Australian Broker 13.12

NEWS ASIC to call on brokers A review into remuneration P8

OPINION The business of blockchain And what it means for brokers P12

ANALYSIS Oversupply or overreaction?

Addressing fears of apartment oversupply P14

JUNE 2016 ISSUE 13.12

SPECIAL REPORT Co-opetition, not competition The power of collaborative learning P18

INDUSTRY SPOTLIGHT Growing with your clients

Loans from youth to retirement P20

MARK WOOLNOUGH ING DIRECT’s head of third party distribution on how today’s savvier customers can be good for business P16

TECH FOCUS On board with social media SMEs learn to love digital P26

BORROWER SNAPSHOT 2

NEWS

ASSOCIATIONS The FBAA’s national tour underway P4

REGULATION

LENDERS

ASIC reveals it will call on brokers

ASIC sues NAB

P6

v HOUSING AFFORDABILITY DETERIORATING

P8

BROKERNEWS.COM.AU EDITORIAL

Ratio of monthly household income spent on mortgage repayments

Editor Madelin Tomelty News Editor Julia Corderoy

50%

Journalist Maya Breen

40%

Production Editors Roslyn Meredith Hayley Barnett

35.1% 35.6% 32.8%

30%

27.5% 28.2%

27% 27% 27.6%

30% 24.4% 23.4% 24.3%

22.1% 22.1% 23.2%

20%

24.6%

21.9% 21.5%

SALES & MARKETING Sales Manager Simon Kerslake Account Manager Rajan Khatak Marketing and Communications Manager Lisa Narroway

CORPORATE

ART & PRODUCTION

Chief Executive Officer Mike Shipley

Design Manager Daniel Williams

Chief Operating Officer George Walmsley

Designer Martin Cosme Traffic Coordinator Lou Gonzales

Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan

10%

Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

0% Nation-wide

Sydney

Melbourne

Brisbane

Adelaide

Perth

Madelin Tomelty +61 2 8437 4792 madelin.tomelty@keymedia.com.au

SUBSCRIPTION ENQUIRIES

MARCH 2014

MARCH 2015

MARCH 2016

Source: Moody’s

tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au

ADVERTISING ENQUIRIES

INVESTORS ABATE, OWNER-OCCUPIERS DOMINATE Recent housing finance figures released by the Australian Bureau of Statistics (ABS) confirm that investors have released their stronghold of the housing market.

“Despite an increase in the value of investment housing commitments in trend terms of 1.1%, this follows nine months of falling investor lending in response to the increase in mortgage rates for investors and the strengthening of banks’ non-price lending terms,” said Real Estate Institute of Australia (REIA) President Neville Sanders.

The impact of this can be seen in both rental prices, and the proportion of owner-occupiers now in the market.

“In the current debate on negative gearing, it is worth noting that the presence of investor activity has had a positive impact on the level of rents, with the March quarter CPI figures released at the end of April providing evidence that the current taxation arrangements keep rents lower than they would otherwise be,” said Sanders.

The March quarter 2016 rental increase was 0.1%, the lowest since March 1995. The annual increase in rents to March 2016 has been 0.9%, again the lowest since March 1995.

According to the ABS, the number of owner-occupied finance commitments dipped slightly by 0.2% in March, following 18 months of increases, and if refinancing is

excluded, the owner-occupied trend figure decreases further by 0.4%.

The proportion of first home buyers, as part of the total owner-occupied housing finance commitments, fell to 14.2% in March this year, however, making it the lowest figure for the segment since May 2004, and further exacerbating concerns about housing affordability in the Australian property market.

However, the figures show that the investor influence on the market has abated.

“The lending figures show that the macro prudential measures introduced are working and that owner-occupiers are the dominant force in the stabilising market,” concluded Sanders.

Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak +61 2 8437 4772 rajan.khatak@keymedia.com.au Key Media Pty Ltd Regional head office, Level 1O, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 www.keymedia.com Offices in Sydney, Auckland, Denver, London, Toronto, Manila This magazine is printed on paper produced from 1OO% sustainable forestry, grown and managed specifically for the paper pulp industry Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss. Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

ASSOCIATION HAPPENINGS 4

DATES TO WATCH

INDUSTRY HEAVYWEIGHT JOINS FBAA NATIONAL TOUR Steve Weston, who until recently was the CEO of Mortgages at Barclays in the UK, is spearheading the FBAA’s 2016 National Tour. At the first event in Brisbane, Weston gave insight into how Australia’s mortgage industry may look after further regulatory reform and the likely impact this will have on brokers and lenders.

Weston is an internationally recognised financial services executive, and from 2008 to 2012 was responsible for the now National Australia Bank-owned PLAN, Choice and FAST aggregation businesses.

Following four years working in London, he will be sharing his experiences from the UK mortgage industry at the tour making its way around the nation.

“The mortgage industry in the UK is similar to the Aussie market but there is a much higher level of regulatory intensity over there, which

has both its positives and negatives,” Weston said.

“A big positive for me is that, in the UK, the customers’ interests are put at the heart of everything banks and brokers do, but at the same time innovation has suffered because lenders are so focused on complying with regulations that they are too scared to stick their heads above the parapet.”

Weston also spoke on the subject of digital and technological advancements, and touched on how lenders and brokers can make use of these to improve customer experience, increase productivity and tighten regulatory compliance.

“Brokers now account for over 70% of mortgage flow in the UK, and given the similarities with the Australian market, there is every reason to believe that broker flows should increase significantly above the low 50 per cents currently being

experienced here,” Weston said.

“That said, Australia’s robust economic performance and strong property price growth may have created a false sense of security that the way that business is being done today will still be considered compliant by regulators in five or ten years from now. The UK financial services industry has learned through painful experience that the interpretation of regulations can change over time.”

Weston went on to share examples of areas where Australian brokers may need to review their processes to protect themselves against a potential change in the interpretation of regulations in the future. Feedback from the Brisbane event was that brokers found Weston’s insights informative and where necessary they will look to make changes to their business processes.

WHAT THEY SAID...

Douglas Driscoll “We are starting to see some ill effects from an oversupply of apartments, such as rents falling for the first time in three years, as well as vacancy rates rising” P14

Stephen Moore “The biggest challenge for brokers is usually finding the time to invest in training and education, but it’s important to find an approach that works because you can’t afford not to” P18

John Cunningham “Not supporting first home buyers is, to say the least, short-sighted, and creates the risk that our best and brightest will be enticed to other states where the dream of homeownership can be a reality” P22

A rundown of the next fortnight’s events

JUNE

22 What: Legally Franchised Where: Level 6, UNSW CBD Campus The particulars: Associate professor Jenny Buchan from the School of Taxation & Business Law will explore the legally complex and nuanced franchise model, and address the challenges franchising poses to consumer protection and insolvency regulators, and banks.

JUNE

28-30 What: Blockchain Summit 2016 Where: The Royce Hotel, Melbourne The particulars: Australia’s only Blockchain Summit will delve into the current threats, challenges and opportunities that are associated with this disruptor, and the strategies to prepare for and implement Blockchain technology.

JUNE

29 What: FBAA Byron Bay Industry Regulation Update Where: 132 Jonson St, Byron Bay The particulars: An open forum where FBAA’s Peter White will be present to respond to any questions or concerns regarding the government and industry regulators.

REGULATORY ROUNDUP 6

WORLD NEWS

APRA’S CRACKDOWN WORKS

Value of mortgages outstanding, March quarter 2016

Increase in lending, March 2015 to March 2016

0.1%

CHINA CLAMPDOWN ON GREY-MARKET MORTGAGES LIFTED The Shanghai Office of the China Banking Regulatory Commission has allowed business between commercial banks and six real estate agencies to resume after a one-month suspension, in an effort to normalise the property market.

According to Shanghaidaily.com, the online news site saw an internal notice which stated the banks could now conduct mortgage business with the housing agencies, as well as online registration of home purchase contracts. The notice was confirmed by the Information Office of the Shanghai Municipal Government through its official Weibo account.

The suspension, implemented a month ago, sought to clamp down on ‘grey-market’ mortgages, the Shanghai Office of the China Banking Regulatory Commission said in its previous announcement.

Grey-market mortgages are those obtained outside of the regular, authorised channels, including those providing homebuyers with down-payment loans and bridging loans that bypass the banking system.

Market insiders have said that the regulator lifted the suspension because it might be able to trace the origins of the grey business, which is believed to bring systematic risks to lenders.

The local branches of Beijing Homelink Real Estate Brokerage Co, Pacific Rehouse Co and Shanghai Hanyu Property Brokerage Co were affected by the one-month suspension.

“During the suspension, Homelink stopped its down-payment loan business, while other real estate agencies also rectified their conduct on false advertising and information concealment,” the Shanghai Banking Association said in a statement.

“Once illegal behaviour surfaces again, commercial banks have an obligation to halt cooperating with those agencies,” it said.

In a separate statement issued since, the Shanghai Association of Realtors made a commitment to exit loan businesses that they were not licensed for, and promised not to file false purchase notices to drive up housing prices.

The suspension on 25 March was part of efforts to curb rising property prices in Shanghai.

$501.3bn investors

$906.7bn owner-occupiers

to investors

14%

to owner-occupiers

8.7%

Total lending increase

Source: APRA

ASIC WILL SUMMON BROKERS ASIC has revealed it will be serving notices to brokers to provide data, as a part of its fact-finding mission into the mortgage broker remuneration review. However, the FBAA assures brokers that they should not be worried.

The FBAA’s Peter White, who met with the ASIC team heading up the review in Melbourne recently, said the corporate watchdog would be calling on brokers to provide data, following its data collection from lenders and aggregators.

“What will happen… is notices will be served on the lenders for the data collection. The week after that the notice will be served on the aggregators. Brokers will be last on the list to get notices served on them,” White told Australian Broker. “That will be about two to three weeks away before that happens.”

According to White, ASIC was vague on the specifics of what data they would be seeking; however, he told Australian Broker it would be focused on “drilling down on the borrower profile”.

White also said that one “significant-sized” lender – he could not reveal who – told him there could be as many as three million

transactions involved in the fact-find.

Some aggregators have already submitted data to ASIC as a part of their cooperation with the review. AFG told brokers at its Masterclass in Sydney this week that it had already submitted a significant amount of data to the regulator, proving commissions are not a form of conflicted remuneration.

However, when brokers are summoned by ASIC in the coming weeks, White assures them they should not be worried.

“The big thing is that this is not anything to be scared about,” he told Australian Broker.

“The actual sampling of brokers is very small.

I’m not allowed to divulge how many, but it will be significantly less than 1,000 brokers. Most of the market won’t even know it’s happened.

“But those that do get served notices, ASIC are very keen to let them realise that selection doesn’t mean there is an issue with what they are doing or that they’ve been targeted for anything. It isn’t being done on alpha order either – it is just a random selection.”

ASIC will be calling the brokers selected prior to sending notices requesting the data.

LENDER UPDATE 8

SME DEMAND FOR NON-BANK BUSINESS CREDIT RISING

$95,104

Average non-bank business loan size NAB JOINS ANZ AND WESTPAC IN THE NAUGHTY CORNER ASIC has commenced legal proceedings in the Federal Court in Melbourne against National Australia Bank (NAB) for unconscionable conduct and market manipulation. ASIC has alleged NAB was involved in setting the bank bill swap reference rate (BBSW) in the period 8 June 2010 to 24 December 2012. NAB is the third major bank to be sued by ASIC over rate rigging, with the corporate watchdog having launched legal action against ANZ Banking Group on 4 March and Westpac Banking Corp on 5 April. Both banks are defending their actions, and NAB has said it will also fight the case against ASIC, with the major’s chief risk officer David Gall stating to the ASX that NAB “has fully co-operated with ASIC’s review and takes these allegations seriously. We do not agree with ASIC’s claims, which means they will now be settled by a court process”.

The BBSW is the primary interest rate

benchmark used in Australian financial markets, administered by the Australian Financial Markets Association (AFMA). On 27 September 2013, AFMA changed the method by which the BBSW is calculated. The conduct that the proceedings relate to occurred before the change in methodology.

It is alleged that NAB traded in a manner that was unconscionable and intended to create an artificial price for bank bills on 50 occasions during a six-month period.

ASIC alleges that, during this time, NAB had a large number of products which were priced or valued off BBSW and that it traded in the bank bill market with the intention of moving the BBSW higher or lower. The regulator has accused NAB of seeking to maximise its profit, or minimise its loss, to the detriment of those holding opposite positions to NAB’s.

20 months Average non-bank business loan term

14.81%

Proportion of non-bank lenders receiving 2,000+ applications per month Source: eBroker.com.au

10

BEST PRACTICE FINDING COMMON GROUND Jackie Dryden and Bethany Andell explain how baby boomers and millennials have more in common than they realise, and how closing the generation gap is good for business

WHAT’S MISSING IN THE MILLENNIAL SKILLSET? Dr Jason Richardson on how millennials can expand their skillset It’s not just technology defining the youngest working-age population, it’s also a distinct optimism and a desire to do work that matters. I don’t think millennials lack the work ethic and soft skills that others say they do. Many of those things come with age regardless of when you were born. But I do think millennials have been coddled. Many have an aversion to seek resolutions to problems within themselves – outside of technology.

Here’s how millennials can expand their skillset: Try more authentic “connections” Competition among millennials can be fierce. You can have a thousand social media friends and have an impressive bio with the right degree from the right school. More one-on-one time with your peers, however, helps with truly interpersonal settings, including working with people from older generations.

BABY BOOMERS and millennials often are portrayed as two generations that don’t always see eye to eye in the workplace, but they may share something in common that could help bridge the generation gap.

Both groups long to find a purpose in their careers beyond a paycheck, according to Jackie Dryden and Bethany Andell, co-authors of Get Your Head Out of Your Bottom Line: And Build Your Brand on Purpose.

“Millennials are not only worried about how much money they earn, but also about how they earn it,” says Andell, president of Savage Brands, which works with companies to build purposeful brands.

“They gain satisfaction from their work when they feel they are contributing to something larger and more valuable than the company’s earnings.”

Baby boomers, idealistic in their youth, somewhere along the way became part of the system they fought to change, she says. Now, nearing retirement, many look back and wonder what kind of legacy they will leave.

“They’re reigniting their earlier desire to add meaning to life,” Andell says.

Dryden and Andell say that tapping into the two generations’ longing for meaningful work can create an improved outlook for businesses. Here’s why:

1

Everything a company says and does contributes to building its brand. Because of this, the actions and attitudes of employees are central to the brand experience for the customers.

2

Too many companies begin their pursuit of success by focusing on profit. A better route to sustainable success is to flip traditional business thinking upside down and start with purpose.

Purpose drives performance, and performance drives profits.

3

Customers feel better about buying from or working with brands they connect with in some way. When they connect with the purpose for why a company exists they begin to feel as if they are a part of something meaningful, just as the employees do. This deeper relationship adds value to every interaction customers have with the company, building loyalty for the brand.

“When you have two generations – one older, one younger, but both seeking greater meaning at work – there’s an incredible opportunity,” Dryden says. “But that opportunity can only be seized if a company’s purpose and values align and connect with employees on a level beyond the bottom line.”

Distinguish yourself by offering your full attention This is a rare commodity nowadays.

People never have to be bored anymore.

If we must wait for anything, we can find distraction in our smartphones, which are on-demand boredom-killers. On the job, dividing your attention while on your phone with clients, management, during conference calls, etc, will not be appreciated. It’s not multitasking when your attention is compromised – a major hindrance in communication.

Take a cue from older generations – grow thicker skin In the United States, colleges are catering to students with “safe spaces” in case their feelings are hurt. Professors often warn students with “trigger warnings” in case academic content could be seen as offensive. Older generations were not as coddled, which helps them accept criticism at work. Thin skin can keep you from finding solutions to problems.

Learn to accept professional criticism graciously so you may think more clearly on possible solutions.

Base progress on doing good and less on feeling good Doing good and feeling good don’t always coincide. Remember, you’re the baby who learned to walk despite many failed attempts. You didn’t need to feel good to be successful. Place value in the work and personal gains made as you move forward.

Think of yourself as continually developing or becoming. You are more than what’s written on your social media profile.

12

OPINION

Greg Dickason Greg Dickason runs the Wholesale and Solutions Groups for CoreLogic International

THE BUSINESS OF BLOCKCHAIN Greg Dickason on the rise of blockchain, and how it will benefit brokers

MOST OF the major banks are in the midst of actively researching blockchain technologies and the potential impacts blockchain will have on their businesses. They are looking at how blockchain can improve back-office efficiencies, and are monitoring new blockchain ‘fintech’ startups that could disrupt their business models.

But for brokers, many are still unsure about what exactly a blockchain is, and whether or not it will affect them and their businesses.

The lowdown on blockchain A blockchain keeps records unchanged, transfers value and writes smart contracts, however these are just some of the functions, and the reality is that a trusted provider, such as a bank, can already do all of these. What the blockchain allows, which is different from what banks provide, is the distribution of these functions between parties that don’t necessarily trust each other. This allows anyone to cooperate on the blockchain and provide one, or many of the functions, to the other participants.

For example, service providers can specialise in creating good smart contracts that participants use or data services, ‘Oracles’ that allow identity verification or verification of asset value. These services can be separated from funds providers that provide funding, and borrowers and their agents that provide a return on the fund provider’s investment.

Blockchain allows the monolithic service provision of the bank to be broken up into micro-services provided by many competing providers. This will make the whole process much more efficient.

What it means for the industry Blockchain can allow for trust-less collaboration in an open, smart contract-mediated consortium of funders, service providers, customers and their agents. What this means over the long term is that there may no longer be a need for a trusted intermediary, a role traditionally played by banks. Banks may find that their role suddenly changes to one of risk advisor to both wholesale and retail fund providers, or to one of an agent operating on behalf of borrowers. The banks’ risk management and customer service functions might evolve to be different businesses.

The potential impact on borrowers is overwhelmingly positive. In a future blockchain consortium ecosystem, wholesale funders could compete with small retail investors to fund individual loans directly, with each loan competed for on price and conditions. Borrowers will benefit through access to the cheapest possible funds for their particular risk profile.

However, borrowers in this world will still have the need for an agent to facilitate the process, including providing a level of verification of their details and an introduction to the blockchain consortium.

Blockchain, then, looks set to disrupt part, or all, of the back-office functions of banks in the medium term, and potentially the whole value chain of providing funding and services

The broker who is flexible, customer-centred, can learn new processes and is adept at creating and maintaining diverse relationships is best placed to thrive in this new world to borrowers over the longer term. This level of industry disruption is going to cause a lot of upheaval.

How blockchain will help brokers In a blockchain-penetrated world, the increasing emphasis on customer service, coupled with increased efficiency of back office processes, will open up opportunities for brokers who can specialise in a role as a trusted advisor. The broker who is flexible, customer-centred, can learn new processes and is adept at creating and maintaining diverse relationships is best placed to thrive in this new world. They will have ample opportunity to be the borrower’s agent, introducing both borrowers and potentially investors to blockchain, collecting the fees associated with providing this service that has replaced the function of the retail bank.

Challenges we might see emerging, however, include a lower emphasis on product or industry knowledge, rapid shifts in broker relationships with many new and different service providers and funders, and rapid regulatory changes.

It won’t happen overnight, but it will happen Blockchain will not create an overnight change to the business model of brokers, however.

Rather, brokers will see an increasingly competitive market with new products, processes, customer acquisition and retention models emerging. This will happen regardless of blockchain as we see the digitisation of the mortgage process already underway. With digitisation comes increased efficiencies and new service models centred on the mobile, social consumer.

The blockchain world is a world where brokers have to become masters of customer service in and where customers know as much about products as brokers do, and can reference brokers and rate them before they choose which ones to contact. Blockchain will only accelerate this process with new funders, services and products being introduced. The successful broker of the future is the connected, adapting, ‘customer first’ broker who challenges themselves to stay ahead, and stay relevant.

14

ANALYSIS OVERSUPPLY OR OVERREACTION? Australian Broker explores whether Australia’s premier property market, Sydney, is at risk of an apartment oversupply

WHEN APRA warned the banks to restrict investment lending at the end of 2014, many industry commentators cried foul. The credit squeeze would see investors surrender their deposits on off-the-plan apartments, leaving new apartment developments abandoned and an apartment oversupply in its wake.

The Reserve Bank of Australia reignited the debate when it expressed concern over an apartment oversupply on Australia’s east coast in its latest Financial Stability Review.

“The near-term risks for residential property developers have increased, with a mismatch between a growing supply of geographically concentrated apartments on the east coast and concerns about softening demand for these apartments in some areas,” the RBA noted in its review, released in April.

Recent figures suggest why. According to CoreLogic, there are 34,300 new units set for completion in Sydney and 29,541 in Melbourne over the next 12 months. Those figures rise to 81,969 for Sydney and 80,503 in Melbourne over the next 24 months.

But at the same time as new stock continues to enter the market, figures released by SQM Research reveal that the number of national residential vacancies rose during April. Along the eastern seaboard, vacancy rates rose to 1.7% in Sydney and 2.1% in Melbourne – rates that are also “above the common seasonal trends” expected at this time of year.

CoreLogic research analyst Cameron Kusher

“The size and scale of this issue is much bigger than we even realise, and there’s a real lack of research around the implications for infrastructure, mental health and other future ramifications” Douglas Driscoll, Starr Partners says settlement risk is something the research agency will be keeping a very close eye on.

Cause for concern Douglas Driscoll, CEO of NSW-based real estate group Starr Partners, is more concerned. He argues there is no foundation to support the construction of new apartments, particularly in Sydney.

“What I want to know is: are we building the right course for the right horse? Think about housing diversity five years ago and look at where we are heading by 2020; we’ll have a remarkable number of apartments by then. The size and scale of this issue is much bigger than we even realise, and there’s a real lack of research around the implications for infrastructure, mental health and other future ramifications.”

Driscoll worries we are “reverse engineering” the supply and demand process and changing the behaviours of people as a result.

“We are forcing buyers into considering

apartments because the reality is that they have very little other option in a semi-affordable price range. We are starting to see some ill effects from an oversupply of apartments, such as rents falling for the first time in three years, as well as vacancy rates rising. A number of reports show that this is already happening, but this is not the only issue.

There are also huge socio-economic issues that will arise from this boom,” he says.

Nothing to see here Rachelle Eyndhoven, senior mortgage broker at Sphere Finance, agrees there has been a big shift in the property mix, but unlike Driscoll she doesn’t believe Sydney is at risk of a significant apartment oversupply as a result.

“Obviously the majority of housing supplied in the last year has been apartments and units, and the mix may not be what the Australian standard is used to,” she tells Australian Broker.

“However, with Sydney being such a sought-after city to live in and there still being an undeniable

15

legwork in researching each lender’s percentage of exposure in a building, or high-density postcode restrictions, prior to submissions – which has not been an issue for the past five years, but was really common to do, say, eight years ago.”

Oversupply overstated On the opposite side of the debate concerning a price slowdown and apartment oversupply, Chris Johnson, CEO of property development association Urban Taskforce, argues that Sydney actually requires more apartment development.

He cites figures from the NSW Department of Planning which indicate that over the 20-year period from the last census in 2011, 664,300 new homes were required – a number we are far from reaching.

“That means, if you divide by 20, we need 33,200 new homes each year to match the numbers they are predicting are needed for Sydney.

“Last financial year, the number that were actually completed for Sydney was 27,348. We have been nearly 6,000 homes less than the

SYDNEY POPULATION GROWTH

average we need – and this is in boom times.”

However, like Eyndhoven, Johnson disagrees with Driscoll, saying he also believes there has been a fundamental shift towards apartment living.

“What’s been happening in Sydney over the last few years is a big swing towards apartment living. As Sydney becomes a much more cosmopolitan, global city like London, New York and Paris, there will be a lot more renters coming into the market.”

Johnson says it is in part driven by access to jobs and urbanisation, but also a change in Australian demographics as the population ages.

“A lot of people who have now reached retirement age, having stopped work and the buzz of work, find that they don’t quite get the stimulation in a quiet suburban street.

“They can downsize and move to somewhere that is more urban and more bustling. It also might free up some money for their children to get into the housing market, and it might free up a bit of money for them to travel,” he tells Australian Broker.

HOUSING SYDNEY’S POPULATION

2,338,100 2,190,300 housing shortage close to the CBD, I can see that units will be much more popular, even for families.”

She says the worst-case scenario is that Sydney may experience a price slowdown.

“There is more noise [from my clients] about the values not being what the valuers predict,” she says.

“I have an investor client who has purchased off the plan in Zetland and is concerned that when it settles late this year it may not be worth what she paid for it. The developer has sold that property at a value predicting growth to increase at the same level in 2016 as it did in 2015, and that may not be the case.”

As a result of this price slowdown – and fear of oversupply – many lenders have recently announced restrictions on high-density apartment lending in certain postcodes. However, Eyndhoven says brokers shouldn’t be alarmed, but rather they should see the situation as an opportunity for them to better service their clients. “… we have noticed a few clients that we have had to move lenders, as a particular lender is ‘overexposed’ in that Sydney building. This has been a simple case of changing lender and not directly affected the client’s investment strategy.

“Banks all have their own risk appetite and their own areas where they may see growth pulling back. I think with over half of the clients investing seeking the experience of a mortgage broker to do the work for them, the client will see no impact at the end of the day.

“Mortgage brokers will need to do a little more

2,003,100

1,875,700 1,673,800

1,566,450

2011

2021

2031

1.7%

Average annual growth

Source: NSW Department of Planning & Environment

2011

2021

2031

664,300 New homes needed from 2011 to 2031

Source: NSW Department of Planning & Environment

16

COVER STORY CUTTING THROUGH THE NOISE Customers are more informed about the property market than ever before, but this is not necessarily a bad thing for brokers, according to Mark Woolnough. He tells Australian Broker how through periods of rapid change come immense possibilities

THE AUSTRALIAN property market is the nation’s biggest industry. Australia also has the highest mortgage debt of any country in the world. The old Aussie ‘dream’ of owning one’s own home is alive and well, continuing to ring true across multiple generations and remaining unchallenged by a changing economic and technological landscape.

Mortgage brokers are well aware of the intense desire of Australians to own their own homes, having been in a prime position to leverage off of the market’s appeal since the 1990s. But those who don’t work in the property industry only have to take one look at ING DIRECT’s Autumn 2016 Buyer’s Guide to get a clear understanding of just how valuable and popular the housing market really is.

Currently, its estimated worth is $6.5trn, which is “almost three times the value of Australia’s combined superannuation funds, just over four times the overall market capitalisation of stocks traded on the Australian Securities Exchange (ASX) and roughly four times greater than the nation’s economic output over the past year”, says the report.

But the question is: what is it about owning a home that is so unwaveringly appealing, and is the ever-growing focus on brokers as the mortgage distribution channel of choice sustainable?

Owning a home is an achievement Mark Woolnough, head of third party distribution at ING DIRECT, thinks the appeal of owning a home comes down to two things: pride and financial safety.

“There’s a great amount of pride in, you know, ‘this is my house, this is my property’. It’s something quite tangible [that] you can show, and I think, growing up, the Australian psyche was to … save your deposit, buy a property, buy it off; and that extended out to save, buy, pay off, and then continue to invest. And that’s why

MAKING IT RAIN

$314.7m

BRANDED MORTGAGES BOOMING

ING DIRECT Australia’s net profit after tax, year ending 31 December 2015 – a 6% increase on the previous year Source: ING DIRECT

10.8%

ING DIRECT’s growth in branded mortgages, year ending 31 December 2015 Source: ING DIRECT

“I think customers are demanding more and more of their adviser, whether that be a financial adviser, a broker, or an accountant, to have a much broader understanding of the financial services landscape” there’s still this fascination with Australians to keep buying investment properties – [it’s] seen as less risky than some of the other asset classes out there. I think that will continue,” he tells Australian Broker.

However, there’s no denying that when a market booms, so does the value of its assets, and there has perhaps never been a better example of ‘squeezing out the little guy’ than the current state of the Australian property market.

Woolnough agrees that affordability is tough, especially for first home buyers, but thinks this isn’t deterring Australians in the slightest from buying a home.

“It’s made it harder,” Woolnough said, “but

young Australians still dream of owning their own home; they just know that it’s going to be a bit more of a challenge and it may come at a later time in life. That’s why a lot of them are taking the step of being first home buyers as investors rather than first home buyers as owner-occupiers.”

For brokers, though, the problems faced by borrowers – tough competition and high property prices – are positives through and through. But with the property market undoubtedly cooling, Woolnough believes it’s important, now more than ever, for brokers to look after their existing customer base. In particular, he believes that refinancers are

17

the borrower segment that will benefit the most from the current state of the market, and therefore brokers should turn their attention to servicing this particular clientele.

“If you look at the various segments, it’s a great time for brokers and their customers that may potentially want to upgrade, that may want to renovate. There’s a very low cash rate environment and they’ve built up some equity. And you’ll see there’s so much competition in the markets.

“The other opportunity for brokers is around working with customers to utilise the equity they’ve built up in their property to build for their future,” said Woolnough.

‘Help me when I need help’ Brokers can’t deny the fact that customers have changed, not only over the past few decades but even over the past few years. As a result of the Web and the technology boom, they are more informed than ever, but rather than this decreasing customer demand for personalised service, Woolnough believes it is having the opposite effect.

He suggests that by virtue of the fact that there is more information out there than ever before, much of it conflicting, customers are actually craving for someone to cut through the noise and overwhelm, and guide them to the answer that is right for them.

“I think customers are demanding more and more of their adviser – whether that be a financial adviser, a broker, or an accountant – to have a much broader understanding of the financial services landscape,” he says.

“When we go online and we do our own education and our own research, more information comes to us, so potentially if you find a trusted third-party partner … that can help you on a number of

components of the transaction, I think that’s quite positive.”

So, rather than brokers looking at the changing environment as a threat, they should look at it as an opportunity – in fact, it is the biggest opportunity for brokers in the current market, according to Woolnough.

He says that amid all this change, driven by the banks, the government and regulators, not to mention the fact that the nation is going through an election period, consumers are seeking reassurance.

“That validation or endorsement in times like this is actually increasing because they’re just not quite sure. Things are changing so rapidly. They’re seeing more, they’re hearing more, whether through family, friends, social media.

They’ll always value an experienced, reliable voice of reason from the broker or accountant or planner community to help them navigate through that change,” Woolnough said.

Now would be the time, he suggests, for brokers to ramp up their attentiveness to their existing customers, and show their value in demystifying the complexities of the current market environment.

“I think it’s important that there’s the conversation. It’s important that there’s awareness. I think it’s important for brokers to go through their portfolio of customers … keep talking to the customers and keep them abreast and explain to the consumers what this conversation or what these headlines mean, and to help them understand and to potentially help them through it when it gets to settlement.”

After all, showing their value in this way, and being a part of an ongoing relationship before, during and after settlement, is what will ultimately ensure the popularity of brokers now and into the future.

FROM CENTENNIAL PARK TO PEPPERMINT GROVE

Capital cities’ most expensive and affordable suburbs

SYDNEY

MELBOURNE

Centennial park $6.3m

Toorak $3.3m

Airds (Campbelltown) $397,448

Melton $260,000

DARWIN

PERTH

Larrakeyah $1.2m

Peppermint Grove $3.5m

Moulden $470,000

Medina $280,000 Source: ING DIRECT

18

SPECIAL REPORT

A FOCUS ON ONGOING LEARNING Choice strives to create a calendar of events that surpasses member expectations every year. Program highlights include: Platinum Achievers Breakaway Recognising the achievements of Choice’s highest-performing members, the annual Platinum Achievers conference is a unique combination of business development and networking, encouraging new ways of achieving business success.

Top Group Summit This event brings together the topperforming member principals for two days of networking and business sessions.

Attendees are given the chance to share strategies, network and gain insights from other top-performing businesses.

Business development days Held in two rounds across five states, these events provide Choice members with updates and the latest industry trends and insights from key industry speakers.

Lender Expo This is one of the best opportunities for Choice members to network with other members and lenders. Held across five states, the Lender Expos are attended by over 600 members nationally.

Platinum Dinner An exclusive state-based dinner series in which high-performing members have a chance to connect with Platinum sponsors to develop relationships and discuss industry trends and developments.

Commercial BD days The popular Commercial day has seen a 50% increase in broker attendance yearon-year, highlighting the rapid growth in this segment and the need for member support.

Peer-to-peer training Choice’s peer-to-peer learning program is a cornerstone of its support and service offering to brokers. Partnership managers organise and facilitate regular group learning sessions across the country, allowing brokers in each area to share experiences, get advice on obstacles faced in their business, and improve sales and operational strategies.

CO-OPETITION, NOT COMPETITION You’re never too old or too experienced to learn, according to Choice Aggregation’s chief executive Stephen Moore. He tells Australian Broker why

A DEDICATION to recruitment has been one of Choice Aggregation’s key growth strategies in the past few years. Currently tracking at year-on-year settlement growth of 22%, some or perhaps much of the aggregator’s boost can be attributed to broker recruitment, according to chief executive Stephen Moore.

“Last year, we put on 322 brokers… and we’re on track to do another 300-odd this year as well.

We’ve put on nearly 160 in the year to date,” he says. However, Moore is referring to a specific type of broker.

“The more we’ve done in the recruitment space, the more we’ve been very deliberate on the types of brokers we recruit. We’re deliberately recruiting more high-performing brokers… those brokers who are looking for high support.”

And this is where Choice’s training and education comes into play, because Moore believes there is no doubt that there is a direct correlation between the brokers he speaks of – those who are extremely successful – and the

amount of training they have undertaken.

“What we find at Choice is that it isn’t just new-to-industry or new-to-broking brokers who are focused on training and education.

Many of our top-performing brokers prioritise professional development because they recognise how important it is. And some of the most successful brokers within our network are those who have committed to ongoing learning on a long-term basis,” he explains. However, this isn’t learning in the traditional sense of the word.

“It’s important to point out that this isn’t always ‘formal’ learning – it’s also about having an open mind and looking for opportunities to learn from others. Often the most powerful way to learn is from your peers, and some of our top-performing brokers spend a lot of time learning from each other.”

A perfect example of this is the aggregator’s Top Group Summit, which brings together the top-performing member principals across Choice’s network for two days of networking and

19

business sessions. Attendees are given a unique opportunity to share strategies, network and gain insight from other top-performing businesses, and Moore says brokers find this invaluable.

“You’re never too good to learn,” he says.

Moore believes that Choice’s point of difference lies in its support model.

“We are the most comprehensive support model in the marketplace because of the franchise, the wholesale and everything in between, including transitions across that.

And it’s the level of sophistication of the support that we then provide to members.”

Moore says the Choice model is a proven one, and their style of education is unique.

“I’d use the term ‘learning’ rather than ‘education’,” says Moore. “Education normally denotes a standard you need to get to and that’s it, as opposed to learning. In fact, I think a trap in any business – and broking is no different, especially in an industry that’s evolving – is if you think you then know it all, that’s when you’ll fail. You’ve got to continue to keep learning, looking at other industries, learning from others, which is a key part of what Choice is about.”

Learning by sharing, or peer-to-peer learning, is how Moore describes the culture within Choice.

“I guarantee you that if we share knowledge, we will improve, and the beauty with Choice is this overwhelming willingness to share expertise with others, and that is enormously valuable because everyone then grows.”

In 2015, Choice led over 100 events nationally to help support broker business development, with each Choice event segmented to focus on a specific skill that brokers need. This ranged from business development days to lender expos showcasing new lender offerings and Partner Plus workshops providing one-one-one coaching to help brokers actively build their businesses.

Moore tells Australian Broker that this targeted approach to professional development is “absolutely resonating” with brokers, as it allows them to focus on each issue in depth rather than cover several issues in a brief amount of time.

“It’s the learning from others who’ve experienced it that we’re finding is just far more valuable for brokers,” says Moore. “Experiential learning is far more valuable, we know that, and that’s just not about broking, it’s full stop.

[Listening] to someone [who] was an expert five years ago and now they’re just a professional speaker, you get a little bit of a thin veneer, but if you’ve spent time with someone who’s lived and breathed it and there’s lessons learnt… it just means you accelerate the progress quicker as a business.”

The result of this style of learning, he adds, is increased productivity.

“Broker productivity with Choice is up 17% year-on-year. So that’s a proof point in the value of peer-to-peer learning,” he says.

It seems that most brokers are hungry to learn, as well as for opportunities to take

MORE BROKERS, BETTER OUTPUT

1,300 17% Number of members of Choice Aggregation

Year-on-year broker productivity growth within Choice Source: Choice Aggregation

Stephen Moore, CEO, Choice Aggregation

“Often the most powerful way to learn is from your peers, and some of our top-performing brokers spend a lot of time learning from each other” their business to the next level.

Moore agrees. “They recognise that ongoing training and development are essential to that.

The feedback we receive from our brokers is that they find our training and development program invaluable, and it is a part of our offering that brokers rate particularly highly. This is reflected in our broker net promoter score – or customer loyalty metric– of +32,” he says. “The biggest challenge for brokers is usually finding the time to invest in training and education, but it’s important to find an approach that works

because you can’t afford not to,” he says.

When probed about why he thinks it is so important for aggregators to focus on training, and further, why it’s so important for brokers to undertake more learning, Moore says it comes down to two things: responsibility and expectations.

“We’re now beyond a significant milestone and the turning point was when the broker share of home lending hit 50%. Now it’s a psychological milestone in that more than half of all home lending now goes through brokers,” Moore said. “What that comes with is increased responsibility… As our industry transitions from underdog to a position of leadership, standards are rising and competition is intensifying. Above all, borrower expectations are increasing. In this context, professional development is more important than ever and brokers need to partner with an aggregator that supports them to develop and grow,” he said.

Something the aggregator clearly prides itself on more than anything else is so significant that Choice made it a part of its branding: “Better advice through better listening”. Moore believes this is Choice’s core proposition, and that its commitment to tailoring its advice to the individual rather than having a ‘one size fits all’ approach is what will ultimately serve brokers, and the aggregator’s growing market share.

“We believe Choice is unique in the market because of the value it puts on listening to its brokers and providing them with advice and support that is tailored to their individual business needs,” he says. “It is so easy to generalise. We don’t do that. We spend time to really understand the individual’s needs, and that means proper active listening.”

Training, education, learning and development are fundamental to Choice, and its policy is proudly one of collaboration.

“It comes back to the culture of a business… [to] defy the long-held logic, people compete therefore they won’t share. Well, no. If people do share, everyone grows, everyone benefits,” he says. “Competition becomes co-opetition.

It’s a better way of doing it.”

20

INDUSTRY SPOTLIGHT GROWING WITH YOUR CLIENTS Cory Bannister of La Trobe Financial explains how brokers can future-proof their business by looking at their clients’ changing life stages as opportunities

ANY BROKER will tell you that their biggest selling point is their relationship-focused proposition. Consumers are switching from bank branches and online lenders to brokers in droves, not only to get access to a wider range of credit products, but to get that hands-on, personalised service that only an unbiased third party can provide. From a mortgage broker, consumers not only get a loan, they get personal advice and reassurance – they get a relationship.

According to the MFAA’s industry-first Observations on the Value of Mortgage Broking report released last year, two in five (38%) of consumers indicated that brokers are better able to match a product to your needs by providing a more personable service. This is more than double the 18% who said going direct to a branch provided a more individual service.

Further to that point, 92% of consumers surveyed said they were ‘very’ or ‘fairly’ satisfied with the process of arranging their recent mortgage through a mortgage broker. Clearly, mortgage brokers aren’t just facilitators of loan products, they are trusted financial advisers.

But whilst it is indisputable that mortgage brokers will build the relationship that naturally develops with their clients, how far into the future are brokers looking, and how many are considering their customers’ lifestyle and lifecycle?

According to Cory Bannister, VP chief lending officer of La Trobe Financial, customer lifecycle management should be the new focus for mortgage and finance brokers, if they really want to deepen and solidify their customer relationships. It is also a foolproof way of diversifying their business in that it is simply leveraging the relationship-building skills that brokers already have.

“We believe the key factor for finance broker businesses to consider now is their Customer Lifecycle Management (CLM) strategy, as this is the key to building a sustainable business over the long term,” Bannister told Australian Broker.

He defines a customer lifecycle as the “progression of stages” a customer moves through from the initial consideration to use your products and services, to conversion, and finally, post-conversion – and how they move through these stages in the different chapters of their life.

Bridging the affordability gap To help brokers better service their clients’ lifecyles, La Trobe has developed its unique Parent-to-Child (P2C) loan and Aged Care loan.

“We encourage brokers to think about their customers and consider whether they are actively catering for their customer’s full lifecycle of needs,” Bannister said. “If not, now is the time

to act, or risk losing your customers to someone who can.

“At La Trobe Financial, we are focused on the strategy of retention, which for us, is to be able to cater for more clients’ needs over their life’s journey.”

The P2C loan, said Bannister, formalises the parent-to-child mortgage to address the affordability issue facing many young Australians looking to enter the property market. Recent figures released by the Real Estate Institute of Australia (REIA) show first home buyers make up just 14.6% of the owner-occupier market, the lowest level since 2004, despite national housing affordability improving to its best levels since 2013.

The P2C loan tries to partly remedy this problem, by allowing the child to involve their parents in their property purchase without the need for onerous bank guarantees, which can put parents at risk. It formally documents the assistance, registers a mortgage on the security property, and then manages the parent’s assistance to ensure it is repaid in accordance with agreed terms.

“Property purchases are now increasingly made with parental support due to the welldocumented ‘affordability gap’ in Australia,” Bannister told Australian Broker.

“Parents historically have not formalised such

21

support and prefer to gift monies, however this leaves the gifted monies at risk in the event of a subsequent marital dispute or separation as a gift is not repayable.”

The real take-out for brokers and their clients, however, is that the borrower – the child – can save thousands on LMI premiums if they are looking to borrow more than 80% of the property’s value.

Assisting ageing customers At the other end of the lifecycle spectrum, La Trobe’s Aged Care Loan is designed to help elderly Australians moving into aged care facilities to cover the deposit required by the facility to move in. Known as the Refundable Accommodation Deposit (RAD), it can commonly exceed $500,000.

According to La Trobe, approximately $3bn per annum is already required to fund individuals moving into aged care facilities.

“Aged care rules are unusual and complex, so trying to make standard mortgage and reverse mortgage products fit this sector hasn’t always produced the best outcome for customers,” said Bannister. “Tailored products and the ability to speak directly with an underwriter are a great leap forward for the customers and their advisers.”

Whilst the Aged Care Loan serves many

benefits for clients – both financial and emotional – Bannister said it is also largely untapped by brokers, offering them a major opportunity to diversify their offering and build a more complete relationship with clients.

“As the market becomes more educated and compares the different outcomes under different home ownership scenarios, there will be a clear bias to retaining the Cory Bannister, VP chief lending officer, La Trobe Financial home during entry to aged care,” he said. “This sector is growing they are naturally good at – relationships – to and will balloon to $10 billion of required diversify their business and increase their value funding in the years to come. This is an everto the customer. growing market.”

“Providing solutions for the customer’s But aside from the obvious appeal of these two lifecycle will not only create additional revenue unique products, at the end of the day, according opportunities, but it will enable you to really to Bannister, it comes down to two things – showcase your abilities as a true finance relationships and business – and the two are not professional, recognising opportunities before mutually exclusive in the world of a broker. He the customer even has to ask. Now that’s making suggests brokers should be leveraging something a difference.”

v

FINANCING EVERY LIFE STAGE

1

Getting onto the property ladder Purchasing the first home Full-doc residential home loan

2

3

Building a career Credit to start a business Lite-doc residential loan

Getting hitched Cash out for the wedding and honeymoon Full-doc residential home loan

4

5

Having children Upgrading the family home Lite-doc residential loan

Settling down Building a family home Residential construction loan

7

Growing old Moving into an aged care facility Aged Care loan

6

Building wealth Purchasing business premises SMSF commercial

Purchasing investment property SMSF residential Investing in property development Development finance

22

MARKET WRAP MARKET TALK

REINSW LOBBIES FOR FIRST HOME BUYERS One of NSW’s peak real estate bodies believes the state government should be doing more to address affordability issues faced by first home buyers

THE REAL Estate Institute of New South Wales (REINSW) believes the Baird Government should “put the interests of first home buyers at the top of its agenda”. It has called for both a 50% reduction in stamp duty on the purchase of a residential property for less than $1m, and providing for the ability to pay the stamp duty over time.

“Home ownership is not only something that individuals should aspire to; it is also something that government should foster and encourage as a means of building wealth and providing for a person’s care post-employment,” REINSW president John Cunningham said.

“Not supporting first home buyers is, to say the least, short-sighted and creates the risk that our best and brightest will be enticed to other states where the dream of home ownership can be a reality,” he said.

Further strengthening Cunningham’s concerns, new data released by CoreLogic shows that national wages are growing at their slowest pace in almost 20 years, and this is having the most profound effect on first home buyers.

Nationally, between December 2008 and March 2016, wages have increased by 23.4%, while home values have increased by 51.7% across

the combined capital cities. As expected, this is particularly noticeable in NSW and Victoria.

House prices in Sydney have grown by 80.2% over the period while wages in NSW have increased by just 23%. In Melbourne, home values are up 67.8% while wages in Victoria are up just 23.6%.

“While lending to owner-occupier first home buyers has fallen, lending to investors and subsequent buyers has increased in most states and territories, with substantial rises in NSW and Vic,” said CoreLogic research analyst Cameron Kusher.

“Those that do not yet own a property will struggle to compete with investors and upgraders who have been active in the market and where significant equity has been acquired.”

However, despite the difficulties evidently facing first home buyers, others believe the borrower segment simply need to temper their expectations, bringing it back to a generational mindset issue.

“The younger generations tend to have this perception that they can get the greatest and the best when they buy their first property, and they just need to scale their expectations,” said Rich Harvey, CEO of PropertyBuyer.com.au.

“You can’t always buy the most brilliant, beautifully laid out house with the perfect floor plan for your first home because that will be unaffordable. It’s a question of compromise and getting your foot on the first rung of the property ladder and then moving up from there,” Harvey said. He added that coverage of record price growth in markets such as Sydney and Melbourne distorted people’s view of prices elsewhere.

“The median house price in Sydney is $1m and it’s around $750,000 in Melbourne, and that definitely creates a perception that property is expensive everywhere, but there’s lots of options.”

Harvey suggested Newcastle and Wollongong as examples of “satellite suburbs north and south” of Sydney – they are located 161km and 83km respectively from the Sydney CBD. He also thinks lowering stamp duty for all property buyers and not just for first home buyers is a better solution than what REINSW is suggesting.

“If you had lower stamp duty, then the older generation may consider downsizing and putting up older housing stock for sale and presenting more options for people to buy.”

INVESTORS BOUNCE BACK

HOUSING WITHIN REACH?

Investors as a proportion of all new mortgage commitments 50 40

$580,000

30 20

Median combined capital city dwelling price as of May 2016 Source: CoreLogic

10

42.9%

47.6%

0 NOVEMBER 2015

MARCH 2016

Source: CoreLogic

23

‘NO’ TO NEGATIVE GEARING

While the REIA believes stamp duty should be addressed in the battle of housing affordability, it has publicly opposed the Labor Party’s campaign to restrict negative gearing to new builds only and reduce the capital gains tax discount to 25%.

In support of Labor’s proposal, a national alliance of community housing and welfare groups is campaigning the government to abolish “unfair” negative gearing and put housing affordability at the centre of this federal election.

The alliance – made up of Homelessness Australia, National Shelter, the Community Housing Industry Association and the Australian Council of Social Service (ACOSS) – has created a petition calling for tax reforms that “put ordinary people ahead of the interests of investors”.

“Australia is in the midst of a housing crisis and current tax policy has fuelled Australian housing prices to record and unaffordable levels,” said ACOSS CEO Cassandra Goldie.

“Tax settings that encourage speculative investment and inflate house prices – like negative gearing and the capital gains tax discount – must be addressed in a new national strategy to address housing affordability.”

She said these “unfair tax concessions” cost the federal budget more than $7bn every year, with over half of these tax breaks going to investors in the top 10% of income earners.

The petition is arguing that the savings from binning negative gearing could be redirected to improve affordability, including a tax rebate for new affordable housing, and significantly increased investment in public and community housing.

However, a number of the real estate industry’s leading voices have criticised the proposed changes to the tax break and claimed they would do little to improve affordability.

“There’s the risk in itself. [If ] you take the confidence away from these investors who are in this space, then you’ll be left with a bigger problem of slowing GDP, less construction jobs, less service jobs, less retail jobs, because the reality is it’s all part of a broader interwoven economy,” Property Investment Professionals of Australia chair Ben Kinglsey said.

“These claims of boosting the economy and investors are going to do everything for a tax benefit are just false.”

24

MARKET WRAP CAPITAL GAINS TAX WITHHOLDING PAYMENT REGIME TO IMPACT LENDERS

FINANCIAL SERVICES

ABA VS. THE GREENS The Australian Bankers’ Association has fought back over the Greens’ call to break up Australia’s banking oligopoly ACCORDING TO a report by Asia Pacific Banking & Finance (AB+F), the Greens have not only called for a Royal Commission into the banking sector following Labor’s lead, but also for the break up of Australia’s major banks.

The Greens’ statement has been met by heavy criticism by the Australian Bankers’ Association (ABA), which has since called on the Australian Labor Party to pledge its support.

Chief executive of the ABA, Steven Münchenberg, has released a response to the press, saying Australia has some of the strongest banks in the world.

“Out of the top 100 banks globally, our major banks are in the small group of only 11 which have earned the high Standard and Poor’s rating of AA-,” the release said. “This means that, even in times of global uncertainty and market volatility, Australia’s major banks are still able to raise the money needed from overseas investors to fund the Australian economy and meet the financial needs of businesses and households.”

Under the Greens’ policy, the statement added, this major economic advantage would be lost, which could trigger an economic downturn.

Münchenberg has called on the ALP to explicitly rule out adopting the Greens’ policy.

“Given the economic recklessness of the Greens’

policy, the Leader of the Opposition needs to specifically rule out following the Greens’ proposal to break up or restructure the major banks,” Münchenberg said.

“The Greens’ policy is bad policy at any time, let alone when global markets and economic growth remain so uncertain.”

However, the Greens’ spokesperson for finance, Senator Peter Whish-Wilson, said that the ABA is in denial about the problems with the verticallyintegrated banking model and the risks associated with market concentration.

“The ABA’s hysterical reaction to the Greens’ policy disregards the impact that the verticallyintegrated system has had on ordinary people’s lives,” Whish-Wilson told AB+F. “Tens of thousands of Australians have been affected by scandals in the financial advice arms of the big banks. At the heart of these scandals are the conflicts of interest in the verticallyintegrated model.”

“The ABA also seems to be suggesting that government overlook the warnings contained in the Murray financial system inquiry (FSI) – that high concentration and trends towards increasing vertical integration in some sectors of the financial system have the potential to limit the benefits of competition in the future.”

From 1 July, 2016, all purchasers of Australian real estate must withhold and remit to the ATO 10% of the purchase price if the vendor is a foreign resident, subject to a few exemptions.

According to an article by Jon Denovan, Elise Ivory and Cameron Steele at Sydneybased law firm Gadens, the new rules sound simple, however the new regime works on the presumption that all vendors are foreign residents until proven otherwise, and extends to indirect foreign ownership of real estate.

The key exemptions relevant to real estate sales, they say, are real estate with a market value of less than $2 million; and if the vendor obtains a clearance certificate from the ATO (the ATO promises an automated process).

If no exemptions are available, however, the Commissioner of Taxation may vary the withholding amount, or reduce it to nil.

There is an impact on mortgagees, however the article stresses that the risks only apply when the market value of the real estate is $2 million or more.

Financing a borrower is the first area lenders and brokers should be aware of, say Gadens.

“Incoming mortgagees face no immediate problems as there is no provision imposing a charge on the land if your mortgagor fails to deduct 10% when it purchases the property,” the article says. “However, the mortgagor may be pursued by the ATO for the 10% not deducted. If the mortgagor is directly or indirectly foreign owned, mortgagees will need to take account of the risk of a withholding on eventual sale.”

For outgoing mortgagees, a mortgagee or lender hoping to receive 100% of the net sale proceeds could receive only 90% of the net proceeds if a purchaser decides to withhold 10%. The risk can, however, be addressed by provisions in the sale contract, for example by ensuring a clearance certificate is provided. Lenders can also elect not to release their security unless they receive the amount of money they stipulate.

The article by Gadens warns that indirect foreign ownership of a vendor may trigger the obligation to withhold the 10% levy, and that the withholding applies to all types of real estate transactions, including company title and options.

Denovan, Ivory and Steele suggest that when taking out a mortgage for property valued at over $2 million, brokers should check that the vendor to their customer is not a foreign entity so there is no ‘surprise’ liability on your customer to withhold 10%.

One way to do this, they add, is to always require a clearance certificate from the ATO. In addition, if financing customers with foreign ownership, find out how the withholding will apply to net sale proceeds on re-sale.

26

TECH FOCUS BUILDING A LOYAL FOLLOWING

Consumers are more likely to trust a brand if:

52% It interacts in a positive way on social media

51% 52%

Content is regularly updated

They find the content posted engaging and relevant Source: Sensis

BUSINESSES’ FAVOURITE SOCIAL CHANNEL

80% of SMEs spend their advertising dollars on Facebook

90% of large businesses spend their advertising dollars on Facebook Source: Sensis

SOCIAL MEDIA BRINGS MORE LEADS?

62%

of small businesses believe social media investment will contribute to an increase in sales Source: Sensis

SMES ON BOARD WITH SOCIAL MEDIA Sensis has released the number of businesses with a social media presence, and the findings indicate SMEs are rapidly jumping on board to grow their businesses ACCORDING TO Sensis’ 2016 Social Media Report, the percentage of small and medium enterprises (SMEs) with a social media presence has grown from 31% to 48% and from 56% to 79% for large businesses.

The study surveyed 800 Australian consumers and 1,100 Australian businesses and found the gap was narrowing between businesses with a Facebook presence (89% of small, 79% of medium, and 89% of large businesses) and consumers on social media on the platform (95%).

Sensis general manager digital Alice Mentiplay said it showed businesses were maturing in their adoption of social media strategies, however SMEs still had some way to go as only around a third had a plan compared to approximately three quarters of large businesses.

“We know through our research that consumers are spending more time on social media, with 57% of people accessing social media every day or most days, and 26% of people checking social media up to five times per day,” she said.

“Capturing their attention, whether it

be through advertising, organic posts, discounts or give aways are all valid, however, it is important businesses have a strategy first and understand the return on investment they are seeking.

“Knowing your audience is critical – the report found 18-29-year-olds are most likely to use visual platforms such as Facebook, Instagram and Snapchat, while 40-49-year-olds primarily use Facebook, LinkedIn and Instagram.

“The obvious opportunity is for SMEs to increase their presence on social media in order to reach their audience and increase sales, however they have to be smart about it and ensure the content is relevant, up to date and targeted,” said Mentiplay.

“Developing a social media strategy is one thing, having someone to execute it who knows your brand is another, and this year we are seeing more businesses bring that function in-house,” said Mentiplay.

“Utilising tools to assist with scheduling your posts is important, especially when you consider the most popular times of day to access social media are in the evening and early in the morning – well outside the 9 to 5 work day.”

27

CONSUMER INSIGHTS YOUNGER GENERATIONS UNINTERESTED IN FINANCIAL ADVICE Nearly one in four people over 45 are planning on working until the age of 70 or higher, and Yellow Brick Road believes this is a result of the lack of financial advice being sought in youth and middle age FINANCIAL CONFIDENCE DROPPING

52%

45%

Ratio of consumers who said they were confident with their finances 2013 2015

Source: RaboDirect

BEING HAPPY IS BEING IN CONTROL

People who are completely happy with life are

1. 4 times

more likely to feel in control of their finances Source: RaboDirect

THE AUSTRALIAN Bureau of Statistics (ABS) recently released figures that indicate Australians aged 45 years and over are intending to work longer than ever before. In the survey conducted in 2014-15, results revealed 71% of people are intending to retire at the age of 65 years or over, up from 66% in the 2012-13 survey and 48% in 2004-05.

“The survey found that 23% of the persons aged 45 years and over are intending to retire at the age of 70 years or over compared with only eight per cent in 200405,” said Jennifer Humphrys from the ABS. “The majority of Australians intend to retire between 65-69 years, but the results show that now over a quarter of males 45 years and over plan to work past 70 years.”

The survey commenced a few months after the government announced changes to the current qualification age for the Age Pension.

For those in the labour force who intended to retire, the most common factors influencing their decision were ‘financial security’ and ‘personal health or physical abilities’.

Following these results, Yellow Brick Road has released a new financial planning survey, revealing that of the 1,000 people who were surveyed, only 22% of respondents said they have used a financial adviser and 40% of those were 55 years of age and over and preparing for retirement.

According to the results, the reasons people gave for not using a financial adviser earlier in life included the belief that they don’t need one (63%), the cost involved (34%), reputational worries (15%), the perception that advisers are only for the wealthy (14%) and embarrassment over the state of their finances (12%).

“Too many Australians are relying on government welfare because their superannuation, annuity,

dividends, interest or rental property income isn’t lasting the distance in retirement,” said Yellow Brick Road spokesperson Lyndsey Douglas. “If you’re only just getting financial advice when you’re close to retirement, there’s significantly less that can be done to make your savings stretch further. The real advantages in having a planner come if you start earlier in life.”

ABS data shows that almost two-thirds of Australian retirees are relying on government welfare as their main source of personal income. While half of Australians were independently funded when they first retired, this proportion drops significantly as time passes and funds dry up.

Furthermore, women make up 70% of pensioners and are at a much higher risk than men of running out of money due to longer life spans.

“We are on the verge of a national epidemic of ‘pensioner poverty’ thanks to a large percentage of people having too little to sustain lengthening life spans. The younger generations don’t grasp the benefits of building wealth early on and that time and compound interest are a powerful pair when it comes to creating a comfortable retirement. Providing opportunities for young people to get financial advice and make smart financial decisions in their early years can set them up for success the rest of their lives,” Douglas said.

She added that the reputation for the financial services industry as not traditionally providing simple, trustworthy and affordable financial advice, is what is holding a lot of people back from seeking financial advice.

Older generations said their catalyst for getting an adviser was their proximity to retirement, whereas younger generations were motivated by buying property and investing in the share market.

TERM DEPOSITS STILL AUSSIES’ FAVOURITE INVESTMENT STRATEGY The BT Australian Financial Health Index has revealed that the most popular investment following a windfall is term deposits and/or high interest accounts, with 40% of Australians saying this would be where they’d place the unexpected income.

These are followed equally by investing in property and putting it towards travel or a holiday (both 34%).

Just over one in four say they hold shares, while a similar proportion doesn’t hold any investments at all.

Share ownership is particularly low for under-45s, at 26% for 35-44-year-olds, 18% for 25-34-year-olds and only 15% for 18-24-year-olds. Across all three age groups, one in five Australians own shares.

Similarly, approximately one in five Australians aged 25-64 hold investments in property.

For Australians aged under 35 years, however, property is the most popular investment strategy, with over half (54%) of those aged 25-34 saying they’d buy property following a sudden influx of money.

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PEOPLE BEGINNING THE JOURNEY Mark Winter shares his five tips for getting involved in your local community charities Get to know your local area You need to know what’s happening.

What other businesses are supporting the community? How many schools are in your area? What are the local charities? You need to know as much about your community as you do your clients, and you need to know what areas you want to support.

Be prepared to get your hands dirty If you don’t have the money to contribute, you have time. If you don’t have the time, you usually have money. Choose one as a starting point. You might be surprised how valuable donating your time can be.

Talk to the local rags Get in touch with your local papers and community radio stations – you can’t sell a secret. You need to put yourself out there and promote what you’re doing.

And it doesn’t have to cost money; if you’ve got a story to tell, a local journalist will usually listen.

KEEPING COMMUNITY FRONT OF MIND Loan Market broker Mark Winter was named Queensland Community Champion at the recent MFAA Excellence Awards. Australian Broker discovers why HEARING Mark Winter describe the myriad ways he has engaged with his community makes you wonder how he has time left for his own business – a multi-award-winning brokerage.

Having clocked 17 years in finance and 14 years as a broker, Winter is principal at Loan Market in Greater Springfield, a newly developed city 20km from Brisbane. This area is experiencing rapid growth and the number of families and young buyers moving there have not only substantially added to the brokerage’s client base of first home buyers and investors but also allowed Winter to form relationships with a large network of Springfield residents.

In fact, Winter has become such an integral part of the community that he has even had a street named after him.

“A little adage we have here is, ‘We might be small in number but we’re big in heart,’ he says.

“Starting out, I was always of the mind that if I ever made good money, I would give back.”

And he certainly has. Through his community program, Winter has hosted charity cricket

games, family fun days with local dance troupes, and brought a choir of Ugandan orphans out to Australia. He has also set up two rugby clubs in his local area over the years, and sponsors his local golf club.

“We promote ourselves through the local community,” Winter says. The brokerage gets involved either financially or by being present at the event, and this is not limited to just the Springfield locale; Winter and his team participate in charity projects internationally as well.

Winter is currently heading up a Loan Market group-wide initiative to build an orphanage in Fiji, and another broker in his team is working closely with an organisation called Empowering Cambodia, helping struggling communities to become self-sufficient. Both have visited their respective countries and seen first-hand the difference their time and efforts are making to the lives of individuals.

For brokers looking to become more community-focused but who may not know where to begin, Winter suggests the starting platform

Trust that it works As an industry, a lot of our business is word of mouth. It’s not just repeat business; it’s the people within the community who talk about us to their neighbours and friends.

You have got to be seen and you have to be known.

Be proud of getting involved Don’t shy away from recognition for your community work – the community will want to thank you. Remember, you aren’t in it for the accolades, but always appreciate those who recognise you. The relationship will benefit from it.

“A little adage we have here is, ‘We might be small in number but we’re big in heart’” can simply be sparing a few hours on weekends.

“When you first start out you don’t have the funds to help. Your most important asset is time.”

On the flip side, those who are strapped for time may be in a comfortable financial position and could offer support in a monetary capacity instead, Winter says. A few hundred dollars can make a massive difference, be it for a school, a church or a charity.

Looking ahead, plans for the next golf day – an event Winter has hosted annually for the past five years – are in the works. He also hopes to have the orphanage in Fiji in its foundational stages by the year’s end.

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CAUGHT ON CAMERA La Trobe Financial recently held a High Performance Workshop on building high-performance teams, discipline, passion and leadership. It was hosted by chief lending officer Cory Bannister, and keynote speakers included Collingwood Football Club’s senior coach Nathan Buckley, who spoke on leadership, and CEO Gary Pert, who shared his insights on brand, company values and building highperformance teams. Over 300 of Australia’s leading brokers attended the event.

La Trobe Financial has recently renewed its partnership with Collingwood until 2020.

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PEOPLE HOT SEAT

MHAIRI MACLEOD The founder of award-winning Astute Ability Finance on NSW’s Central Coast, Mhairi MacLeod, talks about the most inspiring broker she’s met and her biggest career challenge Who or what inspired you to become a broker?

While I was working in motor finance I felt I could provide a better service outside the confines of a car dealership. I wanted to help A customers with a broader range of products across a larger range of customers – not just cars, but equipment, earthmoving, home loans and technology finance. I was also encouraged by other finance professionals who recognised my passion and talent in this field.

At the time, and even now to a degree, the finance broking industry was male-dominated, and many competitors were convinced I would fail.

This, among other things, stirred me to succeed, and interestingly enough, some of those naysayers are no longer in business 18 years later.

Q

What is the hardest career challenge you have had to overcome as a broker?

The global financial crisis was the single biggest challenge I faced as A a business person. It taught me a lot about myself and how much I had in me to persevere during this period.

The biggest risk was to decide whether or not to keep the business open, as many, many other brokerages folded during this time. Banks also closed their broker channels, which limited the number of lending partners available for us to offer our clients.

Upon deciding to keep the business going, I restructured and re-evaluated which part of the business was the most profitable and time-efficient. This prompted me to sell off the home loan side of the business and concentrate on the original core business of asset finance – cars, trucks, trailers, bikes, etc. This type of finance is a lot less adminheavy than home loans, which allowed me to reduce the number of staff and level of overhead, which was unfortunate but necessary to stay afloat.

Q

Who is the most inspirational broker you have met in the industry and why?

Tracy Kearey, the director of Home Loan Connexion. We met during A the process of setting up MFAA’s WIMBN panel. Her constant drive and ambition to want to succeed and be the very best at what she does is incredible.

We have forged a great friendship based on mutual respect, and continue to be enthusiastic panel members of WIMBN. We both have a passion for our industry and educating young people via opportunities such as the Global Money Week initiative.

Q

What do you see as the biggest opportunity for brokers in 2016?

It would have to be embracing technology, such as social media A platforms like Facebook and LinkedIn, and also the ever-improving CRM software systems that are available.

I have found that the power of social media particularly, when harnessed in the right direction, can be a great tool to interact with my clients (current, previous and potential) and promote the business to generate leads. It’s also a great chance to share information with industry peers gleaned from panels like the recent MPA High Performance Summit.

Q

If you were elected as Australia’s prime minister tomorrow, what would be your first and top priority?

Support for small business and education, which goes hand in hand A with our industry in its current state. To move forward in our industry, these are the core elements that need to be supported.

Q

NOMINATIONS CLOSE 24 JUNE

Peita Davies Choice Home Loans Blue Mountains BROKER OF THE YEAR 2015 - INSURANCE (MORTGAGE PROTECTION AND LIFE)

FRIDAY 21 OCTOBER 2016 | THE STAR SYDNEY www.australianmortgageawards.com.au

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