Australian Broker 15.03

FEBRUARY 2018 ISSUE 15.03

UBS targets income inaccuracy Mortgage mis-selling poses risk to banks /04

Backed by a team Why commercial lending is better together /16

BRENDAN O’DONNELL Liberty Network Services’ managing director talks about his aggregator’s new formula for success /14

Checking in on Sedgwick How are the banks progressing on remuneration reforms? /18

ALSO IN THIS ISSUE …

Brokers cry foul The Productivity Commission questions brokers’ interests /21 Fane Levy On a historic $11m deal that was a year and a half in the making /22 Curtis Stewart On respecting the regulators’ decisions /30

NEWS

IN THIS SECTION

Lenders Mortgage mis-selling poses risk to banks /04

Associations FBAA calls on big banks to drop rates /06

Technology Online broker gets $25m from major bank /10

Regulators Banks reveal misconduct to royal commission /12

Market A silver lining in slowing mortgage growth? /08

www.brokernews.com.au FEBRUARY 2O18 EDITORIAL Editor Otiena Ellwand News Editor Manuelita Contreras Production Editor Roslyn Meredith

DATES TO WATCH

Upcoming can’t-miss events

ART & PRODUCTION Designer Martin Cosme Production Manager Alicia Chin

26 FEBRUARY Competition in the Australian financial system Productivity Commission chairman Peter Harris will give an address in Melbourne on the draft report of the commission’s inquiry into competition in the Australian financial system

28 FEBRUARY

8 MARCH

MFAA webinar

International Women’s Day

Learn how to get a return on your investment in your video strategy during this one-hour MFAA webinar

Several events will be held across Australia on International Women’s Day to recognise the achievements of women and promote gender and pay equity in the workplace

Traffic Coordinator Freya Demegilio

SALES & MARKETING Sales Manager Simon Kerslake Account Manager Rajan Khatak Marketing and Communications Manager Michelle Lam

CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

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tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au

16 MARCH

20 MARCH

4-5 APRIL

Anti-Money Laundering Conference

Productivity Commission submissions

Banking and Wealth Summit

This Sydney conference will be taking a closer look at who and how financial services organisations are doing business to better understand data and what it all means

The Productivity Commission’s draft report is open for comments and submissions until 20 March

This Sydney forum is for banking and wealth leaders, regulators, policymakers and stakeholder groups to debate the future of financial services

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10-19 APRIL

6 JUNE

1 J U LY

Asset Finance Broker Forum

MPA Broker Business Exchange 2018

CCR becomes mandatory

FAST will host a number of Commercial and Asset Finance Summits across the country in April. This invitation-only event is designed to help commercial and asset finance brokers grow their businesses

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Join 400 of your broker peers at this educational event in Sydney for a packed day of learning that will help you gain the tools you need for business success this year

The big four banks will be expected to fully participate in the new comprehensive credit reporting regime by 1 July 2018

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.

NEWS

LENDERS MAJOR BANK REPORTS $8.6BN IN LOAN SWITCHES saw $8.6bn in mortgage loans switch from interest only to P&I in the first quarter of FY18.

While this was not as significant a shift as during the previous quarter ($11.4bn), it shows many borrowers continue to move away from IO loans.

This follows the repricing of Westpac’s book and increased minimum deposits for IO housing loans. IO mortgages accounted for 22% of Westpac’s new home loans settled in the first quarter of FY18, lower than the 26% and 43% recorded in the fourth and third quarters of FY17, respectively.

WESTPAC

UBS QUESTIONS BANKS’ DATA ON MORTGAGE HOLDERS’ INCOME LEVELS Source: UBS Australian Banking Sector Update, February 2018

% of households in each income bracket that took out a mortgage in 2017 – Based on bank disclosure

40% 35%

has named industry veteran Mark Simmons as senior manager for client partnerships in its Sydney credit distribution team. This is the latest in a series of appointments by the lender.

The company said that about 35 new appointments were underway to bolster its plans for expansion.

A spokesperson confirmed these would be for broker distribution. Backed by private equity giant Blackstone, La Trobe is repositioning its business for more residential and commercial loan flows.

25% 20%

John Flavell CEO, Mortgage Choice

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16%

15%

10%

17%

12%

10%

0%

LA TROBE FINANCIAL

“At the end of the day, nobody – lender or mortgage broker – wants a consumer to be in a situation where they access credit they can’t afford”

27%

30%

5%

NON-BANK GOES ON HIRING SPREE

42%

45%

3% $0k–$75k

$75k–$100k

$100k–$125k

$125k–$150k $150k–$200k $200k–$500k

> $500k

% of income bracket that took out a mortgage

MORTGAGE MIS-SELLING POSES RISK FOR BANKS UBS has called the major banks’ reporting of borrowers’ gross household income as ‘highly improbable’ borrowers’ income is raising the risk of mortgage mis-selling, and such misconduct poses “material risks for the banks”, said UBS analysts in their latest research note.

Their findings regarding the major banks’ reporting of mortgage borrowers’ income support their concerns over factually inaccurate mortgage applications that are “permeating” the country.

They called borrowers’ high levels of income as “highly improbable” and said they did not add up. The analysts looked at data on mortgage borrowers’ gross income that CBA, NAB and Westpac have begun disclosing over the last two years.

The data shows an average gross household income for ownerOVERSTATED

occupier borrowers of $208,000 and investors of $236,000.

“In isolation these numbers appear high. However, when we aggregate this across the 950,000 mortgages written last year, material contradictions become apparent,” said analysts Jonathan Mott and Rachel Bentvelzen.

Benchmarking the figures against the Australian population using the census, the Household Income and Wealth Survey and tax office data, they found that the data showed much lower household income and fewer very high income earners.

The analysts said the banks’ disclosures implied that about 42% of all households with income of more than $500,000 must have taken out a mortgage in 2017, and

that about 27% of all households with an income of $200,000 to 500,000 also leveraged into a property over the past year.

While there is always room for improvement in the collection and reporting of borrower information, the industry has evolved dramatically over the years, said Mortgage Choice CEO John Flavell.

New legislation already requires brokers and lenders to forensically examine a borrower’s assets and liabilities. They also need to verify a borrower’s employment through documentation, telephone checks and discussions with employers.

“Twenty years ago, a home loan application was a single sheet of paper, and the level of data that was collected by a lender was scant.

Only 10 years ago, approximately 50% of all home loan applications in Australia required borrowers to certify their income and their asset position,” Flavell said. “When you contrast these lending practices with what we have today, it is fair to say things have come a long way.”

NEWS

A S S O C I AT I O N S FBAA QUESTIONS BANKS’ MOVE TO BUILD ‘WAR CHEST’ to an article in the Australian Financial Review, the big four have built a “war chest” of more than $600m to offer deep discounts and attractor rates to grab market share in a slowing property market. FBAA executive director Peter White said that, if this were true, it would in essence enable these banks to “buy business” to boost their profits.

“Once you’re on the hook, the big banks increase the margins on their existing loan books and make a huge profit,” he said.

ACCORDING

CBA WORKING ON NEW PERFORMANCE MEASURES changes to its accreditation standards, CBA is said to be coming up with better performance measures to support broker recruitment.

“I understand that CBA is working on improved quality benchmarks aligned with good customer outcomes, and these performance measures will be used by the bank to determine how to best support those brokers wishing to recruit and train new-to-industry loan writers,” said MFAA CEO Mike Felton. There is no confirmation yet as to when CBA will announce the new measures or what they will entail.

FOLLOWING

ASSOCIATION CALLS ON BIG BANKS TO DROP RATES The FBAA has urged the banks not to unduly target borrowers with out-of-cycle interest rate movements and fee hikes FBAA has expressed disappointment over the big banks’ seeming lack of interest in trying to work with borrowers, as they raise their home loan rates instead of dropping them.

It singled out ANZ among these banks. ANZ announced in January that it was increasing its rates for one- to five-year fixed loans and fixed owner-occupier and investment loans by up to 20 basis points.

The FBAA welcomed the move by smaller lenders to cut down their housing loan rates.

“It is good to see the non-banks, second-tier and small lenders supporting home borrowers,” said FBAA executive director Peter White.

THE

The past month has seen a number of non-major lenders slashing their housing loan rates to attract owner-occupier and investment borrowers.

In January, MyState Bank cut its three-year fixed home loan rate for owner-occupiers by 75 basis points for loans with more than an 80–90% LVR and dropped its three-year residential investor rate by 60 basis points for loans with an LVR of less than or equal to 80%.

Auswide has also started offering owner-occupiers a discounted variable rate of 3.59% per annum on new P&I loans of $100,000 or more with a LVR of up to or equal to 90%, as well as a discounted threeyear fixed rate of 3.99%. It has also cut its investment P&I loan rate for

borrowers with an LVR of up to or equal to 90% by 221 basis points.

The FBAA said it would benefit borrowers if the big banks followed suit. White expressed hope that the big five banks would realise that using their size to take advantage of the market was not helping anyone.

“We hope in 2018 the big banks remember where their profits come from, and that is borrowers,” he said.

Responding to this statement, a Westpac spokesperson pointed out that the bank had recently launched a variable rate for owneroccupier (P&I) loans that was Westpac’s lowest rate since 1956.

The bank launched its Flexi First Option Home Loan with a variable rate of 3.59% in early December.

“We know many Australians begin thinking about purchasing new homes around the December and January period, which is why we’re pleased to offer a range of competitive rates for new lending customers at this time,” the spokesperson said.

“We encourage the banks not to stab borrowers in the back with out-of-cycle interest rate movements, or unjustified fee hikes” Peter White Executive director, FBAA

VV$40,614,829,064 AUSSIES STRESSED ABOUT OVERCOMPLICATED FINANCES Source: UBank Know Your Numbers Index

59%

say their current financial situation causes them stress or loss of sleep

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86%

1 in 5

say they have full control of their finances

of Australians don’t know their monthly expenses

82%

1 in 5

credit card holders accurately know their credit card debt

of Australians with a mortgage don’t know their exact home loan rate

NEWS

MARKET BANK PREPARES FOR REGULATORY COSTS results in the first half of the 2018 financial year took a hit from the $575m it has set aside for penalty and regulatory costs.

The bank said on 7 February that it had earmarked $375m for a potential civil penalty related to alleged AML contraventions, and $200m for regulatory and compliance costs, including the royal banking commission. CBA’s cumulative risk and compliance spend has grown by a compound annual growth rate of 33% from FY13 to the first half of FY18.

CBA’S

NON-PROFIT LAUNCHES LENDING PLATFORM

by NAB, non-profit Good Shepherd Microfinance has ventured into online lending with the launch of a small cash loan platform called Speckle. Speckle promises a better alternative for people seeking cash loans under $2,000, with fees and costs kept as low as possible.

Speckle was developed in response to a growing number of households that use payday loans to make ends meet. “Speckle loans are up to 50% cheaper than other small cash loans,” said CEO Adam Mooney.

BACKED

“Speckle loans are up to 50% cheaper than other small cash loans. Most lenders charge the maximum fees allowed by law.

As a not-for-profit program, Speckle is significantly cheaper” Adam Mooney CEO, Good Shepherd Microfinance

A SILVER LINING IN SLOWING MORTGAGE GROWTH? Demographic changes among homeowners could boost mortgage growth potential for houses to be sold by older people with little debt to younger borrowers who take out larger loans could boost the country’s mortgage growth, say J.P. Morgan analysts.

In a recent research note on Australian banks, the analysts said they saw few reasons to be positive about mortgage growth in the country, but there was one area in with some potential upside – demographic changes in homeowner ranks: “In particular, the potential for houses to be sold by older people with little or no debt, to younger people who take on more meaningful debt loads,” they said.

However, the analysts were quick to point out that this upside could be offset by lower THE

debt in the investor bucket.

They said they saw no reason why the trend of slowing mortgage growth would not continue, given a number of contributing factors, including stretched household balance sheets, slowing house price growth, and general improvement in lending standards putting downward pressure on loan size.

Figures released in January put Australian total household liabilities at $2.4trn, an increase of 3% from the June 2017 figure after the ABS revised its data to include SMSF debt.

Meanwhile, property prices have continued to fall, with Sydney recording steep declines. Property prices in the city have fallen for a fifth straight month, with a 0.9%

decline over January amid tighter investment lending rules, data from CoreLogic shows. At the national level, property prices fell 0.3% in January, with annual growth slowing to 3.2% from 4.3% in December.

J.P. Morgan has revised its forecast for housing loan growth and now expects it to drop to 5% in FY18. For FY19 and FY20, it forecasts growth to decline to approximately 4% and slightly below 4%, respectively.

“We think this profile would satisfy APRA’s/RBA’s desire for a slowing of household debt, without bringing about a hard landing in the housing market,” the analysts said.

They noted that this level would also be slightly below nominal GDP. Because of increased regulatory oversight, the analysts said they would not be surprised to see the average LVR of newly originated loans continue to go down slightly in coming years.

VV$40,614,829,064 HOUSEHOLDS’ FINANCIAL SITUATION WORSENING DUE TO COST OF LIVING Source: ME Household Financial Comfort Report, February 2018

Cost of necessities/inflation/cost of living (eg fuel, utilities, groceries) 1% Change in job arrangements, security -22% 12% Change to my income/disposable income/wages -20% Personal/household debt -9% 13% Change to government support/legislation -9% 2% Value of financial investments (eg superannuation, shares) -4% 10% Level of savings/cash on hand -2% 12%

-40%

Worsened

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Improved

30%

NEWS

TECHNOLOGY

NON-BANK BUYS MARKETPLACE LENDER has acquired marketplace lender MoneyPlace in a push towards personal lending. The move will see Liberty merging its existing personal loan product with that of MoneyPlace, which will remain an independent brand and continue to be managed by an entrepreneurial leadership team.

Liberty said there would be no impact or change to its existing personal loan customers. Liberty CEO James Boyle said the lender would help build on MoneyPlace’s recent initiative of launching its broker channel with aggregators.

LIBERTY

ONLINE BROKER GETS $25M FROM MAJOR BANK The digital mortgage platform says it is not focused on taking on traditional brokers but is instead looking to create a third option has doubled its investment in online broker uno Home Loans with another $25m to support the mortgage service’s ambitious targets.

The amount has brought Westpac’s total investment in uno to $51.5m, giving the bank about an 81% stake in the company.

The move is seen as part of Westpac’s plan to get a share of the more than $2bn in annual mortgage broking revenues.

Westpac made its first investment – worth $16.5m – in uno in 2016, the year the company was launched. This was followed by two more rounds of funding for the online broker last year, bringing the total to WESTPAC

$26.5m by October 2017.

Uno aims to get a 10% share of the mortgage market in 10 years.

It currently has less than 1% share of the market.

“We grew our business 600% in our first financial year ending 30 September 2017, and the next phase of our strategy – which this round of funding will support – will focus on our goal to support 10% of Australia’s mortgage customers to secure their home or invest in their future,” said founder and CEO Vincent Turner.

While it would seem the company is looking to take market share away from brokers as it scales its business, Turner says uno is not focused on taking

on traditional brokers. Instead, it is marketing its business model as a third option.

“A lot of customers looking for a mortgage go to brokers and banks. We always say this is a third option. There’s mortgage broker market share, there’s bank market share, and then there’s digital mortgage service as a third option – that’s the category we are focused on,” he told Australian Broker.

Uno plans to use Westpac’s latest funding to further streamline the mortgage process.

To support its growth strategy, the online broker is expanding its team by more than 50% and will continue investing in technology and building its brand.

The company has 22 lenders on its platform, including Westpac and the other three major banks. It settles two thirds of loans through non-majors, with 75% of loans going to 12 lenders.

A SIGNIFICANT PORTION OF AUSTRALIANS’ INCOME GOES TO HOUSING PAYMENTS 32%

31%

Paying off a mortgage

30%

Renting 25%

19%

18%

20%

5%

18%

15%

12%

15% 10%

20%

8% 5%

6% 7%

8%

2%

0%

10% or less

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has dropped its plan to offer “instant mortgages” as banks’ lending practices come under increased scrutiny, according to an article in the Australian Financial Review.

The project had been active until as recently as late 2017. The plan would have allowed Westpac to offer clients nearly instant approval, or provisional approval. Despite dropping the project, Westpac will continue to streamline its process for mortgage application and improve its turnaround times for housing borrowers, the article said.

WESTPAC

Source: ME Household Financial Comfort Report, February 2018

35%

MAJOR DITCHES ‘INSTANT MORTGAGE’ PLAN

More than More than 20% More than More than 40% More than Greater than 10% up to 20% up to 30% 30% up to 40% up to 50% 50% up to 60% 60%

NEWS

R E G U L AT O R S

ASIC BANS BROKER FOR THREE YEARS has banned a broker from engaging in credit activities as part of its investigation into the Heritage Group, a group of companies that advised clients to set up SMSFs and buy property with their superannuation. NSW mortgage broker Michael Wilkins has been barred from doing credit business for three years. ASIC said that, on five occasions in 2010, Wilkins submitted loan applications in which he deliberately overstated clients’ savings by between approximately $130,000 and $179,000.

ASIC

BANKS EXPECTED TO DIVULGE MISCONDUCT TO ROYAL COMMISSION One major bank CEO called seeing all the issues identified in his company’s submission ‘confronting’

major banks have made their submissions to the royal commission, in which they are expected to disclose previously unreported cases of misconduct in their businesses over the last decade.

CBA, NAB, ANZ and Westpac had until 29 January to respond to Commissioner Kenneth Hayne as the commission prepares for its initial public hearing on 12 February.

In a letter sent last December, Hayne asked the major banks to identify and report not only misconduct but also conduct the banks considered as having failed to meet community standards and expectations since January 2008.

The banks also had to explain why they thought those cases of THE

INVESTOR LENDING SLOWS, SAYS RBA lending for investors slowed down in the year to December 2017 in what could be the result of regulatory measures to reduce lending supply to investors. RBA’s credit aggregate data released in January shows that house lending to investors grew 6.1%, seasonally adjusted, in the 12 months to December 2017, down from 6.2% from the year before. Analysts have largely expected growth in mortgage lending to slow this year amid tougher lending practices, underemployment, and lower investor demand.

HOME

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with changing community standards.

He apologised for the harm the bank had caused its customers.

“For me, it’s completely unacceptable that we have caused some of our customers financial harm and emotional stress. I’m ultimately accountable for this and once again apologise,” he said.

He called seeing all the issues ANZ had identified for its royal commission submission in one document as “confronting”.

“Of course, it would be easy to lay the blame on a few bad apples or to say that these are largely historical technical glitches resulting from large, complex IT systems. That would be wrong,” he said.

NAB chief legal and commercial counsel Sharon Cook said NAB was committed to cooperating with the commission and that it would respect the processes the commissioner put in place.

Meanwhile, submission of evidence by members of the public remains open.

misconduct happened and what they had done to fix them and stop them from happening again.

With this, banks were expected to detail a broad extent of misconduct and cases that could be regarded as not having met community standards.

The Australian Financial Review reported on 28 January that CBA would acknowledge failures in its mortgage broking, insurance and financial planning units in its response, and is expected to give fresh details of misconduct at the bank and its business units.

ANZ CEO Shayne Elliott said in a note to staff that while he believed the bank was now “on the right path”, it needed to do more to make sure it met its promises and kept up

TIGHT CREDIT IS BIGGEST CONSTRAINT ON NEW HOUSING DEVELOPMENT Source: NAB Residential Property Survey Q4-2017

Very significant Significant Somewhat significant Not very significant Q4’10 Q2’11 Q4’11 Q2’12 Q4’12 Q2’13 Q4’13 Q2’14 Q4’14 Q2’15 Q4’15 Q2’16 Q4’16 Q2’17 Q4’17 Rising interest rates

Housing affordability

Tight credit

Lack of development sites

Labour availability

Sustainability of house price gains

Construction costs

TECHNOLOGY UPDATE

FALLING DEMAND FOR PROPERTY FROM FOREIGN BUYERS Source: NAB Residential Property Survey Q4-2017

20%

18%

16%

14%

12%

10%

8%

8.4

6%

5.5 4%

2%

8% 0%

Q3’10 Q3’11 Q3’12 Q3’13 Q3’14 Q3’15 Q3’16 Q3’17 New properties

Established properties

WHEN WILL THE CASH RATE CHANGE? Reserve Bank has kept the official cash rate on hold at 1.5%, continuing its longest run of low interest rates. This marks the 18th consecutive month the RBA has kept the rate steady since it cut the official cash rate by 25 basis points in August 2016. Many economists don’t expect it to last. Ellerston Capital global economist Tim Toohey said the RBA would start lifting the rate in the second half of the year as part of a three-year tightening process that would see the rate go up by 125 basis points.

THE

‘eSIGN’ IN APPLYONLINE DELIVERS SEAMLESS INTEGRATION NextGen.Net has just announced the launch of eSign, an electronic signing functionality within the ApplyOnline Supporting Documents service.

The shift to enable electronic signatures further streamlines the application process for brokers, helping to create an end-to-end secure solution within the familiar and highly trusted environment of ApplyOnline. “eSign enhances the broker process and makes it significantly easier because it integrates with any third party that provides an online signature service, thereby eliminating duplication and error,” says NextGen.Net sales director Tony Carn.

“It also saves time because it removes the need to print forms, get them to the borrower and then collect a ‘wet signature’.”

Traditionally, brokers have experienced a multitude of difficulties in attaining applicant signatures manually, which inevitably delays the application process, especially when it entails physically taking documents to borrowers for signing. eSign provides a simple and easy process for the applicant to sign from any location and on any device.

“If a party is not present on the day, documents can be sent electronically, received and signed within a matter of minutes,” Carn says.

“Lenders nominate which documents can be signed electronically, and brokers have the ability to send, track and receive signed documents within ApplyOnline.

“From the lenders’ standpoint, eSign makes their job far easier and smoother from the beginning because they can verify that applications are signed when they receive them.

“Lenders can’t start processing an application until they have a verified signature, because part of the process is a credit check, and for that a signature authorisation is required.

“Getting a legally binding signature electronically means lenders will no longer have to manually check applications.” eSign enables brokers to send specific documents to applicants for electronic signature via providers such as DocuSign®, within the ApplyOnline Supporting Docs environment.

It allows lenders to directly integrate with electronic signature providers, completing approvals and settlements faster, all via a highly

Tony Carn

secure method of transmission of signed documents.

Carn explains: “One of NextGen.Net’s key tenets in our road map for processing applications is the eradication of the need to email key documents, which from a security perspective has always been incredibly unsafe.”

He says from a security point of view “eSign ticks all the boxes”.

This new functionality demonstrates NextGen.Net’s commitment to innovate and deliver revolutionary, user-friendly technology to brokers and lenders.

“The launch of eSign personifies one of the core principles of our mission statement, which is the value of developing and maintaining a strong product and innovation road map,” Carn says.

“At NextGen.Net, we comprehensively invest in research and development and remain committed to enhancing functionality and user experience in ApplyOnline by delivering continuous innovation.”

Industry expectations are higher than ever for fast turnarounds coupled with error-free processes.

The launch of eSign is a key milestone in the evolution and simplification of the loan application process.

FE AT URES

SPECIAL REPORT

THE SECRET POWER OF AGILITY On a mission to avoid digital Darwinism and embrace industry reform, Brendan O’Donnell, Liberty Network Services’ managing director, is executing a new formula for success, writes Melanie Mingas

KEY BUSINESS METRICS

200 advisers by 2020

High-touch – currently 18 advisers per network sales manager

8,860 leads delivered to network in 12 months

66% growth in loan book over 18 months

Access to a panel of 22 lenders

Access to a diverse range of lending solutions

14

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the modern world, it often feels like change is the only constant. In the last decade, businesses across the board have raced to adapt to a tech-driven world – and economy – while watching digital Darwinism close in on entire sectors, from entertainment to travel.

Pressured on one side by the $850m domestic fintech industry and on the other by customercentric regulatory reform, the time has now arrived for Australian finance.

Liberty Network Services is no stranger to embracing change.

An early innovator in the fintech space with its award-winning end-to-end broker platform Spark, the aggregator was one of the first to move away from traditional, web-based platforms.

In 2016, a company rebrand seized on the opportunity to gain critical mass in the consumer space, which saw LNS launch its first consumer advertising campaign.

The results paid off, with the loan book today close to $2bn, and 66% growth in the last 18 months.

Now, as the industry faces further disruption – regulatory as well as technological – LNS is gearing up to ensure that forward isn’t the only move its brokers master.

The firm attributes its success to a “unique value proposition” detailed in five pillars. In 2017, a sixth was introduced, agility.

“We have extended our pillars with focus on providing the digital tools and guidance on how to embrace and respond to a rapidly changing market,” says managing director Brendan O’Donnell.

IN

“We live in fascinating and exciting times, and significant change brings with it significant opportunity. We want to ensure that our advisers are ready and able to embrace and enjoy the benefits of these changes.”

In practical terms, O’Donnell says this will involve “losing some old habits and embracing new ones”, and the aim is to stay well ahead of the curve. But in doing so, he knows there are risks. As he puts it, “nothing replaces local face-to-face support, coaching and mentorship”.

how and why they interact with customers of various profiles. The results are responsive, real-world solutions that consider the full broker-customer experience in order to improve on it.

In the mobile space, this includes the continued evolution of Spark.

Elsewhere, it comes full circle, supporting the Adviser Experience team in consistently providing innovative and incremental improvements through agile working.

In 2015, O’Donnell called the initial shift to mobile a “clear and conscious decision to leapfrog the market”, and current plans echo similar sentiments.

One of five focus areas outlined for LNS in 2018 is the adoption of technologies that are as revolutionary now as fintech was in the early 2010s. Stating intentions to help advisers meet the challenges and opportunities of the digital

“We live in fascinating and exciting times, and significant change brings with it significant opportunity” Brendan O’Donnell, MD, Liberty Network Services Recognised as the firm’s fifth pillar, LNS calls this strategy “high touch”, acknowledging the remit to work smarter, and digitise and streamline processes for advisers, while retaining the human touch that broker-client relationships are built on.

“That’s the interesting challenge the industry faces around now.

We are going more digital, but mortgages in particular are built on personal relationships and going face-to-face. Customers need that help and need to see somebody for that help,” O’Donnell says.

Collaboration is key, and the firm’s tech team meets directly with advisers in order to understand

economy, even artificial intelligence is on the drawing board.

Not only does this support the continued evolution of LNS, but O’Donnell confirms that it boosts adviser retention and productivity too.

Dream team Liberty Network Services has grown steadily in the six years since O’Donnell established the firm, after leaving his role as CEO of Choice. An entrepreneur at heart, he built the network from scratch to a head count of 132 advisers currently, with targets of reaching 150 by June this year and 200 by 2020.

In partnership with

Brendan O’Donnell, managing director of Liberty Network Services

Retention, as well as fresh talent, add to the mix. Currently the ratio sits at 77% established talent who largely joined from competitor firms, to 23% new, mostly banking and financial planning professionals with a head for brokering.

The benefits are highly competitive, from partnerships that secure quality leads to a typical monthly sales sheet of up to $3m per adviser. On the all-important issue of take-home, LNS has sharpened commission to offer advisers a base of 92% upfront and 92% trail, with the ability to increase to 95% based on performance. Economics is

the first pillar, after all.

It’s mutually beneficial. On the one hand LNS has the agility afforded by a network of small groups and single operators; on the other it receives the backing of a brand that builds business.

Centralised marketing, incidentally the firm’s fourth pillar, includes digital and traditional support. Building on its consumer reach, LNS also contributes dollar for dollar to local marketing campaigns, ranging from cinema advertising to flyers and digital geo targeting.

Training is comprehensive, and in any given year LNS has a minimum of 18 “formal touchpoints”,

comprising webinars, state forums, local small-group sessions and a national conference. All are critical as the industry embraces reform.

For advisers, such terms and conditions are the silver lining of a highly competitive market. For O’Donnell, that competition is the next threat on the horizon.

“We’re reaching a saturation point, I believe. We are very competitive, a very mature market, and brokers recognise that to compete in such a market, utilising digital to remain relevant to customers, is getting more and more challenging. They need to reach out and they need someone who can help them,” he explains.

Changing times Technology and a competitive landscape are just two of the factors making a dent. The Combined Industry Forum proposals, as well as the wider regulatory reforms currently underway, comprise the lion’s share of the balance.

“As an aggregator our role is to provide the right platform for our advisers so they can help more customers Get Financial. LNS will work closely with the industry and our advisers in the process to ensure they understand how the changes will impact them and what they can do to adapt. We want our advisers to continue to be a trusted customer channel for finance, which is why these reforms are so important,” O’Donnell says.

Using this and self-regulation as a springboard, O’Donnell is keen for the wider community of brokers to have a say in shaping what a new and better finance industry will look like, setting the scene for more changes ahead. Fortunately, one constant LNS can depend upon is its own success.

On the back of its work to continually push the industry, 2017 results demonstrated another year of strong growth, which saw the firm’s third pillar, diversification, paying dividends.

Encouraged to focus “beyond mortgages”, today 64% of LNS advisers also write motor finance, 16% commercial finance and 70% custom specialty finance.

In addition to AI, 2018 will see diligent focus placed on further diversification through training, enhancing the business, marketing, sales program and, of course, customer experience and agility.

As O’Donnell concludes, “The [current] changes are designed to bring stability to the industry and create better outcomes for the customer. This is only going to be a good thing. While it means there’s work to do on our behalf, its work we’re always prepared to undertake.” AB www.brokernews.com.au

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BUSINESS PROFILE

BACKED BY A TEAM

Making a challenging commercial deal work often comes down to being able to collaborate as a team. In these commercial deal scenarios, La Trobe Financial and Thinktank explain how they’ve supported and partnered with brokers to find finance solutions for their clients LA TROBE FINANCIAL

The scenario A self-employed applicant had purchased a retail shop in the regional town of Ballarat, Victoria, for long-term investment purposes.

He was purchasing the shop from the existing owner, who was also the tenant. The existing owner/tenant would be vacating the shop at settlement. The applicant had paid a deposit, and settlement was 90 days from signing the contract of sale.

As the retail shop would be vacant at settlement and without a formal lease in place, servicing was not initially evident. Subsequent to signing the contract of sale, the borrower had entered into a lease agreement for five years, but the first

The broker reviewed the borrower’s financial circumstances and immediately called their La Trobe Financial BDM to see if we could assist with the financing.

Following the discussion with the broker, the La Trobe Financial BDM immediately contacted our credit team to see whether we could find a possible solution for the borrower.

The team was made fully aware of the time constraints and the credit issues around the servicing of the loan, including the default issue.

The solution The La Trobe Financial BDM and the commercial credit team worked together and assessed the

The broker’s relationship with La Trobe Financial and immediate action with one simple phone call made a significant difference to meeting tight deadlines Steve Lawrence six months were rent-free.

We were also advised that the borrower had a utility default from three years previously for $560.

The borrower approached his current financier to assist him, who advised that “all would be OK” and “we are working through the process”.

After 60 days, the borrower was becoming frantic as he only had 30 days to the settlement date and was concerned that he was not going to settle on time and would lose his 10% deposit. The current financier still did not have an answer for him.

The borrower became nervous and decided to contact a finance broker who had been recommended to him.

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borrower’s circumstances against La Trobe Financial’s lending criteria.

Together they workshopped possible scenarios. Put simply, they applied a relationship approach, rather than just ticking boxes.

The team identified the possible financial solutions: • With respect to servicing, we agreed to capitalise the interest within the loan amount for the first six months to overcome the issue of the first six months’ rent-free. We also undertook our standard servicing of the loan via our ‘Lite Doc’ method, incorporating the rental from the security property that would

Steve Lawrence, vice president and head of credit, La Trobe Financial

commence in six months, verified through a market rental amount as noted by the valuer. We established that the loan could be serviced.

• A satisfactory explanation was given with respect to the previous default, and we obtained confirmation that it had been paid in full.

• We agreed to an LVR of 70% with interest-only for the first 12 months, and thereafter the remaining term of 24 years would be on a principal and interest basis.

• The loan was subsequently approved and settled within the four-week time frame.

The takeaway The broker’s relationship with La Trobe Financial and immediate action with one simple phone call made a significant difference to meeting tight deadlines. The broker’s understanding of La Trobe Financial’s credit policies, BDM support and immediate action also played a significant role in achieving results.

We pride ourselves on assessing each application on its merits, and in this case La Trobe Financial’s service, direct access to those ‘decisionmakers’ and its solution-focused methodology to ‘try to make the deal work’ has helped another customer achieve their financial goals.

THINKTANK

The scenario One of our Victoria relationship managers, Joel Harrison, was recently presented with a commercial loan scenario that required considerable workshopping prior to submission and approval.

The high-level loan details involved four individual, self-employed sponsors with interconnected businesses. The finance objective was to acquire a commercial warehouse under special purpose vehicle (SPV) to operate an existing business owned by two of the loan parties.

The loan size was $600,000 for a term of 30 years.

On the surface, a commercial property purchase such as this would

Up to this point the applicants had been unable to obtain finance from mainstream lenders, either due to policy constraints or because the lenders could not fully come to understand the various business income flows and the possible ways servicing could in fact be demonstrated. The applicants were subsequently referred to Thinktank by an industry colleague.

The solution Thinktank was able to demonstrate income on the applicants’ current ‘real’ income position, which satisfactorily met our 1.5x minimum interest coverage ratio requirement.

We recommend brokers workshop transactions with their relationship manager as a collaborative exercise and aim to involve the most suitable lender as early as possible Peter Vala seem quite standard. The twist in the transaction on this occasion involved how to demonstrate satisfactory full-doc verification of income.

Sufficient aggregate income was required to show that serviceability was needed from multiple sources.

Some of the borrowers had less than two years of individual trading history. Some were only profitable in the last financial year, while others relied on commissions that only had a history of less than 12 months. Forecast rental payments to the SPV were to come from an associated entity that belonged to only a minority proportion of the sponsors.

By opting for a loan term of 30 years at the current rate, the loan repayments were not dissimilar to the starting rent to be paid by the proposed tenants (an associated business). Thus the actual cash flow of the tenants’ business essentially would not materially alter.

A detailed understanding of the various applicants’ employment histories and experience in their chosen fields of business was obtained by our team. Provisional financial statements were also provided, which served to display a positive net income trend. This gave further confidence to the assessment of the transaction, which relied on

Peter Vala, head of sales and distribution, Thinktank

the most recent year’s financial statements without having to average income over multiple years.

The takeaway All lenders have different credit risk assessment criteria and appetites for lending. Just because it does not fit a certain lender’s parameters or preferences does not mean that the transaction is not without merit and may not prove more than acceptable to another lender.

At Thinktank, we recommend brokers workshop transactions with their relationship manager as a collaborative exercise and always aim to involve the most suitable lender as

early as possible in the process so all parties are working towards an identified and common goal.

In this case, Harrison conducted a series of face-to-face meetings with the broker, and had numerous joint phone calls with the broker, accountant and financial planner for the associated individuals so as to structure this proposal into a workable solution for all parties.

In the end there was a delighted and surprised broker who had been introduced to a lender that was willing to invest the time and work on an alternative approach, which then delivered a great outcome for their client. AB www.brokernews.com.au

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NE WS ANALYSIS

BANKS SLOW TO REFORM REMUNERATION Banks are making meaningful progress in implementing the recommendations of the Sedgwick review, but many appear to be lagging when it comes to broker remuneration. Nicola Middlemiss explores the reasons for the hold-up the Retail Banking Remuneration Review released last April, Stephen Sedgwick made 21 recommendations aimed at improving how banks pay commission and bonuses to staff and third parties.

Four of those recommendations directly relate to mortgage brokers, including that banks should adopt approaches to the remuneration of aggregators and mortgage brokers that do not directly link payments to loan size, and should end volumebased and soft-dollar incentives.

The big four banks committed to implementing all of Sedgwick’s recommendations, a goal that Sedgwick said should be achieved by 2020.

In January, former auditor-general Ian McPhee, who has been tasked with independently assessing the progress the banks have made on implementing the Sedgwick reforms, released his latest report. He revealed that while many banks had been quick to implement recommendations in certain areas – specifically, performance management, executive governance, and culture and conduct – it seemed that there had been little change in the third party remuneration sphere.

According to the McPhee report, 14 of the major banks are now substantially or fully aligned with recommendations for performance management, while just three have reached the same point with third party remuneration incentives.

However, Heather Baister, a partner in Deloitte’s assurance and advisory team, says making changes to third party remuneration was always going to be trickier than implementing other recommendations.

“Some of the recommendations in IN

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the Sedgwick review include what the banks can do internally. However, third party remuneration requires a collaborative effort between the aggregators and the broking industry, so by its very nature that will take more time.”

mortgage broking industry in recent years – there’s been the ASIC review, the Sedgwick review, and now brokers have been scoped into the royal commission, while ASIC is continuing to do its shadow shopping of mortgage brokers,” she says.

“There is a fear that if the commission structure does change fundamentally, it will lead to brokers withdrawing from the market” Heather Baister, Deloitte Baister, who specialises in mortgages and securitisation, also stresses that banks are likely to be cautious as they are facing a chorus of conflicting opinions.

“We’ve had a huge number of entities professing their views on the

The Combined Industry Forum (CIF), a body consisting of lenders, aggregators, brokers and consumers that came together following the release of the Sedgwick review and the ASIC remuneration review, also released its own report and guidance

to the industry in regard to broker commissions.

MFAA CEO Mike Felton says the two reports have the same objectives.

“I believe that if the CIF reforms are implemented as proposed, that should address Sedgwick’s concerns,” he says.

“I don’t see them as being different things; we see them as being one and the same. They’re looking to improve consumer outcomes, improve trust and confidence, and drive sustainability of the industry into the future.”

As Baister points out, there are clearly a lot of different factors at play.

“It’s not as if there’s one set of recommendations that are trying to be implemented – there is fundamental structural change being considered, so I’m not surprised it’s moving slowly.”

With the royal commission still in its early stages and ASIC conducting ongoing investigations, Baister says it’s highly likely that additional

WHAT THE BANKS HAVE TO SAY ON THEIR PROGRESS “AMP Bank is supportive of the development of reforms that are focused on delivering and preserving better outcomes for customers. AMP Bank last year implemented the two key reforms that came out of the Combined Industry Forum, and we are fully committed and complying with these latest measures. Principles will be published in March in AMP group’s annual report for 2017.”

“Commonwealth Bank is committed to implementing all of the recommendations of the Sedgwick report, with a number already in place today.

Following extensive consultation with the broking industry, we’re in the process of implementing all of the recommendations relating to third party incentives.

We’ve also been an active participant in the Combined Industry Forum, and are supportive of the broker reform package released in December. We’ll continue to engage with the industry and share further details of our progress.”

“ME is on track to meet all the Sedgwick recommendations within the agreed time frames. The bank already meets a number of recommendations regarding third party remuneration, including not providing volume-based incentives, soft-dollar or campaign-based incentives. Work is well underway to meet all other recommendations, specifically as they relate to third party remuneration.”

HOW MANY BANKS ARE ALIGNED WITH THE SEDGWICK RECOMMENDATIONS? 10

10

9

9

9

9 8

8 7 6

7 6 6 6 5

5

4 4

4 3 2

4

4 3 3

2

2

2

2 1

1

0

0

0

Variable rewards Retail payments to bank staff bank staff scorecards Full alignment

0

2

1

0

Governance – Governance – Third party Third party performance senior and mid- remuneration – remuneration management level execs governance – incentives

Substantial alignment

guidance will be released in the near future, leaving banks reluctant to implement any changes that could soon be rendered outdated.

“I think any lender would be very nervous about making a change to its third party remuneration processes and governance as a first mover, for fear of being out of line with the rest of the industry,” Baister says.

“I’m sure there is a lot of work going into what will actually work, what data is available, and what is practical on a cross-industry basis. That’s what’s taking the time.”

With significant amendments still to be made to third party remuneration, many brokers have expressed concerns that their current compensation structure will be altered beyond recognition.

“Certainly there is a fear that if the commission structure does change fundamentally, it will lead to brokers withdrawing from the market, and I’m not sure that’s a good thing,” Baister says.

“If you look at the fact that more than 50% of loans are currently originated via brokers, it’s clear that they play a very valuable role – they’re clearly servicing a market, they clearly help competition, and the service they provide from a customer viewpoint is generally very well received.”

However, while Baister hopes the recommendations will have a minimal impact on broker remuneration, she also acknowledges that other compensation systems are a possibility.

“When you look internationally, there are many other payment models in operation, so it would be rash to dismiss them,” she says. “However, I think the model that we have operating in Australia at the moment is working very well, and ASIC has acknowledged that. Athough it’s by no means perfect, they did not see a more recommendable fundamental basis for a model.”

Some alignment

Not aligned

N/A

While it’s impossible to predict exactly what changes the forthcoming industry reviews will bring, Baister says the most significant are likely to relate to increased transparency across the industry.

“I think there will be more of a focus on transparency for the lenders in terms of the conversations a broker has with customers, and how lenders can be certain the conversations they believe are happening in regard to NCCP requirements are actually happening.”

Baister also expects the broker industry to demand additional transparency regarding the performance of the loans from the lenders as, currently, that data is not shared effectively.

“I also think there will be increased transparency over performances of individual brokers – for example, if a broker is raising a red flag with one lender, how is that information shared across lenders and the broker’s aggregator?”

For consumers, Baister says there will be an increased focus on the transparency of disclosure where there is vertical integration between lenders and brokers.

“That way, consumers can clearly understand the commissions that brokers are being paid and the relationship that those brokers or aggregators may have with banks when they are ownership structured.”

While there is still uncertainty clouding the future of broker remuneration, Baister says she knows one thing for sure – that the mortgage industry will only suffer if professionals are pushed out.

“I really believe the role brokers play in helping consumers with what is arguably the biggest purchase they ever make – and enabling them to navigate that – is so incredibly valuable that I really think there should and will be a long-term role for brokers in the industry here in Australia.” AB www.brokernews.com.au

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OPINION

KEEPING THE CASH FLOWING Greg Charlwood, managing director of Australian Invoice Finance, explains why invoice financing should be on every finance broker’s radar

invoice financing industry has grown rapidly in recent years and now provides a significant opportunity for savvy finance brokers to earn additional revenue from Australia’s more than two million SMEs. There are other compelling reasons why finance brokers should consider invoice finance as a lending option for their business clients, beyond just getting a slice of this growing pie.

The major banks have tightened their lending terms and conditions, and many businesses are finding it more difficult to access loans through traditional channels.

Secondly, SMEs continue to encounter cash flow shortages, which significantly impact their operations and growth opportunities. According to the latest research by illion (formerly Dun & Bradstreet), only 66.9% of Australian businesses are paid on time, representing $27.9bn of outstanding debt.

The survey also revealed that the average late payment for Australian businesses is 12.6 days, which can leave SMEs struggling to meet tax obligations and staff salary and supplier payments, while wasting resources chasing outstanding invoices. In extreme cases, late payments can threaten the survival of a business. Young companies, between two and five years old, are most at risk from late payments and non-payments.

Finally, Australian businesses are increasingly reluctant to use property as collateral because they do not want to assume unnecessary risk. By learning what invoice financing has to offer and sharing this with their clients, finance brokers can help address these concerns in a way that benefits all parties.

invoices for work done or goods sold.

It is a simple and effective way for SMEs to smooth out cash flow troughs. Benefits include 24-hour approval and quick access to funds, lending up to 85% of the value of outstanding invoices; and the fact that property is not required as security.

The remaining 15% of the invoice value, less a fee, is paid when the client receives payment from their debtors.

THE

What is invoice financing?

Invoice financing, also called cash flow financing or factoring, is the umbrella term for lending that is backed by a company’s expected cash flow, determined by the value of outstanding customer 20

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The Australian experience The Australian invoice finance industry is small by international standards but growing rapidly. Research by challenger brand Australian Invoice Finance shows countrywide invoice financing volumes are equivalent to 3.9% of Australia’s GDP, compared to 19% in the UK.

late payment time of 16 days. The manufacturing industry follows closely at 14 days, while in the communications, construction and wholesale industries the late payment time is 13 days.

What is the invoice finance opportunity for brokers?

Cash flow management is a perennial problem for small businesses, providing considerable opportunity for finance brokers to diversify their income streams through invoice financing. Finance brokers have control over the extent they are involved in each transaction, placing them at the centre of the debtor finance supply chain. Remuneration for brokers includes desirable upfront and trailing commissions for the life of each deal.

When a broker refers a business to an invoice finance provider, it will be assessed on book debts rather than valuations and cash flow projections.

Any businesses selling goods or services to other businesses on credit terms (eg 30 days to pay from the invoice date) are invoice finance prospects. These include manufacturers, labour hire providers, logistics and transport operators, as well as wholesalers.

The key trigger for invoice finance is any shortfall in business cash flow. There are a number of warning signs, such as rapid sales growth, difficulties meeting creditor payments and statutory obligations, seasonal fluctuations in demand, and blowouts in debt costs.

Cash flow management is a perennial problem for small businesses, providing considerable opportunity for finance brokers to diversify their income streams through invoice financing

Greg Charlwood Managing director, Australian Invoice Finance

The report by illion revealed that the ACT has the longest average late payment time in the nation at 15 days. It attributed this to the structure of the territory’s economy, as this is dominated by the government sector, which has been historically slower to pay suppliers than other sectors.

Western Australia saw a 4% year-on-year rise to 14 days’ late payment time due to the slowdown in mining sector investment.

NSW businesses have an average late payment time of 13 days, while Victoria and Queensland both average 12 days.

In terms of sectors, the mining, retail and utilities industries have the highest exposure to late payments, with an average

While candidates for invoice finance are generally those looking to enhance cash flow, invoice financing is being increasingly used for non-traditional purposes, such as mergers and acquisitions, the sale of a business, shareholder disputes and even divorce situations. AB Greg Charlwood has been in the invoice financing industry for more than 30 years and founded two of Australia’s major invoice finance businesses. He has twice been chairman of the Debtor and Invoice Finance Association of Australia and New Zealand and is a past director of the Turnaround Management Association of Australia.

IN THE NE WS

BROKERS CRY FOUL The Productivity Commission says the mortgage broking revolution is no longer; it’s now part of the establishment, Manuelita Contreras reports

Recommending that aggregators and brokers owned by lenders be required to have a duty to act in consumers’ best interests, the commission says lenders’ ownership of aggregators exacerbates potential conflicts of interest for brokers. It also carries the risk that consumers have an illusion of choice, rather than a genuine one, in the market.

The mortgage broking industry is not taking these statements sitting down.

industry. He pointed out that it was the broking industry that brought competition into the mortgage market, and it was through brokers that price competition and product innovation came about from the early to mid-1990s through the 2000s.

“If you took the broker out of the market, if we would go back to 30 years ago, margins would go up, there would be no innovation,” White told Australian Broker.

The financial incentives of brokers are skewed in favour of the banks that pay them Productivity Commission

Productivity Commission has made some biting remarks about the mortgage broking industry, stopping short of saying that brokers are not acting in the best interests of their clients.

In its draft report on competition in financial services released on 7 February, the commission says the mortgage broking market’s structure does not resemble one that is fully competitive as it once did in the 1990s.

Singling out mortgage brokers, it says nothing obliges them to act in their clients’ best interests, and that their growth does not seem to have increased price competition. It points out that, under the NCCP, brokers are only required to not suggest unsuitable loans to consumers, rather than to act in their best interests.

“Undesirably for the dominant form of home loan origination, the financial incentives of brokers are skewed in favour of the banks that pay them,” the commission says.

With mortgage brokers paid by THE

lenders through commissions, they can face conflicts of interest when the most suitable loan for a consumer is not the one that pays the most commission.

The report goes on to say that the mortgage broking revolution is now part of the establishment, and that non-transparent fees and trailing commissions, as well as conflicts of interest created by ownership, are inherent.

The MFAA said the report’s authors have failed to understand the reasons why consumers engage brokers to act on their behalf, and ignore the value mortgage brokers have brought to the Australian economy.

It expressed concern that the report has called brokers’ motives into question at a time when the industry has already been the subject of intense scrutiny by financial regulators.

Calling the authors’ comments “really disappointing”, FBAA executive director Peter White said the commission should not take isolated and limited cases of wrongdoing and say they are systemic across the

The MFAA said the commission’s report did not acknowledge the reforms already put forward by the CIF that were designed to further strengthen customer outcomes.

MFAA CEO Mike Felton said brokers were already required by law to recommend a ‘not unsuitable’ loan for customers, and that the CIF had proactively proposed that the industry should go above and beyond what is required by the current legislation.

The commission will submit its final report on 1 July 2018. The draft report is now open for comments and submissions until 20 March. AB

MAJOR BANKS’ CONCENTRATION IN THE MARKET HAS GROWN Source: Competition in the Australian Financial System draft report

100%

2007

2012

2016/17

80% 60% 40% 20% 0%

Credit cards

Housing loans

Business loans

Total deposits

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21

PEOPLE

Have an interesting deal?

Had a particularly difficult or interesting deal? Why not share it with us? Email:

Otiena.Ellwand@keymedia.com.au

A BIG DEAL

Credit adviser Fane Levy’s historic $11m deal for Shore Financial was a year and a half in the making. He explains how he persisted and prevailed despite the doubters

Location: Sydney

THE FACTS

Loan size & term $11m for 30 years

Clients High-net-worth couple with three kids

said they were keen to try again.

I agreed to arrange a final meeting between them and the banks. They were satisfied with the St. George offer and we commenced the application process and all the valuations were ordered. There were over 2,000 pages of documents in total, including tax returns, company financials and everything for seven or eight mortgages. They refinanced their current debt of about $8.5m and increased their total loan to $11m so they could complete the purchase of two off-the-plan properties.

It was the biggest deal in Shore Financial’s history, so when it went through, we celebrated with champagne.

I saved the clients about $18,000 a year in fees, and once the off-the-plan properties settle, that will probably increase to $20,000. They’re eager to look at purchasing other properties, so hopefully these will become lifelong clients of mine and I can grow with them.

THE TAKEAWAY

Aggregator AFG

I contacted them regularly over the next few months. When I spoke to them four months later, the rates had gone up, so they decided that it wasn’t in their best interest to switch. I felt like I’d lost the deal.

But I kept persisting and updating them with different rates and promotions every couple of months. They kept expressing interest in refinancing, however didn’t progress to the next stage.

A year passed, and once again we made the rounds, this time only to Macquarie and St. George (the two best contenders).

They were happy again with St. George, but the rate wasn’t low enough. They again passed on the refinance.

THE SCENARIO

This deal took a year and a half to get across the line and caused me a few grey hairs, but in the end it was all worth it.

It began through a referral from an existing client. My initial meeting with the couple went really well. They were eager to refinance because they thought their current rate was too high and they were paying too much. They were $8.5m in debt, so every basis point could make a huge difference. As they were highnet-worth clients, I arranged meetings with CBA Private, Macquarie Business Banking and St. George Private.

We spent the entire day together going from meeting to meeting and stopping for lunch and coffees in between.

After reviewing all three options and presenting the most competitive offer, they were keen to go with St. George. But at the eleventh hour they decided to pull out because they had another property they were waiting to settle and they wanted to refinance their portfolio all together. The deal had come to a halt!

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Lender St. George

THE SOLUTION

Fane Levy Credit adviser, Shore Financial

About a year and a half after our first meeting, I got in touch with them again.

The rates had dipped and I had some good options on the table. I sent them a competitive five-year fixed principal and interest rate, along with a detailed table showing their potential savings. They

I kept in regular contact with the clients and built up a friendship and rapport with them over time. At one point, six months went by when they didn’t answer my calls or emails, but friendly persistence is key. You need to make sure you strike the right balance so you don’t annoy the client. There is a fine line between persistence and harassment!

Until they tell you, “No, thank you”, keep going, because there is always an opportunity out there.

I knew I could benefit them and that this was in their best interest. It was just about getting through to them when they had time.

When I emailed them the rates, I always included a table of costs portraying their savings. I made it easy for them to understand because I knew how busy they were.

Even when people told me I was wasting my time and it was never going to happen, I didn’t give up. I value every deal equally, whether it’s for $11m or a $50k top-up. If there is a client in front of me, I want to pursue it. I don’t want to lose the deal. I hate not being able to convert a lead or a deal, because I know if anyone can do it, I can do it. And I know the service that I’m offering is in their best interest. I’m not trying to sell them a dream; I’m purely trying to offer them the best finance rate and package that benefits them in the long run.

This record deal has definitely cemented my reputation as a mortgage broker and has opened up the door to many more future high-net-worth clients. AB

THE CHOICE IS YOURS

MAGAZINE The only independent magazine dedicated to mortgage industry news, opinion and analysis

WEBSITE Breaking news, in-depth profiles, features, online forum and Australian Broker TV

ENEWSLETTER Daily news service delivered straight to your inbox every morning

FOR MORE INFORMATION, PLEASE EMAIL EDITOR@BROKERNEWS.COM.AU www.brokernews.com.au

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FROM THE FORUM

Top comments from trending stories on brokernews.com.au

ASIC BEGINS SHADOW SHOPPING BROKERS

BROKERS NOT TEMPTED

BY PROPERTY SALES FIRMS

ASIC has launched the second phase of its review into the mortgage broking industry by delving into the suitability of brokers’ advice through a mystery-shopping exercise. This is part of the regulator’s effort to better understand the home loan purchase process.

“While broker remuneration practices may have an impact on home loan choice, ASIC recognises that a range of other factors influence which home loan products are purchased, and that the purchase experience may vary across purchase channel,” said ASIC executive Michael Saadat.

ABC reported on 1 February that real estate sales companies were using hefty commissions to tempt mortgage brokers, financial planners and accountants to sell properties for above-market prices to unsuspecting clients. Developers are said to often turn to these tactics through real estate sales firms when they have difficulty selling their properties.

Brokers told Australian Broker that they had been approached by these companies but they turned down the offers; they said it wasn’t a widespread practice among them to work with these firms.

Interesting, but honestly how many really discuss the full application in an initial enquiry phone call? I, for one, never discuss specific products/rates/recommendation without a full fact-find and without identifying the client. I always insist on a face-to-face interview, and nine times out of 10 that is arranged in that first phone call.

If the potential client avoids that stage they are either a silent shopper or have something to hide. Been doing this for over 30 years and I’ve never had a complaint.

Sunnycoast Broker on 23/01/18 at 8:52 AM

I recently had an opportunity from a gentleman who had made an appointment with a fellow broker a couple of weeks earlier. When I rang the broker to transfer the opportunity he suggested that it was an ASIC shop. The gentleman … asked interesting questions and showed no genuine interest in the outcome.

My supervisor asked to sit in. When I emailed the client to ask permission for my supervisor to sit in (I’m a rookie), I got no response. Ended up with a no-show; gentleman’s phone was turned off at the time. ASIC needs to value our time more than this; after all, we are paying for the process.

Rookie David on 23/01/18 at 9:59 AM

This will be interesting. I, like the other commentators, will not discuss specific products or loan types until I have done a full fact-find, had the client sign a privacy declaration, and given them a credit guide. I then do a fact-find and give them a number of options if I can.

The mystery shoppers will need to be well prepared and have ID, deposit details and income information ready. I will accept none of that until I have a privacy document signed and the client has met the necessary ID requirements to satisfy the legislation requirements.

The mystery shoppers may not be effective as they think.

I urge all my fellow brokers to meet all the requirements of the NCCP and AML. Regional Broker on 24/01/18 at 9:23 AM

24

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Have seen three of these firms and their property portals and listings. Whilst not all their properties are great, a lot of them are well-planned investment grade properties. It’s how the broker introduces the deal and discloses their commission that is the issue.

Buster on 2/02/18 at 9:45 AM

Even if properly disclosed, Buster, there’s still potential conflict of interest. Has the broker warned the borrower that, from a bargaining position, the agent they are being introduced to has a duty to get the vendor the highest price? Does the information exchanged, before and after the introduction, weaken the negotiating position of the buyer, if the agent has ‘inside information’, eg willingness to buy, not being encouraged by the broker to look around at other sources, even borrowing power? Does the exchange of information contravene the Privacy Act, and does the broker’s signed privacy form allow such exchange?

If it was entirely to the benefit of the borrower (which is what we have to ensure as brokers and agents for our clients), why wouldn’t banks and lenders refer the same way? There’d be an outrage, so why is it good enough for a broker to do it?

Don’t tell me a borrower can’t find a good source for property in the market, or even use a buyer’s agent that acts for them (not the vendor), for much less than these excessive commissions.

Steve McClure on 2/02/18 at 10:36 AM

There are some honest property marketers, but on the whole, the majority are in it for themselves to make big bucks in commission with no care about the buyer after the sale. As the broker, you can be drawn into this web, because the loan will be there long after the marketer has disappeared, and you will be the bunny if things don’t turn out the way they were told. If you took commissions, you also run the risk of having ASIC knocking on your door. Conflict of interest? It’s a minefield. Beware.

Ian Zuman on 2/02/18 at 12:26 PM

CAUGHT ON CAMERA Mortgage Choice hosted its annual national conference in Perth from 17 to 19 January. Franchise owners and loan writers from across the country came together to learn and network with their peers.

A mix of internal and external keynote speakers gave engaging presentations and workshops focusing on helping franchise owners develop and grow their businesses.

Franchisees and loan writers had the opportunity to share their business success stories, strategies and initiatives with their peers.

Mortgage Choice also celebrated the achievements of its top performers from across the business, including administration, sales support, financial planning and mortgage broking. These top performers were recognised

by CEO John Flavell and chairman Vicki Allen at the annual gala dinner on the last night of the conference.

John Flavell, CEO, Mortgage Choice

Chairman Vicki Allen and Mortgage Choice Eastern Suburbs owner Adam Broughton

Mortgage Choice Port Macquarie owners Gary Owen and Carmel Owen (middle) with CEO John Flavell (left) and chairman Vicki Allen (right)

Tania Milnes, GM – financial planning, Mortgage Choice

Neill Rose-Innes, GM – distribution, Mortgage Choice

Mortgage Choice CEO John Flavell (far left) and chairman Vicki Allen (far right) with national award winners www.brokernews.com.au

25

DATA

WESTERN AUSTRALIA

QLD SPOTLIGHT

A lot of factors are on the up for Perth, but there is still much doubt

FEELING THE HEAT

“The volume of resale and rental stock is still well above 2013–2014 volumes, the last time that property prices grew in Perth,” says Simon Pressley, managing director of Propertyology.

“On face value, the unemployment rate might suggest that the economy is going well again, but it’s worth noting that 11,000 people left WA for an interstate location over the last 12 months, and the real rate of job growth is tracking sideways against the national average.

It’s Propertyology’s view that Perth property prices will hold a neutral price position for the foreseeable future.”

Angie Zigomanis, senior manager for residential property at BIS Oxford Economics, also believes the positive talk on Perth may be premature.

“There’s not much prospect from an investment point of view for rental growth, so I think [that] market will still be tough for at least another two to three years.”

Area

Type Median value

Population growth from significant migration inflows is turning the Sunshine State into a top market for investors

Quarterly

12-month

growth

growth

Perth

H

$500,000

-2.0%

-2.4%

WA Country

H

$335,000

-1.5%

-4.1%

Perth

U

$390,000

-2.5%

-4.8%

WA Country

U

$245,000

-14.0%

-1.8%

SOUTH AUSTRALIA

Higher-density dwellings are in the pipeline “There has been an undeniable increase in density across Adelaide, predominantly led by two-for-one subdivisions for their relative ease,” says Pat Gerace, chief executive director of the Urban Development Institute of Australia SA. “What we are now seeing are more and more community groups becoming increasingly active and upset about some of the impacts that this density brings – more car parking on suburban streets, property interface issues and a focus on the quality of open space.”

According to CoreLogic’s Hedonic Home Value Index for October 2017, the difference in the performance levels of the house and unit markets in Adelaide is substantial.

“The underperformance of the unit sector likely relates to higher supply levels relative to demand and less challenging affordability constraints, which is supporting demand across the detached housing sector,” explains Tim Lawless of CoreLogic.

Area

Type Median value

Brisbane CBD is predicted to see a 21% boom in population growth by 2036.

“The real opportunity emerges as housing in some key areas is undersupplied and will further tighten as the population continues to grow as forecast,” says James Nihill, managing director of Patrick Leo. The Ipswich house market is very likely to attract new buyers on a budget, as the median value came in at $350,000 in November 2017, with an average annual rental yield of 5.4% – a win-win situation for investors.

Logan City’s median house price was higher, at $400,000, but it offers considerable value for money as well.

THE

Quarterly

12-month

growth

growth

Infrastructure spending boost On the whole, Southeast Queensland has already recorded significant increases in population over the last three years.

“According to Urbis, demand will be driven into key suburbs within the Logan and Ipswich local government areas, with both regions potentially facing significant supply challenges when partnered with such strong population growth forecasts,” Nihill says.

The government has begun preparing for the anticipated wave of growth by investing in new facilities and updating existing ones. Major projects include the upgrade of the Brisbane Airport, the Cross River Rail, and investment in the health and education sectors.

“The forecast population growth in Southeast Queensland is supported by more than $25bn in infrastructure spending to accommodate the influx of new residents by 2036, as predicted by Urbane Homes,” Nihill reports.

The median house price in Brisbane in November 2017 was $650,000, which should attract owneroccupiers and investors from the southern states. AB

H

$446,750

-0.7%

2.9%

Median price (houses)

SA Country

H

$282,000

-4.4%

2.7%

$333,534

Adelaide

U

$370,000

-3.9%

5.0%

SA Country

U

$181,000

-11.7%

-0.3%

www.brokernews.com.au

The Queensland property market continues to position itself as a consistent performer Data from CoreLogic’s Hedonic Home Value Index shows that dwelling values in the Brisbane and Gold Coast housing markets have grown 2.34% year-on-year.

This growth is due in part to the significant increase in the number of first home buyers entering the Queensland housing market over the last 12 months, as a result of the state’s First Home Owner Grant.

Interest rates for owner-occupier loans are sitting at historically low levels, supported by the Reserve Bank's decision to keep the official cash rate on hold at 1.50% for the last 18 months.

These low borrowing costs should encourage borrowers to review their current situation and ask themselves whether they could be paying down more of the principal on their loans, or use their equity to fund a renovation.

Looking forward, record-low interest rates and less affordable housing in Sydney and Melbourne should help keep heat in the Queensland housing market.

Locally, the Gold Coast has enjoyed solid price growth across most postcodes, and all signs suggest that this will continue into 2018.

John Kennedy Mortgage Choice, Gold Coast Qld

SUBURB TO WATCH: BEAUDESERT

Adelaide

26

BROKER PERSPECTIVE

Median price (units) $237,719

Source: CoreLogic

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

5.7%

7.0%

13.9%

5.0%

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

2.5%

10.9%

29.8%

6.6%

AUSTRALIAN CAPITAL TERRITORY

Population growth is on the upswing in Canberra OPPORTUNITIES AND KEY INFRASTRUCTURE

Transport corridor

Rookwood Weir

Zippy fun

Brisbane Metro

A 3.8km road bypass proposed for the Captain Cook Highway

Project to supplement urban water supplies and enhance agricultural development

Design, construction and operation plan awarded for Mt Coot-tha zipline

Council assesses high-frequency public transport system to reduce congestion

HIGHEST-YIELD SUBURBS IN QUEENSLAND Suburb

Type

Median price

Quarterly growth

12-month growth

Yatala

U

$330,000

-11%

-15%

Moura

H

$93,750

3%

-1%

Blackwater

H

$90,000

0%

-25%

Dysart

H

$80,000

-11%

23%

Mount Morgan

H

$100,000

3%

-9%

With different types of residents coming into the city with varying dwelling preferences, demand could be sustained across the board, especially for rentals.

Families typically seek out houses with three to four bedrooms that are close to amenities like schools and shopping hubs. Employees, such as government workers, are keen on inner-city apartments near their workplaces.

Students either rent studio units or opt for shared-house arrangements. Shared-house accommodation has therefore become popular in suburbs near the Australian National University, namely O’Connor, Turner and Ainslie.

“After all the recent talk and actions, the government won’t necessarily be cutting jobs too much in the coming years, so employment [is] pretty solid. Australia attracts a high number of overseas students, and the rental market is pretty tight,” says Angie Zigomanis, of BIS Oxford Economics.

Area

Type Median value

Quarterly

12-month

growth

growth

Canberra

H

$665,000

-1.6%

6.5%

Canberra

U

$436,000

2.1%

1.2%

www.brokernews.com.au

27

DATA

VICTORIA

The regional areas of Victoria are recording positive growth, albeit at a slower pace

CAPITAL CITY AUCTION CLEARANCE RATES

In some regional areas, the number of listings has gone down over a 12-month period, according to Propertyology.

“A significant reduction in the number of properties for sale now compared to a year ago is evident in Bass Coast (-38%), Murrindindi (-32%), South Gippsland (-25%), Benalla (-23%), and East Gippsland (-22%),” says Simon Pressley, Propertyology’s managing director.

Suburbs like Wangaratta, Baw Baw and Latrobe also saw the average time on market for properties slip by around 30%.

With high-rise buildings flooding Melbourne’s inner city, and apartment oversupply being a strong concern in the metro for the year ahead, focusing on balancing demand and supply could be a smart move to maintain competition and growth in the countryside when the state property market starts declining.

WEEK ENDING 4 FEBRUARY 2018

Quarterly

12-month

growth

growth

Melbourne

H

$700,000

-4.1%

12.9%

VIC Country

H

$327,000

-3.3%

4.8%

Melbourne

U

$522,000

0.0%

3.9%

VIC Country

U

$270,000

1.9%

1.9%

NEW SOUTH WALES

MEDIAN HOUSE AND UNIT PRICES

In the face of the decline in Sydney, regional NSW is picking up the slack in a big way

$1,000,000

Type Median value

Quarterly

12-month

growth

growth

Sydney

H

$925,500

-12.7%

8.9%

NSW Country

H

$447,750

-2.5%

7.1%

Sydney

U

$700,000

-6.8%

4.3%

NSW Country

U

$390,000

0.0%

5.6%

28

www.brokernews.com.au

Total auctions

97

Sold

56

Not sold

17

Clearance rate

76.7%

PERTH Total auctions

30

Sold

8

Not sold

4

Clearance rate

66.7%

Houses

Units

Sydney Melbourne Brisbane Adelaide

Hobart

Darwin

$402,000

$647,500

$355,000

$512,074

$406,000

$494,500

Perth

$358,000

$0

$370,000

$100,000

$303,000

$200,000

$437,500

$300,000

$491,000

$500,000 $400,000

$680,000

$600,000

$650,500

$700,000

$800,000

$800,000

Newcastle, Lake Macquarie, the Southern Highlands and Shoalhaven have outperformed the state capital in terms of growth.

“Growth has rippled away from the Sydney metro area as affordability challenges constrain demand.

Buyers are attracted to the lower price points and lifestyle opportunities of the adjacent areas where commuting is still an option,” explains Tim Lawless, head of research at CoreLogic.

“While the weaker Sydney housing market is dragging headline growth rates lower, there are a variety of factors that are likely to support a soft landing across Australia’s housing market.”

Propertyology managing director Simon Pressley named Dubbo, Maitland, Bathurst and Orange as regions that did better than many other capital cities.

“Infrastructure projects such as hospital and airport extensions combined with an improving economy generally have resulted in solid jobs growth in many of these affordable locations,” he says.

Area

ADELAIDE

$900,000

$390,000

Type Median value

$528,000

Area

The auction market is starting to bounce back from the seasonal slowdown, with almost three times the number of auctions held during the week ending 4 February compared to the week before. Overall, however, volumes were lower than they were at this time last year.

CoreLogic tracked 779 auctions for the week ending 4 February, compared with just 276 the week before. Last year, 881 homes were taken to auction at this time.

Melbourne was the only capital city to see an increase in volumes year-on-year.

The preliminary auction clearance rate, based on the 578 auction results reported so far, was recorded at 67.7% across the combined capital cities, compared to 72.8% the week before and 68.8% last year.

All cities recorded a stronger preliminary clearance rate than that recorded at the end of 2017. With auction activity only just starting to pick up, CoreLogic said it should get a better idea over the coming weeks as to whether the clearance rates would revert to the lower levels seen towards the end of last year.

Canberra

CAPITAL CITY HOME VALUE CHANGES Capital city

Weekly change

Monthly change

Year-to-date change

12-month change

-0.2%

-0.9%

-1.0%

1.0%

Melbourne

0.0%

-0.2%

-0.2%

7.9%

Brisbane

0.0%

-0.1%

0.0%

2.2%

Adelaide

0.0%

-0.2%

-0.2%

2.3%

Perth

-0.1%

-0.3%

-0.4%

-2.7%

-0.1%

-0.5%

-0.5%

3.0%

Sydney

Combined 5 capitals

*The monthly change is the change over the past 28 days

BRISBANE CANBERRA Total auctions

52

Sold

29

Not sold

16

Clearance rate

Total auctions

98

Sold

31

Not sold

25

Clearance rate

55.4%

64.4%

SYDNEY Total auctions

207

Sold

99

Not sold

58

Clearance rate

63.1%

TASMANIA

MELBOURNE Total auctions

290

Total auctions

5

Sold

169

Sold

2

Not sold

63

Not sold

1

Clearance rate

Clearance rate

72.8%

TASMANIA

Area

Migration inflows drive demand, keeping Hobart open for business As a whole, Tasmania is not a particularly strong market, but Hobart’s ability to draw attention from interstate buyers has boosted its population growth significantly.

“If you look at the data for Tasmania [and] start splitting it out between Hobart and the rest of the state, it’s a bit like looking at Melbourne/Sydney versus the rest of Australia for the last few years,” says Angie Zigomanis, senior manager for residential property at BIS Oxford Economics.

“Most of the migration/population growth that goes into Tasmania is going into Hobart, and some of the population from the rest of Tasmania is going into Hobart. That’s fairly solid population growth from the Hobart/Tasmania perspective.”

66.7%

Type

Median value

Quarterly growth

12-month growth

Hobart

H

$390,000

-1.3%

6.3%

TAS Country

H

$270,000

-1.8%

3.8%

Hobart

U

$309,000

8.0%

2.4%

TAS Country

U

$229,000

-6.5%

5.6%

All data sourced from CoreLogic.com.au

www.brokernews.com.au

29

PEOPLE

IN THE HOT SEAT Curtis Stewart, director of Confidence Finance, on the release of the firm’s e-book for investors, respecting the regulators’ decisions and finding joy in broking

Who or what inspired you to become a broker?

Broking isn’t generally a career that comes to mind when you A are growing up and coming through university. For me it was really thinking about the skills and experiences I’d learnt through the years and how I could use them to help people get better outcomes and make better decisions. In the finance world there are a number of different career options, but I love that in broking the client is the end user, so you’re not just a middle man, you get to see your work come to fruition.

Q

How did Confidence Finance get into the MPA Top 100 list?

We focus on our strengths and doing what we are good at.

A Both Redom Syed, the other director, and I have a background in financial markets from the regulatory perspective, as brokers and as investors ourselves. We look to bring that expertise to our clients to structure their finances in the most efficient way to achieve their objectives. Our clients appreciate that we aren’t trying to advise them on everything under the sun; we focus on where we can add value.

Q

What’s got you excited for 2018?

We are looking forward to a very exciting year at Confidence A Finance. We’ve released our e-book for investors on how to navigate the challenges of the lending market in 2018, so we are looking to spread the message to as many people as possible.

Knowledge is power, so we hope that by providing this information we can help investors make more informed decisions and achieve better outcomes.

Q

With a background working in government and policy, what do you think of all the regulatory changes affecting brokers at the moment?

Ultimately, you have to view it as a positive. We see the A impacts of lending market changes on individual applications, which can be frustrating when situations that should be supported, such as young, single first home buyers, are made harder. That said, you have to respect that the regulators are looking across the whole market for potential issues to ensure long-term stability. It’s good for the system as a whole that people are considering the big picture. AB

Q

30

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