NEWS It happened: Brexit How it will affect the mortgage industry P10
BEST PRACTICE Not just ‘word of mouth’ The other referral strategies brokers should be using P12
ANALYSIS Ease up, APRA? Is it time to reassess the speed limit? P16
JULY 2016 ISSUE 13.13
SPECIAL REPORT Passing the torch
Nurturing the next generation P18
MARKET TALK Foreign investors hit with more levies Real estate lobbyists up in arms P24
DEANNA EZZY Trilogy Funding’s top broker on educating investor clients on the volatility of industry regulation P14
CONSUMER INSIGHTS Addicted to debt
Australia has the world’s biggest household debt P26
BORROWER SNAPSHOT 2
NEWS
ASSOCIATIONS
REGULATIONS
LENDERS
WORLD
Hayden bows out P4
ASIC concerned about corporate culture P6
Another day, another disruptor P8
The impact of Brexit P10
v BORROWERS INCENTIVISED BY CAPITAL GROWTH MORE THAN NEED FOR SHELTER
EDITORIAL
Reasons borrowers want to buy a property
30%
BROKERNEWS.COM.AU Editor Madelin Tomelty News Editor Julia Corderoy Journalist Maya Breen
25%
Production Editors Roslyn Meredith Hayley Barnett
20% 15%
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
10%
SALES & MARKETING
Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan
5%
Human Resources Manager Julia Bookallil
EDITORIAL ENQUIRIES
0% Cheaper than To capture Need a place renting future capital to live growth MAY 2016
FEBRUARY 2016
Greater security
Newly formed family
NOVEMBER 2015
Take advantage of FHOG
To get tax advantage
Other factors
Source: Digital Finance Analytics
THE STATE OF AUSTRALIAN INVESTMENT CoreLogic’s national Profile of the Australian Residential Property Investor Report has been released, rounding up data on residential property investment across Australia, and quantifying investment-related activity. CoreLogic estimates there are 2.6 million investor-owned dwellings across Australia, worth approximately $1.37 trillion. Based on the most recent taxation data, there are 2.03 million individuals who indicated they owned a residential rental property, implying a very low concentration of investment (approximately 1.28 investment properties per investor). However, Martin North of Digital
Finance Analytics has stated online that to get an accurate overview of the investor market, you need to segment the investment sector itself, distinguishing between portfolio investors, who have multiple investment properties (an average of eight), and property investors, who have one or two properties. “Averaging across all property investors misses this important segmentation,” North stated in a blog online. According to the CoreLogic report, investor-owned dwellings comprise 26.9% of all housing stock, but only 23.8% of the value of all housing stock, highlighting that investment in the housing
market is generally across lower valuation segments compared with owner-occupied homes. Investment-owned dwellings, at 53.4%, have a current estimated market value of less than $500,000, compared with 46.9% of owneroccupied dwellings. In analysing house versus unit investment, the report has found heavy concentration within the unit sector, where investor owners comprise almost half (48%) of all attached housing. By contrast, detached housing ownership is more biased towards owneroccupiers, with investors accounting for a meagre 17% of all detached housing stock.
Madelin Tomelty +61 2 8437 4792 Madelin.Tomelty@keymedia.com.au
SUBSCRIPTION ENQUIRIES
tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au
ADVERTISING ENQUIRIES
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
HAYDEN BIDS FAREWELL TO MFAA The Mortgage and Finance Association of Australia (MFAA) has announced the resignation of Siobhan Hayden as its chief executive officer. The association’s board has accepted Hayden’s resignation effective immediately, and told Australian Broker the decision was based on “strategic differences” between the board and the CEO. Hayden was appointed as CEO in October 2014, replacing long-time CEO Phil Naylor. Hayden thanked the board for the opportunity, as well as the members “who are the lifeblood of this organisation”. “I’m proud of what I’ve achieved in the role and think the mortgage broking industry is well positioned into the future,” she said. The MFAA told Australian Broker the association will commence a search both internally and externally for a replacement CEO once the board has defined what they are looking for. The process will be a thorough and lengthy one, with a new replacement not expected to be announced until the end of the year. In the interim, the management of the association will be guided by the chief operations officer, Evan Thomas; the head of finance and HR, Stephen Bisgrove; and the head of marketing and communications, Stephen Hale. The group will continue to implement the framework set by the board in February 2016.
A rundown of the next fortnight’s events
JULY
6 What: FBAA National Tour Where: Park Hyatt Melbourne Details: Speakers at the Victorian PD day will discuss the differences in the market places, digital disruptions, and the FBAA’s top industry performers will share their knowledge about their road to success and how you can do it too.
Siobhan Hayden
JULY
8
WHAT THEY SAID...
John Flavell “If we do see APRA relax its lending restrictions… this would drive more investment activity, which could result in higher property prices” P16
Mario Rehayem “If we cannot invest in the young, then what future are we paving?” P18
Glenn Byres “Let’s call this for what it is – a cash grab from states prepared to play to the crowd on foreign investment and put at risk Australia’s reputation on the global stage” P22
What: FBAA National Tour Where: Hotel Grand Chancellor, Hobart Details: Speakers at the Tasmanian PD day will discuss the differences in the market places, digital disruptions, and the FBAA’s top industry performers will share their knowledge about their road to success and how you can do it too.
JULY
14 What: MFAA National Excellence Awards Where: Palladium at Crown, Melbourne Details: This evening is dedicated to honouring members of the association from all over the country who display exceptional practice in mortgage and finance.
REGULATORY ROUNDUP 6
ASIC has entered into an “innovation agreement” with the Monetary Authority of Singapore to facilitate cross-border fintech start-ups. The agreement will enable fintech businesses in Australia and Singapore to “establish initial discussions in each other’s market faster and receive advice on required licences, thus helping to reduce regulatory uncertainty and time to market”, a statement by ASIC said. It added that to qualify for the support offered under the agreement, businesses need to meet the eligibility criteria of their ‘home’ regulator. “Once referred by the regulator, and ahead of applying for a licence to operate in the new market, a dedicated team or contact person will help them to understand the regulatory framework in the market they wish to join, and how it applies to them,” the statement said. MAS chief fintech officer Sopnendu Mohanty said the agreement would help start-ups from both countries grow. “Singapore has a vibrant fintech ecosystem, reinforced by sound infrastructure and a growing talent pool, to support companies intending to use Singapore as a gateway to other markets in Asia,” Mohanty said. “MAS is also looking forward to partner ASIC in joint innovation projects on the application of key technologies, such as digital and mobile payments, blockchain and distributed ledgers, big data, and Application Programming Interfaces (APIs).” Greg Medcraft, ASIC chairman, said the Australian regulator is committed to encouraging innovation “that has the potential to benefit financial consumers and investors. Since ASIC launched its Innovation Hub last year, we have seen a surge in requests by fintech start-ups seeking assistance about how to navigate the regulatory requirements,” he said. “In particular, we have dealt with robo or digital advice, crowdsourced equity funding, payments, marketplace lending and blockchain business models. “It is very exciting to observe, and clearly some business ideas will want to scale up internationally. We believe this agreement with MAS will help break down barriers to entry both here and in Singapore,” concluded Medcraft.
DOES NEGATIVE GEARING REALLY HELP ‘MUM AND DAD’ INVESTORS?
Half of the tax break flows to the top 20% of households, according to The Australia Institute. Distribution of negative gearing benefits by household income 40% 34.1%
35%
Proportion of benefit
REGULATOR ENTERS FINTECH PARTNERSHIP WITH SINGAPORE
30% 25% 20%
15.7%
15% 10% 5% 0%
3.7%
2.5%
3.5%
4.5%
1
2
3
4
6.0%
5
7.6%
6
Decile
10.0%
7
12.4%
8
9
10
Source: NATSEM, ATO (2014) Taxation Statistics 2011-12, updated to 2014-15
ASIC CONCERNED ABOUT CORPORATE CULTURE ASIC chairman Greg Medcraft has made a speech at the Regulatory Summit discussing the importance of corporate culture, describing it as the “underlying mindset of an organisation” that “shapes and influences people’s attitudes and behaviours”. His speech detailed the regulator’s concerns over culture in the corporate world, given it is a key driver of conduct within the financial services industry. “By focusing more on culture, we expect to get early warning signs where things might be going wrong to help us disrupt bad behaviour before it happens and catch misconduct early. We also think it will help us with identifying not just individual instances of misconduct, but broader, more pervasive problems,” Medcraft stated. “Poor culture often leads to poor outcomes for investors and consumers, impacts on the integrity of the Australian financial markets, and can erode investor and financial consumer trust and confidence.” Medcraft added that the financial services industry is currently experiencing exciting
change as a result of technological innovation, referencing Max Levchin, PayPal co-founder and former chief technology officer’s fintech start-up, Affirm, as an example. The start-up offers flexible and fast loans and is pitched as an alternative to a credit card, which could challenge global financial institutions, according to Medcraft. The chairman described the innovation as “a new model designed to better align with customer interests,” concluding that fintech such as this one is evidence of new disruptors continuing to challenge incumbents in the financial services industry. “Firms that do not have a good culture risk losing their customers to firms that do,” he said. Culture, Medcraft stated, requires senior leaders to think carefully about how their actions and behaviours support and advance a firm’s desired culture. “At the end of the day, you need to have a culture that your customers can believe in. If your culture genuinely reflects ‘doing the right thing’, this will be rewarded with longevity, customer loyalty and a sustainable business.”
LENDER UPDATE 8
MORTGAGE MARKET HIT BY DISRUPTOR… AGAIN Joust, the latest disrupter to hit the home loan market, has launched a live auction platform, according to Asia-Pacific Banking and Finance (AB+F). Launched on 1 June in South Australia, Joust will enter the Victorian market in October, followed by a full national roll-out by January 2017. The platform aims to provide consumers, the online news site states, with a sort of “reverse eBay experience for mortgages”, allowing customers to secure low interest rates after a bidding war by lenders. Home loans valued at more than $45 million have been put up for live auction in just a few weeks. “The platform – which involves lenders bidding for the loans in real time – allows customers to watch as lenders drive down each other’s rates within the chosen time frame,” said Joust managing director, Mark Bevan. While similar in concept to fintech start-up Flongle, which also offers mortgage auctions via a platform, Joust does not offer financial advice or make recommendations. So far, Bevan has signed up seven second-tier lenders, including Bank SA, Adelaide Bank, Australian Unity, People’s Choice Credit Union, Bank of Queensland, Beyond Bank and Gateway Credit Union, giving the disruptor the opportunity to target specific customer segments. “They can see the geography, the demographic,
the loan-to-value ratio, the credit rating band – these are all things that we provide,” Bevan stated. According to AB+F, Bevan sees the platform as a real alternative to the use of mortgage brokers, especially customer-owned and smaller regional banks, which are struggling to achieve reach and compete with the major banks. Furthermore, Bevan believes that digitalisation of the mortgage process will completely change the customer experience, which will force more and more brokers into the financial advice and planning areas. “The old style broker business that takes a chunk out of the value chain for straightforward home loans will find it harder to justify this as technology improves,” he said. By bringing the lender direct to the consumer, Bevan aims to increase competition in the mortgage market and put customers back in control of their financial decisions. However, AB+F stated that Bevan has failed to land any of the “big four” as clients yet. “While impressed with the concept, our platform represents a threat to their back book so it’s unlikely the major banks will jump on board,” he said. For each deal introduced to Joust, the platform charges 20 basis points for mortgage origination and charges the lenders a fee for using the software.
THE BIG SQUEEZE
Major banks’ net interest margin, domestic, half-yearly*
3.5%
*From 2006 data are on an IFRS basis; prior years are on AGAAP basis; excludes St George Bank and Bankwest prior to the first half of 2009.
3.0% 2.5% 2.0% 1.5%
1999
2003
2007
2011
2015 Source: Banks’ Financial Reports; RBA
FIRSTMAC UNDER THE HAMMER Goldman Sachs has been hired to find a strategic investor or buyer for non-bank lender, Firstmac, it has been revealed. According to a report in the Australian Financial Review (AFR), managing director and owner, Kim Cannon, is willing to consider selling a 30% to 40% stake in the business, or even the whole company. Goldman Sachs has approached potential buyers, including banks, private equity firms and offshore strategic players, the AFR has said, ahead of a two-part auction. The non-bank lender has close to $8 billion in mortgages under management and makes approximately $20 million in annual profit. The AFR estimates the business could be worth up to $500m. According to reports, Cannon has been approached several times about selling Firstmac, which includes online lender loans.com.au, including interest from major Australian banks. The AFR has reported that buyers expect Firstmac’s auction to be up and running within a fortnight, with first-round bids due in the second half of July.
AROUND THE WORLD 10
other sectors – especially if you consider property to be a stand-alone asset class,” Colliers said leading up to the referendum. “Investment decisions take into consideration a wide range of financial drivers like the regulatory environment, policy transparency and fluctuations in sentiment. Following this school of thought, it’s possible that a Brexit would have a significant impact on sentiment and the direct property investment market.” However, Colliers said that consumer uncertainty from a Brexit could also play into the Australian property market, which is typically regarded globally as a safe-haven option for real estate investment. “Our 2016 global investor survey placed London as the preferred destination for offshore property market investment, followed closely by Melbourne and Sydney. [Brexit] would most likely have a negative impact on business and investor confidence, and boost demand for safe havens further,” the commercial real estate company said.
SIGNS OF OVERHEATING IN UK?
BREXIT: DIDN’T SEE THAT ONE COMING In a result that has shocked the world, Britain has voted to leave the European Union after 43 years with a majority of 52%. The 23 June referendum was watched globally with many predicting that the decision to leave would have a huge impact on the financial markets. British Prime Minister David Cameron had long lobbied for Britain to remain in the EU, saying an exit would cost British jobs and deal a blow to the nation’s economy. The UK Treasury, the International Monetary Fund and others all warned that a vote to leave would also threaten global markets. Those who wanted to leave the union, however, said Brexit would allow the UK to better control immigration and save the money it contributes to the EU’s budget. “It has boiled down to jobs versus foreigners,” Justin Fisher, a politics professor at Brunel University in London, told Bloomberg. According to a report by the ABC, investors fled in droves after the BBC forecast the UK will leave the EU. In Australia, the Aussie dollar and sharemarket plummeted as media outlets called on the result of the UK referendum. Every sector on the local market was in the red with the exception of gold companies, gold miners Newcrest Mining and Regis Resources gained 3.7% and 4.6% respectively. In the UK, the pound hit its lowest level since
1985, tumbling more than 10% on the day of the referendum, in its biggest ever one-day fall as the strength. However, Edwin Poots, a Northern Ireland Assembly member of the DUP, has said leaving the European Union is “an opportunity to have a more democratic system of government”. “There will be some short-term pain to take in terms of the economy,” he told the BBC. “I believe that we will recover very quickly after the initial shock.” The BBC also reported that although Britain would be the first country to leave the EU since its formation, the leave vote will not immediately mean Britain ceases to be a member of the 28-nation bloc. That process could take a minimum of two years, with Leave campaigners suggesting during the referendum campaign that it should not be completed until 2020 – the date of the next scheduled general election. But the question is, what does Brexit mean for the Australian economy and property market? According to commercial real estate company Colliers International, Brexit could have a “significant impact” on consumer sentiment, especially when it comes to property investment, which is closely tied to financial economic conditions. “Direct property investment, while somewhat sensitive to real economic conditions, is more sensitive to financial economic conditions than
Lending in the buy-to-let sector has grown from 4% of mortgage stock in 2002 to 16% in mid-2015 Outstanding mortgage balances (% of GDP)
70
10 9
68
8
66
7
64
6
62
4
60
3
5
2
All mortgages (lhs) Buy to let (rhs)
58 56 2007Q1
2009Q1
2011Q1
2013Q1
2015Q1
1 0
Source: Council of Mortgage Lenders and Fund staff calculations
INFOGRAPHIC
16%
of the residential property market in the United Kingdom are investors
12
BEST PRACTICE MIXING IT UP James McCracken on why brokers shouldn’t rely on word of mouth for referrals, and which other strategies can lead to new business
I AM pro ‘word of mouth’. It’s definitely the best form of marketing, but it’s not the only form of marketing, and when combined with other methods it can generate a fantastic return on investment. When your livelihood and business success is dependent upon you bringing a consistent and predictable volume of enquiries through the door, the cost of building a system that brings you leads en masse, be it through word of mouth or otherwise, is infinitesimally smaller than the lost opportunity cost of the enquiries that will find their way into another broker’s office. I want to encourage you to use effective solutions, where appropriate, that can complement and enhance your word of mouth and enable your phone to ring more often so you can write more business. Here are a few examples of lead-generating strategies you can use:
1
Database Regularly communicate with your database (be it via a newsletter organised by head office, or your own message). One broker I know says that every time he sends an email to his database, he knows he’ll make $2,000. Unsurprisingly, he sends regular emails!
2
Phone calls
Go old-school and pick up the phone. After working in sales for more than 10 years, I can confidently say there’s a direct correlation between those people with the most proactive sales activity and the people who write the most business. One of Australia’s most enduring keynote speakers, Winston
content across other platforms to maximise its impact and reach. For example, after writing the post, you could also create a post on LinkedIn, and you could post a link to the blog from your Facebook page. You could also send an email to your database with either the full article or by creating a link back to the site.
Marsh, advocates the ‘How’s things?’ call, and letting the conversation flow. With no fixed agenda other than to connect, you’ll invariably create more appointments with prospects and referral partners alike. I know of one broker who makes 1,500 calls a month, and it’s no surprise his settlement volumes are consistently north of $10m.
3
Social media
4
Blog
Despite what some industry pundits say, you probably won’t go out of business if you don’t have a strong presence on LinkedIn and Facebook, but many brokers use these platforms extremely effectively to build trust, establish relationships, keep front of mind, and generate business.
Educating your audience via a simple blog allows you to write articles for your audience. There are several benefits of blogging: • Google tends to love blogs, so when they are keyword optimised it can enhance your Google ranking for those words. • Every blog post you write adds a new ‘page’ to your site – and more content is also something the Google algorithm likes. • Many clients want to be better educated around their finances and their options. Blogs are a powerful and effective way of providing ongoing value, while allowing clients to access the content in their own time. It’s what Seth Godin would call a ‘permission based’ marketing tool. • It helps you keep front of mind with your clients – and you can also redistribute your
5
Seminar
Running a seminar provides great value. Seminars are a powerful way to reach many people at once, to create strong advocacy and bring more people into your sales funnel. Depending on what you’re aiming to achieve, seminars can potentially take a lot of time to organise, so where possible, aim to systemise everything to reduce the manual labour. These are just some examples of how you can create more opportunities. You don’t have to do any or all of these strategies; it is about choosing what is comfortable and effective for you. Or it may be uncomfortable but effective. Arguably, great business results are a lot more comforting than settling for less than you’re worth. So I encourage you to be clear on what you want to achieve, and then be open to different strategies that can help you get there. If your goal is for yearon-year growth, take a moment to think about what strategies you can use to support your word of mouth marketing and deliver you even better results, because if you have large goals, word of mouth alone may not produce the volume or consistency of leads you need to get to your results.
13
James McCracken specialises in helping mortgage brokers generate more leads, referrals and clients without paying referral commissions
WHY IT’S IMPORTANT TO EMBRACE VIDEO V Michael Santoro and John S Rizzo on the importance of video marketing in business Businesses that want potential customers to linger longer on their websites have an easy tool for making that happen – video. It turns out that giving website visitors text to read or photos to look at isn’t enough to keep them engaged. But add a video and they’ll hang around, on average, an extra two minutes. “That’s time they are spending with you and not with your competitors. The longer they stay with you, the greater odds are they will make a buying decision you’ll like,” says V Michael Santoro, co-founder with John S Rizzo of video marketing platform InVidz, LLC. Santoro and Rizzo are also developers of the online videomarketing syndication network Vaetas. Of course, many companies have incorporated videos into their websites for years because they already understand the advantage. For one thing, web pages with video are more likely to rank on the first page of Google searches, according to Forrester Research. Small and medium-sized businesses need to embrace video in their digital-marketing campaigns the way larger corporations do, say Santoro and Rizzo. Research verifies the difference video can make. For example: Email marketing When marketers include a video in an email, the click-through rate increases 200% to 300%, Forrester Research reports. Put the word ‘video’ in the subject line and open rates are boosted 19%. Mobile devices Online video accounts for 50% of all mobile traffic, and that figure is growing. A study by technology company Cisco reports that, by 2020, 75% of mobile traffic will be video. Customer activity Video significantly influences purchase decisions. For example, 64% of consumers are more likely to buy a product after watching a video, according to comScore, Inc., a company that measures consumer behaviour. Also, 71% of consumers surveyed by Animoto, an online video-maker, said watching a corporate video left them with a positive impression. “Video has gotten easier to create and use, which is probably why it’s become so much a part of our society,” Santoro says. “If businesses don’t take advantage, they miss out on a chance to increase sales and be even more successful in the marketplace.”
COMMERCIAL LENDING UPDATE
THE LENDER GIVING BROKERS WHAT THEY WANT Chifley Securities is winning brokers over with an entrepreneurial style of non-bank lending that’s faster, more flexible and smarter on large, make or break deals Pagoda Finance director Danny Luu knows the problems that investor and developer clients face when seeking finance. With a broking business that is primarily focused on international and local developers, he’s seen just how volatile the market can be. “Two years ago a lot of the banks were still finding their feet when it came to doing business with overseas developers,” Luu says. “As it turned out, a lot of them went in quite hard, but in the last three months they’ve also pulled out pretty hard as well.” That’s where Luu says non-bank finance group Chifley Securities is stepping in. With a total pool of $1.1 billion in capital available for commercial property finance, Luu has been able to use Chifley Securities when he needed a finance approval fast. “I was first referred to Chifley Securities about 18 months ago when timing was critical, and they were able to do a deal for my client really quickly,” Luu says. “With the banks at the time, a best case scenario would be six weeks - or it could even be three months.” Luu says Chifley Securities has a record of “nutting out a solution” for his clients over the phone within a day, which he says is increasingly setting them apart from mainstream lenders and putting them at the top of the list for time sensitive developer clients. “Timing is very important. A lot of clients want an answer immediately if they come to you for some debt. In many cases, there’s just no use waiting around for three weeks or so before the banks even let you know they are interested in the deal,” Luu says. Good timing Decorp Finance principal Daniel Cooney has had similar past experiences with Chifley Securities. In his first deal with the lender, a large NSW construction company needed help restructuring its finance facilities, and a deal was done within a week. “My client was having some legal issues with a major bank and wanted to segregate a large residential asset worth $10 million by pulling it out of the mix,” he says. “Chifley Securities were the only ones who could do it because of the nature of the deal.” Cooney has become a specialist in large property development deals that fall outside banking criteria, after a career as a relationship manager at ANZ and NAB. He says Chifley Securities keeps clients happy by making informed decisions quickly. “A lot of funders in the market - even if they are private lenders operating outside the mainstream banking space – can still have a cumbersome credit and due diligence process with a number of different layers to negotiate,” he says. “But if there’s a good deal that has legs, Chifley Securities
Joe Morello
can basically make a decision on the spot.” Cooney recently joined Chifley Securities to head up Chifley Partnership, an additional service that expands the lender’s ability to find a perfect fit for any developer deal. “Chifley Securities has the capital and expertise to handle the majority of deals, but there are always some that fall out the bottom, either because of their size, location or style. Through Chifley Partnership, we work together closely with the broker and client to find them a funding partner that is a better fit for that particular deal,” he says. What brokers want Since launching Chifley Property Development, Chifley Securities has allocated $300 million to finance construction in a number of Sydney and Melbourne projects, with the lender’s broker partners paid 1% commission upon settlement. Director Joe Morello says Chifley Securities has responded to strong market demand for commercial property finance and tighter mainstream lending criteria by offering broker clients an alternative finance option that is much faster, and much more flexible. “Broker feedback is telling us we have a lot to offer experienced investor and developer clients,” Morello says. “As it gets harder to place good deals, brokers are seeing Chifley Securities as a partner that can understand their deal, and seize the opportunity faster.” Danny Luu says tighter mainstream lending criteria will not stop overseas developers from coming to Australia. When Chifley Securities’ product offering and turnaround times are added together, Luu says the offering is a very strong one for clients. “I think Chifley Securities are in a good space at the moment. They are doing a lot of stuff that the banks aren’t doing. With the product they have on board now, they are really taking over a lot of the banks’ business in the current market,” he says.
14
COVER STORY KEEPING IT PERSONAL Deanna Ezzy on the importance of having a mentor, and the challenge of educating clients on new regulation
WITH LESS than six years of industry experience, Deanna Ezzy isn’t what you would call a mortgage veteran. And yet she is known as Canberra’s best female broker, the country’s sixth best performing female broker, and was ranked number 46 on Mortgage Professional Australia’s Top 100 Brokers list. In 2013, a mere three years into her career, Your Investment Property named her Mortgage Broker of the Year, and last year she was ranked number two on Choice Aggregation’s list of top-performing brokers in NSW/ACT. A finance strategist at Trilogy Funding, Ezzy is undoubtedly a testament to the fact that broking is a profession in which the barriers to entry are relatively low, and career progress can, as she has proven, be incredibly rapid. “We’re so lucky in that, you know, you don’t have to go to uni for four years. It’s an industry where, if you get mentored right, you can move straight in, so I think it’s a big opportunity…” Ezzy is quick to attribute much of her success to the mentoring she received when she began working under Ed Nixon, the CEO of Trilogy Funding, who is still her boss today. “He brought me on as a trainee broker. From the day I started he just gave me so much positive reinforcement … He would say to me, you’re going to be a way better broker than I ever was! He just gave me all the support that I needed… and I still get all the support I need,” she says. This is particularly relevant given the recent release of the MFAA’s Young Professionals Report, which stresses the importance of young brokers
learning from the older generation of brokers, and the fact that Ezzy herself is considered a ‘young professional’. “I think it should be mandatory,” she says when asked her view on mentorship in the industry. “Only because there’s so much to know. I don’t even know how you would start without a mentor … it’s 100% important. You definitely need someone there to help you out, I’d say especially in the first 12 months.” Ezzy believes that management who make mentorship a priority not only create a nurturing and supportive work environment for their young brokers to learn and succeed, but their business overall will benefit as well.
lending, Ezzy has plenty to say on the topic of regulation. Off the back of APRA’s speed limit changes at the end of 2014, Ezzy has noticed a big change in the value of loans she is writing. “I think the regulatory changes for me have been probably more difficult than your average broker, because we target investors. So many of my clients have multiple properties, and they were at a point 12 months ago where they could continue to invest – it was a lot easier to do stuff like get cash out and do renos, and the restrictions weren’t quite as tight,” says Ezzy. Eighteen months on, however, these same clients are having to come to terms with a different regulatory environment that has a direct impact on them.
“I’m having to educate [investors] on the fact that they can’t do things as easily as they used to be able to” “[The Trilogy management] are quite smart in that they want their employees to grow, and they’re quite open about the fact that the more we personally grow, the better the business is going to do,” she says. Ah, but the woes of regulation But the path brokers are walking is not as seamless as it used to be, and as a specialist in investor
“And now, after all these regulation changes, most of my clients have either slammed into a serviceability wall, where new calculators say they can’t even afford what they’ve got, and … they’re struggling. I’m having to educate them all now on the fact that they can’t do things as easily as they used to be able to and it’s meant a lot of work … and not being able to write the same amount of loans.” The impact of APRA’s 10% cap has had such an
15
impact that Ezzy’s lodgement value has halved in the past 12 months. “There was a big lull for me personally in lodgements – and when I say ‘lull’ it was between $4m and $6m a month, so it was still OK, but the same time last year I think Tash, my assistant, and I did a $14m month. We were doing $10m months, $12m months.” Ezzy is transparent about the fact that under these new conditions brokers are having to work a lot harder for, and invest more time in, their investor clients. “I will do everything I can to exhaust all options for someone, so in a way it’s good, it’s probably what makes me a good broker, but at the same time it uses up a lot of time; I can find myself working too many hours and getting sick,” she says, which, at the time of interview, she was. But rather than fight the new challenges, Ezzy says, it’s important that brokers adjust. The brokers that simply go with the flow and can adapt to the industry’s ever-changing regulatory landscape are the ones that will succeed, she suggests. That means doing things like double-checking postcodes in the wake of the new postcode restrictions, and pulling up a new loan calculator in case things have changed overnight. “… there’s a bit more work involved,” she says. Channel conflict When it comes to the industry as a whole, Ezzy says there are a few things she would like to see operate differently, and one of her pet hates as a broker is channel conflict. “You should be able to offer what the branch can offer and what mobile bankers can offer. There’s meant to be a level playing field … there’s meant to be no channel conflict, but there is. It’s a bit unfair, to be honest,” she says. The problem is twofold, according to Ezzy, who says that when banks undercut brokers it makes those brokers not want to take loans to that bank again, and that means the broker starts to do the bank a disservice out of fear that the bank staff will try to take the loan. “It’s a bit frustrating,” she says, adding that reviewing bankers’ commission structures could be an effective solution to the problem. “I like the idea that when a loan is generated by a broker, that the branch [staff ] – if they internally rewrite it – they don’t get paid for it. I think that’s a good thing … I’d like to see it all streamlined, so that if you came and saw me and you wanted a NAB loan, for example, it’s exactly the same as what you’ll get in the branch.” The golden road But Ezzy believes the industry is still ripe with opportunity, and as the secretary for Canberra Women in Business she would like to see more women take advantage of this. “I think there’s a huge opportunity for women. There [are] not a lot of well-known or good female brokers. I love when I meet another female broker who is killing it,” she says. “The job’s really fun … and you never get bored. And if you’re good at it then the pay’s really, really good, and I think women don’t know that about the broking industry, so it’s almost a bit of a missed opportunity.” When asked what pearls of wisdom she could impart to assist other brokers in the industry, Ezzy has some very modest words of advice. “Be nice … Stop being in the mindset of trying to get stuff… and try and be more in the mindset of what you can give out to people,” says Ezzy. “ I make a point of trying to make friends with everyone that I’m dealing with ... and it’s so much easier [because] a) you get a much better outcome for your clients, but b) you get to work with your mates all day!”
TECHNOLOGY UPDATE
s
VICTORIA TEACHERS MUTUAL BANK’S STRATEGIC LAUNCH INTO BROKER CHANNEL
Justine Ward
Victoria Teachers Mutual Bank (VTMB) is adopting a ‘slowly, slowly’ approach to its entry into the broker market. It’s a carefully considered strategy driven by a commitment to facilitate the best possible broker and borrower experience. “We want to avoid appearing to overpromise, so we’re giving ourselves time to ensure our processes, systems and solutions are correctly established,” says VTMB’s executive manager sales and service, Justine Ward. “We’re intent on paving the way for the delivery of best practice for brokers,” she declares. Supporting VTMB’s launch into the third-party channel is the industry’s leading technology solution for electronic lodgement, NextGen.Net’s ApplyOnline. With 96% of brokers in the Australian market using ApplyOnline, Ward said implementation of the multifaceted electronic lodgement tool was a no-brainer. “ApplyOnline is the Australian standard for electronic lodgement because it is best in class. Brokers simply expect to use ApplyOnline,” says NextGen.Net sales executive Michelle Ewens, who has been steering VTMB through the set-up. “Everyone, even new entrants to the market, knows that ApplyOnline provides lenders and brokers with efficiencies that are second to none.” Aggregators advised Ward that NextGen.Net is the best electronic lodgement service on the market and one of the key entry points. “What more was there to know?” she exclaims. “It’s great to help lenders like VTMB see how far-reaching ApplyOnline is, beyond simply providing electronic lodgement,” Ewens says. “ApplyOnline delivers real drivers of quality at the point of sale, and provides tools for lenders to improve efficiencies in their loan process. “Ensuring that quality of the loan submission is what ultimately drives the ability to achieve straight-through processing. In addition to lodgement, ApplyOnline equips VTMB with
Michelle Ewens
supporting document verification tools and back channel messaging, and we look forward to helping VTMB provide a superior broker service.” VTMB launched quietly into the broker market in late 2015. Its ApplyOnline roll-out began this month. Ward remarks on what she says was “a remarkably easy process”. “We found the NextGen.Net team to be incredibly responsive and supportive, and very willing to guide us on best practice in the industry, which was very helpful. “It made the transition very smooth and seamless,” she says. VTMB has released a range of new products to correspond with its entry into the market. As a mutual, VTMB puts customer experience as number one on its priority list. In December 2015 the bank launched a simplified product range which includes an Education Home Loan Package. “We want to support people in the education sector to get their first home and we have credit policies to support that,” says Ward. “Our new products support first home buyers. We will lend up to 98% LVR for first home buyers in the education sector. In the Education Home Loan Package, depending on credit criteria and security, we will waive LMI up to 85%. “We recognise how difficult it is for first home buyers to get into the market, and providing it’s responsible lending we want to help them achieve their dream,” she says. “Having ApplyOnline as part of our process will ensure we get the best turnaround time.” VTMB’s growth aspirations have qualifications, says Ward. “We’re not planning to grow purely for the sake of growth. Our aim is sustainable growth,” she stresses. For Ewens, another mutual supporting the broker market means “more healthy competition in the industry, more available products for brokers, and more choice for consumers”. “VTMB’s entry to the broker market is a great move for everyone,” she says.
16
ANALYSIS
EASE UP, APRA? As annual growth in investment lending slides, Australian Broker investigates whether APRA should reassess its 10% annual growth limit INVESTMENT LENDING is slowing. When the banking regulator, APRA, announced a 10% annual growth cap on investment loans in December 2014, the total annual growth of all Authorised Deposit-taking Institutions (ADIs) was 16%, according to the regulator’s own monthly statistics. In that quarter, loans to investors accounted for 42% of all new lending. However, since hitting a peak of 43% of new lending in the June 2015 quarter, investor lending has been falling. In APRA’s latest quarterly figures, investors accounted for just 31% of all new loans in the March 2016 quarter, and annual growth actually declined by 1% in the 12 months to April 2016. With APRA’s restrictions appearing to be successfully curbing investment lending, Australian Broker investigates whether it is time for the banking regulator to relax its tough approach.
A moot point The chances of APRA easing up are highly unlikely, Michael Russell, managing director of broker network MoneyQuest, tells Australian Broker. “There’s no doubt that APRA’s prudential intervention has taken a bite out of investment lending. As to whether they should now consider relaxing their restrictions, at the risk of sounding self-serving, the answer is clearly moot given they will not.” Russell adds that there is still “far too much heat” in the housing market for the regulator to relax just yet. “Capital city dwelling prices are reported to be 10% YOY to April, with Melbourne up 13.9%, Sydney 13.1% and Brisbane 7.1%. “These growth levels are simply too high, given the recent rhetoric from APRA, and as such we shouldn’t hold our breath for a
relaxation in their intervention.” On top of this, Russell says, APRA is continuing to ask the banks to lift their capital levels in the wake of some global uncertainty, meaning any chance of a relaxation is out of the question. Like Russell, John Flavell, the CEO of Mortgage Choice, also believes the regulator is unlikely to change its tune any time soon. Instead, he tells Australian Broker, lenders are more likely to begin to tweak their policies, relaxing their restrictions so APRA won’t need to. “What we are likely to see is Australia’s lenders constantly tweaking their policy and pricing as they seek the right flow of business,” Flavell says. “Over the last couple of months, several lenders have reintroduced certain policies that they had previously removed, in a bid to turn up
17
John Manciameli, Hunterwood WHAT DO BROKERS THINK? Solutions Ruan Burger, Time Home Loans
Leah Anderson, Leah Anderson & Associates
Dominique Bergel-Grant, Leapfrog Financial
Otto Dargan, Home Loan Experts
John Manciameli, Hunterwood Solutions
“I think it’s not a bad idea to keep monitoring these bands, and certain banks will move up and down as they see fit for their exposure appetite and capacity.”
“With what has been happening recently in relation to lenders pulling out of the non-resident investment market, where a lot of investment was driven, I believe APRA would feel somewhat more comfortable.”
“It is time for APRA to relax investment lending restrictions. The simple reality is that many Australians’ first step on the property ladder is with an investment property and not with a home, due to high prices. The wealth of the population is what will ensure longevity of the Australian economic system; this should be supported.”
“APRA should definitely relook at this issue as it isn’t the potential catastrophe that it was last year. However, is removing the cap the right approach? Probably not. What’s to stop this happening again in the future? It makes more sense to consult the industry and consider lifting the cap to 15% to encourage lenders to service investors while still managing the risk.”
“Lifting investment property restrictions should be encouraged now that investment in mining has tapered off. However, it should be within a narrow constraint of providing lending for new property only and in parts of Australia where there is a housing shortage.”
the investment lending tap and attract more of this business. Moving forward, we are likely to see a lot more of this.” APRA will want to avoid any premature move, according to Flavell, which could result in an unwanted surge in house prices. “If we do see APRA relax its lending restrictions, it would likely encourage Australia’s lenders to turn their investment lending tap back on. This would drive more investment activity, which could result in higher property prices,” Flavell says. “That said, even with the level of investment lending activity tracking downwards over the last 12 months, property prices have continued to rise. Data from CoreLogic shows property values have climbed 10% higher over the last 12 months to June, while values in Sydney and Melbourne are up over 13% over the same timeframe.” This reinvigorated house price growth is something Moody’s has recently flagged as risky. The ratings agency claimed it proved it was too early to hail APRA’s move as a success. In its report, House Price Growth is Increasing Tail Risks for Australian Banks, Moody’s Investors Service suggests the re-acceleration in Australian house prices may be driven by an increased bank appetite for investor lending, after a period of tighter underwriting to comply with APRA’s 10% annual growth limit. “These trends are unfolding against a backdrop of already-high levels of household indebtedness, and elevated overall leverage in the economy,” Daniel Yu, a Moody’s vice president and senior analyst said. “The current trends are therefore credit negative for Australian banks, particularly in the context of the banks’ high ratings, because these trends raise the banks’ sensitivity to any potential deterioration in the housing market.” Crystal-ball gazing APRA may not budge for the time being, but the regulator can’t uphold the annual growth limit forever. However, Flavell says he can’t
see the limit being lifted unless it starts to materially discourage investors from the property market. “If the changes being made by Australia’s lenders start to drive existing and potential property investors out of the market, then we may see APRA relax its investment lending restrictions.” But he admits he doesn’t expect this to happen any time soon. “According to our annual Investor Survey, 74% of potential and existing investors believe now is a great time to be an investor,” Flavell says. “And, while one in three investors said the recent spate of investment lending changes had made it slightly harder for them to have their finance approved, 70% of respondents agreed the changes wouldn’t put them off buying an investment property.” For Russell, it all comes down to the property market and balancing house prices. “At a point in time when dwelling price growth has cooled to 6% to 8%, first home buyers have returned to their historical norms, and present concerns around the glut in the apartment market have come to an end, then at that time APRA should be able to take a step back,” he tells Australian Broker. Good news for brokers But regardless of what move APRA makes, both Flavell and Russell believe mortgage brokers will remain front and centre. “The more complex the mortgage market becomes, the more necessary it becomes for borrowers to seek out professional advice. These changes have only served to further highlight the ongoing value provided by the third-party distribution channel,” says Flavell. Russell adds: “Fortunately, mortgage brokers are a resilient group and accept that this comes with the turf. From a business perspective, it’s far from doom and gloom as overall mortgage lending volumes are continuing to rise as consumers take advantage of low interest rates.”
A LOOK AT THE STATS
Monthly banking statistics, April 2015
12% 9%
ANZ annual growth in investment lending
CBA annual growth in investment lending
59% 11%
NAB annual growth in investment lending
WBC annual growth in investment lending
Monthly banking statistics, April 2016
1% 2%
ANZ annual growth in investment lending
CBA annual growth in investment lending
7% 11%
NAB annual growth in investment lending
WBC annual decrease in investment lending Source: APRA
18
SPECIAL REPORT A FEW OF THE YOUNG PROFESSIONALS
Peter Morgante LKFS Financial, SA
Bianca Patterson Momentum Wealth, WA
PASSING THE TORCH The MFAA has released the first-ever Young Professionals Report. Here, Australian Broker collates the report’s highlights and consults some of the members of its young professionals panel to get their thoughts on the next generation of brokers and where the industry is heading FIFTY PER CENT of established brokers are aged 50 years and over. As a result, the industry is at risk of having an inadequate number of trained professionals to maintain this growth when established brokers retire. That’s why the MFAA has undertaken research to determine what motivates young professionals to join the industry, what their challenges are, and what they aspire to,
Justin Vella Berkeley Capital Partners, Vic
Donald Tang Alliance Mortgage Solutions, NSW
compared with established finance brokers. This is how the industry will ensure long-term retention of young talent. So, who are these “young professionals”? The MFAA refers to them as broker members aged 35 years and under. They make up 19% of the MFAA’s membership base. Young professionals also make up 41.45% of the membership base of the FBAA.
“My personal experience is when I entered mortgage broking I was very fortunate to be coupled with two great mortgage brokers because they understood business, they understood diversity, they understood consumer segments and they were really good at what they did. I didn’t know how good I had it as a junior broker coming into the game until I got out of the game and got into the lender space … would I have been able to open up four offices in less than two years and grow a great mortgage broker business if I didn’t have that key learning? … a lot of the mentors and a lot of the great mortgage brokers of our time today unfortunately sometimes forget what it was like when they were junior … What we need to do is strip that right back and get guys to say, what got me to where I am today? … if we cannot invest in the young, then what future are we paving?” Mario Rehayem, Pepper Money
“The reason we investigated the young professionals is that the MFAA had identified that there was a shift in the demographics of the industry where we were becoming more female and younger, and we wanted to understand where was the source of new brokers coming from, what would make them successful, what were their fears; we wanted to understand them so that we could encourage recruitment of new people to the industry … We feel that there could be a bit of a gap coming up should a lot of the older brokers decide to retire, and who’s going to replace that capacity within the industry itself?” Stephen Hale, MFAA
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YOUNG PROFESSIONALS’ PATH TO INDUSTRY Young members were asked what they did before they became brokers, how they first heard about finance broking as a profession, and what their motivation was to join the industry.
• Increase in number of young professionals entering industry via wealth knowledge industry
Finance industry, eg worked in a bank
Other
16%
High school/TAFE
47%
• Increase in number of young professionals entering industry via university or TAFE • Increase in number of young professionals entering via non-finance blue collar roles
2% 6%
Blue-collar roles
12%
CAREER HISTORY 12%
Wealth knowledge industry, eg financial planner, accountant
19%
White-collar roles
FINDINGS
University
WHAT THIS MEANS Where previously the industry was dominated by ex-banking professionals, the younger generation comes from a much broader and more educated experience base. This shows a shift in potential employment backgrounds that should encourage the industry to broaden its target market in order to attract the new breed of broker entrants. White-collar and finance continue to be the main point of entry into the industry for both young professionals and established brokers. However, the rise in university entrants symbolises a new opportunity for recruitment. To boost numbers in the industry, promotion of opportunities in the industry and education around the role of a broker should be targeted at students.
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SPECIAL REPORT YOUNG PROFESSIONALS’ PATH TO INDUSTRY (CONT’D)
Other, primarily personal interaction with a broker
Media coverage/ advertising 35%
5%
Online research 13%
HOW YPS HEARD ABOUT THE INDUSTRY 32% 28%
Engaged a broker for personal needs
Friend/family member
UP CLOSE WITH YPS Q: How do you think the diversity of young brokers’ working backgrounds is affecting the industry? PM: “Diversity … allows people to see how other people work and what tools they can bring from their previous employment into the broking world. Lending can be learnt by anyone, but real-life experiences and challenges are something you can’t truly appreciate simply by reading a textbook or online blogs.” BP: “I think that it is very exciting; it shows that we are becoming seen more as professional advisers rather than just loan writers … These new entrants will diversify our industry and raise the bar for knowledge outside the usual scope of finance and broking; this will be a competitive advantage for the young professional and a benefit to their clients.”
MOTIVATION TO PURSUE A CAREER AS A FINANCE BROKER Other A challenge Better future prospects To become own boss Lifestyle factors Income growth potential 0%
10%
20%
30%
40%
UP CLOSE WITH YPS Q: How can the industry best target and encourage students to enter the industry? PM: “Provide them with a base salary. It is very hard for a young professional to commit to a new role/industry on a commission-only basis. For the first 12–18 months you are trying to learn a whole new and forever changing working environment while trying to earn a living … If the industry assists young brokers – like at my firm – with a base salary and commission structure, you will notice many would focus on understanding the core ingredients of broking instead of trying to make money and, more importantly, disadvantaging themselves and their clients.” JV: “The industry would need to further engage with the younger community/students with the value proposition of a broker. Young people and, more particularly, university students … are only aware of the professions which they are exposed to, such as their parents utilising a stockbroker, financial planner or mortgage broker, or as a child walking into a bank with their parents to open a savings account. Therefore I think engagement within local communities and education providers to outline the benefits of adopting a debt advisory role would identify additional long-term career paths from the traditional view. It will also provide students with a basis/understanding of the relevance within their curriculums and application to the field.”
50%
60%
70%
FINDINGS • Young professionals are motivated by income, future job security and the prospect of a challenge. • Established brokers are motivated by lifestyle, flexibility that comes with the industry, and the option to be their own boss.
WHAT THIS MEANS This shows that the key to retaining younger brokers is to assist them in establishing solid and profitable businesses early on in their careers. These motivators must be considered when developing recruitment advertising and other collateral targeted at young professionals.
21
SETTLING INTO THE INDUSTRY Young professionals were asked questions relating to the challenges they face, and areas where they are lacking in knowledge and looking for more support.
TOP 4 CHALLENGES FACING YOUNG BROKERS
WHAT YOUNG BROKERS WANT TO LEARN MORE ABOUT
Lead generation/sales Lender policies changes and service levels Time management skills Building a referral netork
52%
27%
Other challenges raised:
Business management/ self-employed change of status Marketing and awareness Client management and relationship
Best practice business processes and developing a business plan Mentoring and networking with experienced brokers
36% Client relationship management
33%
Marketing and social media Lender processes confusion and product selection
Access to support from other brokers/industry network
Referral network and recognition
Sexism – Female brokers not being respected by clients Ageism – Young professionals being perceived as too young FINDINGS • Young professionals are looking for the most guidance around generating leads, marketing their services and running an effective business.
WHAT THIS MEANS If more experienced brokers assist young professionals with skills around business building, brand awareness and sales early on in their careers, they are more likely to become valued and long-standing assets to a team.
ASPIRATIONS AND PERCEPTIONS OF SUCCESS The MFAA report indicates that young professionals believe that their personal success and that of the broader industry is reliant on whether they are able to overcome concerns and seize opportunities in four key areas.
YOUNG PROFESSIONALS ARE AWARE THAT THEY MUST: Fill gaps in their knowledge and seize new opportunities in the marketplace as ageing brokers retire Position technology as an opportunity, not a threat, evolving their service offering to meet their clients’ changing needs Raise the professional reputation of the industry among customers Learn crucial business management skills and seek out opportunities to diversify their services in order to solidify relationships with existing customers and reach a broader audience
UP CLOSE WITH YPS Q: How do you think the industry can best educate young professionals on best practice business processes and developing a business plan? PM: “A six-month mentoring program. All new brokers should get buddied up with someone who is able to watch over them during this initial period where they can assist with the following: direct contact for any enquiries, reviewing loans prior to them being submitted, monthly catch-ups to see how they are progressing. When I previously worked at the CBA as a new lender we had this set up and it worked wonders. It gives you confidence knowing someone is watching over you to assist you while any questions or scenarios you may have can be run past them.” BP: “I would like to see all new entrants be interviewed by their chosen industry body and aggregator to assess their understanding of best practice, business process and planning. This will allow the young professionals to be exposed to the support they can receive from their industry body and aggregator and at the same time it can be established if they require further support and guidance in these areas. If further training is required this responsibility can be entrusted to their aggregator and/or experienced brokers in a mentor/mentee relationship.”
22
SPECIAL REPORT ASPIRATIONS AND PERCEPTIONS OF SUCCESS (CONT’D) WHERE ESTABLISHED BROKERS (AGED 36 YEARS+) WANT MORE SUPPORT
53%
43%
Marketing, branding and lead generation
32%
34%
Referrals and sales skills Building a business
FINDINGS
17%
12%
Motivation Technology
Other
UP CLOSE WITH YPS
• Where established brokers most want support is in marketing their businesses
Q: What are your biggest concerns as a broker, and for the industry? PM: “There is a misconception broking is an industry where you can make a quick dollar. The successful brokers have been doing it for over 15–20 years and are able to take a step back.”
WHAT THIS MEANS As a characteristically tech-savvy generation, young brokers are well-placed to help older, established brokers with marketing and digital branding.
DT: “For young professional brokers the biggest concern would be how to start with no client base. For the industry, the biggest concern would be how to assist young brokers to control risks, due to lack of risk-control experience.”
Q: How do you think the industry can overcome this/these concern/s?
Peer connection at events, both face-to-face and via digital platforms* *Young professionals’ preferred learning environment
PM: “For a young professional to truly be successful you have to be patient and know the first couple of years are about learning the basics and obtaining as much good behaviour to be successful for many years to come. I think the older generation of brokers need to make this message clear … Senior brokers [could assist] the new generation by providing mentoring programs, and an environment where it is not purely commission-focused. This is where providing a base salary would encourage more young professionals to get into broking and stay longer.” DT: “More education, which can be face-to-face or online, or even email material; more case studies to show young professionals how to recognise risks and how to control them – both good and bad examples could be shown.”
SHARED LEARNING
CONCLUSION
Peer learning is an opportunity for new entrants and established brokers alike. For the sake of the industry’s future, established brokers have a responsibility to mentor and support the next generation. At the same time, young professionals bring a unique set of skills to the table that can assist established and older brokers.
THE STATS MFAA membership Average member age
FBAA membership Average member age
46.1 yrs
38 yrs
Membership base aged 35 years old or under
Membership base aged 35 years old or under
Members aged 35 or under who joined the MFAA in 2015
Members aged 35 or under who joined the FBAA in 2015
20.5% 741
Source: MFAA
41.45%
1,519
Source: FBAA
If growth in the finance broking industry is to be maintained, it’s imperative that outgoing brokers prepare young professionals to take over the reins of the industry. The young professionals surveyed believe that not enough is being done to recruit young people to the industry, which may result in a threat to the broker market share.
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24
MARKET WRAP MARKET TALK
FOREIGN INVESTORS HIT WITH MORE LEVIES The Queensland, NSW and Victoria governments have all announced stamp duty surcharges for foreign investors, but real estate lobby groups are up in arms about the new policy changes
QUEENSLAND is the latest state government to announce a stamp duty hike for foreign investors, with Queensland treasurer Curtis Pitt stating that foreign buyers of residential real estate in the state will soon face an additional 3% stamp duty surcharge. This follows similar announcements by the Victorian and NSW governments in the past month. Foreign property investors in NSW will be faced with a 4% stamp duty surcharge and a 0.75% land tax surcharge on residential property purchased and owned in the state, while Victoria will have a 7% foreign investor surcharge on residential stamp duty and a 1.5% surcharge on some land tax. In announcing the increase in Queensland, Pitt said the new surcharge would not deter foreign investors from targeting the Sunshine State’s property market, but Chris Mountford, Queensland executive director of the Property Council of Australia, said the government had sacrificed any advantage its real estate had in the search for revenue. “The treasurer has previously committed to making Queensland the most attractive state for foreign investment; now he is looking to abandon this competitive advantage in the search for more revenue,” Mountford said. “At a time when the Queensland government’s resource revenue is being drastically written down, trying to recoup losses from one of the few sectors of the Queensland economy that is currently generating jobs is short-sighted,” he said. In criticising the government’s move, Mountford pointed to a seemingly contradictory statement made in 2015 by Pitt, in which he said the current government would not move to milk revenue from foreign investors. “In the lead-up to the election we made it very clear that we wanted to provide certainty to businesses and investors, and that we would not be changing the existing revenue policy settings this term of government,” Pitt said in a government statement on 6 May 2015. “Therefore, we’re ruling out any stamp duty surcharges for foreign investors who purchase a house in Queensland,” he said.
The stamp duty increase has also been criticised by the Real Estate Institute of Queensland, which believes it could have serious repercussions for the apartment market in the state, and Mountford said the move could prevent future projects from ever being started. “Our residential development cycle has reached its peak. The treasurer’s actions are likely to intensify the market’s cooling process, impacting construction work and ultimately jobs over the next 12 months and beyond. “Foreign investors enable new residential projects to get off the ground, creating a huge economic benefit for the state and producing new stock that puts downward pressure on rents and keeps housing affordable for Queensland families.” In NSW, the Property Council of Australia has been equally damning of NSW’s new tax surcharges, labelling them as a “cash grab” that will “do nothing to fix housing supply or improve affordability”. “Let’s call this for what it is – a cash grab from states prepared to play to the crowd on foreign investment and put at risk Australia’s reputation on the global stage,” Glenn Byres, the Property Council’s chief of policy and housing, said following the NSW announcement. “We are already seeing signs that tighter lending conditions are having an effect on the
market, and the trend is that approvals and commencements have passed the peak. “As the prime minister says, if you want less of something, you tax it more.” According to Byres, offshore investors account for about 15–20% of presales in our capital cities, which help switch projects from concept to construction. “This helps maintain a supply pipeline crucial to close the demand gap, lifts affordability, and every new home constructed supports up to 40 jobs.” However, NSW treasurer Gladys Berejiklian said the measures were expected to raise more than $1bn over four years for “essential services across NSW”. “These new measures will ensure NSW’s property market continues to be an attractive destination for international investors, while making sure that we are able to fund vital services into the future,” Berejiklian said. “The Victorian experience has demonstrated that the measures have not had an adverse impact on the property market.” The NSW treasurer also announced that foreign investors would no longer be entitled to the 12-month deferral of the payment of stamp duty for off-the-plan purchases of residential property, and foreign persons would not be provided with a tax-free threshold for the land tax surcharge.
25
CAPITAL GAINS TAX MAKES THE RICH RICHER?
$54bn Amount that CGT
exemptions cost taxpayers in 2014/15
90%
of the value went to the top 50% of earners Source: RBA, The Australia Institute
HALF-A-MILLION-DOLLAR HOUSING
GENERATION ‘RENT’ An online academic news site has warned that Australia needs a ‘decent national housing policy’, or the nation’s cities will ‘stop working’ RALPH HORNE, director of the United Nations Global Compact Cities Programme, and David Adamson, emeritus professor of social and community policy at the University of South Wales, have penned an article on The Conversation website in which they say the nation must move the housing conversation “beyond a game of political football about negative-gearing winners and losers”, and focus on a long-term housing policy to remedy the national housing “crisis”. They say “we have a slow-burn, deepening crisis that is affecting Australians who are already highly vulnerable and disadvantaged”, referencing the 206,000 households on the waiting lists for social housing, and the 105,000 people deemed homeless in the 2011 Census. As far back as 2007, after a visit to Australia, the UN Special Rapporteur on Human Rights concluded that Australia was failing to deliver the fundamental human right of adequate housing because of the lack of any coordinated national strategy. Since then, nothing has changed, the article states. Horne and Adamson stress that “our cities will stop working if we do not do something”, and that
it’s not just about the obviously vulnerable groups mentioned above; they point out that “housing demand and supply for all tenures is intricately connected”. “Failed first-time buyers rent privately, increasing demand and rent levels. This pushes lower-income families towards social housing waiting lists and, at the end of the queue, those on marginal incomes are more likely to experience homelessness. Investors push out would-be home buyers by leveraging generous tax breaks that are not available to renters who are saving up to buy.” The article goes on to say that rental affordability is worsening in Australia, including for key workers in capital cities, and first-time buyers are having difficulty entering an overheated market. The nation is facing the prospect of a permanent “generation rent”, in which more than 40% of people who privately rent pay more than 30% of their income for housing, the threshold generally recognised as the level at which financial stress is experienced. “Decent housing underpins jobs, growth and productivity. Well-located, affordable housing is critical for preventative health, to provide a
The median price for capital cities, March quarter 2016
$684,601 Houses
$537,591 Other dwellings
Source: CoreLogic
stable home environment for education and self-confidence, and for a productive workforce,” it states. “We need a national program of home building to meet the shortfall in all forms of housing. While this will not in itself resolve all problems, it is critical to a successful housing policy.” As a remedy for this, the article suggests that reforms of capital gains tax exemptions and discounts, as well as negative gearing concessions, would improve housing supply. “Capital Gains Tax exemptions for the main residence cost taxpayers $54 billion in 2014-15. Nearly 90% of the benefit went to the top 50% of earners. And the costs are increasing. The CGT discount of 50% on capital gains, including investment properties, will cost $121 billion by 2018-19.” According to the national budget and The Australia Institute, negative gearing amounts to an average saving of $2,900 per year for the 1.2 million people who claim. However, its impact on the budget means it costs the remaining Australians $310 per year each in tax that they would not otherwise need to pay.
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CONSUMER INSIGHTS ADDICTED TO DEBT LF Economics has released a report that uncovers the seriousness of the nation’s household debt
AUSTRALIA’S household debt now equals Switzerland’s as the highest in the world, and it is only getting worse, based on findings published in LF Economics’ report entitled Australia’s Addiction to Debt: Imbibing the Beverage but Ignoring the Leverage. According to an article by Leith van Onselen on macro business, the exponential rise in household debt beginning in the late 1980s has been exacerbated by the privatisation and deregulation of the banking and financial sector. Van Onselen states that this has provided lenders with greater autonomy in issuing debt, most of which has found its way into the household sector. Internationally, Denmark held the title as the nation with the highest unconsolidated household debt-to-GDP ratio for many years, but this has slowly eased since its housing bubble peaked and burst during the GFC. The country’s debt ratio had reached a record 140%. Since then, Denmark’s ratio has descended while Switzerland’s has risen steadily on the back of moderate increases in household debt. Currently, Australia shares top spot with Switzerland for having the world’s most indebted household sectors, with only four nations in the world possessing a debt-to-GDP ratio above 100%. The report shows that Australia’s annualised mortgage debt growth is around 7% and nominal GDP and household income growth is around 2%, implying a credit gap of 5%. It indicates that this unconsolidated household debt-to-GDP ratio will continue to rise in the near future. The ratio has risen by approximately 150 basis points each quarter over the last year, mirroring the rising growth in housing prices. Van Onselen says this runaway growth heralds financial instability as the stock of debt becomes ever larger, and without further cash rate cuts there is little room on household balance sheets to leverage further.
‘OUTSTANDING BALANCE DUE’
Australia consolidated private gross debt-to-GDP ratios 1861–2015 125%
100%
75%
50%
Household
Mortgage
1881
1921
25%
0% 1861
1901
1941
1961
1981
2001
Sources: ABS, Battellino and RBA in LF Economics’ Australia’s Addiction to Debt: Imbibing the Beverage but Ignoring the Leverage
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WAGE GROWTH DROPS TO 18-YEAR LOW Data released recently by the government statistician has revealed that the March 2016 quarter experienced the lowest year-on-year growth rate on record of 2.1%, falling way below most economists’ expectations. The wage price index also rose just 0.4%. There has also been a fall in private sector wages growth to 1.9% year-on-year; however, when bonuses are included, wages growth for the March quarter are up 2.5% on a year ago. The industries recording the highest rates of wage growth are utilities and finance – both sectors were up 2.5% year-on-year. ANZ Banking Group economist Felicity Emmett said she expected wages growth to remain soft over the next year or so, which will keep inflation low while also continuing to be a headwind for household spending. JP Morgan economist Tom Kennedy expects a cash rate cut in August. “Today’s
data implies non-tradables inflation will likely remain sluggish for some time yet, and is consistent with our view that the Reserve Bank of Australia will need to lower the cash rate over the next year in order to return core inflation to the 2–3% target band,” he said. This theme was continued by AMP Capital’s chief economist Shane Oliver, who said the continuing deceleration in wages growth meant ongoing downward pressure on inflation as cost pressures for businesses fall. “As such the latest reading on wages growth reinforces the RBA’s decision to cut interest rates [recently] and is consistent with more rate cuts ahead if the RBA is to be successful in achieving its own forecasts for inflation to head back up to around 2% by mid-2017.” The Australian Treasury has forecast the slowest growth in real national income per person in at least 60 years over the coming decade.
COUNTING FEWER PENNIES
Australian wages growth 1998–2016 4.4% 4.2% 4.0% 3.8%
Annual growth (trend)
3.6% 3.4% 3.2% 3.0% 2.8% 2.6% 2.4% 2.2% 2.0% 1.8% 1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Source: ABS
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COALFACE myself to cafe owners, pub owners and hoteliers who are always looking for money for their next projects, and so it went from there,” he says. Low-doc loan focus As specialists in low-doc loans, the team at Picket Fence Finance have seen a significant upswing in self-employed clients coming to the brokerage over the years and benefiting from its low-doc flexible financial solutions. “I’ve always looked after self-employed people,” says Stillman. “I’ve always done quite a lot of low-doc business – a lot through the banks but a lot through non-banks as well. “They make securing a mortgage for selfemployed people a reality, but ultimately people have two options: they can either not borrow the money and wait until their tax returns are done, or borrow the money now, pay a slightly higher interest rate, and maybe use that money to increase their wealth and investment portfolio.”
PICKET FENCE FINANCE The directors of an award-winning boutique brokerage in Melbourne are rejecting the popular idea of a one-stop shop in favour of focusing only on mortgages. Australian Broker finds out why
IN MELBOURNE’S beautiful Albert Park close to the lush and leafy St Vincent Gardens sits awardwinning boutique brokerage Picket Fence Finance. At the helm are directors Cameron Stillman and David Kearns, who cater to clients in Bayside and its surrounding southeastern neighbourhoods. In this relatively wealthy part of Melbourne, the brokerage services a large demographic of professionals in their mid-30s to 40s who have children and are looking to upsize. But in an industry in which ‘diversification’ continues to be a term that is thrown around at any and every opportunity, Stillman and Kearns are bucking the trend and have made a conscious choice to focus their business solely on mortgages. “We just specialise in broking,” says Irish-born Kearns. “We want to be known as a really great boutique mortgage business. “We contemplated going down the one-stop shop [route], which most people are doing,” adds Stillman. “But we said no; we’re going to stick to our knitting and we’re going to do it and do it well.” Five years on The duo founded Picket Fence Finance in 2011 after they realised the brokerage they were both working at was heading in a direction that felt at odds with their imagined path. Five years on, Picket Fence Finance has won numerous awards, including Platinum Broker – Westpac 2014; Editor’s Choice
Winner 2014 – Better Business Awards; Victorian Broker of the Year – Bankwest 2014; and, most recently, Premium Broker – ANZ 2016. With their business as robust as ever, Stillman and Kearns also have plans to expand interstate in the future.
Everyone is an opportunity “I think every single person you meet is an opportunity,” says Kearns on what new brokers should look out for when seeking new business. “They will either know someone with a loan, or be in the process of getting a loan, or know somebody who is refinancing at any given time. “I would also say you’ve got to treat broking as a career, as a profession. It’s full-time – it’s not a part-time existence. It’s really important as well to develop your own referral base; [for example] when I first started in broking I targeted all the people I knew in hospitality. “Create something for yourself, be it accountants, real estate agents, whatever niche market you might have – just go and develop it.” Stillman and Kearns both agree the best part about broking is finding the right solution for their clients. “For me, it’s finding a solution for clients who are in a pickle, and saving clients money,” says Stillman. “It’s a nice feeling knowing the client’s walking away with a solution when they couldn’t find one, and possibly a cheaper interest rate than what they were on previously, and reducing their monthly repayments.”
“I think every single person you meet is an opportunity” David Kearns “We’ve got a few ideas about how we want to grow the business, and that’s probably going to involve other offices here in Melbourne – and then, ultimately, potentially Sydney and maybe even Queensland, but baby steps at the moment,” says Stillman. “We’d love Picket Fence Finance to be a household name in the next five or 10 years.” Stillman has been a mortgage broker for nearly 15 years, but his intense “past life” spent trading futures and options both in Sydney and Singapore set him on the path to finding more balance. “It was a change for me from an intensity point of view,” he says. “I was trading multimillion-dollar contracts, then suddenly just doing $300,000 to $400,000 home loans, but I think I was just ready to make the change.” In complete contrast, Kearns used his 11-year career in hospitality management to his advantage when he started out as a broker. “[I introduced]
Where the grass is greener For Kearns and Stillman, giving back to the community is also an important part of being a good business owner. “The grass is greener on our side of the fence” is the brokerage’s motto, and in keeping with the theme Stillman and Kearns launched a charity initiative, ‘The Grass is Greener’, earlier this year to raise money for charitable organisations and trusts. “Basically, for every single loan that we settle, be it a purchase, be it commercial, owner-occupier or investment, we donate $50 per loan that’s settled into this fund,” explains Kearns. “We nominate six charities and we [also] get involved with those charities”, rather than only donating money to them. “We believe a business is more than its four walls. It’s an opportunity to give back and care for the community you live, work and play in.”
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PEOPLE CAUGHT ON CAMERA Australian Broker recently attended the Sydney round of AFG’s Masterclass series, which for the first time was opened up to all brokers. The professional development day included speeches by Brett McKeon, Mark Hewitt, Stephen Hale and Peter White, followed by audience questions to the panel regarding the additional regulatory scrutiny and ASIC’s review into broker remuneration.
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PEOPLE HOT SEAT
HOLLY BERTSOS Principal at Niche Finance Holly Bertsos explains how she turned a lost deal into one of her best clients and how she plans on taking her business to the next level
Who or what inspired you to become a broker? My biggest inspiration was the ability to offer clients a choice of lenders and policies, which is my whole proposition I promote A in this game. It was also the exposure to inexperienced brokers in the market. Over 10 years ago I held a career in business banking, and in one of my last roles I worked closely with local brokers. I realised there was a niche in the market for experienced brokers that understood business lending, self-employed applicants and how to read financials. Also, working for a bank you only ever had one suite of products and set of policies, so sometimes it was trying to fit a square peg in a round hole to find solutions.
Q
What is your most memorable experience in your career as a broker? It’s probably a story linked to one of my best clients today A actually. I was introduced to him over five years ago when we were given an opportunity to review his existing home loan. We approved a brilliant deal that saved him thousands. But his existing lender reacted and matched our offering and he was swayed by so-called ‘loyalty’. I kept in touch with him for over 1.5 years as I knew it would only be a matter of time before his lender would make him disgruntled again. As predicted, my opportunity came once again. I insisted I wanted the opportunity to review all his business lending this time, and it worked out we saved him even more than the first time, plus devised a debt reduction plan on his home loan. His lender came close, but it was the saving, persistence and big-picture plan that eventually won his business. He comes to me first time every time now, and we have financed several of his business facilities, trucks and boat loans – everything! Not only is he one of my top clients but he has referred me to a handful of other clients. Not a bad outcome to initially a lost deal!
Q
What do you see as the biggest disruption facing the mortgage industry in the next year? If the outcome of ASIC’s current review determines our A industry is fee-for-service only or recommends a reduction or interruption to our current commission schedule and incentives.
Q
What are your business goals or growth plans this year and what are your plans for achieving them? My business goal in the next year is to add another broker A into my business. I am currently the sole broker with two admin staff, and I have found a bit of a bottleneck in flow during busy times. I am hoping to get some guidance and advice from some successful brokers I know in the industry to learn best strategies to grow to this next level. I believe having a mentor is important. In addition to the usual sales and referral source strategies, we also recently introduced a retention process into the business, which I am hoping generates some additional business as well as helps to retain my trail book to support my growth plan.
Q
Holly Bertsos
If you could have one superpower, what would it be and why? To wave a magic wand and grant world peace would be great right now! (Or is that perhaps a bit too cliché Miss Universe?) Industry A related, perhaps a crystal ball to determine if we have to fear the future in our industry with ASIC’s review. An RBA cash rate predictor wouldn’t be too bad either!
Q
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DAMIEN ROYLANCE ENTOURAGE FINANCE BROKER OF THE YEAR - PRODUCTIVITY 2015
FRIDAY 21 OCTOBER 2016 | THE STAR SYDNEY www.australianmortgageawards.com.au
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