Australian Broker 12.13

MARCH JULY 2015 2015 ISSUE ISSUE 12.05 12.13

$4.95

+INSIDE + NEWS ROUNDUP A look at what’s been making headlines P4

+ ANALYSIS SEGMENTATION IN THE SPOTLIGHT Are banks’ premium broker programs hurting borrowers?

P10

+ SPOTLIGHT ANOTHER LOOK AT COMMERCIAL

The commercial market is broader than many brokers think P16

+ BEST PRACTICE LEADS THAT WILL LAND

Stewart Saunders: GRABBING NON-MAJOR MARKET SHARE The new Bankwest broker head on competing against the Big Four

A

t a young age, Stewart Saunders is already a mortgage broking stalwart. Saunders made a name for himself by bringing brokers to the forefront at ME Bank. Now Saunders is taking on a new challenge, taking the reins as Bankwest’s general manager of broker sales following the departure of Ian Rakhit.

FULL STORY PAGE 14

How you could be selling yourself short by selling rates P18 + MARKET TALK

STAMPING OUT STAMP DUTY

The unpopular tax is back in the firing line P22

+ PEOPLE RUNNING IN PLACE A broker’s treadmill marathon for a good cause P28

NEWS 2

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NUMBER CRUNCHING BIG END OF TOWN

AUSSIE VISITORS IN THE SPOTLIGHT

MOST EXPENSIVE SUBURBS FOR HOUSES

FAST FACT

POINT PIPER, NSW MEDIAN PRICE

$5,517,002

TOP COUNTRIES FOR SHORT-TERM ARRIVALS TO AUSTRALIA FOR 12 MONTHS TO MARCH 2015

BELLEVUE HILL, NSW MEDIAN PRICE

$3,783,501

BY THE NUMBERS

37%

CENTENNIAL PARK, NSW MEDIAN PRICE

$5,105,639

Proportion of Australian households who say they could only survive for one month or less if the main income earner lost their job

$8.09trn TAMARAMA, NSW MEDIAN PRICE

$3,664,178

VAUCLUSE, NSW MEDIAN PRICE

$3,880,848

Household net worth rose to $8.09trn in the March 2015 quarter, up from $7.86trn in the December 2014 quarter Source: ABS

NEW ZEALAND

17.8%

CHINA

12.7%

UK

9.5%

USA

8.1%

SINGAPORE

5.3%

JAPAN

4.6%

MALAYSIA

4.6%

INDIA

3.1%

SOUTH KOREA

3%

HONG KONG

2.9%

Source: ING Direct

Source: NAB

Source: CoreLogic RP Data

WHAT THEY SAID...

MARK BOURIS

BRETT MCKEON

WILL KEALL

MARTIN NORTH

“In the coming financial year, Yellow Brick Road has plenty in the pipeline” P4

“After the [May] rate cut, it appears many borrowers came to the view that we are at, or very close to, the bottom of the interest rate cycle” P4

“Many [Australians] are willing to streamline their social life or pull in their belts to grasp that first rung of home ownership” P23

“Brokers may need to have more information on serviceability on an ongoing basis, and for some that could be quite a challenge” P26

NEWS 4

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AFG BREAKS $5BN BARRIER

BY THE NUMBERS

38.2% Mark Bouris

RESI REBRANDS AS YBR ■ Yellow Brick Road’s national

storefront presence will be increased in June, as Resi Mortgage Corporation branches have formally begun a visible transition into Yellow Brick Road branches.

YBR executive chairman Mark Bouris says the merge makes sense as both businesses are underpinned by a desire to provide a genuine non-bank alternative for the everyday Australian.

“In the coming financial year, Yellow Brick Road has plenty in the pipeline. We’re going to up our marketing spend and we want the network, including our 19 new branches, to be able to leverage as much of that exposure as possible,” he said.

“Resi franchise owners have agreed to operate under the Yellow Brick Road brand, which allows them to capitalise on our nationwide marketing and lead-generating activities – television campaigns through to grassroots activations – planned for July onwards.

“Resi has a great reputation built up over almost 30 years – many of the business owners have served their local communities for more than a decade. That trust and local recognition combined with Yellow Brick Road’s national brand awareness is a powerful combination.”

The proportion of existing borrowers arranging new home loans comprised 38.2% of all AFG loans in May, compared to 33.9% in April.

The average proportion of refinancers for the 12 months leading up to May was 35% Source: AFG

■ AFG processed a total

of $5,017m in May – an increase of 18.9% on May 2014 and 14.5% on April 2015. This is the second month this year that AFG has broken through the $5bn barrier, the first being March.

AFG’s Mortgage Index also reveals that the proportion of loans processed for investors is softening. Investment loans moderated from 43.1% of all Brett McKeon borrowers in April to 40.9% in May, in an early indication the APRA-driven lender policy and pricing changes may be starting to have an effect.

Fixed home loans spiked from 13.6% in April to 15.2% of all loans processed in May as more borrowers chose to fix the rate on all or part of their loans.

“Interest rate cuts, like the one we had in [May], not only encourage new borrowers but also prompt existing borrowers to review their arrangements. After the [May] rate cut, it appears many borrowers came to the view that we are at, or very close to, the bottom of the interest rate cycle,” said AFG managing director Brett McKeon.

CBA tightens reins on borrowers ■ Commonwealth Bank has announced further restrictions to credit

policies for both owner-occupier and investor loan customers.

In a note sent to mortgage brokers, the major bank said it would apply a “servicing loading” of 20% to all repayments on existing home loans and lines of credit held by customers, the Australian Financial Review reported. This means repayments that were assessed at $1,000 per month will now be assessed at $1,200 per month.

CBA also said it would take a tougher stance when assessing a borrower’s income. It will only accept 80% of income from overtime, bonuses, and investment income when it is assessing owner-occupier and investment loan applications.

In addition, the major bank will not consider tax breaks that investors receive from negative gearing when deciding to approve a loan application, on investor loan applications above 90% LVR. The maximum LVR for owner-occupier loans has also been reduced to 95%.

“As the nation’s largest home loan provider we constantly review and monitor our loan portfolio to ensure we are maintaining prudent lending standards and meeting our customers’ financial needs,” the note to brokers said.

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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

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Broker: Keep calm, borrowers are fine ■ Despite the number of

DID YOU KNOW?

WORLD NEWS UNITED STATES OF AMERICA CHINA LEADS FOREIGN BUYERS OF U.S. REAL ESTATE Chinese buyers now lead the world as the top foreign investors in US real estate, and that number is expected to grow with a new program that could ease restrictions on capital outflow from China.

The program would lift the $50,000-a-year limit on withdrawing money for foreign investment, which would ostensibly extend China’s lead as top foreign buyers.

Likely to launch later this year, the plan, called the Qualified Domestic Individual Investor (QDII2), would allow investors from six cities, including Shanghai, to invest directly in overseas assets like real estate, bonds, and stocks. The program also comes at a time when China is beginning to crack down on people who use illegal means of sending money overseas.

“With QDII2 in mind, within five years we might look back and think of the current levels of Chinese cross-border investment as quaint,” Andrew Taylor, co-CEO of Juwai.com, told the Wall Street Journal.

With a massive supply of existing real estate, light foreign ownership rules and potential for new construction, Taylor expects levels to rise exponentially if the program passes in China.

The average weekly rent for a room in Sydney rose to $275.44 this year, well above the national average of

$202.62 Source: Flatmates.com.au

concerning media reports about increasing household debt, one Sydney-based mortgage broker argues that consumers are well placed to handle future interest rate hikes.

Leon Vrontamitis, a mortgage broker at Smartline in Sydney’s North Shore, says that although there will always be individual circumstances where people unfortunately find themselves under mortgage stress, the majority of borrowers are prepared to handle a modest increase in interest rates.

“When banks assess a client’s ability to repay a loan, they use a ‘test’ interest rate that is almost always above 7% p.a.,” he said.

“This means that most variable rates would have to increase by around 2.5% before clients could potentially struggle. In fact, some lenders assess repayment capacity at 8% p.a., which is nearly double the current interest rate.”

According to Vrontamitis, the average monthly variable interest rate over the last 10 years was approximately 6.71% per annum, meaning that the ‘test’ rate is even above the long-term variable interest rate.

While Vrontamitis said he had witnessed a lift in mortgage settlements in the current environment, especially as a Sydney-based broker, it doesn’t mean the quality of borrowers has slipped.

ING Direct extends referral fee increase ■ ING Direct

has extended the broker referral fee for its Living Super product to 31 August 2015, in light of recent findings of the EY and MFAA Observations Mark Woolnough on the Value of Mortgage Broking report.

The MFAA report showed that a fifth of respondents would discuss savings

accounts and transaction accounts with their brokers alongside their mortgage requirements, and almost one-third were interested in finding out more about insurance products and credit cards.

“Brokers support people with one of the biggest financial decisions they are ever likely to make, and this builds trust which brokers can build on, further deepening their client relationships and adding more value with referrals,” said ING Direct head of third party distribution Mark Woolnough.

The referral fee for Living Super was doubled from $275 (incl. GST) to $550 (incl. GST), with the increased fee originally due to run until 30 June 2015.

NEWS

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8

Brokers to catch tax windfall ■ Brokers will be key beneficiaries of the Federal Government’s decision to pass

FAST FACT 90%

John Symond

CONSUMERS TURNING TO PERSONAL LOANS ■ Research by Aussie Home Loans has

found that 58% of its customers are using personal loans to consolidate their credit card debts and other loans, with the average loan size being $20,000.

Aussie’s customers are also using personal loans for car purchases or travel, with the average age of the customer being 43 years.

According to Aussie’s executive chairman, John Symond, personal loans are regaining their popularity as consumers begin to understand that common alternatives – credit cards or adding to the mortgage – can be more expensive in the long term and take longer to pay off.

“The personal loan is coming back into fashion as it is a vehicle to consolidate multiple debts for ease of management and earlier repayment than many alternatives,” he said.

“It doesn’t make financial sense to be paying the minimum repayments on a handful of credit cards and not making any headway in paying off the principal, when personal loan interest rates are generally lower than credit card interest rates.”

Proportion of homes resold at a profit during the March 2015 quarter Source: CoreLogic RP Data

tax breaks on to small businesses, as proposed in the Federal Budget.

Treasurer Joe Hockey recently announced the passage of the government’s Jobs and Small Business package. This means that all small businesses can immediately deduct every asset costing less than $20,000 that they have purchased since Budget night, and can continue to do so until the end of June 2017. Further, small companies with a turnover of less than $2m will benefit from a 1.5% tax cut from 1 July 2015.

Brokers are set to be key beneficiaries of this decision, as business investment is expected to grow. When it was announced in May, Mortgage Choice CEO John Flavell praised the proposal, saying it would be a big win for the finance industry.

“This stream of tax breaks and incentives will help small businesses to grow and flourish. It will give small business owners the opportunity to reinvest in their businesses and take their companies to the next level,” he said.

John Flavell

FBAA calls for more haste on mortgage transfers ■ The FBAA is calling on banks to stop

sitting on discharge requests and hasten the mortgage transfer process.

This was one of the key issues FBAA chief executive Peter White talked about when he

attended an invitation-only roundtable discussion with Minister for Small Business Bruce Billson.

“Banks are notorious for holding on to a customer’s mortgage as long as possible, and we urge them to stop this unfair practice,” White said.

Currently there are no regulations or requirements about the time it takes from the approval process until settlement.

“This is the crux of the problem. If banks know they have a limited timeframe, we wouldn’t have lenders sitting on discharges for as long as they want.

“Time is money and while banks make more through maximising revenues and fee charges, the customer is the one losing out.

This delay impacts consumers and especially small businesses who need to take advantage of commercial opportunities.”

ANALYSIS 10

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Segmentation strategies: a question of ethics As brokers become more strategically important to banks, it makes sense from a business point of view that lenders would want to incentivise brokers to write more business with them. However, is this practice ethical?

B

rokers are important to lenders. The broker channel now accounts for almost 52% of total new home lending in the mortgage market, and many lenders believe the broker market share will continue to increase to as high as 60%.

In fact, a key finding of the MFAA’s recent Observations on the Value of

Mortgage Broking report was the growing strategic importance of mortgage brokers to lenders in retaining customers and managing relationships.

“A decade ago brokers tended to focus on growing their portfolio of customers and hence incentivised customers to switch via market leading pricing. Lenders now view the

broker as a channel that is effective in the retention of existing customers,” the report said.

“Lenders noted that they are moving to a partnership model with brokers whereby they work together to provide customers with the most appropriate proposition.”

So as the strategic importance of mortgage brokers continues to strengthen, it makes sense from a business point of view that lenders would want to incentivise brokers to write more business with them.

However, is this practice ethical?

This issue of segmentation strategies offered by lenders to their ‘platinum’ or ‘premium’ brokers was the most divisive question in MPA Magazine’s latest Brokers on Banks survey, splitting the respondents almost down the middle.

According to the survey, 55% of brokers said they were not in favour of segmentation strategies, leaving 45% who said they were.

A PART OF DOING BUSINESS

Siobhan Hayden, chief executive of the MFAA, says offering incentives or rewards is a part of running any business, so there is no reason why they can’t apply in financial services.

However, they need to be thought of as just that – rewards. She says it is important not to mix up standard service with rewarding quality work when discussing segmentation strategies in financial services.

“A workplace truism is ‘you get what you reward’. Like any business, lenders in the market offer a standard service and remuneration to the general market. This is freely available to all brokers that broker loans. In circumstances where brokers provide exceptional service – quality and quantity of loans – lenders are providing

ANALYSIS 11

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A LOOK AT THE NUMBERS

YES

45%

Do you support segmentation strategies?

NO

55%

16% write $0–$10m per year

17% write $10m–$20m per year

34% write $20m–$40m per year

12% write $40m–$60m per year

21% write $60m+

Of those who support segmentation

21% write $0–$10m per year

29% write $10m–$20m per year

32% write $20m–$40m per year

9% write $40m–$60m per year

9% write $60m+

Of those who oppose segmentation

Source: MPA

ANALYSIS 12

BROKERS HAVE THEIR SAY Brokers on the Australian Broker Online forums have sounded off on the issue of segmentation

“‘Top performers are always rewarded’? ERR... NO. Volume is being rewarded. Only a fool would believe quality comes from volume. The focus is on the relationship between the lender and the broker and the banks are demonstrating their ignorance of who their customer actual is!”

– Maria Rigoni

“Peter White, get out there and talk to some of your ‘non-platinum brokers’ before you make comments like this.

Platinum brokers get faster approval, better service and sometimes even better rates, and if that doesn’t affect the client/borrower, what does? The aggregator should reward their platinum brokers, as they do already, but the banks shouldn’t. Every broker should be treated equally by the banks.”

– Perth Broker

“Makes no difference anyway. As soon as brokers think things are starting to improve, lenders move the goal posts.

So I don’t think most ‘experienced’ brokers give much credibility to what they say and just get on with running their businesses the best they can through the ups and downs.”

– Skeptikal

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‘additional’ incentives or rewards,” she told Australian Broker.

“The service provided in the industry is the ‘standard’ and lenders are using additional strategies to acknowledge and reward top performance, and I agree with providing additional incentives for great outcomes. It is important to recognise that the service provided to top brokers is not the standard – and should not be viewed as such.”

While the opponents of segmentation in MPA’s Brokers on Banks survey claimed it disguised poor service levels for non-premium brokers, which could ultimately discriminate against consumers, Hayden says it is the opposite.

“Incentives in all forms are used to encourage and reward great outcomes.

As a result, I am not aware of any circumstances where an incentive for great performance has had a negative impact on consumers. Once again, I believe that most consumers are provided with good service from lenders and, on occasion, with highperforming business, consumers will receive excellent service,” she said.

Peter White, chief executive of the FBAA, agrees. He told Australian Broker that offering incentives or rewards to top brokers was fine – incentivising is different to preferential treatment.

“I don’t think it is a bad thing at all. In any industry, top performers are always rewarded,” he says.

“As far as incentivising brokers who are performing better, that’s fine. But I don’t believe in preferential treatment as such, as far as getting better rate opportunities, for example. I think that the service levels should be standard across all brokers. Everyone’s loan is important.”

According to White, it comes down to what is offered, who it affects and how it is disclosed.

“When it comes down to disadvantaging a borrower, I don’t believe that is right. Just because the broker only gives [the lender] half the volume, the client doesn’t get the same level of service – that means the actual outcome has nothing to do with the broker; the outcome is all about the borrower,” he said.

“If it is a financial incentive, that is one thing and it needs to be disclosed.

But if I am a ‘platinum’ broker with a lender and that means I can get the loan approved in two hours, but with anyone else it is going to take them two weeks, I don’t believe that is correct because you are actually penalising the broker who isn’t a platinum status. All loans should be treated with the same priority,

Siobhan Hayden

I AM NOT AWARE OF ANY CIRCUMSTANCES WHERE AN INCENTIVE FOR GREAT PERFORMANCE HAS HAD A NEGATIVE IMPACT ON CONSUMERS – S IOBHAN HAYDEN, MFAA regardless of who they come from.

“If there is disclosure and it ultimately doesn’t disadvantage the borrower, then it is okay. If it disadvantages the borrower, who is an innocent party to this leveraging of platinum brokers, then that is not fair.”

GOOD IN THEORY BUT COMPLICATED IN PRACTICE

While Zain Peart, founder of Zep Finance in Ballina, says he can understand why segregating your market is good from a business perspective, he says it isn’t always ideal in practice.

“As a business owner, I can see why the banks are separating their market and treating brokers who give them more business in a slightly better manner, but I think that they have to really watch

ANALYSIS 13

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out that they are not segregating them so much that the broker at the bottom feels like they are aren’t getting a decent level of service,” he told Australian Broker. “[Segregation strategies] also tend to favour large brokerages more as well, because a lot of the larger players put a lot of loans through just the one loan writer and they have a lot of people working for them. So for a single broker that is working in a smaller town, like myself, it is very hard to get premium status if it is strictly based on volume.”

Ken Bruns, senior mortgage adviser

at Loan Planners in SA, told Australian Broker that segregation strategies came with inherent, unavoidable biases at the end of the day, which often worked against the consumer.

“My core belief is that brokers are here only to serve the clients. We have to deal with the banks honestly and earnestly, but our purpose is that of a guide for those who put their trust in our impartiality. With that in mind it begs the question – who does segmentation serve best out of the three participants involved: the client, the broker or the bank?

“My contention would be that the benefit is mostly spread between the bank and the broker, in that it gives the broker a sense of belonging and importance and the bank gets some ownership and expectation of getting more deals from that broker than it would deserve on a level playing field.”

In fact, the whole idea behind segmentation strategies uncovers a deeper problem for Bruns.

“Frankly, it’s no shock to see that the banks that specialise in the segmentation methods are also those who are least competitive generally.

I know there’s an argument that it gives the client access to swifter response times etc., but the question then becomes: isn’t that an admission that that bank is too slow via its normal channel? And shouldn’t that be their focus?”

A HAPPY MEDIUM

Peter White

IF THERE IS DISCLOSURE AND IT ULTIMATELY DOESN’T DISADVANTAGE THE BORROWER, THEN IT IS OKAY. IF IT DISADVANTAGES THE BORROWER, WHO IS AN INNOCENT PARTY TO THIS LEVERAGING OF PLATINUM BROKERS, THEN THAT IS NOT FAIR – P ETER WHITE, FBAA

However, Peart says segregation strategies can work, depending on the focus and type of strategy.

“Segregating on different areas and not just volume would be great. I am a premium broker with one lender – I give them a bit of my business but it certainly doesn’t persuade me to give them any more of my business.

However, if I knew a loan needed to be assessed really quickly, I know I could put it through them for that reason. It is a benefit to the customer, not a benefit to the broker or bank.

“As soon as they say I will give you more money if you give me more deals, I think that is wrong. I know personally that I don’t look at commission rates whatsoever. I had my business coach ask me why I didn’t look at commission and I said because it is not in the favour of the customer, and I only do what is best for the customer.

“But there are some people who are very business-minded and if they know they are a premium broker and are going to get more money for putting the deal in, that’s where it becomes unethical.”

NEWS 14

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CONTINUED FROM PAGE 1

strategy, ensuring that it “aligns with the organisation’s key strategic priorities of growing sustainably, people and culture, simplicity to drive productivity by making banking easier and, perhaps most importantly, customer experience”.

“The challenge with the strategy is around prioritisation and investment, what changes and projects are required, and how do these stack up against each other in terms of delivering value to brokers and better outcomes to customers,” he said.

At the moment, this comes down to identifying the bank’s short-, medium- and long-term priorities for change in the broker channel. A big part of this, he said, was engaging the broker market directly for feedback.

“My personal goal is to actively engage the market and ensure we not only take on feedback from brokers about our plans but, more importantly, make the necessary changes as a result of this feedback. Feedback is a gift that brokers are very generous in giving; it’s what you do with this feedback that makes it valuable.”

CHALLENGES AHEAD

Stewart A Saunders: Grabbing non-major market share The new Bankwest broker head on competing against the Big Four

fter nearly a decade at ME Bank, Saunders said he knew his next move would be externally, most likely with a larger organisation.

With his new role comes a new mandate, he said.

“In my previous role, I was mandated to establish the broker channel for ME Bank and build the broker proposition. With Bankwest, I’m joining an iconic institution that turns 120 years old this year, which presents a new challenge in building on the success delivered by the team in the broker market to ensure that we remain a significant player in the market,” Saunders said.

“While this is a different mandate, it is fundamentally the same challenge of understanding the broker value proposition, including engagement with our stakeholders and feedback from brokers, ensuring the strategy is aligned with delivering on this proposition.”

Saunders has been in his new role for a month, and he said he was continuing to work through the bank’s specific broker

Non-majors may benefit from the regulatory changes coming with Basel 4, which could see the playing field levelled. But whether major or non-major, Saunders said all lenders faced the same challenges in growing their market share.

“Having a competitive offer that resonates with brokers and their customers is paramount, but it’s what this offer entails that is both challenging and central to success,” he said.

And all lenders are facing challenges in a changing marketplace, Saunders said.

“The changes in the mortgage market we’re currently seeing are quite considerable, with a significant level of credit policy change occurring across the sector. Then there is the ubiquitous coverage of digital disruptors and new potential competitors from the technology sphere that also present a competitive threat,” he said.

Add to this low credit growth and record low interest rates, and the market can seem a particularly turbulent one.

But Saunders sees the complex competitive landscape as an opportunity for both lenders and brokers.

“From periods of great change come great opportunities, and it is up to all of us to position our business to respond to these

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NEWS

changes. It’s about capitalising on Bankwest’s size and agility, as well as our incredibly talented IT and technology teams, to respond to customer and market demands in short timeframes in order to not only meet but exceed expectations,” he said.

For brokers, he said success largely depended on spending time working on their businesses rather than merely working in them.

“When speaking to successful brokers across the country, the two constant observations are that they all take the time to work on the business and deliver an outstanding customer experience. Working on the business falls broadly into two categories: planning and business development.”

Saunders said it was crucial that brokers spent time thinking about both of these areas in order to adapt to the future market.

“Having a plan in a changing market that concurrently reflects where your business is at currently and articulates goals for the future is paramount to ensuring that the focus is on delivering each step required to achieve longer-term goals.

MY PERSONAL GOAL IS TO ACTIVELY ENGAGE THE MARKET AND ENSURE WE NOT ONLY TAKE ON FEEDBACK FROM BROKERS ABOUT OUR PLANS BUT, MORE IMPORTANTLY, MAKE THE NECESSARY CHANGES AS A RESULT OF THIS FEEDBACK

“Business development is fundamental in building a business. From traditional word of mouth, digital, advertising, right through to established referral partners, setting goals for business development will ensure building a new customer base to underpin their growth.”

But perhaps most crucial is ensuring strong customer relationships. Saunders said this was Bankwest’s focus for both its customers and its broker network, and it was critical for brokers as well.

“Delivering an outstanding customer experience is critical to ensuring brokers build an emotional connection with their customers and not just a transactional one.”

15

TECHNOLOGY UPDATE

Connective, NextGen.Net talk ‘technology-driven broker diversification’

Glenn Lees, Connective

Increasingly, the challenge for brokers is to stay relevant.

Without an online, digital presence brokers run the risk of becoming invisible, and unless they’re across the range of prospects that technology offers there is a danger they could go the way of the dinosaurs.

Connective, which prides itself on its digital focus and expertise, is busily encouraging brokers to take advantage of the constantly evolving sophistication of platforms such as NextGen.Net’s ApplyOnline, and grow their businesses to the next stage.

“We’re urging brokers to value data capture and recognise that the information they have about existing borrowers could mean business opportunities that tap into customer needs,” said Connective CEO Glenn Lees.

“Let’s single out Next.Gen.Net. Ninety per cent of mortgages Connective brokers write are through NextGen.Net’s platform, ApplyOnline. One consequence of this is that there is an enormous amount of data captured.

“Not only is that data a great demographic snapshot, it’s an excellent predicator for what these consumers might do.

For example, there is a strong correlation between buying a new house and purchasing a new car within the next 12 months. And did you know people don’t start thinking about superannuation until they turn 46?”

Lees points out that even at a very simple level if brokers could start taking advantage of data collected through the home loan application process they could begin having tailored conversations with customers and add enormous value to the relationship.

Consequently, these brokers would be more likely to become

Tony Carn, NextGen.Net

the chosen conduit for purchasing that customer’s next product, said NextGen.Net sales director Tony Carn, stressing that the quality of data was key to the success of this exercise.

“Our raison d’être at NextGen.Net is all about quality, and knowing you can trust the data quality it then becomes extremely valuable for further action and cross-sell opportunities,” Carn said.

NextGen.Net shares quality tools with other parties to improve the accuracy of data.

For example, Connective uses an Application Programming Interface (API) service from NextGen.Net to validate the address of a borrower.

Previously, said Carn, brokers had to manually enter the address data in up to eight different fields. Now Connective brokers just need to start typing until they see the address in the live list of suggestions.

“The API not only prevalidates addresses to improve data quality, it enables Connective to capture the geo-location of each address. This means going forward brokers will be able to search for customers by location.”

Mortgage brokers’ market share is increasing. This drives competition among brokers.

Significantly, consumer behaviour is changing regarding engagement with providers and brands, Lees said.

“So it’s vital that brokers capitalise on this.

“There is a rich source of data embedded in the application data on the NextGen.Net ApplyOnline platform, and every broker should think about how they can leverage that information for the benefit of their customers and to diversify their business.”

SPECIAL REPORT

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16

Taking the mystery out of commercial La Trobe Financial’s Cory Bannister says commercial lending could be simpler than you think

T

he idea of diversification is hardly news to brokers.

Aggregators and lenders have been pushing the necessity of diversification for years.

For brokers who are looking to add new revenue streams, commercial lending can often end up in the ‘too hard’ basket. But according to La Trobe Financial vice president and head of distribution Cory Bannister, commercial lending is not as frightening as many brokers seem to think.

“By far the most common misconception we hear regarding commercial lending is that it is incredibly complex – best left for specialist brokers, and certainly not for the faint-hearted. Our view is that it doesn’t need to be,” he says.

Bannister says lender choice could make all the difference for brokers looking to break into commercial lending.

“One of the most crucial decisions a broker will make when lodging a transaction is which lender to use, as this will often dictate the level of difficulty or complexity. Brokers should investigate a lender’s policy and process for the specific transaction prior to lodging to avoid any unnecessary delays or surprises,” he says.

DEBUNKING THE MYTHS

Bannister says there are a few common reasons brokers tend to have the misconception that commercial lending is best left to specialists.

First and foremost is having previously had a bad experience.

“The broker may have attempted a commercial transaction and chosen the wrong lender partner, which typically means that the lender’s policies and procedures are too complex, or they received no support from the lender BDM to package the transaction, and they probably had no access to a credit team willing to guide them through the process; or simply they may have chosen the wrong ‘first transaction’. Like anything, often you need to crawl before you walk,” he says.

Another reason many brokers feel commercial lending is out of their reach is simply because of rhetoric in the market. Or, as Bannister puts it, “because ‘they’ said so”.

“The often-told fable that commercial lending is too hard or too complex has been around as long as Aesop, and it has been told so often that it is hard not to believe or ignore it. Think about who told you this fable; chances are they don’t want you to get involved, because they

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17

already are, or they, too, are afraid to try. Try for yourself and decide.”

Finally, Bannister says many brokers are simply uncertain where to start when looking to break into the commercial market.

“Starting anything new is often the hardest part of the process, whether it is learning a new sport, a new language, or in this case writing a new loan product, which is often because you don’t know where to begin.

Give two to three lender BDMs a call and ask them to assist you,” he says.

COMMERCIAL

BY THE NUMBERS

Commercial finance accounted for

GETTING STARTED

Bannister says the commercial finance market is incredibly varied, both in terms of the products on offer and the variants in each product.

“Almost every conceivable commercial finance need is adequately catered for today. For brokers, it is about finding the lender you are most comfortable with for providing the required solution for your client. This is not always price driven, particularly in the commercial space where the solution, coupled with ease of dealing, is often paramount,” Bannister says.

STARTING ANYTHING NEW IS OFTEN THE HARDEST PART OF THE PROCESS, WHETHER IT IS LEARNING A NEW SPORT, A NEW LANGUAGE, OR IN THIS CASE WRITING A NEW LOAN PRODUCT

For brokers looking to get started in commercial lending, Bannister says their aggregator should be their first resource.

“We would suggest that where the broker is a member of an aggregation group, the aggregator BDM is often the best place to start for advice. Aggregation groups often have an internal referral network for commercial finance, drawing on

$46.5bn in lending in April

the experience of other brokers within the group who can assist with mentoring or training requirements.

Aggregator BDMs will also have a solid understanding of various lender policies and can work with lender BDMs to arrange any necessary training and accreditation needs where required,” he says.

Accreditation can also be a hurdle for brokers to clear in the process of entering the commercial market, Bannister says.

“Lender accreditation can often be the first hurdle a broker faces, so you should make a specific enquiry about this before you attempt to lodge applications, as the volume of commercial business a broker intends to write with a lender will likely determine if the sometimes onerous accreditation requirements are worth the time and effort. There are some lenders with reasonably simple, even automatic, accreditation processes for commercial lending, offering their product training with live applications on the fly,” he says.

When looking for commercial customers, however, Bannister says brokers should first look at their existing database.

“Brokers should mine their CRM to identify clients who already hold commercial property and see if there is an opportunity to refinance it for them, particularly if they have held the property for some time. We often see untapped equity sitting in a customer’s asset and liability statement tied to commercial property,” he says.

A deeper look into their CRM may help brokers see potential commercial clients who don’t yet hold commercial property, Bannister suggests.

“The next step would be to look for self-employed clients, and approach them to see if they are interested in purchasing premises to conduct their business from, possibly even in an SMSF structure whilst the opportunity remains.

This is where brokers can work in well with financial planners in providing overall solutions for the client,” he says.

And in looking outside their database, Bannister says brokers can turn to referral relationships to find potential clients.

“In terms of lead generation, apart from the broker’s existing database, which we would recommend brokers start with initially, we would suggest brokers align themselves with complementary partners such as financial planners or accountants who are often a good source of referral for commercial transactions,” he says.

But, perhaps most importantly, Bannister says brokers should start small when engaging in commercial lending for the first time.

“We recommend brokers start with reasonably small, non-complex commercial transactions and use lenders who are willing to assist them throughout the process. This is where a close working relationship with a supportive and solutionsbased lender becomes imperative.”

Commercial finance saw a

4%

seasonally adjusted rise in value for April

Lease finance accounted for

$533m in lending for April

BEST PRACTICE 18

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Lead generation 101: Quit talking about interest rates Interest rates may be dominating the news at the moment, but brokers should steer away from relying on an “interest rate approach” when it comes to generating leads and referrals, according to a leading finance marketer

W

hile partnering with real estate agents and attending open houses is one of the most popular and effective ways to network and generate leads as a broker, when Linda Abela, client acquisition at Your Client Matters, was attending open houses recently, she noticed that many brokers were using this opportunity to talk to consumers about low interest rates.

But while low interest rates may be driving consumers to property, Abela says it isn’t the best way to start a conversation and stand out as a broker.

“Interest rates are something that consumers are getting excited about because they are so low, but consumers are also becoming savvier now as well,” she told Australian Broker.

“Interest rates are all over the TV, and many consumers are probably getting emails about it. But there is a lot of competition out there so brokers

should be going in and being different to stand out, not just being another person talking to them about interest rates.

Also, as brokers know, it is not necessarily the best interest rate which is going to be the right fit for each of their customers.”

In fact, the most successful way to start a conversation and generate interest has nothing to do with talking about business at all. “… first of all, the consumer has never met you before in most instances, so you are a stranger. So, the first thing you should do if you are looking to grow your business and generate new leads is to establish a rapport and a connection in the first instance, not just launch in with what’s in it for them.

“When you are a broker, people are sharing some really private information with you, and most people aren’t going to tell you all their private information in the first conversation you have with them. You have got to build their trust.”

But once you have opened up the lines of communication and built up a rapport, you still shouldn’t launch straight into interest rates, Abela says.

Brokers need to give the consumer a unique call to action.

“There has always got to be a call to action; something to pique their interest,” she told Australian Broker.

“What we teach our brokers through our program is to run competitions, and the competitions are of a large value so they get the attention of the consumer.

Then through the competition the broker can ask questions to find out more about what is going on in the clients’ lives. We also recommend that the broker gives the consumer a chance to opt in to their ongoing communication.

“At Your Client Matters, we can also provide topic sheets to our brokers about educational content or other things that are of interest to the consumer. So then the broker is getting all the contact details, they are getting them to opt in, and they are giving themselves a reason, other than rates, to pick up the phone and call these people.”

While partnering with real estate agents is a foolproof way of generating qualified leads, brokers shouldn’t be afraid to think outside the box either.

“There is a whole range of different avenues that brokers can explore, so they

can work with the more traditional lead generators such as real estate agents, accountants or financial planners, but they can even work with their local coffee shop or sporting organisation,” Abela said.

“A very popular one which a lot of people wouldn’t think of is a daycare centre. You have lots of mums and dads walking in, and there is always information in daycare centres that you can pick up, take home and read.

“Brokers have got to think outside

INTEREST RATES ARE SOMETHING THAT CONSUMERS ARE GETTING EXCITED ABOUT BECAUSE THEY ARE SO LOW, BUT CONSUMERS ARE ALSO BECOMING SAVVIER NOW – L INDA ABELA

the square sometimes, and just because something hasn’t worked for them in the past, they should never let it stop them from trying again or going down a different avenue. There are the traditional networks that everyone thinks of, but there are so many other opportunities out there as well.”

In saying that, though, Abela says the biggest mistake a broker can make when generating leads is to not give it a go at all.

“The biggest mistake is not giving it a go. The best things about the brokers I did see were that they were willing to get out there and give it a shot,” she said.

“They were a little bit misguided in the way they went about it, but I gave them kudos because they did put themselves out there, whereas so many others aren’t. In a competitive market, brokers need to be getting out there and at least giving it a go, and learning from their experiences.”

BUSINESS INTELLIGENCE 19

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Leaders and managers: Your business needs both Business consultant Samuel Day on the difference between good leadership and good management

People who are good at their jobs are often promoted into leadership positions, tasked with managing a team, and are expected to do this well. However, not all people managers are effective leaders, and in today’s world it takes both to mobilise a workforce and move a business forward.

ATTRIBUTES OF AN EFFECTIVE LEADER

Leaders have an ability to attract followers – people who want to be led by them, and they do this by earning respect. Leaders embody six important traits, which they need to demonstrate on a daily basis in order to gain respect and be seen as authentic:

CONFIDENCE AND A DESIRE TO LEAD

Leaders have a strong desire to influence others.

They demonstrate a willingness to take responsibility and possess the self-confidence required to convince their team of the rightness of goals and decisions.

M

any businesses fall into the trap of believing that experience makes a good boss. However, while experience is valuable in managerial roles, an effective people manager – and there may be many scattered at all levels throughout a business – is someone who is both a manager and a leader and is skilled at combining the two to achieve a goal.

So what sets leadership and management apart? Leadership is about inspiring others to achieve a vision or shared objective and is about who you are as a person and your ability to influence, motivate and enable others.

Management on the other hand is about executing a vision in a systematic way and through directing people. Reliant on control, management centres on systems and processes and revolves around the planning, allocation and measurement of work and resources.

Leadership and management must go hand in hand. A leader without management skills will struggle to bring a vision to reality, while a manager who cannot lead will struggle to gain the support and trust of his or her team and lose engagement.

TRUSTWORTHINESS

Leaders must be seen to be trustworthy and reliable by those around them. Honesty and integrity are essential for building trusting relationships, and failure to do this will undermine a leader’s legitimacy and credibility in the eyes of his or her team. To be regarded as someone with integrity, a strong consistency between word and deed is essential, as lip service or hypocrisy can quickly build frustration and resentment in the team.

DRIVE AND PASSION

Leaders possess a strong desire to succeed. They are ambitious and exhibit a high effort level, persistence in their activities and a passion for the work they do.

FAR-SIGHTEDNESS

Leaders need to rally others around a shared vision, which means they need to envision a successful future and be able to help others do the same. Being able to paint a picture of a bright future and instil confidence in the people you lead is one of the most important traits in a leader.

KNOWLEDGEABLE

Effective leaders are intelligent and have a high degree of knowledge about the company, industry, and technical matters.

In-depth knowledge allows leaders to make well-informed decisions and to understand the implications of those decisions.

COMPASSIONATE

There is a greater emphasis on corporate social responsibility and work with a purpose in today’s environment, and leaders who value the welfare of their staff, customers and the community are seen as being increasingly important.

INNOVATIVE

Innovative leaders need not be the ones that come up with the great ideas, but they certainly can recognise one when they see it and must have the ability to create a vision around the idea and a path to make it a reality. In addition to having a powerful imagination, they understand the importance of embracing differences for the purpose of innovation and are skilled at bringing a diverse workforce together to challenge the status quo.

LEAVE A LEGACY

Leaders leave behind a stamp on the organisations they serve – something that represents a body of their work, for which they will be remembered.

Steve Jobs is one example of a famous leader who was skilled in building and leaving behind a legacy that created sustainability for the success he achieved.

In a people-driven economy where a company’s greatest asset lies in its staff, the ability of those in managerial positions to not only manage but also lead is paramount to success. Management and leadership complement each other, and successful people managers will use both to move the business forward.

Samuel Day is the managing director of Happening People. Happening People provides organisational development strategies and people management consultancy to Australia’s leading businesses and executive leaders, and is the provider of www.managersdoor.com.

THE COALFACE 20

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A broker on the move UK broker Nermalee Bowe landed in Australia three years ago and has found her feet quickly, having already received an AMA award, as well as awards from the MFAA and Bankwest

This act in itself sums up broker Bowe’s attitude to broking and her dedication to her customers, and perhaps why she has transitioned so well to broking in a different country – she has a candid, no-frills approach to the profession and brings everything back to its fundamentals.

“It’s all about relationship building,” she says, “whether it’s with your customers or it’s with the bank.” And it’s about relationships with the lenders especially, she adds, because when things go south you need their help the most.

A specialist in residential loans, Bowe started her career in banking and finance in 1998.

She moved from Brighton in the UK to North Sydney three years ago and has already gained industry recognition.

FROM UK TO AUSTRALIA

D

o you know what I’m doing right now?” asks Nermalee Bowe during an interview with Australian Broker. “I’m in the airport, on my way to Melbourne, and what I’m doing tomorrow is I’m just catching up with some of my favourite customers that I’ve dealt with over the last couple of years that I’ve not had a chance to meet personally.” She adds that she’ll take them out for their choice of coffee, beer or lunch.

Bowe’s strong financial background stems from her introduction to the industry at John Charcol, one of the UK’s largest independent mortgage brokers. She also has extensive experience in life and health insurance but moved to Australia to seek out broking opportunities after the GFC. She has been with a young boutique brokerage called QuickSelect ever since.

“It’s difficult to get staff who not only have experience but also have the tenacity and drive to do it,” Bowe points out. “It’s a certain type of personality that does this job.”

But QuickSelect clearly saw she was cut out for it, along with her strong background in lead generation.

“I really appreciate them and I get a chance to make a mark because it’s not a big company and there’s been a lot of support with ongoing training. They’re there to support me in terms of the fact that where I want to expand is more dealing with international customers and assisting them.”

Bowe points out that although things may have changed in the UK since she was a broker there in 2007, she has noticed a few differences in the industry between the two countries.

“If I’m honest, the paperwork here is a lot more intensive – it is easier in England, much easier,” says Bowe, explaining that positive credit reporting in England eliminates the need to see statements to confirm late or missed payments, speeding up the overall process and providing a better overview of

how a person manages their finances.

However, she points out that in Australia it is easier to buy investment property than in the UK, or was before the recent APRA investment crackdown.

“In England, you can’t use your income, so if you want to buy an investment property, [the loan] has to service on the rental income alone. So basically you have to put down a massive amount of deposit in order to buy an investment property because the rental that you receive is never going to be enough to get the loan that you want.”

THERE’S A HUGE MARKET FOR EXPATS THAT LIVE OVERSEAS WHO NEED TO REFINANCE THEIR PROPERTIES She has noticed that her Australian customers tend to lean more towards the four major banks over other lenders than borrowers in the UK, and professionals in the industry are generally older, compared to a younger demographic in the UK. “[Australians] are very wary of smaller banks and second-tier lenders. They’ve got more faith in the big four.”

INDUSTRY RECOGNITION

Bowe already has a number of esteemed accolades to put on the mantelpiece, including the Australian Mortgage Awards 2014 Finalist Young Gun of the Year, the MFAA Excellence Awards 2014 Finalist Achievement Award and the Bankwest Broker of the Year 2013 Finalist Rookie of the Year.

So how did she come to be a part of the broking world? “I was an admin person for a broking company and I hated my job and I wanted to make more money,” says Bowe. She found the opportunity when a job opening came up and discovered she had a natural tenacity for the role.

“It’s not a sales job for me,” says Bowe, and adds that she will focus on carving a niche for herself going forward. “There’s a huge market for expats that live overseas who need to refinance their properties. So that’s something I’m going to work on personally.”

BIG IDEA 21

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New social network for finance could be the next game changer A new financial social network will allow consumers to discuss and compare home loans. So how does this fit with what brokers have to offer?

T

Peter Coco

he rise of the online world continues to disrupt and transform the mortgage and finance industry – from online-only lenders to online financial comparison sites. Now, a new social network for finance – which allows consumers to discuss and compare home loans – could be the next game changer for the industry. dfinanz.com, launched at the beginning of June, connects financial consumers by giving them a platform to share insights, ask questions, and compare financial products with each other.

The founder of dfinanz, Peter Coco, explained to Australian Broker that there were two components to the new financial social network.

“The first one is the ability to post content, ask questions and share insights – and that is done through the traditional social network framework which is quite similar to Facebook,” he said.

“The second component is the ‘fair rate movement’, where we operate the ‘fair rate list’ … It provides people with the ability to signal to each other and signal to their providers the rates at which they are prepared to make a decision around whether they refinance or not.”

The ‘fair rate list’ is a centralised database compiled by users submitting details about their mortgage – bank, loan size, current interest rate, and the rate they are seeking to pay.

According to Coco, allowing consumers to compare their mortgages using the fair rate list provides them with a reference point for where the market might be. It is also completely free, completely anonymous, and completely free of obligation to all financial consumers.

Coco – who has a background in finance spanning 20 years, working in financial markets at large institutions including NAB – told Australian Broker the idea to launch dfinanz came from a desire to bring transparency and clarity to home loans.

“My professional background is financial markets. It is one of those things where I can sit on a trading desk and I can obtain at any second in time where LIBOR in England is trading, but then for me to get information about what a fair interest rate on a home loan is, I have got to go wading through rubbish.

“So I put together a team and thought, let’s just build this thing and take some of the transparency that you do find in financial markets and take it across into this area of finance.”

While dfinanz, like mortgage brokers, aims to transform the mortgage relationship by shifting the discussion away from a one-on-one between consumers and banks, Coco told Australian Broker that he did not see the site as a competitor for brokers.

“We are not a competitor for brokers. Brokers over the last 20 years have added a great

deal of value to the system.

They have managed to bring that price intention into the equation between the banks, which didn’t exist prior to brokers coming on the scene.

So they’ve added a great deal of value there,” he said.

“But brokers also provide that sort of personal relationship and advice piece that some people need. We respect that and we appreciate what they do. We are a social network for finance so we just try and provide a framework where people can interact with each other and assist each other. The people who use brokers at the moment are likely to be the people who will continue to use brokers going forward.”

Coco says he hopes consumers will use dfinanz in conjunction with brokers, as another tool to help clarify and simplify the home loan process.

“Can consumers and brokers benefit from dfinanz in any way?

Absolutely they can. Consumers can use it to get a pulse check on where the market is and then use that in conjunction with the personal advice of their broker.”

When asked whether dfinanz had any plans to partner with the broker channel, Coco said it was too early to tell, as their main priority currently is to focus on building the network.

However, he did not rule the opportunity out.

While dfinanz has been focusing on home loans for its launch, Coco said the social network would expand to cover broader economics and financial markets as well.

“As a social network, it is an information repository – if it is finance related we will throw it in there,” he told Australian Broker. dfinanz was founded in Australia but is also operating globally in the USA, the UK, New Zealand and Spain, with plans to expand further as it builds its network.

MARKET TALK

brokernews.com.au

22

Time to stamp out stamp duty?

Stamp duty has come under fire, but some experts say it’s just part of a larger housing problem

T

here’s no doubt stamp duty is an unpopular tax, and now new analysis shows that average stamp duty costs have increased by between 527% and 795% across the country in the last 20 years, throwing up a major barrier to home ownership in Australia.

According to the analysis by the Property Council of Australia, the true cost of stamp duty over the life of an average mortgage is now $61,542 in Sydney, $56,616 in Melbourne, $14,733 in Brisbane, $21,564 in Hobart, $33,654 in Perth, $35,427 in Canberra, $30,393 in Adelaide and $49,701 in Darwin.

Property Council of Australia chief executive Ken Morrison says stamp duty is out of control and is now one of the biggest impediments to entering the housing market.

“Stamp duty has become a runaway cash grab that’s hurting Australia’s economy and locking out potential homebuyers,” he said.

“These astounding increases in the costs of stamp duty are nothing short of scandalous.

“Stamp duty is effectively the last dollar you pay off your mortgage and homebuyers can’t afford to be hit with tens of thousands of extra dollars in the cost of an average house. But that’s exactly what is happening now under this out-of-control system, despite the low interest environment.”

According to Morrison, both the Henry Tax Review and the recent tax discussion paper identified stamp duty as the tax with highest costs to economic growth and living standards.

“Treasury’s own modelling shows that Australia’s economic welfare is reduced by 73 cents for every dollar of stamp duty revenue. That’s 50% worse than company tax, and three and a half times worse than GST or income tax.

“Taxes are supposed to lean lightly on the economy, not act as a barrier to

economic activity, job creation and prosperity, but that is exactly what stamp duty does.”

The Property Council has commissioned detailed research on improved taxation models as part of its submission to the Federal Government’s tax white paper reform process. This research recommends replacing stamp duty with more efficient and less harmful revenue sources such as GST. The Real Estate Institute of New South Wales (REINSW) has joined the debate over the future of stamp duty in Australia, criticising the NSW Government’s stance on the issue.

REINSW president Malcolm Gunning has urged the State Government to rethink its approach to the issue after what it believes were misguided comments from Premier Mike Baird.

According to REINSW, Baird told ABC News recently that “reducing stamp duty at this time will add to the affordability crisis … by giving a stimulus to an already heated market.”

The REINSW believes the opposite, claiming changes to the state’s stamp duty arrangements will see house prices fall.

“Abolishing stamp duty for first home buyers on existing properties and reviewing stamp duty rates that have not been touched for 30 years would see more properties enter the market,” Gunning said.

“Lower volumes drive higher property prices, while higher volumes slow the market and improve affordability.

PART OF A BIGGER PROBLEM

But Housing Industry Association chief executive of industry policy and media Graham Wolfe says stamp duty is just one part of a bigger problem.

“In some states the total tax bill amounts to over 40% of the final price of a new home,” he said. “… there are many other taxes on new homes, including developer infrastructure levies, which can be over $70,000 on a new house and land package, and which unfairly require new home buyers to fund community assets upfront.”

Wolfe argues that GST also needs an overhaul.

“GST is levied on new homes but not existing properties. Adding tens of thousands of dollars on a new home, GST creates a price differential between new and existing residential properties, which hits affordability, supply, employment and economic activity,” he said.

However, Wolfe said the “cascading effect” of taxes was the biggest problem facing housing affordability.

“Infrastructure charges, GST and stamp duty add $140,000 and more to the cost of a new home in Sydney, while a plethora of other taxes, levies, fees, changes, rates and duties take the total tax grab to over 40% of a new house and land package,” he said.

“Taxes add more than $250,000 to the price of a new home in Sydney, accounting for 40% ($1,350 per month) of repayments for the life of a home mortgage.”

AVERAGE STAMP DUTY COSTS...

$49,701 $14,733

$61,542

$33,654

$35,427

$30,393

$56,616 Source: ATO

$21,564

MARKET TALK brokernews.com.au

23

Homebuyers prepared to sacrifice A new survey has found that more Australians are willing to sacrifice to get onto the property ladder

A

s rising property prices stretch homebuyers to the limit, more and more Australians are prepared to make compromises or sacrifices to get onto the property ladder, according to new research.

According to the research by non-bank lender Homeloans Ltd, almost 42% of survey respondents – the majority of whom have already purchased their homes – said they were willing to give up everyday luxuries such as buying lunch, going out for dinner or drinks, or subscribing to Pay TV. However, the most favoured strategy with almost half of all respondents was starting a regular savings plan and putting in extra money when possible.

The research also found that would-be buyers would choose to live with their parents or in-laws (30%) or work more than one job (29%) to help save for a deposit. Around one-third (33%) of respondents took advantage of the First Home Owner Grant to help them achieve their dream of buying a home.

“For many people, owning their own home is a dream they are determined to make a reality, and our survey highlights the lengths some will go to,” Homeloans national marketing manager Will Keall said.

“Many are willing to streamline their social life or pull in their belts to grasp that first rung of home ownership.”

When it comes to the length of time it takes to save for a deposit, the survey found that four out of five respondents took over a year, with around 39% taking two years or more to come up with the required sum.

“A number said it took five years to have enough money for the deposit,” Keall says.

“This highlights how Australia’s high cost of living makes it challenging to save, and that property prices are stretching homebuyers to the limit.”

The amount of deposit obviously varies according to circumstances, needs and type of loan, but the majority of those surveyed had a deposit of between 5% and 9%.

This was followed closely by a deposit of 10–14%. A handful of respondents had a deposit ranging from 42% to 100%.

Paying LMI was almost evenly split, with 51% saying they didn’t pay it and 49% saying they did.

What really stood out, according to Keall, was that the majority of homebuyers – whether baby boomers, or Generations X or Y – purchased their first home before they turned 30.

This statistic was highest among those born in the 1970s (54.14%), while almost 44% born in that decade bought by the time they were 28.

Across all generations, around a quarter even bought their first home by the time they were 25. Those born in the 1980s were a little more gung-ho, with more than 27% having bought their first home by 25.

LMI EVENLY SPLIT

AUSSIE HOUSEHOLDS VULNERABLE

DID YOU KNOW?

51%

51% of NSW residents believe they will never be able to afford property Source: Domain

PROPORTION OF HOMEBUYERS WHO HAD TO PAY LMI Didn’t pay LMI

51%

Paid LMI

49%

Source: Homeloans

Despite historically low interest rates, many Australian households are dangerously exposed to financial shocks, according to a new study.

These are the findings of the ING Direct Household Financial Fitness Test, which measures financial fitness based on how well households would cope if the main income earner experienced unemployment and how quickly the household could pay off an unexpected bill of $10,000.

According to the report, half of Australia’s households would face difficulties covering their living costs if the main income earner lost their job. Almost two out of five (37%) could only survive for one month or less if the main income earner lost their job, and just under half (45%) of households would struggle to pay off an unexpected expense of $10,000 within three months.

“These findings highlight the importance of building a pool of savings that can provide a buffer in financial emergencies,” said ING Direct executive director of customers John Arnott.

The findings come as low interest rates push the ING Direct Financial Wellbeing Index to the highest level since tracking began in the first quarter of 2010. According to the index, the vast majority of households (95%) say they are comfortable with their mortgage, and 84% say they are comfortable with their household income.

“While low mortgage rates are good for households, homebuyers need to be mindful that rates can rise,” Arnott said.

FINANCIAL SERVICES 24

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BUFFETT EXPLAINS AUSSIE INSURER INVESTMENT Warren Buffett, CEO of Berkshire Hathaway, has revealed what drove the company to its “strategic partnership” with IAG, announced earlier this month.

The ‘Oracle of Omaha’ told investors via video link that IAG offered a “very important and enduring relationship” that would help establish Berkshire Hathaway in Australia and New Zealand.

“Berkshire is a large, very diversified company here in the United States, but despite the fact that we are in a great many Warren Buffett businesses, our first love, our long-time love and our future love has always been the insurance business,” Buffett said of the investment.

Buffett noted that Berkshire Hathaway had been involved in the insurance business since 1967 and a stake of US$8m had developed into a multinational business worth over US$100bn, and that long-term development had led the company to IAG. “In the course of that business, 15 years ago or so, we entered our first commercial transaction with IAG, and as the years have passed and we’ve gotten to know them better and they’ve gotten to know us better, we’ve both found a great deal to admire in each other’s organisations.

“Very recently, we decided to cast aside a commercial relationship and establish a very important and enduring partnership arrangement.

IAG is a terrifically strong company with great strengths in many areas, Berkshire has got some strengths and we believe by bringing these two companies closer together as partners, that each company will benefit in a very substantial way.”

Buffett was quick to note that while the original agreement was for 10 years, Berkshire Hathaway saw the IAG investment as a long-term plan to develop business in the region.

“Even though this contract runs for 10 years I expect for decades and decades and decades to come that both companies will benefit in many ways that we can’t even perhaps visualise right now, so I’m looking forward to it, our managers are looking forward to it, our shareholders are looking forward to this partnership, and I can’t tell you how delighted I am to be with it.”

SA financial adviser convicted of dishonest conduct

A

former director of a financial advice company has been convicted of dishonest conduct.

In October 2014, Barry David Hassell of Athelstone, SA, pleaded guilty to 39 charges, including dishonest conduct, providing ASIC with false or misleading information, and failing to provide a disclosure document to clients.

According to ASIC, Hassell’s misconduct occurred for more than seven years during his time as a director of B.D. & W.J. Hassell Pty Ltd and as a former authorised representative of a number of Australian financial services licensees. He provided advice to clients about life insurance and superannuation products.

Appearing in the Adelaide District Court, Hassell was sentenced to 12 months’ imprisonment, to be released forthwith on his own recognisance of $100, to be of good behaviour for a period of 12 months.

“Mr Hassell failed to act in the best interests of his clients. ASIC and the courts will not tolerate conduct that does not live up to community expectations,” said ASIC deputy chairman Peter Kell.

The Commonwealth Director of Public Prosecutions prosecuted the matter.

SURVEY REVEALS CONCERNING SAVING HABITS

BY THE NUMBERS

5% The National Mortgage Survey found only 5% of those with a home loan were very likely to treat themselves to a holiday, dining out or other hobby, while one in four ruled it out entirely Source: CUA

Australians are neglecting to plan for their financial future, a new study reveals, with more than half saying they have no financial plans in place.

The National Mortgage Survey, commissioned by CUA, also revealed that almost two-thirds of Australians aged 40–49 don’t have any financial plans for the next five to 10 years, while 42% haven’t even thought about planning for their financial future.

CUA head of partnership products Ren Mazza said the results were concerning, especially the findings about older Australians who are nearing retirement.

“It’s alarming that so many Australians are failing to look ahead. Without a clear plan in place to manage their money and grow their assets, people are missing an opportunity to set themselves and their families up for a comfortable and secure future,” he said.

“In particular, it’s worrying that so many Australians in the later years of their working life – those who have only 15–20 years until they reach retirement age – haven’t got financial plans in place. In fact, less than one in 10 people aged 40–49 said they had a comprehensive financial plan in place for their property, investments, insurance, savings and budget.”

a

UNEMPLOYMENT RATE HITS 12-MONTH LOW Australia’s unemployment rate fell 0.1% to a 12-month low of 6% in May, as 42,000 more jobs were created in the economy.

According to the jobs data released by the ABS, the participation rate also held steady at 64.7% and hours worked rose by 0.1% in May to record highs. Hours worked are now up 2% over the year.

CommSec economist Savanth Sebastian said the May data had exceeded expectations, and he suggested the unemployment rate had finally topped out. “[There was] a solid lift in both full-time and part-time employment; a slide in the unemployment rate; and a steady participation rate.

“Employment surpassed even our rather optimistic expectations,” he said.

“If there was any dampener to the result it was the mild downward revisions to last month’s employment results.

“Over the past seven months almost 200,000 jobs have been created. Jobs are being created, more hours are being worked by existing workers, and more people are finding work. The unemployment rate looks like it has Savanth Sebastian topped out.”

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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 2014

Lender appoints ex-RAMS, Westpac broker head as CEO

MyState last year announced a hiring coup when it brought on board Melos Sulicich as managing director and CEO. Sulicich had previously headed RAMS, and was general manager of mortgage broker distribution at Westpac from 2008 to 2013.

MyState chairman Miles Hampton said Sulicich’s previous experience in wealth management and broker distribution were significant selling points.

What’s happened since?

MyState has had quite a bit of success in wooing former Westpac broker leaders to its ranks. The lender has also managed to bring on board former Westpac broker head Huw Bough as its general manager of sales and distribution and former Westpac state manager Sani Sims as head of broker services. The lender has said it’s now looking to expand its footprint across the country.

Commission bump about recognising brokers’ value NAB made news last year when it announced it would begin paying 15bps of trail in year one. The announcement came on the heels of news that the lender would drop its Homeside branding and bring its third-party products under the NAB brand.

NAB Broker general manager Steve Kane said the move was about recognising the value brokers provided in the marketplace.

What’s happened since?

The past year has seen a plethora of lenders sweeten their commission offers to brokers. So much so, in fact, that the RBA warned that commission increases could create “significant amounts” of risky lending. Industry bodies decried the claim, with MFAA CEO Siobhan Hayden pointing out that the number of brokers that had been investigated or convicted was less than 0.5% of the total brokers in the market.

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The new challenges brought by Basel 4

T

he GFC led to the painful realisation that banks were not holding enough lossabsorbing capital for the lending risks they were taking. Following the economic meltdown, the Basel Committee on Banking Supervision formulated the Basel 3 framework.

But recent developments in the banking sector have convinced some global regulators that even stricter rules may need to be applied.

The new framework – dubbed Basel 4 – could mean changes for brokers. Martin North, principal of Digital Finance Analytics, recently explained to Australian Broker TV the implications the changes could have for banks and brokers.

“We know enough to begin to speculate about what some of the implications may be for the industry and for brokers. Banks will have to hold different amounts of capital based on the loan-to-value ratio of the loan as it’s written at the point that the loan is actually underwritten.

Secondly, banks are likely to have to have ongoing information as to the serviceability of a loan because capital will be held against different serviceability levels over time,” he said.

North said this could have profound impacts from the perspective of brokers.

“Firstly, brokers may need to have more information on serviceability on an ongoing basis, and for some that could be quite a challenge.

Second, from an LVR standpoint, loans will be potentially able to access reduced loan-to-value premiums if they are refinanced from one organisation to another organisation. There could be more conversations the broker could trigger with regard to refinancing,” North said.

One of the more significant changes proposed would see a shift in the way banks assess risk and pricing within their mortgage portfolios. North said this could cause a disparity in the risk between loans from a capital perspective.

“That will translate into different pricing and discounts for certain types of loans,” he said. “Brokers will have to understand more about the consumers they’re working with, and will also be able to potentially access loan-to-value ratio discounts,” North said.

For the full interview, head to www.brokernews.com.au/tv

FORUM 27

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INVESTORS NOT TO BLAME FOR HOUSE PRICES

With the Federal Government conducting a parliamentary inquiry into housing affordability and home ownership, one broker argued that the situation was being misrepresented.

Are borrowers doing fine?

A broker has suggested that concerns over affordability and serviceability are overblown

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mid reports of increasing household debt, Leon Vrontamitis, a mortgage broker at Smartline in Sydney’s North Shore, says that although there will always be individual cases of people finding themselves under mortgage stress, the majority of borrowers are prepared to handle a modest increase in interest rates.

SEQ Broker suggested that brokers only needed to use some common sense to make sure clients could service their debt.

“Whomever is not accurately advising on liabilities will not last long in the industry.

Surely one of those clients will fail and the question will be asked, how did you get this loan? Does $400 per month really make sense when there is a new Audi in the driveway?

Open your eyes and use sense.

Ask the question.”

Macarthur Broker said clients were becoming more creditworthy, not less.

“I agree with Leon. In fact I have noticed the quality of my clients has increased dramatically as there is more interest in the market.”

MCC said things may look good at the moment, but brokers would be well advised to think about the future.

“The rate of technology change is highlighting the stripping of jobs and whilst the comments in this article reflect a current

satisfactory position in borrowers’ financial stability, the casualization of the workforce over the last 30 years plus future concerns around underemployment means the lending landscape and stability of the borrowers is about to change dramatically!”

And Michael Kent said too many brokers were putting clients into loan situations at the very edge of affordability.

“I disagree! Yes, all lenders test applicants at a higher rate, but servicing does not take into consideration an applicant losing their job or having sudden medical bills or various other changes in lifestyle. Plus the fact ‘loan massaging’ is rampant. I am amazed at the amount of brokers out there willing to fudge figures to make servicing work. Saying applicants have two kids when they know they have four, putting car loan repayments at $400pm instead of $800pm, credit card limits at $10k when they are $30k. I had a client recently ask me why the maximum I could get her was $350k when another broker told her if he didn’t tell the bank about her two kids or her car loan he could get her $650k which is what she wanted. With any decent home in Sydney being outrageously expensive and young couples borrowing $700k+, any slight increase in rates will put enormous strain on that couple.”

“Foreign investors are not pushing up prices and neither are investors. It’s about time the B.S. emotion was taken out of this discussion. Domestic and owner-occupier purchasers account for the majority of purchasers. The only thing that allows property prices to increase is affordability.

The auction clearance rates on a weekly basis is hovering around 80%+ so I think it’s fair to say that people can still afford the properties they are purchasing. When purchasers decide they can’t afford the price then properties will stabilise and possibly reduce on a minor level – this would be a standard correction as seen every 5–7 years as part of the normal cycle. The government inquiry will produce nothing of relevance as there is nothing they can do. I feel this is nothing more than hot air with the government wanting to be seen to be doing something. The government doesn’t control the property market, the country can no longer afford the lavish handouts to First Home Owners as seen in the past and the banks control the flow of money. Affordability will always be difficult as it always has been. History is a good indicator of the future and history has taught us you just have to do what is necessary to get what you want and if you really want it you can manifest a way to achieve it … and STOP whining. Also, I firmly believe it’s about time we stopped expecting the government to do everything for us and expecting handouts. It’s not up to the government to get people into a house and make it affordable.”

GC on 25/06/2015 at 9:34AM

LITTLE FANFARE FOR BUBBLE TALK LF Economics recently claimed that data clearly established that Australia was in the midst of a housing bubble, with an oversupply of 165,000 houses.

Tim on 24/06/2015 at 5:36PM “If there is an oversupply to the tune of 165,000 houses in Australia then why are there auctions each weekend in Sydney with five to ten registered bidders for the property? These guys with their ‘economic modelling’ have probably got to get out of their Ivory Tower and go and have a look at the real world. There is still demand in Sydney, and from discussions I have had with other brokers, family members and friends it is not restricted to any one part of the city. LF = ‘Little Fanfare’. That’s what this story and their report will generate!”

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

PEOPLE 28

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Running for suicide prevention Eastern suburbs-based broker Brad Parkes joined athletes, celebrities and other community members in the Plebs, Pros and Personalities 24-hour treadmill run to raise awareness about mental health and suicide DID YOU KNOW?

Suicide is the

14th

leading cause of all deaths in Australia

B

rad Parkes, mortgage broker at Core Mortgage Brokers in Maroubra, joined the likes of Rabbitohs captain Greg Inglis and Olympic swimming champion Michael Klim to take part in the third annual Plebs, Pros and Personalities 24-hour treadmill run for suicide prevention, which was held in May at the Royal Randwick Racecourse.

Parkes, who has been supporting the Plebs, Pros and Personalities 24-hour run since its inaugural run in 2013, told Australian Broker that increasing awareness about suicide in the community was vital, as mental health issues often got pushed under the rug.

“It is a local event, and suicide has touched many people in the area that I live, so I am more than happy to support it. I have not been personally touched by suicide, but my sister has been personally touched, so I have seen how it does affect families, friends and communities.

“Mental health issues and suicide can often go under the radar, especially in males, as they try and hide it. I think males often view mental health issues as a sign of weakness. So the more awareness

there is out in the public certainly helps and makes sure that people do feel more comfortable talking about it.”

According to the ABS, almost three-quarters of all Australians lost to suicide are male, making it the 10th leading cause of death for males.

Overall, suicide is the 14th leading cause of all deaths.

Over the three years the event has been held, it has grown from one to five locations around the country, had over 1,000 participants run, and has raised over $150,000 for Suicide Prevention Australia.

According to the Plebs, Pros and Personalities website, the idea behind a 24-hour run isn’t about who can run the furthest but about encouraging each other to push through the pain when things get difficult – exactly what we need to do if we have friends facing the battle of mental health problems and suicidal thoughts.

“My team did about 15-minute stints on the treadmill,” Parkes said.

“But the guys that organised it, they only have a small group of about six runners and between them they ran for the whole 24 hours.

“You also have a lot of sports stars who are either injured or in training,

THERE IS HELP

Over

Lifeline answers around

headspace has more than

Australians contacted beyondblue last year

calls each day from those in need

centres around Australia open to young Australians

78,000

Sources: beyondblue, Lifeline, headspace

1,800

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so they might not get up there and run; they might just jog along for an easy 15 minutes, and some people might just walk for 15 minutes. But the point is there is always someone on the treadmill and there are always people encouraging them.”

MENTAL HEALTH ISSUES AND SUICIDE CAN OFTEN GO UNDER THE RADAR, ESPECIALLY IN MALES, AS THEY TRY AND HIDE IT. I THINK MALES OFTEN VIEW MENTAL HEALTH ISSUES AS A SIGN OF WEAKNESS

Other ‘pros’ and ‘personalities’ included celebrity chef Colin Fassnidge, Rabbitohs player John Sutton, model Laura Dundovic, Paralympian Kelly Cartwright and Bondi vet Dr Chris Brown.

The Plebs, Pros and Personalities 24-hour treadmill run for suicide prevention isn’t the only community or charity event that Parkes actively supports. As a mortgage broker, he says getting involved is about giving back to a community that gives to you.

“The bulk of my clients are local people and we don’t advertise; it is word of mouth. So it is just giving back to people who give to us. I also sponsor the Maroubra surf club, football teams and soccer teams. It is all community-based stuff that we put money and time back into,” he told Australian Broker.

Suicide is the leading cause of death for Australians aged

15 to 44

Almost three-quarters of all Australians lost to suicide are

male Suicide is the

10th

leading cause of death in males

The median age at death for suicide is

44.5 years

Source: ABS

PEOPLE

29 brokernews.com.au

29 brokernews.com.au

Teaching the next generation A Central Coast NSW broker is helping young people learn financial literacy FBAA SEES STUDENT MEMBERSHIP TOP 1,000

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Central Coast-based finance broker has partnered with a local high school to introduce a financial literacy program and teach students how to run a small business.

Mhairi MacLeod, founder of award-winning brokerage Astute Ability Finance, told Australian Broker she had teamed up with Tumbi Umbi High School’s economics department.

“The commerce teacher invited me to come and chat with her about what I could do in the sense of possibly sponsoring their commerce department,” she said.

“One thing led to another and what we have come up with is looking to show kids how to be entrepreneurs – how to set up a business, where to start, how to name a business, what’s involved with ABNs, and things like that.”

MacLeod will join the economics class for a weekly lesson, in which she will organise open discussions so they can share ideas and ask questions.

She will also help the students apply their knowledge more

WHAT WE HAVE COME UP WITH IS LOOKING TO SHOW KIDS HOW TO BE ENTREPRENEURS – HOW TO SET UP A BUSINESS, WHERE TO START, HOW TO NAME A BUSINESS, WHAT’S INVOLVED WITH ABNS, AND THINGS LIKE THAT – M HAIRI MACLEOD

practically in a project that will count towards their syllabus.

“We are also looking at setting up a mini business where the kids can actually generate an income for the department. I will donate $500 as a start-up for this coming term, and with that $500 we will get things in place like registering a name and setting up a web page. Five hundred dollars doesn’t sounds like much, but the kids have access to do most of it by themselves,” she said.

“It is yet to be discussed what product we will actually be selling, but one of the things I do in my business is give away stylus pens – the pen that you can plug into your iPhone or iPad. So we could have 500 of those made up, and the kids will have to sell those stylus pens to other students to inject funds back into their project for the following term, and we will keep building that business.

“It might be stylus pens for term one and then something else for term two, and so on. It will teach them how by networking and working with each and every one of their family members and friends and each other, we can actually build a business.”

While the program won’t centre around driving students towards working in mortgage and finance broking specifically, MacLeod said she would be thrilled if it encouraged more young people to enter the industry.

If the program runs smoothly at Tumbi Umbi, MacLeod hopes she will be able to implement it in a second high school on the Central Coast.

The FBAA’s campaign to recruit young brokers is paying off, as the broker association now has more than 1,000 student members.

Since the membership promotion commenced in November 2014, in a partnership with Perthbased student association Student Edge, FBAA chief executive Peter White says the results and Peter White feedback have exceeded his expectations.

“We have been proactive and committed to this cause, doing promotional videos targeting students and promoting broking as a rewarding career path,” he said.

“Digital media is the way to reach the younger generation.

Our videos are cool and professional and delivered by brokers in their mid to late twenties. We touched a nerve with them about just how exciting a career it can be.”

The campaign was part of the FBAA’s wider push to tap into the youth market. The two winners of their student scholarship award, in conjunction with Australis College, were announced in May. “The students coming through are the future of the industry as well as your business,” White said.

AUSSIE HITS RECRUITMENT MILESTONE Franchise brokerage Aussie Home Loans has announced the recruitment of its 1,000th mortgage broker.

Melbourne mother of two Marianna Scerri became the franchise’s milestone broker after completing her Diploma of Financial Services. Scerri says she intends to take part in Aussie’s free mentoring program over the next two years.

James Symond “I am a bit daunted by the challenge of mortgage broking; however, the level and quality of the training I have received from Aussie has been outstanding and was one of the many reasons I chose to join the Aussie group,” Scerri said.

A resident of Craigieburn in Melbourne’s north, Scerri said its new transport routes and housing estates were bringing many young families to the area.

Aussie CEO James Symond said he was delighted to welcome Scerri to Aussie.

“I am sure she will excel in her role, and we will give her every support to achieve her goals and provide our customers with the best service in this very fast growing area of Melbourne.

“We are always looking for motivated, dynamic professionals like Marianna to join Aussie, as we are on a strong growth phase and keen to expand our network of mortgage brokers across Australia,” Symond said.

INSIDER 30

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Business going to the dogs Bringing pets to work has proven benefits for business

N

estlé Purina PetCare has launched a new initiative that encourages employers to recognise the health and wellness benefits of having pet-friendly policies in place.

The ‘Pets at Work’ initiative calls for an increase in the number of pet-friendly workplaces across Australia, and is supported by research that has outlined the benefits for employees who have pets at work.

Researchers at Virginia Commonwealth University found that the presence of pets was beneficial. Not only did having pets in the workplace increase employee satisfaction but workers reported that pets reduced the impact of work-related stress – stress levels dropped by 11% for staff who brought their dog in to work.

Another benefit that came from having dogs in the office was that employees took short breaks when they engaged in physical activity; these were found to shift their focus, helped them retain information, and increased productivity.

Additionally, researchers discovered that the pets

encouraged employees to approach and communicate with colleagues, resulting in the formation of new connections and an improvement in working relationships.

June 26 saw the Pets at Work initiative supporting Pet Sitters International’s ‘Take Your Dog to Work Day’, which encourages employers to allow pets in the office.

“Having pets in the office is a great drawcard for attracting new talent, providing a positive work environment and staff retention,” said Carol Dietrich, Nestlé Purina PetCare’s HR manager. “Our pro-pet policy helps Nestlé and Purina stand out from the crowd.”

Purina’s national business manager, Lal Meyer, added: “At Purina we know that people and pets are ‘better together’ and we’ve always supported having pets at work as we believe it helps enormously with promoting a healthy work-life balance for staff.

“Pets at work not only bring joy to the office but I’ve seen first-hand how they help with staff productivity.”

HONESTY NOT THE BEST POLICY Millions of people turn to the internet for advice every day, but one man will be wishing he’d kept schtum after bosses spotted his job-related post online – and promptly retracted their offer.

The ‘anonymous’ engineer asked users on question-and-answer site Quora whether he should accept an offer at Uber or Zenefits. The hapless applicant also posted a list of pros and cons for the two San Francisco-based start-ups.

Thanks to the list, it became apparent that the engineer was leaning towards Uber, because he thought it had a “really good reputation” and could help him achieve his long-term goal of working at Google or Apple. He also expressed concern that Zenefits just wasn’t an exciting buzzword or brand.

However, Uber wasn’t offering the best salary package – some US$15,000 less than Zenefits.

Unfortunately, the engineer had his choice taken away when Zenefits CEO Parker Conrad spotted the post and decided to respond. “Definitely not Zenefits,” he replied, adding that the company was revoking the job offer.

“Mostly, it seems like where you really want to work is Google,” he wrote. “You should just apply there. If you’re able to pass our engineering interview, I’m pretty sure you could get a job there.

“We really value people who ‘get’ what we do and who *want* to work here, specifically. It’s not for everyone, but there are enough ppl out there who do want to work here that we can afford to be selective,” he continued.

“One of our company values is to have a bias towards action – which means that when people are hesitating/going back and forth about whether they want to work here, we usually view that as a bad sign,” explained Conrad.

“We don’t have terribly high regard for ppl who would choose where to work based on ‘buzzwords’ and how big a brand it is (or simply to position themselves for later in their career),” he added.

Conrad’s move earned a mixed response from fellow Quora users. One mobile app developer called the reply a “tantrum” and told the young engineer, “The CEO revoking your offer after this perfectly reasonable question makes it sound like a bad place to work. … Lack of humility is a bad signal.”

However, another person agreed with the Zenefits CEO and likened the situation to a high-school kid desperately trying to break into the popular crowd. “No one wants to hire someone who doesn’t appreciate the company or its people and is thinking about leaving before he even joins,” they said.