal and familiar to me. They are not necessarily a focus for me, but I do a lot of loans that are not straight-forward bank loans. Non-bank loans are often perceived as more difficult deals but they aren’t necessarily. Most of the loans I do I have actually placed with banks. But I think about deals and how you can do them differently, more flexibly. Having the right attitude is critical.
DO YOU MAKE USE OF SOCIAL MEDIA AND NEW TECHNOLOGY OR PLATFORMS IN YOUR WORK? Yes, I have a profile on online social networks, like Facebook. But I probably don’t make as much use of them as I should. That’s something I plan to do more of. I think they are useful for finding quality leads. But there is so much information out there, you need to make sure you are smart about it.
WHAT HAVE BEEN YOUR BEST AND WORST TIMES IN THE BUSINESS?
The worst time was the first couple of months in the business. I had always been in
a salaried role prior to becoming an adviser. So self-employment was quite a change. You have to get out there and meet people, call people, find leads, follow up leads, etc. It’s quite a difficult process at the start. So that’s first few months I had to make sure I didn’t get disheartened or get put off. I just had to keep trucking along. The best time was when things started picking up significantly around December. Thanks to word of mouth and referrals through my network and through other advisers. When it all started to move, that was very satisfying and it made me feel glad. I realised I didn’t regret the change to being an adviser and I really wanted to keep going.
WHO IS THE INDIVIDUAL THAT HAS MOST INSPIRED YOU IN BUSINESS?
Neil Clements, who is from Dargaville. He is a Rotary Club director and has been my mentor since I arrived in this country when I was 18. In terms of being an adviser, David and my colleagues at the MSC.
WHAT’S THE BEST ADVICE YOU’VE RECEIVED?
Treat others the way you want to be treated yourself. That applies in both a business and personal sense. And it applies to everyone – whether the person is a managing director or an office cleaner. I picked up that belief from Glen Hawkins, who was a director at Avanti, and watching him treat everyone with complete respect.
WHAT ARE YOUR GOALS AS AN ADVISER?
Because I’m so new to the industry… A few months ago, I would have said just surviving
my first year as an adviser. I’m still in the early stages as an adviser, so my current goal is to keep doing the right thing by my clients going forwards.
LOOKING AHEAD, WHAT ARE THE CHALLENGES FACING THE INDUSTRY?
The tighter bank environment and the regulatory changes that are looming for the industry. But I definitely see them as opportunities more than as challenges. Clients are going to need good advice more than ever before. My background means that I’m used to looking for different solutions and thinking outside of the box – and I think those are skills that advisers will need to have going forward. People will need to be fully informed about all possible options.
WHAT ARE YOUR TOP TIPS FOR THOSE STARTING OUT AS AN ADVISER?
First up, familiarise yourself with all the different bank and non-bank policies and conditions. Then always look after your clients and do what is in their best interests. Always remember to trust yourself, your intuition and your ability. ✚
TENZIN CHOEDON From: I’m from Tibet originally, but I’ve been in New Zealand since I was 18. Now I’m based in central Auckland. Family: My mother, who is visiting New Zealand at the moment, and my sister Interests: I’m a gym junkie. I really enjoy it as it helps me focus. Motto: If you can’t help someone then don’t harm them. As an adviser, you need to make sure you have a conscience and use it.
INSURANCE By Steve Wright
THE LAST DAY No one wants to think about family members suffering a health crisis but if you work in insurance you should make sure your family and friends are covered, writes Steve Wright.
he last day: I am sure my cousin did not think the last day of 2017, December 31 2017, would also be the last day of her life as she knows it. Quite unexpectedly her husband, let’s call him Bill (in his 50’s) suffered a very big heart attack. Bill was alive but had died on arrival at the hospital and although he was revived, he remained unconscious. I was not very close to my cousin (no excuse) but one of my first thoughts, on hearing of what was obviously a severe heart attack, was “did Bill have any trauma insurance?”.
LAST DAY + 2 AND 3:
Bill did not regain consciousness for two days. During this time, as details of his progress in intensive care was relayed electronically around the world to extended family, my thinking around trauma cover intensified because it was clear to me that any recovery would be slow and possibly accompanied by some form of permanent impairment. A long slow recovery would mean a very large financial loss for them, down to one income and many extra expenses not to mention all the stress and strain of recovery. Even with some recovery it may be that Bill
would never be able to work again. A decent trauma insurance pay-out would no doubt be very welcome, if not essential.
LAST DAY + 4
Today the electronic news was good. Bill had woken up and was looking around and the doctors were preparing for his surgery the next day.
LAST DAY + 5
My mobile phone beeped. I was expecting good news. This time it was not my cousin but my sister
❝ At best she will
make ends meet and get by with what they have saved and what she earns and at worst she will require financial assistance from her children.❞ I don’t know how my cousin paid for it all, she either dipped into savings or her children, brother or father may have helped with costs, but costs there were and they would have been many thousands of dollars just for the funeral. Then there is catering and domestic airfares to fly her brother and father in for the funeral as well as international airfares for her son and his wife.
LAST DAY + 8:
Bill is buried. My thoughts turn from trauma cover to life cover. I reasoned that even if they did not have trauma cover surely, they must have had some life cover. Turns out I was wrong. They had fire and general insurance on their home, contents and cars but nothing on their lives. NOTHING! – Bill had passed away in the morning. I was shocked, things seemed to be going better. I called to give my condolences and did the things one does when someone dies. Thinking about things later that night I thought that, as nice and as appreciated they may be, all the flowers, condolences and other well wishes don’t really do anything to help my cousin.
LAST DAY + 6
Funeral plans are being made and expenses come rolling in.
LAST DAY + 8 AND EVERY DAY THEREAFTER:
Fortunately, my cousin’s two children are adults and financially independent from their parents. However, my cousin is now a single woman on a single income. Not only has she lost her husband and her children a father, but her financial future is potentially precarious. At best she will make ends meet and get by with what they have saved and what she earns and at worst she will require
financial assistance from her children (who are themselves just starting out with young families) or her aged father (who is trying to sustain himself in retirement). Even under the best scenario though, she will not be retiring as I am sure she and Bill had hoped. The loss of Bill’s income and associated savings for the next 10 years or so will mean less disposable cash and a significantly reduced retirement nest-egg. Something the right amount of life cover would have fixed. I don’t know why they had no life insurance, I never spoke to them about it. I am in the life insurance industry, have lots myself and see the value in it with every claim we pay but I didn’t ever talk to them about it. Now I wish I had. I wish I had strongly recommended they see an adviser, but I never spoke to them about how life insurance protects families, how it creates financial security, how it can give you peace of mind, how it can keep you from poverty or how lives are so much more valuable than houses, than cars, than possessions. As advisers, even if you only do mortgages, speak to your family, close and extended, about the benefits of life, disability and health insurance. Speak to your friends too, the dearest ones first. Don’t avoid the topic or be put off lightly, your passion and persistence will show them how important it is. Don’t simply ignore it as I did. Don’t feel stink later as I do now. Perhaps a few simple words from me may have changed the outcome for my cousin, no one will know for sure, but I still feel stink. I should have spoken to them about it. Insure those dearest to you first. No one knows when the last day will come. ✚ Steve Wright is the manager of professional development at Partners Life.
LEGAL By Jonathan Flaws
A Veritable Laundry List New laws mean anyone holding money on behalf of clients must verify their identity, even if they have been clients for decades, writes Jonathan Flaws.
t was a snapshot that time hasnâ€™t faded or taken from my memory; it was one of those moments when time stopped. On an early morning walk with my neighbour, at the start of what was shaping to be a bright sunny day, the world changed and it seemed that I had walked into a wall. My neighbour explained that the twin towers of the World Trade Centre in New York had collapsed as a result of being hit by planes. Apparently it was the only news subject that morning. I had been up to the viewing area at the top of one of the towers a few years earlier and could not believe that these large buildings reduced to a pile of rubble. Once I realised it was not a hoax, my first thought was what impact would this have on my business? I had just started out on my own and had expected the economy would remain buoyant for some time. Not so much the immediate impact but longer term. If this were a terrorist attack,
how would the USA and the world react? What changes would have to be made and would this trigger a world wide economic collapse? There was not an immediate collapse â€“ it took another six years for that to come to pass. But changes were made and almost 17 years later changes are still being made. In a few months time, lawyers must establish an AML/CFT compliance regime and undertake customer due diligence on all of their new clients. Anti-money laundering legislation has been around for years so that aspect of it is not new. But now the emphasis is as much about countering the financing of terrorism as it is about cleaning up dirty money from illegal activities. Interestingly, the number 911 is the emergency call number in many parts of the world (even here if you phone 911 you will be transferred through to our 111-emergency service). Apart from raising the intensity of security measures at airports and at public activities,
the day known as 9/11 was a wake-up call for businesses to really identify and get to know who they are dealing with, particularly businesses in the financial sector. It was also the day those in the financial sector became government agents for the gathering and passing on information on their clients and customers. In some cases, this now includes reporting on clients for the benefit of the US government under the Foreign Account Tax Compliance Act (FATCA). If the client is a US taxpayer holding foreign financial assets with an aggregate value of more than US$50,000, their business comes within the FATCA reporting net. Then there is the OECD Common Reporting Standards (CRS) for the Automatic Exchange of Information (AEOI) with which lawyers need to comply when putting their clients funds on interest bearing deposit. The CRS requirements apply to many other overseas. In each case (FATCA and CRS) lawyers need to examine their business and decide whether they are reporting or a non-
reporting entity under the particular regime. In respect of CRS the New Zealand Law Society says: “Lawyers will also need to be familiar with the impact that CRS may have on their individual and corporate clients. For example, lawyers advising or acting as trustees will need to be aware of CRS obligations in respect of trusts”. For many lawyers, the impact of FATCA and CRS is evident only when putting money on interest bearing deposits in their trust account. The bank holding the trust account will require the lawyer to have carried out customer due diligence on its client and also provide information for the purposes of FATCA and CRS. Recently, my firm was asked by a client to hold funds in our trust account pending use in a transaction we would be involved in. The funds came from multiple parties, some of whom would be foreign based. It was determined that we would need to engage each person as a client in order to hold funds in our client trust account on Interest Bearing Deposit. This would involve completing customer due diligence on each client/entity as well as collecting information to provide to the bank for the purpose of FATCA and CSR. The ensuing bundle of documents was so unwieldy and seemed to unnecessarily duplicate what the client was already undertaking that the client found another way to deal with the matter. At this point you may be asking why this is relevant to you as a mortgage broker. You are no doubt already involved in AML/ CFT compliance and undertake CDD on your clients on behalf of lenders as a matter of course.
The relevance is that your clients should be aware that it is no longer just your AML/CFT that they will need to comply with. Your clients will be instructing a lawyer to act on their behalf for the purposes of registering a mortgage and the lawyer will no doubt be asking your customer to undertake CDD again for AML/CFT purposes. This may be in addition to undertaking verification of identity for mortgage registration purposes.
You probably don’t hold money on behalf of your clients, but if you do, you should be aware of the FATCA/CRS requirements and decide whether you will be required to comply with these. In any event, if your clients are purchasing a property and will be providing funds to their lawyer to hold pending settlement, you should advise them that there may be other information that the lawyer will need from
them, particularly if your clients are from overseas.
communication from us about the new process.
LINZ VERIFICATION OF IDENTITY
EXPLAINING THE NEED FOR THE LAUNDRY LIST
Although lawyers have the ultimate responsibility to take reasonable steps to verify the identity of clients, it is not uncommon for them to ask a mortgage broker who they have a relationship with and whom they can trust to undertake this on their behalf. For example, our firm offers a refinancing service in which we accept a limited brief from a broker’s client to act for the sole purpose of registration of the mortgage. We are required by law to ensure that if we delegate this identity verification task to another person, such as a broker, then we have reason to trust that person to undertake the task in a thorough and efficient manner. That is why we provide an accreditation service that enables us to confirm that our delegate is such a person. It is more likely than not that in the future we will soon be expanding this service to include acting on our behalf to undertake and collect information for the purposes of AML/CFT purposes. The reason for this is that rather than have our mutual clients undertake multiple verifications and sign multiple forms, it is more efficient and user friendly for the client to provide this verification once for all purposes. If you hold an accreditation with Sanderson Weir then you can expect in the next few months to receive some
Compliance can be a frustrating exercise for those who have it thrust upon them. A recent experience with an elderly overseas client brought this home to me. It was hard for him to understand why, after we had known each other for so long, that I had to ask him to have a trusted third party overseas witness his signing of his client authority and instruction form, without which I could not register a transfer on his upcoming purchase. I can imagine what it will be like when I need to explain to him the ramifications of AML/CFT and perhaps FATCA and CRS. The NZ Law Society has recently published come useful guides. Among these is a form for us to give to clients explaining why we need to collect information. What follows is an extract from an explanation form we are considering giving to our clients. If you find yourself increasingly having to explain why you are collecting verification information from your customers you may like to adapt some of this wording below for your needs. The last paragraph seems harsh but we are told that this should appear at the end of our laundry list to avoid us being caught holding dirty laundry. ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir.
AN EXTRACT FROM AN EXPLANATION FORM WE ARE CONSIDERING GIVING TO OUR CLIENTS WHY WE NEED TO ASK YOU FOR INFORMATION The law now requires us to obtain and verify information from prospective and existing clients about a range of things: • for all clients, new and existing, this means undertaking Customer Due Diligence for the purposes of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (“the AML/CFT law” for short); • for clients who are instructing us to register a land transaction for them (e.g. a transfer or a mortgage of land) we need to be able to certify to the land registry that we have taken reasonable steps to verify the identity of the client and, in some cases, link the client to the property; and • for clients for whom our bank will be holding moneys in our trust account on interest bearing deposit we need information to supply to our bank to help them with their obligations to pay withholding tax and meet other reporting requirements under FATCA and CRS legislation (this is explained below). [……….] IF YOU CANNOT PROVIDE THE REQUIRED INFORMATION If we are not able to obtain the required information from you, it is likely we will not be able to act for you. Because the law applies to everyone, we need to ask for the information even if you have been a client of ours for a long time. Before we start working for you, we will let you know what information we need, and what documents you need to show us and let us photocopy.
YOUR GUIDE TO SECOND MORTGAGES To help advisers understand second mortgage lending criteria, TMM has compiled the following table as a guide. We have picked three key players in this area. First Home Buyer Self Employed with 2 years financials Self Employed with no financials Loan Purpose Bank consent or Deed of Priority Income Source Loan Amounts LVR Requirements Regions Loan Terms Interest Rate Types Credit History Clawbacks Purchase Refinance Construction Asset Lend Debt Consolidation Cash Out Business Purposes Discharged Bankrupt Interest Only Principle & Interest Bare Land/Sections Interest Only Period Investment Owner Occupied Commercial Apartments Leasehold Leaky Buildings Probation Application Requirements Comments from Lender
Yes - open bridge deposits
Bridging Finance, Deposit, Refinance, Debt Consolidation, Working Capital, Subdivision, Renovations, Business GST/Tax arrears
Varied and broad
Mainly owner occupied house purchase
All No Cap
Varied income sources (need to be verifiable) $100,000 ( higher considered case by case) up to $50K loan max overall LVR 90% loans >$50K max overall LVR 80% All Up to 2 years interst only or upto 10 years P & I ; partially or fully capitalising loans considered case by case Fixed
All no cap
Maximum LVR 75% Nationwide Max term 12 months I/O & capitalised interest P&I max term 3 years Fixed from 14.95% p.a. adverse credit acceptable with satisfactory explanation No Yes - open bridge deposits Yes Yes Yes Yes Yes Yes Yes - with satisfactory explanation Yes Yes Yes 1 month - 12 months - with the right to roll for a further term Yes Yes Yes Yes Yes Yes No Full application and supporting documentation required Specialist second mortgage lenders. Main business 6-12 months bridging finance for all purposes
All considered with explanation
for seconds 10% All. max 5 years P&I Fixed Will consider with explanation
N/A adviser charges a fee which is capitalised onto the loan Yes Yes Case by case Yes Yes Yes Yes Yes with explanation Yes Yes Yes
Yes Yes Yes no cap Yes no cap Case by case Will consider with explanation No Yes Yes
up to 2 years
Yes Yes Yes Yes if freehold and good quality/size No No Yes (review against balance of profile) All typical application documents and amount depends on type of loan requested. Avanti has a wide product offering and the overall profile of the client is taken into consideration. We review each client's circumstances and tailor a solution that best meets their financial needs.
No Yes Yes Yes Yes No No
If not sure call to discuss
The above table is a guide only. Lenders may change their criteria.
TMM provides mortgage advisers with all the best news and features. This issue includes: - Exclusive results TMM's survey of mortgage advise...
Published on Apr 23, 2018
TMM provides mortgage advisers with all the best news and features. This issue includes: - Exclusive results TMM's survey of mortgage advise...