Australian Broker magazine Issue 9.18 by Key Media

SEPTEMBER 2012 ISSUE 9.18

$4.95 POST APPROVED PP255003/06906

+ INSIDE + NEWS ‘WE ARE WATCHING’

ASIC’s new surveillance catches brokers out P6

Kim Cannon

‘Capturing the customer’ Why brokers should beware the lenders and aggregators trying to corner their customers

GROWING BRANCHES

Banks risk ‘stranding’ as footprints expand P4

+ OPINION The commission model of the future has already been found P15

The SMSF lending market and you P20

ne reason Firstmac’s founder and managing director Kim Cannon opted out of an earlier career as a broker was because he could not see a long-term future in selling somebody else’s brand. “I used to run around and sell my customers on the prospect that this bank was good, or that bank was good,” Cannon explains. “But at the end of the day, if you asked any of those clients who they got their money from, they would always mention the bank and never me.” FULL STORY PAGE 12

+ MARKET TALK Spring warming buyers, not activity P26

+ PEOPLE Broker makes history as name writ large P16

NEWS

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WHAT THEY SAID...

NUMBER CRUNCHING

STEVE MARSHALL “I think it’s harder to grow your numbers as a traditional boutique brokerage.”

$1.75 The amount a US woman sold her house for on eBay in 2008

DID YOU KNOW?

$45bn

CATHY ANDERSON “If you are in it for the money you have the wrong foundation to grow a successful business.”

The value of Mortgage Choice’s loan book for 2011/12 financial year

5,636

The current number of bank branches Australia-wide

46,984

238

The number of home loans financed in June 2012

The number of towns in Australia where it’s cheaper to buy than rent

The average weekly mortgage payment in 2006 and 2011

2006:

$325

P19

TROY CAMERON “We’ve seen many clients keen to buy their first investment property to capitalise on the hot Perth rental market.” P26

2011:

$450

SINCLAIR TAYLOR “Trustees are looking for diversification, and there has been a strong penchant for property.” P20

NEWS

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NCCP won’t allow fraud, declares industry veteran ■ An industry veteran has

denounced claims low-doc fraud is widespread, claiming the NCCP is an effective deterrent. Ray Weir, the former CEO of the FBAA, lodged a submission

RAY WEIR

to the Senate Economics Inquiry to address what he says was misleading testimony from fraud whistle-blowers. His arguments centre on claims from Banking and Finance Consumer Support Association president Denise Brailey, who told the inquiry low-doc fraud was systemic and could cripple the economy. While he acknowledged her fraud claims “have relevance to the period prior to the introduction of the NCCP” in 2010, “they are significantly less relevant in today’s lending market”. He said all lenders and brokers – regardless of any possible prior indiscretions – were forced to clean up after the NCCP was

open at an increasing rate, despite the mounting evidence to suggest their days dominating the market are numbered. The Australian Prudential Regulation Authority (APRA) reported a 1.2% increase in bank branches for 2012, representing the strongest growth in three years. There was also an increase in the number of financial institutions now classified as banks. The Australian Bankers Association said branches had

continued to open in defiance of the economic climate, increasing over the past five years by 7.2%. Mortgage Choice’s CEO Michael Russell claimed branches were losing out in areas “where customers are no longer using the branches”. He cited results from the 2011 JP Morgan report at a media conference in late July. “[Around] 30% [of] bank branch networks are at risk of being stranded in areas where customers are no longer using the braches,” he said.

COPY & FEATURES NEWS EDITOR Caroline Dann PRODUCTION EDITORS Moira Daniels, Danielle Chenery ART & PRODUCTION

Widespread fraud does not exist now due to tight NCCP regulations Low-doc loans do not present ‘significant risk’ to the lender or RMBS investor Fraud may have existed but it was pre-GFC and pre-NCCP in 2010

put in place. “While it was possible prior to the NCCP for dishonest borrowers and unscrupulous brokers to make up a figure, the new regulatory environment and practice standards introduced by lenders minimises this type of fraud,” he said. “I also do not subscribe to [her] ‘big bang theory’ regarding the introduction of low-doc lending in the late ’90s.”

More, not less, branches to compete with ■ Bank branches continue to

EDITOR Ben Abbott

BANK BRANCHES IN BRIEF ■ 65 branches opened in FY 11/12, a

three-year high

■ Westpac opened 13 branches, bringing

it to 1,270 across Australia

■ Meanwhile, ANZ closed 16 branches ■ Credit union branches dropped by 10% ■ Building society branches fell by 15% *Source: APRA

SENIOR DESIGNER Rebecca Downing DESIGNER Ginni Leonard SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Anna Keane TRAFFIC MANAGER Abby Cayanan CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley MANAGING DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR – BUSINESS MEDIA Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Ben Abbott tel: +61 2 8437 4716 ben.abbott@keymedia.com.au Advertising sales Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Subscriptions tel: +61 2 8437 4731 fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, Toronto, New Zealand brokernews.com.au 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 EhrenbergBass 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.

NEWS

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Broker sacrifices independence for business future

ASIC ramps up enforcement with surveillance campaign ■ ASIC is turning up the heat on unlicensed

■ Higher commissions and

business growth proved irresistible drawcards for a boutique brokerage, which signed up with an aggregator after 17 years of independence. Adelaide-based The Loan Arranger joined forces with Choice in September. Managing director Steve Marshall told Australian Broker one of the key benefits was a potential increase in commissions for its brokers. “The aggregators have made it more attractive for individual brokers to come in because they can offer a higher commission structure,” he said. “[Previously] I’ve found that I’ve brought brokers in, mentored them and trained them, and after they’ve got the run of things they go out. Because their trails haven’t built up sufficiently, they’re prepared to leave and chase that higher commission.” He said a recent collapse of the company that provided The Loan Arranger’s commissions software had forced him to consider “other options” as “the software had become unsupported”. Marshall is adamant boutique brokerages still have a future in the industry, however growth limitations under the independent model had become a major factor, he said. “I think it’s harder to grow your numbers as a traditional boutique brokerage. “We’ve predominately had the same people in our business for 15 years. If our broker numbers reduce, and we have volume hurdles to satisfy to the different banks going forward, we will run the risk of losing some accred-

THE LOAN ARRANGER: A HISTORY STEVE MARSHALL

I THINK IT IS HARDER TO GROW YOUR NUMBERS AS A TRADITIONAL BOUTIQUE BROKERAGE

itations with some of the lenders.” Interestingly, Marshall hinted his succession was also a key factor. “I’m probably reaching a point, from a succession planning point of view, [where] I think probably a larger group, an aggregator, is better for us to provide a level of management above me and for the company going forward.” Choice CEO Stephen Moore said the group was delighted to attract The Loan Arranger. “To have a group of such impressive caliber come on board is exciting, and we look forward to supporting The Loan Arranger.”

Australasian Finance Corporation Pty Ltd was formed on 1 August 1996, trading as “The Loan Arranger” The principals, Steve Marshall and Angela Marshall, have strong financial and business backgrounds spanning over 40 years Scott Marshall was ranked 13th in MPA’s Top 100 Broker listing in 2011, settling almost $82m in loans The brokerage has direct accreditations with 23 lenders and the quality of its loan writers and volume of business has satisfied its lending panel

operators with a new three-month surveillance campaign designed to ‘weed out’ unlicensed credit operators, which will run from September to December 2012. While no specific surveillance techniques were revealed, commissioner Peter Kell said it would centre on those who’d applied for credit licences but had withdrawn or been refused. “By applying for a licence, they indicated an intention to engage in credit activities. Unless the trader is an authorised credit representative, or subsequently obtains an Australian credit licence, they cannot engage in credit activities,” Kell said. “Anyone caught engaging in unlicensed credit activity may face criminal prosecution or be banned from obtaining a credit licence.” “We want to ensure consumers feel confident when dealing with lenders, brokers and other credit providers, and one way to do this is by weeding out players who aren’t playing by the rules,” said Kell.

Brokers and planners still best kept separate ■ Mortgage Choice is adamant its new financial

planning arm will be populated by qualified financial planners only, and it’s keeping the area separate from mortgage broking. It revealed its plans to ‘soft-launch’ the financial planning arm in October this year. Spokesperson Belinda Williamson confirmed to Australian Broker the soft launch will initially involve 8-10 franchisees. Andrew Russell, general manager for product and distribution, was quick to emphasise the “stringent standards” Mortgage Choice would put on any new financial planners. “[It] will operate as a separate franchised business to our existing mortgage broking business. Our brokers and planners will be experts in their own field and provide specialised services for our existing customers and the 80,000 new customers who knock on our door every year,” Russell said.

NEWS

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ODDBA

Bespoke broker product a winner

THE STRANGER SIDE OF NEWS

■ Financial services company

DID YOU KNOW?

THAT’S A HEALTHY MEATBALL

A 16 square metre apartment in Bondi is selling for $270,000, with its agent claiming the space is perfect for “a single person”.

■ An international team of experts are devising

ways to make pasta more nutritious through a ‘wheat breeding program’. University of Adelaide associate professor Rachel Burton said the goal was to make, figuratively-speaking, “super-spaghetti”.

THE SKY’S THE LIMIT

■ Flying cars are no longer the preserve of

bad sci-fi films: a US engineer has created one, and it’s available for purchase at $279,000. The Terraugia Transition can transform from car to plane in 20 seconds, fly 800km, land, and then be driven home and folded-up neatly in the garage. We’re sold.

BAGS OF STYLE

■ A coated paper bag from German designer

Jil Sander has, against all logic, sold out. The folded brown accessory is shaped just like a real lunch bag. At $270 a pop, do not confuse this with your kids’ lunch bags.

STRESSED? EAT CHOCOLATE, SAY SCIENTISTS

A governmentbacked scheme to encourage home buyers inland has been declared unlikely to succeed without more jobs. PRD Nationwide said the NSW state government’s Evocities program had been unable to combat the main problem – employment.

Wealth Today said its decision to partner with a smaller insurance firm for a new product came down to its bespoke approach. The ‘Protect My Home Loan’ insurance package is devised for brokers to sell to their clients. St Andrews was chosen to provide the package over its larger competitors. “It was a case of investigating options that were available, and [we] found that they build a product specifically aimed at the broker market with very easy-touse online facilities,” Wealth Today CEO Michael Stephens told Australian Broker. “Looking at it from a broker’s

perspective, a product specifically designed for that application, as opposed to something that has been possibly put together as a mutated version of something else, [is better].” Brokers are required to obtain a Tier 2 Authorisation followed by three hours of training before they can offer the product. Stephens said brokers should jump on board and sell insurance before the banks do. “This is the kind of product that mortgage clients are being cross-sold by the banks every day and brokers are missing out. “For a broker to be able to sell this product is so simple as it’s a non-advice product.”

Property values stagnate, but not in Darwin HOME VALUE PERFORMANCE FOR AUGUST

■ Darwin is maintaining its

place at the top for capital city value growth, according to recent reports from RP Data-Rismark. The August Home Value Index revealed an overall stagnant August, with no change in combined capital city home values from July. However, the values rose 1.6% over the past three months, while they declined by 0.6% over an eight-month period. The slight variances in growth and decline point to a relatively stable market, said a spokesperson for Rismark.

Best performing capital city: Darwin +5.2% Weakest performing capital city: Adelaide -2.2%

Highest rental yields:

Darwin houses 5.8%, Darwin units 5.7%

Lowest rental yields:

Melbourne houses 3.6%, Melbourne units 4.4%

Most expensive city: Sydney (average $530k)

Most affordable city:

Hobart (average $275k)

*Source: RP Data

YEAR TO DATE CHANGE: AUSTRALIAN CAPITAL CITY VALUES 8.4%

■ Eating a chocolate bar a week dramatically

decreases the risk of stroke in men, according to a new study. Swedish researchers found the risk dropped by 17%, and dropped even further the more chocolate was consumed. It’s certainly good news for stressed brokers.

3.9% 1.4% -2.6% Melbourne

-2.5% Perth

-1.4% Brisbane

1.9%

-1.3% Adelaide

Canberra

Sydney

Hobart

Darwin

NEWS

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Finance workers give Sydney the thumbs up

■ Sydney is the best place to

build a career in finance, at least according to Australians currently working in the industry. Careers website eFinanceCareers surveyed 472 financial professionals and found 81% felt Sydney had the most career potential of all Australian cities. It also showed 84% of respondents believed working in Australia trumped all other international destinations, despite lower wages. “Lifestyle choices often override remuneration and financial benefits, and Australia is still very much perceived as offering an enviable lifestyle,” said George McFerran, eFinanceCareers’ managing director Asia Pacific. However, the rising cost of living was causing concern. 39% said it was the worst thing about residing in Australia, while a further 20% identified higher taxes as a thorn in the side.

Fixed rates: victory at last

LOW-DOC DELINQUENCIES REAR THEIR HEAD ■ New research shows low-doc

■ After months of variable rate popularity, fixed

rates are now back in favour with borrowers, according to research by Mortgage Choice. Fixed rates now account for 20% of all loans signed, nudging them up to sit just below variables. Mortgage Choice’s Belinda Williamson said Australians were increasingly conservative in their finance choices, meaning fixed rates held much appeal. “It is obvious that concerns about our domestic economy, rising utility bills and other living cost hikes, along with predictions of fewer rate cuts taking place this year, are having an effect on the purchasing decisions of Australians. “Home loan choices are no exception,” she said. Interestingly, WA was the only state to record a decrease in the popularity of fixed-rate home loans. Aggregator AFG also reported a spike in fixed rate interest for August in its monthly performance report. It found 19.9%, or one-in-five mortgages, were fixed rate, which was a significant increase from July’s 16.8%. AFG’s general manager Mark Hewitt said existing borrowers were the ones choosing to lock in rates. “[They’re] taking advantage of heavy competition among banks on fixed rates,” he said. Williamson also cited increased competition between lenders as a contributing factor. “Looking at [our] lender panel, the average three-year fixed rate, the most popular fixed rate term, currently sits at just over 6%. “This is about 30 percentage points lower than the average basic variable rate home loan.”

POPULARITY OF LOAN TYPES: 2011 VS. 2012 BASIC

EQUITY

FIXED

INTRO

STANDARD

August 2011

11.7%

9.6%

9.4%

63.2%

August 2012

9.2%

6.8%

19.9%

5.2%

58.8%

*Source: AFG

DID YOU KNOW Resi has unveiled an ambitious branch growth plan that will see it open new branches in areas of high demand. The group has opened eight franchise offices nationwide since November 2011, bringing its total branch presence to 25.

loans are affecting arrears rates, despite the industry playing down the impact. Ratings agency Moody’s revealed the arrears rate in Australia generally remains ‘steady’ but strong variations exist in low-doc loans. Its second-quarter report showed the prime 30-plus arrears rate at 1.66%, almost identical to 2011’s 1.67% rate. However, it warned 100% lowdoc loans were rising in delinquency rates, which is currently at 5.72%. It said the percentage could reach 6% “in the coming months”. “Excluding 100% low-doc deals, the prime 30-plus arrears rate would have been nine basis points lower, at 1.57% in June,” it said. Moody’s defined these low-doc loans as ones needing no proof of income in the form of an income statement. It said the higher rate of delinquencies could be explained by “the cash flow volatility of the borrowers, who are typically self-employed”. The rise in arrears for low-doc loans is a potential blow to industry figures who downplayed the impact unethical lending to high-risk borrowers would have on delinquencies. Meanwhile, the non-conforming 30-plus arrears rate increased to 12.47%, from 12.06% in the first quarter. Moody’s blamed “limited refinancing opportunities” for a fall in redemption rates for the non-conforming deals, which dropped to 25.20%.

NEWS

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in the application, take the money and they never saw the customer again. Broking is turning into a profession now – a lot of brokers are doing service calls every six months to the customer, and they actually care about the customer.” However, Cannon says a lack of education sometimes shows. For example, while Firstmac does many loans with offset accounts, he says clients often don’t use them. “The broker has sold them the fact they should have an offset account but never taught the customer how to use it.” And there is another problem. Brokers are limited to one product – the home loan. Cannon says Firstmac is currently interrogating the viability of brokers distributing other products. “There is a big question mark over that. I really think it’s about education, education, education.”

Kim Cannon:

‘Capturing the customer’

KEEPING THE CUSTOMER CONTINUED FROM PAGE 1

It is a lesson that has stuck with Cannon, and one he says brokers would be wise to take on board if they are to successfully compete in a war to capture the customer of the future. Despite bank rhetoric and talk of channel ‘partnership’, Cannon says brokers would be ‘fools’ to think banks aren’t investing billions in online systems in the hope of “cutting out everyone else”. With technology now the nexus of home loan market development and lead generation, Cannon says brokers need to raise the bar and sell their own proposition – not that of their competitors.

OLD FRIENDS, NEW FOES

A case in point? It may be an unexpected corner of the market for competition to emerge, but Cannon says that aggregators could end up going head-to-head with brokers. “They have built their white label programs, and the broking world is flocking to that to get extra income,” Cannon says. “But really, brokers are helping with their own self-destruction, because the brand they are building for the aggregator is the online brand for that aggregator in the future, when they realise they make more money out of that than clipping off brokers.” Cannon says due to technology development, aggregator direct competition is a likely outcome. “Tell me an aggregator that is in business for the love of the broker, really,” Cannon says.

IF BROKERS WANT TO OWN THAT CUSTOMER, THEY’RE GOING TO HAVE TO DO SOMETHING BETTER THAN JUST DOING THE HOME LOAN - K IM CANNON “They are there to make money, and they will make money from anywhere. Their incomes have been failing and they are looking for other options. They might all disagree with me today, but I’m telling you, the online world is coming and that’s where it is.”

HORIZONS IN EDUCATION

Training and education – and a broader product offering – will be critical for brokers to succeed in competition with lenders and

THE NON-BANK CHALLENGE

other emergent competitors, according to Cannon. “If brokers want to own that customer, then they’re going to have to do something better than just doing the home loan and leaving everyone else to do the cross-sell.” Cannon says broking has come a long way since his first experience with the sector. “I started as a broker 30 years ago. In the early days a lot of guys got paid appearance money to just turn up, fill

The evolution of the mortgage borrower from financially illiterate, to financially literate, is something that Cannon has witnessed over the past 20 years in the market. “We are now dealing with a very financially literate and informed borrower. Twenty years ago the borrower used to believe everything the bank told them, but they don’t any more – they are listening, and they just want the best deal,” he says. Cannon says if brokers want to capture these clients, they need to mirror this development. “We are starting to see a highly sophisticated broker with an education,” he says. However, Cannon says brokers can – and need to – do more. “The future is about a highly skilled, highly trained professional looking after the customer and all facets of their financial lives,” he says.

Non-banks have struggled more than most through a prolonged period of financial crisis. “It’s been five years now – it’s amazing, it’s the five-year anniversary – and I think one of the big frustrations is you just can’t grow your business,” Cannon says. Having launched online business loans.com.au late last year, Cannon says the future appeared ‘rosy’ – until the Greek crisis hit. “That sort of threw a spanner in the works again.” Add to that the exit fee ban. “When the government got rid of exit fees last year I was concerned about our future in the industry, how we could keep the customer,” he says. However, Cannon is optimistic the non-banks can and will compete into the future. “We are about to launch a new internet banking site called Live, we are moving into selling other products including lifestyle and life insurance, and fairly soon we will be doing deposit products including transaction accounts and term deposits branded under Firstmac.” Cannon says this will bring Firstmac into further direct competition with the major banks. “The next battleground might not be home loans, it could be against the banks on their own home turf with some of the stuff they make their money out of.” But Cannon says this is not competition for competition’s sake. It’s driven by the customer. “If you are just going to be a home loan company, well I don’t think the customer of the future wants that,” he says.

COMMENT

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Each issue, Australian Broker will publish the best online comment from the previous fortnight – along with your other feedback. So get online, and get participating!

I suggest that both ASIC and ACCC have a track record of kicking around the small guys to gain publicity but do not take on the major institutions. There was no lack of regulation in the case of Storm Financial and the institutions who distributed loan and investment products through them. That the Statements of Advice were generic and often unsuitable or inappropriate for the client circumstances has been clearly revealed after the fact, and the relevant institutions were also AFS licensees and knew the advice requirements. Compliance regimes require costly administrative procedures for the honest majority. When not enforced against the wayward few, they become pointless. Patrick on 27 Aug 2012 11:10 AM

Crack, debt and addiction Payday loans are always a source of interest and sometimes amusement for mortgage brokers, who are in the business of providing much more conscionable type of debt. However, the source of amusement on the Australian Broker forum was one of our Forum readers, who was prompted by our payday loan coverage to pen a witty analogy. “Investment loans are like body builder protein shakes: With discipline they can have great results but they can do damage if you’re not careful,” Peter T wrote. “Owner occupied loans are like carbs: in a balanced financial diet they’re fine and will get you where you want to go, but out of balance and you’re on a downward slide.” But Peter T would not be satisfied until the analogy had encompassed all types of lending. “Credit cards are like alcohol: in moderation they’re not that bad, can give you a buzz and they

have their social benefits. You can get in trouble if you take too much or become addicted. Personal (consumer) loans and store loans are like marijuana: you probably don’t really need it and it’s unlikely to really do you any good, but it feels good to try it sometime. It’s tricky to keep under control and can be a very slippery slope downwards.” Eventually, Peter T came to the punch line – reserved, of course, for payday loans. “Payday loans are like heroin or crack,” he wrote. “You’re already messed up if you think you need it, it’ll give you a temporary feeling that all your problems are solved, but it’s highly addictive and you’ll almost certainly be back for more tomorrow.”

PAYDAY LOANS ARE LIKE HEROIN OR CRACK. YOU’RE ALREADY MESSED UP IF YOU THINK YOU NEED IT.

BROKERNEWS. COM.AU

SMALL COP, FROM BIG COP It seems ASIC can’t cop a break. When it fined a brokerage $7500 ($7500: The price of crossing ASIC, 06/09/2012), brokers online said it just wasn’t enough Nicole on 06 Sep 2012 11:54 AM Oh please. This shows how pathetic ASIC is. This was clearly a breach and the company should have been shut down after the first week of no action. $75,000 would have shown some teeth, not a paltry $7,500!!! Keithy of the West on 06 Sep 2012 12:05 PM Is this something for ASIC to crow about? A fine of $7,500 for someone trading without a licence? Should have had another digit on the fine. Goodo on 06 Sep 2012 12:18 PM This is not a reflection on ASIC but a

reflection on our pathetic court system. A rouge like this should have had the book thrown at him. If he ends up homeless so be it, or maybe he can seek a licensed broker to help him raise the funds. John from Geelong on 06 Sep 2012 04:19 PM The fine should be relative to the income earned while no licence was held.

AN AGGREGATION CHOICE

When brokerage The Loan Arranger joined Choice Aggregation Services (Commissions add to lure for new Choice brokerage, 30/08/2012) brokers had their bit to say. Country Broker on 30 Aug 2012 11:19 AM Surely the days of small aggregators are numbered, it is simply too risky to

deal with them unless there is a way to secure commissions such as a trustee arrangement. Scott Beattie on 30 Aug 2012 03:55 PM I would also suggest for brokers to be very wary of dealing with off-panel lenders especially in regards to non-banks. I have had three non-banks cease trail payments as I am no longer an ACL holder. What a joke! Thankfully not a lot of trail with the three lenders in question, but I am very glad that I didn’t give them any further support than I already did.

AUSSIE FATHER OF THE YEAR

Meanwhile, brokers were chuffed that John Symond of Aussie Home Loans achieved a fatherly accolade (The new father of the year: John Symond, 29/08/2012)

Eric Williams, Australian Mortgage Brokers on 29 Aug 2012 10:43 AM Congratulations John on such a wonderful honour. I trust that you will fly the flag for all mortgage brokers as our industry is full of decent people. George Ribarovski on 29 Aug 2012 12:35 PM Congratulations to John. It’s refreshing when nice things happen to nice people. Tom on 29 Aug 2012 04:59 PM Aussie is so much more than a broker and am very proud to be part of this fabulous team.

What do you think? Leave your comments at brokernews.com.au

OPINION brokernews.com.au

Ramped trail a win-win-win What will the commission model of the future look like? NAB Broker’s John Flavell says with ramped trail, we’ve already found it.

COMMISSION STRUCTURES HAVE CHANGED SIGNIFICANTLY DURING MY TIME IN THE INDUSTRY, I THINK VERY MUCH FOR THE BETTER

amped trail is a simple concept – the longer you have a relationship with your client the higher the commission. This is a “win-win-win” - for clients, brokers and lenders. Ramped trail benefits customers significantly. It fairly remunerates their broker, helping them to invest in their client relationships and spend the time and effort to deliver clients the highest level of customer service and ongoing support. For brokers, it ensures you are fairly remunerated for the work you are doing. It helps you invest in long term relationships, which are ultimately more profitable. It also makes your business – as a measure of recurring income – more valuable. As a lender, our philosophy is to share margin with brokers where we make margin. The economics of a mortgage is clear – new customers are the most expensive to acquire; the longer the relationship, the more profitable it becomes. We believe in sharing this profit with brokers, and growing this mutually beneficial client segment.

THE OLD FLAT WORLD

I think every broker is focused on building their business for the long term. The ramped trail commission structure supports this approach by increasing commissions paid to brokers as the length of the customer relationship increases. For Homeside, this ramps up to 35 basis points after five years. Importantly for us, and for

brokers, the trail is based on the life of the relationship, not the life of the loan. Having introduced this structure back in July 2007, we are now seeing 400 to 500 brokers every day moving to a higher commission level. Sure, in the short term, a flat commission structure may look attractive, but if our goal is to maintain and deepen customer relationships and grow business steadily and continuously, then the ramped trail is clearly a more effective structure to deliver that outcome.

THE (R)EVOLUTION OF COMMISSIONS

Commission structures have changed significantly during my time in the industry, I think very much for the better. When we introduced ramped trail in 2007, it was argued the benefits were too far away for brokers to realise, but now in 2012, as each day passes, a greater proportion of our book is getting paid a higher level of commission. Ramped trail is about relationships built and nurtured over the long term and, as such, it is a sustainable proposition that provides benefits to every stakeholder, resulting in a true “win-win-win” situation. Just like ‘price for risk’, which we were first to offer in 2009 and is now standard practice across the industry, I believe ramped trail will become the best practice offer for lenders. It may take time to catch up, but brokers have been quick to recognise and adopt the long term benefits of ramped trail.

John Flavell is general manager of distribution at NAB Broker

PEOPLE

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Tiffen joins Sydney to Melbourne ride

Mark Winter (right) grasps his brand new street name

Street name sees broker writ large For most ‘run-of-the-mill’ mortgage brokers, the idea of getting a piece of Australia named after them in the form of a new street name will remain just a dream. But for one Loan Market broker, that dream has become a reality. Brisbane West and Ipswich principal mortgage broker Mark Winter had a Queensland street named in his honor by Ipswich City Council to acknowledge his services to the community. Ipswich City Council planning and development committee chairman Paul Tully said a street in a new estate at Bellbird Park had been named ‘Mark Winter Court’ as a tribute to the contributions to the area made by Winter and his family. Winter, a former Loan Market International Broker of the Year, helped establish the local

Goodna and Springfield rugby union clubs and he also played a major role assisting victims of the devastating January 2011 floods in the Goodna area. “Mark Winter has been very active on the local scene in terms of promoting rugby union and supporting charitable organisations including Westside Community Care,” Tully said. Springfield-based Winter said he was “humbled and overwhelmed” to have been honored by the council in this way. “You usually only see sports stars getting streets named after them, not your run-of-the-mill mortgage broker like me,” he said. Winter was also honored by the Ipswich City Council for his services to the community in its Australia Day awards this year. “I have always had a passion for the Ipswich region and Brisbane’s western corridor,” he said.

YOU USUALLY ONLY SEE SPORTS STARS GETTING STREETS NAMED AFTER THEM, NOT YOUR RUN-OF-THEMILL MORTGAGE BROKER LIKE ME “Not only did I establish my own mortgage broking business here, I have also chosen to raise my family in the area and have made a number of investments in the community. “We also do some fundraising, and a golf day we recently held at Brookwater Golf Club helped raise $6,000 for local charities.”

Trailwalkers

Key Media’s Rajan Khatak teamed up with top commercial broker Ranjit Thambyrajah from Acuity Funding and others to tackle the Oxfam Trailwalker, a 100km walk from Brooklyn to Sydney Harbour in under 48 hours. Joining 543 other teams, they report a ‘memorable’ experience. ■

h of Building From left to right: Prem Satkunaraja Australia Pty Ltd, Tony es Servic n isatio Optim ce rman Perfo Khatak from Key Rajan Ltd, Pty Leong n Carlo from n Carlo er of Acuity Funding found h byraja Tham Ranjit and Media

AUSTRALIAN BROKER WANTS YOUR STORIES! The world of mortgage broking is a lot more than just business – it’s a fun, people industry. Have you got a great photo, interesting story, or a passion you want to talk about? If so, we’d love to hear from you. Email ben.abbott@keymedia.com.au

Leading mortgage broker Gerard Tiffen from Tiffen & Co has joined the ranks of financial planners in an epic cycle marathon from Sydney to Melbourne in September. In a ride that will total 1,200km, Tiffen has joined the AMP Future2 Wheel Classic, a charity ride aiming to raise $100,000 for the charity foundation of the financial planning profession, which helps disadvantaged young Australians via grants to community projects. Tiffen will join a group of 40 cyclists, 18 of them riding the whole route from Sydney to Melbourne, and will be a part of the Bravien Financial team. His teammates are Jeremy GillmanWells of Bravien Financial and Troy Reddick of Elders Belconnen. “I am an avid cyclist, adventure racer and team member of the VO3Max sports team,” Tiffen said. “I have always been a great supporter of the Canberra community but decided to get more involved with a range of charities and events two years ago.” Tiffen & Co previously sponsored The Friendly Ride, a 5,000km odyssey from Cooktown to Canberra, while the Tiffen & Co team has also entered the SunSuper Ride to Conquer Cancer, a two-day, 200km ride around country NSW. The AMP Future2 Wheel Classic cyclists will set off from Sydney’s Circular Quay at 7.30am on 15 September. Their first stop will be 150km down the road in Bundanoon and, if all goes well, they will arrive in Melbourne on 23 September. This is the third year of the Wheel Classic, the main fundraising event of Future2, which makes grants to community organisations working to give a second chance and hope for a better future to young people struggling with social exclusion, financial disadvantage, addictions and lack of job opportunity.

PEOPLE

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■ MKM BUMPS WATSON

UP LADDER

Avinder Paul

Grant Jacques

Levent Ince

Non-conforming lender MKM Capital has promoted its former operations and marketing manager to distribution manager, after seven years with the lender. Michael Watson said that his promotion signaled a strategic shift for MKM Capital. “My role will be to continue building our presence by ensuring our front-end effort is uniform, considered and entire,” Watson said. ■ NATIONALCORP HOME LOANS

Like the entrepreneurs of old RAMS franchisees are channeling the pioneering spirit of early Australian John Macarthur in their quest to be the best in the business RAMS has inducted the first three members into its ‘John Macarthur Club’, established late last year to honour long-term business excellence within the network. Designed to recognise consistent top performance as a mortgage broker, as well as those who have contributed significantly to the success of the RAMS business as a whole, Grant Jacques from Brisbane’s South West, as well as Levent Ince and Avinder Paul from Liverpool and Chatswood in Sydney have all been dubbed worthy of the honor. Head of franchising Huw Bough said franchisees inducted into the new John Macarthur Club must have established very successful businesses, while exceeding loan book size criteria and key performance hurdles. The new club was named after the pioneering John Macarthur, who helped grow the Australian economy in its early years. JOHN MACARTHUR

As an entrepreneur, politician, architect and pioneer of Australia’s wool industry in the early 19th Century, there isn’t much that early Australian settler John Macarthur didn’t do. Now, he’s become a symbol of excellence as the namesake of RAMS’ John Macarthur Club.

Speaking at the recent “Mission Possible” RAMS national franchise conference, Bough announced and congratulated the very first John Macarthur Club members. “These franchisees are exceptional role models within the mortgage profession by seeking to always put the customer first, striving for continual improvement, being an advocate for the industry and a good corporate citizen,” Bough said. “Apart from their outstanding achievements to qualify for the Club, they are three high quality ambassadors for the business and the perfect members to commence the John Macarthur Club legacy.” Grant Jacques said he was ‘tremendously proud’ to be in the inaugural intake of inductees. “I know how many talented people we have as RAMS Franchisees and to be inducted into the Club in front of my peers would have to be one of my biggest achievements,” he said. “Being awarded this prestigious honour, also makes me realise what a fantastic team we have here in Brisbane and the tremendous contribution that each and every one of them have made over the years. We are just like a big family and we like to look after and help each other. The whole team loves coming to work and I am sure this

THESE FRANCHISEES ARE EXCEPTIONAL ROLE MODELS WITHIN THE PROFESSION - H UW BOUGH

shows in the service we provide to our clients.” Levent Ince said it was ‘truly an honour’ to be among the first inducted. “It demonstrates that all of our business activity lines up with the RAMS’ vision of being a lender that supports and works with its local community and engages the core values to achieve success. This is a rewarding and high achievement for both the franchise and its staff.” All John Macarthur Club Members were presented with a John Macarthur Club jacket, a crystal trophy and a commemorative lapel pin, and will enjoy some additional perks such as Qantas Club membership, subscription to BIS Shrapnel’s property data service and will receive business class flights to the Annual National Conference. They will also feature on an honour board in the RAMS Head Office.

ADDS TO QLD BDMS

Nationalcorp Home Loans has added a BDM in Queensland with the appointment of Michael Burgess. According to Nationalcorp, Burgess has 30 years experience in finance and insurance, and has been around the mortgage broking channel since its inception in the 1990s. Burgess will work under the managing director of the lender, Barry Parker. “I’m looking forward to promoting the unique proposition we have to offer,” Burgess said. ■ KELLY MAKES MOVE TO

MAROOCHYDORE

Loan Market has moved to new premises in Maroochydore on the Queensland Sunshine Coast, with senior finance broker Lindy Kelly and her team holding an official welcome event in late August. More than 70 guests attended the function to celebrate Loan Market’s move into a larger office in Master Builders House in the Maroochy Waters Shopping Complex. “It was fantastic to have such a strong turnout to christen the new office,” Kelly said. Kelly’s first step will be to run a special SMSF information night for locals, covering topics ranging from applying for SMSF loans to finding the right property.w “An SMSF is a popular way to gear into property investment and enables the purchaser to choose an asset that suits either their lifestyle or investment objectives such as retirement planning,” she said.

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THE COALFACE

Make that five: Anderson tops Smartline … again Cathy Anderson once again has cause to crack open the champagne, after she won Smartline’s Franchise Owner of the Year for the fifth year in a row

or South Australian Smartline broker Cathy Anderson, giving 100% commitment and putting her ‘heart and soul’ into her business is the only way she can see to operate. That, and doing the right thing by the client – every time. “You need to be doing the right thing by the client, providing the best service possible, and be knowledgeable and ethical,” Anderson says. “If you are not doing that you shouldn’t be in this business. If you are in it for the money you have the wrong foundation to grow a successful business.” And being a success is something Cathy knows a lot about. At Smartline’s recent national awards she took home Franchise Owner of the Year – for the fifth time running. Though Smartline had adjusted the goalposts to base its awards not solely on loan volumes this year, Anderson was still able to crack open the champagne and celebrate after another win. She says she had managed to tick other major criteria this year, including diversifying her business. Anderson says she hired a full time financial adviser last year and she has only recently employed an assistant. Brokers also had to offer a genuine suite of lender choice to clients. “Some brokers talk about just writing CBA loans, or Westpac loans, but we needed to show that we are a broker in the true sense, that we diversify within the lending pool,” she says. With loan volumes well over

THE OTHER WINNER

IF YOU ARE IN IT FOR THE MONEY YOU HAVE THE WRONG FOUNDATION TO GROW A SUCCESSFUL BUSINESS $100m per annum, Anderson participates actively in the local South Australian industry, and is on Smartline’s franchise council. She says she takes a partnership approach. “It’s important to work together. It’s not banks against brokers, it’s a joint effort. If we don’t work together, a person may not get their home.” Smartline managing director Chris Acret says Cathy continued to show why she was a national industry leader. “Once again she has taken her business to another level and continues to set very high standards for client care, referrals from clients, local area marketing and loan application quality. She is [also] an active leader in Smartline nationally and contributes ideas and information for the benefit of everyone in the group,” he says. “I love this industry. No day is the same, and the fact that I am helping people keeps driving me to keep moving forward,” Anderson adds.

Tod Haffner from WA took home Smartline’s Franchise Owner of the Year (1-2 people), after the category was created this year. Smartline said he ‘uses technology more than anyone else in Smartline’, with only one admin person as support in his office.

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An expanding universe SMSF lenders see almost limitless potential in the fast-growing SMSF sector, and market projections are promising that their expectations might just be met

or Sinclair Taylor of Westpac, the potential of the SMSF market is clearly ‘very significant’. “Superannuation in this country is worth about $1.3trn, of which about a third sits in SMSFs,” he says. “This is expected to double in size over the next 10 years, so by 2022 we are looking at about $800bn in assets. It’s very, very significant,” he says. Looking at the raw figures, it is not surprising that lenders have been falling over themselves to launch into the SMSF market. Over the last two years, a myriad of product has appeared, helped along by the Australian Taxation Office clarifying its stance on the funds. The result is a fast-expanding universe, one in which brokers could have a central role.

A MAINSTREAM TOOL

Taylor says SMSFs have become much more mainstream among superannuation clients. “Trustees are looking for diversified investments, and

there has been a very strong penchant for property in this country,” Taylor says. “We now have about 900,000 Australians who are members of an SMSF. It has certainly become more mainstream. I think the acronym is now better understood.” It is a taste that is being propelled further by the lacklustre performance of share markets. “With flat interest rates and equities flat as well, people are looking to other asset classes to invest their money into for long-term investments, and good returns out of property have been demonstrated in the past,” Taylor says. Macquarie Adviser Services head of mortgage product James Casey says the products fit with a long-term preference for property among Australian investors. “Property has long been a cornerstone of retirement strategies,” he says. “People take comfort in bricks and mortar, an asset that they can see and touch. Property is something that people are comfortable with, and since borrowing to invest through super was introduced, a whole new way of investing in property for retirement has become available.”

UNDERSTANDING FIRST

TRUSTEES ARE LOOKING FOR DIVERSIFIED INVESTMENTS, AND THERE HAS BEEN A VERY STRONG PENCHANT FOR PROPERTY IN THIS COUNTRY - SINCLAIR TAYLOR

Brokers at present are largely ‘dipping their toe’ in the SMSF market at present, rather than being fully fledged regular writers of products in the space. However, lenders expect this to change quickly as brokers diversify, with current providers investing in training up their third party distribution networks to ensure they are abreast of their latest product offers. Taylor said the key for brokers is to understand the drivers behind client interest in SMSFs, as well as the demographics of the market and the legislation in place in this space. “I think the two key emotional drivers are control and flexibility,” Taylor says. “So you’ve got clients who want to take

ASSET ALLOCATION WITHIN AUSTRALIAN SMSFs Unlisted shares

Non-residential real property

1% 11.5%

Listed shares

Residential real property

All other assets

Listed trusts

32%

9.5% 5%

Other managed investments

26%

Cash and term deposits

Unlisted trusts

Source: ATO

A GROWING MARKET: TOTAL NUMBER OF SMSF FUNDS

400,000

300,000

Source: ATO

June 2004

June 2005

June 2006

June 2007

greater control of their retirement savings and they are also looking for greater flexibility of what they have to invest into.” One tripping up point could be the compliance obligations. “In terms of the origination process itself, there is a little bit more rigour and compliance around it, but the process is by and large the same as borrowing money for any other investment property lending,” he says. “We certainly want to understand who we are lending money to, and how the money will be paid back.”

BROKERS ON SMSFs

Broker groups themselves are, likewise, zeroing in on the future potential of the SMSF market. Mortgage Choice’s head of sales Andrew Russell says the franchise at present is focusing

June 2008

June 2009

June 2010

June 2011

Sep 2011

on education in terms of broker compliance responsibilities and the product on offer, so they are able to provide clients with best-in-class service. “The most important thing is knowing where the line is in the delineation between advice, and knowing customers have spoken to their financial planner and their accountant to ensure that an SMSF is most appropriate for them,” he says. Russell says within 12 months, Mortgage Choice may consider offering a product in the SMSF space. “It is a very exciting opportunity in which we would like to offer products for the customer which are competitive against the banks and we think that there is an opportunity here in the SMSF space,” he says.

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SMSF LENDERS SPEAK

Question: “What do you consider to be the key advantage for brokers entering the SMSF lending market?”

CLIVE KIRKPATRICK ST.GEORGE BANK

JOHN FLAVELL NAB

SURESH PILLAI LIBERTY FINANCIAL

SMSFs now represent 31% of the total super pool. With 854,000 members and an average fund size of $835,000, these are high-networth clients looking to take control of their income producing assets. The membership age is getting younger, with the target group being pre-retirees from 45 years, allowing time for assets to grow before they are either sold or derive an income in the pension phase.

As more consumers consider their investment options, SMSF lending will provide brokers with significant growth opportunities. SMSF lending is very sticky business due to the complexity of refinancing. This enables brokers to strengthen referral relationships which is important in a subdued environment with increasing competition. SMSF lending leads are primarily sourced via accountant/financial planner referrals.

SMSF lending is a double whammy for brokers. First it is an opportunity to provide more value and better service to clients, and there is potential to play a greater role in driving wealth creation. We conducted a study which found that almost 20% of loan applications were from those with sufficient super to consider an SMSF loan. Second, it offers an opportunity to diversify and increase their revenue stream.

GARRY DRISCOLL MORTGAGE EZY

ALICIA CARTER AUSTRALIAN FINANCIAL

GREG MITCHELL HOMELOANS LTD

ANDREW CLOUSTON NATIONAL FINANCE CLUB

Because of the large pool of money in SMSFs, and the recent impact on average Australians due to an uncertain share market – with many people seeing negative returns over recent years – our love for property will ensure that the market for mortgage brokers who embrace this product is very positive.

When you look at your client’s A&L, it’s easy to look at their superannuation and ask the question, ‘have you considered borrowing with your SMSF?’ Rather than a cross-sell with a different product, it’s an up-sell. It’s not ‘do you want fries with that’, it’s ‘do you want to supersize’.

It provides the brokers a niche market in which they can build strong working relationships with financial planners and/or accountants, but importantly provides their clients the opportunity to invest in property through their super fund.

The key advantage is to “diversify”. Most brokers will have a database where they can now re-engage with clients and offer them the solution to new investments as well as generating a new income stream. SMSF lending is a growing market that opens doors to new referrers. It will also prove to be a “sticky” loan segment.

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Self-managed success Brokers adding SMSF capabilities to their suite of lending services are finding a fast-growing niche as well as common ground with key referrers. Ben Abbott reports

or some of the market’s top brokers, SMSF lending is not a market they are just now getting to grips with, but one they have been involved in from its very beginning. Greg Wells of Wells & Partners is one broker who quickly adapted to the emerging market. “As soon as legislation was passed to allow SMSF lending and banks started to roll out product offerings, our enquiry levels commenced,” he explains. “All our loan writers at Wells & Partners/Mortgage Link Group then undertook product training

to ensure we had a good understanding of the product.” As managing partner of First Point Group, Peter Reber explains this fast-growing form of lending cannot be divorced from the more holistic financial needs of a client. “SMSF loans are not a separate business for us, but form part of client debt and wealth solutions,” he says.

“We do feel that doubling what we are writing is quite achievable and sustainable,” he says. “We are not out there marketing these loans, but we are quite conscious accountants have more of a focus on them as an opportunity.”

REFER TO SUCCEED

In Wells & Partners’ first financial year (2010/11) in the SMSF lending business, Wells says the team only did a ‘handful’ of loans for around $1m in total. However, demand is causing this figure to track higher. “We saw a significant increase the following year and settled just on $7m in 19 loans at an average loan size of $368,000.” Likewise, Reber says First Point wrote approximately $5m worth of residential and $5m worth of commercial SMSF loans last financial year. The business has set an ambitious target of doubling this loan volume, a task that partner David Lamperd says is very realistic.

Referrer relationships have been critical to both Wells & Partners and First Point’s success. “Our leads come in the main from accounting firms who often have in-house financial planners supporting the wealth management plans of clients,” Wells says. “Some of our accountant and financial planner referral partners have taken a very proactive approach to SMSF and with our expertise in commercial/complex lending, the expansion into SMSF was a natural progression to be able to react to the growing demand from clients,” he says. Lamperd says that First Point’s leads come from both accounting firms and existing clients. “They [accountants] refer us quite a lot of self-employed company directors. In most cases,

■ AMP

■ AUSTRALIAN FINANCIAL

■ HOMELOANS LTD

As a longstanding provider of superannuation, wealth management and other financial services to Australian clients, AMP as expected has indicated a strong interest in expanding its presence in the SMSF market, with the launch of a new business unit – AMP SMSF. The group is currently trialling a lending package designed for SMSF clients purchasing investment property.

Australian Financial’s SMSF Loan has seen slow but steady growth since August last year, with early broker adopters now providing a steady stream of high quality deals. With $10m in SMSF loan applications per month, the business is expecting its 800-strong broker distribution to grow with a recent major aggregator deal. A national training program commenced in September.

With a dedicated team of specially trained credit assessors for SMSF applications, the Homeloans ProSmart Self-Managed Super Fund has ‘exceeded all expectations’ in terms of its popularity, and is a highly visible product option. With fast-growing volumes and further training seminars across the country, the lender expects 600–1,000 brokers will be regular writers.

■ ANZ

■ COMMONWEALTH BANK

■ LIBERTY FINANCIAL

ANZ is described by brokers as being ‘nervous’ about entering the SMSF lending market, despite earlier indicating it was about to jump in. Brokers say the bank isn’t ‘terribly excited’ about SMSF lending for new clients. However, the bank does use the loans as a retention strategy for existing clients, should they be interested in utilising ANZ as their existing institution.

Brokers have complained that CBA’s SMSF product was not in a position to compete with some of the more competitive products in the market – but that may be about to change. CBA is in the process of taking the wraps off a brand new commercial SMSF product design, and has been conducting a series of broker seminars for interested brokers. Stay tuned for more on this product.

Liberty’s SuperCredit has been available for both residential and commercial purposes since late last year, and has come to market with an extremely competitive low-cost establishment model that has proved attractive to price-sensitive clients. Liberty has invested in infrastructure to support its product, including its underwriting team, and is expecting growth in the number of specialist

SMSF LOANS ARE NOT A SEPARATE BUSINESS FOR US BUT FORM PART OF CLIENT DEBT AND WEALTH SOLUTIONS - P ETER REBER

POSITIVE FIRST SIGNS

ARE SMSF PRODUCTS MORE COMPETITIVE? “The lenders started SMSF product offerings with above-standard interest rate pricing reflecting both the additional cost to establish and process and the risk aspect of non-recourse. However, with volumes growing in SMSF against a backdrop of low credit growth generally, most lenders have now sharpened their offerings to standard variable rates and very competitive fees are now in play particularly in the nonbank/specialised market which is pleasing to see.” - Greg Wells

THE SMSF LENDERS brokers writing regular deals rather than those ‘testing the water’. ■ MACQUARIE BANK

Launched in April this year, Macquarie’s Mortgage Solutions SMSF Property Loan is targeted solely at third-party introducers, including brokers and planners. After only a few months on the product shelf, the bank is still focused on familiarising brokers with the product, which has included two national training and accreditation road shows. Brokers need to be accredited to write the new loan, which is still seeing solid early month-on-month growth. ■ MORTGAGE EZY

Early entrants to the SMSF lending space, Mortgage Ezy has seen broker interest in its residential product grow considerably over the last six months, with the ability to offer finance

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HOW OLD ARE SMSF CLIENTS? AGE RANGES

MALE

FEMALE

TOTAL/AVERAGE

< 25

1.0%

25 - 34

4.2%

4.3%

4.2%

35 - 44

12.9%

14.9%

13.8%

45 - 54

24.1%

26.7%

25.3%

55 - 64

32.8%

33.8%

33.3%

> 64

25.1%

19.2%

22.4%

All ages

53.6%

46.4%

100%

WHAT DO SMSF CLIENTS EARN? INCOME RANGES

MALE

FEMALE

TOTAL

$0-$20,000

22.5%

31.0%

26.4%

>$20,000-$40,000

17.6%

23.1%

20.2%

>$40,000-$60,000

12.7%

14.1%

13.4%

>$60,000-$80,000

12.7%

11.7%

12.2%

>$80,000-$100,000

8.2%

6.3%

7.3%

>$100,000-$200,000

16.0%

9.4%

13.0%

>$200,000-$500,000

7.2%

2.8%

5.2%

>$500,000

2.5%

0.7%

1.7%

Unknown

0.5%

0.8%

0.7%

they’ve been the ones to provide the initial advice about their SMSF options in terms of lending. So it is initiated primarily by the accountants,” he explains.

NOT FOR EVERYONE

Both broker groups stress that entry into the SMSF lending market requires a commitment to training and product knowledge, and may suit some brokers, but

not others. “I think it is more of a niche market, although that may change as volumes increase further,” Lamperd says. “Many traditional residential brokers would really need to do their research on the product, and also have discussions with an accountant. You need a good understanding, as it’s a much more complex form of lending.”

for properties under construction described as ‘a real bonus’. The lender will soon announce a commercial product, and hopes SMSF lending will account for 15-20% of new business within 12 months.

NFC hopes to grow volumes to $10m–$15m per month by the end of 2013. NFC provides full broker training, or a ‘tick and flick’ model.

■ NAB

The St.George SuperFund Home Loan was launched back in November 2008. Brokers say this time in the market has given the St.George Group’s brands both a highly competitive product, and an experienced credit team that understand SMSFs intimately. With brokers currently writing over 50% of St.George’s deals, the provider’s strength is in residential lending.

NAB is ‘up the curve’ in terms of its commercial SMSF lending capabilities and understanding, say brokers, with an amount of flexibility for less vanilla loans and a willingness to take on smaller deals. NAB says it is expecting a newly introduced SAF Deed to further fuel growth via the broker channel as it removes some of the complexity for both introducer and customer. ■ NATIONAL FINANCE CLUB

NFC’s SMSF Property Gear was launched late last year, with loan volumes currently sitting at $3m per month. With 30 brokers accredited,

■ ST.GEORGE, BANK OF MELBOURNE

■ WESTPAC

Westpac is a clear leader in the SMSF lending space when it comes to the major bank providers, with brokers noting a particular strength in commercial but with ‘proven’ residential capabilities.

THE WORKSHOP

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uncommon ways to market your business

THE GURU

New ways to set your business apart can be hard to come by, but FrontRunner Consulting’s Doug Mathlin finds five more uncommon marketing methods

RE-WRITE THE SCRIPT

During your sales presentations, introduce your referral program. Let every prospect know you intend to do a great job for them so they will feel compelled to recommend you to people they know. Make sure you also promote all of the ‘other services’ you offer. If your client thinks of you as a ‘mortgage broker’ they probably think you only offer home loans. If you also offer plant and equipment finance, risk advice and other products, this is the time to promote those services. Don’t rely on your client to read your marketing materials. You need to develop scripts for all of these.

YOUR FACE IN THEIR FACE

Even though your client already knows you, at least once a year, send them your professional profile. It should include your photo, your qualifications and experience, significant achievements and accolades, testimonials and services offered. At a different time of the year, you should send information about your team members. This initiative is about increasing your personal brand. The better your clients know you and your team, the more likely they will be to do business with you again.

SELL REFERRERS ON SELLING YOU

Referrer management may not be necessarily unusual, but your referrers need your help to effectively refer people to your business. It is very easy to get them to agree to send business to you – but it is very difficult to get them to send clients to you. Why? Most people cannot sell (they can’t sell themselves, let alone you). You need to work closely with them for a period of time to perfect the referral process.

The end result will be a script that goes like this; Accountant (after determining that their client has had a home loan with the same lender for more than two years): “I’ll get my broker Doug to give you a call. He’s a great guy who really knows his stuff when it comes to lending. “Doug works with many of our clients and we get great feedback about him. “He’ll also work closely with us to ensure the loan structure suits your long-term financial strategies. “What time of the day would you like Doug to call you?”

WEBINAR, THE NEW SEMINAR

Educate your clients and prospects by webinar. People will see you as a subject matter expert. You could post a link to a recording of your webinar on your website. Keep to a topic most of your clients would be interested in. Make it short and meaningful.

STUART WEMYSS Q: What is the rule of 3? A: The rule of three suggests you have three seconds DARE TO BE DIFFERENT One uncommon way to get your face known to your clients is to make yourself a TV star. Not easy, you say? Well, with YouTube available for free, you might just find it easier than you think. Just make sure you perfect your autograph.

BE A TV STAR

Send an email or message out to your clients and prospects with a YouTube video attached. Rather than reading boring texts about interest rates and the RBA announcements, promote a special offer you might have or provide regular commentary on the services you provide. Or tell your clients that their referrals will earn them a $50 gift voucher at your favourite restaurant (ask the restaurant to invoice you for each voucher rather than paying for them directly). Make sure the video is well-scripted, professionally produced and makes you look good. (If you have a ‘good head for webinars’ like me, think about doing an audio recording!) The key to success is implementation.

to make a good first impression, if you do that right, it buys you three minutes, and you’ve got three minutes to find common ground and create likeability, and if you do that right it will buy you three hours with a client to build trust. If you get this rule of 3 correct, you can kick your meeting off with your next client or prospect really well and make the rest of the advisory process a lot easier.

Q: What are the first 3 seconds all about? A: I guess that is pretty simple. We are all doing it,

it is about dressing appropriately, smiling, a firm handshake, good eye contact, being friendly warm and open and all those sorts of things that you would normally expect.

Q: What about the next 3 minutes? A: Most people like the people they trust, so

likeability is a really key stepping stone I guess to building eventual trust with the client. And we all like people who are like ourselves. So if you have certain interests and so forth and meet a person that shares the same interests, you are naturally going to have a bit of rapport, and likeability. We do a bit of research before we meet the client, and try and find something we have in common that we can talk about when we first meet them. We want to make the small talk work for us. So we look for things like did they go to the same school, live in the same area, have they worked with people in the same industry and so forth. You can normally find something, and if nothing else, a really good common ground is children. Doug Mathlin is the principal of FrontRunner Consulting

Q: And the next 3 hours? A: That is all about demonstrating that you are there to prepare to listen to them, that you are there to solve their problems and so forth.

MARKET TALK

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Spring forward Spring is usually a bumper season for sellers, but will 2012 follow tradition, or offer mixed results for a beleaguered market?

arlier this month, PRD Nationwide offered a compelling explanation for why spring is a consistently good season for the property market. “Like animals, humans tend to hibernate through winter and become more active come spring,” said Craig Mendoza, director of PRD Nationwide in Ipswich, Queensland. “Secondly, again like animals, there’s love in the air and buyers come looking for a new home (nest).” It’s a lovely thought, but other experts are far more reserved in their predictions for spring 2012.

CONFIDENCE ISSUES

Craig McKenzie, executive general manager of RP Data, identifies confidence as a major factor in determining the mood of the season. “Until there is a sustained recovery in the consumer mindset, it seems unlikely there will be a vast improvement in sales activity,” he said. “Consumer confidence will continue to be influenced by a range of factors, including the movement in local house prices, the impact of the carbon tax on

household budgets, unemployment and under-employment outcomes and the corresponding sense of job security consumers have and, lastly, economic news from the US and Europe.” The Housing Industry Association’s chief economist Harley Dale also believes confidence issues are a serious concern, particularly for new housing. “The consistently weak consumer confidence is weighing very heavily on new housing investment, far more so than is the case for retail expenditure,” he said. “Combine that low confidence with very tight credit conditions and excessive taxation, and you have the unpalatable recipe for the recessionary conditions facing new housing. “Leading indicators suggest this situation will persist well into 2012/13.”

auction rates in Melbourne and Sydney were not in the wealthy suburbs. APM predicts prices in the wealthier suburbs will need to come down, as buyers respond to lower interest rates and competitive – if not cheap – property prices in the outer suburbs.

CAUTIOUS OPTIMISM ZEITGEIST

WILL SPRING BE POSITIVE FOR THE PROPERTY MARKET?

56% No

15%

29% Yes

Maybe

THE WEALTH DIVIDE

Australian Property Monitors’ (APM) pre-spring data showed a clear division between auction clearance rates at the high and low ends of the market. In the final weekend before spring officially kicked off, robust

Source: Australian Broker Online

Despite concerns of a weaker than normal spring season, there are signs of light. RP Data’s Home Value Index for July showed a rare pre-spring surge in auction clearance rates. “[It] suggests the housing markets may be starting to respond to lower mortgage rates,” the report said. RP Data’s research analyst Cameron Kusher hinted any growth, however small, is a good sign, given the dire state of the housing market in the past few years. “Overall, the data indicates that, generally, the housing market is in a stronger position than 12 months ago. “But, in comparison to recent years, we would not expect the housing market to power along through spring in the manner it has previously,” he said.

TALKING HEADS

Q WHAT’S MOST LIKELY TO INFLUENCE THE PROPERTY MARKET’S PERFORMANCE THIS SPRING?

TROY CAMERON STRATIQUE FINANCE

“Continued consumer confidence is the key. We have seen a number of clients who are keen to explore the option of purchasing their first investment property and capitalise on the hot Perth rental market.”

CRAIG MCKENZIE RP DATA

“Consumer confidence. Our analysis shows a strong correlation between consumer sentiment and sales volumes, particularly over recent years.”

LEAH BUSBY BLACKFISH FINANCE

“There are three common factors: confidence, interest rates and bank policy. If people are ready to buy, they usually have made the decision independent of rates, so market confidence is therefore key.”

SAM WHITE LOAN MARKET

“Stock levels are reduced, indicating serious vendors. There’s good activity in the middle and bottom markets, while the top end is subdued, although it’s trying to get some momentum in line with recent stock market confidence.”

MARKET TALK

brokernews.com.au

Right turn: signs point to city market revival Spring may just be in the step of more buyers this year, as market fundamentals point to a resurgence in buyer interest

here is a new air of positivity in the marketplace in the lead-up to the biggest selling season of the year. Buyers appear less cautious. Loan applications are up, as are clearance rates, with Sydney recording its highest clearance for two years on August 4 at 68%. We are seeing more buyer enquiry and multiple offers on some homes, so indications are demand is on the rise. Recent RP Data figures show Sydney property values rose 1.2% in July and 1.7% for the year to August. At McGrath, auction clearance rates are in the high 70% region for properties under $1m, which suggests a somewhat two-speed recovery. Falling mortgage rates are playing a vital role in the change of buyer sentiment. Home loan rates are around 50 basis points lower than their 15-year average. Fixed rates are extremely attractive, with offerings such as 5.59% for one to three years. Although buyers are cautious, more are coming into the market and we’re expecting a solid spring. Rismark’s dwelling sales price-to-income ratio is at its lowest level since March 2003 and the higher up the price scale you go, values are still weak and present excellent buying opportunities. I wouldn’t say the market has turned the corner but there are signs we are heading in that direction.

MARKET OBSERVATIONS

• For some time, the lion’s share of activity has been occurring under $1m and this continues. On August 4, McGrath achieved an auction clearance rate of 78% for properties priced between $750,000 to $1m and 77% for those priced under $750,000. The clearance rate above $1m was 62% – a solid result but indicative of a two speed recovery in Sydney.

SYDNEY METRO PICKS Balmain Dulwich Hill Frenchs Forest Lilyfield Manly Marrickville Newtown

• According to AFG, first home buying in NSW jumped from 10.9% to 14.4% in July, while nationally it rose from 15.6% to 17.3% – a two-year high. Rising rents, decreasing interest rates and good value buying is creating a compelling environment for young people to purchase. In NSW, the expiry of the $7,000 First Home Owner Grant for established properties on September 30 has no doubt prompted many into action. • New incentives for first home buyers to purchase new properties in NSW begin on October 1. First home buyers of newly-built or off-the-plan properties under $650,000 will receive a $15,000 grant, reducing to $10,000 in 2014.

Palm Beach Sans Souci Surry Hills

• The shift from houses to apartments continues. Both owners and investors see apartments as serious options due to greater affordability,

JOHN MCGRATH

lower maintenance and security. Medium and high density living close to the city is increasingly popular. Some developers are responding to the growth in single person households by planning ‘pocket penthouses’ – several one bedroom penthouses instead of one large residence with three or four bedrooms. • The ACT market has stabilised and buyers are re-engaging in the lead-up to Spring. Enquiry is up, more people are attending opens and properties are selling under the hammer. Our Woden office recently took four deposits on homes that had been on the market since the start of winter. • In Brisbane, the worst is behind us and the recovery has started. Brisbane’s inner city area, within 5km of the CBD, is experiencing high demand. The desire to live closer to the city represents a new mentality among Brisbane locals as the population grows and more professionals use public transport. Buyers are moving quickly on correctly priced homes and many are looking for renovation opportunities as there is good money to be made. Paddington in Brisbane reminds me a lot of Paddington in Sydney 20 years ago. It’s definitely on the fast track to becoming one of the city’s highest valued suburbs.

BRISBANE METRO PICKS Brisbane CBD Bulimba Hamilton Kelvin Grove New Farm Red Hill Rosalie Windsor Wooloongabba Wynnum

FINANCIAL SERVICES

brokernews.com.au

Insurance industry ‘getting away with

ASIC URGED TO RECOGNISE ‘SOPHISTICATED’ BORROWERS High-networth or ‘sophisticated’ investors should be acknowledged in a special category under NCCP to cut down on regulated disclosures, according to NMB’s Gerald Foley. In a similar way to ASIC’s treatment of clients in the managed investment market, Foley said ‘sophisticated’ clients should be acknowledged by the regulator as being more able to evaluate credit offers, negating the need to provide repeated disclosure documentation. In the case of investments,

former minister for Bob Hawke’s government has taken aim at the insurance industry, stating there is “much more to be done” to improve an industry that is “getting away with murder”. Former Labor politician Barry Cohen has penned a column in The Australian telling the tale of his insurance woes. Citing a recent survey, which suggested the insurance industry is not trusted by the public, Cohen went on to state: “A recent experience alerted me to the fact that insurance companies were still getting away with murder.” Cohen goes on to tell the tale of how he took out home and contents insurance, with the insurance evaluation taking just 15 minutes. Cohen then explains he had to make a claim after his wife lost her sapphire and diamond engagement ring, valued at $3,500. He then had to go to great lengths to prove that his wife had the ring – and he also got short-changed.

DOWNSIDES IN SHIFT TO SMSF LENDING Investors have been warned of the downsides of SMSF lending, as the value of residential property being held in SMSFs grew by around $1bn per year. The report showed that ATO data indicates the value of residential property being held in SMSFs grew from $10.825bn in June 2008 to $14.868bn last March. In the findings, released by Fairfax, AFA president Brad Fox commented that limited recourse mortgages, which SMSFs use to purchase residential property, do have their downsides. “Because of the type of mortgage, there are more costs involved in both the higher interest rate demanded by the banks and the greater legal costs to establish this sort of a loan,” he told Fairfax. “That will sometimes catch out an unknowing buyer.” He added that compliance breaches can also be “horrendously expensive to correct” when it comes to investing in residential property through an SMSF.

AUSTRALIA’S WEIRDEST TRAVEL INSURANCE CLAIM A couple on a hunting tour in North Queensland sought a quick escape when they felt they had become ‘the hunted’ by their tour guide. The insured’s claim for the cancellation of the remainder of the tour was not paid as there was no evidence to indicate that they were in any danger Source: Compare Travel Insurance

advisers can deem clients ‘sophisticated’ when they have had a gross income of $250,000 or more in each of the past two years, or have net assets over $2.5m. “We see many files where the borrower is arranging their third, fourth or greater home or investment property loan, have significant incomes and/or a strong asset position,” Foley said. “I see no reason why similar guidelines to ‘sophisticated investor’ rules could not be applied.”

Clients now paying planners 10% less Planners now charge 10% less for comprehensive advice than they did in 2010, it has been claimed – but that doesn’t necessarily mean financial planners are seeing profits drop. According to the latest research from Investment Trends, the average planner is now charging $2,350 for the cost of comprehensive advice for a typical client, compared to $2,600 in 2010. However, the Investment Trends Planner Business Model report claimed this reduction is thanks to cuts in the cost of providing advice, rather than planning practices shaving down their profits. What is driving these lower business costs is improvements in technology and platforms that are allowing advisers to work more efficiently and lower their fees.

$2,600 WHAT CLIENTS USED TO PAY FOR COMPREHENSIVE ADVICE

$2,350 WHAT CLIENTS ARE NOW PAYING FINANCIAL PLANNERS

SPOTLIGHT brokernews.com.au

Advise the under-advised, but quality qualifies first The fact that Australians are generally under-advised when it comes to financial matters bodes well for mortgage brokers looking to sidestep into the advice market. “There are a lot of untapped opportunities, commercial opportunities and business opportunities for planners in Australia,” says adviser Greg Cook of Eureka Financial Group. However, many brokers are concerned about what it takes to make the move. “The danger is just like changing from any other specialty or profession; if you are dabbling now and again in an area that you are not that experienced or comfortable or qualified in it can lead to bad client outcomes. That wouldn’t be

a good thing for the planning profession,” Cook says. Yellow Brick Road’s Matt Lawler says the profession – and brokers moving across – need to think about being the most appropriately qualified people for the spectrum of client needs. Lawler says brokers should ask themselves firstly, if they believe a move into more holistic advice is right for the client. “The second thing is you have to believe that it is right for your business, and you are prepared to do the work to be appropriately qualified to be able to sit in front of the client.” Lawler for one is convinced that there is a gap in the market when it comes to advising younger wealth accumulators in the 30-45 year old age bracket.

GREG COOK, EUREKA FINANCIAL GROUP

MATT LAWLER, YELLOW BRICK ROAD

WE ARE ABSOLUTELY CONVINCED THAT QUALITY OF ADVICE FOR THAT 30-45 YEAR OLD MARKET IS SOMETHING THAT IS MISSING IN AUSTRALIA. - M ATT LAWLER

ONE YEAR ON What a difference a year makes … or not. Australian Broker reflects on the punditry, news and influential trends that made headlines 12 months ago Australian Broker Issue 8.18

MFAA, FBAA merger calls spark rethink

Brokers ‘protected’ from FoFA reforms

Locked out borrowers ‘getting angry’

Renewed calls for a merger between the industry’s representative broker bodies the MFAA and the FBAA caused Vow Financial CEO Tim Brown to suggest that brokers should be represented by a body separate from lenders. Admitting the opinion was ‘controversial’, Brown said that the MFAA could model itself on the UK market, where only broker members are allowed, with lenders having their own representative body for lobbying.

The MFAA stated that it was closely watching reforms in the financial planning industry to ensure that brokers are protected from a similar outcome. CEO Phil Naylor claimed that broking would ultimately avoid the regulatory imposts seen by financial planners, because of the difference in the ‘flow of money’ in the two industries.

Vast changes to the reverse mortgage market were said to be leaving a large pool of older borrowers without access to funds. Seniors First managing director Darren Moffat said since the GFC, reverse mortgage lenders had reduced drastically, and that many older customers were ‘getting angry’ on the phone when told they could not access equity like before. He said it presented a massive market opportunity for banks as the community ages.

What’s happened since?

By no means a buried topic, brokers continually debate the desirability of any lender influence over broker associations. Rightly or wrongly, brokers still view lenders as having a strong influence over the direction of the MFAA, though the MFAA clearly states in its charter that it represents brokers and aggregators, not lenders.

The MFAA has repeatedly showcased its Canberra lobbying record, particularly in regard to its shaping of NCCP legislation, which originally threatened to tie the broking industry up in red tape. Naylor says the MFAA remains vigilant, with the industry needing more time to adjust to NCCP changes before any others are introduced.

What’s happened since?

The reverse mortgage market has seen no revival, and SEQUAL was even forced to make its CEO position redundant due to the changed scope of the market. Older borrowers are doubly angry, as the NCCP has also seen lenders restrict credit in some cases due to doubts over the ability of ageing borrowers to repay their loans.

INSIDER

brokernews.com.au

The debt you never knew about

Boy, let’s bring back the play

‘Supe r B $5 aby Debt’

0,0

00* *D retiure upon ement

oes anyone but Insider think this industry is getting too serious? AFG received some unfortunate attention from mainstream media recently, when it was revealed it planned a trip to the Playboy Mansion as part of its LA conference. Insider’s reaction was, well, so what? Sure, brokers have conferences. Yes, they like to have a bit of fun and see the local sights while they are there. (And yes, a trip to the Playboy Mansion would do it for Insider). But it’s not that simple out in the realm of public perception, when banks are seen to be sponsoring a conference and writing the cheques as their top writers have a good time. The Sydney Morning Herald levelled a few pointed barbs at the group. “Apart from a keen interest in vital statistics, we were unclear of synergies between Hugh Hefner’s house of flesh and the mortgage broking industry,” one of its articles read. (Well, hmm, Insider has been in the media for a while, and journos get quite a few unrelated perks themselves, and are not

ones to say no or report the fact). AFG’s Brett McKeon assured SMH the visit was paid for by the aggregator and not the banks, and as many women were in attendance as men. What’s more, AFG said the group’s visit coincided with a charity event supporting non-smoking. ‘’We thought it’s an iconic part of Hollywood, it’s a charity function and gives our members an opportunity to attend the mansion,” SMH quoted McKeon as saying. But the worst part is what McKeon said next. “We won’t be doing it again.” That’s the trouble in an era of such professionalism. We are at risk of ruling out all of the fun – even the harmless stuff. (And Insider is sure the visit would have made it into soft dollar declarations, if such a thing had been paid for by the banks.) All Insider can say is, the industry is doing a good job for the humble consumer, and just like journos, brokers should be mature enough to do what’s right by the client. So, how about we get ‘serious’ about bringing back more ‘play’?

MIRANDA KERR Miranda Kerr’s father Greg Kerr says paying off a mortgage is as easy as saving some spare change. “I have a container in my car that holds a couple of hundred dollars in coins and every time that’s full I put it into a big money box. It would come to about $4,000 a year,” he said.

WHEN JUST A BEDROOM WILL DO At 16 square metres and with a selling price of $270k, a Bondi Beach pad set for auction in September could be Australia’s most expensive ‘bedroom’. The property, located at 14/68 Gould St, is situated above Brave Café on one of Bondi’s trendiest streets. According to real estate agent Kiel Glass, the apartment was perfect for a single person or investor. “I’m very confident it’s going to sell,” he told a news site. The comments prompted interest from Australian Broker readers, who had perhaps heard the real estate sales pitch before. Marc, for instance, was amused. “I can see the real estate ad now,” he said. “Astonishingly space-efficient luxury party pad in sought after world famous Bondi. Bathroom facilities cunningly designed to add to the ‘jet-set’ feel by resembling the toilet on a 737.” However, a local broker claimed banks would be reluctant to fund it. “The general rule of thumb is anything under 50 square metres internally is hard to get finance for,” Mortgage Choice Surry Hills broker Mark Sourintha told News.com. au. “Some of the bigger banks have a credit risk appetite so they might take on smaller properties, but 16 square metres? That’s ridiculously small,” he said.

Insider is always amazed at how the financial system can strike fear into the hearts of even the most adequately well-off, by implying their future comfortable retirement is at risk. Enter the ‘Super Baby Debt’, a new (no doubt well-intentioned) campaign to make women realise when they have babies, they are no longer contributing to superannuation. Hmmm. According to Suncorp, having a family (yes, that thing we’ve been doing, well, since life began) can leave mothers approximately $50,000 out of pocket upon retirement. “The financial drain on women is enormous, with almost 300,000 babies born in Australia every year, and many employed mothers taking time out of the workforce in the first 12 months after birth,” Suncorp explained. Is it just Insider, or does the fact the financial system needs us to have this discussion worrying? Should time out to look after children ever be characterised as future ‘debt’? For mothers worried about this ‘debt’, there is the one per cent rule – contribute an extra 1 per cent every year after returning to the workforce. Well, that will certainly keep those in the super fund industry with well-feathered retirement nests.

COMPETITION! Australian Broker has received a number of entries for its recent competition, which asked brokers to send in photos to prove they were more ‘ripped’ than this insurance broker. This is your last chance to compete! Send your photos to ben.abbott@ keymedia.com. au to win!