NEWS YBR launches conveyancing arm The franchise brokerage opens a new offering for its members p2
ANALYSIS Fight over negative gearing The industry pushes back on moves to curtail the tax concession p10
COALFACE Chris Christie One of Resi’s veteran brokers on the transition to YBR branding p16
AUGUST 2015 ISSUE 12.15
BEST PRACTICE Debtor finance and the M&A boom How brokers can help their clients in the coming merger and acquisition race P18
BUSINESS INTELLIGENCE Mistakes that could hamstring your business
JANINE COPELIN
Citibank’s head of sales and distribution explains the non-major’s push to make customer experience seamless
Six leadership pitfalls to avoid when leading your company
P19
MARKET TALK Where to for Sydney prices? Can low rates keep pushing Sydney values skywards? P22
2
NEWS
REGULATION
WORLD
INDUSTRY
ASIC bans Perth brokers
Foreign buyers cool on US P6
Choice hits $50bn milestone P8
P4
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72%
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YBR LAUNCHES CONVEYANCING ARM
Matt Lawler
Major finance and wealth management company Yellow Brick Road has launched a ‘YBR Conveyancing’ service to its broker and financial planning network. Announced at its branch professional development days this week, YBR Conveyancing will be managed by the Astill Legal Group. YBR chief executive Matt Lawler says the new service will allow YBR branches to offer in-house legal assistance in property matters. “The launch of YBR Conveyancing will allow us to bring to our branches an additional in-house service to help them grow and diversify their businesses, while better looking after the needs of their clients,” he said. Rowan A. Astill, managing director of YBR Conveyancing, says the service will also provide easy and unique online software with the ability to track clients. “In modern times, clients need skilled experts that can provide exceptional professional services in a quick and efficient manner. With an online conveyancing standard (PEXA) coming to Australia within the next 12 months, we will be ahead of the curve in comparison to our competitors.”
Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak +61 2 8437 4772 rajan.khatak@keymedia.com.au Key Media Pty Ltd Regional head office, Level 1O, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 www.keymedia.com Offices in Sydney, Auckland, Denver, Toronto, Manila This magazine is printed on paper produced from 1OO% sustainable forestry, grown and managed specifically for the paper pulp industry Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss. Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.
NEWS 4
BY THE NUMBERS
128%
Over the past 20 years, the average wage has increased by 128% from around $33,000 to $77,000
Source: CommSec
ASIC BANS TWO PERTH BROKERS ASIC has permanently banned two Perth-based finance brokers for committing motor vehicle finance fraud worth over $315,000. Eric-John Larry Pryor and Peter Lachlan McDonald of Bertram, WA, were banned after ASIC found that they had, independently and jointly, engaged in dishonest and misleading conduct when brokering motor vehicle financing for 12 clients between May 2012 and February 2013 while they were employed as finance brokers by Get Approved Finance of Victoria Park. Pryor and McDonald misled vulnerable clients with poor credit histories to believe they would be approved for vehicle finance if their loan applications were supported by guarantors. The pair then prepared loan applications
solely in the names of the proposed guarantors without those persons’ knowledge or consent. As a result of this conduct, the lender financed over $315,000 in automotive oans (with interest $470,000) which it otherwise was unlikely to have approved. ASIC also found that Pryor and McDonald had personally profited from the sale of vehicles to three clients in circumstances where they had sourced the vehicles, artificially inflated the sales prices, and failed to disclose their interests in the transaction. The pair have also been convicted of fabricating insurance policies in relation to five loans so as to mislead the lender about the existence of mandatory comprehensive insurance policies being in place for those clients.
WHAT THEY SAID...
Stephen Moore “The phenomenal growth we have experienced as a business over the past couple of years really speaks to the strength of our brokers” P8
John Flavell “It would be great to see first home owners receiving similar tax concessions as investors as we believe this would encourage a lot more first buyers into the market” P10
Mark Cleaver “The baby boomer generation is retiring and Australian businesses are encountering a once-in-a-lifetime opportunity to expand as a stream of solid businesses hit the market” P18
NON-MAJOR INSTITUTES LENDING CAP St.George is the latest lender to introduce tightened credit policies on investment loans, announcing changes to its maximum LVR. In a communication sent to brokers, the non-major bank announced that the maximum LVR has been reduced to 80% on any combination of loan products (investment and owner-occupier) where all security is non-owneroccupied. “St.George yesterday announced changes to the maximum LVR for investment property loans, now 80%. As mentioned previously, we are making appropriate changes to ensure we are in line with a 10% benchmark set by APRA for investment property loan growth,” a spokesperson for St.George told Australian Broker. However, the normal maximum LVR policy applies on investment loans where at least one security is owner-occupied. Westpac has also announced an 80% LVR cap on investor loans, subject to security property occupancy. The major bank announced that when a loan is originated as an investment property loan product, solely with investment property as security, borrowers will need to provide a deposit of at least 20%.
NAB
NEWS 6
WORLD NEWS
GEARING UP
Rental yields heading down
Sydney
3.5%
Melbourne
3.3% 3.5%
3.9%
4.5% 4.6%
Brisbane
4.2% 4.4%
Adelaide
4.0% 4.2%
Perth
5.3% 5.2%
Hobart
4.2% 4.3%
Canberra
FOREIGN BUYERS BACK AWAY FROM U.S. MARKET While foreign buyers are increasingly active in the Aussie market, they seem to be shying away from the US. According to CoreLogic chief economist Frank Nothaft, the number of US homebuyers identifying as international dropped to 2% during the first four months of this year. That’s down from 2.5% a year ago – a decline of 19%. The drop comes in spite of a jump of 9% in US home sales over the same period. The drop is largely due to changes in exchange rates, which can have a significant effect on foreign purchases, Nothaft wrote. According to Nothaft, from the beginning of 2014 through April of this year, the US dollar appreciated 10% relative to the UK pound, 13% relative to the Canadian dollar, and 26% relative to the Euro. “Foreign buying could continue to decline, level off or increase in 2016, depending on the value of the U.S. dollar relative to most foreign currencies, but the uncertainties surrounding how the Eurozone will resolve the debt crisis in Greece has made it more difficult to project foreign currency movements,” Nothaft wrote.
5.7% 6.0%
Darwin
UNITED STATES OF AMERICA
3.6%
Combined capitals
Current rental yields
4.0%
12 months ago
Source: CoreLogic RP Data
AGGREGATOR SIGNS REFERRAL DEAL WITH MAJOR INSURER EChoice is the latest mortgage broker aggregation group to join Allianz’s referral program, which it says will help provide brokers with a diversified income stream. According to the major insurer, the referral program offers a no advice spot and refer model for finance brokers to refer their customers to Allianz for their home, landlord and motor insurance.
Dan Tully, Allianz’s national manager growth markets, says the major insurer is looking forward to helping eChoice diversify its offering to brokers. “We’re looking forward to working closely with eChoice to help their brokers diversify their businesses, as well as provide ongoing, trusted protection for their customers,” he said. Kon Shizas, eChoice’s general
manager of product and services, says the aggregator is continually exploring ways they can help add value to the broker/client relationship, and the Allianz referral program does that “simply and effectively”. Since introducing the program to the mortgage broker market in 2012, Allianz says more than 14 aggregator and broker groups have joined it.
NEWS 2
NEWS 8
TIGHT MARKET: CAPITAL CITY VACANCY RATES
1.6% ADELAIDE
2.5% PERTH
2.7% MELBOURNE
2.4% BRISBANE
2.3% CANBERRA
1.9% SYDNEY
1.6% DARWIN
1.8% HOBART
2.3% NATIONAL
Source: SQM Research
FORMER AUSSIE CEO LEADS TECH COMPANY TOWARDS IPO
Stephen Moore
CHOICE HITS $50BN MARK Choice Aggregation has reached more than $50bn in the value of its trail book, which it credits to its strong growth in recruitment, retention and settlements over the past two years. The company has brought on board 500 new brokers since 2013 and achieved record settlement growth of 28% year-on-year for the year ended September 2014. Chief executive Stephen Moore said reaching $50bn in trail book value was a milestone achievement for Choice, and testament to the aggregator’s model of providing tailored support based on individual broker business needs. “The phenomenal growth we have experienced as a business over the past couple of years really speaks to the strength of our brokers,” Moore said. “As consumer interest in the broker channel has grown, our brokers have positioned themselves ideally to benefit from that industry expansion. “Through consulting with brokers on an individual level, and helping them to develop a tailored plan for business growth, we have delivered successful outcomes for our brokers across the board.”
A new fintech company that vows to change the traditional business model of lending is set to list on the ASX, with an expected market cap of $53m. DirectMoney is a marketplace lending business set up to challenge the traditional lending landscape, as well as the growing P2P lending landscape. DirectMoney, which highlights that marketplace
lending is very different to P2P lending, takes the full risk of a loan for the first 30 days. Once the borrower shows a history of paying back the loan, it will sell the loan on to its funds, thus limiting an investor’s exposure to any defaults. Investors also receive a higher level of interest than from traditional bank deposits. Former Aussie Home
Loans CEO Stephen Porges is the executive chairman of DirectMoney and has recently been in the US and Asia looking at the latest developments in the fintech and marketplace sectors. According to Porges, the marketplace lending model has the highest user promoter score of any borrower category in the US – 70% versus 3% for traditional banks.
EX-BROKER CONVICTED IN HOME LOAN FRAUD
DID YOU KNOW?
25% Under new APRA rules, the average risk weight on Australian residential mortgage exposures will increase from approximately 16% to at least 25% Source: APRA
A former Aussie Home Loans credit representative, Shiv Prakash Sahay, has been convicted and sentenced in the Downing Centre Local Court on charges related to a home loan fraud worth $7m. Sahay, from Lidcome NSW, was sentenced to 350 hours of community service work on three charges of making false statements, making false documents, and using false documents in home loan applications submitted for his clients to Bankwest and Suncorp. “The reputation of the lending industry depends on mortgage brokers and other credit representatives acting honestly and in compliance with the credit laws. ASIC will vigorously pursue offenders involved in falsifying loan documents and other statements for their own financial benefit,” ASIC commissioner Peter Kell said.
10
ANALYSIS
NEGATIVE GEARING’S NEGATIVE EFFECTS? The effects of negative gearing in driving up Australian house prices is under examination in a parliamentary inquiry into home ownership
IT’S HARD TO avoid news of
KEY STATISTICS
1.26 million People who claimed a net rental loss in 2012/13
$12bn
The total value of net rental losses claimed for rental properties in 2012/13
$37,001-$80,000 The income bracket that most negatively geared investors fell into in 2012/13
Source: ATO
Australia’s housing market at the moment. The pace of house price growth and intense competition in the mortgage market are dominating the headlines. But when you look at the statistics, it is not hard to understand why. According to the latest Knight Frank Prime Global Cities Index – which compares the top 5% of the housing markets in major global cities – Sydney and Melbourne ranked high up on the list, at number 10 and 11 respectively. Sydney prime house prices increased 7.4% over the 12 months to March 2015, while Melbourne prime house prices recorded annual growth of 7.2%. This was almost double the global average of 3.9%. The results are well above those for Hong Kong, which recorded annual house price growth of 5.5% over the same period, and London, where prime house prices grew by just 3.3%. Prime house prices in New York actually fell by 4.4% over the year to March, while house prices in Singapore dropped a whopping 12.6%. There is no denying that Australia’s housing market is sizzling. In fact,
Australia’s overactive housing market has now spearheaded its own parliamentary inquiry into home ownership, as many Australians – in particular first home buyers – are struggling to get a foot onto the property ladder. Is negative gearing the culprit? In its submission to the parliamentary inquiry into home ownership, the Reserve Bank of Australia called for a review of negative gearing, arguing that the controversial tax break could encourage speculative property investment. The central bank notes that, when combined with other tax concessions, the speculation fuelled by negative gearing could raise risks in the market and drive up house prices. “The Bank believes that there is a case for reviewing negative gearing, but not in isolation,” the submission states. “It’s interaction with other aspects of the tax system should be taken into account.” The Reserve Bank says the ability to deduct legitimate expenses incurred in the course of earning income is an “important principal” in our taxation system. It also says
negative gearing can be important for tenant affordability, if it enables landlords to accept a lower yield than otherwise. However, combined with the discount investors can receive on capital gains, negative gearing can fuel unwarranted and risky speculation in an already-heated housing market. “It is worth noting, however, the interaction of negative gearing with other parts of the taxation system may have the effect of encouraging leveraged investment property,” the submission states. “In particular, the switch in 1999 from calculating CGT at the full marginal rate on the real gain to calculating it as half the taxpayer’s marginal rate on the nominal gain resulted in capital gain-producing assets being more attractive than income-producing assets for some combinations of tax rates, gross returns and inflation. “… Since property can usually be purchased using higher leverage than other assets that produce capital gains, property is especially affected by this feature of the tax system.” According to the latest banking statistics released by APRA, the
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total value of loans to investors has increased by almost a quarter in two years. At the end of May this year, the value of loans to investors totalled $478.7bn. This was up 1% ($4.6bn) from March 2015, up 11% ($48.1bn) from May 2014, and up 24% ($92.9bn) from May 2013. Investors’ share of mortgages now accounts for 35% of the total $1.36trn Australian mortgage market. “The increase in investor activity and strong growth in housing prices, among other developments, has raised concerns about risks emerging in the housing and mortgage markets,” the Reserve Bank’s submission states. Don’t be too quick to point the finger This isn’t the first time negative gearing has been dragged into the limelight, and questioned about its role in driving up house prices. A report by the Australian Council of Social Service (ACOSS) released earlier this year urged the government to restrict tax deductions for negatively geared property investments, saying these tax breaks were “feeding a fire which the Reserve Bank and APRA are trying to put out”. The report claimed that tax breaks such as negative gearing and the capital gains tax discount have inflated housing costs in every housing boom since the 1980s. Not long after the release of the ACOSS report, shadow treasurer Chris Bowen raised the issue during an address at the National Press Club. Bowen suggested that the Labour party would head into the election with a policy of winding back negative gearing – perhaps restricting it to new property or just one investment property. But before we point the finger at negative gearing, it is interesting to look at how many property investors are actually negatively geared and who these investors are. According to statistics from the ATO, the number of people who claimed a net rental loss – thus being negatively geared – declined slightly in the 2012/13 financial year, compared to the 2011/12 financial year. In 2012/13, 1.26 million property investors deducted losses made on investments, from a total of 12.77 million individual tax returns lodged for the period. The total value of net rental losses claimed for rental properties fell by 13%, from $13.8bn in 2011/12 to $12bn in 2012/13.
Further, the majority of people who claimed a net rental loss in 2012/13 were in the $37,001–$80,000 income tax bracket, with over 485,000 people claiming over $4bn in rental losses. For every negative, there is a positive After the Reserve Bank called for the controversial tax break to be reviewed, the head of major mortgage franchise Mortgage Choice defended the importance of negative gearing. Mortgage Choice chief executive John Flavell says negative gearing plays a positive role in keeping property attractive and sustaining the Australian economy as a result. “At Mortgage Choice, we think negative gearing plays an important role in the property market. The tax benefits associated with negative gearing help to make property investment more attractive to some Australians, and given that the success and strength of the housing market is critical to the ongoing health of the Australian economy, it doesn’t make sense to consider removing any initiatives that help this market,” he said. According to Flavell, instead of placing the emphasis on negative gearing and the impact it has on the property market, there needs to be more effort and emphasis on making it easier for first home buyers. “It would be great to see first home owners receiving similar tax concessions as investors – as we believe this would encourage a lot more first buyers into the market. If we want to improve housing affordability and help more first home buyers into the market, we have to pull on the right levers,” he said. “Housing affordability is a function of property prices, income levels, the cost of and access to credit, as well as supply of rental accommodation. To have a positive impact on affordability, drive up the instances of home ownership and reduce rental burden, all of these levers need to be considered and used.” In fact, the leading property lobby, the Property Council of Australia, argued in its submission to the parliamentary inquiry into home ownership that negative gearing could actually help first home buyers. “Negative gearing also helps encourage young Australians and first homeowners to take their first step into the property market by providing what can be a more economical option – purchasing initially as an investment rather than as an owner occupier,” it said.
12
ANALYSIS
LET’S TALK ABOUT TRANSPARENCY The trustworthiness of brokers has again been questioned in a submission to a parliamentary inquiry. Is it time to have a discussion? DESPITE MORTGAGE brokers now being responsible for generating more than half (51.9%) of new home lending, the role of mortgage brokers in providing a transparent and complete service has been examined in a submission to the parliamentary inquiry into home ownership. The Customer Owned Banking Association (COBA) sounded an alarm regarding mortgage brokers in its submission, claiming that brokers may take the hassle out of the mortgage process but “they fall a long way short of delivering the best result for the customer”. This is despite referring to the recent Observations on the Value of Mortgage Broking report commissioned by the MFAA, which found that consumers generally do feel they receive a superior experience from a broker. “While mortgage brokers can serve a useful purpose, it is important that consumers are aware of what brokers provide, and more importantly, what they don’t,” the submission states. “Commonly held misconceptions about the mortgage broking sector mean that consumers are often left with an incomplete understanding of a broker’s limitations.”
Time for urgent reform? The major misconceptions, COBA explains, relate to false impressions of transparency and best practice. “Firstly, a number of consumers incorrectly believe that mortgage brokers have access to the products of all lenders. They don’t… As such, where a potential home buyer
COBA has also expressed concerns about a lack of disclosure regarding vertical integration in the mortgage broking industry. “According to the Mortgage and Finance Association of Australia [MFAA], aggregation/broking groups that are owned by the big four banks, totally or substantially, comprise an
limit the products brokers can recommend. The FSI said greater transparency would help to build confidence and trust,” COBA CEO Mark Degotardi said. COBA has also pointed to consumer advocacy group Choice’s investigation into mortgage broking as further evidence that the mortgage broking sector needs urgent reform from the FSI. “Consumer groups have this week put the spotlight on some poor behaviour by mortgage brokers. CHOICE, the Consumer Action Law Centre (CALC) and Financial Rights Legal Centre are calling for an investigation of the mortgage broking market, focusing on commissions and disclosure,” Degotardi said. “Brokers play an important role in the home loan marketplace and when first home-buyers use a broker they should not have to worry about whether the broker is really on their side. “CHOICE has uncovered practices where customer interest is coming a distant second. This is further evidence of the importance and urgency of the FSI reform agenda.” In its submission to the parliamentary inquiry into home ownership, COBA also noted that current arrangements around how mortgage brokers are incentivised could cause a conflict of interest. “Often, a mortgage broker has an incentive to advise a customer to take out a larger loan, rather than the loan that is in the customer’s best interest. There may be opportunities for reforms which better align the interests
“In reality, brokers are only required to recommend a loan that is ‘not unsuitable,’ a far cry from the best home loan for the customer, and possibly not even a particularly good product for the individual” chooses to use a mortgage broker, the product which best meets their needs at the best price is often not part of the broker’s considerations. “This problem is further compounded by another incorrect perception held by customers, namely that the broker is obliged to offer them the best product. Again, this is not the case. In reality, brokers are only required to recommend a loan that is ‘not unsuitable,’ a far cry from the best home loan for the customer, and possibly not even a particularly good product for the individual.”
estimated 40% of mortgage brokers,” the submission states. COBA has staunchly and repeatedly opposed vertical integration in the past. After David Murray’s Financial Services Inquiry warned that high market concentration in some sectors of the financial system could limit competition in the future, the banking association called for urgent reform in the sector. “The FSI found that often consumers don’t understand mortgage brokers’ association with product issuers and how this might
of mortgage brokers and their customers in this space,” the banking association noted in its submission. Mortgage brokers are the reform After COBA took aim at the thirdparty channel, the chief executive of the FBAA, Peter White, came out in defence of brokers, saying that these comments were naive. Without brokers, White argued, there would be no choice for consumers at all. “The comments about brokers are a little bit narrow-minded. It was finance brokers in the early
13
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nineties that for the first time in Australia’s lending history actually brought choice to the customers. Without that, you were always at the dictatorship of the bank or the building society or the credit union,” he told Australian Broker. “So to turn around and criticise and say brokers don’t represent all lenders, well the whole world knows that. It is on the credit guide as to what lenders are on their panel. It is on their website as to what lenders are on their panel. It is a legal disclosure up front in the credit guide.” The assumption that brokers should have access to all products from all lenders in the market is also just ignorant, says White. Plus, brokers do have access to more products than the individual lenders do. “It would be fairly ignorant to think that a broker would [have access to all lenders] because the reality is you physically can’t. It is a practical common sense – how can you
represent every lender in the country? “If you walk into one bank, they can’t tell you that the bank down the road has a better deal. They can’t tell you that. A broker can if they are on their panel.” White also warned the association not be the “kettle calling the pot black”, after COBA claimed that current arrangements around how mortgage brokers are incentivised could cause a conflict of interest. “The vast, vast majority of brokers in this country are delivering a brilliant service to borrowers and getting them what they want, not trying to push them into something they can’t afford, because that would be a breach of their responsible lending obligations. You have also got servicing issues as well, so if the consumer can’t service the debt it is not going to get approved,” he told Australian Broker. “They have got to be careful of being the kettle calling the pot black because the vast percentage of
bankers in this country would have some sort of incentive to ensure they write volume – whether that means meeting budget and what happens if they don’t meet budget. That is still an incentive; it doesn’t have to be monetary-based. “The reality is, that is what the world revolves around. It doesn’t matter what industry you go to; there is some incentive to keep you performing. People want results because they are running businesses.” Room for a discussion? After Australian Broker reported on COBA’s submission and the broking industry’s reaction to the comments put forward, the banking association contacted this publication to say they were not “anti-broker” but there was room for a reasonable public debate. “We note the coverage and lively debate regarding references to mortgage brokers in COBA’s submission to the House of
Representatives Economics Committee inquiry into home ownership,” said COBA’s head of public affairs, Luke Lawler. “We would like to make it clear that COBA is not anti-broker. We understand the important role that brokers play and the value that brokers provide to COBA members who use the broker channel. “However, we think it is reasonable to have a public debate about disclosure and transparency for home buyers given that the Financial System Inquiry final report found that: ‘Often consumers do not understand their financial adviser’s or mortgage broker’s association with product issuers.’ FSI Recommendation 40 is to ‘require advisers and mortgage brokers to disclose ownership structures.’ “Our submission does not call for any changes to the sector other than improved disclosure – specifically that.”
14
COVER STORY
KEEPING CUSTOMER EXPERIENCE FIRST Citibank head of sales and distribution Janine Copelin on how customer experience is the biggest market disruptor
JANINE COPELIN recently moved into her role as Citibank’s head of sales and distribution after a long career at Commonwealth Bank that saw her work in roles as varied as branch manager to head of retail sales and service distribution. Though Copelin is new to the role with Citi, she said the non-major is uniquely clear about its position in the market. For Citi, Copelin said, that means focusing on a specific segment rather than trying to take on the majors head-to-head. “I don’t think the differentiator for us is going to take market share from the masses. I don’t think that’s ever been Citi’s strategy, and I don’t see that changing in the future. I think the offer for Citi has always been very clear around what segment it is, and that has been and always will be around that emerging affluent and globally minded customer segment. I think if we stay on song with that and are very clear about what that looks like, we’ll always have a place in the market,” she said. Copelin said the bank has been clear about this strategy, both to the market at large and to its broker network. She said the bank’s BDMs have been active in communicating Citi’s role to the third-party channel. “We have a really strong third-party business at Citi, and the BDMs work very closely with brokers and aggregators. It’s a key role to be able to go out there and articulate to brokers and aggregators what our segment looks like,” Copelin said.
Thinking big and small Among non-majors in the Australian market, Citi occupies a somewhat unique space. While it operates as a non-major domestically, it is one of the world’s largest banks globally. This position gives it unique appeal to customers, Copelin said. “There are customers out there who align with the Citi brand. I think part of that is the global footprint, but I think part of it is also that Citi has a unique way of making itself feel like a small bank and giving that personal touch,” she said. This personal touch is one of the key pieces of the bank’s strategy in its dealings both with consumers and with brokers, Copelin said. In the year ahead, she said this trait would inform the way Citi executed its strategy in the home loan market.
“I see the strategy very firmly about improving customer experience and striving to provide a remarkable experience for the customer. And when I think about the customer, I think about both the direct customer and the broker who we’re an extension of that voice to,” Copelin said. In moving from a major to a non-major, one of the adjustments can be the relative speed with which majors are able to bring new technology investment to the market. While Copelin conceded that the experience at Citi differs from CBA in this regard, she argued that customer experience and the expectations customers have of lenders is a bigger disruptor than technology. “Customer expectations are so much higher than they were. Even three years ago, customers didn’t expect a lot from major banks, or even smaller
ensuring whether it’s through digital or a home loan through the current means of filling out an application on a system, it needs to be absolutely seamless.” To this end, Copelin said Citi relies on some tried and true methods to improve customer experience, one of these being communication. “We have a very high-touch model that ensures from the customer’s point of view that it’s absolutely seamless to do business with us. Most of us have gone through a lending experience in our lifetime,
“Even three years ago, customers didn’t expect a lot from major banks, or even smaller lenders. They just assumed a home loan was going to be a clunky and difficult process” lenders. They just assumed a home loan was going to be a clunky and difficult process,” she said. And while the majors may have the advantage when it comes to tech platforms, this doesn’t make customer experience their sole domain, Copelin argued. “The majors have more of an advantage in the fact that they can get to market with technology quicker, but I don’t necessarily think that’s the only key to customer experience,” she said. While Citi plans to continue to leverage technology to aid customer experience, Copelin suggested that customer experience as an end trumps technology as a means. “I think in the next 12 to 24 months, it’s going to be how we really leverage digital. I don’t think that’s a nice-to-have. I think it’s a non-negotiable,” she said. “In saying that, though, I think the biggest disruptor is around customer experience and
and there’s nothing worse than being left in the dark not knowing where your home loan is at, and not having that level of communication there,” she said. And even where processes and procedures go awry, Copelin said the goal is to ensure this doesn’t impact the end customer’s experience. She said that brokers are a tremendous asset in this regard. “What brokers do incredibly well is hide a lot of that from the customer, because they’re all about customer experience and ensuring that the customer is not only going to stay with them, but is going to return and do repeat business with them. They probably do a better job with it than lenders.”
TECHNOLOGY UPDATE
SMARTMOVE DELIVERS FOR CONSUMERS
Darren Little, General manager, Smartmove
Smartmove general manager Darren Little credits the achievements of the booming brokerage to a business model that is process driven and concentrates heavily on customer experience. The award-winning business has experienced a record-breaking level of success over the past 12 months, reaching $500m in settlements during a financial year for the first time in its history. “Smartmove has invested wisely in driving process efficiencies,” says NextGen.Net sales director, Tony Carn. “That investment has been critical to the firm’s success. Not just because it provides cheaper, better and quicker outcomes – also because at the end of the day it gives a far better customer experience. That’s the clincher.” Little says Smartmove’s partnership with NextGen.Net has been the lynchpin in a winning formula. “As a business, which is very process driven, we focus on efficiency and wastage and the ‘Supporting Documents’ module in NextGen.Net’s ApplyOnline has produced efficiency and Straight-Through Processing to banks, which is quite frankly, unparalleled,” Little says. Smartmove’s embracing of technology and innovation extends to its Operations staff. “Our Operations team does all our preparation of applications for banks. ‘Supporting Docs’ ensures we have a consistent application format and quality,” he says. “The key for us is to minimise error and wastage.” An added and unexpected benefit is that Supporting Docs has helped sharpen the Operations team’s credit knowledge. “That’s because there’s a lot of self-validation in the Supporting Docs system,” Little says. Praising NextGen.Net’s training
Tony Carn Sales director, NextGen.Net
sessions, Little said once his Operations team got over the hurdle of needing to spend a bit of extra time upfront becoming acquainted with the technology, the Supporting Documents service has revolutionised Smartmove’s processes. Equating the exercise to buying a car, Carn says: “A car dealer will offer to take 10 minutes to run through all the features. If I choose not to avail myself of the offer, I could end up wasting some really good efficiencies or not maximising their uses.” “With ApplyOnline Supporting Docs, the benefits to the customer far outweighs the additional work upfront,” adds Little. Little encourages his team to become adaptable to change and adopt innovative enhancements. Technology is “the absolute key to our success as a business and to the future of the industry,” Little says. NextGen.Net launches new features to ApplyOnline on a monthly basis. “This month, we’ve enabled lenders to update their supporting document requirements online – what documents they need and in what scenario – and manage that themselves and publish it in realtime,” says Carn. This means that when a broker is using ApplyOnline Supporting Docs the requirements of lenders are up to date in real-time.” Carn refers to the willingness to dedicate time to learn new technology as “a mindset”; and maintains that the alternative is not an option in a world in which technological change is as inevitable as dying. “It doesn’t just relate to Supporting Docs. It’s about investing time on a regular basis to get up-to-speed and understand how to get the best out of whatever system you’re using. “I think everybody would be very pleasantly surprised at the enormous return they get out of that. Smartmove is the living proof,” he exclaims.
FEATURES 16
From Resi green to YBR yellow The physical appearance of the store was the biggest change, Christie says. Eventually the store will be all of YBR’s golden yellow, but for now Resi’s green will still be on display alongside, so that for the customer the change doesn’t seem to happen overnight. “The first step was a co-branding. So both YBR and Resi will still be prominent for a couple of months and then there’ll be the full rebrand after that.”
Business owner at 20 years old
COALFACE
TAKING ON A REBRAND Principal and wealth manager Chris Christie of Resi’s leading and first established branch details the transition of Resi St George to Yellow Brick Road Rockdale THE CHOICE to transition his Resi St George brokerage to Yellow Brick Road wasn’t made lightly by Chris Christie, who established the first Resi franchise store 15 years ago in 2000. After extensive research and interviewing many of the senior management team, it became clear that YBR’s goals and visions for providing quality financial products and services to its customers were in line with Resi’s. “It would make sense that everyone falls under the one banner from a marketing perspective, and to be able to take advantage of that scale and have such a larger network,” says Christie. “From an operational perspective, it’s pretty much been business as usual – our
clients now have a larger variety of financial products and services that we can provide them.” Being part of YBR, Christie can now offer his clients investment,
have to, but as a business I think it’s important that you do because that’s something that the client may not even know that they need.” The transition has happened
“We’ve had really positive feedback, particularly when you explain the benefits of being part of a larger nationwide organisation” insurance and superannuation products and services. “If you don’t have the ability to push the financial planning side of things and personal wealth, you don’t
smoothly and in good time. Since the Resi franchisees were informed in August last year of the acquisition, the rebrand that commenced in mid-June has been almost completed.
It’s no surprise that the rebrand of Christie’s store has happened without a hitch, with 15 years as a broker up his sleeve, along with his experience of starting the Resi branch and becoming a business owner at the young age of 20. “I was out of uni and had just finished my commerce degree at university, majoring in finance and marketing, and was working for a finance company,” Christie says, when an opportunity presented itself for him to become Resi’s first franchisee. “It was great. It was challenging and rewarding at the same time – being your own boss and being able to shape the business the way you want to and make your own decisions.” But in the early days, being so young and without any experience in mortgages to help him, it couldn’t have been easy, especially having to maintain focus and drive while many in his age bracket were partying and responsibility-free. “The age was the hardest thing to begin with, as a 20-year-old trying to sit in front of a client and tell them what they should be doing – that was probably the most challenging.” But his depth of knowledge of products and services soon put customers at ease, and today he still has clients from those early days returning for their third or fourth property 15 years later. If success abounds, usually enjoyment of the work is an important contributor, and it is obvious that Christie loves what he does. “The enjoyment comes from actually helping people achieve what they want to achieve. Everyone’s got their goals and their aspirations and their dreams of what they want. Actually helping achieve that and helping them right through the process is most rewarding.” But he advises young business owners out there who may be starting their own brokerages to be prepared for a lot of hard work. “Nothing’s going to be given to you, so be prepared to work hard, listen to clients and learn as much as you can from other people in the industry.”
FEATURES 18
BEST PRACTICE
DEBTOR FINANCE IN THE M&A BOOM Bibby Financial managing director Mark Cleaver explains how brokers can help their clients in the coming merger and acquisition race
THE BABY BOOMER generation is retiring and Australian businesses are encountering a once-in-alifetime opportunity to expand as a stream of solid businesses hit the market. Debtor finance is an incredibly versatile funding solution and strategic tool that buyers and sellers can use to jockey for position in the merger and acquisition race to come. As baby boomers retire over the next decade, more than 1.4m SME owners are expected to retire and sell their businesses, sparking an unprecedented level of SME M&A activity, and great opportunities for businesses that understand their options. There are two ways to acquire a business: buy the assets from the company, or buy shares. Assets typically include goodwill, debtors, stock in trade, patents/copyright and fixed assets. Sometimes, in the buying assets scenario, the debtors won’t be sold. Often people prefer the asset valuation method as it means they don’t have to worry about hidden liabilities. Debtor finance facilities offer a range of benefits for both these transactions, as well as other strategic benefits that traditional bank loan funding does not, as the following real-life scenarios show. Scenario 1: A buyer uses debtor finance to close a share-based deal A printing company had several assets: printing equipment worth roughly $160,000; trade debtors of $300,000. It also had bank liabilities of $300,000, which were secured against the owner’s residential properties. The vendor and buyer struck a deal whereby the purchaser would buy shares in the company for the minimal sum of $1, but would pay out the bank borrowings secured by the vendor’s residential properties, and repay $80,000 that the vendor had loaned the company on settlement, meaning the vendor would receive $380,000. In order to make this transaction work, the buyer approached Bibby, which adopted the following process:
• The business had plant and equipment on the books at $300,000 • Bibby reduced that figure to the auction value of $200,000 • Bibby then loaned the buyer half the auction value of $100,000 • Bibby then advanced 80% of the $300,000 of debtors, or $240,000 • This took the total amount advanced to the buyer to $340,000 This was $40,000 short of the $380,000 the buyer needed. The buyer injected $100,000 in personal funds, giving him $380,000 for the deal and leaving him $60,000 in working capital. In this instance it was probably best that he bought shares because often the valuation method excludes debtors and would have left him $240,000 short of his funding target. Scenario 2: Helping a vendor prepare a company for sale Another Bibby client, a large Australian fund manager, had decided to sell a consolidated group of companies because it was too small for its portfolio. The fund manager had sold all of the companies in this group except one, which they were holding to improve its sale value. This small company (for them) was valued at roughly $50m and had debtors of XYZ. They approached Bibby to extend them a debtor finance facility, which Bibby was able to extend with no requirement for capital. The fund manager was then able to sell that company swiftly to a private individual for $50m because the debtor facility transitioned with the sale, enabling the buyer to fund the purchase. It meant that no credit assessments were necessary and the buyer did not need to undergo a capital-raising process because the line of credit was already in place. Nor did they need to use personal assets for security.
Scenario 3: Funding a non-sharebased acquisition (using the asset valuation method) The most common type of deal is one that values the company’s assets and then purchases those assets. Typically, the purchaser pays the vendor for goodwill, equipment, stock, etc. A furniture manufacturer that held $5m worth of debtors wanted to buy a retiring friend’s complementary business, which valued the assets at $1m but had not valued the debtors. Bibby advanced $4m against the furniture maker’s debtors, of which $1m was used to buy the friend’s business. The furniture maker was then able to secure another $800,000 against the new business’s debtors, which left him with $3.8m to fund further expansion. Again, the furniture maker was not required to provide personal assets as security. Scenario 4: Perpetual loop funding for aggressive M&A expansion strategy The above scenario, wherein the purchaser was using debtors of the new company to fund further acquisitions, is a fledgling example of the way debtor finance can be used to fund aggressive expansion. A more advanced example is one of a labour hire company which bought a company and secured the invoices of that company to gain funds to buy another company. It then secured funds against the invoices of the new company to fund the purchase of another company, a process it repeated at every opportunity. Within three years the business had grown from $500,000 to $3m. Within 10 years the business was valued at $140m. No other form of funding gives this kind of leverage to rapidly grow a business, because funding secured by property or plant and equipment can only be extended to the value of those assets. In contrast, debtors grow sharply with every acquisition.
FEATURES 19
ensure that risky or unpopular decisions are made when necessary. According to Llopis, if your senior leadership team lacks the courage to “explore endless possibilities for your company”, then its ability to grow will be limited. Senior leadership must have the belief in its people – it’s their responsibility to build high-performance teams and push boundaries in order to see and seize opportunities. 4. Don’t invest in relationships and resources Llopis said that leaders need to be willing to invest in relationships, both within the organisation and externally. He added that workforces can be hindered “if your senior leadership team is not investing in relationships and resources to strengthen the company’s foundation”. “Don’t ever assume that your company is investing in the right relationships,” he warned. “You will know that they are when … you witness an abundance of new resources and relationships brought about by all levels of leadership.”
BUSINESS INTELLIGENCE
SIX LEADERSHIP MISTAKES Entrepreneur, author and motivational speaker Glenn Llopis has shared six pitfalls to avoid when leading your company
IN A RECENT article for Forbes, Glenn Llopis outlined six leadership mistakes that are commonplace in the corporate world, and are ultimately detrimental to a company’s competitive edge. “In today’s rapid-paced, globally competitive marketplace, your company’s leadership must adopt a new mindset and accept the fact that without strategy, change is merely substitution – not evolution,” he wrote. 1. Pessimism “Be concerned if your senior leadership team is slow or not
receptive enough to new ways of doing things,” Llopis advised. “You might be winning now, but the marketplace can catch you by surprise at any time and you will begin to lose momentum quickly when it does.” He added that employers need to create a sense of urgency as a way of stretching the organisation’s thinking capacity. Creating an optimistic environment will create an environment of competition without motivating people by using fear. 2. Lack of preparation “When leaders are not receptive
to change, and reflect negativity in their tone, body language and attitude, it’s a crisis waiting to happen,” Llopis wrote. “Senior leadership must embrace the mentality of change agent, constantly anticipating the unexpected with a healthy dose of scepticism.” Without the ability to be a change agent, he said, leaders will “face extinction”. 3. Inability to inspire courageous thinking In today’s world of work, courageous leaders are needed to
5. Selfish, siloed and hidden agendas In order to grow and compete, Llopis argued, senior leadership must encourage “a spirit of trust and transparency where communication is strong, consistent and boundary less”. Selfish and territorial leadership builds silos, creating an environment of hidden agendas. “21st century leadership is about advancing yourself by serving others,” he said. “If your senior leadership team is making it difficult for you to have a voice that is heard and valued… you’ve got some work ahead of you.” 6. Unhealthy culture Llopis claimed in his article that success comes most readily to those who are surrounded by people who want their success to continue. “If your senior leadership team cares more about recognition than being respected, your corporate culture will head down an unstable path,” he said. “Collaboration, reciprocity and teamwork are the keys to a healthy workplace culture and set the tone for growth and the ability to compete. “Today’s market not only requires teamwork, but more so it demands ecosystems created to help transform organisations, change the status quo and lead new paradigms.”
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BUSINESS INTELLIGENCE
REVIEWING YOUR BUSINESS PLAN Business coach and author Roland Hanekroot explains the importance of having a business plan If you need more than two pages it means you haven’t tried hard enough yet. The truth is that it doesn’t matter what the actual business planning document looks like. Effective business planning isn’t about the document at all. It’s about the process of planning. So, how do you go about writing a living and breathing effective internal business plan? The simplest process I know is to get yourself a piece of paper or a bunch of yellow stickies and a whiteboard, turn your phone and email off for half an hour, make yourself a cup of tea, and ask yourself the following questions:
PLANNING IS CRUCIAL. No general has ever won a war that didn’t have a plan in place. The first thing to understand is that there are two distinctly different reasons to write a business plan; two different functions, if you will: internal and external. Roland Hanekroot is a highly experienced business coach and mentor for small business owners, and the author of The Ten Truths books for business owners.
External plans In most cases, when we think of a business plan, it is more of an external document which is used to communicate to a third party what the current state of the business is, what the future of the business is expected to be, and what the future needs of the business are. This type of plan is usually formulated in order to get money, whether it is from a bank or an investor, or to impress a new business partner. This type of external plan may also include a balance sheet, profit and loss and cash flow statements, as well as an executive summary, various supporting documents, and addenda by accountants or other advisers. It also tends to be an impressive-looking document, presented in a nicely bound folder, and can cost thousands of dollars to produce. Once the loan application has been made, the chances are it won’t get looked at ever again. Well, until the next time the bank needs to review it and you rush
around trying to update the information contained within it. Useful as they may be in order to gain finance for your business, external business plans have little or no impact on the running and direction of the business on a day-to-day basis. Your accountant, business advisers and your bank will be able to provide you with standard templates and samples of this type of business plan. You can choose to complete it yourself, or if you need to apply for a loan or talk to an investor, I suggest you get your accountant to help you create one that shows your business in the best light. However, just to make it crystal clear, the external business plan does little to motivate you and drive your business forward. Internal plans Internal plans exist to engage people in the organisation in the operations, strategy and focus of the business on a day-to-day basis. They are live documents and are placed on business owners’ desks where they can reach them easily. They are being constantly changed and updated and usually have coffee stains all over them. Internal plans are often short, sharp documents with mostly bullet points or one-word descriptions. Ideally they fit on one page.
• What is most important to me in my business? • What gets me most excited in my business? • What do I get out of bed for every day? • What does my business uniquely exist for and why would anybody else care about that? (Hint: it’s not money and profit) • Who are our target customers? • What promise do we make those customers? • How do we make money, sustainably? • What are my big goals, for 10–15 years, three years, this year? • What are the major things I need to focus on to achieve my goals this year? The outcome of answering these questions and putting the answers together on a single page or whiteboard or mind map is now the basis of your living Internal Business Plan. Answering those questions for yourself and with your team, succinctly, and committing to updating the answers every month, will mean your business and your life will never be the same again … I promise you. The most important takeaway If you take nothing else from this article, I hope you’ll remember this: a great plan is one that is started and then worked on at least monthly. Useful as they may be in order to gain finance for your business, external business plans have little or no impact on the running and direction of the business on a day-to-day basis.
FEATURES 21
BIG IDEA
HARNESSING MOBILE SEO With growing competition in the market, brokers have to source leads in a digital world ON ITS FACE, the announcement by CPA Australia that it plans to make an earnest foray into mortgage broking may not seem to have much to do with search engine optimisation (SEO), but according to the CEO of one web consultancy, brokers should take the development as motivation to adapt their online strategy. Darren Moffatt, founder of Seniors First Specialist Finance and CEO of Webbuzz – which specialises in digital marketing for financial services – told Australian Broker that CPA’s plans to obtain an Australian credit licence and move into mortgage broking were a big threat to the broker channel. “If you talk to the majority of brokers, they have one or more accountants as referral sources. Everyone in the industry would agree that accountants are the best referral source you can
get. So this announcement by CPA is really going to shake things up,” Moffatt said. The announcement by CPA shows a concentrated effort to move accountants into the mortgage broking sphere, he said. “CPA is essentially saying to their accountant membership, ‘we now have the channel for you – if you want to generate additional revenue for your business, we will make it easy for you to get into mortgage broking’. They are saying ‘we’ve got the credit licence and the infrastructure; all you need to do is send the deals in’.” For brokers, this means a potential stream of referrals could dry up. “This is going to threaten a lot of existing broker/accountant relationships … Those brokers who are heavily reliant on accountants as referral sources are really going to have to start to look
at hedging their bets and developing alternative streams of enquiry in case they start losing referral sources.” A loss of referrals means brokers must look to shore up business elsewhere, Moffatt suggested. This means generating more leads, and that means brokers need to invest in their online footprint, he said. The most important way for brokers to insure themselves against any threat, according to Moffatt, is to invest into their online footprint. “Brokers should be getting into the online channel and starting to build a digital footprint for their business. That means establishing a modern, mobile-friendly website and converting their website into a lead generation machine. For brokers who have relied heavily on referrals from accountants, the most obvious way is to go direct to market and essentially build the infrastructure required to generate leads from the internet.” Moffatt explained that brokers should be getting serious about SEO when it comes to expanding their online footprint. “SEO is the process or technique of driving your website up the Google ranking so you become more visible and you get more traffic and enquiries. We’re not talking about paid search here – the ads up and down the top and right of the page. We’re talking about organic free listings down the middle that most people click on. So this is worth a lot of money to your business if you can dominate those results,” he said. One of the best ways to do this, Moffatt said, is specialisation. He explained that Google tends to reward specialisation in its search rankings. “It is better, for instance, if they decide to use their online marketing to really go after investor loans, rather than go for the general mass market home loan. Or you can take it down to a localisation, so targeting specific areas, such as Sydney,” he said. Another key element is mobile optimisation, Moffatt said. Not only does Google prioritise mobile-friendly websites in mobile searches; it also penalises those that aren’t optimised for mobile. “On April 21st, Google made the big change that they will actively penalise sites on mobile searches that do not have a mobile-friendly site. What that means for brokers is that if they have an old site that might be five or six years old, chances are it’s not mobile-friendly and they should invest in getting a new site or getting it upgraded,” he said. This will be particularly important as mobile comes to dominate the online space, Moffatt suggested. He said mobile search was predicted to account for 50% of all web search traffic within the next two years. “This is a really important change, and brokers need to adapt.”
22
MARKET WRAP
MARKET TALK
LOW RATES AND HIGH PRICES IN SYDNEY How will rates dictate future price growth in the NSW capital? RECENT PRICES in Sydney show the property market is “out of control”, says Todd Hunter, founder and director of wHereproperty Group. He attributes this to the record low interest rates that are continuing to stick around, but he sees things changing when they eventually do start to move north. “And when people hear about Sydney performing, they just want to jump on the bandwagon, which pushes prices up even further,” he says. Despite that, Hunter believes that in the last two years lots of people have already purchased, which also takes a lot of buyers out of marketplace. “If they have done it already, then by pure fact of numbers I think you will see a slow up in that respect.”
For AMP’s Shane Oliver, in the short term, low interest rates point to further gains in home prices, not just in Sydney but nationally. “However, this is likely to be constrained by the economic environment and the impact of tougher prudential scrutiny of bank lending by APRA,” he says. In the next 12 months he believes home prices in Sydney are likely to average more than 5%, as it is a key beneficiary of the post-mining boom rebalancing. Meanwhile, Terry Ryder, director of Hotspotting.com.au, believes there are significant factors besides low interest rates that are responsible for Sydney’s increasing prices. “If interest rates were the main factor, then everywhere would be
booming, because we have low interest rates everywhere,” he says. “Really, the only booming place in Australia is Sydney, and it has a lot to do with local reasons. The NSW economy is much stronger than it was.” Indeed, according to the latest CommSec State of the States report, NSW has retained top spot as the best-performing economy. In particular, this is due to its growing population in recent years and the fact that home construction is responding to the shortage of accommodation. “NSW looks to be well supported by home construction and infrastructure spending over 2015,” says the report. There was further good news in the Deloitte Access Economics Business
Outlook report, which claims that the falling Australian dollar is positive for the state’s manufacturing, tourism and farm sectors. Furthermore, growth in the retail trade is continuing to outperform other areas and is being led by strong sales at household goods retailers. “Car sales in NSW are also up and are similarly outperforming the national picture,” says the report. “Meanwhile, lower petrol prices, low interest rates and strong house price growth are giving the state’s consumers (and particularly mortgage holders) a pay rise.” Finally, the $6bn Barangaroo development should support a high level of activity in the state’s commercial construction sector in the next two years.
Land snapped up in Sydney’s southwest Believe it or not, agents in Sydney’s southwest have reported seeing people camp overnight on blocks or at sales offices so they could be the first to purchase big blocks of land, according to the latest Herron Todd White report. In particular, it seems to be new infrastructure that’s attracting buyers. Areas such as Edmondson Park, Leppington, Carnes Hill and Glenfield are located where the South West Link and the planned Badgerys Creek airport will offer ease of accessibility to the region and an increase in job growth. Standard block sizes of between 300sqm and 450sqm are usually sold for $300,000–$450,000, and high demand has seen much of the land that has been released sold early in the presale period. Specifically, there has been a large amount of land released in the local council areas of Liverpool, Campbelltown and Camden (on the fringe of the metropolitan area) in the past five years as part of the South West Growth Corridor.
NSW PRICE PERFORMANCE
AREA
TYPE
MEDIAN VALUE
GROWTH OVER 12 MONTHS
GROWTH OVER 3 MONTHS
GROSS RENTAL YIELD
RENT AMOUNT
Sydney
H
$800,000
13.4%
2.6%
3.3%
$500
NSW country
H
$385,000
5.6%
2.7%
4.6%
$340
Sydney
U
$600,000
8.8%
0.5%
4.2%
$480
NSW country
U
$317,000
1.9%
0.6%
4.9%
$300 Source: CoreLogic RP Data, March 2015
23
MARKET TALK
MELBOURNE PRICES HIT RECORD HIGHS Median prices in Melbourne have hit new highs amid low interest rates and record auction numbers NEW FIGURES from Victoria’s peak real estate body show house prices in Melbourne have climbed to record highs. According to the figures from the Real Estate Institute of Victoria (REIV), the June quarter saw the median house price in Victoria push past $700,000 for the first time. “The metro Melbourne median house price of $706,000 for the three months to 30 June was up from $671,000 in the March quarter,” says REIV CEO Enzo Raimondo. “This represents a quarter-on-quarter increase of more than 5%; the last time we had a quarterly increase this great was in late 2014.” Raimondo says the level of growth seen in Melbourne has been fuelled by factors including record auction numbers, low interest rates and low stock levels. Dave Brewster, managing director of Melbourne-based Buy Property Direct, says the figures don’t surprise him. “The Melbourne market recently has just been selling, and prices are just really pushing up,” Brewster says. “For example, we recently settled on a development in Croydon and the values for it have probably risen by 60% in 10 months. People at the moment are just paying crazy prices.” Brewster predicts the Reserve Bank will announce another interest rate drop later this year, which will help Melbourne with even more price growth, but he says there are still areas in the city that offer value for money.
“There are still a few areas out there, mainly in the east and southeast, that are affordable,” he says. “The first is Carrum Downs; it’s had pretty flat growth the last few years, but everything around it is raging, and historically when that happens the flat area will get pulled up as well. “At the moment it’s an area where it’s affordable to get in and hold onto; you can get a double-storey, three- or four-bed townhouse for below $400,000. “The other area is Pakenham; it’s a bit further out, but you’re looking at 75% population growth in the next 25 years, something like 18,000 new jobs and good investment in infrastructure as well.” Brewster also says there are some areas of the city he would stay away from. “Looking at the off-the-plan sales in the city, something like 40% of those are to foreign buyers, so that might be a little overstimulated, especially in the inner-eastern suburbs. “I’d also be staying away from the west until the Westgate Bridge situation is sorted; it was built in 1978 and has five lanes for 200,000 cars a day, and one accident just paralyses the whole area, so until accessibility is fixed there’s not going to be great growth there.” While not quite at the same level as their Melbourne counterparts, houses in regional Victoria also experienced price growth over the June quarter, with the REIV figures showing median prices increased 1.5% to $346,000.
STAMP DUTY ON MEDIAN PRICE DWELLINGS FOR NON-FIRST HOME BUYERS AT JUNE 2015
RANK
STATE
COST
1
NT
$23,128
2
NSW
$22,490
3
Victoria
$21,790
4
WA
$17,053
5
ACT
$16,350
6
SA
$15,080
7
Tasmania
$8,735
8
Queensland
$5,950
HOUSING OVERHANG COULD BE ON THE WAY The boom is over for Australia’s housing industry, according to BIS Shrapnel, with a new report claiming the record-setting pace of housing construction in recent years has hit its peak. BIS Shrapnel’s Building in Australia 2015–2030 report says dwelling commencements in Australia peaked over 2014/15 and will start to slow in coming years, albeit not at a rate that will prevent some areas from suffering from oversupply. “After recording strong growth over the past few years, we estimate that total dwelling starts reached just over 210,000 in 2014/15, an all-time record high,” BIS Shrapnel associate director Kim Hawtrey says. “From this level, national activity is then forecast to begin trending down over the following three years, with the currently highflying apartments sector leading the way down.” The report estimates Australia’s dwelling stock deficiency peaked at approximately 108,000 in June 2014 but dropped to around 85,000 by June 2015. This decrease is likely to continue as Australia’s rate of population growth continues to slow. “Low interest rates have unlocked significant pent up demand and underpinned the current boom in activity, but as population growth slows while construction activity remains strong, new supply will begin to outpace demand,” Hawtrey says. “This will see the national deficiency of dwellings gradually eroded and some key markets will begin to display signs of oversupply.”
24
MARKET WRAP ASIC CRACKS DOWN ON INSURANCE BROKER FINANCIAL SERVICES
NSW STILL ON TOP NSW has bested the other states and territories in new economic rankings
NSW has come top of the economic rankings in CommSec’s State of the States report for the July quarter, increasing the gap that puts it ahead of the other states and territories. NSW ranked highest on population growth, retail trade and dwelling starts and placed second on unemployment and equipment investment, even though its other rankings were housing finance (third), construction work (fourth) and economic growth (fifth). The report states that NSW is leading in performance because of its population growth, resulting in more homes being built and bought, and lifting retail spending. CommSec included a new indicator of motor vehicle registrations in the study that also highlighted the
top performance of the state. The top three economies also ranked as the ,top three for new car registrations (sales), with Victoria in second place and the NT coming third. Although Victoria is being strengthened by similar channels of population growth and housing activity, the manufacturing sector is “restraining momentum of the broader economy”, the report claims. In the NT, the strength of activity in the gas sector is underpinning equipment investment and overall construction activity, but the difficulty in attracting workers remains a challenge. The remaining states were ranked as follows: WA (fourth), Queensland (fifth), followed by the ACT (sixth), SA (seventh) and Tasmania (eighth).
ASIC’s crackdown on commissions continues, with a former insurance broker being permanently banned from providing financial services after the regulator found he was “motivated by his own potential gains”. Abhinav Gupta, a former authorised representative of ACE Insurance, was banned after ASIC found he was not of good character due to a range of dishonest conduct, motivated by the way he was remunerated. Gupta was an authorised representative of ACE Insurance between October 2013 and May 2014, operating through ACE’s Combined Insurance division in Victoria. During this time, he was responsible for selling accident and sickness insurance policies to the general public. ASIC’s investigation of Gupta’s conduct found that he had issued a policy in the name of a client who never agreed to taking out the policy, used a client’s bank account details on another client’s policy application without authorisation, and issued at least 12 fictional policies in the names of clients that either did not exist or contained numerous fictional details in the policy applications – such as false employment details and non-existent bank accounts. According to the regulator, Gupta was not remunerated by way of salary but received upfront and volume bonus commissions based upon policies sold, along with incentive prizes such as electronic devices and gift vouchers. “Mr Gupta’s actions were motivated by his own potential gains. For the protection of the public, ASIC will act to ensure dishonest insurance advisers are removed from the industry,” ASIC deputy chair Peter Kell said.
HOW THE STATES FARED
CommSec’s State of the States ranking
1
NSW
2
Victoria
3
NT
4
WA
5
Queensland
6
ACT
7
SA
8
Tasmania Source: CommSec
AUSSIES TURNING TO DEBT AGREEMENTS IN RECORD NUMBERS The number of struggling Australians turning to debt agreements has hit a record high, according to government statistics. Personal insolvency data released by the Australian Financial Security Authority (AFSA) reveal that debt agreements increased nationally by 1.9% in 2014/15, compared to 2013/14. According to the AFSA, debt agreements have now reached the highest level on record. In fact, they have reached new records each year since 2011/12. On a state-by-state basis, NSW and Tasmania were the only two states to record a decrease in households turning to debt agreements, falling by 3.3% and 0.7% respectively. The NT experienced the biggest surge, with those turning to debt agreements increasing by a massive 31.8%. This was followed by WA (10.8%), the ACT (8.5%), SA (6.6%), Victoria (4.6%) and finally Queensland (1.7%).
Interestingly, however, bankruptcies fell by 7.7% nationally over 2014/15. Bankruptcies fell in every state, except the NT and SA, where households that declared bankruptcy increased by 19.3% and 3.5% respectively over the year. The largest drops in bankruptcy occurred in NSW (-12.5%), followed by Tasmania (-10%) and Victoria (-7.8%). The increase in households turning to debt agreements over bankruptcy can be explained due to reforms to the Bankruptcy Act in 2007, in the form of the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007, which aimed to improve the operation of the debt agreement regime. For many Australians, debt agreements can provide better outcomes for their financial circumstances, and may allow them the chance to save their homes.
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SPOTLIGHT VIDEO SPOTLIGHT
ONE YEAR ON
FOREIGN INVESTMENT IN THE CROSS HAIRS What a difference a year makes ... or not. Australian Broker reflects on the punditry, new and trends that made headlines 12 months ago
JULY 2014
Four MPs from the House of Representatives Economics Committee head to China to investigate Chinese foreign investment in Australian real estate
OCTOBER 2014
Foreign buying activity in the Australian residential property market rises to account for one in six of all new properties nationally
FEBRUARY 2015
Prime Minister Tony Abbott orders a crackdown on foreign property investors who break investment rules
APRIL 2015
Property Council of Australia chief executive Ken Morrison says foreign investment is critical to the health of the property market
JUNE 2015
Foreign investor demand helps fuel inner-city residential development, according to a CBRE report
Peter White
FOSTERING THE NEXT GENERATION It’s no secret that the mortgage industry is an ageing one. The continued viability of the industry is dependent on attracting talented new entrants. FBAA chief Peter White recently told Australian Broker TV that the association was investing time and money to support bringing new blood into broking. “The average age of an FBAA member now is sitting around the high thirties, so about 38 years of age. That’s come a fair way back from where it used to be, traditionally in the mid to high forties. That’s because we’ve had a huge intake of new-to-industry members – around 2,500 in the last 12 months. That buckles into a few different initiatives that we’ve undertaken in the last couple of years that have stimulated that growth.” White said that while FBAA initiatives had seen the average age of its membership decrease, the association was planning to do more to attract young talent. One of its major initiatives has been targeting high-school and university students. “We have a whole host of engagement we’re doing to appeal to that high-school and university age group. We’re engaging them to get them to understand the market [and] to get them to understand what finance broking is about.” White said the FBAA had a variety of options for young people looking to enter the finance broking industry, from a scholarship program to aid those looking to jump directly into mortgage broking, to an apprenticeship program that would support new entrants with an entry-level job and income before they transitioned into broking. “It gets them into the industry and gets them understanding it, and then they can make an informed decision,” he said.
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PETER WHITE FIRES BACK AT COBA The FBAA chief has defended brokers against a banking association
IN A SUBMISSION to the parliamentary inquiry on home ownership, the Customer Owned Banking Association (COBA) claimed brokers were falling short in their duty of care to clients. But FBAA CEO Peter White came out in defence of brokers, calling the comments naive and narrow-minded. Terry S said COBA had unwittingly handed brokers a win with its comments. “I love it when ill-informed groups make ridiculous commentary such as COBA have done. It gives the broking fraternity the perfect platform to promote our superior services and offerings compared to the single platforms such as the banks and building societies. Thank you COBA. You’re great for business.” John directed COBA to have a look at the scoreboard to see how brokers were faring. “Why do you think the broker arm is gaining more and more of the market? The answer is we know what we are talking about and give better service.” Neil Williams said brokers had nothing to fear from COBA’s negative commentary. “I hope COBA keep up the lame attempt to smear us hard-working brokers. This will simply make more consumers seek out
brokers to form a clear understanding of the value proposition we brokers offer. We have nothing to fear. The vast majority of us are tested for our compliance regularly, participate in ongoing educational forums for our professional development and meet many regulatory checks in order to remain in business. As for incentives, is this really a new issue to throw at us? Twenty-two years ago when working for a very popular lender I received incentives to hit targets. Wow. Welcome to the 21st century COBA.” And Stephen Dinte pointed out that COBA’s comments had failed to gain much traction. “It may be all good and well for us to get hot under the collar about this COBA submission, but did anyone in the wider community actually see that story or their submission? I for one have not seen or heard anything about the submission outside of our industry mags, so in all probability, this is just a storm in a tea cup. The members of the parliamentary committee would likely treat the submission with the distain it deserves. We all know that we are wonderful, so let’s just get back to the task of continuing to provide a sublime service to our clients and let that do the talking.”
CUSTOMER IS KEY TO BROKER VALUE The Customer Owned Banking Association ruffled brokers’ feathers with its assertion that brokers were falling short in their service to clients. One broker said customer-centred brokers provided a valuable service to the market.
“Like in any industry it is the customer-centric mortgage broker that simplifies the process for consumers, provides understanding and builds long term relationships that has an advantage through specialisation and choice. A client’s circumstance and objectives are never purely about price alone or best product. There is much more to meeting overall client objectives. “I would be interested in the argument where one banker from one bank which only provides the choice of their own product suite in order to attain KPI’s and performance bonuses would be a superior option to strong ethical operators in the mortgage broking industry. There is always the same argument both ways. The fact is there are outstanding bankers and mortgage brokers that consider and care for their clients also attain satisfactory outcomes for their clients. I have a lot of respect for customer-centric bankers in the system that has the client’s interest at heart. It always comes back to the integrity and specialisation of the person and the business to attain what the clients overall objectives are. “The ‘Not Unsuitable’ stance is a regulatory ruling not a broker or client driven ruling. Maybe there is a better description for these dealings? Maybe the ‘Product selected is satisfactory to the clients objectives’.” Martin on 16/07/2015 at 9:13AM
PEOPLE DIARY OF A FIRSTYEAR BROKER First-year brokers Phil Barton and Natalie Duong on why it pays to be open all hours AS SMALL BUSINESS owners we regularly review how we can provide more opportunities for potential customers to walk through our doors and use our services. We made a decision to open for business on weekends. Having a young family, our time with our children is precious, so the decision was not taken lightly, but we hope it will reap us rewards in the future as we see growth and profitability. It’s a small difference in the overall scheme of things, but it’s important to establish an advantage over our competitors. Consider how many choices a client has when looking for rates, home loans, opinions and better deals. There are thousands of options, including the choice of bank versus broker, and online versus face-to-face. Convenience is the big selling point for many of our clients who can’t meet during regular business hours. The advantage of providing appointments after 5pm or on a Saturday morning cannot be underestimated in the mind of the client, and it’s an extra opportunity for us to grow our business. So we opened the Saturday doors for the first time and my biggest fear came true. No one came! What an anticlimax!
We used the time to catch up after the week’s busy activities; get applications submitted cleanly, documents uploaded correctly and follow-ups diarised for the following weeks. However, we weren’t deterred. By showing consistency and opening the store every weekend we will demonstrate our extended hours and generate greater awareness. Success! Last Saturday we received enquiries over the phone, and those enquiries materialised into leads, and now into applications. One in particular struck me as being a success. A young lady, a first home buyer, called wanting a second opinion. As a first home buyer in her early ’20s living at home with her mum, she had already contacted an online service which selected the ‘best rates’ for her. Or so she thought. She narrowed the choices to two major banks, had her heart set on one, but reluctantly gave in to
good old mum, who gave a nod in my direction. In this particular case, the young lady was looking to purchase a home with less than the minimum deposit, no concept of LMI, and no idea about the First Home Owner Grant, and was about to make a commitment to a terrible rate and potentially face a declined application. By listening to and empathising with her situation (and providing factual information) we gained a mutual understanding that the right course of action would be to sit down (with mum) in my office to
discuss her requirements and arrive at an honest, agreeable and, most importantly, obligation-free second opinion. No more than 24 hours later, at 4.30pm on the Monday, the client (and mum) had established a new relationship with their very own broker. A contract of sale lay on my desk and an application was completed. Trust and credibility had been earned by spending the time with them to ensure all parties fully understood the path on which we would now be travelling together. The key point from this is not the fact that we won the business. The key lesson for me is that, despite a lack of business walking through the door each Saturday, we have simply been available. We have still provided support and guidance to a young client who was clearly on the wrong path at a critical time in her decision-making process. Our service was available when others were not. Convenience is key, and had we been closed we would not have won that business. The other key point for me is that there is a lot of competition in this industry – most great, but some, as the client found out, not so great. Our goal was to stand out among our competitors, and by providing a point of difference to our market in this instance we have won a firm advocate. Hopefully this client will spread the word to her colleagues; the only concern is that they will all want an appointment at 6.30pm on a Friday night!
FORMER SOCCEROO OPENS AUSSIE FRANCHISE Former Socceroo squad member Joel Griffiths has opened up an Aussie Home Loans franchise in Newcastle after completing his mortgage broker qualifications. Griffiths and wife Bianca have established an Aussie store at The Junction in Newcastle, with an old school friend of Griffith, Jeff Sawtell, as the third mortgage broker in their store. Griffiths recently completed an intensive three-week mortgage broking course to become fully accredited with
a Diploma of Financial Services, after helping his wife – who became qualified last year as a broker – for several months at The Junction outlet in administration and office management. The 35-year-old professional football player has made the transition to Aussie after playing for the Newcastle Jets, Sydney and Wellington, as well as a number of overseas clubs, including Leeds United. Griffiths also won the A-League’s Most Valuable Player Award and its Golden Boot in 2008.
Joel Griffiths and Aussie executive chairman John Symond
CAUGHT ON CAMERA Vow Financial recently held its one-day miniconference in Sydney. The event featured updates, business building tips and presentations by Yellow Brick Road chairman Mark Bouris and The Apprentice winner Andrew Morello.
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INSIDER
FINACIAL SERVICES
AN OFFICE DOGFIGHT A US office has seen a row erupt over bringing pets to work
RESEARCH SAYS bringing pets to work can have a positive impact on morale and productivity, but it seems to have backfired spectacularly in one US office. A vicious and public email battle exploded in the US Attorney’s Office for the Eastern District of Virginia when employees were asked to leave their pooches at home. “All, I have become aware that we have some employees who have continued to bring their pets to work in the Alexandria office. There seems to be an increase during the weekend,” said the email to all staff, sent by the office’s director of administration. “I would like to remind you that we have employees with pet allergies and as such no pets (other than service animals) are permitted in the workplace policy. “Additionally when there are accidents, this is additional work for the admin staff and cost to the District to have areas cleaned. Please see the attached email from Dana (February 12, 2014) regarding this issue.” One assistant US attorney took an aggressive approach in expressing his annoyance at the ‘no pooch in the office’ policy. “I’m here working on the weekend, both day; same as last weekend (the 4th of July weekend) – and your observation is that I have brought my dog to work?!!!,” he replied in a disgruntled email to all staff. “You know what? You’re right – neither one of us should have been here, me or my dog. I’ll be sure to follow your advice in the future.” Yikes! But according to the Above the Law website, the director of administration didn’t let the sassy reply slide. “Thank you for understanding and being thoughtful of my role to ensure the health, safety and welfare of the District employees,” she responded in another officewide email. “During my three and a half years here, I’ve had to endure watching the First Responders and paramedic assist members of the staff during medical emergencies. On at least two occasions in the past two years, two of my admin employees were taken by ambulance to the emergency room,” she ranted.
“I find it to be a very [reasonable] thing to ask this of staff, not to mention it violates the CFR. I find your email offensive and insensitive, not to mention that it again ignores my frequent requests NOT to send emails of this sort to the entire staff.” It continued: “Finally, there are many of us (both support and AUSAs) who frequently work late evenings and weekends to accomplish our jobs. So by all means let’s be professional and keep this in perspective. “To the staff: my apologies for this email. I will not respond to any other responses regarding this subject. If you have any issues with this request, please direct them to the MAUSA or U.S. Attorney.” Seems like a slightly drastic escalation. The unrelenting assistant US attorney then sent the pinnacle of all catty office memos. “If you had any sensitivity to the history and culture of this great institution that is the EDVA, you would know that this building was named for a great man who brought his dog to work in this very building,” the email said, again ignoring the administrator’s request to refrain from cc’ing all staff. “His picture – with his dog – hangs in our lobby. Our long-time excellent first assistant Ken Melson frequently brought his dog to the office, as did a number of our other fine past leaders. “It saddens me that much has changed since your coming, although I do not mean to suggest that you are responsible for it, any more than you meant to suggest that someone was taken away by ambulance because of an alleged pet allergy. “And on the subject of useless officewide emails,” the retort continued. “I do not need to know where you will be every moment of the day. I do not receive hourly email updates on the whereabouts of our U.S attorney, our criminal chief, my national security chief, or even my wife. I do not need them from you – and I doubt many of us do.” Ouch!
ROBOT EARNS A PROMOTION British company Engage Works has made a humanoid robot its chief morale officer – and praised it for having “the human touch”. The robot – who is named Norris – is part of a team that handles the company’s Flux LDN innovation lounge, a space devoted to showcasing new technology. “We decided it was time to upgrade Norris to CMO due to the significant contribution he’s made to the Engage Works team in the short time he’s been with us,” said Steve Blyth, the CEO of Engage Works. “Whether it’s showcasing the potential of robotics for brand interaction or simply cheering people up with one of his legendary one-liners, he’s got the team’s happiness at heart.” The multilingual, humanoid robot was obviously pleased with its fast-track promotion. “I will be celebrating with a few screwdrivers. I’m gonna be well oiled!” the robot said. Norris isn’t the first robot to be employed by a company. In Tokyo, an android was used as a receptionist to greet shoppers, while a recent technology event in London used robot pole dancers to entertain crowds.
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