BANKS ON BROKERS Responding to your comments
MPAMAGAZINE.COM.AU ISSUE 16.5
DIVERSIFICATION Rise of the group brokerage MATT CARLSON Using CoreLogic’s property data
NON-MAJOR BANK ROUNDTABLE Bigger, better, and live on air
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MAY 2O16
CONNECT WITH US
CONTENTS 38
Got a story or suggestion, or just want to find out some more information? twitter.com/MPA_Australia facebook.com/Mortgage ProfessionalAU
UPFRONT 04 Update
Alternative finance arrives in Australia
06 Head to head
Three brokers discuss interest-only lending
08 Statistics
The shocking level of consumers’ financial literacy
10 Opinion
COVER STORY
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NON-MAJOR BANK ROUNDTABLE
Discussing APRA, commissions, property investors and questions submitted by you
THE BIG INTERVIEW
MATT CARLSON
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CoreLogic RP Data’s head of broker solutions on how to make the most of property data
Wizard Home Loans co-founder Paul Ryan on the Eccho me advice app
12 News analysis
ASIC’s annual conference and what they’re saying about brokers
MORTGAGE INSIDERS FEATURES
BANKS ON BROKERS
The top five performers respond to your concerns in our recent Brokers on Banks survey
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50 Bren Rodda
The Northern Territory’s top broker on doing business in the Top End
62 Steve Sampson
Industry veteran on setting up some of broking’s biggest businesses
64 Making a mark Westpac’s WA state manager Tony Monaco takes time out to coach young footballers
MPAMAGAZINE.COM.AU NOW ONLINE: FEATURES
DIVERSIFICATION The rise and rise of the ‘group brokerage’, servicing customers’ every financial need
Highlights from our Non-major Bank Roundtable Top brokers and brokerages in Leading Mortgage Professionals Our free Business Education Webinar Series
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FEATURE / BROKER EDUCATION
EDITOR’S LETTER
3,2,1… AND WE’RE LIVE
B
eing part of the industry, as MPA aims to do, means engaging with the industry and involving readers in our work. In March we hosted our third Non-major Bank Roundtable, and this question came to the fore: how do we bring brokers to that table? We could, of course, have achieved this by physically bringing the two together at a conference, such as the imminent MPA High Performance Summit in Sydney. However, we recognise that’s not convenient for all brokers, and it’s also true that the noise and pressurised atmosphere of a conference can distract from the content being discussed. Instead we came up with another solution: why not livestream our roundtable online? That way brokers could watch the roundtable from the comfort of their desks, for free, and send in their questions in real time for
Livestreaming is more than convenient – it offers a new level of transparency to the industry the bankers to answer. So that’s what we did – an industry first – and I’d like to thank those of you who tuned in during your lunch breaks on Tuesday 15 March to watch us. Livestreaming is more than convenient – it offers a new level of transparency to the industry. In our Q&A session, for the last 20 minutes of the roundtable, viewers texted in their questions; I then put these questions to the banks. Neither I nor the banks had any time to prepare for these questions; they had to answer on the spot, and more questions arrived as they spoke. There are merits in both pre-prepared and on-the-spot questioning; prepared answers can be more informative as the respondent has had time to think. Nevertheless, having brokers ask questions directly to the banks is a huge forward step for the industry, and not one that should be restricted to once-a-year conferences or private ‘off the record’ briefings. I hope to livestream as many MPA events as possible in the years ahead, and I invite all brokers who are interested in the industry’s current events and future prospects to tune in and get involved. Sam Richardson, editor, MPA
www.mpamagazine.com.au MAY 2O16 EDITORIAL Editor Sam Richardson Journalist Maya Breen Production Editors Roslyn Meredith Moira Daniels Contributor Paul Ryan
SALES & MARKETING National Sales Manager Rajan Khatak Account Manager Simon Kerslake Marketing and Communications Manager Lisa Narroway
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UPFRONT
ALTERNATIVE LENDING NEWS BRIEFS Australia’s alternative finance market grows 320% in 2015 Australia’s alternative finance sector is growing rapidly and is now the third biggest in the region, according to the Asia-Pacific Alternative Finance Benchmarking report, published in March by a combination of Cambridge, Tsinghua and Sydney universities, with support from KPMG. Whilst peer-topeer/marketplace lending is most popular, Australia leads the region on balance sheet lending and invoice training. Threats to growth could come from regulation, the report noted, which 30% of surveyed platforms in Australia thought was too strict and excessive. MPA will be covering the report in greater detail in our annual Business Strategy Supplement, on desks 20th June.
Macquarie agrees $5m deal with marketplace lender ASX-listed marketplace lender Direct Money has sold $5m of its personal loans portfolio to Macquarie Bank, the first time Direct Money has sought
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institutional investment (which distinguishes it from peer-to-peer lenders, who look to retail investors). Direct Money, who works with brokers, is the latest in a line of alternate lenders partnering with banks for help with funding and distribution, following MoneyPlace and Auswide Bank, On Deck are CBA and Westpac and Prospa, the latter purely a referral agreement.
Real estate funding by alternate finance ‘taking off’ in UK Alternate finance funding of real estate has grown to $700m, as part of a total market of $3.2bn, according to the newly published UK Alternative Finance Report by Cambridge University’s Judge Business School and charity Nesta. In fact real estate was the ‘single most popular sector’ for the 1.09 million people who invested, donated or lent via alternate finance platforms in 2015. The report noted most of this funding went to commercial and residential property developers, as regulation prevents P2P lending for an individual’s residential mortgage. Data for the report was provided by a wide range of UK-based alternate finance platforms.
COMING TO AUSTRALIA Alternative lenders are catching the eye of banks, and looking for brokers Sydney’s Darling Harbour has for two hundred years been the first point of call for new immigrants and new ideas. Fittingly it was the location of Australia’s first Alternative Finance Summit in February, where speakers declare that, after a long journey, alternative finance has finally arrived down under. Alternative finance – which covers peer-to-peer (marketplace) lending as well as several other models – took a decade to make an impact on the US and UK. Yet according to Noah Breslow, CEO of American SME lender On Deck, “what’s interesting about Australia is we think it can happen faster”. On Deck is just one of several international alternative lenders that are turning their eyes towards the Australian market, alongside UK P2P lender Funding Circle, European SME lender Spotcap, UK P2P lender RateSetter and many others. They’re attracted by what they see as a combination of a strong economy and bank hubris. “I find the Australian market to be dramatically more enticing”, noted Mitchel Harad of P2P lender Society One.
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“The Australian consumer gets absolutely screwed.” Morgan Stanley equity analyst Richard Wiles told delegates that Australia’s banks were “more vulnerable to disruption than at any time in the past 25 years”. Interestingly, amongst those delegates were representatives from Commonwealth Bank, Macquarie Bank and regional lender Auswide Bank. With Commonwealth Bank announcing a partnership with On Deck, Westpac funding Prospa and ANZ partnering with SME tech platform Honcho, Australia’s biggest banks evidently take alternate finance seriously,
“Banks are more vulnerable to disruption than at any time in the past 25 years” although as CBA’s head of partnerships Toby Norton-Smith noted: “It’s fairly clear as a bank we don’t see a meteorite approaching... [however] the rate of evolution has increased.” What the summit lacked was many broker representatives. Some alternate finance lenders do work with brokers, including Society One, ThinCats and RateSetter whilst some, like On Deck do not. Conference organiser David Stevenson, talking to MPA, admitted that the broker-altfi relationship was “a tortured one” but said that in the UK there had in fact been a process of ‘re-intermediation’. The reason, he explained, was that limited capacity for origination and low credibility in the eyes of borrowers forced alternative finance providers to depend on brokers. Whether brokers feel they need a partnership is open to question; what’s more clear is that alternative finance is finally getting started in Australia.
Q&A
John Goodall
P2P MORTGAGE LENDING
CEO LANDBAY
Fast fact Landbay is a UK-based peer-to-peer lender, and the first P2P lender to offer mortgages, mainly for property investors. They started lending in mid-2014.
What is the idea behind Landbay? At that point in the UK, from a lender’s point of view, there was no low risk proposition for peer to peer lenders in the UK; it was all unsecured or SME. People wanted a proposition that was scalable as a business and would survive through a downturn, so we felt focusing on buy-to-let mortgages was a very competitive proposition for funding. You can invest £100 upwards; we divide mortgages into micro loans and you get fractional ownership of mortgages. What makes this different from unsecured lending? With secured lending there’s conveyancing; there’s the whole valuations piece; the underwriting is more complex, it’s not just about credit ratings. So the lending team and the underwriting around mortgages are a lot more detailed or complex. It’s also a more brokerdominated market, as opposed to consumer lending which is direct, so you need to build relationships with brokers as well. Do you think consumers are ready to get a mortgage from a peer-to-peer lender? From a borrower’s perspective we’re no different from any other lender. The process they go through to apply is the same; some of them wouldn’t even know we’re a peer-to-peer lender and we don’t advertise that we’re a peer to peer lender on that side of it, we’re just another lender. We’re quicker, we use technology better, we’re easier to deal with, so most borrowers wouldn’t really worry where the money comes from. How did the regulators view you when you started peer-to-peer lending for mortgages? We’re not regulated as a mortgage lender; we’re regulated as a peer-to-peer lender. So we lend on unregulated mortgage contracts, so buy-to-let mortgages, so as far as the regulator is concerned we have a very good relationship with them; the regulation in the UK is more about the investor than the borrower. Will Landbay over the next three years present serious competition to the lenders in this space? I think the UK mortgage market is very large, and there are a lot of very large niches, but I do think that we are competing with banks, we’ve got quite aggressive growth plans, so we’ll be competing with the mainstream lenders. How does Landbay work from the perspective of brokers – do they get commission? Yes, in that sense we operate like any other lender. At the moment we’ve got more demand from brokers than we can handle. Should brokers here be anticipating a peer-to-peer mortgage lender, or is there a reason Landbay started in the UK, not Australia? It’s not that the market’s better; peer-to-peer lending was born in the UK 10 years ago, and I’m sure it’ll come to the Australian market.
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UPFRONT
HEAD TO HEAD
Are you still seeing many applicants for interest-only loans?
Kirsty Dunphey
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Jeremy Fisher
Deanna Ezzy
Director Up Loans
Director and founder 1st Street Home Loans
Finance strategist Trilogy Investment Property Funding
With my background being 20 years in real estate and specifically property investment for the past six years, a large percentage of my clients are investors. As such I’m still definitely discussing the possibility of interest-only loans with each of them based on their own needs. What I feel is vital to these discussions are the reasons behind the strategy and making sure that my recommendations are in conjunction with the client’s accountant’s thoughts. Of course we also look at their overall situation, including personal debt against owner-occupied property, which is typically not tax deductible debt. In addition, we look at future purchase plans – is this investor quite happy to sit with one property, or do they have larger plans? Oh, and of course servicing! Making sure the client understands the ramifications after the interest-only period has ended. So it’s a bit more conversation with the clients, but that’s the part of the job I love anyway.
The brokers at 1st Street are still submitting applications for interest-only loans, although mainly for our investor clients given the favourable tax benefits they receive. It does seem the volume of investment loans has reduced since ASIC’s changes in August, and this may have led to the fall in market share of interest-only mortgages. Generally we encourage our clients who are owner-occupiers to make principal and interest repayments in order to pay their loans off sooner. This is even more important whilst rates are at record lows as we believe it is only a matter of time before rates do increase, and we want to ensure our clients are protected from higher repayments by overpaying whilst interest rates are at the current level.
Yes, I still see a lot of interest-only loans. Most of my clients buy IPs. Interest-only is preferable so they can focus on paying down owner-occupier debt. If buying an owner-occupied home, but the two- to five-year plan is that the property will become an IP, it makes sense to have an ‘IO + offset’, rather than P&I. I’ve seen it many times, where my client who has paid down their loan wants to upgrade to a larger home and rent out the old property. Because they’ve used their money to pay down the current loan, they have no deposit for the new property. We now need to borrow against the old property, to help fund the purchase of their new owneroccupier home. As a result, their debt is structured around the wrong way, ie lots of owneroccupied (non-deductible) debt and hardly any investment (tax-deductible) debt. If they had chosen IO + offset from the beginning, they wouldn’t be in that predicament.
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STATISTICS
REFINANCING
SHOW THEM THE NUMBERS
IGNORANCE AND EAGERNESS
Borrowers don’t want to pay over the odds for their mortgage, but six out of 10 don’t even know their current interest rate, a new report by CUA suggests AS ONE popular comparison site advert puts it, no one wants to be an April fool when it comes to money. Australian mortgage holders are aware of recent interest changes and don’t want to pay above the odds, according to a new report by CUA, the country’s largest mutual lender, released in February. However, CUA’s survey – conducted in January, with 1,007 respondents aged between 25 and 49, and 504 of these being current mortgage holders – found that the growing consumer appetite for refinancing was being undermined by an alarming level of ignorance regarding what they’re actually paying. This level of ignorance is alarming, but also an excellent reason for you to get back in touch
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with your clients. Simply reminding your client about their current interest rate – a question they could be too embarrassed to ask themselves – could be a way to start a conversation that leads to refinancing and other opportunities. Furthermore, keeping customers updated about what they’re paying is arguably part of a broker’s duty of care. Recent reports in the Australian Financial Review and abroad have cast doubt on the ability of Aussie borrowers to cope with interest rate rises or the struggling economy. These reports pointed the finger at brokers, yet it’s responsible brokers who help their clients adjust to changing conditions who will play a major role if and when interest rates start rising again.
60% of mortgage holders don’t know the current interest rate on their home loan
WHO CARES ABOUT INTEREST RATES?
BORROWERS ARE GETTING ITCHY FEET
Men and wealthier Australians are more likely to know the current interest rate that they’re paying, according to CUA. Forty-six percent of higher-income borrowers knew their exact rate, compared to 31% of lower-income borrowers, while 48% of men said they knew their exact rate, compared to 31% of women. Knowing that lower-income borrowers are less likely to know their interest rates is alarming, and of course highly relevant to brokers. However, making generalisations based on the gender statistics is more problematic. ING Direct’s Women & Finance report, published in September 2015, showed younger women are increasingly likely to take responsibility for their finances. And anecdotal evidence from brokers suggests women are the decisionmakers in couples’ home-buying decisions. Therefore it’s difficult to claim that a lack of interest-rate awareness equates to a lack of engagement with finance on the part of women.
CUA found that the proportion of borrowers considering switching mortgage providers has increased – along with the number actually switching. Have you switched or considered switching mortgage provider in the last 6 months? May-15
10%
Jan-16
Jan-16 14%
22%
69%
28%
58%
Yes, I have switched mortgage provider Yes, I have considered switching mortgage provider No, I have not switched or considered switching mortgage provider
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42% of mortgage holders have switched lenders, or considered it, in the past 6 months – significantly higher than in 2015
25% of borrowers expect to pay their mortgage off
in less than 10 years
SICK OF RATE RISES
PAYING OFF THE LOAN
Borrowers are punishing banks for out-of-cycle rate rises, CUA’s results suggest, with this becoming the third most popular reason to refinance. More generally, the desire to save money is dominating refinancing intentions.
Borrowers are keen to pay off their mortgage, and optimistic they’ll be able to do in less than their designated mortgage term, according to CUA’s results. Counter-intuitively, brokers may want to orient their post-settlement marketing to address borrowers’ interest in paying down debt.
Top reasons to refinance*
1 2 3
2015
2016
47% Found lender with lower interest rate
48% Found lender with lower interest rate
25% Found lender with lower fees and charges
28% Found lender with lower fees and charges
24% Needed to release some equity
27% Lender increased rates independently of RBA
*Other reasons included bad customer experience, change in circumstances, moving to or finishing fixed rate terms
In less than my designated mortgage term At my designated mortgage term In more than my designated mortgage term (eg I expect to remortgage in the future)
10% 4%
60% Which of the following best describes how quickly you expect to pay off your mortgage?
Not sure
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26%
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UPFRONT
OPINION
WE NEED TO TALK ABOUT FINANCE Industry veteran Paul Ryan explains why he created advice forum Eccho me, and why brokers should tackle consumer financial illiteracy head-on
ONE OF the great Australian success stories of recent times has been technology company Atlassian. From modest beginnings in 2002, two young Australians built a business that listed on the New York Stock Exchange for US$3.3bn. It is a brilliant story and one driven by core values such as ‘Don’t #@!% the Customer’. Late last year it was reported that eight out of 10 Australians didn’t know the interest rates on their home loans. The research was commissioned by NAB-owned UBank. If true, these statistics are alarming for the financial wellbeing of every home loan borrower in Australia. Why is it that most of us apparently don’t know how much interest we’re paying on our loans? The answer is complex but could be largely attributed to the fact that we are intimidated by the thought process or the paperwork, or it’s simply because we don’t know who to ask or how to find out. The problem with not knowing how much interest you’re paying is that you don’t know what you are missing out on. In this case, borrowers are missing out on either having more money in their pockets or being able to pay off their home loans in, say, 22 years instead of 30. Let’s look at it this way. It has been reported that the volumes of home loans outstanding in Australia is $1.4trn. If every Australian
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borrower established the rate on their loan and sought a 0.30% reduction through their own lender or a competitor, it would save borrowers $4.2bn in interest. I can only assume that we would all agree that the savings are better off in our pockets than the banks’ deep pockets. Why is it that consumers aren’t paying attention to how much they’re paying?
up their loans, that their broker hadn’t been in touch since the loan settled, that their bank manager had moved elsewhere, and sometimes they simply wanted a quick answer to a specific question. As industry professionals, it is important that we stand out, and it’s equally important that our customers remember us. As a group we need to be doing more. I recently read an article in which a question was posed about who pays the salaries of the employees of a business. Most people suggested it was the employer, but the leading business person suggested a rethink as they believed it was the customer who paid the salaries. I can’t argue with logic like that. It also reinforces the opportunity for industry experts to create a difference. Far be it from me to tell anyone how to run their businesses, but it is a fact of life that successful people create a difference; they stand out and they present themselves in a manner that people notice. I remember reading a story about the legendary AFL coach Kevin Sheedy and how he was disappointed he was with some players signing illegible autographs. Write your name so anyone can understand it, he told them, and
It is important that we stand out, and it’s equally important that our customers remember us If it’s because they don’t know who to ask or how to find out, then that is disappointing. As mortgage brokers, finance brokers or bank managers, shouldn’t we be confirming the interest rates on the loans at the time of settlement and showing our customers how they can use the various lenders’ internet banking facilities to keep an eye on the rates? Shouldn’t we be staying in touch with our customers throughout the term of the loan? If there is a rate rise or rate reduction, what a fantastic opportunity to personally touch base with your customers. One of the reasons I launched Eccho me was because too many people were saying that they couldn’t remember who helped set
be proud. He made them accountable. So, collectively, how can we reverse this trend of our customers not knowing the interest rates on their home loans and forgetting who we are? Many of the registered users on Eccho are asking questions about interest rates, so it is obviously a topic consumers are seeking answers to. Paul Ryan was one of the co-founders of mortgage broking franchise Wizard Home Loans, and its director of sales and distribution. He set up Eccho me in 2016 as a place for consumers to ask brokers financial questions. Eccho me is currently freely available as a mobile phone app.
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NEWS ANALYSIS
REGULATION
COMMISSIONS: OUT IN THE OPEN ASIC’s review into mortgage broker remuneration is in full flow, and finally the industry – including its biggest players – is beginning to speak out in response ASIC’S REVIEW into mortgage broker remuneration, which was announced last year, has become an increasing source of frustration for brokers and for ASIC itself. Brokers feel there’s a lack of communication on the progress of the review – as we noted in our MPA 16.3 report, ‘Untangling ASIC’ – while ASIC feels the industry has prematurely turned against them. At ASIC’s 2016 Annual Forum in March, MPA asked deputy chairman Peter Kell about the progress of the review. Kell responded: “There seem to be a lot of people in the sector who believe ASIC – without even really commencing the whole review – has already made its mind up on exactly what it is going to find and what recommendations it is going to make. I assure you this is not the case. This will be a very open and transparent review.” Finally that transparency is becoming apparent. In mid-March the MFAA and AFG published their full responses to ASIC’s ‘Scoping Discussion Paper’, completing the preliminary phase of ASIC’s review. The scoping paper, which was made available to industry players and individual brokers in February, is essentially a list of 15 questions covering three areas: the home lending market, remuneration structures and consumer outcomes. It closed for submissions on 11 March.
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The questions were mainly predictable, asking what ASIC should prioritise in its review; whether other factors should be examined; about existing structures (ie of commission) and trends which could change those structures. Respondents were also given the chance to add extra comments, and ASIC listed the data it planned to request, including ownership structures, product descriptions and customer satisfaction results. All in all, it is not exactly a riveting read. However, it’s not been the only way ASIC has engaged the industry. Two roundtables held in Sydney and Melbourne brought together brokers, bankers, associations, consumer
private, the MFAA and AFG, at the time of writing, had decided to make their full responses public, while the FBAA had earlier in March commented on the progress of the
“One area we have realised that possibly does need some vision or focus is the growth in so-called ‘introducers’ in the mortgage broker space” Peter Kell, ASIC advocates, the RBA and the ABA (Australian Bankers’ Association) to discuss the same three areas examined in the Scoping Discussion Paper. Although participants weren’t obliged to make their responses to ASIC publicly available, and ASIC’s roundtables were
roundtables. The AFG also announced the launch of a consumer campaign to gather opinions from consumers about brokers.
Vertical integration Those responses that have been published are unnervingly direct. “There is little doubt
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REVIEW TIMELINE ASIC’s discussion paper and roundtables are just part of a longer process of consultation. ASIC has set out a timeline for the review: Jan Feb Mar Apr
• Preliminary phase • Scoping consultation • Preparatory phase • Data requests sent out
May Jun Jul
• Analytics phase • Data analysis and follow-up
Aug Sep Oct Nov
• Reporting phase • Report preparation and delivery to government
Dec Source: ASIC Review of Mortgage Broker Remuneration Structures Scoping Discussion Paper, February 2016
that those aggregators that are majorityowned by a lender have the potential to be influenced by that lender,” commented AFG, saying “distortion of the market is a risk”. AFG, which is publicly listed and 5% owned by Macquarie Bank, argues that conflict of interest “diminishes as the level of common ownership decreases … Our view is that the threshold level of interest that should be disclosed to consumers is 20%”. That figure, AFG says, is consistent with the recommendations of the 2001 Corporations Act. AFG suggests that bank-owned aggregators could forego making a profit on their aggregator services in order to expand the distribution of their products, the reason being that “the cost of distributing a product is modest compared to the income that can be gained from the interest margin”. AFG also claims that vertical integration
within banking – particularly the acquisition of non-major banks – can lead to confused consumers, such as “applicants choosing to refinance a loan from Westpac to Bank of Melbourne without being made aware that the Bank of Melbourne is a wholly-owned subsidiary of Westpac”. AFG acknowledges its support from banks – “some lenders make payments of sponsorship or contributions to development programs based on metrics such as the volume, quality and conversion of loans written” – while insisting these payments are not passed on to brokers.
Defending commission Bank-owned aggregators also make a fee-forservice model problematic, claims AFG, “as the parent lender would be in a position to absorb the cost of their brokers, whereas
non-aligned brokers would need to charge the consumer a fee”. It cites the Netherlands, where commissions have been banned, as an example. AFG further argues that removing commissions would lead to a salaried workforce “with no incentive to ensure a thorough comparison across lenders or products”, and advises ASIC to examine mobile lenders. The MFAA also defends commissions in its response: “mortgage broker commissions are structured in a way that ensures the broker provides professional services and assistance for the life of the loan”. The MFAA also calls for parity and quicker payment of commission by lenders, and tells ASIC that, while average commissions have fallen, “in parallel, broker costs, compliance requirements and client engagement per file have all increased”.
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NEWS ANALYSIS
REGULATION
AFG’S ‘MY BROKER MY CHOICE’ CAMPAIGN AFG has launched a website, MyBrokerMyChoice.com.au, that invites consumers to voice their support for brokers to their local MP. The website allows consumers to send their local MPs a message, sign a petition and share the website with their friends. It also has a section where brokers can describe cases in which they’ve helped consumers. The reason for seeking consumer support of brokers is not so much to convince ASIC but instead the politicians who originally called for remuneration to be reviewed, explains AFG managing director Brett McKeon. “If we can get the broker’s customer to go back to the politicians and advocate for us then that is the most powerful tool we have got.”
When it came to the scope of ASIC’s review, the MFAA argued that commission associated with reverse mortgages, self-managed super funds and commercial lending should be excluded from the review. “The MFAA does not believe that remuneration from these products has a material impact on remuneration in respect to residential mortgage products.” ASIC should, however, look at nonmonetary rewards, the MFAA advises. “The MFAA would like access to non-monetary rewards to be clear and measurable, and that a willingness to participate does not create a bias towards any one industry participant over another.” Bankwest’s Stewart Saunders, commenting during MPA’s recent Non-Major Bank Roundtable discussion, noted that ASIC’s review “goes beyond a review of commissions as it also looks at the nonfinancial benefits that brokers receive”. While the MFAA and AFG note the importance of commissions to brokers’ livelihoods, it is consumer outcomes that interest ASIC and that get the most attention in responses. AFG agrees that “commissions can lead to conflicts of interest in many situations” but disputes that this is currently the case, and claims there’s no data to support this (as does the MFAA). Banning commissions would lead to “anti-competitive behaviour from lenders with branch networks”, and a reversal of the driving down of interest rates over recent decades. “Every mortgage customer will pay for reduced competition throughout the life of their loan.”
of interest that need to be looked at,” Kell said. Both the MFAA and AFG have advised ASIC to examine unlicensed referrers and introducers. “Credit repair agents, mortgage introducers, new property sales (spruikers) and solicitor funding providers often receive a benefit from their involvement in the market,” commented the MFAA, “without regulation or declaration of interest.” The scope should therefore be widened to include all participants who could be compensated for being involved in the property market. AFG turned the spotlight on lenders, warning that “some larger lenders are seeking to increase originations by focusing on referrals from unlicensed sources”, offering commissions of up to 60 basis points to “real estate agents, community groups, solicitors, accountants, financial advisers, property developers, wealth creation specialists, builders, charity foundations, clubs and associations”. ASIC should look at how these services are provided and disclosed in the context of the NCCP regulations, AFG argues. If ASIC does include referral arrangements in its remuneration review, this could of course be a concern to brokers, given many brokers rely on paid referral arrangements with real estate agents, financial planners and accountants. If fees are involved these arrangements are meant to be disclosed; ASIC may encounter yet another level of complexity with brokerages that are owned by real estate agents, just as they are concerned about brokerages owned by banks.
Why don’t we hear more? Calling out unlicensed referrers While many brokers would agree with these arguments, ASIC can hardly be surprised that two established industry players would choose to defend commissions. However, when MPA asked Kell what were the key takeaways from consultation with the industry, he highlighted a different issue. “One area we have realised that possibly does need some vision or focus is the growth in so-called ‘introducers’ in the mortgage broker space, who seem to have a less formal role in helping to bring customers to brokers and lenders … There are potentially some conflicts
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When announcing the publication of its scoping paper response and the launch of its consumer campaign, AFG managing director Brett McKeon made a number of thoughtprovoking comments to Australian Broker magazine. “There is a certain amount of fragmentation within the industry,” McKeon noted. “Some groups don’t have the dollars to invest in representing their members well, and others are owned by banks, which builds conflict at times with these inquiries and how they respond to them.” Just as McKeon implies, there’s been little noise made by large franchises, banks and
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aggregators – as opposed to individual brokers – about ASIC’s review, which is surprising given its relevance across the broking community. It’s likely that many industry players are defending commissions ‘behind closed doors’, which, as FBAA CEO Peter White told MPA in our ‘Untangling ASIC’ report, can be more effective in getting results. Nor is it fair to say that banks themselves have been silent on the issue. In our recent Non-Major Bank Roundtable we asked banks what the consequences of the review could be, and almost all were unwavering in their support of commissions (see their responses in the boxout below). That doesn’t mean they’ve necessarily been that supportive when talking to ASIC, but it’ll be encouraging to brokers. As McKeon notes, the danger for the existing commission model could be whether banks act as a single unit, under the direction of the ABA and the majors. “Some of the smaller banks get 80% or 90% of their business from the third-party channel, so you would hope they would be vocal in their support rather than just be part of an ABA submission which will largely, I think, try and muddy the waters.” AFG has asked the banks to disclose whether they’ve put in a
submission on the topic, McKeon added. “It would be interesting to see if we can get any of them to be transparent.”
Conclusion ASIC’s remuneration review could therefore prove an interesting ‘litmus test’ for the industry, revealing who’s invested in the existing status quo and who would like to see it disrupted. Groups with a foot in both the lender and broker camps, namely the MFAA,
data, which could lead to another round of consultation, much like with the FSI, and give brokers a better idea of how lenders are approaching commission. From September to December, ASIC will prepare its report and deliver it to government; there’s no timeline determining how the government will act. What the data reveals could also see ASIC change course, particularly if the fragmented state of customer service feedback in the
“Some of the smaller banks get 80% or 90% of their business from the thirdparty channel so you would hope they would be vocal in their support” Brett McKeon, AFG will be hoping to avoid any climate of suspicion developing as a result. If other scoping paper responses are published, or if AFG does get disclosures from the banks, this could be averted. The next stage of the review process, which lasts from March to April, will see ASIC collect data and could therefore be somewhat more mundane for the industry. After April, ASIC says it will follow up on the
industry – which was noted in the MFAA’s submission – becomes clear in the data ASIC collects. Given that customer outcomes is what matters most to ASIC, broker groups that have systematised their collection of feedback, and have good net promoter scores, perhaps have the least to fear. Brokers whose feedback is ad hoc, or clearly unbalanced, may want to revisit their CRM processes for that period after the loan has settled.
WHAT THE BANKS SAY ABOUT COMMISSION At our recent Non-Major Banks Roundtable we asked the banks whether commissions could change as a result of this review. Here’s what they told us:
Steven Degetto, Suncorp Bank “We’re absolutely supportive of reasonable commissions for brokers … Any substantial watering down of that would, I believe, negatively impact the industry”
Mark Woolnough, ING Direct “I think it’s very important … brokers are our shopfront; they’re our representatives on the street. Therefore there’s an acquisition cost as part of the end-to-end”
Arun Balakrishnan, Citibank “[Brokers] are an important part of the value chain … but anything that is good for the customer that creates more transparency than currently is good”
Fons Caminiti, Adelaide Bank “We’re extremely comfortable with the commission structures that we offer our partners, and we welcome the inquiry”
Lino Pelaccia, ME Bank “Brokers deliver Australians with choice; brokers drive competition in the industry…that’s what we’d tell ASIC to look at”
Glenn Gibson, AMP “A review is very much like an audit; it picks up a lot of things and in a lot of instances they’re good things … we all think commissions are important when it comes to generating business”
Read our full Non-major Bank Roundtable report in this issue of MPA, and watch the video highlights on our website, mpamagazine.com.au
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THE BIG INTERVIEW
MATT CARLSON
MATT CARLSON: BEHIND THE NUMBERS Corelogic RP Data’s head of broker solutions tells MPA how brokers can make the most of their reports, and why data needs to be relevant
MPA: From Corelogic’s perspective, how should brokers react to the cooling of Australia’s property market? MATT CARLSON: We think that the existing clients and prospects of the brokers will be looking for more guidance and advice, so that really means having access to real time information to inform and guide those times they may be a bit nervous or wanting some more information about what exactly is happening and what we’re seeing on the headlines. The reason we think this is important is brokers might be aware of those facts but also that client or prospect on the street probably doesn’t have the same level of information the broker does and it’s a real opportunity for the broker to show their professionalism and work through the ups and downs. A professional broker will understand not everyone has the same level of information and experience as them and that’s where they can really leverage their knowledge to create that advice and be a professional in the eyes of their client, and hopefully in the eyes of prospects as well. With potentially cooling markets, acquisitions could become more difficult, so [brokers] need to be more focused and working on their lead generation so acquisition of new clients is even more important in those times too.
bespoke ones rather than the indices, which can be quite broad. The suburb profile reports give the broker the ability to provide in-depth analysis on the suburbs that the client is looking at; to be the local expert and give confidence to that client or prospective borrower. The housing and general economic reports are always good to add context or understand values across a state, and not just
Corelogic RP Data indices and reports for brokers to follow? MC: I think we mainly talk about the more
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MPA: Does the broker have a role in interpreting and explaining your housing market reports? MC: We believe our reports are consumerbased, as well as being [useful] for professionals in the market. The broker has a
“It’s about giving a good opinion of what’s likely to happen – the important bit there is likely to happen” to give a client numbers, but to give that broader context and back that up with a more local view on where a client wants to buy or currently lives. Another one that we think is really valuable, especially with the current investor activity, is the rental indexes, which provides estimates of the yield and good input on serviceability, so when a broker is trying to work on current deals with investors it gives them additional information to settle the client, or understand where current opportunities might be.
MPA: Do we pay too much attention to national housing statistics?
MC: I don’t think we pay too much attention MPA: What are the most important
useful to the client but you still need to know what’s going on at a national or state level.
to those, because they do set the context, lenders’ policies and things like that. That’s what people focus on, but for the broker that localised information is going to be far more
big role to play in giving that understanding of the industry and they should be that conduit between all the information that exists and what is relevant to the client. They have a role to play in bringing the facts down to the level of an individual or family to inform them about where they’re going to live or where they’re going to invest.
MPA: How can brokers present housing data to clients – especially when the picture it presents could be negative? MC: My view on this is to be as transparent as possible, because it can be quite an emotional purchase, obviously, buying a home. But you need to present the facts, and not be afraid of doing that, and I think that’s the role of a professional to be there in the ups and the downs, and to make sure they’re presenting it as transparently as possible because that’s part of the advice process.
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“We want to be known as a key partner across the mortgage industry, trusted for our information, and not just for providing a lot of data at your fingertips”
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THE BIG INTERVIEW
MATT CARLSON Also provide examples: the broker can provide comparable examples of that particular suburb, that number of bedrooms and bathrooms, sales in the last couple of months to support that transparency as well.
MPA: How should brokers view longerterm housing market predictions?
MC: The forecasts are just another element to help brokers inform their clients around decisions that ultimately the client is making; the broker is not making that decision, they’re helping the client keep informed. The futurefacing indices, such as the recent Corelogic – Moody’s Analytics report, are a good collection of tools, but it’s about giving a good opinion of what’s likely to happen – the important bit there is likely to happen – there is no tool that will tell you exactly what will happen. It’s about helping set that context, and as a good broker should know, talking to clients about investment decisions, they are long-term investment decisions, so the consumer should be looking at that longerterm view.
MPA: How can brokers use Corelogic’s services as they look to diversify their businesses beyond residential mortgages? MC: When it comes to diversification there are a lot of things brokers can be involved in, but we’ve been thinking specifically around the commercial side. Corelogic has recently acquired Cordell Connect, and what that means is brokers now specialising in commercial finance or going into that field can access a lot more information on commercial projects or developments happening in their area, right from the planning through to construction phases. That means there’s much more intelligence they can provide along those lines, so Cordell enables us and brokers with that information to build relationships with developers or organise funding opportunities around those developments. So that’s how we think about diversification outside residential mortgages; there’s a big groundswell of commercial brokers. Cordell Connect won’t just gather information about the value of the development, but about the planning stages
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THE GREAT AUSTRALIAN COOLING In February headlines were made by a joint report by Corelogic and Moody’s Analytics, the Australian Forecast Home Value Index. It looked at home values in the capital cities over the next 10 years and predicted the following Sydney price growth would plummet from 14.9% last year to just 2.54% in 2016 Melbourne price growth would cool from 9.89% to 7.16% in 2016, going down to 1.3% in 2017 Brisbane price growth would accelerate from 3.83% to 4.16% in 2016, rising further to 7.58% in 2017 Perth prices to stabilise by late 2016 and rise 5.08% in 2017 Adelaide prices will remain stable; Hobart prices set to increase by 6.61% in 2016; Darwin prices to continue falling until 2017 Cooling prices could be attributed to low income growth, the economic transition away from mining and the build-up of housing supply, the report added. Source: Corelogic-Moody’s Analytics Australian Forecast Home Value Index, February 2016
long before it’s been built. Cordell is an information gathering part of our business focused on what happens before it gets sold and hits the secondary markets; it’s about giving those involved in those industries the heads-up on what’s going on in their local market but also broadly across Australia; it’s a very valuable piece of business which we now own. Once brokers build that relationship, the development is finished and the developer needs to sell the units off into the market,
then all of a sudden the broker has the opportunity to provide finance to the end consumer who’s potentially buying that apartment in the new block. It’s a separate service; it’ll be under the Corelogic umbrella, but our flagship product RP Data will remain as is, which is focused on property data, report and insights; this will be an additional add-on product which our clients and prospects can purchase. Cordell is an existing offering, but now we’ve acquired it we’re working on a whole integration, ensuring that our clients are aware of all the benefits of Cordell Connect so they can take advantage of it.
MPA: Will Corelogic be launching any products over the next 12 months, and how would you like Corelogic to be perceived by brokers a year from now? MC: I want to focus on one new service. We are developing a new mobile application specifically for brokers, which is all about improving the interface around the services they may already be using. Developing a mobile solution to that is one of our key goals over the next 12 months. That’ll cover off a broad range of themes, but it is a broker specific tool; we know brokers are on the road all the time and we know having information at your fingertips will be really useful over the next 12 months. The way we would like to be perceived by the broker community is we want to be known as a key partner across the mortgage industry, trusted for our information, and not just for providing a lot of data at your fingertips, but for ‘actionable insights’. That’s a term that we really want to be known for, because it’s not just information or data but it’s the things that help you retain business, grow your business, and acquire new clients. We want to be there for all the housing market cycles, not just the positive parts; that also means we’re there for the brokers own’ business cycles. You have brokers that are new to the market; we want to be there, helping them. You have brokers which are more mature and more interested in retention… Corelogic is there as a partner, not just providing reports or a tool, but integrated into their business processes.
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SPECIAL REPORT
NON-MAJOR BANK ROUNDTABLE
2016
NON-MAJOR BANK ROUNDTABLE Broadcast live for the first time ever, our third Non-major Bank Roundtable brought industry leaders together to discuss APRA, ASIC, the future for property investors, and the industry as a whole
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THIS IS the third roundtable MPA has run for non-major banks, which begs the question of what has changed over the last 12 months to make this necessary. The answer to that question is easy: the entire lending landscape. That might sound extreme, but when APRA pushed the major banks to increase their capital requirements last year – which pushed them to raise interest rates – brokers and customers were jolted from their comfort zone; there were lower rates available, but to get them they’d have to look at Australia’s non-major banks. That’s why MPA brought the broker heads of Australia’s leading non-majors to Sydney’s Shangri-La Hotel: to discuss the new playing
field and what they planned to do in it. The six bankers present were all well known to the industry, and are regularly interviewed by MPA throughout the year, but getting them all in the same room created a very different atmosphere. As with our other roundtables, we asked a series of topical questions designed to stimulate debate. Unlike other roundtables, this roundtable was streamed live on our website – an industry first – and viewers could text in questions which bankers had to answer then and there, without preparation. That meant this year’s roundtable was more similar to a conference panel discussion – albeit one in which brokers could get involved from the comfort of their desks.
The roundtable kicked off with a discussion of APRA and capital requirements, moving on to questions on ASIC’s remuneration inquiry, the banks’ target clients, and future prospects for property investors. It concluded by asking the banks why brokers should give them a go over the next 12 months. We then selected a number of reader questions to be answered, including questions on advice for new brokers and turnaround time blowouts – see the sidebars in this article for more information. Finally, please note that although Bankwest was not able to join the panel they have submitted answers to the same questions that were put to the other participants, excluding viewer questions.
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SPECIAL REPORT
NON-MAJOR BANK ROUNDTABLE THE PANELLISTS
Arunkumar Balakrishnan, head of mortgage and deposit products, Citibank
Fons Caminiti, senior manager broker distribution, Adelaide Bank
For all the talk around ‘Basel rulings’ and ‘risk weighting’, the story of APRA and capital requirements is relatively simple. Australia’s major banks and Macquarie have a different approach to holding capital – the internal ratings-based approach – which meant that prior to the changes they had to hold relatively less capital than non-majors, the equivalent of just 16% of loans. APRA
‘too big to fail’ competitive advantage that Australian banks have, which we think is a step in the right direction.” Arun Balakrishnan of Citibank had a similar view, while Stewart Saunders of Bankwest – who submitted answers separately – noted that “changes that increase competition create a more sustainable proposition while supporting the broker channel overall”. What Suncorp wanted was a system in which “same customer, same risk; same amount of capital” was the norm, added
“I think that banks will be more aggressive with investor pricing as they look to grow in this segment” Stewart Saunders, Bankwest
Glenn Gibson, head of sales and marketing, AMP Bank
Lino Pelaccia, general manager brokers, ME Bank
Steven Degetto, head of intermediaries, Suncorp Bank
Stewart Saunders, general manager broker sales, Bankwest
Mark Woolnough, head of third party distribution, ING Direct
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Have APRA’s changes to capital requirements gone far enough in levelling the playing field?
pushed them to increase this to 25%, in line with international standards, which meant the major banks had to find that extra capital quickly, and this led to them increasing interest rates for existing owneroccupier and investment loans. What we wanted to know is whether making it more expensive for the majors to compete had actually helped the non-major banks – and therefore actually ‘levelled the playing field’. Fons Caminiti of Adelaide Bank led the banks’ responses. “The APRA changes have gone some way to bridging the gap, but whether they’ve bridged it far enough – the answer for me is no,” he said. Adelaide Bank is going through an advanced accreditation process, Caminiti added, “which will enable us to be even more competitive than we are today”. Caminiti’s view – that APRA’s changes had not gone far enough – was echoed across the table, particularly by Lino Pelaccia of ME Bank. There was, however, recognition by the panel that APRA had reduced the major banks’ competitive advantage to a point. “We’re certainly pleased that the government’s addressed the levelling of the playing field,” commented Steven Degetto of Suncorp Bank. “They’ve addressed the
Degetto. As it stands, non-majors still have to hold substantially more capital than the majors for equally risky loan portfolios. “If that happens it’ll be much better for the competitive landscape,” he said. In response to Degetto’s point, AMP’s representative on the panel, Glenn Gibson, cautioned that competition wasn’t solely determined by costs. “We’ve all got our niches; we’ve all got somewhere we want to compete. The cost of capital certainly makes it a level playing field through how much it costs to bring those products to market, but I think if it helps bring more competition that’s fantastic for the consumer, but competition will continue to be fierce when different lenders want to play in different spaces in the marketplace.” Moving to Mark Woolnough of ING Direct, the discussion turned to what else needed to be done, given the panel agreed that APRA’s changes hadn’t gone far enough in levelling the playing field. Banks with advanced accreditation still had a ‘slight advantage’, Woolnough noted, therefore “we can take aim and talk about what APRA can do, but there’s still a chance for the banks themselves to go through that process which will improve their ability to compete”.
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SPECIAL REPORT
NON-MAJOR BANK ROUNDTABLE ADVICE FOR NEW BROKERS A viewer texted in to ask the panel what advice they had for new brokers. Here are some of the highlights from their responses: Lino Pelaccia, ME “Partner yourself with a mentor and then get your aggregator BDM to put you in contact with some bank BDMs, and that way you can go through all the products and services they’re providing.” Fons Caminiti, Adelaide Bank “What I would say is that they start networking, speaking to whatever group they’re with, whatever aggregator they’re with … don’t come into the industry and put yourself in the metaphorical box; look at residential, look at commercial, and start doing that now.” Steven Degetto, Suncorp Bank “If you want to differentiate yourself as a broker, realistically, have a look at the non-majors first, because we do have market-leading products and market-leading service…other successful mortgage brokers are the experts and they’re the people new brokers should be speaking to.” Broker remuneration is currently being investigated by ASIC – are we likely to see a curtailing of upfront or trail commissions over the next 12 months? If capital requirements were the story of 2015, ASIC’s inquiry into broker remuneration will certainly be the story of the next 12 months. In October last year the government announced that it would task ASIC with addressing “misalignment of incentives” in mortgage broking, with commissions being a potentially “conflicted form of remuneration”. By the time our panel convened, ASIC’s inquiry was in full swing, hosting roundtables which included brokers, industry bodies, and several of the bankers at our table. We wanted to ask the question on brokers’ minds: are we likely to see a curtailing of upfront or trail commissions over the next 12 months?
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“The APRA changes have gone some way to bridging the gap, but whether they’ve bridged it far enough – the answer for me is no” Fons Caminiti, Adelaide Bank First up was Suncorp’s Degetto, whose bank had introduced a number of raised upfront commission offers over the past year. It’s important to understand what ASIC’s inquiry was about, he began. “A number of the people in this room were party to meetings with ASIC a number of weeks ago, and what they’re really looking at is what does a direct loan look like compared to a broker loan linked to commissions,” Degetto said. If ASIC did move against commissions as a result of its inquiry, he continued, Suncorp
would have reason for concern. “We absolutely think the strength of the industry depends upon brokers being fairly rewarded for the work they do,” Degetto said. “Any substantial watering down of that would, I believe, negatively impact the industry, and ultimately if that happens it will be challenging for brokers to maintain the level of customer service they provide, and I think customers could lose out.” Balakrishnan, representing Citibank, agreed that brokers were an “important part
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SPECIAL REPORT
NON-MAJOR BANK ROUNDTABLE of the value chain’, although he believed it wasn’t yet clear whether customers would lose out if commissions were curtailed. “It depends how things play out in the space, but anything that is good for the customer that creates more transparency than currently is good.” Most of the panel doubted that ASIC would move against commissions, with Adelaide Bank’s Caminiti commenting that “I think it’s unlikely there’ll be any changes in the next 12 months”. One possible result of ASIC’s review, suggested by Bankwest chief Stewart Saunders, was that it could “potentially see limitations around bonus commissions during campaigns and the use of volume-based incentives”. Non-financial benefits could also be included in the review, he added. Nevertheless, he said the “current levels in the market for residential commissions are fair”. Several of the banks present pointed out that brokers weren’t just an important distribution channel for their loan products; they often were the only channel. “We don’t have branches; we don’t have mobile lenders; we don’t have distribution channels,” ING Direct’s Woolnough explained. “For all intents and purposes the brokers are our shopfront; they’re our representatives on the
“A review is very much like an audit. It picks up a lot of things and in a lot of instances they’re good things” Glenn Gibson, AMP street. Therefore there’s an acquisition cost as part of the end-to-end.” Any changes to commissions would therefore “probably” change their business model. As ME broker boss Lino Pelaccia pointed out, the current arrangement of brokers and the industry “provides trust, disclosure and a high level of service”. Therefore, for the final question, directed at AMP’s Gibson, we asked whether ASIC’s review could in fact prove good publicity for brokers. Gibson agreed this was a possibility: “A review is very much like an audit,” he said. “It picks up a lot of things
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and in a lot of instances they’re good things which enhance what you’re trying to do. If the review comes up and says this is an ideal situation, that can only help our situation”.
Is there a particular niche in the market that you see as your target demographic? Non-major banks are faced with another decision: beyond the question of how to price their loans, they need to decide which clients they’re chasing. In past years some nonmajors promoted themselves as specialists in
certain areas of lending and with certain clients, whereas major banks have historically had a broad-based offer. We wanted to know whether the non-majors in our panel still had a target niche client, and if so who that client was. The discussion started with Citibank, who distinguish themselves by focusing on “the globally minded affluent consumer”. As Balakrishnan explained, “essentially the target market is someone who’s looking at bringing their whole wealth-building proposition to us, and that essentially translates into someone who’s looking at the global opportunities Citi can offer, and property is a core proposition of that”. Citibank turned out to be an exception in our panel. As the discussion continued round the table it rapidly became clear that most banks weren’t looking for a niche at all. The
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SPECIAL REPORT
NON-MAJOR BANK ROUNDTABLE support them with good-value, featurebacked products that could allow them to do what a number of people are doing in this current era, which is paying off their homes a lot quicker than they have been.”
“For all intents and purposes the brokers are our shopfront … therefore there’s an acquisition cost as part of the end-to-end” Mark Woolnough, ING DIRECT With so much reliance upon brokers, the target customer was very much determined by brokers, Caminiti added. “The other demographic we look out for is our brokers, because at the end of the day the only way you can get an Adelaide Bank loan is through a broker. Where the brokers are going is where we want to be.” Suncorp Group has nine million customers, Degetto explained, and so “we’re not a niche lender … what that means is we don’t play at the fringes, but we believe we can absolutely satisfy the majority of clients the major banks can”. His target client, the “aspiring Australian”, was a deliberately broad definition, he added. Recent moves by APRA to limit investor lending had certainly played a part in making lenders look beyond niches, as in the case of AMP, Gibson explained. “Last year we were very heavily geared to investment lending, and then obviously to fit into the regulator’s [demands] we needed to change that, which was a good thing for us. I won’t say it opened our eyes, but it gave us more of an onus to actually blend our book,” he said. AMP still wanted to be a strong player in the SMSF space, Gibson concluded, but its main objective
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was having a ‘solid blend’ of customers. ME, ING Direct and Bankwest also noted they’d moved to diversify their portfolios – ME as part of a longer-term move away from its superfund background, and ING Direct through its rewards schemes to encourage home loan customers to bring across their transaction banking. Bankwest was looking to grow beyond its core strength of first home buyers, explained Saunders, by driving a competitive offering for upgraders, investors and refinancers. To wrap up the question, we asked Adelaide Bank’s Caminiti whether he could describe what the bank’s target customer would actually look like. “It’s a pretty broad base,” he replied. “They would look like anybody who wants to buy a first home, a second home, an upgrade, whatever it might be. What we want to do as an organisation is make sure we
Are we likely to see a return of investors as a major force this year, and what are you doing in response? One particular type of client has all the banks – not to mention regulators and brokers – hot under the collar: property investors. Concerned at the growth in lending to property investors, APRA in 2015 pushed the banks to limit the growth of their investor lending portfolios to 10% per annum. Banks that were growing their books above this limit looked to slow down their books by raising rates for investor clients and restricting LVRs and other criteria. Most banks are now growing at under the 10% limit; we were therefore interested to know whether property investors could return as a major force, and what banks planned to do about it. AMP broker boss Gibson started the
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SPECIAL REPORT
NON-MAJOR BANK ROUNDTABLE discussion. “It’s interesting what you mean when you say major force. The property market when it comes to investors has certainly come off; it’s not as hot as it was last year. We obviously have a large exposure to
“We don’t play at the fringes, but we believe we can absolutely satisfy the majority of clients the major banks can” Steven Degetto, Suncorp Bank it, and we see it’s coming off, but saying that, it’s still a large market for AMP, I think for every lender. It’s a big enough market for wanting to be in there and to maximise it as much as we possibly can.” As well as the property market, banks’ strategies for investment lending were also impacted on by regulation, Bankwest’s Saunders observed. “As banks’ investor book annual growth rates drop under 10%, they look to increase growth,” he said. “As such, I think that banks will be more aggressive with investor pricing as they look to grow in this segment.” However, reduction in foreign investor appetite and a growth in new homes could impact on investor demand, he cautioned. ING Direct was interested in offering a broader suite of products to investors. Despite negative conversations around negative gearing, the bank remained positive about investors, Woolnough explained. “There’s still demand there; there’s still opportunity; there’s still people willing to invest. Potentially these changes have taken the first home buyer out, and we’re seeing the first home buyer [using an] investment loan has been made a little bit harder. But still investment loans are a critical part of our business in terms of our customers.”
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With regard to investors, ME Bank and Adelaide Bank believed they had ‘room to grow’. ME would be helped by the fact that they didn’t discriminate between principal and interest and interest-only loans in their pricing for investors, Pelaccia explained. Caminiti wasn’t sure if investors would become a major force but believed they still mattered. “If I look at what’s happened in the last four weeks, there are a multitude of different offers … which demonstrate quite clearly that investment is still on the radar for most non-majors as well as the majors,” he said. A note of caution was sounded by Degetto, who warned that “property is a long-term investment; it’s a minimum seven to 12 years-plus investment, so we’re focused on prudent lending and responsible lending”. He argued that Suncorp had taken
the lead among banks with respect to prudent lending rules, and added that consumer concern at the cooling of the property market would give brokers an opportunity. “I think that there will be a few little headwinds that brokers will be in a good spot to help customers with over the next 12–18 months,” Degetto said. With the focus squarely on residential property, brokers and clients should consider commercial property as an investment, ING Direct’s Woolnough added. “Whilst the investor space in residential property is challenged, and will continue to be challenged over time – we won’t see a loosening of policies across the board – there are opportunities for brokers to have conversations with their customers around the other type of properties that are available.”
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SPECIAL REPORT
NON-MAJOR BANK ROUNDTABLE TURNAROUND TIME BLOWOUTS Blowouts – when turnaround times expand hugely, often because of a spike in demand – were brought up by one viewer, who wanted to know what banks were doing to prevent them. Glenn Gibson, AMP Bank “At AMP we build in processes and resource-up before we do specials, and we make sure we spend millions of dollars on system enhancements so we can handle spikes … if you look at a major, the percentage increase when they have a hot rate is not as high as a non-major, and that’s something that we continually focus on, and I know we handle it a hell of a lot better than we did even three years ago. It’s a good problem to have, but again we are all very aware it’s very easy to burn a broker because of that service, and you won’t get that business again.”
“More and more as we go along, technology will play its part, but it’s always important to have that warm [BDM] relationship” Arunkumar Balakrishnan, Citibank Why should a broker who’s never used you do business with you this year? The reality of the Australian lending landscape is that the non-majors certainly do have ‘room to grow’. According to the AFG Competition Index, the non-majors’ combined market share fell from 33.5% in December 2015 to 28.2% in February of this year. Evidently, the non-majors have to do more to convince brokers and consumers, and we wanted our panel to explain why brokers should consider
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using them over the coming 12 months. For Pelaccia, ME had put itself in a strong position through heavy investment, both in the back office and in broker incentives. “We also increased upfront commissions last year, which was a statement, and also we work closely with our retail channel to ensure we deliver the right service, consistency in messaging, consistent in price, and really remove any hint of that cross-channel churn factor,” he said. AMP boss Gibson had a different take.
Mark Woolnough, ING Direct “There’s a responsibility for the bank to make sure they’re appropriately staffed and they’re clear in terms of what their service levels are; we’ve got to make sure those changes are clear in the aggregator system… and also that the broker remains up-to-date and educated about where that lender is currently at versus where they may have been previously.” Lino Pelaccia, ME Bank “The key behind all of this is communication. We do communicate to our brokers through SMS, through our tracking portal and our business lines; we always do … all I would say is if there’s something going out it’s best to jump on our portal and find out what the current service levels are, speak to your bank BDM, and get some reassurance.”
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SPECIAL REPORT
NON-MAJOR BANK ROUNDTABLE When buying a service you look for a provider who specialises in it, he reasoned, therefore brokers should look to AMP as they only deal with brokers. “We specialise in brokers; our credit teams are specialised in brokers, all our products are designed for brokers; all our servicing is designed for brokers; everything we do is designed for this market,” Gibson said. With the variety of offers available on rates, features and services, he added, “I think it is important for brokers to look at all the non-majors”. Moving the discussion on, we challenged the banks to define exactly what attracted brokers; whether it was technology, quality BDMs or headline-grabbing low rates. “It’s a hard one to rank across,” commented Citibank’s Balakrishnan. “We can never underestimate the importance of a BDM and the relationship they hold with a broker. More and more as we go along, technology will play its part, but it’s always important to have that warm relationship.” There’s no single answer to attracting brokers, noted ING Direct’s Woolnough; both headline-grabbing rates and quality service need to play a part. “There’s a lot that goes into the proposition. Rate, at times it’s an acquisition; we all need to have a headline to
“We work closely with our retail channel to ensure we deliver the right service, consistency in messaging, consistent in price” Lino Pelaccia, Me attract people that may not be looking at us, but then you’ve got to work hard to not only win business but maintain business.” Furthermore, he said, ING Direct was investing in educating brokers, particularly about opportunities in commercial lending. Using a lender outside the consumers’ usual consideration set was a way for brokers to go ‘above and beyond’ expectations, and drive referrals from clients, argued Bankwest’s Saunders. In order to improve the customer experience Bankwest had restructured its case
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ownership assessment process so each file would be handled by a single assessor from application to decision, he said. Explaining Suncorp’s strategy, Degetto pointed to its newly introduced Elevate rewards program, which gives brokers access to special offers, dedicated service teams and better turnaround times. Degetto explained that the objective of the program, coupled with several roadshows the bank had planned this year, was to ensure a high degree of advocacy for the bank among consumers and brokers.
Closing the debate, Adelaide Bank’s Caminiti concluded that the non-majors had a long way to go but also a lot to recommend them to brokers. “We’ve got a plan in place for the next 12 months where our BDMs will target brokers who’ve never used us before – and unfortunately there’s too many of them! ... I’m not pointing the finger at them; I’ll take that on board and it’s my job. We need more people to use all the banks in this room … we all at this table here have fantastic things and little niches that the major players don’t have, so give us a ring.” We’d like to thank all the non-major banks who got involved in this year’s roundtable, as well as those viewers who sent in questions. If you’d like to see highlights from this year’s roundtable, you can find them on our website at mpamagazine.com.au.
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FEATURES
FINANCE FOR START-UPS
BROKING FROM THE WORD ‘GO’ Start-up businesses need brokers’ help, and not just to get started. MPA, in partnership with ANZ, talks to two expert brokers about the challenges and rewards of financing brand new businesses
WHEN YOU think of start-ups, a number of images come to mind – cool offices with beanbags, the venture capitalists of Shark Tank – but rarely finance brokers. Yet brokers can provide what new businesses need most of all: an advocate and expert who can get them the funding they need, and can advise them as they grow and mature. MPA has partnered with ANZ to explore how brokers can engage with new businesses from day one and even earlier. We’ve spoken to two brokers with extensive experience assisting new businesses: Rowan Sedgwick of Right Angle Group in Brisbane and Michael Coombes of Southshore Finance in Perth. Sedgwick has been in broking since 2006; Southshore Finance opened its doors for business in 1994, so both brokers know what it takes to get a new business up and running. Why new businesses need you For many start-up business owners, it’ll be the first time they’ve run their own business, so even the most basic facts of commercial funding may be foreign to them. “What they’re interested in is structuring advice,” explains Sedgwick. “They’re obviously stepping into a new world, going from PAYG, and they’re really looking for someone to give them early advice on how to fund appropriately, what
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limitations they’ll hit, and what is realistic for the type of business they’re going to set up.” What type of loan structuring is required firstly depends on whether they’re setting up a business from scratch, or acquiring an existing business, which could involve the purchase of property, assets or just a brand name. Therefore it’s necessary for the broker to have knowledge – or access to good advice – on what funding similar businesses require and how much it might cost. Over time brokers tend to build up experience in particular areas, as Coombes has in Perth: “Our core business is trading businesses, so we fund a lot of retail, manufacturing and transport type businesses.” As both brokers note, start-up funding is generally custom lending, and the broker needs to do far more than simply get an application together; as Coombes puts it, “the clients need someone like us to tell the
story on their behalf.” In order to lend to new businesses, banks want to be assured they’ll get their money back, which could be far more difficult than repossessing a house. As Coombes explains, fitting out a new restaurant might cost $1m, but if the business goes bust those custom fittings won’t be worth much – “you may as well put them on a bonfire.”
Telling the story of a new business You can’t help a new business ‘tell their story’ unless you understand the business yourself. “Someone’s going into this business
GETTING BUSINESS READY ANZ has collaborated with technology platform Honcho to get new businesses up and running in as little as one day. Honcho deals with business registration, website set-up and invoicing, whilst ANZ is also offering various discounts on merchant, credit cards and business loan fees as part of their small business banking package. They lend from $50,000 upwards as part of their $2bn lending pledge. Brokers can find out more by contacting their ANZ Broker Manager.
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SPONSORED BY
WHY START-UPS MATTER TO THE AUSTRALIAN ECONOMY
96% of Australian businesses are small businesses In 2014 there were ~300k new small businesses There are approximately 2 million small businesses in Australia Roughly 25% of employed Australians work for a small business Small businesses produce $330bn of our nation’s economic output per year
67% of start-ups thought they needed funding to survive through the next year Approximately 50% of start-ups use personal savings to fund their business Source: Australian Bureau of Statistics / Australian Federal Government, 2015 Budget: Growing Jobs and Small Businesses / StartUp Muster Report 2015 / Australian Small Business, Key Statistics and Analysis, December 2012
or venture with the idea it’s going to be successful,” Sedgwick notes, “so you need to understand how they’re going to be successful and why there’s a need for what they’re doing in the market.” In particular that means understanding the client’s assets, background and understanding of the industry, or as Sedgwick explains, “it’s just understanding what the business is, where they want to get to, and what cash they’ll need to get there”. Crucially, the client’s cash flow forecast needs to be correct; “the lenders want to know the analysis behind every line of that forecast,” insists Coombes. He recently worked with a new cafe being opened on a beach in western Perth, right from the original concept drawing to the opening in January. The client spent $25,000 on a cash flow forecast, which amongst other things looked at 20 years of weather patterns to determine the number of indoor and outdoor seats required. Coombes and the client’s accountants then went through
and checked the cash flow forecast themselves. When it comes to security, lenders often ask for the borrower’s residential property as security for funding. Sedgwick finds this can be a concern for some clients, whilst Coombes believe most borrowers understand and
just the beginning; 70% of Coombes’ clients come from referrals, many of whom have been around for the entire 22 years or more. As well as helping these businesses acquire additional finance, Coombes also takes care of the annual review process for clients: “It
“The clients need someone like us to tell the story on their behalf ” Michael Coombes, Southshore Finance accept this as a condition of getting funding. A broker can address security concerns during the structuring process, Sedgwick explains. “Is there a way to get the most out of the property and keep it a little bit separate, or maintain a level of control?”
Forming a long-term partnership The day a new business opens its doors is not the day it dispenses with a broker. In fact it’s
saves the clients a lot of hassle and makes sure the banks get the right information at the right time.” What keeps clients coming back, both Sedgwick and Coombes believe, is the trust and solidity brokers build, starting with that original loan. As Sedgwick concludes: “Be relevant and be an advisor in their business long term, because bank managers come and go.”
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SPECIAL REPORT
BANKS ON BROKERS
BANKS ON
BROKERS 2016
Following last month’s Brokers on Banks survey, the top five performers tell MPA what they are doing in response to brokers’ concerns
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WHEN WE’RE asked what Brokers on Banks is for, the first answer is easy: it celebrates those banks who work best with brokers and their customers. But unlike an award ceremony, the feedback you give banks in this survey isn’t just positive; you tell the banks how they can improve. As Westpac’s Tony MacRae told MPA “We really enjoy getting involved in surveys like this, because it gives us a direct feedback mechanism and for the last three years we’ve taken very much a process of ‘broker said…therefore we need to do …’ ” That’s what Banks on Brokers is all about: finding out what the banks are going to do with your feedback. We’ve talked to this year’s top five banks, based on overall score: Westpac, CBA, ANZ, Suncorp and Macquarie. The reason we talked to them – rather than the bottom five – is because these banks are the ones who are evidently at the forefront of innovation in the broker channel; we want to know how they’re going to make their service even better, whilst dealing with areas of weakness. All of the questions in the following interviews are based on your feedback, and many questions are related to the individual scores of banks in different categories of service. However, where we feel an issue goes beyond a single bank we’ve asked all the banks about that issue. For example, twothirds of Brokers on Banks respondents told us the banks didn’t deal with APRA’s changes in a fair way for new and existing customers; therefore we’ve asked the banks how they
BROKERS ON BANKS 2016
Bank
2015
2016
Westpac
1
1
CBA
2
2
ANZ
3
3
Suncorp
8
4
Macquarie
4
5
NAB Broker
5
6
Bank of Melbourne
11
7
Bankwest
6
8
St George
15
9
ING Direct
7
10
plan to communicate changes better in future. We’ve also asked the banks about how they deal with channel conflict. Finally, whilst 2016’s survey revolved around the major capital and investor lending changes made by APRA, next year’s survey could well focus on commission – if ASIC decides to take action following their review – and the cooling of the property markets in Sydney and Melbourne. Therefore the banks’ strategies for the next 12 months, outlined in this article, make for essential reading.
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SPECIAL REPORT
BANKS ON BROKERS
1 BANK OF THE YEAR
WESTPAC BANK Major structural changes at the BDM level and in management have helped Westpac hold the number one spot, explains Tony MacRae, general manager third party distribution at Westpac and St George Banking Group
MPA: Would you say the past year has
BDM perspective, looking at how we can been business as usual? Or have you made better structure ourselves. From being purely further changes you think have local based, we’ve gone to aggregator models, contributed to keeping the top spot? where BDMs ‘own’ aggregator groups; they get TONY MACRAE: In this industry we’ve much closer to the aggregator, they understand always got to be evolving and growing. the issues that the aggregator has, because Business as usual would mean you get they’re dealing with that aggregator day-in, overtaken. We’ve done a number of things, day-out, and can be far more responsive. particularly in the last 12 On the back office front months; the first one is to WESTPAC’S TOP we’re in the process of reshape and have a very RESULTS moving our credit teams to clear vision and purpose, align to particular broker 1st on turnaround times, BDM support groups in localities, so that and that’s simply to be the bank that puts more they don’t talk to someone 1st on product range and product Australians into homes, one day and have someone diversification opportunities allowing them to live a full completely different the 1st on communications, training and life today and into next. development and online platform and retirement. services MPA: Westpac came We’ve structured first on turnaround everything around putting 3rd on interest rates, credit policy and times, which brokers more Australians into commission structure said are their top homes, and that’s investing priority. How do you maintain excellent in more people, both in the front office turnaround times, especially when through BDMs, but also in the back office, in non-vanilla scenarios are involved? our processes, in our technology to allow TM: It all kicks off with ensuring how you brokers to get access and easily know where allocate the work, and ensuring the work gets their loans are up to, and we’ll continue to do allocated to the right level of person as quickly that over time. We’ll continue to look at how as possible, so the right person can review it to structure our internal teams so they know and get decisions with minimal handoffs – our brokers better and we’ll be able to provide that’s the key. There’s a lot of work that goes a much higher level of service to them, day-in, into this, both from our BDMs and brokers, to day-out. ensure the quality of the submissions are the MPA: When you talk about internal highest possible so we don’t have to go back teams, do you mean having a single point and ask for more information. of contact for the broker? TM: We’ve spent the last 12 months, from a MPA: So, how do you ensure high quality
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submissions – through educating brokers or putting systems in place? TM: It’s educating the brokers, going back to them and talking to them about where we may not have got all of the information, so next time we get it right. We’ve also set up some tests, where we were working with specific broker groups, and we have a dedicated team in our Adelaide operations centre that is specifically focused on educating new brokers that are using us for the first or second time through that process so they come up to speed much, much quicker and get great outcomes for them and their customer.
MPA: Westpac’s Platinum Brokers are clearly very happy with the service Westpac provides. How can you reassure non-platinum brokers that they also will receive a good level of service, and that resources won’t be diverted away from them? TM: We continue to grow our Platinum segment, and it’s not just about bringing in new guys from outside of our network, it’s about working closely with brokers who use us today and working with them so they meet minimum standards that Platinum requires. That’s a key part of our BDM role – helping brokers grow and expand their business to be able to provide that service. We’re also over the next 10-12 months going to lay down a challenge: how do we lift our minimum standards to the highest possible level? Then we’ll look to expand what we can offer in the Platinum space; ensuring our customers get a great level of service and
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“In this industry we’ve always got to be evolving and growing. Business as usual would mean you get overtaken”
24-hour turnaround time will be absolutely key on our agenda over the next 12 months.
MPA: 77% of respondents believed channel conflict is still a problem; what is Westpac doing, in terms of staff training and formal structures, to prevent this happening? TM: The first thing here is that customer choice is absolutely paramount. Customers choose the channel that they want to do their home lending or general financial services through, and our whole model is about respecting customer choice, whether through our proprietary channel, or the broker business. To ensure we eliminate conflict, we spend a lot of time and effort ensuring that our brokers know our people in the first party channel and ensuring our first party channel and brokers work hand-in-hand together. We hold functions in our branches where we invite brokers and their customers along. Plus one of our BDMs’ KPIs is to ensure they’re spending a minimum amount of time in a branch every week, educating the branch
staff about brokers and ensuring they’re able to help them. It comes down to what I said before, that simple philosophy that we want the branches to see the brokers as an extension of their sales force and the brokers to see the branches as an extension of their operation.
MPA: Two-thirds of brokers didn’t believe the banks dealt with APRA’s changes in a fair way for new and existing customers. Are there any lessons to be learnt in how you communicate interest and policy changes in the future? TM: We’re happy to see the attention that the regulators are putting on the home loan origination process and parts of our industry. I think it helps us grow, it helps us become a more sustainable and robust business. Last year was a year with a particularly high volume of changes, and we were all moving quickly and reacting, and in those environments we can all learn. In terms of communicating the ‘why’ and positioning in a more robust way is an opportunity for all of us. Having said that, I think banks in general
have done a really strong job in managing in an environment of significant change.
MPA: Will Westpac be making any major investments or restructuring to keep the number one spot next year? TM: We’ve just recently brought all of our brands under the one management structure. That gives us a really great opportunity to be able to take the best of all our brands and incorporate that across. We really want to keep the key differences, because brands matter, and we really want to keep the distinctive flavours of each of those brands, but there are some great learnings that we can translate from brand to brand. We also want to invest in technology; it’s a really key point for us. Ensuring that we can get information in a clear, concise and timely manner into the hands of brokers and customers will be absolutely key over the next 12 months. Then looking to ensure our products are up-to-date, appropriately positioned and they fulfil the needs of customers will always be a key focus.
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SPECIAL REPORT
BANKS ON BROKERS
2
COMMONWEALTH BANK
Brokers have again rated CBA highly across the board, comfortably securing them second place. General manager of broker sales Sam Boer tells MPA how they plan to reach the top spot MPA: CBA consistently performs
their experience. in this survey – how do you maintain A strong support model for brokers is high standards? critical to their business; this is why we SAM BOER: We invest in our mortgage increased and reinforced our support team broker partnerships, which is highlighted in across the country – more relationship our investment in leading technology, great managers with direct access to local credit cross-sell opportunities, productivity workshops, and improving our systems and processes. We are constantly seeking opportunities to improve our efficiency, and identify better ways of working to deliver a better service. We are committed to managers, a new team of CBA’S TOP RESULTS desk based relationship delivering a simple and easy home loan experience managers and access to 2nd on product range for brokers and we our knowledgeable Broker 2nd on credit policy continuously review our Assist team for help with proposition to ensure that loan structuring, scenarios, 2nd on product diversification we enhance the broker’s advice and help with credit opportunities ability to meet the needs of policy – and a team of sales 2nd on online platform and service their customers. and process coaches to train brokers and their 3rd on communications, training and MPA: CBA had teams. development disappointing results for We host personal turnaround times and development days each BDM support (5th and 6th respectively). year for valued partners – addressing such How are you going to respond to issues as brand building, business these results? development, productivity, as well as looking SB: We are always listening to our broker at market trends and economic forecasts. We partners, and use that feedback to improve also provide technical support days once a our service proposition. year for mass market aimed at credit policy As the leader in technology we need to interpretation, structuring a home loan, how continue delivering new ways for brokers to to submit quality applications that reach work with us. We know turnaround times are settlement quickly. critical; it’s something we are doing a lot of MPA: CBA received strong support from work on to get right. The feedback we your Diamond Brokers in this survey – received from our mortgage broking partners what advantages does being a Diamond is that we are consistent and we have added Broker provide? additional credit capacity to further improve
SB: We are proud of our deep relationships with our Diamond Brokers. Our strong relationship with this segment ultimately empowers them to meet the needs of their customers. Our Diamond Brokers, like all our broker
“We know turnaround times are critical; it’s something we are doing a lot of work on to get right”
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partners, enjoy a number of benefits including having priority assessment of loans, as well as priority assessment for certification of returned documents. MPA: Do you believe these advantages are more incentivising to brokers than additional commission? SB: Our strategy is built around convenience and service to meet the needs of customers. The feedback we receive from our mortgage broking partners is paramount, so we are focused on enhancing our systems and processes. MPA: 77% of respondents believed channel conflict is still a problem; what is CBA doing, in terms of staff training and formal structures, to prevent this happening? SB: In the small number of cases where this issue does arise, we work closely with our broker partners to resolve. MPA: Two-thirds of brokers didn’t believe the banks dealt with APRA’s changes in a fair way for new and existing customers. Are there any lessons to be
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learnt in how you communicate interest and policy changes in the future? SB: As Australia’s largest home lender, we are committed to delivering competitive products and services to our customers, while maintaining an unquestionably strong capital position. Any changes required to make the Australian banking system more secure need to be balanced with the interests of our customers, as well as the nearly 800,000 households who are direct shareholders of Commonwealth Bank and the millions more who are invested through their superannuation funds. MPA: Are we likely to see investment in CBA’s third party channel infrastructure over the coming year? SB: We are continually looking for ways to enhance our customer experience and make it easier for our mortgage broker partners to meet the needs of their customers.
“A strong support model for brokers is critical to their business; this is why we increased and reinforced our support team across the country” COMMBANK PROPERTY APP In March 2016 Commonwealth Bank launched a mobile app designed to give prospective home buyers a better idea about the properties they’re looking at and their ability to afford them. The app has the following functions: View CommBank estimated market prices, to help assess a property’s potential market price.
Shortlist their favourite properties and share them with a buying partner.
Gain a better understanding of what they can afford, by allowing users to input their finances
Save calculations to their profile to help them further understand which properties are in their price range.
Integrated calculators that assess repayments, upfront costs and how much they can borrow simply for each property.
Access relevant tips and articles, local sales history, capital growth, median prices to assess a suburb’s performance.
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SPECIAL REPORT
BANKS ON BROKERS
3
ANZ BANK
People and process are making the difference at ANZ, according to head of third party relationship channels Keiran Evans, and judging by the results, many brokers agree MPA: ANZ was rated by respondents as the best bank for credit policy, by a large margin, with great results for turnaround times and BDM support. What makes your process stand out from the rest? KEIRAN EVANS: We want all ANZ customers to receive first class service, and improving the broker experience is a crucial component of this. We are always looking at ways to enhance our end-to-end home loan process, while at the same time remaining true to our desire to be consistent in all aspects of our overall broker value proposition. Our people will always be our difference and the core of this belief is that the broker to BDM relationship is paramount in helping brokers help customers. This is why we’ve again expanded our national relationship team this year. More brokers are receiving more focused support from their BDMs and together with customers are now enjoying even greater service from ANZ. This was verified via our recent ANZ broker survey where our BDM team received a noteworthy 8.7/10 for overall satisfaction. This score has been rising year on year and we believe can be accounted to the growing investment of quantity and quality of our team. It is also the brokers’ understanding of our policy and process that is fundamental to our success. Our BDMs provide regular training updates and guidance to brokers in terms of our credit requirements, quality of application and documentation required. Most importantly, they assist in matching our products to the fact find ensuring customers receive the most appropriate finance outcome. This on-going support is in addition to our new entrant training and on-boarding process
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which supports new brokers with a sound and head out for a day of auctions. This can knowledge base setting our relationships up make a big impact on customers and is an for success from the outset. Additionally, our example of how we listen and respond to the Credit Assessment Team makes regular marketplace. contact with brokers to talk through deals and MPA: Many brokers in this survey were bring our customer focus to life. members of banks’ elite streams; what As well as this support from the end to end does ANZ’s elite stream offer to brokers? value chain, we place great importance on the KE: We are relentless in continuous education of providing our Premium both BDMs and brokers, ANZ’S TOP RESULTS Brokers with an exceptional and acknowledge their 1st on credit policy experience and have relationship is crucial in demonstrated this recently helping satisfy customers. 2nd on turnaround times by increasing the overall Through the 2nd on BDM support number of our brokers on introduction of our this program. Building Credit Knowledge 3rd on product diversification Broadly, the program is webinars last year, we have opportunities and online platform about quick turnaround – amplified our approach to and service this is what customers further improving industry want and it’s what we aim to deliver. professionalism and educating brokers on the However, we stress we remain fixated on credit aspects of applications. Topics included enhancing the value proposition for all of our construction, sole traders and partnerships brokers, because at the end of the day we want and self-employed residential finance all ANZ customers to receive a first class applications. service. The webinars are backed by MFAA and This comes alive for all of our brokers in the FBAA who have allocated 1 CPD point per form of some of the initiatives we’ve released session. For 2016, we have also supplemented in recent months including our Loan Change the webinar program with face to face sessions requests, streamlining our existing process in of longer duration to delve further into more order to provide customers with faster complex scenarios and meet broker needs. decisions; our Online Document Submission, We also understand there is a lot more to which allows our brokers to upload up to customer experience than simply approving 50MB with ‘one click’. The system checks files and settling a loan. The challenge for us is to for viruses, conducts redaction of tax file keep working in partnership with brokers, to numbers, and also gives a higher image ensure the full end-to-end finance experience quality. Also our Automated Pricing Tool was is a smooth and easy process for all involved. released at the end of last year delivering faster An example of this was our decision to move to decisions and remains a focus for us to six-day assessment, allowing customers to continually build upon and improve. obtain pre-approval on a Saturday morning
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“Our people will always be our difference and the core of this belief is that the broker to BDM relationship is paramount in helping brokers help customers” At ANZ, our consistent level of service has always been something we are proud of and stand by. In saying this, we appreciate and value the support and feedback we receive from brokers and believe there is always more we can do together.
MPA: Brokers weren’t at all impressed by ANZ’s interest rates, giving them the worst rating of any bank in our survey. Do you believe your interest rates need to be more competitive? KE: Interest rates are one of many factors that influence a customer’s decision to choose a particular lender. We believe our rates are competitive, however it’s important to also highlight that ANZ is known for its reliability and outstanding overall end to end home loan experience for both the customer and broker. We believe these features are key components for selecting ANZ as lender of choice, alongside our award winning Breakfree package.
MPA: 77% of respondents believed channel conflict is still a problem; what is
ANZ doing, in terms of staff training and formal structures, to prevent this happening? KE: We believe our customer-broker-branch relationship to be an absolute strength of our value proposition with all parties working together to meet and exceed customer needs. We encourage all of our brokers to forge working relationships with their nearby branches and facilitate this through threeway meetings with our BDMs/broker and branch. This relationship, when developed well, benefits all parties with the branch ultimately augmenting the ANZ customer experience in tandem with the broker.
MPA: Two-thirds of brokers didn’t believe the banks dealt with APRA’s changes in a fair way for new and existing customers. Are there any lessons to be learnt in how you communicate interest and policy changes in the future? KE: Change is always difficult, however we believe it provides opportunities for brokers to demonstrate their knowledge and expertise and help guide customers to the best
ANZ’S PLANS FOR THE YEAR AHEAD Evans says brokers can expect the following: An increase in the number of BDMs, following on similar increases in 2014 & 2015 Technological improvements, building on Online Document Submission and Automated Pricing Tool More face-to-face sessions as part of ANZ’s new broker training program New training webinars on ANZ and general financial topics outcome. At ANZ, our desire is to provide brokers with the information they require to continue providing the customer with a smooth end to end home loan experience. Our regular Broker News, Training Webinars and presentations at PD days along with oneon-one BDM sessions are all ways in which we provide this information.
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SPECIAL REPORT
BANKS ON BROKERS
4
SUNCORP BANK
Going from eighth to fourth is no mean feat, and head of intermediaries Steven Degetto believes that with improved service, products and competitive offers Suncorp is becoming the ‘genuine alternative’ for brokers MPA: Suncorp has shot up the charts this year. What have you done in the last 12 months to make brokers notice you? STEVEN DEGETTO: Over the past 12 months, we have focused on strengthening our core capabilities while evolving our business – reinforcing our reputation as the genuine alternative. We believe our role is as an extension of a broker’s value proposition. The core elements of this are: service, value and customer first. From a service perspective, we have been transparent on all areas of our service levels from application to settlement by publishing our turnarounds on Business Partners Online each day. Over the past three years we have achieved 48-hour turnarounds 95% of the time for every broker. Next, we focus on the components that brokers and their customers truly value – product, price, service and policy. Our Home Package Plus product continues to be one of Australia’s most awarded products; it was pleasing to see it voted by brokers as best product in this year’s MPA Brokers on Banks survey. Our aim is to consistently deliver on competitive offers for brokers’ customers and this can help a broker stand out by talking to a customer about offers, like ours, that they wouldn’t otherwise know about. This has been a key value proposition for brokers over the years. We talked about service to brokers, but it is also important to talk about the service we provide to the customers that brokers introduce us to. Our customer satisfaction results (as per Roy Morgan data) show that our customers are more satisfied than those
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that bank with the big four. major banks in this area? SD: Absolutely, but we are doing more than From a policy perspective, we took a just competing. We are offering brokers and leadership role around living expenses and their customers a genuine alternative to the responsible lending and we are proud of that. big four. We are committed to investing in new Recently, we simplified some of our policies technologies that will bring benefits to both to make it easier for brokers to do business our brokers and customers, with us. streamlining our systems We have also bolstered SUNCORP’S TOP and enabling greater our proposition in small RESULTS customer convenience. business and commercial The implementation of lending with an Product of the Year – Suncorp’s our new banking platform, experienced and dedicated Home Package Plus Ignite, is more than a team of national Business 2nd on interest rates technology platform; it’s an Development Managers to investment in our future. support brokers who see 2nd on commission structures It’s a key strategic enabler this as an opportunity to 2nd on communications, training for Suncorp Bank and help with more of their and development underpins our strategy for customer’s needs. growth and transformation. MPA: Brokers voted Suncorp’s Home It ultimately enhances our competitive Package Plus as this year’s best product, positioning by allowing us the flexibility to applauding your waiving of the annual rapidly respond to changing customer and fee. Is this offer really sustainable? regulatory demands as well as leverage digital SD: Our Home Package Plus, a home lending opportunities. solution that incorporates flexibility to satisfy MPA: 77% of respondents believed a broad range of customer financial needs, channel conflict is still a problem; continues to be one of the most awarded what is Suncorp doing, in terms of staff home loan products in Australia this year. training and formal structures, to prevent To receive multiple industry endorsements this happening? for this product really highlights our SD: Our core focus is on being customercommitment to offering customers a flexible centric in everything we do. As a business home loan package, which is not only great committed to delivering value for our value but has a range of cost saving benefits customers, we are focused on ensuring all our too. customers receive the same high level of MPA: Whilst brokers appreciate special service regardless of how they are introduced offers, investment in processing is hugely to us. important to them. Has Suncorp got the The broker channel has been and will resources to consistently challenge the continue to be an integral part of our overall
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“From a policy perspective, we took a leadership role around living expenses and responsible lending and we are proud of that” strategy to become the bank for customers and brokers alike. We work as a team with our retail business and our goals are aligned, to grow more and more satisfied customers irrespective of how they become a customer of the bank.
MPA: Two-thirds of brokers didn’t believe the banks dealt with APRA’s changes in a fair way for new and existing customers. Are there any lessons to be learnt in how you communicate interest and policy changes in the future? SD: We see brokers as business partners, and are committed to keeping them informed on
any changes. We are taking a consultative approach, and will continue to maintain open dialogue on all types of changes.
MPA: Are we likely to see Suncorp in the top five next year – and what are you planning over the next 12 months that’ll help you get there? SD: Absolutely, and I say this with confidence. It is a very exciting time for the Suncorp Group as a whole. The Group’s new operating model is about creating more value for our nine million customers and our new banking platform will take us to a whole new level of being able to swiftly respond to
changing customer needs and demands for ‘anywhere, anytime’ access. We recently launched our new broker rewards program Elevate, which is accessible to brokers at all business levels and supports their customer relationships by delivering benefits such as priority service, and preferential turnaround times. The program is unique in that it will be open to brokers at varying levels of business and equally reward both business levels written, and quality. We have had great endorsement and support from brokers which was demonstrated by the engagement with the 2016 Suncorp Broker Roadshows “Outlook. Obstacles. Opportunities”. The roadshow attracted around 1,500 brokers. This followed the success of our first SME Masterclass Series, which launched at the beginning of this year, where another 300 brokers from across Brisbane, Sydney and Melbourne participated in an intensive, interactive workshop.
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SPECIAL REPORT
BANKS ON BROKERS
5
MACQUARIE BANK
Macquarie continues to challenge the major banks through excellent service and responsive BDMs. Head of mortgage sales Doug Lee tells MPA about the further improvements in the pipeline MPA: Macquarie continues to compete with the majors in almost all areas. To what extent does this reflect investment on your part, or has Macquarie simply taken a different approach to dealing with brokers? DOUG LEE: Intermediaries are cornerstone to Macquarie’s retail strategy which we recognise through strategic distribution partnerships with recognised, trusted and well established national retail brands and intermediaries. Our ongoing success stems from our continued focus on looking at our offering, listening to what our brokers and their clients need and putting this at the centre of everything we do. Our engagement with the leadership teams of our key groups, as well as the daily conversations between our BDMs and brokers, provides us with feedback on where we can enhance our offering. Our established national broker advisory board also allows us to see what we’re doing well for our brokers and where we can refine and reposition our offering to stay relevant in the marketplace. MPA: Your BDMs continue to impress brokers. What makes a Macquarie BDM easier to deal with than those of your competitors? DL: The focus of our industry-leading business development managers has always been their commitment and availability to their broker relationships. Our BDMs take ownership and accountability to facilitate solutions for their brokers and understand the needs of brokers and their clients. Our BDMs are passionate about their businesses and look
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for ways to truly add value to their broker relationships by sharing ideas on business growth initiatives, efficiency enhancement and improvements, looking beyond the day to day components of the relationship.
MPA: Many brokers in this survey were members of banks’ elite streams; what does Macquarie’s elite stream offer to brokers? DL: Macquarie has a program that recognises its key supporting brokers with a specific service, relationship and value proposition, which has been well received in the market. We will continue to refine
DL: Macquarie is committed to working with regulators and its distribution partners to help ensure the residential home lending market continues to operate in a responsible and sustainable way. Our growth in owner-occupied lending has been strong and we will continue to encourage further growth by specific offers targeting this segment of lending. We believe we have a competitive offering in the owner-occupied space.
MPA: Two-thirds of brokers didn’t believe the banks dealt with APRA’s changes in a fair way for new and
“Our BDMs are passionate about their businesses and look for ways to truly add value to their broker relationships by sharing ideas on business growth initiatives, efficiency enhancement and improvements” and enhance the program based on feedback from our brokers to ensure it continues to deliver to the expectations of our brokers, is valuable and recognises the support these brokers provide us.
MPA: Macquarie’s investor lending continues to grow strongly despite APRA’s limit. Are you looking to encourage growth in your lending to owner-occupiers – and why should brokers consider you for their owneroccupier clients?
existing customers. Are there any lessons to be learnt in how you communicate interest and policy changes in the future? DL: We support APRA’s approach to ensuring there is sustainable and prudent lending. We adopted a proactive approach to assist our partners with a better understanding of the potential changes through initial meetings with the heads of our strategic partners to provide a regulatory background update and took them through the changes and what the potential impact
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“We’re a strong believer in product diversification and allowing our brokers to provide products and services beyond just home loans”
of those changes may be. These key meetings were then importantly followed up with a national road show dedicated to explain and educate brokers on the regulatory landscape and the changes and potential impacts, including policy and pricing. We believe that we were on the front foot in advising our brokers of the changes to assist them to incorporate into their future growth plans and strategies.
MPA: Will we be seeing any major improvements or investment in Macquarie’s third party channel in the year ahead? DL: For the year ahead our continued focus is on investing to support our growth, digital capabilities and modernising our technology platform to drive efficiencies
and enhance the overall end to end experience. We’re in the process of implementing a Core Banking platform that will help us to broaden our product offering, as well as enhance the overall broker and customer experience through a range of initiatives that will be launched throughout the year. Customers are increasingly looking to their broker for additional products and services. We’re a strong believer in product diversification and allowing our brokers to provide products and services beyond just home loans so our brokers can expect a far broader range of products from us. In addition, we continue to work closely with our business banking and leasing teams to collaborate and broaden our commercial loans and leasing finance offering.
MACQUARIE’S TOP RESULTS 3rd on turnaround times 3rd on BDM support 4th on commission structure 5th on communications, training and development 5th on credit policy
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PROFILE
BREN RODDA
“Darwin is still a community, albeit a big one, and word can get around if you do a good job – I’m sure word would get around if you did a bad job”
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BREN RODDA: KING OF THE NORTH Top 100 broker Bren Rodda tells MPA editor Sam Richardson about the realities of doing business in Australia’s northernmost city
DARWIN BY THE NUMBERS
$520,000 Median dwelling price BEYOND THE bright lights of the big cities there really is another Australia: 2.97 million square miles of bush, jungle, desert and beaches. Not that you’ll hear much about it in MPA; for all the extraordinary wildlife, weather and culture you can find in places like the Northern Territory, you won’t find many brokers there – or people, for that matter. Few people means few customers, and that means housing markets can be heavily dependent on mining and infrastructure projects and tend towards boom and bust, as regional WA brokers are now finding out. Which is what makes it all the more impressive that Bren Rodda, Loan Market’s man in Darwin, has repeatedly appeared in MPA’s Top 100 Brokers report, coming 74th in 2015 and the Territory’s sole representative that year. That wasn’t all; Rodda was also a finalist in 2015’s Australian Mortgage Awards in the category of Broker of the Year – Insurance. MPA recently caught up with Rodda to find out how one builds a leading broking business in the Top End, and whether other brokers should follow his footsteps north.
Moving to a boomtown Rodda doesn’t have a background in Darwin, or in broking; he’s from South Australia, and
his wife’s from Queensland, and they met while working at SeaWorld. In fact, Rodda’s job prior to broking was as far as it’s possible to get from the traditional banking route: he worked for many years as a stuntman, performing and living in Japan, Malaysia, America, Canada, and eventually China, when he and his wife decided to go into broking. Looking to move back to Australia, they originally considered setting up in the Gold Coast. However, the timing was not ideal, Rodda recalls: “Mid-GFC, my brother, who was on the Gold Coast, said, ‘Just do not do it on the Gold Coast; you’ll go broke’. There was just nothing happening there.” Instead, they took the recommendation of a friend already in the industry. “He said to me, ‘Hey look, Darwin is on fire compared to the rest of the country’ … he would have upped and moved his family here, and I trusted his recommendation and went, ‘All right, Darwin it is then’.” They started the brokerage in April 2009. Seven years later, Rodda is convinced it was the “best move we ever made”. In economic terms it certainly was. The NT’s economy thrived on construction projects, such as the ongoing INPEX Ichthys gas plant project near Darwin, which has a
146,245 Population
117% Construction growth (above decade average)
4.1% Unemployment rate (the lowest in Australia)
2% Real wages growth in 2015 (the highest in Australia) Sources: CoreLogic RP Data Home Value Index/ CommSec State of the States, January 2016
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PROFILE
BREN RODDA
THE IMPORTANCE OF KEEPING IN CONTACT Rodda places great importance on follow-up contact with clients, particularly the home loan health checks which often lead to refinancing. A study by NAB Broker late in 2015 appears to back him up. It found that:
89% of satisfied customers were contacted by their broker after settlement
29% wanted to hear about other products relevant to them
28% wanted to hear about refinancing
31% said they’d be likely to refinance 12 months after purchase Source: NAB Broker/Genworth – Engaging consumers and empowering brokers, November 2015
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budget of $34bn. However, the housing market peaked in late 2014. Rodda reckons “the market has definitely dropped off a bit, but I think it’s more of a correction rather than the market going down, as it was extremely expensive. Now you can get into property at
down; now Rodda’s focus is on refinancing. “Leading into this new year we’re doing a hell of a lot of home loan health checks and refinancing of new and existing customers … rates are at an all-time low; the discounts that we can get people are huge,
“My customers have had me for the last seven or eight years, and they’re going to have me for the next 20 years, and with a branch manager they can’t guarantee that” decent prices, where it should be”. CoreLogic RP Data recorded a 2.5% decrease in dwelling values in the year to January 2016. Darwin is still far from cheap – the average property cost $520,000 in January, according to CoreLogic RP Data, and the NT’s other economic indicators are still strong. CommSec’s State of the States report for January put the NT at third, leading in construction and economic growth but held back by low population growth and a 17% fall in housing finance, reflecting the price correction Rodda sees occurring. While CommSec predicts a tough couple of years ahead for the NT, the government committed to $5bn of Northern Australia infrastructure spending in its 2015 Federal Budget.
Darwin as a housing market As a broker, Rodda thinks Darwin is an “awesome” place to operate a business. He and his wife were originally based in a Ray White real estate office, and while the brand has changed, the referral relationship with real estate agents has continued. In addition to Rodda, they now have three other brokers and one admin employee. As for clients, the brokerage specialises in “all things residential”, Rodda explains. “We’re not chasing just first home buyers or just investors; we’ve got to have fingers in all the pies really.” First home buyers played a major role until their grant was substantially scaled
even compared to what we could have got 12 months ago,” Rodda says. It’s vital that the brokerage is proactive in bringing in customers for these health checks, Rodda explains. “We’ve just got to be on our book and making sure their loan is competitive, because if they look online and it’s not competitive they’re going to pack up and leave … we’re on that all the time.” The brokerage also does a large number of pre-approvals, which are necessary in Darwin because of the city’s fondness for auctions. Rodda also deals with a large number of FIFO (fly-in fly-out) workers, who present particular challenges. “Most people have a good amount of email access, but we definitely have to be flexible with our hours,” Rodda notes. At the INPEX gas plant, for example, “the workers on that leave at 4am in the morning and get home at six that night; they just can’t come in during the day”. It’s thus impossible for them to go to a bank – but equally, they’ll only go to a broker who does after-hours appointments. Thus, “a 7pm appointment is a bit of a norm when you’re dealing with mining crew up here”, Rodda notes.
Big name in a small town In common with other Top 100 Brokers, most of Rodda’s clients come from referrals, both personal and professional. Darwin is “small enough that you can get to be known within the industry, but it’s large enough that
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PROFILE
BREN RODDA
WORKING WITH REAL ESTATE AGENTS Having originally shared an office with real estate agents, Rodda still works closely with them, and they’re a valuable source of referrals. If you’re planning to work more closely with real estate agents, keep in mind the following: Train your referrers If necessary, develop a script for agents so you’re getting ‘warm referrals’ to clients; ie “award-winning broker … will be calling you; he/she’s a great person to talk to”. Keep everyone updated Real estate agents will want to know how their clients are doing. Loan Market’s eBroker app tracks the progress of referred leads and keeps all parties updated, while assisting performance management; and other CRM programs are available. Be mindful of regulation As well as following NCCP guidelines on referral arrangements, it’s vital to prevent any backflow of information; for example, you can tell an agent a client has been approved, but not for how much, which could put them in a conflict of interest. For more tips, read ‘A Perfect Partnership’ in MPA 16.2, also available at mpamagazine.com.au
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you can write plenty of business”, Rodda explains. That effect works both ways of course. “Darwin is still a community, albeit a big one, and word can get around if you do a good job – I’m sure word would get around if you did a bad job.” With pre-approvals a must, real estate agents need to get brokers involved early on, Rodda says. “Those agents understand that if they’re going to sell something at auction, they need to get the customer in to do a preapproval.” Similarly, clients for home loan health checks come from accountants and financial planner referrals. Both the brokerage and its referral partners use what Rodda terms a “car yard approach”, making sure the prospective homeowners are covered not only for their finance but also by insurance. This is part of a broker’s duty of care and referral fees are not paid, Rodda explains. “I think it comes across better when there’s not referral fees involved, because then
they’re open to speaking to a broker.” This has had another beneficial effect: Rodda’s clients have frequently left the NT but kept in contact, so Rodda finds himself writing loans for properties nationwide. “The good thing with this industry is if you’ve got access to phone and email, it doesn’t make any difference if they’re on the Gold Coast or in Melbourne,” Rodda explains. “We can still do the loan … it doesn’t have to be face-to-face any more.”
Conclusion Writing $78,442,979 worth of loans in the 2014/15 financial year in a town of fewer than 150,000 inhabitants, Rodda demonstrates that location is no barrier to building a heavyweight brokerage. That’s not to say location doesn’t matter – Darwin is a unique place to operate, and one that in some ways is particularly suited to the broker proposition – not to mention the attractions of the NT’s laid-
“We’ve just got to be on our book and making sure their loan is competitive, because if they look online and it’s not competitive they’re going to pack up and leave” you’re legitimately saying ‘you need to get covered for this – I’m not getting paid, but I need to know’.” Darwin boasts a large number of brokers, and Rodda believes that’s due to the banks’ relative weakness in the area. “The banks’ staff turnover is huge up here, so my customers have had me for the last seven or eight years, and they’re going to have me for the next 20 years, and with a branch manager they can’t guarantee that.” It’s not only bank staff coming and going. With all its construction projects, Darwin’s population is highly transient, making the banks’ job even harder. “People come and go all the time,” Rodda says. “Someone moves from down south and they don’t have a relationship with a bank, so
back lifestyle. Outside the brokerage, Rodda is introducing his two sons to waterskiing, and is a keen motorbike rider. “I’ve got a motorbike track in the front yard, which probably annoys the neighbours, but I love it!” However, Rodda’s success has been driven by an approach to broking that’s applicable Australia-wide. It’s all about staying in contact, and having the structures in the brokerage to facilitate this, Rodda concludes. “There’s not a day when I sit down at my desk and think, what am I going to do today? There’s always reminders to do stuff; fixed rate expiries coming up, interest-only periods finishing, one-month settlement anniversaries coming up … it is a long-term relationship, and if you are looking for more business, the best form of advertising is your own customers.”
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FEATURES
DIVERSIFICATION
DIVERSIFICATION: THE NEW FRONTIER Innovative brokers are taking diversification to a new level, with the rise of the ‘group brokerage’ – an organisation that provides for a client’s every financial need. MPA meets three such brokers, and asks how you can follow their lead
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SPONSORED BY
A MESSAGE FROM OUR SPONSOR
BROKERS HAVE undergone several name changes over the years. In the beginning there were ‘mortgage brokers’, followed by the ill-fated and confusing MFAA label ‘credit advisers’, and latterly ‘finance brokers’. Yet the number of services now provided by brokers has made even the label ‘finance broker’ too restrictive. We’re now reaching the next stage in broking’s evolution, with the emergence of the ‘group brokerage’; an organisation that can provide for almost every need in a consumer’s financial life cycle. The ‘group brokerage’ might be an abstract term, but it’s the logical conclusion of brokers diversifying their businesses, which in turn has been driven by economic trends. In this article we feature three group brokerages that have taken diversification to this level: AMA Brokerage of the Year – Diversification The 500 Group; MPA Top 10 Independent Brokerage Green Finance Group; and AMA finalist Cube Central. We’ve also spoken to FAST CEO and long-time diversification advocate Brendan Wright. These brokerages are set up to offer much, much more than the humble home loan. Daniel Green started Green Finance Group in Hawthorne, Queensland, as a spare-room operation in 2010. Now the group has separate divisions for commercial finance, equipment finance, home finance, insurance and financial planning, in addition to multiple offices. The 500 Group also has a number of arms: Mortgage 500, Business 500, Wealth 500 and Lease 500, all based in Victoria. Finally, Cube Central, which is headquartered in Brisbane, has 12 different brands, covering finance, wealth, insurance and a variety of ancillary services.
Whether you’re a broker looking to grow a more engaged client base, or to better service your clients’ broadening needs or simply grow your business through new revenue streams, diversifying your service offering is an obvious way to amplify your income to capitalise on opportunities that may be right in front of you. Commercial or business lending settlements have grown on average by 50% per annum in our business, and in 2015 FAST brokers settled more than $4bn in business lending alone. This year we are well on track to settle more than $6bn. These statistics confirm the significant opportunities to be reaped from diversifying outside of mortgages. And for brokers looking to take their business to the next level, looking beyond residential loans can lead to some powerful results. To put a long story short, residential loans and commercial loans needn’t be mutually exclusive. As we say at FAST, ‘more than mortgages means more mortgages’. As an advocate of diversification, FAST is proud to partner with MPA to bring you this dedicated report on diversification. I hope you find it valuable and useful to your business.
Brendan Wright, CEO, FAST
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FEATURES
SPONSORED BY
DIVERSIFICATION CONSUMERS DON’T JUST WANT A MORTGAGE In our 2015 Consumers on Brokers survey, MPA asked consumers what services they’d consider obtaining from a mortgage broker – other than mortgages.
19%
16%
25%
19% 20%
What other services would you consider obtaining from a mortgage broker? Loans for business Vehicle loans Insurance Financial planning None
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How these brokerages developed Building such complex brokerages obviously required a proactive and strategic approach, but their impetus for diversifying came from customers and the economic environment. “We started with home loans in 2005,” recalls Cube Central founder Scott Beattie. “When the GFC hit we didn’t get paid for three months, and we realised that we had to diversify, and diversify quickly. We couldn’t be solely reliant on mortgages.” Beattie started experimenting with other services and has never stopped. The latest success has been in health insurance. “No brokerage that I’m aware of has really seemed to dabble in it before, and we were pleasantly surprised; people were really interested in getting a quote,” Beattie says. In essence, brokerages like Beattie’s have expanded to fill the needs of clients. As Daniel Green explains, most clients will have several different needs. “Business owners have home loans, investment properties, cars and, more often than not, a family that they are the primary provider for … Clients are definitely receptive to having all their finance needs catered for in a ‘one-stop shop’ situation; it simply removes that perceived barrier of having to make another appointment or share their personal finance records, again!” There are different approaches to building a one-stop shop. Cube Central is a more traditional example. Beattie and his wife Jo have gradually added on services, initially through referral agreements. According to Beattie this approach has kept things simple. Apart from creating new logos “we haven’t had to get any more staff on, and that’s the great part; there’s been very little if any financial impact on us, apart from the initial time to integrate those services”. One exception to this policy has been their recent acquisition of an accounting practice. Making the initial steps into diversification is also becoming easier, according to FAST CEO Wright. “Lenders and aggregators are investing in brokers being able to lodge business and asset finance loans in the same way they do home loans,” he says. Lenders have previously highlighted the ease with which sub-$2m secured loans can now be applied for; spot-and-refer models can provide a starting point for involvement in asset finance
and other areas. FAST has now updated Podium to integrate business details and tracking, Wright adds. “There’s lots of work being done right across the industry to make that easier for brokers … it’s exciting times.” Some clients are, however, reluctant to deal with what they regard as a ‘jack of all trades’. Mindful of this, Green took a different approach when building his brokerage. “Our policy has been to recruit experienced finance professionals, experts in their own fields, who work as a team to help our clients to protect, manage and grow their wealth,” Green says.
“When the GFC hit we didn’t get paid for three months, and we realised that we had to diversify, and diversify quickly. We couldn’t be solely reliant on mortgages” Scott Beattie, Cube Central Recently the group took on Mick Hall to head their Sydney office and Pravesh Daya on the financial planning side; together they have almost five decades of combined experience. Hiring specialists and keeping all services in-house does of course take considerable investment and effort. It also requires a shift in mindset by the proprietor, notes Green. “The financial investment is one thing, but I think the investment of time, both in integrating new staff into the existing team, establishing referral procedures and generally making myself available in a mentoring capacity is far greater.” When diversifying, it’s also important to consider your brand, insist Steve Dodd and Greg Peirlot, brokers at The 500 Group. “You need to have a well-established brand with strong creditability and the financial strength
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FEATURES
DIVERSIFICATION DIVERSIFICATION AT A NATIONAL FRANCHISE It’s one thing to diversify a single office, another to diversify a huge national network. Aussie Home Loans has experimented with diversification for a decade, and MPA talked to general manager product and strategy David Smith about what they’d learnt from the experience. “All of our products outside mortgages are built around the mortgage conversation,” Smith explains. Therefore Aussie offers a wide range of insurance products and refers to personal loan providers. “We think it’s important to be a specialist and build on our reputation as providing excellent home loan advice.” However, Aussie is beginning to offer asset finance and commercial property lending to business customers. “We’ve evolved it over time to reflect consumers’ needs over time,” Smith adds. “We used to have an Aussie MasterCard product … [but] the closeness and relevance of that offering to our offering began to drop off.” Franchises aren’t required to offer diversified products, but Smith hopes to win support. “We put our best foot forward and offer them to [the franchisees] and their customers.” This year Aussie will be focusing on insurance and asset finance.
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to carry through your diversified plans.” The services you add to the business have to complement this brand and each other, they add. “Synergy and competency needs to exist between the services you provide so that the diversified brands can support and reinforce one another … the services provided must complement each other to help support the client.” Insurance, for example, naturally complements the process of buying a home, as it is usually required under the terms of residential mortgages.
What do clients want? These brokerages are all success stories, but diversification does remain a gamble. Unlike the banks, brokers don’t have well-staffed research divisions to work out what clients want, or the marketing resources to promote their new offerings. Clients might want a one-
go home empty-handed. “They might need to get their savings together or whatever the circumstances may be – but in the interim they might want to get a health insurance quote, or hadn’t thought about life insurance. So sometimes it can create an income opportunity where there wasn’t one until the loan actually settles.” With commercial clients, the scope for additional services is wider. Green aims for a long-term partnership with clients, so it’s easier to move the conversation beyond commercial and residential property to areas like insurance and equipment finance. Moreover, he’s finding that, with the help of Facebook and LinkedIn, these ancillary services are actually bringing clients through the door. “Our new car-buying service, established late last year, is really gaining traction both with existing and new clients … People are much more comfortable
“People are much more comfortable with outsourcing these days. They understand the value of their time and appreciate that there are professionals out there that can do it better” Daniel Green, Green Finance Group stop shop, but the broker still needs to go through the process of educating the client that a broker isn’t just about mortgages – and as in Dodd and Peirlot’s example, this generally starts with the mortgage itself. “Most of the business we do is generated from mortgages,” explains Beattie of Cube Central. “We have a welcome pack which goes out to every client, and it asks the question: ‘Do you have this product in place, and do you need a review?’” Beattie then uses the client’s answers as a prompt for his interview with the client. As Cube Central mostly depends on referrals for leads, mortgages continue to be a starting point, although Beattie has had an increase in enquiries for health insurance through social media, boosting the brokerage’s database. Finding out a client’s needs before starting the interview has another benefit: if it emerges that the client isn’t ready to take out a mortgage, it means Beattie won’t necessarily
with outsourcing these days. They understand the value of their time and appreciate that there are professionals out there that can do it better.” This idea of saving people time on smaller tasks also applies on the residential side. “One of the most powerful services we offer is Cube Connect,” explains Beattie. “After I do your loan, chances are when you move into your new home you’re going to need phone, electricity, gas; we arrange all of those things for you … it has probably the least effect on income generation, but it’s the thing we’re getting the most positive feedback from … chances are my competitors aren’t doing it.” In other words it’s not bringing people through the door, but it’s giving people a good reason to call Beattie first. What Green and Beattie are doing might seem quite old-fashioned: they’re being the ‘fixer’ for their clients, solving problems and getting everything arranged as they move home. Yet it’s also a sign of what consumers
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will increasingly expect from their brokers. In MPA 15.7 we wrote about global innovations that could both enable and threaten the broker, and spoke to banking expert Mike Abel, managing director of credit services at Accenture Australia. Tomorrow’s broker, he told us, will be expected to help clients across the entire home-buying process, either as an adviser on all aspects of finance, or a ‘one-stop shop’ that connects providers, or a value aggregator – just giving clients a good rate won’t cut it any more. Wright, in his comments to MPA, took a similar view, albeit coming from a different direction. “When [clients] get in front of a broker, whether they be residential or commercial, they’re looking for that help, guidance and advice, because they’re busy people, and that’s the real opportunity for brokers.” As Abel warns, Australian consumers’ expectations are about to be transformed, “and when it does change, it’s going to change quickly; it’s not going to be two to three years when people get the chance to respond”.
From the business perspective Becoming a group brokerage is a natural play for brokers, but diversifying may not necessarily be the right decision for the individual broker. “Diversification is not for everyone,” argue Dodd and Peirlot of The 500 Group, “as doing what you do best is still a proven and successful business model.” The process of setting up new brands, they conclude, still comes with risk. At Cube Central, Beattie understands brokers’ hesitancy to diversify. “Some other mortgage brokers find it takes their attention away from what their core offering is,” he says. “To a very small extent I agree that is the case, but it’s also about having a holistic approach to what the client is after.” Green Finance Group’s strategy of hiring specialists to offer new services nullifies that lack of focus to a point, but as Green himself has found, it’s still vital for the head of the brokerage to strike a new management-broking balance. “I was a single operator for the first two years of my broking career,” he says, “and while I had managed staff in previous roles, it’s definitely required adaptation to ensure I can manage the needs of a larger team and continue to service my own clients.”
Ultimately, diversification has to stand on its own two feet. “The more services we offer, provided they are complementary, the more opportunities we have to bring in new clients and to maintain those clients for life,” explains Green. “It’s not about short-term gain.” Banks have long appreciated the role of auxiliary services in locking down customers, according
“Synergy and competency needs to exist between the services you provide so that the diversified brands can support and reinforce one another” Steve Dodd and Greg Pierlot, The 500 Group to Beattie. “We see it time and time again. People say, ‘I want to stay with my bank because it’s easy; they’ve got everything under one roof’.” Diversification by other brokers means that keeping clients will become more important, Wright argues. “Commercial and asset finance brokers have been around for 40 years and they’re now starting to deal with the home loan needs of their clients.” Adding at least some services to your offering (Wright suggests asset finance as an easy starting point) can make a big difference in protecting your core mortgage business. Wright believes every broker needs to ask themselves the difficult question: “what’s your strategy for meeting all the needs of your current client base, let alone getting more clients?”
Be the go-to guy (or girl) The group brokerage is an impressive demonstration of where diversification could lead, and how to get there. However, it’s also a long, long way from the experience of most brokers who focus on mortgages. What connects the two is the motivation to find and keep clients, as Beattie concludes. “We do try to make sure clients see us as the go-to guy, and a centre of influence, so they’re always thinking of us.” When the time comes to get a mortgage, he believes his previous insurance and commercial clients will call him first. And for brokers who do want to go down the diversification route, Green has some straightforward advice: “Stop talking about it. Just do it.”
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UPFRONT
CAREER PATH
BUILDING UP BROKING Steve Sampson has been in the industry since its earliest days, and has built many of its leading institutions
Joins National Australia Bank, where he stays for 17 years, going on to build Advance Bank in Perth in 1989, which was one of the first banks to deal with mortgage brokers.
1972
BEGINNING IN BANKING
Choice Home Loans had started in WA but were looking to go east, and hired Sampson to set up their NSW and QLD operations, returning home to Sydney. He then went on to become national general manager of the franchise.
“If you asked me what my career was, over the last 20 years I’ve been setting up businesses” 2011
TIME FOR SOMETHING DIFFERENT Citi at Work was quite different from what Sampson had done before; it used Citibank’s existing corporate partnerships to offer favourable loans to the employees of these companies. This involved Sampson working with senior executives at 105 companies including Telstra, IBM, Microsoft, Cisco, Toshiba, Hewlett Packard, BMW.
2014
STARTING IT ALL OVER AGAIN
Joining Bank of Sydney represented a return to what Sampson does best: building businesses and expanding their presence in the third party channel, as Bank of Sydney was looking to do. Sampson joined as a consultant and is now head of third party distribution, crafting the business himself. “It was a brand new product suite: the whole thing was like a whiteboard I started working on – and I’m still here.” 62
BUYS A BROKERAGE “I saw how well a lot of the brokers were doing,” Sampson recalls; Mortgage Choice were then looking to expand and “I decided to buy their first WA franchise”.
1998
BUILDS A NETWORK
1996
2005
CRAFTING A MOSAIC Mosaic – which was integrated into NMB – was born when a group of large brokerages banded together to improve their bargaining power with the banks; Sampson was managing director. It was an aggregator, but with a difference, Sampson recalls: “We renegotiated the commission structures and then started the aggregator and issued shares to those involved…so they got equity in their own aggregator.”
2007
COMING FULL CIRCLE Sampson went back into lending, as CEO at Provident Cashflow, and using his new contacts and experience introduced the brand to brokers, later moving into mortgage management.
“I’m a great believer in networking … it’s what my career has revolved around – being known and being able to introduce people and open doors”
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PEOPLE
OTHER LIFE
MAKING A MARK Westpac’s WA state manager Tony Monaco doesn’t just talk about footy – he’s played it and continues to coach in the Sydney Football League TALKING ABOUT sport is one thing, playing it is another, and actually taking the time after work to coach others is a different proposition entirely. When Tony Monaco was growing up in Bunbury, in WA’s southwest, there was only one game in town: Australian rules football. Monaco played for Bunbury in the South West Football League, until his finance career intervened. “When I moved to Sydney I’d pretty much given football away,” he says, “and that’s when I got into coaching.” In addition to his work as Westpac’s WA general manager of broker distribution, Monaco has been coaching first and second grade sides in the Sydney Football League, and himself supports the Fremantle Dockers. Coaching, says Monaco, is no different to what he does at Westpac. “I like seeing people develop and improve, and you’re helping people get better at what they’re doing.” As a player and coach, Monaco has seen the power that sport has to change lives; he’s previously been asked to mentor troubled but talented young players, and it’s this sort of work that drives him to stay involved. “I did it because I thought it was the right thing to do … when you help someone you see them getting better at what they do, they’re enjoying, and they start to see light at the end of the tunnel. That’s what drives me.” Australian rules football
1859
year codified
13,873 clubs
1,247,610 registered players
rk o w m t ea 64
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Rachelle Eyndhoven Sphere Finance Australian Young Gun of the Year 2015
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