JUNE 2014 ISSUE 11.11
$4.95 POST APPROVED PP255003/06906
+INSIDE + NEWS A look at what’s been making headlines P4
+ ANALYSIS DON’T FEAR COLES’ MORTGAGE PLAY If the supermarket giant enters the mortgage market, brokers could benefit P12
+ SPECIAL REPORT DIVERSIFICATION How to future-proof your income P14
+ BEST PRACTICE HAPPY TRAILS
Correctly valuing your trail book P20
Phil Naylor: LEAVING A LEGACY As the MFAA CEO prepares for the end of his tenure at the organisation’s helm, he looks back at where mortgage broking has come from and ahead to where it’s going
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FAA chief executive Phil Naylor shocked the industry when he announced recently he would step down from his role at the helm of the association at the end of the year. After more than 12 years in the position, Naylor has become an industry fixture. But he said his decision to depart comes as the industry has reached new peaks. FULL STORY PAGE 18
+ BUSINESS
INTELLIGENCE
THE POWER OF EXECUTION
Following through on your goals P21
+ CAUGHT ON CAMERA PICS FROM THE MFAA NATIONAL CONVENTION P28
NEWS 2
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NUMBER CRUNCHING DID YOU KNOW?
FIRST-TIME DILEMMAS Top three challenges facing first-time investors
10.8% The HIACBA Housing Affordability Index has improved 10.8% over the past year
Saving a deposit
15.3%
TOP PERFORMERS Suburbs where houses have performed the best over the past quarter
LOCATION
SUBURB
MEDIAN VALUE
CAPITAL GROWTH LAST 3 MONTHS
Sydney
BEAUMONT HILLS
$866,000
13.13%
Sydney
EASTWOOD
$1,248,500
12.28%
Sydney
WEST PENNANT HILLS
$1,094,000
12.07%
Sydney
HOMEBUSH
$1,141,500
11.83%
Sydney
MARSFIELD
$1,234,500
11.75%
Source: HIA
Choosing the right investment strategy
15.5%
BY THE NUMBERS
$1.2 trillion
Finding the right property
50.6% Source: Mortgage Choice
Banks’ total domestic housing loans were $1.2trn for the year ending 31 March, an increase of $90.4bn over the year
Source: Residex
Source: APRA
WHAT THEY SAID...
TIM LAWLESS
“Mortgage brokers out-perform on conversion, capturing a higher share of settlements on new loan applications” P4
JAMES SYMOND
“I’ve got no doubt that the competition of the future is not necessarily the competition you’ll see today” P12
BRENDAN WRIGHT
“We’re very keen to continue to support brokers in being able to diversify, adapt and grow their businesses around specifically whatever their strategy might be” P16
KEIRAN EVANS
“There’s great opportunity for brokers to invest in themselves and provide better outcomes for their customers” P26
NEWS 4
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Broker feedback drives referral program
Brokers outperforming ■ Mortgage brokers are gaining more market
power as their share of the home loan market increases, a trend that’s certain to make banks uncomfortable, RP Data research head Tim Lawless has stated. Speaking at the recent MFAA Convention on the Gold Coast, Lawless said brokers were seeing their share of mortgage settlements grow. “Mortgage brokers outperform on conversion, capturing a higher share of settlements on new loan applications. They make up 38% of new applications, but what probably makes banks uncomfortable is that brokers’ share of settlements is climbing – so it’s 50-50 now. Mortgage brokers are making up less than 40% of applications but a large amount of conversions,” he said. Lawless said the shift in market power towards brokers could see banks fighting to maintain direct channel market share. “It’s a trend banks are very much aware of and are going to be more competitive,” he said. To stay on top, Lawless recommended brokers stay mobile and invest in mobile technology. “Banks are going to focus on bringing that market share into their favour, because of costs involved in the broking sector,” Lawless said. Tim Lawless
■ ING Direct has launched an
FAST FACT $4,731,853,867 The amount of revenue raised by stamp duties in NSW for the year to April Source: NSW Office of State Revenue
incentive-driven referral program for brokers, as part of its strategy to become the primary bank for its customers. “We know our customers have a positive experience when applying for a home loan through brokers, so it made sense for us to extend this experience to our transaction account. We’ve also improved the application process, making it easier for both brokers and customers,” said head of third party distribution Mark Woolnough. Based on broker feedback, a new ‘tick box’ section has been incorporated into the application form so customers who are interested in the product can be contacted with more information. The account can then be opened over the phone, and when all criteria are met a referral fee of $110 will be paid. This fee has been increased to $220 until 31 December.
Surge in volumes for brokers
BROKERAGE HAS WIND-UP CASE THROWN OUT
■ Mortgage brokers have lifted lending volumes
■ A nationwide brokerage that faced a court battle
by a whopping 41.5% in the March quarter compared to the year before. Brokers continued to build their market share by lifting their volumes to $34.1bn during the March quarter, compared with $24.1bn in the corresponding quarter in 2013, according to business benchmarking company Comparator. The managed growth of the mortgage broker industry has meant its share of home loans provided in Australia has doubled over the last 10 years to reach a milestone of 50% during the March quarter, Comparator research showed. MFAA CEO Phil Naylor said the market share study shows the broker channel is growing strongly on the back of the low interest rate environment, and that large and small lenders are investing in the broker channel to lift their share of the mortgage market.
over tax has had its case thrown out of the Federal Court of Victoria. Rapid Finance was being taken to court by the ATO, but court documents show the winding-up application against it was dismissed on 9 May. However, none of the parties wished to go into the details of the case. An ATO spokesperson said that, due to confidentiality provisions in the Tax Administration Act, the ATO could not comment on any individual’s or entity’s tax affairs. Rapid Finance director Michael Cullinan did not return Australian Broker’s calls up to time of print, and Rapid Finance’s lawyers, Behan Legal, would not comment on the case. The company has 11 staff throughout offices in Melbourne, Sydney, Brisbane, Perth and Adelaide, according to its website.
EDITOR Adam Smith PUBLISHER Simon Kerslake COPY & FEATURES JOURNALIST Calida Smylie PRODUCTION EDITORS Roslyn Meredith, Moira Daniels ART & PRODUCTION DESIGN MANAGER Daniel Williams DESIGNER Loiza Caguiat SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Alex Carr TRAFFIC MANAGER Abby Cayanan CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Adam Smith tel: +61 2 8437 4792 adam.smith@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, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Auckland, Toronto, Denver, Manila 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 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.
NEWS
brokernews.com.au
6
ASIC bans fraudster broker
WORLD NEWS
■ A broker has been permanently banned from the profession after
UNITED STATES OF AMERICA SPIKING MORTGAGE RATES STRANGLE HOME SALES
Spiking mortgage rates bore the brunt of responsibility for the marked slowdown in existing home sales in the US for the second half of 2013. A report by the San Francisco Federal Reserve Bank found that home sales last year peaked at 4.75 million units in July and have been falling ever since. “The fact that home sales in different parts of the country peaked and fell together suggests that some common underlying factors were at play,” wrote John Krainer, a chief economist at the San Francisco Fed. “One such factor that could account for the decline in home sales is rising mortgage interest rates.” Interest rates started spiking in May of last year as financial market participants became convinced that the Fed would soon taper its bond purchases. Mortgage rates in particular saw a dramatic spike, rising by more than a full percentage point.
DID YOU KNOW?
$583m US-based Genworth Financial Group raised $583m in the IPO of its Australian business Source: ASX
being jailed for fraudulently getting her clients over $9m worth of home loans. ASIC has permanently banned Victorian finance broker Kieu Thi-Thanh Huynh from engaging in credit activities since she was convicted of the serious fraud offences. As a result of her conviction, Huynh, of Sunshine, Victoria, has also been disqualified from managing a corporation for five years. The woman is the former sole director of St Andrews Mortgage Solutions. In February 2014, Huynh pleaded guilty and was convicted in the Supreme Court of Victoria of 27 charges of obtaining property by deception and one charge of attempting to obtain property by deception, and was sentenced to four years in prison. Huynh created false payslips, which she submitted to various credit providers to support the loan applications of St Andrews’ clients. The 27 successful loan applications fraudulently created through Huynh’s actions resulted in her clients receiving $9,411,688.30 worth of home loans. Huynh received upfront commissions of $41,231.14 and trailing commissions of $14,510.85 – totalling $55,741.99. She also received cash payments of up to $10,000 from the recipients of the loans arising from the false payslips.
CANADA
AFG hits 20-year milestone ■ AFG has marked a major milestone, celebrating 20 years in
CANADIAN HOUSING IN FOR A FALL Pacific Investment Management Company (PIMCO) has forecast that Canadian home prices will fall by as much as 20% in the next five years, removing the boost from household spending that contributed to faster-than-expected growth last quarter, the Ottawa Citizen has reported. “Canadian housing is overvalued,” said Ed Devlin, the London-based head of PIMCO’s Canadian portfolio. “I would expect to see it happening at the end of this year, we’re going to start to see housing roll over.” The housing decline, which could be cancelled out or reduced to 10% when accounting for inflation, will cause a pullback in consumer spending, capping economic growth this year in Canada at around 2%, Devlin said. “It’s not a collapse, it’s a correction. We think the Canadian economy can handle it,” he said.
business – and its director credits brokers with its success. Founding directors Brett McKeon, Malcolm Watkins, Kevin Matthews and the late Bradley McGougan began the business in an office in the Perth suburb of Subiaco that was so small the photocopier needed to be wheeled in and out each day so they could sit down at their desks. The nationwide financial services company now has 2,000 brokers lodging around $4bn in mortgage finance each month, accounting for 11.4% of the Australian residential mortgage market. AFG director Brett McKeon attributes the company’s success to broker development paying off. “For the past 20 years, our core driver has been the profitable growth of our brokers’ business, which in turn has driven our growth.”
FOR THE PAST 20 YEARS, OUR CORE DRIVER HAS BEEN THE PROFITABLE GROWTH OF OUR BROKERS’ BUSINESS, WHICH IN TURN HAS DRIVEN OUR GROWTH Brett McKeon
NEWS
brokernews.com.au
8
BROKERS HAVE THEIR SAY Brokers on the Australian Broker Online forums say APRA has it wrong on upfronts
BY THE NUMBERS
TONY BROKER “Typical cheap shot at hard workers trying to make reasonable living”
A POOR REASON ALWAYS
22.2%
BE WARY OF TEMPLATES, brokers warned ■ Brokers are being warned to
be careful about using templates for contracts and other legal documents. The warning comes from the FBAA after advice from a leading lawyer explained the risks of using template documents. Rodgers Barnes & Green Lawyers senior associate Alexandra McVay said that while all business involves risk, brokers need to be informed so
Peter White
they can decide whether or not the risk is acceptable. “Templates are only tools. They act as a guide and often provide a structure for what might be appropriate in some transactions, but often do not deal with all the things that may be needed in that transaction,” she said. “A template contract may have all the headings and structure that your business contract requires, but your contract may need provisions for warranties, indemnities and guarantees drafted that the template contract doesn’t contain.” FBAA CEO Peter White said this was good advice that should be adhered to by the industry. “I know that many brokers use general templates, but there are several contracts – including privacy act documents – that should be specifically tailored to one’s own business,” he said.
Proportion of Australians prepaying on their mortgages
“Obviously APRA has no idea what majority of professional brokers do and point out rouge traders as their ‘experience’. Very insulting to the majority of us”
RAY_PERTH “What will be interesting is the response back to APRA by FBAA and the MFAA”
Source: Fitch
APRA CRACKDOWN COULD HIT BROKERS’ HIP POCKETS ■ APRA is discouraging banks from paying high upfront commissions to
brokers in a crackdown on mortgage risk. In tough draft residential mortgage lending guidelines released last month, APRA emphasised the importance of “prudent” lending standards in its attempt to keep the housing market bubble in check. This included discouraging banks from offering high upfront commissions to brokers, to make sure incentives did not lead to extra risk-taking. “Experience has shown that commissions paid up front tend to encourage less rigorous attention to loan application quality,” APRA said. “Trailing commissions are more likely to provide incentives for brokers to retain and monitor customers.” The regulator recommends that commissions are clawed back when necessary to avoid loss to the lender. Other risk management practices that APRA is pressing on lenders include putting limits on loans relative to incomes, reporting on broker relationships and performance, stress-testing borrowers, and taking care when rapidly expanding market share. “When an ADI [authorised deposit-taking institution] is increasing its residential mortgage lending at a rate materially faster than its competitors, either across the portfolio or in particular segments or geographies, a prudent board would seek explanation as to why this is the case,” APRA said.
PEOPLE 10
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Top broker wants to keep things small A top WA broker who thinks big with his business says smaller is better when it comes to aggregators
T
he head of a Western Australian brokerage who quickly built it up from nothing to 46 staff and 25 brokers says he could not have done it if he was aligned with a big aggregator. As a newcomer to the country less than six years ago, James Pibworth was given three weeks by his UK-based wife Carla to find them jobs and a place to live. “I did it in one and spent the next two weeks in the pub getting to know everyone in Perth,” he said. Pibworth – who is now director of Iconic Home Loans – said on his first day in Perth he found small aggregator Specialist Finance Group through the Yellow Pages, and they placed him with Resolve Finance. After seven months at Resolve, learning Australian mortgage broking processes, Pibworth approached Specialist for help setting up his own brokerage. “The managing director William Lockett was really involved in helping me set up my business. Because I had no experience with aggregators, I thought that’s what all aggregators did. They helped with licences, recruitment; they even offered me space to rent without having to pay anything for the first couple of months to help me get on my feet. “They did absolutely everything they could to help. I now know that not every aggregator does this. We went from nothing to 46 staff in five years – it’s been a hell of a journey.” Pibworth strongly recommends brokers who are looking to start their own business should approach a smaller aggregator rather than a large one. “Because the aggregator’s smaller, I can meet with the managing director within one hour of asking to set up an appointment. Smaller aggregators are nimble and more flexible and that’s the key.”
BIG TICK FOR SMALLER OUTFITS
This flexibility is one of the primary value propositions of Specialist, managing director William Lockett said. He said the flexibility possible with a smaller aggregator is a draw for many brokers. “They like the fact that they can negotiate a deal directly with the owner of the aggregator,” Lockett said. Lockett said the boutique has succeeded by focusing on its strengths. “You can’t be all things to all people, so you identify a market. A lot of the other big aggregators have skillsets and advantages that we don’t have, but also vice versa. One of the things that’s been great for us is
longevity. A lot of people love the fact that we aren’t owned by masses, and also we have no ownership by any large corporation or financial institution,” he said. Such ownership can present a major obstacle to change for larger aggregators, Lockett argued. “They have a more rigorous ownership structure, or quite often some things have to go to a management meeting or a board of directors to make decisions,” he said. This independence is a major draw for brokers used to aggregators with large, corporate ownership structures, Lockett said. “The amount of enquiries we have had and still have from [large aggregator] members has been enormous.”
PEOPLE LIKE THAT THEY CAN DEAL DIRECT NOT ONLY WITH A STABLE MANAGEMENT STRUCTURE, BUT – MORE IMPORTANTLY – THEY CAN DEAL WITH THE OWNER OF THE COMPANY - W ILLIAM LOCKETT
WILLIAM LOCKETT
Lockett said another benefit of aggregating with a boutique is the opportunity for close contact with the company’s leadership. “People like that they can deal direct not only with a stable management structure, but – more importantly – they can deal with the owner of the company,” Lockett said. “I return my calls, I return my emails and we’ll negotiate agreements. Fundamentally, most decisions I make can be directly related to one telephone call or one email. A lot of people like that.”
GROWING BUT NOT OUTGROWING
And Lockett’s availability for the company’s brokers has proven a major draw for Pibwirth, he said. Even though Iconic’s volumes and commissions are getting bigger each month, Pibworth believes he would still “have to wait a month” to see the managing director of a big aggregator. After the initial Specialist contract ran out, Iconic looked around at other aggregators as part of business due diligence. “But we found we couldn’t get the things we have at Specialist. The big aggregators offer big marketing, but it’s all chargeable. We pay a lot less but our software is done for us, the marketing is done,” Pibworth said. He argued that smaller aggregators have the ability to have a much closer relationship
JAMES PIBWORTH
with their brokers. “When it comes down to it, the aggregator is there to pay out commissions, but smaller aggregators are your business partner,” he said. A one-man broking band thinks a big aggregator is necessary to get trail, but people need to consider what a smaller aggregator can offer them in the way of a tailored experience, Pibworth said. “When I was starting out, everyone recommended I should go to a big aggregator, but I’m glad I didn’t.”
ANALYSIS 12
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A rising tide… Competition in the future may come from unlikely sources, but industry leaders agree brokers still stand to benefit
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ortgage brokers are seeing a groundswell of support for their channel. There seems to have been a decided shift in the last year as broker share has ballooned to 50% and lenders have begun taking a more proactive approach to courting the third party. Part of it is arguably the more buoyant home loan sector, along with a natural preference for the choice and ease offered by the broker proposition. But this buoyant home loan sector could draw the attention of some unlikely competitors. Supermarket giant Coles recently indicated in its submission to the Financial Systems Inquiry that it would like to expand its financial services offerings to include home loans. At the recent National Mortgage Brokers annual conference in Port Douglas, NMB managing director Gerald Foley, Aussie Home Loans executive director James Symond and St.George mortgage broking general manager Clive Kirkpatrick discussed the possibility of new, non-traditional competitors entering the mortgage market.
A BIG FOOTPRINT
AN ATTRACTIVE PROPOSITION
Players like Coles and Woolworths are inevitably going to be drawn to the home loan industry, Symond said. With the housing industry growing, more players will be turning their eye to how they can get involved. “Mortgage broking is growing. It’s growing because of the model, because of the service and because of choice. It’s also growing because there’s margin still to be made by the lender and by the broker. That means more lenders want to come into the industry. That also means more distributors like Coles and Woolworths and others will want to come into the industry,” he said. Brokers should expect the mortgage market to see forays from businesses not normally associated with financial services, Symond argued. “I’ve got no doubt that the competition of the future is not necessarily the competition you’ll see today,” he said. “Wherever there is a large distribution channel that’s dealing with Mum and Dad customers across the country, those industries are looking at industries like the home loan sector.” This is because the home loan market is an attractive one for businesses who already have brand loyalty and a built-in database. “They’re seeing margins that arguably are fat in comparison to the likes of the grocery sector and others, and they’re saying, ‘We want to play. We want to compete,’” Symond said.
WILL IT SUCCEED?
A foray into financial services seems an odd fit for a supermarket. Kirkpatrick said the strength of the retailer lies in the data at its disposal. “The power of Coles is that something like 19 million transactions go through Coles every week.
2,300
RETAIL OUTLETS
20 million
CUSTOMER TRANSACTIONS
Coles operates more than 2,300 retail outlets across Coles and BiLo supermarkets, First Choice Liquor, Liquorland, Vintage Cellars and Coles Express. It processes almost 20 million customer transactions a week.
They’ve already got their Coles MasterCard, and that’s held in something like 8 million households in Australia. They’ve got the database, so if they’re going to utilise it whether they’re using it for insurance or mortgages, it’s going to be a great referral network to have,” he said. Foley said Coles faces a difficult battle. With major banks well entrenched, the supermarket will be fighting for a small piece of the mortgage pie, he said. “The interesting piece for Coles is that you can take a look at the majors and say they’ve got about 75% of the market with their primary brands and about 90% with their sub-brands. For Coles coming in and trying to fight for 10% of the market, it’s going to take a lot of work. Will it succeed? Well, if anyone can make a brand cross into another market they can do it,” he said. Kirkpatrick agreed that Coles faced a difficult task in finding traction in the mortgage market. He said the task was made more difficult by the changing demands of consumers. Borrowers, Kirkpatrick said, are increasingly seeking advice and guidance on their home loan choices rather than just ease of transaction and price. “I think it’s more around advice and trying to fit products in with that advice. That’s why I’m not so sure how Coles will drive that,” Kirkpatrick said. “They’ve got a massive database, and they do that particularly well, but I honestly believe that consumers are looking for advice and I’m not sure someone like Coles is going to be able to capitalise on that.” But Symond warned that the situation still warranted attention. While retailers may face a difficult transition to home loans, Symond said it was not a fight they were likely to give up easily. “Whether people like Coles and Woolworths and others that come into the industry survive and thrive, who knows? But the interesting part is that they’ll spend zillions of dollars and have a bit of carnage in the meantime just to give it a try, so I think ignore them at your own peril, even though ultimately it is a different space for them,” he said.
BROKERS COULD BENEFIT Source: Coles
Ultimately, even the entrance of a new contender for home loan customers’ attention could end up having
ANALYSIS 13
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positive flow-on effects for brokers. Foley pointed to the growing power wielded by the channel. “The 50% number, 15 or 20 years ago people thought, ‘You’re kidding yourself. It’s never going to get there.’ Well it is there now, and not only is it 50% of the market, but it’s the single biggest channel with every major bank. It may not be at 50% with all the banks, but it’s bigger than any other channel that they run,” he said. This power is unlikely to abate any time soon, he said. Foley said lenders have now shown they are committed to succeeding in the broker channel. “They’re not going to back out. They’ve taken equity in the channel now, so it’s got the support and the funding and the infrastructure behind it,” he said.
THEY’RE SEEING MARGINS THAT ARGUABLY ARE FAT IN COMPARISON TO THE LIKES OF THE GROCERY SECTOR AND OTHERS, AND THEY’RE SAYING, ‘WE WANT TO PLAY’ - J AMES SYMOND Kirkpatrick agreed that brokers were likely to see their channel becoming more and more important. “I think honestly brokers are going to become far more important going forward because there’s far more expertise in terms of credit skills and knowledge than there is in proprietary channels
these days, and I think that will continue,” he said. This market power means any new entrant to home lending could have a positive impact for brokers, Foley said. “That process while they’re trying to build a brand and change people’s thinking to come to Coles for their mortgage, it will create a lot of discussion and a lot of money spent on promoting mortgages and mortgage broking. We will all benefit from that,” he said. And these benefits could flow through to brokers regardless of the success or failure of Coles in the home lending sector. “There may be people who would never go to Coles to get a loan because they just have a mental block on that, but they will start listening a little more,” Foley said. For Kirkpatrick, the issue also comes down to a wider range of choice for customers. “The customer gets greater choice, therefore any broker can sit a deal with anyone across the whole gamut of products and services. There are people who love to have branch support, so there’s opportunity there. There are people who love to go on price, so there’s that opportunity there,” Kirkpatrick said. While Coles has expressed interest in the sector, it is still uncertain whether they will follow through on the venture. But should Australia see a future in which supermarkets begin to dabble in home lending, Foley said brokers should take heart. The end result for the industry will be increased awareness, he said, and that’s always a positive. “I see massive upsides. Where it lands in their model, I don’t know, but I don’t see a downside.”
JAMES SYMOND
CLIVE KIRKPATRICK
GERALD FOLEY
SPECIAL REPORT 14
AHEAD + MARKET TALK APRA’S KEEN EYE
RP Data’s Cameron Kusher dissects APRA’s latest reports P22
+ FINANCIAL SERVICES
AUSSIE ADVISERS STREETS AHEAD
Australian planners are besting their global counterparts P24
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Diversification:
FUTUREPROOFING YOUR INCOME
+ SPOTLIGHT INVEST IN YOURSELF
ANZ’s Keiran Evans says brokers should invest in development P26
+ FORUM ANGER UNABATED OVER ACCREDITATION Brokers come to the defence of one of their own P27
+ INSIDER FINANCE PRO’S GRUESOME GIG
A former finance professional’s macabre new career P30
Lenders and aggregators have been extremely vocal on the subject of diversification and its ability to safeguard brokers’ businesses and ring-fence their clients
SPECIAL REPORT 15
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[COMMERCIAL SMSF] AN OPPORTUNITY IMMEDIATELY TO DIVERSIFY INCOME AND GROWTH WITHIN YOUR EXISTING DISTRIBUTION NETWORK - P AUL WELLS, LA TROBE LISA CLAES
PAUL WELLS
B
rokers may have grown tired of hearing about diversification by now. It’s a common refrain from lenders, aggregators, business coaches and industry pundits. But amidst all the noise is a fundamentally sound philosophy: diversifying your revenue base dilutes your risk and protects your income from future shocks to the industry. In addition to protecting brokers, industry leaders say consumer trends are shifting toward diversification. Consumers are increasingly demanding a more holistic financial services solution, and will be drawn toward those who offer it. ING Direct executive director of distribution Lisa Claes said borrowers forming a relationship with a broker expect that relationship to encompass a broad array of financial service. “Consumers have a more holistic appetite. They expect if they tell a broker at the beginning of their financial lifecycle a lot of information about their needs and their finances and a relationship is formed that the broker will use that in a responsible and intelligent way to further that relationship. As ING Direct speaks a lot about, use that opportunity to provide a more diversified offering,” she said. Claes recently told a Deloitte roundtable that brokers are particularly well-positioned to capitalise on this emerging consumer mentality. As one of the first touch points in a consumer’s lifetime financial journey, brokers have the
FAST FACT
22% Proportion of FAST brokers who say they already provide loan advice to small businesses Source: FAST
chance to be in on the ground floor of building a trusted relationship, she suggested. “Brokers are there the first time a customer seriously starts thinking about finances, when they buy a home, which usually happens before they insure, invest or retire. It’s a great opportunity to put in the groundwork for further and fuller financial advice throughout the customer’s entire financial life cycle,” Claes said. Chess Wealth Partners director Matt Mercer agreed, and said clients often take it for granted that a broker will be able to provide for the broad range of their financial needs. “Most clients don’t understand our industry, so they don’t know why there are certain limitations on things. They create a relationship with a trusted person,” he said. And the evolution of client expectations isn’t the only driver behind diversification. NAB Broker general manager Steve Kane told the Deloitte roundtable that the evolving role of brokers lends itself to serving a more holistic range of financial needs. “We’ve moved enormously with NCCP over the last little while… We have moved away from the order takers in the market that simply filled in an application, and sent it to the bank that they thought would give them the highest commission, or the easiest approval,” he said. This move away from being “order takers”, Kane said, means brokers are uniquely positioned to gain a clear picture of a client’s full financial situation.
“Now brokers are conducting proper investigations with the customer, identifying their needs – and it should naturally follow that they will seek to meet all those needs.” Kane said the bank has already seen evidence in internal surveys of brokers taking hold of this opportunity. “What we have seen is that there’s an increased usage of brokers outside the services of mortgage lending,” he said. FAST CEO Brendan Wright said the aggregator is working to enable its brokers to better offer these services. “For the next six to 12 months it will be more of the diversification story at FAST, supporting brokers across commercial, resi and asset finance, but also financial planning and insurance as well,” he said. Wright pointed to an initiative launched by the aggregator which he said helps brokers broaden both the services they can offer to clients and their revenue base. “[We’ve got] a program called Partner Planner where we partner up brokers with financial planners and also in the insurance space. We’ve got some good alliances there as well. “We’re helping brokers diversify their income stream, but more importantly meeting the needs of their clients,” Wright said.
IDENTIFYING OPPORTUNITIES
While it’s easy to tell brokers that they should diversify, the directive begs the question of what areas brokers should look to. For Wright, the area of biggest
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A large database of over 20,000 connected clients Dedicated marketing team to create warm leads so you can then WOW them with your expertise and great customer service Back office support area to manage the loan process from lodgement through to settlement Exclusive staff benefits including discounted travel, free gyms and overseas conferences
We need professional brokers with a minimum requirement of 18 months experience together with a Certificate IV in Mortgage Broking. If you are looking for a dynamic role with a global company – apply today! To learn more and to apply, visit http://applynow.net.au/job56496
SPECIAL REPORT 16
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STEVE KANE
opportunity is apparent. “The big growth area will be and is commercial. This is not only commercial property finance per se; it’s funding businesses and helping businesses grow. [There are] 2.8 million small businesses in this country and they’re looking for help, guidance and advice from finance professionals. That’s the opportunity that we see evolving over the next few years. The same trend that’s happened around almost 50% of new mortgages being written by the third party, there’s a groundswell also happening in the commercial space,” he said. And business owners also open up opportunities for brokers in the more traditional residential space as well, he said. “Business owners live and invest in houses as well. It’s a great opportunity for brokers to meet the needs of not only consumers and investors, but business owners as well,” Wright said. La Trobe Financial senior vice president and chief investment officer Paul Wells agreed that massive opportunities exist in commercial lending. Wells said commercial lending in self-managed super funds in particular was an area for growth. “It’s a topic we’ve been talking about quite a bit lately because we see it as more than a product solution. We see it as quite a strategic solution for brokers going forward. If you can do a self-managed super residential deal, then you can do a self-managed deal in commercial as well. It’s not that much more complicated at all. That makes it a good segue for brokers into commercial as a first step, which is a great opportunity for diversification,” Wells said. And like more traditional commercial property deals, Wells said many brokers already have a client base for which a commercial SMSF solution could be valuable. “It’s actually a product that you can market to your existing client base. It’s an opportunity immediately to diversify income and growth within your existing distribution network. That’s also an important opportunity to service those clients so other people can’t. After a birth period of maybe four or five years, we think that self-managed super is now a maturing
BRENDAN WRIGHT
product with a reliable solution and it’s going to grow. It’s here to stay, so it’s really an important strategic growth for brokers into this space,” Wells said.
HOW TO GO ABOUT IT
Much of the talk around diversification has centred on the need to look to other revenue streams, but there has been little discussion about how brokers can practically implement diversification in their own business. Wright said FAST tries to tailor solutions to the individual broker, and help its members strategise how best to get involved in opportunities beyond residential lending. “It’s all of that. It really depends on the strategy of the individual broker. At FAST we spend the time talking with the broker to understand their particular strategy and what they’re doing to meet the needs of their clients,” he said. He said this could range from offering a diversified product base to a more hands-on approach in helping brokers broaden their offering to clients. “If you look at asset finance, for example, we’re known for being a strong aggregator in asset finance but we also have a quality referral model for those brokers who just want to have a simple way of referring their client, have their client be protected and have that need met without being accredited in asset finance. It’s about taking the time to understand that broker’s particular strategy, and then providing the help, guidance and advice to pass it on to their clients,” he said. Mercer said Chess Wealth takes a novel approach of offering brokers a full financial planning solution without the grunt work. “What we’ve developed is a structured franchise system that sits alongside their brand, and it allows them to have the full benefit of owning a full financial planning and property advisory business where the grunt work, the strategic advice, the strategy support, the licensing and all that is handled by us,” he said. Mercer said the “co-branded proposition” allows brokers to offer holistic financial services by removing some of the hurdles that have kept
MATT MERCER
them from exploring opportunities. “The biggest reasons they haven’t [diversified] – or haven’t well enough – are product knowledge, systems and understanding of the industry. So they generally have a referral model or an alliance model, and that’s really building someone else’s business,” he said. Mercer argued that a referral model often took power out of the broker’s hands. “They lose control of the client ultimately because it becomes someone else’s client; a financial planner’s client. They’re not building a valuable asset, a saleable asset or a trail. They’re building someone else’s business and brand,” Mercer said.
THE BIG GROWTH AREA WILL BE AND IS COMMERCIAL. THIS IS NOT ONLY COMMERCIAL PROPERTY FINANCE PER SE; IT’S FUNDING BUSINESSES AND HELPING BUSINESSES GROW - B RENDAN WRIGHT However brokers choose to go about diversifying their offering, Wright said consumers are increasingly expecting a high level of service from finance professionals. “Consumers are looking to go to a professional who can provide help, guidance and advice around whatever they might be doing, buying a house, investment property, etc. Also, more and more business owners are coming to brokers to look to get their needs met. That might be growing their business, and then what comes out of that is the opportunity to meet the personal needs of those business owners as well,” he said. And Mercer argued that brokers needed to offer additional value in order to protect their client base. “The mortgage broking industry traditionally has been a transactional industry, so the client is susceptible to the best rate, television advertising, their accountant starts doing mortgages or they meet a financial planner who does mortgages. It’s not hard to lose clients as a broker because unless you have a reason to go back to them with an additional service, you really are transactionally based.”
NEWS 18
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IT’S SUCH A DYNAMIC INDUSTRY THAT ANYONE WHO SAYS THEY KNOW WHAT WILL HAPPEN IN THE FUTURE IS NOT BEING REALISTIC
Phil Naylor: N LEAVING A LEGACY As the MFAA CEO prepares for the end of his tenure at the organisation’s helm, he looks back at where mortgage broking has come from and ahead to where it’s going
aylor said he has seen mortgage broking come leaps and bounds from where it was when he started in the role. “I just look back to when I started in the MFAA – or the MIAA as it was called in those days – and we had 2,000 members. Broker market share was around 20%. There was very little regulation, and patchy state regulation at most. There was lots of media criticism of brokers, or ‘cowboys’ as the media called them. What we’ve achieved since then is our
NEWS 19
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membership has gone from 2,000 to more than 10,000, broker market share has gone from 20% to 50% and rising, and now we’ve got national legislation which we had significant influence on the content of. You very rarely see a bad broker story any more except for clear cut cases of fraud, but even those are very few compared to the number of brokers out there in the marketplace,” he said. With this in mind, Naylor said he felt the industry was on firm footing, and that the time was right for him to move on. “I just thought, we’ve achieved a lot as an organisation in that period, and sure things are coming up in the future but I just thought that at a time when things were humming along it was a good time to move on somewhere,” Naylor said.
FAST FACT
10,336 Current membership of the MFAA Source: MFAA
LOOKING BACK
With the association seeing its membership swell, and with brokers continuing to gain traction and market power, Naylor’s tenure has seen the mortgage broking industry mature significantly. As for his role in that maturity, Naylor said he is most proud of the inroads he made in lobbying for the cause of the association’s membership. “I think the most gratifying part that I can honestly say I played some role in – because some of those things that have happened did so because the industry was changing – but the part I can say I played a role in was developing a strong relationship with Canberra and with some of the state governments when we had state regulation. Working closely with bureaucrats and politicians in Canberra to make sure we got fair legislation for the consumer, but also legislation that was reasonably friendly to brokers as well,” he said. The NCCP is now firmly rooted in place, and Naylor said it was gratifying to see that the association had a say in ensuring brokers’ interests were protected. “You’re never going to get everything you want, but the fact that we’ve built up those relationships means that our voice was heard and respected in those discussions, and I think that will continue to be the case with my successor,” he said.
As for the most challenging aspect of his job, Naylor said it was communicating to brokers what the MFAA could achieve. “I think there are lots of expectations as to what associations and what the MFAA can do, and I think some of those are probably unrealistic. We have limited resources in the scheme of things, and so we have to focus on what is doable and achievable. But getting that message out to members is not easy,” he said. Naylor said the MFAA would continue to communicate its objectives to its membership, and make sure its members understood the association’s primary objectives. “We’ve been saying for the past few years that our key objectives are to maintain and increase the professional standards of the industry, and I certainly think we’ve done that. Then there’s our lobbying role, which I think most people are aware of. The third objective – which is the hardest one to achieve and which is ongoing – is to increase consumer awareness. I certainly believe we’ve increased the profile of the broker channel over the years, and that will continue to be a key part of what the MFAA is doing,” he said.
LOOKING AHEAD
In announcing his departure at the recent MFAA National Convention of the Gold Coast, Naylor indicated he would continue to watch with interest as the industry evolved. This constant evolution, Naylor told Australian Broker, made it difficult to prognosticate on the industry’s future. “It’s such a dynamic industry that anyone who says they know what will happen in the future is not being realistic,” Naylor said. It’s this dynamism that Naylor said he would miss when he leaves the role on 24 December. “I think the industry’s key characteristic is that it is constantly changing. I don’t think I’ve ever seen an industry change as much in 10 years as this one has. That’s a positive, because it means it’s constantly renewing itself,” he said. While Naylor said he could not presume to predict too far ahead, he said he was optimistic about the
industry’s future. “The next five years I think all the signs are there that broker market share will continue to increase. Where it goes is anyone’s guess, but we do know that in the UK it’s swelled back to over 60%, and I don’t see any reason why that wouldn’t occur here,” he said. Amid these opportunities, Naylor said the industry still faced challenges. “I think that brokers will be more and more challenged by online activity, but I think the broker channel has established itself as the source for key advice to borrowers, and that it will always be supreme in that area,” he said. Still, Naylor said brokers had to take on the challenge of operating in the digital realm, which he said many in the industry were already doing well. Another challenge Naylor said he sees is one about which the MFAA has continued to be vocal. “I think the other thing that will continue to be an issue and is something we have been banging on about for a while is a better level of competition in the lending sector. It is crucial for consumers and also for the health of the lending sector that we have broader competition and not such a concentration of a few lenders. That’s starting to change, but it’s something that needs to continue to be addressed,” he said. As for his own future, Naylor said he is not yet leaning in a specific direction. “The reason I’ve given the board plenty of time is so they can not only find the right person to replace me, but also to give me some time to think about what I’d like to do next. My background pretty much all my working life has been in associations in one capacity or another, so I would probably gravitate toward that, but I have no strong view on what or where or how,” he said. But looking at the industry he’s devoted the last 12-and-a-half years to, Naylor sees bright days. “I can’t really see any dark clouds. As long as the broker sector keeps going down the path it is on, which is becoming a trusted adviser and building relationships with borrowers, I think the future is good.”
BEST PRACTICE 20
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Looking to sell your book? Keep this in mind … A merger & acquisitions specialist has said brokers need to be realistic when selling their trail books
I
f you’re looking to exit the industry, chances are you may be looking for a buyer for your trail book. But how do you set a price on your business? Mortgage brokers selling books need to be realistic when it comes to price, a sales, merger & acquisitions specialist said. Connect Financial Service Brokers CEO Paul Tynan said sellers create a “major issue” for themselves by basing the price on their emotional attachment to the business. “It’s natural for sellers to over-value their business. It’s been their life, blood, sweat and tears and now selling that lifetime of work is an emotional undertaking – but ultimately it is the current market that determines price.” While there are presently more buyers than sellers in the mortgage broking, financial planning and accounting markets, Tynan told Australian Broker the price for established businesses has remained steady and for those financial planning businesses which have moved to fee-for-service, the “price has come right down”. Despite the hard work brokers pour into their business, many of the older sellers in particular do not have clients on automated systems, use CRM, or have organised back office data, Tynan said. However, “a lot of people do like buying smaller books because it goes straight to the bottom line profit”, he said. While Tynan said many mortgage brokers sell their books through aggregators, he has had an increase in brokers looking to buy financial planning and accounting books. He said this is a growing trend – like the Yellow Brick Road model – and it makes sense for the consumer to have all financial needs of mortgage broking, financial advice, accounting and financial law under one roof. “We have a very narrow focus with all our
professional services, but it makes sense to have them all in one spot. It’s pretty easy to work together, put the ‘one-stop shop’ under one roof.” However, it is important the consumer does not suffer from accumulating services into such a one-stop shop. Mortgage brokers have been “aggressively” looking for financial planning and accounting books, but many do not have an understanding of what licences and qualifications are involved, Tynan said. Connect screens businesses and people coming to buy and sell, to make sure they know the realities of the market and that any acquisition will not be detrimental to their clients. “Buying books is a good thing but it’s important to know who’s who in the zoo, and get to grips with structure and licensing requirements,” Tynan said. He recently recommended to a mortgage broker who came to him wanting to buy financial planning books to enter a joint venture with a planning business which was looking to move into mortgages. “In this way the consumer is protected and getting the best advice. The two businesses have entered into what looks to be a successful joint enterprise, with the option to merge further down the track,” Tynan said. The practices most in demand are well run and efficiently-administered enterprises with solid, sustainable revenue streams supporting a carefully considered target market.
TYNAN OFFERS THE FOLLOWING ADVICE TO THOSE LOOKING TO SELL: 1. Be realistic when it comes to price 2. Understand that valuation methods are changing 3. Sustainability of income is important
10 TRAIL BOOK QUESTIONS YOU MUST ANSWER These questions need to be answered in order for a potential buyer to make an offer:
1 2 3
How many clients do you have and how many own multiple mortgaged assets?
4 5 6 7
For those property investors, when does their interest-only period finish?
How many are people who occupy their own home in comparison to property investors?
Can you easily calculate the mix between fixed and variable rate loans together with the fixed rate maturity dates?
What is the average loan or borrower life of your CRM? What is the annual maturity profile of the CRM for loan reviews?
Who are your top 10 mortgage clients and what business risk do these pose if they were to discharge?
8 9
What is your average loan size?
Is one or a handful of lending institutions dominating your lender panel? Is this a business risk?
10
What is your geographic spread? Do you have concentration risk in one particular location?
WHERE BOOKS ARE IN DEMAND Demand for mortgage trail books is highest in the country in southern Sydney, according to a merger & acquisitions specialist. Radar Results principal John Birt says south Sydney – and right down to Cronulla and Wollongong – is seeing the highest demand from those who want to buy mortgage books of any size.
“I’ve got a few people very keen to buy, and would pay two times the trail,” he said. Radar Results is holding free workshops around the country for mortgage brokers, financial planners and accountants looking to sell within the next three years. Industry experts give advice at the workshops, including how to value your business and find the
right buyer in current market conditions, vendor trade restraints, transition periods, how to form sale contracts, and what can stop a sale. “Brokers would really benefit because their business is sought after. They’ll learn what’s involved in buying and selling. There’s lots of ways to structure revenue and payment terms, and there’s information about clawbacks,” Birt said.
BUSINESS INTELLIGENCE
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21
The problem of
EXECUTION Most brokers work hard, but are you executing your goals effectively?
A
ccording to recent studies, two-thirds of corporate strategy is never executed. Companies spend a lot of time and resources on thinking ahead, deciding their long-term vision and strategy. They engage consulting firms and their top leaders to do so. They involve many people and resources to produce a lovely Word document and numerous PowerPoint slides to display their plan and strategy, only to see that two-thirds of it will never be executed. The issue is rarely the quality of the strategy and action plan decided. One of the biggest challenges for companies today is execution. They might be clear on their strategy, on where they want to head. But if you look at what people are doing on a day-to-day basis, what they spend their time on hour per hour, you realise there is often a big gap between what they are doing and the company strategies, divisional goals and KPIs they are supposed to be working towards. In working with many businesses in Australia from all
different industries, we have observed that this gap is created both by organisational ineffectiveness and personal ineffectiveness. Here are a few simple examples of organisational ineffectiveness. Ask 10 people in the same business three simple questions: What are the goals of your organisation? What are the goals of your team and how do they align with the goals of your organisation? What are your KPIs and how do they align with the goals of your organisation? Simple questions, but when we ask them we have found a few interesting things: 1. The majority of people do not know their organisation’s goals 2. The majority of people have no idea what their team or they should do for their organisation to reach its goals. Personal ineffectiveness is different but has a huge impact as well. It all starts from a simple observation: most of us have never been taught how to work. Most people are committed to
their role and want to do a good job. They are neither lazy nor unwilling. But they are not working efficiently. How each person can create a discipline of execution:
THINK QUARTERLY
The first characteristic of highly successful people is that they are very clear on the goals they want to achieve and what they need to do to achieve them. To do this, you need to decide not only what to focus on, but also on what you will not do. Once a quarter, block off an hour with your team and ask each person to answer a simple question: ‘What are the two or three things that if you did them extremely well over the next three months will have a significant long-term impact on the team/division/company’s performance?’
PLAN WEEKLY
Once a week, each person needs to review their three high-impact activities for the quarter and organise their coming week. These activities have to become a must, a priority. Book meetings with yourself in your diary to advance your three activities. Organise your calendar so that 60–80% of your time is spent on them.
ACT DAILY – FOCUS
Be disciplined on a daily basis. If you have booked a meeting with yourself to spend
two hours on one of your core high-impact activities, be 100% focused on this topic. No distraction, no interruption, no starting late, having a break or checking a few emails mid-stream. Ask yourself a simple question: why would you have less respect or be less prepared for a meeting with yourself than with a very important client?
A FEW LAST WORDS
All of the above is simple but it is rarely applied. And as a result, many companies struggle to achieve what was agreed in their strategic plan. Bain Consulting did an interesting study on strategy execution. They surveyed nearly 2,000 large companies and found that seven out of eight failed to achieve profitable growth, even though more than 90% had detailed strategic plans. This is because the strategic plan is only the tip of the iceberg. Execution is what lies beneath and what will enable businesses to perform.
ABOUT THE AUTHOR
Cyril Peupion and his team at Primary Asset Consulting’s main focus is to align people with the strategy of their organisation by changing work habits. They work closely with many businesses in Australia. Cyril is the author of ‘Work Smarter: Live Better’, which featured in the top 10 business books in Australia and top 100 Amazon worldwide. For further information on Primary Asset Consulting visit www.primaryasset.com.au.
MARKET TALK
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APRA to keep close eye on RISKIER LENDING PROPORTION OF LOANS TO OUTSTANDING AUSTRALIAN ADIs
RP Data’s Cameron Kusher says APRA data highlights the rising prominence of interest-only and high-LVR lending
Offset facilities Low documentation
(Based on number) 35%
A
Interest only
30%
PRA recently released data on Australian ADIs’ (authorised deposit-taking institutions’) exposure to property. The data showed that at the end of the March 2014 quarter the value of residential loans to households across Australia was $1.2trn, up from $1.17trn at the end of 2013.
25% 20% 15% 10% 5% 0%
RESIDENTIAL TERM LOANS TO HOUSEHOLDS
MAR-08 MAR-09 MAR-10
MAR-11
MAR-12 MAR-13
MAR-14 Source: APRA
$900,000
Owner-occupier mortgages
$800,000
Investment mortgages
$700,000 $million
$600,000 $500,000
BY THE NUMBERS
$400,000 $300,000 $200,000 $100,000 $0 MAR-08
MAR-09
MAR-10
MAR-11
MAR-12
MAR-13
MAR-14 Source: APRA
Focusing on the total value of lending, 35.4% of the outstanding loans to domestic ADIs have an offset facility and 35.4% are interest-only mortgages. The proportions of each are currently at a record high level. On the other hand, only 3.1% of mortgages are low-documentation loans, which is a historic low proportion. Just 0.1% are other non-standard loans.
3.5% Only 3.5% of all loans are low-doc loans Source: APRA
The average outstanding balance for residential loans was recorded at $235,000 at the end of March 2014, up from $233,500 at the end of 2013. Loans with an offset facility ($281,400) and interest-only mortgages ($297,200) have a much higher average balance than the average across all loans.
AVERAGE OUTSTANDING MORTGAGE AMOUNT
40% 35%
Offset facilities
Interest only
Low documentation
30%
Offset facilities Low documentation
$290,000 $270,000 $250,000 $230,000 $210,000 $190,000 $170,000 $150,000
PROPORTION OF LOANS TO OUTSTANDING AUSTRALIAN ADIs (Based on value)
All loans Interest only
$310,000
MAR-08
MAR-09
MAR-10
MAR-11
MAR-12
MAR-13 MAR-14 Source: APRA
Over the first quarter of 2014, new residential mortgages amounted to $73.815bn, down from $84.160bn over the final quarter of 2013. Of these new loans, 64.3% were to owner-occupiers and 35.7% were to investors.
25%
NEW RESIDENTIAL TERM LOANS TO HOUSEHOLDS
20% 15% 10%
$60,000
5%
MAR-11
MAR-12 MAR-13
MAR-14 Source: APRA
Looking at the number of loans, 29.6% of all loans have an offset facility and 78% have a redraw facility; 28% are interest-only mortgages and 3.5% are low-documentation loans. The proportion of loans with an offset facility and the proportion of interest-only mortgages are both at a record high, while the proportion of low-documentation loans is at a record low.
$million
MAR-08 MAR-09 MAR-10
Owner-occupier mortgages
Investment mortgages
$50,000
0%
$40,000 $30,000 $20,000 $10,000 $0 MAR-08
MAR-09
MAR-10
MAR-11
MAR-12
MAR-13
MAR-14 Source: APRA
MARKET TALK brokernews.com.au
23
As mentioned previously, the proportion of interest-only loans outstanding to banks was 35.4% (based on value). However, interest-only lending was much higher over the quarter, with 39.4% of new loans being interest-only. It is clear that low-documentation loans are becoming harder to receive. Over the March 2008 quarter, 11.5% of loans were low-documentation, and over the most recent quarter just 0.6% of new loans were low-documentation. Over the March 2014 quarter, 3.1% of loans were approved outside of serviceability, which was steady over this quarter. The proportion of loans approved outside of serviceability has been higher than it is currently, but was consistently below 3% of all loans before the June 2012 quarter.
PROPORTION OF NEW LOANS TO AUSTRALIAN ADIs (March 2014 quarter)
Interest only
45%
Low documentation
Outside of serviceability
40% 35%
15%
51% 50% 49% 48% 47%
Source: APRA
The ABS estimates that the total value of residential dwellings across Australia was $5.1trn at the end of March 2014. Pairing that with the value of outstanding mortgages reported by APRA at the same time ($1.2trn) indicates that only 23.4% of the value of Australian housing is mortgaged to Australian ADIs. This analysis highlights that, for better or worse, Australians store significant wealth within their residential properties.
5% MAR-09
MAR-10
MAR-11
MAR-12
MAR-13
MAR-14 Source: APRA
The level of higher-LVR lending also increased over the first quarter of this year, with 34.8% of new loans having an LVR of 80% or more, up from 34.2% over the previous quarter. The proportion of new loans with an LVR of more than 80% is at its highest level since the December 2011 quarter (34.9%). Although higher-LVR lending is increasing, the proportion of loans written with an LVR of 90% or more was recorded at 13.5%, down from 13.6% the previous quarter. This indicates that there is growth in the 80–90% LVR segment, which accounted for 21.3% of new mortgages over the quarter, up from 20.7% the previous quarter. The proportion of new loans with an LVR of between 60% and 80% accounted for the largest proportion of new loans, at 41.2%, and is the highest proportion since September 2011 (41.5%).
35% 30% 25% 20% 15% 10% 5% MAR-09
MAR-10
MAR-11
MAR-12
MAR-13
MAR-14 Source: APRA
By combining the latest data from APRA with recently released data from the ABS, you get some really valuable additional insights into the exposure of Australian ADIs to residential property.
23.0%
FAST FACT
13.5% The proportion of loans written at an LVR of 90% or above
22.5% 22.0% 21.5% 4 -1 AR M 13 CDE 13 PSE 13 NJU 1 -1 AR M 12 CDE 12 PSE 12 NJU 2 -1 AR 11 C-
40%
23.5%
M
60% to 80% Greater than 90%
24.0%
11 P-
45%
Less than 60% 80% to 90%
24.5%
DE
(March 2014 quarter)
% OF TOTAL VALUE OF AUSTRALIAN HOUSING STOCK OUTSTANDING TO AUSTRALIAN ADIs
SE
PROPORTION OF LOANS APPROVED BY LVR BAND
0% MAR-08
52%
– CAMERON KUSHER
10% 0% MAR-08
54% 53%
4 -1 AR M 13 CDE 13 PSE 13 NJU 1 -1 AR M 12 CDE 12 PSE 12 NJU 2 -1 AR M 11 CDE 11 P-
20%
“NO DOUBT APRA WILL HAVE A CLOSE EYE ON THIS PHENOMENON, PARTICULARLY INTEREST-ONLY LENDING, WHICH IS INHERENTLY MORE RISKY THAN WHEN BOTH THE PRINCIPAL AND INTEREST IS REPAID”
% OF HOUSING STOCK MORTGAGED TO AUSTRALIAN ADIs
SE
30% 25%
The ABS estimates that there were 9.334 million residential dwellings in Australia at the end of March 2014, and the latest APRA data highlights that there were 4,999,800 outstanding mortgages at that time. This indicates that only 53.6% of all dwellings nationally have a mortgage. However, as you can see from the following chart, the proportion of mortgaged properties is rising.
Source: APRA
Overall, the data indicate that the proportion of interestonly lending and loans with an offset facility is increasing. No doubt APRA will keep a close eye on this phenomenon, particularly interest-only lending, which is inherently more risky than when both the principal and interest are repaid. The majority of new mortgages are written on an LVR of less than 80%; however, the rising proportion being written at between 80% and 90% will no doubt be closely scrutinised. It is encouraging to see that there are fewer new mortgages being written with an LVR above 90%. Although the current value of housing compared to that mortgaged is relatively low, a sharp downturn in property values would have a significant impact on more recent purchasers. The first five years of a mortgage are inherently the riskiest. While those who own their homes and have significant equity within them could weather a downturn, recent buyers with little or no equity, and those who have leveraged their equity for other investments, would be significantly more exposed in the event of a downturn.
FINANCIAL SERVICES 24
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FoFA slammed for increasing cost of advice
T
he Financial Services Council (FSC) has told the Senate Economics Committee that under FoFA the cost of financial advice has significantly increased and the number of people who seek it has dropped. The FSC appeared in front of the committee for the recent FoFA hearings, which will form part of the final FoFA report presented to senate on 16 June and will hopefully conclude months upon months of to-ing and fro-ing, freezing and in-fighting. Andrew Bragg, FSC’s director of policy, told the committee that the current form of FoFA has strayed far from the original intentions of the parliamentary inquiry that sought reform and cultural change in the wake of collapses such as Storm Financial. The inquiry, which became known as the Ripoll report, was bipartisan, and among other things it recommended a fiduciary duty, a ban on commissions and increased ASIC power, Bragg said. “Each of those three key recommendations were designed to address collapses such as Storm, where it was obvious the law was deficient,” he said. “[But] the announcement of FoFA went well beyond Ripoll. It significantly overreached. And over the next three years, FoFA got bigger, broader and less targeted. The original objectives which were two-fold – to rebuild trust and confidence and to expand the affordability and accessibility of financial advice – were sadly forgotten as the reforms fundamentally changed.” In reality the FoFA package was ambiguous, inconsistent and extremely costly, and has meant financial advice is only becoming more expensive and less accessible, said Bragg, pointing to a survey of advisers completed by the FSC that revealed advice post-FoFA now costs an additional 33%. He said experience is also showing a fall in consumer numbers seeking holistic advice.
AMP HAS LARGEST ADVICE NETWORK
FAST FACT
$7m The profits garnered by an insider trading scheme run by a NAB employee and an ABS employee Source: AFG
AUSSIE ADVISERS STREETS AHEAD The clients of Australian advisers are the most satisfied in Asia and the second most satisfied across all major global markets, a significant survey has revealed. The Legg Mason global investment survey is the latest analysis to rebuff a recent series of surveys that have indicated that the perception of advisers is negative and continuing to fall. The asset manager’s research looked at the attitudes of 4,200 investors in 20 key markets, including 200 high net worth Australian investors.
Significantly it found that 40% of respondents said they were entirely satisfied with the services they received from their adviser – a figure higher than every other major market apart from the US, and a huge jump from the global average of 14%. Of those surveyed in Australia, 36% said they currently work with a financial adviser, with a further 28% interested in doing so in the future. Legg Mason’s global head of distribution marketing, Matt Schiffman, said the results prove that in comparison with global peers, Aussie advisers are hitting the mark. “Australian investors have enjoyed a buoyant market, and their advisers deserve credit for capturing that upside,” he said. “By using their Percentage of expertise to steer clients through Australians entirely the volatility of the post-GFC years, satisfied with the services received Australian advisers have ensured a loyal and satisfied clientele.”
40%
AMP CEO Craig Meller announced that the financial provider has cemented its position as holding the largest financial advice network in Australia and New Zealand. Meller made the comment as part of his speech post-AMP’s first quarter update, which looked at cash flows, assets under management (AUM), and wealth protection. “We also grew our financial adviser franchise in 2013, cementing our position as the largest advice network in Australia and New Zealand, with around 4,400 advisers,” Meller said. He spoke of other positive results, including completing the integration with AXA, and continuing to expand investment management businesses in Japan and China. 2013 had been the best year for net cash flows since before the GFC, with $2.2bn in the Australian wealth management business and record results for AMP Bank. The trends continued in the first quarter of this year, he said. AMP wealth management net cash flows were $363m, a 72% increase from the same quarter in 2013. The total AUM was $101.1bn, up from $100.5bn at the end of the fourth quarter in 2013.
13 YEARS IN JAIL FOR ‘APPALLING’ ADVISER Tina McPhee, the Adelaide financial adviser who “appallingly” stole from helpless victims of tragedy, has been sentenced to 13 years’ imprisonment after pleading guilty to 181 offenses. Over a period of six years the former AMP adviser stole money from six clients – two with brain injuries and four children who lost their mother and another family member in a car accident – and used it to fund a luxurious lifestyle of travel and plastic surgery. In total, forensic analysis indicates that McPhee spent more than $4.3m of the victims’ money. In handing down the sentence of 13 years imprisonment with a non-parole period of 10 years, Judge Simon Stretton said the woman had condemned her “helpless and dependent” victims to a frightening and uncertain future. “You are a callous, dishonest, morally bankrupt woman whose behaviour is an affront to the principles of trust you undertook to fulfill,” he said. “Your actions are an affront to the victims themselves and to the community at large.”
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ONE YEAR ON 26
ONE YEAR ON What a difference a year makes … or not. Australian Broker reflects on the punditry, news and trends that made headlines 12 months ago Australian Broker Online, June 2013
Consumer sentiment nosedives in wake of Budget
Budget night last year saw consumer sentiment take a major hit. A sharp deterioration in the country’s fiscal position as well as some savings measures deemed harsh by respondents saw the Westpac Melbourne Institute Index of Consumer Sentiment record a 7% drop. Westpac chief economist, Bill Evans, said the figure pushed the index back into a range where pessimists outnumbered optimists for the first time since October 2012. Evans said the significant decline was surprising, given the RBA had just shaved 25bps off the official cash rate.
What’s happened since?
Another year, another bleak Budget. Voters showed Labor the door late last year, but it was a case of buyer’s remorse in May when the Coalition Government unveiled a Budget that most deemed far too austere, and to have too disproportionate an impact on low- and middle-income Australians. A Roy Morgan survey found 88% of respondents believed the Budget would not benefit them.
Major bank offers commission incentive
Westpac last year upped its game to woo brokers by launching an incentive program that would see brokers receiving an additional 10bps of upfront commission. The bank offered a volume incentive to aggregators, slated to run from 1 June to the end of September. The program rewarded aggregator networks that saw their group’s overall volumes through Westpac increase.
brokernews.com.au
Invest in yourself to serve your clients better
I
n a competitive marketplace, Kieran Evans of ANZ has urged brokers to continue to invest in themselves in order to maintain an edge in serving their client base. Evans said ANZ was focused on internal investment to better serve the broker channel. “ANZ’s focus is to continue to grow in this channel. ANZ has just reported its 17th consecutive quarter of above-system growth in home loans, and the broker channel is absolutely integral to our success with that. Some examples of what we’re doing in order to continue in this growth phase is we’ve increased our BDM workforce by 35%, so brokers will see they’re getting a lot more attention from their BDMs on the ground. Evans said the bank was also focused on training its BDM team. He said brokers likewise had a tremendous opportunity to “learn more of the whole financial solution”. “There’s great opportunity for brokers to invest in themselves and provide better outcomes for their customers,” he said. Evans said the bank’s BDMs would be putting more focus on talking about some of the lender’s differentiated products. “Our guarantor policy is something that brokers I’m sure would be interested in because it gives them a better opportunity to serve their customers. The guarantor policy is one that I’d like to stress. The other one is our self-employed income declaration. We only require one year’s financial statements for self-employed people to get their home loan,” he said. Evans said the bank’s products and policy set it apart from other lenders, a point he said he was keen to make to the bank’s broker network via its BDM team. “It’s really distinguishing what makes ANZ different in the marketplace and what makes ANZ different for customers,” Evans said.
What’s happened since?
Commission bonuses have been all the rage over the last year as banks compete harder for brokers’ business. In January, Westpac announced it would make its 10bp incentive a permanent fixture. It also put an additional 5bp on offer for brokers who meet conversion hurdles. ME Bank also announced a commission bonus for brokers, with an offer of 10bp of bonus upfront commission on all loans until 30 June.
KIERAN EVANS
For the full interview, head to www.brokernews.com.au/tv
FORUM 27
brokernews.com.au
Anger continues over cancelled accreditation Anger has yet to abate over the story of a broker who saw his lender accreditation unexpectedly cancelled
APRA SHOULD LEAVE BROKERS BE
APRA recently warned banks on paying high up-front commissions to brokers, saying it could lead to extra risk-taking.
“You see, someone woke up out of bed this morning and has worked out we ‘get paid too much’! But why is the UK and US model all up-fronts? Why is the real estate model all up-front? What about what agents tell their buyers and how the investment property is not a ‘financial product’, hence out of the advice sphere? Where is the MFAA and FBAA, or are they too busy counting their memberships? As someone once said, the mortgage game will be great where we go back to no brokers and the Big Four doing all the loans and also a 4% spread on the cost of money. Have a nice day!” What do you think? Leave your comments at brokernews. com.au
Old Broker on 27/05/2014 at 9:13AM
LET FHBS TAP INTO SUPER
A lender has proposed allowing potential first home buyers dip into their superannuation for a deposit.
they have to pay it back to the super fund over 15-20 years we are now banking on them having growth in the property value and not paying minimum payments? Speculative outcome, really.”
Peter on 22/05/2014 at 9:44AM “I can’t imagine too many first home buyers with 25k in their super. Mostly the clients I have dealt with are young, meaning they have not been in the workforce long enough to build a deposit type of balance. Also, if
Benno on 22/05/2014 at 11:42AM “Sometimes old fashioned principles result in old fashioned behaviour. If first home buyers can’t save for a deposit now, how are they going to afford a home loan repayment?”
B
rokers continue to show their outrage over the case of a broker whose accreditation was cancelled without a reason given by the lender. The Independent Finance Brokers Forum recently held a meeting to let brokers put questions to MFAA chief executive Phil Naylor, FBAA chief executive Peter White, Connective principal Mark Haron, Choice regional manager Jeanette Rowland and Outsource Financial chief executive Tanya Sale. Brokers agreed the meeting was the right step to take. QEDRisk commended the industry bodies and aggregator heads who agreed to attend for tackling the problem. “You can see by the attendee list who in the industry really cares about this issue!” However, Skeptikal – who congratulated the IFBF for taking action – asked why the industry associations did not take this cause up before, when they get membership fees for advocacy. Not so old broker questioned why the broker at the heart of the issue had his accreditation cancelled in the first place – “something to do with a court case or AML matter, where the lender/aggregator is stopped by law from talking to anyone about it?” Many sides agreed, saying Not so old broker’s comment showed insight. “Dealing with potential ‘at risk’ files is a difficult situation. With a file that is ‘with lumps’ it can be difficult to decipher if it is customer, loan writer or a collusion of both or perhaps a foolishly relied upon third party
APRA UNDER FIRE
APRA has been called to front a parliamentary inquiry on the suspicion it is acting too aggressively. Colin Rice on 29/05/2014 at 10:59AM “I think they need to talk with some industry leaders and aggregators to get an inside perspective on what we are actually about instead of jumping to erroneous conclusions about our industry.”
that is not smelling of roses. Lenders need to ensure accuracy wherever possible so that they protect all at-risk parties.” Patrick said the issue revealed systemic problems with wholesale aggregation. “Yet another problem with the whole aggregation model (ie bank’s mates interposed to steal income). When you join an aggregator you are not given any details of the ‘head introducer agreement’ between that aggregator and any lender. Your ‘sub-introducer agreement’ will state that you are subject to the terms of all and any ‘head introducer agreements’, but just try and get a copy!!! “The reason the lender does not have to talk to the broker is that they have no contract with the broker, the cancellation is pursuant to the ‘head agreement’ with the aggregator. The only recourse the broker has is to commence civil proceedings against the aggregator as an accessory to a breach of the Trade Practices Act by the lender for unconscionable conduct. “This would not surprise me as most large companies including banks have no trade practices compliance program whatsoever and are constantly breach of their obligations in the high handed manner in which they deal with small business, eg brokers. “The Trade Practices Act has now been amended to extend the protection for consumers to small business. However, just try and lodge a complaint with ACCC, ‘too busy, underfunded, have you considered civil action’ is what you will be told. Just like ASIC they are asleep at the wheel.”
Tony on 29/05/2014 at 9:05AM “That’s one inquiry I would dearly like to attend. Would be interesting to see the APRA top dogs justify their policies and to ascertain on what basis, reasoning and argument, those policies were made.”
CAUGHT ON CAMERA 28
IN FOCUS
T
he MFAA National Convention on the Gold Coast drew brokers, lenders and aggregators to Broadbeach for three days of networking, motivation and business strategy. Brokers also got the chance to socialise at the welcome reception, Mad Hatter-themed Gala Dinner and the comedy luncheon finale. Photography by Simon Kerslake and Event Photos.
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brokernews.com.au
CAUGHT ON CAMERA 29
INSIDER 30
brokernews.com.au
WHEN CHUCKING A SICKIE GOES TOO FAR
Finance pro’s gruesome gig A former finance professional has taken on a new career … as a dead body
A
former computer programmer at a top insurer and financial advice company has turned his hobby of creating gruesome murder scenes and photographing them into a
real job. Chuck Lamb often spends hours re-creating a variety of different death scenarios with his wife, who then photographs him playing dead for his website. Gruesome scenes have included being crushed by a garage door, electrocuted by a toaster, and run over by a jeep. Since its launch in 2005, Lamb’s website Dead Body Guy has received over 50 million hits, Express reported. But now he’s been offered a big break – the dream he’s always been dead keen to fulfil. Lamb has just starred in Netflix’ cult horror hit Thankskilling, which follows the story of a demonic turkey that kills students, and has been a hit on the online streaming site. He’s also enjoyed 25 roles on television and film, including starring in 2007 thriller Vacancy alongside British actress Kate Beckinsale.
Lamb’s strange hobby started out as a joke with his wife. Living in the mid-west of the United States also meant there weren’t many exciting opportunities around, he said. “I just thought – wouldn’t it be cool to be on TV? How could we do that being nobodies? I had a dream that I was the dead body on Law & Order. I woke up and realised: you don’t need any talent to play dead!” Lamb said. “So [wife] Tonya made up fake blood and started photographing the poses. She’s the brains behind it; I’m just the big hunk of meat that lies around ‘getting slaughtered’.” These dreams are now becoming reality as offers are flooding in for Lamb to play soon-to-be-murdered characters. He said his uncanny corpse-like appearance has made him the perfect candidate to play a dead body on the big screen. “No-one’s ever going to call me and ask me to be the leading man heart-throb so I thought I’d put what God gave me to Photos from www.deadbodyguy.com good use.”
When Dwayne Yeager’s wife laid down the law that he had to go to work, instead of listening to her he chose to break the law instead. The Florida man was so desperate to avoid work he staged a break-in at his home, and then called police – all so he could have an excuse to stay home. Yeager had called the police at 7.25am Monday morning to that report a burglar had broken into his house and that the bedroom windows were open and he saw a white Honda Civic pull away as he arrived. His cunning plan, however, came unstuck when police arrived to investigate. While the police noted the house appeared to be ransacked they did not discover any signs of forced entry. “Deputies spoke to neighbours and learned that Yeager was seen leaving the house at 6:30am, then returning home at 7:15am. Deputies said Yeager was then seen walking in the front door, lifting the blinds and opening the front bedroom window,” according to BayNews9. When confronted Yeager confessed all. According to the report, Yeager told officers his wife was “adamant that he go to work and he didn’t want to”. Yeager, who told the police he didn’t think he could go to jail for making a false report, was then arrested for providing false information to law enforcement.
DIRECTORY AGGREGATOR / WHOLESALE BROKER FAST 02 9233 8222 www.fastgroup.com.au Page 5
PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 17
BANK
ANZ 13 13 14 www.anz.com.au Page 9
FINANCE
Semper Capital Pty Ltd 1 800 SEMPER (1 800 736737) enquiries@semper.com.au www.semper.com.au Page 21
LENDER
La Trobe Financial Services 1800 707 707 latrobefinancial.com.au Page 11
Macquarie 13 62 27 macquarie.com.au/mortgages Page 32
Interim Finance 02 9982 2222 www.interimfinance.com.au Page 2 Mango Credit 02 9555 7073 www.mangocredit.com.au Page 1
ME Bank (03) 9708 3994 mebank.com.au Page 8
Quantum Credit 1300 135 212 www.quantumcredit.com.au Page 8
MKM Capital 1300 762 151 www.mkmcapital.com.au Page 8
OTHER SERVICES
Liberty Financial 13 11 33 www.liberty.com.au Page 3
Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 13
SHORT-TERM LENDER
Boleyn Capital 1300 765 534 www.boleyncapital.com.au Page 6
To advertise in Australian Broker, call Simon Kerslake on 02 8437 4786
Moneywise Global 1300 360 517 enquiries@moneywiseglobal.com Page 15 Trailerhomes 0417 392 132 Page 26
Friday 17th October 2014 Sydney Town Hall
“With so many awards now being conducted throughout the industry, the AMA’s still shine as the pinnacle event. Winning Best New Brokerage has been a massive profile boost for us locally and has opened more opportunities up for us going forward with new referral partners. Our existing clients and partners are even more proud to be associated with us too. It has truly been an honour to be recognised amongst such strong businesses in our industry.” -Brad Quilty, Tungsten Home Loans
New Brokerage of the Year
Nominations now open
www.australianmortgageawards.com.au
13th Annual Australian Mortgage Awards