Australian Broker magazine Issue 7.20

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ISSUE 7.20 October 2010

Clawback extensions an unfair punishment

Damian Percy

 Borrowers should pay for their own decisions: Percy

Extended upfront commission clawbacks are unfairly punishing hard-working mortgage brokers for the changing circumstances and choices of borrowers, it has been claimed. Damian Percy, general manager of third-party

mortgages at Bendigo and Adelaide Bank, said most bank clawback regimes are recouping loan establishment costs from brokers, when those costs should rest firmly with the party making the choice to leave – the borrower.

“Fundamentally, borrowers leave a bank because of changed circumstances or a perception of better value elsewhere, so our take has always been ‘it is the borrower than makes the call, it

FBAA outlines co-op

is the borrower that makes the judgement’,” Percy told Australian Broker.

While he acknowledges that churn does exist in the market – which could necessitate the introduction of clawback measures – in terms of “materiality” for banks, it is borrowers shopping for a better deal on their loan that accounts for the vast majority of losses.

Recently, both Westpac and subsidiary St.George extended upfront clawback out to 24 months, in an effort to improve loan life and quality from thirdparty brokers.

However, while banks need to recover costs associated with establishing a loan, Percy said “if anyone is to bear them, it seems most logically the borrower. Is it appropriate for a broker – having expended time and effort to get that loan on the books, to have the reward for that effort withdrawn on the basis of the changing circumstances of the borrower?” he asked.

Percy also lambasted the increasing complexity of commission payments in the market, saying commissions between lenders – and even different products – had become “highly variable”, and that the headline proposition presented by a lender is “subject to so many dependencies” it was making it difficult for brokers to manage their cash flow.

Page 20 cont.

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TFP co-operative aims to boost broker profits

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Page 2

RBA slams banks

Rationale for bank rate rise dismantled by RBA

>>

Page 6

Commission cuts

Industry ire greets Westpac and St.George moves Page 16

Inside this issue

>>

Viewpoint 22 Broker commission cut reaction Opinion 23 The case for seeing every client Insight 24 Doing social networking right Market talk 26 Election a watershed for ACT Toolkit 28 ACL options compared People 32 Being the best BDM Caught on camera WIMBN meets

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News FBAA launches TFP co-op initiative The FBAA has revealed the details of its long-awaited TFP cooperative initiative. In the works for over two years, it aims to “make brokers more profitable” by offering access to a range of discounted and innovative business services, as well as loans from several lenders and other finance products.

“The aim with the TFP cooperative was threefold: to offer services that create revenue, reduce business expenses or offer opportunities that aren’t available elsewhere,” said White. “It’s a completely unique model – no other professional body is offering anything like this, as far as I’m aware. Too many brokers are out there feeling under fire and considering throwing the towel in,” he added.

Lenders on the TFP ‘panel’ include ING Direct, Origin Finance, Advantedge, Resimac and Adelaide Bank via mortgage managers Prime and Mezy. TFP director and spokeperson Ron Guthrie commented that brokers using these lenders would not be subject to volume hurdles, would receive competitive upfront commissions and trail from day one. However, he also stressed that offering loans through TFP was not an attempt to compete with other aggregators.

“The co-op is not designed to offer loan products from all banks,” he said. “Instead, it is intended that access to a limited number of ‘boutique’ loan products will be offered alongside a range of products and services not normally

available through aggregators.”

Other business-related services available through TFP include discounted travel, fuel and mobile phone contracts, access to brokerspecific IT platforms, the opportunity to purchase cars at fleet discount, overseas cash cards via Travelex and lead generation services. The outfit is also planning to launch a range of insurance products in the coming months, which will feature an innovative ‘three-in-one’ public indemnity insurance product. “It’s intended to allow brokers to diversify their business, not compete with the aggregators and lenders with which brokers conduct their core business.”

White and Guthrie also emphasised that a prerequisite for members to access products and services is membership of the FBAA. In addition to FBAA membership fees, membership of TFP costs $200 in the first year and $100 per year thereafter.

Company Name

Service provided

Company Name

Service provided

SME First

Discount mobile phone calls and hardware

HR Coach

Human resources Property sales

FinanceStaff

Staff recruitment

Property Investment Aggregation

Travelex

Cash card for overseas travel

MyHomeOnline

Lead generation

Debt Rescue

Consumer debt solutions

Prime

Ubeani

Online accounting platform

Mortgage products - Advantedge, Resimac, Origin, Adelaide Bank

Mezy

Mortgage products - ING

ART & PRODUCTION DESIGN MANAGER Jacqui Alexander DESIGNER Lucila Lamas SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Kerry Buckley MARKETING COORDINATOR Anna Keane TRAFFIC MANAGER Stacey Rudd CORPORATE DIRECTORS Mike Shipley, Claire Preen MANAGING EDITOR George Walmsley PUBLISHING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil

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Taurus Trade

Debtor finance

Top End Expeditions

Holiday

The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

Vequip

Leasing/ discount vebicle purchases

JLT

Three-in-one PI Cover

Global Technology

Discount websites and graphic design

Wealthsure

Financial planning services

Insurance Adviser

Standard PI and business cover

Australian Debt Agreements

Debt arrangements

Australian Insurance Solutions

General insurance products such as commercial, liability, machinery, motor and household

Motor Pass

Fuel discount

Webolution

Online marketing and wesite design

Property sales

PNM Business Systems

Accounting software

Commercial property debt finance & structured finance

Flight Centre

Flight

Lifebroker

Life insurance

Stationery copiers

East Coast Conyancing

Conveyancing services

OfficeChoice

EDITORIAL INTERN Laura Carew PRODUCTION EDITORS Jennifer Cross, Moira Daniels, Carolin Wun

Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008.

Car fleet discounts

Avanti Commercial

COPY & FEATURES JOURNALIST Kevin Eddy

The Finance Professional Discount advertising Emag

Private Fleet

Pulse Property

EDITOR Ben Abbott

Advertising sales Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au

TFP Co-operative suppliers – current and forthcoming

FBAA Online Buying Store Stationery supplies

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Westpac follows St.George on clawbacks Westpac commission changes • Extension of 50% clawback to 12- 24 months, up from 12-18 months • Will no longer pay trails on loans more than 30 days in arrears • Will calculate trail on balance customer is being charged interest on Westpac has followed subsidiary lender St.George in reworking its clawback commission structure.

Westpac has extended its 50% upfront commission clawback provisions for the early discharge of a loan out to 24 months, from the existing broker clawback arrangement of 12-18 months.

This move comes in addition to the existing 100% clawback for the first 12 months.

Westpac has also announced it will no longer pay trail commissions on loans more than 30 days in arrears, and will recalculate the payment of trail commission, using the balance of

the loan that the bank is charging the customer interest on – similar to other banks.

The changes, announced to brokers yesterday, are described by a Westpac spokesperson as being separate from St.George’s commission shake-up. “Under Westpac’s multi-brand strategy, Westpac and St.George operate separately,” the spokesperson said. “Each brand makes independent decisions and has its own dedicated management team, distribution channel offering and differentiated products, different commission structure, pricing and service. As you will note,

St.George has announced its changes separately from Westpac and their changes are quite different from ours.”

However, changes for both Westpac and St.George are being introduced on new loans submitted from 1st November, and clawback changes at Westpac match those at St.George.

National Mortgage Brokers managing director Gerald Foley expressed doubt that the changes

by Westpac, which acquired St. George during the GFC, weren’t linked. “There is no doubt that when a bank buys another bank or business it is doing so to influence and control it at all levels – otherwise why acquire it in the first place?”

Westpac’s general manager of mortgage distribution, Huw Bough, said Westpac is all about partnering with professional

brokers. “Westpac is absolutely committed to the customer. We recognise customers choose to deal with brokers, and as a result we are absolutely committed to the channel,” he said.

Huw Bough For our special report on Westpac and St.George commission cuts, see pg 16

CBA gives green light to contract printing The Commonwealth Bank has rolled out a new printing capability for its 200-plus Diamond Partner brokers that will allow them to print home loan contracts in their offices, bolstering their competitiveness with the bank’s branch network.

After a successful six-week pilot through two major broking groups, the bank launched the printing capability at the end of August, following feedback from brokers that document printing was a high priority in terms of improving customer service.

CBA’s third-party and mobile

banking executive general manager Kathy Cummings said the move was driven by feedback indicating improving efficiency, reliability and turnaround times would assist brokers with their service proposition.

“By empowering our Diamond Partners to print documents in their office we are helping them to improve their customer satisfaction, increasing their efficiency and giving them a competitive edge,” Cummings said.

Though currently only available to the top rung of CBA’s broker network, the bank has flagged the

possibility that the printing capability will be expanded to include other categories of brokers in future, in an effort to turn them into bank advocates.

Commenting on the newly minted print option, Core Mortgage Brokers principal Brad Parkes said in a statement, “the Commonwealth Bank system works very well. Documents are not being lost in the post, and if there is an error on the documents, it is fixed within hours, not days.”

Parkes added that the system appears “faster than normal”, with documents made available through

the system on the day the loan is unconditionally approved by the bank.

The print capability rollout has required Diamond Partners to have – or upgrade to – legally compliant printers, as the loan contracts printed must meet certain compliance standards to qualify as legal contract documents.

The move is an Australian banking industry first by CBA. Cummings said Diamond Partner brokers valued document printing just behind priority processing on their priority list.

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Rate rise expected before Christmas

RBA slams bank rate rise case The Reserve Bank has eroded the case for widely expected major bank ex-RBA rate hikes. In its half-yearly Financial Stability Review in September, the Reserve Bank said major lenders had been successful in recouping their higher funding costs over the past two years – the primary reason that is being cited by these banks as a case for any rate hikes.

The RBA said banks had managed to mitigate their higher costs through their rising net interest margins on loans.

“Interest receipts, which stem from the core lending business of the major banks and represent their main source of revenue, have been sufficient over the past two years to fully recoup higher funding costs,” the RBA said in the review.

The Australian Bankers Association (ABA) hit back at the RBA, saying “it was important to remember that the cash rate (set by the RBA) was only one consideration in determining the cost of money lent by banks to home owners and businesses”.

Steven Münchenberg, chief executive of the ABA said a key factor that determines the interest rates banks need to charge is the “real cost of money”.

“Thirty cents in every dollar lent

by Australia’s major banks has to be raised from overseas investors.

The cost of that money has remained high and volatile and is not controlled by the Reserve Bank,” he said.

“Also, there continues to be strong competition for deposits, which is good news for savers.

Savings term deposit rates are around 6% and higher. At times deposit rates have been nearly as high as mortgage rates, but this also adds to the costs of lending,” he added.

Recently, banks have indicated they may raise rates unilaterally outside of regular RBA movements. The Commonwealth Bank’s head of retail banking Ross McEwan told Loan Market brokers at a recent conference this was almost a certainty.

McEwan said the average cost of funding is rising by 3-4 basis points per month for banks in Australia and New Zealand as cheaper money dropped off their books, and will continue rising at this rate for 12-15 months which was likely to force banks to raise rates. He said banks had been “trapped” into the RBA cycle, and it no longer reflected the costs they were bearing.

Australian major banks may lift interest rates before the next meeting of the Reserve Bank board in November, despite the central bank’s decision to hold steady last week, Australian Finance Group’s Mark Hewitt has said.

The RBA board has held the official cash rate steady at 4.5% for the fourth consecutive month.

However, AFG managing director Mark Hewitt said “it will make it a bit harder to move outside an RBA rate rise but I still would expect we will see them moving some time – and I wouldn’t be surprised if that is before the next Reserve Bank meeting.”

The comments follow indications by banks that increasing funding costs would force them to move on rates regardless of the RBA setting, with CBA head of retail Ross McEwan having publicly called this “a definite” over coming months.

An ANZ spokesperson said rates are “always under review, but there is no immediate trigger at the moment for any change”, while NAB also indicated no decision had been made on any changes.

Commenting on the RBA

decision, Hewitt said it would give people a bit more confidence in their property purchases, and would also give the RBA more time to digest conflicting economic data.

However, he said the official decision to hold was likely a “temporary reprieve”. “I think on balance, speaking to some economists whose opinions I respect, I think it is probably inevitable we will have at least a further rate rise before Christmas – I’m not so sure it’s justified but I think it’s pretty inevitable.”

In a statement accompanying yesterday’s announcement, Reserve Bank governor Glenn Stevens said the current stance of monetary policy is delivering interest rates to borrowers at close to their average of the past decade.

“The [Reserve Bank] board regards this as appropriate for the time being,” Stevens said.

However, he advised that the RBA does expect to raise rates. “If economic conditions evolve as the board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.”

Reserve Bank cash rate target: 2009–2010 Effective date

Change in cash rate

New cash rate target

5 May 2010

+0.25

4.50%

7 Apr 2010

+0.25

4.25%

3 Mar 2010

+0.25

4.00%

2 Dec 2009

+0.25

3.75%

4 Nov 2009

+0.25

3.50%

7 Oct 2009

+0.25

3.25%

8 Apr 2009

-0.25

3.00%

4 Feb 2009

-1.00

3.25%

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Financial hardship to challenge lenders

Lenders are facing the wrath of ASIC over the provision of credit to consumers who may experience financial hardship, as 2.1 million Australians struggle to meet debt repayments. New research from Veda Advantage has found 17% of Australians in debt are struggling to repay that debt, and that “many” of those would be experiencing financial hardship.

Though there is no set definition in the new NCCP legislation of what financial hardship means, the research found that many borrowers were having to sell assets, rely on family or friends, transfer debt – or even skip meals

– to repay the money they owed.

From 1 January 2011, credit unions, banks and finance companies must ensure consumers can meet the financial terms of a loan without substantial hardship.

Veda Advantage head of consumer risk Angus Luffman, said “new government responsible lending legislation will force lenders to change the way they approve credit in Australia.”

Luffman said while financial hardship is yet undefined, instances of having to sell assets to repay debt (475,000 people) or having to cut back on necessities

such as groceries (912,000 people) may be indicative of hardship – which would be a target of the legislation.

“While the majority of Australian credit providers have been lending responsibly for years, under the new legislation, all credit providers will be required by law to document and prove every reasonable measure has been taken to ensure a consumer is provided with a loan that is ‘not unsuitable’ – one that meets the consumer’s objectives and that they have the capacity to repay,” Luffman said. “The impact of the Responsible Lending laws will be a huge advance in terms of consumer protection, putting greater accountability on financial institutions.”

Veda’s figures have improved since March this year, when its survey found that 19% of borrowers were reporting difficulties. Only 16% reported difficulties in September last year – a low which coincided with the Reserve Bank’s decision to cut

How are borrowers repaying debt?

• Around 475,000 Australians have sold assets to repay debt • Almost one million Australians have had to cut back on necessities such as groceries • Around 700,000 Australians have received financial assistance from family/friends • Half-a-million Australians have shifted debt using a balance transfer facility • 528,000 Australians have used existing lines of credit such as an overdraft • Almost 200,000 Australians extended new lines of credit such as taking out a personal loan to repay debt Veda Advantage/Galaxy Research

rates to 3%. Luffman said the level of difficulties being experienced by borrowers over time was “fairly consistent”.

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Firstfolio snaps up Club Financial Services Why Club?

• $2.8bn loan book • $1bn Advantedge wholesale funding facility • Boosts Firstfolio loan portfolio above $20bn • Immediate $1m plus FY2011 earnings impact • National distribution footprint expanded Firstfolio has acquired non-bank finance brokerage Club Financial Services, as well as its mortgage management business National Finance Club and its risk insurance, investment and wealth management brokerage Club Money Management.

Firstfolio snapped up the CFS business for $15.7m, plus a possible further $4.3m depending

on CFS sales volumes over the next 12 months. The deal will see the fast-growing Firstfolio financial services group take on Club’s $2.8bn loan book.

Firstfolio expects to be able to announce a resultant boost in its FY 2011 operating EBITDA – from $15-16m to $17-18m – thanks to the CFS business being earnings accretive. Firstfolio CEO Mark Forsyth said in a statement Club is a “profitable and well run operation” that writes over $70m in new finance commitments each month “On completion, this transaction will take the company’s loan portfolio beyond $20bn, a significant milestone that includes $12bn in loan book acquisitions since 2008,” Forsyth said.

In an added bonus for Firstfolio, the CFS acquisition will also provide access to an additional

wholesale funding facility with Advantedge – worth $1bn –which will mesh with Firstfolio’s existing ING Direct and Adelaide Bank arrangements.

Firstfolio previously flagged that it would continue along its well-trodden acquisition trail, after a string of deals during the past 24 months that included Apple Home Loans, LeaseChoice, First Chartered Capital, Loan Services Australia, Xplore Capital and eChoice.

CFS managing director Andrew Clouston said the acquisition would bring fresh perspectives and new growth opportunities to the CFS business, headquartered in South Australia. “The acquisition takes place at Holding company level, so it will remain business as usual across the Club Group,” Clouston said. “All existing company structures and

terms remain intact and the Club organisation will continue to operate as an independent entity.”

Clouston said as a result of the acquisition the Club Group would become part of an Australian publicly listed company and gain immediate access to more funds and pricing product advantages as part of a larger ‘buyer’ group.

Mark Forsyth

ASIC cracks down on rogue brokers

Now or never for ACL, says Foley

ASIC has cancelled two Queensland credit registrations for breach of the National Consumer Credit Act, at the same time as launching its first fully-fledged enforcement operation.

The regulator cancelled the registration of Dennis Ian Grant of Coochiemudlo Island, Queensland, after enquiries into Grant’s application revealed he was an undischarged bankrupt. The regulator also cancelled the registration of Express Finance Solutions – a firm of which Grant is the company secretary – when it found the company was not a member of an approved EDR scheme and had “made false statements” in its registration application.

“ASIC’s action in cancelling the credit registration of Mr Grant and Express demonstrates ASIC’s commitment to protecting consumers from people that have not met the legal requirements under the new consumer credit regime,’ said ASIC commissioner Peter Boxall.

Until late 2010, ASIC has also revealed it will be in the field looking for people engaging in credit activities who failed to meet the new registration requirements as outlined under the National Consumer Credit Protection Act. More than 14,000 people or businesses registered with ASIC in time for the 30 June 2010 deadline.

Brokers looking to apply for a credit licence need to commit to doing so by mid-October, according to Gerald Foley. The managing director of National Mortgage Brokers said that brokers who had not made up their mind had effectively left it too late.

“You really need to have committed to apply for an ACL by mid-October, otherwise it may be too late to get everything you need in order by 1 January,” said Foley.

However, Foley stressed that it was important for brokers to make an informed decision – as well as pointing out that whatever option you choose now doesn’t mean you’re stuck with that option forever.

“There’s a market misconception that you have to live with the decision you make now for a long time,” he added. “That’s not the case. If you choose to become a credit representative now, you can always choose to apply for a licence later. Similarly, if you go for the ACL now, there’s nothing to say you can’t step back to credit rep status.

If you’re unsure, it may not be a bad decision to go down the credit representative route for the time being, until the compliance requirements become clearer.”

Foley also commented that, while relatively few brokers seemed to be opting for a full ACL, those that are have been basing their decision around cost and their business model. He also highlighted that

It’s the first step to applying for a credit licence –to be complete by 30 June 2011. As of 23 September, 292 licences had been issued.

ASIC Commissioner Peter Boxall, said ASIC was most likely to pursue prosecutions where firms or people persisted in engaging in credit activities without being registered or licensed.

ASIC may take action – other than prosecution – at its discretion.

“All indications to date are that the new regime enjoys widespread support from people working in the credit industry, and that people and businesses who have registered welcome action by ASIC to deter non-registered businesses,” he said.

The maximum criminal penalties for operating without registration or a licence are $22,000 for individuals and $110,000 for corporations, or two years imprisonment, or both; or civil penalties of up to $220,000 for individuals and $1.1 million for corporations, partnerships or multiple trustees. “ASIC is serious about its responsibilities in enforcing the regime and our decision to undertake surveillance action - shortly after registration has closed – demonstrates our determination to ensure the effectiveness of the new national consumer credit regime in providing a better business environment for the industry and for consumers,” Boxall said.

Gerald Foley

‘aggregator independence’ was also a factor – effectively, the brokerages that view themselves most as particularly independent of their aggregator seem more likely to opt for an ACL. He commented on the debate over whether a licence had an intrinsic value to prospective purchasers.

“The real value is in a client’s database, regular contacts and loan list. You wouldn’t buy a business because it’s got a licence. However, if it was a larger business, I would put some value on it having an ACL, as it would give greater assurance during the due diligence process. Even so, the argument that having an ACL has intrinsic value is a bit of a long bow to draw at the smaller end of the scale.” For the latest on your credit licensing options, see our credit rep guide in Toolkit on page 28

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Loan Market forecasts refinancer surge The chief operating officer of Loan Market is expecting refinancer enquiries to surge if both the RBA and major banks lift interest rates.

Dean Rushton is projecting an increase in refinancing enquiries to Loan Market brokers of up to a quarter if both of the mooted interest rate rises take place over the coming months.

“We typically see a 15% uplift in enquiries every time the RBA lifts rates,” said Rushton. “If the banks move outside the RBA rate, that could go up to as much as 25%.”

Dean Rushton

He also urged brokers to make sure borrowers are aware of how rates are sitting in general – especially as the variance in variable rate loans can be as much as 1% – and to outline the role they can play in assisting the relief of interest rate-induced financial stress. Rushton’s comments followed the release of a Loan Market survey which found that more than half of respondents would not refinance unless they stood to save more than $1,500 per year.

He attributed part of this to simple inertia. “Many borrowers dread the hassle of packing up their accounts and paperwork, and $1,500 is seemingly the value many borrowers put on that,” he said. “However, many don’t know that refinancing is an easier process than an initial purchase.”

He also added that the savings over time would far outweigh the typical exit fees – especially if the original loan had an expired honeymoon period.

How much would you need to save per year on your home loan to motivate you to refinance to another lender?

Less than $500: 10%

More than $2,000: 42%

$500 to $1,000: 14%

$1,001 to $1,500: 18% $1,501 to $2,000: 16%

Source: Loan Market

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Investor appetite sated by property Australian property investors still believe property is a secure long-term investment despite the GFC, according to a new survey. Perth-based property investment firm Momentum Wealth’s latest Property Investor Survey revealed that 98.6% of respondents are confident in property as an investment proposition – a fall of only 0.5% from last year.

Eighty per cent believed that we will see growth over the next year, while 70% said that now is a great time to buy. Over half of those surveyed said they were actively planning to buy an investment property in the next year.

Momentum Wealth managing director Damian Collins said the survey responses didn’t come as a surprise.

“Property has long been popular with investors as a reliable, tangible and consistent investment,” he said. “PostGFC, lenders appear to be relaxing some of their policies, providing opportunities for investors who are not afraid to go against the herd to take advantage of some outstanding buying opportunities.”

While four-fifths of respondents thought interest rates will rise over the next year, this has not affected the plans of three-fifths of those surveyed. Eightyfive per cent of respondents also argued that now is not a good time to fix their mortgage interest rates, while 64% had reviewed their mortgages to see if they

could get a better deal within the last 12 months.

Meanwhile, a related survey by Merrill Lynch and CapGemini – focusing on Australia’s richest investors – revealed that the nation’s wealthiest people hold 40% of their portfolios in property – higher than any other country in the Asia-Pacific region. Property trumped equities, which made up 25% of total portfolios, and cash, at 19%.

Peter Opie, senior vice president of investments at Merrill Lynch, said that the allure of property transcends wealth classes, and that property investment picked up speed in 2009. “Australian high-net-worth individuals turned the risk switch off in 2009, with investors perceiving real estate to be less volatile than many other forms of investment,” Opie said.In the next six to 12 months, Opie predicts the level of investment in equities will rise in Australia and around the world.

What are property investors thinking?

• 98.6% still confident in property • 80% expect property growth in next year • 70% think now is a great time to buy

ACL: liability stays with licencee, no matter who does the work Brokers planning to apply for an ACL and outsource their compliance work should be aware that the ultimate liability lies with the licence holder, according to a financial services firm.

I-Financial MD Craig Morgan is warning potential licensees that they should not become complacent about their responsibilities under the NCCP regime if they choose to outsource their compliance work, as they will still be ultimately responsible.

“If you outsource the compliance work, you need to be aware that you’re only outsourcing the work,” said Morgan. “You can’t outsource your liability. It’s like your tax return – you can outsource the work to an accountant, but at the end of the day it’s your liability. As the licensee, you’re still going to be the one who has to answer the questions from ASIC.” Morgan stressed that this doesn’t mean that licensees shouldn’t outsource their compliance. However, he did argue that they should make this decision

with the knowledge that the risk remains with the licence holder. He also commented that compliance outsourcers should be monitored in exactly the same way as any other supplier.

ASIC guidance states that, while credit licensees are free to decide how to comply with the general conduct obligations under the consumer credit laws, it is the licencee who is responsible for complying with those obligations.

I-Financial is just one firm offering outsourced compliance support to brokers – however, its model relies on I-Financial being the licensee and the broker becoming a credit representative under its licence.

Aggregator LoanKit also recently launched a compliance support service for ACL holders, priced at $330 per month. For more on aggregators’ NCCP support models, see Toolkit on p28

14 www.brokernews.com.au

News Australian market a US guide to success Australia’s home lending market has emerged as a guide for hard-hit US bankers, as a result of the market’s ability to avoid significant home loan defaults following the GFC. A global study released by the US Mortgage Bankers Association points to mortgage loan structures utilised in Australia as examples of best practice for banks globally.

The study notes that 95% of loans in the US are now long-term, fixed-rate mortgages, compared to countries like Australia, Ireland and Korea who fared much better during the financial crisis, where the market is primarily made up of variable-rate products.

Default rates were a notable difference across markets. “We see that many countries are experiencing lower default rates than the US despite having a significant share of products such as adjustable-rate mortgages and interestonly loans,” said Michael Lee, director of Corky McMillin Centre for Real Estate and author of the report.

Lee said this indicated there were US problems with loan design during the crisis, not the existence of loan features

themselves.

The report found that the default and foreclosure methods in Australia were very efficient, reducing the typical loss per default to 20–25% of the initial loan balance. This is still higher than the loss rate experienced in Canada, measured at 18–20% of the balance.

“Flexible” mortgages, allowing borrowers to skip payments or take a break from payments to deal with short-term unemployment or variable income, were also missing in the US. The banning or restriction of prepayment penalties on fixed rate mortgages in the US was also considered unusual, with the report stating “the virtual absence of pre-payment penalties on FRMs” was an example of the impact of consumer protection regulations.

In 2009, the Reserve Bank of Australia reported that Australia had less loan delinquencies than the US because lending standards were not eased to the same extent , interest rates did not fall as much, and the legal environment in Australia places a stronger obligation on lenders to make responsible lending decisions than is the case in the US.

Stress test amid bubble fears Mounting concerns that Australia’s housing market could nosedive has prompted Fitch Ratings to conduct stress tests on the nation’s loan market. The ratings agency will examine various levels of property price declines to assess the impact of rising mortgage defaults on Fitch’s Australian RMBS portfolio, banks, and mortgage insurers.

“Over the last few months, Fitch has received numerous enquiries as to the sustainability of Australian residential property prices and the possible impacts of a correction,” Ben McCarthy, managing director for Australia, said in the statement. “While over the short-tomedium term, a downturn is not our central expectation, the agency is performing its stress test exercise on ratings impact under the hypothesis of an imminent housing market correction.”

While house prices have grown substantially in the last decade, recent market reports indicate home price growth has slowed. According to the latest statistics from the Housing Industry Association, sales of newly built homes fell 2.6% in August. “Weighted average established house prices for Australia’s eight major cities rose by 18.4% in the year to June 2010, according to the Australian Bureau of Statistics, and are now 41% higher than they were in June 2006,” Fitch said in a statement.

“This continued rise in Australia is in contrast with property prices in the US,

which have fallen 28% since June 2006...”

Fitch believes investors are keen to understand the implications for ratings should such a sharp correction occur.

However, the Real Estate Institute of Australia has backed a recent study by the Reserve Bank that rejects Australia’s “so-called housing bubble”. The research paper, “Asset Prices, Credit Growth, Monetary and Other Policies: An Australian Case Study”, concludes the ratio of house prices to income has been reasonably flat for a number of years.

“While the doomsayers continue to put a negative spin on Australia’s property market, REIA has continued to explain that what we are experiencing in the housing market is normal growth for house prices,” said REIA president David Airey. “In response to GMO chief strategist, Jeremy Grantham’s comments in June of this year – that Australia is in the midst of an unmistakable housing bubble – REIA highlighted that if Australia was in the midst of a housing bubble, then we have been there for some time,” continued Airey.

REIA’s data highlights that historically, median prices, compared to income, have been relatively stable for the past ten years, taking into account normal fluctuations. Over the period December 1996 to December 2009, median house prices in Australia increased from around $160k to around $500k; a steady trebling in thirteen years.

Read the latest issue of Australian Broker online www.brokernews.com.au

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SPECIAL REPORT: COMMISSIONS

Westpac influence over St.George denied

St.George Bank’s decision to restructure the commissions it pays mortgage brokers has been laid at the feet of parent bank Westpac, though St.George’s Steven Heavey has denied Westpac had any influence over the decision.

In response to the commission restructure, Loan Market chief operating officer Dean Rushton said “clearly there are distinct

differences between the major banks in terms of funding appetites, and it’s clear Westpac and its sub-brands are addressing this through pricing to both brokers and the consumer.”

However, St.George head of intermediary distribution Steven Heavey said this was “not at all” the case. “One of the things that can be said about the multi-brand

strategy is that we have a very different structure around commissions than what Westpac do,” he told Australian Broker.

“We have a different standard variable rate, and we have a totally different product set, and I think in all areas you will see the differentiation there, and we have made the decisions based on trying to reward brokers with the behaviours we are looking for,” Heavey said.

“We have our own business to run, and we focus on that.”

A Westpac spokesperson also asserted the brands operated separately. “Each brand makes independent decisions and has its own dedicated management team, distribution channel offering and differentiated products, different commission structure, pricing and service.”

Rushton said the changes put St.George at “close to the low end of the market” for broker trail commissions, assuming a standard bell curve on loans, though he predicted “no material change for Loan Market as a whole” as current

St.George volumes were “not significant”. He said the shake-up was more likely going to be a loss for the bank.

“Commission reductions are always a loss but I think the largest loss will be felt by St.George long-term, which is disappointing given they’ve traditionally been a great supporter of the broking channel and rely on broker distribution outside of their core market,” Heavey said.

Brokers that have strong conversion rates with St.George will continue to use the bank with no significant commission changes, according to Rushton, although those not in this situation would be less likely to place loans with St. George.

“From a Loan Market perspective I believe that if the St. George product is the standout option for a customer then brokers will still place the business,” Rushton said.

“Generally though, there will be many circumstances where they will be in the pack and flows will suffer.”

Commission move could dent trail books by 35% St. George’s revised commissions Upfront

0.5% (Conversion rate under 70%) 0.6% (Conversion rate 70-80%) 0.65% (Conversion rate 80-90%) 0.7% (Conversion rates above 90%)

Trail

Year 1: Nil

Year 2: 0.15%

+0.25

Year 3: 0.15%

-0.25

Year 4: 0.2%

-1.00

Year 5: 0.25%

+0.25

Life of loan: 0.25%

+0.25

St.George moves to revise its commission structure could put a 35% hole in the forward valuation of trail books, according to Oxygen Home Loans general manager James Green.

Reacting to the bank’s commission revision, Green said St.George is now paying a lower trail than parent Westpac over the average life of a loan. “This effectively reduces the valuation of our forward St.George trail book by 35%.” Green said the move might be seen as a short-term win

for the bank, but over the medium term it is a lose-lose – particularly for the growth of the broking industry.

“Simply put, it will make it harder for the industry to attract quality talent and new entrants needed to replace our already ageing broker base,” Green argues.

“With the loss of this talent, the industry will ultimately end up providing a lower quality service to the customer and a lower standard of application to the lenders.”

MPA Top 10 Broker Justin Doobov from Intelligent Finance said over a four-year period the trail income sourced from the bank could drop by 27%. While he said he would continue to base decisions on which lender was the most appropriate for a client rather than commissions, he said when measuring up similar lenders with similar products, commissions would need to be considered.

Jeremy Fisher from 1st Street Home Loans – also an MPA Top 10 Broker – said the commission changes would be a loss for brokers overall. Fisher said this is because “competition amongst the major banks is almost nonexistent” and brokers are being “squeezed as a result.”

Commenting on trail changes, Fisher said “I am disappointed that St.George is taking this approach as it now puts them on a level playing field with the other majors. Competition is lacking currently and brokers need to start to take action.”

However, he said the upfront changes will not impact his

business. “Based on the new conversion hurdle, I don’t see this will impact on me personally in a huge way, as I aim to keep conversions over 90% with all the lenders to maintain top levels of upfront commission.”

The changes are in line with other bank cuts in recent times, Fisher said, and “confirms that brokers need to start doing more to take some action”. However, he said he would continue to base decisions on the correct loan for the client’s situation.

James Green

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INDUSTRY NEWS IN BRIEF Vow signs Kaplan for online training

Vow Financial has signed a deal with training provider Kaplan Professional that will see the aggregator provide CPD-focused professional development material to its brokers via the web. The training package has been designed for Vow brokers, and will provide updated material on broking to facilitate ongoing ASIC requirements, which require 20 hours CPD per year. The online program records and assesses a broker’s understanding of the material and can be accessed at any time. The group is expected to roll out the training at its national conference in early October.

Oxygen hits $40m mark

NSW broker Oxygen Home Loans hit $40m in settlements in September, pushing average settlements per broker to over $2.2m. Oxygen Home Loans general manager James Green said while industry-wide loan volumes have been shrinking, Oxygen had managed to grow at a rate of 166% this year, and also managed to write a record number of lodgements during the month – 124 loans totalling $70m. Green said Oxygen has recently seen a spike in brokers wanting to join the group due to the difficulties with NCCP compliance and an increasingly volume-based environment in the industry.

Provident hikes upfront commissions

Provident Capital has increased its upfront commission to 0.825% on its premium products. Head of lending distribution Steve Sampson said the aim was to reward brokers upfront for their business. “While many lenders are tinkering with their commission structures, we’re determined to help brokers build their cash flows and their business with innovative products, without the impediment of clawbacks,” he said. The existing 0.165% trail arrangement, commencing in Year 2 for the life of the loan, remains unchanged.

Ballast ahead of legislation curve

Perth-based independent financial services provider Ballast has announced the opening of a new compliance training centre. The Ballast Compliance & Learning Centre will provide up-to-date compliance training for Ballast brokers and the wider industry in response to NCCP legislation. “While others are looking at the new legislation with anxiety, at Ballast we see it as an opportunity to further enhance the skillsets of our brokers,” said Ballast general manager Frank Paratore.

Ballast teamed up with educational provider MyFENG to deliver the training. The company expects the centre to train more than 200 brokers per year.

AFM goes flexi on lo-doc

Australian First Mortgage has announced enhancements to its Flexible Option Lo-Doc Plus product. AFM will now offer loans between 60-70% LVR, without the requirement for LMI approval, and is targeting purchases and refinancing as well as company trust borrowers. New loan amounts of $1.5m for single securities or $2m for multiple securities are available with no requirement for BAS or business trading statements, though a lo-doc declaration and accountant’s verification is required. Director Iain Forbes at AFM called it an “exciting” product for self-employed and PAYG applicants, and offered alternatives to the majors.

“We can also provide a conditional approval within 24-48 hours,” he said.

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SPECIAL REPORT: COMMISSIONS

Aggregators to work with FBAA raises concerns over St.George clawback St.George changes The national chairman of the FBAA has criticised the forthcoming changes to St. George’s commission structure, particularly in relation to clawback provisions.

Peter White has berated the bank for its revised clawback arrangements, which will reclaim 100% of upfront commission for the first 12 months of a mortgage, and 50% within the second year.

He argued that this could lead to brokers being paid an effective upfront commission of between 0.25% and 0.35%, and that the changes could see brokers more likely to recommend loans from other lenders.

“According to NAB, the average life of a mortgage in Australia is just 20 months,” said White. “If that’s really the situation, a broker is potentially looking at losing half of their upfront. When you combine that with no trail being paid in the first year and trail of 0.15% in the second, it’s just not viable for brokers to write those loans. If you make it unviable for people to use your product, then other products that aren’t unsuitable for the client may well be favoured.”

St.George’s general manager for intermediary distribution, Steven Heavey, denied the clawback change would have much impact.

“It’s a small amount of affected loans – if you look at our portfolio, those loans only account for 0.05% of the total book,” said Heavey.

He added that the feedback to St.George had concentrated on how to maximise income from the new arrangements. “I understand brokers’ concerns, and I applaud that they and aggregators are being very proactive in sourcing information about conversion rates, our calculations and reporting so that they can get the conversion rates up and get high cont. from cover

>>

“Clawbacks are extending in time and magnitude, upfronts are subject to a range of contingencies of varying transparency, and trails are staggered in both timing and quantum,” he said.

“Though some industry changes have been legitimately seeking to align commissions with value, the end result has arguably been

levels of upfront. Every single aggregator has contacted us and said that, while they’re not happy about the loss of trail in Year One, they see a real opportunity to get large numbers of brokers into those higher-level categories, so that they can more upfront to offset the loss of the trail.”

Heavey also emphasised that the changes were intended to give brokers ‘levers to pull’ to offset the changes to trail and clawback.

“That’s why we’ve designed the commission structure this way because we want brokers to think about whether it’s the right deal for St.George,” he said.

“Also, by paying higher levels of trail deeper into the loan, we’re trying to deepen customer relationships – and we want to reward brokers for that.”

White did agree that the changes to St.George’s upfront commission rates were a good educational incentive, but argued that brokers had little control over when borrowers might choose to refinance.

“It’s not a churn factor, it’s a movement factor,” he continued.

“Any number of things can influence when a customer chooses to refinance – an interest rate rise, a good deal from another bank, renovations and so on.”

Peter White

Aggregators have had mixed reactions to the news that St. George is restructuring commissions, with concerns centring on the changes to trail.

Choice CEO Brendan O’Donnell argued that the changes “can be seen in a positive and negative light depending on the quality of business one submits”.

“Clearly, there is an incentive for brokers to improve the quality of their submissions and in so doing be rewarded,” said O’Donnell.

“That said, I do not support the removal of trail in Year One. Brokers are already under significant cash flow pressures and this just adds fuel to the fire.

Whilst I welcome the shift towards rewarding brokers for keeping the relationship with St.George over the long term, brokers are the ones that need to live with the impact of lost revenue in the short term.”

Connective principal Mark Haron said that, while its members were positive about the changes to upfront commission, there was a lot of concern about the removal of trail commissions in the first year of a loan.

Connective also has questions over how St.George judges conversion rates. “The question that we have is over how St.George properly measure each broker’s conversion rate, and what capacity brokers have to challenge those if they think that is incorrect,” said Haron. “The question Connective has is over where those comments are taken and how effective that process will be.”

While Haron did not think that St.George’s move signalled industry-wide commission changes, O’Donnell suggested that commissions could still rise – albeit thanks to responsible lending guidelines rather than any moves by banks. “Given the current global markets the banks

increasing complexity and decreasing certainty.”

Percy urged brokers to review the historical behaviour of their book – particularly clients refinancing or selling within two years – which he said is a “great unknown” but a generally increasing portion of aggressive borrowers.

“My general thought is that the proportion of borrowers who move

more often just as a matter of course is increasing.”

He also flagged that Bendigo & Adelaide Bank will re-launch its all-trail commission model later this year or early next year, initially put out to the market back in 2008.

“We offered it back in 2008, and there wasn’t much in the way of appetite for it – largely, because brokers were looking at the global

Mark Haron

do have significant challenges with the cost of funding,” he commented.

“In all my discussions with them, they have indicated that the focus is clearly on working with aggregators and brokers in order to improve the quality and conversions of deals submitted, and in so doing improving efficiencies and reducing costs.

“I do believe that as we embrace the new NCCP environment, where all brokers now need to undertake a client needs analysis, we will see a significant increase in the professionalism of brokers and this will assist in improving the quality of submissions and deals,” he continued. “This, I believe, can result in potentially increasing commissions to reward this professionalism.”

Quick facts • Restructured commissions aimed at improving the quality of broker submissions on deals • Questions over how conversion rates are being measured/judged • Concern over removal of trail in Year One by St.George

financial crisis and their cash flow, so it was a difficult decision to make then.”

Percy said it was “the most elegant alignment of commissions with the interests of all parties”, and as brokers move toward charging part of their upfront service to the customer, it gives an opportunity to take “a healthier share” of income on an ongoing basis.

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FORUM MFAA PREFERRED PROVIDERS, COMMISSION CALCULATIONS AND ASIC EXAMPLES An MFAA plan to give a tick of approval to some industry training providers met with a welcome response from some – and cynicism from others. Here’s what you had to say about the MFAA plan – as well as other issues – on the Broker News forum

This was always on the cards. If the broker has done this they deserve everything that has happened. The legislation was set up to rid our industry of undesirable elements: it appears to be working.

Commented by: countrybroker at 27 Sep 2010 04:53 PM

This is better and shows the MFAA are doing some positive things for their brokers. One would hope they focus on these types of matters instead of making comments on interest rates!

Commented by: Country Broker at 10 Sep 2010 09:50 AM

A St.George commission restructure on both upfront and trails met with debate over loan life, and how to survive the commission “cutbacks” the restructure implies

About time!

Commented by: Dave at 10 Sep 2010 12:02 PM So once we are all forced to complete our diplomas – which like the Certificate 4 just confirms what we already know and exists to satisfy the system – where to from there? A PHD or perhaps a Rhodes Scholarship in Finance Broking? The MFAA keeps raising this so-called minimum education bar, solely in an attempt to justify their diminishing relevance, whilst assuming that brokers – irrespective of how long they’ve been in the industry – retain little knowledge of their profession. We are just going around in circles here, at our expense of course!

Commented by: Dumb Broker at 10 Sep 2010 12:09 PM ‘Dumb Broker’ is spot on. They are trying to herd us into gaining the same qualifications as financial planners because that is their vision for us. Why don’t they get their members to vote on whether we want to be forced into higher education to supposedly lift our perceived level of professionalism instead of dictating to us? It would be a landslide against them.

Commented by: hmmm at 10 Sep 2010 02:01 PM Does this mean the MFAA now wants to control the training industry as well as the mortgage industry? I thought I read recently that the MFAA was lobbying government to improve the competitive environment and yet this action opposes the free competition concept. The underlying message is they are favouring some competitors and inappropriately suggesting who a finance broker should deal with in the marketplace. The MFAA is not displaying a high standard of ethical behaviour in this situation.

A diploma issued by one registered training organisation (RTO) is no better a “qualification” than a diploma issued by another RTO. The performance criteria required to be taught and assessed are the same.

The required demonstration of skills and knowledge in specific tasks are the same. The rules of assessment are the same.

Commented by: Maria Rigoni at 11 Sep 2010 02:31 PM I just completed my diploma and I can state without hesitation (and with no reflection on the RTO used) that I did not learn a single iota – not one new gem of information. Am I a better broker now? Nope. Do I appear as if I am a better broker? Probably, but that just means the shonks can get the same diploma and appear legitimate – it is all smoke and mirrors.

Commented by: Andrew Hunter at 28 Sep 2010 03:09 PM

ASIC cracked down on its first wayward broker and business (see page 10), and the regulator used the event to highlight the approach it would take as watchdog This was always going to happen: ASIC baring its teeth and looking for an example. Notwithstanding that, undischarged bankrupt and deliberately misleading answers to questions deserve to be dealt with in the appropriate manner. I think I will triplecheck my application before I send it in.

Commented by: mortgageandlease at 27 Sep 2010 02:27 PM

A couple of points to note here. NAB say the average life of loan is 20 months. With the way they have treated brokers over the last three to four years that is not a surprising result. Peter White (FBAA) says clients choose to leave a bank due to interest rate rises, a good deal from another bank or renovations etc. If the broker is on the ball he will write this new loan and get upfront from the new lender!

St.George has consistently offered good products and a review of my 150-plus loans paying trail shows that more than 70% of them have been going over 24 months and 86% over 12 months. My conversion ratios are consistently above 90% so I personally am pleased with the bank’s new structure. For some brokers it seems “bank-bashing” is easier than doing a good job and putting their clients with the right lender.

Commented by: Troy at 27 Sep 2010 12:21 PM Strange, the first three deals I wrote nearly 9 years ago are still on my books (with the original lender) and I did an audit recently and approximately 60-65% of my loans are still with the original lender (though many have been topped up or varied etc). I find it hard to believe 20 months is average. I write a deal, I want it to stick and most do and most are not through the majors. I don’t hold CBA or Westpac/St.George anymore and rarely use Homeside, and most of my clients are pretty happy where they are. If you get a client into a product they’re happy with, they then don’t move for the sake of it.

Commented by: mortgageandlease at 27 Sep 2010 02:15 PM Brokers who don’t do the math on commissions gave CBA market share after they pulled trail in the first year, then did the same to ANZ, so why wouldn’t the other banks follow? Brokers that complain on quality benchmarks do not hit them, hence their concern.

This means 70/25 is back on the table for sticky customers submitted through high-quality brokers.

Commented by: Successful Broker at 27 Sep 2010 02:20 PM Twenty months average is wrong. We purchased a trailer book 18 months ago and 60% of the loans at that time were over four years old, some as old as nine years. This particular book’s trailer has only dropped from $11,000 per month to $8,500 per month in the last 18 months.

Commented by: Paul Gollan at 27 Sep 2010 10:14 PM Successful Broker, I think the concern is that there is no justification to alter (defer) the cash flows and shift more contingent liability (clawback/30-day arrears) to the brokers – especially when the reason they cut commissions in the first place (GFC) never actually happened. Was not the DAF designed to cover the lender costs in the event of early discharge? It is a point that if only five loans per 10,000 are discharged in the first 24 months, why bring it in? Why not apply the clawback policy to refinancers only? If the industry allows these nips and tucks to occur without being challenged, it sends a green light for other lenders to do the same.

I believe in the US and UK there is no trail and competition is more active than what we have here. The broker industry is absolutely being challenged by market forces and suppliers (banks) do have the opportunity to improve their position, no question. I certainly don’t want a situation where broker volumes drop to 20% of total originations.

Commented by: Spinner at 28 Sep 2010 07:38 AM To join the debate, go to www.brokernews.com.au/forum

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Comment VIEWPOINT

Commission cuts are never easy to take, and there may be more to follow. Australian Broker asked some of the industry’s best brokers what they think of recent surprise bank moves

FEATURED VIEW

James Tsolakis Mortgage Max

The GFC is the “excuse of choice” used by many businesses over the past 2 years to achieve cost reductions, to change the rules of the game and to restructure their businesses and employment conditions. The major Australian banks are by no means an exception to this.

I have been watching developments in the broker channel for the past 2 years and have reached the conclusion that the major banks have an ulterior motive in the way they are dealing with the channel. My thoughts were cemented recently when I read with interest an article in the August edition of Australian Broker which

featured an interview with St.George (page 1, issue 7.16), a bank which has since moved to cut commissions. The spin was just incredible, but was nothing short of the spin coming from the banks in all areas.

The comments contained therein ref lected a level of arrogance towards the broker channel that all four prime banks have. In the face of historically high profitability, a lack of effective competition (thanks to a toothless ACCC) and increasing compliance costs, the banks are effectively gouging the broker channel in an attempt to claw back customers.

The banks have reached the conclusion they can now service mortgage customers internally, at the branch level, at a lower price than for the cost of paying brokers. The many changes we have witnessed are all designed to push brokers out of the equation over time.

Reduced commissions and conversion rate hurdles are impacting broker commissions to the point that it is now becoming unprofitable to stay in business. The withdrawal of access to products (such as RAMS) further reinforces the view that the banks have an unspoken agenda.

The banks need to understand that on the frontline, the higher cost of funds has nothing to do with brokers needing to find

“greater business efficiencies”.

Business efficiencies will only be found when the banks all move to full online loan submissions and approvals, eliminating the need for paper.

The new National Credit Code will only hamper efficiency due to the paper-driven and timeconsuming pre-loan processes that it has created, as well as adding an additional layer of compliance and process costs to doing business.

Further, conversion rates are hypocritical and should be abolished immediately.

How can a commission structure adopt a conversion rate program when the banks themselves control the approval process? In the current market, where the banks are rationing credit to avoid any further exposure to the overheated property market, they can turn the levers on and off. We have all seen in recent times reasons for declines that did not exist a year or two ago.

The broker channel delivers an outstanding level of service to the community – a service that the banks cannot match.

Brokers underestimate the power they have, and it is time that, via the aggregators who are there to represent them, brokers take the fight to the banks, to curb this attack on their commissions and on their income.

Brokers work very hard for the commission they earn on

Michael O’Reilly

Ruan Burger

MO’R Mortgage Options Change is completely natural and is to be expected. It is inevitable and ongoing and it should always be prepared for. If we are to achieve our business and personal goals, we must deal with change efficiently.

Our attitude is critical – we can become “bitter” or “better”… it’s our choice… one letter makes a big difference.

The most exciting thing about the Mortgage professional industry is that we all can design our businesses the way we want them to be.

That means increased efficiency (perhaps fewer home visits), attracting better

Home Loans etc By running a successful business in a way that is ethical for all involved. Send a message that regardless of commissions we will continue to deliver top-class service. We’ll mitigate such ‘unbankly’ manoeuvres through experience and expertise; by examining each of the lenders and supporting those that support us whilst choosing the right bank and loan for the client.

We’ll manage the banks the best way we know how… ensuring we are the first person our client wants to talk to; ensuring we understand the clients’ position 100% in

quality clients, avoiding the “all things for all people” approach and building better quality relationships.

each loan, and increasingly with more and more compliance burdens placed upon them, the net return is falling. Add in the reduced number of mortgages being written, and the banks’ tightened lending policies, and broker’s business is under threat.

There is no other choice now than for brokers to distance themselves from the banks so they can take them on. Banks have their own association and they should no longer be welcomed to the associations that represent the broker channel. Other industries discovered this years ago, where it was recognised that distributors and suppliers cannot be on the same team when it comes to setting the rules of engagement that drive the relationship between them.

It is time the industry faced the truth, and got on with the business of serving customers and rewarding the people that do it correctly.

Enough spin from the banks, and some solid representation by the aggregators and the associations on behalf of their broker members is now needed.

Speak up people ... it’s your future and income on the line!

 Do you have a view? Email the editor at ben.abbott@keymedia. com.au or join the debate at our forum online, at http://www. brokernews.com.au/forum/

both the short and long term.

Our business is knowing their business, and knowing it well.

Another point – better trails should be paid on ‘client life’ – not ‘loan life’. This should be common sense.

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OPINION TIME TO FOCUS ON THE CLIENT – NOT JUST THE NEXT DEAL Brokers should move away from an obsession with the next transaction and assume a role as a client’s personal banker, argues Loan Market executive director Sam White

All good brokers know the best new clients are the ones referred from existing clients. The more we focus on driving value to our clients, the more business comes our way.

I believe mortgage brokers are becoming private (or personal) bankers to every client. We will become more responsible for looking after the client’s broader financial requirements. To do this we not only need to bring new resources and skills to bear, we need to understand and recognise client needs.

This approach contrasts with transactional brokers who saw the key obligation to a client was to get the deal set.

This type of business saw little ongoing relationship with the client and when that deal was done they needed to prospect for new clients.

In my experience, client-centric businesses grow faster, have more valuable trail books and have deeper and more diverse revenue streams.

Why should brokers meet face-to-face with every client?

The broker’s role is to meet clients and assist them to choose the best finance package available. According to industry averages, most brokers only see two to three clients per month. At the same time, reduction in lender commissions means brokers who want to make a career in this industry need to see more clients to maintain profitability. Whenever a broker gets a referral or an enquiry, I believe we should make every effort to see that person, even if they don’t qualify for a loan now.

Firstly, by seeing a client even if they don’t qualify, we initiate a relationship that could either lead to a referral or create business in the future. Even if that client is not ready to do something now, they will be ready eventually. These clients build our pipeline of future business, as long as we have a system to communicate with them.

A lot of brokers don’t do this – some consider seeing clients who don’t qualify as a waste of time. Instead they focus on the clients that are ready to do business now.

The problem with this approach is that every other broker and lender is also focussed on these ‘now’ clients. Clients who don’t qualify now also refer more of their friends and family to their broker, in part because that broker showed an interest in them when others didn’t, and they are more likely to be fans.

How does this approach differ from those of the past?

There are a lot of excellent brokers in our industry and many have had this client-centric view for some time.

Others have seen their job as purely to assist with the transaction. As our industry has matured so too have the expectations of our consumers. In the past the greatest broker asset was that they provided the consumer with the platform to choose a lender from a diverse panel. Whilst that is still our key value proposition, it is now just a ticket to play.

All we have as brokers – our only product – is customer service. Many brokers now realise this and are becoming more focussed on their service delivery. The focus on service is now heightened by another reality – that for the last few years the mortgage broker share of the market has remained stable at about 40%. Whilst I believe that this will rise in the future, at the moment it’s flat.

At the same time we had an increase in the number of people becoming brokers (despite the NCCP, there are still significantly more brokers than before the GFC). So we have had more competition for clients rather than the old environment where it was first-party against third-party.

This competition brought about an increase in skills and service levels to consumers.

But brokers are time-poor, so why is this necessary?

If a broker is seeing 10 clients per week and they are ready to do business then I agree they don’t have time to see clients who don’t qualify now. In that event they can either employ file drivers or loan writers to assist in growing their business if they so choose. According to most industry reports though, most brokers are only doing 2-3 deals per month, in which event there is both the time and the need to see more clients and to build their database. If they don’t, the increased costs of compliance will make their business less and less sustainable.

Should brokers prioritise based on pre-qualifications?

Of course some clients’ issues and needs are more urgent than others. Clients ready to move now and who are seeking either an approval or pre-approval should of course take priority over clients that aren’t ready to move now.

How will this assist in building a successful business?

All brokers know that their greatest financial asset is their trail book. I believe that the greatest asset we have is the depth and quality of our relationships and the satisfaction of our clients – which in turn drives referral rates.

Consider you have a database with 800 people you have met – and they all have a mortgage. Assume that the average life of a loan is 4 years, which means that in this time half of these clients will refinance their loan. That means that every year there will be 100 new mortgages written from clients on this database. And that doesn’t count the referral business or other business opportunities that come from those clients.

To grow that database we need to meet 800 people and deliver to them a great experience. Doing that takes time and energy, which is all the more reason to see every client.

It is desirable to make that extra effort Standards in this industry aren’t being lifted by regulation or by lenders – they are being lifted by high-quality brokers who are looking for ways to grow their businesses. As with all service industries, those that lift their standards grow market share and their businesses set the benchmarks that others seek to emulate.

History shows that all businesses and industries that don’t seek to improve their value proposition to consumers become increasingly less relevant.

Reduction in lender commissions means brokers who want to make a career in this industry need to see more clients

Sam White

24

www.brokernews.com.au

Insight EXECUTIVE COUNSEL

Gerald Foley

Gerald Foley from National Mortgage Broker is a well-known face in the industry, but what are the secrets of his success? Australian Broker finds focus – and biting off more than he can chew – have helped

Name a business leader you admire. Why? From a distance I can’t really think of any business leaders that would fit the bill here. Many have at times said all the right things but their actions don’t always match the words. I have personally been very fortunate to have worked with – and for – many great business leaders over a long journey. All have taught me things along the way that I have been able to draw upon in my day-to-day business life.

Is success due to talent, hard work, or luck?

Success will only come from a combination of talent and hard work. Talent can be honed but hard work is a state of mind. I’m not a big believer in luck playing much a part of anything that happens in business. It’s more about being out in the market so if an opportunity comes along you are there to identify and grab it, and make the most out of it.

What character trait has helped you the most in business?

I believe that I’m very focussed on the end goal. There have been – and will continue to be – many speed bumps along the way. Suck it up and keep driving.

What is the key to great business relationships?

Have a strong business focus in all your dealings but make sure also to have some fun along the way. Too many people take themselves overly seriously. At the end of the day, if you’re not having some fun in the course of doing business, why bother?

What’s the first thing to look at when growing a business?

Be sure to understand what are the fundamentals that make the business tick. This will ensure effort and funds aren’t wasted on activities or areas that won’t generate the results you are looking for. Don’t overly complicate what you are trying to achieve.

What’s the best piece of advice you’ve ever received?

Bite off more than you can chew and chew like crazy!

What trend are you currently watching?

The dominance of the four major banks is something that has my attention. With direct market share near 80% and indirect market share of over 90% I wonder where it will end? The comforting thing for me is that consumers have continually supported the broker proposition (and why wouldn’t they?) thereby ensuring our market will continue to thrive, provided we continue to give great service and advice.

What is your next big ambition?

I am looking forward in the next few years to taking an extended break and travelling around Ireland and England, seeing the sights and playing golf on many of their famous courses.

Moving online The rising influence of social media is no passing fad. Byron Grey details three simple steps that will give you an edge over the competition in the expanding online world

A

s a broker, can your business really benefit from social media, or is it just a passing fad? Our research at Intellitrain indicates that between 70% and 80% of brokers in the market believe social media isn’t a passing fad, and in fact will be an important marketing tool of the future. However they aren’t quite sure how to make it work for their business… so take comfort in the knowledge that if you don’t know, you’re not alone!

Implementing aspects of social media into your broking business isn’t difficult and won’t take you a lot of time or technical knowledge...but it WILL definitely generate business through new clients, more referrals and retention of clients.

Users of social media • Facebook has over 500 million users worldwide • Twitter has over 150 million users worldwide • LinkedIn has over 1 million users in Australia

So how do you get started?

There are essentially seven key social media platforms, and each provides you with a unique opportunity to promote your business and interact with potential and existing clients.

The seven key platforms are: • Blogs • Forums • Facebook • Twitter • LinkedIn • Websites • YouTube This might seem overwhelming at first – but to get started, we recommend following a simple three-step process, outlined below:

Step 1 - Get listed on Page 1 of Google Although not strictly one of the seven platforms in its own right, add your business to Google Places as this will virtually guarantee you’ll be on the first page of a search for a mortgage broker in your local area.

To do this, simply go to www.googles.com/places and

Byron Grey is general manager, sales & marketing at training provider Intellitrain

www.brokernews.com.au

MY WAY

follow the instructions – you’ll be amazed at how powerful this can be for driving new leads for your business.

Once you’ve added your business ask clients to post testimonials or ‘reviews’ on your behalf, as these are a powerful way to gain exposure and build credibility for your business. To test this out simply go to Google and do a search for a mortgage broker in your suburb.

I’d also suggest you consider adding your business to TrueLocal.com.au if you haven’t already – it’s free and connects to your Google Place to extend the reach of your business. To do this, simply go to www.truelocal.com.au, create an account and then add your business.

Step 2 – Claim your name

To try and implement and use all seven social media platforms isn’t realistic, especially when you’re first starting out. However if you haven’t already done so, you must at the very least, claim your name.

Each platform essentially requires you to have a username, very much like your website address and if you don’t claim your name today someone else might, which is a lost opportunity for you (especially if it’s one of your competitors).

Therefore, go to each of the following key platforms and create a profile for yourself and your business: • Twitter go to www.twitter.com and create an account • Facebook go to www.facebook.com and create a personal profile. If you already have a personal profile you’ll also need to create a Business Page which you can do here: http://www.facebook.com/#!/pages/create.php • LinkedIn go to www.linkedin.com and create your profile If you don’t already have a website address (domain name) for your business then you’ll also need to set this up. You can easily claim your address (www.yourbusiness. com.au) and then simply have this “parked” so you don’t have to create your website until you’re ready.

There are a large number of companies that can set up your website address. Simply go to Google and search for “Australian domain names”.

Once you’ve claimed your names, spend some time at each of the three key sites – Facebook, Twitter and LinkedIn – to get a feel for how they work and which will be the most beneficial for your business.

Step 3 – Take action

Select only two or three platforms and actually start to integrate these into your business communications – add to all your stationery, newsletters, brochures, email signature etc.

Facebook Given the popularity of Facebook, this would be a great place to start. It won’t take you long and can effectively be either an add-on to your website or a quasi-website if you don’t already have one. Simply set up your business page by following the instructions at: http://www.facebook.com/#!/pages/create.php.

There’s an enormous amount of free information and articles available online to help you set up and start using Facebook for your business. However, a good first place to start is the Facebook Help section of the business pages: http://www.facebook.com/ help/?ref=pf#!/help/?page=175.

LinkedIn Also create as a priority your LinkedIn profile. LinkedIn is a networking tool for professionals and is an excellent way to build strong professional relationships and referral networks. Once you’ve set up your LinkedIn profile be sure to join industry groups, answer questions relating to broking and connect with other professionals.

Forums Forums are an excellent way to demonstrate your expertise to potential clients by sharing your experience and providing answers to their questions. You can easily position yourself as a thought leader and trusted adviser through participating in forums.

There are numerous online forums which you can freely participate in. Simply do a search – for example, “Australian mortgage forums”. Alternatively you can establish your own forum on your website, by using a free forum hosting site or even use the “discussions” section of your Facebook business page.

There are a number of brokers who regularly participate in forums and others who run a forum on their website – converting up to 10% of participants into actual clients.

Final thought

What mobile phones were to business 20 years ago social media is to business today, but the main difference is the speed with which this new medium is being adopted.

Facebook now has over 500 million users – if it were a country it would be the thirdmost populated in the world – behind only China and India. So get social networking!

25

Colin Lamb

A regular in MPA’s Top 10 Brokers, Colin Lamb from Mortgage Solutions Australia in WA tells AB that referrals have been his key to building one of Australia’s most successful brokerages – and that when it comes to service, there is never enough

What is your greatest business achievement?

Setting up Mortgage Solutions Australia. Starting approximately 10 years ago, with little knowledge of the industry, we were able to establish the business quickly into what is now a major player in the mortgage industry.

What’s the key to getting business through the door?

Work consistently with referral sources, whether they are real estate agents, accountants/financial planners, or existing clients. The most important aspect to this is communication, mainly to do with feedback and keeping both client and referral source in the loop.

What goal/s have got you to where you are?

When we first started the business, a number of goals – mainly to do with activity – were set and were not negotiable. The main activity was to visit our referral sources or real estate offices at least twice a week, with one of those visits being at a sales meeting.

What character trait do you most value in yourself?

Integrity. This covers traits such as honesty, sincerity and credibility. I’m not about making it fit every time, and will always do the right thing by my client.

How do you stand out from the crowd/competition?

How I compete against other brokers is by being there.

I have a point of difference where I assume control of the real estate transaction, making sure the settlement or conveyancing side is taken care of, even to the point where I assist in the signing of conveyancing paperwork.

Some say that I over-service my clients, but it is from these clients that I get my referrals.

What do you tell yourself when the going gets tough?

If it’s tough for me then it’s probably a lot tougher for others out there. There has been a dip in volumes written in the past six months, mainly on the back of slower real estate sales. I keep telling myself that the market will bounce back, and to enjoy the quieter period by having a few short breaks.

What is one thing you want to improve in your business?

Technology. I see the emergence of technology in the mortgage industry to be the biggest requirement in reducing turnaround times and costs involved in processing loans.

What piece of advice would you give an ambitious broker?

Try and buddy up with a top broker in your group – or even externally. Ask them for advice and I’m sure most, time permitting, would be only too happy to oblige.

What’s your next greatest ambition?

A mortgage broking office in each state. At present we are just in WA, but are considering options interstate, or at least hooking up with agents around Australia.

26

www.brokernews.com.au

Image courtesy of Australian Capital Tourism

Market talk

Caretaker mode Canberra’s pollies have been on a knife edge after the election result – but what has the effect been on the ACT’s property market?

T

he political centre of Australia’s federal government has seen interesting times recently – and that’s had an effect on the property market. Election campaigns always produce a ‘wait and see’ effect: however, in a city like Canberra – where a significant proportion of the workforce is directly employed by government, and the remainder depend upon those employed by government – the result is much more pronounced.

Add to that the protracted period of uncertainty following the election result, as both major parties negotiated with independents to try and form a minority government, and you’ve got a recipe for a stagnant market.

Gerard Tiffen, Director of Tiffen & Co and one of Mortgage Professional Australia’s 2010 Top Ten Brokers, reckons that’s exactly what’s happened. “The market totally came off the boil for eight weeks or so, and it’s still slow,” says Tiffen. “Real estate agents saw a significant downturn in people coming through exhibition homes – whereas before you’d have 20 couples, it’s been down to just two or three. Stock levels are increasing, too, as is the time on market: while previously this averaged around 45 days, now it’s blown out to 60 or 70 days.”

That’s consistent with what Tiffen has seen in terms of demand for mortgages. “While the volumes of mortgages we’ve been arranging hasn’t dropped as significantly, the purpose has changed,” he adds. “We’ve seen a lot more people refinancing with the intention of renovating or extending their properties, rather than for new properties or upgrading.”

Even so, it appears that the Canberra market’s stagnation hasn’t translated into a fall in prices. RP Data’s senior research analyst, Cameron Kusher, reckons that while property prices have slowed from the 10% growth seen over the last 12 months, they are holding up.

“Like the rest of the country, value growth now appears to be slowing with values falling by 0.5% over the quarter,” comments Kusher. “However, values were actually up by 0.6% for the month of July.”

Kusher adds that growth will continue to return.

Tiffen agrees – but cautions that continuing political instability could keep the brakes on the market. It’s not all doom and gloom, though. The establishment of a new headquarters for coordinating joint Australian Defence Force operations near the NSW town of Bungendore – 25km east of Canberra – is seeing a net population inflow, which could add to demand in both the sales and rental markets.

Another town just over the border in NSW – Goulburn – could also be of interest to buyers who find Canberra’s property market unaffordable, adds Tiffen.

“For years, people have been telling me that Goulburn is the next hotspot, but I haven’t seen it,” he says.

“However, for the first time in a long time it looks like there could be real potential there. There are a number of new home builders putting together some very good house and land packages – for example, you can get a three-bedroom ensuite house on its own block for $264,000, with no stamp duty.”

Goulburn is only a 45-minute drive into Canberra, adds Tiffen, and the significantly lower house prices means that first-home buyers priced out of ACT are heading to the area.

He compares the situation there to that of Campbelltown and Sydney, and suggests that there could be good investment opportunities in the area, especially if the long-rumoured regional campus of the University of Canberra alights on the town.

We’ve seen a lot more people refinancing with the intention of renovating or extending their properties

www.brokernews.com.au

NUMBER CRUNCHING

MARKET NEWS IN BRIEF Market to remain flat into 2011

 RP Data-Rismark Home Value Index – August State

Property Type

Median price

Monthly growth

Quarterly growth

Sydney

Houses

$580,000

0.2%

-0.5%

8.3%

Units

$450,000

1.0%

1.7%

=10.9%

Melbourne

Houses

$500,250

-0.2%

-2.0%

13.1%

Units

$429,000

1.0%

=0.4%

13.5%

Brisbane

Houses

$455,000

-1.5%

-2.8%

0.4%

Units

$380,000

 1.2%

0.4%

3.3%

Houses

$405,000

0.0%

-0.2%

5.7%

Units

$332,900

-1.6%

0.3%

5.5%

Houses

$480,000

2.3%

4.1%

1.6%

Units

$410,000

-3.2%

-7.3%

2.5%

Houses

$530,000

-0.5%

-0.9%

9.9%

Units

$405,000

-1.5%

2.5%

13.3%

Houses

$539,950

1%

2.3%

13.0%

Units

$410,000

-0.5%

-1.6%

5.8%

Adelaide

Perth

Darwin

Canberra

27

Year on year

Information (indicative and seasonally-adjusted) from August 2010

Australian property is unlikely to see significant capital growth until next year, according to the latest RP Data/ Rismark projections. Rismark managing director Christopher Joye commented that the market is likely to remain flat for the rest of 2010 and could even decline if interest rates start rising.

“Following hawkish RBA remarks, economists are now predicting we’ll get four to six cash rate hikes,” said Joye.

“If the resources boom, combined with frisky consumer spending, compels the RBA to lift the cash rate four to six times by end 2011, we would expect to see nominal dwelling values decline modestly.”

Slow gains in consumer confidence

Consumers remained conservative in August despite a small uptick in spending, according to a new survey. The Business Sales Indicator, which tracks the value of credit and debit card transactions processed through CBA’s point-of-sale terminals, showed an improvement of 0.1%.

Although a small increase, it’s the first positive reading in nine months. In terms of annual growth, it declined by 2.7%, the largest yearly drop since the first collection of data six years ago. According to Matt Comyn, CBA’s executive general manager of local business banking, the increase in spending demonstrates a slight improvement in consumer confidence.

Auction clearance rates: week ending 19 September Clearance rate

Number of auctions

Sold

Sydney

63.1%

569

359

Melbourne

65.6%

666

437

Brisbane

23.5%

98

23

Adelaide

44.6%

83

37

Darwin

28.6%

7

2

Perth

23.7%

38

9

Canberra

69.7%

33

23

Hobart

36.4%

11

4

Auction clearance rates: week ending 26 September Clearance rate

Number of auctions

Sold

Sydney

61.2%

562

344

Melbourne

65.2%

46

30

Brisbane

31%

87

27

Adelaide

46.7%

30

14

Darwin

60%

5

3

Perth

33.3%

3

1

Canberra

57.7%

26

15

Hobart

25%

4

1

The auction markets showed positive signs countrywide in the second full week of September, with the number of auctions and volume of sales increasing across the board. However, ‘Grand Final Effect’ kicked in the following weekend, with volumes plummeting – especially in auction capital Melbourne, where volumes were less than one-tenth that of the previous week.

Source: all data from RP Data

Infrastructure before housing, says NSW

Sydney councils are calling for the NSW state government to commit to transport improvements before building more medium- to high-density housing.

An independent report collating reactions to the Sydney Metropolitan Strategy and Metropolitan Transport Plan has revealed that both councils and the public think the NSW Government must commit to the provision of key infrastructure to support population growth.

Transport connections to the growth areas in the north-west and south-west are vital, argued the report, including connections to employment, lands and services, and should include inter-regional connections.

Identification of the area for a second Sydney airport is also vital for the economic development of Sydney as a global city, it suggested.

Tourism woes buffet coastal cities

The strong Australian dollar and resulting slower tourism markets has resulted in coastal property markets suffering over the last year.

Figures from RP Data show that house prices in coastal areas have recorded growth of less than 10% in the last year, and rental growth of less than 5%. Tourism and ‘sea change’ markets have been particularly badly affected, with values in Cairns falling by 2.7%, the Whitsunday region falling by 2.5%, and declines on the Fraser Coast of 1.6%.

“With the strength of the Aussie dollar at the moment, holidaying in Australia has become much more expensive for our overseas visitors. On the flipside, our strong exchange rate makes holidaying abroad significantly more appealing for Australians,” said Cameron Kusher, research analyst at RP Data. “Unfortunately, a flow-on effect from this is that slower tourism markets tend to lead to a lack of employment in coastal regions. This then makes it difficult for owners of investment properties as they are ultimately less likely to be able to find tenants.”

28

www.brokernews.com.au

Toolkit

Decision time

T

he 31 December deadline for credit licence applications is rapidly approaching – however, there’s still uncertainty in many parts of the broker community – not least in terms of whether to apply for a credit licence or become a credit representative under another organisation’s licence, whether that be an aggregator or a third party. While it’s not the only question, cost is a key determinant. An ACL could cost a sole trader as little as $450 a year: however, if the time required

to fulfil the compliance obligations takes away from sourcing business, then it could be a rum deal – and that’s before taking into account costs from legal advisors. In the meantime, handing off the compliance burden to your aggregator may seem attractive, but there are other considerations which may put off some brokers.

It’s with this in mind that we surveyed the major wholesale aggregators about what they’re offering their brokers. We’ll be looking at the results in two parts, with support for ACL holders this issue. It seems aggregators fall between two posts – neither offering a full support system nor leaving brokers to go it alone. Typically, most aggregators seem happy for ACL holders to take advantage of guidance, templates, training and software enhancements being provided to credit representatives; however, the message seems to be that licence holders are on their own in terms of how apply those to their own businesses.

Some aggregators are going further, however.

Franchiser LoanMarket is offering post-licence application audit services, while LoanKit and ALCo are offering ‘hybrid’ models where you hold the licence but outsource your compliance tasks to them (although it’s worth bearing in mind that, as the licencee, it’s still your responsibility to ensure your legal obligations are fulfilled). AFG is also currently assessing support for a hybrid model, so it’s possible this may become more common in coming months.

Of course, cost is still the elephant in the room.

Compared to the average cost of being a credit rep (between $1,500-$2,000 a year), a licence looks like a financially attractive option – however, it is still difficult to pin down a reasonable estimate of the actual costs of compliance. It looks like these are numbers that each brokerage may need to crunch for themselves.

Next issue: credit representatives

If the time required to fulfil the compliance obligations takes away from sourcing business, then it could be a rum deal

What do the experts have to say? Choice and PLAN CEOs give their advice

Brendan O’Donnell Chief executive, Choice In terms of the Choice membership base, we have spent a significant amount of time over the past six months educating them and preparing them to make the right decision in terms of the new licensing environment. And that decision is really: do I take up my own licence, and what

are the implications of doing that in terms of my business? Or do I opt for a credit representative license under Choice? So we have worked with them to help them make an informed decision around that. From a Choice point of view I’m happy to say our members are up to speed as to what needs to happen, and we still have a few months to go. So we are preparing them in terms of getting them to a point where they are ready to embrace the changes in January. Having said that, members have already had to embrace the new NCCP environment from 1 July, and I think if you reflect on that and you look at what’s happened, it has come and gone with little major implications – and that is a big tick for brokers.

Ray Hair, Chief executive, PLAN Australia The important thing is that there is alternatives for brokers – you can get your own ACL or you can seek to become a credit rep – and so those choices are there and in fact there’s been a few people promoting that third option of outsourcing the licensing or compliance piece. Really, it

boils down to what the broker’s doing and what is right for their business, and then whoever they partner up with needs to have the resources in place. I think that’s probably the danger at this stage is that there are perhaps some players in the market who are underestimating what is required; in terms of the resources they’ll need put in place to provide a level of support for credit representatives.

Competition is good because it means there’s choice, and there is also price competition, but it’s got to be resourced adequately. That would be the concern that I have, not that brokers will make wrong decisions or that brokers won’t cope, because they are a resilient bunch. It’s more about will we have adequate infrastructure in place by all the players.

www.brokernews.com.au

29

 NCCP support models, part one: licence holders Aggregator

Support services for ACL holders

AFG

Tools, templates and education sessions necessary to obtain licence and fulfill consumer obligations. AFG is currently assessing demand for a ‘hybrid’ support model

ALCo

Two options: compliance only (1) and aggregation and compliance (2).

Support is equivalent that offered to credit reps, and includes: client file audits per annum per broker; access to template forms and documents, including legislated documents to be used with clients; access to template manuals; access to suggested policies and procedures to manage the obligations of a licensee; access to compliance and legislative training; review of marketing and other related material in relation to compliance/ legislative needs; email updates of changes in legislation as they occur; access to assistance with ACL applications and lodgements; range of compliance documents including risk management strategy, credit guide; referral checklist; internal dispute resolution procedures template and manual; conflict of interest policy template

Choice, FAST, Access to best practice standards via software, templates and PLAN Australia Professional Development (PD) training; will also be able to access (Advantedge) operating guidelines provided to credit representatives

Cost for services (over and above ACL cost)

Requirements for ACL holders

None

Evidence that licence has been obtained

(1) $3,000pa for the licensee (first person/director and an additional two employees); $900pa for each additional representative or credit representative.

(2) $1,500-$3,000 pa for the licensee (as above); $900 pa for each additional representative or credit representative

Copy of ACL or evidence of registration with ASIC

None

Details of licence and credit representatives

None for general support; costs for outsourcing still to be confirmed.

Brokers will need to provide evidence of their licence and confirmation of the appointment of credit reps, which Connective will cross-check against the ASIC database

Connective

Connective conducts around one webinar a week on compliance for brokers, as well as presentations at PD days. Its broker website includes all the ASIC RSGs, plus guidance on the ACL application process; how to appoint a credit rep; a business description template; a compensations arrangement checklist; a complaints handling brochure; a compliance manual; a compliance manual for credit reps; a compliance policy; a conflicts of interest policy; a customer checklist; a document checklist; and a risk management policy. Its broker platform: enables brokers to timeand date-stamp notes and attached documents; includes a ‘customer questionnaire’ (fact find), which can be sent to clients as a weblink; and includes a web-based dispute resolution process. Brokers can outsource to Connective complaint handling; auditing of their files and processes; and completion of Credit Contracts and Product Recommendation Statements (a similar service to that of paraplanners in the financial planning industry). Finally, Connective provides access to a compliance outsourcing company called QED Risk Services at a reduced price

Firstfolio

All brokers – credit reps and registered/licensed – are offered access to Firstfolio's Fleats system, a secure online platform on which to record their loan applications and supporting client needs reviews (the 'fact find' client interview document). These documents and process have been reviewed and endorsed by Firstfolio's legal advisors in terms of meeting the Responsible Lending (Unsuitable Loan) obligations of the NCCP Act. Firstfolio says that, by giving brokers a structured online process, it will help ensure they are consistently meeting their obligations under the unsuitable loan provisions. While non-credit rep brokers do not have to lodge their deals online, Firstfolio strongly recommends that they do so to give them a structured approach to meeting their obligations

None

Brokers are required to communicate when their ACL application has been approved and provide a copy of that licence. All brokers must meet Firstfolio's accreditation requirements

Loankit (Mortgage Choice)

Two options: broker handles compliance in its entirety (1); and managed licensee (2). Loankit will create the necessary compliance documents and registers, then provide these to the broker; store the broker’s customer Credit Assessment Reports (CAR) for seven years; supply brokers with a website where customers can access their CAR at any time; allow brokers to immediately send the CAR to a customer upon request; create the CAR electronically from within LoanKit software; translate any relevant data supplied by the customer for creating the CAR into an electronic lodgement format; provide complaint management guidance and support; provide Credit Ombudsman liaison; provide compliance audit services (optional, and at extra cost quoted on a case-by-case basis)

(1) None (2) $330 pa

Copy of ASIC licensing registration form; usual requirements as per LoanKit member checklist

Loan Market

Guidance on guidelines or service providers for licensing & administration of the licence; External review of their business post-licence application

General support: none. External review: cost to be determined

Licence details; External review of their business post licence application

NMB

General informal support; access to forms and templates – such as credit representative appointment forms

None

Copy of licence and renewal certificates as appropriate

Vow

Vow is assisting brokers that wish to gain their own licences by negotiating discounted rates from service providers that are qualified to provide such assistance. It is also providing access to information that will assist brokers in gaining and maintaining a licence, and its compliance department is available to assist brokers wherever possible

None

Brokers must provide a copy of the licence, along with details of any credit representatives.

Vow may also require brokers to provide copies of their responsible lending documents: however, a decision has not been made on this at this time

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Feature OFF THE CUFF Chris Burns

Chief executive officer, KeyInvest Lending Services What was the last book you read?

It was one of the Harry Potter books I read to my children before their bedtime.

If you did not live in Australia, where would you live and why?

I’d live in Bali. We have a holiday home there and I go there with my family as often as I can. The climate is brilliant, the local people are so friendly.

Ernie, Graham and Simon Reibelt

If you could sit down to lunch with anyone you like, who would it be?

Nelson Mandela. He is such an inspirational person.

What was the first job you ever had?

When I finished school I worked as a bank clerk for BankSA in Adelaide.

What do you do to unwind As much exercise as I can. I enjoy running, hiking, soccer, cross-country marathons and cycling. I find physical exercise clears the mind perfectly.

What’s the most extravagant gift you ever bought yourself?

It would be the holiday home in Bali. However, it’s something that my whole family benefits from so I think it was a very justifiable purchase.

What CD is currently playing in your car stereo?

It’s an Eminem CD, which my daughter put in the car stereo and I haven’t got around to changing yet.

If you could give anyone starting out in business one piece of advice, what would it be?

Invest as much as you can into your education and be prepared to do your apprenticeship in whatever career you undertake.

If I was not working in the mortgage industry, I would like to be...?

A tradesman working in the building industry. I don’t have any skill with my hands and I have a lot of admiration for people that do.

Where was the last place you went on holiday?

It was to Bali on a family holiday this year.

Father and son among AMA elite

A

NSW father and son combination were some of the stand-out finalists at September’s Australian Mortgage Awards (AMAs), which brought together the industry’s best.

Industry stalwart Graham Reibelt, from Oasis Mortgage Group in NSW, made the finalist selection in the “Broker of the year: NonConforming” category, while his son Simon Reibelt was a contender for the “Quality Young Gun of the Year: Franchise” grouping.

Reibelt puts the family’s success in being selected this year down to a single-minded focus on the group’s area of specialty: non-bank, non-conforming loans. “We haven’t deviated from that area, including during the global financial crisis,” he said.

Simon Reibelt said having his father’s “intrinsic knowledge” to draw on was a key aspect of his

ability to make the AMA finalist cut. Simon made a decision to “join forces” with Graham during the financial crisis, and has since gone from strength to strength. “He knows what you need to do, and we’ve put in 200% effort over the past year,” he said.

Graham Reibelt won the NonConforming award at the AMAs in 2003 and 2004 and has been a finalist every year bar one.

However, it’s the first year Simon Reibelt was waiting in the hope of taking home the Young Gun title.

While both failed to take home the title in 2010, there is no doubt this family will be back in the running in years to come.

In an interesting coincidence, Graham is up against his other son, Ernie Reibelt, in the local Blue Mountains Business Advantage Awards, where both are finalists in the Business Services category.

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People Q&A

What does it take to be Australia’s best BDM? AMA winner Debbie Neale from Westpac tells Australian Broker what brokers should expect when it comes to service called ‘Broker IQ’ to help its key broker advocates grow their organisations and to help them understand through their own businesses the process of cash flow and profitability. In addition, over the past 12 months Westpac’s BDMs had provided a strategy update about the direction the bank was taking.

Overall, BDMs should be confident in reviewing brokers businesses, with the aim of recommending practical ideas and simple ways to improve things. This could be helping to raise the quality of applications or conducting training to educate brokers on processes and systems, whilst recognising the efforts brokers put in to their business.

Q Q

How did you end up as a Westpac BDM? I have been working in financial services for 39 years, six of them in Westpac’s mortgage broker channel. I joined the channel because I firmly believe it is a key area of the mortgage industry.

Like Westpac I am here for the long haul, providing services to mortgage brokers through good times and bad. During the years I have seen brokers fail and flourish, and through this I have come to understand their needs and how I can help them to grow and be successful, supporting them daily.

I realise brokers find real satisfaction in helping Australians open the door to financial freedom through their client’s purchase of a new home or investment property.

It’s a great journey to travel with each of them. That’s what makes

me passionate about the industry, making a difference by helping brokers grow their business and deepening the partnership for the long-term.

Q

What should brokers expect from a BDM? They should receive an exceptionally high level of service from their BDM, including quick response times on email and phone queries. BDMs should always be highly motivated to take responsibility for the relationship.

Paramount to this is having the ability to assist with escalating any concerns and issues directly through to key support teams.

Competitively, BDMs today need to add more value to broker’s businesses. Over the last 10 months Westpac has held education sessions for brokers

PRDnationwide puts best feet forward for charity

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eal estate group PRDnationwide stepped out in their best thongs to celebrate Youngcare’s national awareness day – Thong Day – at the beginning of October.

PRDnationwide launched a partnership at its conference in August with Youngcare, which provides care and accommodation options for young Australians with full-time care needs.

The Thong Day events, held nationally, aimed to raise $7,000

Jim Midgley and Michael Kidman

Why are BDMs important?

It is important BDMs provide support to brokers in order for them to develop deep long-term relationships. Through providing assistance to brokers, BDMs will become more aware of opportunities that might fit their business model. The better we can support the broker in the eyes of their customer, the more business they will get through referrals.

Our local model has bank staff advocating for their local broker and vice versa so communication and understanding of each other’s strategy is important. Through this exchange the broker in turn recognises that their BDM is supportive, available and, more importantly, reliable.

Q

How do BDMs help with turnaround times?

Turnaround times are essential to Westpac’s broker advocates; our focus on improving the process

for the charity. Managing director Jim Midgley said the company asked its conference attendees to dig deep and purchase a pair of Youngcare Thongs to show their support for the charity, and the group was able to raise over $2,500 in donations from franchisees and agents. The Thong Day events will provide additional funds.

“We are hoping to raise $7,000 nationally under the PRDnationwide brand through donations at various PRDnationwide Thong Day events,” Midgley said.

There are 6,500 young Australians with full-time care

of obtaining a home loan provides brokers with the peace of mind knowing their client’s application will be processed in a timely manner. I’m proud to say Westpac was recently voted Number 1 by MPA’s Top 100 Brokers in providing the quickest turnaround times in the market! As a proactive BDM you should be working with the broker to see if there is anything that may hinder the application being completed successfully.

This is where BDMs should be on the front foot, to advise brokers on what they may need to do next to ensure they deliver within their client’s expectations.

Q

What are the challenges of being a BDM? In today’s business environment a key challenge for BDMs is choosing business partners carefully. You cannot be everything to everyone because you will be ineffective to deliver for your brokers. Once you have identified your key brokers the hard work commences to earn their support and trust within a highly competitive mortgage market.

Q

What do you see as the future of the BDM role?

I believe the future combines a mixture of old and new. By this I mean BDMs must always build strong relationships with brokers.

However, BDMs must ‘reinvent’ themselves by adding new skills to their proposition. One example is the marketing and PR advice that Westpac provides to broker advocates through its LECTERN ROCK presentations. This allows BDMs to deliver value to brokers in a professional networking environment to create advocacy for the BDM and the bank.

needs currently living in aged care, and a further 700,000 people are being cared for at home by family and friends.

Midgley said PRDnationwide’s national presence will assist in raising awareness about the lack of appropriate care and accommodation options. “These projects involve the support of our offices nationally and their local communities to reach grassroots Australians who are affected by the issue but have limited support,” he said. Send your people news to the editor, ben.abbott@keymedia.com.au

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Caught on camera The Women in Mortgage Business Network (WIMBN) was treated to a series of roadshows across the country in August and September courtesy of the MFAA, where delegates enjoyed the insights of relationship building expert Kirsty Spraggon 1

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Nicole Barno (Macquarie Bank) and Claire Wivell Plater (Gold Seal Risk Management Services) PHOTO 2: Listening and learning with Kirsty Spraggon PHOTO 3: Janelle Zaknich (Mortgageport Management) and Oxana Chekoeva (Mortgage Choice) PHOTO 4: Guest speaker Kirsty Spraggon PHOTO 5: Rita Valentino, Allyson Buttle and Samantha Sohr (Aussie) PHOTO 6: Sarah Wells (Sarah Wells Enterprise) and Suzanne Hemsworth (La Trobe Financial) PHOTO 7: Debbie Sutcliffe (QBE LMI) and Leain Oliver (Bendigo & Adelaide Bank) PHOTO 8: Suzie Klimas, Brooke Strauss, Elizabeth Cree and Erina Cunningham (NAB Broker) PHOTO 9: Trina Mosley (Allegiance Home Loans) and Lisa Crawford (Focal Point Finance) PHOTO 10: Lee Dittmer (Who Finance), Kirsty Spraggon and Andrea Lewis (MFAA) PHOTO 11: Sally Deane (SKD Financial Services) and Marianne Becker (Key Finance)

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Insider

Got any juicy gossip, or a funny story that you’d like to share with Insider?

Drop us a line at insider@ausbroker.com

by their new-found education and knowledge, inmates left the prison confident in their dreams of becoming big-shot mortgage brokers. Insider wonders how many ended up back in prison.

Let’s hope the Australian prison system doesn’t get any ideas.

Burning mortgages or reputations?

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Great apes N

ews has reached Insider that ING Direct is ditching Glaswegian funnyman Billy Connolly as its advertising frontman, in favour of another great ape – an orangutan called Charles.

According to the accompanying press release, Charles is an “educated, cultured, and humanlike orang-utan”, whose role will be to “show Australians there is a better way to bank. He is an independent thinker who doesn’t want to deal with the practices of the mainstream banks.”

Fair enough, you might think – orang-utans are generally acknowledged as amongst the smartest of the primates, and use sophisticated tools. All good messages for ING, which prides itself on being the ‘smart alternative’ to the Big Four. From a corporate perspective it makes sense to try and make different brand associations than the one that recognisable-but-often-rudeand-with-a-troubled-past comedian Connolly did. However, Insider has one question about the messaging here. Charles looks just a little bit too human – to the point where the first thought Insider had was of the Charlton Heston epic Planet of the Apes.

We’re guessing that the apocalyptic message of that film is not what ING had in mind when the board approved their new representative.

Brokers blossom behind bars

I

nsider has learnt that aspiring mortgage brokers in the US have an alternate learning path available to them – prison.

Between the years 2001 and 2004, Edgefield Federal Prison Camp, in the state of South Carolina, took rehabilitation to a new level when it offered its inmates mortgage brokering classes in an effort to give them a career focus that would ensure their success on the outside. Their purportedly highly-accredited teacher, Eric, an inmate who was serving three years for mortgage fraud, spent two hours, three days a week teaching his students the ins and outs of the mortgage industry. The gruelling course went for an entire month. The class was so popular that it incurred a lengthy waiting list that saw inmates enrolled in the course dependent on their release date. Prisoners who were serving heftier sentences were given no chance to learn from ‘Professor Eric’, with the class being reserved for those who would soon be hitting the streets. Who would have thought prison classes would be so selective? In a place where the legal wage was 15 cents per hour for prison jobs, Eric received US$30 in commissary goods per inmate, totaling US$750 dollars per semester. Not bad for a convicted fraudster. Empowered

n a desperate bid to rid themselves of their debt, some mortgage holders in Canada are willing to make fools of themselves, and their families, on national television. Burn My Mortgage, a new Canadian reality television show that premiered in October, is designed to show contestants, and indeed the country, that a mortgage is not a life sentence.

Co-host and financial expert Kelley Keehn puts contestants through a series of challenges and obstacles, pushing families to the extreme to prove that “denial and ignorance are the only things preventing them from reaching that mortgage free life.” If only it were that easy.

The show has very high hopes of changing society. A report conducted by the Canadian Association of Accredited Mortgage Professionals earlier this year revealed that 75% of borrowers failed to make any type of extra payment on their mortgage in the twelve month period leading up to the study. Executive producer Kit Redmond hopes her show will change those statistics, saying “I think what Burn My Mortgage does for families is it shows how much influence making small changes in their financial habits will have on their lives.” Keehn believes the show will bring the topics of finance and mortgages out in the open. “It will give families permission to sit down and talk about this, to talk to neighbours and friends.” Insider didn’t realise we now needed the television’s consent to hold a conversation.

The premiere episode tells the story of the Sharanewych family trying to keep up with their affluent Toronto neighbors. This family certainly knows how to spend - $17,000 a year on sport for the kids, $12,000 a year on dining

Stick ‘em up, but not my mortgage rate!

out and ordering in and another $17,000 on housekeeping, landscaping and dry cleaning.

Enter the team from Burn My Mortgage and the family soon realizes that if they cut their spending on luxuries in half, they can pay off their mortgage 14 years sooner than anticipated. The $5,000 bonus they receive at the completion of their challenges will also help.

It seems the show is already well on its way to helping people.

Co-host Chad Bisch said working on the show had prompted him to double his own mortgage payments and said he now gets excited to see his mortgage statements. Bisch had this piece of advice to keep contestants motivated: “It’s a cool thing to own your house, to actually own it.” With practical and professional advice like that on offer, Insider will be sure to tune in.

Give me a loan, or else

T

he manager of a bank in California has taken customer service to a whole new level, successfully convincing a man to sit down and apply for a loan – instead of robbing his bank.

Mark Smith, 59, entered the bank in Watsonville, California claiming to have a bomb in his backpack, which he threatened to detonate inside the building if he wasn’t given US$2,000. Not missing a beat, bank staff were able to convince Smith that a loan from the branch was the sure way to solve his cash flow problems.

Smith sat patiently while the manager retrieved the appropriate paperwork for him to fill out.

Calmly and quietly, Smith began to fill out his loan application.

Imagine his shock and confusion when the police turned up, ready to take him away in handcuffs, when he was just on the verge of having his loan approved! Smith was arrested on suspicion of attempted robbery, as well as charges of making a false bomb report, as he was not carrying weapons of any kind – a fact those crafty bank workers knew all along. Apparently, he was a lousy actor as well as a lousy thief.

Maybe he will have better luck in front of the judge.

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Services

Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au AGGREGATOR / WHOLESALE BROKER Choice Aggregation 1300 135 389 www.choiceaggregationservices.com.au page 13 Mortgage House 133 144 www.mortgagehouse.com.au save@mortgagehouse.com.au pages 18 & 19 PLAN Australia 1300 78 78 14 www.planaustralia.com.au mail@planaustralia.com.au page 5 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 9

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Eurofinance 02 9252 8311 www.eurofinance.com.au page 17 Homeloans Ltd 1300 787 866 www.homeloans.com.au page 14 Liberty Financial 13 11 80 www.liberty.com.au page 3 MKM Capital 1300 762 151 www.mkmcapital.com.au page 2 Provident Capital 1800 668 008 www.providentcapital.com.au broker@providentcapital.com.au page 4

Think Tank Property Finance 1300 781 043 www.thinktank.net.au deal@thinktank.net.au page 15

RAMS Home Loans 1300 130 769 www.ramsbroker.com.au page 7

LENDER Citibank Mortgages 1300 651 059 www.mortgagebroker.citibank.com.au page 36

NON-CONFORMING Pepper Homeloans 1800 737 737 www.pepperonline.com.au page 12

www.residex.com.au The House Price Information People

OTHER SERVICES Residex 1300 139 775 www.residex.com.au page 31 Trailerhomes 0417 392 132 page 26 SHORT TERM LENDER Interim Finance 02 9971 6650 www.interimfinance.com.au page 6 Mango Media 02 9555 7073 www.mangomedia.com.au page 1 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au pages 8 & 11

To advertise in Australian Broker, Call Simon Kerslake on +61 2 8437 4786