Non-banks still need to prove their worth despite govt backing

Non-bank deposit takers both new and old will have to compete for the attention of advisors even with the backing of the government’s incoming insurance scheme for deposits.

Due to come into effect midway through 2025, the Deposit Compensation Scheme will guarantee deposits to a value of $100,000 for each customer per licensed deposit taker, with the aim of boosting confidence in the financial system. NBDTs, of which there are 14 licensed by the RBNZ and operating, are included in the scheme.

Asked whether the additional layer of protection for consumers would prompt advisors to give non-bank deposit takers more consideration, Financial Advice New Zealand chief executive Nick Hakes told Good Returns that advisors are unlikely to rule anything in or out based on the scheme’s protection alone.

“Advisors do the right thing by their clients, so they access research, they align the best solution or institution to the client’s needs.

“There is space within the eco-system for main bank lenders and for non-bank deposit takers and I would say to any market participant, you just need to build the confidence of the advice sector that you have the right solutions for their type of clients.” 

Nick Hakes says in the search for return, non-banks might factor into advisors’ thinking, but return is not the only thing to think about..

“So both deposit takers have this legislative guarantee, but actually, let's go beyond that and ask what's the research behind them? What's the liquidity, what’s the ease of service? Is it connected to some sort of technology?

“The advisor just has such a deeper, broader picture and this is one key piece of the puzzle, so please don't misinterpret to diminish the role that the advisor plays.”

While the added protection of the scheme is a help and appropriate given the current economic cycle, Nick Hakes says advisors are still best placed to help their clients avoid scams or poor investment choices. 

“That's not even a product failure or a banking sector failure, you know, that's just people's decision making,” says Hakes.

“Would they make those decisions if they're working, really working, alongside the advisor, who's going ‘hold on, why are you taking out all of those withdrawals from your bank?’”