Australian Broker 15.18 by Key Media

SEPTEMBER 2018 ISSUE 15.18

Ambassadors for change Andrew Way explains the broker’s role in a changing market /16

Back in the game HSBC’s Alice Del Vecchio on broker partnerships /18

JAMES SYMOND The Aussie Home Loans CEO speaks to Australian Broker about the CBA demerger and future plans /14

Rewriting the rules of finance Fifo Capital CEO Wayne Morris explains debt-free finance /22

ALSO IN THIS ISSUE… In the news Trail Homes founder Nick Young details changes to book sales /20 Caught on camera ALI Group celebrates 15 years in the business /24 In the hot seat Jims MD Tony Gale on the reinvention of broking /30

NEWS

IN THIS SECTION

Lenders Westpac admits responsible lending breach /04

Aggregators Finsure-Goldfields merger approved by shareholders /06

Technology Spotcap tool educates brokers on unsecured online lending /10

Regulators ABA calls for extension to new banking code /12

Market Rate rises could prolong weak market performance /08

www.brokernews.com.au SEPTEMBER 2O18 EDITORIAL

SALES & MARKETING

News Editor Rebecca Pike

Sales Manager Simon Kerslake

Journalist Nicola Middlemiss Production Editor Roslyn Meredith

DATES TO WATCH

Upcoming can’t-miss events

ART & PRODUCTION Designer Martin Cosme

28 SEPTEMBER

30 SEPTEMBER

2 OCTOBER

2018 Construction Outlook Breakfast

Royal commission interim report due

WA Risk and Compliance Discussion Group

The Housing Industry Association concludes a three-day roadshow with a breakfast seminar in Brisbane featuring Westpac senior economist Matthew Hassan and HIA principal economist Tim Reardon. The session delivers up-to-date analysis of conditions in the residential and non-residential industry, with insightful consideration of the broader economic environment.

Commissioner Hayne is due to deliver his interim report by 30 September following four rounds of public hearings that focused on farming finance, SME and consumer lending, and financial advice. Almost 7,000 submissions have been received, and the final report is due by 1 February 2019.

This forum hosted by the Association of Superannuation Funds of Australia covers compliance and risk trends, and issues faced by the superannuation industry. The session is for those working in compliance, risk management and governance, and attendees qualify for one CPD point as part of ASFA’s accreditation program. Registration is available via the association’s website.

Production Manager Alicia Chin Traffic Coordinator Freya Demegilio

Marketing and Communications Manager Michelle Lam

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

Rebecca Pike +61 2 8437 4784 Rebecca.Pike@keymedia.com

SUBSCRIPTION ENQUIRIES

4 & 9 OCTOBER Australian property market update Taking place in Sydney, this seminar hosted by Blue Wealth provides an introductory overview for the firm’s clients, while explaining how property investment can be a tool for wealth creation. The session will also deliver an overview of the firm’s research methodology, which has helped thousands of clients secure lucrative investment opportunities.

19 OCTOBER

21 – 23 OCTOBER

Australian Mortgage Awards

Customer Owned Banking Convention

The leading independent awards event for the mortgage industry highlights the outstanding achievement of Australia’s top mortgage brokers, lenders, aggregators and advisers. The 2018 AMAs will be hosted by Lawrence Mooney, with entertainment by Furnace and the Fundamentals and Linden Furnell.

Themed ‘The Challenge of Change’, this year’s COBA convention will be held in Melbourne and feature former prime minister Julia Gillard, alongside FINSIA CEO Chris Whitehead; Cognitive Finance Group founder Clara Durodié; Michael Edwards, VP for advocacy at the World Council of Credit Unions; and Bank Australia chair Judith Downes.

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

ADVERTISING ENQUIRIES

Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au 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, Bengaluru

9 NOVEMBER

1 6 N O V E M B E R

MFAA Victorian Golf Day

FBAA 2018 National Industry Conference

This golf and networking event will take place at one of Australia’s top courses, Sandhurst Golf Club, Melbourne. The format is four-person Ambrose and, for those without an official handicap, the defaults are 27 for men and 36 for women. The day starts with a light breakfast and finishes with a BBQ lunch and beverages.

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The FBAA’s annual conference and awards will be held at Sea World on the Gold Coast. Under the theme ‘Evolution’, the conference will support brokers in navigating recent industry changes, while the evening’s Awards of Supremacy will see 500 guests gather to recognise leading industry personalities.

20 NOVEMBER CEDA Annual Dinner Held at the Sofitel Melbourne, the committee’s end-of-year celebration will welcome Reserve Bank Governor Philip Lowe as keynote speaker. He will present a review of the past year and share his economic predictions for 2019. Individual member tickets start at $290, while non-member tables can be purchased for $4,000.

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.

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NEWS

LENDERS SUNCORP SELLS LIFE INSURANCE ARM Group has signed a share sale deed with TAL Dai-ichi Life Australia Pty Ltd to sell its Australian life insurance business for approximately $725m. The agreement includes a 20-year distribution agreement with TAL to offer market-leading life insurance solutions through Suncorp’s Australian distribution channels, including digital, contact centres and its store network. Under the terms of the alliance, Suncorp will continue to earn income on the distribution of life insurance. SUNCORP

RATE HIKES: THE BOTTOM LINE Source: ratecity.com.au

Monthly increase

Loan size:

$300,000

$500,000

$1m

$120 $100 $80

$99

$93

$87

$60 $40 $20 $0

$50

$47

$43

$30

$28

$26 Westpac

CBA

ANZ

Annual increase $1,200 $1,000

$1,191

$1,117

$1,044

$800 $600

BLUESTONE SUPPORTS FINANCE AND COFFEE online broker forum POPULAR Finance and Coffee has named non-bank lender Bluestone as its gold partner. As part of the deal, the lender has committed to support the group through content that educates brokers on the near-prime and specialist lending spaces. Co-founder of Finance and Coffee Joel Rozen said, “Their insight will especially be of value for our community, and we’re very much looking forward to what we can accomplish together under this partnership.”

“The anticompetitive behaviour of the big four is certainly something Scott Morrison should look into. It’s unAustralian” Siobhan Hayden COO, HashChing

www.brokernews.com.au

$400 $200

$559

$516 $312

$596 $357

$335

Westpac

CBA

WESTPAC ADMITS RESPONSIBLE LENDING BREACH An ASIC investigation reviewed 11 lenders, concluding they “often failed to consider” whether interest-only loans met consumer needs has admitted breaching responsible lending obligations when providing home loans and has agreed to submit to a $35m civil penalty to resolve Federal Court proceedings. The litigation related to Westpac’s home loan assessment process between December 2011 and March 2015, during which approximately 260,000 home loans were approved by its automated decision system. For approximately 50,000 of these, Westpac received, but did not use, information on consumers’ actual expenses, which were higher than the Household Expenditure Measure. Further, the major lender used the incorrect method when assessing consumers’ capacity to WESTPAC

repay another 50,000 home loans at the end of their interest-only period. Of this total of 100,000 loans, 10,500 should not have been automatically approved by Westpac. ASIC has not alleged that any customers suffered specific loss or damage as a result of these breaches, and there are no admissions that any loans were unsuitable for customers. Westpac admitted contraventions of the National Credit Act, and the parties filed a Statement of Agreed Facts and joint submissions as to the appropriate penalty. Westpac will also pay ASIC’s litigation and investigation costs. “This outcome, and ASIC’s actions in relation to responsible lending, reinforce that all lenders must obtain information from individual

ANZ

borrowers about their financial situation to ensure that they can properly assess the ability of the customer to repay the loan,” ASIC chair James Shipton said. “Lenders must then verify the information to ensure that it is true, and then assess whether the loan is unsuitable for the borrower. Taken together, these responsible lending obligations are a cornerstone protection for both borrowers and lenders. “This outcome is a warning to all lenders that they must comply with the responsible lending obligations. If they do not, ASIC will take action to enforce the law.” The case followed a 2015 review by ASIC that investigated 11 lenders – including all four major banks – and concluded they “often failed to consider” whether an interest-only loan would meet a consumer’s needs, particularly in the medium to long term. ASIC was especially concerned about Westpac’s home loan assessment process and its provision of lengthy interest-only terms of up to 15 years for owner-occupiers.

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NEWS

A G G R E G AT O R S CONNECTIVE RECOGNISES LEADING BROKERS Excellence Awards took place in September, recognising leading brokers at ceremonies in Perth, Sydney, Melbourne, Brisbane and Adelaide. There were nine award categories, including asset finance, loan administration, female empowerment, customer service, compliance and marketing, as well as brokers who are considered “masters” of using Connective’s Mercury software to improve business efficiency. The aggregator will celebrate its 15th anniversary in 2019. CONNECTIVE’S

SMARTLINE ADDS GLOBAL LENDER TO PANEL has confirmed that HSBC has joined its lender panel, which now features more than 30 lenders. It is HSBC’s third broker partnership since re-entering the broker space with Aussie Home Loans in 2017. Smartline’s 400 brokers can now offer rates as low as 3.64% per annum. Alice Del Vecchio, HSBC head of mortgages and third party, said, “We hand-picked Smartline because they are an extremely compliant business and they work to the highest global standards.” SMARTLINE

FINSURE–GOLDFIELDS MERGER APPROVED BY SHAREHOLDERS Described as a transformational deal, the merger is set to create Australia’s “first truly scalable digital challenger bank” aggregator Finsure has merged with regional bank Goldfields Money Limited (ASX-GMY) after receiving approval from the lender’s shareholders. The merger will create Australia’s “first truly scalable digital challenger bank”, which will “help both companies to grow and improve profitability”, according to the official announcement. Given that the new entity is ASX-listed, Finsure’s more than 1,400 member brokers will be able to acquire ownership shares. Describing the deal as a win-win, Goldfields Money Limited executive director and CEO Simon Lyons said, “We will LEADING

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be creating Australia’s first truly scalable digital challenger bank focused on providing lending solutions for Australian consumers via broker distribution. “The combination of Goldfields Money and Finsure will create a market-leading digital banking platform that will shake up the Australian banking sector and offer consumers a new banking experience and provide a viable alternative to the major banks. “We will be using technology to challenge the way banking is done, adapting to our customers’ needs, reducing costs and striving to innovate. Our new digital bank will be a trailblazer in the banking industry and offer customers a

personalised experience.” Co-founder and MD of Finsure John Kolenda said, “The combined entity is going to provide enormous benefits to our broker network, significantly boosting their service proposition and enabling them to offer customers better home loan products and rates. “There will be greater opportunities to expand our product offerings to our brokers and provide them with greater product choice and customer solutions. They will have access to leading mobile lending solutions, great deposits and other leading products. Our brokers will also be able to acquire ownership in the new entity, given we will be listed on the ASX.” Finsure acquired LoanKit in 2013 and has become one of the fastest-growing aggregation businesses in the industry as a result. Last month, Kolenda described the potential merger with Goldfields Money as “transformational”.

“Being able to clearly show that you know your clients and fully understand their financial situation, objectives and needs is crucial” Brendan Wright CEO, FAST

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NEWS

MARKET REPORT HIGHLIGHTS HOUSING STRESS June quarter edition of the Adelaide Bank/REIA Housing Affordability Report has found the proportion of income required to meet average home loan repayments has increased 0.9 of a percentage point to 32.2%. However, rental affordability has improved, with the proportion of income required to meet average payments decreasing by 0.7% to 24.1%. Additionally, the number of first home buyers increased by 7.3% during the quarter, and 20.6% year-on-year. THE

DEPOSIT POWER RETURNS TO MARKET can expect “business as usual” now that Deposit Power has returned to the market backed by international bonding and commercial insurance provider Lombard Insurance Company. Deposit Power was forced to cease trading after CBL Insurance went into interim liquidation in February. General manager Grant Bailey said, “We’re now focused on re-engaging with our long-standing partners and the general broking community to reinstate our position as Australia’s leading supplier of deposit bonds.” BROKERS

“Pepper Money is delighted to be partnering with kogan.com on the Kogan Money Home Loans opportunity”

Mario Rehayem CEO Australia, Pepper Money

Cameron Kusher, head of research, CoreLogic

RATE RISES COULD PROLONG WEAK MARKET PERFORMANCE A leading analyst has said the housing market could weaken further as mortgage rates rise analyst Cameron Kusher has warned that out-of-cycle interest rate increases by Australia’s major banks will affect owner-occupiers, unlike previous rate rises, which historically affected investors and those with interest-only mortgages. The banks cited increased funding costs as the reason for the rate rises, while CoreLogic data concludes that the three-month bank bill swap rate has increased to sit above the RBA cash rate at 2.26%. Kusher said, “There are other ways to handle higher short-term funding costs, but that would likely mean cutting dividends, which lenders seem reluctant to want to do, or reducing deposit interest rates, which would likely see a further CORELOGIC

reduction in the primary funding source: domestic deposits.” Kusher said the timing of the rate changes was “interesting”, given that the markets in Sydney and Melbourne were “embedded in a downturn”; further, the rate changes coincide with the start of the spring selling season. “Tighter credit conditions, higher mortgage rates for investors, interest-only borrowing and reduced affordability have already led to the [home value] falls of 5.6% from the peak in Sydney and 3.5% from their peak in Melbourne,” Kusher said. “Although spring is somewhat overhyped as a good time to sell, more stock does typically become available for sale over the period, and buying activity typically increases.

“The other usual occurrence at the beginning of spring is that lenders offer enticing mortgage rates to the market to jostle for market share. By contrast this year, major lenders are announcing higher mortgage rates.” CoreLogic has seen rising mortgage rates drive a slowing in investor demand over the past year. Kusher expects that while the latest hikes are “fairly small”, they will impact further on housing market sentiment. “It may end up further exacerbating the declines which are already occurring in Sydney, Melbourne, Perth and Darwin and the slowing of value growth being experienced elsewhere,” he said. “Overall this move seems likely to lead to a continuation of the currently weak housing market conditions over the coming months and may weaken the market further. “Lenders realise the housing downturn is becoming entrenched and they are doing what they can to maintain profitability in the face of lower mortgage volumes.”

CORELOGIC HEDONIC AUSTRALIAN HOME VALUE INDEX

Source: CoreLogic, 31 August

Month

Change in dwelling values Quarter

Annual

Total return

Median value

Sydney

-0.3%

-1.2%

-5.6%

-2.7%

$855,287

Melbourne

-0.6%

-2.0%

-1.7%

1.2%

$703,183

Brisbane

-0.2%

0.1%

0.9%

5.0%

$493,922

Adelaide

0.3%

0.5%

1.0%

5.2%

$438,466

Perth

-0.6%

-1.9%

-2.1%

1.8%

$454,007

Hobart

-0.1%

0.1%

10.7%

16.2%

$437,254

Darwin

0.1%

-0.7%

-4.0%

1.5%

$439,718

Canberra

0.5%

0.4%

2.3%

6.9%

$593,886

Combined capitals

-0.4%

-1.2%

-2.9%

0.3%

$646,020

Combined regional

-0.2%

-0.6%

1.6%

6.6%

$368,336

National

-0.3%

-1.1%

-2.0%

1.5%

$552.141

www.brokernews.com.au

TECHNOLOGY UPDATE

STEADY DECLINE IN INVESTOR LENDING Source: ABS Housing Finance

Lending to investors 3-month rolling total – Australia

BETTER CHOICE CHOOSES BEST-FIT APPLYONLINE

$38m

$37m

$36m

$35m Natalie Sheehan

$34m

Better Choice continues its nationwide expansion, a technology upgrade has been deemed pivotal to accommodating the mortgage lender’s anticipated ongoing growth. “Partnering with NextGen.Net has been a key component of our digital transformation strategy,” says Better Choice General Manager Sales and Distribution Natalie Sheehan. “We identified that ApplyOnline is the most widely used electronic lodgement service in the industry; plus of course it’s acknowledged as ‘best in class’. So for us it was a natural choice. “NextGen.Net has provided us with an all-in-one solution, which allows us to receive validated electronic applications and accurate supporting documentation. This enables us to do straight-through processing and has vastly reduced the number of missing information requests we send back to brokers,” says Sheehan. Better Choice is highly supportive of the broker channel. Working on increasing its brand presence in the third-party market is a core component in its strategic road map. “We have multiple funding lines under the Better Choice brand, which adds a level of complexity that in the past brokers have admitted has influenced their decision not to deal with us,” says Sheehan. “Partnering with NextGen.Net has removed this barrier. It has opened us up to more brokers being accredited with us and opting to use us.” Internally, ApplyOnline has created notable efficiencies for Better Choice. As Sheehan explains, prior to switching on ApplyOnline, entering new deals into Better Choice’s CRM entailed manual processing. “We can now redeploy these staff members into our credit team to improve turnaround times – this provides them with career enhancement opportunities. Instead of data processing, they can now move into credit assessment and also get involved in other areas of the business that may be more interesting and lead to improved job satisfaction.” Better Choice offers solutions for a wide AS

$33m

$32m

$31m

$30m

$29m

Jul-18

Jun-18

Apr-18

May-18

Feb-18

Mar-18

Jan-18

Dec-17

Oct-17

Nov-17

Sep-17

Jul-17

Aug-17

$28m

DISINCENTIVES DETER INVESTORS data on housing finance for the month of July shows the value of lending to investors declined by a further 1.3% and was 15.7% lower than in July 2017. “A growing list of disincentives are deterring investors from Australia’s housing market,” stated Housing Industry Association economist Diwa Hopkins. “Investors played a significant role in the record levels of new home building that occurred in recent years. Their retreat from the market will weigh on activity over the near to medium term.” ABS

Adam Turriff

range of borrowers. Products include alternative documentation loans, which many of the majors are no longer offering. Sheehan says brokers have been asking Better Choice to switch electronic lodgement to ApplyOnline for some time. So the news that it has been implemented, along with its sophisticated features, including the Supporting Documents service, application assessment metrics and policy manager, has been greeted with positive feedback from the broker channel. “ApplyOnline has taken us into the digital age,” Sheehan declares. “It provides us with more efficient processing and ultimately it gives our brokers a better experience when they’re dealing with us.” NextGen.Net Customer Account Manager Adam Turriff points out the correlation between the recent new appointments at Better Choice and the mortgage lender’s investment in technology. “The relationship between Better Choice and NextGen.Net ensures we’ve been able to complement their growth strategy and provide optimal support for their broker partners moving forward,” says Turriff. “The implementation of ApplyOnline positions Better Choice well against their peers and competitors. In the current environment, it’s critical to be nimble, with a comprehensive level of control to manage your own policies and requirements in real time.” Sheehan remarks that the value proposition of non-banks is stronger than it has been in a long time. “Mortgage brokers are looking beyond the banks, driven by lower rates in the prime lending space or the fact that they are seeking solutions that the majors are no longer offering; one of those being alternative documentation loans, which is one of our key product offerings,” she says. “We are passionate about supporting brokers and meeting the needs of their customers. With over 700 products from nine funding lines available on one application form, Better Choice is the ‘broker’s broker’.”

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NEWS

TECHNOLOGY

CRYPTO CREEPS INTO PROPERTY SALES founder of crypto investment fund Surge, Gary Ng, says property investors are increasingly using cryptocurrency such as bitcoin for property transactions, following in the footsteps of countries such as Japan, where he reports that crypto is used for everyday transactions. Ng believes that crypto will soon become a mainstream currency in Australia, despite bad press. He said, “It depends on the way you look at it. For people wanting to sell a property, it’s a big investment.” THE

SPOTCAP PRODUCES EDUCATIONAL TOOL FOR UNSECURED ONLINE LENDING Free-to-download e-book examines market conditions and the broker’s role in sourcing suitable business finance for SMEs has released a free e-book, Guide to Online Business Loans, to help brokers move into writing unsecured online business finance. It is the first comprehensive guide to alternative lending produced by a fintech lender in Australia, and was created to help brokers diversify by overcoming barriers such as a lack of education and industry knowledge. The free-to-download guide examines the business landscape in Australia and gives tips on how to identify opportunities in a broker’s or accountant’s client base. It also looks at how to begin writing simple and competitive business loans. The company plans to support SPOTCAP

the guide with further education in the form of webinars and workshops. Lachlan Heussler, managing director of Spotcap Australia, said, “We are very excited to release our first e-book, which is designed to help our partners diversify and boost their own client base and revenue by offering a modern finance solution to their small and medium-sized business clients. “Competitive pressures in the industry mean it’s harder to continue business as usual, and many finance brokers now look to alternative forms of finance, such as business loans, to diversify their income sources. However, we have found one of the biggest obstacles holding them back from expanding

the suite of services they offer their clients is quality education.” In 2017, Spotcap launched an online portal to explain and raise awareness around various non-bank lending options available to SMEs. Developed in conjunction with a number of other fintech lenders, the interactive microsite contains information on the different finance sources available. It was created in response to a market survey by Pureproﬁle, which concluded that more than half of around 1,000 respondents were unaware of the different non-bank lending choices available. “Writing online loans is easier than many finance brokers think, and it can help them strengthen relationships with their client base and demonstrate further value with the services they provide,” Heussler said. “Online business loans offer an exciting and effective way for brokers to break into this burgeoning market in a timesaving and stress-free way.”

TECH SUCCESS Source: MyState Bank

Brokers have their say on using emerging tech to boost future business

27%

40%

35%

26%

16%

would adopt new technology and software to remain competitive

believe their current business model is already positioned for success

believe faster application processing times are crucial

report superior relationship management skills provide an edge

say AI and automated digital systems will sustain a successful broking business in future

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PROSPA CHANGES LOAN TERMS has changed some of its loan terms to satisfy queries raised by ASIC. The review by the regulator was part of a broader examination of lenders’ small business loan contracts to reduce the risk of unfair contract terms. Prospa COO Ben Lamb said, “We’re always looking for ways to improve finance outcomes for small business owners. As the first non-bank lender to complete its review, we believe these changes are industry-leading.” PROSPA

WHITE LABEL UPDATE

CUSTOMER SERVICE ESSENTIAL TO THE WHITE LABEL EXPERIENCE White label loans have shaken off their low-cost, no-frills image to become much more than a competitive price tag, writes Advantedge General Manager Brett Halliwell

loans have become well known in the Australian market for their competitive pricing and simplicity, but in recent years brokers and their customers have also been drawn to white label’s service offerings, turnaround times and ease of transacting. Exclusively available through mortgage brokers, white label loans by Advantedge have rapidly grown in popularity, and today 85% of brokers now have a white label offering for their clients. WHITE LABEL

Service is the key In our latest broker satisfaction survey, Advantedge found that great service is essential to the white label experience. Brokers gave Advantedge a Net Promoter Score (NPS) of +40, citing they’re highly satisfied with the overall service they receive from Advantedge, specifically from our dedicated Scenarios Team and experienced business development managers. This appreciation of customer service was also echoed by consumers. Customer advocacy for brokers who set up the white label loan is at an all-time high, achieving an NPS of +76. The findings also demonstrate that brokers who offer white label loans are highly valued for

their expertise. Overall four out of five customers would refer the broker who recommended the white label loan, enhancing the broker’s proposition and increasing their referrals. Enabling quality submissions Fast turnaround times are frequently cited by both brokers and their customers as an attractive benefit of white label home loans. To achieve fast and efficient first-touch unconditional approvals, quality submission is key. This is why Advantedge provides all brokers with a submission checklist, which not only helps to get loans approved but reduces the need to rework and resubmit documents. By taking the time from the outset to ensure all elements of the application form are completed and all supporting documents obtained, brokers can provide customers with a seamless home loan journey, helping to deliver a great customer experience. As part of our minimum standards, we recommend brokers supply a fully completed application form along with a Privacy Consent Form; 100 points of identification; a completed Serviceability Calculator

Brett Halliwell

which details living expenses; refinancing statements if applicable; and finally, an upfront valuation. With these documents submitted, it will ensure the files move to assessment. Enhancing efficiency In 2017 Advantedge also introduced digital verification of identity and digital document send and sign to enable a faster and simpler process for brokers and their customers. Our partners at MSA National are seeing that 18% of documents are now being signed and returned within three hours and 60% signed and returned within three days. Put simply, that’s the

same time it usually takes for documents to be received by the customer via express post. This digital innovation is taking five to seven days off the settlement process and leading to increased conversion. Broker Geoff Wood of My First Property in Melbourne says digital mortgage tools such as client identification apps and digital signatures have been a game changer for the industry. “From a process, efficiency and user experience perspective, digital signatures are fantastic and the time they save is phenomenal. I would say they save at least two working days on every loan,” Wood said.

A BDM’S PERSPECTIVE As a BDM for nearly 14 years and an Advantedge BDM for more than a year, Casandra Wright understands the importance of customer service. “Service is paramount for brokers in this day and age, and BDMs are integral in providing expert knowledge and support for them to succeed,” she says. Cas believes BDMs act as an important conduit between brokers and lenders, helping brokers to meet lender requirements and submit quality loan applications from the outset. “As a BDM, brokers come to me with a variety of questions on product specifics, rates, financing complicated deals, and how to cut down on office admin,” she says. “In many ways, I am a sounding board for brokers, and often I provide face-to-face support. This is an extra service I provide which isn’t standard practice and something most brokers don’t expect.” Helping brokers streamline processes A significant part of Cas’s role is informing brokers about the tools

and processes that can help them deliver the best experience for their customers. “Advantedge offers brokers some great digital tools, and our online support is industry-leading,” she says. “Once brokers know how to get the most out of tools like DocuSign and verification of identity apps, the loan application process suddenly becomes a lot simpler and more efficient.” Correcting common misconceptions The most common white label myth Cas hears is that white label is only a product for ‘vanilla’ financing scenarios. Contrary to this, Advantedge has a strong support framework to assist brokers with unusual or complex financing scenarios, which includes the CustomerCare and dedicated Credit and Scenarios Teams. “Advantedge loans are increasingly being used for high-value deals and for complex financing scenarios,” she said. “I recently had a broker achieve fast turnaround for a complex deal that involved multiple entities and multiple income streams.”

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NEWS

R E G U L AT O R S

ASIC OUTLINES STRATEGIC PRIORITIES has presented its corporate plan for 2018/19 and 2022/22 (see boxout below), which chair James Shipton says is designed to re-establish trust. “The industry needs to address systemic issues, such as conflicts of interest,” Shipton said. “Firms need to ensure they adopt a culture of professionalism and make sure it is cascaded through the entire firm and sector. We have an important role in driving the behaviours that will build and restore trust.” ASIC

Anna Bligh, CEO, Australian Banking Association

ABA CALLS FOR EXTENSION TO NEW BANKING CODE CEO Anna Bligh has urged the royal commission to extend cover to non-members, including credit unions, building societies and other lenders Australian Banking Association is calling for the new Banking Code of Practice to be adopted industry-wide. Recently approved by ASIC, the new banking code standards are currently only a requirement for ABA members. The code aims to lift standards in banking, with a commitment to ethical behaviour, responsible lending, greater financial protection and increased transparency. It will be fully implemented by 1 July 2019. However, ABA has now recommended to the royal commission that non-members such as credit unions, building societies and other lenders also adopt the standards to ensure there are no THE

CONSUMERS UNAWARE OF CREDIT REGULATIONS in five Australians are THREE unaware that their credit score may have already changed as part of new credit reporting regulations, according to Experian. Regional executive general manager Poli Konstantinidis said, “Our research shows the people most likely to see the impact of changes to their credit score are also the ones most in the dark.” Experian found that 65% of big four customers and 53% of those with multiple accounts didn’t know more data was being shared.

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gaps in protections for customers. ABA CEO Anna Bligh said that, while the new code was tailored specifically for the types of banks it represents, it was important that customers were protected regardless of who they chose to bank with. “Members of the Australian Banking Association have lifted the standard in banking with this new code, with customers the big winners,” Bligh said. “Initiatives such as reminders when introductory credit card offers are ending, proactive contact with customers who might be at risk of financial difficulty, and simple, easy-to-understand contracts should be adopted across the entire industry.

“Particularly for small business, every lender, including building societies, credit unions and others, should give sufficient notice when loan conditions might change, to help with future planning.” Bligh said ABA member banks were “proud” of the new code being implemented. “Other lenders are offering similar products; however, the standards are not the same, which creates both confusion for customers and a loophole in protections. These common standards for customers could be achieved by making membership of an ASIC-approved code, such as the ABA code, a licence requirement,” she said. “While we fully expect further changes to be made to banking following the final report from the royal commission, it’s important that all lenders, such as credit unions, building societies and others, adopt the same rigorous standards to ensure there is consistency across the industry.”

30/06/2003

HOW ASIC WILL SPEND $70.1M IN ADDITIONAL GOVERNMENT FUNDING Source: MFAA

ASIC’s strategic priorities to 2022 will include: a ccelerating enforcement activities and pursuit of misconduct establishing a dedicated taskforce to conduct a review to identify and pursue corporate governance failings in large listed companies embedding ASIC staff onsite in major financial institutions s trengthening superannuation i mplementing reforms to whistleblower protection laws i mproving consumer access to the Financial Advisers Register and fostering better compliance in the financial advice industry investigating and enforcing cases of unfair contract terms involving SMEs p romoting Australia as a regtech world leader

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FE AT URES

SPECIAL REPORT

GOING SOLO

Demerged but not out, Aussie Home Loans has big plans for the coming two years, including a franchise network expansion and new C-suite appointment. CEO James Symond reveals what’s ahead

KEY BUSINESS METRICS

$65BN

loan book

1,000+

brokers working for the brokerage

220+

retail stores across Australia

new stores opened in FY18

$1.5BN+

in average monthly settlements

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the business model that underpins an entire sector is scrutinised by a royal commission, few expect the entities operating in that space to have a great year. Aussie Home Loans CEO James Symond begs to differ. In June, following widespread concern about vertical integration in financial services, CBA announced it would demerge CFS Group, which included Colonial First State Global Asset Management, Count Financial, Financial Wisdom, and the country’s “biggest brokerage”, Aussie Home Loans.  Despite the findings unearthed by the royal commission, for many the news was a bolt from the blue. The bank had steadily increased its share in Aussie from 33% – to 80% in 2012 and 100% in 2017 – but despite this, Symond says he wasn’t surprised by the latest twist. “Rightly or wrongly, vertical integration is being called into question, so this is just CBA getting on the front foot. As is the nature of these types of market-sensitive announcements, it all happened very quickly,” Symond tells Australian Broker. “The good news is that Aussie has always operated as a standalone business. Our brokers, lenders and partners continue to see this in action, and this will simply be more obvious once again when everything’s done. For our brokers and franchisees, the demerger really won’t mean much. There was little change to Aussie as CBA’s ownership grew over the last decade, and we expect similar now.” In the months since, Aussie has recorded what Symond describes as the “strongest financial results of our 26-year history”, with its WHEN

loan book approaching $65bn. A total of 14 new stores opened over the course of the year, and future targets will see 10 new stores open in early FY19 and the mobile channel increase to 500 brokers. “We’re looking for new franchisees who want to start, or grow, a small business with the backing of an industry-leading brand. We have some great franchise territories available across the country, and we’re always looking for new mobile brokers to join the team,” Symond says. Adding to the good news, in July Symond was elected a life member of the MFAA in recognition of his contributions to Aussie, the wider industry and the association itself, for which he served as president during the GFC. Reflecting on recent months, Symond highlights that the company refuses to be impeded by

the storms faced at this time. “With almost 27 years in this industry, if we’ve demonstrated anything it’s that Aussie thrives in a changing, and even a challenging, environment,” he says. Industry changes Despite the silver linings, question marks remain over much of the industry, including the what, when and why of how brokers are paid. Symond’s ideal outcome is “little or no change”, but he is under no illusion that anything could happen. While closely engaged with the Combined Industry Forum, the MFAA, various regulators and the government, Symond’s position is, “If it ain’t broke, don’t fix it”. “Without trail, brokers will simply have to dedicate more of their time and efforts to attracting and helping new consumers in order to sustain their businesses, to the detriment of their current customers,” he says. “Any move to ban trailing commissions will actually risk damaging the broker sector and reduce customer access to a wide range of lenders, which could ultimately reinstate the power of the major banks and drive up interest rates for consumers. The right outcome would be no change.”

In partnership with

KPMG’s annual M&A predictor report. While this activity has been slowly building over the last three years, the impact of the royal commission on the wider industry landscape can’t be ignored. “In this new world, or new normal as I call it, we will continue to see a contraction or amalgamation of aggregators in the market,” Symond says. “As the strong become stronger, I think the weak will be eliminated.” Future strategy Turning plans into reality, Symond promises a “serious investment spend” over the next two years to

technologies. “Technology and digital are critical to our business and key elements of our future program of work. We must consider the evolution and introduction of new technologies now or get left behind,” Symond says. To achieve this, Aussie will recruit a new executive to its C-suite in the form of a chief digital officer, who it is envisioned will become a subject-matter expert in the business, harnessing the opportunities in digital, both now and in the future. On the customer-facing side of the business, a new marketing

“With almost 27 years in this industry, if we’ve demonstrated anything it’s that Aussie thrives in a changing, and even challenging, environment” James Symond, CEO, Aussie Home Loans

James Symond, CEO, Aussie Home Loans

To buoy morale during this period, Aussie aims to build on the close contact it maintains with its broker network, consulting on key initiatives that will in turn support brokers in their own businesses. However, elsewhere in the industry, Symond observes strong potential for seismic shifts. Qualifying his observations, he cites increased risk and compliance requirements along with tightening lending criteria – of which he has been a vocal critic – as the most influential changes on the horizon. “So many things are shifting, and for a broker without a partner who is in sync with these changes, I think it will be challenging for them to keep up,” he says. “Our brokers are small business owners who are doing their very

best and need a supportive partner.” Stepping up to the mark, Aussie has recruited quality assurance specialists in each state and is investing further in marketing, with a focus at the local level. The strategy is to support individual brokers in growing their own local brand presence, with a focus on building two-way dialogues with the network. On the hardware side, the firm is ploughing time and funds into technology and systems to streamline processes. The added strength will be crucial: Symond’s predictions for the coming months and years include a redrawing of boundaries in the aggregator space, increasing the likelihood of mergers and acquisitions. A similar outlook is echoed in

ensure the brokerage is “match fit” for its next 27 years – and beyond. This includes a board-approved multimillion-dollar investment that will roll out over the next two years to build a “safer, stronger future Aussie”. While some of its plans are a reaction to recent developments, other elements are outlined in Aussie’s 2020 strategy, which is focused on targeting quality growth in both mobile and retail channels. “We are investing more than ever in the future of Aussie and the future of our brokers’ businesses to ensure our brokers and team members have the technology, systems, processes and support structures they need to meet and exceed changing customer, community and regulatory expectations,” Symond explains. In addition to the aforementioned plans, Aussie’s strategy also covers culture, as well as fostering a stronger understanding of consumer expectations and emerging

campaign was launched on 17 September, complete with a money-back guarantee, which Symond says backs Aussie brokers “like never before”. “We will continue to put our money where our mouth is by telling customers that 100 bucks says that talking to an Aussie mortgage broker is worth their while. We’re so confident of the value our brokers offer that if they meet with us and don’t think it was time well spent, the $100 is theirs,” says Symond, who will personally voice the radio element of the multimedia campaign. While the ongoing demerger means further changes are ahead, Aussie’s core values of “safe, smart and special” will remain intact, as will its vision to become the “best home loan provider on the planet”. “Excitingly, as a standalone company Aussie will have a whole new world of opportunities for our brand and our brokers, and Aussie will become a much larger part of a smaller non-bank group,” Symond says. AB www.brokernews.com.au

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OPINION

AMBASSADORS FOR CHANGE Changes in risk appetite mean the near prime market is flourishing; however, not everybody is happy. Semper Capital co-founder Andrew Way explains why brokers must be ambassadors for change as the market shifts to a new norm

so-called near prime lending sector appears to have grown significantly in the last year. It’s important for commercial loan brokers and borrowers to better understand this sector and its implications in order to better serve its corresponding customer base. Near prime customers are one or two deviations away from prime customers – they may have previous credit defaults (usually to non-financial institutions), or properties in a secondary location, or be self-employed with insufficient personal or business income to secure a prime rate. They are usually borrowing at a low enough LVR to provide strong asset coverage to make up for these factors. Truthfully, near prime credit specifications are more a subjective consideration lender by lender than an algorithm of historic experience. They are made up of many contributing factors, which are not typically consistent between lenders. At present in Australia it isn’t the case that an evolutionary adoption of clever forward-looking credit predictabilities is driving an expansion of the near prime market, but rather a systemic reduction of credit appetite in the bank-funded prime space. In effect, regardless of how good your credit history is, the banks don’t want to lend to you unless you are an absolutely prime candidate. Notwithstanding current efforts to attract absolute prime borrowers to bolster Treasury value, ultimately banks will raise interest margins, causing an increase in so-called out-of-cycle rate rises. So, regardless of your credit standing, all borrowers will pay more,

and many won’t be able to borrow from the banks at all. At the same time, the cost of funds that banks borrow from the market will increase, and institutions will raise the rates they expect to be paid for on- or off-balance-sheet mortgage assets from

THE

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they are willing to pay more to play. So what does this mean for mortgage brokers? First and foremost, there is going to have to be a realisation of true appetite because, despite the fact that banks are advertising products, particularly in the SME space, the truth is they have moved out of those areas. Borrowers don’t know this and will need some convincing, and since banks won’t admit it there is going to be a lot of time wasted on applications. In many ways brokers are going to have to be the voice of reason and ambassadors of change. There is a new reality, which is that rates are going to climb for anyone who doesn’t fit an absolutely prime mortgage that enables banks to enjoy a risk-weighted premium by lending. For all others who present as a greaterthan-100% risk-weighted average, there is no bank appetite. Further, bank rates are going to climb, breaking further and further away from the RBA rate. Brokers who take stock and diversify will secure clients. But they will often need to perform dual applications – one to a bank for those applicants who still believe they are prime candidates, and

The credit-weary vacuum created by gun-shy banks has enabled near prime lenders to creep in on the margins that were once deemed prime

Andrew Way Co-founder, Semper Capital

banks now overexposed to these assets. The credit-weary vacuum created by gun-shy banks has made way for near prime lenders to creep in on the margins that were once considered prime. Some of the players exploiting this space have recently been bought out by large institutional overseas financial entities that are able to provide them with cheaper sources of capital to bring their interest rates down, making them increasingly competitive at the fringe of the prime lending space. This combination of out-of-cycle margin and capital adequacy increases is going to expose the soft underbelly of the banks and create the scenario for major disruption in the mortgage lending space, which will further exacerbate bank woes. For brokers and borrowers alike, these events will cause significant change. Rates will rise, LVRs reduce and T&Cs tighten, and some borrowers will be locked out of the lending market unless

another to a near prime lender more likely to have an appetite for the risk. In short, use pragmatic judgment, be smart, and work harder with multiple applications. This experience will prove where the risk appetite truly sits. What’s next? Overall, we believe the domestic investment market is ready to enjoy rate-for-risk returns it hasn’t seen since before the GFC. We urge the market to keep an eye on players that do not hold long exposures to high-LVR loan portfolios and by default are positioned to benefit from the dislocation that will occur in property and property lending (while maintaining a strong credit position where the banks are at an increasing disadvantage). We’re in the early stages of witnessing an emerging marketplace that will be transformed by a new era in mortgage-backed lending, in which customer profiles are broad, risk is visible and tangible, and returns are transparently justifiable. AB

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BUSINESS PROFILE

BACK IN THE GAME With three broker partnerships now in the bag, HSBC has big plans to shake up the service proposition for brokers and borrowers. Alice Del Vecchio, head of mortgages and third party distribution, explains the developments

KEY BUSINESS METRICS

20%

growth in HSBC Australia’s local mortgage book in the past year, in part due to the broker strategy

HSBC branches across Australia, supported by a phone-based broker and customer care team in Sydney

3.64%

per annum current campaign rate for Home Value loan (comparison 3.66% per annum). Owner-occupier P&I available until 31 December 2018, with the discount applying for the life of the loan

Qualifying customers can also join HSBC Premier, the bank’s premium banking and wealth management service

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has a long history of balancing local and international operations and, while the GFC saw it drop the “world’s local bank” tagline, it remains one of the largest global financial institutions, with 3,800 offices in 66 countries and territories. In Australia – where the bank has operated since 1965 – HSBC offers services in retail and commercial banking, financial planning, trade finance, cash management and securities custody, to name a few. Its niche balance of global and local reach has seen it become a primary choice for expatriate and foreign citizens, along with well-travelled Australians at home and away. Last year, a renewed focus on mortgages saw HSBC Australia re-enter the broker distribution channel in partnership with Aussie Home Loans. The bank has employed a strategy of measured growth, and January 2018 saw the announcement of a second partnership with Mortgage Choice. “We identified pretty early on that our brand really does resonate in the Australian market,” says HSBC’s head of mortgages and third party distribution, Alice Del Vecchio. “We have really great products, great rates, strong brand awareness, and we just thought there was so much more opportunity. We have constantly punched above our weight when we look at results from previous years, so it was a natural move to begin thinking about how we can get the brand out to more Australian consumers. Broker distribution is just the natural channel.” In September, a third partnership was announced with REA Group’s HSBC

Smartline, which in July appointed former CBA broker head Sam Boer as CEO. The group now offers Home Value (see boxout), and qualifying Smartline customers can also enjoy access to HSBC Premier, the bank’s premium banking and wealth management service, which Del Vecchio describes as “the no-brainer solution” for those with lives and ties beyond a single country. Combined, the three partnerships mean that HSBC’s products are now available through more than 2,200 brokers across Australia. “We have looked for partners

term outlook for its role in the broker space. For example, the criteria for new partners covers governance, professional development and CSR, with a heavy emphasis on regulatory compliance. Partners are required to have a strong reputation in the marketplace; comprehensive training programs that support brokers’ continued professional development; a culture of connectivity and leadership within the network; and support for causes and initiatives beyond the world of broking. Del Vecchio explains, “For both parties there is a lot of investment up front, and we go through the process quite genuinely. It’s about asking, how do we get the best out of the relationship? Then, once the onboarding is done, it’s about making sure there is value in the ongoing relationship management. “We have regular meetings and

“We have been extremely consistent in our offerings and service, and that means we are now a tangible alternative in the market” Alice Del Vecchio who have a very similar value and culture to us, and I don’t say that lightly. With the current focus on governance and controls within broking, and financial services in general, this is a really nice fit for us,” Del Vecchio explains. Reporting that things are going “really well”, she says the broker channel now complements HSBC’s branch network, offering comprehensive reach for customers and brokers. Rules of engagement Although focused on growth, the pace is deliberately measured, and HSBC has clear boundaries that underpin a sustainable and long-

engagement with our partners, and we are always sharing information from each side on the results and options for growth. It’s a long-term view.” This high-touch approach is extended to the brokers themselves, who can take advantage of a range of benefits, including a dedicated broker care team and credit hotline, manned onshore by experienced underwriters. Located at HSBC’s broker branch – aka broker branch 101 in Sydney’s Parramatta – underwriters are available to talk through scenarios and even give brokers a direct phone number for follow-ups. “The underwriters in Sydney are used to dealing with complex

In partnership with

“We give them a good product, we support them with good service, we are really clear on our policy, and we can show customers the value for their money. Not all customers will shop on rate; rather they want to know there is true value here for them.”

Alice Del Vecchio, head of mortgages and third party distribution, HSBC

situations. There is nothing that can surprise us, and I think that truly surprises brokers,” says Del Vecchio, who describes the contact with underwriters as “a real point of difference”. It’s also a necessary measure, given the variety of policies offered by the bank and the complexity that can emerge when working with offshore and international customers. For example, how can a broker arrange finance for a visa holder? How can offshore rental income contribute towards onshore income? “We have always had a very strong relationship focus in our branch network, so we did take a lot of time

to talk to brokers before we launched with Aussie to try to replicate this, and they helped us to devise these strategies. We didn’t just speak to top brokers, but ones who write various levels of volume and different types of deals,” Del Vecchio says. Relationship managers are also on hand and, unlike BDMs, they work without sales targets to ensure the focus remains fully on supporting brokers. These elements dovetail with an extensive training and accreditation program, which mandates face-toface attendance where possible and a 100% pass rate, to ensure brokers are well versed in HSBC’s products. “We have a lot of discussion

at the end of each accreditation session, where we really bring the policy and the brand to life, and everybody learns from that,” Del Vecchio explains. The final rule is that, despite the competitive rates offered, the bank doesn’t do introductory promotions, instead favouring longterm competitive rates rather than honeymoon periods. “We pride ourselves on building strong relationships with brokers and their customers, so that means we are very transparent in all our product offerings – and customers at the end of the day must be very clear about what we have offered them,” Del Vecchio says.

A point of difference Although gaining pace for more than a year, in branding terms HSBC’s market re-entry couldn’t have come at a better time. Public trust in corporate ethics has declined across the board, but trust in the country’s banking, finance and insurance firms is at its lowest point in three years, according to the Government Institute of Australia. “We have been extremely consistent in our offerings and service, and that means we are now a tangible alternative in the market,” Del Vecchio says. “We are strong and stable, we have a branch network and customers appreciate that, along with the range and quality of our products. That differentiates us. Price is important, but it’s also how the broker can genuinely talk about us.” Looking ahead, HSBC is focused on applying the lessons it learns on the international stage to the local market. That includes drawing on its experience of open banking and comprehensive credit reporting beyond Australia, building on global compliance standards and, of course, adding more broker partnerships. Del Vecchio concludes, “We do the niche stuff, and that’s what we are known for. But the local customer who goes to a broker and wants a better rate, or just a better package that includes relationship management, fully functional transactional banking and the choice of a branch network, whether they use it or not – all those types of things mean that we have now become quite popular, and we are writing some lovely business as a result.” AB www.brokernews.com.au

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IN THE NE WS

TALKING TRAIL Changes to broker commissions never fail to make headlines, but while the jury is still out on the future of remuneration, those who want to cash in on their trail book need to be aware of their obligations. Trail Homes founder Nick Young explains and shouldn’t be expected to do so,” Young explains. “This model is a very clear way to do business for all involved. It means everybody wins and we all end up years down the track with smiles on our faces.”

clients to you’. It’s a staged plan.” The process takes a minimum of around two months and can last as long as one or two years. Revenue is split between the outgoing and incoming brokers, with the entire transition period facilitated by the aggregator.

“Brokers think of the client and book as one. However, one is a human being and one is an annuity stream”

Nick Young, founder, Trail Homes

discussion around trail has taken several turns over recent weeks, placing the onus on brokers to measure the ongoing service they provide in return for continued payments. For Trail Homes founder Nick Young, the idea that trail is an ongoing responsibility rather than easy income is nothing new. In July the company introduced a new requirement for all book sales, stipulating that brokers must provide ongoing service as part of the sale transaction. “We have now made it a requirement, as opposed to an expectation, that brokers must continue to service their clients as part of a trail book transaction,” he says. “The customer service angle on this is massive.” Typically, brokers can sell anywhere from 20% to 100% of their trail book, and the reasons are varied. Some sell part of the book to fund business expansion strategies, such as an acquisition or new premises and staff. Under this arrangement, the broker’s obligations remain unchanged and they continue to work with their clients. THE

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Others sell the whole book as an exit or retirement plan – and that group is steadily growing as more of the industry’s early entrants approach the end of their careers. Under the new arrangements, their clients must be transferred to a new broker to ensure ongoing service. “The misconception is that brokers think of the client and book as one. However, one is a human being and one is an annuity stream attached to a particular loan – you can’t sell clients,

Planning ahead The idea of a succession plan is nothing new, and many aggregators engage brokers in planning their industry exit from the start of their career. With Trail Homes’ new requirement, the firm can now collaborate with aggregators in this process to proactively address neglected client obligations while supporting new-to-industry brokers with its established client network. “Some brokers have built up very substantial and successful businesses, so this needs to be taken very seriously,” Young says. “The exiting broker has a monetary interest in making sure the handover goes well and that their clients wed themselves to the new broker. Rather than ‘here are the files – see you later’, it’s now a case of ‘here are my files – let’s work together to introduce my

What many brokers don’t realise is that, with an attrition rate of 20%, an unattended trail book halves in value every three years – but that doesn’t have to be the case. “Brokers get a bit of a shock when it is three or four years down the track and they realise their lifestyle is out of sync with their income. If we had had that conversation four years earlier it would have had a very different result,” says Young. The earlier a broker starts planning for a book sale, the better the return; when done properly, it’s possible to achieve in excess of three times the value of the book. “The industry perception of a trail is very much set and forget,” Young says, “but actually it should be about looking at this facility, at how can you be smart about it and how can you use it to plan for the future.” AB

HOW UNATTENDED TRAIL DEPRECIATES Source: Trail Homes

Trail book producing $10,000 pre-tax per month ($120,000pa) running off at 20% pa $100,000 $80,000 $60,000

Producing

$96,000

Post-tax (32.5%)

$77,000 $65,000 $52,000

$40,000

$61,000 $41,000

$20,000

$49,000 $33,000

$39,000 $26,000

$31,000

$21,000

$0 End of year 1

End of year 2

End of year 3

End of year 4

End of year 5

End of year 6

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FE AT URES

BUSINESS PROFILE

REWRITING THE RULES OF FINANCE Fifo Capital CEO Wayne Morris explains how the business finance specialist has pioneered a first-of-its-kind, debt-free solution for businesses of all sizes

the surface, Australian businesses have no shortage of funding options for their ventures, but they still face a number of barriers when looking to boost cash flow, capital and lines of credit. Traditionally, the go-to solution is to take on debt. However, while a slick advertising campaign can promise the world, the reality is a barrage of hidden costs and additional requirements that business owners aren’t always aware of. Tackling the issue head-on, Fifo Capital has introduced two new-to-market alternatives over the last 12 months: supply chain finance and trade finance. The company provides on- and off-balance-sheet finance for businesses of all sizes, with secured and unsecured options to reduce risk and maximise choice. Supply chain finance helps businesses receive payment on invoices earlier, easier and on more attractive terms, buoying the SME sector in particular and helping to strengthen the economy through greater liquidity in the marketplace. This is finance without the debt: suppliers are paid on time while customers work on their own terms, which allows businesses to retain cash within the enterprise. It’s the first Australian supply chain finance solution that is tech-driven and debt-free, and was developed in response to the cash flow trends witnessed by Fifo Capital. “In Australia, we see businesses struggling to get paid on the terms they need, and they are turning to debt solutions to support themselves,” CEO Wayne Morris explains. While new to Australia, the approach is well established in other ON

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markets, including the UK, where Morris was based before joining the Australian office in 2017. “I realised by looking at the market that, if we could bring this product to Australia, we could really change the way businesses here pay and get paid, and we could do that in a positive way, without the need for debt,” says Morris. “We looked to do that differently from our competition. Rather than factoring every invoice, we were one of the first to pioneer selective invoice financing, where our clients can pick and choose which invoices they want paid early to help their cash flow.” Supply chain finance gives suppliers a non-recourse payment and allows customers to extend their services, with neither party required to provide security or carry debt. Once on board, businesses log on to a cloud-based platform, select

the invoice to factor and then receive 100% of the money within a few hours. “It’s a completely new way from how traditional supply chain finance and trade finance works, because we don’t lend any money to the smaller businesses that want to be paid on time or early; we just simply pay what they are expecting. It’s a complete innovation,” Morris says. Dovetailing this, Fifo Capital’s trade finance solution can be leveraged to pay overseas suppliers as though they are in Australia, with no complicated paperwork and no need for letters of credit. Suppliers can be paid before the goods leave their country and clients can choose when to pay Fifo Capital. The facilities are available to all enterprises with an ABN that sell products or services on credit terms to other Australian businesses.

Wayne Morris, CEO, Fifo Capital

While the products set a new standard in the market, the true USP is that businesses are not required to provide security – an added benefit directly inspired by Morris’s experience in the UK. “The UK very much operates like

FIFO CAPITAL AT A GLANCE

2005

2008

50+

Fifo Capital launched in New Zealand

Fifo Capital Australia begins operations

team of financial experts based throughout Australia

3000+

12-month

clients supported to date

maximum payment terms

In partnership with

Australia, whereby a business typically needs to give some form of security to a lender, and that might be over the business’s assets, the director, or, worst of all, over the director’s personal home. But why?” Morris says. “The business delivers the goods to a customer, gives them credit terms, but just wants to be paid. They shouldn’t need to then guarantee their customers in case they don’t pay because they are using finance to give credit to the customer. We say that’s fundamentally wrong.” The facilities have provided viable solutions for more than 3,000 client businesses to date, and this year Fifo Capital acquired its first ASX-listed client, demonstrating how enterprises of all sizes can benefit from a liquidity boost. “What we’re aiming to do is completely rewrite finance in Australia in a way that is engaging and supportive for all parties. We see companies large and small relying on their suppliers, and those suppliers are the engine room of the

country. If they stall, the supply chains stall, and ultimately so does the country,” Morris says. Fintech with a face While the efficiencies created by technology provide a footing in the fintech space, this is complemented by a hands-on approach to creating what Morris

“We’re a different business to just 12 months ago, building on our strength of having financial experts throughout Australia, providing corporate and small business funding, developing innovation and revolutionary fintech – we’ve remodelled finance to make it easy and accessible for all businesses,” Morris explains.

“What we’re aiming to do is completely rewrite finance in Australia in a way that is engaging and supportive for all parties” Wayne Morris, CEO, Fifo Capital describes as “fintech with a face”. Fifo Capital has been active in Australia and New Zealand for the last decade, scaling up to establish a nationwide network of 50 offices, all working to service businesses with a one-to-one approach, whether via phone or face-face meetings.

Brokers form a critical element of the network and, according to Morris, are supported through a “close and collaborative approach”. Training is conducted face-to-face and online – webinars were introduced in February of this year – and further programs are currently

under development. A broker accreditation program forges deeper understanding of the solutions Fifo Capital provides and empowers brokers to leverage their knowledge and create hybrid solutions for their clients. On the marketing front, bespoke co-branded materials are also available for brokers, including web content and client literature. Finally, the broker network is a critical link in generating client feedback, providing a direct line of communication between Fifo Capital and its clients, with a goal of continually improving the products and services offered. “We don’t just sit with our hands held out waiting for the brokers to bring us deals. We try to proactively work with them to find the right solution for their clients, and fine-tune our products to fit different circumstances,” Morris says. Brokers also provide a critical link in educating clients – the majority of whom are unaware that credit-free financing is an option for boosting cash flow. With that message now edging into the corporate space, plans for the coming two years focus on further integrating solutions with technology to drive greater efficiency for business owners and financial controllers. Further innovations are also on the cards, as well as the development of additional education tools to support the changing approach to debt and finance. “We’ve invested heavily in developing the customer service and support side of our business with our clients, and now we’re well and truly set to move to the next level by capitalising on our systems and processes, and all our evidence points to now being a good time to grow,” says Morris. “What we’ve seen to date is that the evolution of some of our products shows there is more demand than ever for what we have to offer. So we’re extremely excited by this.” AB www.brokernews.com.au

PEOPLE

CAUGHT ON CAMERA ALI Group kicked off its nationwide celebration of 15 years in business last month with a cocktail party in Melbourne. Group CEO Huy Truong and group national sales manager Gabrielle Moscati were present to address attendees and recognise the stateâ&#x20AC;&#x2122;s highest-achieving brokers, Robert Trewin and Angelo de Pasquale, who have each protected more than 1,000 homebuyers since becoming authorised ALI brokers. ALI Group works with 4,500 brokers through partnerships with such major aggregators as Aussie Home Loans, Loan Market, Mortgage Choice, Connective and Plan Australia. Since 2003, the group has protected more than 183,000 Australians and paid out more than $90m to claimants. Continuing the anniversary celebrations, further events are scheduled to take place in major cities across the country.

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19 October â&#x20AC;¢ The Star Sydney

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DATA

NORTHERN TERRITORY

SA SPOTLIGHT

Highest rental yields but investor sentiment remains low

LEADERSHIP POTENTIAL

Darwin’s price freefall may be slowing compared to a year ago, but there’s room for another drop as the economy is hampered by a lack of diversity, and the tourism industry is limited by location. CoreLogic data indicates that Darwin recorded the greatest increase in rental yields in the year to June 2018, at 0.3%, with the highest yield of all its peers, at 5.7%. However, returns won’t help draw eyes to the market. “I don’t think it’ll appeal to investors because of the lack of capital growth,” says Malcolm Gunning, president of the Real Estate Institute of Australia. Empower Wealth research director Jeremy Sheppard says, “Sales turnover is yawn-like – it can easily take four months for a property to sell. And quite often the seller has to drop their asking price by more than 8% to get that sale. Few properties go to market via auction, and half of those that do are passed in.” Area

Type Median value

Adelaide has its own nuances and high-yield suburbs but also has the potential to lead the pack in terms of national performance

Quarterly

12-month

growth

Darwin

$505,000

-0.5%

1.0%

NT Country

$447,000

6.2%

3.6%

Darwin

$339,000

-9.6%

-12.2%

NT Country

$354,250

13.2%

4.9%

VICTORIA

New hotspots emerging in more affordable regional markets Melbourne fell behind Sydney in the three months to May 2018, recording a 1.2% drop in prices, according to CoreLogic data. In the wake of the inner city’s struggles, the markets on the outskirts are maximising their chance to shine. “Over the 12 months ending March 2018, the property markets of 17 out of Greater Melbourne’s 31 city councils produced double-digit growth,” says Simon Pressley, managing director of Propertyology. These were predominantly the outer parts of Melbourne where housing is more affordable – Hume, Whittlesea, Cardinia and Brimbank were the biggest winners. “Demand is comfortably ahead of supply [in Melbourne],” says Jeremy Sheppard, director of research at Empower Wealth. “Housing markets to the south of central Geelong are showing the most promise. Discounting is very low, which means sellers don’t need to be at all negotiable. They know there’s another desperate buyer just around the corner.” Area

Type Median value

seems to embody the fragmentation of the property market across all states. “Like Brisbane and Sydney, Adelaide’s property market has tremendous diversity of supply and demand. The difference between the best and worst markets is quite significant,” says Jeremy Sheppard, director of research at Empower Wealth. The capital city’s demand-to-supply ratio has been inching forward, if gently, from a score of 53 in 2016 to 59 two years later, suggesting that demand remains just ahead of supply. Auction clearance rates have been high as well. However, growth has not been significant. “I’ve noticed that properties closer to the CBD are offering better prospects. This makes sense given the stage of the growth cycle Adelaide is in,” says Sheppard. “Torrensville, Goodwood and Edwardstown houses all have quick selling times, low stock on market, exceptional interest from would-be buyers, high market cycle timing probability, and high ripple effect potential.” By contrast, supply is greater than demand in Direk’s house market and in the apartment market of Christies Beach. In a few more years, however, Adelaide could be one of the top growers in the national market. “With modest house price growth and a strengthening rental market, the NAB Residential Property Survey shows strong property market sentiment in South Australia,” says Gregg Harris, general manager of NAB retail SA. The study reports increased confidence in SA’s property market and the state's long-term potential. “The general consensus from discussions with our customers is that they are optimistic about one day purchasing their own home. But, according to property professionals, tight credit is the biggest constraint for new housing development, while housing affordability is considered a challenge for buyers,” Harris says. AB

Quarterly

12-month

growth

$749,975

2.7%

9.4%

Median price (houses)

VIC Country

$360,000

1.4%

7.0%

$400,718

Melbourne

$541,000

3.6%

6.3%

VIC Country

$269,000

-1.1%

5.0%

www.brokernews.com.au

Affordable Adelaide is catching the eye of interstate buyers We have seen stronger interest from interstate clients focusing on the Adelaide market as they are being priced out of their own cities. While Adelaide has typically had much lower returns overall compared to the eastern states, clients are spurred on by the affordability of this city. The seaside suburbs of Adelaide and character homes around the city fringe have been particularly popular. Suburbs such as Glenelg North, Henley Beach and Goodwood have an attractive price point, and interstate buyers have had a positive impact on the median price growth. Our first home buyers are still being enticed by the city-fringe developments, particularly through the Adelaide–Glenelg passage, which is set to expand further. These developments and the rejuvenation of adjoining suburbs offer an ideal price point for first home buyers. We are also seeing a lot of activity from new customers who are reviewing their lending facilities. The current financial landscape and regulatory changes in the banking sector have presented challenges as well as opportunities for clients.

Liz Barter General manager, Fine Stream Capital

SUBURB TO WATCH: HOLDEN HILL

Melbourne

BROKER PERSPECTIVE

ADELAIDE

Median price (units) $248,013

Source: CoreLogic

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

6.6%

20.3%

32.8%

4.5%

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

-0.3%

-4.5%

5.3%

5.1%

AUSTRALIAN CAPITAL TERRITORY

Canberra–Queanbeyan steals Hobart’s crown in sellers’ market OPPORTUNITIES AND KEY INFRASTRUCTURE

Demand–supply

Population growth

On track

Flying high

Demand is leading with a DSR score of 59

Average annual increase of 0.9% since 2012

$80m earmarked for first phase of AdeLINK tram network

$165m expansion underway at Adelaide Airport – due 2021

HIGHEST-YIELD SUBURBS IN SOUTH AUSTRALIA Suburb

Type

Median price

Quarterly growth

12-month growth

Peterborough

$75,000

-12%

Whyalla Norrie

$80,000

-6%

Whyalla Stuart

$72,500

-5%

Port Pirie West

$108,000

-2%

Port Augusta

$144,400

-1%

-10%

One of Australia’s healthier property markets, Canberra offers great prospects. Investors can anticipate growth in the year ahead, while sellers can bank on sales profits. “The Canberra–Queanbeyan significant urban area is the hottest in the country. It managed to edge out Hobart for the top spot,” says Jeremy Sheppard, director of research at Empower Wealth. Demand is ahead of supply, with low sales discounts, tight vacancy rates and low property stock. Open inspections have increased in number, and rental growth is reasonably strong. “Discounting is the standout at 2.6%. That means sellers are really in the box seat. They’re turning their nose up at offers that aren’t attractive; they can only do this in markets where demand clearly exceeds supply,” Sheppard says. “Most of the top markets seem to lie somewhere between $450,000 and $650,000, with yields above 4.5%.” Area

Type Median value

Quarterly

12-month

growth

Canberra

$695,000

-0.3%

5.4%

Canberra

$439,900

2.2%

0.1%

www.brokernews.com.au

DATA

QUEENSLAND

CAPITAL CITY AUCTION CLEARANCE RATES

12-month

growth

Brisbane

$540,000

1.9%

2.9%

QLD Country

$428,000

-2.7%

0.7%

Brisbane

$405,000

1.3%

-1.4%

QLD Country

$386,000

-1.5%

1.3%

NEW SOUTH WALES

MEDIAN HOUSE AND UNIT PRICES

Price isn’t the only reason Sydney remains valuable

$1,000,000

Type Median value

Quarterly

12-month

growth

Sydney

$990,000

5.3%

3.1%

NSW Country

$472,750

1.7%

5.2%

Sydney

$723,000

3.3%

0.8%

NSW Country

$385,000

-0.6%

1.6%

www.brokernews.com.au

Total auctions

Cleared

Uncleared

Clearance rate

59.2%

PERTH Total auctions

Cleared

Uncleared

Clearance rate

47.1%

$1,100,000

Houses

Units

Sydney Melbourne Brisbane Adelaide

Perth

Hobart

$530,000

$441,500

$357,875

$389,000

$100,000

$490,000

$200,000

$315,000

$300,000

$450,000

$500,000 $400,000

$530,000

$700,000 $600,000

$700,000

$800,000

$670,000

$900,000

$850,000

While Sydney’s unaffordability has been starting to have an impact on the city in recent months, markets in overlooked locations are beginning to come into the spotlight. “Gloucester, Cooma-Monaro, Snowy River and Muswellbrook form part of the list of Australia’s top 20 out of 550 property markets over the 12 months to July 2018,” reports Propertyology managing director Simon Pressley. “They are shining examples of low-profile locations that all have very affordable housing and are benefiting from job creation in the agriculture, mining and tourism sectors.” Parts of NSW are even benefiting from the rising Canberra market, with the Queanbeyan region on the ACT border enjoying a boom. “Investors can capitalise on Canberra’s strong economy, yet dodge the high land tax applicable to ACT owners,” explains Empower Wealth director of research Jeremy Sheppard. “Regional markets of NSW showing more promise include Ballina and Orange.” Area

ADELAIDE

Darwin

$400,000

Quarterly

$362,000

Type Median value

This week 1,909 homes were taken to auction across the combined capital cities, increasing from 1,684 the previous week. Auction volumes have slowly started to rise in the last couple of weeks; however, current volumes remain lower than this time last year when 2,270 auctions were held. Through winter, the number of homes taken to auction has been tracking roughly 20% lower than a year ago, highlighting a substantial weakening in vendor confidence driven by the softer housing market conditions and consistently lower clearance rates. Preliminary results show a clearance rate of 57.9% this week, increasing from last week’s final clearance rate of 53.3%, although this will revise as the remaining results are collected. Over the same week last year the final clearance rate was recorded at 68.3%. In Melbourne, a preliminary auction clearance rate of 58.6% was recorded across 898 auctions this week, while last week there were 860 auctions returning a final clearance rate of 54%. This time last year, 1,124 auctions were held across the city, returning a clearance rate of 72.3%. There were 717 auctions held in Sydney this week, returning a preliminary clearance rate of 59.1%. In comparison, 572 auctions were held over the previous week and the final auction clearance rate was 51.9%. One year ago, 832 auctions were held and the clearance rate came in at 67.4%.

$536,000

Area

WEEK ENDING 26 AUGUST 2018

$650,000

More than 12,000 overseas migrants moved to Brisbane in the first half of 2018, and good economic fundamentals, including job creation and a low unemployment rate, are underpinning housing demand. However, for Empower Wealth research director Jeremy Sheppard, Queensland is an uneven market that does not expect to experience a major boost. “Housing markets with tight stock levels yet strong buyer interest include Moorooka and Ferny Hills. Russell Island, on the other hand, is a good example of a market at the wrong end of the spectrum,” he says. “Overall, demand for property in Brisbane just outweighs supply. There’s every reason to believe Brisbane’s price growth will tick along over the next 12 months at much the same rate as it has for the past 12.” In comparison to Brisbane, the Gold Coast and Sunshine Coast are both seeing greater levels of demand, even though growth rates are slowing.

$355,000

While some see promise in population growth, others see an uneven market

Canberra

CAPITAL CITY HOME VALUE CHANGES Capital city

Weekly change

Monthly change

Year-to-date change

12-month change

Sydney

-0.1%

-0.3%

-3.5%

-5.6%

Melbourne

-0.1%

-0.7%

-3.4%

-1.6%

Brisbane

-0.1%

0.3%

0.9%

Adelaide

0.2%

0.3%

0.7%

1.0%

-0.3%

-0.5%

-2.2%

-0.1%

-0.4%

-2.7%

-3.1%

Perth Combined 5 capitals

*The monthly change is the change over the past 28 days

BRISBANE CANBERRA Total auctions

Cleared

Uncleared

Clearance rate

Total auctions

104

Cleared

Uncleared

Clearance rate

40.3%

66.7%

SYDNEY Total auctions

717

Cleared

288

Uncleared

199

Clearance rate

59.1%

TASMANIA

MELBOURNE Total auctions

898

Total auctions

Cleared

437

Cleared

Uncleared

309

Uncleared

Clearance rate

58.6%

TASMANIA

Area

Top performance potential although stamina is starting to wane While Hobart has had a great run in 2018, Metropole Property Strategists CEO Michael Yardney is not certain it can sustain the pace. “It’s driven by investors chasing the ‘next hotspot’. But keep in mind Hobart is a very small market, and this year’s hotspot can easily become next year’s ‘not spot’,” Yardney says. “Hobart is a small place and it doesn’t take much to influence its property market – in both directions. Despite the current fast rate of growth, dwelling values in the Apple Isle have barely kept up with inflation over the last decade, and with few long-term growth drivers, I would avoid investing in Hobart.” However, areas like Launceston and Burnie are picking up. Herron Todd White reports that the middle- and outer-ring suburbs offer the most promise.

N/A

Type

Median value

Quarterly growth

12-month growth

Hobart

$455,500

3.5%

10.4%

TAS Country

$290,000

-0.2%

7.3%

Hobart

$345,000

4.5%

8.3%

TAS Country

$240,000

-0.4%

0.0%

All data sourced from CoreLogic.com.au

www.brokernews.com.au

PEOPLE

IN THE HOT SEAT Tony Gale, MD of Jims Financial Services, shares his top tips for thriving in the world of mortgages, and explains how the group is working to reinvent broking as a full suite of financial services What’s one of your recent career highlights? The highlight would definitely be getting involved with the Jims Group. A It has provided a platform that has allowed us to reinvent a typical mortgage broking business through diversifying, to offer a full suite of financial services. Successfully franchising this business model under the iconic Jims brand has been really rewarding.

What’s the greatest challenge for brokers at this time? As banks and financial institutions tighten their lending policies, A consumers are facing a significant reduction in available credit. This credit squeeze is a major challenge for brokers, so having alternative finance options for clients is crucial.

If you won $1m, what would you do with it? I’m really concerned about homeless youth in Australia. Charities A such as the Lighthouse Foundation and Whitelion provide shelter and services for homeless young Australians, so I’m sure $1m would assist.

What was your first job? After university, I started working for South Pacific Tyres, which A included Dunlop and Goodyear. It was 1988 and I was arranging the delivery of tyres direct from the factory to the major Australian car manufacturers. In theory, our work was based on the Japanese system of delivery called JIT, which stands for ‘just in time’. In reality it was stressful and we never seemed to deliver just in time.

What are your top survival tips for working in finance? It’s a tough business, so survival as a broker relies on that A ability to generate leads, then manage, submit, approve and settle multiple loan opportunities every month. Good brokers who set up efficient systems that allow scalability and diversification of finance products for their clients – along with managing compliant volume loan applications and providing quick turnaround for customers – will be the most successful in their endeavours.

What’s one thing, personal or professional, that you hope to achieve before the end of the year? Our target for this year is to reach the milestone of having A 30 successful Jims Finance franchisees around Australia, and the real icing on the cake will be when each of these franchisees is writing business across all of our product platforms. AB