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ISSUE 7.03 February 2010
Non-banks show signs of life
Support from AOFM securitisation helps forge positive signs
Positive signs are emerging which indicate non-banks and mortgage managers could reclaim some of the territory lost to banks as a consequence of the GFC. Four of the more prominent players in the space have all announced positive developments recently, while the government’s support of securitisation via the AOFM initiative will also help with funding. Top of the list is securitisation pioneer Resimac, which launched its new retail lending business Hemisphere Financial Solutions
on 8 February, following a successful pilot. Frank Knez, associate director, product and marketing at Hemisphere, said the new business would be competitive on rates: “Until now, there has been a perception that non-bank lenders have not been able to offer competitive rates. Hemisphere plans to change that by offering some of the most competitive interest rates in Australia, giving customers a true independent alternative in home loan borrowing. “We will be relentless in our pursuit to please borrowers who are searching for a competitive home loan, and live up to our tagline, ‘We Try Harder To Please’…” he added.
Hemisphere has been in development for more than a year with the COO Allan Savins telling Mortgage Professional Australia about its plans last September. “It’s an exciting time for Resimac,” he said. “We have spent a lot of time and resources on re-engineering our business to deliver a viable offering to our customers.” Besides the launch of the new business, Resimac was also one of three non-banks who are due to receive AOFM investments in their RMBS issues. Resimac, along with FirstMac and Liberty Financial (as well as second-tier banks AMP Bank and Members Equity Bank) will receive up to $3.4bn in government investment. FirstMac managing director Kim Cannon was upbeat about the prospects of non-banks this year and beyond. On the back of launching its latest capped rate home loan, Cannon said that the sector was emerging from the disruption of the past year as a strong and viable alternative for clients to the major four banks. “We are picking up on a rising level of concern from borrowers about the potential for interest rate increases this year, and our FightBack II capped rate product should come into its own as the year progresses,” he said.
Page 26 cont.
Property market round-up LJ Hooker regional experts provide a round-up of what happened in major property markets countrywide, and emerging trends in 2010 Page 18
Subdued return to growth The year is now well underway and while initial signs are positive, doubts and jitters remain. Here’s our Australian forecast Page 24
One year on What a difference 12 months can make… or maybe not. AB reflects on the stories that made industry headlines one year ago Page 22
Vow Financial looks at mergers
After months of speculation, the new aggregation group backed by Macquarie Bank Limited has finally made its debut. While the current consortium is made up of The Brokerage, National Brokers Group and The Mortgage Professionals, chief executive officer Jeff Zulman has confirmed more merger activity could be on the horizon. “Discussions are still ongoing. The group that has come together is the same group from the time that I started. But there have been those that had an interest but didn’t want to be the first movers… Now we need to bear down and integrate, but our discussions are ongoing with some of those other groups and we’ll see where they take us,” he said. Brokernews broke the story last year in March about the
formation of the MacBankbacked aggregator. Initial reports indicated six aggregators were looking at joining the organisation – three from Sydney and one from South Australia, Western Australia and Queensland respectively. Vow Financial currently represents more than 900 brokers nationally and has a combined $16bn of loans under management, making it one of Australia’s big five in the mortgage game. According to Zulman, size does matter. “People like to say size doesn’t matter, but it gives you scale.” For example, fixed costs such as the creation of bespoken IT systems or compliance departments are cheaper when borne by a larger number of brokers, Zulman said. However, he added that Vow Financial was looking to add quality brokers, not just quantity. Zulman also said that once the merger has been finalised, Vow would be looking at diversification. “Initially, we are looking to increase value through internal growth and acquisition of other mortgage loan aggregators. Longer term, our ambition is to diversify the business into the broader financial services sector and offer non-mortgage products.” Macquarie Bank holds a minority interest of less than 20% in
the group, while Zulman and non-executive chairman Dr Peter Neustadt hold the rest of the shares. According to Zulman, Macquarie’s involvement has been crucial to setting up the new aggregator, but its control over the organisation will be limited. “I think having somebody neutral helped everyone to park their egos at the door. “Now that’s over they’ve stepped into the background. They have a minority stake, they have one director on the board, and they have no pre-emptive or special rights.” Macquarie has recently made a foray back into the broker market. In late December, it quietly released a new bundled mortgage product through AFG and Vow Financial brokers. A spokesperson for the bank said that it is still testing the waters and is not ready to release the product to the wider broker market just yet.
Key points Discussions ongoing with other groups CEO says size does matter Looking to add quality brokers, not quantity Long-term plan to diversify into other financial services areas
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Macquarie makes tentative return to lending Key points Bank trialling new product through select brokers Only offered through AFG and new Vow group Monitoring the market for fresh opportunities In what could signal a return to full-scale lending through the broker channel, Macquarie Bank has revealed it is trialling a new
product through select broker relationships. The lender quietly introduced the bundled Macquarie Bank Mortgage Solutions product to the market in December last year. Currently it is only available through Macquarie-backed broker groups – AFG and the recentlylaunched consortium Vow Financial. The new group is comprised of The Mortgage Professionals, Nationals Brokers Group and
The Brokerage, and it is headed by chief executive officer Jeff Zulman. Macquarie has a 20% stake in the brokerage. A spokesperson for the bank said Macquarie has been monitoring the market for some time and looking for opportunities. “We are in the very early stages of that trial and as such we don’t have any update on when an offering may be available to the market more widely, but we’ll make sure to
Funding and interest rate concerns haunt SMEs Rising interest rates and the high cost of funding topped the list of concerns of small businesses in 2010, according to a new survey. A poll conducted by the Council of Small Business of Australia (COSBOA) and Telstra Business revealed that 81% of respondents feared rising interest rates, while 75% expressed concern over the cost of finance. Possible changes to taxation were also cited by 74% as another worry. “The cost and availability of credit and finance has been a top issue for COSBOA and small businesses in recent times – it is patently clear that more has to be done to support small businesses in this area,” said the council’s chief executive Jaye Radisich. “Small businesses need to be able to access affordable lines of credit to ensure that they can properly manage their businesses, maintain and upgrade their plant and equipment, and provide a productive, safe workplace for
their employees.” Professional Finance Mortgage Brokers’ John Minihan has been a business and consumer broker for eight years. Prior to that he spent 20 years at Westpac, 10 of which were in business banking. He says the current conditions are the toughest it’s been for his business clients in a long time. “Absolutely – the availability of credit is probably one of businesses’ largest concerns at the moment and I don’t see that changing in the short term.” NAB’s recent decision to abolish overdrawn fees for its business clients is good news for clients, but it really doesn’t address the needs of business, he says. “It is a positive, but it is really just skirting around the edges. The level of fees and the type of fees they’re cutting back on are fairly insignificant. The biggest hassles businesses are facing is access to finance at a reasonable rate. The banks have really tightened up over the last 12 months. They are telling
us that they’re starting to come around to loosen up a little bit, but we’re not seeing any evidence of that at this stage. Certainly the unavailability of unsecured lending is extremely tough – not non-existent, but extremely tough.” There are other signs that banks may be considering the plight of their business customers. In December last year, Westpac chairman Ted Evans defended the lender’s decision to raise rates .45% above the RBA movement by declaring that his bank will no longer use higher-priced business loans to subsidise mortgages. Speaking at the bank’s annual meeting in Melbourne, Evans said it was not fair for other borrowers such as small business owners to have to shoulder higher rate increases so mortgages could be subsidised. But Avanti Commercial’s managing director Peter White said that kind of acknowledgement would not wash well with
keep you posted on any progress,” she said. It is not Macquarie’s first foray into the mortgage market. The bank scaled back its Australian residential mortgage business in March 2008 due to high funding costs and “deteriorating conditions” in the wholesale securitisation markets. At the time, Macquarie’s portfolio accounted for 2.5% of the total outstanding housing loans in the country.
small business customers. “I think the banks have really disgraced themselves in front of small businesses over the last two years,” he said. “Banks should come back on their hands and knees and apologise to small businesses for what they’ve done to them – not just on interest rates but the general lending practice.” White added that poor treatment at the hands of banks have led many of his customers to look at alternatives and switch to other lenders. “We’re advocating small businesses take a long hard look at what their options are – don’t be led around assumingthat what the bank tells you is the ‘be all and end all’. The non-banking sector has significant opportunities that will suit small businesses,” said White. Despite the funding concerns of small business, the survey found almost 90% believe their own business will grow or remain steady in 2010. Two in five small businesses (42%) think the condition of the Australian economy is better now than it was six months ago, while one in five (22%) consider it to be worse.
Read the latest issue of Australian Broker online www.brokernews.com.au
NAB won’t take Aussie bait
NAB has declined to respond to suggestions by Aussie chairman John Symond that some of the brokers under its Advantedge umbrella might be growing restless. Symond told the Herald Sun that a number of Advantedge brokers had approached Aussie Home Loans about a possible move across. Symond further stoked the flames by describing NAB’s purchase of the Challenger business as “high-risk” because those brokers are free to move to rival platforms. “Those brokers are now waiting around to see what NAB is going to offer them. It’s a very high-risk strategy and we’ve had approaches
from some of those brokers,” he said. Symond believes many of these brokers will move across to other platforms offering bigger commissions and better service. According to the paper, NAB was currently consulting with the 5,000 Advantedge brokers on new terms under which they will operate. A spokesperson for NAB partnerships, under which the Advantedge group falls, said it had no comment to make on the comments made by Symond. At the time of going to press, Advantedge executives were involved in off-site strategic discussions. The article, which ran online and in print, began with a
‘Independence’ the key says Sale Having helped Count Financial establish a footprint in the aggregation space, Tanya Sale, former general manager of finconnect, has launched her own aggregation group, Outsource Financial. In an interview with AB, Sale stressed that the new business was an “independent national aggregation group”. “… independent being the operative word. Outsource is not owned by a bank or dealer group and we believe this is going to be very important to the success of our group,” she said.
Given that finconnect was tied to a dealer group (Count), these comments as well as Sale enticing two of finconnect’s top performers (Carmel Cappelleri and Andrea Tassis) across, suggest some antagonism towards her former employer. However, Sale told Australian Broker that she had parted ways with Count on good terms. Revealing the impetus behind setting up the new business, Sale said: “We believe that the writers are getting frustrated with their aggregator and we intend to differentiate Outsource
A popular leader
Tanya Sale and the ex-Lawfund crew upon setting up finconnect in 2006
Readers may recall that when Tanya Sale quit Lawfund to set up finconnect under the Count umbrella three years ago, she brought across a number of her team, resulting in the above photograph. Speaking to AB in October 2006 she said of the four team members joining her at Count that the opportunity “was too good to pass up”. Three years down the line, the opportunity to follow Sale to Outsource Financial was too good to pass up for finconnect’s Carmel Cappelleri and Andrea Tassis, who both jumped ship.
warning for NAB that Symond was set to “poach small brokers tied to its new mortgage servicing platform”. However, a spokesperson for Aussie told Australian Broker that Aussie did not “poach” brokers. Aussie’s and other aggregators’ success in luring brokers across will depend heavily on whether these brokers can transfer their trail commissions across as well. Rivalry between NAB and Aussie predates this latest barb by Symond. At the end of 2008, Aussie and the CBA teamed up to steal Wizard from under the nose of NAB – just days after NAB announced it was in discussions with GE Money to buy the
by going back to the basics and ensuring our writers and members are more than just a name.” Cappelleri and Tassis have signed on as directors and shareholders of the new entity. Sale said both are “very experienced and respected within the industry and have a strong following within the professional services arena.” The new business will have a similar model to finconnect but will target brokers rather than other professionals such as lawyers and accountants. “We have thrown in a bit of the Lawfund and finconnect models and mixed it all around,” she said. “A large core of our business will still be to offer lending and leasing solutions to financial planners, accountants, lawyers and large professional services groups.” By being independent, Sale said Outsource could attract a broader range of members – as there is no conflict of interest. She said discussions with a number of accountants, lawyers and finance consultants recently revealed they would feel more comfortable and confident joining an independent aggregator. “So we know we are on the right track.” Outsource Financial is looking for around 100 to 150 “good quality writers”. Besides Cappelleri and Tassis, Outsource has also signed up Debra Benn, as regional manager. Benn was formerly the regional manager for Resimac.
franchise business. NAB was able to finally tap into the third party distribution space when it bought Challenger Mortgage Management last year, re-branding it as Advantedge.
FightBack continues for FirstMac Things continue to look up for non-bank lender FirstMac as 2010 kicks into gear. Managing director Kim Cannon struck an upbeat tone at the start of February after securing more funding from the government and launching two new ‘Fightback’ products. FirstMac was one of five lenders selected to receive Federal Government investment via the AOFM’s RMBS scheme. Cannon said it was important the government continued to support the non-bank finance industry “in the interests of all Australians seeking loans in a competitive environment”. Besides the AOFM investment, FirstMac has also recorded “steady demand through the 2008/09 financial year and a consistent increase in loans over the past six months.” As a result, the lender released two FightBack II products – a capped interest rate loan and a professional pack loan. Aggregator Ballast Finance praised the new products, saying its relationship with FirstMac allowed it to provide customers access to some of the best mortgage rates available nationally. “We are committed to ensuring that our broker representatives and retail clients have access to the very best selection of mortgage products available,” said Ballast’s GM Frank Paratore.
Read the latest issue of Australian Broker online www.brokernews.com.au ASIC has suffered a spate of embarrassing courtroom losses of late, but the soon to be credit regulator, appears to be equally out of touch when it comes to the licensing of mortgage brokers. Just before Christmas, ASIC saw its case against mining magnate Andrew Forrest and his Fortescue Metals Group rejected
Warning: banks closing gap on service While brokers continue to rate higher on customer service than the major banks, they have been warned not to be complacent, particularly as banks look to sway customers with new advertising campaigns. The warning was issued by MFAA chief executive officer Phil Naylor on the back of the latest Bankwest/MFAA Home Finance Index, which found that satisfaction with mortgage brokers is now at 7.4 out of 10, with banks rating 7.1.
Taglines: how banks are positioning themselves to customers: NAB: “More give, less take” St.George: “Big enough. Small enough” CBA: “Determined to be different” ANZ: “We live in your world”
Naylor said strong competition between banks and mortgage brokers continues, with banks narrowing the gap when it comes to customer satisfaction. “Banks have adopted some of the strategies of mortgage brokers, and have placed a greater emphasis on personalised service and customer relationships,” he said. He said the trend of banks adopting broker-style customer service sent a message to the broking industry that complacency is not an option. New advertising campaigns by the major banks place the emphasis on providing personalised service, acting like a small bank and giving back more to customers. Most prominent of these has been the $10m St.George advertising campaign, ‘Big enough. Small enough’, aimed at distancing the bank from the
Customer service rankings (out of 10) 8.9 - Building societies 7.8 – Credit unions 7.4 – Mortgage brokers 7.1 – banks Source: MFAA/Bankwest Home Finance Index
resentment felt by customers to the Big Four banks. In December last year, Westpac launched a campaign around the fact that it was bringing back over 600 bank managers – in an effort to communicate the fact that it is focused on customer service. Gerald Foley, managing director of National Mortgage Brokers (nMB) said he believed banks still have a long way to go in terms of winning over customers. He told Australian Broker that the major banks, in
particular, had brokers to thank for in helping customers forget how much they actually disliked them. “The market is such a small space and is controlled by the Big Four, so customers are constantly reminded of things they did not like about them … there is a lot of cynicism out there,” Foley said. He agreed, however with Naylor that brokers should not take their superior service proposition over banks for granted. “Brokers can never be complacent… but I don’t see banks lifting their service game as necessarily a bad thing for brokers if it results in things like loans being processed in less than 48 hours, etc,” he said. However, he said the issue was that banks don’t treat brokers as their customers. “They should… they seem to totally disregard the broker as part of their service proposition even though they bring customers to them,” he said. Foley predicted that banks would find it very hard to win over customers.
For all the latest mortgage industry news, visit www.brokernews.com.au
Wholesale funding Smartline broadens guarantee to go
The Rudd government guarantee scheme for large deposits and wholesale funding will come to an end on 31 March. ADIs will be able to access the scheme up until 24 March. The withdrawal does not affect the Financial Claims Scheme which guarantees deposits of up to $1m until the cap is reviewed in October 2011. The announcement was made by Federal Treasurer Wayne Swan on 8 February who said the ending of the guarantee would not materially affect banking sector costs. Swan said that the guarantee was no longer needed and that “no Australian institution will need the guarantee to fund themselves”. He added that the withdrawal of the guarantee should not provide any justification for banks to raise rates above RBA movements. The guarantee was first put in place in early October 2008 to support banks and keep credit flowing during the height of the GFC. While there was no Australian bank that failed, the guarantee was blamed for creating a two-tier lending landscape, dominated by the four major banks, due to it being cheaper for them to access government-guaranteed
funding. Under the scheme, banks with credit ratings of ‘AAA’ to ‘AA’ paid a fee equal to 70bps to access the funding (the major banks), those with a ‘A+’ to ‘A-’ paid a fee equal to 100bps while those rated ‘BBB+ and below’ and ‘Unrated’ paid a fee equal to 150 basis points. Swan said the guarantee had been “critical in helping to support competition in the banking sector throughout the global financial crisis which hit smaller lenders particularly hard” – a claim many would dispute. Bank of Queensland CEO David Liddy said the complete withdrawal of the scheme would make it even harder for smaller banks to compete with the majors. Liddy called for a staged withdrawal of the guarantee, otherwise smaller banks would be penalised. He also disagreed with Swan on its benefits for smaller lenders, saying it had put Bank of Queensland in an uncompetitive position throughout the period it had operated. “I think it was unintended initially but the point I want to make is that we are an alternative to the major banks,” he said. “We have continued to lend throughout this period but at the end of the day, we’ve come back on our share.” Other nations have already withdrawn their guarantees.
Key points Implemented: 12 October 2008 Ending: 31 March 2010 Amount raised by non-major banks using guarantee: $32bn Amount raised by major banks using guarantee: $100bn+
Leasing continues to grow as a diversification option for brokers, after franchise group Smartline gave its 200 franchise owners access to an in-house finance leasing offering. Smartline’s national operations manager, Jayson Billings, said the introduction of the new service would strengthen and reinforce its ‘smart advice’ offering to clients and allow brokers to provide a seamless service. “It means they can confidently offer their clients this full service, as well as building a potentially significant additional revenue stream for their business,” he said. Billings said the new service was one aspect of a long-term strategy currently being rolled out to provide franchise owners with access to a broader range of income streams. Wendy Higgins, Australia’s top broker according to the 2009 MPA Top 100, said recently that in the coming year she aimed to diversify her income streams through offering insurance and leasing finance to all clients. In addition, a member survey by Choice Aggregation Services, found that 81.5% of respondents believed it appropriate to offer clients additional products. Choice CEO Brendan O’Donnell, said it was essential for brokers to diversify their product offering in order to ensure ongoing business growth and their client servicing proposition. And following the launch of new aggregator Outsource Financial, CEO Tanya Sale said it would “certainly” be signing on with provider Vequip for all its asset finance and leasing needs.
Broker gets jail time Samuel David Saunders, a former mortgage broker and property developer from Orange, NSW, has begun serving a jail sentence after pleading guilty on 25 August 2009 to seven charges brought by ASIC. Saunders was sentenced on 5 February in the NSW District Court to two years and three months imprisonment with a non-parole period of 12 months. All seven charges related to fundraising activities while Saunders was a director of Mortgage Finance Australia Pty Ltd. Between July and September 2004 Saunders raised approximately $460,000 from 13 investors for the purposes of investing in property developments – he had met many of these investors through his local church. Saunders pleaded guilty to making misleading and/or false statements to six investors about the risks associated with investing in a particular property development; and raising funds from seven investors for the purposes of a property development by Rafferty’s Group Pty Ltd (another company he was director of) and fraudulently omitting to pay the investors’ capital to this company. Saunders also assisted a number of investors to refinance their mortgages, redraw the equity on their property, and use the equity to fund the investments he promoted. Mortgage Finance Australia Pty Ltd was deregistered on 6 December 2009. The matter was prosecuted by the Commonwealth Director of Public Prosecutions. In May last year Saunders pleaded not guilty to the charges. Saunders was also the director of Australian Synergies Group Pty Ltd and Orion Pacific Developments Pty Ltd.
RMBS boosted by outlook, activity and investors The recovering Australian securitisation market has been boosted by both a positive ratings outlook by Moody’s, recent investments by the government and investor interest. In its structured finance 2009 review and 2010 outlook, Moody’s said it expected rating on both prime and non-conforming RMBS to remain stable over the next 12–18 months. The rating agency noted a number of factors contributing to the stability of prime RMBS ratings, including that the majority of the senior notes benefited from “increased credit enhancement” and that the potential rating migration of senior and mezzanine notes due to any rating downgrades of mortgage insurers was minimal. Moody’s analysis showed this to be particularly the case where mortgage insurers’ ratings remain at A3 or better. A third stabilising factor was the fact that ratings of junior
notes are directly linked to those of mortgage insurers and are expected to be stable as ratings of mortgage insurers are expected to remain stable. In the case of non-conforming RMBS, it said ratings would be stable in the next 12 months due to three factors including the fact that non-conforming lenders had maintained “high levels of excess available income through the financial crisis”. “The excess spread is expected to be stable and will serve as the first line of protection against any
Key points RMBS ratings outlook stable for next 12–18 months Stable outlook for mortgage insurer ratings a factor in RMBS stability AMP RMBS double expected size Deutsche Bank notes significant move towards primary RMBS
potential credit losses,” Moody’s said. Besides this positive outlook on ratings, securitisers were boosted by the AOFM’s decision to invest $3.4bn in five different lenders (see front page story for details) and recent successful RMBS transactions by AMP and Westpac. The AMP issue, the first Australian RMBS of 2010, received strong investor interest, pricing at $1bn – almost twice the expected $543.5m. Even more significant for the securitisation market is that it did so without the government acting as a cornerstone investor in Class A Notes. The AOFM co-participated with private investment in Class AB Notes, purchasing $36m of this class. The AMP RMBS involved 18 investors with 40% of notes sold to European investors.
“The Progress transaction result was very pleasing…and was achieved without the need for significant government support,” said AMP treasurer, Guy Morgan. Deutsche Bank’s head of new issue John Claudianos said: “We’re seeing a significant move towards normality in RMBS primary issuance with more investors and confidence building with every transaction that comes to market. The Progress transaction is a significant step in the development of the RMBS market for 2010.” AMP’s RMBS success inspired the Bank of Queensland to put forth a $500m RMBS issue. The regional bank was expected to price the securities at a margin of about 130 bps above the bank bill swap rate – on par with AMP’s recent issue.
For all the latest mortgage industry news, visit www.brokernews.com.au
Cross-selling opportunities in getting personal A new report into the state of personal lending in Australia suggests personal loans are a key cross-selling opportunity for brokers. It’s been a successful strategy for banks for a decade. According to Datamonitor’s Personal Lending in Australia, banks have steadily increased their market share of fixed-loan finance commitments over the last 10 years at the expense of credit unions and building societies (CUBS). Banks achieved this dominance despite CUBS having “superior customer satisfaction ratings, and in many cases despite having the most attractive offerings”. In January 2000, banks accounted for 52.9% of new fixed loans, a figure which had increased to 82.5% by September 2009.
They have done so by crossselling personal loans to customers already on their books, according to Datamonitor. “The major banks have successfully used a strategy of cross-selling personal loans to their existing customers,” said Petter Ingemarsson, senior analyst at Datamonitor and author of the report. According to a recent Datamonitor consumer survey, 39% of personal loan holders chose their current loan provider at least partly based on already holding a transaction account with that provider. Cross-selling strategies aside, the inf lux of business to major banks was also helped by the economic crisis, which saw consumers f locked to the perceived safety of domestic banks. Overall, the Australian
personal loan market has remained remarkably resilient against the effects of the GFC, according to Datamonitor. While new lending has held firm, loan defaults have also not reached earlier anticipated levels. In September 2009 personal finance commitments were $6.9bn – up from $6.3bn a year earlier. “However, the economic crisis has caused a shift in the type of personal loans taken and in the rate of repayments,” said Ingemarsson. Vehicle loans continued to
decline in 2009, constituting only 22% of fixed loans in September 2009, while loans for refinancing have grown in importance on the back of declining interest rates. Consumer concerns about general economic conditions, and in particular the outlook for the employment markets, have contributed to an increased rate of repayments of personal loans. This led to outstanding personal credit falling from $155bn in mid-2008 to $137bn mid-2009.
Personal loans: cash cows for banks Banks have been milking their personal loan customers during the GFC, if recent interest rate decisions are anything to go by. According to the Datamonitor report into the sector, recent drops in the cash rate have not resulted in equivalent drops in banks’ average personal loans rate. Between August 2008 and April 2009 the RBA cash rate was reduced by 425 basis points. Over the same timeframe, average bank mortgage rates were reduced by 380 basis points, while the average standard credit card rate fell by 210 basis points. However, the average personal loan rate only reduced by 140 basis points. According to Datamonitor, it is much less politically sensitive for financial institutions to increase margins on personal loans than for other products such as mortgages. Personal loans are seen as more discretionary products, and are generally of lower value and have a shorter timeframe than mortgages. “As a result, consumer advocacy groups, the media and government agencies are much less likely to criticize banks’ policies when it comes to personal loans”, said report author Petter Ingemarsson.
Upgraders: the next driving force? A recent LJ Hooker/BIS Shrapnel Residential Property Index report has declared that upgraders will take over from first homebuyers as the key drivers of the residential property market in 2010. The Index identified upgraders (that is, purchasers of a home more than the first time and not for investment purposes) and, to a lesser extent, investors, as the upcoming market forces that will compensate for the decline in first homebuyer demand in the short term. This follows the First Home Owner Grant (FHOG) Boost Scheme ending on 31 December last year. According to Colin Judd, GM, operations at LJ Hooker, upgrader activity was evident in 2009 due to many home owners selling into the buoyant first homebuyer market. “Interest rates are still significantly low by historical standards,” he said. “Given this fact, the recovery in the economy, post-GFC and the unlikely crash in employment, the market analysts expect upgraders
will purchase confidently.” Steve Smith, from Mortgage Solutions Australia in Perth, said that upgraders are typically middle to high income earners ($75,000–$100,000), in their 40s and have teenage children. “They’re generally seeking better facilities for the family unit, particularly for schooling.” Smith has found that real estate agents in Perth have seen a definite drop in first homebuyers, which has created a hole in the market for upgraders to move into. According to the Index report, upgraders in Perth now account for 49.1% of house sales. On the other hand, brokers in the Sydney residential property market (which, according to the report, consists of 31.5% upgrader activity) has not seen a noticeable increase in upgrade purchases. “We thought there would be a lot of upgrades,” said Peter Ellis, senior loan consultant of Oxygen Home Loans in Edgecliff. According to Ellis, however, first homeowners are still driving
the Sydney market, despite the end of the boost scheme. “I think it’s going to be the same type of market we’ve been working in for the last 12 months.” Smith said that the situation was very different in Perth and predicted that the banks’ strict credit policies would not allow first homebuyers to “re-enter the market in droves”. Rather, he considers that the next 24 months
will see upgraders buying more and more. “I don’t think they will take over,” Smith said. “But upgraders are definitely a force to be contended with and acknowledged.” According to Judd, upgraders are generally attracted to higher priced homes than the first homebuyer sector. Smith said sales of properties in Perth ranging from $500,000–$750,000 have increased substantially.
industry NEWS IN BRIEF Asset finance offering launched for brokers
Brokers will be able to offer their clients asset finance solutions without having to meet individual volume targets to keep their accreditation. This follows the launch of Vequip, which has promised brokers “total control over their client base”. In a media release, director Graeme Porter (previously with finconnect) stressed that Vequip, was not owned or operated by a bank. Brokers will be able to write the loans themselves or if they are unable to, refer the deals on as accredited asset finance referrers.
Wilson National: Brokers surging to mortgage managers
Mortgage manager Wilson National has noticed three trends which indicate brokers are moving away from banks in favour of mortgage managers. “Firstly, there has been a significant increase in the number of Wilson National home loans processed in comparison to bank loans amongst our group; secondly, there has been an overwhelming response to the Wilson National Local Area Manager (LAM) program, and finally, there has been a sharp rise in the number of inquiries from brokers looking to white-label their own product,” the company said in a statement.
Brokers included in LJ Hooker campaign
LJ Hooker Financial Services loan consultants will be able to tap into a new campaign by the real estate group aimed at providing home owners with free market appraisals of their property. A spokesperson for LJ Hooker said brokers would be able to refer customers to its residential teams for the free appraisal as part of its new ‘Home Sweet Home’ service. It gives homeowners access to an obligationfree market appraisal; a detailed written report on price movements, sales prices and days on the market in their local area; and ongoing reports on market changes and predictions as well as property value updates.
Senate investigates SME funding woes
The Coalition has initiated a Senate inquiry into the barriers to credit faced by small businesses. The main questions to be addressed are costs, terms and availability of finance, as well as whether steps could be taken to increase credit to the sector. The inquiry follows a report by the Council of Small Business of Australia (COSBOA) which found 75% of respondents were concerned about the cost of finance. COSBOA chief executive Jaye Radisich said the results of the survey were consistent with member feedback over the past few months. “It is patently clear that more has to be done to support small businesses in this area,” he said.
A mobile manager, believed to have NZ mobile manager flees fled to Australia, is being investigated over an alleged multi-million dollar to Qld
fraud involving ANZ National Bank. According to the New Zealand Herald, Zamir Hussain, 31 (also known as Zamir Zan) from Papatoetoe sold his house and is now believed to be living in Queensland. Hussain operated ZH Financial Services Limited.
News movers & shakers Name: Jamie McPhee From: Bendigo and Adelaide Bank To: Members Equity Bank Title: Chief executive McPhee, former head of banking and wealth at Bendigo and Adelaide Bank took over the reins as the new chief executive of Members Equity Bank on 8 February. McPhee is a 20-year plus veteran, and the merger between Bendigo and Adelaide Bank saw him take up senior posts since August 2007, including chief executive, banking and wealth.
Name: Sarah Soumilas From: Lifebroker To: Lifebroker Title: BDM, South Australia Soumilas has a background in Life Insurance advice and sales in the insurance broking industry and will manage the new Lifebroker mortgage broker Channel in SA, focusing on growing the Lifebroker presence and brand in SA. Soumilas came from within Lifebroker, previously a senior advisor for two years.
Name: Max Billi From: Heritage Building Society To: Mortgage Choice Title: Vic/Tas state manager Billi previously worked at the franchise from 2000 to 2003 in business development and sales and marketing roles before becoming Vic/SA state manager. His new role will see him accountable for state franchise network outcomes in relation to recruitment and overall business growth
Name: Ann Little From: Australian Life Insurance To: Lifebroker Title: BDM, Western Australia Little joined the Lifebroker team in early 2010. Coming from Australian Life Insurance, she previously helped to build the ALI distribution channel in WA across a span of three years. She carries with her an expert knowledge of the WA marketplace and will bring this to her new leadership role at Lifebroker.
Name: Di Robinson From: ING Life To: Lifebroker Title: BDM, Queensland & Northern Territory Robinson was a BDM recently at ING DIRECT having previously held third party BDM positions at Westpac, Adelaide Bank and Pepper Home Loans. She has over 20 years’ experience in the sector and was a finalist in the AMA Awards 2008, Best Bank BDM Category.
Name: Tracey Najjar From: 12 month sabbatical To: Lifebroker Title: Business Development Manager, NSW Najjar brings with her over 20 years of experience in management roles through to business development across a number of industry leaders including CBA. She has insurance experience gained while helping build the ALI NSW broker distribution channel in the early 2000s.
Long-term relationships a must for brokers Three ways to develop closer relationships with customers: • Ensure that your service for the initial deal is first class as this will go a long way to determining whether the customer wants the ongoing relationship. • Develop systems and processes to stay in touch with your client and look for opportunities to provide them information on the market. • Look to expand your service via products such as insurance and leasing so that you have an opportunity to speak to the customer outside of mortgagerelated opportunities. Source: Dean Rushton, Loan Market Group COO
Brokers need to develop clients for life – or risk losing them to the banks. This was one of the key findings to emerge out of the latest MFAA/Bankwest Home Finance Index, which canvassed the opinion of 850 people. The results of the survey revealed that borrowers use brokers for short-term help in getting finance – but prefer to go to a bank for ongoing assistance. According to the report, when consumers encountered the need for further assistance, the lender was the most common contact for problem resolution (42.5%), followed by the call centre of the loan provider (20.5%) and then the broker (16.4%). “While consumers are happy to use a broker to source a loan, if there is a problem with their loan they tend to go straight to the bank. This represents a significant market opportunity for brokers,” said Phil Naylor, CEO of the MFAA. Mark Reid, head of retail sales, who admitted that banks were looking to emulate the broker service proposition, said in the current competitive environment there was an opportunity for “brokers to re-engage their customer base and manage the overall customer experience”. Dean Rushton, COO at the Loan
Market Group said most successful brokers have developed a business that has systems and processes in place to stay relevant to the customer beyond the initial mortgage transaction and also to be top of mind if the customer has a friend or relative looking for finance. The aggregator has implemented a number of initiatives to help brokers make clients for life including relaunching its CRM solution this year to enable “our team to automate the ongoing contact process. In addition we’re expanding our service and product base to offer additional opportunities around insurance, deposit accounts, personal finance and commercial,” Rushton said. Clients and potential clients are also offered the opportunity to subscribe to the Loan Market eNewsletter. In addition, clients that have settled loans in the preceding month receive an e-mail/online survey relating to their experience. “The collated responses are distributed to all brokers via the dedicated broker intranet. Individual broker feedback is channelled back to the relevant state management team for follow up,” Rushton said.
Why people prefer brokers: • They do all the leg work for you • They are the experts in a range of mortgages from numerous lenders • They have a wider loan range Source: MFAA/Bankwest Home Finance Index (January 2010)
nMB highlights aggravation with ‘quotas’
It may be a bright new year, but some of the old issues remain. In its January Intell newsletter, National Mortgage Brokers’ director of operations, Kon Avramidis, said the recent
hot topic of discussion was “lender accreditation policies”. Avramidis said brokers were “throwing their hands in the air” at the confusion created by having to keep tabs on which lender they need to submit “x” number of loans to retain their accreditation (policies of CBA, Bankwest and Westpac), as well as deal with “a ranking system which restricts the type of loan, and even the level of service a broker can expect from a processing perspective” (NAB Broker star rating system). To help its brokers, he said nMB would be releasing a table to simplify the various lenders’ requirements. “nMB brokers work diligently to identify the subtle differences amongst hundreds of loan
Bouris aiming for 40 stores by year-end Mark Bouris aims to have 40 Yellow Brick Road (YBR) stores operating across Australia by the end of the year. 2010 growth plans for the holistic advice business were revealed as part of a press release calling for tenders for an investment platform. According to the release, YBR currently has 14 branches in Sydney, Melbourne, Brisbane and the Gold Coast. In an interview with BRW last year, Bouris said the five-year plan was to have 150 stores operating in five years. The search for an investment platform was issued in conjunction with Ray Miles from Fortnum Financial Advisers. The platform will allow YBR advisors to manage all their clients’ assets and liabilities and make it easier to provide quality financial advice. “We believe by working together in our search for an investment platform provider, we can attract a competitive bid and provide the best option for our clients. Overall, I think that Australian investors deserve a better deal, namely quality advice on a fee-for-service basis” said Bouris.
He said discussions with the Fortnum team revealed both companies were searching for a very similar solution. “Yellow Brick Road is rolling out its branch network and we want to be in a position to offer our clients the best investment platform. I see this alliance with Ray and his team as a way to build scale and volume quickly. I’m really excited by it,” he said. Bouris returned to home lending in mid-December last year following the successful negotiation of a funding agreement with Gateway Credit Union. Bouris and Miles called on investment platform providers to submit bids by mid-February 2010, with presentations due on 18 February.
products before making a final recommendation that best suits each individual client. “Understandably, brokers have expressed their concerns with lender-based sales quotas, as they clearly contradict the professional and impartial service we stand for,” Avramidis said. “Our message is simple, ‘never compromise the integrity of your service’,” he added. Praise was reserved for those lenders who have not adopted sales quota-based accreditation policies. “Fortunately, not all lenders have adopted these policies, and it remains to be seen how this landscape evolves over time. From our perspective, which also happens to be the popular view, we would like to see the end of individual volume based accreditations,” he said. Among suggested alternatives put forward to sales-quota based accreditation policies has been the idea of brokers attending regular courses to ensure they are up to date with lender policies.
Heritage cuts ties, but still committed Despite cutting ties with many of its aggregators, Australia’s largest building society Heritage says it remains committed to the broker channel and to its broker relationship model. The company flew under the radar with its decision to “streamline” its broker partner relationships in January and did not disclose which aggregators had got the chop. Among those to fall away was National Mortgage Brokers (nMB), which revealed the news in its monthly newsletter to brokers. Managing director Gerald Foley said the biggest surprise of the year so far was Heritage “withdrawing its arrangements with all but a handful of aggregators” ‘Now whilst Heritage wasn’t a huge player on our lender panel, the brokers that did use them were very loyal and now feel somewhat let down by this course of action,” Foley wrote. Speaking to AB, he confirmed that Heritage had informed him of their decision on 21 January. “They told us they were out of the market due to difficulties with funding and products. They
Banks that have sales quotas claim they are in place to maintain loan submission quality. The idea has been supported by the likes of Connective and is also part of the thinking at nMB. Avramidis said it always encouraged brokers to attend its sales meetings “where there is a focus on lenders and their products; and agree with the concept of refresher courses”. “This places the focus on quality which is a fair approach, however even this domain requires a common sense approach which takes into account the quality performance of both parties,” he added.
Key points Frustration at confusion in accreditation requirements nMB to release table to help simplify things for brokers Opposed to sales quota-based policies Support the concept of refresher courses
said they only want to deal with a small number of aggregators,” Foley said. He added that the building society had told him it would make a come back should things improve. “It won’t be an easy decision to come back,” Foley said, describing the move as “strange strategic direction” and one that was “poorly handled”. Paul Francis, Heritage general manager for retail services, said the decision to streamline relationships was taken to enable it to “meet a number of challenges that are primarily aimed at meeting a balance of loan originations between direct and third party channels and maintaining good relationships with the society’s broker partners”. “We are committed to maintaining our relationships with our key broker partners,” Francis said.
Key points Heritage to work with only a few key aggregators National Mortgage Brokers among those to get the chop Gerald Foley says news will disappoint brokers loyal to the lender Paul Francis says Heritage still committed to the broker channel
Relief at Feb rate pause The decision by the RBA to leave interest rates on hold for the month of February was greeted with relief by most brokers as aggregator sales figures indicated a substantial contraction in the first month of 2010. AFG, which represents 10% of the mortgage market, reported a “dramatic slump” in mortgage sales in January, while the Loan Market Group witnessed a “significant drop in lending volumes”. January approvals were the lowest on record in any one month since 2006 and
Sales slump • AFG sales in January down 47% on Sept ‘09 • January figure ($1.5bn) worst in five years • Loan Market figures down 40% in January on ’09 peak • Both applaud rate hold in February
40% down from the peak in 2009. AFG’s 2,100 brokers arranged just $1.5bn worth of mortgages in January – 47% less than the $2.9bn it arranged in September last year and an 18.7% fall on its December sales. The $1.5bn figure for January was the worst figure the company has posted in any one month since January 2005. The AFG figures came out just before the RBA decision, with the aggregator warning that an increase in the cash rate would be a “crippling blow to the country’s fast-shrinking property markets”. Brett McKeon, managing director of AFG, said the impact of three rate rises in quick succession (at the tail end of 2009) had had a far more dramatic effect on property buying than anything seen during the GFC. “People are not moving or upgrading their family homes
Declining sector prefers brokers
First the good news: brokers are the preferred choice for first homebuyers looking for a mortgage. Now for the bad news:
First homebuyers’ market share Month Mar 2009 Jun 2009 Aug 2009 Dec 2009 Jan 2010
% of loans sold to FHB 28.1% 19.1% 20.9% 13.1% 12.9%
Source: AFG Mortgage Index (January 2010)
the first homebuyer market is in decline. Mortgage statistics for owner-occupiers released by the Australian Bureau of Statistics (ABS) in midJanuary found first homebuyer finance commitments had decreased by almost 4% in November 2009 compared to October. Overall, however, first homebuyers account for a still healthy 22.1% of the total owner-occupied mortgage market, according to the government studies. However, figures put out by
– they’ve slammed the brakes on borrowing,” he said. And despite seeing a lot of data recently about rising house prices and increasing consumer confidence suggesting buoyant property markets, McKeon said in fact the opposite was happening. Loan Market Group COO Dean Rushton welcomed the February rate pause and said it was “the right decision based on developments in the home loan market”. “The three successive rate rises in the final three months of 2009 definitely had an impact on homebuyers and we didn’t see the need for the RBA to put rates up this month,” Rushton said. While the season is traditionally a quiet time of year, Rushton said increases in rates at the end of 2009 combined with the removal of additional incentives for first homebuyers had “obviously had
an impact on buyer confidence”. According to the January AFG Mortgage Index, refinancing accounted for more than a third (36.2%) of all new mortgages. Property investors were the only group of buyers to hold steady, comprising about a third of all new mortgages arranged.
AFG based on mortgage sales by its brokers, found that first homebuyers accounted for a little over one in ten mortgages sold (12.9%) compared to a high of 28.1% in March 2009. News that the first homebuyer sector is shrinking came as the MFAA /Bankwest Home Finance Index for January showed that while banks continue to be the preferred source of home loans, first-time buyers are most likely to use a mortgage broker. “While 26.2% of respondents used mortgage brokers as the source of their loan, this figure increases to 44.8% among respondents aged below 30 years,” said Phil Naylor, CEO of the MFAA. “This may be due to a variety
of factors, such as less established relationships with banks among young people,” Naylor said. Damian Smith, CEO at online mortgage broker RateCity, said first homebuyers in particular would find it tough in 2010 as many have missed out on the federal government’s first home owner grant boost which expired on December 31 last year. “Tight lending conditions and higher house prices will also contribute to a more difficult year ahead for the first homebuyer market,” he said. RateCity predicts a 1% rise in the interest rate by the end of 2010, which will cost the average $275,000 home loan an extra $173 a month in repayments.
Help for first homebuyers: Some tips brokers can pass on to those struggling to enter the property market: • Start a savings plan if you don’t already have one. Take advantage of first homebuyer savings accounts offered by several institutions and include high interest rates, a bonus of up to 17% pa from the government and tax incentives. (Although you are locked in for four years minimum). • Do everything you can to lower your debts and reduce your credit limits. Lenders determine your borrowing capacity by credit limits and debt levels. Compare balance transfer credit cards where some providers offer 0% for six months Source: RateCity
Property market round-up LJ Hooker regional experts provide a round-up of
what happened in major property markets around the country and the emerging trends in 2010 NSW
Overall, house price growth on a year-on-year basis rose by 4.4% to December 2009 – the best result since the middle of 2008 when the index recorded over 5% growth annually. After falling away mildly over the previous three to four months, the number of sales up to $500,000 in Sydney rose again in December 2009 to 18% of the total sales for the under-$350,000 sector (14.9% in October 2009) and 22.1% for the $350,000–$500,000 price range (15.6% in November 2009). The last stage of the phasing out of the First Home Owner Grant (FHOG) Boost scheme by 31 December 2009 saw a final push by first homebuyers in Sydney as they sought to take advantage of the scheme. The financial crisis and first homebuyer boost scheme affected the Sydney market more so than other states, being the financial hub of the nation. Its share of upgraders fell to 25.8 % in the September quarter 2009. Key trend: The December quarter signalled the first steps in a possible recovery in upgrader demand across Sydney, with the share rising to 31.5% in the December quarter 2009.
The house price index in Canberra over the three months to December 2009 increased by 5% on the back of a 3.3% increase in the three months to November 2009. A closer analysis of Canberra shows that the proportion of total sales volumes at the more affordable end of the market (below $420,000) declined to 33.8% in the December quarter of 2009, after recording 40.5% in May 2009 and peaking at 54.5% in January 2009. On a year-on-year basis the Canberra house price index has risen by 7.4% in December 2009. Canberra experienced a marginal rise in upgrader purchases to houses over calendar year 2009, with mixed results over the course of the year. Key trend: It appears that a greater number of properties are being sold in the more expensive end of the Canberra housing market, above $420,000. Compiled by Peter Bromley, GM for LJ Hooker Financial Services
Brisbane’s house price index rose substantially by 8.9% for the three months to December 2009, according to the
LJ Hooker/BIS Shrapnel residential property index (RPI). Brisbane’s index has risen significantly since a low point in March 2009, rising a total of 24%. This has led to a strong annual growth rate of 18.8% for the twelve months to December 2009, which is its greatest annual result since April 2008 where the index rose by 21.5% annually. The proportion of buyers purchasing a home for more than the first time and not for investment purposes in Brisbane rose in the December quarter 2009 to 44.6%, the highest seen since the December quarter 2007 when the share of upgrader housebuyers was over 50% of all house sales for most of the year. Brisbane hit a low for upgraders with just 32.8% in the September quarter 2009. Key trend: The data confirms what many of the commentators and analysts are saying about the Queensland market; that it continues to perform because of its beautiful weather and attractive lifestyle, strong employment growth opportunities and a continuing growth in people moving to live here. Compiled by: Glenn Kunning, LJ Hooker Financial Services
The Australian Property Monitors (APM) recent report shows that median house prices in the three months to December 2009 grew at their fastest annual rate in five years, with median house price in Melbourne rising by 18.5% over the year to sail past the $500,000 mark. This strong data – along with other positive economic reports including the fall in unemployment and good retail sales – is proof that for homebuyers in 2010, the threat of higher interest rates will be outweighed by the promise of rising house prices. The general feeling is that the Melbourne market will perform strongly over 2010, although buyers and sellers will need to source as much local up-to-date information they can to position themselves accurately
Tasmania’s capital has experienced mixed results over the course of calendar year 2009. In terms of buyers upgrading, the share of upgrader purchases for houses in Hobart appeared to have fallen off a little in the final quarter after recording highs of 57.1 % as recently as the June quarter 2009. However, these figures should be analysed cautiously, as sales volumes to upgraders are working off an extremely low base. While Hobart didn’t receive the same glowing report card as the rest of the capital cities in the LJ Hooker/ BIS Shrapnel December 2009 quarter Residential Property Index, LJ Hooker’s recently released national performance report showed a more promising trend in the Tasmanian market. Both the value and volume of property sales were up in 2009 over the previous year, by 21% and 27% respectively. Compiled by Colin Judd, general manager – operations, LJ Hooker
The LJ Hooker/BIS Shrapnel Residential Property Index (RPI) report on the three months to December 2009 demonstrated that Perth recorded a growth rate of 5%, the highest quarterly growth rate since January 2007. Despite the first homebuyer’s grant being introduced in October 2008, the price index has remained relatively subdued in comparison to other cities across Australia, with little or no growth evident until the second half of calendar 2009. The share of total house sales to first homebuyers in Perth also fell from 51.2% in the March quarter to 25.5% in the December quarter 2009. The recovery of the economy and stabilisation of prices for almost two years appears to have provided the
necessary impetus to underpin house price growth in Perth. On a year-on-year basis, this has translated to an 8.6% rise in the Perth index in December 2009. The positive outlook for the global and national economy in recent months has largely settled purchaser confidence in a market heavily reliant on the outlook of the resource sector. The WA market has regained all the losses it suffered in the financial crisis, with the median price around $475,000. LJ Hooker Western Australia recorded the highest level of growth amongst all of the other states when comparing sales activity of 2008/09 to 2009/10, being at 47.9%. Key trend: Perth experienced its resurgence in upgrader demand earlier than the other states over the course of 2009. The share of upgraders in Perth accounted for 49.1% of total house sales over the December quarter 2009, up from a low of 37.8% in the March quarter 2009. Strength is returning to the second- and third-tier markets. Compiled by Phil Smith, state manager, LJ Hooker
Adelaide has experienced significant growth in the house price index over recent months. The LJ Hooker and BIS Shrapnel’s Residential Property Index (RPI) report for the December 2009 quarter showed the Adelaide index improved over the three months by 11.5%. This is the highest quarterly growth rate seen since February 2008, and highlights the impact of the first homebuyer scheme and a recovering economy on Adelaide house prices. Over the 12 months to December 2009, Adelaide recorded a rise of 8.8%. The more affordable nature of
Letter: Be wary of your referral partners Dear editor, I read with interest the article on page 10 of Australian Broker 7.01 regarding referral fees paid to real estate agents. I have spent 24 years working for some of the majors and still have old buddies within the banking system that I catch up with occasionally to “catch up on the goss”. Many brokers may not be aware that solicitors and accountants are major referral targets of the banks, and that the banks pay them very handsomely for merely providing a name and telephone number that results in a loan drawdown. My contacts within the banks have clearly told me that one major bank pays 0.3% of the loan amount and another pays 0.4% of the loan amount in referral fees to solicitors and accountants signed up on their introducer programs. I had an unfortunate experience recently where a client that I referred on to an accounting firm (with which I had a crossreferral relationship) some time later referred this same client (my
client) on to a colleague of mine (unknowingly) who then wrote the business. Essentially the accounting firm stole the client from me and was paid 0.3% for merely handing the bank a name and a telephone number. This is why it is critically important for brokers to keep their friends close, but keep their enemies closer. Brokers need to be vigilant as to the motives and connections of their cross-referral partners, and perhaps develop an “internal aggregator-based online knowledge bank register” where brokers can identify those accountants or solicitors that are known to be on the banks’ payrolls. This would make strategic sense because then brokers would avoid referring clients to accountants and solicitors that are in the banks’ back pockets. This is a serious issue that I’m sure affects many brokers, often unknowingly. Mortgage broker (Name withheld on request)
the Adelaide residential market has meant that the influence of the boost scheme has been far more broadly based, influencing a greater proportion of the market. Adelaide has also recorded an upward trend in the share of houses bought by people purchasing a home more than the first time and not for investment purposes. After falling to a low of just 31% in the March quarter 2009, the share of purchases by house upgraders increased to 43.8% in the December quarter 2009. Compiled by Andrew Morrison, LJ Hooker Financial Services
Darwin’s house price index picked up over the three months to December 2009 by 10.3%, after recording a similar 9.3% growth for the three months to November 2009. This came after the LJ Hooker/BIS Shrapnel’s Residential Property Index (RPI) September report noted that sales volumes in Darwin had remained relatively flat throughout calendar year 2009. The November and December increases came after six previous months of little to no price growth and this might reflect the decrease in sale volumes in such a small market and its impact on the index. This is reiterated by the annual rate growing by 22.2% in December 2009 year-on-year after recording 13.1% in October 2009. While the December RPI report included a special feature on upgrader activity, it is unreasonable to make assumptions about this sector in Darwin with the low level of sales having been reported recently. Compiled by David Loy, LJ Hooker Darwin
Moody’s: stable in banking sector Australia’s banking industry was one of 12 Asia-Pacific systems to have their rating upgraded by Moody’s from negative to stable. The rating change was made as industry conditions stabilised on the back of an economic outlook “far more favourable than predicted only six months ago”. “Strong demand for commodities from China and an effective government stimulus program have been important drivers of this outcome. Australia avoided recession in 2009 and the consensus GDP growth outlook for 2010 is in the order of 2.5% to 3.0% Unemployment is still well contained (5.7% in November 2009) and looks like it has peaked well below the 8.5% originally forecast by the government in mid-2009,” the ratings agency said in a report. “Recent bank disclosures suggest that credit costs are flattening off. Corporate sector leverage is generally low. The commercial real estate sector has successfully raised equity during the crisis and supply/ demand conditions remain
generally acceptable. While consumer leverage remains high, it has reduced over the crisis period. Housing conditions have remained strong as the supply shortage worsens on continued net migration and limited housing starts. There has been a gain in house prices over the crisis period,” the report added. Other systems with stable outlooks are China, Hong Kong, Indonesia, India, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, and Thailand. Those with negative outlooks include Cambodia, Japan and Vietnam. “Three factors underpin the generally better outlooks across most of Asia’s banking systems; improving local economic prospects and stabilising global conditions; and improving access to international debt and money markets,” said Deborah Schuler, a Moody’s senior vice president. “The third factor is an adequate level of resilience to cope with remaining macro- and micro-economic risks, with the banking systems having suffered only limited damage during the financial crisis,” she said.
Know your candidate are often required to delve deeper into those competencies. “If the key competency is leadership we’ll explore how many people they’ve supervised, their method of leadership, how they went about reviewing people, training people, etc. We’ll conduct telephone screening to make sure they meet the first-line criteria. If they don’t, we’ll reject them, if they do we’ll put them into the bundle to send to the clients,” says Newton. “It’s a bit different to reference checking: you’ll actually have a set of competencies that are designed for that job that we’ll screen for, and apply a rating from high to low. It’s a simple process of competency checks through a fiveminute phone conversation.”
looking up. You may be on the hunt for a loan writer, receptionist or back office assistant to add to your team. Outsourcing your preemployment screening can help ensure you don’t employ a wolf in sheep’s clothing
rom full medical and drug/alcohol checks through to qualification checks and online psychological testing, pre-employment screening has become a lot more sophisticated than mere referee checks. There are now over 30 background checks available, and when combined with detailed psychological or behavioural profiling, separating the wheat from the chaff has never been more involved – and with good reason. As tempting as it is to think only the best of people there are many costly examples of candidates who exaggerate, omit key information and tell outright lies when applying for jobs. “Irrespective of how good the behavioural interview is, there are things you cannot ascertain. You cannot ascertain whether or not they missed out on the degree, or fudged that membership, or have the credit rating they specified – that’s where we come in,” says Greg Newton, managing director of Verify.
When it comes to due diligence in hiring, Newton notes that every client is different. Some will insist that, as a bare minimum, criminal checks be undertaken, while other industries such as financial services legally require licence checks. Verify is engaged to do shortlist screening, bringing primary candidates down to four or five, which the client will then interview. The client notifies Verify of the one or two candidates they are most interested in, and alongside online psych testing, a verification process will be carried out. This will include drivers licence, degree or qualifications, two reference checks, identity check, criminal record check, visa or right to work check. Then there’s drug and alcohol, and medical tests (including inoculations).
First steps Greg Newton
Despite e-recruitment technology that can pull competencies out of resumes, phone interviews
From there, final applicants will be thoroughly screened. The list of screening methods is becoming both more expansive and more sophisticated. Verify recently upgraded its identity checks to include 140 points of identity verification (passport, drivers licence and utility bills). The company also offers fingerprint verification, and iris and DNA checks are just around the corner. “We won’t go to iris checks yet because few people have been iris tested, but anyone with a criminal record has been fingerprinted. Over time, as iris testing and DNA testing becomes more common in Australia, those are the technologies we’ll use,” says Newton. Drivers licence checks are also a growth area. “It’s not uncommon to find sales reps without drivers licences. Reps tend to be younger these days – they can get into that environment where they have alcohol or recreational drugs, and it’s quite common to find a conviction in the past for DUI or a similar offence,” Newton says. In an age of internet diplomas, qualification checks are also becoming more prevalent. There are two sides to this. Firstly, if the organisation desires a certain qualification in the job then employees should have it. Secondly, in order to practice in some jobs employees are mandated to have a qualification. For example, in some finance roles an employee may need to have a degree or certificate. Increased licensing requirements, especially when it comes to jobs involving the provision of financial advice or loans, means there is thorough probing of APRA records or disqualification checks. “It’s essential the organisation protects itself against litigation by ensuring that the individual in that role has the qualifications required under the law to practice that job. It’s just like driving a vehicle. Say you have a rep on the road and you haven’t checked if they have a current drivers licence, and then they run over or injure someone – you may very well have substantial liability,” Newton warns.
Police and identity checks
Alongside education/qualification and employment checks, Newton says that police checks are the most common background checks undertaken. “What we’re looking for are previous crimes that are relevant to the role that the individual is going for. In the financial services sector there are particular roles where you can’t have a criminal history. Acts of dishonesty are a big thing to look for.” Newton says it’s not unusual to uncover criminal convictions that should have been disclosed. “We find an average of 7–8% of candidates will have disclosable
outcomes,” he says. “However, the Spent Convictions Scheme says that if you committed a crime longer than 10 years ago and you haven’t committed again, it’s not disclosed to anyone.”
A screening broker
Verify has established relationships with everyone from CrimTrac and ASIC through to the Attorney General’s department. “We have a team of around 40 agencies who provide their services to us as the second party. “We collate this information so the client can see it instantly online. For $200 we can do a drivers licence, identity, criminal record and reference check, and those things are a fraction of the recruitment costs.” Indeed, with the average cost of recruiting, hiring and training an employee ranging from $10,000 up to several hundred thousand dollars, a complete background check – which typically costs less than 1% of the hiring expense – is money well spent. Newton is still amazed at some of the stories he hears from clients. For example, after only cursory background checks, a large finance firm hired a head of credit. After the fact, Verify was called in to undertake checks on all employees, and as a matter of course they checked the new head of credit. Their discovery was cause for alarm: the employee had just been released from gaol for embezzlement. “He was doing a brilliant job but they’d never checked him. It’s not to say he would have committed that crime again, but there’s a strong chance,” he says. Third party providers must operate with strict adherence to Australian privacy laws and cannot conduct any private domain background investigation without the person’s authorisation (public domain
It’s essential the organisation protects itself against litigation by ensuring the individual has the qualification
searches, via Google or Google Academic, can still produce results). Verify offers online consent for over 50% of its services, which significantly speeds up the process for all parties and enables faster recruitment decisions. As a final tip, Newton recommends organisations create guidelines around what is included and what is excluded from background checks before introducing the process. “There must be a clear reason for doing it and it should all tie back into the inherent requirements of the job. Be careful about the moral judgments you are making and decide if it [the disclosable outcome] is relevant to the job, what was the context and how long ago it occurred,” he says.
Five top tips for effective reference checking: • At interview stage confirm with the candidate who is the appropriate person to call. Do not rely on who is written on the resume. Ask specifically who the role reported to, who is currently in that position and how long they reported to that person • If the referee to call is not the person noted on the resume, ask the candidate why and ask for written permission to contact the referee • Ensure you identify the person you are talking to; never conduct reference checks on mobile telephone numbers. Phone the reception area of an organisation to confirm the name and title of the person • Often during the interview process you are trying to dig up information that you can ask further questions on during the reference check, so you may have standard questions to ask. Dates of employment might be one – do not ever offer the dates but get the referee to offer them • Ensure the questions are relevant and open-ended. You may need to do more than one reference check at a single organisation to rule out any personal issues or ill-feeling between people
One year on What a difference 12 months can make … or maybe not. Australian Broker reflects on the stories that made headlines in the magazine one year ago
Issue: Australian Broker issue 6.2 Headline: “Wizard just another product on the Aussie shelf” (page 1) What we reported: In an interview with AB, after acquiring the Wizard franchise business, Aussie executive director James Symond said the once famous brand name would not disappear entirely because Aussie was looking to keep the Wizard brand as a set of products on its panel. Symond said at the time: “It won’t be front of house but part of the supermarket – it will become a branded product on our shelves.” What has happened since? Perhaps not surprisingly, there appears to be no room for Wizard products in the Aussie supermarket. A quick search across the Aussie website yields up no mention of any such products. Indeed with Aussie having completed makeovers on all of the stores belonging to former Wizard franchisees who decided to move across, the Wizard brand has been consigned to a footnote in history, while its famous founder has focused his energies on Yellow Brick Road and a host of other new ventures.
Headline: “Return of Rate Tracker helps Bankwest” (page 2) What we reported: Bankwest decided to allow brokers to sell the latest version of its Rate Tracker product – Rate Tracker Ultra. AFG’s Mark Hewitt said the increasing popularity of
Bankwest products among its brokers had coincided with the return of Rate Tracker to the channel in mid-December 2008. The original Rate Tracker product had been pulled from brokers after proving too popular with their customers. What has happened since? On 12 October last year, Bankwest stopped taking applications for the Rate Tracker Ultra product. However, that was by no means the end of the story. A month later, the bank recommenced marketing its Rate Tracker product, but in a blow for brokers, decided to do this exclusively through its stores or over the phone. Mark Reid, head of retail sales at Bankwest, told AB the “key element” behind its distribution approach was to “continue to drive the success of Bankwest as a challenger brand” and to maintain “the momentum behind our east coast network”.
Headline: “MFAA hits out at ‘exaggerated’ stress figures” (page 16) What we reported: The MFAA’s CEO Phil Naylor took issue with the January 2009 Stress-o-meter put out by Fujitsu Consulting. The monthly index said mortgage stress was likely to begin to rise again, to levels above the peak of 900,000 households seen in August 2008 when the GFC was at its peak. Naylor claimed the projected figures were “grossly exaggerated” because actual defaults remained such a small percentage – even at high interest rates. He dismissed an upswing in mortgage stress as predicted by Fujitsu Consulting. What has happened since? Put in context, the January stress-o-meter came out just before the RBA cut rates by a massive 100bps taking the rate to 3.25% and easing the pressure on mortgage holders. The cash rate would fall once more to a historical low of 3% before beginning its gradual upward climb with three 25bps increases in the final quarter of 2009. In January this year, the MFAA released its latest Home Finance Index research which found that 15.9% of respondents are struggling to meet repayments – up from 11.7% in May 2009. Naylor commented on these figures saying there were “still some clouds on the horizon, with recent interest rate increases negatively impacting households”. However, a report by rating agency Fitch vindicates his view a year ago predicting mortgage delinquency rates to rise from 1.21% in September to just 1.5% – low by global standards.
Tips prepared by the Australian National University’s media team.
top ten tips
…setting up your Twitter page Twitter take-up in Australia has been rapid, and it has proven especially popular for business professionals (including brokers) to engage with their colleagues and clients. The first thing you’ll need is your own page. So where to begin?
Tip 1: Know your audience Ask yourself, who is going to read what you’ve written? Look around at what others are writing on similar subjects (interest rates, lenders, mortgage products, etc). Those who might be interested in what you’re writing may include members within your team, past clients looking to refinance, investment clients or first homebuyers who attend your seminars. Having a clear idea of who is out there, and what they’re interested in, will save you time and make your page more worthwhile. Tip 2: Be good looking How many Twitter pages have you seen ruined by ‘busy’ designs, or user photos that don’t look good? Think carefully about what you want your page to look like, and look around at those of others. Tip 3: Plan your messages out Social media, and Twitter especially, require frequent updating. To ensure that you do this consistently, think ahead about your messages. Keep a few up your sleeve so that you can keep up the pace of updates. Tip 4: Think about resourcing Because social media requires individuals to update and respond frequently, it can be labour intensive. Think carefully about how you’re going to ensure that your online commitments are met, without impacting too heavily on your normal work. Consider who is going to be responsible for updating and responding. Perhaps assign the task to one of your staff. Tip 5: Understand both reward, and risk Twitter can be an amazing distributor of your news and information. Even if your network is relatively small, the people that are connected to that network through other members can be a very high number. So if you post something interesting, the potential audience can be huge. Conversely, posting something incorrect or regretful can have enormous consequences. Tip 6: Be interactive Social media is about talking with people, not at them. Think about how your audience might want to engage with you on Twitter, and the kinds of questions they are likely to ask. Respond to these promptly and politely. Tip 7: Add value People increasingly use social media as a primary method of information gathering. What information do you have that is useful to share? If using a website that allows ‘tagging’ of information – such as Twitter – do so with tags that are already in use. Don’t go overboard with your tags. Restrict yourself to one on each update. Tip 8: Find your voice What image do you want to project on your social media website? The tone that you write your updates in should be a reflection of your business values. It should also be consistent. Tip 9: Use Twitter lists Twitter lists are user-compiled lists of other users that they are interested in. Lists can be found on your Twitter home page, where it will show lists you have put together and where you appear on other users’ lists. When you start your account, look around at other users’ accounts that you’re interested in and see what lists they have – there could be people and organisations on there that you’d want to follow yourself. By following those people, you’re also alerting them to the fact that you now have an account. Tip 10: Trial, not error Before you go live with your Twitter page, trial it in private. Spend time getting used to the type of information that you’re going to put up there, assessing who the audience is and addressing issues like resourcing. Only when you feel confident that you’ve addressed these issues should you go live. Don’t be afraid to ask your colleagues and your clients to give you feedback.
A subdued return to growth
The year is
now well under way and initial signs are positive, although jitters and doubts remain. Matt Robinson, from Moody’s Economy.com provides an Australia forecast for the rest of the year and beyond
ustralia continues to lead advanced economies in the global rebound. Buoyed by a combination of stimulus-induced household spending, growing confidence that the worst has passed, surprisingly resilient employment outcomes, and robust commodity exports to emerging economies, the Australian economy has seemingly sidestepped the global downturn as it embarks on its 19th year of uninterrupted economic expansion. But the subdued global economic environment will inhibit a full return to potential in the year ahead; contrary to the growing chorus of optimists, Moody’s Economy.com does not expect the Australian economy to return to trend growth until later in 2011.
Confidence is high
As for the rest of the world, confidence levels took a major hit during the global financial meltdown in 2008. Relief that the worst seemed to bypass the country
has been palpable. Household confidence has soared in recent months – the local consumer sentiment index rebounded at its fastest pace in its 35-year history in the four months to September 2009. And the index remains at historically high levels, despite softening in light of the RBA commencing its monetary tightening agenda in the final quarter of 2009. Business confidence has similarly risen strongly, hitting its highest level in nearly six years in the final months of 2009. Buoyant consumer confidence has stoked household expenditure, with retail sales growing at a healthy rate. Despite the fading effects of fiscal stimulus and the central bank starting to withdraw its monetary policy stimulus from the economy, turnover in Australian retailers during November was up 7% relative to a year earlier. In month-on-month terms, retail sales rose in all but three months of the past year. Elevated consumer confidence has also been reflected in robust housing finance statistics, with the number of owner-occupied housing finance commitments in November up 22% from its September 2008 trough. Robust household consumption and increasing construction activity have boosted business confidence. Exports to emerging economies have also remained strong. Meanwhile, historically low borrowing costs, solid balance sheets and a stable financial system that has been able to maintain business lending throughout the past tumultuous 18 months has also buttressed business sentiment. Higher confidence among the nation’s employers has translated through to better than expected employment outcomes. Defying expectations of a prolonged period of weakness, the Australian economy added nearly 135,000 net jobs in the past four months (September to December 2009), or nearly 1.5% of the workforce. The unemployment rate fell to an eight-month low of 5.5% in December. The fact that Australia’s unemployment rate has remained under 6% during the worst global downturn in more than half a century is nothing short of extraordinary. Even more impressive is the fact that most of the gains in employment have been in full-time positions. This reflects confidence that conditions have improved to the extent that businesses are willing to add to their permanent head count, as opposed to the traditional increase in part-time employment usually associated with the early stages of recovery. Many in the market were surprised when the RBA started raising interest rates in the fourth quarter of 2009. Most held the belief that the central bank traditionally refrains from tightening monetary policy until after the unemployment rate has peaked. (In the past the RBA has not commenced raising interest rates until after the unemployment rate was clearly on a downward trajectory.) However, history will show that the RBA held true to its historic conviction this time around – albeit perhaps unintentionally. As further labour market data have been released, it revealed the central bank’s first move in October occurred after the unemployment rate had already peaked, despite even the RBA’s own forecasts at
the time anticipating further increases in unemployment.
Further monetary tightening expected
While Australia’s recent employment results have seen a marked improvement, potential weaknesses in labour market outcomes in coming months cannot be entirely dismissed. Subdued global conditions and the inevitable lag in the business investment recovery could see insufficient employment growth absorb new labour force entrants from population growth and sustained migration. However, the strength of recent monthly data suggests policy makers can be confident that the unemployment rate is now on a downward trajectory. Meanwhile, core inflation remains above the RBA’s target band and asset prices are heading northward. The RBA will be keen to avoid a repeat of the US experience: interest rates stayed too low for too long and the resulting speculation and risky lending practices contributed to the devastating downturn. With the central bank forecasting GDP growth at trend pace in 2010, returning the cash rate to a “neutral level” – where monetary policy settings are neither stimulating or constraining economic activity – will be a priority for the year ahead. Thus, further monetary tightening can be expected in the first half of 2010, in addition to the three consecutive 25-basis point interest rate increases in the final three months of 2009. However, recent dovish rhetoric from the RBA suggests it may not tighten as much or as aggressively as current market pricing would indicate, as seen with the central bank leaving rates unchanged on 2 February. While the cash rate remains well below its historical average, higher wholesale funding costs mean commercial bank business and housing lending rates have risen comparatively more. Prior to the global financial crisis, the margin between the variable rate housing loan and the cash rate was 1.7 to 1.8 percentage points. Independent movements by major banks and
The fact that Australia’s unemployment rate has remained under 6% during the worst global downturn in more than half a century is nothing short of extraordinary
increases beyond adjustments to the official cash rate over the past two years mean that margin is now closer to three percentage points.
Two rate rises, then a pause
So, while a ‘neutral rate’ around 5.25% prevailed for much of the past decade, margin restoration by commercial banks suggests a cash rate between 4% and 4.25% probably represents a ‘neutral level’ in the current circumstances. This suggests one, possibly two quarter percentage point interest rate increases could be expected in the first half of the year before the central bank pauses its monetary tightening agenda. Recent consumer sentiment readings provide a salient reminder that Australian households are extremely sensitive to changes in interest rates. Household leverage has increased considerably over the past two decades. October lending statistics revealed Australian household debt now exceeds 100% of GDP – a higher proportion than even their heavily indebted US counterparts. Accordingly, even modest interest rate increases will have a significant impact on household debt repayments and reduce discretionary income. Despite high confidence levels, private consumption remains below trend, and the RBA would be conscious of potentially undermining the nascent recovery by prematurely raising interest rates beyond this newlydefined neutral level.
What about the rest of the world? According to Dun & Bradstreet’s 2010 Economic & Risk Outlook Report: • …those countries most closely integrated with the US economy in particular, are expected to continue to suffer from the effects of muted US demand. • Despite predicting a global slow-down, the D&B report forecasts positive economic growth at a global level and a promising outlook for Australia. • World economic growth is expected to hit 2% this year and 2.3% in 2011. This comes on the back of estimates which indicate that the global economy contracted by 2.2% in 2009. • According to D&B, 2010 will continue to reveal the differences in exposure of individual economies to the credit crisis, with the outlook for Australia’s key trading partners varying significantly. US Recovery in the US will be slow. High unemployment, diminished savings, restricted bank lending, the expiry of fiscal stimulus measures and the completion of inventory-rebuilding all raise the possibility of another slow-down in growth over the course of 2010. Real GDP growth is forecast to reach 1.5% and 1.3% in 2010 and 2011 respectively; however, these figures are well below the average growth rate of 2.9% in the 1989-2008 period. UK and Japan The UK and Japan are also facing a relatively sombre outlook. Following the longest period of unbroken contraction since quarterly records began in 1955, the UK’s subdued confidence will limit GDP growth to below 1% in 2010. Meanwhile, Japan has suffered a downgrade to its country rating (to DB2c), putting it in the bottom half of the ‘low risk’ range. In addition, Japan is classified as being on a deteriorating trend – this is in contrast to the smaller, middle-income exporting countries in the region. China and India Positively for Australia, whose economic fortunes are closely linked with China, the risk outlook for the developing nation is generally encouraging. China looks to be focused on boosting domestic consumption and strategic industries in 2010. D&B forecasts that China will sustain economic growth of more than 7% this year. In addition, Australia’s economy enters 2010 in a much healthier state than most developed markets and is well placed to benefit from the global recovery. Although ongoing balance sheet adjustment and unemployment fears are likely to stifle growth in the major industrialised countries, growth in many developing countries (especially China and India) is set to be relatively strong. As a result, aggregate demand for Australian exports is likely to be close to the long-term trend in 2010.
The strength of recent data implies a robust outlook for the Australian economy. Solid employment results are expected to translate into healthy private consumption growth in 2010. Sustained government expenditure on infrastructure projects and recovering private business investment are also expected to support GDP growth. But the subdued global economic environment will inhibit a full return to potential in the year ahead. Contrary to market consensus, Moody’s Economy.com considers a growth rate above 2.5% in 2010 a touch optimistic, given lingering constraints in commercial funding markets, the hitherto lacklustre recovery in construction, and pre-emptive moves by the central bank that will inevitably restrain growth in the latter half of the year. As the global recovery gains traction, Australia is expected to accelerate to trend (around 3.5%) in 2011. Meanwhile, stimulus-induced global growth could see a greater than 4% growth rate recorded in the following year. Considerable uncertainty surrounds the central forecast. If the anticipated recovery in US growth in the latter stages of 2010 and Europe in 2011 fails to eventuate, this would have considerable implications for Australia’s largest trading partners – China and Japan – whose 2010-2012 outlook is premised on a recovery in western consumer demand. Lower growth in these countries will have a corollary impact on Australia’s export performance and national income. This risk is independent from a slow-down in China’s stimulusinduced commodity import frenzy that appears inevitable as authorities move to tighten monetary conditions and rein in excessive liquidity awash in the Chinese economy. Closer to home, recent (and expected) interest rate adjustments could potentially have a more severe than anticipated impact on confidence levels, undermining household consumption and business investment. Ensuing labour market weakness would create a negative feedback loop in which higher unemployment constricts consumer expenditure, ultimately leading to further layoffs. Meanwhile, increased household leverage means consumer spending and house prices are more vulnerable to both interest rate adjustments and labour market deterioration, amplifying a downside risk to the forecast.
News off the cuff Peter Hayward
Citibank’s Head of Distribution and Marketing What was the last book you read? Fierce Conversations by Susan Scott. If you did not live in Australia, where would you like to live? New Zealand. If you could sit down to lunch with anyone you like, who would it be? Michael Parkinson – just a mountain of memories and anecdotes about very interesting people. What was the first job you ever had? Milking cows on a diary farm. I grew up on a farm so not sure exactly how young I was – but it would have been as soon as I was able to reach what was required to do the job. I learnt how to wake up early and systemise things so we could get the job finished and out of there quickly to have some fun. What do you do to unwind? Relax with friends and family. What’s the most extravagant gift you ever bought yourself? Still on my to-do list…
cont. from cover
Positive signs: • AOFM investments in three non-banks • Resimac launches new retail lending venture • RHG resolves legal disputes, upgrades profits • Homeloans profits upgrade • Firstmac CEO expecting nonbank re-emergence Other positive non-bank developments included RHG resolving its legal disputes and listed mortgage manager Homeloans Ltd upgrading its profit forecast. An article in the SMH said the resolution of the court actions would help boost RHG’s profits by as much as $10m – from between $55m and $65m to as much as $75m. Their resolution plus the extra income has increased the
likelihood of an RHG lending comeback. According to SMH, RHG might re-launch as either a mortgage broker, or by buying a home loan provider when its agreement with Westpac, (as part of the RAMS sale) not to offer home loans for three years, comes to an end in November this year. A spokesperson for RHG said chairman John Kinghorn was asked at last year’s AGM in November if he would consider a return to lending. “John Kinghorn said he would consider it. However he did not give a commitment that he would return.” Rounding off the good news for the sector, Homeloans Ltd announced at the start of February that it expects to achieve “a significant improvement in its net profit after tax (NPAT) result for the half year ended 31 December 2009.
What CD is currently playing in your car stereo? Inshalla by Eskimo Joe. If you could give anyone starting out in business one piece of advice, what would it be? You are running a business not a charity – be careful what you give away and how you value yourself. If I was not working in the mortgage industry, I would like to be...? A builder. Where was the last place you went on holiday? Noosa – perfect for young families. What’s one thing most people would not know about you? I am a proud Kiwi – Go the All Blacks!
Firstfolio continues expansion Firstfolio has continued on its aggressive expansion path after agreeing to make an off-market takeover of Xplore Capital, a direct retailer and marketer of mortgage services. The deal includes Xplore’s financial planning business – a corporate authorised representative of ComCorp Financial Advice which was purchased by MMC Contrarian in March 2009. “The acquisition of Xplore Capital would consolidate Firstfolio as one of Australia’s leading non-bank mortgage managers and financial services companies,” Firstfolio said. “Firstfolio and Xplore Capital operate complementary businesses that focus on the mortgage management and financial services market. “The acquisition of Xplore Capital will achieve long-term synergy benefits by reducing or eliminating costs incurred by Xplore Capital as a public company and related overheads.” Xplore’s directors unanimously recommended its shareholders to accept Firstfolio’s offer. Xplore investors have been offered either 19 cents cash or two Firstfolio shares plus 5 cents cash. The all-cash deal
values Xplore at $3.08m. The offer is subject to a number of conditions, including acceptance of the deal by 75% of issued shares and regulatory approvals. In December last year, Firstfolio settled $5.5bn worth of loan acquisitions taking the ASX-listed group’s mortgagemanaged and aggregation portfolio to $18bn. This followed Firstfolio completing its acquisitions of First Chartered Capital ($3.5bn loan portfolio and 35 retail franchise outlets) and Loan Services Australia ($2bn in mortgage managed loans). Also in December last year, Firstfolio signed an agreement with Medibank Private to provide its members with free home loan health checks and discounts on mortgage products. The deal with the health insurer marked the third financial services partner to sign up to BLOOM, its proprietary B2B software application, following agreements with AV Jennings and Virgin Money. The platform allows Medibank to offer a customised mortgage and financial services offering to their own customers.
Roger La Salle is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on innovation, opportunity and business development. Matrix Thinking is now used in more than 26 countries. www.matrixthinking.com
The place where the industry comes to meet
Innovate with purpose or die According to Roger La Salle if you fail to be constantly innovative in your business, with an eye to capturing new opportunities, your business itself may ultimately fail
Business is best defined as: ‘Creating wealth through profitable transactions’. I came to this definition many years ago after having won a job as general manager of a medium-sized company and later boasting to a friend that ‘revenue has increased three-fold under my guidance’. ‘Great’, he said, ‘but what about profit?’ This was a great question. Business is about profits, and indeed everyone within a business should be contributing to that, even if they are doing so-called “off-line activities” such as perhaps training or IT. The simple arithmetic In simplistic terms, the profit and loss sheet tells the story of a business and is comprised of just three components: revenue, costs and profit. Reduce costs and reap the benefit? There are just two ways to increase profit. The first is to reduce costs, thus profits will naturally rise. But beware of the old adage: ‘You can’t cost cut your way to prosperity’. This is so true. Many initiatives such as ‘Lean’, ‘Continuous Improvement’, ‘Six Sigma’ and a host of other efficiency measures target the cost elements of a business. Unfortunately, although these may make you more competitive, they don’t increase the landscape of opportunity. Put simply, they just allow for more profitable operations from the same revenue base. Business building The only way to increase your business in real terms is to focus on building the top line, the revenue, and there are only three ways that can be achieved. 1. More sales to the same market This is easily achieved as a short-term measure by the addition of sales staff, increased incentives and perhaps more advertising and promotions. But this is not a sustainable endeavour and is too easily matched by competitors. Indeed, increased expenditure on sales endeavours may be seen as the reciprocal of price cutting aimed at increasing market share. In price cutting, the customer is the only winner. Furthermore this initiative is again easily matched by competitors. 2. New markets for the same products Opening up to new markets, and entering places where products of your type have never before been sold is another way to increase revenues, but this is both expensive and can be extremely risky. Furthermore, once you have done all the work in creating a new market – guess what – you have now laid the perfect foundations for your competitors to follow. This alone is not a good sustainable strategy on which to build your business. So what’s the third? The third and only way to continue to expand your business is to constantly provide new and improved products and services and new ways of doing business – this is innovation. The search for new ways must be sustained and endless or you can be sure business stagnation and eventual failure will be the result. As stated in some of my earlier work, statistics from US-based research cite the life expectancy of a publicly-listed company in the US today as being less than 10 years, compared with some 65 years in the 1920s. Companies that fail to innovate, ultimately fail to exist. Innovation and opportunity capture is the answer Most business people would acknowledge that innovation is the answer, but unfortunately many confuse innovation with the abstraction of ‘creativity’ and have not given sufficient time to understanding the difference. In short, innovation when properly applied is a tried, proven and rigorous tool for business building. Even less understood than innovation is the formal process of ‘opportunity capture’. Where to from here There can be little doubt that the third way of new and improved products and services and ways of doing business is the only way to reliably grow a business. So after the cost removal processes have been initiated, it may be time to start addressing the top line. That’s the way to build a business.
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Inferior offering: Mortgage Shield taunts ALI By Larry Schlesinger | 12 Feb 2010
Mortgage Shield has taken a stab at competitor Australian Life Insurance (ALI) claiming its referral-based products are an “inferior option” for brokers’ client ...
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» The 18-part Coaching Series continues Next: Developing key contacts for your business
Doug Mathlin, Frontrunner Consulting Group, speaks about the importance of brokers having key contacts to qualify more leads. He gives a detailed step-by-step guide on how to approach and seal the deal with key contacts, including: » How to identify which contacts can be beneﬁcial to approach » Getting your initial message across to these contacts » The ﬁrst meeting, how to set it up, how to build a rapport and what to talk about in order to determine whether to start doing business with them » Why it’s important not to rush into the relationship » How to formalise the agreement to recommend each others business
» General market news & views
Home values ﬂat in December BN | 29 Jan 2010
Australian home values recorded a 0.3% fall in December 2009 according to the latest index supplied by RP Data and Rismark. ...
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Oh yes we did … oh no you didn’t
ou’d have to be a real die-hard Liberal voter not to attribute some of the credit to Australia dodging the recession to some of the policies implemented in the last 18 months by the Rudd government. Indeed, Insider contends that many brokers might have gone to the wall had it not been for the various stimulus measures implemented to boost the housing sector. But don’t try telling that to veteran talk show host Alan Jones, who hosted Wayne Swan on his show recently and
subjected the Federal Treasurer to a grilling which would have made McDonald’s burger flippers proud. The heat was turned up when Jones asked Swan what was the highest point of achievement of the Rudd Government… Jones: You said pensions, what’s another? Swan: We stopped this country going into recession. We dealt effectively with the global recession and the global financial crisis, and if we hadn’t done what we did Australia would be in recession right now. Jones: Well, that’s not quite true. Swan: Yes it is, it is very true. Jones: You can’t prove that point. Swan: I certainly can. Jones: You see, there are many economists who would say that … Swan: There are not many Alan. There are not many. …so it went on and on and on and on (you can read the full transcript on Swan’s Treasury webpage) No prizes for guessing who Jones will be voting for in this year’s federal election…
Not designed for irony…
nsider wonders if Auckland broker Sue Tierney even knows what the word ‘irony’ means following a dispute with a former contractor over unpaid trail commissions. For those who missed the story, Tierney is facing further legal action from Natalie Penn after a court ruled that Penn was entitled to trail commission (plus interest, plus costs), which she stopped receiving when she quit Tierney’s Mortgages by Design business in October 2004. Penn is yet to receive the money after Tierney re-named and liquidated her business in December 2009 – leaving behind the court-ordered debt (only to start up a new broking business
with the very same name). So where’s the irony you ask… According to the paper, New Zealand’s most high profile broker Mike Pero gave testimony at the trial last year, where he revealed that Tierney had worked for him as a broker and later franchisee, before striking out on her own in 2001. Tierney later sued Pero claiming she was entitled to keep receiving trail commissions after she had left the business. The irony may have been lost on Tierney, but it wasn’t lost on the judge at the time who noted: “The history of Ms Tierney’s dealings with Mike Pero suggest that her view of these matters at that time coincides with the position now contended for by the plaintiff [Penn] and which Ms Tierney now rejects.” Perhaps someone should buy Tierney a dictionary.
Bankers not so boring after all
f course, we couldn’t sign off on this issue of Insider without mention of the Macquarie advisor caught perusing some saucy pics of supermodel Miranda Kerr on Channel 7 during a live television interview on the February rate decision. While the bank was certainly not amused saying it was investigating the matter, Insider
suggests it takes direction from news.com.au readers who suggested a more relaxed approach… such as ‘Jess from Sydney’ who blogged: “Shouldn’t he get a PAYRISE for making an unbelievably BORING segment a lot more interesting?”
Looking at the right assets...
f course, that’s not the only thing Insider has to say about the Macquariesponsored Miranda Kerr ogle fest. Only a few days after the infamous news broadcast gained notoriety (and clocked up thousands of viewers on Youtube around the world), Insider received an email alerting it to what appeared to be a new print ad brought out by HSBC and appearing in the Sydney Morning Herald. The ad, which featured a still shot of the Macquarie/Miranda Kerr interview and had the HSBC logo running at the bottom, ran with the headline “We spent more time looking after your assets”. It was certainly a very clever piece of advertising. However, some research revealed that it was not a genuine HSBC ad, but some clever use of Photoshop… well, it certainly convinced Insider! And given how this spoof went viral, perhaps HSBC should have run with the idea after all.
Caught on camera On 28 January, Suncorp hosted its broker partners in Sydney at a cocktail party to reveal information about new products and commissions. AB cameras were on hand to capture some of those who attended
Photo 1: Alex Nochar, Oxygen Home Loans; Peter Ellis, Oxygen Home Loans; Russell Ecob, Oxygen Home Loans Photo 2: Karla Navarro, APFS; John Piras, Primrose Finance Photo 3: Jeanette Rowland, Choice Home Loans; Phil Sampson, Choice Home Loans; Peita Davies, Choice Home Loans Photo 4: Tony Henry, TNT Finance; Maree Imbruglia, AFI Alissa Thompson, Suncorp; Harry Hills, Suncorp Photo 5: Chris Slater, AFG; Andrew Morello, Yellow Brick Road; Clint Hawthorne, PLAN; Johnny Jalin, Calvary Fin Services Photo 6: Terry Wasmund, Suncorp; Jayne Gow, Suncorp; Michael Burgess, Suncorp; Tim Damien, Suncorp Photo 7: Greg Vehling, Tandem Vehling; Megan Blake, Suncorp Photo 8: Cang Dang, Positive Lending; Diem Tran, Positive Lending; Martin Liszewski, Suncorp Photo 9: Hussain Mufti, Mufti Finance; Angrlo Tantaro, Suncorp; Azhar Mufti, Mufti Finance; Harry Hills, Suncorp; Hasan Mufti, Mufti Finance
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AGGREGATOR / WHOLESALE BROKER PLAN Australia 1300 78 78 14 www.planaustralia.com.au firstname.lastname@example.org page 5
Banks St. George Bank 1300 137 532 page 3
LENDER MKM Capital 1300 762 151 www.mkmcapital.com.au page 8
RAMS Home Loans 1300 130 769 www.ramsbroker.com.au page 13
MORTGAGE MANAGER / NON-BANK Mango Media 02 9555 7073 www.mangomedia.com.au page 1
NON-CONFORMING Liberty Financial 13 11 80 www.liberty.com.au page 7
www.residex.com.au The House Price Information People
OTHER SERVICES Financial Services Online www.leads.financialservicesonline.com.au page 32
Prime Finance Pty Ltd 1300 130 538 www.primefinance.com.au page 10
Pulch Photography 0432 710 970 www.pulchphotography.com email@example.com page 31
Rapid Capital 07 5562 2485 www.rapidcapital.com.au page 4
Residex 1300 139 775 www.residex.com.au page 21
RP Data www.rpdata.com page 23
Trailerhomes 0417 392 132 page 29
SOFTWARE/IT Stargate Group 1300 723 613 www.stargategroup.com.au Symmetrycrm@stargategroup.com.au page 9
Wholesale Resimac 1300 764 447 www.resimac.com.au firstname.lastname@example.org page 17
SHORT TERM LENDER Crown & Gleeson 1800 735 626 www.crownandgleeson.com.au page 2
NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au page 11
To advertise in Australian Broker Call Simon Kerslake on +61 2 8437 4786
Published on Feb 18, 2010