MPAMAGAZINE.COM.AU ISSUE 18.02
BANKS IN THE HOT SEAT The four majors on commissions, household living expenses and interest-only borrowers Royal commission Why there won’t be time for brokers
Combined Industry Forum The MFAA and ABA have their say
John Oliver HomeStart CEO on Australia’s housing challenges
FEBRUARY 2018
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CONTENTS
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UPFRONT 04 Statistics
QBE’s Housing Outlook 2017–2020: prices, interest rates and key trends
SPECIAL REPORT
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28 FEATURES
WHITE LABEL LENDING
Advantedge explains the latest innovations and opportunities for brokers in the sector
PEOPLE
THE BIG INTERVIEW HomeStart’s CEO on how the governmentbacked lender is tackling South Australia’s housing challenges, and why other states should follow its lead
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Two brokers and one tech expert on whether face time with clients is still important
08 News analysis
Why the long-awaited banking royal commission will find little time for brokers
10 Opinion
The MFAA and the ABA on the Combined Industry Forum’s recommendations on commissions
FEATURES
MAJOR BANK ROUNDTABLE Commissions, household expenses, interest-only borrowers and more – the heads of Australia’s biggest banks duke it out live
06 Head to head
34 Networking
32 FEATURES
AGILE WORKING The management approach is coming to mortgages, and it could help your business
Janine Garner explains why social media connections aren’t the same as valuable contacts
PEOPLE 30 Brokerage insight
Exploring Red & Co., Jayden Vecchio’s truly diversified brokerage for the full spectrum of property services
39 Career path
Learning the law with ANZ’s new national partnerships manager, Karen Brown
40 Other life
Be serenaded by Oscar Hvala, Aussie broker, singer and acoustic guitarist
36 FEATURES
FINANCIAL WELLBEING
You spend all day thinking about your customers’ finances – but what about your staff’s?
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UPFRONT
EDITOR’S LETTER www.mpamagazine.com.au FEBRUARY 2018
End of an era
D
espite being a relatively young industry, broking’s history can already be divided into eras. Broking before the GFC, and the NCCP, was noticeably different to the profession after it. Almost 10 years later, broking is entering a new phase, with the publication of the Combined Industry Forum’s recommendations on commissions. Commissions aren’t the biggest change, however. Brokers will still be paid upfront and trail, even if it will be calculated slightly differently. The new era of broking is about a different number: a broker’s unique identifier number. Rather than be identified by brokerage, ACL holder or aggregator group, the performance of every broker can be tracked by lenders and regulators. Education – or punishment – can be targeted and timely. Regulation is simply following in the footsteps of elite brokers, and not for the first time. Good brokers were documenting processes and lending responsibly long before the NCCP; it was the cowboys and part-timers who couldn’t make the switch. Similarly, top brokerages have been tracking brokers’ performance and training accordingly for a number of years. For example, Jason Back, managing director of the Australian Lending & Investment Centre, conducts 80 different measurements of his brokerage per month and says to brokers, “How will you know where you are going if you don’t know where you have been?” As CRMs improve and open APIs allow the transfer of data from one system to another, monitoring your
Regulation is simply following in the footsteps of elite brokers brokers will require a lot less paperwork than it did previously. As a business owner, you need to take decisions every day, and the information available to you is often flawed. At its best, it’s based on personal experience; at its worst, it is rumour and hearsay from self-appointed experts. When used correctly, data provides information you can trust. Sam Richardson, editor, MPA
P.S. MPA will also be entering a new era, as I will be stepping down as editor in order to return to the UK. Otiena Ellwand will be moving across from Australian Broker to take my place. Thank you to all the brokers, bankers, aggregators and others who have shared their views and business tips with me, and best of luck with your businesses in the future.
EDITORIAL Editor Sam Richardson Journalists Otiena Ellwand, Maya Breen Contributor Janine Garner Production Editor Roslyn Meredith
ART & PRODUCTION Designers Loiza Caguiat Martin Cosme Traffic Coordinator Freya Demegilio
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UPFRONT
STATISTICS
Looking three years ahead What will the housing market look like over the next three years? The latest QBE Australian Housing Outlook report reveals expectations for 2017–2020 QBE’S Housing Outlook reveals that, overall, housing affordability is expected to improve in the coming years as investor demand cools and first home buyer demand picks up. But one of the areas to watch will be how much of a household’s income is spent on mortgage repayments. As it becomes more difficult for people to service their mortgage debt, property price growth will stagnate until incomes rise or interest rates are reduced to make purchasing more appealing again. QBE’s report suggests the markets of Sydney and Melbourne could be vulnerable when interest rates rise if borrowers have stretched themselves to buy a dwelling.
QBE’s overall findings indicate that the Great Australian Dream is changing and Aussies will have to adapt to the changing landscape, perhaps opting for a unit rather than a house with a yard. “The detached house on a quarter acre block with a Hills Hoist in the backyard was always the typical Australian dream,” says QBE Lenders’ Mortgage Insurance CEO Phil White. “But with units accounting for around 46% of all residential construction, significantly more in our major capital cities, it’s clear that more of us are now considering life in an apartment.”
Affordability has deteriorated considerably in Sydney and Melbourne since 2012/13 due to strong house price growth. Affordability has also become more difficult in Adelaide, Hobart and Canberra over the past 12 months, again due to rising prices. Here you can see the percentage of average household disposable income needed for mortgage repayments in 2017, and what it’s projected to be in 2020.
Perth
19.6% 20.2%
Legend 2020 forecast
2017
A LOOK INTO THE FUTURE
FHB COMEBACK
QBE forecasts that the RBA will begin tightening interest rates towards the end of 2019/20, with a 25 basis point increase in the cash rate. This will take the standard variable rate to 5.45% by June 2020. But the report warns that further pressure from APRA could result in additional out-of-cycle changes.
Although owner-occupier loans to FHBs fell slightly (0.4%) over 2016/17, demand seems to be turning around as loans to FHBs rose 13% in the three months to July 2017 from a year prior.
7% 6% 5% 4% 3% 2% 1% 0%
2017
2020
6.05%
5.45%
5.30%
6.00%
6.50%
4.70% 1.75%
5.80%
5.25%
1.50%
5.05%
5.75%
6.25%
2.51%
4.50% 1.55%
Cash rate Housing rate Housing rate Housing rate Housing rate Interest only Interest only CPI baseline (variable) (discount (standard (discount (owner- (investors) variable) investor) investor) occupier) Source: QBE Australian Housing Outlook 2017–2020
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AFFORDABILITY STATE BY STATE
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In 2016/17, loans to FHBs rose in: New South Wales Western Australia Victoria South Australia A fall was seen in: Northern Territory Queensland Australian Capital Territory Tasmania Source: QBE Australian Housing Outlook 2017–2020
Brisbane Darwin
20.6% 20.6%
18.3% 19.7% Adelaide
19.7% 20.5%
Canberra
16.3% 14.8%
Sydney
35.8% 39.7%
Melbourne
35.4% 36.2% Hobart *Housing affordability was calculated by QBE as a percentage of mortgage payments based on 75% of the median house price.
18.5% 17.8% Source: QBE Australian Housing Outlook 2017–2020
GROWING OR SLOWING?
DARWIN
HOBART
CANBERRA
ADELAIDE
PERTH
BRISBANE
MELBOURNE
2017–2020
SYDNEY
The report forecast house and unit price growth for each capital city in the next three years.
House price growth
Unit price growth
Source: QBE Australian Housing Outlook 2017–2020
UPFRONT
HEAD TO HEAD
How important is face time with clients? Two brokers and the CEO of HashChing on whether seeing clients still matters in the age of technology
Graeme Holm
Director Infinity Group Australia
Mandeep Sodhi Co-founder and CEO HashChing
Brad Sewell
Founding director Robinson Sewell Partners
“In today’s digital world, now more than ever I reinforce the importance of face time with your clients. In a market where client loyalty can be lost within a matter of seconds, face time has never been so important and significant. “As advice professionals we must remember that people buy and transact
“I’d say very. Despite the convenience of online channels, people are inherently more trusting of brokers as they are able to connect with them on a personal level, while being guided through the overwhelmingly complex mortgage process. “Purchasing a home is the biggest financial commitment most people will
“Face time in the commercial sector is critical, given that your loan applications rely on your ability to properly articulate the client’s business to specialist commercial bank managers. “The broker therefore needs to invest in face time in order to understand the client’s business, including meeting
with people they like – you are not going to develop the same rapport by phone, Skype or Zoom meeting. Don’t discount the value of personal relationships and the ability to create long-lasting rapport and memories, especially with your existing client base. “It is far cheaper to retain or sell to your existing clients than to a new client. Don’t get lost focusing on where you will get your next client from; focus on fostering unbreakable relationships with
make, and it is often one that impacts on more than just the borrower. For example, they may have dependants, a shared income, or may need to take out a large loan using their parents as guarantors. “The emotional support and thorough sharing of information made possible through face-to-face meetings enables brokers to take the fear and stress out of the home loan process, while also empowering borrowers to make the best
employees, inspecting business premises and operating systems, and viewing the product and/or service that the client is selling. “Commercial brokers also have a role to play in providing moral support to commercial clients who might be experiencing difficulties in their business, for example severe drought, a downturn in retail or land sales, etc. “Finally, face time is one of the best
your existing networks.”
financial decision.”
lead generators for your broking business.”
TECHNOLOGY HELPING BROKERS WORK REMOTELY An increasing number of apps and services are enabling brokers to drastically reduce the amount of face time they spend with clients. Services such as ZipID and IDyou are reducing the need for in-person verification of identity, while DocuSign is allowing clients to sign documents from their own computer. HashChing has also launched video conferencing and identification software. A number of new online mortgage brokers have sprung up in recent years, such as Lendi and realestate.com.au Home Loans.
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UPFRONT
NEWS ANALYSIS
One more backflip The government has given in, and Australia’s banks will finally be subject to a royal commission. With a sprawling mandate, it will find little time for brokers, writes MPA editor Sam Richardson AFTER A year dominated by political manoeuvring, it seems that the government couldn’t resist one final backflip. When Prime Minister Malcolm Turnbull announced a royal commission into banking on the final day of November, his aim was to end speculation. “It is now in the national interest for the political uncertainty to end,” Turnbull said. Yet for those working in finance, the uncertainty has just begun. There are some things we know about the royal commission. We know it’ll be run by ex-High Court justice Kenneth Hayne, that it will commence in February and report to the government 12 months later, and that it will cost $75m – although some experts say more. Beyond that. facts get hazy in the extreme. The terms of reference are broad, covering “any conduct, practices, behaviour or business activity by a financial services entity that falls
was warning of rate rises. ABA CEO Anna Bligh said, “This runs the risk that Australia will be seen as a more risky investment by global investors that can go anywhere. The risk is that they don’t invest or suspend their investment in Australia, or they put a premium on the price of those funds.” To complicate matters further, many, including Treasurer Scott Morrison, see rate hikes as part of the problem. Martin North, principal at Digital Finance Analytics, believes that rate hikes could be investigated under the commission’s above-mentioned terms of reference. “Community standards could include: ‘Why are you making out-of-cycle rate rises?’” In an article on MPA’s website, FBAA executive director Peter White also called for scrutiny of bank interest rates and fees. Ironically, if the commission was to lead to tighter controls of pricing, this could force rates
“No more limited inquiries, no more deceptive self-regulation, no more pretend commitments” Peter White, FBAA below community standards and expectations”. Hayne has pushed for brokers to be included in the terms of reference, but what does this mean in practice for brokers and their clients?
upwards. S&P warns that restrictions on banks’ pricing power could lead them to take on more risk to maintain returns, making them less attractive to foreign investors.
Rate rises
Will brokers be under scrutiny?
Within hours of the royal commission being announced, the Australian Bankers’ Association
In mid-December, weeks after the commission was announced, brokers were added to its
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scope, following consultation with Hayne. Neither the FBAA nor the MFAA have expressed concern at the announcement of the commission. White welcomed the royal commission, calling for: “No more limited inquiries, no more deceptive self-regulation, no more pretend commitments; it seems the people believe it’s time for a proper and widerreaching royal commission”. Both associations have confirmed they will be cooperating with the commission. AFG CEO David Bailey has claimed that the regulatory scrutiny already endured by brokers sets them up well for the commission. He said, “We are confident Justice Hayne will recognise the unprecedented data collection process conducted by ASIC in their review of mortgage broker remuneration has thoroughly examined our industry.” Although the commission will be able to examine brokers, that does not mean brokers are high priority. The 12-month timespan for the commission is much shorter than that of more focused inquiries into youth detention and trade unions, making it likely
HOW BROKERS VIEW THE ROYAL COMMISSION Before the royal commission was announced, MyState Bank surveyed its broker partners on whether Australia needed a royal commission into banking.
needed
against
38% BEFORE 42% 20%
on the fence
After the royal commission was announced, MPA polled its online readers on whether it was ‘a waste of time and money’. yes
27% 55%
no
AFTER 18% undecided
Source: MyState Bank and MPA Online (correct as of 4 December)
that Hayne will need to focus on areas of obvious misconduct. Crucially, according to MFAA CEO Mike Felton, the commission will not have an impact on the Combined Industry Forum. In November the CIF delivered its recommendations to the Treasury, so it is likely that action will be taken on broker commission months before the royal commission even delivers its report.
macroprudential policy and regulation from scrutiny, so for example they do not include APRA’s limits on investment lending or ASIC’s surveillance of broking. The commission’s terms of reference also prohibit it from duplicating another inquiry or investigation – a problematic move given that the banks have been subject to 17 inquiries since the GFC, with many ongoing. One of these, an inquiry into competition
“Community standards could include: ‘Why are you making out-of-cycle rate rises?’ ” Martin North, Digital Finance Analytics Productivity Commission Just as important as what the royal commission is covering is what it isn’t. As North says, “the scope has been very carefully carved out to avoid landmines … [such as] the whole regulatory question, which is being carefully steered around”. The terms of reference explicitly exclude
in the Australian financial system by the Productivity Commission, may ultimately have far more relevance for brokers. It will also report earlier, in July, several months before the royal commission. Submissions by the RBA, APRA, several major banks and the MFAA explicitly discuss brokers and their beneficial impact on
competition. The RBA has noted that “borrowers’ capacity to source the best deal and assess the benefits of switching providers has been assisted by the introduction of brokers and comparison websites”. Conversely, this inquiry could result in changes for brokers, with CHOICE calling for the removal – or, failing that, scrutiny – of trail commission, and the Consumer Action Law Centre recommending that brokers be required to act in the best interests of their clients, rather than simply providing ‘not unsuitable’ loans. ASIC has also warned that white label products obscure the extent of real choice available to consumers, saying: “These arrangements can make the particular market appear more competitive than it is.” Most importantly, by virtue of its more focused scope, the Productivity Commission’s inquiry could make more effective recommendations, North suggests. “I put out more hope on the Productivity Commission’s work, if they do their job properly and really look at vertical integration … and brokers are part of the problem there.”
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UPFRONT
OPINION
The CIF report: what’s next? MFAA CEO Mike Felton on why he believes the Combined Industry Forum’s changes to commissions and regulation will pay off for brokers DESPITE A challenging year, I believe the mortgage broking industry came of age during 2017. With all the changes and disruption we’ve already seen over the past year – regulatory reviews, a royal commission, new prudential measures and more – it would be tempting to think it’s finally over. ASIC’s remuneration review recognised the value that brokers provide but identified six key areas that required change. We must take real action to address these or be regulated. In response to the ASIC review, the Combined Industry Forum report presented a package of reforms aimed at further improving customer outcomes, but critically, it was also focused on preserving the value brokers bring to the mortgage market by driving competition and providing access to credit. The reforms address ASIC’s six key recommendations, but it is simpler to think of them in two groups – remuneration practices and governance. The CIF’s proposals sought to address potential “product strategy conflicts” and “lender choice conflicts” – which were highlighted by ASIC as priorities for reform – while still rewarding brokers for the economic value they produce. A key priority for ASIC was to address incentives that may encourage brokers to recommend larger loans with large initial offset balances. Following much consultation, the reforms proposed payment of upfront commission on funds drawn down and utilised net of offset,
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with trail commissions paid on amortised loans net of offset, and clawback unchanged. The CIF report also recommended volume-based payments be ceased from 31 December 2017. On ‘soft dollar’, the CIF has recommended broker clubs be transformed into tieredservicing arrangements that deliver better service for the customer; the removal of volume hurdles; introducing monetary caps on lender entertainment; enhanced recordkeeping and disclosure requirements; reforms to conferences; and a strong focus on broker education and competency. We understand that these reforms may impact some brokers, but they were specifically called out by ASIC and have been a key source
compliance does create a consumer benefit. Finally, the CIF has proposed a datadriven, self-correcting and continuously improving governance framework – the centrepiece of the reform package. This will be the foundation of a ‘mortgage broking industry code’ that will be applied across the value chain. The governance framework – and the code – will be underpinned by data analysis of key risk indicators for potential poor consumer outcomes, to allow aggregators and brokers to flag outliers for further review against the industry average. The governance framework will also see greater standardisation in compliance; unique identifiers and improved reference checking; data-based monitoring; customer feedback and shadow shopping; remedial training and education; and an ongoing assessment of remuneration structures to ensure they remain fit for purpose. This year is critical. If we get it wrong, our industry is at risk. If we implement these reforms successfully, we would soon expect to see improving professional standards and further strengthening of consumer trust and confidence – and brokers’ market share at more than 60%. The opportunity to self-regulate is incredibly empowering. We are using our collective industry experience to find the
We are using our collective industry experience to find the right solutions and build consumer trust of criticism from stakeholders. While these reforms will have a measurable and positive impact on the industry, it is in governance and transparency that the real work – and long-term benefits – will begin in 2018. The industry will provide clearer disclosure of ownership structures and a public reporting regime to provide greater transparency on lender coverage, breadth of choice and the weighted average commission rate earned by aggregators, to assist consumers to make more informed decisions. Both these reforms will be consumer-tested to ensure this additional
right solutions and build consumer trust. I hope brokers, aggregators and lenders will continue to lend their voices and their expertise to ensure our reforms promote better consumer outcomes for the long-term benefit of our entire industry.
Mike Felton has been the CEO of the MFAA since late 2016 and a founding member of the Combined Industry Forum. He was previously COO at Pepper Asset Finance and has also worked at RMB Australian and the Standard Bank of South Africa.
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All about customers Christine Cupitt, director of policy at the Australian Bankers’ Association, explains why commission changes are part of a wider reform package THE BANKING industry is undergoing enormous change in response to concerns surrounding bank practices, conduct and culture. Reform is not new to the sector; banks have participated in 51 inquiries since the GFC in 2008. The Banking Reform Program – Better Banking has already delivered several important and positive reforms to the industry, with more to come. Changes to the mortgage broker industry have been a key part of this program. A common concern among customers is that commissions, bonuses or other incentives might mean that customer interests are not always put first. Across the board banks have started to address this with changes to incentive structures for bank staff that focus less on sales and more on customer service and ensuring the right product for the right person. In May last year the Australian Bankers’ Association commenced work with a cross section of representatives from the mortgage broking industry to look at how it could promote better customer outcomes in mortgage broking, while preserving competition and maintaining customer choice. Mortgage brokers play an essential role in Australia’s home loan market – more than half of all home loans provided by the banks are originated by brokers. Together with our colleagues in the Combined Industry Forum, the ABA and the banks are committed to imple menting changes that make a meaningful difference to customers, while
supporting a vibrant mortgage broking industry. In December last year the CIF agreed on a landmark reform package to promote better conduct in the industry and implement a better oversight program over all mortgage brokers. Part of the reform, for the first time ever, sets a standard definition for ‘good customer outcomes’. This will mean that customer outcomes will be the focus of every mortgage broker, with the size and structure of the loan, affordability, responsible lending requirements and individual customer needs all taken into account when recommending a loan. This new standard goes above what is
the customer at the centre of what we do. On the ground, there will be strong oversight measures to ensure that the industry meets its commitments. These include: customer feedback and mystery shoppers to ensure good customer outcomes are being delivered training and education annual review of the Forum’s reform package reporting and ongoing review of remuneration structures These initiatives and others will mean that poor behaviour or poor customer outcomes will be more readily identified and quickly addressed. It will also mean that lessons will be learnt from each case and will feed into further reforms in the future. Building upon this big year of reform for mortgage brokers, in the coming 12 months the CIF will also look at implementing a single, portable broker identifier. This will mean brokers and their activities will be much more easily identified to detect poor behaviour and help lift overall standards in the market. The CIF will continue working throughout 2018 to finalise the governance framework that will streamline monitoring and supervision so brokers can spend more time with clients.
Part of the reform, for the first time ever, sets a standard definition for ‘good customer outcomes’ required by law by considering whether the loan is appropriate and meets the customer’s needs. An industry-wide approach to monitoring the behaviour of mortgage brokers, ensuring adherence to these new standards, will be an important part of this reform. This reform sends a clear signal to the community that the mortgage broking industry is committed to delivering value and making sure the needs of customers are met. The new standard definition makes it clear that the industry will hold itself to a higher degree of scrutiny than the law requires, and places
It will report semi-annually to the Federal Government, Treasury and ASIC on progress. Banks look forward to working with the government on continuing to implement the Forum’s changes to ensure customers benefit from fierce competition for home loans.
Christine Cupitt has been the director of policy at the Australian Bankers’ Association since 2014. Her background in compliance and regulation includes time at KPMG, AMP, Hillross Financial Services and The Link Group.
PEOPLE
BIG INTERVIEW
JOHN OLIVER: A HELPING HAND Government-backed lender HomeStart is solving the affordability problem for South Australian buyers, its CEO tells Sam Richardson
WHETHER YOU believe the housing market in Australia is ‘working’ depends largely on whether you’re on the ladder. In 2017, Australia’s state governments finally began listening to both sides. First home buyer grants returned to NSW and Melbourne in the form of stamp duty concessions, and FHB numbers increased by a third nationwide to a five-year high. The problem is, so have property prices. The typical repayment requires 36% of an average family’s income in NSW and 32% in Victoria, and most first home buyers earn far less. As banks move away from high-LVR lending, or demand substantial lenders mortgage insurance payments, the upfront costs of buying remain daunting and, for many, out of reach. In South Australia they do things differently. In 1989, SA first home buyers also faced intimidating obstacles, recalls HomeStart CEO John Oliver. “That was a time when interest rates were pretty much at their peak and home ownership was very much a challenge,” he says. The SA Government’s solution was to set up its own lender for those who couldn’t get a loan anywhere else, with a simple objective: “We’re here to give people a hand up, rather than a handout”. Twenty-eight years and 70,000 new homeowners later, HomeStart’s success speaks for
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itself. “We’ve been profitable for over 28 years, and we’ve returned over $560m to the state government in the form of guaranteed fees, dividends, tax equivalents,” says Oliver. “We’ve been highly successful in that sense. The thing that disappoints me is that other state governments don’t come and look at the HomeStart model and replicate that – because it can be replicated.”
Products with a difference While the name HomeStart rings few bells outside SA, it is an expanding presence in the broker channel, which accounted for 43% of new HomeStart lending in 2016/17. “Our relationship with brokers is a strong one,”
limited savings, and divorcees with limited incomes. There is no upper income limit, but Oliver is specific about the bank’s target clients: “If you can get your home loan through a bank, go there; you don’t need us.” For many brokers, the loans HomeStart offers may seem unusual. To begin with, the upfront costs are much lower: for graduates they will lend up to 97% LVR, with a loan provisioning charge instead of LMI, of around $1,425 for a 95% LVR loan. Oliver sees this charge as a major point of difference. “Lenders mortgage insurance, depending on the loan amount, could be anything from $8,000 upwards,” he says. For repayments, HomeStart takes a
“The thing that disappoints me is that other state governments don’t come and look at the HomeStart model and replicate that – because it can be replicated” Oliver explains. “It’s a complex one, because the product we’re dealing with is slightly different to the typical loan out there in the market.” HomeStart’s clients will be familiar to brokers: they are first home buyers with
percentage of the borrower’s net income, indexed to CPI. Therefore CPI and the loan term, rather than interest rates, determine a borrower’s repayments. This also means that repayments can go up in a year when
PROFILE Name: John Oliver Title: CEO Company: HomeStart Finance Years in the industry: 35 Career highlight: “Becoming CEO here. I’ve been here eight years now and I think HomeStart has a real sense of purpose…my career highlight is leading a great team of people here and having everybody be really committed, wanting to come to work every day, because they believe they’re really achieving something and helping people who might otherwise not be helped by the private sector.” Career lowlight: “I was retrenched from the Commonwealth Bank. I was a senior executive there, a regional lending manager, and only 18 months earlier had moved from Newcastle, had uprooted a young family … but if it wasn’t for that I wouldn’t be here today.”
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PEOPLE
BIG INTERVIEW
other bank-borrowers’ repayments go down. With borrowers having the ability to get a loan from around $5,000 upfront, Oliver doesn’t believe HomeStart needs to offer guarantor loans. “I’m not a big fan of mum and dad providing guarantees; I think there are considerable risks in that,” Oliver says. “Not only do parents need to assume risks, but the other reality is the relationships might not last the distance.”
Could HomeStart’s model go national? In the current debate on housing affordability, government-backed lenders have barely been mentioned. Labor proposes cuts to negative gearing, while Liberals favour building more affordable rental housing. As Oliver explains, government-backed lenders are subject to various constraints. “Governments aren’t meant to compete with the private sector or to run commercial operations that have a competitive advantage competing with the private sector,” he says.
although KeyStart has less independence from government. “Western Australia and South Australia have shown that it can be done and it can be done quite responsibly,” Oliver says. He claims that applying the model to NSW and Victoria could increase home ownership by 6% in the former and 8% in the latter. A number of trends suggest the HomeStart approach to lending could spread. In October, small business ombudsman Kate Carnell suggested the government should set up a taxpayer-backed bank for unsecured small business lending, similar to the UK’s British Business Bank. Concurrently, the Productivity Commission is investigating competition in the financial system and could recommend major changes in its final report in July. Helpfully, the east coast state governments have money to spend, due to huge stamp duty receipts: the NSW State Government’s surplus for 2016/17 was $5.7bn. Oliver recalls that
“We’ve been profitable for over 28 years, and we’ve returned over $560m to the state government” HomeStart is forced to pay back funds to the SA Government to ensure its interest rates aren’t undercutting commercial lenders. HomeStart is not subject to APRA, although Oliver says he tries to stay in line with its directives. “Where I want to be as a CEO is that, if APRA walked in the door today, we would pass their inspection from all of the underlying governance principles that they’re looking for.” With HomeStart supervised by ASIC and under the NCCP, Oliver says, “there are a lot of people who look at us to make sure we play with a straight bat”. Currently, HomeStart has just one equivalent: KeyStart, the West Australian lender,
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HomeStart was set up – albeit in 1989 prices – for around $3m. HomeStart’s difficulty, but also its strength, is that its approach to lending is almost incomparable to that of its rivals. Not only are its upfront costs and repayments calculated differently, but the end goal is quite different: as brokers and banks chase ‘lifetime’ customers, HomeStart wants a customer for just five to six years. “We do nothing to retain customers here. For every customer that moves to a mainstream financial institution, we pop the cork on some champagne,” Oliver says. “We say we’ve done our job.”
HOMESTART BY THE NUMBERS
$156m in loans in 2016/17
43% of lending was through brokers
Half of loans were to first home buyers
$257,321 was average loan size
57% of clients were leaving private rentals
89.4% would not have been able to secure finance from a mainstream lender at the time of their application Source: HomeStart, 2016/17 Annual Report
MAGAZINES
SPECIAL REPORTS
ARTICLES
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SPECIAL REPORT
MAJOR BANK ROUNDTABLE 2018
2018
MAJOR BANK ROUNDTABLE The four broker heads of Australia’s biggest banks were put in the spotlight in February during MPA’s live-streamed roundtable event. Here’s where they stand on commissions, accreditation, interest-only borrowers and much more
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THE CURRENT political and social climate has not been particularly favourable towards the major banks of late – and of course everyone has a different opinion about whether or not the banking royal commission’s laser inspection is warranted, brokers included. So, with that tense environment as the backdrop, we invited the four broker heads of Australia’s biggest banks to sit in the hot seat for a Q&A session broadcast live on MPA’s website. While a bit of cajoling was required, all four major banks did finally come to the table on 16 February for the first time since MPA’s debut roundtable in 2014. (In 2017, CBA did not participate.) Thanks are due to Simone Tilley, general manager of residential broker, ANZ; Tony MacRae, general manager of third party distribution, Westpac; Steve Kane, general manager of broker distribution, NAB; and Sam
Boer, general manager of third party banking, CBA, for contributing to a lively discussion with MPA’s new editor, Otiena Ellwand. With all four banks in the ring, hundreds of brokers – a record number in fact – registered to watch the roundtable, and many of you also submitted questions for the panel. It’s clear that as the broking and banking industry continue to go through significant transitions this year, brokers will be thirsty for information from the major banks. During this roundtable, we found out more about where each bank stands on commission changes and interest-only borrowers; comprehensive credit reporting and turnaround times. One major bank head – you can probably guess who – even admitted that he knew he hadn’t been popular among brokers of late. He took the opportunity to explain himself. We also found out more about where the
majors are going with the third party channel and how they plan to support brokers this year. We reserved some time at the end to ask the panel a couple of the questions brokers had submitted around accreditation and channel conflict. Unfortunately we ran out of time before we could ask more. But that doesn’t mean this conversation is over. We’re always keen to hear from you so we can put the questions that matter to you to these industry leaders when we get them in the hot seat again. You can find out what these four bankers had to say on the following pages, and the entire roundtable discussion is also available for viewing on the MPA website. Our next roundtable will be with the non-major banks. You can submit your questions now by emailing otiena.ellwand@ keymedia.com. We also look forward to continuing this discussion on our website at mpamagazine.com.au.
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SPECIAL REPORT
MAJOR BANK ROUNDTABLE 2018 THE PANELLISTS
Sam Boer, general manager of third party banking, CBA
Steve Kane, general manager of broker distribution, NAB
Tony MacRae, general manager of third party distribution, Westpac
Simone Tilley, general manager of residential broker, ANZ
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What could be the long-term outcomes of the Combined Industry Forum’s recommendations? Addressing the proposals of the Combined Industry Forum around commission and governance and discussing the possible outcomes of these decisions was at the top of the agenda at this year’s roundtable. The CIF published its report in December. Its aim was to deal with the concerns expressed by ASIC in its Review of Mortgage Broker Remuneration, while also preventing any further regulatory intervention. The main reform proposed for commission is to base remuneration on funds drawn down and utilised by the customer net of offset to “avoid financial incentives that encourage consumers to borrow more than they need or will use”. Funds drawn down will generally be measured and commission paid on initial settlement, and at a later point in time for subsequent drawn-down amounts, up to the maximum facility limit, the CIF said. As for governance, there will be a lot more data sharing about brokers’ performance. Brokers will be issued with a
brokers, to determine how the industry could be improved to meet better consumer outcomes and encourage growth. Simone Tilley, of ANZ, called what the CIF had achieved over six months as “genuinely remarkable”, even more so because of the changed expectations of government and consumers and the much more complex environment in which the industry now exists. “What I saw was everyone park their own motivations and genuinely talk openly about what was right, and I think it was really a testament to and illustrative of everybody’s integrity and leadership around the table,” Tilley said. Going forward, everyone will be operating with the same ethos around what is right and what is most suitable, she said. “Irrespective of what customer a broker engages across Australia, irrespective of which broker, or which lender is integrated … we are all operating with the same mindset and focus around customer. We’ve started, but there is a lot of work to do.” Tilley and Sam Boer, of CBA, pointed out that the challenge was now how to execute the CIF’s proposals in efficient and
“I think there’s an opportunity for us to think about how do we have a review process each year to justify trail and be very open and transparent to customers as to what is being paid” Tony MacRae, Westpac unique identifier number and lenders will report back to aggregators on ‘key risk indicators’ of individual brokers, insights that could drive remedial training and professional development. Brokers and aggregators will also have to share information on the lenders they use. The four panellists praised the CIF for bringing diverse groups together, including lenders, aggregators, consumer groups and
effective ways. Tilley said the success of the six key reform items relied on “the whole being greater than the sum of its parts”. “We can’t underestimate the complexity of execution,” she said. Boer said: “We don’t want to create more overheads and administration than is necessary. There is going to be a lot of change, and it’s going to test the industry,
I do believe. And I think our role is going to be to really support that, and that’s the position we’ve taken.” Tony MacRae, of Westpac, agreed that there was still a lot of work to do. “There are some areas where we haven’t gone far enough yet, and there will be expectation from other groups that we may need to go further,” he said. Now that a ‘good customer outcome’ has been defined by the CIF, MacRae said the industry needed to ensure that it had “appropriate sanctions in place” for when a poor consumer outcome occurred, such as when a customer was put into a loan they couldn’t afford and it went into arrears in the early months. “We should be looking at some form of penalty or clawback in that,” he said. While the CIF did not make any changes to clawbacks, it did leave that open for further review. Its sixth proposal suggests
introducing an improved governance framework under which the industry would continuously self-assess such things as remuneration structures, including upfront, trail and clawbacks, to the extent that they negatively impacted customer outcomes. “I think there’s an opportunity for us to think about how do we have a review process each year to justify trail and be very open and transparent to customers as to what is being paid,” MacRae said. With consumers and the regulators demanding more transparency, the industry had to be open about its transactions to make it clear to industry participants “that we’re adding real value, as the bulk of brokers do today”, he said.
Are we likely to see further changes to the calculation of household expenses? APRA has made it clear that living expenses
and lending to borrowers with a low net income surplus will be a key area of focus for the regulator in the years to come. Last November, APRA chairman Wayne Byres questioned whether the Household Expenditure Measure provided a realistic enough assessment of a borrower’s genuine expenditure. “From APRA’s perspective, we would like to see the industry devote more effort to the collection of realistic living expense estimates from borrowers and give greater thought to the appropriate use and construct of benchmarks in instances where those estimates are deemed insufficient,” he said at the time. Steve Kane, of NAB, said that while the use of benchmarks was important, the use of actual data to see where a customer sat within these benchmarks would lead to much more accurate assessments. The introduction of comprehensive credit
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SPECIAL REPORT
MAJOR BANK ROUNDTABLE 2018
AUDIENCE QUESTION What is your stance on channel conflict? Simone Tilley: “Like any relationship, it’s based on communication and trust. Where there’s clarity around what each other is looking for at either side of the spectrum and from a trust viewpoint you have to do what you say you’re going to do … where that’s working well, treasured partnerships are being formed.” Steve Kane: “In big organisations with great big infrastructures, you’re always going to get the occasion when someone doesn’t do the right thing. Our process there is that when we understand that that has happened, there is an education process … and if there has been any financial loss to the broker, we ensure that that is covered.”
reporting would help brokers and lenders better determine a customer’s ability to service the debt, he said. “We’re in a benign interest rate environment at the moment, but it won’t always be that way,” Kane said. “Making sure that customers are in the right product that they can service is a vitally important part of what a broker does, and it’s incumbent upon all of us in the industry to make available data to improve the methodologies of that.” When asked if banks and brokers were collecting the right information about borrowers, MacRae said he thought that they were getting better at asking borrowers more granular questions, but it was also about balancing and achieving efficiency in the information-gathering process. He acknowledged how difficult it was for some customers to provide the correct information, not because they were
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deliberately trying to be deceptive or to mislead anyone, but often because they didn’t know the answer, or in some cases didn’t want to know. MacRae agreed with Kane that better
residential property borrowers’ current and future capacity to repay their loans. The banks will likely continue to tighten their serviceability measures as APRA zeroes in on borrowers’ ability to repay loans.
“Irrespective of what customer a broker engages across Australia, irrespective of which broker, or which lender is integrated … we are all operating with the same mindset and focus around customer” Simone Tilley, ANZ use of and access to data would achieve better results for the customer. On the day of the roundtable, Westpac and ANZ introduced changes to their assessment and approval of borrowers. Westpac said the bank had introduced strict tests of
Will we see any discounts for interest-only borrowers this year? Interest-only loans attracted a lot of scrutiny in 2017, with APRA capping the amount of new interest-only loans at 30%
SPECIAL REPORT
MAJOR BANK ROUNDTABLE 2018 last March. Then, in October, ASIC released its review into interest-only lending, revealing that borrowers who used brokers were more likely to obtain an interest-only loan compared to those who went directly to a lender. By the end of the September 2017 quarter, the proportion of interest-only loans written by the banks had fallen to just 16.9%, according to APRA’s property exposure data. CANSTAR group executive Steve Mickenbecker had a foreboding forecast. “My suspicion is APRA and the banks will have seen that interest-only for noninvestors … is almost dead,” he told MPA in December. Our panellists didn’t say there was no future for interest-only loans, just that things had and would continue to change when it came to this type of loan. “Interest-only remains a valid strategy for many investors in the marketplace, and we will continue to provide and support those where it makes sense and it’s a valid investment strategy for them, and we’ll price it appropriately,” MacRae said. The major bank heads emphasised the importance of gaining a deep understanding of the needs and objectives of the customer in order to determine the best product for them. “In order to determine suitability, there needs to be reasonable enquiry,” Tilley said. Boer said that as he’d been travelling around the country talking to brokers he’d been asking them when they thought it was appropriate to sell an interest-only loan to an owner-occupier. “It’s very interesting to see the mixed response here. I think this is one of those grey areas where we need to do more work and be very clear around what is the appropriate situation,” he said. Another factor at play is some customers’ lack of knowledge around interest-only loans. The UBS Evidence Lab’s 2017 Australian Mortgages Survey of 907 respondents found that about a third of
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interest-only borrowers were unaware of the type of mortgage they had. “Interest only borrowers via the broker channel are more likely to be under high
would mean for them both in terms of their immediate needs and in the future. “Did the customer really understand that in paying interest only they weren’t
“[CCR is] a positive thing for the overall economy. It’s a positive thing for customers and for brokers. It’s an extra tool for them to be able to really verify the position of a customer when assessing serviceability” Steve Kane, NAB financial stress from recent rate rises,” the UBS analysts wrote. Kane said that for brokers it really came down to making sure an interest-only loan fit and made sense for the borrower’s circumstances – as well as ensuring that the customer knew and understood what it
reducing the principal on their debt? Is it suitable for them in the long run?” Kane said. “Is the broker looking at the longer term and does the customer understand the product that they’re getting into and the outcome as it concerns the debt that they have?”
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SPECIAL REPORT
MAJOR BANK ROUNDTABLE 2018
How will the introduction of comprehensive credit reporting affect brokers? Comprehensive credit reporting will become mandatory in July, starting with the big four banks. They’ll be required to make 50% of their credit data ready by July, with this increasing to 100% a year later, and they could face steep penalties if they don’t comply. Treasurer Scott Morrison has predicted that CCR will encourage competition, improve lenders’ ability to meet responsible lending obligations, and even allow customers with good credit histories to obtain lower interest rates on loan products. But not everyone thinks it’s a good idea. FBAA executive director Peter White has been vocal about his displeasure with CCR. He suspects the banks will maintain their current interest rate margins for customers with a better credit file, and
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increase the rates for those who are seen as “lesser quality or higher risk”. “This normally impacts those who can least afford to pay higher interest rates, so it exacerbates their problems and helps no one,” he said. None of the major bank heads expressed as strong opinions on CCR as White, but Boer did admit that he was “sitting on the fence”. “This is one of those areas where I really want to see it. I really want to see how it plays out.” It has been suggested that CCR will increase efficiency around the credit process, but Boer said he would wait and see before passing judgment. As for how it will affect brokers, he doesn’t think it will shift the focus away from the things that the panel discussed around the need to be very transparent with customers, particularly regarding
expenses, loan affordability, suitability and best interests. Kane had a more affirmative take on CCR, saying it would change the dynamics and become “vital from a broker’s perspective”, especially in regard to the validation and serviceability process. He said it was up to the banks to participate wholly and fully to ensure that the data going in was being reported accurately. “I think it’s a positive thing for the overall economy. It’s a positive thing for customers and for brokers. It’s an extra tool for them to be able to really verify the position of a customer when assessing serviceability,” Kane said. When asked if the impact of CCR had been exaggerated, Tilley said it was first important for people to thoroughly understand what it was going to deliver. She explained that it would enable a lender
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SPECIAL REPORT
MAJOR BANK ROUNDTABLE 2018 AUDIENCE QUESTION What changes, if any, do you plan to make or do you think should be made to broker accreditation? Sam Boer: “What we did realise is that we really need to support the brokers that we’ve got. We’ve got a lot of people coming in, and we’re throwing all this money at trying to recruit and resource; we thought it’s time to define new benchmarks, new standards around accreditation. Do we support new-to-industry? Absolutely. But you’ve got to be delivering really good quality first.” Tony MacRae: “We do put a lot of emphasis on the aggregators to do a lot of the initial work. … We can’t just rely on the aggregator to do that work for us. We need to get in there and lift the bonnet and make sure that what is happening in the engine of the aggregator is delivering the right outcome for us.”
to gain a broader understanding of someone’s credit history and to identify the patterns and their adherence to repayment terms over time, revealing positive and negative information. That should have positive effects for those who may have a limited financial history, or who have defaulted in the past but are generally pretty diligent. Tilley believes CCR will unlock a rich source of information that will allow lenders to make a “more fair and balanced decision that will support the Australian marketplace”. MacRae said Westpac was supportive of CCR, but he also shares Boer’s healthy skepticism and desire to see the system in action first. “To me it’s a simple sort of fundamental: the more information you can gather and the more efficient way you can gather that information has to lead to more informed decisions,” he said. But he pointed out that there would still be a small gap in the information available come July, because only the majors were required to show their hands at that point. He also said it was crucial that, as this information was made available, people’s information and privacy should be respected and protected.
What actions have you taken to cut and improve consistency in turnaround times? Turnaround times and BDM support are consistently voted by brokers as the most important areas of service. But last year’s MPA Brokers on Banks survey showed some dismal results. In 2017, 40% of brokers said turnaround times had worsened, compared to 16% in 2016. We turned to MacRae first. Westpac had a good year last year, according to the survey, coming in first for turnaround times, BDM support and online platform and services. “This is a constant focus, and as volumes fluctuate up and down, it becomes increasingly difficult,” MacRae said.
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“What we’re looking at doing is cutting out hand-offs, unnecessary steps in the process and requesting of unnecessary information.” But MacRae said that, at the end of the day, it was not just the bank’s problem. What gets submitted to the bank has as big an impact on turnaround times as the actual operation in the back office, he said. He added that it was important not to forget there was a customer at the end of that file. Purchasing a home was hugely stressful, he said, with the high points being finding the home and then getting the keys. “We have all the tough stuff in the middle that we have to help customers navigate through,” MacRae said. Tilley said ANZ was building the leadership capability of its team to drive process improvement. She explained that
the bank had invested in its home loans platform and would continue to make improvements to it this year. ANZ has also been working on addressing and identifying
“[By] just being a little bit more curious … about our value chain in its entirety, we’re able to work more efficiently with one another,” Tilley said.
“[Turnaround times are] very big and very complicated and very expensive; it’s like the Holy Grail. We’ve been doing this for how long and we still haven’t got it right? … With the rate of change [in] our industry, you’re forever chasing this one” Sam Boer, CBA bottlenecks that occur in the process to determine if and where there are knowledge gaps so it can find ways to better support and educate brokers.
Kane agreed that it was important to understand where the gaps were in the process, and if a step didn’t add value it was important to scrutinise why it was
there. He said that at NAB there was a strong focus on staff ’s skills development to ensure the internal team was up to date with the tasks assigned. Boer said he understood how difficult it could be for brokers, with each bank having a different system and process for filing applications. Ensuring that there were quality inputs and outputs relied on both sides having the necessary education and training, as well as the right systems and processes in place, he said. “It’s very big and very complicated and very expensive; it’s like the Holy Grail. We’ve been doing this for how long and we still haven’t got it right? And it’s going to continue, and with the rate of change that keeps coming into our industry, you’re forever chasing this one. It’s something we all aspire to.”
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FEATURES
WHITE LABEL
Process, not product MPA and Advantedge look at the technology making white label products easier than ever to write
move into broking, which will use NAB and Advantedge products to introduce home finance earlier than ever before into the home search process. At the other end of the process, Advantedge is working with PEXA to cut down the amount of paperwork involved in conveyancing. “We believe it’s the direction the entire industry will take,” says Halliwell, “so we implore brokers to jump on board and reap the benefits.”
A broker’s experience
IF YOU were designing a lender from scratch, would you even care about its brand? Advantedge has led white label lending for almost a decade, yet its brand remains about its products and, increasingly, its processes. This year Advantedge wants to make it easier than ever for brokers and customers to access its products. For general manager Brett Halliwell, a recent round of net promoter score surveys indicated how the Advantedge brand could benefit brokers. Overall, end customers rated Advantedge quite favourably (at +23), but those same customers rated the brokers three times higher (at +70) for the services they provided. “It really validated our position that customers rely on the broker’s recommendation,” Halliwell explained. While last year Advantedge did indulge in a rebrand, revitalising the ChoiceLend, FASTLend and PLANLend brands, their main improvements have been to process, not product. For brokers, Advantedge introduced three new services: the IDyou and ZipID identification apps and the DocuSign electronic signature platform. For customers, a new SMS service will help them arrange a valuation as soon as the broker submits the loan for approval. “We’re really keen for brokers to embrace the new technology and the convenience it
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brings,” Halliwell says, “but we are finding that there are some brokers who are reluctant and haven’t taken it up yet.” Halliwell argues that IDyou is “a really easy and convenient option for brokers and customers to fulfil the customer identification process”. The app allows a customer to verify their identity themselves using their mobile. Halliwell is particularly excited about DocuSign. “We think we’re a little different to others in the market,” he says. “Where state legislation allows, you can also sign
One broker who has jumped on the bandwagon is Andrew Carra, a broker and financial planner who runs Red Sparrow in Melbourne’s Docklands. Carra says he has been aware of white label products for about five years, first as a financial planner. “What I’m looking for is a long-term low rate for my client, and that’s why I like to use a white label product,” he explains. Over those five years service has been consistent, meaning “quick approvals, easy to make changes to loans, easy to do business with”, Carra says. As a financial planner, he has also benefited from being able to compile and print
“We’re really keen for brokers to embrace the new technology and the convenience it brings” Brett Halliwell, Advantedge the mortgage documents using DocuSign, so that really becomes incredibly convenient for customers.” Advantedge plans to move its entire application form onto DocuSign by the end of 2018, further reducing the need for wet signatures. Not only has Advantedge benefited from improving broker technology, but it has helped drive technology forward. Halliwell was deeply involved in realestate.com.au’s
clients’ loan statements in his office at tax time. Clients’ demands of white label products are straightforward, Carra believes. “I think what clients understand is the interest rate, and they don’t really care about the brand attached to it. It does help that PLANLend is part of the NAB Group. It gives people comfort; it gives me comfort as a broker.” Over the past year, Carra has started using ZipID and DocuSign. “The biggest and most
Sponsored by
MAKING MORTGAGES EASIER: ADVANTEDGE’S KEY TOOLS Advantedge works with several service providers to remove the pain points from a typical application:
amazing innovation I’ve seen is DocuSign,” he says. “That’s been the game changer I think, in favour of brokers.” Put simply, DocuSign has allowed Carra to slash turnaround times. “Last year I had a loan – I submitted it on Monday afternoon, had the approval come through Tuesday morning; the clients had the loan documents emailed to them that afternoon, and they signed them that afternoon electronically, so I had submission to approval to documents being returned to the solicitor in 24 hours.” Not only has DocuSign reduced the number of meetings Carra has had to arrange with clients, but he rarely needs to explain the system. “It’s so easy,” he says. “The only part on which clients get a little bit confused is that
IDyou – Provided by MSA National, this smartphone app allows a customer to verify their own identity to lender standard using their own smartphone. Zip ID – Provided by Equifax, this app allows a broker to quickly verify their customer’s identity. ZipID can also send verification agents to a customer’s home. DocuSign – This e-signature platform allows clients to provide legally binding signatures electronically, on documents hosted securely in the cloud. PEXA – This online platform brings together buyers, sellers, lenders, brokers and solicitors for quicker and paperless conveyancing.
you can pick one of two fonts to sign with, which clients tend to agonise over.” Carra has since integrated other apps into his business, such as the CashDeck platform for collecting bank statements, “which takes a one-hour process into about three minutes”.
For Carra, it’s clear who’s benefiting from technology and the white label products in the industry. Taking up DocuSign “was my Kodak moment in the industry: disruption’s here and it’s really working in favour of brokers,” he says.
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PEOPLE
BROKERAGE INSIGHT
Red & Co. Multi-award-winning broker Jayden Vecchio has built a truly diversified brokerage to cover the full spectrum of property services
MPA: Red & Co. won the FBAA National Broker of the Year award last year. What made the difference? Jayden Vecchio: It’s probably building out the team in the office. The business has probably matured a lot as well; we’re going to hit the five-year mark in March. I think that helps having the pipeline behind it and clients that are doing transactions regularly; with the marketing, everything’s starting to come together. In the beginning you trial things; some things work and some things don’t, and it’s been a good way of refining our offer and making it better.
MPA: What is Red & Co. and what makes it different to a traditional brokerage? JV: We’re a property advisory business. The idea is to take some people who are buying their first home, and help them through the investment property journey. Property developers are part of that, as well as helping people to get into property development, sell their properties and rent them out. We also do development management, supporting people who want to develop properties but might not have the experience. It works well because it’s all under the one ownership. It’s not like a brokerage business, a real estate business and a rental management business; it’s all in the one team. There are 16 of us now, and we all work together, and it really helps with the crosssells and referrals internally. The property
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manager sits next to me and the real estate agent sits three desks down.
MPA: What service brings people through your door? JV: I’d say the finance would still be the
MPA: Surely when someone’s buying their first property, it’s a bit of a stretch to go into property development? JV: We have four target clients in the
biggest inflow, because that’s the one we’ve done the most advertising with over the years … then, interestingly, between sales and rentals, our rentals business generates more leads than our sales business does. I thought it was a bit counter-intuitive because the broker says, ‘I want to work with a real estate agent’ … We had a case recently where a property manager wanted our rental guys to reduce the fees; they went back to him and said, ‘You could save $50 a week by refinancing your home loan – why don’t you talk to Jayden?’ That ended up being a $2m refinance.
business … Our preferred target clients would be property investors with multiple properties who are time-poor; they’re whitecollar professionals and we’re pretty clear on who we want to target. That helps the finance business, the rental business and the sales business. Our next target client would be small property developers that either don’t have the internal capabilities to arrange finance or the networks for sales and rentals. We also deal with a few fund managers who buy big shopping centres and other commercial assets, and that helps the finance business.
MPA: How do you promote Red & Co.? JV: We’ve got a really good opportunity internally. We have a couple of hundred properties under management and sales, so we’re doing a
READ AND HEAR MORE FROM THE RED & CO. TEAM In addition to running Red & Co., Jayden Vecchio and his brother Nathan Vecchio have been sharing their tips on broking for two years on MPA Online. The Top Broker series includes podcasts, most recently featuring Jayden Vecchio and leading brokers Lloyd Thomas and Hank Hong. There are also articles full of practical tips for brokers, on topics ranging from sales techniques to leadership. You can listen to the podcasts and read the Top Broker articles for free at mpamagazine.com.au
FAST FACTS Year founded: 2013 Owners: Jayden Vecchio, David Laverty, Keiran Foster, Kathy Laverty
lot of internal marketing: emails, direct mail and reviews, as well as some online marketing through Facebook and the usual channels.
MPA: What are your ambitions for the brokerage over the next 12 months? JV: I think there’s something to be said for
MPA: What are the safeguards within the business to avoid any conflicts of interest? JV: They’re all practically separate entities;
strong organic growth. We’ve had a couple of high-growth years that have been good, but now it’s working on new systems, training and back end, to continue to grow that. What I’ve learnt is that you really have to have that stuff right before you can grow, so it’s about focusing on the stuff internally and keeping it growing.
they’re all on separate CRMs … it’s like any brokerage: we’ve got the clean-desk policy, ways of safeguarding people’s information. Privacy is obviously paramount.
Headquarters : New Farm, Qld Owner: Private Services offered: Mortgage broking, rental management, property sales, property development management Income: Commercial and residential property finance commissions, rental management fees, sales commissions
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FEATURES
MANAGEMENT
Are you agile enough? Far from a management fad, ‘agile’ is increasingly being adopted by the mortgage industry and offers much to brokers, writes Sam Richardson HERE’S A scenario brokers will be all too familiar with. A bank redesigns its IT system, promising faster turnaround, fewer errors and easier access. Two to three years and several million dollars later, the new system is released, but it’s difficult for brokers to use and already out of date. Turnaround times blow out, and the bank goes back to square one. This is the nightmare scenario that ‘agile’ working is designed to eliminate. Originally used in software development, agile is a set of principles for project management, spawning more than 70 management strategies, such as Scrum, Kanban and Lean. Yet the principles, as set out in the ‘Agile Manifesto’ (see box, p32) are relatively simple: to design new projects piece by piece and constantly test them with the end user – in this case, the broker and borrower. This year, agile will make waves in mortgages. ANZ was the first Australian bank to take up agile, in 2017, but Bankwest is perhaps the bank that has taken the approach furthest in lending. MPA spoke to Bankwest general manager of third party Ian Rakhit and CIO Andy Weir to learn more about agile and its consequences for lending.
‘A very overused term’ In recent years, Bankwest has released several small and popular tools into the broker
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space. The non-major’s ‘Broker Chat’ system, which allows brokers to message Bankwest’s processing staff, is regularly applauded in
“We believe these ways of working allow us to deliver the kinds of experiences our customers are looking for, not just now but also in the future” Andy Weir, Bankwest MPA’s Brokers on Banks report. In July the bank unveiled a new loan portal; in October it introduced a real-time pricing tool, then in November a new website. “Everything we’ve built on the Bankwest website is based upon broker feedback,” says Rakhit. “Working through an agile methodology allows you then to create quickly, test quickly and implement quickly.” Rather than roll all these improvements into one major relaunch, Bankwest has released a steady stream of new tools, with additional functions added after launch. Within Bankwest, the new approach is not referred to as agile. “It’s not an agile transformation, it’s an organisational
transformation,” Weir explains. In fact, he believes that “agile is a very overused term” and restricts its use to its original purpose in software development. Bankwest’s coders adopted agile several years before the rest of the organisation. As an organisational transformation, Weir says, “the key thing for us is that we are organising all of our colleagues into multidisciplinary teams, or ‘tribes’, to be orientated around delivering specific outcomes to our customers, and transforming the customer experience for those groups”. Bankwest is currently creating the first ‘tribe’, focusing on homeowners, with four more planned in the near future.
THE AGILE MANIFESTO In 2001 a group of software developers came together to set out the Agile Manifesto, which also has relevance beyond IT: We are uncovering better ways of developing software by doing it and helping others do it. Through this work we have come to value: Individuals and interactions over processes and tools Working software over comprehensive documentation Customer collaboration over contract negotiation Responding to change over following a plan That is, while there is value in the items on the right, we value the items on the left more. Source: www.agilemanifesto.org
Dealing with pushback Weir is conscious of the potential for pushback. “As with any big organisational change,” he says, “there has to be a big investment in organisational change management practices … there are people who really embrace and love change, and there are people who manage that process effectively, and there are some people who struggle with change.” To aid the shift, Bankwest has invested in communications programs, cloud-based and open-API technology, and engaged with staff, Weir explains. “They can come along, ask a lot of questions, have access to our executives, have access to the team that are leading the transformation, to look and see and feel the changes that we are making in action.” Feedback so far has been good, he says. Staff are excited about becoming more connected to customers and in touch with their needs. Bankwest’s immediate aims are relatively straightforward. “A lot more prototyping, a lot more use of analytics, and really improving our speed to market and really differentiating customer experiences,” Weir says. Longer term, he is more ambitious: “We believe these ways of working allow
us to deliver the kinds of experiences our customers are looking for, not just now but also in the future.”
Can agile work for small businesses? Where agile is yet to make an impact is in smaller businesses. There are some reasons for this: small businesses don’t have the time or money to hire management consultants or indulge in mass restructuring. Many small businesses don’t feel they need agile, as they’ve never suffered from the slow-moving bureaucratic processes that blight their larger counterparts. Yet small businesses have much to gain from agile and may find it easier to adopt. What brokers have done for years – and banks have neglected – is what agile is all about: listening to your customers. Now brokers are becoming more systematic in collecting feedback, and many aggregators are willing to help brokers design post-settlement surveys. In an agile system, the broker would consult this feedback, and what it reveals about customer needs, when making a change to their business, such as diversifying into a new area of lending. Agile consultant Matt Sharpe, talking to accounting software provider MYOB, urged
smaller businesses to “really understand what [your customers] actually need – which is not necessarily what they think they need – and give it to them. This will lead to greater satisfaction and loyalty. For example, if you are in a service business, is there any way to simplify what you offer, to address a core need first and delight the customer before starting to upsell?” Agile means encouraging collaboration, for example between brokers specialising in different areas, and processing and marketing personnel, and encouraging all staff to think about the end customer. As agile-working expert Lynne Cazaly explains, agile is all about focus: “This isn’t just about being more productive or getting more work done; it’s actually about getting more value out of the work you’re doing – so yes, it’s smarter, not harder.” Agile may not suit all businesses, but it is one response to universal trends that no business can afford to ignore. Bankwest’s Weir sums up the challenge: “Customer preferences are changing quite rapidly in terms of where, when and how they want consumer financial services, as well as new competitors coming into the environment.”
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FEATURES
NETWORKING
Good networkers have more than followers Networking expert Janine Garner explains why having thousands of LinkedIn and Facebook connections isn’t the same as having valuable contacts HOW MANY contacts do you have right now on LinkedIn? How many friends on Facebook? Do you find yourself simply clicking ‘yes’ or ‘no’ to a contact request indiscriminately out of habit, while you’re not really sure how the person knows you? And how many of your contacts do you actually exchange valuable conversations with? Your aunt who you haven’t seen in 20 years? Friends from primary school who you no longer have much in common with? The pizza delivery guy or the person you met at a networking gig on Saturday? Social media has made us more connected than ever before, yet we report feeling more disconnected than ever before. We’re so caught up in ‘knowing’ as many people as possible, liking each other’s posts, #hashtagging and @mentioning what we did last night and with whom, that we’ve forgotten how to have deep and meaningful conversations with each other on topics such as how we can help each other in our careers. The question is:
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?
Who is really in your network?
?
How much input or influence do they really have on what you’re doing or trying to achieve?
?
How much do they truly know you and your goals?
?
How much can they help you?
Here’s the bottom line. It’s about quality, not quantity. We don’t need more contacts, we don’t need more friends, and we don’t need to spend more time connecting online. If this was all we needed, then every one of us would be enjoying unparalleled success through the sheer number of opportunities we have to connect. Don’t get me wrong – this old style of networking is still absolutely essential for business growth, and lead and sales generation. But the problem is that it does nothing to fuel our personal and professional growth. Building a network that works engages your personal network on a deeper level, and matters more. It is about putting you right in the middle of a network that connects you to people and information that matters for your growth and personal success. It’s about being small, strategic and smart. It’s about your personal network consisting of the following: 1
a personal ‘board of advisers’ who bring out
the best in you, holding you accountable for your actions and decisions 2
3
a marketing machine that champions you and your cause, lighting up your personal fire of belief and self-confidence, pushing you to do more, be more, and take action on those goals and success dreams an intelligence bank that sustains you over the long term, expanding your knowledge and wisdom and pushing you to know more every day
So, while I’m not suggesting you should go away and cull everyone from your LinkedIn or Facebook network, you must take a long, hard look at the way you network now and the way you could network to get ahead. Who is in your network now and who should be? Do you have a personal marketing machine – people who believe in you, that want to
see you succeed, and who promote you, your skills and capabilities whenever they can? Seek out your intelligence bank – those people who challenge your thinking, planning and direction and who add the skills and expertise you don’t have. And what about that all-important board of advisers? Individuals who would truly push you to achieve more, open doors for you, and who encourage you to be more in life and in your career? For most of us, I can honestly say that it won’t be an aunt or the pizza delivery guy. Janine Garner is the author of It’s Who You Know: How a Network of 12 Key People Can Fast-track Your Success (Wiley). She is a Fortune 500 mentor, a keynote speaker, a partner at Thought Leaders Global, and the founder and CEO of the LBDGroup. Find out more at www.janinegarner.com.au.
17 STEPS TO A BETTER LINKEDIN PROFILE LinkedIn’s digital marketing and communications manager, Jane Fleming, has put together 17 tips for those looking to improve their presence on LinkedIn.
Choose the right profile picture for LinkedIn
Add a background photo
Make your headline more than just a job title
Turn your summary into your story
Declare war on buzzwords
Grow your network
List all of your relevant skills
Spread the endorsement love
Manage your endorsements more proactively
Request recommendations
Get credit for your thought leadership with publications
Share media and marketing collateral
Add comments
Share relevant content from your LinkedIn feed
Follow relevant influencers for your industry
Become an employee advocate
Publish long-form content – and use it to start conversations
Source: Jane Fleming, LinkedIn, 2017: www.business.linkedin.com/en-uk/marketing-solutions/blog/posts/content-marketing/2017/17-steps-to-a-better-LinkedIn-profile-in-2017
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FEATURES
FINANCIAL WELLBEING
Stretched, stressed and overwhelmed Financial stress is keeping many Australians awake at night. What can employers do to improve the situation?
AS THE line between work and home continues to blur, it stands to reason that employers are taking more of an interest in the wellbeing of their employees. While this focus has traditionally been on physical and, increasingly, psychological wellbeing, today there’s growing interest in financial wellbeing. Tony Hanly, director of Your Financial Wellness, says employers can play a critical role in plugging the financial literacy gaps that many Australians have – so this newfound interest is well and truly justified. “Knowing how to make sound money decisions is a core skill in today’s world, regardless of age,” Hanly says. “It affects quality of life, opportunities we can pursue, our sense of security, and the overall economic health of our society. But we don’t learn about managing our finances in high schools, universities or most workplaces. So, what impact is this critical gap in our financial education having on Australian workers and their families?” At night many Australians ponder how to make ends meet. They worry over children
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who are finding it difficult to enter the workforce and friends who have lost their jobs. When morning comes, these same Australians take their places in factories and offices where they are expected to do their best to compete in a global economy. But these workers don’t leave their money
suffer from financial stress are less engaged at work and more likely to underperform – spending an average of seven hours per week trying to solve their financial problems while they’re in the workplace. This is having a significant impact on Australia’s productivity, with financial stress costing employers an estimated $47bn every year. Fortunately, employers are willing – and able – to assist. Indeed, according to MetLife’s 2016 Australia Employee Benefit Trends Study, 68% of employers believe in helping staff make better financial decisions.
Support where and when it’s needed Many employers already provide wellness and employee assistance programs alongside other benefits to support their employees’ overall quality of life. However, those programs don’t always address the complexities of each employee’s financial situation. Hanly has seen that workplace wellness is expanding beyond physical health to include a financial wellness component, helping employees ease economic stress, overcome money challenges and promote financial health.
“Knowing how to make sound money decisions is a core skill in today’s world, regardless of age” Tony Hanly, Your Financial Wellness worries at home, and this impacts workplace performance – their stress becomes the employer’s problem as well. This is of great concern to employers, with research revealing that nearly three million working Australians are feeling financially stressed – across all industries, income levels and job roles. That’s one quarter of all Aussie employees. What’s more, employees who
“Multiple studies have shown that offering staff a financial wellness program can result in improved talent outcomes, better business performance, and more engaged employees – a win-win for both the employer and employees,” he says. There are multiple players in the market who can assist employers with financial wellness programs. For example,
THE IMPACT ON EMPLOYEES Financial wellness is emerging as a key factor in employees’ wellbeing. 28% report that issues with personal finances have been a distraction at work 46% of those distracted by their finances at work say they spend three hours or more thinking about, or dealing with, issues related to their personal finances 45% of employees say that financial matters cause them the most stress – nearly as many as those whose top stresses are their jobs, health or relationships combined Source: PwC – Employee Financial Wellness Survey, April 2016
the Your Financial Wellness program (yourfinancialwellness.com.au) is a low-cost, high-value solution that has been specifically designed to help Australian workers make more confident and informed decisions regarding their financial futures. The platform is a comprehensive knowledge hub that incorporates interactive tutorials and strategy guides that make it easy for the average Australian to get their head around the world of personal finance. Your Financial Wellness also offers a comprehensive suite of budgeting and financial modelling software covering areas such as repaying loans, income tax,
stamp duty, and home loan comparisons. In addition, the website is regularly updated with expert commentary, articles, videos and webinars covering a range of topics. Participating employers can also have their existing employee benefits outlined on the site for employees to see whenever they choose. To support the online service, Your Financial Wellness can conduct on-site presentations to employees on a range of financial topics.
A tailored, personalised approach As workplace technology is increasingly being personalised to better match individual
circumstances and scenarios, it’s no surprise to learn that Your Financial Wellness has also adopted this approach. Hanly explains: “Our experience has guided us to create a platform that provides interaction to the user, based on their inputs. For example, some users may experience stress in paying regular bills, and the platform will direct them to tutorials and information helping them to create a budget. For others, this may be creating goals for saving, and, for others, protecting the family against risk. This personalised journey is important to provide the user with focused content and guidance that suits their personal situation.”
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FEATURES
FINANCIAL WELLBEING
HOW DOES A LACK OF FINANCIAL WELLNESS IMPACT EMPLOYERS? Stressed employees 63.3% Disengaged/distracted employees 43.3% Low morale 30% Unhealthy employees 23.3% Absenteeism 16.7% Other forms of reduced productivity 10% Other 6.7% Source: Workplace Super Specialists Australia: Workplace Financial Wellness Survey, August 2016
Any financial wellbeing or education initiative must aim towards changing behaviour to address short-term needs and to plan for the future. Therefore, the programs that Your Financial Wellness implements adapt to the life situation of the user based on their inputs to the platform, and reflect each employee’s situation. Hanly says his company can confidently take each employee on a “personalised journey to financial wellness” in the form of interactive learning modules. There are also modules on offer relating to aged-care costs, which are particularly useful to people who are faced with the prospect of parents entering a nursing home. Based on the responses and inputs of each employee, Your Financial Wellness delivers content that is relevant to the individual’s situation. For example: Millennials will likely be focused on lifestyle and ensuring they can balance everything life throws at them. There is a concern about getting into the housing market and having a better understanding of the process for buying their first house, but they also want guidance on how to save and at the same time spend their hardearned cash responsibly. Credit card debt can easily mount up after that overseas holiday, and they need advice on paying that down without enduring a significantly reduced lifestyle. Gen Xers are generally already in the housing market, so it’s a conversation about investments – be it property or shares. Family planning comes into the equation: how can they drop back to one wage with kids on the horizon? Spending can be a lot tighter, so smart decisions are critical to making ends meet. Late Gen Xers might be seeking advice on the finances involved in raising a blended family or preparing for
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retirement; or now being empty nesters, they may be revisiting some of their life goals that have been on hold. People are still taking on significant amounts of debt, so there are also concerns about how long people will be working for. The stability of the kids is important: Gen Xers want to ensure the whole family is on the right path. Baby boomers (aged 65 years or three years either side) want to make sure they have enough money in super to fund the lifestyle they want into retirement.
Helping – but not overstepping the mark Of course, employers must also tread a fine line between caring enough about employees to offer services that will help with their financial wellbeing, and offering advice on anything relating to personal finance. There are limits and restrictions on the type of advice that employers can offer, especially when it comes to superannuation. That line is crossed as soon as an employer gives an opinion around what someone should do with their finances. It’s advisable to instead guide employees towards where they can get help. Employers are urged to always advise employees to seek the assistance of qualified financial advisers as early as possible. Importantly, through the Your Financial Wellness service the employer is able to offer employees a secure and private platform where they can explore all things financial. While employers may offer employees participation in the program, no private employee information is ever made available to employers. This gives employees confidence that they may use the platform without judgment, while taking advantage of all the features of the service to create their own household finance system.
PEOPLE
CAREER PATH
FROM LAW TO BROKING ANZ’s new national partnerships manager for retail broker, Karen Brown, embraces every chance of a challenge
Karen Brown established a strong foundation for her career when she completed her articles at law firm Clayton Utz. “I certainly did not expect when I started a career in law that I would end up as the national partnerships manager for retail broker. At that stage I don’t think I had any idea what the third party broker channel was!”
2002
LAWYER BEGINNINGS
2006
OVERSEAS CALLING Accepting a position at magic circle firm Allen & Overy saw Brown move to London for a few years.
2009
BACK TO AUSTRALIA Having decided to return to Australia, Brown rejoined Clayton Utz before moving to ANZ. “In 2010, I made a step change in my career, deciding to move to join ANZ – who at the time were a client of mine – in the bank’s loan, structuring and execution team. I had worked with this team and was keen to further explore the commercial aspect of transactions.”
2014
RELATIONSHIP MANAGEMENT Three years on, another opportunity arose: to become a relationship manager in ANZ’s telecommunications, media, entertainment and technology team, looking after clients ranging from top 10 ASX-listed entities to new starters.
“It was always my desire to move into a relationship management role, as I enjoy working with people and being the first point of contact for customers”
“Pre-GFC it was a case of sink or swim. It was a great time professionally and personally. I made some lifelong friends, and it still remains one the best times of my life” 2011
NEW CHALLENGE Feeling it was time for a new challenge, Brown took the opportunity to shift into ANZ’s utilities and infrastructure team. “ANZ is known for being supportive of different career paths. I was part of a customer-facing team, with responsibility for assessing and analysing businesses and preparing credit submissions.”
2017
BROKER CHANNEL Joining ANZ’s retail broker team as national partnerships manager has been the latest step in Brown’s career. “I was particularly drawn to the professionalism and customer-centric mindset of the ANZ team, and as I began my role I discovered the passion and energy that defines the broker industry through my interactions with brokers and aggregators. I am excited to be able to make in a difference in what is an important customer service channel for the community, and also a key segment for ANZ.”
PEOPLE
OTHER LIFE
TELL US WHAT YOU GET UP TO Email otiena.ellwand@keymedia.com
6
Age Hvala started in music
2000
Year he picked up the guitar again
1950–2018 Period spanned by Hvala’s range of cover songs
A MUSICAL CALLING Aussie broker Oscar Hvala is embracing a passion that’s a far cry from the fast-paced world of finance FOR OSCAR HVALA, music is a pastime and a passion. The Aussie broker, based in Victoria, started out in music at an early age, and after taking a break during his busy career and family days, he returned to music once more in 2000. Appearing at open mics, local spots and on the
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radio, the solo singer performs a wide range of cover songs and originals on acoustic guitar. For Hvala, music is a great contrast to broking. “It’s a disconnect with broking,” he says. “Broking is very much about numbers, and it’s pressured … time is of
the essence. [Playing music] gives you that emotional release which is a step above simply listening to music … not only can you listen to the number but you can also perform it. It gets you away from the everyday broking side of things. It’s a totally different experience.”
TOP 10 BROKERAGES 2018
IS YOUR BROKERAGE WORTHY OF A PLACE ON THE LIST? MPA’s annual search for Australia’s best brokerages will soon come to an end. Whether you operate a franchise or independent business, get involved for the chance to make this year’s list. Being named a Top 10 Brokerage sets you apart from your competitors and gives clients confidence they are dealing with the best in the business.
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