Mortgage Professional Australia magazine Issue 12.07 by Key Media

: DE RT SI O IN REPs SO L SF AL CIASM E SP

MPAMAGAZINE.COM.AU ISSUE 12.7

FUTURE PERFECT WHAT WILL TOMORROW’S BROKER LOOK LIKE? COMMERCIAL THINKING AN INSIDER’S GUIDE TO COMMERCIAL BROKING A SPORTING CHANCE SPONSORSHIP – A WINWIN ARRANGEMENT?

GOLD RUSH AUSTRALIA’S BEST BANKS AS JUDGED BY BROKERS

CONTENTS / ISSUE 12.7

60 Commercial thinking Considering expanding your repertoire to include commercial deals? MPA explores how

Tomorrow’s broker What will the industry look like as we approach the year 2020?

2 | MPAMAGAZINE.COM.AU

WEEKLY INVESTIGATIONS NOW ONLINE: COVER STORY 26 | Brokers on banks Australia’s banks ranked and rated – by you

Compliance Fixed rates Commissions » mpamagazine.com.au

CONTENTS / ISSUE 12.7

NEWS & VIEWS

STATS

8 | Round-up The latest market intelligence from the world of property, economics and mortgages

74 | Your Mortgage index The latest mortgage hunter trends from our sister website

12 | On line The latest highlights from MPA Online and Australian Broker Online 14 | Product news A round-up of the latest rate changes and product launches 18 | Thought leaders Does SMSF lending put your clients’ nest eggs at risk?

SMART BUSINESS

70 | Win or lose? How team sponsorship can help your business

PROFILES 40 | Lisa Claes on global broker growth, the digital world and how ING DIRECT is changing 72 | Simon Orbell explains how the ‘wrong’ business card gave him a career

4 | MPAMAGAZINE.COM.AU

76 | The data Where are the best city centre luxury crash pads? MPA investigates

LIFESTYLE 78 | My favourite things… Doug Lee, Macquarie 80 | Ten more tactics for a changing world… with David Staughton

CONTENTS / EDITOR’S LETTER

BANK BASHING? If there’s one subject that’s guaranteed to raise a strong reaction from brokers, it’s banks. Regardless of whether your view of the nation’s traditional lenders is positive, negative or ambivalent, there’s no doubt that the quality of Australia’s banks can make or break your business. So, it’s with great pleasure that MPA presents the results of its ninth Brokers on Banks survey: the original survey of its kind, and the only such survey that puts all banks – the Big Four and second-tier – on a level playing field. It’s no tin-pot poll that is immediately disregarded, either: lenders take it seriously as a key barometer of their performance and perception in the market. So, who has taken away the mantle of Australia’s best bank? Turn to page 26 to find out – and also to find out what new twists we’ve added to this market-leading special report. Elsewhere in this issue, we take a step back from the everyday travails of the mortgage industry to ask what tomorrow’s broker will look like, present a how-to guide to the complex world of commercial broking, and investigate whether team sponsorship is a win-win situation. Add to that the usual news, views and data – plus the second of MPA’s Special Report supplements, this time on SMSFs – and it’s a bumper issue to usher in the new financial year. Kevin Eddy, editor, MPA

COPY & FEATURES EDITOR Kevin Eddy CONTRIBUTOR Andrea Cornish PRODUCTION EDITOR Sushil Suresh

ART & PRODUCTION DESIGN Ginni Leonard

SALES & MARKETING NATIONAL SALES MANAGER Rajan Khatak ACCOUNT MANAGER Simon Kerslake MARKETING EXECUTIVE Anna Keane TRAFFIC MANAGER Abby Cayanan

CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley MANAGING DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR – BUSINESS MEDIA Justin Kennedy ASSOCIATE PUBLISHER Rajan Khatak CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Adam Smith tel: +61 2 8437 4793 adam.smith@keymedia.com.au Advertising enquiries Sales Manager Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Account Manager Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Subscriptions tel: +61 2 8437 4731 • fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, Hong Kong, Toronto brokernews.com.au 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 MPA magazine can accept no responsibility for loss

CONNECT

Contact the editor: kevin.eddy@keymedia.com.au

6 | MPAMAGAZINE.COM.AU

Printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry

NEWS / ROUND-UP NCCP

COMPETITION

MASS BANK SWITCHES IMMINENT?

Ditch disclosure docs, says MFAA The MFAA has called on the government to ditch some of the disclosure documentation required by the NCCP. In a submission to Treasury on proposed NCCP amendments, the organisation has asked the government to dump the credit quote, credit guide and credit proposal required from brokers, and instead combine the forms into one finance broking contract. “Each of these documents is required at a different stage in the transaction. The need to do these things at different times is a significant additional cost to brokers, and inconvenience and confusion to broker and customer alike,” the organisation said. To drive home its point, the organisation included in its submission testimony from an unnamed, mid-sized aggregator, claiming that the burden of compliance cost the company upwards of $150,000 a year. The aggregator went on to say that its brokers had seen their productivity hampered by the introduction of the required NCCP documents. Brokers applauded the MFAA’s stance, with Cavalier Finance’s Peter O’Connor welcoming the MFAA’s approach on disclosure documentation. Twenty-four industry participants also voiced their approval on MPA Online’s sister website, Australian Broker Online.

8 | MPAMAGAZINE.COM.AU

STATS:

Nearly 50% of bank customers could dump their current bank when the government’s “tick and flick” reforms start in July. Roy Morgan Research has found that around 20% of Australians plan to switch financial institutions in the next year. Were the paperwork of switching reduced, nearly 50% of customers said they would switch. The main reasons consumers listed for their desire to change were uncompetitive interest rates (35%) and high or unfair fees (30%).

50%

The proportion of bank customers who could switch banks once ‘tick and flick’ come in Source: Roy Morgan Research

CITY PAD STEAL THIS MONTH’S MARKET ANALYSIS LOOKS AT THE BEST CITY CENTRE PRESTIGE APARTMENTS. TURN TO PAGE 76 TO FIND OUT MORE.

HAPPY BIRTHDAY BERNIE

ADELAIDE’S BERNIE LEWIS TURNS 25 Adelaide-based financial services business Bernie Lewis has turned 25. The group, with almost $2.8m in mortgages and funds under advice, has grown, diversified and consolidated over the period; it also tragically lost its founder Bernie in a plane crash seven years ago. Executive chairman of the group, Mark Lewis, said one of the most significant decisions for the business was becoming an ‘integrated advice’ offering for South Australian clients.

THE FUTURE

Pets (don’t win prizes)

‘HUNDREDS OF JOBS’ FOR BROKERS

What animals should be welcome in strata properties, according to a new review of strata law?

The MFAA expects ‘hundreds of jobs’ to be added to the mortgage broking sector, in spite of speculation that broker numbers are set to shrink. The MFAA has pointed to March quarter ABS figures, saying that mortgage brokers have managed to snare 42% of the home loan market. MFAA chief executive Phil Naylor said he expected hundreds to enter the industry as consumer appetite for the channel grows.

Cats are welcome in strata properties – good news for feline lovers

less pleasant for

Dogs

Snakes

should be banned from strata units, because of their ‘propensity for barking’

are also unwelcome, thanks to their ‘frequent escaping acts’

Source: Strata Laws: Online Consultation Final Report, Global Access Partners.

CREDIT POLICY

ING DIRECT welcomes risk ING DIRECT is relaxing some of its credit policies as the lender says it has a greater appetite for risk. Speaking at a broker roadshow event in Sydney, the bank’s chief risk officer Bart Hellemans outlined some of the policies under review. Hellemans said the bank would now allow add-backs on depreciation, would accept two dwellings on a single title, would decrease the minimum space on units to 40m2 and would allow casual employment and contractors. However, Hellemans said the bank still sought to maintain a strong portfolio, and vowed that ING DIRECT would look to expand its portfolio through brokers. “We have a damn good [portfolio]. It’s a low-risk portfolio, and we have the appetite for more risk. We are open for business,” he said. For more on ING DIRECT’s plans for the year ahead, turn to our exclusive interview with Lisa Claes on page 40.

“We expect that the mortgage broker share of the market should expand further this year. We are seeing quite a few of our corporate members looking to further expand their mortgage broking operations and broaden their product offerings,” Naylor said. The prediction runs counter to that made last month by Fujitsu Australia and New Zealand executive director Martin North, who forecast broker numbers to shrink by as much as 30%.

DIVERSIFICATION

CUSTOMER WALLETS NEXT BATTLEGROUND “Share of wallet” is set to be the next battleground for brokers and lenders, but the two may be at odds on what the concept means. National Mortgage Brokers managing director Gerald Foley told the aggregator’s national conference in Hamilton Island that both banks and brokers must strive for “share of wallet” with every customer interaction. “Share of wallet is going to become the bigger focus now, and that will become the dilemma for the broker/ lender relationship,” he said. Foley explained that share of wallet entailed servicing a client across a variety of different financial products and

services from different institutions. Whereas banks look to own a customer across a variety of proprietary products, Foley suggested that brokers would offer the same products to clients, but often from different sources. “From the bank view, share of wallet is a client taking a loan and maybe one or two other products with the same lender. The broker share of wallet view is you come and arrange your loan, maybe insurance and maybe something else on the side as well, but not necessarily all from the same lender,” Foley said.

MPAMAGAZINE.COM.AU | 9

NEWS / ROUND-UP INDUSTRY MOVES

COMPARISON RATES

HIRED AND FIRED: ROUNDUP Loan Market has bolstered its executive team with the addition of two senior staffers. The aggregator has appointed Ed Thian to the new role of General Manager Marketing. Thian joins Loan Market from Aussie Home Loans. Thian said that his marketing and broking experience has provided him with invaluable understanding of the strategies required to continue the growth of Loan Market. Meanwhile, Michael Karpathakis has made the leap from Westpac to take up the role of NSW state manager at Loan Market. Karpathakis said he was thrilled to be taking on the state manager position. “Loan Market has a strong industry reputation and I am looking forward to working with the team in Sydney and throughout the state.” For a more indepth interview with Karpathakis, click on MPA Online.

Comparison rates in spotlight ASIC has raised concerns over banks failing to correctly advertise comparison rates. In a letter to FBAA president Peter White obtained by MPA sister magazine Australian Broker, ASIC has expressed concern about the way lenders are advertising comparison rates. The watchdog said many lenders are not advertising the rates correctly. “ASIC wishes to ensure that advertising of the cost of credit and the use of comparison rates is not confusing or misleading, and that it assists consumers to make informed decisions when purchasing credit products,” the regulator said. The problems ASIC identified were lenders failing to consistently advertise comparison rates along with annual percentage rates, not advertising the rates prominently enough, failing to include an NCCP prescribed disclaimer about the accuracy of comparison rates and failing to properly calculate comparison rates. MPA Top 100 Broker Ian Jordan of The Selector Group has claimed the rates are doing nothing to help consumers, and may instead be a source of confusion. “I think it can be really misleading,. The issue is that the comparison rate can be advertised a number of ways, and the client is looking at it through rose coloured glasses and assuming it’s going to be the right loan for them,” he said.”

10 | MPAMAGAZINE.COM.AU

Legal eagles

LAST ISSUE, TWO PAGES OF THE SUPERBROKERS SPECIAL REPORT FEATURING BALLAST FINANCE AND ALCO WERE REMOVED PRIOR TO PUBLICATION. THESE HAVE BEEN RESTORED IN THE E-MAGAZINE VERSION OF ISSUE 12.6: TO SEE THESE, VISIT MPAMAGAZINE. COM.AU

Vow Financial has appointed Rosemarie Hunt as relationship manager for its growing Vow Legal business. The aggregator said Hunt would deliver a range of services such as online conveyancing and related legal services to the company’s broker network. Vow Financial launched its legal arm late last year, and said the service would aid brokers in complex property deals.

Change of direction Firstfolio chief executive Mark Forsyth has left the company. A Firstfolio spokesperson said that Forsyth’s mid-May resignation was spurred by the board’s desire to change strategy. “The board and [new director] Eric Dodd wanted to consolidate a lot of the acquisitions made over the last little while. They wanted to go far more in the direction of the mortgage lending and banking side. They wanted to see more day-to-day operational experience in that area, and there was sort of the feeling that Mark was not the right guy,” the spokesperson said.

THIRD-LINE FORCING

Franchise-MFAA stance OK: ACCC The ACCC has affirmed controversial third-line forcing notifications requiring brokers to be members of the MFAA. The competition watchdog will allow the notifications to stand for Aussie Home Loans and Mortgage Choice. ING DIRECT has withdrawn its notification, and Virgin Money said it no longer engaged in the practice. Brokers have been roundly critical of the measures, but ASIC supported the notifications, saying in a submission to the ACCC that mandatory MFAA membership carried with it potential consumer benefits. “Participation in the mortgage industry appears to remain accessible under current arrangements,” ASIC said. The ACCC conceded that the notifications reduced competition among industry associations, but argued that as they affect only Aussie and Mortgage Choice brokers, the public detriment was “likely to be minimal”. FBAA president Peter White expressed disappointment at the ACCC’s decision to allow controversial third-line forcing notifications requiring Aussie and Mortgage Choice brokers to be members of the MFAA. But White said most brokers have nothing to fear from the ruling.

INFOGRAPHIC

Buyer interest NSW-based interest was in line with 2011, and remains the biggest market Victorian and Tasmanian interest climbed marginally WA and Qld both saw a drop in enquiries: WA, which saw a significant spike in enquiries in March, plunged by 8%

Source: yourmortgage.com.au, April 2012. For more homebuyer stats, turn to page 74

MPAMAGAZINE.COM.AU | 11

NEWS / MULTIMEDIA

ON LINE The latest highlights from MPA Online and Australian Broker Online

In motion

What’s the latest from Broker News TV?

CAUGHT IN A TRAP How NCCP is forcing brokers to turn away business

AUSSIE AUSSIE AUSSIE James Symond speaks about the NMB purchase

GAME PLANS Kim Cannon and Clint Hawthorne reveal their footy tips

12 | MPAMAGAZINE.COM.AU

SAY WHAT? THE BIGGEST QUOTES FROM THE MONTH

“The board wanted to consolidate a lot of the acquisitions made over the last little while… there was sort of the feeling that Mark was not the right guy” A Firstfolio spokesperson on former CEO Mark Forsyth’s sudden departure

“This change in behaviour is having ripple effects through the economy, including through a lowering of expected capital gains on housing.” Reserve Bank deputy governor Philip Lowe has finally noticed that Australians aren’t spending like they used to

“Smaller groups are tighter, better connected, faster to react and more able to help each other and truly keep standards high.” Finsure head honcho John Kolenda sings the praises of boutique aggregators

FIGHT BACK AGAINST CLAWBACKS

Orange Advantage’s James Veigli revealed a three-step program to avoid clawbacks on MPA Online. Here’s step one.

Educate your client One of the biggest mistakes many brokers make is assuming a client understands what you do, how you work, how you get paid and that your income can be taken back despite all your hard work. As part of your client education process, explain the differences between dealing direct with lenders and working with a broker. Focus on the benefits the client will receive when they deal with you. You must also educate your clients on how you earn an income and how clawbacks work. When a client understands that you could have your commission recalled if they refinance or sell their property within two years, they will feel more obliged to work with you in the future.

MISTAKEN IDENTITY? New Loan Market NSW State Manager Michael Karpathakis received a surprise phone call when he joined the company… or so he thought. “When I accepted the role, I got several calls welcoming me on board. One of those was from (Ray White group chairman) Brian White: but when he called me, I just didn’t click. I thought it was Barry White. I was waiting for him to start serenading me! After a moment, it clicked. “Of course, I had to tell him who I’d thought he was – and that really broke the ice. It’s the small stuff like that really makes the difference and confirmed I’d made the right move.”

To find out more on all of these stories, as well as latest business strategy advice, special reports, profiles, news, views and analysis, visit mpamagazine.com.au.

BROKERNEWS.COM.AU | 13

NEWS / PRODUCT ROUND-UP

PRODUCT NEWS A bite-size guide to the industry’s newest products, key updates and fresh initiatives EDITOR’S CHOICE Who: Citibank What: Mortgage Plus package

The spec: Citibank has revamped its Mortgage Plus package with a range of new services. Citibank says the new Mortgage Plus deal is a home loan package that gives customers the benefit of real choice coupled with generous discounts for proven savers. Citibank says the package allows customers to select the home loan best suited to their needs, aspirations and budget, with the choice of four types of home loans including Citibank’s standard variable loan, fixed rate loan, offset loan, or a line of credit loan. A key benefit is the delivery of rate savings depending on size of deposit, rewarding high-deposit borrowers with higher discounts based on the loan amount and loan-to-value ratio. Rates currently start at 6.09%pa for LVRs less than or equal to 80% and loan amounts greater than or equal to $150,000. Citibank is also currently waiving the first year Mortgage Plus Package fee of $350. Borrowers can also choose from an expanded selection of Citibank credit cards, with three out of four being rated by Canstar as ‘Outstanding Value’ five-star

credit cards. Furthermore, a transaction account – the only deposit account in Australia that is completely fee free – is available as part of the complete package. If that’s not all, customers can also enjoy a free bottle of award-winning wine when they dine at participating restaurants with Citibank’s dining program. What they say: “We’re very excited to have been awarded the Editor’s Choice award. “We’ve set out to do something different with Mortgage Plus: rather than just offer a discounted mortgage with a token transaction account, credit card, we’re giving Citibank customers the full benefit of services across the bank. “As one of the non-majors we need to work harder – look at what the customer really wants. We’re very excited to be recognised – it’s a validation of that approach. We’re committed to continue doing this with all our products, and providing customers with access to centres of excellence in the company.” Vibha Coburn, head of mortgages, Citibank

WHAT WE SAY: Citibank’s premium package is looking like a good deal, especially with a sharp promotional rate and waived first-year fees.

14 | MPAMAGAZINE.COM.AU

“As one of the non-majors we need to work harder – look at what the customer wants” – VIBHA COBURN

NEWS / PRODUCT ROUND-UP

In brief WESTPAC ONE-YEAR AND THREE-YEAR DISCOUNTED FIXED RATES DOWN TO 5.99% ONE-YEAR AND THREE-YEAR STANDARD FIXED RATES DOWN TO 6.19% “Competition in the fixed-rate market is particularly intense at the moment and there’s no doubt that customers are looking to pick up the best deal that is possible, particularly given the recent cuts in standard variable mortgage rates.” Jason Yetton, group executive of retail and business banking, Westpac

ADELAIDE BANK ONE-YEAR, TWO-YEAR AND THREE-YEAR FIXED RATES DOWN TO 5.99% FIVE-YEAR FIXED RATES DOWN TO 6.59% “Adelaide Bank’s fixed rate loans come with 100% offset, 100% of the time, which means that there is the potential for a better rate for those keen to save on their mortgage. Based on a $300,000 loan, if the borrower’s offset balance equates to $5,000, their effective rate would be in the vicinity of 5.83% for a one, two- or three-year fixed term.” Scott Erickson, head of mortgage broking, Adelaide Bank

AFG/ME BANK AFG has added super fund-owned lender ME Bank to its lender panel. The bank is particularly targeting loans under $500,000, a space in which it says it is ’particularly competitive’. Electronic lodgment will be available via the NextGen online portal. “The partnership will provide ME Bank with access to our 1,800 members nationwide. We’re confident our broker members and their customers will benefit from a broader range of competitive home loan options, like those offered by ME Bank.” Mark Hewitt, general manager sales and operations, AFG

– All rates correct as of 7 June

Who: Liberty Network Services What: Spark iPad app The spec: Liberty Financial has released a ‘revolutionary’ new iPad app for Liberty Network Services brokers. Liberty says that the app, called Spark, is the mortgage industry’s first totally mobile and complete broker software

16 | MPAMAGAZINE.COM.AU

platform. Spark is NCCP compliant and allows Liberty Advisors to engage with customers anywhere to manage their entire finance needs. It includes lead management, product searches and recommendation, loan application and submission, and document and customer relationship management. What they say: “The Liberty Network Services value proposition is custom built to deliver what brokers need, and we are relentless in ensuring our advisors are successful. We provide the ‘best of all worlds’, a hybrid model with the benefits of an established brand, and access to a panel of lenders and the ability to fulfil multiple products seamlessly.” Brendan O’Donnell, managing director, Liberty Network Services

Who: ING DIRECT What: Automatic online variations/Supporting documents by email The spec: ING DIRECT has made two significant upgrades to its loan processing system. Brokers can now submit home loan variations for their existing ING DIRECT customers online. Brokers will be able to submit and track variation applications for personal clients including: • Principal increases and reductions; • Product switches and splits; • Adding, removing or substituting securities; • Adding, removing or changing borrowers or guarantors; and more. ING DIRECT accredited brokers can also now send in supporting documents via email. Once a broker has submitted a new or variation application online and has received the deal number, they can scan and attach their supporting documents as a PDF file to an email and send them to ING DIRECT. The deal number must be clearly identifiable in the email.

What they say: “We found the manual nature of our existing processes left brokers dissatisfied and impacted their likelihood to send us new deals. Keeping our third party channels satisfied with our back-end processes is key, because it’s a large part of their overall experience,” Lisa Claes, executive director of delivery, ING DIRECT

Who: Macquarie What: SMSF Property Loan The spec: Macquarie Bank has broadened its range of mortgage solutions with the addition of an SMSF Property Loan that gives SMSFs direct exposure to residential investment property assets. Macquarie’s SMSF Property Loan is a limited recourse loan available to Australian residents with an existing SMSF or who are currently in the process of establishing an SMSF, or to SMSFs wishing to refinance a property loan from another lender. The loan is intended to complement Macquaries’s existing range of SMSF solutions. What they say: “One of the key reasons SMSFs are growing at such a rapid rate is that they offer the flexibility for people to choose where their money is invested. As the number of SMSFs grows, we also expect the focus on real estate as an SMSF investment to grow.” James Casey, head of mortgages product, Macquarie Adviser Services

LAUNCHING A NEW PRODUCT?

If you are launching or updating a product and want it to be considered for inclusion on this page, send the details to adam.smith@keymedia.com.au

NEWS ANALYSIS / THOUGHT LEADERS

THE BIG ? UESTION

Self-managed super is the new big thing in property investment, with new products popping up all over the place. But could SMSFs put people’s super at risk, rather than boost their retirement income?

18 | MPAMAGAZINE.COM.AU

property purchased would have to perform twice as well as property outside the fund just to break even.

Margaret Lomas Founder, Destiny Financial Solutions

I see little benefit to the average person setting up an SMSF for the principal objective of investing in property. Borrowing is complex, with the requirement to set up a trustee entity to act on behalf of the fund, meaning more costs and extra compliance. The loan is non-recourse, which means the lender cannot touch other fund assets if it’s not repaid. However, this also means that you can’t leverage against the equity, and can only borrow once on each property, so you have to wait till the fund has a full deposit of at least 20% plus costs before buying again. Also, there are huge compliance requirements. If a fund becomes noncomplying, its income tax rate will go up to 45%, and it will also incur 45% tax on all of its assets. You can’t live in any property that your super fund buys and you can’t rent one from your super fund. You also cannot transfer personal assets into a superannuation fund. All in all, the costs of having such a fund may mean that any

John Mohnacheff, National head of sales, Liberty Financial

There’s no risk with SMSFs – albeit with one caveat: as long as you do it properly. If you go into an SMSF, you are taking responsibility for managing your own portfolio. The way it should run is that you should primarily have a discussion with your accountant or financial planner. If you have a clear and precise strategy on how you want to run your investments, then SMSF is for you – it’s the only way to go. If you jump in because it’s fashionable and you’ve got no idea what you’re doing, you could pay the ultimate price. Having said that, when it comes to tax time, all you need to do if your strategy has gone sour is to revise your strategy. You’re in control, and you can change your strategy if you need to. There’s a lot of security.

NEWS ANALYSIS / THOUGHT LEADERS

Tony Hayek CEO, Blue Wealth Property

Investing through SMSF is no more risky than any other transaction. With all investments it is important that clients ‘know their numbers’ and make informed educated decisions. If your clients have their super money in the default “balanced” fund, which around 80% of Australians do, their super is at risk. In fact, at risk is putting it lightly; it’s almost definitely gone backwards. Clients are disgruntled by the poor performance of industry funds and are seeing SMSFs as a way of taking control of their super. Banks are coming to the table with new SMSF products and brokers are working out what this new opportunity means to their business. So how can brokers be part of this growing industry and help clients find a better way to boost their retirement income? Brokers can now reposition themselves as ‘solution providers.’ Traditionally their role has been at the end of a property transaction, now they can move to the top of the transaction and support their client through the process, and with this comes greater rewards.

Ken Raiss Director, Chan & Naylor

Poor investment and spiralling costs have prompted more Australians to ask whether they are better off investing their money through SMSFs rather than established super funds.

20 | MPAMAGAZINE.COM.AU

With greater financial control, SMSFs are tax-effective and provide estate planning and asset protection benefits. SMSFs are also responsible for a new wave of property investment as the stability of bricks and mortar outshines a risky rollercoaster share market. Property as an asset minimises investment risk exposure and, through the flexibility and control of an SMSF, creates the opportunity to accumulate property using bank debt that will be tax free in pension stage. Retirees also realise a number of other benefits including accumulative growth opportunities and access to the full benefits of negative gearing at marginal taxrates. Who said you can’t have your cake and eat it too?

Andrea Slattery CEO, SPAA

There can be no argument that SMSFs are the standout superannuation success story. The sector is growing exponentially, adding a net 2,500 funds a month. Over the five years to June 2010, assets grew 122% compared with 60% for the wider industry. SMSF members are the most engaged people in superannuation, with a keen interest in ensuring their funds perform well. This interest is reflected by their high level of voluntary contributions, their funds’ often superior performance, and their willingness to use professional advice. This hands-on involvement by SMSF trustees, as well their advisors’ critical input, explains why SMSFs are not a risky superannuation option. Where SMSFs have got into trouble it has typically been the result of third party malfeasance, such as Trio Capital. This is why SPAA wants a last resort compensation scheme, not only to protect SMSFs but all investors from fraud or theft.

Richard Livingston, Managing director, The Walnut Report

The opportunity for SMSFs to borrow to buy residential property may accelerate wealth and achieve financial goals. But they are unlikely to be the investor’s. The numbers show that without phenomenal capital growth, returns will be lower than if an investor did the same thing in their own name. The difference may not be great but using your SMSF also carries practical issues, risks and additional costs, all of which add up to make it an unattractive proposition for most investors. The reality is that property as an SMSF investment proposition relies largely on capital growth assumptions. When negative gearing took off the basic premise was the tax man compensated investors for their interest deduction and when they made a fairly automatic capital gain by virtue of the power of inflation, they didn’t pay any tax on that. But in the environment we are in today – much lower interest rates, ditto inflation – I question whether negative gearing makes sense. On top of that you’ve got the additional question: Does negative gearing make sense when you take it out of the high tax environment that an individual has and put it into an SMSF?” In an SMSF, you’re giving up the compensation from the tax man. To have it make sense you have to have a much bigger capital gain to win out.

find out more...

To find out more about self-managed super funds and if it’s something that could benefit your clients, check out our Special Report on SMSFs, included in this issue.

FEATURE / TOMORROW’S BROKER

A completely synthetic brain, robotic moon bases, a high-speed rail linking London to Beijing, and finally, yes, finally, flying cars for everyone – are just a few of the predictions being made for the year 2020. Some of these might seem far-fetched, but it’s difficult to forecast what the world will look like in seven-and-a-half years. One only has to look back to the year 2005 to accept that some things were unforeseeable at that time – did you envision a world picking itself up from the worst global financial disaster since the Great Depression? A world with iPhones? Your mother on Facebook? We might not be able to depict all the changes that will happen between now and 2020, but based on industry trends, several stakeholders in the business offered their best guess on what the future holds for brokers.

THE NEW YOU

Today’s broker is changing. In what has traditionally been a male-dominated career, females are starting to gain some ground. Of MFAA members the ratio is 70:30 male to female, but for new members it’s 60:40. Mortgage Choice’s Franchise Recruitment Index indicates a similar trend. “Due to the workplace flexibility that mortgage broking offers, we believe that

Who will be the new brokers and what will the industry look like as we approach the year 2020?

in seven years the number of women in mortgage broking will rise. The ability for women to work from a range of workplace set-ups (home offices, branded shopfronts, commercial premises, etc.) will encourage larger numbers of women into the mortgage broking industry,” notes spokesperson Belinda Williamson. Mortgage brokers are also getting younger. The average age of new members is dropping from 44 to 39, and MFAA CEO Phil Naylor predicts that could gradually trend downwards in the coming years. “Obviously there’s a bottom limit: people who come into the sector to work as brokers probably have some degree of maturity. Still, we think there are still a lot of opportunities for people a lot younger than 39 to come into the industry.” The other dynamic that’s changing is people’s experience coming into the profession. The industry was really founded by people leaving the banking sector, but that is no longer a common background for new entrants. According to Naylor, people from a variety of backgrounds are starting to see broking and credit advice as valuable careers. Not only are new members coming in with different experiences, but tomorrow’s brokers will also be better educated. While the National Consumer Credit Protection Act put the minimum training requirements at Cert IV in Financial Services, the MFAA is lifting the bar for members over and above that. Under the new structure, existing MFAA members must have either completed the diploma or upgrade to Diploma in Financial Services, or the Diploma of Finance and Mortgage Broking Management, or the Fast Track option (available for members with more than five years’ experience).

TOMORROW’S

BROKER 22 | MPAMAGAZINE.COM.AU

39: The average age of new brokers, according to MFAA – down from 44

MPAMAGAZINE.COM.AU | 23

FEATURE / TOMORROW’S BROKER

“New members coming in have no qualms about higher education requirements, in fact that’s an expectation I have – that a professional career will involve higher educational requirements,” Naylor says. According to AAMC Training Group’s managing director Jeff Mazzini, there is definitely a need to raise the bar even higher – particularly as customers look to mortgage brokers to look after more than just their home loan. “All businesses need to start thinking about valueadding to their business offerings,” he says. “If you’ve got the right skills and qualifications to talk freely about a lot of the different subject matters then you will be far more appreciated by a client. The customer wants to know that you see the full financial picture, not just bits and pieces.” While Naylor says the industry association is not witnessing many brokers crossing into financial planning, the ongoing trend is alliances between brokers and financial planners. The chairman of the Independent Finance Brokers Forum, Stephen Dinte, believes that most brokers in the future “will be part of an all-encompassing group of advisors/professionals operating under the one roof, and having a synergistic relationship. “This group would likely include a broker, financial planner, accountant and solicitor. As operating costs continue to rise, and income streams diminish, this format will provide savings to all members,” he adds. As brokers make the transition to becoming better educated and providing a range of financial services to their clients, there will be a swing towards charging a fee-for-service, predicts industry spectator Martin North. “In the future advice will be based on a fee and that advice will be more holistic and about your financial position, and so the integration of mortgage broking into financial planning advice and long-term financial security advice is going to be a strong proposition.”

Less is more Current number of MFAA brokers: 11,200 A drop from pre-GFC levels of about 13,500 According to MFAA CEO Phil Naylor, three factors contributed to the decline: • The GFC wiped out some marginal operators. • Cutting off commissions impacted marginal operators. • Regulation and NCCP have also cut out those people who don’t want to commit to the compliance. Broker numbers are still shrinking, but the industry is approaching a plateau. Every month 100 new members are joining the MFAA.

24 | MPAMAGAZINE.COM.AU

“Whilst there are people moving out of the industry there are still people coming in”

– PHIL NAYLOR

Martin also notes that legislation and likely government intervention into the industry will probably also steer the industry away from commissions, and more towards a fee for service model.

THE FUTURE OF AGGREGATORS While industry figures such as Aussie executive chairman John Symond claimed smaller aggregators would be forced to consolidate amidst rising business costs, others argue there is a future for those that evolve their offerings. “I’m not sure that we’re going to end up with an ever smaller number of big players. I do think there is an important niche for smaller players, but I think they have to do it differently,” predicts North. “It’s going to come down to how different aggregators integrate the online model into their business. I have a theory that the big guys who are predominately commodity players will find it quite difficult to fully integrate the online service proposition into their broker offerings. So some of the medium and smaller players will probably be able to evolve more quickly and essentially offer a different type of service. So I think there’s still a very important role for brokers, but I think it’s going to be a different service, I think it’s going to be integrated into the online experience.” According to North, the demand is already there. About one-third of consumers would prefer to use online services – iPhones, iPads, apps – as part of the buying process; at the moment they are just not able to because the industry has not evolved quickly enough, he says. “There’s a market-led demand based on consumer preferences and based on the ever-increasing penetration of online. And by 2020 a lot of the people who are of a digital generation will be buying their properties and expecting to do everything in the online mode. So it’s an important driver of change and an important imperative for organisations as they try and evolve.” Mortgage Choice predicts technology will improve turnaround times for customers and potentially benefit brokers too.

60% : 40% The gender ratio of new MFAA members (male to female) – lower than the overall average of 70:30

MPAMAGAZINE.COM.AU | 25

SPECIAL REPORT / BROKERS ON BANKS

GOLD RU

26 | MPAMAGAZINE.COM.AU

SPECIAL REPORT / BROKERS ON BANKS

It’s time for the biggest poll of the year: which of Australia’s banks have brokers judged to be the best in the country? Kevin Eddy analyses the results

erhaps the most keenly awaited industry survey of the year is MPA’s Brokers on Banks rankings. Now in its ninth year, this is the only industry survey that rates Big Four and second tier banks together on a number of elements of bank operations – all based on the views of the mortgage brokers who deal with the banks every day. The survey is also used as a key performance indicator by several lenders.

METHODOLOGY This year’s survey drew 506 respondents – a sizeable cross-section of brokers. Participants were asked to rate the performance of 12 of Australia’s largest banks: Adelaide Bank, AMP, ANZ, Bankwest, CBA, Citibank, ING, Macquarie, NAB/Homeside, St.George, Suncorp and Westpac. The lenders were rated between one (poor) and five (excellent) over 10 different categories: BDM support, information provision, interest rates, internet platform, overall service, product range, satisfaction with credit policy, transparency of commission structure, turnaround times and diversification opportunities. Brokers were also asked to rank the importance of the categories. All the scores for each lender were averaged to give the bank a final score in each category. An overall average was then calculated for each bank going by its performance in the 10 categories. As with last year, we separated the results from our Top 100 brokers to give banks an idea of how they catered for the nation’s elite advisors. We also asked two new questions of Australia’s brokers – first, what the best product over the last year has been, and also to select their top three banks in terms of overall perception. As well as scoring the banks across the aforementioned sections, brokers were also asked a number of questions about how banks had performed with regard to turnaround times, technology, channel conflict, commissions and service. Thanks to all the brokers who took time out of their busy schedules to cast their vote in this year’s survey. Turn over to see how the banks fared and find out who topped the pile.

MPAMAGAZINE.COM.AU | 27

SPECIAL REPORT / BROKERS ON BANKS

TURNAROUND TIMES BANK

INTEREST RATES

SCORE

BANK

SCORE

CBA

3.59

NAB/Homeside

3.76

ANZ

3.52

BankWest

3.69

NAB/Homeside

3.46

AMP

3.65

Adelaide Bank

3.35

ING Direct

3.37

ING DIRECT

3.1

Macquarie

3.26

INDUSTRY AVERAGE: 2.93

INDUSTRY AVERAGE: 3.17

For three straight years, turnaround times have been acknowledged as the most important element of bank service. Last year’s winner, CBA, retained its place at the top of the table, with brokers judging its turnaround times as the best of all the banks. ANZ retains a solid second place, and improves on its rating from last year too. A new entry into the top three is NAB – perhaps testament to its efforts to speed up service over the last 18 months. Non-majors Adelaide Bank and ING DIRECT round out the top five, too, showing that there are areas in which smaller players can challenge the Big Four.

NAB scores its first victory in this year’s Brokers on Banks survey, thanks to its much-trumpeted sharp pricing policy. Indeed, NAB has a stranglehold of its own on this category, having taken out the number one position three years in a row. In fact, there’s been some significant changes in the top five, with only NAB holding onto its position from 2011. Bankwest jumps to number two in the rankings, due to its popular Premium Select product – while ING DIRECT drops one position. New entries AMP and Macquarie suggests that non-majors are also getting in on the price war.

2011 RESULTS

BANK

SCORE

BANK

SCORE

CBA

3.60

NAB/Homeside

3.99

ANZ

3.12

ANZ

3.53

Adelaide Bank

3.11

ING Direct

3.46

Brokers speak: turnaround times HAVE TURNAROUND TIMES IMPROVED OR WORSENED OVER THE LAST YEAR? 59% IMPROVED “It depends on the lender. They are generally understaffed so when volumes rise due to specials, none of them can cope and we brokers suffer and have to ride it out.” “Lenders seem to be more aware of peaks and troughs, and when they have specific promotions making sure they have the staff to cover increased applications.” “The ability to email supporting docs and updates has made a huge difference. Credit calling the broker with a query or to explain the assessment decision is very good too.”

28 | MPAMAGAZINE.COM.AU

41% WORSENED “Second-tier banks which, post-GFC, closed or restricted business and subsequently retrenched people no longer have the infrastructure to support the short-term volume they get, and service/turnaround times blow out. The consumer sees the rate and wants this rate and managing these expectations is hard.” “It is a constant battle to provide service within required purchase time-frames. Inconsistency does not help – brokers are constantly having to move as service levels vary.” “It depends on which lenders you are talking about. Some have improved out of sight and some have gone through the roof. This usually comes down to pricing wars and is short-lived.”

Broker picks: Best product Another innovation in this year’s survey was asking brokers to highlight the best product of the last 12 months. Even at first glance, this came down to a three-way fight between Homeside’s HomePlus loan, BankWest’s Premium Select and ANZ’s Breakfree loan. It was Homeside that won out, however, narrowly beating BankWest into second place. Elsewhere, professional packages and basic loans featured heavily, with CBA the only bank to see two products – its MAV package and its no-fee home loan – in the top 10. Also notable as the only fixed-rate product in the top 10 is Citibank’s three-year fixed, which garnered much praise for its sharp pricing of 5.75% before Christmas.

BDM SUPPORT BANK

Homeside HomePlus

BankWest Premium Select

ANZ Breakfree

CBA MAV Package

ING DIRECT Mortgage Simplifier

Citibank three-year fixed 5.75%

St.George Advantage Package

Suncorp Money Manager

CBA No fee Home Loan

Westpac Premier Advantage (Rocket Repay Offset)

BROKER WISHLIST: SCORE

CBA

NAB/Homeside

BankWest

3.62

Citibank

3.49

ANZ

3.48

3.73 3.7

INDUSTRY AVERAGE: 3.31

Your relationship with a BDM – whether face-to-face or desk-based – is one of the key relationships with a bank, and better BDM support is high on many brokers’ wish lists for bank service. The lenders aren’t blind to this, either: several banks have invested heavily in bolstering their relationship management footprint over the last year. Even so, it’s CBA who holds onto the top spot, improving to 3.73 from last year’s score of 3.52. NAB is a new entry into the top five in this category as well, pushing last year’s runner-up Bankwest into third place. Citibank and ANZ hold onto their fourth and fifthranked spots. 2011 RESULTS BANK

SCORE

CBA

3.52

BankWest

3.43

Suncorp

3.28

SEGMENTATION WE ASKED:

What services would you want from a top tier segment? BROKERS SAID:

• Same day turnaround times • Direct access to credit staff • Better access to BDMs • Better pricing • Higher commissions

MPAMAGAZINE.COM.AU | 27

SPECIAL REPORT / AGGREGATORS

30 | BROKERNEWS.COM.AU

SPECIAL REPORT / BROKERS ON BANKS

DIVERSIFICATION BANK

TRAINING AND DEVELOPMENT

SCORE

BANK

SCORE

CBA

3.61

NAB/Homeside

3.01

CBA

Westpac

2.72

Macquarie

ANZ

2.69

Suncorp

2.72

St.George

2.67

ING Direct

2.65

3.63 3.6 2.74

INDUSTRY AVERAGE: 2.94

INDUSTRY AVERAGE: 2.74

A new category introduced for this year’s survey, diversification opportunities (such as credit cards, insurance and SMSFs) ranked surprisingly highly in terms of importance for brokers. It’s another victory for CBA, however, with the Big Four occupying the four top slots – and Westpac-owned St.George coming in at number five. Note that the scores for this category were lower than for any other, and only two banks came in above the industry benchmark – suggesting that, while brokers are seeing this as important, banks haven’t necessarily got it right just yet.

Roadshows, training, seminars… they’re an integral part of keeping brokers up-to-date on products, initiatives and policy changes, but which lender does the best job? NAB took out the honours here, with its information provision ranked highest in this new category. CBA was narrowly behind, with second-tier banks filling out the rest of the top five. However, information provision in the lower end of the rankings was certainly seen as lacking by the survey respondents with the lowest scores of any category – and the lowest industry benchmark.

Brokers speak: segmentation ARE YOU IN FAVOUR OF SEGMENTATION STRATEGIES? 60% NO “A lender will get my support if they have good rates, good products and good service – not because they give me special treatment if I send a lot of business their way. “ “All deals deserve the utmost attention as there are people behind each deal. Segmentation is an excuse to offer poor service to a particular segment. It will diminish the independence of brokers to select the right product for the customer.” “Segmenting discourages responsible lending. Any one broker that puts, say, $15m a year with CBA isn’t doing their job properly because not every client will either want or be suitable for a CBA product. “ “The client is the person who suffers in the end. “

32 | MPAMAGAZINE.COM.AU

40% YES “Any broker who is giving lenders volume business, providing they are quality applications and quality business, should be rewarded with a far higher service from the lender and a higher commission upfront.” “I am certainly in favour of segmentation, but not to the point that one segment be left with only a mortgage call centre to liaise with – it is critical brokers have a BDM to liaise and discuss deals with.” “I see both sides of the argument, but if you are submitting a large amount of business to a lender why shouldn’t you get some service level perks? That’s the way the rest of the business world operates.” “As a broker with superior service from four banks as a top tier broker, I believe it is beneficial if continuing to support those lenders. It can be tough if you start spreading the business around more as the service we deliver to our clients is directly connected to the turnaround times of lenders.”

BROKER WISHLIST:

SERVICE IMPROVEMENTS WE ASKED:

What would be on your ‘wish list’ for quality service from a bank?

PRODUCT RANGE BANK

SCORE

ANZ

3.78

CBA

3.65

NAB/Homeside

3.57

BankWest

3.41

St.George

3.4

BROKERS SAID:

• Faster turnaround times • Direct access to credit assessors, and for assessors to call when there’s a query • Upfront valuations • Ability to print documentation/e-mail documents • Consistency in credit policy and ‘common sense’ decision making

INDUSTRY AVERAGE: 3.32

The last 12 months have certainly been a period of consolidation rather than innovation when it comes to products. There have been some standout efforts from lenders – and the best are highlighted in our award. When it comes to overall suite of products, ANZ can’t be beaten, it seems. Holding onto the top spot for the third year in a row with the highest individual score in any category, brokers clearly rate its loans. CBA took the second slot from NAB – this is the only category where NAB performed worse than in 2011 – and CBA-owned Bankwest also improved on its fifth place from 2011. St.George rounded out the top five. 2011 RESULTS BANK

SCORE

ANZ

3.73

NAB/Homeside

3.49

CBA

3.48

Importance scale 1

Turnaround Diversification times opportunities

4.76

4.75

BDM support

Overall service to brokers

Interest rates

4.67

4.51

4.33

Commission Mortgage Information structure product range provision

4.21

4.19

4.15

Credit policy

Online platform

3.90

3.89

MPAMAGAZINE.COM.AU | 33

SPECIAL REPORT / BROKERS ON BANKS

COMMISSION STRUCTURE BANK

SCORE

AMP

3.26

NAB/Homeside

3.24

ANZ

3.19

ING Direct

Citibank

Brokers speak: commissions

3.13 3.07

HAVE COMMISSION STRUCTURES IMPROVED OR WORSENED OVER THE LAST YEAR?

INDUSTRY AVERAGE: 2.95

An always controversial subject, commission wrangles certainly haven’t gone away in 2012. The issue of clawbacks is one that has raised its head in recent months, and NAB’s commission changes at the beginning of the year has had brokers looking askance at other lenders. Brokers clearly still aren’t happy with banks’ treatment of commissions, with the industry benchmark average score being only one of three under 3/5. Still, the picture at the top of the table looks the same, as AMP takes the crown for the second year in a row – although 2011’s joint winner, ANZ, dropped down the table to number three. NAB shot in at number two – almost certainly the impact of its commission changes. ING DIRECT was down to fourth, and a surprise new entry at number five was Citibank. 2011 RESULTS BANK

SCORE

AMP

3.52

ANZ

3.52

ING

3.42

40% IMPROVED “A tough one. Some are getting more generous, but others are much worse, and encourage mediocrity, with no grounds for argument on their conversion metric. Brokers who support them are now being penalised if they are not converting 80% on their seriously flawed model.” “Minimal change, which is a shame. The extra work on the broker part is not reflected in the improved efficiencies the lenders have received with the better systems and procedures resulting in better conversions. Second-tier lenders need to get their businesses cleaned up to compete and give us a viable option.” 60% WORSENED “Clawbacks are now a greater threat due to abolition of exit fees. Also, it is disappointing that lenders expect brokers to take a cut in their upfronts in order to obtain additional pricing concessions.” “Commissions are always an issue but as an employee this has a bigger impact on the owner of a business as we try and always do what is best by our clients.” “Lenders having no trail in year one is a disgrace, and the overall for work done upfront is too low.”

Broker picks: best bank, overall preference This year, MPA wanted to get a sense of overall market sentiment in addition to gathering the usual as well as the detailed ranking information. So, we included a question at the end of the survey asking brokers to list their top three banks in terms of market perception as of April–May 2012.

34 | MPAMAGAZINE.COM.AU

So, which bank came out as brokers’ favoured lender? 1

CBA

NAB/Homeside

ANZ

BankWest

ING DIRECT

It’s probably no surprise that CBA seems to be the bank of the moment when it comes to market sentiment, seeing as it’s ranked first in more than half of the Brokers on Banks categories. It’s also telling that NAB comes in a close second – indeed, we’re sure the folks at NAB Broker and Homeside will be very pleased..

SERVICE LEVELS BANK

SCORE

CBA

3.59

ANZ

3.48

NAB/Homeside

3.46

ING Direct

3.26

Suncorp

3.12

INDUSTRY AVERAGE: 3.06

As mentioned in the previous category, service is something that lenders have been bending over backwards to improve over the last few years. The cynical might argue that’s because lenders are trying to distract attention from commissions: even so, there’s no doubt that brokers see service levels as vitally important. On the whole, scores have improved in this category, suggesting that lenders’ efforts are paying off. CBA continues its bull run here, with ANZ retaining its second place position. NAB also continues to shine, coming in at number three from nowhere last year. ING DIRECT and Suncorp round out the top five, again showing that the second tier compare well with the Big Four.

2011 RESULTS BANK

SCORE

CBA

3.38

ANZ

3.20

ING Direct

3.11

Brokers speak: service levels HAVE SERVICE LEVELS/ CREDIT POLICIES IMPROVED OR WORSENED OVER THE LAST YEAR? 55% IMPROVED “Credit policies have certainly improved over the last year as lenders are wanting to do more business.” “Many credit policies are more commercial these days. NCCP initially created a scare but lenders are really starting to see they were in fact already responsible lenders and change wasn’t really needed except perhaps in the low doc/asset lend space. “ “It has mostly improved. However, we still experience poor decisions because we were unlucky enough to have a deal looked at by a credit manager having a bad day. We often need to refer to state manager level or higher to get some common sense.”

45% WORSENED “Bank service remains ad-hoc overall. If all is straightforward and no intervention is required service level is good. As soon as a problem occurs, the wheels fall off.” “Brokers will rarely be happy with service levels. Credit policies may appear to be a little broader than what they were tightened to 18 months ago but in reality they are still narrow – and they need to be to keep the industry safe from the unscrupulous practices of the past.” “I strongly recommend streamlining the process in order to eliminate the need for conditional faxes based on minor items such as ‘mother’s maiden name’ or other simple questions. Please ask the assessor to hang on to the file, pick up the phone or email the broker for an immediate response and progression on the file.”

MPAMAGAZINE.COM.AU BROKERNEWS.COM.AU | 35

SPECIAL REPORT / BROKERS ON BANKS

Brokers speak: channel conflict DO YOU BELIEVE CHANNEL CONFLICT EXISTS? 81% YES “My own wife was contacted by our bank’s premium personal banking team asking if she required any assistance with her banking. I thought it was a great opportunity to experience firsthand what it’s like to be a customer without the bank knowing what I do for a living. I rang the personal banker and asked him why he was contacting my wife seeing as though all of our loans have been originated through a mortgage broker. I asked if he could facilitate the lodgement of new home/investment loans or would I be referred back to my mortgage broker. To my amazement, the personal banker said he could do that from his end and not to go back to my broker ‘because we provide much better service than brokers’. How on earth are we supposed to continue supporting banks/lenders by introducing new business to them if the clients are just going to get poached from us once they’re in the system?” “I think that is why we are treated as competition but Tony McRae (Westpac) seems to have the right idea now, placing designated persons in larger branches to assist brokers.” 19% NO “Ninety-nine per cent of the time most banks respect this and if not I don’t have an issue ringing my BDM regarding this.” “I think channel conflict has dropped. The banks I deal with now encourage brokers to interact with the local branches as we can send clients in to the branch for the add-ons to the home loan accounts.” “Not as much as in the past. Most banks are seeking to work with brokers these days, which is great. That way we help each other.”

ONLINE PLATFORM BANK

SCORE

CBA

3.73

ANZ

3.37

NAB/Homeside

3.36

Westpac

3.25

St.George

2.98

INDUSTRY AVERAGE: 2.98

Next, Brokers on Banks examined online platforms. Expanded from simple internet platforms as in the last couple of years, the online environment now encompasses bespoke broker portals for smartphones and tablets as well as desktop solutions – not to mention social media. Which lender has its finger on the digital pulse? It’s no surprise to find out that CBA ran away with this category – and it’s not even done upgrading its systems yet. As per last year, the Big Four banks dominated the top five – with rising star NAB the biggest mover from fifth to third. St.George also continued to upload its reputation for technological innovation: it was the first lender to launch a brokerspecific iPad app earlier this year 2011 RESULTS BANK

SCORE

CBA

3.51

Westpac

3.29

ANZ

3.16

Brokers speak: technology HAVE TECHNOLOGICAL DEVELOPMENTS SUCH AS IMPROVED WEBSITES, MOBILE/TABLET APPS AND SOCIAL MEDIA IMPROVED DEALING WITH BANKS?

To see full rankings for all the categories, further analysis and more broker views, head to MPA Online now.

36 | MPAMAGAZINE.COM.AU

“For clients, yes; for brokers, no major improvements with how we deal with the banks as a result of technological developments.” “I don’t think so. I think the banks who get the best results are the ones where the BDMs are accessible and willing to help. The human element is always the most effective.” “Improved websites have been an improvement. I’m not interested in social media – I’ll leave that to the kids!” “Loan tracking on websites has improved dealing with banks, but only where the tracking system works and is kept up to date. This is the key.” “Not yet, but this will change as the next generation will accept it as part of the way they do business.”

CREDIT POLICY BANK

BANK OF THE YEAR SCORE

BANK

SCORE

CBA

3.76

CBA

NAB/Homeside

3.41

NAB/Homeside

3.5

ANZ

3.41

ANZ

3.27

Suncorp

3.13

ING Direct

3.02

Adelaide Bank

BankWest

3.01

3.46

INDUSTRY AVERAGE: 3.09

INDUSTRY AVERAGE: 3.01

Another area of much debate, credit policy was another harshly-scored category. While brokers are clearly willing to give credit where it’s due if they think policy is on the ball, they’re also willing to criticise when they’re not happy. Two-thirds of lenders – including number-five-ranked Adelaide Bank – scored below the industry average, suggesting that respondents think that something needs to change where credit policy is concerned CBA’s domination of the Broker on Banks survey resumed with this category, with its approach to credit policy beating NAB and ANZ into second place by a significant margin. Suncorp and Adelaide Bank also scored high enough to break into the top five.

CBA is celebrating its centenary year in 2012, and going by the results of Brokers on Banks, it’s going to be a year of double celebration. After taking top honours in six of the 10 categories we’ve ranked the banks on, it was a foregone conclusion that CBA would come out as the number one bank overall for the second year running. However, it’s a close call. Last year, CBA beat ANZ into second place: this year, NAB continued its rapid journey up the rankings, coming within 0.04 points of unseating CBA. Could 2013 see NAB unseat the reigning champion? ANZ, ING DIRECT and BankWest – all also present in last year’s top five – filled out the rest of the top honours.

2011 RESULTS BANK

2011 RESULTS

SCORE

BANK

SCORE

CBA

3.51

BankWest

3.02

CBA

3.43

3.00

ANZ

3.23

BankWest

3.10

ANZ

The view from the Top 100 1

CBA

3.52

NAB/Homeside

3.43

ANZ

3.35

Westpac

3.27

Macquarie

3.04

The view from the wider broker population is that CBA is the top bank – but is that mirrored by the view of Australia’s top performing brokers? We selected the responses from the MPA Top 100 brokers to find out their views. It seems that they’re pretty much in line with the rest of the broker population – at least where the number one bank is concerned.

CBA very nearly makes it a clean sweep of the top awards this year, being ranked as the number one overall, number one by the Top 100 brokers and number one in terms of general perception. However, beyond the top spot it looks quite different. The Top 100 clearly rate the Big Four higher than the general broker population, with the four majors occupying the top four positions. Macquarie Bank was also well-regarded at number five. Other key points from the Top 100 sample include: • CBA also took home most of the honours in individual categories, being ranked first in five categories (BDM support, information provision, overall service to

brokers, credit policy and diversification opportunities) • Westpac was ranked highest by the Top 100 in terms of turnaround times; its online platform was also ranked best by the Top 100 • AMP was ranked best for commission structure, ANZ best for product range and NAB best for interest rates – all in line with the wider survey results • While the four majors took out the top spots in most categories, second-tier lenders weren’t completely unrepresented. St.George sneaked fourth places in the commission structure, product range and diversification categories, while AMP and ING DIRECT ranked third and fourth respectively in the interest rates category.

MPAMAGAZINE.COM.AU | 37

SPECIAL REPORT / AGGREGATORS

38 | BROKERNEWS.COM.AU

HEAD TO HEAD / LISA CLAES

ING DIRECT has been cementing its position at the number five bank in Australia. Lisa Claes explains what it’s been up to, what’s coming up and the digital revolution

SURFING THE WAVE 40 | MPAMAGAZINE.COM.AU

MPA: What have been ING DIRECT’s key achievements over the last 6–12 months and what are you especially proud of? LC: The broker channel is such an important one for ING DIRECT: over the past 24 months we’ve done a lot of listening, and we continue to listen. We invest a lot of time harvesting feedback from the industry. We not only do this through research and surveys but also through face-to-face real time feedback. Even our CEO attends our broker forums. That feedback has been taken on and many initiatives have been launched and are beginning to emerge as a result. We take a ‘ripple and wave’ approach to implementation. Some ‘waves’ being larger project style initiatives include the loan automatic variation implementation, but we also have the smaller, quick, continual improvement type initiatives. The recent launch of the Loan Variation Automation application process was a significant initiative. This is in the process of being rolled out through our aggregator groups. It does what it says; it enables brokers and customers to vary their loan – increases, switches and the like – online.

MPA: Does that speed up the process? LC: It shaves many days off what was historically a clunky process. Existing business now has the same look, feel and experience as new business. Our new business is well received in the market and continues to be, but the existing business was letting down the overall experience with ING DIRECT. There are other dividends from the Loan Variation launch. There is increased and more intuitive “milestone” back channel messaging, so brokers can easily see the status of their variation. The other benefit of the project is the ability for the broker to email in supporting documents for new and existing business applications. Furthermore, brokers now have a single online client view.

What’s the feedback so far? LC: We are in the process of rolling it out to aggregators through a targeted communication plan. From the variations processed since launch, the feedback has been very positive. Over the next three months, it will become mainstream: the majority of our broker cohort

should be using it. It will be business as usual. The outbound/inbound calling by credit assessors to brokers is also something I am proud of. All of our 8,000 accredited brokers have the ability to, whenever there is a declinature or PFI, discuss this with a credit assessor, as their contact details are on these documents. We’ve had a lot of positive feedback about this. What’s particularly pleasing for us is that our conversion rate has increased by 10%. So we, too, have enjoyed an efficiency bonus far exceeding our expectations, simply from our assessors picking up the phone and having the conversation.

MPA: You haven’t mentioned the Broker Partner Program [an initiative ING DIRECT launched in late April]. Is there anything you want to say about this? LC: The philosophy underpinning this program is really important. We’ve been watching with a wry smile the segmentation debate within the industry. Segmentation is not a word within ING DIRECT’s vocabulary! My concern with segmentation is that it can unintentionally and adversely impact the end customer. We believe that a customer’s experience with a lender and a broker (as their first interaction point) should not be adversely impacted by where that broker sits in a segmentation program with a bank. The Broker Partner Program was designed to proactively support our valued broker partners through their ING DIRECT journey. The BPP calibrates our sales and service proposition to a broker’s business based on where they sit within their lifecycle with ING DIRECT. The model came about as a result of internal and external research and analysis; listening to feedback from our brokers and our staff as to where we could leverage opportunities to further strengthen our relationship with brokers. It’s our way of expanding and enhancing our reach to those brokers who are accredited with ING Direct.

MPA: Is the timing of these various initiatives somewhat fortuitous? You have the Big Four, and ING DIRECT is firmly positioned as number five. There’s a lot of negative sentiment about the Big Four – is there a sense that ING DIRECT can capitalise on that as an alternative? LC: My view about how we position ourselves is that MPAMAGAZINE.COM.AU | 41

HEAD TO HEAD / LISA CLAES

we’re not seen as an alternative because we say we are, but because intrinsically and objectively we are. Our high customer satisfaction ratings, employee engagement, numerous consumer and industry awards speak for themselves. I don’t like advancing our cause in terms of ‘us and them’: If the Big Four are perceived negatively, then so what? We try to hold ourselves to our own high standards. Capitalising on negative sentiment is a slippery slope – and not an ING DIRECT KPI!

MPA: I’m curious about your thoughts on the changing online environment: what are your thoughts about how this is affecting the industry? LC: From the perspective of a manufacturer of financial services and banking the impact is significant, and it is already reshaping distribution profoundly. There are several key global trends. The strong correlation between a country’s uptake of the internet/mobile devices and their comfort/uptake of online banking is irrefutable. In the early phase of the evolution of banking distribution you have bricks and mortar distribution and there are still many countries operating in that phase. A more advanced stage of the evolution is multi-channel distribution whereby banking products are accessed through a variety of channels, bricks and mortar, intermediaries and online with the result that traditional models are being reshaped. Australia is in the middle of the multi-channel phase. While we’re still comfortable using bricks and mortar, more and more customers are migrating to other channels, namely intermediaries and online distribution. Then there are a cluster of countries who are at the frontier of distribution, predominantly the Scandinavian countries and the Netherlands, where the penetration of the internet is highest, and so too is online banking usage. The second complementary trend is the change to channel mix. Across the traditional retail bank product mix of savings, current accounts, consumer lending and mortgages, the channel mix of branches, intermediaries and online is predicted to shift seismically in the next five years. The good news for mortgages is the resilience of the broker channel which, relative to other less complex financial services, is predicted to experience relatively little change in terms of its channel mix relativity.

MPA: Why? LC: I think the resilience of the broker channel is due to another trend, one which pertains to the psyche of the modern consumer. In spite of digitisation, which brings speed, real time access and efficiency, a consumer’s desire for a home remains unchallenged. Furthermore,

42 | MPAMAGAZINE.COM.AU

never before have people wanted a relationship with a trusted advisor. We’re also seeing that consumers want more control: in all decisions, especially financial decisions that are significant, and we’re seeing that people want to be able to execute those decisions in a digital format, but at the same time they want connection, a relationship, and they are very impressionable to recommendation (in preference to reputation). How do you choose a restaurant, a movie, where to go on holiday? You want to know what your friends, family, or social viral network think. All these trends play into the broker space. However, brokers need to adapt to capitalise on these trends and also realise that there are risks. Recommendation today is viral and is occurring in mortgages. Although the process of referral has been around for thousands of years and is the mainstay of broker leads, the difference is that now customers can access these digital referrals anywhere, anytime. For many, if not most, it influences their decisions about what they buy and who they buy it from. The rise of the digital economy, in spite of the fears of a totally automated and anonymous world, will make relationships and recommendations more important. As peer opinion is increasingly important, how you service your customers will be the key to garnering a consistently strong brand that is recommended. Having a social media strategy will be vital as viral recommendations can make or break a business: you can be condemned or condoned. Traditional models are changing: it’s not rocket science; but how you position your business model and brand will be key.

The Broker Partner Program ING DIRECT’s recently-launched broker partnership program aims to proactively support broker partners, by tailoring the bank’s sales and service proposition to a broker’s business. Underpinning the model are three key methods of communication.

DESK-BASED RELATIONSHIP MANAGERS A desk-based key account manager (akin to a Personal Banker) accessible to provide fast and efficient assistance to broker inquiries including credit scenarios, escalations and post-settlement support. “The RM role also provides for proactive sales contact to brokers to continuously highlight our value proposition and ensure we remain a consideration for brokers and their customers,” says Claes.

FACE-TO-FACE BUSINESS DEVELOPMENT MANAGERS “Being a branchless bank, BDMs will maintain our physical footprint in the broker community,” says Claes.

SALES SUPPORT A dedicated phone and email support team to provide general assistance.

SPECIAL REPORT MPAMAGAZINE.COM.AU

SMSF Your complete guide to DIY superannuation

SPECIAL REPORT / SMSF

SUPER Welcome to MPA’s Special Report on selfmanaged super funds. The acronym SMSF is one that most brokers will be familiar with, trumpeted as it has been for the last few years as a major opportunity for the financial services and property sectors. However, the complex legal environment, regulatory requirements and general confusion surrounding the sector has put off many professionals from seriously considering SMSFs as a viable option.

With that in mind, MPA demystifies the world of self-managed super and looks at what you need to do to incorporate SMSFs successfully into your business. Also inside this special report is a comprehensive product guide of the home loans available there for SMSF lending. Enjoy! Kevin Eddy, Editor, MPA

MPAMAGAZINE.COM.AU | 45

SPECIAL REPORT / NEED TO KNOW

YOUR CLIENTS AND SMSF

SUPER OPPORTUNITIES Mortgage brokers that put SMSF lending into the ‘too hard’ basket could be missing out on one of the fastest growing areas of lending in Australia. Andrea Cornish explains how to get involved It would be easy to dismiss SMSF lending as too complex and too far outside of brokers’ core activities, if it wasn’t such a huge area of growth.

HOW BIG COULD THE SMSF MARKET BE?

James Casey

46 | MPAMAGAZINE.COM.AU

At the moment, only 5% of SMSFs are invested in property. However, predictions indicate that could skyrocket to 45% by the year 2020. As a result, about half a trillion dollars will flood into the residential property market in the next seven years. Currently, one-third of Australian superannuation funds are held in SMSFs, which equates to 460,000. Of those, AAMC Training Group’s managing director Jeff Mazzini notes there’s 1.8 trustees on average per SMSF. “There’s over 800,000 potential clients for finance brokers to tap into to help these people get their finances organised,” he says. “If you keep fishing around in the same pond – which is the home loan market – one day there will be no fish left. The economy changes, house prices drop, sales drop, etc. But people need to open their eyes and see there’s a massive opportunity waiting for them.” Macquarie Bank is getting a significant amount of interest from mortgage brokers regarding its SMSF offering; however, head of mortgages product James Casey says it’s at that stage of development

For mortgage brokers weighing up the costs vs. benefits of diversifying into the SMSF sector, one of the key questions has to be: what percentage of my database is willing/able to participate in an SMSF? Westpac’s head of SMSFs, Sinclair Taylor, says that the SMSF market has already been seeing compounding growth rates of 20% per annum. While this will flatten out, Westpac’s projections are that the overall SMSF market will double in the next 10 years, with $150bn of assets held in property by 2022. The ability to take control of your super money is a key emotional driver for prospective trustees.

Macquarie Bank conducted research to identify the “classic SMSF customer”. The bank found that many are in their 40s and do a lot of research. Further analysis by Macquarie revealed that 12% of survey respondents are highly likely to enter an SMSF in the next year and 26% are not sure and are therefore potential SMSF customers. An SMSF can have up to four members and Blue Wealth CEO Tony Hayek notes that most of the clients his company sells a property to in their super fund are husband and wife, or life partners. Hayek adds that brokers already know their clients’ superannuation balance from previous loan transactions. They can easily spot which clients are in a position to buy property within an SMSF.

where the reality is that the talk far outweighs the reality of the business. “You get a very strong sense that people are on a journey of self-education, which is fantastic and it’s exciting and it’s an absolute pre-requisite to a market segment and product being successful. People need to understand it and educate themselves on it.” Key players in the non-bank sector are also clear that SMSFs are a major growth area – and they’ve seen volumes rise accordingly. Liberty Financial’s head of commercial finance, Suresh Pillai, says that takeup has been significantly more than the company expected when it launched its SMSF product in December 2010. “I’ve had to increase staffing levels to handle increase in application flows; we are seeing milllions of dollars in applications per month.” Alicia Carter, national sales manager at mortgage manager Australian Financial, says that SMSFs are currently accounting for 60% of the company’s new business. Mick Conyngham from Mortgage Ezy, another early non-bank entrant to the SMSF market, thinks that government changes to super rules will encourage SMSF lending. “From 1 July, the government is restricting additional annual contributions to $25,000,” he says.

SPECIAL REPORT / NEED TO KNOW

EIGHT SMSF NO-NOS 1. DON’T GET INVOLVED WITHOUT PROPER TRAINING: THIS IS A HIGHLY REGULATED SECTOR AND MORTGAGE BROKERS NEED TO UNDERSTAND THE RULES BEFORE THEY ENTER INTO DISCUSSIONS WITH THEIR CLIENTS.

Dr. Tony Hayek 2. DON’T BUY THE PROPERTY IN THE WRONG ENTITY: “THE NAME ON THE CONTRACT IS THE NAME OF THE TRUSTEE OF THE BARE TRUST. IF THAT’S NOT CORRECT. THAT COULD COST YOU DEARLY LATER ON” SAYS TONY HAYEK.

3. DON’T RUSH INTO IT: MORTGAGE BROKERS SHOULD NOT ALLOW CUSTOMERS TO RUSH OUT AND PURCHASE PROPERTY

4. DON’T BUY THE WRONG PROPERTY: BROKERS’ CLIENTS SHOULD BUY PROPERTY BASED ON RESEARCH AND INFORMATION, NOT EMOTIONALLY.

5. DON’T SPEND TOO MUCH: TOO OFTEN PEOPLE COMMIT TO A PROPERTY BEFORE THEY KNOW THEIR NUMBERS, HAYEK SAYS.

“People will be looking for places to put their money – what better place than real estate?”

BENEFITS Not only does adding SMSF lending to your services help your clients, but Blue Wealth CEO Tony Hayek notes there are enormous advantages to brokers. “It’s an opportunity for clients to borrow more money through brokers. SMSF loans, by their nature, are also longer loans. They’ll be stickier, because they are not easily refinanced, and you can’t draw equity on them.” There is potential to diversify your revenue substantially, depending on the extent of your participation in the SMSF process and the organisations you choose to align with. “Brokers are very excited about the ability to build a business that has a far more saleable value than just being based solely on mortgage broking, where the average length of a client’s normal loan might be somewhere around three to four years and that’s probably reducing,” notes Nic Ellis. Just as important as diversified revenue is the potential to gain a new lead generation program. According to Hayek, “If brokers also offer an SMSF solution to their clients, chances are they’re going to get more referrals. Also they’re going to do more repeat business with their clients. It’s always cheaper to do business with the clients you have, than looking for new ones.”

GETTING INVOLVED 6. DON’T GET INVOLVED TOO EARLY: CLIENTS SHOULD HAVE A BALANCE OF AT LEAST SIX FIGURES IF THEY’RE GOING TO GET INTO AN SMSF.

7. DON’T SUBMIT THE LOAN APPLICATION WITHOUT: ALL SUPPORTING DOCUMENTATION, STRUCTURES SET UP, COPIES OF FUNDS AVAILABLE FOR THE SMSF (PROVIDE CURRENT STATEMENTS) AND SERVICING CALCULATORS

8. DON’T FORGET AN EXIT STRATEGY: PROBLEMS ARISE WHEN PEOPLE ENTER INTO SMSF WITHOUT CLARITY UPFRONT ON WHAT HAPPENS IF ONE PERSON WANTS TO GET OUT, DIES, OR RETIRES FIRST, HAYEK SAYS.

48 | MPAMAGAZINE.COM.AU

The self-managed super fund industry is very highly regulated. At the time of writing, ASIC requires professionals providing advice to have the minimum of Advice in Superannuation and Advice in Self-Managed Super Funds as a qualification. Some dealer groups who are the licence holders may also require professionals to have their Diploma in Financial Services and Financial Planning as well. Brokers without a licence in financial services cannot provide advice to clients. However, several opportunities exist for mortgage professionals looking to get involved in the sector – either on a referral-only basis, or to arrange finance for an SMSF: • STRATEGIC PARTNERSHIPS: Brokers can set up their own strategic partnerships with financial planners and accountants and solidify those relationships by referring clients interested in setting up an SMSF. Financial planners can advise on the investment strategy, while ac-

SMSF: BENEFITS TO BROKERS • Long-term loans with less chance of refinance – so a more secure trail income • Potential to diversify revenue through referral fees and profit shares on other services • The ability to offer more products/services to clients – making them stickier • A potentially massive market to be tapped, which very few professionals are doing at present

Nic Ellis

• Make referral relationships with financial planners and accountants significantly stronger – opening up opportunities for other business

countants can advise on setting up the structure. Brokers then have the opportunity to arrange finance for SMSFs interested in buying property. • LENDERS: St. George, Commonwealth Bank, Westpac, Liberty, AFM and Macquarie all offer SMSF solutions for brokers’ clients. The banks provide intermediaries with direct access to credit specialists who will support them and their clients throughout the application process. • REFERRAL-ONLY: There are also opportunities to align with groups on a referral basis only, for those who are not interested in writing SMSF loans. In a referral arrangement with SMSF Loans for instance, all the broker has to do is provide their client’s details and the group does the rest. Brokers own the client and are informed at all stages of the process. The broker receives a percentage of the upfront and trail commission. There is another good reason brokers might consider further education. At the time of writing, proposed changes under the Exposure Draft Corporations Amendment Regulations, published on 9 June 2010, would regulate limited recourse borrowing arrangements for SMSFs as financial products under the Corporations Act.   If this goes through, from 1 July mortgage brokers would be unable to write SMSF loans unless they had a Diploma in Financial Services. The MFAA has strongly objected to loans under section 67(4) being classified other than as credit. According to the industry body, “Many of our members have been involved in arranging loans or providing loans for SMSFs and there is no evidence of any abuse. It would be inappropriate to place an arrangement of credit which primarily provides purchase of real estate in the hands of financial planners when the legislature has made it clear that providing and arranging credit is a separate discipline.”

Phil Naylor

SPECIAL REPORT / SMSF

TELL-TALE SIGNS SMSF green lights

SMSF YOUR QUESTIONS ANSWERED

Investing in property through a SMSF gives fund members the power to: INVEST IN ANY PROPERTY TYPE OR SECTOR • A SMSF can purchase just about any type of property, including vacant land, which includes residential, commercial, factories, medical suites, office space, and so forth. BUY YOUR BUSINESS PROPERTY • An SMSF is allowed to invest in, or buy your business premises, provided it is used wholly and exclusively for the business. BENEFIT IN THE SUPER TAX ENVIRONMENT • Because contributions and investments in the fund are preserved until retirement, they enjoy the beneficial superannuation tax regime. Should the fund hold an asset longer than one year and then sell it, CGT drops from 15% of the gain down to 10%, and if sold in pension phase, CGT is zero.

The self-managed super fund industry is on the cusp of becoming the biggest thing in property since negative gearing. Can you afford not to be involved? HOW MUCH SUPER IS REQUIRED TO INVEST IN PROPERTY? The minimum amount of money that a client needs in their super account in order to make an SMSF viable varies depending on who you talk to. The most conservative estimates put the minimum figure at around $300,000. Others argue that you can invest with considerably less than $300,000. Greg Mitchell, general manager of sales at Homeloans, thinks $200,000 is probably the absolute minimum you’d need in order to make an SMSF economical. Suresh Pillai thinks that you can successfully invest with $150,000, especially if you’re looking to primarily invest in property.

WHICH PROPERTIES ARE FOR SMSFS? Not every property purchase is right for an SMSF. Property investing using an SMSF becomes a more attractive option when the property is positively geared. “You need to choose a property that will have a good continual flow of rent coming in,” says OnePath’s Graeme Colley. “That’s why it’s important to look at the ability of the property to be continually tenanted. It’s also important to think carefully about properties that might require significant repairs and maintenance down the line and affect the property’s cash flow.”

50 | MPAMAGAZINE.COM.AU

Commercial property is also a good option, especially if you’re self-employed. Pillai highlights that Liberty has seen a number of small business rolling their factories and offices into SMSFs – something that is explicitly prohibited for residential properties – thanks to the favourable yields and capital gains benefits. Mitchell agrees that there are “massive opportunities” in this space, adding that Homeloans will be launching a commercial SMSF product later this year.

WHAT IS REQUIRED TO SET UP AN SMSF? It is no secret that investing using an SMSF requires some work. Many investors engage professionals to help them set up an SMSF – including accountants, fund administrators, superannuation consultants, auditors or actuaries. When using the SMSF to invest in property, this can also include real estate agents, property managers and mortgage and insurance brokers. Whichever they choose, members are ultimately responsible for the smooth operation of the fund. This will require them to: • Ensure the fund complies with superannuation laws • Report on member entitlements • Prepare annual accounts and reports • Lodge tax returns

SPECIAL REPORT / DOING A DEAL

AN SMSF DEAL

STEP BY STEP How do you put together an SMSF deal? Follow our simple step-by-step guide.

PHASE 1: STARTING THE TRUST

STEP 1: DRAW UP A TRUST DEED The SMSF’s trust deed for the fund explains how trustees were appointed and what their powers are. Most importantly, since the fund is being set up to invest in property, the trust deed must detail that property investing is allowed.

STEP 2: NOMINATE TRUSTEE(S) Most SMSFs have two members. A trustee is legally responsible for the actions of the fund, which means he must log annual tax returns, prepare accounts and have the account audited.

STEP 4: CREATE AN INVESTMENT STRATEGY

STEP 3: CLEAR THE TAX ISSUES The SMSF must be either a regulated or non-regulated fund. Being regulated means the fund will be eligible for an array of tax benefits, foremost being that money coming into the fund will be taxed at a minimum rate of 15%. Making the choice is as simple as completing an application form, normally available at the Australian Business Register (abr.gov.au).

The law requires trustees to have an investment strategy for their fund. This should consider the risks and potential returns from different investments.

STEP 5: OPEN A BANK ACCOUNT AND PUT MONEY INTO THE FUND The last step to be taken in setting up the SMSF is to create an account with a bank, credit union or building society. As soon as the money appears on the account balance, the fund can start buying.

STEP 7: FIND A PROPERTY STEP 6: OBTAIN SMSF LOAN PREAPPROVAL SMSF loans vary from regular loans in a number of ways and are generally more restrictive. Some lenders will assess your SMSF’s ability to meet repayments and service the loans based on member contributions and rental income. Others will ask for a personal guarantee from members of your SMSF, which could put your personal assets at risk.

PHASE 2: INVESTING IN PROPERTY

52 | MPAMAGAZINE.COM.AU

The chosen property must comply with the ‘sole purpose’ test. All SMSF investments must be undertaken for the sole purpose of providing retirement benefits to members.

STEP 8: SET UP A SECURITY TRUST Until the SMSF pays its loan in full, legal title to the property needs to be held in what’s called a bare trust. The trustee of the bare trust needs to be independent of the SMSF trustee. The safest option is a corporate trustee.

STEP 9: REACH SETTLEMENT Once the loan is formally approved, the legal structure is in place and funds are available to pay the deposit, the contract of sale can be executed. The contract is entered into with the property trustee holding legal title and the SMSF holding beneficial title. The SMSF pays the deposit, balance, legal costs and stamp duty. There’s no need for the deposit to be paid through the property trustee. The purchase is complete and the SMSF now eligible for a whole host of potential tax benefits.

SPECIAL REPORT / SMSF

PRACTICAL

THINKING

SMSF lending is all well and good, but how can you integrate it into your business? Jill Fraser examines the different models PROPERTY PLANNING AUSTRALIA

David Johnston

David White

54 | MPAMAGAZINE.COM.AU

Property Planning Australia, which offers property and financial planning advice as well as tax accounting and mortgage broking, has recently added SMSFs to its suite of services and products. However, director David Johnston is quick to point out that he did not pursue the SMSF space. It was more a case of responding to customer needs. “Our financial planning arm of the business has always had an awareness of SMSFs, and one of our tax accountants is an SMSF auditor,” he said. “Only in the last 6–12 months have we held seminars on the subject.” Property Planning Australia director David Johnston suggests brokers adopt a realistic perspective and not allow talk of “easy money” to cloud their judgement. The full service SMSF model is “challenging”, he maintains, adding that advisors need to be more sophisticated because of the complicated and messy SMSF lending process. Johnston argues that one of the biggest challenges for mortgage brokers is that there is a whole further layer of knowledge that has to be understood even if you’re just handling the finance on a property purchase. “The structural set-up of SMSF lending is complicated,” he says. “The key is to understand that your role is just providing credit advice: nothing more.”

AUSTRALIAN FIRST MORTGAGE Australian First Mortgage has recently teamed up with SMSF service provider SuperShift, and has rolled out a training program for its brokers. “We wanted to promote our SMSF loan to our broker community, many of whom are not experienced in SMSF lending,” says AFM director David White. “Rather than going through in-depth training in-house and providing documentation that the loans would require to get approved, we teamed up with SuperShift, which is a one-stop shop.” Over 500 brokers have done the Australian First Mortgage/SuperShift training webinars. A number have chosen to take it to the next level and carry out a two-week training course, which qualifies them as SuperShift financial planners. This also enables them to provide financial advice to an SMSF borrower. If the broker is simply doing referrals the commission is commensurate with writing any other loan. If the broker is a ‘Tier 1’ financial planner he/she can charge a fee. White concedes that it’s a complex area but maintains, “as long as brokers know the law and don’t step outside it the rules are actually very black and white. “Our brokers are providing their clients with options that may grow their existing superannuation,” he says. “For example, if you’re doing an interview with a mature age applicant who would generally have a relatively substantial superannuation account, while you’re there talking and looking at pay slips and documentation check to see if they’re paying 9% super and ask if they have their own SMSF, how much they have in super and if they’re aware of how they can rev up their super for retirement by purchasing property and setting up their own fund.”

START THE CONVERSATION MORTGAGE HOUSE Mortgage House recently started offering SMSF loans directly after previously using a referral model. CEO Ken Sayer says that franchisees will be trained how to roll it out, but the process will be managed at head office. “The underwriting and processing and decision making will be centralised at head office,” he says. Sayer emphasises the need for standards around SMSFs and the giving of advice. “When you deregulate too much it invariably becomes a problem,” he says. “That is not the case with seasoned credit managers such as we have at Mortgage House who cross every ‘t’ and dot every ‘i’. “We’re dealing with people’s money so it should not to be treated as a product. It should be treated with care directly proportional to the pain and suffering that went into earning that money,” he says. In terms of the financial benefits, Sayer refers to it as “just another feather in our cap – another asset class” – and his advice to other mortgage brokers planning to embrace SMSF lending is that there’s opportunity aplenty.

One area of confusion around SMSFs is whether brokers can raise the subject with their clients. Some interpretations of the law suggest yes – others no. SMSF Professionals’ Association of Australia (SPAA) CEO Andrea Slattery clarifies that a mortgage broker can initiate a discussion regarding SMSF lending and suggest this as an option to customers who wish to purchase property. But this may change when future amendments to the Corporations Act are made.

Andrea Slattery

She also encourages brokers looking at SMSFs as an option to challenge their own competence and professionalism. Her primary concerns are brokers: “not understanding what they’re doing and therefore putting something into the wrong name, making the fund non-compliant by introducing it the wrong way, not understanding the ramifications and putting at risk people’s future retirement income”. Slattery urges brokers to ensure that individuals to whom they refer clients are SPAA-accredited, and those wishing to become advice-givers to complete an SPAA training program.

MPAMAGAZINE.COM.AU | 55

SPECIAL REPORT / SMSF

PRODUCT

We’ve provided funding solutions to a diverse range of borrowers since the Provident Capital Group was established in 1990. Now we extend our experience in commercial, industrial and residential lending to those seeking to utilise their SMSF to purchase investment property. Introducing Provident Super: up to $1.5m per security or $3m per obligor (multiple securities); residential investment, commercial and industrial; LVRs up to 75% for residential and 65% for non-residential; credit impairment considered; no LMI; no monthly fees; direct access to credit decision makers via the Credit Hotline. Finance Made Easy is at the forefront of everything we do, and we’re here to help guide you through the SMSF regulatory environment.

PROVIDENT CAPITAL CONTACT  Credit Hotline 1800 066 655  credit@providentcapital.com.au PRODUCT NAME

RESIDENTIAL/ COMMERCIAL

INITIAL RATE

Provident Super

Both

9.80%

INITIAL RATE

ProSmart SelfManaged Super Fund

Residential

7.24%

10-30 years

Both available

70%

$999

SMSF Property Gear

Residential

7.09% (v)l 6.497.79% (f)

SuperCredit

Residential

6.99%

SuperCredit

Commercial

8.20%

56 | MPAMAGAZINE.COM.AU

SMSF REQUIREMENTS Minimum asset position: more than 20% of loan amount or $100,000, whichever is the lesser; personal guarantees dependent on LVR; no annual reviews required

$2m

Additional repayments up to $10,000 in 12 months, interestonly up to 5 years

SMSF REQUIREMENTS Must be an established SMSF; already prepared property trust deed; cannot be a non-resident or a foreign entity; property trustee(s) must be a separate entity from the SMSF trustee(s); all adult members of the SMSF must be guarantors

National Finance Club’s self managed super fund loan is available to SMSF members looking to build a conservatively geared asset portfolio. The product is structured to meet the complex compliance requirements of this lending category, while giving members maximum flexibility. With a loan option of up to $2m, SMSF members are able to invest in residential property to support their superannuation portfolio. No annual reviews of SMSFs, property trusts or personal financial position are required and no ongoing valuations are necessary. This product is also available via a revolutionary referral system. Simply send a referral form to NFC and all loan structuring and paperwork will be undertaken by an SMSF specialist, with the broker still receiving upfront and trail commission throughout the life of the loan.

INITIAL RATE

$1.5m per security; Interest only $3m per obligor available (multiple securities)

STARTUP MAX LOAN LOAN FEATURES FEES AMOUNT

RESIDENTIAL/ COMMERCIAL

1.1% of loan + $550 valuation fee

MAX LVR

PRODUCT NAME

LOAN FEATURES

VARIABLE/ FIXED

CONTACT  1300 327 600

CONTACT  Suresh Pillai (03) 8635 8888

MAX LOAN AMOUNT

TERM

NATIONAL FINANCE CLUB

LIBERTY FINANCIAL

STARTUP FEES

The Homeloans ProSmart SMSF product allows established SMSFs to borrow funds for the purchase or refinance of residential investment properties. This loan offers other great features including: no ongoing fees; LVRs up to 70%; loan amount up to $2m; loans can be interest only up to five years

CONTACT  133 839

RESIDENTIAL/ COMMERCIAL

MAX LVR

5 years Fixed up to 75% five years

HOMELOANS LTD PRODUCT NAME

VARIABLE/ FIXED

TERM

VARIABLE/ FIXED

MAX LVR

STARTUP FEES

MAX LOAN AMOUNT

10–30 years

Both available

70%

1500

$2m

LOAN FEATURES

SMSF REQUIREMENTS

Two loan splits available; additional repayments; interest-only up to 5 years

No minimum asset position; no annual reviews; no substitution of security; one security per facility

SuperCredit is a ready-made solution that can be cost-effectively integrated with an existing SMSF or established in conjunction with a new SMSF. SuperCredit’s rates start at a market-leading 6.99% and the fee for setting up the borrowing structure is just $695, which eliminates the uncapped legal costs that are often involved with other SMSF products. In addition, SuperCredit offers LVRs as high as 80% for residential property and 70% for commercial property. SuperCredit is not restricted to SMSFs of a particular size, nor does it require a minimum level of contribution. VARIABLE/ FIXED

MAX LVR

10–30 years.

Variable

80% $1,390

$2m

Interestonly up to five years

Security – house, townhouse or unit within acceptable locations. Guarantors – All adult members and associated trusts. No minimum net asset requirements.

5–15 years

Variable

70%

$2m

Interestonly up to five years

Security – commercial real estate within acceptable locations. Guarantors – all adult members and associated trusts. No minimum net asset requirements.

TERM

STARTUP FEES

based on LVR/ applicant

MAX LOAN LOAN AMOUNT FEATURES

SMSF REQUIREMENTS

MACQUARIE

The Macquarie SMSF Property Loan provides SMSFs the flexibility to borrow in order to purchase residential investment property, giving direct exposure to real property assets. Features of the SMSF Property Loan include: the security of a limited recourse loan, potential gearing benefits, the ability to use rental income to demonstrate serviceability and flexibility to borrow to purchase or refinance residential investment property. Macquarie has more than 20 years’ experience with SMSFs and fully understands the complexities involved with SMSFs and property lending. Brokers have direct access to our experienced credit team who are comfortable dealing with complex loan structures and who will support brokers in submitting a loan application for their clients.

CONTACT  Your Macquarie BDM  macquarie.com.au/ mortgagesolutions

PRODUCT NAME

RESIDENTIAL/ INITIAL RATE COMMERCIAL

SMSF Residential Property loan

TERM

7.06% (v) 6.66 30 - 7.2% (fixed) years

CONTACT  David White, Director (02) 9643 4303

Platinum Option SMSF

Residential

6.59 - 7.49% (fixed); 7.04% (v)

MAX LVR

STARTUP FEES

MAX LOAN LOAN FEATURES AMOUNT

SMSF REQUIREMENTS

Both available

80%

on request

$500,000 Extra repayments; two splits; variations allowed; interest-only up to five years

Location restrictions apply;

This is a product that is new to AFM, and many of its brokers. It is designed for borrowings on a single acquirable residential investment property only for loans from $50k–$2m, max LVR of 70%. Term up to 30 years – five years interest only/P & I. The structure is somewhat complex, and brokers are urged to go through the AFM training before marketing this product. The eligible borrower is the trustee of the SMSF. The SMSF is the beneficial owner, and will obtain ownership through repayment of the loan. The trustee has control of the property to deal with management and other related issues. The residential property must be purchased from an unrelated party and rented at arm’s length on a commercial market basis. AFM also offer loans in respect of commercial property up to and LVR of 65%.

AUSTRALIAN FIRST MORTGAGE

PRODUCT RESIDENTIAL/ INITIAL NAME COMMERCIAL RATE

VARIABLE/ FIXED

TERM

VARIABLE/ FIXED

MAX LVR

STARTUP FEES

10–30 years.

Both available

70% 2500

MAX LOAN LOAN AMOUNT FEATURES $2m

SMSF REQUIREMENTS

additional Must be an established SMSF; cannot be non-resident or repayments; foreign entity; the SMSF trust deed and the property trust deed must be provided for review with application. Must provide 30% equity for purchase. Evidence of regular payments to SMSF required. SMSF trust must be able to meet all start up costs; guarantees required

WESTPAC CONTACT  Darren Oregioni, National Training & Development Manager (02) 8254 1110

Westpac Super Fund Investment Property Solutions: superannuation legislation allows your clients to borrow to invest, as long as certain conditions are met. So your client’s SMSF may be able to invest in residential or commercial investment property with the help of Westpac’s Super Fund Investment Property Loan.

PRODUCT NAME

RESIDENTIAL/ COMMERCIAL

INITIAL RATE

TERM

VARIABLE/ FIXED

MAX LVR

STARTUP FEES

MAX LOAN LOAN AMOUNT FEATURES

Variable Rate SMSF Investment Property Loan

Residential

7.09%

30 years

Variable

80%

$1500

$2m

Additional repayments

Guarantees required; no minimum asset position; no annual reviews of SMSF required

Fixed Rate SMSF Investment Property Loan

Residential

6.698.54%

30 years

Fixed up to 12 years

80%

$1500

$2m

Additional repayments up to $30,000

Guarantees required; no minimum asset position; no annual reviews of SMSF required

Business Loan for SMSF

Commercial

on request

15 years (25 with residential security)

both available

65% (80% with res security)

$820

$5m

Splits available; IO up to 10 years

Guarantees required; no minimum asset position; no annual reviews of SMSF required

SMSF REQUIREMENTS

SHOWCASE MPAMAGAZINE.COM.AU | 57

SPECIAL REPORT / SMSF

PRODUCT

SHOWCASE PRODUCT NAME

RESIDENTIAL/ INITIAL RATE COMMERCIAL

NAB

Tailored Home Loan

Residential

CBA

SuperGear

CBA

(CONTINUED)

TERM

VARIABLE/ MAX FIXED LVR

STARTUP MAX LOAN LOAN FEATURES FEES AMOUNT

6.99%(v); 5.89 - 8.09% (f)

30 years

Both available

70%

$600

Depends on ability to service

All standard features available except redraw, loan modifications, set-off or account combination

SMSF requires sufficient cash flow to service loan repayments over the term of the loan. Cash flow may be sourced from investment earnings or member contributions. NAB strongly recommends you should seek professional financial, tax and legal advice.

Residential

7.51%

30 years

Both available

80%

0.8% of loan amount

$4m

Customers to select their own custodial entity to hold legal title to the asset, accept refinances to CBA and support multiple investor and multiple property purchase options.

Minimum fund assets: $250,000–$300,000; all SMSF members must also be in accumulation not pension phase when the SuperGear loan commences

SuperGear

Commercial

6.59-7.19%

15 years

Both available

65%

0.8% of loan amount

$4.5m

Customers to select their own custodial entity to hold legal title to the asset, accept refinances to CBA and support multiple investor and multiple property purchase options.

Minimum fund assets: $250,000–$300,000; all SMSF members must also be in accumulation, not pension phase, when the SuperGear loan commence

ANZ

Self Managed Super Fund Loan

Residential

On request

15 years

Both available

75%

On request

On request Interest only permitted up to two years

A guarantee from the SMSF beneficiaries and the security trustee may be taken to support the loan

ANZ

Self Managed Super Fund Loan

Commercial

On request

15 years

Both available

65%

On request

On request Interest only permitted up to two years

A guarantee from the SMSF beneficiaries and the security trustee may be taken to support the loan

ST.GEORGE

Super Fund Home Loan

Residential

7.04% (v); 6.29 - 7.29 (fixed)

4–30 years

Both available

80%

$2,625

$2m

IO, P&I or Interest in Advance on Fixed Rate; offset account; splits availbale; additional repyaments

Guarantees required in some cases; asset position 'sufficient to run the fund'; no annual reviews of SMSF required

RESI

SMSF Loan

Residential

7.09%

30 years

Both available

70%

$1,924

$2m

Additional repayments; fixed/ variable combo available; IO available

Guarantees required; no minimum asset position; no annual reviews of SMSF required

MORTGAGE EZY

Self Managed Super Fund Loan

Residential

7.09%

30 years

Both available

70%

$2,420

$2m

Interest-only up to 5 years; additional repayments at any time

Guarantees required; SMSF and property trust deed required, plus evidence of serviceability

AUSTRALIAN SMSF Loan FINANCIAL

Residential

7.35% (v)

30 years

Both available

70%

$2.5m

Standard Variable or 1–5yr fixed rate loan; maximum five years interest-only

Australian Financial appointed solicitor to review: SMSF and property trust deeds; trust and borrowing structures; and loan contracts.

COMPANY

58 | MPAMAGAZINE.COM.AU

SMSF REQUIREMENTS

FEATURE / COMMERCIAL BROKING

COMMERCIAL BROKING

HOW-TO GUIDE 60 | MPAMAGAZINE.COM.AU

Considering expanding your repertoire to include commercial deals? Kevin Eddy explores how – and assesses if it’s worth it

Of all the diversification options available to residential brokers, getting into commercial lending often seems to be the most obvious. After all, it’s still lending, and therefore easier to transfer your existing skills across to, rather than selling insurance or real estate. Or so it seems. The reality is that commercial lending is much more than just crossing out ‘residential’ and inserting ‘commercial’ into the loan purpose field. Ranjit Thambyrajah of Acuity Funding, MPA’s top commercial broker for 2011 and 2010, says it’s much more complex. “Unlike residential, every transaction is unique,” he says. “You need to develop skills over time to properly service those needs.” That’s not to say that “crossing over” is impossible: you just need to be willing to put the work in.

THE SIMPLE OPTION The simplest way of handling commercial deals is to simply refer them onto either a commercial broker or lender.

Loan Market commercial broker Grant Rheubens reckons that 40% of his business comes from referrals from residential brokers within the group – both direct and through the aggregator. In return, he pays a referral fee. Most aggregators run a similar kind of ‘hub’ model that enables these referrals. You can also ‘spot-refer’ direct to lenders. ANZ’s commercial wing encourages brokers with little experience with commercial deals to pass details direct to its team: in return, it will pay a one-off referral fee of 50bps on business loans up to a maximum of $20,000.

Industry insider “Brokers gain a reputation based on how they represent applications and transactions. The better they’re presented, the quicker it is for us to process and approve.” Cosi De Angelis, head of commercial broker, ANZ

BROKERNEWS.COM.AU | 61

FEATURE / COMMERCIAL BROKING

ANZ’s head of commercial broker, Cosi De Angelis, says that the ANZ team definitely encourages brokers with minimal experience in commercial deals to get involved. “What we’re seeing is that it’s a good stepping stone for brokers looking to dip their toe into the commercial world,” he says. We keep the broker informed as to the process of the deal, if that’s what they want. What we find is that a broker starts as a referrer. Within a year, they start seeing the potential income that they’re earning, and go out and establish a commercial capability.”

THE MILLION MARK If you’re keen to reap the rewards, though, you’ll need to put a bit more work in – and it’s best to start with the smaller end of town. Danny Masri of Mortgage One Australia – MPA’s number two commercial broker for the last two years – says that you can broadly break commercial down into two broad categories: under and over $1m. David O’Toole, CEO of aggregator FAST, agrees that smaller deals are a realistic option for residential brokers – especially if you’re used to dealing with self-employed clients. “If you’re dealing with self-employed clients and used to reading financials, then you can do the commercial deals,” says O’Toole. “You just need the confidence, and to actually ask for the opportunity to review commercial lending arrangements with appropriate clients.” O’Toole adds that making the most of your existing relationships is key to success. “The more you can do for existing customers who are self-employed the better, if there’s an opportunity to market to them, do it. Be smart about developing

Size matters Don’t dive in expecting to be able to write loans for CBD office developments – start small.

marketing initiatives to those clients – specific commercial-related e-newsletters, for example.” O’Toole also recommends dealing with lenders with whom you have an existing residential relationship. “Don’t worry about the fact you may have 20 commercial lenders on your panel: choose a select few. If ING DIRECT were my top residential lender, then I’d make sure I’m accredited for residential and commercial. You’ll get a better hearing if you’ve got the existing relationship,” he says. “A number of lenders are happy to work with inexperienced brokers – such as Homeside Loan Writing Solutions, ING DIRECT, Bankwest, Adelaide Bank and Suncorp. The majors are usually happy to take you on as

The market landscape The Big Four

Second tier lenders

Non-bank lenders

All four of the major lenders have significant business and commercial banking operations, and are typically the best port of call for large-scale deals. ANZ, for example, is seeing deals from brokers ranging from $50,000 to upwards of $40m. It’s worth having a good sense of what each lender currently has an appetite for, as this can vary depending on its current exposure.

Several of the smaller banks are also very active in the commercial space, and are often amenable to dealing with brokers new to the commercial space, with application processes at some banks very similar to residential processes. Commercial brokers comment that smaller deals are more likely to get through: ING DIRECT comments that its ‘sweet spot’ is loans up to the $2m mark.

There are also a number of non-bank lenders and mortgage managers that offer solutions in the commercial space, and again are keen to work with residential brokers looking to diversify. Target markets are similar to that of the second-tier banks, but loan volumes can reach as high as $5m or even $10m.

Key names

• • • •

CBA NAB Westpac ANZ

62 | MPAMAGAZINE.COM.AU

ING DIRECT Bankwest Suncorp Adelaide Bank

Key names • • • • • • •

Think Tank Sintex Owenlaw Trust IMB AFM Commercial Liberty Financial Iden Group

MPAMAGAZINE.COM.AU | 63

FEATURE / COMMERCIAL BROKING

a spot-referrer and after you’ve worked on a number of deals they may put you on a full commercial accreditation.”

THE RIGHT SKILLS First of all, you’re going to need to brush up on your skills and knowledge. While you can take training courses to give you the technical skills to put together a commercial deal, all of our top commercial brokers insist that there’s no substitute for experience. Thambyrajah suggests finding an established commercial broker who can act as a mentor of sorts in return for a commission split. “Team up with someone who has a good track record in the current market,” he says. Finding the right person can be tricky: a good place to start is with your aggregator. Another key element that you’ll need to acquire, especially if you want to write larger deals, is industry knowledge. Targeting specific industries can be a wise move, if only so you can communicate with lenders effectively. “The biggest hurdle in doing commercial is the more complex stuff,” adds Masri. “You don’t just need to understand financials: you need to understand the industry risk that the client is operating in. That space becomes specialised. If you don’t have the same level of knowledge as the manager you’re talking to, he’s not going to be too happy – and you’re not going to understand the client position or prosecute the argument to get the deal over the line correctly.”

DEALING WITH LENDERS When it comes to dealing with lenders, the commercial space is quite different to residential. Essentially, everything’s up for grabs: rate, terms and commissions.

64 | MPAMAGAZINE.COM.AU

It’s important for brokers to know that many of their clients will be in small business and either have commercial loans or may need one. – JONATHAN STREET, THINK TANK Therefore, being able to frame the deal effectively is paramount. “When you’re selling a home loan, you’re selling a product to a client,” says Masri. “When you’re selling commercial, you’re selling the risk to a bank. There’s not enough money for all the deal – banks are picking and choosing. If you can’t make your deal look as good as it can look, you’re not going to get it over the line.” Cosi de Angelis says that, ultimately, ANZ wants to see that the borrower’s business is viable. “I want to see that the borrower understands the market, risks and mitigants,” he says. “Cash flow is vital – and while property values have come down in recent times, we’ve invested in training bankers on how to undertake a cash flow assessment. And it’s proving to be beneficial. We’re doing transactions today that wouldn’t have been done three or four years ago.” ING DIRECT’s Sergio Delvescovo adds that due to the potential complexity of commercial deals, detailed notes accompanying the application are important to give a clear overview of the transaction to the

FEATURE / COMMERCIAL BROKING

Industry insider My top tips are: • Look at your top residential lenders. Do they have a commercial arm? If so, get accredited or register to spot refer • Create a set of marketing initiatives that target your self-employed clients – eg commercial newsletters • Look for opportunities for self-employed clients at every interview whether that’s leasing, commercial property or other needs • Work your relationship with your aggregator, and align yourself to take advantage of their services • Undertake whatever training you can to learn about commercial lending David O’Toole, CEO, FAST

66 | MPAMAGAZINE.COM.AU

assessment team. Masri comments that many residential brokers underestimate just how much work can go into a commercial deal, as well as how long they can take. “The average complex transaction takes 10–12 weeks,” he says. “There’s a lot of analysis: it’s not something you can load up on an automated system. You’ve got to write a comprehensive paper about the business, where it’s going, how they’re performing against peers and explain what this transaction is going to do for them. It’s not something you can put together in a quiet afternoon.” Masri adds that good relationships with business bankers are crucial. He says he speaks to the half-dozen commercial bankers he regularly uses ‘every week’ – and the benefits are that he gets better pricing and quicker responses when he’s got a deal to put forward. “You really do need to have a strong relationship with a banker who’s going to help you get that deal over the line,” he says. Daniel Zadnik of Hawthorne Finance agrees. “It’s important to have an open and transparent relationship with the people that approve the deal, if you can demonstrate the deal is of substance, it gives the

Use your contacts Don’t try and build a commercial book from scratch – look at your existing clients. Self-employed clients are all potential commercial deals.

FEATURE / TOMORROW’S BROKER

MPAMAGAZINE.COM.AU | 67

FEATURE / COMMERCIAL BROKING

Commercial lending is something that residential brokers can easily become involved with. Many brokers may have existing relationships with small business owners through residential lending – SERGIO DELVESCOVO, NATIONAL PARTNERSHIPS MANAGER, ING DIRECT bank and client good experience,” he says. “Having credibility with the bank goes a long way: they know the deals we put forward are creditworthy.”

THE PAYOFF So, with all the extra work – and learning – required, is commercial broking worth it? ING DIRECT’s Delvescovo thinks that now is a good time to consider widening your repertoire, particularly if you can find opportunities in your existing customer base. “As turbulence continues in residential lending and

Pros and cons PROS Additional, potentially lucrative income stream You can easily mine your current client base for opportunities, and use existing lender relationships Referral relationships can simplify some of the technical issues – but also limit potential income Borrowers are in need of good commercial brokers in order to obtain finance

CONS Commercial deals can be complex and time-consuming You’ll need to skill up and learn about business structures, finance and the intricacies of particular industries; you’ll also need to gain the confidence of business bankers. This could mean a lot of work Lenders are being selective as to who and what they lend to – finance can be tricky to obtain, especially from larger lenders

68 | MPAMAGAZINE.COM.AU

some brokers are feeling pressure from relying on a slowing residential housing market, it is becoming very clear that brokers will benefit by diversifying their product offerings, customer base and income streams. Commercial lending is a natural progression for brokers that have not yet entered this space.” “When times are good, customer s don’t need a broker, but when times are tough like now, they really need the expertise,” says Ranjit Thambyrajah. “There’s a place for a good commercial broker, and increasing scope for brokers to enter this area.”

Hire in skills Rather than trying to wrap your head around commercial lending, why not hire an ambitious business banker instead?

BUSINESS STRATEGY / SPONSORSHIP

SPOTLIGHT ON

SPONSORSHIP Team sponsorship can be a winning marketing strategy for your business, provided you play by the rules

s the London 2012 Olympics light up the world stage, major sponsors such as Coke, McDonalds and Visa are hoping spectators recall more from the event than just the medals tally. Indeed, team and event sponsorship plays a key part in many corporates’ overall marketing strategy: if it works for the likes of these big boys, can it also work for you? According to M4B Marketing’s Susan Oakes, before small businesses decide to sponsor a team or an event, there are several considerations they should make:

• Can I have approval of any material or information being distributed that features my brand or business? • What marketing is the club or organization doing to promote the sponsors? • Will I have access to the database?

TARGET

“Choose sponsorships that are relevant to your brand or business and appeal to your current and potential customers,” says Oakes. Look for a sport or event that is likely to put your brand in front of your target market. For instance, if you’re looking for first-time buyers, consider sponsoring a team or club that has members in the 25–35 age bracket. Looking for property investors? Your business might be better aligned with a golf club or over-35s team.

RETURN

Discuss with the organisation what your sponsorship dollars will buy you in return, and get it in writing. Possible questions to ask include: • Where will my brand logo or business appear? • How often will it appear? • Will other sponsors be included? • Any additional benefits of sponsorship?

70 | MPAMAGAZINE.COM.AU

DUE DILIGENCE

Ask to speak to past sponsors and find out why they are no longer aligning with the organisation, as well as what kind of results they received from the deal.

COST VS. BENEFIT

According to Australian Sponsorship Marketing’s Colin Manie, analysing whether you’re getting good returns on your sponsorship dollar is “the million dollar question”. While brand exposure can be difficult to measure, Oakes suggests comparing the cost of the sponsorship to other forms of marketing and then directly comparing that to the number of leads your business receives.

BUDGETING

Sponsorship should be one aspect of your overall marketing strategy, as such it’s important to budget accordingly. If you receive three new customers a month from your sponsorship arrangement, and one from newspaper advertising, then the number of dollars you commit to each activity should reflect that. “Set a budget for how much you want to commit to sponsorship. Plan in advance what event, organisations, etc you wish to sponsor for the year and stick to your plan,” Oakes says.

Teaming up: Case studies SUPPORTING THE GRASSROOTS WITH HAGE & HARRIS FINANCIAL SOLUTIONS Hage & Harris Financial Solutions have been active sponsors in Unley, SA’s sporting community for the last five years. The company sponsors the Unley Rangers Soccer Club, the Unley Jets Football Club and the Mount Osmond Golf Club. Ben Hage got involved in team sponsorship upon a family member’s request. Aside from the personal connection, Hage also recognised that many sporting clubs depend on sponsorship dollars to make ends meet. “Grassroots clubs like that do run on the smell of an oily rag – they make

SAINTS GO MARCHING WITH MORTGAGE CHOICE Mortgage Choice and its comparison website announced a two-year sponsorship deal with St Kilda Football club in early May. MPA investigates what the deal means to the mortgage provider. Q: How will Mortgage Choice benefit from its partnership with St Kilda? The two-year Premier Partnership agreement with St Kilda Football Club sees Mortgage Choice participating in a range of lead generation initiatives through direct contact with members, supporters and affiliated business contacts. Our comparison website, helpmechoose. com.au, will also benefit from a range of brand building opportunities.

money stretch a long long way, so you know that any sponsorship money that you pass onto them benefits many people,” Hage says. In return for his sponsorship, some of the sports clubs put up signage with sponsors’ names, held special sponsors’ days and had sponsors present awards. Hage also became personally involved in the soccer and football club, attending club social functions every second Saturday. “And as a result, the players got to know me and they’d come up and say hello and it did generate business,” he says. “A lot of our business is word of mouth, so we ended up getting parents or friends of the players.”

Mortgage Choice will promote a ‘call to action’ message across a range of club collateral. This includes messaging in the Club’s weekly EDMs to members and supporters, online via the club’s consumer website and social media platforms and through the Club’s membership collateral. Mortgage Choice will also have the opportunity to host member and supporter specific events, including homebuyer seminars. There will be match day promotional activities and other initiatives. Q: How will Mortgage Choice monitor the sponsorship arrangement to determine if it’s meeting its goals? The success of each sponsorship initiative is being measured and evaluated.

MPAMAGAZINE.COM.AU | 71

PROFILE / SIMON ORBELL

SMART

72 | MPAMAGAZINE.COM.AU

PROFILE / SIMON ORBELL

A chance encounter from a misplaced business card led Smartmove director Simon Orbell into mortgage broking. While chance may have got him here, hard work is behind his success Q: What was the biggest turning point of your career? A: Prior to joining the mortgage industry, the biggest turning point was when my business partner’s business card fell out of my friend’s wallet whilst working at a courier company – just as I was about to finish my university degree. I called the number on the card as I was bored at the courier job and ended up working with my business partner David for a couple of years before becoming a business partner of his.

of the better practitioners in the industry, and take a long-term view to their career in the industry so that they have a solid base to launch from. I would also ensure that the new entrant align themselves with ethical practitioners who provide them with the incentive to work hard and be rewarded.

Factfile

Q: Have you embraced technology and social media? A: We have made some attempts to involve social media in the business but at this stage it is definitely a work in progress that needs a lot more time and attention. I would not say that we have embraced it by any means. We are still quite confused as to how to use it to best effect. Technology is something that we embrace wholeheartedly and continually work on. We are huge believers in the positive impact technology can create within the business and are always looking for new ways to involve technology more within what we do here.

Q: What business development activities have you focused on? A: Our business development has focused on two main

Q: In what ways has the industry changed for the better since you started broking? A: My personal view is that the industry has become

things: 1) The standardisation of internal processes using Kaizen and Six Sigma principles to improve the efficiencies of the business so that everyone has the same process flow so that we can provide an even more consistent service to our clients and higher quality submissions to our lenders. 2) We also focus on providing the incredible level of service referred to in the previous point to then allow our clients to become advocates of our business to ensure that doing a good job for our current customers creates further business.

more professional and more efficient since I started. Clients recognise the value that a broker can add to what they are looking to achieve and I believe that the banks are focusing more and more on efficiencies.

Q: What is the most challenging issue facing the industry at the moment? A: I think the most challenging issue facing the industry

Q: How does your geographic location affect your business? A: Our geographic location, in my opinion, is fantastic. Neutral Bay is so central to most of our clients and we are close enough to the city without being right in the midst of the city. Our location is positive to our business for both clients and staff.

Q: In what ways has it changed for the worse? A: I don’t think that any of the changes I have seen have been for the worse. There are certain changes that have created short-term pain due to the changes in processes and the way of doing business that has resulted from these changes, but overall if I think about these changes longer term [they] have been good for the industry as a whole.

Q: What kind of advice would you give to a new mortgage professional? A: I would advise them to spend the first year or two shadowing and assisting one

++ Hometown – Born in Dubbo, NSW, but home currently is Sydney’s lower Northern Beaches. ++ Education – Bachelor of Commerce (Majors in e-commerce and finance), Diploma of Financial Services (Finance/ Mortgage Broking Management) ++ Family – Engaged (Getting married later in the year), no kids ++ Hobbies – Surfing, keeping fit, reading, travelling ++ No. of years as broker – 8

at the moment is creating efficiencies that benefit both the end consumer as well as the bank – I think there is a huge amount of waste in the process and small incremental reductions in this waste will improve industry in a remarkable way.

MOVES MPAMAGAZINE.COM.AU | 73

THE DATA / YOUR MORTGAGE INDEX

Buyers racing back to market?

150,000 visitors can’t be wrong: here’s the latest insight into the mindset of borrowers from yourmortgage.com.au

How soon do you want a mortgage? More buyers appear to be moving into position, with 80% of enquirers needing a mortgage right now or in the next few months – compared to 77% a year ago

JAN 2012 RIGHT NOW

36.3%

NEXT FEW MONTHS

43.9%

NOT IMMEDIATELY

19.75%

JAN 2011 RIGHT NOW

33.6%

NEXT FEW MONTHS

43.4%

NOT IMMEDIATELY

Key figures

$342,560

Average loan value continues to fall across Australia

74 | MPAMAGAZINE.COM.AU

23.0%

19%

Refinance enquiries rose by 4% between April 2011 and April 2012

50.6%

Variable rates remain the most popular mortgage type, comprising half of all enquiries

1. DARLING POINT NSW

THEDATA

Median Price $1,227,500 Weekly Median Rent $800 Distance from CBD 3km

2. POINT PIPER NSW

Median Price $1,170,000 Weekly Median Rent $900 Distance from CBD 4km

$1,227,500

3. MILSONS POINT NSW

Median Price $1,036,500 Weekly Median Rent $720 Distance from CBD 2km

STATISTICS / HIGH NET WORTH

5. CREMORNE POINT

Median Price $980,000 Weekly Median Rent n.a Distance from CBD 2km

NSW

Median Price $953,400 Weekly Median Rent $690 Distance from CBD 3km

6. THE ROCKS NSW

Median Price $925,000 Weekly Median Rent $900 Distance from CBD 0km

Where are Australia’s best luxury city pads? Your top-drawer clients might love their mansion by the beach but the commute to the city can be a pain. With that in mind, MPA’s put together a list of the top 10 city suburbs that offer the best in luxury apartments. All less than 10km from the CBD, these are the most exclusive suburbs for apartments in state capitals – and the average price busting $1m on Sydney’s harbourside comes with a price range to match. So, we’ve also included median weekly rents for the executive who wants the city pad but isn’t so sure about the price tag.

7. MURARRIE Qld

Median Price $800,000 Weekly Median Rent $488 Distance from CBD 7km

8. YARRALUMLA ACT

Median Price $765,500 Weekly Median Rent n.a. Distance from CBD 4km

9. DEAKIN ACT

Median Price $760,000 Weekly Median Rent n.a. Distance from CBD 4km

10. AINSLIE ACT

Median Price $717,839 Weekly Median Rent n.a. Distance from CBD 2km

$717,839 MPAMAGAZINE.COM.AU | 77

Source for all data: RP Data February 2012

4. BOWDEN

LIFESTYLE / FAVOURITES

❤

Favourite things... Doug Lee, Macquarie

Place to be: Home (Wynnum/Manly, Qld). With the amount of travelling I do, there is nothing better than getting back home to family and the relaxed lifestyle of Brisbane’s bayside suburb.

Book: Kokoda by Peter FitzSimons. A unique take on the battle that effectively saved Australia in WWII. It puts you in the middle of the action.

Vacation spot: Maui, Hawaii. This is where my wife, Nat, and I were married and where we just celebrated our fifth wedding anniversary. It’s away from the hustle and bustle of Waikiki – just a great place to chill out, see some incredible sights and enjoy true Hawaiian culture.

Music: Coldplay. I saw them in

Hobby: Cooking. I love to

concert in Toronto in 2010 and it was an unbelievable performance. I can’t wait until they come to Brisbane in November.

experiment and haven’t managed to poison anyone yet.

Movie: The Hangover. Enough said. Sport: Aussie Rules. I support Collingwood and am proud of it!

Drink: Mojito.

Food: Nothing beats a lamb roast done on the Weber.

78 | MPAMAGAZINE.COM.AU

That may surprise some people who would think I was born with a Bundy and coke in my hand!

LIFESTYLE / MOTIVATION

Small business guru David Staughton is back with 10 more tips for troubled times Last year, serial entrepreneur and self-made millionaire David Staughton gave us 10 top tips to steer your business through turbulent times. Well, he’s back with 10 more strategies to ensure you make the most of all your resources. To see the first 10 top tips for turbulent times, visit mpamagazine. com.au

Be Smarter – seek better quality Information about the world Read more books and blogs, watch Youtube training videos, and find your guru – consult experts and advisors. Most books contain someone’s lifetime of knowledge and wisdom – just find the right one you need at the right time.

Be Focused – get more clarity on what you want (or don’t want) David Staughton is a Melbourne-based professional speaker and team trainer. The self-made millionaire and serial entrepreneur has started seven businesses, contributed to two best-selling books on small business and has 10 years’ experience of consulting to SMEs and listed companies. For more information go to bigdave.com.au

Set more goals, make more wishes and have a dream poster. Choose to spend your time on high dollar value activities (negotiating, dealmaking, selling, systemising), not low value activities. Learn to delegate – coach and counsel other people.

Be a Contrarian – seek good news and avoid the bad news media Focus on any good news, personal bests and any improvements. Avoid TV and newspapers that are full of bad news. People want to feel better about themselves by comparison to ‘worst case’ events.

80 | MPAMAGAZINE.COM.AU

Be an Asker – turn one client into Many Learn to listen better and ask more – don’t just tell. Selling is not telling. Ask the ‘million dollar’ questions. Find out where any of your best clients, staff, products or leads are coming from. Adopt a ‘blue ocean’ mindset: ask “Who else, what else, when else, where else and how else?”

Be Systematic – improve your process and systems Adopt a standard process for starting and ending your meetings. Send an agenda beforehand. Use a set of checklists. Have a list of great diagnostic questions and a list of add-ons you can offer clients. Finish meetings by asking for add-ons, extras, referrals, connections, help and the next step .

Be High Tech – use better technology and efficient equipment Anything that can save you time, saves you money – a better phone, laptop, website, blog or database will boost productivity. Try an iPhone 4S, iPad 3, Wordpress, Highrise and use outsourcing websites like Elance, Guru and Fiverr.

Be Empathetic – remove client ‘ouch’ and reduce their pain You can convert more prospects and clients by finding and removing their pain. Ask clients “If there was one thing we could do to improve, what would it

be?” They want more comfort, more ease of use, no nasty surprises, better quality, branding and design efforts. Show them that you really care. Remember that FUDGE sells – Fear, Uncertainty, Doubt, Guilt, Effort: show prospects how to remove them by buying from you.

Be Frugal – spend less than you earn Do everything you can with what you already have. Keep your costs down and expenditure in line with income. You can’t spend your way to success. Just do the work – new toys don’t grow clients. Don’t make excuses – keep busy. Early on – it’s less yearning and learning and more earning.

Be Diligent – put more effort into building your team When you employ someone, you rent a body. If you want productive work you need their heart and mind too. Learn to be a better leader and put much more effort into recruitment, coaching and training efforts. One hour of good recruitment saves hundreds of hours of pain and effort.

Be Disciplined – more doing, less knowing and avoid distractions Most people know what to do – they just don’t do it. Build your discipline muscle over time by choosing to do the right thing. Avoid doing blame, reasons, excuses, bad attitude and denial. Don’t fool yourself with distractions and addictions.