TMM - The NZ Mortgage Mag Issue 5 2020

TMM5 • WWW.TMMONLINE.NZ

Lessons from the next generation We talk to some of the industry’s bright young stars about their success stories and hopes for the future.

Are we unprepared for March 2021?

Advisers call for responsible lending changes

How you can better use website traffic

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0800 38 48 58 resimac.co.nz/advisers *Available up to 70% LVR. Rates correct as at 7 September 2020. View our interest rate disclosure at resimac.co.nz. Resimac NZ Home Loans Limited.

TMM 5

Contents

Lessons from the next generation

Responsible lending code

Young guns: what our best young advisers think of the industry.

What do advisers want to change?

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PAGE 22

Up front

Features

04

EDITORIAL

14

HOUSING COMMENTARY

05

NZ FUNDS KIWISAVER SPONSORED CONTENT

25

STRATEGI SPONSORED CONTENT

06

NEWS

26

PEPPER SPONSORED CONTENT

08

PEOPLE

28

LEGAL

10

REGULATION

12

PROPERTY NEWS

A sprint into summer.

Michael Lang – why NZ’s financial future lies with entrepreneurs.

NZFSG-Kepa merger latest, and Responsible lending developments.

Changes at Avanti; Prospa appoints CFO; Mortgage Express hires; Additions at MPM.

How many advisers are unprepared for March 2021?

The market goes from strength to strength.

Will it last?

David Greenslade gives his practical tips on small FAP governance.

Introducing the Pepper Product Selector and Money Referral Marketing Toolkit.

Calls are being made to follow Australia and dump the responsible lending rules, but Jonathan Flaws says it’s not that simple as there are big differences.

Columns 30

SALES AND MARKETING

32

INSURANCE

The very latest from a resurgent NZ market.

Paul Watkins on harnessing website traffic to your advantage.

Steve Wright on how to ensure clients understand your advice.

WWW.TMMONLINE.NZ

03

UP FRONT • EDITORIAL

A sprint into summer

Head office

W

ho would have thought the housing market would be so strong in this massively impacted Covid-19 world of ours? All reports are that lenders and advisers are run off their feet trying to process loan applications. Banks are scrambling to get more resources into their teams to help improve dreadfully slow turnaround times.

It's a perennial problem for the industry and you wonder when will something happen to actually improve what is a systemic issue. Covid-19 – and the increase in technology – provided the perfect opportunity to change things up.

But alas branch staff are being brought in to help which is an all-hands-ondeck call.

The worst kept secret in the industry this year is finally out. NZ Financial Services Group is taking over Kepa.

For NZFSG this is largely a play to bulk up the insurance side of its operations, however it will still get a significant boost on the home loan front.

The group is already settling $1 billion plus a month and that is likely to grow at least 10%.

While Kepa has always been the least co-operative group when we do our surveys, we understand it does write a significant volume of home loans.

In a big picture sense it is an interesting move as most of the rationalisation amongst groups has seen the newer ones disappear and not last the distance.

Mortgage Supply and NZMA was absorbed into Astute and Kepa –

Photography Credit

while it has been around for a while – is still at the younger end of the scale. It's a group that has struggled to identify its purpose over the years and has had more than its share of internal ructions.

No doubt increased scale will help the group.

Some advisers have raised concerns that NZFSG's majority shareholder is the White family in Australia (of the Ray White real estate brand).

It was interesting to see TMM's peer publisher business in Australia name Loan Market as number one in its Aggregator of Choice survey for the third year running.

Executive chairman Sam White said, "I started this business over 26 years ago when broking was in its infancy and if you told me then, that we had managed to build a business that was offering so much value to our network I would have been blown away."

"We are so proud of this result. It gives us the confidence that we are delivering on our four promises, and supporting our network to deliver the best customer experience possible."

Let's hope it does the same thing in New Zealand.

Philip Macalister Publisher

TMM is published by Tarawera Publishing Ltd (TPL).

TPL also publishes online money management magazine Good Returns www.goodreturns.co.nz and ASSET magazine.

Clay Banks, Domenico Loia, Christina Wocintechchat, Simone Hutsch

All contents of TMM are copyright Tarawera Publishing Ltd.

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Publisher

Philip Macalister

Amanda Ellery P: 027 420 2083 E: amanda@tarawera.co.nz

Any reproduction without prior written permission is strictly prohibited.

Subeditor

Subscriptions

TMM welcomes opinions from all readers on its editorial.

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

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

Dawn Adams

Contributors

Daniel Dunkley, Daniel Smith, David Greenslade, Jonathan Flaws, Michael Lang, Miriam Bell, Paul Watkins, Steve Wright

Design

Samantha Garnier

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Jill Lewis P: 07 349 1920 E: jill.lewis@tarawera.co.nz

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Make sure you don't miss an issue by changing your address.

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UP FRONT • KIWISAVER

SPONSORED CONTENT

The opportunity set of a lifetime New Zealand’s financial future lies with entrepreneurs, not government, writes Michael Lang.

‘‘

Kiwis are clueless, careless and deluded about money and retirement savings.” This is how our media interpreted the Commission for Financial Capability’s recent financial survey. For many New Zealanders who work in the financial advice industry, such articles make for depressing reading, and are all too common.

There is no disputing however that New Zealand has fallen behind financially. We could have adopted KiwiSaver in 1992 but chose not to. Right now, saving for retirement is compulsory in Australia at 9.5%, but only optional in New Zealand at 6% (or less). The average Australian has around $145,000 in their Superannuation Scheme, while the average KiwiSaver member has around $20,000.

This represents the opportunity of a lifetime. One of the more remarkable pieces of news this year was the story that SpaceX had successfully sent astronauts into space. While that has been done before, this time was different.

SpaceX is a private, for-profit enterprise, and was able to do it faster, cheaper and more safely than NASA. As Armstrong might have said, “One small step for space exploration, one giant leap for commercial enterprises”. In SpaceX’s achievement lies a message of hope for us all.

It is easy to lay blame for what should be done at someone else’s doorstep: Government should have made KiwiSaver compulsory; MBIE should have disbanded the default KiwiSaver oligopoly years ago, and so on. But the truth is, the investment industry should look to itself, not others for the solution.

SpaceX showed private enterprises have the power to change the future – better than any government or regulatory authority can. If Sir Michael Cullen could help New Zealand accumulate an additional $70 billion in a decade, then imagine what a difference 24 licensed KiwiSaver managers and 9,000 financial advisers could make, if they really want to. Here are some of the financial needs that New Zealanders have raised with us which commercial enterprises could start to solve: a an attractive way to save more into KiwiSaver, without having the money locked up, so that families can save more but not lose the option of accessing their funds should they wish to; b ways to accelerate the building of wealth through KiwiSaver, without putting their retirement savings at risk (something along the lines of paying down a mortgage on a house over time generates a higher return

on equity than buying the house outright); and c more investment options in retirement now that interest rates are close to zero, which has negatively impacted term deposits, bonds and endowment schemes.

Despite the market distortion of default KiwiSaver providers, a perceived focus by the FMA on fees over the benefits of quality financial advice, service and ultimately client outcomes, and the hand-wringing of the Commission for Financial Capability, New Zealanders should know we will get there. And when we do it is unlikely to be because of a single government or regulatory decreed solution (be that ever lower fees or balanced funds for all).

On the contrary, our best chance of solving New Zealanders’ savings shortfall is to encourage strong and profitable market participants who innovate, experiment and compete rigorously (on a level playing field) for a share of the $725 billion prize, which is what our market will look like when we catch up to Australia.

Welcome to one of our most exciting and important marketplaces since New Zealand decided to deregulate. ✚ Michael Lang is Chief Executive of NZ Funds and his comments are of a general nature.

WWW.TMMONLINE.NZ

05

UP FRONT • TMMONLINE.NZ/NEWS

Concerns over NZFSG-Kepa deal Advisers expressed concerns that a merged NZFSG-Kepa group would exert too much control over the New Zealand adviser market.

NZFSG announced its takeover of Kepa in early October, a transaction which will create a national dealer business with more than 1,600 members, settling $17 billion of mortgages and issuing $30 million of life insurance premiums.

As the dust settles from the announcement, advisers have privately voiced fears the deal would reduce competition in the adviser space.

Heartland launches market-leading 1.99% mortgage Heartland has relaunched its direct-toconsumer mortgage with a record-low one year rate of 1.99%.

The digital home loan offers 1.99% – the lowest ever in NZ – for one year fixed home loans, 2.35% for two-year loans, and three years at 2.45%.

Are banks treating high LVR customers any differently?

While loan-to-value ratio restrictions were scrapped months ago, advisers say lenders have been slow to change their approach to high LVR borrowers.

LVR rules were scrapped in April following the Covid-crisis to boost credit availability during the recession.

Yet the Reserve Bank's move appears to have had a marginal impact on the

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Advisers are concerned the combined NZFSG-Kepa organisation will have too big a share of the market, and worry there will be reduced choice for mortgage brokers as sector consolidation continues.

Brokers fear the dwindling choice of dealer groups may lead to increased costs for adviser businesses.

"NZFSG already had a massive share of the market, so I'd be amazed if this wasn't being looked at by the regulators," one adviser said.

The takeover deal is subject to Overseas Investment Office and New Zealand Commerce Commission approval. The two companies expect the deal to be settled by October 30.

TMM Online asked the Commerce Commission whether the deal had already been given the green light.

"We have not received an application for clearance, but we are aware of the transaction," the Commission said in mid-October.

Heartland will also offer a floating rate of 2.95%.

Heartland's new product is only available direct to consumer, through a "self-serve" online application.

The rates are significantly cheaper than those offered by Heartland's rivals.

The cheapest one-year bank rate on the market is HSBC Premier's 2.45%, while KiwiSaver provider Simplicity offers a 2.25% mortgage to its customers.

Heartland has eyed a relaunch of its digital home loan for several months after the successful trial of a 2.89% digital mortgage in March. The last iteration of the digital loan had a $50 million cap.

Heartland Bank chief executive Chris Flood told TMM he expected the bank rate to remain the cheapest in the market.

"Coming out with a top rate, we need to think that our position can be maintained. With these rates, we think they can be. Everybody has the ability to drop rates and compete, but we feel confident these rates will remain attractive."

Flood said the bank is hopeful of making the product a permanent one.

"Absolutely, and that's the reason we're doing it. We want to be market-leading in everything we do."

lending market, according to advisers.

Kris Pedersen, of Kris Pedersen Mortgages in Auckland, said: "I wouldn't say [there's been] a huge difference in appetite." He said there was "a bit more in the 80%90% space".

"They've tightened in the above 90% [LVR] to only doing the First Home Loan product, whereas pre-lockdown, there was some funding outside of this up to 95%."

Wellington-based Craig Pope said: "I certainly haven't seen any more leniency towards the low deposit borrowers. It's a real moving target, but the usual barriers are still there with banks still preferring to pre-approve

their own customers unless there is a live S&P for new-to-bank customers.

"Our low deposit borrowers are really struggling with the need to have valuations, and fast-rising house prices, making putting in conditional offers difficult."

Some advisers have noted positive changes in recent months, however.

Hamish Patel of Mortgages Online believes loan applications with 10% deposits "are much easier, with pricing much better than three months ago".

"There's a greater degree of flexibility on low LVR, especially around commission and loan term," noted iLender's Jeff Royle.

Frustration over home loan processing Mortgage advisers say their turnaround times continue to be much slower than direct home loan applications, leading to frustration across the industry.

Several advisers told TMM Online that direct customers were getting preferential treatment.

Krish Krishna of Mortgage Suite said there were "major hold-ups" in getting home loans approved.

He said banks were processing direct loans more quickly: "I am also aware of one case where someone got approved within three days by going direct to the branch.

"The problem, to some extent, is the banks' own doing. The broker hubs have taken control over all business applications as well in the case of ANZ, ASB and Westpac," Krishna added.

Andy Phillipson of The Mortgage Shop also said there was a significant discrepancy in processing times.

"I know of instances where a client got a home loan approved, and the contract confirmed before we even got a response from the broker unit.

I presented a loan application to one bank, and without a response within a week, the clients went direct to their own bank. They got a full approval within days and the loan was settled within a couple of weeks."

Phillipson is concerned that banks are staying away from non-standard deals.

"Either there is a concerted effort by the banks to reduce the broker-led business, or the lending decisions are governed so much now by a "paintby-numbers" system that logical deals from advisers that do not fit the pigeonholes are immediately tossed out." ✚

We’re here to listen.

We’d love to help.

Avanti Finance is a Kiwi business so we understand Kiwi needs.

As a non-bank, we offer New Zealand’s widest range of lending solutions, including: long term and bridging first mortgages, caveat, vehicle and personal loans plus business loans.*

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*Lending criteria, fees, terms and conditions apply

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07

UP FRONT • PEOPLE

People

Changes at Avanti

Mike Pero Mortgages bolsters Auckland and Christchurch teams

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Avanti business development manager Julia Winterbottom has been promoted to head of property.

Winterbottom, who has spent a decade at the non-bank lender, will continue to support advisers and co-ordinate the business development and lending teams.

The position is a newly-created role.

Avanti said: "Julia has spent over 20 years in the mortgage space, including the last ten with Avanti as one of our award-winning BDMs. Julia has a proven track record in the adviser channel and has been relentless in her support of Avanti and our introducers."

"Her focus will be to see Avanti deliver on its goal to be advisers' non-bank of choice."

The new appointment comes as Avanti looks to expand its property team, the lender said.

Avanti Finance has added a specialist property lender to its team in Christchurch. The experienced Andy Eastgate joins the firm on the South Island.

Eastgate has broad experience in the banking and finance sector, most recently working for The Co-operative Bank as a senior lending consultant for over three years.

Before working for The Co-operative Bank, Eastgate was a mortgage adviser for nearly two decades.

He has also worked for the ANZ Bank in various roles from teller to business manager, over a 14 year period.

Avanti said: "Andy thoroughly enjoys working with mortgage advisers, building ongoing relationships, and being able to provide financial solutions to meet the needs of their clients."

Mike Pero Mortgages has brought in two new names in Auckland and Christchurch as the group continues to expand across the country.

The group has hired Rubina Khan to join Sheikhil Khan's team in Auckland, which is based in Manukau, south of the city.

Rubina is an experienced chartered accountant with more than 25 years in the tax and finance industry.

Khan will help the group service customers navigating the home buying process and help clients achieve their financial goals.

Before joining Mike Pero, Khan has worked as an accountant for Heartland Bank, the Auckland Kindergarten Association, NALCO, and Auckland Council, according to her LinkedIn page.

Meanwhile, Supreet Mahey joins MPM's Christchurch franchise owner Kurt Brandso.

Mahey previously worked in the retail sector, and joins Mike Pero in the Rolleston, Canterbury office.

Mike Pero Mortgages said Mahey "appreciates the value of effective communication and has strong customer service skills".

Mortgage Express makes Christchurch hires

Mortgage Express has drafted in Stuart Dawe, who previously worked as an authorised financial adviser at Kiwibank for eight years.

The business said Dawe, to be based in Christchurch, "brings a wealth of experience and expertise in funds

management, financial planning, budgeting and investment services".

Dawe added: "I have a very personal and proactive approach coupled with excellent networking skills. This has enabled me to develop and maintain strong client relationships that focus on growing the business. After eight highly successful years with Kiwibank and Kiwi Wealth, I'm excited to take on a new challenge at Mortgage Express."

The group said Dawe was keen to help first home buyers and those working their way up the property ladder.

"Securing a home loan can sometimes be daunting, and I'm here to help simplify this process. Working with Mortgage Express, I have the support of a great team and access to a comprehensive panel of lenders to get you into the home you want."

David Gopperth, general manager of Mortgage Express New Zealand, added: "Stuart's knowledge of the financial sector allows him to deliver a seamless customer-centric experience that goes beyond simply securing a mortgage for a client."

Mark Thompson joins the firm with close to 30 years' finance experience, having worked for three finance institutions.

Recently, Thompson was a mobile mortgage manager, and senior commercial manager.

He will provide financial advice to first home buyers, people restructuring, and clients seeking business-related finance.

Thompson said: "I have entered the industry with a long banking history. This allows me to call upon experiences I have encountered in the past to ensure my clients benefit from my knowledge and skills in dealing with challenging funding applications."

David Gopperth said Thompson was "passionate about understanding and helping his clients reach their financial dreams and goals".

First Mortgage Trust has hired Andrew Doogan as a business development manager.

Doogan has over 30 years of experience in the banking sector, recently

working for SBS Bank as a mobile mortgage manager for over four years.

Between 2014-2015, Doogan worked for TSB Bank, and before that worked as a mortgage adviser at The Mortgage Supply Company.

The experienced executive has also spent 14 years as a mobile mortgage manager at National Bank of New Zealand.

FMT said Doogan was “looking forward to getting out and reconnecting with former colleagues in the adviser space, as well as meeting and establishing new connections”.

New BDM for FMT

Prospa appoints CFO

Prospa Group has appointed Ross Aucutt as its new chief financial officer.

He joins the small business lender from FlexiGroup where he was CFO for almost four years. In that role, he built a high performing finance team and was responsible for driving growth whilst significantly increasing the efficiency of the business and balance sheet, with management of financial planning and analysis, capital management and treasury as well as merger and acquisitions.

Before this, Aucutt was group treasurer at Latitude Financial Services

where he built a treasury function and was responsible for all funding, cash management, capital reporting and operations.

He has a strong background in nonbank disruptive finance models and the financial markets where he has worked at a senior level in large domestic and international organisations including the Royal Bank of Scotland / NatWest Group (London), Westpac (Sydney) and Barclays (London).

He replaces Peter Loosmore, Prospa's interim CFO since January 2020. ✚

WWW.TMMONLINE.NZ

09

UP FRONT • REGULATION

Thousands unprepared for new regime While most advisers have heeded the call of the FMA, some have been slow to react.

BY DANIEL SMITH

M

arch 15, 2021, should be marked in the calendar of any adviser worth their salt. It is the date that the new financial advice regime kicks into gear. It marks a massive shift in the entire financial services industry.

A shift that some are concerned many advisers are not prepared for.

The essence of the change is that all financial advisers will need to be connected to a licensed financial advice provider (FAP), enabling the FMA to monitor licensed entities and act where conduct falls short of the required standards. All advisers will need to comply with a new code of conduct when providing financial advice to retail clients. The code includes standards for conduct, client care, competence, knowledge and skill.

The disclosure regulations for FSLAA include expectations for providing information on the material limitations of advice given, disciplinary history of the person giving advice, and the fees, commissions or conflicts of interest that may apply. These are new obligations that all advisers must adhere to, and are designed to support good client outcomes.

A recent FMA Supervision Insight report shows that the changes are both necessary and needed for an industry that has progress to make in certain sectors. After supervision activities from January 2019 to June 2020, the FMA found that while large parts of the financial services sector are working hard to meet the FMA’s expectations, widespread improvements to governance and compliance are needed.

Rob Everett, FMA chief executive, said the issues identified in its monitoring were concerning, and he anticipated the regulator would take strong action where deficiencies are not remedied in a timely manner.

“We are at a point now where the

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‘This is not a boxticking exercise; it needs to be woven into the culture of providers.’ _ Rob Everett, FMA

volume of FMA guidance, level of engagement and maturity of the regulatory regime mean there are no excuses for conduct that presents the risk of harm to investors, customers and the integrity of the markets,” Everett said.

“While we have seen positive evidence of genuine customer focus during Covid-19, there is more work to be done to build a sustainable customer-centric culture,” he added.

The FMA found weaknesses across its regulated sectors in four main areas: governance and oversight; conduct and culture; compliance assurance programmes; and compliance and controls.

“Firms need to constantly assess their conduct and culture to ensure good customer outcomes are core to their compliance systems and their overall strategy,” Everett said.

“We saw much good progress over the last year but were unimpressed by attitudes from one or two firms that suggested to us that they saw good conduct as something that only needs to be demonstrated when we visit. This is not a box-ticking

exercise; it needs to be woven into the culture of providers.”

The surveillance report showed evidence as to why sweeping regulation changes were needed.

The Financial Services Council welcomed the FMA’s surveillance report with open arms. FSC CEO Richard Klipin told TMM that “the sector collectively has worked really hard to ensure that this transition is effective, orderly. It’s encouraging to see the numbers of advisers growing.

But for the people who have not yet made a call, the clock is ticking.”

Klipin stated that although the regulation changes will substantially affect the sector, particularly around the tiers of accountability, “we’ve also had a lot of time to get used to it”.

Ryan Edwards of The Adviser Platform (TAP) is in a position to see a different side of the story.

TAP provides services to help raise advisers up to the standard of the new regulations, so interacts with advisers who might be most affected by the changes. Edwards said that he sees “large sections of the industry aren’t taking the change in regulation as seriously as they need to be”.

While Edwards agrees with the FSC that there is positivity in the report’s showing a large number of advisers embracing change, he is concerned that “there is an equally large section of the market that is hanging out pretending that these changes aren’t going to happen”.

“We are very happy with the incoming changes, but there is more of the market that needs to draw a line in the sand and decide that they need to make some changes for the better,” Edwards added.

An FMA spokesperson told Good Returns that “our monitoring has shown areas of concern in the advice process, record keeping and continuing professional

‘We are very happy with the incoming changes, but there is more of the market that needs to draw a line in the sand and decide that they need to make some changes for the better.’ _ Ryan Edwards, TAP

development. While large parts of the sector are working hard to meet our expectations, we are looking for significant improvement in the compliance and conduct of advisers, especially as the new regulatory regime begins.”

The spokesperson went on to say that the FMA is ready and willing to take “increasingly strong action where deficiencies are not remedied appropriately or in a timely manner”.

Largely, the FMA has been pleased with the willingness to change shown by most of the industry.

An FMA spokesperson told TMM that “advisers are highly engaged”.

The regulator added: “Data from licence applications granted so far tells us an estimated 7,300 financial advisers are to be covered under a financial advice provider licence.

That’s around 80% of practising advisers today who are well on the way to getting ready.”

The figures are encouraging for an industry on the eve of a radical shake-up.

But the numbers also raise the question, “What about the other 20% of financial advisers who aren’t ready for the change?” The numbers show that around 2,000 advisers still have not begun the application process for their transitional licences.

The FMA isn’t mincing any words regarding the late-comers. Speaking to Financial Advice NZ conference attendees in September 2020, FMA director of market engagements John Botica said advisers need to “be proactive”. He added: “There isn’t a lot of time to make decisions.

It is time to be courageous in new business structures.”

As time goes forward, the FMA has taken a firmer stance. A representative said in October that “advisers can expect to see the FMA taking a hard line on anyone operating without a licence when the new regime comes into effect”.

The FMA has encouraged those who have not begun the application process to plan ahead to next March.

That may be applying for a transitional licence well before the start of the regime, putting some time aside to read the new code of professional conduct, or having a conversation with the financial

advice provider that they hope to engage with.

“We strongly recommend advisers take the time to review their business, perform a gap analysis, and understand the regime’s new requirements and obligations. This may mean applying for a transitional licence in your own right, or working under another licence holder.”

The transitional licence process involves two steps: firstly, registering and requesting the transitional service on the FSPR, and secondly, applying to the FMA for a licence.

Several advisers have completed the first step but are yet to complete the second. The FMA recommends advisers get licensed – or know whose licence they will be operating under – before the summer break.

If only for the peace of mind that in a year of seismic change, they won’t get lost in the shuffle. ✚

‘We strongly recommend advisers take the time to review their business, perform a gap analysis, and understand the regime’s new requirements and obligations.’ _ FMA spokesperson

WWW.TMMONLINE.NZ

011

FEATURES • PROPERTY NEWS

Political property promises Recent months may have seen the return of Covid-19 and lockdown 2.0 but, for many involved in the property game, it’s news of election promises which have been of most interest.

BY MIRIAM BELL

I

t’s been all about political promises on the property front in recent weeks. That’s because the long, drawn-out election 2020 campaign has been winding up in intensity as D-day approaches. And that means thorny issues around housing, and the different ideological approaches to dealing with them, have re-emerged.

National was the last of the main parties to release its housing policy, but it includes elements with a lot of appeal to landlords. Along with scrapping the Resource Management Act (RMA) and building more housing, the party is pledging to fix New Zealand’s broken rental market.

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The party’s housing spokesperson Jacqui Dean says they would do this by simplifying recently introduced unwieldy rental regulations so that it is easier for landlords to comply. That would involve removing ring-fencing of rental losses for tax purposes, cutting the bright-line test from five years back to two years, and repealing the Residential Tenancies Amendment Act. While the party does support the Healthy Homes standards, which aim to ensure everyone has a warm, dry home, it would simplify the requirements to make it clearer and simpler for landlords to comply. “This will stop good landlords from fleeing the market due to cost, bringing down the cost of rents and ensuring there are enough rental properties on the market to meet demand.”

In contrast, the Labour Party’s housing policy – which also has a heavy focus on increasing housing supply and repealing the RMA – intends to build on the policies they implemented in their first term.

Those policies include their tenancy law reforms, the Healthy Homes standards and tax changes.

Prime Minister Jacinda Ardern says they firmly believe that all New Zealanders have the right to live in warm, dry, healthy homes, whether they rent or own their homes. “We will continue to ensure tenants and landlords have a fair deal by regulating property managers, following our work setting basic health standards for rental properties.”

To that end, if re-elected, Labour would introduce the regulation of property management services to ensure they meet professional standards and a Code of Conduct. This is something that

multiple groups, including Consumer NZ, REINZ and the Property Council, have been calling for for years.

Meanwhile, the Green Party – which has a detailed “Homes For All” policy – have announced some policies that are not at all appealing to many landlords.

So they want to “make renting fairer” by requiring landlords to be registered with the Ministry of Housing and Urban Development and by extending the current regulatory framework for real estate agents to include property managers.

They also want to introduce a Warrant of Fitness (WOF) for rental properties as an enforcement mechanism. This would require all rental properties to be independently assessed for compliance with the Healthy Homes standards.

Back or scrap Reactions to the various policy announcements have been mixed, with some property industry and housing groups welcoming aspects of some policies and others taking different views.

For example, National’s plans to roll back the government’s new Healthy Homes standards and tenancy law reforms prompted Barfoot & Thompson to co-sign a letter with a wide range of organisations calling for them to rethink that policy.

In the letter, the signatories say that backing the standards would ensure more New Zealanders live in warm, dry, healthier homes – and that would save the economy millions every year.

“Scrapping the Healthy Homes standards would leave Kiwi taxpayers to otherwise pick up this multi-million-dollar bill.”

For that reason, backing the standards would be good news for the economy, for taxpayers, and for New Zealand’s international obligations, they say.

NZ Property Investors Federation president Andrew King says that Barfoot & Thompson’s position probably represents the view of most rental property owners.

“We want our rental properties to be warm, dry and performing well.

We want our tenants to be living in good conditions. As such, we support most of the requirements in the standards. But we don’t agree that there are noticeable benefits in topping up the insulation to current standards in rental properties that are already insulated and having heat pumps in every single rental property.”

He says the issues the standards are trying to address are more complex than the standards assume, with tenant income being a factor – which is why the NZPIF has always backed the idea of the winter energy payment.

That means the NZPIF agrees with the National Party that some of the standards should be revisited, but they don’t agree that all the standards should be removed.

However, Stop the War on Tenancies spokesperson Mike Butler describes the Barfoot & Thompson letter as naïve.

“The letter-writers should provide evidence that shows implementing the standards in rental properties will keep the 700,000 New Zealanders with respiratory disease out of hospital.

People with respiratory disease live in owner-occupied homes as well as rental properties, and there are 1.1 million of those that are not required to meet the standards.”

Butler says the standards will have little real impact and will simply increase the costs involved with rental property.

“Barfoot’s support for the costly and unnecessary compliance standards is actually deepening a problem for both owners and their tenants who end up having to foot the bill.”

ComCom rent warning In a development unrelated to the election, it has emerged that landlords thinking of discussing rent increases on social media should tread carefully.

That’s because the Commerce Commission recently issued a warning to landlord representatives about doing just that.

Some exchanges in online forums for landlords included some online posts asking what others planned to do when the government’s rent increase freeze ended on 26 September. This prompted a complaint to the Commerce Commission which then wrote to landlord representatives to alert them to their concerns.

That’s because the discussion included comments suggesting that the whole group could band together to increase rents – and, if any such attempt was to occur, that could constitute price-fixing under section 30 of the Commerce Act 1986.

A Commerce Commission spokesperson says landlords can be in competition with each other for the supply of rental properties and can be carrying on a business in trade.

“Landlords should make independent pricing decisions about rent and rent increases to avoid breaching the cartel prohibition.

“Cartels deprive consumers and other businesses of a fair deal. A cartel is where two or more businesses agree not to compete with each other.

This conduct can take many forms, including price-fixing, dividing up markets, rigging bids or restricting output of goods and services.”

Not only are the penalties for cartel conduct very hefty, but from April 2021 cartel conduct will be a criminal offence, punishable by a jail term of up to seven years.

The Commission spokesperson says they did not open a formal investigation or issue warnings to the parties concerned. “But we chose to alert industry representatives to the risks of this sort of conduct to increase awareness amongst property investors that they are subject to the Commerce Act.” Landlord representatives were stunned by the warning but have taken it on board. Nick Gentle, who is an administrator of one of the online groups, says rhetoric can get very heated, but he doesn’t think anyone would seriously collude against tenants.

“However, we’ve told our members that posts which ask what rent you should set for a particular property and/or suggest a rent movement in response to something won’t be allowed.”

Administrator post-approval will be kept on, and they are asking members to report any comments on posts which breach that guideline. “It’s frustrating because the group is for the purpose of helping one another, but that is how the law works,” he adds. ✚ WWW.TMMONLINE.NZ

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FEATURES • HOUSING COMMENTARY

Defying predictions Covid-19 be damned: the housing market is proving remarkably resilient in the face of the pandemic and no-one is expecting that to change anytime soon, discovers Miriam Bell.

BY MIRIAM BELL

B

ack when Covid-19 first broke out in New Zealand and the country went into lockdown, economic fears were high and many thought a housing market crash was likely. Commentators predicted significant price declines and, during the first lockdown, activity stalled.

Yet – fast forward a few months – and the market reality has turned out to be somewhat different. Not only did the market bounce back strongly following the first lockdown in March-April, but it now seems that lockdown 2.0 has not dented its resurgence.

The most recent round of housing market data marked the fourth consecutive month to turn in booming prices and sales. And that’s left economists revising their forecasts.

Prices firmly ascendant To start with, price decline forecasts be damned. Values have largely held firm around most of the country in the face of the Covid-19 storm and, right now, prices are even booming in some markets.

The CoreLogic House Price Index* shows that while values nationwide have 014

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fluctuated slightly in recent months, they were up by 0.8% in the three months to September. This left the average national value at $743,678 in September.

Of the main urban centres, Tauranga (up 0.1% to $795,182) and Dunedin (flat on $547,429) saw the least value growth.

However, Tauranga’s market has been flat for a while, while in Dunedin’s case it follows exceptionally strong value growth over the last year.

Values in the other four main centres (Auckland, Hamilton, Wellington and Christchurch) all increased over the quarter. While Queenstown values are down by 4.2% year-on-year (to an average value of $1,141,643), overall, value growth was the order of the month for provinces.

However, the September price data from REINZ presented an even healthier picture. In fact, REINZ chief executive Bindi Norwell described the market’s recovery as “astonishing”, saying it has “certainly surpassed many predictions”.

Not only did the data show the national median house price up by 14.7% yearon-year, and by 1.5% on August, to $685,000 in September, but every region saw an annual increase in median prices.

‘We expected to see a 7% [house price] decline but the collective predictions of house price decline have been proven wrong.’ _ Dominick Stephens

Further, nine regions and 19 districts/ cities turned in record median prices.

The regions that hit record medians, on the back of double-digit year-onyear increases, were Gisborne, Taranaki, Otago, Bay of Plenty, Manawatu/ Whanganui, Wellington, Waikato, Canterbury and Auckland. Auckland’s median price increased by 12.6% to $955,000 from $848,000 in September 2019. It was also up by 0.6% from $949,500 in August.

Both Realestate.co.nz and Barfoot & Thompson’s September data provided

‘During the first, more restrictive lockdown, the market was stopped in its tracks but in August the market simply sailed through the restrictions.’ _ Peter Thompson

additional evidence of the ongoing strength of prices around much of New Zealand (including the longstatic Auckland), even in the face of lockdown 2.0.

Skyrocketing sales activity But it’s not just prices that are booming of late. According to the REINZ data sales volumes have skyrocketed too.

It has the number of properties sold nationwide in September up by 37.1% from the same time last year (from 6,112 to 8,377). That’s the highest number of sales in a September month for 14 years.

In Auckland, the number of sales in August increased by a hefty 53.2% year-on-year (from 1,867 to 2,861). And that’s the highest annual increase in sales numbers for 11 years. Nine other regions also saw increases of over 30% in annual sales volumes during September. They were Nelson, West Coast, Tasman, Canterbury, Waikato, Manawatu/ Whanganui, Marlborough, Bay of Plenty and Southland.

Norwell says the overall volume of sales nationwide over this time was “pretty incredible” and that the level three lockdown imposed on Auckland from August 12 to 30 has had little impact on sales volumes.

“It will be interesting to see what happens now that we’re heading into spring, as traditionally sales volumes start to lift as the weather warms up. As we’ve already seen, 2020 seems to be defying all predictions and going against all norms at this point in time.”

Sales activity may have been solid nationwide, but it was the strength seen in the Auckland market – despite lockdown 2.0 that’s most noteworthy.

As with the REINZ data, Barfoot & Thompson’s data reveals the level three lockdown restrictions had a negligible impact on market activity.

For the second consecutive month, sales numbers for the time of year were

at a level last seen at the height of the last property cycle. There were 1,099 sales in September – which was the highest number of sales in a month since 2017. That sales figure was also a solid 42.5% increase on the 771 sales seen in September last year. Further, sales were strong across all price segments and across all suburbs and districts.

Barfoot & Thompson managing director Peter Thompson says that during the first, more restrictive lockdown, property sales were stopped in their tracks, but in August the market simply sailed through the restrictions.

“But the key to the high sales numbers achieved in September was the number of new listings that came on to the market which, at 1,947, was the highest number in a month since October 2018, and 43.8% higher than in August.”

Record housing stock lows Meanwhile, the amount of available housing stock for sale has plummeted to record lows, which is helping to keep a floor under prices. Realestate.co.nz’s latest data shows that 10 of the 19 regions have hit record total stock lows.

Nationally, the total number of homes available for sale was down by 17.0% on September 2019 to just 17,576 listings.

In Auckland and Wellington housing stock was down by 7.5% and by 19.9% respectively. While Taranaki saw the biggest year-on-year decrease (of 50.8%), Marlborough (37.5%), Wairarapa (down 33.0%) and Northland (down 32.8%) all saw big declines.

The only region to see an increase in housing stock for sale was, not surprisingly, Central Otago/Lakes, which was up by 9.1%.

While new property listings were up by 12.9% nationwide compared to September last year, high buyer demand means those new listings aren’t making much difference to the stock shortage.

Realestate.co.nz spokesperson Vanessa Taylor says the increase in New Zealanders returning home, along with the fact that many more people don’t want to relocate overseas right now, is likely increasing demand.

“As we have seen in the cramped rental market, everyone needs somewhere to live. Given our country’s long-term housing shortage, I expect demand will remain high with both owner-occupiers and investors looking to achieve their property goals.”

Norwell adds that unless more listings come on to the market before Christmas, there’s likely to be additional pressure on house prices and affordability. ✚ [*formerly the QV House Price Index]

What’s driving house prices?

UP REINZ HOUSE SALES

September sales nationwide were the highest for a September in 14 years, while Auckland saw the highest annual increase in sales in 11 years. Year-on-year, sales were up by 37.1% nationwide and by 53.2% in Auckland.

•

BUILDING CONSENTS Consents issuance nationwide remains at historically high levels – but August consents were only up by 0.3% on July. Economists are surprised at their resilience but still think construction activity will fall.

•

MORTGAGE APPROVALS Reserve Bank data shows mortgage lending overall reached a record high for an August as the market continued its lockdown recovery.

Lending to investors was up both on July and year-on-year.

•

RENTS Stats NZ’s stock measure shows September’s rents were up by 0.2% on August and by 3.3% year-onyear. Trade Me Property’s August data had the national median rent up by 2.0% year-on-year.

DOWN INTEREST RATES

March’s record OCR cut continues to be passed on by the banks.

There’s now an ongoing mortgage rates war with unprecedented lows and the situation unlikely to change in the near future.

•

OCR The Reserve Bank held the OCR at its Covid-19-prompted record low of 0.25% in September – and hinted that its programme to lend directly to retail banks could be ready by year’s end.

•

IMMIGRATION Net migration from April to August 2020 was very low due to border restrictions. Despite this, Stats NZ’s provisional estimates for the year ended August 2020 show annual net migration at 71,500.

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LEAD

Lessons from the next generation We talk to some of the industry’s bright young stars about their success stories and hopes for the future.

BY DANIEL DUNKLEY

TMM has profiled some of the leading young advisers in the New Zealand market. We asked a selection of New Zealand’s most experienced advisers to nominate the brightest young talents in their group and the wider market.

Some of the sector’s up-and-coming stars talk to us about their journey into the industry, the positives and negatives of the profession, how they have coped during Covid, and whether advisers will thrive in the future.

What can experienced advisers learn from their younger counterparts?

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Lauren Hunter, 26, Mike Pero Mortgages, Waikato Lauren Hunter, 26, is one of Mike Pero Mortgages’ very best advisers. The University of Waikato graduate has only been a mortgage broker for two years but has risen quickly up the ranks to become one of the busiest MPM advisers in New Zealand.

While studying finance in her native Waikato, Hunter worked for ASB and Heartland Bank. This journey would eventually lead her across the financial services sector to the broking industry.

Hunter joined Mike Pero in 2016, working under boss Jacob Annals as an assistant and relationship manager, and became an adviser after taking her qualifications two years ago.

“It was always my goal when I joined to learn the process and become familiar with all of the lenders’ policies,” Hunter says.

The apprenticeship proved to be a masterstroke for MPM, as Hunter earned the “Rookie of the Year” for 2020, an award given to top loan and insurance writers in the organisation.

Hunter wrote over $30 million in the year to July, comfortably in the top five brokers, based on volume. She has already written more than $14.5 million over the past three months.

Hunter puts her success at such an early age down to hard work.

“I work long hours ... on average about 50 a week,” she says. “About 60 on the higher end when I’m really busy. I enjoy the admin side of the role, and that certainly helps in the numbers I do. I’m quite organised and structured.”

The pandemic was a test for Hunter early in her career, but she says she got used to Zoom calls and working from home under lockdown.

Now the nation is out of lockdown and experiencing a post-Covid sugar rush, Hunter is busier than ever: “We’ve been really lucky,” she adds.

“I’ve been focusing on doing the best

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‘I enjoy helping people achieve homeownership who didn’t think it was possible and contacted us for help.

The people who never expected it to happen.’ job possible for customers, and am getting a lot of personal referrals. I feel that’s coming through from the service I’m providing.”

And the best thing about being an adviser? Helping those who have struggled to get onto the property ladder.

“I enjoy helping people achieve homeownership who didn’t think it was possible and contacted us for help. The people who never expected it to happen.”

Her advice to young people thinking about becoming an adviser?

“Make goals. Ask for help. Listen to the people around you. And work hard.”

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Mandy Jordan, 33, The Mortgage Supply Company/ Astute Financial, Invercargill For Mandy Jordan, 33, the journey into the mortgage advice profession was all about connections.

Having worked at SBS Bank in her native Invercargill for several years, she struck up a close relationship with The Mortgage Supply Company while processing loans.

After taking some time off to start a family, The Mortgage Supply Company’s David Windler got in touch to offer Jordan some work down in the deep south.

She began working for Mortgage Supply in an admin role, but couldn’t help advising some friends on their mortgages.

“I helped my brother’s friend get into a house. I told him not to tell anyone, but before I knew it, ten people had contacted me in a week,” she says.

Helping a family friend turned out to be an excellent decision for Jordan. She 018

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is now Mortgage Supply’s “Rookie of the Year”, owner of the MSC Southland business, and has written more than $60 million in loans in the close-knit Invercargill community.

As a working mother, Jordan says the flexibility offered by the advice sector is a great advantage.

“Aside from changing people’s lives, which is amazing, the ability to be there for my kids is a big achievement.”

Her favourite thing about being a mortgage broker is “meeting people who think they can’t [get a loan], and calling them up to tell them they can”.

“It’s pretty addictive, changing people’s lives, educating them, and helping them to reach their goals.”

As a young adviser, Jordan is keen to use social media, smartphones, and other technology to make the home loan process easier for clients.

“I’m on my phone a lot. We’re big on Facebook Messenger, having chats with the lawyer or real estate agents. We try and keep the language accessible to young people.”

“We know young people prefer WhatsApp and texts to phone calls, so we try to do that rather than email, and make it more user friendly.”

After two years as an adviser, Jordan, like many young brokers, was disrupted by the pandemic.

“But we’ve coped, and the biggest thing has been the open dialogue with head office. We know it’s been tough, but we’ve got the right people looking after

‘Aside from changing people’s lives, which is amazing, the ability to be there for my kids is a big achievement.’ us, so we can go out there and put our big-girl pants on and do what we do best.”

She says her business has been even busier since Covid, as banks struggle to service direct clients.

“We’ve been a lot busier due to the pandemic,” she says. “I put that down to a lack of availability of the banks. It’s a chance for us to shine, as we are more flexible. We can look after them over the phone or on Zoom chats.”

Jordan predicts a bright future for the industry – helped by the introduction of FSLAA legislation.

“It’s nothing but positive for good advisers,” she says. “It will make the sector more transparent, and Astute has given us a great grounding in compliance.

I can’t see the industry slowing down.”

She offers the following advice to young people thinking of joining the profession: “Passion is key. If you have that you can achieve anything. Surround yourself with the right people, and the sky’s the limit.”

Logan Reardon, 33, Loan Market, Auckland Not many advisers can say they have been in the police force or run a fitness business in their younger years. But Logan Reardon, an adviser at Loan Market in Auckland, has done precisely that.

Reardon ran a CrossFit business for 13 years, with sites across the city of sails. He also spent four years as a police officer and personal trainer for the NZ Police, before a change of career beckoned.

Through friends and contacts, Reardon was enticed to join the mortgage advice industry, settling in at Loan Market in July last year. Just a year into his role as a broker, Reardon has settled $30 million; spanning home loans, business loans, and investor mortgages.

“I had my own mortgage broker, and some people in the industry asked me if I [had] thought about coming across, with my background in business and owning homes. It was a perfect fit.”

Reardon serves the Auckland market primarily, but has clients across New Zealand, including Wellington.

He says the flexibility of the industry is one of the best things about being an adviser.

“It’s been great; I manage to drop my kids off at school most mornings and spend some time with them before work.

When we go away, I can take my laptop away with me. In the summer we’ve been able to go camping up in the Karikari peninsula, and I’ve been able to work.”

Reardon was an early adopter of Zoom technology, enabling him to act quickly during Auckland’s recent lockdowns.

“I was using Zoom before Zoom was really a thing,” he says. “I was using that technology for the fact-finding process, so when we went into lockdown, it was business as usual,” he says. “I was pretty much ready to go straight away.”

He describes building a network as one of the biggest challenges for a young adviser new to the industry. But he has used social media to his advantage so far.

“Mainly Facebook. I like to show how

‘It’s been great; I manage to drop my kids off at school most mornings and spend some time with them before work.’

I’m helping clients, rather than trying to sell them low interest rates. It’s more about telling stories about how I’m helping my clients. Someone might look at it and say, ‘yeah, that relates to my situation’.”

He has high hopes for the profession’s future, especially as the new robust regulatory regime kicks in in March.

“I think [mortgage advice] is going to be a busier space in the future, with the new regulations coming in. It’s all about giving support to the client, and it will build trust as well. I think the new regulation is great. For some of the advisers that have been around for a while, it might be a bit of a shock, but I started out in the industry with it, I don’t know any different.”

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Ruan Chryssafis, 36, Mortgage Lab, Manukau/Tauranga Former ANZ banker Ruan Chryssafis has been an adviser for two years, and like many in the profession, the entrepreneurial, flexible nature of the sector was a big pull.

Chryssafis divides his time between Manukau and the Bay of Plenty for family reasons and says the ability to run his own business and work to his schedule is a big positive for young advisers.

Chryssafis, who has written more than $35 million in business since joining the profession, says there are “huge advantages” to being self-employed, something that resonates with other young advisers.

Elyce Peters, 34, The Mortgage Girls, Christchurch Christchurch adviser and entrepreneur Elyce Peters made a bold decision to set up her own business as she entered the adviser industry.

After spending several years working for lender National Bank of New Zealand (now ANZ), Peters was approached for a job by several mortgage advisers. She eventually decided to go it alone and set up her own company with former colleague Holly Sullivan.

The business was created in 2015, “literally from scratch with no clients”, Peters says. The all-female company is now one of the most exciting adviser outfits in New Zealand, winning admirers

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“It’s a step into the unknown,” says the Mortgage Lab adviser. “But I’m glad I stuck with it.”

The “exciting” nature of helping first home buyers is the biggest pull of the job, he says.

“This is not just a job. You need to wake up with a deep purpose about why you’re doing this, and why it’s such a fun and exciting profession.”

He says helping young families get on the housing ladder, securing homes for migrant families, and helping “homeowners on their investment journey” are rewarding elements of the job.

“It’s the key wealth generator for New Zealanders, so it’s exciting working with people, especially those scraping together to buy that first home.”

Chryssafis says helping clients “save thousands” and “getting people on that first step towards investment” gives him the most satisfaction.

Working through lockdown gave him even more confidence in the future of the sector: “Lockdown showed the rest of the nation how advisers work every day.”

He believes there’s a bright future for the profession, and says advisers should view the new regulation as a positive

for its fresh approach to financial advice.

Peters hasn’t always been a fan of mortgage advisers, however.

“I hated them,” she says. “I didn’t like them while I was at the bank, I thought that they thought with their back pocket, rather than in the best interests of the client. That’s why I wanted to get into the industry, to put the client first.”

The group adjusted quickly to lockdown and Covid conditions this year, continuing to hire new staff and train them through Zoom. “Hats off to Holly who was able to train both new team members really well. We came out of lockdown so much closer and tighter as a group.”

Like many adviser businesses, The Mortgage Girls has seen an upsurge in activity since the Covid recovery, helping 30 new people into their homes in the month to early October.

The group, which aggregates under NZFSG, is set to take its own FAP licence under the new regulatory regime, and take control of its compliance and back office requirements.

Peters credits building the business, helping people into homes, and

‘I’m absolutely positive about the future of this industry.

The higher the hurdles, the less the competition.’ development to push the industry forward. He expects the new regime to be a good thing for strong advisers.

“I’m absolutely positive about the future of this industry. The higher the hurdles, the less the competition.”

“The new regulation mandates a greater level of quality conversations and interactions with our clients,” he adds. “This should, in turn, create a more trustworthy industry, which is driven by higher standards for us brokers to adhere to.

“Clients can be more confident in our advice, and advisers are forced to adopt the new regime’s disclosure requirements – a safer operating environment for all.”

‘Make sure you have a good mentor to help you along the way, because it’s definitely a rollercoaster.’ hiring new employees as her biggest achievement in the profession so far.

“Seeing my team achieve what they’re doing and growing, personally, and career-wise, is great, and seeing what we thought of in 2015 come to fruition.”

She has some advice for young advisers thinking of entering the profession.

“If you have a passion for people, then do it,” she says. “But make sure you have a good mentor to help you along the way, because it’s definitely a rollercoaster.”

“I had a few business mentors, my father being one of them, to push me to do things. It’s good to have someone to bounce ideas off that you can trust, that know you.” ✚

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FEATURES • RESPONSIBLE LENDING CODE

Are responsible lending changes on the way?

Australia has scrapped responsible lending laws in the wake of Covid-19. Advisers tell us what aspects of NZ responsible lending they want to see change.

BY DANIEL DUNKLEY

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I

n late September, Australian treasurer Josh Frydenberg announced that the country’s government would scrap controversial responsible lending laws created in the aftermath of the global financial crisis.

Following Australia’s first recession in three decades, the Aussie government moved to end legislation that bound the country’s major lenders to strict credit criteria and customer processes.

The decision, designed to kick-start the economy in the wake of Covid-19, effectively watered down credit rules for the nation’s banks, making lenders subject to less onerous oversight.

Announcing the decision, Frydenberg described the move as “the most significant reforms to Australia’s credit framework in a decade”.

The Aussie government is keen to boost lending and unleash credit controls.

Changes to Aussie lending rules Under the changes, the Australian Securities and Investments Commission (ASIC) will no longer enforce responsible lending laws. Instead, ASIC will be given greater oversight of payday lenders and vulnerable borrowers.

Banks and non-banks will be policed by prudential lending standards overseen

by APRA, eliminating the old ASIC lending rules.

The Aussie government hopes the decision to scrap responsible lending laws will free up banks to lend more to homeowners and small businesses, in turn stimulating the economy following the pandemic.

Following the rule changes, Australia will allow banks to rely on income and spending information provided by borrowers when assessing loan applications rather than conducting indepth verifications.

The changes mark a U-turn in Australian banking regulation. Since the GFC, Aussie banks were put under everincreasing regulation, culminating in the Royal Commission into misconduct in the financial services sector.

Despite the damning findings from the Commission, Australian authorities have deemed it necessary to loosen credit controls in this new financial crisis.

Australian banking chiefs hailed the government’s decision, which will reduce the need for extensive verification procedures for customers. It is expected to lead to quicker lending decisions and fewer instances of high-quality borrowers being rejected.

Westpac Group chief executive Peter King said: “This is a significant initiative

‘We have been struggling to get them to make the supportive lending decisions that are in the best interests of clients.’ _ Stephen Wilton

that will reduce red tape for consumers seeking a loan and importantly speed up the process for customers to obtain approval for a loan ... It will also play an important role in ensuring access to credit for businesses wanting to invest and grow.”

ANZ Bank CEO Shayne Elliott said the move would “speed up the flow of credit during these difficult economic times while still providing the necessary protections for Australians when accessing credit”.

Potential impact for NZ’s big four lenders The changes are likely to have an impact on New Zealand’s big four lenders, ANZ, BNZ, Westpac and ASB, all of which are Aussie-owned.

Advisers and market commentators hope that the relaxation of Australian responsible lending rules will change behaviours here, with banks sticking to cautious credit criteria in recent times.

New Zealand lenders will continue to operate under the Responsible Lending Code (RLC). The NZ rules force lenders to abide by responsible lending principles, and have been blamed for over-aggressive customer scrutiny in recent years.

It remains to be seen whether NZ regulators will change their approach to responsible lending.

The nation’s banks have increased lending since the level four lockdown earlier this year, reaching an August record two months ago, according to RBNZ data. But advisers say clients are hampered by forensic applications and a lack of flexibility.

The Responsible Lending Code was introduced in 2015 to protect consumers from taking on debt they cannot afford, but mortgage advisers say it has gone too far. They say banks are bogged down by regulation, forced to ask too many questions, and lack a common-sense approach to mortgage decisions.

What do advisers think?

Stephen Wilton of The Advice Group said the news from Australia was the best he’d heard “for a long time”, and hopes NZ will follow suit.

Wilton said the NZ Code has forced lenders “to use a calculator as the yes or no tool and not considered the liquidity of assets and quality of the clients”.

“We have been struggling to get them to make the supportive lending decisions that are in the best interests of clients,” Wilton said.

Mortgage People’s Martin Thomas believes the Code “will have to be reviewed here as well”.

Thomas hopes the “crutch” that “many lenders have been forced to lean on when making decisions” will be removed.

He added: “Hopefully, we can move back to assessing the borrower in the primary instance and his or her ‘numbers’ in the latter. When I first joined the banking industry in 1971, we were taught ‘it’s all about the borrower’ and I don’t think that mantra’s been evident for many years due to regulatory demands on the bank.”

Andrew Dunning of Merx Business, Property Loans and Investments would like to see evidence of whether the Code had achieved its intended outcomes, “or whether the unintended outcome was a reduced availability of credit for good borrowers”.

‘We were taught “it’s all about the borrower” and I don’t think that mantra’s been evident for many years.’ _ Martin Thomas

He added: “My view leading into the introduction of the Code was that most lenders were already responsible and taking an approach consistent with the framework.”

Riona Rameka of Homelend said the RLC had “created a workforce of employees who do not know how to work outside the system decision”. She added: “It’s a ‘computer says no’ environment because they have created so many layers.”

Rameka said it would be “great to go back to a time where we can assess each person’s individual situation and tailor their loan application to their situation”.

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FEATURES • RESPONSIBLE LENDING CODE

‘It’s a “computer says no” environment because they have created so many layers.’ _ Riona Rameka

“Banks have been so scared to think outside the box that the non-bank lender market has grown so much over the last four years,” she added.

Rameka is sceptical whether NZ will follow Australia on responsible lending.

“It would require more credit assessment that the banks are currently struggling to do in today’s environment,” she added.

Glen McLeod of Edge Mortgages described the Responsible Lending Code as “one of the most troubling” aspects of the lending market.

“It takes away the borrower’s ability to make and change decisions around how they spend their money,” he added.

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“When you legislate and enforce compliance that is open to interpretation, you just never know what the answer will be. That seems to be the attitude taken by each of the lenders, respectively.”

McLeod said the Code had led to banks being “controlled by the nanny state”. He said clients were unfairly penalised over their spending patterns, and banks were failing to take a pragmatic approach.

“For example, if a client is saving some money to buy a house and they are having a good time along the way, that is reflected in their bank statements, and will work against the client. The common-sense part is that they made a decision to buy a house, and therefore their spending habits will change.”

McLeod said the Code has made it more difficult for clients who had separated or divorced from their partners.

“If you’ve got a client that buys a house at 50 because they have divorced or separated, we now have to explain what’s going to happen in the future,” McLeod added. “Now most clients will look to downsize their home. Alternatively, they could look to clear the debt using KiwiSaver or some other mechanism.

We have to explain all of this as a part of the Responsible Lending Code.”

“The reality is that it seems everyone is running scared of having the finger pointed at them. Therefore, they take everything to the absolute maximum. I would hope what’s being looked at across the Tasman would come to New Zealand, and that clients can make some decisions themselves,” McLeod added.

“I do agree that the client having a full understanding of what they are signing up [to] is an important part of any application. It’s more about having a balanced approach, rather than everything being pushed to the maximum.” ✚

FEATURES • SPONSORED CONTENT

Small FAP governance: practical tips Taking a practical and proportionate approach to governance and director duties will serve small FAPs well, according to Strategi Group executive director David Greenslade.

BY DAVID GREENSLADE

• Privacy Act (remember it changes on December 1, 2020) • Health and Safety at Work Act. Furthermore, and in addition to those obligations that befall any company, the director and board have responsibilities in relation to financial services legislation and operating a FAP that need to be attended to as well.

Challenges for small FAPs Strategi frequently fields the following common questions from small business owners.

Sometimes size doesn’t matter.

A financial advice provider (FAP) with only one person on its board still has legal obligations to comply with the multitude of legislation that applies to all companies, just as a large FAP would.

Where the obligations lie The Financial Markets Authority (FMA) expects FAPs to have an oversight body – the board – responsible for overseeing compliance with licence obligations, Greenslade says. Really small businesses might have a one-person board, while larger entities might have several board directors – one or more of whom would be independent. Whatever category the business falls under, it still must comply with the relevant legislation for companies, which includes the: • Companies Act 1993 • Fair Trading Act and Consumer Guarantees Act

Get good quality help Engaging with business mentors and business advisers can also help to provide some formality and structure around periodic board meetings (especially if the board is only one person), Greenslade says. He suggests the following ideas.

• How do I achieve independence and oversight if I am the director, manager and adviser?

• Expanding your engagement with the right compliance provider so they attend your board meetings and help challenge you in the governance space.

• How do I hold meetings with myself and why draft reports to myself?

• Asking your accountant or lawyer to sit in on your board meetings.

• How do I get time to do all this governance stuff and still make a living?

• Establishing an advisory board as the business starts to grow. (This might evolve into a formal board later.)

• Do I need a board and if so, how to make it work?

Small FAP governance: What not to do

comprehensive governance courses held by the likes of the Institute of Directors or Governance NZ. Alternatively, it might be undertaking governance modules on Radar, or attending the Strategi Institute Governance Course for Small FAPs.

Answering these questions: What not to do The first thing Greenslade advises clients, is NOT to do any of the following things.

• Ignore the issue, thinking the problem is going to go away.

• Appoint your spouse to the board to make up numbers.

• Appoint people who do not meet the “fit and proper” test.

• Build a structure and set of documents you don’t intend to follow.

• Have a complicated business structure.

Greenslade believes selecting the right director or business adviser is critical to governance success. He says quality beats quantity and having one person who ticks all the boxes for competence, knowledge and skill is usually better than having a number of people who add little extra value other than warming a seat.

Once you decide to be a business owner, then you must take reasonable steps to meet your responsibilities as a director, Greenslade warns. This applies to licensed FAPs and to authorised bodies which are effectively unlicensed FAPs. Firstly, business owners need to know just what their obligations are and then act to implement simple, yet effective, solutions to meet them.

Both Strategi and the FMA have a range of good material for business owners that can help you on your way. ✚

What you should do Greenslade recommends taking a practical and proportionate approach to governance and this begins with focusing on yourself first. The most important step for FAPs is upskilling yourself as a director. This could involve attending

Strategi Group is the leading provider of compliance and training services for the New Zealand financial advisory industry.

For more information, visit www.strategi.co.nz WWW.TMMONLINE.NZ

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FEATURES • SPONSORED CONTENT

The real way to attract more customers

T

he events of 2020 have shown that “real life” can happen to anyone.

Unexpected events occur that can have a major impact on a family’s financial situation, which is why non-bank lenders like Pepper Money are here to help. They are an attractive option bridging the gap created by traditional lenders

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and offer ample opportunities for customers to succeed in getting the loan they deserve.

Likewise, 2020 has been monumental in altering the way many advisers serve their clients and how they can future proof their businesses.

With confidence well and truly back, Pepper Money is committed to helping more Kiwis access home loan finance and will continue to support advisers as we work together to navigate this significant period in history.

We are committed to providing advisers and their customers with flexible lending products to help them achieve their goals and tools to give advisers’ businesses a winning edge.

Back in market: Tools to help your business Pepper Product Selector With the changing lending landscape, chances are many customers that have never needed to consider an alternative

lender in the past are now finding themselves needing a specialist solution.

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

At Pepper Money, we believe that customers should never be in a position where they do not understand their financing options, regardless of their circumstances. That is why Pepper Money’s Product Selector was created – to help advisers source the best-fit home loan solution for their customer, the first time.

A market first for a Kiwi lender, Pepper Product Selector is an online tool that allows advisers to swiftly give customers an indicative offer. Simply by answering a handful of questions about the customer’s situation the tool returns a Pepper product match, indicative interest rate and associated fees.

Additionally, following feedback from early adopter advisers, Pepper Money has recently released a series of improvements aimed at speeding up the adviser’s process of finding a solution for their customer as well as the added ability to calculate the customer’s

borrowing power before returning an indicative offer tailored to the customer’s circumstances.

The tool takes the guess-work out of finding the most appropriate Pepper product for an adviser’s customer, especially for difficult scenarios. It has also brought comfort to several advisers who are relatively new to writing nonconforming business, helping dispel the misconception that these type of loans are hard to write.

In less than five minutes an adviser can: • calculate the customer’s indicative borrowing power upfront • check the customer’s credit history – with no impact to their credit score • have an indicative offer for a Pepper Money loan solution – with the product, rate, fees and repayment amount outlined.

Following this, the adviser simply needs to submit a formal application as per the usual process – attaching a copy of the Indicative Offer letter to the application.

Commenting on how easy and efficient the tool is for an adviser, Pepper Money’s National Sales Manager, Michelle Sargeant, says: “Each customer’s needs are different and specific to their personal circumstances. With the addition of a borrowing calculator,

Sneak peek …

The Pepper Money Referral Marketing Toolkit will help advisers capitalise on the evolving lending landscape so that they can assist more customers to succeed in getting the home loan they need.

Your referral tips and tools Like every fruitful activity, sourcing referrals needs a planned approach and good tools. Here are three of our 10 tips to give you a head start on your referral marketing plan.

Pepper Money aims to make it easier for advisers, by simplifying the process in an online format. Pepper Product Selector provides advisers with the information they need, when they need it and in a format which is most useful to them.”

Pepper Product Selector can be used for any customer situation; however it can be particularly useful where their circumstances will not typically fit the banks’ criteria and are searching for an alternative solution. It puts the adviser in a great position to talk to the customer with confidence about a genuine solution.

understand why referral marketing is such a powerful tool and can show them how to set up high impact marketing to attract a more diverse customer base.”

The Pepper Money Referral Marketing Toolkit will show advisers how they can set up and run successful referral marketing campaigns that can support the growth of alternative lending in their business. In addition to this guide, the toolkit will also provide advisers with a practical set of marketing tools to assist in maximising alternative lending referral opportunities. This includes:

Pepper Money Referral Marketing Toolkit … coming soon

• a series of case studies advisers can customise with their branding and leave with their referral partners as a reminder of the type of customers they can assist

In response to the number of New Zealand families needing alternative lending solutions and feedback from advisers expressing that there is a strong need for content and practical tools specifically targeting the non-conforming market, Pepper Money has developed a Referral Marketing Toolkit, available to accredited brokers in the coming weeks.

Commenting on the upcoming release, Sargeant says: “Referrals are a key source for new business and we’ve found research that shows while 83% of satisfied customers are willing to refer product and services, only 29% actually do. This guide will help advisers

1. Understand your customer base.

Learn who your core customers are and what sort of customers you want to attract in the future, eg the selfemployed.

2. Build your networks.

Evaluate your existing referral sources and networks to understand what sort of business you get from them today.

Connect with them by adding relevant value to their business and educate them on the different types of clients you can help. It also helps to speak their language – talk to them about your offer in terms they will understand and that matter to them.

• a customer satisfaction survey template that helps advisers gather actionable feedback from their existing customers • ready to use content on alternative lending to help brokers create their own online content or emails.

“The addition of referral marketing content to Pepper Money’s available adviser tools makes it an ideal solution for positioning alternative lending to more customers,” says Sargeant. ✚

3. Set up good feedback systems.

Ask how you’re doing and analyse results to track your trends so you can respond to things you need to change.

Sargeant shares: “Pepper Money’s adviser tools are unique in the market and are dedicated to supporting advisers in innovative and useful ways.

The technical tools coupled with the deep relationships we have with our advisers, allows Pepper Money to continue to do what we do best, which is support mortgage advisers to help more customers succeed.”

To learn more about Pepper Money tools and solutions, find your local BDM online at adviser.peppermoney.co.nz.

WWW.TMMONLINE.NZ

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FEATURES • LEGAL

Apart from the differences we are exactly the same Calls are being made to follow Australia and dump the responsible lending rules, but Jonathan Flaws says it’s not that simple as there are big differences.

BY JONATHAN FLAWS

‘I’m not suggesting our lender responsibility principles are perfect and, in the environment of mortgage lending, couldn’t do with tweaking in some areas.’

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O

n September 25 the Australian Government announced it would implement a suite of changes to credit laws to enable the more efficient flow of credit to consumers and small businesses while maintaining strong consumer protections. The Australian press and brokers described this as the axing of responsible lending laws that fuelled a bitter court fight between the corporate regulator and Westpac.

They expect the changes will encourage the flow of loans and boost the economic recovery from the Covid-19 recession.

Assuming that New Zealand and Australia share the same responsible lending regime, some brokers here have suggested that our government should do the same.

If it wasn’t for the differences, they might be right.

I’m not suggesting our lender responsibility principles are perfect and, in the environment of mortgage lending, couldn’t do with tweaking in some areas.

Lender or lending conduct?

New Zealand consumer lending legislation focuses on the lender whereas Australian laws focus on lending conduct.

Section 9C of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) requires that “every lender must comply with the lender responsibility principles”.

Whereas the Australian National Consumer Credit Protection Act 2009 (NCCPA) regulates licensees and requires them to follow rules regulating responsible lending conduct. Licensees include “credit providers” (our “lenders”) as well as persons who provide “credit assistance”, “credit representatives” and “debt collectors”.

This may seem like semantics but if you overlay lender responsibility principles with our responsible lending code you will see that our approach is on the lender doing the right thing. This is scalable depending on the product and circumstances. Our code is not designed as a safe harbour – follow the guidance and you should be right. But if you follow the guidance and the outcome

isn’t right you might still breach the principles. Equally you might not follow the guidelines but still be within the principles.

The opposite approach is to specify what must be done and so long as the boxes are ticked and the conduct rules met, you are safe even if the principles haven’t been met. Miss a box and you will be ticked off.

‘In the area of responsible lending we may appear to be the same as Australia, but we are different.’

Why not litigate?

The different approach is also reflected in the approach of the regulators on different sides of the ditch.

At a banking law conference last year, Sean Hughes, an ASIC Commissioner, explained that when approaching an issue, ASIC now asks, why not litigate?

They are given these powers so why not use them. It doesn’t mean they will; but they now address the issue.

Which may explain why they had a crack at Westpac and its process for determining whether a borrower could afford to meet their commitments based on either past financial history or a promise to stop eating wagyu beef and drinking expensive Shiraz. Westpac conditionally approved loans using its own automated decision system which included applying, amongst other things, an external Household Expenditure Measure to assist in determining loan serviceability. ASIC decided to litigate.

The High Court decided in favour of Westpac.

Our Commerce Commission is not afraid to litigate but appears more inclined to work with the lender and find other ways to mitigate and bring the lender in line with the principles.

SMEs and investment borrowers The CCCFA covers all credit contracts although a large part of it is specific to consumer credit contracts. It excludes from consumer credit contracts lending for investment purposes and lending to corporates and family trusts. However, its section on oppressive contracts applies across the board.

As a result, when the NZ Court was asked to review the Blue Chip case of GE and Bartle, although it could not apply any of the consumer credit contracts sections to a case of borrowing for an investment purpose the Court of Appeal was able to find the contract oppressive.

Even though the Supreme Court overturned this finding, the case still shows that all lending can be reviewed under the CCCFA. The Australian NCCPA, however, only covers consumer lending. It has been extended to cover some SME lending

and some residential investment lending.

As indicated in the opening paragraph when announcing the current changes to the responsible lending rules the Australian Government specifically referred to small businesses.

Because our consumer credit laws don’t apply to investment and small business lending, it is not necessary to change them to assist the flow of credit to small businesses.

Improving the flow of credit If calling for changes to the consumer credit laws in New Zealand is a result of slower loan application processing, will making changes to the CCCFA achieve this?

Maybe, but maybe not.

The impact of Covid-19 has put our economy under great stress. The Government, banks and lenders have responded with a suite of solutions such as payment holidays, interestonly periods and increased periods for default notices. Lenders have seen an unprecedented number of requests for hardship. Staff have been diverted to dealing with all of this.

Changing the consumer credit laws to make credit easier is unlikely to change this. Perhaps the very conditions that have driven this response mean that more time and attention is required for processing new loan applications.

Last year the CCCFA was changed to repeal, amongst other things, section 9C(7). This is the section of the lender responsibility principles that allows a lender to rely on information provided by the borrower or guarantor unless the lender has reasonable grounds to believe the information is not reliable. As a result of the Covid-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020, this provision has been delayed.

In the area of responsible lending we may appear to be the same as Australia, but we are different. Responsible lending is still in its infancy in both countries.

In pulling the plug on it we may be at risk of throwing out the baby with the bathwater. ✚ WWW.TMMONLINE.NZ

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COLUMNS • SALES & MARKETING

What to do with your website traffic Paul Watkins reveals how advisers can harness their website data to their advantage and gain insights into their business.

BY PAUL WATKINS

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L

ike most website owners, you no doubt check your analytics regularly to see how much traffic you are getting, which pages they go to, and how long they stay on the site.

By way of example, say you are getting 1,000 website visitors a month, but only 20 phone calls and 20 web forms filled in.

And of those 40 contacts (representing 4% of visitors to the site), only five (0.5%) become clients.

You also read that the average time they spend on your website is just 90 seconds. Hardly enough time to even register who you are or read a single sentence of text. Is there room for improvement? Yep, there sure is!

First, understand that it is not quantity, but the quality of enquiries that matter the most. A hundred good visitors to the site are far better than a thousand tyrekickers. So don’t obsess over the visitor numbers, it’s how many enquiries you get that matters the most.

As we live our lives nearly entirely online now, your website is critical to new business. If most of your enquiries lead nowhere, it is because they didn’t appreciate that what you offer is relevant to them.

Here are a few things you can do to improve the quality of leads generated by your website:

Who do you want? “Everyone” is not a target; it’s a non-market. We live our lives as individuals and want an individual solution. If I visit your website, I need to see stuff that is important to ME! I don’t care about anyone else; it's only me that matters. We are in the “me-generation” remember, and we expect providers to know that.

Therefore, start by writing down the buyer profiles of your three best types of client.

For example, one buyer profile could be residential property investors, so you might define them as ambitious couples aged 40 to 55, with a household income of $150,000+ and living in your defined geographic area.

Another might be first home buying couples, aged 25 to 35, a household income of $100,000+ and perhaps one school-aged child. Be as specific as this.

Few do this exercise, as they are afraid of missing others who may have contacted them. But the “others” are not buyers; they are the dreamers who you can’t help, and who waste your time.

You can analyse the demographics of your current website visitors and determine if they match your desired ones.

Next is to make your website messages crystal clear and relevant. People go through a four-stage decision process:

‘Start by writing down the buyer profiles of your three best types of client.’

01 I have a problem that needs solving.

02 How can you help me to solve it?

03 Let me see more to make sure you are the best option for me.

04 Now, I’m ready to make a decision.

‘If your website is more than three years old and unchanged since then, it will not be sending you the semi-qualified clients that you want.’

You must grab them at point number one. You must demonstrate to your website visitors that you clearly understand their problem and can offer a possible solution. At this point, you should note that each page on your website should be considered a “landingpage” in its own right.

Each page must “sing its own song”.

For example, you may choose to have a page devoted to investments, another to first home buyers and another to those in their 50s wanting to upsize to their dream home. This way, each advertisement, say on Facebook, would click to the relevant page and not your generalised home page.

To frame it another way; if I want to borrow for investment reasons and I land on your homepage, and it says, “We can arrange a mortgage for first home buyers, those wishing to move up to investment properties, and people who have been declined for a mortgage.

We work with all buyers – call us,” then I will click out.

Clearly, you are not the expert I would want to talk to. I am looking for someone

who understands my situation, is experienced in my market and can be of genuine value to me.

Most people now search in sentences, such as: “Specialist mortgage broker for investment properties.” There are tools (most are free) that can help you work out popular relevant search terms and phrases for your chosen speciality target groups, which need to be included in your website, so you show up on Google.

Most experts agree that you have just 10 seconds to communicate your value when someone comes to your website.

Make sure you avoid clichéd phrases and write copy like you would talk to a client.

Using the investment example above, the opening line on the page they click through to could read: “We understand the challenges of the residential investment property market. While it is important to get your head around recent law changes, it is critical to structure your mortgages correctly.”

Don’t try to emulate other websites or other similar businesses. Be honest, be open, and be you. As discussed in the last issue, put a human face on it. People deal with people, not firms, and when it comes to money, this is even more important.

What will bring them back to your website? People may not wish to buy immediately but are simply seeking information for a future purchase.

Take some young friends of mine who are considering their first home. I told them to seek out a competent broker to ask how much they could borrow, the required deposit, any KiwiSaver or other government support and to learn as much as they could so they could plan.

They searched and found three brokers

who highlighted help for first-time buyers.

Clicking on each broker’s website, Broker One had some vague singleparagraph info about first home buying, whereas Broker Two had enough great articles and blog entries to keep them on the website for over half an hour. They told me the best part was the frequently asked questions (FAQ) which addressed each of their main concerns. Guess who will get the business when they are in a position to buy?

The big bonus of the FAQs was that it qualified the visitors and put off tyrekickers. As they looked through the questions about deposits, the dangers of interest rates increasing in a few years, and what to look for in a first home, many would not have bothered to call. They will leave the site with the impression that you clearly know what you are talking about, but that it’s not worth calling you yet. A win-win.

With this couple, it was just a timing issue, but they signed up to the broker’s blog/newsletter subscription. So, they were not lost, just postponed.

When it comes to websites, what used to be unimportant is now critical.

If your website is more than three years old and unchanged since then, it will not be sending you the semi-qualified clients that you want.

The best part, however, is that these are not expensive changes to make. Have a critical look at your website and analyse the traffic. Remember, it's quality, not quantity, that you want. ✚ Paul Watkins writes blog content and newsletters for financial advisers.

WWW.TMMONLINE.NZ

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COLUMNS • INSURANCE

Insurance adviser conduct obligations: part V Steve Wright explains how to navigate the new FMC Act and Code and ensure the client understands your advice.

BY STEVE WRIGHT

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B

y now, you might wonder if my articles in TMM will ever stop being about conduct obligations? The answer is ... yes, of course. This is the last one.

Until we need another!

For now, the focus is on ensuring the client understands your advice, and it seems to me the obligation comes in two levels:

Level One – the FMC Act The first level comes from Section 431J of the FMC Act, which prohibits advisers from giving financial advice unless the adviser has taken reasonable steps to ensure clients understand the nature and scope of the advice being given and any limitations.

I interpret this to refer to an understanding of the type or nature of the advice being given at a generic level, not the actual substantive advice that is yet to be given.

At a basic level, “nature and scope” could be “advice on your life cover needs but nothing else and for no one else”, or “advice on life and disability insurance needs for all the members of your family but not health insurance and not fire and general insurance”.

It might also be wise to specifically state your advice will not include, for example: preparing wills; retirement planning; budgeting; mortgage advice; investment advice; financial planning; drafting trustee resolutions etc –

‘The client scope of service agreement is the ideal place for detailing the “nature and scope” of your advice and any limitations.’ unless, of course, you are going to do those things.

The client scope of service agreement is the ideal place for detailing the “nature and scope” of your advice and any limitations.

Level Two – the Code Code Standard 4 goes further than the FMC Act and states that taking reasonable steps to understand the advice “relates to the financial advice itself”.

Since the FMC Act already deals with the nature and scope, the Code, in my view, must mean the substantive advice itself, as contained in a “Statement of Advice” or similar document evidencing your recommendations.

Code Standard 4 goes on to say that understanding the advice includes the

Unambiguously Committed to Independent Advisers

‘Remember, there is a general duty to give the client enough information to make an informed decision about whether to accept and implement your advice.’

client having “sufficient comprehension” of: “the content” and “risks and consequences” of the financial advice; and “the nature of any ongoing and other services related to the financial advice”, so that they can make an informed decision about the advice, such as: “whether the advice is based on valid assumptions about the client’s circumstances”; “whether to follow the advice”; any fees and costs associated with following the advice; and “whether and when to seek additional financial advice”.

Finally, the Code indicates that the steps required by the adviser to ensure the client understands the advice will depend on “the circumstances, such as the nature and scope of the financial advice, and the skills, experience and vulnerabilities of the client”.

In most cases, I believe life insurance advice is given based on the client’s actual circumstances and if it is not, then the client must understand that this is the case.

Costs and limitations on advice The client must also understand the fees and costs that come with accepting your advice.

For insurance, the costs may be ongoing premiums that have to be paid, how much, how often and how these may change over time.

The Code requires advisers to ensure clients understand any need for

additional financial advice. This may include other advice services the adviser can provide or those which the adviser cannot provide.

Here, I’m referring to advice on retirement planning, estate planning, investments, tax, lending, basically any other type of financial advice the adviser believes the client should take.

I think it includes ensuring the client understands the consequences of not taking the recommended advice. This is particularly important in relation to wills and enduring powers of attorney, both of which can have significant implications for life and health insurance claims.

As far as the insurance advice and recommendations go, I think this Code Standard means many people will need to put more explanation and detail into their Statements of Advice.

Probably most would agree enough information must be given to allow clients to easily understand the risks they face on death, disability and ill health and the likely associated financial consequences; the options for dealing with that risk and the nature and type of insurance and sums insured required; and the premiums payable, ongoing services and reviews and the consequences of not following the advice.

I think it will also require more attention be paid to the client’s understanding and acceptance of what they may be missing out on and the possible consequences.

Being sure impacts of financial decisions are understood Two scenarios immediately spring to mind for me here, replacing a policy and where clients are rejecting recommendations or parts of recommendations or declining options, to keep premiums down.

Advisers must ensure clients understand the negative consequences of not paying enough to properly cover their risk, or of losing benefits when: replacing a policy; and declining options (for example: early cancer benefits on trauma cover, specialists and tests on medical cover and especially inflation protection (indexing) for monthly benefits, like income or mortgage protection).

How you go about taking steps to ensure the client “understands” depends on the client and other circumstances.

Simply asking them if they understand might be a good start. You may also want to ask them questions to check their understanding is the same as yours.

Remember, there is a general duty to give the client enough information to make an informed decision about whether to accept and implement your advice.

Oh, and don’t forget to document all of this. ✚ Steve Wright has qualifications in Law, Economics, Tax and Financial Planning and is General Manager Product at Partners Life.

WWW.TMMONLINE.NZ

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

Here are the most-read industry stories from tmmonline.

01 KIWIBANK JUST OVER A MONTH AWAY FROM ENTERING ADVISER MARKET Kiwibank says it is on track to roll out its mortgage adviser proposition and Covid-19 has not delayed it.

06 WESTPAC NOT BUDGING ON INVESTOR LVR Westpac is sticking to its 70% loan-to-value ratio limit for investor mortgages, despite rival banks loosening up following the end of LVR restrictions.

07 CONCERNS OVER NZFSG-KEPA DEAL 02 ANZ REDEPLOYS STAFF TO BROKER APPLICATIONS ANZ has redirected more staff to handle mortgage adviser applications amid a growing backlog in home loan processing.Â

03 AUSTRALIA SCRAPS RESPONSIBLE LENDING LAWS The Australian government has axed responsible lending laws in "the most significant reforms to Australia's credit framework in a decade".

04 NZFSG MERGES WITH KEPA

NZFSG has taken over rival group Kepa, as adviser businesses consolidate ahead of the new regulatory regime.

05 ECONOMY PERFORMING BETTER THAN EXPECTED: ASB The New Zealand economy is faring better than expected despite the second lockdown in Auckland, according to ASB economists.

Advisers have expressed concerns that a combined NZFSG-Kepa group would exert too much control over the New Zealand adviser market.

08 FRUSTRATION OVER HOME LOAN PROCESSING Mortgage advisers say their turnaround times continue to be much slower than direct home loan applications, leading to frustration across the industry.

09 GROWING CALLS TO OVERHAUL RESPONSIBLE LENDING CODE A growing chorus of mortgage advisers want New Zealand to follow Australia's lead and scrap responsible lending laws.

10 ARE BRANCH CUSTOMERS GETTING PREFERENTIAL TREATMENT? Advisers fear major banks are prioritising direct mortgage applications over broker-led home loans, as turnaround times worsen.

TMM Online also has all the latest mortgage rates and changes. www.tmmonline.nz

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

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

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