Australian Broker magazine Issue 10.01

JANUARY 2013 ISSUE 10.01

$4.95 POST APPROVED PP255003/06906

+INSIDE + NEWS A look at what's been making headlines P4

+ ANALYSIS LOW-DOC BEAT-UP Reports of widespread low-doc fraud may be baseless P10

CREDIT CONUNDRUM

Could positive credit reporting negatively impact your clients?

P12

Productivity not a one-way street With industry chatter over the need for brokers to be more efficient, Westpac’s Tony MacRae says the fingerpointing should stop

P

roductivity may be the buzzword of the mortgage broking industry, with banks badgering brokers over application quality and process efficiency, but Westpac head of mortgage broker distribution Tony MacRae has said the rhetoric has lost sight of a central fact: productivity is a partnership.

“I think the current productivity and quality debate has really lost sight of the reality that there’s a customer at the centre of everything we do, both for our brand and for the broker’s brand,” MacRae said.

FULL STORY PAGE 14

+ WORKSHOP SET YOURSELF APART

Marketing and sales differentiators that get results P16

+ OPINION TRAIL TERROR

Threats of lost trail for exiting brokers may be empty P18

+ CAUGHT ON CAMERA National Mortgage Brokers treats its top performers P29

NEWS

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NUMBER CRUNCHING

WHAT THEY SAID...

EDITOR Adam Smith COPY & FEATURES

PETER WHITE

JOURNALIST Mackenzie McCarty

"To call brokers 'washing machine salespeople' is disrespectful to the finance broking industry ..." P8

25%

PRODUCTION EDITORS Carolin Wun, Moira Daniels ART & PRODUCTION SENIOR DESIGNER Rebecca Downing DESIGNER Ginni Leonard SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Anna Keane TRAFFIC MANAGER Abby Cayanan

JON DENOVAN

The surge in power disconnections following a 20% increase in electricity prices last July

"This is the worst time for brokers to start having an attack of conservatism."

Source: Sydney Morning Herald

P10

$175.3m The amount the Victorian government received from the Federal Housing Affordability Fund to build affordable housing in Melbourne

7%

The amount home values in Hobart have fallen in the 12 months to November 2012 Source: RP Data

GRAHAM DOESSEL

"Disputing an unfair [credit] listing is a bit like a battle between David and Goliath ..."

P13

MATTHEW BRANSGROVE

"No matter how onerously an aggregation deed is drafted, the law gives brokers weapons to fight back ..." P18

CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley MANAGING DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR – BUSINESS MEDIA Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Ben Abbott tel: +61 2 8437 4716 ben.abbott@keymedia.com.au Advertising sales Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Subscriptions tel: +61 2 8437 4731 fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, Toronto, New Zealand brokernews.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss.

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.

NEWS brokernews.com.au

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EDITORIAL Welcome to the New Year.

Along with it, we bring you an improved print edition of Australian Broker.

As you may remember, the publication underwent a redesign last year. We feel we found a great mix of news, analysis, data and personal stories. But we’re not content to remain static. Our audience is a group of dynamic businesspeople constantly striving for self-improvement, and we want to reflect that in our content.

With that in mind, you’ll find the improved Australian Broker with a new focus on in-depth analysis, data and up-to-the-minute product news, along with the marketleading news, opinion and business tools you’ve come to expect.

Along with these changes, you’ll notice an editorial shift.

Ben Abbott, who has so successfully guided Australian Broker these last few years, has departed. I’ve had the pleasure of working with Ben both on Australian Broker and its sister publication, MPA, and I’m honoured to take the helm of a publication he’s led from strength to strength and to new levels of excellence.

With that in mind, please enjoy the year’s first edition.

Adam Smith, Editor, Australian Broker

CBA Aussie take-over

Executive women still left out ■ The latest EWA figures show 60% of Australian

■ Last month, CBA increased its investment in

Aussie Home Loans from 33% to 80% with the right to subsequently move to 100% ownership.

Not everyone was pleased with the move, however. Bankmecu’s managing director, Damien Walsh, says the announcement illustrates the need for the government to move on ensuring greater transparency when it comes to multi-brand strategies being pursued by the major banks.

“With the Commonwealth Bank set to take a majority stake in Aussie, now is the time to act in the interests of consumers.”

DARWIN AND SYDNEY TRUMP Darwin and Sydney recorded the largest home value increases over the year to December 31, while Melbourne experienced the most significant decrease

+8.95%

+1.47%

DARWIN

SYDNEY

MELBOURNE

-2.86%

businesswomen believe male-dominated referral networks are one of the biggest barriers in their rise to executive roles.

EWA says female executive roles in some of Australia’s largest companies remains below 10%.

The Workplace Gender Equality Agency reports that the pay gap between female university graduates and their male counterparts more than doubled last year.

HOUSING COULD FACE ELECTION HURDLES This year’s federal election could have a negative impact on the housing market, according to some economists.

Property values in Sydney are likely to jump 6% following the federal election, while Brisbane will experience an 8% rise.

However, forecasting group BIS Shrapnel has downgraded its growth forecasts for 2013, saying the timing of the election could result in a general slump.

BIS predicts that many buyers will wait to see if a new stimulus is offered by either party.

REVERSAL OF FORTUNE Housing finance growth missed economists’ expectations in November Forecast:

+0.5% Actual:

-0.5% Source: ABS

Rate relief coming?

■ Australia’s major banks may be about to break

their habit of not passing on full RBA interest rate cuts.

Westpac is reportedly considering a rate cut by up to 6bps next month, irrespective of the RBA’s cash rate decision following its February 5 meeting.

Peach Home Loans raised concerns over pricesignalling accusations being made to ACCC as major banks “keep mum” regarding the possible interest rate changes, however ACCC largely shut the idea down.

“Publicly stating it wouldn’t be a concern.”

NEWS brokernews.com.au

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Broking to boom in 2013

THE STRANGER SIDE OF NEWS

■ Demand for mortgage brokers

will rise in the coming months as organisations continue to develop their finance and lending areas and clients seek the best advice when it comes to financial concerns, according to a new report by one of the country’s leading recruitment centres.

International recruitment agency Hays’ Quarterly Report Jan-March, 2013, lists mortgage broking as being one of the top

DON’T MONKEY AROUND WITH PAY

MFAA takes ASIC to task on variations

■ A recent study found that monkeys have

some serious problems with the glass ceiling.

A research project at Emory University in the United States showed that capuchin monkeys get angry when they aren’t treated equitably.

Researchers conducted an experiment wherein they fed two monkeys, at first giving both grapes. That went well enough, but when researchers tried giving one of the monkeys grapes and the other a cucumber, the poor monkey who drew the cucumber went absolutely ... bananas? Sorry. The experiment goes to show that pay inequality doesn’t sit well with pretty much anyone.

■ MFAA is seeking information from ASIC regarding credit variations in order to clarify when responsible lending obligations are triggered.

The industry representative says increases to a credit contract instigate responsible lending obligations, but if a borrower wishes to vary the terms of a loan, the requirement for disclosure documents will depend on the circumstances.

The MFAA says a variation to a credit contract is preferable to a fresh contract, which would require the broker to prepare a new Preliminary Credit Assessment and other disclosure documents.

They say the lender’s obligation to complete new disclosure documents is also triggered.

The MFAA says it will be lobbying: 1. Lenders not to use new contracts where a consumer request is only for a variation; and 2. Treasury to amend the law to state that if a variation is documented by a new contract, it is still a variation.

CAUGHT SHRED-HANDED

■ It’s a good idea to shred unnecessary

documents to keep your clients’ vital information secure, but a police department in the United States managed to render shredding a bit of a pointless exercise. During the recent Macy’s Thanksgiving Day Parade in New York City, it was found that confetti raining down on the crowd was actually shredded police files.

It contained – among other information – the identities of several undercover officers and details of erstwhile presidential candidate Mitt Romney’s motorcade.

HORSES FOR COURSES

■ Punters in Pennsylvania were recently left in a quandary when some unwelcome participants took part in a horse race. As a race was about to begin, three deer jumped onto the course and decided to give their equine cousins a run for their money.

industries expected to experience growth this year.

“Mortgage broking, mortgage support and mortgage compliance – there seems to be an increase in demand for mortgage candidates as more and more organisations add finance arms to their business. Banks also have seen the flow-on effect with more loans to be processed. Transformation projects have also caused an increase in demand.”

BROKER SURVEY: HOUSING HELP What action can the government take to stimulate the housing market in 2013?

Create more stamp duty relief

55% FAST FACT

€380m

The size of an Irish mortgage portfolio Pepper was recently appointed to manage

Release more land for home construction

Reintroduce or amend state level grants

3%

32%

10%

Lower property taxes

Source: Loan Market

AXE TO GRIND 8

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Broker bashing uninformed, damaging A News Ltd piece questioning the broker proposition was shoddy reporting, argues FBAA president Peter White

R

ecent articles authored

by Jessica Irvine of News Ltd constituted little more than tabloid journalism that displayed scant understanding of the operations of the modern finance broking profession and the regulatory and legislative framework that it operates within, says Peter White, chairman, national president and CEO of the FBAA. “Ms Irvine owes consumers and finance brokers nationally an apology for the gross inaccuracies contained in her recent articles.”

White goes on to say: “Ms Irvine’s recent articles read more like an advertorial for companies such as Rate City and iSelect (who also receive commissions for home loan services/referrals), rather than accurate and impartial reporting as would be expected from a journalist employed by News Ltd. The ongoing development of the finance broking profession over the past two decades has provided the Australian consumer with increased choice, enhanced service levels and access to the range of finance products that we have today.

The professionalism of the industry has been significantly enhanced in recent years due to the combined efforts of

PETER WHITE

government, regulators and the industry with uniform licensing and consumer protection legislation now in place.

Transparency as to commissions received and the obligation to avoid conflicts of interest so as not to disadvantage a consumer are keynotes of the current regulatory regime – two factors that Ms Irvine has chosen to misrepresent.

The initial interest rate on a loan is not the only factor to consider when deciding whether a loan is suitable. A professional finance broker will take into account such additional factors as product flexibility, structure and loan features in assisting their customers when choosing a loan.

Commissions and trailing commissions are paid to brokers.

As a mature industry, this is common knowledge and full disclosure of commissions received is required under the NCCP. To represent that the receipt of commissions leads finance brokers to recommend credit that is not in their clients’ interests is once more inaccurate and sensational reporting.

THAT THE RECEIPT OF COMMISSIONS LEADS FINANCE BROKERS TO RECOMMEND CREDIT THAT IS NOT IN THEIR CLIENTS’ INTERESTS IS INACCURATE AND SENSATIONAL REPORTING For Ms Irvine to call brokers ‘washing machine salespeople’ is disrespectful to the finance broking industry (and to the white goods industry) and is further evidence of the tabloid nature of her journalism. No respect is afforded to the educational and professional standards that apply to our industry brokers nor the knowledge required to make an informed assessment of a consumers’ loan application.

The FBAA has a mature and experienced member demographic with comparatively small number of complaints or regulatory member concerns, and these comments by Ms Irvine are simply insulting and uninformed.”

ANALYSIS brokernews.com.au

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The great lowdoc beat-up The media has devoted a great deal of attention to allegations of widespread lowdoc fraud, but the facts have yet to add up

L

ate last year, a maelstrom of media attention developed surrounding low-doc loans. The dust was kicked up because of allegations from a disgraced WA broker, who claimed banks had encouraged low-doc fraud.

Kate Thompson of Mortgage Miracles, herself currently charged with fraud, told ABC’s 7:30 that she was encouraged by banks to falsify clients’ earnings and assets.

“I would get upfront commission, I would get a trailing commission. I was probably earning about $5m a year. It was great. It was wonderful. But it was all a lie.

Hook me up to a lie detector test and hook them up. I'll lay my evidence on the table. They will fail a lie detector test miserably.

They are corrupt. They are protecting each other,” Thompson told the ABC. But was this just a case of Thompson deflecting blame for her own actions? Regardless, the issue managed to catch the attention of consumer advocate Denise Brailey of the Banking & Finance Consumers Support Association, who made damning accusations towards banks and implied that low-doc fraud was rife prior to the GFC. But according to Gadens Lawyers’ Jon Denovan, there’s simply no evidence of this.

“This bullshit about application forms being altered by banks and brokers – there’s very little evidence of that. ASIC has been talking to lenders, and lenders have been looking back at their files. I’ve spoken to most of the banks, and when they’re looking back on these files where issues have been raised, the files are in perfect order. It’s not uncovering anything,” he said.

FRAUD NOT FOUND

Indeed, ASIC stated in a submission to the Senate Economics References

Committee’s Inquiry into the post-GFC banking sector that it had little evidence that low-doc fraud – before or after the advent of NCCP – was common. The regulator took issue with Brailey as well, saying she had thus far failed to back up her claims with any evidence.

“ASIC has received a number of letters from members of Ms Brailey’s Banking & Finance Consumers Support Association, Inc (BFCSA), some of which raise general concerns about low-doc loans and a call for a Royal Commission, and others which raise concerns about their own loan transactions. However, these letters generally make broad allegations of misconduct and do not contain any specific evidence of the alleged misconduct. We are therefore encouraging these people to provide us with additional information and documents to assist us in assessing the matters,” the watchdog said.

Brailey, of course, refuted this, claiming she had sent numerous cases to the regulator that it has failed to pursue. She also vowed to release more evidence into the supposed low-doc “scandal” in the coming months.

But Denovan dismissed this, claiming that Brailey had yet to present concrete evidence because none exists. “That’s very telling,” Denovan said.

“It’s a pretty damning report to see ASIC saying that they asked Brailey to send in details and then the details don’t come.

They don’t come because they don’t exist.”

JON DENOVAN

Q WHERE ARE THE ARREARS? Denise Brailey has claimed widespread fraud surrounded low-doc loans prior to NCCP, but the Australian Securitisation Forum has countered that, were this true, it would show up in the form of arrears.

3.28% The amount of low-doc loans 90+ days in arrears

UNNECESSARILY WARY

But all the media attention surrounding low-docs could have the side-effect of putting some brokers off the loans. Denovan commented that brokers may fear regulatory retribution if they put customers in the facilities.

“It’s scaring brokers. And the thing is, this is the worst time for brokers to start having an attack

0.2% The proportion of total residential mortgages these loans represent

ANALYSIS

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Q DOES IT ADD UP? Brailey has claimed the AOFM is holding “tainted” securities backed by fraudulent activity totalling $57bn. The AOFM has denied this, saying the numbers don’t add up

129,000 2,000 The number of mortgages backing the RMBS transactions the AOFM supports

The estimated number of these that are low-doc loans

NO ONE HAS EVER GONE TO JAIL OR LOST THEIR LICENCE UNLESS THEY WERE CRIMS COMMITTING FRAUD – J ON DENOVAN, GADENS LAWYERS

of conservatism. This is their opportunity to help people who need assistance.”

Denovan said with credit tightening, more borrowers will be in need of low-docs, and he fears brokers may have become unnecessarily wary.

“If they’re scared by this rubbish in the papers that they can’t do a low-doc loan, or they’re going to go to jail or they’re going to lose their licence, look on the ASIC website. No one has ever gone to jail or lost their licence unless they were crims committing fraud. It’s not because they made an innocent mistake,” he said.

The Senate Inquiry itself pointed to the importance of the sector, but admonished lenders to act responsibly.

“It should be recognised that there is a role for low-doc loans in the marketplace to meet the needs of self-employed workers who would struggle to obtain finance otherwise. There are, however, greater risks for lenders and potentially for the financial system as a whole if this type of lending activity is not carried out responsibly,” the Inquiry said.

A DIFFERENT KIND OF LOW-DOC

Ultimately, Denovan has pointed out that the low-doc loans of pre-NCCP days are a thing of the past, and has urged brokers not to be nervous about recommending today’s low-doc products to borrowers.

“Low-doc is really not the right name, because most of them include more bloody documents than a prime loan with just a payslip,” he said.

And he also stressed the role of consumer accountability.

While Brailey and the consumers she represents have presented cases of large loans based on fraudulent income statements being offered to borrowers without the capacity to repay them, Denovan said consumers must bear some responsibility for signing on the dotted line in the first place.

“The reality is that when someone comes in and requests that you lend them money, they think when you agree you’re doing them a great bloody favour.

Then if they get in trouble down the line, they suddenly think you’re a crook.”

ANALYSIS brokernews.com.au

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Will new credit reporting lock out your clients?

Changes to the Privacy Act mean credit reporting in Australia is about to take a turn. But could it make the road tougher for borrowers?

F

DID YOU KNOW? Consumers with a credit card and a mortgage are 20% less of a default risk than those without a home loan.

Source: Veda

rom late last year, mooted changes to Australia’s Privacy Act finally came into effect.

With them was ushered in a new type of credit reporting.

The name, positive credit reporting, implies a turn for the better. But could it actually hurt borrowers?

Parliament’s website says comprehensive credit reporting will give credit providers access to additional personal information to assist them in establishing an individual’s credit worthiness.

“The additional personal information will allow credit providers to make a more robust assessment of credit risk and assist credit providers to meet their responsible lending obligations. It is expected that this will lead to decreased levels of over-indebtedness and lower credit default rates.”

It sounds like a good outcome, and positive credit reporting does have its fair share of advocates.

The Australian Banking Association (ABA) applauds the legislation changes, with its chief executive Steven Münchenberg saying the bill will permit comprehensive credit reporting, which brings Australia into line with other G20 countries. “We appreciated the opportunity to work closely with the federal government to achieve a workable outcome.”

Abacus Australian Mutuals CEO, Louise Petschler, agrees.

“Post-GFC, it makes sense to sit back and review how our system operates, so we can achieve the right balance between stability and competition and deliver greater consumer choice.”

RAISING AWARENESS

This new credit consciousness has been hailed by credit reporting agency Veda.

Veda CEO, Nerida Caesar, says the changes seen as a result of the new legislation will be significant.

“Based on experience overseas, we can expect to see consumer credit consciousness increase quickly as the industry starts rolling out new CR policies and products. Consumers now need to be more aware and understand that how they manage all their credit lines… will now be visible on a credit file used by lenders to help make credit risk decisions,” Caesar says.

The move does bring Australia’s credit reporting in line with other OECD countries. But privacy

advocates have expressed concern about the amount of information it makes available to financial institutions.

Schedule two of the Privacy Act amendment alters the legislation regarding credit reporting provisions, making it possible for banks, and some mortgage insurers, to access additional client credit history details by March 2014.

This schedule of the Bill implements, according to Parliament’s website, a more ‘comprehensive’ credit reporting system. Rather than just listing the number of accounts and any defaults, the new credit reporting regime will include information such as the date an account was opened and closed, the current limit of the account and detailed repayment performance history about the individual.

RAISING CONCERNS

Privacy commissioner Timothy Pilgrim says consumers need to

Q CHANGES TO CREDIT REPORTING LAWS New credit reporting laws mean more information will be available to financial institutions, including: ✔ The date the credit account was opened ✔ The type of credit account opened ✔ The date the credit account was closed ✔ The current limit of each open credit account ✔ Repayment performance history about the individual

PEOPLE WHO PAY BILLS LATE OFTEN,

BY ACCIDENT OR OTHERWISE, NEED TO BE TOLD THAT THIS HABIT COULD HAVE A DETRIMENTAL EFFECT ON THEIR ABILITY TO OBTAIN CREDIT IN THE FUTURE - G RAHAM DOESSEL, MyCRA

HEADSHOT REQUESTED

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FACT FILE Veda says consumers with accounts across multiple lenders are more likely to run into trouble than those with multiple accounts with the same lender.

For example:

=

=

The credit agency found that those with four accounts across four lenders had a delinquency rate six times higher than those with four accounts with just one lender.

IT MAKES SENSE TO SIT BACK AND REVIEW HOW OUR SYSTEM OPERATES, SO WE CAN ACHIEVE THE RIGHT BALANCE BETWEEN STABILITY AND COMPETITION - L OUISE PETSCHLER, ABACUS educate themselves or risk being tripped up by accidental defaults.

“If a person misses making a payment from as early as December 2012, it will be able to be recorded on their credit record and may affect their ability to access credit in the future.”

And not everyone is cheering.

MyCRA Credit Rating Repairs CEO Graham Doessel has warned that consumers will have to develop a new awareness regarding their credit rating.

“There will be so much more information open to lenders now, and consumers should routinely check their credit file, to ensure there are no inconsistencies, and to generally be aware of what is being said about them on their credit report,” he says.

But Doessel says it’s important to remember that, while the new laws are intended to make the process of disputing unfair or inconsistent entries easier, lack of knowledge of credit reporting legislation could still disadvantage some consumers.

“As it currently stands, disputing an unfair listing is a bit like a battle between David and Goliath, with the consumer rarely holding enough knowledge of what constitutes an unlawful credit listing to be able to remove it from their file on their own.

It will be interesting to see if this will change after the March 2014 deadline.”

Moreover, the legislation could run the risk of branding otherwise responsible borrowers with a poor rating, simply because of oversights. Doessel says many people pay their bills late, for a number of reasons, and it doesn’t necessarily mean they intend for the account to go into default. “People who pay bills late often, by accident or otherwise, need to be told that this habit could have a detrimental effect on their ability to obtain credit in the future.”

NEWS

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CONTINUED FROM PAGE 1

Productivity not a one-way street

T

his doesn’t mean that productivity and application quality are unimportant, MacRae said. On the contrary, quality yields tangible, measurable results for borrowers and brokers.

“We all get the fact that when you present a clean deal you get faster turnaround times. In fact, our studies show you save two to three days,” he said.

And, without a doubt, more productive and more efficient brokers are generally more profitable ones.

But, MacRae claimed, placing the onus entirely on brokers is unhelpful. Instead, MacRae suggested banks must also look at their own processes.

FROM THEORY TO PRACTICE

With this in mind, MacRae tipped that Westpac will launch a number of initiatives in 2013 to do its part in the drive for application quality and broker efficiency.

“We want to support brokers with the tools, the information and the resources to create great partnerships. We’re doing this in 2013 first by simplifying our processes and requirements for submissions. We’ll be implementing a new online lodgment system that will provide brokers with a real-time checklist that will relate directly to the specific application they’re submitting,” he said.

MacRae said Westpac BDMs will also be pounding the pavement to coach brokers and help explain how to get deals through the bank’s systems. In addition to this, the bank will launch a new e-learning module this year to better explain Westpac processes.

“It’s first about simplification, and then about education. Finally, when you’ve taken those two journeys, you look to hold each party accountable for the part they play in the process. We’re all in this together,” he said.

KEEPING IT SIMPLE

The simplification component of the “journey” MacRae refers to is already underway, he said. MacRae vowed that Westpac would continue to implement new procedures to drive efficiency in its own processing team.

“We’ve got a whole series of programs going within our mortgage processing centre which are all about streamlining the submission process.

We’re looking at the requirements for verification of various documents, so that there are fewer touch points and fewer hand-offs between sections of the mortgage processing centre,” he said.

And these programs are already yielding results, MacRae said. “Some of these developments have already happened, and we’ve seen in the last six months an improvement of our end-to-end turnaround times of a couple of days.”

The bank is also looking to step up its communications with brokers. While BDMs will be communicating more in 2013, MacRae said the bank also wants to engage brokers in dialogue more with its processing centre as well.

“We have our credit hotline where brokers get to talk directly to credit managers who are the decision makers, but instead of just reactively answering a question, we’re actually promoting brokers to ring us before a deal is submitted to see if it fits our requirements,” he says.

PROVIDING THE TOOLS

Another strategy for driving efficiency is technology, MacRae commented. He pointed

WE WANT TO SUPPORT BROKERS WITH THE TOOLS, THE INFORMATION AND THE RESOURCES TO CREATE GREAT PARTNERSHIPS – T ONY MACRAE

TONY MACRAE

FAST FACT Westpac intends to convert one-third of its retail branches into open-plan “Bank Now” branches over the next three years

1/3

to Westpac’s broker iPad app, and said brokers will notice improvements to the app in the New Year.

“We’re looking to extend the services of our iPad app, which will give brokers the ability to guide customers through the whole home loan journey,” he said.

Guiding customers through the process will entail more than just comparing products or collecting application information, MacRae said.

Instead, he said the app will work to increase brokers’ value proposition by helping borrowers through every aspect of the home buying journey.

“From the very beginning, when the customer begins to think about taking out a home loan, it will allow the broker to become a real adviser. It will help with all those auxiliary things, such as finding a school, finding an electrician. There are lots of things that the homebuyer either doesn’t think about or doesn’t know how to solve those issues. We want to put brokers in a stronger position to help out on that journey,” MacRae commented.

Ultimately, MacRae argued that service improvements alone will not lead to greater productivity, but that the drive for efficiency must be a partnership between broker and bank.

THE COALFACE

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A match made in Queensland Rebekah Gould, owner of Smartline’s Oxenford franchise in the sunshine state, shares her rather unusual journey into mortgage broking

R

ebekah Gould’s journey into the mortgage broking industry was a little unorthodox.

After spending 12 years writing for the local newspaper in isolated Inverell, NSW, (population 10,000), Gould was headhunted by the town’s accountant, who told her she had the “right personality” to be a mortgage broker and promised to teach her all she needed to know.

“At that time all I knew about mortgages was that I had one. I just learned as I went.”

She enjoyed the work, but was soon offered a position with a major travel company – visions of travelling to exotic locales, living out of a designer suitcase and sunbathing on golden, tropical beaches filled her head. She took it in an instant.

“I thought, ‘I’m off to travel the world’… I went half-an-hour down the road, to the airport at Gilgai.”

Gould’s “exotic” travel job involved driving to the local landing strip several times a week in order to act as receptionist/janitor/flight control officer for the airport’s single plane. Thinking about it now makes her laugh.

“My job was to turn on the lights in the terminal, turn on the coffee machine, radio the pilot to tell him which way the wind sock was blowing, take everyone’s luggage and load the plane, then watch the horizon for 20 minutes to make sure the plane didn’t explode.”

She lasted two weeks.

Now, nearly a decade on, Gould is the owner of the Oxenford Smartline franchise in Queensland. She calls herself a “matchmaker and a filter.”

“When I’m talking to clients, they tell me their stories and I put those stories into a package

REBEKAH GOULD

FOR THE CLIENTS, IT’S THE BIGGEST LOAN OF THEIR LIFE – AND I TRY TO BE EXCITED FOR THEM. MONEY IS EMOTIONAL – R EBEKAH GOULD with a bow on top. It’s life changing,” she says.

Gould consistently “underpromises and over-delivers,” something she says helps her maintain high-quality service.

“It’s important not to forget that every time I see a client, this is a big deal for them. It’s easy to think ‘I’m just getting them a loan’, but for the clients, it’s the biggest loan of their life – and I try to be excited for them. Money is emotional.”

Gould says she’s excited for 2013, having recently employed a personal assistant, which she hopes will enable her to double her business by the end of the year – and free up time for training (she won Australian Broker’s ‘Broking Hot’ competition last November).

REBEKAH’S TIPS FOR SHEDDING THOSE POST-CHRISTMAS KILOS: “Just start by walking and eating clean – just eat good food.

Don’t cut anything out of your diet, just have a little bit of it; I know my thing is that I like red wine. I never cut it out completely because then I just want it more. Don’t make it a diet, make it a lifestyle.”

7

THE WORKSHOP

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marketing and sales differentiators that work Clifton Warren explores simple ways to set your business apart from your peers’, especially in these competitive times

I

n the Australian financial services market, there are over 12,000 mortgage brokers, 2,600 insurance brokers, and 18,000 financial planners. In such a competitive market, how can you differentiate and stand out in the crowd? By becoming distinct or specialised.

With rare exceptions, most products and services will at best be competitive. To create real differentiation for yourself and your company, focus on providing fresh ideas, innovative insights, and benefits that address your customers’ concerns.

Here are seven differentiators that do work and are easy to implement.

1. RESILIENCY

There will always be occasions when things don’t work out as planned, no matter how well prepared you are.

Being able to quickly recover, admit mistakes and learn from these setbacks will be appreciated and applauded by customers, as it provides a measure of assurance that you are in it for the long haul.

2. SPEED

Many companies are winning new business simply because they are fast, reply to emails quickly, return phone calls in a timely manner, and follow up with requested information promptly.

Often their products and services are no better than the competition; they simply are able to get to the customer first.

3. PERSONALISATION

Customers are delighted when they actually get to speak to a real person or receive a personalised email reply instead of a computergenerated response or out-of-office reply. If you must use an automated response, take the time to personalise it instead of using the standard stock replies as everyone else. With a little bit of effort, you can create a personalised approach in your own style.

4. VALUE

Do you provide the same services and ideas as your competitors? Some companies are great at adapting ideas once the market demand is there, while others are continually innovating with new ideas and become market leaders. When your

WHEN YOUR CUSTOMERS RECOGNISE YOU AS AN INNOVATOR, YOU WILL BE POSITIONED AS A LEADER AND YOUR COMPETITORS WILL BE FORCED TO FOLLOW - C LIFTON WARREN

customers recognise you as an innovator, you will be positioned as a leader and your competitors will be forced to follow. This applies to products, services and ideas.

5. OPTIMISM

Research studies have shown that optimistic professionals outsell the non-optimistic; the reason is that when people are in a certain mood, be it happy or depressed, that mood is often communicated to others. What is the mood at your company? What is your staff communicating to your customers? Being optimistic is a contrarian approach to out-thinking your competition.

Regardless of what is happening in the world, there is always a different way of looking at things.

6. A REAL GUARANTEE

A Melbourne search firm provides a six-month, 100% guarantee on all searches, and I know of another firm that provides a 100% 12-month money-back guarantee. The key to developing real guarantees is to keep it simple and easy to understand without the small print.

7. COMPETENCE

Customers love competence versus jack-of-all-trades. Become a student of your industry and marketplace; learn more than just the buzzwords.

Most people do not call a handyman to fix an electrical problem – they call a specialist electrician. Your customers are more apt to look for help from an expert with relevant experience.

Forget all of the marketing hype and latest fads, and instead become 100%-focused on the problem and challenges of your market, and provide fresh ideas and insights that address their pressing issues. You will quickly stand out in the market, and will become known as the go-to person.

Clifton Warren, CMC, principal of Corporate Eye Consulting, is a marketing and sales strategist, coach and speaker who works with banking, insurance and financial services professionals.

Contact him on (03) 9808 1136 or Clifton@ corporateeye.com.au

OPINION 18

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NOT WITHOUT MY TRAIL Many brokers are afraid to switch aggregators for fear of losing their trail. Matthew Bransgrove explains that brokers may have less to fear than they think

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Matthew Bransgrove is a principal solicitor of Bransgroves Lawyers, a firm specialising in mortgage and brokerage issues.

He is co-author of the 1998 Lexis-Nexis textbook The Essential Guide to Mortgage Law in NSW

e have received an increasing number of enquiries from brokers who, wishing to leave their aggregator, are being told they cannot leave – at least not with their trail.

The aggregator market is intensely competitive and aggregators are being asked to be flexible and grant concessions and better deals to highperforming brokers. When this is rebuffed, brokers naturally wish to move on to greener pastures.

Unfortunately, some aggregators are turning nasty and making ominous threats such as “we will terminate the deed and cut off your trail, so rethink your plans”.

One wrote to a broker indicating it was fair and reasonable for remaining trail to be cut off after two years if he left, in order to “recoup costs”.

Where does a broker stand?

Fortunately, no matter how onerously an aggregation deed is drafted, the law gives brokers a veritable smorgasbord of weapons to fight back against those who wrongly believe that possession is nine-tenths of the law.

DUTY OF GOOD FAITH

A duty of good faith is implied into contracts by the NSW Court of Appeal decision in Renard Constructions (ME) Pty Ltd v Minister for Public Works. In that

THE LAW GIVES BROKERS A VERITABLE SMORGASBORD OF WEAPONS TO FIGHT BACK WITH – M ATTHEW BRANSGROVE

case the court held that a party cannot just terminate a contract for no good reason, it was implicit that termination had to be reasonable. The judge held that a contract which provided for termination upon any default would “make the contract as a matter of business quite unworkable”, and “no contractor in his senses would enter into a contract under which such a thing could happen. The reasonable contractor, reasonable principal and reasonable lookeron would all assume that such a result could not come about except with good reason.”

Thus if an aggregation deed provides for trail to be cut off upon termination by the aggregator then the right to terminate by implication could only be exercised under reasonable circumstances, such as fraud by the broker.

RELIEF AGAINST FORFEITURE The equitable relief against forfeiture applies where,

FAST FACT A NSW Court of Appeals set precedent for putting a stop to the seizure of trail

according to Lord Wilberforce in Shiloh Spinners Ltd v Harding: “The court will relieve against the forfeiture of property for breach of a provision in a contract where the primary object of the provision is to secure a stated result which can effectively be attained by suing for breach of contract, and where the forfeiture provision was added by way of security for the production of that result.”

What this means is that if the aggregator attempts to use some clause in the aggregation deed to claim that all trail is forfeited then the court will grant relief against the enforcement of that clause on the grounds that it is unconscionable in all the circumstances. The only exceptions will be gross breaches such as fraud by the broker, or breaches which cost the aggregator a large amount of money which it can only recover by seizing the trail.

THE LAW AGAINST PENALTIES

If a clause in a contract is designed to hold one party in terror of committing a breach (in terrorem) because if they do so they will be forced to pay an amount which is out of all proportion to the damage caused to the other party by their breach, it will be adjudged a penalty and therefore void.

Some of my readers may recall my report on the NSW Court of Appeal decision in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd. In that case, Interstar seized Integral’s trail. The Court of Appeal sided with Interstar saying that the doctrine regarding relief against penalties did not apply because it is limited to circumstances of breach of contract.

Thus in any circumstance where the broker loses his trail, where the loss is out of all proportion to, or unrelated to the loss suffered by the aggregator, then it is likely to be found to be void and unenforceable.

CONCLUSION

Just because the aggregation deed was drafted by the aggregator and is filled with nasty hair-trigger clauses that are designed to allow the aggregator to seize trail, does not mean the broker is in the trap and screaming – to the contrary, the bargaining position is equal, more than equal in fact. Courts will give short shrift to those who abuse their status as trustees of brokers trail by attempting to use that fact to attempt to bully.

FORUM

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19

Rather than going on the defensive over Jessica Irvine’s comments the industry should attempt to engage and educate.

But it appears, we the industry, continue to move to the fallback position of “the home loan process is complicated”, “a broker needs to be paid for his expertise” and “with the myriad of home loans out there, you need a broker”.

Consumers read these posts and I just loved the comment last year in one posting (and I quote) “home loans are pretty much the same”. So how can we criticise when we contribute to the debate with a less than wellthought out argument?

The so-called free service argument is weak in my opinion. A free service equates to ZERO COMMISSION but a far more competitively priced product, ie, rate!

Each issue, Australian Broker will publish the best online comment from the previous fortnight – along with your other feedback. So get online, and get participating!

BROKERNEWS. COM.AU

As brokers we should promote our business, our industry, as a profession and educate the wider public and commentators like Jessica Irvine. I doubt Ms Irvine has ever sat with a professional broker and considered fully the process and the service we provide. Educate her so that she understands precisely what it is that we do and quantify the value we add.

BJ on 27 Nov 2012 10:32 AM

Brokers fight back In the ongoing firestorm surrounding perceived broker bashing by News Ltd columnist Jessica Irvine, not all commenters were quite as forgiving as BJ. Paul Raad pointed to comments in Irvine’s piece from consumer watchdog Choice, and chastised Irvine for taking them seriously.

“Is this not the same mob that brought us the big flop, The Big Switch, on which they stood to earn millions in commission?

Hard to take anything reporters say seriously when they don’t even research the people they get quotes from, let alone the information they get given,” Raad said.

Meanwhile, Tony Smith took a more personal tack, questioning not only Irvine’s credibility, but her career choice.

IT’S ALL PART OF A SHOW

ASIC dealt a lifetime ban to jailed WA broker Mark Booty (Mortgage broker permanently banned by ASIC, 3/12/2012), but brokers felt it was merely chest-thumping on the part of the regulator

“Wow! She is a journalist and an economist. Now they are two really credible career choices.

She must know what she is talking about. Just ask Rupert Murdoch or Rebecca Brooks about credible reporting and trust.”

Positive Broker, though, agreed with BJ, saying brokers needed to address the public image problem implied by Irvine’s assumptions.

“I, too, am disappointed at Irvine’s comments but our best response is to get our view across in the press. The fact that the article got written in the first place tells me we have an image problem. We need to address that rather than engaging in a slanging match.”

THE FACT THAT IRVINE’S ARTICLE GOT WRITTEN IN THE FIRST PLACE TELLS ME WE HAVE AN IMAGE PROBLEM – P OSITIVE BROKER

the requirements of relevant legislation, they are both victims of crime and victims of their own stupidity. When will the government realise that you cannot save people from themselves.

AUSSIE TEAM APPLAUDED

Keith of the West on 03 Dec 2012 12:17 PM ASIC blowing their trumpet once again!.

This idiot would have been immediately banned with a loss of broker licence, well before the introduction of NCCP.

John Symond and the Aussie Home Loans team got in on the Movember spirit last year, with Symond growing his best Clark Gable moustache and raising more than $33,000. Brokers gave Aussie John a thumbs-up for his efforts.

Patrick on 03 Dec 2012 12:58 PM What did required licensing in WA and the upgrade to NCCP do to save the "investors" from losing their money? Because he was "licensed" they probably trusted him and did not check the veracity of the proposed investments. In this sense, the compliance regime gave them a false sense of security. It seems he probably did not have an AFS licence and there was probably no proper PDS and no proper SOA. If consumers do not check

JohnW on 30 Nov 2012 11:35 AM Good on ya John and team. Good publicity for a good cause Wilko on 30 Nov 2012 02:07 PM This is another example of people in the industry always looking to have a go and give something back. Well done to John and all the Aussie team.

What do you think? Leave your comments at brokernews.com.au

MARKET TALK 20

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Taking nothing for granted It seems obvious that FHBs should avail themselves of government grants, but they may be better off keeping their hands off the handout

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hen dealing with first homebuyer clients, brokers typically have the benefit of being able to point them to government grants to aid in their purchase.

But some first homebuyers might be better off foregoing the various grants on offer – for now – and making their first purchase an investment property.

This strategy could work well for young professionals and others who have the scope to earn significant incomes in the coming years but want the benefits of property ownership now, according to Smartline Personal Mortgage Advisers.

“First homebuyers are often stretched in their savings and borrowing capacity, trying to get a foot in the door of the property market while only at the beginning of their lives and careers,” says Smartline Adviser Miriam Castilla.

“The reality is, for most first homebuyers their first property isn’t their long-term home, but rather a stepping stone.

“Some aren’t even keen to move out of mum and dad’s house or their current rented property; they simply want to get into the property market.”

In these situations, purchasing an investment property the first time round, and becoming a renter-investor (someone who

rents the property they live in, but has an investment property), could be the solution.

For those looking to buy an investment property, when savings are good but borrowing capacity is tight, the first home owner grant is usually not a necessity to make the home purchase a possibility.

The allowed borrowing capacity is usually higher for investment than owner-occupier purchases, as the lender factors in the benefits of rental income plus tax deductibility of the loan in their calculations.

“Most people also don’t realise that by not claiming the first home grant when they buy a property, they’re not forfeiting it altogether,” Castilla says.

“If they do not live in the new property for a period of six or more months, they will still qualify for the first home owner grant down the track when they are ready to buy the home they do want to live in.

FOR MOST FIRST HOME BUYERS THEIR FIRST PROPERTY ISN’T THEIR LONG-TERM HOME, BUT RATHER A STEPPING STONE – M IRIAM CASTILLA, SMARTLINE

“Therefore, not claiming the grant, at least for now, can be a very smart move for those who want to make that first step into property.

“Then, as the first homebuyer advances in their career and income level, their borrowing capacity will also improve greatly, as will the ability to save a substantial deposit.

“That may then be a good time to tap into the grants on offer.”

Most common landlord complaints If your client is looking to become a landlord, they should be aware of these tenant gripes

42%

Repairs neglected

24%

24%

Rent too high Harassment

Source: Lettingref.com

TALKING HEADS

Q WHAT’S YOUR OUTLOOK FOR INTEREST RATES IN 2013?

JONATHAN STREET CEO THINK TANK

IAIN FORBES DIRECTOR AUSTRALIAN FIRST MORTGAGE

STEWART SAUNDERS NATIONAL MANAGER BROKERS, ME BANK

DARREN MOFFATT MANAGING DIRECTOR, SENIORS FIRST SPECIALIST FINANCE

“We tend to expect the official cash rate has potential to move lower in the first quarter of 2013 on the back of persisting negative domestic and global leads.”

“All indicators point to a further reduction in interest rates in 2013.”

“The market currently expects the RBA to cut the cash rate by 50 basis points by June 2013, a view with which ME Bank broadly agrees.”

“Interest rates are definitely coming down in the short to medium term – possibly between 0.5% and 1% – then perhaps increasing much later in the year.”

MARKET TALK 21

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Six hard truths of bargain properties Investment clients wanting to buy below market value may be in for a surprise 1. THE NUMBERS ARE EVERYTHING

If you want to find an undervalued property, you need to know the market, says analyst Cameron Kusher, RP Data.

By assessing the local median sale price over time you gain an insight into a suburb. Ask the following questions: • How has capital growth been?

• What is the average vendor discount?

• Does property take long to sell?

• What is the gross rental yield and median weekly rents?

2. MOTIVATED SELLERS A MUST

Finding a motivated seller is a sure way to find an undervalued property. Pay attention to the circumstances of the sale – why the property is being sold, what the seller’s circumstances are – and try to get an understanding of how motivated the seller is.

3. SETTLE FOR AN UGLY DUCKLING Remember that age-old real estate-ism about buying “the worst house on the best street?”

Property investment and finance specialist at InSynergy Jason Pitkeathly cautions investors when buying property that needs a bit of tender loving care. “These properties tend to be tired, run down and sometimes damaged.

We find purchasers often pay too much and then don’t fully factor

in the costs of repairs, renovation and holding costs,” he says.

4. NEED NEW INFRASTRUCTURE

Buying an undervalued property in a closely built-up area that is scheduled for development can increase both rental yields and capital growth through the extra level of amenity that the new development will provide.

5. AN UNSUCCESSFUL AUCTION

Properties that are passed in at auction provide an opportunity to negotiate a bargain, says buyer’s agent Chris Gray.

“An agent might over-quote a property. If no one turns up to the auction, the property is labelled as overpriced and it stays on the market for months,” he explains. “Once it’s got that label it is easier to negotiate.”

6. NEW DEVELOPMENTS ARE RIPE

Many developers do a lot of presales in the construction phase, and buyers think they will make a good profit when they sell post-construction; but if the market doesn’t move in their favour, many seek to exit the building. That creates a flood to the market that drives prices down: investors who wait and buy the first resale within this 3–10 year window can get a good buying opportunity.

SMALL END OF TOWN BIG TREND It seems cheap and cheerful is the trend in property buying.

41.2%

Properties that sold for between $200,000 and $400,000 accounted for the largest number of sales

30.4%

Sales between $400,000 and $600,000 accounted for a further 30.4%

5.4%

Only 5.4% of all house and unit sales in Australia were transacted at prices over $1m

The majority of houses sold in Australia in the year to August 2012 sold for less than $600,000, according to recent RP Data Property Pulse figures.

RP Data research analyst Cameron Kusher says that over the past year almost half of all house and unit sales in Australia were transacted at prices less than $400,000, while only 5.4% sold for more than $1m.

Throughout Australia, 48.3% of all homes sold were at prices below $400,000. However, within the combined capital cities, that number fell to 37.2%.

Kusher says sales over $1m accounted for only 5.4% of all sales compared to 7.1% of sales at prices below $200,000.

Kusher explains that the regions which have the lowest proportion of home sales below $400,000 are typically either capital city markets, coastal locations or areas linked to the mining and resources sector, most of which have much higher population bases and therefore relatively strong demand for housing.

“The good news is that across most regions, at least 30% of home sales over the past year have been at prices below $400,000, highlighting the fact that there still remains opportunities for price-­ sensitive purchasers.”

FINANCIAL SERVICES 22

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PLANNER CALLS FOR SUPER OVERHAUL

C

ertified financial planner Paul Levy has made a suggestion to the FPA and the AFA about an amendment to the superannuation law, which he says could have benefits to clients as well as the economy.

His idea is to allow people with superannuation to move their super into new bank accounts called Superannuation Offset Accounts (SOA). These accounts will still fall under all the usual SIS Act regulations and restrictions but the amount injected can be offset against the member’s mortgage.

This is vital at a time when many Australians are struggling financially as a result of the GFC, the carbon tax, mining tax, increased unemployment and increases in electricity, petrol and gas, said Levy.

Results he hoped would come out of the change included improved cash flow due to reduced interest payments and more money each week to spend on goods and services, taking the pressure off the economy.

The idea also benefits banks, said Levy, as they will have access to more money at a cheaper price that they can then on-lend to new loans.

“Some of the loans’ offset would

be investment use loans which would result in less tax deductions and therefore higher taxes paid to the ATO,” he said.

FPA general manager of policy and standards Dante De Gori said Levy’s proposal would support consumer confidence and a sense of immediate benefit from their superannuation.

“For this reason the FPA will consider your proposal, without respective policy and technical committees, as we continue our discussions with the Government…” said De Gori.

MANY AUSTRALIANS ARE STRUGGLING FINANCIALLY AS A RESULT OF THE GFC, THE CARBON TAX, MINING TAX, INCREASED UNEMPLOYMENT AND INCREASES IN ELECTRICITY, PETROL AND GAS

INSURERS DRAW DISTRUST The majority of Australians believe insurers unfairly avoid paying out after natural disasters and try to underpay when they do agree to a claim. Most people also have no idea what their policy covers.

Data released by UMR Research of 1,000 people found that when they were asked to think of home insurance, and whether insurance companies tried to unfairly avoid paying out after natural disasters, 69% agreed and 15% disagreed.

When asked if they believed that insurance companies tried to underpay when they did agree to pay out, 61% agreed and 13% disagreed.

The survey also found that 52% of respondents were not sure if their home insurance would cover them for a bushfire (as opposed to a house fire), while 49% were not sure if their homes would be covered for cyclones and tornadoes. ‘’People know more about their phone bill than their home insurance policy conditions, and they should scrutinise their policy more closely,’’ said UMR managing director John Utting.

An Insurance Council of Australia spokesman, Campbell Fuller, said the industry was aware of perceptions that it did not pay out claims, but in reality more than 98% of claims were paid out across 2011 and 2012.

DID YOU KNOW? The number of new SMSFs increased

26% in 2012 versus 84% in 2011

Source: SPAA

Social media lessons learned the hard way Online business Sellitonline has been slammed for its campaign to donate electrical generators to victims of the Tasmania bushfires for every “like” it receives.

The business has followed two others that have been criticised for similar antics – Bing Lee during the Queensland floods, and Kia for offering donations to World Vision.

The campaigns do not sit well with consumers, who don’t like being coerced into liking a page, and believe the companies are taking advantage of catastrophes.

Just Jeans learnt a security lesson when someone posted on Facebook with their company name and logo.

The hoax went on for more than 12 hours, with many people getting involved in arguments with the fake Just Jeans.

One customer was told a staff member filed a complaint against her and that she had been blacklisted from their stores. Another customer received a response of “That’s so last year”.

The page appeared to have been inactive since December, and with no one monitoring their site, the comments were allowed to go unchecked.

Michael McKinnon recommended to The Sydney Morning Herald that companies who cannot monitor their social media on a daily basis should look at ‘locking down’ their page by disabling the comment ability.

“There is no feature on Facebook to approve the comments before they are published,” said McKinnon.

OPINION 24

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I’M PROUD TO SAY WE CHANGED THE FACE OF LENDING AND WERE DRIVERS OF TRUE INNOVATION – J OHN FLAVELL

THE (R)EVOLUTION OF PRICE FOR RISK NAB Broker’s John Flavell says the bank’s gamble on prices and trails has paid off

I

John Flavell is general manager of distribution at NAB Broker

n our industry we have a bit of a fixation with market share – often people only talk about volume. From a lender’s perspective, while we are focused on growing our market share, as in any industry, there needs to be a focus on profitability as well.

Three years ago in October 2009, we looked at the market and what was on offer. We wanted to grow our market share while maintaining our focus on the profitability and quality of the business we were writing.

Back then, differentiated pricing was based on loan size, assuming a “bigger is better” approach. That approach works in terms of growing volume, but we wanted to do more.

From a balance sheet perspective, the lower the risk in a loan (ie higher quality), the less capital you have to hold. We saw a real opportunity – that if we could offer a solution differentiating price based on risk; that would be

a strong and unique proposition for lower risk borrowers. And having a broker-exclusive brand in Homeside enabled us to give brokers a competitive advantage – a big win for the broking fraternity and the broker channel’s market share.

The next challenge was to develop a model that enabled us to effectively differentiate based on risk – there’s no point in taking an application and saying, ‘we’ll get back to you with a price’. We wanted to be able to offer a competitive risk-based price, pre-application. When we thought about how we could quickly identify a borrower’s risk profile, we agreed that we would use LVR as proxy for risk. This would enable a broker to say on the spot to a borrower, ‘you’re lower risk, so I can offer you a better price’.

We did the numbers before introducing Homeside Price for Risk into the marketplace to understand the impact to the

business with a range of different LVRs and how much equity we had to hold. We quickly realised there was genuinely something in it.

When we launched Homeside Price for Risk to the industry, the response was overwhelmingly positive. Brokers benefited by having a proposition that their customers couldn’t get elsewhere, and customers voted with their feet. It really helped Homeside grow our market share enormously over a short period of time. We secured a disproportionate amount of lower LVR lending, which simplified the underwriting process for a larger proportion of our loans.

This enabled us to build real efficiencies and scale in our processing environment – efficiencies we can now deliver to the entire market.

Since then, the assumptions we made about the quality of the business we’d be attracting, in terms of arrears, impairment, write offs etc, has been spot on.

We have skinnier net interest margins, but also we can now hold smaller amounts of equity.

Overall, price for risk is a great proposition for both brokers and the bank.

Homeside owned the price for risk space for about 18 months after it was launched. Since then some of our competitors have sought to replicate the offering.

This is a testament to how much sense it makes for all parties. I’m

OPINION

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proud to say that we changed the face of lending and were drivers of true innovation. Risk-based pricing has continued to deliver great commercial results for the bank, as well as to brokers and their customers.

THE FUTURE OF INNOVATION

The principle of innovation is something we carry with us in everything we do at NAB Broker.

We look at our business with a long term view – we look for opportunities to deliver favourable outcomes to customers, brokers and for the organisation. Innovation enables this. Leading the rest of the market with price for risk was a clear example.

Innovation also underpinned our approach to ramped trail commission – an offering that increases in value over time.

Sharing margin where we make margin through paying brokers a ramped trail works for us and increases profitability for the broker’s business as well.

Remunerating brokers for nurturing customer relationships delivers a valuable proposition to the customer at the same time.

Once again, all stakeholders benefit. Other lenders would appear to now see the potential for ramped trail, and have sought to replicate in part the

25

proposition we delivered to the market five years ago.

Our approach to valuations has been another innovation.

Enabling brokers to order up-front valuations delivers a greater degree of surety to the broker, customer and lender prior to lodging the application.

At this point in time, a lot of industries would see technology as being the major means of innovation. We certainly want to automate as many of our processes as is possible, but mortgages by their nature are complex. The process can only be automated to a certain extent, and then it’s people that make the difference. Where we have sought to differentiate ourselves here has been through bringing people back into the process. In place of sending out system generated responses, we’re picking up the telephone and having a conversation with brokers, which has made a very positive impact on the overall experience for brokers and their customers.

WHERE TO FOR PRICING?

Some people have asked me how price for risk might evolve in the future. The change in this area I think will come from positive credit reporting. I can say that, just as we led the market with

I CAN SAY THAT, JUST AS WE LED THE MARKET WITH RISK-BASED PRICING USING LVR, WE INTEND TO LEAD THE MARKET IN THE AREA OF POSITIVE CREDIT REPORTING

YIELDING DIVIDENDS NAB saw its ranking and overall score in MPA’s Brokers on Banks survey increase by more than any other lender, and John Flavell said the result vindicated the bank’s strategy.

“To us, it clearly demonstrates that spending time with brokers to understand what’s important to them and where we could improve and importantly, spending time, energy and effort acting on this information is the right approach, and where we will continue to place our efforts,” he said.

SATISFACTION (MOSTLY) GUARANTEED Over the past 12 months, three of the four major banks have seen their customer satisfaction scores rise, with NAB leading the charge NAB

 3.2% CBA

 2.6% Westpac

 0.8% ANZ

 1.9% Source: Roy Morgan

risk-based pricing using LVR, we intend to lead the market in the area of positive credit reporting.

This creates an opportunity for the market to innovate once again for the benefit of customers, brokers and lenders.

I think people get carried away with the rate of the day, chasing the best price out there, but the opportunity for brokers exists to talk to customers about finding the solution that can meet all their needs over the expected life of the loan, not just the best price – this includes being flexible, providing other benefits, and how well positioned the lender is to continue to be able to provide a competitive product and price.

I believe the strength of an organisation to obtain funding and to do so at low margins will become increasingly important.

Customers are going to want to be with a lender at the forefront of funding, who can easily access that funding.

NAB Broker takes a long term view of the broking industry. In order for the industry to continue to flourish, we need to have a proposition that meets the interests of all stakeholders now, but that is also sustainable for the future. We need to be responsible with our lending, and provide consumers with solutions that represent fair value. We need to understand the drivers of our broker business partners, and assist them in growing valuable and viable businesses, and we need to meet the needs of our shareholders. In order to do this, we’ll continue to focus on innovation and sustainability and by doing this we feel confident that we will increase the strength of the broker proposition in the market for a long time to come.

CASE STUDY 26

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A new look

Some brokers are undergoing a makeover as property investment advisers, with Look Property playing an important role in their business

M

ortgage broker Nicholas Don of Odyssey Financial Group had been providing general advice to clients on buying investment property for 20 years.

However, it wasn’t until two years ago that Don took the leap of developing a fully-fledged investment property business, running alongside his traditional mortgage broking strength.

“Clients wanted more input from me, and instead of referring them off to a third party, where I didn’t have any control, I decided to get a licence and take an active advice approach.”

THE RIGHT ADVICE

From a standing start over two years ago, Don has managed to build a thriving property advice practice alongside broking, at a time when the local market has been lacklustre.

“Property sales would represent about 30–40% of total turnover now,” Don says. “So it is really providing a very large chunk of our revenue.”

Don says this has helped him – and other brokers – overcome cuts to commissions.

“Sometimes for smaller brokers, it’s becoming necessary to look at diversification,” he says.

Enter property aggregation and marketing firm Look Property. With a stable of properties primarily located in Melbourne, Look promotes property for property developers.

“Look has been one of my

providers,” says Don. “They provide access to a number of different developments, and I have sold a number – they have proved to be very good.”

SOMETHING FOR EVERYONE?

Don says moving into property advice may not be for every mortgage broker.

“Having a good administration team behind our business is important – a one-man-band would probably pull their hair out coping with all of that.”

However, for the right business it makes sense. Don has in fact managed to develop his own advice business into one that services other mortgage brokers in Melbourne.

“I assist smaller brokers integrate this into their business under a secondary brand of mine.

They get the loan organised for the client, and then I meet with the client with the property hat on, do a financial plan and cash flow analysis, and depending on the property type, location and price, I may end up providing a property from Look.”

PROVIDE AND CONQUER

Bryce Patterson of Look Property, which is in the process of ramping up its promotion activity to make brokers aware of its properties and the opportunity to gain more income, says that diversification into property investment service is a ring-fence for the client.

“It’s just a better class of proposition – you are helping the

A QUICK LOOK AT LOOK

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experience with expertise in residential project sales, and partake in regular training to ensure the best results and service.

 LOOK Property’s experience and service to

developers extends to project sales, property management, investment sales, and finance solutions.

 LOOK has contributed towards the success of

iconic developments across Melbourne, and plans and implements strategies to smooth the selling, settling and leasing.

client out a bit more, and you are providing a level of service to that client that others don’t,” Patterson says.

He says by providing that extra service – and charge a fee for it as well – means that brokers are getting much more out of the sale than just the loan commission.

Look Property currently has a list of 50 active brokers, financial planners and accountants that recommend its properties. “What you’ll find is that the top brokers are really getting into it,” Patterson says.

DIVERSIFICATION DRIVE

IT’S JUST A BETTER CLASS OF PROPOSITION – YOU ARE HELPING THE CLIENT OUT A BIT MORE, AND YOU ARE PROVIDING A LEVEL OF SERVICE TO THAT CLIENT THAT OTHERS DON’T BRYCE PATTERSON

Don expects that his diversification drive will not stop there. Having integrated property investment advice over two years ago, he is also looking at other options.

“In the last six months or so I’ve integrated financial planning into the business,” he says.

His drive? Being able to assist clients build towards financial independence and wealth creation. “Especially the ones who thought wealth was reserved for the lucky ones.”

SPOTLIGHT

brokernews.com.au

ONE YEAR ON What a difference a year makes … or not. Australian Broker reflects on the news that made headlines 12 months ago Australian Broker Issue 9.01

MFAA review pits ING Direct against Mortgage Choice The ACCC last year set out to review third line enforcement notifications requiring brokers to be members of the MFAA. The notifications were filed by Aussie Home Loans, Mortgage Choice, Virgin Money and ING Direct. While Mortgage Choice stood by its requirement for brokers to belong to the MFAA, ING Direct said it merely required that brokers took on AML training for accreditation.

What’s happened since?

The enforcement notifications drew ire from the industry, prompting a flood of comments on the Australian BrokerNews website. While brokers put forth a variety of reasons that the notifications were anti-competitive, the ACCC ended up siding with the existing requirements.

Banks set out to divorce RBA Following the second consecutive rate cut from the RBA, lenders hesitantly followed suit after a number of days, passing on the Reserve’s full 25bp decrease. But in issuing the cuts, banks also delivered a caveat. ANZ chief executive Philip Chronican said economic pressures in Europe and high funding costs meant the full rate cut gravy train was set to end.

What’s happened since?

True to their word, banks have now gotten in the habit of passing on partial cuts. In spite of being verbally browbeaten by Treasurer Wayne Swan, lenders have reacted to the RBA’s continuing loosening cycle by routinely handing out around 20bps to their borrowers. Full rate cuts – once the norm – have now become somewhat of a novelty.

27

Refund model make-over Refund Home Loans may be gone, but the model lives on

R

efund model mortgage broking may be experiencing something of a revival, with Naked Mortgages serving as one of a handful of firms offering to pass commissions over to clients – but is the model actually viable?

In an exclusive interview with Australian Broker, Naked Mortgages’ CEO, Mathew Graham, says his business model is a far cry from that of defunct aggregator Refund Home Loans.

“Naked Mortgages is online; Refund was never online. Refund was a franchise; Naked Mortgage is not a franchise. We charge a fee for service; Refund didn’t. Key to this is that we offer 100% of the upfront commission – Refund didn’t.”

Graham says brokers don’t set the commissions, lenders do and they’re based on what lenders think is fair value for the business the brokers bring to them.

“We just happen to have built an online platform and a strategy… which maximises our potential to drive value to our clients and also do that at the right cost. There happens to be some left over and we give that back to our client.”

However, FrontRunner Consulting’s Doug Mathlin says that, while refund models will likely occupy “fringe” space in the market, they’re not likely to take over any time soon.

There are plenty of brokers in the industry, Mathlin argues, who, on top of not refunding commissions, actually charge a fee for their services – and clients are happy to pay.

“The key would be to provide enough value for your client who wants to borrow money… so that they feel that they’re getting more than they actually paid.”

Furthermore, Mathlin questions the financial viability of the refund model.

“The cost of doing business as a mortgage broker has gone up a lot in the past few years… commissions have come down. The margin that a broker has to play with is actually pretty small.”

But Graham says his business model is “streamlined” and efficient.

“Our business model may be different, but it’s still got a place in the industry.”

PEOPLE

brokernews.com.au

28

WRITING MORE THAN LOANS

MOVERS & SHAKERS ■ MCWILLIAM REFUND ROLE

PAYS DIVIDENDS

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t’s rare that a broker can say they wrote the book on finance, but in the case of Bulelwa Freer of African Elegance, she can claim the title quite literally.

Freer says she sees mortgage broking as an opportunity to help clients build wealth rather than debt, and argues that many people have an uncomfortable relationship with money. She hopes to see that change with the release of her book, Romancing Your Money.

“At the start of last year, I decided to write a book because I’m passionate about self development and education, and I wanted to share from the ideas I’d learned,” she says.

In light of the insight she’d gained from her own study into finances and money management, Freer says she wanted to share her knowledge with her clients.

“If you can help people have a better relationship with money, then I think you’re serving your clients even better,” Freer says.

Taking on the role of a finance guru is a far cry from what Freer was doing before she entered the mortgage industry in 2002.

“Before I entered mortgage broking I was working for South African Tourism in marketing.

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Mortgage broking was not an easy field to break into, but that’s been a blessing in many ways. Being from a different cultural background and looking at the face of Australia at the time, [Africans] were hardly there. We were invisible.”

Pathways for progress Heritage Bank has teamed up with the University of Southern Queensland to provide its staff with the opportunity to take on university studies through a program that recognises the bank’s in-house training programs and staff’s specialist experience.

The Pathways Program will allow staff to take one undergrad and post-graduate courses offered by USQ’s Faculty of Business and Law. The program allows staff who complete a Cert Q Vice IV to claim up to six course credits towards John Minz and US n Thomas Ja r llo ce an Ch a Bachelor of Business, while those with a Diploma can claim up to eight course credits, the equivalent of a full 12 months of study.

Heritage CEO John Minz praised the partnership with USQ. “The Pathways Program an excellent way for staff members to enhance their skills and add to their qualifications. We are proud that we are able to offer this kind of benefit that very few other organisations make available,” he said.

Homeloans’ Scott McWilliam steps into the role of CEO with the company this year, moving up from his previous role as COO. Former chief executive and executive chairman, Tim Holmes, will step back into the role of non-executive chairman of the company.

McWilliam has been with the Homeloans business since 2003, with Holmes saying that he had impressed the company’s directors with his leadership qualities since being appointed COO. “He has a thorough understanding of our business and has played a vital role in developing growth strategies and promoting the brand across numerous channels,” Holmes said.

“Indeed, he was a fundamental part of the Refund Home Loans acquisition.”

■ MFAA BOOSTS BOARD WITH EXPERIENCE

The MFAA recently appointed four mortgage and finance industry veterans to its national board.

The new members are Darren McLeod, head of third party at Firstmac in Brisbane, Marco Meloni, principal of Choice Home Loans in Leederville WA, Cynthia Grisbrook, principal of DLV Finance Solutions in Melbourne, and Tim Brown, CEO of Vow Financial.

The new board members replace Mortgage Ezy’s Garry Driscoll, chair of the association’s National Mortgage Management Committee, Barry Elmslie, Western Australia state president, Barrie Henman, Victoria state president and Brad Wood, chair of the National Brokers Committee.

MFAA president Martin Leedham says many of the new members have key positions in state boards.

“It is important we have a very strong board as we, as an industry, deal with a number of significant regulatory and market challenges to the mortgage and finance sector over the next few years,” says Leedham.

CAUGHT ON CAMERA 29

brokernews.com.au brokernews.com.au

IN FOCUS

N

MB recently treated its top 11 brokers to a Gold Coast event to recognise their achievements for the year. The company launched its 1st XI Ring Award at its national conference last year, rewarding its top performers with handcrafted rings made by the same company that provides the Super Bowl, World Series and NCAA College Championship rings.

View more photos from this event at brokernews.com.au/industry-events

INSIDER

brokernews.com.au

30

TROUBLED WATERS Real estate agent Matt Smith was asked to relay his most memorable home sale for 2012. Here’s the story he gave News.com.au: “Vendors of mine purchased a stunning home in Hawthorn. It had spectacular grounds and a meandering creek on the rear boundary.

They relished their new manicured gardens, and their beautiful children joyfully passed time catching tadpoles in the creek.

In the heat of February, a couple of months after the family arrived at their new home, a neighbour knocked on the door concerned about the flowing creek. In decades past the creek never flowed in summer.

With no local knowledge, the new vendor had given no thought to the flowing creek.

As they all stood on the bridge which crossed the creek trying to figure it out, they noticed the mains water had burst at the junction point to the property. The vendor received a $17,000 water bill for the quarter.”

GREENER PASTURES

T

he average Australian’s mortgage runs at about $347,500. Just in case you were wondering – here’s what that amount buys you in other parts of the world: • TUSCANY, ITALY A$337,435 buys you a fullyrestored five-bedroom villa, complete with terrace and cellar, terracotta floors, and vaulted ceilings – and is 45 minute’s drive from the nearest ski resort.

• SEVRES, OUTSIDE PARIS A mere A$277,391 gets you a three-bedroom restored 18th century farmhouse with its own lake, private wooded parkland, granite features and woodburning stoves.

• NELSON, NEW ZEALAND Less than A$396,000 could see

you owning a four-bedroom home overlooking the Tasman sea – right above your threecar garage, in the heart of kiwi wine country.

• JIMBARAN BAY, BALI A fully-furnished three-storey villa could be yours (for 25 years, at least, under lease conditions) for A$348,000. This includes views of Jimbaran Bay, a 50-metre green natural stone pool, gazebo, tropical garden, home theatre – and a spare room for the maid.

• TOKYO, JAPAN In case you were starting to feel sorry for yourself, the same amount buys you a paltry 32.25m2 apartment in Shibuyaku, Tokyo, built in 1974 – not including hefty annual maintenance fees.

AND FOR THE RECORD A$347,500 ALSO BUYS YOU… 34 first-class flights to London on Christmas Eve 1¼ bottles of the world’s most expensive champagne (Shipwrecked 1907 Heidsieck)

115 Tibetan Mastiffs (the world’s most expensive dog breed) And precisely 105 of the world’s most expensive ice-cream sundaes – which consist of a banana split made with syrups from three rare dessert wines, served with an ice-cream spoon from the 1850s. If you give the Californian ice-cream shop that serves the creations a day’s notice, they’ll even procure a cellist to play for you while you eat these delectable treats.

THEIR BEAUTIFUL CHILDREN JOYFULLY PASSED TIME CATCHING TADPOLES IN THE CREEK

MESSAGE IN A [WHISKY] BOTTLE The International Labour Organisation estimates that, globally, 3–5% of the average workforce are alcohol dependent and up to 25% drink heavily enough to be at risk of dependence – but it’s not all bad news for those of us who like a stiff drink now and again.

A bottle of whisky has saved the sight of a New Zealand man who went blind after a couple of vodkas.

Denis Duthie, 65, suddenly went blind when vodka he had been drinking reacted with his diabetes medication.

Duthie, a catering tutor at a local technical college, had been celebrating his parents’ 50th wedding anniversary by having a few vodkas from a bottle his students had given him as a present, local papers reported. When he walked into a bedroom in his home, everything suddenly went black.

Duthie was rushed to the hospital, where doctors thought he might have formaldehyde poisoning, which is associated with ingesting methanol and can be treated by administering ethanol – the type of alcohol found in alcoholic beverages.

There wasn’t enough medical ethanol available in the hospital, so the registrar nipped down to the local bottle shop and picked up a bottle of whisky – Johnnie Walker Black Label, in case you were wondering.

Duthie says doctors dripped the whisky into his stomach through a tube and hoped for the best.

“I woke up five days later and I could see as soon as I could open my eyes.”

For the record, mortgage brokers and other finance industry workers are on the lower end of the spectrum for alcohol dependency, while bartenders and barbers top the list.

DIRECTORY brokernews.com.au

AGGREGATOR / WHOLESALE BROKER Ballast Finance www.ballast.com.au 1300 270 942 Page 17 Choice Home Loans 1800 188 288 www.choicehomeloans.com.au Page 5

LENDER Liberty Financial 13 11 33 www.liberty.com.au Page 3 National Australia Bank www.nabbroker.com.au Page 7 NCF Financial Services Pty Ltd. 1300 550 707 www.ncf1.com.au Page 6 Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 9

31

Versara 1300 CAVEAT (228 328) www.versara.com.au Page 4

Quantum Credit 1300 135 212 www.quantumcredit.com.au Page 13

NON BANK LENDER

Rapid Capital 07 5562 2485 www.rapidcapital.com.au Page 8

Rent4Keeps 1300 76 30 20 www.rent4keeps.com.au Page 21

REAL ESTATE Look Property Group Residential Project Sales & Marketing 03 9827 8288 www.lookpropertygroup.com.au Page 11

SHORT TERM LENDER Interim Finance 02 9982 2222 www.interimfinance.com.au Page 2 Mango Credit 02 9555 7073 www.mangocredit.com.au Page 1

TECHNOLOGY PROVIDER Stargate Group 1300 723 613 www.stargategroup.com.au Page 15

WHOLESALE Resimac 1300 764 447 www.resimac.com.au Page 32

OTHER SERVICES Trailerhomes 0417 392 132 Page 27

To advertise in Australian Broker call Simon Kerslake on 02 8437 4786