Australian Broker magazine Issue 6.22

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ISSUE 6.22 November 2009

Macquarie’s $16bn aggregator takes shape Resilient first homebuyers

 Macquarie Bank set to launch new venture

The fog surrounding Macquarie Bank’s play in the aggregation space appears to be lifting as details start to emerge about the new business venture.

At the time of going to press, a source close to the deal told Australian Broker that the scheme was “still moving forward” with “key points being finalised” and an expected start date of mid-November.

“All the agreements are here.

We are just going through the legalities,” AB was told.

It was confirmed that the three aggregators who have signed up to the co-operative are Sydneybased National Brokers Group, The Brokerage and The Mortgage Professionals.

Based on research carried out by sister publication MPA, combining these three businesses would give Macquarie an aggregation business in excess of 1,000 brokers and a loan book of around the $16bn mark.

This would rank it among the five biggest aggregators in the country and would give Macquarie a significant foothold in the broker market.

The industry source said as many as two or three other businesses were in “peripheral” talks with Macquarie while Australian Broker is also aware

RAMS says that first homebuyers will remain in the market despite the end of the boosts and possible interest rate rises Page 18

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Bet local Australian shares continue to provide better return prospects than mainstream global shares dominated by the US, Europe and Japan Page 26

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Lying about the truth that at least one other aggregator was invited to join the venture, but declined.

South African-born IT executive Jeffrey Zulman is expected to be CEO of the new business, while Macquarie division director Tim Brown is also involved in putting the merger together. With Zulman at the helm, a big focus will be on

the technology platform, believed to be one of the big selling points of the new entity.

This information aside, details of how the business will operate have not yet been divulged and the bank has remained extremely reticent on its plans.

Page 31 cont.

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Even if you’re telling the truth, if you give off the wrong signals, borrowers may not believe you anyway.

Melbourne Business School Professor Karen Jehn pinpoints these signals Page 30

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News NAB Broker set up for better service

John Flavell

John Flavell has begun his tenure as GM for distribution at NAB Broker, by revealing an enhanced service proposition.

Speaking at the October NAB Broker roadshow, Flavell said service enhancements had been

made in submissions, verification, underwriting, valuations and mortgage insurance.

In terms of submission, he said NAB Broker was committed to providing brokers with a “comprehensive and up-to-date view of what is required” in terms of documentation and checklists.

On the underwriting front, he said the bank would no longer consider ‘maybe’ credit applications, where only 10% of these actually went through to unconditional approval, while chewing up time and resources of both the bank and brokers.

“A quick ‘no’, is often much better than a ‘maybe’ or long protracted ‘no’,” he said.

Flavell apologised to brokers for the “absolutely horrible” service they received earlier in the year. “…to the extent that it had an

Challenger businesses, NAB Broker kept separate Following the acquisition of the Challenger mortgage management business, Matt Lawler revealed a new third party structure at the October roadshow that will see the three aggregators operate as a separate entity to NAB Broker.

A new division called ‘NAB partnerships’ led by Lawler will operate under the NAB retail banking division.

NAB Partnerships will consist of two divisions – a ‘wholesale’ division incorporating NAB Broker and Advantedge, an ‘advice’ division incorporating the three aggregators – PLAN, Choice and FAST – acquired from Challenger.

While the businesses will remain separate, with the focus on offering an undifferentiated, impartial service regardless of whether a broker is part of a NAB-owned group or another aggregator, Flavell said NAB Broker would be “vying for its slice of the business from brokers and aggregators in the Challenger group”.

Who’s who NAB key third party executives • Lisa Gray – NAB personal banking group executive • Matt Lawler – GM of NAB Partnerships Heading up NAB Broker ‘wholesale’ business • John Flavell, GM for distribution.

Advantedge aggregation business • Drew Hall • Steve Weston • Brendan O’Donnell (Choice) • Ray Hair (PLAN) • Steve Kane (FAST) impact on our relationship with you and the impact it had on your relationship with your customers, you have my apology and that of the team at NAB Broker,” he said.

At the height of the crisis (March–May) time to unconditional approval at NAB Broker ballooned to 30 days. But Flavell put to bed any conspiracy theories that the bank may have “deliberately designed” the slowdown saying the grey hairs on his head were not part of any strategy The delays, he said, were the result of three environmental factors (consolidation, tighter lending and an influx of first homebuyers) and two factors contributed by NAB. Firstly, the bank had got the timing wrong when it chose to centralise its mortgage processing; and secondly, it gave brokers just one month’s notice that from May, only four-star brokers would have access to 95%+ LVR loans at a time when other lenders were pulling out of the high LVR space entirely.

www.brokernews.com.au Publishing director.... Justin Kennedy Managing editor.....George Walmsley Editor........................Larry Schlesinger Journalist.............................Tim Neary Production editor............Carolin Wun Design manager..... Jacqui Alexander Designer...................Jonathan Phillips HR manager.................. Julia Bookallil Marketing manager.........Danielle Tan Marketing coordinator... Jessica Lee Traffic manager............. Stacey Rudd Advertising sales Simon Kerslake t: 02 8437 4786 f: 02 9439 4599 simon.kerslake@keymedia.com.au Rajan Khatak t: 02 8437 4772 f: 02 9439 4599 rajan.khatak@keymedia.com.au Editorial enquiries Larry Schlesinger t: 02 8437 4790 f: 02 9439 4599 larry.schlesinger@keymedia.com.au Distribution Australian Broker is available by subscription. E-mail all subscriptions and mailing enquiries to: subscriptions@keymedia.com.au t: 02 8437 4731 f: 02 8437 4753

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 can accept no responsibility for loss. © Key Media 2009 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.

This magazine is printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry

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“Material headwinds” prompted NAB deal: Challenger Key points  Challenger looking ahead  Securitisation market unlikely to return same volume  Mortgage insurance puts non-banks at competitive disadvantage  Reduced investment in RMBS  Warehousing facilities difficult and expensive to obtain  Advantagedge to remain independent

When Challenger made the decision to sell its mortgage management operations to NAB it was looking to the future, said Drew Hall, Advantagedge’s CEO (formerly CEO of Challenger Mortgage Management) Speaking at PLAN Australia’s “Celebrate and Accelerate” member conference in Cairns,

Hall said Challenger had held the belief that term funding for the non-bank sector still had “material headwinds” facing it.

Principally, it felt that the securitisation market, the mortgage manager’s traditional form of funding, would not yield the same volume it had prior to the onset of the GFC. “So we were looking for an alternate funding source, and NAB was the perfect partner for that,” he said.

Also, Hall identified mortgage insurance as another business hurdle which put the non-banks at a “competitive disadvantage”, being required to hold mortgage insurance on some deals not required by the banks. “In terms of the cost of the insurance premium and the extra set of hands that the applications need to be assessed by,” he said.

Another business hurdle

Defiant Ormond

Wayne Ormond

Fresh from being named as one of Australia’s richest bachelors, Wayne Ormond, MD of Refund Home Loans, has told AB the mortgage broking franchise will “vigorously” defend itself against allegations made by the ACCC that it breached the Trade Practices

Act. The competition watchdog announced on 20 October that it had commenced proceedings against Refund Home Loans and Wayne Ormond over allegations that Ormond made “false and misleading representations in breach of the Trade Practices Act 1974 about having a special relationship with the ACCC. The statement read: “It is alleged that Mr Ormond made statements over a number of years to … franchisees to the effect that the ACCC: • advised Refund Home Loans and Mr Ormond about their conduct towards franchisees • approved action taken by Refund Home Loans in respect of franchisees and former franchisees with whom it was in dispute.

Challenger faced was that a large proportion of money market funds investors were no longer investing in RMBS – and Hall didn’t expect them to “return in a hurry”.

“Only the banks’ treasury areas and some real money investors might still be in the market to buy RMBS,” he said.

But he added that these made

up only 40% of the traditional investors in RMBS. The lost 60% are now investing in government bonds and other government guaranteed instruments, he said.

A further impediment Challenger faced prior to the NAB acquisition was that warehousing, the first step in the loan funding chain, had become more difficult – and expensive – to obtain.

In the new order, the Challenger mortgage management business is to be re-branded and will sit under the newly-formed NAB Partnerships business area.

“It will be run independently, a bit like MLC,” Steve Weston, general manager for distribution at Advantagedge told AB. All but five of Challenger’s 400 staff will move across under the NAB ownership – an outcome which Weston describes as being “terrific as well”.

“The ACCC is seeking declarations that the alleged statements breached the Act …”

Ormond claimed the action was in relation to a dispute “some years ago” involving exfranchisees. “We have no current disputes. All our franchisees are happy, I believe it is a couple of ex-franchisees with an axe to

grind,” he said.

Proceedings commenced in the Federal Court’s fast track list in Brisbane on 12 October 2009 with a scheduling conference listed for 4 December 2009.

The 2009 BRW Young Rich List revealed that Ormond had amassed a personal fortune of $25m.

Drew Hall

Previous ACCC dealings Wayne Ormond has dealt with the ACCC in the past, though on the other side of the fence.

In 2004, Ormond complained to the ACCC that ANZ sought to cap the amount of money a similar business, Mortgage Refunds, could return to customers. Following its collapse, the intellectual property of Mortgage Refunds was acquired by Refund Home Loans in May 2007.

In August 2007 the ACCC instituted proceedings in the Federal Court against ANZ in relation to Mortgage Refunds. The ACCC sought a declaration that ANZ “contravened the price fixing provisions of the Trade Practices Act 1974” by seeking to limit the level of refund Mortgage Refunds could provide to customers in respect of ANZ home loans. ANZ is the only major bank not listed as a lender on the Refund Home Loans website.

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News NAB hoping to gain ‘Advantedge’ Quite appropriately, NAB chose the completion of its acquisition of the Challenger Mortgage Management business to unveil a new brand for its aggregation platform, renaming it ‘Advantedge’.

The new entity will sit within the newly-created division of NAB Partnerships alongside, but separate, from NAB Broker.

Matt Lawler, executive general manager at NAB Partnerships, said the creation of NAB Partnerships and the acquisition of Advantedge marked the completion of an important milestone for NAB Personal Banking. “NAB Partnerships provides us with a great platform to build relationships with brokers, mortgage managers and financial planners,” he said.

Lawler added that the mortgage broking and the mortgage management segment was “an important component” of the home lending landscape, and that the Challenger acquisition gave NAB the capability to “increase its footprint in this growing market”.

“One of the significant benefits from this acquisition is in gaining the talents of the teams from Advantedge, PLAN, Choice and FAST – we’re very excited to welcome them all to NAB,” he said.

Announcing the new brand, Drew Hall, Advantedge’s chief executive officer, said: “This business is about giving brokers and mortgage managers an edge in business with great lending products, sophisticated systems and support in the new credit legislation world.”

The PLAN, Choice and FAST aggregator brands remain unchanged and will continue to operate as standalone businesses.

CBA: poor performers must go Kathy Cummings, executive general manager for third party banking at the CBA, says the bank is working with aggregators to “encourage” those brokers with weak competency levels out of the mortgage industry.

She said she had the support of its “head agreement holders” as it identifies those brokers that are operating on a casual basis (as part of its segmentation program).

Cummings said the CBA was working in consultation with these agreement holders to move those brokers identified as not having the required competency levels out of the industry.

However, for those that do wish to continue writing loans, she said that the bank was more than happy to give them the opportunity to retrain.

“If they want to pay $500 every 12 months to retrain, that’s fine,” Cummings said.

“Brokers need to have full product knowledge and understanding because anything they recommend, the bank is going to be held accountable for.

Kathy Cummings

“We need to know that when they are sitting in front of the customer, they are giving them the right product,” explained Cummings.

James Sheffield, GM for Mortgage Wealth, said with new regulations about to come in, it should be kept in mind that there would be criminal, not just civil penalties, for wrong advice.

He said there were “two tiers in the industry” – the really professional brokers and those “just out there to make money”, the taxi driver by day, broker by night operator.

But Cummings said the CBA had no issue with “genuine part-time brokers doing 30 hours per week” but it did have an issue with someone who spends just 10 or 20 hours a week.

“Those doing broking on the side, are the real concern … I think there are quite a lot of these,” she said.

Concern was also expressed at other finance professionals – financial planners and accountants – writing one loan a month, who were “putting their businesses at risk”.

Top brokers understand “cost of funds” The CBA’s Diamond brokers have a good grasp of how increasing cost of funds affect mortgage rates, according to Kathy Cummings.

Diamond brokers have all been shown a video presentation by Lyn Cobley, CBA group treasurer, explaining how wholesale funding costs have jumped “dramatically” in the wake of the GFC. Having this understanding, Cummings said, meant brokers were able to have a “good conversation with their clients and help them work through the various product offerings” whether to fix or stick with a variable rate product.

She said it was important that brokers understood the economics behind mortgages.

The video, shown to Australian Broker as a part of a media briefing, explained that wholesale funding from institutional investors accounts for 42% of the CBA’s total funding base, with the remainder made up of retail deposits.

“The spreads (on wholesale funding) are coming in, but they are still at incredibly high levels [compared to pre-GFC],” Cobley said.

As a result, when cheaper wholesale funding is rolled over, the bank has to replace it with more expensive funding, pushing up the costs of both its fixed rate and variable rate mortgages.

The presentation also highlighted the fact that a fixed rate mortgage is determined on a different basis to variable rate mortgages – the former based around the fixed interest swap rate (plus long-term wholesale funding costs), the latter on the RBA cash rate (plus a risk cost, plus long-term wholesale funding costs).

To the growing frustration of the CBA, many journalists, still make the mistake of linking fixed rates to the cash rate, said GM for Mortgage Wealth, James Sheffield.

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News “Be trusted advisors and build relationships”

Sam White

Research taken by the Loan Market Group has pinpointed key areas brokers need to focus on if they wish to be successful: be experts, build trust and develop ongoing relationships with your clients. This was the key message delivered by executive chairman Sam White as part of his opening address at the group’s international broker retreat held

in Melbourne on 21–23 October.

“Everyone we spoke to agreed that, fundamentally, what we sell is trust,” White said.

Prior to the conference, the aggregator conducted a number of focus groups involving different clients in different cities aimed at “shaping communication strategies for the year ahead”.

Out of these sessions, White said, the understanding had come out that customers expect brokers to be experts on the market and on the products available.

The importance of offering advice and building a long-term relationship with clients also struck a chord with consumers.

“Consumers look to us to be advisors. It’s not just the deal that they want done they also want us to have an ongoing relationship with them.

“Post-GFC, borrowers want more security and more stability with those who help them make financial decisions. They want to know there is continuity in the

relationship,” he said. Loan Market also uncovered a degree of negativity towards the banks: “Those that dealt with branches felt their branch manager was not as capable as their broker.”

In addition, customers showed little brand loyalty: “They are happy to move [lenders], but they need to understand why,” White

said. One surprise finding, he noted was “just how knowledgeable the consumers are becoming” with many doing research online before their appointments.”

As a result, “borrowers don’t want to be patronised, they don’t like to be talked down to – that really annoys them.”

Current affairs jab During his opening conference address, Loan Market chairman Sam White contrasted the current “strong positivity” about brokers generated from its own vox pops and customer research with what made headlines in some current affairs shows.

With more than a hint of sarcasm, he referred to these shows as examples of “quality journalism”.

White was more than likely referring to a particular piece of “quality journalism” – Channel Nine’s A Current Affair show, which in early 2008 ran with a sensationalistic story about Loan Market broker Nicole Orchard alleging that she told a borrower to submit a fake statutory declaration even if it was signed by the borrower’s dog.

At the time the program was aired Ray White issued a statement saying Orchard regretted her “offhand comments” and that “they were the product of frustration and not intended to be taken literally”. Loan Market said it was considering legal action and described the report as “demonstrably false and defamatory”.

Orchard was suspended by the MFAA for three months, but was later cleared by the Credit Ombudsman Service (COSL).

The segment about Orchard can no longer be found on the A Current Affair website.

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News

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

Seven years’ wait for Brokers reserve licensing finally over biggest cheer for ANZ Regulation timeline:

It may have taken seven years, but the death knell of inconsistent, and in some cases, ineffective state-based broker regulation has been sounded.

On the 26 October the Senate approved the National Consumer Credit Protection and Financial Services Modernisation reforms.

As a result a single, standard, national law for the regulation of consumer credit will commence on 1 July 2010 with broker registrations kicking off three months earlier on 1 April.

FBAA national president Peter White described it as a “significant moment” that would “shape the industry”.

“It’s something that has been worked on forever and a day and is a long time coming. But it’s now done and dusted… things are now set in stone,” he said.

White said he had been involved in lobbying for a new regulatory model as far back as 2003. He said what had been put together was “as fair and reasonable as it could be expected”.

“Issues will arise and things will need to be reviewed.” he said.

MFAA chief executive officer Phil Naylor described the passing of the bill as a “welcome but long overdue event”.

“It is the culmination of seven years’ lobbying by the MFAA for national regulation. Its principal object is to protect consumers from irresponsible lending from whatever source,” he said.

While the early focus was on brokers, Naylor said he welcomed the government’s acceptance of the MFAA view that “if their desire is to protect consumers, they must provide legislation which regulates the whole credit industry”.

1 April to 30 June 2010 • brokers must register with ASIC 1 July to 30 Dec 2010 • brokers must be registered or hold ACL 1 July 2010 • National Credit Code (NCC) begins, state enforcement of UCCC ceases • requirement not to arrange or provide credit that is unsuitable begins (non-ADIs, non-RFCs only) 31st Dec 2010 • all registered brokers must have applied for an ACL 1 Jan 2011 • requirement not to arrange or provide credit that is unsuitable applies to ADIs and RFCs • Other Responsible Lending Obligations (including disclosure requirements, such as the provision of quotes, credit guides and assessments) commence 30 June 2011 • all registration cancelled (brokers must hold ACL) He said no MFAA member should have any difficulty in obtaining and maintaining a licence.

“While we are still working with Treasury and ASIC as they finalise details of regulations and guidance papers accompanying the legislation, we think the legislation, as passed, gets it pretty well right,” he said.

Besides regulating brokers, the new laws will also see for the first time consumer protections and regulation put in place for margin loans, as well as the national regulation of trustees and debentures.

“These reforms have really been a long time coming,” minister for financial services, Chris Bowen said.

“They will help provide greater certainty to the credit sector while strengthening the range of protections that are in place for vulnerable consumers.”

“The focus for the government now is bedding down these reforms and working with key industry and consumer groups as well as the credit regulator, ASIC to allow for a smooth transition to the National Consumer Credit Code,” he said.

Loan Market panel discussion

If there’s one thing the Loan Market Group International Broker Retreat made absolutely clear, it is this: brokers do not like minimum volume quotas.

A huge cheer erupted from the audience when Tim Brookhouse, senior BDM at ANZ, said the bank had no intention at this point of putting in minimum volume quotas.

“Glenn Haslam (head of broker distribution) has the view that if a customer wants to come to ANZ, we should not stop them from coming to ANZ simply because they use a broker that does not use us a lot,” said Brookhouse.

His comments came towards the end of a lively panel discussion involving third party banking executives.

The discussion on minimum volume requirements was kicked off by moderator Sam White, who asked the banks to explain some of the thinking behind their policies.

Emoke Palos, state manager for the CBA in Victoria, defended the bank’s controversial policy of four loans required every six months.

“Its eight deals in a year, not even one deal a month to a major lender,” she said.

Palos said the CBA had identified around 5,000 of its 8,000 brokers which it categorised as ‘D’ brokers – those that submit between zero and 10 deals per year. “If you submit only one deal a year, how up to date are you on the products you are offering?”

She backed this up by saying statistical information revealed that complaints the bank received related mainly to “brokers who submit one or two or three deals a year”.

But she said the requirement was only a “starting point” and would change.

Westpac’s Victoria state manager, Michael Ianchello, said its minimum quota (one deal every six months) was also based around quality.

Ianchello said conversion rates at the bank were sitting at about 60% across the industry.

“Submitting one deal every six months should not be an issue when about one in every five deals is a Westpac product,” he said.

The meat in the sandwich Brokers may consider themselves the industry’s middlemen, but it seems the feeling of being the ‘meat in the sandwich’ applies to bank BDMs as well.

The sentiment to come out of the panel discussion at the Loan Market conference was that BDMs face frustrations of their own in trying to communicate head office policy changes to brokers, some of which BDMs might not actually agree with themselves.

Emoke Palos from the CBA said: “As a sales team we need to accept that things change – there may be a lot we don’t agree with, but we need to accept that and find a way to make it work for the individual broker. That is what we concentrate on.”

Mark Woolnough, head of partnerships at ING, said BDMs needed to be strong, be able to understand the reasons behind decisions and then articulate these “with clarity” to the people that they deal with.

“At times there are difficult conversations that have to be had – that goes with the territory. But you deal with it and get on with it,” he said.

Brokers though should avoid losing their temper when speaking to a BDM about these changes.

Palos said when she received a “heated call” from a broker she would cut them off and ask to speak to them at a later time when the emotion is out of the conversation.

“Emotion just creates more emotion,” she said.

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News Govt not alone in engineering Aussie recovery The Rudd government is correct in thinking that the aggression it showed in stimulating the economy has been really important in Australia’s economic recovery – but it was only able to do so because the dollars were available for it to spend in the first place, according to chief economist at Commonwealth Securities Craig James.

“Government would like to think they have solved the problem by putting the dollars into the economy; $900 into the peoples pockets, money spent on schools and small business tax breaks – but they were only able to do that because the budget was in surplus,” he told PLAN Australia brokers attending the annual conference in Cairns.

So the current government can say they did the right thing, he said, but equally the previous government can claim it left office with the country in good shape in terms of a budget surplus. “By paying off all its debts, the

Key points  Government aggressive stimulus played leading role in recovery  Credit also to previous government for budget surplus  Also to RBA, credit unions and banking sector previous government can claim some credit as well,” said James.

Equally, the RBA did the right thing by slashing interest rates.

And the unions can also claim some credit too since they have not been out agitating employers for wage increases, he said.

James also paid credit to the banking sector for the recovery, which he described as having been “super strong”.

“So there are a number of areas that can claim credit for the economic recovery. It wasn’t just from the government spending money on the economic stimulus package,” said James.

LJ Hooker to expand broker recruitment LJ Hooker Financial Services is likely to increase its recruitment targets following the real estate group returning to the family fold in October.

Peter Bromley, GM of LJ Hooker Financial Services Operations, told Australian Broker that it would be looking for more brokers than originally planned. In February this year, the company announced it was on the hunt for 100 brokers to supplement its real estate business.

Asked what would attract brokers to LJ Hooker, Bromley said it was the opportunity to be part of a key industry brand, access to the LJ Hooker network and the ability to build relationships with local real estate offices.

Looking ahead over the next 12 months, Bromley said his priorities would be to expand the franchising model to align it with the recruitment strategy and looking at ways to integrate financial services into the real estate business to “create a client for life”.

The sale of the LJ Hooker business back to Janusz Hooker, the grandson of founder, Sir Leslie Hooker, came about at the same time as another real estate group, Ray White, took 100% ownership of mortgage broker, Loan Market Group.

Bromley said these developments were a good thing for the industry. “Owning both sides (broking and real estate) is a key benefit,” he said.

He described the sale of the business back to the founding Hooker family as “very positive”.

Brokers and real estate: the major market players Real estate business

Broker arm

LJ Hooker

LJ Hooker Financial Services

Ray White

Loan Market Group

McGrath Estate Agents

Oxygen Home Loans

Century 21

Century 21 Home Loans

Raine & Horne

Raine & Horne Financial Services

A shift in the mood From the top executives to brokers at the coal face, the mood in the industry is almost unrecognisable from what it was 12 months ago.

A new sense of optimism was obvious to anyone attending either the PLAN Australia or Loan Market Group annual conferences held in Cairns and Melbourne respectively.

Both conferences focused on the strength of the broker proposition despite enormous challenges and the opportunities for growth in 2010 – a far cry from the doom and gloom at the start of the year.

In Cairns, the mood was encapsulated in the theme of the conference “celebrate and accelerate” with growth being the central message.

Perhaps the spirit can be summed up best by Challenger’s Steve Weston in just two words: “What GFC?” A few thousand kilometres down the Eastern seaboard, Loan Market executive chairman Sam White, was congratulating brokers on their resilience and reminding them that the

industry’s customer proposition remained stronger than ever.

“Despite all the turmoil, the confusion and frustration, at a time when the broker proposition was being challenged like never before, our share of market actually grew,” he said.

“Our key reason for being has actually improved during this time.”

Such upbeatness tallied well with similar sentiment forming at the top end of the industry.

According to a survey of the financial services industry undertaken by Finsia, morale has remained “surprisingly robust”, with 72% of senior industry professionals saying that they are either ‘as optimistic’ or ‘more so’ than one year ago with regard to the overall job security within their workplace.

Another positive finding was that nearly two-thirds (63%) believe that the actions taken by their organisations in response to the crisis had not jeopardised the integrity of those companies to the point where prospective future employees may be deterred

“All smiles at the PLAN Conference”: (L–R) Warren Tahere, Sandra Vallance and Kerry Kalendra

from joining. Commenting on the survey findings, Dr Martin Fahy, chief executive officer of Finsia, said: “As we closed this survey one year to the day of the Lehman Brothers collapse in the US, the overriding conclusion was that Australia, on account of its enviable regulatory environment, has so far escaped this crisis

lightly.” And while pointing out that up to 10,000 jobs had been cut across the Australian financial services industry in the last year, he said that the industry had “maintained an overwhelming sense of optimism which has held up despite the sacrifices and adjustments this period has demanded”.

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News

Middle classes feeling the strain Australia’s middle class are suffering more severe stress than any other household group, according to the September 2009 Fujitsu Consulting Mortgage Stress report.

The report said severely stressed households (those facing a potential sale or foreclosure) rose by a further 3.9% with the biggest proportion being in the ‘suburban mainstream’ segment.

This segment is defined by Fujitsu as a mix of white and blue

collar workers in a variety of industries, predominantly not as decision makers, many have children and they earn above average income.

The biggest cause of mortgage stress among the middle class was “investment performance” followed by “fear of unemployment” and “fear of redundancy”.

The most stressed out segment (combining mild and severe stress numbers) was the “disadvantaged fringe” which were those

households living in disadvantaged peripheral urban and country areas with low income levels where state rental accommodation is common.

Overall, Fujitsu said the increase in severe stress was due to short-term relief experienced though the cash stimulus packages decaying quickly as net hours worked and incomes fell.

In totality, the report found that the number of households experiencing some degree of mortgage stress fell by 1.1% in September with approximately 554,000 households in some degree of mortgage pain, compared with a peak of 900,000 in August 2008. The future mortgage stress outlook remains

Number of households in severe stress Suburban mainstream

Disadvantaged fringe

Battling urban

All segments

Sept 2009

56,678

41,303

24,498

166,750

June 2010*

83,264

56,119

33,297

229,253

*Fujitsu Consulting estimate Source: The Fujitsu Consulting September stress report

uncertain, according to the report, hinging on unemployment levels and expected interest rate rises in the coming months.

By June 2010, Fujitsu Consulting estimates 879,000 households will be in some degree of discomfort with “perhaps as high as 229,000” in severe stress.

House price movements have been reviewed – prices are now expected to rise by up to 8% over the next 12 months, putting further stress on affordability.

Ray White sticks knife into biggest rival Having just acquired the Loan Market Group, Ray White chairman Brian White, delivered an address at its international broker retreat during which he admitted that no one had as yet got the ‘real estate–mortgage broker’ partnership right.

And while he said the Ray White and Loan Market Group partnership was still “so far below the potential that could be achieved by working together”, he was quick to divert attention to rival real estate and financial services group LJ Hooker, which recently ended its two-decadelong ownership by Suncorp Bank.

“Suncorp purchased the LJ Hooker business 20 years ago…

with the intention of growing the business… and it was a disaster,” White told the more than 220 brokers present in the room.

In response, a spokesperson for Suncorp hit back: “LJ Hooker remains one of the strongest real estate brands in Australia and the returns that we received from our interest in that business … were very good.

“The sale to Janusz Hooker was a good move for Suncorp and its shareholders and it was also the right move for LJ Hooker and we look forward to seeing that business continue to prosper under his leadership”.

As part of a statement made following the Hooker family

re-acquiring the business back from Suncorp for $67m, executive chairman Janusz Hooker thanked Suncorp for “taking care of the business”. He commended the bank for actually “expanding the LJ Hooker network over the past two decades”.

Besides having a dig at his rivals and expressing his concerns at the failure of the real estate and broker partnerships to live up to its potential, White’s presentation was largely focused on leadership. He urged brokers to develop into business leaders and to not be afraid of the challenge of leadership.

“Profit is the payment you receive for good leadership,” he

Australia’s biggest real estate chains *Ray White

870 offices

*LJ Hooker

535 offices

*Raine & Horne

Less than 450

First National

Less than 450

*Elders

400

*Century 21

260

*Also have a broker arm Source: AFR, Macquarie

said. “The mistake people make is thinking they’re not born leaders,” he added, describing the journey of leadership as a “thrilling one”.

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Resilient first homebuyers to remain in the market: RAMS

Key points  FHOG helped many Australians get into the property market  Demand will remain high despite boost being withdrawn  RAMS anticipates as much as 20% of new business from first homebuyers  Higher interest rates not a deterrent  Getting a steady job is the main buying criteria  No fear for high prices, or meeting repayments There is no doubt that the boost to the FHOG was a “catalyst and an enabler” for many Australians to get a foot on the property ladder, but expect the healthy demand it created to continue for the rest of the year – and well into next.

This is the view of RAMS head of brand and marketing, Lynne Wyatt and it follows new research

by RAMS Home Loans which found most first homebuyers would remain in the market regardless of the boost, even if interest rates were to increase.

“We believe that in 2010 between 15 and 20% of our customers will continue to be first homebuyers,” she said.

According to the RAMS First Home Buyers’ Pulse Check, less than 40% of people looking to buy their first home in the next 12 months are trying to secure a property before the boost ends at the end of the year.

Also, it found that only 21% of the respondents suggested their search for a first home was reliant on interest rates remaining at their current low levels.

Wyatt was encouraged by the findings. “Earlier this year we saw an unprecedented number of first homebuyers entering the property market. Since then we have seen their numbers return

to a more sustainable level as the pent up demand of the last few years has been satisfied,” she said. The report’s results point to a real resilience amongst first homebuyers.

In the first Pulse Check report, released in April 2009, 70% of first home seekers said they had been influenced to look for their first home by the boost, while the findings of the second survey indicated the influence of the FHOG had diminished as the year progressed.

In addition, the report found that 30% of first homebuyers were triggered by getting a steady job to look for their first home.

“This has overtaken ‘moving in with a partner’ as the number one reason first homebuyers gave to start looking for their first home,” said Wyatt.

The biggest barrier to entering the market was high property prices. This was followed by not having the ability to save for a decent deposit.

The percentage of respondents citing a fear of not being able to meet repayments as a barrier dropped from 10% to 6%.

“Perhaps this is as a result of the Australian economy not struggling to the extent many had feared,” said Wyatt.

Lynne Wyatt

‘Big two’ still dominant at nMB Both CBA and Westpac have lost some ground, but they still continue to account for more than half of the loans written

by National Mortgage Brokers (nMB), according to its October Intell newsletter.

For August 2009, CBA accounted for 29.2% and Westpac accounted for 23.2%, for a combined 52.4% of the nMB loan book. This compares with a combined 55.3% for the 2010 year to date figure (CBA – 31.1%, Westpac – 24.2%).

Lenders to gain ground were ANZ, up to 12.9% (from 10.1% for the year to date) and BankWest which claimed fifth spot from NAB’s Homeside with 5.28%. nMB’s fourth biggest lender was St.George, which saw a slight drop in business, down from 9.7% for the year to date to 9.1% for August.

With over 200 brokers, the nMB loan book provides a good overall snapshot as to the dominance of the ‘Big two’ in the mortgage space.

Economic recovery emphasis placed on China Usually we would need to take account of what a lot of the advanced nations are doing; but now with developed nations like the US, UK, Japan and Germany all experiencing serious economic contractions we have to be much more focused on what is happening in China, according to Craig James CommSec’s chief economist.

Speaking at the 2009 PLAN Australia member conference in Cairns, he said that recently released Chinese economic data showed China’s retail spending was growing close to the fastest rate on record.

And, since Chinese consumers were buying more goods like washing machines, fridges and cars it meant Chinese manufacturers needed additional aluminium, iron-ore and copper to produce them.

Also, it is because China is an Australian trading partner that this increase in raw material demand will have a positive spin-off for the Australian economy, said James.

But he warned that “in economics, along with the winners come losers” – there are those in Australia who will be negatively impacted by the buoyant Chinese economy.

“Immediately you think of the mining sector being one of the winners. But the benefits spin into other sectors as well; like the construction and transport sectors which are experiencing growth as a result of the need for services to go out to the mining areas,” he said.

Key points  Traditional developed nations experiencing serious economic contraction  China growing at near record levels  Demand increase for Australian resources  Economic winners and economic losers  Mining sector, spin offs to benefit  Tourism set to suffer

Also, if the mining sector is doing well it will have extra income to invest in the share and property markets.

“But other areas in the economy will be experiencing more difficult times,” warned James.

He used Cairns as an example.

“This sort of economy in this sort of region is doing it tough – and part of the reason is that they rely on tourism,” he said.

With the Aussie dollar up at US$0.93 in October from US$0.63 in March, it means a lot of Australians are going overseas for their holidays “and less overseas tourists are likely to come to Australia – because it’s cheaper to go to other places”.

James said that it was an economic reality to always have both winners and losers – regardless of whether the markets were performing well or poorly.

“What we have to do is sort that out, and see what each economic cycle means in terms of our own businesses,” he said.

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News

“Google second best referral source”

Not only must brokers have a strong online presence, but they need to ensure their websites rank prominently on Google, according to Loan Market executive chairman Sam White. Speaking at the aggregator’s annual

conference, White stressed the importance of a broker’s individual online presence in attracting business and generating a positive perception about how they operate.

“Clients search for and find mortgage brokers firstly through word of mouth and secondly through Google,” White said.

Research carried out by the Loan Market Group uncovered how brokers use Google to find a broker: “What we found is that borrowers are Googling mortgage brokers in their area”, he said, then seeing who comes up and starting from there.

During his talk, White presented a screen shot of a broker that appeared at the top of a Google search.

“We must get our websites set up so they are optimised for Google – we have got to be doing that,” he said.

“It’s disappointing that our web presence is not better, given that the resources are there to create and drive our own profiles online,” he added.

Just having a web presence though is not good enough.

“Clients don’t just want a name and number as part of an online presence, they want to get a feeling of who they are dealing with and whether, through their web presence, the broker demonstrates professionalism,” White said.

And not only are borrowers using the web to find a broker.

After meeting with a broker, many are going online to verify the details of that broker and to see if they should have any concerns about him or her.

Loan Market Group is not the only aggregator to focus on the web, and more specifically using Google as a business tool.

Franchise group Mortgage Choice recently announced it was transitioning staff and franchisees to Google Apps™ – which is Google’s suite of enterprise communication and collaboration tools.

Mortgage Choice said that by the end of 2009, the franchisor’s

Key points  Google search a great referral tool – Loan Market research  Brokers need a strong web presence  Website must be optimised for Google search  Websites must be personalised and promote professionalism entire operations (1,000 users) would be running Gmail™. To date, the franchise group has transitioned more than 400 of its users to Gmail, and is also using Google Sites™ for “planning, collaboration and information sharing through written and video communication”.

Mortgage Choice CEO Michael Russell said “going Google” would result in a more productive mortgage broker network and staff than previously achieved.

“We're actively preparing to deploy further web-based applications across our entire business,” he said.

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industry NEWS IN BRIEF ING beats big four on service

Dutch bank ING Direct, which sells its mortgages via brokers, has scored a customer satisfaction rating of 84.2%, soundly beating the major banks. This was the finding of the latest Roy Morgan research, which put current satisfaction levels at the CBA, Westpac, ANZ and NAB at a combined 71.7%. By far the most satisfied customers were those of building societies (87.9%) and credit unions (86%). The strong showing of ING correlates strongly with the MPA Brokers on Banks survey carried out earlier this year, which ranked ING Direct second behind AMP on overall service. ING Direct ranked first on broker support in the MPA survey and second on BDM support.

Community sentence for Money for Living director

Stephen Mark O’Neill, of Port Melbourne, Victoria, director of equity release scheme Money For Living (Australia) Pty Ltd and MFL Property Holdings Pty (both in liquidation) was sentenced to perform 150 hours unpaid community work over 12 months.

He was convicted on two charges of managing a corporation while disqualified. The charges were brought

by ASIC. Money for Living, which collapsed in September 2005, targeted elderly retirees. It offered a loan, similar in some respects to a reverse mortgage that allowed owners to ‘sell’ their home, be given a lump sum and monthly payments for the term of the mortgage, and be guaranteed lifetime tenancy.

Connective rapid expansion recognised

Aggregator Connective has ranked 24th overall on the 2009 BRW Fast 100 list. “We’re obviously very pleased with our ranking as it’s the pre-eminent recognition of Australia’s fastest growing companies across all sectors,” said principal, Mark Haron. “There were only four companies from the finance and insurance sector in the top 100 and of these, Connective was ranked highest,” he added. Haron said the ranking on the list was testament to Connective’s “unique business model as well as the dedication and hard work of the team”.

In the last 12 months, Connective broker numbers have grown by 65%, and its loan book has eclipsed $14bn.

Small growth in NAB mortgage book

Overall net profit at NAB fell 42.9% to $2.6bn for the 2009 financial year ending 30 September, while its mortgage book recorded just 4% growth. The NAB home loan book rose by $6bn (4%) to $154bn, below system growth. NAB Group CEO Cameron Clyne described the acquisition of the Challenger mortgage management business as an important component of NAB’s retail banking growth strategy.

He attributed the decline in net profit to “several longstanding and previously announced legal and tax proceedings, accounting volatility, and investment in the Efficiency, Quality & Service program which was not reported as an operating expense, consistent with the March 2009 half year results”.

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House prices surge in PLAN produces the most diamonds September quarter That the Commonwealth Bank has more diamond brokers from PLAN than from any other major aggregator is testament to the quality within the business, according to Sam Boer, GM for broker sales at the CBA. In addition Boer said quality was something that brokers would hear about more often from the CBA as it was likely to become more important in the new era – both in terms of the broker’s role and in the role of the CBA. “[At the CBA] we’re all about quality deals, quality brokers, professionalism and regulation,” he told the auditorium of brokers at the PLAN annual conference in Cairns. Boer said that in spite of the economic recovery the market was about to get tougher, and that brokers who understood the implications of that would do well.

He said people who were investing in their businesses and making the necessary changes would be the ones to prosper.

Key points  PLAN supplies CBA with the most diamond partners  Quality set to become increasingly more important  Brokers who invest in their businesses will prosper  CBA confirms it is committed to the broker channel for the long haul  CBA acknowledges some pain in its segmentation strategy Adding that it was keen to partner with those prepared to make the investment, he described the CBA as being “totally committed” for the long haul. And while he agreed there would be some pain for brokers as the bank began to execute on its segmentation strategy, Boer said the CBA recognised the value in aligning with “the people prepared to make those necessary investments who wanted to grow”.

Australian home prices grew by 3.7% in the September quarter – the highest quarterly growth seen in six years.

The Australian Property Monitors (APM) September Quarterly House Price Series report found that the rapid turn-around has been fuelled largely by more expensive houses – which were hardest hit during the downturn.

Matthew Bell, economist for APM said, “the extraordinary recovery at the upper end of the market that was experienced in June in most major capitals has now spread to the rest of the country. Nearly all capital city quarterly growth rates have been driven by strong sales of the more expensive homes.”

In Sydney, the country’s largest housing market, median prices in the most expensive 50% of suburbs grew by nearly triple the rate experienced in the least

expensive suburbs. “Another quarter of improving employment results and the share market rising by 20% has meant that buyers are stepping into the oversold top end of the market to purchase properties at prices still below their late 2007 highs,” added Bell.

The report also suggested that sellers who sold properties into the booming first home owner market over the past year have used sale proceeds to upgrade to more expensive homes and units, placing even more pressure on upper end markets.

Despite concerns about softening demand from first homebuyers affecting the property market following the decrease in the First Home Owners Grant boost in September and increasing interest rates, mortgage brokers are reporting increases in enquiries from property investors.

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industry NEWS IN BRIEF First mortgage trust reopens since onset of GFC

The Balmain (MMT Mortgage) Trust, to be relaunched in November, will be the first mortgage trust to reopen since the sector froze last year. “The sector froze 12 months ago – being apolitical about it – as a direct consequence of the sovereign guarantee not being extended to mortgage trusts. There was a heightened request for redemptions which the sector couldn’t meet,” Balmain (MMT Mortgage) Trust chief executive John Thomas said. The relaunched Balmain (MMT Mortgage) Trust will be a term investment, rather than an on-call investment where money is locked up for three years at a variable rate. “We believe that interest rates are on the way up, so investors can expect their investment to go up,” Thomas said. Existing investors will also have a new offering to consider.

Genworth: Sound performance in Australia

LMI provider Genworth Financial Australia performed “soundly” in the third quarter of 2009, according to results filed by its US parent. Revealing international mortgage insurance results, Genworth reported that new insurance written in Australia grew 9% versus prior year to US$8.9bn ($10bn) while Canada’s new mortgage flow grew by 14%. Genworth Australia reported a net operating income of US$42m ($47m) in the third quarter of 2009 compared to US$48m in the third quarter of 2008. Other good news was an improvement in loss ratios ‘sequentially’ in Canada and Australia mortgage insurance as well as in lifestyle protection.

The US report said: “International earnings reflected sound mortgage insurance performance in Canada and Australia as housing markets improved and economies stabilized...” Overall Genworth International reported third quarter results for 2009 of net operating income available to Genworth’s common stockholders of US$81m compared to US$220m for the same quarter last year.

Former broker pleads guilty

Accountant, former mortgage broker and former company director Rex Charles Goldring of Meadowbank, NSW has pled guilty in the NSW Local Court in relation to two charges brought by ASIC and was committed to the NSW District Court for sentence on 13 November 2009. Goldring was charged with two counts of obtaining money by deception under the New South Wales Crimes Act in relation to investments of almost $240,000 made by four investors. Each charge carries a maximum penalty of five years imprisonment. Between February and September 2004, whilst a director of Australian Synergies Group Pty Ltd, Goldring obtained the deferral of the repayment of loans owed by the company to investors by omitting to tell the investors material information about their investments. Goldring also assisted a number of investors to refinance their mortgages and redraw equity on their property to fund the investments he promoted. Australian Synergies Group Pty Ltd was deregistered after its liquidation.

The Commonwealth Director of Public Prosecutions prosecuted the matter.

UK lender launches $6.2bn RMBS

In a further sign that securitisation markets may be starting to thaw, UK lender Nationwide has announced a £3.5bn ($6.2bn) issue of residential mortgage-backed securities (RMBS). This single transaction, due to be closed in November, is nearly 80% of the value of the entire AOFM-backed securitisation program, which the federal government has just recently extended by a further $8bn. It is only the second significant securitisation deal launched since the start of the GFC – last month Lloyds Banking Group launched a £4bn mortgage-backed bond issue. This was lauded at the time as a sign that the securitisation markets had finally reopened. Prior to this, the last securitisation deal was carried out in August 2008, a £400m ($713m) issuance carried out

by Alliance & Leicester. The Nationwide RMBS is made up of prime mortgage assets with an average LVR of approximately 65%.

Bendigo and Adelaide Bank call for rating upgrade

Bendigo and Adelaide Bank has called on the credit ratings agencies to upgrade its ranking, saying its funding risks are substantially lower now than at the start of the GFC. According to a report in BusinessDay, the bank has told investors that its triple-B rating has marred its ability to secure funding at a reasonable price.

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News analysis

Economic recovery: the shape of things to come  All indications are that the GFC is beginning to

thaw and markets around the world are on the mend, with the Australian economy leading the charge.

Tim Neary gets the inside track from the industry experts on how the recovery is shaping up

C Australia is … one of only four advanced nations that hasn’t gone into recession over the last 12 months

hief economist at CommSec, Craig James, says he is often asked why he has been so positive about the Australian economy; so upbeat about its prospects.

His answer is quite simply that he has gone out and spoken to CBA customers and clients in small- and medium-sized businesses – and they have told him that the Australian economy is “in good shape and doing very well”.

“Going on the basis of what our customers are doing and what our accounts are looking like – overall they have been pretty good – the economic outlook remains good,” he says.

That informal acid test notwithstanding, he adds that as far as an economic recovery is concerned the fundamental facts speak for themselves.

“Australia is the only advanced nation that is showing positive economic growth at the moment; it is one of only four advanced nations that hasn’t gone into recession over the last 12 months, and it is the first G20 country to have lifted interest rates – it is credited with driving share markets around the world higher,” he says.

So now that the Australian economy is in recovery mode, perhaps the real question is what shape will the recovery take?

“U, V or W; or even the latest one on the block, the square-root sign shaped recovery – where you pick up and then flat line for a period of time,” he says.

While the US scenario could fit a square-root or even W-shaped recovery, James believes the V shape is more appropriate to the Australian recovery.

He makes the point that the current economic reality mirrors both the 1982/83 and the 2000/01 economic cycles – both of which Australia moved swiftly out of.

In addition, James makes an interesting point about the GFC being the first global downturn to occur in the internet era.

Along with some good websites – like the RBA website – you also get some blog and Twitter sites that spread a lot of speculation and innuendo, he says.

“So this is the first downturn where everyone in the world knows what is happening at any one point in time,” he says.

But, in the same way it exacerbated the rapid deterioration of the markets it has enabled an equally rapid restoration of both business and consumer confidence and a return to spending, employing and investing.

And this 21st century phenomenon, James says, acts as an additional stimulant that contributes to Australia’s swift recovery.

That said, National Australia Bank economist Alan Oster was more circumspect than James in his assessment of the nature of the recovery, when delivering a talk (via video) at the recent NAB Broker roadshow in Sydney.

Not convinced that the recovery would be as sharp as to constitute a V shape, he feels there could be some steadying in momentum before things began to ramp up again – suggesting more of a U-shaped return.

However, Oster is equally of the opinion that it is unlikely for a dip to occur now and is steering clear of predicting a W-shaped economic recovery.

For that to play out he feels something on the “Lehman Brothers scale” would need to occur on the global stage first.

Meanwhile, at the recent Loan Market Group broker retreat in Melbourne, John Pilkington, GM for liquidity operations at CBA, said it was too early in the recovery to make accurate predictions.

“While certainly we need to have a V before a W, we’ll need to wait and see how the recovery develops from here,” he said.

Pilkington’s feeling is that the industry has come out of the economic downturn very strongly, but it remains hard to see the recovery “just continuing” at this rate.

“Expect some sort of plateau”, he says.

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Inside economics

Dr Shane Oliver is head of investment strategy and chief economist at AMP Capital Investors

returning 9.5% pa over the last 10 years versus a loss of 0.2% pa from global shares in local currency terms.

In fact, once allowance is made for the rise in the Australian dollar, global shares have lost 2.3% pa over the past 10 years. Can this outperformance continue?

The theoretical case to have more global shares

The standard arguments for Australians to have a greater exposure to global shares are as follows: • local shares are just 4% of the global share market • greater exposure to global equities and foreign currency provides ’diversification benefits’ • the Australian share market doesn’t have much exposure to technology and consumer stocks and is over represented by financials and resources • significant international exposure provides an offset to our high foreign liabilities and our high exposure to domestic assets via residential real estate • global shares offer more scope for fund managers to ’add value’ The trouble is that such arguments are highly theoretical. The benefits of global diversification are hard to explain given the poor returns from global shares over the last decade. It is also debatable whether the extra opportunities offered by global equity investing have ever been consistently realised by fund managers, with similar or less value added relative to benchmark returns over time compared to Australian equity funds. These arguments also ignore the actual return potential for Australian shares over a more relevant horizon of say five years.

Bet local

For brokers considering a range of investment options, AMP’s Shane Oliver says Australian shares continue to provide better return prospects than mainstream global shares dominated by the US, Europe and Japan

T

he relative success of Australia in navigating the global financial crisis is now widely recognised. It is the only major developed country not to have had a recession since the early 1990s. This is owed to both good luck and good economic management.

But what does this mean for investors in shares? Does it mean Australian shares are a better bet than global shares? Or has it already been factored into share markets? For example, over the last 10 years Australian shares have dramatically outperformed global shares –

… but strategic view still favours Australian shares

Despite the theoretical case to have more global shares, for many years I have favoured Australian shares over mainstream global shares and, even though Australian shares have outperformed for the last 10 years, this remains the case for the following reasons: Firstly, despite recent cuts in dividend payments, Australian shares pay a higher dividend yield than mainstream global shares. In fact, the average dividend yield on Australian shares is 4% versus 2.6% for global shares.

Secondly, the Australian economy offers higher growth potential than those underpinning traditional global share markets in the US, Europe and Japan.

Australia is experiencing much stronger population growth (more than double that of other developed countries), which is feeding through into much stronger labour force growth. In addition, Australian households have not seen the same deterioration in their asset-todebt ratios as has occurred elsewhere, public sector debt is very low compared to most other developed countries and we are heavily exposed to high growth in Asia and

Table 1: Projected medium term pre-tax equity returns, % pa Region

Dividend yield, plus

Growth, equals

Projected total return

US

2.3%

5.0%

7.3%

UK

3.6%

4.0%

7.6%

Europe

3.6%

3.8%

7.4%

Japan

1.8%

2.8%

4.6%

Asia, ex Japan

2.5%

8.0%

10.5%

World – local currency

2.6%

4.7%

7.3%

Australia

4.0% (5.2*)

5.5%

9.5% (10.7*)

*Adjusted for franking credits. Source: Bloomberg, AMP Capital Investors

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strength in commodity prices. Reflecting the last two points, return projections (see Table 1) based on current dividend yields and likely earnings growth tend to favour Australian shares.

Australian shares with a five-year pre-tax return projection of 9.5% pa come out well ahead of traditional global shares with a return projection of 7.3% (which will be even lower if, as we expect, the Australian dollar continues to rise).

Franking credits should not be ignored because they add over 1% to the post-tax return from Australian shares for Australian investors. The higher dividend yield from Australian shares and franking credits mean Australian shares have a 2.5% pa return advantage over traditional global shares for Australian-based investors.

While Asian shares offer similar returns to Australian shares, they also come with more risk. They are also only a very small portion of traditional global share funds and so don’t alter the case for a strong bias towards Australian shares over traditional global shares. Instead, exposure to Asian shares can be better achieved through a specific Asian equities allocation rather than through traditional global share funds.

shares; post-1987 concerns about the quality of Australian companies; Australia’s past high inflation status; and Australia missing out on the late 1990s IT bubble. In fact, over the past decade or so, Australian-listed companies have generated better earnings growth than global shares, despite paying out a higher proportion of earnings as dividends and with lower risk in part reflecting the lower volatility of the Australian economy (with no recession in 18 years).

On this basis there is no reason why Australian shares should be trading on a PE discount. In fact, given their higher growth potential they should be trading at a premium. It is worth noting that despite Australian shares lacking the breadth and diversification of global shares, over the last century they have had better real returns with similar volatility.

In other words, there is no long-term evidence of under-performance by Australian shares on a risk adjusted basis. In fact, on the contrary, Australian shares have a better long-term track record than most global share markets.

Australian shares rightly at a premium to global shares

On a strategic, or five-year basis, the combination of better likely returns and franking credits suggest investors should maintain a bias towards Australian shares over traditional global shares.

Eventually, it’s possible that investor enthusiasm for Asian shares, emerging markets generally, commodities and Australian shares will go too far and become the next bubble… but that is several years away and in the meantime returns from such assets are likely to be strong.

While some fret that Australian shares are no longer good value as they no longer trade at a PE discount to global shares, our view is that they should trade at a premium.

The PE discount for Australian shares that prevailed up until around 2005 reflected a combination of factors that are no longer relevant. These included: a perception that Australian shares were more volatile than global

Concluding comments

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The benefits of global diversification are hard to explain given the poor returns from global shares over the last decade

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News analysis off the cuff Lisa Claes

ING Direct’s executive director of mortgages What was the last book you read?

Leo Tolstoy’s Anna Karenina If you did not live in Australia, where would you like to live?

New York – for the buzz, the excitement and the energy. In a penthouse definitely, overlooking Central Park.

If you could sit down to lunch with anyone you like, who would it be?

A few people – all in the visionary category. Paul Keating, the financial visionary who floated the Australian Dollar, the superannuation scheme and many others. Love him or hate him, he just did so much. Bill Gates, who revolutionised information technology. And David Bowie, the musical visionary never afraid to push new genre boundaries and the first to set up a bond issue on the royalties of his music.

All of them are very clever people.

What was the first job you ever had?

I worked in a health food shop when I finished high school. I learned that work was really quite challenging, having to maintain a focus over a long period of time.

What do you do to unwind?

Although I don’t have a lot of time, I find mothering and interacting with my children to be relaxing. I also like to run, read and spend a small amount of time alone.

What’s the most extravagant gift you ever bought yourself?

In terms of the price to volume to value ratio – it has to be a pair of True Religion jeans.

The price you pay for a pair of denims is ridiculous.

What CD is currently playing in your car stereo?

Richard Clapton – The Definitive Anthology If you could give anyone starting out in business one piece of advice, what would it be?

Run early and run hard.

If I was not working in the mortgage industry, I would like to be…?

Teaching English literature to children.

Where was the last place you went on holiday?

Noosa What is the one thing most people would not know about you?

When I was about 14, I camped outside the Park Royal in Queensland because the band Queen was staying there – just to catch a sight of them.

And after all of that, I didn’t even get to see them. Don’t tell my mother.

Letters to the editor: “Cert IV not a farce” Dear editor, In AB 6.19 (page 4) a broker recently ‘culled’ by the MFAA made the statement that Certificate IV is a farce.

I have several points I would like to take issue with, but will begin by saying the broker concerned seems to have totally missed the point.

While the MFAA culled him because he didn’t meet membership standards it was in fact preparing him for the impending National Consumer Finance Credit Act. The proposed legislation clearly states the minimum required standard of education will be Certificate IV in Financial Services.

I have been phoned by another ‘experienced’ broker who informed me that ‘a piece of paper is not going to make me a better broker’. I agreed with him that it probably won’t, but the point is that ASIC wants to be able to go to the public and say all brokers have a minimum standard of education (and that is Certificate IV in Financial Services).

ASIC (nor MFAA for that matter) cannot go to the public and say ‘some or most of the licensed brokers have Certificate IV’. It is not credible or realistic for some to be exempt simply because they believe a Certificate IV won’t help them. Can you imagine ASIC pronouncing ‘some financial planners have a diploma of financial planning’?

All brokers have had two years to obtain the qualification and those that failed to act are now angry that their bluff has been called. ASIC will not be so generous in allowing time to comply. You will either be qualified, and licensed, or pursuing other career options.

Those who are proud of the fact they were culled will be

able to take great comfort in the fact that whatever they do (other than broking) they will already know everything.

They will certainly not need training, apparently.

Andrew Gooding from Mortgage Fair was reported in another article as saying Certificate IV is not an onerous requirement, and that if brokers aren’t willing to make the time to do it, ‘you’ve got to ask how seriously they take the advice they give to customers’. Gooding says the changes will give consumers a higher degree of comfort.

He is spot on.

You will either be qualified and licensed, or pursuing other career options

It is inevitable that educational requirements will increase over time. There is still a gap between the mortgage industry and other areas of financial services.

The MFAA have already announced that it will require brokers to obtain a diploma in coming years to retain membership and there can be no doubt the regulators will be looking for higher qualifications in due course.

Many of the other financial professions have an advanced diploma as their standard. Training companies have geared up to offer diplomas and the forwardthinking brokers are taking advantage of the opportunity to upgrade now they have their Certificate IVs. Thinking back to the ‘culled’ brokers, I don’t think they will be a great loss to the industry. They have struggled to obtain a Certificate IV so can you imagine how they would be dragged kicking, scratching and resisting into a diploma. The next step should be that the lenders also cull them and then the job would be complete.

Peter Heinrich The National Finance Institute

Do you have a bone to pick?

Do you have an opinion on any story you may have read in the magazine or in our weekly newsletter?

Australian Broker is eager to hear back from its readers, so if you feel strong about something, send an email to: comments@ausbroker.com

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Feature

Lying about the truth Even if you’re telling a borrower the truth, if you give off the wrong signals, they may not believe you. Melbourne Business School Professor Karen Jehn pinpoints the signals you don’t want to give off

O

rganisational research has created a new way to generate repeat business – it involves training staff to “appear” to be telling the truth.

Most people are not good at detecting lies. Research by Melbourne Business School Professor Karen Jehn found in 80% of cases, customers perceived they were being lied to, when actually they were being told the truth.

She says that this perception of lying matters because it influences repeat business and the satisfaction of the customer and employee.

“It’s better for the organisation to actually train their employees on how to appear more genuine and reliable so that when they do tell the truth, customers do not misinterpret it.”

Basic clues

Four signs that indicate you may be lying • • • •

looking up to the left avoiding eye contact fidgeting pausing (when responding)

There are no clear specific signs that someone might be lying but there are some basic clues based on physiological research.

One clue is that people who lie tend to look up to the left or avoid eye contact. Jehn says, “looking to the left instigates the creative hemisphere of the brain. The right side is typically considered the more rational side.

This is a clear indicator that the police use all the time.

“Other physiological signs that might tip you off straight away that someone is being creative with the truth is if they fidget or pause. Taking too long to respond can also be an indicator that you are trying to fabricate a lie.’

She advises that if you want to convince someone that you are telling the truth, don’t look to the left and look people in the eye. Better yet, just be honest and forthcoming.

The ‘truth’ they want to hear

Some organisations, airlines for example, think it’s best to tell the customer what they think the customer wants

Contact Karen Jehn at K.Jehn@mbs.edu

to hear. Jehn claims that’s not necessarily the truth. If there’s a flight delay, people want to know about it.

“If the delay is caused by bad weather, or something mechanical, tell the passengers straight out and they will trust in the credibility of the airline to accommodate or fix the problem.

“Don’t tell them the plane is on time when they can clearly see their bags sitting on the tarmac outside.

People don’t mind hearing bad news. They prefer to be informed and told the truth.”

This is crucial to building respect and repeat business. Once you lose that trust in your customers, it’s difficult to retrieve.

Something else to avoid is stonewalling when customers complain. If something goes wrong, there are usually a lot of dissatisfied customers, but not a huge number of them actually make a formal complaint.

When they do, if the organisation deals with the complaint in an honest and respectful way, Jehn’s research shows they generate the most loyal repeat customer, who gets right back on board.

If the customer perceives they were being lied to, she says they will defect immediately.

Women better attuned to liars

“People always ask me whether men or women make better liars. This is not something I studied but if I was to speculate based on gender research in other projects, I would suggest that women are more relational beings and naturally more in tune to physical cues.

“This gives them an advantage because they can use that knowledge to manipulate the truth or detect lying.”

Honesty however, is not always the best policy. In cases involving, say an impending harmful disaster, some people prefer to be lied to. When Jehn discovered this in her research, she first thought she was asking the wrong sort of question or that she had interpreted the data incorrectly, then she realised that it’s a personality difference. Some people prefer not to know if the truth involves something that’s hazardous or dangerous. Others want to know.

Jehn added, “I would want to know in case I want to dance on the seat or have my last drink. But she admits that in an aeroplane that’s about to crash, it would be difficult to evaluate who to tell and who not to tell.”

Therefore, she advises honesty is generally always the best policy.

Tips to building respect and repeat business • • • • •

Rather tell the truth about bad news than lie Customers that perceive they have been lied to will defect Don’t stonewall when you receive a complaint Deal with complaints in an honest and respectful way In exceptional cases, lying is better than revealing a hazardous truth

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Dr Tony Hayek is the CEO of Blue Wealth Property, an independent research house that assists mortgage brokers and intermediaries in sourcing investment properties.

He holds a PHD in Organisational Psychology and before establishing Blue Wealth has worked as a business consultant, sales manager and property developer.

top ten tips …to using property market research Getting access to property research is becoming essential for brokers as property investors return to the market and need help in finding the best investment opportunities.

Blue Wealth Property believes that not all research is the same.

Here are 10 tips to ensure your client’s decisions are based on sound research: Tip 1: Research should use a clear and transparent methodology Tip 2: Research should be quantifiable and empirical Tip 3: Research should analyse market drivers such as employment, infrastructure spending and population growth Tip 4: Be aware of reports using median values to assess market performance – this can be misleading Tip 5: Sales volume is important to take into consideration when assessing changes in market prices Tip 6: Past performance is no indication of future performance Tip 7: Market sentiment can be misleading and often fuels misguided consumer media opinion Tip 8: Beware of all projections – no one has a crystal ball Tip 9: Understand the source of your data Tip 10: A whole range of statistics should be used when selecting markets; individual property statistics often don’t give a good enough picture.

cont. from cover

>>

When Australian Broker last contacted Macquarie for an update, a spokesperson delivered the standard response that “discussions are ongoing… we may be able to provide you with an update next week.”

Reasons as to why the bank has been so silent on its aggregation play have been circulating the industry rumour mill for some time.

The most popular and widespread is the belief that some of the major lenders have been reluctant to grant accreditation to the new aggregator, with the CBA as the bank most often named.

The Macquarie spokesperson said they had heard similar rumours, but dismissed it.

However, when Australian Broker contacted the CBA to

WINNER!

Comment of the month Congratulations ‘Good idea but...’ on winning the $10,000 media package

“

Bouris wins support for cost of funds ‘watch’ A recommendation from Mark Bouris that Australia establish an industry benchmark to track the cost of banks’ wholesale funding has been backed the CEO of NAB. The Australian reported that Cameron Clyne sees “great merit” in the establishment of an independent barometer.

The regular publication of a benchmark cost-of-funds rate would better inform the debate surrounding the movements in variable mortgage rates and the official cash rate, according to comments the paper attributed to Clyne.

Bouris proposed ‘bankwatch’ as a means for consumers to predict interest rate movements outside of official monetary policy.

“We should have a benchmark rate for the cost of wholesale funds. That way, if the benchmark rate is 7%, for example, and my variable rate is 6.5%, then I should start thinking about fixing, because I could soon be paying 9% if you allow a 2% margin over costs,” he said.

”

Commented by: Good idea but... comment on the rumour, the response received suggested some reluctance on the bank’s part: “We await further information regarding the proposed entity(s) in order to make an informed decision,” said Kathy Cummings, executive general manager for third party banking at the CBA. News that Macquarie was planning a return to third party banking via a co-operative style aggregation business came to light on Broker news in February this year.

In June, Broker news was told that six aggregators were believed to be involved in the project – one from South Australia, one from Western Australia, one from Queensland and three from Sydney.

The devil is in the detail of such proposals.

While well intended, the proposal may be unworkable as lenders may have trouble “dumbing down” their cost of funding to a single number (or set of numbers) that brokers could understand, let alone most consumers.

be in the running this month: »» if you have an interesting view on industry developments, register your contact details and share it with us! »» professional, thought provoking opinions are what our readers want »» share your expertise

visit www.brokernews.com.au The place where the industry comes to meet

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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

Embracing their inner Mervs: Ballast’s Movember men include (from L to R) Frank Paratore, Wayne Blazejczyk, John Misztal, John Lister and Andrew Grace

assortment of moustaches to support the annual charity ‘mo’-vement.

So serious are the guys about cultivating their inner ‘Mervs’ that they have appointed an official ‘Mo Sister’ in the form of Kaylene Blazejczyk who will be keeping a keen eye on the progress of the participants.

And to prove that the Ballast team started 1 November clean shaven, they even sent Insider the above picture of the MOBROS, pre MO:

‘Nothing’ lost C in translation

did in defending their goal,” he quipped cheekily.

Seems Woolnough is just as adept taking on the major banks in the mortgage space as he is the armed forces on the sporting field.

Indeed, many brokers will be hoping his sporting success carries through into the lending arena as well.

Some choice serves from Rod McGeoch

Woolnough leaves ‘defence’ in tatters

A

t his opening address to brokers at the Loan Market Group annual conference in Melbourne, Sam White included a slide which segmented its brokers according to the volume of business they write (along with corresponding information on PAs, shop fronts and number of loan writers).

As he explained, this sort of information is designed to help the company uncover areas where brokers may be lacking and then help them work their way up into the top performing categories.

Of concern, Insider noted, was the small category of brokers who appear to be writing “nothing” for Loan Market, or so the slide

said. Luckily Sam White had noticed it too.

“That shouldn’t say ‘nothing’,” he said, explaining – much to the amusement of his audience – that he had actually dictated the slide over the phone and had asked for that part of the matrix to be “left blank”.

MO-BROs, pre MO

N

ovember of course means “Mo-vember” and leading the industry charge to raise funds and awareness for prostate cancer and men’s depression, will be Ballast Finance.

The Perth-based brokerage has registered a team of ‘MO-BROs’ who are all set to grow an

ongratulations to Mark Woolnough, head of partnerships at ING Direct broker sales, after winning a hockey gold medal at the Seventh World Masters Games held in October in Sydney.

Woolnough was part of a team made up of previous hockey Olympians, current Australian indoor hockey reps and over 35s representative players, which played seven games over just nine days.

Included among the opposition was an Australian Defence Force outfit made up of a combination of players from the defence forces.

Having seen this team off, (and done battle with teams from Switzerland, New Zealand, South Africa and Papua New Guinea), Woolnough showed he’s not just nifty with a hockey stick “Hopefully they (the defence force team) do a better job defending our country than they

W

hen not rattling off what must surely be the most impressive CV in Australian business, Rod McGeoch, the man who led Sydney’s successful Olympic bid, threw in some cracking jokes that had brokers attending the Loan Market Group conference in stitches.

This was McGeoch on comparing George Bush Senior with George W. Bush: “One was responsible for the fall of communism and the Berlin Wall, the other the fall of capitalism and Wall Street.”

His perception of Athens, as host of the Olympics: “Alexander the Great told the people of Athens: ‘Don’t change anything while I am gone’… and they didn’t.”

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Caught on camera Aggregator PLAN Australia held its 2009 member conference in tropical Cairns on 21–23 October. Under the heading of ‘Celebrate and accelerate’, the focus was on growth in 2010

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8 Photo 1: Craig James (CommSec) Photo 2: Anne Thandchang (Propex), Grant Hackett (Westpac) Photo 3: Grant Hackett (Westpac), Ray Hair (PLAN), Huw Bough (Westpac) Photo 4: Grant Hackett (Westpac), Steve Weston (Challenger) Photo 5: Daniel O’Brien (Perpetual Financial Solutions), Heather Nyssen (Qld Financial Services) Photo 6: Huw Bough (Westpac), Ray Hair (PLAN) Photo 7: Cairns waterfront Photo 8: Erina Cunningham (NAB),

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Blair Turner (NAB), Sarah Dougan (LJ Hooker), Sharleen Hill (NAB) Photo 9: Aldo Rigo (National Pacific), Tracey Lukas (I-Financial Group) Photo 10: Duco Sinkinghe (Pepper Home Loans), John Hymet (Choice Finance), Lee Prior (LJ Hooker) Photo 11: Kathy Rogers (Financial Plus), Evan from Cairns Zoo and Fluffy the snake, Denise Lawrence (Qld Financial Services) Photo 12: Sam Boer (CBA), Craig Gerrans (CBA) Photo 13: Cheryle Hayward (Midwest Home Loans), Lee-Anne Wheeldon (Midwest Home Loans)

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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

AGGREGATOR / WHOLESALE BROKER AMB Origination 1300 55 1118 www.ambo.com.au page 27

COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 13

Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au page 23

LENDER Eurofinance 02 9252 8311 www.eurofinance.com.au page 21

Firstfolio One 1300 722 752 www.firstfolio1.com.au page 25

Homeloans Ltd 1300 787 866 www.homeloans.com.au page 22

Mortgage House Aggregation Services 1300 664 774 www.mhas.net.au info@mhas.net.au pages 16 & 17

MKM Capital 1300 762 151 www.mkmcapital.com.au page 8

PLAN Australia 1300 78 78 14 www.planaustralia.com.au mail@planaustralia.com.au page 5

MORTGAGE MANAGER / NON-BANK iLending 1300 610 035 www.i.lending.com.au page 29

Banks Adelaide Bank 1300 791 679 www.brokers.adelaidebank.com.au page 9

Mango Media 02 9555 7073 www.mangomedia.com.au page 1 NON-CONFORMING Liberty Financial 13 11 80 www.liberty.com.au page 7

St. George Bank 1300 137 532 page 3 Suncorp 1300 655 821 www.suncorp.com.au page 36

Cityweb Business Services

OTHER SERVICES Cityweb Business Services 0417 665 983 www.cityweb.com.au page 14

Residential Mortgage Fund 1300 632 737 www.residentialmortgagefund.com.au page 33

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

Residex 1300 139 775 www.residex.com.au page 30 Trailerhomes 0417 392 132 page 32 SHORT TERM LENDER Crown & Gleeson 1800 735 626 www.crownandgleeson.com.au page 2 Interim Finance 02 9971 6650 www.interimfinance.com.au page 6 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 20 SOFTWARE/IT Finware 1300 762 444 sales@finware.com.au www.finware.com.au page 35 Wholesale Advantedge Financial Services Pty Ltd 03 8616 1600 www.advantedge.com.au pages 11,15 & 19

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