Australian Broker magazine Issue 9.08

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ISSUE 9.08 April 2012

Diploma deadline to bring association ‘chop’  Brokers falling

behind the MFAA’s education deadline may soon opt to leave the association The impending MFAA Diploma deadline will see many brokers flock to rival associations – or to no association at all, according to one training organisation.

As the 30 June deadline approaches, the MFAA has claimed 75% of its 11,800 members are on track to complete their Diploma by the end of April. CEO Phil Naylor has also said he does not expect a large membership cull after this “line in the sand”.

However, AAMC Training Group managing director Jeff Mazzini has predicted a fallout for MFAA membership as brokers shirk the deadline. “The fact here is if you put everything on the table with the associations, there’s the potential to chop a lot of members.”

Mazzini claimed the number of brokers who have completed the Diploma is low, but said some are now rushing to enrol before the cut-off. “The numbers I heard at one stage a few months back is that only 3,000 people had completed it. The completion rate is not high at this point, but a lot of them are coming out of the woodwork and saying, ‘I have to have this finished by the end of June’.

Naylor urged brokers who feared

‘Double jeopardy’ ING Direct lambasts segmentation over service Page 2

Refund lifeline Homeloans Ltd eyes embattled broker network Page 2

EDR defence Denovan apportions EDR system blame Page 6 Jeff Mazzini

they may miss the deadline to get in touch with the association to discuss their situation.

But other brokers may eschew the Diploma altogether in favour of an association with lower educational standards. Some, Mazzini said, may even opt for no association membership at all.

“Lending volumes are down in Australia and lenders want to get loans on the books. There will be lenders out there that will take deals if the quality is right, even if the broker doesn’t belong to an association,” he said.

Mazzini said regulation is causing brokers to baulk at higher standards.

“If an association is coming out and saying brokers must do 30 PD days and then ASIC is coming out and saying they’re happy if you only do 20, well, who’s the boss?

People will say, ‘Bugger them.

ASIC says I only need to do 20’,” he said.

But Mazzini said brokers who flee the MFAA due to its educational requirements are ultimately disadvantaging themselves.

Inside this issue Coalface 16 Making sense of new JVs Viewpoint 18 Getting an online strategy Opinion 20 The truth about valuations Insight 22 Three successful broker traits Market talk 26 Perth investors wake up People 28 Westpac’s Kokoda challenge Insider 30 Logic in reverse

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News ING Direct attacks segmentation ‘double jeopardy’ ING Direct has come out in opposition to existing tiered broker service models, arguing that current bank policies are causing some consumers to play ‘double jeopardy’.

Following the launch of its Broker Partner Program – an enhanced service model the bank has been rolling out since late last year – it has argued against increased moves towards segmentation.

“We believe in a service model that provides better service for the broker no matter how often they deal with us,” ING Direct head of broker distribution Mark Woolnough told Australian Broker.

“Those that are talking about segmentation usually have clear rules and criteria around it, and a lot of that comes back to value from dollar-perspective,” he said.

“We feel that disadvantages

the consumer.”

Woolnough said a consumer or their broker should have equal opportunity in dealing with ING Direct, regardless of the volume a broker is directing to the bank.

“Our Broker Partner Program is not a tiered service proposition.

From the point of application through to settlement, the service is the same for all brokers and for all customers – we don’t believe clients should be put in double jeopardy with regard to which broker they use to put them into their home or refinance their existing mortgage,” he said.

Woolnough suggested that such a segmentation approach - currently championed by a number of banks - could impact on the end customer, and tarnish the bank’s brand.

ING Direct has been implementing a series of changes

to its service proposition since the second half of 2011, when the bank faced a broker backlash after head of Mark Woolnough delivery Lisa Claes urged brokers to submit more business to second tier banks or face becoming irrelevant.

Since then, Woolnough has repeatedly outlined the bank’s efforts to respond readily to broker feedback, and has detailed measures such as putting in place a team of skilled desk-based relationship managers to deal with broker loan queries over the phone.

The bank has also committed to upping the visibility of its BDM presence in the market, by visiting all broker partners at least twice a year regardless of volume.

Broker use declines as borrowers undertake more legwork A new study has claimed that mortgage broker use is on the decline.

The QBE LMI Barometer has indicated that 37% of homebuyers in 2012 have used mortgage brokers to secure their financing.

The result is down from 43% in the last survey. The company claimed, however, that the result was not indicative of borrower appetite for broker use. Rather, QBE LMI put the findings down to an increased trend of consumers conducting their own home loan research.

“While consumers may be relying more on their own research, which may be linked to the rise of social media and online

capacity for research of financial products, the results do not imply that the appetite for using a broker to broker the loan has declined, rather that consumers are doing more of the research themselves,” the company said.

Though broker use was down overall, first homebuyers showed a greater proclivity toward broker use. Forty-five per cent of first homebuyers chose to use brokers.

Cost was the main factor for consumers in selecting a home loan. Interest rate scored an 8.2 out of possible 10 as the motivating factor behind home loan choice, followed by fees at six out of 10.

The report has also found that more than a third of potential first

homebuyers would rather jump into the market now than wait to save a deposit.

Of first time buyers, 39% believe it’s better to get into the market immediately rather than wait to save for a bigger deposit. Overall, 55% of Australians say it is important to get into the property market now.

“There remains a clear appetite for purchasing property in the short to medium term nationwide,” QBE LMI chief executive Jenny Boddington said.

The report also indicated that cuts to the cash rate may not have affected overall buyer sentiment, with 59% saying they have yet to feel the impact of the cuts.

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

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

Too early to tell on Refund deal, says Homeloans Homeloans says it’s too early to tell the impact a mooted deal with Refund would have on its branded distribution.

In a letter obtained by Australian Broker, Homeloans has been named as a potential major shareholder of Independent Mortgage Professionals (IMP), a franchisee bid to purchase Refund Home Loans. The move would see Refund franchisees rebrand as Homeloans branded brokers.

Homeloans chairman Tim Holmes verified that the company was interested.

“We are interested. We’ve already put our hand up, but we’re in a competitive situation. It’s really up to the franchisees and the administrator,” Holmes said.

But Homeloans general manager of funding and operations Scott McWilliam told Australian Broker it was thus far difficult to gauge the impact of

such a deal.

Because of the protracted administration process, McWilliam said Homeloans was uncertain how many franchisees remained with Refund. IMP has sent a non-binding expression of interest letter to the franchisee network, which McWilliam indicated Homeloans would use to gauge the potential number of franchisees the company could net from the deal. He said should the

numbers “stack up”, Homeloans was interested in seeing the deal through.

Holmes told Australian Broker the company currently had “circa 20” branded brokers. A letter from IMP to Refund franchisees has claimed that the majority of the company’s top 60 brokers have expressed interest in the Homeloans deal. Prior to entering administration, the company had around 350 franchisees.

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Compliance certificates to prove a pitfall A compliance expert has warned the industry that many brokers may have gotten their Annual Compliance Certificates wrong, just as ASIC begins a round of contacting brokers to check on their compliance.

The regulator has said it will contact “some” ACL holders to verify the information lodged in the Compliance Certificates, and will be “assessing and discussing” the results of its check-up with the licence holders involved.

However, QED Risk managing director Greg Ashe said brokers may be missing the point in filling out the certificates.

“Everyone has been going on and on about responsible lending over the past 18 months, which is fair enough because it is the highest risk activity; however, the compliance certificate does not specifically mention responsible lending. What they’re signing off on is that they have systems and policies in place to ensure compliance, and that they’re

regularly testing those policies and documenting the results, and that if they find they’re out of compliance they have a plan in place to get themselves back in compliance,” he said.

The question ASIC is asking, Ashe said, is whether brokers have a general compliance program in place. Should brokers answer yes to this question, Ashe said they have acknowledged that the regulator can scrutinise this and ask for documented proof.

“It’s more concerned with the general obligations. Do you have a working compliance program in place? You have a set of obligations.

What internal controls do you have inside your business to help comply with those obligations, and what testing are you doing of those controls?” he said.

And most brokers would have no documentation to support the claim that they have a compliance program in place, Ashe claimed.

“Our experience is that outside the big financial institutions in

broker land, a good 90% of brokers are doing nothing in compliance outside of responsible lending.

They’re doing nothing to cover off their general obligations, which is what ASIC is talking about,” he said.

Should the watchdog find that brokers who asserted they have a documented compliance program in place do not actually have such a program, Ashe said the consequences could be severe.

“Probably at the very least having to spend at least several thousand dollars on an ASIC certified compliance auditor to come and put your company under the microscope for six to nine months, or fines going into five

Greg Ashe

figures. Depending on how bad it is, and I don’t think too many brokers can go really wrong, but depending on how bad they stuff up they can be looking at serious enforcement action,” he said.

Compliance doesn’t have to be a conundrum QED Risk offers a comprehensive online compliance service, which Ashe has claimed can ensure that brokers are fulfilling their obligations. Ashe said compliance does not have to be an onerous task for brokers.

“Why does it have to be so difficult? It’s a couple extra pieces of paper.

If you have the right tools, it doesn’t have to take more than a couple hours every quarter.

Death knell premature for boutiques Industry figures may have sounded the death knell for boutique aggregators, but one broker group claims the call is premature.

Following Aussie’s acquisition of National Mortgage Brokers, Aussie executive chairman John Symond claimed smaller aggregators would be forced to consolidate amidst rising business costs. But KeyInvest national aggregation manager John Trubicyn has argued boutiques are not yet down for the count, and said brokers prefer the personalised service they offer.

“First and foremost, this is a people industry, and brokers prefer to deal with experienced people who understand and care about

the issues they’re facing in trying to grow their businesses. In addition, boutique aggregators can adapt to change more quickly, offer diversified commission structures tailored to the support provided, and provide personalised support services,” he said.

Symond commented that smaller aggregators would not have the ability to compete on technology platforms, and outgoing Australian Mortgage Brokers chief executive Paul Gollan agreed, saying that tech platforms could make or break aggregators in the future. But Trubicyn questioned this, saying most brokers did not utilise the technology offered by their aggregators in the first place. And

regardless of whether such platforms are utilised, Trubicyn claimed many boutique aggregators did have access to cutting edge software and client management systems.

“Tech platforms are important, but our experience has been that few brokers take full advantage of what is available to them.

Certainly, beyond the calculators and loan submission platforms, many brokers are underutilising the CRM capability of most systems, and are missing the opportunity to genuinely enhance their marketing outcomes,” he said.

Trubicyn argued independent ownership of aggregators was important, but urged transparency on the part of smaller aggregators.

“It’s important for brokers to be comfortable with who and what’s behind their aggregator.

Aggregators John Symond should make available their balance sheet to brokers to support their bona fides,” he said.

While Trubicyn said independence should be valued, he rejected claims that institutional ownership of aggregators could create conflicts of interest.

Most brokers would reject any undue attempts to influence the advice they provide to clients,” he said.

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EDR members share blame for decision delays: Denovan Gadens Lawyers’ Jon Denovan has rubbished claims that EDR schemes are ‘unfair’, saying in many cases members are holding up their own decisions.

Responding to widespread industry complaints over the time taken to resolve disputes under the EDR system, Denovan defended the schemes, saying members are as much to blame for delays.

“Surprisingly, often the greatest delays in resolving a dispute are members who fail to respond promptly, and then proceed to complain that EDR is slow,” Denovan said.

“Given a fair chance, my observation is that in the vast majority of circumstances, EDR can work well,” he said.

Denovan said the mortgage industry needed to do a better job in publicising IDR schemes to consumers to mitigate the number of disputes sent to EDRs. Matthew Bransgrove of Bransgrove’s Lawyers previously told Australian Broker EDR schemes unfairly remove jurisdiction from the hands of courts, calling the power afforded to EDRs such as COSL and FOS “arbitrary”, and warning that they could cause “rank injustice”.

However Denovan, who is himself a COSL director, dismissed the claims.

“Compulsory EDR arises

because in some states and territories there was already access to other courts and tribunals prior to the introduction of Jon Denovan the NCC. Under that regime, consumers were able to air their complaints comparatively easily and cheaply.

To a certain extent, EDR was created to replace these other courts and tribunals. EDR is clear government policy and, when working well, it can benefit both members and consumers,” Denovan said.

Denovan said EDR schemes did not usurp the power of the courts, but rather replaced state-based tribunals. He said EDRs could resolve disputes “faster and more cheaply” than courts.

Denovan did concede that EDRs may have too much power to vary credit contracts for hardship cases.

“Generally, EDR staff are not trained in credit assessment and may not understand the risk and financial consequences to the lender of a contract being varied.

The ease with which a written contract can be varied for hardship is a significant credit and commercial risk for financiers.

Perhaps the answer is to limit EDR’s review of hardship decisions to cases where there has been no fair review by the lender,” he said.

FAST head sees surge toward non-majors FAST’s acting chief executive has said the company’s brokers are seeing strong refi activity signalling a move away from the majors.

New ABS figures show the demand for new housing finance remains poor, with loans for the purchase of new dwellings falling 10.4% from January to February.

But acting FAST’s David O’Toole has said the refinancers are active, and borrowers are eschewing the majors.

“Primarily, we are seeing the refinance market is still particularly strong. FAST has seen an improvement in the distribution of lending to nonmajor lenders over the past 12 months. This is being driven by a renewed sense of competition from non-major lenders whose funding positions have improved post the GFC,” O’Toole said.

ABS statistics give credence to the claim, showing a 0.6% rise in refinancing for the month of February. O’Toole said the company’s brokers had been “particularly active” managing existing client databases, and that lender competition had underpinned an active refinancing market.

O’Toole said overall credit demand remained subdued, and was unlikely to change any time soon.

“We do believe that credit appetite will continue to be subdued through 2012 if we do not see any major improvement in

David O’Toole

consumer sentiment. Global uncertainty is still playing on the consumer’s mind and with additional cost of living pressure it is difficult to see any major improvement in demand,” he said.

Housing credit remained fairly weak across the board. Along with the overall 2.5% decline for owner occupied housing and 10.4% drop for new purchases, loans for the purchase of established dwellings fell 2.8%. Construction loans beat out the decline, rising 3.1%, but overall demand was nevertheless subdued.

O’Toole said the company’s brokers were overcoming weak housing demand by looking for new revenue streams.

“FAST brokers have, in many cases, had a strong diversification focus in equipment finance - which is currently a growth market - and through insurance,” O’Toole said.

Fixed rate deals not what they seem: ME Bank Westpac’s subsidiary brands have trimmed their fixed rate pricing, but a second tier challenger has claimed the appearance of savings may be deceiving.

St. George has trimmed its fixed one, two and three-year home loan rates to 5.99% and sought to ratchet up interest in switching to the bank by offering consumers a cash incentive.

The fixed rate changes, which apply to the bank’s Advantage Package - including for subsidiary Victorian brand Bank of Melbourne - were effective 15 April and will apply for a ‘limited time’.

St. George’s chief executive George Frazis said the fixed rate offer, available to both new and existing variable rate customers,

was the ‘best in the market’ at present.

But ME Bank chief executive Jamie McPhee rubbished the claim. McPhee labelled the fixed rate moves a “knee-jerk reaction” to increased public pressure on banks in light of out-of-cycle moves on standard variable rates, and claimed ME Bank offered lower comparison rates than the St. George brands.

“It’s important consumers read between the lines before jumping on what appear to be market leading deals. Consumers shouldn’t just look at the comparison rates. They also need to be vigilant in asking about fees and costs, and any limitations on loan size before signing on the dotted line,” he said.

St. George is also offering new customers $700 towards switching their current loan of $250,000 or more from another financial institution to St. George’s Advantage Package. The $700 incentive will apply for new home loan applications received by 31 May and settled by 15 July.

Meanwhile, Bank of Melbourne is offering discounts of up to 0.9% off new Standard Variable Rate Home Loans and new Portfolio Loans for total borrowings over $500,000 under the Advantage Package. Lower discounts of up to .85% p.a. are also available between $250,000 and $500,000.

Regardless of the deals on offer, McPhee urged consumers to take a big picture view before deciding on a loan.

Nervous borrowers could look to lock in A recent Loan Market poll asked borrowers if they would consider fixing their rate given recent decisions by the RBA and the ensuing rate changes by lenders. The survey found 60% of respondents were considering a fixed rate.

The poll indicated 46% of respondents were definitely looking to fix their home loan rate, while 14% said they would consider fixing part of their loan. Thirty-six per cent said they would eschew fixed rates altogether.

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News Clawback research reveals reassuring results Research has shown banks are by and large “doing the right thing” on clawbacks when broker clients re-negotiate or top up through branches.

AFG last year undertook extensive research into customer clawbacks, contacting 565 of its members’ clients who had triggered clawbacks. General manager of sales and operations Mark Hewitt said the research revealed some encouraging results.

“Reassuringly, the research showed that by and large lenders are doing the right thing with trail payments on the occasions when

loans are re-negotiated or increased via branches. There were a few isolated cases where trail had stopped incorrectly but these appeared to be genuine human error and were quickly corrected when we highlighted the problem,” Hewitt said.

Hewitt said the research also indicated simple steps brokers can take to avoid clawback situations.

“The major takeaway was, not surprisingly, that brokers who stayed in touch with their clients post-settlement through customer contact programs like SMART were far more likely to retain

An ounce of prevention: AFG equips brokers to dodge clawbacks The aggregator has provided its brokers with new tools to keep in better touch with clients, including: • An Outlook transfer service which helps populate email addresses they hold in Outlook directly into the company’s CRM, FLEX. • A tailored retention email to members highlighting their own individual retention numbers each quarter.

• Email address collection through insurance partner TAL whereby customer contacts includes email address capture that is fed back into FLEX.

customers and be front of mind. A simple thing like obtaining a customer’s email address meant a broker is three-and-a-half times more likely to retain that customer’s business,” he said.

Clawbacks were rarely triggered through customer dissatisfaction, as the AFG research showed 82% of clients who discharged said they would use their broker again.

Instead, Hewitt said the situations generally came down to a lack of communication from the broker.

“There are some cases where clawbacks simply can’t be avoided, but the ones that can be stopped are when the customer refinances early with another bank, either directly or via another broker. This is generally because the broker has not maintained contact with the customer, so I would strongly encourage brokers to utilise the CRM and marketing offering provided by their aggregator, and if their aggregator does not offer anything comprehensive enough, shift to one that does,” he said.

Mark Hewitt

In spite of clawbacks sometimes being beyond the control of a broker, Hewitt still questioned the efficacy of writing clawback provisions into a finance broking contract.

“From a practical point of view, I think it would be difficult to actually enforce. From a reputational point of view I am not sure it would do great things for the broker,” he said.

No way to serve clients without diversification Yellow Brick Road chief Matt Lawler has weighed into the debate on diversification, saying that avoiding a “do you want fries with that mentality” comes down to not being “product myopic”.

Debt Rescue operations manager Rachael Witton recently warned that over-diversification could dilute broker skills. But Lawler has argued that diversification is not just a way to increase revenue, but a necessity to serve client interests.

“I see a lot of debate on diversification and the ‘do you want fries with that’ mentality, and whether that’s the right thing for mortgage brokers. If you take the client and their needs as your

primary interest, there’s no way you can serve that without at least the understanding or capability to do more than just a mortgage,” he said.

The idea that diversifying the advice offered to clients dilutes brokers’ focus, Lawler said, is putting too much emphasis on the product and not enough on the client relationship.

“All that debate is really about being product myopic as compared to being client focused,” he said.

Lawler conceded that a move into offering more holistic financial services could be difficult for many brokers.

“There’s no doubt that it’s very difficult to jump into it, and I’ve

seen a lot of people try to go from being a mortgage broker to a fully-fledged financial planner,” he said.

Instead of a sudden, full-scale move into planning, Lawler urged a staged approach. He said brokers could add to their expertise over time while developing relationships with specialists in different areas of advice.

“Our model is designed as a staged process to take on little bits of advice at each stage. They become comfortable taking on that first step and then add on bits of advice,” he said.

Lawler tipped insurance as a starting point for brokers looking to diversify their offerings to

clients, and said this could serve as a stepping stone to gaining expertise in broader financial advice.

Matt Lawler “There are arrangements out there that allow people to give simple advice on insurance, and those are perfectly viable. It gives people that first step into it. Insurance is such an important component in helping people pay down their mortgage, but if you’re just focused on moving a product or – dare I say – flogging a product, that will be your primary focus and anything else will be seen as a distraction,” he said.

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Tech platforms last battleground for aggregators

Aussie shoots for millennium mark with broker recruitment

Outgoing Australian Mortgage Brokers chief executive Paul Gollan has praised Aussie’s acquisition of NMB, saying it is a good outcome for NMB brokers.

Aussie recently announced plans to buy aggregator National Mortgage Brokers for a reported $5m, saying the company would continue to operate as a standalone brand. Gollan called the acquisition an “outstanding move” and said Aussie would be able to provide the technology capacity to help NMB brokers succeed.

“Aussie is well known for its great training, marketing, lead generation, and market leading software platform all of which will add value to NMB’s proposition. The battleground over the next few years will be in technology platforms and this is the cost barrier that would have been difficult for the boutique aggregators to overcome, unless a decent off-the-shelf supplier comes along and fills that gap,” Gollan said.

Boutique aggregators face a disadvantage when it comes to technology, Gollan said. Gollan said Aussie would continue to best competitors in the “coming boom of online mortgage sales”, and indicated that the company’s

Aussie is looking to hit the millennium mark in its broker membership following its acquisition of aggregator National Mortgage Brokers.

Aussie executive chairman John Symond has said the company would also continue to aggressively recruit brokers.

Aussie currently has approximately 700 brokers across 150 storefronts. The NMB purchase will add around 200 new brokers, and Aussie said it was targeting a force of 1,000 accredited brokers by the end of 2012.

“We are always looking for motivated people to join the Aussie sales team and build their own viable businesses,” Symond said.

Under the agreement for the sale, NMB will retain its management structure and its brokers will remain independent operators. NMB managing director Gerald Foley said the deal will benefit the company’s brokers.

“For NMB, it means our brand can continue in the market. We’re really comfortable with Aussie being behind us, but we’re more comfortable that we’re still NMB. We’re not being asked to rebrand, and our brokers are not being asked to resettle at all,” Foley said.

investment would help NMB brokers prepare for the changing online market. He predicted that staying ahead of Paul Gollan the curve on tech platforms will make or break aggregators in the future.

“The aggregators that deliver technology platforms that make it easy for their brokers to do business with efficient, fast and reliable technology are the ones that will win the battle. It’s already happening in fact,” he said.

Aussie executive chair John Symond previously suggested that smaller aggregators would be unable to compete with the rising costs of doing business and the technology investment necessitated by consumer demand.

Gollan agreed, and predicted that large companies will continue to buy the remaining smaller aggregators.

“It is not so much the cost of operating a boutique aggregation business that is prohibitive, but the cost of not being able to match the big boys’ technology that will see the process of consolidation continue. There aren’t many aggregators left to buy, though,” Gollan said.

Aussie currently has a loan book of more than $42bn, and the company said its NMB purchase will see this grow to more than $50bn. Aussie claimed the addition of NMB would see it settle $1.2bn in new mortgages each month.

Quarterly results for Aussie have revealed the company now is writing nearly one in 20 new home loans after a 32% surge in sales enquiries for the March quarter.

The franchise brokerage saw a 28% increase in mortgage settlements from the previous corresponding quarter, lifting its market share by 24%. The result brings Aussie’s share of the mortgage market to 4.7%. Aussie chair John Symond put the performance down to the company’s new marketing campaign, which has seen him make his return to television as the face of the brand.

“The ‘It’s Smart to Ask’ campaign has prompted consumers to investigate how their home loans are performing.

We have seen a big jump in people seeking to re-finance their existing home loan, especially after the banks increased their rates in early February,” Symond said.

Top brokers return with mentor offering Former MPA Top 100 broker Mario Borg is set to return to the mortgage industry with a new mentoring program for new-toindustry brokers, following his recent business sale.

Borg, who is partnering with the former co-owner of broker group Members First, Andrew Tan, will start a sub-broker group called Masters Broker Group offering a two-year mentoring program.

Having recently graduated as an MFAA Certified Mentor, Borg said Masters Broker Group would offer a ‘first-class’ mentoring program providing a step-by-step success road map for new entrants.

“This will clearly fill a void in our industry,” Borg told Australian Broker.

“Our Master Class has been designed with the comprehensive structure and theory included in the MFAA Program. Our difference

is we have boosted the mentor program by injecting over 30 years of know-how, skills, knowledge, tools and tips that we have used in our own highly successful businesses,” he said.

Borg said his decision to begin the mentoring business was a result of a continued passion for the mortgage broking industry, as well as being a good new business opportunity.

“I was once a new entrant into mortgage broking and I know from first-hand experience what the challenges are and what it takes to kick serious goals,” he explained. “I now want to give back to an industry that has been so good to me both personally and financially,” he said.

With the advent of NCCP, Borg said it has become critical that the industry source new broking talent.

“NCCP scared a number of

brokers away and resulted in a number of exiting brokers, at the same time mortgage broking is attracting a new breed of person, which is positive,” he said.

“Banks and lenders are screaming for quality submissions that adhere to their policies, and consumers want ethical advice to ensure they don’t get themselves in trouble. I want to source a new pool

of talent and provide the necessary guidance to address some of the issues facing our industry, to improve the quality of submissions and the quality of customer experiences.”

The business’ first intake will be in June, with monthly workshops limited to 10 individuals. It aims to run at least 10 workshops per month within the first 18 months.

What you said: Feedback from the forum Nice to see a good news story! Good luck to them both!

Clint Waters on 13 Apr 2012 09:54 AM A great initiative and Mario will be one of the best at delivery.

Brenton Farrar on 13 Apr 2012 10:45 AM As a fellow MFAA Certified Mentor, I can highly recommend Mario; there are now Certified Mentors in every state for new entrants into the mortgage industry.

Boris Biskupic on 14 Apr 2012 10:06 AM Congratulations to you both. I know you will apply the same passion to this new venture. Exciting to be one of your mentees.

Karen Hambleton-O’Grady on 16 Apr 2012 05:18 PM

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Pepper filling ‘grey area’ in move towards pre-GFC offerings Pepper has said its new product range will fill a “grey area” in the market where consumers have been missing out.

The lender has announced a ‘PLUS’ product range, an extension of the Flexi Advantage and Self-Employed Advantage product lines that are currently on offer to brokers. The ‘PLUS’ products will now accept borrowers with up to two defaults – paid or unpaid – less than 12 months old. The loans will also take borrowers with up to two months of current mortgage arrears. Both the Flexi Advantage PLUS and Self-Employed Advantage PLUS will also lend up to $1m.

Pepper director of sales and distribution Mario Rehayem said the products were released in direct response to broker demand.

“What triggered this was our broker survey. Over 85% of respondents asked for a bit wider spread on our credit,” he said.

In another change to its existing product range, Pepper has raised the LVR cap on its standard Self-Employed Advantage product to 85%. The lender has also introduced jumbo loan amounts, and is now lending up to $2.5m on its traditional Flexi Advantage and Self-Employed Advantage products.

Rehayem said the changes, along with the new product releases, took the company back

towards its product offerings prior to the GFC. “All the product releases we’ve had going for the last 24 months have been products that we offered prior to the GFC. Obviously, post-GFC we tightened up again just like every other lender. We just want to go back to where we were; not to no-docs, obviously.

Those are a thing of the past,” he said.

Low-doc consumers are also moving back towards their GFC positions, Rehayem said. Many self-employed or non-conforming borrowers are now in a better financial position, increasing the demand for specialist lending products. And as this demand returns, Rehayem said Pepper was moving to meet it with its new product range and policies.

“The consumer demand has always been there, but it’s also been triggered by other lenders. As we have more majors and other lenders tighten up their policy, brokers find there is nowhere to place certain clients. Then what happens is brokers stop accommodating demand. It’s a grey area in our industry, and we need to ensure we cater to all where there’s a suitable deal to be written,” he said.

While the lender has relaxed its LVRs and credit while expanding maximum loan amounts, Rehayem was confident that the business being written remained sound.

Brokers can benefit from new savings attitude Brokers may be able to capitalise on consumers’ changing views of debt, even though households are saving more and borrowing less.

The ING Direct Financial Wellbeing Index has shown that Australian households continue to pay down their debts while putting more into savings. Forty per cent of households are paying their mortgage ahead of time, while 56% are paying as it comes due. But ING Direct executive director of delivery Lisa Claes said changing views on debt still present an opportunity for mortgage brokers.

“It’s clear households have changed their view of debt and have prioritised accelerating mortgage repayments. This may present opportunities to brokers who can help their customers utilise their growing equity, for example, as a deposit to purchase an investment property,” Claes said.

The index has shown that, despite a proclivity towards repayments, households are increasingly comfortable with long-term debt. The results indicate 93% of households are comfortable with their home loan, while 63% said they were “very comfortable”, the highest level since the third quarter of 2010.

Consumers are showing a newfound comfort with credit card debt as well, with 56% saying they were “very comfortable” with the balance on their credit cards. The result is the highest level ever recorded by

the index.

The index also revealed some troubling results.

Nearly one quarter of households said Don Koch their income had taken a hit in the last 12 months.

While 46% said they were earning more than last year, one in 10 had to work longer hours to achieve this.

“It’s good to see households getting on top of debt. However, it is worrying to see declining incomes in almost a quarter of households. It is very important for households to budget and cut costs such as unnecessary fees and charges on regular outgoings,” ING Direct chief executive Don Koch said.

ING Financial Wellbeing Index: Key Results • 4% are getting behind in their mortgage, as compared to 5% in Q4 2011 • The median outstanding mortgage balance is $182,581, down from $219,747 in Q4 • The Index rose to 106.9, the highest Index score since September 2010 • 45% of households are earning more than 12 months ago • 24% of Australians are earning less than last year, citing cuts to working hours (35%) and reduced salaries (26%)

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13

Broker success 80% ‘belief and confidence’ Former top broker Stuart Wemyss has said the majority of mortgage broker success can be put down to belief and confidence in the value they deliver to clients.

Now operating a training course for brokers in addition to his

mortgage business ProSolution Private Clients, Wemyss said too many brokers say to themselves ‘they are not good enough’.

“For example, very few brokers target high-end clients, because they say to themselves they are not good enough to talk to them, so they stick to first homebuyers and mums and dads.”

However, Wemyss said this perception is “totally wrong”. “A lot of people in the high net-worth space have no clue about money and finance, and a good broker with a good level of experience has a wealth of knowledge to share and help them through the process.”

Comparing a $3m and a $300K client, Wemyss said higher-networth clients are often easier to deal with, more appreciative of both knowledge and time, while

being far more profitable.

Wemyss said that, in fact, there is not much difference between a broker who writes $30m a year and an $80m broker – just confidence, backed by the other important 20% – a system.

“If you talk to a $30m broker, typically they have a lack of belief – they can’t believe you can take your business to $80m and work the same hours or less,” he said.

“These same brokers don’t think you can ask clients to come and see you; they are driving all over town because they don’t think their value proposition is strong enough.

“Once you have got the belief, there is really nothing amazing I did to settle $110m – it’s just having a really good system and working the system – I didn’t reinvent the wheel,” he said.

When it comes to system, Wemyss said time management “has to be number one”.

“As a broker, I was always laser focused on where I was spending time, and if that was making me money. I would get administration staff to fill in applications, I wouldn’t do any online lodgements, and I wouldn’t call a lender to ask about where a file is,” he said.

Wemyss said brokers are making money when they are listening to clients. “If you are not listening to a client, then arguably you are not making money. It’s about becoming selfish about where you spend your time, and building a system around that principle,” he said.  Want more tips from Moreloans’ Stuart Wemyss?

See Insight on page 22

Intellitrain ramps up for diploma deadline Intellitrain has had to ramp up its assessor numbers as the 30 June diploma deadline looms for MFAA members.

The trainer’s general manager of projects and marketing, Byron Gray, has stated that Intellitrain has gone from “two or three assessors on a somewhat part-time basis” to eight to 10, with the possibility of hiring as many as 15 to get through the workload of diploma assessments. In spite of the workload, Gray said the company anticipates no problems in completing all the assessments on time.

“We anticipated this, so in June

of last year we started to ramp up our number of trainers. We also ramped up the number of assessors so we can make sure as an organisation that we’re in a position to offer the highest level of support. We’re trying to help brokers get through this as quickly as they possibly can,” Gray said.

In spite of AAMC managing director Jeff Mazzini’s claims to the contrary, Gray claimed the majority of MFAA members seemed well on track to completing the Diploma by the 30 June cut-off date. He said the trainer saw a spike in enrolments prior to the 23 November changes to the

qualifications last year, and has continued to see enrolment numbers soar.

“We had a significant influx late last year of enrolments prior to the switchover of qualifications. We’ve been rolling out face-to-face training all the way to the end of February. Based on what we see in the assessment pipeline, I can say with a good deal of confidence that they’re certainly getting through those assessments,” Gray said.

Gray said the trainer was “pulling out all the stops” to process these assessments, and was continuing to run courses and webinars for brokers yet to

complete their Diploma. Though he claimed the majority of brokers were already on target to complete their Diploma Byron Gray ahead of the deadline, Gray said enrolments were continuing to come in. He reassured brokers who had not yet begun their diploma process.

“There’s absolutely no reason why someone enrolling in the early part of June would not have the ability to turn around and have everything done before the end of June,” he said.

14 brokernews.com.au

News

For all the latest mortgage industry news, visit brokernews.com.au

Homeowners hardest Pay like Aussies to end hit by confidence drop US housing bust: RBA Mortgage holders have seen their confidence drop by a margin much higher than an overall decline in consumer confidence this month.

The Westpac-Melbourne Institute Index of Consumer Sentiment has fallen in April, down 1.6% from March. Westpac chief economist Bill Evans said the decline was “a mild surprise”, and noted that homeowners seemed to be disproportionately affected by the drop.

“Over the last 12 months the standard variable mortgage rate has fallen by 0.4% yet the confidence of respondents who hold a mortgage has fallen by 14.6%.”

Overall, the confidence of borrowers fell 5.1%, while the confidence of tenants actually saw a 7.4% increase. Consumers were also dour on the current state of their own finances. Evans said the result was plumbing the depths of the Index’s historical findings.

“Respondents’ spending behaviour is likely to be considerably influenced by how they assess their own finances. As such, the very weak reads in April are of concern. Apart from the one observation in July 2008 when respondents were gripped with concerns over the Global

Financial Crisis and mortgage interest rates hit 9.6% the read in [this] survey on their assessment of finances compared to a year ago is the lowest since the recession in the early 1990s,” he said.

Consumers weren’t much sunnier about the future for their finances either. Evans said the sub-index tracking households’ financial expectations for the coming year fell 4.1%.

“Their outlook for finances over the next 12 months is still better than during the July/August period last year, in July 2008 and the readings a few months prior to the introduction of the GST in 2001, but apart from that we need to go all the way back to the early 1990s to see lower prints,” he said.

Evans said a variety of domestic factors are continuing to rock consumer confidence.

“With fears of rising interest rates or a second global financial crisis having eased we can only conclude that concerns around job security, house prices, high debt levels, petrol prices, utility costs and uncertainty around the imminent introduction of a price on carbon are weighing heavily on households’ concerns about their financial position,” he said.

Consumer sentiment rollercoaster: April 2011–April 2012 Jun-11

Apr-11

105.3

Nov-11

101.2

103.4

Sep-11

May-11

Feb-12

101.1

96.9

103.9

Oct-11

97.2

Jul-11

92.8

Aug-11

Jan-12 Dec-11

94.7

97.1

Mar-12

96.1

Apr-12

94.5

86.9 Source: Westpac – Melbourne Institute

An RBA official has told a US conference that Americans need to be encouraged to pay down their mortgages quicker to solve the country’s housing woes.

Speaking to the Federal Reserve Bank of Atlanta’s Financial Markets conference, Reserve Bank head of financial stability Luci Ellis drew contrasts between the Australian and American housing markets, saying unique factors led to the U.S. housing bust. One of these factors, Ellis said, was the slow rate at which American homeowners pay down their mortgages compared to their Australian counterparts.

“Paying your mortgage down before the bust is the most effective way of avoiding getting into negative equity once housing prices start to fall. In the long run, this might require adjusting the tax deductibility of mortgage interest for owner-occupiers; it is not a feature of the Australian or Canadian tax system,” Ellis said.

The ubiquity of variable rate mortgages also saw Australians paying more on their mortgages, Ellis said.

“It might be worth considering adjustable rate mortgages in a more positive light. They offer some advantages, at least if they do not have aggressive teaser

rates. In particular, they allow the borrower to make prepayments that can be redrawn later if needed. Think of this as like a home equity loan where the maximum balance declines over time. Such loans are common in Australia and have proven a highly effective vehicle for precautionary savings,” Ellis said.

Ellis argued that many Americans held less equity in their homes than Australians due to the former popularity of interest-only loans, negative equity loans and cash-out refinancing. As a result, she said many American homeowners started out in negative equity from the time they purchased their homes.

“Trade-up buyers seem to have high loan-to-valuation ratios in the United States; that doesn’t appear to be true in Australia. The result of all this is that the US housing stock is far more leveraged than that in Australia, even during the boom period,” she said.

Thanks, ANZ: Mortgage brokers are the winners Brokers are set to benefit from major bank rate hikes, which are driving consumers into their arms.

According to newly-launched mortgage broker network 1300 Home Loan, the bank policy of setting interest rates independently of the Reserve Bank would be a boon for mortgage brokers.

In fact, 1300 Home Loan director John Kolenda claimed the business is seeing a ‘surge’ in consumer enquiries whenever there was confusion in the market about what was a fair rate.

“When banks do anything to create doubt in borrowers’ minds, trust drops and homebuyers seek independent advice from mortgage

brokers instead of going directly to the banks,” Kolenda said.

“We have seen this before when banks failed to pass on official rate cuts but now that the banks have detached themselves from the RBA completely consumers constantly worry that they are being ripped off even when it’s not true.”

Kolenda said there was no obvious way for the banks to restore confidence because their funding costs were independent of the cash rate which was set by the RBA so they had to make their own decisions.

“This is a difficult time for the banks but a good time to be a mortgage broker because our

service really comes into its own when the market is complicated and people want it explained,” he said.

The claims come after ANZ again set the tone for major banks by announcing it would raise rates independently of the RBA. The bank lifted its rates by 6bps, taking its standard variable rate to 7.42%. ANZ Australia chief executive Philip Chronican tried to highlight the benefit to depositors in breaking the news.

“The funding environment changed quite dramatically in late 2011 as a result of the economic and financial crisis in Europe. This has seen wholesale funding costs rise and competition

increase dramatically among banks for deposits. We accept our response to the new funding John Kolenda environment is difficult for some of our customers – even though deposit customers have benefited from better rates,” he said.

But comparison site Mozo has rubbished the claims, saying that interest rates on the bank’s flagship savings account, the ANZ Online Saver, has fallen in line with the RBA cash rate since the Central Bank began easing in late 2011.

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15

INDUSTRY NEWS IN BRIEF ‘Mattress’ money proves popular Nearly one in five Australians believe they’d be better off putting their money under a mattress than investing in property or shares. A Loan Market survey has found 17% of respondents believed holding onto their money was a safer financial move than investing in residential or commercial property, shares or savings. Commercial property was on the nose with only 9% of respondents tipping it as the most profitable investment over the coming year.

Meanwhile, respondents expected shares to see the best returns, with 33% saying they would be most profitable. Thirty-one per cent tipped residential property as a sound investment, while 10% said cash or savings would be safest.

Banks let funding myths persist An ANZ exec has claimed a link between the RBA cash rate and bank loan rates is a “myth” that banks let persist out of convenience. ANZ CEO Philip Chronican told a recent American Chamber of Commerce meeting in Melbourne that the “myth” of a link between the Reserve Bank’s monetary policy and bank funding costs only arose in the 1990s, and persisted because of an extended period of stability in financial markets. “I’ll be frank – the banks let this myth persist because it was convenient for them. It saved having to go into the very complex explanation about what really drove interest rates,” Chronican said.He also refuted the claim that offshore funding costs were driving up bank rates, claiming competition for deposits was the primary reason funding costs were tightening.

ING Direct adds final state manager ING Direct has added a final plank to its national broker distribution team, naming Emoke Palos as its new state manager for Victoria and Tasmania.

Palos, who has previously represented both the Commonwealth Bank and Liberty Financial in their Victorian and Tasmanisan business development teams, has a high profile in both regions. ING Direct head of broker distribution Mark Woolnough said Palos had a ‘clear and compelling’ strategy for improvement to the second tier’s broker offering in Victoria and Tasmania. “Emoke brings a wealth of sales management experience and knowledge to the role, with a background in retail bank lending across major banks and non-banks,” Woolnough said. “Along with this, she’s incredibly passionate about the Victorian market and is committed to building the ING Direct brand in the state.” Woolnough said she would ensure ‘excellent’ broker experience.

Rate cut hopes suffer blow Hopes for a rate cut next month may have faded somewhat with strong job growth and higher inflationary expectations.

ABS figures have indicated strongerthan-expected jobs growth in March. The

unemployment rate remained steady at 5.2%, while the total number of people employed increased by 44,000. Consumers are also anticipating higher inflation for the months ahead. The Melbourne Institute Survey of Consumer Inflationary Expectations has found consumers are anticipating inflation to track at 3.3%, up from 2.7% in March. Melbourne Institute research fellow Dr. Edda Claus called the result a potentially worrying development. “Upward pressure on prices generally arises with increases in aggregate demand. But aggregate demand is currently not growing strongly,” he said.

“If inflation expectations translate into actual inflationary pressures, the RBA may be caught in a policy dilemma. It may have to tighten monetary policy in times of moderate growth which puts further downward pressure on activity,” Claus said.

Banks differ on employment fate Major bank economists have diverged on the future for employment, as one predicts the jobless rate to reach 5.5%. NAB and ANZ have painted different pictures for the labour market. While ANZ’s Job Ads series said employment advertisements rose 1% in March, foreshadowing stronger labour growth, NAB has predicted flat growth for the first quarter of the year.

NAB suggested that employment would remain flat, with only modest growth in the second quarter of 2012. As a result, the bank has forecast near-term unemployment to reach 5.5% by mid-year.

NAB said employment is set to pick up in the latter half of the year, with the jobless rate falling to 5.25% by year’s end.

ANZ, meanwhile, predicted a modest recovery in employment growth. Chief economist Warren Hogan said the jobless rate would remain below 5.5% “despite potential divergences between regions and industries”.

‘Unequivocal deterioration’ for construction Subdued demand and tight credit conditions have seen the construction industry contract for the 22nd consecutive month. The Australian Industry Group – HIA Performance of Construction Index has found the national construction industry remained in a state of decline for March. Though the pace of decline eased somewhat, residential construction saw its steepest fall since September last year.

“There is an unequivocal deterioration underway in the non-resource domestic economy in 2012. As a bellwether industry, residential construction is clearly highlighting this fact with the rate of decline in the detached house and apartment sub-indices of the Australian PCI accelerating in March,” HIA chief economist Harley Dale said. New housing orders also fell in March, reaching their lowest level in six months. Dale called for drastic action from the Reserve Bank in light of the results.

16 brokernews.com.au

News THE COALFACE JVs make all the difference at Trigon Starting up a brokerage group in today’s market is getting increasingly difficult, according to Robert Weeks Trigon Financial, if you don’t have something different to offer your new brokers.

The brokerage, which launched in late 2010 offering new-toindustry brokers a ‘partnership model’ for training and business development, has since had to rethink its strategy.

But Robert Weeks, managing director of the firm, said creating a new Joint Venture structure between mortgage brokers, financial planners and accountants capitalises on a need.

“I think it’s harder to enter the industry these days if you don’t have a different offering,” Weeks said. “People now have their own Credit Licence, and they don’t want to move around and change their accreditations – you have to be offering something a bit different,” he said.

“There is room for new people to enter the industry, but you just can’t enter now and say things like ‘we will offer you better service’ – people don’t buy that anymore,” he added.

While Trigon has gone from a standing start to settling $7m –$10m per month, it has now departed from an emphasis on

• Trigon pursues financial services JVs • Break-even in sight at $10m per month • New brokers trained from scratch

training up new-to-market brokers and equipping them with state-ofthe art business managers to offer support towards setting up Joint Ventures.

Trigon’s is a formal business model, which offers all participants a stake in the business via a JV relationship, rather than looser referral relationships. Weeks said all participants are sitting in one office together, and are tied into this relationship in a ‘one-stopshop’ style.

The business has set one of the new JV relationships up in Perth, and is in talks to have approximately six in place around the country by the end of this calendar year.

“It’s about offering more value.

We realised financial planners wanted to do broking, but didn’t know how to go about doing that, and vice versa for brokers, but the two didn’t meet; they didn’t quite understand how to put the structure and substance together.”

Trigon has not yet crossed break-even point, but Weeks is optimistic that the business will grow via the new structured

relationships, which he said is the way forward for the industry.

Meanwhile, Trigon will continue to train new brokers, though Weeks said the JVs will help with immediate volumes, as new brokers take up to 12 months to write significant volume.

Broker expansion sees Oxygen hit milestone Oxygen Home Loans has hit a record for monthly lodgements in March as its brokers James Green expand across McGrath Estate Agents’ sales network.

The broker, a fully-owned subsidiary of McGrath, has reached $135m in lodgements for March. The company’s previous record was $96.5m in August 2011. Oxygen general manager James Green said the result was driven by a 113% year-onyear increase in new mortgage enquiries for February, and an 85% year-on-year increase for March.

“The big growth area for Oxygen has been from upgraders.

Correspondingly we have seen an increase in the average loan amount to over $630,000, the highest monthly figure recorded,” Green said.

McGrath chief operations officer Geoff Lucas said an increase in Oxygen’s scale helped fuel the

uplift in enquiries. The broker now services 44 offices for the real estate agent in NSW, ACT and South East Queensland. A McGrath spokesperson said the company currently had 24 brokers.

“This figure will naturally increase as the McGrath network expands into new regions,” she said.

Oxygen last year averaged $58m in lodgements per month, ending 2011 with lodgements totalling $691m. The company claimed its March result painted a better picture for 2012.

“A large proportion of the applicants are buyers of McGrath properties reflecting the success of offering a streamlined one-stop shop for property transactions,” Green said.

Green said more than 90% of the company’s lodgements were approved in principal. In addition to the expansion of the company’s broker force, Green claimed the result was indicative of an environment in which lenders were hungry for business.

“The introduction of the National Consumer Protection Act made it much harder for customers to access low doc loans, and banks are taking a more prudent approach to lending.”

• Record monthly lodgements • Upgraders spur loan growth • McGrath leads streamlined

Brokers revisit low-doc clients as market loosens Changes in low-doc availability present an opportunity for brokers to revisit old customer files.

Better Mortgage Management managing director Murray Cowan has claimed that low-doc lending is seeing a ‘turning point’ in loan options, with self-employed borrowers having suffered more than any other lending segment since the GFC. “Previously self-employed borrowers that wanted cash out above 60% LVR had been locked out of the market and were effectively stuck with the loan they took out years before,” he said.

But Cowan said more options are now returning to the market, with lenders loosening their

restrictions on LVRs and credit policies, as well as cutting interest rates.

“More options combined with the lowering of rates means more self-employed borrowers now qualify for a loan, so there is an opportunity for brokers to go through their old customer files and contact borrowers who didn’t qualify for finance during the past four years,” he said.

These are customers, Cowan claimed, who would have been considered prime business “four or five years ago”. He said the market was beginning to reopen to these clients, and touted changes to Better Mortgage Management’s product suite as proof of this trend.

The mortgage manager has cut rates on its unlimited cash out loans, with pricing now starting at 8.44% for loans up to 70% LVR and 8.89% at 80% LVR. Minor credit impairments of less than $1,000 will also no longer result in the borrower’s interest rate being increased on its range of specialist loans.

Earlier this year, BMM said it would offer unlimited cash out on low-doc loans along with higher loan amounts and an increased maximum LVR limit of 90% LVR. Cowan said the changes were indicative of a growing confidence among funders.

“Funders have had greater access and greater certainty to know that they have funding

Murray Cowan

for these sorts of products going forward, and we have a good track record with this funder and a good loan book. We’re probably getting a bit better deal as a result,” he said.

brokernews.com.au

17

News Government to support reverse mortgages, but supply lacking The government appears set to lend its support to the reverse mortgage market, but the industry may not be able to meet an influx of demand.

News Ltd has claimed the Federal Government is set to urge retirees to adopt reverse mortgage products as a means of funding aged care. Should this happen, Seniors First managing director Darren Moffatt has said existing lenders would be unable to meet demand.

“It’s a positive for the industry and a positive for consumers, but it needs to be managed well. The last thing we want to see is a wholesale movement to the scheme with a lack of supply, and currently there are only two or three lenders in the market,” he said.

Moffatt predicted, however, that lenders may flood into the market if the government voices its support for the reverse mortgage sector.

“I would expect that lenders would be pretty quick to come into the breach. Credit growth is down, so an opportunity like this is very attractive to banks and lenders. If the government is serious about this, they may have already been in talks with banks and lenders about getting involved in this market,” Moffatt said.

Another potential problem facing the reverse mortgage market could be a lack of qualified brokers. Moffatt said few brokers specialised in the products, and demand could quickly overwhelm supply.

“I’d certainly be happy, because we’re one of the few specialists left in this area. The pool of brokers who are qualified – and by qualified I mean accredited by SEQUAL and who sell these products on a regular basis – is pretty small. I daresay there’s enough of a network to cover initial enquiries, but demand would scale up pretty considerably

if the government got behind this product,” he said.

However, Moffatt warned against brokers jumping into the market merely to diversify their revenue. He said brokers looking to enter the reverse mortgage market would have to become specialists, and position themselves to consumers as experts in the products. This may not be worthwhile for many brokers, Moffatt said, who may be better served setting up referral relationships with existing reverse mortgage brokers.

“Some brokers have to question whether or not this is for them.

Just because it happens to be an opportunity in the market doesn’t mean it’s for them. The loan size is smaller, and there’s quite a lot of work involved. People who do these loans are generally quite altruistic and enjoy helping people. They’re certainly not as lucrative as normal forward mortgages,” he said.

Darren Moffat

The last thing we want to see is a wholesale movement to the scheme with a lack of supply

18 brokernews.com.au

News

For all the latest mortgage industry news, visit brokernews.com.au

VIEWPOINT Some brokers have embraced it, others have their heads in the sand. Here’s what our experts have to say on taking your first steps towards an online strategy

OPINION

Education is more than a piece of paper Learning is more than a piece of paper, argues MKM Capital’s Michael Watson, and brokers shouldn’t be forced to add to this unless absolutely necessary

Michael Osborne, MoneyQuest

Getting an online strategy … now “Brokers that were doing this 10 years ago are reaping the rewards now,” says Tony Bice of Finance Made Easy, in regard to the implementation of internet strategies.

That’s all very well with hindsight, but it was difficult even 10 years ago to imagine just how pervasive the influence of the new online world would be on mortgage broking. Now, industry commentators regularly predict the demise of the broking channel – or at least a portion of it – should they not adapt to new technology and client behaviours.

One such is Michael Osborne of MoneyQuest, who is of the opinion brokers who do not adapt will face tough times. “There is no doubt that consumers are shifting their buyer behaviour to the internet like never before. And I think for brokers, it is time to adapt, and if they don’t adapt they potentially can be left out in the cold,” he said.

“The broker has two choices,” Tony Bice says. “They can either embrace technology, and look at the audience that is using that technology to generate their loan – and that is more and more younger people – or they can stay with their tried and true centres of influence and hope those referral sources continue to give them the business going forward,” he said.

So if you do choose to look at adopting new technology, what do you need to think about? Well, the first thing may be just how much resources it is going to take you.

“For a broker to start a strategy in the online space, they have to understand that it is going to be an area that is going to take up a fair

Tony Bice, Finance Made Easy bit of their time. They are going to have to look towards outsourcing that so that they have the right expertise,” says Tony Bice.

Likewise, Osborne on search engine optimisation. “It is very expensive, and I think for most mortgage brokers the problem is that they may work with a local website developer who at best has only had one or two days in search engine optimisation; it’s an area of expertise, and really you are going to have to find a much stronger solution than that to penetrate online.”

Bice says that once you have made the decision to adopt an online strategy and dedicate the resources required, it’s all about working the internet in your favour to generate leads. But – if you are expecting an instant payoff – you may be disappointed.

“It doesn’t happen overnight, it takes quite a number of years.

Brokers that recognise they have to bring the internet into a strategy now are going to reap the rewards further on down the track.”

But as Tony Bice explains, the internet does not mean the end of the broker – who is the source of client expertise that clients need – especially for such a large financial decision.

“Banks like Ubank, if you like, that are focusing on clients that are internet savvy, technology ssavvy, I guess they are reaping the rewards of that strategy,” he said. “But I think there is space out there for everybody – for every customer that is comfortable to do an application online, there’ll be two clients that would be comfortable to seek information online, and then put themselves in the hands of an expert. And that’s when the broker comes to the fore.”

The goal of the education debate is simple: ensuring we can impart knowledge responsibly and accurately to consumers to secure their financial futures. There it is. It’s all about helping us help others. The debate about it – whether it be Cert IV, Diplomas or even Degrees – arises when determining how ‘knowledge’ is verified as being present in our toolkit.

For me, learning is a journey more than a destination, with pieces of paper along the way to mark milestones and flag benchmarks. I recently completed an MBA part-time, which took me three sleep-deprived years of hard work. Previously, I completed a Bachelor of Business majoring in Economics and Marketing, and in 2011 attained a Certificate IV in Financial Services. While I’m proud to have achieved these along the way, the more I’ve learnt the more I realise I don’t know! The journey continues…

Market forces or regulation

It’s my view that a higher education requirement is unnecessary in mortgage broking.

Until recently we have enjoyed years of boom times in broking and lending. This has been followed by tighter regulatory controls courtesy of the NCCP and tighter funding parameters.

This has been sufficient to discipline the industry. Market forces will ensure that only those brokers with honesty, integrity and knowledge succeed.

I’m not a free-market nut.

Professional organisations should embrace minimum professional standards and a simple cover-all is a Cert IV. If nothing else, it shows you can fill in a form correctly and that is a skill we all need! Other organisations may want to see a diploma as a minimum. However, industry participants will vote with their feet when choosing business partners.

My view may be different if I had confidence in the learning

outcomes on offer. I have only had first-hand experience at Cert IV level. However, I have to ask what they are actually teaching at Cert IV level? What is being transferred in the transaction – knowledge, or simply fees? Let me ask the question a different way: Will those who learnt anything completing their Cert IV please stand up? Unless a course is hard to attain it won’t gain credibility.

Businesses are individuals, individuals become brands

The brokers I deal with who have built successful businesses over time eventually become their own brand. They do this through offering honesty, integrity and knowledge gained by taking the time to learn, explore and apply the information they encounter daily. While broader marketing efforts are important, word-ofmouth continues to be the prime driver of business, so it pays to build and apply knowledge.

On the broader topic of brand, if you’ve chosen to pursue certificates, diplomas, Bachelors, Masters etc, why not use it as a point of difference? Advertise the fact you’ve put in the effort. After all, it’s a competitive marketplace and customers can review many criteria in choosing who to trust with their biggest financial decisions. Exploit it.

At the end of the day, the best lenders and brokers are those who operate with a combination of honesty, integrity and knowledge.

They ply their trade to help customers make informed decisions and only they will survive in the long run. Let competition sort out the rest.

Michael Watson is operations and marketing manager of nonconforming lender MKM Capital.

Michael Watson

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News FORUM Fujitsu Australia’s executive director Martin North caused controversy when predicting brokers would continue to exit the industry (Numbers could shrink by 30%, 10/04/012)

Banks were also revealed to be largely ‘doing the right thing’ when it came to clawbacks, according to AFG research (Clawback research reveals reassuring results, 10/04/2012)

Broker numbers fell after the GFC, mostly because their businesses were not strong enough to cope. And after regulation, many of us, I thought, were prepared for another large exodus as some brokers could not work in a regulated environment. I have long thought Mr North and his surveys regularly look for broker error and take the first opportunity to “bag” us.

Donut on 10 Apr 2012 10:22 AM

This is encouraging but why can’t the lender notify the broker when they get a discharge notice either internal or external? ozboy on 10 Apr 2012 10:16 AM

This must be of great concern to the MFAA, who still seem hell bent on wanting all brokers to have a Diploma by June 30th 2012. They need to have a close look at this and how they are supporting their broker members (I have a Diploma). What I am seeing is the MFAA executive not dealing in reality; most brokers cannot see why they need a Diploma to belong to the MFAA when all you need for licencing is a Certificate IV. The FBAA are just laughing because that is where the brokers with Cert IV will go !

Country Broker on 10 Apr 2012 11:41 AM Rarely does North have anything positive to say about the Australian broker channel. Suggest we would be all better off if he took his opinions back to his homeland.

JBJB on 29 Mar 2012 10:52 AM I’ve not ever read one ‘good news’ editorial about the broker channel from Mr North. He is to brokers as Tokyo Rose was to our WW2 diggers. iMac on 10 Apr 2012 01:10 PM

This is encouraging and the NAB are leading the way in keeping the brokers in the loop when an increase is requested. The CBA have got better but need to improve. The ANZ are poor in that we never get told a thing, and if a client goes to branch and want an increase of more than $50K, the branch home loan lender keeps the deal as theirs and we get clawed back.

Country Broker on 10 Apr 2012 11:35 AM Why should lenders be advising the broker the customer has discharged?

Is it not in the broker’s interest to have mechanisms in place ensuring the customer always gets their broker involved every time they undertake a major transaction? If they don’t then there’s a serious gap in the broker-customer relationship. Just saying.

BrokerIQ on 10 Apr 2012 11:55 AM

Meanwhile, Rex wrote to agree with Debt Rescue’s Rachael Witton, who said that a ‘do you want fries with that’ approach to diversification is not enough for a broker.

I have to agree and disagree with Rachael’s view.

There is benefit in managing the client relationship and providing

more than just a ‘referral’. It is about how the client is approached, engaged and how the overall relationship evidences value. The GP is the centre of health management but doesn’t perform surgery, undertake cardiac procedures, or provide psychiatric interventions. They simply manage the client relationship. Exactly the same can occur, but it requires an understanding of how to go about doing that and skilling up in the necessary approach and process.

Rex on 03 Apr 2012 11:42 AM

And lastly, the debate was on over boutique aggregators, When KeyInvest Lending Services defended the viability of boutique service offerings.

If smaller aggregators want to really have an effect and stay in the market they need to find a way of safeguarding their brokers’ commissions both upfront

and ongoing. The best way to do that is have a trustee in place who receives all payments and then distributes the funds.

Country Broker on 18 Apr 2012 11:41 AM I struggle to understand how small and boutique aggregators can service the modern broker. We need state of the art CRM, efficient BDM support and tools that help us build robust small businesses.

BrokerIQ on 18 Apr 2012 11:44 AM As a hands on broker with an interest in a boutique aggregator group I fully concur with all the comments of John Trubicyn. Boutique aggregators have unlimited flexibility to initiate and handle change, communicate personally with brokers, audit files provide training and support etc.

Max Brewer on 18 Apr 2012 12:05 PM

Poll: How severely have commission clawbacks impacted your business?

Fears of clawback extensions are rising, so Australian Broker Online asked its readers how severely commission clawbacks have impacted their businesses to date.

Not at all.

What’s all the fuss about?

Somewhat, but the impact is manageable

Too much.

They’ve hit me where it hurts

19%

49%

32%

Source: Australian BrokerNews  To vote in our latest online poll or get involved in our forum, visit our home page at brokernews.com.au

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Comment OPINION

Are property values too conservative?

There’s a gulf between a property’s price, worth and value, and conservative estimations are right in the eye of the beholder, writes ARAP’s Greg Campbell

I would suggest that even though you may think current property valuations are too conservative they are not.

Greg Campbell

P

roperty valuers are currently perceived as being one of the bad guys in the industry because they’re “valuing” our properties for less than what we think they are worth or the “value” we require to procure finance; yet most property valuers do not estimate a property’s value at all.

Is it really worth what somebody is willing to pay?

The basic principle behind property valuations is that “something is worth what somebody is willing to pay for it” because that is what property valuers’ real clients, the banks, want to know. (Don’t think because you paid for a valuation you are the client; the bank that issued the instruction and on whose panel the valuer sits is the valuer’s real client.)

Roger Montgomery, in my opinion one of Australia’s best value investors, tells the story of a company that changed its name from Professional Recovery Systems Ltd to NetBanx.com Corp at the beginning of the .com boom period. As Professional Recovery Systems, their shares were trading at less than 50c and their SEC filing at the time read: “The company is not currently engaged in any substantial business activity of any description and has no plans to engage in any such activity in the foreseeable future... it has no day to day operations at the present time .

Its officers and directors devote only insubstantial time and attention to the affairs of this issuer at the present time, for the reason that only such attention is presently required.” As Roger tells the story “the company was a shell offering the promise to do something maybe one day”. At its peak in the .com boom the shares traded at nearly $9. Along with many other .com companies the shares eventually delisted.

Was a company that did nothing and wasn’t planning on doing anything ever worth $9? The price may have been $9 but its worth was zero or maybe less depending on debt.

Clearly something is not “worth” the price somebody may be willing to pay.

How do we assess a property’s real value?

Establishing an investment property’s worth is easier than establishing the worth of our home. The first, if done properly, is reasonably objective and rational, the other can be highly subjective and often emotive.

Assessing the value of an investment whether it’s residential, retail, industrial or commercial property should be based on discounting the current and future cash-flows distributed by that property at an appropriate discount rate. Predicting with confidence the likelihood of the future cash-flows requires industry knowledge and experience.

The choice of discount rate is often thought of as being a reflection of risk tolerance, however if the assessment of cash-flows is realistic and therefore in itself contemplates risk then the adopted discount rate need only reflect a rate that satisfactorily compensates the investor after taking into consideration inflation and the possibility of future interest rate rises. For straight out investments I require a minimum 10%, whereas for development projects my

discount rate is much higher. Note this is not a return on total cost or margin, it is effectively the annual rate of return required on the investment.

What we see today in most commercial type property valuations is simply the capitalisation of net income where the capitalisation rate is determined by market evidence and the result is compared to recent sales evidence. In other words, two different methods in forming an opinion on market price, not worth. Residential valuations are determined by sales evidence, again market price not worth.

Market price, not value

The definition of market value from one of Australia’s most reputable property valuers is: The estimated amount for which a property should exchange for on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties each acted knowledgeably prudently and without compulsion”.

Whereas the dictionary definition of valuation talks about worth and makes no mention of price, the property valuer’s definition for market value has nothing to do with worth and everything to do with price. Market value as defined in property valuation is an estimate of what a property might sell for in present market conditions, an opinion on price, not worth or value.

Property valuations are, in reality, market price opinions done for banks and financiers not because they want to know what something is worth (they have no real interest in owning the property) - they want to know what the relative market price is so they can relieve themselves of the property and recover their loan if the borrower defaults.

It has nothing to do with the intrinsic worth of the property.

There is nothing wrong with that but let’s call it what it is.

Are property valuers too conservative?

One of the most common complaints about valuations is that the valuation is less than the replacement cost.

Whether you believe a property valuation is an opinion on market price or an estimate of worth, replacement cost is irrelevant. Just as one man’s trash can be another’s treasure the opposite can be just as true.

If the property is a residential home, then worth is relative to what we want in a home, however, if the property is an investment then the only consideration is what net income the property is capable of generating.

Remembering that value is the worth of something compared to its price. With the exception of distressed sales, we are still not seeing a lot of good value in the market. I would suggest, therefore, that even though you may think current property valuations are too conservative they are not and, on the basis that valuations are really a reflection of price, then prices are only just starting to approach worth.

Greg Campbell is the director of ARAP, which assists clients facing mortgage default overcome their difficulties through an ‘Agreed Risk Adjusted Purchase’.

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Review

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What a difference a year makes … or not. Australian Broker reflects on the punditry, breaking news and influential trends that made headlines in the magazine 12 months ago Australian Broker Issue 8.8

Headline: New lenders join clawback club (Cover) What we reported:

In the wake of the government's ban on deferred establishment fees, smaller lenders looked for ways to recoup costs. Lenders that had traditionally shunned broker clawbacks said they would have to consider implementing the policies to protect margins and avoid passing on fees to consumers. Among the lenders who said they were either considering or would definitely implement the policies were Adelaide Bank, Homeloans and National Finance Club, though Adelaide's Damian Percy said the lender remained philosophically opposed to the policies.

What’s happened since:

Most non-banks and second tiers did eventually implement the policies, including Adelaide Bank. Percy said the lender undertook extensive industry consultation before putting in place a pro rata clawback policy. While the expansion of clawbacks caused brokers considerable concern, recent AFG research has indicated the policies may not be biting as hard as expected. AFG's Mark Hewitt said most lenders did "the right thing" in terms of flexibility surrounding clawbacks, and said most brokers had seen only minimal impact.

Headline: Non-banks face annihilation (page 2) What we reported:

Following ABS figures showing non-banks snaring a dismal 1.9% market share in April of last year, MFAA chief executive Phil Naylor sounded the death knell for the sector. He warned that shrinking market share coupled with the impact of tighter funding availability and - of course - the impact of the government's exit fee ban would see non-banks finished off once and for all. Naylor predicted that the DEF ban would see non-banks disappear and eventually lead to higher mortgage rates.

What’s happened since:

Naylor may have declared the death of the sector a bit too soon. Nonbanks have bounced back a bit of late, with anecdotal evidence from brokers and lenders suggesting a consumer shift away from the majors.

First homebuyers show a particular affinity for non-bank lenders, with recent figures from AFG indicating 22.9% chose non-banks over ADIs. While the ban on exit fees did see most of the non-bank sector institute clawbacks, it has yet to drive them from the industry.

Headline: Lenders show "arrogance" toward brokers (page 6) What we reported:

NAB Broker general manager of distribution John Flavell last year won praise from the third party channel when he took aim at other banks he accused of blaming brokers for poor conversions and slow turnaround times. Flavell said banks were not taking their share of the responsibility for poor communication, obtuse lending policies and inefficient processes. He vowed NAB would seek to improve its turnaround times through better communication..

What’s happened since:

Flavell again this year drew broker praise and ruffled rivals' feathers by lambasting banks for shifting blame to brokers. He also found himself embroiled in controversy when the bank chose to ditch its segmentation program and offer its perks to all accredited brokers.

CBA's Kathy Cummings accused lenders without segmentation policies of being "ignorant and apathetic", while Flavell shot back that there was nothing ignorant or apathetic about offering consistent service.

Headline: Government may support reverse mortgages (page 12) What we reported:

A Productivity Commission report last year stated there would not be enough money in the Federal Budget to fund Australia’s increasing aged care needs without instituting an equity release program. Seniors First managing director Darren Moffatt said the report could lead the government to throw its support behind the reverse mortgage industry.

What’s happened since:

Moffatt appears to have been right in his prediction of government support for equity release. According to a recent News Ltd report, the government is set to adopt the recommendations of the Productivity Commission report. But rather than institute a government-supported scheme, as suggested in the report, the government appears set to work with the private reverse mortgage industry.

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brokernews.com.au

Insight

Three habits of highly successful brokers The best brokers have ingrained habits that are part of their routine – every single day. Former top broker Stuart Wemyss explains three of the most important

R

ecently, I was asked to nominate three activities that are common traits of high performing mortgage brokers. It is both an interesting and thought-provoking question.

Typically, our greatest learnings come from studying the habits of successful people. Often, it’s the small things they do consistently (ie daily habits), rather than spasmodic genius, that have the greatest impact on their success. Unfortunately, many people overlook these seemingly simple, repetitious tasks and instead search for the magic bullet.

Success is rarely the result of one or two decisions or activities. Rather, it’s normally a series of daily habits as demonstrated in Verne Harnish’s book Mastering the Rockefeller Habits (highly recommended reading). So here are my three habits of highly successful brokers:

Habit # 1: If you don’t value your time, no one else will

Successful brokers have a dogmatic focus on the profitable use of their most scarce resource... time.

A successful broker will always consider what’s on offer when considering whether to accept a new lead. For example, imagine a situation where I was approached by a non-professional property developer seeking funding for his second development worth $2m, and it was a smallish development with no pre-sales. The first two questions I would ask myself are: 1) How likely am I to win this deal (including how likely is it this deal will go ahead)?

2) How many hours do I estimate it would take to get this deal settled?

Stuart Wemyss

Stuart Wemyss was a successful broker who personally settled over $100m p.a. two years in a row before handing the baton to his team at ProSolution Private Clients (which he still owns and works). Stuart now operates an online training course for brokers sharing all his knowledge, systems, templates and tools, at www.moreloans.com.au

Focusing on these two questions initially allows me to hone in on the likely profitability of the lead. (I wouldn’t get dazzled by how much potential commission I could earn because commission is only one side of the equation - ie revenue. I’m focused on profit.)

For example, I know very little about development finance. However, what I do know is there are many issues that could arise that may prevent the project from ever proceeding. I also know obtaining finance for a property developer that doesn’t have a lot of experience can also be challenging – particularly without pre-sales. Finally, it could be year until the development actually proceeds.

Therefore, while at face value, the upfront commission may appear attractive, I personally think it is unlikely I could turn a profit by taking on this lead. I would probably refer the client to another broker better equipped to help this client (possibly with the agreement for a commission split – which is pure profit by the way).

I find brokers tend to waste an extraordinary amount of time trying to be all things to all people. In the morning, they might work on a low-doc refinance opportunity, over lunch they will be researching a non-genuine savings LMI scenario for a first homebuyer and, in the afternoon try and help a professional with a waiver LMI for a large loan.

The variability of all these scenarios means you either have to be the most technically astute broker in Australia, or (more likely) you’ll end up spending way too many hours solving each of these clients’ problems and not make any profit. If you try and chase too many rabbits, you won’t catch any.

If you’re spending any more than say two hours (on average) finding a solution (lender) for a client, then you’re probably not playing to your strength. I was able to write large volumes of business because I was disciplined to stick to what I was good at and do it over and over. The profit you make is largely determined by the leads you choose not to deal with as opposed to the leads you do help. I always considered what was the most profitable use of my time.

Habit # 2: Hunt daily… make it part of your process

The second habit of highly successful brokers is they are always prospecting the new clients.This has two advantages. Firstly, they have a consistent level of leads

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each month and, secondly, they have the luxury of picking and choosing which leads they deal with (the profitable ones). That is, they don’t feel compelled to deal with a lead they probably know isn’t profitable (not their specialty) because they are desperate.

In my experience, the best marketing activities tend to be no or low-cost, so it’s not like you have to dedicate a lot of resources to generate consistent leads.

Things like webinars, seminars, newsletter articles, blogs, telling people you want referrals and existing client reviews tend to be very effective and things you can do on a consistent and daily basis. The challenge, however, is that consistent prospecting for new leads is very important but it is not urgent.

Brokers tend to rush to the urgent tasks at the expense of the important ones. I believe if you want to become a successful broker and double the amount of profit you make over the next 12 months, you need to spend one to two hours per day (12% to 25% of your time) on prospecting and building your pipeline of leads. Do this, and after three months I promise you you’ll see your volumes dramatically increase.

Habit # 3: Shooting fish in a barrel

Most brokers are excited by the chase.

We love the challenge of finding a great prospect and winning them. We are sales people after all.

That’s great personally, but commercially it’s kind of dumb. It’s a fact that it’s far easier to win business from an existing client than it is to find a completely new client. That’s my third habit – successful brokers work their CRM database… hard!

Regular personalised contact with your existing clients builds familiarity, likeability, trust, loyalty and shows you care. This ultimately results in a consistent flow of referrals.

I believe brokers should aim to call one to two clients every day with an aim of generating a conversation that adds value to the client. The value-adding conversation must not be something laden with self-interest such as asking them “when they’re going to buy the next property”. Instead, it needs to be directed at helping the client with the challenge or

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cementing a common interest. It doesn’t actually have to be about finance or mortgages. It can be as simple as something like giving them the details of a comparable property sale or bringing to their attention an interesting article on a common interest such as golf (for example). The key to this habit is it must be genuine so pick carefully the clients you choose to do this with. Pretending you like someone you really find irritating will come across fake and superficial and will be a complete waste of your (and the client’s) time. Build strong relationships with the clients you like – it’s the old 20/80 rule.

Resist the urge to hunt for new blood until you’re confident you’ve exhausted all the opportunities in your existing client base first. This is truly the low hanging fruit.

It’s not rocket science

You will note these habits are pretty simplistic - there is no rocket science here. The key, therefore, is consistency.

World renowned author Jim Collins says “The signature to mediocrity is terrible inconsistency”. The challenge is to do the same things each day, even though you know you can put them off until tomorrow.

It’s doing the important, before the urgent.

It’s discipline.

Using customer habits in your business Unless you are in a business where you interact with each customer only once, your customers have habits related to your interactions. This is how to maximise them: 1. Stop asking your customers why they do what they do: It is better to use methods to observe what people are doing than to ask them directly.

2. Learn your customers’ habits: Customers do not want to have to think about every interaction they have with you. Each time your customer has to think, it opens up an opportunity for them to think about switching to a competitor.

3. Design for habits: Make sure you know which aspects of an old design are influencing your customers’ habits, and redesign to minimise any disruption.

4. Nurture new habits: Customers have to repeat a new behavior before it becomes a habit. Help customers repeat a new behavior enough times for a habit to form.

5. Influence the environment. Habits are affected by what is easily seen. For service companies, this means finding ways to stay front-of-mind in their environment.

6. Disrupt habits for competitors: Study the habits of people using competitors. Find ways to affect their environment to get them to think about their choices.

Source: Art Markman, Maximising Mind

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brokernews.com.au

Toolkit

A ‘financial roadmap’ to improve your business Your business success next financial year could be as simple as getting the basics of budget and cash flow right, writes Sue Hirst

B

efore the end of financial year is a great time to understand how well your business has performed this past year and decide on your targets for next year.

The easiest way to develop a ‘financial roadmap’ is to have a budget and a cash flow forecast.

Here’s an explanation of the difference between the two.

1) Budget: A budget is a financial plan of what you are going to sell, what it is going to cost you and what overheads you are likely to incur. It also includes finance costs such as interest. The budget sets out how much profit or loss the business is planning to make, usually on a monthly basis.

2) Cash flow forecast: A cash flow forecast is a plan of when the cash will flow into and out of the business.

It’s important to have both because a budget may show you’re going to make profit, but customers take time to pay and suppliers require payment, often before customers have paid you. It’s vital to plot this all out in black and white, so you can see where the ‘peaks and troughs’ are likely to occur and plan what you’re going to do to manage them.

The budget bottom line

Plot this all out in black and white, so that you can see where the ‘peaks and troughs’ are likely to occur

Sue Hirst

Sue Hirst is director and co-founder of CFO On-Call Advisors

Creating a budget helps clarify what everyone needs to work towards for the business to be profitable and successful.

People will say “I can’t do a budget because I don’t know exactly how much I’m going to sell”. This is a reasonable statement but shouldn’t put you off developing a budget.

The best way to start is to work out your ‘break-even point’. This helps you work out how much you need to sell to make neither a profit nor a loss (a zero result). Obviously this isn’t what you’re in business for, but it’s a great place to start. To work out your ‘break-even point’ the best place to begin is with your overheads (the fixed expenses you incur whether you sell anything or not, such as rent, permanent staff wages, equipment leases etc).

You then need to know what your gross margin is on sales. Gross margin is the percentage you make on sales after direct costs of your product or service, such as cost of the actual product or labour and materials on jobs are deducted. For example, if you know products or jobs cost 40% (on average) of sale price, that means you’ve got a 60%

gross margin left to cover overheads. If yearly overheads are $600,000 you will need to sell $1,000,000 to break-even.

Once you know your ‘break-even’ sales figure you can use this as a basis for your budget by entering the monthly figures into a spread-sheet and play around with increasing and decreasing the monthly sales to see what would be the impact of changes. You could also work it backwards to calculate what profit you desire and, therefore, what you need to sell to achieve the result. Or, if you can find ways to reduce your direct costs, how much impact that could have on your profit.

Cementing cash-flow

The cash flow forecast is similar to the budget, but looks at the situation from a cash perspective rather than profit. You begin with your opening bank balance then plot in monthly what income you expect, based on when and how much customers pay, against what you expect to pay out based on fixed monthly overheads and amounts owed to suppliers. The cash flow includes items such as tax, repayment of loans and dividends that aren’t included in the budget. By doing this forecast you can see your closing bank balance for each month and where you might experience ‘peaks and troughs’. Once you know the amount of the ‘peaks and troughs’ you can play around with a spread-sheet to work out how to retain a positive bank balance or when you may need funds to cover a shortfall.

By doing this at the beginning of the year, you can approach lenders with a clear picture of your requirements rather than rushing in ‘cap in hand’ begging for help to cover a shortfall you didn’t expect.

Both financial tools will help you sleep easier at night and be able to plan for the best or worst in your business.

SCENARIO CENTRE Furnished with finance… and never mind those defaults Managing a furniture store is stressful enough, especially when you throw in juggling cash flows, meeting loan repayments and, of course, the day-to-day running of the business itself.

But what if your client had to reassess their finances at the same time? And what if their situation was a complex one, with a couple of defaults to contend with?

Perhaps RESIMAC has the answer.

Picture this. Your client is David, a self-employed furniture store owner who just loves the business after eight years. However, he comes to you wanting to refinance his current $300k mortgage, consolidate his $20k business overdraft, payout and close $30k in credit card debts and obtain $50k cash out for business use.

The problem is David’s credit file notes two unpaid defaults for $865 and $499. The defaults, lodged in July and September 2011, relate to business disputes, where David received damaged and inferior products and was unable to sell them.

In both cases, the suppliers blamed David for the damaged stock and would not replace them. David later returned the goods to the suppliers but they still insisted on payment. Out of principle though, he did not pay the debt and no longer deals with these suppliers.

RESIMAC says, in this client scenario, it would be able to approve the consolidation and cash-out under its Alt Doc Premium product. Also, as the two defaults were each under $1000, the lender would disregarded

?

them from credit impairment calculations, as long as the application was supported by clear repayment history on the mortgage, business overdraft and credit cards.

“When determining suitability for a loan we look at the borrower’s entire history,” explains chief operating officer Allan Savins. “RESIMAC understands that being self-employed can offer certain challenges and that’s why we never automatically disqualify borrowers based on either bankruptcy or defaults.”

RESIMAC offers a broad product offering that caters to the needs of specialist borrowers, including features like unlimited cash out to 80% LVR because it recognised this is an important option for a selfemployed borrower.

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Market talk

Perth investors awakening again Once an investment anathema, activity is picking up in Western Australia

As the market slowly improves more people are deciding to buy a place of their own

A

FG figures for the past few months have painted a somewhat grim picture for the investment market in WA. The share of new home loans going to investors has consistently declined since December last year, dropping from just over 35% to 26% in March. But brokers on the ground are telling a different story. While the numbers seem to indicate investors are shying away from Western Australia, brokers have claimed the market is booming.

MPA Top 100 Broker Troy Cameron of Stratique Finance in Wembley, WA, has seen investors reawaken in the Perth market after a long period of slumber.

“Investor activity from the start of 2012 [showed] renewed interest in the Perth property market as opposed to the former focus of Queensland and Melbourne,” Cameron said.

The Real Estate Institute of Western Australia has echoed Cameron’s claims, saying it has seen a rush of investors that is only set to grow as the end of the financial year approaches.

“Many potential investors who have been waiting and watching the Perth market, in particular, following the decline in prices since 2010, now sense that it’s an opportune time to look at entering the market,” the group said.

Cameron said the rental market was the key to the surge in activity. The WA rental market had become a bit of an anathema to investors, as a massive surge in house prices saw median values shoot up 46% in 2007 alone.

The run-up in values tightened rental yields to around 2.5-3%, making the market unattractive to investors. But as WA’s housing market has fallen, investors have reaped the benefits. Rental yields are back up to 4.5-5%.

“Rental yields are the talk of the Perth market and are going through the roof at the moment. Renters are lining up to view properties and landlords are reaping the benefits. This is having a flow-on to investor activity and confidence,” Cameron said.

Rental yields have seen a significant run-up as the market in Perth tightens. REIWA data shows median rents in the Perth metro area increased by 8.1% over the past year. The median weekly rent for Perth now sits at $420 per week. Vacancy rates in the city are tight as well, at 2.3%. With any number under 3% traditionally indicating an undersupply, landlords look set to benefit from a competitive market.

Balancing act

David Airey

REIWA president David Airey said vacancy rates were levelling off, but median rents in the city continue to head upward.

“As the market slowly improves more people are deciding to buy a place of their own and investors are now contributing more to the housing stock as well. I think it’s safe to say the rental market should balance out for

the remainder of the year,” he said.

But even this “balancing out” should bring with it positive outcomes for property owners. As the rental market has grown, Cameron said there should be knock-on effects for median values as well. After languishing for so long, Perth property prices may finally be starting on a tenuous road to recovery.

“We are hopeful the pressure on the rental market will drive growth activity for house prices for both investors and owner occupied property values,” Cameron said.

RP Data figures seem to bear this out. While median values for the city declined 4.6% in the year to February, the most recent quarter saw a 0.8% improvement. Even more bearish analysts such as SQM Research managing director Louis Christopher seem to agree the Perth market has finally bottomed out.

Resources rush

As one might expect, the recovery of the Perth investment market is another symptom of Australia’s two-speed economy. As more resources projects get off the ground, the city has seen strong population growth. In fact, recent ABS data indicated Perth has clocked the fastest population growth of any capital city. Over 2010 to 2011, the city saw its population swell by 2.5%.

“The continued growth of the WA resources industry is seen as very attractive for people to relocate to Perth, with strong migration continuing to put pressure on the rental market,” Cameron said.

As a result of the growing appetite among Perth investors, Cameron commented that his own business had reaped rewards. With many buyers making their first foray into the world of investment property, Cameron said the demand for quality advice from brokers is high.

“We have seen an increased level of first time investors feeling confident to dip their toe into the Perth investor market. A lot of the investors are seeking quality structure and strategy advice before they formally act to ensure they maximise the benefits they are looking to achieve for the property portfolio. We actively discuss the strategy with their accountant to ensure we are all on the same page to deliver the outcomes the clients are looking to achieve,” he said.

brokernews.com.au

27

Home building going nowhere fast A housing forecast has claimed home building levels aren’t set to improve until 2013.

The HIA’s National Outlook report has shown declining levels of home construction, with new housing starts down 12.8% in 2011. In light of the decline, the group has forecast a further 5.9% drop for 2012 before a modest recovery in 2013/14.

“New home building has been hampered by interest rates that have been too high for too long as well as a glacial pace of reform in terms of the supply-side of the Australian housing market. Put simply, the excessive tax levied on new housing is constraining supply and harming business conditions and therefore the wider domestic economy,” HIA senior economist Andrew Harvey said.

Harvey again sounded the HIA’s call for a rethink of stamp duties, saying around 40% of the purchase price of a new home is

due to taxation.

“Given a lack of housing affordability is already hurting those trying to get into home ownership, as a nation we should be building more homes, not fewer.

More is needed in terms of Commonwealth and state government reform to lift some of the tax burden from new housing taxes on housing simply have to be substantially reduced,” he said.

Harvey also took aim at the RBA. He claimed the Reserve had “fallen into the trap” of keeping rates on hold. “The economy is now posting zero employment growth, and the non-mining states are going backwards in terms of their labour markets - now is not the time to allow residential building to decline further,” he said.

OneCardinia-Pakenham bright spot for the group’s housing outlook was the level of VIC renovations taking place. As more Griffin-Mango Hill people choose toCardinia-Pakenham improve their Cardinia-Pakenham QLD VIC current home rather than upgrade, VIC

Harvey said an increase in renovations was set to continue.

“Although consumers are highly cautious at the moment, they are still spending on renovations,

particularly on smaller jobs. We expect modest growth of 0.6% in 2011/12 and 0.7% in 2012/13, taking renovations investment to a record $30.36bn,” Harvey said.

HIA housing forecast New starts (in thousands) 200

168.96

150

148.11

138.79

139.36

147.98

158.29

100

50

9.8% 0

2009

2010

2011

2012

2013

2014

9.9%9.8% 9.8%HIA Source: 9.9% 9.9% 14.0%

Griffin-Mango Hill Hill Wyndham Griffin-Mango South Wyndham South QLD QLD VIC VIC

NUMBER CRUNCHING

14.0% 14.0% 17.4% Household financial fitness Top five population hotspots for 2011–Whittlesea population growth per year Whittlesea Whittlesea North North Whittlesea North North 17.4% 17.4% VIC VIC How comfortable are consumers VIC Canberra City VIC Canberra City Canberra City 39.6% Cardinia-Pakenham with their mortgage?

9.8% VIC Canberra Canberra Canberra Canberra City City Canberra City City Canberra City City 39.6% 39.6% 0 5 10 15 20 25 30 35 40 Wyndham Wyndham Wyndham South South Wyndham South Whittlesea North Whittlesea North South VIC VIC VIC VIC VIC VIC

9.9%

Griffin-Mango Hill QLD

00

10 10

15 15

20 20

25 25

7%

30 30

35 35

40 40

14.0%

Wyndham South VIC

Wyndham South VIC

Whittlesea North VIC

Whittlesea North VIC

Canberra City

Canberra City

10

15

20

25

100

30

100 100

17 *The proportion of Australians who say they’d be better off hiding their money under a mattress than investing in shares, cash or property 60

Source: LoanMarket

40

13 13 13 17 17 17 17 17

55 55 55

60 60

63 63

63 6363

56 5656

Very VeryUncomfortable Uncomfortable

Very Uncomfortable

Source: 64 ING Direct

64 64

40 40

64

63 40

30 30

20

19

7

14 redit ards

32

ages oans

20

Average

Very Uncomfortable

7

14 14

14

Cards Cards

77

Credit Credit Credit Cards

55

60

Very Comfortable

30

30

/Loans /Loans

560

19

19 19

Mortgages /Loans Mortgages Mortgages

63

20 00

32 32

20 20 32

Household Household Income Income

80

30 30

Household Income

20

Household Household Savings Savings

17

Household Savings

13

Household Bills

17

20 20

Very Very Comfortable VeryComfortable Comfortable Average Average Average

30 30

100

0

63%

80 80

63 40

35

Household Household Bills Bills

17%

*

80

ehold come

At a glance…

5

30%

39.6%

Canberra City

ehold vings

0

17.4%

ehold Bills

Source: HIA

55

28

brokernews.com.au

People

The spirit of challenge The Gold Coast’s Kokoda Challenge will be putting Westpac’s newlygranted money to work in raising the confidence and skills of disadvantaged local youth

W

estpac’s Queensland state manager Brendon Prior is passionate about the future youth of Australia – and especially troubled youth from his home on the Gold Coast.

“Kids need to step up and be leaders in their own community,” he said. “They shouldn’t be afraid to stand up in their peer group and say what they stand for,” he said.

It is Prior’s passion for youth, and his involvement in the local Kokoda Challenge – an epic physical 96km endurance event that supports disadvantaged and troubled youth – that will now ensure these young battlers receive even more help in gaining focus in their lives.

Last month, Westpac announced that its Foundation had awarded the Kokoda Challenge with one of its first $10,000 grants, which the bank is donating to 55 not-forprofit organisations around the country who are supporting disadvantaged communities.

Prior, who became a driver for the nomination of the Kokoda Challenge as a local recipient, and its eventual acceptance, said the hard work he had put into the process had paid off. In fact for Prior, the kids involved in the Challenge are an example of this universal principle.

“For me it’s about getting a result if you put in the effort,” he said.

The spirit of Kokoda

Prior first got involved with the not-for-profit because of his love of physical challenge.

“I’m obviously a local, and I live at the top end of Goldy,” Prior said. “It started for me when I was a competitor in the Kokoda Challenge. But the more I got into it the second year, the more I understood the values it stood for,” he said.

Prior has now done the gruelling 96km course three times – and is preparing for a fourth. But it’s no longer just about testing himself; it’s also about providing leadership for local youth.

Prior said he has been inspired by the philosophy of Kokoda Challenge chairman Doug Henderson. “It’s all about the harder you work, the luckier you get,” Prior told Australian Broker. “You get to meet so many kids who are out there having a go, and those are the types of role models we want to have for our future generations,” he said.

Prior said he has been inspired by meeting youth that had benefitted from their past involvement, with some now going to university or heading on first trips overseas.

Westpac builds community foundations The Kokoda Challenge is just one recipient of 55 Westpac Foundation $10,000 grants, which are in the process of being awarded across its Australian geographic regions.

Westpac’s head of third party mortgage distribution, Tony MacRae, said that they are awarded to not-for-profit organisations throughout Australia that are seeking to create and sustain social enterprises in disadvantaged communities.

Tony MacRae MacRae said that submissions are localised, so Westapc would be looking to brokers in other regions to see what their ‘passion feeders’ are regarding their communities.

“It leads us to have a different conversation with brokers around what they are doing in their community,” he said. “You are going to see a lot more of Westpac going out locally into the community and a lot more going out to our partners in the broker and aggregator space because they are all a part of the communities that exist locally.”

Westpac’s head of third party mortgage distribution Tony MacRae said the Westpac grant to the Kokoda Challenge will assist with giving more troubled youth more focus.

“It helps by highlighting the Kokoda piece, and all that is associated with that, but the driver of that activity is helping those youth gain a little bit more focus in their lives,” he said.

Rising to the challenge

Prior said the awarding of the grant is just the first step in a number of initiatives Westpac will be involved in over coming months, which will help the Kokoda Challenge.

He said he envisions a team of representatives from aggregators and brokers themselves helping out with a planned Kokoda street appeal, out of a local Westpac branch. “We will also have a broker function centred around the Kokoda Challenge, and we want to build it from there as a result of that involvement,” he said.

MacRae said Westpac Foundation in all regions across Australia would aim to go further in terms of engagement than just awarding an initial $10,000 grant. “Between now and November there will be a whole heap of activities that our retail team, our broker teams, will work community groups to raise more money,” he said. “So it’s not just a one-off event. There is a whole heap of activities and fund raising planned and to be planned to raise money and awareness for those charity groups, and we’ll be very keen to get the local aggregator groups and the local broker groups involved in those pieces and see how we can continue to build that whole local and community atmosphere,” he said.

Meanwhile, Prior will be readying for his fourth Kokoda Challenge. “Why do I keep going back? Because you are finding out who you are each time – it’s always a different challenge. And I get so motivated by the kids. I love the Gold Coast, and I think if you can make a difference in their lives it can affect the Gold Coast in a positive way.”

brokernews.com.au

29

A question of charity Your clients might soon be coming to you with a new question when they choose you for finance – and if so, it will be because of one ex-broker’s vision. Ben Abbott reports.

“Do you do charity?”

If you haven’t heard this question yet, it might pay to remember it. Because you might be hearing it a lot more in the future if ex-mortgage broker Michael Pollard has his way.

Following a career in the mortgage industry, including a stint as a broker, Pollard is now returning to the industry with a new vision for finance – giving, and receiving in return.

The vehicle? Do You Do Charity? is a new enterprise Pollard has coined and it is designed to drive consumers to businesses who are giving a portion of their upfront sales to a charity of their choice. However, the aim is for business and consumers to benefit, as well as cash-strapped charities. “I think somebody has to do something, so why not me,? ” Pollard says.

From broker to charity champion

Pollard started his broking career in 1998 trading as Select Finance in NSW, following a

Helping others, helping yourself : Do You Do Charity?

For business: • Designed for business by business • A guaranteed form of advertising • Allows business the right to donate to charity of choice • An opportunity to offer something different to consumers • Access a previously untapped source of business – charities For consumers: • A ‘feel good’ alternative on where to shop • It offers consumers ‘power of the people’ For charity: • A regular source of donated funds • Marketing benefits for associated charities • Appropriately registered with the ATO Source: Michael Pollard, DYDC founder and partnership facilitator

period of time in the banking sector, including as a St.George Bank manager.

However, when he suffered a stroke in 2005, Pollard was forced to leave the industry. He didn’t know then that this would lead directly to his next challenge.

“With my first stroke in 2005, I retired from active participation in mortgage broking. But during this time, it became evident that not enough money was being made available to those people and organisations that can really use the funds, be it hospitals, charities and the like.”

Pollard became no stranger to this lack of charity funding available, with repeated returns to hospital over a number of years courtesy of two strokes, a heart attack and diabetes.

Though his health has been a trial, Pollard was determined to bring the values he employed as a mortgage broker – lending a helping hand to clients – back to the charity sector.

“Throughout my working life in this industry I looked after people from Coolangatta in the North, to Bega in the South,” Pollard said. “It was old-style broking – whatever somebody wanted, it was all about finding the best thing that suits them,” he said.

“This is why Do You Do Charity? applies the same mentality. We are here to help charities, and Do You Do Charity? is the most likely way that I can do it,” he said.

Ask, and you shall receive

Do You Do Charity? asks businesses to commit to giving a portion of their upfront sale income (somewhere between 1% and 50%) to a charity of their choice. By committing to doing this, if a consumer asks the ‘trigger’ question, “Do you do charity? ”, Pollard argues businesses can benefit by garnering the goodwill of their greatest advocates – consumers.

The catch is, for this question to be asked, consumers first have to know about it.

Pollard said Do You Do Charity? is currently gearing up to start marketing the organisation, and would charge a membership fee (starting at $150) to those businesses getting involved.

His vision is that once enough businesses sign up, the organisation will be able to direct consumers to businesses that ‘do charity’ – giving them a new source of business.

And the results for charity could be immense.

“If we get a 1% success rate of people in the general marketplace, it means $57m per year will go to charity. If we get up to 5%, that

Michael Pollard

Not enough money is being made available to those people and organisations that can really use the funds would be $1.67bn per annum, which is currently not going to charity.”

Calling all brokers

Pollard has set his sights on mortgage brokers beginning the momentum towards Do You Do Charity? – and he says the broking community has already showed interest.

“When Select Mortgage Finance was a going concern, I had 25-odd brokers at a meeting, and they all owned their own independent companies. I said, ‘Here’s the idea, here is what we want to do, are you interested?’, and all but two said yes.”

Pollard said that although this goes back five years, the principle will now be the same – mortgage brokers see an opportunity to make it work for their businesses. He said he will be talking to brokers and aggregators about the business as part of its first phase.

And Pollard does not plan to give up any time soon. “This is a low income scheme in terms of Do You Do Charity? itself; it is not meant to make money, but money for charities. That is the be all and end all – charities need some help and I can provide them with something if I can get this scheme off the ground – and I can’t see why it won’t work,” he said.

30

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Insider

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

Drop us a line at insider@ausbroker.com

This one’s hard to put together…

Logic in “W

hat the hell are they thinking?” A broker recently asked Insider – a sentiment he later shared after hearing the full story of one particular loan scenario.

Which goes something a little like this: An 88-year old widower who owns his principal home outright wanted to borrow some money via a reverse mortgage to make repairs to his home, which was damaged in the recent Brisbane storms. This was clearly outlined in the application notes in the submission for a reverse mortgage of $20,000. Now comes the interesting part.

Assessor: The valuation has been returned and the valuer commented that the property has storm damage.

Broker: Do you think? Did you read the file notes and understand what the purpose of the loan was for?

Assessor: LVR is now 12% please advise how to proceed.

Broker: What are you, thick? 12% LVR please proceed.

Assessor: Please advise for NCCP

if there are any likely changes to the borrower’s financial circumstance in the future?

Broker: What do you think, the applicant is 88 years old, he might die soon, do you think that will be a change to his financial circumstances?

Let’s remember, of course, the application was for a reverse mortgage, with no servicing required and no loan repayments on the product. As the broker asked Insider, it makes one wonder just what those assessors are thinking.

Snakeoil goes back to China

The Chinese (as a nation and economic bloc) may be sitting pretty, taking it up to the longdominant Western behemoths like the US in long, GDP-jumping strides – but that doesn’t mean all of the Chinese (especially those with money to invest) have to like it. In fact, many of the richest Chinese citizens, concerned with future social cohesion and stability, are looking elsewhere

– and often at Australia – as potential places to emigrate, both for themselves and their money. Enter the international real estate agents, who, described as modern-day ‘snakeoil salesmen’, are capitalising on the aspirant desires of China’s new rich by selling them a promise of easy citizenship via investment in Australian property. Of course, the spruikers are often heavy on detail when it comes to the property investment side of things (property always goes up, etc etc), and light on the nitty gritty of getting permanent residency post-purchase. Indeed, in property expos based in the capital Beijing, halls full of these aforementioned salesmen promise the world – or at least a place in another part of the world – outside of China, all for the price of some bricks and mortar.

The catch? It’s not as easy as the salesmen make out. After all, it requires $600,000 in Australian assets and a controlling share in a company for more than two years with a turnover of more than $350,000.

Seems a whole lot like peddling good old Chinese snake oil to me.

Best of the best ... but remembering might be difficult

The MFAA Convention is upon us again, which means brokers will be descending upon Adelaide in droves for networking, inspiring speakers, fine food, drinks, drinks and more drinks. If you haven’t signed up for the conference yet,

Insider has some added motivation for you. Last year’s convention was recently lauded as the Best Association or Government Meeting at the NSW Meetings and Events Industry Awards, and the MFAA reckons it’s a good shot for the National MEA Awards as well. The award was chosen based on a submission outlining the service the conference provided to members. The MFAA said the submission used case studies to highlight the organisation’s role “in successfully helping members reach their professional objectives through relevant education and development programs”. Insider was in attendance last year, and it was certainly an event not to be missed. At least he thinks it was. Unfortunately, following the FirstMac party, Insider’s recollection of the event was a little, shall we say, hazy. He plans to take it a bit easier at this year’s convention. Then again, that’s what he said last year.

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Services

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

BANK

LENDER

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SHORT TERM LENDER

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FINANCE Semper Capital Pty Ltd 1 800 SEMPER (1800 736 737) enquiries@semper.com.au www.semper.com.au Page 21

INDUSTRY ASSOCIATION FBAA (Finance Brokers Association of Australia Ltd) 07 3847 8119 info@fbaa.com.au www.fbaa.com.au Page 17

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NCF Financial Services Pty Ltd. 1300 550 707 www.ncf1.com.au Page 8 PLAN Lending 1300 787 874 www.planlending.com.au Page 5 Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 12 & 13

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