Australian Broker magazine Issue 9.17

SEPTEMBER 2012 ISSUE 9.17

$4.95 POST APPROVED PP255003/06906

+ INSIDE

‘Madness in method’:

EDR faces abuse

+ NEWS LOW-DOC FRACAS

Banking inquiry brings broker low-doc fraud claims P6

GFC NOT OVER

Banking lobby claims crisis still impacting credit supply P8

+ AXE TO GRIND A qualified broker asks why others don’t upskill P13

+ PEOPLE ENTER SQUADRON XV: The new elite broker grouping P18

+ FEATURE Should you record your client interviews? P22

Stripping lenders of their enforcement armoury could see clients take advantage of EDRs and put competition at risk

T

he terminology given to the new Consumer Credit Legislation Amendment Bill that passed through Federal Parliament in August puzzles Gadens Lawyers’ Jon Denovan.

“It’s called the ‘enhancement’ bill. The initial question is, of course, who is being enhanced by all of this – because it’s certainly not the industry,” Denovan says.

FULL STORY PAGE 11

+ THE WORKSHOP Why your marketing strategies fail, every time P24

NEWS

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WHAT THEY SAID...

NUMBER CRUNCHING

$100m The amount a small town of 380 people is asking to be paid, if a nearby mining project goes ahead

DID YOU KNOW?

LISA MONTGOMERY “Low-doc loans have been a good thing. They’re still a great vehicle for selfemployed people to access finance.” P6 FRANK PARATORE “I certainly wouldn’t want to be on the receiving end of ASIC. And we won’t be making our business an example.” P14

2,440

$7.1bn

The number of rental properties on the market in Perth last month

CBA’s record-high net profit for 2011/12

$370m

The amount airline Cathay Pacific is investing in upgrading its lounges and business class cabins to routes including Australia

$1

The amount a lucky punter paid for a BMW online, after the seller put the wrong amount in

2,051 The number of apartments currently under construction in Melbourne by developer Brookfield Multiplex

MATTHEW BRANSGROVE “There are never any draws in litigation.

One party wins, and one loses.”

P22

STUART WEMYSS “If you don’t have a niche, your marketing and sales process will have to be all things to all people.” P28

NEWS

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Canadian dreams edge closer as inquiry hears MFAA ■ A recent senate hearing into

the banking system granted an unexpectedly positive hearing to the MFAA’s repeated calls for a change to mortgage funding arrangements.

The MFAA’s oft-touted recommendation to adopt a Canadian securitisation model – which promotes fair competition between majors and non-majors

I WOULD BE CONFIDENT OF SEEING SOME POSITIVE CHANGES IN THE NEXT FEW YEARS

– may finally be gaining traction.

CEO Phil Naylor presented his case to a senate hearing for the fourth time in as many years, and told Australian Broker the reaction this year was overwhelmingly positive.

“I was pleasantly surprised by the bipartisan and favourable reaction to our submission from senators,” he said.

In Canada, the government guarantees securitised funding, which provides a vital lifeline to banks outside major lenders.

“MFAA has been pushing the benefits of Canadian-style mortgage-backed securities and Canadian mortgage bonds for the past four years,” Naylor said.

He said senators showed a “clear acceptance” this time

around that non-majors are essential to a healthy, competitive industry.

“If the reaction to our submission is any guide, I would be confident of seeing some positive changes in the next few years.

“But this depends on the final decision of the government which is not necessarily bound by Senate Committee recommendations. That is why we will continue lobbying our point of view.”

Brokers could only benefit from a diverse range of lenders, as their goal was to provide “appropriate finance to their clients,” he said. “More competition also produces more innovative products.”

Stalwart seeks to cut out the agent ■ A financial services provider

has risked the ire of real estate agents by launching an online direct property venture aimed at “transparency” in the industry.

Intouch Finance’s new ‘LiveOffer’ is an online portal that facilitates the buying and selling of properties without a “third party clouding negotiations,” said CEO Paul Ryan. “[It will] provide vendors with a real estate service that is designed to deliver greater transparency and save thousands in real estate commission fees.”

Sellers can post their property on the website and set a price, allowing registered users to make offers.

“Both the buyer and the vendor know exactly where they stand,” he told Australian Broker.

Three packages are available to customers. Both the ‘DIY’ and ‘Vendor Assist’ packages come with a one-off fee, while the pending full-service package will charge a 1.25% commission fee.

Ryan admitted he is anticipating a mixed reaction from real estate agents, who “may be unnerved by our focus on transparency.”

EDITOR Ben Abbott COPY & FEATURES NEWS EDITOR Caroline Dann PRODUCTION EDITORS Carolin Wun, Moira Daniels ART & PRODUCTION SENIOR DESIGNER Rebecca Downing DESIGNER Ginni Leonard SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Anna Keane TRAFFIC MANAGER Abby Cayanan CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley MANAGING DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR – BUSINESS MEDIA Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Ben Abbott tel: +61 2 8437 4716 ben.abbott@keymedia.com.au Advertising sales Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Subscriptions tel: +61 2 8437 4731 fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, Toronto, New Zealand brokernews.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss.

Australian Broker is the most-often read industry publication, according to independent research carried out by the EhrenbergBass 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.

PAUL RYAN

NEWS

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Low-doc loans essential: Resi

Banks ‘encouraged fraud’ claims disgraced broker

■ Resi has defended the importance of low-doc

■ The issue of low-doc fraud

loans, while hitting back at fraud claims made against it.

Resi client Gary White has claimed that Resi forged his signature and “inflated his income” on his low-doc application in 2008.

He admitted he was still unable to find an authority willing to take action, after four years of presenting his case to industry regulators. However Lisa Montgomery, CEO of Resi, said her company had followed correct procedure after White’s claims of fraud and that “all avenues have been explored.”

“We take these issues and accusations extremely seriously. We’ve never had an accusation of this nature before,” she told Australian Broker.

Montgomery also hit back at accusations of fraud being rife in the low-doc lending arena, pre-GFC. “Pre-GFC, there was a prevalence of loans that could be accessed with virtually no documentation…

But that’s now been wound back by lenders and mortgage insurers,” she said.

She added low-docs were essential to small business owners. “They’re still a great vehicle for self-employed people to access finance.”

‘We don’t need a Royal Commission’ ■ The MFAA has rejected calls for a Royal

Commission into low-doc lending practices, after Democrats housing spokesman David Collyer called for one in response to recent ‘fraud’ claims.

Collyer referred to the low-doc scandal as Australia’s own ‘sub-prime crisis’ – a direct reference to the US mortgage disaster of 2007.

“The Australian Democrats and some in the media have confused low-doc loans with the sub-prime crisis that hit the US and other overseas markets,” MFAA CEO Phil Naylor said.

“There has been no evidence of such sub-prime lending in Australia, while the incidence of fraudulent applications being written for low-doc loans is miniscule.”

LOW-DOC FRAUD: THE ACCUSATIONS Brokers forged signatures of clients on low-doc loan applications, pre-2009 Incomes and assets were inflated to get the loan approved Certain lenders instructed brokers on how to get loans approved without the necessary criteria Accused lenders and brokers are refusing to release disputed documentation to borrowers

surfaced again when a recent senate inquiry unearthed claims of unethical behaviour in Australia’s financial industry.

A former WA broker who is facing fraud charges has claimed banks actively encouraged fraud during credit boom times in order to get low-doc loans approved, sending emails to brokers with ‘tips’.

Kate Thompson told the ABC in an interview that banks “are corrupt. They are protecting each other.”

She said banks would email brokers with tips on how to sidestep regulations, which often involved fraudulently inflating the income of applicants.

“I would get upfront commission. I would get a trailing commission. I was probably earning about $5m a year. It was great. It was wonderful. But it was all a lie,” she said.

$50BN

THE CURRENT, APPROXIMATE WORTH OF LOW-DOC LOANS IN AUSTRALIA

5%

THE PROPORTION IT REPRESENTS ON BANKS’ BALANCE SHEETS Source: RBA

LOW-DOC FRAUD: WHO SAID WHAT PHIL NAYLOR, CEO, MFAA

“I think the overwhelming good support that consumers give brokers overrides stories such as this, and most people will see through the exaggerated allegations.”

DENISE BRAILEY FROM THE BFCSA

“I received 4,000 emails, and in those emails from the banks to the brokers, you’d see clearly bank officers instructing the brokers how to have no-loan mortgage insurance, no income necessary, no assets and liability.”

KYM DALTON, CHAIRMAN, CREDIT ED

“There’s the real possibility of a ‘contagion effect’ to all lenders and all forms of lending, where there’s perceived vulnerability on behalf of the borrowers, such as first homebuyers and non-conforming borrowers.”

KATE THOMPSON, FORMER BROKER ACCUSED OF FRAUD

“I would get upfront commission.

I would get a trailing commission.

I was probably earning about $5m a year. It was great. It was wonderful. But it was all a lie.”

NEWS

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LL

ODDBA

Struggling to keep clients? Try fixed rates

THE STRANGER SIDE OF NEWS

DID YOU KNOW?

GLASS CEILING? NO, IT’S HORMONES ■ A Dutch scientist claims women are less

competitive in the workplace when they’re taking the contraceptive pill. His study found a higher concentration of the hormone progesterone was to blame. “It’s a possible explanation as to why the number of women in top corporate positions still remains so low,” he said, rather hopefully.

A SLAM IN THE FACE

■ According to a recent ‘lift etiquette’ poll by

CareerBuilder, letting elevator doors close on someone trying to get in is considered one of the most annoying office experiences. The study also found workers had witnessed colleagues asking for advice on skin rashes while in a crowded lift.

POETIC JUSTICE

■ A US man accidently drove his car off a bridge

moments after sending the text message, “I need to quit texting, because I could die in a car accident.” He is now urging drivers to be careful when using their phones.

FOOL’S GOLD

■ A 51-year-old UK man was arrested for

painting his local post box gold, in honour of the town’s resident Olympic hero Ben Ainslie.

"We understand the sentiment…However, we'd rather people left the painting of postboxes to us,” said a Royal Mail spokesperson.

Property group PRDnationwide claims amorous feelings – due to warmer weather – incites buying in the spring.

“There’s love in the air and buyers come looking for a new home (nest),” it said

■ If you’re finding that clients

are drifting away after receiving their loan, try enticing them back with fixed rates.

Advantedge is claiming record low fixed rates are an excellent way to keep clients happy and encourage repeat business.

Speaking to Australian Broker, general manager of distribution Brett Halliwell said brokers should use the rates as an excuse to touch base.

“It’s a really good excuse to ask how they’re getting on with their loans, and whether they’d thought about switching to a fixed rate,” he said.

It reinforces the role of the broker as a trusted source of advice. “We’re seeing an evolution [of the broker] into an advice-giving professional. It’s about being proactive… and passing on information that might benefit them.

BRETT HALLIWELL

Halliwell’s comments come after Advantedge announced a three-year fixed rate from 5.44% through its range of white label products.

“It’s around 50bps less than the standard variable offered by the majors,” he said. While variables seemed an attractive offer with low rates, there was no guarantee it would remain so.

“Borrowers that lock in fixed rates may secure themselves a rate that over time can prove more effective than a variable rate solution,” Halliwell said.

No bailout, but not over the GFC yet ■ A Senate Economics

References Committee inquiry into banking in August revealed bankers fear the GFC is still affecting domestic economic stability. The Australian Bankers' Association (ABA) told the inquiry credit supply to households and businesses is under pressure, four years after the crisis broke.

Steven Münchenberg, chief executive of ABA, said banks had a harder time accessing funds, which impacted on their ability to supply credit to Australian households.

He did acknowledge the impact on Australia was far less severe than on overseas markets. “At no point during or after the GFC has the Australian government or

taxpayers had to bail out banks, which is in stark contrast to the situation overseas,” he said.

On the subject of competition, he admitted the tougher conditions benefited major banks, which had the stamina, reach and resources necessary to withstand any blows.

“Any changes in market share have come about from economic and market circumstances, and not from a shift in the balance of market power, and certainly not from harmful practices.”

“In some cases, had a larger player or players not stepped in, we may have seen significant market failures, a loss of confidence in the Australian market and less credit available to households and businesses.”

NEWS

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Consumers confounded as research diverges

QUEENSLAND STRUGGLES AS AUSTRALIA IMPROVES ■ Queensland is still the worst-

performing state in mortgage performance, with 30+ days arrears rising to 1.86% at end March 2012 from 1.70% six months earlier.

New figures from Fitch Ratings show that the delinquency rate in Queensland is above the average 1.6% delinquency rate across Australia, up 18bps from 1.42% in September 2011.

The regions located south of Brisbane (Ipswich, Logan and the Gold Coast) are among the worst-performing regions in Australia, and Brisbane rates are below the national average.

Unlike Queensland, WA continues to show a more discernible improvement in mortgage performance compared with the rest of the country.

“Arrears in WA have improved above average and increased less than other states, exhibiting an overall downward trend,” said Fitch’s James Zanesi.

“The improvement was particularly noteworthy in the 90+ days bucket in regional WA, where the arrears had built up due to a stagnating housing market, indicating an increasing clearance rate for secured properties of delinquent loans.”

The delinquency rate in WA worsened only marginally to 1.59% in March 2012, from 1.50% six months before. No region in WA was among the worstperforming regions.

Delinquencies in south-west WA, which was the eighth worstperforming region in Australia in September 2011, dropped 32bps to 1.85% as of March 2012.

Central metropolitan Perth also experienced a significant improvement in delinquency levels and it was the fifth bestperforming region in Australia as of March 2012.

■ Two of Australia’s biggest indicators of consumer

Record profits confirm majors’ might FACTS AND FIGURES

CBA: $7.1bn cash profit last financial year ANZ: $4.4bn cash profit for the nine months leading to June 30 NAB: $5.5bn cash profit for first nine months of its fiscal year, which ends in September

WESTPAC: Won’t disclose its profits, but analysts say it’s close to NAB’s results

■ The big four reaffirmed their extraordinary

financial strength in the face of uncertainty earlier this month, with CBA, ANZ and NAB all recording healthy profits.

CBA outshone the lot – and raised some questions – when it posted a record $7.1bn in profit for last financial year.

“It is a big absolute number, but we are a big business,” said CBA’s chief executive Ian Narev.

“We are the fourth or fifth largest financial institution outside of China.”

ANZ recorded a $4.5bn unaudited, underlying profit in the nine months leading to June. CEO Mike Smith said ANZ has been aggressively pushing into the region in the past six months, contributing to the robust figures.

“While the credit environment reflects the pressures in the broader economy, there have been no developments which would lead us to alter our provision outlook.”

Meanwhile, NAB posted an unaudited cash profit of $1.4bn for the June quarter alone, claiming it was on track to reach its target of $5.5bn for its entire financial year.

Economists speculate Westpac’s performance is equally robust, rounding out the big four lenders.

confidence reported contradictory results in August, with one claiming things had improved, and the other showing a significant drop.

Roy Morgan reported that consumer confidence has risen in August, particularly in the second week, making it 5.5% higher than the same period in 2011.

It was welcome news for household goods manufacturers, with a noticeable spike in consumers willing to spend money on big ticket housing items.

The research found 58% of consumers – up by 7% from last year – said now was a good time to buy.

Contributing to the robust figures was a general air of optimism about Australia’s economic performance, with respondents feeling confident things would improve over the next five years.

Meanwhile, Westpac-Melbourne Institute’s consumer sentiment gauge reported a 2.5% dip in confidence levels over the same period, with the over 45s the most optimistic.

“The Index seems to be settling in a ‘cautiously pessimistic range’. This is the sixth consecutive month that the Index has registered below 100, averaging 96.2. This is unusual,” said Westpac’s chief economist, Bill Evans.

Despite Westpac’s ambivalence over the RBA’s decision to leave the cash rate unchanged in August, Gary Morgan, executive chairman of Roy Morgan, claims it did not effect consumer confidence. “[The rate] – amongst the highest in the developed world – appears to have had little immediate impact on consumer confidence, although it has strengthened the Australian dollar which has traded clearly above US$1.05,” he said.

ROY MORGAN

WESTPAC-MELBOURNE INSTITUTE

Confidence levels in buying big household items, now

+7%

+3.6%

Confidence in the economy improving in the next 12 months

+1%

-3.6%

Confidence that family finances had improved since August 2011

-2%

-6.3%

QUESTION

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CONTINUED FROM PAGE 1

‘Madness’ in method as EDR faces abuse

H

aving played a special role in steering key industry players through the preparation for and adaptation to the National Consumer Credit Protection Act, Denovan is now fielding an increasing number of calls on the ‘enhancements’ coming into effect in March 2013.

“It is designed to enhance consumer protection and it achieves that,” Denovan said.

However, many – including Denovan – feel the method the legislation employs to achieve this shifts too much power to consumers, making it difficult to recoup bad loans.

“The method is madness,” Denovan said. “Nearly every piece of a lender’s armoury is being removed from them. When you tell overseas banks who are thinking of setting up here about this, they say, ‘you’re joking’.”

The main problem – the one Denovan said many of his clients have “really serious issues” about – is the increased prominence and impact of external dispute resolution schemes.

Under NCCP, consumers now have the power to avail themselves of an EDR if they are not satisfied with a lender’s decision in regard to their loan contract. However, Denovan says the structure allows consumers to take advantage of the system.

For example, the prominence of borrower EDR options is evident from as early as the proscribed ‘Form 11’, which must be sent to customers within 14 days of a direct debit request default.

“This is too early,” Denovan said. “All that has happened is that a direct debit authority has not been met, yet you are sending a notice to a customer saying ‘if you are not happy, go to EDR’. That is quite extraordinary,” he said.

“You have no complaint from them, there is no dispute. But they are being told ‘now is the time to head to EDR’.”

This ‘theme’ continues throughout subsequent dealings between borrowers and lenders, after it has become clear the borrower is in difficulty. For example, should a borrower apply for hardship and this is rejected, once again the legislation encourages EDR use. Denovan said if a borrower is issued with a notice of default and is not advised by their lawyer to go to EDR, the lawyer may be negligent. “It is, in a way, surprising that 100% of people who get a Section 88 notice don’t go to EDR, given what they are receiving. If you are a lawyer acting for a customer who is in trouble and you don’t tell them to go to EDR, you are probably negligent.”

At present, approximate figures show 75% of EDR disputes are hardship applications, which Denovan said creates the “awful” situation of EDRs having to “second-guess credit”.

“EDRs don’t seem to have the power to decide whether you should or shouldn’t have the loan, but this [a hardship application] is surely a credit decision. Surely the decision should only be reviewed if the lender failed to give a fair dinkum thought to the application,” said Denovan.

He said the MFAA has put the fixing of the EDR problem at the top of its list of priorities, due to the effect it could have on competition in the market.

“It’s got to be fixed. It might be alright for large lenders with a big portfolio, but for small lenders if they have a couple of transactions stuck it could make an awful big difference to them,” Denovan said.

COMMENT

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M FORU

T S E B ENT COMNM NE I L O

Each issue, Australian Broker will publish the best online comment from the previous fortnight – along with your other feedback. So get online, and get participating!

BROKERNEWS. COM.AU

Negative gearing is not a tax lurk, it is a housing policy.

Without the tax incentives, ordinary Aussies would invest in something else (shares, super). Who would have built and owned all the rental property currently occupied by the hoi polloi about whom ACOSS is so concerned? They have one of the cheapest rental regimes in the world measured by yield to investors. What we really need is some cheaper housing. Many Americans live in mobile homes. They are solid 3- or 4-bedroom relocatable homes which cost typically well under $100,000 and parked on a 4,000 sq ft lot (400 sqm) for which rent is paid. Most stay put once parked. Few local councils in Australia allow such mobile home parks and this could soak up a massive amount of housing demand.

Patrick on 16 Aug 2012 10:47 AM

SHADES OF KEATING, LESSONS FROM EINSTEIN Negative gearing is sacrosanct to investors – and their brokers.

It wasn’t surprising then to see brokers come out in support of the long-term housing policy, following calls from ACOSS to scrap the investor incentive to help poorer people.

“Why don’t organisations like ACOSS properly research their suggestion?” asked Mikeh, who joined a chorus of similar contributors. “Paul Keating brought this in for exactly the same reasons as those being pushed by ACOSS. The result?

Investors pulled out of the property market, rental property availability fell and rents skyrocketed.”

Anon said other solutions were better. “We need more incentives like NRAS and less red tape and

costs to encourage investment in more housing.”

And as Patrick explained, it was unlikely – following Keating and Hawke’s experiment – that a government would be willing to touch it. Rents then rose 20–30% almost immediately and the outcry to every Labor member was a cacophony which resulted in a rapid repeal of an utterly misguided policy.

Einstein’s famous definition of insanity even got a mention.

“The definition of insanity is to do the same thing repeatedly and expect a different outcome.”

FORUM U-TURNS PERMITTED When the MFAA said the government was finally looking at the Canadian funding model (U-turn on banking system possible, 10/08/2012), brokers were pleased Incognito 10 Aug 2012 01:02 PM First they say MFAA do nothing. Then they say MFAA do something but it’s not important. Then they say it’s important but should have been done years ago. Stay the course Phil. The majority back you.

Positive Broker 10 Aug 2012 01:34 PM Well done. I am the first to question what MFAA does and whether it is worthwhile, but seriously! I would hate to think where we would be and what NCCP would look like without them. At least Phil and his team are trying to do something.

ONLINE, IF YOU LIKE VANILLA Meanwhile, brokers were debating the power of online mortgages and comparison sites (Australia ‘three years’ behind UK in online, 6/08/2012) FinanceGuy 06 Aug 2012 06:01 PM These sites may appeal to vanilla scenarios, but I doubt they will have an impact on the more complex deals.

Big picture 09 Aug 2012 03:58 PM Don’t underestimate the power of online, the corporate world is littered with examples of complacency. My view is embrace it.

What do you think? Leave your comments at brokernews.com.au

AXE TO GRIND

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Raise the bar, please The industry can only benefit from forcing brokers to upskill with more qualifications, argues Patrick McMenamin of Mortgage Place

Q

ualifications count: any broker who says otherwise is usually unqualified.

I have a Bachelor of

Commerce (UNSW) and Master of Business Administration (Sydney University), along with industry qualifications including Diplomas in both financial planning and mortgage broking.

With that as my background, my view is too many brokers are just product floggers. They are the ones resisting change.

They’re not real advisors if they’re only in it to sell volume for personal income.

For example, do brokers show real concern for consumers’ needs? Under-qualified brokers cannot do this if they lack a deeper understanding of the more complex issues, particularly a full understanding of the tax treatment of interest and how to structure debt accordingly. The ability to look into a prospect’s income and expenditure pattern and advise them regarding a

suitable budget and affordability is also most important. Bank servicing calculators allow a bare minimum for living expenses; that an applicant qualifies on this criterion alone is not sufficient for good credit advice.

WHY WE NEED QUALIFICATIONS

Having formal qualifications is an indication we take this job seriously. It shows consumers brokers are real professionals who can be trusted, know what they’re talking about and care about doing the best job possible.

Granted, a university degree won’t necessarily make a better broker. The reason for this is that a degree is not vocational. It is high-level, challenging stuff.

The main focus is to read, research, read some more and consider different points of view on any matter.

A university education teaches you to think laterally, and quickly, when faced with complex problems. It prepares your mind for tricky questions that get thrown your way.

Experience will also do that, but a degree can give you a competitive edge. How many brokers have university degrees in a related field or even any field? Not many.

At the very least, a diploma or training course is essential for new brokers without those years of experience. Possibly a period of experience employed and supervised prior to being able to set up a practice should be required.

FINDING THE FUTURE

Financial planners require formal qualifications, so why shouldn’t mortgage brokers?

The mortgage industry through aggressive lobbying avoided being bundled up into the regulation of other financial services, but it remains my view that this would have been a far better course.

Established brokers could have been allowed a grandfather period to get qualified, but all new entrants should be qualified as a prerequisite.

SHOWING REAL CONCERN FOR CONSUMERS’ NEEDS? UNDERQUALIFIED BROKERS DON’T DO THAT

The future of mortgage broking lies in a segmented and multifaceted approach, encompassing financial planning as well as writing loans.

Therefore, full regulation of the financial services industry, including minimum educational requirements, can only be a good thing.

TOUGHER ACTION IS NEEDED

Last year, the MFAA set out stricter guidelines for brokers,

PATRICK MCMENAMIN

requiring every one of us to get a diploma.

CEO Phil Naylor claimed it would raise the credibility of mortgage brokers and provide greater consumer confidence.

Unfortunately, it backed down as soon as there was resistance from its membership.

It extended the deadline for brokers to obtain a diploma, and in doing so, lost its own credibility by placating those who were too lazy, or set in their ways, to self-improve.

If it was serious, it should have suspended those who failed to meet the requirements in the time set.

An inconsistent approach from the MFAA will do more harm in the long run, not only to its own reputation but to the industry standards.

The industry, through stricter MFAA standards, will benefit from raising the bar well ahead of the minimum requirements set out by ASIC. Do you have a beef that you’d like to share, on anything from city traffic to bank turnaround times?

Send your Axe to Grind submissions to ben.abbott@keymedia.com.au

ANALYSIS

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Calm before

THE STORM? Hints of tougher action from ASIC mean one thing for brokers, aggregators and lenders: be prepared for a non-compliance storm

L

ast month, ASIC sent shockwaves through the industry by banning Queensland aggregator Pump Financial Pty Limited, after it failed to obtain an EDR membership. It was the first time an aggregator had been cast out for failing to meet NCCP regulations.

At the time, commissioner Greg Tanzer reiterated ASIC’s no-nonsense, indiscriminate stance on non-compliance.

“ASIC will have no hesitation in cancelling the credit licence of those who do not hold membership in either of the ASIC approved schemes,” he warned.

While no one is questioning that ASIC means serious business, the future may prove even tougher for anyone looking to sidestep regulations.

NO NEWS IS GOOD NEWS

For aggregators confident of their compliance record, ASIC is no more than a checkpoint, albeit

64

THE NUMBER OF PEOPLE OR COMPANIES BANNED FROM PROVIDING FINANCIAL SERVICES OR CONSUMER CREDIT IN 2010/11 FY Source: ASIC

one with the benign frustrations associated with a large government organisation.

“There are, of course, obstacles to getting in touch with ASIC as it’s so large,” admits Frank Paratore, CEO of aggregator Ballast.

Paratore’s personal experience of ASIC has been minimal and friendly, which he says comes down to his company’s strict compliance policies.

“We’ve never had any issues at all. I’m going to say that quite literally. We’ve been under ASIC as a regime … for about the last nine or 10 years from the financial services side.”

“When the NCCP regulations came through on the lending side, it was very easy for us to just pick it up and mirror what we’d done in the past under the ASFL for our ACL,” he says.

Aggregator Connective has a more reciprocal relationship with ASIC, which director Glenn Lees says is mutually

I CERTAINLY WOULDN’T WANT TO BE ON THE RECEIVING END OF ASIC. AND WE CERTAINLY WON’T BE MAKING OUR BUSINESS AN EXAMPLE - F RANK PARATORE

beneficial.

“From the outset, we’ve made sure we’ve been as close to ASIC as we can be, without trying to get in their pockets. They’ve been very receptive to dialogue,” he said.

“It’s equal. Quite often, as part of their investigatory function, we’ve had some dealings with them where they’ve spoken to us

brokernews.com.au

ASIC ON WHAT THE FUTURE HOLDS… 1. Low-doc crackdown Review of how aggregators and others with large numbers of representatives are monitoring and supervising the conduct of their authorised representatives, particularly in relation to responsible lending.

Follow up on the findings and recommendations of last year’s report on how brokers were managing their responsible lending obligations, especially in relation to loans marketed as ‘low-doc’.

Review of how lenders are managing responsible lending in home lending, again particularly where loans are marketed as low-doc.

2. Hardship variations Review how the industry is complying with national credit code requirements in relation to hardship variations.

3. Advertising standards Monitoring of advertising across the credit market.

4. Individual EDR complaints Reviewing individual complaints and issues arising in EDR and responding as appropriate.

about things they’re looking into, and we’ve been able to provide them with insight or hard information as well.”

OFFENSE THE BEST DEFENCE

Both Paratore and Lees agree that being proactive is the best form of defence against potential ASIC crack-downs.

“ASIC is not there to hinder your business,” says Ballast. “We don’t see compliance as an evil.

We have our own in-house compliance and learning centre which more than assists our own ACL holders. “It’s all done centrally and we know pretty much what ASIC’s all about,” he adds.

Lees revealed Connective uses a deceptively simple software program to ensure their brokers are following ASIC regulations.

“The simple rule is that if it’s not in the [software’s] database, it didn’t happen.

If a credit rep says ‘no, I did do that’ we refer back to the simple rule of ‘look, it’s not in the software, so by definition you didn’t do it.’

“It very quickly changes the compliance behaviour,” he said.

Advantedge is another advocate of education as a tool for ensuring compliance.

“We continue to work closely with our brokers to ensure they have access to the right tools and materials that enable them to be compliant, particularly around responsible lending and the provision of professional advice to their customers,” says general manager Steve Kane.

NOT IF, BUT WHEN…

ASIC has hinted to Australian Broker that the current furore over low-doc lending practices will see tougher action.

The recent spate of fraud claims – mostly from individual borrowers – could see ASIC

FRANK PARATORE

spending a great deal of its energy on how aggregators regulate their member brokers.

A spokesperson said it would “review how aggregators and others with large numbers of representatives are monitoring and supervising the conduct of their authorised representatives, particularly in relation to responsible lending”.

Lees also believes things will only get tougher – and for the right reasons, he says – in coming months.

“I’ve seen an increase in enforcement activity, but at the moment I think that’s ASIC ramping up, getting into the full compliance regime.

“They’re transitioning from getting everyone licensed and registered, to now staffing and doing the regulation rather than the instigation. They said that from the start, that it would happen, and people would be deployed to enforce regulations.”

Ballast says while ASIC “will probably struggle with foot soldiers to mandate and to go through the whole industry,” it wouldn’t stop them.

“I certainly wouldn’t want to be on the receiving end of ASIC. And we certainly won’t be making our business an example.”

PEOPLE 16

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THE COALFACE

PEOPLE

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18

MOVERS & SHAKERS DUFFUS TO SELL AUSSIE IN VIC, TAS

■

SQUADRON XV: Mortgage broking veterans honoured For any veteran, honour comes through action, rather than awards or plaudits after the fact. But for some mortgage broking business veterans, they now have those, too.

Mortgage Choice recently commended its longest-standing franchise owners by inducting them into a new club, known as the ‘Squadron XV’.

Launched at the company’s conference in late July, Squadron XV members are mortgage brokers who have been in business for 15 years.

Mortgage Choice CEO Michael Russell says Squadron XV deserves to be acknowledged for dedicating themselves to their business, the brand and their customers.

“The 17 franchisees who have been inducted into this esteemed club have developed a strong rapport and reputation within their local communities

that is essential to longevity in this business,” Russell says.

“They are role models within our network, having perfected their business plans over the years and determinedly maintained a high level of customer service despite the many challenges that have come their way.”

Russell says the ‘select few’ Squadron XV members had helped uphold even higher values – the inherent value of integrity and Mortgage Choice’s ‘shape the customer for life’ philosophy.”

Mortgage Choice hopes that the club will carry a prestigious status within the mortgage broking industry, with the brokers already highly regarded by lender panel partners.

“Squadron XV members will receive a range of special privileges within Mortgage Choice as a reward for incredible service,” Russell says.

Members of Squadron XV

Laurie Duffus has joined Aussie as a sales manager working as part of the Victorian and Tasmanian team.

Laurie comes to Aussie after 10 years in senior roles at FAST Mortgages including state manager of Victoria and national sales manager.

Prior to FAST, he spent many years in the banking and finance space, including roles at Suncorp Metway, Westpac and Macquarie Bank.

Victorian and Tasmanian state manager Paul Chesterman says Duffus would help raise the bar even higher through building successful relationships and partnerships.

Duffus will also be charged with recruiting and developing sales teams that accommodate the needs of both lenders and customers.

MACBETH TO CHAMPION BROKER INTEGRATION ■

WORTHY OF HONOUR Valdis Bormanis (Vic) Graham Bowling (Qld) Stephanie Cook (NSW) Russell Crook (WA) Stuart Ellicott (NSW) Mark Ferris (WA) Bob Gibbons (ACT) Judith Goodman (Vic) Alan Heath (Qld) Ian Macpherson (Qld) Kevin McCann (Vic) John Osbourne (ACT) Michael Perkins (NSW) Julie Schelling (NT) Tony Schelling (NT) Leeanne Scott (NSW) Anthony Van Den Niewuwenthof (NSW)

Loan Market has appointed Joanne Macbeth to the new role of business development manager Ray White in Queensland, as the brokers there aim for

more integration.

Formerly a property management executive within Ray White, Macbeth will be based in Brisbane and will promote integration of brokers within residential real estate offices.

Queensland state manager Andrew White says an elite broker working with a Ray White real estate business can deliver outstanding outcomes for buyers and sellers.

“Joanne’s key role will be to drive up integration rates within the Ray White offices, leading to more referrals and more brokers working in offices,” he says.

“When you are the business partner of the largest real estate brand in the country, you have to show it the respect it deserves. Investment in this resource is an investment in the future of the relationship, and the future of our brokers,” White says.

■ Citibank threw a wine and canapé-fuelled

Elizabeth An n Macgregor , director at Museum of Co ntemporary Ar t; and Roy Gori, CEO, Ci tibank Austra lia

From left to right: Bruce Maxwell, managing director, eftpos Payments Australia Limited; Linda Duncombe, Citibank’s managing director, marketing, customer experience and digital banking;Barry Brown vice president Australasia at Emirates; and Julian Potter, head of cards at Citibank

d Chase Gary Mehigan an ad chef he o ky So a, jim Ko

bash to announce the appointment of its new Dining Club celebrity ambassador, Masterchef’s Gary Mehigan.

A senior Citibank official told Australian Broker the scheme would enhance the bank’s brand positioning. “This program is associated with the finer things in life – which is perfect for Citibank,” he revealed.

AUSTRALIAN BROKER WANTS YOUR STORIES! The world of mortgage broking is a lot more than just business – it’s a fun, people industry. Have you got a great photo, interesting story, or a passion you want to talk about? If so, we’d love to hear from you.

Email ben.abbott@keymedia.com.au

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THE COALFACE

Rhino races ahead with diversification drive

MARK O’DONNELL, MANAGING DIRECTOR, RHINO MONEY

E

xpanding outside of broking into a range of related business ventures was a matter of ‘future proofing’ for Rhino Money, which is now pursuing a diversity of new opportunities.

Once trading under the moniker ‘Donation Home Loans’ and donating a portion of trail to a charity of client choice, the Victoria-based brokerage was forced to rapidly change its modus operandi after GFC commission cuts made the model no longer viable.

Rhino Money managing director Mark O’Donnell told Australian Broker the business has since rapidly grown its footprint in a number of related areas, and now boasts an accounting and bookkeeping business, a financial planning service, a property project management business and a short-term lending business, which markets its services to mortgage brokers.

It has also recently launched a property trust, which will hold $10m worth of assets, and even a recruitment JV based in Brisbane focusing on fly-in, fly-out mine workers and engineers.

“I think our business will become more of a holistic type of business where clients can have all their financial solutions met,” O’Donnell says.

“From a business point of view, it is necessary not to have to rely on one side of the business, where you are at the mercy of lenders paying commission.

Things may eventually go to fee-for-service. It’s a matter of future proofing our business, because things could go either way.”

The accounting and bookkeeping business has been among the fastest growing arms of the business since commencing its diversification drive.

“We have two CPAs and two bookkeepers, and they are now almost at capacity within nine months. We are finding so many people want these services, and if we do their loans and financial planning they are more than happy to use our accounting business as well.”

In fact, ring-fencing business clients is one of the main advantages O’Donnell sees in its strategy, which he says now enables them to capture more of a client’s business.

And don’t be surprised to see more of the ‘edgy and aggressive’ Rhino brand. The business has sponsored a racing car, and may look at other sponsorship opportunities.

IT’S A MATTER OF FUTURE PROOFING OUR BUSINESS, BECAUSE THINGS COULD GO EITHER WAY

BEFORE

Donation Home Loans, which donated a portion of commission to a charity of client choice ■

AFTER

Commercial Finance ■

Residential Finance ■

Vendor Finance ■

Bridging/ short-term finance ■

Accounting and bookkeeping ■

Financial planning ■

Project management ■

RPG Property Trust ■

Australian Recruiting Group ■

CAUGHT ON CAMERA

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20

IN FOCUS

A

ustralian Finance Group celebrated broker success at its annual awards bash in Sydney in early August. Held at Doltone House overlooking a glistening Sydney Harbour, both brokers and AFG staff gathered to find out who the best of the best among them were this year, and to eat and drink together after the financial year.

Australian Broker wants to feature your industry event photos. Contact the editor: ben.abbott@keymedia.com.au

1.

2.

3.

7.

4.

5.

6.

1

Dan Heylbut (AFG) with the Votiva Finance team

2

Raymond Xue (ACA Mortgage Solution) and James Green (Oxygen Home Loans)

3 4

The Smartmove Home Loans team Serena Huynh (Action Home Loans) and Maria Mazzucco (AFG)

5 6 7 8 9 10

AFG’s Top 20 Groups John Angelucci (AFG)

9.

8.

MC and former soccer star Amy Taylor Paul Mezrani (AFG) interviewing Hussain Mufti from Mufti Finance

AFG’s Top 40 Groups

Chris Slater (AFG), with AFG’s top five brokers Nick Ni (Apple Home Loans), Roger Guo (Apple Home Loans), Katrina Rowlands (Mortgage Success), Peter Ellis (Oxygen Home Loans) and Raymond Xue (ACA Mortgage Solution)

10.

11. 12.

11

Milton Urriste (Westpac) and Stephen Doyle (AFG)

12 13

Roger Grinter (Macquarie) and Justin Ellis (Genworth)

Amanda Johnson, Niro Thambipillay and Phillip Izzo from Votiva Finance

14

David Charlton (TAL), Nathan Aird (Community Mortgage Brokers) and Jase Carroll (TAL)

13. 14.

View more photos from this event at BROKERNEWS.COM.AU/INDUSTRY-EVENTS

ONE YEAR ON

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21

ONE YEAR ON What a difference a year makes … or not. Australian Broker reflects on the punditry, news and influential trends that made headlines 12 months ago Australian Broker Issue 8.17

Desperation driving bank market share bids Lenders appeared to be resorting to acts of desperation in a bid to capture business in a low credit growth environment, and claims were made that both borrowers and brokers could be disadvantaged by the moves.

Following claims from Peter Bromley of LJ Hooker that banks were engaging in ‘desperate lending tactics’, a leading broker, Daniel O’Brien of PFS Financial Services, said banks may be going too far on discounts and LVRs.

What’s happened since?

After a brutal round of discounting at the back end of 2011, much of which was not advertised, banks have since reigned in their price war, in an effort to shore up the margins they receive on new lending business. LVRs have also remained solidly at 95% for the majority of lenders, with mortgage insurers reluctant to go any further.

Brokers prefer Twitter to LinkedIn

Aggregators accused of ‘restraint of trade’

Brokers were predicted last year by the MFAA to be far more likely to join social networking site Twitter than they were Facebook or LinkedIn. Following dialogue with its membership, the MFAA found that B2C platforms were much more popular with brokers, and that B2B platforms such as LinkedIn were a less organic adoption for the channel. The immediate nature of Twitter as well as its functionality was proving popular with brokers.

Aggregators who restrict credit reps from dealing with lenders outside their approved panel were accused of being guilty of ‘restraint of trade’. Premium Capital head of sales Andrew Rae said the case for restricting credit reps was understandable, due to risk mitigation and providing blanket PI cover.

However, he said the approach was unsubstantiated, and that ASIC could be happy to let brokers become reps of an aggregator, and mortgage manager.

What’s happened since?

What’s happened since?

Brokers have continued their stampede into social media, with many groups having either adopted new social media strategies or are in the process of figuring out how to use them in their business. At present, not all have been successful in using new media to achieve measurable results, and there have been warnings against brokers falling for ‘shiny object syndrome’, rather than utilising tried and tested traditional marketing methods.

Some brokers have been able – on a case-by-case basis – to negotiate deals with their aggregators who have allowed them to use off-panel lenders with which they had previous long-term relationships. However on the whole, risk mitigation has won out in this debate, with aggregators preferring to provide a range of useful panel lenders rather than agree to let credit reps go outside of their approved panel.

FEATURE

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22

Can brokers record interviews with borrowers?

Protecting your business through the recording of client interviews could save you from ruin and heartache – if you do it right. Matthew Bransgrove explains

T

oday when a mortgage goes into default, it is no longer a question of the lender simply selling the property. Instead, the blame game begins. The borrower alleges the loan should never have been made and seeks to have it set aside under the NCC or State legislation such as the Contracts Review Act. The lender, fearing the loss of its principal, counter-sues anyone it can, alleging misleading and deceptive conduct, negligence, breaching the NCC and a host of other statutory breaches. The broker is target number one, followed by solicitors.

The price of failure in court is disastrous. Even if your professional indemnity insurance pays out the judgment, it is subsequently difficult, if not impossible, to obtain insurance thereafter. Often the only thing a broker can do is to pack up shop and fly to the Pilbara to get a job in the mines (which apart from the heat, the dirt, the danger, and the isolation is not so bad in terms of pay).

The stakes for brokers are now higher than ever before. Under the National Credit Code (NCC), brokers can be sent to jail for certain offences, while the case books show us that some desperate borrowers will say anything to save their house.

Brokers could avoid many of these problems by the simple expedient of recording all their interviews and communications with borrowers, lenders and solicitors.

THE LEGALITY OF RECORDING INTERVIEWS

Each of the Australian states and territories has legislation regulating the use of devices to record conversations. That legislation can be grouped into two categories.

The first category of legislation applies in Victoria, Queensland and the Northern Territory.

Here, legislation only prohibits the use of a listening device by a person to record a conversation if that person is not a party to that conversation. Thus in Victoria, Queensland and the NT, if a broker is engaged in a face-toface conversation with another person, the broker is permitted to record that conversation simply because the broker is a party to it, whether or not the other party consents.

The second category of legislation applies in NSW, South Australia, Western Australia, Tasmania and the ACT. Each of those jurisdictions prohibits (with certain exceptions) a person recording a conversation whether or not the person is a party to the conversation.

However, in each of these states there are two important exceptions. The first exception applies if all parties to the conversation consent to it being recorded. The second relevant exception applies if one party to the conversation consents to the recording (known as the “principal party”), and a second requirement is also met, the precise words of which vary from jurisdiction to jurisdiction, but basically aim to protect the lawful interests of the principal party. In the case of SA, additional exceptions include “course of duty” and “public interest”.

OBTAINING CONSENT

The easiest and safest course for face-to-face interviews in one of the five jurisdictions in the second category is to obtain the consent of all parties to the conversation. This is best done asking the participants on camera whether they mind being recorded, as follows:

THE STAKES FOR BROKERS ARE NOW HIGHER THAN EVER BEFORE

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“I am recording this conversation (point to the camera) to keep a record of it for our file. It saves me from having to make detailed file notes and I can concentrate on answering your questions, is everyone happy with that?”

MAKING SECRET RECORDINGS

Secret recordings are extremely useful when dealing with dishonest people. If a fraudster does not think he is being recorded he will feel free to speak deceptively. Recording these falsehoods is insurance against the fraudster falsely representing your conversation in court later.

In the five second-category jurisdictions, the key question is whether the recording of the conversation is reasonably necessary for the protection of the broker’s lawful interests. The legal test is whether “the recording of the conversation is necessary for the protection of an actual lawful interest, existing as at the time of the conversation”.

The broker cannot (at least not without consent) record every conversation in the hope that at a later date a lawful interest will arise to justify the recording, but the broker must reasonably consider at the time of recording that a lawful interest exists which needs to be protected.

Making the recording to resist an allegation of a crime, to record an oral contract, to record a

LENDERS

MATTHEW BRANSGROVE

blackmail attempt, or to record an important meeting for the purpose of preparing accurate minutes (file notes) are examples of lawful interests that will justify making a recording.

THE SHORT OF IT

In Victoria, Queensland and the NT there is no restriction on a person recording a face-to-face conversation to which that person is a party. In the other Australian jurisdictions, it is best to record with the consent of all parties. However, if a broker in one of those other jurisdictions reasonably believes the other party is attempting to set the broker up or will attempt to misrepresent what was discussed in the meeting to the broker’s detriment, then the broker will be justified to record the meeting without the consent or knowledge of persons present.

V

S

Matthew Bransgrove is a partner at Bransgroves Lawyers, which specialises in mortgage law

BROKERS

NO PUNCHES PULLED

$180,026.30 The amount Milanex was ordered to pay Perpetual Trustee Company after it was found the broker engaged in misleading and deceptive conduct

A recent case is a reminder that lenders will not hesitate to sue brokers when loans are set aside and principal lost.

Perpetual Trustee Company Ltd v Milanex (No 2) was a recent decision of the NSW Court of Appeal in which Milanex, the broker, was ordered to pay Perpetual Trustee Company after the court found the broker had engaged in misleading and deceptive conduct.

In the lead-up to the case, the broker had received an application for finance from a 74-year-old pensioner, which was in fact completed by a friend of the broker and the broker provided it to a lender (through an intermediary). A solicitor provided independent

legal advice to the pensioner. The pensioner later defaulted and the lender sued for possession.

After the court previously ordered that the loan the broker introduced be set aside, Perpetual went after Milanex for compensation. The broker argued that he simply acted as a conduit and the lender needed to verify the information itself. The broker also argued that the intermediary’s failure to discover the information was incorrect was an “intervening cause of loss”. The court ruled the defence unavailable.

The only consolation for the broker was that a solicitor who advised the borrower was found to be responsible for 35% of the loss.

THE WORKSHOP

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Why your marketing is doomed to fail!

THE GURU

Are you putting feel-good creativity ahead of marketing that actually works? James Veigli explains why your marketing might just be doomed to fail

T

here are two distinct types of marketing: the first is marketing that is funny, clever, creative and professional. The second is marketing that directly drives a flood of prospects and money to your door.

My mission is to help you stop wasting your money on funny, clever, creative and professional marketing and convert to the money-making alternative those marketing agencies and so-called professionals don’t want you to know about.

Here are five reasons why your marketing is doomed to fail:

multi-shot marketing strategy that not only captures the ‘hot’ leads, but also other sections of the market who over time and with consistent and valuable communications can be nurtured into clients in the future.

3

MARKETING 2 ONE-SHOT DOESN’T WORK If you only use marketing that simply creams the ‘hot’ prospects off the top of the pile, your marketing will leave untold amounts of money on the table.

The alternative is called ‘Capture, Cultivate, Harvest’, a

Q: How important is knowing my ‘true cost’?

A: One of the very best ways to achieve profit is

THEY’VE HEARD IT BEFORE

If you’ve got nothing different or new to say or offer your audience, you will be considered boring and be ignored. So if your marketing looks, sounds and feels like all the other ‘FREE Mortgage Health Check’ dribble, your money will be wasted.

PEOPLE DON’T RESPOND TO 1BRAND-BASED OR ENGAGE WITH IMAGE, USING A THREATENING OR BORING 4 APPROACH CORPORATE-STYLE MARKETING When it comes to marketing, it doesn’t matter what you or your marketing team think – it only ever matters what your prospects do in response to it! Sure, you may think your business name, logo, image or slogan is important, but in the eyes of your prospect, all of these things are boring and inconsequential – because they don’t offer any real or immediate benefit to them.

To earn the privilege of your prospect’s attention, you must grab their interest and provide an immediate and direct benefit or promise in exchange for their engagement. You simply cannot achieve this with a logo, name or slogan – no matter how clever or creative it is!

SUE HIRST

People can smell a salesman coming a mile away, and they will do everything in their power to avoid being in a sales situation.

If your marketing is threatening (eg, offering a ‘FREE consultation’), your prospect won’t take up your offer because they fear being sold to and instinctively want to avoid this.

Marketing strategies should employ a non-threatening approach that breaks down these instinctive barriers.

95%

The approximate number of brokers choosing ‘good looking’ marketing over ideas that truly make money

Q: What’s the best way to control costs?

A: Measuring in business in vital to profit. There

are lots of things you can measure, but if you just do one thing, measure costs.

The best way to measure costs is to set up your accounting and operational systems right. In your accounts system it’s vital to separate costs and overheads. Items like purchase of products, freight in, storage costs, labour on jobs, should be separated from overheads. This enables you to keep track of your gross margin percentage.

Measuring percentages makes it easier to see changes and trends more quickly.

A DESIGNER OR 5 TRUSTING MARKETING AGENCY If you want a logo designed, employ a graphic designer – they are perfect for this task. If you want to invest in marketing that will generate new leads, bypass the corporate-style designers and marketing agencies.

Stop wasting your money and instead employ a specialist (direct response) marketer who can develop a message that will drive prospects to your door or website and get you an immediate and measurable return on your marketing investment.

through tight cost controls (especially labour).

If you’re being squeezed on price you need to be confident that you can make a profit at the price you’re charging.

The place to start is knowing the ‘true cost’ of your product or service. This is an issue we see often in our work with business owners. They’re so busy doing everything that they don’t keep track of costs and suddenly find they’re selling at a loss!

Q: Any special lessons for service businesses?

A: A job management system is vital in a service-

James Veigli is a mortgage industry consultant and founder of Broker Profits Vault, which aims to help brokers make more money with less effort

based business. We often see jobs going un-invoiced, labour not being recovered, labour staff doing too much un-billable time, over-invoicing from contractors, jobs where not all labour and materials are invoiced, retentions not being invoiced, etc.

Imagine the value of these omissions!

The cost of a good system would pale into insignificance compared to the value of avoiding these mistakes.

Sue Hirst is a director of CFO On-Call

MARKET TALK

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26

A positive negative Calls are repeatedly being made to scrap the long-cherished investor negative gearing tax break, but would this be the desired watershed, or would it herald economic chaos?

N

egative gearing is a well-known incentive for property investors, allowing them to claim tax on the interest paid on their mortgages.

“It’s a necessity,” says Paul Bieg, director of Big Property Investments.

“Most put these funds into either their line of credit or offset account to help cover the shortfall on their portfolio.”

“Also, many investors have a tax variation on their PAYG income – meaning their employer takes less tax and this additional income is used to help cover the shortfall,” he tells Australian Broker.

However, The Australian Council of Social Service (ACOSS) urged the government this month to cut negative gearing in a bid to address rising poverty and homelessness.

It claimed the tax breaks contributed to rising housing costs, which had a knock-on

REMOVING ONE OF THE MAIN INCENTIVES TO PURCHASE WILL RESULT IN LESS SALES AND CONSTRUCTION - P AUL BIEG, BIG PROPERTY INVESTMENTS

effect on the country’s poor. “We need the political parties to have a stronger focus on what needs to be done to address poverty and inequality in Australia,” says Cassandra Goldie, ACOSS’ chief executive.

Critics, including ACOSS, argue that investors as a market are raising rents regardless of this negative gearing pay-off, simply to increase profit margins at the expense of the less well off.

“What a ridiculous request from ACOSS,” said one outraged Australian Broker Online reader on the popular online forum. “An investment property is not a luxury; it’s a business which forms part of an investment strategy and retirement plan.”

HISTORY REPEATING

So, what would happen if the government were to take heed of ACOSS’ advice?

Bieg points to a similar situation that occurred under the Hawke government in the 1980s.

“Bob Hawke and his thentreasurer Paul Keating implemented a brief suspension of negative gearing which led to a rapid surge in rents.”

It’s alleged investors hiked rents to make up the difference left by an absence of tax breaks.

“Negative gearing was reintroduced less than a year later,” says Bieg.

Today, it’s more an issue of supply-and-demand.

“Property values and rentals are based on supply and demand; removing one of the main incentives to purchase will result in less sales and construction.

Australia already has a housing shortage, so it’s making it worse,” Bieg says.

FOR THE GREATER ECONOMIC GOOD

WHAT THE EXPERTS SAY Negative gearing assists the Australian property market by: ■ Increasing construction activity, benefiting those working in the industry ■ Keeping rents at a steady level in affluent areas ■ Keeping property prices reasonable ■ Allowing more would-be investors to enter the market comfortably

A flight from construction could also have dire effects on the greater economy as a whole.

“You need to consider how many people it takes to construct that property and how many of them are paying tax,” Bieg says.

“And where are the materials coming from to construct the property?… these transactions are supporting the economy.”

Let’s not forget property prices, either. “Remove this [incentive] and property becomes a less attractive option. This would result in less property sales and less construction due to lower demand. More people will look to purchase in ‘cash flow positive’ locations and this will push the higher-than normal prices up further.”

This would also impact rents.

“It would inflate rental prices (as there is less property available),” says Bieg.

It’s a knock-on effect many Australian Broker readers fear.

TALKING HEADS

Q IN YOUR OPINION, WHAT INCENTIVISES BORROWERS TO PURCHASE AN INVESTMENT PROPERTY?

PAUL BIEG BIG PROPERTY INVESTMENTS “To obtain an appreciating asset, with their future in mind; tax benefits in the form of negative gearing; and, due to the mining boom, to create a passive income.”

JONATHAN FLAWS FIRST MORTGAGE SERVICES “The ability to manage and look after the investment without external intervention. For example, ‘I do the due diligence, I make the decisions and I have control’.”

PAUL GOLLAN BROKERLOANS “The most common reason would be to create wealth. It provides rental income to help service the mortgage and tax breaks through negative gearing benefits.”

PETER WHITE FBAA “The desire to be more than what they are today; they wish to grow, move forwards with their lives or have a more secure [asset-rich] future for their children.”

MARKET TALK

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to 1984, as 9 keys to your client’s Back housing credit slows next apartment Do you have the keys to ensuring your client makes their unit investment a success?

B

uyer’s agent Michael Fenech buys dozens of apartments and houses each year on behalf of clients, and has a checklist of features he uses when searching for a quality apartment investment. In no real order, these are his top nine.

1

ACCESS

2

LOCATION

“Put yourself in the tenant’s shoes and ask yourself…

Would I want to pay rent and live here?” he says. “Buy in locations where tenants want to live, close to lifestyle areas where they are within walking distance to cafes, shops and beaches.”

“You should always purchase in major cities if you can, and try and avoid buying in rural areas or mining towns,” Fenech advises, because capital growth is generally stronger in bigger cities.

3

BOUTIQUE

Avoid buying in large developments with hundreds of properties in the complex, as you lose any unique factor. “Go for boutique blocks of apartments with a maximum of 18 units.”

4

WALK UP

“Always avoid apartments where you have to walk down to get access, as these types of apartments are generally quite dark,” Fenech advises.

5

PARKING

6

SIZE

7

RENOVATE

If your budget permits, buy an apartment with a lock-up garage or car space. It might cost an extra $20 or $30 a week in mortgage repayments, but you’ll more than recuperate that amount in extra rent.

When buying a one-bedroom unit, make sure it is bigger than 50 square metres internally; you may have trouble getting finance if the property is any smaller than this. “Check the size on the strata plan in the contract,” he says.

If you have the budget, Fenech recommends you renovate – or at least refresh – the property, to maximise your rental return.

8

RESEARCH

“Do your research and look around the area to see what other apartments have been selling for,” he says. “You need to know what the market is prepared to pay for each different type of apartment, which may help you forecast more accurately what level of rent you can expect to get.”

9

TITLE

Try and avoid apartments that are company titled as the rules of ownership are more complex; stick to strata titled apartments if you can.

Growth in outstanding housing credit was at a record low over the 2011–12 financial year according to RP Data, with just a small increase of 5.1% during the period.

Senior researcher Cameron Kusher said annual growth in housing credit has been trending lower ever since it peaked at 22% over the year to March 2004, which coincided with the end of the 2001–03 housing boom.

“Although housing credit continues to grow, on a monthly basis, private sector housing credit increased by just 0.3% in June 2012, which was the lowest monthly growth rate recorded since July 1984 when housing credit declined by 0.4%, and the second lowest growth rate across the history of the series,” Kusher said.

Over the past 12 months, owner-occupier housing credit increased by 4.9%, while investment credit recorded stronger growth at 5.3%.

The 4.9% increase in owneroccupier credit over the year was historically low, while investment credit is above its historic low of 3.2%, recorded in June 2009, and slightly higher than the recent low of 5.0%.

LOAN ARREARS: THE WORST REGIONS RANK FITCH REGION

STATE

30+ DAYS ARREARS

1

Fairfield-Liverpool

NSW

2.82%

2

Outer South West Sydney

NSW

2.78%

3

Central Coast Sydney

NSW

2.78%

4

Ipswich City

Qld

2.72%

5

Gold Coast West

Qld

2.71%

6

Gold Coast East

Qld

2.62%

7

Logan City (incl.

Beaudesert)

Qld

2.61%

8

Caboolture Shire

Qld

2.38%

9

Outer Western Sydney

NSW

2.37%

10

Sunshine Coast

Qld

2.25%

The 10 worst performing regions in Australia by value as of 31 March 2012, according to Fitch Ratings’ Mortgage Delinquency by Postcode report

FEATURE

brokernews.com.au

28

Being all things, to the right people Brokers should consider finding themselves a niche, rather than being all things to all people, argues ProSolution Private Clients’ Stuart Wemyss

I

believe that most brokers should find themselves a niche. The benefit of having a niche is that you can tailor your marketing and sales process specifically for that niche thereby being way more effective.

The tighter the niche, the better it will work.

Conversely, if you don’t have a niche, your marketing and sales process will have to be “all things to all people”. The problem with that approach is that it’s too watered down to be hugely successful/efficient – it will probably just be “ok”. Then, you’ll just look like and feel like every other broker and bank in Australia – not remarkable (which by definition is, worthy of remark). However, if I’m an airline pilot and you’re a mortgage broker that specialises in helping pilots, I’m probably going to tell all my colleagues about you – because it’s remarkable. Also, you can tailor your approach around me – e.g. advertise that you can meet them at the airport and take care of everything in less than an hour.

HOW DO YOU PICK A NICHE?

I believe there are two main considerations. The first is your skill set and experience and the second is the industry’s characteristics.

1. EXPERIENCE AND SKILLS Firstly, be realistic about your skill set. What are you good at?

What types of people do you enjoy helping? For me, I’m good at

developing systems and processes to make my work easier. This meant that preparing a report (with my credit advice) for high-end clients wasn’t going to be a problem. If you’ve played footy at the local club, hang out at the pub and so on – perhaps tradies might be a good niche for you (sorry for the generalisations).

Also, think about your experience.

Have you worked in a particular industry before? If so, it will be an advantage because you’ll know what they like, need help with, etc. Plus they’ll immediately like you – you are one of them.

2. INDUSTRY CHARACTERISTICS There are a number of things you’ll be looking for in an industry to translate into profitable clients.

The top four in order of importance are:

Stuart Wemyss is the director of the diversified ProSolution Private Clients business, and is championing growth in mortgage broker market share at www. brokerrevolution. com.au

• Earning capacity and more importantly, earning stability.

Actors probably won’t make a good niche because their earnings probably vary a lot making finance more difficult.

Surgeons have a high and very stable earning capacity.

• Is the industry easy to get in front of? Do they have one or two widely read publications?

Industry groups/bodies?

Events? Websites?

Concentrated in a certain geographical location? There’s no point picking a niche if you can’t market to them.

• The size of the niche. You are looking for a niche with at least 2,000 people but probably not

STUART WEMYSS

THE TIGHTER THE NICHE, THE BETTER IT WILL WORK more than 10,000 (otherwise it’s not focused enough).

• Do they have a problem that needs a solution? For example, IT contractors can run into trouble with lenders because they might be on a rolling three month contract. So having a good broker that can put the deal together and which lenders to deal with is important.

There are two ways you’ll get the above information: the internet and talking to as many people in your target industry as possible. The better the understanding you have, the more successful you’ll be.

FINANCIAL SERVICES

brokernews.com.au

29

Planners attack broker over ‘trust claims’

F

inancial planners have come out in force to launch a scathing rebuttal of claims from one Victoria-based mortgage broker that they have lost the trust of the Australian public.

As first reported in Australian Broker, ProSolution Private Clients’ Stuart Wemyss has penned a lengthy Manifesto, which called on brokers to join a revolution that would see them positioned as money management advisers of choice in the future.

As part of his argument for mortgage brokers to gain financial services supremacy, Wemyss claimed that financial planners had already lost their trust, due to a reliance on commissions and a limited range of advice that often did not include property.

Financial planners reading leading financial planning industry publication Wealth Professional came out in defence of their industry on its popular online forum, arguing that Wemyss’ argument didn’t stand

Soldiers, plumbers and coffee shop owners beware TARGETED PROFESSIONS: WHO IS UNDER THE MICROSCOPE?

Individuals: Soldiers, plumbers and IT professionals will come in for particular attention due to a high number of work-related claims ■

Micro-enterprises: Focused on volume of raw material supplies versus sales ■ ■

up, primarily due to broker commission conflict.

Fin Plan 1 pitched an attack right back at mortgage brokers.

“What advice can a broker provide? Borrow money. For what investment purpose? Property.

That’s a wide sweeping plan!

When a client needs that I send him to a broker.”

Meanwhile, Scott called Wemyss’ Manifesto a ‘pile of tripe’, even though Scott did say that he does have in place a referral agreement with a mortgage broking office.

“They are 100% conflicted by commissions and get sent all over the world each year by the big four, yet no disclosure is needed.

They also lend as much as they can to their clients and then when I get to see them I can’t believe some of the loans they get approved,” he said.

However, Alan had a different idea of where things could go in future. “Simple, see a person who holds both qualifications. It’s becoming more and more common. Many accountants are heading down that path,” he said.

CPA PEACE CALLS IN PLANNER-ACCOUNTANT TURF WAR Financial planners are being urged not to engage in a turf war with accountants who provide financial advice, in favour of creating partnerships in order to thrive in a post-FoFA world.

Recent Freedom of Financial Advice (FoFA) provisions will allow accountants greater freedom to give limited financial advice, measures that threaten the stranglehold planners have over advice.

However, CPA CEO Alex Malley said a turf between the professions would be misguided, and has assured planners that CPAs were not looking to step onto planner turf.

“The vast majority of our members do not wish to provide product advice and want to establish professional referral networks to other trusted advisers,” Malley said.

He did concede the FoFA provisions had led to some jostling for the advice space from a number of different sectors, but urged warring parties not to lose sight of what is best for the consumer.

Malley believes that the best way to service clients is for increasingly financially literate accountants to form relationships with financial advisers, rather than seeing them as enemies.

“If we have an agreement to disagree on some fronts, but overridingly a healthy respect for collaboration, we have a much better chance of being strategic as a sector,” he said.

He added that ‘small territorial issues’ would most likely be resolved by market forces.

Malley urged the two factions to start focusing on the opportunities for collaboration sooner rather than later in preparation for doing business in a postFoFA environment.

Superannuation guarantee and PAYG compliance

High-wealth individuals: A focus on high-earning individuals, including medical practitioners, particularly where they have used a range of financial products ■

■

Family trusts and private companies

Project Wickenby: Continued clamping down on the use of tax havens ■ Identity fraud: Accountants are warning that the ATO is zeroing in on a few unlucky professions as part of an increasingly efficient compliance crackdown.

■

DID YOU KNOW? A UK evaluation of the value of an insurance broker recently suggested that a commissionshungry broker will result in clients paying $750 a year more in premiums.

Mortgage borrowers raided almost $100m from their super funds to make emergency mortgage repayments last financial year, with 6,500 households – or a 12% increase – given emergency access to their nest eggs.

Soldiers, plumbers, IT managers and small coffee shop proprietors are all among those under the microscope as part of the ATO’s 2012–13 Compliance Program.

CPA Australia says this year’s program will focus on occupations that generate high numbers of work-related claims, wealthy individuals and businesses with high numbers of cash transactions, including coffee shops and plasterers.

Micro-enterprises – or those with an annual turnover under $2m – will also face scrutiny.

“The ATO’s 2012–13 compliance program should serve as a timely prompt for individuals and businesses to get their affairs in order and ensure they receive what they’re entitled to,” said CPA Australia’s Paul Drum.

Financial services success built on dodgy behaviour A survey of financial services professionals has found almost a quarter believe that they need to break the rules in order to succeed.

The survey, which was carried out by Labaton Sucharow LLP, gained the opinions of 500 senior financial services professionals in the US and UK. In addition to the 24% of respondents who believed that financial services professionals may need to engage in unethical or illegal conduct in order to be successful, 26% indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace.

Worryingly, 16% of respondents said that they would commit a crime themselves in the form of insider trading – if they thought they could get away with it.

“When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk,” said Jordan Thomas, partner and chair of the whistleblower representation practice at Labaton Sucharow.

Other survey findings included 39% of respondents reporting their competitors are likely to have engaged in illegal or unethical activity in order to be successful, and 30% of respondents reporting their compensation or bonus plan created pressure to compromise ethical standards or violate the law.

INSIDER

brokernews.com.au

30

Aussie fraud?

Try the UK

Get me out of this game, right now

D

id you ever think of each day in your mortgage broking office as a day in prison?

Well, Insider has news for you. To some people, the bars are very much visible, and in their mind’s eye, the grass is ever so much greener on the other side – wherever that may be.

Yes, it seems that the vast majority of Australian finance workers – that includes you, mortgage brokers – are desperate to exit the industry for other alternative occupations.

According to a survey from eFinancial Careers, 78% of finance professionals are considering moving into alternative industries, though the majority are happy working in Australia.

The favourite alternatives?

Well, mortgage brokers would hardly be surprised that many (26%) want to trade a suit for a hard hat, and join others by participating in the mining boom.

And the reasons? Well, perceived better job opportunities (39%) are key, as is the potential for higher remuneration (25%) should these professionals break out of their industry.

An eFinancial Careers spokesperson said the finding should act as a ‘shot over the bows’ of Australia’s financial services companies, if they want to keep their staff.

For brokers? Well perhaps it’s just good to know sometimes that you are not alone.

78%

of finance professionals are considering moving into alternative industries

Sell to animals, not humans One real estate agency has come up with a unique approach to selling property in the spring: why not treat property clients like animals, instead of humans?

Yes, we all know that humans (if you take an evolutionary approach to the creation of the universe) evolved from what were once the smallest creatures in the ocean.

So, it may be that we still exhibit animal traits buried deep in our DNA that could be exploited to sell us a property. So what are they?

Well, according to PRD Nationwide, one of the main ones is our seasonal tendency, which makes us more likely to buy property during spring.

“Like animals, humans tend to hibernate through winter and become more active come spring,” according to Craig Mendoza, based in Ipswich, Queensland.

But the comparison does not stop there. Nor does it get any better.

“Secondly, again like animals, there’s love in the air and buyers come looking for a new home (or nest),” Mendoza continues. “If you want one of these love birds to pick your nest over the competition, it has to look inviting – you want your street appeal to say ‘pick me’ and that’s easily done with refreshing the gardens and touching up fences,” he said.

Either this real estate agent has something, or he’s been watching too many nature documentaries. Insider will leave it up to brokers to decide.

You’ve heard enough of low-doc fraud in Australia, so here’s a bit of schadenfreude relief: the UK is a lot worse, and it’s not the brokers who are being blamed.

Experian found 39 in every 10,000 applications for mortgages in the UK were fradulent over the April to June quarter.

Individuals hiding adverse credit information accounted for 24% of attempted fraud, while a further 21% provided misleading employment histories.

“At the same time, we have also seen an increase in the number of properties where the use of the property is misdeclared, such as applying for a regular residential mortgage on a buy-to-let property,” a spokesperson for Experian said.

The group suggested that as first-time buyers and others who want to move but have either negative or little equity get increasingly frustrated with not being able to move, the temptation to misrepresent their details is greater than ever.

Brokers have called for credit reports at the outset to ensure that borrowers are kosher.

COMPETITION! Australian Broker is still waiting for contact from any brokers who think they may be more ripped than this insurance broker (see below). We offered to publish the photographic proof right here on this page, but so far, no brokers have stepped up to the challenge. A bottle of wine and industry infamy are on offer for the broker who can match this body!

SERVICES

brokernews.com.au

FINANCE

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

LEGAL SERVICES

Bransgroves Lawyers 02 9221 9522 info@bransgroves.com.au www.bransgroves.com.au Page 6

LENDER

Citibank Mortgages 1300 652 059 www.mortgagebroker.citibank.com.au page 16 & 17 Liberty Financial 132 388 www.liberty.com.au Page 3 & 19 ME Bank 03 9708 3994 www.mebank.com.au Page 5 MKM Capital 1300 762 151 www.mkmcapital.com.au Page 14

31

NCF Financial Services Pty Ltd. 1300 550 707 www.ncf1.com.au Page 8 Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 12 & 13 Versara 1300 CAVEAT (228 328) www.versara.com.au Page 4

SHORT TERM LENDER

Interim Finance 02 9982 2222 www.interimfinance.com.au Page 2 Mango Credit 02 9555 7073 www.mangocredit.com.au Page 1 Quantum Credit 1300 135 212 www.quantumcredit.com.au Page 7 Rapid Capital 07 5562 2485 www.rapidcapital.com.au Page 10

TECHNOLOGY PROVIDER NextGen.Net 02 9929 5999 sales@nextgen.net www.nextgen.net Page 11

Star Gate Group 03 8420 3000 www.stargategroup.com.au Page 15

WHOLESALE

Resimac 1300 764 447 www.resimac.com.au Page 32

OTHER SERVICES RP Data 1300 734 318 Page 23

Trailerhomes 0417 392 132 Page 27

To advertise in Australian Broker call Simon Kerslake on

02 8437 4786