MARCH 2020 ISSUE 17.04
ASIC reveals draft guidance on best interests duty The new guidance clarifi es how the best interests duty should work /12
Taking the first steps into commercial lending Lenders reveal their top tips for breaking into this space/16
CAMERON POOLMAN OnDeck’s CEO explains why now is the time for brokers to branch out into commercial lending /14
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A closer look at the proposed AFG-Connective merger What the merger could mean for the industry /20
ALSO IN THIS ISSUE… Investor demand enters positive territory ABS data shows positive growth for the fi rst time in two years /04 A big deal Alycia Inglis on why it’s important to educate clients /22 In the hot seat Chris Hall’s tips on how to survive a career in fi nance /30
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NEWS
IN THIS SECTION
Lenders Investor demand enters positive territory /04
Aggregators Aggregator reports businesses jumping ship /06
Market The trickle-down effect of increased homebuying /10
Regulators ASIC’s draft guidance on best interests duty revealed /12
Technology Aspiring neobank sets up shop in Sydney /08
www.brokernews.com.au MARCH 2O20 EDITORIAL
SALES & MARKETING
Editor Victoria Ticha
Sales Manager Simon Kerslake
News Editor Madison Utley
Global Head of Communications Adrijana Monevska
Production Editor Roslyn Meredith
DATES TO WATCH
Upcoming can’t-miss events
ART & PRODUCTION Designer Jommel Ramos
12 MARCH
18-19 MARCH
25–26 MARCH
Connective’s first PD Day for 2020
Financial Inclusion Conference
ASIC Annual Forum 2020
At this event you will hear from Connective on the latest industry updates, including Mark Haron, Connective director, and Daniel Oh, Connective group legal counsel, on the best interests duty and how it could impact your business. Attend and earn four CPD points. The event will be held at the Royal Randwick racecourse in Sydney.
The fourth edition of this event, dubbed ‘Roads to Resilience’, will be held in Sydney and aims to engage the community sector, government and peak organisations in working towards a more financially inclusive future for Australians. Conference content will address the building blocks of financial resilience for consumers.
ASIC’s annual forum is a long-standing key event for participants in the financial services and markets sectors. This year’s speakers include Attracta Lagan, co-principal at Managing Values; Paul Harrison, deputy director at Deakin Business School; and Nicolette Rubinsztein, non-executive director at Zurich Australia.
Production Manager Alicia Chin Traffic Coordinator Kristine Jamir
CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil
EDITORIAL ENQUIRIES
Madison Utley +61 2 8437 4700 madison.utley@keymedia.com
SUBSCRIPTION ENQUIRIES
30-31 MARCH
06 APRIL
7 M AY
AFR Banking & Wealth Summit
AltFi Australasia Summit 2020
Banking Summit Sydney
Banking and wealth leaders, regulators, policymakers and stakeholder groups will gather to debate the future of financial services at the Sofitel Wentworth in Sydney. The 2020 summit will provide the opportunity to hear from “key industry leaders” during the implementation stages of many royal commission recommendations.
Join over 350 industry leaders to explore the twin themes of alternative finance and fintech at AltFi’s largest event yet. The full-day event will examine the opportunities and challenges facing both disruptive newer players and established names looking to bring to the market genuinely radical new products. It will be held at Doltone House, Jones Bay Wharf, on the foreshore of the Sydney Harbour.
To be held at Doltone House, Hyde Park, this event brings together over 100 chiefs and divisional heads from Australia’s largest banks and financial services organisations to share insights on industry trends and emerging technologies that will change the face of the industry in the coming years.
tel: +61 2 8311 5831 fax: +61 2 9439 4599 subscriptions@keymedia.com.au
ADVERTISING ENQUIRIES
Simon Kerslake +61 2 8437 4786 simon.kerslake@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, London, Toronto, Manila, Singapore, Seoul
1 1 J U LY Sydney Property Expo Developers, agents and real estate industry leaders will be exhibiting with 100-plus developers and exhibitors at this expo. The benefits of the local region, the current property market, new projects, investment opportunities, future trends of the property market and key issues impacting the sector will be discussed. The event will be held at the ICC Sydney Convention and Exhibition Centre.
2
28-30 OCTOBER
05-06 NOVEMBER
AFG Next’s National Broker Conference
Future of Financial Services Conference
AFG Next is offering brokers and industry professionals an immersive two days of thought leadership, education, professional development and networking. Find out what’s next for your industry, your business and the year ahead. All parts of this year’s event will focus on three key themes: evolve, excel and experience. The event will be held in Melbourne.
ST Media’s flagship event and the largest of its kind in the southern hemisphere, Future of Financial Services will set the digital agenda for 2021 and beyond. It will examine open banking, customer experience, AI and machine learning, data analytics, digital transformation, the emergence of neobanks, and much more. It will be held at the ICC Sydney Exhibition Centre
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.
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Let’s chat. 13 11 33 Approved applicants only. Lending criteria apply. Other fees and charges are payable. Liberty Financial Pty Ltd ABN 55 077 248 983. Australian Credit Licence 286596.
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NEWS
LENDERS PEPPER CEO LOOKS TO ‘SHAVE THE WORLD’ Australia and New Zealand CEO Mario Rehayem has announced plans to shave his head on 12 March to raise money for the Leukaemia Foundation. “I don’t know of anyone that hasn’t been impacted by this disease in some way,” he said. A $56 donation helps the foundation provide financial assistance for a family when treatment makes it impossible to work; an $80 gift covers one night of emergency patient accommodation for a family who must urgently relocate for treatment; and $145 enables the work of a researcher for a day.
VV NEW LOAN COMMITMENTS FOR OWNER-OCCUPIER HOUSING RISING Source: ABS Lending Indicators
New loan commitments: total housing values (seasonally adjusted), Australia
PEPPER MONEY’S
Total (exc. refinancing)
has slashed its fixed rates, following CBA’s rate reduction in the previous week. ANZ cut its interest rates by 0.10% to 0.45% for owner-occupiers paying principal and interest, and up to 0.26% for those on interestonly. But the most significant cut was for investors with interest-only repayments, with “a huge” 0.86% cut for four- and five-year loan terms. “The market is supercharged right now as banks jockey to win back market share,” said Canstar’s group executive financial services, Steve Mickenbecker.
“The market is supercharged right now as banks jockey to win back market share” Steve Mickenbecker Group executive financial services, Canstar
4
Investor (exc. refinancing)
$bn 25
20
15
10
ANOTHER LENDER SLASHES INTEREST RATES ANZ
Owner-occupier (exc. refinancing)
5
0 Dec-03
Dec-05
Dec-07
Dec-09
Dec-11
Dec-13
INVESTOR DEMAND ENTERS POSITIVE TERRITORY Demand from investors has grown for the first time in two years as the home loan market rebound gathers momentum, data from the ABS has revealed value of investor loans, excluding refinancing, hit $5.44bn in December, representing gains of 2.8% monthly and 4.9% annually on seasonally adjusted terms. “The value of new loan commitments for investor housing, while tracking upward over the past six months, remained down on the March 2017 peak,” said Bruce Hockman, chief economist at the ABS. The data also reveals growth of 17.9% in the owner-occupier segment, and that the value of mortgage volumes rose by 14% in the 2019 calendar year. THE
New loan commitments also rose by 3.5% for personal fixed term loans (seasonally adjusted), while business construction fell by 0.2%. Reflecting on the data, ANZ Research observed that “improved sentiment in the property market, driven by easier credit, low interest rates and consistently strong price growth, is behind the continuing strength of mortgage demand”. Meanwhile, Tim Hibbert, principal economist at BIS Oxford Economics, said he expected the strong demand for housing credit to continue throughout the year as dwelling values rebounded.
Dec-15
Dec-17
Dec-19
“Price growth in Sydney and Melbourne continues to run strong, with Australia’s other major cities starting to join the party. With property turnover on the up, the outlook for total housing loan demand looks strong for 2020,” Hibbert said. ANZ Research also noted that “while housing credit growth is still low, strong demand for finance looks to be of concern for the RBA, with the bank now weighing up more carefully the costs benefits of further rate cuts”. Indeed, in his speech at the National Press Club in early February, RBA governor Philip Lowe said the central bank would closely monitor developments in the credit space to ensure that low interest rates do not trigger a disorderly spike in the mortgage market. “[We] need to remember that it is possible to have too much of a good thing,” said Lowe.
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New bank criteria left you high & dry?
La Trobe Financial offers common sense lending solutions to clients who may not qualify at a bank. Our personal approach to assessment means we can be more open to your customers’ needs. Send us a file today. Call 13 80 10 or visit latrobefinancial.com
La Trobe Financial Services Pty Ltd ACN 006 479 527 Australian Credit Licence 392385. La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence 222213 Australian Credit Licence 222213. Terms, conditions, fees, charges and La Trobe Financial lending criteria apply. To view our ratings and awards please visit our Awards and Ratings page on our website. This publication is for accredited broker use only and is not for distribution to consumers. Copyright 2020 La Trobe Financial Services Pty Ltd ACN 006 479 527. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial.
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NEWS
A G G R E G AT O R S ACCC WARNS OF RISKS OF AFG-CONNECTIVE MERGER ACCC has warned that the proposed acquisition of Connective by AFG could stymie market competition. “Combining AFG and Connective would create the largest mortgage aggregator in Australia by a significant margin, accounting for almost 40% of all mortgage brokers operating in Australia,” said ACCC chair Rod Sims. The concerns were raised in a statement was seeking further information from the industry about the supply of mortgage aggregation. THE
AGGREGATOR ADDS MONEY TRANSFERS TO OFFERING
AGGREGATOR REPORTS BUSINESSES JUMPING SHIP Loan Market has reported its largest-ever intake of businesses in January – a result the group attributes to the “major industry overhauls” on the horizon this year welcomed six
LOAN MARKET new businesses in
January and is expecting to record its strongest first-quarter result to date, with almost 20 more business owners in the process of onboarding with the aggregator. Those joining in the new year were a mix of branded businesses and new additions to Loan Market’s ‘Bring Your Own Brand’ model, launched in 2019. Loan Market’s executive director of growth, Andrea McNaughton, explained that business owners were likely seeking out “safety and support” ahead of “looming industry changes”, and they had been drawn to Loan Market’s forward-thinking approach and investments in technology. “Tech is going to play a significant role in adapting
to these obligations, and Loan Market has made great investment in this space to prepare brokers for this change,” said McNaughton. “Our tech is the common thread through our commitment to save our brokers time, keep them safe, help them find and keep clients and continue to grow their businesses. “In fact, tech is going to assist in positioning brokers as the trusted advisers in the marketplace and make it easier for clients to deal with finance brokers.” Over 2019, Loan Market attracted 60 new business owners and 12 new brokers to its network. McNaughton said that while the group was celebrating the significant growth these figures represented, it was “the quality of the operators joining” that
was the most pleasing. “Business owners want to be able to go about their business with confidence. They’re seeking out support to limit the disruption to their activities and actually improve their client service offering in the marketplace,” she said. “Loan Market is working with all of our business owners to future-proof their businesses ahead of 1 July.” From July, mortgage brokers will be bound by a best interests duty. While McNaughton said the industry had always acted in the best interests of customers, the need to satisfactorily document the process under the new changes is a big concern for business owners given the new penalties in place. Joining Loan Market in January were Michael Barton, Loan Market (SA); Michael and Leila Deegan, Do Financial (WA); Andrew Jolliffe, HTL Property (NSW); Jasmeet Singh, Absolut Financial (Victoria); Nathan Hawes, Loan Market (Victoria); and Suzanne Dewhurst, Loan Market (Queensland).
has bolstered its suite of customercentric solutions by adding safe, fast and cheap international money transfers to its offering. It has formed an Australian-based partnership with XE, the money transfer specialists that already service Loan Market’s New Zealand network. The partnership recognises the global nature of work, life and investments in 2020, said Loan Market chief commercial officer Stephen Scahill. LOAN MARKET
“Tech is going to assist in positioning brokers as the trusted advisers in the marketplace and make it easier for clients to deal with finance brokers” Andrea McNaughton Executive director, Loan Market
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CONTACT
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Metro locations Quick credit decisions
Level 9, 30 Collins St, MELBOURNE VIC 3000
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Simple. Flexible. Fast. bluestone.com.au Bluestone Servicing Pty Ltd ACN 122 698 328 Australian Credit Licence 390 183 on behalf of the Credit Provider, Permanent Custodians Limited ACN 001 426 384. Lending criteria, terms and conditions, fees and charges apply.
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NEWS
TECHNOLOGY NEOBANK RECORDS EXPONENTIAL GROWTH a month of launching its savings account, neobank Xinja has reported that a “whopping” $200m was deposited by 20,000 customers – about half of which came from Australia’s four major banks. The ‘Stash’ savings account was launched on 15 January and within three weeks $100m had come in. The response has been “remarkable”, said Xinja CEO and founder Eric Wilson. “It shows that people badly want a different kind of bank,” he said. WITHIN
LENDER LAUNCHES MAJOR BRAND CAMPAIGN has launched a national brand campaign with a music video aired on YouTube and Nine’s digital mastheads. The ‘Real Life’ campaign video was inspired by the group’s customer data and insights into how real-life events impact Australians and how individually tailored financial solutions can help them secure a positive outcome. It is described as “a tongue-in cheek Aussie parody of American Jake Owens’ song of the same name, Real Life”. PEPPER MONEY
“Many have directly participated in the UK neobank revolution, so we’ve seen first-hand what has and hasn’t worked – and built Hay from there” David Curry Chief operating officer, Hay
ASPIRING NEOBANK SETS UP SHOP IN SYDNEY The new fintech is offering “unique benefits” to the first 10,000 customers who sign up for its digital transaction account new fintech has launched in Sydney after receiving an Australian Financial Services Licence. Its application for a Restricted ADI banking licence is still pending with APRA. The fintech, Hay, will first offer a digital transaction account through its smartphone app, which includes features like enriched payment information, monthly insights and travel budgeting tools, along with a Hay Visa card offering fee-free foreign exchange rates. Hay CEO Andrew Laycock said, “It is such an exciting time for fintechs in Australia; we are experiencing a revolution in banking services across the globe, and it is now Australia’s turn. “We’ve spent the past 18 months A
researching, listening and building our … infrastructure to deliver convenient and flexible solutions that fit our users’ lives. “We’ve built cutting-edge technology, but it’s not about being overly clever or the most ‘out there’. It’s about helping people understand what they can do to make the most of what they have in a way that works for them.” Hay’s waiting list is now open, and the first 10,000 to sign up will be considered founding members who will receive “unique benefits” for the life of the account, including early access to all future feature releases. The digital account will be available in the coming weeks, following months of testing.
Opening an account is secure, 100% mobile and can take as little as three minutes, with the Hay card delivered within five days. Further, the fintech charges zero fees for transactions, purchases and cash withdrawals at ATMs across Australia. There are also no set-up or monthly account-keeping fees. While Laycock is confident that users will embrace Hay from day one, he has guaranteed the fintech will remain in “a constant state of evolution”, rapidly bringing new features to the platform. “So, as they say, watch this space,” he said. Hay is headquartered in Surry Hills, NSW, but has international offices in London and Belfast. Hay chief operating officer David Curry explained, “We have the advantage that a lot of our team have local and international technology and finance experience. Many have directly participated in the UK neobank revolution, so we’ve seen first-hand what has and hasn’t worked – and built Hay from there.”
‘bankless’ business overdraft of non-bank lender GetCapital is seeking to establish itself as a core working capital solution for brokers, five months after launching. Following the move of traditional banks to significantly reduce lending to small businesses, GetCapital said it saw an opportunity to offer a standalone business overdraft to serve as working capital for growing businesses of varying sizes. “GetCapital is entering a territory that has been traditionally held by banks,” said CEO Jamie Osborn. THE
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NEWS
MARKET BORROWERS MORE COMFORTABLE WITH DEBT latest Household Financial Comfort Report shows an improvement in sentiment over the six months to December 2019, largely in the mortgage-paying segment of the population. Of 11 key drivers, the biggest improvement was in ‘comfort with debt’ – up 5% to 6.55 out of 10, a record high. “Significantly lower home loan rates and relatively low and stable unemployment rates helped to significantly improve ‘comfort with debt’,” said ME consulting economist Jeff Oughton. ME BANK’S
THE TRICKLE-DOWN EFFECT OF INCREASED HOMEBUYING The upswing in Australia’s appetite for homebuying over 2019 is expected to continue, CBA’s latest Household Spending Intentions series reveals data from Commonwealth
FRESH Bank’s Household
Spending Intentions (HSI) series has revealed a trend that has interesting ramifications for the wider economy. While homebuying intentions eased back a little in January 2020, the solid uptrend seen in 2019 remains intact. There are also indications of further gains in dwelling prices, a turn in the residential construction cycle, and a positive wealth effect that should help consumer activity, according to CBA. The series provides “forwardlooking” insights by analysing customer behaviour using CBA’s own transactions data, as well as household spending intentions
search information from Google Trends, spanning seven key household sectors in Australia: homebuying, retail, travel, education, entertainment, motor vehicles, and health and fitness. Indeed, for a second consecutive month, the “sustained and solid” upward trend in homebuying intentions is translating into higher motor vehicle spending intentions; this is significant as it’s the form of spending most sensitive to changes in consumer wealth, according to RBA research. CBA chief economist Michael Blythe explains, “While the headline home buying intentions data eased back a little in January, the solid upward trend remains in
place and there are now more signs this improvement may translate into stronger motor vehicle spending intentions – off a very low base. “A positive wealth effect could spill over into other parts of consumer spending as well.” Speaking to Australian Broker earlier this month, financial analyst Martin North explained the crucial impact a positive wealth effect could have on the economy, and its inextricable link to the housing market. “The Reserve Bank and Treasury both want [home] prices to rise to create the wealth effect. If people feel more wealthy, which they generally do as prices rise, they go and spend more. Trying to bring prices higher is really the only lever they’ve got,” he said. While spending intentions in retail, health and fitness and entertainment are trending steady, the lack of growth in these sectors could be tied to the summer’s bushfires and the policy response to the coronavirus.
BROKERS URGED TO HELP SME OWNERS should discuss the availability of commercial finance options with SME owners to keep their personal and business finances separate and avoid the risks of a property market upswing, OnDeck Australia has urged. Gains in the residential property market could lead to more SME owners resorting to home equity as a source of business finance – a strategy that concentrates risk for SME owners and their families. BROKERS
“Significantly lower home loan rates and relatively low and stable unemployment rates helped to significantly improve ‘comfort with debt’ – especially in major capital cities” Jeff Oughton Consulting economist, ME
HOMEBUYING INTENTIONS ON UPWARD TREND Source: CBA/Google Trends
Household spending intentions eased back a little in January, but the solid uptrend remains intact
Smoothed
Household spending intentions
13%
0%
-13%
-26% Jul 2017
10
Jan 2018
Jul 2018
Jan 2019
Jul 2019
Jan 2020
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NEWS
R E G U L AT O R S
ATO’S NEW RULES PUSH SMES TO PAY TAX DEBTS using the ATO “as a bank” by not paying tax on time face new risks, Scottish Pacific has warned. Based on its new rules, the ATO can report an SME to credit rating agencies if the business owes over $100,000 in tax; has an ABN; is over 90 days in arrears; and lacks or is not negotiating a payment arrangement. Scottish Pacific senior executive Wayne Smith said, “With forecasts for a poor economic outlook in 2020, if ever there was a time to make sure you have a sustainable funding structure in place for your business, that time is now.” SMES
ASIC’S DRAFT GUIDANCE ON BEST INTERESTS DUTY REVEALED The regulator has released draft guidance clarifying how the new best interests duty for mortgage brokers should work says its draft regulatory guide aims to provide “high-level guidance” on its expectations for what mortgage brokers may need to do to comply with the best interests duty (BID) when gathering information about the consumer, making an individual assessment of what is in the consumer’s best interests, and presenting information and recommendations. The guide was crafted to “strike a balance” between providing useful guidance and accurately reflecting the principles-based nature of BID. While the guidance covers a wide range of topics, ASIC addressed specific concerns that have arisen since the release of the draft bill, including: ASIC
1. The interaction of BID and responsible lending obligations: BID obligations operate
suggests the government’s DATA First Home Loan Deposit Scheme (FHLDS) is helping millennial applicants achieve their homeownership aspirations. Over 75% of the scheme’s applicants have been aged between 18 and 34, with 34% of these falling into the 25–29 bracket. According to Housing Industry Association chief executive of industry policy Kristin Brookfield, the trends the data revealed – in addition to the general rise in optimism around getting into the property market – are “encouraging”.
12
What’s at risk? As articulated by ASIC, the brokers at risk of non-compliance are those whose processes typically lead to a ‘‘one-size-fits-all” outcome for consumers. Brokers need to consider the individual circumstances of the consumer and their needs, goals and financial situation to comply with the BID obligations.
RBA CASH RATE REMAINS AT HISTORIC LOW RBA cut the cash rate to a historic low of 0.75% in October 2019
Source: InfoChoice
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
Feb 2000 Aug 2000 Apr 2001 Dec 2001 Nov 2003 May 2006 Aug 2007 Mar 2008 Nov 2008 Apr 2009 Dec 2009 May 2010 Aug 2010 Nov 2010 Apr 2011 Jul 2011 Oct 2011 Feb 2012 May 2012 Aug 2012 Nov 2012 Mar 2013 Jun 2013 Sep 2013 Dec 2013 Apr 2014 Jul 2014 Oct 2014 Feb 2015 May 2015 Aug 2015 Nov 2015 Mar 2016 Jun 2016 Sep 2016 Dec 2016 Apr 2017 Jul 2017 Oct 2017 Feb 2018 May 2018 Aug 2018 Nov 2018 Mar 2019 Jun 2019
WHAT THE FHLDS MEANS FOR MILLENNIALS
alongside other laws that affect how credit assistance is provided to consumers. Generally speaking, BID demands more of brokers than the responsible lending guidelines, according to ASIC. 2. Range of credit products and providers: Brokers must be satisfied that the range of products they can access and recommend is sufficient to allow them to act in the consumer’s best interests. Further, ASIC expects brokers to maintain a general awareness of the other products and features available on the market. 3. When the duty applies: BID applies any time a broker provides credit assistance to a consumer, based on the information available at the time. Brokers may need to reassess what is in the
consumer’s best interests before providing credit assistance. However, they cannot be held retroactively responsible for a change in circumstances that occurred after the initial interaction has concluded. 4. Packaged products and matters outside the mortgage broker’s expertise: ASIC has proposed that recommendations on packages should be based on a holistic assessment of the package and should involve a process of comparison with other available products, both other packages and standalone home loans. ASIC also noted that it did not expect mortgage brokers to advise on matters outside their expertise.
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Helping Brokers open doors. Westpac is listening to what Brokers need and are making changes to help you open more doors. Visit us online to check out our initiatives for Brokers or talk to a BDM.
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FE AT URES
SPECIAL REPORT
TIME TO BRANCH OUT INTO COMMERCIAL Brokers are increasingly reaping the rewards of diversifying into SME finance. Cameron Poolman, CEO at OnDeck, Jenny McKay, principal at All Finance QLD, and Brad Crinion, CEO at Platform Finance, discuss how to branch out into commercial lending
of the golden rules of investing is to not put all your eggs in one basket. A broker’s business is a key personal asset, and the value of diversification applies here too. A growing number of brokers are doing just that, exploring the different revenue streams offered by commercial finance. In 2019, online SME lender OnDeck Australia experienced extraordinary growth in brokergenerated loans. OnDeck CEO Cameron Poolman explains, “Brokers are now more prepared to look beyond the traditional home loan market. Commercial loans don’t just add a revenue stream; they also allow brokers to deepen the client relationship and act as a broader provider to their customer base.” Jenny McKay, principal at All Finance QLD, made the transition into commercial lending some time ago. She says, “If you are going to help your clients with one thing, you need to take into account the whole picture.” ONE
McKay adds, “Business owners have so many options with finance today to help them in their business, it is exciting.”
“Commercial loans don’t just add a revenue stream; they also allow brokers to deepen the client relationship” Cameron Poolman, CEO, OnDeck A more complete client service OnDeck’s research shows that, within a broker’s residential client base, around one in four are likely to be SME owners. This provides a wealth of opportunities to diversify revenue streams – and deepen the existing client relationship. Brad Crinion, CEO of Platform Finance, Australia’s largest asset and equipment finance group, explains, “We’re seeing an increase in selfemployed people seeking assistance from mortgage brokers to refinance
Diversifying into Commercial e-book A guide to expanding your broker business, brought to you by the MFAA and OnDeck Download the e-book at mfaa.com.au/diversification-ebook 14
their home loan – but they may also be on the lookout for new work vehicles or commercial equipment to grow their business.”
Seizing opportunities The key for brokers is to be able to seize opportunities. Crinion says, “What we’ve seen is that brokers have the client sitting in front of them, saying, ‘I’m looking for a new mortgage, but I’m also looking for some new vehicles or equipment’. However, the broker loses that opportunity because they don’t have the products to facilitate that lending.” He adds, “By diversifying and partnering with specialist asset financiers, brokers can offer a
complete solution to their client and increase the chances of retaining that client for the future – with more frequent financing opportunities.” As Crinion points out, branching out into SME finance lets a mortgage broker provide a full financing solution to their client. He says, “If they come in for a mortgage and mention they’re looking for equipment for their business, why point them elsewhere? You can now provide this full finance solution to your client. You can effectively become a one-stop shop for all of your client’s needs.” SMEs moving away from using personal capital Not so long ago, SME owners often relied on home equity and other personal assets to provide business funding. Poolman says, “We know that around eight out of 10 SMEs have business finance secured against the owner’s home. The risk is that relying on home equity blurs the line between business and personal assets. This can put an SME owner, and potentially their family, in financial jeopardy if the business fails.” However, according to Crinion, there is a trend away from using home equity, and it’s adding to the opportunities for brokers to diversify. “SME owners are increasingly trying to find ways to raise capital without having to risk the family home by leveraging off their personal equity,” he says. “There’s a desire to separate business life from home life and reduce risk.” At the same time, an increasing range of finance options are available to SMEs. “There are a lot more products on the market that will allow an SME business owner to facilitate growth in their business without leveraging their personal assets,” Crinion adds. Benefits for brokers McKay has seen upsides for both herself and her clients in SME lending. “Dealing with business
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In partnership with
a trusted partner such as Platform Finance, we can provide the solution for your customer and the relationship remains 100% with the broker. That’s your relationship, and we can help you grow it by providing a full solution, rather than just a mortgage, so you don’t lose any other opportunities.”
Cameron Poolman, CEO, OnDeck
Jenny McKay, principal, All Finance QLD
owners is something I like, and commercial lending seems to be quicker and easier to get processed. The processing time is much faster with companies such as OnDeck.” Other benefits have flowed from it, too. “It has given me the opportunity to learn about new products and inform my business owners about them, and where they might help them. Commercial lending also helped with my own income following the slowdown of the residential market,” McKay says. Support is available Adapting to change can be challenging for time-poor brokers. However, McKay says, “I don’t believe it is that hard to get your head around commercial. If you keep up to date with the information the lenders supply, and you have a
Brad Crinion, CEO, Platform Finance
good rapport with your BDM, you will be fine – they are there to help.” For brokers who come across situations they are uncertain about, McKay advises, “If you don’t have the answer at that point, be honest and let the client know you will find out and get back to them. People like honesty.” Just as with the home loan market, brokers do need to stay abreast of developments in commercial lending. Crinion says, “What’s important is that brokers provide specific independent advice, taking the time to research and search for the product that is right for the client’s exact requirements and based on their circumstances.” Access to specialised finance SMEs often have long-standing relationships with their banks. The
problem here, as Crinion sees it, is that banks will often offer an SME client their best available product, which can be very different from the product that is best for the SME. He adds that “brokers will utilise their knowledge of the products offered by their extensive panel of lenders to find the best product that meets the SME’s needs”. Moreover, partnering with a specialist equipment finance broker gives SMEs access to specialised products not always offered by their traditional banks. Crinion says the biggest risk for brokers is going it alone. “Partnering with a reputable asset finance specialist reduces the risk of losing the client,” he explains. “Equipment finance and mortgages are two completely different markets. By referring the client’s details on to
Fintechs bring fresh alternatives What’s especially exciting in the commercial space is the availability of new SME finance options introduced by fintech lenders. Sean McHugh, finance broker at Platform Finance, says, “We’ve witnessed the emergence of fintech lenders that are innovating and developing finance products for small and medium businesses. In the last 12 months we’ve found that more of our commercial clients are reaching out for advice from their broker about this type of lending.” He adds, “OnDeck is now a core fintech partner of Platform Finance because of their expertise in the industry both here and abroad, with over $13bn-plus loans funded, servicing over 100,000 customers.” Poolman explains, “We really act as an extension to the broker’s team. Reflecting this, we always triage broker enquiries upfront so that their customer won’t have an unnecessary credit enquiry recorded on their credit file, and to save the broker valuable time.” Indeed, he points out that OnDeck’s expansion into the broker channel has been accompanied by a tripling of its business development team, which has been handpicked from the ranks of its most experienced sales team. OnDeck’s success across the broker channel reflects the significant level of support it offers brokers transitioning into commercial finance. And it’s something that matters, Poolman adds. For McKay, the journey into SME finance has been highly rewarding. Her advice to brokers considering diversifying their business is to learn about the products involved, speak with other brokers in their group or network, and reach out to lender BDMs for help. “We all have different levels of experience, and you can’t know everything – this is how we grow. But you’ll get to love commercial finance.” AB www.brokernews.com.au
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SPECIAL REPORT
SIMPLIFYING COMMERCIAL: LENDERS REVEAL FIRST STEPS TO GROWTH Diversifying into commercial doesn’t have to be difficult. Pepper Money’s Malcolm Withers and La Trobe Financial’s Mark Hood discuss their tips for breaking into commercial, the latest market trends, and where to find growth in 2020 Why are more brokers diversifying into the commercial lending space?
Q
Malcolm Withers: I think brokers now recognise that if they are not asking their customers about their diverse needs then someone else will be. Opening the door to additional markets like commercial lending gives them a point of difference that can service these ever-changing customer needs. If we look at the industry over time, there has been a growing gap between what an SME customer wants and what traditional lenders are able to provide. SME clients are looking for a dedicated business banker that understands their business and works with them to help them grow and navigate their finance needs. The banks, however, are grappling with how to deliver this in a rapidly growing SME market, meaning these clients end up dealing with a call centre when they are expecting a personalised service. I believe this has presented a significant opportunity for a broker to evolve and develop their business to offer more than just mortgage lending. They can bring back the personal relationship a self-employed client deserves by fully understanding their goals, growth plans and where they want to be in five years’ time, and help them navigate the path to achieve this growth. Mark Hood: The number of brokers diversifying into commercial 16
lending has increased but remains relatively low, with just 20% of brokers writing commercial loans, compared to almost 60% of brokers who write residential loans. Commercial lending appears to represent a great upside opportunity for brokers looking to expand their business and diversify their product offering, revenue sources and client base from which other services can be cross-sold. We believe a key driver of the shift towards commercial lending is coming from the consumers
process, enabling them to diversify into this sector. What does this trend Q suggest about the housing market, and where will the key drivers of growth stem from in 2020 – residential or commercial? Malcolm Withers: By diversifying into commercial lending in 2020, brokers will be less dependent on the ebbs and flows of the residential property market. SMEs make up
“It may sound simple, but the first step is as easy as asking your clients, ‘Did you know I can help with commercial and asset finance?’” Malcolm Withers, head of commercial, Pepper Money themselves, who are already strong advocates of the value added by mortgage brokers in the process of sourcing the best available loan, whether that be commercial or residential. Several lenders and aggregators are also focused on assisting more and more brokers to grow their commercial books. With our broad suite of products, which includes commercial products and our highly experienced commercial lending team, La Trobe Financial is helping to educate and guide brokers through the commercial
97% of Australian businesses. Whilst they are nimble, dynamic and can move quickly to gain efficiencies or accelerate growth through different business stages, they can also struggle to obtain access to capital to support their changing needs. I see the role of brokers as a vital one in helping their self-employed clients manage cash flow, asset and equipment needs, and their property requirements. Mark Hood: While the financial landscape remains challenging, we
believe there is a unique opportunity for brokers to increase their market share of commercial business, with approximately $15–25bn in unmet commercial loan needs available annually in the market that require broker guidance and non-bank assistance. We see several growth areas, including: • Smaller SMEs placing their owner-occupied commercial properties in their SMSFs for investment and tax purposes. • Office market vacancy rates in some areas are at 10-year lows, with Sydney and Melbourne continuing their strong performance and Perth and Brisbane improving • Increasing demand for residential dwellings to meet the underlying need for housing driven by population growth. Melbourne and Sydney are likely to be in undersupply towards the back half of 2020, with Brisbane also quickly absorbing excess stock. The ‘build to rent’ market continues to grow, with many developers looking to hold stock on completion. Just how much growth did commercial lending experience last year? Do you have any figures or stats that express this?
Q
Malcolm Withers: We are excited that brokers have been embracing Pepper’s commercial solutions since piloting in March last year. There is a high awareness of our offering amongst our brokers, and we’ve seen that 45% of Pepper Money accredited brokers have written at least one commercial loan in the last 12 months. The feedback on our commercial lending solutions has
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In addition, brokers can contact our 35 dedicated senior commercial credit analysts and 28 partnership managers for assistance and education throughout the process. We have over 400 staff and some 97 lending credit analysts waiting for your call now. What tips would you have for brokers trying to break into commercial?
Q
Malcolm Withers, head of commercial, Pepper Money
been extremely positive, and we’ve established that it is our holistic view of a client, along with our flexibility and agility, that sets Pepper Money apart. Geeta Kashyap, managing director of GK Finance, is a broker who has been able to support her commercial clients with Pepper Money. She said, “I recently wrote a commercial application through Pepper Commercial. I found the whole exercise very easy, with the lodgement process being very familiar to the residential process. The turnaround time from scenario to application and then approval was super fast, and the team at Pepper were very helpful. I would have no hesitation in using them again in the future.” Mark Hood: Aside from noting the increase in ‘high-quality customers’ over the last year in smaller development lending, we have seen another shift in small business customers moving away from the banks to the non-bank sector. As the banks undertake their annual reviews, several SME customers are struggling with the changes being made. These changes could relate to industry classifications, or they may require a reduction in LVR. This would require the borrower to make a principal reduction, or a move to principal and interest repayments instead of interest-only, putting more pressure on the borrower’s cash flow. With around $15–$25bn per annum in commercial loans
Mark Hood, head of major clients, La Trobe Financial
underserved by traditional lenders, there is a sizeable opportunity for finance brokers to promote competitively priced commercial loans and capture a greater share of their clients’ business.
Q
How surprising (if at all) was this growth?
Malcolm Withers: We put considerable thought into the development of our commercial lending business and have been focused on meeting underserved niches in the same way we approach home loan solutions. We wanted to ensure that our products and policies delivered what clients and brokers were asking for: a unique set of solutions to meet all their needs and a lender who could deliver these in a flexible and simple way. We are also working hard to ensure brokers and their clients receive the strong support and high service levels that have become Pepper’s trademark. We understand the emotional roller-coaster ride that many borrowers face while seeking property loans, and we will continue to do our best to make things as simple and stress-free as possible. Mark Hood: We experienced very strong growth throughout 2019, driven largely by the retreat of traditional lenders from segments of the commercial loans market. The extent of this retreat caught everyone by surprise, including
borrowers, which meant there was plenty of demand unmatched on the supply side. This is where larger leading non-banks, foreign banks and credit unions were able to step in to meet commercial finance needs.
Q
How has the rise of nonbanks impacted this trend?
Malcolm Withers: Small business clients are looking for a lender who understands them and makes it easy to do business. They are looking for ease and accessibility so they can focus on what is important to them: running their business. This is where specialist lenders like Pepper Money are powerful. We are flexible and nimble and have a range of policies and products that look at where the client is headed, not necessarily letting their past define what they will do tomorrow. Mark Hood: Today, consumers are experiencing high levels of uncertainty, low confidence and brand confusion in the finance world, making the role of ‘trusted advisers’ like finance brokers more valuable and in demand. At La Trobe Financial, we are supporting ‘new to commercial’ brokers by providing them with familiar processes and policies to those of our residential products. If they have written residential loans with us, they will automatically be able to transition to commercial.
Malcolm Withers: Ask an important question. It may sound simple, but the first step is as easy as asking your clients, “Did you know I can help with commercial and asset finance?” Remember that every self-employed client is a business owner; the opportunity is there for brokers to evolve into business banking brokers and provide the personal relationships SME clients are after. Get to know their leasing schedule: understand the operating rhythm of your client’s business and when any lease agreements are due for renewal. Have a process in place to check in with your client at an appropriate time beforehand to see how you may be able to help them access a better option. Finally, be curious: ask plenty of questions and really get to understand your client – what drives their business and what makes them successful. In too many cases, a broker will know a client’s finance needs but not actually understand how it will impact their business if they do not access the funding. Without this understanding, many brokers will dismiss specialist lenders as too expensive, when in fact this is not necessarily the case. With a change in mindset comes an enormous opportunity to grow both your broker business and that of your business clients. Mark Hood: Brokers already have the lead generation tools to make the transition to commercial lending. They should review their CRM database to identify clients who already hold commercial property to see if there is an opportunity to refinance, particularly if clients have held the property for some time. The next step could be to look for self-employed clients and approach them to see if they are interested in purchasing business premises, possibly in an SMSF structure. AB www.brokernews.com.au
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NE WS ANALYSIS
POTENTIAL IMPACT OF AFG-CONNECTIVE MERGER
The ACCC has warned of the risks that could ensue from the proposed merger of Connective with AFG. Australian Broker talks to Mark Haron, executive director at Connective, and Graeme Holm, director at Infinity Group Australia, to examine how the merger could impact the broking industry
ACCC recently issued a warning regarding the proposed acquisition of Connective by the Australian Finance Group (AFG), saying the deal could impact market competition in Australia. The ACCC is concerned there will be limited similar alternatives for brokers to switch to, and this could negatively impact the services offered to brokers. Indeed, combining AFG and Connective would create the largest mortgage aggregator in Australia by a significant margin, accounting for almost 40% of all mortgage brokers operating in Australia. ACCC chair Rod Sims said, “AFG and Connective operate in an already concentrated market, and not many other mortgage aggregators offer a similar level or type of service. Additionally, potential entrants or small players may be deterred from expanding by various barriers, including compliance costs.” So the ACCC sought information about the supply of mortgage aggregation, distribution services and home loans in Australia, and members of the industry had until 5 March to offer and submit their own concerns, with the regulator’s final decision expected to be published on 7 May. THE
Merger still offers brokers ‘plenty of choice’ According to the ACCC, mergers and acquisitions can be important to the efficient functioning of the economy. However, the Competition and Consumer Act prohibits those mergers that would have the effect, or be likely to have 20
the effect, of substantially lessening competition in a market. But Mark Haron, executive director of the Connective Group, believes there won’t be any
market with greater competition. Graeme Holm, director at mortgage broker Infinity Group Australia, points out that if AFG or Connective were to reduce their
“Mortgage brokers and lenders can expect a greater investment in technology and compliance to keep up with the changing nature of the industry” Mark Haron, executive director, Connective substantial lessening of competition in any relevant market as a result of Connective’s merger with AFG. He says the merged businesses will in fact be in a position to offer consumers greater choice and a
services as a result of the merger, then brokers would simply switch to another aggregator. “The group’s aim is to grow its businesses, not do anything to risk alienating brokers. There is plenty of
choice in the market,” he says. If anything, Holm suggests the deal will only strengthen the offering for brokers. He says, “With ever-increasing regulatory demands placed upon brokers and aggregators, I would think a bigger, more sustainable entity would be more equipped to supply the level of investment in compliance and innovation required in our market. “The big banks are pouring money into fintechs to try to take back the market share they are losing to the broker channel, [but] combined, Connective and AFG would be well positioned to take up the fight on behalf of the brokers.” Holm adds that the ACCC’s concerns seem to be centred on the assumption that the merged entity would use its market power to squeeze brokers and lenders, but that “would seem counter-intuitive
KEY METRICS OF BUSINESSES TO BE MERGED Source: AFG
Residential settlements
AFG
Broker network
1
Connective fixed fee model
FY19 revenue
2
1,4
9% 51% 45%
Connective commission structure model
55%
$70bn
6,575+
$706m
45%
91%
4% Commercial settlements1
Total loan book2, 3 95%
41%
AFG
$6bn
59%
FY19 reported NPAT1,4 75%
$163bn
$44m
5% Note 1: For the year ended 30 June 2019. Note 2: As of 30 June 2019.
25%
Note 3: Includes commission-generating loans only. Note 4: Unaudited. Excludes any potential impacts of acquisition accounting.
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Mark Haron, executive director, Connective
– why would they risk losing brokers or lenders? Brokers can easily move, and brokers want more lenders on the panels, not less”. Competition to watch is ‘big-bank-funded fintech sector’ There is stiff competition between aggregators out there, Holm suggests. He explains, “Brokers have plenty of choice if they want to move, and I can’t see the merger changing that. The area of competition to watch is the big-bank-funded fintech sector.” Indeed. Commonwealth Bank recently announced plans to launch 25 new fintech businesses over the next five years, while ANZ has poured $40m into Lendi in direct competition with the broker channel. “The commentary I have seen has made it clear they intend to continue to operate the two brands with the value proposition they offer their existing brokers,” Holm says. “Why else would an ASX-listed company buy a business and offer to keep the founders on the board and in the business? They are paying for the brand and the people in it to keep the model intact; they wouldn’t jeopardise that by throwing out the model that Connective brokers value.” Finally, Holm concludes, “I would think it’s a great opportunity for all concerned to have the best of both worlds – the brand and model and culture they value and the financial backing and security of a successful ASX-listed company to make sure they are all around for the long term.” According to Haron, this merger ensures that Connective will continue
Rod Sims, chair, ACCC
to have a strong national footprint and presence in the mortgage industry, and it positions both Connective and AFG to better deal with the changes that come with operating in a dynamic industry. “At a time when the industry continues to evolve to meet changing consumer demands, increased digital alternatives and regulatory scrutiny, and a higher expectation around customer standards, the merger puts us in a good position to adapt to these changes,” he says. “This merged business will be able to combine the DNA of a collective 40 years operating in the broking industry, whilst continuing to support our brokers. Both Connective and AFG have built their businesses on providing exceptional service to brokers, and it is critical
Graeme Holm, director, Infinity Group Australia
that we continue to not only provide great service but improve our service to retain brokers and recruit brokers into the future.” Haron continues, “We have built our business on providing choice and flexibility for brokers, which ultimately benefits the customer. With a merged group, we will create a more comprehensive distribution channel and broader diversification of lenders and products. “Mortgage brokers and lenders can expect a greater investment in technology and compliance to keep up with the changing nature of the industry, all resulting in better outcomes for brokers, which flow through to borrowers.” Additionally, Connective will ultimately have the opportunity to offer the best aspects of both
businesses for the benefit of brokers and their customers, Haron says. “ACCC has a very robust process, and we are respectful of that. But we firmly believe there will be no substantial lessening of competition from Connective’s merger with AFG,” he says. “It is business as usual for Connective and we remain focused on delivering excellent service to our brokers. There’s a lot for our brokers to look forward to this year at Connective: the team are making great progress with developments to Mercury, and we have a jam-packed learning and development program. “Our commitment to our brokers won’t change; our values remain the same. We are committed to supporting our brokers and advocating on their behalf.” AB
WHEN WILL THE MERGER BE COMPLETED? The ACCC has released a Statement of Issues (SOI) and announced that it wishes to examine the proposed merger in further detail. This means that the ACCC is seeking further information from Connective, AFG and the industry before they can approve the merger. An SOI is not a final decision; it provides the ACCC’s preliminary views on the proposed acquisition and gives Connective the opportunity to address the ACCC’s concerns. Connective says it will continue to work with the ACCC and AFG to progress the proposed transaction, and is confident the issues raised can be addressed to the satisfaction of the ACCC. The transaction is also subject to court approval (a non-customary condition). This process has begun, and a final decision is not currently anticipated until the second half of FY20.
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Have an interesting deal? Had a particularly difficult or interesting deal? Why not share it with us? Email:
victoria.ticha@keymedia.com
BIG DEAL
Alycia Inglis, director at Stoneturn, explains why it is important to educate your clients on the complexity and potential length of the loan application process THE FACTS
Clients Self-employed couple
Loan size and term $1m for 30 years
Goal To purchase commercial security
Location NSW
22
Aggregator Connective
THE TAKEAWAYS
apartments and the location of the property: the maximum LVR was 60%. We then identified a second residential investment property for the additional equity required, and both of these properties had existing Westpac investment loans secured against them.
THE SCENARIO
We recently completed a deal for a couple who were looking to purchase a commercial property for investment through a non-trading company – the total purchase price was up to $1.2m. The clients’ current owner-occupied property had a debt with Westpac attached to it. But they also had a number of investment properties located throughout NSW, which also had investment debts with Westpac. Additionally, they had cash savings in their home loan offset account, which was significantly offsetting the home loan. The clients – a husband and wife – were self-employed, with a company and family trust structure. This meant that evidence to support serviceability was based on a combination of wages and distributions through the family trust. I found that Citibank had a policy that allowed clients to secure a commercial debt against residential property, up to a maximum of $1m worth of borrowing at residential investment interest rates – which were significantly lower than the commercial rates the clients were on. The Citibank fees and charges were also much lower than those of commercial lending products, meaning it was a more cost-effective strategy to go with Citibank than with a commercial loan product. We identified one residential investment property that would have sufficient equity to meet the Citibank lending policy requirements, and arranged a Citibank valuation. This identified that the security had LVR restrictions based on the number of
Lender Citibank
purchase costs to be funded through cash savings from the company purchasing the commercial security. From the clients’ point of view, we have been able to help them save thousands of dollars in interest and fees over the life of the loan by placing them with Citibank under the residential security for commercial purposes policy. By doing this, we are helping them achieve their long-term objectives of paying off all loans before retirement. And as a result of the structuring of the loans, they will have one unencumbered property – the commercial property – as soon as it is purchased. Our clients were very happy with our structure and the interest savings that have resulted.
THE SOLUTION
To enable lending with Citibank against both residential securities, we had to arrange a substitution of security with two of the existing Westpac investment properties, moving the existing loans across to the owner-occupied property. The limits on the existing owner-occupier
Key learnings from this process were that it is critical to understand the needs of the client and the details of their financial structures. We worked closely with our clients’ accountant to ensure we followed all tax advice as required by them. It has been a long, complex process given the nature of their employment and the involvement of multiple companies and trusts, multiple properties and two lenders. Our team has learnt that it’s critical to ensure you have mapped out the strategy and structure in detail so you can identify potential issues that can be addressed upfront with regard to bank policy. It is then very important to educate your client on the complexity of the application and explain bank procedures and policy so they understand that it is a long application
Our team has learnt that it’s critical to ensure you have mapped out the strategy and structure in detail so you can identify potential issues
Alycia Inglis Director, Stoneturn Aaron
debt had to be reduced via a principal reduction, using cash savings from the offset to free up sufficient equity to enable the substitution of security. Once this was complete, the two investment properties were unencumbered, allowing Citibank to take them both as security. We then split the loans in two to avoid cross collateralisation of securities. As the maximum loan that can be secured against residential property for commercial purposes with Citibank is $1m, we arranged for the remainder of the
process, and why this is the case. This helped manage our clients’ expectations so they knew there would be additional requests for information or documentation, and were aware of the processing time frames that would be associated with the back and forth between two lenders simultaneously. It’s also critical to keep detailed written notes on contacts with the bank and the clients so your entire team can be across the process and ensure that the clients receive consistent communication from everyone assisting them.
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OPINION
TRANSACTION DATA: THE NEW BATTLEGROUND
Andrew Tierney, risk and compliance consultant at Balance Risk Management, discusses the potential impacts of the Consumer Data Right legislation on the industry, and how to navigate the coming changes
I expect the CDR, or open banking, to do much the same. Damir Cuca, the CEO and founder of Basiq – an open banking platform backed by NAB Ventures, Salesforce Ventures and Westpac’s Reinventure – said he saw the revised legislation as confirmation that open transaction data could assist in solving “the responsible lending conundrum”. “[The] revised RG209 shouts technology – it firmly details an
have always tried to collect data on their constituents to record taxable income, plan better facilities and manage their empires. Rome left the tax collection to tax farmers to assess, collect and provide the manpower necessary to manage this huge undertaking. But as corruption ran riot, it ultimately played a part in the empire’s demise. But not until recently has there been such an expanse of readily available data. Now, a new raft of data is being released into the banking and financial ecosystem. This large data collection pool falls under the Consumer Data Right (CDR) legislation. The ACCC is the lead CDR regulator and its new roles include: GOVERNMENTS
I truly believe this openness of data can benefit the industry and the consumer. But to what extent will be determined by the effort put in by the banking industry
• Creating and managing CDR rules • Identification and accreditation of data recipients • Establishing and maintaining a register of accredited persons • Monitoring compliance and taking enforcement action where necessary • Recommending future sectors to which the CDR should apply • Communicating with and educating consumers and other stakeholders about their rights and obligations under the CDR The Australian government has said the CDR will give consumers greater access to and control over their data, improve their ability to compare and switch between products and services, and encourage competition between service providers – leading not only to better prices for customers but also more innovative products and services. But will it? Potential impacts of CDR Open transaction data is a change that happens once in a generation. The last time there was a major industry change was back in 1988 with the Privacy Act, which sparked a huge adjustment for companies.
for switching products and verifying income and expenses. Innovators could potentially use open data for enhanced products, quicker service and risk pricing for consumers. As a manager of risk and data, I truly believe this openness of data can benefit the industry and the consumer. But to what extent will be determined by the effort put in by the banking industry. Brokers are eagerly awaiting the next
Andrew Tierney Risk and compliance consultant, Balance Risk Management
automated approach, even imagining a digital data aggregator as one way to solve the problem,” Cuca said. Indeed, open data can certainly be useful for the known elements of the income/expenditure equation. Once the transaction data is obtained, then “patterns of income” can be understood, Cuca says. Suffice to say that recurring debts will also be understood, and it provides the ability to see hardship as it happens. What will be interesting to see will be the uptake of the CDR in its entirety. Not only do institutions have to conform to the regulation, they must revel in it. Grudging compliance will only hold them back. There is potential for adverse selection of those that do not take up the data. Transaction data provides an up-to-the-minute view of a person’s income and expenditure. It can also be used to determine risk and tendencies over a long time frame. As Cuca said, “the sooner you engage with the data, the sooner you become master of it”. I can certainly see how open data, easily transportable, can provide the basis
step in the journey. Many can see the potential positive impact of automated data and a more personalised service that can only benefit the customer. It will make transactions quicker, easier and more transparent. Should CDR be used properly, it will benefit the cost of finance, lead to quicker decisions and reduce paperwork. Imagine a time when a broker can be confident that their client can afford a loan, the product is right for their financial position, and there will be no back and forth in proving this. How would this affect the transaction, the relationship between client and broker, broker and funder, funder and client? I see this as a triple win. I’m sure those in the financial services ranks are thinking about this right now. To be in the forefront will take a different view on income/expense verification and the way to determine serviceability. My thoughts on this are that out-of-the-box thinking can truly provide an innovative view, an analytical approach and a risk-managed endgame. AB www.brokernews.com.au
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PEOPLE
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FROM THE FORUM
Top comments from trending stories on brokernews.com.au
ASIC’S DRAFT GUIDANCE ON BEST INTERESTS DUTY On 20 February, ASIC released draft guidance clarifying how the best interests duty (BID) for mortgage brokers should work. The “high-level guidance” provides the expectations for what mortgage brokers should do when gathering information about the consumer; making an individual assessment of what is in the consumer’s best interests; presenting information, and making recommendations. While the guidance covers a wide range of topics, ASIC made sure to address specific concerns that have come to light since the release of the draft bill, including the interaction of BID and the responsible lending obligations; the implications of BID for the range of credit providers; and the products mortgage brokers sell and recommend to their customers.
So, in summary, yet another complete waste of time to further destroy brokers’ productivity whilst we attempt to get on with delivering the same outcomes as we already have. Yet banks continue on their merry way, acting in their own interests. The broker market share should go up to 80%-plus if our industry informs the public of what is actually going on here. Broker
So if you don’t have the time to get accredited for that lender or product, or say your client is time-sensitive, you are required to refer to another broker? You are kidding. Best interests duty for who? What if the client wants the deal only with you? What if you have a long-term relationship with the client and they are happy to accept the products provided for their choice. What if the single-operator broker doesn’t know any other brokers and doesn’t know whether they are suitable for their own client… such a myriad of questions and unintended consequences – clearly, they have a very sheltered life. Boyle
It’s getting uglier by the minute – [the guidance] does nothing for the client in relation to receiving speedy advice. Brokers will be trumped by tech lenders providing robo advice. But I wonder how savvy these robots are in relation to multiple product and package solutions – as outlined by ASIC. Will tech/robo-advice lenders have the same BID to comply with? Probably not, just the poor broker who is actually trying to do the best for their clients. SA Broker
There are two things I dislike: politicians and my job. Too bad the latter is the only thing I am good at. But at the end of the day, I just have to accept it and get on with it – but I do have some issues. Mainly, the average loan size in the country is still sitting at $188,000. The trail on those loans, well, let’s just say it’s not enough for a general chit-chat about whether it’s worth refinancing. For the most part, it’s not, because in WA pretty much everyone is in negative equity. If I have to write an essay to state the obvious every time a client asks if refinancing makes sense, I will have little choice but to consider not doing loans under $300k. I could stay a one-man band, do half the home loans, and probably make a greater profit at year end. But it’s the people who need our help the most that miss out. There is only so much charity work we can do; the exact same thing happened to the financial planning industry. Once upon a time the client could help anyone; today, if you are not earning over $200k as a couple you can forget it. It’s sad. I understand the reasons behind the legislation, but if history teaches us anything, regulation usually costs everyone more (an easy example is the difference in consumer car loan rates versus business car loan rates). I’ll cop it on the chin, I will comply, but I will not be patting my local MP on the back as the people in the lowest socio-economic brackets will end up paying the penalty for it.
This is just the beginning. Soon you will have other brokers in your aggregator group that you can refer to. Once this is legislated, aggregators will have to start on the same path. As dealer groups in the financial planning space, we will need to issue a limited-scope mortgage statement of advice to shield them from liability. Further along, there will be a degree requirement introduced to become a professional and pass a national exam. Trails on mortgages will be gone. It will be all fee-for-service only, and the client will have to pay. Mortgage broking as it currently stands will not exist in the future. The royal commission has already started the government on this path. Lawyers need more people to sue; financial planners are all leaving, and it’s us mortgage brokers next. Get out in the next three years, otherwise it’s all downhill from there. Mark my words: mortgage brokerages are financial planners. Let’s just harmonise the two regimes, AFSL and ACL, and get rid of the ACL; we can then issue a statement of mortgage advice. Mortgage brokers are basically financial planners, so let’s just make everyone a financial planner and get rid of the ACL regime altogether. Bobby
So I take it that when a client goes to a major bank directly, they are going to recommend them to another lender who has a product that better suits their needs. Rod Stelling
Best interests duty only applies to mortgage brokers. If a consumer goes directly to a bank, they will get that bank’s products. A bank does not have a duty to the client, because only mortgage brokers do. We should advertise this fact. Tony
John Norgett
24
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PEOPLE
CAUGHT ON CAMERA Recently, PLAN Australia hosted its professional development roadshow. Kicking off on 13 February and running to 9 March, the event covered all major cities, including Perth, Adelaide, Melbourne, Sydney, Brisbane, Canberra and Newcastle, with “a wonderful turnout” by PLAN Australia members. As expected, much of the interest and discussion centred around the best interests duty. Brad Clucas, PLAN’s head of southern region, acted as MC, while CEO Anja Pannek and head of operations Julianne Evans discussed the future and the impact of the best interests duty regulation. Bo Divasirie, NAB broker partnerships senior analyst, talked about the state of the residential property market with Brad Clucas.
www.brokernews.com.au
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2/03/2020 2:01:16 PM
DATA
VICTORIA
Melbourne officially ended 2019 on top, with its fundamentals remaining strong Victoria experienced a shaky period in 2019, but Melbourne closed the year as the strongest capital city market in Australia, according to CoreLogic’s Home Value Index for November 2019. It beat Sydney for the second quarter in a row as dwelling prices rose by 6.4% compared to Sydney’s 6.2% in the three months to November. Trends indicated that prices were poised to hit a new high in early 2020 after plateauing in May 2019. This increase in property prices is expected to be supported by activity from lifestyle buyers and baby boomers looking to retire. “The Melbourne property market is slowly regaining its confidence, and the underlying fundamental growth drivers remain strong. Auction clearance rates are rising, and buyers are back in the market,” says Kate Forbes, national director at Metropole Property Strategists. “Overall, property values will be underpinned by a robust economy, jobs growth, Australia’s strongest population growth, and the influx of a large proportion of all overseas migrants.” Area
Type Median value
Quarterly
12-month
growth
growth
Melbourne
H
$730,000
0.1%
-3.7%
VIC Country
H
$377,000
1.4%
4.2%
Melbourne
U
$580,000
2.8%
3.3%
VIC Country
U
$300,000
3.3%
6.6%
SOUTH AUSTRALIA
Adelaide gains momentum as tax changes are implemented Adelaide maintained a positive showing as 2019 came to an end, and it looks like it’s about to pick up. “The South Australian property market appears to be steadying after a period of declines, with CoreLogic reporting that regional SA declined by 1.7% whereas Adelaide increased 0.1% in October 2019 compared to the previous quarter,” said Dennis Wong, property data research specialist at Real Estate Investar. “This is a great market for new property investors to enter into, with positive conditions such as low vacancy rates and solid rental yields.” With the median house price hovering around $400,000, investors may be able to save while enjoying the strong rental market in Adelaide. The recent changes to land tax legislation, which involve decreasing the top land tax rate from 3.7% to 2.4%, are anticipated to attract investors into the market as well. Major infrastructure projects in the pipeline are also helping to prop up the economy, including the construction of Adelaide’s North-South corridor. Area
Type Median value
Quarterly
12-month
growth
growth
NSW SPOTLIGHT
A SLOW ROAD TO RECOVERY Sydney headed into 2020 on a strong footing, but growth has been measured as buyers remain cautious about investing in the market has bounced back from the decline experienced in 2019, charging into the new decade with a lot of promise. However, it may not have the same star power it once did. Leanne Pilkington, president of the Real Estate Institute of NSW, said, “We anticipate the start of 2020 will be positive but measured; the increase in listings that built up towards the end of 2019 had some carry-over effect, but the market stabilisation that occurred over the course of 2019 is not expected to lead to a sharp upturn in the market. “Many agents are booking auctions for the first quarter in 2020 to capitalise on the momentum, but it will be interesting to see if the transactional activity expected in the first quarter of 2020 carries over to the second quarter.” SYDNEY
OPPORTUNITIES AND KEY INFRASTRUCTURE
259,580
$2.9bn
Number of new apartments built in NSW since 2000, according to ABS figures
Government spending on infrastructure upgrades in Western Sydney over next decade
$5.3bn
$41.4bn
Government spending to deliver the long-awaited Western Sydney Airport by 2026
Investment in transport infrastructure in NSW over four years – the largest ever in Australia
SUBURB TO WATCH: MOAMA
Adelaide
H
$455,000
1.1%
2.2%
Median price (houses)
SA Country
H
$270,000
1.9%
5.8%
$447.263
Adelaide
U
$332,500
-1.0%
1.9%
SA Country
U
$220,000
0.2%
5.3%
26
Rather than skyrocketing back to the top, the property market in Sydney is showing more of a “gradual recovery tempered by the low level of supply” at this juncture, Pilkington added. Buyers are more careful now, especially in light of the financial restrictions and recent issues related to the quality of new developments. Regional pockets are anticipated to benefit from their affordability compared to the metro. CoreLogic head of research Tim Lawless said: “Satellite cities adjacent to the largest capitals, such as Newcastle, Wollongong and Geelong, are likely to benefit from an overflow of demand as buyers seek out affordable housing options in areas with a diverse economy as well as commuting options into the major cities.”
Median price (units) $221.045
12-month growth
3-year growth
5-year growth
Indicative gross rental yield
15.3%
22.0%
44.5%
4.3%
12-month growth
3-year growth
5-year growth
Indicative gross rental yield
-0.6%
-8.6%
9.4%
5.5%
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AUSTRALIAN CAPITAL TERRITORY
Canberra retains its place among the top capital city markets As Australia’s capital city and political centre, Canberra remains one of the country’s most stable markets heading into the new decade. “Over the last three years, the nation’s capital produced the second-highest price growth out of all capital cities, behind Hobart. Demand has been driven by a boom in overseas students, a strong tourism sector and a lift in employment for whitecollar professionals,” explains Simon Pressley, managing director of Propertyology. Herron Todd White’s Month in Review for December 2019 notes that buyers in this city seek out houses situated on large blocks of land in established suburbs near good schools and jobs. This increases the chances of an investor making a profit from rental returns in areas with low vacancy rates, while still being able to expect growth. Investors here also favour premium properties. Canberra’s resilience during 2019’s national downturn seems to have proven its stability: the report pointed out that its housing market “remained relatively resilient to falling prices through 2019”. Area
Type Median value
Quarterly
12-month
growth
growth
Canberra
H
$675,000
0.4%
2.3%
Canberra
U
$440,000
0.9%
0.4%
TASMANIA
Demand is sustained by high migration and a strong economy
HIGHEST-YIELD SUBURBS IN NSW Suburb
Weekly median
Type
Median price
Quarterly growth
12-month growth
Broken Hill
H
$129.750
8%
12%
$260
10%
Moree
H
$166,000
-7%
-29%
$300
9%
Wellington
H
$150,000
-6%
-3%
$270
9%
Coonamble
H
$125,000
32%
10%
$220
9%
Finley
H
$130,000
-9%
-28%
$220
9%
Berrigan
H
$137,000
6%
-12%
$225
9%
Barraba
H
$127,500
3%
2%
$200
8%
Culcairn
H
$160,000
0%
-6%
$250
8%
advertised rent
Gross rental yield
Hay
H
$135,000
2%
-10%
$210
8%
Coonabarabran
H
$158,500
-14%
-17%
$240
Gilgandra
H
$168,500
2%
15%
Nyngan
H
$167,500
12%
13%
Hobart finished 2019 as the capital city with the highest growth rate in the 12 months to November, capping off what was a spectacular run at the top of the national property market. “Although the pace of growth has been cooling across Hobart over the past two years, both Hobart and regional Tasmania stood out in dwelling values,” says CoreLogic head of research Tim Lawless in his outlook report for 2020. “Despite the slowdown and several months of falling values through the year, Hobart values were 4.2% higher over the 12 months to November, while regional Tasmania saw values rise by a higher 4.9%.” Hobart’s favourable housing conditions are supported by high levels of migration and a blossoming economy, which has sparked housing demand. This in turn is sustained by the low housing supply, which is tightening both the short- and longterm rental markets. However, Hobart’s Cinderella run looks to be definitively over for a while. Area
Type Median value
Quarterly
12-month
growth
growth
Hobart
H
$478,000
1.5%
6.7%
8%
TAS Country
H
$325,000
2.3%
6.8%
$255
8%
Hobart
U
$377,000
2.6%
8.7%
$250
8%
TAS Country
U
$257,000
0.4%
2.4%
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DATA
WESTERN AUSTRALIA
The new year brings hope of a brighter future for Perth Perth spent most of 2019 trading places with Darwin at the bottom of the national residential market, but even though it remained the secondweakest capital city, CoreLogic’s Home Value Index for November 2019 had good news for WA. Dwelling values in Perth increased by 0.4% over the October–November period. This was the first month-on-month boost recorded since the first half of 2018. This could be partly attributed to demand spilling out to smaller cities as a result of slowing job growth and higher unemployment in bigger states like NSW and Victoria, CoreLogic points out. The lack of housing affordability in the powerhouse capital cities has also meant a rising trend of migration to Queensland and less movement out of SA and WA. “With the current low interest rates and Perth’s population growth slowly but steadily improving, Perth’s median house price could improve over the next 12 months,” says Damian Collins, president of the Real Estate Institute of WA. Collins also notes that rental activity has improved. Type Median value
Quarterly
12-month
growth
growth
Perth
H
$470,000
-0.5%
-2.0%
WA Country
H
$325,000
0.0%
-1.2%
Perth
U
$368,000
-0.8%
-5.3%
WA Country
U
$195,000
-3.6%
-3.6%
Total auctions
82
Cleared
36
Uncleared
12 75.0%
Clearance rate
PERTH Total auctions
19
Cleared
8
Uncleared
2 80.0%
Clearance rate
Type Median value
Quarterly
12-month
growth
growth
Brisbane
H
$540,000
0.0%
0.9%
QLD Country
H
$450,000
0.7%
-0.4%
Brisbane
U
$390,000
0.5%
0.0%
QLD Country
U
$370,000
0.0%
-1.3%
Houses
Units
$0 Sydney
Melbourne Brisbane Adelaide
Perth
Hobart
$637,500
Darwin
$420,000
$365,000
$506,500
$378,000
$580,000
$380,000
$100,000
$438,000
$200,000
$310,000
$300,000
$452,500
$400,000
$365,500
$500,000
$490,500
$700,000 $600,000
$500,000
$800,000
$635,000
Brisbane continues to enjoy a comfortable position in the national market as a more affordable alternative to Sydney and Melbourne, attracting buyers seeking value for money. According to CoreLogic’s Home Value Index for November 2019, Brisbane’s median dwelling value came in at $497,491 – a great deal lower than Sydney’s $840,072 and Melbourne’s $666,883. “Housing is more affordable in Queensland than in NSW and Victoria. For those buying in Queensland, there is more value for your money as houses are generally on larger blocks,” explains Dennis Wong, property data research specialist at Real Estate Investar. Although the Sunshine State was briefly hampered by the mining downturn, it has recovered well, with transport-centred infrastructure projects helping to stabilise the local economy and drive interest in different parts of the state. While there have been concerns about oversupply in Queensland, these fears have largely been assuaged by the large influx of interstate migrants.
28
ADELAIDE
MEDIAN HOUSE AND UNIT PRICES
Influx of interstate migrants spurs housing demand, mitigating oversupply concerns
Area
Preliminary clearance rates for the week ending 16 February sat around the 80% mark across the largest auction markets, and the number of properties taken to auction tracked well above the levels of a year ago. There were 1,555 homes taken to auction across the combined capital cities, returning a preliminary auction clearance rate of 78.6%. In comparison, 1,167 auctions were held in the previous week, returning a preliminary clearance rate of 69.4%, before revising down to a final clearance rate of 67.7%. Over the same week last year, auction volumes were lower, with 1,450 homes going under the hammer across the combined capital cities, returning a final auction clearance rate of just 51.%.
$627,500
QUEENSLAND
WEEK ENDING 16 FEBRUARY 2020
$748,750
Area
CAPITAL CITY AUCTION CLEARANCE RATES
Canberra
CAPITAL CITY HOME VALUE CHANGES Capital city
Weekly change
Monthly change
Year-to-date change
12-month change
Sydney
0.4%
1.3%
1.9%
9.4%
Melbourne
0.2%
1.1%
1.8%
9.8%
Brisbane
0.2%
0.7%
0.8%
1.5%
Adelaide
0.0%
0.2%
0.4%
0.5%
Perth
0.0%
0.0%
0.0%
-5.2%
0.3%
1.0%
1.5%
6.5%
Combined 5 capitals
*The monthly change is the change over the past 28 days
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BRISBANE CANBERRA Total auctions
48
Cleared
28
Uncleared Clearance rate
Total auctions
104
Cleared
65
Uncleared
25
Clearance rate
61.5%
3 90.3%
SYDNEY Total auctions
578
Cleared
310
Uncleared
76 80.3%
Clearance rate
TASMANIA
MELBOURNE Total auctions
717
Total auctions
7
Cleared
464
Cleared
5
Uncleared
122
Uncleared
0
Clearance rate
Clearance rate
79.2%
NORTHERN TERRITORY
Area
Darwin still holds the title of weakest capital city market in the country The bottom continues to fall out from under Darwin as property prices yet again dropped in the three months to November 2019, causing it to be once more branded as the poorest performer among Australia’s capital cities, after briefly relinquishing the title to Perth. “The Darwin property market peaked in August 2010 and is still suffering from the effects of the end of our mining boom, with a very soft employment market and lack of migration and infrastructure spending,” says Kate Forbes, national director of Metropole Property Strategists.“The small size of the Darwin market makes it more susceptible to local events, and it typically has a higher and more variable vacancy rate, a product of a large transient working population.”
N/A
Type
Median value
Quarterly growth
12-month growth
Darwin
H
$467,500
-1.7%
-3.0%
NT Country
H
$409,000
0.7%
-0.9%
Darwin
U
$285,000
-3.5%
-13.5%
NT Country
U
$327,750
2.0%
-2.3%
All data sourced from CoreLogic.com.au
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2/03/2020 2:04:05 PM
PEOPLE
IN THE HOT SEAT
Chris Hall, managing director at Bluecranecapital, talks about how to survive a career in finance, explaining the importance of resilience, respect and consistency and offering some key tips for mentee brokers
What’s the greatest challenge for brokers at this time? It would probably be keeping up with the lender policy updates A and changes. At Bluecranecapital we have over 35 residential lenders on our panel with FAST, which gives our clients a broad range of options (pending their circumstances) and makes life interesting. I’m lucky that we have a great staff who stay on top of these changes, and we regularly discuss the potential impact this may have on our clients.
Q
What inspired you to become a broker? I wanted to challenge myself to see if I could build a business A based on values that are important to me. Banking was my background and my skill set so I thought I could mix the two and see how I’d go. Still a long way to go, though! In terms of the service itself, I love the relationship element and having a solution for any scenario and transaction. Unfortunately, when you’re in a bank you have to follow fairly strict guidelines in terms of credit policy, and if you are trying to develop a long-standing relationship with a client you need to be able to have multiple options and solutions.
Q
Q A
What’s one thing, personal or professional, that you hope to achieve before the end of 2020? I’m pretty pumped about getting married to my partner, Kat. She has backed me since day one.
What is one piece of advice you often give your mentee brokers? Don’t do it on your own. I’ve been lucky to have staff join us who A have complimented me on my skill set, but the most important thing is that we all share similar values and standards around how we treat clients.
Q
30
Chris Hall, managing director, Bluecranecapital
What are your top survival tips for working in finance? Resilience: we get some form of challenge, resistance or bad news A in the office every day. Once you come to terms with the fact that this is a tough industry, life will become somewhat easier. Respect: when things go wrong with the lenders, try not to lose your cool or burn bridges. Most often the person delivering the message isn’t the one who made the decision. Consistency: be consistent in your sales and operations approach – good behaviours over time will lead to results. AB
Q
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