Australian Broker magazine Issue 7.21

Inside this issueViewpoint 20The rationale for fee-for-serviceForum 22Your say on commission cutsInsight 24How to profit from rising ratesMarket talk 26Round-up on the regions

Toolkit 28Credit rep options comparedCaught on camera 32

Vow Financial shows green light

Insider 34

Growth in mortgage cash crops

Lisa Claes

POST APPROVED PP255003/06906$4.95

Unclaimed millionsAggregators sit on unclaimed broker commissions

Page 4 >> Credit policy settings under review amid growth promises

ING Direct is set to challenge the “unhealthy” state of lending competition by undertaking a review of its existing credit policies and their application and ramping up mortgage lending by 20%.

Having come under broker criticism for approving only “gold brick” deals under its tight credit regime, executive director of mortgages at ING Direct, Lisa Claes, has revealed the bank is in the midst of a review of its policy settings. “There’s been a couple of loosening plays, predominantly around the existing business space by a couple of the majors recently,” Claes said. “We have to be cognisant of the competitive market in which we play and want to compete aggressively in.”

Claes said any moves by the lender would still depend on the bank’s credit appetite, and that it would continue to look more widely at mortgage pricing and process “levers”, as well as credit policy. She also said while being reviewed, the bank’s credit settings had served it well in the financial crisis.

ING Direct has flagged it will target a 20% increase in mortgage production in 2011, as part of a strategic push from the global ING Group to focus on its banking franchise. “We quietened down during the GFC, as did many of

our competitors locally and globally, so what we are doing is heading back towards a level of production we enjoyed before.” Claes has also declared brokers would remain a key channel for the bank as it seeks to increase lending. “Our commitment to remain branchless is a testament to that commitment.”

To head up broker operations, the bank recruited Citibank’s

former head of distribution, Peter Hayward, who filled a vacant role as head of broker distribution at ING Direct. Hayward’s appointment comes alongside other senior channel additions, including a manager of partnerships and broker value, and head of customer experience and broker support.

Page 16 cont.>>

Housing still hotRates, house prices to continue to rise

Page 6 >>

Women move upMortgage industry breeds feminine success

Page 14 >>

‘Unhealthy’ market to see ING Direct push

ISSUE 7.21

November 2010

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Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for

Marketing Science at the University of South Australia in December 2008.

The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA.

Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the

subject of telephone interviews.

Commissions not enough to live on: Weston

RMBS funding pressures remainRMBS offerings will take “a long time” to re-emerge as a funding force to stimulate home lending competition, unless there is government action, Homeloans Ltd’s chairman claims.

Speaking with Australian Broker, the non-bank lender’s Tim Holmes said the funding situation for non-banks had improved “marginally” but that the inability of these competitors to make securitisation viable was hurting competition.

“A lot of the second tier banks relied on the securitisation market in order to fund their products – because they didn’t have the balance sheet capacity do so – and where it is still available it is very

The declining commission rates on offer from lenders post-GFC is no longer enough for the average broker to make a living, and will drive diversification and fee-for-service business growth, Advantedge general manager of distribution Steve Weston claims.

“If you look at the average broker today, and the amount of lending they undertake at the commission rates they are seeing, it doesn’t provide enough income,” Weston said in an exclusive interview with BrokerNews TV. “To be considered a professional they need to do more – diversify their revenue base – and in time I’m confident we’ll see the majority of brokers charging a fee for their advice.”

Weston said the commissions paid today are closely aligned to what a bank would pay for a branch lender, and so are effectively a fulfilment fee for taking an application, getting the loan to

settlement stage, and answering client queries on an ongoing basis.

However, he said a “fee-for-advice” – as opposed to a “fee-for-service” – is a different proposition. “What we are talking about is charging a fee for advice for all the other services brokers provide to consumers that you won’t get through an individual lender.”

Weston claims this wouldn’t provide an opening for lenders to

further reduce commissions, and that the shift to a fee-for-advice model of broking was already underway.

Commission cuts since the GFC have already reduced broker numbers by a fifth, he added. “Commissions were cut by 30% on average, and if you think of the level of lending that many brokers were doing it simply wasn’t enough to make a basic living,” he said. “So we’ve already seen in the industry about 20% of brokers exit over the last two years.”

Regulation is partially to blame for some of this recent rationalisation. However, Weston argues the situation is a positive one for the industry. “As we drive for professionalism, to have those brokers as part of our industry who truly are writing reasonable volumes and earning reasonable incomes, it will make that journey so much easier... so it’s good news.”

Steve Weston

expensive, and really doesn’t compete head on with the major banks anymore,” he said.

If the government wishes to restore competition in the mortgage market, Holmes argues it should issue a “wrap-around” guarantee for RMBS. “This might not be palatable but I would argue that it is not much different from the current program they have in place.” Holmes said if the government did guarantee mortgage-backed securities, it would also help local banks meet more stringent requirements for liquid instruments under Basel III.

Holmes said the AOFM could go some way to re-liquefying the market by investing in second-tier

mortgages. Recently, the Australian market

has seen increased interest by international investors in its RMBS securities, however Holmes said this is difficult for the likes of Homeloans Ltd.

“It’s hard to compete on that level, because basically at the moment we are a re-lender of other organisations’ money... at the moment it’s still not what I would say at a competitive level to what the banks are offering domestically,” he said.

Holmes said that ultimately, borrowers would be the ones to benefit from any more competitive RMBS investment framework established by the government.

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4


Brokers who fail to regularly reconcile their upfront and trailing commission statements are seeing millions of dollars in hard-earned commission payments either forfeited to their aggregators or held stagnant in unclaimed/unmatched commission accounts.

National Finance Institute managing director Peter Heinrich has issued a warning to brokers that the incidence of unclaimed or unmatched commissions is a “very common problem” in the industry, and that some aggregators may be holding millions in unpaid payments.

“Some brokers mentioned to me recently they had been quite slack about reconciling their commissions from their aggregators and found when they did they were owed several thousand dollars,” Heinrich said. “One broker who spoke to me said that because he was very quiet at the moment he reconciled his loan book and found he was owed over $40,000 in unclaimed or unmatched commissions – one of his missed commissions was $1,500 from a commercial loan lodged at a bank business centre four years ago.”

Some brokers forfeit their upfront and trail commissions if not claimed within 12 months of receipt by the aggregator, while

some aggregators even gain commission entitlements after a period of only three months if not claimed by their members. However, others hold unclaimed/unmatched commissions in accounts waiting for brokers to reconcile and claim their payments – with Heinrich claiming some accounts total over $1m. Brokers are paid no interest on unclaimed commissions, even if they are able to claim them retrospectively.

Reasons for unmatched commissions can include having more than one surname on the loan, (leading to commissions being paid on an alternate name) names being listed out of order, a loan being submitted directly with a bank business centre, or a broker reference number error.

Heinrich said the blame for the problem lies with brokers who fail to reconcile their commissions monthly to ensure they are paid for the loans they have settled. However, he said aggregators are also not being proactive in matching commissions they hold.

“There obviously is [a problem] and many brokers are generally unaware how big it is,” Heinrich said. “However, neither lender nor aggregators are motivated to check commissions that remain unclaimed or unmatched unless prompted by the broker,” he said.

Bankwest dangles bonus sweetener

Millions in commissions go unclaimed

Bankwest is in the process of luring previously disenfranchised brokers back by targeting specifically-selected brokers and groups, with the offer of a 10 basis point “quality bonus” for business submitted during the final quarter of 2010.

The bonus, available on loans lodged between 7 October and 31 December payable quarterly in arrears, will be awarded should these selected high-quality brokers exceed what the bank calls a “right first time” quality measure of 70%.

David Ewens, Bankwest national retail sales operations manager, told AB the bank wanted to engage and recognise brokers submitting quality business, via the new bonus.

“We’ve seen an opportunity here to engage some quality brokers that may have chosen not to use us in the past, or may have used us at our peak service levels with the Rate Tracker and our most aggressive products in the past,” Ewens said. “We certainly want to engage them again.”

The offer coincides with the bank’s “spring special”, which has waived application fees on all products and relaunched its standard full-doc suite, with loosened LVRs back up to 95%.

Bankwest head of specialist sales Ian Rakhit said the bonus offer is only open to selected brokers who have been invited to participate by the bank. Ewens said the bank had identified a combination of “loyal” brokers that have supported the bank in the past, as well as those brokers it feels would be best suited to the short-term program. The move does not affect Bankwest’s 0.5% upfront commission or ongoing trail structure.

Ewens also responded to criticisms of past service level peaks. “We’ve learned from the peak periods that we had, and our product range is competitive but it’s not as aggressive or market leading as was the Rate Tracker,” Ewens said. Ewens has also assured the market that the bank’s products are priced the same for brokers and branches, despite previous periods of differential pricing.

“Product parity is now clear. There’s no differential offerings between the direct channels or the third party market,” he explained. “There was, when we were going through the GFC an issue where we held a product in the direct channel but withdrew it from the third party space.”

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higher than supply – that’ll act as a floor in terms of where the current house prices are,” he said.

Graham drew parallels with the downturn in the early 1990s when interest rates hit 17%, unemployment was at 11.5% nationally, and NSW property prices had increased rapidly over a two-year period. “Under that sort of pressure, prices only decreased 10%,” he said.

The report predicts that slacker house price growth experienced in early 2010 will turn around later in the 2010 calendar year, and into early 2011. Part of this resurgence will be due to the return of first homebuyers to the market, following a quiet first half of 2010.

“Although first homebuyer activity was pulled forward into 2009 and is down 50% to 60% on the levels seen at the same time last year, demand is forecast to return to more normal levels – around 130,000 to 140,000 approved loan applications in 2011,” Graham said.

However, the house price rises are expected to be accompanied by a series of interest rate rises

Australia’s housing market will see up to 20% growth in house prices over the coming three years, though the Reserve Bank cash rate is also likely to rise and hit 6.5% by mid-2013.

QBE LMI’s Housing Outlook, prepared by BIS Shrapnel, predicts state capitals Perth, Sydney and Adelaide will see the strongest median house price growth, at around 20%.

The most moderate city house price rises will be seen in Melbourne, at 9%, while Brisbane (15%), Hobart (13%), Darwin (13%), and Canberra (10%) will fall in between.

The strong price rises will be propelled by an improving local economic environment, as well as a deficiency in dwelling stocks across most capital cities, according to the report.

Speaking with AB, QBE LMI chief executive Ian Graham quashed recent doomsayer predictions of a cataclysmic 40% decline in Australian house prices. “It’s hard to imagine any price decline in an economy that is growing, where unemployment is falling, and there is significant deficiency of stock – as long as the demand side is

House prices to rise ... along with rates

Cash rate Variable rate

4.75% at June 2011

9.1% at June 2013(Some cash rate

rises not passed on by the major

banks, due to rising margins)

5.5% at June 2012

6.5% at June 2013

Interest rates

QBE LMI HOUSING OUTLOOK: PREDICTIONS FOR 2010-2013

City Price rise

Perth 20%

Sydney 20%

Adelaide 20%

Brisbane 15%

Hobart 13%

Darwin 12%

Canberra 10%

Melbourne 9%

House prices

Housing finance: Upgraders

Upgraders represent the largest component of residential demand, at around two to three times the size of the first homebuyer market. They have the most influence on the market. The first half slowdown in activity is expected to bottom out in the second half of 2010, before picking up again from early 2011. The expected stability in interest rates and the strengthening economic environment should give upgraders the confidence to re-enter the market in larger numbers, while first homebuyer activity is also expected to recover. This should provide an improved market for upgraders’ current dwellings.

throughout the period, with the RBA cash rate expected to reach 6.5% by June 2013.

Despite widespread expectations of a cash rate rise before the end of 2010, the QBE LMI report suggests the next upward adjustment will not occur until the first half of 2011. And while banks continue to threaten rate rises outside of the RBA to recover the cost of funding, the report suggests standard variable rates will only rise to 9.1% in 2013 – despite higher movements by the RBA – as margins improve and not all rises are passed on.

Graham said housing finance volumes would be positive for brokers. “Expectations are

conditions will be more favourable – there will be some higher volumes of new business over the next 12 months, with that increasing further going into 2012/13.”

Ian Graham, QBE LMI

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Mortgage Ezy bullish on low-doc futureare opening up their low-docs again”, in an “extremely positive sign” for this segment. “Currently the major provider of low-doc loans is fairly selective in how they distribute the product,” Driscoll said, referring to Westpac’s RAMS subsidiary. “It will be interesting to see if they can continue selling at the current price as it must be really hurting on the funding side, however time will tell.”

Mortgage Ezy recently cut its variable rate on selected Lo-Doc Solutions by 0.20%, which enabled a wholesale rate for its business partners of 6.89%. This came on the back of moves to beef up its lo-doc platform with policy enhancements aimed at re-energising the self-certified market, most notably with the increase in no LMI or BAS refinances to 70% LVR.

Driscoll argues that while no-docs are finished under the NCCP due to responsible lending requirements, low-docs have a bright future – despite a recently earned reputation. “The issue in the past was that some borrowers – either

Mortgage Ezy chief executive Garry Driscoll has derided opinions arguing low-doc lending is “dead” under the incoming National Consumer Credit Protection regime.

Despite market concerns over the impact and extent of responsible lending requirements on low-docs under the new laws, Driscoll argues “the low-doc is not dead”.

“With rational new policies being adopted to support and protect all parties such as an accountant’s letter corroborating the client’s income declaration enclosed in an application, then the issue raised by the NCCP should be able to be addressed,” he said. Driscoll argues that low-docs have a positive future

as competition improves in the final months of 2010. “Self-employed borrowers did not suddenly disappear from the market, but a certain amount of flexibility did,” Driscoll said, referring to the circumstances following the GFC.

“Undeniably there is a built-up demand for this type of product as it has not been readily available for a few years now, however in recent months pricing and policy enhancements have enabled legitimate borrowers to re-enter the lending market.”

Driscoll said despite margin pressure and competition, “a growing number of the funders to the mortgage management sector

with or without the knowledge of their broker – lied about the level of their income to a point where they had no hope of servicing the loan if they really got into difficulty,” he said. “Couple this with a downturn in the economy and it is no wonder that low-doc loans got a bad rap. In its true form it is a fantastic product for the self-employed who are so busy trying to make a buck their paperwork gets behind and it becomes a real hassle to get their financials done when they decide to buy that investment property.”

Garry Driscoll

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AFG aids licensing HR headaches

Mortgage Choice acquires comparison site

Aggregator AFG has partnered with HR software provider FCB Technology to offer its brokers ‘a simple solution’ for HR requirements, under the new licensing regime. The partnership will provide AFG members with access to FCB Technology’s EnableHR Finance software to assist them with fulfilling the HR

Mortgage Choice has moved into the online price comparison industry with the acquisition of helpmechoose.com.au and a number of its sister websites. The comparison website, which generates tens of thousands of home loan leads annually from potential home loan customers, was acquired by Mortgage Choice for an undisclosed sum.

Mortgage Choice CEO Michael Russell said that the move was “recognition of the fact that consumers are using the internet as their preferred source of self-education about home loans. Consumers are largely making contact with brokers online – whether through direct enquiry to branded brokers or via independent comparison sites,” he said. “Over 70% of Mortgage Choice’s direct enquiries come through online; it made sense to

invest in the other conduit.”While Russell acknowledged

that this was a strategic move, he emphasised that helpmechoose.com.au’s independence would be maintained, remaining “standalone and vertically-integrated with the same staff running the business”.

Even so, he commented that Mortgage Choice franchisees would see a lot more leads in future, both as a result of surplus leads which helpmechoose.com.au may have previously struggled to sell flowing through to franchisees, and down to Mortgage Choice’s plans to grow the website.

“One of the main reasons we were interested in helpmechoose.com.au was because it had managed to generate a significant volume of leads with the bare minimum of search engine

The EnableHR software is a SAAS application customised to meet the unique needs of the finance industry from a modern award, Fair Work Act and NCCP perspective.

Simon Orbell, director of AFG member firm Smartmove is already using the software, and says it is “worth its weight in gold”. “The introduction of the NCCP and the Fair Work Act is frustrating due to the distraction it causes to our core business. EnableHR, in conjunction with AFG, has taken this burden off our hands through the implementation of a cost-efficient, time-efficient application.”

AFG members will be able to access EnableHR at a competitive rate, and both licence holders and credit representatives will be able to access the service.

EnableHR features include

• NCCP compliant HR systems and processes

• Contractor and employee management systems

• Contractor and employee hiring, induction, management and termination processes

• 70 template contracts, letters, forms and guides for contractors and employees

• Finance industry modern award information, wages and NES

• Email alerts and reminders for critical dates and events

requirements of the National Consumer Credit Protection Act. AFG reckons these are “perhaps the most foreign and challenging” requirement for brokers under the new legislation, as it requires licence holders to implement systems and processes for recruitment, induction and training, succession planning, performance management and termination.

“When the NCCP legislation was introduced, we recognised the HR requirements may be challenging to some businesses,” said AFG’s general manager of sales and operations, Mark Hewitt. “EnableHR not only allows a member to cross HR compliance off its list of things but also saves time and provides greater protection for the business.”

optimisation (SEO) – it’s been reliant on search engine marketing and pay-per-click until now,” he added. “Mortgage Choice is the best in the industry at SEO, so our in-house SEO team will be working with helpmechoose.com.au to position the site far more effectively.”

Russell added that he is expecting to significantly increase the volume of consumers coming through the site, and is also aiming to increase the number of broker customers – currently more than 60, including Mortgage Choice – that the website distributes leads to.

“This is a great opportunity for our business,” added helpmechoose.com.au founder Dr Adir Shiffman. “After growing at more than 100% per annum for the last couple of years, we were seeking a business partner that

could help us take the next step. Mortgage Choice was the standout for their understanding of the space and their ability to support us, while taking a hands-off approach to operations.”

The acquisition is Mortgage Choice’s second in less than a year, the first being mortgage aggregator LoanKit last November.

Michael Russell

http://www.thinktank.net.au


12



LVR recovery underway: QBE LMI

Financial pressures push borrowers to budget

NMC embarks on alliance drive

constraint on the lender or borrower’s ability to get a loan,” he explained. “We’ve been prepared and have continued to write business at 95% LVR, so I think whatever brokers have experienced is a result of individual lenders’ decisions, which have restricted loan to values to something lower than 95%.”

However, Provident Capital’s head of distribution – lending, Steve Sampson, said LVRs were unlikely to increase further. “I don’t think that we will get any higher or back to 100% LVR funding in the foreseeable future. The current levels however do look sustainable,” he said.

QBE LMI’s chief executive Ian Graham claims lenders are showing “encouraging” signs on increasing LVRs, following reductions in the wake of the global financial crisis.

Speaking in tandem with the release of the group’s QBE LMI Housing Outlook, Graham said “conditions are improving” when it comes to lender LVRs available in the market. “I would say that some lenders who had limits are now stepping back up, and returning to 95%.”

Graham said previous reductions in LVRs market-wide had been driven by lenders’ own funding decisions. “QBE has not been a

Sampson said the current return of higher LVR lending is a result of increasing economic confidence. “One can only say that the LVRs were reduced at a time when the Australian economy was looking critical in that we could slip into a recession with high unemployment rates.” He added it was a wise move for mortgage insurers to support renewed confidence in the market. “With new housing starts being the lowest since World War II, our population increasing and in need of a further 1.92 million dwellings in 10 years, it would seem like a safe bet to support the move.”

For QBE LMI, Graham said potential increases in LVRs were good news for the business. “We are very encouraged that lenders are prepared to write to 95%, because that gives us an opportunity to do more business with them.”

Graham has also ruled out any

major changes to QBE LMI’s policy settings, revised during the crisis period in 2008. “Any changes we needed to make to our business, we made in 2008. As an LMI provider, we try and write our policies for the long term – we’ve never overreacted or under-reacted – so the market can feel very confident that our policy settings, our pricing and the way we do business will continue, and they should not expect dramatic changes because the overall conditions are uniformly positive.”

Sampson said Provident has seen interest in its high-LVR offering since boosting it to 95% in August. “With interest rates relatively low and unemployment rates relatively low, homebuyers are returning with a level of confidence. There is a fear that if they do not move soon they will be priced out of the market and paying high rents indeterminably.”

National Mortgage Company has kicked off an alliance drive that will see it partner up with a myriad of industry and professional service firms to drive increased loan volumes.

Announcing the first mid-size alliance deal yesterday – with Queensland’s Go Gecko Property Sales – NMC expects to garner leads and provide an on-the-ground professional sales force for allied partners that will approach, qualify and provide funding for prospective clients.

For Go Gecko, NMC’s Cert IV qualified sales team will approach clients under the Go Gecko brand, assess their borrowing capacity, and provide advice to the real estate business on those clients, creating efficiencies for the real estate group while generating NMC business.

National Mortgage Company head of sales Fernando Lemos said Go Gecko is the sixth alliance the group has established, and that it aims to have another six in place by year’s end.

“We are fielding a large number of enquiries from large building firms, accountants and financial planners who are all looking to

diversify but don’t necessarily want to build their own mortgage businesses,” Lemos told Australian Broker.

As part of the new business focus, the group has commenced a broker recruitment drive that will bring brokers in to the NMC business to service its growing portfolio of partners. With 10 staff across the Gold Coast, Brisbane, Sydney and now Melbourne, Lemos said the group is hoping to ramp this up to 100 by June next year across Australia.

“We think it’s the right time to capitalise and the opportunity and niche is there. Licensing is pushing some people away, and this will give them an alternative, to work for an organisation that provides a valuable business and long-term relationship with us,” he said.

Lemos added it would appeal to brokers wanting certainty, and that the business model allows NMC to control the quality of leads, in contrast to lead buying.

Brokers who choose to join the group would essentially be operating under a number of its partners’ brands, providing a “seamless” business face to clients of its allied businesses.

Australians are foregoing the finer things in life to meet the rising costs of living, while more first homebuyers are looking to their families for help with deposits, a new survey has found.

The latest Bankwest/MFAA Home Finance Index revealed that more than 50% of respondents are making financial sacrifices in the face of rising interest rates.

In an effort to reduce costs, 50% of Australians said they are eating out and going out less. Other cost-cutting strategies include: reducing costs at home (47%); taking lunch to work (47%); going on cheaper holidays or not taking breaks at all (42%); or reducing payments on insurance policies and superannuation (15%).

Borrowers continued to be concerned about the impact of rising food costs and interest rates, according to the survey results, and while they felt their financial situation was relatively stable, it was not quite as good as three years ago. Those most concerned are seniors, unemployed, low income earners, students and those involved in home duties.

MFAA CEO Phil Naylor said

“although some of the cost cutting strategies may seem extreme, in actual fact it’s actually down to principles of good financial management; setting attainable financial goals, borrowing as much as you can manage and meeting repayments.”

A record number of first-time buyers surveyed by Bankwest (23%) also indicated they would ask their families to help when raising a deposit for their home, up from 15% in March 2010.

Financial pressures have meant that renters are finding it difficult to make the shift from renting to home ownership, with more than 50% of first-time buyers currently in rented accommodation feeling stuck in a rental rut, up from 38% in March 2010.

Bankwest Retail chief executive Vittoria Shortt said rising rents have shifted many young peoples’ focus back to home buying – though this is becoming harder. “First-time buyers are changing their expectations, and are prepared to make trade-offs to enter the property market, like looking further away from the city or for a smaller property,” Shortt said.

Compromise Percentage of FHBs

Continue to live at home to save a deposit 25%

Now looking for cheaper property 55%

Now looking for a smaller property 42%

Prepared to move city to the suburbs Nearly 20%

House prices



13www.brokernews.com.au

Provident Capital ‘chasing market share’Provident Capital has recently increased upfront commissions and reduced interest rates on its prime products in a renewed drive to become a ‘major alternative’ to mainstream lenders.

Provident’s head of distribution – lending, Steve Sampson, said that the company “is keen to create competition and gain market share in the residential prime and lite-doc area for [its] broker partners”.

The company decreased the interest rates on its Premium and Premium-Lite range of loan products by 0.15% in mid-October for all new applications. “This means that we can provide a Premium home loan at 95% LVR plus capitalised LMI, fully-featured with 100% offset, at a very competitive rate of 6.84%,” said Sampson. “Plus, we’ll provide conditional approval in 48 business hours.”

Sampson said the aim was to “reward brokers upfront for their business”. “While many lenders are tinkering with their commission structures, we’re

determined to help brokers build their cash flows and their business with innovative products, without the impediment of clawbacks,” he said.

He also stressed that Provident is paying particular attention to addressing broker needs. The lender’s research has shown that the top six requirements a broker requires from a lender are access to responsive BDMs, quick turnaround times, quality business support, reassurance over channel conflicts, access to credit staff and a simple commission structure – and Sampson reckons Provident ticks all those boxes (see opposite).

“We read a lot about brokers and consumers wanting a wider choice of lenders,” he added. “We are a non-bank lender that wants to do business, having one of the most diverse product offerings in the market. Yes, we are chasing market share; yes, we do want to be seen as a major alternative to the mainstream lenders – the full box and dice, from low-doc to prime,” he concluded.

Brokers’ top six lender requirements – according to Provident Capital

Access to responsive BDMs Steve Sampson: “We have built a model where our BDMs have service level agreements in returning phone calls and responding to enquiries. They have a four-point personal pledge which they communicate to each broker.”

Turnaround times SS: “We offer cash to a broker if we can’t provide a decision on our Premium deals in 48 hours.”

Business support SS: “We have built a lead generation package to enable brokers to diversify and profit from the non-conforming loan sector.”

Channel conflict SS: “We don’t have any.”

Access to credit staff SS: “Our credit staff communicate with our broker partners about their deals directly and make suggestions on how to work a deal.”

Simple commission structure SS: “Our Premium product commission structure is straightforward. We have no commission clawbacks or other impediments such as volume hurdles.”

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14


Mortgage industry fertile ground for women

BOQ to exploit finance nichesBank of Queensland (BOQ) has confirmed it still has no plans to return to the mortgage broker market after withdrawing from it back in 2004. The bank will target equipment, vendor, debtor and motor vehicle finance growth over the coming financial year. Announcing its $197.1m 2009/10 cash after tax profit in mid-October, an increase of 5% on last financial year, BOQ detailed the launch of BOQ National Finance, a new finance arm which will spearhead this focus on a growing niche financing business.

David Liddy, BOQ managing

Kathy Cummings, said she was not surprised by the results. “There are similar trends in the mortgage broking industry, for example, there are no women at the executive management level of any aggregators,” she said. However, Cummings argues that despite the general AICD results, “more women are finding their voice, particularly younger women”, at all levels of the mortgage industry.

“Recent years have seen growing representation of females in industry bodies and many of these women have developed strong leadership positions and are highly respected by their peers,” she said.

Cummings gives the example of the MFAA’s NSW/ACT council, which boasts a female president – Alison Whittle, from Tiffen & Co, The Mortgage Detective – and members Katrina Rowlands (Mortgage Success), Donna Beazley (Professional Finance

Women are making significant inroads into the mortgage industry, despite difficulties faced generally in increasing their representation in Australia at senior management levels. Recently, ANZ chief executive Mike Smith delivered results from an Australian Institute of Company Directors (AICD) census of women in leadership roles. The survey found representation on boards and at executive management level among the ASX’s top 200 companies had shown little improvement over the past decade, remaining at 8% for boards since 2002. “To be blunt, what it shows is that not much has changed for women on boards and in management in Australian public companies since the census was first taken in 2002 – and perhaps even since I first worked in Australia over 20 years ago,” Smith said.

CBA executive general manager, third party banking,

Mortgage Brokers) and Sarah Wells (Red Concierge) – which is a gender representation of 40%. Currently, women make up approximately 30% of the MFAA membership, and some of them are the highest volume writers in the country. The Australian Mortgage Awards held recently in Sydney in September also recognised two of these high performers – Wendy Higgins and Irene Cujko – who are both from Mortgage Choice. Higgins and Rowlands also featured in the top 10 of MPA’s Top 100 Brokers Survey, a gender representation of 20%.

Cummings said the progress of women in the industry will continue. “Women are naturally suited to mortgage broking as they have instinctive rapport building skills and strong empathy,” she explained. “I think women are intuitively able to interpret and understand their clients’ financial needs. This helps them to recommend the most appropriate solutions.”

The flexibility of mortgage broking to women is also an attraction. “It allows women to lead a lifestyle that suits their business and family life – in this way women can be both a financial provider and a primary carer for the family,” Cummings explained.

There are challenges, however. “Mortgage broking is predominantly male and networking can be difficult for many women. Also women do not always get the opportunity to

develop their business skills. Cummings said women need to stay relevant and network: CBA has developed its Women in Focus coaching program, which builds business skills in a range of areas, including strategic thinking, business finance, brand and value propositions.

“Third Party Banking hosted seven of our successful female brokers to the inaugural Women In Focus coaching program in Broome last June, where they received expert coaching to help them take their businesses to the next level,” Cummings explained.

As for her own success, Cummings attributes part of it to building a diverse team. “I am a strong advocate for diversity. I have consciously developed a strong and diversified team around me; more than 30% of the senior management of Third Party and Mobile Banking is female,” she said.

ASX Top 200: A struggle to the top

• Proportion of women on ASX 200 boards in 2002 was 8%: today it is still 8%, with women chairing only five of those Top 200 boards

• At the CEO and executive management level, women hold six CEO positions, compared to four in 2008, and 8% of executive key management positions compared to 7% in 2008

• On both measures – the number of women on boards and in CEO and executive roles – Australia lags considerably behind Canada, the US, the UK and South Africa

director, said the new business intends to exploit “real opportunities” to create a “best-in-class” finance company. “We’ve created a new division, BOQ National Finance, to manage the bank’s equipment finance, vendor finance and debtor finance businesses,” Liddy said. “We also intend to enter the motor vehicle finance market within the next year.”

The bank has confirmed it will continue to use finance brokers to source equipment finance business as part of this BOQ National Finance push. A spokesperson told Australian Broker the bank would continue to support and grow its business in the broker space when it came to equipment finance business. “Our strategy is to continue to support those brokers that support us with quality, well-priced transactions,”

the spokesperson said. The bank hopes the new division will grow life-time customer relationships, which will then be transitioned to banking customer service ‘experts’: BOQ’s branch owner-managers.

The profit rise was assisted by lending growth that outperformed the market by 2.5 times, in tandem with deposit growth measured at 1.5 times system growth. The bank indicated its focus will remain on well-secured housing and SME lending. The group’s full year net interest margin increased by 4 basis points to 1.6%, despite a contraction in the second half of 2010 due to higher funding costs. Liddy added that the bank had delivered record profits despite difficult economic conditions, and that its bad debt losses had peaked in FY2010.David Liddy, BOQ

Kathy Cummings, CBA


Non-bank overhauls low-docsResimac has adjusted its low-doc offering in light of new legislation to make it more attractive to mortgage managers. The non-bank lender will now permit self-employed borrowers to provide an accountant’s letter in support of their income declaration for its Prime Lending Low-Doc product. The product will now be offered at up to 80% LVR plus LMI capitalisation. Resimac claims the introduction of the accountant’s letter option will ensure it is compliant with NCCP. In another move, Resimac will also re-launch its Specialist Lending Low-Doc product, which allows for a maximum LVR of 85% and includes the purpose to refinance, and permits unlimited cash out to 65% LVR and up to 25% cash out to 80% LVR with substantiation.

Postcodes yield phone leadsFormer Loan Market executive director John Kolenda has launched a national lead generation business targeting independent brokers aiming to gain an edge in their chosen postcode. The national business – 1300 Home Loan – will allow brokers to become exclusive recipients of postcode-specific leads generated through the new web and phone-based 1300 business. Kolenda is backing the broker pitch with an $8m consumer marketing ‘war chest’, designed to position the business as a leading source of local, independent broking advice. The group is planning to recruit up to 1,000 brokers Australia-wide, from the 2,500 postcodes which it sees as being viable. “The system will enhance a broker’s position in their local market and help them build a true presence through a significant ongoing marketing campaign,” Kolenda claimed.

Pisces upgrades broking softwareMortgage broking software provider Pisces has replaced its existing technology with a new ‘Spectrum’ product suite. Known for its electronic loan application lodgment platform (eApp) and broker tool (MDS), Pisces’ new Spectrum suite incorporates reporting for NCCP compliance, as well as both online and off-line capabilities. “We are completely replacing and superseding all the existing technology,” Pisces general manager Vincent Turner said.The upgraded software is in the process of being rolled out to Pisces’ 1,500 end users. It incorporates CRM software, calculators and loan modelling, loan product comparisons, electronic lodgment and tracking and calculating of commissions.

INDUSTRY NEWS IN BRIEF

Prime Finance meets short-term needsSydney-based short-term lender Prime Finance has come to market with a 60-day loan product for home owners in need of fast finance. The product – offering loan amounts from $100,000–$250,000 – has been launched as borrowers struggle to access equity in their properties due to new consumer credit laws. Prime Finance said the new 60-day product takes the pressure off borrowers, and gives brokers an adequate time to re-finance. The rate is a genuine 2% per month, with interest pre-paid for the 60-day term. The valuation, legal, and brokerage fees are all included in the loan application fee, with no discharge fees.

FHBs to flee rate risesFirst homebuyers will be the hardest hit by Reserve Bank or lender interest rate rises, according to Loan Market. A survey conducted by the brokerage found 68% of 157 brokers surveyed in October believed rate increases would have the most impact on those looking to enter the property market. A further 19% thought investors would be hit hardest. Loan Market chief operating officer Dean Rushton said an easing of lending criteria from some banks had been encouraging first homebuyers back into the market, but rate rises could stifle that activity. “There are still expectations of the RBA raising the cash rate from its current level (4.5%) or of the major banks lifting rates independently of the RBA. Our brokers are overwhelmingly of the view that this scenario will hit first-time buyers hardest,” he said.

Housing crash manageable: FitchAustralia’s banks could handle a housing price fall of 40% and an 8% home loan default rate, according to preliminary results from Fitch Ratings’ stress tests. The ratings agency found banks would endure a maximum $10bn in losses in the third year of a severe housing crash and mortgage insurers would lose about $7bn. Fitch began the stress tests in response to questions about the sustainability of Australia’s housing market and its ability to weather a fall-out. John Miles, director for financial institutions at Fitch, told a briefing that “losses, even in the most severe scenario, are manageable”. Fitch tested three scenarios – mild stress with mortgage defaults of 2.5% and 20% drop in home prices; medium stress with 6% defaults and 30% decline in prices; and severe stress with 8% defaults and a 40% price slump.

http://www.lifebroker.com.au/broker


16



Assured shares national vision

RBA signals cautious optimism

South Australia-based Assured Home Loans is gearing up for a national growth push that will see the home loan advisor provide leads and start-up marketing funding for brokers keen to prove their ability to spearhead green-field franchise operations in new states.

Having opened its first interstate office in WA this month, Assured CEO Garry Williams said the group is rolling out a new model that will allow interested brokers to choose from sales of the group’s online Ratebusters product – which he said brokers can successfully do over the phone from anywhere – or local business generated through an Assured-branded franchise.

Williams said Assured plans to set up “master franchises” in all Australian states in the future to manage the national effort on the ground (starting with its first in WA) and will also recruit more brokers to solidify its position in South Australia, its home state.

Williams is labelling the approach a ‘dine-in’ (franchise) or ‘take-away’ (Ratebusters) choice for brokers that will give new recruits a choice of style and revenue stream.

“We’re ready to really drive our whole operation up a notch and I’m keen to bring in some good operators who have the drive and vision that matches Assured’s,” he said.

Assured plans to test potential candidates for the start-up franchises across Australia by

handing out 40 free leads, and between $5,000 and $10,000 in marketing funding – then assessing their ability to sell and grow a business. “There’s no cost to these brokers, no risks and free leads which they can turn into cash,” claimed Williams.

It will recoup its initial investment in brokers by paying lower commissions at first, but payments would revert to normal levels once a business was up and running.

“I’m really excited about this development and believe it’s the perfect springboard for savvy operators to hit the ground running and really shake up the market.”

Williams said the group was choosing to expand now as it has its “model right”, primarily propelled by confidence in its Ratebusters online offering – which has been awarded ‘Mortgage of the Year’ in 2010 by consumer title Your Mortgage magazine.

The Reserve Bank of Australia has expressed guarded optimism for the future of Australian property financing in the midst of the continued global tightening of credit availability.

In a speech delivered to the Queensland division of the Property Council of Australia in early October, the RBA’s Deputy Governor Ric Battelino suggested that the home and commercial property finance markets show signs of life, despite an overall slowing of credit growth. Battelino stated the Australian economy is growing around trend, while inflation remains within the RBA’s target range. “This is a comfortable position to be in,” he said.

But in spite of the overall health of the economy borrowers are still displaying caution, with credit growing at a moderate 7% over the past year and household

savings on the rise. “All this is consistent with households taking a more cautious approach to their finances.”

According to Battelino, most of the growth in credit since 2005 has been due to households borrowing for housing, while credit card debt, personal loans and margin loans have remained fairly flat.

Addressing the home loan market, Battelino indicated the weakening of other areas of borrowing is not a cause for concern for the RBA, given the relative health of home lending.

“The current picture is one where borrowing for housing is broadly growing in line with income. House prices are stable and there is little appetite for other forms of debt. From the Reserve Bank’s perspective, this seems to be a satisfactory state of affairs,” he said.

cont. from cover >>Claes has indicated service

improvements for brokers will be forthcoming, including giving access to credit assessors, and enabling brokers to order pre-approvals prior to loan application. The bank is also looking at more general improvements to its channel processes.

The lender recently priced $900m worth of residential mortgage-backed securities (RMBS), an offer that was upsized from $500m as a result of investor demand. The bank expects RMBS to assist with its intended mortgage expansion. Chief financial officer Mark Mullington said the securitisation deal was part of

an ongoing strategy to diversify the bank’s funding base. “ING Direct is committed to growing its mortgage portfolio in coming years and a diversified funding base is a key to that strategy,” he said.

Claes said she hoped the push would improve competition. “Having four institutions hold up to 90% on the assets and liabilities side I think is unhealthy. A dynamic market served by many competitors is always a healthy one.”

She urged brokers to consider alternatives. “Most brokers do a great job of helping the customer make the right decision in terms of the choice out there, it’s just that they have, for a number of reasons, concentrated amongst a few in

the last couple of years. I think at the end of the day if we have more players with increased market share playing in that market it is better for the consumer.”

Claes argued this is almost “mandated by NCCP legislation, with its responsible lending requirements. I think it’s difficult to be responsible when you are on a consistent basis broking between one or two lenders,” she said.

Commenting on Peter Hayward’s appointment, Claes said the bank had been looking for someone who had “achieved runs on the board in terms of developing a high performing BDM team and garnering the respect and support of broker distribution”. Citibank director

of mortgages, Steven Ramage, said Hayward was “fantastic for Citibank”, particularly in regard to building relationships with brokers. “His strategies around the broker channel have been very, very good, and have helped the bank in a lot of ways in that area,” Ramage said.

Citibank will be replacing Hayward, according to Ramage, though it has made a decision to split responsibilities for broker and direct distribution, so is recruiting for both roles.

Ramage said Hayward’s departure would not impact Citibank’s broker offering. “We’ve still got our full commitment to the broker channel, and some very good people within the business still here,” he said.

Assured’s broker pitch

• Restructured commissions aimed at improving the quality of broker submissions on deals

• Questions over how conversion rates are being measured/judged

• Concern over removal of trail in year one by St.George




Late payments peak in Sydney suburbs

Commission bonanza in high-sale locales

The outer suburbs of Sydney hold some of Australia’s worst-performing mortgages, a report on mortgage payment delinquencies from ratings agency Moody’s has found. A snapshot of 750,000 mortgages belonging to Moody’s-rated RMBS during March 2010 has revealed Sydney’s Fairfield-Liverpool as the worst location in Australia for late payments.

The region (encompassing the suburbs of Fairfield, Liverpool and Casula) was measured as having 2.77% of borrowers who were failing to make their payments on time (30+ days). These figures put Fairfield-Liverpool’s homeowners at twice that of the national average.

South-western Sydney (encompassing Macquarie Fields, Minto, and Campbelltown) had the next-worst ratio of late payers, with 2.55% of borrowers falling behind on their mortgages. When measured by number, most of Australia’s late

Australian property sales cracked the $200bn mark in the 12 months to July 2010, in a commission bonanza for brokers in top-performing suburbs. According to RP Data, sales were measured at $213bn Australia-wide, which made for a “healthy” 30% boost on the $165.5bn dollar value recorded five years ago in 2005.

RP Data analyst Cameron Kusher said conditions in top-performing localities made them a rich hunting ground for property professionals

payments come from north-western Sydney (Penrith, Mt Druitt and Blacktown), accounting for 6.46% of delinquent loans. Melbourne and Brisbane performed considerably better, with Moody’s rating their delinquencies as “strong”, with Melbourne in particular scoring better than the national average.

While playing down the significance of the Moody’s figures, Smartline personal mortgage advisor Kevin Lee said the results are partially due to Sydney being more expensive for borrowers. “The average Sydney mortgage is up to $200,000

remunerated by commissions. “For vendors, these conditions equate to additional profit and

larger than other capital cities. The bigger the loan, the more it costs to service, and the more the seven interest rate increases affect you,” he said.

Lee also said these areas are all first homebuyer capitals of NSW. “By the very nature of a first homebuyer, these are the households that will always feel the early stresses of increased costs of living, transport and rising interest rates.” The opposite was true closer to the city, Lee said, because well-paid young professionals choose to live and work in the CBD and inner suburbs, “where they don’t need to spend money and time

on cars, instead getting about on public transport.”

Andrew Bodnar from The Finance Group, who is based in Liverpool, said he is seeing signs of mortgage stress in the area. “It’s a combination of people losing jobs, and interest rates going up at the moment – things like that.” Bodnar said part of the reason was that the business was busy with a predominantly first homebuyer client base, which makes up more than 50% of work. Bodnar said this had not been impacted by the drop-off in first homebuyers market-wide in the first six months of the year.

Rank Region State Delinquencies within region

Region’s contribution to total Australian

delinquencies

Region’s contribution to total loans written

1 Fairfield-Liverpool NSW 2.77% 4.24% 2.05%

2 Outer south-western Sydney NSW 2.55% 2.86% 1.50%

3 North western Sydney NSW 2.37% 6.48% 3.65%

Falling behind: Australia’s worst performing mortgages

Suburb Number sold Median price Total value 12-month growth

Mosman, NSW 329 $2,100,000 $850,819,300 6.7%

Brighton, VIC 321 $1,700,000 $650,044,388 13.3%

Kew, VIC 288 $1,475,000 $473,311,882 35.1%

Toorak, VIC 149 $2,800,000 $473,003,734 10.0%

Vaucluse, NSW 97 $3,800,000 $453,301,300 16.3%

Suburbs with greatest total value of house sales

Source: RP Data

for property professionals it translates into additional commission,” Kusher said. “The next time it seems as if there are a lot of real estate agents or mortgage brokers in one of these areas you can understand why – it’s because these suburbs have the greatest amount of commission to be earned.”

The greatest total sales value during the 12-month period occurred in the Sydney suburb of Mosman, which accounted for 329 house sales valued at $851m. Mosman now holds a median house price of $2.1m. Other hot localities were Brighton, Kew and Toorak in Victoria, while Vaucluse rounded out the top five by total value at $453m.

Kusher said a trend seen across suburbs that have recorded the greatest total value of sales for houses was that only one of the top five performers in

each state had recorded a fall in its median price over the last 12 months. This was Mosman Park in Perth.

The unit market showed similar results to the housing market, with only two top suburbs (Queensland’s Hope Island and Southport) recording a fall in median unit price over 12 months. Many other suburbs saw growth in excess of 10% for the year.

Kusher added it was not only the most expensive suburbs or those with the greatest number of sales that showed the greatest total value in sales. Assuming a 2.5% commission rate on house sales, RP Data said the amount of stock transacted over the last year yielded $5.3bn in commissions for real estate agents, with over $21m of this bonanza coming from the Sydney suburb of Mosman alone.


18


http://www.mortgagebroker.citibank.com.au




20 www.brokernews.com.au

Australian Broker gathered views on the viability of fee-for-service broking, following Steve Weston from Advantedge’s declaration that commissions are no longer enough to live on.VIEWPOINT

To have your say, or to view Steve Weston’s interview on commissions, visit us online at http://www.brokernews.com.au/tv/

without charge, the problem is us. ‘We’ collectively have allowed lenders to lull us into thinking the mortgage broking service should be delivered free!

It is true for a number of years one could run a successful brokerage just on the fee the lender paid, but things have changed and the commissions paid now will not support an average brokerage business in the current tight lending environment.

I think it’s important to note we are not employees of the banks, as many brokers seem to think. We run our own businesses and how we derive our income should not be reliant on the lender dictating how much we should earn for a transaction. But there is one issue to confront by introducing ‘fee-for-service’ – it’s that the broker down the road will continue to offer the same service for free.

As a trainer for Intellitrain I discuss this very subject with students, and that is a concern they have. Let me tell you of one situation: two brokers work out of one practice, one charging $770.00 for every client he manages, and the other broker offering the same service free. Who has the most profitable practice? The broker who charges the fee!

What we need to realise is we are not competing with the banks, as the service they provide when arranging a loan is not the same as the service we provide as a mortgage

Darryl Benn The Mortgage Planner GroupThe interview with Steve Weston from Advantedge regarding charging a ‘fee-for-service’ (see http://www.brokernews.com.au/tv/) – or a ‘fee-for-advice’ as he dubs it – has stimulated a range of views from brokers, from telling him to get out of his ‘ivory tower’, to asking why a customer would pay for something they can get for free at the branch down the road.

Yet brokers who have been in the industry for many years know before lenders paid commissions their only source of income was to charge a fee.

People will pay for professional service. The problem is not the ‘bank’, which arranges loans for clients

Comment

broker. Let me explain. Which lender will sit with a client and compare their loan with other lenders and recommend they go to a competitor? Which lender will even compare loans that they have at their disposal to find the most suitable and cheapest loan? Which lender would say to their client, “Well the loan we have is more expensive than the other bank we own down the street, so I would recommend you talk to their loans officer”? Which lender will take the time to assist the client with a loan restructure, a cash f low management strategy, will assist the client to qualify for a loan when they are not eligible, or research a range of lenders to find an appropriate lender when their preferred lender of choice said no? What about when the loan has been submitted; which officer in the bank will fight tooth and nail to have a lower valuation reviewed, and sort out drama after drama that is confronted during the loan process to settlement?

Only a mortgage broker does this and they should be proud of the service they provide their clients! This is only a few of the services we are providing, I know of one broker who specialises in first homeowner business and he, on average, spends nine months assisting the client to prepare for a loan submission. Mortgage brokers are only paid by the lender to complete an application form, collect required documentation

FEATURED VIEW

Stephanie Retchless The Finance FairyFor years now I have seen the continuing decline in broker commissions and have been concerned that lenders continue to erode a reasonable commission base with the exclusion of first-year trails. The value provided to clients is no less if the loan is a $20,000 renovation loan or a $1.5m investment home loan – the workload is the same, the remuneration is not. Hence the need for a ‘fee-for-service’: I do not like to use the phrase ‘fee-for-advice’, as it is connotative and can be used

against the broker as most do not hold a DFP and rely on their Cert IV. As a former bank manager I am well aware of what the word ‘advice’ can do to you! The value of a business is via the ‘book’ which in most cases continues to remain static, that is until the lenders determine to give you a trail in the second year with most also weighting that trail on the basis of retention. Indeed lenders also weight your upfront commission on the basis of applications approved and for what amount. Some brokers have been excluded from accreditation if the

volume of their applications falls below a certain level. So, no, commissions are no longer enough. I once had a client who wanted to purchase several investment properties and I spent over 60 hours working on various scenarios and – you guessed it – they took my IP and went directly to the lender. Why? Because they expected a better deal with that lender. Had I at least charged a fee it would have part-way compensated me for the time lost on this deal. Now, I do charge a fee-for-service, and will continue to do so. In short, in the future – yes to fee-for-service.

and assist in the process to settlement; they are not paying you for all the other duties you perform in the process.

The problem is a mind-set issue: lenders have lulled brokers into thinking to deliver the service for free to the extent they don’t honour ‘finance broker contracts’ and pay them from the disbursements of the loan. I believe mortgage brokers have for many years undervalued their service by relying on the lenders to dictate their income.

As a trainer of mortgage brokers in this area I am coming across many brokers who have in some shape or form successfully introduced charging a fee for service.

How do I see the industry in the next few years? Rather than just being a service facilitator between client and lender, I see our industry developing into a profession where the loan transaction will be one aspect. There are a number of services we can offer now such as loan restructuring, cash f low management, loan affordability analysis, qualification for loan assistance, debt restructuring, debt management and post-settlement reviews, just to name a few within the framework of what we currently do as mortgage brokers.


http://www.resimac.com.au


I’ve been charging fee-for-service since day one in 2002 which has given me the funds to provide a

‘trusted adviser’ service throughout…Today nearly one-third of gross revenue is non-commission increasing total revenue to that of the higher than pre-commission cut period

FORUM SPECIAL: COMMISSONS

offset for the broker commissions, as they did not incur the marketing and overheads they would otherwise require for a branch-generated loan. Broker clients are equally better off, and all clients have a real choice. Clients who wish to get personalised and comprehensive advice regarding their banking will be willing to pay for the service.Commented by: Raj Prasad at 08 Oct 2010 11:20 AM

I think that this article is spot on! With the increasing amount of training, compliance and business administration required, the costs of running a small finance broking business, and the

time that it takes to do so professionally, have spiralled upwards quite dramatically. Lenders cutting commissions in addition to this, has forced brokers to diversify and provide a more complete service to their clients. Whether this is a good thing or a bad thing only time will tell, but from a personal perspective, I am excited with the many opportunities this will provide for professional brokers and the finance broking industry as a whole.Commented by: Bill Ryan, Ryan Home Loans at 08 Oct 2010 12:19 PM

Until clients can access loans with banks direct without a fee I cannot imagine clients paying a reasonable fee to a broker for residential and investment loans. Banks have to realise that the

market will improve with new non-banks entering the market.Commented by: Frank Ramsey at 08 Oct 2010 01:44 PM

Commissions are coming down – that’s the reality because banks can in the current environment. If you don’t diversify you have to charge fees to stay commercial, unless you can support yourself

by other means. The only way to achieve a level playing field with the banks is to get loans issued at a ‘base rate’ – without commission – then either add commission on top to get a new rate or charge a fee. Banks would of course charge (low) commissions because they have scale but brokers could charge fees and offer lower rates. Makes the value proposition more enticing, especially for larger loans.Commented by: Matthew at 08 Oct 2010 03:02 PM

Mr Weston laments that one-fifth of brokers have left the industry over recent times. This is not a bad thing if you are one of those who choose to continue in the industry. Whilst I agree with one of

the respondents that there are some good brokers who are leaving our industry I certainly hope the majority leaving are those who saw broking as an easy way to make a fast buck. As a 30-year industry participant initially working for lenders and then 12 years in broking, I have seen the standards within the mortgage industry deteriorate considerably. I say make it harder to get into the industry, make it harder to satisfy the lenders’ requirements (both for brokers and borrowers), and therefore make broking a sound and professional occupation.Commented by: Troy at 08 Oct 2010 05:48 PM

When Advantedge’s Steve Weston claimed commissions were no longer enough for brokers to live on and the industry would have to move towards fee-for-service, there was an outpouring of agreement. Here’s what you had to say on the Broker News forum

Steve Weston is on the money. The industry and structure as we know it has changed for good. Barriers to entry are still comparatively low, but why would a start-up or a company

commit capital to the current model? You can’t build a real or sustainable business. Broker share in the US has dropped below 10%, we’re also heading south!Commented by: King Wally at 08 Oct 2010 10:08 AM

I wholeheartedly agree with everything Steve Weston has said, however I still can’t get my head around fee-for-service. Why would a customer pay for something they can get for free at

the branch down the road? All that will encourage is for people to use brokers as a free comparison service and then apply to the lender directly or online. We are not like accountants who can justify their fee with what they save you in tax, or a financial planner who can justify their fee with how their investments perform. The way I see it, the current scenario is a win-win if only the banks would stop being greedy. Consider the fact the banks are getting a relatively cheap source of referrals, and getting fully packaged deals without having to take care of the customer-facing side of the process. Customers are getting a free service and brokers (hopefully will be) earning a fair income for the work they do. Seems like a perfect scenario, if only someone could get that through to the banks.Commented by: Elle McKenzie at 08 Oct 2010 10:21 AM

These comments are deflecting the real reason for declining incomes. Simply stated: lenders have significantly cut incomes to brokers who now are having to find other income streams

to preserve parity. The vogue concept of diversification is not a panacea for income loss: diversification was always an option before commissions were cut. Charging a ‘fee-for-service’ to a ‘fee-wary’ world will mean an absolute change of culture and will hardly make brokers more professional. Rather than viewing brokers as an imposed expense, lenders should be viewing them as part of their sales force who would otherwise need to pay a salary and other concomitant statutory payments to sell their products. Lenders outsource much of their other specialised work – mortgage broking is no different!Commented by: Kevin Hiney at 08 Oct 2010 10:23 AM

A lot of consultants are pushing brokers into value-added services, like life and general insurance. The equation is not that simple. The dynamics of a business that offers a range

of products is very different from a broking business. As your business changes, its service offering the costs and complexities of providing that service also change. Yes, there is an upside on income, but there is also a downside to cost, complexity, and PI risks etc. Unfortunately, brokers are signing up for options without adequate advice.Commented by: Raj Prasad at 08 Oct 2010 11:17 AM

I agree that the cost of running a professional practice has substantially increased in the last three years whilst we have taken at least a 30% hit on income. I believe that fee-for-service

is the only way forward. The banks will have control over the broking business as long as we rely on a commission structure. They will always change the commission structure to suit them, relax it when they want broker business and tighten it when they do not want market share. There is no reason why fee-for-service, when properly disclosed and agreed with a client, can be paid from the product – for example, a home loan or a direct debit, either as an upfront or on a regular basis. The bank should then discount the broker-generated loan with an

To join the debate, go to www.brokernews.com.au/forum

COMMISSION DECLINES, MAKING A LIVING, AND FEE-FOR-SERVICE BROKING

Andrew Gardner at 08 Oct 2010 10:32 AM


One year onWhat a difference a year makes… or not. Australian Broker reflects on the punditry, breaking news and influential trends that made headlines in the magazine 12 months ago

Headline: Australian house values breach $400,000 (page 22)

What we reported:The median value of an Australian house breached the $400,000 mark for the first time last August. Data released by Residex showed the median house value had reached $408,500, an increase of 2.5% on the figure recorded the previous year. The Northern Territory experienced the largest growth with unit values increasing by 19.4% over the same period, while Darwin recorded a unit value increase of 15%. Perth and Western Australia struggled, recording house value falls of 6.2% and 8.3% respectively.

What has happened since?The national median house value currently sits at $410,000, according to the latest RP Data-Rismark Home Value Index, representing a $5,000 decrease from the July figure of $415,000. The median house price for capital city dwellings is $457,000, an increase of 8% over the last 12 months. The best-performing capital city has been Canberra, with home values up 3.9% over the three-month period to the end of August this year, and an increase of 13% compared to the same time last year.

Headline: US brokers warned of slow recovery (page 20)

What we reported:Chief economist at the US-based Mortgage Bankers Association, Jay Brinkman, warned of the challenging and long-term effects facing the US as efforts began to rebuild the economy following the GFC. Brinkman said the telling issue would be the response of interest rates once the Federal Reserve stops purchasing mortgage-backed securities (MBS), which was scheduled to occur in March of this year. The US Federal Reserve purchased 90% of the available MBS in August 2009. Brinkman predicted the unemployment rate would peak at 10.2% in the second quarter of 2010. In August last year, the US unemployment rate was 9.8%. He also

Issue: Australian Broker issue 6.21

believed real GDP growth would hit 3% in the fourth quarter of 2009, and then decline to 2.2% for each of the following two quarters.

What has happened since?After spending $US1.25 trillion, the US Federal Reserve officially ceased the buying of mortgage-backed securities on 31 March. The official US interest rate currently sits at 0.25%, a figure that has remained unchanged since January of 2009. The US unemployment rate did rise slightly over the second half of last year, reaching double figures at 10.1% in October. Unemployment officially sits at 9.6% at present. The US GDP for the last quarter of 2009 exceeded predictions to grow 5%. In the first quarter of this year, GDP grew by 3.7% before recording a modest growth of only 1.7% in the second quarter.

Headline: Real estate is ‘richly’ appealing (page 16)

What we reported:Brokers who were looking to target a niche market in the coming year were advised to consider Australia’s 129,000 high-net-worth individuals (HNWIs), those people with financial assets exceeding $US1m. The 2009 Asia-Pacific Wealth Report, published by Merril Lynch Global Wealth Management and Capgemini, predicted HNWIs would hold almost a third (31%) of their financial assets in real estate in 2010 and they would be investing here at home. The report expected Australian HNWIs to invest 75% of their money in the Asia-Pacific region in 2010. The predicted real estate figure was down on the 41% held by Australian HNWIs in real estate in 2008, but higher than the 28% recorded in 2007.

What has happened since?In 2009 Australia’s HNWI population rose to 173,600, an increase of 34% from the previous year. With a combined wealth of US$519.4bn, Australia’s HNWIs account for 5.7% of the region’s HNWI population, in third place behind Japan and China. According to the 2010 Asia-Pacific Wealth Report released in September, Australian HNWIs were the heaviest investors in real estate in the region, with 40% of Australian HNWI assets held in property.

http://www.rpdata.com

24

Insightwww.brokernews.com.au

Name a business leader you admire. Why?David Morgan, former CEO of Westpac Banking Corporation. He was an inspirational leader with unlimited energy. His ability to motivate people to do great things was exceptional. He never ever forgot to thank people each and every time they achieved something. He never took achievement for granted.

What main goal/s got you to where you are?Treat everyone that you work with (both colleagues and sub-ordinates) fairly and empathetically. In the long term you will get more from people this way towards achieving your and your company’s objectives.

What character trait has helped you the most in business?Take a genuine interest in your people. Understand what is important to them, what motivates them and what their career objectives are. I don’t believe you can build a high-performance culture without “giving back” to people who help you build that culture.

What is the key to great business relationships?Get to know your business partner well. Not only how their business works, but understand their business and leadership style. Get to know them personally and if possible develop a social relationship and trust that allows you to discuss important/sensitive issues without the risk of accidentally triggering animosity.

What’s the first thing to look at when growing a business?People. Ensure you have the right people running the show. Do management and their teams have the right skills, know what they are doing and are they in touch with all their stakeholders? Is their alignment between the company’s culture, strategic objectives and the performance reward system? Then of course, ensure the management accounting system is sufficiently robust to report key business drivers and performance indicators to allow effective and timely decision making.

What’s the best piece of advice you’ve ever received?Treat the people around you, whether it’s your family, friends, management team, junior staff or colleagues with respect and always show interest in what they are doing. Happy environments at home, work and play make for happier people that contribute more!

What trend are you currently watching?Somewhat concerned about the economic indicators in the US, notwithstanding Australia’s relative stable performance through the GFC.

What is your next big ambition?I’ve enjoyed building quality teams and high performance cultures as CEO of a number of financial services companies and look forward to building another.

Rising above the rate risesWhile rising interest rates may cause some borrowers to stumble, they also present brokers with fantastic marketing opportunities. Agnes Gajewska discovered it’s just about getting the steps right

The news is not good for struggling borrowers – according to the latest QBE LMI Housing outlook, rates are likely to head north and hit 6.5% by mid-2013. Furthermore, with the RBA tipped to be raising rates soon, concern

is growing now.In marketing terms, it is prime time for brokers to act.

Struggling borrowers may need advice, giving brokers an opportunity to strengthen their brand and their relationship by offering it. However brokers need to acknowledge that it is a sensitive time and exercise extreme caution when getting in touch. Here’s how:

Step 1: Get to know the clientLook at your database and think about what kinds of issues or opportunities your clients may be facing. Identify the clients who might be having trouble and may need to refinance or switch to a fixed option.

“Borrowers often do not know what to do to mitigate the effects of an increase in their monthly repayments,” says Mortgage Choice CEO, Michael Russell. “Now is the time for brokers to make the most of their marketing efforts. It is important for them to let their existing and potential customers know they are available to assist them for the life of their loan.”

“Look at your list – you should be doing this all the time; looking at the relationships you’ve made, what you’ve sold your clients, what you know about their financial situation and directing your actions accordingly,” adds Flying Solo director, Robert Gerrish.

“Some people see opportunity in times like this and might be interested in investment, so giving that kind of advice to them is great, while others might say ‘I’m finding it a bit bloody tough’ and that’s okay, you can offer advice from there,” Gerrish explains.

Step 2: Get the message rightThere’s no point contacting clients if your message is all wrong. Good marketing, according to Gerrish, is all about finding a proposition that will resonate with the people you are contacting. So the right message for

EXECUTIVE COUNSEL

A previous CEO of Wizard before ending up at Firstfolio as a management consultant, Angelo Malizis knows what it takes to succeed in the mortgage industry. As he tells Australian Broker, much of it is about finding the right people – and treating them well

Angelo Malizis

Michael Russell

Sarah Eiferman


What is your greatest business achievement?To have successfully created partnerships with a number of accounting firms, within which we have been able to implement a sales culture amongst their staff. Our referral partners have shown a high level of trust in Wells Partners/Mortgage Link Group, as we not only deal directly with their staff, but also with their highly valued client base.

What’s the key to getting business through the door?Endeavour to always exceed client expectations, so that your clients also become your advocates. Everyone appreciates a great service experience and will often go on to share that with family, friends and colleagues.

What goal/s have got you to where you are?Putting together a team of like-minded people who love what they do and are empowered to go out and do it! To win two AMA Commercial Awards this year was a great thrill for us all and an acknowledgment to the dedication shown by each and every one of our staff on a daily basis.

Who has helped you the most, and how?Our aggregator FAST with whom we teamed up in 2001 as they have supported us in taking the Commercial Finance Broking Industry to another level.

What character trait do you most value in yourself?To treat all clients equally – to never judge a book by its cover and provide consistent high-value service to all our clients and prospects. It seems to work, as we often get referrals from our clients before their own loan has even settled.

How do you stand out from the crowd/competition?At 6’ 3” it’s not hard! Seriously, it would be ‘experience’ in a word. With 34 years of experience in the finance industry and an outstanding team alongside me, we can provide our accounting referral partners with exceptional value in all areas of finance – from simple car leases to complex multi-million dollar transactions.

What is one thing you want to improve in your business?We are currently applying for our Australian Credit Licence which we see as the ideal opportunity to transform the good business we have into a great business for all our stakeholders.

What piece of advice would you give an ambitious broker?Research your client acquisition strategy and then research it again. Having a strong and sustainable business model is essential to success.

What’s your next greatest ambition?To ensure the commercial finance broking industry remains vibrant and viable, providing choice for our clients and assisting our accounting partners to further develop their ‘one-stop shop’ approach.

clients who are having a hard time might be as simple as sending savings tips or an offer for a mortgage health-check.

Russell adds that professional brokers should also keep customers informed and educated about the different ways in which they may be able to improve their mortgage commitments.

Loanmarket broker, Mark Winter, and SFE Loans mortgage planner, Sarah Eifermann expand on this point by advising brokers to inform clients about the pros and cons of fixing their loan and the changes that this could have on them in the future.

While other borrowers may need different advice:“You might want to say ‘Why now is the perfect time to invest in property’ – but

just make sure you have the right facts to back it up,” Gerrish advises.“Another good message that I’d be going out with is: ‘When the property market

bounces back, will you be ready?’ It takes a while to get pre-approvals and forms in, so now could be a good time to be telling people that message,” Gerrish continues.

Step 3: Stop marketing!Or at least stop thinking that you’re marketing. Your clients are likely facing some degree of financial discomfort, so if you contact clients and sound like you’re trying to sell them something you’ll do more harm than good.

“Rather than selling, now is a good time to establish yourself as someone who’s knowledgeable and someone who’s an expert. You’re not selling your services, you’re marketing and selling your expertise,” Gerrish explains.

Eifermann agrees, “it’s a difficult topic because the responsibility lies with the borrower, so you’ve got to make sure that your marketing isn’t too over the top.”

So when it comes to delivering your message, be subtle, informative and professional. Most of all, Russell advises brokers to ensure that the message is directed to borrowers in a way they will understand. According to the experts, email and e-newsletters are the most efficient, cheap and personal means of communication.

Both Eifermann and Winter advise brokers to contact their clients via email to notify them of rate changes, fluctuations and forecasts, while Gerrish adds that in a tough environment, the more personal you can make your communication, the more your clients will respond and trust you.

“The internet has a lot of great content. Have a look at what experts are writing around the world and send it on to your clients,” he advises.

“Or there might be more pressure on expenditure, so send tips on how to save money. You don’t have to speak about mortgages directly.”

A more personal way to reach out to borrowers could be with a hand-written letter which directly addresses their individual needs and concerns or even a gift.

“Go to a bookstore and have a look at books with financial advice. Most cost $25 or $30, so to buy one and send it as a gift to a couple of clients is not expensive and you will be remembered,” Gerrish says.

Russell also suggests that brokers try to get their face in the media more to increase their position as experts.

“Gaining editorial coverage is seen as ‘independent’ comment and will raise your profile as an opinion leader,” he says.

Step 4: Get help You’re not expected to know everything. There are other experts who might be able to help your client, so seek them out.

“If we decided now is a good time to look at cost saving, there’ll be a number of experts who will be happy to speak at a gathering that you set up,” Gerrish advises.

So if your client could do with a bit of advice from an accountant, finance broker or even lawyer, set up an informal seminar or even a tele-conference.

Step 6: Don’t forget new customersRemember that marketing is an ongoing exercise and you should continue to market your brand and yourself to potential clients.

Gerrish advises brokers to think of marketing as “seed sewing”. “You should be doing something all the time, you should never stop,” he explains.

MY WAY

A recent double winner at the AMAs, Greg Wells from Wells Partners has risen to prominence in the finance industry. Australian Broker asks for his advice, and finds out it is about experience – and exceeding client expectations

Greg Wells

✗ don’t over-sell

✗ don’t be insensitive

✗ don’t forget your clients

✗ don’t be too pushy if a client doesn’t want your help – in the end it is their responsibility

✗ don’t promise time frames which you cannot deliver

✗ don’t tell or market white lies: your client needs to know the full picture, even if it’s not favourable

✗ don’t assure clients of the rate a bank might be offering – this can lead to disaster and resentment if you do not deliver

What not to do

26

Market talkwww.brokernews.com.au

Don’t miss

PLUS:•Lastminutelicensingoptionscompared•Aroundupoftheshort-termlendingsector•Advantedge’sSteveWestonprofiled

MPA–ISSUE10.12–NOVEMBER2010

the next issue

brokers on non-banksintermediaries give their

feedback on specialist lenders

WEREVEALTHECOUNTRY’STOPCOMMERCIALBROKERS

MPAAd_AB3rdpg_721.indd 1 11/10/2010 10:41:37 AM

The government is promising a flood of money to boost regional Australia, but will it really make a difference – and if so, where?

The outcome of the last federal election might have been unwelcome for many – but it seems that it could be very welcome for the one-third of Australians that live outside our cities.

Over $10bn worth of funding (see details opposite) has been earmarked for regional Australia as part of the Labor Party’s agreements with the independent MPs so that it could form a working government. Around three-quarters of this is focused on building and improving infrastructure, with another $2.2bn ring-fenced for upgrading and building new hospitals.

When you combine this influx of funds with the resurgence of the resources sector, things are looking up for the country. But what localities will benefit most from the funding bonanza? Details are still thin on the ground: John Lindeman, head of research at Residex, recommends keeping the politics behind the agreement in mind. “The purpose of the agreement was to get the independents onside so that a government could be

formed,” says Lindeman. “That alliance is still very fragile. Therefore, the electorates of those independent MPs are likely to be in the box seat for largesse.”

Indeed, the individual agreements between the Labor Party and independents such as Andrew Wilkie, Tony Windsor and Rob Oakeshott already guarantee spending in their electorates. Lindeman reckons that the investment for Wilkie’s Denison electorate will start and finish with the revamp of the Royal Hobart Hospital – but highlights that the two neighbouring electorates of New England and Lyne in NSW could be in for some serious cash.

He also highlights that a significant amount of the infrastructure spending will be directed towards the two engine rooms of Australia’s resources industry – Queensland and Western Australia. “Most infrastructure development will continue to be around the mining industry and the ports that serve it,” says Lindeman.

“Already confirmed in Queensland is the expansion of harbours like Abbot Point [near Bowen and around 150km south-east of Townsville] and Hay Point [20km south of Mackay]. I would also expect a significant amount of funding to be spent on building rail connection from the towns feeding those ports.”

“In WA, meanwhile, my expectation would be that places like Port Hedland and the surrounding areas will see more investment,” he adds. “Ultimately, a lot of the infrastructure spending that’s been mooted will focus on getting wealth out of the ground and to customers as quickly as possible,” Lindeman says.

The other big overarching risk comes back to the reason for regional spending commitments in the first place: the fragile status of the current government. The political situation is still extremely volatile, comments Lindeman: should the governing coalition break down and Australia go back to the polls, there’s a risk that many of these pledges could be forgotten about altogether, no matter who wins that election.

Tree change

A significant

amount of spending will be directed towards Queensland and Western Australia

http://www.brokernews.com.au/


IMF points to vulnerabilities Financial stability has suffered a setback in advanced economies, according to the International Monetary Fund, with markets still sensitive to negative surprises and the existence of remaining “considerable risks”.

The IMF’s latest Global Financial Stability Report said rising public debt burdens, funding challenges for banks, and increased uncertainty about the next phase of the recovery have prevented a return of confidence. However, the outlook is still for a continued recovery and gradual improvement in stability.

Aussie property whets overseas appetites Australian property continues to find favour with investors overseas, according to two new reports.

A survey by property consultant CB Richard Ellis has revealed that Sydney is the fourth most popular location for global investors after London, Paris and New York. The report found that Sydney attracted 4% of all ‘cross-regional’ transactions. It also found that foreign investors accounted for 42% of all Australian purchases – including office, retail and industrial property – in the third quarter of 2010, and 36% year to date.

Meanwhile, a study by HSBC has found that Australian expats are repatriating significant amounts of their earnings into Australian property, with it being the investment of choice for 42% of expats.

Housing forecast flat: NAB The housing market is on the verge of stagnating, according to NAB’s quarterly property survey.

The survey, which polled more than 500 real estate agents, investors and developers, is forecasting an average national rise in house prices of a mere 1.5% in the 12 months ahead. According to NAB’s chief economist Alan Oster, there’s been a significant revision in expectations.

“So, at the beginning of the year everyone was very optimistic and now basically people are saying prices will stay flat,” Oster told ABC Online.

Sydney: most expensive, most defaultsSydney has been awarded the dubious distinction of being the city where mortgages account for the highest proportion of income in the world.

Sydneysiders spend an average of three-quarters of their monthly income on property, according to a survey by realestate.com.au. A separate survey by Moody’s has also revealed that Sydney also has Australia’s highest level of mortgage delinquencies, with the Fairfield-Liverpool region accounting for 4.24% of all arrears in Australia.

First home saver scheme fails to break throughNearly half of prospective homebuyers haven’t even heard of the government’s First Home Saver Account scheme, let alone joined it.

A survey by Loan Market has revealed that 46% of respondents weren’t aware of the scheme. The survey found that, of the 400 respondents, 29% thought the four-year time frame was too long, 18% said the scheme lacked flexibility and 7% said it was too complicated.

Under the FHSA, the government contributes 17% on the first $5,500 of individual contributions made each year. Savings are required to be kept in the scheme for four years.

MARKET NEWS IN BRIEF

Clearance rate Number of auctions Sold

Sydney 59.6% 505 301

Melbourne 64.6% 678 438

Brisbane 18.5% 108 20

Adelaide 45.9% 98 45

Darwin =33.3% 9 3

Perth 11.8% 17 2

Canberra 62.2% 37 23

Hobart 53.8% 13 7

$6bn For regional infrastructure programs as announced during the election campaign, with the lion’s share to go to WA and QLD (WA is projected to receive more than $2bn from this fund). Projects suggested include rail, roads, ports, water, energy and other ‘crucial infrastructure’ projects

$1.8bn The October round of the Health and Hospitals Fund to be prioritised to regional hospitals only

$1.4bn A new regional commitment to fund priority infrastructure, such as bridge upgrades, road projects, ‘economic infrastructure’ projects to support local business and community infrastructure such as town halls, community centres and sporting facilities

$500m A round in the Education Investment Fund to be reserved for regions

$200m Funding to build more affordable homes, as announced during election campaign

$173m For regional schools

$66m To go to regional businesses and workers from the Critical Skills Investment Fund

$41m Of the $123m provided in the 2010/11 Budget to go towards upgrading GPs, primary care and Aboriginal medical services in regional Australia

Source: The Australian Labor Party and the Independent Members – Agreement

NUMBER CRUNCHING

The regional spending commitments: $10.2bn

Auction clearance rates: week ending 10 October

Clearance rate Number of auctions Sold

Sydney 55.3% 331 183

Melbourne 67.7% 502 340

Brisbane 29.8% 131 39

Adelaide 55.3% 38 21

Darwin 33.3% =5 2

Perth 32.4% 37 12

Canberra 30.8% 13 4

Hobart 13.3% 15 2

Auction clearance rates: week ending ending 3 October

Source: RP Data

The end of grand final season saw volumes increase steadily in the auction capitals, to roughly the levels seen in mid-September. The AFL Grand Final replay also saw less impact than was feared in Melbourne on the first weekend of October, with the city still notching up 340 sales.

The total amount earmarked for regional Australia over the coming months, that’s made up of:

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Toolkitwww.brokernews.com.au

Credit where credit’s due

Time is running out for brokers to decide which way to turn over licensing. Do you opt for the full ACL, or instead choose to become a credit representative of your aggregator (or another third party)? We examined the pros and cons

of the ACL last issue: now it’s the turn of aggregators’ credit representative models.

There is a significant amount of common ground in what is being offered to credit representatives: issues like what support should be provided as the licensee and basic requirements are set down in law, after all. It’s the ‘over and above’ support which is interesting, though. Discounted public indemnity insurance for credit representatives is a feature of at least two models, and we wouldn’t be surprised if more were to follow suit in the coming months.

Of course, cost is still the elephant in the room. There’s remarkable consistency between the various aggregators despite a range of models being used. Typically, the annual compliance costs for a brokerage with a single credit representative will be in the region of $1,500 to $2,000. Some aggregators charge a flat rate per credit rep, others a sliding scale. However, it’s Firstfolio who has the most interesting model, where credit reps who settle three of the firm’s wholesale WDirect loans per quarter will see their monthly compliance cost refunded – meaning their compliance costs could be as little as $300 a year. We wouldn’t be surprised to see more aggregators introduce similar incentives as white-label loans become more prevalent.

It’s also not necessarily the case that brokers need to be a credit rep under their aggregator’s licence: financial services group I-Financial has designed an ‘aggregator agnostic’ model under which a broker can become a credit representative under its licence and continue to aggregate under his or her current aggregator. I-Financial says this offers an alternative to brokers who are concerned about the “independent operation of their business and unfettered access to a broad range of products and services”, especially in relation to aggregators who are “owned or heavily influenced by ‘product manufacturers’ ”. For a cost of $90 per month or $900 per year plus GST, it may well be a favourable option for some brokers.

So, is there a clear favourite in terms of which way to go? Frankly, it depends on each individual brokerage’s business model. The credit representative route may be most advantageous for many; equally, others will find the ACL is most suitable. It’s a case of looking at your business model, your relationship with your aggregator and your ambitions for your brokerage, in order to decide which route to choose.

Remember too, that you’re not necessarily trapped in the model you choose: there’s always the option for credit reps to apply for their own licence, or for ACL holders to let their licence lapse and become a credit rep at a later date.

It’s also not

necessarily the case that brokers need to be a credit rep under their aggregator’s licence

Q My company has a licence. Do my employees need to be appointed as credit representatives?

Directors and employees (but not secretaries) of licensees are automatically representatives authorised to undertake credit activities on behalf of the licensee. There is no need for any further formal appointment or notification to ASIC.

Q My company is a corporate credit representative: are my staff automatically covered?

No. When a company is appointed as a credit representative, the directors and employees of the credit representative company are not authorised to conduct credit activities. Licensees will need to appoint both the company and its loan writers.

Directors, employees, and any subcontractors of a credit representative company need to be sub-authorised by the corporate credit representative, and the corporate credit representative requires consent from the licensee to do this. Only natural persons can be sub-authorised. The sub-authorised credit representatives become credit representatives of the licensee, not of the credit representative.

However, instead of the credit representative sub-authorising directors, employees and any subcontractors, a licensee could appoint those people directly. Licensees may prefer to keep control over the appointment of credit representatives by not consenting to any sub-authorisations and appointing all credit representatives directly.

The licensee is responsible for notifying ASIC about appointments and variations to credit representatives directly appointed, but the credit representative company is responsible for notifying ASIC of appointments and changes to sub-authorised credit representatives.

Q Can credit representatives be appointed before a licence is granted?

Yes. Once a business is registered, it can proceed with appointing credit representatives. When the registration converts to a licence, the credit representatives appointed while registered automatically become credit representatives of the licensed business.

Source: MFAA/Gadens Lawyers

Appointing credit representatives: Q and A


Aggregator Support services for ACL holders Cost for services (over and above ACL cost)

Requirements for ACL holders

AFG Monitoring and supervision of ASIC’s broad general conduct obligations for brokers; compliance plan and compliance templates; training and education plan; delivery of ASIC-approved training sessions; quarterly audits and reviews – with recommendations documented; participation in the resolution of consumer disputes; submission of the annual compliance audit to ASIC

For brokers with more than 2 years’ experience – $125 (+ GST) per month;

for brokers with less than 2 years' experience – $150 (+ GST) per month. No charge for corporate entities (but both natural persons and corporate

entities will need to be registered with AFG)

Varies depending on whether the credit rep is a natural 'master agent', corporate 'master agent',

or authorised representatives. The max required is: Credit

Representative Application Form; AFG Credit Representative

Agreement; CRAA Report less than three months old; AF Police Clearance less than 12 months

old; PI Insurance; Certificate of Currency; EDR Scheme

Membership; two professional references

ALCo Client file audits per annum per broker; access to template forms and documents, including legislated documents to be used with clients; access to template manuals; access to suggested policies and procedures to manage the obligations of a licensee; access to compliance and legislative training; review of marketing and other related material in relation to compliance/legislative needs; email updates of changes in legislation as they occur; access to assistance with ACL applications and lodgments; range of compliance documents including risk management strategy, credit guide; referral checklist; internal dispute resolution procedures template and manual; conflict of interest policy template

$1,500 per annum for the broker (this includes the first person/director);

$900 per annum for each additional representative or credit representative

within the broker group

Professional indemnity insurance; membership with MFAA or FBAA;

national criminal history check; EDRS membership; credit check;

Identification in line with AML rules; completion of Anti-Money

Laundering and Counter Terrorism Financing Course Certificate IV; company/business/sole trader registration certificate; copies of

current lender accreditations

Choice, FAST, PLAN Australia (Advantedge)

Management of all NCCP obligations; provision of training, support services, templates, documents, internal dispute resolution procedures and so on; access to team of credit advice manager; discounted PI insurance

$139pm (+ GST) per credit rep; $75pa COSL fee

Cert IV in Financial Services and Diploma of Financial Services

Connective Connective has established a separately licensed entity, Connective Credit Services to service credit reps. Credit reps will have access to all of the systems available to licensees: however, there will be mandatory requirements in regard to processes to follow and documentation to be used. Connective ‘Practice Managers’ will be training credit representatives on their mandatory requirements and checking on them to ensure they are at the standard that Connective requires. Credit representatives will have the same contract structure as Connective’s aggregation service currently offers in respect to their ability to sell their loan books/businesses, the ability to reassign or transfer their trail commissions

The cost of being a credit rep with Connective Credit Services is an

additional $120 per month

Cert IV in Financial Services and satisfactory criminal and credit

checks

Firstfolio Mandatory access to secure online platform approved by legal advisors to record loan applications and support Client Needs Review. Compliance program, which is being developed as part of the National Credit Act rollout, includes dispute resolution support; gradual rollout of branding support; and exclusive special offers on brokers PI insurance

For brokers not accredited to distribute its wholesale product WDirect: $400

annually plus $80 per month, irrespective of the number of credit reps. For brokers that aggregate through Firstfolio and are accredited to sell WDirect: $300 annually

plus $80 per month, but the monthly fee is refunded if the broker settles three

wholesale loans per calendar quarter

All brokers and credit reps must meet accreditation requirements as per Firstfolio's accreditation

agreement

Loankit (Mortgage Choice)

Management of all NCCP obligations $880 pa Copy of credit rep number; usual requirements as per LoanKit

member checklist

Loan Market Responsible lending documentation and support; compliance monitoring and feedback; COSL administration; education and training incl. CPD registration; ongoing monitoring and guidance on ASIC requirements and any changes to requirements

$600pa (including COSL) Cert IV; police check; credit check; identification; professional indemnity policy that meets ASIC requirements; COSL; application

form; industry professional membership confirmation;

resume; ABN/business details

NMB All licence, audit and compliance responsibilities $125 per month (+ GST) 1st rep, $50 per month for further

loan writers

Only use nMB suppliers; must have insurance discussion with all clients; subject to full office and

file audit process

Vow Vow will provide its credit representatives with training, documentation and support as is required by every licence holder

The cost to become a credit representative of Vow is a set-up fee of $399, and a monthly fee of $149 (both

excluding GST)

Vow credit representatives will need to hold Cert IV, and undertake 30 hours of CPD

each year

NCCP support models, part two: credit representatives

Source: details obtained direct from aggregators by Australian Broker

30

Featurewww.brokernews.com.au

What was the last book you read? Assassin, by Ted Bell ( A James Bond-type, good old spy thriller).

If you did not live in Australia, where would you live and why? Singapore – great food and wonderful people. Probably the safest city in the world and I love the hot steamy weather sitting by the pool. Also it’s the gateway to Asia. If you could sit down to lunch with anyone you like, who would it be?Michael Malthouse – Collingwood coach. What was the first job you ever had?Bank teller at BankWest – would you like fries with that sir? What do you do to unwind?Play with my two-year-old daughter and forget about the world for a few hours. The innocence of children is wonderful. What’s the most extravagant gift you ever bought yourself?Mazda RX8 – an impulse buy What CD is currently playing in your car stereo?Hunters & Collectors, The Best Of. I can’t get enough of good Aussie rock bands. If you could give anyone starting out in business one piece of advice, what would it be?Write a business plan and be very committed to it. Don’t try to be all things to all people but concentrate on your target market and work out what you do best and stick to it. If I was not working in the mortgage industry, I would like to be...?A meteorologist. Where was the last place you went on holiday?Phuket – love the beaches and the food.

OFF THE CUFF MOVERS & SHAKERS

FBAA names NSW state president

The Finance Brokers Association of Australia has appointed John Cooper as

its new state president for NSW. Cooper is being elevated from his previous role as NSW vice president, and has replaced Anne Thanudchang, who recently stepped down from the role.

Cooper has been involved in the industry for over 17 years and has managed his own brokerage, Central Home Loans and Finance, for over a decade. He is also a former patrol boat commander in both the British and Australian Royal Navy. While Cooper said a Navy career and broking might seem initially diverse, there are a lot of similarities in the skill sets required, meaning that the Navy had prepared him well.

“In both you are dealing with people,” Cooper explains. “The Navy is about dealing with people, giving advice, taking advice. In many ways it gave me a good background for small business management, as it requires the same sorts of skills; management, foresight, a bit of risk sometimes, and dealing with the requirements and needs of individuals – that’s very much what I do on a daily basis, whether for clients of the business, or for FBAA members,” he says.

Cooper says he aims to support NSW FBAA members in providing a broader mortgage and loan service. “I believe successful brokers provide finance solutions for their clients rather than simply presenting them with a selection of mortgage and loan products,” Cooper says. “In my role as NSW state president I will advocate the benefits for brokers in providing clients with a well-balanced overview of their mortgage and

finance options.”Based in Terrigal on the NSW

Central Coast, Cooper will also focus his attention on delivering enhanced value for members who are based in regional areas. “My work involves a lot of travelling to many parts of NSW and I plan to utilise the time I spend on the road to meet with regional members to hear their views and concerns about the industry,” he says.

Peter White, FBAA national president, says Cooper’s industry experience and knowledge will further boost the standing of the Association in NSW. “John has been practising in the industry for almost two decades and he will bring a great deal to the association. He operates a very successful practice and his business acumen along with his passion for the profession will see him deliver wonderful outcomes for our members.”

Cooper’s career achievements in the Royal Navy included becoming the youngest commanding officer at the age of 28, and serving at Dartmouth alongside Prince Charles. He was also a patrol boat commander for the Australian Navy out of Darwin.

John Cooper

David WhiteDirector credit servicesAustralian First Mortgage


People

At the recent National Economic Review: Annual Growth Summit 2010, I found the session, ‘American attitude, Australian culture: How do we change our society to embrace innovation, entrepreneurship and a more risk-taking mentality?’ to be the most enlivening discussion. It’s true that Australians are afraid to celebrate high achievement. But it doesn’t have to be this way. So, what policy initiatives could government consider?Risk is the heartbeat of all creativity, which is itself the lifeblood of advancement. It follows therefore, that a greater focus on risk is required in the curriculum of our schools. Could we have student performance metrics

more overtly measuring risk in some subjects?Another idea is a ‘Small Business for Students’ mentorship. I envisage a HECS/HELP discount (say, up to 10%) for tertiary students, who volunteer with registered small businesses in their gap year, or part-time while studying.In this environment, it’s not too hard to imagine a different, more entrepreneurial culture, and a new generation of young people competing to take up the challenge.

The above is an edited excerpt from an article written by Darren Moffat, managing director of Seniors First, as published on www.openforum.com.au

Broker steps up to lobby Swan

QBE LMI team builds roof for refugees

Seniors First managing director Darren Moffat successfully participated

in the National Economic Review 2010: Australia’s Annual Growth Summit in Sydney at the end of September – and even managed to pitch some policy ideas to Federal Treasurer Wayne Swan.

In a conversation with the Treasurer, Moffat asked whether the government had considered making initial financial planning fees tax deductible, which he said would decrease expenditure on retirement savings and ease the problems of an ageing population base by ensuring that consumers are able to receive financial planning advice early.

“To his credit, he gave me hearing,” Moffat told Australian Broker. “He said they had looked at it, but it was not something they intend to do at this time.” Aside from the Federal Treasurer, Moffat said he also managed to speak with MP Philip Ruddock, new ALP member for Fraser Andrew Leigh, and treasury economist David Gruen.

The National Economic Review is a prestigious annual economic growth summit. The result of the day is a final policy paper which

will emerge from the topics discussed. Moffat said overall, the event was a success. “I’m pleased to report it was highly successful. There were a number of great ideas and proposals put forward that could ultimately influence policy. Climate change and the need for a more diversified economy were major themes.”

In regard to financial services, Moffat said the powerful role of social networking and cloud computing in the development of the sector was covered, as well as the need for greater amounts of competition – including in Australia’s banking sector.

BE LMI has once again lent its support to the Bidwill Blitz Build, with over 100

employees volunteering their time and skills to construct a new house for a struggling Sydney family.

The 10-day project, which took place in the western Sydney suburb of Bidwill, brought together a team of QBE LMI volunteers who were keen to help out the Akouts – a family of seven who have migrated from Sudan as refugees. The volunteers undertook a variety of tasks such as helping to construct the house frame, painting and gardening.

The Bidwill Blitz Build is a project run by the Australian division of Habitat for Humanity, a not-for-profit provider of housing for low-income families. The foundation builds houses in partnership with families who would be unable to access the conventional housing loan route.

QBE LMI has been the foundation sponsor since 2001. CEO Ian Graham said he strongly believes in the work being done. “Through our support of the

Bidwill Blitz Build, we complement our broader role as mortgage insurers, by encouraging the affordability of housing for Australian families,” he said.

Habitat for Humanity Australia has projects located all over the country and QBE LMI employees regularly help out; they have so far provided over 320 volunteer build days. One volunteer, QBE LMI’s head of risk and operations, Jenny Boddington, said the partnership with Habitat for Humanity allowed her to give back to the community. “The number of volunteers for build days has increased year-on-year, with teams marking the days as a valuable team-building exercise.” Luke Thomas, a marketing communications team member, said the experience of being part of the team is “very rewarding”.

More than 83 homes have been constructed by Habitat for Humanity around Australia and with the help of QBE LMI, they hope to have another 50 homes ready by the end of 2010.

QBE LMI recently held a Mad Hatter’s Tea Party to celebrate World Habitat Day and support Habitat for Humanity’s fundraiser – High Tea for Habitat. Pictured here (left to right) are Angela Emmerton, Laura Arniato, and CEO Jo Brennan from Habitat for Humanity

Wayne Swan

How do we change our society to embrace innovation, entrepreneurship and a more risk-taking mentality?


Caught on camera

Vow Financial hosted its first national conference in October, at the spectacular Sanctuary Cove. Using a ‘Green Light!’ theme, Vow delivered sessions and activities that gave its brokers the ammunition to meet competition head on in the coming year

PHOTO 1: Presentation of Broker Partner of the Year: Deal Volume. Mark Brennan (Macquarie Group), Aaron Giles (Australian Property Finance) and Vow Financial’s CEO, Jeff Zulman

PHOTO 2: Greg Sterland (Australian Property Finance – Broker Partner of the Year: Deal Volume), Robert Brand (Tassie Home Loans – Broker Partner of the Year) and Yannick Ieko (Super Finance – Broker Partner of the Year: Rising Star)

PHOTO 3: Deborah King (Australian First Mortgage) and Craig Forman (Taurus Financial)

PHOTO 4: The Vow Financial Team

PHOTO 5: Tara Davoren (HR Coordinator) and Alan Gibbons (CIO) from Vow Financial

PHOTO 6: Lara Watt (The Selector Group) and Sarah Wells (Red Concierge)

PHOTO 7: Vow’s Dana Brammall (Information manager) and Kellie Hornsby (Compliance administrator)

PHOTO 8: The winning Vow Financial Strikeforce team in the ‘The Final Assault’

PHOTO 9: Theresa Lonergan and Craig Lonergan (Success Mortgage Specialists)

PHOTO 10: Vow brokers enjoying themselves at the Green Light Golf Challenge

PHOTO 11: Jeff Zulman (CEO, Vow Financial) presenting prize to Vow Financial Social Golf Club President, Col Duggan

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Bankwest held state-based cocktail functions across Australia in September to reward the achievements of its top performing individual brokers, groups and upcoming rookies. Broker of the Year winners won a trip to Melbourne to celebrate Oaks Day

PHOTO 1: Mick O’Shea (Bankwest), Alycia Inglis (Inglis & Rock), Mark Haron (Connective)

PHOTO 2: Adam Baker (Bankwest), Trevor Buultjens (LoanMarket Group), Christa Malkin (Bankwest)

PHOTO 3: Fiona Brown (Connective), Avi Ayalon (Choice), Sam Zammit (PLAN)

PHOTO 4: Mick O’Shea (Bankwest), Gary Carroll (AFG), Cameron Windsor (Bankwest)

PHOTO 5: Mick O’Shea (Bankwest), Wayne Mao (Connective), Nick Ni (AFG), Sunny Liu (AFG), Ian Rakhit (Bankwest)

PHOTO 6: Steve Cruz (AFG), Julie Nguyen (Bankwest), Lincoln Haugh (AFG)

PHOTO 7: Marion Weekes (Astute), Shaun Pyne (Astute)

PHOTO 8: Eddie Borg (Mortgage Choice), Pat Borg (Mortgage Choice), Christa Malkin (Bankwest), Nigel Hutchings (Mortgage Choice), Mark Dean (Bankwest)

PHOTO 9: Suzi Trajanovski (Loan Market), Fatih Deniz (AFG), Hagan Kaplan (AFG)

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Insider Got any juicy gossip, or a funny story that you’d like to share with Insider? Drop us a line at [email protected]

before the Supreme Court in Hobart. The court heard Jackson would water the plants kept at a rental property in Moonah, Tasmania, set up for the sole purpose of growing the drug. Several hydroponic tents were set up inside the home, in bedrooms and in the loungeroom and dining area. There was no mention of what the landlord felt about his tenant’s use of the property, but Insider can only guess.

The Mercury reported the 38-year-old told police he did not know how he was going to process or sell the drug, but thought the profits from the crop would fix his financial woes.

Jackson’s lawyer, Kim Baumeler, told the court Jackson had been struggling financially since a rental property’s mortgage had switched from a fixed-rate loan to a variable rate.With rates set to rise, Insider wonders what other innovative – and potentially criminal – ideas mortgage holders will come up with in order to get ahead on their mortgages.

This time lucky?

A UK mortgage broker, desperate to keep his children in private school,

was recently nabbed for carrying out a £35,000 fraud scheme involving dozens of victims before fleeing the British Isles for South Africa. But he wasn’t in hiding, or watching the FIFA World Cup. Feeling guilty about what he’d done, Nigel McClements, from Carlisle in Northern England, claimed he was in South Africa to try his hand at gambling in an effort to pay back the people he

The Apprentice – in any of its incarnations – isn’t well-known for its

appealing contestants. Typically, however, they’re dim-witted business analysts with a lot of ‘achievements’ on their CVs and not much business nous. It’s so much the case, in fact, that’s it’s almost become a caricature – although watching them bumbling around failing at the most basic business tasks is amusing.

You can understand the desire of the producers of the UK version of the program to go against type, then – and they probably got quite excited at the prospect of Christopher Farrell. The 29-year-old former British Army sniper was picked as the series’ first mortgage broker to take part. If there’s a job which requires business nous and innovative thinking, mortgage broking is it – especially given the state of the UK’s mortgage market. Farrell had the potential to become the poster boy of the UK mortgage industry.

However, not 24 hours after Farrell was announced as a competitor, certain unsavoury stories started to emerge. Such as a conviction for possession of a knuckleduster and an extendable baton. And that he wasn’t bought out of his brokerage role as he had claimed, but that he had been fired, and is currently

under investigation under suspicion of fraud.

Farrell is said to be currently ‘hiding out in Spain’, poster boy potential in tatters, and the BBC is pressing ahead with broadcast of the program regardless. Even so, you’ve got to query the production staff’s diligence in their background checks: surely a conviction would be the first thing you check – or at the least references from a previous employer? You have to wonder how they would cope with the new ASIC responsible lending requirements, if these kind of basic checks are beyond them…

Cash crop pays mortgage

Insider is all for borrowers finding industrious ways of helping to pay down their

mortgages, but there are cases when individuals take this a bit far. Recently, a man on a sizeable salary of $100,000 a year – more than enough to put a dent in a mortgage – decided there was no better way to make his mounting mortgage repayments than growing his own cannabis crop.

As reported in The Mercury, between coaching children’s soccer and assisting Scouts, father-of-three Dean Anthony Jackson established a crop inside a shipping container, leading to him eventually being hauled

He’s fired

had ripped off. A fraudster with a conscience, it seems.

Setting up his business, Northumbria Mortgages, in 2003, McClements experienced great success until the recession hit. After being made officially bankrupt in December last year, McClements became so desperate he had no other option but to steal money from his clients. The 41-year-old conned his victims by charging for services, such as house surveys, that he failed to perform. Instead, he pocketed the money, and then used it to pay the private school his children were attending in Belfast. After defrauding his victims out of amounts ranging from hundreds to thousands, McClements then went into hiding. It obviously didn’t occur to him to try a more affordable school, or scale back his family’s spending.

Speaking to police from South Africa, McClements promised to return to the UK on 1 August. Surprisingly, he never showed. He did have a lot of money to win back after all. He was later picked up by police in Belfast and brought back to England.

Appearing in Carlisle Magistrates Court, McClements admitted to 16 counts of committing fraud by false representation. He must have been desperate; the court heard that he was still obtaining fraudulent money as late as September, even though he knew police were looking for him. Refused bail, he will remain in custody until his sentence hearing – where McClements will this time be gambling with his future at stake.

Gambling never pays…

A better sniper than a broker…

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Documents

Australian Broker magazine Issue 7.21