Australian Broker magazine Issue 8.04

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ISSUE 8.04 March 2011

Hockey exclusive Shadow Treasurer laments ‘inevitable’ exit fee ban Page 2

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Turnarounds show no improvement in 10 years Huw Bough

Banks prep premium service sweeteners  Competition heats up for high volume broker business

Australia’s biggest banking institutions are in the midst of developing and rolling out a raft of service initiatives for premium, high volume brokers, and may soon make many of these available to a wider slice of the mortgage and finance broking market.

An investigation by Australian Broker has revealed the extent of a range of new, service-driven projects currently underway at the nation’s four biggest banks. They include a market-wide effort to enable in-office loan contract printing capabilities, providing top brokers with more intimate access

to credit teams, credit information and their mortgage documents, developing yet-to-be launched online broker portals, providing the ability for brokers to order property valuations upfront, and even giving access to static customer bank details online.

Designed to provide the top echelon of brokers with faster turnaround times, detailed credit information, as well as other client service extras, the initiatives are partnering top brokers more closely with banks, ensuring high conversion rates, and improving the banks’ bottom lines.

Last year, the Commonwealth Bank rolled out loan contract printing capabilities to its top ‘Diamond’ broker segment, and began a wider implementation

with 200 ‘quality A’ brokers.

However, ANZ and St. George have now revealed they have also added the service. ANZ has been piloting document printing with a select group of brokers for six months, while St. George added the capability to its ‘Flame’ segment service suite in January.

NAB has also confirmed that it has now placed contract printing within its “consideration set”.

Westpac general manager of broker distribution, Huw Bough, has revealed the bank is on the cusp of launching new services for Page 14 cont. Analysis of top-segment service initiatives, as well as interviews with major bank elite brokers, will be published in our next issue.

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Equity in question

Planner, broker equity release credentials under dispute Page 8

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Inside this issue Special report 20-21 The exit fee ban fallout Viewpoint 22 The industry on turnarounds Opinion 23 Why the industry needs to sell itself Analysis 24 Which brokers will survive regulation?

Market talk 28 The upcoming housing stock shock Toolkit 30 Getting it right next financial year People 32 Ray Hair: A man with a new plan

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News EXCLUSIVE: Hockey blasts ‘inevitable’ DEF ban Shadow Treasurer Joe Hockey has told Australian Broker in an exclusive interview that draft NCCP regulations from the federal government that seek to unilaterally ban exit fees may go through, regardless of widespread mortgage industry opposition to the plan.

Following the release of the draft regulations in February – which propose banning DEFs and any other fees paid on exit such as LMI recovery – Hockey has branded the passage of the poorly received changes to the NCCP Act as “inevitable”.

“At this stage it seems fairly inevitable, as it involves a change to regulations rather than a legislative change,” he told Australian Broker.

Hockey said that this mode of amending the NCCP Act was confirmed in internal Treasury

documents released under Freedom of Information in late February.

Hockey said the Opposition would continue to argue for changes. “We will continue to do our best to put our case to the government, and the broader business community,” he said.

Released in February, the internal Treasury FOI documents revealed that Treasurer Wayne Swan was warned banning DEFs could lead to higher upfront loan costs and interest rates.

Hockey told AB the documents echoed his previous comments on the subject. “I have maintained throughout this debate that banning exit fees would mean that lenders will look to other means to recoup lending costs,” Hockey said.

“This has been validated through the release of the Treasury information. Treasury has

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EDITOR Ben Abbott COPY & FEATURES JOURNALIST Adam Smith PRODUCTION EDITORS Carolin Wun, Moira Daniels

Joe Hockey

explicitly advised the Treasurer on this point.”

Hockey also told AB that recent moves by major banks to compete over home loan business are encouraging, but do not go far enough. “I think that it is certainly a start, but to achieve real reform of the banking sector we need a full financial services inquiry,” he commented.

Despite being contacted repeatedly by AB, Federal Treasurer Wayne Swan was unavailable for comment. For the full industry reaction to the government’s proposed DEF ban, see our Special Report on pages 20–21

White said many consumers do not understand LMI, and are unaware that it benefits the lender.

“They’re getting no benefits from paying the premium, and if a lender ever has a claim, the provider will come after you for their losses.”

According to White, borrowers should be presented with a choice of LMI products rather than having to buy a policy with the lender’s LMI

ICA responds to FBAA ire The Insurance Council of Australia has expressed willingness to talk through points raised by FBAA president Peter White regarding LMI. However, they have disputed White’s claims that LMI policies are in breach of the Insurance Contracts Act. ICA spokesperson Sandra Van Dijk has commented that the policies do not fall under the Insurance Contracts Act, and that disclosure to borrowers is not required because of the nature of LMI policies. “The reason why there’s no product disclosure statement is that LMIs are wholesale products sold to banks. They’re not sold to the public. The lender is buying, not the customer. “It’s not a breach of the Act. LMI actually comes under the Corporations Act,” she said.

SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak SENIOR MARKETING EXECUTIVE Kerry Buckley MARKETING EXECUTIVE Anna Keane COMMUNICATIONS EXECUTIVE Clare Costigan TRAFFIC MANAGER Jessica Jazic CORPORATE DIRECTORS Mike Shipley, Claire Preen MANAGING EDITOR George Walmsley PUBLISHING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil

Editorial enquiries Ben Abbott tel: +61 2 8437 4716 ben.abbott@keymedia.com.au Advertising sales Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au

FBAA lambasts LMI providers The FBAA has released its submission to the Senate banking inquiry, stressing the need for LMI portability and slamming LMI providers for not disclosing the terms of their policies.

FBAA president Peter White, who was set to front the Senate inquiry on 4 March, said the lack of disclosure means LMI is in breach of the Insurance Contracts Act.

ART & PRODUCTION DESIGNERS Chris Lai, Doug Jeans

provider. He also said that borrowers should not have to ask for a rebate when they terminate the policy.

“Being an insurance product, when it’s terminated the client should get a proportional rebate. The bottom line is, if they don’t ask for it they’re not getting it,” he said.

White pointed out that most LMI policies will not extend a rebate to borrowers after 12 or 24 months. He believes this practice should change, as the lender has the right to claim on the policy for the entire life of the mortgage. White also commented that LMI portability, rather than exit fees, is the biggest barrier to borrowers switching lenders.

The FBAA submission suggests that the issue of LMI portability may have had a low profile because banks own stakes in LMI providers, or have their own LMI products.

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Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008.

The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

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Conditional turnarounds need work: Russell

Michael Russell Conditional turnaround times have not improved in the past 10 years despite technology advancements, and work needs to be done by mortgage manufacturers to improve their turnaround speeds, according to Mortgage Choice CEO Michael Russell.

Speaking at the Mortgage Processing Summit in Sydney, Russell said 10 years ago, predictions were made that online

lodgments and technology would vastly reduce turnaround times.

However, Russell lamented that the situation – particularly in regard to conditional approvals – has gone backwards.

“Ten years later, now that we have electronic gateways and 100% of our lodgments are online, the turnaround times for loan applications, if anything, have become worse,” Russell said.

“I’m not sure where the problems lie, but I think a lot of work still needs to be done in terms of mortgage processing within the manufacturer.”

Russell said the “good credit governance” that has served Australia well through the financial crisis has played its part in slowing up approvals. He also said despite increased valuations through ValEx as well as more desktop valuations, high-LVR loans still required full scrutiny.

Mortgage insurers also “slow up” the process in their desire to

assess deals, and Russell said it was difficult to build technology that satisfied the risk analysis required by these insurers.

Russell urged manufacturers to tackle conditional approval turnaround speeds.

“From a distribution perspective we have certainly adopted change in the way we transact, and we are ready to make more change, but one thing that the industry has not done well is deliver customers improved turnarounds,” he said.

“It’s a distribution point for our manufacturers that we would like

solved in some way,” he added.

Speaking in response to Russell at the Summit, Darren Little, St.George head of intermediary services and distribution, said meeting settlement on the settlement date, or getting documentation out in a timely manner or providing conditional approval is, in large part, very software driven, so banks had to ensure their software was ‘talking’ to that of brokers. For industry feedback on tardy turnarounds, see Viewpoint on page 22

Resi hits turnaround “sweet spot” Resi CEO Lisa Montgomery has said bringing its loan approvals inhouse with a delegated underwriting authority last year has allowed Resi to create a boutique service, and that it is no longer “at the mercy” of funder facilities and priorities. She said the move was a way the group can compete with larger lenders. “Rather than competing on rate to the customer, actually being able to provide that boutique turnaround is a very important sweet spot for someone who is writing the loan, if we can turn that around quickly enough.” Resi can now formally approve loans within four days, depending on the valuation process.

PLAN offers access to credit unions PLAN Australia is in the process of widening its member brokers’ access to the credit union sector, in what the aggregator hopes will provide fresh product alternatives.

The aggregator has announced it is currently rolling out a new partnership with mortgage manager Phoenix Mortgage Management, that will see its brokers able to access a pool of credit union members from credit union association CUSCAL. Phoenix, set up specifically to manage the rekindled broker programs of CUSCAL members

who are looking for new third party distribution, will initially provide access to one credit union from each state in Australia to PLAN members.

However, Phoenix CEO Allan Willoughby said other CUSCAL credit unions are currently assessing the distribution model through Phoenix, and it was also in talks with two other mortgage aggregators to widen access to brokers. He also said credit unions from CUSCAL had a renewed appetite for distribution through brokers. “They [credit unions] are

still wary of the broker network as such, but while individually they don’t want to go into a broker program, they are comfortable using brokers as a source of loans and as a distribution model,” Willoughby said.

PLAN’s outgoing CEO Ray Hair said credit unions have been in the press a lot lately as an alternative to the majors. “On the other hand, credit unions are a good viable source of funds, and with CUSCAL’s strength behind it, the funding met our benchmarks for new panel lenders.”

“We are only just coming out of the pilot,” Hair said. “But we are very confident that enquiry will be very strong, Allan Willoughby because of the fact it is a different proposition and an alternative to the majors.”

Hair pointed particularly to strong offerings in the first homebuyer market segment.

He said they also stand up in terms of pricing, positioning and broker remuneration.

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Brokerage sets sights on Gen Y A new Victorian brokerage has said mortgage brokers will have to embrace a new approach to attract Gen Y customers.

Loan Studio, founded by former members of Choice Home Loans in Berwick, is focusing on first homebuyers in the 25–35-year age bracket, and is utilising social media and generationally-specific marketing to reach them.

Loan Studio founder and partner Colin Sheppard said the new business will embrace technology to reach a new generation of homebuyers.

“We’re building our business based on how the mortgage broking industry is going to be moving forward,” Sheppard commented. “Our business is

rolling out into Facebook and Twitter, and we’re blogging on the website. A lot of brokers and banks only want to play with more affluent and established clientele.

We want to mentor young people entering the market. That’s our target market.”

According to Sheppard, Loan Studio’s team came from a background of 95% new homebuyer business. With the launch of Loan Studio, Sheppard said they would seek to specifically target this market.

“We’ve always played in that market. We wanted to adapt a brand that this age demographic could identify with. So many brokers and banks spend so much time looking at boomers,” he said.

This also extends to the broker network Loan Studio will seek to build, Sheppard remarked.

The company plans to begin a mentoring program to encourage younger people to enter the mortgage broking industry.

“A lot of people, under the new NCCP regime, have washed their hands of new entrants to the market. But we will always look for fresh new blood in the

Loan Studio team

industry,” he said.

However, though the business is focused on finding ways to reach a changing clientele, Sheppard said the group’s training will still focus on fundamentals of broking.

“A lot of people get caught up with the technical aspects and forget salesmanship,” he said.

“That’s the difference between a broker who writes $10m and one who writes $50m.”

NCCP ‘caution’ halves low-docs

After a resurgence last year, lowdocs are on the decline according to mortgage broker Loan Market, shutting some borrowers out of the lending market.

The company has released research indicating low-doc applications have fallen by half, accounting for only 5% of overall loan lodgments.

Before NCCP regulations were introduced on 1 July of last year, the loans accounted for 10% of Loan Market’s lodgments.

Chief operating officer Dean Rushton has put the decrease down to lender caution following

NCCP legislation. “Under the new NCCP legislation, lenders are being more cautious when lending to the self-employed and small business owners who, unlike PAYG borrowers, do not have straightforward pay slips or group certificates to verify their annual income. As a result, many hard working self-employed people and small business owners are now finding it harder to get finance,” he commented.

Homeloans Ltd general manager of operations and funding Scott McWilliams agrees, saying that NCCP legislation may shut some borrowers out of the market.

“I think a number of lenders still believe that under NCCP, a low-doc loan is not eligible. Their argument would be that a low-doc loan may not demonstrate sufficient enquiry to see if the borrower can service the loan,” he remarked.

Rushton believes the falling lender appetite for low-docs in the

face of NCCP regulations will hurt many small business owners.

“Small business owners are already struggling with the impact of successive rate rises on retail sales, and are now being hit with tougher lending conditions,” Rushton said.

According to McWilliams, small business owners seeking low-doc loans may not be the only

borrowers to be shut out of the market by NCCP. “I’m afraid we’re going to return to the situation we had 20 years ago where a number of borrowers could not source housing finance because they did not fit within the very narrow box of what banks considered a good credit risk,” he remarked.

Online offering more important than branch access A survey of mortgage brokers by Loan Market has found only 8% believe local branch access is important to their customers when selecting a home loan. Chief operating officer Dean Rushton said the result presents an opportunity for brokers to write business for smaller banks and nonbank lenders. Rushton commented that the result particularly opens up more options for regional borrowers. “When choosing a lender’s product, particularly for consumers in regional towns, people need to be aware that while they may only have one or two local branches, the options to access their accounts are far more extensive. In many cases, regional consumers have more options available to them than they may be aware of and mortgage brokers can provide them with this important information,” Rushton remarked. The survey has found 76% of brokers believe internet banking is the most important account feature to customers, only 14% said ATM access was important, and 2% mentioned telephone banking.

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Equity release in dispute Equity release body SEQUAL and the Financial Planning Association are at odds over whether finance brokers Kevin Conlon should be allowed to advise on equity release transactions.

SEQUAL CEO Kevin Conlon said the peak equity release body has in the past been “channel agnostic”, with the scope and quality of advice more important than the source. He also said he has a “high regard for the professionalism of finance brokers”.

“The industry has come a long way with new regulations and the leadership shown by peak bodies such as the MFAA and the FBAA,” Conlon said. “I think if brokers have at law a high duty of care towards their clients then, provided they understand the nature of equity release transactions and their implications for consumers, they should be trusted,” he said.

However, the FPA’s general manager policy and government relations, Dante De Gori, said the association’s current position is that consumers should be getting advice on their full financial position when undertaking an equity release

transaction. “We think it’s a complicated product,” De Gori said.

He said this was due to the way the products impact financially on the individual over time, and because they were often entered into as a ‘last resort’, rather than as a preferred option. Family can also be significantly affected.

Conlon argues equity release transactions do not require the provision of a full financial plan.

“SEQUAL has been pushing other industry bodies to recognise there is a need to Dante De Gori show leadership in defining what is appropriate advice for an equity release transaction in order to guide their members,” he said.

“Without this guidance, they are defaulting to providing a full financial plan to consumers. This increases the costs and there is strong consumer resistance to receiving a full financial plan in what is typically a $60,000 equity release transaction.”

De Gori said financial planners are able to scope the advice for these transactions, if that is requested, but he said clients do need to be made aware of what they are missing out on.

Reserve Bank defends standard variable rate Reserve Bank governor Glenn Stevens has claimed standard variable interest rates are at an appropriate level.

Facing a parliamentary economics committee today during his biannual appearance, Stevens said that the average lending rates were slightly higher than the 15-year average, but were priced correctly given historic terms of trade. The average standard variable rate currently stands at 7.8%.

“It is about right for where they are, given we have a once in a century terms of trade event that is very expansionary and all the things that flow from that. It would be surprising if you didn’t have policy a bit on the tight side of normal in that event, taking account of the fact that of course the exchange rate is doing a fair bit of work for us,” Stevens said.

Stevens told the committee the RBA was not contemplating a rate rise in the near future, and that economic conditions seemed favourable to the bank.

“A combination of the latest figures, of a 5% unemployment rate and an inflation rate clearly in the twos is a pretty favourable one by the standards of recent

Glenn Stevens

decades,” Stevens remarked.

He also defended the bank’s Melbourne Cup Day rate rise, which was followed by a series of out-of-cycle rate hikes by lenders.

According to Stevens, the cash rate increase cooled off the economy at the right time.

“If we hadn’t done it in November then we would be coming into February and the picture would have been much more complicated. I think if we hadn’t done it in November then we would have been sitting there in December with the same outlook, feeling ‘we really are going to have to go soon’,” he said.

Rate movement despite RBA decision In a sign that mortgage rates are increasingly divorced from Reserve Bank cash rate decisions, RateCity has claimed 14 lenders have increased their interest rates since the RBA’s February decision to leave rates on hold.

The lenders include Austral Mortgage, NAB-backed Homeside, LJ Hooker Home Loans, Mortgage House and SCU. Homeside saw the biggest increase, raising one of its variable mortgages 50 basis points

to 7.70%. Austral Mortgage lifted three of its variable rate products by 15 basis points, Mortgage House increased 25 of its products by 15–18 basis points and SCU increased two of its basic variable rate loans by five basis points. LJ Hooker was second to Homeside in the scope of its hikes, moving two of its home loans up 40 basis points to 7.05%, but had not previously increased rates since August.

Fixed rate loans saw the majority

of the increases, with 56 of 87 fixed rate products being raised.

RateCity CEO Damian Smith said the moves indicate that borrowers must watch the lenders, rather than just the official cash rate. “While Reserve Bank movements will still be the most important influence on mortgage rates, borrowers should expect to see movements like this, and look closely at rates rather than just assume no change,” he said.

Meanwhile, National Mortgage Brokers managing director Gerald Foley has criticised lenders who blame RBA movements for raising mortgage rates.

“The unfair thing is they will always hide behind the RBA rate move, then come out and tell customers they can’t connect the two. If you want to have a rate change, just come out and say it.

Don’t hide behind anything else,” Foley said.

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St.George reviews commission changes St.George will return to paying brokers trail commissions on loans that are between 30 and 60 days in arrears, following a quarterly review of the wholesale changes that were made to its commission structure last year.

St.George head of intermediary distribution, Steven Heavey, said the bank’s decision to cease paying trail after a loan had fallen more than 30 days into arrears had been regarded as an “unfair measure” by brokers. “I’ve made the decision that we will revert back to the 60 days in March,” Heavey said.

Heavey said he agreed with feedback that suggested a broker’s ability to influence a customer within a 30-day period was difficult.

“The 60 days allows them to have the conversation with the customer, to get them back on track in terms of payment and therefore not affect their trail income,” Heavey explained.

“I think most brokers do everything in their power to ensure most customers maintain good accounts. It’s hard to do in a 30-day period, and we’ve acknowledged that and made

“System” in sights, says Heavey St.George Bank will attempt to come in line with “system” lending growth rates, and brokers will play a key part in that, according to Steven Heavey. Following comments from Westpac CEO Gail Kelly that she was “disappointed” with the bank’s lending which had “fallen away sharply” since the Westpac takeover, Heavey said the bank was committed to growth in mortgages. “Last year, with challenges around offshore funding, there were some issues around raising capital, and there was certainly a period of time where the group decided to dial down in mortgages,” Heavey said, adding the result had been some lost momentum which was evident in the broker space. “Now things are in a different position, and while our growth relative to system banking growth has come off the boil a bit, we are looking to grow at system in at least NSW and South Australia, and to a lesser extent outside of those areas we still want to maintain current market share levels,” Heavey said. Kelly said that Westpac, which owns St.George, previously wanted to reduce reliance on third party brokers in NSW and SA, where St.George had good distribution.

a fair decision,” he said. Heavey said the review also revealed a significant uplift in the amount of upfront commissions most brokers are earning, due to an improvement in the quality of loan submissions. St.George rewards the quality of loan submissions by paying upfront commission based on conversions.

“What they [brokers] have actually done is adopted the thinking around improving quality, and using conversions,” Heavey said. “What we are actually seeing is that in some cases up to 50% of brokers are earning 70 basis points [upfront] for some aggregators. So they’ve actually changed behaviours, which is what we intended through the initial commission structure change, and as a consequence they are getting significantly higher upfronts, which is offsetting the loss of trail year one,” he said.

In late February, St.George also notified its broker network that it had increased its maximum LMI LVR from 90% to 95% for new-tobank customers, as it seeks to stimulate growth in third party originated loans. A $700 refinance rebate is also on offer for new and existing customers who choose to

Steven Heavey

exit another institution in favour of its packaged loan.

This is being run in conjunction with the bank’s intro campaign, which cuts 1% off its standard variable rate for the Introductory Rate Home Loan for one year, following which it reverts to 0.70% per annum off the standard variable rate, as part of the Advantage Package.

Heavey commented that the bank had put a range of different credit initiatives in place “when things were pretty tough”, and now that the market was increasingly competitive, it was time to “re-look at some of those credit changes in order to get back to where we were”.

Moody’s aims at Big Four NFC splits could keep

In a shock move, Moody’s has placed the Big Four banks on review for a possible downgrade.

According to the ratings agency, the ratings outlook for CBA, ANZ and Westpac has been negative since March 2009, and NAB’s ratings outlook has been negative since August 2008.

Moody’s senior vice president Patrick Winsbury said the review was due to the majors’ overreliance on wholesale funding “and will focus on the Australian banking system’s structural sensitivity to conditions in the

wholesale funding market.”

Moody’s said the proportion of wholesale funding raised by the majors, particularly in offshore markets, is high for their size. It called the scale of the Big Four’s wholesale funding “unusual compared to global peers”.

The announcement was the most recent in a string of Moody’s ratings reviews aimed at the Australian finance sector. Earlier this month, Moody’s placed Genworth’s rating on review after its US parent company recorded a $133m net operating loss for the fourth quarter of 2010. According to Moody’s, Genworth’s Australian arm partially relies on a reinsurance agreement with the US arm, meaning such losses could impact the company’s ability to raise capital in Australia.

Moody’s then announced a review of 81 tranches from 78 Australian RMBS transactions for possible downgrade. These transactions come from lenders including Challenger, Resimac and FirstMac. “The review affects Australian term RMBS rated by Moody’s containing loans insured

by Genworth,” the agency said.

brokers afloat Mortgage manager National Finance Club is offering three commission split options that it says will allow brokers hit by natural disasters to protect their cash flow by taking larger upfronts.

In a statement to trade media, Andrew NFC general Clouston manager Andrew Clouston said the broking industry had been “severely affected” in recent months by natural disasters, and that reduced loan volumes were having a direct impact on the livelihoods of many brokers.

The group said its “flexible” commission structure, which allows a choice of three different splits of upfront and trail, could shore up cash flow and ease the immediate pressure.

Currently, NFC offers a choice of a maximum 1% of the loan amount upfront in commission, with a smaller trail of 0.05%. The group

also offers a balanced option (0.7% upfront, with 0.15% trail), and a “jumbo” trail option (0.5% upfront, 0.4% trail).

Speaking with Australian Broker, Clouston said it depends on how reliant brokers are on upfronts to keep their cash flow going as to which option they would normally take, although he said the balanced option is “generally popular” with brokers.

Clouston said the floods have had a damaging impact on businesses across Queensland, parts of NSW and Victoria, with initial figures suggesting loan volumes in Queensland are almost half what they were at the same time last year. “This is already having a serious impact on the hip-pocket of brokers in the region, particularly those who are locked into fixed-term commission trails and are dependent on processing high volumes,” Clouston said.

Clouston said NFC had noticed increased interest in higher upfronts from brokers operating in affected regions.

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12 www.brokernews.com.au

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For all the latest mortgage industry news, visit www.brokernews.com.au

Ray Hair to exit PLAN for ALI Group “Industry icon” and CEO of PLAN Australia, Ray Hair, has announced he will move on to become CEO of debt protection insurance provider ALI Group at the end of March.

Set to exit the NAB-owned aggregator after almost 10 years, Advantedge general manager of distribution Steve Weston said Hair’s departure would be a “shock” for PLAN brokers.

Hair will take up the reins as CEO of Australian Life Insurance, where it is understood he will also take equity in the business. ALI sells debt protection insurance through brokers.

Hair said he has “enjoyed every moment of life” with PLAN Australia since joining in 2001.

“It’s a great business, the people (staff and brokers) are passionate and the industry is dynamic. I’m now looking forward to joining ALI as CEO, and as a shareholder, at a time when loan protection insurance is increasingly recognised by brokers as essential,” he said.

However, Hair said it was difficult

to leave the PLAN business and team after so long. “I know PLAN Australia will continue to play a major role in the industry and I sincerely thank our members and staff for their incredible support and contribution over the years,” he said.

Weston told Australian Broker the Advantedge business had planned for Hair’s eventual departure, and he hoped the transition to new management would be “seamless”.

“It’s something that Ray and I have been talking about for literally the last couple of years; he’d been at PLAN for close to 10 years, and we had made sure that we had strong succession plans in place,” Weston said.

A replacement appointment has not yet been made, but Weston said it is likely the candidate would be drawn from the wider Advantedge business, and that this individual would be appointed before Hair’s departure in late March. Hair will be attending PLAN’s state professional development days and the group’s

salesmaster conference before his departure.

The announcement follows the exit of Choice Aggregation Services’ former CEO Brendan O’Donnell, who left to take up a position with BEAT Home Loans as its managing director last year.

Choice is also owned by NAB, as part of the Advantedge business.

However, Weston told Australian BrokerNews that there is no “skulduggery” going on, and both CEOs had left for individual reasons, due to new opportunities they wanted to pursue.

“Ray is very, very keen to continue doing things differently and learning; that is a part of his personality, so I would have thought even if PLAN was still in private hands, Ray would be making a similar decision,” he said. Weston added that an “industry icon” like Ray Hair “beating the drum” for debt protection insurance would also be a good thing for the industry. “It is a shock for the team, it is a sad day, but it is a very positive move.

Ray is going with our blessing, and

Approved Finance.

Easy As.

Ray Hair

he will help increase the rates of penetration of debt protection insurance through brokers, which is something the industry is crying out for,” he said. For Ray Hair’s recollections on his time at PLAN Australia, see People on page 32

www.brokernews.com.au

13

Big Four discounts ‘gimmicks’: Sayer Mortgage House CEO Ken Sayer has called recent moves by NAB and Westpac to increase home loan competition, “gimmicks”.

NAB recently offered to pay the exit fees of home loan customers who switch to the bank from Westpac and CBA, and Westpac responded Ken Sayer by waiving establishment and annual fees on its Premier Advantage loan.

However, according to Sayer, home loan discounting by major banks will add up to costs being passed on to consumers somewhere else.

“Banks have to maintain their profits. Unless they increase that bottom line year in, year out, market share will drop and the CEOs won’t be paid out their bonuses,” he said.

“What usually happens is as balances drop, they put on specials

to stop the slide, but they’ll be closing one door and opening two others on fee charging.”

According to Sayer, the public may have seen the last of out-ofcycle rate moves for some time, but will be hit with charges elsewhere.

“Major banks will avoid [out-ofcycle rises] like the plague. They did not foresee the public scorn,” he remarked. “They won’t be so transparent next time, and will be introducing fees you and I haven’t heard of before. They’ll institute add-on charges such as nonutilisation fees, pre-determination fees, line fees, that sort of thing.”

Sayer believes the market will soon see the return of non-bank lenders as a major source of competition. He dismissed the idea that second-tier institutions would bring competition to the Big Four.

“Smaller lenders are very insecure, because they aspire to be major banks. They’ll be very cute and quietly follow in the major banks’ footsteps,” he said. “The only people who brought competition to the major banks were non-banks and foreign

banks. Foreign banks are still licking their wounds. I can’t see them returning any time inside 2015. Non-banks have upped the ante. CBA has already seen their numbers drop and their market share drop. Non-banks are going to bring equilibrium.”

National Mortgage Brokers managing director Gerald Foley echoed Sayer’s sentiments, calling the banks’ moves “smoke and mirrors”, but said he disagrees that non-banks will lead the way in bringing competition to the mortgage market.

Foley commented that the dominance of major banks over second tiers has eroded

competition, and pointed to second tiers which have been bought out by the Big Four.

“Competition would have been more of a discussion before Westpac went and bought St.George and CBA bought Bankwest,” Foley remarked.

Foley said the revival of second-tier lenders will be the signal that competition has returned to the market.

“I will be far more comfortable when I see ING, Bendigo and Adelaide and maybe even Citi grabbing some ground. I’m not sure mortgage managers can bring the competition to the big banks,” he said.

Mortgage war volleys NAB – Will pay the exit fees of home loan customers who switch to the bank from Westpac and CBA, and waive application fees for any new nonNAB customers who refinance through Homeside.

Westpac – Will waive establishment and annual fees on its Premier Advantage loan, and cut up to 80 basis points off the loan’s rate.

Commonwealth Bank – Will pay $1,200 to NAB home loan customers who refinance through CBA. St.George – Will pay $700 refinance rebate to new and existing customers refinancing from an external institution and who take out a packaged loan.

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14 www.brokernews.com.au

News Online products launch as more borrowers hit the web

Tim Holmes

cont. from cover

>>

its top rung Advantage Plus brokers. “We have been working on a range of new initiatives to rollout to professional brokers, including developing a new engaging broker website with useful online tools,” he said. “In addition, we will be testing up-front ordering of valuations and access to key decision makers.”

Westpac’s move mirrors that of its subsidiary, St. George, which pioneered segmentation with the creation of an elite ‘Flame’ segment. St. George head of intermediary distribution, Steven Heavey, said the bank is also set to launch a new ‘Partner portal’ within two months, that will provide ‘Flame’ brokers access to online tools, such as the ability to directly escalate loan processing, order online valuations, and conduct loan serviceability calculations, aligning brokers

Homeloans has launched a new online product, allowing borrowers to source their home loans online without contact with brokers.

The new product, iMortgage, is a 90% LVR loan with rates starting at 6.79%. The launch comes as NAB this month introduced its own online home loan offering through UBank.

Homeloans chairman and CEO Tim Holmes commented that online transactions are becoming increasingly popular among younger generations, and referred to recent research by the company which indicated 25% of potential borrowers would consider obtaining a mortgage product online.

“Importantly with iMortgage we are addressing a new segment of the market by appealing to those borrowers who just want to do transactions online, rather than pick up the phone or deal with a broker or retailer face-to-face,” Holmes said.

Homeloans national marketing manager Will Keall said the online proprietary channels will continue to grow as more Gen Y and Gen Z borrowers enter the housing market.

“I think it’s a channel that will definitely continue to grow. There’s an increasing segment of the market who would like to deal with organisations and conduct transactions online. A lot of people

don’t want to pick up the phone,” Keall said.

While the market for the online proprietary offerings is set to grow, Keall still does not see it eclipsing the broker channel any time soon.

“I don’t believe that will happen in the foreseeable future,” he remarked. “We still see the third party broker as being the most important source of business for us. The experience brokers provide cannot be replaced by an online mortgage offering.

“There is a segment that wants to do business online, but when it comes to the serious commitment a home loan represents, I think most people know it would be wise to consult a broker.”

closely with the credit team. The measures build on those already available to its top tier, including upfront valuation ordering, access to a team of loan assessors and handlers, and the ability to monitor mortgage document status and check for accuracy.

CBA expanded its integration of top performing brokers in February, when it began placing its ‘Diamond’ broker details – along with their photos – on its consumer banking portal, NetBank. The bank previously included broker details on customer bank statements, and as part of its ATM system. Diamond brokers have also gained privileged access to bank credit teams.

NAB, which segments brokers via a star rating system, is providing its top 4-star brokers with access to static customer banking details, if customers give their permission. The initiative comes among others, including

allowing 4-star brokers to order valuations at no charge, providing access to higher LVRs, and providing Veda Advantage services at discounted rates.

For banks, these top-level service initiatives are designed to capitalise on the bottom line case brought by top performing brokers, who are able to improve a bank’s return on equity by improving customer retention, loan life and brand advocacy. For top brokers, expanding access is helping to ensure high conversion levels – and therefore higher commissions – while closer integration with banks is serving as an endorsement of these brokers to existing and potential clients.

Bough said that in the end, the key objective for Westapc was to “delight” its customers.

“Ultimately this means improving both the experience brokers and customers receive from us. It’s simple: application

quality, conversion and service level improvements result in more positive experiences throughout the third party mortgage value chain,” he said.

Many banks have indicated their interest in broadening at least some of these service initiatives to a wider pool of brokers over time, primarily loan contract printing. ANZ’s head of distribution, Andrew Everington, said ANZ was piloting document printing with a small portion of brokers to ensure the technology was practicable, and would consider a wider rollout, though he suggested there would be a lot of brokers who would be disinterested in the extra administration involved.

However, all banks have indicated their focus on educating the wider broker market in addition to premium brokers, to ensure they were fully abreast of bank credit policy and operations.

Mergers have crippled competition: Suncorp

David Foster

Bank mergers have crippled second-tiers in the funding market, the Senate banking inquiry has heard.

Speaking to the Senate Economics Committee, Suncorp chief executive David Foster said

the major bank buy-up of former second-tiers such as Bankwest and St. George had raised the cost of funding for the smaller lenders.

“One of the key impacts on the funding issue was the consolidation of Bankwest and St. George becoming part of the major banks,” Foster said.

He told the inquiry funding costs for regionals and second-tiers have skyrocketed since the GFC, and are now far above what major banks have to pay.

“Pre-GFC, our costs of funds were only 10-15 basis points greater than the major banks. It is now up to 80 basis points more than what the major banks pay.

The other regional banks pay an

even wider differential on their funding,” he revealed.

Foster also criticised aspects of the government’s proposed banking reforms, saying a ban on DEFs and price-signalling legislation would decrease competition.

“The proposed removal of exit fees is not a measure we believe that will enhance competition. It is the smaller bank lenders that will be hurt by this,” Foster said.

“The proposed legislation against price collusion stops the industry commentating and commenting on interest rate and market movements, preventing education of the community on interest rates and the factors that go into product pricing and

exacerbating a one-sided debate.”

National Mortgage Brokers managing director Gerald Foley has echoed Foster’s comments, saying competition was crippled by the acquisition of Bankwest and St. George.

“Competition would have been more of a discussion before Westpac bought St. George and CBA bought Bankwest.”

Foley has said he believes the revival of second-tiers and foreign-owned banks is crucial to fostering greater competition.

“I will be far more comfortable when I see ING, Bendigo and Adelaide and maybe even Citi grabbing some ground,” Foley commented.

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16 www.brokernews.com.au

News

For all the latest mortgage industry news, visit www.brokernews.com.au

NAB clarifies broker position on exit fee offer

John Flavell

Following claims that its offer to pay the exit fees of Westpac and CBA customers would not be extended to mortgage brokers, NAB was forced to clarify its position in February.

NAB general manager of broker distribution John Flavell said confusion over the offer may have caused concern for some brokers. “I think the broader press got hold of the NAB

promotion strongly. With all the noise in the media it raised some questions. We probably could have been better at letting brokers know what the situation was,” he said.

According to Flavell, NAB had always intended that the offer be available to its third party channels.

“It’s always been available to brokers. Brokers hadn’t seen

comments from us, but when we clarified it, it was fine and we certainly didn’t get any pushback,” he remarked.

The bank indicated brokers can now also take advantage of the bank’s offer to waive the $600 application fee for any new non-NAB customers refinancing through Homeside. Flavell said customers taking out a loan over $250,000 and with an LVR under 75% would receive a 6.90% variable rate, and brokers could see a trail commission up to 35 basis points. He praised the bank’s third party channel, and said it has delivered good results for NAB. “We’ve increased volume, grown market share and increased efficiency in the system. The quality of the business we’re attracting is first

rate. Conversions are up, arrears are down, and average customer life is increasing,” he commented.

As average customer life increases, Flavell said, so will broker commissions due to the bank’s ramped commission structure. Flavell also hinted that the bank would be rolling out service enhancements in the coming weeks to benefit brokers.

Flavell commented that the bank would continue to reach out to brokers to show its commitment to the channel.

“We can reaffirm our commitment to brokers, but it’s always actions we’ll be judged by.

If you look at our actions, whether it’s priced to risk loans available only to brokers, ramped trail or our general support of the industry, those are the actions we’ll be judged by,” he said.

NAB grab NAB has made aggressive overtures in the mortgage market, increasing its home loan portfolio by 1.3% in December, compared with 0.8% for ANZ, 0.55% for Westpac and just 0.2% for CBA. The bank grew its mortgage book by 11.3% for the year to 2010.

www.brokernews.com.au

17

INDUSTRY NEWS IN BRIEF Brokers urged to draft credit policies Gadens Lawyers has stressed the need for brokers of all sizes to put together a credit policy. Speaking at an NCCP client seminar in Sydney this week, Gadens senior financial services partner Jon Denovan said many brokers seem unaware of the requirement. “I think a lot of brokers are proceeding exactly like they did before 1 July,” he said. “Just because a loan fits a lender’s credit criteria does not mean it is not unsuitable.” Denovan said brokers with full credit licences will have to put together a credit policy just like lenders. He commented that this would be easy for large brokers and aggregators, but could present challenges for smaller brokers and one-person operations. In the case of smaller outfits, Denovan said they would have to review the policies of the lenders on their panel. “They are obliged to have a written credit policy.

Review the policies individually to make sure they are responsible,” he urged. In any dispute brought before COSL or FOS, the complainant is expected to ask to see a copy of the broker’s credit assessment, in what Gadens said will be an “abused” aspect of the Act. First National to refer to AFG Real estate group First National has struck an agreement that will see it refer clients to AFG for finance. In a statement, AFG said it would provide First National with administration, technology systems software, education and training, as well as communications and marketing support.

In return, First National will refer all its finance business to local AFG brokers. The national real estate business cited AFG’s size and range of products as advantages of the deal, including its network of 2,300 brokers, and access to 800 home loans through 34 lenders. First National chief executive Ray Ellis said the complexity of mortgage products meant only brokers with a broad panel could provide balanced advice. AFG general manager of sales and operations Mark Hewitt said the deal was an endorsement of AFG’s product offering.

Mortgage Choice preps NCCP depot Mortgage Choice will launch a central loan document repository for its franchisee brokers by May this year, designed to allow it to comply more easily with the audit and compliance requirements under NCCP. The repository, which will centrally house all applications and paperwork franchisees use in processing a home loan, will be used to allow the business to centrally audit all its franchises, to ensure they are meeting responsible lending requirements. All 550 of its credit representatives are to be audited at least once a year, by taking a sample of between 10 to 15 files chosen at random from each individual broker.

Mortgage Choice compliance and corporate standards manager, Tim Donahoo, said the centralised approach will ensure that the group is able to audit its network more cost efficiently.

First Home Saver dubbed inflexible Loan Market has criticised the government’s $1.2bn First Home Saver Accounts (FHSA) scheme as being too inflexible to genuinely encourage first-time buyers. “The scheme has good intentions, but the feedback from our network is that potential borrowers believe it lacks flexibility, and the time frame to lock in is too long,” chief operating officer Dean Rushton said. Rushton pointed to recent ABS data showing the proportion of first homebuyers in the last six months fell to its lowest point in five years. He said the winding back of first home buyer grants has taken many buyers out of the market, and commented that the FHSA has done little to help. “Our own enquiries from first-time buyers fell 15% in the second half of 2010, and reviving activity in the home finance market will depend on getting more people to enter the property market,” he commented.

MFAA requests extension… again The MFAA is lobbying for another extension to the deadline for implementation of disclosure regulations.

In December, Federal Treasury provided exemptions to the 1 January deadline for the provision of consumer disclosure documents to consumers under NCCP, which extended the deadline to 1 April.

These documents include credit guides, quotes and proposals. However, after more delays in supplying the final form of the disclosure regulations, the MFAA has been forced to push for a further revision of the deadline to 1 July this year – six months after the originally proposed date. “We have sought an extension as the disclosure regulations have still not been finalised, and are unlikely to be for a few more weeks,” MFAA CEO Phil Naylor said in February. “We are hopeful that at least a 1 July extension will be agreed.”

Licensees and credit reps still need to provide EDR details.

Agency dismisses housing bubble A real estate agency has rubbished the idea of a housing bubble. In its quarterly economic report, PRDnationwide dismissed claims by the IMF that housing values in Australia will experience a significant decline. The IMF forecast several years ago that property in Australia would drop by as much as 50%, and recently revised this assessment to predict a slow, less severe decline in median values. In the company’s report, PRDnationwide director of research Aaron Maskrey said this view does not take into account Australia’s particular economic situation. “The thing is, Australia is quite unique, as it holds certain key factors which keep momentum in property values moving forward,” Maskrey said. According to Maskrey, the factors that will sustain median price growth are Australia’s high population growth, slow land development and resource-driven economy leading to record terms of trade.

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SPECIAL REPORT – BANKING REFORMS

Swan cautioned on DEFs

Wayne Swan

Treasurer Wayne Swan was warned by Treasury officials about the potential negative impacts of the ban on exit fees, it has been revealed.

The ban on deferred establishment fees is set to come into effect from 1 July, with the draft NCCP regulation released for comment in February. However, in documents released by Treasury under Freedom of Information, officials warn Swan that banning deferred establishment fees could mean fees reappear elsewhere.

“Banning [exit fees] will remove a fee that is designed to address the legitimate cost of offering a mortgage product,” the document said. “As such, mortgage providers will need to find alternative ways of covering their costs, which could lead to a range of unintended consequences from the government’s action that could outweigh the benefit of the ban.”

The internal document warned that these unintended consequences could include higher costs passed on to borrowers, saying home loan providers may seek to cover losses from the banning of exit fees through increasing interest rates or upfront fees. The Treasury memo pointed out that increased upfront fees could carry disadvantages to consumers which exit fees do not.

“While customers may be more inclined to focus on these upfront fees rather than exit fees, and hence drive further fee-based competition, those same customers may be worse off as the fees they are more easily able to compare will be unavoidable, unlike exit fees,” Treasury said.

Treasury officials also warned Swan that removing exit fees would reduce fee transparency with home loans, and that first homebuyers would be disproportionately impacted by the introduction of greater upfront fees. The document stated that the measure would also hurt smaller lenders such as mutuals, reducing their ability to compete effectively.

Government drops exit fee draft bomb The government has made clear the full extent of its planned ban of exit fees, with the release of its draft regulation in mid-February.

In what law firm Gadens Lawyers termed a “very worrying” release for the future of the mortgage industry, the government draft proposes a ban on exit fees that will apply to any fee payable at the time of repayment, other than fixed rate break costs and discharge administration fees.

If legislated, this would effectively outlaw all fees collected by lenders at the time of settlement, including DEFs, LMI, capitalised account keeping fees and interest equalisation fees that recoup honeymoon rates.

The bans will apply to all lenders – not just banks – which Gadens Lawyers claims will be “very bad for competition”, especially for non-balance-sheet lenders who cannot use deposits to absorb costs.

Gadens Lawyers senior financial services partner Jon Denovan has unleashed an attack on the government’s draft regulation proposing a ban on exit fees, calling it an “irrational ban” that is “wildly unfair” in betraying the accepted principle of ‘user pays’.

Speaking at an NCCP client seminar in Sydney following the release of the draft regulation, Denovan denounced the draft, which he said contrasts with ASIC’s previously “well-reasoned” guidance on exit fees, RG 220, which was released last year.

Denovan said the result of the changes would be customers being able to switch lenders indiscriminately, and an escalation of industry costs. The changes would also hurt lenders with special offers – such as paying LMI for customers, or offering honeymoon rates.

Denovan said the changes were fine for

institutions with “a great big balance sheet”, but not those running smaller lending operations, especially those structuring products using DEFs. The government was also accused of “legislating by stealth”, in attempting to introduce the changes as an amendment by regulation to the NCCP Act, rather than creating additional legislation, that would need to pass through the houses of parliament.

Denovan said amendments by regulation are usually reserved for what would be considered the “tidying up” of an Act, but that the exit fee ban instead “materially interfered with existing business practices”.

Following the release of the draft regulation, Denovan said he had been busy writing submissions. The industry has been invited to make submissions by 1 March in response to the draft.

The ban in its current form would outlaw all fees collected by lenders at the time of settlement, including DEFs, LMI, capitalised account keeping fees and interest equalisation fees that recoup honeymoon rates, and would be introduced for contracts after 1 July this year.

MFAA: Exit fee ban “lunacy” The MFAA has spoken out on draft regulations banning exit fees, calling the idea “ill-conceived”.

Under the draft NCCP regulations, any fee collected at the time of settlement would be banned, meaning lenders could not recoup deferred establishment fees, LMI premiums, capitalised account keeping fees or interest equitisation fees to recoup honeymoon rates. An MFAA statement has claimed the ban will see higher costs passed on to consumers, and an end to honeymoon rates.

“It is self-evident that there is a cost in switching loans, and so those who rort the system by switching regularly will be supported by the vast majority who don’t. The result will be higher interest rates for all,” the statement said.

According to MFAA CEO Phil Naylor, the ban will see non-banks rendered unable to compete.

“If exit fees are prohibited, balance sheet lenders can simply dive into their very deep pockets and wait until their competitors exit because they have run out of funds. Then when competition is reduced, the lenders left standing can put rates up again,” Naylor commented.

Naylor has also decried the way the change has been put through, with the ban added

to existing regulations rather than voted on as a piece of legislation.

“Such a major change to the law should be put through both houses of parliament rather than be snuck through by regulation.

Phil Naylor The Opposition and some independents have already expressed their opposition to the move, but are being denied the opportunity to vote against it,” Naylor said.

“Nobody has advanced one good reason for banning exit fees, and so this initiative is playing on cheap headlines without understanding how the mortgage industry works,” he remarked. “What the government is doing now is lunacy; catching a quick 10-second grab at the expense of the Australian public.”

www.brokernews.com.au

21

SPECIAL REPORT – BANKING REFORMS

Brokers react to DEF ban

Colin Sheppard

The government’s unilateral ban on exit fees will see broker commissions eroded, according to some of Australia’s top brokers.

With the ban on DEFs set to come into effect from 1 July, brokers have claimed the regulation will hamper competition and have a devastating impact on brokers and borrowers.

“The proposed changes will just increase the market share for major lenders and consolidate the majors’ monopoly in the market. It’s this lack of competition that will lead to increased interest rates and reduced commissions for brokers,” said Loan Studio broker Colin Sheppard.

Sheppard predicted the ban on DEFs will provide “just another excuse for lenders to try and justify commission cuts in the broker channel”.

MPA Top 100 Broker Jeremy Fisher of 1st Street Home Loans agrees, and said clawbacks will increase under the ban.

“It will certainly affect clawbacks as clients will move more freely, and potentially in the first year,” Fisher said.

“There is no question that lenders will increase their clawback periods in an attempt to re-work apparent break-even points,” Sheppard added.

Sheppard believes lenders will reengineer their products to recover the loss of DEFs, with brokers and borrowers negatively impacted in the process.

“There are only two directions that lenders will point additional cost towards: brokers and consumers,” he said.

Fisher believes that encouraging borrowers to move freely between home loan products will ultimately result in borrowers losing out.

“They may lose sight of why they chose the bank in the first instance and simply change banks for the sake of a few dollars,” Fisher said. “We make sure to educate our clients upfront as to why a lender was chosen to begin with, and this generally keeps them loyal for the long term.”

The fine print: A proposed ban on DEFs Q What will be banned?

The regulation will ban any fee payable at the time of repayment other than fixed rate break costs and discharge administration fees. This will ban collection at settlement of: • Deferred establishment fees (DEFs) • Interest equalisation fees to recoup honeymoon rates • Capitalised account keeping fees • Lenders mortgage insurance (LMI) recovery Q Does the regulation extend to residential investment loans?

Yes, the measures will apply to residential investment, as well as loans for residences Q From when will the ban apply?

The regulation will apply to credit contracts entered into after 1 July 2011 Q Does the regulation need to pass through parliament?

As this is an amendment by regulation to the NCCP Act, the proposed changes will not need to be endorsed by parliament.

However, the industry can supply feedback until 1 March.

Jeremy Fisher

Non-banks blast NCCP draft Non-bank lenders have responded to the draft exit fee regulations released by the government, saying the ban on DEFs will hurt consumers and smaller lenders.

Resi CEO Lisa Montgomery said the proposed ban will mean bigger upfront costs for borrowers.

“No doubt funders are looking at ways they can restructure a product from a fee point of view. Establishment costs have increasingly been moved to the end of the loan or in the event of early payout. It will be interesting to see whether the structure changes to moving them to the front of the loan,” Montgomery said.

Homeloans Ltd general manager of funding and operations Scott McWilliam agrees, and said non-banks would have to find a way to recoup costs.

“This will force most lenders to introduce or increase application fees to absorb the costs that they’ve normally deferred from the borrower,” he said. “It could result in an increase in interest rates, upfront application fees or charging annual fees in an effort to recoup the cost they’ve been incurring and will still incur after the legislation.”

Montgomery believes the measures will have no significant impact on competition, and will actually benefit the major banks.

“At the moment, it looks like it’s only going to promote movement between the Big Four.

We’re already seeing them jockeying among themselves with regard to how they’re attracting clients,” she commented.

The draft plan has called for submissions from the industry. While Montgomery said it is premature to comment on whether Resi will put forth a submission, she believes the plan will generate a flurry of discussion in the industry.

“I have absolutely no doubt there will be a plethora of submissions,” she said.

Regardless of the impact of the legislation, McWilliam is confident the non-bank sector will

Lisa Montgomery

find new ways to compete with major banks.

“This isn’t going to be the end of non-banks, but it’s definitely going to be a setback. It just means we have to go back to the whiteboard,” he commented.

Government out of touch, says Ryan Intouch Home Loans CEO Paul Ryan believes the ban overlooks the real barrier to customers switching loan products. “The government seems to be fixated on exit fees as being the major deterrent to why consumers are unable to refinance to a lower rate. This isn’t the case. The real elephant in the room is the double payment of mortgage insurance a customer is subjected to any time they look to borrow above 80% of the property value,” Ryan said.

“The exit fee won’t be the deterrent, it will be because they’re required to pay for mortgage insurance again, a premium of up to 2% of the loan amount.”

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Comment VIEWPOINT

Turnaround times are crucial to clients, and often frustrating for brokers. How do our industry insiders rate current turnaround trends, and how can they be improved?

Kiran Saldanha The Finance Professionals

Service levels rated very high on the risk analyses (likelihood and effect) we conducted before we introduced our fee-forservice model in mid2009. The majors, their subsidiaries and some of the smaller lenders such as RAMS, Heritage Building Society and more recently AMP have all fallen prey to short-sighted management of the third party backend (especially promotions). I have come to rely on mortgage managers such as Iden Group to support my business. Their service levels far exceed anything on offer from the majors.

Their credit team, business development and management spare no effort in supporting us.

Direct access to the credit team is also what makes dealing with them a pleasure.

Tanya Sale Outsource Financial

Speaking to a number of our lending managers, it is quite obvious that there is a great appreciation that due diligence must be conducted for the benefit of all involved in the transaction and this takes time – what needs to be achieved is a greater level of consistency across all

distribution channels of the lender. Our writers are currently experiencing inconsistent service levels from lodgment to conditional and we cannot see this changing as this is due to the mechanics of loan processing through the third party market. The lender that comes up with software that has advanced parameters for all writers (not just the high performing writers for each individual lender) will be the one that will offer a more effective broker/client experience.

Voula Kotsiras Port Group

From our brokers’ perspective, the biggest issue with turnaround times is consistency. Some lenders go through patches of being fast, and then get backlogged and slow down.

Other lenders promise they will be quick, but are very hit and miss.

Overall I believe brokers can manage turnaround times with their clients when banks are transparent, so when the lender says 48 hours it’s 48 and not four days later… The other issue brokers face is being able to get a guarantee when specials/promos come out. It seems as if the banks aren’t prepared for the volume spike with product specials – hence service levels blow out. Banks should be providing some sort of system guarantee so at least brokers and clients know what to expect.

Brokers also find it increasingly frustrating competing with branches and their turnaround times; there still seems to be a gap between what the branch network can offer in comparison to third party. Right now, it is best to assume most turnaround times are slow, and then when you get a fast turnaround, both broker and client are happy.

Rose De Rossi Diversifi

We have not experienced any unexpected delays in the receipt of conditional approvals and we believe that the quality of our submissions is a significant factor in achieving formal approvals in a timely manner.

A procedure we have implemented is for a director to vet all deals prior to submission, ensuring all documentation is correct.

This has proven successful as we have been able to meet the timeframes for all our clients and the lenders acknowledge our excellence in submissions.

There is always room for improvement. For example, there are numerous processors handling the deals so often faxes and additional information are mislaid – this can be very frustrating as we need to re-fax documents. A loan processor needs to be held accountable and have ownership through to formal approval.

One year on…

What a difference a year makes… or not. Australian Broker reflects on the punditry, breaking news and trends that made headlines in the magazine 12 months ago

Issue: Australian Broker issue 7.4 Headline: Beware of ‘cracks’ in trail (page 4)

that right off brokers. I’m concerned we’ll see a bigger erosion of trail and bigger clawbacks.”

Headline: Strong broker channel drives bank loan growth (page 4)

What we reported: The future of trail commissions has again been raised, this time by FBAA president Peter White.

White said he had been vocal about trails at industry forums last year and warned that the broking market needed to be very conscious of future trails being paid. He said the cracks were already in the ground with banks paying no trail in the first year. “How many times have you seen banks take something away then give it back? In 30 years in the industry, I haven’t seen it once.”

What we reported: CBA’s controversial accreditation policy did not deter brokers from promoting the bank’s mortgages, after it revealed half-year results which showed mortgage income rose to $1.19bn for the half year ending 31 December 2009, attributed to increased market share and significant growth in outstanding loan balances.

The bank said mortgage book growth was supported by its competitive standard variable and a “strong branch and broker presence, with both continuing to outperform market growth”.

What has happened since?

According to White, the trend of trail erosion is continuing. “We still see trail being eroded by various institutions,” White said. “What’s even worse in the last year is the banks’ position on clawbacks. Some are clawing back 100% up to two years.”

White commented that the government’s proposed ban on exit fees could see this trend worsen. “We all agree with making switching easier for consumers, but banks are going to claw

What has happened since?

CBA conceded market shares to its rivals over 2010, with new loan growth below system as the bank deliberately wound back mortgage lending.

NAB was the main beneficiary of this, picking up a 31 basis point gain in market share. When revealing half-yearly results in early February, CBA CEO Ralph Norris admitted the bank’s public image had suffered after it moved first to increase rates 45 basis points in November. In spite of its drop in market share, CBA showed a

16% increase in home loan funding for the last two months of the year. Norris said CBA will look to grow its mortgage book in 2011 at system pace.

Headline: Brokers show support for high LVR products (page 10) What we reported: The decision by mortgage manager Australian First Mortgage to introduce a full-doc 95% LVR product aimed specifically at first homebuyers has been welcomed by brokers. The arrival of the new product comes as RateCity noted a significant drop in high LVR products. Only 20 loans are offering 98% LVR and only 89 offer 97% LVR – a drop from 355 such loans in 2008.

What has happened since?

After retreating from high LVRs during the GFC, many lenders have made a comeback. All four major banks have products at LVRs 92% or above, with ANZ offering 97% LVR. National Finance Club and ING Direct recently announced they would raise LVRs on their products from 90% to 95%. In the past year, a string of other lenders announced their own 95% loans.

Steve Sampson of Provident Capital told sister publication MPA that high-LVR products are “definitely back”, noting that increased economic stability and confidence are fuelling their return.

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OPINION

We should take the opportunity to sell ourselves Is the third party channel selling its new-found status to the public well enough? Peter Cooper thinks not, and suggests what the industry can do about it There are differing views within the industry as to the likely effects of recent changes which have seen mortgage brokers becoming licensed. I would like to put forward the view that these changes present us with an opportunity – but the industry needs to grab the initiative.

I am tired of hearing ‘we need more banks, more reforms, more this, more that’.

What is needed is more leadership from industry bodies and large aggregators, which should be presenting a clear, articulated and aligned strategy of building the rightly earned perception of the professionalism of our industry through the media. Presently, we do not have a presence whatsoever in the media. Who is the leading light representing mortgage brokers? Where is the leader whose presence will attract media attention due to his or her standing in the community, who can present the industry correctly and drive our ‘good news’ agenda?

We have taken numerous strides in recent times to raise the stature of both the industry and the brokers within the industry, including the following: • We are now demanding that our members obtain Certificate IV and the Diploma • We require brokers to obtain a status not unlike a financial planner (Credit Advisor on completion of Diploma and Certified Credit Advisor in due course) • We require the Credit Advisor completes three pieces of information:

1. Client needs analysis

2. Preliminary assessment

3. Lodge bank application after

consultation and explanations • We require Credit Advisors to document all conversations, etc with the client and note any conflicts • We accept that penalties, including fines and jail, will be the consequence of being dishonest and then being audited

by ASIC All of the above are great initiatives, but why are we keeping these things a complete secret? Why are we not selling the dream to the customer? As Robin Williams would say, we need to seize the day! The opportunity is here right now to sell the dream with the right salesperson covering this great story!

Why would anyone ever go to a bank direct when all the above is free? The Credit Advisor must act in the client’s best interest at all times… does the bank? How can they? By definition, they must only put forward their employer’s product. They do not offer an unbiased, all-of-market comparison across all institutions. They do not have knowledge of all

Peter Cooper

the products on the market and their respective strengths and weaknesses.

The Advisors are kept up to date with the following: • We cover a significant number of banks and products… over 250 • We know turnaround times • We can lodge electronically • We know who will go outside policy at any given time • We know which mortgage insurers are active • We know which banks are negotiable on fees/rates, etc at any given time • We know where the bottlenecks are driving towards settlement • We know how different the banks are with rate lock issues and lump sum deductions • We know which banks treat guarantees differently • We know which banks have higher loanto-value ratios from time to time and the restraints involved • We know how each bank operates their serviceability test • We know how each bank treats credit cards in serviceability • We know the differences in assessment rates All the above information should appear in newspapers, on television, on talkback radio, be debated on current affairs programs, on business-related programs, etc. But who is going to sell the story?

Peter Cooper is the managing director of finance brokerage Cooper Financial Connections in Brisbane, and is a former Queensland state manager for St.George Bank

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Analysis

The big squeeze The new NCCP landscape may see some brokers squeezed out of the industry. Who will be left standing once licensing and regulations shake up the market?

W

ith the impact of licensing finally being felt and the new NCCP landscape taking shape, many brokers could find themselves squeezed out of the market.

Nearly every industry pundit seems to agree that licensing, volume requirements and regulatory compliance will lead to a squeeze, with broker numbers dropping and part-timers veritably eliminated. Where there does seem to be disagreement is on what part of the industry will suffer, and what they can do about it.

Mortgage Ezy CEO Garry Driscoll echoes industry sentiments that licensing, compliance and volume requirements will see the industry shrink over the next three years. “Regulation will drive a drop in the number of brokers, as some individuals and firms who have a broking arm as an offshoot to their main business decide that the compliance costs are too painful, as well as brokers who only write minimal business and who see the compliance costs as disproportionate to the income they earn from broking,” he said.

However, Driscoll believes it will be the mid-level brokers rather than smaller solo operations who will suffer the worst consequences of the new licensing environment. He said that solo operators may actually be better placed to survive in the new environment than mid-sized brokers. “The small one- and two-person operations rely on referrals and word of mouth, and they make a good quid that way,” he said.

Driscoll commented that large aggregators will be able to adapt to pressure from major banks and NCCP regulations. “You have people like Macquarie who are out there buying up aggregators, and they will still be around,” he said. According to him, it is the medium-sized businesses that have the most to fear. “The people in the middle will get squeezed out,” he said.

National Finance Club chief operating officer Lawrie Moore agrees, and said brokers will be increasingly drawn to large franchise networks in order to survive.

“Licensing and compliance expertise as well as lender volume hurdle requirements will increasingly strengthen the value proposition of larger broking groups. New brokers will find it more difficult to enter the market without the support of a broking group that provides access to a broad range of lenders, and assistance through established training and compliance programs,” he said.

For medium and smaller broker businesses, Moore commented, consolidation will be the key to survival.

“Consolidation will be imperative for survival, given the volume requirements and compliance costs involved in the new competitive landscape,” he remarked.

This kind of industry consolidation, Driscoll said, is inevitable. However, it does not necessarily mean a loss of identity for mid-level brokers. “Mid-sized brokers will consolidate into semi-aggregation firms so they can remain independent but get the advantages of a co-op arrangement in terms of costs,” he commented. Moore

does not believe that consolidation is a negative development. “The move to a more professional brokerbased model will benefit the industry greatly in the medium to long term,” he said.

The increased level of professionalism that could arise through consolidation may well be the saviour of the industry, according to SAKS Consulting principal Kym Dalton. Dalton commented that brokers need to bring a new level of professionalism to the field in order to offer further value proposition to lenders. “Business 101, whatever business, dictates that profitability is increased either by increasing revenues, decreasing expenses or a combination of both,” he said.

“Risk is an expense in waiting. At the base level, what the mortgage broking industry needs to consider in the next three years is how they can address these fundamental elements of Business 101. Part of this consideration is the broking industry working with the lending industry to assist them to address the lenders’ own ‘Business 101s’. Brokers, through professionalism and responsibility, also need to work hard to assist lenders to minimise the ‘expense in waiting’ of risk.”

Dalton said offering this added value is important in an industry where lenders are increasingly seeking to originate their own mortgage business. “If the broking industry does neither or only parts of the above, lenders will seek to address the fundamentals and grow profitability by other means, like focusing on proprietary channels,” he said.

And as more brokers feel the squeeze of the new industry landscape, Driscoll has predicted banks will increase their focus on proprietary lending channels.

“They see this as a way of decreasing their costs, utilising their brand and originating stickier business,” he claimed. “The double-edged sword is that as a result of the banks’ squeeze on brokers, more brokers will be looking to get out of the business into something with a salary and bonus; the banks’ direct channel is ideal, giving them a huge pool of ready-trained, hungry staff.”

XXBrokers can beat the web: Driscoll Despite the growth of online proprietary channels, Mortgage Ezy CEO Garry Driscoll does not foresee online offerings squeezing brokers out of the industry. “Genuine web-based acquisitions that can formally approve a loan in seconds without any human intervention are inevitable in the years ahead, but I suspect it will only suit a very small borrower profile,” he said.

“Ultimately, though, brokers have nothing to fear in the same way as travel agents had nothing to fear from online airline reservations, the cinema from the video store and employment agencies from Seek. Borrowers will research the net for information on loans, but will want face-to-face contact when it comes to discussing their loan options.

Garry Driscoll

In three years, I think there will be fewer brokers. I think those left will be at both ends of the market

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FORUM When peak equity release body SEQUAL and the Financial Planning Association (FPA) clashed over brokers and their equity release credentials (see page 8), our online readership had their views. Here’s what you had to say, on this and other issues, on our online forum As a long-term, active reverse mortgage broker, it would be refreshing to see a financial planner who viewed the reverse mortgage product as anything other than a way to access funds for their client to purchase investment in ‘their’ managed funds, etc. The overwhelming majority of my reverse mortgage clients were clearly not in need of (nor could they afford) a ‘financial plan’; rather they were seeking an option to sustain a reasonable lifestyle in their retirement years. Sadly, in too many instances a reverse mortgage is their only option to do so.

In most instances, it is not a ‘complex’ product, regardless of how stridently the financial planning sector tries to proclaim it as such. However, it is necessary for a significant proportion of senior Australians. I fear for the availability of the product, should the financial planners get their hands on it!

Commented by: ReversePeter at 22 Feb 2011 03:18 PM Reverse mortgage lending can or may trigger other issues, such as having an effect on a person’s pension payments. Hence, some middle ground needs to be achieved here. Reverse mortgage lending goes beyond just providing a loan and hence it’s timely that the regulator makes a determination on the required qualifications to give advice in this area. Could it be a limited advice model with required qualifications?

Having been a broker and a planner and having been involved in the process of a reverse mortgage, there are other issues to be considered besides just the loan being approved. This debate has been around for some time now and it’s timely to make the required outcomes clear.

Commented by: Jeff Mazzini, AAMC TG at 22 Feb 2011 05:57 PM

Meanwhile, the government’s exit fee draft regulation was met with a cynical response from our online readership, following an industry outcry over the plan (see page 20) Phil [Naylor] is 100% correct. The only competition that will come from this poorly executed piece of marketing will be the potential to limit competition between banks and credit unions. Removing a DEF for the likes of Resimac would kill ‘off-balance-sheet lending’. The simple result of that is no more non-bank lending, not to mention the risks to the Australian securitisation market. The NCCP is not a weapon to limit competition; if it is then maybe people should be honest and let us all in on the game. Then at least mortgage managers and others can make executive decisions about continuing in the industry.

Commented by: Martin Rollins, MPIA on 17 Feb 2011 02:37 PM

Poll: financial planners and mortgage broking Are financial planners a real and growing threat to mortgage brokers, as they increasingly diversify their businesses?

Yes (3%) No (9%) Undecided (87%)

Yes (3%) No (9%) Total votes: 250 Undecided (87%) Poll date: 10/02–22/02

To vote in our latest online poll, visit our online home page at www.brokernews.com.au

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Insight EXECUTIVE COUNSEL

Andrew Russell

Andrew Russell recently joined Mortgage Choice as the franchise’s head of sales.

Australian Broker finds that it is determination and belief in his ability that has fostered his success in the industry – and may soon lead to him completing a full marathon

Name a business leader you admire. Why? Lachlan Murdoch. He endured a testing apprenticeship and learned from the industry leaders. He now has the drive, determination and belief in his own abilities to try to succeed in his own right.

What main goal/s got you to where you are?  Find a mentor to learn from.  Complete an MBA in a different country.  Launch and manage a business from business case through to business as usual.

Is success due to talent, hard work, or luck?

Long-term success is a combination of talent and hard work. Luck can be useful as it will assist in achieving short-term success sooner.

What character trait has helped you the most in business?

Determination and belief in my abilities. These are key when the market is challenging or you have invested in a new business strategy. If you, as the business leader, do not believe then how will your customers?

What is the key to great business relationships?

Trust, respect and value sharing by the agreed relative contribution. By this I mean relative contribution in terms of the value generated, ie, one party brings a brand or working capital and the other the operational expertise.

Are these equal? Parties must agree if it is 50/50 or 60/40 as brand is worth more, for example.

What’s the first thing to look at when growing a business?

Do I have the business foundations in place for growth, such as the right people, structure, and operational process and systems? Businesses fail if these are not in place. Key questions are: Do I understand my market and the growing needs of my customers? If I expand can I deliver with the people and operational platform I have today? What do I need to do right now in my business with people, process and systems in order to compete tomorrow?

What’s the best piece of advice you’ve ever received?

Expect the best but prepare for the worst. This is crucial when launching a new product or strategy. If it does not work you must have a Plan B to action immediately.

Before embarking on the new product or business strategy brainstorm with advisors, business partners, friends and others you admire about all the things that could go wrong and discuss options to mitigate such problems. ‘Be prepared’ when it comes to everything you want to achieve in life.

What trend are you currently watching?

House prices, for further signs that the market is back from the GFC hangover. Prices are a lead indicator of confidence.

What is your next big ambition?

To run a marathon. Goal setting is important for me.

Running hard at achieving a goal and the excitement of achieving success personally and professionally is very rewarding for me. Running 42km uses the key skills and philosophies I use in business.

Holding your own on the phone – Part II Last issue, we brought you the first instalment of ‘Salesmaster’ Peter McKeon’s tips for converting leads into clients over the phone. Here are the rest of his secrets

P

“

eople want more, expect more, and quite frankly deserve more, and if you don’t give them more, then you can guarantee that your competition will.” So says Peter McKeon, founder and managing director of Salesmasters International.

With the world of sales having shifted towards a more consultative and authentic approach, McKeon argues brokers need to make the transition, or face increasing difficulties in converting leads into clients over the phone.

The question is, how? Last issue, Australian Broker published three key principles of this new paradigm, as well as the first two more practical tips on converting leads. What are the final eight?

3) Conducting an authentic dialogue through ‘humanising’ the conversation’: This comes down to the first principle we covered last issue, which is essentially letting go of the goal of making the sale, and replacing that with a new goal – to discover the truth of the potential client’s situation. You are ringing someone up with the goal of having a conversation, and the goal for both parties is to discover the truth.

When you are accepting we are not all things to all people, that different people have different needs and want to do business with different organisations or individuals, you can have a conversation with people and drop the sales objectives.

That will go a long way towards humanising the situation.

4) Engaging people through intelligent questioning: This includes questions that open up with; ‘Would you be open to…? Does it make sense to…?

Could you elaborate on that? Could you

explain that to me in a bit more detail?’

When people say ‘Tell me about this mortgage option’, brokers tend to say, ‘Ok, let me tell you everything about this option’. But, an example of effective questioning when responding to that query would be, ‘Look, when I’m asked that question, some people want a real broad snapshot of just a couple of the key points of this particular mortgage product, and other people are looking for a more detailed technical explanation. So which track would you like me to walk down? A quick snapshot, or something more detailed?’ Seek permission and clarification all the way through, rather than just dumping information on people.

5) Getting to the point by creating value for them: Getting to the point is about understanding what people want through questioning. What are their personal motivators? Why are they even looking at you as a possible option? It is then being able to feed that back in a way that you can create some value for them.

So for example, someone might want to remortgage. It shouldn’t be; ‘I want you to remortgage’, making it all about the broker, but understanding what is driving that decision in that particular household.

It’s about understanding that and saying ‘We’ve worked with lots of people who have been in a similar situation, and we’ve been able to help most, but not all’. That type of language communicates that you are a low-risk person. It’s really being intimate with the person on the phone. Otherwise, they are just going to keep ringing until they find someone they feel safe with, and in the absence of that, the only thing the broker will have in common with them is the number in the box in terms of rate.

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6) Customer-centric word tracks – the call must ALWAYS be about them: Word tracks are a set of words that soften a sales conversation. For example, brokers would use the following words in some point in a conversation, depending on where they are in the sales process: • Sign. Australians hate to ‘sign’! We would say ‘authorise’, or ‘endorse’.

• Contract. Instead of a ‘contract’, call it an ‘agreement’, or ‘the paperwork’.

• Deposit. Instead of ‘deposit’, it could be rephrased as an ‘initial investment’.

• Cheaper. Instead of saying ‘Based on that salary, you can’t afford this property, and we are going to have to look at something cheaper’. Let’s say, ‘Jack, based on the information you’ve shared with me, we might be able to find a mortgage that may prove a little more economical for you and that may better suit you’.

Let’s take mortgages out of it. Let’s say you are buying a car. And the salesperson has said ‘Now that we’ve worked out that you want to buy the car, the cost is $10,000, you’ll need to sign the contract and leave us with a deposit and we’ll get things moving for you today.’ A sales professional would say ‘Look, now that we have discovered this is the vehicle you would like to own, as we mentioned earlier the total investment is $10,000. If you feel comfortable in approving the paperwork, and leaving us with a small part payment, we’d be in a position to get things moving for you now’. It’s the same thing said differently. It’s an holistic viewpoint of how to engage with customers.

7) Addressing caller concerns: A lot of clients would say, ‘Do you have any information that you could send out to me?’ My response to that would be, ‘Well, I could certainly pop something in the mail or email something out, but my experience is that sending information like this often raises more questions than it answers. So what’s worked well for many people is that if we can spend 15 or 20 minutes together, I can go into this in a bit more detail, and clearly understand exactly what it is you are looking to achieve. At the conclusion of that, either way I can assure that you will leave our get-together feeling a little bit more informed.’ That’s better than just sending out some information.

We’ve shifted from selling to consulting.

8) Ethical closing: Back in the 1980s it was all about closing. But today, our belief is it’s all about opening. And an ethical closing is a natural Peter McKeon conclusion to the whole sales process – it is really when you and the client both know that now is the time to move. Questions like, ‘What do you feel should be the next step from here?’

We get them to self-close, as opposed to trying to find the 108th way to close someone who’s looking for a mortgage.

9) Obtaining collective agreeance on the next step: This goes back to ‘seeking permission’, and ‘seeking buy-in’, covered last issue. On the back of your needs analysis or qualification questions, you should seek a client’s buy-in as to what they feel is the next step from here. For example: ‘Jack, on the back of that, I think there is maybe an opportunity to put a face to a name, so I wanted to get your feedback as to what you felt might be the next step from here’. It lets the customer say yes. Rather than saying, ‘What I would like to do is I would like to organise a meeting’. It is about you, not them.

10) Value of data collection: I would strongly recommend brokers utilise their CRM, and that is not just information on the financial side of things but information about their clients. We have a policy here at Salesmasters International that for every inbound inquiry, we send people a handwritten thank you card the same working day. This humanises the process for people, it’s authentic for people, and it’s a point of difference.

Peter McKeon is the founder and managing director of Salesmasters International, which offers modern sales skills training.

The first part of this interview – including the first 3 steps to telephone success – were published in the last issue of ‘Australian Broker’

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MY WAY Andrew Monk was a finalist at the 2010 AMA Awards. He tells Australian Broker that trying to offer the best service to every client – as well as discipline – is what has set him apart. from the rest

Andrew Monk

What is your greatest business achievement?

Being a finalist for the 2010 AMA Awards for Independent Broker of the Year.

What’s the key to getting business through the door?

Remembering that we offer a customer service, remember what it is like to be in the client’s shoes, keep the communication up and try to update them before they contact you asking for an update.

Who has helped you the most, and how?

I have a fantastic support team; as much as it is my name that goes out, really without good support staff there is no way that I could get half the work done that I do. And my wife, of course!

What character trait do you most value in yourself?

Personable – easy to approach and able to put myself in clients’ shoes.

How do you stand out from the crowd/competition?

My knowledge of investment properties and helping clients buy multiple properties through some simple structures that most brokers would not use.

What is one thing you want to improve in your business?

Be in touch with clients more after settlement.

What advice would you give an ambitious broker?

For every scenario you have, ring every bank and find out what is out there on offer. By doing that constantly you will learn to talk ‘bank’ and know what is out there.

What’s your next greatest ambition?

To have a team who I can train and mentor and help achieve their success in this industry. Someone I have trained and mentored from the day they arrived in finance has now become a broker and I would like to be able to do this with more of my staff.

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Market talk

The coming stock shock

Housing stock numbers saw a slight downturn in January, but a flurry of listing activity could mean a glut of supply

D

windling auction clearance rates have seen available property stock on the market climb in recent months. However, property research firm SQM Research recently published results showing a slight decline in available housing stock in January. According to SQM figures, Sydney, Melbourne, Brisbane, Canberra and Darwin all saw decreases in the stock of available housing, with Sydney recording a 5.5% decrease. SQM Research managing director Louis Christopher claimed the findings could indicate a rebound in housing demand.

“Another month-on-month decline was not the expected direction we thought stock levels would take,” he said.

“Although it can be assumed that the holiday season had an effect on this, if we see yet another decline in February, it is fair to assume that market conditions may not be as soft as previously predicted.”

The result does seem to be very good news for vendors, with auction clearance rates still recovering from a sluggish end of year. However, the good news may not be set to last, and any talk of market conditions improving may be premature. RP Data’s latest Market Activity Index, which measures pre-listing activity by real estate professionals, indicated a “strong increase”, which points to a flood of stock entering the market. Should this happen, already beleaguered vendors could be facing an uphill battle in 2011.

“At the moment we are seeing total property advertisements at quite high levels, in fact they are 13.6% higher than they were at the same time last year and 8% higher than the 12-month average,” said RP Data research analyst Cameron Kusher.

While he pointed out most of the properties are relistings which had been advertised previously in the last six months, Kusher said new property listings are 3.5% higher than the 12-month average. However, new listings have seen an 11.2% drop on the same time last year. This decrease in new stock, though, does not make up for the lack of demand among first homebuyers.

While recent Australian Bureau of Statistics figures indicate first homebuyers are tentatively returning to the market, first homebuyer loans for December were still 900 below average.

“Currently there aren’t enough active first homebuyers and upgraders in the market to encourage prices high enough for vendors to sell. As a result, we are seeing a lot of stock for sale and low sales volumes,” Kusher commented.

One sign of good news is the slowly increasing auction clearance rate. From beginning the year with a whimper at around 45.8%, clearance rates edged up to 66% the following weekend. This is still well below the 85% clearance rate of the same time last year, and Kusher does not expect it to hit last year’s highs again.

“Late last year we saw clearance rates consistently below 50% across the combined capital city markets, and a huge volume of stock being taken to the market.

Clearance rates during 2011 are likely to be determined by the amount of stock available for sale. If listings remain at elevated levels, I would expect clearance rates to languish at or below 50%. If listings are reduced, expect an improvement. However, I would expect clearance rates to top out around 60%,” he remarked.

With stock flooding to market and buyers still sitting on the sidelines, Kusher said vendors should think twice before listing a property.

“Already it is looking as if it isn’t the ideal time to be selling your property. Property value growth has halted, interest rates are at above average levels, more people appear to be looking to bring their property to market and there isn’t a huge volume of buyers. The best advice is, if you don’t need to sell, you probably shouldn’t in the current market.”

Auction clearance rates, week ending 20 February Number of auctions

Sold

Clearance rate

Sydney

452

263

58.2%

Melbourne

658

393

59.7%

Brisbane

86

12

14.0%

Adelaide

73

33

45.2%

Perth

31

14

45.2%

Canberra

31

21

67.7%

Northern Territory

2

1

50.0%

Tasmania

13

4

30.8%

Source: RP Data

The best advice is, if you don’t need to sell, you probably shouldn’t in the current market

www.brokernews.com.au

29

NUMBER CRUNCHING Number of first homebuyer finance commitments

Number of homes for sale

200000

State

150000

96,201

190,852

112,809

130,357

116,721

90,029

96,174

116,261

145,502

50000

113,156

100000

2000 2001 2002 2003 2005 2006 2007 2008 2009 2010

New advertised listings last month

Total advertised listings last month

Approximate value of total listed stock

(same time last year)

(same time last year)

Queensland

11,737 (17,050)

72,975 (63,948)

$41bn

NSW

14,552 (14,194)

61,350 (55,519)

$38.5bn

Victoria

11,724 (11,662)

42,854 (39,303)

$25.8bn

WA

6,820 (7,978)

31,422 (25,807)

$22.9bn $819 million

NT

348 (361)

1,512 (958)

Source: RP Data

SA

3,668 (3,917)

15,297 (12,852)

$6.6bn

At a glance…

ACT

717 (673)

1,577 (1,265)

$972 million

1,519 (1,663)

8,768 (7,962)

$3.3bn

51,085 (57,498)

235,755 (207,614)

$140bn

25%

The percentage of borrowers who would consider acquiring their home loan online

Tasmania Total Source: RP Data

Source: Loan Market

MARKET NEWS IN BRIEF First homebuyers retreat in 2010 New findings from RP Data show the first homebuyer market plunged 17% below longterm averages in 2010. The property research firm said 2010 saw the lowest first homebuyer volume in six years.

“It clearly looks as though first homebuyers retreated to the sidelines during 2010,” research analyst Cameron Kusher said.

The decline in first homebuyers comes on the back of record volumes in 2009. Kusher said government grants and a low interest rate environment inflated the market in 2009.

Investors called back to Queensland In an attempt to draw investors back to the property market, the Property Council of Australia (Qld) has insisted South East Queensland is “back to business” following record flooding. The group has rejected the notion that widespread damage has crippled business, and said this perception is a “major impediment to our economic recovery”.

Stock decline in Jan, but Feb uncertain SQM Research has stated stock levels on the property market fell 0.6% nationally.

Sydney, Melbourne, Brisbane, Canberra and Darwin all saw decreases in the stock of available housing, with Sydney recording a 5.5% increase. In spite of the result, property listings for January were 40% higher than the same time last year.

Capital cities corner property market New research by RP Data has indicated sales in capital cities make up the majority of Australia’s property market on a whole. The results show capital city property markets make up 77% of all unit sales and 62.8% of all house sales nationally, accounting for 67% of all dwelling transactions in Australia.

RP Data’s research further indicated nearly 50% of property sales in Australia for November were comprised of transactions in Sydney, Melbourne and Brisbane.

Queensland property investors edge back into market The REIQ has stated Queensland property investors are making a tentative return to the market. In a recent survey, the organisation found 13% of property buyers bought for investment purposes. While this result is

down from 40% in 2003, REIQ managing director Dan Molloy said it signalled a positive shift.

“Investors have mostly stayed on the sidelines over the past 18 months, but there are tentative signs they are re-entering the market. With stable rents, increasing demand and less pressure on property prices, there are plenty of opportunities currently available for investors to enter the market,” Molloy said.

NSW Opposition rejects urban density The NSW Opposition has announced plans to focus development on the fringe of Sydney rather than increasing urban density.

Under the state government’s current strategy, 770,000 new homes would be built in Sydney by 2036, with 70% in already-established urban areas.

However, at a leaders’ forum in Penrith recently NSW opposition leader Barry O’Farrell stated he did not believe 70% of development should be through “high rise and medium density”. O’Farrell also promised to speed up the release of 10,000 new housing lots by state government developer Landcom.

30

www.brokernews.com.au

Toolkit

Your financial year resources will be necessary. Thus avoiding ‘crisis management’, which is no good for morale.

Funding: If you want to acquire new funding or ‘roll over’ current lending, you will definitely be required to produce a budget and probably a business plan. A lending institution needs to be confident you have ‘thought through’ your business and funding requirements. If they can see that you regularly measure actual versus budgeted results they will feel much more comfortable with you as a borrower.

Many businesses don’t ‘plan to fail’, they just ‘fail to plan’. Cash flow and financial management specialist Sue Hirst gives her tips on planning for the next financial year

W

ith the end of financial year just around the corner, it’s a great time for business owners to consider the results for this year and what you want to achieve next year.

There is an old saying, ‘If you aim at nothing you will hit the target with amazing accuracy’. If you want to improve the results in your business, you need a target to aim for and a system for monitoring progress.

As a business owner here are a few questions to ask yourself at this time of year: • How were your results against your target for this year?

• Did you have a target for this year?

• Are you happy with the results for this year?

• How accurate were the results for this year?

• What do you want to achieve next year?

• What can you learn from this year to improve next year’s results?

It can be difficult to find the time to consider these issues when you are busy running a business, but a small amount of time spent now can pay big dividends next year.

Here are a few ‘key issues’ you need to consider and get control of: Compare results: Most businesses have lots of transactions happening and it can be difficult to keep track of them all. By having a budget, ie something to compare actual results against, you have a regular procedure for checking that income and costs are on track. You can see very quickly if margins are slipping, find out why and take corrective action.

Sue Hirst

Identify overspending: If you don’t have a monthly budget you may not find out until way after the financial year that you have overspent on some items. Imagine if you had a small number of items of overspending that added up to, say, $1,000 per month. If you left it until tax accounts are prepared it could cost you $18,000 in lost profits. With a monthly budget you can identify overspending quickly and take action to fix it. A budget can be entered into most accounting software systems and a ‘Budget versus Actual’ profit and loss can be printed.

Spending limits: A budget lets your staff know there are limits on spending. It’s amazing how some staff will keep spending if they don’t have a limit.

Tip: A really valuable tool to use here is a ‘Purchase Order’. This is a one-page document that is completed by staff who want to order/buy something over a value of, say, $100, which needs to be authorised by a senior manager in advance. The value of this tool is that the senior manager may know something the person ordering doesn’t know, such as obsolescence or a better way of achieving the result.

This can save literally thousands of dollars every year!

Resources: A budget helps you to plan what resources will be required to achieve the sales you plan. It’s important to match the outgoings with the income and plan what

Break-even: Some people say ‘It’s too hard to do a budget because I can’t predict what I will sell’. This should not be an excuse! Most businesses know what their direct costs and overheads are, so it should be possible to calculate the ‘break-even’ point. Once you can manage the business to a ‘break-even’ point any extra sales over that are a bonus.

The table below is an example of a really simple breakeven analysis. The direct costs have been calculated at 60%, so the difference, being the gross profit, is 40%. This means that the monthly break-even income point, with overheads of $20,000 per month, would be $50,000.

The business owner now knows what they have to achieve in sales and gross profit to cover overheads to break-even point. Each month they can measure these numbers while also keeping an eye on overheads to ensure they are averaging at $20,000. If sales increase they would also need to be measuring the direct costs to ensure they are remaining at 60% in order to maintain the gross profit of 40%.

If the business wants to expand and increase sales, while maintaining a gross profit of 40%, they will most likely need to increase overheads to achieve growth. The first thing they need to calculate is the likely overheads, then work back to calculate what sales are required to maintain the gross profit percentage. Obviously the aim isn’t to break-even, but to make a healthy profit. The challenge is to improve both the gross profit and net profit. The obvious answer may seem like increasing sales but savvy management of direct costs and overheads can have as good an impact on the net profit.

Anything you can do to increase the net profit of your business can have a big impact on the value of your business. As many businesses are sold on a multiple of EBIT (earnings before interest and tax), it makes sense to increase this result. Many businesses have been run in the past with the aim being to minimise tax, but this isn’t a good strategy if you want to sell your business in order to retire or do something else. Multiples of EBIT vary depending on the industry and business management, but say it is three – this means that for every extra dollar you can add onto net profit, that would be three dollars added onto the value of the business.

It makes sense to invest a little time planning for the profit you want to make in your business and reap the increased business value benefits down the track.

Sue Hirst is the director of CAD Partners, a consultancy which advises small businesses on improved profit, cash flow and business value Break-even year ending June 2008 Income Direct costs Gross profit Expenses Net profit/(loss)

Sample month $50,000 $30,000 $20,000 $20,000 $0

Year total $600,000 $360,000 $240,000 $240,000 $0

LEADERSHIP The process of influence in whi ch a leader successfully enlists the su pport of others to accomplish a goal Greg Wells, Wells Partners AMA winner 2010

Celebrating 10 Years

Nominations for the 10th Annual Australian Mortgage Awards open soon Official event partner

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People

A new plan After almost 10 years at the helm of one of the industry’s trailblazing aggregators, industry icon Ray Hair is moving on to ALI. Australian Broker gathers his memories and hopes

Q

: Why are you leaving PLAN Australia?

After almost 10 years with PLAN Australia, I had been considering my next career move for some time but needed to find the right opportunity.

To leave the PLAN team of brokers and staff was always going to be difficult. ALI reminds me of the early days of PLAN Australia; a small but established company with significant growth potential and a great team dynamic. In short, it was the right opportunity! : What are your fondest memories of your time at PLAN? There are so many great memories of my time with PLAN Australia, but without question they centre on the achievements of our members. Their successes, whether it is winning awards or simply improving their business year-onyear, are the moments I treasure.

It is a people business; be it the broker-customer relationship or the broker-aggregator relationship, and people make the difference. : What has been your greatest achievement while at the group?

In the early days it was setting our BHAG (a Big Hairy Audacious Goal) of achieving $1bn in monthly loan applications and achieving that goal six months earlier than any of us dreamed possible in mid-2003.

More recently it is leading PLAN Australia through the after-effects of the GFC, two changes of ownership and the introduction of the National Consumer Credit Protection regulation. : When was the toughest time for the business? How did you get through it?

The toughest time for the industry, for me, was the period during which the major lenders cut costs by cutting commissions following the GFC. While there was economic justification, the majors were opportunistic in their actions and many brokers became very cynical about the future of our industry.

We came through this difficult period by maintaining our focus on our members and their businesses.

By focusing on what we could

Q

Q

Q

influence or change and not the events we couldn’t control. : If you could change one decision you’ve made at PLAN, what would it be?

The success I have enjoyed with PLAN Australia is a result of the cumulative actions and decisions over that period; right or wrong the decisions made and the actions taken have delivered great results; so I wouldn’t change a thing. : What has been the greatest change for the industry during your tenure?

For me there have been three major changes: securitisation, which fuelled mortgage management and mortgage broking; Aussie’s entrance into mortgage broking and the resulting increased consumer acceptance of brokers; and regulation… the effects of which we are yet to fully appreciate. : Is PLAN in safe hands, and what can brokers look forward to in the future?

PLAN Australia is part of a group that is focused on third party distribution of mortgage and related products. It has the scale, the investment, the expertise and the people to partner successful brokers… where else would you want to be?! : If you had to give a final message to PLAN brokers, what would it be?

Simply that PLAN Australia is a successful, evolving business that will continue to lead the industry and

Q

Q

Q

Q

contribute to your business success.

Mortgage broking will continue to evolve; you must therefore embrace regulation, know your customer and add value through experience/ expertise and products/services. : What about your new role in insurance at ALI? I joined PLAN Australia from Fortis Insurance; at Fortis I led distribution of motor, home and credit insurance products through financial institutions. In 2001, I approached Alex Moulieris about the opportunity for mortgage brokers to sell mortgage repayment protection insurance and ended up joining PLAN Australia.

Q

For me, insurance and mortgages have always been a logical package. Prior to the GFC the economic imperative may not have been as great for brokers but the three critical reasons for offering an insurance solution have always existed: • A duty of care to the customer and his/her dependants • Look after your customer, or someone else will • Diversify and increase revenue per customer At ALI I will have the opportunity to drive change and to drive growth in an industry that I am passionate about.

MOVERS & SHAKERS  Advantedge recruits Moore replacement Advantedge has named MLC-sourced Craig Saville as the new head of Advantedge Financial Solutions. Formerly national manager of business development at NAB’s wealth management arm, Saville has been recruited to fill the position made vacant when Stephen Moore moved across to head up Choice Aggregation Services as CEO last year.

Advantedge general manager of broker platforms, Steve Weston, said Saville will initially be product and service focused, with responsibility for rolling out the group’s fledgling buy-sell facility and debt protection and general insurance product offerings.

In the medium to longer term, Moore expects Saville to “drive forward the professionalism of the broking industry”. “This particular role at Advantedge Financial Solutions will be integral in driving forward the professionalism of brokers, and given we are a reasonable chunk of the market, this role is going to be really important for the industry,” Weston said.

Weston commented that Saville has a passion for small business, has “no airs and graces”, gets things done and understands the market very well.

www.brokernews.com.au

Caught on camera Following the conclusion of a deal that saw it take a strategic stake in Members First, WA-based aggregator Ballast hit the east coast to meet its new members over dinner, as well as talking ‘shop’ on the successful merger

3

1

2

4

5

6

7

8 Image 1

Chris Collins and Bijan Assaee (NSW)

Image 2

Diane Courtman, Lauren Moore and Kaylene Bishop (NSW)

Image 3

Fred Poli and Jay Gagonda (NSW)

Image 4

Ballast’s Frank Paratore and Kaylene Bishop (QLD)

Image 5

Cecil Munaweera, Andrew Tan and Ballast’s Wayne Blazejczyk (VIC)

Image 6

John Cosby, Kevin Davies and Cecil Munaweera (VIC)

Image 7

Ge Sang and Engkay Un (VIC)

Image 8

Graham Kirby (VIC)

Image 9

Mario Borg, David McCarthy, Frank Paratore (Ballast)

Image 10 Harry Reints and Jason Hodgson (VIC)

9

10

33

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Insider

Got any juicy gossip, or a funny story that you’d like to share with Insider?

Drop us a line at insider@ausbroker.com

have withered and died thanks to their 30-year austerity drive, but when they’re sitting across the table from each other searching for something to fill the chasm of silence that’s welled up between them, they can always talk about how quickly they paid off their mortgage. Something to discuss other than the many years of pent up resentment? If any readers are perchance interested in this proposal, MyRate has produced a Valentine’s savings calculator.

He who fails to plan …

E

very month when the RBA meets, Insider has a fairly difficult task. He has to prepare and send out a story on their decision within moments of it being made. Ever one for preparedness, however, Insider has taken to working up two stories before every board meeting to plan for either contingency.

MyRate cancels Valentine’s Day

C

omparison website MyRate has taken Australia’s home ownership and mortgage obsession just a step too far (in Insider’s humble opinion) by calling for a “Valentine’s Day spend boycott” on February 14.

Just as Insider was getting ready for some wining and dining with that special someone, MyRate put out a press release that suggested it would instead be better for all Australians if they boycotted this “frivolous” spending and instead channelled these funds into their mortgage. Insider is not sure which unloved scrooge inside MyRate actually dreamed up the idea of making this calculation, but apparently, all those dreamyeyed couples out there could potentially shave a year – that’s right, a whole year – off their 30-year loan, by investing the

usual $300 Valentine’s Day spend into their bank payments. Of course, all they would have to do instead is sit at home in front of the television for 30 years. The MyRate crew (obviously getting carried away with the idea of saving couples from this “so-called romantic day” – their words, not Insider’s) then had the audacity to suggest if these couples ditch one romantic dinner a month (paying $150 into bank coffers), they would slash a whole six years and nine months off the term of their loan. Again, for 30 years. Can Insider ask – should the focus of Australians’ lives be directed wholly towards paying off a mortgage? Insider supposes that once it’s paid off, couples will have all the money in the world to spend on Valentine’s Day dinners.

Sure, the bloom of their love may

Following the RBA’s latest decision to leave rates untouched, it seemed a shame for Insider to waste the story he’d so lovingly prepared, so he’s making it public now:

RBA destroys fabric of universe

In a move that shocked industry analysts, the Reserve Bank board today chose to lift the official cash rate 25 basis points to 5%. The decision came despite lower-thanexpected inflation numbers for December, along with uncertainty over the economic impact of major flooding, a decline in business

confidence, rampant male pattern baldness and the majority of Australians reporting constantly having that feeling you get when you lean too far back in a chair and then catch yourself.

The finance industry reacted to the decision with a mixture of confusion, impotent rage and quiet sobbing, with one peak body releasing a statement reading, “But I just ... I can’t ... whozzit ... what? WHAT?!”

Upon hearing news of the rate rise, prospective first home buyers reportedly shuffled off in stupefied resignation to TABs across the country to blow their deposit savings on cheap alcohol, pokies and long-shot bets on Mexican cockfights.

Litigant lobs libel claim

A

s ASIC has stepped up its pursuit of rogue brokers, an international broker has set an example for dodgy operators looking to claw their way back into the industry after being banned.

A British mortgage broker is suing the Financial Services Authority – the UK equivalent of APRA or ASIC – for libel. His beef with the regulator? They had the gall to publish a notice that he had lost his licence. The nerve! The broker claims the banning, which was due to unpaid fees, is unfair as he was out of the country and the FSA did not attempt to contact him.

He’s seeking £1.67m ($2.65m) for loss of income and tarnishing his (no-doubt unblemished) reputation after news of the broker’s banning was released to the UK media.

The banning might be unfair, but libellous? Insider, being part of the journalism game, knows his fair share about what is and is not libellous, and this doesn’t really qualify. The headline, “Mortgage broker loses licence” isn’t defamatory if it is based on actual fact. The headline, “Mortgage broker stays unnaturally young by feeding on souls of the living”?

Now that’s libel.

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Services

Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au Page 7 Think Tank 1300 781 043 www.thinktank.net.au Page 36 FRANCHISEE Wealth Today 08 9207 1433 www.wealthtoday.com.au page 9 LENDER Mortgage house 133 144 http://mortgagehouse.com.au Page 18, 19 First folio 1300 304 572 www.firstfolio.com.au Page 25 Liberty Financial 13 11 80 www.liberty.com.au Page 3 MKM Capital 1300 762 151 www.mkmcapital.com.au Page 2 Westpac www.introducer.westpac.net.au Page 5

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TRAINEESHIP Traineeship management Australia 1300 TMA 146 www.tmaus.net.au Page 35

Provident Capital 1800 668 008 www.providentcapital.com.au Page 4 SHORT TERM LENDER Interim Finance 02 9971 6650 www.interimfinance.com.au Page 34 Mango Media 02 9555 7073 www.mangomedia.com.au Page 1 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au Page 8 Quantum Credit 08 9325 6255 www.quantumcredit.com.au Page 16 Rapid Capital 07 5562 2485 www.rapidcapital.com.au Page 6 AGGREGATOR / WHOLESALE BROKER PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 17 MORTGAGE MANAGER / NON-BANK Homeloans Ltd 1300 787 866 www.homeloans.com.au Page 23

www.residex.com.au The House Price Information People

OTHER SERVICES Residex 1300 139 775 www.residex.com.au Page 29 Veda Advantage 1300 921 621 www.vedaadvantage.com sales@vedaadvantage.com Page 11 Trailerhomes 0417 392 132 Page 27 NON-CONFORMING Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 12, 13 AGGREGATOR / WHOLESALE BROKER. Choice Aggregation Services 1300 135 389 www.choiceaggregationservices.com.au Page 15

To advertise in Australian Broker call Simon Kerslake on +61 2 8437 4786

Think Commercial Lending

Enough talk.

EXPECT NO BANK JARGON OR RED TAPE. “Once the responses were provided the loan was approved within 24 hours and the Letter of Offer issued immediately.”

Sean Richardson, Freshwater Financial Services

As a specialist commercial lender, our people are focussed on delivering results – fast and without fuss.

While the banks take their time, we simply get on with it. It’s why business partners like Freshwater Financial Services consistently turn to us.

Reliability isn’t loud.

Reliability is underrated.

Reliability gets results.

1300 781 043 deal@thinktank.net.au www.thinktank.net.au

TANK 8065