TMM - The NZ Mortgage Mag Issue 2 2020 by TMM - The NZ Mortgage Mag

2020

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What keeps you awake at night? TMM Annual Mortgage Adviser Survey Sponsored by

Post-Covid-19 for advisers

Managing stressful times

Adviser conduct obligations explained

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CONTENTS

TMM Annual Mortgage Adviser Survey

Daniel Dunkley with the key issues facing the sector – and Covid-19 is not the biggest.

SPONSORED CONTENT

Our $100 billion debt of gratitude Sir Michael Cullen: The man who helped New Zealanders make better financial decisions.

very now and then someone comes

along who, in their lifetime, puts in place changes which touch not only everyone in their generation, but generations to come. Sir Michael Cullen is one such person. In 1898, the government of Richard Seddon introduced a means-tested “old age pension”. This pension was available for people 65 and over and was worth around one-third of the average wage. This pension, like most of the later changes, was funded out of current taxation rather than through a separate investment fund. Subsequently, the age of eligibility declined to 60 and the pension as a percentage of the average wage increased. However, those who were fortunate enough to be employed by a responsible employer – like my father whose employer was the Auckland Hospital Board – could contribute a portion of their salary to a superannuation fund which paid either a lump sum, or an annuity for the rest of their life based on a percentage of their final salary. Life in New Zealand was good. But over the course of a generation things were to reverse. Many financial commentators cite the high inflation of the 1970s, the debt taken on to pay for “think big” projects and the decision to remove the tax deduction for private superannuation payments, as the cause of our nation’s reversal in fortune. But it was only the first in a series of extraordinarily poor financial decisions that led to our current predicament. Over the course of several decades, successive New Zealand governing parties decided that individuals who were able to directly manage investments in property or the shares of listed or unlisted companies should pay no capital gains tax. Meanwhile those individuals who relied on others to manage their money were forced to pay full corporate tax rates of around 33%, irrespective of which personal tax bracket they were in. This contributed to the eighties property and share market booms and subsequent busts, and the gradual decline of the

superannuation industry. No one was interested in offering professionally managed retirement funds because of the 33% tax rate. Those with property or share management skills got wealthy, while regular savers got penalised. At the same time the age of eligibility for NZ Super rose to 65 and the payment fell to 33% below a “no frills” lifestyle. In 1992 – a year after Australia introduced compulsory superannuation contributions for all its citizens – New Zealand formed the Todd Taskforce to question whether compulsory retirement savings should also be adopted by New Zealand. Headed by Auckland accountant Jeff Todd, they concluded that a compulsory superannuation option would be “an over-reaction to averting a future fiscal problem”.¹ It is arguably one of the worst financial decisions New Zealand ever made. As a consequence, the average Australian citizen now has around $145,000² in superannuation savings. New Zealand’s average KiwiSaver balance has just hit $19,500.³ In the 2000s, Michael Cullen (now Sir Michael) changed all of this with three farsighted decisions: the portfolio investment entity (PIE) tax regime,

which restored equality of capital gains tax between investing individuals and professionally managed portfolios; the creation of the New Zealand Superannuation Fund – now a world class sovereign fund manager; and KiwiSaver through which New Zealanders have already amassed $57 billion.³ Despite poor historical decisions, one person managed to put New Zealanders back on track. We all have a role to play in continuing to build on Cullen’s legacy by ensuring that New Zealanders continue to make the best possible financial decisions. The upcoming selection of default KiwiSaver managers will be a significant step on the journey toward becoming a more financially prosperous nation. It is sad to hear that Sir Michael Cullen is unwell. Our thoughts go out to him and his family. ✚ Source: FMA 2019 Annual KiwiSaver Report, New Zealand Superannuation Fund 2019 Annual Report. 1. Todd Taskforce 1992. 2. Australian Bureau of Statistics, 2017-2018 balances. 3. FMA 2019 Annual KiwiSaver Report.

Michael Lang is Chief Executive of NZ Funds and his comments are of a general nature.

TMMONLINE.NZ/NEWS Advisers grab bigger share of bank business Mortgage advisers continue to account for a growing share of home loans originated by the country's biggest bank, ANZ. Advisers share of loans has increased from 35% two years ago to 43% in the first half of this financial year. A similar trend is happening at BNZ too. Drawdowns through the broker channel increased from 25.3% in March last year to 29.2% this March.

ANZ chief executive Antonia Watson says advisers are an important part of its business and she attributes the growth to customers picking advisers over bank branches and mobile managers. It's driven by "customer choice", she said. Watson wasn't keen to predict when third party distribution would crack through the 50% mark, like it has in Australia. Rather she suggested things could change in the future. "It won't be long before you can get your home loan online," she said.

Pre-approvals hit by Covid-19 Banks withdrew pre-approvals for home loans as credit conditions tightened across New Zealand. Advisers across the industry reported that major banks are taking a hardline stance on pre-approved home loans as the Covid-19 outbreak continues. Banks started to reject preapprovals for new loans, leaving some home buyers in limbo as they attempt to complete property purchases. One adviser, who asked not to be named, said borrowers were being left "high and dry" by banks. He said the clampdown on new loans was "not in the spirit of what we think the RBNZ is trying to manage". The adviser added: "Lenders realise they have a tiger by the tail in terms of existing business but seem to be closing the shutters wherever they can in terms of new risk, which the RBNZ clearly doesn’t want. Such behaviour is going to be yet another headwind for the economy." TMM has viewed several examples of pre-approvals being cancelled by the major banks. One customer with an LVR of less than 75% and confirmation their employment status had not been affected by Covid-19 was rejected by BNZ. Meanwhile, some ANZ borrowers have not been able to proceed with their settlements as approvals have expired during the lockdown.

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John Bolton

Tough months ahead after lockdown Advisers fear a downturn in activity for the rest of the year as the Covid-19 outbreak hammers the housing market and economic activity. Experienced mortgage advisers predict April-July are likely to be the worst months for business, with housing market activity set to slow after the lockdown. ANZ predicts house prices could fall by as much as 10%-15% over the course of 2020. Squirrel Mortgages’ John Bolton expects a much slower market “for the next 12-18 months”. The business took on the government wage subsidy during the lockdown.

How that will change the distribution model is unknown, and she acknowledged customers liked to talk to someone when making a big financial decision like a home loan. Westpac chief financial officer Ian Hankins told TMM that 40% of its home loans were originated through mortgage advisers. Like other banks, he says mortgage advisers are an important channel for Westpac. While other banks have seen the amount of business from advisers growing, it has been “ fairly stable (at Westpac) over the last few years,” Hankins says.

Bolton said: “April will be a shocker simply because of no settlements. We’ll be down 80% on transactions but only down about 50% on income due to trail and other income sources.” Bolton expects May to be stronger due to deferred settlements, but believes most problems will arrive later in the year. “I’m expecting the biggest issue to be June to September, when we will have a slow market plus winter and a general lack of confidence. The next issue will be the seasonal drop in January and February next year as we will have used a lot of our cash flow over the winter,” Bolton added. Geoff Bawden, director of Bawden Consulting and Q Group, expects a harsh few months. “You can forget about making a lot of money for the time being,” Bawden says. “I looked critically at all of my fixed outgoings, asked myself whether they were necessary, and tried to reduce them the best I could. It’s amazing how much you can spend unnecessarily.” The Mortgage Supply Company’s David Windler says business dropped by about 60% in April. “I expect May will come back to about 80% of volume, but then, who knows?” Windler added: “There’s more likelihood there will be a drop in volume in June, July and August, as we filter through to fewer settlements. Fortunately, we have fattened the business and are in a strong position.”

Luke Jackson

Non-banks see surge in demand Non-bank lenders noted a sharp increase in demand for home loans as banks maintain tight restrictions during the Covid-19 outbreak. Second tier lenders say home loan customers are searching for alternatives as banks avoid taking on new borrowers or re-financings during the global pandemic. It comes as non-banks reduce their interest rates closer in line with traditional banks. Non-banks see an opportunity to take further market share in the current crisis. Resimac claims a 30% increase in enquiry levels since Easter. Resimac head of New Zealand Luke Jackson said banks were focused on

processing hardship requests and had reneged on customer pre-approvals. "We are hearing from our mortgage adviser network that banks are not focussing on new business and are preoccupied with processing Covid-19 hardship applications. As a result more borrowers and advisers are turning to non-banks," he said in a statement. Jackson believes non-banks, with ever-lower rates, are becoming "a true alternative to trading banks". Aaron Milburn, head of New Zealand at Pepper Money, said enquiries held up well in the first weeks of the lockdown, before they slowed in line with market conditions. He told TMM Online that the firm has noted an increase in demand since the lifting of level four restrictions, and they "expect that to continue". Milburn added: "An interesting change we noted during the lockdown was that

customers seeking solutions engaged directly with us, which we referred on to accredited advisers in their local area." Stephen Massey, head of sales at Avanti, also noted a "very steady" period of demand through the level four lockdown. Massey added: "Avanti has been pleased with the positive support and desire of advisers to assist both new and existing customers during this period.â&#x20AC;? Meanwhile, peer-to-peer lenders, including Southern Cross Partners, have also noted an uptick in inbound enquiries in recent weeks, as borrowers seek non-traditional financing. The Covid-crisis could accelerate the trend towards non-bank lenders. According to advisory firm KPMG, non-banks recorded a 9.32% increase in gross lending last year.

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TMMONLINE.NZ/NEWS ASB criticised over Covid-19 requests Cuts to cash-back offers Banks reduced cash-back offers on home loans in the wake of the Covid-19 crisis, advisers told TMM. Advisers reported the big four banks have cut their cash incentives on home loans as the financial turmoil bites. Westpac and BNZ were among the banks said to have cut cash incentives to as little as 0.4% in recent weeks, one adviser said. The adviser reported BNZ's mobile banking service offering $10,000 cash-back, but just $5,400 through the broker unit. "The BNZ mobile is at .78% and the BNZ unit is .42%," the adviser said. Another broker said they had also experienced changes from Westpac and BNZ in recent weeks. Westpac said: “Mortgage offers to customers are based on their individual lending circumstances. We make cash offers on a case-by-case basis to cover costs associated with buying a home, such as legal fees.” BNZ added: "New Zealand benefits from an extremely competitive home loan market and we make pricing decisions to account for that. We’ve passed through the full official cash rate cut to our floating home loans and are offering incredibly low interest rates on our fixed mortgages."

ASB drew criticism for its handling of Covid-19 hardship requests, after asking customers to go direct with any claims. The bank told customers with deferral requests to get in direct contact, effectively "freezing brokers out" of the process. One adviser told TMM Online that ASB was "not letting us deal with the client". The adviser added: "We can't collect information about what the bank wants, about the type of payment holiday the client wants, or the changes they may need." The adviser said ASB had taken a different approach to its big four rivals. "BNZ, Westpac, ANZ, are letting us complete diary notes and discuss options, and that is what they want us to do. Those banks are getting in touch with the client to confirm they have spoken to us, and then loading it up to their systems." Another broker also raised concerns about ASB's methods. "They are completely freezing brokers out, and this is not what our clients want." Following the pressure, ASB changed its position later in April, allowing advisers to make claims on behalf of their clients. ✚

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NEW HIRES ON BOARD AT MORTGAGE AND INSURANCE LINK Adviser group Mortgage Link has made a series of new hires across its national network. Caroline Walker joins the group in Otago, as a registered financial adviser specialised in mortgages. She is experienced in lending and guiding first home buyers through the buying process using KiwiSaver and HomeStart grants. Walker also has a breadth of experience with Welcome Home Loans, debt consolidation and refinancing. She has a degree in commerce and previously worked in sports event management and marketing roles in the UK, Wellington and Dunedin. Jen Taylor joins Mortgage Link in Rangitikei/Manawatu. Mortgage Link said Taylor is “passionate about building long-term relationships with her clients to help find the right financial solution”. Meanwhile, Dennis Sulit has joined the business in Auckland. Sulit started his career with ANZ Bank in Mt Roskill, Auckland in 2007. Mortgage Link described Sulit as “experienced in personal finance and KiwiSaver investment." “Dennis enjoys connecting with people to deliver tailored solutions for clients,” the company added. Kate Li also joins in Auckland. Li has more than ten years of experience through various major banks. Li worked as a fraud analyst at Westpac before taking on a role as a case assessor for IAG. She also worked for BNZ for two years, as well as ANZ. Li is specialised in financial risk assessment and profit maximisation, mortgage and property lending, and residential and corporate financing. Fluent in Mandarin, Cantonese and

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English, Li has an MBA from Auckland University of Technology. Trish Greenwood joins in Christchurch. Greenwood has “extensive high-level experience in banking and financial services”, Mortgage Link said. Greenwood, an accredited member of Financial Advice New Zealand, “brings a deep wealth of knowledge, razor-sharp financial advice and a grounded practical perspective”, Mortgage Link said. Cameron Chappel also joins in Christchurch. Chappel has spent several years providing risk and insurance advice and running his own business. Chappel joins Mortgage Link and plans to help first home buyers through the home-buying process.

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PEOPLE

TWO NEW BDMS AT PEPPER MONEY

Greg Wesson joins Insurance Link in Hamilton. In September 2007, he set up GROFIN Insurance Solutions, after five years as a business and rural insurance manager for ASB. Meanwhile, advisory company Mortgagehq, has joined the nonbranded Mortgage Link business. The Auckland-based company was founded in 2015 and is focused on investors. Mortgage Link said the company’s managing director Andrew Malcolm “plays a hands-on role personally talking with many prospective clients about their goals and challenges”. Senior adviser Blandon Leung has won a series of industry awards. To help Mortgage Link as the sector moves towards a new regulatory environment, the company has also hired an administration services manager.

Mohammed Metar joins after years of experience in the financial services sector including spells at Westpac and New Zealand Home Loans.

Non-bank lender Pepper Money has drafted in two new BDMs as it continues its expansion into the New Zealand market. The alternative finance company has hired two new faces to bolster its on-theground adviser support team. The two new BDMS have been appointed to cover the Christchurch, and Bay of Plenty and Wellington regions. Pepper Money’s existing relationship manager Aaron Taylor, has been promoted to BDM in the South Island. Taylor will shortly relocate to Christchurch, Pepper said, where he will focus on "supporting existing accredited advisers in the region and building out the awareness of Pepper Money in the South Island".

Joshua Martin has joined Pepper as BDM covering the Bay of Plenty and Wellington regions.

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CHANGES AT MIKE PERO MORTGAGES Mike Pero Mortgages has added an adviser to its Dunedin business. Fran Lucas, who joined the MPM team in 2011, has become one of the group's newest advisers. MPM said Lucas has gained an in-depth understanding of the diverse needs of different clients and has developed a strong ability to find solutions tailored to their circumstances. “There’s no better feeling than helping home buyers achieve their goals.

WE’LL TAKE A DIFFICULT DEAL AND

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From first-time buyers and the self-employed to refinancers and property investors, I’m passionate about supporting people to navigate the purchase process with empathy and understanding.” The group also hired Kirsten Morris as a broker in Gisborne and the East Cape. It said Morris was "passionate about helping people reach new milestones and realising their financial dreams". Morris has worked in the conveyancing sector as well as the real estate market, and has also run her own business. Laura Loghry joins Scott and Devina Jackson at MPM's Nelson business. Loghry is specialised in first home buyers, refinancing, and property investment, the company said. "There is nothing more rewarding than seeing someone achieve their dreams of home ownership or property investment, if you’re looking for a mortgage adviser whose focus is broader than just finance, Laura is just a call away," the company said.

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WESTPAC APPOINTS THIRD-PARTY BDM IN WELLINGTON

Liz Cannon, national manager of third party banking for Westpac, announced the appointment this week. Westpac said: "As an experienced bank manager and leader in the Wellington region, Margaret brings a wealth of retail banking knowledge, strong relationship management and residential lending skills to her new role."

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Westpac has appointed a new third-party business development manager for the lower North Island. The big four lender has appointed Margaret Leau-Sulusi to the third party business development manager role. She will be based in Wellington. Leau-Sulusi will also cover the Manawatu, Whanganui, Taranaki and Hawke’s Bay regions.

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Elena Skorykh joins MPM in Wellington. Fluent in English and Russian, Skorykh previously worked in the real estate industry for Property Brokers in Levin. The company said Skorykh brings an "outstanding level of communication and wide range of skills to the team". "Having previously worked in the real estate industry Elena now looks forward to helping Kiwi’s find the financial solution that best fits their needs to buy their first home, invest in property or consolidate debt," the firm said. ✚

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REGULATION

by Susan Edmunds

Mortgage groups gear up Licensing is a little longer away, but groups are preparing their offers for advisers.

ortgage adviser groups are preparing to take on extra responsibility and liability for their members when the new financial advice regime takes effect. Transitional licensing will now not begin until March next year, at the earliest. But groups are already working out the details of the offers they will have open for advisers from that time. Advisers can choose to have their own financial advice provider (FAP) licence or come under the umbrella of a larger one. But banks have said they will only deal with advisers and entities who are licensed, or part of a larger licence. How groups are dealing with the resulting requirement for them to be licensed if they wish to maintain their relationship with banks has varied. Astute will take a FAP licence for the mortgage advisers within its group, including the Mortgage Express and Mortgage Supply brands. David Windler, a director of Mortgage Supply, said his organisation had felt it was not â&#x20AC;&#x153;geared upâ&#x20AC;? to provide its own licence so had opted to be covered by Astute. There would be no change to the day-to-day operation of the business, he said. NZFSG will take a licence that advisers can operate within should they wish to, and a separate licence for Loan Market, which advisers must come under. Mortgage Link expects 90% of adviser members to join its licence. Newpark says it is working

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David Windler

on a compelling offer for advisers with its licence, which has now been granted. Mike Pero Mortgages will have its own licence with branded advisers Geoff working within it. Bawden Josh Bronkhorst, managing director of Mortgage Link, said even some of its advisers who were planning to take their own transitional licence might then opt to come under the Mortgage Link FAP. Provided advisers could demonstrate they met their regulatory obligations, he said, advisers would be allowed to aggregate through Mortgage Link and be covered by its licence. Licensed financial advice providers will have enhanced requirements to make sure their advisers are operating in line with the new laws. Bronkhorst said his group already had a clear understanding of its obligations. Banks were likely to have additional requirements under the new rules, about which more clarity was still being sought. “Without a doubt it will be a big adjustment for mortgage advisers,” he said. While mortgage advisers were doing a good job, he said, there would be changes required in terms of things such as record-keeping and consistency of approach so that systems and processes were the same for every client. “Ticking boxes every single time.” He said while insurance advisers were used to completing a statement of advice, processes such as that would be new to mortgage advisers. Geoff Bawden, of Q Advisor Group, said every adviser in his group would be part of the main licence although some would also have their

own. He said that was the model he intended to pursue from when the group was formed. There would be more direct liability for the group as a result, he said. It will be legally and commercially liable for those without their own licences, and commercially liable for the others. Anyone who wanted to join the group could expect scrutiny, he said. If those businesses then took on staff, the group would end up responsible for them as well. The group would probably reach its maximum size at about 50 advisers, he said. Bruce Patten, head of growth at NZFSG, said he expected almost all advisers to come under the NZFSG licence. Advisers were given an invitation to apply about a month ago. Only big businesses such as Squirrel were likely to get their own licences, he said. Loan Market advisers would not be given a choice. He said the business had been through the licensing process in Australia, so knew what to expect. The biggest adjustment could be a “big brother” feeling for advisers as the licenceholder sought to make sure all requirements were being met.

" It’s just getting to grips with doing it a certain way. It’s all about doing the right thing by the client at the end of the day. Anyone worth their salt is going to want to do it the right way. " Bruce Patten

Bernie McCrea

Newpark chairman Bernie McCrea said for now, it was a FAP of one, with no advisers yet within it.

“The adviser offering is yet to be determined … it will take a few months’ work to get it right.” The group would need to work out what it would have to offer to be appealing and attractive to advisers, he said. “To make it so people can see value.” There could be a range of different forms it could take – fee-based, integrated or equity-based, he said. Newpark intended to add advisers to its FAP as it went along but that would be some time away yet, he said. McCrea said the extra time the Government has given advisers to transition to the new regime would help. It will now not begin until March at the earliest. Without it, groups would have to have something ready to go on June 28 this year and then rely on being able to evolve it over time, he said. But that would make it harder for people to decide whether they wanted to join, and how they wanted to structure it. More “breathing space” would allow people to make more informed decisions about what was on offer and what would be the best solution for their businesses. “It would have been tight for advisers to make decisions about joining someone else, making their own or becoming authorised bodies. Having until Bruce March to make Patten the decision is much better.” McCrea said advisers were busy during the Covid-19 disruption, being proactive and contacting clients. “When I speak to them they are busy being busy, trying to be in touch with clients. It’s all hands to the pump in the adviser space. Imagine doing that and dealing with new regulation at the same time. This gives [FAPs] a bit of time to make a really good offering so the advisers who are interested can see what you’re bringing to the table.” McCrea said there was no clear sense of how many advisers would be part of Newpark’s FAP. “It’s not for everyone that’s for real.” Some would want to be independent, he said, and Newpark would support that. ✚

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PROPERTY NEWS

by Miriam Bell

Property in the time of Covid-19 The Covid-19 crisis has dominated all aspects of life – including the property market –over recent months, so we’ve provided a rundown of the stories that made the property news.

s soon as the Covid-19 pandemic began to hit New Zealand, questions about what it could mean for the property market, and for residential landlords, going forward started to emerge. Once lockdown was announced, widespread job loss quickly became a reality and, for many landlords and tenants, that brought to the fore the issue of what would happen if a tenant loses their job and then struggles to pay the rent. The Government moved quickly and announced several packages of economic measures designed to help out workers and businesses affected by the lockdown. One of these measures was an immediate, but temporary, six month freeze on rent increases and increased protection for tenants from having their tenancies terminated. Housing Minister Megan Woods said this would help to ensure that, in the short term, families and individuals who are tenants do not lose their home due

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to a drop in income related to job losses through Covid-19. Besides the freeze on rent increases, the emergency rules also made it impossible for landlords to terminate tenancies during the lockdown period – unless the parties agreed or for a limited, but specific, set of reasons. However, it was still possible for tenants to terminate their tenancy as normal, if they wanted to. Despite this, Woods said that tenants had obligations as well and must still pay their rent. “It is not acceptable for tenants to abuse the current situation by refusing to pay rent when they have the capacity to do so, causing significant property damage, or significant anti-social behaviour. Tenants are still fully liable for their rent payments and any damage.” The freeze on rent increases will apply for six months, while the tenancy termination measures will apply for three months. At the end of both these initial periods, the Government will evaluate whether they need to be extended. Some other measures for property owners that have been put in place by the Government, along with retail banks and the Reserve Bank, are the option to take a six-month principal and interest mortgage holiday and the temporary removal of the LVR restrictions.

Unreasonable expectations Lockdown also soon led to increased concerns among many landlords about unreasonable expectations from tenants, and the Government, during the lockdown – and beyond.

After reports some property managers were getting tough on tenants, on rent payments and threatening to evict them post-lockdown, Prime Minister Jacinda Ardern told media she wanted the names of landlords flouting the new rules. Yet, at the same time, many landlords were reporting that some tenants were simply refusing to pay the rent. This led many to feel they were being unfairly targeted, rather than acknowledged for providing an essential service. NZ Property Investors Federation executive officer Sharon Cullwick said you might think that supplying a house for someone to live in should qualify as an “essential service” but it appears not. “A rent increase freeze and the provision that tenants should not be given notice for this period is appropriate. But to extend it to three months, except if tenants are behind 60 days in rent, have caused substantial damage, abandoned the property or engaged in significant anti-social behaviour, is unjustified. “The situation is made more unfair because tenants can give notice and vacate the property during this time if they want to, leaving the landlord with no income, ongoing costs and little likelihood of finding a new tenant.” Cullwick pointed out that the bills still have to be paid by someone, whether that be a landlord or a tenant. “Yet most landlords in the business of owning rental properties are not classed as business owners or self-employed, or even as an essential service, so there is no financial relief in sight.” A big part of the problem was confusion around the concept of the rent increase freeze with some tenants, mistakenly, thinking it means they

don’t have to pay rent for six months. Another issue was a misunderstanding of what a “mortgage holiday” is or that many landlords won’t take one. Following the “mortgage holiday” announcement, tenant pressure for rent relief had increased further, Cullwick added. “We understand that many people are hurting but some of them are landlords who have always tried to supply good quality housing for their tenants. We would like the Government to consider housing as an essential service and to include landlords in the measures to ease the current difficulties rather than just talking about heavy penalties.”

Lockdown impact for landlords There’s no doubt the Covid-19 crisis will have a significant impact on many rental property owners, with a number of new surveys providing evidence of that. One survey, conducted by property management consultancy Real-iQ, suggests that one in five tenancies could fall into arrears. Real-iQ director David Faulkner says property management companies in Auckland and Wellington are predicting default rates in excess of 20%. After the first week of the lockdown, companies who completed the survey highlighted a rise in arrears from 3.23% at the beginning of the crisis to 6.57%, he says. “This is inevitably going to rise and some areas, such as Queenstown, are going to be hit far worse than others.” The survey also asked for respondents' views on what rent prices might do going forward. Opinions were divided about whether rents would fall and by much, with over 40% (43.75%) of the companies surveyed believing rents will hold. The rest were split as to how much rents could fall by, but no one expected rents to fall by more than 20%. Faulkner adds that there will be variances in rent falls in different regions and suburbs though, with places like Queenstown likely to see a bigger drop than lower-income towns like Whanganui. Meanwhile, a NZ Property Investors Federation survey found that while the personal income of 41% of landlords was not affected by the lockdown position, 59% lost all or some of their regular income from jobs, contracts or business. While most respondents were financially secure at that point, 21% said they would need assistance if the lockdown continued for more than a month and 5% need assistance now. But the survey results also suggested that Government initiatives, like income supplements, are helping to keep tenants in their homes. That’s because the survey found, the majority of tenancies (81%) had not experienced any change. However, 6% of tenants have left their rental property and a further 2% have stopped paying rent. Landlords had reduced rent for 5% of their tenancies and deferred rental payments for a further 1.5%. For landlords who have lowered their rent, the average reduction was 43% or $210 per week. Of the 166 landlords who have lost rental income, the average amount lost after one week in lockdown was $1,059. The NZPIF’s Cullwick says that landlords are ordinary New Zealanders who are sharing in the loss of income like other sectors of society. “Many will be part of the front-line staff serving our communities so well through this crisis. We are all in this together and landlords are doing what we can.” ✚

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WHAT’S DRIVING HOUSE PRICES?

REINZ HOUSE SALES: DOWN

In April, sales nationwide plummeted by 78.5% year-on-year and in Auckland they fell by 68.8% year-on-year. This decline was because New Zealand was in level four lockdown which made it difficult for property sales to occur.

INTEREST RATES: DOWN

The Reserve Bank’s emergency OCR cut in March was passed on by the banks. Rates have now dropped to unprecedented new lows and the situation is unlikely to change in the near future.

OCR: DOWN

Prompted by the Covid-19 crisis, the Reserve Bank made an emergency 75 basis point cut to the OCR in March. This took it to a new record low of 0.25% – and it’s set to stay there for at least 12 months.

IMMIGRATION: DOWN

In a bid to contain Covid-19, the Government closed New Zealand’s borders in March. This means that what will happen with migration, which was high but trending lower, is in unknown territory.

BUILDING CONSENTS: UP

February saw consents nationwide rise by 4.7% from the month before, but that was off the back of a slight fall in January. In annual terms, consent issuance was at the highest level in 45 years.

MORTGAGE APPROVALS: UP

Reserve Bank data shows mortgage lending overall in February was up to the highest level of any February in the last five years. Investor lending was at its highest level since February 2016.

Cliff Carr

RENTS: UP

Statistics NZ’s rental price index shows rents were up by 3.4% year-on-year in March. Trade Me Property’s latest data also had rents on WWW.TMMONLINE.NZ 016 the rise, with Auckland and Wellington rents at record highs.

HOUSING COMMENTARY

by Miriam Bell

Uncertain times ahead

No-one is sure of what’s to come for the housing market as we enter the postlockdown unknown but commentators agree the market is resilient and may not be down for long, writes Miriam Bell.

ew Zealand may be heading out of its extreme Covid-19 prompted lockdown, but uncertainty is set to plague the housing market throughout 2020. There’s some grim predictions of what might come economically and, as you’d expect, there’s also speculation that the housing market will follow a similar path. As with the economic forecasts, there’s a broad range of opinions on how badly the market will be affected by the recession the country has moved into. These are unusual times so no-one can be too definitive. And that makes for uncertainty. But there’s also some common themes that have emerged from all the talk. And they provide some hope.

Market snapshot at lockdown Given the lockdown began towards the end of March, the latest data releases serve to provide a picture of the market in March. That means it essentially establishes a baseline for the way the market was on entering lockdown. As such it shows the market was performing strongly prior to the lockdown. In fact, it was heading guns blazing into recovery, characterised by healthy price growth and solid demand. QV’s latest data had the average national value at $728,276 in March, which was an increase of 6.1% year-

on-year and of 2.6% over the quarter. All 16 of the cities it monitors showed quarterly value growth for the fourth consecutive month, indicating market strength across the country. Likewise, in Realestate.co.nz’s data average asking prices around the country were buoyant in March. The national average asking price up by 5.0% year-on-year to a record high of $711,696 and eight regions reached all-time highs. And, according to REINZ, New Zealand’s median house price was up by 13.7% year-on-year to a record high of $665,000 in March. Additionally, eight regions – including a resurgent Auckland – also hit record median prices, after double digit annual growth. Of particular note was the data on Auckland’s market. Across the board, the data showed the former powerhouse was roaring back into contention. QV had its average value coming in at $1,066,035 in March, which was up 2.5% year-on-year and 1.8% over the quarter, while the REINZ data showed Auckland’s median house price had increased by 11.1% year-on-year to a new record of $950,000. The data from Auckland’s biggest agency, Barfoot & Thompson told a similar story: the Super City was booming before lockdown. Both the average sales price ($993,528) and the median sales price ($925,000) were at new highs, up by 6.6% and 10.6% yearon-year respectively. Barfoot & Thompson also had new listings and sales volumes in Auckland at their highest for some time. It had 1,763 new listings in March, which was the highest in 17 months, and its sales hit 1,096, which was the first time they were above 1,000 in a month for two years. REINZ also recorded strong sales activity in Auckland, with sales up by 10.8% year-on-year from 2,083 to 2,307, which was the highest number of sales in four months. But here Auckland bucked the trend. According to REINZ, sales activity nationwide dropped by 4.8% yearon-year in March, with 6,886 sales as compared to 7,213 in March last year. That was the lowest number of properties sold in the month of March in nine years.

At the same time, Realestate.co.nz’s data highlighted the ongoing shortage of housing stock, with the total number of homes available for sale nationwide down by 26.7% on March last year. New listings nationally were down by 16.5% year-on-year.

Property market will go on REINZ chief executive Bindi Norwell says that, despite the drop in sales, the March data shows that before Covid-19 hit New Zealand’s shores, the property market was doing well. In her view, how big the impact of Covid-19 is will depend on a huge number of factors. These include the level of unemployment; consumer and business confidence levels; people’s ability to access finance (and finance their own mortgages); and how long the wider economy takes to recover.

" Property is a long-term investment and the market will recover. However, the question is, how long it takes to recover." Tony Alexander

"We expect people to take a bit of a ‘wait and see’ approach when it comes to listing their property. “But for those who have decided after four weeks of being locked in their ‘bubble’ that they don’t like their house anymore, they will be desperate for the chance to move, so there may be some great opportunities for those wanting to buy and sell in the coming months.” However, QV general manager David Nagel is somewhat less optimistic. He says that everything changed on March 25 and nobody knows what post-lockdown market conditions will look like or how long they will last. “What we do know is there will still be a property market. There will still be sellers, although likely only a fraction of what we’re used to. And there will still be buyers that have the means and confidence to purchase property.” But he says that what happens to house prices will be determined by market forces and the changes in supply and demand. “The supply of houses for sale is likely to be reduced, while demand for buying a house is also likely to be down significantly.” Transaction volumes will drop significantly from pre-lockdown levels and listings will dry up with only those having to sell, for work or financial

reasons, wanting to enter an uncertain market, he says. “Buyers that have the means will likely dominate the market but, with limited stock available, buyers will probably exercise patience and this could force prices down for vendors that have to sell. But by how much? Nobody knows.” The market will take considerable time to settle to a new normal after the lockdown ends, Nagel adds. “With limited transactions after lockdown ends, we can expect a market filled with uncertainty at least through to the end of 2020 as the economy finds its feet again.” Meanwhile, Barfoot & Thompson managing director Peter Thompson points out that market activity did continue through the lockdown, with buyers, sellers and agents utilising technology to progress sales. It’s not possible to predict where the market will go in the short term, but people might want to look to the past and take a medium-term view of market prices, he says. “During the major economic downturns that occurred in 1987, 1997 and 2007 house prices did not decline beyond 5% at most. And following the declines, prices recovered within 12 to 18 months.” ✚

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017

TMM ANNUAL MORTGAGE ADVISER SURVEY

by Daniel Dunkley

Advisers face the new world

Advisers are bullish about business survival post-Covid-19, but bank processing and turnaround times remain the top issues for the sector, according to TMM’s annual survey. 2020 has proven to be a year of the unexpected. The Covid-19 pandemic has caused a new global financial crisis, with New Zealand under lockdown through March and April. The economic turmoil has seen the housing market grind to a near-halt, with a devastating impact for advisers. While the pandemic has delivered a massive blow to shortterm profits, advisers remain hopeful that they will survive and emerge from the crisis. Just 10% of advisers said business survival post-Covid-19 kept them awake at night. This year’s TMM Mortgage Adviser Survey underlines some of the key concerns facing advisers in this new and uncertain world. Advisers face a long road to recovery, and Covid-19 is likely to exacerbate some of the existing challenges facing the sector. With house prices forecast by ANZ to fall by 10-15% this year, mortgage advisers have to contend with a downmarket in the near-term. Commission from settlements has plummeted, and Covid-19 could spell more danger than the GFC.

TMM asked advisers for their views on the biggest challenges and opportunities in the market. With banks under severe strain and tightening credit availability, turnaround times and loan applications were highlighted as issues most likely to keep advisers awake at night. Advisers say turnaround times have worsened over the past year and in recent months, as banks cut costs and mortgage staff numbers. Brokers hold out little hope that banks will cut down application times in the year ahead. The new global financial crisis comes as the industry embraces new industry regulation. Transitional licensing has been delayed until next year due to the virus outbreak, but most brokers have made up their minds about which licensing structure to take. 2020 is poised to be a year of significant change for the industry. Advisers expect to place more business with nonbanks and plan to offer new products to clients in the next 12 months. The question of whether to pursue more trail commission is likely to be a bigger issue in the year ahead. • Over 80% of advisers have been in the business for more than two years and whilst that is a positive it may be said that the more we can introduce what advisers do to more of New Zealand then that will also bring new talent into the industry and importantly succession.

Supporting advisers

by Aaron Milburn, Pepper General Manager mortgages.

Pepper NZ is delighted to be sponsor of the annual TMM Mortgage Advisers Survey. As New Zealand's newest non-bank we are committed to supporting advisers and their clients and ensuring most importantly no Kiwi family is sitting at home not understanding what their financial options are. In our opinion they can only get the full set of options from mortgage advisers. We must continue to work together to get the message out about what advisers do and how important they are to the financial sector of New Zealand. Given advisers generate around 37% of mortgage sales vs banks we have a long runway ahead full of opportunities. Pepper NZ will be there with you every step of the way.

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• Turnaround times continue to be the biggest concern and advisers should continue to challenge lenders to invest in technology and back office process improvement to not only assist, but also most importantly improve the customer experience. • It is great to see more advisers having a better year with over 70% seeing an increase in volume and some seeing 25% uplifts which shows more and more Kiwis need advisers’ help and we need to continue together to get the message out there. • For Pepper NZ it is so pleasing to see advisers already sending nearly 3:10 deals to the non-bank sector and even more exciting to read that 4:10 advisers will be looking to the non-banks like Pepper NZ to solve more of their customers' needs.

SPONSORED CONTENT

working in their business and what could do with a rethink. Freeing-up valuable time for advice and becoming more efficient is a big item on many agendas,” says Bronkhorst. The new Administration and Compliance Support Service is a comprehensive service for mortgage and insurance adviser businesses, offering data capturing, data management, appointment booking, application processing, claims support, compliance support and more. “We explored offshore admin options but decided to employ local and keep it in-house,” said Bronkhorst. “Our new Administration and Compliance Support Service is designed to put time back into an adviser’s day and to lift efficiencies in adviser businesses,” says Bronkhorst. “All of our advisers will also automatically have access to our recently launched Professional Development and Learning Platform.”

Bringing the brands together 2020 is also the year that the group has elected to bring the brands together under one Mortgage and Insurance Link brand.

“The Mortgage Link brand was born in 1991 and has continued to evolve. Insurance Link was launched in 2016 and was intentionally developed as a separate brand with its own character,” says Bronkhorst. “But as the needs of

our advisers evolved, we recognised the value of bringing our two brands together. We’re looking forward to this exciting new chapter for our group and adviser partners.” “We've always believed that knowing and understanding our adviser partner businesses is critical to having strong, long-term relationships. This is true now more than ever and we’ll be working even closer with advisers in our group to establish business plans and strategies for growth, to enable our advisers to focus on growing their businesses.” “And for those thinking about life after advice, we’ll be there to help with succession planning, so that our adviser partners can exit the industry on their terms, when it’s right for them, and when they are ready to take the step,” says Bronkhorst. ✚ Josh Bronkhorst, Managing Director, Mortgage & Insurance Link. Supporting advisers since 1991.

Proudly supporting Advisers since 1991 RIGHT NOW; securing clients and securing business is critical. Together we can achieve business consistency and long term growth! Ask about our in-house Administration Service. Aggregate through us using your own brand or use ours Join our FAP or set up your own

JOSH BRONKHORST 021 835 506 josh@mortgagelink.co.nz josh@insurancelink.co.nz

KELLY BROUGH 027 373 2864 kelly@mortgagelink.co.nz

Use our CRM (Advice Link), Trail or XPlan (for Insurance) Access to our Professional Development & Learning Platform Not ready to leave the industry, come talk to us… Join our community of excellent and highly respected advisers.

DANIELLE PENBERTHY 021 517 444 danielle@insurancelink.co.nz

027

MY BUSINESS

by Daniel Dunkley

Green goes for rebrand Auckland-based adviser David Green, of adviceHQ, talks to TMM about his journey from investment banking to mortgage adviser, with a rebrand along the way. TELL US ABOUT YOUR BACKGROUND. WHAT PROMPTED YOU TO GO INTO THE MORTGAGE ADVICE SECTOR?

It was something I wanted to do for a long time, but it was hard to leave the comfort of a lucrative corporate career. I graduated with a bachelor of business in accountancy and finance before becoming a Chartered Accountant at Deloitte. I went overseas, London and Perth, for the better part of a decade, where I worked for investment banks and retail banks. Sitting in a glass tower and working out how to make an extra $1 per month from a customer base of one million, ie $12 million per year, didn’t fulfil me. I knew I could be of more value to the world by helping improve Kiwis' financial literacy and decision-making with the benefit of my knowledge and expertise.

HOW DID YOU GO ABOUT LEARNING THE BUSINESS? HOW DID YOU FIND THE PROCESS?

Having worked in financial services for most of my career, I knew banking inside and out. What I didn’t know were the intricacies of getting a deal across the line. I threw myself in the deep end by going out on my own, but I sought out knowledge and education wherever I could. I met everyone, read everything and signed up for every course going. I was also lucky enough to have Michael Williams as a mentor, who has been fantastic. Thanks to Corey Rix for the introduction!

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TELL US ABOUT YOUR BUSINESS AND WHY YOU ARE PASSIONATE ABOUT BEING AN ADVISER?

I recently rebranded to adviceHQ (from Mortgage Pro) to focus on where I provide value to clients – advice. While it is really important to know products and services, for me it’s about understanding my client’s current position, how they got there and what their aspirations are. I feel extremely fortunate to have a wealth of financial experience, but unfortunately most kiwis don’t have a strong base of financial literacy. I am passionate about getting people the right advice at the right time so they can make the right decision for their current situation and future aspirations.

HOW DO YOU APPROACH BUSINESS DIFFERENTLY TO OTHER ADVISERS?

I like to think that 99% of advisers do a great job but we all come at it from different angles. I approach clients like they are running their own corporation, perhaps the husband is the COO, wife is CEO, children are staff.

IS THERE ANY PARTICULAR AREA OF BUSINESS THAT YOU SPECIALISE IN?

When I wrote my original business plan my target segments were families and investors. In specialising in families, I get to work with the extended family which enables a deeper relationship.

Perhaps the parents are helping their children into their first home, or maybe it’s their first investment property. I have also found I have an affinity with those in corporate environments because I understand their challenges and motivations.

YOU’VE RECENTLY REBRANDED YOUR BUSINESS. WHY DID YOU MAKE THE CHANGE?

While I still have a soft spot for my previous brand, Mortgage Pro, it was based on a product, inferring selling. adviceHQ is focused on delivering true value for clients through professional advice. adviceHQ also allows flexibility to scale the business by introducing further service lines in the future.

DO YOU MAKE USE OF SOCIAL MEDIA AND/OR NEW TECHNOLOGY IN YOUR WORK?

Yes and yes – it’s where clients are and it’s what clients want. Until recently I have largely focused on developing relationships with key partners so I have only dabbled in social media. A couple of my previous corporate colleagues are helping me on the next phase of my business – in developing my digital strategy – more to come in this space.

WHAT HAS BEEN THE HIGH POINT OF YOUR TIME IN THE BUSINESS? AND THE LOW POINT?

I get a lot of pleasure from seeing people succeed. Clients’, colleagues’ and partners’ growth creates a win/win for all. More recently a high point for me has been teaching my new team all things banking. The low point has been seeing the impacts of Covid-19 hit home with current and future clients. While there may be more pain to come I am playing my part in helping clients through these tough times.

DO YOU HAVE A MENTOR? WHO HAS INSPIRED YOU IN BUSINESS?

I have a fantastic mortgage mentor, Michael Williams, who has been a godsend. Good fun and a great adviser who always has time for me. I also have a couple of informal business mentors who I like to share ideas with. I have several inspirations from the classics like Richard Branson, Warren Buffett, and Bill Gates whose success hasn’t changed them but has enabled them to help others. My father provided me with a good set of values which I hold dearly. He didn’t have the easiest of backgrounds as he lost his father when he was young, this taught me the value of hard work.

WHAT IS THE BEST ADVICE YOU’VE EVER RECEIVED?

My recent favourite is progress over perfection. As an adviser, there is always so much to do in so many areas that you have to find ways to move forward quickly. It is too easy to spend too much time on perfecting something when what is really required is a fast solution.

WHAT DOES YOUR TYPICAL WORKING DAY LOOK LIKE?

I like to get up at 5.30am, exercise, read, then breakfast with the kids. I get into the office early to put some runs on the board and build momentum for the rest of the day. The rest of the day includes client/lender follow-up, CRM updates, deal writing, partner calls, client calls, marketing, and my favourite – client appointments. I like to leave admin until after hours as time with clients and partners is key. More recently Covid-19 has put a spanner in the works so I am now also a part-time teacher except I don’t get 12 weeks of holidays!

WHAT CHALLENGES – BOTH FOR YOURSELF AND FOR THE INDUSTRY – DO YOU SEE AHEAD?

Not a minute goes by without a mention of Covid-19. Short-term demand will provide an immediate bounce after lockdown but the reality of wage reductions and redundancies will bite thereafter. I am also concerned about what happens in six months’ time if the situation hasn’t improved with mortgage deferrals and interest only periods coming to an end.

WHAT ARE YOUR PERSONAL GOALS? WHAT DOES THE FUTURE HOLD?

Family comes first for me. I want to see my children have the opportunity to learn and grow with the freedom the Anzacs provided us with. Covid-19 has shown us how grateful we should be and how vital it is that we preserve our environment for future generations. On a personal front I am always looking to learn and grow. There are always new opportunities around the corner, so I am excited about what the future will bring. Winston Churchill said “never let a good crisis go to waste”.

FINALLY, ANY WORDS OF WISDOM, OR TIPS, FOR OTHER ADVISERS?

Don’t be afraid to ask for help, be it family, friends, colleagues, a BDM, an adviser or a mentor. Everyone wants to see you succeed and good people make time for good people. ✚

FROM

North Shore, Auckland but I grew up on the Hibiscus Coast. I was born in Australia where I lived for my first six years so I guess you could say I’m a true Anzac supporter.

FAMILY

Wife Caroline who is in HR is originally from South Africa – we have the Tri-Nations covered. Our kids are eight and nine so plenty to keep us busy.

OUT OF WORK INTERESTS

Anything outdoors including paddle boarding, boating, mountain biking and chasing/ coaching the kids touch and basketball teams.

FAVOURITE FILM &/ OR TV SHOW

Movie, Forrest Gump. TV series, The Sopranos, but more recently Inside Bill’s Brain: Decoding Bill Gates and The Last Dance, based on the Chicago Bulls.

FAVOURITE BOOK

Long Walk to Freedom, Nelson Mandela and Scar Tissue, Anthony Kiedis from the Red Hot Chili Peppers with Larry Sloman.

FAVOURITE MUSIC

Spotify – I like variety. Anything from Prodigy to Pavarotti, Guns N’ Roses to Kenny Rogers, Blackbear to Amy Winehouse.

MOTTO

My wife tells me “nice things aren’t cheap and cheap things aren’t nice”. Enough said ...

029

SALES & MARKETING

by Paul Watkins

Managing stressful times Paul Watkins talks on the best way to communicate with, support and reassure clients during these unusual times.

t will be stress-city out there for many of your clients, and possibly many of you too, as brokers. The single best thing to do right now is constant communication with the client, at a far higher level than before. I am sure you are receiving questions such as these, which brokers tell me are quite common right now: Does my pre-approval still apply? Can we still settle? Can I arrange a “mortgage-holiday”? Can I still buy an investment property using existing property equity? Are there any LVR changes? Can I go and view new homes? Have banks changed their criteria? Do some lenders still offer incentives to cover legal fees? What will happen to interest rates? Should I change my mortgage in any way? I am self-employed and I received the Government subsidy as my income fell a bit. Does this affect my ability to borrow?

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A psychologist has told me that the three biggest issues right now for his practice are loneliness, anxiety and family issues. These are all symptoms of being in isolation, cooped up 24/7 with family and financial stress. The third one is where you come in. The stress is being exacerbated by the constant and repetitive negative media. Businesses folding, staff being paid off, airlines closing, 5G transmitting the virus (yes, I know), Queenstown’s severe financial woes and more. But he also told me that “not knowing” is the biggest issue and that is why we keep reading the press. As any general will tell you, the best defence in battle is to attack. So, it is in your best interest to do the following: If you were sending monthly newsletters, make them weekly. Make

them single paragraph updates on key issues such as the questions listed above. You can link articles from other respected players, such as economists, lenders, insurers, real estate consultants and similar, but only choose the ones which are positive and offer genuine options or outlooks. Never re-post a doom-and-gloom one. Keep your website up to date. Sadly, I scanned a bunch of broker’s websites as I wrote this and only a very small number have even referenced the impact of Covid-19 on mortages or property. To the few that I saw who have, well done! In fact some are outstanding. Without wanting to generate a backlash, it almost felt like many of you had gone to ground yourselves due to no apparent changes on the sites. If you are not regularly informing clients of developments and options through newsletters, they will be visiting your website to find these, as that is who they got their mortgage through.

Update your LinkedIn profile with short camera-in-the-face videos. LinkedIn is now a highly respected source of news for many of your clients. You might want to interview someone in the industry or make it a dialogue, which works well. Invite phone calls from clients, but do not expect many of them to lead to any revenue for you. You are their “adviser” and they respect your thoughts. Help calm their nerves and stress levels. This is part of the true value you offer, not just securing them a mortgage. And now to Facebook. When I mention this to brokers, I often get a roll of the eyes and the look of “oh no, not again” from them. Ignore it at your peril. I often check broker’s Facebook pages just to see what activity might have been posted or used as an ad. If I thought website updates were minimal, Facebook is just as bad. Facebook traffic has risen 70% in New Zealand for the months of April and into May, with more people within each household now on the platform, more time each day on it and the time curve has flattened. While most social media consumption was mainly between 9:00pm and midnight, this has changed a lot. One client of mine ran a Facebook ad, scheduled to start at 11:00pm one night so it would be there for the next day. It had received 8,000 views and 1,600 elements of engagement by 7:00am the next morning. By the end of the day it had racked up close to 20,000 views and 5,000+ engagements. These are unprecedented times in terms of media and buying patterns. The traditional media companies are loudly complaining that the

giant US-based companies (notably Facebook and Google) are taking all their revenue and that we must return to buying local. They argue that they can no longer employ credible journalists for the “true” news, as the advertising revenue is not there. But the reality is that all eyes are on the internet right now, be that social media or Google searches and traditional media is dying an agonising death due to their complacency. Another fact is that online buying of retail items jumped from an estimated 12% in the Western world to over 70% during lockdown (no surprise), but that after it all ends, it will not drop back down to 12%, but to 25%-30%. This is because many, many people have enjoyed the time-saving option of clickand-deliver or click-and-collect. This article is not a commentary on the media so much as telling you that eyes have moved, with a quantum leap! An extraordinarily strong online presence, including your website, Google search rankings and social media, particularly Facebook and LinkedIn, are now a critical part of your future. A summary of what I suggest you do: The quickest and easiest thing to do first is to bump your newsletter frequency to weekly, at least for the next few months. Invite their calls to chat about any changes to their circumstances. Second, place Facebook posts at the rate of daily, preferably in video format, as that by far outperforms other types of post. Hold your cell phone out in front of you and talk to client concerns for a minute or two. Production values are irrelevant, so long as the sound is

clear. Recently released cell phones can capture video and audio as good as any professional equipment now. Next, engage a web development company (there are hundreds of competent ones out there) to review your website, ensure that it is updated with blogs or current information on a regular basis and performs well for SEO (search engine optimisation). Next, update your LinkedIn profile and post regularly to that as well. It could be the same videos that you use on Facebook or slightly different depending on your client base. If you are seeking new clients, apart from referrals, Facebook and LinkedIn are by far and away your best vehicles to do this through. But, you will have no doubt picked up a small flaw in all of this. While none of it is expensive, even a brand-new website should only be between $2,000 and $5,000, it is all quite labourintensive. Daily posts to social media, writing and sending out newsletters can all be very time-consuming. But there are small agencies out there who can do much of this for you. Seek help. Leave that part to others and stay the expert at advice. ✚

Covid-19 has changed the landscape irrevocably, so plan some changes or you may be left behind.

Paul Watkins writes blog content and newsletters for financial advisers.

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INSURANCE

by Steve Wright

Insurance adviser conduct obligations Steve Wright takes a critical look at the minimum standards of competence and due care, diligence and skill and how they will affect the insurance advice world. Many advisers are currently doing their level five qualification. This is the minimum standard of competence all financial advisers must meet in order to give financial advice (as set out by part two of the Code). Fortunately, or unfortunately, depending on your view, achieving the level five certificate is just the minimum requirement, the “ticket to the game”, it is not the end of an adviser’s learning, it is only the beginning. In addition to the minimum standard, the law (soon to be s431L of the FMC Act) requires advisers to exercise due care, diligence and skill. 032 WWW.TMMONLINE.NZ

This means knowing and understanding enough about the various issues to give acceptable life and health insurance advice. In many cases the knowledge needed to properly advise clients is much greater than that which is likely to have been gained from the minimum standard. In particular, this is true for “independent” advisers who pledge to sell their client the “best product” from a range of competing providers. By “independent” I mean advisers who are not constrained from recommending the best provider’s solution, either due to contractual reasons or any other reason (like emotional attachment or undue prejudice).

dvisers who hold themselves out as “independent” must know the competing products of the providers they can use in detail sufficient to compare and contrast the value of each product for every particular client’s circumstances and then recommend the best option objectively and without prejudice. The knowledge required is not only about every product’s important benefits and features in isolation either, it’s about how the various products and the numerous options and extensions all combine in a package that best meets the client’s risk needs, in the most efficient way.

" Our world is changing very rapidly. This means the thing you believed last year may no longer be valid, correct or accurate." This is why advisers should always “check, not guess”. It is also why the Code Standard 9 requires advisers to keep competence, knowledge and skill up-to-date. We call this CPD or continuing professional development. According to Code Standard 9, advisers must “at least annually, plan for and progressively complete learning activities to ensure they maintain: • the competence knowledge and skill necessary for the financial advice they give; and • an up-to-date understanding of the regulatory framework as it applies to them.” The Code does not prescribe how or what CPD learning is appropriate or how much advisers need. I think this is appropriate, notwithstanding some who have called for rules and minimum hours, etc. I don’t think complication is needed. It is simple in my view: every

adviser must remain competent to do the job! This means they must do whatever learning is needed to ensure this. How they do this is less important. What is important is that they get it done properly and they can keep evidence of what it was and of having done it. There is no shortage of ongoing learning needed either, insurance companies regularly enhance and change their products, so properly understanding these changes and the benefits and shortcomings is naturally “compulsory”. Laws and regulations also change from time to time, as do other things that affect your advice, like changes to social benefits and ACC. A failure to keep up-to-date with things could mean that you give the client wrong information and advice, a likely breach of Code Standard 3 (which requires advisers to give advice that is suitable for that client) and section 431L of the FMC Act (failure to exercise due care, diligence and skill). Once again, we can see that this is simply doing the right thing.

" All the skill and learning acquired should translate into better advice, happier clients and greater business success, so it makes financial sense to do it too." By the way, documenting your learning and CPD is also important – one day you may be required to prove to someone what you have done to stay competent. Combined with the requirement to act with due care, diligence and skill, all this means an adviser’s recommendations should only be given after … “conscientious application of knowledge and skill to achieve a recommendation that on balance, is the best one for the client”. Why does all this matter? It matters because the difference in claim

outcome can be very significant depending on the claim circumstances, the provider selected and the benefits clients ultimately receive for the premium they pay. For advisers who purport to offer advice and solutions from multiple providers, the law requires them to objectively, fairly and without prejudice, consider all the providers at their disposal so that a suitable recommendation can be made, one which gives priority to their client’s interests. For advisers who limit their provider selection, treating clients fairly requires clear explanation that their advice is limited to one or two providers (whatever it is in practice) and explaining the possible consequences, usually a possible lack of superior outcomes. Finally, Code Standard 9 requires that: “Entities must, at least annually, review their procedures, systems and expertise to ensure that they maintain the capabilities for the financial advice they give.” The Code does not define what it means by “entities” but I’d suggest this is good practice for all advisers and advice businesses. In the next edition of ASSET we will explore the duty to give priority to client’s interests. In the meantime keep putting the client’s interests ahead of your own; ensure you know what you are talking about – check, don’t guess; practice direct honesty and give the client enough information to make an informed decision, do the right thing and keep learning so you can give clients great advice. ✚ Steve Wright has qualifications in law, economics, tax and financial planning and is General Manager Professional Development at Partners Life. www.goodreturns.co.nz/disclaimers

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LEGAL

by Jonathan Flaws

Rebooting the world – a virtual necessity Traditionally, the interaction between professional advisers (mortgage/finance advisers, lawyers and accountants) has been face-to-face. But at alert levels four and three, we have been required to put physical distance between the adviser and the client. At alert level two physical distancing is still required but less so. Alternative ways of working and keeping your distance are still encouraged.

Keeping your distance online The measures taken to combat Covid-19 have affected the global economy, changed how business will be transacted and forced us to distance ourselves from others and treat them as potential lifethreatening virus carriers. In the perspective of a historical timeline, this has occurred as if a switch has been flicked and the lights turned off. It’s as if God looked down on the world and its problems and decided it wasn’t going too well, like a computer that keeps crashing or looping. So, the standard IT help desk solution was executed. Turn it off and on in the hope the reboot would cure the problem. 034 WWW.TMMONLINE.NZ

The distance between us The New Zealand response has been, first distance the country from the rest of the world and stop the virus entering the country then distance New Zealanders from each other to contain what’s here and stop it spreading. But even though we are an island nation, no man is an island. Many traditional business models operate best with face-to-face interaction. Some, like online trading thrive by keeping their distance from customers. But others, especially professionals like mortgage advisers must interact with clients in.

Fortunately, the reboot has occurred at a time when technology has advanced to provide us with an alternative means of interacting audio-visually with clients and customers. Not as good as face-to-face but with controls it can be “functionally equivalent” to a face-toface meeting – meaning it can achieve virtually the same outcome and provide a technological face mask. a. Audiovisual links Arguably, a person’s most used IT asset is their smartphone. What was previously just a means of portable oral communication has become a method for: getting news (local and international); following a sporting event in real time; fact checking a ludicrous statement by a friend at a dinner party (remember them?); and receiving a text with a code to gain access to an app or computer programme that requires two-factor authentication.

Plus, it gives you instant access, wherever you are to audiovisual conference apps such as FaceTime, Google Duo, Zoom, BlueJeans, Skype or Microsoft Teams. Using a desktop PC is even better but the smartphone is handy and is like a Clayton's computer. It’s the PC you have when you don’t have a PC. Since the updated LINZ guidelines for verification of identity were published in November 2018, lawyers have been permitted to use audio -visual technology to obtain (which means witness) a client authority and instruction from existing clients to lodge a mortgage on their land and verify the identity of the client – but only in limited circumstances. On March 30, shortly after we entered level four, LINZ issued its Interim Guideline 2020 which repeated the 2018 requirements but extended them to new clients provided other reasonable steps to verify identity were taken and records kept of those steps. Later in April, modification Orders in Council (the equivalent of regulations) were made by the Government enabling oaths and declarations, enduring powers of attorney and wills to be signed by audio-visual links. All of the Government-generated provisions enable the witness to view the party intending to be bound by a document signing the document during an audio-visual conference and then witnessing a counterpart copy of a scan of the signed document. All of these measures require that the witness can see the person signing and require that a record is made and kept of the events. b. Electronic signing Since 2002, New Zealand has had legislation in place to permit any legal requirement for a signature including that of a witness to be met by an electronic signature. Well not really any, because certain conveyancing documents, oaths and declarations, powers of attorney and wills were excluded. c. Combination of both In short, as a result of Covid-19 restrictions, there is now more regulatory support for keeping your distance online. By combining both audiovisual conferencing and digital signing you can undertake business legally at a distance. The following paragraphs explain how to best use these IT assets while taking care to ensure you are dealing with the correct parties and not being sucked into participating in a fraudulent transaction.

Verification of identity Since the advent of electronic registration and the widening of the constituency of reporting entities for AML/CFT purposes, verification of identity and "know your customer" requirements are common. You may not (yet) be required to be a reporting entity but may have to carry out verification of identity for reporting entities. In any event, if you are relying upon audio-visual interaction with a new client or customer you should protect yourself and carry out some basic verification of identity and record it.

Which audio-visual app is best? At the end of the day, it is your choice as to which best suits you for ease of use and security. I use a system called BlueJeans.com which combines the following: • ability to schedule meetings with new parties that doesn’t require them to download or subscribe to the app • ability to share screens • ability to take screenshots and videos • encrypted communications so nobody can drop in and interfere with or hack the conference • good sound and video quality.

Confirm legal competency and no undue influence You may not be aware but every time you meet someone face-to-face you consciously or subconsciously form a view of their legal competency and whether they are being forced into the transaction against their will. You form this view from body language or the circumstances of the meeting or whether they are coherent when you ask them a question. For example if you are dealing with an elderly person and they appear agitated or unclear on what they are doing you will more likely than not form a view as to their legal competency. In an audio-visual conference, it is harder to pick up these visual clues. The view is two dimensional and in an extreme case there could be somebody behind the webcam holding a gun pointed at the other party. You are not required to be a medical or forensic specialist but be more aware of these issues and of any indication that things may not be what they seem. If you have a concern you may wish to raise it or seek external information to resolve it.

Some of these may depend on the bandwidth available to you so don’t write off a system because it is slow and the picture fuzzy or the sound quality bad. If, like me, you're using broadband 4G WiFi, the rain may be interfering with the signal from the nearest cell tower, the download speed may be cut back because it's lockdown and everyone using your tower is downloading movies or your children in the next room are playing games online with their friends.

Digital signing An alternative to watching someone complete and sign a form online is to provide them with the completed form through a digital signing system and have them sign it. a. What is an electronic signature? If you think that an electronic signature is a piece of technology that you put on an electronic document by the click of a mouse, you are only half right. Part 4 of the Contract and Commercial Law Act 2017 defines it thus:

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LEGAL

by Jonathan Flaws

"Electronic signature, in relation to information in electronic form, means a method used to identify a person and to indicate that person’s approval of that information." It is technologically neutral and encompasses a “method”, of which the technology is just a part. Note that there are two parts to the definition – the identification of the signatory and an indication in the signature of the signatory’s approval of the information in the document. When you assess which system to use, ask yourself the simple question, does the signature achieve both of the elements. If not, find a system or ask the provider to give you a system that does. b. Scalability A “method” means that the electronic signature is therefore a business process that achieves the two main parts. Reading through the detail in the legislation you will see that the parts are broken down further. The main aspect of this is the recurring statement that each part needs to be

d. Verification of identity and linking signatory with the mark Verification of identity is the same issue as above. If you can, you should try and link VOI with both AML and digital signing. Linking the signatory with the mark means ensuring that the system ensures that only the named signatory is able to place the mark in the document. A standard method is a two-factor authentication – emailing a link to the person and then sending an SMS code to access the link. e. The mark This is what you probably think is the signature because it is the visual equivalent of a handwritten signature. But given the above definition that refers to a method, it is only a part of the defined signature. f. Reason for inserting the mark Not all systems include a visual reason for inserting the mark. Reading the definition in our legislation and other parts of the definition it is hard to understand why they don’t. I would say to be safe; you should choose a system that has a reason included. For example, a system that I am happy to use has a mark that contains the following:

You have to be confident that if you are ever called upon to justify the use of a particular system, the system you have chosen meets the legislative test and is as secure as is required by the circumstances. For me, the gold standard is a system that provides the following: • A method of covering in one system all elements from verification of identity to being tamper evident. • A method that covers all types of document including witnessing. • A method to ensure only the named person can access the mark for insertion – preferably two-factor authentication. • A mark that includes the reason for signing and a method to ensure the signatory accepts that reason. • An audit trail to show the progress from uploading a document to sign, to locking it down with a digital certificate. • That results in a PDF readable format. Just because a system promotes itself as "used by many" doesn’t mean it ticks all boxes.

• an image of a signature (either typewritten or a graphic upload of a person’s handwritten signature) • the person’s name

"as reliable as is appropriate given the purpose for which, and the circumstances in which, the [thing] is required." Put another way, what is required for a simple signature on a standard commercial document requiring only one signatory can be vastly different to the length a lawyer may have to go for a client A& I form required by the Registrar-General of Land to initiate the registration of a mortgage. If you are going to deliver an electronically signed form or document to another party for them to rely on, you should find out first the degree of security that the person relying on it expects. Many may have no idea what you are talking about and therefore you need to ensure that you have enough to make you feel comfortable but not too much that it makes the process user-unfriendly. c. Consent The first step in the method is to make sure the recipient agrees to receive an electronically signed document. If they haven’t indicated this and accepted the system you proposed to use, check with them first.

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• the reason of signing eg “I agree to be legally bound by the contents of this document” • the date and time. g. Tamper evident The legislation requires that any change to the document after it was signed is evident. This is where the difference that you may have heard about between “electronic signing” and “digital signing” comes in. Electronic signing is just a mark in the document, but digital signing refers to including a digital certificate as part of the mark. This means using a process known as public key/private key (PKI) encryption. When you are presented with an original or copy of the original with the digital certificate included you can click on the certificate and it tells you the date and time the mark was inserted and that the contents of the document haven’t changed since then. h. Which system is best There are many systems available and I’m not going to fall into the trap of ranking them. It is more important that you find a system that does what you need it to do remembering that the signature is a method, not just a bit of technology.

Is this reboot permanent? The Orders in Council relating to oaths and declarations, enduring powers of attorney and wills are temporary and expire when the Covid-19 emergency is over. Whether the other relaxation of rules for audio-visual conferences expires is yet to be determined. The rules relating to digital signing however are permanent and once you become used to digital signing, you may never go back. Like the increase in working from home, the changes to our working style should be permanent and not lost. The great challenge will be to maintain collegiality and social interaction which is one of the benefits of living in this island nation while not increasing the risk of spreading the foreign and unforgiving virus and pushing us all back inside our personal islands. ✚

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The TOP

10 stories

on www.tmmonline.nz There was a wide variety of stories on TMM Online since the last issue of the magazine. Here’s what mortgage advisers have been reading.

1Reserve Bank ends LVR restrictions

6Cuts to cash-back offers

Pre-approvals hit by Covid-19

House price drops are short-lived: Alexander

8End of LVR rules: advisers react

9Long lockdown for advisers

The Reserve Bank has decided to remove loan to value ratio restrictions for 12 months in response to the Covid-19 crisis.

Banks are withdrawing pre-approvals for home loans amid the Covid-19 outbreak, as credit conditions continue to tighten.

Periods of house price decline are rare and "short-lived", says economist Tony Alexander, amid forecasts of a drop of 10-15% this year.

ANZ doesn’t expect low equity problems

ANZ says it is “extremely unlikely” that its customers will go above 95% LVR or into negative equity during the Covid-19 crisis.

ASB criticised over Covid-19 processing

ASB has drawn criticism for its handling of Covid-19 mortgage requests, after asking customers to go direct rather than through their adviser.

Banks have begun to reduce cash-back offers on home loans in the wake of the Covid-19 crisis, advisers have told TMM Online.

Fears over tougher servicing tests

Advisers say servicing tests have become even tougher during the Covid-19 crisis, with banks testing borrowers on virus-constrained current income.

Advisers have welcomed the Reserve Bank's decision to end loan-to-value ratio restrictions, but are divided on whether it will change lending behaviour.

Mortgage advisers face a lengthy period of working from home after the Government extended level four lockdown and outlined its plans for level three.

CEO's predictions for 10NZFSG a post-Covid-19 market

NZFSG CEO Brendon Smith has shared his top predictions for how the mortgage advice industry will change after the Covid-19 crisis.

TMM ONLINE ALSO HAS ALL THE LATEST MORTGAGE RATES AND CHANGES.

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To keep up with all the news make sure you check www.tmmonline.nz regularly. Or you can get the news and rates update sent to you each day by signing up to the TMM email newsletter.

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TMM - The NZ Mortgage Mag Issue 2 2020

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