Financial coaching under scrutiny
Letters landing in the letterboxes of posher Auckland suburbs offering funding "to assist some families" with the deposit needed to buy their first home have cast the spotlight on the costs of financial coaching.
The letters are from Auckland-based Welcome Home Foundation Limited, a private company which is not linked to the government-funded Welcome Home loans. It promotes itself as "assisting families in achieving the dream of home ownership".
WHF is owned by Luke Atkins, who described it as a financial coaching company that was the financial equivalent of a personal fitness trainer charging fees for helping people get into property ownership.
A previous venture of Atkins, called Noah's Ark, which also promised to help individuals to save towards the purchase of a first home, attracted adverse commentary for its fee levels in 2011. For some clients these fees equated to $20 a week, just over $1000 a year.
While the stated aim of WHF's coaching is similar to that of Noah's Ark, Atkins said it had a different fee structure.
Atkins said WHF, which is a registered financial services provider and a member of the Financial Dispute Resolution complaints scheme, assisted aspiring home owners to tidy up their finances, increase their savings, and access mortgage financing.
Atkins said mortgage funding had become harder to get for people with deposits of less than 20 per cent following the Reserve Bank's imposition last year of limits on the number of low-deposit loans banks can make.
Atkins said WHF clients saved into a company trust account, which pays no interest, and have regular meetings to encourage them to stick to the task.
Once a sufficient deposit is saved and funding could be sourced, either from a mainstream bank or from wealthy private investors Atkins knows, the client can go house-hunting.
Funding from the private lenders, who Atkins said were not required to have financial service providers' registrations, can be up to 100 per cent.
Whereas Noah's Ark focused primarily on canvassing potential clients in South Auckland, WHF has been doing mail-outs mainly in wealthier suburbs. People wrongly assume those residing in wealthier suburbs don't need assistance to buy their own properties, he said.
WHF clients are charged a $50 registration fee, and a further fee equal to 1.95 per cent of the total amount borrowed. The minimum fee is $7800.
Should they decide not to get a loan, they are still up for a fee based on a sliding scale over a three-year period. The earlier a person pulls out, the less they pay, reflecting the amount of coaching they have received from WHF, Atkins said. If they pull out after one year, they must pay a third of the minimum fee, rising to 100 per cent of it after three years.
Rival financial coaching companies take a different approach.
For example, EnableMe has a fee-based, pay-as-you-go membership programme, with any commissions from mortgages fully rebated to clients. It also likens its service to a personal fitness coach, who helps identify a person's fitness needs, establishes the programme to enable people to hit their goals, and then provides the encouragement and support to train.
It also has a programme for non-mortgage clients who pay $2550 plus GST for a year's coaching, which includes a full fact find, advice, six face-to-face personal coaching sessions, and unlimited phone and interview contact.
But there's an element of selection needed, said EnableMe spokesman Hamish Cowan. If EnableMe doesn't think it can provide value for the fees, it refers those people to other budget agencies.
That's important because taking money from people who are not realistically going to be able to benefit isn't in their interests, Cowan said. It also doesn't charge a break fee and those that end early get rebated a portion of their fees depending on how much of the year's membership is left.
Cowan warns people to look carefully at conflicts of interest in coaches, such as commission or percentage-based payments linked to how much debt their clients take on.
Some of the banks such as Westpac and ANZ are also offering financial coaching with some incentives thrown in for would-be home buyers, reflecting competition for new business in the mortgage market.
Westpac's Home Saver package, which the bank is marketing with the tagline "Think of us as your personal savings coach" is designed to allow people saving for a first home to plan their way there, and "get coaching tips and help every step of the way on your saving and home buying journey".
Savings typically earn interest - in fact Westpac is offering extra interest as an incentive for people to move sufficiently large chunks of savings over from rival banks. It also promises savers under the programme will "get preferential treatment for low equity pre-approvals" when they have saved the deposit they need.
Banks, mortgage brokers and other financial coaches can also provide advice on using KiwiSaver balances to help pay for a first home deposit, and also whether people would qualify for a loan under the Government's Welcome Home loans programme.
- Sunday Star Times