MPAMAGAZINE.COM.AU ISSUE 18.10
BROKERS
ON NON-BANKS Australia CEO Mario Rehayem on Pepper Money’s rise to the top TRIAL BY TRAIL Brokers fight back on PC’s proposal to ban trail
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FILLING THE VOID Are non-banks the main beneficiaries of the royal commission?
EASING FHB ANXIETY Sometimes the most rewarding clients are those just starting out
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OCTOBER 2018
CONNECT WITH US
CONTENTS
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UPFRONT 02 Editor's letter
Even in the Outback, the conversation still leads back to the royal commission
32 FEATURES
SPECIAL REPORT
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ALTERNATIVE OPTIONS
More business for non-banks means greater expectations from brokers and clients. Here’s how they’re delivering
DARREN KASEHAGEN
Bendigo and Adelaide Bank’s head of broker is not known for standing still, or for being afraid of challenging the status quo
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06 Opinion
The new Property and Stock Act represents the biggest shake-up of the property sector in decades
08 News analysis
Brokers respond to the PC’s recommendation to remove trail, arguing it could decimate the industry
28 Insightful technology
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FEATURES THE BIG INTERVIEW
The HILDA report examines who bears the brunt of financial stress
FEATURES
BROKERS ON NON-BANKS
In the post-royal commission lending landscape, the nonbank lenders have come out as the winners. But they still need to heed brokers’ advice, compliments and complaints. MPA’s survey is a good place to start
04 Statistics
RETHINKING REVERSING
Once burdened by a less-than-stellar reputation, reverse mortgages are becoming the product of choice
Specialist Finance Group’s gamechanging CRM software is equipping brokers for the future
44 Good governance
Effective data management has never been more important, says Choice’s Stephen Moore
46 SMSF lending
The complex borrowing option that suits the needs of many SMEs, and how brokers can get into it
PEOPLE 54 Brokerage insight
Kelly Cameron was set to retire at 30, but there was something about broking she just couldn’t quit
48 FEATURES
FIRST HOME BUYERS
Today’s first home buyers are facing their fair share of complexities, and they're turning to brokers for help
56 Career path
Adrienne Smith has been building the broker channel at majors and non-majors
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UPFRONT
EDITOR’S LETTER www.mpamagazine.com.au OCTOBER 2018
Disconnecting in the Outback
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ven though we know how beneficial it is to disconnect, it’s getting harder and harder to actually do it. For nine blissful days this past September, I didn’t have a choice. As I hiked through the Outback on the Larapinta Trail, clocking about 30km per day, I had a lot of time to think, reminisce and wonder. I had to entertain and distract myself – using nothing but my mind. It sounds easy, but how often do we get to do this? We’re so quick to pick up our phones when we’re waiting in lines or sitting on the train. We constantly have music or podcasts playing when we’re in the car, running or walking. And at work, we would be questioned if we sat for a while staring out of the window doing nothing. There are very few opportunities to contemplate and process our own thoughts – and I feel very lucky that I got to do so. It’s as valuable as the experts say, if only to rekindle curiosity and creativity. What are your daily strategies for taking time out to ponder? As much as I tried to avoid thinking about the work and emails piling up, that of course did cross my mind. And when I encountered other hikers, and the inevitable “What do you do for work?” question came up, everyone had an opinion on house prices, loans and the royal commission. Not only did it make me realise how important and how interested regular Australians are in the state of the
As I hiked through the Outback on the Larapinta Trail, I had a lot of time to think, reminisce and wonder. But how often do we get to do this? housing and mortgage market, and how concerned they are about the behaviour of the banks, but it also revealed that some people are still confused about what brokers do and why they should go to them. So if that’s what came out of my casual conversations with a few hikers, what are first home buyers thinking? In this issue, we’ve found out how brokers can guide these customers through the process and win customers for life. We’ve also spoken to the alternative lenders about how the royal commission has affected their loan flows, what they’re doing to maintain service, and how they’re striving to change brokers’ habits. As we approach the rush of the end of the year, I’m going to try to pause every once in a while and gaze out the window. Otiena Ellwand, editor, MPA
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EDITORIAL Editor Otiena Ellwand Journalist Ben Abbott, Nicola Middlemiss, Abel Riototar Contributor Craig Swan Production Editor Roslyn Meredith
ART & PRODUCTION Designers Cess Rodriguez Martin Cosme Pia Tandog Traffic Coordinator Freya Demegilio
SALES & MARKETING National Sales Manager Claire Tan Marketing and Communications Manager APAC Michelle Lam Marketing Manager Danica Mendoza
CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil
EDITORIAL ENQUIRIES
tel: +61 2 8437 4792 otiena.ellwand@keymedia.com
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ADVERTISING ENQUIRIES claire.tan@keymedia.com
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Mortgage Professional Australia is part of an international family of B2B publications and websites for the mortgage industry CANADIAN MORTGAGE PROFESSIONAL neil.sharma@kmimedia.ca T +1 416 644 8740
Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as the magazine can accept no responsibility for loss.
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UPFRONT
STATISTICS
Key financial stressors
GOING FOR MORTGAGE OR RENT? ME bank’s Household Financial Comfort Report found that 22% of households spend more than 30% of their disposable income on paying their mortgage, a number that rose slightly since its last report in December 2017. Interestingly, the number of households that paid more than 30% of their disposable income towards rent actually fell during that period, from 32% to 26%.
The inability to pay basic household bills on time is one of the biggest red flags of financial stress THE 2018 Household, Income and Labour Dynamics in Australia [HILDA] Survey report was released in July. The study of more than 17,000 Australians provided information on a range of social and economic issues. From 2001 to 2016, the HILDA researchers interviewed the same individuals and house holds each year to find out how their lives had changed in various domains, including economic wellbeing, household expenditure
>10%
and income. By analysing this data, the researchers were able to determine some of the root causes of financial and household stress, and pinpoint which groups experience the worst of it and why. ME bank’s latest Household Financial Comfort Report, based on a survey of 1,500 households over the six months to June 2018, also found that renters and mortgage holders experience financial stress differently.
$1,000
of population have housing costs in excess of 30% of household income
49.2%
in additional income can reduce probability of financial stress by 3.7%
of respondents experienced housing stress in the period 2013 to 2016
≤99,999
people living in a town can reduce its residents’ chance of financial stress Source: HILDA Survey, 2018
BILLS, BILLS, BILLS!
SINGLE PARENTS HIT HARDEST
According to the HILDA report, the most common indicators of financial stress were: not being able to pay gas, electricity or telephone bills on time; and having to seek financial help from family and friends.
Among family types, single-parent families have the highest rate of housing stress. They encountered a particularly large increase in housing stress between 2009 and 2010. However, housing stress has since remained well above the 2009 rate.
Experience indicators of financial stress
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Could not pay electricity, gas or telephone bills on time Could not pay the mortgage or rent on time Pawned or sold something Went without meals
Proportion experiencing housing stress, by family type
Was unable to heat home Asked for financial help from friends or family Asked for help from welfare/community organisations
Single non-elderly male Single non-elderly female Elderly couple
Single elderly male Single elderly female All persons
30% 25% 20% 15% 10% 5%
2001
2003
2005
2007
2009
2011
2013
2015 Source: HILDA Survey, 2018
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Non-elderly couple Couple with dependent children Single parent
0%
2001
2003
2005
2007
2009
2011
2013
2015 Source: HILDA Survey, 2018
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PERCENTAGE OF HOUSEHOLD DISPOSABLE INCOME PAID TOWARDS A MORTGAGE
PERCENTAGE OF HOUSEHOLD DISPOSABLE INCOME PAID TOWARDS RENT
5%
10% or less
18%
More than 10% up to 20%
31% 29%
More than 20% up to 30%
26% 32% 26% 18% 17%
More than 40% up to 50%
6% 6%
7%
More than 50% up to 60%
8%
Greater than 60%
19%
More than 30% up to 40%
12% 13%
More than 50% up to 60%
8% 6%
More than 20% up to 30%
20% 22%
More than 30% up to 40%
1%
More than 10% up to 20%
19%
More than 40% up to 50%
2%
10% or less
7%
14% 15%
Greater than 60%
4%
December 2017
9%
June 2018
December 2017
June 2018 Source: ME Household Financial Comfort Report 2018
STRESSED-OUT CITIES
GENERATIONAL BURDEN
As expected, housing stress differs depending on where one resides. The country’s biggest cities have the highest rates of stress, with Sydney’s pricey property market leading the pack by a significant margin.
About 54% of Australia’s population experienced financial stress between 2001 and 2015. However, the extent to which that stress persisted was considerably different across family types.
Rates of housing stress by region, 2001–2016 (%) 2001–2004
2013–2016
Persistence of financial stress, by family type (%)
Change*
Persons experiencing financial stress year-on-year 2001–2004 2005–2008 2010–2015
30% 2.8% 1.8%
15%
1.3%
-0.4%
0.5%
90%
28.8% 11.1%
Sydney
Melbourne
30% 15%
3.1%
Mean proportion in financial stress in any given year
Brisbane
Adelaide
Perth
Other urban NSW
11.5%
7.6%
6.2%
50% 2.7%
0.4% 2.4%
Other urban Victoria
Other urban Queensland
2.3%
2.3%
3.5%
0.5%
Other urban SA
Other urban WA
Urban Tasmania
ACT and urban NT
*The percentage point change between the 2001–2004 period and the 2013–2016 period Source: HILDA Survey, 2018
Non-elderly Couple with couple dependent children
Single parent
Elderly couple
5.3%
Single elderly male
Single elderly female
All persons Source: HILDA Survey, 2018
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UPFRONT
OPINION
GOT AN OPINION THAT COUNTS? Email otiena.ellwand@keymedia.com
Reining in the dabblers The new Property and Stock Act represents the biggest shake-up of the sector in 70 years, and has huge implications for brokers, writes Craig Swan THE GOLDEN age of mortgage brokers, financial planners, accountants and solicitors moonlighting in the property sales sector is coming to an end. On 21 March, the NSW government passed the new Property and Stock Act. It is slated to come into force later this year or in early 2019. Over the past decade, with minimal compliance requirements in place, brokers, financial planners, accountants and solicitors (allied property professionals) have found it surprisingly easy and inexpensive to obtain a real estate licence. Not without good reason then, many allied property professionals, who understood the commercial benefit, availed themselves of a licence under the current Act – with one of the most common being a buyer’s agent licence – and some went further, obtaining a full real estate agent’s licence. But there are also those who have ignored the need for a licence, or been mistakenly advised that they didn’t need one. Under the new legislation, those who thought they could make a quick buck by dabbling in property sales without meeting the legal requirements will be weeded out. The new Act will require significantly more training, including a mandatory 12 or 24 months of experience, before a licence can be issued. It has also given the NSW Office of Fair Trading enhanced powers to target misconduct and breaches of the Act. To be clear, brokers who hold a real estate agent’s licence can receive a commission from a vendor, such as a developer or research house, as long as they disclose it to their client and are not also receiving a fee or commission
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from them (ie the buyer/client). Brokers need to disclose how they are remunerated so as to clarify with their client that they are not acting in a fiduciary capacity regarding the sale of the property (ie they are merely a referrer). By doing so, they satisfy their compliance obligations. Alternatively, a broker has the option to act in the capacity of a buyer’s agent (licensed
Gone are the days when a broker, planner or other professional could take several days off work to complete their Certificate IV in Real Estate. How will candidates meet the mandatory experience requirement of 12 to 24 months under the new Act without quitting their current job? And it goes well beyond reintroducing mandatory experience and abolishing the buyer’s agent licence. The new Act will also introduce a new class of licence, to be known as ‘Class 1 – Licensee in Change’. This new level of authority will be required by anyone who manages an agency operation under the Act or gets paid a commission as an independent contractor. This (ie invoicing under an ABN) is how most mortgage brokers, financial planners, accountants and solicitors who currently refer their clients to property developers, project marketers and aggregated property sales platforms are rewarded when a property sale is settled.
Brokers will either need to upskill, leave the sector or face the consequences, including heftier fines for non-compliance buyer’s agent or licensed real estate agent) and can charge the client a fee/commission, thereby acting in the capacity of a fiduciary. In this case, they cannot accept payment from the vendor as well. Brokers need to be careful that they don’t earn commission “from both sides” and fall foul of the law. Earning a fee/commission from both the vendor and the purchaser on the same transaction is illegal. Part of the reformed legislation also includes the abolition of the buyer’s agent licence (along with two other licences) and the revision of the requirements for issuing real estate licences. Note that existing licensed buyers’ agents will be accommodated under the new laws by way of a limited/restricted real estate licence. The most critical aspect of the changes, for allied property professionals, is the reintroduction of a mandatory period of practical experience before they can apply for a licence.
Obtaining this new Class 1 licence will require a diploma in real estate, or evidence of a mandated level of prior experience and expertise. In summary, the new Property and Stock Act, due to come into force soon, represents the biggest shake-up of the property sector in over 70 years. It will change the world of real estate in NSW, such that those directly involved, including brokers, will either need to upskill, leave the sector, or face the consequences, including heftier fines for non-compliance under the auspices of an increasingly vigilant Office of Fair Trading, keen on doing justice to the new Act. Craig Swan is a senior solicitor at Leverage Group. He has more than 25 years’ experience in the finance, property and legal sectors.
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UPFRONT
NEWS ANALYSIS
Trial by trail A shock Productivity Commission recommendation that trail commissions be banned could decimate the industry if implemented, argue leading brokers
THE AUSTRALIAN Lending & Investment Centre may be one of the leading broking businesses in Australia, but managing director Jason Back says the removal of trail commissions could have “serious ramifications”. “We would need to have a serious look at our cost structures and review options like having a smaller support staff, or review our location and premises; our cost-to-income ratio is a measure that we always keep an eye on,” he says. Having built a successful single-broker business over 15 years, Daniel O’Brien, of PFS Financial Services, says that, while banning trail wouldn’t kill his company, it could affect his ability to provide quality ongoing client service. “Because I have an existing trail book
measure would be grandfathered – would create unsustainable business models for 95% of existing brokers. “If all you have to rely on is upfront commission, forget about it,” Wemyss says. “Brokers, at best, probably make a small profit on the upfront commission. In many cases, they just break even, and then on some deals make a loss. The upfront pays for all the time and effort you take in acquiring that customer and getting the loan settled, and the trail is typically the profit – that’s how most businesses operate.” In the post-GFC environment, with the combination of commission cuts and banks pushing more of the transactional administration onto brokers – like valuations – brokers now do much more for less. Recent
“If all you have to rely on is upfront commission, forget about it. Brokers, at best, probably make a small profit on the upfront commission” Stuart Wemyss, ProSolution Private Clients and we do on average about $15m a month, I could survive on upfront commissions,” he says. “But what will happen without trail is we will earn less, which means we can’t have as much infrastructure and resources that are about delivering ongoing service and value to clients.”
Expecting an exodus ProSolution Private Clients director Stuart Wemyss argues that the removal of trail commission on future loans – assuming the
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regulatory intervention has also made brokers’ jobs more time-consuming, and Back says there are now more loans “out of the box than in”. Funding growth, business acquisition and marketing could be out of the question on upfronts, and based on research showing that 40% of financial planners might leave the industry once a degree is required to practice, a similar mass exodus may face the broker market. “I’d imagine if trail commissions were
removed you would probably be looking at a similar sort of result, and it could be even more than 50%,” Wemyss says. O’Brien expects a disproportionate impact on new brokers. “Well-established businesses like us can tinker with the model, but what about the new and up-and-coming guys?” he says. “It’s not going to be as attractive or appealing to come and stay in the industry. The thing about making good money in a profession is you get the best people; if brokers are paid a lot less, we won’t be able to retain talent.” The MFAA has suggested upfronts may increase to 1.1% in response to the abolition of trail, but even if this did happen, it would put the ‘client for life’ mentality at risk. “If there is a higher upfront commission, for example, that would help, but I’m concerned this would change it into a transactional relationship versus an ongoing
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KEY TAKEAWAYS FROM THE PC REPORT v Trail commission should be banned and clawback of commissions from brokers restricted
All brokers who deliver home loans should have a clear, legally backed ‘best interest’ obligation to their clients
All banks should appoint a principal integrity officer who would focus on ensuring commissions align with the new customer best interest duty
Upfront commissions should be paid based on the funds limit drawn down by customers, net of offset
“The end result would be inferior service for the client, who will not be paying less and may even end up paying more without a broker as banks gain more market share” Daniel O’Brien, PFS Financial Services relationship,” Back says. “You might get more upfront today, but there would be no onus on a broker to provide service on an ongoing basis.” Wemyss agrees. “The transactional approach to financial services is what has got us the royal commission,” he says. “It’s really been that focus on getting the transaction settled and getting the commission and moving on to the next deal.” If there’s no trail, he says, there’s a strong
financial incentive to move on, which “dramatically reduces the value proposition that brokers provide”. O’Brien argues the change would add up to a bad deal for clients. “Are the banks going to reduce their rates? No, they will pocket the extra money. The end result would be inferior service for the client, who will not be paying less and may even end up paying more without a broker as banks gain more market share.”
Alternative thinking Brokers would need to charge a fee in most circumstances to survive, Wemyss argues, which could be a one-off advice fee or an ongoing-relationship style fee. “That is going to be hard for most of the broker population to do where they just have mum and dad, a mortgage and one loan, but if you have investor clients or a deep niche in a particular market that sees value in that, then that’s when you are going to be able to do that,” Wemyss says. Back agrees. “Fee-for-service for the standard residential market won’t work, because as research has shown customers can get their advice and then walk down the road to a bank branch and transact somewhere else. In the non-conforming space there is an opportunity, but for homogenous purchases like refinancers or first home buyers, a fee could be a distinct disadvantage.”
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PEOPLE
BIG INTERVIEW
ALL THE WAY TO THE BANK Darren Kasehagen is not known for standing still, or for being afraid of challenging the status quo. As head of distribution, third party banking, at Bendigo and Adelaide Bank, he’s now using this can-do attitude to leave brokers a ‘partnership legacy’ DARREN KASEHAGEN became head of distribution, third party banking, at Bendigo and Adelaide Bank in July last year, at what was both a very interesting time for the banking market and a challenging time for him as a new team leader. “At the time we were in the midst of reviewing our flows in order to meet the interest-only and investor caps, with volumes at very low levels and plenty of uncertainty around how we could adapt to those caps,” he says. Despite navigating the situation effectively, Kasehagen says there is still a level of uncertainty facing the industry as a whole, and the people who work within it. “I don’t think anyone knows precisely how the industry will be required to evolve.” The experience taught Kasehagen some thing important. “What I have learned is that this industry is very resilient and it promotes competition among lenders, which is great for the consumer. For those reasons, the industry will adapt and survive and be stronger for it.”
Coming home Kasehagen has a refreshingly diverse back ground by industry standards. Following early stints in public sector finance and treasury
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departments as an economic adviser and analyst, he worked his way up to senior investment roles at Mercer Investment Consulting and super fund Plum, before embarking on his 11-year career at Bendigo and Adelaide Bank in 2007. Taking on his current role was a bit like coming home, he says. “Aside from a brief
growth agenda with the full support of brandnew managing director Marnie Barker. “It doesn’t get much better for a head of distribution,” he says. “I think we are in a really good place to remain very competitive and continue the significant growth in volumes we experienced over the last 12 months. Our value proposition
“We are in a really good place to remain very competitive and continue the significant growth in volumes we experienced over the last 12 months” stint in the risk division heading up the commercial credit policy team, the majority of my experience within the bank has been in and around the third party business, so it seemed like a natural step to take. When I returned to the third party business three years ago, it certainly felt like I was back in familiar surrounds.” Now responsible for managing the 12,000 accredited Adelaide Bank broker relationships that exist across the bank, he says that – thankfully – he’s in a position to execute a
is unchanged and we are very comfortable with our credit policy metrics, which we have reviewed extensively over recent years. We are very much open for business, and brokers should be comfortable knowing we are not going anywhere.”
Going for broker Brokers are expected to play a key role in realising Bendigo and Adelaide Bank’s growth aspirations, Kasehagen says. “Brokers are incredibly important to us.
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PROFILE Name: Darren Kasehagen Company: Bendigo and Adelaide Bank Title: Head of distribution, third party banking Years in the industry: 20 years in financial services; more than 10 in banking Career highlight: “It has to be the opportunity to take on this role; I feel very privileged, and thrilled to see the volumes we are now achieving” Career lowlight: “Seeing a number of funding programs we were managing unravel during the GFC, which whilst it was uncomfortable made me a much better banker”
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PEOPLE
BIG INTERVIEW
We simply don’t exist without a healthy broker channel and a network of loyal broker partners. Growing our broker channel was a significant focus of ours in the last financial year, and it is also a key priority this year too, with a specific goal to increase our customer base in that market segment,” he says. That doesn’t mean brokers will see wholesale change; instead, it means dealing with the same Adelaide Bank that brokers have come to trust over the years. “For brokers, we continue to do what we’ve always done. That includes offering simple, relevant products that resonate with our brokers and their customers.” Kasehagen names the bank’s go-between bridging loans and 100% offset account
Better together Kasehagen has some strong personal goals in his new role. Firstly, he’s dedicated to increasing the team’s overall footprint within the bank when measured by financial contribution or customer numbers, and secondly, he wants to “continue the great partnership legacy” the bank has built up over a number of decades, to put distribution in an even better position. At the same time, he hopes to make the division a place where staff are happy, so others come knocking on the door. The challenge? Making all this happen at a time when there are more unknowns than ever. “The industry will be under ever-greater scrutiny in the years to come,” Kasehagen says. “Changes in bonus commissions, soft-dollar benefits, and greater clarity on ownership
“Brokers have an opportunity to offer even greater value to their customers by helping them weave through the ever-changing landscape. Now more than ever, customers need the professional advice of a good broker” feature as two favourites that have been popular among the broker population. “We’ve also added construction loans to our mix and will continue to take every opportunity to improve on our offering, both in terms of product and service levels.” Kasehagen says the bank consistently seeks and acts on feedback from its partner network, and that – together with the third party broker channel – the opportunity exists to capitalise on the chance to deliver exactly what customers need. “Brokers have an opportunity to offer even greater value to their customers by helping them weave through the ever-changing landscape,” he says. “Now more than ever, customers need the professional advice of a good broker.”
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structures are the obvious changes coming, and there will no doubt be changes in some form – some we know now, some perhaps not – in the way commissions are calculated and paid more generally. I think there will be less vertical integration and perhaps some consolidation as those brokers struggling to cope with increased scrutiny and regulation will exit the industry.” These possibilities are not viewed negatively by Kasehagen. “I don’t see any of this as a bad thing. Rather, they are an opportunity for the industry to evolve and become stronger and provide even better customer outcomes.” Regardless, he says there’s at least one bank brokers can rely on. “Whatever happens, our bank will be there ready to support our brokers and our partners through these changes.”
BENDIGO AND ADELAIDE BANK: A YEAR IN THE LIFE Australia’s fifth-largest retail bank announced its 2017/18 financial year results in August. Here are some key facts and figures from the year that was:
$434.5m
Bendigo and Adelaide Bank’s after-tax statutory profit for the 12 months ending 30 June 2018
12,000
Size of the bank’s accredited mortgage broker distribution network, managed by head of third party banking Darren Kasehagen
4.7%
Bendigo and Adelaide Bank’s growth rate for both housing and business loans
2.36%
The bank’s margin performance, which it says was driven by a “disciplined approach to asset and liability pricing”
80.2%
The amount of funding Bendigo and Adelaide Bank sources from retail customers
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SPECIAL REPORT
BROKERS ON NON-BANKS AGGREGATORS
BROKERS ON NON-BANKS 2018 In the post-royal commission lending landscape, the non-bank lenders have come out as winners. But in order to achieve sustainable growth and maintain quality service levels, they should heed brokers’ advice, compliments – and complaints
THIS HAS been a good year for the nonbanks. With the banks tightening their lending policies and practices as a result of intense government and public scrutiny, alternative lenders have welcomed an uplift in business. As the non-banks are exhibiting more flexible lending policies and stronger appetites for near prime, alt-doc, investor and foreign borrowers than the banks, brokers have inevitably been sending more clients their way. And, for the most part, brokers say their clients seem open to these alternatives, despite their higher fees and interest rates. Overall, our survey suggests brokers’ recent experiences with non-banks have been positive, although some say there’s still room for improvement, especially in regard to turnaround times, BDM and credit team support, education and brand awareness.
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Nevertheless, this year’s top 10 non-banks all scored above 3.00, making it a higher pool of rankings than last year. The winning nonbank’s score last year, 3.51, wouldn’t have qualified it among the top three this year. But it’s not totally fair to compare – last year, the royal commission was but a vague threat on the horizon. With this now a reality, non-banks have been able to cast themselves as ‘coming to the rescue’ in this time of lending unease. And they could end up as the biggest winners of them all. However, as one Sydney broker put it, while non-banks will no doubt benefit from the major banks’ credit control, they need to “seize the opportunity wisely”. In order to achieve sustainable growth, she said they must improve lending capacity to maintain healthy service levels; establish “genuine relationships with broker partners”
and not just ‘cash out’ on the situation; manage out-of-cycle interest rate rises and plan strategically for long-term growth. As their main conduit to customers, brokers hold a lot of influence over nonbanks. If a non-bank wants to expand its reach and be top of mind with brokers and their clients, it should heed brokers’ suggestions, compliments and complaints.
Our methodology Brokers rated each non-bank they had dealt with from 1 (very poor) to 5 (very good) across 10 categories of service. The non-bank with the highest average rating won the award for MPA Non-Bank of the Year. We also asked brokers which individual non-bank product was their favourite and which non-bank was their preferred lender in a variety of niche areas. The most-picked non-bank for each category was named the Preferred Lender.
www.mpamagazine.com.au
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OUR TYPICAL RESPONDENT $60m+ $40,000,001–$60m
10%
$10,000,001–$20m
5%
33% 25% Aged between 46 and 55
Based in NSW (32%), Vic (25%) or Qld (24%)
Has been in the industry for 15 years or more
$0–$10m
Writes in a year
27% $20,000,001–$40m
WHAT DO BROKERS WANT FROM NON-BANKS? 1 = not important; 5 = very important Credit policy
4.55
Turnaround times
4.51
BDM support
4.51
Interest rates
4.09
Product range
4.08 3.85
Communications, training & development
3.78
Online platform & services
3.59
Commission structure
3.45
Product diversification opportunities Brand recognition
3.21
www.mpamagazine.com.au
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SPECIAL REPORT
BROKERS ON NON-BANKS
NON-BANKS MAKE A COMEBACK The market share of non-banks is nowhere near its pre-GFC high, but they’re seizing the moment – and so are brokers THIS HAS become the standard formula: the regulator applies macroprudential measures to dampen the major banks’ lending growth, thus allowing the non-bank sector to flourish. “This substitution effect has been found to be stronger in countries where there is a
greater reliance on lending from the largest banks,” the RBA wrote in September 2017. Over the last few years, this has played out in Australia. In 2014 and 2017, APRA introduced benchmarks for investor lending, and then limits on interest-only lending. With
TOP 5 REASONS YOU WOULD PICK A NON-BANK LENDER OVER A BANK Takes a wider view than customer's credit score
29%
Recent regulatory changes have prevented client going to the bank (ie investors)
25%
More competitive rates
13%
More personalised services
13% 7%
The client lacks standard documentation (ie payslips) Note: Total tally does not equal 100 as respondents had multiple options to choose from
greater focus on sound lending practices, ADIs began pulling back on lending to foreigners and their appetite for property development lending was reduced, leaving a gap for funding alternatives. Non-bank lending is estimated to be around 7% of the total financial system today, which is a far cry from the 15% market share it retained in 2007, according to RBA figures. While the non-banks’ market power is still miniscule compared to the mainstream banks, it is a sector that’s gaining increasing attention, especially from brokers with non-conforming and near-prime customers. As lending standards tighten, brokers have seen a shift in their business flows. Nearly 70% of our respondents said they’d sent more loans to non-banks in the last 12 months compared to the previous year. A quarter of respondents said they put between 41 and 80 loans through non-banks in the last 12 months.
BROKERS’ LOAN FLOWS TO NON-BANKS: ACTUAL VS IDEAL Percentage of loans put through non-banks in the last 12 months
Actual Ideal
16
40% 19%
0–20
21–40 28%
29%
41–60
61–80
15% 23%
10% 19%
81–100 7% 10%
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“I believe the non-bank lenders are a mortgage broker’s only solace in the current credit environment. They are the last bastion of help for those clients who are a ‘round peg’ for what appears to be a ‘square hole’,” said a broker from Victoria. Non-banks have also expanded beyond their usual fare of non-conforming and alt-doc loans and have gained ground in the housing investment and interest-only mortgages domain following APRA’s caps on the banks. Investment and interest-only loans accounted for almost 35% and just over 25%, respectively, of all loans originated by non-bank lenders in Q3 2017, according to Moody’s Investors Service. While the non-banks’ push into this area has attracted several benefits, such as private equity investors acquiring three non-bank lenders in less than a year, growth and competition could also put a strain on their small underwriting teams and prompt them to explore riskier segments of this market, Moody’s said. Some brokers in our survey noted that, in order for non-banks to secure their loyalty, they needed to add to their BDM and credit assessment teams to meet the rise in loan volumes, “otherwise they will lose traction with poor servicing and turnaround times”.
HAVE YOU SENT MORE LOANS TO NON-BANKS IN THE LAST 12 MONTHS THAN IN THE PREVIOUS YEAR?
31% NO
69% YES
HIGHLIGHTS: BENEFITS OF USING A NON-BANK BDM support
Pepper Money
Firstmac
Bluestone
Advantedge
Pepper Money
Firstmac
Bluestone
Commission structure
Bluestone
Credit policy
Pepper Money
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SPECIAL REPORT
BROKERS ON NON-BANKS
A VALID ALTERNATIVE Brokers say high prices and lack of awareness of non-banks’ brands are still deterrents for them and their clients, so some lenders are making marketing their mission
ARE CLIENTS TYPICALLY OPEN TO CONSIDERING NON-BANK PRODUCTS?
10% NO
YES
90% YES
NO
BROKERS ARE turning to non-banks primarily because they take a more holistic approach to their clients’ credit history and they’ll accept a wider variety of clients than the banks. “The good thing about non-banks is that they are still open for business and are willing to assess a deal on individual merit rather than credit score,” said one broker from Victoria. Several brokers said they appreciated the educational support provided by non-banks.
WHAT IS THE MAIN BARRIER TO PUTTING MORE BUSINESS THROUGH THE NON-BANK LENDERS? Lack of brand awareness
38%
Too expensive
31% Customers want a branch network Other Poor turnaround times
Poor service Poor commission
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11% 9% 8%
“The non-banks are clearly and genuinely finding ways to approve reasonable loans for clients who have just been affected by life’s events and need a new start, and without making it more onerous to complete paperwork. Many banks say they are ‘for the broker’, but there’s always a new process and a maze of requirements to navigate, which makes you question this closely,” said a broker from Queensland. As open for business as the non-banks seem to be, brokers said one of their key challenges was helping clients understand
“The good thing about non-banks is that they are still open for business and are willing to assess a deal on individual merit rather than credit score” Victoria broker
3% 1%
why they didn’t fit with one of the bank brands they were most familiar with. “In order for our clients to use nonbanks more, there needs to be more
www.mpamagazine.com.au
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SPECIAL REPORT
BROKERS ON NON-BANKS
awareness of their brand,” said a broker from Western Australia. “I can say to a client that a non-bank is a great option for them, but if they don't know the brand it makes choosing them more difficult.” And that broker is not the only one to complain about this. A lack of brand awareness and the high prices of non-banks are still the biggest deterrents for brokers and their clients. “Some non-banks could do more around brand and tools for brokers, and investing
“In order for our clients to use non-banks more, there needs to be more awareness of their brand” WA broker in technology platforms, including phone apps. Most clients want this and it is the key barrier. Pepper's recent alternative marketing tools are fantastic,” said a Melbourne broker. Pepper’s Referral Marketing Toolkit, which was downloaded more than 2,500 times in the first week of its release in July, is one such example of a lender making its proposition more appealing to brokers. The feature was developed following broker demand for content and tools that would help them target clients in the nonconforming market. When brokers can properly explain why they’re recommending a non-bank over a bank, it seems that clients are willing to accept the alternative. Ninety per cent of brokers say their customers are typically open to non-bank products.
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HIGHLIGHTS: PRODUCTS AND BRANDING Brand recognition
Liberty
Firstmac
Homeloans
Firstmac
Pepper Money Interest rates
Advantedge Product range
Pepper Money and Homeloans (tied)
Firstmac
Product diversification opportunities
Pepper Money
Homeloans
Firstmac
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DO TURNAROUND TIMES TRUMP ALL? Maintaining fast and consistent turnaround times is the Holy Grail for most lenders and brokers, but it’s often a lot harder to achieve than one might expect, especially when volumes rise HOW HAVE TURNAROUND TIMES AND COMMISSION STRUCTURES CHANGED OVER THE PAST YEAR? Turnaround times
Commission structures
80%
37%
32% 22% 13% 6%
No difference
Worsened
Improved
8% 1% Worsened significantly
2%
0%
Improved significantly
HOW COULD NON-BANKS IMPROVE THEIR SERVICE LEVELS?
27%
24%
21%
18%
10%
More BDMs/ credit assessors
Better-trained BDMs/credit assessors
Better technology
Simpler income verification process
Other
TURNAROUND TIMES are one of those things that brokers never stop talking about, and with good reason – they can make or break a deal and future referrals. With the non-banks now seeing a larger amount of loan traffic, turnaround times will naturally blow out, but brokers’ patience will only last for so long. They have to handle an angry customer at the end of it, after all. The lender that is empathetic and quick to remedy this will win brokers’ favour. Forty per cent of brokers said turnaround times had worsened in the last year, while only about a quarter said they had improved. In the latter group, one broker said they had specifically “changed to using banks and nonbanks that have good turnaround times”. Brokers who said turnaround times had worsened chalked it up to the non-banks being unable to handle the added volume; the increase in compliance demands and paperwork; and new and inexperienced staff. A few brokers also said the royal commission had heightened caution among assessors, increasing the number of times deals went back and forth before approval. “The royal commission is making it harder and harder to earn a reasonable living, with extended and over-the-top new compliance paperwork. Incredibly restrictive servicing calculator figures are strangling and restricting buyers from entering the market, and
www.mpamagazine.com.au
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SPECIAL REPORT
BROKERS ON NON-BANKS
increasing the amount of clients being declined,” said a broker from Victoria. Interestingly, only one of the non-banks that won in the turnaround times category last year, Firstmac, appeared on this year’s list. The new winner was Advantedge, which has a major bank’s expertise behind it. The lender has also invested heavily in digital enhancements, such as IDyou, ZipID and DocuSign, to expedite the customer identification process
and streamline the settlement process. These tools make it quick, easy and convenient for both brokers and customers. They also help ensure that submitted applications achieve the quality, consistency and compliance level that Advantedge is seeking. Surprisingly, Pepper Money, which snapped up gold in every category apart from three and had the most-liked product overall, came in fourth place for turnaround times. Perhaps this
NON-BANK PRODUCT OF THE YEAR: PEPPER MONEY NEAR PRIME
HIGHLIGHTS: TURNAROUND, TECHNOLOGY, COMMUNICATION Turnaround times
Advantedge
Firstmac
Bluestone
Communications, training and development
Pepper Money
Advantedge
Bluestone
Advantedge
Liberty
Online platform and services
Pepper Money
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suggests that, in some cases, a product that fits right can even trump speed of response. As for commission structures, the vast majority (80%) of brokers said there had been no difference to the last year, while 13% said these had worsened – a slight uptick from last year’s 9%. Bluestone, which is pushing hard into the near prime space, had a strong showing this year, beating some of the bigger players to take the top prize in this category.
Pepper Money’s near prime offering, and specifically its Pepper Easy loan, ousted Liberty Star after three years as the top product. Since it launched in 2012, Pepper has seen an average growth rate of 30% per annum in its near prime settlements and has serviced more than 11,600 customers, equating to over $5bn in settlements. What brokers told us about Pepper’s near prime offering: •“Provides a good option for self-employed [clients] who don't have financials ready or [where] income has improved substantially” • “This fills a hole [as] main opposition, Liberty, goes straight from prime to non-prime with nothing in between” • “Competitive pricing and fees for alt-doc, quick turnarounds, not credit scored” • “I work alongside builders, and until this product [near prime construction] was released I did not have a non-conforming option; it has opened my eyes more to non-bank lenders and the great experiences that can be had”
www.mpamagazine.com.au
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WHAT YOU’RE SAYING In light of the royal commission and tightening credit, are the non-banks doing enough to support and stand by the broker channel? YES
NO
“Yes. They are offering competitive rates with competitive products that the major banks cannot offer at this stage. I think the non-banks really are helping with their alternative lending policies and will continue to grow in this space as the banks tighten up over time.” “Yes and no. Further face-to-face catch-ups could be arranged, or group sessions, to explain their stance on the changes and what we can do to simplify things. This does happen with some, just not all.” “With the big four banks trying to get rid of third party banking (ie brokers), non-banks are the main supporters behind brokers. I can see that with the better education of the customers (brand recognition), non-banks will increase their market share.” “Yes, there is a lot of interaction and services on offer by the non-banks; plenty of workshops and training days to continue the education of brokers. Good spread of options and products to suit all situations and circumstances. Non-bank lenders are here to do business and not just to pick and choose the flavour of the month. Good job!” “Yes. I am a fan of the non-banks and the common sense approach that they have to lending and credit policy. They do a good job of staying away from the spotlight and providing good product solutions for both the brokers and, more importantly, the clients.”
“Not enough. This is the non-banks’ chance to become mainstream in the market and keep banks competitive. Some funders are still very much outdated in system and sometimes apply harsher policies than majors. If you can't risk it, then you'll stay being a minority.”
A broker from Ashburton, Victoria, provided this winning response to the survey question. He will receive a 1L bottle of Grey Goose VX Vodka courtesy of MPA: “I believe the time is now for the non-banks to stand up and be counted. The big banks have been shown in the royal commission as putting profit before customers – and there are a lot of very angry and upset bank customers out there. Non-bank lenders that can provide a fair, transparent and competitive product range will stand to gain significant market share”
“Non-bank lenders are supporting brokers more than ever and are doing their best to accommodate the increased volumes of new business. Also, they are trying to be flexible in finding solutions for clients.”
“Yes and no. The non-banks have stepped up in recent times but are still not hitting the mark with why brokers actually use non-banks. They can’t compete on price, products, turnaround. Non-banks are primarily used when banks are not an option due to restrictions; therefore that is the area they should be focusing on – approvals. If a non-bank can approve a client quickly and have flexibility, they will get more business. Rate, product, brand mean very little in this instance; as long as a broker can get an approval and get the deal over the line then business will increase.” “No. I didn't hear their voice when it came time to talk about broker commissions and [our] worth. They need to be proactively campaigning that they are available with a whole host of alternative lending through the broker channel. I would suspect they are thinking they want clients to come to them online, but with the sheer amount of paperwork requested and perfect ID needed, the public needs and wants in-home service and guidance.”
“They are supportive of the channel, but could do more. Specifically, employ knowledgeable BDMs that are prepared to meet brokers and build relationships. Run training sessions/webinars. Provide a scenario service like Liberty and Pepper. Employ commercially minded credit assessors.”
www.mpamagazine.com.au
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SPECIAL REPORT
BROKERS ON NON-BANKS
FINAL RESULTS This year’s survey unveiled a few surprises and switches at the top, with the bronze medal contender last year rising to gold medal glory in 2018 OVERALL RESULTS
BROKERS’ PREFERRED LENDERS We asked brokers to pick a preferred lender for each key category of borrower. The lender with the most mentions per category won.
Non-conforming
First home buyers
Property investors
Pepper Money
Advantedge
Firstmac
Commercial
Alt-doc/Low-doc
SMSF
La Trobe Financial
Pepper Money
Liberty
Foreign non-residents
La Trobe Financial
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Non-bank
Overall score
1st
Pepper Money
3.76
2nd
Firstmac
3.56
3rd
Advantedge
3.54
4th
Bluestone
3.48
5th
Liberty
3.36
6th
Homeloans Ltd
3.34
7th
La Trobe Financial
3.17
8th
Thinktank
3.16
9th
Better Mortgage Management
3.13
10th
National Mortgage Company
3.06
www.mpamagazine.com.au
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SPECIAL REPORT
BROKERS ON NON-BANKS
1st
PEPPER’S RISE TO THE TOP
Pepper Money made a clean sweep this year, collecting gold in seven out of 10 categories. Pepper’s Australia CEO, Mario Rehayem, explains how
MPA: Why do you think brokers were so pleased with Pepper’s service? Mario Rehayem: Our focus this year has been on making it easier for brokers and partners to maximise their leads and help their clients succeed. We’ve achieved this through several initiatives: Broker support: This year we expanded the team that supports brokers, including bolstering our localised, on-the-ground BDMs; increasing our dedicated scenarios team; and hiring more deskbound relationship managers to ensure our partners get the support they need, when they need it. Broker tools: Our Customer Conversion Toolkit has been a runaway success with brokers. More than 3,000 brokers have used the Pepper Product Selector (PPS) tool over 12,500 times this year so far, returning approximately $4bn in indicative offers. It’s particularly useful for customers whose needs may be more difficult to fulfil, saving brokers time by eliminating wasted effort exploring dead-end solutions. Broker education: We’ve invested in a full calendar of events aimed at helping brokers be more comfortable offering alternative solutions. Our fourth national Insights Roadshow this year focused on
26
sharing insights on real-life industry issues and providing access to industry participants experienced in these areas. Feedback from brokers was phenomenal, with brokers rating it one of the best events in the industry. MPA: With all the lending changes and tightening this year, how did Pepper manage to keep its credit policy attractive? MR: Consistency is key. Our ‘can do’ reputation wasn’t built overnight; we have continuously invested in raising awareness and developing our products. This has positioned Pepper as the leader when brokers need certainty. Pepper has had a near prime product for more than six years. When the banks’ credit policies tighten, Pepper’s near prime product offers brokers and their customers a viable solution. At our core, Pepper seeks to help underserved borrowers succeed. When we underwrite a loan, a human assesses the application, which means we look at the borrowers’ individual circumstances before offering a solution. We will automatically reassess an application under our near prime and specialist credit policies where the application doesn’t fit as prime. This means we’re more likely to be able to provide a solution.
MPA: What do you have in the works for brokers next year? MR: With 90% of our volume coming from brokers, we know that we need to continue to listen to brokers and respond to what they want. We’re excited to share that in 2019 we’re considering some bold new asset classes based on their feedback. We’ve also been working with our most loyal PPS users who are assisting us in launching phase two of Pepper Product Selector, which will generate even greater conversion rates for brokers. Pepper Resolve has had fantastic success in pilot groups and we’re excited for this tool to go mainstream next year. We’re continuing our broker education program, which gets bigger and better every year, and we’ll be releasing more tools and content through our Alternative Lending Marketing Toolkit.
www.mpamagazine.com.au
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FIRSTMAC
ADVANTEDGE
BLUESTONE
MPA: Firstmac came in second place this year, marking a significant improvement from last year when it came in fifth. What is behind the improvement?
MPA: Advantedge came in third place and won medals in a number of categories, including gold for turnaround times and interest rates. What changes did you make to set you apart?
MPA: Last year, Bluestone came in 6th place, so this is a significant improvement. What made the lender so attractive to brokers this year?
Jake Sanders, head of third party sales: We have worked hard this year to expand our team with the right people and build a true service culture. This means taking a solutionsfocused approach to every broker enquiry. We have also emphasised consistency in our policy, service and staff. I am grateful that brokers that have dealt with us are now becoming our advocates. This year, I think we have really found our place in the market competing for prime business. We aim to maintain our momentum in the coming year with the fantastic support of our broker and aggregator network.
Brett Halliwell, general manager: We pride ourselves on the superior support and service we provide to all brokers. Part of this includes offering brokers cutting-edge digital tools and giving them direct access to our dedicated scenarios and credit teams. This enables brokers to better deliver for customers and is reflected in the most recent NPS score of +45. The introduction of digital document delivery and signing has greatly reduced turnaround times, while our quality submissions checklist has supported brokers in asking the right questions before submitting loan applications. These improvements have been embraced by brokers, and of course customers.
Royden D’Vaz, head of sales and marketing: We're honoured to have picked up five medals across a variety of categories in MPA’s Brokers on Non-Banks survey, including a gold medal for commission structure. These awards are a testament to the hard work and dedication of the Bluestone team, and further highlight the impact that our new near prime products have made on the market. At a time when more and more borrowers are unable to meet the lending criteria of the mainstream banks, Bluestone is proud to offer solutions which enable borrowers to access loans at competitive rates.
2nd
3rd
4th
“Our focus this year has been on making it easier for brokers and partners to maximise their leads and help their clients succeed” Mario Rehayem, Pepper Money
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FEATURES
VENDOR Q&A
A GAME-CHANGING CRM SOLUTION Specialist Finance Group’s innovative software is equipping brokers for the future. Managing director William Lockett offers insights on the platform the company launched late last year
MPA: What is your new SFGconnect platform and how does it work? William Lockett: SFGconnect is a featurepacked solution designed to reduce broker and staff workload, improve compliance and enable collaborative involvement during and after the loan application process. It works by organising a broker’s leads pipeline and the ongoing stages of an application. Collaboration is possible using deal notes, tasks, live chat and visual status tools. Brokers can connect with clients using integrated solutions such as VoIP phone, SMS, email, live chat and the Client Portal. SFGconnect also automates daily tasks, documents and notifications necessary for excellent customer service. Brokers can search for products from our lender panel and easily lodge applications through the ApplyOnline and Simpology gateways.
MPA: Why did SFG invest so much in researching and developing this platform? WL: There has been a significant shift in how business gets done, and staying relevant means becoming an active part of a customer’s
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digital life. With the rapid emergence of digital technology and automated processes, SFG recognised the need for brokers to embrace the digital future. We were looking for a CRM and lodgement platform that would provide our members with a clear competitive advantage. We looked at all options available within the software industry, and SFGconnect provided the best solution for our business model and for all of our members.
MPA: What makes your customised CRM platform stand out from others in the market? How does it give brokers a competitive edge? WL: It’s built on the latest modular technology, with scalability in mind. SFGconnect has full CRM functionality, with additional key features such as Client and Partner Portal access and custom reporting capabilities, while offering key features mortgage brokers are looking for, such as a transparent compliance process, simple broker tools that work, and a simple lodgement process. It also has an in-built cross-selling
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capability and is the only solution in the market today ready for the digital future of mortgage broking.
MPA: What are some of the best functions it offers brokers? WL: Integrated video conferencing capability – This enables brokers to share a screen with the client; scan a client’s ID and documents using their PC camera; invite clients to upload documents into the CRM from their PCs; request bank statements; and record and save meetings in SFGconnect. Client Portal – Clients can access the SFGconnect portal via encrypted, secure access with two-factor authentication.
This allows for documents to be uploaded, along with sharing of other documents. The portal also allows the client to view the current status of how their deal is progressing.
“Digital tools increase broker productivity and improve compliance, which is exactly what most brokers want” William Lockett, Specialist Finance Group This feature improves brokers’ efficiency and enhances the customer experience. Partner Portal – Similarly, partners can access SFGconnect through a fully secure
WHAT DO BROKERS WANT? In MPA’s 2018 Brokers on Aggregators survey, brokers identified IT and CRM support as their third most important priority. However, SFGconnect is addressing a number of pressing demands.
1 = not important; 5 = very important Accurate and on-time commission payments
4.67
Quality of lending panel
4.60
IT and CRM support
4.50
Compliance support
4.48
BDM support
4.39
Communication with brokers
4.32
Training and education
4.17
Additional income streams
3.76
Marketing support
3.55
White label offering Lead generation
portal. Partners can add new leads directly into the CRM and upload documents. As per the Client Portal, partners can also view the status of deals and share documents.
3.41 2.93
Workflows and automation – There is full workflow customisation and capability for residential, commercial, equipment finance, personal loans, insurance and financial planning. Automation is fully activated as each deal changes stage. This includes sending email and SMS notifications, along with the ability to create tasks and assign to different users. Other key features include broker tools and marketing automation.
MPA: How does the system increase transparency and accountability while assisting brokers with compliance? WL: SFGconnect is a loan management tool designed specifically with the broker in mind. It’s simple to use but comprehensive enough to ensure that brokers meet their compliance obligations throughout the data entry process. All data entry points are aligned with the latest policy and regulatory guidance to ensure the end result provides a loan that aligns with the customer’s expectations and the obligations of regulatory bodies. With a seamless transfer of data from the CRM to ApplyOnline and Simpology, SFGconnect reduces the potential for data errors as a result of duplication. Key features of the SFGconnect platform that assist brokers in improving their efficiency
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FEATURES
VENDOR Q&A Sponsored by
TOP 5 REASONS TO LEAVE YOUR AGGREGATOR With CRM and IT support so high on the agenda for brokers, it’s no surprise that poor service in the area was cited in MPA’s 2018 Brokers on Aggregators survey as the most likely reason a broker would leave their aggregator.
Poor IT and CRM support
45%
Poor accuracy and timeliness of commission payments
44%
Poor BDM support
41%
Poor quality of lending panel Poor compliance support
33% 30%
Note: Percentages do not add up to 100 as respondents could select multiple options
and regulator processes are: • custom compliance documents and automated generation • simple Client Portal for data fact-find that integrates into the CRM • video conferencing with screen share, document capture capabilities • e-signature capability • complete loan analysis and comparison tools • extensive back-channel messaging • integration with RP Data and Equifax, and development underway for integration with bank statement analytics
MPA: Can you explain the feature for mentors working with mentees? WL: SFGconnect offers a mentoring function whereby a mentee requires approval from their assigned mentor in order to submit the loan application to the lender. The mentor can log in and review the mentee’s entire application before approving or declining the application for submission. The mentee will receive notes from the mentor about what can be approved before lodgement. This allows mentors to keep track of their mentees’ loan applications, regardless of whether the mentors aggregate under
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Specialist Finance Group. This feature assists in accountability and transparency following the ongoing scrutiny and increased accreditation standards in the industry.
MPA: In MPA’s Brokers on Aggregators survey, brokers ranked IT and CRM support as their third most important priority. Why do you think it’s so important to them? WL: Digital tools increase broker productivity and improve compliance, which is exactly what most brokers want. They want to exponentially increase the service they provide to their clients while simultaneously reducing processing times and improving the compliance process – all essential in the current climate of scrutiny.
MPA: Have you seen an increase in broker interest as a result of your new platform? WL: Yes, over 100 brokers have joined SFG since the launch of SFGconnect in late 2017. Existing SFG members have also embraced the new technology, and we expect transition of all members by the end of 2018. We’re consistently receiving excellent feedback from all brokers using the platform.
The feature-packed platform, combined with our thorough software-training process and aggregator support from the rest of our team, has significantly increased broker interest.
MPA: What feedback have you received from brokers? WL: Launch Financial (Qld) has been using SFGconnect for some time now and is happy with the efficiency our CRM has brought to everyday processes. According to Brett Ryan, director of Launch Financial, “the initial set-up was easy, with a load of flexibility around custom documentation. Launch Financial is providing more information to clients easier, sooner and with greater accuracy than we have been able to in the past”. First Step Finance is another company enjoying the benefits of SFGconnect. Director and founder Dave Ward explains: “If you are striving to build a significant business and want an edge from a technology perspective, look no further than SFG. Having done the market research, it is my belief that they are the market leaders from a CRM and technology perspective, with many exciting updates in the pipeline.”
MPA: Are there any changes planned for the platform in coming years? WL: SFGconnect has many great features in the pipeline, and it will continue to evolve and remain the market leader in Australia. In the next few months, the asset, commercial finance and personal loans tools and integration will be completed, giving brokers the ability to search for a range of asset and commercial loan products and lodge applications to lenders from within the platform. There is also work being done on the system’s compatibility with accounting and financial planning platforms. SFGconnect is a game changer for the modern broker.
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FEATURES
ALTERNATIVE LENDERS
More business means greater expectations How the non-banks are attempting to fill the void left behind by the majors, while continuing to deliver on brokers’ and customers’ diverse needs in an ever-changing lending landscape
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Have you seen an uplift in business as a result of the increased scrutiny of the major banks, and how is that playing out? Pepper Money As traditional lenders continue to tighten their lending criteria, customers are finding themselves underserved at a time when they need banks the most, according to Mario Rehayem, Pepper’s Australia CEO. “Market conditions today mirror those when the near prime category was first launched to accommodate demand for loans that traditional banks were unable to provide at effective rates,” he says. Pepper says it pioneered the near prime product in 2012 and has since seen it grow exponentially. In Pepper’s view, the ‘near prime’ borrower is defined as someone with one too many credit cards that they are finding difficult to repay, or who may be working in the gig economy and not hold standard fulltime employment or have supplementary income; they may have just changed jobs or may want to consolidate their debts; or they
may have overcome a credit event and just want to move forward. “This is real-life lending we’re talking about,” Rehayem says. “Many of these customers are on the cusp of prime and would have been willingly financed by a bank only 12 months ago.”
Liberty John Mohnacheff, group sales manager at Liberty, says the non-bank has also experienced consistent and sustained lending growth across the board, though he doesn’t go so far as to describe it as a ‘surge’. What has happened is the non-banks have become more relevant “because we are the ones that are bringing opportunity to the broker market”. “We’ve always been there, and the brokers are going to start to realise, ‘I can no longer keep dumping everything on the majors’. That is always a very easy fallback position [but] the offerings from the non-banks are now more attractive and relevant,” he says. “We are a viable alternative and sustainable contender.”
GET THE DEAL DONE: BE UPFRONT AND HONEST Mario Rehayem, CEO Australia, Pepper Money “A broker should always be honest, particularly when a customer is expecting a prime loan. At Pepper, a great benefit of our service is our cascading credit model. Every application is always assessed against our prime criteria in the first instance. If the application doesn’t fit, we’ll automatically assess it against our near prime criteria, and so on. The customer does not need to reapply. This means that we can guarantee that your customer is not only more likely to be matched to a solution but can rest assured it will be the most suitable solution.”
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FEATURES
ALTERNATIVE LENDERS
Homeloans Group While it’s too early to know what the impact will be of some lenders – such as CBA and Bank of Queensland – pulling out of low-doc lending, Homeloans general manager of third party distribution Daniel Carde says, “We are well placed to take on the volume if need be”. “We have certainly seen an uplift in volumes [generally] in the last quarter of FY18, which we attribute to Homeloans’ competitive product range and expanded sales team,” he says. Not only has the lender seen a steady increase in specialist and investor borrowers, but interestingly, it’s also received more prime customers. “We generally find that, as brokers use our products for one type of borrower, it opens them to the rest of our product range, resulting in an increase in volume across the board,” Carde says.
Bluestone “While the near prime borrower demographic has always existed, it’s becoming more pronounced and prominent in the current lending landscape,” says Royden D’Vaz, head of sales and marketing at Bluestone. There’s now a large segment of customers who make their repayments on time and don’t have any defaults or arrears, but they may have a tax debt or be in shortterm employment or relying on workers’ compensation, and this pushes them outside the banks’ narrow lending criteria. “Talk to any broker and they’ll say two months ago this was a deal every day, and now it’s falling outside what the banks will accept,” he says. “Credit scoring has a lot to do with it. Where in the past if a credit score spat out a ‘no’, a human underwriter would still be able to assess it and make a decision, now they’re not allowed to do that.” Near prime customers are deemed less
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‘risky’ than a non-conforming or specialist borrower. “They don’t deserve to pay the higher rates of someone who has defaulted or not paid their mortgage,” D’Vaz says.
With this increase in business, how are you ensuring that service, turnaround time and consistency aren’t affected? Bluestone Brokers are all too familiar with service levels blowing out when lenders announce a new rate or campaign deal. Lenders often find themselves inundated with new applications and ill-equipped to deal with them. “We wanted to make sure that didn’t happen,” says D’Vaz. With the sale of Bluestone Asia Pacific to Cerberus Capital Management, the non-bank has been able to sharpen its rates and move into the near prime space, attracting a lot of attention from the broker market. While doing so, it proactively started growing its team to deal with the anticipated rise in new business.
“We’ve increased our back-end credit team, underwriters and support staff,” D’Vaz says. The lender has also doubled its sales team. With each BDM now backed by a dedicated support team, they can focus on getting out on the road to meet brokers face-to-face and help them package near prime deals. And it’s a good thing the non-bank took that step – more than 250 brokers have become accredited with Bluestone in the last two months, and the business has almost tripled its volume in the past year, D’Vaz says.
Liberty The major banks used to be the most convenient option for brokers, but now that’s changing and brokers are being forced to adjust their habits and look elsewhere, says Mohnacheff. “Where we are unique is we have got a lot of human beings out there to help the brokers, externally and internally,” he says. “As we’ve grown, we’ve brought on new underwriters, BDMs and support staff to ensure brokers continue getting the best service and turnaround times.”
EMBRACING OPTIONS: TALK TO YOUR CLIENTS Royden D’Vaz, head of sales and marketing, Bluestone “Brokers should always manage their customers’ expectations early on and let them know in the initial interview that they may not qualify for a mainstream loan but there are other options available. They should always use the ‘bad news, good news’ method of delivering their message. “After they receive the decline from a mainstream lender, they should engage the customer by saying, ‘Sorry, but as I thought, the bad news is that your loan has been declined; however, the good news is that I have another option that is not much more expensive’.”
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ALTERNATIVE LENDERS
Liberty now has more than 60 BDMs across all its asset classes. It also gives brokers direct access to its underwriters so they understand how and why they came to a decision. “Whether you turn it around in 12, 16 or 24 hours, is that the critical thing?” Mohnacheff asks. “Or is the critical thing about educating brokers that there is a viable alternative?” “Our efforts are not, ‘Are we going to be cheaper or faster?’ No, we are more caring, we’re here for you, and we’ll help you build
to react quickly,” he says. “We upskilled existing staff and hired more people, ensuring we had a robust and compliant onboarding process so more of our ‘can do’ people could manage that uptick in business from day one.”
Pepper Despite the uplift in business, Rehayem says Pepper is continuing to offer a 24-hour turnaround for approvals. “Seeing conditions change about nine months ago, experience told us we needed
How should brokers handle this question from borrowers: ‘Why can non-banks approve this deal when it was rejected by a major bank?’
Homeloans Carde admits that while Homeloans’ turnaround times have been impacted as a result of increased volume, the lender is addressing the issue in a number of ways.
“Specialist lending is really no different to traditional prime lending in terms of the basics” Daniel Carde, Homeloans that deal. At the end of the day, that’s what really matters.”
to handle these types of unforeseen volume increases in the future.”
That includes investing in its team to provide them with additional resourcing, and looking at how technology can assist in providing efficiencies. “A number of process changes have already delivered some early improvements, and once our resourcing is appropriately balanced and the technology solutions are delivered we know we will be well placed
Homeloans The best way to approach this is to explain that a specialist lender often caters to a much broader market than a traditional bank, as is the case with Homeloans. “Specialist lending is really no different to traditional prime lending in terms of the basics. Loans must still pass suitability and serviceability tests. The major difference between prime and specialist is that specialist generally requires a more detailed background story to help the loan assessor in understanding the borrower’s position,” Carde explains. In order to make a decision, the assessor will need to know why the borrower is in the situation they are in, and what has changed to show that they won’t be in that situation again with the new loan. “The only way to do this is to provide as much background
AVOID THESE MISTAKES: DON’T HOLD INFORMATION BACK Daniel Carde, general manager third party distribution, Homeloans “The single biggest shortfall is the lack of detail in the background story. Loan assessors can see the default history, the poor repayment history or that the borrower doesn’t have current financial statements. What they can’t see is the ‘why’ these borrowers have this history. “For loans with credit impairment, the broker should be detailing how the impairment came to be (and provide evidence that will help support the story), and more importantly what has changed to ensure the situation won’t be repeated. “For loans where alternative income documentation is being provided (self-employed alt-doc loans), the broker should give as much detail about the business as they can – what the business is, how long it has been in operation, how it generates income, etc, and then explain why current taxation returns are not available for the assessment.”
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detail as possible and demonstrate that the borrower is well positioned to meet the obligations of this new loan going forward.”
Pepper Put simply, “we can offer a solution when the banks can’t”, Rehayem says. When recommending a non-bank loan, a broker should explain why the borrower is not eligible for a bank loan, and clearly demonstrate how a product from a non-bank matches their needs. A broker should also explain how a non-bank is different to a mainstream bank. “Generally the only difference is that
they are not an authorised deposit-taking institution (ie they don’t take deposits) and for this reason are regulated by ASIC instead of APRA. Just like the banks, non-banks must comply with responsible lending laws as set out in the National Consumer Credit Protection Act.” At a non-bank, funding for home loans comes entirely from the wholesale money market, whereas banks rely on a mix of deposits and wholesale funding.
Bluestone Borrowers might not immediately embrace the fact that they’ve fallen outside of the
traditional lending parameters, but it’s important for them to know that this is not the broker’s fault and there are still options available to them. D’Vaz says brokers should explain to customers why their circumstances have made them candidates for a non-bank loan instead, and should emphasise the cost of the repayments rather than dwelling on the rate difference. “The onus is on brokers to position it as, ‘Yes, your circumstances have set you apart, but the difference in repayments is only X amount’. That should be the type of conversation they’re having.”
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ALTERNATIVE LENDERS
Liberty “Being able to approve deals that banks can’t isn’t new to us. For 21 years we’ve operated to help as many customers as we can, and have always looked at an applicant’s full story when assessing their eligibility for a loan. That’s how we find more ways to get to ‘yes’,” Mohnacheff says. He vehemently refutes the term ‘shadow banking’ to describe the non-bank sector. “The media jumped on this term of shadow bank. But a shadow bank is something dodgy out of the Bahamas, or an unlisted entity somewhere in Switzerland or the Cayman Islands; they’re shadow banks.
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We are an Australian company – proud, true, and reputable.” “The broker’s job is not to feed the big banks but to find the appropriate product for their consumers when they need it,” he says.
How is your company dealing with increased funding costs, and do you expect to see a credit crunch in the wake of the royal commission? Liberty Markets by their nature fluctuate, and all lenders’ funding costs reflect those changes, Mohnacheff says. “It’s also true that recently
there has been increased volatility and higher interest rates for all lenders in debt markets. In contrast, customers’ interest rates are relatively constant because they are set at the time loans are drawn down and updated infrequently.” The royal commission, however, “will not in any way, shape or form create a credit environment”, he says. “A credit crunch will come if capital markets close. If access to capital changes, that’s a credit crunch, like during the GFC. Credit assessment criteria might change because of that, but will it become a credit crunch? I doubt it,” Mohnacheff says.
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“There is a lot of liquidity; there is a lot of capital around. Just because the banks have to vary it doesn’t mean others do; there are a lot of alternatives for funding arrangements in Australia and New Zealand, and we are one of the leading ones.”
Bluestone “I think all the mainstream lenders are feeling the pinch right now because there’s a heightened spotlight at the moment, but who can predict what will happen in 12 months’ time?” D’Vaz says. What he does know is that the current environment has provided a fantastic opportunity for non-banks to cater to clients that the big banks have turned away. “It’s also an opportunity for brokers to deliver good customer outcomes and help more customers, more often. Instead of having these customers get locked into higher-rate loans, near prime gives them another option.” With specialist borrowers, lenders add an extra margin to the interest rate to deal with the higher risk of taking them on, but that’s not required with near prime borrowers. Funding costs have risen, but credit is not constrained, he says. Doors are still open for borrowers; they just might be different ones.
Homeloans “I wouldn’t go as far as to say that out-ofcycle interest rate movements will be a regular occurrence; however, it would certainly be safe to say that home loan interest rates, and any changes to those rates, are no longer directly linked to the official cash rate,” Carde says. “Out-of-cycle rate movements are not new – we have seen them from almost all lenders over the past few years as changes in the global funding markets, coupled with higher regulatory compliance costs, impact
processes as lenders review their approaches to responsible lending.
Pepper Rehayem says that while Pepper isn’t immune to these market conditions either, its strong reputation in the wholesale funding markets means it’s able to diversify its funding sources in a way that delivers a more efficient cost of funds. “This allows us to offer a broker’s customer competitively priced interest rates regardless of the environment,” he says.
“The broker’s job is not to feed the big banks but to find the appropriate product for their consumers” John Mohnacheff, Liberty the overall cost of funds for lenders.” Homeloans’ treasury team is constantly monitoring and responding to changes in the market, ensuring it’s balancing the needs of the business and the interests of borrowers, he adds. While Carde doesn’t expect a credit crunch, he does anticipate that there will be “more refinement” of credit policy and
“Put simply, Pepper offers a more personalised service, with a human assessing each individual application rather than an anonymous decision-engine-based scoring system used by the big banks. Because we manually assess applications, we can truly understand a customer’s situation and offer a solution that is tailored to their circumstances.”
BUILD YOUR BUSINESS: BRANCH INTO SPECIALIST LENDING John Mohnacheff, group sales manager, Liberty
“There is little difference between how you approach offering a custom loan versus a traditional loan. The broker’s role is still to assess and verify the borrower’s financial circumstances and objectives and to help them find an appropriate solution. The key difference with custom lending is that brokers have access to a broader range of products. “Existing brokers looking to build custom into their offering should start by speaking to a Liberty BDM and learning about the products. Then all they need to do is look at their database. They probably already have vital information that will help identify if a customer may need a custom solution. The next bit is easy – pick up the phone and let them know you can help.”
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FEATURES
REVERSE MORTGAGES
Rethinking reverse mortgages Once burdened by a less-than-stellar reputation, reverse mortgages are now becoming the product of choice for many older Australians who are looking to improve their lifestyle. Heartland CEO Andrew Ford weighs in on why the tide is changing THE APPLICATION process is complex for brokers and the product is risky for consumers. These two concerns are heard all too often when it comes to reverse mortgages, but are they really warranted? An ASIC review published in late August offers some insight. After reviewing data on 17,000 reverse mortgages, the corporate regulator confirmed the product was of significant value to consumers. “Reverse mortgages can play an important role in helping older Australians improve their standard of living in retirement while remaining in their home,” read the report. Andrew Ford agrees. As the CEO of Heartland Seniors Finance he may be somewhat biased, but Ford insists reverse mortgages can provide a valuable solution for older Australians looking to free up some of the capital in their home. “I’ve been in banking for 20 years and, as far as I’m concerned, there are no other financial products that can have the impact on customers
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that a reverse mortgage can,” Ford tells MPA. By allowing a homeowner to borrow against the equity in their property, a reverse mortgage releases funds to retirees without forcing them to leave the homes they love. “I think critics sometimes forget that our
with the product. The survey found that 96% of Heartland customers would recommend the lender to family or friends, and 94% would recommend a reverse mortgage. “While misconceptions tend to exist amongst the general public, when we look at
“There are no other financial products that can have the impact on customers that a reverse mortgage can” Andrew Ford, Heartland Seniors Finance customers see their home as more than just an asset,” says Ford. “It’s what connects them to their community, their family and their friends. It provides them with security and independence.” Interestingly, a survey conducted by Heartland earlier this year suggests that concerns surrounding reverse mortgages aren’t shared by those with first-hand experience
actual customers, their views are completely different,” says Ford. However, while borrowers appear to be overwhelmingly satisfied, the ASIC review expressed concerns that many have a limited understanding of the risks and future costs associated with their loans. Rates generally vary across the industry but, under Heartland’s current variable rate
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and personal loans have much higher interest rates,” says Ford. “We do a lot of business direct with customers and we get no pushback on the interest rate – in fact, they’re normally pleasantly surprised.” Ford is also quick to shoot down suggestions that reverse mortgages are in
“The heavy regulation and prescribed process makes the application relatively straightforward,” he says. “Plus the customers are generally fantastic to deal with – they’re typically not working, so you don’t have to do after-hours visits, and a reverse mortgage can genuinely change their lives, so the sense of satisfaction for a broker is phenomenal.”
“Reverse mortgages offer brokers a fantastic opportunity to grow their business and diversify their income” Andrew Ford, Heartland Seniors Finance
of 6.29%, a loan would double every 11 years if no repayments were made. Heartland says providing an ASIC MoneySmart calculator twice throughout the application process helps to improve customer understanding. “It helps them make an informed decision and see the impact of that compounding interest,” says Ford. “They get that as both an illustration and a numbers breakdown, which provides a projection of what their property value may do over time as well as how the loan will grow.” While the interest rate is certainly higher than a regular mortgage, Ford insists it’s still “very competitive” and takes into account that there are no regular repayments and no terms. He also explains that, for many customers, the 6.29% interest rate is actually significantly lower than what they’re accustomed to. “In the last year, 44% of our customers used their reverse mortgage for some form of debt consolidation, and often credit cards
any way predatory, pointing to the incredibly thorough process applicants must go through before obtaining finance. “The reality is that reverse mortgages are arguably the most heavily regulated consumer finance product in Australia,” he says. “The process is designed to ensure a customer makes an informed decision, and it includes things like seeking independent legal advice and considering alternative options.” While that may sound somewhat daunting, Ford says the rigid nature of reverse mortgages actually makes the application process easier.
Importantly, legal protections mean a borrower can never owe more than the value of their property and can remain in their home until they pass away or decide to leave. Of course, it’s not just customers who can benefit from the product. Due to Australia’s rapidly aging population, demand for reverse mortgages has been steadily rising, opening up a potentially lucrative growth market for brokers. “Reverse mortgages offer brokers a fantastic opportunity to grow their business and diversify their income,” says Ford.
BROKER INSIGHT Darren Moffatt, managing director of Seniors First, Australia’s leading reverse mortgage brokerage MPA: What would you say to brokers considering reverse mortgages? DM: Reverse mortgages are a great product to offer, as long as you are passionate about helping people and you have some patience. It is not for everyone, nor is it the road to a ‘quick buck’ – but it is an excellent diversification play that can provide a good hedge against downturns in other parts of the mortgage market. MPA: How would you describe your experience of Heartland? DM: They have a top product, an awesome team, and their service to both brokers and borrowers is first-class. They are a classic example of a smaller, specialist lender that does it better than the big banks.
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FEATURES
GOVERNANCE
The art of good governance Effective data management has never been more important for brokers, and aggregators will be the ones called upon to offer support
WHEN THE Combined Industry Forum (CIF) released its report in response to recommendations of both the ASIC and Sedgwick reviews, it became apparent that improvements to governance in the mortgage sector would be at the centre of its proposed reform package. In fact, a key commitment of the plan is the implementation of an enhanced governance framework under which the industry will selfassess, self-correct and continuously improve. “The proposed changes are expected to improve conduct and culture across the
“The collection of customer data has never been more important, and, even more so, the protection and appropriate use of that data” Stephen Moore, Choice industry, and hence improve customer outcomes,” the CIF states in its report, setting an ambitious completion date of 2020. Of course, while brokers generally support the CIF’s proposals, many still have questions about the practical implications and what these mean for their businesses. Choice Aggregation Services CEO Stephen Moore has already committed to implementing the recommendations and says his organisation will assist and educate brokers where necessary. “As always, we will work with brokers to ensure that they are well prepared for these changes, and that they are implemented smoothly,” he tells MPA. One of the key changes, he says, will come
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in the form of a robust data governance policy – something the industry is in dire need of. “Just as our knowledge of tech-focused concepts such as big data and data governance have evolved over time, so too has the broking industry,” says Moore. “The collection of customer data has never been more important, and, even more so, the protection and appropriate use of that data.” Collecting comprehensive and highquality customer data will help brokers deliver outstanding customer service while boosting their businesses, but it’ll also build trust among both clients and lenders, he says. “We want to increase confidence in our industry, and we know that transparency is key to trust,” Moore says. “Making available more data by aggregators and brokers will certainly assist in this, and we will be providing all the data brokers will need to meet any new requirements.” Importantly, Moore says the new proposals are also designed to prepare brokers for
WHAT CHOICE IS DOING TO HELP Tech: The aggregator has invested heavily in its technology platform, Podium, to help brokers across a range of functions, including data collection and analysis; product search functionality; electronic loan lodgement; automated marketing, and comprehensive reporting capabilities. Training: Data governance and cybersecurity is now at the top of Choice’s curriculum for professional development days, along with business building and succession planning. Strategy: Choice is also helping brokers drive productivity and grow their businesses through its peer-to-peer learning program. It also has partnership managers on the ground, who actively assist brokers with their businesses.
that will be coming their way – however, Moore says there is no reason to worry. “Brokers should continue to focus on what they do best – providing valuable advice and great customer experiences,” he says. “We do not envisage fundamental changes for brokers in terms of how they interact with
“Brokers play a fundamental role in driving competition in the Australian lending landscape” Stephen Moore, Choice key developments on the horizon – such as comprehensive credit reporting (CCR) and open banking. “Ultimately, the combination of CCR and open banking will mean that, with their clients’ permission, brokers will have the opportunity to overlay the data an institution has about a customer with the personal insights they have on that customer,” he says. “This holistic view will enable and empower brokers to more efficiently help clients and deliver better customer outcomes – but it all needs to be managed and governed in the right way.” Understandably, some brokers have expressed concerns about the extra workload
clients, but we do believe that the more they know and understand about a customer’s financial situation, so they have a holistic view, can only lead to better outcomes. We want to continue to support and encourage and facilitate that.” In particular, Moore says Choice encourages brokers to take a “know and show” approach when it comes to verifying customer data, particularly around income and expenses. “Ask the extra questions, make file notes for everything, and have clients review and sign everything,” he says. “Having good documentation is key to brokers being able to ensure they have covered everything and have a full picture of their customer’s position.”
Of course, responsibility will not be shouldered by brokers alone, and Moore says aggregators must step up to support brokers. “Going forward, data management will be a core role of the aggregator for broker businesses,” he says. “Brokers should expect their aggregator to be able to provide reporting and insights required, like reporting on lenders available and used by the broker.” Moore also says aggregators will be called upon to offer tools and the necessary training so brokers know and understand the importance of quality customer data. “As an industry, we need to continue to lift the bar when it comes to ensuring high quality in everything we do – our business processes, documentation and client interactions, data collection, and, most importantly, customer service,” he says. Despite the sweeping changes and the rise of data, Moore says the face-to-face broker role remains invaluable within Australia’s mortgage industry. “Brokers play a fundamental role in driving competition in the Australian lending landscape,” he says. “Brokers can build stronger customer relationships and deliver better outcomes and advice for clients with the knowledge they already have, combined with greater collection and analysis of data.”
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SMSF LENDING
Unravelling SMSF lending Borrowing through an SMSF is a complex option that suits the needs of many SMEs, and it will stand brokers in good stead if they can help their commercial clients navigate this tricky terrain
IT’S FAIR TO say that the market for SMSF lending has become tougher in recent months, with several banks tightening their policies and others backing out of the space altogether. However, the aversion of some of the major players doesn’t mean brokers should shy away from SMSF lending – in fact, one senior industry figure says the option is ideal for many SME clients. According to Peter Vala, head of sales and distribution at non-bank lender Thinktank, owners of SMEs can mitigate a significant business risk if they leverage their SMSFs effectively. “A major issue facing SMEs is trading from leased premises owned by an unrelated party, and on expiry having the concern as to whether the lease will be extended under terms and conditions acceptable to the business,” Vala tells MPA. “The potential disruption and loss of goodwill through relocation can have a materially detrimental impact on a client’s net-worth position and future cash flow.”
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However, if an SME owner uses their SMSF to enter into a limited recourse borrowing arrangement (LRBA), they can purchase commercial property to operate their business from – a move that will not only give them greater security but also assist with long-term wealth creation. The arrangement is possible because,
also be entered into, with a binding lease agreement and rent paid on a regular basis, at market rates. “When correctly structured, the proposed loan repayments for an SMSF LRBA are unlikely to be significantly different when compared to market rent for a comparable property,” says Vala. “Importantly, stability, tenure and goodwill are preserved for the SME and its owner or owners.” Reducing the level of uncertainty for SMEs is just one advantage of an SMSF LRBA. Business owners can also rest assured that, should things turn sour and the loan default, the lender is limited to seeking compensation via the specific asset bought with the loan. Under no circumstances can the lender seek recourse from other assets held in the SMSF. “The SMSF structure provides SME business owners considerable protection in the event things go wrong with their business, as the equity acquired in the nowowner-occupied premises is protected from creditors and external control,” Vala adds. With such key benefits, it’s no surprise the option is proving popular. According to Vala, a fifth of new loan applications received by Thinktank are now for SMSF LRBAs.
“The SMSF structure provides SME business owners considerable protection in the event things go wrong” Peter Vala, Thinktank unlike residential property purchased via an SMSF LRBA, trustees are permitted to occupy a commercial property, provided it meets certain requirements. These include the property being used primarily for business purposes, although some minor non-business use is permitted – for example, in the case of a large dairy farm with a small house on site. An arm’s-length commercial lease must
Of these applications, approximately 80% are from owner-occupiers looking at longterm investment strategies and securing property tenure through indirect ownership. Of course, as with any financial product there are some drawbacks, and Vala admits the borrowing structures are more complex and costly than a standard loan transaction in an individual, trust or company name –
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BREAKING INTO LRBA For brokers eager to explore the SMSF market, there are a few key steps to follow: Locate customers in your existing client base who have an interest in commercial investment property. Identify self-employed clients currently trading from a leased property who may want to purchase real estate for their business. Encourage them to speak to their financial planner. Review those that already hold commercial property, and question whether they have spoken to their financial adviser about various asset protection strategies – for example, the sale of existing commercial property into a commercial SMSF.
“If the client decides to follow the SMSF path, then the broker will have assisted that client with a major acquisition” Peter Vala, Thinktank but not so much that it should put borrowers or brokers off. “Borrowers also need to be mindful that the equity created through additional repayments or accelerated debt reduction cannot be redrawn; neither can the property be pledged as additional security for future advances,” Vala tells MPA. For brokers, there are elements to be wary of. Due to the more complicated nature of the product, a client’s decision to enter into
an SMSF LRBA often follows consultation with their financial planner or accountant, but everyone involved must be careful not to overstep their mark. “All parties assisting the client need to take care that they do not provide financial advice unless they are suitably qualified to do so,” Vala says. Maintaining an arm’s-length arrangement is also of utmost importance as failure to do so could put an SMSF in breach of super
laws. If this happens, the ATO can render the SMSF non-compliant and the fund could face substantial penalties and additional tax. While there are certainly hoops to jump through and obstacles to avoid, Vala says offering this finance option will help a broker increase their value proposition and grow their business. “If the client decides to follow the SMSF path, then the broker will have assisted that client with a major acquisition,” he says. “As a result, the broker will have secured the customer for the longer term so that they can then assist with additional services, create the possibility for future referral business, generate potential introductions to new referral partners in the form of the client’s financial planners and accountants, and be in receipt of trail income from a loan with an above-average life.”
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FEATURES
FIRST HOME BUYERS
Easing buyers’ first-home anxiety Today’s first home buyers are facing their fair share of complexities, and brokers are being called upon to calm their nerves
MOST FIRST home buyers are understandably nervous when looking for a loan. But those currently on the search may be particularly apprehensive thanks to a combination of unsettling issues in the market. From the impact of cooling property prices to worries about how they might meet evertightening lending criteria, there are countless questions keeping inexperienced borrowers up at night – and it often falls on brokers to fill in the blanks. Of course, the task isn’t always as straightforward as it may sound, and plenty of first home buyers end up feeling overwhelmed, frustrated, and unlikely to return to their
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broker for future business. However, it doesn’t have to be that way – if brokers can make first-time buyers feel secure, informed and in control, they can win over a customer for life. So what’s the secret to pulling it off ? “We have found that one of the most important things to focus on with first home buyers is education, and this has never been more important in the current environment,” says Simon Kahl, general manager of Perthbased brokerage The Loan Company. As the mortgage broking arm of residential building giant BGC, The Loan Company has a strong focus on first home buyers; in fact, the cohort represents close to 80% of the firm’s
total business, so Kahl is no stranger to the challenges of assisting inexperienced buyers. “First home buyers tend to have a limited understanding of the borrowing process, so the first thing we do when meeting with new clients is talk them through how home loans actually work, before guiding them through their various options,” Kahl tells MPA. Mathew Patterson, head of broker sales at ME bank, agrees that education is crucial and can help brokers demonstrate their value proposition. “Educate first home buyers on all the dynamics in play and the opportunities and threats these market dynamics pose,” he says,
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FEATURES
FIRST HOME BUYERS
using the current buyer’s market – which has dampened volume and prices in some regions – as an example. “Some buyers may want to consider waiting to see what the market does next, or they may want to drive a harder bargain,” he says. “It depends on their individual circumstances.” Even when clients aren’t immediately successful or discover they can’t yet afford a mortgage, brokers can still show their value by
from a transactional one to a meaningful one. “If clients aren’t approved in their first attempt, brokers should use this as a teaching moment and educate clients on what they need to change moving forward in order to present a stronger financial position,” ING says. “This is creating strong broker-client relationships, and while there is no immediate remuneration for these brokers, they are
THE KNOWLEDGE GAP Research by ME bank found that while nearly 70% of millennial respondents said they felt confident about making financial decisions and around half said they understood the property buying process, their results on a basic property buying literacy quiz didn’t reflect this.
“We have found that one of the most important things to focus on with first home buyers is education” Simon Kahl, The Loan Company providing further support and education, says financial giant ING. “This is an area where tough conversations may need to be had,” said a spokesperson on behalf of the bank. “What we are seeing, though, is that strong brokers use this as a time for knowledgesharing and setting clients on the right path for homeownership in the future.” By coaching clients on what they need to do to qualify for a home loan in the future, brokers are able to move the relationship
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creating lifelong clients here and becoming trusted advisers.” Of course, with first home buyers requiring more guidance, typically over a longer period, it’s understandable that many brokers choose to focus on other client groups, such as investors. However, neglecting the cohort altogether could be a big mistake. “With the market cooling and APRA’s investor-focused lending restrictions taking effect, we expect many investors to be sitting tight and considering their options,” Patterson
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61% of first home buyers failed 27% of owner-occupiers failed 25% of investors failed
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FEATURES
FIRST HOME BUYERS
LOOKING AT MILLENNIALS ING collated responses from 1,000 millennials to find out their views on homeownership
18% 13% 25% 47% 63% 61% 18% plan on buying one day 13% will be saving for a house deposit soon 25% are currently saving for a deposit 47% felt either anxious, overwhelmed or disorganised about saving for a deposit 63% have no savings plan for buying a house 61% either didn’t know or were unsure of how much they would need to save for a deposit
tells MPA. “There will naturally be more first home buyers in the market, which is why it’s worth brokers thinking about how best to service first home buyers.” According to the ABS, first home buyers accounted for 18% of owner-occupier home loans written in July 2018, and figures have been consistently strong over the past 12 months. “First home buyers are coming back into the market after years on the sidelines,” Patterson says. “The break in rapid house price growth will allow first home buyers previously priced out of the market to find affordable entry points, although strong activity will continue in affordable areas.” Unsurprisingly, as an increasing number of brokers begin to recognise the business potential of assisting first home buyers, many are looking to aggregators and lenders for additional support. For The Loan Company, which has partnered with aggregator PLAN Australia
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for the past three years, this support includes the Podium learning academy, which features a variety of seminars and webinars as well as tools and templates. PLAN also helped the brokerage develop a customised version of the platform specifically tailored to suit the needs of first home buyer clients. “This enabled us to have a very specific process with a number of automations, which has led to our first home buyer clients having a better overall experience,” says Kahl. Further support is also provided when it comes to verifying and assessing household living expenses, as brokers are required to meet higher standards in this area when assisting first home buyers. PLAN’s platform connects clients with a web-based solution for the retrieval of bank statement data so they can log in using their own banking details and trust that it’s fully secure. “This then sends six months of statements to the broker, and breaks down the client’s
customer experience and reduce any current complexities,” says the bank. “The solution will be digital, with a view to reducing errors, streamlining current manual processes and improving on time delays.” The bank also offers a first home buyer guide as well as fully assessed pre-approvals, LVRs of up to 95%, and discounts on LMI premiums for those who require this coverage. ME is also stepping up to the plate to offer additional broker support – something Patterson says goes hand in hand with the company’s philosophy of taking the complexity out of banking. “We decipher new regulations and keep brokers abreast of how these changes impact their customers,” he says. “We make it clear and simple.” If brokers still get stuck, Patterson says they can lean on one of 17 business development managers, five state-based relationship managers for new-to-bank brokers, a credit quality hotline, as well as a sales loan support team to help improve
“The break in rapid house price growth will allow first home buyers previously priced out of the market to find affordable entry points” Mathew Patterson, ME spending into categories such as groceries, insurance and loan repayments,” says Kahl. “We receive those in a summarised format, so we can discuss in detail with clients where their money is being spent.” Similarly, ING is also in the process of refining a technology platform that will improve the data collection process for brokers analysing the income and living expenses of their clients. “We aim to implement a solution that will support a positive broker and
conversions and ensure customers settle on time. “We know that speedy and consistent turnaround times are important,” he says. Clearly, brokers, aggregators and lenders are all catching on to the crucial importance of the first home buyer market, and while those taking their first tentative steps onto the property ladder may need some additional attention, they could also be an important customer base for cementing long-term business success.
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PEOPLE
BROKERAGE INSIGHT
Sticking together to conquer challenges Get Real Finance director Kelly Cameron started her finance career in Korea, ‘retired’ at 30, and then built a business that regularly appears in MPA’s Top 100 SHORTLY AFTER obtaining her undergraduate degree in international business, Kelly Cameron moved to Korea for a gig at a merchant bank. A couple of weeks later, the 1997 Asian financial crisis happened. With her Korean language skills and financial education, she became an incredibly valuable asset to the company. While navigating that experience was eyeopening and rewarding, Cameron decided to return to Australia, where she got a coveted job at a big four bank. She worked across a number of departments and gained valuable technical knowledge about how mortgages work and are processed. Passionate about making a difference at a grassroots level and helping people better handle their money, Cameron left the bank after a year to become a mortgage broker. She set a goal to retire at 30 and managed to achieve that on her birthday by selling her first mortgage broking business in Brisbane. But her ‘retirement’ didn’t last long. After just six weeks she launched a new business venture in Sydney. In 2005, Get Real Finance was born. Being in a new city, Cameron had to build her client base from scratch by attending events and networking. She ended up writing $60m worth of loans by year-end. Two years later, she decided to move back to Brisbane with her business, and employed three more
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staff members by 2011. Now she leads a team of seven. Cameron has built a considerable property portfolio, and her clients benefit from her extensive experience in real estate purchasing and investing. She has helped people from virtually all walks of life – from those looking to save for their first home to those trying to get their lives back together after a tragedy.
Sticking together While Cameron considers staff management extremely rewarding, she says it’s also one of her biggest challenges, especially during difficult periods such as times of regulatory change. However, her team deals with industry challenges by openly talking about issues that come their way, and by focusing on moving forward. No matter the problem they’re confronted with – whether it has to do with a loan
application, the lodgement process or an issue within the team – Cameron’s group of talented and tireless colleagues band together to find a solution. It’s that collaborative approach to problem-solving that she believes makes her business stand out from the competition. “We stick together as a team, and we’ve kept our culture, despite changes inside and outside our business,” Cameron tells MPA. “We workshop ideas and we apply them. That is how we keep achieving and overcoming hurdles in the industry.” Cameron has learned the importance of dealing with upset staff members right away, and why sometimes letting someone go is the right thing to do, even if it doesn’t feel like it at the time.
Growing in number and skills In the near future, Cameron plans to change
MOTIVATED BY GRANDMA When Cameron was 10 her grandparents’ house was sold and her family – her grandparents, parents, uncle, brother and sister – were forced to rent. Seeing her grandmother so upset about having to sell, she decided to buy her a new place one day. The experience motivated Cameron to help people buy their own homes and achieve financial security via property investing. Her grandparents lived in the first home Cameron bought at age 25 up until her granddad died eight years ago, and her grandma moved to a retirement place Cameron also bought.
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FAST FACTS Company: Get Real Finance Owner: Kelly Cameron Location: Fortitude Valley, Brisbane Year founded: 2005 Services offered: Residential home loans, commercial loans, equipment finance and property advice Number of employees: 8 Major awards: • 2018 – Women in Finance awards finalist, best broker and best employer; Connective state awards finalist, best broker and best brokerage (under five staff)
some internal roles and bring more people on board, including a new broker. She’s already got someone in mind, a student who she will train over the next few months. On the operations side, she plans to upskill her office manager next year so they’re
In addition to expanding her team, Cameron is looking at growing the commercial finance side of her business and expanding its insurance referrals. Her team has already begun to take action towards that goal.
“We workshop ideas and we apply them. That is how we keep achieving and overcoming hurdles” Kelly Cameron, Get Real Finance able to perform more accounting and finance work to better drive the business. To further spur productivity and growth, Cameron has booked a customer service specialist to come in and give her team tips on where they can improve. She’s also begun using voice memo, which she says is a faster way to capture her ideas before they drift away.
• 2017 – Connective state awards finalist, best broker and best mortgage broking business (under five staff) • 2016 – Connective state awards, best mortgage broker • 2015 – Connective state awards, best broker
“We’ve drafted a business plan for the commercial side, and we’ve recently signed new insurance agreements,” Cameron says. Her advice to brokers who are just beginning to grow their business is simple: write a business plan and find mentors you can share ideas with and depend on to help you bring those ideas to fruition.
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PEOPLE
CAREER PATH
MANAGING CHANGE AMP Bank director of distribution Adrienne Smith has honed her leadership skills through years of experience working in major and non-major banks
Adrienne Smith started her journey in finance as a junior teller at BEGINS IN the ANZ Banking BANKING Group in Auckland, New Zealand. “The responsibilities were many and, as was the case in 2009 those days, very manual.” LEADS EXPANSION Smith’s initial role at Commonwealth Bank was to lead its Queensland expansion project, which involved rolling out a new type of branch considered to be more innovative at the time. In early 2010, she was appointed regional manager of a 2013 branch network in SA/NT, and headed a team of close to 1,100 staff. “I enjoyed the HEADS BDM TEAM challenge of covering a great deal of Australian geography, including leading five areas In 2013, she joined the third comprising 75 branches.” party channel at CBA as a state manager for NSW/ACT, where she led the BDM team during a time of great loan volume and industry change. 2016 “I am proud that two of my BDMs [at CBA] won the REBUILDS BROKING acclaimed BDM of the Year awards across the industry; When Smith started at the Bank of [those were] very proud moments.” Queensland as general manager of third party banking, later called BOQ Broker, the bank was going through significant internal and external challenges. Her 2018 early days at BOQ were all about rebuilding. In 2017, her focus turned to delivery. DESIGNS STRATEGY “It was a very enjoyable time, and a fantastic turnaround.” As AMP Bank’s director of distribution, Smith was responsible for distribution 2018 and beyond strategy and key projects, as well as for DRIVES CONSISTENCY leading the bank’s BDM and support force for brokers and advisers. “It would not be Smith has immersed herself in the culture of AMP Bank. Since she works in a plan without the most important aspect of a branchless bank that focuses mainly on mortgage brokers and financial running an operation – my people.” advisers, Smith is constantly looking at ways to drive the bank’s efforts to
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provide greater consistency to its partners and customers. She also intends to continue representing AMP at important industry forums, such as the Combined Industry Forum.
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