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ISSUE 8.18 September 2011
MFAA, FBAA merger calls spark rethink
Debate rages over whether two voices are better than one
Calls for a merger between the MFAA and FBAA have resulted in one aggregator CEO suggesting brokers should be represented by a combined body separate from lenders. In an admittedly “controversial” opinion, Vow Financial chief executive Tim Brown said in the UK, which is considered a comparable mortgage market to Australia, there is one entity – the Association of Mortgage Intermediaries – that represents third party distributors only. “In actual fact, it sits separately
from the lender body, so the lender body has its own representative group and the broker body has its representative group,” he said. Brown said this presented an alternative model to Australia where lenders and other industry participants form part of the MFAA membership base. “Potentially I’d probably even like to see that split occur,” Brown said. “That might be a bit controversial, but I think it makes a lot more sense.” Liberty Financial executives Brendan O’Donnell and John Mohnacheff recently sparked debate over a potential MFAA and FBAA merger, telling Australian Broker the industry would benefit from having one representative body rather than two.
“I’m a firm believer that we probably only need one body. I think we don’t have a big enough industry to accommodate both,” O’Donnell said. “I think that will play itself out in the next couple of years no doubt,” he said. Mohnacheff agreed with O’Donnell’s view. “I do live in hope that they [the MFAA and FBAA] find mutual ground for coming together as one, because one strong big body is always better than two,” he said. However, others including Yellow Brick Road executive chairman Mark Bouris, have quashed suggestions a combination would be beneficial for the industry. “It is nothing unusual for any professional group to have two bodies. It happens with the Chartered Accountants – lots of professional groups have two bodies,” Bouris said. “The two bodies both serve a purpose, they can work hand in hand as long as they are not fighting each other.” Bouris said he saw no point in a merger. “Unless members are paying for both and paying a double cost, I don’t really see a compelling reason to put the two together,” he said. Connective principal Mark Haron agrees. “It’s not such a bad thing for the industry to have two industry bodies operating as they do. Even if the FBAA had merged with the MFAA, at some point in time some other group would have started up to take the place of the FBAA,” he said. Page 18 cont.
Adelaide Bank gives options amid cuts Page 2
No FoFA fear Brokers safe from new legal regime, says MFAA Page 4
Seniors incensed Older borrowers face property lock-out Page 6
Inside this issue Analysis 20 Branded brokers the future Opinion 22 Shane Oliver on the economy Insight 24 How to brand your business Toolkit 25 CRMs, efficiency and revenue Market talk 26 The end of the ‘savings binge’ People 27 Q&A: Hye-Young Kim, Now Home Loan Caught on camera 28 Brokers welcome Bank of Melbourne
News Brokers given options with Adelaide clawbacks Following months of considerations and discussions with broker groups, Adelaide Bank decided on its clawback Damian Percy structure and announced it to the market in late August. Following the previous ban on exit fees, Adelaide general manager of third party lending Damian Percy told Australian Broker the bank would have to mull clawbacks, a policy of which Percy had previously been highly critical. Percy this month announced that the bank had decided to offer brokers commission options both with and without clawbacks. “Ultimately we came down to four options – two with no clawback (including an all-trail
model) and two with higher upfronts and tiered clawback provisions,” he said. Percy explained that the first option will carry no clawback, an upfront of 0.50% and a trail of 0.15%. The second option will carry a 100% clawback for the first 12 months and a 50% clawback from 13–18 months, and will include a 0.65% upfront and 0.15% trail. The third option will also carry a 100% clawback to 12 months, and will extend the 50% clawback horizon to 24 months, but will draw a 0.70% upfront and 0.15% trail. The fourth option will carry no clawback or upfront, but will include 0.40% trail commission. Percy said feedback on the restructuring has been positive, and that the models would allow brokers to “balance their commission structures between
lenders and choose the model best suited to their long-term strategy”. He said the commission options currently operated at a broker group level, with aggregators deciding on a structure for their members, but that the bank was investigating allowing individual brokers to choose their commission structure. “Adelaide Bank has a vested interest in ensuring that a successful broker sector is maintained and though economics is a significant driver of commissions, flexibility in commission structures is one way we hope we can assist with the ongoing sustainability of broker businesses,” Percy said. With aggregators now deciding on which structure to adopt, Percy said brokers were likely to begin seeing the effects of the changes by October.
NSW Budget will blow hole in housing market The NSW Budget will effectively price many first homebuyers out of the market, a top broker has said. Under the recently-released budget, the NSW government’s stamp duty exemption will only apply to first-time buyers purchasing a newly constructed home. The change, set to come into effect from 1 January, will see buyers looking to purchase an established dwelling slapped with more than $20,000 in stamp duty for a home valued at $600,000. MPA Top 100 Broker Justin Doobov has told Australian BrokerNews the move will effectively knock many potential buyers out of the market. “It’s definitely going to price first homebuyers out of the market as they now need to save another 5% to cover their stamp duty. This is
going to cause a large hole in the market as there will be a lag as new buyers will have to save the extra money needed,” Doobov commented. Raine & Horne chief executive Angus Raine agrees, and commented that many young buyers looking for inner city units will now have to defer their purchases, and will subsequently put additional strain on infrastructure in Sydney’s outer suburbs. “I’d really urge the NSW government to reconsider this budget measure as it will mean first timers will need to find tens of thousands of additional dollars to buy into the housing dream,” Raine said. Raine claimed the changes will see fewer renters making a move into the housing market.
“We already have a major shortage of rental properties in NSW and this is not going to help young people jump off the rental market treadmill and into their own homes,” he commented. The residential construction industry, however, has praised the move, with HIA executive director for NSW David Bare calling it a “positive step” to stimulate the home building sector. Regardless of how the policy impacts first homebuyers, Doobov said investors could find a window of opportunity in the changes. “There will be a good opportunity for investors to jump in the market once the exemption is removed as there will be a lag in the market pricing while the buyers adjust to the new requirements,” he said.
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Brokers ‘protected’ from FoFA reforms The MFAA has stated it is closely watching reforms in the financial planning industry to ensure brokers are protected from such imposts. The recently-released Future of Financial Advice draft legislation includes a controversial proposal to make financial advisors renew contracts with clients every two years. The legislation would also extend a ban on ‘soft dollar’ remuneration for planners, would ban commissions on group life insurance products inside superannuation and would extend ASIC’s powers to ban financial planners. While the FoFA legislation will only affect the financial planning industry, MFAA CEO Phil Naylor said the organisation is “watching developments closely to ensure the interests of brokers are protected”. Naylor said mortgage broking
will ultimately avoid the regulatory imposts seen by financial planners due to the difference in the “flow of money” in Phil Naylor the two industries. “While brokers organise funds for their clients, planners advise their clients on the use of their clients’ funds. The risk is entirely different. This is why the government accepted our arguments that broking should not be covered by the Financial Services Reform Act but under the specially created National Consumer Credit Protection Act. It should also be noted that the events such as Westpoint and Opus Prime, which triggered the inquiry which has resulted in FoFA, have no parallel in mortgage broking,” Naylor said.
Naylor also argued that commissions in mortgage broking were “miniscule” compared to those in financial planning, which he said could protect the industry from similar regulatory action. Another aspect of the FoFA legislation requires planners to “act in the best interests” of their clients. While this requirement seems more explicit than providing “not unsuitable” products, Naylor said mortgage brokers would cope should such regulations be applied to them.
“I think that it has always been an implicit requirement for brokers that they operate in the interests of their clients, and in fact the MFAA Code of Practice imposes a higher standard on brokers than merely satisfying themselves that a credit product is ‘not unsuitable’. Our Code requires members to recommend only finance which is appropriate to their clients. I would argue – putting semantics aside – that is the same thing as operating in the best interests of the client,” he said.
Proposed FoFA reforms: • Planners must act in the ‘best interests’ of the client • Advisors must renew contracts with clients every two years • ASIC is given extended powers to ban planners or reject licences • Commissions ban will apply to group life insurance inside superannuation • Ban of soft dollar benefits extended to life insurance outside super • Restrictions on using terms ‘financial planner/advisor’
Industry slammed for ‘foolish’ FoFA thinking It would be “foolish” to assume the Future of Financial Advice regulations will not eventually impact the Max Franchitto mortgage broking industry, it has been claimed. Leading financial services consultant Max Franchitto of MGF Consulting Group has predicted the mortgage broking industry will eventually follow the same regulatory path as that imposed on financial planners, saying only a “foolish man” would think otherwise.
Franchitto said key elements of the FoFA regulations are likely to be applied to the mortgage broking industry as further regulation is brought to bear upon brokers. “Most definitely ‘fiduciary duty’ and ‘placing the needs of the client first’ [will be applied]. There may also be a transition to changing commissions to avoid trails, giving the advisor a reason to monitor client needs rather than sit back and collect trails without knowing what the client is currently doing,” he commented. Franchitto has urged the industry to proactively change in order to prepare for eventual
regulatory change. He commented that brokers must become better advisors, and accused the industry of being focused on products. “Under the present system mortgage brokers are product sales focused and not advice focused. The change they need to make is based on the same concept as what is required by financial planners. Put the client’s needs first, not the commission rate or the special perks offered by the banks,” Franchitto said. Ultimately, Franchitto indicated that he expects mortgage broking in its current form to die out, and for brokers to
eventually further merge with the financial planning sector. Franchitto called the “one-stop shop” financial services model “the way of the future”. “The mortgage broking industry has a dubious future as it is still working on a multiple distribution channel model, that is, a customer can buy a mortgage from a broker or the product manufacturer direct. Mortgage broking, as I have predicted before, will become a subset of financial advice, and it is highly likely that small players in that sector will eventually merge or disappear,” he remarked.
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CBA bid would deliver Mortgage Choice stake CBA has launched a $373m takeover of a financial services group which is the largest equity security holder in Mortgage Choice. Commonwealth Bank will acquire Count Financial, a financial services business which focuses on financial planning, but performs finance broking through its Finconnect arm. Count’s full-year results showed its Finconnect arm has failed to perform. The company’s outstanding loans fell 5% for the year, with residential lending growing a marginal 0.2%. The company’s chairman, Barry Lambert, said the Future of Financial Advice reforms had brought uncertainty to the market,
and had made it difficult for Count to compete. “While the offer from CBA was unsolicited, in light of the regulatory uncertainty and our goal to see Count continue to prosper as a champion of accountant-based advisors, the directors and I believed we should put this offer to shareholders for their approval,” he commented. Count Financial owns a 17% share in Mortgage Choice, and is the company’s largest quoted equity security holder. However, Mortgage Choice CEO Michael Russell believes Count’s stake in the broker had little to do with the Commonwealth Bank offer. “While CBA would be the
ultimate benefactor from the Count transaction, it’s clearly being spearheaded by Colonial First State to expand the breadth of financial planners under its umbrella. The fact that the transaction also brings with it a 17.2% stake in Mortgage Choice is, as I understand, by accident rather than design,” he commented. Russell said he expected CBA to offload its stake in Mortgage Choice following the acquisition. Should the bank choose to keep its stake, Russell said the company would treat CBA the same as “any other shareholder”. However, he commented that Mortgage Choice franchisees may be uncomfortable with the idea.
“CBA is not only a valued lender partner to Mortgage Choice, but a staunch supporter of our industry and the consumer proposition mortgage brokers provide. Mortgage Choice franchisees are acutely aware of this support; however, it’s pretty obvious that should CBA decide to hold a position on our register this would be met with a degree of trepidation. “Why? Because, quite simply, our franchisees are happy with the status quo of our relationship, and secondly they would not want to lose the key selling point of being independently owned and operated, which is a major contributor to our on-boarding of customers,” he remarked.
Locked out borrowers getting ‘really angry’ Vast changes to the reverse mortgage market in tandem with the recent NCCP introduction is leaving a large pool of older borrowers without access to funds. Seniors First managing director Darren Moffatt said that since the global financial crisis, reverse mortgage lender numbers have contracted drastically, down from 21 prior to the crisis, to four major lenders at present, including St. George, CBA and Bankwest. Moffatt said that while the previous minimum age for equity release was 55, that minimum has now also increased to 63 in some cases, but is mostly set at 65. “The reverse mortgage sector has really felt the brunt of the GFC; equity release requires capital to be tied up for a long time,
so when capital became scarce, this sector was the first to feel the result of that,” Moffatt said. The result is that the expectations of many older borrowers, when it comes to access to equity in their properties, is often not being met, Moffatt said. “I have literally had quite a few potential borrowers on the phone, and when they have found out they can’t get money like they used to be able to – they can’t release equity – they are really angry,” he said. The NCCP is only compounding the problem for 55–65-year-old borrowers. “The NCCP is definitely causing lenders to be very, very careful or reluctant to lend to people in their late 50s to early 60s with forward mortgages; if they don’t have an
exit strategy – for example, a large superannuation fund, or a second property – it can be difficult for these borrowers to get funds,” Moffatt said. “The point is, this very significant change across the industry has happened, and is affecting a huge amount of people that have no idea that the change has occurred,” he said. Moffatt argued the result is a “massive market opportunity” for banks and other lenders in the
pre-retiree space, due to huge demand for access to existing equity as the community ages. “You have a stack of people out there who are either still working or on limited income, who are not ready to retire but would like to access equity in their property to pay off their remaining residential home loan debt. Also, the same people have seen their super reserves smashed by the markets. So it’s kind of like a triple whammy,” he said.
No longer in reverse A Deloitte report released in May this year showed that the reverse mortgage market had hit $3bn by the end of December 2010. According to the report, the reverse mortgage market was comprised of more than 41,000 loans, and showed 11% growth from the end of 2009. The figures showed some recovery from lows during the GFC.
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CONFERENCE SPECIAL: VOW FINANCIAL
Control the client, Diversification to drive Vow expansion control your income Vow Financial CEO Tim Brown has told broker members the group was focused on growth despite tough market conditions. Speaking at the aggregator’s second annual conference in Fiji, Brown said the current market meant brokers felt they were writing as many loans as ever, but were often hampered by valuations and tighter credit. However, Brown said the aggregation group had still managed to achieve a 3% annual rate of growth in its book in the 15 months since the group formed, and that it had also successfully signed 49 new broker agreements. Outlining future plans, Brown said the aggregator was focused on further growth by continued diversification of its business, as well as delivering on promises for a more robust IT infrastructure. At the conference, Brown said diversification would be crucial to the aggregator’s future growth, including new business lines in financial planning and wealth, property, insurance and legal. Commenting on the group’s recent alliance with general insurer Allianz, Brown said members had made the deal one of the group’s most successful to date, with $100,000 worth of
premiums written in just three months. Likewise, Brown said Vow Legal – which will enable member Tim Brown brokers to earn fresh revenue from e-conveyancing – will contribute to boosting its business in the year ahead. “Diversification is a big priority, and it’s essential not only to the growth of our business, but your businesses,” he said. Outlining its IT system strategy, Brown announced the group had finalised a deal with Pisces, that will see it roll out the IT provider’s client and loan management platform – the Spectrum Suite – in October. As part of its IT plan, Brown also committed to improving the group’s commission payments system, to ensure that brokers were 100% satisfied with the effectiveness of the platform. In addition, Brown told members that it had recently signed up the Elders Home Loans franchise business, which includes 30 businesses writing $30m a month. Brown said the deal would increase its regional footprint.
Brokers have been urged to gain control over the customer supply channel in competition with the banks, by adding value to the service they provide their client rather than just processing loans. Speaking at Vow Financial’s annual conference in Fiji, Redconcierge’s Sarah Wells said brokers should focus on the six out of 10 clients not using the channel, and that they could achieve market growth by adding value. Wells said that in doing so, brokers would be justified in charging a genuine fee for their services, and that brokers should not view a fee as a direct replacement of commission payments for loan processing. Rather, she said brokers should charge for experience, knowledge and added services. “I don’t think brokers should charge just for processing,” she said. “I know if I was going to charge a fee that I have to add something.” Wells said her business model includes a ‘mortgage planning’ approach to clients that involves a full consultation, backed up by interviews with a client’s accountants and financial planner if required. Wells said she is able to charge between $550 and $1,000 per
client, and that she also protects herself via a clawback clause. Likewise, Grant Howe of Lending 4 U – who comes from a financial planning background – said that he has implemented a fee in his mortgage business, and has had no requests for a refund despite offering a satisfaction guarantee. He said clients were paying for knowledge and experience. “The way I explain it to clients is that the commission pays for things like rent, administration, power – things like that. But that the fee is what pays me.” “There is a value on what you do, and you should be remunerated for that,” he said. Wells said that if brokers add value and control the client, they will not have as many problems with commissions.
Brokers beware of fraudulent deals Brokers need to be aware that a client’s fraudulent transactions may come back to haunt them under NCCP legislation, according to Genworth Financial. Speaking to Vow Financial member brokers at the group’s annual conference in Fiji in September, Genworth Financial
segment manager Richard Socratous said it is no longer just the lender’s responsibility to catch out potential client fraud. “Under NCCP, brokers do need to care about the red flags,” Socratous said. Such red flags could fall into the false information basket –
such as false employment or payslips – or even something that a client has deliberately withheld from a broker. “The responsibility is headed more your way,” Socratous told Vow Financial brokers. “You don’t want to see something come back to you in five years’ time when
economic conditions change. You have to ensure that you have made reasonable enquiries.” Socratous suggested that broking businesses should put in place mechanisms that would help them identify fraud during the consultation and application process.
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Brokers failing in debtor finance diversification Finance brokers are failing to capitalise on recent growth in the receivables finance market, it has been claimed. According to the Institute of Factors and Discounters (IFD), total receivables finance business grew 6% to $15.2bn in the three months to June of this year. On an annual basis, total receivables finance provided to businesses from June 2010 to June 2011 was $60.6bn. IFD chairman Tony Della Maddalena said the 6% growth in the June quarter was due to small to medium enterprises continuing to experience a challenging cash flow environment. “The $60bn in receivables finance accessed by 5,000 businesses during the last 12 months has greatly assisted particularly SMEs by leveraging their debtors’ book for cash.” Bibby Financial Services national sales manager Gary Green told Australian Broker businesses have been feeling a bit more stressed meeting their financial commitments. “With increased utilities costs and increased interest rates and payments, etc, that is causing increased stress to small businesses,” he said.
However, finance brokers are failing to capitalise on diversification opportunities presented by the market, according to Green. “There’s certainly specialised commercial and debtor finance brokers out there, but in general we are not finding that finance brokers are really diversifying their income streams by looking at alternatives like debtor finance,” he said. “We both have a lot of work to do – on the finance broking industry side, and also non-bank funders like Bibby – to encourage more interest and uptake of alternative products like debtor finance. “We see it as a big opportunity,” he said. According to IFD, the market’s vitality followed a relatively slow year in 2010. “The graph is starting to rise again,” Della Mddalena said. “This compares very favourably with 4% decline of total credit for business for the last financial year – compared with 2009/10 – according to Reserve Bank of Australia figures.” The biggest users of debtor finance in the December quarter were the wholesale trade (36%) and manufacturing (22%) sectors.
DEF ban fight not over yet: FBAA The debate over exit fees and their eventual future is far from over, the FBAA has claimed, and government change in the future may see the current ban overturned. FBAA president Peter White has commented that through meetings with high level Coalition officials, he is confident that exit fees and deferred establishment fees are still on the agenda. “Discussions are still continuing in regards to exit fee considerations. As far as the Coalition is concerned – and this is my interpretation because I’m not trying to speak on their behalf – that discussion is far from over. The Coalition completely understands the difference between exit fees and DEFs. The government simply doesn’t get it,” White said. White indicated he has held meetings with the Shadow Minister for Finance, Shadow Financial Services Minister and Liberal Senator David Bushby, the chair of the Senate inquiry into banking competition. He said the Coalition could still take action on exit fees. “Even though the government of today made a decision on exit fees, albeit a wrong one, the Coalition is actually laying out their thought and frameworks on the issue,” he commented. White said he is confident the
Coalition will find itself in government soon, ushering in changes to current regulations of the credit sector. Peter White “There’s going to be a change in government. When you see what’s happening in the Gillard government, there’s an enormous amount of cracks. I’ve spent a lot of time with the Liberal Party. Now, I’m not really inclined either way, but I just look at what’s best for our industry,” White said. Should the Coalition find itself in government, White said many senior level ministers would bring a keen understanding of the financial services industry. “A lot of shadow ministers have a background in this industry, so there are not uninformed comments from their part whatsoever,” he said. The FBAA has also continued talks with Treasury, where White said the association has continued to make progress. He pointed to the recent adoption of an LMI fact sheet, which he claimed is an initiative driven by the FBAA. “We were the only ones verbal about the lack of disclosure on LMI. If it wasn’t for the actions the FBAA took on LMI, there would be no fact sheet,” White said.
Affordability baffles RBA, despite marginal improvement The RBA has questioned why adequate affordable housing stock is not available in Australia, saying the issue goes deeper than monetary policy. In an appearance before the House Standing Committee on Economics, RBA Governor Glenn Stevens has claimed he is unsure why Australia seems to be unable to provide adequate affordable housing supply in spite of an abundance of available land. “How is it that a country of our size – we are not short of land – cannot add to the dwelling stock for the marginal new entrant more cheaply than we seem to be able to do? I cannot get past that basic question. But – without denying that interest rates have an effect on the housing market, obviously – it seems to me that this goes to a whole group of things on supply, zoning, transportation, infrastructure, etc,” he commented.
Stevens also cited the availability of credit as a barrier to housing entry. “I think there is still in the banks a certain tightness of availability of credit. I think that is tending to ease a little bit, but there is a long way to go there yet,” he remarked. Rental returns, Stevens said, could also be a key issue in housing availability. He commented that rental returns have been lower than needed due to investors relying on capital gains rather than rental yields. “I do not think we can keep having indefinite capital gain. To get the return, you actually need the rental yield to offer the investor a return, and that is coming up gradually,” Stevens said. Stevens conceded to the House committee that he did not consider himself an expert on housing
affordability pressures, but lamented that “a very big inequality between generations” was developing. There are signs, however, that affordability is improving, albeit slowly. The HIA-Commonwealth Bank Housing Affordability Index saw slight improvement over the June quarter, rising 0.8%. The result brought the index to 7.2%
above its level in the June quarter of 2010. HIA senior economist Andrew Harvey indicated the outcome was largely driven by the global economic uncertainty which saw the RBA leave rates on hold and improved funding conditions for banks. The HIA claimed average weekly earnings also aided the result, rising 1.2% in the quarter.
Affordability back on the rise Affordability Index
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Credit demand falls, No stress: MFAA and ASIC join forces but signs of life emerge The MFAA will join forces with ASIC to combat mortgage stress, it has been revealed. ASIC has declared September “Mortgage Health Month”, and directed consumers to its newlylaunched MoneySmart website. The site offers consumers guidance and tips to manage mortgage stress, and MFAA CEO Phil Naylor has revealed the regulator has asked the MFAA to be involved in the campaign. “ASIC has approached us to support this campaign and we intend to,” Naylor said. The ASIC materials do not urge the use of brokers, but encourages consumers in financial hardship to approach lenders or free financial counsellors or to contact EDR schemes. However, Naylor said the MFAA will centre on urging consumers to consult with brokers on their financial situation. “We have put out a release supporting the message in the campaign – encouraging consumers that they will be better off if they take early action when faced with difficulties paying their mortgage. In particular to seek such assistance we will have encouraged consumers to consult
with an MFAA-approved broker without delay,” he said. While the MoneySmart site does not guide consumers to third party providers, mortgage brokers do receive a mention. However, the mention is somewhat unfavourable, with a “Smart Tip” for borrowers, saying that brokers are under no obligation to find them the best deal, and that they may be better off dealing directly with lenders. Naylor said the MFAA has urged ASIC to re-think this advice. “I think the reference to brokers on the ASIC website is a relic of the past before NCCP, and we are requesting ASIC to remove or at least re-word it,” he said. ASIC has announced it will hold Mortgage Health Month events in areas with high levels of mortgage stress. ASIC senior executive leader of financial literacy, consumers, advisers and retail investors Delia Rickard said although arrears in Australia are low, many people struggle to meet their mortgage repayments on time. “We want to educate people about the signs of mortgage stress and motivate them to take early action,” she said.
ASIC’s health drive ASIC has said its MoneySmart website includes consumer tools such as: • Video clips of real people explaining how they have dealt with their mortgage stress • Guidance for people in every type of mortgage situation • Sample letters for people to send their lender if they are in financial hardship • A mortgage switching calculator • Video clips explaining how financial counsellors and legal services can help
Credit demand has fallen sharply in the June quarter, with mortgage enquiries driving the drop-off, but the pattern of decline may be reversing. Veda’s Consumer Credit Demand Index has shown a 5.1% decline in demand for credit for the June quarter as compared to the March quarter. In year-on-year terms, demand for credit is up 2.8%, a result which Veda head of consumer risk Angus Luffman said shows weakening credit growth. “The April to June quarter closes out what has been a very soft financial year for credit demand. The data in the final quarter reveals some positive trends in certain types of consumer credit, but overall credit demand remains soft and is still behind pre-GFC levels,” he commented. Mortgage demand has seen the most significant decline, falling 17.2% over the year. However, decline appears to be slowing, with the June quarter showing the
lowest level of decline of the past six quarters. “The contrast in the yearly and quarterly performance results suggests there is a levelling in mortgage demand, as year-on-year declines are beginning to slow and quarter-on-quarter results show signs of growth,” Luffman said. In evidence of this slowing of decline, AFG has indicated August mortgage sales experienced a surge to their highest volume in more than 18 months. AFG processed over $2.7bn in mortgages in August, with a competitive lending environment ensuring that refinancing continued to drive the aggregator’s business, accounting for 38.2% of all transactions undertaken. Likewise, investors continued to contribute to AFG’s performance, accounting for 36.5% of transactions. AFG said that the figures trend well above seasonal expectations, despite August being a traditionally strong month.
Mortgage demand: April–June Qtr 2011 State
% YoY (Apr–Jun 2010)
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News Pent up commercial demand set to release The commercial market is quiet, but the next few months could see a flood of interest, it has been claimed. Commercial lender Think Tank has announced a “substantial increase” in its funding capacity following wholesale funding negotiations, and the company’s executive director, Jonathan Street, said that he expects a quiet commercial property market to heat up in the months ahead. “On the transactional side it’s a little quiet in terms of people buying and selling commercial property. We believe this is causing pent-up demand that will release sometime late this year or early next year,” Streets said. Streets stated that along with softer demand from borrowers,
many commercial lenders are also becoming more selective. He said this causes difficulties for borrowers who do have an appetite for commercial finance. “Lenders are reasonably choosy about what they’re willing to fund. I wouldn’t say that credit is loosening up. People are still having to refinance loans from lenders that are no longer operating, such as Challenger. They’re also having trouble getting a valuation to support the refinancing. The valuations are coming in low,” he said. In spite of a tighter commercial market, Streets expressed optimism that borrowers will still be drawn to commercial property. As residential property sees declining median values, Streets
said the draw of positive yields in the commercial space should prove attractive to investors. “Where the commercial property market sits at the moment it’s offering some quite compelling yields. You get 7.5% to 9% on commercial property as compared to 3% or so on residential where you’re relying on capital growth,” he commented. For brokers wishing to explore the commercial space, Streets said their current client portfolios could yield opportunities. “When we look across our portfolio practically all of our clients have one or more home loans. From a broker’s perspective, for their clients with home loans, there’s a common
need among SME clients for commercial finance,” Streets said. “Brokers don’t have to become commercial lending experts. They just need to know who to talk to,” he added.
‘Huge surge’ in commercial finance ahead A “huge surge” in commercial loans is ahead, PLAN Australia has claimed. The aggregator has revealed that polling of its membership suggests brokers are eyeing the commercial market as a means of revenue diversification. The PLAN survey found 31.7% of its members intend to write commercial loans for the first time in the year ahead. PLAN CEO Trevor Scott said the results indicate that the company’s brokers are making use of the PLAN equipment referral program. The program, launched early this year under former PLAN CEO Ray Hair, allows brokers to refer clients seeking a variety of finance solutions to
specialist business writers within the aggregator’s network while still “owning the client relationship”. The referral program covers areas such as motor vehicle finance, plant and equipment finance, commercial property finance, cash flow finance, franchise finance and construction and development finance. Scott said the poll highlights the opportunities that exist for revenue diversification. He indicated that a growing number of brokers are seeking out these opportunities. “While brokers can still generate satisfactory revenues concentrating on residential business alone, there’s great scope to increase income by product diversification:
offering a broader range of products, such as commercial and business finance,” Scott said. Scott pointed to the aggregator’s referral program and investment in commercial professional development training, saying that even brokers inexperienced in commercial finance could adapt to take advantage of the market. “Commercial lending as well as equipment and cash flow finance
does require some adaptation of a broker’s skill set; however, this is a sector available to all brokers, and PLAN Australia can provide the support and backing to enable brokers to pursue these new opportunities,” he said. PLAN claimed a number of its members were already seeing “solid revenue growth” in commercial finance with the advent of its referral program.
Flashback: PLAN takes wraps off referral program In January of this year, PLAN’s then-CEO Ray Hair unveiled the aggregator’s commercial finance referral program. He said it would allow brokers to seek opportunities in the commercial finance sector without having to become specialists.
WORLD Canadians get real with disclosure
A mortgage broking industry veteran from Ontario in Canada has called on the local industry to inform clients when they’re being charged higher interest rates so that brokers can then bank the spread and pass the saving on to other customers. Speaking with Key Media’s sister publication Canadian Mortgage Professional (CMP) Magazine, The Mortgage Centre’s Paul Mangion said the Financial Services Commission of Ontario should mandate disclosure around that lender option. “When we hear ‘Disclosure! Disclosure! Disclosure!’ we don’t hear about the points that some lenders give brokers for specifically and intentionally offering one client a ceiling rate in order to hold on to the basis points and then buy down the rate for a subsequent client – without having to give up any commission on that subsequent deal,” he said. While many brokers shun the practice – some going so far as to call it price discrimination – others have stepped up their use of it in order to retain clients threatening to go with increasingly aggressive banks, even to save on a few basis points.
Property declines could force commission rethink
It appears Australia isn’t the only country debating the existence of a property bubble. Brokers in British Columbia, Canada, are also warning of a potential crash in prices. Australian Broker’s Canadian sister publication, Canadian Mortgage Professional, reports that brokers in B.C. are talking up a “very probable” correction in property values. Greg Martel of Dominion Lending Centres Harbour View Mortgages told the magazine he expected inflated prices in the province to move downward. “I don’t think it will be a huge drop, but at least a 10 per cent correction sometime within the next five years,” said Martel, ranked 13th on this year’s CMP Top 50. As a result, Martel said he had moved to trail-only commissions to protect his income should borrowers find themselves in negative equity and unable to refinance. This summer, he assiduously began placing clients with lenders offering trailer fees if, in fact, the mortgage terms met client objectives on rate and other key variables. It’s an about-face from the broker’s established preference for the traditional upfront compensation model, but protects renewal income when clients don’t have the equity needed to switch lenders. Other brokers have likely taken the same precautionary steps to protect their future revenue in markets where house prices far exceed household incomes. Vancouver is on the top of that list, with a
median home price 9.5 times that of the median household income, according to the latest RBC affordability index. Purchasing the average detached bungalow will claim 92.5% of the average Vancouver family’s income, compared to the 37.1% of the average Calgary family’s earnings.
US brokers cry foul over commissions
US mortgage brokers have called on the Obama Administration and Congress to encourage the Consumer Financial Protection Bureau to rescind its loan originator compensation rule. The rule, introduced after the financial crisis, means loan originators may not receive compensation based on the interest rate or other loan terms, and a loan originator who receives direct compensation from a consumer cannot double dip with a lender. Originators are also prevented from ‘steering’ a consumer to accept a mortgage loan that is not in the consumer’s interest in order to increase the originator’s compensation. The National Association of Mortgage Brokers (NAMB) said ever since the introduction of the Federal Reserve Boardinspired measure on steering and loan compensation, consumers have experienced “a dramatic increase in costs on their mortgages”. The association said in addition, “the expenses have increased for all mortgage companies and a great impediment has been placed on the vital service of mortgage lending throughout local communities”.
UK broker market share takes a hit
The UK’s Financial Services Authority has documented a decline in the percentage of mortgage sold through intermediaries since Q2 2010. In a trend report published in UK publication Mortgage Strategy, the FSA said that in Q2 2010, 51% of mortgage sales were intermediated. By Q1 2011, this had fallen to 47% of all mortgage sales. Over the same period, direct sales increased by 11.9%, while between Q2 2010 and Q1 2011, large banking institutions gained 4% of market share at the expense of major intermediaries and, to a lesser extent, medium-size banks, according to the FSA. The FSA said that since intermediaries are more likely to provide advice, the regulator was expecting a decline in the number of mortgage sales with advice. The report found mortgage sales with advice decreased from 74% in Q2 2010 to 68% in Q1 2011. Total mortgage sales between April 1 2010 and March 31 2011 reached their lowest level since the FSA began recording data in Q2 2005. Overall, mortgage sales declined by 7% from 2009/10 to 2010/11.
News ‘Quantum shift’ online for Firstfolio Consumers have undergone a ‘quantum shift’ towards online transactions, Firstfolio has suggested. Firstfolio chief executive Mark Forsyth has said the company’s online sales platforms have seen substantial growth as more consumers shift their focus away from traditional face-to-face transactions. Forsyth said the company sees between 25-30% of its sales from its online channels, a shift that he believes represents changing consumer sentiment. “We’ve seen a quantum shift in the last quarter. There’s a sense now if you buy something in a retail store you’re getting ripped off,” he commented. “It’s made the internet credible and has made traditional retail sort of the internet’s evil cousin.” Firstfolio currently provides the platform for its eChoice business, but Forsyth said the company wanted to grow its own online brand as well, through its SuperRate website. “We’ve seen, from a very small basis, about a 500% sales increase in that brand,” he commented. As more broking businesses and lenders move online, Forsyth said consumers become increasingly comfortable with the idea of doing business on the web. “When I see competitors, I think ‘happy days’. We don’t want to be the only people convincing the public it’s safe to go online to
do their transactions online. Now if everybody’s online, people say, ‘Right, I should be getting my financial products online,” Forsyth said. While online channels could represent competition for brokers, Forsyth indicated that most clients with needs beyond a “white picket fence deal” would still seek out the advice of brokers. “First of all, everybody’s going to have to embrace technology, unless you want to dig a bunker in your back garden and surround yourself with a barbed-wire fence. My advice for the broker is he has to become a better consultant. He has to actually sit there and add value. We’re providing the tools, so they don’t have to worry about developing online platforms. What they should be focused on is their own personal skills at consulting with the customers,” he said.
Homeloans grows broker volumes with ‘brand building’ campaign Homeloans has grown its broker volumes by 22% over the financial year, while seeing a slight drop in profits. In its full-year financial results, the company has indicated its net profit after tax fell marginally over the year, down to $8.1m from 2010’s result of $8.4m. However, the company said a 21% increase in volumes for its branded product led to an increase in fee and commission income, up to $16.1m from $14.6m last year. Homeloans said it drove volumes for its white label product through a “national brand building advertising campaign”. The campaign raised awareness of the company’s brand by 53% nationally, it claimed. The company’s general manager of third party distribution, Tony Carn, said the campaign was crucial in driving broker volumes. “Australian consumers are well engaged with the non-bank sector, so it has been important to build our brand awareness for the benefit of the mortgage broking industry,” he said. Homeloans executive chairman Tim Holmes said he was pleased to see good uptake for the company’s branded product amid a “challenging operating environment”. “It is particularly pleasing that we have been able to grow lending volumes of our own branded
product by 21% over a 12-month period, which has seen housing credit growth rates fall to 25-year lows and the level of competition for mortgage lending intensify significantly,” he commented. Carn echoed Holmes, and added that the company was pleased to see broker volumes increase in a deteriorating market. “We are very proud of this result, particularly given the challenges that the market has provided over the first six months of 2011. Whilst non-bank market share has decreased across the sector, we have demonstrated an ability to grow our volumes,” he said. Carn put some of the volume increase down to the company’s recent Elite Broker Circle launch, which provides a preferred service platform to selected brokers.
Weak market hasn’t dulled property ambitions
Home ownership still remains a priority for Australians in spite of a weak property market. Recent research from St.George has indicated the majority of Australians still plan to enter the property market. The bank’s polling found more than half of renters plan to either buy or start
saving for a home within the next five years. Thirty-six per cent of renters surveyed said they plan within the next five years to have bought a home. A further 16% said they plan to at least be saving for a home purchase within five years. Current homeowners have also
indicated a desire to upgrade, saying on average they hope to live in a home in the next five years worth $150,000 more than their current dwelling. Respondents aged 25–34 were most eager to enter the housing market. Seventy per cent of 25- to 34-year-olds polled said they wanted to own or be saving for a home within five years, while 66% of 18- to 24-year-olds had similar aspirations. St.George CEO Rob Chapman said the survey revealed younger respondents planned to cut back on discretionary spending in order to realise their ambition of home ownership. “Our research offers a unique insight into a shift in the mindset of Australians, particularly those aged under 35, who report a desire to slow spending and start saving
in order to make their home ownership dreams a reality,” Chapman said. Young families proved the most likely to hold ambitions of home ownership, with 51% saying they wanted to buy property versus only 31% of those without children. “Families are traditionally among the first to feel the impact of market fluctuations and the cost of living pressures. People aspire to own a home and in order to achieve this dream, potential homebuyers understand the need for a healthy savings plan, which will form the backbone of a house deposit,” Chapman remarked. Chapman also indicated females trumped males when it came to property aspirations, with 61% of female respondents planning to save for or purchase a property compared to 45% of males.
INDUSTRY NEWS IN BRIEF Brisbane hammered hardest by declines Brisbane has earned the dubious distinction of recording the largest property declines of any Australian capital city. An RP Data Property Pulse release has indicated Brisbane led capital cities in median value declines over the 12 months to June, falling 6.9% overall. RP Data analyst Cameron Kusher said none of Brisbane’s regions recorded positive growth in value over the past 12 months, varying from a modest 0.1% decline in Inner Brisbane to a 13.9% drop-off in Beaudesert Shire. Perth followed Brisbane’s poor performance, with values declining 6.2% over the past year. Once again, every region in the city saw declining values, with the upper end of the market recording the largest drops. Sydney performed strongest of capital cities, with the Inner West region gaining 10% in value over the year. The city’s Eastern Suburbs, however, fell 7.7%. SMEs gloomy on Australian economy The broader economy is dampening business sentiment more than day-to-day financial concerns, a survey has indicated. The Bankwest Business Challenges Survey has indicated SMEs believe the general economic environment is their biggest challenge. Seventy-two per cent tipped the overall economy as the toughest challenge they face, with 80% saying they find it harder to do business now than 12 months ago. “We are starting to see a shift in the concerns of SMEs across Australia. No longer are small businesses as preoccupied with their day-to-day financial issues but instead their attention is shifting to macro-economic matters like the state of the economy and the current exchange rate,” Bankwest CEO Ian Corfield said. Provident Capital announces online functionality Provident Capital has cut rates on its product range, and has announced the launch of an online loan application module for brokers. The lender has cut variable rates on its Provident Premium product to 6.99%, and has reduced its three-year fixed rate to 6.65%. Head of distribution lending for Provident Capital, Steve Sampson, said the lender is also planning the delivery of an online application function to enhance the company’s proposition to brokers. “There is a lot of talk in the market about brokers wanting to support the second tier, so we want to provide the products and services to give brokers more reasons to make the leap and give us their support,” he said. Master Builders attacks CFMEU Master Builders has lashed out at unions, saying the rising cost of labour is
dampening sentiment among commercial builders. The Master Builders Business Sentiment Survey has indicated that commercial contractors see the cost of labour as the biggest threat to their profitability. Thirty-seven per cent of those polled tipped labour costs as of greatest concern, and Master Builders executive director Brian Welch has criticised the role of unions in rising labour costs. “Such is the pervasive power of the unions upon building businesses that this situation will continue to repeat itself until there is satisfactory government intervention to safeguard genuine negotiations,” Welch commented. Wikileaks reveals Norris’ debt fret Newly-released Wikileaks cables have depicted CBA chief Ralph Norris expressing concern over a potential Australian debt downgrade. The US diplomatic cables from April of 2009 quote Norris and J.P. Morgan chairman for Australia and New Zealand, Rod Eddington, fretting over the possibility of Australia losing its AAA credit rating during the GFC. Norris reportedly worried a downgrade would “ripple through the real economy”, though he said such an event was “not particularly likely”. Eddington, however, expressed less optimism. The cables quote Eddington as saying he and then-Prime Minister Kevin Rudd “lost sleep” over the possibility of a debt downgrade. The cables also reveal Norris’ thoughts on the possibility of an Australian housing bubble. Norris dismissed the idea of a housing crash, though he conceded some markets were likely to “soften”. Eddington echoed Norris’ statements, predicting Australia would “likely see a 15% decline rather than a 50% decline”. E-conveyancing won’t require ‘significant adjustment’ E-conveyancing won’t require a “significant adjustment” on the part of lenders, it has been claimed. In a new update from Gadens Lawyers, the firm has stated that national e-conveyancing has moved a step closer to reality with the launch of the Property Exchange Australia project to develop an online platform. Chris Fabiansson of Gadens said lenders and solicitors will have to adjust to the scheme when it becomes operational in 2012, but that the change should not be onerous. “Once implemented, the transition to e-conveyancing is unlikely to require significant adjustment on the part of institutions. The scheme’s implementation will more affect lenders and solicitors whose processes will need adjustment,” Fabiansson said. Ultimately, Fabiansson indicated the electronic system will introduce efficiencies that save time and money for companies.
News Crucial crossroads for housing
Mutual growth outpaces majors
The housing market is at a “crucial inflexion point”, an economist has claimed. Rismark managing director Christopher Joye has said talk of RBA rate cuts could tip house prices back towards capital gain. Joye said borrowers had already seen “de facto rate cuts” as lenders moved to slash fixed rates. “If rates do remain on hold or begin to fall, we would expect to see Australia’s housing market find a base and begin to generate capital gains again,” he commented. However, Joye said rate cuts by the RBA would be “surprising” given high inflationary figures over the last six months. The comments come after figures from RP Data and Rismark indicated a 2.4% decline in capital city median prices over the quarter, representing a 2.9% year-on-year fall. Falls were most evident in Brisbane (6.6%) and Perth (6.3%), while Sydney and Canberra dodged the trend of decline. Sydney saw marginal improvement of 0.5% year-on-year. Canberra
Mutuals have outstripped major banks on lending and deposit growth during 2011, recent data shows. Industry body Abacus has indicated mutuals grew their home loan balances by 10.2% over the year, outstripping the 8.3% lending growth of the major banks. The mutual sector also saw an 8.2% increase in deposits for 2011, compared to 6.5% for the major banks. The result led to an 8.4% increase in total assets for the sector, whereas the big four increased total assets by 5.2%. Abacus has indicated the raw APRA figures are even higher, with the prudential regulator reporting credit unions grew their home lending 17.5%, and building societies experiencing 14.9% growth in home lending to $18.3bn. “Importantly, these figures reflect real underlying growth because we have removed the impact of reporting changes which show even higher growth rates,” Abacus head of public affairs Mark Degotardi said. Abacus confirmed that the its figures stripped out $2.6bn in securitisation arrangements
experienced more robust growth at 1.9%. Joye said Sydney’s performance comes after more than a decade of growing below levels seen in other capitals such as Brisbane, Melbourne and Perth. While these markets are now experiencing declines, Joye said Sydney had proven “resilient”. “After years of being the perennial laggard, Sydney housing now looks to be a relatively resilient store of wealth,” Joye said. RP Data research director Tim Lawless indicated the premium housing market has seen the largest decline in values. “Dwelling values across the most expensive capital city suburbs are down 6.2% over the first seven months of the year. This compares with a much smaller 2.3% fall across middle priced suburbs and a 2.1% decline in the cheapest suburbs,” he said. Lawless attributed decline in the higher end of the market to weak business conditions outside the resources sector, and said financial market volatility was being more keenly felt in wealthier households.
Annual change in dwelling values – year ending July 2011 0.50%
Hobart Melbourne Darwin
NAB outpaces its rivals Total housing loans, 2010
reflected in the APRA data, leading to the more conservative figures. Degotardi claimed that mutuals were cementing their spot as the “fifth pillar”, and said a higher public profile for the sector had aided the result. “Competitive pricing and a higher profile are delivering growth for the mutual banking sector,” he said. While mutuals pipped the majors on home loan growth, further APRA data indicated NAB far outpaced the other majors in lending. July statistics show NAB increased its home loan book 13.5% year-on-year. The remaining big four failed to come close to this level, with ANZ growing 7.1%, Westpac increasing their loan book 6.7% and CBA growing by 4.3%. The slower growth, however, did not detract from the big four seeing massive profits over the year. The major banks saw a 34.4% profit margin for the 2010-11 financial year. Amid rate cuts later in the financial year, the majors still managed to raise $47bn in net interest income, a 3.5% increase over the previous financial year.
All capital cities
Source: RP Data - Rismark
Total housing loans, 2011
ASIC turns attention to ads ASIC has released guidance dictating the advertising of financial products and advice, including credit products. The regulator said it released the guidance because advertising that did not “fairly represent” the financial products on offer could mislead consumers and lead to poor investment decisions. The guidance comes after ASIC studied the advertising of a variety of financial services, including advice on superannuation and property investment. “The objective of our guidance is to help promoters and publishers present advertisements that are accurate, balanced and help consumers
make decisions that are appropriate for them,” ASIC chairman Greg Medcraft said. The regulatory guide released by ASIC urges the financial services industry to go beyond the minimum requirements of not being misleading or deceptive in advertising, to be proactive in ensuring advertising helps consumers make appropriate decisions. Medcraft said the guidance will also protect financial services providers. “While our guidance covers issues of good practice in advertising, it may also help promoters and publishers comply with their legal obligations not to make false or misleading
statements or engage in misleading or deceptive conduct. Our guidance also indicates to industry the types of advertisements we may focus on more closely,” Medcraft commented. The regulatory guide has proposed that advertising should clearly explain the nature of financial products, give a balanced message about the returns, benefits and risks associated with the products, offer comparisons with similar products and clearly disclose all direct and indirect associated costs. The regulator has advised it plans to release further guidance on the advertising of
credit products in particular. The guide also argues that certain terms and phrases should not be used in a Greg Medcraft way “inconsistent with the ordinary meaning commonly recognised by consumers”. ASIC gave the example of the terms “free”, “secure” and “guaranteed”, and said such terms could mislead consumers if used in a way inconsistent with their ordinary meaning. It also urged advertising to avoid “industry concepts or jargon” that consumers may not understand.
News “That’s because there is that sort of general opinion out there from some brokers around the MFAA and they will always want to try and do it themselves, but I think the MFAA does an admirable job for the industry and for brokers,” explained Haron. MFAA CEO Phil Naylor has reacted to the merger calls by saying that the debate is “baseless discussion and nothing more”. “The only people who determine what happens to associations are their members,” he said. “MFAA’s direction and strategies are determined by its members. What other associations do is up to them and their members.”
Naylor said there was also no need to replicate the UK mortgage broking association model by completely excluding lenders, as he said the MFAA is clear only in representing credit advisors. “The MFAA Strategic Review announced in 2009 and implemented in 2010 clearly enunciated who it represents as credit advisors, which includes loan writers, broking businesses, aggregators or broker groups, and mortgage managers,” Naylor said. “Although it welcomes as members industry stakeholders such as lenders, mortgage insurers, lawyers, valuers etc, it does not represent them or purport to represent them.”
Naylor said these groups already had their own association representation, such as the Australian Bankers’ Association, the Insurance Council of Australia, various Law Societies and the Australian Property Council respectively. “The MFAA represents those who comprise 98% of its members – that is, credit advisors – but welcomes the membership and input of stakeholders that are part of the industry in which those who the MFAA represents do operate,” he said. Naylor said the Strategic Review was the result of widespread consultation with members, including aggregators.
In regard to a potential association merger, both O’Donnell and Mohnacheff said such a merger would be difficult, due to differences between the two propositions. “Everybody has hoped that there would be some consolidation between the two bodies. However, there are fundamental differences between their ideologies,” Mohnacheff said. “I think the MFAA has taken the path of higher levels of education, etc, whereas the FBAA has maintained a different course,” he said. “I think there are some ideological differences that have not allowed them to come together and speak as one voice,” he added.
FBAA, MFAA separation Franchise expands recruitment horizons ‘good for the soul’ The FBAA will not consider a merger with rival body the MFAA, and the industry is in fact better off with two separate associations, according to FBAA president Peter White. Reacting to assertions from Liberty Financial executives that a merger between the MFAA and FBAA would be desirable, White said the associations would continue to “stand apart”, and that this was “good for the soul” and for the industry. “The differences between the two associations mean we won’t come together, and I don’t think that is a wrong thing – it’s a very good thing, because we speak with different voices.” White said claims that the vast majority of mortgage industry participants hoped the two bodies would eventually come together was a “gross generality”. “This is completely fanciful in my mind. We are part of the same industry, but we have two voices,” he said. White moved to dismiss the perception there is animosity between the two. “There is no animosity – by definition animosity means strong hostility, and nothing could be further from the case,” he said. Instead, White said the FBAA in fact has an “open dialogue” with the MFAA on issues of shared interest, and that the FBAA would continue to be open to such discussions – and potentially working more closely with the MFAA – where the associations had commonality. However, he said the case for a merger between the two bodies had weakened over the past decade, and has ruled out the option for the future.
“Today, there is greater depth as to why there are two industry associations than there was 10 years ago,” White said. “We see that every day with our membership numbers we are seeing solid, strong growth, because people want a choice,” he said. White likened the concept of a merger to the disappearance of one of the supermarket giants, Coles, or Woolworths, which he said would result in the domination and control by one body. According to White, the FBAA continues to have credentials that set it apart from the MFAA. He pointed specifically to the association’s engagement with the Federal Coalition at both Senate and Ministerial level, which he said is “not surpassed by anyone in this industry”. “Also, if it wasn’t for the FBAA, you wouldn’t have a fact sheet coming out on LMI. It was the FBAA that was the sole voice raising concerns about the lack of disclosure to consumers on what LMI is all about,” he said. In regard to education, White said the FBAA will continue to match the requirements as set out by law, and regulated by ASIC. However, White said that he was all in favour of higher levels of education. “My comments have always been that we encourage everybody to do the diploma if they so choose – I would do it, because I would want to be a cut above the next bloke,” he said. However, he said the industry was broader than just home loans, and that the FBAA aimed to cater for the entire industry, rather than “just picking one segment”.
Mortgage Choice has launched a renewed recruitment drive that will see it seek to lure financial services professionals from outside mortgage broking, as well as newto-market ‘aspiring entrepreneurs’. Following the addition of 38 new franchisees during FY11, Mortgage Choice head of product and distribution, Andrew Russell, said the business had launched a campaign that aimed to help exceed these growth numbers during the current financial year. At present, Russell said that between 20% and 30% of new recruitment leads are coming from established financial services businesses, who are looking for ways to bolt mortgage services on to their existing business offering. “What we have found from research is that there are small accountants, financial planners and tax agents, who don’t have a brand but their customers are obviously asking for service in the mortgage space and they don’t want to refer to a general aggregator,” Russell explained. “These businesses are seeing the benefit of having the Mortgage Choice brand to attract a new set of customers, which they couldn’t access with no new branding arrangements,” he said. Russell said an example of this working successfully was its newly launched Gladstone branch, where professionals from accounting, financial planning and tax have established a local Mortgage Choice franchise to benefit from the mining boom.
The brokerage is also targeting aspirant small business people who are looking to enter the mortgage broking profession. “These are people that see a strong opportunity to build and grow their own business, and believe that mortgage broking is a tremendous industry to be in from a lifestyle perspective, as well as wanting to leverage off a strong brand,” he said. The business has launched a new dedicated section of its website, aimed at appealing to these target segments. Russell said that the difficulty in recruiting existing mortgage market brokers was that they had to weigh up their own business model, in comparison with Mortgage Choice’s pitch based on brand, support, lead flow and representation at the highest level with lenders. Russell predicted that there would be more brokers who will move to a franchise brand within the next 12 months.
News RBA holds while fixed Anonymous web poll garners broker concern rates fall An anonymous survey has gathered opinion from mortgage brokers on industry associations, and the organisation behind it has claimed anonymity is key to an unsullied result. The survey, hosted on the site financebrokeralert.com, has asked for mortgage brokers’ opinions on industry association membership. The site has then requested respondents to provide either their contact information or ACL number, promising that the data would only be used as a means to verify poll results and would not be passed on to any industry association, aggregator or lender. Speaking to Australian Broker under the condition of anonymity, the organisation behind the poll said it wanted to gauge brokers’ opinion without undue influence from associations or aggregators tainting the result. The organisation said by remaining anonymous, they believe the survey will yield a more honest response from brokers. They also stated that they did not want the survey to be seen as a move to garner publicity or promote a particular service.
Some brokers have expressed concern over the anonymous nature of the site, and the information it is requesting. Graham Reibelt of Oasis Finance Solutions said that many brokers were understandably wary of any anonymous request for their personal details. “The personal information the site is collecting is largely publicly available. This just packages it along with their answers. The real question here is for what legitimate purpose would a person hide their identity to gather information like this?” Reibelt said. However, the site’s representative told Australian Broker that the survey and its intentions were known to industry regulators and government bodies, and that all information provided was protected by the Privacy Act. The poll’s creators said they had voluntarily submitted to this measure in order to allay any fears by respondents, and contended that the information provided was only to gauge sentiment and would not be used to build a database for solicitation purposes.
Lenders have continued cutting fixed rates as the Reserve Bank again decided to remain on the sidelines in August. Commonwealth Bank has made a fresh round of cuts to its fixed rate home loans, reducing rates on its one and three-year fixed interest rate home loan package products for borrowings over $150,000. The bank’s one-year package product will be reduced 11bps to 6.48%, and its threeyear product will be cut by 16bps to 6.43%. Westpac’s subsidiary brands, including newly re-badged Bank of Melbourne, have also cut fixed rates. St.George, BankSA and Bank of Melbourne have cut two-year fixed rates on their package products by 15bps to 6.44%, and reduced their three-year rate 5bps to 6.54%. Bank of Melbourne chief executive Scott Tanner said the cuts were timed to coincide with the Spring selling season, and would only be available for a limited time. The banks have joined a flurry of lenders making fixed rate cuts in recent weeks. Comparison site RateCity has found the majority of the 100-plus lenders in its database, including all the major
banks, have made reductions to some or all of their fixed rate products since August 1. The moves have brought the Louis Christopher average three-year fixed rate to 6.82%, 49 basis points below the average standard variable rate of 7.31%. The cuts have come as wholesale funding eases and money markets increasingly price in the possibility of rate cuts from the RBA. The RBA again chose to leave the cash rate unchanged in August, and has now remained sidelined for 10 consecutive months. However, SQM Research managing director Louis Christopher said he does not believe cash rate stability or the falling fixed rates will woo buyers back to the housing market, or prop up sagging property values. “We believe that this downturn that is with us will last well and truly into 2012 and unless there is an interest rate cut at some point within the next 10 months, house prices will decline for most capital cities in the range of 10-15%, which represents their total decline, peak to trough,” he said.
Brokers to build Liberty network Liberty Financial is currently in the process of recruiting mortgage brokers into its newlyminted Liberty Network Services business, which will commence the non-bank lender’s direct retail push. Liberty Network Services CEO Brendan O’Donnell said the business had taken the best of existing franchise and aggregation models, to create an offer to recruits that would give them more ‘freedom’ in operating their own businesses. To be branded Liberty ‘advisers’, O’Donnell said Liberty Financial’s branded brokers will be granted true independence in contrast to traditional franchise models, by being granted ownership over their clients and databases, which they can take with them on exit. The business will also allow brokers to trade from a Liberty Financial shopfront – a key method of growing brand awareness – an office location, or even from their own home, and will not restrict its brokers to
specific trade areas, giving them potential national scope. O’Donnell said the focus would be to “minimise cost and maximise revenue” for recruits, which he expects will come from the existing market, as well as new entrants to industry. Part of this maximisation of revenue will come from targeted “cost management” support, which will focus on how brokers can manage client bases more effectively. This will come in tandem with a fully-fledged in-house customer relationship management (CRM) system. Though Liberty Financial will aim to make its own products competitive, Liberty Network Servcies will also give its brokers access to a panel of 12 lenders – including the major banks – which O’Donnell said will cover the vast majority of the lending market. O’Donnell said the business will hold its own ACL, and its brokers would become credit reps under this licence. Part of its model is the creation of a proposition that will also see
brokers diversifying into “limited advice” areas of credit and insurance “from day one”. The Liberty Network Services consumer push comes at the same time as Liberty Financial strives to reposition its brand among third party distributors as a true alternative to the major banks in the prime lending space, in addition to its traditional nonconforming focus. “We will be repositioning ourselves so we are not seen as a lender of last resort, but a lender of first resort,” O’Donnell said. To be marketed to the retail market under the newly coined slogan – ‘Choose freedom, choose Liberty’ – O’Donnell said Liberty Financial would be positioned as
a true “challenger” brand, that would resonate with consumers who are seeking true freedom through finance.
Liberty to allow ‘fee-for-advice’ Liberty Network Services will allow its brokers to charge a ‘fee-foradvice’. CEO Brendan O’Donnell said an industry fee model was a matter of “when”, not “if”, and that the group’s new retail business would allow its brokers to charge a fee-for-advice “from the word go”. O’Donnell said the charging of a fee would not be mandatory for new recruits, but would instead give brokers the flexibility to build a fee model into their business over time.
Mortgage, Inc: branding the broking industry As the industry consolidates, its future may lie in a handful of brands. Adam Smith reports
randing may be the future of the mortgage broking industry as independent operators find it more difficult to do business, it has been claimed. As Liberty Financial prepares to launch its Liberty Network Services group of branded brokers, Liberty Network Services CEO Brendan O’Donnell has predicted that branding is the future in an industry already in the grips of widespread consolidation. The company’s Liberty Network Services model will differ from franchise models, in that it will provide brokers with branding while allowing them control and ownership of their clients and databases. O’Donnell said this model may see further traction in the years ahead. While many brokers may want to focus on their own independent brand, O’Donnell said, few know how to do this effectively. He said very few independent brokers have managed to grow their own brokerage’s brand. “The majority of brokers are not experienced in the area of marketing and don’t have adequate capital to invest in building their brand. The result is that many brokers are unable to move towards working on their business and instead their individual name is the business. This is not a bad thing, but if you can combine your personal name and the excellent service you provide and apply it to a brand, you will be much more successful,” he commented.
The perception of independence
Firstfolio CEO Mark Forsyth sees the wisdom in this approach, but said branding may have negative connotations for some consumers. “You have to have either scale or be incredibly boutique. The market is now so split into different gene pools. There are people who expect branding and want brand loyalty, but there’s a whole group who think if you’re associated with a brand they’re bound to get ripped off because they’re paying for the brands,” he remarked. “Clients want different things in different market segments.” Forsyth said Firstfolio’s approach is to tap into these different market segments. He predicted that the industry could see boutique brands sitting under the umbrella of larger brands, maintaining the perception of independence, but with the benefits of scale. This more closely describes Firstfolio’s approach, he indicated. “We’ve always said that we’re the brand behind the brands. Firstfolio is like Wesfarmers. Firstfolio itself is not a brand we would use. We’re a corporate brand,” Forsyth said. While Firstfolio would not push itself as a consumer brand, Forsyth said the company has considered the option of providing branding to other industry players. “A lot of people have asked if they could use the eChoice brand. We haven’t concluded that yet. We’ve just started to think about it. We could act as the sub-aggregator where we just provide infrastructure to a group who are actually doing the aggregation,” he said.
MPA Top 100 Broker David Westerman is sceptical about branding. Westerman believes many brokers may bristle at the idea. Moreover, he said many consumers may have little connection with some of the brands in the mortgage industry. Apart from larger franchise brands such as Aussie and Yellow Brick Road, Westerman said most companies in the mortgage industry are not easily recognisable to consumers. “I think brokers will be wary about giving up their own shingle or brand to endorse a product which might only represent 10% of their total business. Being branded as Liberty, for instance, will give the broker no benefit as 99% of consumers have no idea who Liberty is. The only winner here is Liberty, who gets free advertising from all of its branded brokers,” he said. While O’Donnell conceded that independent brokers have seen success, he maintained that the difficult task of growing a business in isolation would increasingly steer more brokers towards branding. “Aggregators would not be where they are today if a boutique broker was not successful. This said, in the decade ahead we will see an evolution of the industry where I believe more brokers will move towards a branded proposition that provides them with partnership support, enables them to focus on their strengths and builds bigger businesses,” he said.
Benefits of branding Liberty Network Services CEO Brendan O’Donnell believes branding presents brokers with a competitive edge while allowing them to maintain independence. He said branded brokers have the following unique advantages: • Running your own business under a national brand gives you immediate credibility. • You are able to focus on the things you are good at and leave the marketing and service support to a central marketing and brand team. • The quality of the marketing material and advertising used in your local area is far better and well thought through, and takes into account consumer behaviour. • You enjoy the benefits of dynamic digital marketing support, where the website your customers visit is rich in content and adds value. This will become more important as we see social media become more mainstream. • CRM utilisation. Most brokers don’t have the time or the skill set to explore what CRM can do for them. A national brand and central marketing support does this for them, making the broker’s life easier and allowing them to focus on what they are good at: advice, sales and service.
FORUM When the MFAA and FBAA were called on to create a single body to represent mortgage brokers (MFAA, FBAA called on to merge 01/09/11), our readers were nonplussed. I can assure you that brokers want to have options as to what industry body we join. sidbroker on 01 Sep 2011 10:19 AM Does the MFAA still have banks on its board? Is that in the brokers’ interests? And while education is important I don’t believe there is enough substance for a degree in pure mortgage broking. The FBAA seems to follow the legal requirements from ASIC which I am fine with. As I am sure ASIC spent some time working out what should be required for this industry from an education standpoint. Besides, I already hold a degree in business and diploma in financial planning. I’m not the only broker out there with these qualifications (or more). Broker 2 on 01 Sep 2011 10:41 AM The animosity between these organisations will prevent any merger. It is also a bad reflection on the entire industry. positivebroker on 01 Sep 2011 01:22 PM
The state of credit growth in May led to housing pundit lamentations (Housing credit growth worst on record, 01/07/11) I disagree with the comment in the above article, in which the HIA’s Harvey Dale blamed weak credit growth on “....supply side obstacles and weak demand, which he said was exacerbated by “incessant chatter” about a “fictitious housing bubble.” Fictitious? Well, let’s pull this apart just a tad. Steven D Levitt (an economist) at the University of Chicago wrote a book that was essentially all about ‘causation’. What those of us less learned souls might refer to as ‘some stuff that indirectly or directly lead to some other stuff happening’. In Australia the ‘stuff’ that’s happening here (in this topic) is that
less people want to build, buy or refinance properties. What’s the reason behind this ‘stuff’ happening? Is it the carbon tax? Nope! What about the price of fish ‘n’ chips? Nope again... Could it be that people are stalling purchasing because their wages haven’t appreciated in a similar fashion to houses over the last 10 years AND they simply can’t afford to in-debt themselves to the gills in order to satisfy an executive’s salary bonus? What could possibly confirm this assumption? I wonder if the massive increase in national savings tells us anything. Well, yes it does... people are definitely holding onto their money, and additional evidence of that is found in ‘other’ economic data in regards to retail spending, which is down. If you superimpose a 10-year graph (economists love these things) of housing appreciation over a 10-year graph of wage appreciation, you might find your cause.... and its effect is (wait for it, Dale) people can’t afford to buy your product. Fictitious is something that doesn’t exist; are you, as an economist, arguing that cause and effect don’t exist? I would argue that housing in Australia is over-priced to the hilt! Martin J Rollins MPIA on 30 Aug 2011 05:35 PM Mr Martin J Rollins. You are right on the money. Housing costs are far and above what they should be, comparable to salaries. Even with two incomes, couples are attributing up to 40–50% of their net salary just to cover mortgage and house costs. That really does not leave much left over for living and, in a lot of cases, commute costs just to earn that income. Real estate agents advertise $350,000–400,000 properties as a first homebuyer/entry level property. New construction costs in any city is near $300,000– 350,000 as well. You can’t find a decent sized block under $150,000–200,000 and it costs around $200,000 to build a half-decent house and deck it out. There is your problem. People have come to the realisation that they cannot afford it and don’t want a $300,000, $400,000, $500,000 mortgage around their neck for the next 25–30 years. mortgageandlease on 31 Aug 2011 09:38 AM
Meanwhile, AAMC’s Jeff Mazzini had this to say about recent FoFA legislation that could eventually impact mortgage brokers (Brokers foolish to shrug off FoFA, 31/08/11) Support the comments here as ASIC has now recognised credit as a product in line with investments, insurance and advice. They are also targeting other professional advisors once they have bedded down retail credit advising and one would certainly understand that given the products as above are under their supervision, it’s only natural they will expect the same outcomes to protect the clients. It’s not such a bad journey ahead and it’s better to roll with the punches now and adapt your business model for what the end result will look like. Your clients will be impressed and your business value and resale model becomes a more viable proposition. Jeff Mazzini AAMC on 31 Aug 2011 11:24 AM
Poll: Does your aggregator offer enough panel choice? Aggregators have been criticised for ‘forgetting their roots’, by not being quick enough to update their panel lenders. We asked our readers if they had enough panel choice.
Source: Australian BrokerNews Poll date: 26/08 – 02/09/11 To vote in our latest online poll or get involved in our forum, visit our home page at www.brokernews.com.au
Aggregators have recently been under fire for being too slow to update their panels with new lenders. We asked brokers and aggregators what they thought of these claims.
On aggregators updating panel lenders: I had a case early this year where my aggregator had a new lender on their panel who I had a good relationship with. I had put a loan through with that funder and it wasn’t until the loan had settled that I could actually submit the commission enquiry, because it took so long for them to load it up on to our lender panel. That was quite frustrating to get the documents and specs up there. On ACLs and panels: I do have my own licence. My whole plan with Pink Finance is to potentially grow it and get more brokers on board. Therefore, having my own licence gives me the flexibility to do that under the Pink Finance philosophy. We are very passionate about what we do, we are quite different about what we do. We also didn’t want to be restricted to just the panel; if there is a need to go to another lender, we do have that option to do so. On brokers and new panel lenders: [Aggregators should] consult the brokers more as to what is out there because we see it – we have people who are not on our panel contact us quite often and say we have this particular niche – A, B, or C – and being able to provide that feedback to aggregators I think would be valuable, because they would be able to get from the broker’s perspective what else is out there that they may not actually see.
On Mortgage Choice’s panel approach: We have a pretty big team in lending operations and they are currently reviewing our panel to make sure we have the best of breed product on there for both our consumers as well as our brokers. What type of things influence panel additions? You might have a product in terms of conscript that is identical; you use that as an example, but the service proposition and the location proposition might be of benefit to either our network or our customers. That will certainly influence the decision of whether they are on the panel or off the panel. Should brokers take on their own ACL? From my perspective, if you can leverage off the skills and the scale of being able to manage a licence – such as the compliance and the audit, the dispute resolution capabilities and so forth – that would allow me, if I was in that position, to utilise the licence such as our brokers do with Mortgage Choice. Do you seek feedback from brokers? One of the great things about Mortgage Choice is that we are having that dialogue with our franchisees and also our customers, so we take all that type of feedback on board and we go through a process of assessing those lenders and seeing how those products stack up with the others we have on the panel.
Has VOW recently added new lenders? We have put on three new lenders. We put those on because we felt, with the market contracting, it was important to have more competition in that space. And I think we do want to see the non-bank lenders, the regional banks and the foreign banks get more of a market share. On VOW Financial’s panel approach: The first thing I put to a new lender is for them to show us how they are going to be different to all the other lenders. Sometimes it may not necessarily be product – it might be in the sense of service or delivery. But generally it is really around product differentiation, and how they differentiate their product from others, what niches they are better at than others. Because the last thing we want is a panel that is full of the same offering. What do you look at when adding a new lender? Brand is important, so for regional banks they tend to get on the panel simply because they have a strong brand in a certain area. But we also support them in growing in areas they may not be strong in. And obviously financial support is important. I think that they must have a history, that they have been in the industry for a while. We’d be reluctant to support a new mortgage manager, versus one that’s already established.
How vulnerable is Australia’s economy? Head of investment strategy at AMP Capital Investors, Shane Oliver, argues Australia is well positioned to weather global storms Australia is not immune to any renewed global economic slump. Business and consumer confidence have already been hit hard, the fall in share markets has resulted in a renewed loss of wealth, another global credit crunch will adversely affect lending and exports will be impacted if economic weakness in the US and Europe drags down our key trading partners in Asia. What’s more, the renewed threat to global growth is occurring at a time when household demand in Australia is weak on the back of consumer caution and the global turmoil may only reinforce this. Announced job layoffs are rising and are likely to increase further as companies revise down the demand expectations that underpinned last year’s employment surge. By year end, unemployment is likely to rise to 5.5%. Australia’s high house prices relative to income levels and associated high level of household debt is an added source of vulnerability should an economic downturn threaten the ability of Australians to service their mortgages. However, notwithstanding these risk points,
Australia is reasonably well placed to withstand a possible return to recession in the US and Europe, for the following reasons: • As in 2008, interest rates have a long way to fall if need be. While it may take a month or so for the RBA to change its thinking from rate hikes to rate cuts, we expect the combination of increased global risks and rising unemployment to convince the RBA to start cutting interest rates by year end, possibly as early as October. With 85% of Australian mortgagees on floating rate loans, as we saw in 2009, slashing them has a powerful impact on demand. • While the scope for fiscal stimulus is less than it was in 2008 as the budget is now in deficit, Australia’s trivial level of net public debt (ie, 8% of GDP compared to 72% in the US) suggests there is room for targeted, timely and temporary fiscal stimulus if needed. • Gearing and financial leverage is low compared to the situation prior to the GFC. Corporate gearing is well below long-term average levels in contrast to 2007, margin lending is low, and private credit growth is running around its lowest level since the early 1990s recession. • In the event of a sharp fall in commodity prices, the A$ would likely fall sharply, providing a huge boost to competitiveness and thus acting as a buffer.
• Banks are less dependent on global markets for funding than in 2007, with 50% of funding coming from deposits compared to less than 40% at the time of the GFC, and are far less dependent on short-term funding. • While households are cautious, they have built up a large savings buffer which they are likely to eat into if unemployment rises and interest rates fall. • While the mining sector is not immune to lower commodity prices, the huge pipeline of work in mining projects provides a degree of resilience that wasn’t there in 2008. • Finally, our key export markets in Asia are more secure than those in Europe and the US and may prove more resilient this time around. As a result of these considerations we believe that – providing the RBA acts swiftly – the risk of a recession in Australia is low, at less than 20%. While non-mining demand in the economy is likely to take a hit in the short term from reduced business and consumer confidence, the loss of share market wealth and rising unemployment, growth is likely to receive a boost from monetary and potentially fiscal stimulus through next year. The above is an edited extract from Oliver’s Insights, a commentary from Shane Oliver of AMP Capital Investors
What a difference a year makes … or not. Australian Broker reflects on the punditry, breaking news and trends that made headlines in the magazine 12 months ago Australian Broker issue 7.18 Headline: ASIC plans to go undercover (page 2) What we reported:
What’s happened since:
Headline: First homebuyers are back: Aussie (page 16) What we reported:
What’s happened since:
ASIC last year set out a plan to conduct surveillance activities of credit licence applicants to ensure the information they had given in their applications was accurate. Then chairman of the regulator Tony D’Aloisio said ASIC would work on “smoothly transitioning the industry to the new credit regime and ensuring our oversight of the industry is effective”. D’Aloisio said the watchdog would be monitoring fringe credit activities as well, to ensure compliance with responsible lending obligations. The then-chairman also promised forthcoming guidance on exit fees.
Aussie Home Loans last year reported an unexpected surge in first homebuyer activity in August. The broker said enquiries from first homebuyers had more than doubled since March of 2010. Aussie attributed the surge in first homeowner demand to a cooling property market, an improved economy and increased job security. The company’s chief executive, Stephen Porges, said the effects of the federal government’s First Home Owner Grant also appeared to be wearing off, with the grant no longer inflating vendor asking prices.
ASIC has increasingly flexed its muscle since licensing came into effect. Over the last year, the regulator issued a permanent ban, revoked a credit registration, suspended a licence, issued a fine and infringement notice and rejected four licence applications. ASIC also issued 6,081 licences and registered 24,005 credit reps. After completing licensing, ASIC commissioner Peter Boxall said the watchdog would take a “less forgiving approach” towards infringements. He said ASIC would continue its surveillance, and would focus on unlicensed credit activity.
Aussie may have spoken a bit too soon, as 2011 has seen extremely low participation from first homebuyers. Mortgage Choice indicated in the company’s full-year results that first homebuyer activity had fallen 35% from the levels seen in 2010. Likewise, comparison site RateCity claimed the market saw 60,000 fewer FHBs in 2011 than it did in 2010. The economic optimism espoused by Porges last year seems to have faded, with employment growth slowing and consumer caution on the rise.
Headline: SMEs hesitant to take on more debt (page 17) What we reported:
Veda Advantage’s quarterly Business Credit Demand Index last year signalled some trying times for SMEs and for commercial lending. The index showed a 5.6% decline in business credit demand for the June quarter when compared to the June quarter of 2009. The result represented a 10% year-on-year decline for the month of June. Veda head of commercial risk products Hamish Osborn said the result showed that businesses were still wary following the GFC, and that tougher lending practices were also locking some SMEs out of the credit market.
What’s happened since:
Veda’s newest Business Credit Demand Index showed a bit of a bright spot for SMEs. Demand for credit in the June quarter of 2011 was up 17.4% over the previous quarter, and rose 3.6% year-on-year. Though Veda said demand for business credit had yet to return to pre-GFC levels, it indicated that it had made strong gains. Bankwest head of business broker sales Aaron Milburn said the strengthening in demand for commercial lending should serve as a signal to brokers to diversify into the field.
Headline: Growth will push rates to 9%: BIS Shrapnel (page 12) What we reported: What’s happened since: BIS Shrapnel last year forecast that “serious” inflationary pressures would push mortgage interest rates to 9%. In its Long Term Forecasts 2010–2015, the company argued that a tightening labour market and accelerating household spending would lead the RBA to lift rates to 6.5%. BIS Shrapnel also predicted unemployment to fall below 4% by early 2013.
While there’s still plenty of time for BIS Shrapnel’s predictions to come to fruition, their crystal ball is looking somewhat tarnished at the moment. Rather than continuing to decline, unemployment is on the rise, with the ABS reporting a jump to 5.3% in August. The Reserve Bank has now stayed its hand for 10 consecutive months, and calls for rate cuts are growing with weak consumer spending and low credit demand.
Leveraging your brand Successful branding can get you closer to your clients and dreams of business success
randing – or rebranding – your business can be a stressful decision to make, as it may seem your business image and your future financial success is riding on the outcome. However, small business educator, advisor, mentor and coach, Dr. Greg Chapman says branding is more than just a name or a logo. The success of a brand comes from all the information and feeling associated with that moniker – so it’s the combination that counts. And Chapman said the key thing to focus on is trust. “The biggest single factor in financial services is trust, purely because the stakes are so high for the client,” he said. So how can you best approach a branding exercise, to ensure clients endow you with trust?
The first question to ask is whether rebranding is a good idea for your business in the first place. Chapman said there are a number of good reasons to rebrand. “Branding can broaden your appeal; it can reflect changes in your business – what you offer or who you offer to; or you might want to focus on a particular niche,” he said. However, he argues there must be some form of business strategy behind the effort. “The worst reason to change is if you are tired of the brand and just want something new. Branding is an investment and you shouldn’t change it without a good reason. The risk is clients recognise you as your current brand. It may or may not be successful.”
Choosing a brand
Mortgage brokers fall into two main brand camps: those who align themselves with a retail brand – typically a franchise – and those who want to strike out on their own. Chapman said linking up with an established aggregator that is well known in the retail market makes a lot of sense if brokers feel they are not well known themselves, or are just starting out in the industry. “If it is a well-known retail brand, it will give confidence and
backing behind the broker, for what for consumers is the biggest transaction of their life,” he said. For individuals looking to stand out from the crowd, their own brand gives them a chance to promote the knowledge and experience that differentiates them, building their own reputation. Chapman said brands should not be confused with a logo, which he calls a “shorthand reference” that triggers the associated brand information in the mind of the client.
Communicating your brand
Communication of the brand is critical and Chapman said that this will need to be achieved by building the brand associations that the business desires. “All communications should have your logo, and any time that a client sees the brand, they should be thinking of the quality of the business, and making the associations you want them to make about it.” For brokers specifically, however, Chapman says word of mouth still rules. “I think word of mouth for brokers is still the most important when they are competing with the big banks,” he said. “And I think where brokers can get ahead of the banks is that they know of the need for providing a service before the bank does.” Chapman said this method of branding is about staying in touch with all existing clients, and that online social networking is just one mode of achieving this.
The Pink Finance story NSW and Queensland-based broking business, Pink Finance, is one business experiencing growth on the back of a rebrand – and in this case, charity-focused branding. The business grew 33% last year, and it had just added its fourth broker to meet this growth. Pink Finance was launched in 2009, after director Nicole Cannon matched her passion for mortgage broking with other interests, including charity, helping women with finance, and even cricket. The Pink Finance business donates 10% of commission from loans processed to former cricketer Glen McGrath’s McGrath Foundation, which supports breast care nurses in rural and regional Australia, as well as promoting general breast cancer awareness in women. “I think the brand is working. People like that there is a giving element,” Cannon said. Pink Finance raised $17,000 for the McGrath Foundation in its first year, and Cannon said the initiative was resonating with clients, due to their contribution to the charity.
MY WAY What is your greatest business achievement? Winning the Westpac Broker of the Year Award for Choice Aggregation Services. What’s the key to getting business through the door? We have a wide network of real estate agents, financial planners and accountants referring to us. Existing clients also refer family and friends regularly.
2009 MPA Top 100 Broker Garry Coxon at Absolute Financial Services in Sydney says that getting his business set with a strong referral network – and backing this with perseverance and hard work – is the recipe for his ongoing success.
What goal/s have got you to where you are? My passionate belief that I can assist my clients with the right financial solution. My own need to succeed and be good at what I do. Who has helped you the most, and how? My family has been my greatest source of inspiration. They have encouraged me when the going was tough and shared in my successes. My Aggregator (Choice Aggregation Services) has provided a great support base, necessary training and is always willing to assist whenever the need arises. What character trait do you most value in yourself? My perseverance and my ability to work hard for my clients.
How do you stand out from the crowd/competition? My reputation for and experience in dealing with complex finance deals – property development, commercial property purchases/refinances. What do you tell yourself when the going gets tough? I have been through some ups and downs and when the going gets tough I just knuckle down and ride it out. What is the one thing you want to improve in your business? Develop social media as another source of referral and increase cross-selling opportunities. Take time out to work on the business and establish better networks in the local community. What piece of advice would you give an ambitious broker? Establish a strong referral base from the start and improve on it. Never burn bridges and constantly network. What’s your next greatest ambition? To employ more staff and reduce my work hours so I can spend more time with my family.
Efficiency, revenue, freedom Thinking carefully about your business model could see you increase the revenue you gain from your clients – as well as the value that you provide
or many, being told their clients are their greatest asset is stating the obvious. However, experts repeatedly argue that many of today’s mortgage brokers are not utilising their existing database effectively. So what can brokers do better to increase their client revenues? Macquarie Practice Consulting senior consultant Fiona Mackenzie says the key theme of the bank’s recently released benchmarking survey on mortgage brokers was that more successful brokers focus more on their clients and client data, rather than just the next deal. “It was really around what they are doing with their client base,” she said. “Nurturing their existing clients – staying in touch with them, communicating with them – is a key way that we have seen that brokers can increase their revenue per client.” So what are some ways to gain more value from your most valuable asset – the client?
One of Macquarie’s key recommendations was to focus on referral relationships. “People think about referrals pretty much in terms of client acquisition – a good way to get leads,” Mackenzie explains. “But by building really good, strong referral relationships, it will impact on the efficiency of the whole business.” One example of this is the type of client being serviced. By locking in referral relationships, brokers can gain a steady flow of pre-qualified, pre-sold leads, who are likely a good match for their business. This enables them to focus on the type of client they want to target. Macquarie has also recommended that brokers formalise their referral relationships. “We see that smaller businesses are saying that on the whole their referral relationships are a little less formal than larger firms. What we are saying is that there is an opportunity for them to look at that, and say that if they formalise it perhaps it will generate more leads.” Mackenzie said this involves close communication with referral partners, to clarify expectations and how the relationship will be managed over time.
When it comes to diversification, brokers don’t usually ask themselves what they are good at. But identifying their strengths and weaknesses is what they should be doing.
“It’s kind of matching those two,” Macquarie’s Mackenzie explains. “The firms that I have seen do diversification well – rather than just adding another service in a ‘plug and play’ way – [it] is really about thinking very clearly about who their clients are, as well as what they themselves are really good at, and not so great at,” she says. In this way brokers are able to match their clients and target market with their own passions and skills. For example, Mackenzie said if a broker is part of the ‘wealth accumulator’ market, then they can build a business that brings together the many pieces those clients need, such as mortgages, insurance, and maybe even superannuation, tax and legal services. “On the other hand, if they know their real strength is in a specialist area – around mortgages for example – sometimes it can be better to stick to their knitting and do that really well and then network with other professionals who help meet the broader needs of the client.” This approach will ensure client needs are being met – and they don’t go somewhere else.
According to Mackenzie, there are a few main planks that businesses can put in place to increase their revenue per client. • Retention: You don’t want a client to do a loan with you and then three years later roll over with somebody else,” Mackenzie says. To ensure client retention, brokers should stay in touch with their database, to ensure they know if a client is thinking of doing something different, and being seen as a “first port of call” for any queries. • Loan size: Boosting revenue per client can be achieved by seeking out clients with more complex needs. When it comes to pure finance, increasing average loan size by developing your business within a particular target market or demographic may achieve this aim. However, Mackenzie said it’s important to be “true to who you are”. • Revenue streams: Building new revenue streams into your business can assist in boosting revenue per client. Experts argue the easiest bolt-on services for mortgage brokers include motor vehicle finance, equipment and leasing, as well as insurance. Mackenzie said that the adoption of various revenue raising techniques depends on “who you are talking to” – particularly the size of the business in question. “At the smaller end it is more about the retention piece and positioning themselves well. At the larger end it is more about looking at different and more opportunities for revenue,” she said.
By building really good, strong referral relationships, it will impact on the efficiency of the whole business
Why Australia’s ‘savings binge’ won’t last Australian consumers are running scared and credit demand is suffering for it, but one economist believes recovery may be closer than we think
ver the past few months as consumers have shown an increasing aversion to risk and global markets have seemed to edge towards the brink of meltdown, there’s been no shortage of doomsday predictions for the housing market and the economy at large. However, not everyone has such a gloomy outlook on the future of the mortgage industry. According to one analyst, the “savings binge” Australia currently finds itself in the grips of will pass once consumers realise things aren’t so dour as they seem. That’s according to BIS Shrapnel chief economist Frank Gelber. Gelber has expressed confidence that housing demand, and even capital growth, will return sooner than forecast as borrowers begin to regain confidence and realise that the economy is not as dire as sentiment suggests. “We were on a spending binge last decade when banks basically turned mortgages into a line of credit. Then even before the GFC we saw savings patterns rise. We’re in a savings binge now, but it will settle down. People will become more confident and people will loosen their purse strings,” Gelber said. Gelber’s comments echo those of RBA Governor Glenn Stevens, who forecast in July that households would eventually begin to “loosen their purse strings”. Like Stevens, Gelber believes the breakneck pace of credit growth leading up to the GFC was unsustainable; however, also like Stevens, Gelber said the pendulum swing towards increased savings will eventually diminish until consumers find a place of long-term equilibrium. Gelber also dismissed the idea of a housing bubble, but said the perception of impending price collapse has filtered through to make consumers wary of taking on mortgage debt. “There were calls that housing was 40% overvalued
and was going to collapse. What a heap of junk that was. But people were really uncertain about that. Confidence is dismal, and that’s fed through to housing demand,” he commented. And while much of the housing construction industry has blamed waning consumer confidence on factors such as the carbon tax, Gelber believes the high Australian dollar has had a much more pronounced impact on the economy. The resources boom, he said, has both pushed up the dollar and put pressure on interest rates, resulting in a weakened housing industry. By comparison, Gelber said, the impact of the carbon and mining taxes will be insignificant. “The new taxes won’t hurt the economy. A mining tax will do little to discourage investment in this buoyant period, and the carbon tax is a bit player. It’s the strength of the dollar that is doing the damage to domestically produced tradable goods and services. The carbon tax isn’t the main game. It’s been swamped by the effect of the dollar. Not only has it had an impact on the dollar, but the prospect of a stronger Australian economy means we’re seeing higher interest rates already. That’s what’s hurting the housing industry,” Gelber commented. In spite of low credit demand and weak housing construction, Gelber expressed confidence that the housing market will turn around in the near future, and even see further capital gain. Many analysts such as AMP economist Shane Oliver and RP Data’s Cameron Kusher have tipped a prolonged period of stagnating house prices, while economist Steve Keen has forecast a direr outcome, saying the housing market is six months away from a “swan dive”. Gelber is far more optimistic. Not only will capital growth return, he said, it may re-emerge as early as the beginning of 2012. “We can write off the rest of this year, but I think we’ll wake up next year and realise things are not as bad as we thought,” he said.
NUMBER CRUNCHING Business confidence in the doldrums In the next 12 months, is Australia’s economy in for good times or bad times?
Home owners staying put longer
Average number of years owners stay in a house
10 8 6 4
Source: Roy Morgan Research
er ra Ca nb
ide ela Ad
e rn ou elb M
Source: Fitch Ratings
*The amount global GDP would fall if the US experienced a double-dip recession
At a glance…
People Q&A Hye-Young Kim was recently awarded AFG’s inaugural award in NSW for women in mortgage broking. So what has made her such a stand-out in her profession? Q. Were you surprised to win the award? Yes, of course! It really surprised me because I never expected that I would receive the award. I knew before the event that I was one of the nominated brokers, but I thought the other competitors were better than me. I almost cried. Q. Do you think it is important to raise awareness of women in mortgage broking, and are women in particular cut out to be good mortgage brokers? Absolutely! This job is more suitable to women. You require attention to detail, accuracy, completion in a timely manner and affinity with customers, which are closer to a woman’s nature. Q. Do you have a particular rapport with clients who are women, and who are often the ‘financial decision-makers’ in a household?
I am more close to women clients. We have more common issues to share such as kids, cooking, fashion, education etc... Therefore I build good relationships with women clients. Q. What do you see as your greatest business achievement over the past 12 months? My business is growing about 20-25% steadily every year even though the economy and real estate market are slowing. I have more staff and now have my own bigger office. Q. What goals do you have for your business in the next 12 months? I’d like to build up my team, and ensure they are working more systematically and efficiently. Hopefully it will lead us to become the top womens broker group in Australia! Q. What are the biggest challenges you are facing in your business/market? There is so much to do. The market is uncertain in regards to interest rates, policy changes, regulations, product changes and the overall Australian economy. We have to make sure to advise right information to clients.
Katrina Rowlands (left) and Kathy Cummings (right) present Hye-Young Kim from Now Home Loan with her award
Vow recognises top achievers Vow Financial has singled out its top performing individuals and broker groups at its second annual conference in Fiji, which encouraged members to go in search of ‘Blue Oceans’. Taking home the coveted ‘Broker Partner of the Year’ was Citywide Lending, which now has five offices across Sydney, having added one a year since its inception. Accepting the award were directors Rodny Ghalie and Jason Mikhail, who had to rise twice from the Gala Dinner audience when they also received VowFinancial’s
annual gong for settlement volumes. Meanwhile, the Australian Property Finance team from Charlestown, south of Newcastle, NSW, managed to top competing groups – including Citywide – for the highest deal volume. In the group’s other annual awards, Dr. Tony Hayek from Blue Wealth Property bestowed the Blue Wealth Property Award on Anders Ostenberg, while Hayley Grant from Vantage Financial received the ‘Rising Star’ prize for her initial success in the Vow network.
AMP Bank invited golf enthusiasts and ‘hackers’ alike to its inaugural golf day events in Sydney and Brisbane. Eagles and Birdies were reportedly rife, with Queensland’s winning team impressing with a round of 46. 3
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Steve Craig, Charles Kilby, Brett Pilgrim and Con Xianthes James Ashdown picks up the award for ‘nearest the pin’ John Viggers, David Stock and Richard Ledingham Nic Jarvisto claims the title for longest drive
Caught on camera Bank of Melbourne recently invited Victoriaâ€™s best and brightest brokers to a launch function where they heard what the new brand had to offer. CEO Scott Tanner hosted the gathering, garnering strong interest among attendees.
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Anthony Dâ€™Alessandro and Sean Farley Simon Sutterby and Elizabeth Antonellos David Lolait and Andrew Brumby Andrew Asprey, Isabelle Dogne and Chris Carstens Cameron Morgan and Peter Lock Frank Taddeo, Paul McComb and Melissa Gielnik Shane Lalor and Whitlam Malkhoun Gerald Foley and Paul Chesterman Carl Taylor and Scott Tanner David Johnson and Matt Derham Scott Tanner briefs brokers on the new Bank of Melbourne Andrew Lyon and Troy Starcevich Scott Tanner and Christopher Bright
Got any juicy gossip, or a funny story that you’d like to share with Insider? Drop us a line at email@example.com
Broomsticks & Beyoncé
“We’ve never been happier…”
hen Insider attends industry roadshows and events, he usually likes to head straight for the bar, stock up on all the available beverages, and find himself a perch where he can happily drink the night away (with the addition of the odd snack of canapé, if he can find one). What he doesn’t count on is being mesmerised at all by what is going on around him – too many years in the mortgage industry perhaps? And so it was, that he found himself surprised at nonbank lender Liberty Financial’s recent national roadshow event at Sydney’s Luna Park. Perched. Sipping away. Content to listen and watch only partially to first, a performance by magic act ‘Soul Mystique’ – aka Gavin & Lydia, veterans from Australia’s Got Talent – and then to Mohnacheff’s Got Talent – that is, Liberty Financial’s John Mohnacheff and his impressive David Letterman impersonation (which seemed to disquiet his other Liberty guests only slightly). But then, just as Insider was getting ready to head for the door, he was suddenly struck dumb by the mesmerising final act – a dose of group hypnotism, Las Vegas style. With 12 volunteers rushing (disturbingly) to jump on the stage to undergo a dose of mind control, Insider found himself
progressively seduced by the rising and falling tones of the imported hypnotist’s voice, and, as the performance kicked into high gear, found himself drifting closer, and with less volition – to the stage. Up in full view of the delighted broker audience, the 12 volunteers were first only asked to imagine sipping cocktails on a beach (something for which Insider wouldn’t mind being hypnotised for). However, soon (as expected) the volunteers were made to look like fools, driving racing cars, fishing – and doing more than passable Elvis and Beyoncé impressions. By the end, even Insider was convinced the broomstick on stage was the best looking woman in the room (pickup lines, something about her impressive waist line, or sweeping her off her feet?). As the curtains were drawn and the 12 guinea pigs returned to the audience (to much laughter of course), it was all Insider could do to snap out of his daze and come back to reality (and beer). The worrying thing is, broomsticks just haven’t looked quite the same since.
and a little inspired, when he saw the strategy employed recently by a Brisbane man. Twenty-seven-yearold Simon Hamill – who is headed to England for the next year – decided to eschew the whole real estate agent route, and instead try for some viral marketing mojo. Hamill is taking applications from people interested in living in his luxury Auchenflower apartment
rent-free for 12 months. The trick is to charge applicants $20 to register their interest in the place, then have online voters pick the best applicant based upon their video presentation. Hamill reckons he can cover a year’s worth of his mortgage by collecting a flood of online application fees. The only problem? At Insider’s last count, he had drawn 46 applicants. Unless his mortgage payment is around $17 a week, that’s probably not gonna cover it.
It’s not easy being green, but it pays well
Here’s a fairly ingenious way to draw some Gen Y hipsters back into the housing market: tie your home loan product to environmental causes. That’s just what lenders in Canada have done. A group of non-bank lenders in Canada have begun offering ‘green’ home loans, which give borrowers a rate discount provided the homes they buy meet certain environmental and energy consumption requirements. The loans are also available for refis, as long as the borrower spends a certain amount of money upgrading their home’s energy efficiency. Now, Insider has to admit, he’s a cynical Gen X-er who immediately sees promotions like this as marketing ploys, but it should at least have some decent benefits to the environment, and will no doubt appeal to some of those Gen Y hipsters who’ve been avoiding the housing market of late. Insider predicts the next move by lenders will be to extend discounts to borrowers with obscure taste in music and a smug sense of irony.
Better get those applications in quick!
What with vacancy rates remaining pretty tight, one would think it wouldn’t take much to find a tenant for a well-located flat. That’s why Insider was surprised,
That standard variable rate is so five years ago
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