Australian Broker magazine Issue 8.22

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Brokers must balance increased professionalism with maintaining their role as market disruptors and “rebels”, if they are to continue to shake up the mortgage industry.

MFAA CEO Phil Naylor has said mortgage broking is increasing in its standards of professionalism, but as this transition occurs, brokers must seek to maintain their consumer proposition as industry iconoclasts.

“They’ve come in as rebels and

the many products available to them,” he said.

As consumers have become more aware, Naylor said the broker proposition has begun to evolve.

“The broker model is still sort of in its beta stage. It’s been out there, it’s developed, it’s had issues but it’s still a very valuable proposition,” he said.

Part of this evolution is an increase in professional standards. Naylor said the push towards more professionalism in the industry was largely driven by brokers.

“The MFAA’s role as determined by its members is that they want to be seen as operating at the highest level of professional standards and educational standards; so we’ve put those standards in place,” Naylor commented.

However, as professional standards have improved, Naylor said brokers must maintain the entrepreneurial spirit that saw them bring major disruptions to the mortgage sector.

“The sharpness in the broker sector is necessary in order to get heard,” he said. Naylor also predicted the broker proposition would have to evolve into a professional advisory role, while maintaining this “sharpness”.

“The next step is moving away from the transactional model they had at the start, and moving much more into the advisory space. That doesn’t mean they can’t still be entrepreneurial and sharp, but it’s just changing the offer and changing the relationship they have with consumers,” he said.

ISSUE 8.22

November 2011

Productivity slammedChannel sustainability to depend on efficiency boost

Page 4

Borrower disputes‘Buying time’ blamed for financial hardship cases

Page 10

Commission threatLender price war to drive focus on distribution costs

Page 12

Inside this issue

News special 12PLAN conference headlinesAnalysis 20Brokers to go ‘hybrid’Forum 23On ACLs, vals and efficiencyInsight 24Fee-for-service experiencesMarket talk 26Businesses gain demand Toolkit 27When does the NCC apply?Caught on camera 29ING Direct greets brokers

Broking to move from ‘beta’ stage by remaining disruptive and entrepreneurial

Be professional, but stay ‘rebels’: MFAA

created a service, and now they’re sort of caught on the cusp. Do they continue with that sharpness and that entrepreneurialism, or do they consolidate into some sort of institution?” Naylor said.

Speaking at a recent conference held by LIXI in Sydney, Naylor said the entry of brokers into the mortgage market had helped to drive innovation and consumer engagement. He commented that brokers had also helped in creating more educated consumers.

“Brokers have really been very much a part of the democratisation of the mortgage sector.

“In a sense they’ve become consumer advocates, and made consumers much more aware of

Phil Naylor

http://www.mangomedia.com.au

2

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One Big Switch has lambasted media reports that only 1,000 of the 40,000 borrowers the campaign signed up have seen results from their involvement.

The campaign to leverage group buying power to secure better mortgage rates saw massive consumer interest, but media reports have claimed One Big Switch has only seen 1,000 borrowers offered refinancing deals, a 2.5% success rate. The initiative’s co-founder, Paul Hunyor, disputed the figure.

“I’ve learned to believe nothing I read in the financial press, so no, those numbers are not quite right,” he said.

Hunyor claimed the number of borrowers seeing potential success in refinancing their home loans is actually double the amount claimed by media sources.

“We’ve had over a couple of thousand introductions to lenders and their products through the program,” Hunyor said.

While this still represents only a 5% success rate, Hunyor claimed the process was ongoing. He said lenders were dealing with the influx of borrowers as quickly as possible.

“Given the current climate and the type of lenders they are – all non-bank lenders – and given their capacity to cope with volume, they pretty much have as much volume as they can cope with right now. I think there’s been great take-up.”

Moreover, Hunyor said “member engagement” in the campaign had been strong, and claimed many borrowers involved in the campaign had learned to “shop around” independently and re-engage with

their current lenders for a better deal. “The ultimate statistics on engagement we look to are quite large. That’s why we continue to find and look for and search for other ways to serve the demand from our members to get more products and services through the program,” he said.

Hunyor predicted that more of the 40,000 borrowers could eventually see offers from lenders involved in the campaign.

He said that the group had split borrowers into nine different profiles based on their financial circumstances, and that the credit quality of the campaign’s participants had thus far proven high.

“The quality of the leads is very high, and the rejection rates are extremely low. In terms of settlements, it’s early days and time will tell.”

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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.

Firstfolio has predicted the recent RBA 25 basis point rate cut will be a “litmus test” for the government’s unilateral ban on exit fees.

The company said lenders would closely watch consumer reaction to the cut, to see if the move had a material impact on refinancing activity in light of the exit fee ban.

“Any time that the RBA moves, we see a spike in inquiries from existing borrowers who are shopping around for the best mortgage rate. Some refinance with a new lender, but many don’t after weighing up impediments such as exit fees and bank account portability,” Firstfolio executive general manager for retail distribution Andrew Clouston said.

The cut marks the first RBA rate move since the ban came into

effect. Clouston predicted the cash rate cut could spell the end for fixed rate popularity.

“A cycle of RBA tightening always triggers growth in fixed-rate loan sales and that’s definitely what we have seen in recent months, helped along by a drop in wholesale fixed-income rates. But when rates head downwards, borrowers are more inclined to ride the trend and stay in variable loan products. The shift in direction signalled by the RBA today may only be temporary, but we will almost certainly see borrower sentiment turn towards variable loans as a result,” Clouston said.

The RBA shift was followed by announcements of lender rate moves. Westpac and Commonwealth Bank were the first major banks to announce rate cuts in line with the RBA

cash rate cut. Both banks announced they would move in line with the RBA, cutting its standard variable rate by 25bps, bringing Westpac’s standard variable rate to 7.61% and CBA’s to 7.56%.

Westpac executive of retail and business banking Rob Coombe said the RBA cut will boost an economy in which consumer sentiment has been weak.

“Ongoing economic weakness in Europe continues to impact negatively on Australian business and consumer confidence. A reduction in interest rates will provide a timely boost to sentiment and generate a positive flow-on effect for the broader Australian economy,” Coombe said.

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RBA cut to test impact of DEF ban

One Big Switch refutes failure claims

Andrew Clouston

http://www.liberty.com.au

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4


ING Direct has followed through on its promise to open credit assessor access to its entire broker network.

Following a wave of feedback sparked by comments from brokers on Australian BrokerNews forums, ING Direct head of broker distribution Mark Woolnough said in September the bank planned to roll out widespread access to credit assessors. ING Direct has now announced it has implemented the initiative, and Woolnough has said it is a direct response to feedback from mortgage brokers.

“We have had a very busy year engaging brokers for feedback, and a common theme that came out was around our lending policy and assessment, and ultimately

the need to be able to discuss a deal in real time with an assessor. We listened to what brokers wanted, arranged a trial and the positive results were overwhelming for both the bank and our brokers,” Woolnough said.

The trial of credit assessor access resulted in a 40% increase in new applications resolved without being sent back to brokers, and a turnaround of a further 20% of applications which previously would have been declined, Woolnough stated. He said the bank had boosted its human resources to support the widespread roll-out of the initiative, and had appointed senior assessors from outside the bank “to bolster internal experience and service levels”.

Woolnough said the initiative could also see brokers change their perceptions of the bank’s credit policies.

“In the past, ING Direct has had a reputation of only accepting ‘vanilla deals’, but brokers are finding nowadays this is not the case. I encourage brokers to send us those more complicated deals and give us the opportunity to make the deal happen.”

Woolnough said the initiative would allow brokers to submit more complex deals to the bank.

“This initiative puts us in a stronger position to accept more complex applications and will lead to more deals being successfully processed at ING Direct, which is a good outcome for the broker and the customer,” he said.

Broker productivity a concern: AussieThe mortgage broking industry must become more productive if brokers are to see sustainable returns, Aussie chief financial officer John McDonald has claimed.

McDonald told a recent LIXI conference in Sydney that brokers have succeeded in driving innovation and had seen significant gains in quality, but that broker productivity remained a concern.

“I’m most concerned about broker productivity. I think we’ve made significant improvements in the quality of loan submissions in the last couple of years, and that’s been driven by remuneration. I’m worried we’re not seeing sufficient gains in broker productivity to

offset the reduction in commissions,” McDonald said.

In order to see gains in productivity, brokers will need to focus on efficiency in the loan origination process.

McDonald explained that “better systems” would help drive efficiencies for brokers, and make it feasible for brokers to “make a reasonable buck”.

“The broker sector needs to drive efficiencies. I don’t think we’re near where we need to be with that.

“I think if the broking sector realises it’s competing with branch-based distribution and has to beat the cost-effectiveness of that as well as the quality of that,

then they’re in with a chance,” McDonald said.

Connective director Glenn Lees agreed, but contended that driving efficiencies in the loan origination process could prove difficult and frustrating for brokers. Lees said standards of efficiency varied across the industry, making it challenging for brokers to meet targets.

“There has been a big push from all areas, a lot of it top-down from lenders. Efficiency is incredibly important when the pie is much smaller. There are lots of frustrations that come with that, though, because things are measured differently throughout the industry and sometimes measured differently within one

company, so it’s kind of a moving target,” Lees said. “The general impetus is fine, but it’s a shotgun approach at best.”

ING Direct follows through on service promises Flashback: ING

Direct retunes broker relationshipFollowing a wave of broker feedback last July regarding the bank’s service proposition, ING Direct head of broker distribution Mark Woolnough told Australian Broker in September that the lender was focusing on key enhancements, and has received “overwhelmingly positive” feedback as a result. Woolnough said one of the major areas the bank has addressed relates to its automated systems. “We have a number of automated projects in the pipeline. One we’re rolling out is loan variation automation for existing customers,” he said.

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6


Standardisation drive to yield broker benefits

ASIC to ‘cut red tape’ with new web service

A new standardisation drive by LIXI will filter into benefits for brokers, it has been claimed.

The company, which promotes common data standards in the lending industry, has launched its LIXI 2.0 Reform Program, which it says will bring greater standardisation to data flowing to lenders.

LIXI chief executive Erik Fenna has told Australian Broker the program will lead to faster processing times for broker-originated loans.

“[Brokers can see] better customer satisfaction, faster time to settlement, and shorter turnaround times,” Fenna said.

The program will enhance efficiencies for lenders and aid in effective communication across the entire industry supply chain, he said.

“LIXI 2.0 is not about standardising the flow of information. It’s about ensuring that the information they send is consistent with what the lender expects. It puts control of validation directly into the hands of lenders rather than in the hands of software providers. It reduces the turnaround times when lenders wish to change any of their lending policies or change product information. It reduces the turnaround time on that from months to days, or even hours.”

With LIXI standards now in their 10th year, the company’s director, Mike Thanos, said the standards had ensured the mortgage industry was “travelling on the same rail gauges” in its flow of data. He commented that the LIXI 2.0 program would improve upon existing standards,

and lead to a smoother flow of information.

“During that 10 years, we have had a tremendous amount of success. The existing LIXI standards have formed a critical part of the lending industry’s infrastructure. That’s not to say there isn’t more that we can do or that it’s perfect. That’s what the LIXI 2.0 program is all about.

“We have a standard almost in name only, and that’s what the LIXI 2.0 program will address,” Thanos said.

While brokers may be set to benefit from further efficiency and standardisation, Connective director Glenn Lees commented that the third party channel had largely driven LIXI innovations.

“There’s been a break in the relationship [with lenders] for consumers who are dealing

through that third party channel. That’s driven the need for a data standard that’s going to be used across all lenders.

“Without that third party disruption, a lot of the innovation we’ve been seeing wouldn’t have happened,” Lees said.

ASIC is conducting focus groups to finalise the look and feel of an overhaul to its online AFSL and credit licence registration service.

The regulator has invited select AFSL and ACL holders to participate in groups to provide feedback on a redesign to its online lodgment services. Rosanne Bell, ASIC’s acting senior executive for real economy, said early feedback on the service’s redesign had been positive. She said a group of industry stakeholders met in Sydney to see early drafts of the online redesign, and offer their opinions on areas for improvement.

“We had about 26 financial services and credit licensees attending. They all understood the screens they saw were in the very early stages, but there was a fairly positive response to the general look and feel and nature of what we’re trying to achieve. Of course they had lots of comments of where we can improve the design, and those are all things we’ll take onboard,” Bell said.

The changes to the current online lodgment service will include a new look and feel, new branding and an online credit card facility for licensees to pay fees online. Bell said while the

licensing process would remain fundamentally unchanged for AFSL and ACL holders, the new online service would streamline the process and provide more user support.

“In terms of services, we’re not looking to substantially re-engineer the fundamentals of the licensing process. It’s all about modernising the registers, and cutting red tape and the cost of compliance,” Bell commented.

“We want to focus on providing outstanding and efficient customer services, and in bringing all transactions online.”

ASIC stated that it intends to

launch the service by November 2012, allowing AFSL and credit licensees to register directly online through ASIC and in most cases receive immediate confirmation of their registration. The regulator said the initiative would also streamline and “dramatically improve” the way stakeholders updated their details and interacted with ASIC.

Bell said ASIC would continue to seek industry feedback in the lead-up to the service’s launch.

“I think it’s important we go out and show stakeholders before finalising the design and build,” she said.

Erik Fenna

http://www.bransgroves.com.au

8


Housing stress is affecting more than one in 10 households across Australia, a housing lobby has claimed.

The lobby group Australians for Affordable Housing has released a report commissioned by the National Centre for Social and Economic Modelling (NATSEM) which indicates more than 850,000 households in Australia face financial hardship or poverty due to housing costs.

The report states that households in mortgage stress face difficulties meeting bill payments after paying for housing costs.

According to the NATSEM study, 26% of renters and 15% of first homebuyers are experiencing housing stress. NATSEM has defined housing stress as households on the lowest 40% of equivalised household incomes contributing more than 30% of their income on housing costs.

AAH said Melbourne first homebuyers are the more likely to experience housing stress, while Sydney renters were among the most stressed. Hobart had the highest rate of renters experiencing housing stress at 33%, while Sydney had the highest number at more than 100,000 households. The highest rates of rental stress were experienced by Adelaide recipients of the Commonwealth Rent Assistance scheme.

Anglicare Sydney has used the report to call on the federal government to address housing affordability. The non-profit’s chief executive, Grant Millard, said the organisation had seen a growing number of Sydney households in need of assistance due to the rising cost of housing.

“Housing stress is affecting families in Sydney like never before. Private renters and

mortgage holders are coming to us in crisis due to the cost of living and with spiralling debt. Just putting food on the table is a huge challenge,” Millard said.

Millard commented that government action on housing affordability could help low-income households begin building towards a better financial position.

“Affordable housing is the best starting point for people to work through the complex issues of disadvantage. It gives them stability to build a future,” he said.

Anglicare and AAH called on the government to increase the supply of affordable housing and end tax concessions that the groups said encouraged property speculation.

Times see brokers band, brand togetherLoose business affiliations are growing among broker businesses, and could represent a drive towards branding, Connective director Glenn Lees has claimed.

Lees told the LIXI conference in Sydney last month the aggregator has seen more affiliations between its members, with solo operators being supplanted by broker businesses.

“There’s been a subtle change in the shape of the businesses with which we deal. There are more loan writers per business. That’s safety in numbers and the aggregating of some of those small businesses. We’re also seeing looser affiliations forming as well. It’s a movement towards brand or some other means of tying people together,” Lees said. While he said the mortgage

broking landscape currently saw a “fairly amorphous population of brokers”, Lee stated that affiliations between broker businesses were growing, and consolidation of smaller operators was beginning to occur. This consolidation, Lees said, presents better opportunities for brokers to see their businesses grow.

Lees commented that recruitment became a simpler task as broker businesses formed more affiliations.

“Once you start having those stronger retail-level businesses, the ability to bring people in is much easier. For a one-man band to bring on a new guy is hard, but for someone with three loan writers and a couple of support staff, it’s much easier. If you overlay that with a loose brand or

a loose affiliation, it gets easier again,” he said.

Marketing to clients could also become easier as brokers move toward branding, he commented. Lees contended that independent, branded businesses could prove a better proposition to consumers.

“When information is so readily accessible, for those strong independent brands it’s easy for them to look as big as Aussie or as Mortgage Choice, at least in terms of their web presence or how they present to consumers,” Lees remarked.

Strong, independent brands will thrive, Lees predicted, as will larger networks of brokers. Smaller solo operators, however, could struggle to remain sustainable without the benefit of these affiliations.

“Those businesses will thrive and they will grow. Small independent guys who are technically good loan writers, the thing that will help them survive is the ability to affiliate with a larger brand,” he said.

Housing stress hits one in 10 borrowers

Glenn Lees

Stressed out: Housing stress by localityPercentage of first homebuyers in housing stress

Percentage of total mortgagees in housing stress

Sydney 15% 12%

Melbourne 21% 10%

Brisbane 13% 8%

Adelaide 7% 9%

Perth 12% 13%

Hobart 26% 10%

Source: NATSEM

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10


COSL has denied claims by the MFAA of a growing trend of borrowers filing financial hardship claims to “buy time”.

The comments come following Credit Ombudsman Raj Venga’s testimony to the Parliamentary Joint Committee inquiry into the proposed NCCP amendments.

Venga spoke in support of amendments to the NCCP requiring lenders to respond to hardship applications within 21 days, and to suspend enforcement action until they had informed delinquent borrowers whether or not they would vary payment terms.

While the MFAA also expressed support for provisions delaying enforcement proceedings, saying these were already part of its Code

of Practice, CEO Phil Naylor claimed in a submission to the inquiry there was a growing trend of borrowers lodging applications to “buy time, rather than because of a bona fide dispute”.

Venga denied this, telling Australian Broker that, while there was evidence of some borrowers taking these actions, it was not prevalent.

The MFAA argued that lenders be allowed to resume enforcement action against borrowers who had filed financial hardship claims if EDRs had not finalised the applications within 60 days. The association claimed borrowers seeking to “buy time” through claims of financial hardship could delay enforcement by months by applying to an EDR. However,

Venga stated that COSL processed FH claims quickly.

“COSL is compelled by ASIC’s Regulatory Guide 139 to require lenders to suspend enforcement action when it receives a complaint from a consumer. Given this requirement, we accord FH complaints first priority in our complaint handling process. Consequently, the median number of days it took us to close a FH complaint is 45 days. Thirty-five per cent of the FH complaints were closed in less than 30 days. Those are excellent timelines given our increased case load,” he said.

This increased case load, Venga said, was due to NCCP regulations requiring credit providers, intermediaries and others engaged in credit activity to join an

ASIC-approved EDR. He said the regulations have led to a 22% rise in COSL membership in the last financial year, on top of a 46% increase the year before. With this membership spike has come an influx of consumer complaints, Venga said.

“Predictably, the increase in membership numbers has seen a marked increase in the number of complaints we receive. In fact, there was a 72% increase in the number of complaints we received last financial year compared to the previous one. The number of FH complaints increased proportionally,” Venga said.

First homebuyers flood back to market

Bank profits not excessive: ABA

First homebuyers are heading back to the market in droves, new figures suggest.

The AFG Mortgage Index for October has shown a 40% spike in first homebuyer activity for the month, with first-time buyers comprising 16.4% of all loans processed by the aggregator. The result represents the largest first homebuyer participation since September 2009.

First homebuyers were most active in NSW, accounting for 21.1% of all loans. Queensland and Western Australia also saw strong first homebuyer participation, coming in at 17.9% and 17.3%, respectively.

Fixed rate loans have also seen an uptick during the month, comprising 20.4% of all loans processed. The numbers echo those released by Mortgage Choice, which showed fixed rate products represented nearly 20% of all their brokers’ approvals for the month of October.

AFG general manager of sales and operations Mark Hewitt said that competitive discounting among lenders helped to woo first homebuyers back to the market.

“Buyers are reaping the benefits of one of the most competitive mortgage markets we’ve seen in years. Discounted fixed rate loans appealed to all buyer types, but especially first homebuyers and those looking to refinance. We have been slightly surprised with the popularity of fixed rates, given it has been generally predicted that variable rates would decrease and we would now expect the proportion of fixed rate loans to fall, following the cut in variable rates announced [this month]. Non-major lenders are doing increasingly well in this environment and hopefully [the RBA rate cut] will further support a market recovery which is still in its very early stages,” Hewitt said.

Non-majors saw their best share of the mortgage market than at any time over the past year. Deals from non-major lenders represented 21.1% of all home loans. The lenders proved even more popular with first homebuyers, accounting for 30% of first-time buyer loans. Investors were also active in the market, with investment loans comprising 35.6% of all new mortgages.

The Australian Bankers’ Association has again sprung to the defence of bank profits in the wake of the reporting season.

All four of the major banks reported record profits for the financial year. CBA kicked off reporting in August by announcing a cash profit of $6.8bn, up 12% from the previous year. The remaining Big Four reported their results in late October and early November, with NAB seeing a 19.2% rise in full-year cash earnings to $5.5bn, Westpac announcing a statutory net profit of $6.99bn, up 10% from the previous year, and ANZ posting a 19% rise in full-year profits to $5.36bn.

In spite of the record results, ABA chief executive Steve Munchenberg defended the institutions, claiming the profits were not excessive.

“There is no evidence banks are making excessive profits. A standard measure of profitability – return on equity – shows banks are in the middle of the pack compared to other industries. Of the 50 most profitable companies listed on the ASX, only two are banks,” Munchenberg said.

Munchenberg argued that bank revenue was “relatively low” compared to the size of the companies’ asset bases.

“Profits represent just 1% of bank assets,” Munchenberg said, barely concealing his sarcastic laughter. He also pointed to the tax burden upon banks, stating

that banks contributed more corporate tax than any other industry in Australia.

“In the last five years, banks have paid $42bn in tax, plus an additional $3bn for the government’s bank funding guarantee,” he commented.

Munchenberg also contended that bank profits were vital to superannuation.

“Bank shares are a mainstay of super fund investment given the stability of earnings and relatively high dividends.

“These returns help people earn income for their retirement. Banks have paid out $50bn of dividends to shareholders over the past three years,” he remarked.

Muchenberg argued that bank profits had helped to underpin the Australian economy, and said bank profitability in Australia had kept financial institutions secure when many global financial institutions failed during the GFC.

COSL denies borrowers ‘buying time’ with disputes

Steve Munchenberg

Raj Venga

Month Total number

Total amount

Average size

Property investors

First homebuyers Refinancing

July 5,937 $2.293m $386k 35.6% 13.6% 39.1%

August 7.198 $2.764m $384k 36.5% 13.8% 38.2%

September 6,687 $2.633m $393k 37.7% 15.7% 37.9%

October 6,349 $2.509m $395k 35.6% 16.4% 37.9%

Source: AFG

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Secret RBA docs predict NCCP broker falloutReserve Bank communications released under the Freedom of Information Act show the central bank expects a further squeeze on brokers due to the more rigorous requirements of the NCCP.

An internal communication from Cameron Deans of the RBA’s Institutional Markets Section in March 2011 advised that some

broker market share fallout from the introduction of NCCP is likely.

“Looking ahead, while brokers’ loan volumes may pick up, several factors are likely to weigh on brokers’ market share, including: that some banks have recently tightened requirements of brokers in terms of assessing borrower suitability,” he wrote.

Deans indicated tighter lending standards since the GFC have seen broker market share eroded.

“Tighter lending standards are likely to have contributed to the fall in brokers’ market share over the past couple of years. This is most apparent in the low-doc mortgage segment, where it appears that the general tightening in bank lending standards was particularly pronounced for applications coming via brokers,” Deans wrote.

Earlier RBA communications suggested that banks believe broker market share will remain steady in spite of industry consolidation. The RBA also commented on the future of low-doc lending, indicating it had been curtailed by tighter credit

requirements following the GFC. Another RBA communication

from Iris Chan of RBA’s Financial Stability Section suggested that banks were cracking down on brokers to ensure borrower suitability was properly assessed for low-doc loans.

“Media reports have suggested that banks are now requiring both their branch and broker channels to ask additional questions of potential borrowers to determine the suitability of a credit product, and borrowers to provide more

verification when applying for low-doc loans,” Chan wrote.

Chan also noted that some banks had reported brokers were still failing to conduct the proper checks.

“The major banks have been active in directing mortgage brokers to undertake a more rigorous approach to assessing the suitability of the borrower as, while this obligation has been imposed on brokers since mid-2010, there have been reports of poor compliance,” she wrote.

NCCP turns low-docs into ‘mid-docs’The RBA’s Financial Stability team commented in a previously confidential document that the responsible lending requirements of the NCCP would help keep lending standards in check. The RBA noted that lenders had placed additional requirements around verifying loan suitability. “Borrowers are also being required to provide more documentation in support of low-doc loans. Some banks report, for example, that what was formerly a ‘low-doc’ loan is now more like a ‘mid-doc’ loan,” the RBA said.

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12


An ongoing lender price war is putting pressure on bank margins, with the risk banks could see broker commissions as a cost that could be further cut, according to Advantedge’s Steve Weston.

Speaking at PLAN Australia’s national conference in Darwin in October, Advantedge general manager of broker platforms, Weston, said mortgage pricing is the most competitive he has seen in his 25 years in the industry.

However, he said that Advantedge continues to warn banks against further cuts to broker commission levels.

“In the discussions that we have with all of the banks regularly, we do make the point that we are not encouraging this price war,” Weston said.

“It is great for consumers, and we understand that lenders need to make an adequate return for their shareholders, but we ask them please don’t look at broker commissions.

“We have seen that once, and we can’t afford to sustain any more hits. We would much prefer a more rational pricing environment, and to get on with business,” he said.

Weston said he can understand why the price war has arisen, given a market that is seeing historically low credit growth and house price stagnation.

“What I am not too sure about is where it is going to end. Because at the end of the day, shareholders are going to demand a return.”

Weston explained that lenders derive their income from credit growth, net interest margins and fees. However, he said fees have come under pressure due to measures such as the government’s exit fee ban, and credit growth is likely to stay very low.

Weston said this is likely to result in a focus on net interest margins and costs. “Certainly across the industry we are going to see a much greater focus on costs, but we don’t want to see that at the expense of commissions.”

Despite the commission threat, Weston said that with the two-year anniversary of NAB’s acquisition of Challenger having just past, the benefits of the transaction were only just beginning for PLAN, Choice and FAST brokers.

“We have reinvested two years’ worth of profit back into the business and you are seeing that in the form of technology, licensing and buy/sell support, and more will be coming in the future – things that help you grow more successful and more viable businesses.

Mortgage insurer Genworth has flagged new product innovation to drive mortgage growth in a lacklustre credit market, including the imminent release of a “graduate program” targeting first homebuyers.

Genworth CEO Ellie Comerford told brokers the insurer was looking at a number of possibilities for new products that could help more borrowers into the market.

“We have got to be more cerebral – we have to do more segmenting and targeting against the borrower base,” she said.

“Our job is to get people into homes and keep them there, so we have to find ways to get people loans that make sense, and not treat them all the same way,” she said.

Comerford revealed a new key initiative would be to provide backing for struggling first homebuyers, who were now buying homes second latest in the world, according to the group’s recently released international mortgage trends data.

“We have designed a program for young professional people who are qualified, employed, but who don’t have that history we wanted in the past. We have designed the product, it will be called the ‘graduate program’,” she said.

Comerford said the lending industry was also talking about

continued innovation such as shared equity loans, ‘family pledge’ products, and even an ‘accordion’ loan design from India.

“That’s a loan that, as interest rates go up, payments remain the same and the term of the loan is moved,” she said. “That means people are in a position to pay as they can handle any vagaries of the market,” she said.

Comerford said the advent of 35–40-year mortgages in Australia would assist more buyers into the market.

With the possibility of a housing bubble continuing to arise in the media, Comerford has also quashed this speculation, saying that the market’s fundamentals were sound.

“If I had a dollar for every time someone had in the last five months mentioned a housing bubble, I think I could buy one or two houses,” she said.

“Genworth is a global insurer, so we do know what a housing bubble looks like, and if you take all the fundamentals and look at them, we are not in a housing bubble.”

Comerford said these included the floating interest rate, and differentiators from countries like the US such as full recourse loans and robust regulation.

However, Comerford named lack of supply as the key floor under the market.

Scott heralds PLAN ‘new direction’PLAN Australia CEO Trevor Scott has declared he now has the right team, business structure and plan in place to reinvigorate PLAN’s offering and help brokers grow their revenues.

Speaking at the opening of PLAN Australia’s national conference in Darwin in October, Scott acknowledged the tough times being faced by its brokers and mortgage businesses generally, saying that PLAN would need to seek new directions for growth.

Having joined the business last March, Scott said he had initially observed “signs of stagnation” within the PLAN business that had resulted in overall member satisfaction with PLAN’s broker service offering dropping off in calendar year 2011.

However, Scott said he was “passionate” about third party

business, and the poorer satisfaction results had been balanced with extremely high pride in the brand and its professionalism, as well as a strong desire by brokers to remain with the aggregator.

Scott said he had completed a wholesale restructure of the aggregator’s broker support team since joining, and that has seen the abolition of state manager positions in favour of two regional managers who are working in tandem with an operations manager.

The team restructure included the overall addition of new BDM resources, in a move Scott said was designed “to increase the ways in which we serve you, our members”.

Scott said that PLAN will move forward by assisting brokers to shore up declining revenues, by

providing new product diversification opportunities – such as its insurance product PLAN Protect – as well as fee-for-advice flexibility.

“We need to look for ways to grow our business, and to do that, we need to find ways to help you grow yours,” he said.

While he admitted that the group’s CRM software Podium continued to give some brokers “sleepless nights”, Scott said PLAN was focused on making it the “powerful CRM it can be”, and that brokers who had adapted to the system were already seeing benefits.

Scott said recent years had been a “great period of change” for PLAN, following the succession of acquisitions by first Challenger and then NAB. However, he said that the bank’s balance sheet backing meant access to more

resources – such as HR – as well as the chance to invest profits back into the business to improve its offering to members.

As an example, Scott said the group’s NCCP support team now numbered 14, and had so far completed 850 visits with member businesses.

Price war threatens commission levels

Genworth product to back selected FHBs

Trevor Scott

SPECIAL REPORT: PLAN AUSTRALIA CONFERENCE


ACLs could be seen as a liability for buyers of broker businesses in future, and as a result are unlikely to add any value to a business, according to an industry expert.

Speaking at PLAN Australia’s national conference in Darwin in late October, Comparator Business Benchmarking managing partner Sarah Brennan said in financial planning licences were often not desired by potential buyers of mature businesses.

“In financial planning, which has had licensing for a little bit longer, what we have seen is that acquisitions have been for businesses – not a licence,” she said.

“Normally the acquirer does not want to buy a licence, and they will actually carve one out of the purchase if there is one – because buying a licence buys liability, buying a business is much better.”

Brennan said the value inherent in an ACL had been a misconception during licensing among broking businesses and some aggregators.

Brennan added that she expected an ongoing shift towards credit representative status among brokers over time, despite the mortgage industry having been “smarter” about this reality during the licensing process than financial planners.

“In the financial planning community a lot of people actually went down the licence path to start with, and then realised what the cost and compliance involved was in running a licence, and we saw a move back to a credit rep status.”

Brennan said in the mortgage industry there had been a number of misconceptions in the lead up to licensing, in addition to the issue of ACL value.

“I think there was a misconception that getting a licence was easy. I think that’s been dispelled for the majority through the licensing process,” Brennan said.

“I think there was also not a clear understanding about the liability of having a licence, and I think in the end that becomes quite clear,” she said.

BT Financial chief economist Chris Caton has argued that regularly cited threats to local and global economies are ‘exaggerated’, and Australia is in a good position for the future.

At PLAN Australia’s national conference held in Darwin, the leading economist told brokers that threats such as a US double-dip recession and a protracted debt crisis in Europe were less important than they are often made out.

In regard to the US, Caton said that “you can’t fall when you are already on the floor”.

“The recession in 2008 was basically caused because a housing boom collapsed in 2006 – the bubble was blown up by sub-prime mortgages, and this led to the sub-prime mortgage crisis and the GFC,” Caton said. “In the next three years, housing starts in the US fell 80% - unbelievable, nothing remotely like that has happened before. They are not falling any more – they are not rising either – but they can’t possible fall like they did before, and this is my point; there is nothing strong enough to get back to overall negative growth,” he said.

While Caton said the Eurozone debt crisis “is a bit more complicated” and that the region as a whole may fall into some

kind of weak recession, it would not be a “game-changer”.

“The three countries most affected – Greece, Ireland and Portugal – if you add up the size of those three economies, they are smaller in total than the state of Florida. Can you imagine getting yourself in a knot over some debt issue in Florida – I can’t,” he said.

Caton said the Eurozone banking system can get affected, but that leaders were working on that. However, he said that if the more sizable economies of Spain or Italy do become involved “that would be an issue”, and this would be decided by financial markets. He said Greece would definitely default, and in some ways this was “already happening”.

Caton was upbeat on the prospects for the Australian economy, saying it would resume strong growth led by mining investment.

He added that November’s rate cut of 0.25% may be the first of “a couple” of cuts, due to downward pressures such as rising unemployment, ‘benign’ inflation and global worries.

ACLs could prove a liability

Economic threats ‘exaggerated’, argues Caton

Flashback: Aggregators and ACLsIn the lead up to licensing last year, principals at aggregator Connective argued strongly that an ACL would have inherent value for a business in a future sale, and encouraged its brokers to achieve licenses on their own. The aggregator only belatedly introduced publicly a credit representative option for its network. However, representatives from Advantedge businesses disputed the claims that ACLs had inherent value, arguing that it was the business itself being sold rather than a licence.

Chris Caton

http://www.liberty.com.au


14


Aggregators are targeting Western Australia for growth, citing the broker talent pool in the state as an attractive proposition.

Connective has sought to make inroads in the state through the appointment of Renee Blethyn as WA sales manager. Connective principal Murray Lees commented that WA’s early adoption of a licensing regime for mortgage brokers means the state presents

an opportunity for aggregators seeking experienced brokers.

“Due largely to the early adoption of state-based legislation, brokers in WA are arguably the most advanced. While our business model provides all brokers with a fairer deal, the benefits of our monthly fee structure increase exponentially as the broker writes greater volumes. As a result, we tend to attract high-calibre members, which aligns with the broker profile in Western Australia,” Lees said.

Lees said Blethyn previously worked as a mortgage broker, and in BDM roles with St. George, NAB and MLC. He commented that Blethyn’s experience as a BDM and broker will aid in the aggregator’s WA expansion, and in attracting well-seasoned brokers.

“We’re very fortunate to have secured the services of someone

with Renee’s unique skill set acquired through working as a broker as well as a leading BDM with top-tier lenders,” Lees said.

Vow Financial has also targeted expansion into WA with the recent appointment of state manager Margaret Fraser, CEO Tim Brown said. Fraser will serve as state manager to WA, South Australia and the Northern Territory, and Brown commented that her appointment was part of Vow’s strategy to focus on growth in WA.

“We’ve identified that Western Australia is an area we want to grow in, and we see significant growth coming out of there in the next 10 years. We had a BDM there who was part-time, but decided that didn’t work. We disbanded the role and held off waiting for the right person. Margaret ticks all the boxes,” Brown said.

Brown commented that Fraser

would be active in recruiting brokers for Vow, adding that the aggregator had set significant growth goals in the region.

“Her role is probably 70% growth and targeting new opportunities for Vow, and 30% maintaining the presence we’ve already got. We’ve got about 30 brokers there now. If I could get to 100 brokers within 12 months, I would be happy. We’re already speaking to a number of groups with interest,” he said.

Easy funding unlikely to return: Westpac

Customers want experience, not transactions

The days of easy funding are unlikely to come back, and a tougher funding environment means lenders will have to be increasingly attentive to the quality of their loan portfolios, Westpac has said.

The bank’s chief operating officer, Paul Newham, said that lenders face new challenges in managing risk in the current funding landscape.

“The way we manage the quality of our book, the way we manage arrears and the way we handle a customer in stress is important,” he said.

Part of mitigating risk and properly managing portfolios, Newham indicated, was decreased reliance on offshore funding.

“Portfolio management and loan management at this time is critical, particularly as think of banks at this stage trying to balance their assets, balance their liabilities and balance their offshore funding. This is a competitive game at the moment. We’re clearly trying to fund as much as we can onshore at the moment, and we’re trying to make sure offshore funding is done in the right timeframes: long, short and medium term,” Newham said.

Funding pressures on banks have mounted in a post-GFC climate, Newham suggested. He argued that securing funding was likely to remain difficult for the foreseeable future.

“If you think back five years ago, this was a very easy game. Whatever you could bond up, you could securitise. [There was] as much money as you’d want, and then you’d go and lend it. Those days have changed, and they’re probably never likely to come back,” he commented. “That balance sheet management, that understanding of your total portfolio position, remains now - and will be into the future, I think – critical.”

Newham claimed that Westpac had managed its book well, and had seen a return to lending growth. He said the bank had focused on efficiencies in its lending processes to drive volumes, rather than relying on pricing.

“We’re growing above system, and as you know, we’re not the cheapest in the market. We’ve done that on service and processes, and we’ve done it without a major technology investment,” he remarked.

Lenders and brokers must work to build customer experiences rather than merely facilitating transactions, an industry consultant has said.

Jason Millett, director of MillStreet Consulting, told a recently held LIXI conference in Sydney that market power has “flowed back to the customer”, and that lenders and brokers should focus on creating positive customer experiences throughout the acquisition process.

“When you’re engaging a customer from an acquisition perspective, it’s not about the transaction; it’s about the aspiration the customer has in fulfilling their dreams and expectations,” Millett said.

Customer engagement and customer experience throughout the mortgage process will ultimately trump price, Millett indicated. Millett urged lenders to focus on consumer engagement rather than price competition alone.

“When you look at the way in which the customer is so much more powerful, especially in a flat market that’s almost a declining market, the banks - in order to support their revenue plans - are driving hard on price. Regardless of that outcome, they’re still needing to ensure that the customer is engaged throughout the process. There are a number of

experience principles that need to be applied well before the customer decides to engage the financial service institution, whether that’s the broker or the lender,” he said.

Creating customer experiences, Millett suggested, will help to drive customer loyalty, and lead to customers’ “personal advocacy for your brand and your product”.

“One of the key challenges is how does the bank or how does the broker – and I think the broker does this far more successfully – win the heart and mind of the customer by demonstrating that they actually value the interaction and the experience they provide to the customer?” Millett asked.

Millett admonished lenders and brokers to position themselves as customer advocates, and ensure that customer service and experience principles were understood by “everyone who touches the customer”. Brokers, Millett said, had historically performed well in this regard. He indicated that mortgage brokers had positioned themselves between lenders and consumers as consumer advocates. Millett warned that lenders would have to reposition their service proposition to consumers in order to create customer loyalty.

“The majors could sit back and let the brokers continue to occupy this space, and they’d do that at their peril,” he said.

Aggregators target experience in WA

Murray Lees

Tim Brown



INDUSTRY NEWS IN BRIEF

APRA warns on credit standardsAPRA has warned lenders on loosening credit standards in the face of weak mortgage demand. Speaking at the Abacus – Australian Mutuals Convention, APRA chairman John Laker said lenders currently face slow credit growth. Laker warned lenders to avoid relaxing credit criteria in response to intense competition in the home loan market. The APRA chair said the regulator supported strong competition in the mortgage market, so long as it was sustainable, and based on sound credit standards.

Termites top buyer turn offA new poll by PRDnationwide has gauged the biggest deterrents to house hunters. The survey found termite damage proved the most off-putting fault among people searching for a property, with 43% tipping it as their number one deterrent. The poll also found 32% considered cracks in the foundation the biggest deterrent, while 22% tipped asbestos building materials as the most off-putting factor. PRDnationwide managing director Tony Brasier said many of the problems listed could lead to hundreds of thousands of dollars in repair bills. He urged prospective buyers to be wary of these issues when searching for a home. “Often purchasing a home is a decision made with the heart – but to avoid heartbreak these issues need to be evaluated before rushing in to purchasing,” he said.

BRW names Connective, Wealth TodayConnective and Wealth Today have both been named to the BRW Fast 100 list. Connective has placed 89th on the list, which ranks Australia’s fastest growing SMEs. The aggregator ranked 25th on the magazine’s 2010 list, and 24th in the 2009 rankings. Connective principal Mark Haron said the ranking came after five consecutive months of more than $1bn in settlements for the aggregator. “We’ve invested significantly in developing strategies to assist our members to grow their businesses and this, in turn, has contributed to our continued success in attracting high calibre brokers.” Wealth Today made its second appearance on the list, having been named 22nd in the 2010 rankings. The company’s CEO Michael Stephens put the ranking down to diversification into financial planning products.

Firstmac opens bonds to brokersFirstMac has released a fixed income managed fund, and is encouraging brokers to diversify into the bond market. The non-bank has announced the bond offering, which it said will meet demand from retail investors for bonds traditionally only available to institutional investors. FirstMac head of sales and marketing Darren McLeod said the lender was eager to sell the product through broker channels. “FirstMac is keen to work with broker channels

to help leverage the potential portfolio upsides for their clients and additionally provide exposure to an asset class which offers consistent and reliable income,” he said. McLeod argued brokers were well-positioned to offer the products due to their “unique financial relationships” with clients.

Investors lack confidenceProperty investor confidence is “in the doldrums”, a new report has claimed. The inaugural Property Council/ANZ Property Industry Confidence Survey has found property investors in Victoria, SA and Tasmania have a negative outlook on the state of the property market. The overall confidence level of investors is marginally positive, but only Western Australia and the Northern Territory showed a high degree of confidence. Property Council CEO Peter Verwer said investor sentiment through much of the country was “in the doldrums”, with investors concerned over the global and domestic economies.

RBA rate cut saves strugglersThe mortgage industry has praised the RBA rate cut, saying it will provide a boost to the economy and comfort to stressed homeowners. The Reserve Bank cut the official cash rate by 25bps, vindicating economists’ speculation of a Melbourne Cup Day rate cut. Mortgage Choice spokesperson Kristy Sheppard said the cut would increased refinancing activity.

“Lenders are bound to use this opportunity to put themselves in the best possible position to attract new customers and keep their existing customers onboard. Borrowers should take the reins of their home loan and scout around for rate discounts, switching incentives and other offers, work with a mortgage broker to find a great product well tailored to their current rather than past needs, then see if the broker can negotiate them into a sweeter situation.”

Population stall hits regionsStalling population growth has halted house price rises in large regional centres, but two are bucking the trend. RP Data has indicated that weak housing market conditions have been accompanied by slow population growth in Australia’s 10 largest regional centres. However, analyst Cameron Kusher has said Newcastle and Wollongong have gone against trend. “Wollongong and Newcastle have been the exceptions due largely to housing affordability constraints where we have found that Sydney-siders are moving to more affordable areas, but still within commuting distance of the city,” he said. The Gold Coast, Sunshine Coast and Cairns have seen an “extremely pronounced” slowdown after traditionally being the fastest growing council areas, RP Data said. Kusher said this was reflective of a weaker tourism and retail market, as well as a slowdown in the “sea and tree change” migration to the areas.

http://www.planaustralia.com.au

16


Vow continues diversification drive

YBR takes on funds management

Tight business credit to drive broker use

Vow Financial has opened its second wealth management office in Sydney as the aggregator continues its diversification drive.

The company has announced the opening of its Vow Wealth Western Sydney office in Parramatta, which it says will aid Vow brokers in expanding into wealth management products. The aggregator previously opened a Sydney office in Crows Nest, and Vow Wealth national sales manager Justin Dale said the new office opening is part of the company’s continuing push toward product diversification.

“Vow Wealth can now offer a full financial planning structure to brokers that includes mortgages, insurance and wealth management,” Dale commented.

Dale said a select number of Vow brokers would initially move into the wealth management area, and commented that the company has also received interest from brokers outside its network.

“Stepping into the wealth management business allows our brokers to offer more services and products. Because the market is changing so rapidly, diversification is the key to survival,” he said.

Dale said the aggregator would look to open a wealth management office in Perth in November, followed by an office in the NSW Central Coast and Hunter region in mid-November. He said additional Vow Wealth offices were already being planned for Victoria and Queensland.

The opening of Vow Wealth’s

Parramatta office will be kicked off with a consumer SMSF event educating consumers on buying property through super funds.

Property is one of the niche focuses of Vow Wealth and we will present an all encompassing look at the sector for the benefit of brokers’ self-managed super fund clients,” Dale said.

Vow chief executive Tim Brown said the move toward product diversification would help brokers better control client relationships.

“Offering clients multiple products and services will further cement the relationship between brokers and clients and help protect clients from brokers’ competitors,” he commented.

Brown predicted that continuing developments in diversification

would serve as a drawcard for the aggregator.

“We’ll probably see Vow Legal launched within the next couple of weeks, and we’ll see our white label project as well,” he said.

Yellow Brick Road has announced its official entry into funds management after hinting at the move in September.

YBR announced it has signed a shareholders’ agreement with Coolabah Capital Investments which the company said will enable it to internally manufacture funds management solutions. The deal will see Yellow Brick Road establish a new entity, YBR Funds Management, which YBR said will see it develop a range of “low-risk, high return, high liquidity, enhanced cash, variable and fixed income solutions”.

YBR chief executive Matt Lawler told Australian Broker in September the company would launch an investment product in conjunction with the premiere of Celebrity Apprentice, hosted by chairman Mark Bouris.

“We’re seeing a lot of money flowing into the savings area, and giving people choices in that area is what we’re all about, whether it’s retirees spooked by the share market, people sitting on the sidelines looking for the property market to recover or people trying to build up a deposit for a house. We’re looking to launch alternatives in the savings market and the term deposit cash market. We think there’s an opportunity to give Australians a better deal. Part of what we do is deconstruct the market to see if there’s the opportunity to provide better value,” Lawler said.

The company’s new entity, YBR Funds Management, will be headed by Lawler, YBR head of product development Scott Walters, Yellow Brick Road’s Head of Product Development, Coolabah Capital chair Darren Harvey and economist Christopher Joye.

“With the investment talent assembled within YBR Funds Management, together with our growing brand and strong distribution network, we look forward to the imminent release of Yellow Brick Road’s first funds management products for Australian savers and investors through Yellow Brick Road’s national branch network,” Bouris said.

The move comes after Aussie Home Loans announced it would enter the wealth management sector, launching a financial planning service by mid-2012. The company’s executive chair, John Symond, told a Financial Services Council luncheon in Sydney that the current environment offered scope for the company to expand into the wealth sector.

“The masses have not been looked after, particularly in the financial planning industry. Everyday people struggle to afford advice, and we see great opportunity for people that don’t have $100K in super, we feel there is a crying need there,” he said.

Strict lending conditions can present an opportunity for commercial brokers, it has been claimed.

With lenders tightening their criteria for business credit, MPA Top 10 Commercial Broker Tom Waltham of Capital United said many SMEs may be more open to the broker proposition.

“There is a growing need for intermediaries in the commercial space, and people are becoming increasingly open to our service proposition,” Waltham commented.

Fellow MPA Top 10 Commercial Broker Sam La of Brandi Financial Services agreed, but stated that brokers who wish to capitalise on the market will need a thorough understanding of lenders’ credit policies.

“With the lending criteria now quite stringent, you really need a good plan in terms of getting your deals through. Provide your clients with realistic goals, boundaries and expectations, and keep them informed through the entire process, even if the answer you have is not what they want to hear,” La commented.

Waltham and La, both FAST brokers, said the commercial market is delivering good returns in spite of the tight lending conditions. Waltham settled more than $30m in commercial loans during the 2010/11 financial year, and La settled nearly $17m. FAST managing director Steve Kane said good opportunities exist for brokers who can gain an understanding of the commercial

market.“There’s no doubt that the

pressure is on as economic difficulties and uncertainties continue to plague Australia’s SMEs, but there is still business to be done and FAST brokers are doing it. Those brokers with a keen understanding of this space, access to the right lenders and a strong aggregation partner are poised to do very well,” Kane commented.

Recent ABS figures support the assertion, with data showing that commercial loans surged 7.9% during August. ABS figures show lending finance picked up across the board, with increases for housing finance, personal finance and lease finance following the strong rise in business credit.

Justin Dale

Sam La Brandi

Mark Bouris

http://www.semper.com.au


18


Buyers becoming ‘victims’ of conservative valuations

Unemployment raises risk of arrears, falling prices

An online lender has joined a growing chorus of brokers expressing concern over falling property valuations.

A recent Loan Market poll found more than 60% of the company’s brokers had seen falling valuations in the September quarter. Now, online lender MyRate has claimed conservative valuations are disadvantaging borrowers.

The lender has claimed a trend in valuations coming in below borrower expectations, with some cases of valuations coming in below the purchase price for recently purchased properties. In a statement, MyRate said valuers were becoming increasingly cautious and producing more conservative valuations.

“If valuers ‘get it wrong’ they will often find themselves being sued by Lenders Mortgage Insurance companies who may be out of pocket after selling a property to recover funds lent on a loan that went bad,” the company stated.

Australian Property Institute president Philip Western previously told Australian Broker that valuers faced mounting PI costs, which exposed valuers to increased liability and ran the risk of eroding professional standards.

Obviously within the API itself

we have professional requirements as far as the minimum standards, but potentially it could mean that valuers could feel pressure to be more conservative. That impacts on the whole market. Yes it reduces the risk associated with providing valuation advice, but it impacts on the public in terms of consumers’ ability to secure finance,” he commented.

MyRate claimed echoed Western’s remarks, and said borrowers would find themselves at a disadvantage due to overly conservative valuations. The company claimed borrowers could be forced to pay LMI premiums, or see deals fall over altogether.

“Unfortunately, borrowers are the victims of this situation,” MyRate said.

The company also warned against lenders that accept a property’s sale price in lieu of a valuation. While MyRate said this could seem a boon to borrowers, it warned that some could find themselves in negative equity after paying an inflated sale price for a property.

“Borrowers should consider this scenario when taking on a home loan and not simply borrow from a lender who offers the highest valuation,” the company stated.

Weak job growth and rising unemployment pose a risk for mortgage arrears and housing prices, ANZ has claimed.

The bank’s Housing Snapshot report has indicated that housing prices are likely to remain steady or fall over the coming six to 12 months. ANZ pointed to dwindling auction clearance rates and rising days on market for properties, saying it showed a “mismatch between buyer and vendor expectations”. The report warned that rising unemployment could see a spike in loan delinquencies.

However, the absence of widespread forced sales has protected prices to date, ANZ suggested. The bank also said rebounding economic growth in 2012 and 2013 could see demand return.

“Housing market fundamentals continue to tighten and near record low vacancy rates will eventually drive a renewed acceleration in rents that should encourage investors and first homebuyers back into the property market,” the bank said.

The report comes on the heels of new figures from Australian Property Monitors which show house prices continued to fall in the September quarter. The APM Quarterly House Price Report showed national median house prices fell for the fifth consecutive

quarter, down 1.6%. Unit prices also saw a quarter-on-quarter decline, falling 0.6%.

Year-on-year figures for APM show house prices nationally falling 3.5%, while unit prices declined 1%. Every capital city apart from Canberra - which edged up 0.9% - recorded year-on-year declines in house prices. Brisbane saw the most marked falls at 6.7%.

The unit market has held up slightly better, with Sydney seeing a year-on-year increase of 0.6% and Darwin seeing strong 7.7% growth in unit prices. Perth experienced the largest decline in unit values at 7.3%.

In spite of the declines APM senior economist Andrew Wilson echoed the forecast from ANZ, saying growth could return to the market after next year.

“The prospect still remains of ongoing economic growth in Australia, particularly in those states exposed to the resource sector, with modest property price growth expected to resume in some capital cities through the first quarter of 2012,” Wilson said.

The MFAA has appointed an independent director it says will bring “external ideas and knowledge” to its deliberations, and will help the industry navigate the regulatory environment.

The association announced the appointment of Corrina Dieters as a director on the MFAA board. Dieters was previously chair of the board of the Financial Planning Association from 2006 to 2007, experience MFAA CEO Phil Naylor said would be invaluable as the mortgage industry navigates the new regulatory regime.

“The board thought the experience Corrina brings because of her global experience and her experience with the Financial Planners Association means she has a lot of understanding of what that association went through

with regulation and such. We thought her support and input would be beneficial to the MFAA board in its deliberations,” he said.

In addition to previously serving as chair of the FPA board, Dieter also currently serves as chair of the Financial Planning Standards Board, a global body which the MFAA said is involved in managing, developing and operating certification and education programs for financial planning organisations.

The idea of bringing in an independent director, Naylor commented, was motivated by changes in other associations and a desire to bring a broader perspective to the MFAA board’s deliberations.

“The way most associations work is directors are elected from among the members. Over recent

years we have noticed a number of associations have changed their constitutions to allow elections from outside the association,” Naylor said.

This change was made to the MFAA constitution at its general meeting in February, and Naylor stated that the association undertook a comprehensive search to seek out an external board member, eventually deciding upon Dieters.

“The idea with this was to bring in some external ideas and knowledge, and more diverse points of view. We see the world changing. Things are very dynamic, and we want to make sure all the issues the board has to deliberate on get the best attention,” he said.

MFAA calls on former FPA chair for regulatory experience

Phil Naylor



News

Renos, refis driving activity

Steeper rate cuts required: Loan Market

Refinancing activity is behind a shock rise in home loan numbers, RP Data has indicated.

Recent ABS figures showed the number of owner occupier finance commitments increased 1.2% over August, feeding into a 6.2% increase for the year. However, RP Data analyst Cameron Kusher has stated that this increase was due mostly to refinancing activity.

Refinances increased by 1.7% in the year to August, while non-refinancing home loans were up only 1%. Kusher said when refinancing numbers are stripped from the data, the total value of home loans increased just 0.1% for the month.

“Of course brokers earn commission on the transaction and money changes from bank to bank but for real estate agents and property developers it does not reflect any new business. The total value of refinance commitments has risen by 29.3% over the 12 months to August 2011 whereas the total value of all loans excluding refinances is actually down by 1.8% over the year,” Kusher said.

In light of the result, Kusher said the potential for significant improvement in capital values was unlikely.

Likewise, renovations have served as one of the sole revenue drivers for the housing industry in 2011, it has been claimed. Recently released final figures from the Australian Bureau of Statistics show residential building fell 4.1% in the June quarter. Meanwhile, major alterations and additions increased 2.6% in volume for the quarter. Housing Industry Association chief economist Harley Dale said the figures show “a tale of two halves” in home building activity.

“Renovations activity, both in terms of major jobs which we received an update on ... and smaller jobs valued at less than $10,000, is the source of growth in the housing industry post in 2011,” Dale said.

Dale commented that, much like refinancing activity, renovation data indicates reticence on the part of households to move or upgrade, with many homeowners choosing to stay put and make improvements to their existing home.

“This situation reflects an inherently more cautious household sector post the GFC, together with the excessive taxation of new housing and very high stamp duty incurred when moving home,” Dale remarked.

Loan Market has called for more rate cuts in the wake of the RBA’s first move in a year.

While the company welcomed the Reserve Bank’s Melbourne Cup Day move to drop the official cash rate to 4.5%, Loan Market chief operating officer Dean Rushton urged further cuts by the Central Bank, claiming they would be needed to boost a struggling economy. Rushton said housing finance could be further stimulated by deeper cuts to the official cash rate.

“In 2008, when the RBA rapidly dropped rates by 4.25% over several months, we saw demand for finance commitments had increased by 32%. However in late 2009 when the cash rate began to rise from 3.0% up to a high of 4.75%, there was an historic drop in the market,” Rushton said.

Rushton claimed consumers remained wary of the economic outlook. He said systemic economic issues would not be addressed by a single cut in rates.

“A recent survey we ran showed that the issues occurring in Europe were top of mind for consumers when considering their financial position. These issues are

not going away short term and there will be more work to do to stimulate sectors of our economy,” he commented.

Loan Market also pointed to continued hesitance by consumers to enter the housing market. Though the market has seen signs of returning demand, Rushton said buyer activity is still well below its pre-GFC levels.

“It’s certainly discouraging to see the number of people obtaining financing fall below levels we saw in the early 2000s when we’ve experienced significant population growth and property development over the past decade,” he said.

He also pointed to the struggling retail sector, and consumer hesitance to spend. Though Rushton called for more action from the Reserve Bank, he conceded that its November rate cut could provide a boost to the economy heading into Christmas.

“Consumer confidence has been low and we’ve seen people holding off spending and borrowing in most sectors as we approach Christmas, but the Melbourne Cup Day rate cut could be the turning point,” Rushton remarked.

Change in residential building work done: June quarter

-13.7%

-9.6%

-6.9% -6.5%-2.2%

7.7%

0.8%

NSW WA Qld ACT Tas SA Vic

Source: HIA

Dean Rushton

20 www.brokernews.com.au

Analysis

The middle ground between brokers and direct online lenders could prove fertile for industry technology pioneers. Adam Smith reports

A hybrid model combining the online direct channel and broker expertise has been named as the answer for brokers struggling to maintain relevance in an increasingly digital marketplace.

Aussie Home Loans chief financial officer John McDonald has revealed the company is currently examining the viability of direct online channels, saying it may experiment with a hybrid model that combines online origination and broker guidance. This follows Aussie founder John Symond’s guidance the business would use direct to cross-sell products.

“We’re currently trying to think about how the direct model works. Frankly, I think one of the big opportunities for the broking sector is that mix of what we might traditionally have thought of as direct combined with a broker support element,” McDonald said.

Speaking at a recent LIXI conference in Sydney, McDonald admitted online proprietary lending had proven challenging for lenders in the past, and many lenders had “burned a lot of money” on these ventures. However, McDonald predicted that a “new appetite” for online channels would emerge. He said Aussie was looking to gauge the impact of this development on its brokers, and would look for ways to help brokers capitalise on the growth of online lending.

“We will test a direct model, but we will also in time test a mixed model where you allow the consumer to drive efficiency for brokers by providing all the details they possibly can over an internet-based submission engine. Then you can potentially leave it to the customer to drive how much handholding they need,” he said.

This would largely be dependent on the age of the borrower, with McDonald suggesting younger generations are becoming increasingly comfortable with transacting online.

“There’s a hell of a lot within the broker’s world that is able to be automated. The data collection in a mortgage origination process is a very painful and labour intensive component of that process. While 50-year-olds probably aren’t inclined to go through that process themselves online, 20-year-olds certainly are. The willingness of 20-year-olds to share information over the net or to submit information over the net is much greater than that of the older generations,” he said.

Adapt to surviveMFAA chief executive Phil Naylor agreed brokers need to be aware of the emergence of online channels. He said brokers who failed to adapt to the trend would find it difficult to survive.

“Brokers who just do what they do now are potentially gone, because online will probably kill them,” Naylor said.

Astute brokers see the online channel as an opportunity rather than an enemy, Naylor said, arguing that brokers will see success by finding ways to synchronise the demand for online transactions with their business models.

“They see online operations very much as a part of what they’re going to be doing. They will still be providing the sort of value add that they do now, but they’ll do it in a different way and they’ll do it with online very much being a part of that, otherwise they won’t survive,” he said.

‘Hybrids’ the right mix for next generation

Erik Fenna, LIXI

Connective director Glenn Lees said this sort of synchronisation was already occurring. He pointed to the aggregator’s software, which he said provided brokers with the ability to automate parts of the mortgage origination process.

“All our brokers who choose to use our software can do fact-finding automatically by emailing the customer a link to an online questionnaire. There is a facility there for an online self-service model combined with a broker model,” Lees said.

Expertise still valuedIncreased automation will not serve as a substitute for the expertise brokers offer to customers.

Lees said the broker’s role is not a product-based role. “It’s a process and decision making-based role and a confidence-based role. If the consumer is confident enough to come to that conclusion autonomously, that’s fine. For many, they’re not in that position,” he said.

McDonald said this expertise would remain part of the broker value proposition.

“There is an overlay of absolute value being driven by brokers. I don’t think for a minute that a consumer can know that the processing time in bank one can be two weeks longer than in bank two, or that bank three is really concerned about the Northern Beaches as an area, so their lending criteria is much tougher than bank four. There are a whole series of overlays that create value from broker knowledge,” he said.

Brokers may have to find ways to accommodate a growing demand for online transactions. However, LIXI CEO Erik Fenna said while the hybrid model was “already a reality”, it did not fundamentally change the role brokers played.

“At the relationship level the role of the broker hasn’t really changed. They’re still in the role of being the broker and providing assistance. The key is whether or not the borrower needs assistance in lending. True, direct borrowers do not require assistance. When the broker is invested in the hybrid model, the borrower gets the best of both worlds,” Fenna said.

And McDonald has conceded that a broker hybrid model was, at this stage, “an experiment”. He said the company had yet to sufficiently explore the model to gain any feel for the potential uptake. Ultimately, though, McDonald forecast that Aussie would make several channels available for consumer engagement.

“We’re not phased by how quickly that occurs, or the extent of handholding they need. We’re fairly happy to put all the channels out there for distribution and leave it to the consumer to drive the usage,” he said.


‘Hybrids’ the right mix for next generation

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

Australian Broker Issue 7.22

Headline: Brokers to flock to become credit reps (page 6)What we reported: Greg Ashe, director of financial services risk consultancy QED Risk Services, predicted last year that most brokers would choose to become credit representatives rather than holding their own ACL. Ashe also claimed the industry was ill-prepared for the rigours of NCCP compliance, especially its more “esoteric” aspects, such as risk management policies, compliance programs and managing conflicts of interest. “In terms of actual preparedness to be licensees, I think the current evidence of our phone calls that we are taking is showing that the industry has been pretty badly prepared. True to form, they’ve left everything to the last minute,” Ashe said.

What’s happened since:Ashe turned out to be fairly spot-on in his assessment of the licensing path chosen by most brokers. Despite receiving 14,000 registrations of interest from potential ACL recipients, ASIC licensed just over 6,000. Credit representatives provided the bulk of ASIC’s licensing activity, with the regulator granting credit rep status to more than 24,000 individuals or businesses. As for broker preparedness, this was put to the test further by the implementation of the long-awaited disclosure regime at the beginning of October. While MFAA CEO Phil Naylor claimed the industry was ready, broker Kiran Saldanha of The Finance Professionals told Australian Broker there was still “a lot of concern” among mortgage brokers.

Headline: Brokers ‘disappointed’ with bank rate moves (page 10)What we reported: Following last year’s RBA rate hike and ensuing out-of-cycle rate moves by the majors, brokers expressed dissatisfaction with the big four’s decision to raise their standard variable rates above the Reserve’s 25bp move. Jermey Fisher of 1st Street Home Loans told Australian Broker the bank moves would make life more difficult not just for borrowers, but for brokers as well. He predicted that borrowers would want to “shop around and talk with their feet”. Justin Doobov of Intelligent Finance said the move had caused anxiety among CBA customers in particular, and said his clients were now questioning his recommendation of the bank.

What’s happened since: CBA copped a beating from customers for moving first in the round of out-of-cycle rises. The bank saw its Roy Morgan customer satisfaction ratings steadily drop, with its ranking eventually falling from second to dead last among the majors. The bank’s satisfaction ratings have begun to recover in recent months, but it still lags its big four rivals. CBA this year followed the Reserve Bank cut by dropping its rates in line with the RBA move, and time will tell if it reaps public relations benefits from the decision.

Headline: Mortgages force borrower credit binge (page 18)What we reported: Last year’s ING Direct Financial Wellbeing Index painted a grim picture of household finances. The survey found household credit card debt rose by 24% over the third quarter of 2010 as households turned to their credit cards to stay on top of their mortgage repayments. The Index found that borrowers’ level of comfort with their home loan repayments fell during the quarter, though 49% of the survey’s respondents said they had made additional repayments on their loan. Personal savings, meanwhile, scored the lowest comfort level across the Index.

What’s happened since:Australian households seemed to be breathing a bit easier in the third quarter of 2011. Fifty-nine per cent of households surveyed by ING Direct said they felt very comfortable with their level of mortgage debt, and 54% said they were very comfortable with their level of credit card debt. Savings remained a concern, however, with 34% of households saying they were uncomfortable with their level of personal savings, the highest proportion since the Index began in the first quarter of 2010.

Headline: Pundits agree on flat housing fortunes (page 18)What we reported: RP Data last year forecast a flat housing market for the near future, with September 2010 figures showing growth in capital cities beginning to plateau at just 0.1%. The company’s senior research analyst Cameron Kusher predicted there would be relatively little growth in property values for the remainder of the year. On the heels of an RBA rate rise, Rismark managing director Christopher Joye predicted that more hikes were on the way, forecasting mortgage rates to “converge close to 9%”.

What’s happened since:The property market has not only remained flat through most of 2011; it has seen fairly steady decline. Recent ABS figures showed housing prices across capital cities were down 2.2% for the year. Declines were most pronounced in Brisbane, which saw prices fall 5.2% for the year, while Sydney and Hobart fell only marginally, down 0.3% for the year. The RBA conceded a rate cut earlier in the month, and many analysts have predicted the move could prove a catalyst to see property prices begin to recover.

http://www.brokernews.com.au


John Kolenda1300 Home Loans and FinsureAre aggregators doing enough on service? I’ve been in the industry some 18 years, and recently there has been some lack of innovation and change.How are brokers reacting

to the status quo? I think they are looking for viable alternatives, I think they are looking for change, they are looking for innovation which they haven’t seen in the industry, and that is what I think we bring to the table. With what we have seen since Finsure launched, definitely there is some unrest among the brokers. so yes I think we have two very good offers which will attract brokers to make that switch.Will brokers shift aggreagtors? If you have business opportunities and models brokers are attracted to I think brokers will vote with their feet and move.

To see more news and views, visit www.brokernews.com.au/tv

Are aggregators doing enough? The launch of a new aggregator by industry stalwart John Kolenda is an attempt to shake up the market. Here’s what our pundits think.VIEWPOINT

Comment

OPINION

Too many credit enquires by your clients can lead to eventual difficulties in sourcing a home loan, according to Clean Credit director John Dickinson

Your client decides they would like a new credit card, but they’re not sure who has the best deal, so they jump online and have a look around. They want to hedge their bets and make sure they get an approval for a card, so they pick out five credit cards they like the sound of and apply for them all. After all, they don’t need to accept them all if they’re approved and this way they will surely get at least one cross the line right?

But hang on, what was meant to be an easy process of getting a credit card has proved to be a bit of problem for them. They can’t explain it but over the course of the next few days

they receive knock-backs from all the companies they applied for. This seems strange to them, as they have a good job and have never missed a bill payment. They decide the companies they applied for must be being picky, so they jump online again and make four more applications. What’s this, four more declines? This is crazy!No doubt, your clients may decide to bypass all this madness and treat themselves to a big flat screen television. They pick out a beauty; 55 inches and full HD. What’s even better is the store offers credit; so they think this is going to be easy. They confidently give their details to the store finance representative and the whole time are thinking they can’t wait to get the TV home! Then they’re hit with “finance declined.” They must think the whole world has gone mad.

Five years is a long timeWhat a lot of people aren’t aware of that is each time they apply for finance they are almost certainly going to have someone make an enquiry on their credit report and wait for it and that enquiry will be recorded for five years. That’s right, five years!While it’s true that a credit provider can’t make a credit enquiry without a client giving approval,

gaining approval can be as simple as ticking a box on a website or

saying “that’s fine” to a credit representative.

But hang on, why are credit enquiries that never ended in credit being provided a

problem? Surely it only matters what enquiries lead to loans right? Unfortunately the answer is no. When a credit enquiry is made, only limited information is held on the credit report. Let’s say you make an application for a home loan, the only information recorded is the date and type of the application (in this case a home loan), the credit provider and the amount; that’s it. The enquiry won’t say if the application was approved or declined or even if they took up the facility if it was approved. Basically the credit provider who looks at the past enquiries is flying somewhat blind.Going back to the credit card example; let’s say you’re a credit card provider looking at five recent credit card enquiries on a credit report. They don’t know if the past enquiries were declined or approved and if approved how many credit cards you ended up with. In today’s credit risk adverse world, the outcome of this misinformation is often a decline. Many credit providers will assume the past applications have been declined.

Finding the cureEven if the consumer is aware an enquiry will be noted on their credit file very few realize the potentially debilitating effects a high volume of recent enquiries can have. Often only when the damage is done does this become apparent. Now we know what the problem is, how do you fix it? Are you sitting down? The answer is you can’t, not in the short term anyway. Unless the enquiry was made without any authorization there is little that can be done to have an enquiry removed from a credit file. The only cure is time. The more historic the listing the less relevant it is. Given how many people are affected by this problem there needs to be more public awareness around this situation.

Credit enquiries can lead to credit declines

Sarah WellsRedconciergeAre brokers satisfied with their aggregation offerings, and what are brokers looking for in the current market from their providers? I think to a certain degree brokers are dissatisfied with

the industry as a whole at the moment, and I think aggregators are bearing the brunt of that dissatisfaction for a number of reasons. With increased compliance requirements, brokers are now looking to aggregators for more and more support than they had been prior.

Mark HaronConnectiveAre aggregators innovating enough? We believe many aggregation groups are apathetic when it comes to innovation. In our view it’s the onerous contracts which handcuff brokers to their aggregators,

along with uncertainty around ‘ownership’ of trail commission, which stymies innovation and makes it difficult for brokers to choose more progressive aggregators.Is there ‘unrest’ among brokers looking for more? Yes, there is a certain level of unrest. We recommend brokers assess their options if they are not satisfied to investigate if there’s an alternative provider with a fairer deal. What do brokers now want from an aggregator? Brokers are looking for efficiency, so superior IT platforms, training and education are key.


Brokers weighed in when Aussie’s John McDonald argued that broker productivity was not increasing to match commission reductions, and that gains need to be made in loan origination efficiency (Broker productivity cause for concern, 3/11/2011).

I agree wholeheartedly that productivity is an issue - but this is an issue that can’t be improved

unless lenders start focusing on the crucial issue of delivery. Their processes are so constrictive that we and they have to step back and ask why have turnaround times not improved for 20 years? Brokers are submitting online, we are meeting standards to achieve benchmarks, we are better qualified, more resourced, more compliant and more responsible than ever. We too need to embrace better methods. The market is down and the lenders are crying out for business – yet, it still takes far too long for an unconditional approval. We have to examine this together, and drop the excuses from both sides to get it right.Ten basis points here and there, a birthday card and (empty) promises of exceptional service on their own just don’t cut it anymore.SteveMc on 03 Nov 2011 10:54 AM

Agree, especially if you have to split your income with someone else. Just more leads isn’t going to cut it when some will fall over

because of things outside of your control. I think the idea that lenders and brokers (as a whole) will get

together and tackle this problem is flawed; lenders are already showing they only want to support some brokers (segmentation) and the rest they don’t care about. MFAA, FBAA and aggregators could really take this forward but nothing in it for them so little chance. Ozboy on 03 Nov 2011 11:27 AM

Anyone who wants to harp on about broker productivity is more than welcome to audit my files to see the

litany of lender errors and delays that are the real cause of “unproductivity”. I am dealing with one “bank” at the moment who don’t even seem to pick up the file until I remind them it is outside SLAs!positivebroker on 03 Nov 2011 03:41 PM

Not all agreed with Comparator Business Benchmarking’s Sarah Brennan who argued ACLs would eventually be considered a liability rather than an asset, ion a similar way to the financial planning industry’s development (ACLs to prove liability 01/11/2011)

Really? We are awash with experts at the moment ready to capitalise on any perceived uncertainty from

change - for a fee. Meanwhile, back at the ranch, good people do great work doing

what they do best. To those that have taken on the initiative on an ACL, go you good thing. The real experts are actually writing loans and building our broking business. The ones that can’t, love to tell us how to do it.SteveMc on 01 Nov 2011 12:59 PM

A credit licence and financial planning licence cannot be compared.

Tony on 02 Nov 2011 05:57 PM

When Advantedge’s Steve Weston argued banks may focus more on costs – and therefore commissions (Price war threatens commission levels, 01011/11) – brokers had this to say.

Aggregators where slow to progress over the past 5 years. They still don’t really assist their brokers to grow

sales. If there are no sales - and if more and more brokers leave - aggregators will become dinosaurs within five years.Nick on 01 Nov 2011 10:40 AM

The lenders will do what they want until brokers get their percentage of total loans from 40% to

something like 75%. Advantedge should be concentrating on raising that percentage.oldBroker on 01 Nov 2011 11:06 AM

Hopefully, Swanny will come out and say that brokers are doing it tough and that there is no justification

whatsoever for banks to cut broker commissions. That will keep them in line!Broker on 01 Nov 2011 11:29 AM

Valuations continued to concern brokers, as borrowers were labelled ‘victims’ of valuer methods yielding low estimates (Borrowers ‘victims’ of conservative valuations, 27/102011)

While these low valuation outcomes are frustrating for all involved, it is a clear advantage that brokers have.

We know which lenders to avoid in this market, and which (usually) non-bank lenders will consider refi’s in a high LVR situation. I say to the majors “keep spending your marketing millions”. The brokers are more relevant now than ever before. These are the good old days. Neil Williams on 27 Oct 2011 10:57 AM

Has anyone actually done the maths on a 40 year home loan? The reduction in repayments hardly

warrants the impost of an additional 10 years’ worth of added interest.frank on 31 Oct 2011 11:59 AM

FORUM

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Insight

Have you thought about, or are you implementing a fee? Will it be fee-for-service, or fee-for-advice? How will this fit your process, allowing you to demonstrate your value? And how much is too much?

PLAN Australia recently put together a panel of brokers to discuss these – and many other – questions on the critical topic of fee-for-service.

Here’s what they had to say:

Wayne MarksLadyBird Home LoansLooking at it from the perspective of our business, we believe you can charge a fee. We haven’t actually introduced it – we were waiting for the final disclosures from ASIC – but we are now working on a process and a model on how we are going to roll it out next year. It is all about documenting what it is you are offering and having that offering out there. I think it has got to be tailored – you can’t just charge one flat fee for everything. So we are working on having a tailored fee depending on the complexity of the transaction and what is involved. In that way, the client will also understand that if we don’t meet all these objectives we won’t charge a fee. You have to be clear about what you do, and how you are different from the direct channel, because ultimately if you can’t differentiate yourself from the direct channel you won’t be able to charge a fee. The set and forget mentality – just chasing the next transaction – you can’t do that and charge a fee.

Peter BromleyLJ Hooker FinanceI think the whole fee-for-service thing needs more thought. I think it’s potentially a game-changing proposition for this industry, and I am a bit concerned when I hear so many people are charging a fee, as I don’t think we have thought it through. This industry was founded on choice and that the customer doesn’t pay. We are actually changing that whole proposition. Do we know what our value proposition is going forwards? I’m not sure we do. Because there is a whole raft of

implications at all levels. What does it mean for

you when you are sitting in front of the client; what is your value proposition, can you charge a fee, can you demonstrate value in that? I think we have to get there, but I think we have to do a lot more work around it. It has game-changing opportunities for us, as well as risks. In these times

Fee-for-service, or fee-for-advice as some prefer, is a hot button for an industry dealing with declining incomes as trail books run off. PLAN Australia asked some of its top brokers, sub-aggregators and executives if they were worth a fee

The value of service

of change, you need to understand what the long term outcome may be. For example, if you are charging a $250 fee now and the industry goes the way of financial planning where commissions were banned altogether, you need to think how your model might evolve and where it will go.

Trevor ScottPLAN AustraliaI think the first issue we as an industry need to resolve is the clarity around whether we are talking about fee-for-advice, or fee-for-service. My view of it is – and this is my personal view – it is not fee-for-service. In a way we already get a fee-for-service in terms of our upfronts. I have said on many occasions we are talking about a fee-for-advice, we are talking about the knowledge that brokers have accumulated over the years, we are talking about their ability to tailor products from a wide range of lenders and to provide the most appropriate solution. We do need to work towards it, and there are many different models and different fees. For example, some brokers may work for groups who charge a holistic fee and the mortgage may only be a part of that. I would just encourage everybody to have a think about it, and don’t undersell the knowledge you have and the ability you have to resolve your customer’s issues – that is why they come to brokers in the first place. Quite often our members get asked by customers, ‘How much is that going to cost me?’

Joanne AttardVerix FinanceCharging a fee or not will depend on what type of business you have. If you are happy to work from home, and have no staff, and have very little overheads, and you are happy to earn a smaller amount of income or whatever it is that suits you, then you would probably be fine without charging a fee. You could supplement that with diversification of income. For me, I chose a fee-for-service – we have been doing it for 18 months – and I really struggled when I first started because I had been broking for 10 years, and it had always been known as being a free service. When we first decided to make that change, we started with a basic fee of $150, because we were valued by our clients. Yes, we get paid for the service we provide in terms of dealing with the banks, the real estate agents, and their accountants to make sure the loan works, but then there is all that time. I’m sure many will agree that they see a client, and before they know it, three hours has gone by, and we are giving all this advice. We just decided to put a value on that. Now we have decided to increase our fee to $250.

Fred ObeidoProforma Financial SolutionsIt is extremely difficult to set a price for service and advice. We have gone through three pricings in 18 months, so we have certainly gone through that journey, where we have been in business for so long and we have never charged, and we were wondering what happens with new clients versus existing clients where there is an established relationship and loyalty. So at first, we said to our existing clients that we would do things for them as part of the ongoing commitment, but it came back to bite us not long ago, when they referred a client to us. For the existing client, we didn’t charge, but the new one, we charged a fee. So we thought ‘no, we have to put some sort of an end to that’. The only other additional comment I would make is that we found it is quite clearly a mental shift. When we were thinking how this will be perceived, because this client could go to a bank, and get it for nothing, we were undervaluing our service. What we have done to combat that is create three packages – Bronze, Silver and Platinum – and with each one of those we provide layers of services. Clients see the value, and it also acts as a commitment document.

http://www.keymedia.com.au


Market talk26 www.brokernews.com.au

Business hunger returns

NUMBER CRUNCHING

Source:ANZ/Property Council

What property class will see the best return in the next 12 months?Source: Australian Property Monitors

Rental growth: Houses versus units

45* The median number of days it takes COSL to close a financial hardship complaintSource: COSL

At a glance…

The residential market may be tough at the moment, but brokers could make ends meet by capitalising on stirring commercial demand

Moses Samaha

Business credit may be the opportunity for revenue that brokers need in a difficult residential market, it has been claimed.While there have been faint glimmers of hope for residential credit demand, the market

remains broadly sluggish. However, for brokers looking to supplement their income, a predicted surge in business credit demand is on the way.

Veda head of commercial risk Moses Samaha has said commercial finance demand is again stirring following the GFC. With the onset of the financial crisis now three years behind us, Samaha said businesses are renewing their appetite for credit.

“Small businesses lead any recovery, and in a downturn they’re the first to face cuts. The GFC was characterised by lots of government incentives to stimulate activity, so people brought forward purchases they wouldn’t have made otherwise for tax purposes. This created a big spike in demand, followed by a big dip. That cycle has washed itself out now, and people are getting back in the market,” Samaha said.

On the numbersThe numbers back up Samaha’s claim. The Veda Business Credit Demand Index has shown business credit demand rose for the eighth consecutive month in September. Demand for business credit is now up 2.3% on last year. Veda said growth in the September quarter was 2.1% lower than the “bullish” June quarter, but still set a positive trend.

“Despite concerns over a global credit crunch, results show eight months of relative gains in demand for business credit. This is a positive result given the economic uncertainty in worldwide financial markets at the macro level. Our results align with ABS figures, which show commercial finance commitments rose to a three-year high in August this year, an indication that credit confidence is gaining momentum,” Samaha said.

These results have also been echoed in figures from the Reserve Bank. The data shows that, in particular, credit

demand has picked up among small and medium businesses. Yet, all this has come as SMEs continue to report low levels of confidence.

“It is fair to say that sentiment is lower and confidence is lower. It’s a bit self-fulfilling and self-defeating. Consumers are careful about their spending, so that creates cash flow issues for businesses,” Samaha said.

Business sentiment does not necessarily filter through to the demand for credit among SMEs. Samaha warned against reading too much into surveys of commercial confidence. “A survey is just a survey,” he said. “Our data is based on factual results and actual activity and volumes.”

A surge on the wayBrokers looking to capitalise on this rise in demand would do well to focus on a couple of key areas. “Everyone needs to do their homework and assess the markets, but two areas that show signs of growth are general business lending and asset finance,” Samaha said.

Asset finance could provide a particularly appealing option for brokers. East & Partners analyst Paul Dowling recently told Australian Broker there was a coming “logjam” for asset finance, as dammed up demand gave way. Samaha agreed, predicting that asset finance could see a major surge within the next two years. Although asset finance saw an 8.4% drop for the quarter, Samaha said this followed a strong surge in the June quarter which put asset finance up 1.7% year-on-year.

“The September quarter drop is typical following a June quarter surge in the lead up to the end of financial year close, especially with regards to asset finance,” he said.

Businesses that purchased assets and equipment during the stimulus-driven demand of the GFC may now be looking to upgrade. Veda figures show the “next phase of action” for asset finance appeared to be gearing up now. “Construction and manufacturing are driving a lot of inquiries, so that should give a good scent test for the markets to go and chase,” Samaha remarked.However, before entering the asset finance market, Samaha urged brokers to do their homework. Brokers used to residential lending could find the market quite different, he said.

“Diversification is always a good thing. It is a difficult market, though, so brokers need to have an appetite for that. Talking to business owners about loans is different to talking to people about residential mortgages. It’s also probably a higher risk market as you’re dealing with companies and enterprises, so you need to have proper risk management practices in place.”

Office

Sept 2010

Sept 2011

Industrial

Retirement living Shopping centres

Residential Tourism

SydneyMelbourne

BrisbaneAdelaide

PerthCanberra Hobart

DarwinNational

1.2

%

2.2

%

1.8

% 2.0

%

1.0

%1.7

%

1.2

%0

.9%

0.6

%0

.7%

1.2

%2

.1%

1.3

%

0.9

%

1.5

%1.9

%

1.4

%

3.0

%

23%

35%

17%

14%

7%4%

Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au

27www.brokernews.com.au 27www.brokernews.com.au

Toolkit

The National Credit Code may now be in force, but that doesn’t mean brokers understand exactly when it applies. Matthew Bransgrove explains the details

Section 7(1) of the NCC states that the code applies to a mortgage where:

a) it secures obligations under a credit contract or a related guarantee; and…

The first question is does such a loan secure obligations under a credit contract? Section 4 of the NCC defines a credit contract as “a contract under which credit is provided, being the provision of credit to which this Code applies”. Thus whether there is a credit contract is a circular reference to s5. If the borrower is a company the loan is not caught by s5 and therefore also not caught by section 7.

The next question; does it secure obligations under a related guarantee? The NCC does not define related guarantee. Section 204 of the NCC defines guarantee unhelpfully (as “includes an indemnity”). Thus related guarantee must be given its normal meaning: a guarantee related to a credit contract. Thus whether there is a related guarantee is a circular reference to s5. If the borrower is a company then the loan is not caught by s5 and therefore also not caught by section 7.

Section 8 of the NCC states that it applies to a guarantee if:

Applying the National Credit Code

There is still a great deal of confusion as to when the National Credit Code applies and when it does not. This is resulting in a lot of loans not getting submitted to

commercial lenders because brokers wrongly assume the code applies.

One scenario where brokers are shaky is where the security is a house, owned by an individual, who is providing a guarantee to secure the obligations of a company borrower, and the loan purpose is to renovate a residential property. Such a loan is not regulated. This is despite the fact the security is a residential property, despite the fact the security is owned by an individual, and despite the fact that the loan purpose is to renovate residential property. The key factor – the element that irrevocably removes the loan from regulation by the NCC – is the fact that the borrower is a company.

In summary, when figuring out whether a loan is code regulated, the first question should be, ‘Is the borrower a company?’ If the answer is yes, then that is the end of it. The NCC does not apply.

Why does the code not apply where the company is a borrower?Section 5 of the NCC states that the NCC applies where:

a) the debtor is a natural person … and b) the credit is provided or intended to be

provided wholly or predominantly: i) for personal, domestic or household

purposes; or ii) to purchase, renovate or improve

residential property for investment purposes; or

iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes…

Debtor means the same as borrower. This is because s204 of the NCC defines debtor “as a person (other than a guarantor) who is liable to pay for the credit”. Because a company is not a natural person s5(a) is not satisfied and so the NCC does not apply. Whether or not s5(b) is satisfied is irrelevant as s5(a) must be satisfied as well.

Futurist Mike Walsh recently painted a bold vision for the future at PLAN Australia’s national conference in Darwin. Here’s what he says top performers will look like in the future.

1) Super synthesisersIn the old days, smart employees gathered competitive information in traditional ways – phone interviews, focus groups and industry surveys. Basically – you were clever if you knew how to pick up the phone and make some calls. Now we have the opposite problem – too much information. Super synthesizers are people with the capability of scanning and processing huge amounts of information. They are like human meta filters. With enough technical savvy and familiarity with blogs, social platforms and search algorithms – they can assess the topography of available data, see patterns and collate them as trends, prioritise and then act.

2) Hyper connectorsOne of these days we will laugh about the fact people used to get fired for using Facebook or LinkedIn at work. Hyper Connectors are people that know how

to swiftly build and exploit relevant networks to get things done. They won’t necessarily have the largest collection of contacts, but they will know how to use digital platforms to find and nurture just the right set of people to reach their goals. These could be internal networks in a huge enterprise, or external webs of journalists, industry influencers and taste makers. You will recognise them in meetings because they are the first to say in the answer to a problem, ‘I think I may know someone who…’

3) Change optimistsThe final quality of the future super smart might sound a bit soft but in some ways it is the most vital personal attribute – positivity. The pace of change is accelerating and there are people for whom that is good news, and others who, if they are honest with themselves, view that fact with dread. You can reassure the change pessimists about the future all you like, but believe me – in the end, when faced with disruptive change, pessimists fight for the status quo not for future growth. Your best performers may not know the future, but they should be happy to meet it head on.

FINDING THE EMPLOYEES OF THE

a) it guarantees obligations under a credit contract; and…

Once again a credit contract is a circular reference to s5. If the borrower is a company then the loan is not caught by s5 and therefore also not caught by section 7.

In Equititrust v SLJM [2010] NSWSC 1059 the individual guarantor argued he was the real borrower and the use of company borrower was a sham and that therefore the code should apply. The judge rejected this argument noting that the High Court said the expression “sham” had a well-understood legal meaning. It referred to steps that took the form of a legally effective transaction but which the parties intended should not have the apparent, or any, legal consequences. In these situations it is quite clear the lender intended the transaction to have exactly the legal consequences which the documents have on their face.

Matthew Bransgrove is senior partner at Bransgroves Lawyers, and co-author of ‘The Essential Guide to Mortgage Law in NSW’ (LexisNexis, 2008)


People

Mortgage Choice franchisee, Greg Campbell, and CBA South Australia’s third party banking team put on an “icky sticky” day as part of an “oooey gooey” week-long Camp Quality program for children between the ages of three to nine living with cancer.

Fifty kids and their volunteer companions (carers for the week) were invited to climb into pools of

slime, slide down waterslides into a pool of spaghetti, join sack races using sacks filled with spaghetti and goo, climb through pools of jelly and even roll in baths of 100s and 1000s.

It took volunteers from CBA about two hours to set up, followed by ‘icky sticky’ fun and frivolity for one-and-a-half hours and then two hours to clean up.

The fire brigade was called in to come and wash everyone down and hose away the spaghetti and slime.

Campbell said Camp Quality believes “laughter is the best medicine” and that the kids had been given a big dose. “Thanks to the corporate volunteers; without the assistance of people like the team from CBA, it would make it

a whole lot harder to fill these kids with smiles,” he said.

Campbell had special thanks for Sandy O’Keeffe, who coordinated all of the show bags and slime making events, Leon Braley (and his wife Helen) for arranging and assisting on the day and Richard Noy (CBA mobile banking) and Corey Drew for their time and help on the day.

Wealth Professional online, launched in October, is Australia’s newest source of news, opinion and analysis for sophisticated financial planning and advice professionals.

Delivered exclusively online to Australia’s financial planning and advice community, Wealth Professional provides a real time web service designed to keep time poor advisors up-to-date with the latest breaking news, cutting edge opinion, and expert analysis affecting both their

business, and industry as a whole.In familiar Australian Broker

format, Wealth Professional online provides a regular newsletter service, delivered to inboxes daily. It includes exclusive and need-to-know developments of the day from the government and regulators, platforms, fund managers, dealer groups and financial planning firms, as well as industry service providers.

The industry’s newest online financial planning industry hub, Wealth Professional is also committed to offering fresh and informative multimedia news and commentary, practical articles and features to assist with developing businesses, a popular industry forum for online discussion and debate, and industry-specific research and reports.

Wealth Professional also engages with the industry’s grassroots – the financial planning and advice professionals themselves – to gain unprecedented daily insights from key practitioners on the developments and trends of an increasingly diverse financial services landscape.

The financial planning industry needs to wake up to the “enormous opportunity” presented by FoFA legislative reforms before it’s too late, according to ASFA CEO, Pauline Vamos.

Speaking to Wealth Professional, Vamos said that while it was a stressful time for many professionals in the financial planning space, it was also a time of great opportunity.

“Whether you’re a financial planner or a superannuation

specialist the opportunity to build confidence in our respective industries is now,” she said.

“This is when we can say ‘it’s a good time to deal with us.’ We’re in the superannuation industry and we know that people get a much better retirement outcome when they’ve had advice. We know that, we support that and we want people to have access to advice.

“It’s really important that we take this opportunity – this may be our last chance.”

The proposed FoFA reforms will create more joint ventures between accountants and planner groups, David Hasib, head of financial planning, Chan & Naylor has said.

With legislative changes forcing planners to adopt a fee-for-service structure, Hasib told Wealth Professional the two professions would become more aligned.

“We’ve always had a little bit of a reluctance to work together in the past… there were questions over who owns the client, often accountants don’t agree with the

fee structure – advisors are commission based whereas accountants have always been on fee for service, and what FoFA aims to do is to bring to the front a level playing field,” he said.

Hasib said that the FoFA reforms would also affect accounting firms, with the current exemptions which apply to accountants offering financial advice, scaled back from next year. The move would limit accountants to providing strategic advice only, and require them to work alongside licensed planners.

Mortgage Choice Unley and CBA support Camp Quality in SA

The new Wealth Professional ASFA: a time of opportunity

Advisors, accountants ramp up JVs

Australian Broker has a new sister publication, Wealth Professional, which takes a new approach to the coverage of news, opinion and analysis in the financial planning industry. Are you looking at diversification? Visit www.wealthprofessional.com.au today.

WEALTH MANAGEMENT

Helping hands: Richard Noy, Sandra O’Keeffe, Corey Drew, Helen Braley, Leon Braley


Caught on camera

PLAN Australia recently held its 2011 Commercial Conference in Port Douglas, where top performing commercial writers came together to network and hear from motivational speakers including Layne Beachley, former world champion surfer and founder of the Layne Beachley Aim for the Stars Foundation

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Image 1 Broker delegates catch up for pre-dinner drinks

Image 2 Guest speaker Layne Beachley with Russell Maxwell

Image 3 Cosi D’Angelos, Scott Wunderlich, Ross McPherson and Tony Weir

Image 4 Ross McPherson, Aaron Milburn, Layne Beachley, Trevor Scott, Graham Lee and Brian Steele

Image 5 Tracy Rasmussen with Lisa WrightImage 6 PLAN Australia conference

delegates all smiles during the conference gala dinner

Image 1 Adam Brandt, Paul Farrell, Glenn English, ING Direct’s Van Lu and Michael Barnard

Image 2 ING Direct’s chief risk officer Bart Hellemans with Anna Dua and Nari Khera from Aussie

Image 3 Simon Stoll, Matthew Manneart and Jonathon Cornish with ING Direct’s John Leveque

Image 4 Chris Vellios and Danny Stein with Fiona Harrell-Maher

Image 5 ING Direct’s Jo Breuer with Daniel Di Conza and executive director of delivery Lisa Claes

Image 6 National Mortgage Brokers’ Gerald Foley with ING Direct head of broker distribution Mark Woolnough

ING Direct went on the road to meet with stakeholders in September, accompanied by decision makers including its chief risk officer. In Melbourne, key executives kept brokers abreast of changes to its proposition – and answered their tough questions

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

his view that the state-run railway system would lose less money if, when the passengers came to the station, they simply asked them where they wanted to go, and gave them a taxi fare.”Inefficiencies abound in Greece, with Insider particularly enjoying Caton’s accounts of entrepreneurialism in the state, such as a man selling dental floss by the strand, and another wandering the streets with a set of bathroom scales offering to weigh passers-by.

“We’ve been told recently that our house prices are too high by Jeremy Grantham, an investment guru who does not live in Australia, by Harry Dent from the US, who also does not live in Australia, and The Economist magazine. The last time The Economist did not think house prices were too expensive was 1787 – I looked that up.”Caton on the fallacies of house price crash predictions from overseas, which have varied between a mild dip to a 40% Armageddon. We hope you are right Chris.

“I’ve told everybody that I’ve spoken to in the past 18 months two things: number one, that the currency has to come down, it’s too strong, we all know that. And number two, don’t believe anybody’s forecasts.”Perhaps Caton was being modest – but more likely, he was just stating the truth.

“Most golf club life members are dead”It’s true, just check out the life member’s list at your local golf club.

“In the year 2000, I was named by the Australian Financial Review as the second best forecaster in Australia. There is a problem with that though – when I lived in Randwick, I was reminded every morning when I passed a Thai restaurant, which had a sign in the window saying it was voted best Thai restaurant, in Randwick, in 2003. Now that’s OK for a couple of years, isn’t it, but after a while the question is, what have you done lately?You have to take your accolades where you get them, and we are sure Caton will still be trotting this AFR rating out at the end of this decade as well – to more laughs.

Practice, practice, practiceAn NSW mother is taking the big four to the Supreme Court for allegedly allowing her teenage son to run a $200,000 money laundering racket. The precocious youngster reportedly made his foray into fraud in 2007, when he ran an eBay scam selling fictitious products. He managed to net more than $6,000 a day, which should pay for a lot of Pokemon cards, or whatever it is the kids are into these days. He then graduated to ripping off the banks, opening cheque and debit accounts with Westpac, ANZ, Bank of Queensland and Credit Union Australia, withdrawing enough to put them into $1,500 overdraft and letting the banks shut them down. His mother is apparently

Occasionally Insider – who is known to doze off during the odd conference session – listens to a speaker that leaves him surprisingly alert, thanks to a series of well-timed jokes that make the facts and figures easier to digest. Such a speaker is BT Financial’s Chris Caton, who left PLAN brokers at the aggregator’s Darwin conference with a picture of economic developments and kept them laughing along the way. Over to you Chris!

“I’m one of the longest servers at BT Financial – I’ve been there for 20 years – but I’m the only one that’s never been promoted.”Caton lamenting his lack of promotion, though Insider guesses it’s difficult to go much higher once you’ve been named ‘chief economist’ at any organisation.

“Incidentally I take my responsibility for a function such as this very seriously indeed, so on your behalf in the month of September, with my wife, I undertook an in depth study of the Greek and Italian debt crises, and I can tell you this – if the Greek economy doesn’t start to do better, it is not my wife’s fault. She certainly gave it a nudge.”Despite Caton predicting an inevitable Greek default – which he said is in effect happening as we speak – Caton assured brokers his wife has done her part to prop up the ailing state.

“Some Greek official has calculated and published

miffed at the banks because, despite her repeated requests to curtail the felonious undertakings of her progeny, the banks rebuffed her and said they couldn’t heed her warnings because of the Privacy Act. Now, all this theft eventually landed her son in big boy jail after he turned 18, but Insider thinks the kid shows a lot of promise. He’s set a precedent of selling people dreams that don’t exist and creating money out of thin air. Sounds like he’s got a pretty promising career ahead as a banker.

High standardsLicensing of the credit industry may have cleaned out a lot of the dodgy brokers in Australia, but evidently it’s not quite doing its job in the US. A mortgage broker in the state of Wisconsin has been indicted for a mortgage fraud scheme in which he set up straw buyers for properties, falsified their income information and took off with the loan money. The broker also stooped to new levels of evil when he tricked an intellectually disabled man on near-minimum wage into taking out a $100,000, high-interest loan. All of this is pretty egregious, but hardly surprising given the state of the US mortgage market. What Insider found particularly interesting is that the broker in question was given his license despite being a convicted drug trafficker. The guy served nine years for cocaine trafficking, got out, was promptly indicted for tax fraud, got out, was charged with firearms offences, got out and THEN became a mortgage broker. It’s like Insider always says: If you can’t trust a gun-toting, tax evading, coke-dealing felon with your mortgage, who can you trust?

Facts, figures and gags

“At least I can still get my credit licence!”

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Australian Broker magazine Issue 8.22