MAY 2014 ISSUE 11.10
$4.95 POST APPROVED PP255003/06906
+INSIDE + NEWS A look at what’s been making headlines P4
+ BEST PRACTICE BIG DATA’S BIG OPPORTUNITY
How to intelligently use the data at your fingertips P10
+ ANALYSIS WISDOM FROM ACROSS THE DITCH
What Australian brokers can learn from their Kiwi cousins P12
+ OPINION RETHINKING STUDENT DEBT
Brendan O’Donnell: THE STRENGTH OF BRAND Liberty Network Services managing director Brendan O’Donnell on why brokers backed by a brand could have a leg up
B
rendan O’Donnell is a firm believer in the power of branding. When O’Donnell launched Liberty’s branded retail model, Liberty Network Services, in late 2011, he said the offering would take the best of both franchise and aggregation models to offer brokers the strength of a recognisable brand. More than three years on, he maintains the proof is in the offering’s performance. FULL STORY PAGE 18
Uni debts could keep this generation out of the housing market P16
+ MARKET TALK SELLING WITHOUT SPRUIKING Integrating property advice without a conflict of interest P22
+ CAUGHT ON CAMERA NEXTGEN.NET’S INNOVATION UPDATE P29
NEWS 2
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NUMBER CRUNCHING
SELLING QUICKLY
BORROWING A BUNDLE?
Average time on market for capital city houses
Average LVRs by state
58.1% Sydney: 29 days
Hobart: 65 days
70.5% BY THE NUMBERS
Melbourne: 38 days
Brisbane: 58 days
Darwin: 54 days
Next-time home buyers are saving an average of 16.6% of their take-home pay Source: Commonwealth Bank
Adelaide: 51 days
Canberra: 35 days
QLD
70.3%
WA
16.6%
Perth: 59 days
65%
NT
64.2%
SA
72.4% 66.7%
NSW
VIC
AUSTRALIA
Source: RP Data
Source: AFG
WHAT THEY SAID...
MARK BOURIS
“The acquisition of Vow is consistent with our strategy to become a leader in the non-bank sector” P4
GERALD FOLEY
“When we were predicting brokers would get to 50% market share, everyone thought it was crazy. It’s got there and I don’t see why it would stop” P8
JAMES PIBWORTH
“The industry needs new potential superstars that inject passion and energy and take the industry forward” P16
BEN KINGSLEY
“They go hand in glove, finance and property investment. The majority of property investors will seek out lending” P22
NEWS 4
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Naylor to depart MFAA YBR moves ahead with ■ MFAA CEO Phil Naylor will step down at the Vow acquisition end of 2014. Naylor told the MFAA Convention on the Gold Coast that he will step down from his role as of 24 December this year. “I just felt that I needed to do something else with the skills and talents I’ve developed. So after almost 12 years as chief executive, I believe now is the right time to pass on the baton,” Naylor said. MFAA president Tim Brown praised Naylor’s tenure as CEO. “Phil has always actively and vigorously lobbied government regarding the role and relevance of brokers. From 2003 to 2007, Phil was a driving force to persuade state governments to work together to achieve uniform broker legislation. “In the NCCP negotiations, he championed the case to ensure NCCP covered all sources of credit (not the original intention of brokers only) and to recognise the difference between credit and financial products. This enabled brokers to give credit advice under the NCCP Act rather than the more complex FSR Act. “Phil and his team have built a strong and resilient organisation that is well respected within the industry and by government. It is further testament to Phil’s character that he will continue to assist the organisation in the transition to his successor,” Brown said. Phil Naylor
RESIMAC ACQUIRES ONLINE LENDER ■ Non-bank lender Resimac has purchased mortgage
company State Custodians. Resimac, a wholesale funder, became majority owners of online lender State Custodian in 2011 and now owns 100%. State Custodians CEO Heidi Armstrong has resigned. She founded the business with David Westerman – the director of online sales – in 2006, but told Australian Broker that with the most recent acquisition she felt it was time to go. “It’s one of those things – how long can you stay? I’m very proud of building up State Custodians and it’s just time. So there’s nothing other than it’s time for a new chapter.”
■ Yellow Brick Road has
moved ahead with its mooted acquisition of aggregator Vow. “The acquisition of Vow is consistent with our strategy to become a leader in the non-bank sector,” YBR executive chairman Mark Bouris said. “Vow will provide YBR with a new national distribution channel and business model, with its current access to over 700 mortgage broker groups. It is a profitable business that earns commissions from a growing loan book with a current total size of approximately $18bn.” The Vow board has unanimously accepted the offer, as has Vow CEO Tim Brown and largest shareholder Macquarie Bank. This makes up around 40% of Vow’s issued capital. Vow management and staff are said to be supportive of the change in ownership, which is subject to various approvals by YBR shareholders too. A general meeting of YBR shareholders will be held mid-July. “Any business looking to consolidate or merge is looking for scale – with it comes better rates, better commissions, all the better opportunities that come with being a bigger business,” Brown said.
Mortgage volumes slump ■ Overall mortgage volumes
processed by aggregator AFG fell 9% from March to April. This slump was attributed by the brokerage to the series of public holidays at the end of last month. However, this April has still been AFG’s strongest on record, with 8,517 mortgage applications valued at $3,574m processed over the month. Overall numbers may have been down since March, but what has seen a surge last month is the proportion of property investors in Queensland.
FAST FACT
75.2% Major bank share of mortgages processed in April Source: AFG
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NEWS
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6
ASIC isn’t picking on brokers, Kell claims
WORLD NEWS UNITED STATES OF AMERICA
■ Brokers should not be upset when their profession is splashed
POSH FORECLOSURE COULD SET RECORD
A home in New York’s Hamptons may set a foreclosure record for the area. More than $10.5m is owed on the home, situated on the Hamptons’ Further Lane, where Jerry Seinfeld and hedge-fund manager Steven A. Cohen own estates, according to a Bloomberg report. It’s also near a mansion that recently sold for $147m, the most expensive price ever for a US residence. The 8,100-square-foot home, built in 2000, has eight bedrooms and five bathrooms, Bloomberg reported. The home also features a 1,300-square-foot pool and five fireplaces. The house is scheduled for auction in June, with many bidders expected, according to Bloomberg. Bidding may start at less than what is still owed on the house. Previous foreclosures in the Hamptons have been for less than $5m, Bloomberg reported. The property is expected to sell quickly.
CANADA OECD CALLS FOR CANADIAN MORTGAGE INSURANCE WITHDRAWAL The Organisation for Economic Co-operation and Development (OECD) has joined the list of groups calling for cuts to government-backed mortgage insurance in Canada. “To reduce housing-related risks to financial stability and improve lender incentives, mortgage insurance coverage should be limited to only part of lenders’ losses,” the OECD states in its report. The global think tank recommends that Canadian mortgage lenders should shoulder some of the risk inherent in insured mortgages. It’s a sentiment first stated by the International Monetary Fund in late November of last year.
DID YOU KNOW?
$430,000 The stamp duty threshold in WA will drop from $500,000 to $430,000, according to the state’s most recent Budget Source: WA Government
across headlines for all the wrong reasons because of rogue members, ASIC deputy chair Peter Kell said. In a speech to the MFAA National Convention, Kell said ASIC does not target brokers as some think, but instead removes brokers from the industry for good reason. “There has been some suggestion in the industry that, in relation to loan fraud, ASIC is targeting finance brokers. “[But] those we remove from the market, or criminally prosecute, have been the subject of these actions for good reason… we will take action regardless of who breaches the law.” Cracking down helps consumer confidence that the market is being regulated and a fairer environment for those that are doing the right thing, he said. “We have no tolerance for loan fraud involving false loan applications and related documents, and we have had a campaign to identify and crack down on misconduct of this sort.” ASIC has banned 42 people – 19 permanently – since the introduction of the National Credit Act. Almost half of these bans are from people submitting falsified documents to lenders. Peter Kell
Adviser stokes bubble fears ■ A Brisbane-based financial planner has slammed Australia’s
large amount of mortgage debt as being the precursor to a GFCstyle meltdown. In his submission to the Financial Services Inquiry, Puzzle Financial Advice director Bruce Baker said the current preconditions – historically large housing price and large personal debt bubbles – are the same as those which led to the “near collapse of the US banking system” in 2008. “Australia has the biggest house price bubble in its history, a bubble that has been funded by Australia’s historically-largest private debt bubble (which is predominantly mortgage debt).” But Australia is “not sufficiently prepared” for a large house price crash and must do so by changing financial institution regulations before it is too late, he said. “Hopefully, Australia can learn from the US house price crash experience and GFC, to better prepare Australian banking regulations and Australian banks for our own 2008-style of financial crisis, brought on by our own house price crash.”
NEWS
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8
Tech overhaul will deliver for brokers, non-major claims
BROKERS SOUND OFF Brokers on the Australian Broker Online forums cheered Gerald Foley’s assertion that the third party could grab more of the market.
■ An overhaul at ING Direct will mean plans to automate the back
office and upgrade third party portals will happen more quickly, says its head of distribution. The non-major has overhauled its entire infrastructure by transferring its systems into a private cloud – the first bank in Australia to do so. The 12-month project, called Zero Touch, aims to simplify the company’s production environment by providing new computing, network and storage infrastructure. The company went from 400 servers down to 80 in a move which is being replicated in ING branches over the world. Executive director of distribution Lisa Claes said much like re-enforcing the foundations of a house before building another storey, the company had to re-platform all the underpinning foundational systems before it could move forward with other innovations. “By making our infrastructure way more efficient and stronger, what will follow is that our development capability – speed and quality – should be able to run and deliver more initiatives... It may not sound very sexy but it will allow us to do sexier things.” ING can now give a larger slice of the budget pie to development activities rather than spending IT resources on housekeeping, Claes said. For brokers, this will mean plans to automate the back office and upgrade third party portals will happen sooner rather than later. Lisa Claes
Lender lent a hand by shareholder ■ Debt-plagued lender Firstfolio is being salvaged by its
director and shareholder Tony Wales, who has lent it $29m to repay its debt to Commonwealth Bank. Non-bank lender Firstfolio has had trouble repaying its loan over the past two years to Commonwealth, which has already extended the payback period twice while alternative finance was found. Firstfolio has announced Tony Wales, through his private company Welas, has stepped in to bail Firstfolio out by fully repaying the Commonwealth loan. “This refinancing will address Firstfolio’s immediate funding needs and allows us to confidently pursue opportunities with our business partners and broker network, and implement a debt reduction program over time without the pressure of our existing debt facilities reaching maturity in the near term,” Firstfolio chairman Eric Dodd said.
OLD BROKER
DID YOU KNOW?
12.6% First homebuyers accounted for 12.6% of the market in March, up marginally from 12.5% in February
“I predict as soon as brokers get access to technology to take clients out of the market we will get to 80%. The only thing stopping us is that I take 10 days and CBA can do it in 45 minutes. Most borrowers I have spoken with over the years say that once they decide on the product and features they want the approval. I think it should be this for vanilla borrowers. Watch this space.”
COUNTRY BROKER “Totally agree. The market is sick of home loan consultants employed by the banks who simply have no idea. Brokers care about their clients.”
Source: ABS
POSITIVE BROKER “I agree, Gerald. And it’s also great to see an industry leader trumpeting the broker proposition. Let’s get the message out about the fantastic service we all provide.”
BROKERS COULD GRAB TWO-THIRDS OF MARKET ■ An aggregator head has predicted broker market share will swell well
beyond 50% in the years ahead. Speaking to the National Mortgage Brokers conference in Port Douglas, NMB managing director Gerald Foley said broker market share has grown – for all intents and purposes – to the 50% mark. But Foley predicted brokers could see their share of the market continue to grow. “When we were predicting brokers would get to 50% market share, everyone thought it was crazy. It’s got there and I don’t see why it would stop,” he said. Foley said the broker proposition was still a popular one, and would increase in popularity as the industry continued to become “confident and competent”. “It hasn’t changed, the fundamental proposition where you come to me because you’re either time poor or information poor, I’ll find out about you and I’ll find a lender or product supplier to match your needs. It’s a great proposition,” Foley said. With the 50% threshold now achieved, Foley predicted brokers could grab a significantly bigger chunk of the home loan market. “I’m saying now two-thirds market share should be where we land as an industry. Again, from there who knows where it goes? I really just don’t see why it can’t keep growing the way it is,” he said.
BEST PRACTICE 10
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How can ‘big data’ help differentiate you? RP Data’s Chris Spanos on using data wisely
W
hen property data subscriptions became available to real estate professionals in the early 1990s, few could have predicted the explosive growth of the internet and its potential to liberate that data. Within a decade those subscriptions were online, allowing a sole suburban agent access to property information regarding virtually every residential property in the country from any PC with an internet connection. With the concurrent rise of listings portals and the ability for consumers to review hundreds of results in seconds, we live in a world where property data is no longer limited to industry professionals. Along the way, some agents and brokers have expressed annoyance at the increasing incidence of clients armed with research they have collated online. Much like patients that visit their GP with a Google list of symptoms and diagnoses, what role do you have if clients think they have all the answers already? Just as a GP has access to information and resources patients don’t have, so do you. You just need to know where to look. Do you have access to an online property information service like RP Professional? With advanced search capabilities, mapping functionality and a research-focused interface, you can find the answers your prospective clients seek in a fraction of the time it takes them to troll through a listings portal. Do you have access to a mobility solution like rp.mobile pro? With a streamlined smartphone interface and the core data elements available in RP Professional, you can take property information with you and engage with prospective clients on their turf. Do you know what a Comparative Market Analysis, Automated Valuation Model and Property Profiler report are? With the advent of rich data and analytics, property professionals can now access property reports that provide prospective clients with insights they cannot otherwise obtain. Have you heard of Suburb Scorecard? With access to rich suburb-level data, such as median sale prices, median values, median rentals, average days on market,
18%
WHEN YOU HEAR REPORTS ABOUT THIS NEW FAD CALLED ‘BIG DATA’, THE REALITY IS THAT IT’S ALREADY HERE average vendor discounting and indicative yields, available as a data extract or through an intuitive graphical interface, you can empower both first home owners and property investors to make informed decisions. Have you ever used a Property Monitor service? Would you like an automated system that tracks every current client’s property and alerts you when it’s listed for sale? This isn’t just about protecting trailing commissions; it’s about engaging with prospective clients that have had a positive engagement with you in the past and are looking for trusted advice. When you hear reports about this new fad called ‘big data’, the reality is that it’s already here. The products and services detailed above are only possible because the databases they are built upon contain well over 200 million records. When you access and use any of them, you are leveraging big data to provide your prospective clients
COMPANIES FAIL TO USE BIG DATA WELL Only 18% of companies are properly harnessing big data to complete significant statistical analysis about their workforce, according to Forbes research. The remaining 82% are struggling to figure out how to measure and manage data effectively, so, for the most part, they fail to use it at all. Forbes reports that just 4% of companies have achieved the ability to harness big data and perform “predictive analytics” about their workforce, while 14% have at least done some significant statistical analysis of employee data. The remaining 82% are “still dealing with data management and reporting challenges, trying to get out from under the burden of ad-hoc reports to deliver standard operational metrics”, said Josh Bersin, founder of Bersin by Deloitte.
with insights that were impossible to glean just a decade ago. The Australian mortgage industry has long since become a mature one, with a diverse array of products, brands and brokers. Differentiating yourself continues to be one of the challenges facing brokers. Big data, together with the products and services it enables, is another tool that can help you stand out from a crowded marketplace.
ANALYSIS 12
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A lesson from across the ditch
One of New Zealand’s top brokers shares how Australia’s market can learn from our Kiwi neighbours
T
hough they may not like to admit it, Australia and New Zealand have more in common than differences. These commonalities carry important lessons for both countries, and the differences may provide even more invaluable lessons. Geoff Bawden has been a mortgage broker in New Zealand since 1996. In 2006, he merged two mortgage companies together and launched a niche aggregator, Prosper. As director of the company, he’s seen significant changes in the New Zealand market. Dealing with some of these changes has helped him to keep his company ahead of the curve, and he recently told the Vow Mini Conference in Sydney that some of the changes carried important lessons for brokers in Australia.
A HISTORY OF THE NEW ZEALAND MARKET
Bawden said mortgage broking in New Zealand began to gain real momentum in the mid to late 90s, before this having been seen as “an industry of last resort” by consumers. In 2000, New Zealand brokers saw the introduction of trail commissions. While most of the industry welcomed the opportunity to generate passive income, Bawden said this opportunity was not to last. “In 2004, guess what? Lenders came along and said, ‘This is an expensive channel, and we don’t think what we’re paying for it is sustainable’. Overnight, trail disappeared with the exception of a couple of lenders,” Bawden said. And commission woes weren’t over for
brokers in New Zealand, he said. “In 2006, lenders came along again and said, ‘Margins are still pretty tight. We think you’re an expensive channel to support so we’re going to cut the upfront commission we pay you’. At that point, the cut was on average about 25-30%, and that just happened overnight,” he said. But turmoil for the New Zealand market was far from over. In 2010, the country saw a regulatory regime come into place, making the industry “very compliance orientated”, Bawden said. “I think the industry took its eye off the ball and lost sight of the prize, and became almost entirely focused on making sure it was doing compliance right,” he said. 2011 saw the Christchurch earthquake, a blow to the country’s economy Bawden said could take 50 to 100 years for New Zealand to recover from. Moreover, just last year the Reserve Bank of New Zealand introduced LVR speed limits that result in lending above 80% virtually disappearing, he said. All this has added up to an industry that has suffered significant setbacks. From packing at around 43% market share in 2008, Bawden said brokers in New Zealand now controlled less that 30% of the market. But this doesn’t mean Kiwi brokers are finished, he said. Instead, he argued that the channel has learned to adapt and survive.
KIWI INGENUITY
Bawden said brokers in New Zealand changed the way they did business as a response to market turmoil. He said his own
group took action before many of the changes came to bear, shifting its strategy several years ago. “If you look at 2008, about 95% of all income generated by mortgage brokers in 2008 came directly from mortgages. The bulk was upfront, and there was some trail. We recognised at the time that we couldn’t continue to rely on that mix of business, and we had to look at different ways to sustain our business,” he said. For Bawden, and most other brokers in New Zealand, this meant diversifying revenue sources. “About 65% of our income is now from upfront mortgage commissions, and about another 7% is from trail. That’s probably greater than a lot of groups in New Zealand, because we’re a group that has embraced passive income, or those players who still pay trail income,” he said. But the group’s focus has shifted beyond mortgages, Bawden said. “The important two areas of growth for us is risk insurance, which is now 20% of our income. Five years ago we would be lucky if it was 5%. And the other is fire and general insurance, which is growing exponentially. It’s currently 8%, but next year it probably will be about 12%,” he said. Bawden said this doesn’t mean that his group’s mortgage revenue has decreased. “One, we’ve spread our income across the board, and two, we’ve spread the risk in relation to where it comes from. In doing that, we’ve protected ourselves from the vulnerability that exists in the market.”
A TIMELINE OF THE NZ MORTGAGE INDUSTRY Trail income introduced
2000
2004
Lenders cut upfront commissions 25-30%
2006
Trail income withdrawn
Regulation introduced
2008 Broker market share peaks at 43%
2010
RBNZ introduces LVR caps
2011
2013
Christchurch earthquake
2014 Broker market share at less than 30%
brokernews.com.au
A LESSON FOR AUSTRALIA
Bawden said the Australian and New Zealand mortgage broking industries share many of the same factors. “We both have regulation and the associated compliance costs. We both work through aggregation models. We predominantly use the same lenders. We’ve both experienced cuts in commissions. Our market demographics are pretty similar. Importantly, we both face the same competitive threats. The big one for me is the advent of direct selling,” he said. And though mortgage broking in Australia is a healthier channel, Bawden warned against complacency. “You guys enjoy the safety of a bigger market and the security that the structure of your income provides, but you remain vulnerable to the same threats we have in New Zealand,” he said. For example, Bawden said Australia has narrowly dodged regulatory changes that could have had a devastating impact on the market given mortgage brokers’ current reliance on residential home loans. “Australia came very, very close to having LVR caps introduced last year. If that would have happened, I’m convinced it would have completely changed the dynamics of how you have to trade and do business,” he said. Bawden’s message to brokers in Australia is to plan for the worst, so as to safeguard their business against the unexpected. And this preparation doesn’t have to be imbued with a sense of negativity, he suggested. “Don’t be afraid of change. Embrace the opportunity it provides.” But most importantly, Bawden said Aussie brokers shouldn’t assume the shocks that hit the New Zealand market could never happen here. “Don’t be complacent just because you have the stability of passive income that trail provides. The market really can change for you guys overnight. If that were to occur, you need to be positioned to be able to cope with that,” Bawden said. While diversification is constantly pushed by aggregators and lenders, Bawden argues that brokers would do well to listen. Buying into the idea of a diverse revenue base can safeguard a broker’s business, he said. “Recognise the value that diversification of revenue can provide, and the importance of ring-fencing and protecting your client base,” he said. Ring fencing a client, Bawden argued, became increasingly important should trail income become a thing of the past. “When you’re just relying on upfront commissions, the minute a deal goes across the table you’re competing with the other party for control of the client,” he said. And diversification doesn’t just protect brokers from competition from lenders, he said. It also gives them a competitive edge among their peers. “If all you’re doing is promoting mortgages and you’re not doing anything else, guess what? Someone else is. If you’re not satisfying your client’s financial needs outside of a mortgage, someone else will, and that person may be selling mortgages as well.”
13
TECHONOLOGY UPDATE
NextGen.Net: Transforming the industry through innovation NextGen.Net is rolling out new revolutionary innovations; delivering on what NextGen.Net Sales Director, Tony Carn, refers to as the optimal “quality framework” to manage loan originations. The quality framework that underpins the whole mortgage industry is built on the maxim, “getting it right the first time”, Carn says. “Quality is the key to cost. For a lender, this translates as StraightThrough Processing (STP), which means no additional information required.” In the quest for STP, the industry’s ‘Holy Grail’, the NextGen.Net electronic lodgement service, ApplyOnline, has the lead role. Its support cast are complementary components designed to enhance the service, and bring brokers, lenders and customers closer to the ultimate quality experience. “Our primary focus is on attaining quality through innovation,” says Carn. Last year NextGen.Net announced a roadmap to realise its goal of a quality framework. Four critical elements were identified: the quality of data submitted, application quality (the loan meeting a lender’s servicing requirements), the quality and accuracy of supporting documents, and the ability to access NextGen. Net’s services and information. Accordingly, over the past 12 months NextGen.Net has delivered: • POS Data Verification – GNAF, ASIC, ABR; • Simplified and Accessible Lookup Service; • Lender policy and servicing metrics at POS and published in real-time (this now covers 94% of all applications by volume); • Valuations at POS; • Lender ‘Fastlane’ application prioritisation; • Intelligent Supporting Document Checklist; • Online Supporting Documents service “It’s not about people not doing a good job when they submit a deal; it’s usually lack of awareness of policies or detail that is left out or overlooked,” Carn says. “We provide a framework so lenders and introducers can collaborate to get it right first-up at POS.”
TONY CARN New components being rolled out by NextGen.Net to augment their quality framework include: • Open Data Interface (an extension of externalising access to lenders and brokers to tools such as Supporting Documents and metric calculations through an API); • Universal resubmission (a tool to give brokers a consistent resubmission experience with all lenders); • ‘Snapshot’ (a summary of the application structure and complexity, such as number of applicants, loan products and securities, if a company or trust are involved, if there is a guarantor, etc.); • Quality Stars (a broker visible application quality rating system); • Assisted Document Sorting using intelligent OCR (Optical Character Recognition). This represents the next step in ensuring supporting document quality. It helps brokers match documents and assists with sorting and filing documents online. • Lender ‘Easy Verify’ (a tool that allows lenders a simple tool to verify documents and communicate quickly back to the broker. “The exciting thing for us will be seeing how our clients leverage the opportunities the quality framework creates in their own business, says Carn. “These opportunities are about helping lenders better process and resource-stream applications and support brokers, build a stronger framework for relationship management and objective measures for assessing broker relationships, and reward relationships on the merit of each individual application. “The most important factor our innovations address is of course cost reduction. Our tools achieve quality at POS and therefore radically reduce costs for all parties.”
ANALYSIS 14
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AHEAD + COALFACE JAMES PIBWORTH
The energetic director of Iconic Home Loans shares the big plans for his business P16
What does the Budget mean for brokers?
BLOGGING FOR YOUR BUSINESS
The Federal Budget has riled most of the Australian public, but what impact can brokers expect to see across their businesses?
+ MARKET TALK
he Federal Government’s austere Budget didn’t win it many friends when unveiled by Treasurer Joe Hockey on 12 May. State premiers decried the added burden on their own budgets, the Opposition pointed to broker election promises and the government’s and Prime Minister Tony Abbott’s popularity sank to new lows in the Newspoll released the week after the Budget. But what does it mean for brokers?
+ BEST PRACTICE How to generate organic leads from the web P20
A VALUATION PRIMER
What brokers need to know about the valuations process P23
T
THE IMPACT ON HOUSING
+ SPOTLIGHT HANDOVERS THAT PREVENT HEADACHES
How to buy a business without running into conflict P26
+ FORUM A FIRESTORM OVER LOST ACCREDITATION
Brokers vent their anger over one of their own who lost lender accreditation P27
For housing, the Budget could be a mixed bag. First home saver accounts, introduced in 2008, are to be axed under the Budget, with the government citing lower-than-forecast take-up rates. New accounts opened from now will not be eligible for concessions. The government also announced co-contributions will stop from 1 July, as will tax concessions and asset and income test exemptions for government benefits associated with these accounts. The saving to the Budget is estimated to be $113.3m. This may seem of little concern, as uptake of the scheme was abysmal. Only 46,000 of the accounts were ever opened, with a total balance of $521.5m. But Real Estate Institute of Australia president Peter Bushby said the abolition of the accounts amounted to yet another disincentive for an already struggling first home buyer market. He said the Budget offered the government the opportunity to make the scheme more attractive, rather than sideline it altogether. “We would like to have seen the scheme reviewed and improved rather than thrown on the scrap heap because of an initial low uptake. With home ownership in Australia declining an first
BY THE NUMBERS
88%
of consumers feel the Budget will not benefit them
74% of businesses feel the Budget will not benefit them Source: Roy Morgan
home buyers finding it increasingly difficult to enter the housing market, this will not help the situation,” said Bushby. However, the government has indicated the national Rental Affordability Scheme should be reviewed, an action REIA supports. We’re pleased to see no change to negative gearing in its current form for the purpose of property investment,” Bushby said. The Housing Industry Association said while the Budget is framed in the context of addressing the budget deficit, this is at the expense of a number of worthwhile programs. “The residential building sector has only just begun to play a pivotal role in driving the economy as the nation transitions away from mining led growth. The recovery in new home building has been highly dependent on demand generated from the household sector. Maintaining and improving consumer sentiment remains a priority,” said HIA industry, policy and media CEO Graham Wolfe.
TAKING ON THE DEBT
But some have defended the Budget, claiming its austere measures are necessary to take on ballooning debt. Finance Brokers Association of Australia head Peter White gave the Budget the “thumbs up”, and said it is the budget the country needed to repay debt.
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“A $657bn debt with an interest bill that would make your heart stop isn’t easy to get rid of,” he said. White conceded that the Budget could be painful for some, but said it addressed a need. “Although there are areas of the budget which are not the most desired, this is the government’s plan to pay off their debt, like all of us have to pay off ours.” He also said some of the Budget’s education measures could help the mortgage broking industry. “We commend the extension of HECS to trades. This will assist the finance broking industry to attract new participants,” White said. White did, however, express worry about the impact some Budget measures could have on household budgets and the ability to meet mortgage repayments. “We hope the changes to Medicare and family assistance won’t hurt families and their ability to make mortgage repayments. We won’t know the real impact of this for some time.” But the budget must be considered with a balanced view, he said. “There are many areas where money should be spent and increased costs should not apply, but, until the books are balancing out, the belts need to be tightened.”
MIDDLE EARNERS FEEL THE PINCH Not all share White’s view of the
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Budget’s necessity. Some have warned that it could put a severe damper on consumer spending at an inopportune time for the Australian economy, and the middle income earners will be the ones to bear much of the burden. “Middle Australia and to a lesser extent Australian seniors are the losers from today’s Budget, and this may well have a likely knock-on effect on discretionary consumer spending at a time when the Australian economy needs a boost,” said Ken Raiss, managing director at Chan & Naylor. Raiss called the Budget’s impact on middle income Australians “disproportionate”, and warned that its measures could have a negative outcome for the economy. “Like a family budget, an economy can only survive if it spends less than what it earns, thus allowing savings to be reinvested and over time built into income generating assets,” Raiss said. “The government’s focus on revenue generation rather than expenditure cuts may therefore negatively tilt the economy.” Raiss also warned that changes to the pension age could create uncertainty for middle aged Australians in lower paid jobs. “Building sufficient funds for a comfortable retirement over the next 20 years may be challenging for this group, particularly in view of the increasing costs associated with Medicare, petrol as well as family benefit cuts.” Some have cheered a 1.5% cut to corporate tax as a measure to help small business, and for most brokers – who are small business owners – any measures to alleviate strain on small businesses are welcome. But Raiss argued that the move was “smoke and mirrors”, and would actually hurt small business owners. He said the cut would result in lower tax credits being returned to super funds. “Those that do pay less corporate tax will have this benefit offset by the increase paid in marginal tax, and the two thirds of Australian small businesses who are not in a company structure will be disadvantaged in relation to their profit reinvestment strategy,” Raiss said.
THE COALFACE
OPINION
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THE MILE A MINUTE MAN
James Pibworth, the energetic director of Iconic Home Loans, talks a mile a minute about his love for broking and the big plans for his business
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ames Pibworth only started up his mortgage brokerage, Iconic Home Loans, five years ago, but he has big plans for the next five. Pibworth grew up in Southampton, UK, where he worked from the age of 16 as a real estate agent, before providing mortgage and financial planning advice at UK bank NatWest. He moved into mortgage broking in 2000 after bank clients told him they loved his service but did not want to use the bank’s mortgage products. Pibworth did not like to lose any clients, so he started a “one-man band” mortgage business in the UK. “I enjoyed the variety of work, no cap on my income, flexibility, the buzz in helping clients achieve their financial goals,” he says. After immigrating to WA less than six years ago and getting his Australian broking papers in order, Pibworth built Iconic up from nothing to 46 staff and 25 brokers. The 35-year-old worked as a broker until 2012, when he expanded the business into financial planning and Iconic became too large for him to carry on broking without neglecting his management duties. The company’s target for this coming financial year will be three quarters of a billion in lending. “We have reached over target in every year I have operated this company,” says Pibworth proudly. He credits Iconic’s customercentric approach and teamwork for the company’s success. “From the cleaner to the MD, we are one team. Our systems and processes enable us to process volume lending and continue to achieve high-end customer service to both our clients and referral partners.” He says it also comes down to “hard work, long hours, commitment and a bit of luck”. Pibworth admits he does not have much spare time. “To be honest, I’ve put everything I have into the companies and it takes most of my time.” But when he
Student debt: Our forgotten DEBT BURDEN WealthMaker’s Michael McAlary on how student debt could impede the mortgage market
L JAMES PIBWORTH
does he spends it with his four kids, Chloe, George, Lui and Luca, his dog Locky, and his wife Carla, who runs her own successful specialist broking recruitment business, Pathways Recruitment. Pibworth believes the industry is in dire need of “new blood”, and suggests there should be a formal career course option at school or university to prompt young people into broking. “The industry needs new potential superstars that inject passion and energy and take the industry forward.” His own business has a fresh, motivated team, and Pibworth hopes all of Iconic’s current trainees will be meeting writing targets with lending and financial planning soon. Iconic’s mortgage broking and financial planning businesses have been fruitful – and the next step in the journey is to open Iconic Accounting within the next five years, Pibworth says. “We also want to build on foundations and improve the lending and financial planning business. We want to continue to stress-test systems and processes, and strengthen and change to adapt to current business levels and of course current times.” Enthusiastic Pibworth has his eyes not just on the Western market but firmly on the rest of Australia. “In five years’ time the Iconic group will operate interstate in addition to in Western Australia.”
ike many readers I have former prime minister Gough Whitlam to thank for my free university education. I started my working life debt-free and within a few years was in a position to buy my first property. It is a different story for my children, who are starting their working lives with an HECS debt for their first degree. By about the age of 22 an Australian student with a three- to four-year undergraduate degree will be required to repay an average of $30,000 in student loans. With many organisations preferring to recruit those with two degrees or a master’s, current students will be required to take on even more debt. Depending on the type of second degree and the university, these students could
loans start to be repaid, combined with former students dropping out of the workforce and the rising cost of living, now means that almost 43% of student loans are never repaid. These will eventually be written off. So, at a macro level Australia has an increasing student debt position in which non-repayment is very high. At the same time we recognise that our youth must be better educated if we are to compete internationally and produce sustainable economic growth. This is resulting in a disconnect, because at one level we are encouraging young adults to take on study and debt, but they are wondering if it’s worth it because they feel locked out of the Australian dream of owning a property.
OUTSTANDING STUDENT DEBT HAS BECOME A MAJOR CONTRIBUTOR TO THE OVERALL FISCAL DEFICIT IN AUSTRALIA have debt between $50,000 and $100,000. No wonder so many young adults see home ownership as unattainable and are deferring life decisions such as marrying and having children. Outstanding student debt has become a major contributor to the overall fiscal deficit in Australia. This reflects the increasing population and the proportion of school leavers wanting a tertiary education. As part of the drive to encourage higher education and open it up to more of the population, the previous Australian government removed caps on the number of government-funded placements universities could offer. At the same time, to prevent the perpetual student, they abolished the student learning entitlement, which limited a person’s eligibility to study at university as a government-funded student to seven years’ full-time study. The lag between university graduation and when student
If Australia wants to be the smart innovative country where we compete globally using our intellectual property, as well as mining and agriculture, we need to rethink the student loan model. Given the high level of defaults, and the indexed threshold and scaling repayment amount, a better solution may be to make first degrees free or at half the current cost, or have a capped amount that is free and further reduce the eligibility from seven to five years. Michael McAlary, WealthMaker Financial Services (See www.wmfs.com.au)
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Brendan O’Donnell:
THE STRENGTH
OF BRAND Liberty Network Services managing director Brendan O’Donnell on why brokers backed by a brand could have a leg up
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’Donnell makes a case for branding in mortgage broking, and has said he expects further consolidation in the industry to see more branded offerings emerge. According to O’Donnell, the strength of branding is threefold. First, he said, brands provide a network of support. “A brand provides a good framework to enable brokers to focus on what they’re good at, because brands have to be committed to support,” he said. O’Donnell said branded propositions also enable brokers to tackle challenges that would be too big for them to handle alone. “Brands provide a profitable platform and give scalability and marketing tools to meet changing dynamics. If you’re not part of a branded proposition, it’s hard to keep up with remaining relevant,” O’Donnell said. Thirdly, O’Donnell said brands provide a sense of comfort to customers, who tend to put stock in recognisable and well-respected brand names and identities. This delivers flow-on benefits to brokers under the brand, he suggested. O’Donnell said the strength of the Liberty Network Services brand is being proven by the proposition’s performance. “We’re just over two years old now, so we’re making good progress. We should reach 50 advisers in the next month, which in a two-year period we’re quite happy with. It’s a critical point for us to get to a medium sized business,” he said.
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DELIVERING ON THE PROPOSITION
The proposition behind the business, O’Donnell said, has not changed. He argued that the brand still offers the best of both independence and support. And in offering aspects of both a wholesale aggregator and a franchise operation, O’Donnell said the brand can deliver support to brokers along with an attractive economic model. “There are five distinct things we focus on to grow the business and to deliver on our promises. The first is that the economics of the proposition is very competitive. We’ve been fortunate in that our business model is such that it’s a blend of offering a range of Liberty products and a panel of lenders, so we can build the business off of the product margin rather than distribution margin. That’s important for those who need scale to continue building their business. The economics of Liberty Network Services are very attractive to the market,” he said. Technology is another vital piece of the brand’s proposition, O’Donnell said. He argued that the branded proposition offered brokers the scale to have access to cutting edge technology solutions. “We’ve built our own platform, Spark, off the iPad. We’ve built it off the back end of Apple and the iPad. No one else out there has the depth of capability we have with Spark. There are many CRM apps out there, and many apps to access information that brokers can use, but when it comes to Spark we have something unique. The broker can receive leads and put the customer into Spark, and they can process the loan through the iPad application and submit it to the lender. They can access all the documents they need to submit the deal, and can with ease reduce the amount of paperwork they use because they have things like the ability to take photos of supporting documents, and documents such as the credit guide can be presented on the iPad and signed by the customer on the iPad,” O’Donnell said. O’Donnell said the company’s technology offering has been a major driver of productivity, as well as a major selling point. And while it may dictate a change in mindset for brokers who join the network, O’Donnell said even brokers who
DID YOU KNOW?
$300m Liberty recently raised $300m in an RMBS issue Source: Liberty
previously had little technology prowess have bought into the company’s offering. “We’re looking for tech savvy brokers, but that being said we have a good mix of brokers,” he said. O’Donnell said another key component of the company’s proposition to brokers was the opportunities it offered for diversification. He said diversification of revenue was an area most brokers seemed to deem a necessity, but that few had managed to implement. “There really isn’t much by way of success in the industry when it comes to diversification. There have been movements by some to introduce financial planning as an extension of their business. I’m personally not a believer in one person being able to manage both mortgage broking and financial planning,” he said. But O’Donnell said the company had “some real success stories” in the area of diversification.
those specialists. We’ve seen a disproportionate amount of our advisers who were typically residential brokers doing those more complex deals. We have an investment platform where advisers can identify potential clients and spot refer them to the investment team at Liberty.”
BENEFITS OF SCALE
Marketing is another area where brokers can benefit from scale, O’Donnell said. “You still get the sense that a large proportion of brokers aren’t really getting into effective marketing. Yes, many buy into the stock standards of sending a birthday email or the quarterly newsletter, but it’s not targeted,” he said. He argued that the size of Liberty Network Services meant it had to back up its claims when it came to marketing support. “As we bring new people into the business, because we’re small we can’t
A BRAND PROVIDES A GOOD FRAMEWORK TO ENABLE BROKERS TO FOCUS ON WHAT THEY’RE GOOD AT, BECAUSE BRANDS HAVE TO BE COMMITTED TO SUPPORT “When it comes to diversification, we’ve really seen it get some traction. There’s a real critical mass emerging when it comes to doing more than traditional mortgage broking,” he said. “All our advisers since having joined Liberty Network Services have written at least one motor loan. These were traditionally residential mortgage brokers, and we now have very successful cross-sell of people doing both,” O’Donnell added. O’Donnell said Liberty as a company had a diverse offering beyond specialist lending, including prime lending, commercial and motor lending and a future move into the insurance market. He said Liberty Network Services gave its brokers access to its specialists in these spaces to generate diverse revenue streams. “Equally with our commercial and SMSF offering, we’ve been able to give our advisers more hands-on access to
afford for any advisers to believe we’re not doing what we said we were going to do in terms of marketing support,” O’Donnell said. The fifth component of the company’s proposition, O’Donnell said, is business planning. Business planning is an area where brokers have good intentions, he said, but often face difficulties in implementation. “Our BDMs help develop a real plan, and we reflect on that plan every quarter and hold everyone to account, including ourselves,” he said. Overall, O’Donnell remains committed to the idea of branding. He argued that the scale it provides brokers will help them stay ahead in a competitive market. “There’s a lot of debate about branded models. I’m a big proponent of the model, so I believe we’re going to see more and more offerings evolve into branded models,” he said.
BEST PRACTICE 20
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BLOGGING for your business Brokers may be more comfortable writing loans than writing blogs, but the latter is increasingly key to generating organic leads off the web, writes industry expert Maggie Crowley
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great website isn’t really that great if no one visits and uses it. One key indicator of performance is the amount of traffic and engagement it receives. I get a lot of questions from advisers asking how to create a website that really maximises its potential. My answer? Blogging. One of the most effective (and economical) ways to increase the number of people visiting and using your website is through financial blogging. On average, we know that about 90% of the traffic a broker’s website receives can be broken down into two groups: prospective clients who visit your site to learn more about your services, and existing clients who want to access their account information and get updates on your business. From a web marketing perspective, your website can and should cater to both of these groups. A blog gives you the ability to maintain client relationships while answering questions and nurturing prospective clients. Just to be clear, here’s a quick definition of what a blog really is, according to Oxford Dictionaries: “A personal website or web page on which an individual records opinions, links to other sites, etc. on a regular basis”. Simply put, a blog is a section of any website that’s updated with valuable information on a regular basis. The most successful financial blogs offer a variety of content (articles, video clips, images, infographics, white papers, etc.) that is targeted towards a specific audience. Maintaining a financial blog requires the time and effort necessary to publish original content, but the rewards of blogging offer brokers a pretty hefty return on the investment. From a marketing perspective there are two primary benefits. The first, and arguably most important, reward of blogging is all about search engine optimisation. By now, you’ve probably heard the term SEO – at its core, SEO is the process of improving the visibility of a website in a search engine’s results. The earlier and more frequently a site appears in the search results list, the more visitors it will receive from the search engine’s users. Because search engines like Google really love the fresh and original content that is published on a blog, websites with a blog regularly rank higher on a search results page. What does that mean for you as an adviser? Basically, blogging is a great tool to help the people who are looking for you online (ie potential clients) find you. In addition to the benefits of SEO and creating fresh content for your website, blogging allows brokers to connect with their clients and prospects
and build a unique rapport that is incredibly cost- and time-efficient. Financial blogging provides a platform for you to position yourself as an expert in the industry. Picture this scenario: a broker publishes a blog article entitled “6 steps to paying down your mortgage quicker”. A well-crafted, informative article will answer readers’ questions, and the broker who authored this post automatically becomes an expert in the eyes of the reader. The impact of blogging on brokers’ website traffic is remarkable. According to HubSpot, companies that blog receive 55% more website visitors. The results don’t stop there; HubSpot also reports that 57% of those companies have acquired actual paying clients from their blogs. Ready to get started with your financial blog? Based on trial and error from my own blogging experience with AdvisorWebsites, here are four ideas to make sure every piece of content you publish on your blog is successful:
IRRESISTIBLE TITLE
There is a saying that those who write for an online audience should spend 10% of their time writing the body of an article and 90% of their time creating the perfect, irresistible title. While I don’t necessarily agree with that theory (if the title WHERE DO ADVISERS GET CUSTOMERS?
Q. Has your company ever acquired a customer using a lead from the following sources? (Graph illustrates ‘Yes’ responses) 80% 70% 60% 50% 40% 30% 20% 10% 0%
Blog
Google+
Banking/financial advice services Marketing agency Other professional consultants
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THE REWARDS OF BLOGGING OFFER BROKERS A PRETTY HEFTY RETURN ON THE INVESTMENT
is that great, surely readers may be disappointed with the actual writing, right?), it does get the point across: the title is important. A few tips for creating an irresistible title: Use action words Explain what the article is about Know your audience
CREATE QUALITY CONTENT
Quality content should be 100% targeted at your audience. Write with your readers in mind. Get into the minds of your readers: what are their problems, what do they do for fun, what’s interesting to them, and, mostly, how can you help? As a broker, use your blog to share your knowledge and expertise. The internet provides a world of opportunity to present yourself as a thought leader in the finance community. Use this to your benefit by explaining current events or answering frequently asked questions.
BE REAL
Online readers generally appreciate not being sold to. Be real; speak from the heart and don’t be afraid to show flaws. Another tip? Instead of talking about your audience, talk to them. The easiest way to do this is to use words like ‘you’, ‘we’, and ‘me’. If you treat writing more like a conversation than a textbook, readers are more likely to enjoy the experience – and actually read it.
SHARE ON SOCIAL
Don’t assume that just because you are publishing awesome blog content your ideal target audience is reading your blog. First you need to let them know that your blog exists! Don’t be shy about spreading the word, especially if your blog is new. By using a tool like HootSuite, you can streamline your social media efforts. HootSuite offers a free service that allows advisers to create and schedule social media posts in advance.
MEASURE YOUR SUCCESS
Measuring the number of views your blog receives can be really insightful. Here’s the simple truth: tracking the performance of your financial blog is vital to identifying whether it’s actually doing its job of generating traffic to your website. If not, then you know it’s time to make some changes. Two of the most important metrics that determine the success of your blog are individual post views and traffic sources.
Maggie Crowley (@crowleymaggie) is the Vancouver-based marketing coordinator for AdvisorWebsites. com, a global leader in website software for the financial industry. She educates industry professionals on how to maximise the potential of a strong web presence.
MARKET TALK
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Can brokers advise on property without spruiking? The chair of an industry association has argued that property advice provides brokers with a golden opportunity
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rokers are used to being intricately tied to the property transaction process, but one industry association head has suggested that brokers looking to diversify their revenue can take that involvement one step further. Property Investment Professionals of Australia (PIPA) chair Ben Kingsley has said the benefits for a mortgage broker who chooses to specialise in property investment advice are enormous. In February, $10.7bn worth of investment loans were written across Australia. “It’s a very, very large industry, with enormous opportunities around specialising. Clients you attract are usually long-term and are sticky. The vast majority of property investors use finance and leverage, so it’s a ready-made opportunity,” Kingsley said. A recent PIPA survey of more than 800 property investors found 30% seek out the advice of a property investment adviser before purchasing, and 60% take a long-term, strategic approach to property investment. Kingsley said the point of entry for brokers into property advice was self-evident. “They go hand in glove, finance and property investment. The majority of property investors will seek out lending,” he said.
AVOIDING CONFLICTS OF INTEREST
But how can brokers offer advice on property without a potential conflict of interest arising? Kingsley said it all came down to full disclosure. “As long as you’re transparent and disclose fully your interest, similar to how you have to disclose your interest via commissions, the consumer is fully aware of the opportunity available to them to make an informed decision,” he said. Another key to avoiding conflicts of interest, Kingsley argued, is avoiding too close an association with the property supply chain. He said alliances between property advisers and property developers were often too common and too close. “We have some issues around commissions being paid to third parties and advice being given to clients based on what the adviser is going to receive as a kickback or commission. For example, that could be people buying off the plan and getting a kickback from a developer or a property marketeer,” he said. And for brokers looking to do right by their clients, he said developing too close a relationship with a specific property provider could be dangerous. Kingsley argued that different clients had different needs, and a single property provider could not possibly meet all those.
IF YOU HAVE A QUALIFICATION YOU FEEL MORE COMFORTABLE OFFERING CLIENTS PROPERTY INVESTMENT ADVICE, AND THEY WILL FEEL MORE COMFORTABLE ACTING UPON IT “It’s a ridiculous proposition that every property from a certain developer is suitable for every client,” he said.
INVESTING IN EDUCATION
Before brokers can consider expanding into property advice, they must ensure they are qualified, Kingsley argued. “What we see – and it’s not just brokers – we see accountants and financial planners who are having a strong opinion around property investment. That’s all well and good, but if you don’t have a formal qualification behind that the question is what education have you undertaken to form that viewpoint? If I’ve read one property investment book and it gives a certain view, is that view in the best interest of every client?” he said. With this in mind, Kingsley recommended that brokers undertake formal training if they wish to advise on property investment. “I’m not huge on brokers having an opinion on property investment without qualifications. I would prefer they have a qualification that allows that opinion to be based on the client’s best interest,” he said. To that end, PIPA has developed its own qualification – the Qualified Property Investment Adviser (QPIA) accreditation – to give professional practitioners expertise to provide genuine property investment advice. “I think it comes down to quality, and I use the example that if I were an accountant and I started to look at financial planning, I would have to go get my qualification as a financial planner. I think that’s the message for any mortgage broker looking to seek out property investment as an alternative revenue stream,” Kingsley said. Kingsley said the investment in education
was worth it for mortgage brokers who wanted to set themselves apart from unethical property spruikers. “The QPIA is ideal for any practitioners who wish to develop and highlight their property investment expertise and position themselves as an ethical, trustworthy professional,” he said. “If you have a qualification you feel more comfortable offering clients property investment advice, and they will feel more comfortable acting upon it.”
LOOKING FOR OVERSIGHT
Few industries invite regulation, but Kingsley said property investment was in need of more oversight. He said property investment advice had been overlooked as a stand-alone industry sector, largely because property was not recognised as a financial product by ASIC and property investment advice remained unregulated. PIPA, whose mandate is to increase the professionalism of those in the industry and warn consumers of unscrupulous operators, is currently lobbying government to have the property investment industry regulated by ASIC. “Unfortunately it hasn’t been easy to get it on the government’s agenda – this government is more about deregulation than more regulation. But we will continue to lobby the government,” Kingsley said. “Until then, we will self-govern the industry and make sure we look out for property spruikers and the like. We make sure our members follow a code of conduct with strict guidelines, give clients full disclosure on how they’re paid, and offer ethical advice.”
MARKET TALK brokernews.com.au
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A valuation
PRIMER
ValEx head of client operations Michael Hooper on valuation fact and fiction
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t would be fair to say that, during 2013, RP Data witnessed a significant increase in activity across property sales and mortgage applications, with a 15% increase in sales and a 25% increase in valuations recorded through its key platforms. As a result, this created an uplift in activity for the entire valuations industry. With activity levels for the first months of 2014 running steady, I’m pleased to report that it looks like we’ll see another strong year in which platform volumes will be around 9% higher than for 2013. While this heralds good news for us all, the downside is that this high level of activity has now placed significant pressure on the finance industry and, in particular, on valuation firms. In response to such demand, valuation firms have moved to invest in recruitment and in upgrades to systems and processes to allow them to continually improve the product and service delivery of valuations. Testament to this is that an additional 100 valuers have been recruited in the last six months alone. However, it’s important to remember that industry professional accreditation takes time, and while new graduates have grown the capacity of the industry, we need to be patient and permit professionals the opportunity to provide a professional service and meet service level agreements, while not compromising on quality. In experiencing this change, one issue that continues to impede the valuation process is the ‘process’ of providing valuations and the quality of how this is done. While this may seem insignificant, things that hamper efficient and effective processes can be minor details such as an incorrect address or phone number, incorrect supplementary documentation, and the customer’s lack of awareness of the need for a valuation in the
first instance. These types of errors occur in as much as 25% of all valuation requests. In times of excessive volume, such as now, delays such as these place additional constraints on the valuation industry as a whole.
IMPORTANT INFORMATION A LENDER SHOULD KNOW ABOUT THE VALUATION PROCESS
How can the issues around valuations be improved at the broker and lender end? The input quality of valuation orders continues to be a stalling point in the overall valuation process, along with access to properties. Setting expectations that an inspection is to occur within the next 24–48 hours, and providing accurate address and contact details, makes a big difference to the end-to-end service times. What are the misconceptions held about valuations? The main misconception held about valuations is that ‘Val firm A’ always submits lower valuations than ‘Val firm B’, or vice versa. In reality, firms are generally within 1–2% of each other, within a given location, more than 99% of the time. Of course, there is the odd exception, but it certainly isn’t the norm. Additionally, there is a misconception about the RP Data ValEx platform in terms of our role in undertaking valuations. Put simply, ValEx provides a platform for workflow, panel management and valuation compliance services, but does not complete or in any way alter or amend the actual valuation report. Valuation firms complete valuation reports and submit via the ValEx system. What types of things does a property valuer take into account when determining the value of a property? The valuer will undertake an internal and external inspection of the subject property and review
Michael Hooper
THE MAIN MISCONCEPTION HELD ABOUT VALUATIONS IS THAT ‘VAL FIRM A’ ALWAYS SUBMITS LOWER VALUATIONS THAN ‘VAL FIRM B’, OR VICE VERSA
25% FAST FACT
25% The increase in valuations recorded through RP Data platforms in 2013 Source: RP Data
the sales of similar properties, local market conditions and characteristics. The valuation report will include information on the positive and negative attributes of the property: • Property summary (eg physical characteristics, condition and location) • Legal characteristics (eg impact of heritage, zoning) • Market conditions (eg levels of market activity, market segment conditions, likely selling period, similar properties on the market) • Insurance replacement cost estimate The valuer will then provide a detailed report giving information and commentary on issues affecting the current market value of the property.
TECH COMPANY INCORPORATES ON-THE-SPOT VALS Mortgage software provider Stargate Group recently partnered with RP Data to provide brokers using the SymmetryCRM solution with easy access to RP Data’s point-of-sale valuation solutions. Including RP Data’s automated valuations and property profiler will provide Stargate’s users with the added sales tools needed to close more deals and manage customer expectations better, Stargate CEO Brett Spencer said. “Being able to give customers an on-the-spot property valuation will speed up the loan application process and provide borrowers with a better broker experience.”
FINANCIAL SERVICES 24
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NEW AGREEMENT COULD SAVE HUNDREDS OF MILLIONS IN COMPLIANCE COSTS
Finance exec faces 67 separate charges
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he former finance executive of an Australian-based infrastructure investment management company appeared in court yesterday after an ASIC investigation led to 67 separate charges of insider trading. Sydney man Michael Hull was accused of acquiring the shares of nine Australian-listed companies while in possession of inside information on almost 70 occasions. Allegedly the information was conveyed to him by a close friend who was employed in the investment banking department of a global financial services company. The company worked on major corporate transactions involving the nine companies that Hull acquired shares in. The profits from the trades, both realised and unrealised, totalled more than $600,000. The alleged insider trading was identified by ASIC’s market surveillance team and referred to the market enforcement team for investigation and action. Hull, who was not required to enter a plea, entered into a formal bail undertakings and the matter was adjourned until 8 July. He faces penalties ranging from five years imprisonment and/or a fine of $220,000, and up to 10 years imprisonment and/or a fine of $450,000.
the overall burden on Australian business, minimising costs by simplifying due diligence requirements, and broadening arrangements between the Australian Taxation Office and the US Internal Revenue Service. It effectively removes all Australian superannuation funds from the FATCA reporting regime. The IGA will also improve existing tax informationsharing arrangements between Australia and the United States, for the purpose of preventing tax evasion. Hockey said this will help to enhance the integrity of both countries’ tax systems. The government will introduce legislation to give effect to the IGA as soon as practicable. Public consultation has commenced on the draft legislation and its explanatory memorandum.
SURVEY COUNTERS BAD RAP FOR PLANNERS
VIRGIN MONEY HIT WITH INFRINGEMENT Virgin Money Australia has just paid $30,600 in penalties after ASIC issued three infringement notices for misleading online and television advertising. Each infringement notice came with a penalty of $10,200. The misleading representations related to the promotion of Virgin Money’s “Quick & Easy” life insurance product. The advertisements appeared on television up until May 2013, and online up until March 2014. ASIC’s concerns were that the advertising was misleading about the process involved in applying for the product, and the life insurance coverage under the product. Namely, the advertisement indicated that “no health or lifestyle questions” would be asked by Virgin Money, when in fact the application form contained specific health and lifestyle questions such as queries around smoking habits. Responses to the questions were used to calculate premiums. The advertisement also claimed that “weight is not a factor that affects coverage of the product”, when in fact weight could be a relevant factor in determining coverage under Quick & Easy.
Australia and the US recently signed an agreement that will reduce the burden on Australian financial institutions and is pegged to save hundreds of millions of dollars in compliance costs. Treasurer Joe Hockey announced that the two countries have entered into an intergovernmental agreement (IGA) that will help Australian financial institutions comply with the US’ Foreign Account Tax Compliance Act (FATCA). FATCA is an informationreporting regime that was enacted by the United States in March 2010. It will commence on 1 July 2014 and will affect a large part of the Australian financial services sector, Hockey said. However, the conclusion of this treaty-status IGA will help Australian financial institutions comply with FATCA by reducing
DID YOU KNOW?
7th
Australia has been ranked 7th of 54 biotech nations according to the Scientific American Worldview scorecard. Source: Scientific American
The results of an academically conducted survey into investors’ attitudes towards financial advisers have completely rebuffed those of recent surveys that apparently show growingly negative perceptions about the industry. The latest results of the Lifeplan Funds Management financial advice satisfaction index have revealed that investor satisfaction with financial advisers is at its highest level since the inception of the index in 2007. Conducted by the University of Adelaide’s International Centre for Financial Services every six months, the survey looks at changes in investors’ attitudes towards their advisers, including their perception of their trust and reliability, technical ability, and investment performance. The latest satisfaction index has increased to 74.5%, up from 72.3% in October 2013. Head of Lifeplan, Matt Walsh,
said these latest results counteract other recent surveys which say the perception of advisers is negative. This could be down to the method in which some surveys are undertaken and the way that the questions are asked. The Lifeplan advice satisfaction index is sound, Walsh said. The latest process included talking to 403 investors who use financial advisers, and having the results analysed on an independent and academic level. He said people will generally give a different answer if they are asked: “what do you think of financial advisers” than if they were asked: “what do you think of your adviser”. “There’s a dichotomy between what people say about their own planner to how they talk about the perception of the industry. This survey uncovers what people say about their own planners,” he said.
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ONE YEAR ON 26
ONE YEAR ON What a difference a year makes … or not. Australian Broker reflects on the punditry, news and trends that made headlines 12 months ago Australian Broker Online, May 2013
RBA shocks with rate decision
The RBA shocked the market last year when it chose to cut the official cash rate to 2.75%. An AAP survey of 13 economists prior to the announcement found none of them expected the Reserve Bank to move on rates. RP Data research director Tim Lawless said at the time that the decision could have been partially due to weakness in the home building sector. RBA governor Glenn Stevens said the bank had seen more scope to boost the economy.
What’s happened since?
The RBA has been anything but shocking of late. After one more 25bp move in August of last year, the Reserve Bank has been content to sit on its hands and leave the cash rate at a historic low of 2.5%. The housing market has picked up strongly, while inflation has remained within its target band. But low rates are unlikely to last forever, with most economists tipping a hike towards the end of the year.
Lender offers brokers olive branch
The MFAA last year trumpeted stability in broker market share of more than 40%. MFAA CEO Phil Naylor said the association estimated market share for the broker channel of around 45%, which he said compared favourably with third-party markets overseas. While broker share had slipped in many countries, Naylor said Australian mortgage brokers continued to build momentum.
brokernews.com.au
Solid handover could prevent PURCHASING PROBLEMS
B
uying another professional’s business can be a daunting process, regardless of the industry. Fears over client retention can make the process particularly nerve-wracking. But a potentially more devious threat lurking in business acquisitions is the possibility of fraudulent sellers. Sue Warren of Topline Enterprises has first-hand experience of this scenario. When she purchased a book earlier this year, she was alarmed to find the seller had begun poaching back old clients. “One of the pitfalls of buying my business, I thought I’d excluded it because the adviser was moving out of the business completely. But two and a half years later he decided to come back and attack the top 20%. That in itself is devastating because he’s already had that relationship with the client. Some went across, and some stayed because they were happy. The thing is, though, they were his clients initially,” she said. Warren believes the situation could have been avoided had the seller been locked into a written agreement about the particulars of the purchase and the handover period. “Really lock them in in your agreement for six or 12 months, because by the time you get around to all your clients, it is a 12-month period. They need to be there for that 12-month period. My handover was – I think – two hours. That’s pretty frightening when you think about the size of business that I purchased,” Warren said. Personal touches, such as handover videos, can help smooth the path when an acquisition occurs, Warren said. This helps the buyer introduce themselves to the new client base, while bringing the clients’ relationship with the seller to a natural end. “You shoot them off an email coming from the old adviser, a quick introduction, and all of a sudden they know who you are,” she said.
What’s happened since?
Broker market share has swelled to around 47.3%, according to recent MFAA estimates. The association said the volume of loans through the channel hit $123bn in 2013, up 23% on the year before. Naylor has predicted brokers should crash through the 50% mark within the year, while NMB managing director Gerald Foley has forecast brokers to eventually control two-thirds of the market.
SUE WARREN
For the full interview, head to www.brokernews.com.au/tv
FORUM 27
brokernews.com.au
Lost accreditation ignites firestorm Brokers were angered by a story of one of their own who had his accreditation cancelled by a lender without being given a reason
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HOW WILL HOCKEY’S PENSION PLAN HIT MORTGAGES?
Treasurer Joe Hockey wants to see the pension age raised to 70 for Australians born after 1965. What impact will this have on the mortgage market?
“An alternate view may see older Australians seeking alternate retirement options and follow the lead of US, UK and European retirees. First world jurisdictions are providing retirement havens for US, UK, EU and Australian retirees. Why? Well their ‘retirement” dollar simply goes further. Before you jump on the argument of safety, health, medical services and aged support, these first world countries provide a standard equal to Australia. Retirees need to be shown a little more respect and consideration and should not wear the brunt of failed policy. Further, they do not owe younger generations a debt of gratitude and for those who consider the parents’ home as a God given right of inheritance, you need a wakeup call. Lenders will not start lending to older potential borrowers. No you beaut, new equity release scheme will be developed and Australia is not the only country facing the ageing population dilemma and it did not sneak up on us. Buying property like Monopoly will not solve the problem. “Australia has a fundamental structural problem which needs to be addressed and the new government like the last have few answers. Austerity fails. “Plan your retirement now by considering havens which will cater for a wonderful retirement and go to your grave with a smile on your face and not wither away whilst your family hungers for the sale of your home.” BJ on 6/05/2014 at 12:40PM
ebate on the Australian Broker Online forums recently centred on a broker who had his accreditation cancelled by a major bank without being given a reason why. The article – “‘Dangerous situation’ for broker who lost accreditation, says aggregator” – garnered heated response from commentators. Rob worried that the broker may have been forced out of writing loans unless he could provide a suitable explanation to his PI provider. Dave Robinson believed aggregators should stick up more for brokers. “I for one think it’s about time aggregators took responsibility for their businesses and the agreements that they sign and if you are for transparency then let your members have a copy of the signed lenders agreements and don’t tell me the lenders won’t allow it due to privacy, make it a condition of the agreement.” Brisbane Broker also thought aggregators, and professional institutions, needed to give brokers more support. “In my opinion aggregators and professional bodies like FBAA and MFAA are just extended arms of banks because banks are giving them money to run PD days and conferences and from my point of view it is conflict of interest.” And Broker said the situation revealed an ugly truth behind the mortgage broking industry. “The arrogance behind the lender not explaining exactly why the broker’s accreditation was cancelled in a way sums up exactly where the broker industry is at, and always has been at. That is that brokers have no voice, nor do we have any form of effective leadership pioneering our involvement in this industry. Between the aggregators, the FBAA and the MFAA as a collective what exactly do they stand for (other than padding their own pockets from our income, in a pimp-like manner) as after 11 years as a What do broker I still have absolutely no you think? idea. Yet we hear from lenders Leave your that we are their business comments at partners, well I most certainly brokernews. don’t treat my business partners com.au in the same manner!”
INTERNATIONAL CONCERN FOR AUSSIE HOUSING
The OECD and Moody’s have expressed concern over the rapid growth in Australian house prices John Broker on 8/05/2014 at 1:45PM “This is the same Moody’s that presided over and were complicit in the ratings mess that led to the demise of the US mortgage market, and the GFC. Along with Standard and Poor’s these clowns should either be in jail or out of business.” Time for change on 8/05/2014 at 12:16PM “Comfortable and affordable housing (like food, clothing and education) should be a basic right and not the privilege it is becoming. It seems our economy is driven by making housing as expensive as possible so that the rich can get richer and keep the less fortunate, well, in less fortune.”
BIG IDEA 28
brokernews.com.au
Cutting fraud off at the knees Andrew Clouston explains how his software is taking on fraud, and making transactions more convenient for borrowers, brokers and banks
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ounding director of Club Financial Services Group Andrew Clouston’s new venture, MOGOCheck, is gaining traction. Just back from a trip to the UK, Clouston said the software is turning heads both overseas and in Australia. Lenders from the UK have signed on to use the software, and both major and non-major lenders in Australia have also jumped on board. “It’s very encouraging that they’ve gone out and found our solution rather than the other way around,” Clouston said of the major banks that have signed on to use MOGOCheck. The premise behind the software, Clouston said, is to make income verification simple for banks, brokers and their customers. Income verification is a process often fraught with frustration and delays, Clouston said. “Banks are predominantly moving toward verifying income via the provision of bank statements and reviewing the credits into those bank statements. In addition to that, they get a much deeper insight into people’s spending habits. That’s not easy for customers to do, and it’s not always easy for brokers to get that information in the format that banks require. You’d think it would be really easy, and that the customer would just go online and print it out or go to the bank and get it, but it just never proves to be that simple. Customers generally have to gather that information subsequent to the initial interview,” he said. Clouston said MOGOCheck provides a simple way to gather this information. He described how brokers and lenders can use the technology in their client interactions. “What our technology does is at the moment of truth where the mortgage adviser or mobile banker requires income verification, the adviser or banker provisions the MOGOCheck tool to the customer’s device via email or a link. The customer then opens the tool on their device, be it their desktop or iPhone or Android or
IN 60 SECONDS THE CUSTOMER HAS HAD A GREAT EXPERIENCE, THE MORTGAGE ADVISER OR LENDER HAS THE EXACT DATA THEY REQUIRE AND IT’S ALREADY BEEN PRE-ANALYSED whatever device they prefer. They simply acknowledge they’re going through the verification process. The application opens on their device, they log into their online bank account as they normally would and the application running on their device on their behalf accesses their bank account so it can directly interact between their device and the online banking platform. It navigates the site and gets the precise data the lender requires, then it aggregates all that data into a prescribed report and presents it back via the customer’s device to the adviser,” he said. Clouston said the software passes regulatory muster as well. He explained that online banking terms and conditions typically dictate that users must not share their user name or password with any third parties. Because the software asks borrowers to log into their accounts themselves rather than sharing their information with the application, it abides by lenders’ terms and conditions. He also pointed to the speed with which the software collates the required information.
“That process takes less than 60 seconds, so in 60 seconds the customer has had a great experience, the mortgage adviser or lender has the exact data they require and it’s already been pre-analysed so it’s already assessed what the income is. If required the expenses and outgoings can be analysed as well,” Clouston said. This enables brokers to cut down the time taken in income verification significantly, he said. “As you can imagine, the whole income and analysis part and income verification part in probably 60-80% of cases where people are on standard PAYG income, that process could take anywhere from a few hours to a few weeks. This way it’s all done securely in a very short period of time, and it’s convenient for all involved,” he said. The other major value proposition of the technology is the elimination of fraud, Clouston said. “It’s all done via an encrypted transfer of data so the recipient of that document knows that all the data is 100% accurate. They don’t have to worry about fraud
anymore. The data can’t be doctored in any way, and it’s the exact financial picture of the applicant that the lender wants to see,” he said. Clouston said the application can run either independently, or integrated into brokers’ existing CRM platforms. “If their systems work correctly, they can just have it loaded directly into their system and there’s no re-keying of data required. It can be done totally independently of any bank or broker’s systems, so the whole verification can be done via a web application, or it can be fully integrated into their systems so all the data is populated into their systems.” He said the company charges for MOGOCheck on a per transaction basis, meaning brokers won’t have to buy or install software. Ultimately, Clouston said the draw of the software was providing a smoother experience for both brokers and their clients. “They’ve got the exact data set they wanted and the customer has had a really good experience.”
brokernews.com.au
IN FOCUS
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extGen.Net recently held its annual Innovation Update in Sydney, sharing its vision for the future of technology solutions in the lending industry. The event included an address from cricketing legend David Boon.
CAUGHT ON CAMERA 29
INSIDER 30
brokernews.com.au
Some (not so) inspirational CEO quotes The heads of some of the world’s biggest corporations share their best demotivational wisdom
E
ver wondered how some of the world’s top business people deal with the pressure? Check out some of these insightful gems straight from the horse’s mouth.
Let’s face it, we’re not changing the world. We’re building a product that helps people buy more crap – and watch porn
Bill Watkins, the former CEO of the world’s largest manufacturer of hard drives, Seagate Technology, was ousted from the company in 2009. Apparently he was anything but PC.
I have elderly parents, I have children, I have all kinds of reconnecting to do and to be frank I need to lose about 8 kilos too Sol Trujillo, CEO of Australia’s largest telecommunications company, Telstra, from 2005 to 2009, explains why he decided to stand down.
Be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms ... these models tend to look impressive. ... Beware of geeks bearing formulas Warren Buffet, CEO of American multinational conglomerate holding company Berkshire Hathaway, offered his mea culpa in an annual letter to shareholders after huge company losses in 2008.
After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today Andrew Mason, founder and former CEO of Groupon, wrote this as part of his farewell memo to his employees, in which he took accountability for poor stock performance and failing expectations.
I wish him the best, I really do. I just think he and Microsoft are a bit narrow. He’d be a broader guy if he had dropped acid once or gone off to an ashram when he was younger
Success breeds complacency. Complacency breeds failure. Only the paranoid survive Andrew Grove, the former CEO of Intel Corporation, who escaped from communist-controlled Hungary at the age of 20 and went on to help transform Intel into the world’s largest manufacturer of semiconductors.
Steve Jobs, co-founder and former chairman and CEO of Apple, on his rival, Microsoft founder Bill Gates. Images from Wired.com – Steve Jobs, Bill Watkins; Wikipedia – Andrew Grove, Sol Trujillo, Warren Buffet; The DEMO Conference/Flickr – Andrew Mason
DIRECTORY AGGREGATOR / WHOLESALE BROKER FAST 02 9233 8222 www.fastgroup.com.au Page 7
PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 11
BANK
ANZ 13 13 14 www.anz.com.au Page 9
LENDER
Homeloans Ltd 13 38 39 www.homeloans.com.au Page 15 Liberty Financial 13 11 33 www.liberty.com.au Page 3
Macquarie 13 62 27 macquarie.com.au/mortgages Page 32 MKM Capital 1300 762 151 www.mkmcapital.com.au Page 8 National Australia Bank www.nabbroker.com.au Page 5
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
To advertise in Australian Broker, call Simon Kerslake on 02 8437 4786
TECHNOLOGY PROVIDER NextGen.Net 02 9929 5999 sales@nextgen.net www.nextgen.net Page 13
WHOLESALE
Resimac 1300 764 447 www.resimac.com.au Page 17
OTHER SERVICES
Deposit Power 1800 678 979 www.depositpower.com.au Page 6 RP Data 1300 734 318 Page 21 Trailerhomes 0417 392 132 Page 26
Friday 17th October 2014 Sydney Town Hall
“With so many awards now being conducted throughout the industry, the AMA’s still shine as the pinnacle event. Winning Best New Brokerage has been a massive profile boost for us locally and has opened more opportunities up for us going forward with new referral partners. Our existing clients and partners are even more proud to be associated with us too. It has truly been an honour to be recognised amongst such strong businesses in our industry.” -Brad Quilty, Tungsten Home Loans
New Brokerage of the Year
Nominations now open
www.australianmortgageawards.com.au
13th Annual Australian Mortgage Awards