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ISSUE 6.12 June 2009
A different The perfect look at sales pitch the GFC
Approvals: analysing the numbers
page 23 page 26
■ 4: Lawyers unnecessary for ACLs ■ 10: Broker salaries ■ 14: ACCC on bank mergers
Cummings: Focus on education The current impasse over bank service levels to brokers turned an otherwise sedate broker discussion at the MFAA annual conference into a lively debate. Just as the broker panel (made up of PLAN’s Ray Hair, Smartline’s Joe Sirianni, FAST’s Steve Kane and former Mortgage Choice CEO Paul Lahiff) began to probe the matter of broker education, the CBA’s Kathy Cummings was handed the question microphone circulating around the room. She told the panel (and the 150 or so brokers in the room) she was pleased it had brought up the matter of education, because while it had been critical of lenders’ service levels – which it had been – the panel should also be aware that much of the problem was caused through the brokers’ lack of quality in submitting applications. She said that over 90% of applications sent to banks were incomplete and required rework. “So my question to you gentlemen is: what are you doing for these people [your brokers]
in reinvesting in your model to put the appropriate investment into education. None of you tried to educate your people on how to fix the problem. So while it is all very well to fire the bullets – what are you doing in reinvesting in your members to educate them to make sure their applications are complete?” Cummings’s remarks caused a predictable stir around the auditorium, with aggregators responding that it was a two-way issue on service, with one calling for “reciprocal quality from banks”. But it was the cool hand of Smartline’s Joe Sirianni that brought matters back to order when he made the observation that both aggregator in the audience and Cummings had raised valid points. “It is incumbent on all aggregator groups to continue to provide training internally to their people,” he confirmed. In terms of the broader market, Sirianni said that there was no doubt that the role of the MFAA was to provide a platform for further education. Page 28
Voluntary administration: Pisces hoped to ‘fly under radar’ Key points
• Pisces Group placed in voluntary administration • company hoped the decision would go unreported • report in The Australian forced explanation of circumstances • subsidiary mortgage division unaffected and operating normally • restructuring of parent holding company to take about five weeks
The decision to place the Pisces Group in voluntary administration on the 29 May and hope that news of this did not leak out nearly resulted in PR disaster for the service provider. “We were hoping the story would fly under the radar,” Pisces Communications business manager Vincent Turner told Australian Broker after the ‘crash’ was reported in The Australian. The newspaper’s primary focus was on the fact that Pisces is chaired by former Liberal Party leader John Hewson. However, news of the company being placed in the caretakership of insolvency specialist Robert Moodie raised questions about how this affected the elodgement services and broker tools used by thousands of brokers.
Turner said his phone had hardly stopped ringing since the voluntary administration was made public. He says he was the first to reassure brokers that the decision to place the Pisces Group into administration would have no impact on the mortgage services side of the business. “The mortgage services business remains healthy and unaffected by moves by management and the board,” said Turner, who also confirmed that Hewson and CEO Jega Rajan remained in their roles. Further up the coast, Pisces was also hard at work getting the message across to brokers attending the MFAA Gold Coast annual conference. Page 28
Macquarie puts brokers on their ‘guard’ Brokers will be looking for reassurance from Macquarie Bank that its MortgageGuard insurance product will mark a more permanent return to the channel than its previous play in the personal lending space. Many brokers will recall that after scaling back its residential lending business in March last year, Macquarie invited aggregators and brokers to a champagne breakfast in May to promote its new personal lending business – only to pull out less than a month later. Macquarie’s associate director for mortgages Australia, Steve Degetto, said the bank has “sound knowledge and experience working with brokers and is committed to continuing this relationship”. Degetto said the bank’s decision to wind back from Steve Degatto mortgage origination last year was “due to the deterioration in market conditions and the effective Key points closure of securitisation markets, where it secured its • new risk insurance funding” and in no way reflected its commitment to the product launched by broker market. Macquarie Bank • product to be sold via MortgageGuard is designed to help borrowers third party channel repay their home loan in the event of death, terminal • Macquarie says it is illness, permanent or temporary disability and looking for way to involuntary unemployment. support brokers The product covers the full value of a borrower’s • will provide competition mortgage up to a maximum of $750K, resulting in for likes of ALI and other insurance providers either a lump sum payment or, in the event of becoming involuntarily unemployed or unable to work due to temporary illness or injury, covering regular monthly mortgage repayments up to a maximum of $5,000 per month. Brokers will be able to earn a fee (not subject to clawbacks) in exchange for referring on clients to the bank in what is a no-advice model. “A key benefit of our model is that the sales process is designed to help mitigate advice risk for brokers,” Degetto said. To join the referral program brokers must first be trained by Macquarie and then be registered to lodge expressions of interest for the product. A number of aggregation companies are currently involved, while discussions are underway with several other groups. “We aim to have MortgageGuard available to all aggregators and brokers who meet our criteria,” Degetto said. Asked for his thoughts on the new product, National Mortgage Broker’s managing director Gerald Foley questioned if there was room in the market for more providers. “Our brokers now sell Australian Life Insurance (ALI) and the BT product, plus lenders have own product brokers can refer – how many suppliers do you need?” Foley said it was interesting to see the bank coming back and saying “come and deal with us on insurance” after its “evacuation” from the lender space “I thought it would have made more sense to come to back into both.” Paul Davies, managing director of third party insurance provider Mortgage Shield, appeared unfazed by Macquarie’s play in the mortgage insurance space. “I don’t think it will spice up the competition, but it’s always good to have competition. It keeps everyone on their toes and making changes to stay on top of things,” he said.
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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.
“I still think that brokers shouldn’t take a one-viewed approach to introducing insurance to clients. I always suggest giving clients the option of advice and no advice, like an existing referral partner. “If none are in place, we can give advice for referral clients and as far as I know we are still the only one offering that with generous commissions. “At the end of the day, one solution will not fit all scenarios.” ALI, which claims to have the biggest slice of the broker market, declined to comment.
Sherry: banks supported to save economy Speaking at the recent MFAA conference on the Gold Coast, newly appointed assistant Federal Treasurer senator Nick Sherry told mortgage brokers the government’s guarantee on bank deposits was not issued simply to support the big four banks; rather, the controversial action was taken to support the entire Australian banking system. Drawing on lessons learned from the Great Depression nearly eight decades ago, Sherry said that if people didn’t have confidence in the banking system of a country its economy would quickly perish. “The Great Depression was caused because people no longer had confidence in banks. They could therefore not lend to each other, and to consumers and businesses. It wasn’t the collapse of the share market [that caused it], albeit that that episode lead to its own economic upheaval,” he said. The Tasmanian senator said in the wake of the GFC, governments around the world began introducing bank guarantees to prevent ‘bank runs’ – the dreaded event when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent, which leads inexorably to a bank’s demise. And while Australian banks were ‘immeasurably stronger’ than those in
other countries, the ‘great difficulty’ with the Australian financial system was that in the course of their daily business dealings, locally based banks borrowed regularly from overseas ones. “The major banks in this country were sourcing 30% to 40% of their funds from overseas, and if other countries are guaranteeing their banks to prevent a run, then Australia inevitably has to do exactly the same thing.” Sherry added that with all the publicity about banks collapsing around the world, there was nervousness about the strength of Australian banks – even though they are well regulated and well capitalised. “The bank guarantee was put in place to underpin the security of the financial system during this extraordinary period,” the senator said. However, he did recognise broker concerns about the concentration of financial power shifting up into the big four banks as a consequence of it. “It is true that the securitisation market has all but disappeared, and securitisation is important to underpin non-bank providers and fundamental to underpin competition,” he said. “Until we see full restored financial confidence and see other countries come out of their recession, securitisation will not return.”
MFAA: no need for lawyers to obtain ACL
MFAA chief Phil Naylor has expressed concern at news that law firms will provide licensing services to brokers once the new federal system is introduced later this year. Among the firms that plan to introduce Australian Credit Licensing (ACL) services for brokers is Melbourne-based firm Clarendon Lawyers. Mark Bland, the firm’s director of financial services, said this service was part of its future roll out plans. Bland said such services had “real potential for growth under the Federal Government’s National Consumer Credit regime starting 1 November 2009”. Naylor though had a blunt message for firms looking at adding this service to their repertoires: “I suggest lawyers look elsewhere.” “This is the response we have been concerned about and we have warned the Federal Government about,” he said. “Some lawyers, thinking the ACL is going to be a replay of Australian Financial Services Licence (AFSL) are gearing up to make a ‘killing’ out of ‘assisting’ brokers to become licensed. They are erroneously painting a complicated picture to scare brokers into thinking they will have to use a lawyer in order to become licensed,” he said. Naylor pointed out that Nick Sherry, the assistant Treasury minister responsible for the draft bill, had already specified that the ACL would not be another AFSL and that MFAA members should not have any difficulties in obtaining a licence.
Insider Spider-man stunt good for rebranding
When world-renowned skyscraper climber Alain Robert (the “French Spider-man”) took part in a publicity stunt by climbing the Royal Bank of Scotland (RBS) Building in the Sydney CBD on 2 June, one of the people to witness the daring ascent was Martin Lynch, the bank’s head of reverse mortgages. Speaking to Australian Broker, Lynch said he saw the spiderman come right past his window, which happens to be on the 29th floor of the 41-story building. “I thought it was window cleaners at first, before I saw a whole bunch of people going over to look,” he reported. According to Lynch, Robert was up and down and in about 10 minutes: “The design of the building makes it an easy one to climb,” he said, before suggesting (with more than just a hint of dry English wit) that he was up for giving it a go himself. While it later emerged that Robert was wearing a T-shirt for lad’s mag Zoo and was greeted on the ground by Zoo girls dressed in red bikinis (in addition to the police) it also gave plenty of free publicity to RBS – something Lynch was quick to acknowledge, given the UK bank’s takeover of ABN Amro in March this year. “The stunt was certainly good for our rebranding,” Lynch said.
Its sexy time…
Insider could not resist reporting on the latest diversification strategy to hit the industry. While we recently reported that some UK brokers were now cross selling electricity and gas, we can reveal that one mortgage manager has found a far more titillating and rewarding way to bring in a few extra dollars. If you’re wondering what we’re talking about, we suggest you direct your web browser to www. kinkilaadilingerie.com.au, a website selling a very naughty range of G-strings, corsets, underwear and just about anything else lacy and see-through. Insider can reveal that the site is owned by none other than Suzanne Asciak, managing director of Australian Secured & Managed Mortgages (ASMM). And even if you’re not in the market for something kinky, the photos alone are worth a gander (though you may wish to be careful who is standing nearby when you’re ‘browsing’ the catalogue). Now who said mortgage lending wasn’t stimulating?
Jail time for convicted fraudster Camilleri
• Adrian Camilleri guilty of one count of fraud • sentenced to 21 months in jail • Camilleri once engaged to supermodel Miranda Kerr • funds obtained from private investors met through Kerr’s mother • Camilleri convicted in 2007 of managing a company while disqualified
Disgraced former Sydney mortgage broker Adrian Camilleri has been handed a 21-month sentence by the NSW District Court after being found guilty of one count of fraud. The sentence includes a non-parole period of nine months. The trial made front page headlines in The Daily Telegraph when it kicked off in Sydney in late May because Camilleri, 34, from Edgecliff, was once engaged to supermodel Miranda Kerr. The conviction on one count of fraud was handed down on 3 June and follows an investigation by ASIC which dates as far back as June 2006. The allegations made against Camilleri related to his role as the sole director of Asset Finance Service Pty Ltd, a mortgage-broking business that sourced lending capital from private investors. An ASIC investigation into the business between December 2005 and September 2006 found that Camilleri received $123,441 from an investor to be used for either investment in short-term secured loans or to be returned. The funds were not invested and Camilleri fraudulently omitted to account for them. The investor has not been repaid. On the first day of the trial, the court heard how Camilleri made a living from matching wealthy lenders with borrowers who needed short-term finance at high
interest rates, The Daily Telegraph reported. It was alleged that Camilleri met many wealthy lenders through Kerr’s mother Therese, before his relationship with the model ended in 2004. Camilleri had previously pled not guilty to allegations he fraudulently misappropriated an investor’s money through his company. In September 2007, Camilleri was convicted and sentenced to 200 hours of community service after he was found guilty of five counts of managing a corporation while disqualified. Camilleri pled guilty to the charges in March 2007 in relation to his management of mortgage-broking business Express Loans and Finance Pty Ltd, and real estate purchase companies Abe Enterprise Service Pty Ltd, J.A.P. Camilleri Pty Ltd, Rosecam Pty Ltd and Vaucam Pty Ltd. ASIC alleged that between February 2003 and February 2004, Camilleri made decisions that affected a substantial part of the business of the five companies. At the time Camilleri was an undischarged bankrupt and therefore disqualified from managing the corporations. All five companies were placed into liquidation or had a controller appointed on dates after 14 October 2004, with liquidators reporting that 61 creditors were owed in excess of $20m.
The ‘artificial’ boom in lending in the first homebuyers market appears to be over after data released by the ABS and aggregator AFG indicated demand from this sector had reached its peak and was beginning to fall. Since the government introduced the First Home Owner Grant boost on 14 October last year the number of first homebuyers has almost doubled from 9,372 reported by the ABS in September last year. However, the most recent figures from the ABS showed the number of first homebuyers fell by over 1,000 in just one month from the record high of 17,652 in March 2009 to 16,651 in April 2009. Data provided by AFG in its monthly mortgage index, which is one month ahead of ABS figures, confirmed that demand from first homebuyers had fallen for two consecutive months, from a 28.1% in March to 27.7% in April to 24.8% in May.
On the brighter side – brokers, take note – demand from property investors appears to be filling the void, rising to a seven month high of 28% of the total market. This trend was backed up by the ABS data (though a month behind) which showed that demand for investorfixed loans rose by 8.9% compared to owner occupied housing finance, which grew by a more modest 1.9%. In its commentary on the May figures, AFG noted that while the first homebuyer figure “is still well above trend, it suggests an end to the artificial boom created in the sector by the uncertainty about the extension to federal grants, and tougher credit guidelines now being applied by lenders”. Mortgage Choice said it was not surprised by the April ABS housing finance figures. It pointed out that the value of new housing loans across all categories – first homebuyers, owner occupiers and investors-fixed loans – all rose significantly, highlighting the 28% share of market achieved by first homebuyers in April. As for a dip in first homebuyer numbers in April, Mortgage Choice CEO, Michael Russell said it was “an unfortunate situation Mortgage Choice was expecting to see. Given the recent substantial tightening in lending criteria and an overall increase in turnaround times for loan applications, we are seeing more and more first homebuyers who do not qualify for a home loan, he said.
‘Artificial’ party over for first homebuyers
First home-buyers: declining numbers ABS data AFG mortgage index data No. of % of market FHB % of Property investors FHB loans market % of market Feb 09 14,592 27% Feb 09 26.1% 25.4% March 09 17,652 27.3% March 09 28.1% 24.5% April 09 16,651 28% April 09 27.7% 25.4% May 09 N/A N/A May 09 24.8% 28% Source: ABS data, AFG Mortgage Index
Credit rationing to dampen property recovery
With economic conditions as bad as they have been in nearly one hundred years, everyone is eager to know what is in store for property values once trading conditions improve. And with property fundamentals (like falling interest rates and rising rentals) bringing demand forward, it would be difficult to argue against the evidence that values will be on the up in the next 12 months. That is, until you look at the other side of the coin, according to Challenger’s GM for distribution Steve Weston. Steve Weston Describing it as ‘something that Key points should keep us all awake at night,’ • reduced LVRs will keep more he fingered credit rationing in buyers out of the market the residential market, as the • increased unemployment will main factor in keeping property see people put off buying, values cool. upgrading decisions “The main issue is credit • impact will be felt particurlarly in rationing in the form of reduced first homebuyer suburbs maximum LVRs,” he said, adding that Australia does not seem to be ‘too bad’ when compared to some of the overseas experiences – where maximum LVRs are as low as 60%. He said you need to considera real example to understand what reducing LVRs mean to property prices. “Start with a $25,000 deposit. At a 95% LVR loan you could buy a property with a purchase price of up to $500,000. Now reduce the LVR to 90%, and the same $25,000 deposit will only allow you to buy a home with a purchase price of $250,000,” he explained. In effect, this means some buyers are going to be out of the market – at least for a period. “So we start with a stock of affordable houses which will decrease as future potential buyers are ejected. As supply increases, as it inevitably must, downward pressure will be exerted onto house prices. He added that because Australia has high level of household gearing, people tend to tend to pay down debt in turbulent times like those we are experiencing at the moment. Or they save – rather than buying, upgrading or investing in property. So right now, there were fewer traditional buyers than would normally be the case in the market. And under the laws of supply and demand, supply will pick up and put pressure on prices in the downward direction, he said. Also, he made the point that unemployment would rise in Australia and create problems - particularly in areas like first homebuyer suburbs. Unemployment leads to distressed selling and adds to the downward pressure on home prices, said Weston.
Electronic lodgement making brokers more tech-savvy
The drive by lenders for brokers to submit applications online has made the industry more technology-savvy, according to Paul Eldridge, CEO of Intellitrain. “The majority of brokers I speak to like online submission, because they are much more convenient and help speed up the process. This has helped drive the uptake of web-based solutions,” he said. His comments follow Intellitrain launching what it claims is the industry’s first interactive webinar series (online training sessions) which allow brokers to earn points towards their CPD requirements – 18 CPD points over the course of a year. The program provides brokers with access to two-hour training sessions, covering topics from sales and marketing through to self-development. “The sessions are basically live, so you log into the seminar room and you might have a slide show and the presenter talking, or there may be video or audio, there is a white board, so the presenter can doodle,” Eldridge explained. “As a participant, you are able to ask questions via a chat function, we can also ‘hand over the microphone’ to up to four people to ask questions if they have a microphone on their laptop or computer. In addition we have the ability to do live audience polls and also show participants our computer screen,” he said. While not a fan of online education despite being a Gen Yer, Sarah Eifermann, principal of SFE Loans, said the webinars appeared to offer value for money (at $20 a session) and would be very useful for remote or regional brokers. Eifermann said her aggregator, PLAN Australia, was doing something similar for its brokers for free, but she backed the Intellitrain program: “It’s good to see another offering in the marketplace at an affordable price – something perhaps the MFAA should have gotten onto years ago?” While she said it was a matter of personal opinion over web-based versus face-to-face training, Eifermann said the younger generations of brokers would thrive in this type of learning environment. “I still prefer face-to-face paper in front of me. I learn more that way. “One thing to keep in mind is that if these webinars are going to be successful, they need to have quality content and also a quality presentation. The streaming needs to be consistent – if it continually stops to download more video it will become an annoying distraction to the viewer. It will be more likely for the viewer to simply log off. It’s much easier to log off than exit a classroom, Paul Eldridge without being noticed,” she said.
Top brokers still earning Mortgage manager a fair crust ditches commissions Despite a reduction in commissions, top performing brokers are still outperforming their counterparts in the banking sector when it comes to remuneration, latest salary figures suggest. According to the 2009 Hays Salary Survey, the most a mobile lending manager in Sydney is likely to earn is $80,000 a year (with the average being $70,000) while a top senior residential lending manager earns a maximum of $120,000 (on average $110,000). While underperforming brokers might earn considerably less than the average banking salary, those on top of their game stand to take home three of four times the pay, even factoring in a reduction in commission levels. Peter White, national president of the FBAA, said while he believed the average annual salary for a broker would be between $50,000 to $60,0000, a high performing broker could be “earning anywhere upwards of $400,000 per annum”. Fujitsu Australia’s financial services director, Martin North, said it was difficult to work out an average salary because the range was so large, but said his guess would be around $150,000 per annum, though some would earn much more and others (those that work part time) much less. North, who hails from the UK, said his estimate for a UK-based broker salary would be £80,000 ($160,000) per year, even in the current depressed environment. Not surprisingly, given the delays experienced by brokers in getting mortgage applications processed, the Hays survey reported that in the support area “demand is evident for temporary assignments in residential lending, in particular within mortgage processing, credit assessment and documentation”. “This is to be expected when permanent hiring restrictions remain, despite low interest rates, falling property prices and the First Home Owner Grant,” it said. Benchmark your salary
Average Position (all for Sydney) remuneration package Branch teller $40k Mortgage settlements officer $46k Branch supervisor $55k Mortgage assessor/credit officer $55k Branch lending officer $55k Mobile lending manager $70k Branch manager $75k Relationship manager $100k Qualified financial planner $100k Senior manager (residential lending) $110k Senior management consultant $128k Branch regional manager $130k Bank BDM (commercial lending) $130k State bank manager $210k Finance director/CFO (qualified CA) $260k Source: Hays Banking and Finance Salary survey To find other salaries go to: http://www.hays.com.au/salary
Geoff Brieger, the founder of mortgage manager Vanilla Loans, says he plans to set up his own retail broking operation in September and will “refuse to accept commissions from lenders”. “I don’t want to take commissions at all,” Brieger told Australian Broker, after causing something of a stir in the industry when news of his new mortgage venture appeared on Brokernews. While he would not mention names, What brokers had to say about Vanilla Brieger said he had negotiated with local Loans on Brokernews: branches of two major banks on the Gold • “No brokers will write loans with this manager” – James Smith Coast, where he operates. • “I don’t know anything about this Brieger said they had granted him the Vanilla Loans mob, but at least they authority to act on their behalf without are being creative and proposing a paying him a commission – instead he will solution to the very problems brokers charge a fee for his service. whinge about in these forums. Don’t This arrangement mimics the way he has be scared of charging for your time and service. Once brokers get this, set up his Vanilla Loans lending business, nobody will give a stuff about banks which is being funded by FirstMac. lowering commissions or taking away The mortgage manager will not pay trail” – James Veigli, broker trainer brokers a commission, but will support them • “The idea has some merit but I doubt it by charging the client a fee and then help the will take off. The client will only do it if broker collect this fee. the interest rate offered by say Vanilla will benefit them compared to other Brieger said Vanilla Loans would lenders” - Louis. encourage brokers to charge borrowers a fee • “Charging a fee is easy. You just add of between 1% and 1.5% of the loan amount. the fee to the loan amount. You need Brieger said borrowers would benefit to start getting your aggregators to because rather than “pay $11,000 in lobby for a streamlined disbursement commission to brokers” on a $250,000 loan, a process” - Old Timer For comments or to have your own say borrower would only pay a once-off fee of on this topic go to: http://www. around $3,000, an amount he says a broker brokernews.com.au/forum/mortgagewould normally earn on a loan due to people manager-opts-for-fee-for-servicemoving home or refinancing every three to model/35431 four years. But not everyone agreed with Brieger that the “numbers speak for themselves”. National Mortgage Brokers (nMB) managing director Gerald Foley said it was not clear whether Brieger was trying to help brokers or borrowers. Foley questioned the money Brieger claimed borrowers would save since “banks don’t load commissions onto the standard rate”. And while Foley agreed that more and more brokers would start charging a fee for service, he said they would have to “deliver something for that fee”. “If you are going to be broker and do your normal role, commissions should be sufficient, though obviously we want them to be higher [than they currently are]” “But you can’t just charge a fee because the lender has cut your pay,” he said. To justify a fee a broker would need to perform an ongoing role and report regularly to client about their loan - not just once a year. Tony Carn, general sales manager at Homeloans Ltd, said Vanilla Loans was another example of someone trying to be innovative in a period of reducing margins. While he said fee for service was a much debated topic among brokers, Carn said he could not see a huge demand for the product and claimed it would not appeal to many aggregators “from compliance point of view”. But Brieger is adamant that his model is the only way forward. Having been out of broking for three and a half years, he said he did not want to play in the current set of circumstances: “I am not prepared to let lenders tell me how much I can earn, or put rules around those earnings.” “I am not trying to stop people operating the way they are used to, but I believe they will struggle to compete with me.”
Great Depression II averted: ANZ In the face of the extraordinary contractions of economic activity brought on by the GFC, many central banks and governments have found themselves required to do things not thought of since the 1930s. But thank goodness they have, since in doing them they have saved the world from enduring a second Great Depression, according to ANZ’s chief economist Saul Eslake. “It is worth remembering that the reason why the Great Depression was ‘great’ – in the mathematical sense, with economic activity falling by as much as 30% and unemployment rising by over 25% – is because at the time governments and central banks did everything that they could have done to make it worse,” said Eslake. In 1931, the US Federal Reserve increased interest rates rather than cut them in order to prevent the US dollar from falling against the price of gold. It also stood aside while tens of thousands of banks fell over, taking with them the savings of ordinary people. What is more, in the same year the US congress enacted the biggest increase in taxes up to that point in American history in order to reverse what had been a deterioration in the budget deficit. “And it is especially hard to believe that at a time when international trade was going backwards, that initially the US congress and then other governments around the world – including Australia – legislated the biggest hikes in tariffs and quotas that had been known up to that point,” said Eslake. Hence, he argued, it is important to remember these lessons when considering the merits of the ‘extraordinary things’ that central banks and governments are doing in the world today. More to the point, Eslake said that cutting interest rates to almost zero – as most of the world’s central banks have done www.brokernews.com.au
– was absolutely the right thing to be doing. He added that this will not, as some critics have suggested, give rise to a serious rise in inflation. Indeed, ANZ’s chief economist made the point that some of the world’s central banks have already, in an electronic sense, been printing money by creating credit at the accounts that banks hold with the Federal Reserve or the Bank of England. “The Federal Reserve has stepped in to fulfil some of the functions that a commercial banking system would ordinarily have done, such as supplying commercial paper, which is the main source of working capital for most American companies.” Yet, had the Federal Reserve not expanded its balance sheet more than threefold (in order to make up for the contraction in the balance sheets of banks being crippled by losses exceeding US$1trn) then the American money supply could have contracted by as much as 45 % – as it did in 1931, said Eslake. So as a result of the GFC, governments will be running up large amounts of public debt – but most are smaller than those inherited after the Second World War. And just as most people thought in the 1940s that having a high level of public debt was an acceptable price to pay to avoid living under fascism or Japanese imperialism, so Eslake argues that governments and central banks today ‘implicitly believe’ that having a level of public debt higher than it was three or four years ago is an acceptable price to pay for avoiding repeating the mistakes that lead to the Great Depression. “All of this needs to kept in mind when judging whether or not central banks are doing the right thing. In fact there is now accumulating evidence that the things that central banks and governments are doing are actually beginning to work,” he said.
ACCC: we got it right on bank mergers Key points
• ACCC says Westpac/St. George deal did not affect competition • but decision to allow CBA/BankWest merger one of necessity due to the GFC • left as part of HBOS, BankWest would have contracted severely
The decisions by the ACCC to allow the takeover of St.George by Westpac and BankWest by the CBA were controversial ones, but both decisions were the right ones, according to the competition commissioner. Speaking to Business Spectator, ACCC chairman Graeme Samuel said it did not consider the Westpac/St.George takeover anti-competitive, while the decision to allow the CBA/BankWest takeover to proceed was taken to insure stability in the banking system. Of the former, he said the ACCC had concluded that St.George was “not providing a competitive tension in the banking market”. However, he said the decision to back the CBA/BankWest deal related specifically to the GFC: “It occurred at almost the peak of the global financial panic. There was a panic about the stability of the banking system, and indeed whether the banking system might implode.” Based on advice the ACCC received from the RBA and from APRA, Samuel said it had no choice but to allow that merger to proceed. While he did not go so far as to say that BankWest would have gone broke if the ACCC had not allowed the CBA acquisition, Samuel said that based on advice from then owner HBOS in the UK the ACCC could see BankWest severely contracting and becoming “a virtual non-existent force in terms of competition in the Australian banking sector”. “I think I can say that had it not been for the global financial crisis we would not have been in a position to have allowed the CBA/BankWest merger. That would have been one that I think we would have had some different views about,” Samuel said, pointing out that due to the financial difficulties experienced by HBOS at the time, BankWest was facing the potential loss of $16bn of wholesale funding – something which would have severely impacted on its WA operations and eastern seaboard expansion plans. But, he said: “The Westpac/St.George merger occurred before the global financial crisis and I think whether it occurred then or now we would have permitted that merger to proceed.”
Comfortable competition not good for consumers
The dominance of the Big Four banks over the regional banks and nonbanks has not gone unnoticed by the ACCC. Chairman Graham Samuel said the growing gap between the big banks and the rest had raised some issues for the ACCC in terms of the intensity of competition. “We’ve described it as ‘comfortable competition’, ‘workable competition’. We don’t have intense or vigorous competition in the banking sector – we have a comfortable level of competition that’s not necessarily good for consumers,” he told Business Spectator.
Investor confidence holding off RMBS recovery Chris Dalton
The beginning of June saw the government continue to support smaller lenders and non-banks when it awarded AOFM securitisation mandates to Adelaide’s Australian Central Credit Union and Bundaberg’s Wide Bay Australia Building Society. At the same time, non-bank lender FirstMac announced that through its mandate it had been Key points able to place its second • lack of liquidity and low government-backed investor confidence still RMBS deal priced problem for RMBS market at $625m with • ASF says small businesses would benefit from $126m coming from expansion of AOFM criteria external investors. However, according to • investors happy with credit quality, but wary of being Chris Dalton, the new unable to offload assets CEO of the Australian Securitisation Forum (ASF), while things are looking more positive for credit markets in general, a lack of liquidity and little interest from international investors will continue to constrain the market for some time. Dalton said the RMBS market would continue to be characterised by issues made up of prime, full-doc types of assets and would need the continuing support of the government to engender confidence among investors. He said he accepted comments made by Merrill Lynch in May that life was returning to the RMBS market via high-net-worth investors, but said this view related to activity among the bank’s own clients. “I am not surprised at the [Merrill Lynch] comment. Their investors are looking for higher yields than those on offer in term deposits and cash products,” he said. Looking across the overall market, he said the key issue remained a lack of liquidity in the secondary market, not the quality of the assets. “The ASF acknowledges that Australian RMBS are of a very high quality from a credit perspective and they have performed well, notwithstanding the GFC and in contrast to the US and UK. “Investors are happy with credit quality, but there is no market for them to liquify if they want to redeem their investment or move into another asset class,” he said. Asked if he thought the AOFM should expand the eligibility criteria of its RMBS scheme (currently non-conforming lending is excluded and low-doc loans cannot make up more than 10% of the mortgage pool), Dalton said while this was a question of government policy, many low-doc and high-LVR loans provided financing for SMEs. “Small businesses are dependent on borrowing against their home to provide financing. An extension of the program would be one way to channel money to the small business sector,” he said. Overall though, Dalton said the scheme had been supportive of the market and had allowed a number of non-banks to continue with their funding programs and to continue to originate and provide loans. “We would like to have seen it have a greater impact, but that has not occurred.” Since announcing its plan to improve competition in the mortgage industry last October, the government has invested $6.2bn in 13 securitisation transactions out of its $8bn RMBS purchase plan.
Bouris goes prime time
Wizard founder Mark Bouris has signed on to host the Australian version of ‘The Apprentice’, which will air on Channel Nine later this year. The weekly show will not only boost his already well-established media persona, but will also allow him to spruik his new financial services venture, Yellow Brick Road, with the winner of the show securing a spot in the business as well as a six-figure salary. Production of the show begins this week, with Bouris telling The Sunday Telegraph he would bring an “Australian flavour to the show”.
ASIC launches insolvency portal online
As more lenders go to the wall, ASIC has launched a new online portal designed specifically for stakeholders impacted by corporate insolvency. The portal, which is available at www.asic.gov.au/ insolvency, provides information tailored to each stakeholder group about their rights and obligations, and it responds to frequently asked questions. In addition to company directors, the website provides links for company creditors (for example, brokers owed trail commissions) and for employees to assist them in identifying possible signs of insolvency in companies with which they are involved.
FBAA: brokers hold little hope for better service More than two thirds of brokers (69.9%) believe there has been no improvement in mortgage-processing times, and nearly three quarters (77.3%) believe there will be no improvement any time soon, according to a survey of nearly 400 FBAA members. The survey also revealed wider concerns about the knock-on effects of lender processing times, with an alarming 86.5% of brokers believing the delays might result in anti-competitive practices.
Michael Russell resigns from Ratesonline
Due to his appointment as CEO of Mortgage Choice, Michael Russell resigned as a director of Ratesonline. com.au on 1 June. Russell joined the board of the mortgage loan lead generator as a non-executive director on the 8 April before taking the top job at Mortgage Choice on April 23. Since taking on his new role at the listed broker, Russell has cut senior staff numbers and positioned the company for a possible merger.
Mutuals win AOFM investment
The mutuals sector was the latest segment of the home loan industry to benefit from the AOFM’s investment in RMBS when it announced in early June that it would act as the cornerstone investor for Adelaide’s Australian Central Credit Union and Bundaberg’s Wide Bay Australia building society. Both will receive around $500m in securitisations. Both offers are expected to be priced by early July. The government agency is set to announce one more set of mandates from its second selection round. Since announcing its plan to improve competition in the mortgage industry last October, the government has invested $6.2bn in 13 securitisation transactions out of its $8bn RMBS purchase plan.
FirstMac prices $625m RMBS
Non-bank lender FirstMac successfully placed and priced a $625m RMBS issue on 3 June. The issue included $499m from the AOFM as a cornerstone investor and a further $126m from external investors. FirstMac’s CFO James Austin said market observers who have been critical of the success of AOFM’s program to date have misunderstood the government’s objectives. “The initiative is designed to foster competition and get to the other side of the global financial crisis with more than just the Big Four banks,” he said. “The position of second tier lenders has been considerably strengthened by this program and this can only benefit the community as a whole.
Non-bank changes name
Non-bank provider of short term mortgage loans New Capital Finance No 1 Pty Ltd, which trades as New Capital Finance, has changed its name to NCF Financial Services Pty Ltd.
Conveyancing: more work, but also more headaches Key points • more work for law firms following extension of boosted FHOG • lawyers also expecting an upsurge of mortgage fraud • community legal centres expected to receive more requests for help
The Federal Government’s decision to extend the First Home Owner Grant is set to keep brokers busy until at least the end of the year, but it is also expected to increase the workload for law firms involved in the preparation of mortgage documents and contracts. Gadens lawyer and chief operating officer Jon Denovan said currently residential lending valued at less than $1m was more popular than other form of borrowing, including commercial property ($1m to $100m) and corporate (above $100m) loans. “We have observed a 70% increase in front-end mortgage work since the grant was introduced last October. Residential mortgage work for banks and non-bank lenders has brought big business. It’s exciting to see work volumes improve again,” he told Australian Legal Business.
But the negative spin-off has been an upsurge in mortgage fraud work, according to Julie Barkla, a partner at Melbourne property and mortgage law firm Wisewoulds Lawyers. “The difficult market has made people desperate enough to take advantage of a spouse or their property to raise funds. That was marginal before the downturn, but is happening a lot more. Mortgage enforcement is also a growing area, as more borrowers are defaulting on their mortgages,” she said. Once passed, the National Consumer Protection bill is also likely too bring in a “huge influx” of mortgage work to community legal centres, namely advice to borrowers who entered into financial agreements that they could ill afford. However, few lawyers are willing to work for centres for various reasons. “Some of my community legal centre contacts are dreadfully understaffed and have difficulty in staffing. They work very long hours and get pitiful pay,” said Denovan. In the May Budget, the government extended the boosted First Home Owner Grant allowing first-home owners entering mortgage contracts between 1 July and 30 September to receive $7,000 for existing homes and $14,000 for new dwellings. The boost will be halved for contracts signed between 1 October and 31 December.
Reaping benefits in the next tax year
With recent budget announcements and legislative changes, there are a number of areas in which brokers need to plan now to maximise their benefits in the coming financial year, according to Marc Peskett of Melbournebased accounting and advisory firm MPR Group Tip 1 Aggregate your capital investment purchases in batches of assets that are identical (or substantially identical) and in sets of assets, for the purposes of meeting the relevant new investment tax breaks. This way you will get over the $1,000 value threshold for small businesses and over the $10,000 threshold for large businesses. Tip 2 Consider how the asset is financed. If the asset is acquired under a finance lease arrangement it will generally be the lessor that will be entitled to the tax break and not the business lessee. The lessor may pass on the tax break through reduced lease payments, but this will be subject to commercial negotiation and should be thoroughly investigated to see if there are savings to be achieved. Tip 3 Review the timing for purchasing and installing an asset. For larger businesses the 30% tax break only applies to an investment commitment entered into after 12 December 2008 and on or before 30 June 2009, with the assets installed ready for use on or before 30 June 2010. Assets acquired after 30 June 2009 and on or before 31 December 2010 will only be eligible for the 10% break. Small business may be eligible for a 50% deduction on assets committed to between 13th December 2008 and 31 December 2009 and installed ready for use by 31 December 2010. Tip 4 The R&D tax concession is the government’s main incentive to increase industry’s research and development, with its cash rebate a critical source of cash for many small innovative companies. Companies should consider their R&D investment and planning to take advantage of the concession. During 2009/10 the eligibility expenditure cap on this concession will increase from $1m to $2m. The increase is a transitional measure to extend the R&D tax concession cash rebate to a greater number of innovative companies before the proposed R&D tax credit comes into effect in 2010/11 and could significantly increase the cash rebate particularly for those companies eligible for the 175% premium deduction. Tip 5 Conduct a general commercial assessment now rather than when you are well and truly into the next financial year. This includes analysing your financial performance, assessing your forecasts for the coming year to see if they are still current and realistic, and reviewing cash flow needs for the coming year. Tip 6 Review the profitability of each of your product or service lines and the mix of your stock on hand at the end of the year. Discontinue unprofitable product and service lines, and with stock, consider disposing of slow-moving items through a sale and using the proceeds to free up cash flow to repay debt or invest in more profitable product lines. Tip 7 Protect the most important asset of the business – your key people. Put appropriate strategies in place to ensure the business and personal interests are protected if an unplanned event were to occur. Some of the key issues to consider are whether business debts could be paid; if personal guarantees would be supported or released in an estate situation; if the business’ credit standing would be maintained without one of the current owners; or whether sufficient cash flow is available to cover the business commitments. Tip 8 Revisit your business strategy, and decide whether it needs to be adjusted to suit the current market. Also understand your key business drivers, assess the efficiency, viability and profitability of each and then ensure you measure these drivers along with your financial performance on a regular basis. Tip 9 If you have an upcoming bank review, start preparing your documentation now to ensure you meet performance ratios and all other areas the banks assess. If you are going to need additional funds, commence the process with your lender early to limit the impact of cash flow pressure on the business (banks are lending more prudently and taking longer to assess loans). Tip 10 Business owners should also take the time to think about their own wealth position as well as that of potential concessions for their company, and consider topping up their super contributions.
Marc Pesket t
Marc Peskett is a partner of MPR Group and a Chartered Accountant with over 25 years of experience in high-level business planning, taxation consulting and general accounting. www.brokernews.com.au
WA brokers must wait for ‘streamlining’ details What WA brokers need to do…
• continue to hold a WA licence up until 1 November 2009 • renew their WA licence if it comes up for renewal before 1 November 2009 • register with ASIC between 1 November and 31 December 2009 • apply for an ACL licence between 1 January and 30 June 2010 • once registered with ASIC, brokers won’t need to hold a WA licence
WA-based brokers anxious to know how they will be ‘streamlined’ into the new Australian Credit Licence (ACL) will have to wait until ASIC reveals the details of the process. A spokesperson for the Department of Commerce (Consumer Protection Division) told Australian Broker that all WA credit and finance broker licence holders would need to follow the same registration and licensing procedures imposed on other brokers, though they would “gain the advantage of a streamlined licensing process” However, he said details of the streamlined licensing procedure had not yet been made available by ASIC. MFAA CEO Phil Naylor said it was his understanding that streamlining would mean a WA broker would automatically get an ACL “unless ASIC believes they are not a fit and proper person”. But more certainty was provided about what licensed WA brokers should do up until the new credit laws kick in on 1 November. “Until the formal transition to the Commonwealth rules, the current WA legislation remains in force and all credit providers and finance brokers operating within the state must be licensed and abide by the terms of the respective acts and regulations. This means that any current licence holder wishing to continue operating in
Industry cheers as non-banks get a leg up
The industry has warmly applauded moves by Mortgage Choice to devote an entire series of broker workshops to nonbanks and second-tier banks. Mortgage Choice spokesperson Kristy Sheppard confirmed that AMP, ING Direct, FirstMac, Homeloans Ltd and Suncorp presented their products to brokers at a recent series of workshops run in each state. Comments submitted on Brokernews backed the scheme, with readers saying that other aggregators should follow suit. In an interview with the AFR, Mortgage Choice CEO Michael Russell said that the workshops focused on lenders with “clean pipes, who are best equipped to handle an increase in volumes”. And in the light of the current poor turnaround times being experienced at the major banks, many brokers might construe these comments to mean they should avoid using the major banks. But Sheppard said the point of the workshops was not that brokers should steer clear of the majors. “We’re simply making sure they are educated about other loan product options from some of the lenders on our panel who have clear loan pipelines. We want our brokers to be able to deliver the best possible service to their customers, and we’re doing what we can to help them work around any loan
pipeline blockages or other service issues. Which lender and loan product is best for each customer depends on their individual circumstances, the same as it always has,” she said. Asked if Mortgage Choice would ever remove a major bank from its panel, Sheppard said such a decision would come down to the service they provided. “We have built a panel of strong, keen, professional lenders offering products that suit the wide range of customers who walk in our door – lenders that provide our customers and brokers with excellent service. We closely examine any lender on our panel that is looking like it may move away from that position,” she said. During the workshops, each lender was given one and a half hours to discuss their product range and policies before answering any questions from franchise owners who attended. Sheppard said the workshops were run as an open forum, during which the lenders and attendees could discuss all of the service/offering aspects of their relationship”. She said the workshops are a regular feature of Mortgage Choice’s professional development program, which also includes regular lender forums in each state as well as lender workshops and panels at bi-annual state conferences. To read responses to this story and submit your own comments, visit: • http://www.brokernews.com.au/sitesearch/broker-poll-should-aggregatorspromote-non-banks/35493?keyword=mor tgage+choice • http://www.brokernews.com.au/sitesearch/mortgage-choice-promotesalternatives-to-big-four/35491?keyword= mortgage+choice
WA must renew his or her licence as it expires,” the DOCEP spokesperson said. Once brokers are registered with new regulator ASIC (between 1 November and 31 December 2009) they will no longer need to hold or renew their WA finance broker licence. And brokers concerned at having to pay to renew their WA licence and then pay again when they apply for the new ACL will be relieved to know the state government is taking steps to ensure this does not happen. “The WA government is keen to ensure that brokers are not charged licence fees twice during period that is under both the WA legislation and the Commonwealth legislation. State and Commonwealth officers are discussing ways to deal with this matter, and it is expected that licence holders will be advised of some practical solutions to this problem well before the new Commonwealth laws commence,” the spokesperson said. Naylor said the MFAA expected the ACL licence fee would be “not dissimilar to [the] WA [licence fee] in quantum”. Colin Lamb, Australia’s top broker, who is based in Perth, said he did not expect the federal system would affect WA brokers – unless they do not have their licence yet. “They will need to complete the appropriate requirements in order to get licensed,” he said.
Broker support needed for charity golf day
Phil Chant Well-known industry identity Phil Chant has called on brokers and others in the industry to once again support the fifth annual Sir Eric Woodward Memorial School Golf Day. The golf day, which takes place at the Twin Creeks International Golf Club on 9 July, will raise money for the school, which provides care for 20 students classified as being severally mentally and physically challenged. Among the students is Chant’s own son, Alexander. Last year, with the help of brokers, the golf day helped raise $5,000 for the school – and this year, Chant is aiming to improve on that figure. Readers can get involved by either signing up to compete individually or as part of a team, or by providing auction items. Chant, who is the executive manager within the CBA’s third party team, said the school remained heavily reliant on donations and charity support to provide for its funding needs. All funds raised will be used to buy equipment and support staff at the school. “The Golf Day is run as part of The Charity Challenge, and has been designed so you can enjoy a day’s golf while making a difference by helping us provide a better quality of life for people with disabilities,” Chant said. “You will feel the tension and excitement of a real teams event tournament, with the AGU-qualified winners and second-place getters on the day earning a spot in the Charity Challenge Final in November 2009.”
Details Event: Sir Eric Woodward Memorial School Golf Day Why: to raise funds for school which cares for severely handicapped students Date: 9 July 2009 Venue: Twin Creeks International Golf Club, Sydney Cost: $220 per head or $880 per team of four inclusive of GST To take part on contribute: email phillip.chant@cba. com.au or call 0434 329 878
Technology 21 Sponsored by Name: David Wakeley From: Virgin Money To: Australian Institute of Management Title: CEO, Australian Institute of Management (NSW & ACT) Wakeley joined the Australian Institute of Management on 18 May from the Virgin Group where he was CEO of Virgin Money. In making the announcement, AIM chairman Brian Nye said Wakeley had a strong background both as a CEO and also in senior management roles with a number of organisations including the Virgin Group. Nye said AIM NSW & ACT would be strengthened by Wakeley’s leadership and experience and it looked forward to “supporting him as he takes the reins of an organisation with such a proud history”. Name: Ben Livera From: Challenger To: Resimac Title: Senior business development manager (SA) Livera has much experience in the mortgage industry, in particular in the wholesale sector where he previously occupied a role of relationship manager for Challenger. Ben will focus on growing the RESIMAC business and servicing existing customers in South Australia. Name: Michelle Strapps From: Choice Aggregation Services To: Australian Life Insurance (ALI) Title: State relationship manager, Queensland Strapps joins ALI as one of the state relationship managers for Queensland, where she will look after brokers from the Sunshine Coast to Cairns. She brings with her more than 20 years of experience in the finance industry including eight years as a BDM with Choice Aggregation Services. She will help brokers enhance their client offerings. Name: Marcell Midolo From: Connective To: Connective Title: Broker support manager Joining Connective in mid-2008 as product manager, Midolo has a high level of knowledge and experience in retail and wholesale lending. With almost a decade of industry experience, Midolo’s appointment as broker support manager will see him play an integral role as a conduit between Connective and its brokers.
Name: Brent Starrenburg From: Automotive industry To: Connective Title: Sales manager – Victoria Starrenburg comes to Connective following 10 years in the automotive industry where he gained invaluable experience in sales, finance and insurance. As sales manager, Starrenburg will be responsible for building lender and broker relationships within the Connective network along with growing the aggregator’s broker base in Victoria. www.brokernews.com.au
Off the cuff What was the last book you read? World without End by Ken Follett. If you did not live in Australia, where would you like to live? Bali. We have a place there and love the climate and the lifestyle. If you could sit down to lunch with anyone you like, who would it be? Barack Obama and JFK, essentially to understand how world domination has changed in the last 40 years or so. What was the first job you ever had? I worked as an office boy at Mercantile Mutual Insurance. What do you do to unwind? I like to watch my fast horses run slowly at the track. What’s the most extravagant gift you ever bought yourself? My car. What CD is currently playing in your car stereo? Best of: Radiohead. If you could give anyone starting out in business one piece of advice, what would it be? Crawl, walk, run. If I was not working in the mortgage industry, I would like to be…? A criminal lawyer. Where was the last place you went on holiday? Bora Bora – Tahiti. What is the one thing most people would not know about you? I have a sideline in music promotion which includes national tours of international acts.
Kevin Matthews – Executive Director at Australian Finance Group
The perfect sales pitch Do you sell yourself in a way that reflects your service proposition? Doug Mathlin says it may be time to review your sales presentation I have previously stated that brokers need a compelling service proposition before they start marketing themselves to their database of clients and prospects seeking repeat and referral business. The whole purpose of keeping in touch with these people is to remind them of the services that you offer – and to add value to the services already provided. When you contact your client database, the outcome you want is for the client or prospect to think about the time they transacted with you and hopefully recall the fantastic experience that is was. If you do not achieve this result, the intentions of your marketing campaign will not be met. The thing that your clients should remember most clearly about the service that you offer is the time they spent face-to-face with you (and completing the loan application). I will refer to this event as the ‘sales presentation’ because you are not only selling the lender and their product, but also your company and yourself and hopefully your referral program. Hopefully you achieve a sale in all three: • the lender and loan • your company and you • your referral program
If you want to be in the top 10% of your industry, you need a brilliant sales presentation. True professionals implement repeatable systems into their business and seek ways to improve them on a regular basis. Let’s review your sales presentations. The first thing that you need to do is to redesign your presentation if this has not been done for a while. Think back to the first few presentations that you did and remember how meticulous you were. You did this because you really cared about doing a great job for the client and you wanted to make sure that the loan settled. Is that enthusiasm, energy and care still evident? Here is a structure that works for many of the top producers that we work with. Check to see if you cover the following points in your sales presentations and make changes to suit your service proposition. These steps could take place over two meetings.
Eight steps to a great presentation
1. Greeting and introductions – acknowledge everyone and the referrer/source that put you together. 2. Set the agenda – tell them what you would like to cover, how long these appointments normally take, that you’ll be asking plenty of questions, and what you would like to achieve from the appointment. Ask what they would like to achieve. 3. Your commercial – why choose us! Outline your experience, unique service proposition (USP) and benefits of using your services and other services that you offer. 4. Restate needs discussed in the phone call between the two of you. 5. Conduct further needs analysis to understand • what they are looking for in the loan product • what is important about the lender • what they want from their broker 6. Present solutions to the needs identified starting with you (if possible). Some of our clients prefer to present the solutions in writing prior to a second appointment. 7. Offer to complete the application and outline the application to settlement process (provide it in writing). 8. Introduce other services that you offer. 9. Introduce your referral program. Doug Mathlin is the founder of Front Runner Consulting Group, a sales training and sales management training company specialising in the development of mortgage broking businesses. Contact him at firstname.lastname@example.org www.brokernews.com.au
24 News Analysis
+5.1% Approvals: reading between the numbers The April housing approval numbers painted either a rosy picture of the NSW market and a gloomy one for Victoria or the exact opposite – depending on which industry body report you read. Larry Schlesinger examined the figures
The key numbers: growth in housing approvals – March 09 to April 09 Seasonally adjusted Estimated trend Overall +5.1% +2.2% NSW +38% -0.2 Queensland +13% +2% Victoria -13.4% +3.2% Source: ABS data
he American business academic Aaron Levenstein once said of statistics that they are like bikinis: “What they reveal is suggestive, but what they conceal is vital”. Following publication on 2 June of ABS building approval figures for April, the HIA issued its customary press release reporting (or suggesting) that “building approvals increased for the third consecutive month in April 2009 to reach their highest level since October last year”. The HIA quoted the total seasonally-adjusted building approvals figure, which rose by 5.3% in April 2009 to a level of 11,402. HIA chief economist, Dr Harley Dale called it a “positive update not only for residential construction activity, but also employment and demand in related manufacturing and service sectors”. Further down the release, the HIA quoted more seasonally-adjusted figures, including those that ‘showed’ residential dwelling approvals increased by a whopping 37.7% in New South Wales and were up by a healthy 13% in Queensland, 5.1% in South Australia, 3.5% in Western Australia, and 0.4% in Tasmania. The numbers – especially those for NSW and Queensland – suggest a turnaround might be under way in these states.
And what about the seemingly gigantic 38% improvement in NSW? The UTA’s chief executive, Aaron Gadiel, said the “decline in NSW home approvals seems to be bottoming out, but there is no upward trend like the one occurring in Victoria”. So how was it possible that the UTA could form such a pessimistic view of NSW building approvals? The answer is simple; the UTA looked at a different set of figures from those reported by the HIA. Rather than look at the seasonally-adjusted data, the UTA examined the trend data, which showed that in NSW, approvals in fact fell by 0.2% while in Victoria approvals climbed by 3.2%. Overall, national housing approvals, on a trend basis, rose by 2.2%. Based on these figures, the UTA said the NSW government needed to take “firm steps to re-build industry confidence in NSW housing development”.
A differing view
But that couldn’t be further from the truth, if you accept the view taken by the Urban Taskforce Australia (UTA), an organisation which represents property developers. In its press release published in response to the ABS figures, the UTA suggested the figures showed a clear turnaround in Victorian home approvals and the first positive trend figure for Queensland home approvals for 17 months.
Which number is more accurate?
Removing seasonality: Champagne drinking in summer
So what exactly does the ABS mean when it says figures are seasonally adjusted? Statistician Sally Wood, an associate professor from the Melbourne Business School gives the following example: “Take champagne sales. You drink more in summer than you do in winter. If you are looking to see if your sales are going up, it’s important to consider the month. If it is December, the jump would be the result of the seasonal effect. “Seasonally-adjusted data removes the seasonality effect by subtracting it from the long-term average. “However, if the spike is increasing over time, that would be a trend effect. In the case of champagne, a trend might be a consistent increase in sales spikes in December.” www.brokernews.com.au
While acknowledging the 38% seasonally-adjusted increase in approvals in NSW, Gadiel said such data was “highly volatile” when used for monthly figures, and was always revised in subsequent months, sometimes significantly. “When it comes to quarterly or half yearly data, the season adjusted figure is fine,” he said. But monthly seasonally-adjusted data “bounces around” a lot, according to Gadiel, resulting in “semirandom variations from month to month” – meaning one should not read much into it. “It’s a nonsense,” he said. The trend figure though, according to Gadiel, is a much more accurate measure of activity. It showed that while the decline in approvals in NSW was falling each month, and that the state may eventually mirror the turnaround in approvals in Victoria, it was not there yet. On the other hand, the UTA reported that the trend data for Queensland was beginning to reflect the Victorian experience. When asked what he thought of Gadiel’s criticism, Dale said there was “no right answer either way”. He said it was “convention” to talk about seasonallyadjusted figures, though he said there was “no doubt they bounce around – that is well known”.
News Analysis 25
And despite the HIA release focusing primarily on the more upbeat seasonally-adjusted data, Dale said the general story about housing approvals had “changed very little”. “We are forecasting a moderate recovery in new home building. We are not expecting anything particularly buoyant, and remain quite subdued about the prospects for NSW and Queensland markets in the short term,” he said. He agreed that there was room for a lot of volatility in the NSW figure, given that it is driven by a “very unpredictable housing unit segment and a unique Sydney housing market”. Giving an expert opinion on the numbers, Melbourne Business School associate professor Sally Wood said she agreed with Gadiel’s criticism of seasonally-adjusted data but said two points needed to be made. Firstly, as a trend is just a ‘smoothed’ version of seasonally-adjusted figures, any inferences drawn from the trend series (for example, the UTA claim that Australia-wide the trend estimate for home approvals rose 2.2% in April 2009, with revised figures now reporting a positive trend for three consecutive months) would clearly depend on what type of smoothing was used to produce the series. Secondly, she said using these trends to predict the future is difficult because of the error associated with such forecasts. And of course, one should not discount the feel-good impact of positive data. In defence of reporting the NSW seasonally-adjusted data, Dale said: “It’s so rare to see any kind of positive number on NSW, its nice to report one”.
Seasonally adjusted vs trend data
According to Sally Wood, a couple of issues need to be kept in mind when examining seasonally adjusted and trend data: • Accounting for seasonality is important when making inferences. For example, suppose historical figures show that house sales in April are significantly higher than those in May. Suppose further that sales in May this year were the same as those in April: then, on a seasonally-adjusted basis, sales have increased. Without correcting for predictable seasonal fluctuations this increase in sales would not be detected. • For a trend estimate to be valid you must make sure the observed data supports the assumptions underlying the model used to estimate the trend. If these assumptions are not supported by the data then inferences drawn from the estimated trend are invalid. • Most, but not all, trend estimates focus on fitting the observed data well. However, the estimate of the fitted data may be a very poor estimate of future data and therefore not useful for forecasting.
A new perspective on the crisis
In line with the idea of either working through tough conditions or becoming a victim of them, brokers who left the industry’s annual convention with even one or two key ideas had spent their time well on the Gold Coast
hen James Symond declared the MFAA conference open, he chose Albert Einstein to help him do it. “In the middle of difficulty lies opportunity,” he said, quoting the German physicist. And in that short sentence Symond set the tone for the entire conference. He did not shy away from the harsh reality that the industry had contracted severely in the last eighteen months, but rather chose to embrace the challenge of trading positively through it. Using language similar to that which we have become accustomed to hearing from Barack Obama in the White House, he said that one day mortgage brokers would look back on this turbulent economic period and admire what has been achieved in surviving it. Commending the delegates for showing a professional spirit in coming to these conventions, his message was simply that in spite of everything the industry must pull together to continue to offer support to the end consumer. Phil Naylor, driven by the phrase ‘regulation will be the default for the mediocre’ positioned a framework of the MFAA’s vision for the future of the industry.
involve “acting in a different way” for a lot of existing members, and also moving up in terms of credentials and qualifications.
Being a true professional
Amanda Gore kicked things off in a session engineered to make everyone feel good about themselves called ‘Live out Loud’. By the time she was finished she had everyone shuffled up close together, hugging (would you believe) and using phrases like ‘spirit igniter’ and ‘spirit foofer’. While the whole thing might seem a bit silly now at a distance, her message was a simple yet powerful one. To get the most out of your life, focus on the things you have to be grateful for and spend a lot of time acknowledging them. But it wasn’t all fun and games. Speakers like ANZ’s Saul Eslake, Challenger’s Steve Weston and First Mac’s Kim Cannon offered serious commentary on the state of the industry now, eighteen months after the onset of the GFC. Here the message was that while no one could have anticipated it, and that it has resulted in a substantial contraction in almost all of the brokers businesses, it is simply an economic challenge to be weathered. Well run businesses with solid fundamentals would surely not only survive, but would emerge stronger on the other side of the crisis. Another issue that arose was making the most of what you already have – something that we tend to do when the road tilts upwards. To this end, business coach Robert Gerrish took time to work through the benefits of starting what he termed a ‘referral virus’ which explored the importance of a word-of-mouth referral strategy. Brokers find value in being entrepreneurial, and chairman of Western Australia’s Small Business Development Corporation Tim Atterton gave his insights into understanding why some businesses succeed where others fail by examining the management practices adopted by businesses that have been able to achieve sustainable and profitable growth – even when faced with market contractions. In a session which addressed the issue of working with, and being part of, a successful team, Damien Fleming provided delegates with lessons he learned in the Australian cricket team. In the closing ceremony James Symond said it was ‘really wonderful’ to feel the spirit of the MFAA community, and described the convention as being a pod of interesting ideas and positive thoughts. He thanked brokers for participating and said he hoped they would leave saying that they had indeed seen things from a different perspective.
In the vision, he saw regulation acting as a platform to move the industry ahead towards adopting a true culture of professionalism. “Simply having a licence in six months won’t turn an average broker into a good one,” he said, “it will just mean they have completed the minimum requirement.” Naylor reiterated that the MFAA always had aspirations to have standards that were higher than national regulation, and took advantage of the conference’s setting to kick off the MFAA ‘Success Campaign’; based on interviews with its more successful brokers. “You’ll find that the words they use are common,” Naylor told the auditorium. “They talk about passion and commitment and doing the right thing, and making sure the customer gets great value.” Education featured high up on the MFAA’s agenda, and Naylor explained the intention was to move towards an industry certification for brokers, under the working title of a CCA (certified credit advisor). To be an MFAA member, brokers will need to engage with the culture and practice of professionalism, which Naylor said would
No sacred cows
Yet, in the spirit of compatibility he acknowledged that the professionalism cut both ways. He undertook to reinvent, with the help of a group of external consultants, the entire industry body. His brief to the change managers was that there are no ‘sacred cows’ in the MFAA, and that nothing was untouchable in getting the MFAA to act professionally and in brokers’ interests. The theme of the conference was changing perspectives, and in line with that, delegates, who were mostly in good cheer and optimistic about the future of the industry, were offered a varied range of presentations to attend. The threads running through the convention program were change and choice. As its website said, this year’s sessions had been designed to help brokers ‘conquer the mountains and not trip over the mole-hills’. In doing that the MFAA09 did not disappoint.
Inspiring the spirit
Voluntary administration: Pisces hoped to ‘fly under radar’ restructuring of From page 1 Rather the holding than being holed company and were up in his office, operating normally. Tim Bowcock, “Over the coming Pisces Group’s four weeks Mr general manager for Moodie and his team mortgage business, will be working with was manning the board of Pisces the stand in the Group Limited and exhibition hall and Vincent Turner its senior talking to customers management with the face-to-face about aim of effecting a restructure of the future of the group. its operations and debt. It is Bowcock’s message (similar to anticipated that the company that of Turner) was that once the will offer a formal proposal to its process of restructuring some ‘old debt’ on the group balance sheet is creditors at the forthcoming major meeting of creditors which complete, it would be back to will be held in four to five weeks’ business as usual. time,” the statement said. Bowcock said he was confident “Pisces Group Limited will that an arrangement would be continue to trade under the made with creditors within ‘three control of Mr Moodie in his role to four weeks’. as voluntary administrator, while Further reassurance was provided by a press release sent out investigations into the restructure of the group are under way. It by the office of administrator, is anticipated that more details Roger Moodie, confirming that of the form that the company subsidiary mortgage businesses, will continue to operate in Pisces Communications and will be available in the weeks Mortgage Data Solutions, as well leading up to the major meeting as messaging business Newsnet of creditors,” the statement and IT services provider Starcom said further. were unaffected by the
Cummings: Focus on education From page 1 But to Cummings, he said there was truth in the accusation that the quality was not reciprocated. A lot of inexperienced operators in the banks’ back end “are causing us a lot of grief,” he said. Furthermore, he pointed out that banks did not recognise or reward the quality metrics brokers were meant to provide anyway. “Some lenders just pay us based on volume. They don’t want quality. So until banks define exactly what you want in a relationship, the brokers will continue to do what they are doing,” Sirianni said. Earlier in the meeting, after Cummings had made her observations, a woman from the audience (who said she represented a small aggregator) had taken the microphone. She put it to Cummings – to tumultuous applause – that the problem was less about broker application quality and had more to do with the fact that there was ‘no reciprocal quality’ from the bank. She said that even though her commission had shrunk, her workload had doubled. “After settlement, I can sometimes spend a month fixing mistakes,” she added. She asked Cummings why she should have her commission bonuses cut, when the bank suffered no consequences for its poor quality delivery.
ABA confident banks can beat cyber criminals
Examples of scam bank e-mails.
As bank customers continue to be the primary targets of cyber criminals via ‘phishing’ attacks (fake emails disguised as official bank emails), the Australian Bankers’ Association (ABA) has backed its members to deal with the threat. David Bell, CEO of the ABA, told Australian Broker that banks have systems in place to constantly monitor transactions. “If a transaction is identified as suspicious, it will be investigated to ensure there is no breach of security,” adding that bank customers were protected from loss in genuine fraud cases. Furthermore, he said banks were continuing to seek out security enhancements “especially for online banking such as an onscreen keypad. It is planned prevent the incidence of keystroke logging fraud by removing the need for a keyboard to enter passwords. Many banks are also offering two-factor authentication.” Bell’s made these comments as ICANN, the internet’s domain name system manager, prepared to meet in Sydney (at ICANN35) to discuss dramatically expanding the number of top level domains (TLD – eg, ‘.com’, ‘.gov’ etc) beyond the current 21 generic names by allowing anyone to apply for any string as a TLD. E-commerce community advocate NetChoice warned that such an expansion would make it much harder for banks (and other organisations with large customer bases) to combat internet scams and phishing attacks from cyber criminals. As an example, NetChoice said if the following three TLDs were successfully registered: ‘.bank’, ‘.sydney’ and ‘.melbourne’ a bank such as the CBA would need to register commbank.bank, comm-bank. sydney, commonwealthbank.melbourne, and other variations to combat phishing scams. Steve DelBianco, executive director of NetChoice, warned Australian banks to be watchful of proposals to be discussed in Sydney: “ICANN is in danger of making it even harder to protect banking customers and online consumers from fraud and cyber crime. If Australian banks aren’t engaged in ICANN policymaking, they could be in for some rude surprises.” “With 500 TLDs and numerous permutations of domain names, defensive registrations are like fighting a perpetual arms race against criminals targeting their customers,” he explained. Possible solutions include restricting new TLD operators from selling second level domains to anyone but the brand owner – meaning the owner of .bank could only sell commbank.bank or commonwealth.bank to the Commonwealth Bank. Moreover, the Commonwealth Bank could decline to buy the new domains and they would still be off limits to others. Despite the threat highlighted by NetChoice – and recent warnings about scams issued by CBA group executive retail banking service Ross McEwan – Bell said the ABA would not be participating in discussions at the forum nor would it be making any submission. “The ABA does not have a position on this issue, as a domain name is a commercial decision for an individual bank. This is not a decision which is made at an industry level,” Bell said. Asked what the ABA’s view was about expanding the number of TLDs, Bell said the industry body did not have a view on the matter. www.brokernews.com.au
Australian Broker reports on what readers are saying about the hottest industry topics via Brokernews’s online forums Trailing off… At a recent roundtable discussion with mortgage managers from across Australia, the consensus on the future of trail commissions was unanimous. “Trailers will be gone for sure,” said Ken Sayer, managing director of Mortgage House. His words were met with murmurs of agreement… http://www.brokernews.com.au/forum/trailing-off/34974 Mortgage manager opts for fee-for-service model In what may be an industry first, new mortgage manager, Vanilla Loans, has ditched the commission-based model in favour of a fee-forservice one. Rather than pay brokers directly, the lender will “support brokers to charge fees to clients and assist them to collect the fees”. http://www.brokernews.com.au/forum/mortgage-manager-opts-forfee-for-service-model/35431 Reader comments:
What’s the problem? – GeeL | 3/06/2009 7:46 PM I charge an upfront fee as well as commission. The client signs an upfront Engagement Authority with my commissions declared. As long as you give superior service, the client remains happy. As long as they know upfront what to expect and you offer a refund if their expectations are not met, and you deliver on your promises, they are happy to pay. Put value on your service and earn enough to do the job 100% properly. Charging a fee is easy – Old Timer | 3/06/2009 9:59 PM Charging a fee is easy. You just add the fee to the loan amount. You need to start getting your aggregators to lobby for a streamlined disbursement process. You know you going to charge a fee sooner or later, as the non-bank sector is dead. They were the pioneers that got you your commissions, your low-docs, etc. I have been doing broking for over 15 years and I reckon half of you aren’t going to make it. And the worm turns! – Geoff Brieger | 8/06/2009 1:58 PM Thanks for the hate mail and reasonable objections, but my heartfelt gratitude goes to the intelligent supporters of the true broker model - you are inspiring! Any person considering a career as a mortgage broker would have to be horrified when faced with the existing system whereby lenders dictate what you earn and write all the rules around you earning it. To gain the control you so desperately want, you’ll have to let go of the old system. If you are happy working under the existing model, good luck – but you’ll soon face a new breed of brokers who offer a far better value proposition to borrowers than you do. The only way out of the current lender model is to break volume hand-cuffs, kiss the rules of clawback goodbye, and start negotiating better deals for your clients – surely that’s what a true mortgage broker should do? Hey mortgage brokers – Vanilla really does like you!
Have your say Do you have a strong view that is not being heard? Brokernews is by far the most popular place for thought-provoking industry discussion with readers constantly exchanging ideas and opinions on the most pertinent topics. To start your own discussion or to comment on any industry developments, visit Brokernews and follow the instructions at the bottom of each story. Have your say – and be heard! www.brokernews.com.au/forum/
Building your personal brand Being a broker is really all about selling yourself – your personal brand – to your clients. Successful entrepreneur and author Lara Solomon provides some tips on how to make more out of your name
hen you think of certain companies, you automatically think of the person behind them. For example, Virgin is inseparable from Richard Branson. The reason for this is because that person has got out there and built not only their business brand but also their personal brand. Think about it… what do you promote? Whether you decide to build your personal brand all depends on how you feel about promoting yourself in relation to your business. Personally, I am a big advocate of it. Ever since day one, I have always promoted the brand ‘Lara’, and I enjoy it. But I know some business people who like to fly below the radar. There is nothing wrong with that, but you do not have to be loud to promote yourself.
Building your personal brand can result in some great benefits for both you and your business. These include: • Being seen as an expert in your industry, which translates into people seeing you (and in turn your business) as trustworthy and reliable. • It can promote your business as being far bigger than it is – people tend to automatically assume that if you are out there promoting yourself that you have got to have a big business by association. • You get offered opportunities such as speaking, which a great way to promote your business further. • You will get opportunities to meet other high-profile business people, which can help you grow your business and get new ideas. • The values that become associated with you are in turn associated with your business (so try not to get too drunk at those networking events!)
Where to begin
OK, so you have decided that it is a good idea and are happy to get out there and give it your all. Now, where do you start? • Do you have your name on your business cards? • Can you explain the benefits that you and your business offers? • Can you offer your product/service free to get people talking about how amazing you are? This might be for a networking event, charity, friends – or just to get people talking. Lara • Get involved with an organisation Solomon so that you look like an expert – eg, your local networking group. It gives you a chance to get to meet all of the members and be known for what you do. • Often by being associated with someone who is an expert can help build your profile, so catch up with them for a coffee, find out about them and see if they will introduce you to people. Whatever you decide to do, the main thing is that you enjoy doing it – if you are not, it will show.
30 Final word
PLAN Australia 1300 78 78 14 www.planaustralia.com.au email@example.com pages 5
Mortgage House Aggregation Services 1300 664 774 www.mhas.net.au firstname.lastname@example.org pages 16 & 17
Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 3
Preferred Brokers Network 1800 010 290 www.preferredbrokers.com.au email@example.com
Eurofinance 02 9252 8311 www.eurofinance.com.au page 15
Better Mortgage Management 1300 662 661 www.bettermm.com.au firstname.lastname@example.org page 32
www.residex.com.au The House Price Information People
Residex 1300 139 775 www.residex.com.au page 30
Mango Media 02 9555 7073 www.mangomedia.com.au page 1
Symmetry 1300 723 613 page 19
Liberty Financial 13 11 80 www.liberty.com.au page 7
Trailerhomes 0417 392 132 page 28
Oasis 1800 426 747 www.oasiscapital.com.au page 31
Valuation Exchange 1300 660 051 www.valex.com.au page 12
Provident Capital 1800 668 969 www.providentcapital.com.au email@example.com page 4
Short term lender
Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au page 23
Mortgage Manager /Non- Bank
Crown & Gleeson 1800 735 626 www.crownandgleeson.com.au page 2
Interim Finance 02 9971 6650 www.interimfinance.com.au page 6
Homeloans Ltd 1300 787 866 www.homeloans.com.au page 18
GBST 07 3331 5829 www.financialservices.gbst.com firstname.lastname@example.org page 8
NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 11
MKM Capital 1300 762 151 www.mkmcapital.com.au page 22
North Shore Mortgages (02) 8060 1825 www.northshoremortgages.com.au page 10
Challenger 1300 786 552 www.challenger.com.au page 9
Money Quest 1300 886 100 www.moneyquest.com.au page 21
Property Match Up 1800 463 462 www.propertymatchup.com.au page 25
Financial Services Online www.leads.financialservicesonline.com.au page 13
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