Australian Broker 13.21

NEWS 300,000 Australians have no house equity 6% at financial risk, says Roy Morgan P2

OPINION The wealth effect How government policy is hurting savers P14

BEST PRACTICE Customers for life Tips for building a loyal client network P16

OCTOBER 2016 ISSUE 13.21

COMMERCIAL SME confidence drops Businesses turn to non-banks P18

BUSINESS PROFILE Clarity Financial Group

The Canberra brokerage’s big year P20

LINO PELACCIA Industry super fund-owned bank ME’s general manager of broker sales on the lender’s latest developments that will benefit brokers big time P10

MARKET TALK Property price myths

Do house values double every decade?

P24

BORROWER SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

FBAA rejects broker mortgage fraud claims P4

Government moves to stop BBSW manipulation P8

BROKERNEWS.COM.AU

LOWER-VALUED HOUSES AT GREATER RISK OF NEGATIVE EQUITY

EDITORIAL

Mortgage holders with home value less or equal to amount owing vs all mortgage holders $900k

Editor Madelin Tomelty News Editor Phil McCarroll

Mortgage holders with value of home less or equal to amount owing Value of home, all mortgage holders

$843k

$800k

Journalist Maya Breen Production Editor Roslyn Meredith

Base: Aust 14+ with owner-occupied home loan

Average value of home

$700k $600k

$670k

$667k

$674k

Design Manager Daniel Williams

$573k

Designer Martin Cosme

$540k

$500k

$478k

$400k

$466k

$451k

$452k

$478k

Traffic Coordinator Freya Demegilio

Sales Manager Simon Kerslake Account Manager Rajan Khatak Marketing and Communications Manager Lisa Narroway

CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan

$380k

$366k

Human Resources Manager Julia Bookallil

$300k

EDITORIAL ENQUIRIES

$225k

$200k

ART & PRODUCTION

SALES & MARKETING

NSW

TAS

Madelin Tomelty +61 2 8437 4792 Madelin.Tomelty@keymedia.com.au

VIC

SA

QLD

WA

TOTAL AUST

Source: Roy Morgan Research Single Source; 12 months to June 2016 (n=50, 712 Australians, including 11,212

300,000 AUSTRALIANS HAVE NO REAL EQUITY IN THEIR HOMES Roy Morgan’s latest report has revealed some alarming findings about the value of some Australians’ houses across the states. Nationwide, 311,000 (or 6.8% of ) mortgage holders have been found to have little or no real equity in their homes. The report, State of the Nation: Spotlight on Finance Risk, highlights that this group of property owners is at particular risk if they have to sell or prices decline.

Broken down by state, mortgage customers in Western Australia are most at risk as 9.2% of homes are valued at less than or equal to the amount owed. NSW is the safest as only 5.1% of mortgage holders in this state are in the same situation.

Comparing the value of a

mortgage holder’s property with the amount outstanding on their loan is considered another critical factor in assessing financial risk, apart from the ability to keep up with mortgage repayments. The purpose of this is to establish the level of equity (if any) they have, as this is a major component of most households’ financial position.

One of the key trends revealed

by Roy Morgan’s research was that lower-value homes tend to face more equity risk. The value of homes owned by mortgage holders with little or no equity is $487,000 across Australia, compared to a nationwide average of $674,000 for all mortgage holders.

“It tends to be at the lower end, which seems to indicate maybe

it’s the newer borrowers,” Norman Morris, industry communications director at Roy Morgan Research, told Australian Broker.

“These sorts of numbers indicate there are people borrowing right up to the limit.”

While this could reflect on the duty of care that brokers have to customers, Morris said these trends would present more of a problem if house prices were to go down.

Compared with 2012, however, the figures have improved in the past four years. “In 2012, the figure was 7.7%. Now it’s 6.8%. I would say that the main reason for that is housing and dwelling prices that they’ve been borrowing on have been going up fast.”

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Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak +61 2 8437 4772 rajan.khatak@keymedia.com.au Key Media Pty Ltd Regional head office, Level 1O, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 www.keymedia.com Offices in Sydney, Auckland, Denver, London, Toronto, Manila, Singapore This magazine is printed on paper produced from 1OO% sustainable forestry, grown and managed specifically for the paper pulp industry Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss. Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

ASSOCIATION HAPPENINGS 4

DATES TO WATCH

FBAA REJECTS MORTGAGE FRAUD CLAIMS The FBAA has rejected claims by UBS that some brokers are advising clients to misrepresent figures.

The association’s response comes after the bank released a report earlier this month which revealed that just over 6% of the borrowers surveyed had said their brokers directed misrepresentations in loan applications.

The UBS survey of more than 1,200 mortgage holders who had taken a loan out in the past two years found that 28% said their applications were not factually accurate.

More shockingly, 41% of those who secured a mortgage through a broker said their broker encouraged them to misstate information in the application.

According to UBS’s results, this was a large proportion compared to those who secured their mortgage through the banks. Of this group, only 13% said their banker had suggested they misrepresent their details.

FBAA CEO Peter White questioned the accuracy of the entire survey, however, saying the number of people purportedly surveyed represented only an estimated 0.09% of all mortgages settled over the two-year time period, and a number of the figures in the survey were

inconsistent with APRA and industry data.

He also said there was “zero credibility” in the claim of a borrower who admits to falsifying documents. “Let’s be honest – if you are admitting to misrepresentation on a legal document, it’s very easy to blame someone else and claim they made you do it.

“This really should not be taken seriously, particularly with the stringent regulations around the broking sector and responsible lending criteria, which brokers adhere to.”

White said the FBAA would not tolerate any unethical behaviour and that there was no incentive for brokers to misdirect clients. “Our own data tells us that only a miniscule percentage of our members have had action taken against them, and that overall, brokers are doing the right thing.

“I believe that not only are these figures wrong but that they are based on claims that can never be verified.

“It is a shame for the industry that this sort of misinformation is publicised, but I am confident the regulators, the industry and the public know the truth,” concluded White.

OCTOBER

25 What: MFAA webinar: Getting More When Selling Your Business Where: At your computer Details: This presentation will give an insight into why your mortgage broking business can be valued for more than just the multiple of trail income

OCTOBER

WHAT THEY SAID...

Michael McAlary “The world is seeing the largest transfer of wealth from savers to borrowers in modern history, as a consequence of [government] policies.

Savers are being asked to foot the bill for previous government economic policy failures” P14

A rundown of the next fortnight’s events

Peter Langham “Businesses are increasingly looking beyond the banks to fund growth and to help ease cash flow concerns. From this time last year, there has been a 30% increase in SME owners planning to fund their growth using a specialist non-bank lender, with one in five now indicating their intention to do so” P18

Steven Münchenberg “As an industry, we know we haven’t always lived up to the expectations of all of our customers and the wider community. The banks are acknowledging those issues, and more importantly they are addressing them” P25

26 What: SA PD Day: Economic, Valuation and Performance Where: Ian McLachlan Room East, Adelaide Oval, Adelaide Details: Stuart Hocking, deputy chief executive, SA Treasury & Finance, will provide an update on the state budget and the current state of economic issues

NOVEMBER

4

What: NSW Golf Day Where: Macquarie Links Golf Club Details: The Golf Day will include prizes for males and females, as well as competition holes and activities, including longest drives and nearest the pin. The format will be four-person Ambrose.

REGULATORY ROUNDUP 8

WORLD NEWS

AN EXPENSIVE BLUNDER

NEW ZEALAND NZ DEBATES VANCOUVER-STYLE FOREIGN TAX New Zealand Prime Minister John Key has publicly contested newly elected Auckland Mayor Phil Goff ’s argument for introducing a 15% Vancouver-style tax on foreign property buyers. According to an article on New Zealand finance site Interest.co.nz, the new mayor has told The Nation’s Lisa Owen: “Vancouver, a couple of months ago, decided they’d put a 15% property transfer tax on foreign investors who didn’t live in Vancouver. That is already producing good results.

“It’s supported by the Governor of the Reserve Bank of Canada, the Prime Minister of Canada, and my first argument to government will be, ‘Think what most New Zealanders are asking at moment.

Why is it that when we allow foreign investment to come into New Zealand’s housing market, we don’t require them to invest in new housing, which is producing additional housing for New Zealanders, not simply pushing the rate of inflation up?’”

Goff said central government had to take some responsibility for helping Auckland to absorb the net 800 people coming to the region every week.

“I’m really interested to know what the government’s answer is in declining to do that at the present time.

I hope that they’ll show some flexibility on that, as, indeed, I’ll have to show some flexibility,” said Goff.

The ACT and United Future parties support National in its opposition to a tax on foreign property buyers. ACT told Interest.co.nz it did not support a tax on foreign property buyers because: “As a matter of property rights, New Zealanders should be able to sell their property to the highest bidder without government interference…”

Meanwhile, Labour, the Green Party and New Zealand First are calling for the government to ban foreign property buyers altogether. The other coalition partner, the Maori Party, is sitting on the fence.

The proposal of the Canadian-inspired foreign tax law comes as New Zealand’s concerns over housing affordability reach fever pitch.

$20 trn

The estimated value of financial products affected by alleged manipulation of a key interest rate at Westpac, NAB and ANZ between 2010 and 2012 Source: ASIC

GOVERNMENT MOVES TO STOP BBSW MANIPULATION The federal government has announced a package of legislative changes aimed at preventing the manipulation of financial benchmarks.

In an attempt to better regulate the Bank Bill Swap Rate (BBSW), a key financial benchmark that serves as the reference rate for the pricing of a range of financial products, Treasurer Scott Morrison recently announced that manipulating any financial benchmark or financial product used to determine a financial benchmark will now be considered a criminal offence. In addition, administrators of significant benchmarks will be required hold a new ‘benchmark administration’ licence issued by ASIC. ASIC has also been given the power to develop enforceable rules for the administrators of significant benchmarks and for entities that make submissions to such benchmarks, including the power to compel submissions to benchmarks in the case of other calculation mechanisms failing.

The changes stem from advice provided to the government by the Council of Financial Regulators, and Morrison said they “will ensure that past egregious conduct by the banks in manipulating benchmarks is prevented in the future”.

“This package will ensure our regulatory regime

is as modern and secure as any comparable regime found in equivalent foreign jurisdictions, such as the United Kingdom and the European Union,” Morrison said.

“These measured changes will build on the steps that the Turnbull Government is already taking to strengthen our banking and financial system, including strengthening ASIC’s resources and capabilities and the establishment of a regular Parliamentary Inquiry into Australia’s banking and financial system,” he said.

While Morrison and the government believe the changes will improve the regulation of the financial benchmarks, not all are convinced.

Industry commentator and Digital Finance Analytics principal Martin North suggested that the changes could be a political ploy to ease the scrutiny the major banks are currently facing.

“Is the timing convenient, ahead of the banks appearance before the economic committee this week, to defuse the BBSW issue?” North said.

“The banks still maintain control of the BBSW. These changes are really pretty weak.”

ASIC is currently pursuing three of the four major Australian banks – NAB, ANZ and Westpac – over unconscionable conduct and market manipulation in setting the BBSW from 2010 to 2012.

10

COVER STORY BROKERS AND ME

General manager of broker sales Lino Pelaccia, of industry super fund-owned bank ME, on the importance of brokers to the lender’s growth strategy, and its new offering that includes more staff, more technology and more products

INDUSTRY SUPER fund-owned bank ME has had an eventful 2016. Earlier this year it beat 118 financial institutions to take home the crown as Australia’s Best Bank at Mozo’s 2016 Experts Choice Awards recognising Australia’s best-value financial products.

At the time, ME CEO Jamie McPhee attributed the bank’s success to its easy-to-grasp, simple style of banking. After all, the bank’s personality-filled branding proudly proclaims it is “a bank built just for you” – “helping every Australian get ahead”.

In August, ME won Online Bank of the Year and Best Savings Account at the prestigious Financial Review Smart Investor Blue Ribbon Awards in Sydney. Then, more recently, the bank released its end of FY2016 figures, revealing a net profit after tax (NPAT) of $74.7m. The results showed a 29% increase on 2015’s results

channel is to ME’s growth strategy. “Despite only entering the broking market five years ago, this distribution channel already provides over half of ME’s home loans,” he reveals.

“So brokers, to me, are really critical to our growth plan, but we also need to continue to add service to our brokers and to continue to enhance our brokers’ service proposition.”

ME for brokers How exactly is ME doing this? According to Pelaccia, the bank has made several developments already, with more in the pipeline that show its dedication to its broker network.

“Recent developments with ME Broker include adding desk-based relationship managers for new-to-bank brokers, beefing up our BDM support team to quicken response times, particularly when BDMs are on the road, and

“There’s a lot of activity, a lot of competition in the market, and we want to make sure our brokers are fully equipped and fully understand our range of products and really just deepen our relationship with our broker base” and took ME’s NPAT annual compound growth rate to 32% since 2012.

On releasing the financial results, general manager of broker sales Lino Pelaccia said that a big part of the industry super fund-owned bank’s results could be attributed to its home loan book. The bank settled more than 16,000 new home loans totalling $4.6bn over the year, and this is not only a record mark for ME, but as it is a branchless bank the results also show the strength of ME’s broker network, which was only launched five years ago.

Speaking to Australian Broker, Pelaccia confirms just how important the third party

establishing a credit quality team to review the paperwork as soon as we have it so brokers get notified quickly if an application is incomplete,” he explains.

The Australia-wide relationship managers and “beefed up” BMD network – which has increased from nine people to 15 – will provide a stronger support structure for ME’s brokers. Through the newly implemented relationship managers, of which there are seven, Pelaccia says there is always an ME representative readily available to assist brokers.

“Any new-to-bank broker that goes through accreditation, they’re aligned to a relationship

manager,” Pelaccia explains. “Because what we’re doing is we want to make sure that when we do conduct accreditation sessions that a broker’s got a point of contact through our relationship managers. And we actually help them through an eight-week coaching course where brokers, when they want to put through their first loan [or they’ve] got a new loan scenario, they’ve got a point of contact straight away that will actually coach them through that.”

Following the eight-week induction, the relationship manager will go on to determine where the new broker is best placed within a BDM’s portfolio.

In addition to the education given to new-to-industry brokers, Pelaccia also reveals that the bank will soon roll out a course targeting established brokers.

“We are actually going to provide more intense refresher training for our brokers.

I think that’s very, very important because, as you know, today there’s a lot of activity, a lot of competition in the market, and we want to make sure our brokers are fully equipped and fully understand our range of products and really just deepen our relationship with our broker base,” Pelaccia says.

“We’re going to be introducing our credit risk teams to talk about credit risk in the market today; we’re also going to have our floor people coming in to talk about what brokers should be aware of in market trends … what they should be wary of,” he says.

“We’re providing more enhanced training.

So products are very important, but if we can provide some more ongoing training [so] the brokers are fully equipped and fully aware where the market is and where the environment’s changing, it just helps them a lot more and they’ll be better equipped in front of their customers,” Pelaccia says.

Speeding up the clock Improving the time to unconditional is another thing that has been at the forefront of ME’s developments this year. After all, it’s something that not just every bank wants but every broker too, and Pelaccia is acutely aware of this. When an application comes to ME, the relationship managers check that all supporting documentation is there before sending it on to ME’s credit managers. If there are any gaps in the application, they will call the broker immediately to let them know, which not only has the obvious benefit of speeding up time to unconditional but also of providing ongoing coaching back to ME’s brokers.

“We do see that it’s very important that we deliver that ongoing surge in coaching to our brokers … and what we want to do is really provide and enhance our customer experience back to our brokers,” Pelaccia explains.

In the five years ME has been operating in the broker channel, the bank has accredited approximately 11,000 brokers across the country. But now that ME has a solid broker network, Pelaccia says, the bank wants to start giving back.

“What we want to do now is actually start going back to … brokers that have dealt with

11

“So brokers, to me, are really critical to our growth plan, but we also need to continue to add service to our brokers and to continue to enhance our brokers’ service proposition” us – brokers that enjoyed our experience [and ask] ‘what more can we do to enhance … the experience?’ And that’s why we’ve beefed up our BDM team, we’ve introduced relationship managers ... to assist our brokers to grow their businesses,” he says.

Refreshed products But the additions to ME’s broker offering don’t end there. ME has also been rolling out a new and

improved product offering that will benefit more customers and therefore appeal to more brokers.

“Over the last 12 months we’ve introduced LVR-tiered pricing in the market, and that’s actually been very, very good because what it enables brokers to do is assist their customers’ needs regarding restructuring investment or owner-occupied loans,” Pelaccia says.

Brokers now have the flexibility to bundle products, such as a variable rate loan and

an offset account, creating a ‘combo loan’ if and when required by the customer. This is a totally new offering for the challenger bank and effectively triples ME’s pricing options, making it competitive across all market segments while helping to stabilise application volumes, according to Pelaccia.

The build and launch of ME’s new broker portal, however, is perhaps the bank’s most exciting development in 2016. The broker portal is expected to roll out at the end of this year and follows the transformation of the bank’s core banking platform that occurred 15 months ago.

“Part of the transformation … was how to actually provide a customer experience that is post-settlement, so part of that transformation, which is the next stage or the next horizon, is to look at an online broker portal,” he says. “[The portal] will let brokers access clients’ home loan accounts so they have more control

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COVER STORY and information about clients, both pre- and post-settlement.”

Technological developments such as this are unsurprising given ME is an online-only bank, and yet the fact that these innovations extend beyond the customer-centric to broker software is a decided acknowledgement by ME of the need for more seamless processes in its third party channel. As Pelaccia says, ME is putting brokers “in the driver’s seat”.

“It’s extremely important,” he says. “I think, as you’d understand, today customers are selfdriven, and we see that providing this portal to our brokers to provide that in-house customer experience is very important in regard to the broker’s value proposition to their customer.”

Branchless bank seeks brokers As ME is a branchless bank, Pelaccia isn’t entertaining any illusions about the importance of brokers in recruiting customers. Without the brick-and-mortar presence leveraged by the big four and many of the second-tier banks, he is well aware that ‘snagging’ new customers is heavily reliant on getting brokers on board.

“We haven’t got any retail branches or stores, so we understand we’ve got to service our customers and provide that really unique customer experience; this is something we need to build through our tech platforms, through transformation that’s happened over the last 15 months, through the broker portal that we’re building out, through the deepened relationships that we’re having with our brokers, that itself is really going to play us well,” Pelaccia says.

Strategy steps Pelaccia is not shy about the bank’s plans for increasing its market share beyond 2016, and brokers will play a pivotal role in achieving this.

“We’ve got aggressive targets over the next five years,” he says. These plans include rolling out “a lot more enhanced products to our customers”, such as offset accounts, debit cards and credit cards; “… and that’s only part of it, but what we actually want to do is provide more products and services to our brokers, to assist with our growth strategy over the next five years,” he says.

“Australians love using brokers, and in the same spirit, we want to make brokers love using ME.”

ALL ABOUT ME

$74.7m

ME’s fin year 2016 net profit after tax, a 29% increase over 2015’s results

50% Percentage of ME loans

5Number of years in

generated by brokers

the broker channel

11,000 Number of

16 Number of aggregators’

accredited brokers

panels ME is on

Source: ME

14

OPINION THE WEALTH EFFECT

Michael McAlary on the policy failures of governments – and how it’s people trying to save who are the ones paying the price

OVER THE last few years central banks and governments’ monetary and fiscal policies have been directed at stimulating economic growth.

But despite policies of low or negative interest rates and fiscal stimulus, global economic growth has remained subdued. Consumers have not responded in the manner that policymakers predicted.

Asset rich, cash poor Consumers only spend when they feel wealthy – a psychological phenomenon that is known as the ‘wealth effect’. But policymakers should not assume this phenomenon is the driving force behind investment. Consumers are not necessarily buying property because they feel

on non-essentials is already limited, and many are supported by their parents in some way or another.

Businesses are adopting a ‘wait and see’ approach to significant capital investment. They are reducing production and distribution costs through offshoring, outsourcing and self-service over the internet. These business actions are undermining consumer confidence, as employees wonder whether they will be the next to lose their jobs or find their hours reduced. Their response is therefore to defer spending.

Currency policy – No-win strategy For over seven years now governments and central banks in the major economies – the US,

Budget deficits are increasing as governments are either unable or refuse to reduce real levels of government spending. The focus appears to be on raising more revenue (tax receipts) rather than recognising that we are living beyond our means wealthy. Rather, financially able consumers see property as a safe haven. Everyone wants to get onto the property ladder, especially before they are locked out altogether as a result of even higher house prices, and for some that means borrowing from their parents.

But a consequence of consumers taking on more debt is that they reduce their disposable income, thereby limiting their expenditure while they adjust their lifestyles to allow for more debt.

Those consumers that do not have the financial means, such as retirees and pre-retirement workers who have lost their jobs, are dipping into their capital to maintain their living standards.

This cohort tends to be asset rich but cash flow poor. Students are loaded with debt on entering the workforce, so their ability to spend

UK, EU and Japan – have been attempting to devalue their currencies through quantitative easing. Those economies that have not followed the quantitative easing route have been lowering interest rates to counter the actions of those that have adopted this strategy. Australia is one of those nations. Unfortunately, it is a nil sum game when all participants are adopting the same strategy, as Australia has found out. Historically, a reduction in the cash rate and an increase in the US federal funds rate should have led to a reasonable fall in the value of the Australian dollar against the US dollar, and yet the Australian dollar has continued to rise in value.

Fiscal policy – Failure Budget deficits are increasing as governments

are either unable or refuse to reduce real levels of government spending. The focus appears to be on raising more revenue (tax receipts) rather than recognising that we are living beyond our means. Increasing taxes will be a disincentive to spend and it will reduce savings. It is another form of wealth transfer and will also have a negative impact on the wealth effect, which is a necessary behavioural component required for economic growth.

Governments pay for budget deficits by issuing bonds; however, with each issuance the deficit increases. As we are all aware, interest payments on all types of debt will also increase once interest rates rise. The possible impact of this is a sleeping giant!

Savers footing the bill The world is seeing the largest transfer of wealth from savers to borrowers in modern history, as a consequence of these policies. Savers are being asked to foot the bill for previous government economic policy failures. So how did we end up here?

Low or negative interest rates reduce the disposable income of consumers who rely on investment income and their savings.

This reduces their propensity to spend as they feel poorer.

1

2

The tax system rewards borrowers and penalises savers.

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Michael McAlary is the CEO and founder of WealthMaker Financial Services

COMMERCIAL LENDING UPDATE

QUALITY AND DEMAND TO SUPPORT PROPERTY PERFORMANCE INTO 2017 Economic indicators and insider market intelligence are pointing to a cautiously optimistic outlook for property clients in both Sydney and Melbourne.

Market insights from property developers and investors at the coalface is indicating that fast rises in Sydney and Melbourne prices in recent years are more likely to end in a geographically limited plateau than in a severe, market-wide correction.

Chifley Securities director Joe Morello says demand to live in one of Australia’s two largest cities continues to grow in line with official Australian Bureau of Statistics trends, with increased supply only addressing a serious long-term shortfall.

“The development and construction boom of recent years has made inroads into this supply problem, but essentially there was very little supply for the previous 10 years. The situation means that we are really still just catching up in these two cities.”

With the urban population in Sydney and Melbourne growing at 1.7 per cent and 2.1 per cent respectively in 2014-15, Morello says the target market for quality residential developments is still growing, and this is giving investors continued confidence.

“We spend our time on the ground with investors and developers attuned to the current market risks, and we are not seeing a strong case for any change in the next 6-8 months for the majority of areas in Sydney and Melbourne markets,” he says.

Borrowers are getting access to greater levels of debt than they would in a ‘normalised’ interest rate environment and in a tax-effective manner.

3

Governments force bondholders to take haircuts on sovereign debt, eg Greek debt, and investors carry the loss for borrowers.

4

Central banks engage in quantitative easing, where they buy debt back and look at cancelling it. If they do, the borrower is able to walk away and the cost is ultimately borne by the taxpayer.

5

Governments fund budget deficits through low or negative real returns on government debt. Investors are being asked to pay for budget repair with only a guarantee of a return of their capital on the back of the government credit rating.

6

A new policy direction These monetary and fiscal policy strategies by governments and central banks around the world are unsustainable and have failed. They don’t take into account human behaviour; they undermine confidence and fuel speculators, and savers are paying the price for traditionally prudent behaviour.

Collectively, these policies have set the world up for years of economic malaise and unsustainable budget deficits.

New action is needed. As monetary policy is ineffective, the solution is for all governments to tackle their structural budget deficits by reducing real expenditure and introducing measures aimed at rewarding savers and investors. The deliberate policy settings that are causing the greatest wealth transfer in history must be reversed.

Quality and quantity Other economic indicators are supporting this continued investor and developer activity. Morello points to historically low interest rates of 1.5 per cent, GDP growth of 3.1 per cent and recent employment growth in these capital cities.

“In addition to this favourable environment, the RBA also tells us Australians are comfortably affording their mortgages. We are in a situation where 25 per cent of homeowners today are one year ahead on their mortgage payments,” he says.

Developers have capitlised on favourable conditions to construct a larger number of apartments in Sydney and Melbourne in recent years, leading to claims they are catering only for investor demand, rather than the people who will live in them.

Morello says Chifley Securities’ proximity to this segment gives the private lender confidence that any risks are confined to a limited portion of the market.

“Developers have to date been creating quality developments, which really are those developments that deliver a product a consumer is very happy with while achieving a return for the developer, which remunerates them for their efforts and risks.”

“In recent times we’ve seen some reduction in quality, in that they have not returned a sufficient developer profit. This

Joe Morello

CHIFLEY SECURITIES MARKET OUTLOOK

yy Development and construction finance underpinned by economic fundamentals, including population growth, interest rates and employment. yy Limited basket of Sydney and Melbourne apartment developments at risk of a future plateau, as some developer profits fall short of initial expectations. yy Brokers will continue to see good opportunities in quality construction and development projects, including a resurgence in industrial property. has created a small basket of developments that may ultimately experience a limited correction if they are ever to be developed.”

Morello predicts any correction will take the form of a plateau in price rises and shallower growth, and that this will only impact certain localities in each city.

“In pervious periods when there was a plateau, this plateau was confined to specific areas within these cities. We expect that the same pattern will emerge, with some areas more adversely affected while other will not see any change at all,” he says.

The real risk Finance opportunities are expected to continue for commercial and developerfacing brokers into 2017, with Chifley Securities paying 1% commission on settlement.

“While there has been a lot of attention on apartments, one forgotten area has been the development of new industrial properties, for example, which is reviving in certain areas of Sydney and Melbourne and fetching excellent yields,” Morello says.

Restrictions on bank lending for development and construction borrowers in particular are expected to continue to encourage broker partnerships with private non-bank lenders, who Morello says can be more flexible with available capital.

“We think the real risk for a broker in today’s environment is missing out on the business boom brought about by more restrictive lending in the banking sector.”

16

BEST PRACTICE CUSTOMERS FOR LIFE Nicole Smartt imparts advice on how personalised interactions can help brokers build a loyal, lifelong client network

people for whom you’ve already closed a sale, or with people you simply want to know better.

Define your objectives Since every meeting is an investment of time, I go in with a clear set of objectives that will help me build connections. Here’s what I consider a ‘Smartt’ meeting methodology: Have quick conversations with as many people as you can, and learn at least one unique thing about each person and write it down.

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Later, follow up with them on that thing you learned. For example, if John tells you about his two dogs, write down their names (let’s call them Einstein and Mack). Make a note of something obviously unique to John so that later when you reconnect he understands that you really heard him and you weren’t just moving on to the next person, and the next, and the next...

2

Email John soon after and say something like, “Hey, John, it was great meeting you at the Chamber event last night. I hope Einstein and Mack are bearing up under the heat this week.”

3

Suggest a way to make the relationship practical for both parties. If you can, build each of these contacts into personal relationships.

I bet you find, as I do, that each of them really is very special.

4

Never be afraid to make notes to help build your connections with people. I write salient details (like the earlier dog example) on the back of business cards people hand me, and I do it pretty quickly. If people don’t hand me a card, as soon as I’m done talking with them I pull out my phone and, in my Notes app, I write their name (so that I don’t forget it) and the unique detail, and then I search for his/her name on LinkedIn or Google in order to find an email address.

WHEN YOU have the potential to earn yearly trail commissions, building your network as early as possible makes a big difference. When you create and sustain a large, diverse network, you have the ability to profit from it in many ways. In my job, my network has helped me bring in new clients each week without a sales pitch. It has also helped me create stronger relationships and has won me awards. The time invested in building and nurturing your network from the beginning will pay off big in the long run.

Connect people to other people People sometimes forget that you don’t become successful overnight. Connections sometimes take years to pay off, but when they do the pay-off can be huge. Here’s one of the keys: connect people to other people. It’s been one of the foundations of my success. When I meet someone new, I am always thinking of people I know whom they should know.

Help others, and your generosity will return to you.

Helping others make valuable connections, even when you aren’t directly benefiting from it,

strengthens and hones your reputation. Just as in all other things, practice makes perfect, and eventually you won’t have to work so hard to convince people you’re the right fit for what they need – your reputation will take care of that.

Make the most of your lunch hour Successful networks can be built around a lunch hour. I started my lunch hour networking practice about five years ago and as a result have seen a huge spike in stronger relationships.

Everybody has to eat lunch, so I decided to use the time for something more than just soup and sandwiches. I began to schedule three lunch meetings a week and use that time to connect with other people and see how I could help each of them.

This is still my goal when meeting people today: I want to know how I can help them, and the way I get there is by asking thoughtful questions.

It turns out that it’s also a great way to learn. Put lunch meetings on your calendar to build stronger relationships with people you’ve just met, with

Face-to-face trumps digital Social media is increasingly popular and I strongly suggest you utilise it, but I still believe face-to-face interaction is best. You can start boosting your profile by becoming a leader in your local community. Join the local Chamber of Commerce or the board of a local non-profit organisation. You need to utilise both face-to-face and social media interactions to be at the top of your game, and each platform will help you achieve greatness and take your career to new heights.

Relationships are vital to business success Our businesses, and our whole lives for that matter, depend on the strength of the relationships we build. If you go into every meeting thinking first about how you can help the other person, and if you instil in yourself the idea that every relationship will be enduring, I guarantee you’ll see positive outcomes. Think beyond a one-time sale and instead think, “Partners for life”, and utilise all of the many types of connections available to you to stay in touch.

Nicole Smartt is the author of From Receptionist to Boss: Real-Life Advice for Getting Ahead at Work (www.nicolesmartt.com).

18

COMMERCIAL BUSINESS CONFIDENCE DIPS A new report has shown that SME owners’ business confidence has decreased, and a growing number are turning to non-banks for funding ACCORDING TO the latest Scottish Pacific SME Growth Index, SME owners are working up to 80 hours a week, losing sleep about cash flow, and almost one in four are predicting their revenue will decline through to the end of 2016.

The report is the fifth released by the small business working capital provider, which has engaged independent researcher East & Partners to conduct biannual polls of 1,200 SME leaders across all states and key industries.

Scottish Pacific CEO Peter Langham said the latest results showed that SME confidence had taken a hit despite the resilience of the sector, which according to ABS statistics employs almost half of the 10.7 million Australians in the workforce.

“Over the past two years, SMEs predicting revenue decline have almost doubled (13.2 to 24.2 percent), while those predicting increases have halved their growth forecasts (8.6 to 4 percent),” he said.

Just 48.4% of SMEs are now forecasting positive growth, while the majority (51.6%) are forecasting negative growth or no change. This is the first time a positive growth outlook has represented the minority of SMEs. “The current environment is clearly placing pressure on Australia’s small to medium

business community,” Langham said, adding that cash flow was the number one concern for small business owners.

“SMEs nominated cash flow as the most stressful element of business. They cited credit conditions as a key barrier to growth.

“With the Index highlighting that cash flow keeps 72.5% of respondents awake at night, it’s crucial for these leaders to find the right funding to support their business,” he said. “Businesses are increasingly looking beyond the banks to fund growth and to help ease cash flow concerns. From this time last year, there has been a 30% increase in SME owners planning to fund their growth using a specialist non-bank lender, with one in five now indicating their intention to do so,” Langham said.

He said SME Growth Index surveying took place in July and August, in the aftermath of the federal election and the UK Brexit referendum. While uncertainty around these events may have influenced some responses, the results were a timely reminder to governments, industry bodies and financial institutions of the importance of having the right regulatory and funding systems in place to stimulate and support the nation’s vital SME sector.

CURRENT SITUATION

Issues keeping SMEs up at night

72.5% Cash flow

55.2%

Not having enough time to get things done

1 in 5

39%

Customer or supplier issues Lender choice, Sept 2016

SMEs plan to fund their business growth through a specialist non-bank lender, a 30% increase on the prior year

Working hours

17.3%

Disruption of their business model

13.3%

Staff issues

1 in 10

SMEs are in start-up phase of a business

88.8% 50+ hours

43.7% 60–80 hours

19

BANKS UP THEIR APPEAL TO SMES Recent lending changes by Westpac, CBA and St.George are set to fuel a surge in SME owners purchasing property, according to the MFAA. In the past 12 months, Westpac, St.George and CBA announced they would only require one year of financial records as income verification for self-employed borrowers. Two years of financial records and tax returns was the previous requirement.

Westpac announced it would increase its lending capacity percentage to 90% of the property value for these same borrowers, which is up from 80% and is a clear sign of the bank’s intent to increase lending to more SMEs for property purchases. CBA also announced the same change earlier this year.

Joel Wyld, a member of the MFAA, said: “In the past few months we have witnessed a change in this space which is expected to surge in the next 12 months as more SME owners become aware of the changes. Several business owners still don’t know about the more lenient lending criteria. There are over two million SME business owners across Australia. It is pleasing to see that some of the major banks have relaxed their property rules for this demographic.

“In the past, banks have viewed the SME demographic as risky despite many owners coming from strong corporate or trades backgrounds with a long, successful working history in addition to strong equity in various investment classes,” Wyld said.

“In the past, many SME owners have had to settle for low-doc loans for a two-year period, which has deterred them from purchasing property.

“The number one piece of advice given to SME owners when applying for a property loan is to ensure financials are up to date. Inaccuracies in financial records and bookkeeping will delay the settlement process and could ultimately determine if the loan application is accepted or declined,” he added.

“We are also witnessing a trend towards establishing property trusts and partnerships using property as a vehicle for SME owners. Both of these structures have a place in the market but care must be taken when assessing income of a business if multiple owners are involved. Legal advice is also advised to minimise issues in future years.

“The time is now ripe for SME owners to capitalise on the new lending rules to secure either a dream home or business premise,” Wyld concluded.

CHANGING TIMES

SMEs forecast growth in revenue

59.6% 2015

SMEs forecast negative growth in revenue

48.4% 2016

16.8% 2015

24.2% 2016

20

BUSINESS PROFILE CLARITY FINANCIAL GROUP Clarity Financial Group’s Mark Edlund and Kristy Edlund tell Australian Broker how they look out for their brokers, and how a strong team culture has led to their best financial year yet

SPONSOR’S MESSAGE La Trobe Financial is well known for its commitment to providing financial solutions to underserved borrowers, a segment of the market that has been a significant driver of recent growth in the finance broking industry.

Finance brokers represent over 95% of La Trobe Financial’s loan originations. We truly believe finance brokers are best positioned to assist underserved borrowers by providing greater choice through their access to a broader range of products and suppliers that are not readily found on the main street of every local town, meaning more people’s Cory Bannister, chief lending officer, La Trobe Financial

dreams are made a reality.

We are fully committed to our business partners and the success of their respective businesses, which is why we remain focused on innovation, product quality and superior service, along with delivering one of the broadest product suites in the specialist lending market. It is this breadth of products that makes us the best choice for finance brokers and their clients.

La Trobe Financial will continue to help finance brokers ‘make a difference’ by maintaining our ‘common sense’ solutions-based approach to lending.

21

CANBERRA-BASED mortgage and finance brokerage Clarity Financial Group has just had its 10th birthday. But while the business’s age may have only just hit double digits, the volume figures coming out of Clarity are a little higher, to say the least. In the 2016 financial year Clarity settled $205m in loans – a 10% increase on the previous financial year and the brokerage’s biggest year to date. Even more impressive is the fact that these numbers were achieved with only five full-time brokers. Clarity’s biggest writer settled $68m in 2016, while two others wrote over $42m each.

Founded by managing director Mark Edlund, Clarity’s doors were opened a mere five years after Edlund started working as a mortgage broker in Canberra in the late 1990s. “I had been an employed broker for five years and became pretty successful during that time, and saw how things could be done better for the broker and the client. I believed that I had a lot to offer in terms of training brokers and passing on the skills that I had learnt the hard way through trial and many an error,” says Mark.

The belief that he could pass on the skills he had gained from his first-hand experience was one of the biggest drivers for getting Clarity off the ground, and continues to be one of the biggest sources of motivation for Mark within the business 10 years later. “I continue to receive immense satisfaction from seeing brokers that I have mentored and developed become successful in their own right,” he says.

New digs, new chapter Last year, Clarity moved into a new, custom-built office space, marking a landmark moment for the business. “It was a significant achievement,” Mark says.

“The model from day one has been to create a work environment that enhances the client experience, and we frequently receive positive comments from clients on the professionalism of the office layout, interview rooms, and the technology we utilise throughout our interactions with them. A big part of the credibility gap is immediately closed in our clients’ minds once they walk into our office, and this makes the brokers’ job of establishing rapport much easier, and as a result clients feel comfortable in working with us to help them make the most important financial decision they will ever make.”

Mark tells Australian Broker that while the journey to this point was a slow one, this reflects his patient, long-term attitude to the business as a whole – to grow it out of cash flow rather than debt and/or an additional cash injection. “The rate at which brokers’ skills, client bases and referral relationships develop is generally – apart from the exceptional ones – a gradual process, and I have tried to keep the business expanding a rate that is manageable yet consistent,” he says.

Uniquely Clarity So what is it exactly that makes Clarity stand out from other boutique brokerages? Mark’s response is full of enthusiasm and reflects the intense belief he has in the business he created. For him, Clarity’s point of difference isn’t limited to one single thing. To start, there’s the recruitment of new-to-industry brokers. “We recruit potential brokers with no lending experience and put them

Kristy Edlund and Mark Edlund

“Our brokers are paid the same regardless of the lender the loan is placed with – to remove any potential income bias or conflict. Every client understands this from the moment they engage with us, and I firmly believe it is a big part of why we convert 95% of the customers that walk through our front doors” through a structured training program moving from an administration role, to broker PA, to broker. During this time they are paid a wage, treated like a professional, not a commission-only salesperson – mentored, supported, given clients and opportunities to grow their own business within a business,” he says.

The benefit of this model, Mark says, is consistency across all areas of the broker role, from how clients are serviced, to conversation standards within the business and the way appointments with clients are structured. “I know that if Broker A has to slot in and take over from clients that

Broker B has had an initial appointment with, Broker A can be sure of what the client has been made aware of. It helps with compliance also – we develop good habits from the beginning to ensure that we meet our obligations,” he explains.

The focus on not only the client but also the broker at Clarity is another of the brokerage’s strong suits, according to Mark. For him and Clarity general manager Kristy Edlund, team culture is the backbone of the business.

“I like to think that we give the brokers much more than just a desk, meeting rooms and a kitchen. In this industry we deal with many

22

BUSINESS PROFILE

frustrations each day – many of which are totally outside of our control – and we also have to deal with a high level of accountability to not only our clients but also to referrers, lenders, etc, so it can be extremely stressful,” Mark says.

The culture he and Kristy have tried to establish, he adds, is one that attempts to combat this stress through support structures within the business. “We help each other out; we help deal with each other’s issues and try and counter the stresses with having a laugh. I would say that a big part of how we function as a team is with the use of humour. We have some real characters within the business, and sometimes, much to the frustration of management, our staff meetings can steer off on tangents not at all in line with the agenda, and the meeting degenerates into something resembling a Will Ferrell movie!”

Tough but fair Clarity general manager Kristy Edlund knows all about the value and importance of company culture and maintaining happy staff. With an

“We recruit potential brokers with no lending experience and put them through a structured training program, moving from an administration role, to broker PA, to broker. During this time they are paid a wage and treated like a professional, not a commission-only salesperson” education including a Master’s degree in Human Resources and Organisational Development as well as a Bachelor’s in Applied Psychology, she oversees staff development and is behind the daily operations of Clarity, ensuring the business continues to grow and succeed.

“I believe that a combination of factors, operating in synergy with each other, leads to success,” Kristy says. “One key factor is effective,

motivational leadership that gives everyone in the business a sense of direction and purpose.

Secondly, there must be the right people making up the team – engaged, motivated, forwardthinking and customer-focused. And the final factor is really effective procedures and processes underpinning every core function of the business so that the team can focus on delivering great customer service and not get bogged down in

23

SNAPSHOT OF CLARITY FINANCIAL GROUP

Clarity is located in Canberra

The business offers both financial planning and home loans

There are 17 staff

EOFY16 loan settlements: $205m

inefficient ways of doing things. When these three factors come together, then business success is almost guaranteed,” Kristy explains.

Currently, there are 17 staff at Clarity Financial Group, spanning both the home loans and financial planning arms of the business, and a big part of Kristy’s role is managing each of these individuals. She believes her management style can be summed up in three words: tough but fair.

“I have a relentless drive to improve, and this results in very high standards – for myself and my team of amazing employees,” she says. “The ‘fair’ component comes about because my standards are not negotiable, and are applied to all employees regardless of role, status, or length of service. They are tough and fair so that everyone who works at Clarity is held to the same level of accountability, and we all know there are no shortcuts in the pursuit of excellence.”

There’s clearly a lot to be said for this managerial style if the brokerage’s volumes are anything to go by. Evidently, Clarity’s brokers strive for great things. “It’s gotten us to where we

Clarity opened its doors in 2006

5 of these are full-time brokers

EOFY15 loan settlements: $183m

are today – a team of like-minded, driven, positive people who help each other out, strive towards common goals and hold each other accountable,” Kristy says.

Looking after new brokers Something else Clarity offers its brokers is just the thing that many have been fighting for for years: a base salary. This shows a unique consideration for the difficult situation new brokers are put in on entering the industry, and the time it takes to build up a client book, and therefore an income.

“We pay a base salary to our brokers because we recognise that everyone needs to pay their bills whilst they are training and building a book of clients,” Mark explains. “Once monthly settlement volumes are achieved of roughly $2m, then bonuses are paid on that gross settlement volume. The bonuses are tiered so the more they settle in a month, the bigger the slice of pie the broker receives.”

Furthermore, he believes the brokerage’s commission structure is not only beneficial

to brokers, but also to brokers’ clients and the industry’s reputation at large.

“One of our of main selling points to customers – and I would shout this to ASIC if given the opportunity – is that our brokers are paid the same regardless of the lender the loan is placed with, to remove any potential income bias or conflict.

Every client understands this from the moment they engage with us, and I firmly believe it is a big part of why we convert 95% of the customers that walk through our front doors.”

Another reason for the brokerage’s conversion rate may be the fact that Clarity’s customers are never be put in a situation where they have to contact the brokerage for an update on the status of their loan. “We should always be on the front foot, providing updates, addressing concerns, informing them of what happens next, etc. The client should always feel fully aware and comfortable with where their loan is up to, and they should have no reason for stress or concern due to not having received adequate and timely information from the business. In many instances this means that our client is totally unaware of the problems and issues that our brokers and support team have had to deal with behind the scenes – and that is exactly how we think it should be.”

Never too old to learn Clarity regularly facilitates training and development for its brokers, and this education comes in many guises, Kristy says. One of the most effective is hands-on mentoring by the brokerage’s four most senior brokers. “There are more than 35 years’ combined experience between these four, and this is an invaluable resource for the entire team to draw on,” she says.

In addition to mentoring, Clarity hosts sales meetings where all brokers can share their current industry knowledge and online learning modules, and Mark also regularly delivers structured training sessions.

In the long run Every good business has a five-year plan, and for Clarity the goal is simple – to grow its volumes.

According to Mark, the brokerage has a number of trainee brokers coming up through the ranks that should hopefully have the brokerage well on its way towards this goal. But for Kristy and Mark the goals of each individual broker at Clarity are just as important as the goals of the business.

“For the newer brokers, we want to ensure they are given the same opportunities as the established brokers in the business in terms of achieving their own personal goals. And for the brokers who have been here for a long time, I want to make their busy days easier, by giving them additional administrative support and also through the development of some of the small teams/business units we are currently developing,” Mark says.

In addition to the mortgage side of the business, he is also aiming to expand the financial planning service “as we have significant untapped potential within our book and database”, he says. “Expanding our marketing efforts to make Clarity Home Loans and Clarity Financial Group Canberra’s most well-recognised financial services provider is also on the cards.”

It’s a mean feat, but if any brokerage is up for the challenge, it’s crystal clear it’s Clarity.

24

MARKET WRAP MARKET TALK

PROPERTY PRICE MYTHS The idea that property values double every decade is unfounded, according to CoreLogic’s Cameron Kusher

Pulse report, which has analysed the growth of properties nationwide over a 10-year period to determine whether there is any truth to the idea that property values double over a decade.

According to CoreLogic researcher Cameron Kusher, the national median house price 10 years ago was recorded at $330,000, while the median unit price was $310,000. Ten years on, the median selling prices are now $499,000 and $445,000 respectively.

“What we’re seeing here is a selling price increase of 51% for houses over the decade and by 44% for units. Clearly, based on broad averages, in most areas of the country median prices have not doubled over the past decade,” he said. “Across individual capital cities the results diverge significantly, however none of the capital cities have seen the city-wide median house or unit prices double over the past decade. Prices have gone closest to doubling over the decade in Sydney, Melbourne and Darwin, while in Perth and Hobart the total change for houses and units has been well below 50%,” Kusher said.

CoreLogic’s research indicates that for houses in 4,048 suburbs nationally, only 573 suburbs, or 14%, have seen their median price double over the past decade. For units in 1,665 suburbs nationally, 159 suburbs, or 10%, have seen their median prices double over the past decade.

NSW, Victoria and the NT are the only states and territories in which more than 10% of suburbs have seen both house and unit prices double over the past 10 years. In Melbourne, half of all individual suburbs saw the median selling price of houses double over the past decade, while in Sydney more than 40% of suburbs have doubled in price. Darwin is the only other capital city where more than 10% of suburbs have seen selling prices of houses at least double over the past 10 years. For units, the same three cities are the only ones in which selling prices have more than doubled in at least 10% of suburbs.

These findings indicate just how much stronger price growth has been in the capital cities than across regional markets, according to Kusher.

“It also highlights just how much the strong growth over the decade has been tilted towards Sydney, Melbourne and Darwin. Of course, values are already declining in Darwin while they continue to rise in Sydney and Melbourne,” he said.

“The next time you hear of property prices doubling every seven to ten years, although it can happen in certain areas, there are no guarantees.”

wMARKET HIGHLIGHTS Three months to September 2016

+5.0%

Most expensive city

Melbourne is the best-performing capital city

Sydney’s median dwelling price is $785,000

Melbourne

Sydney

Lowest rental yields The gross rental yield for Melbourne and Sydney houses is 2.8% and for Sydney units 3.9%

Highest rental yields

Hobart’s gross rental yield for houses is 5.2% and for units 5.5%

Darwin

Hobart

-4.5%

Most affordable city

Darwin is the weakest-performing capital city

Hobart’s median dwelling price is $325,000

INVESTMENT DISCREPANCIES

Gross and net rental yields and net equity by state 6.0%

$300,000

5.0%

$250,000

4.0%

$200,000

3.0% $150,000 2.0%

Net equity

CORELOGIC HAS released its latest Property

$100,000

1.0%

$50,000

0.0% -1.0% Average of gross rental yield

Average of net rental yield

Average of investment property equity Source: DFA

25

FINANCIAL SERVICES

BIG FOUR ADMIT MISTAKES The heads of the four major banks have admitted wrongdoings in this month’s parliamentary hearing.

But will things improve?

THE RECENT grilling of bank chiefs by federal politicians was a positive move for the industry, according to the Australian Bankers’ Association (ABA). The heads of ANZ, Westpac, NAB and CBA were all quizzed by a parliamentary committee for the first time this month amid disquiet over practices such as giving poor financial advice to customers and failing to pass on central bank interest rate cuts in full.

The hearing was the first and is set to be an annual occurrence.

While the banks admitted some mistakes, there was a general theme that these had been corrected and it was time to move on. “I think that’s the reality of large organisations, that when things go wrong our responsibility is to fix them and make sure they don’t happen again and make sure our customers are treated respectfully,” said Shayne Elliott, CEO of ANZ Bank. “But the reality is that most things don’t go wrong and that most of our customers are satisfied with the bank.”

Ian Narev, CEO of Commonwealth Bank, took a similar tack when describing how much the bank had improved. “I think we’re doing a lot better at listening to the cases of individual customers, and if you’re one of those it’s absolutely critical that you have avenues that are easily accessible, cost-effective where you can get efficient redress, and we’re committed to making that happen,” he told the committee.

Steven Münchenberg, chief executive of the

ABA, praised the banks’ final responses, saying the major players had provided their perspectives on all issues raised and also acknowledged they had room to improve.

“As an industry, we know we haven’t always lived up to the expectations of all of our customers and the wider community. The banks are acknowledging those issues and more importantly they are addressing them.”

He said the inquiry had raised a number of issues, some of which were already being addressed through government or industry initiatives. “There were also a number of ideas and proposals raised that merit further substantive consideration, and the banks will be evaluating these at the next meeting of the ABA Council.”

However, Paul Ryan, who co-founded Wizard Home Loans in the ’90s, has said that real change will only occur if consumers voice their displeasure. “With the big banks under the microscope in Canberra, now is the time for customers to be voting with their feet and demanding a better deal. It’s clear that any real change has to be driven by consumers – not the hot air coming out of Parliament House or the vested interests of the big four banks,” he said.

He encouraged consumers to shop around and seek other options, saying that if they waited for a government or bank-led shift, they would be “waiting a lifetime”.

26

CONSUMER INSIGHTS SEEKING SMALLER HOUSES More than 1.2 million households are currently looking to downsize, and a third are seeking to release funds for retirement

DIGITAL FINANCE Analytics founder Martin North has published the research firm’s latest survey on the property market’s household segments – Property Imperative 7 – which gives an insight into Australia’s property uptraders and downtraders. North’s results show that currently there are more households seeking to trade down

than trade up, and it is by far the largest segment of the housing market.

More than 1.2 million households are considering selling their current property and buying a smaller one – an increase of 100,000 from last year. Seventy-one per cent of these households are considering an owner-occupied

property, and 29% an investment property.

In this segment, 680,000 households (57%) currently have no mortgage and own their property outright, and approximately 20% expect house prices to rise over the next year – a figure that is significantly lower than in the other household segments.

North’s findings also show that of the 38% of downtraders who expect to transact within 12 months, 10% will consider using a mortgage broker and 8% will need to borrow more money. The biggest motivator for downtrading, according to North’s research, is to free up capital for retirement, followed closely by a desire to increase convenience. These motivations and the large, growing number of households in this segment may suggest the predominance of the ageing baby boomer generation in the property market.

The survey also suggests a trend among downtraders of using an investment property in their ongoing wealth management strategy.

According to North, this is especially true “given the saving crunch underway at the moment, with deposit rates falling, and the inherent quest for yield”.

Of the 780,000 “holders” in the market – or those who hold property – 81% of properties are owner-occupied and 54% are owned outright and mortgage free. The results show that, of these mortgage-free households, a further 54% expect house prices to rise in the next year, and yet 99% are not intending to sell their property in the next year.

The second-biggest household segment – 1,045,000 households – consists of those looking to trade up. Of these, a strong majority are owner-occupied (92%), with only 12% expecting to transact within the next 12 months. Fifty-six per cent of uptraders expect house prices to rise during this time.

DOWNTRADERS SEEK RETIREMENT FUNDS, UPTRADERS SEEK INVESTMENT OPPORTUNITIES

Reason for intention to uptrade:

42%

29%

For property investment

To obtain more space

12%

13%

Reason for intention to downtrade:

Due to a job move

For a lifestyle change

31%

33%

Increased convenience

To release capital for retirement

2%

10%

Due to unemployment

Due to illness or death of a spouse Source: DFA

28

PEOPLE

29

CAUGHT ON CAMERA Building on the success of last year’s inaugural international conference in Shanghai, the Finsure and LoanKit 2016 conference took it up a level by holding this year’s event at the iconic Marina Bay Sands in Singapore. The 190 delegates in attendance were treated to four days of activities, incredible dining and entertainment experiences and invaluable educational seminars. The keynote speakers included Winter Olympics gold medallist Steven Bradbury and sales coach extraordinaire Tom Abbott, both of whom were able to inspire and educate the delegates on taking their businesses to the next level.

The conference comes off the back of a successful year for Finsure and LoanKit, having reached their first $1bn in monthly settlement volume, expanding their broker network to 1,000 brokers and having been named the second fastest growing company in BRW’s 100 Fast Starters.

Photography by Simon Kerslake

30

PEOPLE HOT SEAT

FRANK CALABRESE Liberty adviser Frank Calabrese shares his thoughts on whether fintech is the death knell for traditional brokers and why it’s important to talk with your clients, not at them

Who or what inspired you to become a broker?

I had always wanted to run my own A business, utilising the experience and skills that I had built up in the banking industry. I had relationships with a number of brokers during that time, and they impressed me with their professionalism and approach to their clients.

They were prepared to work extremely hard, back themselves and were motivated by the carrot, not the stick. This entrepreneurial and free-thinking approach had considerable appeal to me, so becoming a broker was exactly the opportunity that I was looking for at that stage of my career.

Q

What is your most memorable client experience?

Some years ago, I arranged a Liberty A custom loan for a young couple to buy a modest first house after they had been knocked back by several banks. They recently sold that house for a significant capital gain, and this allowed them to buy their dream home in an area where they had always wanted to live.

I congratulated them on the windfall that they had made from the sale, and they became quite emotional and said that it could never have happened without me. They are so grateful for my helping them out when nobody else would, and it really hit home with me what a difference being a broker can make in people’s lives.

Q

In your opinion what is the biggest challenge the mortgage broking industry currently faces?

There has been considerable press lately A regarding the impact of the fintech revolution on our industry. If you believed some of the hype, you could be forgiven for thinking that we should all just pack up now and do something else. The finance industry will continue to evolve over the next decade, and we will adapt with it. People still want the comfort of knowing that a human being they can trust is involved in the biggest financial decision of their lives. Until an app is developed that can replace a friendly smile, a reassuring handshake, and be able to provide a tailored financial solution to a complex or difficult scenario, then I’ll keep pressing on.

Q

What has been the biggest or most important lesson you have learnt in your career?

It’s not about you; it’s about them. During A my initial years of broking, I would meet with clients and go through a proverbial song and dance, thinking I was impressing them with how much I knew about finance. The reality is that they don’t care how much you know; they only know how much you care. I eventually started to have more success once I learned to stop talking, listen more and understand the client’s specific needs from their perspective.

It was a difficult transition for me, given my background. Bankers tend to talk at their customers, whereas brokers talk with their clients.

Q

If you could invite three people living or dead for dinner, who would you choose and why?

Don Bradman – his Test batting average of A 99.94 not only transcends cricket but statistically may be the greatest single achievement in any sport. Having seen various documentaries on his life, he became a source of fascination and inspiration for me.

John Lennon – his music and lyrics changed my life. He was my favourite Beatle because his songs had so much more meaning and impact. Even as a kid, I still remember where I was and how sad I felt when he was shot in 1980.

George Mallory – just to have heard him say, “Because it’s there”. Possibly the most perfect answer to a question ever uttered.

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