TMM - The NZ Mortgage Mag Issue 7 2013

tmm The New Zealand Mortgage Mag

It's time for brokers to shine

SOCIAL MEDIA PLUGGING IN TO FILL THE GAP

DEBT CONSOLIDATION TIPS & ADVICE

FAMILY SUPPORT

DRIVES BUSINESS

Issue

07

2013

CONTENTS

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12

UPFRONT 04 EDITORIAL

Will brokers survive the RBNZ game changer?

05 NEWS

The latest news from the lending and broking industry.

10 People on the move

Changes at Loan Market; more brokers at Mortgage Express.

10 This issue of TMM is full of information about how the new Reserve Bank lending restrictions are impacting on brokers' businesses and what brokers and advisers can do. The phones may have gone quiet, but now is the time for brokers to answer the call of clients and really show how they can help.

features 20 MY BUSINESS

Suzanne Isherwood has written more than $50 million worth of loans recently.

26 PERSONAL LENDING

Offering debt consolidation services to your clients is a great option for your business.

28 SPECIAL REPORT

Are you with the best disputes resolution scheme?

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20

columns 12 HOUSING COMMENTARY We round up the latest numbers to see what's happening in the housing market across the country.

18 PAA

PAA president and broker Bruce Cortesi says that brokers are well-positioned to take advantage of the LV.

22 SALES AND MARKETING

Paul Watkins gives you some strategies to grow your business now that the Reserve Bank has introduced its lending restrictions.

24 INTEREST RATES

ASB senior economist Jane Turner looks at the forecast for interest rates and Insurance.

32 INSURANCE

Involuntary unemployment is common and often stressful, but it can be insured.

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EDITOR’S LETTER

Will brokers survive RBNZ game changer?

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hen we are out amongst

the market it seems all we ever hear about at the moment is the Reserve Bank’s new lending restrictions. That’s no surprise really as they are a game changer for residential lending world.

It will be no surprise then that this issue of The Mortgage Mag (TMM) has a strong focus on the restrictions and what they mean for mortgage advisers.

A question we hear is whether these restrictions spell an end to mortgage broking in New Zealand? Or it could be more appropriately phrased as an end to broking as we know it.

There certainly is a lot of doom and gloom in the market and many reports of enquiries slowing right down.

One of the things which is hard to get a handle on is what portion of the low equity lending which was done in the past was originated by independent advisers, or the broker channel? The banks haven’t been particularly forthcoming with information here.

When we speak to brokers there seems to be a range of views. For some it makes up a big part of their business; for others not so much.

In some ways the restrictions are like a return to the days, not so long ago, of the global

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financial crisis when banks made it much harder to get loans and most sought higher equity in deals.

While it hurt broking businesses, people found a way to survive. This current situation has many similarities. What it does say is that brokers need to constantly be evolving their businesses and find ways to insulate themselves as much as possible from these external shocks.

There are some upsides. We know from the Reserve Bank that these restrictions are temporary in nature. How long they may last is unknown. Not even the RBNZ knows the answer to that question.

Secondly, banks are being very cautious with low equity lending to start with, and erring on the conservative side while they work out how to manage the situation without breaking the rather draconian rules. As time marches on they will get closer to lending up to the 10% mark.

As well as this change there will be a drive by the banks to increase their lending in the prime space as that will grow their books and allow a greater volume of low equity loans to be written.

The answer to the question of survival is this: While it is making life for brokers tough, the channel will survive and arguably become stronger. It is an opportunity to really demonstrate the value that you provide to customers.

It also reinforces the idea that brokers need to do more than send prime home loan deals back to three big banks.

Broking will survive, but it will look different.

MANAGING EDITOR AND PUBLISHER: Philip Macalister SENIOR WRITER: Susan Edmunds SUB EDITOR: Phil Campbell CONTRIBUTORS: Amanda Morrall Paul Watkins Bruce Cortesi Jane Turner Steve Wright GRAPHIC DESIGN: Jonathan Harding ADVERTISING SALES: Sarah Smith Freephone: 0800 345 675 sales@goodreturns.co.nz SUBSCRIPTIONS: Dianne Gordon Phone 0800 345 675 HEAD OFFICE: 1448A Hinemoa St, Rotorua PO Box 2011, Rotorua Phone: 07-349 1920 Fax: 07-349 1926 editor@mortgagerates.co.nz

The NZ Mortgage Mag is published

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

The NZ Mortgage Mag welcomes opinions from all readers on its editorial.

If you would like to comment on articles, columns, or regularly appearing pieces in The NZ Mortgage Mag, or on other issues, please send your comments to: editor@mortgagerates.co.nz

Philip Macalister Publisher

NEWS

Beating the banks Edge Mortgages principals have established a new advisory business to do all the home loan work for risk advisers.

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he business, The Lending Partnership, is separate to Edge and solely offers mortgage related services to people working in the life insurance space.

The business is being run by Glen McLeod and his business partner John Purdey.

McLeod says the service allows risk advisers to ring fence their clients.

Glen Mcleod The big issue, he sees at the moment, is that banks are trying to take customers from advisers by cross-selling other products.

One of the biggest threats insurance advisers face is clients having their insurance re-written by the bank, McLeod says.

“One of the bank's top priorities is to crosssell general insurance and risk products at every stage.

“They have moved from dealing with new clients over the phone, or through advisers, to getting them into the branch at the time of a mortgage settlement. In these meetings the clients are subject to huge pressure to take up the bank's risk products.”

McLeod says The Lending Partnership prewarns clients that the bank will try to sell them risk products.

Under his new business The Lending Partnership will do all the mortgage work for risk advisers, pay a 30% commission to the referring broker and also promise to cross-sell other products to those clients.

Currently The Lending Partnership is just McLeod and Purdey, however over time they expect to employ more advisers.

Edge ended its joint venture with Newpark Broking Services earlier this year and aligned itself with rival dealer group TNP. McLeod says The Lending Partnership has nothing to do with TNP, however it is offering its services to the group’s members.

He said it is also dealing with brokers who belong to Newpark.

While The Lending Partnership is focused solely on mortgages, the Edge business offers services with home loans and insurance.

Edge has 14 people after it recently bought New Zealand Insurance Consultants, an advisory firm associated with TNP founder Jeff Page. ✚

05

NEWS

Bluestone looking to NZ Non-bank lender Bluestone Mortgages has confirmed it is interested in returning to New Zealand, but it isn’t likely to be anytime soon.

B

luestone Asset Management general manager Peter Wood says the company is keeping a close eye on the market and would like to return but offering its non-conforming loans.

“We like New Zealand as a market,” he says.

“We are considering our options and what they might look like.”

Wood said it is unlikely the company would offer products in the prime space as it is so difficult to compete with the banks.

The company has been in New Zealand since

2008 but wound back all its operations during the global financial crisis and has only just started originating loans again in Australia.

It has kept up a presence in New Zealand managing its book of business as well as the loans it wrote in its home equity release product.

Recently it completed another of round of securitisation.

The A$67.8 million Sapphire V NZ Series 2013-1 Trust includes five classes of subprime residential mortgage-backed, floating-rate, pass-through notes issued by Trustees Executors. ✚

Finance Kiwibank companies loans for Maori told to stop More Maori will now have the

opportunity to build on ancestral ‘Stop Now’ letters land after the government have been sent to two agreed to changes to the Kainga finance companies Whenua Loan and Kainga Whenua by the Commerce Infrastructure Grants.

Commission.

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t has told Evolution Finance and Budget Loans to stop repossessing, or asserting a right to repossess, consumer goods where the applicable loan contract does not provide them with a right to do so.

Both companies are subsidiaries of Allan Hawkins’ Cynotech Holdings which has been delisted from the NZX and is in liquidation.

The Commission says it has evidence that shows Evolution Finance and Budget Loans are likely to have breached the Fair Trading Act by claiming they had a right under certain loan contracts to repossess consumer goods not agreed as security in the original loan contract.

Currently the commission is part way through an investigation into Evolution Finance and Budget Loans. ✚

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he loan and grant schemes were announced in this year's budget and are aimed at helping Maori land trusts and other collectives to develop housing on ancestral Maori land.

Kiwibank has stepped up to support the scheme and others may join. This has allowed for the removal of the requirement for houses built on ancestral land to be re-locatable (which was mandatory in the event of a loan default) as long as there is alternative security for the loan.

These changes open the way for urban family members to come together with their whanau who live in rural locations to build homes on their ancestral lands.

The changes also mean that grants and loans which apply to designated Maori land will now also include land that hapu and iwi receive from their Treaty settlements.. ✚

NEWS

Resimac wins battle R

ESIMAC in Australia has won a heated battle with fellow non-bank lender Pepper for control of listed lender RHG Mortgage Corporation.

The two had been fighting for control of the business, formerly known as RAMS for nearly six months.

RHG told the Australian Stock Exchange late last month that it had accepted the revised offer from the RESIMAC-led syndicate for the business. Pepper also confirmed its withdrawal from the bidding war.

Pepper’s Co-Group chief executive Patrick Tuttle said his group’s offer “remains clearly superior to the revised offer” made by the RESIMAC. He also lashed out at the RHG board saying it had “made no attempt to engage with Pepper in any meaningful way.

“We believe that Pepper will be better served by focusing on our own direct origination strategy in prime residential mortgages in Australia which will enable us to provide a broader range of residential lending products.” ✚

Brokers still important to bank Two banks have been offering mortgage brokers increased commissions to incentivise them to write business with LVRs of less than 80%.

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SB and Westpac have been offering additional commission believed to be an extra 15 basis points to help write low equity loans.

ASB general manager business banking and retail specialist services Nick Stanhope says the bank sees the broker channel as being an important part of its distribution mix.

“The broker channel is important to us.”

ASB’s aim is to grow the low equity lending part of its book so it can increase its ability to write high LVR loans.

He says brokers are also important to ASB as its presence outside of Auckland isn’t as strong as the other big banks.

“It’s critical we make sure we get our share of

that market,” he says.

Stanhope says the broker channel is treated no differently to other distribution channels when it comes to writing loans over the 80% mark.

“We don’t discriminated on any of the channels.”

He acknowledges the Reserve Bank’s marco-prudential tools have made it hard for brokers, but they need to adapt to the change.

Things brokers should consider are different sources of referrals, advertising and being more creative with how deals are put together.

TNP head Darren Pratley says the commission deals are helpful, but it is difficult for brokers to manufacture deals under 80%. ✚

07

NEWS

Restrict serviceability not equity Finance for the construction of new homes should be exempt from the Reserve Bank’s new lending restrictions.

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ewbuild managing director Ian Webb says the LVR restrictions are stopping people from building new houses.

Yet one of the issues being raised about the so-called housing market crisis is the need for more homes.

Registered Master Builders association chief executive Warwick Quinn says that 3,000 lower deposit customers will be prevented from building this year due to the new restrictions.

“The RBNZ has not made a single justification for its decision not to exempt supply side lending other than they fully considered the ramifications of implementing a policy that equally affects demand side and supply side lending,” Webb says.

He says the loss of single building consent

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should have been sufficient reason to avoid restricting the supply side lending.

Webb says the new build market is made up of three groups of customers. First home buyers make up a small percentage of new home purchaser with low deposits, with the large portion being matrimonial restarts and immigrants with plenty of ability to service debt and contribute positively to the economy.

He says that the number of people affected will only increase as potential customers elect not to sell their existing homes to build because they will no longer risk not getting a loan approved, so the loss to this sector is most likely to increase in coming months.

“The RBNZ is correct that the LVR restriction is doomed to be successful, just like bringing

a sledge hammer to a walnut festival will get results. The walnuts will be cracked, but there may be nothing left to eat.”

He is also critical about the bank’s approach to consultation saying it seeks input from the major banks who are notoriously disinterested in lower deposit construction loans and ignore specialist firms like Newbuild.

Webb says the central bank should control the maximum lending cap.

“The more a bank loans against a proportion of income the more debt can be increased, and the more house prices will rise.

“If the RBNZ were to restrict the lending cap rather than equity, it would have a positive and strategic impact on house prices. ✚

Crowd funding Crowd-funding or peerto-peer lending is set to arrive in New Zealand, but with strit rules.

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raft regulations governing the practice of crowd-funding propose to put limits around how money raised can be used.

The Ministry of Business and Innovations suggest such offers should be limited by a “principal purpose” test. This would ensure crowd-funding services match issues with investors who have small amounts to invest.

It says, in a discussion paper, that limiting crowd-funding offers through a principal purposes test “decreases the risk that these licences can be misused for wider offer scenarios.”

“This approach would prevent, for example, banks, pay day lenders, and others from setting up services to refinance their loans. We also consider it would exclude other schemes where loans are pre-funded by the intermediary,” the ministry says.

Also covered are the disclosure obligations required of issuers engaged in initial public offerings, and a host of other areas of financial market conduct and disclosure.

The Financial Markets Conduct Act is a total rewrite of New Zealand’s securities laws and financial market conduct rules. It seeks to tighten investor protections while removing barriers and costs of raising capital for businesses seeking to grow.

“This is an exciting opportunity to shape the future of New Zealand’s financial regulatory framework,” said Commerce Minister Craig Foss of the regulation setting process. “It is … central to building vibrant financial markets that work for all market participants.”

The Act will be implemented in two phases, the first coming into effect on April 1 next year the second next December. ✚

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PEOPLE

PEOPLE ON THE MOVE Brian and Bruce get new roles at Loan Market

Loan Market has made some new senior appointments following the resignation of its chief executive David Hart.

Bruce Patten is now the deputy chairman of the holding company NZFSG. It is not full time, and he will continue to own his current adviser business and devote about two days per week to his new role.

As deputy chairman Patten will provide continuity in the relationships with the broker team as well as ensuring the company continues to develop its identity and culture, its business model and its Ray White relationships.

He will also be involved in coaching brokers and advisers and ensure the ongoing development of MyCRM and other systems.

Loan Market has also appointed a national sales manager, rather than appoint a new chief executive. The new sales manager is Brian Greer.

Chairman Sam White says the main reasons for this change is that the new role will be more internally focussed on its brokers and on Ray

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White as well as the relationships with lenders, insurers and the broader industry.

Greer ran Kiwi Mortgage Market before it was sold to Allied Kiwi.

Greer’s mandate is to preserve and build the Loan Market culture and identity in the market and ensure that all Loan Market brokers get full

Bruce Patten

access to and value from the broader products and services that the NZFSG offers.

Loan Market has been working on some other appointments including a replacement for Greer’s role with another sales manager who will be based in Auckland.

RESIMAC Home Loans Seeks 4 New Roles

1. Underwriter, 1. Loan Coordinator, 1. Business Development Manager & 1. Sales Support role Bring your superior support skills and finance industry experience to roles that will grow with you and give you a clear career path.

RESIMAC Group is one of Australia’s leading Non-Bank Lenders. RESIMAC Home Loans has expanded into the New Zealand market and is driven to become a genuine mortgage alternative for NZ consumers and Advisors.

Massive growth has generated the need for 4 new roles assisting the daily workflow of all loan applications.

You will need an excellent knowledge and understanding of mortgage processing

PEOPLE procedures and have 3 years experience within a mortgage role or equivalent.

If you have excellent customer service skills, a high level of integrity, are self-motivated and autonomous with an ability to establish and maintain excellent relationships then one of these roles may be for you.

Full job descriptions are available on request – contact Adrienne Church, General Manager Mortgages, NZ. Adrienne.Church@resimac.co.nz

Willy Rathbone

Mortgage Express adds two more

Mortgage Express has appointed Willy Rathbone as a mortgage adviser in the Hawkes Bay.

Rathbone’s previous roles has spanned business ownership, corporate and financial services, and he has extensive experience in rural business.

Operating out of the Hawke’s Bay region, Mr Rathbone is looking forward to building a strong network of clients and offering long term expertise and support. “Being able to offer ongoing support and advice is extremely important to me and I believe it offers a lot of benefits for my clients, such as when it comes time to refinance or re-fix a mortgage,” he says.

“Home lending is much more complicated these days, and the one-size fits all approach just doesn’t work. By having close, long-term relationships with my clients and access to a wide range of products and services means that I can often offer significant cost and time savings.”

The company also has a new adviser in Auckland in West Auckland.

Andrew Thiele has an in-depth background of the property market, after having spent 23 years as a real estate agent. He is able to advise clients on mortgage advice, but also on recognising a good purchase, different ways to buy property, negotiating, and more.

A skilled negotiator Thiele has bought and sold many investment properties throughout New Zealand. “I am looking forward to using my experience to help other people realise their dreams.”

“Sometimes people think they can’t or won’t

Andrew Thiele qualify for a loan, but I can look into all the nooks and crannies for other solutions. It’s about being knowledgeable, supportive, and able to negotiate at all levels.”

New Liberty boss

Liberty Financial has a new boss in New Zealand.

The former head of the business, Peter Rolloson, has returned to a role with the company in Australia.

Simon Frost has taken over the responsibilities for Liberty and Mike Pero Mortgages in New Zealand. He will relocate to Auckland in December and TMM will have more on his appointment in the next issue. ✚

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HOUSING COMMENTARY

By Susan Edmunds

Credit limits cool

INCENTIVE

Home buyers are getting in quick before the market hardens.

REINZ HOUSE SALES: UP Sales lifted 2.6% in September, after a 3.2% drop in August

INTEREST RATES: NEUTRAL Short-term rates are cheap but anything longer than three years is becoming more expensive.t

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f the housing market could be

summed up with one phrase, it would have to be, “wait and see”.

Loan-to-value restrictions have been in place for about a month but so far it’s too early to say what impact they will have on house prices and activity over a longer term.

By mid-October, the number of mortgage approvals was at its second-lowest level in six months and had been consistently below the level of the same time in 2012 for several months.

But migration has turned around significantly.

The net inflow of 2740 people in September was the strongest migration boost to New Zealand’s population in a decade.

The latest data available from the Real Estate Institute and Quotable Value still covers the period before the loan-to-value restrictions kicked in. From the start of October, banks had to keep their new lending to low-deposit

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OCR: UP No sign of an OCR increase yet.

It’s predicted for March 2014.

IMMIGRATION: UP The strongest inflow in a decade has been recorded.

borrowers to no more than 10% of their new loans.

That seemed to prompt a surge of buyers to get in quick before it became a lot harder to get into the market – new record prices were recorded in Auckland and Canterbury in September and the national median price returned to its March high of $400,000, the Real Estate Institute data showed.

Chief executive Helen O’Sullivan said September’s turnover was 19% up on the same time a year before and was higher than would normally be expected, even in the regions.

“Northland is experiencing a very strong uplift in its sales volume trend, with Taranaki and Nelson/ Marlborough also showing positive trends in sales volume and price, although these three regions remain some way behind Auckland and Canterbury/Westland in terms of pure price movements,” she said. “Waikato/Bay of Plenty is

BUILDING CONSENTS: UP Consent numbers rose 1.4% in August but it will take a long time for construction to catch up after several very slow years.

MORTGAGE APPROVALS: DOWN Approval rates have slowed in October and the average value of approvals is also easing.

RENTS: DOWN Rent growth is at a 16-month low of 3.1%.

also seeing a noticeable uplift in sales volumes.”

But significant price movement is still reserved only for the biggest centres. Outside Auckland and Canterbury/Westland, median prices are still below what they were in November, 2007.

QV’s latest index showed nationwide residential values for September were up 8.4% over the past year and 2.6% over the past three months. Prices are now more than 9% up on their 2007 peak. Auckland’s prices have increased 13% year-on-year and values are now 21.3% above their previous peak, or 5.6% when adjusted for inflation.

Research director Jonno Ingerson said it would take some time for the restrictions to really affect the market, because banks had issued preapprovals that were yet to be drawn down. “This is likely to cause a short-term flurry in activity as people rush to secure a property before their pre-approval expires,” Ingerson said. “While the

"The past two or three months had been typified by uncertainty in the market "

LVR caps may have an impact on first home buyers with limited deposits, it is likely to have little impact on other buyers. What remains to be seen is whether the overall activity and price levels in the market are affected, particularly in areas with more affordable properties.”

Gareth Kiernan, of Infometrics, said the past two or three months had been typified by uncertainty in the market. People wondered what the Reserve Bank was going to do, then how it would affect them. “If people aren’t going to be affected themselves, they are probably waiting to see what happens,” Kiernan says.

He said he expected sales and prices to move sideways over the next nine months to a year.

“You’re restricting credit to a sizeable chunk of the buyers out there.”

Harcourts said it had noticed people trying to beat the restrictions. The real estate agency said it saw buyers willing to pay more in September than they normally would have, just to secure properties. Its figures show the average house in Auckland sold for $640,739 – up 7.7% from August.

It was the highest average price the agency had reported all year and was 17% more than the same time in 2012.

“We expected a market reaction before the LVR restrictions came in, and this has been a significant one,” Harcourts said.

“Next month’s statistics will show whether there will be any cooling in prices, as is the Government’s intention.”

But Barfoot and Thompson noted no noticeable difference in activity for its agents in September. Prices were as high as they had ever been but managing director Peter Thompson said they were increasing at about the same rate they had all year.

The agency’s 1105 sales in September were down 7.9% on August, but up 14% on the same month the year before.

Thompson said: “Month-by-month variations in sales numbers are common, and if the Reserve Bank’s new regime was to have had an impact, I would have expected more rather than less sales in September as buyers sought to get in ahead of the new deposit requirements.”

NZIER chief economist Shamubeel Eaqub said there was no doubt that the flow of credit into Auckland in particular would be significantly slowed by the LVR restrictions. But he said when it came to house prices, it was hard to tell what would happen. International

experience had been mixed.

Banks would want to target people with more equity in their properties. “They still are going to lend but they are going to get more aggressive in their lending to high-quality customers,” Eaqub says. “We expect the premiums the banks make on their traditional, lower LVR mortgages will get smaller.”

Anecdotal reports from real estate agents, investors and brokers suggest that open homes have since slowed significantly and first-home buyers have retreated from the market. Real estate chief executive Helen O’Sullivan said more time was needed to determine whether that was driven by the new lending restrictions, or if it was purely because school holidays were dominating buyers’ time.

A common theme in the Auckland market is the lack of supply. It’s been lamented by everyone from real estate agents to embattled mayor Len Brown when he announced the first of the new special housing areas in the city – where resource consents will be fast tracked.

But Auckland Council’s chief economist says it’s interesting that rent prices have not kept pace with inflation.

If it was a true housing shortage to blame for skyrocketing prices, it would be logical to expect that rents would follow suit.

Geoff Cooper said that while median house prices in the three months to September were 10.8% higher than the same period of 2012, rents rose just 3.4% over the same period.

“There is no sign, as yet, that rental inflation is gaining momentum,” Cooper says. “It’s not entirely clear why, given we’ve seen a sustained shortfall in housing supply relative to population growth, that there is not more pressure on rents. It does suggest that there has been a considerable speculative element to the recent run-up in house price growth. It’s also possible that recent sales activity has added to the rental stock, which would have taken some pressure off rents.”

Westpac chief economist Dominick Stephens said house prices could be expected to start falling in 2016, and investors could see their returns suffer. He said mortgage rates would average 7% in future, compared with an average 7.5% over the past 10 years.

“This has important implications for the housing market,” Stephens says. “We expect that mortgage rates will have to rise above this new average to keep inflation in check.

As mortgage rates rise, they will crimp housing affordability, worsen net returns for landlords and skew the rent-or-buy decision away from buying. Of course, there are still many unknowns for house prices, such as what will happen to the tax structure over the next 10 years, or to what extent new building will relieve pressure on rents.”

But he said even if rents increased 4% year on year and there were no major tax changes, prices would likely start to cool by the end of 2015. ✚

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LEAD STORY

How brokers are faring in this new world The Reserve Bank's lending restrictions are new and untested.

Susan Edmunds talks to brokers to see how they are dealing with the changes and what brokers are doing.

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hones that have gone silent.

Deals turned down.

Or should that be phones ringing hot with calls for help, and skills and experience used to massage deals across the line?

They’ve been called one of the biggest interventions in the banking system in a long time, but how much loan-to-value restrictions recently introduced by the Reserve Bank affect brokers seems to depend a lot on with which part of the market they are involved.

From the beginning of October, banks were required to lend no more than 10% of their new loans to people with a deposit of less than 20%.

But anecdotal evidence is that, because they are still feeling their way and wary of the caps, they are lending much less than 10% of their new loans to low-deposit borrowers.

More than two-thirds of low-deposit loans are reportedly being turned down by the banks. And some brokers say the media coverage of bereft would-be first-home buyers who have been spurned by the lenders is scaring others away from even trying their luck. Large portions of the

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market are sitting on their hands, either waiting to save up a deposit, or waiting to see what effect the rules have on the market.

So far, it’s clear that the hardest-hit portion of the market is first-home buyers.

Not all first-home buyers have small deposits, brokers point out, but most do.

Especially in Auckland, it can be very hard for people who do not already own a property to save 20% of the purchase price to beat the restrictions.

PAA’s most recent mortgage broker of the year, Grant McFlinn, has built a strong customer base by providing advice and assistance to people trying to get into their first homes. He once described himself as a “dad” figure, who could help young people learn from others’ mistakes.

He says he is sure that the loan-to-value restrictions will make a big difference to a lot of young people. “It has to,” McFlinn says.

But when he recently had to ring clients who had had their ASB preapprovals pulled, he found they were almost relieved to be told they were out of the market for the time being. “Realistically, people with a small deposit have been finding it

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LEAD STORY increasingly hard to compete. [At auction] they have to have a property valued beforehand and they can only bid up to that point. But then if there’s another person there with more equity, they can keep putting their hand up until they own it. The restrictions will have their desired effect but how much? We’ll have to wait and see.”

Now the rules were in place, it was not impossible to get finance for people with small deposits, he said. But it generally could not be done in the short timeframes that are being allowed for auction campaigns. He was one of many brokers who said that agents could tap into the first-home market if they were willing to forgo the auction strategy, which has seen about three-quarters of Auckland properties sold under the hammer over the past year.

Campbell Hastie, of the Go2Guys, is another broker who has made a strategy of targeting firsttime buyers. He said the number of enquiries he was receiving had dropped by about a third since the loan-to-value restrictions were introduced.

“I suspect they will come back but I think the method of sale will have to change,” Hastie says.

It is very hard for people with small deposits to bid at auction now, because preapprovals are hard to come by and those that are already in the market are running out.

If people found they were no longer getting top dollar for properties in the first-home buyer price range, they might change their strategy to by negotiation or a fixed price, he said. Those bidding at auctions on cheaper properties would now mostly be investors, who were not as emotionally-connected to the property or as likely to bid the price up to extreme highs.

Ian Webb, a broker who is the PAA’s mortgage specialist, said it would remain to be seen whether banks would hoard the low-deposit market for direct customers, or allow some of the approvals to come through banks. If low-deposit loans were very sought-after, banks could well be reluctant to allow the brokers any part of that market, he said.

Webb said while he could understand the Reserve Bank had to do something, it had pulled the wrong lever and would get the wrong result.

“They might just as well have asked all left-handed red heads to not bother applying for a loan; it is just as logical as the LVR restriction the RBNZ has put in place. There are good solutions being offered to the RBNZ if they choose to swallow a little pride and listen to those who also genuinely want to see New Zealand prosper, too.”

Brokers could not help but to see an impact of the changes in their businesses. “Banks have about 30% low-LVR lending,” Webb said. “If you cut that out you could expect brokers and the banks to see a drop by about 30%. Whether that’s short-term or long-term is hard to tell.”

Squirrel has mortgage brokers that specialise in different segments of the market, from firsthome buyers to investors and Chinese and Indian communities. Director John Bolton said the traditional “Kiwi” market was down by about 50%.

But he said the Chinese and Indian markets were a lot less affected, although people were more

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In September, it was crazy busy with people wanting preapprovals but we had to tell them they were already too late. The banks had clamped down

by September.

– JOHN BOLTON hesitant about buying as they waited to see what impact there would be on mortgages. Very small proportions of Chinese and Indian buyers had low deposits, he said.

Bolton said business overall was down by about 20% or 30%, which was a tough blow to handle for a large company with ongoing overheads.

“It’s not like a one or two-person brokerage where you live off commissions, I pay a lot of salaries.”

A lot of would-be customers had seen the extensive media coverage of the rules and had just given up. They weren’t bothering to even call to see whether they might qualify any more, he said. “In September, it was crazy busy with people wanting preapprovals but we had to tell them they were already too late. The banks had clamped down by September.”

Some brokers had told him that their business had dropped off by up to 60%, he said. “Brokers who rely on real estate agents who only tend to throw them the trickier deals will be dead in the water. People who have targeted low-end firsthome buyers in the working-class areas will be dead in the water, too. Those are the markets that have been hit the hardest by the changes.”

Super City Mortgages broker Joel Oliver said he had seen enquiries drop over October, after a spike in enquiries ahead of the restrictions.

“Low-deposit buyers are still out there but for nine out of 10, I have to say I’m unable to help them. There’s not a lot of funding available for first-home buyers.”

But after 12 years in the business, he said he had built up a good portfolio of clients who had more than 20% equity in their properties.

Those people were now in a good position and in many cases the banks were willing to work hard to get their business. “Some brokers have most of their business in the over-80% space but I work a lot with investors, and there’s quite an elevated amount of inquiry from investors and less competition in the market.”

Investors with good equity were taking the chance to snap up deals while first-home buyers were out of the market, he said.

The broad-brush approach to the restrictions

has been heavily criticised. There were hopes that regions, types of housing and even first-time Kiwi buyers might be excluded from the rules. But the Reserve Bank opted to make them fairly universal.

Webb said it was a shame that new homes were not exempt.

His brokerage, NewBuild, offers lending for construction.

Loans for construction of new homes would be disproportionately affected. “Currently, given there is now a strict quota of low deposit lending, the complexity of construction and the existing lack of appetite for this type of lending only exacerbate the issue,” Webb said. “Banks are even more likely to apply that quota to existing home purchases rather than the more complex, perceived riskier and time consuming construction loans, creating greater pressure on builders.”

He said it did not make sense not to have exempted the very homes that would have gone some way to address Auckland’s housing shortage, which is widely blamed for rising prices.

Webb said hundreds of people would now not be in a position to build and people who were considering selling properties in order to build new would not do so out of fear that they would not be approved for their construction loans, he said.

But in terms of feeling aggrieved, you don’t get much more hard-done-by than regional New Zealand.

For a couple of years now, they’ve watched as Auckland and Christchurch prices shot ahead, while their own stayed relatively stagnant.

PAA former general manager Jenny Campbell said high LVR lending was hard to get outside the main centres, anyway – adding to that with rules and regulations would stop fledgling markets in their tracks.

Rotorua broker Traci-Lee Klinac, director of Talk Mortgages, said the change had hit her business very hard. Previously, she had been able to help first-home buyers into a property through a Welcome Home Loan with no deposit if the property they were purchasing cost $200,000 or less.

When the loan-to-value rules changed so, too, did the rules for the Welcome Home Loans. Now, people need a 10% deposit. Klinac said there were no first-home buyers with even a 10% deposit in her area. The only deals that could be done were those that had the backing of parents.

It was lucky that the business had diversified a bit over recent years, she said, otherwise it would be a huge hurdle to overcome. “First-home buyers have dried up. The only thing that is going to work is with guarantors. We used to target firsthome buyers – that was our market. If we carry on targeting them, we’ll have to do it with the mum and dad link up.”

She said it was very unfair that the regions were being caught in the same rules as those that applied in Auckland and Christchurch. She said they should only have applied to the big centres, or only to foreign buyers, if they were to blame for rocketing prices. “We had no growth last year,

LEAD STORY and the number of sales went from something like 85 to 87.”

A solution would be for banks to reserve what high-LVR lending they were able to do for the regions, she said. “They shouldn’t allow any over 80% in Auckland and Christchurch and the regions should get the priority because we’re not the ones who cause problems.”

But some brokers say the rules may prove to be a blessing in disguise, or a kind of wake-up call to the market about the value of good advice.

Broker Jeff Royle said his phone was running hot with enquiries from people who needed help finding a solution after being turned down by the bank. Loan Market’s former chief executive David Hart said it was moves such as this that made the role of brokers even more important, as they helped would-be buyers navigate the rules to find a deal.

Some brokers will be able to advise clients on when was a good time to approach banks and which still had the capacity to offer more low-deposit lending at a particular time. Hastie said he expected ASB to come back into the market strongly.

Webb said he was being approached by a lot of buyers who needed extra reassurance. The market was very anxious and worried, he said.

“There’s fear, anxiety and a lack of understanding.

People might already own a home but they are

At the end of the day, it’s pretty tough when volumes are down... just like post-GFC, some brokers will really struggle. fearful that if they sell it, they won’t get another loan approved. They don’t fully understand what the rules are about. I’ve not only seen a drop in low-deposit borrowers but also the higher equity people who aren’t affected. And all of those proceeding with sufficient deposit have asked, without exception, how the rules will affect them.”

Bolton said any time there were tighter lending rules, it would benefit brokers because it strengthened their value proposition. People who put a deal through a broker would have a better chance of getting it approved, especially if they were dealing with an inexperienced branch

employee. “A badly-pitched deal to credit will get declined. You’re always better off dealing with people who are experienced.”

But he said in reality there were not a lot of options that brokers could pull out of their hats when banks were not playing ball. He said Resimac did very little lending and there were no other non-bank lenders that would do much in the above-80% mortgage range.

Banks would not accept a second-mortgage for low-deposit buyers. “We have been discussing opportunities around limited guarantees, which works well and the banks will eventually loosen up again and we’ll be able to massage a deal to get it through.”

But it would be hard going for some brokers, he said. “At the end of the day, it’s pretty tough when volumes are down… just like post-GFC, some brokers will really struggle and some may have to leave the industry but I don’t think it will be that many.

It’s been a tough industry to be in for a long time, but every so often you get little periods where there’s a run and people come in and think it looks cool. Then they realise that it’s pretty hard and tough to get a living out of it. For mortgage brokers, the toughest bit is building a client base, and one that doesn’t disappear overnight when the Reserve Bank changes its mind.” ✚

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By Bruce Cortesi

CLIENTS Advisers are best positioned in the new 80/20 LVR environment. Clients can benefit from their expertise.

F

or financial advisers who provide advice in the home loan space, one could forgive you for feeling a little apprehensive given the recent changes to the LVR rules as imposed by the Reserve Bank. An abundance of media coverage on the pros and cons of this recent approach will serve no purpose here.

However, what will be important to you will be how you now work in a market for first home

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buyers that has shrunk overnight.

I believe the key is in the synonyms for the word ‘adviser’.

These are quoted as: counsellor, guide, consultant, confidant, confidante, guide, right hand man, right hand woman, aide, helper, instructor and guru.

The words embrace all the different roles an adviser must play if they are to really make a difference in the lives of those who seek

mortgage advice. In other words, they are almost impossible words for a bank to adopt and deliver. Yet advisers still see banks as a competitor? I question this as without the incentives, what significant service offering do they have? They do not have the ability to compare their offering against that of other lenders for a start. You do. But this is not the value proposition.

It is without any doubt that the process from the very start to the completion of working with a first home buyer, or existing home buyer for that matter, includes most of the above at some point. One important advantage financial advisers have is that they are the master of the most important element of this profession – time! Time allows you to be a counsellor for the first home buyer, helping them compare different lenders, understand different mortgage structures, interest rates etc. The financial adviser usually helps the client through the home purchase process, understand how to make an offer, what a conditional and unconditional offer means and, above all, be a confidante the client can trust and ask questions. This part of the process also means you will be their guide, helping the client navigate through the house purchase process, the right hand man or woman that works for them, not the lender.

Again, this process will not change.

The problem is that you will have some difficulty re-gearing your business if these are the synonyms that describe you as an adviser.

As we all know, we are starting to see some signs of banks re-gearing their business to cope with the reduction in mortgage lending revenue. Just this week one bank has announced changes to the way they will charge interest on outstanding credit card balances from the billing cycle to the actual transaction date. This is going to come as a surprise to many people and may place them under cash flow constraints. Banks are also preparing a more aggressive campaign to existing home owners who have mortgages that fit the 80/20 ratio. This means your clients could be at risk if you have only delivered a service as described above.

What you need to arm yourself with is the second set of synonyms which are coach, trainer, teacher, tutor, mentor and guru. You need to be in the face of your existing clients which also include part of the six steps advice process – the ‘review’. You are positioned to be the most important person in their life – their adviser, teacher, coach, trainer, tutor and mentor.

To ensure your business remains sustainable, you may need to emphasise your role on being a teacher or tutor. This could be teaching your clients how to restructure their budget, or even have a budget that they can stick to, and how this can save tens of thousands of dollars in mortgage interest they will have to pay. It still amazes me how many existing home owners still have no idea

❝ There is nothing wrong with ‘refinancing’ if the rationale is clearly identified and documented. ❞ how interest for a home loan is calculated and charged.

Once you have taught your client how to get the most out of their mortgage, you will need to coach them through the process. An easy way to manage this part the use of technology – from a simple email update once a month, to text message, or even a follow-up meeting.

Part of this process will be communicating with your client in advance prior to existing fixed rates coming off and helping them make the right choice; in other, words advise them of what is the appropriate course of action based on the information you have at any given point in time. Remember, you are their adviser, and they want advice. They certainly don’t want “here are the rates, this is the lowest rate. What do you want to do?” This is not advice. This is the real WIIFM you can add.

This is where you can compete effectively if you are not already doing this now.

You will need to ‘train’ your clients and remind them the value you provide them at each review. I would suggest that for some clients you might want to make reviews on a six monthly cycle.

Banks do not have enough people on the ground to offer this relationship based service.

Subjectively, it is likely that banks will step up the incentives that we are already starting to see such as not only flat screen televisions, but full home theatre systems and $1000 plus towards legal costs to switch. Herein is a potential trap for clients that you play the most important role for the industry at large, that of being their ‘mentor’. Any client who changes from one product to another due to being influenced by an incentive offering is a practice that is likely to give rise to concerns from the FMA. The financial services sector has certainly received attention in this respect during the whole regulatory process, and the evolution of the Code of Professional Conduct.

There have been many examples in public advertising incentivising the public to make a very important financial decision which ultimately dilutes the advice process. It does nothing for financial literacy for New Zealanders – something the Government has already raised concerns.

Even worse is the client who refinances to get the incentives, who might have had their existing mortgage for the past 10 years, and

ends up with another 30-year term.

The client sees the short term financial saving but ignores the long term potentially serious impact this could have. There is nothing wrong with ‘refinancing’ if the rationale is clearly identified and documented. This is where your mentoring can ensure the client is well informed about the pitfalls and traps of such ‘bogus advertising’.

For many, the additional service discussed here may seem a big trade off for even less financial return. However, no one would expect that you would provide this service without charge, and providing your client with good sound relationship based advice is of huge benefit. Discuss your long term service with your client and tell them how you can help them reduce the interest charged if it is an appropriate solution. From this service comes value that your client will appreciate and open the door to referrals. Not just any referral, but people you can do business.

When one decides to appoint a tutor, one expects to pay for being tutored.

Yet to be fully switched on are the second tier lenders waiting in the wings to provide that crucial bridge for first home buyers who require higher the 80% finance. We have been in this space before, and for some New Zealanders the experience was not a good one. The need to carefully screen your clients is even more critical when considering second tier lenders. Consider whether this is a market you wish to enter, and if so, make sure you follow a good documented process.

Now is the opportunity for advisers to really shine for clients. It would appear that clients and the general public are actually seeking mortgage advisers more due to fact that the media has highlighted the 80% LVR, and that their personal bank they may have been with for years will not have the solutions for them.

We as advisers have a great opportunity to help clients with the over 80%. Welcome Home Loan is a classic example and only a few banks are able to do this. Ninety per cent lending is still available and while the criteria is limited to first home or second chance clients on a lower buying range it has been made a little easier with the income levels being raised for a couple for instance. While it appears that the banks have had their wings clipped a little at the moment, advisers have a great opportunity to help clients with our wider scoped and solution based advice process.

The PAA is going to be rolling out a number of ideas and concepts that while applying to advisers working in the Home Loan market, are applicable to all advisers. We are focused on working on real benefits that provide real value to our members and their business.

We are excited about our plans and the opportunities that will support the fantastic work our members provide to New Zealanders.

These initiatives will be rolled out over the coming months. ✚

019

MY BUSINESS

By Amanda Morrall

Is the flexibility one of the reasons you’re in the job?

Absolutely. HSBC were great and offered flexible shifts but I missed being out on the road and meeting people. I can help people more by doing what I do now.

How much value do you place on face-to-face contact?

It’s invaluable. I'm a huge believer in body language and you can talk to people on their own terms by coming to them. You can get somebody who walks through the door and you know straight away it’s all business. Then you get those who like the chit chat, and want to get to know more about you. It’s really important because you can misinterpret emails and misinterpret phone calls. Face to face, you usually get it 100% right.

Wise

Words

Meet one of Mortgage Express's top brokers, Suzanne Isherwood, who has written more than $50 million worth of loans in the past year.

How did you get into the business?

I stared off working for Barclays in the U.K. as a branch manager for three and half years before I moved to New Zealand. Once I moved here I went straight into it working for HSBC where I ended up for 7.5 years. My permanent last role with them was the business development manager in the broking team.

The unit was subsequently closed down because they decided it wasn’t the business route they wanted. After taking some time off to start a family I went back as a Private Client Manager before becoming an adviser.

What appeals most to you about the job?

I like going out and meeting different people; there are so many different cultures in New Zealand. Where I was working in the UK, it was a small coastal town with little diversity.

Here, it’s so varied and diverse. I love meeting these people hearing about their stories, their

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backgrounds and trying to help them. I'm not stuck behind a desk 24 hours a day and that’s a huge pull too.

What’s a typical day look like?

Early starts and late finishes. I begin around 6am, checking emails while my daughters are waking up, get lunches sorted and help them get ready for school. After school drops off, I have appointments right through till lunchtime. After I collect the kids from school, I’ll work through the afternoon at home, then it’s back out for another two or three appointments in the evening. When my husband gets home he takes over and makes dinner and then I'm out the door and I try to get back to kiss them goodnight. I still take and returns calls on the weekend but generally I take the weekends off from appointments. The flexibility works from a family lifestyle perspective.

What criteria do you use to match clients with mortgages?

It’s so varied. Everybody is different; you rarely get the same deal twice. Initially, what I’ll do is give them a call and have a 10-30 minute discussion to find out a few details to see what they are looking for and then we just take it from there. I’ll tell them what documents they need and then we’ll meet face to face and complete a fact-finding questionnaire which looks at short and long term goals. We cater around that. I’m just the prompter asking the questions to guide them through the whole process.

To what extent are you advising on other matters and do you see value in becoming an authorised financial adviser (AFA) as well as a broker?

I’ve done all the qualifications to become an AFA two years ago but I haven’t switched from being a registered financial adviser. Personally, I don’t see the benefit of swapping to be an AFA at this point. A lot of customers out there still don’t understand the difference. The Government hasn’t done much advertising to make people aware of the difference. For me, there would be more cost involved to switching. I don’t mind paying those costs if there was a benefit to me but at this point there isn’t, so for the time being I’ll remain a registered financial adviser.

Do you have a typical client?

First time home buyers make up the bulk of enquiries I get. It’s mainly those wanting to get in on the market and not knowing what they need to do. I have a lot of conversations about what people need to aim for, how they need to get to where they want to be. It’s up to them at the end of the day if they can be strict enough with themselves.

What’s the benefit of using an broker/adviser in your opinion?

MY BUSINESS

A lot of people talk to the banks and they don’t seem to get the right advice. They (bank staff) don’t seem to be as well informed they are busy needing to know a lot about a lot of different products, where I live and breathe home loans and feel I can give them better more qualified advice.

How many clients are using their KiwiSaver funds to buy a home?

They’re trying to slow the market down but effectively the main impact will be first time homebuyers or buyers with low deposits.

I don’t know how they could slow the market down any other way to be honest but it’ll be really tough on those buyers who will have to have a real strict discipline to save.

I really enjoyed it. When you joined the bank in those days you started off in the back processing and then you went onto the tellers and then sales so you get a really good grounding in how banking works. Some advisers don’t have that back office experience and I think it’s invaluable as a broker.

How many people having 20% down payments saved?

Winning the Harcourt award (most business written) has been fantastic. It’s such a competitive team, great and friendly and the other advisers I work with are brilliant.

Do you have any special relationships with the banks or other lenders?

I had six client requests for preapprovals last week. All were first time homebuyers with 90% finance seeking pre-approvals. We just can’t get them so it’s affecting a lot of people really quickly. There was a big rush of people trying to get on the market before the changes.

Do you have any issues with putting people into finance companies?

I’d like to take early retirement and spend time travelling around Australia. I’d like to get business up and be able give it up to somebody maybe in my late ‘40s or early ‘50s so I could make the most out of life. I’d like an early retirement because it’s a short life and I want to make the most out of it.

More and more all the time. It’s a great scheme but it’s just a bit pedantic trying to get the money out for a deposit. It’s a great way to save for a house for those who struggle to save.

There’s a few that won’t deal with advisers: BNZ, HSBC, Kiwibank, TSB. So we have ANZ National, ASB, Sovereign, and Westpac but we also have a huge list of finance companies as well. I have a dedicated person with several of the banks and we work really well together.

With my customer base at the moment I don’t deal a lot with them but from time to time there’s an application that comes along and it’s a perfect fit; it’s always a shortterm solution until they can get into the mainstream. So for those who want to and can afford it, it’s a means to an end.

What’s your plan for retirement?

Did you always know you’d end up being a adviser?

Not at all. When I finished school I went and did two diplomas in Business & Finance. My dad guided me into that because I didn’t know what I wanted to do. I ended up in banking,

Highlights of the job?

Do you have any goals in business?

To expand maybe bring some other advisers on board and build up volume but I’d like to stay in touch with my customer base.

What are you reading now?

I don’t have time for books but I do love reading.

Whose been your biggest influence or inspiration?

My dad, who is a very successful businessman.

He’s always been pushing me to work on my career asking me what my next move is. Between him and my husband Chris, they keep me moving forward and fully supported. There’re days when you can doubt you’ve made the right move, particularly when you are starting off and you’re doing cold calls but you just have to keep going, don’t take anything personally. ✚

How has business changed under the new LVR policy was introduced?

It took effect October 1, but the banks already put into place the restrictions two to three weeks earlier. The general public hasn't quite realised what’s happened. What we have to do now is look at other ways of helping these first time buyers or buyers with less than 20% deposit into property. The ways of doing that are seeing if there’s any family available to offer funds in the way of gifts or loans or we can do a guarantee so we take their property as security along with the new purchase. This is really affecting first time homebuyers and could possibly have a knock on effect. Whether it slows the market down I don’t know.

Is it going to hurt your business?

I am doing less pre approvals now because that’s the bracket that’s been affected. So my client base is going to shift now to purchasers who’ve gone out and bought a house and are looking for finance. So once they’ve bought we can look at over 80% but not before. We can still guide people and show them their options but we really need them to be able to put a finance clause in a contract so it’s reduced options such as buying at auctions.

Will these added constraints protect or hurt homebuyers?

021

SALES & MARKETING

By Paul Watkins

HOW TO WORK WITH THE CHANGED

LVRRULES With traditional media supposedly in its death throes, social media tips can help young home owners.

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M

any young home buyers

will be concerned that they can no longer buy a home, yet you will know ways to help them. So you need to tell them!

This article will go through one way to make your ability to help known, in a way that offers added value. It is not the only way of course, but will hopefully give you ideas and introduce you to a new way to market your services.

You don’t offer any obvious point of difference, as every broker in the country can access the same lender’s products. So why you?

The answer is because you genuinely offer value to the transaction. This is achieved by proving that you know what you are doing. Any professional services require building trust and credibility as the prime consideration in any promotional activity. This idea has been proven to work for almost all professional services, as it proves your knowledge.

First, write a short report called something like ‘5 Ways to Get Your First Home Loan if You Don’t have the Required 20% Deposit’ or ‘How To Get Your First Home Despite The Rules Around Deposits’ Make the title obvious and don’t worry about how long it is. Spell out exactly what you are trying to say.

It doesn’t have to be long. For example, if it is the “5 Way…” then put one idea and a stock picture on each of five pages, add an intro page and make the last one all about you. That’s just 7 pages plus a cover. Write it in MS Word and use one of the many free Report Templates.

Just search for “Free Word Report Templates” in Google. The layout is done for you that way.

Of course there is an assumption that you can offer ideas on how to get around the LVR rules, but recent conversations with brokers tell me you are all well-schooled up on these. Once you have written it and included a few illustrations, have it checked for errors. Don’t rely on red or green liners appearing in your text from Word.

Then turn it into a PDF.

❝ This puts you at the forefront of being the expert.

And the cost is almost negligible as far as promotional activity or advertising is concerned ❞ Now, create a page on your web site dedicated to this report. If you are not sure how to do this, ask the person who created your web site. Or get one of the myriad of others out there who can to help. The page should have the same headline as the report and a bit of supporting text. The report must only be able to be downloaded if they give their name and email address. The system is that page should be set up to auto-email the enquirer the report once they confirm their email. This is a simple plug-in for a web developer to set up for you.

You then have the enquirer’s email and name.

When the report is emailed to them, it will be as an attachment in an email that includes a message from you. Explain at the bottom of the email that they will receive regular updates from you on this for ever changing mortgage landscape, particularly in light of the fact that we are less than a year away from a general election.

No harm in adding to the perceived urgency of you keeping them up to date. It must legally include an ‘opt-out’ so that they can decline the opportunity for future mailings.

So, you now have a valuable report that positions you as the expert on the LVR problem.

But how to do you get traffic to your dedicated page? The most effective promotional tool right now for professional services is Facebook. Yes I can already hear the collective sigh from you!

But don’t ignore it. As an aside, did you know that there are 2.4 billion people in the world connected to the internet (that’s one third) and of those, 1.2 billion are on Facebook. That’s half of all the world’s internet users! How to market effectively on Facebook is a topic in its own right, but for now I will go through a process specifically for the purposes of marketing this report.

Find ‘Manage Ads’ on you page (top menu) The first section you will go to is 'All Campaign & Ads' - on the right hand side of the screen you will see a green button called "create ad' - select this.

Select the URL for the report page of your web

site. As people click on your advert, they will automatically be sent to your page.

Next create a suitable headline.

Then upload your image, best choice being the cover of your report.

Scroll down. The screen splits into two – on the right hand side is the "Right Column Format" which generally doesn’t generate a lot of clicks, but they do serve a purpose as a conscious reminder.

Right Column Ads generate more views than any other type of Facebook advertising, but essentially they serve like posters on a wall.

On the left hand side of the screen is the News Feed Format. Connect your Facebook page (it should automatically, otherwise just enter the name of your page) Oh, by the way, you do need a Facebook page to do this.

Next write a description. You are limited to only a few characters so make it short and snappy.

Scroll down to create your audience.

Here you target your audience as specifically as you wish. For example you can select by age group, by location (your town or city) and even what they are into.

Next section is Campaign Select. Create a campaign name. Select your budget and the schedule if you want. Otherwise select run my campaign continuously; just remember to turn it off at some point.

For Bidding & Pricing, select Optimize for clicks, auto bidding.

And you’re done! That may sound a bit confusing, but as you follow through setting up a Facebook campaign, it is all fairly straight forward.

You must have pre-prepared a short series of email follow-ups. Any promotion that just hits once is a waste of time. You now have their email address, so email them again one week later then monthly after that. A number will of course optout, but if the emails are interesting enough the losses can be reduced.

So let’s recap. The cost of producing the report is zero. The cost of setting up a dedicated web page is around $400 depending on who does it. The cost of the Facebook campaign is whatever budget you select when setting it up.

You might want to start with just $200 and see how it goes. This is a maximum of course as you only pay per click.

And to add to this, send out your regular newsletter to existing clients explaining the report and have them email or phone you for a copy.

Remind them that they may know someone, such as their own kids who would benefit from the contents of the report.

Is there a danger that they will read your material and then choose another service provider? Of course there is. But if that stops you doing this then think again. This puts you at the forefront of being the expert. And the cost is almost negligible as far as promotional activity or advertising is concerned.

As a footnote, traditional media is dying an agonising death as it fails to attract readers or listener. Ignore Facebook, Twitter and other social media at your peril. ✚ Paul writes newsletter for financial services professionals. email: paul@paulwatkins.co.nz

023

INTEREST RATES

By Jane Turner

Much risk and uncertainty around rates

The Reserve Bank’s view on interest rates is becoming clearer, but many issues in the offshore markets are starting to cloud this picture. ASB economist Jane Turner explains what is happening.

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INTEREST RATES

N

ew Zealand’s economic

recovery is gaining traction and showing evidence of broadening and becoming more self-sustaining. Over the coming year, key drivers of growth include the Canterbury rebuild, increased consumer confidence and a lift in dairy incomes over the current season.

Meanwhile, the Reserve Bank (RBNZ) now has confirmation inflation has turned a corner and will look to increase interest rates off very low levels over 2014. The key uncertainties to the near-term outlook for interest rates remain the NZ dollar and the housing market.

The NZ dollar has been particularly volatile over the past 18 months, making monetary policy deliberations more challenging. Much of this volatility reflects offshore uncertainty, in particular the US. The US economy has made steady progress over the past year, and in light of this encouraging performance the Federal Reserve has considered reducing the extent of asset purchases to gradually wean US markets off very simulative monetary policy.

However, political disagreement has increased uncertainty on the economic outlook over the next six months and led markets to question the timing around the Feds plan to taper asset purchases. These developments have caused significant volatility in the NZD/USD over the past few months.

Housing market developments will continue to play a central role in the RBNZ’s forecasts and little has changed since September.

Housing credit growth was robust over August and house sales remained firm in September with prices continuing to lift strongly.

Net migration remains strong, adding to existing pressures in the Auckland and Canterbury housing markets.

In late August, the RBNZ announced that it would introduce restrictions on high loan-tovalue lending growth which took effect from October 1. It will take three to six months to fully appreciate the effectiveness of the policy, but anecdotes suggest the new rules are having a modest impact on the housing market.

At the September Monetary Policy Statement, the central bank assumed the LVR restrictions were equivalent to a 30 basis point OCR increase, reducing house sales by 5% and house prices by 2.5% (all else being equal). At this stage, the RBNZ will remain comfortable with these assumptions.

We continue to expect the RBNZ will start to increase the official cash rate from March 2014.

However, we expect the tightening cycle to be gradual and the magnitude of interest rate increases to be smaller than the RBNZ is indicating. The RBNZ has now repeatedly warned that interest rates will increase over 2014 and 2015.

The RBNZ expects to increase the OCR by around 200 basis points over time with the governor, Graeme Wheeler, noting “that would

Short-term fixed rates remain quite competitive, ensuring a lower cost of funds now.

% 11 10

10 5 year rate

9

Advantage of fixing starting to fade We continue to expect a modest tightening cycle from the RBNZ. This will involve a cautious approach to lifting interest rates, with 150 basis points of rate hikes spread out over almost two years.

Over the past few months, stronger economic data have increased market confidence of OCR hikes.

However, the pace and extent of the tightening cycle priced in by the market is slightly more aggressive than our view.

Medium- to longer-term fixed rate mortgages have lifted since mid-year in line with higher market interest rates. As a result of these moves, the medium- to longer-term fixed rates no longer present good value in a fixed versus floating trade-off based on our OCR outlook.

Nonetheless, these rates still provide a borrower with certainty of repayments relatively cheaply.

Short-term fixed rates remain quite competitive, ensuring a lower cost of funds now. However, these will still leave a borrower exposed to uncertainty and higher interest rates in future. Some rates are particularly attractive (although high LVR borrowers are unlikely to qualify for these), and are likely to compensate for reduced certainty relative to longer terms.

For borrowers who prefer flexibility, they can still benefit from the floating rate remaining at 40-year lows until early 2014, although they should be prepared for the floating rate to increase in line with the OCR over 2014 and 2015.

Which mortgage strategy proves cheapest will depend on how economic developments unfold, and how the RBNZ responds to these.

There remain large uncertainties around the economic outlook, and given the current risks it is equally conceivable borrowing rates could end up either lower or higher than average.

The key threats to the economic outlook

9

3 year rate

8

8

7

7

1 year rate

6

6 Source: ASB

essentially mean mortgage rates in the order of 7 to 8 per cent".

We believe the risks lean towards slightly lower interest rates in two year’s time, reflecting increased interest rate sensitivity and an elevated NZD. The key factors that will influence the timing and extent of OCR increases include the NZ dollar, housing market pressures and inflation spill overs from the Canterbury rebuild.

% 11

Home Loan Rates

5

Jan 07

% 11

VARIABLE RATE

Jul 08

Jan 10

Jul 11

Jan 13

5

% 11

Home Loan Rates High (past 10 years)

Source: ASB

10

10

9

9

8

8

10 -year average

7

7 October 2013

6

6 Low (past 10 years)

5

Variable Rate

1-year Rate

3-year Rate

5-year Rate

5

remain developments offshore. The global economic recovery is still fragile, and there remain some large political risks in the US and Eurozone. The US is having a pronounced impact on global long-term rates as the slowing of quantitative easing looms.

The RBNZ will respond to housing market pressures, but exactly how remains uncertain.

Should the newly implemented macroprudential tools not perform as well as hoped the RBNZ has warned it may opt to use more conventional tools instead.

This implies additional interest rates increases than would otherwise be the case. Likewise, there are also uncertainties around the sensitivity of the economy to interest rate increases.

It may not take much to cool the economy and temper inflation pressures.

As always, the perfect rate decision is something that will probably only be known with the benefit of hindsight.

Faced with uncertainty the best strategy for borrowers is to weigh up what their priorities are and make the choice that best aligns with them.

While future events are uncertain, it is inevitable that interest rates will be higher in the future. It is important to make sure that finances have enough headroom to absorb the impact of higher. ✚ Jane Turner is a senior economist at ASB Bank.

025

PERSONAL LENDING

By Susan Edmunds

Debt

consolidation

watch out for loopholes Helping clients to manage debt is a key part of any broker’s business. But when it comes to debt consolidation, there are more factors to consider.

D

avid Hart has spent a lot of

time in his car over the past month, heading out to see clients who need help getting their debts under control. Sometimes it’s a car loan, sometimes out-of-control credit cards or hire purchases.

When TMM called, he was on his way to see someone who had called, desperately needing assistance. By his calculations, Hart said the client would be able to save $1000 a month, just by restructuring $58,000 of loans and pulling them into the mortgage.

It’s something he’s doing increasingly more of, and for Hart, it’s just part of the full-service offering he wants to provide as a financial adviser. “I’m seeing more debt consolidation going on now than ever before,” he says.

The former Loan Market chief executive is back working with clients in the Bay of Plenty and says it is his job to help them with a wide range of services, not just the paperwork to get a home loan approved. He prides himself on not forgetting about clients once a property deal has settled.

He says: “This client is paying higher than normal interests. They just need someone to set them right and show them they could be in a better position by using some of the equity in their home.”

Gradually improving financial literacy means more people are starting to realise that there

026

"Sometimes you have to get a second mortgage or go to non-bank lenders. In the end you have to ask, is it worthwhile?" are better ways of structuring their debts, but many of them still need someone to explain how to do it.

“That awareness is starting to come through,” Hart says.

Loan Market’s debt consolidation services primarily deal with personal loans, credit cards and store cards. Interest rates on cards can be near 20%, so being able to pay them off at a home loan rate can make a big difference. For many customers, only having one payment going out per month is a lot easier to manage than several, with many due dates. Being able to keep track of their finances more easily can make it simpler to focus on paying debt down.

Christine Lockie, of Loan Plan, agrees.

She advertises debt consolidation services through her business and will help people wrangle debts into better deals, provided they have some sort of asset, even a car, to secure the debt against.

She said it paid off for the business to offer the service, even though a lot of the people who called could not be helped because they did not have the assets. “Debt consolidation could be combining a mortgage and further debt, they might want to top up the home loan. It can lead to a lot of other things so it’s worthwhile having it on the website.”

Lockie deals with a wide range of lenders.

But where it was possible to do debt consolidation with a mainstream lender, she would. “Sometimes you have to get a second mortgage or go to non-bank lenders. In the end you have to ask, is it worthwhile? It’s a matter of establishing exactly what the clients require and their circumstances to understand what is the best option for them.”

PAA mortgage specialist Ian Webb said debt consolidation was a growing part of the broker business. “There’s two parts, one is topping up existing loans and giving advice around paying off debt faster, and the other is nonbank loans for consolidation.”

He said mortgage top-ups made up the biggest part of the market. “Advisers do best in an advice model; they do it because

PERSONAL LENDING

the customers need it. It’s not infrequent that people take on short-term debt and struggle to make the repayments.

They haven’t thought there might be a cheaper way to do it.”

But brokers hoping to pick up debt consolidation work as a way to earn some extra cash should think again. Hart says he doesn’t do it because there’s a lot of money in it for him but because he wants to be the one-stop shop for those on his books. “It’s not a get-rich-quick thing but it shows that you are in the business of looking after your clients.

You stay there and look after them.”

Smaller loans don’t mean less paperwork for the broker and client. Debt consolidation usually still requires three months of statements.

However, short-term loans do turn over much more quickly than a home loan.

Providing debt consolidation services, with monitoring, gives brokers more chances to contact their clients and reassess their lending needs as a whole. It also keeps them top-ofmind for clients when they need to borrow again, such as to purchase a car.

So far, Hart hasn’t encountered too many hiccups in any debt consolidation processes – although he does warn that some of the break fees on short-term loans can be prohibitive.

“Some of the more unscrupulous people out there load them at the front and the rear with break fees but you can’t get around that because they’ve signed a contract.”

He said the key was to make sure there were no hidden catches that could appear at the last minute.

But Webb said sometimes interest rates were so high from short-term lenders that it was still better to transfer the debt, even with break fees. “The best advice is to stay away from them in the first place. Often we’re catching them at the bottom of the cliff and you have to work out whether it’s cheaper to stay put or move. Advice has to be the priority there.”

But Jenny Campbell, former general manager of the PAA, said it was not something that brokers should be delving into without properly understanding what could happen.

The biggest drawback about debt consolidation is that – in a lot of situations – short-term debts are just turned into longer ones.

She said the FMA had issued a notification that brokers needed to make sure that when they were helping clients add a small debt on to a long-term loan, such as a mortgage, they made it clear that without clear management, the overall amount that was repaid could end up being higher.

“They wanted the general public to be aware that while debt consolidation is easier in the short-term because the monthly repayments are smaller, if you are adding it to the life of the mortgage, over time it will be more expensive. If you have a car loan that’s over three years, and you add it to the mortgage, there’s a risk you’ll then pay it off over 30,” Campbell said.

She said debt consolidation was not a great idea unless brokers knew their clients would make a concerted effort to pay off the

debt quickly, or the debt could be structured so that the short-term debt was still paid off over a short term.

Some clients would think of it as a “get out of debt free” option and start to rack up more short-term debt once the loans that had been a concern were not so obvious.

Campbell said: “Adding it to long-term debt doesn’t mean it goes away. If the broker is offering this as a service it’s a good idea if a strategy is in place. If someone is consolidating debt on to a mortgage, they should split out the loan account and repay what they were paying into a separate account so they’re making payments off the principal of the loan. The idea is to still get rid of the debt in the same period of time.”

Webb agreed, saying the issue of stretched-out debt was relatively easy to overcome. “Often they won’t have put it on the mortgage because they don’t want the debt over 30 years. But no one has told them they could set it up as a three-year term.

They could pay as much as a third less interest and pay it off over three years.”

Campbell said that to keep on the regulators’ good side, brokers also needed to make it clear to their clients that what they were offering was a debt management strategy and not a full financial plan.

Hart said he would continue to offer his services to clients when they needed it.

“These people have been clients for a while so I’m doing it because they are my clients.

It’s about having a rounded offer rather than striking up a separate business on its own.” ✚

027

PRODUCT FEATURE Dispute Resolution Schemes

Seek early resolution to disputes Most disputes are settled by negotiation, but advisers are there to listen and take note of correspondence and suggest ways to solve problem 028

M

ost advisers think of their

membership of a disputes resolution scheme as a necessary evil. They are required to be part of one but most hope that they rarely have to use it.

But the dispute resolution schemes themselves say they are working hard to add value, even for those who never have to call on their services to handle a complaint.

There are four dispute resolution schemes operating in the New Zealand financial services industry.

The Banking Ombudsman scheme deals with the country’s major banks. Financial Services Complaints Ltd (FSCL) has a range of members from financial advisers to finance companies and members of the securities industry. The

Insurance and Savings Ombudsman covers most insurance companies as well as advisers and the Financial Disputes Resolution (FDR) has been operating as the default scheme.

It was announced earlier this year that the Government planned to disestablish FDR next year, but had approved the Crown-owned Dispute Resolution Services, which had been running the scheme, as another dispute resolution provider. FDR will retain its name.

As a reserve scheme, FDR had been receiving about $1 million a year from the Government, which it recouped in membership fees. That financial support will stop.

Susan Taylor, chief executive of FSCL, said each scheme had different levels of fees and different offerings to its members. She said advisers should seek referrals from others in their industry

PRODUCT FEATURE

when deciding which was the best dispute resolution service to join.

“As an adviser I may look to speak to another adviser who has had a complaint go through the full process to ensure that the scheme handled the complaint fairly and efficiently,” Taylor says.

She said FSCL offered opportunities for training, not just in complaints handling but in other workshops and help with business analysis. It has partnered with IBANZ and dealer groups to offer training that counts towards an authorised financial adviser’s requirement for structured CPD hours.

FSCL also tried to help advisers avoid complaints, she said. It recently launched a programme called Give Us A Call, through which members are helped, free of charge, to resolve complaints as early as possible, before they get to the stage of having to go through to the disputes scheme.

Both she and general manager Trevor Slater were available to scheme members who needed to talk, she said. “They can ring, and talk through the problem and we will listen and suggest ways to solve the problem.”

In its most recent financial year, FSCL has 1259 phone or email enquiries.

Of the 115 cases submitted for investigation, 92 cases were completed.

Formal recommendations were only issues in eight of the 92 cases, usually because the consumer did not accept a preliminary view that the complaint could not be upheld.

Most cases were settled by negotiation, conciliation or a notice of recommendation. Very few complaints were made against financial advisers.

FSCL has a wide range of clients, but Taylor said some of the other disputes schemes were more specialised.

“I think when the schemes were first mooted it was thought that

029

PRODUCT FEATURE ANNUAL FEE

COMPLAINT FEE

MEMBERS

FDR

(up to four advisers): $500 (advisers in larger groups pay $200 a year)

$775 (facilitation), $2350 (conciliation), $3270 (adjudication)

1500

FSCL

(single financial adviser, part of a professional body) $279

$255 to $2300

5600

$400, can be discounted to $300 if part of a professional body

$1000 (members allowed one free complaint per year)

3000

ISO

industry groups would set up their own dispute resolution schemes,” Taylor says. “But when people started to look at what was required and the costs involved in that, for economy of scale purposes having one or two schemes that could cover all the industry was more cost-effective.”

Insurance Ombudsman Karen Stevens said her organisation had processed 42,000 complaint enquiries and 5000 complaints in its lifetime.

“We’ve done the groundwork in terms of having experience in that area.”

In its most recent financial year, the scheme dealt with 2833 complaint enquiries and 242 complaints. The number of enquiries was up 74% on the year before. The average time from receiving a file to accepting a complaint for investigation was 75 days.

She said some members switched between schemes but it was often driven by changes in employment. Stevens said compliance had not been top of many advisers’ wish lists but they now saw it as a necessary part of their businesses, and belonging to a dispute resolution scheme was part of that. “They might rather not but they know they have to. It may take a while for all of them to get on to the

030

same page.”

Feedback reported on in the most recent annual report for the scheme was positive. More than 95% of people said the reasons for the decision were clearly explained and almost 80% said the investigation covered all the issues.

All participants said the scheme was easy to access and understand and 89% said the reasons for the scheme’s decisions were well explained.

Almost 95% thought using the ISO scheme was a better alternative than going to court.

Banking Ombudsman Deborah Battell said her scheme only dealt with financial advisers in their roles at the banks. Complaints about financial advice had dropped off considerably since 2007, she said. The Banking Ombudsman scheme is funded via levies from the banks rather than the annual fees that other schemes’ participants pay.

FDR scheme director Stuart Ayres said he had been involved with financial adviser industry for a good number of years and understood the demands on them. He said his organisation was keen to help advisers work out how to gain a business advantage from good complaints processes.

DRS had good resources and a lot of

experience, systems and ideas for making the most of the issues raised by compliance.

“You have to be compliant so you might as well make the most of it,” Ayres said.

Complaint management systems were one of the best business tools advisers could have, he said. If they could identify the root causes of their complaint and turn it to their advantage, their businesses would benefit.

A well-handled complaint could result in the customer becoming an advocate for the business, he said. “Some advisers think compliance is costly and unnecessary and they’ve never had a complaint, never will, but they can make something out of it.”

There was a limited opportunity for advisers to carve out a point of difference before larger institutions caught up with their complaint management systems, he said. “Advisers have the culture but not necessarily the system.

They should turn that to their advantage right now.”

He said there could be changes to the fee structure when scheme lost its reserve status next year. “Watch this space in the first quarter of next year.” ✚

Offset home loans are big overseas and are now starting to grow in New Zealand with the arrival of a new player. NZ Mortgage Mag, together with NZ Property Investor, have prepared a special report. This report compares the three products in the market and all their features and benefits.

To get your copy of this guide email your details to: offsets@mortgagerates.co.nz

INSURANCE

By Steve Wright

COVERING INSURANCE Involuntary unemployment is common and often stressful. You need to benefit from your insurance cover.

W

hat will monthly disability cover pay your client if they are disabled while unemployed?

For any number of reasons, people go through periods of unemployment during their working lives. Sometimes this is planned and sometimes it is forced upon them! Sometimes these periods of unemployment last longer than expected, quite a bit longer! Whatever the case, periods of involuntary unemployment are common and often very stressful. Sometimes it can take many, many months to find another suitable position.

As an insurance adviser, it’s very important to know what the client’s disability insurance will pay them if they become disabled while temporarily unemployed.

It is worth reminding clients that disability products like income cover, mortgage repayment cover and so on do not pay the client a benefit unless they are actually disabled. If clients want cover to protect their incomes in case their positions are made redundant, then they must specifically take and pay for (and it is very expensive) cover that will pay a monthly benefit on redundancy. Where redundancy insurance is available, maximum benefits are usually quite modest, typically around $2500 per month only and benefits are paid for a limited number of months, typically six months

032

Where redundancy insurance is available, maximum benefits are usually quite modest, typically around $2500 per month only maximum. It is also worth remembering that people who are not employed and not looking for employment, such as stay-at-home parents, full time students etc. (often categorised as occupation class 5) can only get limited monthly disability cover. Cover is typically limited in both benefit amount (maximum benefits payable regardless of sum insured range from $2500 at the generous end down to $1000 per month)

and in definition of disability (usually requiring an inability to perform activities of daily living or normal domestic duties).

So what will monthly disability products like income cover and mortgage repayment cover pay if a client becomes disabled while temporarily unemployed, between jobs, as it were? It turns out that there are quite big differences between different providers and it also does not make any difference which type of contract the client has either as indemnity, loss-of-earnings and agreed value policies are generally treated the same, so the question becomes rather important and each product’s policy wordings must be carefully examined to discover the truth: ✚ At the generous end there are income cover and mortgage repayment cover policies that will pay unemployed clients “normal” benefits (i.e. based on their pre-disability income for indemnity style and the sum insured for agreed value contracts, with disability determined by reference to their ability to do their jobs) as if the client was still employed in their previous job, if disability occurs within 12 months of becoming unemployed. If disability strikes after being unemployed for more than 12 months then the client will be treated as occupation class 5 (and as mentioned above for class 5, benefits will be restricted to the maximum payable and

INSURANCE

job can mean the end of any chance of future employment, so it is future earnings potential that is being protected (or not as it turns out). Even if there is no disability, the last thing any unemployed client needs is to lose valuable cover and be forced to go through underwriting again to regain cover once they find employment, especially if they have had a few health issues since they first took the policy out. For you as the adviser – knowing cover continues without you having to remember to get it restarted and without new underwriting risk to the client will not only make you look good to your client, but will also make it much easier for you to keep the client, and the ongoing renewal income that comes with that. ✚ Steve Wright is general manager products at Partners Life.

the more restrictive definition of disability will apply). As long as premiums continue to be paid while unemployed, cover is not lost and no underwriting is required when the client commences employment, benefits simply return automatically to normal “while employed” benefits. ✚ At the less generous end there are policies that provide normal cover for only three months and then occupation class 5 restrictions for the next nine months and if disability occurs after being unemployed for more than 12 month, no benefit is payable. ✚ Worst I’ve seen are policies that simply come to an end if a period of unemployment continues for more than three months, meaning no cover at all and underwriting and reapplication when employment recommences.

No doubt you can approach the company in advance to have cover continue and they may agree but they don’t have to and even if they do they can impose any conditions they like. All of this assumes the client has told you they are unemployed of course.

To me this issue is very important because although the likelihood of disability while temporarily unemployed may not seem like a big deal, the potential consequences can be very significant. Effectively becoming seriously disabled while searching for another

KIWISAVER

By Susan Edmunds

WHY YOU SHOULD THINK ABOUT Mortgage brokers should consider adding KiwiSaver to their list of services. Susan Edmunds explains how you can do it.

W

hen clients come to

a mortgage broker with pay slips and bank statements, laying their dreams on the table, industry commentators say it’s the perfect time to raise the question of KiwiSaver. But as a category one product, mortgage brokers, who are usually registered, not authorised, financial advisers can only give class advice on KiwiSaver.

PAA former general manager Jenny Campbell says the regulation that stops them stepping up to the plate when they meet young borrowers is a nonsense. And she said that meant clients were missing out. “KiwiSaver goes hand-in-hand with any mortgage advice, especially for firsthome buyers. At least, it should.”

Brokers were often caught out when they had clients who could qualify for a KiwiSaver withdrawal, andd possible first-home subsidy from the Government, Campbell said. Brokers could offer information but not advice, which was vital because both options cannot be claimed retrospectively.

034

Campbell said: “If you have a first-home buyer, you can advise them on the subsidy but you can’t give any advice on the withdrawal because that’s disposal of a category one product. We say if you have got first-home buyer clients, present the KiwiSaver options to them but not in a way that gives advice.”

Clients would then have to contact Housing New Zealand if they qualified for a subsidy, and then their KiwiSaver provider, to discuss the possibility of a withdrawal. “Two different providers, it’s difficult. Our guys are perfectly situation to streamline that process for their clients but they aren’t allowed to,” Campbell said.

The PAA has conducted a series of roadshows explaining to mortgage brokers how they could talk about KiwiSaver without breaking the rules. “We’ve been lobbying hard to say that it’s nonsense that mortgage brokers can’t give KiwiSaver advice. Not only are they best placed to do it but it is integral to what they do.”

Class advice allows a broker to sign up a client to KiwiSaver, but if they are married to someone who is already in KiwiSaver, they cannot give any

advice on whether the spouse should be with the same KiwiSaver provider, or whether their scheme was right for them. Campbell said that potentially made for very awkward situations.

“We argued that existing savers had just as much right to advice as someone new.”

But Generate Investment Management chief executive Henry Tongue said even class advice was more than what many large KiwiSaver providers’ staff gave.

“There is no reason why more mortgage and insurance advisers shouldn't be involved in providing class advice on KiwiSaver… Class advice allows for all the benefits of KiwiSaver to be explained, features of the KiwiSaver scheme to be explained and for a risk profile tool to be explained and then used by the client. This level of advice ensures KiwiSaver members know what they are getting and that they are in an appropriate fund based on factors such as their age, time to retirement, or withdrawal, and risk appetite.”

He said organisations such as Generate are on hand to provide personalised advice if it is needed.

Campbell said mortgage brokers would not offer KiwiSaver for the income it would provide but because it would allow them to provide a full suite of options for their clients. “There’s no money in it, maybe $40 a year, but the whole idea is to have a trusted adviser who can help with everything.”

Milton Jennings, Fidelity Life’s chief executive, agreed that would be the key benefit for mortgage advisers getting into KiwiSaver. “If you’re competing against the banks, you want to lock in clients with as many products as possible, life insurance, a mortgage, KiwiSaver and fire and general. Then you might have a client for life.”

Jennings said as long as brokers were giving factual information and not delving into personal advice, they would not stray beyond the requirement of class advice.

Campbell said the answer was not for RFAs to become AFAs so they could offer KiwiSaver as well as mortgage advice. The level of compliance that would entail would make it prohibitive to many, she said. But KiwiSaver was so wellregulated it should not be a category one product. “How is getting people to save going to be a bad thing? Once you’re an AFA, there’s more regulation over your entire advice, not just one product. Would you do it for an extra $40?”

But Grosvenor’s Alison Payne said KiwiSaver was not a good fit for mortgage brokers.

“Our perspective is that people joining KiwiSaver should be thinking about a longterm investment. The goal is to increase their retirement savings, that doesn’t gel with the concept of a mortgage broker.”

But she said if mortgage brokers were allowed to offer full advice, Grosvenor would consider them as an option for distribution. “We deal with primarily AFAs, that’s our business model.

If they could [provide personalised advice on KiwiSaver], we would look at that.” ✚