Australian Broker 13.18 by Key Media

NEWS APRA to turn attention to commercial lending Byres: Will combat any ‘serious issues in the system’ P6

ANALYSIS The great debate: Flex-commissions Should they stay or should they go? P12

OPINION Crafting a personal brand Using personality to benefit your business P16

SEPTEMBER 2016 ISSUE 13.18

OPINION Drop the pressure

The impact of cheap money on the property market P18

MARKET TALK Aussie property growth in global Top 10

Melbourne and Sydney two of the strongest markets in the world P20

WILLIAM LOCKETT The founder of aggregator Specialist Finance Group on increasing its broker footprint and how acquisitions can benefit brokers P10

FINANCIAL SERVICES Banks’ broken ethics

Insiders say banks ignoring customers’ best interests P21

BORROWER SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

AGGREGATORS

MFAA begins search for unethical broker P4

APRA turns to commercial lending

Aussie rolls out $25m rebrand

v $250,000 - $699,999 AUSSIES w t TWO MILLION IN FINANCIAL STRESS

BROKERNEWS.COM.AU EDITORIAL

1 in 2 adults

have limited to no

SAVINGS

Editor Madelin Tomelty

1 in 2 only have a

News Editor Julia Corderoy

“basic understanding” of

FINANCIAL

Journalist Maya Breen

products and services

Production Editor Roslyn Meredith

ART & PRODUCTION

1 in 5

1 in 10

have limited to no social connections

have unmet need for credit and/or insurance

1 in 30 say they need but

do not have access to any form of government or community support

Traffic Coordinator Freya Demegilio

Account Manager Rajan Khatak Marketing and Communications Manager Lisa Narroway

CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

FIRST HOME BUYERS CALL OUT GOVERNMENT FOR LACK OF SUPPORT and policymakers need to be doing more than using housing affordability as means of scoring political points. “The government has actively spoken about the ongoing issue of housing affordability in a lot of public forums,” Flavell said. “But while there is a lot of talk about housing affordability and its impact on the broader community, there is next to no action. I believe the time for political grandstanding has come to an end and it is now time to act.” According to the survey, nearly half of respondents (47.4%) believe stamp duty should be abolished to assist first home buyers, while 35.5% believe first home buyer grants for established properties should be reintroduced.

Designer Martin Cosme

Sales Manager Simon Kerslake

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

Source: NAB

Figures from Mortgage Choice’s latest annual First Home Buyer Survey show that a significant proportion of first home buyers in Australia believe government support for those attempting to enter the property market is insufficient. According to the report, 64.4% of first home buyers who purchased in the last 24 months would have bought sooner if they had received more financial assistance. When asked if they believed there was currently enough government assistance offered to first home buyers, 57.3% of respondents said no. Mortgage Choice chief executive officer John Flavell said the survey results showed that many Australian’s feel home ownership is becoming increasingly unattainable

Design Manager Daniel Williams

SALES & MARKETING

With the current low interest rate environment predicted to continue to keep heat in the housing market, Flavell said even a quick look at Australian property could illustrate why first home buyers would like some assistance. “Across the combined capital cities, property prices rose 8.3% over the last financial year. Sydney and Melbourne were the standout performers, with the two cities recording property price growth of 11.3% and 11.5% respectively,” he said. “Across Australia, there is only one capital city that doesn’t boast a median dwelling price above $400,000. With that said, it is easy to see why so many first home buyers struggle to get a foot on the property ladder.”

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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, Singapore 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

MFAA BEGINS SEARCH FOR DODGY BROKER The MFAA has instigated a search to uncover the name of a mortgage broker accused of unethical conduct in a News Ltd report recently. According to the article published by News Ltd, an elderly Western Australian couple have claimed that their income level was inflated by both their mortgage broker and bank during their purchase of an investment property in Queensland in 2011. The couple told News Ltd that while purchasing a house and land package in the Queensland town of Zilzie, their mortgage broker inflated their earnings after they had signed their mortgage application. They also claimed that their income was further inflated during the internal mortgage assessment carried out by their bank. The MFAA has responded by taking immediate action to identify the broker mentioned in the report. “The MFAA has a clear policy that any report of a member allegedly acting in an unethical manner is fully investigated if evidence supports an allegation of

misconduct. We have invested in an external tribunal process that properly reviews matters of this nature. The MFAA does not tolerate any matter that places a consumer at risk, and where the MFAA Tribunal finds wrongdoing it has in the past expelled members or suspended membership, and in these serious cases it reports the matter to ASIC,” stated the MFAA’s Stephen Hale. “Most lenders insist on industry body membership to enhance standards. Aside from ASIC’s regulatory oversight, the MFAA’s disciplinary process, instituted and supported by its members, has shown time and again that the association is able to continue to self-regulate. “Brokers who engage in serious misconduct will eventually pay the price for that. We have a close working relationship with the regulator, and should an investigation reveal that a consumer has suffered from serious unfair or unethical conduct by a member, the association will share its findings,” Hale concluded.

A rundown of the next fortnight’s events

SEPTEMBER

What: MFAA Property Investment Philosophies webinar Where: At your computer Details: John Hopkins, founder and executive chairman of Lantern Property Partners, will share his knowledge and provide insights on investing in property in Australia

WHAT THEY SAID...

Peter White “It is not a matter of if it should stay or go: flex-commissions are going” P12

Cameron Kusher “Demand for premium housing within the most expensive areas of the country remains buoyant, which suggests that over the coming year the proportion of sales at a price point of at least $1m will continue to rise” P20

Rob Ward “While markets tend to sort themselves out more often than not, I believe the banks need to assess the capacity of each individual borrower to service, rather than APRA having to step in with a regulatory blanket approach, which could bring the market to a grinding halt” P18

SEPTEMBER

What: MFAA Loan Processing Benchmarks webinar Where: At your computer Details: Andrew Duerden will share the Broker Process Benchmarks he has developed in his business, with sideline commentary from Zarko Jokic, so brokers can drive profitability in their businesses

SEPTEMBER

What: FBAA Springwood PD Roundtable Where: Lions@springwood, Rochedale South, Qld Details: Queensland State President Stephen Rasmussen, councillors and FBAA CEO Peter White will bring members updates on the FBAA and other industry matters that are affecting brokers’ businesses

REGULATORY ROUNDUP 6

WORLD NEWS

BANK PROFITS DOWN 27%

Major banks’ financial position to June 2016 14%

$3,000,000

12%

$2,500,000

10%

$2,000,000 $1,500,000

6% UK HOUSING NO LONGER ‘POSITIVE’ Fitch Ratings has revised its UK housing and mortgage outlook from Stable/Positive to Stable. The change comes in response to the UK’s decision to leave the EU, and the increased uncertainty around the UK housing market and economic fundamentals created by the Brexit vote. Fitch Ratings said in an online statement explaining the change that while UK house price growth and mortgage performance had exceeded expectations in 1H16, “the vote to leave the EU has potentially put some of the supportive macroeconomic factors we identified in January, such as strong growth, in jeopardy … and house price appreciation and mortgage lending growth are likely to slow. Early indicators suggest that increased economic uncertainty is filtering through to the housing market”, the statement said. According to Fitch, the Bank of England’s policy response will support mortgage performance and keep rates on new lending low over the next one to two years. Arrears are likely to remain low in the near future, and affordability stress-testing rules introduced in 2014 should help ensure that borrowers are resilient to future rate rises. The UK’s buy-to-let (BTL) market has already seen the effect of higher stamp duty, with a high number of completed purchases in March, immediately before the increase took effect, which helped drive steep growth in gross mortgage lending overall. However, Fitch has warned that this BTL demand could be affected if the prospect of Brexit results in a fall in net migration and/or a notable economic slowdown in London and the Southeast, where BTL pools typically have higher exposure. There are also planned increases in the works to interest coverage ratio requirements by a number of lenders, and upcoming changes to tax relief for landlords that may also hamper BTL growth.

$1,000,000

$ Million

$500,000

2% 0%

Jun Jun Jun Jun Jun Jun Jun 2004 2005 2006 2007 2008 2009 2010 Gross loans and advances Tier 1 capital ratio Provisions to advances

Jun 2011

Jun 2012

Jun 2013

Of which home lending Common equity tier 1 capital ratio

Jun 2014

Jun 2015

$0 Jun 2016

Capital adequacy ratio Loans to share capital Source: APRA/Digital Finance Analytics

APRA TO TURN ATTENTION TO COMMERCIAL LENDING According to a report in the Australian Financial Review (AFR), APRA chairman Wayne Byres has said the regulator will look to different methods to ensure the stability of the banking sector after its crackdown on residential investment lending proved to be effective. Further tightening the 10% cap, he said, would likely have little impact on Australia’s banking sector. “It is all very well to say that 10% cap could be a bit high, and you could lower it by a couple of percentage points, but actual growth in investor lending at present is down near 5[%]. I could lower the cap to 7[%], but I don’t know what difference that really makes,” Byres said, according to the AFR. “[The cap was] always intended to be temporary [and] it is still our view that it will be temporary, so we are certainly thinking about the next evolution of what we do,” he said. The AFR report states that APRA will still have a sharp focus on the loan books of Australian banks, but it will focus on commercial property lending. “In the history of banking, commercial property has always been front and centre whenever there have been any serious issues in the system. So it is natural that at times when

valuations look to be on the high side, we are making sure the lending quality of the banks and the basis on which they are assessing credit is maintaining a healthy degree of prudence about it,” Byres said. Byres also stated that while the regulator’s recent push to require lenders to hold an increased amount of capital against their loan books has strengthened the Australian banking system, it is nearly impossible to guarantee there won’t be any future collapses. “We also need to remember there are no guarantees. No level of capital (short of 100% equity funding) can provide creditors with an absolute guarantee against the possibility of bank failure. “Adequate capital is undoubtedly critical to the stability of any banking system. But to return to today’s theme, we can’t solely ‘bank on capital’ to deliver safety and stability. If we accept that failures, while hopefully still reasonably rare, are nevertheless inevitable, then preparation to minimise their impact is an essential investment,” he said. To minimise any impact, Byres said it was essential that APRA continued to have an active supervisory role in the industry and that it retained its willingness to intervene if necessary.

AGGREGATOR UPDATE 8

LENDER UPDATE LENDING HIGH BUT GROWTH SLOWING

Credit aggregates to July 2016, seasonally adjusted $3,000

40% 39%

$2,500

38% 37%

$2,000

AUSSIE LAUNCHES $25M REBRAND Leading mortgage franchise Aussie Home Loans has launched a new brand strategy, with the return of the iconic slogan, ‘We’ll Save You’, as well as a new corporate positioning. The fully integrated multiplatform campaign is Aussie’s biggest-ever investment in strengthening its brand, with more than $25m worth of investment committed to the campaign, which is expected to roll out across all areas of the business throughout the 2017 financial year. The campaign rollout includes a redesign of the Aussie website, a series of TV commercials, online videos on YouTube and Facebook, online advertising, and a broad range of local and store-based as well as social media marketing. Created in collaboration with Aussie’s newly appointed agency partner Special Group, the campaign has been in the works for the past six months. The TV commercials in particular position mortgage brokers front and centre while demystifying their role in helping to secure the right loan for a customer’s individual needs when faced with an overwhelming choice of lenders. “Nearly 25 years ago John Symond brought a face to a faceless industry and revolutionised the Australian home loan market. This new campaign drives forward what he and Aussie’s team have built together, Australia’s largest and most successful mortgage broking brand,” said Aussie chief executive James Symond. “The advertising shows consumers what happens in thousands of homes, offices and Aussie stores every month – Aussie brokers working side by side with customers, helping them navigate thousands of home loan products, each with different features and limitations that could go unnoticed to an untrained eye.” Symond added that breathing new life into Aussie’s iconic slogan was an important part of the franchise’s rebrand strategy. “With more than 50% of home loans in Australia facilitated by mortgage brokers, we are driving the mortgage broking industry even further forward with this campaign. We are also very excited to bring back our famous slogan, ‘We’ll Save You’, as it not only resonates with consumers who are shopping around for a better deal, but those who understand that being looked after by a professional, local home loan expert can help them save not just money, but help them avoid stress, wasted time and uncertainty,” he said. Aussie recently opened its 200th branch and now boasts over 1,000 mortgage brokers nationwide. The franchise posted record results for the 2015/16 financial year, with $22bn worth of loans settled and 25 new stores opening.

$ Billion

36% 35%

$1,500

34% $1,000

33% 32%

$500

31% 0% Jan 2013

30% May 2013

Sept 2013

Jan 2014

May 2014

Sept 2014

Credit; owner-occupier housing; seasonally adjusted Credit; other personal; seasonally adjusted % investment lending

Jan 2015

May 2015

Sept 2015

Jan 2016

May 2016

Credit; investor housing; seasonally adjusted Credit; business; seasonally adjusted % business lending Source: Digital Finance Analytics

FAST’S LOAN BOOK DOUBLES, HITS $60BN Aggregator FAST has reached the $60bn mark in the value of its loan book, with strong growth in residential and business lending helping to drive a record level of growth for the group. According to FAST, the aggregator’s business lending origination has doubled in the past two years, rising from $3bn in FY14 to $6bn in FY16. Recent Comparator data also shows that FAST brokers captured nearly half (45%) of the $3bn worth of all broker-originated commercial loans in the first quarter of 2016. Growth in residential lending has remained strong, with settlements topping $1bn a month for the 15th month in a row. FAST CEO Brendan Wright said the growth was testament to the aggregator’s network of more than 1,200 business-minded brokers. “Commercial and business lending expertise is part of our DNA. This phenomenal growth speaks to the strength of our brokers, as well

as FAST’s network of partnership managers dedicated to supporting our brokers with business lending opportunities,” he said. FAST brokers are now settling an average of $500m in commercial and business loans every month, with 60% now offering an additional service outside of residential finance, according to Wright. He added that with nearly 40% of broker clients being small business owners, opportunities in the commercial space are rife. “Clients are turning to brokers with a much broader set of needs and more complex queries. This is something we expect to see more of as the market continues to evolve and mature. There is enormous opportunity for brokers to guide clients through more sophisticated residential finance options as well as broader business and commercial finance solutions,” Wright said.

COVER STORY ON THE UP

Specialist Finance Group’s William Lockett on the aggregator’s growth strategy, and why keeping his brokers happy is always front of mind

‘FLYING UNDER the radar’ isn’t a phrase commonly used in the mortgage industry. With a white-hot property market, competition is stiff and the mortgage landscape rife with brokers, aggregators and lenders all fighting for exposure and a piece of the pie. And yet flying under the radar is exactly what boutique Perth aggregator Specialist Finance Group (SFG) has been doing in recent years. Founded in 1991, SFG was one of the industry’s pioneering aggregator groups and 25 years later has offices in Perth, Sydney, Melbourne, Singapore, Dubai, Hong Kong and London. In the past eight months SFG has come out of the woodwork and into the headlines as a result of its bold acquisitions of two Perth-based aggregators: Ballast Finance and Southern Cross Broker Network. Speaking to Australian Broker about the acquisitions, founder and managing director William Lockett says they have been absolute successes, both from SFG’s perspective and that of the brokers. “Probably from our point of view what it has done is it’s given us a significant growth both in terms of instant members and obviously instant volume in terms of what we’re writing. So that’s

life of a broker running a business, and this understanding extends to the way he runs SFG. “… you’ve just got to be very open-minded, you know … see I was originally a broker… So we understand the very essence of what drives sales. A lot of people are in admin and they get the result, but … they haven’t had the hard yards and they don’t sometimes fully understand the mentality of sales,” Lockett says. He explains what the new broker members of SFG – those that have migrated from Ballast Finance and Southern Cross – have gained by becoming a part of the SFG network. “We identified those acquisitions as a value-add. Not only a value-add from us to them, but also a value-add from them to us. So the services that we’ve provided [brokers with from] both the acquisitions has been greater than they had originally ... So on a number of levels it has proved very successful for both Ballast and Southern Cross.” As an example, Lockett says, Ballast Finance had a few members in Queensland that had never experienced a PD day prior to becoming part of SFG. New members are also thrilled by SFG’s online member portal, Lockett adds. Here, brokers can punch in the details of a deal they might need

“Because also we’ve got more members on the ground who are happier; we’re actually getting a lot of referrals from our existing members who are speaking to other people in the industry, who are catch-men, who are bringing in people …” been fantastic,” Lockett says. From SFG’s pre-existing brokers, the feedback has also been positive, according to Lockett. “We have not lost one member in either acquisition,” he says. “All of our existing members have been supportive and very excited about our growth and have been very happy for us, so that’s been fantastic.” Drawing on the past Lockett says his own background as a broker has given him a deep understanding of the day-to-day

assistance with, and the query goes to 12 of SFG’s most experienced writers Australia-wide as well as to a lender panel, to help them set the deal. “Both Ballast and Southern Cross have loved that. And again, they’re born from the structure of both companies having access to senior management but now having access to the direct ownership structure [at SFG].” Lockett is referring to what is one of SFG’s unique propositions as a boutique aggregator fighting for broker market share in the highly

SFG’S FOOTPRINT

Specialist Finance Group has offices in:

Perth

Sydney

Melbourne

Singapore

Dubai

London

Hong Kong

400 Broker footprint of

competitive aggregator space. He prides himself on SFG’s promise to be fully accessible to brokers. That is, if a broker has a question, Lockett says, he is always available to answer it for them. “We’ve got some great competitors out there like Connective and PLAN and AFG, but I’ve used this analogy before, where you can’t pick up the phone and ring a Mr AFG; you can’t ring a Mr Connective – you’ll never get through to them. You’ll get through to some small or middle-tier management level, but you’ll never get through to the owners,” he says. “Now, even though we’ve grown wonderfully well over the last 25 years, but particularly in the past three to five months … our communication with our members today is actually better than it’s ever been…” Always on the lookout So, with two acquisitions already complete and a clear strategy to expand its broker footprint, this

begs the question: what’s in SFG’s pipeline? “…We are always on the lookout for further acquisitions that are a value-add,” Lockett reveals. “We have identified a further acquisition that we’ve only sort of just scratched the surface on but where both parties have shown a willingness to talk, which means that’s a door opening to moving discussions further.” It’s crystal clear that Lockett wants to increase SFG’s exposure and members, and acquisition is evidently one way to do this. But another is through broker retention. Keeping brokers happy, he says, is crucial to the success of SFG and something that shouldn’t be underestimated. “Because also we’ve got more members on the ground who are happier; we’re actually getting a lot of referrals from our existing members who are speaking to other people in the industry, who are catch-men, who are bringing in people …” Currently, the aggregator has 400 brokers

on the ground in WA, NSW, Victoria and Queensland, and a handful in Asia. “I’m confident that in the next one to two years we will see … our most successful organic growth with new members to us – which includes new entrants to the finance field – and finance brokers choosing us as their aggregating partner moving forward, ” Lockett states. Flexibility is key But the icing on the cake of SFG’s proposition and perhaps one of the biggest factors contributing to broker referrals is its unique four-tier commission model. Brokers can choose from a percentage agreement, a transactionalbased agreement, a monthly fee agreement or an annual fee agreement under the aggregator’s flexible arrangement. And while these days this idea isn’t new, with competitors like Vow and Connective going down a similar route, what many people don’t know is

that SFG was the first aggregator to launch this flexible commission model. “You’ve got the four options there so it gives you total flexibility on the agreement that you want to choose that’s best for your business. So that in itself has proved a significant win because it’s not giving a potential member one option; they’ve always got four to choose from,” says Lockett. Lockett’s passion for his company is palpable, and if enthusiasm and passion are an indication of SFG’s future success, for this boutique aggregator the only way is up. “When I come to work every day my goal is to perform better today than we did yesterday,” says Lockett. “You can strive for perfection, but if you think you’ve achieved perfection then you’ve got no room to grow.” And if Lockett has made anything clear, it’s that growing SFG is his number one priority.

ANALYSIS THE GREAT DEBATE

Calls for the abolition of flex-commissions have heated up again. Australian Broker investigates their use in asset finance and the consequences of their potential ban

HAVING LONG been a source of tension in the industry, flex-commissions, whereby a party other than a lender can effectively set the interest rate payable by the consumer and earn a higher commission, fall under the point of sale (POS) exemption to the National Consumer Credit Protection Act 2009 (NCCP). Prior to the commencement of the NCCP, the government exempted retailers and introducers who engaged in credit activities at the POS from the requirements of the Act, including the credit licensing regime and the responsible lending

protection and competitive fairness gaps to appear,” the MFAA stated in its response, dated 15 March 2013. In December 2015, ASIC then called for submissions in relation to a discussion paper it had released to the motor vehicle industry, in which the regulator said flex-commissions created an “inherent risk of unfair conduct” with a “disproportional impact on vulnerable (but not credit-impaired) consumers”. Today, however, these POS exemptions still exist and both broker associations have thrust

“To allow exemptions is to weaken the integrity of the legislation by enabling both consumer protection and competitive fairness gaps to appear” MFAA obligations. The exemption – which applies to asset finance, in particular the car finance market – has been in place since mid-2010 and has garnered much attention over the years. In 2013, the Treasury released a discussion paper questioning the indemnity and offering three options: to maintain the exemption; to require all retailers to abide by the NCCP; or to apply function-based regulation to retailers, meaning that those who were more actively involved in product selection and delivery would be subject to a higher level of regulation. Both the MFAA and the FBAA submitted responses to the discussion paper, arguing that there were no grounds for exemptions from the NCCP. “To allow exemptions is to weaken the integrity of the legislation by enabling both consumer

flex-commissions into the limelight again, calling for them to be banished once and for all. A positive outcome for consumers In July of this year, the MFAA lodged a follow-up submission to ASIC arguing that flex-commissions should be abolished, in response to membership feedback. “We wanted members to know that we have represented them and provided a follow-up submission on behalf of the industry,” an MFAA spokesperson said. The follow-up submission reinforced the association’s February 2016 submission, which was also written in response to ASIC’s discussion paper. In the association’s original submission, it argued that vetoing of the POS exemption

would “greatly alleviate” issues surrounding flex-commissions and consumer outcomes. “Consumers have a right to access a fair deal. The continuing risk to consumers is an ongoing likelihood of significant loss in some car financing transactions, specifically those where the [NCCP’s] disclosure obligations do not apply,” the MFAA stated. “Currently, consumers who seek finance for a car expect that they will receive regulatory protection arguably not unlike that available for home financing. Because a family vehicle is likely to be the second largest financial commitment a family makes, that transaction should have the same or similar regulatory oversight. The current arrangements allow some car finance transactions to fall outside regulatory control due to the POS

exemption. We believe that this causes imbalance in the sector and is unfair to consumers.” Flex-commissions, while not dissimilar to the way mortgage managers operate in the mortgage sector, don’t apply in the mortgage market because competition has held commission structures and rates down, the FBAA’s Peter White explained to Australian Broker. Further, while the POS exemption – and flex-commissions – largely relate to car dealers at the point of the car sale, they can also apply to car finance brokers affiliated with dealerships. “Our document has a clear focus on ensuring that brokers participating in all financing transactions should fully disclose any remuneration in any relevant transaction including those not regulated by the NCCP Act,”

an MFAA spokesperson said, speaking of the association’s follow-up submission. “The MFAA used the opportunity to again remind regulators and the government that, in its view, the point of sale exemption should be abolished. This would create a level playing field and resolve many of the issues currently perplexing government and regulators, including flex-commissions.” This view was supported in membership feedback, according to the MFAA, as a “key focus” for the industry is on positive outcomes for consumers. Not a question of if, but when In its submission to the Treasury back in 2013, the FBAA argued that the industry “must

ensure” that the POS exemption allowing flex-commissions be banned to protect competition. “… we must ensure, as we have as best as one can with general consumer finance brokers, that motor finance brokers are subject to the same compliance and responsible lending conduct obligations so to ensure consumer borrowers are not disadvantaged … and to ensure there is a level playing-field across all sector stakeholders/participants,” White wrote. Speaking to Australian Broker three years later, White has said time is finally running out for flex-commissions. “It is not a matter of if it should stay or go; flex-commissions are going,” he stated. In a recent meeting with ASIC to discuss

ANALYSIS Parliament, the ability to increase interest rates by adding a higher commission structure would most likely be prohibited by the end of 2017. What will remain, he said, and what the FBAA is campaigning for, is the ability to decrease the interest rate and receive a lower commission. “The way the legislation was drafted prohibits [lowering interest rates] as well and we went to ASIC and said we believe it needs to be worded like this so that there is the capability that if you want to reduce your commission then the interest rate can be reduced accordingly,” White told Australian Broker.

“I just see that the whole [broker proposition] is being lost in this warped world of commission-equals-bad” Maria Rigoni the current review into motor dealer flexcommissions, the FBAA recommended that the regulator stop the practice of flex-commissions after concerns that consumers were being charged excessively high interest rates due to steep loan commissions being added to borrowings. “The FBAA and ASIC have been in continual contact on motor finance issues since the

point of sale exemptions were first brought in from 2010, and we have held National Dealer Roadshows on this and other matters including the FBAA’s multiple submissions to ASIC on the controversial use of flex-commissions,” White said. While he added that flex-commissions were likely to remain in place in the interim, as any ASIC ruling would need to be passed by

Unintended consequences There are some concerns from brokers that banning flex-commissions could negatively affect brokers operating in the asset finance space, and ultimately deter them from wanting to provide asset finance altogether because of the negative impact it may have commercially. Maria Rigoni, director of Universal Wealth Management, told Australian Broker that the idea of flex-commissions – meaning a car dealer or finance broker can set the interest rate payable by the consumer and earn a higher commission – has been misconstrued. “That is actually how I understand finance brokers are paid, because quite often finance brokers don’t get an origination fee. They have to increase that rate to get paid and this is where the confusion is,” Rigoni said. “The maximum paid by the borrower could be a variation, but what that variation actually is could be the broker’s remuneration. It is their gross business turnover. It is not their salary; it is not a bonus. It is actually their gross business turnover … If you offer a really good service to your client, why aren’t you allowed to charge a premium for that? Why do you have to discount it to win the business?” Banning flex-commissions may also erode the broker proposition and harm competition, Rigoni speculated. “What it really is going to do is bring in a fee-for-service model. I just see that the whole [broker proposition] is being lost in this warped world of commission-equals-bad,” she told Australian Broker. “If flex-commissions are banned, the consumer still pays the lender their set interest rate based on risk and the borrower will need to pay the broker a fee for service and/or will receive a ‘set by lender’ origination fee paid to the broker per deal. “For me, it seems it is the lender, not the consumer or the broker, who will come out in front.” But White said concerned brokers shouldn’t get ahead of themselves. “It is going to be like a home loan: this is the interest rate and there is ‘x’ amount of commission in it. You can’t take it up but you can pull it down. What that commission is will be set by the lender based on the interest rate. “… commission will be a lot higher than mortgages but it will be a standardised thought process. It will be a lot more transparent,” he said.

BUSINESS STRATEGY CRAFTING A PERSONAL BRAND Branding expert Karen Tiber Leland on the importance of cultivating a brand that reflects who you are, not just what you do

APPLE UNDERSTANDS the importance of promoting its brand. So does Toyota, Disney and McDonald’s, just to name a few. But individuals often don’t understand just how critical it is for them to promote their personal brands as well. In fact, their careers depend on it. “No one from the CEO to the secretary can afford to not have a strong personal brand (online and off ), if they want to succeed in today’s job climate,” says Karen Tiber Leland, a branding expert and author of The Brand Mapping Strategy: Design, Build and Accelerate Your Brand (www.karenleland.com). A personal brand – much like those corporate brands – tells the world about you. It’s a way of selling yourself and your image in a way that leaves a positive impression. Leland points out that personal branding is not a new idea. She refers to the article that Tom Peters wrote in 1997 entitled, “The Brand Called You”, which helped give rise to the popular idea that an individual can be just as much a brand as a soft drink is, or a laundry detergent. She adds that people such as Napoleon Bonaparte, Winston Churchill and Charlie Chaplin were carefully nurturing their brand images decades and even centuries before it became fashionable. “Even though personal branding has been with us for decades,” says Leland, “the advent of social media as a daily part of all our lives has brought it to the forefront and made it a priority in today’s wired world.” Leland explains why it’s important for everyone to follow Churchill and Chaplin’s lead and cultivate a personal brand. You need to outshine the competition The financial services industry is a competitive

place and it’s easy to get lost in the clutter of all those other brokers out there. You can stand out from the crowd by carefully crafting your brand, from the way you dress to the way you tell the story about the accomplishments you have achieved. Social media is forcing your hand “It’s critical to make sure your online presence (including Facebook, LinkedIn etc.) represents you in the most powerful and professional way,” says Leland. Why? Because potential employers (and clients) will check them out to check you out. According to a 2015 CareerBuilder poll, 52% of employers use social networking sites to research job candidates. And not having social media accounts isn’t a good option because 35% of those employers say they are less likely to interview someone who doesn’t have an online presence. A negative image could undermine your career goals While social media sites can help promote your personal brand, Leland says, they can also be your worst enemy. That same CareerBuilder study reported that 48% of employers chose not to hire someone based on social media content. So ditch inappropriate photos, references to drinking, critical comments about former employers and anything else you wouldn’t want a prospective employer to see. “Anyone who plans to wait out the personalbranding trend until it passes needs a new plan,” Leland says. ““It’s no longer an option in career management. If you don’t define your personal brand, someone else will define it for you.”

ALIGNING YOUR BRAND WITH YOUR PASSIONS Marsha Friedman, founder and CEO of award-winning EMSI Public Relations in the US, offers three tips for using your passion to benefit your career We have careers we work at every day – and with any luck we are passionate about those careers – but we also have passions outside work that help shape who we are. Both your profession and your passion can be part of your everyday living and part of your brand – the two aren’t necessarily mutually exclusive, even though we often separate them. Let me offer a few things to consider and maybe you’ll be inspired to put both your profession and your passion to work to help build your personal brand. Recognise you don’t have to wait You can integrate your passion into your brand-building right now. Let me give you an example of how simply it can work. I spoke at an event once where I was preceded by a financial professional who discussed her philanthropic work. She clearly saw her professional career and her philanthropic efforts as distinct parts of her identity, with one having nothing to do with the other. After her speech, I suggested that her philanthropic work would be interesting to the local press and at the same time would elevate her and her company in the eyes of the community and in the eyes of her clients and prospective clients. Share that passion widely Just like that financial professional, you might not recognise it but this other dimension of you is worth letting people know about – although you may need to overcome your modesty. Don’t be shy about making use of social media to share what you’re doing and letting the press know. Let your clients know, too. You may be surprised at their interest in helping with your cause. This isn’t about bragging. This is about an aspect of your life and personality that is a legitimate part of who you are. Be authentic Let me add this slight caveat. You should be passionate about something because you truly are passionate about it, not because it provides public relations potential. Let the PR flow from your passion and not vice versa. When people learn more about you on this personal level, they are more likely to be attracted to you and want to do business with you. And the great thing is you accomplish that simply by revealing the true and more complex ‘you’ to the world at large.

OPINION DROP THE PRESSURE

Real estate heavyweight Rob Ward on the impact of cheap money on the property market

THE RBA board must be sitting back asking themselves: what exactly do we need to do to take some of the heat off the property market and lower the Australian dollar? It is no secret that the Reserve Bank has been doing its best to try to lower the stubborn ‘Aussie battler’, as it was once called. The Australian dollar is being so stubborn that when the RBA announced yet another 25 basis point rate cut last month, it immediately dipped but then ended the day higher than it had been just before the cut. The RBA is having to juggle many different aspects of the economy at the moment. However, when it comes to the property market, Sydney and Melbourne are in the finals of the Olympic Games compared to the other capital cities that are still running in the Little Athletics. Population has a lot to do with this: Sydney’s metropolis population sits at five million and Melbourne just shy of four and a half million. Australia’s total population is 24 million. The two biggest metropolitan areas therefore make up 40% of Australia’s population. Auction clearance rates have been trending upwards since mid-May and in the past few weeks have surpassed the 80% mark – the highest clearance rate in 12 months. The low cash rate is evidently still luring property investors into the market, but the

standard variable rates for aggregate borrowings. This leads me to think that APRA may have already been having talks with bank CEOs given the fact that the markets are pricing in further rate cuts. With the sky-high auction clearance rates over the weeks since the last RBA meeting, there is no doubt in my mind that the regulators will be concerned. We’ve now seen three consecutive increases in the auction clearance rates since the last rate cut, and a few weeks ago we saw a clearance rate of 84.1%, the highest August clearance rate ever. If we look at the year-on-year figures, it gives us a very clear snapshot of why the regulators may indeed consider intervening once again. In Sydney we’ve seen a decrease in both the number of properties listed in 2016 (-34%) and, as a result, the total value of properties sold (-47%). Sydney has seen a chronic shortage of housing stock on the market this whole calendar year, and in fact there have only been seven occasions this year when we have seen more than 500 properties go to auction in a week. The shortage of listed properties is putting a lot of pressure on the property market, which is also being fuelled by cheap credit, and consequently increasing auction clearance rates (up 10.4% from 2015) as supply fails to keep up with demand.

With the sky-high auction clearance rates over the weeks since the last RBA meeting, there is no doubt in my mind that the regulators will be concerned question is: how long before APRA intervenes once again? Hot competition It was 15 months ago that APRA decided to step in and force the banks to lower their loan-to-value ratios for investment property loans. At the time, the banks also decided to stop discounting their

APRA’s mandate The fact that we have seen the median price of a three-bedroom unit increase by 34% over the past five years will definitely be another concern for the RBA and APRA. As the sales market remains tight and vacancy rates remain low, rental rates will continue to increase as homes become harder for renters to find. Ultimately, as

purchasing a home becomes unachievable for many, rental demand will continue to go up. Over the past couple of years property investors have copped the bulk of the blame for the spike in property prices and the fact that property investors are subsidised by the government. This is true; however, recent figures from the ATO show that the impact negative gearing had on the federal budget in 2013/14 has actually more than halved from $7.9bn to just $3.7bn. In this same period, the cash rate was at 2.75%, 1.25% higher than what it is currently. The low interest rate environment has allowed investors a lower cost of funding and therefore a gradual increase in rental return. The impact of this on negative gearing is substantial. As more numbers come out of the ATO for the 2014/15 and 2015/16 financial

Rob Ward is the CEO of Di Jones Real Estate

years, we will see further declines in net rental losses, and negative gearing will be seen to have had even less of an impact on the federal budget than in previous years. This impact will continue to decrease over the next few years if the cash rate keeps falling, and ultimately investors may actually end up in a position where they are paying tax on their investments rather than receiving tax breaks. Looking at the current level of interest rates, it would be fair to assume that the majority of future property investments will be neutrally geared and not negatively geared at all, given the certain yields investors can expect to receive. Another interesting thing to note is that

the ASX index peaked on 31 October 2007 at 6,754. The index currently sits at 5,526 almost nine years later, still down 19% from its peak, suggesting the shift after the GFC from buying shares to buying property – still considered a sure thing and a safe haven, especially for ‘mum and dad’ investors’ hard-earned money. Some decisions need to be made – it is clear that the market cannot keep rising at these levels. While markets tend to sort themselves out more often than not, I believe the banks need to assess the capacity of each individual borrower to service rather than APRA having to step in with a regulatory blanket approach, which could bring the market to a grinding halt. Let’s hope that doesn’t happen.

MARKET WRAP MARKET TALK

‘LUCKY COUNTRY’ IS RIGHT

AUSSIE PROPERTY GROWTH IN GLOBAL TOP 10 Two of the world’s strongest residential real estate markets are located in Australia, according to new research from global property consultancy firm Knight Frank

KNIGHT FRANK’S latest Prime Global Cities Index, which tracked house price growth in the year to June 2016, has revealed that both Melbourne and Sydney are among the top 10 growth locations across the globe. The index shows that in the 12 months to June residential real estate prices in Melbourne grew 11%, making it the fifth-strongest market in the world over that period. Sydney came in just behind Melbourne in sixth position, with prices growing 10.2% in the 12-month period. Michelle Ciesielski, Knight Frank’s Australian residential research director, said the results illustrated the strength of the Australian market. “While there continues to be global uncertainty, Australia is considered highly desirable for long-term wealth preservation,” Ciesielski said. “It also helps that Australia is highly ranked for lifestyle and well-placed for the education of future generations. This is despite the Foreign Investment Review Board (FIRB) application fees, as well as foreign investor duties and land tax surcharges in Sydney and Melbourne,” she said. “Locally, Australia has seen a steady recovery in non-mining activity towards a more services sector-dominated economy. The share market has experienced an upward trajectory over the course of 2016, whilst business confidence remains positive in this low-interest environment.” The Canadian city of Vancouver took top spot on the list for the fifth straight quarter with growth of 36.4% in the past 12 months, and Toronto took out number four, achieving 12.6% growth over the year. Shanghai took second spot with growth of 22.5% over the year, followed by South Africa’s Cape Town where prices rose 16.1%. Of the 37 cities on the index, Hong Kong was the worst performer as prices fell 8.4% over the year. Nicholas Holt, Knight Frank’s Asia-Pacific research head, noted that many of the

WHO WANTS TO BE A MILLIONAIRE?

Suburbs with a median value of at least $1m, as at june each year 700

Houses

Units

600 500 400 300 200 100 0 2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: CoreLogic

top-performing markets were located in jurisdictions where new foreign buyer tax arrangements had been introduced. “The latest move by policy makers in Vancouver to apply an additional tax for foreign buyers has mirrored some of the similar moves over the last few years in Asia-Pacific. Hong Kong and Singapore, most notably, have added 15% additional buyers stamp duties, while the Australian states of Victoria, Queensland and New South Wales have also recently introduced various additional levies for foreign buyers,” Holt said. “Whether you are a domestic or foreign property investor, policy interventions are becoming more regular – and in some cases unpredictable – meaning that market analysis must move beyond simple demand-supply relationship and pricing into the realms of political science,” he concluded.

More than one in five house sales across Australia’s combined capital cities sold for at least $1m over the 12 months to June 2016, new data from CoreLogic has shown. The research has revealed that the number of home sales of properties with a price tag of at least $1m has boomed over recent years, with 20.9% of houses sold in the capital cities over the year to June selling for $1m or more. Almost one in 10 units (8.9%) sold for a price tag of at least $1m. Over the past 10 years, the proportion of house sales of at least $1m has increased almost 4.5 times: figures from CoreLogic reveal that just 4.7% of houses sold in the year to June 2006 went for at least $1m. And when compared with 20 years ago – the year to June 1996 – the proportion of houses sold for at least $1m has increased 42 times. Just 0.5% of homes in the year to June 1996 sold for a minimum of $1m. In the unit market, the proportion of $1m sales has increased 3.5 times since 2006 and 30 times since 1996. As expected, Sydney recorded the highest proportion of house sales over $1m, with more than two in five houses (43.4%) sold in the year to June 2016 selling for $1m or more, while 16.6% of Sydney apartments sold for at least $1m. Again unsurprisingly, Melbourne was next on the price growth ladder, with 21.8% of houses and 6.7% of apartments selling for at least $1m over the past year. Hobart recorded the lowest proportion of seven-figure sales: 1.7% of houses and 0.6% of units sold for at least $1m over the past year. CoreLogic research analyst Cameron Kusher said he expected this trend to continue. “Demand for premium housing within the most expensive areas of the country remains buoyant, which suggests that over the coming year the proportion of sales at a price point of at least $1m will continue to rise,” Kusher said. At the other end of the spectrum, just 33.1% of all houses and 40.6% of all units sold across Australia in the year to June 2016 were transacted at less than $400,000, down from 34.8% and 44.1% respectively in the year to June 2015 – the lowest figure on record. “With values continuing to rise it is a fairly safe bet that there will continue to be a decline in the number of homes selling for less than $400,000,” Kusher said.

FINANCIAL SERVICES

BANKS’ BROKEN ETHICS Banking insiders have divulged that banks are pressuring their employees to act against the interests of customers

PUBLISHED ANONYMOUS complaints from bank tellers and other banking staff are painting a disturbing picture of a workforce that is stressed, overworked, undertrained and ethically conflicted, according to online news portal The New Daily. Insiders have divulged that incentive schemes that exist within the banking system pressure bank employees to sell products that are against the interests of customers in an effort to meet sales targets. “To keep their jobs and feed their families, they are desperate and will do what is demanded of them – exceed their target – however they have to,” one bank worker wrote. “The whole culture of selling products to customers even if they don’t really need them is not ethical,” wrote another employee, while a third insider described sales targets as being more important than compliance and the customer. These comments were among the dozens of concerning responses collected by the Finance Sector Union’s (FSU’s) survey recently, which was instigated by the Sedgwick review of banker remuneration already underway by the Australian Bankers Association (ABA). The negative FSU survey responses are proof, according to the union, that a dysfunctional

remuneration system is the “root cause” of the recent bank scandals. Having a sales-incentive remuneration structure pressures employees to force insurance, savings accounts, retail super funds, loans, credit cards and other products on customers who are either unwilling or simply don’t need them, The New Daily has reported. FSU acting national secretary Geoff Derrick told the publication that bank employees were “just as likely to be victims of the system as the consumers” because their bonuses and pay were linked to demanding sales targets. “These are targets imposed from the highest levels of the industry and they are forced down the food chain to the front line,” Derrick said. “If we change the pay system and recognise banking and finance as a professional service where there is a best interest duty owed to the customer, and pay people accordingly, then we will go a long way to fixing the problems we currently face.” The FSU’s call for banking reform coincided with a bank staff remuneration overhaul by British investment fund Woodford Investment Management, which has recently abolished bonuses and put all bank staff on a basic salary structure.

According to the online article, its founder, Neil Woodford, said in a statement that bonuses were “largely ineffective” and could lead to “wrong behaviours”. Andy Schmulow, a financial sector regulation expert and lecturer at the University of Western Australia, said the problems complained of by bank employees in the FSU’s survey were the “trickle-down effect” of a “wider incentive culture”. “Counter staff are experiencing a trickle-down effect of a wider incentive culture which puts profits first, second and third, and where banks are measured only on profit and face no real sanctions, which is why compliance is either dispensed with or ignored.” He also criticised the vertical integration of banks, saying that the process whereby banks distributed the same financial products they created had been a “disaster” for the industry and the nation, leading to “a misallocation of productive investment, either through poor choices foisted on consumers, or through consumers withdrawing from financial advice all together”. The Labor party has been calling for a royal commission into the banking sector for months, but Liberal backbencher Warren Entsch has proposed the creation of a bank tribunal instead, which would allow customers who cannot afford court action to voice their complaints. However, the FSU’s Derrick is concerned that a tribunal would simply “sidetrack” the push for a royal commission, which would be far more effective at triggering banking remuneration reform. ABA chief executive Steven Münchenberg responded to a request for comment by praising the Sedgwick review and dismissing a royal commission as “unnecessary”. “An independent review is being conducted by a former Australian public service commissioner into how bank staff are paid, to help ensure that when people are rewarded for selling products and services they are putting customers’ interests first,” he said. “This review commenced on 12 July and the Finance Sector Union is a member of the Stakeholder Advisory Panel providing input into the review.” Treasurer Scott Morrison previously told the Canberra Times that Bill Shorten’s push for a banking royal commission was a “populist whinge” that threatened to undermine a key pillar of the Australian economy. However, a Fairfax/Ipsos poll in April found that 65% of voters supported a royal commission into the banks, with only 26% opposed. Just over half of Coalition voters also supported a royal commission at this time.

COMMERCIAL

NON-BANK HITS NEW LENDING RECORD Chifley Securities has said it is becoming known as ‘the fifth major bank’, following a record year in commercial lending to developers across Australia who no longer meet the major banks’ tighter lending requirements

NON-BANK COMMERCIAL lender Chifley Securities has posted record levels of lending for the 2015/16 financial year, lending more than $600m to a range of investors, builders and property developers across Australia. The 20-month-old group has $230m in loans to projects currently in progress, with loans ranging in size from $1m to $50m in first mortgages, mezzanine, bridging and construction finance. With $1.1bn worth of loan funding available now, Chifley’s record lending results come following APRA’s major bank crackdown on funding property development as it has responded to strong demand from commercial and residential property developers who do not fulfil the major banks’ new, tighter requirements of presales and added security. “We are fulfilling a demand from developers

who are not meeting the banks’ latest demands for higher presales, especially where the majority of buyers have been foreign,” Chifley Securities director Joe Morello said. “We are providing finance for presales guarantees of 65% of total sales, bridging the gap that has opened up as the major banks have squeezed projects with a strong component of foreign sales.” The surge in demand has even prompted Chifley Securities to launch a property development division, whose clients are now financing 15 projects worth $208m in loans, mostly covering medium-density residential developments in Sydney’s western region, as well as in Melbourne and other major cities. Morello said the financial year had seen a surge in private equity, hedge and superannuation funds chasing higher returns of more than 10% from property finance through

non-banks like Chifley Securities. “Private lending groups, including Chifley Securities, are becoming known as the fifth major bank, with more investment funds entering this sector chasing higher returns, while being secured against property projects being financed,” Morello said. “We provide security to our lenders by being able to step in, where required, to complete developments with our expert property team. “Despite the historic low interest rates and demand from buyers, the banks are becoming much more difficult to deal with for developments, and we see a strong gap in the market for a more pragmatic finance solution.” The group continues to attract finance and mortgage brokers, who are referring their clients for both large and small projects, according to the non-bank.

AFG DRIVES EFFICIENCY IN SMALL BUSINESS LENDING ASX-listed aggregator AFG has announced a strategic alliance with international fintech company Biz2Credit, which will enable AFG brokers to innovate lending for small businesses in Australia. The partnership will allow AFG to leverage Biz2Credit’s patented analytics and financial services technology to process small business loan requests more efficiently. Loan applicants will enter information through a new online small business portal, through which AFG brokers will be able to provide small business borrowers with a broader range of options and deliver faster access to capital. “The ability to receive assistance when and where a customer needs it is one of the key value propositions of a broker,” said AFG’s COO, David Bailey. “The SME lending market in Australia has in our view been underserviced. Using Biz2Credit’s patented technology and AFG’s extensive broker network,

competitive SME lending in Australia is getting the kick-start it needs to succeed.” Biz2Credit’s CEO and co-founder, Rohit Arora, said this partnership also welcomed Biz2Credit’s launch in the Australian market. “Aligning with AFG as our exclusive distributor of Biz2Credit’s advanced financial technology will bring an innovative SME lending platform to the continent of Australia,” he said. “This is a significant engagement with an active organisation operating in the Australian financial services market that understands there is an increasing need to offer digital solutions in all areas of small business lending.” Biz2Credit has helped small businesses obtain more than US$1.4bn in loans and other financial products across the United States. The Biz2Credit platform will be rolled out to AFG brokers towards the end of the year.

OVERSUPPLY FEARS BUILDING MOMENTUM

Number of dwellings approved but not yet commenced: houses vs units 30,000 25,000 20,000 15,000 10,000 5,000 0 Mar-04

Mar-06 Houses

Mar-08

Mar-10

Mar-12

Mar-14

Mar-16

Units

According to data from the ABS and CoreLogic, there are an elevated number of houses and units which have been approved for construction but not yet commenced in Australia. This reflects concerns about overbuilding in certain areas, especially considering that in some locations much of the new unit supply in particular is targeted at an investor rather than owner-occupier market – and in light of the clampdown on lending to foreign investors. CoreLogic predicts that over the coming quarters an increasing proportion of dwellings, particularly units, which are approved for construction will not be commenced, largely due to the challenges of securing enough presales to trigger commencement of the projects. Source: CoreLogic, ABS

TECH FOCUS BANKS’ JOURNEY TO FINTECH With the evolution of the financial services industry well underway, the four major banks have been busy investing in technology and innovation, according to Fintech Business. But which bank is winning the fintech race?

FINDER.COM.AU’S Elizabeth Barry has penned an article on Fintech Business outlining how the major four banks have dealt with the growth of fintech thus far. NAB’s strategy involves emulating its fintech competition, Barry says, referring to a statement made by the bank’s chief executive, Andrew Thorburn, at an event in June. “I actually think we are a fintech company ourselves,” he said. “We have to have the mindset of a fintech company, and I actually think we’ve got a lot of the assets of a fintech company.” NAB also launched a product in June called the QuickBiz Loan from its own innovation hub, NAB Labs. At its launch, Thorburn stated: “We’ve watched developments in the space and been very determined ... to make sure we have our own NAB-branded solution that we’ve built from scratch.” In addition, NAB has partnered with Telstra on its small business marketplace, ProQuo, which the lender considers a ‘start-up’, according to the Fintech Business article. NAB has also pledged $50m to invest in start-ups and develop partnerships with innovative companies through its NAB Ventures fund. Meanwhile, the article reports, Commonwealth Bank partnered with payments start-up Kounta earlier this year, followed by a partnership with small business lender OnDeck, which nabbed the lender the Fintech-Bank Collaboration of the Year award at the Australian Fintech Awards this year. It is Commonwealth Bank’s attitude towards fintech, however, that sets the financial institution apart, Barry says. The bank’s chief information officer, David Whiteing, recently spoke of the need to embrace newer technologies and be ahead of the market. “We should mirror the society in which we operate, so if we become really good at being inclusive we will be able to harvest the ideas and respond quickly,” Whiteing said. ANZ’s Shayne Elliott also told a Melbourne

fintech gathering he was ready for the bank to forge partnerships and invest in start-ups moving forward, and ANZ has announced two key partnerships, including York Butter Factory, a Melbourne incubator, and co-working space Honcho. Honcho allows small business banking customers to receive discounted business registration, marketing and data storage. ANZ’s recent venture with Apple to offer phone users Apple Pay also suggests the major’s willingness to adopt technologies built elsewhere, Barry says. However, Westpac is perhaps “furthest along the fintech curve”, having invested in a large number of fintech start-ups. Through Reinventure, $50m will be invested in Australian technology start-ups, such as SocietyOne, Valiant Finance and Coinbase, while outside of the fund Westpac has also partnered with SME lender Prospa. At the 2016 Banking and Wealth Summit, Westpac CIO David Curran said: “My guess is we will continue to see more collaboration in financial

services, and that will start with more partnerships between banks and start-ups – because that’s what we’re used to – just a few people and easy to define contracts. “Over time, we’ll move to more of an ecosystem model where more and more people will be working together, with new inter-relationships that aren’t that clear. That starts with more partnerships and moving into new ecosystems. The technology is taking us there whether we like it or not.” Barry suggests that the banks that are not going to lose at fintech are those that turn to partnerships. “The banks that are becoming the best innovators are working with fintech, not against it. They are admitting that while they are market-leading, a startup may be worth listening to,” she says. “While there is no clear answer whether partnerships are the best strategy for every company, any answer that best drives innovation for a fintech company, bank or otherwise, should be what’s adopted.”

INVESTING IN INNOVATION

• Created innovation hub NAB Labs • Launched the QuickBiz Loan through NAB Labs • Partnered with Telstra on ProQuo – small business marketplace • Pledged $50m to invest in start-ups through its NAB Ventures fund

• Partnered with payments start-up Kounta • Partnered with small business lender OnDeck

• Partnered with York Butter Factory – Melbourne incubator • Partnered with co-working space Honcho • Partnered with Apple to offer phone users Apple Pay

• Stated $50m would be invested in Australian technology start-ups such as SocietyOne, Valiant Finance and Coinbase • Partnered with SME lender Prospa Source: Fintech Business

STOP DIGITAL DISRUPTION Q1CANâ&#x20AC;&#x2122;T 2016

The Disruption Index tracks change in the small business lending sector and across financial services as a result of customers moving to digital channels, the emergence of new business models, and changing competitive landscapes. 38 37

36.18

36 35 34 33 32

Q3 2016

Q4 2015

Q1 2016 Source: Disruption Index

CONSUMER INSIGHTS MORTGAGE STRESS RIFE

New analysis has shown that approximately one in every five Australian households is currently experiencing mortgage stress

ROY MORGAN’S latest analysis has reaffirmed that it is the lowest-income households that face the highest mortgage stress; however, the worst stress is not located where people would expect – in Sydney and Melbourne. Rather, the highest levels of stress are found in Tasmania and South Australia. This also reflects the two states’ unemployment figures, which sit well above the national average. Nationally, the report estimates that 18.4% of Australian households are experiencing mortgage stress, while Digital Finance Analytics’ Martin North puts the figure at closer to 21%. Mortgage stress can be defined as where over one third of a household’s income goes towards servicing a home loan. For those households that earn under $60,000 per year, the report shows, the chance of a borrower defaulting has increased to 83.2%. In an article commenting on the results of the report, online news portal The Conversation points out that it highlights the greater impact of income on mortgage stress, compared to house prices and borrowing costs. In fact, interest rates would need to more than double to match the impact of a loss of income on housing stress. “House prices and income levels moved in step until 2013. While house prices have continued to increase, household income levels have flattened since then, when the cash rate dropped to a historic low of 2.75%,” the article says. This suggests a problematic

situation in which mortgage stress continues to remain high among Australian households, despite the record-low interest rates. The Roy Morgan report also confirms the idea that home ownership increasingly requires a dual income household, while the latest HILDA report has shown that owner-occupied households are becoming far less common and

home ownership may only apply to a minority of households in the next decade. “With those in the already most marginalised parts of society most affected by mortgage stress, a change in the structures that incentivise home ownership is required to minimise the growing inequality gap,” The Conversation article comments.

TAS AND SA MOST STRESSED ABOUT THEIR MORTGAGES

Households in mortgage stress – August 2016 1,800,000

30%

1,600,000

25%

1,400,000 1,200,000

20%

1,000,000 800,000

15%

600,000

10%

400,000 200,000

TAS

All state borrowing

VIC % in stress

ALL

QLD

NSW

NT Source: Digital Finance Analytics

FACEBOOK LEADS THE WAY ON SOCIAL

Social networks usage by generation (among social media users)

88%

92%

92% 90%

Facebook

93% 28%

Instagram

12%

24% 18% 15%

Twitter

23%

30% 30%

18% GOING BACK TO THE NEST More and more Australians are moving back in with their parents or in-laws to save money for a house deposit, a new survey has revealed. The consumer survey, conducted by non-bank lender Homeloans Ltd, showed that more than three quarters of respondents had moved in with their parents or in-laws in a bid to save money. “The most popular reason for moving in with parents or in-laws was to save for a house deposit (a quarter of respondents). Most of those who used this method to get a foot on the housing ladder were in the age when many start to think about settling down – 25 to 34,” said Will Keall, national marketing manager of Homeloans. “It was interesting to note that we’re apparently never too old to go home, with 45 to 64-year-olds most likely to return to their parents while renovating or building.” More than half of respondents (57%) said they’d gone home to their own parents, while 16% had moved in with their in-laws to save money. Across the states, Victorians were the least likely to consider moving back into the family home, with 64% heading home to mum and dad or the in-laws, compared to 76% across all states. However, the majority of respondents (63%) moved out within a year, with NSW respondents the quickest to move out. “WA respondents stay the longest, with only 55% moving out within the first year, and nearly one in five (18%) staying more than two years,” Keall said. Half of respondents moved home as a couple only, while one in five arrived with kids in tow.

Snapchat

47%

23%

5% 5% 10%

18% 19% 20% 19%

56%

39%

16%

18% 17% 12%

26%

Total Trailing millennials

23%

Leading millennials

23% 24%

Google+

Xers

14% 16% 18% 13% 12% 15%

Pinterest 0

96%

20%

Boomers Matures

40%

60%

80%

100% Source: Deloitte

SOCIAL MEDIA ADVERTISING INCREASINGLY INFLUENTIAL

of respondents say

58%

ONLINE REVIEWS OR RECOMMENDATIONS

from someone within an individual’s social media circle influences their decision to purchase a product or service of respondents identified both advertising through

40%

SOCIAL PLATFORMS AND SPONSORED SEARCH ENGINE result advertising as having the greatest influence on their purchase decisions

For ‘trailing’ and ‘leading millennials’, social advertising is already the most influential form of all digital advertising, with 49% and 43%, respectively, ranking it in their top three most influential platforms. Source: Deloitte

PEOPLE A SAVVY GENERATION MFAA Excellence Awards finalist Viktor Desovski is taking his passion for finance beyond the business of broking to improving Australians’ financial literacy. Australian Broker discovers how he’s making it happen he says his background has been very influential. “I always had a passion to help people own their home because I come from a background of social housing, so for me, helping people own a home – it’s a very strong feeling for me. “I know what it’s like not to necessarily have or own your own home, so I have a passion for when I can help people achieve that. What I enjoy most is that I can be part of people’s journey towards home ownership.” The part brokers can play Desovski makes the point that brokers are ideally positioned to share their financial knowledge with a wider audience in the community as they are already highly competent in financial literacy. He says good ways to encourage people to become involved are via webinars, newsletters, video updates or even by participating in community groups. But, he adds, brokers have to want to do it for the sake of education, not to generate extra business. “The key is that the broker has to initiate themselves to want to do it – they have to go out and want to do it and want to educate. Because

FOR NSW broker and director of Triton Financial Enterprises Viktor Desovski, speaking about financial literacy to groups of young people is just one way he communicates his passion for finance and education. And this is exactly what he did earlier this year at Global Money Week (GMW) in Sydney, where he presented to a group of schoolchildren on the five key areas of finance: savings, spending, earning, borrowing and debt. To further spread the reach of financial education awareness, Desovski also organised for WIN News Illawarra to cover the event presentation to schoolchildren. “I took part in Global Money Week as part of the broader passion I have for financial literacy,” he says. An annual international celebration of money awareness, GMW was created by Child & Youth Finance International and runs for seven days each year. Schools, universities, government ministries, financial institutions and communities around the world are among those that participate, holding events and activities with the aim of inspiring youth to learn about money. In this way, the next generation will be armed with the tools and inspiration they need to shape their futures. Starting young According to Desovski, what was particularly surprising about his interactions with people

“What I enjoy most is that I can be part of people’s journey towards home ownership” at GMW was the fact that the very definition of financial literacy eluded some of the children’s parents. “The kids’ involvement – they were very aware that credit was important,” says Desovski. “They were already aware of non-cash spending and how easy it was to go online, get a credit card and just spend. To me, the surprise was that kids were already more informed than parents about how to get credit.” Desovski believes that the earlier a person gains financial understanding in life, the better, and that saving money trumps how much you earn. “The main reason it’s better to start early is to develop discipline around money and also to understand what is debt and [what is] credit,” he says. “For me, the passion is around saving money rather than earning money. I know through my experience that people earn $200,000 a year and yet have no money for a deposit and others have got $50,000 a year and they have money for a deposit – and that’s because of discipline.” When asked where his drive for promoting awareness around financial literacy comes from,

firstly it’s selfless – it’s not about generating business; it’s purely about educating. If the broker has that internally then it can work; if they’re using this as a tool to generate business, then it’s not going to work.” This year, Desovski was a finalist in the Regional Finance Broker category at the MFAA Excellence Awards held in April, and he says it was an achievement reflecting years of hard work and persistence. “I was recognised in public for what I had practised for years in private, and that is a very rewarding thing and I was very grateful to just be on the board of finalists,” he says. Desovski launched his brokerage in 2012 after making the move from real estate, and has since diversified into commercial broking because of the flexibility it offers. “I felt that the flexibility in the role suited my lifestyle going forward … being a dad and taking care of my family.” Looking ahead, he says he will continue to promote awareness around financial literacy and has plans for more presentations to audiences in schools and the wider community in the future.

CAUGHT ON CAMERA On 10 August Australian Broker joined Aussie chief executive John Symond at the franchise’s momentous 200th branch opening in Balmain. The Darling Street branch, owned by one of Aussie’s longeststanding and most successful mortgage brokers, Lindsay Rogers, is Rogers’ second franchise and the 25th Aussie store to open in FY16. The opening followed a record-breaking financial year for Aussie, with the total number of brokers having grown 20% to 1,450 by 30 June 2016.

PEOPLE HOT SEAT

MATTHEW POSSELT Matthew Posselt, finance broker at Perth-based Iconic Home Loans, on why he prefers broking over banking and how he makes his trail commission count

Who or what inspired you to become a broker? I was inspired to become a broker while working at A a bank. Often I would come across customers that didn’t fit the bank’s policy, yet I knew they would fit other banks’ policies. I really didn’t like knowing that I couldn’t help certain customers, so after talking to a bank third party channel BDM, I knew I wanted to become a broker and that this would enable me to help as many customers as possible.

What is your most memorable client experience? I once had some customers who thought they were A getting a little bit too old to purchase a house again, but they really wanted to move as they had some bad neighbours. After looking at their scenario I was able to find a solution for them so that they could purchase a small home. I was able to quickly get finance approved for them and they were able to move away from their bad neighbours. They were so grateful they wrote me a really nice card, and now they refer me to everyone they talk to!

What makes your post-settlement service different? I am currently working on a few different A things and trialling them. I think the biggest thing is communication, and staying on top of your customers’ thoughts is extremely important. Asking customers for a testimonial is a good way to ensure they are happy with your service and to remind them of the journey you assisted them with in order for settlement to occur.

If you were the head of the MFAA or FBAA, what would be your first priority? I would get out on the pavement and talk A to a range of brokers face-to-face, from the rookies to the pros. I would ask them about multiple aspects of their business, including their strengths and weaknesses, and what areas the MFAA or FBAA can assist them in. Too often these days people hide behind emails and surveys and don’t get to the real key issues.

If you won $1m, how would you spend it? I would invest a large portion of the winnings A back into investment properties, keep a healthy safety net in my offset account, and also take my immediate family on a well-deserved holiday.

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JUSTIN DOOBOV INTELLIGENT FINANCE AUSTRALIAN BROKER OF THE YEAR 2015

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

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