Mortgage advisers can tap KiwiSaver for ongoing income
Mortgage advisers seeking a new source of revenue as traditional trail commission dries up are increasingly looking at KiwiSaver as a viable option, according to one industry provider.
Koura founder Rupert Carlyon said the loss of trail commissions is forcing a shift in how advisers operate. With only Kiwibank and BNZ now paying these fees, advisers have lost a key income stream that previously allowed them to build long-term businesses.
Westpac paid advisers a total estimated at about $120 million this week as it brought its trail commission model to an end. This sudden change has pushed many advisers to reconsider their business models and seek alternatives.
“Mortgage advisers have gone from a world where they could previously build good long-term businesses with good recurring income, which means they can hire staff, invest in systems… to now being businesses that rely on doing a deal to get paid… what’s happening now is mortgage advisers are looking for other sources of income,” Carlyon said.
Related: Milford Asset Management adds three senior hires
He noted that historically, businesses have been valued on a multiple of trail income. The disappearance of this revenue stream makes it difficult to determine the value of a mortgage book and what it should be worth in the market.
He said mortgage advisers, who have long worked with insurance advisers, are now looking for new ways to replace the lost income. Unlike insurance, mortgage advice has historically stayed away from KiwiSaver, even though KiwiSaver often comes up during mortgage conversations.
Advisers have felt unqualified or lacking the skills to replicate the high quality advice they deliver with mortgages. The new financial services advice regime reinforced this by requiring qualifications and increasing the FMA focus on advice quality.
KiwiSaver as an alternative
Despite the challenges, KiwiSaver offers benefits for mortgage advice businesses. Balances are growing by about 15% a year, so trail commission keeps growing, and customers are sticky. The industry runs a 95% retention rate, meaning a client is expected to stay with a provider for more than 20 years.
Related: Historical Development of Indonesia Pharmacy
Given the need to diversify their businesses and create recurring income, mortgage advisers can no longer ignore this KiwiSaver opportunity. The big question is how can advisers do this in a safe and compliant way while delivering best quality for the clients?
They could either deliver KiwiSaver advice themselves, find a KiwiSaver partner to work with or opt for a KiwiSaver referral scheme. “Each adviser needs to find the right model for their business, level of knowledge and desire to invest.”
Koura currently has 500 mortgage advisers working in its referral programme. This approach gives clients access to advice they often lack, as recent FMA access to advice studies show that nowhere near enough clients are getting advice on what is the largest investment product Kiwis will ever have.
Mortgage advisers have the opportunity to change that, delivering exceptional client outcomes whilst also creating stronger business models for themselves.
Related: Understanding the Disposable Plastic Plate Phenomenon: Convenience, Concerns and Choices
While some advisers may choose to offer KiwiSaver directly, others prefer to partner with providers that allow them to focus on mortgages. Squirrel chief executive David Cunningham agreed that some advisers would be looking at their options. He said it could make sense for some of them to opt for something like KiwiSaver to give them recurring income.
He said Squirrel favoured a referral model because it wanted its advisers to focus on delivering the best mortgage advice possible. The revenue from ongoing advice is less than it was under the old commission model, making the shift necessary for some.
Jeremy Andrews at Key Mortgages said he has heard advisers who want to be able to offer more long-term support to clients were shifting into other areas as well, including KiwiSaver, to ensure they have ongoing income. In loan structure meetings, as part of responsible financial planning, advisers always ask clients about their future goals.
They ask if clients have cover to pay their mortgage if unable to work, if they have a will that needs updating, and if they are in an appropriate KiwiSaver scheme giving good returns for their stage in life.
