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Ian Narev:
Doing right by customers
AUGUST 2013 ISSUE 10.17
+INSIDE + NEWS A look at what’s been making headlines P4
+ ANALYSIS
HOUSING HOPES
Commonwealth Bank chief executive Ian Narev sees a bright future for brokers, as long as they continue to put the client first
W
hen it comes to succeeding in mortgage broking – or, for that matter, in banking – Commonwealth Bank chief executive Ian Narev has one watchword: integrity. Narev believes the single greatest thing brokers can do to succeed is to put customers’ interests first, and argued that bankers must strive toward the same goal. “The absolute core of why we are here is the interest of the customer, and the moment we forget that we put the institution at peril. If you don’t look after the financial wellbeing of the customer, it harms the reputation of the institution.” FULL STORY PAGE 16
Aussies still dream of owning their own home P12
LOOK BACK AT CLAWBACKS
How have clawback policies impacted the industry? P14
+ BEST PRACTICE ANOTHER ONE BITES THE DUST
What to do when your talented employees leave P19
+ SPOTLIGHT
SCREWS TIGHTENING
Peter White warns that FOFA could encroach on brokers P26 + PEOPLE
APART FROM THE FLOCK
Adelaide broker named top entrepreneur P28
NEWS
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WHAT THEY SAID...
NUMBER CRUNCHING BUSINESS CONFIDENCE
TONY MACRAE
Do Australian businesses expect to be better off or worse off this time next year? July 2011
July 2012
July 2013
Better off
38%
34%
40%
Worse off
25%
17%
“There is a lot of confusion about the types of home loans available in the market” P12
15% Source: Roy Morgan
FAST FACT
DID YOU KNOW?
1,158*
18%*
*The rise in property transaction volumes since last year Source: RP Data
IAIN FORBES
*The number of new members accepted by the MFAA last year
“Brokers do accept that [clawbacks are] part of doing business. There is no resistance whatsoever” P14
Source: MFAA
PAYING IT FORWARD Less than five years – 11% 7 to 10 years – 18%
KYM DALTON
13 to 16 years – 13% 17 to 20 years – 14% 21 to 24 years – 14% 25 years or more – 19% Not sure – 11%
“Tattoos once were seen as being possessed by sailors and ne’er-do-wells. Now, you would be very surprised who has tattoos in the industry” P18
PETER WHITE
“Fee for service is used by many brokers at the moment, and it could well be that everybody needs to have a plan B in their pocket” P26
The amount of time Aussies have left on their home loans
Source: Westpac
NEWS 4
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Finsure shocks market ASIC bans broker, with LoanKit buy alleging false docs ■ Finsure managed to shock the market recently
when it purchased LoanKit from Mortgage Choice, despite the fact that the aggregator wasn’t listed for sale when the retail finance brokerage made its move. While Finsure managing director John Kolenda wasn’t able to divulge how much his company paid for LoanKit, telling Australian Broker that “for the time being, that will remain strictly confidential”, media reports indicated the sale would have a $1.2m impact on Mortgage Choice’s 2013/14 earnings. For his part, Kolenda said the decision to approach Mortgage Choice over the acquisition of LoanKit was due to a “strategic fit”. “The two models are very closely aligned and, from a strategic sense, the complementary propositions and main services within each group made it one very powerful entity that could deliver amazing value to brokers – and then from brokers to the consumer,” he said. Kolenda said further aggregator acquisitions were on the cards as well, adding that Finsure’s plans going forward included an emphasis on the growth of the broader aggregation business, as well as integrating a “broader” value proposition for brokers looking to diversify within the group. “[We plan to help brokers] offer a broader experience for their customers, and continue to look for further acquisitions and organic growth. We’re growing quite rapidly just organically, so with both the businesses we’ll focus on recruitment and organic growth and provide our existing brokers with the support structures [they need] – and then also grow through further acquisitions that might pop up.” He said it would remain business as usual for LoanKit brokers, who would continue to function under the brand. “Everything will remain as it is for LoanKit brokers. If anything, what will happen is they’ll get a broader value proposition under both models.” Kolenda believes this is an “exciting” growth period for the broking industry, and that the expansion of Finsure’s aggregation business is a sign of the times. “The broker market share is increasing and aggregators are looking at the value, support infrastructure and a number of other components that help [brokers] build a solid and capable business … People like us, we’re excited, because we see the opportunity to support these brokers to increase their market share overall.”
■ ASIC has permanently banned a former
NSW mortgage broker and financial services representative after an investigation found he had engaged in dishonest conduct. Edward Richard George, from Mudgee, has been permanently banned from providing financial services and engaging in credit activities after ASIC found him to be not fit and proper, or of good character. An ASIC investigation looked into George’s conduct when he was a broker operating under the name Quest Home Loans. The regulator alleged that on two occasions between March and July 2011 George falsified and submitted eight documents for four deposit guarantees and one home loan. The applications were for himself and four clients. The false documents included loan approval letters, employment letters and payslips.
Almost 40% of finance businesses fail in first four years – ABS ■ Only around 60% of new entrants to the finance
industry survive the first four years, and those operating in the ACT are most likely to fail, according to the latest ABS Counts of Australian Businesses, including Entries and Exits report. Businesses classified as “financial corporations” had the largest entry rate at 13%, followed by “non-financial corporations” (12.6%) and “households” (11.5%). Survival rates at June 2012 for businesses operating in June 2008 were highest for nonfinancial corporations (67.1%), followed by financial corporations (63.9%) and households (59.9%). Business counts by institutional sector, operating at the end of financial year 2011/12 ’000 1,500 1,200 900 600 300 0
Non-financial corporations
Financial corporations institutional sector (SISCA)
Households
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NEWS brokernews.com.au
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WORLD NEWS UNITED STATES OF AMERICA
Westpac launches free nationwide roadshow for brokers ■ Westpac’s Mortgage Broker Distribution division, together with
HOUSING RECOVERY CONTINUING
The US housing recovery is continuing unabated. Home sales and prices are up for the 18th month in a row, and inventory may finally be catching up as well, new data has suggested. The RE/MAX Housing Report has shown that July home sales in the US were up 17% on the previous July. The national median price rose as well, up 11.5% to $189,950. With prices rising significantly in 2013, largely due to low stock, inventory may finally be catching up as well, RE/MAX CEO Margaret Kelly said. “Low inventory has been a serious concern this year, but with rising prices and fewer underwater homeowners, we’re starting to see more homes come on the market, resulting in inventory levels that are turning around,” Kelly said.
CANADA CANADIAN BROKERS HEADING DOWN BOQ PATH?
Bank of Queensland, with its branch-owner model, has come under plenty of fire from brokers in Australia. But brokers in Canada who have taken ownership in a bank believe it’s the key to creating sticky clients. With several brokers holding shares in the new parent company of MonCana, many are calling it Canada’s first broker-owned bank – something that is exciting brokers from one end of the country to the next. A broker-owned bank is “exactly what it is”, Peter Majthenyi of Mortgage Architects said. “We’re not reinventing the wheel here; all you have to do is go to the Queensland Bank of Australia – they sold the bank to brokers and once the brokers take ownership of the branch, the momentum or the degree of involvement changes significantly. “They have had huge success with mortgage brokers opening their own branches and crossselling different kinds of products, more than just mortgages.”
RP Data, has announced the launch of its free series of broker roadshows, commencing in September. The group said the tour would be “dedicated to technology and market insights to help professional mortgage brokers win with their customers”, and that the roadshows would be held in all five major capital cities, starting in Sydney. Each event will showcase the newly released Westpac Broker Hub Toolkit, accessible via the iPad app, which organisers say will equip brokers with new tools to acquire more leads, close loans faster, retain their clients, and reach more prospects from the convenience of their mobile devices while ‘on the go’. The app also allows accredited brokers to evaluate customers’ eligibility for loans and calculate repayments for clients looking for Westpac home loan product solutions. “Our approach to the Toolkit has been simple and is aligned to Westpac’s strategy of creating mobile solutions designed to focus on meeting the individual needs of key customer segment groups such as mortgage brokers,” said Tony MacRae, general manager, Westpac Mortgage Broker Distribution.
MAJOR SLASHES THREE-YEAR FIXED RATE, OFFERS BEST-PRICE ‘GUARANTEE’ ■ CBA has announced that it’s “beating the advertised rates” on one- to
five-year fixed-rate home loans from competitors ANZ, NAB, Westpac, St.George, Bank of Melbourne, and Bank SA over the coming weeks. In addition to the guarantee, the major lender has also announced it is cutting interest rates on new three-year fixed rate home loans to 4.89% p.a. Clive van Horen, CBA acting executive general manager for retail products and customers, says customers are increasingly looking to lock in a competitive rate, with some fixed-rate terms at historic lows. “Some of our fixed home loan rates are at 20-year lows, so now is a great time for customers looking for a guaranteed rate across either the short to medium term.” The offer is available to new and existing customers who take out a new fixed-rate home/investment home loan or switch to a fixed-rate home/investment home loan. Both the fixed-rate home loan guarantee and the three-year fixed-rate home loan are available to new customers now. The fixed-rate guarantee will end on 30 September 2013.
Rotten-apple brokers down 50% ■ The number of mortgage
and finance brokers expelled from the MFAA dropped 50% from eight to four during the 2012/13 financial year, according to CEO Phil Naylor. The MFAA also suspended six members, two of whom were later expelled after being found by the MFAA’s Disciplinary Tribunal to have engaged in serious misconduct. “We are pleased with the result as it demonstrates
the MFAA’s determination to ensure the highest professional standards of our members, as well as strict and independent disciplinary procedures and very high education standards,” Naylor said. He said mortgage and finance brokers, who now provide around 45% of mortgages in Australia, have adopted a higher standard of professional conduct since the 2011 introduction of NCCP.
Bad apples plucked from MFAA, 2011/13
2011/12: Eight members expelled
2012/13: Four members expelled
2012/13: Four members suspended; two eventually expelled
NEWS
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BROKERS SPURRING LENDING COMPETITION ■ The latest home loan industry market share figures demonstrate what many
Australian Broker readers no doubt already know: brokers are key to driving competition in the mortgage market. Figures produced exclusively by comparator for the MFAA show that brokers are now providing 23% of all home loans to borrowers on behalf of smaller banks and other lenders. The big four’s share of the home loan market through brokers is 77%, compared to their overall share of 80.2%, which the MFAA says indicates brokers are opening up the market to other lenders for the benefit of consumers. Brokers lifted their provision of loans in the home loan market during the June quarter by 24% from $24.7bn (June quarter 2012) to $30.6bn, maintaining their share of the market at 45%. “The figures clearly show brokers are crucial in enhancing competition and consumer choice as regional banks, independent and international banks and non-bank lenders are sharpening their offerings and using brokers to attract consumers,” said MFAA CEO Phil Naylor.
Aggregator announces record settlements on cusp of $2bn per month ■ Connective’s broker membership has recorded its “best ever”
settlement months, settling $1.73bn and $1.71bn in May and June, respectively. Glenn Lees, Connective principal, said the aggregator was “primed to build momentum further” and predicted more milestones would topple over the coming months. “While we await final settlement figures for July, we are optimistic about our prospects of eclipsing past records, given that lodgements for July were also a record figure,” Lees said. “We are witnessing growth across all markets. Our more established eastern-seaboard markets continue to perform, and we’re gaining traction in strategic locations of focus, such as Western Australia, where we’ve experienced 67% year-on-year growth over the past 12 months.” Lees said the settlement growth reflected not just an increasing number of brokers choosing Connective as their aggregator but also an increased level of productivity coming from their existing membership. “We devote considerable resources to assisting our members to operate more efficient and profitable businesses, and these latest figures demonstrate that our strategies are working. Based on analysis of past trends, we expect to reach our next major milestone of $2bn in settlements by the end of the calendar year.”
Broker commission hikes: where are they? ■ With all of the major
banks and most smaller lenders announcing interest rate reductions in the past week – not to mention additional efforts on the part of NAB, CBA and Westpac to up their mortgage market share – a number of readers have begun to question IAN CORFIELD whether there’s a chance of broker trails enjoying a bit of a boost in the near future. Aussie Home Loans CEO Ian Corfield says it’s a definite possibility, but brokers shouldn’t get too excited just yet. “Funding costs have fallen, although it will take time for this to fully flow through into banks’ cost of funds as funding built up in recent years rolls off. I’d love trail commissions to go up, but that would need to be on a sustainable basis.” Corfield says this means there needs to be a margin to be shared over the lifetime of the loan, not just immediately. However, he believes brokers will benefit from lower bank funding costs in other ways in the short term, particularly when it comes to lower interest rates and added discounts for clients. “Customers are getting the benefit of the current reductions via some great fixed rates – Aussie has just launched a two-year fixed at 4.64%, for example.” As for exactly when brokers can expect to see lower funding costs manifested in higher commissions, Corfield’s answer is simple: “When it’s sustainable”.
I’D LOVE TRAIL COMMISSIONS TO GO UP, BUT THAT WOULD NEED TO BE ON A SUSTAINABLE BASIS – IAN CORFIELD
NEWS
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Kathy Cummings: No sign of CBA broker commission hike, despite record profit $34m payout to customers as new issues come to light for non-major
■ Commonwealth Bank announced a record
■ Bank of Queensland (BOQ)
has announced it will refund customers an estimated $34.5m and incur additional remediation costs of $11.5m after “a number of legacy issues” were discovered. The lender undertook a “comprehensive” review of its products, processes and systems following the discovery of a mortgage offset account issue late last year. ASIC has been advised of the issues and BOQ says its priority is to ensure affected customers are reimbursed as soon as is practicable. Around 4% of BOQ’s customer base is affected by the issues, some of which date back as far as 2004. BOQ CEO Stuart Grimshaw said that while he was ‘‘disappointed’’ at the impact of the issues on the bank’s customers and business, the completion of the review represented an important milestone in BOQ’s recovery. “We have worked hard to address legacy issues and ensure the business is both robust and well positioned for future growth,” said Grimshaw. He said the problems were caused by a number of issues, including “overly complex products”, which required too many manual processes. He added that, while it’s frustrating these issues weren’t identified sooner, BOQ had acted to ensure the problems won’t recur. The process of refunding customers is expected to be completed by the end of 2014.
DID YOU KNOW?
$34.5m
The estimated amount BOQ will refund to customers by the end of 2014
statutory net profit after tax of around $7.7bn this financial year – up 8% on the prior year – according to its annual report. Australian Broker KATHY CUMMINGS caught up with Kathy Cummings, the major lender’s executive general manager, third party and mobile banking, to find out what this means for broker commissions as well as the CBA’s expectations when it comes to third party members. “We pay brokers extra basis points for meeting the quality metrics,” Cummings said. “This also helps them achieve a better straight-through processing rate, which is rewarded at the Head Group level with an incentive bonus paid through our Partnership Productivity Program. We rely on the Head Groups to make these rewards transparent to their members.” Cummings said CBA’s broker remuneration was “in line” with the market, and that the bank was “very competitive” when commission was based on a five-year loan life. She also believes brokers are recognising the importance of increased productivity and are focusing on straight-through processing to improve efficiencies in the loan process. “CBA is very keen to work with our broker partners to help them reduce rework and eliminate waste and, to assist them, we offer productivity workshops such as the Lean one-day workshop and Kaizen five-day programs. These workshops have made a significant improvement for those broker businesses that have embraced the process improvements. The result is an improved cost-to-income ratio for both brokers and the Bank,” Cummings said. “To improve productivity, people need to do things better, and a productivity workshop – KATHY CUMMINGS shows you how. Our broker partners are always welcome to talk to their relationship manager about a productivity workshop.”
TO IMPROVE PRODUCTIVITY, PEOPLE NEED TO DO THINGS BETTER
Bank tempts brokers with commission sweetener ■ ME Bank has announced a new bonus commission
campaign for brokers. The scheme calculates bonus commissions on home loan settlements greater than $1m accumulated during the three-month period from 1 September to 29 November 2013. All accredited brokers are eligible, regardless of the number of home loans they currently place with ME Bank. “Importantly, we’ve deliberately avoided designing a bonus system which forces brokers to channel unsustainable volumes to one bank, which is potentially unhealthy in an industry based on giving customers home loan options,” said Stewart Saunders, ME Bank national manager, brokers. “The campaign is simply about encouraging more Upfront bonus commission brokers to try the Total value of settlements (on top of current commission) ME Bank experience, and in doing so $1,000,000–$1,999,999.99 0.10% demonstrate to brokers that fairer banking $2,000,000–$2,999,999 0.20% will help them win more business.”
$3,000,000+
0.30%
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NEWS 11
ANALYSIS 12
brokernews.com.au
The Australian dream
Australians are still prioritising home ownership, but some have a poor understanding of how it works
A
ustralians have long been a people fixated on the idea of home ownership, and it looks like those priorities remain in place. A new survey has shown just how important the idea of owning a home is to most Aussies. In fact, owning a home, or paying off their home sooner, are higher on the priority list for most Australians than getting married and having children, according to the latest Westpac Home Ownership Report. The survey revealed owning a home or paying off the mortgage are top priorities for 57% of Australians already with a home or planning to buy within the next 12 months, while having
How Aussies compare internationally Home ownership rates by country
EUROPE Belgium – 78% England – 68% Iceland – 83% Ireland – 75% Israel – 71% Italy – 72% Luxembourg – 75% Norway – 77% Portugal – 76% Spain – 85% Sweden – 68% Switzerland – 35%
Canada – 68%
United States – 67%
Chile – 73%
children and getting married rated at 8% and 5%, respectively. Tony MacRae, general manager of Westpac mortgage broker distribution, said he understands the emphasis Australians place on their dream to own a home. And this emphasis spells an opportunity for mortgage brokers, he suggested. “The Westpac Home Ownership Report reinforces how important owning a home is to Australians and it’s striking that people are prioritising this ahead of kids and marriage. The report has also shown that Australians need advice to help them own their home sooner,” MacRae said. MacRae’s sentiments are reinforced by the fact that the majority (77%) of people surveyed believe that the true meaning of ‘home ownership’ is achieved only when their home loan has been paid off in full, as opposed to when they first purchase a property and take out a loan. But confusion surrounding the types of loans available means that many borrowers don’t understand how to go about paying their home loan off quickly. MacRae pointed out how ill-informed many borrowers are when it comes to loan types. “There is a lot of confusion about the types of home loans available in the market. One in five (20%) of those intending to buy in the next 12 months had no idea what type of loan structure they should take up when they go to buy, and of those who already had a home loan, over one in five (22%) didn’t even understand what a variable rate was.” Again, this presents an opportunity for mortgage brokers. MacRae explained that offset accounts in particular could represent significant savings for borrowers, and shave years off their home loan. But, with 36% of the survey’s respondents showing an incorrect understanding of what offset accounts actually do, borrowers need advice from brokers, MacRae indicated. “The impact on making additional repayments to your loan cannot be underestimated.”
Singapore – 89%
Australia – 70% New Zealand – 68%
13
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BY THE NUMBERS... A snapshot of Australian home ownership
■ Just over one in 10 (11%) Australians plan to take out a home loan to buy a house to live in within the next 12 months. ■ The average Australian home loan amount is $250,000. ■ The average length of a home loan term is 23 years. ■ On average, Australians have 16 years left on their home loan. ■ The majority of Australians (45%) make fortnightly repayments on their home loan.
Top priorities for Australian home loan borrowers/those intending to buy Own my own home
Pay off home loan sooner
32%
25% Travel the world
10%
Get married
Have children
5%
8%
Getting ahead Proportion of homeowners who believe now is a good time to make above the minimum payment on their home loan ■ Strongly agree
15%
■ Agree ■ Neither agree nor disagree
7%
41%
3%
■ Disagree
35%
■ Strongly disagree
Aussies’ home loan status ■ Home loan holders
11%
■ Renters/living with parents (no intention to buy) ■ Renters/living with parents (intend to buy) ■ Own home outright
34% 30% 25%
ANALYSIS 14
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LOOKING BACK AT CLAWBACKS More than two years after the abolition of exit fees, have clawbacks hit the industry as hard as anticipated?
P
rior to the abolition of exit fees, most mortgage managers and non-banks had a unique proposition to brokers: no commission clawbacks. Exit fees kept most clients in place until well outside typical clawback horizons, and enticing rates meant most borrowers were content to stay put. But when the government put forward the ban on deferred establishment fees, mortgage managers and non-banks were among the most vocal opponents. Deferred establishment fees, they argued, allowed them to compete with banks. Without them, their fees would rise and brokers would lose one of their few trustworthy sources of commission without the fear of clawbacks. Many in the industry predicted that the ban would sound a death knell for mortgage managers and non-banks, and that brokers would increasingly find their commission clawed off of them as rate-happy customers churned from one lender to the next. Now, more than two years on from the ban, have clawbacks hit the industry as hard as anticipated? Iain Forbes of Australian First Mortgage says no. AFM was one of the mortgage managers that prided itself on a no-clawback policy, but as its funders introduced clawbacks in the wake of the exit fee ban, the lender was forced to follow suit. Forbes says most brokers have understood their position. “Clawback fees are charged by AFM, and we have no option but to charge these fees, as no business can pay a commission, have the mortgage discharged, and not charge a clawback if the mortgage is discharged in, say, three to six months. Brokers do accept that this is part of doing business. There is no resistance whatsoever,” Forbes said. While he agrees that clawback fees aren’t necessarily the fairest option for brokers – or for lenders – Forbes says
ANALYSIS 15
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READERS SOUND OFF
Readers had their say on the issue of clawbacks on the Australian Broker Online forums, and said banks were too quick to strip money off hard-working brokers. Chris C on 20/08/2013 1:06PM We are supposedly living in a ‘consumer pays’ society. Whilst the Banks seem to be allowed to have their cake and eat it in making the rules and are quick to claw back their costs (at the expense of the broker who has done all the same work load), unless for churning, the bank should be the one to levy the charge against the customer. Bill Tapper – Cleveland Finance on 20/08/2013 2:18PM Clawbacks fortunately are not too prevalent, but wrongly directed. They deny the broker of recognition for effort, undermine his status and potentially strain client relations. The lender should have it as a term of the contract and it be levied on the customer. oldBroker on 20/08/2013 9:50AM Get the percentage of broker-initiated deals up to 75% and watch the clawbacks disappear. The only power we have is performance.
there simply aren’t any viable alternatives. “It does cost the lender a considerable amount of money to put a loan on its books, and if a borrower has used a lender for a short term and then discharges a loan again in six months after settlement, the lender has in fact lost money. Whilst the borrower has benefited from the loan, both the broker and the funder have lost money.”
CLAWING BACK THE CLAWBACK
While the exit-fee ban hasn’t created the rush of rate-chasing borrowers prophesied by some in the industry, clawbacks can and do still happen. Most brokers would agree that the penalty is
fair if they’re knowingly churning clients, but when clients discharge a loan through no fault of the broker’s – be it due to divorce, illness or another significant life event – brokers do have options, according to Gadens Lawyers partner Jon Denovan. Some brokers have clawback clauses in their client contracts, and Denovan argues that they’re perfectly enforceable. As long as brokers provide a quote that complies with all the rules, clawing back a clawback is well within their
WHILST THE BORROWER HAS BENEFITED FROM THE LOAN, BOTH THE BROKER AND THE FUNDER HAVE LOST MONEY – I AIN FORBES rights, Denovan said. “It has to be signed by the borrower and it has to happen before you provide credit assistance, so it’s got to happen pretty early in the discussions … If you don’t have a quote that complies with the law; if you were just hanging around with a short agreement that you typed up or a credit card so that you could debit their account, then to do so is illegal – it’s a criminal offence.” Denovan adds that, while he’s aware of a large number of people who frown upon the practice from an ethical viewpoint, he disagrees with the idea that it constitutes ‘‘double-dipping’’. “It’s not double-dipping, is it, because you’ve lost your commission? This clawback of commissions is only there because the banks can no longer charge a [deferred establishment fee]. So it’s a way of circumventing the government’s elimination of DEFs, which is probably a bloody good thing, because it was a silly thing to outlaw. Being the inventor of DEFs – I invented them for Aussie in 1996 – they allowed borrowers to get loans without paying establishment fees. A clawback is the same thing; a clawback fee is the bank charging borrowers … an establishment fee like they used to.”
NEWS 16
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Ian Narev: CONTINUED FROM PAGE 1
Doing right by customers Commonwealth Bank chief executive Ian Narev sees a bright future for brokers, as long as they continue to put the client first
A
perfect example of the kind of damage a lapse in integrity can wreak upon an organisation is the Storm Financial fiasco. The 2009 collapse of the erstwhile financial planning firm and Commonwealth Bank’s response throughout the ordeal continues to be the subject of class actions and court cases and has spawned an entire regulatory regime that planners are still coming to terms with. Narev said it was proof of the far-reaching reputational impact that putting profit before people can have. “I told our team it was seven financial planners who let us down out of 50,000, and it’s still a headline in the papers. That’s why our people need to understand that each and every one of those 50,000 is the guardian of a 100-year reputation,” he said. It may cut against the view many – including brokers – have of the major banks as profit-first corporations, but Narev argued that any organisation lives and dies by the reputation it has with its customers. “We haven’t been and never will be perfect. When we do wrong we try to make it right. But the number one thing our people have to focus on is the interest of the customer, and there is no sales result, no profit result, no reward or anything that ever excuses doing wrong,” he said.
A FITTING PARTNERSHIP
Narev said this was one of the reasons CBA felt comfortable taking a stake in Aussie Home Loans. He argued that Aussie’s reputation, and founder and chairman John Symond’s personal values, were a fit for the bank. “When we first discussed the strategy with the Aussie partnership back in 2008, I remember going back to our board to say that there is an alignment of values. John has built a business that is values based. If we had any doubt about that, we never would have made the investment,” he said. “It may be great at generating profits, but if it was doing the wrong thing by customers, there’s no amount of profit that would justify that.” The investment, which has seen the bank up its stake in Aussie Home Loans from 33% to
80%, with the eventual goal of taking a 100% stake, is testament to CBA’s confidence in the broker channel, Narev said. He predicted that the broker channel would continue to grow, and said that its growth reflected consumer preferences. “At CBA we have our own channels, and if every Australian wanted to get their home loans from our channels we’d be delighted. But the fact is that is not the case, and that will never be the case,” he said. Narev said the competition brokers provide to the majors ultimately keeps banks on their toes, to the benefit of consumers. “The broker channel has a strong proposition to customers, and we may as well be a part of that. If that forces our direct channels and our branches to be more competitive, that’s good for customers.” Narev said he expected the broker channel – and Aussie in particular – to continue to carve out market share. This belief, he said, drove the strategy behind CBA’s investment in Aussie. “There would be no point in trying to make John [Symond] rich if the business had peaked. Not only do we see the business as not having peaked but we also see the partnership between
FAST FACT CBA’s agreement to increase its stake in Aussie Home Loans to 80% gives the bank an option to move to 100%, which the bank is expected to act upon by August 2018 Source: ACCC
NEWS 17
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CBA and Aussie as being able to take it to another plane,” Narev said. Much has been made about CBA’s controlling stake in Aussie, with detractors claiming it represents further big-bank dominance, an encroachment into the independence offered by brokers. But Narev dismissed this notion. Instead, he argued it would be business as usual for Aussie – in large part, he said, because Aussie Home Loans was already doing perfectly well. “It ain’t broke, and on the contrary it’s thriving. We saw this as the ability to partner with what we consider the leading franchise in a growing sector, and the last mistake we would ever make is to change it.”
THE HUMAN TOUCH
While Narev said the bank had no interest in changing Aussie, he conceded that the market brokers and banks are operating in is changing. Technology, he said, is changing consumer behaviour and the way clients interact with brokers and banks. Narev argued that CBA was working hard to stay ahead of the curve. “We just finished a project which took 1,500 people working full-time for six years, and that was to overhaul our core banking platform which had been in place since the 1960s. That’s how seriously we take it. We feel we can either sit there and watch the world pass us, or we can lead it.” The bank is also changing the ways it communicates with its customers, Narev said.
THE BROKER CHANNEL HAS A STRONG PROPOSITION TO CUSTOMERS, AND WE MAY AS WELL BE A PART OF THAT. IF THAT FORCES OUR DIRECT CHANNELS AND OUR BRANCHES TO BE MORE COMPETITIVE, THAT’S GOOD FOR CUSTOMERS – IAN NAREV
“Now, in all CBA branches we have conferencing technology. For instance, if you were in a regional centre and you wanted good advice on insurance, you previously had to come to the branch. We had to ask, ‘Do you mind driving two hours, or do you mind coming in on the 5th of next month? ’ Now you can walk into a cubicle and have a face-to-face interaction with a specialist. That’s a good example of how the competitive advantage we have within our reach – 1,000 branches – aligns with technology to deliver a better customer experience,” he said. But brokers shouldn’t fear the advent of such technologies, Narev argued. Client behaviours may be changing, and customers are becoming better informed and savvier, but Narev still believes brokers have a bright future. “No matter how the technology develops, the face-to-face interaction is always going to be critical.”
18
THE COALFACE brokernews.com.au
Inked up Industry consultant Kym Dalton reckons his tattoos don’t detract from his professionalism, but serve as a unique conversation starter
A
KYM DALTON
ccording to the Smithsonian Institute, the earliest known examples of tattoo art came from the mummified Iceman discovered on the ItalianAustrian border in 1991 – meaning human beings have been getting ‘inked’ for at least 5,200 years. However, despite the fact that millions of people have tattoos – and have had for millennia – brokers showing off full sleeves to conservative clients are likely to be met with reactions ranging from discomfort to outright disdain. Or are they? Mortgage industry stalwart and chairman of CreditEd, Kym Dalton, sports multiple tattoos on both his arms and says that, while he doesn’t make a point of ‘advertising’ them, his tattoos often work as a fantastic talking point. “I’ve got an entire sleeve. I was really, really, reticent to [show them off at work]
initially and then I became less so. Now it’s almost like a talking piece. It’s actually sort of become like a marketing tool, which I never would have expected. I’ve actually sort of fashioned the persona of being slightly eccentric, so it’s kind of ‘me’ really,” he laughs. Dalton stresses that the type of tattoo a broker has is important. While animals and artistic pieces aren’t likely to put clients and industry peers on edge, violent or overtly sexual designs are a different story. For his part, Dalton – who didn’t start getting inked until the age of 52 – says each of his designs were carefully thoughtout and heavily reflect his passion for modern art. Works by artists including Roy Lichtenstein and Alexander Calder make an appearance, along with some more playful characters. “Everyone has a hobby and golf isn’t for me. One of my heroes is Dr Seuss (Theodore
Geisel) – he had the drive and determination to revolutionise the world of children’s literacy and I’m hoping to emulate what he achieved in my area of financial literacy. Hence the Cat in the Hat makes an appearance on my arm in homage to him.” He says he doesn’t make a point of showing off his ink, but doesn’t go out of his way to hide it either. “Do I flash them? No. Am I as cautious as I used to be? No… I’m not particularly overlyconscious of keeping them secret. “Make sure they are artistic. If requested to show them, I will. Strangely enough, because tattoos are now ‘cool’ and because of my persona, I can actually use them to a quirky marketing advantage. “Tattoos once were seen as being possessed by sailors and ne’er-do-wells. Now, you would be very surprised who has tattoos in the industry – some of whom are just more shy about it than others.”
BECAUSE TATTOOS ARE NOW ‘COOL’ AND BECAUSE OF MY PERSONA, I CAN ACTUALLY USE THEM TO A QUIRKY MARKETING ADVANTAGE
brokernews.com.au
BEST PRACTICE 19
When talent leaves What to do when your talented employees strike out on their own
O
ne of the overriding themes in the industry at the moment is the need for young talent. A variety of programs are being put in place to encourage young people to consider mortgage broking as a career. And, as brokers see their businesses expand, they may begin to look for talented new entrants to help handle their workload. The danger, of course, in bringing new talent onboard, is they may one day decide to strike out on their own once they’ve built up a sufficient trail book. This is understandable, given that broking is at its heart an entrepreneurial venture. But brokers bringing on staff can do a few things now to ensure that the best parts of their business don’t walk out the door with their talented employees. At a recent conference, law firm Holding Redlich outlined the potential damages to an organisation when an employee moves on, as well as how they can minimise risk. Stephen Trew, partner at Holding Redlich, stated that organisations risk the loss of intellectual property, “know-how”, strategies and sensitive information, as well as contacts and goodwill when an employee leaves. It may also damage staff morale and result in other workers leaving. “Once you get one or two leaving, the fact is employees [think]… ‘maybe I’m missing out on something too if others are leaving’,” he says. All of this can also result in a competitor gaining an advantage. Departing employees who wish to stay in the field will invariably either start a competitive organisation or join one, bringing with them the assets they have accumulated from their former employer. A key tool used to prevent this is a restraint of trade. This is a contractual term which limits the commercial activities of an individual. This can be during employment, but predominantly applies afterwards. These often appear in employment contracts. For mortgage broking businesses, for example, a restraint of trade agreement could refer to client lists and leads. Jennifer Teh, senior associate at Holding Redlich, stated restraints of trade can protect an employer from a number of risks – but it must protect a legitimate business interest. The three areas recognised by the courts include confidential information, customer connections and staff connections. Most brokers won’t begrudge talented protégés striking out on their own, but a clearly delineated agreement at the beginning of an employment period can save a messy exit at the end.
Points of action Conduct a risk assessment.
The risks each organisation face will vary. Employers must identify where and how the risks exist within the business, then develop strategies, policies and systems to address these risks.
Develop contractual responses.
A number of clauses and obligations may apply depending on your situation. This includes gardening leave clauses, fixed term and liquidated damages clauses, restraints of trade clauses, as well as confidential information and intellectual property clauses. It is important to understand the purposes and definitions of each of these clauses, and to use them appropriately.
Consider remuneration strategies.
This may feed into reasons why employees may leave organisations. Employers should consider discretionary or deferred payments, as well as retention bonuses. Other options may also be suitable depending on the nature of the organisation. Employers must analyse how remuneration can support retention.
Develop policies and procedures.
Organisations may consider limiting the areas in which information can be stored, and whether it can be transmitted (such as by email) by staff. This can help prevent defecting employees from taking information and property with them. However, this can also cripple an organisation’s ability to function in the digital world, and so these policies must not become too restrictive.
MARKET TALK 20
brokernews.com.au
Housing not overheating While prices seem to be rebounding, John Edwards of Residex says economic fundamentals don’t support the creating of a housing bubble
T
he housing market in Australia seems to be having a bit of a price-growth renaissance – at least in some areas. Recent data from Residex has shown strong year-on-year growth in most capital cities. But have record-low interest rates sparked runaway prices? Not yet, notes Residex founder John Edwards. With prices in Sydney and Perth seeing some strong increases and auction clearance rates running high, one could be forgiven for fearing that the housing market is in danger of overheating. But Edwards doesn’t believe a housing bubble is on the cards any time soon, claiming a more accurate statement would be that, while the market remains ‘fragile’, it looks as though it’s moving to a more normal growth phase. “A period of excessive price growth is unlikely as the economy is not strong enough to support such an outcome. We are also likely to see increases in unemployment, which will also encourage a level of conservatism within the community. Additionally, interest rates will rise from the current historical low point.” While the economy isn’t showing the strength to inflate a housing bubble, price growth is healthy. “In the last quarter, house and land values have increased by 0.59% on an Australia-wide basis while units have presented an increase of 1.89%.” However, Edwards also notes that the growth trend apparent in most major capital cities is not uniform. “Additionally, some capital cities produced very strong results in May and June but have reverted to a price reversal in July. For example, Sydney houses increased in value by 4.5% in May and June
AUSTRALIA
INVESTORS IN LUCK
However the spring selling season turns out, Edwards believes property is still attractive to Australians, particularly as an investment. “Investment in residential property is now a low-risk option and provides much better returns than bank deposits. Additionally, it is reasonable to suggest that residential property investments are producing a real return equal to or better than the net rental. This is because rentals are likely to keep pace with inflation, as will the value of your investment property.” But the strength of property could be a doubleedged sword. With affordability a major issue for first homebuyers, renting may be looking attractive to younger Australians. “Renting continues to be the more affordable option, even with interest rates at a historically low level. This fact will not be lost on many of our younger population,” Edwards says.
BY THE NUMBERS...
DARWIN
Last month
Last quarter
YE July 13
Property price growth
Houses
-1.19%
0.12%
2.43%
Units
1.21%
1.01%
4.26%
Last month
Last quarter
YE July 13
Houses
0.36%
0.59%
2.23%
Units
0.60%
1.89%
1.36%
PERTH
Last month
Last quarter
YE July 13
Houses
0.89%
1.34%
7.13%
Units
1.73%
0.81%
4.94%
ADELAIDE
but have posted -0.59% growth in July.” As far as the outlook for the year ahead, Edwards – like most others observing the Australian economy – says Aussies are likely to be more amenable to making major decisions after the election. “So, will the spring season be a period of quality prices as most are hoping? My best guess is that once the election is out of the way, we will see a more active market with the rate of price growth being dependent on the volume of stock brought to the market. We will have a better idea of this by mid-September when most agents have commenced their spring selling campaigns.”
Last month
Last quarter
Houses
0.86%
0.79%
1.43%
Units
0.01%
2.06%
-4.04%
MELBOURNE
BRISBANE
Last month
Last quarter
CHEAPER TO RENT Houses
YE July 13
Houses
1.11%
1.37%
4.39%
Units
0.17%
-0.32%
-1.44%
SYDNEY
Last month
Last quarter
YE July 13
Houses
-0.59%
4%
7.08%
Units
1.64%
3.44%
4.51%
ACT Adelaide Brisbane Darwin Hobart Melbourne Perth Sydney
Last month
Last quarter
YE July 13
Last month
Last quarter
YE July 13
-1.45%
1.37%
3.73%
ACT Houses
-0.85%
1.06%
-1.04%
Units
-1.31%
0.10%
-0.46%
Units
2.27%
2.14%
-4.33%
HOBART
Last month
Last quarter
Houses
1.89%
-1.79%
YE July 13 3.52%
Units
-1.51%
3.20%
-6.32%
Average weekly rent $527.68 $353.82 $432.51 $594.56 $356.27 $431.03 $476.16 $583.86
Average weekly loan repayment $443.10 $333.55 $378.24 $463.26 $266.51 $469.26 $492.59 $555.91
Average weekly rent $431.68 $299.88 $374.20 $495.51 $264.16 $384.66 $448.32 $506.55
Units
YE July 13
Houses
Average weekly loan repayment $572.26 $431.65 $483.43 $616.96 $388.59 $625.68 $555.91 $775.01
ACT Adelaide Brisbane Darwin Hobart Melbourne Perth Sydney
MARKET TALK 21
brokernews.com.au
Breaking
the mould
WHY GEN Ys BUY INVESTMENT PROPERTY Mortgage Choice asked Gen Y property investors what motivated them to buy. Here are the top five reasons. 74.7% 46.5% 43.0% 41.0%
Gen Y are bucking their reputation for instant gratification by proving themselves committed to investment
P
oor Gen Y. They really seem to get a bad rap. Older generations seem to view twentysomethings as aimless, entitled and hellbent on instant gratification. But the stereotype may be unfair. The ‘live now, pay layer’ mentality often associated with Generation Y is being defied, according to the Mortgage Choice 2013 First Time Property Investors Survey. The findings indicate younger generation Australians are shaping up to be savvy investors who are aware of the benefits of buying into the property market and are often willing to give up aspects of their lifestyle to fund their purchase. Of the more than 1,000 Australians surveyed who were planning to buy their first investment property in the next two years, Gen Y made up more than one third (34%) of the respondents. Furthermore, for two fifths of these Gen Y respondents, an investment property will be their first ever property purchase. Mortgage Choice head of corporate affairs, Belinda Williamson, says Gen Ys appear to be financially switched-on and focused on property investment. “Forty per cent of the respondents in this age bracket [were] willing to forgo any available First Home Owner Grant on their first property purchase in favour of buying an investment
I want to set myself up financially for the future
To plan for my retirement
I see more benefit in property than in the share market
Potential rental yields
Tax benefits
property as opposed to a home. Meanwhile, the other 60% of the Gen Y respondents already own their first or subsequent home and are now branching out to make an investment property purchase.” With financial security high on their agenda, Gen Ys were motivated to purchase their first investment property by the need to set themselves up financially for the future (75% of Gen Ys), followed by the perception that there is more benefit in investments such as property, than there is in the share market (47%) and rounding out the top three was the notion of planning for their retirement (43%). “This younger generation of investors is looking for financial freedom and they see more profit in bricks and mortar investments,” says Williamson. The greatest challenge for Gen Y first time investors, as indicated by the survey results, is saving a deposit (42%), followed by finding the right investment property (29%) and choosing their investment strategy (15%). “Our survey shows 75% of Gen Y first time investors were choosing to make lifestyle sacrifices to help them achieve their property goals. The top five lifestyle sacrifices included cutting back on general day to day spending, eating out less and limiting take-away food, missing out on a holiday, delaying a vehicle purchase and last but not least, cutting back on alcohol related expenses.”
60.7%
The proportion of Gen Y property investors who already own at least one other property Mortgage Choice
THIS YOUNGER GENERATION OF INVESTORS IS LOOKING FOR FINANCIAL FREEDOM AND THEY SEE MORE PROFIT IN BRICKS AND MORTAR INVESTMENTS – B ELINDA WILLIAMSON Williamson says it’s encouraging to see Gen Y bucking the stereotype of being ‘reckless’ with their money, proving to the generations ahead of them that they are more astute when it comes to investment decisions than given credit for. “It shows that age doesn’t matter when it comes to building an investment property portfolio. A sound investment strategy should set anyone up for success, regardless of their life stage.”
Source: Mortgage Choice
39.0%
BUSINESS INTELLIGENCE 22
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bits of business wisdom from Ita Buttrose The media icon shares some of her secrets for success
A
ustralian of the Year and media icon Ita Buttrose has seen her share of success. From launching groundbreaking women’s magazine CLEO, to becoming the first female editor of a major metropolitan newspaper in Australia to having her life dramatised in the ABC film Paper Giants, Buttrose has embraced leadership through turbulent times. She recently addressed the Aussie Home Loans National Sales Conference in Sydney, sharing some of the wisdom she’s garnered through her years in business. Here are a few of Buttrose’s top tips for brokers.
1
TAKE TIME TO TAKE STOCK
Thinking time is vital when you run a business, and no matter how well-run our businesses are that doesn’t mean there are areas that couldn’t be improved. None of us are that perfect. I would think it’s smart to annually take a fresh, open-minded look at every aspect of our business to see how we could do it better. There’s always the temptation not to do that, especially when our business is going well, and sometimes even when it’s going poorly. Many people are resistant to change, but often there is a new and smarter way of doing things. It’s vital to take a look at the past and to take some satisfaction in what’s been achieved, but it’s never smart to let the past stand in the way of your business’ future.
2
KEEP GOING THROUGH THE TOUGH TIMES
Success often likes to keep us waiting. I often read books by successful men and women, and in just about every book I’ve read most successful and wealthy men and women say that if they had thrown in the towel when the temptation was greatest, they would have missed out on success. Victory comes to those who refuse to give in, but many fail because they cannot see that success is just one stone’s throw away. Sometimes all it would have taken is just one more step.
WORKSHOP brokernews.com.au
3
TAKE RESPONSIBILITY
4
DELIVER THE EXTRAORDINARY
What I’ve learned about leadership is that it’s fun. I’ve had management and leadership roles from an early age. My first leadership role was at 23. I enjoy being a leader. I enjoy making decisions and persuading people to try something new, encouraging them to see the bigger picture that awaits if they change their ways. As a leader, I’m also prepared to accept responsibility if I make a wrong leadership decision, and it does happen. But the buck stops with me. It always stops with the leader. Apologise, fix the problem and get on with leading. You operate in a very complex market. How can you convert as many strangers as possible into customers, and how can you make them feel comfortable and deliver service that makes them feel special? In the mortgage market, system growth is at less than 5% and has been for the last three years, and current predictions indicate
VICTORY COMES TO THOSE WHO REFUSE TO GIVE IN, BUT MANY FAIL BECAUSE THEY CANNOT SEE THAT SUCCESS IS JUST ONE STONE’S THROW AWAY. SOMETIMES ALL IT WOULD HAVE TAKEN IS JUST ONE MORE STEP - I TA BUTTROSE
growth will remain at that level for the immediate future. It occurs to me that as well as converting strangers, it’s important to retain customers who may want to refinance. In a competitive market such as the one in which you all operate, extraordinary customer service becomes crucial. Many people today are frustrated at the passionless customer service we encounter every day. They’re looking for customer service out of the ordinary, and delivering that kind of service is something small business can do so much better than big business. It’s important to value the customer from the moment you come in contact with them.
5
EMBRACE THE ROLLERCOASTER RIDE OF CHANGE
There is one constant challenge we face in business, and that’s the challenge of change. And it will not go away. To successfully cope with change, it is necessary to have a positive attitude and equally positive strategies to master and drive change. I always thought of change as something that offers opportunity, and therefore it was exciting. When you think of change as an opportunity then it becomes something that need no longer be feared, but rather something to be embraced. My entire working life has been one constantly influenced by change: changing attitudes to women in the workforce, to married women working plus the employment of mothers outside of the home, and better education for girls and women. I’ve not only worked in changing times, I’ve also had to implement change. Sometimes it’s been a bit of a rollercoaster ride, but that doesn’t mean that I haven’t enjoyed it.
23
FINANCIAL SERVICES 24
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SMSF knowledge is power
T
he growth of SMSFs could cause problems for retirees and create further strain on the nation’s budget, if large numbers of SMSF trustees fail to correctly manage their retirement funds, according to Centric Wealth. ATO statistics show the SMSF sector is currently worth $500bn (about one-third of all superannuation assets) and has nearly one million trustees. Phil Kearns, Centric Wealth chief executive officer, said the latest research from the SMSF Professionals’ Association of Australia shows an additional
MANAGING AN SMSF IS NO EASY TASK. WHILE MANY ARE PROFICIENT AT IT, OTHERS MAY NOT APPRECIATE THE COMPLEXITIES INVOLVED
42.2%
Proportion of Australians looking to switch their super who say they’ll move to an industry fund. Less than a quarter plan to move to an SMSF.
1.4 million people are considering setting up an SMSF over the next three years. “This will mean the number of self managed retirees will swell to almost 2.5 million. Is it likely that all these people will have the knowledge, experience and time needed to manage their SMSF effectively? In my view, this could create a number of problems for the individuals and the government, who may end up financially supporting these people down the track.” Kearns says many people incorrectly believe running an SMSF is just a matter of getting the investment strategy right. “Managing an SMSF is no easy task. While many SMSF trustees are highly proficient at managing their strategy, compliance and investments, others may not appreciate the complexities involved or the implications of the role of being a trustee.” Natasha Panagis, Centric Wealth’s technical specialist, said complex and ever-changing requirements and regulations mean you need to have a very thorough understanding of the rules to avoid large fines. “Aside from onerous reporting requirements, there is also the issue of costs. It is not uncommon for clients to be paying their accountant over $6,000 a year to administer their fund and ensure correct audit and compliance requirements are followed. Some administration providers will quote one low headline fee, but hit the trustee with a range of fees for various products and services.”
Lovesick broker a victim and a perpetrator
A
lovestruck insurance broker found some lenience for fraud charges, having fallen victim to fraud himself. Bruce Lawrence Wickett, director of Wickett Investments and Wickett Insurance Broking, was sentenced to 18 months in jail this month after using some 228 clients’ premium payments of $662,193 to fund his internet lover Ms ‘Toby Lola Dallas’. Policyholders whose premium payments were used to fund Ms Dallas were unaffected by the crime as they had not made any claims, it is understood, but as Wickett was the victim of fraud at the hands of Ms Dallas, he is unable to recompense the underwriters. A Melbourne court heard that emails from Ms Dallas prompted Wickett to transfer money to her after they met through internet dating website RSVP. Ms Dallas was even appointed a director of an insurance broking company that Wickett had established. No attempt has been made to find Ms Dallas since the fraud came to light. Sentencing Wickett, Judge Dean said he had been extremely naive.
INSURER DOWNPLAYS AUSSIE JOB CUTS
Q
BE has reaffirmed its commitment to shedding as few Australian jobs as possible as it progresses with its operational transformation program. The insurer last month said that as of midJune, 39 redundancies had been made, with the majority of the 521 affected staff either accepting voluntary redundancy, being redeployed or leaving through natural turnover. QBE Group CEO John Neal would not say if there are more job cuts to come, instead saying: “Wherever we can, we are looking to redeploy staff, retrain them and put them into different roles. We have reasonably high turnover rates of our workforce, roughly close to 20%, so our intention with the off-shoring initiative has been to manage the off-shoring of jobs the best we can through the redeployment of work and the natural rate of turnover. “In terms of pure retrenchment or redundancy, the numbers are very low because our redeployment program has been very successful to date.” The group recently reported a fall in net profit of 37% to US$477m, and explained that premium rates in Australia would increase by 4% to 5% during the remainder of 2013 – in line with inflation but in addition to the 6.7% increase that occurred in 1H.
ONE YEAR ON 26
ONE YEAR ON What a difference a year makes … or not. Australian Broker reflects on the punditry, news and influential trends that made headlines 12 months ago Australian Broker Issue 9.17
Banks encouraged fraud, claims broker
A disgraced former broker facing fraud charges last year lashed out at banks in an ABC interview, pinning the blame on them for dodgy loans. Kate Thompson claimed banks would email brokers with tips on how to sidestep regulations, which often involved fraudulently inflating the income of applicants. Consumer advocate Denise Brailey also claimed to have incontrovertible evidence of systemic low-doc fraud encouraged by banks.
What’s happened since?
One year later, nothing has come of the explosive allegations. Brokers on the Australian Broker Online forums, never ones to shy away from laying into the banks, were pretty clear that they had never been encouraged to commit low-doc fraud. Moreover, low-doc arrears remain reasonably low; belying the notion that massive fraud was occurring and putting borrowers in homes they couldn’t afford.
Major predicts cash rate will rocket in 2013
NAB economists last year made the bold prediction that the RBA would begin hiking rates in 2013. The bank predicted that the RBA would leave rates on hold for an extended period, before hiking them in response to improving economic conditions. “While activity is expected to moderate in coming months, reflecting the Government’s fiscal consolidation and a slowing in consumption growth, a near-term rate cut now appears unlikely,” the bank said.
What’s happened since?
We can’t get ‘em all right. Rather than hiking rates through 2013, the RBA cut rates four times following NAB’s prediction. In fact, the official cash rate is now a full percentage point lower, and sits at a record-low 2.50%. Economists are now predicting the RBA could take rates even lower before year’s end.
brokernews.com.au
‘Screws tightening’ on brokers as FOFA encroaches
W
ith the FBAA’s national conference fast approaching, BrokerTV caught up with Peter White, FBAA national president, to see what’s big on the agenda – and what brokers should be prioritising over the next year. Compliance will be a major focus at the November conference and White stresses the importance of keeping on top of the requirements at all times. “It’s important that we all keep focus on our compliance obligations… People are still juggling with these obligations to make sure they’re doing the right things.” When it comes to the up-coming Privacy and Responsible Credit Reporting changes, White says there will be significant impacts to the way brokers deal with information given to them by clients and that staying on top of these changes will be critical. “We, ourselves, are still working through it with our attorneys at the moment. There are going to be some significant impacts from the Privacy Act point of view and how you interact with information that you have on behalf of clients and who you give that to. It’s not going to be as simple a process, I guess, as to what it may have been in the past. Even though some of these obligations are still a part of our business today, the screws are really being tightened up.” Finally, White advises that many brokers need to start thinking bigger, strategising long term in case further legislation is brought in. “It’s very easy to sit back and just do what you do every day and not worry too much about the future, but I think it’s something that we’ve got to be very conscious of and we can see the FOFA reforms that are impacting into the financial planning sector and we’ve got to be careful that those things don’t necessarily mirror across.” In fact, the possibility of such legislation being imposed on mortgage brokers isn’t off the cards, according to White. “Fee for service is used by many brokers at the moment and it could well be that everybody needs to have a plan B in their pocket if those sorts of reforms come across into our sector. It’s one of several issues that brokers need to be concerned about. I’m not pre-empting anything and not suggesting it’s going to happen, but, if you don’t have a plan B, if you haven’t thought about these sorts of things that could impact you in the future, then you could quiet easily wind up being caught short.”
FORUM 27
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Tattoo or not tattoo? Does body art detract from brokers’ professionalism?
A
recent piece on industry figures with tattoos stirred up a bit of controversy, but mostly had inked brokers coming out of the woodwork to proudly proclaim their solidarity. Regional Broker got things started by suggesting that tattoos could hurt brokers’ professional image.
Market power
Aussie Home Loans CEO Ian Corfield recently predicted that lower funding costs would likely translate into increased broker commissions – but warned brokers not to get too excited just yet. “Funding costs have fallen,” said Corfield, “although it will take time for this to fully flow through into banks’ cost of funds as funding built up in recent years rolls off. I’d love trail commissions to go up, but that would need to be on a sustainable basis.” Oldbroker responded, saying commissions would rise when the balance of power shifted in brokers’ favour.
What do you think? Leave your comments at brokernews. com.au
“Commissions will rise only if the percentage of broker-initiated deals increases to (I think) around the 75% range as opposed to the 40% currently. The lenders don’t owe us a living and they reduced the commissions because they can. It’s a fairy-tale to think otherwise. CBA eliminated first year trail and their market share remained stable. Simple supply and demand.”
“Ask yourself, is a 55-year-old conservative investor in houses going to feel comfortable with a broker with a full sleeve? Probably not. If you are an AFL Football star – probably from the Pies, Hawks or the Tigers – who is looking for a resi investment you will probably relate well. Who is in the majority? ” But tattooed brokers quickly leapt to the defence of selfexpression, with Casey leading the charge. “I have them but [they’re] not so obvious. I have a new one coming that a polo won’t cover up. By why does it matter? I haven’t worn a suit in four years and business keeps on growing. If people won’t deal with me because I wear my heart on my sleeve, then they aren’t a client for me.” Melissa J argued that even visible tattoos don’t detract from her business. “I have a full inner-forearm tattoo always visible, 15x8cm. Most clients don’t really notice or say anything, or makes a great talking piece (I know they don’t notice, because when I see them at a later point in time they ask, when did you get your tattoo – you didn’t have that last time). I have other industry professionals refer even more business to me and the clients love the work I do for them.” But Mac had the last word, in the most eloquently understated way possible. “Bogans ;)”
BAD APPLE BROKERS
The MFAA recently touted a 50% decrease in their broker expulsions, from eight in 2011/12 to four in 2012/13. Edgar on 9/08/2013 4:52PM “Misleading use of statistics by the MFAA there. With a sample size of only 8, I doubt you can attach any statistical significance to the result. Still saying it’s a 50% drop claims the headlines but if they have to expel 8 next year will they be as forthcoming with a 100% increase?” Wilko on 9/08/2013 10:04AM “Given ASIC’s reliance on the industry bodies and the fact that some of their
IF PEOPLE WON’T DEAL WITH ME BECAUSE I WEAR MY HEART ON MY SLEEVE, THEY AREN’T A CLIENT FOR ME
investigations are because of the industry bodies, ASIC should be thankful. They might not be the governing body but they are relied upon for the self regulatory nature of our industry.” Country Broker on 9/08/2013 9:11AM “Four down from eight is a very low number considering the number of members who belong to the organisation. No mention though of those who had membership cancelled because they failed to complete their diploma on time. I think the standards of the MFAA are very strong and I am happy to remain a member.”
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Standing out from the flock Adelaide broker Tish Naughton was recently named one of Anthill’s ‘Top 30 Under 30 Entrepreneurs’ – and that’s just the beginning
F
or someone who’s been running her own business for less than two years, Tish Naughton is definitely standing out from the pack – or, should we say, flock. The 26 year-old founder of Black Sheep Finance has been announced as one of Anthill magazine’s Top 30 under 30, an award given out to young entrepreneurs demonstrating tip top business and marketing skills in their field. However, the Adelaide native’s ride has been anything but smooth. “I kind of fell into [broking]. I bought my first property when I was 19 and I renovated and bought another one – so I was more interested in property and wanting to buy property, rather than the finance side.” Yet, she quickly found that once she’d reached her borrowing capacity, it was nearly impossible to find a bank or broker who was willing to discuss her options. “I found that banks and most brokers were only really interested in telling me about an interest rate. There wasn’t really anyone offering advice on how you can grow a portfolio. So I went, ‘fine, if I can’t find anyone who’ll teach me, I’ll teach myself’.” Naughton got a job working at a local bank for three years, during which time, she laughs, she ‘learnt nothing’ – other than the fact that bank lending processes are painfully slow and complicated. “I soon decided to go out on my own and become a broker…but my first introduction into the industry was through a broker who…was doing dodgy stuff. I didn’t know that when I first joined up.” She says the issues she faced at her first broking job were ones she’s since seen other inexperienced loan writers deal with as well. “When they promote people to
join up, they just sell them on the fact that they earn high commissions. It’s like a carrot dangling in front of you. But that’s not what the industry’s really like – it’s really hard. Not knowing how commission structures worked, I began to think that being paid only 50% of upfront and trail wasn’t bad – until someone told me it was bad.” Fearing for her reputation, Naughton walked away without her book (her employer refused to give it to her) and started at her second job, only to find out the new employer - this time a financial planner - was also engaging in unethical conduct. Again, she wasn’t allowed to take her loan book with her when she walked and it was several months before Naughton was able to build up a new client base – for the third time - and generate enough income to support herself. “I thought, bugger it, I’ll just go out on my own. I found it really difficult to find people aligned with me, so I thought, ‘I’ll just do it by myself’. That was when I launched Black Sheep Finance.” Naughton says her passion for property investment, as well as her varied range of qualifications (she holds a Diploma in finance and another in management, is pursuing a third in financial planning and was the first person in South Australia, of any age or gender, to obtain
“IF YOU’RE A BROKER OUT THERE THAT’S STILL TRYING TO SELL BASED ON RATES, YOU’RE NOT GOING TO REALLY ACHIEVE ANYTHING” – T ISH NAUGHTON
the designation of Certified Exit Planning Advisor), is a great selling point for clients. “When I see a client, I don’t even talk about rates, whereas I find that the whole industry focuses on that. Yes, that’s how our industry came about, but when you’ve got so much competition, banks don’t really care about brokers anymore. If you’re a broker out there that’s still trying to sell based on rates, you’re not going to really achieve anything because consumers [now] are very educated. When you’ve got online offerings – you can’t compete with that.” She says that instead of focusing on rates, brokers should start thing in broader terms and considering the full range of ways they can help clients reach their overall financial goals. After all, she says, ‘no one wants a home loan; they want a house’.
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Stumping for brokers anticipating and fixing every problem as it presents so that a settlement actually occurs.” Rigoni believes the big banks currently ‘hide’ behind failings in contract law in order to financially exploit the ‘sub contractor broker’ through clawbacks.
RESPONSIBLE BORROWERS DON’T NEED TO BE PROTECTED FROM THEMSELVES. THEY NEED TO BE PROTECTED FROM DISCRIMINATORY AND NO-RISKFOR-LENDER PRACTICES – M ARIA RIGONI “Clawback is punitive... it financially punishes the broker for events that other people dictate. No fair work cover for self-employed brokers. There needs to be an invisible shield between broker and lender. The aggregation model once upon a time supported this, until the big banks decided to own the broker/aggregation channel.” Furthermore, she argues, NCCP has had a number of ‘destructive elements’ – and LMI is a ‘shameful consumer rip-off’. “Responsible borrowers do not need to be protected from themselves. They need to be protected from discriminatory and no-risk-forlender practices.” The Bank Reform Party is only running in Victoria and Rigoni says the party has secured a group voting ticket, allowing people to vote one above the line. “Those living in Victoria will have the opportunity to vote for me – a broker – and just maybe I will be elected and can then work towards having changes made to some of the legislation to make their life better.”
A Melbourne broker is trying to make the industry’s interests heard by running for Senate
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he Federal Election is just around the corner, and one broker is hoping to take the industry’s interests to Canberra. Melbourne broker, Maria Rigoni, has announced her position as lead senate candidate for the Bank Reform Party at the upcoming Federal Election – and she says getting a fair go for brokers is at the top of her priority list. “Brokers perform outsourced loan writing tasks and in every instance they should be paid a fair unconditional fee by the lender for that,” says Rigoni. “The fee is for client sourcing, knowledge of product and policy, introducing the client to the lender’s offering, interviewing… following-up everything – including valuation shortfalls –
PEER SUPPORT
Maria Rigoni’s tilt at the Senate has led to an outpouring of support from fellow brokers on the Australian Broker Online forums Judy West on 22/08/2013 9:08AM “Best of luck Maria, a big task you’ve taken on. I wish you every success.” Stuart on 22/08/2013 9:24AM “You’ve got my vote right there!” Geoff S on 22/08/2013 11:52AM “Well stated Maria. How refreshing to find someone who tells it as it is. So true. Best of luck.” Jake on 22/08/2013 3:42PM “Another vote from me.”
INSIDER 30
The seven deadly handshake sins
W
e’ve all been there: You’ve just been introduced to someone at a party/ business meeting/[insert alternative awkward social situation here]. You smile, say hello and your hand powers forward like an unmanned locomotive – only, instead of being greeted by the friendly feel of foreign fingers, you find yourself grasping a moist, clammy blob. Congratulations, you’ve just been offered The Limp Fish. Or, worse, you’re the one offering up limp fish to unsuspecting new acquaintances, in which case you should probably read the following guide…
THE BONE CRUSHER
Your hand grasps the other person’s hand so hard you can feel their blood vessels pop and their finger bones turn into chalk powder. According to psychologists, this means you’re aggressive and dominating. According to everyone else, it means you’re an a**hole.
THE POLITICIAN
You grab the other person’s hand with both of your hands. While you might think this makes you come across as enthusiastic and genuine, it actually just comes across as creepy in a used car salesmen way (and we all know how brokers feel about being compared to used car salesmen).
THE NEVER-LET-GO
“Hi, my name’s Fred. It’s so nice to meet you, I just know we’re going to be great friends – do you like cats? I like cats. I have seven cats, their names are… Oh, am I still holding your hand? It’s so soft – like my cats…” Awkward.
THE PULL-YOU-IN-CLOSE SHAKER
Let’s just be honest here: What you really want is a hug.
THE LIMP FISH
hand. This is only a good idea if you’re shaking hands with a grizzly bear – which we also don’t recommend.
THE SWEATY MCSWEATERSON
Pretty self-explanatory: your hands feel like the pond that dead fish above was rotting in. This unfortunately happens to most of us when we get nervous. If you know a handshake’s coming, run your hands under one of those dryer things in the toilets. Or wipe them on your shirt. Or combine with the following in the hopes that they’ll never actually figure out how to shake your hand in the first place…
THE HIPSTER
A confusing, choreographed, multifaceted handshake designed to make the recipient feel old and out of touch. The Hipster is the favoured handshake for skateboarders, rappers and (we suspect) many people suffering from chronic cases of The Sweaty McSweaterson. Also worth an honourable mention is The Molester, often (though not always) administered by men to women they may or may not find attractive. It involves holding the recipient’s hand just a little too long, just a little too ‘lovingly’ and with just a hint of thumb gyrating on palm. On that note, the author’s going to go wash her hands.
As discussed above, this is the one where you offer up a dead salmon in lieu of your
WHY MESSY DESKS ARE FOR WINNERS
F
iles piled high in no particular order; scribbled post-it notes decorating the computer, unopened mail and parcels accumulating in the corner. Mess, clutter, in serious need of a cleanup, yes...but a sign of creativity? An American scientific study has found that working at a messy desk promotes creative thinking and helps you stimulate new ideas. The study found “working at a clean and prim desk may promote healthy eating, generosity and conventionality”. The University of Minnesota study carried out a series of experiments on people working at clean and messy desks, while tracking their behaviour. In one experiment, participants were put in an office environment and asked to come up with new uses for ping pong balls. Participants who
were put in a cluttered environment generated the same number of ideas as those in a wellordered environment, but those surrounded by clutter came up with ideas that were rated as more interesting and creative by a panel of impartial judges. “Being in a messy room led to something that firms, industries and societies want more of: creativity,” said psychological scientist Kathleen Vohs, who conducted the study. “Disorderly environments seem to inspire breaking free of tradition, which can produce fresh insights,” Vohs said. “Orderly environments, in contrast, encourage convention and playing it safe.” So maybe Einstein had a point when he asked, “If a cluttered desk is a sign of a cluttered mind, of what, then, is an empty desk a sign?”
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INSIDER
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AGGREGATOR / WHOLESALE BROKER Choice Home Loans 1800 188 288 www.choicehomeloans.com.au Page 7 FAST 02 9233 8222 www.fastgroup.com.au Page 9 PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 5
FINANCE
Rhino Money www.rhinomoney.com.au 1300 654355 Page 8
LENDER
Liberty Financial 13 11 33 www.liberty.com.au Page 3 MKM Capital 1300 762 151 www.mkmcapital.com.au Page 4
National Australia Bank www.nabbroker.com.au Page 11 Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 17
SHORT TERM LENDER
Interim Finance 02 9982 2222 www.interimfinance.com.au Page 2
OTHER SERVICES RP Data 1300 734 318 Page 23
Trail Book Buyers 1300 742 306 or 0434 742 306 info@trailbookbuyers.com.au www.trailbookbuyers.com.au Page 15 Trailerhomes 0417 392 132 Page 26
Mango Credit 02 9555 7073 www.mangocredit.com.au Page 1
TECHNOLOGY PROVIDER NextGen.Net 02 9929 5999 sales@nextgen.net www.nextgen.net Page 13
WHOLESALE
Resimac 1300 764 447 www.resimac.com.au Page 32
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