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JULY 2013 ISSUE 10.13
+INSIDE + NEWS
AFM:
The more things change … After 10 years in business, AFM director Iain Forbes says the market has changed but the company has stayed the course
T
en years has seen a lot of changes in the mortgage industry. From an environment with no real regulation and strong demand, to an industry still coming to grips with tight controls and a new normal for credit growth, the founders and directors of Australian First Mortgage have navigated one of the most tumultuous periods in lending. FULL STORY PAGE 14
A look at what’s been making headlines P4
+ ANALYSIS BROKERS ON AGGREGATORS
A breakdown of the results from this year’s MPA survey P10
WINDS OF CHANGE
QBE’s comprehensive look at the state of the mortgage market P12
+ TOOLKIT FAILING FOR SUCCESS
The lessons we learn from examining failure P16
+ OPINION YIELDS MERGING
RP Data’s Craig Mackenzie gives investors some food for thought P18
+ CAUGHT ON CAMERA PEPPER SPICES THINGS UP The specialist lender takes its show on the road P29
NEWS
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2
WHAT THEY SAID...
NUMBER CRUNCHING BIG AUSTRALIA Speed of annual population growth around Australia NT 1.8% WA 3.5% SA AUS 0.9 % 1.8% VIC 1.8%
TAS 0.1%
STEVE MUNCHENBERG
NSW 1.2% ACT 2.3%
Source: RP Data
DID YOU KNOW?
24% of homeowners are considering refinancing Source: Mortgage Choice
ARREARS UP A BIT The Fitch Dinkum Index
“A common cause of financial abuse is where an adult child has a false sense of entitlement to their parents’ money or property” P6
QLD 2.0 %
36%
FAST FACT
$71m* *The big four’s combined profits are up to $71m per day Source: Bank for International Settlements
of those looking into refinancing, 36% have had their home loan for four years or less
30+ days Low-Doc (prime & non-cont) 30+ days Prime (low-doc only) 30+ days Prime (full-doc & low-doc)
KYM DALTON
“Failure is always and always should be, an option” P16
JOHN DICKINSON
“In many cases loan shortfalls can be dealt with using effective debt negotiation” P17
8% 7% 6% 5% 4% 3% 2% 1% 0% Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec 04 05 05 05 06 06 06 07 07 07 08 08 08 09 09 09 10 10 10 11 11 11 12 12 12 Source: Fitch
CRAIG MACKENZIE
“It ought to be expected that rental yields will continue to improve over the coming months” P18
NEWS 4
brokernews.com.au brokernews.com.au
Brokers’ likeliness to leave aggregators revealed ■ What percentage of the broker population do
you believe would like to change aggregator? Are you among them? We asked brokers to say how likely they are to change aggregators in the next 12 months – and you may be surprised by the survey results. According to Australian Broker sister publication MPA’s 2013 Brokers on Aggregators survey, only 8% of respondents considered themselves ‘extremely likely’ to change aggregator in the next 12 months, while 68% of respondents said that they were ‘extremely unlikely’ to do so. The question asked of brokers who took part in the survey was ‘how likely are you to change aggregators in the next 12 months on a scale of one (extremely unlikely) to five (extremely likely)’ and the average score for all responses was a low 1.75.
THE PERCENTAGE BREAKDOWN FOR ALL SCORES Percentage of brokers likely to switch aggregators in the next 12 months
68%
11% 8%
8%
Source: MPA
EXTREMELY LIKELY
LIKELY
MAYBE
UNLIKELY
EXTREMELY UNLIKELY
5%
EDITOR Adam Smith
ASIC CLARIFIES LITIGATION POSITION
PUBLISHER SIMON KERSLAKE
■ ASIC has released two new information sheets
describing the factors considered when deciding whether or not to become involved in private litigation. Information Sheet 180, ASIC’s approach to involvement in private court proceedings, outlines the regulator’s approach when deciding whether to become involved in private proceedings. This includes intervening as a party, or applying to appear as amicus curiae or ‘friend of the court’. ASIC says decisions on whether to intervene are made consistently along with decisions on whether to take enforcement action and are based on: • importance and impact of the matter from the perspective of strategic regulatory significance; • cost versus regulatory benefit, and • available alternatives to intervention ASIC Commissioner Greg Tanzer said the regulator doesn’t “lightly intervene” in matters that are about personal legal rights and remedies. “But we will consider how best to act where there is a broader regulatory benefit that may be achieved through ASIC involvement.”
JOURNALIST Mackenzie McCarty PRODUCTION EDITORS Rosyln Meredith, Moira Daniels ART & PRODUCTION SENIOR DESIGNER Rebecca Downing DESIGNER Ginni Leonard SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Anna Farah TRAFFIC MANAGER Abby Cayanan 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 Adam Smith tel: +61 2 8437 4792 adam.smith@keymedia.com.au Advertising sales Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au
Big four the most profitable banks in the world ■ Australia’s big four banks have
been ranked most profitable in the world for the third year running, according to Bank for International Settlements (BIS) data. Last year, the major lenders made better returns than banks in 10 other developed nations, including the US, Britain and Europe – and total profits this year are expected to exceed $26bn. BIS says pre-tax profits for the majors were equal to 1.18% of their total assets, putting Australian banks ahead of other wealthy countries on the list. According to News Ltd, only lenders in the emerging economies of Brazil, Russia, India and China are making better returns.
COPY & FEATURES
DID YOU KNOW?
$76k
The approximate per capita net wealth of Australian’s Source: ABS
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, 1–9 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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WORLD NEWS
KOLENDA LAUNCHES LENDING INDEX ■ Independent broker network 1300HomeLoan has launched Australia’s first
UNITED STATES OF AMERICA
free online home loan index – The Australian Lenders’ Index – which managing director, John Kolenda, believes will be as useful to brokers as it will be to their clients. “If you look at the way home loans are currently assessed, the only measure is really what interest rate is on offer,” said Kolenda. “Now, that only gives you a very small insight into that lender and the product. The Australian Lenders’ Index provides you with information on interest rate fluctuation, how quickly [lenders] drop interest rates when the RBA moves, how quickly they raise interest rates, etc… it’s providing a lot more granular detail.” However, while the site is aimed partly at the consumer, Kolenda hopes it will be just as useful for brokers themselves. “The broker can access the current information, like a consumer, on the site, but they can also subscribe and that will provide them additional information which will support them when they’re engaging in dialogue with their customers. It will be a very powerful resource tool for both consumers and mortgage brokers.”
STOP POINTING THE FINGER AT BROKERS
Brokers in the US are tired of acting as scapegoats for the financial meltdown and shoddy lending practices, an industry leader has said. National Association of Independent Housing Professionals (NAIHP) president Marc Savitt has said that brokers remain under scrutiny and increasingly tight regulation, while unfairly getting the blame for much of America’s housing crisis. “When it all happened, when everything came crashing down, some of the big guys decided they would find the scapegoat and go after the little guys that they deemed couldn’t defend themselves,” Savitt said. He urged those in and outside the industry to consider that mortgage brokers did not and still do not create loan products, determine the automated underwriting systems used to approve borrowers, underwrite the loan or approve borrowers for the loans. “It’s called the Dodd-Frank Wall Street Reform and Consumer Protection Act,” Savitt said. “It’s not called The Dodd Frank Mortgage Broker Act.”
HOUSING MARKET HITS ‘AWKWARD TEENAGER’ PHASE
The US housing market made it to 61% “back to normal” in May, according to the latest housing barometer from Trulia. May’s percentage is the first time the recovery has passed 60% since the crash. April’s barometer was 54% and a year ago, the barometer was at only 35%. “The recovery has reached full-fledged teenager status, with awkward, sudden growth spurts and parents – the Fed – who now threaten to take away its allowance by winding down measures that pushed mortgage rates down to historic lows,” said Jed Kolko, chief economist at Trulia. “Before long, the recovery should make it into adulthood, but it will face some grownup challenges in the next couple of years: still-tight mortgage credit for many borrowers, a slow jobs recovery for young adults, and unaffordable housing in large coastal markets.”
CANADA CANADIAN BROKER PROPOSES CLIENT LOYALTY FEE
Brokers in Australia have long debated the idea of fee for service, with some suggesting a “no-go” fee as a compromise. One Canadian broker tired of doing all the work and watching the client jump ship to a big bank is echoing many of his Aussie cousins’ sentiments. “How can we get clients to show loyalty?” asked Jim Black, principal broker for Dominion Lending Centres Mortgage Excellence in Lethbridge, Alberta. “We don’t get paid until the deal is done. I’d estimate that for $100m of committed deals we’ve done, we’ve had another $30m–35m committed that didn’t close and have gone to the bank.” Black – who is frustrated by clients who use his services for free only as a means to gain leverage with the banks for a better mortgage rate – is considering having clients sign a broker agreement, an agreement that would recognise and reimburse the broker for all of this work.
DID YOU KNOW?
17 years
Customer satisfaction with the major banks hit a 17-year high in May Source: Roy Morgan
Are brokers enabling financial abusers? ■ Brokers could be
unintentionally enabling the perpetrators of financial abuse, say Acuity Funding managing director, Ranjit Thambyrajah and Australian Bankers’ Association (ABA) CEO, Steven Münchenberg. Studies suggest that approximately 3–7% of people over the age of 65 will experience abuse from someone with whom they have a relationship of trust, with financial abuse identified as the fastest growing type. “Unfortunately,” said Münchenberg, “a common cause of financial abuse is where an adult child has a false sense of entitlement to their parents’ money or property… On reverse mortgages specifically, we understand that, since the GFC, the supply-chain for these products has been reduced to the point where very few providers remain active.” Acuity Funding is one broking group which refuses to offer reverse mortgages, which Thambyrajah said can be “particularly tricky” when it comes to clients taking financial
BROKERS HAVE TO CONSIDER THE END BORROWER WHEN ASSESSING OR SUBMITTING A LOAN TO A LENDER - R ANJIT THAMBYRAJAH
advantage of vulnerable individuals. “Brokers have to consider the end borrower when assessing or submitting a loan to a lender.” However, while Thambyrajah believes legislation must be developed to protect vulnerable individuals from financial abuse, he said law-makers need to be sure to keep the regulations workable for both brokers and borrowers. “As with any form of legislation, there needs to be care given to ensure that the legislation is not too punitive and unworkable. It is also important that current and future legislation only protects those who really need protection and not those who wish to avoid their financial responsibilities when they default on their financial obligations.”
NEWS
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Broker faces imprisonment following 10 charges
AGGREGATOR TEAMS UP WITH GLOBAL CONVEYANCER ■ Aggregator Port Group has announced a market-leading referring partnership
with conveyancing group Slater & Gordon Lawyers. Port Group GM, Voula Kotsiras, said the deal is possibly the first of its kind in Australia and was designed to explore “the mutual benefits of working more closely” with the finance and real estate industries. “It is exciting. I suppose it’s a bit out of the box and we don’t really know where it’s going to go, but I think adding in another line of business to our aggregation group will be great.” Kotsiras said it is easy for brokers to limit their referral relationships to financial planners and accountants, but says it may be time to start thinking outside the square. “You’ve got accountants that align with mortgage brokers, you’ve got financial planners that align with mortgage brokers – and conveyancers are the other arm that clients need. It’s a natural attrition, which is fantastic. “It’s just thinking a little bit outside the square and having the courage to say, ‘yes, I’m going to partner with someone’. It doesn’t need to be the traditional accounting or financial planning firm, it can be pretty much any professional organisation you can work with and entrench yourself into as part of their process. That’s what Port Group is trying to do with Slater & Gordon and I think the results could potentially be quite lucrative for both.”
■ A former NSW-based mortgage broker has
pleaded guilty to 10 charges of providing false loan applications to lenders over a six-month period to secure approvals for home loans totalling almost $3.8m. Moustafa Dandachli, also known as Muzi Dandachli, 31, of Georges Hall, supplied the applications to two banks between July 2011 and January 2012. The applications, for 10 people, included loans ranging from $196,000 to $640,000. Documents included employment history, tax returns and bank statements.
DID YOU KNOW?
LMI claims remain steady ■ LMI claims as a result of
mortgage default have stabilised following a post-GFC increase and fears of a forthcoming economic slowdown in Australia. QBE LMI CEO Jenny Boddington told media at the launch of the company’s annual Mortgage Barometer report that most claims were the result of “life events”. “A loan will go to claim usually because of life events, such as divorce or death,” she said. “A couple of years ago, we did see default rates increase because of
a slowdown in tourism and hospitality especially. We’re not seeing that getting worse – the trend remains constant.”
69%
of first homebuyers worry that they will never be able to afford their own home Source: ABE LMI Mortgage Barometer
A LOAN WILL GO TO CLAIM USUALLY BECAUSE OF LIFE EVENTS - J ENNY BODDINGTON
DANDACHLI FACES A MAXIMUM PENALTY OF TWO YEARS IMPRISONMENT, A FINE OF UP TO $11,000, OR BOTH Dandachli appeared before Sydney’s Downing Centre Local Court and admitted to providing the documents knowing they were false or misleading. He faces a maximum penalty of two years imprisonment, a fine of up to $11,000, or both, for each charge and will be sentenced at a later date. Dandachli was charged by ASIC under section 33 of the NCCP Act 2009 while he was engaging in credit activity on behalf of his employer. Section 33 makes it an offence for a person engaging in credit activities to give false or misleading information or documents to another person where that person knows, or is reckless as to whether such information or documents are false or misleading.
$196,000 JENNY BODDINGTON
$3,800,000
ANALYSIS 10
brokernews.com.au
Delivering what they promise? Aggregators are working harder than ever to attract and retain quality brokers, but how good a job are they doing?
A
ggregators. Some brokers consider them little more than a necessary evil, while others consider theirs to be valued business partners. Some brokers want a high level of support from their aggregators, while others want theirs to fade into the background. Australian Broker’s sister publication, MPA, recently polled brokers on the service aggregators were delivering. Here’s a look at how the aggregators are performing.
ARE YOU CONCERNED ABOUT THE SUSTAINABILITY OF YOUR AGGREGATOR’S BUSINESS MODEL?
WHAT BROKERS THINK MATTERS IN AN AGGREGATOR’S OFFERING (OUT OF 5) 4.51
4.71 Additional income streams
White label offering
Communication with brokers
3.53 3.14
Marketing support
BDM support
3.64
Training and education
Compliance support
Lead generation
Accurate and on-time commission payments
4.13
4.15
4.33 2.86
IT and CRM support
2
4.46
3
Quality of lending panel
4
4.61
5
YES
13%
NO
87%
ARE YOU HAPPY WITH THE FEE/COMMISSION SPLIT?
YES
76%
NO
24%
ANALYSIS 11
brokernews.com.au
HOW BROKERS RATE AGGREGATORS’ DELIVERY (OUT OF 5) Quality of lending panel
IT and CRM support
Lead generation
Compliance support
Training and education
Marketing support
BDM support
White label offering
Additional income streams
Accurate and on-time commission payments
Communication with brokers
4.43
4
2.29
4.04
3.93
3.35
3.87
3.29
3.4
4.33
4.15
DOES YOUR AGGREGATOR KEEP YOU WELL INFORMED ON INDUSTRY-WIDE ISSUES?
WHY WOULD YOU WANT TO LEAVE YOUR CURRENT AGGREGATOR?
NO
YES
16%
84% HAT ARE THE BARRIERS TO LEAVING W YOUR CURRENT AGGREGATOR? Data migration/IT issues 30.5% Contractual obligations 24.5% Clawbacks/trail issues 20%
15% HOW LIKELY ARE YOU TO LEAVE YOUR AGGREGATOR (OUT OF 5)?
1.75
Poor accuracy and timeliness of commission payments
9.5%
Poor additional income stream offerings
Poor BDM support
4%
20%
Poor compliance support
Poor IT and CRM support
3%
12%
Poor marketing support
Poor quality of lending panel
3%
0.5%
Poor white label offering
No reason given
Average score:
8% Poor communication with brokers
18% Poor lead generation
3% 8.5% Licensing issues 7% Loss of back-office services 6% Loss of marketing services 3.5% Upfront commission issues
4%
Poor training and education
ANALYSIS 12
A change in the air The QBE LMI Mortgage Barometer has revealed the shifting trends of Australian homebuyer sentiment
T
he QBE 2013 LMI Mortgage Barometer has revealed a market in which demand for property seems to be on the mend. Nearly one in three Aussies (32%) believe the next six months will be the best time to buy property, and 47% say property values will increase strongly in the next three years. With rates falling and property prices having eased off, it seems Aussies are giving housing another look. Here’s a glance at some of the report’s findings.
BROKERS VERSUS BANKS A look at why customers choose to go through brokers, or choose to go direct:
38% Pass on only some of the cut
19% 37% 16% 20%
Less paperwork
FAST FACT
52%
24% 31%
Helps understand different options
If rates continue to drop, this is how borrowers expect banks to respond:
of mortgage seekers surveyed consulted a broker during the home loan process
Brokers
6%
Helps get a mortgage tailored to needs
RATE EXPECTATIONS
Direct
22%
Prefer not to deal with lenders/brokers
32%
Better deal
40%
Do the research for me
0% 51% 48%
More convenient
58%
Source: QBE LMI Mortgage Barometer
REFINANCING TAPERS OFF
Proportion of those surveyed who refinanced within the last 12 months:
38% Pass on most of the cut 6% Pass on all of the cut 4% Pass on none of the cut
2012
17%
2013
13%
ANALYSIS 13
brokernews.com.au
BANKING ON THE BIG FOUR
MINIMUM PAYMENTS HEADING DOWN
The majors remain popular with homebuyers, with 62% choosing one of the big four for their home loan. Here are some of the reasons:
Jun 2012
Sept 2012
Dec 2012
Source: QBE LMI Mortgage Barometer
$2,633
$2,840
$2,812
Average minimum payment
23%
Better reputation
$2,686
They have the mortgage that best suits my needs
Average minimum payment
34%
More than one in five mortgagors surveyed said they had struggled at least a few times in the last 12 months to make their minimum mortgage payment
Average minimum payment
24%
Better rates
21%
Average minimum payment
Better financial security
$2,972
32% FAST FACT
I have other products with them
Average minimum payment
44%
Falling rates have meant minimum mortgage payments are headed downwards:
1% =
Did you know?
56% of those surveyed say they will delay purchasing until after the federal election
Dec 2011
Mar 2012
Survey date
NEWS 14
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CONTINUED FROM PAGE 1
AFM:
The more things change … After 10 years in business, AFM director Iain Forbes says the market has changed but the company has stayed the course
B
ut just because the industry has seen a rapid pace of change, that doesn’t mean AFM will be blown about by the prevailing winds of the day, director Iain Forbes has said. In navigating a shifting environment for lenders, Forbes said it’s important for the company to maintain the course it set when it started a decade ago. “We just continue to do what we are doing and we have done, which is go out there and service brokers. Brokers need an alternative. We are that alternative. We see no reason why we should change. We should continue to grow in the way that we have grown,” Forbes said. Key to this growth, managing director David White said, has been AFM’s funding position. While other mortgage managers have folded through the GFC as their underlying funders put them in an uncompetitive position, AFM was able to hedge its bets by having a broad base of funding. “When we first started the business, we had three funding options straightaway. The idea was to have flexibility in funders, but also not to be tied to any one funder because if they changed their pricing and commission structure we’d have to go along with it, and that could put us out of the market. We could be dictated to,” he said. Instead, White said the lender made the decision to put itself in a position whereby it could dictate its own terms rather than be dictated to. Having a variety of funders, White suggested, means the funders are kept on their toes by one another. “It also puts competition back onto our wholesale funders to come up with something better,” White said. And the business’ decision to spread out its funding base from the very beginning meant it could also bring a more competitive proposition to brokers, White said. “The flexibility of AFM is the multitude of funding lines we have, so we can chop and change between funding lines and put out different products and pricing while still keeping broker commissions intact. Having flexibility of funders,
WE NEED TO ENSURE THE LONGEVITY OF THE CHANNEL, SO WE DON’T WANT OTHER MORTGAGE MANAGERS TO FOLD OR GET TAINTED BY FRAUD – TANYA WHITE
we can suit the market dependent on what funders we have, and not be tied to any particular one.”
NAVIGATING THE CHALLENGES
But the commitment to staying the course hasn’t come without challenges for AFM, White said. The non-bank sector itself is still recovering from the effects of the GFC, he argued. “During the GFC, non-banks were tarnished as bad lenders. We got thrown into that bucket, so unfortunately we’ve had to fight our way out of that,” he said. Forbes agreed, and added that AFM’s reputation was kept intact through the GFC by the strength of the credit assessment processes it had put in place. “The word ‘fraud’ is out there in a big way, but to be honest, in 10 years we’ve never seen one. If you look at delinquent accounts, we are better than most other financial institutions,” he said. Forbes pointed out that many smaller players folded through this period, while AFM was able to continue thriving. As for the future of the non-bank sector, managing director Tanya White said it behoves AFM for those players left in the non-bank lending market to remain strong. “We need to ensure the longevity of the channel, so we don’t want other mortgage managers to fold or get tainted by fraud. It’s important that the
NEWS 15
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DAVID WHITE, TANYA WHITEAND IAIN FORBES
non-bank sector continues. It’s important that we continue working with funders to get products that we can sell, that are cutting edge and new age. Without that, businesses like AFM wouldn’t exist,” she said.
THE DECADE AHEAD
Having successfully navigated a turbulent 10 years, though, Tanya White argued that the next 10 years will bring its own challenges. Specifically, she said regulations governing mortgage managers could prove a hurdle for the sector as a whole. The problem, White said, is that those setting the regulatory agenda don’t understand the unique role mortgage managers play in the market. Treasury and ASIC and all the powers that be need to understand mortgage managers better. “They don’t really understand us. We sit in the middle between banks and credit unions and the other ADIs and the broker. Somewhere in there is the mortgage manager,” she said. Part of this misunderstanding, White said, is due to the small number of legitimate mortgage managers operating in the market. While she said 100–200 companies may self-identify as mortgage managers, those who fit the true definition of a mortgage manager may only number 20 or 30. And White said that for those true mortgage managers
THE WORD ‘FRAUD’ IS OUT THERE IN A BIG WAY, BUT TO BE HONEST, IN 10 YEARS WE’VE NEVER SEEN ONE – IAIN FORBES
sitting in the strange middle ground between brokers and ADIs, regulations governing either side of the mortgage industry spectrum are ill-fitting. “The rules and guidelines they set for ADIs, do they work for us? Or do they set the rules for brokers and try to apply them to us? Both answers are no. What you set for a broker doesn’t work for a mortgage manager, and what you set for a deposit taking institution doesn’t work either.” So after 10 years of navigating the industry and making a name for itself as one of the country’s largest non-bank lenders, White said one of the primary challenges remains helping the industry understand the company’s unique position in the market. “The industry needs to understand who we are. They need to get what we do, and where we fit into the equation.
TOOLBOX 16
brokernews.com.au
Taking a lesson from tanking Watching others fail can cause us to feel empathy – or twisted satisfaction – but Amy Rosenfeld points out that we should be learning valuable lessons
I
t’s good to learn from your mistakes, but sometimes it’s even better to learn from the mistakes of others. Business strategy expert Michael McQueen looks at five key lessons brokers can learn from the businesses that didn’t make it.
FAILURE IS ALWAYS AN OPTION
CULTURES LACKING DIVERSITY WEAKEN AN ORGANISATION OVER TIME
1. DON’T TRUST THE NUMBERS
Traditional indicators of business health can be as dangerous as they are useful, says McQueen. As “lagging indicators” they can give the impression that a business is in fine health, while recent decisions have begun to push it down the path of failure. Kodak, says McQueen, “was still a darling of Wall Street long after it had begun to lose the digital war”. “It is possible to be on the brink of obsolescence and have absolutely no idea at all. Further still, by the time the numbers indicate that there is something wrong, it may be too late to do anything about it.”
2. SHIFT HAPPENS
“Whether it is changes in technology, competitive dynamics, legislation or demography, fundamental shifts have caused scores of previously successful businesses to falter in recent years,” says McQueen. For mortgage brokers, factors such as the growing digital lending market and diversification are shifts that brokers need to understand and adapt to to keep up with an ever-changing market.
3. THE MOMENT YOU THINK YOU’VE MADE IT, YOU’VE PASSED IT
“A key factor in almost every case of corporate demise is a dynamic I call the Intoxication of Success,” says McQueen. “Put simply, this phenomenon describes the way in which enduring success leads to a toxic blend of complacency, conceit and closed-mindedness within organisations that blinds leaders to potential opportunities and threats.”
4. GREAT MINDS DON’T NECESSARILY THINK ALIKE
If your brokers are disagreeing with you, you’re doing something right, says McQueen. “A dangerous dynamic unfolds when a homogenous culture grows within an organisation to the point where new points of view are silenced or shunned,” says McQueen. In the case of failed car company Daewoo, six in 10 of the company’s senior management graduated from the same university, and almost a third graduated from the same high school. “In the same way that in-breeding results in weaker genetic strains, cultures lacking diversity weaken an organisation over time.”
5. INNOVATION HAS A DARK SIDE
“Although innovation may be the buzzword of our time,” says McQueen. “Very few acknowledge the fact that sometimes over-innovating is as dangerous as inertia.” Trying to do too many things at once can lead to a loss of focus, says McQueen. As Steve Jobs once said: “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all… Innovation is saying no to 1,000 things.”
INDUSTRY CONSULTANT AND CREDITED FOUNDER KYM DALTON ON WHAT WE LEARN FROM OUR OWN MISTAKES Increasingly one hears the term “Failure is not an option”. Disagree. Failure is always and always should be, an option. We should get Gordon Gekko back for an encore. Failure, for the want of a better word is good; failure works. Perhaps we should think about a market in failure options? Failure options that give one the right, but not the obligation to fail. Failure options that should be exercised when the cost of not failing is greater than the cost of failing. Not failing requires certainty. When the optionality of failure approaches zero, then the coefficient of certainty increases to approach infinity. As we approach infinity time slows down until a state of inertia exists. Perfect certainty therefore carries the very real risk that nothing will happen at all. So we really need to get busy and get those failure options out there for those cold and timid souls who really believe that failure isn’t an option, but want the benefits of the option to fail – vitality, innovation, change, progress, lack of inertia. I admit failure options are going to be difficult to price. Maybe, therefore, the option to fail is actually priceless?
KYM DALTON
AXE TO GRIND
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17
A life vest for loan shortfalls Clean Credit’s John Dickinson says a loan shortfall isn’t the end of the road for a client’s application
T
alking with many mortgage brokers, we are fully aware of the problems with loan shortfalls. Not being able to consolidate a client’s finances can often spell disaster for a loan application and can be very disappointing for both the client and broker alike. The reasons for loan shortfalls are varied. However, borrowing capacity and disappointing valuations are the main culprits. In the case of a debt consolidation the purpose of the facility is to amalgamate the client’s debts into one manageable facility. If all the
debts cannot be incorporated it can somewhat defeat the purpose of the refinance in the eyes of the client; this is particularly relevant if some of the debts are in arrears. Many situations will require that all the client’s debts are covered in the refinance in order to give the incoming lender comfort that their facility will be serviced and they are providing a benefit to the client. If the maximum loan available does not allow for this the transaction will most likely not proceed. The good news is that in many cases loan shortfalls can be dealt with using effective
debt negotiation. Unsecured creditors are aware of their often exposed position and, given the right approach, they will consider a reduced payout in order to allow a refinance to take place, particularly if a loan is currently in arrears. Imagine a credit card provider that is owed money on an account that is delinquent. While they do have the ability to commence recovery action, the reality is they are exposed and they will typically consider a settlement offer rather than enforce proceedings against a client. Please don’t think I’m in any way trying to deny anyone collecting what that are owed. On the contrary! Effective debt mediation is about helping credit providers recover the maximum amount possible and escape from
what may end up being a far worse situation for them at a later date. In my experience most credit providers are thankful to be given this option. Credit providers who are approached to reduce a payout figure will require a comprehensive submission covering the client’s overall position, and most importantly why they should consider reducing their debt. Given the matter is presented in the correct fashion and the credit provider is interacted with in a respectful manner, you may be surprised at what can be accomplished. I have witnessed discounts of up to 80% in certain situations. The next time you are faced with a loan shortfall take a close look at the unsecured creditors involved; you may just be able to save the deal after all.
OPINION 18
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Yields and rates converge RP Data’s Craig Mackenzie shares how rising rental yields should spur investors to ask new questions
R
ecently, my colleague Tim Lawless, RP Data’s research director, posted a blog entitled ‘The Deconstruction and Gradual Reconstruction of Rental Yields in Australia’. In the blog, Tim referred to the dwelling values and rents graph set out below and commented that rental yields in Australia had improved over the past five years as a consequence of rents increasing by 27%, while dwelling values had increased by only 10% across the combined capital cities. The consequence of rents outpacing dwelling value increases is of course an improvement in rental yields. At the top end of the scale, Darwin is continuing
WHAT IS INTERESTING IS THE DEGREE TO WHICH RENTAL YIELDS AND MORTGAGE INTEREST RATES ARE NOW CONVERGING
ANNUAL CHANGE IN DWELLING VALUES AND RENTS VERSUS GROSS RENTAL YIELD Annual change in dwelling values
Annual change in rents
Gross rental yield
25%
8%
20%
7% 6%
15%
5%
10%
4%
5%
3%
0%
2%
-5%
1%
-10% Nov 96
May 98 Nov 99
May 01 Nov 02
May 04 Nov 05
May 07 Nov 08
May 10 Nov 11
Gross rental yield
Annual change in values and rents
COMBINED CAPITAL CITIES
0% May 13
1. To what extent can I cover my borrowing costs with rent from the property?
Source: RP Data, RP Data-Rismark Home Value Indices
2. To what extent do I envisage capital gains associated with the growth in value of the property over the medium to longer term?
Set out below are the capital city growth rental yields for both houses and units for the month of May 2013. Clearly, the situation is different from region to region.
CAPITAL CITY GROSS RENTAL YIELDS HOUSES
6.2%
Darwin
5.1% 4.7% 4.6% 4.5% 4.4% 4.3%
Hobart Brisbane Canberra Perth Adelaide Sydney
3.7%
Melbourne
UNITS 6.3%
Darwin
5.7% 5.6% 5.3% 5.1% 5.0% 4.9% 4.6%
Brisbane Canberra Hobart Perth Sydney Adelaide Melbourne 0% Source: RP Data-Rismark
1%
2%
3%
to record the highest gross yields of any capital city, with rents increasing by over 10% during the past 12 months. At the other end of the scale is Melbourne, where houses are returning a gross yield of just 3.7%, while units are providing a higher 4.6% gross yield. Notwithstanding the relative weakness in the Melbourne market, the more important point to note from the graph below, showing capital city gross rental yields, is that all cities, excluding Adelaide and Melbourne unit markets, are currently returning at or above 5% gross rental yields for units, and all but the Adelaide, Sydney and Melbourne markets for detached houses are returning yields at or above 4.5%. In his blog, Tim makes the point that, with vacancy rates remaining very low across most capital cities, it is reasonable to expect further upward pressure on weekly rents. Therefore it ought to be expected that rental yields will continue to improve over the coming months, particularly in cities such as Brisbane, Perth and Sydney where new dwellings have been in short supply. With over 1.2 million property investors in Australia, there are two key questions an investor should ask prior to investing in residential property. These are:
4%
5%
6%
7%
In the 2010/11 tax year, these 1.2 million investors made a net rental loss of approximately $13bn. This is the difference between the gross rent received from the property and the interest payable on any associated loan. What is interesting in today’s market is the degree to which rental yields and mortgage interest rates are now converging as a result of the improvement in rental yields on the one hand and lower mortgage interest rates on the other. Many major financial institutions are now advertising three-year fixed interest rates of 4.99%. As can be observed from the graph, this interest rate is below the current rental yields for units in all capital city markets other than Adelaide and Melbourne, and for houses in Darwin and Hobart. With increased confidence in being able to cover their interest costs over the next three years, investors ought to have increased confidence in investing in the property market. This is currently evidenced by the fact that currently one in three residential mortgage loans are for investment purposes. The fact that an increasing number of property investors are able to potentially positively gear their property investments, or at least cover their servicing costs, supports the dynamics of continued strong interest in property by Australian investors.
THE COALFACE
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19
The doctor is in Kiran Thapa may be one of the most qualified brokers in Australia, but that doesn’t mean his path has always been easy
W
e’re going to go out on a limb here and say that Sydney-based broker Kiran Thapa is probably more qualified than any other broker in Australia. With a Master’s degree in Engineering Science, a PhD in Finance, and a Diploma of Financial Services (Financial Planning), Thapa has done his fair share of hard work, but he says entering the mortgage industry has been one of the toughest roads yet. “I was working as a civil engineer for a local council in Melbourne in 2007 when we went through the GFC. Everyone was talking about the finance
industry, and media coverage was massive. This is when I realised that the finance industry is where I should be, because everyone is linked with it.” Thapa undertook a PhD in Finance at the University of Technology in Sydney and established his own company, CAPKON Investments. “By noticing the demographic changes happening as a result of skilled migration, mortgage broking drew my attention,” he says. “However, I didn’t have much information about the industry and, as a result, no one was willing to take me on board. It actually took me two years to find my way into the broking business. It was a very painful journey, but I never lost sight of it.” Thapa says finance has always been his passion, and that the two areas actually have more in common than you might think. “I was teaching Engineering Economics back in Nepal before migrating to Australia. I also did a lot of self-study about the finance industry – I used to spend around three hours every day reading financial news! Coming from engineering
definitely helped me, as numerical [knowledge] is the core of finance anyway.” While Thapa takes clients from all over Australia, he says the majority are members of Sydney’s growing Nepalese community, and that young people who are new to Australia make for some of his best clients. “Young migrants tend to have a higher level of risk appetite and are very confident about property investments… Our approach is to become the coordinator for clients’ property purchase projects. We help clients not only with their home loans but also with property research, bargaining, inspection and step-by-step guidance through the whole process for free. We liaise with all the stakeholders involved so that the clients get the best ever experience in such a big decision. I admit that this demands extra work, but at the same time this also makes sure that the deal is closed within a very short time. I have noticed that great relationships are built up with clients when you walk with them at every stage of their investment decisions.”
MARKET TALK 20
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FIVE units to be wary of For investors looking to buy a unit, here are five to avoid
F
or many young investors, units are the logical choice. But if your clients are looking for good returns, there are five types of units they should be cautious about.
1. AGEING APARTMENTS
Martin Schoeddert, director of Iris Property, says that older apartments are possibly the best option for entry-level investors looking to avoid risk, though he cautions investors to be wary of what’s out there. “You have to be really careful with a lot of the [unit blocks] that were built in the late 1960s and early 1970s as a very, very high percentage of them have got concrete cancer,” he warns. “Make sure you get a really good look at the building inspection, get a good look at the Section 70 certificate, and make sure – and this is crucial to any unit investment – to have a really, really good look at how much is in the administration and sinking fund, so that you’re not getting hit with special levies.” If you do get nailed with a special levy, you could be up for thousands, which means your rental income will be headed straight to the levy, completely bypassing your wallet.
2. SMALL APARTMENTS
Some experts warn against investors buying into studios or one-bedroom apartments, suggesting that a smaller dwelling may have less potential to add value and subsequently may have limited capital growth. They say the buyer market is also limited, which places significant pressure on the apartment to achieve strong rental returns. These rental returns are a cause for concern, says Empire Property Portfolio CEO Chris Gray, who believes that inflated per-person rental payments in smaller dwellings might be too high to attract a sufficient pool of tenants. “While one-bedroom and studio apartments cost less money to buy, they can be typically more expensive per person to rent, and that can limit the number of people who want to rent or buy them,” he explains. You should consider the demographics of the tenant market in the area before deciding whether a smaller or larger apartment is the way to go. Students based around university nodes and short-term workers in major city areas are more likely to opt for studio and one-bedroom apartments than tenants wanting to live in family-dominated suburbs.
ONE
3. HIGH-RISE BLOCKS
When an asset’s value relies on its scarcity factor, the idea of a sky-scratching high-rise seems to scream ‘risk’ from all angles. Indeed, many experts suggest steering clear of huge cookie-cutter unit blocks and instead opting for smaller blocks with a smaller number of investors. High-rise apartment blocks can limit opportunities for investors as increased competition restricts resale potential and rental demand. Your investment won’t be unique if there are a few hundred identical products in the exact same block, all competing for the same tenants and/or buyers.
4. PREMIUM PRICE
Prestige apartments are inherently risky investments. Value-adding opportunities are dampened, the chances of overcapitalising are high, and the top end is often the first to go when the going gets tough. An astronomical buy-in price means that rental amounts need to fly to achieve even a moderate rental yield, and positive cash flow is a distant dream for investors. The higher strata levies associated with prestige properties can also cut significantly into any gains. Increased insurance premiums can also be a concern. Carolyn Majda, general manager, insurance services, of Terri Scheer Insurance, says the cost of the company’s Landlord Preferred Policy may increase for owners of top-end apartments renting at more than $1,000 a week. Schoeddert suggests that investors should diversify their investments rather than pooling all their funds into one $2m–$4m apartment. “Personally, I think it’s too risky; I think there are better ways of property investing,” he says.
5. BOTTOM-FLOOR UNITS
Is any one level of an apartment block a riskier investment option than another? Is top floor better than ground floor, or is a middle-level apartment a safer bet? Those in favour of ground-floor units argue that their position places no constraint on the tenant market, whereas top-floor apartments may cut out certain groups, such as those with prams or wheelchairs and the elderly. Those who barrack for the top floor, however, say that it offers a more open feel as there is less chance of being built in and overshadowed by surrounding buildings. Top-floor tenants will also enjoy more privacy as their balconies are less likely to stare straight into another building. In apartment blocks with views the higher floors will obviously be favoured, which can be a huge boost to the property’s value.
THREE
FIVE
FOUR
TWO
MARKET TALK 21
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What housing bubble? House prices unlikely to rise significantly in year ahead, says Citi Research
T
he possibility of a housing bubble in the next 12 months is slim, according to a report published by Citi Research in June. While some economists have predicted house price increases based on auction clearance rates, Citi’s research shows that once global factors and debt constraints are taken into account, house prices are unlikely to rise significantly. “Our model suggests that house price inflation may peak at around 3% by March 2014 and prices could fall slightly thereafter,” say Citi spokesmen Paul Brennan and Joshua Williamson. “[The research] looks at the impact of Chinese immigration, a falling dollar, rate cuts and a number of other scenarios. Overall it says that a housing market ‘bubble’ is not likely to eventuate over our forecast horizon even under the most optimistic assumptions.” Brennan and Williamson say that, with the cash rate at record low levels, some forecasts are for prices to rise sharply, creating financial stability risks. “Forecasters point to auction clearances that have surged this year, which normally is a precursor to rising real house prices. House prices are already rising rapidly in New Zealand, where the rate-cutting cycle is more mature than in Australia. [But] our research suggests these risks are overblown. A house price model developed by our colleague, Vivian Jiang, shows that once global factors and debt constraints are taken into account, house prices are unlikely to rise significantly. The modelling shows that Chinese immigration has a powerful effect on house prices, as do Chinese economic growth and the AUD.” Looking ahead, the two say the slowdown in Chinese growth and fall in Chinese immigration into Australia, the lower AUD and the limited appetite for further
increases in loan size counter the favourable effect on house prices of low interest rates. “Assuming no further rate cut, the model suggests that house price inflation may peak at around 3% by March 2014 and prices could fall slightly thereafter.” However, in the longer term, Brennan and Williamson say there are potential downsides to the Australian housing market. “These include the lower growth outlook in China, slowdown of Chinese immigration, and reduced appetite for offshore capital inflows associated with the lower AUD as the mining boom winds down. “We expect the nominal house price to peak in March 2014, by which time it will have increased by 3% from its current level. However, we expect the slowdown in China to flow through to the Australian housing market during 2014, causing downward pressure on house prices.”
Railway suburbs ripe for investment
BY THE NUMBERS
42
The number of Victorian suburbs with a median price in excess of $1m Source: Real Estate Institute of Victoria
AUSSIE HOMES STILL PULLING PROFIT Research by RP Data confirms that more than three quarters of Aussie homes sold for a profit over the March quarter, while roughly an eighth of resales over this period transacted at a loss. RP Data national research director Tim Lawless says a lower interest rate environment appears to be creating an increase in consumer confidence across the property market. “We’re now seeing a lot more activity around sales compared with this time last year,” he says. RP Data recorded 58,677 residential property resales nationally over the first quarter. Of these, 12.7% recorded a gross loss from the original purchase price. Conversely, 87.3% of all March quarter resales recorded a gross profit relative to their original purchase price. The gross profit from these resales equated to $9.6bn. The regions experiencing the biggest losses were in lifestyle locations such as Queensland’s Gold Coast. Regional areas associated with the resources sector reported much fewer resale losses. However, Lawless admits that the time a property was held was a factor. “The likelihood of making a gross profit or loss is quite different based on the length of time a property has been owned.”
Suburban units that are serviced by public rail services are shaping up to be the new cash cow for savvy real estate investors, according to the latest findings from PRDnationwide’s research department. Findings from the group’s Australian Railway Suburbs Report show that across Australia railway units typically present a more attractive investment opportunity and deliver stronger rental yields than properties that do not have ready access to rail transport hubs. Low vacancy rates ranging between 1.2% (Perth) and 2.7% (Melbourne) in railway suburbs in Australian metropolitan centres, and rental yields that are ‘consistently outperforming’ those of houses and unit accommodation in non-rail suburbs, are prompting investors to bargain hunt for properties within striking distance of rail transport. In particular, railway suburb units appear to be ideal for cashed-up investors looking to buy and hold in the Sydney and Brisbane markets, with affordable prices and low vacancy rates an indication of the current strength of the rental market. “Investors snapping up properties in railway suburbs in the west of Sydney are experiencing rental yields of between 4.6% and 5.2%,” says PRDnationwide director of research Aaron Maskrey. “Similarly, houses in railway zones in Brisbane offer a robust investment opportunity as they consistently deliver higher rental yields whilst being no more expensive to purchase than unit accommodation in non-rail suburbs.” The scenario is slightly different in the extremely tight rental market in Perth, with units just nudging out houses as the most appealing investment stock through greater rental yields. “Historically, Perth rail and non-rail localities have experienced negligible price differences,” says Maskrey. “However, we can see that investors are buying into railway suburbs, with a noticeable 19.3% increase in unit sales when compared to 12 months ago. Outside of inner-city Perth to the north and east, unit owners are pocketing rental returns that are around 1% more lucrative than similar sized and priced units in non-rail areas.” In Melbourne, unit investments are not delivering the higher rental yields seen in other capital cities, with some localities to the north and the west of the city actually being outperformed by non-rail suburbs. Maskrey says the city is going through a transitional phase in the unit market that’s seeing prices and yields in both railway and non-railway suburbs remain closely linked. “Railway house stock in Melbourne consistently maintains a higher price threshold so there are still buy opportunities in the Victorian market.”
WORKSHOP 22
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Bringing
GEN
on board Looking to engage with a new generation of homebuyers? That means you may need to engage a new generation of employees
A
s Gen Y increasingly looks to enter the housing market, brokers are looking for ways to remain relevant to a new generation of buyers. And as the industry ages, it’s becoming imperative to attract an influx of young talent. With these goals in mind, it seems inevitable that mortgage broking will turn to Gen Y as its next wave of employees. The common perception of Gen Y is that they are lazy, apathetic and demanding with high expectations. But is this really the case? The most highly educated cohort to ever enter the workforce, these 20- to 30-year-olds are actually driven, technologically competent and focused, and they’re looking for a challenge. That sounds like some ideal employee traits. By 2025 Gen Y will make up 75% of the world’s workforce, so how can you attract, engage and retain these workers? “The recruiting process doesn’t need to be any different, but it’s about not focusing on just one avenue,” Maurice Fernandes from Ceridian says. “You need to expand out to where Gen Y typically hang out.”
The trust problem One in two Generation Y members say they refuse to talk to a financial adviser and even fewer ask family members for budgeting and investment advice, according to a survey carried out by superannuation fund REST. The online poll of 1,000 people aged 18-30 shows that, while the popularly-dubbed ‘me’ generation knows saving is a priority, respondents were worried about money and may not be properly educated about managing finances, both in the short term and for longer term areas like saving for a property deposit. Those working full-time are more likely to save for a major event, such as a holiday or wedding, rather than on a house.
GEN Y NEED TO SEE A CLEAR PATH TO PROMOTION OR MOBILITY WITHIN THE ORGANISATION AND THEY REALLY VALUE GLOBAL CAREER OPPORTUNITIES – M AURICE FERNANDES
When it comes to advertising and interviewing it’s time to look past some of the traditional means, and let go of outdated rules. The majority of young people are job hunting through social media and connections – they’re on Facebook, Twitter or LinkedIn talking to their connections, not necessarily sifting through job boards. And, while the general rule is to focus on the role you’re hiring for and not discuss the potential for advancement, Gen Y tend to be focused on where they can go and what the next challenge will be. Give them specifics of what they need to achieve in the job on offer, and in what timeframe, to get to the next step. “They need to see a clear path to promotion or mobility within the organisation and they really value international and global career opportunities,” Fernandes says. “They do require clear goals for the path they’re assigned to and with that they require constant feedback and coaching on how they’re doing,” So once you have them, how do you keep them? HR consultant Donna Morano, from Brown Consulting, says Gen Y have a sense of confidence (thanks to their praise-positive parents) that Gen X and Baby Boomers lacked, which can be off-putting if it’s not understood. They’re also very technology focused and are used to immediate information – hence the focus on instant and frequent feedback. Another area of conflict comes from the fact that Gen Y don’t have a focus on longevity. They’re likely to change employers and even careers much more often than their predecessors.
DID YOU KNOW?
75% By 2025 Gen Y will make up of the world’s workforce
75%
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“Loyalty for them is not necessarily the same as it would be for their parents. It’s important to engage them right from the start,” Morano says. “You want to get them when they join you and keep them interested.” She suggested getting them involved in teamwork, including opportunities to lead teams. As with recruiting, Gen Y is always looking at the next step so if you don’t keep up with their learning and development you’re likely to lose their interest.
TOP TIPS:
1
ADVERTISE IN THE RIGHT PLACES
2
INCLUDE GEN Y COLLEAGUES IN THE INTERVIEW PROCESS
3
KNOW WHAT THEY’RE LOOKING AT AND HOW THEY’RE LOOKING
4
SHOW THEM THEIR OPTIONS
Shift your focus from newspapers and other traditional venues for job ads. But even if you’re already up on Workopolis or Monster, and you’re looking into Facebook jobs, it might not be enough to find the top Gen Y candidates. Gen Y is networking with friends and connections online, using those relationships to find the right role for them.
Next time you’re sifting through resumes or sitting down to an interview take a look around. Are all the people involved over 35? You might find you get better results if you include someone from the generation you’re trying to attract, Fernandes said. They speak the same language and might spot something you missed.
Many Gen Y candidates care deeply about their employer’s CSR, sustainability and diversity – and they have the tools to find out the details. Make sure your website, Facebook page and Twitter feed meet the standard – an outdated look could put off your future-facing candidates. Optimise your job site for mobile technology too. Many Gen Y-ers are focused on their phones when it comes to exploring job options.
Don’t play coy and simply focus on the role at hand. Lay the possibilities out for your candidate. For example: If you meet Goal A (within X timeframe) then you’ll be looking at a promotion to Role B. While you’re working for us you’ll get to train in a specialty area, work with these different departments and within two years you can expect to have the opportunity to move into any one of these roles… Gen Y want to know they’re not just getting a job – they’re getting a varied and interesting career.
23
FINANCIAL SERVICES 24
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Government called on to manage disasters better
S
ome of Australia’s largest insurers and bankers have published a white paper pushing a string of recommendations to more effectively manage natural disasters. The authoritative paper compiled by a roundtable of IAG, Munich Re, Westpac, Optus, Investa, and the Australian Red Cross states its “sustainable and comprehensive” approach could ultimately save lives, reduce damage to property and vital national infrastructure, and free taxpayer money to spend on essential public services. The proposals champion safer and more resilient communities, warning that the cost of natural disasters in Australia will rise from $6.3bn to $23bn a year by 2050. The white paper states that each year the Australian government spends circa $560m on post-disaster relief and recovery, compared to an estimated $50m on pre-disaster resilience. It highlights that a program of resilience expenditure of around $250m a year to 2050 would ultimately generate budget savings of more than $12bn and Australian government expenditure on disaster response could reduce by more than 50%. The white paper recognises there is a lot of “positive resilience and disaster management activity already underway” but notes there is an opportunity for the various agencies involved, such as the police, government departments
THE COST OF NATURAL DISASTERS IN AUSTRALIA WILL RISE FROM $6.3BN TO $23BN A YEAR BY 2050
SUPER GENDER GAP A MAJOR ISSUE
T
he Federal Government has been called on to address the current inequality that exists for women in superannuation. By the time they are 85, women make up 66% of the population but are 2.5 times more likely than men to live in poverty in retirement, according to ABS reports. Accounting and advisory firm William Buck suggested several initiatives, such as providing a woman’s partner with the ability to make tax-deductible contributions to the superannuation account of their wife or partner while they are on maternity leave, and providing women returning to the workforce with higher tax-deductible contribution limits to recover the ground they’ve lost. Olivia Maragna, co-founder of Aspire Retire, is a strong advocate of women in super, and said she would love to see a family contributions cap, or the ability to carry forward unused contributions caps. When asked how the Opposition would address this issue, Senator Mathias Cormann did not agree to implement the suggestions but said their Paid Parental Leave scheme would pay superannuation benefits to help women’s superannuation balances while they took time out of the workforce to care for their newborns.
and agencies, to be better aligned and coordinated.
THEY RECOMMEND:
Improve coordination of pre-disaster resilience by appointing a National Resilience Advisor and establishing a Business and Community Advisory Group: The Advisor would coordinate and prioritise activity across all levels of government. The Advisor would be supported by the creation of a Business and Community Advisory Group to leverage knowledge and expertise. Commit to long-term annual consolidated funding for pre-disaster resilience: The fund would consolidate current mitigation spend and centralise new spending to deliver long-term taxpayer savings. A $250m fund could deliver $12bn savings over time. Identify and prioritise pre-disaster investment activities that deliver a positive net impact on future budget outlays: All mitigation to be prioritised based on the national interest and economic benefit as determined by the cost-benefit ratio achieved and future budget impact. A spokesman for the roundtable said: “Roundtable members look forward to working constructively with governments in the national interest to prioritise public policy and funding to improve Australia’s resilience against future natural disasters, and have committed their own organisations to deliver tangible outcomes that support this vital work.”
DID YOU KNOW?
As of December 2012, direct life insurance constituted 12% of the overall risk insurance market Source: Plan for Life
ASIC advises on planner upskilling
A
s brokers come to grips with heightened educational requirements, planners are about to be hit with a new educational impost. ASIC will introduce two further regimes of additional training in 2015 and 2019, retaining RG 146 as the ‘base level’ training standard. The new regimes, B and C, will apply to new advisers who “change their advice activities” after completing their initial training. This could include adding a new area of specialisation, changing from general advice to personal advice, or changing from Tier 2 products to Tier 1 products. Under Regime B, advisers will need an advanced diploma for Tier 1 products and Certificate IV for Tier 2 products. Regime C will require a Bachelor’s degree for Tier 1 products and a diploma for Tier 2. Financial Planning Association (FPA) general manager of policy and conduct Dante De Gori said there are three things the FPA would need to consider, in regard to practical application. Understanding how existing advisers may get captured each time the new regime starts is of high priority for the FPA. “ASIC made it clear that the regime changes, Regimes B and C, are for new people. But they also did talk about how it can capture people that are already in the regime if there are any changes to their advice, so we just need to work out what that practically means and what changes they’re talking about,” De Gori said. The FPA will also ask ASIC and the Tax Practitioners Board how the new regimes will interact with the Tax Agent Services Act, to make sure any duplicate red tape is removed and new students have a streamlined path to becoming financial planners. Finally, De Gori said it was important to check with universities that there would be sufficient time to deliver the new requirements.
FORUM 26
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The value of valuers Brokers and valuers went head-to-head on the Australian Broker forums, and it got uncommonly heated
What keeps brokers from leaving their aggregators?
An MPA survey found some of the reasons brokers are hesitant to switch aggregators. BJ said the problem lies with the industry’s representation.
What do you think? Leave your comments at brokernews. com.au
Brokers have no voice, no real control over their business other than the transactional method of their business. This in part is why professional’s i.e. financial planners, accountants and law firms find it difficult to embrace the brokerage industry. Sales, sales, sales, and completely transactional by the very nature of many mortgage brokers. The restrictive practice employed by aggregators is a matter your industry must address. That is the broker. One suspects most brokers have limited understanding of the power of the combined vote you have when dealing with your association! How long before the limited number of votes being cast at each AGM further erode your capacity to effect change. You operate your business under the sword of Damocles. Brokers need to voice their concern and one way to achieve the same, is vote at the next MFAA AGM and remove the board, appoint competent parties who will truly represent you and drag your industry to the level of professionalism that you not only deserve but must demand. BJ on 25/06/2013 1:04PM
A
story on the quality of Perth valuations elicited a massive response from readers on both sides of the argument. Comments flew in, ranging from empathetic to downright abusive, but one thing everyone appears to agree on is that there are definitely some issues to work through. Dozens of readers offered up examples of valuers undervaluing properties by tens and, in several cases, hundreds of thousands of dollars, but not everyone is convinced the valuers themselves are to blame. Steve McClure said he supported valuers and believed their unenviable task was nothing short of a “minefield”. “They have to predict sales that result from people’s whims, problems and a myriad of unpredictable factors. They are under pressure from parties with conflicting interests, urgent timeframes and the economics of providing a professional service at a diminishing fee… They get no credit when they get it spot on.” He is, however, critical of “undue reliance” on RP Data, and of lenders themselves. “By pushing down fees paid to valuers, lenders are relegating valuations to tick and flick reports instead of a professional’s opinion. I’m also critical of lenders’ inflexibility in allowing valuers to revisit reports when subsequent relevant information comes to hand.”
BIG FOUR HAVE BIG PROFITS
But not everyone is so sympathetic. Gary said the issue wasn’t limited to Perth. “Victorian valuers are also just as incompetent and are more concerned about protecting their insurance premiums. I write approximately $80–90M annually and am always arguing with valuers.” After watching the discussion take a downward turn, with insults flung in both directions, Aussie Franchisee ended the debate on a high note. “Given my best friend is a valuer, we’ve had numerous discussions around his responsibilities and requirements. From my understanding, it appears to be a relatively difficult position to be in. “As a broker, I strongly disagree with bank and valuer bashing. In my experience with valuers, if I’ve got a client whose transaction is on the cusp of LMI or falling over and a slight increase in the fair market value is all that is required, most valuers I’ve spoken to have been happy to amend to make it work. For this, I thank them as it correlates with my business model of ‘customer first’.’’
A study by the Bank for International Settlements that found that Australia’s major banks ranked as the world’s most profitable for the third year running had brokers dripping with sarcasm.
Steve on 24/6/2013 at 6:23PM “It is good that the Government has fostered a competitive banking environment. Imagine what it would be like if we had only four major banks.”
Richard on 25/6/2013 at 8:16AM “That explains where my clawbacks are going. I am pleased the money isn't being wasted.”
Jeff on 24/6/2013 at 9:54AM “Yet commissions have dropped to brokers by 41% since 2007, due to tough times for banks?”
ONE YEAR ON 27
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ONE YEAR ON
SMSF collaboration worth the investment
What a difference a year Richard Chesworth says the makes … or not. Australian broker–planner relationship Broker reflects on the punditry, news and is worth getting right influential trends that made headlines pportunities in the self-managed super 12 months ago Australian Broker Issue 9.13
SEQUAL axes CEO The peak body representing the equity release market last year chose to part ways with its long-standing CEO, Kevin Conlon. The move had more to do with the market’s performance than Conlon’s, with the outgoing CEO’s performance given unmitigated praise by the association’s board. But a dwindling equity release market meant SEQUAL could no longer employ a full-time chief executive, according to executive chairman John Thomas.
What’s happened since?
Conlon found a new role in the equity release market, taking over as the general manager of business and professional development for equity release provider DomaCom. The company enables property owners to unlock equity in their homes by allowing investors to purchase partial interest. Conlon called the company’s products the “second generation” of equity release.
Brokers tip best 2012 bank MPA’s Brokers on Banks survey last year saw Commonwealth Bank come out on top for the second year in a row. The major took the top ranking in six of the survey’s 10 categories. NAB showed strongly, moving into second place from fourth overall in 2011. The bank saw its ranking and overall score increase by more than any other lender.
What’s happened since?
It was three times lucky this year for CBA, which retained its top spot for the third year in a row. This time the lender nabbed first place in eight of the 10 categories. The overall top five saw a shake-up though, with Macquarie and Suncorp making their way onto the leader boards.
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fund (SMSF) space is a topic not new to brokers, but are the opportunities really being taken advantage of? Richard Chesworth from Macquarie Bank says better collaboration between brokers and financial advisers is a relationship worth investing in. “It’s a two-way street. First of all, the clients’ needs are fulfilled upon and the experience overall is a lot better. The client can speak to a planner to see if it’s suitable – you might find a broker has a client come in and the transaction may not be suitable. That broker can’t provide advice, but they can ask the right questions and in asking the right questions, if the client can’t answer them in an appropriate manner, they’ve got the referral partners to introduce their clients to. Likewise, if you can display as a broker that you understand this area, financial planners and accountants have clients asking for this need to be fulfilled. So, if they can see that you can fulfil on it, they’ll be delivering the clients through to you.” Borrowing to invest using SMSFs is an area with strict rules of compliance. Chesworth says the need to upskill can’t be overestimated, and knowledgesharing meetings are a good place to start. “It’s not an area to cut corners in. It is a specialist form of lending. So a broker should be upskilling themselves to understand the key components of the transaction and to make sure they get that right. Our focus here is really helping the brokers through that process, and we’re providing tools in that basis to assist there.” A key takeaway for Chesworth is that the stakes can be high. In some cases, it’s the client’s entire retirement fund. For this reason, due diligence is paramount. “We’re talking about people’s retirement funds here. And so the upskilling there – we’ve got an education series or a knowledge series of what we’ve seen and what we’ve experienced. We’re providing the tools to help them understand the market better. So we’ve got everything from the limited recourse borrowing calculator to other sites, which is a lot of information for brokers. But the upskilling’s key. It is a specialist form of lending and we need to get that right.”
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THINKTANK sees brand refresh in third-party hire The specialist lender has a new third-party head to coincide with its new branding
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pecialist commercial lender Thinktank has announced the appointment of its newest senior member and “refreshed brand identity”. Thinktank CEO Jonathan Street says the lender is pleased to welcome Peter Vala into the newly created role of head of sales and distribution. “This key appointment has arrived at a transformative time for our business as we build on the back of a significant expansion in our funding lines, as well as the introduction of a number of key initiatives based around technology, product development and brand reach.” Vala comes to Thinktank following six years as a senior manager and executive at ANZ, where he held roles ranging from regional industry specialisation manager to his most recent position as district executive in business banking. His experience spans residential, commercial and development finance, including “highly specialised” skills in strategic plan implementation. “Peter’s very strong financial services background and proven experience working with brokers and aggregators will be invaluable as he shapes this high-profile senior position within Thinktank,” says Street. “He will be a very visible face and presence for Thinktank in an exciting and challenging period ahead. Our executive management team very much looks forward to working with Peter and, in particular, benefiting from his industry experience and contacts in third-party distribution. We are extremely confident it will prove to be a great and successful combination.”
FOLLOWING A STRATEGIC REVIEW OF THE BUSINESS, WE FELT IT WAS THE RIGHT TIME TO REFRESH OUR LOOK AND FEEL – J ONATHAN STREET Vala’s appointment also coincides with the launch of Thinktank’s new branding, seen for the first time at the recent MFAA 2013 National Convention. “Following a strategic review of the business, we felt it was the right time to refresh our look and feel. We’ve grown significantly since we launched almost a decade ago, and we wanted an identity that reflects our leadership position and commitment to our borrowers and finance partners.”
Broker site takes out top award
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ustralian real estate social networking site Housenet.com.au has been named one of Australia’s 100 most innovative products or services in Anthill Magazine’s SMART 100 Index. Housenet CEO Darren Moffatt says he’s “thrilled” with the accolade. “We’ve worked super hard to build an innovation that helps people get better results with property, so it’s great to receive this recognition.”
MEMBERSHIP IS GROWING FAST, AND I’M SURE THIS AWARD WILL HELP EVEN MORE – D ARREN MOFFATT
VIC BROKER HONOURED
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ictorian broker Tracey Pye was named top Mortgage Express broker at the Harcourts National Conference on the Gold Coast in June. Pye won the two top awards, beating 28 other brokers from across Australia to earn the title of Top Mortgage Broker in number of settled mortgage referrals and number of settled Harcourts referrals. “After having been in business for many years, I’ve learnt the value of customer service as well as the rewards from hard work,” she says. “Being part of the Mortgage Express team now means I have support from other colleagues, access to IT systems and advertising, and the feeling of being part of a team. I am honoured to be the Mortgage Express Top Broker of the Year and very proud to be associated with the Harcourts Group.” This year’s conference marked Harcourts’ 125-year anniversary and had a theme of ‘One team: Celebrating 125 years’. “We are proud of Tracey and what she has achieved. She is part of a strong network of mortgage brokers across Australia who are committed to achieving the best for their clients,” says Mortgage Express CEO Marcus Williams. “The theme of one team is very relevant for us as we work extremely closely with Harcourts estate agents.”
Moffatt says Housenet aims to be the ‘base station’ site for homeowners, investors, residents and first home buyers. “We think our custom technology fills the gap that exists in your digital world between traditional real estate portals, property forums and social media. People use Facebook for friends and LinkedIn is for your career, but what about your home? What site is the base for your property and online relationships with the locals where you live or invest? Housenet is that site.” He says Housenet members can connect with other residents and ‘property people’ in their suburbs, access live market data to find real estate bargains across Australia, and manage home improvement projects using an online renovation tool. “Membership is growing fast, and I’m sure this award will help even more, which is great.”
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IN FOCUS
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epper Home Loans recently ran its Better Business Roadshow, with its Sydney stop providing NSW brokers with workshops on how to put together specialist deals, as well as communicating their value proposition to clients. Photography by Simon Kerslake
View more photos from this event at brokernews.com.au/industry-events
INSIDER
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AUSTRALIA’S MOST (AND LEAST) TRUSTED PROFESSIONS
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Quirky co-workers
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lison Green, aka blogger Ask a Manager, recently asked her readers to submit descriptions of their weirdest ever co-workers, from which she selected her favourite 10 for publication. We had a quick read and, after quietly thanking our lucky stars that the worst thing our office mates do is ‘forget’ their wallet when we go out for Friday drinks, have re-published some of the best – and a few extra for good measure:
THE GUY WHO BALKS AT USING A BATHROOM
“Instead, he pees into the bushes at the far end of the parking lot (still in full view of those with window offices, those on smoke breaks and others milling about).”
THE COMPULSIVE LIAR
“We kept a list of crazy things she said, like one time Bill Clinton tried to seduce her, another time she was on a boat with U2 and Elvis Costello and the boat capsized, and that she was responsible for inventing a number of famous products.”
THE PANTS-SHIRKER
“I had a co-worker who noticed people would go to the restroom and change into workout clothes before leaving the building. She decided she’d be okay to change into her bathing suit with just a long t-shirt over it and then come back into the office space to finish filing. She did it twice before I had to go ask my manager to talk to co-workers about wearing pants in the workplace. I wish you could’ve seen my manager’s face when I led off with that statement.”
THE BACKSCRATCHER LOVER
“In my first office job, there was a guy who carried a briefcase every day. Inside the briefcase was a plastic fork taped to a pen, and nothing else. He’d used it as a back scratcher, loudly proclaiming his pleasure as he shoved it down the back of his shirt.”
WE KEPT A LIST OF CRAZY THINGS SHE SAID, LIKE WHEN BILL CLINTON TRIED TO SEDUCE HER
rumroll please, ladies and gentlemen, as we announce Australia’s most trusted professions (according to a Reader’s Digest poll): The top two – firefighters and paramedics – tied (no real surprises there), but the fact that people generally trust taxi drivers more than they trust journalists comes with a bit of a sting. Mortgage brokers failed to make the list, but fellow financial services professionals, including financial planners and insurance salespeople, came out less trustworthy than hairdressers, farmers and flight attendants – though, thankfully, more so than politicians.
Professions Australians trust
1. Firefighters
2. Paramedics
3. Rescue volunteers THE KEENER
“At a previous job, a meeting was called and the team supervisor announced that a senior team member had just been let go and that we would discuss the transition. As soon as the supervisor had the words out, the team’s assistant blurted out, ‘I call his job!’”
The list of 10 inspired us to have a look at what else the Internet would turn up in terms of weird co-workers. The DC Urban Moms and Dads forum turned up some crackers, including the following: A male in his late 30s with whom the contributor had been working with for three years and who had never been heard to speak a word. Oh – and he waited until the end of the day, after everyone had left the office, to empty the free candy bowl. An IT woman who completely ignored you, even when directly addressed. The one exception was if you asked this woman about the cats that she owned (there were eight). “She has eight cats at home and loves to talk about them. If you can get her talking about her cats, she’ll actually help you.” …And on DemocraticUnderground.com, you can read about a secretary in Southern California who couldn’t remember whether it was morning or afternoon. “She would have to place one sticky note on the telephone saying ‘Good morning’ and another one for ‘Good afternoon’.”
4. Nurses
5. Pilots
6. Doctors
7. Pharmacists
8. Veterinarians 9. Air traffic controllers 10. Farmers 11. Scientists 12. Armed Forces personnel 13. Police 14. Dentists 15. Teachers 16. Childcare workers 17. Flight attendants 18. Bus/Train/ Tram drivers 19. Locksmiths 20. Hairdressers 21. Postal workers 22. Waiters 23. Computer technicians 24. Security guards 25 Cleaners 26. Builders 27. Alternative health practitioners 28. Plumbers
29. Mechanics 30. Accountants 31. Shop assistants 32. Truck drivers 33. Charity collectors 34. Professional sportspeople 35. Bankers 36. Financial planners 37. Airport baggage handlers 38. Clergy (all religions) 39. Lawyers 40. Tow-truck drivers 41. CEOs 42. Taxi drivers 43. Journalists 44. Talkback radio hosts 45. Real estate agents 46. Sex workers 47. Call centre staff 48. Insurance salespeople 49. Politicians 50. Door-to-door salespeople
DIRECTORY brokernews.com.au
AGGREGATOR / WHOLESALE BROKER FAST 02 9233 8222 www.fastgroup.com.au Page 7
FINANCE
ARAP NSW & VIC 0415 210 434 QLD, WA & SA 0434 254 798 Page 11 Rhino Money www.rhinomoney.com.au 1300 654355 Page 12
LEGAL SERVICES
Bransgroves Lawyers (02) 9221 9522 info@bransgroves.com.au www.bransgroves.com.au Page 17
LENDER
Liberty Financial 13 11 33 www.liberty.com.au Page 3
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MKM Capital 1300 762 151 www.mkmcapital.com.au Page 4
Rapid Capital 07 5562 2485 www.rapidcapital.com.au Page 8
National Australia Bank www.nabbroker.com.au Page 5
WHOLESALE
Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 13
REAL ESTATE
Look Property Group Residential Project Sales & Marketing 03 9827 8288 www.lookpropertygroup.com.au Page 19
SHORT TERM LENDER
Interim Finance 02 9982 2222 www.interimfinance.com.au Page 2
Resimac 1300 764 447 www.resimac.com.au Page 32
OTHER SERVICES RP Data 1300 734 318 Page 23
Trail Book Buyers 1300 742 306 or 0434 742 306 info@trailbookbuyers.com.au www.trailbookbuyers.com.au Page 10 Trailerhomes 0417 392 132 Page 27
Mango Credit 02 9555 7073 www.mangocredit.com.au Page 1
To advertise in Australian Broker, call Simon Kerslake on 02 8437 4786
