Australian Broker magazine Issue 7.10

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ISSUE 7.10 May 2010

Smaller lenders throw down the gauntlet

Gino Marra

 Brokers to support small lenders more

Smaller lenders have been pulling out all the stops to convince brokers to recommend their products to clients rather than sending them to the major banks. Carrington National has taken an innovative approach to attracting borrowers and brokers to their products, by offering to pay for the LMI premium for loans up to 90% LVR where the premium is less than $4,380.

Carrington MD Gino Marra said non-bank lenders in general are more innovative than the banks in their offerings. “The pendulum is swinging back towards the non-bank lenders and some sanity is coming back to the market,” Marra said. “Consumers have seen banks raising rates outside of the RBA and they’ve realised that there is no more risk going with a non-bank lender than there is going with a major bank.” Marra said the offer, open until November, is for either Genworth or QBE LMI insured clients and

that brokers can earn up to 1.2% commission on its All-in-One product or up to 0.8% commission on the Horizon product. Non-bank lender Collins Securities and mortgage manager Iden Group have both promised mortgage brokers higher commissions for loans they originate, as they look to gain market share in an environment where the majors dominate. Collins CEO Rob Emmett said the lender was increasing the amount paid on its low-doc refinance product to a maximum of 0.6% upfront and an ongoing trail of 0.25%. “It’s really a reflection of the work that goes into a refinance application from a broker perspective – and also we’ve got increased funding for that product,” Emmett said. “What we’re finding is that as the banks tighten up and restrict a lot of their parameters and credit policies it’s opening the door to the non-banking sector.” Emmett said he is cautiously optimistic going forward and has seen evidence that funding sources have increased in the past 12–18 months. While brokers and consumers are still sending the majority of their business to the majors, Emmett said there are signs that the third party channel is ready to embrace non-bank lenders once more. “It’s certainly a challenge but the walls are breaking down before our eyes,” he said. Page 18 cont.

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Rebranding for ALI Getting brokers to think about mortgage protection as part of their product offering is a key point behind the recent rebranding of Australian Life Insurance Page 10

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Home lending lows As first-time homebuyers remain absent from the market, mortgage brokers are feeling the pain with a 12-month low in new home loan figures Page 14

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Art of negotiation Think you deserve a better deal for your efforts? Here are some practical tips for negotiating your salary and perks with your current or prospective employer Page 22

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News Australian growth to provide opportunities for brokers KPMG demographer Bernard Salt envisions a future Australia very different from the one that brokers work in today. At a Genworth function looking at the impact of demographic shift on the mortgage industry, Salt said that continued immigration is going to create opportunities for the industry. “I think we will see continued strong growth along the eastern corridor from Cairns down to Wollongong,” Salt said. “People will be more comfortable living outside the capital cities but they will always want to live close to the beach.” Genworth chief risk officer, Paul Caputo, said that continued net migration is going to change the

Bernard Salt

makeup of the Australian population. “Immigrants are going to have different ways of purchasing property and will be looking for different types of property,” he said. “You could start to see more mortgage products where there are more than one or two borrowers on the loan.”

Caputo said that demand for property will continue to grow, increasing the likelihood of borrowers receiving support from parents or grandparents. “LMI is going to be a very important product to support homeownership within the Australian market. There’s no doubt home prices in Australia are going to remain robust and strong for some time.” Steve Weston, GM of broker platforms and lending for Advantedge, said historically, immigrants are more likely to use mortgage brokers than other segments of the market, largely driven by unfamiliarity with the Australian banking and financial system and language barriers. “I think brokers who can develop a proposition that reflects the needs and habits of migrants will be ideally positioned to capture the growth. Word-of-mouth recommendations by family and friends ... will often start the discussion with prospective clients.”

www.brokernews.com.au Publishing director.... Justin Kennedy Managing editor.....George Walmsley Editor............................... Luke Cornish Production editors......Jennifer Cross ...........................................Carolin Wun Design manager..... Jacqui Alexander Designer......................... Lucila Lamas HR manager.................. Julia Bookallil Marketing coordinator...Anna Keane 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 Luke Cornish t: 02 8437 4773 f: 02 9439 4599 luke.cornish@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

Brokers train for post-GFC world The National Finance Institute has set up a series of workshops to help new and experienced brokers “re-engineer their business to harness the demand for professional brokers”. FrontRunner Consulting Group’s Doug Mathlin and National Finance Institute’s Peter Heinrich will hold workshops nation-wide to help brokers adapt their business to a post-GFC world. “The signs are good for mortgage brokers as many tell me that lead generation is improving, consumer confidence in property is rapidly rising, as are property values in

many areas in Australia,” FrontRunner’s Mathlin said. He added that the new regulation provides opportunities for brokers who can take advantage of the fact that many brokers are leaving the industry before the legislation becomes effective. New regulations will force brokers to implement processes in their business. “This clearly leaves an opportunity for those that remain to grab more market share for themselves and consolidate their business. Continuous improvement is an essential element to business

growth – constantly working on your service proposition, client care and personal performance,” Mathlin said. Heinrich will lead a session called ‘the psychology of a loan’, designed to help attendees better define and sell their value proposition to clients. Mathlin will lead a session on improving profitability and efficiency. Attendees will also take part in a conversion workshop, conducted by both trainers, which helps brokers to turn leads to applications and applications to settlements.

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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RBS backs out of reverse mortgages RBS is currently in the process of selling its hugely successful reverse mortgage business in Australia, as part of austerity measures put in place by the bank’s owners in the UK. Following a strategic review in February, the partially government-owned lender announced it would exit all non-core retail businesses outside of the UK. This led to the cessation of new business for its Australian reverse mortgages business. However, the head of the division, Martin Lynch, said that the decision to close new business would not impact existing customers with reverse mortgage loan products. There would be no changes to the lender’s terms and conditions while the sale process unfolds. “The intention is that we will just move with [the reverse mortgages division] to the new owners once the sale is resolved,” Lynch told AB. “The expectation is that the product will reopen once a sale is complete, since it is a very popular product.” While no timeframe was given for the completion of the sale process, brokers who deal with reverse mortgages will hope that it happens sooner rather than later.

Martin Lynch

Greg Reid, director of Reid Consultants, sells about one reverse mortgage each month. He said the exit of RBS leaves just three providers in the marketplace (Bankwest, CBA and St.George) and hinders his ability to find the best product for his clients. “It won’t affect my ability to service my clients but it takes away some flexibility because they were the only one offering any sort of income stream or fixed interest loans and they were the last ones to do that,” Reid said. “Most of my clients are pensioners who are struggling to make ends meet. Maybe they have credit card debt or have little to no superannuation because when they retired it hadn’t been instated and they’re looking to increase their income.” Demand for reverse mortgages has remained steady over the past 12–18 months, Lynch said, but the real growth has been centred around accommodation bond funding. “The biggest shift we’ve been seeing is in funding people’s move into aged care. The accommodation bond funding has been the biggest growth area,” Lynch said. “The number of people who are over 85 is going to increase by 400% in the next 30 years and, as a result, the demand for that product is just going to grow significantly.” He said it is in this area that brokers will be able to build their businesses and take advantage of the growth in demand. “We’re tending to find that brokers deal with the product extremely well,” Lynch said. “The product itself isn’t hugely complicated – it’s just a matter of meeting your client’s needs.”

MFAA seeks clarification from ASIC on volume hurdles MFAA CEO Phil Naylor has asked ASIC to provide its members with guidance on how to handle volume hurdles in conjunction with the new regulations that will come into effect at the start of July. As it stands, brokers face the prospect of hefty fines or jail time for not providing consumers with independent guidance on choosing a home loan, regardless of any volume hurdles erected by lenders. “A conflict arises where an interest of the licensee conflicts with a legal obligation that the licensee owes to the client, including one that arises under the credit legislation,” ASIC said in a regulatory guide to the National Consumer Credit Protection Act. Brokers who break those legal obligations face fines of up to $11,000; or two years in jail; or both. If it is a company that is found guilty of breaching those obligations, the penalty can be as high as $1.1m.

CBA requires that brokers must submit at least four mortgage applications and settle a minimum of three loans within a six-month period, while Westpac requires at least one loan to be settled every six months. Naylor said that he had held discussions with the lenders last year but they were adamant that they were working in the best interests of their customers. The banks contend that a broker must submit a certain number of loans in order to be suitably knowledgeable about the products they are selling. Last year, Refund Home Loans approached the ACCC to complain about the practice but had its complaint dismissed. Naylor said that he approached ASIC after the lenders indicated to him that they would not be changing their policies once the new regulations come into effect. “At that time, that wasn’t possible so we are now talking with ASIC,” Naylor said, adding that the MFAA was waiting for a reply from the regulator.


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News Westpac pledges to match RBA moves for rest of the year Westpac CEO Gail Kelly has promised brokers that their clients will not have their mortgage rates increased by more than the increases in the Reserve Bank’s cash rate for the rest of 2010. Speaking at the presentation of the bank’s first-half results, Kelly defended Westpac’s record profit which increased 32% to $2.9bn, and pledged to ensure borrowers did not have to pay for the increased cost of funds. “It’s not on our agenda to increase our mortgage prices over

and above what the RBA may do,” Kelly said. Westpac slugged borrowers last year with an additional 20 basis point rise when the RBA lifted the cash rate by 25 basis points in December 2009. The move pushed Westpac’s standard variable mortgage rate to the most expensive of the major banks, with the rate now at 7.41%. Kelly said that Westpac had moved to lengthen the maturity of its funding and eased its competition for retail deposits allowing it to move in-step with

the RBA for the rest of the year. After the central bank increased the cash rate by 25 basis points to 4.5% at the beginning of May, Kelly said that she expected the RBA to pause before resuming its tightening of monetary policy. “[The increase] suggests that there will now be a pause before the next increase some time later this year,” she said. “When that next increase occurs it will likely be in response to growing inflationary pressures.” After the RBA lifted its rates, all four of the major banks and Australia’s fifth-largest mortgage lender ING Direct followed, by increasing their mortgage rates by 25 basis points. This brought the majority of mortgage rates to what RBA governor Glenn Stevens called “historically average levels”. However, a number of commentators warned that

Stevens’ comments did not signal an end to rate rises in this cycle. Continued inflationary pressure resulting from strong employment and another boom in resource prices is likely to mean that the RBA will have to move from neutral to a restrictive setting in the next 18 months. Most analysts believe the cash rate is likely to peak at around 6% some time in 2011.

Gail Kelly

US cracks down on broker bonuses

The US Senate has voted to ban the practice of paying broker commissions, based on how much they are able to charge their client. The practice has been blamed for putting many borrowers in unsuitable loans,

which resulted in the wave of defaults that preceded the global financial crisis. The ban on these bonuses comes from amendments made to financial reform legislation, currently making its way through the US Congress. Currently, brokers are able to charge their clients different rates for the same product from the same lender. Brokers are rewarded by being paid a higher upfront commission for loans that have higher interest rates. The lender then packages up the loans, selling them onto another lender – who will pay more for a bundle of mortgages that contain high-interest loans. However, the US Senate is seeking to remove the incentive for brokers to put their clients in high-interest loans by removing the financial incentives for doing so. “Deceptive mortgage practices like hidden steering payments

directly led to the Wall Street meltdown and resulted in millions of families losing their homes,” said Senator Jeff Merkley, a Democrat from Oregon who sponsored the ban on broker bonuses for higher-interest loans. The measure passed the Senate with a vote of 63 for, 36 against. The bonuses that have been banned were known as yield spread premiums and reflect the fact that the value of mortgages is based on the terms of the loans. A study found that these bonuses, which technically could have been used to help pay for some of the costs of the loan, averaged around US$2,000. The study also found that nearly all the brokers surveyed were putting their clients into more expensive loans and pocketed the rebates. The Senate also voted to ban stated-income mortgages. These

mortgages rely solely on the borrower to inform the broker and lender what their income is, in order to determine whether a particular loan or loan amount is suitable for that borrower. They have become known in the US as ‘liar loans’ and are cited as a key reason why the country suffered its housing market collapse. While house prices continued to rise, borrowers using these stated-income loans were able to refinance a year or so later, taking out the equity in their homes and making a tidy profit. Because most mortgages in the US are non-recourse, when house prices took a dive many borrowers were able to walk away from the loans, simply by handing over the keys to the house to the lenders. This is said to have contributed to the housing downturn that led to the most severe recession seen in almost a century.



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New group leads broker evolution The recovering mortgage market has spurred the creation of a new group that aims to help brokers become mortgage planners. Darryl Benn, the principal of The Mortgage Planner Group, said he is altering the traditional role of a loan writer. “What we’ve created is a product called The Mortgage Plan, but we believe we’re creating a new profession in the industry,” he said. According to Benn, brokers that decide to become planners will develop a huge competitive edge over their competitors. “When you talk to your customers you identify yourself as a mortgage planner.

Of course, the first question is ‘what is a mortgage planner? ’,” he said. “Then we explain to you that we do a budget, we analyse your affordability, we do a fact-find to understand your actual requirements now and in the future, we do an annual review, and we provide ongoing support for the life of the loan. Whereas a mortgage brokers’ focus is to write the loan and forget it.” By using the company’s Mortgage Plan, a comprehensive 80-page document that looks at a client’s budget, their current and future financial needs and a plan on how to achieve those goals, Benn said brokers can

Rate rise offers opportunity for brokers, says MFAA Savvy mortgage brokers could stand to benefit from the Reserve Bank’s recent rate rise, according to MFAA CEO Phil Naylor. He said there are untapped opportunities for brokers in the current environment of rate rises, particularly in terms of helping existing borrowers. “There’s a real opportunity for brokers to demonstrate the value-add they can bring to consumers,” said Naylor. “While competition may not be as fierce as in the past, there’s still a significant discrepancy in the rates offered by the major lenders and smaller, second-tier lenders. “Brokers can really strengthen their proposition by contacting

existing borrowers and perhaps encouraging them to carry out a mortgage health check,” he added. “It may be the case that refinancing – or even moving to a new lender – could see consumers achieve considerable savings.” Naylor’s comments come amidst industry criticism of the central bank’s decision to increase the cash rate to 4.5% earlier this week, with Real Estate Institute of Australia president David Airey likening the move to “putting a finger in a leaking dam”. Airey made the comparison while arguing that the real issue was lack of supply, as demand for available housing increases.

gain a life-long relationship with their client that is based on responsible lending and borrowing. Benn said that he realised some time ago that a lot of brokers were facing challenges to survive and grow a viable business with shrinking commissions, less loan products to offer and tightened lending regulations. “With the introduction of new legislation I believe it is the right time for brokers to consider their future and how they can further develop their business.” He added that “this new model will reshape the way brokers will do business with clients”.

“The current level of housing supply in Australia is insufficient,” he said. “Increasing interest rates only makes a bad situation worse by negatively impacting on the ability of developers to service loans, fuelling the issue of a growing shortage of available housing.” HIA senior economist Ben Phillips has also expressed concern – primarily about the impact the rate rises could have further down the line. “The rate increases so far are not showing through yet in the property market, as they usually operate with a nine to 12-month lag,” said Phillips. “We are concerned the RBA is not fully factoring in this lag and expect that further rate rises will hit households hard later in 2010.” However, Phillips believes the housing market will remain robust, as long as any increases are not too large. “Higher rates will lead to greater stress for mortgagors, however, we don’t expect that small rate rises will

The Mortgage Planners Group has hooked up with Intellitrain to provide a new mortgage planning course. Intellitrain is the first Registered Training Organisation to present a mortgage planning course to the industry. The course will teach brokers about domestic cash-flow management, budgets, forecasting, how to do a factfind, as well as a mortgage plan. Brokers who choose to take the mortgage planning course have no obligation to join The Mortgage Planners Group, however those who are looking to utilise the group’s Mortgage Plan will have to complete the course.

Phil Naylor

lead to higher default rates and the house price collapses that would ensue,” he added. “The economy and the housing market can cope with modest rate increases. Large rate increases will lead to bigger problems down the track.”



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ALI re-branding turns focus to mortgage protection

Australian Life Insurance, ALI Group, has re-branded to make brokers think about mortgage protection as a key part of their product offering. “A mortgage broker is setting someone up with a large amount of debt, therefore it’s only reasonable for them to help guard against their inability to meet their obligations in the

event that their client were to become seriously ill or die,” said ALI’s head of sales and distribution, Darren Smith. “Offering to protect a client’s mortgage provides dignity, control and choice in stressful times.” ALI Group’s repositioning comes as a direct response to mortgage broker feedback,

Smith said, adding that the complexity typically associated with more traditional life insurance offerings often results in no insurance being taken out. “It’s now more important than ever for brokers to be providing real value and full service to their clients, in order to secure a sustainable future,” he said. “If they don’t someone else will.” Smith said that brokers should incorporate into their business process offering mortgage protection to their clients, so that it becomes habitual. He said that rather than diversifying their business offering, what brokers are actually doing is enhancing their service proposition by offering to protect their client’s mortgage. “The deeper a mortgage broker can infiltrate the relationship, the more likely a client will remain theirs,” Smith said. “Wider product offerings will also help brokers maintain revenue through all market conditions allowing

them to continue to service their clients.” He said the GFC has raised the awareness of risk and many homeowners now realise that they are exposed and need protection. Brokers should feel an obligation to at least raise the issue of mortgage protection with their clients. Research has also shown that most customers would be happy talking about it with their broker, at the time of taking out a loan. “Mortgage brokers have experienced a downturn in business with the property market dropping off since last year’s boost from first homebuyers,” Smith said. “ALI Group’s repositioning is a direct response to mortgage broker feedback, requesting we more closely align the cover we offer to the core mortgage transaction. “It’s about integrating with their process and assisting them in fulfilling their obligations to their clients,” he added.



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Call for super funds to enter reverse mortgage space

IFBF says regulation may limit access to loan products Aggregators are placing unworkable conditions on brokers as a result of the new National Consumer Credit Protection Act, according to a spokesperson for the Independent Finance Brokers Forum. Darryl Benn said that the new legislation could result in borrowers being denied access to a number of lenders, by aggregators’ requirements that brokers meet specific volume targets for specific lenders. “It is evident from attending a number of presentations on the new National Credit Code that a large number of brokers do not fully comprehend the complexity of the application of the legislation as it will apply to brokers on a day -to-day basis.” Benn said. “One of the consequences of the legislation is that it could enable aggregators to restrain brokers to work only with lenders on their panel – which could have the effect of denying a broker’s client’s choice in the mortgage market.” Benn said this would create inconvenience for borrowers in that they may have to consult

more widely to get comparisons on a range of loan products. There is also the possibility of aggregators creating operational conditions on brokers which would lead to the aggregator being able to cancel the broker’s accreditation if volume or product distribution conditions were not met, he added. The Independent Finance Brokers Forum represents 150 brokers and brokerage firms and was established as a broker information exchange and support group three years ago. Benn said that many of its members are uncertain of the approach they should take towards registration – and particularly whether they should operate under an aggregator umbrella or seek to have a more independent approach. Benn said that uncertainty around how the aggregators will use the credit representative system is likely to push brokers to the more expensive operating structure of a fully licensed entity.

Industry sources are hoping that superannuation funds will take heed of recommendations made in the Cooper Review stating that they use the vast supply of funds at their disposal to develop a range of reverse mortgage products. “I think it’s critical that the reverse mortgage market benefit from the competitive tension that exists from major banks and specialist lenders, and I’m confident that there will be new entrants to the reverse mortgage market,” SEQUAL CEO Kevin Conlon said. “In his superannuation review, Jeremy Cooper quite correctly points to there being a category of providers that are likely to emerge in the [reverse mortgage] market from these superannuation companies.” While Conlon said that no superannuation funds have made any moves to develop a reverse mortgage product yet, he thinks that it would be a natural fit for the requirements of the retirement savings of Australians. These products should not be confined to major banking groups. “There’s no reason why people other than commercial banks shouldn’t be competing in the reverse mortgage market and I think that’s where the future lies,” Conlon said. “Certainly superannuation funds have a natural hedge given their time horizons for their invested funds under management. These are not easy products to manufacture and, as Cooper said, the superannuation funds are uniquely placed to meet the challenges of manufacturing a reverse mortgage.” Demand for reverse mortgage products is expected to grow exponentially once the Baby Boomer generation reaches retirement age. “The average age

of customers for the product is still 74–75, so in terms of the Baby Boomer flow-through, that’s still a little way off,” said Martin Lynch, RBS head of reverse mortgages. “We’re still at the pre-Baby Boomer stage so I think the significant demand shift will be over the next two or three years.” Demand has not been helped by a booklet that ASIC has produced called Thinking of using equity in your home? In it, ASIC uses examples that are at the extreme end of the scale, when the majority of clients are far more conservative in their use of the products, said Reid Consultants director Greg Reid. “From my point of view the examples they have illustrated are somewhat negative in that they use higher interest rates, high loan amounts and full drawdowns whereas, in my experience, clients just don’t go to those extremes,” Reid said. Another handbook, produced by the National Information Centre on Retirement Investments (NICRI) provides a more balanced view, Reid said. The booklet, called Accessing the equity in your home uses examples that are more in line with the circumstances of his clients, he added.

Kevin Conlon


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INDUSTRY NEWS IN BRIEF US rules threaten Aussie RMBS issues

New rules being set by the US Securities and Exchange Commission could stall the recovery in the Australian securitisation market, according to an industry body. The Australian Securitisation Forum (ASF) has voiced concerns that issuers will face higher costs and legal uncertainties under SEC rules that come into effect at the beginning of June. The offending rule is targeted towards the ratings agencies that many have blamed for rating toxic RMBS issues, strongly leading investors to take excessive risks. The new rule will require any issuer of RMBS securities to make information available to the big three ratings agencies via a secure website. ASF said this would “give rise to significant operational issues and will delay transactions in what is already a fragile, but recovering, market”.

European debt crisis could pressure mortgage rates

Just when wholesale funding markets were starting to stabilise, a debt crisis on the other side of the world threatens to put upwards pressure on Australian mortgage rates. Prior to the GFC it was high levels of private debt that spooked the funding markets, but this time around it is the debt being carried by countries in the European Union and the UK that has sent shockwaves through the wholesale funding markets. When the funding markets spiked as a result of the GFC, it signalled an end to the coupling of Australian mortgage rates and the Reserve Bank’s cash rate. However, Australian banks have not veered from the RBA’s moves since December as wholesale markets started to become more predictable. A second round of uncertainty as a result of the European debt crisis could lead to more moves over and above those of the central bank. Glenn Stevens and his colleagues are likely to take this into account when they make their decision on the cash rate next month; most analysts are expecting them to hold tight and see how the European situation works out before resuming their tightening course.

MFAA expels member

For the second time this month, the MFAA ousted a member with Pingkie Ong of Preston West, Victoria expelled for misconduct. According to the MFAA’s Disciplinary Tribunal, Ong failed to disclose all liabilities on a mortgage application that he submitted to a banking lender as both the mortgage broker and co-borrower. “The tribunal regarded the allegations as blatant and serious,” it said, citing clause 42 of the MFAA Code of Practice. MFAA CEO Phil Naylor said “the MFAA has a well-defined Code of Practice which demands high standards of behaviour, ethics, expertise and experience. This expulsion is part of policing those standards.”

ASIC promotion to deal with regulation

ASIC has approached its additional consumer credit responsibilities by appointing a new Deputy Chair and a new Commissioner. The regulator announced that Belinda Gibson has been made deputy chairperson, while the position of commissioner is being filled by Shane Tregillis. “The promotion of Ms Gibson to Deputy Chair and the appointment of Mr Tregillis will ensure that the Commission has the capacity and experience to deal with its increasing responsibilities, including market supervision and consumer credit,” said The Hon Chris Bowen MP. The appointment of a new Commissioner will allow ASIC to increase its focus on retail investor issues and financial literacy.

Victorians receive Budget boost

Unveiling the Victorian government’s budget, Treasurer John Lenders increased the boost for first-time buyers who purchase newly built homes. From July, first-time buyers of new homes in Melbourne will receive an extra $2,000 which, along with an existing $7,000 grant, will bring the bonus to $20,000. Regional Victorians will receive $26,500 towards the cost of a newly constructed home, up from the $22,500 which is currently available. The Housing Industry Association said the move would boost supply at a critical time, without putting more upwards pressure on house prices. “The extension will help maintain jobs in our industry and provide a much-needed boost to housing supply by helping more first homebuyers build their dream home,” said HIA Victorian executive director Gil King.


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New home lending hits 12-month low

The notable absence of firsttime homebuyers is continuing to impact the mortgage broking industry as new home loans hit a 12-month low, according to

figures released by the Australian Bureau of Statistics. The number of owneroccupied housing finance commitments fell by 3.4% in

March, ref lecting a continued decline in demand for housing finance from the owneroccupier segment, which had dropped 25% since October. ANZ economist David Cannington said this is led by a continuing exodus of first homebuyers – there were 67% less first-time homebuyers in March than there were in October. “The fall in housing finance approvals, both in terms of value and number, confirms that slowing momentum in housing finance commitments will continue to present concerns for the undersupply issue facing the Australian housing market despite the spike in building approvals for March 2009,” Cannington said. “Construction loan approval numbers fell 7.1% in March, to be down 20.2% since October 2009.” HIA chief economist Harley Dale said there is a disturbing downward trend in new home

lending, which does nothing to instill confidence in the prospects for a recovery in new residential construction that extends beyond this year. “The March ABS Housing Finance result marks the fifth consecutive fall in loans for construction and the sixth consecutive decline in total lending,” Dale said. “We have a debilitating conf luence of higher interest rates, tight credit availability, and obstacles related to land supply, planning, and infrastructure charges and taxation.” Dale said that the first stage of new home building recovery was clearly driven by first-time buyer-related activity. “In the March 2010 quarter the first homebuyer loan market was nearly 50% down on the same period last year, but the non-first homebuyer market was weakening – rather than filling the void left by the removal of the First Home Owner Grant Boost,” he said.


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Pepper adds spice to mortgage market Having bunkered down and weathered the storm during the GFC, Pepper Home Loans is now gearing up to take advantage of changing market sentiment by launching two new products. The non-bank lender has released its Pepper Flexi Advantage and Pepper Self-Employed Advantage products, which are aimed squarely at a market segment that it believes is currently underserviced through traditional channels: the self-employed and those borrowers just missing out on a home loan due to their own unique circumstances. Pepper said that the GFC has proven to be one of the most challenging periods for the Australian mortgage industry, changing the home lending market probably forever. The fallout has directly impacted the level of competition in the Australian home lending market. Another by-product of the GFC has been the extensive tightening of credit criteria within the market, primarily driven by increased risk aversion from Australia’s two largest mortgage insurers, Genworth and QBE. This steady tightening has meant that many customers can no longer obtain a home loan from the major banks. Mortgage brokers are finding that a large number of loan applications, which would have been approved by the mortgage insurers and major banks less than 18 months ago, are now being rejected. This is where Pepper believes it can capitalise on an opportunity. “We are committed to providing brokers with a competitive edge by introducing new products,” said Duco Sickinghe, head of distribution. “At the end of the day this also means that brokers will be in a better position to build their businesses by being able to close more loans.”

Bankwest’s new commercial chief has faced many battles In August 2004, Alan Pavisich’s baby daughter was diagnosed with infantile leukaemia. Eleven months later, Pavisich was told that he too had cancer. Two cancer battles in two years cost Pavisich 18 months of his working life – but it did not cost him his career. After thankfully seeing off his daughter’s leukaemia and beating cancer himself, Pavisich returned to Bankwest where he Alan Pavisich has worked now for 23 years. His tenacity has recently been rewarded with a promotion to head of corporate and commercial banking – a position he never would have dreamed he would be in five years ago. “I feel really fortunate to be given this great opportunity and I’m looking forward to working with the team to build relationships and increase business lending,” Pavisich said. “This is an exciting time for the booming WA economy, with businesses spending money again. It’s important we provide the service and attention companies need to expand during this crucial recovery period.” Pavisich said his top priority is to maintain a strong presence in Bankwest’s home state while boosting its presence on the east coast. “The availability of bank funding for businesses has been a hot topic lately, so what we want to do is overcome any difficulties faced by companies,” he said.


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Swan looks to boost competition Treasurer Wayne Swan is looking to boost competition in the Australian banking sector by cutting the level of withholding tax that banks and other financial institutions pay on the interest they pay in offshore borrowings. The move was announced along with the Budget and is aimed at removing a tax that was seen as imposing an unfair penalty on foreign banks operating in Australia, because their local operations often relied on borrowing money from their parent institutions to fund their lending. The tax is currently set at 5% but will drop to 2.5% in 2013–14 and be completely eliminated by 2015. Swan hopes that this will help entice international financial institutions to the domestic

banking sector and increase competition for mortgage lending, which is currently dominated by the top four banks. The move was hailed by MFAA CEO Phil Naylor as a huge bonus to brokers. “We welcome the announcement that the withholding tax on overseas lenders with branch operations in Australia will be reduced then ultimately eliminated,” he said. “These lenders have the capacity to make considerable funds available for lending to Australian borrowers, and in general transact much of their business through brokers. This move will be a positive in freeing up competition in the lending market.” The Treasurer was forced into making Australia a more attractive place for foreign banks

after the GFC enabled some of the majors to acquire the strongest second-tier lenders in St.George and Bankwest. The Treasurer is hoping that some foreign banks will be able to come in and fill the void – but it may be too late. RBS was, until recently, an active player in Australia’s reverse mortgage market. In fact, it was widely considered to have the strongest product offering in that space. However, the GFC sent the bank reeling, requiring a UK government-funded rescue package in order to remain solvent. This has managed to keep the lender from collapsing but has also meant that it has had to change its course. RBS, like many other huge financial institutions that had to be bailed out by their respective

Wayne Swan

governments, has now been forced to pull its resources from outside the country to focus on providing lending capacity in its home country. This withdrawal has decreased the number of foreign banking institutions that are able to take advantage of the cut to the withholding tax.

Budget promotes First Home Saver Accounts Borrowers have largely shunned the First Home Saver Accounts since they were introduced to the market in October 2008 to make home ownership more affordable. Buyers said the accounts were overly complicated and had some unfair provisions that made them unattractive investment accounts. So the Federal Government has moved to address some of these complaints in the latest Budget. The accounts, which have a four-year term, work by allowing cont. from cover

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“The poor service brokers are getting from the banks and the hurdles that some banks have put up for brokers are changing the attitude of the third party towards banks.” Parramatta mortgage manager Iden Group is also looking to attract brokers away from the

borrowers to put aside funds that can be used to purchase their first home. The government committed to contributing 17% on the first $5,000 of individual contributions made each year but these incentives still did not entice consumers. One of the main problems was the condition that at the end of the four-year term the money needed to be used as a home deposit or else rolled into superannuation, to attract tax

concessions. This made it risky for people looking to buy their first home but who were not sure about the time it would take them to save the deposit. In his Budget speech, Treasurer Swan said that the government would ease the rules for the accounts so that individuals who buy a home will be able to transfer their savings across to their mortgage, rather than roll it into their super accounts. MFAA CEO Phil Naylor lauded

the government for making it easier for borrowers to save for a home but questioned the impact these changes would have on brokers. “‘Largely the Budget will not have any direct material impact on MFAA members,” Naylor said. “While we welcome the moves to discount tax on savings interest and enhance Home Saver accounts, they are not seen as having any immediate impact on borrowers entering the mortgage market.”

majors by offering higher commissions than the top four lenders. For loans submitted until the end of June, the company is offering a special broker remuneration structure. For a select suite of loans, Iden will be paying a massive 0.80% upfront and 0.15% trailing commission from day one.

Outside of this promotion the mortgage manager pays 0.6%. “If you remain silent you’re going nowhere, you’ve got to attempt to raise your profile,” director Barrie Gaubert said. “Us mortgage managers are minnows in this industry and we don’t even pretend to be able to compete with the Big Four banks in terms of

marketing spend.” Gaubert said the market has become more buoyant in the past few months but it is not nearly as frantic as it was prior to the GFC. He said that borrowers are coming round to the idea that there is a rightful place for non-bank lenders in the marketplace.


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Cornish CORNISH COLUMN

BUDGET LIKELY TO PUSH RATES UP Typical for a politician in an election year, Treasurer Wayne Swan promised it all in his Budget – a return to surplus, surging business investment, falling unemployment and falling inflation. Unfortunately, for anyone whose livelihood is largely impacted by decisions made by the Reserve Bank of Australia, at least one of those things cannot possibly be true. Most of the promises made by Swan when announcing his Budget were based on an improved economic outlook, which is fair enough since conditions have certainly changed in the past 12 months. However, it is unlikely that Australia will be able to defy macroeconomic laws insisting that high levels of investment and low levels of unemployment lead to increased inflation. Since most economists believe that the expectations are pretty accurate, it . seems that inflationary pressures will almost inevitably result. “Despite strong . real and nominal growth in the economy and an unemployment rate heading below . 5% once again, inflation is projected to stay in the middle of the RBA’s target band for the next four years,” said ANZ chief economist Warren Hogan. “We don’t believe it! Unless the Australian dollar rises another 30% (possible) or wages remain remarkably contained (unlikely and not the government’s forecast), we just can’t see inflation holding at this rate.” The only way that inflation would be able to be contained, given the forward projections by the RBA, the Federal Government and economists around the country, would be if the government had delivered a Budget that slashed spending and thus acted as a counterweight to private sector investment going forward. Since this did not happen, it will be left to the RBA to contain interest rates using its favourite lever – the cash rate. ANZ senior economist Katie Dean said that the modest fiscal tightening is appropriate given Australia’s solid growth outlook – but that it would not be enough to mitigate upside risks to inflation. “We therefore still expect the burden of keeping Australian inflation contained will still fall heavily on the RBA,” Dean said. “We therefore would still expect further monetary tightening to be delivered in the upswing of this economic cycle and maintain our forecast for interest rates to rise to 5.25% by end-2010.” Given that it is an election year, the Rudd Government ought to be commended for presenting a relatively austere Budget that will not add inflationary pressures to an economy that is already feeling the impacts of successive rate rises. However, as one commentator pointed out after the Budget announcement, the government has left plenty of wriggle room for spending promises down the road. By limiting itself to just 2% of real growth in spending, the government still has billions up its sleeve to sweeten voters as the election nears. If it ends up using this money to buy votes then inflation (and correspondingly interest rates) may climb higher than is currently predicted.

Brokers’ tax rate set to fall Mortgage brokers will benefit from a cut in the tax rate for small businesses from 30% to 28%, although the tax break will not come into effect until 2012-2013. Small businesses with less than $2m in revenue will see their company tax rate fall under announcements the Rudd Government formalised in its Budget. The concessions were first made in the Henry Review, although Ken Henry proposed that the tax rate for small businesses be cut by 5% to 25%. Treasurer Swan has said, however, that the proposed cuts will only be possible if the government is able to pass its 40% “super profits” tax on mining companies. Opposition Leader Tony Abbott has firmly opposed the mining tax and said that it will be repealed if he wins the election. That would also leave other measures announced by the Rudd Government out in the cold – including the ability for brokers and other small businesses to depreciate assets in a single pool at 30%, and to take advantage of the instant small business asset write-offs, which are worth up to $5,000. Those broker groups that just miss out on the benefits because they earn more than $2m have reason to moan. Ken Henry recommended that the definition of a small business be changed from one that has $2m in revenue to one that has $5m. Yet this was just one of the 134 recommendations from the tax review that the Rudd Government saw fit to ignore. Employers, however, will be slugged with larger superannuation expenses from 2013 with the government intending to gradually increase the superannuation rate until it finally reaches 12%.


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News

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Harcourts: estate agents have duty to refer business

As part of a real estate professional’s duty of care to clients, all clientele should have a satisfactory arrangement in place for organising financial approval for their potential property purchase, according to Harcourts Financial Services CEO Andy Graham. Graham said it is part of the service that should be provided to ensure the client receives the best treatment as part of their duty of care. “A recent independent survey indicated that on up to 65% of occasions, finance was not discussed as part of the real estate transaction,” Graham said. “I found this a staggering statistic, given that finance consultants are an integral part of a property transaction to ensure the sale is completed, and that some real value is added to the customer experience.” Brokers have long known the value of what a good relationship with an estate agent can bring but Graham says that real estate professionals ought to be concerned with knowing how their client can secure financial

arrangements as part of their overall service proposition. There has been recent discussion on whether any conflict of interest occurs with a potential ‘referral-based’ relationship between a real estate agent and a finance consultant – but Graham does not believe there is one. “I firmly believe that this is not an issue. Standard privacy requirements and close monitoring of all compliance procedures ensures the finance transaction is always completed at ‘arms length’,” he said. “This means there is never a conflict of interest, or any form of distrust by the client.” This is standard practice for any funding transaction, regardless of whether the client has been referred to a broker, or if they approached the broker or lender direct. Graham said that, given that there is no conflict of interest, the referral relationship then has a number of advantages for both the real estate agent and the finance consultant – such as a potential strong gateway for referrals for the finance consultant, via the real estate professionals, to enable them to build their business. However, Graham warns that referrals will only occur if the real estate professional has full confidence that the finance consultant will look after their client perfectly, and that they have the knowledge and experience to complete the transaction in an efficient and professional manner.

Technology helps lender cut costs Customers of FirstMac will be able to meet their lender face-toface no matter where they live in the country if the trial of video communications technology proves to be successful. The non-bank lender is preparing to expand its use of video and voice communications technology by establishing higher-tech external links with customers, managing director Kim Cannon said. “We are constantly expanding how we use innovations, such as videoconferencing and office communicator technology, to streamline the way we do business,” he said. “The use of more advanced communications technology is not just for large national and international groups but for any organisation wanting to improve service.” FirstMac has used the Polycom Video Conferencing service internally for many

years and Cannon has seen cost savings and improved productivity as a result. The service allows employees from its Queensland, NSW and Victoria offices to ‘meet’ face-toface without having to spend the time and money related to business travel. “Now we want to take the next step and improve our communications capabilities further,” Cannon said. “Since the GFC, the lending market has become even more competitive and focused on service and efficiency. We want to do everything we can to make our services as fast and efficient as possible.” FirstMac is now trialling the external features of Microsoft’s videoconferencing software – Office Communicator – to see if it can be used by those customers who are looking to contact the lender.


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Column

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Kathryn Wardrobe is a lawyer with Holley Nethercote and can be contacted at Kathryn@ holleynethercote.com.au or (03) 9670-8200

WARDROBE

HOW TO LEND RESPONSIBLY, WHEN YOU DON’T LEND AT ALL! As a broker, you are not a credit provider. Yet you must comply with the responsible lending conduct obligations outlined in the National Consumer Credit Protection Act 2009 (Cth). So what do you have to do, you ask? When do I have to comply with the responsible lending conduct obligations? From 1 July 2010 (except ADIs and RFCs) – even if you are only a registered person and not yet an Australian Credit Licensee (ACL) or Credit Representative (CR). What are the responsible lending conduct obligations? The key concept is that you must not suggest a credit contract to a consumer, or assist a consumer to apply for a credit contract, if it is unsuitable for the consumer. How do I fulfil my responsible lending conduct obligations? As providers of a credit service (as opposed to credit providers), brokers must make a preliminary assessment as to whether the credit contract is “not unsuitable” for the consumer. The unsuitability of a credit contract must be assessed before you provide a credit service to the consumer. That is, before you either:. a) provide credit assistance by: • suggesting (propose the idea or introduce it) • assisting a consumer to: • apply for a particular credit contract or lease • apply for increase in credit limit • remain in current contract; or b) act as an intermediary by: • recommending a particular credit contract, arrange the credit with a credit provider • arranging the credit • act as a conduit between a broker and a credit provider in arranging the credit How do you determine unsuitability? 1. Make reasonable enquiries about a consumer’s requirements and objectives: you can decide what inquiries are reasonable to make in the relevant circumstances. At a minimum, you must understand the purpose for which the credit is sought. Such enquiries could include: • the purpose for which the consumer seeks the credit

• the amount of credit which is sought by the consumer • the benefit of the credit to the consumer • the timeframe for which the consumer seeks the credit • if there are any particular features required 2. Make reasonable enquiries about a consumer’s financial situation: again, the level of enquiry will depend on the circumstances and you can decide what level of enquiry it is appropriate. You should, however, ascertain a reasonable understanding of the consumer’s ability to meet all repayments, fees, charges and transaction costs of complying with the proposed credit contract. Such enquiries could include: • the consumer’s current amount of income • the source of the consumer’s income (eg, part-time or casual employment, government assistance) • the consumer’s fixed expenses (eg, rent) • the consumer’s variable expenses • the consumer’s credit history • other circumstances about the consumer (eg, age, number of dependants) • consumer’s assets, including nature and value • any significant changes to the consumer’s financial circumstances that are reasonably foreseeable • existing debts If you engage in switching and refinancing activities, your level of enquiry should increase. You must have documented processes in place to ensure reasonable enquiries about a consumer’s requirements and objectives and financial situation are made. 3. Take steps to verify the information obtained from reasonable enquiries. What amounts to reasonable verification is scaleable and depends on the information and resources that you have access to. It is acknowledged that, as credit providers of a credit service, brokers may not have access to as wide a range of information as lenders. The type of information that could be used to verify a consumer’s financial situation includes: • pay slips • confirmation of employment • recent income tax returns • credit report • bank account records Any inconsistencies in information received from the consumer will require additional verification

to be considered reasonable. You must have written processes in place to ensure information is verified. Is the credit contract unsuitable? Using all of the information obtained from your reasonable enquiries and verification, you must then make a preliminary assessment as to whether the credit contract will be “not unsuitable” for the consumer. The proposed credit contract is deemed unsuitable if it does not meet the consumer’s requirements and objectives, and if the consumer does not have the capacity to repay without suffering hardship. When considering whether a credit contract will cause substantial hardship, you must consider: • the money the consumer is likely to have remaining after their living expenses have been deducted from their after-tax income • how consistent and reliable the consumer’s income is • the size of the loan relative to their income level • whether the consumer’s expenses are likely to be significantly higher than average (eg, because they live in a remote area) • the consumer’s other debt repayment obligations and similar commitments (eg, child support) • how much of a buffer there is between the consumer’s disposable income and the repayments • whether the consumer is likely to have to sell their assets, such as a car, to repay the loan You must have written processes in place to ensure that the proper assessment is made. What documents do I need to provide to the consumer? None for now. However, from,1 January 2011, you will be obligated to provide consumers with disclosure documentation such as a credit guide, quote for providing credit assistance and a written unsuitability assessment (only upon request). What now? You must comply with your responsible lending conduct obligations from 1 July 2010. So, you must have your documented processes in place from that date. If you don’t, it will be difficult to show that you are complying with your obligations.


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Feature

The art of negotiation Learn about salary negotiation Though negotiation is something that we all do naturally in our lives, for some reason many of us find it difficult to negotiate when it comes to our salaries. It’s not a case of not possessing good negotiation skills, more an issue of the negotiation context and subject matter. For some reason we are uncomfortable discussing our salaries and what we are worth with current or prospective employers. We need to learn more about salary negotiation in order to become more comfortable and effective with negotiating our salaries. Read books on the subject, attend workshops, talk about salary negotiation with your colleagues, family and friends, and use whatever communication channels you prefer to learn more about the subject.

The language you use sets the scene

 Think you deserve a better deal for your efforts? Kelly Magowan provides some practical tips for negotiating your salary with current and new employers

T

hough negotiation is something that we all naturally do in our lives – and have done since we were children (ie negotiating with our parents to stay up late by agreeing to eat all our dinner), for some reason many of us find it difficult to negotiate when it comes to our salaries. The truth of the matter is that the responsibility rests with you to negotiate your salary according to your worth in the marketplace. It is not up to your existing boss or your potential new employer to take action, as they are more than happy to continue paying you the salary you are on or hire you as cost-effectively as they can. If you don’t feel the skills, education, experience and personal qualities that you bring are of value then it is unfair to expect others to. It is also up to you to draw attention to the value and contribution that you are making to an organisation, or can make if you are hired.

How we become better pay negotiators

Don’t wait to be offered To their detriment, many people are still too polite when it comes to negotiating their salary. They wait for the current or prospective employer to offer them a salary or a pay increase or bonus and then (in most instances) accept what is given, even if they don’t agree with it. Not speaking up if you don’t feel what has been offered is fair is foolish. Nor is negotiating only on what has been presented – if there is the opportunity to bring in new elements to the negotiation, such as asking for a sign-on bonus, or for additional benefits such as further education or even a golden parachute, then why not? Remember, there does not have to be a set time to raise the subject, such as the annual salary review. You can raise it at any time – every quarter if you feel it is warranted. Talk yourself up Women in particular tend to fail miserably at talking up their achievements with their current employers. Doing a great job and achieving great things at work can go unnoticed. Chances are that those around you are also working hard and so as long as things are getting done, they are not overly concerned with how – or who – is doing them. Though for most it does not come naturally, it is important to learn to ‘toot your own horn’ to avoid your achievements going unnoticed by your boss. Where possible, if you can debrief your boss on your success or provide written confirmation, then this additional information can be invaluable to your negotiations.

In the salary negotiation context you are there to achieve a result for you – therefore using powerful and active language is crucial. Passive sentences such as those below are to be avoided: • “Would you mind if?” • “Sorry, however I was wondering?” • “If you have a moment, would it be okay?” Use active sentences like the ones below to raise the topic, set the meeting time and enter into the salary negotiation discussion: • “I would like to discuss X with you today” • “Let’s make a time now to …” • “I require 30 minutes of your time, when are you free?”

Importance of research/preparation

Prepare an agenda Whether you are looking to negotiate a salary increase with your boss or with a potential employer, ensure firstly that you are realistic and secondly that you have an agenda prepared. List all the key points you want to cover in the discussion. Where possible make this a face-to-face meeting with the relevant parties, as negotiations are best done this way. The reason being that by being there, you are better positioned to raise and support your key points and to really sell yourself. It is far easier to refuse someone over the phone or via mail than it is face-to-face. Research the job market The advance of technology has made it simple and easy for us to access the abundance of free salary information out there. Search on Google and you will be provided with countless salary surveys broken down by industry, profession and even state and country. Alternatively you can search on job sites to get an up-to-date feel for what the market is paying for someone in your profession, with your years of experience and so on. Another way is to talk to people direct, such as recruitment consultants or contact HR professionals within similar organisations. Prepare your business case Regardless of the economic market, current or new employers are not going to hand over money to you without some sort of justification. Having a viable business case as to why you deserve a certain salary or why your salary should be increased is still required, such as showing what you have done to go above and beyond your existing role or where you have added additional value to the organisation. A pay increase generally has to be performance-based to be justified. Length of service or simply because someone is being paid more than you in the same role are not considered to be valid reasons.


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Assumptions

We can sometimes be guilty of making assumptions about people, organisations and situations which are not always correct. Ensure any assumptions you may have are checked out and justified before you enter into a negotiation with your current or prospective employer. Common assumptions range from benefits you believe to be offered to staff at the company, to salaries of other staff members or perks they are receiving.

Alternatives

Having an alternative/s is essential in any salary negotiation process. It is important to have high aspirations; however this needs to also be balanced against the reality of the situation. Indeed, in the salary negotiation process all your requirements may be met, none may be met or some may be met. It is important to know at which point you are willing to walk away from a negotiation, and/or to have alternatives in place. If you are working with an existing employer and requesting a salary increase, have you thought about your alternatives should this be unsuccessful? In these situations people generally leave fairly quickly, so have you already started speaking with other potential employers before the meeting is arranged, rather than being left hanging? And in the instance of being offered a new job, should the salary package not meet your requirements do you have other offers available to you? Is this such a great opportunity with a long-term financial gain that you should reconsider that the shorter term salary package is not exactly what you were after? Remember that ‘no deal is better than a bad deal’ and you must always be willing to say no.

Other items to consider

Some organisations are limited by salary bands or structures which prevent them from offering new or existing employees dramatic increases. However, this does not mean that they are unable to offer alternatives to straight cash. These alternatives include: • Professional memberships • Sign-on bonus • Incentive pay • Bonus or commission • Annual Incentive • Professional clubs • Equity/shares • Stock options • Discounted stock options • Extra superannuation • Loan to purchase home • Car • Parking • Legal planning services • Mobile telephone • Laptop • Termination provisions • Flexible working hours • Golden parachute provisions • Health insurance • Decreased work hours/days • Gym memberships • Financial planning services • Educational assistance • Relocation expenses • E–tag • Loan to purchase restricted stock • Future salary increases (timing and percentages) • Private school fees for children • First class/business class air travel

Anticipate any problems or objections

There is a lot to be said for being positive and optimistic, however it is also important to be realistic. When entering into any salary negotiation process be sure to look at your best- and worst-case scenarios, and prepare for how to respond to any objections or problems you can see arising. In the current market, some organisations may not be in a position to provide significant salary increases at this point in time. However, there are many industries and organisations that are going strong and are in a position to pay top dollar. If you think you’re long overdue for a salary increase, yet your current employer is not in a strong financial position at present (and you want to stay with them), you still have negotiation power. You could ask for the same pay and shorter working hours, or for a salary increase to be effective when the company goes back to X amount of profit. Alternatively, you may look at options or equity if

this is something available. If you can, prepare a list of ‘what if?’ questions before you enter the negotiation.

Signs of a successful negotiator

Positive body language Your body language can often send a stronger message than your words. Having positive body language is critical in all business situations, including salary negotiation. Your entrance, handshake and eye contact all make an impression, hence the reason for the face-toface negotiation wherever possible. • Make a confident entrance • Where possible initiate the handshake • Be conscious of your posture • Hold your head up high • Have a positive attitude • Make eye contact • Smile Maintaining eye contact is incredibly important when meeting to discuss salary, as it is generally interpreted as a gesture of trust and confidence. Nodding is another powerful gesture, indicating support and agreement. If you can, before the meeting takes place practise your body language with someone you feel comfortable with, and who can provide constructive feedback. Negative body language Body language Common interpretation Avoiding eye contact Evasive, indifferent, insecure, passive, nervous Scratching the head Bewildered Biting the lip Nervous, fearful, anxious Tapping feet Nervous Folding arms Angry, disagreeing, defensive, disapproving Raising eyebrows Disbelieving, surprised Narrowing eyes Resentful, angry Wringing hands Anxious, nervous Shifting in seat Restless, bored, apprehensive

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Key facts to remember • Surveys suggest that 85– 90% of hiring managers do not make their best offer first • Counter-offers are generally 10–15% above the original offer

Four essential steps for salary negotiation success 1. Confidence 2. Powerful active language 3. Research 4. Practise, practise, practise!

Further information This article is condensed from a comprehensive guide to salary negotiations, found at www.sixfigures.com.au. Author Kelly Magowan is CEO of SixFigures. For more information phone 1300 780 177

Handling salary questions

If you are asked your salary range or expectations and do not want to disclose the information, below are a few appropriate responses: • “I would prefer to find out more about the position, the responsibilities and expectations before getting into any salary discussions” • “I am sure that your company offers a fair compensation scale, and if we both decide that this is a worthwhile match, I am confident we will be able to agree on a salary” • “I have researched the salaries for this position, with market value for the total compensation package being within X range” It is your decision whether or not you want to disclose your salary information during the early stages of the interview process. If you can, it is best to avoid entering into this conversation too early in the process, as it can limit your opportunity to negotiate further on. There is nothing to stop you from asking the interviewer a few questions before an offer is made, to arm yourself with some negotiation power. If you are the only person they are interviewing you can assume your negotiating power is good. Ask questions like: • “Can you tell me where you are in the hiring process?” • “How many people are you interviewing for this role?” • “How long have you been recruiting for this position?”

Achieving a win-win outcome

A negotiation requires all parties to agree on an acceptable solution to the problem, in this instance your salary. Each party must have their needs met. Being realistic, prepared and professional throughout the negotiation process will increase your chances of securing your next salary increase, be that with your existing employer or your new employer.

Doing a great job and achieving great things at work can go unnoticed


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Column URQUHART

TO GET BUSINESS, GET PUMPED

Marketing Focus managing director Barry Urquhart takes a look at how business leaders can best employ their smart tactics and strategies, to maximise the utility of their marketing plans The thrill of the chase Emotions are highest and the adrenalin pumps fastest in the pursuit of striving to achieve a goal. That uplifting sentiment is infectious: look no further than nature, with a sudden flight of birds or a flock of wildebeest in the savannahs of an African game park. It is a clear manifestation of the ‘fight or flight’ phenomenon. In business, marketing and sales, the same principles apply and the lessons learned are parallel. It simply takes a leader and leadership for a sense of purpose, focus, excitement and urgency to be inculcated throughout the ranks of an entity and network of an integrated marketing, selling, franchising or buying group. Too often – in the face of revenue downturn, increased competition or economic volatility – many notable business leaders look to externally oriented factors to stimulate interest, enquiries, demand and sales. Reviews are conducted and amendments are made to advertising, promotions, merchandising/pricing strategies and tactics. Each involves considerable investments of time, money, cerebral energy and resources. Sadly, often the returns are short term, marginal and spasmodic. However, there is an alternative (or possibly, a pre-emptive) set of high-achieving actions available. Rekindle the flame Entrepreneurs, innovators, creators and growth-oriented business owners are typically characterised by references to passion, enthusiasm, excitement and pride. All are commendable virtues which inspire commitment, persistence, resilience – and success itself. Yet the measure, worth and value of such are difficult to quantify. Indeed, the quantification of consumer traffic flows, sales conversions, repeat and referral business is subjective. What exactly is the lifetime value of a long term, satisfied customer? Over what timeframe is the measurement taken and what is the best measurement methodology? To revisit, refine and to recommit to the corporate culture is an uplifting experience for staff members and all of those in the supply chain. The exercise provides for an upgrading in self-worth, which is sustainable. As an external change agent and interactive workshop facilitator, I welcome witnessing team members address, verbalise and extend aspects of the seven pillars of a corporate culture. A sense of pride blossoms and value is recognised in the total package which is offered to the marketplace. A positive spirit is experienced and the temptation towards price discounting and other shortterm tactics quickly wanes.

Confidence is promoted and KPIs are soon attained – and exceeded. Sell the story What is conspicuous in the current marketplace is widespread evidence of inertia, mental tiredness, apprehension and exasperation. Processes are followed – but without conviction. No one gets excited, particularly customers. There is a general sense of shallowness. That is reflected back in the bank balance. A quantum leap is needed from those who ‘tell the story’ (in rote fashion) to those who ‘sell the story’. No one person or business sector is excluded from or immune to that reality. For example, waitstaff at restaurants have the capacity, through their enthusiasm, to influence meal and refreshment selections and to substantially increase that businesses’ receipts. The rewards and returns from the efforts extended are almost infinite. Team members appreciate and typically respond positively to the attention being turned on them, in preference to (or prior to) the usual increased outlays on advertising, promotions, merchandising and price discounting. There is a certain consistency with, and credibility to, statements about ‘people are the most important asset to a company’. Let me cut to the chase. For many business leaders who are seeking to address and redress market circumstances which are less than buoyant, the prospects for immediate and substantial upturns in sales, profits, customer satisfaction and repeat business lie within an organisation. A rekindling of the fire, the passion and pride for – and about – a company, its product, services and people, can be universally rewarding. Seemingly attendant issues, like recruitment, retention and the development of people, are quickly and favourably resolved. For those who doubt the currency of these propositions and the underlying philosophy being espoused, I say, “have faith”. The direct tangible and conspicuous activities of advertising, promotions, merchandising and pricing reviews should not be ignored, they should simply be tempered and sequenced. US President Barack Obama inspired a nation – and, to a lesser extent, the world – with the statement “yes, we can”. He mobilised a sense of adventure and spirit for ‘the possible’. The emotions were highest and the adrenalin pumped fastest before election day in November 2008. The tasks confronting so many business leaders are not so gargantuan. The spirit is the same. So go ahead. Take up the challenge. Enjoy the thrill of the chase.

A quantum leap is needed from those who ‘tell the story’ in rote fashion to those who ‘sell the story’


“Winning this award has given our whole team a great sense of achievement and satisfaction, as well as positioning us as market leaders in the eyes of our clients and importantly, our referral partners. It has also been a ‘good news’ focus point for marketing to our clients”.

CHOICE HOME LOANS - BERWICK WINNER: BROKERAGE OF THE YEAR MORE THAN SIX STAFF AMA09

September 24, 2010 The Westin Hotel, Sydney

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Feature

Diversification revolution  Can you hear

the chanting? See the action and a bright new future? Agnes Gajewska spoke with top brokers and industry pundits to find out about the diversification revolution

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sk brokers to put up their hands if they’ve heard enough news of doom and gloom and you’ll probably have a room full of people who look like they’re doing the YMCA. With the landscape changing drastically and bringing commission cuts, new regulation, a shrinking marketplace and interest rates as erratic as a drunk driver, it’s understandable that brokers are swamped. But where there’s chaos there are also opportunities. If you look around you’ll notice that the industry is in the midst of a revolution. The very shape and role of mortgage broking is changing, and brokers are increasingly assessing the role they will play in the future. Diversification has become a hot topic!

Let’s break it down

Diversification is the process by which a business, in this case a mortgage broker, looks to extend its service offering in order to add value and increase income. So, where traditionally mortgage brokers concerned themselves with home and investment property loans and only took a passing interest in other sectors of finance, increasingly other financial products are catching their eye. Heated conversations are being held at broker offices, aggregator meetings, industry conferences and in the media concerning a broker’s involvement in other areas; the level of that involvement along with its implications, benefits, challenges, and ethics – and how all of that can form a new, revolutionised, mortgage professional.

The big four

Don’t worry, this doesn’t concern the banks. As it happens, four major diversification streams have been gaining particular favour with brokers. These are: 1. Equipment finance and leasing 2. Risk insurance 3. Financial planning 4. Real estate

Involvement

Each of these areas offers a range of products and allows brokers to select their level of involvement. This can range from a ‘spot and refer’ basis (in which a broker identifies a client’s needs and refers that client onto the proper specialist in return for a fee or commission), to gaining full qualifications (which allows the broker to

provide the service themselves and reap more significant rewards). There are also all sorts of levels in between. Ultimately a broker’s involvement will come down to personal choice, their business model – and time. According to the director of Develop & Invest, Andrew Brumby, it is important for brokers to cater for as many customer requirements as possible. “[Whether] that [means] doing the associated business yourself or referring to the right people is an individual call,” he says. However the majority of the brokers AB spoke with favoured the referral method. “I prefer to concentrate on my core business, [home loans], and would rather have a designated professional looking after other areas such as risk insurance,” says 1st Street’s Jeremy Fisher. Oxygen Home Loans’ Peter Ellis and Smartline’s Karen Le Comte agree, adding that designated professionals are experts in their fields and provide the right quality of service for customers. “I do not have the time to keep up the training that is required to maintain licensing requirements (in these other areas),” Le Comte adds.

The options

Equally individual are brokers’ reasons for offering one or more of the diversification streams. For Better Choice finance broker, Vic Giannakis, risk insurance is a natural partner to mortgage broking. “It is standard practice to raise the question of risk insurance … so that [clients] are given the opportunity to accept or decline to speak to someone regarding services of this kind,” he says. “Brokers need to ensure that if their clients’ circumstances change for the worse, that they have offered insurance at the time of loan application to hopefully cover them at this time,” Ellis adds. Equipment finance, on the other hand, is a good option for brokers who count business-people among their clientele. “If [brokers] have self-employed clients, these clients would also normally require finance for any plant, equipment, machinery or commercial vehicle that they need to run their business,” says national manager of Macquarie Leasing, Stephen Light. Real estate is an area which is naturally well aligned with mortgage finance and has rocketed into popularity, as it can provide clients with a more comprehensive service while bringing some good returns (if done properly) to the broker. “[Investment property groups] have started to realise mortgage brokers make the perfect referral partners given that, in most cases, we see clients in the first instance,” explains AMB principal mortgage consultant, Stewart Noble. “So, on a spot-andrefer basis, I simply put my investment property clients in touch with these groups. If they buy a property I get a fee of anywhere from $3,000 to 1% of the sale price and everything in between.” Financial planners and mortgage brokers have worked closely for quite some time. There are many services that these professionals can offer clients to create a holistic experience, while keeping customers out


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of the clutches of the big banks. “You are much more likely to keep your client if you refer them to a financial planner – rather than letting the lender have a crack at them,” says Zobel chief executive officer, Ben Hall.

Talking numbers

Most brokers that AB spoke to say it is best to diversify into more than one field. “I honestly believe that as a broker you should be able to offer the same products that are available to a client [when] they walk into any branch of a major bank,” says Loan Management Services director, Lisa Sanders. “As the banks are only able to offer their own limited products, brokers can diversify and offer various

Diversification is the process by which a business looks to extend its service offering

Two diversified strategies: a breakdown Name Summary

Risk insurance Covers areas such as income protection, trauma cover, life cover. It is standard practice for a broker to introduce insurance when organising home loans. Level of involvement ranges from referral to joint venture to full qualifications Main products Income protection, trauma cover, life insurance Players in the field ALI, NAB/Homeside (Vivid program), MLC Qualifications Nil* to Diploma in Financial Services Remuneration This depends on the model/level of involvement by brokers Pros • Part of the loan process already • Provides client with added service • Additional revenue stream Cons • Getting fully qualified takes time Name Summary

Real estate Ranges in options from a referral partnership with a real estate agency to more specified investment property sales. These can be ‘spot-and-refer’ fee based to real estate certification Main product Real estate sales, investment property sales Players in the field Real estate agents and (for investment property sales) APS Growth, Blue Wealth, McCarthy Group, OzInvest Qualifications Nil* to Certificate IV in Property Services Remuneration Spot and refer: $3,000–1% of property value. Sale: up to 50% of the total commission paid to investment property company Pros • Can be lucrative for broker • An involved broker has to learn new sector which can be complex • At involved level can be time consuming Nil* accreditation assumes a broker has completed the minimum industry qualifications for mortgage broking

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products from different sources. The client benefits from better value for money, while a [bank] client limits themselves to the product offering of one bank only.” Smartline’s Le Comte adds that in a reduced commission environment, with major banks gaining more market share and control over the industry, it’s important for brokers to brace themselves against possible further commission cuts.

Money matters

Before dollar bills start spinning in front of your eyes, let’s make something very clear. If you’re just in it for the money, you’ve come to the wrong place. Most of the brokers that AB spoke to say that only 1–5% of their total revenue could be attributed to diversification. “The remuneration is not significant,” says Loan Management Services’ Sanders. “The reason we choose to [diversify] is to add more value to clients which leads to customer satisfaction and referral business, which is key to any successful business.” “It is not always about the money,” Le Comte agrees. “For me it is more about providing my clients with the best possible financial solution and working with experienced, highly-ethical business partners.” However, brokers are also confident that the revenue from this sector will increase to make up a larger part of business in the future. “Studies from the UK and US confirm that some brokers will actually earn more insurance and financial planning referral income than they do from lender commissions,” Hall adds. Some, like director and founder of Econ Financial Services Paul Shahinian, already attribute 50% of their revenue to diversification.

Is it worth it?

In short: yes. While there are some professionals who prefer to keep all of their attention firmly and unwaveringly fixed on mortgages, most leading brokers and industry hot-shots believe diversification is the way of the future. “Given the reduced commissions in the traditional mortgage market, most brokers realise the need for diversification in their service proposition as well as their own income streams to counter this,” Light says. “If you don’t [diversify], you are not going to survive long term. With ever-reducing home loan commissions you need to be able to offer more than just home loans to keep your clients coming back,” adds Brad Smart, a manager from Zobel.


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Caught on camera Brokers and industry leaders enjoyed an evening of culture at Resi’s presentation of ‘The Archibald, Wynne and Sulman Prizes 2010’ at the Art Gallery of New South Wales in Sydney Photography by Simon Kerslake

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PHOTO 1: Art Gallery of New South Wales PHOTO 2: (L–R) Kate Vickers (Davenport & Campbell), Sorrel Fielding (Davenport & Campbell) PHOTO 3: (L–R) Rob Kennedy (IMB), Liz Kenn (IMB), Mark Workman (IMB) PHOTO 4: Crowd shot PHOTO 5: (L–R) Kylie MacFarlane (AMP Capital Investors), Brad Barr (AMP Capital Investors), Skye Barr (AMP Capital Investors), Simon Cary (AMP Capital Investors) PHOTO 6: (L–R) Kylie Merritt (Sky Business Channel) Lisa Montgomery (Resi Mortgage Corporation) PHOTO 7: (L–R) Peter James (Resi Mortgage Corporation), Drew Dickson (Drew Dickson Architects) PHOTO 8: Edmund Capon (Art Gallery of NSW) PHOTO 9: (L–R) Shara Evans (Market Clarity), Detta Donde (Market Clarity) PHOTO 10: (L–R) Marissa Johnston (Belgiovane Williams Mackay), Megan Rukstele (Belgiovane Williams Mackay), Nathan Milner (Belgiovane Williams Mackay), Margot Lloyd (Belgiovane Williams Mackay)

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Feature

One year on What a difference 12 months can make … or maybe not. Australian Broker reflects on the stories that made headlines in the magazine one year ago

Issue: Australian Broker issue 6.10 Headline: “Brokers 2–Whittingham 0” (cover page) What we reported: Broker claims against lead generation services provided by Mark Whittingham are set to start pouring in after a campaign for refunds initiated by Australian Broker and BrokerNews resulted in victories for two claimants. Amid a continuing flood of complaints, one broker has managed to recover his funds from lead service provider, Home Loan Selection Services (HLSS), and another broker is on the verge of getting a refund. NSW-based broker, Michael Badger, had to phone into a Victorian Consumer Advocacy Tribunal (VCAT) hearing to defend the $4,400 he recovered from his credit card company, after HLSS managing director, Mark Whittingham, failed to deliver leads. Badger managed to recover the money after presenting an e-mail he received from Whittingham prior to signing up with HLSS. In the e-mail Whittingham assured Badger that all unused credits would be refunded if he decided to end the arrangement after 30 days. Another broker, Stan Marinis, also won a case against HLSS after Whittingham failed to show up to their VCAT mediation on 8 May.

companies. The latest broker, who wished to remain unnamed until he sought legal advice, contacted AB at the end of April. He had read about the refunds for missing leads and asked if AB had heard from anyone who had lost money after trying to buy a loan book from a third party as arranged by Whittingham. The broker claimed to have paid Whittingham a $10,000 deposit but, when the third party pulled out, Whittingham refused to repay the broker’s deposit and refused to return his phone calls. Headline: “Brokers facing new lender fees” (front page)

What has happened since? In June last year, Mark Whittingham sent an e-mail round to his ‘customers’ saying that his company was being wound up by the Supreme Court for unpaid advertising accounts. In the e-mail, Whittingham blamed “the constant attacks on the business from a small number of brokers, The Australian Broker magazine & BrokerNews” for his company’s collapse. However, since that e-mail was written, Australian Broker has been contacted by dozens of brokers who claim to be owed money by Whittingham or one of his myriad

What we reported: Having only recently suffered through commission cuts, brokers are going to see further likely decreases to their pay cheques after two major banks flagged new accreditation fees. Following the introduction of its new mandatory accreditation requirements which require brokers to settle at least one loan with the bank every six months, Westpac has announced it will also be introducing a broker “re-accreditation fee”. While the initial accreditation with the lender will be free of charge, any broker who has had this cancelled will have to complete a re-accreditation session which will incur an associated fee. At the time of going to press the “appropriate” amount of the charge was being discussed between Westpac and its “key business partners” and stakeholders. Following in a similar vein, CBA said it was currently in the process of making changes to its accreditation requirements and that these would be introduced in the second half of the year. “A fee will not be charged for accreditation but where brokers are required to attend an ‘upskilling workshop’ because they have not maintained their product, policy and process skills, a fee to cover retraining costs will apply,” said CBA’s executive general manager of third party, Kathy Cummings.

Kathy Cummings

What has happened since? The industry still rankles at what has since been dubbed volume hurdles that pressure brokers to submit loans to the lenders, regardless of the quality of their products at any given time. The FBAA and MFAA have both sought to reverse the lenders’ position on this matter but to no avail, and a challenge of the practice brought by Refund Home Loans to the ACCC was dismissed last year. ASIC, which will be taking over broker regulation in just over a month, said that brokers were obligated to give clients the best possible products regardless of these volume hurdles. It warned that brokers who submitted loans that were inappropriate for their clients risked hefty fines – and even the possibility of jail time.

Kevin Conlon

Headline: “Reverse mortgage industry seeks government help” (page 12) What we reported: Having been left on the sideline when the government announced its $8bn RMBS initiative under the Australian Office of Financial Management (AOFM), industry body SEQUAL is asking for its share of the stimulus package. According to the latest Deloitte SEQUAL Reverse Mortgage Study, the reverse mortgage market grew by 23% over the year to 31 December 2008. However, the dynamics within the sector have changed, with more market share going to fewer players, hurting competition. SEQUAL CEO Kevin Conlon said that while traditionally, reverse mortgage providers have been able to readily access funding through bank-provided credit facilities, the global credit crisis had tightened – and not closed off – access to this funding. What has happened since? Twelve months on and the recent withdrawal of the top player in the reverse mortgage market (RBS) has left the spoils for just three providers – Bankwest, CBA and St.George. SEQUAL was unsuccessful in its attempts to have competition in the reverse mortgage industry bolstered by government support. CEO Kevin Conlon has now turned his sights to another source of funding for the capital-intensive reverse mortgage market – superannuation funds. “There’s no reason why people other than commercial banks shouldn’t be competing in the reverse mortgage market and I think that’s where the future lies,” Conlon said. “These are not easy products to manufacture and… the superannuation funds are uniquely placed to meet the challenges of manufacturing a reverse mortgage.”


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AGGREGATOR / WHOLESALE BROKER Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au page 19

LENDER Eurofinance 02 9252 8311 www.eurofinance.com.au page 15

Mortgage House Aggregation Services 133 144 www.mortgagehouse.com.au save@mortgagehouse.com.au pages 16 & 17

Homeloans Ltd 1300 787 866 www.homeloans.com.au page 14

PLAN Australia 1300 78 78 14 www.planaustralia.com.au mail@planaustralia.com.au page 5 Vow Financial Pty Ltd 1300 730 050 www.vow.com.au page 18 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 9 Think Tank Property Finance 1300 781 043 www.thinktank.net.au deal@thinktank.net.au page 31 DEBTOR FINANCE Oxford Funding Pty Ltd 1800 850 509 www.oxfordfunding.com.au info@oxfordfunding.com.au page 13

NON-BANK LENDER Mortgage Ezy 1800 TOO EZY (866 399) www.mezy.com.au ezyquit@mezy.com.au page 32 NON-CONFORMING Pepper Homeloans 1800 737 737 www.pepperonline.com.au page 7

Liberty Financial 13 11 80 www.liberty.com.au page 3 MKM Capital 1300 762 151 www.mkmcapital.com.au page 8 Vanilla Loans 1300 710729 www.vanillaloans.com.au page 20 MORTGAGE MANAGER / NON-BANK Mango Media 02 9555 7073 www.mangomedia.com.au page 1 Royal Guardian Home Loans 133 455 www.royalguardian.com.au info@royalguardian.com.au Vault Mortgage Corporation 1300 798 697 www.vaultmortgage.com.au page 21

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

OTHER SERVICES Residex 1300 139 775 www.residex.com.au page 24 Trailerhomes 0417 392 132 page 26 SHORT TERM LENDER Crown & Gleeson 1800 735 626 www.crownandgleeson.com.au page 2 Interim Finance 02 9971 6650 www.interimfinance.com.au page 4 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 10 Rapid Capital 07 5562 2485 www.rapidcapital.com.au page 6

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

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