Australian Broker 11.23 by Key Media

NOVEMBER 2014 ISSUE 11.23

$4.95 POST APPROVED PP255003/06906

+INSIDE + NEWS ROUNDUP A look at what’s been making headlines P6

+ BIG IDEA LOOKING OUTSIDE THE BOX FOR GROWTH

How the invoice market could present new opportunities P12

+ SPECIAL REPORT

AUSTRALIAN MORTGAGE AWARDS RECAP

A run-down of the brokers and brokerages who won big P14

+ BEST PRACTICE TOP TIPS FOR SHORT TERM

Succeeding in the short-term lending market P21

+ MARKET TALK

Raymond Xue:

DEFLATING HOUSING MARKET HEAT Why house price rhetoric must take inflation into account P24

AUSTRALIAN BROKER OF THE YEAR Australia’s top broker discusses his keys to success and why he’s looking forward to easing back

aymond Xue has had a phenomenal year. The senior manager of Sydney-based ACA Mortgage Solutions won the Australian Mortgage Award for Independent Broker of the Year, topped the MPA Top 100 and was named Australian Broker of the Year. He explained that the road to the top has come with a lot of hard work. FULL STORY PAGE 20

+ PEOPLE BROKER WINS BIG ON TV A broker takes out the top prize in a reality competition P30

NEWS 4

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NUMBER CRUNCHING GOOD TIME FOR INVESTORS

NON-MAJORS GAINING GROUND

TOTAL RETURNS FROM CAPITAL CITY HOMES 12 MONTHS TO OCTOBER 2014 DID YOU KNOW?

BRISBANE:

DARWIN:

10.6%

11.5% 66%

NON-MAJOR HOME LOAN MARKET SHARE FOR OCTOBER

PERTH:

FAST FACT

7.9%

SYDNEY:

71.7%

NON-MAJORS

17.6% In the September quarter, 66% of Australian consumers said now was a good time to buy property, down from 71% in the June quarter

MAJORS AND SUBSIDIARIES

28.3%

2.2% ADELAIDE:

CANBERRA:

8.9%

5.3%

AUSTRALIA:

13.3%

Source: RP Data

MELBOURNE:

12.7%

HOBART:

10.1%

Proportion of home loans to NSW first home buyers in October, the lowest on record Source: AFG

Source: RP Data

Source: AFG

WHAT THEY SAID...

SIOBHAN HAYDEN

PETER KELL

ANGUS SEDGWICK

CAMERON KUSHER

“Confidence of the third party channel by ADIs is demonstrated by the fact that 50% of new loans to lenders are now attributable to mortgage brokers” P6

“Credit licensees must, at a minimum, inquire about the consumer’s current income and living expenses to comply with the responsible lending obligations” P10

“The use of factoring or invoice funding has grown exponentially and I see it continually growing” P12

“It will be interesting to see over the coming 12 months if buyers are eventually priced out of Sydney and Melbourne and whether these buyers look to other cities” P25

NEWS 6

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Bank sees 426% increase in broker numbers ■ ME Bank CEO Jamie McPhee has announced the lender

Siobhan Hayden

MFAA COMES OUT SWINGING AT APRA

achieved a home loan settlement record in June 2014 with $409m in settlements, the first time the bank has exceeded $400m in home loan settlements in a single month. Broker sales for the year were up 143% on last year, accounting for $1.2bn mortgage sales. This was the first time the broker channel passed $1bn in settlements. This growth has been achieved following the establishment of the broker offering in November 2011. The bank now has partnerships with 18 aggregator groups and nearly 5,000 accredited brokers. Broker numbers have climbed 66% from last year and a whopping 426% from two years ago, when they had only 916 accredited broker partners. In the bank’s annual review, growing its relationship with the broker channel was identified as one of the bank’s top strategic priorities. McPhee is confident that growth through this channel will continue strongly as new technology will enable improved service to be delivered.

Banks not as profitable as you think … according to them

■ The MFAA has hit back at APRA,

saying the regulator is “completely incorrect” in its assertions about the third party channel made in its final prudential practice guide on residential mortgage lending (APG 223). “Its assertion that ‘commissions paid upfront (to brokers) tend to encourage less rigorous attention to loan application quality’ is completely incorrect,” said MFAA chief executive Siobhan Hayden. The comments came in response to APRA cautioning lenders to be more “prudent” when it came to dealing through the third party channel. Hayden has defended brokers by saying that the rigour applied to mortgage lending by brokers since the NCCP normally exceeds what is currently delivered directly by the banks. “The ‘prudent’ and ‘reasonable’ suggestions offered to ADIs in APG 223 are most often ‘required’ and ‘fundamental’ within a mortgage broker’s business,” she said. “Confidence of the third party channel by ADIs is demonstrated by the fact that 50% of new loans to lenders are now attributable to mortgage brokers. “I am disappointed to read such comments from APRA’s chairman and it demonstrates that Mr Byres has little or no knowledge of the third party market.”

■ The Australian banking industry isn’t as

DID YOU KNOW?

6.2% The unemployment rate has held steady at 6.2% in October as 24,000 jobs were added Source: ABS

profitable as you may think, according to the Australian Bankers’ Association, even after a strong year of results for our major banks. Over the past financial year, the Commonwealth Bank set a record cash profit for any Australian bank – increasing its net cash profit by 12% to $8.7bn. This was followed by Westpac, which recorded an 8% rise in its net cash profit to $7.6bn and ANZ, which recorded a 10% rise in its net cash profit to $7.1bn. NAB was the only major bank to record a decrease in net cash profit, decreasing by 9.8% to $5.2bn – although this was due to extraordinary circumstances. However, Steven Münchenberg, chief executive of the ABA, said Australian banks are “certainly not” the most profitable in the world; they aren’t even among the most profitable companies in the country. “To understand where Australian banks sit, we need to compare our banks with a similar country. The closest comparison we have is Canada because of our many similarities. Canada, with a population about 50% bigger than Australia’s, has six big banks, and is on par with Australia, with an average ROE of nearly 16%. In China, for instance, the major banks have ROEs of over 20%,” he said.

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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.

Your client’s home loan is not just another mortgage. It’s your hard work, your time and your reputation.

This is why we take you, your business and your expectations personally. It’s also why we’ve been recognised nationally for our service, our turn-around times and our smart home loan products. So if you’d like to experience a more personal approach, let’s talk! Speak to your BDM or call us on 1300 791 679 brokers.adelaidebank.com.au

Adelaide Bank a Division of Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL/Australian Credit Licence 237879a

NEWS

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Aggregator lauded as one of Australia’s fastest growing companies ■ Mortgage aggregator Finsure has been announced as one of Australia’s fastest growing

companies by BRW Magazine after growing its revenue by 140% over the 2014 financial year. The annual Fast Starters list has Finsure ranked at number 18 in BRW’s run-down of the 100 fastest growing companies in Australia. Finsure was also listed as the third fastest growing business in the financial services sector. Finsure’s managing director, John Kolenda, said the recognition from BRW followed an impressive 24 months where Finsure has consistently been the fastest growing aggregator in Australia. “To be placed 18th in BRW’s Fast Starters for 2014 is a real honour. I believe this reflects our competitive position as the aggregator of choice for brokers who are seeking unrivalled business support in addition to market leading remuneration plans.” The majority of Finsure’s growth has been achieved through organic recruitment. The figures provided to BRW did not include revenue from last year’s acquisition of mortgage aggregator LoanKit from Mortgage Choice. The Finsure Group now has more than 600 brokers on board and according to Kolenda this growth has been driven by brokers wanting greater value from John Kolenda their aggregator.

Brokers account for small proportion of COSL complaints ■ Brokers formed only a small portion of the complaints directed to FAST FACT

4,513 Number of consumer complaints received by COSL for the 2013/14 financial year Source: COSL

COSL last year by consumers, a new report has revealed. The Credit Ombudsman Service has released its Annual Report on Operations, and brokers form only a small proportion of the total complaints received by the service. While 90% of complaints received by COSL related to consumer finance, only 6.9% were about finance brokers. By comparison, residential non-bank lenders and mortgage managers accounted for 17.1 complaints while debt purchasers and collectors were the most common source of complaints at 43.3%. ADIs accounted for only 2.2% of complaints. Of the brokers who were the source of consumer complaints, 23.5% were accused of failing to act with due skill, care and diligence, while 14.7% were accused of inappropriate finance, including responsible lending. Only 5% were accused of outright fraud. COSL saw its overall number of complaints rise by 20% from the previous year. Credit Ombudsman Raj Venga said the service handled the influx well.

WORLD NEWS UNITED STATES OF AMERICA

FED MAKES CALL ON TAPERING The US Federal Reserve recently decided to put an end to its bond-buying program due to the strength in the broader economy and its more positive outlook for the labour market. However, the Fed plans to continue its zero interest rate policy. “The committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction,” said the FOMC. “This policy, by keeping the committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.” It will keep its current 0–0.25% target range. The Fed said when it does start to unwind its bond-buying program, it will do so “in a gradual and predictable manner”, principally by allowing purchased securities to expire at maturity. Currently, the Fed still holds more than $4trn in securities it has purchased since 2008.

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NEWS

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Cash rate will rise, but not for long ■ Economists uniformly expected

BY THE NUMBERS Peter Kell

ASIC RULES LICENSEES MUST TAKE PRECAUTIONS IN LIVING EXPENSE ENQUIRIES ■ ASIC’s chair has slammed

Australia’s penalties for white-collar crime, saying lax repercussions make the country a “paradise for whitecollar criminals”. Speaking at a business journalism awards lunch held by the Walkley Foundation, Greg Medcraft said that Australia was behind its international peers when it came to sentencing for white-collar offences, News Ltd has reported. “Civil penalties for white-collar offences are just not strong enough,” he said. Medcraft said civil penalties had not kept pace with inflation. “In Australia we haven’t indexed penalties to inflation for 20 years. I mean, hello. In many cases all we do is give a slap on the wrist and it’s not discouraging bad behaviour.” Medcraft also told the public to be “extremely careful” dealing with financial planners, News Ltd reported.

225% Non-major lender MyState recently said it has seen a 225% year-on-year increase in home loan originations thanks to improvements in its broker offering Source: MyState

the Reserve Bank’s decision to keep the cash rate on hold on Melbourne Cup Day, with all 33 economists surveyed by finder.com.au correctly tipping the RBA to hold rates steady. Ninety-one per cent (30 out of 33) expect the cash rate to start rising next year, while two respondents forecast rates to rise in 2016. Just one of the 33 economists – Andrew Wilson, senior economist at Domain Group – predicts the next cash rate move will be a drop in the first quarter of 2015, due to falling house prices, low inflation, high unemployment and Australian dollar and a weaker share market. The average prediction for when the cash rate will start to rise is August 2015, according to the survey, with the average forecast finding it is likely to hit a peak of 4% in 2017. However, almost half of the respondents (13) are expecting the cash rate to start falling again in 2018, while three are forecasting a drop as soon as 2017. Four expect to see it to drop in 2019 and 10 are expecting it to reduce beyond 2019.

Stamp duty revenue should go to help FHBs ■ The revenue from stamp duty should be used to help first home buyers who are

struggling to get their foot in the property market, according to the Real Estate Institute of New South Wales. Figures from the Office of State Revenue reveal that stamp duty paid on residential property sales has increased by $500m in the first quarter of this financial year, compared to the same period last year. REINSW deputy president John Cunningham said this is well above what the government’s budget had forecast and it should be used more wisely. “This is already more than double the June state budget forecast of a $200m increase in stamp duty revenue for the entire 2014-15 financial year,” Cunningham said. “It is now time for the NSW Government to stop gloating about an earlier return to surplus and instead give first home buyers the helping hand they need by reinstating grants for existing properties, the real preference of those seeking to enter the property market.” Cunningham said there is no excuse now for the government to not provide this much needed further assistance for first home buyers.

BIG IDEA

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Looking outside the box: an alternative way to help your clients finance growth Angus Sedgwick, managing director of The Invoice Market, says the next boom in Australia could be driven by SMEs’ access to cash, so brokers shouldn’t be afraid to look outside of the banks for funding options

Angus Sedgwick

ngus Sedgwick, managing director of The Invoice Market, believes small businesses are the lifeblood of the Australian economy – being a significant contributor to employment, encouraging competition and driving innovation. However, onerous and inflexible bank loans are having a serious impact on the ability of Australian SMEs to grow. In a survey conducted by cash flow finance company The Invoice Market, two out of the three businesses surveyed said that a lack of finance is affecting their ability to grow. Tightening bank credit conditions and long payment terms are the main concerns which were identified by Aussie SME owners. Over half of the small businesses surveyed (52%) are concerned that reforms to the banking sector are going to make it harder to get a loan, while almost three quarters (70%) said that very long payment terms were negatively affecting their cash flow. As a result, Sedgwick says SMEs are now turning to alternative ways to finance growth – such as peer-to-peer and crowd-funded equity-raising. “Just over 40% of the businesses in our survey said they’d turn to traditional debtor finance, with its flexibility compared to bank finance being the key benefit,” he said. “But there are another 60% who wouldn’t have access even to this

type of factoring, due to requirements that their invoices be spread across a certain minimum number of clients or based on geographical limitations. These are good businesses, but their risk profile is just too high for the institutions. Agility and creativity are key to servicing these businesses. Online models which connect businesses with investors are just one of the ways the issue is being addressed.” In the past two years alone, Sedgwick says that tech-enabled finance alternatives available to Australians have doubled – and The Invoice Market is one of these alternatives. “The use of factoring or invoice funding has grown exponentially and I see it continually growing as access to traditional sources of funding, like bank funding, gets harder and harder,” he said. “Our clients, these small businesses, are not risky – they just have a cash flow timing issue.

THE USE OF FACTORING OR INVOICE FUNDING HAS GROWN EXPONENTIALLY AND I SEE IT CONTINUALLY GROWING AS ACCESS TO TRADITIONAL SOURCES OF FUNDING, LIKE BANK FUNDING, GETS HARDER AND HARDER They might be a company which deals with debtors that have long payment terms or they might be a newly established company with limited cash resources.” The Invoice Market works by providing an efficient marketbased platform to match businesses requiring cash flow funding with institutional investors and high net worth “sophisticated” investors willing to provide working capital and cash flow finance.

“We are different from some of the more traditional cash flow finance funders as we are more flexible. A business can put one of their invoices on The Invoice Market, several of them or all of them and we do not require personal property as security. We take security from the personal value of the invoices being sold.” Sedgwick is urging finance brokers to not be afraid of looking outside of the banks – there are some big benefits for them and their clients by becoming referral partners with The Invoice Market. “From their client’s point of view, they are referring them to a business that offers the most competitive single invoice funding in Australia and because we aren’t limited by onerous bank criteria, we can think outside of the box. Banks usually only look at transactions that are very vanilla, but we will look at transactions and businesses that traditional funders won’t look at. “From a broker’s point of view, they themselves can also benefit as we pay a referral fee to brokers. Much like that of a mortgage book and commissions, we pay a larger upfront fee for on-boarding the client and getting the first few transactions through, then once they are on board the broker will continue to receive a trail for every invoice we factor. “We have a few very successful referral partners at the moment. One of our partners only does broking to us. He’s making a good living out of being an introducer to The Invoice Market. “Brokers are important to us and we are looking to increase our broker market share. This can be an additional service a broker can offer over and above more traditional financing.” Sedgwick says that techenabled finance alternatives available to Australians are becoming widely accepted as one of the better forms of funding. He believes it is critical for the livelihood of small businesses and crucial for the future of innovation. “The next boom in Australia could be driven by SMEs’ access to cash,” he said.

DEBTOR FINANCE IN DEMAND

52%

of businesses are concerned that reforms to the banking sector are going to make it harder to get a loan

70%

of businesses said very long payment terms were negatively affecting their cash flow

60%

of businesses use debtor finance because it is more suitable or flexible than a bank loan Source: The Invoice Market

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AUSTRALIAN MORTGAGE AWARDS

The Australian Mortgage Awards light up Sydney The industry’s finest were honoured at Sydney’s Town Hall in mortgage broking's premiere awards event

ast month the industry came together to celebrate the achievements of its top brokers and service providers at the 13th annual Australian Mortgage Awards. The event, sponsored by Westpac, drew a 650-strong crowd who were

BROKER OF THE YEAR - FRANCHISE JOSH BARTLETT, LOAN MARKET “I think this just underpins the hard work you’ve been doing and all the principles you put into your business. It’s nice for it to all come together. If you continue to do the right things day in day out, week in week out, year in year out it’s always going to happen” – Josh Bartlett

treated to live entertainment and fine dining, while a live auction raised much-needed funds for the Westpac Life Saver Rescue Helicopter Service. Here’s a rundown of the brokers and brokerages who went above and beyond to take out awards on the night.

BROKER OF THE YEAR - FINANCE MARK DAVIS, THE AUSTRALIAN LENDING & INVESTMENT CENTRE “It’s always a surprise [to win]. It’s never in the bag until you get called out” – Mark Davis

LA TROBE FINANCIAL BEST CUSTOMER SERVICE FROM AN INDIVIDUAL OFFICE KEYINVEST LENDING SERVICES “It’s a testament to all the hard work of all my guys around the country. All my guys across the country just love their clients, and that’s the secret of mortgage broking. It’s the secret of business” – Chris Burns

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DANCING THE NIGHT AWAY

The crowd at the AMAs was treated to amazing performances by internationally renowned singing groups The Diamonds and Boys in the Band.

BROKER OF THE YEAR - INDEPENDENT RAYMOND XUE, ACA MORTGAGE SOLUTIONS

GOOD INNINGS

“I’m excited that my hard work has been recognised. I always get asked what makes me do what I do every day and do it well. The answer is always the same: I care” – Raymond Xue

GIVE YOUR BUSINESS SOME KICK! PICK PEPPER.

The AMAs were emceed this year by cricketing legend Michael Slater

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PEPPER BROKER OF THE YEAR – NON CONFORMING GIULIO AVIAN, DIRECTOR, FUNDSNATIONAL

MACQUARIE BANK BROKERAGE OF THE YEAR - DIVERSIFICATION ASTUTE SYDNEY CITY CENTRAL

“I’m quite humbled. This was our third year running, and we felt the first two years we didn’t really communicate what Fundsnational is all about. [This year] we spent a lot of energy communicating our philosophies and attention to detail and it looks like the message got through” – Giulio Avian

“I’m very proud. The team has put a lot of effort into it. We’ve tried to get the optimum amount of products and services to our clients. Diversification is what we stand for, and it’s a great award for our team” – Moshe Moses

ME BANK BROKERAGE OF THE YEAR (>6 STAFF) – INDEPENDENT THE AUSTRALIAN LENDING & INVESTMENT CENTRE

ANZ BROKERAGE OF THE YEAR (<5 STAFF) – INDEPENDENT INTELLIGENT FINANCE

“This is a fantastic recognition of our staff and our customers and the effort and contribution that they put into the business. This is a great awards night. It’s the highlight of the year on our calendar and we’re looking forward to next year” – Jason Back

“We’ve won three years in a row, so it’s fantastic to win it again. It’s been a tough year and we’ve worked hard as a team to achieve our goals, so it’s not just me, it’s my whole team behind me” – Justin Doobov

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TECHNOLOGY UPDATE

Product training: An investment in success

COMMONWEALTH BANK BROKER OF THE YEAR - PRODUCTIVITY MARDEE THOMAS, 1ST STREET HOME LOANS “It’s an amazing night. Great company, great food and a lot of fun” – Mardee Thomas

COMMONWEALTH BANK AUSTRALIAN YOUNG GUN OF THE YEAR GEORGE FARMER, AUSSIE BUNDABERG “Give [broking] a shot. Care about your clients, love what you do and make a great living. You get a lot of satisfaction out of it. It’s a great industry to be a part of.” – George Farmer

Straight-Through Processing (STP), the Holy Grail of the mortgage industry, is now an achievable reality due to the ingenuity and innovation fostered at NextGen.Net. NextGen.Net has given the industry the landmark electronic lodgement service, ApplyOnline and ApplyOnline+, along with a slew of revolutionary efficiency driving features. These efficiency driving tools were designed specifically to make STP achievable. However NextGen.Net is finding that these tools are frequently being under-utilised due to a lack of awareness and understanding of their platform’s capabilities. Features such the G-NAF address file (for address lookup and verification), ACN and ABN search (access to the Australian Business Register and ASIC to check information provided) and the ApplyOnline Supporting Documents service (the identification of supporting document requirements at Point of Sale and validation against lender policy requirements), are sometimes overlooked – disadvantaging both lenders and brokers. Tony Carn, Director of Sales at NextGen.Net comments “We’ve released some fabulous features over the past couple of years and we want to make sure our customers reap their full benefit. So we’re amping up our training to maximise awareness and use of these features.” “We’ve identified that there is an under utilisation of some of the key features within ApplyOnline and consequently their benefits are not being realised. That’s where I enter the equation,” says NextGen.Net Training Manager, Michael Tong. Tong believes it boils down to brokers feeling under constant pressure. “I recognise that brokers are often time-poor. I understand they want to get an application out the door and to the lender so they can start working on the next deal,” Tong says. “Secondly, brokers are accustomed to doing things a certain way and may not be aware there is a better and faster way. Also that new features within ApplyOnline will enhance the quality of applications and if they just spend a few more minutes upfront the result will be much faster turnaround times.” Feedback from lenders is showing that brokers who use the ‘Supporting Docs’ feature gain a much faster turnaround time. Recently a BDM at one of the Big Four lenders told Tong that a broker emailed in feedback saying his first experience with our Supporting Docs service had sold him on it. “Within three hours of submitting an

MICHAEL TONG application he received unconditional approval pending receipt of the valuation,” Tong exclaims. “That’s why I find it frustrating when I learn that some brokers and lenders are not reaping the full benefits of ApplyOnline simply because they’re not using all its brilliant features – such as my personal favourite, Supporting Documents. “We are now seeing usage rates for Supporting Docs climb to 40% for lenders who pioneered the technology,” maintains Carn. This in the space of nine-months is being heralded as a fantastic result. “Supporting Docs is a classic example of how lenders and brokers can work together to achieve significant efficiency gains. With ‘Tongy’ providing critical training support we’ll soon see Supporting Docs become the standard.” Tong’s focus is on improving an understanding of the features and benefits of the ApplyOnline offer. At his training sessions he demonstrates that by using these features at Point of Sale, brokers get it right first-up, which means STP and a win/win for everyone involved in the scenario. “The end result is happier customers, brokers and lenders,” he declares. Tong conducts regular training sessions in small groups, large groups and on a one-on-one basis. The sessions are face-to-face or webinar, and audiences include brokers, lenders BDMs, credit staff and operations staff. “By simply devoting an hour you’ll reap countless rewards in terms of quality and time,” he says. Tong admits he identifies with the time-poor assertions of brokers. But adds that his recent experience with Windows 8 has taught him the value of training. “I recently upgraded to Windows 8 and initially hated it,” he says. “I went into a local computer store and said, I want you to convince me it’s better than what I had previously. I invested time and energy into it, and learned a lot about its features; and now I love it. “Once you get a proper handle on the efficiency driving features in ApplyOnline and how to utilise them to your advantage, they will become your greatest asset.”

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NEW BROKERAGE OF THE YEAR ALLIANCE MORTGAGE SOLUTIONS

QUALITY YOUNG GUN OF THE YEAR – FRANCHISE GEORGE FARMER, AUSSIE BUNDABERG

“Big thanks to all our clients for their trust and their support to us, and to our aggregator Vow Financial. Without their support we couldn’t achieve this” – Cissy Fang

“I’m really excited. To be honest, I didn’t expect this so it’s a really big honour. [This is] a great industry to be a part of” – George Farmer

QUALITY YOUNG GUN OF THE YEAR - INDEPENDENT DAVID RAY, ELITE FINANCE PROFESSIONALS

FRANCHISE BROKERAGE OF THE YEAR CHOICE HOME LOANS BLUE MOUNTAINS

“I thought it was a real challenge to get into broking and do something entirely different than I’d done before. I’m excited about the challenges ahead of me” – David Ray

“I’m excited to take home the Franchise Brokerage of the Year award for Choice Home Loans. They’ve been a great support to our business, and to bring this one home, we’re just so happy” – Peita Davies

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NAB BROKER AUSTRALIAN BROKERAGE OF THE YEAR THE AUSTRALIAN LENDING & INVESTMENT CENTRE “Whether you’re a great broker or a great brokerage, at the end of the day it’s our customer experience which defines us” – Jason Back

WESTPAC AUSTRALIAN BROKER OF THE YEAR RAYMOND XUE, ACA MORTGAGE SOLUTION “I’m overwhelmed. I have to thank my aggregator, AFG, for helping my business grow over the past 12 years and also thank my BDM who helped me to put all my deals through. I also want to thank my team” – Raymond Xue

NEWS 20

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RAYMOND XUE: Australian Broker of the Year CONTINUED FROM PAGE 3

Australia’s top broker discusses his keys to success and why he’s looking forward to easing back

Australian buyers are rarely in direct competition, as foreign investors typically seek out different types of property than their domestic counterparts. “They can only buy off the plan property. That’s a very small proportion of the properties, and in any case they have to apply to the FIRB. And Australians can still purchase secondhand properties. I think the policies have offered security for local primary resident Australians and citizens.”

SECRETS TO SUCCESS

ue said his 12-year rise to the top has come with intense focus. His client base, while mostly Chinese, also comprises borrowers from Vietnam, Korea and Australia. But a good proportion of his clients are offshore investors, he said. “More than 30% of my client base is from offshore. When they come to Australia they go through a local agent, and when the deal is successful they are referred to us,” Xue said.

IT’S NOT EASY TO REACH THE TOP. YOU HAVE TO SACRIFICE A LOT OF THINGS. THERE ARE NO SHORTCUTS - R AYMOND XUE This makes communicating with clients tricky. With borrowers in China and Xue’s office located in the Sydney CBD, he said he’s had to be creative in the way he keeps in touch. “We use a free social media site called WeChat. It’s like Twitter or Snapchat. You can record your voice message and send a photo, so it minimises the time

difference. When they have time they can pick it up and have a look and listen, so it increases efficiency. We don’t just rely on emails or phone calls. We use Chinese social media,” Xue said. While Australian consumers and pundits prognosticate on the fate of the property market and debate the existence of a bubble, Xue said most overseas investors see the country as a major opportunity. He said overseas buyers don’t seem to have the same concerns as their domestic counterparts. “They are pretty confident, especially in the Sydney market. They can see that the demand is more than the supply, and they can see the low vacancy rate. Property values are similar or less than a Chinese big city. Some Chinese people are sending their children to Australia for school, so they would rather buy and pay interest than to pay higher rent. Then when they go back to China they can sell and still earn a capital gain,” he said. Foreign investment in Australian property has generated a lot of conversation, debate and no small amount of histrionics. But Xue said he doesn’t see foreign investment as a threat to prospective domestic buyers. “It’s not a threat to the Australian local market. It’s actually stimulated the Australian property market and the Australian economy,” he said. He argued that foreign investors and

DID YOU KNOW?

$247,205,639 Raymond Xue set a new record for settlements in this year’s MPA Top 100, at $247,205,639 Source: MPA

Xue’s hard work means that his business has reached a point of stability, and he can now focus on increasing efficiency, he indicated. “My business is stable because I’ve built my reputation and now we have more people coming to us. Now we have to deal with how to deliver the same customer service and processing.” For those looking to emulate his success, Xue said the secret is largely down to common sense. “I would tell them to focus and work hard. For my success, it’s been focusing like a laser beam and concentrating on the Australian residential market. When you reach a certain point you can diversify, but you have to position yourself first. If you’re good at commercial, concentrate on commercial. If you’re good at insurance, concentrate on insurance. I concentrated on the Australian residential mortgage market so I could reach the top,” he said. Xue’s foremost piece of advice is that success takes sacrifice, and there’s no magic formula. “Work hard. If you can’t work hard, there’s no way to reach the top. We spend 12 hours a day in the office, and sometimes overtime on the weekend. It’s not easy to reach the top. You have to sacrifice a lot of things. There are no shortcuts,” he said. This said, Xue is ready to ease off a bit. In the year ahead, he said he wants to pursue more personal goals now that he’s attained his professional goals. “I want to slow down a bit. I don’t want to stretch too much because next year I’m going to study part-time in theology. I don’t have the ambition this year for how much percentage growth I can see in my business. I just want stability and to balance work and life, and to study. Also from next year, I’m not going to enter competitions or awards. I’d rather give young people a chance to reach the top,” he said. And while 2014 has been Xue’s year for accolades, he said he’s happy to see future honours headed to the younger generation of mortgage brokers. “I’ve set an example, and I hope that young people can take over from me and surpass me. If you look at the MPA Top 100 brokers, six of the top 10 are Chinese. So they have a lot of potential.”

BEST PRACTICE 21

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Top five tips for short-term deals Eastwood Securities’ Peter Schembri shares some of the skills you’ll need to navigate short-term deals HAVE AN EXIT STRATEGY

Schembri says most lenders will want to see that borrowers have a viable strategy to discharge the loan and seek more longterm finance. “Exit strategy is a major concern for most providers of bridging finance. It is critical that the borrowers have a clear and viable strategy to either exit or extend the facility at the end of the loan term.”

W FAST FACT

$10bn Approximate size of Australia’s short-term and bridging finance lending market Source: Eastwood Securities

Peter Schembri

hen it comes to the need for short-term or bridging finance, Eastwood Securities director of operations Peter Schembri says the market is incredibly varied. “I don’t believe there is a ‘typical’ short-term borrowing client. Basically it could be any individual or business who has found themselves unable to obtain or maintain their line of credit from a bank. Eastwood Securities, which is a fairly typical specialist lender providing short term finance, has a list of borrowers that includes retailers, manufacturers, farmers, market gardeners, entrepreneurs, property investors, self-employed and contractors, restaurant owners to mention a few,” he says. For brokers looking to help clients seeking short-term finance, Schembri argues that additional client service and care is required, and that many may be better served with a shortterm bridging facility rather than the “cop out of the quick and easy caveat loan”. And for brokers who are willing to invest this time, Schembri says it’s important to keep a few things in mind.

ALLOW FOR REALISTIC TIMEFRAMES “Don’t underestimate the time that borrowers really require to achieve the purpose for which the loan is taken. The most common trap is to set up a facility for a period that does not allow completion of the objectives for the finance. It can then be difficult and more costly to extend a short-term loan rather than set it up for the optimum period at the outset,” Schembri says.

BE FLEXIBLE

Schembri says flexibility means realising that each borrower is unique, and a catch-all approach won’t work. “No two borrowers’ circumstances and requirements are the same leading to the need for lateral thinking in regard to how each scenario can be assessed.”

BE WILLING TO INVESTIGATE

Schembri says brokers undertaking short-term deals need to display “forensic skills” in order to fully understand their clients’ situations. “Quite often the broker needs to be able to dig below the obvious issues to really understand what is going on with certain borrowers. It might be something as simple as where funds to service a loan are really coming from and on what basis the borrower has legitimate claim to those funds or whether or not a Trust or company has the authority to borrow money,” he explains.

BE PATIENT AND TAKE A COMMON SENSE APPROACH

In spite of the short loan terms, the work required for a short-term deal may take a bit of patience, Schembri warns. “Most importantly a broker may need to be patient as they work with the borrower to explore what formal information might be available to assist the lender verify credit background, what really transpired in their credit history and serviceability of the short-term borrower. If certain information is not available, we need to consider how else the background and credentials of that borrower can be determined,” Schembri says.

THE COALFACE 22

Think small, gain big Mhairi MacLeod has grown her boutique finance broking business by tapping into an unsuspecting niche market

hairi MacLeod, founder of Astute Ability Finance Group, has transformed her boutique finance broking business based on the Central Coast of NSW to a specialist finance broking business offering services nationwide. “I want my industry that I love to step up. I want to change my industry. I want to be known as the person who really got involved. I want to change the perception that brokers are just here for finance. How? Horse floats. She differentiated her business by finding a niche and then harnessed the power of social media to get the word out. “We started targeting finance for horse floats in January this year and it has just taken off. It is incredible the amount of enquiries we are getting from it. “Everyone does finance for home loans or cars, but finance for the equine sector wasn’t really being serviced or looked after. Customers didn’t have much choice other than a personal loan, so we began doing secured loans against the horse float. We started off by just testing the market, but it really is incredible how much business we have generated through this niche.” It was after a few previous enquiries about financing for horse floats that MacLeod realised it was a market she may be able to tap into. “We did have the odd enquiry and over the years I had organised the loans for a few myself. Then I found a magazine called Horse

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MACLEOD SAYS HER BUSINESS HAS GROWN BY 17% THROUGH HORSE FLOAT FINANCE ALONE

Deals, so I took it into one of our brainstorming sessions and asked my team what they thought we could get out of it. “The first reaction was about financing the cars or trucks that would tow the horse floats, but I was starting to look at the bigger picture – what are these cars and trucks towing? We then just took it from there.” MacLeod and her team soon discovered that it was big money, too. Horse floats can range anywhere from $10,000 to $150,000 to buy new. Astute Ability Finance now has relationships with horse float manufacturers who refer clients who want custom-made floats. “We get the customers pre-approval while the float is being built, so when it is completed, we can settle the loan within 24 hours.” MacLeod says Facebook has been the main driver behind building this niche and generating leads and referrals. “We built these relationships and built our reputation as specialists in providing horse float finance through Facebook. We started by joining equine groups and engaging in conversations with them. We would talk to them about the safety of their horses and how important it is to have a good quality horse float.

“After we had started discussions with these groups and engaged with their emotions this way, we then started running some Facebook advertisements. Facebook has been a fantastic feeder for this new niche for us. It really has helped.” Since January, MacLeod says her business has grown by 17% through horse float finance alone and they are now starting to get more and more business from interstate as it continues to grow. “This is big growth for us. We now have one person who takes enquiries just for horse floats. It is consistent enough to have a person on full time who works only on this part of the business. We are getting lots of business from interstate now too, particularly from Queensland and South Australia.” MacLeod’s top tips for brokers who are using Facebook as a tool for their business is to “keep it social”. “The top thing I have learned about advertising and using Facebook to generate leads is to keep it social. It is not about putting a generic ad out there and hoping you get someone, it is a real community. “It can be a powerful tool to build trust with your clients.”

OPINION brokernews.com.au

Residential or Commercial - which should I invest in? Should your investor clients be looking into commercial property? DFG Property principal Owen Davis says the numbers don’t lie RETURNS

Show me the money, as they say. Here, commercial has the upper hand with returns usually around 6–8%, and sometimes significantly higher for the real unicorns. Residential returns are a little lower at 4–5%, but as you’ll see, less risky and cheaper.

VACANCY

eople are pretty comfortable with the idea of residential property investment. Most people (I’m guessing) have lived in a house or a unit before; many have also rented them. So it’s a known quantity and having a few houses in our portfolio makes us feel pretty good. Now, maybe you’ve been to realestate.com.au on the odd occasion, and you’ve noticed the ‘Commercial’ tab on the far right. A quick search in your local area brings up a plethora of offices, retail shops, warehouses, hotels and even commercial farms, many with the words ‘outstanding opportunity’. So, is commercial property investment something within the reach of all property investors? How does it compare to investing in residential property? Should you be looking to diversify into commercial? Well, the attractiveness and suitability of any investment boils down to risk versus return. So let’s compare the two asset classes:

BEFORE INVESTING IN PROPERTY OR ANY ASSET CLASS, KNOW WHAT YOU’RE GETTING INTO, RETAIN GOOD ADVICE AND DON’T OVERCOMMIT YOURSELF

One of the biggest risks in property is the vacancy rate. How long can you afford to make repayments and pay outgoings on a property receiving no income? Residential property has lower vacancy rates than commercial. A house or unit may stand vacant for a few weeks before it’s rented, whereas a warehouse, a shop or an office might be vacant for months or years at a time. The commercial leasing sector tends to be more affected by the economic climate – they’ll lay off staff and consolidate space when times are tough, causing a contraction in demand for space, whereas individuals still need somewhere to live. That tends to make the residential property sector a bit more stable.

RENTAL / LEASE AGREEMENTS

In the residential world, striking a deal with a tenant is pretty straightforward with much of the common terms (or boilerplate) outlined in a mandated Residential Tenancies Agreement. All you need to consider are your variables like lease term, rental amount, bond, etc. In the commercial world, there’s no statutory authority to tell you how to reach agreement – it’s all up for negotiation (there are conventions though). Commercial leases run to dozens of pages and include things like incentives paid by the lessor to put towards fit out, and make good clauses, specifying if and how the tenant should return the tenancy when they vacate. You’ll need specialist property lawyers or a tenant advisor to help with this process.

COST

Square metre for square metre, commercial real estate is often cheaper than residential property (unless you’re talking about CBD office space north of $700/m2 pa) but because you’re buying more square metres per property, commercial is usually dearer in real terms. And you have outgoings such as electricity, security, and base building maintenance to consider, however these are passed on to the tenant in some way (net or gross lease). In commercial, it’s easier to pass on costs if utility prices climb, but harder to do so with residential property.

MAINTENANCE

A dripping tap or faulty ceiling fan in a residential property is an annoyance to a tenant and something you should get fixed promptly to keep your tenant happy. However, in the commercial world, tenants tend to be more demanding, particularly if the fault or shortcoming is costing them money – for example the air conditioning breaking down in a shopping centre in summer. For this reason, you’ll need a professional property manager with agreements with contractors like air conditioning technicians, plumbers, electricians, security contractors, and they must know the language of that world.

SO, WHICH IS BETTER?

You may get sick of hearing me say this, but it really comes down to your personal financial strategy, your financial situation, and your appetite for risk and return. Before investing in property or any asset class, know what you’re getting into, retain good advice and don’t overcommit yourself. For many investors, commercial property represents ‘the next level’ where the scale is greater, the sums are larger, and the returns are higher. Owen Davis is the principal of DFG Property, a full service property management, finance & sales firm based in Sydney. Owen has over 15 years’ experience in property financing, real estate and property management. More than a third of his clients are among the top 10% of property investors in Australia

MARKET TALK

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Housing market heat claims could be inflated RP Data national research analyst Cameron Kusher discusses why the discussion around house prices must take inflation into account

nflation-adjusted home values have only risen over recent years in Sydney, Melbourne, Darwin and Canberra. The Australian Bureau of Statistics (ABS) recently released its quarterly Consumer Price Index (CPI) or inflation figures. The data showed that over the September 2014 quarter, inflation was recorded at 0.5% and over the 12 months to September 2014 it was recorded at 2.3%. The Reserve Bank has a target range for annual inflation of 2% to 3% and inflation is currently at the lower end of this range. It is important to note that inflation appears to be slowing, recorded at an annualised rate of just 1.8% over the past six months. With the release of CPI data we can also get a picture of what is happening with home values when adjusted for the effects of inflation. Over the 12 months to September 2014, combined capital city home values have increased by 9.3% in nominal terms according to the RP Data CoreLogic Home Value Index, in ‘real’ terms home values have risen by 6.8% over the past 12 months. The impact of inflation is important to consider, as you will note from the above chart. For example in nominal terms home values recorded no annualised falls from September 1998 until December 2008. In real terms, values were falling from December 2004 to December 2005. Of course when you adjust for inflation, real growth in home values is more

ANNUAL CHANGE IN NOMINAL AND REAL HOME VALUES – COMBINED CITIES Nominal

15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Sep-98

Sep-00

Sep-02

Sep-04

Nominal

10.0%

Real

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0%

12 months

5 years

Sep-06

Sep-08

Sep-10

Sep-12

Sep-14

Source: RP Data

ANNUAL AVERAGE CHANGE IN CAPITAL CITY HOME VALUES – NOMINAL VS. REAL

0.0%

Real

20.0%

10 years

15 years Source: RP Data

moderate than in nominal terms. Across the combined capital cities, home values have increased by 9.3% over the past year, 3.8% pa over the past five years, 4.7% pa over the past decade and 7.4% pa over the past 15 years in nominal terms. Adjusting for inflation shows that real gains have been significantly lower. Over the past year real capital city home values are 6.8% higher, over the past five years they are 1.2% pa, over the decade they have risen by 1.9% pa and over the past 15 years they are up 4.3% pa. Home values rose at a rate well above inflation between 1999 and 2004 and again over the past 12 months, however over the past five and 10 years overall

MARKET TALK brokernews.com.au

home value growth has been less than 2% greater than the rate of inflation. As we have already highlighted, real home value falls are much more frequent than falls in nominal terms. This is also the case across the individual capital city markets. As you can note from the above chart, outside of Sydney and Melbourne, real increases in home values over the past two years have been minor. Combined capital city home values began to recover from the financial crisis at the beginning of 2009 after reaching a low point in December 2008. Since that time, nominal home values have increased by 34.0% across the combined capitals, largely driven by increases of 51.2% in Sydney and 44.9% in Melbourne. Notably, Brisbane (6.0%), Adelaide (10.9%), Perth (14.5%) and Hobart (-1.6%) have all recorded nominal gains of less than 15% since December 2008. In real terms, between December 2008 and September 2014, combined capital city home values have increased by a much lower 16.5%. Across the individual capital cities, real changes in home values between December 2008 and September 2014 have been recorded at: 31.6% in Sydney, 26.1% in Melbourne, -8.0% in Brisbane, -3.7% in Adelaide, -0.6% in Perth, -14.7% in Hobart, 11.0% in Canberra and 5.1% in Darwin. The next time you hear someone talk of the booming national housing market, remember these statistics. Yes combined capital city home values are rising and this is due to the influence of the Sydney and Melbourne housing markets where values are rising. Real home values in Brisbane, Adelaide, Perth and Hobart are still lower than they were before the financial crisis and have seen no real growth in more than six years. The data also seemingly indicates that low interest rates are not necessarily the driving factor behind the current growth in the housing market. If this was the case we would more than likely be seeing a more broad-based rise in home values. The growth in home values has been contained to Sydney and Melbourne and to a lesser degree Darwin and Canberra. No wonder the Reserve Bank has flagged that monetary policy has largely done all it can and now fiscal policy has to do some of the heavy lifting. Lower interest rates have encouraged rises in values in Sydney and Melbourne accompanied by a substantial lift in activity by investors. However, outside of Sydney and Melbourne the housing market response, in terms of value growth, has been quite muted. Supply is responding across most cities which is certainly a desirable outcome. Yet despite real value falls over a number of years in Brisbane, Adelaide, Perth and Hobart, low mortgage rates and

ANNUAL CHANGE IN CAPITAL CITY HOME VALUES – NOMINAL VS. REAL Nominal 16.0%

Real

14.3%

14.0% 11.8%

12.0%

9.3%

10.0%

8.1%

8.0% 5.7%

6.0%

4.7%

6.4%

7.1%

4.6%

5.8%

4.0%

6.8%

4.0% 3.4%

3.2% 2.2%

2.0%

1.7%

0.9%

0.0%

0.6%

-2.0% Sydney

Melbourne

Brisbane

Adelaide

Perth

Hobart

Canberra

Combined Capitals

Darwin

Source: RP Data

INFLATION ADJUSTED ANNUAL CHANGE IN HOME VALUES, MAJOR CAPITAL CITIES 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% Sydney

Melbourne

Brisbane

Adelaide

Perth

-20.0% Sep-98

Sep-98

Sep-00

Sep-02

Sep-04

Sep-06

Sep-08

Sep-10

Sep-12

Source: RP Data

NOMINAL AND REAL CHANGES IN CAPITAL CITY HOME VALUES – DEC 8 TO SEP 14 Nominal

Real

60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% Sydney

Melbourne

Brisbane

Adelaide

Perth

Hobart

Canberra

Darwin

Combined Capitals

Source: RP Data

increasing new supply has not yet resulted in an ongoing rise in home values. Of course this is not necessarily a bad thing but is somewhat surprising given the experience in Sydney and Melbourne. I think what we are seeing is a case whereby our largest capital cities are further separating themselves from the rest of the pack. Sydney has pretty much always been the most expensive capital city market and this remains the case but we are now also seeing Melbourne separate itself from the remaining cities. Another factor driving the rising demand is potentially a greater number of overseas buyers investing in our two largest cities (unfortunately data capture is such that we don’t really know for sure). Furthermore both New South Wales and Victoria are experiencing a much lower outflow of residents to other

states than they have in the past. Finally, the economies of Sydney and Melbourne are much more diversified economies than those of the other capital cities which tend to be much more narrowly focused. This is likely to be a key driver of higher housing demand and stronger value growth in these cities compared to the other capitals with a greater variety of job options available in these cities. It will be interesting to see over the coming 12 months if buyers are eventually priced out of Sydney and Melbourne and whether these buyers look to other cities where housing has become more affordable over recent years. Alternatively, those priced out of the Sydney and Melbourne housing markets may prefer to stay in those cities and rent rather than becoming a home owner in a different city with a narrower economy.

FINANCIAL SERVICES 26

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Aussies living in false reality on financial protection

new survey reveals that the majority of Australians either don’t have enough or don’t know if they have enough financial protection. The survey – which interviewed 1,266 Australians from the ages of 18 to 69 and was conducted by Galaxy Research on behalf of TAL – revealed that more than half (56%) of respondents said they either don’t have suitable life insurance (33%) or don’t know if they have suitable life insurance (23%). Conversely, 45% of people said they do have enough life insurance cover if they or their partner could not work again. However, TAL Group chief executive Jim Minto believes Australians may be falling victim to false confidence about the adequacy of their life insurance given the nation’s well-documented huge underinsurance gap. “I am surprised nearly half of the respondents felt they had enough cover because a lot of actuarial research shows they actually don’t. In our experience, a number of common misapprehensions can give rise to a false sense of security,” he said. There are two common beliefs which lull Australians into a false sense of security, according to Minto. “First, there is the mistaken belief that life insurance is a single, one-size-fits-all solution. It isn’t because every person’s and family’s circumstances are different, and different types of life insurance serve different purposes. “Second, there is a belief that life insurance in superannuation automatically provides sufficient protection alone. Insurance through super has been fantastic for millions of Australians but unfortunately most people just retain the low, default level cover without assessing their personal needs.”

DID YOU KNOW?

51% A new study by Ernst & Young has claimed 51% of Australian companies are lacking the agility, budget and skill to mitigate known vulnerabilities and successfully address cyber security Source: Ernst & Young

CHOICE CO-FOUNDER NAMED FINANCIAL PLANNING CEO Financial planning company Wealth Today has announced the appointment of Greg Pennells as acting CEO, following the departure of Michael Stephens from the role. Pennells has been a part of the Wealth Today board since its inception in 2008. Previously, he co-founded Choice Home Loans and Choice Aggregation Services with Ross Begley in 1997. Head of New Business and Member Resources Julian Musgrave said his prior experience is going to be a huge asset for the company. “With Greg now adopting a hands-on role in the operations of the company, we are very fortunate to be able to leverage directly off his extensive experience and terrific success in the financial services industry.” Pennells said the opportunity came at a very exciting time to be taking the reins, as mortgage brokers and planners are increasingly looking to diversify their business. “We have a fantastic new planning integration model that’s proving so simple and rewarding for mortgage brokers and accountants. Opportunities have been created for existing planners to team up with our members as well. There’s so much for business owners to benefit from through what we are doing.”

LATEST BUILDING APPROVAL FIGURES A ‘WORRYING SIGN’, SAYS HOUSING LOBBY Figures from the Australian Bureau of Statistics reveal detached house approvals eased back 3% during September, while multi-unit dwelling approvals dropped by 21.5%. Total building approvals reached a 13-month low of just over 15,000. HIA senior economist Shane Garrett said that the figures provide more evidence that the national recovery in new home building is likely to have passed its peak. “Monthly approvals reached over 17,000 earlier in the year. During September, we barely hit 15,000,” he said. “The reduction in new home building is probably an indication of the patchy state of the labour market, as well as increased consumer woes post-federal Budget. “Recent HIA research shows an annual requirement for 180,000 dwellings to be built each year. The fact that we seem to be drifting below this level of output again is a worrying sign. During the early days of the housing upturn, HIA had been vocal in its calls for policy to facilitate new housing supply to be delivered more readily.”

INVEST IN PROPERTY OVER SHARES, EXPERT URGES A small cash deposit will go much further in the property market than investing in shares, according to a real estate expert. Zaki Ameer – who founded wealth creation mentoring program, Dream Design Property – says that despite the property and the share market providing very similar returns over the long term, banks and lenders value the short to medium term reliability of the property market much higher than that of the shares market. “When it comes to margin lending for the share market, blue chip shares can expect 50% leverage, but for new or risky shares, much less. On the other hand, lenders are comfortable to hand over 95% for property,” he said. “So, someone who had $200,000 to invest either in cash or as equity in their home could do much more with it in the property, than in the share market.” The other major benefit of the property over the shares market, according to Ameer, is the fact that it takes on average three months for a property to settle, as opposed to fluctuations in value by the second. Although, this doesn’t mean investors should assume that property investment is completely safe with guaranteed positive returns, he said.

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ONE YEAR ON 28

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, November 2013

Big bank boss denies lowering lending standards

Westpac exec Brian Hartzer last year defended big banks against the charge that they were loosening lending standards to drum up business. While APRA last year warned banks to carefully monitor their customers’ ability to service debt over the duration of their home loans, Hartzer claimed banks were still prudent in their lending decisions. While he said there had been no loosening of standards, Hartzer claimed it was “prudent to continue to be cautious”.

What’s happened since? APRA has kept the heat on the big banks, recently claiming that Australian lenders are ill-prepared to recover from a financial crisis. Chairman Wayne Byres claimed banks were still highly leveraged, and could face strife should property prices begin to fall. APRA has also claimed that competition in the mortgage sector is stretching banks’ lending standards. Puzzlingly, the regulator has also taken a shot at brokers, warning banks to be cautious in their reliance on the third party.

ABA defends major bank profits Last year the major banks saw strong increases in profits, and the Australian Bankers’ Association once again stepped in to defend the banks from criticisms that their profits were excessive. ABA CEO Steve Munchenberg said bank profits should be taken “in context”, and that – based on size – the big four were middle of the pack in terms of profitability compared to the top 50 companies in the ASX.

What’s happened since? The familiar line was trotted out again this year when the banks turned in major profits. Commonwealth Bank set a new record for cash profits for any Australian bank. The ABA claimed that bank profits weren’t excessive and that Aussie banks were not the most profitable in the world. Cutting against this claim was a global study earlier this year by the Bank for International Settlements that claimed Australian majors were indeed the world’s most profitable.

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RBA’s negative gearing talk just jawboning

he Reserve Bank’s recent veiled threats around scrapping negative gearing have sparked a flurry of discussion from property pundits. But in spite of the spectre of death hanging about negative gearing, Property Investment Professionals of Australia chair Ben Kingsley has claimed most of the RBA’s rhetoric may just be jawboning. “I think the RBA is right in getting into the media and making threats around changing policy to try to curb [investors], but I don’t think they actually want to get in and influence the marketplace. We do want an open market. I’d hope they’d keep out of that, but just remind investors that they’ve got to be sensible in their investing.” Kingsley said there are a number of misconceptions surrounding negative gearing, foremost of which is that wealthy investors are its sole beneficiaries. “That’s the biggest myth of all, [that] this is only for the elite and super-wealthy people. It’s not. In what I do each day, there are mum and dad investors coming in and they’re basically saying they want to take responsibility for their retirement planning,” he said. “It’s not the super-rich or the elite. It’s traditional mum and dad investors.” Kingsley claims that the idea that negative gearing can push first home buyers out of the market is yet another myth. “Let’s understand that the property market in Australia is over 15,000 suburb. There are a lot of areas where housing is very affordable and obviously areas where price points at the entry level are very attractive. What we’re actually seeing is commentary around the big cities. If we take New York or Hong Kong or Singapore or even London as an example where negative gearing doesn’t exist, the property prices in the inner city locations are very expensive. That’s because people want to buy in those areas. They want the lifestyle. They want the conveniences,” Kingsley said. For the full interview, head to www.brokernews.com.au/tv

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FORUM 29

MFAA comes out swinging at APRA APRA recently cautioned banks on their use of brokers, prompting the MFAA to fire back

PRA recently cautioned lenders to be prudent in their use of the third-party channel, and to be careful that “commission-based compensation does not create adverse incentives”. MFAA CEO Siobhan Hayden fired back, saying the regulator was “completely incorrect” in its assertion that commissions would encourage less rigorous attention to quality. Brokers agreed with Hayden. Peter Heinrich claimed APRA was turning its attention toward the wrong channel in its attack on brokers. “APRA simply don’t get it. If they knew how the system worked they would understand that the lenders approve loans, not the brokers. The brokers simply present loans to the lenders. What they should really be concerned with is in-house lenders with DLAs way above their skill levels and who will do anything to get a loan through with little or no scrutiny. Brokers don’t have that luxury in that they submit every loan for scrutiny by the lender.” John said APRA didn’t understand the seriousness with which brokers viewed their duties to their clients.

“Please APRA, get the facts right. Come to my office and you will see firsthand how we operate. It does not mean anything what we are paid .50, .60, .70. What that means is that we work bloody hard and long hours to be rewarded. When you see the joy on a customer’s face, or hear the elation when told their finance is approved, that is what it is all about.” Vic Regional Broker praised the MFAA for its swift commentary on the issue. “It is great to see the MFAA acting quickly and with well thought out comments, to support its brokers. Hopefully APRA will realise after these comments and other commentary that it is simply wrong in its comments and its reasons. What is needed now is for the bankers en-masse to come out as well and support its third party introducers! Will they? It’s doubtful.” Meanwhile, Bottom Line reasoned that working for APRA would be a pretty good gig. “Working for APRA must be the cushiest job in the world. Earning six figure sums, great super schemes etc., and all you have to do is throw out an old outdated cliché every now and then, and then head off to lunch. How do I get in on that?”

CLIENTS DON’T READ PAPERWORK

A recent survey by mortgage contest website Flongle claimed eight out of 10 borrowers had no idea how much commission was paid to brokers. While FBAA president Peter White slammed the survey’s methodology, one commenter said borrowers were in the dark by their own choice

“I am both a broker and a planner and I assure you, despite all my best efforts, clients do not read Financial Services Guides, Product Disclosure Statements and Statements of Advice. NCCP with its Credit Guide, Credit Quote/Proposal etc was modelled on AFS with its FSG, PDS and SOA. ‘Consumers are time poor or simply not inclined to read all this.’ ASIC’s words, not mine. Yet we as taxpayers pay all these people to manage all this compliance and they delude themselves into thinking they are protecting consumers. What protects consumers is that most brokers and financial advisers are ethical professionals with a conscience and a desire to build a successful and reputable business. I do not know the answer, but we spend a great deal of time and money trying to quarantine a few bad apples and keep them out of the industry.” Patrick on 4/11/2014 at 2:33AM What do you think? Leave your comments at brokernews.com.au

PEOPLE 30

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Broker wins big on reality TV A broker has won out on a business building reality TV show MOVERS & SHAKERS LA TROBE ANNOUNCES CHANGES TO TEAM ■

broker has beaten a financial planner and accountant to win the No More Practice Transformation Series, winning her broking business a prize package worth over $100,000. Dominique Bergel-Grant, mortgage broker and founder of Leapfrog Financial, was announced as the winner of the reality television series aired on Sky News Business. The series is dedicated to showing wealth professionals how to grow their personal, professional and business value. The show featured both Vow Financial CEO Tim Brown and Connective principal Murray Lees. Bergel-Grant was competing against FPA financial planner and Northern Wealth Advisory Group managing director John Tyson and CPA Australia accountant and founder of Linton Solutions, Caxton Pang. They were judged on their commitment to business transformation and their ability to perform in a series of gruelling business challenges.

Bergel-Grant was crowned the winner for having made the greatest impact on the success trajectory of her business throughout the judging period. “I knew I was up against two other really, really excellent business owners who had also completely transformed their businesses throughout this process,” she told MFAA after the win. Reflecting on her experience on the show, Bergel-Grant said there were a few glass-shattering moments, but it has helped her feel more confident and empowered about owning her own business. “Putting in place a proper business strategy and a plan for what I needed to do to be where I wanted to be was a big deal,” she said. “Recognising the team I had wasn’t the team I need going forward was a really difficult thing to do. But by getting the business strategy right, which helped the cash flow, I realised that it is worth the business risk to invest in getting a fantastic team around me.” Bergel-Grant’s mentor, MFAA chair and CEO of Vow Financial Tim Brown, said she has become a leader, not just a business owner. “From when I first met Dominique to the final session, I saw a very different person and someone who had a very different perspective on her business. You have to have a goal and a vision for your business, but you also need to have an exit strategy. A business that survives without the leader being there is a great business,” he said. “I am 100% certain that the business I have today is a more profitable and successful business than the one I had three months ago,” Bergel-Grant said.

Credit specialist La Trobe Financial has announced the appointment of two more executives to accommodate its growing business. Cheree Cain, who has been with La Trobe Financial for 11 years, has been promoted to executive head of investor operations. She began her career with ASIC where she worked for over 13 years in supervisory roles before joining La Trobe Financial in December of 2003. She soon found her niche in leading the investor liaison team in the growing retail mortgage fund operations which services over 10,550 retail mum and dad investors. “Cheree is an outstanding professional and we are delighted to welcome Cheree to the executive team,” said Randal Williams, chief investment officer and Wealth Management division head. La Trobe has also promoted Caterina Nesci to executive head of communications. Nesci has over 10 years’ experience working in various roles with a number of international organisations in Australia, London and Hong Kong.

HOMELOANS BOLSTERS CREDIT TEAM ■

Non-bank lender Homeloans has bolstered its NSW team with the appointment of two new credit managers to support its broker network. The two new managers, Peter Brown and Kate Brewster, have more than 25 years’ experience in credit management between them, both having worked for major financial services firms around Australia. Brown has previously managed credit assessment both for PAYG and selfemployed borrowers. He has previously worked for Pepper and as an underwriter and claims adjudicator for Genworth Mortgage Insurance. Brown said he is looking forward to being a part of such a dynamic lender. “Homeloans has access to a wide range of wholesale funding sources that cover a wide range of lending scenarios. From simple deals to non-conforming loans, working with brokers and being part of the lending process… I find it all very satisfying.” Brewster joins Homeloans having previously worked with major financial institutions Macquarie Bank and Commonwealth Bank. She says this experience has set her up to excel at Homeloans. “My credit experience of working for large financial firms is a great asset in my role at Homeloans. I’m looking forward to working with a range of funders and the opportunity to provide the solutions that meet the needs of brokers and their clients.”

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IN FOCUS

onnective recently held its first overseas conference at the Sofitel Resort in Fiji. The three-day conference included renowned speakers such as navy diver and shark attack survivor Paul de Gelder, former UN peacekeeper Matina Jewell, and noted futurist Tim Longhurst. Photography by Simon Kerslake & Rachael Geaney

INSIDER 32

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Pump up the jam A new study shows music improves your staff’s productivity

his may come as music to your staff’s ears, but new research has revealed there are multiple benefits to listening to music at work. Biologically, melodious sounds encourage dopamine to be released into the ‘reward’ area of the brain. This is also the effect of eating delicacies or looking at something appealing, according to Dr Amit Sood, a physician of integrative medicine with the Mayo Clinic. Music prevents the mind from drifting away from the present moment.

“We know that a wandering mind is unhappy,” he said. “Most of that time, we are focusing on the imperfections of life.” Teresa Lesiuk, an assistant professor in the University of Miami’s music therapy program, said that music “breaks you out of just thinking one way”. Lesiuk’s research focused on music’s effect on workplace performance. In a study with IT specialists, results showed that those who listened to music worked more quickly and creatively due to the music improving their mood. “When you’re stressed, you might make a decision more hastily; you have a very narrow focus of attention,” she said. “When you’re in a positive mood, you’re able to take in more options.” A new study has shown that 88% of workers produce their most accurate work when listening to music. Different genres are suggested to be beneficial for differing requirements – classical music

improves accuracy and mathematical skills, while pop music speeds up data entry task completion.

DIFFERENT GENRES ARE SUGGESTED TO BE BENEFICIAL FOR DIFFERING REQUIREMENTS – CLASSICAL MUSIC IMPROVES ACCURACY AND MATHEMATICAL SKILLS, WHILE POP MUSIC SPEEDS UP DATA ENTRY TASK COMPLETION Dance music has a positive impact on proof-reading, the research showed, increasing participants’ speed by 20% compared to tests conducted without music. Dance music also increased the spell-checking pass rate from 68% to 75%.

Focus@will, an online service and mobile app, has utilised the positive effect of music on productivity to provide “music optimised to boost your concentration and focus”. The site claims that its use of ‘neuroscience-based music channels’ boosts attention span by up to 400% by helping people to “effortlessly zone out distractions”. According to its creators, people could be listening to the ‘wrong music’, because lyrics – designed to form an emotional connection with the listener – are a distraction. Focus@will has ‘attention amplifying’ music choices, designed to engage the brain’s limbic system. UK-based Mindlab International’s research suggests that silent offices are likely to be the least productive – an experiment the lab conducted showed a positive correlation between music and productivity. “Overall, it showed that when listening to music, 90% of people performed better,” said Dr David Lewis, chairman of Mindlab International. “Music is an incredibly powerful management tool in increasing the efficiency of a workforce. It can help to enhance output and even boost a company’s bottom line.”

DIRECTORY BANK

Adelaide Bank 1300 791 679 brokers.adelaidebank.com.au Page 7

Homeloans Ltd 13 38 39 www.homeloans.com.au Page 19

ANZ 13 13 14 www.anz.com.au Page 11

Liberty Financial 13 11 33 www.liberty.com.au Page 5

FINANCE

Macquarie 13 62 27 macquarie.com.au/mortgages Page 34

Semper Capital Pty Ltd 1 800 SEMPER (1 800 736737) www.semper.com.au enquiries@semper.com.au Page 22

INSURANCE

Swiss Re Corporate Solutions +61 2 8295 9500 www.swissre.com/ corporatesolutions Page 13

LENDER

Equity-One Mortgage Fund Ltd 03 9602 3477 www.equity-one.com enquiries@equity-one.com Page 21

MKM (03) 9708 3994 www.mkmcapital.com.au Page 6 Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 15

SHORT TERM LENDER

Eastwood Securities 08 8408 0800 eastwoodsecurities.com.au admin@eastwoodsecurities. com.au Page 4

To advertise in Australian Broker, call Simon Kerslake on 02 8437 4786

Mango Credit 02 9555 7073 www.mangocredit.com.au Page 3

TECHNOLOGY PROVIDER NextGen.Net 02 9929 5999 sales@nextgen.net www.nextgen.net Page 17

OTHER SERVICES

Deposit Power 1800 678 979 www.depositpower.com.au Page 8 RP Data 1300 734 318 Trailerhomes 0417 392 132 Page 28

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