Australian Broker 13.19

NEWS ASIC releases report on review of interest-only home loans ‘There is still room for improvement’ P6

ANALYSIS The ownership equation The industry’s take on vertical integration P12

BEST PRACTICE You are in sales, not finance How brokers should approach their business P16

OCTOBER 2016 ISSUE 13.19

OPINION Entrenched inequality

A university professor on who wins and who loses when house prices fall P18

INDUSTRY SPOTLIGHT Tackling commercial

How one lender is encouraging brokers to diversify P20

CORY BANNISTER La Trobe Financial’s chief lending officer on why brokers are ideally positioned to cater to the aged care segment P10

MARKET TALK High rise approvals continue to boom The vertical housing trend continues P22

BORROWER SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

LENDERS

FBAA says global research will back commission stance P4

ASIC: ‘There is still room for improvement’ in responsible lending P6

Westpac invests $16.5m in fintech P8

BROKERNEWS.COM.AU

MORTGAGE ARREARS ON THE UP

EDITORIAL Editor Madelin Tomelty

Australian residential mortgage-backed

From January to August 2016,

securities (RMBS) transactions more than

regional areas

30 days in arrears increased to

1.19%

were hit the hardest,

between April & June 2016, up from 1.13%

with arrears increasing from

1.24% 1.77%

The most affected states were

to

reflecting the greater Western Australia

Tasmania

vulnerability

South Australia

1.95% 1.62% 1.56%

of regional areas to downturns in key industries or employers

BORROWERS FAIL TO UNDERSTAND BASIC HOME LOAN FEATURES educated about its meaning.

“As a responsible lender, we have a duty to make sure borrowers understand the tools they have at their disposal to find a home loan that best suits their situation.

Property buyers need to be careful that what looks like a very low rate doesn’t actually have lots of nasty hidden fees and charges,” Rigg said.

According to the survey, which was carried out in July, brokers should also prepare for an increase in enquiries from borrowers looking to change their current loan arrangements.

Forty-seven per cent of mortgage holders are currently planning to switch to a fixed rate loan, up from 37% at the beginning of 2016. Of

Journalist Maya Breen Production Editor Roslyn Meredith

ART & PRODUCTION Design Manager Daniel Williams Designer Martin Cosme Traffic Coordinator Freya Demegilio

Sales Manager Simon Kerslake 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

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

SUBSCRIPTION ENQUIRIES

Source: Standard & Poor’s Performance Index (SPIN)

The results of a new survey conducted by credit union CUA show that a large proportion of Australians don’t understand key home loan features.

The National Mortgage Survey, which quizzed more than 1,000 Australians on their knowledge of their home loans, reports that only 29% understand what is meant by a ‘home loan comparison rate’.

Of those who don’t have a full understanding of the comparison rate, 43% said they misunderstood it, while 28% admitted to having no knowledge.

With lenders being legally required to disclose the comparison rate for their loans, Andy Rigg, CUA’s COO member services, said it was important that borrowers were

News Editor Phil McCarroll

SALES & MARKETING

those who said they were planning to fix their rate, around one in three are planning to do so in the next six months.

“The current low-interest rate environment is clearly encouraging some home owners to consider locking in these lower mortgage repayments for the next few years.

This could be because they’re chasing greater certainty, want to pay their loan off more quickly or may be hoping to divert extra savings to other investments,” said Rigg.

“However, it’s also clear that many home owners are still watching and waiting to see if rates fall to even lower levels, before deciding whether to switch from a variable to fixed-rate loan.”

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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

FBAA SAYS GLOBAL RESEARCH WILL BACK COMMISSION STANCE The FBAA says it is continuing to engage with the federal minister for finances and revenue services about the future of broking commissions.

Peter White, CEO of the FBAA, spoke to Minister Kelly O’Dwyer during a private dinner – attended by industry leaders and relevant stakeholders – and briefed her on the fact-finding document supporting the case to keep the current commission structure in place, according to the association.

White told the minister that the comprehensive global research document would be on her desk by the end of the year.

“At no other time has the broking industry seen a collection of data and other information which comprehensively argues the case for retaining the current broking commission model.”

The wide-ranging research shows how brokers are paid in six overseas and relevant markets.

“The data collected proves that our commission environment is globally sound and fundamentally competitive.”

White said the minister acknowledged she was looking forward to viewing the document ahead of ASIC’s review into remuneration structures.

“We also discussed where matters were at in regard to Treasury’s move to fund ASIC back to industry ACL and AFSL holders, which was due for announcement around May of this year, and she advised that there is still a long way to go before a decision is reached on the make-up of the new financial industry funding model for ASIC,” White said.

WHAT THEY SAID...

John Kolyvas “Brokers excel at managing relationships and can provide great continuity for SMEs. The nuances and bespoke nature of commercial credit also gives brokers a clear advantage” P20

Tim Lawless “Over the past 12 months, the most affordable suburbs have recorded the greatest value rises, while the most expensive suburbs have seen a more moderate rate of growth” P22

Carl Violeta “If you can connect with the right referral partner that first year, transition can be a lot smoother than if you don’t have those referral partners in place” P28

A rundown of the next fortnight’s events

SEPTEMBER

27

What: MFAA The Meeting Magnet Webinar Where: At your computer Details: The session will look at why many attempts to get a meeting with a client and prospect fail, and how to write emails that will potentially result in an 80% success rate

SEPTEMBER

27

What: FPA South Australia Chapter Breakfast Where: The Hackney Hotel, Hackney, SA Details: This seminar will include guest speaker Melissa Smith, regional commissioner of the South Australian office of ASIC, who will be discussing the financial services provisions in the Corporations Act and how they affect financial advisers

OCTOBER

5-7 What: AFA National Adviser Conference Where: National Convention Centre, Canberra Details: The 2016 conference for financial advisers will cover business performance, advice strategies and leadership tactics, with world-class speakers, open forums and peer learning opportunities

REGULATORY ROUNDUP 6

WORLD NEWS

INTEREST-ONLY HOME LOANS WAY DOWN

12%

UNITED KINGDOM BANK RATE ON HOLD AT 0.25% The Bank of England voted unanimously to maintain the Bank Rate at 0.25% at its meeting on 14 September.

The Bank of England’s Monetary Policy Committee (MPC) is responsible for setting monetary policy that will meet the 2% inflation target in a way that helps sustain growth and employment.

Following the Committee’s August meeting, the package of measures announced led to a greaterthan-anticipated boost to UK asset prices, according to the Bank of England. Short- and long-term market interest rates fell notably following the announcement, corporate bond spreads narrowed and issuance was strong, and equity prices rose.

Since then, some of the falls in yields have reversed, driven by somewhat stronger-than-expected UK data and a generalised rise in global yields.

Numerous banks also announced standard variable rate and tracker mortgage rate cuts, following the Bank Rate cut. As a result, deposit rates fell in August, although on average these falls were slightly smaller than the cut in the Bank Rate. Fixed rates on new mortgage lending also fell.

The Bank of England’s statement following the September meeting indicated that while the evidence on the initial impact of the policy package is encouraging, the Committee will be closely monitoring changes in asset prices and in interest rates facing households and firms, and their effect on economic activity.

In August, the MPC’s August Inflation Report – a detailed assessment of the nation’s economic outlook – showed that the Committee judged that the UK economy was likely to see little growth in the second half of 2016. However, since the August Inflation Report, a number of indicators of near-term economic activity have been somewhat stronger than expected, and the Committee now expects less of a slowdown in UK GDP growth in the second half of 2016.

The Committee said it would assess the changes, along with other forthcoming indicators, during its November forecast round, and if the outlook at that time reflected the projections made in the August Inflation Report, a majority of members would expect to support a further cut in the Bank Rate to close to, but a little above, zero.

16.3%

The decrease in approved interest-only home loans since the release of ASIC’s Report 445 in August 2015

In 2015

30%

of applications reviewed showed no evidence that the lender had considered whether the interest-only loan met the consumer’s requirements

The decrease in the number of new interestonly home loans from July to December 2015

In 2016,

almost

80%

of applications reviewed included a statement summarising how the interestonly feature specifically met the consumer’s requirements and objectives Source: ASIC

ASIC REVIEW: ‘THERE IS STILL ROOM FOR IMPROVEMENT’ ASIC has released its Review of Interest-only Home Loans: Mortgage brokers’ inquiries into consumers’ requirements and objectives.

The report focuses on the responsible lending practices of 11 large mortgage brokers, with a particular focus on how they enquire into and record consumers’ requirements and objectives.

According to ASIC, Australia’s home loans industry has improved its performance over the past year, adopting better responsible lending practices, “though there is still room for improvement”.

The new report also examined how the changes implemented by lenders in response to the findings of ASIC’s Report 445 into interest-only home loans from last year have flowed through to mortgage brokers.

Since the release of Report 445 in August 2015, the percentage of new interest-only home loans approved by lenders has decreased by 12%. The amount that can be borrowed by an individual consumer through an interestonly home loan has decreased, as lenders have adjusted their assessment of consumers’ ability to repay, in line with ASIC’s recommendation in the report.

Information provided by the 11 mortgage brokers showed that for the six months from

July 2015 to December 2015, the number of new interest-only home loans fell by 16.3%. The total value of these loans reduced by 15.6% and the percentage of interest-only loans with a term greater than five years reduced by more than half, from 11.2% to 5.1%.

Almost 80% of applications reviewed included a statement summarising how the interest-only feature specifically met the consumer’s requirements and objectives. This compared favourably with Report 445’s finding that more than 30% of applications reviewed showed no evidence that the lender had considered whether the interest-only loan met the consumer’s requirements.

‘It is vital that mortgage brokers understand consumers’ requirements and objectives to ensure they are not placed in unsuitable credit contracts,’ said ASIC deputy chairman Peter Kell.

‘ASIC is pleased that our concerns about interest-only loans and responsible lending are being acted on by the home lending industry, but there is still room for improvement.’

ASIC also identified practices that place brokers at increased risk of non-compliance with their responsible lending obligations in the report, and identified opportunities for brokers to improve their practices.

LENDER UPDATE 8

THE LENDER LOWDOWN

Average portfolio mortgage value by lender $700,000

Major bank Westpac has made a $16.5m investment in uno, a fintech platform that helps consumers to broker their own home loans online.

Launched in May of this year, uno announced that it had secured the investment from Westpac as part of its Series A capital-raising.

While Westpac has been involved with uno since the concept phase, uno founder and chief executive officer Vincent Turner told Australian Broker the injection of funds from the major bank was a vote of confidence in the platform.

“We’re stoked to have had them involved from the get-go, but this is a pretty significant investment in terms of the size of it, and that’s a pretty good reflection of the progress we’re making,” Turner said.

Uno claims to allow consumers access to the same tools and information brokers use to analyse and find suitable loans, while also offering support staff to assist them in that process. Expanding that support team will be one of two main areas that funds from the round of capital-raising will be funnelled into.

“Most of the growth we expect to see is in ramping up our marketing,” Turner said.

“Obviously we will give people technology, but there’s people behind it to provide advice and support, so we have to scale that team. Of the 35 people that are on the uno team at the moment, 12 are in service-based roles, and that’s going to continue to grow as our volume grows.”

Since its launch, more than $400m worth of mortgages have been compared through uno, and Turner believes the platform is positioned to become a key part of people’s search for a home loan.

“Traditionally there were two options: you could go and see a bank or you could go and see a broker.

“We see uno as the third wave. There are people who prefer to operate digitally, and why should their mortgage be any different? We’re servicing that base and we think that will really continue to grow.”

Gary Thursby, chief strategy officer at Westpac, said the bank’s investment showed it too believed uno would become a key player in the industry.

“Uno’s success has been impressive, and we’re seeing its potential to become a serious player in the home loan market. Westpac has been involved since the concept phase, and today we’re pleased to announce we will increase our involvement in uno as a strategic investor,” Thursby said.

$600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 Provider 21 Provider 8 Provider 14 Provider 23 Provider 24 Provider 11 Provider 19 Provider 13 Provider 12 Provider 18 Provider 17 Provider 22 Provider 7 Provider 25 Provider 10 Provider 2 Provider 16 Provider 4 Provider 1 Provider 15 Provider 5 Provider 3 Provider 6 Provider 9 Provider 20

WESTPAC INVESTS $16.5M IN FINTECH

Source: Digital Finance Analytics

FIRSTMAC LAUNCHES NEAR-INSTANT ACCREDITATION SYSTEM Non-bank lender Firstmac has launched a new system that will allow brokers to become accredited with them in minutes.

To gain accreditation brokers simply fill out and submit an online form and watch a short training video, and an email is then sent automatically to their aggregator to approve.

Once approved, the broker is sent an email with login details for the Firstmac broker site.

Speaking to Australian Broker, Firstmac national sales manager Jake Sanders said the non-bank was happy to roll out the accreditation to the wider broker market following a successful pilot program.

“Anything we can do to help with a broker’s productivity and streamline what has traditionally been a slow and cumbersome process is something that we’re really happy to bring to market,” Sanders said.

“We’ve been working on it for about 12 months. It started off the back of a recent appointment to a large aggregator, and we were looking at a way we could get greater traction with broker accreditation when we launched

with them. It was quite successful so we’ve decided to roll it out to the wider market,” he said.

Sanders said Firstmac expected brokers to welcome the move and that the system would provide them with sufficient information about Firstmac’s offerings despite its short runtime.

“We expect brokers will be receptive to it.

They can watch it right there in their office. It’s quick and easy and very straightforward, and I can’t imagine why they wouldn’t do it. It’s a benefit for them and another feather in their cap,” he said.

“The training video’s not only about policy and process, but it’s also about product. It gives them a really good overview of what we can offer.”

Sanders said he believed Firstmac was near the forefront of a digital push that would likely flow across the industry.

“The way the industry is going there’s a greater focus on online activity. Most brokers are comfortable around the requirements there now, so I can’t see why it wouldn’t be something that every lender looks at adopting,” he said.

10

COVER STORY AN ADVISER FOR LIFE La Trobe Financial’s Cory Bannister on why brokers would do well to wise up to the ageing customer segment

AN ADVISER FOR LIFE

La Trobe Financial’s Cory Bannister on why brokers would do well to wise up to the ageing customer segment

IN THE 21st century, human beings are a blessed bunch, lucky enough to be enjoying the longest life expectancy in history. And yet every rose has its thorn, and for longer life spans that thorn is inadequate pensions and strained healthcare resources. Add to the mix the cost to individuals of transitioning into aged care living, and it’s easy to see that with a long and healthy life also comes the unfortunate need for more finance. It’s a burden for many, and brokers are in a unique position to lift this burden, whether they already know it or not.

This “avalanche of an ageing population”, as La Trobe Financial’s

chief lending officer Cory Bannister puts it, will drastically drive demand for aged care lending for decades to come, and the boom has already begun.

Data from the ABS shows that the number of people aged 85 and over has increased by 153% over the last two decades, and this trend is expected to accelerate. The first round of the massive baby boomer cohort hit retirement age in 2011, and the aged 85-plus cohort is predicted to double by 2030.

The risk associated with an ageing population is an increased burden on a shrinking working population, and future generations struggling to

“Very commonly, the middle-aged children are actually the key decision-makers for their parents, and brokers are ideally positioned to be the children’s trusted advisers” meet an ever-increasing number of pension commitments.

For the working demographic left behind, there is also a responsibility to provide adequate housing and health care for those in their twilight

years. But with housing comes the need for borrowing, and this is where La Trobe’s Aged Care Loan comes in.

Specifically designed to facilitate the move from normal housing into

11

Product particulars With the Aged Care Loan, La Trobe will lend a borrower up to 50% of their existing property’s value to fund the move into care. The funds can also be used to repay any outstanding debts and repair or renovate their property.

The product is not unlike a reverse mortgage; however, the client has the option to not pay any interest until the loan-to-value ratio reaches 70%. With no age-related constraints, the costs of care are largely the same for the borrower, whether they are 70 or 90 years old.

“If the client is renting out their property, then they can use that income to make repayments if they wish, but it is up to them,” Bannister says. “The aim is to give borrowers the flexibility to ensure they get the best outcome in the short term but still have time to work through more complex financial and estate planning issues in a more measured way.”

The product’s simplified application process is particularly attractive to its target customers, as La Trobe has clearly paid close attention to the needs and sensitivities of the product’s ageing customer segment.

Hook, line…

So, where do brokers come in?

Bannister says brokers are gradually catching on to the opportunity the ageing market segment provides.

“Whilst the initial impetus for

our aged care product came from specialist aged care advisers, we are now seeing significant interest and activity from the broader broker market. Our team of mortgage specialists is actively assisting brokers across the country with training and education on this important topic,” he explains.

For brokers unsure how to tap into this market, Bannister points out that many of them will already have a client base they can leverage.

“Right now, across Australia, the same story is being played out again and again,” he says.

“Middle-aged – or younger – people with families of their own are suddenly confronting the fact that their parents’ health is declining … Very commonly, the middle-aged children are actually the key decision-makers for their parents, and brokers are ideally positioned to be the children’s

opportunities are immense as our population mix changes,” he says.

“As well as broadening existing deal flow, this repeat-business approach can deepen relationships with clients and position the broker better as a trusted adviser.”

Rough winds render brokers priceless However, Bannister isn’t entertaining any illusions. The roads that lead to obtaining a mortgage are peppered with regulatory speed bumps, and being resilient is more and more becoming a prerequisite for successful brokers. Non-banks therefore make ideal partners, Bannister says, as they are ideally positioned to take the place of the big four, temporarily hamstrung

by APRA. “More importantly, for brokers, is that by partnering with a non-bank lender, channel conflicts are better

millennials – Gen Y – and the iGeneration, Gen Z. Studies show that these consumers are more likely to accept challenger brands and mainstream alternatives and are less likely to default their home loan requirements to their main financial institution as previous generations have been conditioned to do,” he explains.

Looking ahead Bannister says La Trobe Financial is focused on increasing its broker footprint for the remainder of the year, and one way it hopes to do this is through the uptake of its Aged Care Loan via the third party channel. Servicing untapped customer segments, after all, has always been what La Trobe has been known for. But this is not a one-way street, Bannister insists, stressing the opportunities brokers have in tapping into the ageing customer segment.

OPPORTUNITY IN GROWING MARKET SEGMENT

Percentage of the world population over 65, 1950–2050 18 16 14 12 % of population

aged care, the Aged Care Loan is a trailblazing product catering to a market segment that is rife with opportunity, and growing. “…we see significant opportunity to assist elderly borrowers as the baby-boomer demographic wave peaks in the years ahead”, Bannister tells Australian Broker. Currently, prospective aged care residents must pay a lump sum Refundable Accommodation Deposit [RAD] or a regular Daily Accommodation Payment, both fees of which can exceed $500,000 in the capital cities.

“What’s more,” Bannister adds, “the trigger for a move to aged care is frequently an accident or sudden decline in health, meaning that decisions must be made and funds sourced very quickly, often within a week or two. For these reasons, a targeted aged care finance product that can fund an RAD or other transitional costs has an important role to play.”

10 8 6 4 2 0

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

Source: UN World Population Prospects, 2006

trusted advisers. The generational strategy is critical.

“In short, brokers’ existing clients are likely the actual decision-makers so education and awareness amongst existing clients is key,” Bannister says.

From a business perspective, he says the ageing market segment also provides brokers with a fantastic opportunity to diversify their portfolio.

“The aged care sector in particular will be a useful component of this diversification play for brokers. The demand for such products is only going to grow in future years, and the business

managed. Brokers can focus on shifting from mono-line operations to full-service operations, helping them grow their business and also retain their clients,” adds Bannister.

“We believe that non-bank lenders are best placed to provide the future generation of brokers with the solutions required to service their customers.”

Bannister adds that there is another driver of non-bank growth that many brokers are still not aware of. This driver comes in the form of the generations known to be all about ‘me’.

“Another driver for growth will be the continued take-up of

“Anyone who has lived through the transition of a parent into aged care will confirm that a professional who can assist with the process will be a trusted adviser for life,” Bannister says.

“By assisting the children of the borrower through the process, brokers can develop enormous client loyalty. The opportunity for a lifetime of repeat custom with other credit needs is then significant.

“With around $20bn held in RADs at present and an annual demand of circa $3bn and growing, demand is only going to increase in years ahead.”

12

ANALYSIS

THE OWNERSHIP EQUATION

The rise of the mortgage broking channel came about thanks to independence and choice. In an age of vertical integration under bank brands, will the broker value proposition endure?

GLADSTONE-BASED mortgage broker John Whitten has been in the mortgage broking business for over 13 years. But in all that time there’s one question a client has never asked him.

“I’ve never had a client ask who owns my

owned by NAB, Whitten says the transition to bank ownership, which occurred during his career, has had no effect on his objectivity.

“My aggregator is owned by a bank and I have never been directed on where to put my clients,”

“A large majority of my clients would not even know what an aggregator is” John Whitten, Individual Home Loans aggregator,” Whitten says. “A large majority of my clients would not even know what an aggregator is. And if a client did ask the question, I would have no hesitation in advising them, as it has no impact on my decision.”

Aggregating with PLAN Australia, ultimately

Whitten says. “If that did occur, I would leave them immediately. I have always directed my client to the lender that suits their needs.”

Whitten’s is just one account that should comfort ASIC over the coming months. As part of a broader review into mortgage broking, the

regulator is currently wading into the complex area of how vertical integration is impacting on the quality of loans provided to clients.

While the MFAA have made a strong case arguing that there is “nothing to see here”, it is likely that ASIC will want to mitigate any potential risk, and the easiest way to do so will be to impose further disclosure requirements on brokers, forcing them to reveal aggregator ownership.

For brokers, there are questions to ask. Does vertical integration actually matter? And, if disclosure ensues, will it erode the reputation of an industry built on independence?

Right or wrong?

Trilogy Funding’s Deanna Ezzy is another broker who thinks vertical integration is a ‘non-issue’ at the coalface for her business and for her clients. Also aggregating through an NAB-owned aggregator, Ezzy agrees that customers have little

13

TECHNOLOGY UPDATE

s

GEN Y THINK BEYOND FINANCE

Dylan Salotti

interest in aggregation ownership.

“When I explain how Trilogy is paid, I bring up our aggregator, and also explain this is where we get our software so we are able to run things like serviceability calculations,” Ezzy explains. “Also, when I’m running through the loan documents with my client during sign-up, usually there is a ‘commission payable’ section, so at that time I’ll also bring up our aggregator. These are typically the only times I would talk about our aggregator, and I have never had a customer question it, or act like it mattered from their perspective.”

Vertical integration has seen NAB (through PLAN, Choice and FAST), CBA (through Aussie Home Loans) and Westpac (through RAMS) build growing influence in mortgage distribution. Connective and Mortgage Choice have also sold part of their businesses.

However, Digital Finance Analytics director Martin North says consumers – at least so far – are yet to punish brokers in any way for this high-level consolidation trend.

“I think it’s absolutely objectively clear consumers believe, rightly or wrongly, they will get objective, independent advice from a broker,” North says. “They go to a broker because they believe they will be able to find a better deal, get more options, and save time.”

North says the question then becomes: are consumers right in this belief, or are they wrong?

“My question is, is it really true?” he says. “Or if you are a broker that is part of an aggregator, or part of one of the big banks, is your field of advice restricted? If so, is that less valuable than a completely independent broker that has the ability to tap the whole of the market?”

Towards disclosure Independent aggregator AFG’s managing director, Brett McKeon, thinks vertical integration could indeed impact on clients. “I believe it probably has the potential to be an issue,” he says.

“I think you have to ask the question why a bank would buy a mortgage broking business.”

“Most brokers can get a loan, but young professionals and first home buyers want more than that.

“Dealing with Gen Y is about building relationships, removing the stuffiness, explaining the process, and utilising smart, cutting-edge technology to make transactions quicker and easier.”

This advice comes from the director of Divitis Finance and Mortgage Broking, Dylan Salotti, an industry young gun who just over 18 months ago launched the first mortgage brokerage in Sydney to set its sights on young professionals.

Salotti was prompted to start his own brand because his experience as a novice property investor using a mortgage broker was left seriously lacking.

“The broker was very professional and he got me the money, but there was a real disconnect.

“I’d worked my whole life trying to get the deposit together and he didn’t understand my needs and how nervous I was about the process,” Salotti said.

“He didn’t attempt to educate me. So although he got me the finance I didn’t feel any connection or relationship, or have any intention of relying on him moving forward.”

Salotti aims to challenge the stereotypical perception of a mortgage broker. This entails taking the client relationship beyond simply a business transaction and speaking today’s language, which he says means staying across the most up-to-date technology and explaining to borrowers how electronic processes benefit them.

“At Divitis we’re young, fresh and enthusiastic, and we use a lot more technology with cloud-based supporting documents and online applications,” he said.

“I use ApplyOnline on my back end because I want every step I take to get me closer to paperless transactions.

That’s my ideal for my business. One of the things I hate is having unnecessary paper applications on my desk. The technology is there and NextGen.Net is doing great things to push that along, but the industry is still catching up.”

Recently Salotti attended a NextGen.Net Efficiency Training Course and was so impressed that he wrote to Divitis Finance’s aggregator, Connective, heaping praise on the content of the course and urging Connective to alert brokers to its advantages.

Tony Carn

“In a one-hour session we went through ApplyOnline and I was shown three or four golden nuggets to speed up the process. The training was extremely beneficial, and I think it’s a must for everyone, especially new brokers. If I had done this training within the first three months, it would have saved me so much time on submissions and answered a lot of questions around the process.

“It’s a big push to encourage brokers to become more digital and tech-savvy,” Salotti says.

“If brokers want Gen Y clients, they need to make it easier and quicker for them to transact.

“I want to encourage everyone to keep supporting organisations like NextGen.Net, who facilitate valuable change and help educate the industry to make it as tech-savvy as possible.”

NextGen.Net sales director Tony Carn admits his frustration at brokers who are resistant to change and still email supporting documentation – essentially because of the security issue.

“It’s high time the industry addressed the lack of security when emailing documents,” Carn says. “Some brokers don’t realise that emailing a customer’s documentation is an unsafe practice, and a growing number of applicants, especially the younger generation who are tech-savvy, would be horrified if they knew their payslips and bank statements and tax assessment notices were being emailed and unsecured.”

The NextGen.Net ApplyOnline Supporting Documents service is a thoroughly secure method.

“That’s one of the reasons we’re refreshing the user interface for the Supporting Docs upload to make it even easier for brokers,” says Carn.

“A lot of talk about digitisation focuses on mobile applications and the sexy bits at the front end. But in reality, the more pertinent technology advances happen behind the scenes.

“I wonder how many people know that incorporated into ApplyOnline is a function that allows the identity of an applicant to be verified electronically at the point of sale using a service provided by the federal government?

“Many brokers don’t realise that they’re sitting on one of the most advanced technology platforms in the world. That piece of information would certainly go down well with Gen Y.”

14

ANALYSIS

“Where ASIC should be coming from is making sure the consumer is always the priority” Brett McKeon, AFG It’s one of the reasons AFG sees opportunity in independence.

“We’ve had a lot of offers to sell over the years, and we’ve been keen to stay independent and aim to remain so. A lot of brokers like the fact we aren’t owned by a bank, that we are completely transparent about our balance sheet, and that we have a firm commitment to invest in the industry,” McKeon says.

The scope of lender choice available to a broker – which affects bank-owned and independent aggregators alike – is one of the core indicators of how good a deal the client is likely to get.

That’s something Deanna Ezzy recognises.

“Ninety-five per cent of me says no, [bank aggregator ownership] doesn’t dilute our value proposition,” she says.

“However, there are a couple of lenders not on our aggregator’s panel that I would like to

be able to use. But aside from not having access to a couple of lenders, it doesn’t dilute my objectivity.”

However, the relatively low ‘not unsuitable’ regulatory bar, as well as commission structures that include soft-dollar commissions and volume-based incentives, all play into the complex set of considerations confronting ASIC, in addition to which bank owns what aggregator.

In the end, McKeon says ownership disclosure should be key to mitigating any risk. “Where ASIC should be coming from is making sure the consumer is always the priority, and that aggregators owned by banks have a panel of lenders representative of the marketplace.”

North says that, in the UK, regulators have already tried to separate out ‘tied’ brokers from ‘whole of market’ brokers through disclosure.

While he doesn’t suggest the same will happen in

Australia, he says it ended up being too confusing, and the result was an outright commission ban.

Nothing to hide There are, of course, advantages to having the firepower of a bank backing an aggregation business, which brokers argue outweigh any potential risk to their value proposition.

“The positives are more than the negatives in my opinion,” says Ezzy. “I get a lot of support from our aggregator BDM and partnership manager, and they always step in quickly to help out if I need them. Our aggregator is backed by NAB, so any lenders on our panel are heavily scrutinised and contracts worded in a particular way to ensure those lenders are able to meet the required value proposition, which protects Trilogy and myself as the broker.”

Whitten agrees. “The positive I see is that, being owned by a bank, our aggregator has more funds to invest in technology, which is the major reason I stay with my aggregator. I have no problem with having to disclose who owns my aggregator if it makes legislators more comfortable with our industry. If we have nothing to hide, where is the problem?”

16

BEST PRACTICE YOU ARE IN SALES, NOT FINANCE Business mentor Karen Hambleton-O’Grady explains how brokers can benefit from understanding they are sales people first, finance professionals second

their perception of you has changed.

And this is always the case in sales. The potential client’s perception of you will determine whether or not you will get their business.

Exude that you are an expert At work, you may have credibility in a particular field or area and people may come to you to ask for your expertise. This is the same as when you are selling something or hoping someone will buy from you. They need to see you as the expert they are looking for; their ‘go to’ person.

However, the level of credibility attributed to you can change depending on who you are dealing with. Different ages, cultures and personalities can affect how you are perceived and assessed, and there are undoubtedly going to be times when a deal comes in that is beyond your skill set or level of expertise. Being aware of this and knowing when to step back and send someone else in to help is important – this is where your introducers or referral network comes in. This is what a smart salesperson does.

You will still reap the benefit of the sale; it just won’t be you that made the sale directly.

The four key disciplines of selling Passion Where would you be without passion?

You must believe in the product you are selling or it is really a waste of time. When you believe in something, you are more credible, as you are talking from the right place, not just trying to sell.

1

Persistence Others won’t be persistent and they will let their guard down. This is where you will often win the business. It really is about ‘keep on keeping on’ – and not stopping. You may knock on 50 doors and get 48 knockbacks but no one just wins business; it is their persistence that wins.

Think about a time when you lost a client to someone else. Were they more persistent than you? Being persistent doesn’t mean you’re being pushy.

2

Discipline How is your attitude? Do you talk yourself into or out of a sale? When you look at a deal do you think that you will never be able to get it set or do you believe that it is possible with a little persistence? How is your internal conversation?

Do you believe in yourself? What are your non-verbal messages?

3

SOME PEOPLE enter the finance broking arena thinking that they are only in finance. But while you may be able to facilitate the best product in finance for your clients, you are in the business of selling solutions and loans, not assessing loans.

You are also selling yourself – not to mention that what ‘selling’ to someone really means is that they have decided to buy from you. And they buy from you because they have also made another decision – that you are credible. They decide you are credible and give you the business.

Winning credibility, and keeping it Generally, it is difficult to ‘sell’ to someone.

Usually, they buy from you because they either like you, they like the product, or they like both.

If there are two salespeople and both have the same product, customers will always buy from the person they like the most.

You cannot buy loyalty. The best you can hope

for is to put a fence around the customer and work hard to keep them as your customer for as long as possible.

Like trust, credibility is hard to earn and yet easy to lose. And once you earn it you must practise it constantly. Elite athletes don’t perform well because they just show up; they practise and train to be the best. Their credibility is measured by the metre or the millisecond.

If you have (or had) teenagers, you may know about how easy it is to lose your credibility and how quickly you can get it back when they get past that ‘growing’ age. Once their hero and totally bulletproof, you may find that when they get to their teens it is possible that they will see you differently and all credibility has gone out the window. But then, before you know it, they have grown up and given you back your credibility.

Suddenly you have knowledge again and your opinion is of value. You haven’t changed at all, but

Systems These are the most important tools when you are selling or wanting people to buy from you. When your systems are set up correctly, your business looks professional. Refine the ones that you have, or commence with a system now if you’re the type to fly by the seat of your pants.

If you have a system that creates automatic replies or reminders, with tasks to be done daily and with each deal, you will appear more professional than if you were just to rely on your memory. And that, of course, will give you that all-important credibility.

You won’t get every sale, so remember: selling is a win or a learn!

4

18

OPINION ENTRENCHED INEQUALITY A great number of people are transfixed by interest rate changes and consumed with anxiety about the possibility of falling house prices. But should they be? Professor Keith Jacobs from the University of Tasmania explores who stands to win and who loses when prices fall

TO SEE Australia’s shortage of affordable housing as a failure of government is to misunderstand the politics that underpin housing. To be clear, the vast proportion of government money spent on housing directly benefits the well-off at the expense of private renters and public housing tenants. The government policy, therefore, has actually been a huge success insofar as it has protected the opportunities for speculative investment and profit for homeowners and private landlords.

If the government was serious in wanting to end the affordable housing crisis it would invest in new social housing and pursue measures that would choke off, via tax reform, the opportunities for profiteering currently enjoyed by landlords and homeowners.

19

Keith Jacobs is a professor of sociology at the University of Tasmania

Needless to say, the pursuit of these options would be bitterly opposed, not least by many homeowners and property investors, as it would lead to a fall in house prices.

For those who wish to reap profits from their housing investments, there are good reasons to maintain the status quo – for a shortage of supply to continue, and for public housing to remain a stigmatised tenure only available to those without any recourse elsewhere.

When you assume…

One of the most fascinating and enduring aspects of Australian politics is the assumption that the value of property is a proxy for the state of the economy. A fall in the value of property is therefore ‘bad news’ and evidence that we stand to lose should prices decline.

well-off households. They have the most to fear when house prices fall because their opportunities for generating profits are threatened by a slowdown in the housing market.

It is an uncomfortable truth that the government has been instrumental in maintaining housing inequality – its response to the housing crisis is a charade.

The government has been sticking to the usual script – one that frames the affordability crisis as stemming from a shortage of land, excessive red tape, and high labour costs within the building industry. Stressing that land release is a significant cause of the affordability crisis is misleading for the public but unfortunately not surprising. This is the claim repeated by developers who wish to increase their profits.

It is an uncomfortable truth that the government has been instrumental in maintaining housing inequality – its response to the housing crisis is a charade We expect governments to put in place measures so that homeowners and investors can accrue wealth and buyers can return to the market.

But would it really be bad news if the value of homes started to fall?

Certainly, there are people who do stand to lose when prices decline, such as householders who plan to sell their homes and move to smaller or less expensive homes, and those planning to move abroad who need to sell their homes.

But there are actually many individuals who stand to benefit when prices fall, not least those who have been unable to gain a foothold in the owner-occupier market, as well as householders who plan to trade up to more expensive properties, newly arrived migrants who plan to buy, and renters living in homes that might otherwise have been advertised for sale.

Any increase in the value of our homes accentuates an affordability crisis. In the last 20 years, Australian house prices have quadrupled, yet average earnings have failed to keep up, only increasing twofold over the same period.

Why has this crisis of affordability not been addressed by the government?

Sticking to the script A major reason is that powerful industry groupings such as mortgage lenders, property developers and real estate companies have been spectacularly successful in maintaining pressure on the policymakers to privilege wealthy homeowners at the expense of less

Face the facts It is clear that without major reforms the prospects for low-income Australians will deteriorate even more over the coming years. Already, there are as many as 105,000 people who are without a home and 160,000 households on public housing waiting lists. The overall stock of public housing fell from 331,000 units in 2007–08 to 317,000 in 2013–14.

At the other end of the spectrum, those in Australia who are fortunate enough to own their own homes have grown to expect rather than hope that the value of their properties will rise, and that the capital gains they will accrue should be exempt from tax.

This obsession with the value of our homes has, in effect, stymied the scope for a more critical coverage of the politics of housing to shed light on how resources have been distributed to investors and those who are well housed, at the expense of those who are experiencing housing stress.

The housing problems experienced by low-income households are a symptom of entrenched inequality within Australia.

Public and private tenants remain disadvantaged and have to endure problematic tenancies that are increasingly insecure. Unless this inequality is addressed, Australia’s housing problems will endure.

The failure to invest in public housing, the subsidies that distort the private rental market such as negative gearing, and the tax privilege extended to homeowners have accentuated the inequalities that are a feature of contemporary Australia.

20

INDUSTRY SPOTLIGHT TACKLING COMMERCIAL ING DIRECT’s John Kolyvas tells Australian Broker how the lender is equipping residential brokers with the skills they need to tackle commercial loans

THE SECOND half of the year is a historically busy time for commercial lending, when typically 60% of all business credit for the year is written.

At ING DIRECT, commercial lending grew by a whopping 38% last year, and this year the growth in business loans has been higher still thanks to a particularly strong 12 months in the commercial property market.

ING DIRECT’s national partnerships manager, John Kolyvas, tells Australian Broker there are a few reasons for this growing interest in the commercial sector.

“There has been quite a bit of uncertainty about the residential market, and investors seem to be looking for alternative options,” he says.

“I certainly believe this has contributed to the growth in business lending. Also, with cash rates at historical lows, investors are looking for better returns. Finally, brokers seem to be picking up a larger slice of the commercial pie. I think the last point is the main reason.”

ING DIRECT pioneered the ‘branchless bank’ idea, and 100% of its commercial business in the sub-$5m category comes through brokers.

All enquiries that ING DIRECT receives in this

value segment are redirected to brokers in the bank’s network, which is a massive opportunity for the third party channel. A look at the figures makes this opportunity clear as day: in May, ING DIRECT experienced a record month; commercial and business lending in the sub-$5m category was up 40% on the same time last year.

According to Kolyvas, brokers should be making the most of the growing commercial market and striking while the iron’s hot – and that includes residential brokers. He strongly believes brokers not equipped to handle commercial loans should look into learning, and ING DIRECT has already begun assisting with this.

Another feather in your cap In January, the lender launched a commercial property training program specifically designed for residential brokers looking to diversify. The program came about as a result of the fact that, historically, most of ING DIRECT’s commercial volume had been coming from residential brokers. According to Kolyvas, the simplicity of the commercial application process held a lot of appeal. However, these residential brokers

would tend to only come across one to two deals annually.

“We wanted to increase the skill set and awareness of these typically residential brokers so they could identify more commercial opportunities, protect their existing SME home loan base and diversify their revenue,” Kolyvas says.

“We dissect the commercial lending market and the opportunities,” he says.

The course also encourages “thinking more holistically about the transaction rather than focusing on policy” and “identifying risks and how to mitigate them”.

Residential brokers signing up for the course can expect a rundown of the common commercial and business lending products available to SMEs, including those of other lenders, and tips on analysing financials at a high level.

Of great appeal to residential brokers, though, is the course’s segment on how to leverage off an existing residential loan book to build a presence in commercial lending.

“Our focus is to support brokers to upskill and diversify their business, and help them build long-standing and valuable relationships with

21

their clients, meeting their property needs beyond residential,” says Kolyvas.

He adds that building brokers’ confidence is a big part of breaking down the barriers to commercial broking. To assist with this, the course effectively prepares brokers for interviews with small business owners, and exposes the foundations of commercial valuations.

Since its launch nine months ago, ING DIRECT has run 15 workshops, and 250 brokers have completed the course. One of those brokers is Tim Boyle, managing director at Finalytics Financial in Victoria.

“Using actual case studies was great – to see different loan submissions from other brokers,” he says. “Also highlighting the key differences and skills required for commercial versus residential loans and clients [was really helpful].”

Boyle explains how one of the great things about the program is the way it demystifies commercial loans.

“Commercial lending is not as daunting as I thought,” he says. “There is also … much more flexibility on structuring and servicing,” which is a big drawcard for brokers, he adds.

“I wanted to learn about commercial lending as you read everywhere it is a good opportunity for brokers. Others should do it, but I suggest at least a little knowledge of business, finance and accounting before deciding to undertake [commercial] as an area where you can add value for clients.”

Extra support ING DIRECT has also put in place an internal support structure to assist residential brokers as they navigate the waters of commercial broking.

“For residential brokers, they will have comfort in dealing with their current ING DIRECT residential BDM across commercial loans,” Kolyvas says. “Our residential BDMs are fully supported by our Credit Assist team who can help brokers improve their knowledge and secure a successful approval.”

Commercial BDMs are also on hand to support brokers, whether residential or commercial, to get the best outcomes for their clients, according to Kolyvas, who stresses that there are only good things to come for those brokers who diversify.

“By moving beyond residential property, they are diversifying their income and protecting themselves from the volatility of individual market segments. They are also able to offer broader services to their clients, which can protect and strengthen relationships. For example, with SME clients, they can meet their residential and commercial needs, rather than passing the relationship to another party to fulfil one of those needs.”

This is exactly what Tim Boyle got out of the program. “[The program] opened my eyes to different opportunities within my clients and networks.

Usually I was only looking for opportunities to help them with residential, but quite a few of them [offer] commercial opportunities as well,” he explains.

Being small business owners themselves, brokers are in a unique position to service

John Kolyvas, national partnerships manager, ING DIRECT

COMMERCIAL POWER

47% Increase in commercial applications at ING DIRECT since May

Year-on-year growth to August 2016

19% Source: ING DIRECT

SME owners and the commercial market in general, Kolyvas says. They can also gain a better understanding of their own business risk from the program.

“Brokers excel at managing relationships and can provide great continuity for SMEs. The nuances and bespoke nature of commercial credit also gives brokers a clear advantage; what is considered marginal for one lender may be totally acceptable to others. Brokers can bring this broad

knowledge of the market and lenders to their clients to ensure the best outcome to suit their clients’ unique needs,” he says.

“Our training is focused on upskilling residential brokers broadly in identifying and managing commercial opportunities, to help them capitalise on commercial opportunities …

I’m confident that our workshop has been able to add real value for them in broadening their propositions.”

22

MARKET WRAP MARKET TALK

HOUSING VALUES COOLING

Despite a solid increase in August, the latest figures from CoreLogic show the growth in dwelling values in Australia continues to cool

ACCORDING TO CoreLogic’s August Hedonic Home Value Index, the combined capital median house price in Australia sat at $567,000 at the end of August, up 1.1% over the month.

In the three months ending August, the combined capital city median dwelling value increased 2.4%; however, CoreLogic research head Tim Lawless said price growth was on a downward trend.

“Despite a strong month-on-month reading, the pace of annual capital gains has trended lower compared with the 2015 peak in growth conditions, when capital city dwelling values were rising at 11.1% per annum,” Lawless said.

“The most recent twelve month period has seen dwelling values rise by a lower 7% per annum.”

It comes as no surprise that Sydney and Melbourne remain the premier markets for price growth; however, the annual growth has almost halved from 18.4% to 9.4% for Sydney, and has drastically reduced from 14.2% to 9.2% in Melbourne.

Sydney and Melbourne’s median dwelling prices currently sit at $780,000 and $576,000 respectively. Behind these two capital cities, Canberra and Hobart were the best performers in the year to August, registering yearly growth of 7.6% and 6.5% respectively.

Perth and Darwin continued their run as the nation’s worst performers, with both recording price falls of 4.2% in the year to August.

While overall the rate of growth is slowing across the combined capital cities, it’s not all good news for those looking to break into the property market as the nation’s cheapest suburbs are outperforming the rest.

“Looking at housing market performance across the broader value segments over the past 12 months, the most affordable suburbs have recorded the greatest value rises, while the most expensive suburbs have seen a more moderate rate of growth,” Lawless said.

According to the CoreLogic Stratified Hedonic

Index, the most affordable quartile of capital city suburbs recorded a value rise of 10% over the past year, compared to 7.4% growth across the broad middle of the market and a 6.2% gain across the most expensive quartile.

CoreLogic’s figures show that, in the three months to August, nationwide settlements were 15% lower than over the corresponding period last year, while in the capital city markets settlements were 17.1% lower.

With spring now underway – the season that generally proves to be a busy time for listings – Lawless said the coming months would indicate the real strength of the Australian market.

“Recently, new listing numbers have started to trend higher, which is normal for this time of year as vendors look to take advantage of the warmer weather during spring. Higher listing numbers will provide a timely test of the housing market’s strength and whether more stock will be matched with a higher rate of absorption.”

HIGH-RISE APPROVALS CONTINUE TO BOOM New building approvals data published by the ABS has shown the extent to which unit approvals have surged, indicating a trend for housing markets to go vertical.

A record-high number of high-rise units have been approved for construction over recent years, and 20,987 dwellings were approved for construction nationally in July – the second-highest monthly number of approvals on record.

CoreLogic’s Cameron Kusher believes the surge is being driven by units, which make up more than half of July’s dwelling approvals (11,513). This was the second-

highest monthly number of unit approvals on record, just shy of the 11,572 approvals in May 2015.

Nationally, 74.4% of all approvals were high-rise (defined as four storeys or higher), and Kusher said this is indicative of the prevalence of high-rise unit approvals nationally over the past five years.

Over the 12 months to July 2016, 62.8% of all unit approvals nationally were for high-rise units. By contrast, five years ago, just 50.7% of approvals were for high-rise units, and a decade ago only 35.6% of approvals were for high-rise.

This is now the dominant type of unit approval; there have been far fewer semi-detached building approvals. Kusher attributes this to the cost of development sites and construction, which have encouraged developers to build as many units on a site as possible.

The level of high-rise approvals (and ultimately construction) that is currently occurring is unprecedented, with the surge in high-rise approvals concentrated in NSW, Victoria and Queensland, reflecting the situation in Sydney, Melbourne, Brisbane and the Gold Coast.

23

COMMERCIAL LENDING UPDATE

MATCHING THE DEAL While many private lenders use pooled funds that can restrict how they finance deals, Chifley Securities has a marketplace of ultra high net worth individual lenders with ‘a face and a name’

SURGING CITYSCAPES Unit approvals by type – national (rolling 6-month average)

10,000

Semi-detached

8,000

Low-rise (<4 storeys)

High-rise (4 storeys +)

6,000 4,000 2,000 0 Jul-96

Jul-00

Jul-04

Jul-08

Jul-12 Jul-16 Source: CoreLogic, ABS

PERTH VACANCY RATES ALARMING Vacancy rates across Australia have risen slightly from June to July 2016, and Perth recorded the largest monthly rise at 0.2%. On a year-on-year basis, Perth vacancies have climbed an alarming 1.4%.

3,233

Adelaide

1.9%

3,412

2.0%

3,565

2.1%

7,590

Perth

3.8%

10,190

5.0%

10,738

5.2%

11,152

Melbourne

2.4%

10,200

2.1%

10,385

2.1% 8,174

Brisbane

2.6%

9,222

2.8%

9,596

Canberra

2.9% 2.1% 1.2%

1,168 673 742

1.3%

10,659

Sydney

1.8%

11,329

1.8%

11,654

1.9%

Hobart

Darwin

988 3.5% 868 3.0% 890 3.1%

0.9% 0.8%

National

324

1.2%

249 223 73,202

2.4%

77,891

2.5%

79,300

2.5% July 2015 vacancies July 2015 vacancy rate (%)

June 2016 vacancies June 2016 vacancy rate (%)

July 2016 vacancies July 2016 vacancy rate (%) Source: SQM

When Chifley Securities arranged its largest loan to date – a $37m investment for the acquisition of multiple sites in Kensington, NSW – the non-bank finance group didn’t need to access a pool of funds restricted by a defined investment charter or an agreement among multiple trustees.

Instead, it was able to match the deal with a single, high net worth investor, who was able to quickly assess the business opportunity and sign a cheque for the full value of the deal.

“Unlike other private lenders, we don’t pool our investment funds,” Chifley Securites director Joe Morello explains.

“Although we have capital worth $1.1bn to invest, we actually match our deals to particular investors, which has been the source of our success.”

Private lenders typically pool funds from multiple investors into a specifically designed investment vehicle.

However, this means they need to stick to the agreed rules, which can restrict how they are able to go about investing and what they choose to invest in.

Usually the investment falls into the lowest-risk category the pool is willing to accept.

Chifley Securities, on the other hand, connects broker clients directly to sophisticated high net worth investors, who lend funds more directly and strategically than pooled funds.

“We work like a marketplace, where we are able to bring different lenders to the table to meet the unique needs of our brokers’ clients,” Morello says. “We are a lot like a professional matchmaker, and the relationships we build are closer and more powerful as a result.”

The right match Private lending has been on a sharp growth trajectory ever since the major banks began to slow their investment in some areas of the market. Chifley Securites alone facilitated $638m in lending to property investors, builders and developers last financial year.

“When Chifley launched almost two years ago, it was because there was a substantial growth in deal flow the banks weren’t doing,” Morello says.

“Since then, there’s been a drying up of bank lending altogether in many areas of the market, which has seen an unprecedented amount of deal flow directed towards the private sector that just didn’t exist in the past.”

However, Morello says Chifley’s outperformance has been a result of the sophistication it can offer clients over pooled fund options with more limited investment delegations. With its own marketplace of investors, Chifley Securities pairs broker deals with the distinct character, interests and

Joe Morello

expertise of its high net worth investors, which include niches in development and construction finance, mezzanine finance, commercial finance, private equity and settlement finance.

Morello says brokers see the end results of this model in faster turnarounds, more flexibility on finance commitments, and more personalised involvement that enhances deal success.

“Clients today like a more hands-on approach and more direct access to capital than the pooled funds that are responsible for managing other people’s money,” Morello says. “Just like brokers, clients like dealing with already successful people who have a face and a name.”

Expanding universe Chifley Securities’ marketplace of lenders has been growing this year, as demand for higher rates of return has driven more investor interest in quality property market deals. “We have investors chomping at the bit to get access to quality transactions, and we bring those to the table through our broker network and by allocating them to the right investor,” Morello says.

The lender also has the ability, through its Chifley Partnership arm, to place deals with other ‘partner’ private lenders should a particular deal not meet the criteria of its own panel of investors.

“We sometimes have deals we can’t match with the particular appetites of our investors. But when brokers come to us, we can work with them to find a funding partner that fits that deal and offer them a full service.”

Morello says brokers are now much more aware that they have access to a growing universe of engaged, high net worth investors sitting outside the mainstream banking sector. With Chifley Securities offering 1% broker commission and a track record of turning deals around exceptionally quickly, Morello says it’s a proposition the financial industry can find hard to match.

“The private lending market is proving it has a lot to offer clients in the current market. At Chifley Securities, we are confident our marketplace of lenders will continue to demand good-quality deals through the broking channel, so we’ve got a lot more ‘perfect matches’ to make.”

24

MARKET WRAP FINANCIAL SERVICES

FINANCIAL ADVISERS’ CLIENTS ‘VULNERABLE’

A new study has revealed that a large proportion of Australians are unable to distinguish between good and bad financial advice

TRUST FACTOR PLUMMETING

Percentage of people who said they trusted financial advice

2014

40%

2015

29% Source: RaboDirect

A STARTLING number of Australians are unable to tell the difference between good and bad financial advice and are unaware of techniques used by advisers to manipulate critical financial decisions.

These are the findings of a new study by the University of Sydney Business School, conducted by six academics from Australia and the US and led by Susan Thorp. In the wake of the findings, Thorp called for a tightening of regulations to protect “vulnerable” clients, and said that almost half of all Australians suffer from poor levels of financially literacy. Many, she said, turn to financial advisers for help with decisions on such things as superannuation investments.

“Even before our research began, we were aware that many people who attend financial advisors view the advice that they are given as very good even when an objective evaluation of that advice found it not to be so,” said Thorp.

“Puzzled” by this, the research team set out to “unpack the process by which this trust relationship between the advisor and the client was formed”.

The researchers produced videos featuring a number of advisers – some providing good advice and others providing bad financial advice. The videos were then shown to groups of people who were asked to identify which of the advisers they would trust.

“We found that people on the whole, were able to tell the difference between good and bad advice on the topics that were relatively straightforward such as paying off credit card debts,” said Thorp.

“But when it came to more complicated decisions, like superannuation investments, far fewer people were able to tell the difference between good and bad advice.”

The research found that trust in the advisers was easily manipulated.

“We were able to show that if an advisor gave good advice on an easy topic, that formed a good impression in the mind of the client, and they continued to trust that advisor, even when they gave them bad advice down the track,” Thorp said.

“It seems that this strategy is probably quite widely used and would be influencing people’s decision making.”

The research also measured the impact of showing clients an adviser’s qualifications.

“One of the things we were able to do in this experimental context was measure the impact of a certification and we found that displaying a qualification made people more willing to follow advice than they otherwise would be,” said Thorp.

She went on to say that clients were often unable to tell the difference between genuine and fake qualifications.

Thorp believes her research indicates a need for higher qualifications and standards for financial advisers. She has also called on the advisory industry and regulators such as ASIC to more rigorously enforce laws protecting consumers.

“A lot of people are aware of being modestly manipulated by an advisor,” Thorp concluded.

“What’s important here is that the skill gap between the client and the advisor can be large. The potential for misunderstanding or manipulation is quite high in this situation. In other words, clients are vulnerable so they need to be properly protected.”

25

SPIKE IN FINANCIAL SERVICES CONSUMER COMPLAINTS

Complaints to the Financial Ombudman Service (FOS) Total complaints

Credit card complaints

2014–2015

2008–2009

31,895

19,107

60% increase

2014–2015

2008–2009

16,458

6,731

145% increase

Source: FOS

26

TECH FOCUS TRUST DRIVES CHANGE It’s not just technology and solving consumer problems that is helping the growth of fintechs, according to SocietyOne’s Danny John

IN AN ARTICLE on Cuffelinks entitled ‘Fintechs Overcome the Trust Barrier’, SocietyOne director of communications Danny John has outlined why fintechs are gaining popularity among consumers so rapidly.

“Small, fast-moving and innovative, these firms … offer a new approach to service, product development and ease of doing business in the digital age,” he writes.

According to John, it is the combination of technology, creative thinking and new business models that aim to solve customer problems that is truly “disrupting” the financial services industry.

“What we are witnessing today is the democratisation, or what you might call the ‘retail-isation’, of financial services,” he writes.

And while technology is turning the traditional ways of doing business upside down, John suggests that the real clincher is the role of trust, and how it affects fintech uptake by consumers.

“At the heart of this process lies the business of trust and particularly of financial trust between strangers. The history of disruption has shown us that for any new entrant to succeed they need to acquire this trust. But consequently, by causing disruption, trust is often difficult for new players to attain, primarily because consumers are inherently cautious when it comes to trusting

their money with others,” writes John.

“The digital revolution has altered the power dynamic and has placed consumers increasingly in control. As a result, their expectations regarding ease of use, speed, convenience, transparency, personalisation, access, security and design have all changed. To this, we can now add trust.”

Technology-driven companies such as Google, Uber and Airbnb have all but taken over the process of intermediation that the big banks and financial institutions once monopolised, according to John.

Global thought leader Rachel Botsman’s analysis of 750 disruptors across more than 32 countries and the resulting breakdown of the four primary drivers of change are particularly interesting to John.

Botsman identified complex experiences (time-consuming and frustrating processes), redundant intermediaries (layers of people and processes that don’t add value), limited access (to goods and services) and broken trust (where trust in an institution has fractured) as the biggest drivers of change.

“Each of these factors is present in the Australian financial sector, which is why banks, insurance companies and wealth management groups with their sizeable profits and high ROEs

are being targeted in ever-increasing numbers by new, more customer-centric and innovative players backed by serious capital,” suggests John.

SocietyOne is a strong example of this, he says, with $100m in personal loans and 5,000 customers. In the mortgage space, Click Loans is making headway and small business lending sees Prospa, OnDeck and ThinCats making an impression that incumbents can’t help but notice.

John refers to these fintechs as “Australian pioneers”, and says they are a “real and growing risk” to banks and their traditional services, as stated by investment bank UBS in a report in July. The report estimated that the take-up of new financial applications such as transfers, payments and peer-to-peer lending could surge by between 47% and 150% over the next 12 months alone.

“That suggests consumers – borrowers and wholesale investors – are increasingly prepared to place their trust in the new financial intermediaries and lending market places precisely because they are creating a direct bond and connection between the providers of financial capital and the users of that capital,” he writes.

UBS interviewed executives at 61 banks and nearly 28,000 customers of 210 banks in 24 countries for the report.

27

CONSUMER INSIGHTS A NATION IN THE RED

A ‘FINANCIALLY VULNERABLE’ AUSTRALIA

What is the financial resilience of the Australian population?

Two million Australians are experiencing a high level of financial stress or vulnerability, according to a new report THE CENTRE for Social Impact (CSI) has released a report, Financial Resilience in Australia 2015, which reveals that two million people nationwide are in some sort of financial stress.

According to the report, authored by researchers at CSI, based at the University of New South Wales, financial resilience is defined as “the ability to access and draw on internal capabilities and appropriate, acceptable and accessible external resources and supports in a time of financial adversity”.

It is deemed to be characterised by four factors: economic resources, access to financial products and services, financial knowledge and behaviour, and social capital.

“We know that just over 64% of Australian adults are facing some level of financial stress and vulnerability and that one in four people have experienced difficulties accessing financial services in the past 12 months,” said Professor Kristy Muir, research director at CSI. “To write this report, we surveyed a representative sample of the Australian

population and what we have found is alarming. Two million Australians are financially vulnerable, and people most likely to fare worse are people living in social housing, with mental health challenges, and/or English as a second language or who don’t speak English at all.”

The report comes after a five-year collaboration between CSI and National Australia Bank, in which CSI and NAB have sought to redefine thinking beyond access to products and services. Financial Resilience in Australia 2015 provides a more robust and holistic approach to defining and measuring the level of financial health in Australia.

NAB’s GM of corporate responsibility, Jodi Geddes, said, “Helping customers better prepare for life’s little and big surprises is an important part of what we do.

“This research will help the general population better understand what they can do to improve their financial resilience and will inform an evaluation tool to help organisations better evaluate their programs aimed at addressing financial inclusion.”

35.7%

of Australian adults are financially secure

10 million 2 million people experience a low level of financial stress/vulnerability

have only a ‘basic under­­ standing’ of financial products and services

Almost 1 in 10

Household finances

Per cent of household disposable income* Debt

%

Interest paid**

175

14

150

12

125

10

100

8

75

6

50

1992

2004

2016

1992

* Disposable income after tax and before the deduction of interest payments ** Excludes unincorporated enterprises

people experience severe or high financial stress/vulnerability

48% of people

…AND THE DEBT KEEPS RISING

%

64.3%

of Australian adults are facing some level of financial stress/vulnerability

2004

2016

4

Source: ABS, RBA

have ‘no understanding’ of financial prod­ucts and services (9%)

1 in 4 people

said they had difficulty accessing financial services in the last 12 months Source: Centre for Social Impact

28

COALFACE A COMMUNITY FOCUS Double MFAA Excellence Award state winner Violeta Finance has put community engagement first during its first two years in operation

YOU WOULD never know that Carl Violeta, founder of Violeta Finance, has only been in the mortgage world for two years. His Victorian brokerage has already received industry recognition, and this year it took out both the Newcomer and Community Champion awards for the state at the 2016 MFAA Excellence Awards.

“It was a big win already for us just to be nominated, and we had some tough competition in both categories … to actually win it on the night, I was completely shocked. I never really expected to receive that accolade as a newcomer,” he says.

women’s group, organises a morning tea and they raise funds for the Council.”

On average, Violeta Finance raises around $5,000–$6,000 for the cause each year, and thanks to partnerships with a handful of other businesses, this year Violeta had an impressive turnout of approximately 70 people at the morning tea.

“We did partner up with a lot of local businesses within our demographic, where they donate services or goods and we auction them off to the people on the day.”

Engaging the community Violeta runs Violeta Finance while his wife, Jo, is integral to the business’s branding, marketing and community engagement. The husband and wife team support multiple charities within their community, especially those causes they feel strongly connected to.

Becoming a coach Violeta Finance also holds a first home buyer seminar each quarter, the proceeds of which go towards another charity – this time a not-for-profit organisation that helps single-parent families in need.

During one of these recent seminars, Violeta

“[The win] solidified that we were on the right track with our community engagement activities” “[The win] solidified that we were on the right track with our community engagement activities,” Violeta says. “Every year we do the Cancer Council Biggest Morning Tea, and my wife, within a

noticed that a number of prospective clients were not yet in the position to get a loan approved.

This reality inspired him to provide home loan coaching, in which, together with a budget

specialist, he works with the client to get them ‘home loan ready’. This involves helping them put a savings plan in place to work towards a deposit, and ironing out any issues, such as small defaults the clients may have.

“We work through [them] to get it cleaned up so in the next 12 months to two years [they’ve] completely fallen off their Veda report and we can successfully get them approved for a home loan,” says Violeta.

Checkpoints are set with the client, and Violeta follows up with them every quarter or six months to see how the agreed plan is going as the client gradually steps closer to home ownership.

“The struggle has always been the savings part – the deposit to enter the housing market,” he says, noting that the coaching appeals to people of all ages, be it twentysomethings living at home or those in their 40s who are yet to own a home.

All about business But Violeta wasn’t always a broker, having worked for a decade in sales roles, product development and as a brand director before deciding to build his own sales agency in clothing and footwear.

Eight years later, he took his wealth of experience in sales and small business operations and launched Violeta Finance.

According to Violeta, finding clients was the most challenging part of starting the business, but after creating referral partnerships with an accounting firm and real estate offices, things took off, and the business has since diversified into other service offerings, including car finance and commercial loans.

“Our online presence is generating quite a lot of good faith and good leads for us as well,” Violeta says, but the thing he is most proud of is the brokerage’s high standard of customer service.

“We really treat everyone like family. I treat every loan that I [write] like it’s my own loan that I’m writing.”

The year ahead Violeta Finance is now looking to grow its team with a new part-time staff member to support its growing client base. Violeta explains that customers expect quicker answers now more than ever and so having this extra support is crucial.

“I think that’s where the business is heading along – just faster turnaround times.”

Violeta says newcomers to the industry should make sure to find the right referral partners as they will be a huge help to their business, particularly in the early days.

“When you’re new to the industry, be prepared to pound the pavement and knock on doors to connect with referral partners because they are the life blood of any broking firm. If you can connect with the right referral partner that first year, transition can be a lot smoother than if you don’t have those referral partners in place.”

Alongside his work in supporting the community around him, Violeta says nothing really beats the thrill of getting someone approved for a loan, particularly if it’s for their first home.

“The joy that you get from speaking to them, seeing them and actually getting that key and turning it for the first time – that really gives me a buzz and it really means a lot to me that I was able to be a part of that process for them.”

29

PEOPLE CAUGHT ON CAMERA Australian Broker attended the 2015/2016 NSW AFG Awards last month, held at the Ivy Ballroom in Sydneyâ&#x20AC;&#x2122;s CBD. The formal lunch event took guests through multiple rounds of scoring finalists in close to 20 categories ranging from Lender BDM of the Year to the coveted Champion Loan Broker of the year.

This year, this honour went to Peter Ellis of Ellis Partners Finance and Century 21 Home Loans.

The NSW/ACT Champion Group award was won by Shore Financial.

30

PEOPLE HOT SEAT

AARON CHRISTIE-DAVID Atelier Wealth director Aaron Christie-David on what surprised him when he first became a broker, and which international pop star he would want to invite to dinner

What has been the biggest lesson you have learnt in your career as a mortgage broker?

Without a doubt it’s being responsive.

A When I started out in broking, it amazed me how many times clients would say, “Thanks for getting back to us so quickly”. To think that responsiveness became a point of difference made me realise that some bankers and other brokers must not be getting back to prospective and existing clients in a timely fashion.

This, in turn, forces us to learn lessons about organising our time, managing our clients’ expectations, and fine-tuning our workflow.

I’ll be the first to put my hand up and say my processes need improving and there have been times when I have taken longer than I should have to respond to a client – but I have learnt that lesson.

Q

What has been your most rewarding client experience?

The most rewarding experiences are when A a client picks up the phone to say thank you, and then recommends me to a friend or family member. It’s incredibly humbling to think that in their conversation they’ve said, “You need to speak to Aaron because he helped us”.

If I had to pick a standout it would be assisting a young couple who were told by their bank (the institution shall remain nameless!) that they couldn’t use any equity within their home to buy a very modest investment property.

Fast-forward one year and they have now acquired their third investment property – all positive cash flow. They now have the confidence to build a sustainable and diversified investment property portfolio, which they thought, and were told, was impossible.

Q

What do you think will be the biggest disruption in the mortgage industry over the next 12 months?

The next 12 months will continue to have a A number of challenges… If I was to pick one disruption, I would say the retail banks will be looking to up their service levels. As a third party industry, we are operating in such a great time, with increased market share, greater awareness of our proposition, and better regulation of our industry.

Retail banks will not sit around and let business walk out of the door into brokers’

Q

offices, so we need to anticipate this and up our ante now.

What is your biggest fear?

As a professional, my biggest fear is A overpromising and underdelivering. As my business grows there are new challenges, such as managing our day-to-day operations and having smoother processes. To keep the client front and centre of my business, I have to push myself to maintain a high standard of customer service and also engage my referral partners to ensure their clients get the ‘gold standard’ client experience. This type of pressure keeps me honest and focused, but is certainly a fear.

On a personal note, without a doubt it’s claustrophobia. Don’t ask me where it came from or why, but being stuck in a cramped space freaks me out! Give me heights, give me speed, or spiders any day of the week!

Q

If you could have dinner with any three people (dead or alive), who would they be and why?

1. Michael Jackson: I’m such a huge fan of A his music and his ability to entertain. I’m disappointed around the controversy that surrounded his career, but you can’t help yourself when you hear Billie Jean to bust a few moves!

2. Tony Robbins: I had the privilege to hear Tony speak last year and he has this presence about him. To learn about his journey and read his book Money: Master the Game has changed my outlook and focus on life.

3. Bernadette: My best friend and wife!

Bernie has been my biggest supporter and source of encouragement. We have a love for food (street food through to fine dining), and as long as there is a bottle of dessert wine at the end of dinner, our lives are complete!

Q

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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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