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The no. 1 news magazine for Australian brokers.
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Inside this issueViewpoint 20Exit fee falloutOpinion 22A low-doc revival Insight 24Knowing your client’s mindMarket talk 26Will the Sunshine State shine again?
Toolkit 28Giving advice, the right wayPeople 32Q&A: Keith McLaren, PLAN ambassador
Martin North
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Business not usualBrokers swamped after bank rate rises
Page 2 >>
Major bank dominance to slip as brokers boost competition
The third party mortgage broking channel could claim up to 60% of the mortgage origination market in just 5 years, leading industry
analysts claim. Speaking at the LIXI 2010 conference in Sydney held in November, Fujitsu Consulting general manager Martin North, mortgage industry analyst Tony Crossley and NextGen.Net sales director Michael Murphy all predicted imminent improvements in broker market power.
The JP Morgan/Fujitsu Australian Mortgage Industry Report, released in September 2010, measured broker market share at under 40%, where it has hovered for some time. However, North said the next five years will see the rise of brokers, as major bank market share sinks.
“I think we will see 60% [of housing loans] funded by the majors, so that’s 40% from elsewhere,” North said, predicting the return of lending competition.
“I think mortgage brokers will have well north of 40% of the market – it could be close to 50% – because if you look at the consumer research, mortgage brokers are doing the right thing by consumers, and with the new regulatory environment that will only improve,” he added.
Murphy from NextGen.Net agreed major bank home loan market share would shrink to 60% of the market, and that third party brokers could corner a massive 60% slice of new originations. “Any shift in funding away from the four majors would almost automatically imply through brokers or an alliance channel – there’s a fairly strict correlation between those two – so if you accept the premise [that major banks will fund only 60% of the market within 5 years] it wouldn’t surprise me if mortgage brokers increased up to 60%,” Murphy said.
Page 16 cont.>>
Westpac drop-offWestpac sees broker-sourced loan proportions decline
Page 8 >>
Exit fee rulesDetailed guidelines welcomed by non-banks
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Third party market share to skyrocket
ISSUE 7.23
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.
Mortgage brokers swamped after rate risesMFAA members have been inundated with enquiries following Reserve Bank and CBA rate rises in early November. Following the official interest rate rise of 0.25%, and the consequent decision by the CBA to lift rates by a further 0.2%, MFAA members are fielding an influx of enquiries from borrowers wanting to refinance, according to CEO Phil Naylor.
“There is no doubt consumer sentiment is building as borrowers look for ways to offset rising interest rates and shop around for a better home loan deal, in this environment of interest rate uncertainty,” Naylor said.
John McLennan of Equitimax Mortgage Leasing and Financial Services in the Sydney suburb of Chatswood, said he has received a “huge amount” of calls since interest rates went up recently, from people looking for alternatives. McLennan said that at the time everyone besides CBA
looked cheap at the moment because no one else has done anything. “I’ve been advising people to hold out and to wait and see what the other banks do.”
He said that it is important to remember that next month the CBA might only raise their rates by 0.1% while the other banks increase theirs by 0.2% or 0.3%.
Timothy Murphy of Menzies Financial Group in Sydney’s Brookvale said while he hasn’t been swamped with enquiries, he has received a larger volume of calls than he normally would.
“I have been receiving some calls from my clients. I am getting some disgruntled callers.”
Murphy said the majority of his calls were from current clients concerned about interest rates going up even more in the near future, rather than refinancers. He added the current environment is “bad for business and bad for our trail books”.
Naylor believes the uncertainty of the current environment
means more people will turn to mortgage brokers and their services. Currently, 40% of consumers use the services of brokers.
The latest MFAA/Bankwest Finance Index, released in July 2010, states the awareness of brokers is at 97%. Murphy agrees, saying consumers will either turn to mortgage brokers or pursue the internet as a legitimate avenue to securing a home loan. McLennan believes more people will be turning to brokers because they don’t trust the banks at the moment.
He said that people are looking to get a better deal and “the quickest and easiest way is to deal with a broker, someone who is independent”. He advises that when shopping around it has to come down to service.
“Just because you are getting the cheapest rate or a better rate, does not necessarily mean better services. There has to be a balance there,” he said.
Rate chaos spells opportunity
Mortgage brokers and non-bank lenders alike can benefit from the impact of recent interest rate rises, according to FBAA president Peter White.
White argues that there are “enormous opportunities” for brokers in the current environment.
“People have to be a bit smarter than the average bear in this environment,” said White. “Still, it’s an enormous opportunity for refinance: This is what happens when interest rates start to escalate – it is a refinance market now, and a golden opportunity for brokers to get back on the wagon if they’ve been doing it a little bit tough.”
White added that brokers should consider non-bank lenders during this period – and that the sector could well see a resurgence off the back of anti-bank sentiment.
“The non-banking sector needs to step up to the plate, and have its voice heard,” he continued. “The non-banking sector has been an invaluable commodity as a whole from its inception in the early nineties. That entire sector is driven by consumer need and demand: that need and demand is still there, and more so than ever today.”
Peter White – FBAA
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The Big Four banks should be prevented from taking over any more of their second-tier rivals, according to the head of Australia’s largest independent aggregator. AFG’s managing director Brett McKeon has called on the government to implement a three-point plan to rapidly restore competition to the mortgage market. Chief amongst the three proposals is a call for a ban on further market consolidation by the Big Four banks.
“The takeover of Bankwest by CBA and St.George by Westpac have had seriously damaging consequences on lender competition,” said McKeon.
“No further consolidation should be allowed by the Big Four, to allow the second-tier banks the opportunity to organically grow and become a natural competitor, or for two to join together, although the former option is preferable.” McKeon also called for the government to meet with smaller lenders to discuss future policy initiatives that will stimulate non-major market share, and to draft policies to create a more level playing field in providing access to funding for smaller lenders. One such policy could be revising the terms on which government guarantees on securitisation are calculated.
“Rather than basing government guarantees on an institution’s credit rating – which gives the upper hand to the majors – they should be based on the quality of the debt within the
securitisation.” he commented. “This would lessen the gap and promote better competition.”
McKeon admitted that he had “no problem with the majors doing what’s right for their shareholders”, instead arguing that the government had made mistakes that had allowed a non-competitive environment to prosper. “The government has a role in promoting competition, and the current measures being bandied about – such as potentially banning exit fees – will just make the situation worse. It needs to engage in a more robust dialogue with smaller lenders and support them to promote effective competition.
One of the criticisms of this government in its first term is that it only superficially engaged with smaller firms, added McKeon. “It has a chance to improve upon that in its second term, to step back from big business and support smaller companies. It’s from small and medium-sized enterprises that the tier-one businesses of the future will come.”
Astute joins forces with Mortgage Wisdom
Ban bank takeovers, says AFG
Aggregator Astute Financial has increased its NSW footprint through a combination with boutique competitor Mortgage Wisdom, bringing its broker numbers to 350 nationally. The resultant business will top settlements of $5bn annually and is expected to do as much business in NSW, despite Astute’s traditional strength in Queensland.
Speaking with AB, Astute Financial’s Brad Wood said the merger enabled the group to expand distribution and loan volumes, while maintaining loan conversion quality.
Mortgage Wisdom CEO David Smith said the combination would give its 80 brokers access to a wider range of lenders, including some that had been lost from its panel due to lender volume criteria. Additional products will also be available in diversified commercial, equipment finance and financial planning areas.
The joint venture is the latest in a series for Astute Financial, which has undertaken similar
deals with New Horizons Lending and Australian Mortgage Brokers, and also aggregates Club Financial Services’ non-branded mortgage product.
Wood said while the group would consider further growth and is in conversations with other groups, it was only focused on partnerships that added value for its business. “We’ve had a number of parties approach us about wanting to come together and do something, and we are prepared to further grow and build the business, but we want to ensure these are the right groups, that won’t dilute our service proposition to brokers,” he said.
Wood said the Astute group had built its reputation on quality, and that it was important any mergers did not impact the group’s lender submission quality or conversion ratios.
Mortgage Wisdom had been in discussions with a number of larger aggregators over the past three to four years, but Smith said Astute’s quality was a decisive factor in the decision. “Some of the other aggregators might not be able to get the same conversion ratios,” Smith said.
Though Mortgage Wisdom has operated for nearly 17 years and is a “quality provider”, Smith said some relevance had been lost.Both of the groups use Pisces systems, which is expected to ease the merger, while Smith said both group’s compliance measures were among “best practice” in the market.
Brett McKeon, AFG
Brad Wood, Astute
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revealed the lender will add new features such as a redraw, offset accounts and split loan options later in November, to make Liberty Financial more appealing to broker clients.
“Consumers want more features and benefits, and we have made a conscious decision that we want to provide more, and have that extra customer appeal, with a particular focus on Liberty prime lending,” Mahnken said.
Liberty has also unveiled a commercial or residential property product for SMSFs, and a commercial use motor vehicle product, both to be channelled through brokers.
Mahnken said the SMSF space had become less crowded, giving the lender an opening. “There are a lot of lenders choosing not to be in that space these days particularly if you look at changes
Liberty Financial is set to launch a suite of new features on its prime lending products, as well as wholly new SMSF and commercial motor vehicle finance offerings, in an attempt to win an increased share of the prime market from consumers and third-party introducers.
Speaking with AB, mortgages and asset finance general manager Kendell Mahnken
Liberty ups the ante for broker businessover the past few years, and we saw an opportunity for us to deliver through our networks a product that was becoming harder to find in the Australian market,” she said.
Mahnken believes with more and more wealth tied up in superannuation, managing wealth creation will become more and more popular for individuals. Similarly, with small business a large segment of the economic landscape, Liberty sees growth in commercial motor finance.
“We see that as key – as our introducers are dealing with people in small business – indeed they are in small business themselves, so it’s a massive opportunity for our introducers to help more of their customers with more options,” she said.
Mahnken said that the new features and product, coupled
with its operations being focused on fast turnarounds and high service levels through brokers, made Liberty a compelling offer.
“We would say we are committed to the third-party market, and not everyone can say that. We are into our fourteenth year of that commitment, and certainly demonstrating that by adding more things to the shelf, through that third-party channel.
“We believe that just by adding in these extra products and enhancing the appeal of our consumer offer, that with our service levels we will have what others are not necessarily able to provide, so a good broker doing the responsible thing will have to consider us.”
Liberty will also be offering gift voucher incentives for brokers placing residential loans with the non-bank lender.
ING Direct goes on the chargeING Direct is offering $1,000 to customers who register to switch their mortgage to the bank before the end of November. The move is an attempt to challenge the Big Four, following the RBA’s decision to raise interest rates on Melbourne Cup Day, and the subsequent rate rises made by the Big Four. ING Direct increased its own interest rates on SVR mortgages by 0.38% on 16 November – one basis point lower than the 0.39% move by ANZ.
Like ANZ and NAB, ING Direct has also abolished deferred establishment fees entirely.
“Switching banks should be easier and this $1,000 is an incentive for people to start the process,” ING Direct chief executive Don Koch said in a statement.
“If customers become more mobile, banks will be forced to offer better value and better service.” The second-tier lender is offering the deal to borrowers who
switch their loan over and open an Orange Everyday transaction account before June next year, although customers must register by the end of November.
A spokesperson for ING Direct said the response to the offer had been ‘great’: while the bank would not be drawn on exact numbers, it indicated that its general enquiry numbers had trebled.
The abolition of exit fees applies for new and existing residential home loan customers effective from 16 November 2010. DEFs apply where ING Direct customers repay their home loan in full within the first four years of settlement, and the bank has confirmed that the decision to
abolish DEFs does not affect the way it calculates commission clawbacks.
ING Direct has more than 1.4m customers, $37bn in mortgages and $22bn in deposits.
Kendall Mahnken, Liberty
Don Koch, ING Direct
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Westpac explains drop-off in broker loans“This clearly demonstrates that
brokers take into account a range of factors when placing a loan, including the quality and speed of service delivered through fast processing and approvals of a mortgage.”
Westpac announced a full-year net profit after tax of $6.35bn in early November, which brought the total cash profits for Australia’s largest banks over the last year to more than $21.5bn. Both Westpac and St.George had also announced controversial changes to their commission structures earlier this year.
Westpac CEO Gail Kelly said that she was pleased with the results, especially as Westpac “began 2010 knowing our challenge was to further improve earnings sustainability in an environment where funding costs would be materially higher than those applying before the global financial crisis, where fee income would be lower because of our decision to reduce customer fees and where markets and treasury income would
Westpac has detailed why the proportion of its broker-originated loans has fallen, despite its mortgage lending increasing over the last year.
The bank’s final year results revealed that, while mortgage lending had grown by 12%, the proportion of loans sourced through brokers declined by 10%.
A Westpac spokesperson attributed the discrepancy to one of its key subsidiaries abandoning the broker channel altogether, rather than any channel conflict.
“The key factor in this was the fact that RAMS made the strategic decision to move away from
distribution via mortgage brokers in early 2010 so it could focus on growth of its national franchise distribution network,” said the spokesperson.
“The Westpac Group remains committed to the mortgage broker market and we still have very active broker channels for the Westpac and St.George brands.”
In terms of the volume of broker-originated loans, the Westpac spokesperson said with a number of its key aggregator partners, the bank had recently ranked as high as first in some states and second nationally, with market share remaining consistent.
revert to more normal levels.”The Westpac spokesperson said
that overall, the bank is “very happy” with its current mortgage growth, which is in line with the system. “Not only are we continuing to grow our book, but we continue to be comfortable with customer retention levels.”
The spokesperson also said the bank is “leading the marketplace” on service proposition for its key brokers, with “unconditional residential finance approval being achieved in less than 24 hours for applications that fit our auto approval criteria”.
Gail Kelly, Westpac
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Smaller lenders gaining favour
CBA stake reflects confidence: Russell
Mortgage broker Loan Market has revealed loan lodgements with the four major bank brands has fallen by 8% over the past three months, in favour of smaller lenders.
Loan Market chief operating officer, Dean Rushton, said with only 60% of loan lodgements now ending up with the major bank brands, this marked a “significant fall in loan traffic”.
Breaking down the 8% loss to the majors, Rushton told AB 40% of this has gone in the direction of non-bank lenders, while the remaining 60% went to other banks.
“It is clear that in a climate of rising interest rates, prospective mortgage holders are looking around for the best deal and they are finding competitive offers from the smaller lenders.
“Even 12 months ago, the big brands were still benefiting from
An increased stake in Mortgage Choice taken by the funds management arm of CBA reflects confidence in the business and the broking sector, according to CEO Michael Russell. In November, Mortgage Choice announced to the market CBA’s funds management arm Colonial First State had increased its stake in the brokerage from 7.9% to 10.4%.
Commenting on the move, Russell told AB that Mortgage Choice has a number of funds management businesses on its register, and they have benefited from a “very substantial” yield in recent times, in the vicinity of 10.5% fully franked last year.
Russell said the fact that institutional investors are coming onto the register of Mortgage Choice “bodes well for the strength of the mortgage broking industry”.
“A lot of these institutional investors are recognising that the mortgage broking industry is in a fairly good state of health today. The [NCCP] legislation will only serve to improve the customer advocacy and recognition of the industry as it evolves,” Russell said.
“I think the institutions are recognising the mortgage broking
a differential footing.However, Rushton is upbeat
about the shift towards smaller lenders, which is seen as positive for competition as homeowners struggle with the cost of living. “There are a number of challenges facing the market and foremost is the concentration of power with the major banks – but they are getting more competition from the smaller lenders,” he said.
the post-financial crisis caution of borrowers who wanted to be placed with known brands. With the effects of this fading, the second-tier lenders are gradually gaining ground.”
Connective principal Mark Haron agreed there has been a small shift towards non-bank lenders, based on recent settlement data through the aggregator. Haron said there has also been a significant shift to banks such as Suncorp, AMP and Bankwest.
Rushton said special offers delivered by non-bank lenders on fees – such as application fee waivers – as well as movements to make their rates more competitive had taken effect. They are also moving on credit policy, to exploit niches or increase their geographic reach. “I think the non-banks and other banks are working a lot
industry is a credible participant in the financial services industry within Australia.”
Russell added that the trend should send strong signals to other large brokers that institutions were interested in taking positions in healthy mortgage businesses. “That should bode well for everybody, and give everybody confidence to invest in their businesses,” he said.
Russell said Colonial First State’s investment decisions were independent of the CBA bank, and the increased stake would not impact the direction or decisions of Mortgage Choice.
Moves by the major banks to raise rates over and above official RBA cash rate rises will only serve to bolster the value proposition of mortgage brokers, Russell said, as will the legislation.
In fact, Russell said following the RBA cash rate rise of 0.25% to 4.75% in early November – as well as CBA’s decision to beat the RBA by 0.2% – Mortgage Choice had seen an unprecedented influx of enquiries through its call centre and website.
“We have had an incredible surge in enquires in the past week, unseen in my 10 years,” Russell said.
However, the enquiries have not just been customers looking to refinance away from CBA, but have been from a broader range of borrowers looking to health-check their mortgage.
Russell said while mortgage holders had weathered six rate rises until May 2010, the impact of a further rate hike just before Christmas had come as a “real shock”.
harder,” he said.Recently, ING Direct flagged one
such credit policy review, particularly focused on the existing business market, to loosen its perceived tight hold on credit.
Rushton said movement by non-banks to reduce pricing on exit fees was also serving to overcome a “traditional hurdle” for brokers, put off by the risk they would sting their clients.
However, Rushton said there may be higher priorities than the exit fee debate, following the release of ASIC’s guidelines on the subject. “My view is there are higher priorities – it’s one thing to reduce exit fees, but if the incentive for customers to move is not there you are not achieving the end aim.” He said ‘step one’ should be a revision of the government funding guarantee scheme, which put the majors and other banks on
Dean Rushton, Loan Market
Michael Russell, Mortgage Choice
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ASIC rules on exit fee ‘double dipping’
ASIC exit fee guidance welcomed
Non-banks defend DEFs
an exit fee is levied depends on the circumstances. “If there is clawback of some or all of the broker’s commission, that must be taken into calculation in setting the exit fee,” he explained “For example, an exit fee without clawback may be $1,500, but only $800 with clawback.
“It would be wrong to say that commission clawback means no exit fee as the costs an exit fee can recoup are much more than just broker fees. But there may be cases where commission clawback means no exit fee,” said Denovan.
Costs that can be recovered as part of an exit fee under the new rules include administrative costs for calculating the payout figure, administrative costs for processing the early termination, third party costs arising from the early termination, and ‘unrecovered establishment costs such as commissions and LMI.
ASIC has confirmed that exit fee ‘double dipping’ should not take place under its new rules. A spokeperson for the regulator confirmed to AB that, as set out in its new guidance on exit fees, lenders can only include amounts in the early exit fee that reflect losses. While lenders may recover some losses from third parties – such as a broker – when an early termination occurs, any early termination fee must be reduced.
“Loss is not suffered if an amount reflecting that loss has already been recovered through payments made by intermediaries or other parties – such as mortgage brokers or managers – or by the customer – such as through fees and loan repayments, including the interest component of a loan repayment),” explained ASIC.
Jon Denovan, partner at Gadens, reckoned that whether
Two leading non-bank lenders have defended the use of exit fees as a key part of their business model.
James Austin, chief financial officer of Firstmac, defended deferred establishment fees as an essential part of non-banks’ business models.
“From our perspective, DEFs typically represent two things – upfront commission and LMI payment, which are costs borne by the lender and deferred over time. Non-banks can offer lower rates due to DEFs, and typically they only affect people who ‘churn’ regularly. Providing a borrower stays with us for more than three years, they won’t be liable for any DEFs.”
Austin, who was speaking before the revised ASIC guidance on exit fees was published, also warned that banning DEFs would have ‘major ramifications’ for the mortgage industry. One possible impact would be that upfront commission for brokers could become a thing of the past.
“If DEFs are banned, lenders won’t pay upfront commissions any more,” he commented. “Instead, I think we’ll end up moving to a trail-only model.”
He believed this would be the case for both banks and non-bank lenders; however, he was quick to deny that this would be a commission cut in disguise, as trail commissions would be higher.
“Brokers would still receive the same income, it’s just that it would be otherwise spread out throughout the life of the loan,” he added. Austin also warned that banning DEFs altogether would also put further pressure on lenders, and would most likely result in higher interest rates for consumers.
Resimac chief operating officer Allan Savins echoed Austin’s sentiments, and called the charges “a necessary mechanism to deliver a lower-priced home loan”.
“The existence of deferred establishment fees means lenders are able to to defer the economic investment in establishing a new loan,” he said.
“Deferred establishment fees follow the ‘user pays’ principle where only those borrowers who discharge early are impacted, otherwise cross-subsidisation of this cost will occur – which will result in a higher interest rate applying to all borrowers.”
ASIC is promising to challenge high exit fees following the release of new guidance on what the controversial charges can contain.
The regulator’s chairman, Tony D’Aloisio, warned that it would be focusing on the fees that create the biggest barriers to switching – namely, the highest exit fees.
“We will challenge lenders who charge high fees to justify how their fee reflects actual losses caused by early termination,” said D’Aloisio. “Where an exit fee cannot be justified by the lender, ASIC will take compliance or enforcement action.”
ASIC’s new guidance on exit fees clarifies what can and cannot be contained within an early termination charge. Costs that have received the ‘okay’ from the regulator include break fees for fixed-rate loans, administrative costs for processing the early termination, third-party costs (including commissions to brokers and lenders’ mortgage insurance), unrecovered establishment costs due to early termination, and unrecovered costs arising from honeymoon periods.
Lenders cannot include loss of profits, marketing costs or costs associated with developing new products in exit fees.
Carrington National CEO Gino Marra has said ASIC’s guidance on exit fees will be unlikely to result in significant changes to the non-bank lender’s deferred establishment fee structures.Marra said the guidance contained “no unexpected surprises”.
“ASIC actually went out and spoke to a lot of non-bank lenders and funders, to get their input, and they’ve come back and acknowledged what everybody has been saying.
“We are waiting on our funders to come back with the position
they are going to take, but I don’t believe there will be significant changes. Our DEFs are legitimate costs,” Marra said.
However, Marra said one aspect that will change for lenders is they are now required to justify why a DEF is charged, which could result in some changes to loan contracts.
Marra said the guidance was a welcome break for mortgage brokers, as non-bank lenders may have had to introduce or increase clawbacks on upfront commissions if they were unable to charge DEFs.“If we are not in a position to charge a DEF, the biggest loser would be the broker,” Marra said.
ABA CEO Steve Munchenberg attacked the new regulations, saying they were too narrow. “We believe ASIC has defined costs too narrowly, because it is excluding certain legitimate costs such as product development, marketing and mortgage-related business overheads. Also, ASIC is limiting the ability of lenders to recover any increased costs that occur after the loan has been taken out,” he said.
However, Gadens Lawyers senior banking and finance partner, Jon Denovan, also welcomed the shape of the exit fee guidance. “ASIC’s RG220 is a well-thought out statement of the law,” he said. “It strikes a fair balance between the interests of consumers and industry.”
Yes No
Break fees for fixed-rate loans Loss of profits
Administrative costs for processing early terminations Marketing costs
Third-party costs (including commissions to brokers and lenders’ mortgage insurance) Costs associated
with developing new products in exit fees
Unrecovered establishment costs due to early termination
Unrecovered costs arising from honeymoon periods
What’s allowed under ASIC’s guidelines?
Tony D’Aloisio, ASIC
James Austin, Firstmac
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ANZ made a decision to raise its standard variable mortgage rate by 0.39% to 7.8% in early November, closely followed by NAB, which pushed pricing up 0.43% to 7.67%.
However, both banks attempted to sweeten the moves by abolishing mortgage exit fees, and ANZ offered discounts and subsidies to attract customers looking to switch lenders.
The banks’ pricing increases were both slightly less than their forerunner CBA, which added
0.45% to its standard variable rate on Melbourne Cup Day in early November.
In a widely expected and foreshadowed move, ANZ went 0.14% above the RBA’s official 0.25% cash rate move, citing high wholesale funding costs and competition for deposits.
ANZ CEO Australia Philip Chronican said in a statement: “raising lending rates is never an easy decision, and while we have taken a commercial decision to increase variable interest rates, we’ve also recognised that we need to take the lead in doing more to give customers’ choice and to help them manage their finances in this uncertain interest rate environment.”
The bank officially abolished all deferred establishment fees (or exit fees). NAB followed with its own promise to ditch exit fees, despite having been given the green light from ASIC.
ANZ will also provide up to
$1,600 in fee discounts and subsidies until the end of 2010 to reduce switching costs for new and existing customers, who may be attracted to refinance with ANZ by a new discount offer on its three-year fixed interest rate.
The fee discount offer includes a waiver on ANZ’s Loan Approval Fee (up to $600) for all mortgage customers applying for the three-year fixed rate offer, as well as a subsidy of up to $1,000 to offset switching costs charged by other lenders.
On its three-year fixed rate, the bank offered a 0.44% discount until the end of 2010, which reduces the interest rate to 7.1% – 0.7% per annum less than the standard variable rate. Chronican said: “this package gives Australians greater choice by reducing switching costs and introducing a very competitive fixed rate offer for customers wanting to fix their mortgage interest rate at a lower rate compared to the standard variable rate”.
Commenting on exit fees, Chronican said: “our mortgage exit fee was already among the lowest in the market and by
abolishing it we are telling our customers we are prepared to win and retain business through competitive pricing, convenient products and customer service.”
Banks hike rates... but ditch exit fees
Refinancing in numbers
• 26% of refinancers in 2010 delayed their refinance due to charges they would have incurred by doing so earlier (primarily exit fees)
• However, 46% did not pay any exit fees upon refinancing
• 68% of refinancers benefitted from an interest rate drop
• Of these, almost one quarter (23%) were saving over $300 per month, while 88% were saving more than $50 per month
• The main motivation to refinance was to switch to a ‘cheaper’ loan, for 24% of refinancers, followed by the need to consolidate debts, for 11%.
Source: Mortgage Choice Refinancers Survey 2010
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FBAA calls for better industry gender balance
Banks have a point on funding: CanstarFinancial services research group Canstar Cannex has come out in support of the higher funding cost arguments of the major banks, citing the increased cost of attracting deposits.
In tandem with the release of its Home Loan Star Ratings report, Canstar Cannex said the real cost of funding equation for banks is a “very complicated and convoluted thing to unravel”.
However, according to research manager Chris Groth, the group’s interest rate tracking over four years had “identified a trend which might support some of what the banks are saying”.
“Prior to the GFC online savings accounts were tracking well below the official cash rate,” Groth said. However, since early 2009 the rates paid to online savings accounts start to track above the official cash rate and they have remained consistently ahead.
“The banks are scrambling over themselves to attract retail deposits to fund their loan books. While the banks, the government and the Reserve Bank argue over the real cost of funding, we can confirm retail deposits are a more expensive source of funding than they were prior to the GFC. This is good news for cashed-up savers but not so good for home loan borrowers.”
White added that the FBAA would be launching a new initiative designed to support women in the home finance sector. This is likely to launch around February 2011 with a series of networking events concentrated on cities and regions around the east coast.
FBAA national marketing manager Leah Renwick added that the initiative would focus on career progression and providing
The broking industry is too heavily dominated by men, according to FBAA President Peter White. He said that efforts should be made to encourage more women into the industry.
“Women in our industry have been neglected, and that’s wrong,” said White. “Everything has become very male-dominated. There should be more balance in the marketplace.”
a support network for women in the broking industry.
She also added that the initiative had the support of a number of high-level businesswomen, including one with more than 30 years’ experience in the finance industry, and the FBAA is in early discussions with other women in business networks about working together.
“The aim is to support women in the industry with their career goals and progression,” said Renwick, a former broker herself. “It’s about education, increasing the recognition of women in the finance industry, and empowering them to be part of the driving force behind the industry,” she added.
Both were keen to emphasise the importance of gender equality and judging people on merit, rather than positive discrimination.
Groth said it was difficult to establish the truth of the funding situation, as “very few outsiders are privy to the real figures of each monetary deal done by the individual banks”.
Following recent rate movements, Canstar has also urged caution for borrowers looking to fix their interest rates, saying such borrowers would have only been ahead of variable rates in 9 out of the past 36 months. The greatest return received would have been in April last year where, on a $300,000 loan, almost $3,000 in repayments would have been saved.
“In a rate cycle trending upwards there is always the temptation to lock in an interest rate through a fixed-rate product to eliminate the sting of any future rate rises,” Groth said.
Groth said while “timing is crucial” in locking in fixed rates, borrowers should not be discouraged as fixing delivers repayment certainty and potential savings as rates rise.
Canstar Cannex also confirmed reports that LVRs have been trending upwards. Since April, the research house noted that lenders have relaxed their deposit requirements for borrowers, a reversal of the trend seen earlier this year which required more hefty deposits.
“Everyone has individual strengths – regardless of whether you’re male or female,” commented White. “It’s important that the best people are encouraged into the industry – of both sexes – and it’s unfortunate that women have been neglected in terms of the support they should have had. We want to be proactive in correcting that balance, and ensuring there’s an even playing field for all.”
The initiative will also feature a program aimed at male brokers, advising them of alternative ways to market to female borrowers.
“It’s about teaching men how to deal with and sell to women,” added Renwick. “It’s not the same as, say, selling a car to a man – there’s a different set of concerns. The aim is to help male brokers market more effectively to women.”
The Insurance Council of Australia has responded to criticisms that lenders mortgage insurance could be acting as a bar to refinancers. The insurance body pointed out that LMI may not always be required by the incoming lenders, following criticism from BrokerNews readers that the way LMI is dealt with in refinancing situations has prevented some borrowers from changing their loans due to cost.
“We do not believe LMI is a bar to refinancing," said a spokesperson for the Council. "LMI may or may not be required by an incoming lender.”
The spokesperson added that the way LMI is calculated in a refinance situation is down to the fact that it insures the lender, not the borrower. “A LMI policy is provided to protect the lender in the event a borrower defaults on a residential mortgage loan. It is
LMI ‘no bar to refinancers’
the lender’s policy, not the borrower’s policy,” added the spokesperson.
The Council also highlighted that the existence of LMI has helped many borrowers by “enabling them to enter into their home sooner in the first instance and take advantage of building equity in their home sooner”.
Does Genworth insure 95% LVR loans?
Yes, for the following purposes:• Owner occupied• Investment• Refinance $ for $
What does a 95% LVR borrower ‘look like’?
• Clear CRAA – no adverse findings in the borrower’s credit history
• Proven repayment ‘ability’ (eg. rental repayment history)
• Statement of position that supports employment and income declared (history – divorce, failed business)
• Savings/transaction history (minimum 3 months transactional statements to support)
• Non-genuine savings is still available as an option for funds to complete, however, will be overlaid with the above to assess the borrower’s ability and willingness to repay the proposed loan
• Stable employment (eg 12 months present employer or 2 years same industry)
• Does the serviceability meet guidelines (allowances, deductions etc)
For all the latest mortgage industry news, visit www.brokernews.com.au
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Greens plan big bank freezeAustralia’s major banks could face a 24-month freeze from raising rates outside of RBA movements should the Australian Greens party successfully steer new legislation through Parliament.At time of writing, the party had announced it would introduce the ban in the lower house, along with rules that banks pass along decreases to the official central bank rates and scrap some small fees. “The Banking Amendment (Delivering Essential Financial Services for the Community) Bill 2010 provides legislative protection for customers including a ban on unfair A$2 bank ATM fees, ensuring basic fee-free bank accounts, capping the level of mortgage exit fees, and introducing a variable rate mortgage product (“Fair Price Mortgages”) that will only permit genuine changes to the lender’s cost of funds to be passed on to customers,” Australian Greens leader and Senator Bob Brown said in a statement.
Pepper targets low-doc growthPepper Home Loans will push for growth in its alternative documentation lending portfolio in the new year. Pepper chief operating officer David Holmes said the non-bank lender is aiming to ramp up lending to achieve a 50/50 split between full-doc and ‘alternative’ doc loans, with the split currently at 80% full-doc. With funding lines from NAB and CBA, Pepper has also set its sights on overall growth in volumes to $25m a month by mid-next year, up from the current rate of $5m-$10m per month. Prior to the GFC, the lender was writing $110m a month.As part of its increased appetite for lending, the business has added three new sales staff to market to brokers. Holmes said “alternative” documentation lending under NCCP was a legitimate market, and that the only difference was the way income is evidenced.
Aussie banks follow international rulesAustralian banks will be held to the same new rules as their international counterparts. The Australian Bankers’ Association said that reports the country’s banks have won an exception from new international rules are incorrect.
“There have been media reports noting the Australian Government has won exemptions for Australia’s banks from tough new international rules on banks, known as Basel III, at the G-20 meeting in Korea. This is not the case,” said Steven Munchenberg, chief executive of the ABA. “The Australian Government and the banking regulator, the Australian Prudential Regulation Authority (APRA), have made it clear that Australia’s banks will need to meet standards as tough as those set internationally. This is also the expectation of the international community.”
INDUSTRY NEWS IN BRIEF
Brokers should tap savvy Gen Y’sAustralians are getting financially savvy at a younger age, according to Club Financial Services. A recent survey conducted by the mortgage broking franchise, primarily of current mortgage borrowers, found that 77% of over 300 respondents had purchased their first home before they were aged 30. Club Financial Services general manager Andrew Clouston said while many younger people may struggle to save as they meet bond, rent and general living expenses, it was also common for people in their 20s to be living with their parents. “With few outgoing costs they often have quite a high disposable income, making it the ideal time to get a foot up on the property ladder, and our survey results show that many are doing just that.” As well as purchasing homes younger, the Club survey found Aussie borrowers are developing early investment confidence, with 35% of respondents aged 18-29 and 44% of all respondents under 40 indicating they had already started an investment portfolio.
SMEs feel rate painBusinesses turning over between $1m-$20m are feeling the pain of rate hikes alongside residential borrowers. Accounting firm WHK’s latest SME Pulse Survey found over 50% of SMEs have reported experiencing hikes in the past six months – prior to the Reserve Bank cash rate increase on Melbourne Cup Day – an increase of more than 10% on the group’s August findings. The survey found that on average, interest rates have been increased by 6% over their previous levels. However, 43.3% of SMEs still plan to increase their lending facilities in the next six months. The interest rate concerns came in addition to a serious lack of confidence by the SME sector in the current minority government, with 63.5% of respondents believing it will be ineffective, and only 8.5% saying it will be effective.
Co-purchasing worth consideringClients should consider buying a property with family or friends to kick-start their property portfolio, according to WA brokerage Diversifi, though the strategy is “not without risk”, and must be managed correctly. Diversifi director Rose De Rossi said buying with family or friends may give borrowers easier access to finance by combining borrowing power, meaning they can own an investment property more quickly.
“With the average Australian median house price sitting at $483,500, and the average new owner-occupier mortgage now $287,700 (according to RP Data), there’s a lot to be said for pooling finances to achieve an investment dream,” De Rossi said. However, according to Diversifi, “there are traps to avoid” in regard to co-purchasing, the biggest of which is a failure to communicate with fellow investors, and a lack of clarity around the joint venture, causing arguments over bills, shared use, and repairs.
cont. from cover >>“I think there is every chance, because I do
think over time there will be a levelling out on the revenue and the cost side of that relationship, so it will become a more palatable and more supported relationship over time,” he added. Crossley was more muted in his predictions for the future of the channel. “It’s been essentially flat for some significant period, and it will require a different market for that to take off to the levels we’ve seen overseas, and I’m not sure it will get that far.”
However, he acknowledged the role brokers will play in increasing market competition with the four majors. “A lot of the rhetoric underestimates the impact of the broker – they do actually promote competition. They will draw out price comparisons and product comparisons, so it’s actually a very effective way of generating a market.”
Industry experts were also highly critical of the lack of focus by the mortgage industry on costs, and predicted some changes would be made at the origination end. “There is a fundamental problem in the Australian mortgage industry, and that is we are 30–40% higher on costs than we should be,” North said. “Unless we finally tackle this we are going to find that our industry will really struggle, and that requires a very different thinking about the end-to-end, about systems and processes, and standards are a critical part of that.”
North said that some lending organisations are currently paying $3,200 to write a loan, when they should be paying about $900. Standard estimates put the cost of writing a loan at around $1,500. North said when this difference is taken in tandem with the potential cost savings available in servicing loans, it appears “there is cash everywhere”. Crossley agreed, saying if efficiency savings were passed on to a consumer – including loan submissions rework, they could be up to 20 basis points on a standard variable mortgage.
Much of the problem can be blamed on the current ‘four pillars’ banking policy, North said, which effectively “protects 80% of the market from doing anything important”. “So the unintended consequence of the Four Pillars is that you have a very inefficient system and set of processes, and nobody worries about it.” North predicted that the only way this could change was due to external pressure, either from non-bank competition – currently limited – or by the more likely advent of further regulation from the Government.
Murphy said in the third-party space, “commission leakage” problems stem back to the quality of submissions brokers provide, and the rework required by funders. He said lender attempts to rectify this through commission cuts were not the whole answer. “A number of funders have changed commission arrangements to reflect the quality of commissions they received from brokers. If the quality wasn’t good, you are paid less. That’s one way to try and do it, but it’s a fairly blunt instrument,” Murphy said.
He argues that brokers will see solutions and standards at their level – such as a dynamic checklist – that will inform brokers of exact lender requirements at the point of sale, rather than brokers having to interpret what is required.
20 www.brokernews.com.au
Exit fee guidelines from ASIC were the talk of the broking community when they were released in mid-November
The biggest obstacle to refinancers is usually the lenders mortgage insurance. Is it possible to make that portable (if the old and new lenders use the same LMI)?
Commented by: Don Kerr at 11 Nov 2010 12:25 PM
I’m interested to see if ASIC investigates the fixed-rate break economic fees and scrutinises how they’re calculated. There should be a standard calculation across all banks and an economic benefit
paid where the fixed rates move in the banks’ favour. You can’t abolish fixed-rate break economic fees but you can surely regulate them to make them a true reflection of cost.Commented by: Arthur at 11 Nov 2010 12:37 PM
I sent a letter to Wayne Swan and the various interested portfolio ministers, clearly outlining my knowledge and experience in the industry, and explaining how LMI was often the greatest hurdle
to switching lenders, even when the same LMI firm was to be used. I recommended looking into making the insurance policies portable as long
as there was no change in risk (and for additional lending, an adjustment). I got back the most condescending letter from Mr Swan’s office attempting to explain mortgage insurance to me and why it was necessary. .Commented by: Rachael at 11 Nov 2010 01:07 PM
Firstmac’s CFO James Austin said DEFs were critical for non-banks’ survival, and their abolition could mean the end of upfront commissions
This commentary is on the money. Where is the government getting its information from? The banks are the only lenders who can afford not to have exit fees so how is that driving more competition? If the
brokers don’t think they will be impacted in terms of commissions they are kidding themselves – do you really think a bank is going to spend time and money putting a loan on their system and then allow a customer to walk away within six months without recouping the money they spent? Commented by: PR at 09 Nov 2010 09:18 AM
FORUM
To join the debate, go to www.brokernews.com.au/forum
EXIT FEES, LENDERS MORTGAGE INSURANCE AND UPFRONT COMMISSION THREATS
ASIC’s guidance on exit feesVIEWPOINT
on their draft RG paper regarding exit fees. The thrust of our submission was to protect the ability of non-bank lenders to utilise DEFs in providing competitive finance to borrowers. We strongly argued they were not penalties but an agreement to defer the establishment fee relating to the setting up of the loan. We welcome the fact that ASIC in RG220 has recognised our argument and has adopted our submissions in allowing third-party costs to be included in the costs ASIC accepts as relevant to constitute the DEF if the loan contract is broken. This means an important competition tool used by non-bank lenders can continue to provide competitive finance for borrowers.
James Tsolakis Mortgage MaxIn the current exit fee debate, no one is considering that the
Jon Denovan Gadens LawyersASIC’s RG220 is a well-thought out statement of the law. It strikes a fair balance between the interests of consumers and industry. We’ve all heard the story that the Telco that provides phones without an exit fee won’t be in business long. The same applies to lenders. RG220 provides a strong basis to assist the renaissance amongst the non-banks as (hopefully) funding frees up over the next few years. The good news is that RG220 recognises the role that brokers, mortgage managers and aggregators play in borrowers obtaining a loan, and allows those costs to be taken into account in determining whether an exit fee is fair. Go ASIC!
Comment
decline in broker numbers will actually reduce competition. Brokers represent the best possibility for creating competition between the banks, as we ‘shop’ the market on behalf of our clients, and find the best possible loan product for their particular needs. The banks know this and are slowly clawing back customers by winding back broker incentives. It’s also not so much exit fees that should be focused on, but the huge variety of other fees that are potentially chargeable for any requests the borrower may make – for example, statement copy fees, cheque deposit fees, etc – there are literally dozens in each mortgage document.
issue was mostly all hot air. Thankfully, they listened to industry and did not ban fees entirely, because the abolition of exit fees, particularly without any remedies for the non-bank lenders, could have calamitous effects for competition, the mortgage industry and ultimately, consumers. In support of its case, the Government (and the Opposition) have argued mortgage exit fees are an impediment to switching banks. This is a manifest fallacy. Based on ABS figures, refinancers average between 30% and 35% of all established dwelling mortgage loan settlements each month. This indicates that borrowers are switching lenders with relative ease. It seems if these fees were abolished – without sufficient remedies – the loss of revenue is a small price the banks would pay in order to completely eradicate the feeble competition that remains.
Phil Naylor MFAAMFAA made a detailed submission to ASIC in August
Darren Moffatt Seniors FirstASIC’s new guidance on mortgage exit fees will effect little real change, and shows the public debate on this
22 www.brokernews.com.au
Column
OPINION
Looking to the
future, low-doc lending is an area where non-banks are likely to emerge in strong competition
A once-thriving market in Australia, low-documentation lending has reduced dramatically over the last three years. This is primarily due to tightening credit guidelines, especially around refinancing and debt consolidation. The situation has also been exacerbated by the fact that a vast number of specialist lenders are no longer around following the GFC (eg. Bluestone, GE). It was a turbulent time for the market and very few remained unscathed. Yet one positive that we can take from this is that the remaining lenders are tried and tested, experienced practitioners with a solid and thorough understanding of the market. We are in safe hands.
Despite this reduction in low-doc loans, there is still a significant demand for this type of lending from the growing number of small business owners and the self-employed. Business finance is not getting any easier to obtain. Low-doc loans are crucial for these borrowers, often providing them with an important lifeline – allowing them to access funds to expand their businesses and pay down expensive business loans. These borrowers are the backbone of the Australian economy – tradies, hairdressers and other service providers. Aussie battlers that deserve support.
Recent discussion has focused on whether there is a future for low-doc loans under the National Consumer Credit Protection (NCCP) legislation designed to regulate responsible lending practices. The answer to this – in no uncertain terms – is yes!
Low-doc loans – as they were – are dead and buried. Self-certification and stated income are no longer acceptable forms of income verification. What has replaced low-doc lending as it was, is ‘Alternative Income Verification’ loans where the criteria is the same as a full-doc loan but income verification is given through alternative means, such as business banking statements and BAS statements. These loans are just as safe – in some cases safer – than full-doc loans.
Under the NCCP requirements, brokers and lenders now have to confirm the borrowers’ ability to repay their loan without undue hardship. With low-doc loans this is done through evidencing income via alternative means (BAS statements, business banking statements, accountant letter). The demand for low-doc loans is as great as it has ever been
LOW-DOC LENDING SET TO RISE
The low-doc market may have taken a hit during the financial crisis, but as David Holmes argues, these products fill an important niche, and are set to thrive in an NCCP environment
and the difference is that there is now clarity around what is appropriate alternative income verification.
Unfortunately, what many brokers don’t realise is that there is a huge amount of opportunity available for those who can embrace this type of lending and demonstrate an understanding of the self-employed segment, because at present this segment is both chronically under-serviced and under supported. If brokers understand the credit criteria of the lenders operating in this space they will be able to place a low-doc loan with the right lender each time and the loan will proceed smoothly.
At present, one barrier to the growth of low-doc loans is market confidence which has declined for the reasons outlined above. Those lenders who have survived intact from the GFC have proved that they have sustainable business models and are here long-term to support the industry. I am optimistic that time will improve confidence levels in these loans, especially once ‘Responsible Lending’ is fully integrated into brokers business models and becomes BAU.
Looking to the future, low-doc lending is an area where non-banks are likely to emerge in strong competition to the banks. Specialist lenders like Pepper have a deep understanding of the self-employed and small business market and have designed products specifically for this type of customer. These lenders will play a leading role in providing finance to this segment. Non-banks, being generally smaller and more localised, have the ability to individually assess each loan rather than pushing it through a credit-scoring model. Low-doc loans have performed well in Australia and will continue to do so in the future, especially with more stringent guidelines now attached.
It seems inevitable that the self-employed market will continue to grow. Brokers and non-bank lenders would do very well to embrace the opportunities available to them within this under-serviced market. By gaining a clear understanding of how these loans work, brokers are also very likely to be rewarded for their efforts through higher commissions paid for them. To me it’s a ‘no-brainer’. ‘Alternative Income Verification’ loans are the way of the future.
David Holmes is the chief operating officer at Pepper Home Loans
23www.brokernews.com.au
One year onWhat a difference a year makes… or not. AB reflects on the punditry, breaking news and influential trends that made headlines in the magazine 12 months ago
Issue: Australian Broker issue 6.23
Headline:Second-tier not dead (page 2)
What we reported:Despite reports speculating otherwise, two industry experts believed the second-tier banks were not dead and that they could revive by focusing on niche areas and using the broker channel. Dean Rushton, chief operating officer at Loan Market, and Gerald Foley, managing director of National Mortgage Brokers, refuted claims by research group CoreData that the second-tier banking sector was “dead” based on a declining share of the residential lending market. However, Rushton was optimistic and said second-tier lenders were “there for the long haul” and would have a greater opportunity to compete as business and consumer confidence began to return.
What has happened since?The second banking tier has continued to experience a challenging time in 2010 and there are many who believe it will be at least another year until their market share picks up. Lisa Claes, executive director of mortgages at ING Direct, said that despite having endured a rough 18 months “the second-tier lenders are set to stage a comeback” and will reignite competition in the market. Head of distribution and marketing at Citibank, Peter Hayward, said while access to funding is becoming easier, it is still an issue and will remain so. Hayward said “2010 is not the year of growth, but rather the year of recovery”.
Headline:CommSec issues economic warning (page 13)
What we reported:Securities firm CommSec believed this time last year that the Australian economy was not ready for the cancellation of stimulus spending or for the RBA to return rates to normal levels. “With economic recovery in its infancy, policymakers must not get complacent and withdraw stimulus too quickly,” it said. CommSec’s ‘Recession Warning Gauge’ – a measure of manufacturing activity – showed that the Australian economy was still at risk and current indications suggested that the economy was flat – or it may have even fallen in the September quarter.
What has happened since?Wayne Hogan, chief economist at ANZ, believes that the Australian economy is still not ready for the ceasing of stimulus spending. The economy experienced its strongest quarterly growth in three years when it recorded growth of 1.2% in the June quarter this year. Hogan said that due to the economy’s performance, it could be argued that government stimulus should be withdrawn. However, he believes it is still not practical or viable to do so. “Canberra’s not going to really be much use in trying to constrain this economy and the way politics is playing out now, it’s going to be even less useful,” he said. Hogan added that the ceasing of government stimulus spending would be too much pressure on the RBA to do the job.
Headline:‘Gen Z’ make good broker candidates (page 12)
What we reported:According to research carried out by Veda Advantage and teen researcher Habbo, ‘Generation Z’ – with their desire to pay bills on time and to save money – are good candidates for home ownership. Loan Market broker Chris Dobbie said that based on the results of the survey, he believed there was a “great opportunity for mortgage brokers to assist Gen Z”. Kelvin Kirk, head of marketing and communications at Veda, said that Generation Z’s lack of financial education and knowledge about credit files was a concern.
What has happened since?Businesses are now starting to realise just how much their marketing strategies need to change in order to appeal to ‘Gen Z’, the young Australians who have never known life without the internet. Financially speaking, anthropologist Mike Walsh believes Generation Z is far more sophisticated than those before them because their financial education starts very early, thanks to the internet. By the time Gen Z have real money to spend and real transactions to make, they will know how and where they want to spend their money. However, with Gen Z it is no longer enough for businesses to have an online presence. Chief executive of Lifelounge Group, Dion Appel, says the key to Gen Z is “brand experiences”. “It isn’t enough to create content; there has to be the opportunity for the consumer to become involved in the marketing.”
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Insightwww.brokernews.com.au
Have you ever had a conversation with someone you’ve only just met – a brand new client, or a friend of a friend – and
you just seem to connect, get along immediately, and maybe even finish each other’s sentences? At other times of course, it may be exactly the opposite – like trying to have a conversation and really not understanding how someone thinks, or how their world works – perhaps leading to the question, ‘why can’t they think like me’?
The reality is, people are different – but different doesn’t equal wrong, different just equals different. When we meet different people, often our first reaction is there is something wrong with them, because they may be difficult to deal with or problematic. But if we can understand why or how they are different to us, we can flex our own behaviour and adjust to make them more comfortable.
The result is a situation where we will have better connections with them as staff members, or better relationships with them as clients. The DISC model is one way to have a look at both yourself and your clients.
What is the DISC model?DISC is a four-quadrant behavioural model, developed in the 1920s by William Marston. Marston asked the question: what if there was a way we could get ordinary people to understand themselves better, and understand each other better? The result of the question was a breakdown of individuals into four categories, describing personalities.
People who know peopleKnowing your client can be the difference between having them walk away from a deal and clinching their business for a fruitful long-term client relationship. ‘Corporate optimist’ and speaker Helen Macdonald explores new ways of seeing and adapting to clients
Name a business leader you admire. Why?Sir Richard Branson for his ability to take on huge and entrenched opponents and beat them. What main goal/s got you to where you are?The desire to control my own destiny has been important to me, the preparedness to back myself and take responsibility for success or failure as a consequence. Is success due to talent, hard work, or luck? Obviously a combination of all three, but also making sure that if you don’t have a particular talent then you need to get people around you with that talent. What character trait has helped you the most in business?Determination and thinking about the big picture. You have to get today’s work done well and it has to be part of your long-term thinking. What is the key to great business relationships?Always thinking long-term and making sure that each side benefits from the transaction. What’s the first thing to look at when growing a business?Building a base that is scalable, making good use of technology to streamline processes and procedures. What’s the best piece of advice you’ve ever received?Don’t try and do everything yourself. We all have certain skills but not all, so find experts that can fill any gaps in your skill set. What trend are you currently watching?The return of competition in the retail lending space. The broking industry truly arose from the emergence of the non-bank lenders and it will be great to see them come back strongly.
EXECUTIVE COUNSEL
Connective principal Murray Lees’ success comes from a strong desire to control his own destiny, but he knows the part played by other staff members in realising these goals
Murray Lees
The four are Dominance, Influence, Conscientious and Steady. You can find and mark where you and others fit on the scale by measuring yourself along two axes: fast/direct vs slower/reserved, and task-oriented vs people focus. Fast/direct vs slower/reserved: Refers to the speed people operate and make decisions. Fast/direct people do everything fast – walk, talk and think. Slower/reserved are contemplative and like to take time to think things through and make decisions.Task-oriented vs people focus: Describes whether people do things with, through and for people, or instead, focus primarily on the job at hand. Task-focused people may get along with others, but could see them as being just on the list of things to do.
So what types of people are these Ds, Is, Cs and Ss? And how can you use this basic knowledge to adjust your own approach to clients and colleagues?
DominanceThe dominance category is the confluence of fast/direct, task-oriented people. These types of individuals like to be in control and know what is going on at all times. Their natural inclination is to be in control of whatever is happening during the day. Some key words describing this category, or how they could be perceived, are:• Take charge• Pushy• Arrogant • Lead • Competitive• Cold-hearted• Blunt
Connective launches iPad, iPhone appsConnective launched a number of Apple-compatible applications at its recent annual conference, allowing its brokers to access the aggregator’s platform from their iPads and iPhones. The new applications, which will also include mortgage calculators, will allow Connective brokers to conduct business from anywhere, anytime. “Brokers are very mobile and client meetings are often held away from the office,” said Connective principal Murray Lees. “The latest generation smartphones and tablet computers are allowing brokers to conduct business on the road. We’ve developed these apps to allow our members to take advantage of these advances. Our annual conference provided us with a great opportunity to launch these applications and other developments,” he said.
NEWS BRIEF
25www.brokernews.com.au
What has been your greatest business achievement?Winning the recent award at the AMAs! We were also proud to be one of the first champion brokers at Suncorp, when they introduced their champion broker recognition category, and we are still one of those.
What’s the key to getting business through the door? It comes down to customer service. We just listen to people, always get back to people with feedback – the biggest one is just staying in touch. It’s simple, but we think you don’t have to do it any differently than that.
What goal/s have got you to where you are now?The goal each day was always helping one customer at a time, which would then enable us to help another – it’s like a roll-on effect. It wasn’t like a goal of settling $100m of loans. For each customer we see, we will look after them in the best way possible, so they are happy with us. We also had little milestones along the way, like having $1,000 in trail income per month, and having 100 customers.
What has helped you the most, and how?I’ve always had lovely support from my employer Park First, which has enabled me to go and do my job without interference. It’s almost like family support. There’s no competition here.
What character trait do you most value in yourself?Trying to be easygoing, and being able to relate to people. We are here to help clients, and treat everyone with respect. It’s just about being able to relate to people of different backgrounds, from first homebuyers to someone who may be buying their 50th property.
How do you stand out from the crowd/competition?We tend to blend in, to be honest! We don’t go out and market, we honestly just work by word of mouth. How we stand out is through that approach – our service will always generate more customers.
What do you tell yourself when the going gets tough?After doing this for 13 years, we’ve been through everything already. When the going gets tough, you just think to yourself, ‘I’ve seen enough tough times, and things will get better’. You can’t let it get you down.
What’s one thing you want to improve in your business?Time management. There is only 24 hours in the day, so as much as you want to help out everybody, I’ve got to learn that I physically can’t.
What advice would you give to an ambitious broker?Be proactive. Don’t be afraid to ask people if you can help them. It doesn’t have to be done in a pushy way. We say to each customer that the only favour we ask of them is that they pass us on to another person. We also say to our people, think each day how you can develop more referral sources, or where you can generate another customer.
MY WAY
Recently named Independent Broker of the Year at the Australian Mortgage Awards, Jeff Falconer from Park First Home Loans says his success primarily comes down to customer service. Australian Broker asks him how to become a leading broker
Jeff Falconer
While they love to take charge, make fantastic leaders and are competitors in a very positive sense, if they go too far they may be seen as pushy, arrogant, blunt or cold-hearted. Being focused on prioritising, tasks, deadlines and outcomes, they could be so focused on the job at hand to the detriment of those around them.What they want: The Dominance type wants you to get straight to the point and show them exactly how it works, as well as the expected results and outcome. They know they want a deal, and want it done, as they have likely got places to go and people to see. Avoid coming off half-baked with this type – come ready, with your homework done, as they expect delivery.
InfluenceAnother branch of the fast/direct personality type, people in this category really like recognition and connecting with people, as they are primarily people-oriented. Some words that describe them are the following:• Social • Talkative• Enthusiastic• Confident • Quick on feet• Not detailed• Sometimes don’t listenThese are ‘people persons’. They love a bit of a chat and sometimes just like to talk and talk, while others want to get on with it. They are not too hot on detail and get bored easily. They are also not crash hot on finishing things that they have started.What they want: This group like speed, acknowledgement and recognition. They want things friendly, fast and fun. They are big on one-to-one connections, so they will likely be interested in you and want you to be interested in them too. You could leverage your CRM system by making notes on things such as their holidays, hobbies, children, etc.
SteadyWhile still people-focused, and very capable of dealing with them, this category likes to take their time. They are often more loyal to a team or connected with a group of people. Some terms to describe the Steady type would be the following:• Patient• Loyal• Sometimes good listeners• Follow systems• Resist change• Can be inflexibleThese make for fantastic team members, being good at following and maintaining systems, and being good with detail. However, they are often change-resistant and like things the way they are, to the point where if the system is not good, they will not initiate change. They are sometimes inflexible, as they prefer the status quo – safe, steady and secure.What they want: This personality type may not like being sold to, perhaps
Fast/direct
DOMINANCE
Task-oriented
CONSCIENTIOUS
Slower/reserved
STEADY
People focus
Get results
Be correct Status quo
Social recognition
INFLUENCE
preferring a conversation rather than a hard sell. They prefer to get to know the provider, and understand the sales process step by step. Don’t surprise them with things you may have missed at the start halfway through. Honesty for these clients is crucial. This personality type also doesn’t like conflict – they would like to be able to get along with everybody.
ConscientiousThe focus for Cs is primarily getting things right. They are all about accuracy, data and detail, and that is why they like to take their time with any tasks. Some words to describe the C type may be:• Analytical• Anal• Accurate• Detailed/plan• Prefer to work alone• High standardsThe Conscientious type is analytical, sometimes to the point of being anal. They are great at following detailed plans – in fact, sometimes they spend so much time making the plan they don’t actually action it. They often have such high standards that no one else can meet them. They are good checkers and don’t like to be questioned, as they want to know they are right.What they want: Detail, detail, detail. Make sure you cover the detail and that it is factual and accurate, as they have probably already checked before going to you! But they need time to make a decision – if you rush, they may pull back and may think you are trying to cover something up.
ConclusionThis model can help you think about your own personality type, and also how you can engage and connect with clients. If you can achieve this, you’ll manage better long-term relationships with them, and also more profitable outcomes for your business. By altering your speed of operation and watching the signals, you can adjust to the client.
This article is an edited version of an oral presentation and workshop delivered by Helen Macdonald for PLAN Australia brokers at the NSW/ACT state conference in October 2010
Where do you and your clients fit?
26
Market talkwww.brokernews.com.au
If you were to liken the current Queensland economy to a person, it would be a battered boxer. It seems that every time recovery appears on the horizon, a fresh blow knocks it for six.
First, the GFC saw the mining and resources boom curtailed and property development cut off in its prime; rising interest rates and the end of the First Home Owner Grant boost put the brakes on the residential market, and the ever-strengthening dollar has seen tourism suffer further.
On the face of it, it is ‘all quiet on the eastern front’, says BIS Shrapnel senior project manager Angie Zigomanis. “It’s very much the case that projects like mine expansions and large commercial property construction have wound down now,” says Zigomanis. “We’re effectively waiting for the next round of projects to kick in and stimulate the economy.”
The property and employment slowdown has had a knock-on effect on population growth, too: without jobs, there are fewer reasons to move to Queensland, so migration has fallen significantly.
State update: Queensland
While 2011 isn’t
shaping up to be a boom year, 2012 and 2013 are looking brighter
That fall in population growth has led to a general slowdown in market activity, especially in South-East Queensland, says Real Estate Institute of Queensland president Dan Molloy.
“Frankly, the market has been flat,” he comments. “There’s been a reduction in sale numbers, an increase in properties on the market, and the days taken to sell a property have risen.”
Molloy expects the market to pick up in the New Year, but cautions that “we shouldn’t be under any illusions that there will be substantial growth in 2011”.
Indeed, it is the long-term prognosis that should be borne in mind: while 2011 isn’t shaping up to be a boom year, 2012 and 2013 are looking much brighter – not least because the resources activity is starting to ramp up again in a big way. Major projects announced include BG Group’s $15bn coal-seam-gas project, which will expand existing CSG production in the Surat Basin and construct an underground pipeline network linking the CSG fields to a new LNG plant on Curtis Island. A second CSG project led by gas producer Santos is also set to launch – pending Federal approval. The two projects between them are expected to create more than 12,000 jobs. Also planned is a $274m expansion of Xstrata’s George Fisher zinc mine in Mount Isa, which will create another 400 jobs.
Zigomanis thinks that it will take a while for the impact of projects like these to seep through to the wider economy, but that they’ll have benefits for the entire state. Even so, he cautions that there’s a wild card factor – interest rates. “If the RBA comes in aggressively on interest rates, it may well slow the upturn,” he adds. “Our view is that the RBA may be more conservative in the short term, but it’s possible that, by 2013, that upturn could stall.”
The Sunshine State’s property market has been in the doldrums recently – but will the resources industry drive a turnaround?
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MPAISSUE11.1—DECEMBER2010
OFF THE SHELFCOMPLIANCE SOLUTIONS COMPARED
QUALITY CONTROLTHE IMPORTANCE OF SMOOTH SUBMISSIONS
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ISSUE 10.12
bigger picture
Second-tier lenders widen the provider
landscape the next issue
MPA Hot List – we unveil this year’s movers and shakers
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27www.brokernews.com.au
City rents to soar due to house shortages Housing shortages could lead to rent increases of up to 7% in some capital cities over the next 2-3 years.
BIS Shrapnel reckons that annual rent increases of 5–7% will be common in Sydney, Melbourne and Perth over the coming years; Adelaide and Hobart will also see regular increases of 5–7%.
The researcher blames the probable hikes on the construction slowdown seen since the GFC.
“We expect rental growth to pick up again,” BIS Shrapnel senior project manager Angie Zigomanis told The Sydney Morning Herald. “The last 12 months has shown marginal rental growth, but we expect that to get closer to the mid-single digits over the next few years.”
Population slowdown impacts WA market A 30% drop in population growth since the GFC has contributed to a slowdown in house price growth, according to The Real Estate Institute of Western Australia.
REIWA has recorded across-the-board price falls for houses and units in Perth during the September quarter: house price values fell from a median of $500,000 to $480,000, and the median unit price fell $5,000 to $405,000.
The regional markets saw a 2.7% drop in house prices to a new average of $365,000.
MARKET NEWS IN BRIEFNUMBER CRUNCHING
Auction clearance rates: week ending 7 November
Auction clearance rates: week ending 31 October
Source: RP Data
Volatility rules as the troubled spring selling season continues. The market seemed to be gathering some momentum at the end of October – except Melbourne, where the Cup long weekend put a hold on things. The RBA’s shock interest rate rise just before the Melbourne Cup put a brake on things across-the-board, though, with falls the following weekend.
Clearance rate Number of auctions Sold
Sydney 58.7% 825 484
Melbourne 61.6% 378 233
Brisbane 23.4% 171 =40
Adelaide 42.2% 135 57
Darwin 30% =10 3
Perth 45.2% 31 14
Canberra 53.3% 45 24
Hobart 41.7% =12 5
Clearance rate Number of auctions Sold
Sydney 53.8% 693 373
Melbourne 54.8% 606 332
Brisbane 29.2% 120 35
Adelaide 52.3% 109 =57
Darwin n/a 5 0
Perth 16.7% 24 4
Canberra 68.3% 41 28
Hobart 60% 5 3
28
Toolkitwww.brokernews.com.au
Planning for the future
Mortgage and finance broking may be a successful profession in its own right, but in recent times, a severe hit on broker profitability through wholesale commission cuts driven by the GFC
have left more and more brokers out of pocket and asking what they can do to maintain income levels. While a move into providing financial advice may seem drastic for some, many brokers have already made the move to skill up as they seek diversification.
For those considering adding financial advice aspects to their business, entering such a well developed, serviced and regulated industry can seem daunting, compared with mortgage broking. So how can brokers successfully add these services, and what are the pitfalls?
Skilling upFor brokers looking to move into the advice space, the key educational requirement is that they become RG146 compliant, as per regulator ASIC’s requirements. New entrants usually achieve this through a Diploma of Financial Services, through financial planning industry education providers who include leaders such as Kaplan, AAMC, Intellitrain and RG146.
The Diploma, depending on the provider who delivers the course, generally have modules that cover generic financial planning background, insurance (general and life), as well as superannuation and managed funds, while securities/shares and margin lending are extras.
According to Wealth Today managing director Tony Pennells, the training required to skill up is not difficult, and can be completed in a three to six week period of time. However, he argues it does require a commitment from a broker to push through the inconvenience.
Courses are usually delivered through a combination of
distance and classroom learning, though each provider is different. Brokers should choose one that meets their individual needs.
Getting licensedAs financial advice falls under a different licensing regime than credit, brokers will need to become licensed under an Australian Financial Services License (AFSL), in addition to having their own ACL, or being a credit representative of an AFSL holder.
There are two ways, similar to the credit industry, that brokers can become accredited:1) Direct with a dealer group: brokers can go direct to a
dealer group to get an agreement themselves, in a similar way they do in credit with an aggregator.
2) Join a planning group: brokers can become sub-authorised representatives under an existing financial planning group, who already hold an AFSL.Pennells argues that most dealer groups are not set up
for new entrants to the financial planning industry, who usually value mentoring and training as they become accustomed to the industry. Many dealers may require new entrants to join a financial planning group and work under their license for a time. For an experienced broker, the downside of this will be that they will be running under the rules of the planning group, which in essence will mean they are one more tier down in terms of having control of the growth of their business.
RegulationRegulation surrounding financial advice can be dubbed “onerous”, according to Pennells, particularly for a broker who has not yet come to grips with the ACL environment. While the NCCP can be considered very much a “cousin” of the Financial Services Reform regime, there are key differences between the two that brokers will need to master.1) Know the client: Brokers will need to know their client
in extra dimensions, compared with just obtaining finance. One of these is knowing where the client is planning on going in future, as well as their appetite for risk. Pennells said this is quite structured and specific, and a “fairly simple skill to learn”, through an expanded needs analysis and a couple of “extra tweaks” in the interview process. The key difference is having standardised documents and data collection, with information collected in these documents signed off by the client, and kept for compliance reasons.
2) Research: Brokers need to have a needs basis for any financial advice recommendations they give, which comes down to research, a process that “not as simple” as the finance area, where it is crunched through software.
3) Appropriate advice: In a similar way to the NCCP regime and its “not unsuitable” requirement, advisers must demonstrate their advice is appropriate for the client
4) Disclosure: Financial advisers have to clearly disclose any conflicts of interest, such as commission payments, and there is now a similar requirement under NCCP
Mindset shiftGiving financial advice – in terms of the client facing aspects – is very much similar to mortgage and finance
A growing convergence between financial services specialties is causing more brokers to look seriously at financial planning and giving advice – but how do you make the move?
Wealth Today managing director Tony Pennells is one individual not shy of stating the case for brokers to move into giving more holistic financial advice. In fact, he is currently building a business doing just that – encouraging brokers to add advice aspects to their business. For him, the rationale is clear, and falls into two areas:1) The client: Pennells argues that all the tools at a broker’s disposal all involve getting
a client further into debt. During the pre-GFC WA housing boom, Pennells said it became clear to Wealth Today founders that clients required “better advice” than for example, automatically refinancing to reset their loan terms to 30 years, particularly when they were already in the 30 – 40-year age bracket. A sample set of 2500 loans investigated by the group found that 97.8% were all reset at 30 years. Pennells said such agreements give clients no time to prepare for retirement once the loan is paid out. “They needed someone to say this might not be in your best interest”, he said, and argues that home loan brokers are in a good position to provide that advice.
2) Income: According to Pennells, at the current point in time, seven out of ten brokers are settling at or below half a million dollars worth of finance a month, meaning they are not earning more than approximately $38K in income, when upfronts and trails are balanced with costs. “When someone says just focus on your core business, I say the core is not working,” Pennells said. “When seven out of ten guys can’t pull an average wage, I ask where is the core?” With the industry moving into an environment of higher compliance costs, and a considerable drop in loan enquiries still apparent, Pennells argues the industry currently doesn’t have a “viable model”. While elite business writers will no doubt continue to thrive, many brokers are indeed looking for better solutions to ensure their business has a viable future.
Stating the case
29www.brokernews.com.au
Many dealers
may require new entrants to join a financial planning group and work under their license
broking, meaning the skill sets easily dovetail together. However, Pennells said there are two areas brokers often struggle with as they move into the space:1) Advice, not transaction: If brokers go into a client
interview with the idea or mentality they are hoping to a achieve a transaction, it will be “difficult” for them, argues Pennells. Brokers must adopt a “client-for-life” mentality, where there is a long-term view of the client’s interests, based on regular reviews.
2) Fee-for-service: This advice model requires a change to a fee-based service, where client’s pay at “every step of the way”. “The struggle is not in whether a client will pay for advice or not, the struggle is in the broker’s mindset,” Pennells says. “Not every client will pay, but the vast majority are happy to.” He said this is often a hard step for brokers, but that once they implement it, it becomes second nature. The difference is that brokers can then sit down with a client, and deliver a plan that involves working with the existing mortgage, rather than topping up or refinancing. “They are still handsomely paid for time they put into that,” he said.
Challenges There are some hurdles to overcome should brokers move into advice. Pennells argues the main challenges – aside from those listed above – are the following, though many of these will be covered off when joining a financial planning or dealer group:1) Professional indemnity insurance: As a broker’s
standard PI will not cover their move into providing advice, they will need to make sure they have PI cover
2) Software: Financial planning software is by-and-large a lot more sophisticated, thorough and robust than the software that has evolved in the broker space, with the main difference being that most client interactions enter the software, including all emails and phone calls, so that an adviser has a full view of the client.
3) Audits: As a licensee, a business system audit needs to be conducted annually, though Pennells argues this can be an opportunity for advisers to check how they are actually going, and can provide improvements and benefits to them.
4) Professional development: Advisers need to undertake CPD, in a similar way to their requirements as brokers. The recommended minimum is 30 hours, while the Financial Planning Association requires 40 hours. However, Pennells said there is some degree of crossover from CPD points attained for mortgage brokers.
COMPLIANCE CORNER
Conflicts of interest under NCCP
Any transaction has more than two parties involved. There is a broker and a client, but there is also a lender, probably an aggregator, maybe a referral source, a real estate agent, lawyers… all with their own interest in the transaction that is taking place.
Sometimes those different interests conflict, ie. one stakeholder’s interests is not aligned with another’s. And that’s fine – it’s all part of doing business. What’s important is how we handle any conflict of interest.
The NCCP requires that no client is disadvantaged by a conflict of interest. But aside from that, it’s good practice to ensure that you are always aware of conflicts of interest and not just in relation to consumers. For example, whose interests are not aligned with yours?
Here’s a few steps to try and identify conflicts of interest. You will need to consider the following:1) The credit service being provided and to
whom it is being provided
2) Remember your key obligations around this service
3) Ask “what is my interest in providing this service?” This should include:
• remuneration you get paid
• obligations or relationships with other parties (eg. suppliers)
4) Ask “what are the interests of the client?” and “are these inconsistent with my interests?”
If the answer to the final question is “yes” then it is likely there is a conflict of interest to be addressed.– Greg Ashe. director, QED Risk Services
Greg Ashe
30
Featurewww.brokernews.com.au
What was the last book you read?The Wolf of Wall Street by Jordan Belfort – it is totally unbelievable and now a movie is in the works. I won’t be rushing to see it.
If you did not live in Australia, where would you live and why?Italy – we have family in the Abruzzo region, east of Rome, and I love the idea of spending a decent amount of time there.
If you could sit down to lunch with anyone you like, who would it be?Fred Hollows – his legacy lives on as does his great work. Loved his humility and steely determination.
OFF THE CUFF
Kendall MahnkenGeneral manager – personal businessLiberty Financial
What was the first job you ever had?My first job was at Coles Supermarkets – I was ‘Checkout Operator of the Month’ in July 1985 – what an accolade!
What do you do to unwind?See the shoe comment below! I also spend a couple of weekends a month relaxing in Tasmania.
What’s the most extravagant gift you ever bought yourself?For me it’s not about one item, more an ongoing shoe relationship. I have no idea how many pairs I have.
What CD is currently playing in your car stereo?Anything by Augie March. They are my favourite band and I am never sick of their music.
If you could give anyone starting out in business one piece of advice, what would it be?Stop and think as issues crop up and then make all your decisions based on what is the right overall outcome for the business.
If I was not working in the mortgage industry, I would like to be...?Most likely a psychologist. There are so many people that need to be heard and helped.
Where was the last place you went on holiday?Phuket earlier this year.
Liberal candidate upbeat on marketThe Liberal Party candidate for the electorate of Sydney in next year’s NSW state election – mortgage broker Adrian Bartels – says he is upbeat about prospects for the market.Principal of Bartels Property Finance in Sydney’s Potts Point, Bartels told AB “business is good”, and the outlook for the market is positive.
“I think the regulation of the market is a positive thing,” Bartels said. However, he admitted to concerns over reduced
competition in the lending market. “Hopefully we’ll see some shift in that.”
Aggregating through PLAN Australia, Bartels – whose business is 80% residential and 20% commercial – said his background in small business and mortgage broking helped steer him onto his current track, which will pit him against incumbent Clover Moore.
Bartels set up the broking business eight years ago, and said some of his success politically can
be attributed to its growth. However, Bartels’ engagement with the business community is far wider. For two years, he has been chairman of the Potts Point Partnership, a local group aiming to build a diverse, sustainable and prosperous business community through fostering partnerships.
While he is still formulating policy to take to the state election in March next year, he has a clear wishlist for Sydney. “My vision is of a Sydney that is a beacon of tolerance, diversity, creativity and innovation, that engages us and inspires our imagination,” he said.
Bartels has been involved in the Liberal Party’s Point Piper
branch since 2003, and he said that the Liberal Party is “philosophically” a natural fit for him. “I believe in the ideal of personal liberty, and that individuals should be able to contribute to society as they see fit.”
Adrian Bartels
31www.brokernews.com.au
People
Resimac: a view from the helmAt a celebratory event in
Sydney in early November, non-bank lender Resimac
marked 25 years in business, after surviving the greatest financial crisis of our generation. Chief operating officer Allan Savins was at the core of the non-bank’s successful charting of the crisis. AB asked him how the lender survived, and where it is likely to go from here.
What does Resimac turning 25 mean to you personally?I actually joined in May 2007, which was just before the GFC. It wasn’t just turning 25 that was the achievement for me... Resimac never once stopped new business lending, and to me that highlights a strong and reputable company. At the end of the day I’m very proud to be a part of that.
Why do you think the business has been around so long, when so many other lenders have disappeared?Resimac has an experienced board with extensive finance
experience, and a very strong executive management team. When you overlay that with very supportive and committed long-term shareholders, that has definitely helped our position. As an organisation, our core competencies are risk management, securitisation, product manufacturing, loan servicing and arrears management. I think we are a conservative organisation by nature, and having experience at board and executive level, committed shareholders and core competencies around risk management has helped.
How would you describe the culture at Resimac? Is there a strong mission to take up competition with the banks?Through a respect for each other, professionalism and teamwork, our culture ultimately is all about customer focus and service and understanding what our originators require – they are the ones who can deliver a viable alternative to the banks. We can Allan Savins
only do that if internally we are on the same page, and that’s why we need that teamwork and professionalism and respect for one another so we are all working in the one direction. As we have seen opportunities evolve, particularly in the last 12 months, it has enhanced our resolve for success. We honestly believe there is a tremendous opportunity for the emergence of the non-bank sector again and we want to be at the centre of that.
What’s been the greatest contribution you’ve made during your time at Resimac?When I first came to Resimac I was here to do the specialist lending business, which we launched in December 2007, and that definitely delivered to the market a unique opportunity that still stands alone today as a solution for those borrowers who do not meet traditional lending requirements. As I’ve evolved in the company, we’ve managed to harness the prime business and the specialist business together.
What do you think Resimac will look like (business-wise) when it turns 30?I see an even stronger diversified company, with deeper
relationships and key strategic partners. Diversity brings for me tremendous opportunity, with the foray into the various jurisdictions, distribution channels and underlying asset classes, so I am – and I know the executive management team here are – very excited about our future, to be honest. I think the key is the diversity. The market has always wanted choice, with the behaviour what we’ve seen in recent times of the banks with their interest rate management, there is no better time to stand up and prove we are a viable alternative.
32
Peoplewww.brokernews.com.au
performing is the quality and stability its staff.PLAN has grown significantly since we started
working together and I still deal with the same people as was the case 10 years ago.
What makes you a successful “ambassador” for PLAN?This is a difficult question to answer. From a personal point of view I have got a lot out of being an ambassador by having the opportunity to meet other successful brokers and also get to meet first-hand with the executives of many of the panel lenders. Having the opportunity to participate in group sessions with senior executives of both PLAN and the lending partners has been a very worthwhile experience.
One thing that does stand out about the ambassadors is we all operate under different business structures and everyone has been prepared to share their knowledge amongst the group. This has allowed me to help both my business and other brokers in their business.
What do you feel about current developments at PLAN and Advantedge?Change or be changed. The industry, as everyone knows, it is going through the most significant change in our short history. For the average broker we must be confident more than ever that our aggregator is a leader and not a follower. PLAN has always been a leader in my opinion and from the briefings we have received I see no reason why this will not continue under the current management and ownership. No doubt the National Australia Bank could see the potential and is investing heavily in the future of the organisation.
There appears to be a good skills set and I see no reason why PLAN will not be able to continue to assist us to grow our business.
What is the biggest challenge you are facing over the coming year?Loss of income is by far the greatest obstacle that faces the traditional broking business. The average income received for work completed has dropped by around 40% over the past couple of years. On average a business that settles $100m a year will receive $200,000 less up-front than it did three years ago and trail commission for the next year will drop by around $100,000pa. This is not taking into account the fact that a lot of lenders no longer pay trail in the first year.
Also, as the existing loan book ages and clients change by moving house or borrowing additional funds, the older book will become less valuable as replacement loans will earn less, so the snowball effect is just beginning. We are well aware of how this is affecting our cash flow and are looking at ways to compensate by forming alliances with other business entities and reducing costs. There is a limit on how far you can go to reduce costs without adversely reflecting on service and efficiency.
The cost of doing business is increasing all the time; combine this with the reduction in earnings, increase in compliance and it is already evident that the industry numbers are contracting.
What is the biggest opportunity you are looking at?Regulation will assist many to make the decision to leave the industry and also be an opportunity for the professional to grow. Most brokers operate professionally and with the new regulations in place I see that this will add credibility. Over time we will take our rightful place and be viewed as professionals in the finance industry.
Small business enterprises need professional financing assistance to maintain and grow but in a lot of instances are not finding this from their current financier. The numbers we are seeing where the banking facilities just do not fit the requirements are staggering.
Why did you become a mortgage/finance broker? My start in the broking industry was a bit by accident. I was approached by three of the original directors of ProMortgage about six months after the business was formed and asked to join the company to establish the commercial side of the business. At the time I was the area manager for Colonial State Bank, Business Banking, which had been taken over by Commonwealth Bank and it was clear this position was going to disappear, so I took the opportunity offered.
How have you been able to successfully grow your business since that time?Over the 11 years ProMortgage has operated, we have tried many things to grow our business including television, radio and print advertising; most of which did not work because we did not allocate sufficient resources.Customer service is the best form of advertising and now we gain almost all of our business by referral. We provide a little gift on settlement along with a folder to keep records in and follow up after settlement to make sure that all is going as well.
We try to keep in the client’s face without being in their face. Each client receives a newsletter quarterly and at least one letter per year with an update and offer to complete a review of their current position.
The simplest way to grow your business is to provide good service and there is no add-on cost.
What does your business look like at present?On current numbers the break-up of our book in new deals is about 85% residential, 15% commercial. Three years ago it would have been about 60-40. We seem to be moving back to more commercial and I can see this area being concentrated on more in the future. On average we write around 25 new residential facilities per month. Commercial loans vary considerably in time and complexity and we do not include them in our budget.
In terms of major deals, one deal that comes to mind was for $28m and the file rarely left my desk over the two-year period from application to settlement. The largest single deal settled was for $39m and we have a couple of clients who we have settled in excess of $100m.
We have six loan writers including two who are contracted to ProMortgage. Four are based in our Canberra office and two at Goulburn [in NSW].
What do you find to be the most enjoyable part of your job?Completing the larger complex deals is very satisfying. However, with the long lead times that are sometimes associated with this type of work, it makes the cash flow very lumpy. Assisting someone purchase their first home is also very rewarding. Completing a review a few years later and seeing how they have progressed makes me happy that I have assisted in some small way to help them secure their future.
The fact that almost our entire new business comes from referral is also very satisfying.
Why have you stuck with PLAN Australia for over 10 years?I work on the theory “if it isn’t broke don’t fix it”. We were in the first couple of brokers who signed up with PLAN. I have never seriously considered changing aggregators. I think a good barometer of how well a company is
The accidental ambassador
Keith McLaren, ProMortgage
It may have been unexpected that ACT-based ProMortgage broker Keith McLaren found himself in the broking industry, but he has risen to the top to become a PLAN Australia ambassador. Australian Broker asks him for his finance broking story
Loss of income is
by far the greatest obstacle that faces the traditional broking business
33www.brokernews.com.au
Caught on camera
Australian First Mortgage celebrated the running of the Melbourne Cup in style when it hosted a lunch at the Imperial Peking in Sydney on 2 November. Not everyone was a winner, but guests certainly enjoyed the meal and the company!
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PHOTO 1: Iain Forbes, AFM
PHOTO 2: Shelly Bird (Genworth) with Christine Khall (PMG Online)
PHOTO 3: Katrina Couchman and Peita Davies (Choice Home Loans)
PHOTO 4: Davy Tea (APFS)
PHOTO 5: Cathy Dimarcos (Sintex) with Noel Brown (AFM)
PHOTO 6: Karen Micallef (AFM)
PHOTO 7: Deb King (AFM) with Peter Bryant and Lyn Vellacot (Vow Financial)
PHOTO 8: Brett Halliwell (Advantedge) with Tanya White (AFM) and John Barrington (John Barrington Legal)
PHOTO 9: Mark Haron and Fiona Brown (Connective) with Leonie Jackson (Great Aussie Dream)
PHOTO 10: Amy Fawor and Ray Kos (Mortgage Blitz)
PHOTO 11: Michael Strachan and Frank Polistina (Modern Mortgages)
PHOTO 12: David White, AFM
PHOTO 13: The AFM team
12
Photography by Simon Kerslake
34 www.brokernews.com.au
Insider Got any juicy gossip, or a funny story that you’d like to share with Insider? Drop us a line at [email protected]
their place. The “Mort” part of mortgage comes from the Latin word for death, while “gage” means a pledge, in the sense of forfeiting something of value if a debt is not repaid. Why death? Here’s the kicker – authored by the great jurist Sir Edward Coke (1552–1634) – make sure it’s memorised and is delivered in an Old English accent for that unsuspecting client. “It seemeth that the cause why it is called mortgage is, for that it is doubtful whether the Feoffor will pay at the day limited such summe or not, & if he doth not pay, then the Land which is put in pledge upon condition for the payment of the money, is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the Tenant, &c.”
No apartment block
There has been much talk of late about the lack of women – or their
difficulties in succeeding – in the mortgage industry. The MFAA, the FBAA and senior individuals have all had their say on the issue, and there are a growing number of initiatives aimed at addressing the imbalance, and supporting women. Indeed, Insider can commiserate (despite being male) with the plight of females in finance, who have their work cut out for them dealing with us blokes. In fact, turning around in the front row of a recent mortgage broking conference, Insider struggled to pick out any female delegates among the sea of greying males, who no doubt would have appreciated their presence. (After hours, the few women who had turned up suffered from a small bout of over-appreciation – after drinks had been imbibed). It’s true, more balance is needed in this industry, and this can only help with professionalism. However, what we can’t do is forget about those women who have already paved the way and succeeded – despite the challenges – or they might just feel rightly slighted. Recently, for example, following public comments made that there were no women at management level of any aggregators, Insider heard one such individual was quite incensed, asking if she appeared to be – in her words – a block of flats? While Insider will not name names, we will indeed ask that those highly successful women already with us in this industry are
Insider loves a good broker road show, and Liberty Financial’s latest effort
was no exception – well, an exception, perhaps, in being more entertaining than most. Thanks to the less-than-staid management team at the non-bank lender, Liberty’s night was one of non-conformity – despite at the same time promising to take competition right up to banks in the prime (and traditionally more conservative) space. Indeed, who wouldn’t like turning out for an evening where Liberty’s Jon Mohnacheff (a natural showman) took the helm as a game show host (complete with an eye-catching, bright green polyester suit and shiny two-toned shoes), and proceeded to propel his audience through a night of fun and prizes – Family Feud style. Plucking random (and initially reluctant) members from his broker audience (who naturally would probably have preferred to stand up in the darkened corners, drinking the night away, instead of under harsh stage lighting in front of a “camera”), Mohnacheff assailed them with the easiest of questions (which only some
had trouble answering), slowly whittling them down, one by one, until the finalist – winning the battle of the most popular answers – could finally claim back his anonymity (and an iPad). Not stopping there, the non-bank lender’s marketing team also went all-out with some broker-focused advertisements (which Insider initially felt went below the belt a little early in the night, but which were received rapturously by the broker audience) asking brokers to “assume less, expect more” with Liberty. After this highly entertaining road show, and similar efforts in the past, Insider believes brokers will be eagerly anticipating next year’s event – and expecting a lot too.
A dead pledge
Have you ever been put on the spot and tested by any smug, knowing
clients with this bit of trivia – what’s the origin of the word mortgage, or why is a mortgage a “dead pledge”? If so, Insider can give you just the response you need to put them back in
At Liberty
acknowledged, as well as support the development of a successful female mortgage broking contingent.
Tony’s punchlines
Insider reckons there should be more in the way of humour among the executives and
pundits in our industry – lest we all find ourselves so bored with predictable commentary that publications such as AB become tedious to read! If we are to have a few more gags thrown about, we’ll have to at least give acknowledgement – and applause if you feel so moved – to those out there already managing to draw successful laughs at industry events.
For this issue, the floor goes to industry consultant Tony Crossley, who delivered these at a LIXI conference. Just a disclaimer – all comments here are taken entirely out of context!
“I would call myself an expert in Chinese whispers, because the information gets distorted from one end [of the industry] through to the other.”
Crossley commenting on his previous experience in the mortgage industry at broker Mortgage Choice, compared with eyeballing securitisation investors at Macquarie Bank.
“There is no doubt that this rhetoric [on banking competition] will lead to change. Hopefully not trying to force Australia Post into bank distribution – anyone who thinks that has never been in a Post Office. You are much better off going through Hungry Jacks, I’d suggest.”
Crossley commenting on the not-so-enchanting prospect of Australia Post moving into banking.
“We’ve got CBA operating as CBA and Bankwest, and having some influence on Aussie, Westpac operating through St.George, RAMS, and Westpac, NAB operating through three brokers and ANZ operating through Barbara.”
Crossley commenting on the fine job done by “Barbara” in ANZ’s latest advertising campaign – can CBA, Westpac and NAB do as well with their new brands?
“Two thousand years ago there was a self-styled Messiah who wandered into a temple and started flogging lenders and telling them to get out, and I think that showed it was acceptable behaviour to do that...”
Thanks again Tony! Insider hopes the Federal Government isn’t our new saviour.
Come on down...
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Liberty Financial 13 11 80 www.liberty.com.au page 3 MKM Capital 1300 762 151 www.mkmcapital.com.au page 2 Provident Capital 1800 668 008 www.providentcapital.com.au [email protected] page 4 MORTGAGE MANAGER / NON-BANK Vault Mortgage Corporation 1300 798 676 www.vaultmortgage.com.au page 10 NON-BANK LENDER Hemisphere Financial Services 1300 793 742 www.hemispherefs.com.au NON-CONFORMING Pepper Homeloans 1800 737 737 www.pepperonline.com.au page 13 OTHER SERVICESResidex1300 139 775www.residex.com.aupage 35
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