Australian Broker 13.01

NEWS Household debt on the rise A new study has found Australians are becoming more indebted P2

BUSINESS PROFILE Origin Finance How the broker network provides the brand power of a franchise and the support of an aggregator P10

BUSINESS INTELLIGENCE Make your business like Netflix The streaming giant’s unique corporate culture P18

JANUARY 2016 ISSUE 13.1

BEST PRACTICE Don’t get stung by fraud Tips to identify and avoid mortgage fraudsters P20

MARKET TALK The US Fed won’t move the RBA

The Fed’s rate hike is unlikely to persuade the Reserve Bank P22

GERALD FOLEY

NMB’s managing director on helping brokers measure success P16

FORUM Brokers sceptical about ASIC review ASIC’s interest-only review has drawn broker criticism P27

BORROWER SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

LENDING

Industry associations lobbying for brokers P4

$100m scam case in US P6

Fixed rates back in fashion? P8

BROKERNEWS.COM.AU

AUSSIES PUT BABY IN THE CORNER

A recent survey found money pressures are delaying Aussies from starting families

34.9%

34.9% said the cost associated with having children is so high that it has forced them to put their family plans on the backburner

85%

85% of Australians have seen their day-to-day expenses rise substantially over the last 12 months

EDITORIAL

SALES & MARKETING

Editor Adam Smith

Sales Manager Simon Kerslake

News Editor Julia Corderoy Journalist Maya Breen Production Editor Roslyn Meredith

ART & PRODUCTION Design Manager Daniel Williams Designer Lea Valenzuela Traffic Coordinator Lou Gonzales

50%

50% said they would have to rely on their spouse or partner for money if they took parental leave

56.7% 56.7% of those with children believed they weren’t “financially prepared” for a family

Account Manager Rajan Khatak Marketing and Communications Manager Lisa Narroway

CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

Adam Smith +61 2 8437 4792 adam.smith@keymedia.com.au

SUBSCRIPTION ENQUIRIES

Source: Mortgage Choice

tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au

ADVERTISING ENQUIRIES

DEBT RISING AS HOME DREAMS DWINDLE A pair of recent surveys have painted a disheartening picture of the financial position of Australians. While debt levels are rising, more and more Australians are saying they’ve given up on the idea of home ownership.

The AMP/NATSEM Buy Now, Pay Later: Household Debt in Australia report recently found that average Australian household debt has risen from $60,000 in 1988 to $245,000 after inflation today. This represents growth of 5.3% above inflation each year, well outstripping income growth of just 1.3%. For Australians with a mortgage, the survey found a 2.5% increase in rates would mean the average household would have to find an extra $16,615 a year to cover their repayments.

But more Australians seem to be giving up on the idea of taking on a mortgage. A recent ME Bank survey found 29% believe they’ll never own their dream home, citing the high cost of housing.

Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak +61 2 8437 4772 rajan.khatak@keymedia.com.au Key Media Pty Ltd Regional head office, Level 1O, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 www.keymedia.com Offices in Sydney, Auckland, Denver, Toronto, Manila This magazine is printed on paper produced from 1OO% sustainable forestry, grown and managed specifically for the paper pulp industry Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss. Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

ASSOCIATION HAPPENINGS 4

DID YOU KNOW?

NO REST FOR INDUSTRY ASSOCIATIONS

6,000 The FBAA met with more than 6,000 brokers over 2015 to elicit feedback Source: FBAA

While December and January tend to be quiet times in the mortgage and finance industry, broker associations – the MFAA and FBAA – have remained active over this period.

The MFAA recently announced the appointment of public relations firm GRACosway as its dedicated public affairs partner. The association said the firm would help raise consumer awareness and educate government on the role and benefits of the mortgage broking industry.

The association also announced it would launch a free AML3 Refresher course for its members in the wake of new stipulations from NAB, Westpac, St.George and CBA mandating completion of acceptable training by 31 December 2015 for holders of commercial accreditation.

Meanwhile, the FBAA has lobbied for financial literacy programs to be better targeted at neglected groups. FBAA CEO Peter White said that with 70% of women managing the household budget, financial literacy programs aimed at women were vital.

Siobhan Hayden and Peter White

WHAT THEY SAID...

Michael Sadaat “ASIC has not looked at commissions specifically, so we do not have any data to indicate whether commissions are causing brokers to act in a way which is not beneficial for consumers” P6

Mark Hewitt “Borrower expectations of the likelihood of an interest rate rise in the new year have many borrowers opting to fix their home loans” P8

Kirsty Tyrell “Fraudsters are not only cunning but also incredibly sophisticated and technically savvy” P21

Shane Oliver “With the Australian economy on a weaker trajectory relative to its potential than the US economy, the RBA will not be following the Fed into a rate hike” P22

REGULATORY ROUNDUP 6

MORTGAGE BREAKDOWN

WORLD NEWS

The number of residential loans by ADIs

3.967 million

Loans with redraw facilities: 3.967 million

1.841 million

Loans with offset facilities: 1.841 million

1.617 million

Interest-only loans: 1.617 million

146,000

Low-doc loans: 146,000

UNITED STATES OF AMERICA

29,000

HEARING ON $100M MORTGAGE SCAM CASE BEGINS

Reverse mortgages: 29,000 Source: APRA

ASIC AND BROKERS AT ODDS? Tension seems to be mounting between the mortgage broking industry and ASIC, with a recent online poll for Australian Broker finding that 86% of brokers don’t believe the regulator understands the industry.

Brokers seem to have become increasingly wary of the watchdog in light of the revelation that ASIC will conduct reviews into the broker channel’s role in interest-only lending, as well as into remuneration structures. At the FBAA Annual Conference late last year, ASIC’s senior executive leader – deposit takers, credit and insurers, Michael

Sadaat, revealed that more than half of interest-only loans came through the third-party channel.

The government tasked ASIC with reviewing remuneration in the mortgage broking industry as part of its response to the Financial System Inquiry.

But Saadat has said the regulator is going into the review with no preconceived bias.

“ASIC has not looked at commissions specifically, so we do not have any data to indicate whether commissions are causing brokers to act in a way which is not beneficial for consumers,” he said.

Following a 2011 conviction, former US real estate broker Eve Mazzarella and ex-spouse/former mortgage broker Steven Grimm have stood for a hearing in front of a federal court in their latest bid for a new trial.

A Las Vegas federal jury found the pair guilty in December 2011 of orchestrating a multimilliondollar mortgage fraud system, which has been described as the largest scheme uncovered in Nevada. As a result of the scam, banks lost more than $52m between 2003 and 2008, according to official figures, with lending institutions approving more than $107m in loans for 227 properties in the Las Vegas area – most of which ended up in foreclosure.

Lawyers representing the duo contended that federal agents had performed a search of Mazzarella’s business on unlawful grounds. The defence also said the evidence used for the trial was inadmissible, since it included secretly copied documents that had been spirited away by former employees from Mazzarella’s real estate firm.

Mazzarella and Grimm were not informed of the document theft prior to the conviction, the defence added.

Prosecutors countered that the evidence for the pair’s guilt in committing premeditated fraud and other unlawful practices was overwhelming.

LENDER UPDATE 8

BY THE NUMBERS

LENDER ROUNDUP

A rundown of the fortnight’s policy and price changes

PRODUCT

0.8% Mark Hewitt

FIXING BACK IN FASHION? Major banks recently saw some of their market share eroded by non-majors, but have led the charge in a resurgence of popularity of fixed rates.

AFG’s latest Competition Index saw non-majors claw back market share from their big-bank rivals.

Non-majors saw their share of the refinancing market grow from 29.8% in August 2015 to 39.5% in November.

During the same period, the sector’s share of investor lending increased from 27.4% to 29.1%. Likewise, the proportion of first home owners choosing a non-major jumped from 27% to 32%.

But the major banks led the way in fixed rate lending.

AFG general manager of sales and operations Mark Hewitt said the tide was turning for fixed rate loans.

“After a three-year trend of declining use of fixed rate loans, the tide has turned. The corresponding increase in the majors’ share of fixed rate lending has reflected that change. The next edition of the AFG Mortgage Index, due for release in mid-January, will show that fixed rate lending as a percentage of AFG’s overall business has increased from 11% to 13%,” he said.

Hewitt said the resurgence of fixed rates was likely due to borrower expectations that the RBA’s next move would be upwards.

“Borrower expectations of the likelihood of an interest rate rise in the new year have many borrowers opting to fix their home loans.”

According to the latest data released by the Reserve Bank of Australia, lending to owner-occupiers grew by 0.8% in November, doubling the 0.4% growth in investment housing credit Source: RBA

FAST FACT

Decline in investor demand in October

Australian First Mortgage Announces the launch of its new Alternate Option Construction facility, to be available exclusively through the broker channel. The company said the product was intended to help borrowers who could not qualify for a traditional construction loan due to credit-scoring issues or other past credit problems. The product is available as both full-doc and low-doc, with rates starting from 5.59% (comparison rate 5.84%). The facility allows for defaults of up to $1,000 and offers an LVR up to 90%.

Homeloans Launches new Homeloans Accelerate Red Construction product targeted at customers who do not qualify for a traditional construction loan. The loan, which is not yet available to the wider market, became available to brokers on 15 December 2015. Full-doc rates are available from 5.69% (comparison rate 6.13%) and low-doc from 6.09% (comparison rate 6.54%). Full-doc loans will offer up to 90% LVR while low-doc loans will offer up to 80% LVR. The Accelerate Red Construction product will also have unlimited defaults, judgments and writs to $1,000 (paid or unpaid).

PRICE

Gateway Credit Union Cuts fixed rates up to 50bps. Effective 15 December, Gateway’s one-, two- and three-year fixed Premium Package rates have been reduced to 4.09% (comparison rates of 4.97%, 4.91% and 4.85% respectively).

The special offer is available for new owner-occupier home loans with principal and interest repayments, at an LVR of up to 80%.

QPCU Announces a discounted variable home loan rate below 4%. Effective from 8 December, QPCU’s Classic Home Loan has been reduced to 3.97% for principal and interest loans of more than $150,000 (comparison rate 3.98%).

6.1% Source: ABS

Yellow Brick Road Lowers its split home loan fixed rate for the Yellow Brick Road Fixed Rate Combo Special or the Vow Fixed Rate Combo Special, allowing borrowers to fix part of their rate for two years at 3.99%, while keeping half of the loan at a variable rate. The fixed rate special is available to both owner-occupiers and investors. The variable rates on the remaining portion of the loan currently run from 4.26% to 4.74%, depending on the type of loan repayment, purpose and amount.

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BUSINESS PROFILE MEET AN ORIGIN FINANCE BROKER: JEFF GREENWOOD Jeff Greenwood is the head of medical finance at Origin Finance, providing a niche type of finance for medical and dental practitioners.

“For medical finance, I am qualified in and accredited in asset finance so I will do the doctor’s car, equipment and the fit-out on his practice. Then I am also looking at his personal home loan or his investment properties as well as his commercial properties and setting up the commercial transactions for his business. I am accredited across the board with all the majors and second-tier lenders for that,” Greenwood told Australian Broker.

According to Greenwood, providing finance for medical practitioners is a speciality, not another service a broker can add to their list of services.

“Doctors are very smart people; they are very busy people and they are very time poor so you really have to know where you want to go and how you want to achieve it and do it in the shortest possible time. Like anybody, they also want the best price and those stock-standard types of things, but as a specialist I am able to complete a 100% lend for his commercial practice, whereas most lenders might only offer 60% or 70%.

“Some brokers are really specialised in servicing accountants or barristers, and this is my market niche where I know the difference between a neurosurgeon, a cardiothoracic surgeon or a cardiologist. That is what it boils down to; I understand my clients’ businesses so I can relate to their needs or their problems because I have seen it a hundred times before.”

However, according to Greenwood, medical finance is being recognised more and more as an important market niche.

“A lot of the major banks have developed areas of medical finance, so they actually have health divisions which offer special LVRs such as much higher LVRs on properties like commercial properties. They offer a lot better services now to high net worth people.”

ORIGIN FINANCE: THE BEST OF BOTH WORLDS

Training at the Origin Finance offices

Origin Finance has built a national mortgage network that offers the brand power of a franchise and the support of an aggregator DOUG DANIELL, the chief executive of Origin Finance, says the national mortgage broker network was founded with the aim to be the niche between a franchise model and an aggregation model – offering its network of mortgage brokers the brand power of a franchise and the support of an aggregator, but with a more flexible and personal approach.

“I set up Origin Finance when the mortgage industry was really just kicking off again. Having run other aggregators in the early

2000s, I had seen lots of people who had both failed and been successful in real estate and mortgage broking, so I knew I had to have a good support mechanism,” Daniell told Australian Broker.

“The objective of Origin Finance was built around a concept of how I can build a support mechanism for brokers without needing to charge them a lot of money – franchises are madness.

We looked at it and thought: what do we need to be able to be the niche between

franchise and aggregation?

So we built these parts around it.”

Back to the origins Before Origin Finance came Walker and Miller Training, a dedicated training program originally set up to train real estate agents in finance before evolving into a specialist mortgage industry training institution – the longest-established mortgage industry training institution in Australia, in fact.

“When we originally set up the training business

11

in 1991, we were training real estate agents in finance. However, as the mortgage broker industry started to grow in the early 2000s, I looked at it and realised we had all these people who were joining who had no training. The only requirement was an understanding of the uniform consumer credit code until the NCCP really came in,� Daniell said. “So we had all these taxi drivers, personal trainers and telephone sales people who were looking for the next easy sales job but really had no idea, so running an aggregator was really painful. I thought if we started a training course then we could actually teach people, which would then

fit in with the aggregation business which came after.�

As the mortgage industry continued to grow it also became more regulated, leading to the introduction of the Certificate III requirement and the Certificate IV requirement before finally the MFAA introduced the diploma requirement. This, says Daniell, made Walker and Miller Training even more relevant. According to Daniell, Walker and Miller Training has now had more than 6,000 students become qualified through its specialist training program.

Chris Brown, a mortgage broker at Origin Finance, is one of the mentees of the program. He told Australian Broker it was

12

BUSINESS PROFILE MEET AN ORIGIN FINANCE BROKER: KRIS MENON Kris Menon is one of Origin Finance’s top brokers.

He has built his success by developing an important niche: providing finance to the Australian Indian community. According to Menon, servicing the Indian community is difficult due to the multiple languages spoken – Menon himself speaks three different native tongues – but the potential of this community is huge if you can build up a network of referrers.

“Indians are like people from China – they absolutely love property and they are very competitive. Indians especially love land,” he told Australian Broker.

“The Australian property market is very competitive, so they will just go and buy, buy, buy.

My clients who came to me nine years ago are now buying their third property, and my clients who came to me six years ago are now buying their second property, and so forth.

“If they can’t buy a property themselves, they will merge together and go in with a friend or a family member to buy a property. Everybody wants to own a big chunk of property in Australia.”

While Menon is currently focused on servicing the Indian community in Australia, he says he does have plans to tap into the offshore market and help Indian foreign investors purchase Australian property – an area that also shows huge potential.

“In India, the property price is equal to that in Australia, but the rental is not guaranteed. There are a lot of things which don’t work correctly. For example, there is a problem when you rent property that after three or four years the tenant might not pay you rent, and then you have to take them to court. That court case could then take 15 years to get them out.

“In Australia, it is not like that. It is a clean market and the rental return in Australia is huge, too.

The rental payments in Australia are higher than mortgage repayments when compared to India.

“In India people want to invest in a property, but they are worried. Their second property might go to somebody who is not working, and they might say ‘just go to court’.”

The Origin Finance team

the collaborative approach to training that set it apart from other qualificationsfocused training programs.

“You train with a team of people who all catch up each week and go through different scenarios, on top of gaining our qualifications. But after

brokers are all competitors, but at Origin Finance we are not competitors. Before I joined Origin, I did speak to another group and I didn’t get the impression that they were as collaborative, which is what attracted me to this model.”

Having set up the

talking about licensing, and I looked at it and thought, if we are doing training and aggregation then we need to have a licensing arm.

“We set up an arm with a company which specialised in Australian Financial Services Licences [AFSLs], because the original NCCP

“We looked at it and thought, what do we need to be able to be the niche between franchise and aggregation? So we built these parts around it” Doug Daniell, CEO of Origin Finance we gain our required qualifications and become more independent, we still regularly catch up with our mentor and share ideas.

It is a very collaborative group,” Brown said.

“Technically, mortgage

training component and the aggregation component, Daniell said the next logical move was to set up a licensing arm, CreditLicensing.com.au.

“I was on the MFAA council when they were

was just cut and paste AFSL. That’s how we started the compliance and licensing part.”

Growing holistically With a solid business structure in place, Daniell

13

Chris Brown

Doug Daniell with office mascot Henry

said the group was then able to focus on vertical expansion and building a holistic financial services network.

“After we had built our training business, aggregation business and licensing business, we looked at it and thought about what else we needed in this business model, and we thought we needed to be able to support everyone holistically,” Daniell told Australian Broker.

“Over the years we have had nearly 6,000 students come through, and with that we had lots of accountants and financial planners and solicitors and real estate agents who tried to be mortgage brokers.

However, most of the time it is really hard to be good at two things.”

The solution to this, according to Daniell, is joint ventures. Through

signing joint ventures with horizontal industries, most recently with national accounting and wealth advisory group Chan & Naylor, Origin Finance has been able to grow its business vertically, generate more business for its brokers, and generate more business for its partners.

“Most mortgage brokers have got more time than clients, so why don’t we try and do some joint ventures?

Accountants, financial planners, real estate agents, solicitors and conveyancers are really good at what they do, so why would they want to have the hassle of learning a whole new industry?

“The way you get into [mortgage broking] is you either do it yourself or you employ somebody.

However, if you employ somebody, the sort of people who are going to

be on a salary aren’t really going to be hunters and killers. They won’t go out and find business; they will just be able to process it. We said if we do a joint venture with you then you won’t have this massive loss while somebody is trying to build a business.

“Now we have all these joint ventures with accounting firms, financial planners, real estate agents and conveyancers. We have our new brokers which have more time than clients, and we have those companies who have clients but no expertise, and we just match them together. That is really the holistic group,” Daniell said.

To top it all off, Daniell says he is also a shareholder in mortgage manager Mortgage Mart, which gives Origin Finance’s broker network access to wholesale funding.

14

ANALYSIS SURVEY REVEALS MASSIVE POTENTIAL OF ‘SHARING ECONOMY’ More than half of Australians trust a ‘sharing economy service’ more than its traditional alternative, according to a new survey.

According to the RateSetter Sharing Economy Trust Index (RSETI), 61% of Australians have used a sharing economy service – such as Uber, Airbnb and eBay – in the previous six months and 85% intend to use one in the next year. In fact, 52% of Australians now trust these sharing economy services more than their traditional counterparts.

RateSetter Australia CEO Daniel Foggo said the RSETI reveals the amount of potential in the growing peer-to-peer (P2P) lending space.

“The sharing economy is profoundly and permanently impacting how Australian consumers buy and sell goods, consume services and share surplus resources.

“Unsurprisingly, sharing and peer-to-peer services are becoming increasingly popular, and that’s because these platforms deliver services more efficiently and affordably, whilst keeping their focus on the customer.”

The RSETI saw P2P online marketplaces like eBay and Gumtree coming out on top as the most commonly used (56%) and trusted (74%) sharing economy services for Australians.

Almost a quarter (23%) of all Australians spend at least $50 a month on P2P economy services, but 25–34-year-olds spend the most on sharing economy services, averaging a monthly spend of $116, the survey reports.

PEER-TO-PEER L THE NEXT BIG DIS

2015 saw the rise of many peer-to-peer lenders in the Australian market, and 2016 is set to be another burgeoning year for this alternative form of finance SINCE ENTERING the Australian financial services market in 2012, the peer-to-peer (P2P) lending platform has vowed to disrupt the oligopoly of Australia’s traditional banking system. By leveraging technology and the internet, P2P lenders connect investors with borrowers, encouraging greater competition by providing greater choice to consumers – on both sides

of the transaction.

“If you look at the lending markets in Australia, they are dominated by the four big banks, which are uncompetitive. There is a very large spread between deposits and loans,” the chief executive of RateSetter, Australia’s second P2P lender, Daniel Foggo, told Australian Broker.

“I think primarily there is a really important role

peer-to-peer lenders bring, and that is bringing more competition to the market and giving consumers much greater choice. Attached to that I think the reason they will succeed and the reason they will prosper is through delivering value and being much more customer focused and much more convenient for the customer. For too long consumers in Australia have not been given value.”

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whole peer-to-peer lending market will look like in Australia.”

LENDING: SRUPTOR?

P2P lending was originally founded in the UK in 2005, with the launch of Zopa before making its way to the US in 2006 with the launch of Prosper and Lending Club.

“I think one of the reasons [Australia is behind] is regulation.

When [RateSetter] launched here we already had the right regulatory framework in place and

“The good news is that we are actually catching up quite quickly. If I look at the growth we have experienced versus the UK after their first 12 months of operation,

“If you look at the lending markets in Australia, they are dominated by the four big banks, which are uncompetitive” Daniel Foggo, RateSetter Despite Australia being slower off the starting blocks, Foggo says the market for P2P lending in this country is burgeoning.

that means getting going takes a little bit longer.

We spent two years with ASIC working through that regulation with them.

we are actually growing more rapidly than what the experience was in the UK, and I think that is indicative of what the

How are peer-to-peer lenders regulated?

As with anything new, there has been some hesitation – among brokers and consumers alike – about how safe P2P lenders are. However, Foggo confirms there is very specific regulation of P2P lenders in Australia.

“We are really fortunate in Australia that we are well regulated here.

Firstly, from a credit side, we hold an Australian credit licence, and any peer-to-peer lender that is dealing with consumers has to hold a credit licence,” Foggo said.

“We also worked with ASIC over a twoyear period to gain an Australian Financial Services Licence that is actually very specific to peer-to-peer lending and what we do. Related to that is the fact that investor monies are held separate to company monies.

“In addition, we have annual audits as required

by ASIC, and we have an external compliance committee that reviews our compliance with our licences. We also have to meet all sorts of thresholds in terms of our information technology, our security, our credit policies and our management team.”

When it comes to protection against loss or defaults, Foggo says RateSetter holds a “provision fund”, which is similar to banks having to hold capital against money lent out. A proportion of each borrower’s monthly repayment goes into the provision fund.

Peer-to-peer mortgages?

The bread and butter of P2P lending has traditionally been personal and business lending.

However, with the more established UK and US markets moving into residential mortgages,

there is speculation that the Australian market could follow suit.

Speaking to Australian Broker previously, the CEO of P2P lender ThinCats Australia, Sunil Aranha, said he could see this happening in the future.

“I don’t think peerto-peer platforms have much of a part to play [in residential] right now, unless it can add value, and the value it can add is to fractionalise lending.

But eventually that will become a reality, as it has in the UK and the US.” Foggo disagrees.

He believes Australia is unlikely to see P2P mortgages.

“I think in the residential mortgage space that market has already been disrupted when you think of the fact that people are getting mortgages for under 5%.

If you are from a peerto-peer context then the investor has to take some of the risk attached to that, and that is a very longterm loan. I think that has got its challenges for peerto-peer lending and I don’t think it will be a presence [in residential].”

Foggo isn’t writing off the property market, though. He says P2P lending is likely to complement the residential mortgage market.

“What I think peer-topeer lending will do is actually complement that core residential mortgage market, and from a broker’s perspective, if they are looking for a shortterm funding solution, for example a customer who needs bridging finance, then there is absolutely a role that peer-to-peer lending can play there.

“From a consumer’s perspective, the likes of peer-to-peer lending can actually help the consumer save for a deposit, for example. I think [P2P lenders] will be relevant to the property market, but I do not think we will disturb the core of the residential mortgage market.”

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COVER STORY BUILDING A BROKER BUSINESS

NMB’s broker benchmarking is based on the idea of evolving brokerages into broker business, Foley says.

According to Foley, a viable business model must include four components:

People

In order to build a brokerage into a business, Foley says brokers need to look to bring on help. He says some of the aggregator’s highest-performing brokers look to back themselves with staff to help manage client relationships rather than focusing immediately on administrative help.

BUILDING BETTER BROKER BUSINESSES How NMB is empowering its brokers with information WHEN AUSSIE Home Loans acquired

Premises

Foley argues that brokers who set up their businesses in professional premises can drive efficiency by bringing clients to them rather than travelling to client meetings.

Benchmarking the time they spend travelling can help brokers identify where their client bases are and thus the most effective business locations.

Partners

This, Foley says, means referral partners. Referral relationships have to be carefully cultivated and must deliver mutual benefit. Brokers have to identify the value they can add to their referral partners’ businesses.

Processes

Having the correct processes in place drives efficiency for brokers’ businesses, which means they can serve more clients and settle more loans. Benchmarking can be a vital tool for identifying the processes that are working in a broker’s business and those that are causing unnecessary slowdowns.

boutique aggregator National Mortgage Brokers three years ago, it caused something of a stir in the industry. NMB had always been known as an aggregator built on close relationships, and some predicted the acquisition could see NMB lose its identity. Three years on and it seems the fears have been put to rest.

“When it happened, everyone was sitting back and waiting for Aussie to come in and take over,” NMB managing director Gerald Foley said. “They were waiting for Aussie to come in and paint the orange purple. They haven’t done it. They’ve been such a good company to do business with, let alone have as an owner.”

Foley said NMB had retained its identity because its identity was part of its appeal to Aussie in the first place.

“They know what they’re good at, and they’re

into those things is awesome. There’s a range of people with skills available and we can jump in and pick and choose the skills we want to tap into. From my point of view, it’s brilliant.”

Building better brokers Moving forward from the acquisition, Foley said one of NMB’s main focuses was on helping its brokers build their businesses. He said the aggregator was doing this by providing its broker network with real, actionable data.

“We’ve started doing broker benchmarking, so every quarter we go out to a group of brokers and they complete a survey on their business.

What we’re lining up is some really cool stuff around where they spend their time with their customers, where their business comes from, what business converts better than others, and we’re putting some

“The potential for burnout in this industry is very high, so we built that benchmark and we say you’ve got to have at least one business-free day a week” very good at it. They also know where wholesale aggregation plays a role, and they don’t want to come in and make us look like the retail business.

Our brokers think and act differently,” he said.

The main development as a result of the acquisition has been NMB’s ability to access Aussie’s scale, Foley said.

“Where we tap into Aussie from a wholesale aggregation perspective is to have access to Aussie’s marketing, legal, media strategies and a whole range of things. As a smaller aggregator, being able to tap

real point of sale analytics into their business,” he said.

Foley said NMB was in its third quarter of conducting its benchmarking, and the results had been “a real eye-opener” not only for the aggregator but for its brokers as well.

“It doesn’t come out and say, ‘Here’s what you’re doing wrong’. It’s more like, do you understand the things you’re doing here either equal a result or don’t equal

17

a result? Or, here’s the time you spend on a loan versus your peers, and it’s either significantly more or significantly lower than the average,” he said.

This knowledge helps brokers not only identify efficiencies but identify where to spend their time, Foley said.

“One example is we know that where brokers spend average or above-average time at the end of the process, say between approval and settlement, they have a much higher customer repeat and refer.

That’s where a customer needs a broker to be there, at the point end of the settlement. Some brokers will do a lot of work to get a loan approved, but then they sort of let it happen a little bit on its own,” he said.

Foley said brokers completing the benchmarking survey sometimes even identified areas for improvement in the course of doing the survey, before even receiving the results.

“We measure things like what percentage of appointments you travel to the client and what your average travel time is. We can say to the broker, ‘Look, this is the benefit of either moving from a home office to an actual office or from a small office to one that’s more professional. If you can start getting people to come to you, you can save over the course of a month potentially 10 to 15 hours’,” he said.

Foley said the benchmarking had also been important in making sure brokers were looking after themselves to ensure their longevity in the industry.

“We’ll also measure how many hours the principal works per week and how many business-free days they have. The potential for burnout in this industry is very high, so we built that benchmark and we say you’ve got to have at least one business-free day a week,” he said.

He said this benchmarking had already been an enormous help to many brokers.

“I had one guy who was working seven days a week, up to 10 hours a day. I told him, ‘You’re going to burn yourself out, and I need you writing loans for longer than you’re going to be able to’. Off the back of that he’s now got an admin person; he’s got another broker; he’s identified what he was good at and where he was wasting time.”

Foley said brokers had bought into the benchmarking and were working with NMB to help build their businesses.

“People have jumped on board really well. They want to grow their business. The first step is to make it look like a business. The next step is to identify what you do and how you do it, what works and what doesn’t. Then you can refine the way you do it.”

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BUSINESS INTELLIGENC AN ENGAGING CULTURE Want a Netflix or Google-inspired culture? It’s impossible to replicate culture, and there is “no silver bullet to driving culture”, says Alan Heyward.

“A benefits program on its own or a recognition program on its own are just tools in your toolkit. If your culture is broken you have more fundamental issues to deal with before looking at those two.”

However, there are some common building blocks that winning cultures have: 1. Leadership buy-in for any engagementfocused initiatives.

Heyward cites the MD of Bankwest as a good example: “He will pick up the phone every week to random people who have been nominated through the Bankwest recognition program and spend five minutes with them, congratulating them on being recognised by their peers. It’s not just the top achievers; it’s anyone who made the list. Really visible executive buy-in can help steer the right culture in an organisation.”

2. Clear expectations around strategy, execution of that strategy, how you’ll behave as an organisation. “We’ve seen organisations preach one thing and do something different, and very quickly the culture falls away. Atlassian consistently polls well as a great place to work. They have a set of values along the lines of: we’re an open company, we’re no bullsh*t and we don’t p*ss off the customer.

The values are genuine, they’re something everyone can relate to, and they make it really clear what the expectations are if you want to work there. It’s a great starting point; your people could be engaged but they need to be clear on what they’re trying to engage with.”

3. The fundamentals: “Challenge people to grow; give them permission to make mistakes and move on. Recognition and benefits are also part of this overall pie of engagement, but it would be starting with clear direction and expectations from the executive, having them be visible and demonstrating desired behaviours, and then driving that through recognition.”

CREATING A NETFLIX CULTURE IN YOUR BROKERAGE Why tailored benefits and a culture of recognition will always win out over faddish perks ANOTHER YEAR, another upstart company that appears to have turned company culture on its head. This year the accolade must go to Netflix.

Patty McCord was the chief talent officer at Netflix between 1998 and 2012. In a recent article for the Harvard Business Review, McCord outlined how Netflix reinvented HR to create the viral ‘Netflix culture deck’ (NCD). The NCD is essentially a living set of “behaviours and skills” that the Netflix management team update continuously and fastidiously. It drives towards a single point: a company is like a pro sports team, where good managers are good coaches, and the goal is to field stars in every position.

Describing the NCD, Netflix CEO Reed Hastings previously said that not enough HR departments were thinking innovatively.

Long-held, stringently monitored annual leave policies are being relegated to the dustbin of history. In their place are flexible policies that allow employees to take as much leave as they want, when they want, without asking them to track it.

When he launched Virgin’s new approach to annual leave, Richard Branson explained: “… the policy-that-isn’t permits all salaried staff to take off whenever they want for as long as they want … the assumption being that they are only going to do it when they feel 100% comfortable … [that] their absence will not in any way damage the business – or, for that matter, their careers!”

Sticking with work-life balance a little longer, Netflix has also broken ground for return-towork parents. Their latest headline-grabbing announcement was the introduction of fully paid,

“It’s a waste of time to articulate ideas about values and culture if you don’t model and reward behaviour that aligns with those goals” Patty McCord, Netflix “Many of the ideas in it seem like common sense, but they go against traditional HR practices,” he said. “Why aren’t companies more innovative when it comes to talent management?

As a society, we’ve had hundreds of years to work on managing industrial firms, so a lot of accepted HR practices are centred in that experience. We’re just beginning to learn how to run creative firms, which is quite different.”

Netflix and companies like it are reinventing how employees engage with their employers, and vice versa.

Indeed, if there’s one recurring theme that has emerged throughout 2015, it’s a re-examination of this relationship. Central to this relationship is trust.

Take, for example, the flurry of interest in work-life balance initiatives introduced by various companies last year, including a major focus on employee leave policies – in all their forms.

unlimited parental leave for 12 months from the arrival of a child – applicable for both women and men.

Netflix rationalises its “freedom and responsibility” culture as being aligned to its recruitment of “fully formed adults”.

Essentially, these businesses have replaced traditional workplace protocols with good old-fashioned trust.

Admiring but not replicating Of course brokers running smaller organisations may say it’s all very well for large companies like Netflix to introduce such innovations, but it wouldn’t work for them. Or would it? Alan Heyward, executive manager, accumulate, suggests there’s always room for innovation in terms of benefits.

“There’s definitely a trend towards employers getting more and more creative [with their

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CE and engage. All benefits come with a cost, to a degree, and you want to get a return on that cost, both the tangibles and intangibles.”

Don’t forget the basics While it might be cool to have a slide in the office, and an unlimited leave policy, the benefits basics – petrol and grocery discounts, health insurance, movie tickets – still have a place.

“Those things are available in so many organisations that it’s almost a ticket to the game.

You need to have them as a base offering, but just because people may not take these up doesn’t mean you shouldn’t offer them. I’d recommend determining what the basics are for the particular workforce you have.”

Heyward suggests, for example, that tech-savvy Gen Ys might not consider traditional discounts all that relevant – but they might welcome discounts on tech gadgets. “They might work close to the city and they might not own a car, so petrol discounts won’t mean much to them,” he says. “There are basics and these are broadly applicable, but don’t simply tick the box without thinking about how applicable they’ll be for your workforce.” benefits],” he says. “The expectation of the younger age groups is that flexibility is almost like a tick in the box, and there are plenty of studies out there saying how much more productive people are when you’re away from the office. Work actually gets in the way of you working. So we’re certainly seeing that trend around work-life balance, which is about working when you need to, where you need to.”

However, admiring the likes of Google, Virgin and Netflix is one thing; trying to replicate exactly what they’ve done is quite another.

“You can’t copy it,” says Heyward. “Culture consists of so many components. It’s not just about having a bowling alley in the office; it’s not about wearing casual clothes every day; it’s not about working flexibly. You need to figure out what is going to be right for your organisation and recognise that when you go to your employee base to ask them, they’ll say they want everything. So how useful is that?”

Heyward suggests trialling new things on a smaller scale. “We do that here at accumulate – we see what has the best take-up. Some things haven’t been that successful, but you need to go through a process to figure out what is the best way to connect

Leaders and culture McCord said she tended to see one major issue when leaders were attempting to mould their corporate culture. It’s all about ‘mismatch’.

“I frequently see CEOs who are clearly winging it,” she said. “They lack a real agenda. Workers notice these things, and if they see a leader who’s not fully prepared and who relies on charm, IQ, and improvisation, it affects how they perform, too. It’s a waste of time to articulate ideas about values and culture if you don’t model and reward behaviour that aligns with those goals.”

Why bother?

Netflix’s “baby-balance” and other initiatives are not purely altruistic gestures. This policy addresses a critical objective for current chief talent officer Tawni Cranz: “Netflix’s continued success hinges on us competing for and keeping the most talented individuals in their field.”

So there’s something in it for the employer too.

Indeed, Mercer’s 2014 Australian Benefits Review highlighted that benefits can genuinely impact on the way people conduct themselves for the company

A TWO-PRONGED APPROACH Netflix, for all its focus on innovative employee engagement, takes a surprisingly straightforward approach to talent management. McCord referred to two “overarching principles” that are ingrained in Netflix’s talent management philosophy: “The best thing you can do for employees – a perk better than foosball or free sushi – is hire only ‘A’ players to work alongside them,” she said.

“Excellent colleagues trump everything else.”

The second element of the company’s approach is a willingness to let go of people whose skills no longer fit, “no matter how valuable their contributions had once been”.

Smart hiring and effective performance management? Now that’s a two-pronged approach any organisation, large or small, could implement.

they work for – especially when these benefits are built into a reward and recognition program. In other words, benefits can play a role in reinforcing desired behaviours and values.

Heyward notes that there are two perspectives on this equation. “We see benefits as being quite a good tool in attraction and retention of employees, so it’s probably more about driving employee advocacy about an organisation and what’s in it for employees.

They have an indirect play on behaviours and aligning people with values.”

2016 and beyond Also in 2015, social recognition was all the rage – but Heyward sees this coming off the boil a bit in 2016.

“There was a massive investment and focus on building new tools and gadgets. Gamification was what it was going to all be about,” he says. “Social recognition is still important and a fundamental element of success lies in sharing recognition broadly across an organisation. However, the focus is shifting back towards the employer.”

Indeed, Heyward believes 2016 will see the focus shift from recognition being solely employee-centric – where the focus was on the user experience and social recognition – back to the employer: looking at the value in any recognition program they are running and using data and insights more effectively.

“I’ve noticed employers are keen to get the data providing them with an understanding of the communities that exist in their workforce.

What are the hidden hierarchies, who are those leaders who are not necessarily managers but are key influencers? It’s really about knowing your employee, knowing who they’re engaging with, and knowing who those hidden leaders are.”

McCord also said this employee knowledge was essential, especially when companies were in growth mode. She referred to “the split personality start-up”: “At Netflix, I sometimes had to remind people that there were big differences between the salaried professional staff at headquarters and the hourly workers in the call centres,” she said. “As leaders build a company culture, they need to be aware of subcultures that might require different management.”

To help tailor approaches to recognition, Heyward anticipates a more seamless experience between mobile, tablet, and online during an employee’s life cycle. “We’ve had many discussions over the last nine months about the employee journey and the touchpoints you have with them over that time, as opposed to a recognition program that’s just happening today. It’s thinking more deeply about the role that recognition plays over the life of that employee – whether it’s three, five or 10 years. How does recognition change over the employee journey?”

Heyward also sees a trend towards simplifying recognition and benefits. “There’s been a trend towards greater sophistication, and sometimes it’s just sophistication for the sake of sophistication rather than for actual need. I think we’ll see recognition programs simplified somewhat so you’re not trying to build a space shuttle every year.

“Keep it simple, keep it focused, make sure you’ve got executive buy-in. Focus on those things rather than building something sophisticated just because you can,” he says.

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BEST PRACTICE HOW CONSUMERS CAN SPOT A SCAMMER Consumers are often the victims of scams, rather than the perpetrators. Tell your clients to look out for:

1

Loan scams Loan scams are most likely to come to borrowers via an ‘out of the blue’ phone call or email. They usually offer: • very attractive low interest rate • easy and quick application process • no credit checks; impaired credit record not a problem Some even promise a cooling-off period or unconditional right to cancel if the borrower is not completely satisfied.

According to ASIC, alarm bells should definitely start ringing if borrowers are: • asked to make a decision to accept a deal and sign a contract quickly; or • asked to transfer money to their account to cover fees and taxes in advance of getting the loan; or • offered a repayment-free period with no payments for 12 months, for example

MORTGAGE FRAUD IN THE AGE OF INFORMATION TECHNOLOGY

2

Soft fraud Unfortunately, it’s not just outright scammers that borrowers have to be careful of. Every industry has its dodgy operators, and home loans are no exception. Some unscrupulous operators may ask borrowers to: • falsify their financial information in an application form by inflating the amount of income they earn, showing less debt than they actually have or telling little white lies about savings • falsify the value of their home if they are refinancing. Dodgy valuations can be used to make homes look like they’re worth more than they really are Or the borrower may be: • pushed into a low-doc or short-term interest-only loan at a high interest rate. This is particularly problematic if the borrower can’t really afford the repayments but feels they have to accept the offer as it is the only one on the table • offered a rent-to-buy scheme. These can be high-risk, according to ASIC, as the borrower has no rights to the property during the rental period, apart from the standard protections given to any tenant.

If the borrower falls behind with their rent or can’t meet their financial obligations at any time during the rental period, they could lose their rental credits and any money they’ve paid and void their ‘option to purchase’ agreement.

• offered vendor finance. This is where the owner of the property offers the borrower finance to purchase it. The catch is that they repay the vendor the borrower doesn’t actually have any legal ownership rights to the property or to the money they’ve paid off the purchase price.

3

Outright mortgage fraud This involves hard-core fraudsters stealing consumers’ identities or falsifying documents such as title deeds to extract money from legitimate lenders. This is a criminal offence and a police matter.

Kirsty Tyrrell of the mortgage team at Watkins Tapsell Solicitors on how you can protect yourself from sophisticated fraudsters ADVANCES IN information systems and technology have paved the way for businesses worldwide to streamline their information storage and sharing capabilities. Productivity has increased as a result, and business processes are more timely and economical than ever. But the transition from paper to cloud has created a new arena in which fraudsters can orchestrate even more sophisticated fraud tactics, and mortgages are no exception. Key stakeholders, including

1.

2.

They do it because they can – While technology has plenty of scope for improving efficiencies, it also aids fraudsters in perpetrating their scams more quickly and easily, from basically anywhere in the world, with an extra level of anonymity.

Unaffordability of housing – You don’t have to look past Sydney and Melbourne to see that the housing market is priced beyond the limit of many income earners’

The key is to create a climate and culture within your working environment that places a premium on systems and procedures with an emphasis on quality control and due diligence legal practitioners, conveyancers, mortgagees, mortgagors, valuers and brokers, need to ensure they remain alive to both the old and the new fraud tricks.

This article discusses current fraud tactics within the realm of the mortgage industry and provides useful risk management practices that stakeholders can adopt in order to minimise their exposure to fraud.

Why are they doing it?

Following are some of the reasons for the rise in mortgage fraud.

3.

financial capacity. With house price increases set to continue exceeding salary increases, people are concerned that if they don’t enter the property market now, they never will.

It’s worth it – The perception is that penalties for white-collar crime are lenient and seemingly ‘worth the risk’. In July 2015 a Sydney mortgage broker was sentenced to just 350 hours of community service on three charges of making false statements, creating false documents, and using these false documents to secure home loans totalling approximately $7m.

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Kirsty Tyrrell has worked for short-term lenders across Australia and her practice includes a special interest in mortgages and mortgage recovery as well as commercial litigation, commercial dispute resolution, insolvency and bankruptcy.

How can you protect yourself?

How are they doing it?

Fraudsters are not only cunning but also incredibly sophisticated and technically savvy.

In order to perpetrate their scams, fraudsters routinely: 1. create a false online presence – going so far as to create fake websites, emails, telephone and mobile details, and social media accounts; 2. create fake identities – often targeting family members, people who are overseas, the elderly, the vulnerable and even doppelgängers; 3. doctor false documents – including bank statements, tax returns, utility bills,

contracts, certificates of title, passports, licences and bank cheques. Only last month a NSW man allegedly swindled $460,000 from a bank using two bogus payslips; 4. doctor false application forms – overstating their income and assets and understating their expenditure and liabilities, providing false employment particulars and falsely alleging that they have genuine savings; 5. obtain assistance from key stakeholders – including valuers, brokers, legal practitioners and conveyancers.

The key is to create a climate and culture within your working environment that places a premium on systems and procedures with an emphasis on quality control and due diligence.

1. Always err on the side of caution.

2. Perform your own independent credit and title checks. Ask an uninvolved colleague to review the file.

3. Be alive to false pressure and urgency tactics. Unmask the reason for the urgency and then carry out due diligence on the reason provided. Unless a Notice to Complete has been issued, it is unlikely that a super-urgent settlement is genuinely required.

4. Never take applications on their face value.

Pick up the phone and carry out proper due diligence, including independent verification of contact, employment and security details.

5. Obtain proper identification from all parties, including mortgagors, borrowers and guarantors. We recommend adopting the policy set out in the NSW Land Titles Office Land & Property Information Circular, which was released on 9 November 2015.

6. Perform due diligence as close to settlement as possible.

7. Insist on receiving original copies of security documentation, or, at the very least, an undertaking from a solicitor that they hold the original documents and will courier or express-post the originals as close as possible to settlement.

8. Invest in sound software, systems and procedures and staff training.

9. Never hesitate to ask the other party to confirm something in writing.

10. Last but not least, obtain appropriate professional indemnity insurance and have a sensible asset protection strategy in place.

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MARKET WRAP VICTORIAN COUPLE FACES PROPERTY FRAUD CHARGES A Victorian couple have been committed to stand trial on charges of fraud related to property deals in Australia and the US. Maureen Gael Johnston and Douglas Gordon Johnston of Carrum Downs were charged with more than 70 offences, including fraud, obtaining a financial advantage or property by deception, and attempting to pervert the course of justice in November 2014 after an ASIC investigation into property deals worth $1.5m.

ASIC investigated Investman Nominees (USA) Pty Ltd and Small Business Management Pty Ltd and allege the couple misled people into investing approximately $1.5m in various property developments in the US and Australia.

ASIC alleges that the money raised was not used to develop any properties but instead used by the Johnstons for their own benefit.

It’s alleged that through their close association with the Collingwood Football Club the Johnstons misled club supporters into investing.

ASIC alleges the funds raised by the Johnstons were not used to develop any properties but were instead used in part for gambling at the Melbourne Crown Casino, paying personal credit card debts, and making interest payments to investors in a Ponzi-style operation.

The couple both pleaded not guilty to the charges and were granted bail.

MARKET TALK

FED MOVE WON’T SWAY RBA

DID YOU KNOW?

The US Federal Reserve’s recent move isn’t likely to impact on rates in Australia THE FIRST interest rate movement in seven years by the United States’ central bank, the Federal Reserve, is unlikely to impact on the immediate future of interest rates in Australia.

The Fed last month opted to raise its Federal Funds target interest rate from a range of 0–0.25% to 0.25–0.5%.

While it is the first movement in the better part of decade, AMP Capital chief economist Shane Oliver said the decision was not one that came out of the blue.

“The move is hardly a surprise. The Fed has been talking about a rate hike ever since ending quantitative easing over a year ago,” Oliver said.

“After being delayed in June and September, due to a combination of soft US data and financial market turmoil, the Fed has given ample warning recently of a December hike, provided there were no unanticipated shocks,” he said.

Oliver said the increase should be seen as positive, indicating the US economy is on its way to recovering to pre-GFC levels.

“The reasons for the hike are simple. The extraordinary monetary easing since the GFC (zero interest rates and three rounds of quantitative easing) have done their job in seeing off the risk of a depression and returning US growth to reasonable levels.

Jobs are now well up on pre-GFC levels, unemployment is down to 5%, confidence is up, the housing sector has recovered and

business is investing,” he said.

“At its core the Fed’s move is positive as it signals that the US economy is strong enough to be further taken off the life support that has been in place since the global financial crisis.”

According to Oliver, the fact that the US economy is showing positive signs is why the RBA won’t be following in the Fed’s footsteps.

“Australian rates often follow the big swings in US rates, but in recent times they have diverged. With the Australian economy on a weaker trajectory relative to its potential than the US economy, the RBA will not be following the Fed into a rate hike.

“In fact, the odds remain that the RBA will have to cut again as the mining boom continues to unwind, the contribution to growth from housing starts to peak next year and inflation remains low.”

The Fed’s increase does mean that the Australian dollar is likely to keep falling against the greenback.

“With the Fed undertaking a dovish rate hike there is a risk that a further fall in the A$ will be further delayed,” Oliver said.

“But as the Fed undertakes more, albeit gradual, rate hikes next year, the RBA retains an easing bias and commodity prices remain weak, the trend in the A$ is likely to remain down, with it heading to around US$0.60 sometime in the next 12 months.”

$615,000

Brisbane’s median house price grew by 0.8% to $615,000 over the September 2015 quarter, passing the previous price record of $610,000 it set in the three months to June 2015 Source: REIQ

10,000 NEW HOMES FOR SYDNEY’S WATERLOO The inner-south Sydney suburb of Waterloo is set to benefit from an injection of government spending, after the suburb was chosen as the preferred location for a Sydney Metro station.

The decision ends speculation about where the 31st Metro station would be located, which arose after plans for the City & Southwest line, released last month, showed that the government was still deciding whether it would be located in Waterloo or at the University of Sydney.

NSW Premier Mike Baird said Waterloo was chosen as the preferred site as it provided the government with an opportunity to revitalise the suburb.

“The Metro station creates the opportunity to transform Waterloo and make it a better place to live for future and existing residents, many of whom are amongst the most vulnerable people in NSW,” Baird said.

As part of the revitalisation, the ageing Waterloo social housing estate will be progressively renewed, and the government said there would be no loss of social housing from the current 2,000 dwellings.

The government claims the redevelopment will help it deliver thousands of new homes to the area.

“Waterloo Metro station will be the catalyst for the delivery of an additional 10,000 homes and thousands of new jobs in the precinct for families who live in the area,” NSW Minister for Planning Rob Stokes said.

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BY THE NUMBERS MARKET TALK

PROPERTY TYCOON SAYS SHARES ARE TERRIBLE INVESTMENT An Aussie property tycoon has talked up real estate as an investment class ACCORDING TO the latest Domain

House Price Report, Sydney’s median house price grew by only 3.2% over the September 2015 quarter, the slowest rate of quarterly growth since March 2014.

The founder of Australia’s biggest home building company believes real estate remains a prime investment opportunity when compared to other avenues, such as the share market.

Speaking to Bloomberg recently, Meriton founder Harry Triguboff described the Australian share market as “terrible” and said conditions within Australian property were so good they had caused him to abandon plans to sell his company to Chinese interests.

“The problem is I’m really not keen on selling. I never was. They came to talk,” Triguboff told Bloomberg.

“You’ve got to open your eyes, go to restaurants, it’s all full, where ever you want to get in, it’s all full. So the country is doing so well, what’s the point of selling?” he said.

Global stock markets were volatile last year amid signs of slowing growth in China and expectations that the Federal Reserve in the US would

embark on interest rate increases.

Australia’s S&P/ASX 200 Index declined 8.9% in 2015 as the MSCI World Index fell 4.3% and the Standard & Poor’s 500 Index retreated 2.3%.

Triguboff is undaunted by waning demand from Chinese buyers and the price declines in Sydney late last year, believing that interest in real estate will remain strong both within Australia and offshore.

“One of two things will happen. The [property] prices will remain the same – nobody is talking of them going up,” he said.

“If they remain the same, the Chinese might stay here. If they go down, then the Australians will come in and buy.”

Chinese buyers accounted for around 40% of Meriton sales over 2015, helping the firm achieve its best sales year ever, and Triguboff doesn’t see sales falling away too much in the coming year.

“Selling doesn’t occur to me as a problem.

“Prices may go up or may go down 5%, 10%. I’m not interested. We are selling apartments for $1 million now, which I used to sell 10 years ago for half.”

2%

The weighted average price index for residential properties rose by 2% during the September 2015 quarter, down from the 4.7% it increased by during the June quarter Source: ABS

STAMP DUTY SHRINKS NSW DEBT The strength of the property market in NSW has helped the state government become almost debt-free as it benefits from increased stamp duty revenue.

According to a budget update released in December, NSW’s net debt level has shrunk to $1.8bn, the lowest it has been in two decades.

The reduced debt level is thanks in part to an additional $863m that has been collected in stamp duty charges since June 2015 budget estimates.

According to the government, around $430m of that came from stamp duty associated with the sale of electricity provider TransGrid, but a large proportion of the remainder came from property transfers.

“The windfall transfer duty we are expecting to receive in 2015–16 is primarily made up of stamp duty from the TransGrid transaction and commercial and industrial property transfers,” NSW Treasurer Gladys Berejiklian said.

The government’s increased revenue announcement has again prompted the Property Council of Australia (PCA) to go on the attack as it renews calls for the tax to be abolished.

“Stamp duty is our most damaging tax and hurts homebuyers, businesses and the economy,” PCA NSW executive director Glenn Byres said.

“NSW continues to haul in record levels of stamp duty – which has doubled in the past four years from around $4bn to well above $8bn,” Byres said.

While Berejiklian said stamp duty revenue was expected to moderate as Sydney’s property market cooled in the year ahead, Byers said the damage had already been done.

“The affordability woes facing homebuyers are exaggerated by stamp duty, which forces the average homebuyer in Sydney to find an extra $35,000 when they purchase a house,” he said.

“Stamp duty hurts people trying to crack the housing market, families needing to buy up as they grow, and people wanting to downsize later in life.

“And signals about a slowdown need to be treated with caution – as stamp duty is still poised to rise by approximately 15% this year and stay above $8bn for the next few years.”

But Byers and the PCA may be protesting in vain, with one tax expert believing stamp duty is likely to be around for the foreseeable future.

“Our view is that stamp duty is likely to be here until we see substantial changes to areas like payroll tax and the GST,” said David Shaw, director at accountancy firm WSC Group.

“It’s an inefficient tax, but it’s one that people are going to have to keep factoring in,” Shaw said.

While there was speculation last year that an increased or expanded GST could be implemented to replace stamp duty, Shaw said that was highly unlikely.

“We’re not going to see an increase in the GST until the states can agree to it, and that’s not going to happen anytime soon.

“They all want to protect their self-interests and there will need to a whole discussion about how the GST revenue is distributed among the states.”

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MARKET WRAP REGULATION WILL SHAPE 2016

FINANCIAL SERVICES

ASIC BANS ADVISER, INSURANCE BROKER The regulator has taken action against a pair of finance professionals ASIC has issued bans to an adviser and an insurance broker in separate incidents.

The regulator said it had banned Mark Lionel Tidbury, a financial adviser and former authorised representative of Meritum Financial Group, for six years.

ASIC said Tidbury had contravened financial services laws, and claimed that he was “likely to contravene a financial services law in the future”.

ASIC said it had conducted a review that found, in a number of instances, that Tidbury had recommended clients switch to a different superannuation product in circumstances where there was little benefit but significant additional cost involved in switching. However, ASIC said the switching advice benefited Tidbury through increased adviser fees.

“Financial advisers must put their clients’ interests ahead of their own. Super switching that provides little benefit to the client but is very profitable to advisers is clearly unacceptable,” ASIC deputy chair Peter Kell said.

Meanwhile, the watchdog said it had

permanently banned an insurance broker from providing financial services following his conviction for fraud.

Mark Chapple, formerly of Agri Risk Services, pleaded guilty to four counts of obtaining money by deception and four counts of dishonestly obtaining financial advantage by deception at the NSW Magistrates Court in Tamworth in May. Chapple was sentenced in September 2015 following an appeal, and ASIC has now taken action to ban the broker from providing financial services.

Chapple had invoiced a number of Agri Risk clients directly for his services despite having already been paid by his employer, and Kell said the ban should act as a warning to others.

“Clients should be able to trust that their insurance broker is providing a valuable service,” he said.

“This behaviour will not be tolerated.”

Agri Risk “fully assisted” ASIC with its enquiries, and Chapple has the right to appeal the decision of the regulator.

The financial services industry will continue to feel the impact of regulation in the year ahead, a new report has claimed.

Deloitte Asia Pacific’s Centre for Regulatory Strategy has predicted that financial institutions across the Asia-Pacific region will continue to face regulatory policy development and implementation strategies in 2016.

“APAC financial institutions will continue to face elevated implementation challenges within an ongoing policy environment that has significant strategic implications,” Deloitte Asia Pacific Centre for Regulatory Strategy lead partner Kevin Nixon said.

Nixon identified the “moving pieces” that will pose a challenge for financial institutions in 2016, including changing capital requirements and the “ever-constant pressure” for companies to demonstrate good conduct and culture.

Locally, Nixon said companies would continue to face challenges in the wake of the FSI. “In Australia, financial institutions have a comprehensive local agenda to manage following the Government’s recent adoption of nearly all recommendations of the Financial System Inquiry. While some of these are aligned with, and dependent on, global policy outcomes (such as mortgage risk weights), there is a significant local body of work through 2016 and beyond.”

BY THE NUMBERS

$25bn Australia has been the target of a record $25bn in acquisitions this year by Canadian investors Source: Bloomberg

SUCCESSION PLANNING OFTEN OVERLOOKED The new COO and director of a financial firm’s newly launched business advisory service says planners often overlook succession planning.

Omniwealth has announced the appointment of Atle Crowe-Maxwell as its new COO and head of its business advisory service. Crowe-Maxwell previously worked as a corporate recovery partner at BDO. In his new role, he will be responsible for building a business advisory and succession planning service across the group.

“The synergies between an accounting practice and a financial planning practice all working together offer the right mix to assist businesses as they grow and mature. Owners need advice around the best strategy and

structure for the business to weather the current business climate and succeed,” he said.

Crowe-Maxwell said succession planning had been “overlooked or misunderstood” by many advisers working with SME clients. With more Australians moving towards retirement, he said the area was “centre stage” for many companies.

“Omniwealth now has a deeper expertise in-house to assist with planning succession strategies. We believe the first need in succession thinking is to assist clients develop the right strategy and the best structure before considering tax or funding matters,” he said.

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26

SPOTLIGHT wVIDEO SPOTLIGHT

ONE YEAR ON

A YEAR OF RBA UNCERTAINTY What a difference a year makes ... or not. Australian Broker reflects on the punditry, news and trends that made headlines 12 months ago

3 FEBRUARY 2015

27 JANUARY 2015

The softening Australian dollar and moderating property price growth has pundits predicting the RBA is likely to leave the cash rate on hold until second quarter 2015

At its first board meeting of the year, the RBA chooses to cut the cash rate to 2.25% from its previous record low of 2.5% – where it had been held for 15 consecutive months

5 MAY 2015

The RBA continues its easing cycle, dropping the official cash rate to 2%. Lenders scramble to cut rates in response, in order to spur buyer activity

22 DECEMBER 2015

In a reversal from predictions of rockbottom rates, a Sydney Morning Herald report claims Australia’s next tightening cycle may be less than a year away

1.5% 28 SEPTEMBER 2015

Two senior economists at ANZ predict the Reserve Bank will drop the official interest rate to a new record low of 1.5% due to the troublesome global economy and stubbornly high unemployment

Theo Chambers

DELIVERING MUTUAL BENEFIT In a recent head-to-head interview with Australian Broker TV, Shore Financial director Theo Chambers discussed the brokerage’s unique partnership with real estate agents with Australian Broker news editor Jules Corderoy.

Chambers said the company’s strategic drive was to complement real estate agents to make them more efficient. He said brokers often believed a conversation with a real estate agent would lead to a referral relationship, but argued that brokers had to provide mutual benefit.

“We try to focus on making the real estate agent better at what they do: increasing efficiency in the sales process; increasing the rapport in the relationship with their potential vendors or buyers who have come through the property who they may only have met and spoken to once; and then help long-term actually growing not only their sales side but their property management portfolio, which for a lot of real estate business owners is actually the more valuable part of their business,” he said.

While some prognosticators predict a property slowdown in the year ahead, Chambers said Shore saw any potential slowdown as a positive.

“A lot of brokers seized a lot of opportunity during the GFC, and already off the back of all these APRA announcements and the media hype around banks moving rates we’re getting a lot more activity, with our clients wanting to get their attention back on their finances. It almost creates activity.”

27

FORUM

ASIC LOOKS AT INTERESTONLY The regulator has said it will review brokers’ role in interest-only lending ASIC HAS said it will review brokers’ role in interest-only lending following its review of lenders. The regulator has revealed that brokers write more than half of interest-only loans, a claim many commenters on Australian Broker Online saw as a veiled accusation.

Dave Robinson said it appeared that ASIC didn’t understand the context of the statistic.

“Well that would be right wouldn’t it? Brokers write over half the loans. It has been reported on several occasions that investment borrowers use brokers more than other borrowers. At best this sounds like an excuse. At worst it would appear ASIC does not understand the finance market. Am I missing something here?”

Paul Brown also called for an understanding of the context in which the loans are written.

“Are we talking about interest only home loans? In which case, Yes, that’s a shocking statistic. If we are talking about investment home loans then clients seek out brokers for assistance and advice.

Generally that advice is to speak to your accountant about interest only vs P&I. Invariably the accountant recommends IO. I can’t see any justification for having your entire home loan on IO long-term and would recommend a line of credit be kept to a minimum.”

Ken Crawford theorised that brokers write more interest-

only loans because they better understand client needs.

“Maybe the reason brokers write more interest only loans is that they follow the KYC process more closely and find out more about the requirements of the borrower. The superior experience of the brokers over the younger, less experienced bank loan staff would suggest that they are more in tune with the needs of the borrowers and know what questions to ask rather than dictating to borrowers what loans are to be taken and what structures are available.”

And Steve McClure said APRA and ASIC should apply the same standard to themselves that they apply to brokers.

“The legislation demands that under the advice model, a broker must assesses a borrower’s situation, taking into account their individual circumstances to determine a suitable loan. We can’t just apply a one size fits all approach. But that’s exactly what APRA and ASIC are doing. Applying broad-brush statistics across lenders, without proper consideration of consumer’s individual needs. The outcome has been the burden of higher rates and restricted lending practices that have seen borrowers default on previously exchanged contracts. I’m failing to see a win yet for the consumer. The regulators are preoccupied with general statistics to the detriment of the individual.”

BEST COMMENT ONLINE WHAT ABOUT THE LENDERS? In ASIC’s review of interest-only lending, the regulator said it found some lenders kept poor records. As it turns its eye towards brokers, the watchdog says it will be interesting to examine the third party’s record-keeping practices. One commenter asked where the consequences were for lenders.

“So what is ASIC doing about the poor record keeping of the lenders? Any lenders & their employees who failed in record keeping been fined? First of all, having worked in the banks prior to working for myself, there is no requirement for the lenders to complete a client needs analysis, preliminary assessment or disclose the profit the bank will make on the loan. We brokers on the other hand have to complete this process as part of compliance. Will ASIC publish the positive outcomes of their review on how well brokers understand their clients and why they arrange interest only loans? That would be meaningful instead of just highlighting the number of interest only loans and then to add a quiet qualifier that the total value of the interest only loans by brokers are lower than those written by the lenders themselves. This means there is a lower risk of interest only loans exposure written by brokers.

Will ASIC review to understand why? That is because we take the time to structure loans to meet our clients’ needs. The common structure used for owner occupied loans is to split the total loan amount into two loan accounts with interest only for one account and P&I repayment for the other.

I expect the reason the lenders’ loans are higher in value but lower in number of interest only loans is because the lenders employees write the whole loan amount on interest only repayments. If ASIC wants to really review on risk, the lenders’ interest only loans are riskier as the whole loan is interest only and the owner occupiers debt level remains the same for the full five years of interest only repayment term.”

MMW on 18/12/2015 at 10:49AM LIGHT SENTENCE FOR FRAUDSTERS Two men involved in a multimillion-dollar home loan fraud have been handed five-year community corrections orders.

“Apparently crime does pay if that’s all they got.

How is this meant to deter bad practice from the industry? What about all the people affected who might not be able to afford their homes and may end up homeless. Hardly justice.”

E3PI on 17/12/2015 at 8:58AM

28

COALFACE STIFF COMPETITION

De Paoli triumphed in the Best Non-Major Bank BDM category at the 2015 Australian Mortgage Awards.

She had worthy competitors in the category, including

Rob Thomas

AUSTRALIA’S TOP NONMAJOR BANK BDM

Lauren Smith

How Australian Mortgage Award-winning BDM Janita De Paoli went from branch manager to broker advocate Christine Shen SINCE BECOMING a branch manager at the Bank

Natasha Sultan

Gerard Vear

Michael Abboud

John Loukadellis

Dino Pacella

of Melbourne in 2010 and then moving into a business development manager role at the bank in February 2014, Janita De Paoli has already topped the industry, winning Best Non-Major Bank BDM at the 2015 Australian Mortgage Awards.

“I was so shocked,” says De Paoli. “I think that my state manager nearly fell off her chair. We were just so excited to be finalists.”

De Paoli certainly did not intend to become a BDM, but brokers were already suggesting the move to her just 12 months into her time as a branch manager, when she worked closely with brokers initiating relationships between branch and brokers and brokers’ customers and branch.

“I felt that brokers were an awesome avenue for business, and for bringing business into a branch that had no traffic flow, so that was my introduction to brokers.”

She says her experience in branch management means she won’t leave the broker at settlement point.

“If the broker needs assistance with a file past settlement … I’m there through the whole journey. I think that’s really important.”

“The key point for me was that I actually had no lending experience whatsoever – I’d never been a lender.”

The early days involved a bit of trial and error as well as a lot of communication between herself and credit, and learning policy and processes. Now, she advises BDMs new to the industry to take on only as many appointments as they can handle.

“The biggest thing that I say to them is don’t flood yourself with appointments until you’ve got the confidence to be able to run with the role. It’s great to get out and meet all of the new brokers all at once, but there’s no point in going out and seeing brokers if you don’t have the ability to be able to service them via email and phone as well. The second thing I would say is … be

confident and do your best, but if in doubt always seek a second opinion.”

A BDM’s perspective De Paoli says she doesn’t do anything different to other BDMs in the industry, and there are many great BDMs out there; but she adds that having advocates within the aggregator group who support them as BDMs and as people is important and leads to connecting with more brokers.

She says brokers often call her to talk about a deal because they had talked to another broker who recommended her. “So that’s how I’ve been able to

“If the broker needs assistance with a file past settlement … I’m there through the whole journey. I think that’s really important” grow my portfolio. And I just love the industry, so I’m dedicated – I’ll answer emails at midnight! I love it.”

The best part of the job is helping brokers to be successful and get particularly difficult deals over the line.

The best brokers all have confident support staff around them, she observes, who understand the banks’ processes and are not afraid to ask questions.

“They’re the ones that I see that are really very good at what they do, because they’ve got a very strong team behind them who are supporting their business.”

In 2016 De Paoli wants to make it easier for brokers to deal with the banks.

“Once you become a leader or an expert in that part of the bank, it opens doors – not only from an employment perspective but it also opens doors to creating massive relationships within the broker industry.”

29

PEOPLE

CAUGHT ON CAMERA In November, Aussie held its Quarterly Business Forums around the country, with approximately 90% attendance by all Aussie brokers and franchisees.

The forums bring brokers together with lenders, partners and other Aussie staff members.

30

PEOPLE HOT SEAT

RACHELLE EYNDHOVEN Australian Young Gun of the Year Rachelle Eyndhoven on building referrals, learning to listen, and how she’d spend $100m Who or what inspired you to become a broker?

Being lucky enough to have worked with brokers as a business development A manager since 2007, a lot of brokers over a long time inspired me. Having come from a lending role prior, it was like having my eyes opened. I always knew it was something I wanted to do eventually, but I am glad I had so much time in the industry beforehand to learn from so many.

Q

What is the most memorable client experience you have had in your broking career?

There have been some very high-end and large commercial deals that I have been A excited and challenged by. However, the most memorable was a Central Coast family who had been bankrupted a few years back, being involved in a restaurant, and lost everything. We met by chance and they thought it would be years before they could get into a home again, but we had a major bank look at the overall facts and detailed submission and approve the loan. Not long after that the market went sky high and their chances would have been lost forever. I think about them a lot.

Q

What is the most life-changing or significant piece of advice you have received?

I started my career working under someone who owned a very successful business.

A He told me you have two ears and only one mouth for a reason. I have heard that in many different ways since, but the way he said it was so blunt that it has stayed with me for the last 13 years.

Q

If you could have dinner with any three people (dead or alive), who would they be and why?

Richard Branson – No explanation needed; such an amazing man and such a A pioneer in business.

Tina Fey – She is hilarious.

Kenneth Brown – He was my grandfather. I’d love to have one more meal with him.

Q

If you won a $100m lotto tomorrow, what would be your first priority?

I would start a scholarship program locally that also had mentorship and workshops A with inspirational speakers. $100m would go a long way. We could probably offer day care and employer incentives as well. The Central Coast can be tough for young people to have their eyes opened to opportunity, so it would make a very big difference.

Q

After winning Australian Young Gun of the Year at the 2015 Australian Mortgage Awards, what is your advice to young brokers?

Master your craft before you build referral sources, even if that means working A for someone else first or assisting a great mortgage broker. Your reputation is everything, and once you have great experience your success stories will be the builder of your new lead sources, but a lot of energy goes into building them so make sure you can back that up first. So just build the foundations before the home.

Q

What do you think will be the biggest opportunity for brokers in 2016?

2016 is going to be an amazing year for brokers. Mortgage brokers will A have a higher percentage of the market than ever before. The major changes of 2015 will continue and clients are looking for experience and expert advice more than ever. The opportunity is to offer that and guide your clients and referral sources. There is more opportunity than ever before, and it is a very exciting time to be a mortgage broker.

Q