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Development Lending Guide
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TMM’S GROUPS SURVEY TMM’s comprehensive survey of New Zealand groups outlines the pros, cons, and differentiators between the major aggregators.
04 EDITORIAL Which group should you belong to? 06 NEWS The latest industry news.
18 SOUTHERN CROSS INTERVIEW
New CEO appointed from outside of the industry.
19 FMT LENDING GUIDE
10 PEOPLE Who has moved where in the industry?
12 REGULATION New rules will cause an admin increase but that's not all bad.
14 PROPERTY NEWS
Compliance related issues dominate, Miriam Bell discusses.
Current market values, trends and future outlook.
16 HOUSING COMMENTARY COLUMNS
The low-down on residential construction lending.
30 MY BUSINESS
Nest's Allan Rayner on helping clients achieve mortgage goals.
The swamp that is credit legislation.
34 SALES AND MARKETING
The pick ‘n’ mix of marketing.
ecommending a ‘gap-filling’ medical R insurance policy.
Alternatives to the key investment milestone switches.
From the Publisher
Which group is right for you? offerings and it will be your chance to hear from them directly and ask questions. Seats are limited so I would strongly encourage you register today. You can do this online at www.tmmonline.nz or by calling 0800 345675.
Now regulation is upon mortgage advisers many of you are thinking about what group you should belong to in the future. To help you understand what each of the groups are offering in the market TMM has conducted a survey. What is interesting is that each of the various groups are evolving their offerings and there appears to be quite a bit of differentiating taking place. My guess is that this will be an evolving process and as we learn more about licensing and what is required further changes will follow. Indeed some advisers are wondering whether they should set up as their own financial advice provider (FAP) and no longer have to belong to a group. In theory that makes sense, but the cold, harsh reality is that the banks aren’t going to allow this. A number of them have made it clear that they don’t want a proliferation of agreements with more, new groups. One of the more challenging propositions in the market is that some groups are saying they will be FAPs and advisers can have their own FAPs underneath the group. We are still trying to work out this structure and where the various responsibilities will lie. To help you better understand the group offerings there will be a panel session at this year’s TMM Better Business Conference. Here key groups will get to outline their
It’s great to see three people from the mortgage world awarded at the Financial Advice NZ conference. Christchurch-based adviser Maria Thackwell was crowned with the Outstanding Adviser Award – Lending. Sarah Bloxham of Let’s Talk Mortgages won the Rising Star Award and the Outstanding Support Person Award went to Liz Cannon, Head of Third Party distribution at Westpac.
NEW LENDING GUIDE
Also in this issue of TMM we have the second of our lending guides written in conjunction with FMT. This second guide is all about commercial and residential construction lending. We’ve included it in the middle of the magazine so it’s easy to save. We hope to have the guides available online in the not-too-distant future.
PUBLISHER: Philip Macalister SUBEDITOR: Dawn Adams SENIOR WRITERS: Miriam Bell, Susan Edmunds, Daniel Dunkley CONTRIBUTORS: Paul Watkins, Steve Wright, Michael Lang, Jonathan Flaws GRAPHIC DESIGN: Amy Bennie ADVERTISING SALES: Amanda Ellery 027 420 2083 firstname.lastname@example.org
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TMM is published by Tarawera Publishing Ltd (TPL). TPL also publishes online money management magazine Good Returns www. goodreturns.co.nz and ASSET magazine. All contents of TMM are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited. TMM welcomes opinions from all readers on its editorial. If you would like to comment on articles, columns, or regularly appearing pieces in TMM, or on other issues, please send your comments to: firstname.lastname@example.org
Tough servicing rates could be eased The end of tough loan servicing tests could be a step closer after the Australian Prudential Regulation Authority relaxed serviceability rules for Australian lenders. In July, APRA removed its "serviceability buffer", which forced Aussie lenders to assess loans at a minimum interest rate of 7%. Australian banks have begun to act. Westpac and ANZ have cut serviceability rates in Australia from 7% to about 5.5%5.7% since the APRA move. The development has sparked speculation New Zealand banks could also lower serviceability tests. Another fall in the Official Cash Rate could also prompt a rethink. Tony Alexander, chief economist at BNZ, believes the Australian developments could be a knock-on effect for New Zealand lenders. "When there are changes in Australia, similar things happen in New Zealand. People are running into debt servicing issues at rates of about 8%, at a time when rates are continuing to fall, and could fall further," Alexander said. "I wouldn't be surprised to see eventual changes here." Alexander says serviceability changes could see "more people become eligible for financing" and could help to balance out headwinds to house price growth, such as reduced migration and ringfencing.
Advisers call for servicing test rethink Advisers believe banks should adapt their servicing tests for borrowers after the Official Cash Rate plummeted to 1%. Leading advisers say banks continue to test customers' borrowing abilities at rates of close to 8%, despite the central bank rate falling by 0.75% since May. They believe lenders should adapt to the new environment and test borrowers at a more reasonable rate of interest. Craig Pope, of Pope & Co Mortgages in Wellington, says the "magnitude" of the Reserve Bank OCR cut could lead to a rethink from the banks. "I think the banks will start to look at that and ask 'is it fair?'" Kris Pedersen, of Kris Pedersen Mortgages, said the servicing rate was a problem and "so far out of whack" with rates on offer.
"Common sense says the test rates are far too high. There's a massive disparity," Pedersen says. Mortgage Supply Company's David Windler said some banks used the floating rate as a guide for their testing rates, but others stuck to other metrics. He hopes banks will "look at the servicing rate and the gap between that rate, and what's available". The tough servicing tests in the NZ market are widely believed to have been influenced by Australian regulator APRA, which imposed a minimum rate of 7% on Aussie lenders. APRA recently abolished the guidelines, amid signs of a housing downturn in Australia, and a falling Official Cash Rate. Advisers are hopeful lenders over here will revisit their testing criteria in light of APRA's decision. "The Australian owned banks have a clear mandate to review this," Windler adds.
Q Advisor Group sets out licensing stance Q Advisor Group will give advisers the choice of becoming a FAP in their own right or operating under its FAP licence under the new regulatory regime. The group, formed in 2015, had been waiting for guidance on how regulators and banks would treat groups’ and advisers’ licensing arrangements.
Small groups have reported months of uncertainty on the subject, and feared banks and the Financial Markets Authority would insist on advisers working under a group FAP. Geoff Bawden, director of Q Group, said his group would become a FAP, adding he had been working towards that for “some time”. He said recent discussions have given him more confidence that a FAP “can now belong to another FAP for mortgage aggregation purposes”. Bawden added: “On that basis I
have outlined the options to my advisers and I am giving them the choice. I have told them if they are unsure which way they want to operate then, to give themselves further time to decide, they should apply for a transitional licence.” Bawden said Q Group had no preference on the choice of its members. “From an operational perspective it makes no difference to me whether an adviser is a FAP. I will treat them the same in order to meet my commercial obligations to lenders,” Bawden added.
Newpark in discussions with banks on new regime Newpark Home Loans is confident of striking a deal with banks to operate under the new financial advisers' regime. Newpark is one of a few groups that does not want members to operate under its FAP licence. Instead, it wants members to become their own FAP. The licensing issue has caused concern with the major banks, who are said to want advisers to operate under their group's FAP. Small groups have complained this stance favours bigger players. Andrew Scott says Newpark is “coming Andrew Scott to an agreement” with lenders around the new regime. He says this is likely to involve building a “principles-based approach” around duty and obligation into its broker agreement, and enforcing independent audits each year. Scott says his advisers will have to be independentlycertified each year to make sure they continue to adhere to the banks' standards. “I like that approach as it allows the advisers to manage costs. If they stick to the standards, the audit should be straightforward.” He says Newpark will make some changes to its broker agreement to give confidence to lending partners. “It will allow businesses to maintain independence and integrity while giving the banks a great deal of comfort,” he said.
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NON-BANK LENDERS ADD MORE BDMS
TMM keeps you up to date with all the new appointments in the mortgage advice profession. CAMPBELL LEAVES ASTUTE FINANCIAL
Former Mortgage Supply Company chief executive Jenny Campbell has left her role as National Sales Manager at aggregator Astute Financial. Campbell left her role at Astute over
JENNY CAMPBELL NEW BDM LANDS AT RESIMAC
Non-bank lender Resimac continued its hiring spree with the appointment of business development manager Dilip Patel. Patel joins the growing sales team at the Australian-headquartered non-bank lender. Prior to joining Resimac, Patel was a director of his own mortgage brokerage, and has a wealth of experience in the broking space, particularly in the Auckland market. Before operating his own business, Patel was a relationship manager at ANZ Bank. While at ANZ, he was involved with commercial, business and retail banking, and business underwriting. Head of Resimac New Zealand, Luke Jackson, said Patel’s appointment strengthened Resimac’s BDM capability and would help it grow in the New Zealand market.
a month ago, and the company finally confirmed her departure recently. Campbell's departure is not said to affect Mortgage Supply's partnership with Astute, which was agreed in March. TMM has been unable to reach Campbell for comment. Astute chief executive Sarah Johnston, the former boss of Mortgage Express, said in a press release: "Astute regretfully announces that Jenny Campbell has resigned from her role as National Sales Manager." "Jenny has played an integral role in the growth and success of Astute in New Zealand." Johnston will oversee the role until a new appointment is made. Mortgage Supply struck a partnership deal with Astute four months ago in the face of new regulation. Astute agreed a joint venture deal with Mortgage Express last October. Mortgage Supply's 20 advisers and non-branded advisers under NZMA agreed to become Astute advisers under the tie-up deal. At the time of the deal, Campbell said Astute had the "complete package" for advisers.
Jackson added: “We are thrilled to welcome Dilip to the Resimac team. He comes with extensive experience in the New Zealand finance market, spanning more than 19 years. Having built up a successful mortgage adviser business, he understands
the needs of our adviser partners, which is a vital part of our approach. “Dilip is the latest in a range of new hires for Resimac as we seek to further strengthen our adviser partner outreach and support, as well as our highly-skilled credit team,” he said. Patel added: "I am excited to be joining the Resimac team, to assist mortgage advisers deepen their knowledge in the non-bank space and to grow their clientele with positive results."
BLUESTONE BRINGS IN NEW BDM
Non-bank lender Bluestone has hired a new BDM to cover the south east Auckland, Waikato, Bay of Plenty, Taupo and Rotorua regions. Luke Roberts joins with eight years of experience in the retail banking sector. Recently, he spent three years at Kiwibank as a mobile mortgage manager. He lives in Auckland but will travel the country in his new role. Bluestone said: “Having personally helped thousands of borrowers into their homes, Luke knows first-hand what it takes to provide stand-out customer service in the mortgage industry. As your BDM, Luke is excited to share his experience to help you build your business.”
TWO NEW BDMS FOR FIRST MORTGAGE TRUST ...
First Mortgage Trust has appointed two new Auckland-based BDMs to build on its growing presence in the region. Jack Fox joined the firm after nearly nine years in banking. Fox will work in the construction and development side of the business. He has experience in the banking and property finance sector having worked for ANZ and Lloyds Bank. At ANZ, Fox most recently held the role of relationship manager in the Aucklandbased property finance team, where he worked on a range of transactions from commercial property investments and land subdivisions to large-scale apartment and hotel developments. Meanwhile, Dan Bolstad has also joined
FMT from a large family office nonbank lender. Bolstad has experience in structured property and construction finance transactions. FMT says Bolstad is “well placed to grow FMT’s development and construction finance book”. Qualified as a lawyer, Bolstad has also worked for prominent New Zealand and international laws firms in their property departments. He has advised developers, investors and financiers on substantial commercial, mixed use, and residential developments and investments.
... AND A CREDIT MANAGER
First Mortgage Trust, the biggest non-bank mortgage lender in New Zealand, has hired a new credit manager covering construction and property finance. Neville Whitworth joined recently to manage lending in the construction space. Whitworth has over 30 years of banking experience across the country. He has previously specialised in property development finance and commercial property.
or investment property easier by giving you the best advice from myself and my experienced team.” Amber Bannister, another mortgage adviser hire, added: "Whether you are looking to buy your first home, wanting to build your forever home, or just wanting to get debt-free sooner, I would love the opportunity to help you get there. I have over 15 years’ experience in the finance and banking industry and sevenand-a-half years as a home lender for a main NZ bank.” Bannister added: “With my strong lending background, I will work with you to understand what is important to you, help you navigate the buying journey and lending process and provide you with financial solutions in line with your goals now and in the future."
JACQUI HEMI MIKE PERO APPOINTS THREE ADVISERS
NEVILLE WHITWORTH ASAP FINANCE PROMOTES TWO LENDING MANAGERS
Private lender ASAP Finance has promoted two lending managers. The company has hired Kai (Kevin) Zhou and Dan Ziqing Liao as senior lending managers. They were previously lending managers. ASAP said Zhou and Liao have “worked tirelessly to establish themselves as prominent lenders within the development finance sector”. The company added: “Their hard work and ability to successfully deliver simple funding solutions for our clients has been imperative to ASAP’s growth in recent years.”
Dawn Whiteside, another new adviser, said: “With nearly 10 years of experience in the finance area and access to all the major lenders in New Zealand, I believe I can get customers the best deals to suit their needs. At any time that suits the customer.” William Leota, a new mortgage adviser, added: “I understand that purchasing a home can be stressful and I am here to help you navigate the challenges involved. I have over 12 years’ experience in the banking and insurance industry and will guide you each step of the way. I work alongside you to organise and structure your home loan, ensuring you a stress-free journey into your new home.”
Mike Pero has bolstered its team with the appointment of three new mortgage advisers. Jacqui Hemi, one of the new hires, based in New Plymouth, says: “Purchasing property is such an exciting time in our life, and the process to get there should be just as enjoyable.” Mike Pero said Hemi “prides herself on her ability to closely understand her client’s needs and ensure the best possible outcome is reached, as stress-free as possible”. Dhiraj Chhabra joins in Wellington as a mortgage adviser and franchise owner. The company said: “Dhiraj’s clients’ best interests are at the heart of what he does. With a philosophy of providing unbiased advice and great service, he enjoys making the home buying process as stress-free as possible.” Pieter Dreyer joins as an Auckland-based mortgage adviser and franchise-owner. The company added: “Peter wants to help you achieve your property and finance goals. With over 24 years’ experience in the construction, property valuation and financial services industries, both in New Zealand and South Africa, he has the experience to help you with all of your finance needs.”
LOAN MARKET BOLSTERS ADVISER TEAM
Loan Market has made four key hires to its adviser team as it continues to grow. Logan Reardon one of the new mortgage advisers, said: “Having owned homes and also building our new home I know how stressful having a mortgage can be. With my help I can make owning your first home
PIETER DREYER 011
By Susan Edmunds
Mortgage advisers prepare for lift-off New rules will increase administration requirements but not everyone is worried.
Mortgage advisers say how difficult new licensing requirements will be depends a lot on how you structure your business. Transitional licensing opens later this year for the new advice regime. Everyone must apply for a licence before the regime starts in mid-2020. One of the terms of a transitional licence is that all advisers meet a record-keeping standard. This is already required of authorised financial advisers. Mortgage advisers are already dealing with increased paperwork due to anti-money laundering requirements and there have been concerns that this could lead to increased turnaround times to get deals approved. Craig Pope, of Pope and Co Mortgages, said he expected delays. “Already we’re finding things pretty slow with banks being a lot more pedantic with paperwork. I imagine the aggregators will have their processes we have to adhere to and add to a workload that’s already pretty onerous.” He said it would not matter how good an
individual business’s systems were if they did not line up with the requirements of the financial advice provider licence they worked under. They would each have their own systems to keep aggregators, banks and regulators happy, he said. “I can see it ending up being a bit of overkill.” He is a member of NZFSG and said he expected its new CRM system would be part of the process of preparing for the new regime. Dave Windler, a director of Mortgage Supply Co, said systems and processes would become increasingly important for brokers. They would need quality customer relationship management (CRM) systems to support not just the customer process but compliance, too, he said. “It’s not going to get any easier from here but it is what it is and we’ve got to embrace it.” Bruce Patten, a broker with Loan Market and NZFSG head of growth, said mortgage advisers would need to invest in their businesses to keep up with the changing requirements. He had recently seen two advisers hire full-time customer service managers in preparation for the regulations and other requirements such as anti-money laundering.
What does the process look like to satisfy all these stakeholders’ risk requirements? There’s not a lot of answers yet but it’s not just about the regulators. John Bolton “There are so many forms to fill out now. It will slow you down unless you’re prepared to invest in your business in terms of administration support.” Adviser Glen McLeod, of Edge Mortgages, said brokers were already dealing with lenders doing increasing numbers of checks on each application, because of their responsible lending requirements. “If we had direct input into the credit scoring for the bank with online application like Australia has that would be of great
assistance and speed things up. “The new legislation will definitely slow the process down further from the lender’s perspective. Advisers that use CRMs will cover most of the requirements as a part of the application and shouldn’t change our best practice processes we already have in place.” He said advisers didn’t help themselves by sending applications off to many lenders at the same time. John Bolton, chief executive of Squirrel and the lending representative on the Financial Advice New Zealand board, said mortgage advisers tended to already have good systems. Aggregators had invested heavily in technology, he said. “I don’t think [the new requirements] are going to slow us down too much at all. Automation will solve most of that.” But he said there were bigger challenges in how aggregators and their advisers accredited themselves with banks in the new system of licensed financial advice providers. “Product providers, under the current legislation, have consumer obligations as part of their process. How do the product providers satisfy themselves that the advisers that are accredited with them are doing a good enough job? Advisers can sit there and say ‘I’m doing a good job for the customer’ but how does a product provider satisfy themselves, who determines what good advice looks like? It’s challenging. Advisers are effectively working for the client. It does create some interesting issues.” He said, in some ways, the industry was waiting more for information from banks and lenders than the regulators, both in terms of the accreditation process and what the audit system would be like. Financial advice providers’ boards would also carry a lot of liability under their licence obligations and would want to satisfy themselves that each adviser’s processes were compliant, he said. “There’s a lot of stakeholders in this process carrying risk. What does the process look like to satisfy all these stakeholders’ risk requirements? “There’s not a lot of answers yet but it’s not just about the regulators. What does the product provider need to see to satisfy them, what does the board of directors need, then the aggregator? I think there’s still a lot of water to go under the bridge.” Bolton said it would be important for the industry that the stakeholders found commonality and not create a “compliance industry” for mortgage advisers burdened with too much paper shuffling. “It could end up like that if all the parties aren’t talking. We’re trying to bring everyone together to look at how we can solve this together so we don’t get that outcome. It would be bad for consumers too if advisers get caught up in red tape.” ✚
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By Miriam Bell
Compliance talk For property investors, it’s been compliance related issues which have dominated the discourse of late ... Starting with the new Healthy Homes minimum standards, we discuss the developments that have been making waves. Measures aimed at tackling several contentious tenancy issues recently became law as the Residential Tenancies Amendment Act 2019. Those issues include tenant liability for damage, meth contamination of rental properties and unlawful residential dwellings, like illegally converted garages. Of these, it’s always been tenant liability for damage that is the big problem for landlords. And now tenants will have to take some responsibility for careless damage to rental properties. Tenants will be liable for careless damage of up to four weeks of rent or their landlord's insurance excess, whichever is lower. Their liability for careless damage will be capped at four weeks of market rent. Associate Minister of Housing Kris Faafoi says these liability settings strike an appropriate balance between keeping landlords' costs as neutral as possible and incentivising tenants to take care of rental properties. “They will help protect tenants from excessive risks and costs and should also encourage cost-effective insurance arrangements for landlords.” Landlords also now have to disclose their insurance information in new tenancy agreements. They have to state whether their property is insured and, if it is insured, they must include the relevant insurance excess or excesses for the property. “Tenants have a right to know the level of their liability for careless damage,” Faafoi says. “Bringing the level of their liability to their attention will incentivise them to take care of rental properties.” The new legislation also sets out the responsibilities of both landlords and
tenants in relation to “contaminants” in rental properties. Alongside this, it contains regulation-making power, which means that any contaminant identified as harmful to health will be able to be dealt with by regulations. Finally, the new legislation ensures that rights and responsibilities under the RTA are applied to unlawful residential properties. Additionally, it strengthens the law for prosecuting landlords who tenant unsuitable properties. For NZ Property Investors’ Federation executive officer Andrew King, the new legislation is an improvement on the problems that previously surrounded these issues. But the changes are partial solutions which are quite complicated and could still lead to injustices for both tenants and landlords, he says. “For example, tenants’ liability for damage will be determined by the amount of rent they are paying and the landlords excess rather than any relevance to the actual damage. Both landlords and tenants may have to pay considerable amounts of money depending on how many incidents of damage the insurer and Tenancy Tribunal decide have occurred.”
THE RETURN OF MUM & DAD INVESTORS
The new RTA legislation is just the latest in a series of housing policy changes which have a sizeable impact on investors. It was thought these changes would deter smaller investors but new research shows their market share is increasing. According to CoreLogic’s latest buyer classification analysis, the share of purchases by investors is on a gradual rise. Across all investor purchases (both cash and mortgage), their market share in the second quarter of 2019 was 37%. But when that 37% figure is broken down by the number of properties owned by these investors, it is investors with two properties (after their latest purchase) which are the
biggest individual group, with an 11% share. CoreLogic senior property economist Kelvin Davidson says it’s these two-property investors which are of real interest. That’s because not only are they the largest investor category, but they’ve also recently lifted their percentage share the most. Davidson says it was smaller investors whose market share was hit hardest by the third round of LVRs, which imposed a minimum 40% deposit, back in 2016. “And they then seem to have got knocked again as Labour’s election victory in late 2017 and tabling of capital gains tax hit confidence through 2018. But now that a capital gains tax has been scrapped, these figures show that the smaller ‘mum and dad’ investors, have started to make a comeback.” CoreLogic’s data shows this recent bounce in activity from small investors has been seen most clearly in the wider Wellington region and, to a lesser extent, in Christchurch. In contrast, the market share of purchases by bigger investors with 10 plus properties has eased a bit in the main centres. This is probably because they are often classed as business/commercial borrowers – an area where credit has become much harder to secure. Davidson adds it should be noted that these patterns in the percentage share of activity are within an overall relatively low number of purchases, which is well down on the levels seen in 2016.
NO PRICE STIGMA FOR REMEDIATED PROPERTIES
Meanwhile, investors with leaky homes can take heart from new research showing there’s no price stigma when it comes to tactically remediated properties. Researchers from the University of Auckland Business School’s Department of Property say that leaky homes which have been fixed, made weathertight and reclad in non-monolithic cladding, like weatherboard, are selling for the same prices
as unaffected dwellings. The leaky home crisis has led to a stigma which is often attached to particular architectural features linked to leaky homes, like monolithic cladding, and has a “blighting effect” on property values. Part of this stigma is “post-remediation stigma”. Post-remediation stigma damages are often claimed in leaky building litigation. So the University of Auckland researchers set out to identify whether post-remediation stigma actually exists and if it does have an impact on prices. They found that houses that had been remediated and reclad using a nonmonolithic cladding system showed no ill signs of stigma. However, a general market stigma discount of 6% persisted where homeowners opted to install a new monolithic cladding system as part of the remediation. Monolithicclad houses that had never undergone remediation were found to have a 9% general market stigma discount. Lead author Dr Michael Rehm says their study shows that post-remediation stigma does not exist in the Auckland housing market. “It also sends a message
to leaky home owners that they should tactically consider what cladding system they chose when recladding. Choosing to install a new monolithic cladding system versus an alternative will likely attract general market stigma and devalue their home.”
RONOVATIONZ ENDS UP IN COURT
In another sign of the changing times, the Commerce Commission is taking property investment guru Ron Hoy Fong’s company, Ronovation Limited, to court over allegations of price fixing in Auckland’s residential real estate market. Ronovation, trading as Ronovationz, was set up in April 2009. It advises its members on how to acquire and improve investment properties in Auckland and by March 2018 it had more than 400 paid members. However, the company ran into problems back in May 2017 after a furore erupted over a tutoring video by Fong became public. The video showed Fong coaching investors to give vendors false names, work in packs to drive down prices
and target desperate families or "dummies" who don't know the value of their home. At the time, Fong denied exploiting people and said nothing he advocated was illegal. But the video prompted Labour Party MP Michael Wood to lay a complaint with the Commerce Commission and this led to an investigation. Now the Commission alleges that Ronovation had rules which prevented Ronovation members from competing for properties. The Commission alleges these rules, which applied between September 2011 and September 2018, amounted to cartel conduct in breach of the Commerce Act. It said in a statement that the Commerce Act bans arrangements which have the effect of fixing prices as well as agreements not to compete at auctions or on tenders which is known as “bid rigging”. “Bid rigging occurs when there is an agreement among some or all of the bidders about who should win a tender or auction. Bid rigging is a form of cartel conduct and is prohibited by both the former and current section 30 of the Commerce Act.” The Commission and Ronovation have entered into a settlement to resolve the proceedings and a penalty hearing in the High Court is pending. ✚
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WHAT’S DRIVING HOUSE PRICES?
UPFRONT – YOUR HOUSE
By Miriam Bell
REINZ HOUSE SALES: UP
Sales volumes nationwide were up year-onyear in July, with the highest number of sales for a July in three years. In Auckland, sales were up both annually and from June.
INTEREST RATES: DOWN
The Reserve Bank’s shock OCR move has poured further fuel on to the mortgage rate fire and banks are cutting rates again. Commentators say a long-term low rate environment is firmly in place.
The Reserve Bank surprised everyone by slashing the OCR by 50 basis points to take it to a record low of 1.0% in August. Economists believe that more cuts are likely to come, possibly this year.
Migration data remains volatile and, although high annual net migration remains high, commentators say it appears to be trending lower.
BUILDING CONSENTS: UP
Auckland consents surged to an all-time high in June, surpassing the previous mid 1970s peak. Once seasonally adjusted, consents nationwide were down from the high of May, but demand remains high.
MORTGAGE APPROVALS: DOWN
Reserve Bank data shows mortgage lending to investors in June was down slightly on May. It was also down annually and investors’ share of new lending remains much reduced. [July data not due out till August 26.]
The average national rent remained static on a record high in July. Auckland’s average rent also stayed unchanged at its record high, while Wellington rents remain at historic highs. 016 WWW.TMMONLINE.NZ
Market shake up
The Reserve Bank’s shock OCR cut along with some encouraging new market data has left many asking if the housing market is set to fire up again, writes Miriam Bell.
Talk about making waves. The Reserve Bank sent shockwaves through the country in August when it slashed the OCR by 50 basis points to take it to an all-time low of 1.0%. The move, which Westpac chief economist Dominick Stephens described as “stunning”, sent financial commentators into overdrive. The focus of most of the commentary has been on what the cut means for the economy, both now and going forward, but it’s agreed the goal of the cut is to jumpstart spending and growth. Banks started to drop their interest rates immediately, with all the major banks announcing cuts to their home loan rates. All this has left many in the property world speculating on just what it might mean for the housing market going forward. While some believe it could contribute to a stronger pick-up in house price inflation, others take a different view and doubt it will have a significant impact on the market. However, this month’s data has confused matters further. It turned in some stronger than expected results, particularly in the case of Auckland, and contained hints of renewed confidence in the market.
The upshot? True, Auckland’s market remains a shadow of its former supercharged self while other markets are slowing from the pace set at their peak. Yet the data is encouraging enough to quell the rhetoric of those predicting doom.
SALES PICK UP
It was the sales data from REINZ that surprised the most. After months of decline in sales volumes nationwide, July saw the highest number of sales nationwide for a July in three years. There were 6,118 sales which was a 3.7% annual rise on the 5,897 sold in the same month last year. Even more positively, Auckland – where sales activity has been subdued for a long time – saw an increase in sales in July. They were up both annually (by 6.6% on July 2018) and as compared to June (by 1.2%). Overall, nine out of the 16 regions saw annual increases in sales volumes and a number of regional markets saw double-digit annual growth in sales. They were Nelson (up 25%), Gisborne (up 14.9%), Canterbury (up 14.6%), and Marlborough (up 13.7%). REINZ chief executive Bindi Norwell says it’s the first time in eight months that sales around the country have gone up on an annual basis and it’s a good sign, particularly for the Auckland market. “It is an indication there’s renewed confidence in the market and that we’re starting to see some early signs of growth. Some of the improvement can be attributed to more certainty after the ditching of the
capital gains tax, but it’s also about parts of the market finding their new normal in terms of pricing.” The REINZ sales data for Auckland was not a one-off. Barfoot & Thompson’s latest data also shows a surge in sales volumes. Their July sales were their highest in the month of July for three years. They recorded 879 sales which was 11.8% up on June, 16% ahead of the average for the previous three months and 5.9% up on sales in July last year. Interestingly, Barfoot & Thompson saw a higher number of sales at the lower end of the price spectrum. The under $500,000 price category accounted for 15.9% of sales in July which is significantly higher than usual. Meanwhile, the amount of housing stock on the market looks to have gone up nationwide. REINZ has the total number of properties available for sale in July increasing by 2.6% to 21,843 from 21,288 at the same time last year. Likewise, Realestate.co.nz has total housing stock on market nationwide as up by 2.5% from July last year – although new listings nationwide were down by 2.8% annually.
PRICE TRENDS CONTINUE
At the same time, prices continue to defy expectations and hold up well overall. In fact, the data from both Realestate.co.nz and REINZ shows prices up nationally and in many markets around the country. And QV’s House Price Index has values still growing, albeit at a slower pace, with some standout areas. According to REINZ, median prices nationwide were up annually. It has them rising by 4.5% to $575,000 in July. These results are in line with the REINZ House Price Index which saw property values increase 1.5% annually. While median house prices in Auckland remained flat at $830,000, which was the same price as July last year, record median prices were recorded in 10 out of the 16 regions. Two markets hit record median prices in July. They were Otago (up 21.7%
year-on-year to $505,000), and Southland (up 20.0% increasing to $300,000). QV has national values staying firm in July but value growth remaining subdued. Quarterly value growth came in at 0.1% although annual growth increased slightly from 2.0% in June to 2.2% in July. This left the average national value at $687,683. Auckland’s value growth continued along a now familiar trajectory. It decreased by 0.8% over the quarter and by 2.6% yearon-year, leaving the region’s average value at $1,025,389. In contrast, many regional areas including the Western Bay of Plenty, Hutt Valley and Porirua are still seeing strong value growth, supported by healthy regional economies. QV general manager David Nagel says the data shows a continuation of recent trends: sluggish value growth and low supply overall mixed in with pockets of strong growth. “Regions seeing strong value growth are those with more affordable property and a local economy with job prospects nearby. The slower rate of growth across most areas is due to a combination of factors. A key driver is affordability constraints.”
Given the latest data covers the period before the Reserve Bank’s OCR call, there’s been much analysis devoted to what the impact of that cut, and even lower mortgage rates, on the housing market could be. For Kiwibank senior economist Jeremy Crouchman, there’s some encouraging signs for the market, particularly in Auckland. A major sign is REINZ’s stronger sales data as housing market activity tends to lead house price movements, he says. “We don’t know if this is a true turning point in the Auckland market, but investors now have less policy uncertainty to contend with. Moreover, mortgage rates have drifted lower since the start of the year and the OCR cut and the signalled desire to do more by the Reserve Bank is likely to keep rates
Regions seeing strong value growth are those with more affordable property and a local economy with job prospects nearby. David Nagel heading lower.” Despite this, Crouchman’s general outlook for the housing market remains unchanged. “Across the nation, prices will rise a little this year. And we expect aggregated price gains to pick up towards 5-6% into 2021.” Westpac chief economist Dominick Stephens is firmly of the camp that is picking a housing market upturn on the back of the recent cut, along with the cancellation of capital gains tax, tumbling interest rates and the fact that New Zealand is in the grip of a search-for-yield environment. He says the latest housing market data is far from clear. “We think it shows there are straws in the wind supporting our view that the market is going to pick up, so we are sticking to our forecast of 7% house price inflation next year.” But the evidence is by no means conclusive so more data will be required before it is possible to draw any real conclusions about which way the market is heading, Stephens adds. It’s also worth noting that access to funding remains tight and both Norwell and CoreLogic’s Kelvin Davidson have suggested this will work as a constraint on the market. ✚
WE CAN WHEN OTHERS CAN’T WE WILL WHEN OTHERS WON’T FOR ALL YOUR NON BANK LENDING
JEN 021 447 926 AKL & NORTH ISLAND
MICHAEL 0274 219 263 WGTN & SOUTH ISLAND
Consumer goods boss takes the helm at Southern Cross New Southern Cross Partners CEO Cliff Carr talks to TMM about his immediate plans for the non-bank lender.
Peer-to-peer lender Southern Cross Partners has hired a new CEO from outside of the financial industry as it looks to grow its lending book. Cliff Carr has taken the top job and joins from home appliances company Newell Brands, best-known for its Sunbeam kettles and toasters. Carr was formerly general manager of sales and marketing at Newell Brands New Zealand, and says his experience in the customer-goods industry will be valuable as Southern Cross looks to grow its lending business and P2P offering over the next few years. Part of that effort will be raising awareness with consumers. Carr replaces Luke Jackson, the former Southern Cross boss who switched over to non-bank lender Resimac earlier this year. “I’ve had a strong interest in residential property lending for some time, and this business has core appeal with P2P investing and non-bank lending,” Carr said. “It’s a very sound business that has been around for a long time, and I’ll be working with some skilled directors who all have an appetite for growth.” Carr believes the company is well-positioned as the non-bank lending sector in New Zealand takes off. While non-banks represent a small share of the overall market, they posted a 22.9% increase in net profit to $44.3 million last year, Cliff Carr according to
advisory firm KPMG. They lent $5.4 billion in 2018, up from $4.8 billion the year before. “It’s an appealing market as banks become stricter and open up opportunities for nonbanks,” Carr added. “We want to grow the two parts of the business in parallel and believe there’s room for major growth.” Carr said Southern Cross was keen to broaden its existing business and would grow that in parallel alongside its P2P investment arm, in an “aggressive, but incremental way”. “We need to grow those businesses in a closely-aligned way, working with our directors, and in order to facilitate the sort of growth we want, we will have to expand the type of loans we currently have. We will have a look at what that might look like. The business is well-primed for sustainable growth.” The company is improving its back-office systems to prepare it for expansion. “We’re busy doing some significant back-end improvements to allow us to scale up. Once we’ve done that we will look to turn the dial up on growth,” Carr added. Carr said he wants to raise Southern Cross’s profile with advisers to grow the business. “We’re open and have money to lend, and we need to explore a way of engaging with them better, and we will certainly look to do that. We have got some strong growth aspirations and will be looking to work with them to grow both our [respective] businesses,” he added. Carr joins Southern Cross as the company makes several new hires. The lender has hired a new head of sales and marketing, Cam Harper.
The marketplace is clearly changing. There’s a world of opportunity. Cliff Carr Harper joins from advertising agency BrandWorld New Zealand, where he spent about six and a half years in different roles. Harper is tasked with building sales relationships and raising brand awareness across the country, and is based in Auckland. Southern Cross has also hired new project manager Rhys Trussler to bolster its operations, Carr said. The new Southern Cross CEO believes alternative lenders will continue to capitalise on banks’ strict servicing requirements and tests for borrowers, which have forced customers to seek alternative options. “There certainly doesn’t appear to be any sign that the banks’ position will change, and we are hearing that things are maybe getting a little tighter in the short-term. The marketplace is clearly changing. There’s a world of opportunity.” New Zealand financial regulators have recently indicated they may take a tougher approach to non-bank deposit takers and lenders. The Reserve Bank has suggested it might put non-banks under LVR restrictions. Carr says Southern Cross is “prepared” for additional regulatory scrutiny that may come the industry’s way. “We’re more heavily regulated on an almost-daily basis, so we are absolutely prepared for that. That’s part of my remit, and we will certainly be prepared for the future.” ✚
COMMERCIAL AND RESIDENTIAL DEVELOPMENT
LENDING GUIDE Welcome to the second of a series of lending guides TMM is producing in conjunction with First Mortgage Trust (FMT). These guides are designed to help advisers successfully submit loan applications for specialist lending. This guide runs through what is required when working with a developer client seeking a property construction loan.
COMMERCIAL AND RESIDENTIAL DEVELOPMENT
LENDING GUIDE GET THE FACTS
Before submitting an application, the adviser should undertake an in-depth fact find with the adviser’s client. The purpose of this investigation is to understand the application and the client’s objectives with the proposed development. FMT encourages advisers to meet the client onsite and go through the proposed deal. In this way, the adviser will have a better understanding of: • How the deal stacks up, (feasibility, profit margin and budget) • The proposed security property, • The underlying exit strategy, and • Location (see below). From FMT’s perspective, location is extremely important. FMT prefers to lend on developments that are in areas where there is: • Growing employment, • A good population base, • Substantial council infrastructure, and • Sufficient market demand at the particular price point (i.e. affordability). There are many different aspects to a development and it is not always possible for the developer to be fully informed of all the details. FMT strongly recommends using experts when necessary. Richard Coles – Director/Planner of Momentum Planning and Design (www.mpad.co.nz) is utilised by FMT on specific transactions. Richard says: “Lending institutions such as FMT ultimately prefer to lend on proposals that are well researched and developed, and provide a level of certainty. In planning terms, this means that resource or subdivision consents have been obtained. If they have not been obtained and are necessary to secure a loan, the funder may require certain conditions to be met, or independent professionals to verify and quantify consenting and/or development risks. If you do not have resource consents on hand, a town planner will be needed to assist in the process by undertaking a due diligence consenting viability report. This may be provided in the format of an independent report to the funder.” The planning framework, including District and Regional Planning controls, zoning and overlays such as hazards, outstanding
natural landscapes, and areas of high ecological or cultural value, may require a planner to seek additional expert advice to form an opinion. Traffic effects are also key to many development proposals. Another expert who can be very helpful is a project or development manager. Duarne Lankshear – Director of Veros Property Services (www.veros.co.nz) provides some helpful advice: “An experienced development manager can be a real asset to guide a project from conception through to completion. Like any new business, a development needs to be set up properly to ensure that it meets programme and budget. The work that is completed pre-contract and pre-funding will generally set up and shape the project to travel smoothly through the development process. Even well-funded, well designed and managed projects have problems. Therefore those that are not well set up and structured will really test all those involved, placing pressure on the debt funder and equity stakeholder. It is important to start how you want to finish and have a clear direction of travel from the outset. That’s where an experienced development management service can guide a funding partner and the developer through the development process. Getting them in early is key.” Important questions for the funder to consider include: • Is the project fundamentally sound at the outset? • Does it have a robust development feasibility and programme? • Does the developer clearly understand the development phases and the costs and programme in order to satisfy the key conditions precedent? • Does the developer have sufficient working capital and ultimately sufficient equity to sponsor the project and meet the funding milestones? • Is the developer clear on the consents that will be required prior to funding, and the risks associated with achieving the consents? • The development manager’s experience will often identify that the required consents may have
unaccounted cost and programme risks. In particular, obtaining Regional Council consents for matters such as earthworks, storm water discharge and cultural impact are becoming significantly more difficult in some regions. Delays of 12 – 24 months for subdivisions are common. • Does the developer’s construction contracts (civil and/or construction) capture all of the deliverables, thereby removing or limiting the likelihood of variations or misalignment of expectations? • Is the project contingency sufficient to reflect the nature of the contract, the level of design detail, the relationship between developer and contractor, the complexity of the project, the risks surrounding exclusions and other potential unforeseen costs? • Does the developer fully understand the developer’s obligations under the off-plan sale agreements or any other agreement relating to the revenue side of the development? • Are the obligations relating to revenue reflected in the building contracts? • If they are not, then expect variations, time delays and deteriorating relationships between developer, client and ultimately the funder. Understanding these key deliverables at the outset will ultimately guide better decisionmaking. Understanding will as a result, provide clarity to both the funder and the developer and ensure that the expectations of both parties are aligned. This approach will hopefully remove those awkward inflexion points where the funder’s expectations are out of step with the developer. Ultimately, both parties want to get a project to the start line in the best shape and as quickly and cost effectively as possible. Once the first drawdown is advanced, it is critical that the funding flows consistently, and the project is guided through the development process. This is of course the developer’s responsibility, however the development manager has the experience to know when things are not progressing well on the cost to complete basis, and also holistically over the whole development lifecycle. In the long run, this will protect the funder’s position.
Draw down example Feasability Land Build cost inc Cap interest Total End valuation (Gross Profit Funding Structure Borrower Section/Land Cash Total FMT Total Draw downs Progress Draw downs Valuation Less project costs Funds spent to date Cost to complete Development Risk As is valuation Debt LVR
Assignment of the Build Contract, or Assignment over any pre-sales 700 1600 2,300 3,000 700
700 120 820 1,480 2,300
CODE OF COMPLIANCE
CAPITALISED INTEREST/ HOLDING FEE
1,480 3,000 2,300 820 15%
FMT will generally reserve the right to withhold up to 5%-10% of the remaining loan balance pending issuance of the Code of Compliance Certificate.
1,480 345 1,175
Let’s consider an example of a developer constructing four townhouses and requiring progress draw downs. Profit figure is based on the development being completed on budget, on time and with contingency factored into the build cost. This scenario demonstrates how FMT would assess a progressive development drawdown: • Client’s equity has been injected first – Land at $700k and $120k cash. • FMT funding of $1,480k is progressively drawn (5 tranches) in terms of the build contract. For example floor down, framing up, roof on and closed in. • The Loan to Value Ratio (LVR) is assessed during the drawdown stage (with interim valuations) to ensure that the approved LVR covenant is not breached. Prior to any drawdown, FMT will require evidence of all costs claimed and that the cost to complete the development is within the budget.
Month 1 400 3,000
Month 2 300 3,000
Month 3 300 3,000
Month 4 300 3,000
Month 5 180 3,000
1,220 1,080 345 1,575 400 25%
1,520 780 345 1,875 700 37%
1,820 480 345 2,175 1,000 46%
2,120 180 345 2,475 1,300 53%
2,300 3,000 1,480 49%
If a Quantity Surveyor (QS) is involved then their report will provide this information. If there is no QS then the developer needs a suitably experienced project manager to complete this role. FMT would expect to see a QS engaged on all developments with build costs of more than $1 million. The QS would be engaged by FMT with all costs met by the developer. Territorial Authority (Council) signoffs will also be required. These provide evidence that the development is being built to the required specifications.
Depending on the GST aspect of the transaction, GST may be excluded from the valuation with FMT’s LVR assessment on the GST exclusive component.
FMT would require a first mortgage over the security along with personal guarantees from the shareholders. Depending on the development other security may be:General Security Agreement (GSA),
The client may elect to pay interest throughout if they have an additional income source. Generally FMT will be asked to capitalise interest costs throughout a development. These, along with any undrawn holding fees or similar are factored into the total development budget.
Builders All Risk/Contract Works Insurance, along with Contractor’s Public Liability are to be held throughout the development programme. If the properties are to be retained following completion of the project, securities are to be insured for a full replacement cost or sum assured to an amount acceptable to the funder.
Before approving funding for any development, FMT needs to fully understand how they will be repaid. If the development will be repaid from the sale of the development then consider the following:• Are there any pre-sales? • Who is the target market? (e.g. are they first home buyers or families?) • Where does the price point of the development fit in relation to the target market? • What is the expected sell down period? If the development will be leased up and then refinanced or sold consider these points: • Are there any pre-leases? • What is the vacancy factor in the target market? • Once the property is fully leased does it meet bank servicing/LVR criteria?
Commercial and Residen al
Development Lending Meet our Auckland Business Development Managers
Brad Mower 021 186 6971
Jono Singh 027 522 6606
Jack Fox 027 561 9250
our BOP/Waikato, Wellington, South Island Business Development Managers
Lawrence Russo 027 573 5554
our Sales Manager
Daniel Bolstad 027 544 5590
Bruce Smith 027 222 8911
Assistant Loans Manager
Construc on & Development Construc on & Development
TALK TO US TODAY ABOUT YOUR
Gary Lee 027 544 5559
Commercial / Industrial Development | Land Subdivision Residen al / Apartment / Townhouse Development
Compe ve Pricing Capitalisa on of interest and fees throughout the project Comfortable with residual debt posi on dependant on LVR Flexibility around pre-sales Not less than $750k to max $20 million Loca on â€“ Auckland, Hamilton, BOP, Napier, Wellington, Dunedin, Central Otago
(unlikely other areas will be considered)
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0800 321 113
Lending is from the First Mortgage Trust Group Investment Fund 022 WWW.TMMONLINE.NZ THE SMART INVESTMENT
First Mortgage Managers Limited, the issuer, is not a registered bank under the Reserve Bank of New Zealand Act
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DEALER GROUP GUIDE
By Daniel Dunkley
TMM’s comprehensive survey of New Zealand groups outlines the pros, cons, and differentiators between the major aggregators.
The new regulatory regime for financial advisers is poised to come into effect from November, and the choice of which aggregator group to belong to is more important than ever. Which groups are best positioned to adapt to the new way of doing things, and which groups will help adviser businesses navigate their way through the changes? Advisers face some tough choices on whether to stick with their existing groups or consider their options as the new regulation comes into effect. In a comprehensive survey, TMM asked all of New Zealand’s major aggregator groups to outline what makes them different and why advisers should join them. Groups provided key information, including their ownership structures, fees and costs, CRM platforms, compliance plans and backoffice support.
Groups told us why they think they stand out from the crowd at a time when the industry is set for its biggest shake-up in years. The nation’s leading groups took part in the survey, including NZFSG, Astute, Q Group, Newpark, Mortgage Link, Lifetime, Kepa, Prosper, and Mike Pero. Some believe bigger groups with greater scale will be better placed to take on training requirements, paperwork and red tape under the new regime. Others emphasise the importance of choice and controlling your own data, trail commission and compliance. Every respondent to our survey plans to become a Financial Advice Provider (FAP) under the new regime. Most will give members the option of taking their own FAP licence if they want to. As the industry continues to evolve, technology and CRM systems will also be key considerations in the year ahead. Andrew Scott, general manager of Newpark Home Loans, says an adviser's choice of group is "critical".
“It’s critical that advisers play things forward regarding the type of relationship they have with their group when applying for a transitional licence. The terms of engagement with a group under licencing will fundamentally change the way an adviser can build value and how they will realise capital from their business,” Scott says. “The savvy adviser will understand this and ensure that his/her group membership does not cede control over their plans for the future,” Scott adds. Sarah Johnston, CEO of Astute Financial, predicts groups with a strong compliance and support function will thrive under the new regime. She adds: “If we look at Australia, the standout groups are those that offer a full back-office service to their members, allowing their members to focus on writing business and not the administration of running a business. This will also be the case for New Zealand, and that is why this is what we offer at Astute.” Brendon Smith, CEO of NZFSG, says it was
“more important than ever” to pick the right group. Smith believes groups need to have invested heavily in systems and processes to meet the requirements of the new regime, and “work practically for advisers and their clients”. Smith adds: “There needs to be a commitment to licensing under the new regime and a clear pathway for advisers to obtain the relevant qualifications to operate in the new world. Advisers are going to need support as we transition and groups will need to be well resourced to assist. “I also think it’s important to know who’s behind the group, their capability, history and experience, and for advisers to understand that before making any decision to join.”
Australian-headquartered group Astute Financial entered the NZ market late last year after striking a transformative partnership deal with Mortgage Express. As part of that deal, Sarah Johnston became CEO of the Aussie group, and David Gopperth became Mortgage Express
general manager. The Mortgage Supply Company also moved its aggregation to Astute in May, cementing Astute’s growing presence in the New Zealand market. Astute NZ was established in November 2018 amid the Mortgage Express deal and is owned by Mortgage Express Limited NZ and Astute Financial Management Pty Limited. Astute runs an aggregator model and allows members to use the Astute brand if they want to. In May, Astute launched a white label product, Ascenteon, with Aussie non-bank lender Pepper. The group’s lending panel comprises all of the main names in the NZ market. Astute operates a commission split model for its adviser members, Johnston says. If members choose to leave the group, their data and trail commission will be transferred to their new group. Astute says its CRM system is a key differentiator. The technology system was cited as a key reason why Mortgage Supply moved its aggregation to the Aussie group. Astute uses a customised version of Salestrekker called Gem. Astute does not yet offer PI insurance for members but is “looking into this for next year”, Johnston says. Fees are similar regardless of whether members adopt the Astute brand. Both Astute and wholesale members are charged
Astute offers a diversified model to our members, helping them to grow their business and be in the best possible position to help their clients. Sarah Johnston
Time to make some big decisions? Get ready for the new era of financial advice with a trusted partner. Licencing, Level 5, systems and process - There's a lot to think about. We’ve been supporting advisers since 1991 and are here to help mortgage and insurance advisers arrive at the most appropriate option for their business.
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Ask us about our: Licencing programme - our FAP and solutions for advisers operating under their own licence Purpose-built CRM – Mortgage and Insurance designed by advisers, for advisers Brand and marketing tools – use our brand or operate under your own Ongoing business growth support and professional development Community of excellent and highly respected advisers And much more...
DEALER GROUP GUIDE
By Daniel Dunkley a $149 fee per month and $49 for support for Gem, not including GST. Branded members and wholesale members are charged $100 a month for compliance, plus GST. Astute charges $310.50 per annum for training software costs for Astute and wholesale members, including GST. The group offers access to in-house training resources and works closely with industry specialists. Marketing costs are free for Astute branded members, but wholesale members pay Facebook marketing costs $100+GST, emails and newsletters $135+GST, and $200 for a combined package. Astute will become a financial advice provider (FAP) under the new regulatory regime, Johnston says. “We plan to apply for our own FAP, allowing our members to focus on doing what they do best while we will provide the back-office services required to ensure their business is compliant with the regulation,” she adds. Johnston believes Astute is wellpositioned to guide advisers through a challenging new regulatory landscape. “Astute offers a diversified model to our members, helping them to grow their business and be in the best possible position to help their clients with all areas of finance and insurance either through specific training, recruitment or a strong referral network,” Johnston adds.
Kepa was established just over five years ago, and is owned by the National Adviser Group Limited, Ginger Group Limited, and Experti. The group has more than 100 members, with 93 RFAs and nine AFAs under the current regime. Kepa is run by Brendon Neal, who joined the company in 2018, replacing Jeff Page. Neal has led the internal and external channels for ANZ in his career so far. The group wrote about $930 million in home loan volumes over the past 12 months it confirmed to TMM. It wrote $945 million the previous 12 months. Over the past year, Kepa has launched new services including offerings from non-bank lenders Bluestone and Prospa, and its Fit4Licence programme, aimed at helping advisers become licensed under the new regime. Lenders on the Kepa panel include the big four, Sovereign, SBS, Co-op, Bluestone, Resimac and Liberty. Kepa offers fire and general insurance services in-house. Kepa pays 100% of its commission
too and charges $500 plus GST per month, which includes access to its CRM, Trail CRM. If advisers leave Kepa, the group lets former members pass on their data to their new aggregator. It continues to pay trail if advisers leave the industry. The group will offer PI insurance under the new regime, under which it will take a FAP licence. Kepa says its “great culture and planning for a full-service FAP offer” are key reasons to join up. Under the new regime, Kepa will offer full in-house training and full compliance auditing services.
Lifetime was formed back in 2006 but transformed last year following a merger with Camelot NZ. Former Camelot boss Peter Cave runs Lifetime. Cave was made Managing Director in a management reshuffle last August, which saw Jon O’Connor become general manager for the advice business. Lifetime is run slightly differently to its rivals. The group has decided to move advisers to salaried employee status, a recent change for the company. Lifetime has 18 mortgage advisers in total. Three are AFAs under the current regime, and 15 are RFAs. The group has seen a slight contraction in numbers over the past 12 months, with three advisers leaving. Lifetime has written loans of $400 million over the past 12 months, the group confirmed. Its members are members of NZFSG and pay about $6,000 a year per adviser. With a close relationship with NZFSG, Lifetime uses MyCRM, and Xplan via Iress. Lifetime retains data and trail commission from departing advisers unless the clients are “purchased by the exiting adviser”. The group believes its strongest differentiators are its “salaried model, philosophy regarding advice, support structures, equity offering, and future direction”. Lifetime offer PI insurance to members and has access to the NZFSG lending panel. It offers life and direct insurance agreements and has a partnership with Rothbury Insurance Brokers. Lifetime will become a FAP under the new regime, and will offer a “complete solution” for regulatory compliance and training, a spokesperson said.
Mike Pero has been an established name in the New Zealand market for more than 25 years. The group, owned by Australia’s Liberty Financial Services, operates a franchise model for its members. Mike Pero currently has 88 members, including four AFAs and 60 RFAs, according to Colleen Dennehy, Network Sales Manager at the business. Over the past year, no members have left the business, while 14 have joined. Total home loans reached “close to $1 billion” over the past year, the firm says. Loan volumes were up 15% on the prior year. Under the group’s financial model, advisers can buy a franchise of varying cost, depending on geographical location. When advisers leave the group, the franchise, including data and trail commissions, are sold to another buyer. Mike Pero uses a bespoke technology system, Spark. The company describes Spark as an “end-to-end loan origination and settlement system”. The big four banks sit on the Mike Pero panel, alongside Liberty, Avanti, Cressida, DBR, NZCU, TSB and The Co-Operative Bank. Mike Pero offers life and general insurance services through Aon. It has a group PI scheme available to members and provides a “full service” compliance training and education function. The group will take a FAP licence under the new regime and wants to continue its “high-touch supportive model”.
Mortgage Link is a mortgage aggregator and insurance dealer group. Mortgage Link was founded in 1991, and sister-business Insurance Link in 2016. Mortgage Link shares are mostly owned by Josh Bronkhorst, managing director of the group. Long-standing founding advisers hold the remainder of shares. A total of 95% of Mortgage Link advisers are RFAs, with 5% AFAs. The group has seen a net increase of 12 members over the past 12 months. The total value of home loans written by the group reached about $1 billion last year, according to Bronkhorst. Volumes were up about 9% on the prior year, he said. Mortgage Link has launched a range of
We firmly believe that this model will create long-term business continuity for us as a head group while adding significant value to our advisers. Josh Bronkhorst new services over the past year, including new lenders on its panel, enhanced clientfacing online application systems through Advice Link, enhanced fire and general option, a property finance division, RE/MAX national referral relationship, and an admin support function. Advisers take the lion’s share of their commission. Under the Mortgage Link model, advisers receive 97%, 95% or 80%, depending on the model chosen. Mortgage Link and Insurance Link both offer branded options and non-branded options to advisers. Fee options range from fixed fee plus a share of commission, to
commission-only. Advice Link is Mortgage Link’s in-house CRM. Bronkhorst describes it as an “end to end system incorporating compliance requirements”, with a “strong focus on technology”. Brokers retain their data and trail commission if they choose to leave Mortgage Link, Bronkhorst says. The group’s panel features more than 30 lenders. Mortgage Link has life and general insurance arrangements through Insurance Link. It offers a group PI scheme. Bronkhorst says the group is keen to offer a choice on licensing. Mortgage Link will help advisers set up their own FAP and will also allow them to operate under its licence. Bronkhorst believes 90% of its advisers will elect to operate under its FAP licence. “We firmly believe that this model will create longterm business continuity for us as a head group while adding significant value to our advisers, who will be able to focus on providing superior outcomes to customers,” he adds. The group Josh Bronkhorst will offer a
wide range of support under the new regime, including an annual conference, professional development days, webinars, lender and insurance training sessions, level five modules, workshops, an internal collaboration platform, and licensing support. Bronkhorst says “significant brand awareness”, “trust, integrity”, “a strong focus on technology” and “succession planning options” make Mortgage Link a great choice for advisers.
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DEALER GROUP GUIDE
By Daniel Dunkley
It’s critical that advisers play things forward regarding the type of relationship they have with their group when applying for a transitional licence. Andrew Scott
Newpark Home Loans was formed last year after Newpark bought out its former joint venture partner Mortgage Link. The group differentiator is a fee structure that charges per business, rather than per individual adviser. Newpark wants to win over smaller businesses that can be burdened by individual membership fees. Newpark says it wants to “save you some money”, “provide choice to use your own processes”, and “champion your brand and independence”. Adviser businesses making up 88 people have joined Newpark since its formation,
while three have left since January. Members are independently-owned and branded, and encouraged to write life insurance business and generate revenue streams outside of the mortgage space. Newpark members have written home loans worth $136 million since February. Over the past year, Newpark has added a series of new products, including foreign exchange, wills, factoring finance, and a nearprime product, through partners. Newpark offers advisers three different CRM options. Its Newpark “Toolbox” CRM, a basic option, is free. Its middle option allows members to use Adviser CRM, a software designed for risk and insurance products. For its premium option, Newpark uses Get Trail. According to Newpark general manager Andrew Scott, all 27 banks and non-bank lenders are on the group’s panel. Insurance aggregation and fire and general referral are offered through Tower and Vero. Newpark offers members PI insurance underwritten by QBE. Newpark offers lender training, licensing application assistance and an annual conference. Training is charged at the Strategi wholesale rate. As part of the move to the new regulatory regime, Newpark will provide “online guidance modules and templates to prepare a transitional licence application”. Newpark encourages members to operate their own FAP, but will also become a FAP. Scott adds: “We will encourage members to be their own independent, standalone FAPs as they are best at determining their own future. We feel that this approach fosters a true partnership between adviser and aggregator that is truly supportive and sustainable long term.” Scott explains: “Newpark Home Loans will apply for a transitional licence. It is simply part and parcel of the infrastructure we are putting in place to ensure there is full transparency and confidence with NHL for all our lending partners.”
NZ Financial Services Group NZFSG is the dominant group in New Zealand, based on market share and total number of advisers. The G was formed in 2013 through the merger of Allied Kiwi and Loan Market’s NZ operations. New Zealand’s biggest group, NZFSG boasts more than 860 members across the country, a sign of its status and influence on the market. The group provides services to mortgage adviser and insurance adviser members who are funded by a variety of different
business models. NZFSG is owned by Australia’s White family and local management in New Zealand. Total home loans written by the group reached $16.1 billion last year, according to the business. Volumes were up from $14.1 billion in 2017. From January to June, NZFSG had a net increase of 30 members, as it prepares to transition to the new financial advisers’ regime. The group has been hard at work launching new products this year. NZFSG has rolled out MyCRM v3 software, Select Home Loan and Asset Finance. It is encouraging members to branch out beyond traditional mortgage business. NZFSG receives commission from lenders to its trust account and pays out on a daily basis. Its fee model differs depending on whether advisers use their own brand or work under the Loan Market banner. NZFSG members can pay a flat fee of $500 per month with no commission split, or $250 a month, with a commission split of 5% for the group on up front and trail. For insurance advisers only, there is no monthly levy. Loan Market members, on the other hand, follow a split fee model, depending on the volume of loans written. The split to Loan Market varies from 10%, 15%, 20% and 25%, depending on the business written. If advisers choose to leave NZFSG or Loan Market, they can “elect to have a full download” of their data, or have it in a
It’s important to know who’s behind the group, their capability, history and experience, and for advisers to understand that before making any decision to join. Brendon Smith spreadsheet, the firm says. Trail commission is transferred to the new group, as long as it takes on clawback liability. All major lenders are on the NZFSG panel, and the group works with all of the nation’s insurance groups. The group also has a referral agreement with Tower for fire and general insurance. All members can access a group PI scheme. NZFSG believes its size and scale will give it the edge under the new financial advisers’ regime, amid higher regulatory demands.
As part of its education offering, NZFSG has partnered with Strategi to offer online and classroom learning for members studying for their level five qualification. The group will become a FAP under the regime, with most members operating under its FAP licence. Members will have the option of becoming a FAP in their own right. NZFSG said: “We plan to become a FAP. We believe that with our experience and links to the Australian operation, we are well equipped to do this. “We believe that with technology and security requirements, the platforms we are putting in place will provide our members with the ability to comply with lender conditions for submission of loans. Our platforms will also assist members to comply with code and regulatory requirements, and make the audit process as simple as possible.”
Prosper Group was formed a decade ago for advisers in the mortgage, risk, fire and general, and KiwiSaver aggregation industries. The business is owned by nine separate
shareholders and has 36 members, 34 of which are RFAs, and two AFAs. The group describes itself as a “low-cost, high quality” distribution model. Over the past year, three new members have joined, while one has left. The group has settled loans worth an average of $35 million a month last year. That has risen to about $40 million a month so far this year. Prosper has launched a KiwiSaver offering over the past year as it looks to broaden support for members. The group pays out 100% of commissions on mortgages and risk to its members. Meanwhile, membership fees cost $250 per month for single advisers and $500 for multiple advisers in the same company. Prosper recently switched to a new CRM system, Salestrekker. It doesn’t offer PI insurance but refers members to the FANZ group scheme. Prosper’s lending panel includes all the country’s major lenders, apart from Kiwibank. It has aggregation for all life and general insurance companies in NZ. Prosper is applying for a FAP licence but will allow members to take their own FAP if they choose. The group will provide support “in every way we can to achieve this”, said Ali Toumadj, founder and managing director of Prosper.
Q Advisor Group was formed in 2015 by experienced adviser Geoff Bawden, offering a fixed fee model and full-service business platform. The small group has 14 RFA members and two AFA members and has seen its membership grow by four people so far this year. The company says loan volumes have increased by 50% over the past year, and the firm has boosted its offering by launching Inhouse CPD, an enhanced business platform. Q Group members are charged a fee of $625 per month, including business platform access. The group claims “no rights” over members’ data and trail, allowing them to take it with them if they decide to leave. It doesn’t offer PI insurance. Bawden says most lenders are on its panel, while the group holds life master agency agreements for insurance services. To help with training and compliance, Q Group offers quarterly personal development days. Q Group will become a FAP under the regime and will offer advisers the choice of whether to take FAP status. Bawden has voiced concerns about mixed signals from the banks and FMA over the issue during 2019. ✚
By Miriam Bell
Allan Rayner, from Nest Home Loans in Hamilton, recently transitioned from a bank role to the mortgage advice business and he’s loving having greater scope to help clients achieve their dreams.
WHAT WAS THE ROAD YOU TRAVELLED TO BECOME A MORTGAGE ADVISER?
I never planned to go into finance. Thirteen years ago, I was a stay-at-home dad but then my daughter went to school and my wife thought I should get a job. Kiwibank was advertising a bank teller job and I thought I’d give it a go. It turned out that I loved the job and helping people to achieve their goals. Over my time at Kiwibank, I became one of their top advisers. Then, earlier this year, Nest approached me about becoming an adviser for them. At the same time, Kiwibank was going through a restructure and I decided to take redundancy. My fates aligned and I started at Nest.
HOW HAVE YOU FOUND THE 030 WWW.TMMONLINE.NZ
TRANSITION FROM BANK TO ADVISER?
I understand the first six months in the business can be hard. But I’ve been lucky as the redundancy pay-out made life easier while I transitioned. While much is similar to the work I was doing at Kiwibank, there are a lot more options now for my clients. So a big part of the transition has been getting my head around the many different lenders, policies and options out there. There’s a lot to learn. Often finding clients when you are starting out can be a worry. But Nest is an established business with good processes in place and some great relationships with agents. That’s helped. Also, I think it’s easy to find clients when you have served them well in the past. A lot of clients have followed me in this move
because they appreciated my service.
WHAT MAKES YOU PASSIONATE ABOUT BEING AN ADVISER?
Basically, there is no better feeling than telling a client “yes”. Buying a house is one of the most exciting things you can help someone with – especially if they are someone who didn’t think they could get a mortgage. I take great pride in this and in being able to help Kiwis achieve their dreams.
HOW DO YOU APPROACH BUSINESS DIFFERENTLY TO OTHER ADVISERS?
The job of an adviser is to work in the grey areas. Banks are very black and white. So I see my job as an adviser to make lender
policies work for my clients and their unique situation … My clients have always told me they appreciate my straight-forwardness and that I’m able to make even the most complex proposal easy and manageable. I can tailor a variety of bank and non-bank solutions to meet even the most unusual and challenging proposals.
One piece of information that Eldon passed on that has always stuck with me is: “Apply common sense to every decision you make and 99 times out of 100 it will be the right decision.” That philosophy has stood me in good stead. Even if something hasn’t worked, it means you can always satisfactorily account for what you did and why you did it.
IS THERE ANY PARTICULAR AREA THAT YOU SPECIALISE IN?
WHAT ARE YOUR GOALS AS AN ADVISER AND IN LIFE?
I particularly love working with first home buyers and helping them to get across the line to secure their first home. That’s magic. But I also enjoy working across the spectrum and tackling a variety of different situations and loans.
DO YOU MAKE USE OF SOCIAL MEDIA AND NEW TECHNOLOGY OR PLATFORMS IN YOUR WORK?
Yes, as anything that helps you do your job better is good by me. At Nest, we are using Facebook for first-home-buyer seminars. And we are looking at ways to communicate to clients, or potential clients, effectively across all sorts of platforms, like phones for example.
YOU ARE RELATIVELY NEW TO THE BUSINESS BUT HAVE YOU EXPERIENCED ANY PARTICULAR HIGH AND/OR LOW POINTS TO DATE?
A high point was working with a client who had three defaults and an unpaid court fine and successfully securing him a loan. And it was a loan with an affordable interest rate too. It blew his mind. He thought that I was kidding when I said I could help him. But a low point was when a client who had worked really hard to meet bank criteria missed out at the end of the process by the smallest of margins. They were a first home buyer and it meant they couldn’t get their dream home. Basically, they got told to come back in three months. When I told them they were devastated.
My business goal is to be writing 10 successful new deals a month. That should be a fair workload for me. On the personal front, my number one goal is to complete the building of a house for my in-laws who are currently living with us.
LOOKING AHEAD, WHAT ARE THE CHALLENGES FACING THE INDUSTRY?
I think FAP and AML and what they mean for mortgage advisers is one of the big challenges for the industry going forward. Growing recession talk is a bit of a concern. But there will always be people who need to borrow and people who want to lend so there’s always scope for a good adviser.
WHAT ARE YOUR TOP TIPS FOR THOSE STARTING OUT AS AN ADVISER?
Treat the person in front of you as though you are dealing with everybody they know and will come into contact with. Because that’s a huge pool of people that we are talking about and about one third of my business comes from clients coming back or referring to me. So it pays to always treat people well. ✚
FROM: My father says I’m
a Cantabrian as I was born in Christchurch. I say I’m a Wellingtonian as, from the age of two, I grew up there. But I’ve been living in Hamilton for many years now.
FAMILY: I have an 18-year-old daughter, who’s the apple of my eye. I have my partner, Jess, who works at Kiwibank. And I have a younger sister who works at BNZ (and has a husband who works at TSB). OUT OF WORK INTERESTS: I coach hockey
goal keepers, I am a passionate board-gamer and I enjoy building and displaying Lego. Each year I take part in the annual Hamilton Lego Fan Expo which raises funds for Autism NZ.
FAVOURITE FILM &/OR TV SHOW: My film pick is
Highlander – and there can only be one. When it comes to TV shows, it’s Buffy the Vampire Slayer.
FAVOURITE BOOK: The
Elenium series by David Eddings.
FAVOURITE MUSIC: A bit of everything, but I’m also a boy band fanatic. MOTTO: “If you are 50/50 on
a deal, why not send it through
because you are likely to have got it right.”
HAVE YOU HAD A MENTOR, OR SOMEONE THAT HAS INSPIRED YOU, OVER THE COURSE OF YOUR CAREER?
Since starting at Nest, Jeff Kerwin, who is one of the directors, has been my guardian angel. He has really showed me the way and has fed me all the relevant information. Early on in my time at Kiwibank, a guy called Eldon Westhead was influential.
WHAT’S THE BEST ADVICE YOU’VE RECEIVED?
By Jonathan Flaws
‘Drain the swamp’
or improve the water quality
Credit legislation could certainly be clearer, discusses Jonathan Flaws. In 2016 a new President was elected to the White House on the basis of his campaign rhetoric that he would “drain the swamp”. As with all rhetoric, this is a catchy phrase. 032 WWW.TMMONLINE.NZ
As with most things that come out of the mouths of babes and this president, it is not very easy to understand exactly what this means. If you assumed that this meant replacing the professional bureaucrats with real people who would be sensible and competent and get things done, you were wrong. If you
assumed it meant reducing the amount of regulation so that business could operate more efficiently and cost effectively for the good of the nation, you were half right. Regulation was certainly reduced for the good of some businesses but arguably not for the good of the nation. In my view it is wrong to regard regulation
as a swamp. If it is a swamp then this is because the pool of legislation has become murky and needs cleaning. Regulation has its place. Comparing this country with many others, we have a benign regulatory system that has not yet become a swamp. But by following the rest of the world in the area and heavily regulating credit activity, we have the potential to create a swamp that bogs down both responsible lenders and borrowers and reduces activity. Take the Credit Contracts and Consumer Finance Act 2003 (CCCFA). Its primary purpose is to protect consumers. It also has as a purpose, the promotion of confident and informed participation by consumers in markets for credit. To achieve both requires balancing protection against participation. There is no doubt that the credit market needs to be drained of bottom-dwelling swamp inhabitants that pull uninformed or vulnerable borrowers into a mire of debt. But not all credit pools are swamps and it should not be the role of regulation to prevent informed and competent borrowers from swimming in the pools. The responsible lending provisions on both sides of the Tasman are currently being reviewed in a number of ways by a number of parties to test this balance. In some areas the rules need to be enhanced and toughened to protect consumers, other
Wagyu beef and the finest shiraz can be replaced by more modest fare if a consumer really wants a home. areas require a more relaxed perspective in order to achieve the informed participation our legislation promotes as another purpose. It is worth looking at recent tactics deployed in Australia and in particular the case that the Australian Securities and Investment Commission (ASIC) took against Westpac over the interpretation of responsible lending. Apart from the differences between the National Consumer Credit Protection Act 2009 (NCCPA) and our CCCFA, they are almost the same. ASIC took Westpac to court over 260,000
In my view it is wrong to regard regulation as a swamp. loans that it put through its automatic loan assessment system which used an industry standard expenses benchmark – the Household Expenditure Measure (HEM) in its affordability calculations. Under the NCCPA, a lender is required to assess a loan as unsuitable if it doesn’t meet the consumers’ requirements and objectives and the consumer is able or unable to comply with the financial obligations or could only comply with substantial hardship. Calculating the ability to repay a loan requires a review of the person’s living expenses. The specific issue the court looked at was whether assessment of unsuitability requires direct comparison of declared living expenses against loan repayments. ASIC claimed that by reverting to HEM in its automatic decisioning engine, Westpac failed to have regard to declared living expenses. Perram J, the Federal Court Judge deciding the claim, rejected it and found that Westpac did have regard to the living expenses. It took them into account when it applied the 70% ratio rule as part of its process of assessment under its automatic decision engine. Under this rule if a consumer’s declared living expenses exceeded 70% of their verified monthly income the application was referred for manual processing. If the customer declared less the HEM (some commentators say that most did this but this was virtually a statistical impossibility) the system used the HEM. Put another way, the judge found that Westpac considered the declared expenses. If they were low, it ignored them and took the higher HEM but if it was significantly higher it referred the application to manual review. The judge made comments that will now go down in the legends of credit law. Higher living expense doesn’t make the loan unaffordable as a consumer can always “trim their sails” and “there is arguably a conceptual gulf between a trimming of sails and poverty”. Wagyu beef and the finest
shiraz can be replaced by more modest fare if a consumer really wants a home. Spending “$100 per month on caviar throws no light on whether a given loan will put the consumer into circumstances of substantial hardship”. The use of such colourful language may, however, throw some light on the living habits of Australian federal judges if not the concept of substantial hardship in consumer lending. Coming back over this side of the Tasman, the case does highlight an issue in our current credit amendment bill. Like the NCCPA, section 9C(3) of the CCCFA requires a lender to make reasonable enquiries in order to be satisfied that the consumer can repay a loan without suffering substantial hardship. The amendment bill removes the provision that allows a lender to rely on information given to it by the borrower unless it has reason it suspect it is wrong. The removal of this provision raises the question “What are reasonable enquiries?”. Does this mean that the lender can now not believe what the borrower tells it about the borrowers living expenses? Does the lender have to go on a verification expedition to determine whether the declared expenses are correct? In the Westpac case the judge commented that where the expenses were demonstrably low, these would be “necessarily” relevant to the issue of affordability. Does the removal of Section 9C(7) therefore mean that a New Zealand lender faced with low declared living expenses is now required to engage on an external review of expenses? Or does it mean that the lender can adopt a similar industry benchmark to the HEM and assume a higher figure? The assessment of a consumer’s ability to repay a loan is fundamental to responsible lending. The Westpac case in Australia indicates that this process is as much an art as it is a science. The new legislation gives greater opportunity for Parliament to regulate how this art/science is undertaken. Hopefully it will do this but clearing the waters rather than adding to the swamp of regulation and making the process murkier. Regulation, even that dealing with swampdwelling lifeforms, should not be regarded as a swamp. If it is murky, the quality of its water should be cleaned up so you can more easily see into its depths. Credit regulation should certainly be clearer but there are other pools of legislation that have become or are in danger of becoming swamps. Two of these are the rules regarding privacy and antimoney laundering. Both need some cleaning for they are both becoming very muddied and clogging the wheels of commerce. In the next issue I will look at some ideas for potential pool cleaners. ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir
SALES & MARKETING
By Paul Watkins
Pick ’n’ Mix marketing There are a host of different ways to market yourself, Paul Watkins gives a run-down of those most useful to mortgage advisers.
Not all marketing and leadgeneration ideas are suited to all brokers. I have written about the impact of social media in this article several times, but only a small number of advisers appear to use it. That’s fine if you don’t think it’s suitable, there are other things you can do. This is a list of marketing activities that are known to work. It’s like a pick ’n’ mix of ideas from which you select the ones that best suit your personal style, expertise, target market and business model. The big, big mistake I see advisers making is to target too widely – or not target at all. “We specialise in first-home buyers, housing investors, refinancing at better rates and business loans.” That’s impossible. If you go to a cardiologist about your heart condition, you don’t want to read on their door, “Specialist in cardiology, paediatrics, obstetrics and colon and rectal surgery”. Trust immediately disappears. All I want to see when I search for a professional provider is how you can look after me and my specific problem. Therefore, before we get into tactics, make sure you focus on your ideal client or clients. There is no such thing as “everybody”. Who do you want more of? Describe them –
their income, age, marital status, location, profession, number of kids, ethnicity and any other key factors. Picture them. You can have more than one. Narrow down your buyer personas to just the three types – at most – who are most important to your business and the ones you know you can look after well. When your one, two or three personas are firmly locked in, it’s easier to choose the right tactics to get each of them, which may be different for each one.
WHAT’S YOUR BIGGEST PROBLEM?
Is it awareness of your existence? The wrong types of clients? Not enough leads? Lack of repeat business from existing clients? Lack of referrals? Try to identify the “problem” you are keen to solve. When added to the type of client you want, it once again makes it so much easier to decide how to fix it from the list.
START WITH YOUR BRAND AND IMAGE:
Obvious items here are name, logo, Facebook page, business card, LinkedIn profile and website. You may also have an Instagram account and a YouTube channel. They all need to match, in the form of colours, fonts, images and general design. If they don’t, fix the ones that are mis-matched. If they all look a bit average, have a graphic designer give you a new look. It will only cost a few hundred dollars and make a huge difference.
The big, big mistake I see brokers making is to target too widely – or not target at all. MAKING YOUR PRESENCE KNOWN:
It only matters that your preferred type of clients know that you exist, so don’t worry about the rest of the world. Which media do they probably follow? Facebook is the 800-pound gorilla of the media world for all people over 30, with LinkedIn not too far behind for financial services, being populated by professionals. Instagram may be of some value to you, depending on your target groups, keeping in mind that it has a strong bias towards females under 30 years old.
Have a page for your business that is not your personal page. Put all the required contact info into it: email, phone number, a link to your webpage and address. Put a relevant cover image in and have a good (preferably professionally taken) photograph of yourself. To build a pipeline using digital marketing,
you must publish content that your intended audience finds both valuable and interesting. For Facebook, the ideal is to post once or twice a week. These can be “boosted” as ads or run through “Ad Manager” to a carefully selected audience. Coming up with 50 to 100 posts per year sounds a lot, but once you get started, it’s not that hard to keep it going. And remember that you can repost from other’s pages, such as from lenders or economists or the press.
Same things as for Facebook. Have a great picture of yourself, cover image, headline, description and contact details. Posting to LinkedIn can be at a lesser frequency than Facebook, but it’s important to build credibility in professional circles. Just don’t make the posts too “salesy”. They must be genuinely informational or educational. Once again, reposts from other’s pages, such as from lenders or economists or the press can work well. Short videos work exceptionally well on LinkedIn.
You need one. Almost all clients will “check you out” through Google. It doesn’t have to be complex or have too many pages. Just who you are, what you specialise in, how to contact you and a blog. What do you post in your blog? Items from your newsletter are a good source. If your newsletter has five articles, that’s five blog posts.
SEARCH ENGINE RANKINGS:
Can your website be found? Search engine rankings and AdWords are not easy to do well but are important. I would highly recommend that you engage an expert to do this for you. It will not be expensive.
OTHER PEOPLE’S CLIENTS:
Do you have a small group of referring professionals, otherwise known as centres of influence? Real estate, accountants, lawyers, financial planners and insurance agents are all appropriate. They all have clients that you can be of value to.
INVITATIONS TO EVENTS:
These work as a thank you for existing clients and can also cross-sell to new clients. Offer a seminar or event featuring a lawyer on trusts, a real estate agent on investment property and yourself on mortgage and debt management. Each speak for 20 minutes and each invite 20 clients. That way, two thirds of your audience will hear you for the first time.
Offer these to first home buyers or those wishing to get into property investment. Ask other speakers, such as budgeting advisers to present as well.
Newsletters are a powerful way to maintain loyalty and gain referrals. If you write them yourself, they are free to send out to your client list through a service such as MailChimp. Having someone write them will only cost a couple of hundred to save you your time.
Narrow down your buyer personas to three types who are most important to your business and the ones you know you can look after well. or how to manage your mortgage down from 25 years to 10 years, or how to finance an investment property, or how to finance your first home. You may have noticed a trend among these ideas, in that many are online. That’s because online activity is the most cost-effective way to gain new clients. Don’t ignore it. Go through the list, add it to what you currently do to prospect and make up a plan through to March 31, 2020. ✚ Paul Watkins writes blog content and newsletters for financial advisers.
These are still in vogue and can be offered in the evenings to existing and prospective clients. Present live and then recorded for others to watch later. This can lead to the powerful idea of an online “course”. This could be a six-part video course on how to get into your fist home,
What used to work is always the thing that is going to put you out of business - Gary Vaynerchuk
IN THIS BOOK YOU WILL LEARN: •
A new book from Paul Watkins. Uber disrupted the taxi industry, Airbnb disrupted the accommodation industry, and social media is disrupting how financial advisers gain clients.
• • •
How the old ways of prospecting for clients have been seriously disrupted by social media How trust is the new currency Why websites don’t generate leads The 5-steps to growing your perfect client-base using social media
WANT TO BUY? Buy from: intelligentinvestor.co.nz or direct from Paul at: email@example.com
By Steve Wright
Multiple medical insurance Why not two medical policies?
You have a concern for your client. They have had medical insurance with their current provider for ages, decades even, and although their policy has not kept up with benefit improvements, their health is such that they cannot move without incurring multiple exclusions for existing conditions. Is there anything you can do for them? Are there any alternatives to leaving them where they are? Let’s consider some of the advice issues surrounding this scenario.
Firstly: Is there really such a thing as “not good enough”?
Well I believe so, and it’s not just an issue for medical insurance, the issue arises for all life insurance types, in particular, trauma insurance, income protection and mortgage repayment insurance. Clients pay a premium and for this I’m sure they expect to be properly covered. By properly covered I mean they are appropriately indemnified against big financial risks even those less likely to occur. Product benefits differ between providers and sometimes significantly. When it comes to medical insurance, the biggest issue for me is cover for drugs not funded by PHARMAC (and cover that is guaranteed, not capable of being removed, reduced or restricted by the provider). This is not a “marginal” issue as I have heard some call it, one just has to look at the many media stories about Kiwis in terrible situations, desperate for drugs that are not funded (and don’t you just hate that the media never mentions that good medical insurance might help people completely avoid this terrible situation?).
When it comes to medical insurance, the biggest issue for me is cover for drugs not funded by PHARMAC. Cover for non-funded drugs is the most important benefit medical insurance can offer, precisely because clients cannot fall back on the public health system for their
treatment: The public health system safety net simply does not exist for non-funded drugs. I might even suggest that medical insurance that does not cover non-funded drugs, either at all or to sufficient limits, is not “fit for purpose”. So, the answer as far as I am concerned is a resounding “yes”, there is such a thing as “not good enough”.
Secondly: If a client has preexisting medical conditions covered by their current provider and that would be excluded on a new policy, surely you cannot recommend a replacement?
I don’t think this statement is true at all. Your advice obligation to the client is to give them enough accurate information so they can make an informed decision. What advice could you give regarding any possible exclusions and pre-existing conditions? The client’s pre-existing medical conditions may be relatively immaterial because they are well managed, of low threat and not particularly life or wallet threatening. Also remember that the good reasons you may recommend a replacement product, the better benefits or lack of general exclusions, that your client cannot access because they don’t have that policy, are effectively exclusions as well. As an adviser you really have to help the client weigh-up which of the competing exclusions they feel they can take responsibility for (and those they can fall back on the public health system for are less onerous than those for which they have no-one to fall back on).
Lastly: What about spreading a client's risk over multiple policies? Instead of replacing the client’s current policy, consider leaving them where they are and recommend a new policy to cover the risks the old policy leaves them exposed to. Provide quality insurance and mortgage solutions to our clients by offering our technical expertise and exceptional service
Getting your head around recommending clients have two medical policies can take some getting used to. Advisers tell me there is no way clients will pay two premiums, but they usually have not asked the client. If we accept the need for multiple products to cover our various life, health, disability and trauma risks, why is the concept of multiple medical insurance products (one supplementary to another) to better cover risk, so alien? There are ways skilled advisers can make multiple medical policies
Getting your head around recommending clients have two medical policies can take some getting used to. sensible and cost effective for clients. If the deficiencies in the client’s existing cover are financially significant enough to consider replacing their existing policy (such as no cover or inadequate cover for non-funded drugs) then taking a second policy to properly cover that risk is sensible and prudent. The cost need not be exorbitant either, if you recommend a suitable policy with a large excess. A large excess will dramatically drop premiums and won’t be a major factor if most of the smaller health issues are covered anyway under the original policy. There are of course many things to consider before recommending a second, supplementary, medical insurance policy. Firstly, check the existing policy to look for any implications or limitations on having multiple covers. Secondly, make sure the supplementary policy does properly cover the risk not covered adequately under the existing policy, and at suitably high limits. Also look for features in the supplementary policy “friendly” to multiple policy ownership, like high excess options (with significant accompanying premium saving) and benefits that reduce the impact of a high excess, like excess waiver benefits and multiple policy excess benefits. Guaranteed wording is a must too as far as I am concerned. Steve Wright has qualifications in law, economics, tax and financial planning and is General Manager Professional Development at Partners Life. This article is for information purposes only, its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product.
By Michael Lang
Out of the frying pan INTO THE FIRE? Over the lifecycle of a KiwiSaver investment, switches will be required at key investor milestones but these can be clunky. Michael Lang talks about the alternatives. By now many New Zealanders have successfully navigated their way out of the default scheme they were randomly allocated to, into more growthorientated schemes. The move has been a good one, with investors accumulating at least an additional $800 million over the past three years, based on NZ Funds’ estimates. But will it be a case of out of the frying pan and into the fire? Growth-orientated schemes can be a double-edged sword; while their returns are higher than income-orientated schemes over the long-run, they can deliver significant losses over the short term. In some cases shares, the primary driver of growth schemes, can take more than a decade to recover from a slump. And the recovery times assume investors do not panic and switch to cash, and do not make any withdrawals from their scheme until it has fully recovered. This is bad news for New Zealanders approaching retirement. To get the most out of their scheme, most New Zealanders will need to make at least two KiwiSaver switch decisions in their lifetime, more if they use KiwiSaver for their first home purchase. The first switch is likely to be out of a default scheme into a growth scheme. This increases the value of their account at retirement. A second switch decision should then be made thirty or forty years later as they approach retirement. This is a switch out of a growth into a more balanced scheme (that is a mix of income and growth assets). This switch helps preserve the capital sum they have accumulated and prepares the assets for the regular withdrawals that will fund their retirement.
So far, most KiwiSaver decisions have been DIY. The FMA’s 2015 review of KiwiSaver providers found that only three out of 1,000 New Zealanders receive advice when joining KiwiSaver or transferring between schemes. Today, this should be higher given some of the changes the FMA have made, but anecdotally the vast majority of New Zealanders do not receive advice. Unfortunately, as KiwiSaver balances grow, so do the consequences of making a poor financial decision. And investors need only make one poor investment decision, for example a switch from growth to income in the middle of a share market slump, to ruin a lifetime of investing. This is why target-date or lifecycle funds have taken off in America since the share market collapse in 2009. Since then, the total assets in lifecycle funds have grown from $158 billion to over $1.10 trillion at year-end 2018 according to ICI and Morningstar Inc. Out of the 30 schemes offered to New
Zealanders to meet their retirement objectives, only nine have lifecycle options. Of these, only one scheme (NZ Funds KiwiSaver Scheme) offers a waterfall asset allocation that ensures clients are rebalanced every twelve months for a lifetime. All other lifecycle schemes in New Zealand use periodic step changes to asset allocation, made popular in the late 1990’s by Donald Luskin and Larry Tint of Wells Fargo Investment Advisors. Overseas, such schemes have waned in popularity due to the fact that significant market movements can leave these clunkier schemes over or underweight in asset class for years at a time. NZ Funds KiwiSaver Scheme’s LifeCycle “Waterfall” glidepath overcomes this obstacle. ✚ Michael Lang is the chief executive of NZ Funds and an investor in the NZ Funds KiwiSaver Scheme. Michael’s advice is of a general nature, and he is not responsible for any loss that any reader may suffer from following it.
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AIA Vitality – our science-backed health and wellbeing program.
Earning Airpoints Dollars™ with eligible policies.
Multi-Benefit Discounts – get more value on premiums.
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TMM provides mortgage advisers with all the best news and features. This issue is your guide to Dealer Groups.