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NOVEMBER 2013 ISSUE 10.22
+INSIDE + NEWS
Quality recruitment doesn’t happen by accident
The Aussie executive director on how the franchise giant looks to draw new talent to the industry
ecruitment of new talent has been an overriding theme in the mortgage broking industry this year, and big franchises are no exception. Aussie Home Loans is in the midst of one of its largest recruitment drives to date, with plans to take on 150-200 new brokers over the next 12 months – and that’s on top of the 700-800 brokers they’ve already got under their roof. FULL STORY PAGE 16
A look at what’s been making headlines P4
+ ANALYSIS FOS FACTS
What the EDR’s data says about brokers P14
+ MARKET TALK GEARS IN MOTION
Differing perspectives on negative gearing P18
How to pick yourself up after a fall P20
+ BEST PRACTICE THE TRAIL TO SUCCESS
A top broker says trail should be reinvested in clients P22
+ PEOPLE FINANCING A FUTURE
Equipment financiers work together to help Uganda P28
WHAT THEY SAID...
SET TO GROW Best suburbs for rental properties Morayfield
Mount Annan $465,500 NSW
Sanctuary Point NSW
10+% 15+% 10+% 15+%
Seville Grove $360,000 WA
gr ed t c di . re .a rp %p a ye ge 5 - er a av
FHBS FADING FAST
The proportion of first homebuyer participation in August, down from 14.7% in July
t h, t al To
Current Residex median value Current Residex median rental yield
DID YOU KNOW?
CASH RATE STAYING STEADY? A look at when consumers expect the RBA to cut rates again SUBURB
Later in 2014
79.7% Consumer satisfaction with the Big Four in September the highest in 18 years Source: Roy Morgan
Source: Loan Market
RAJ VENGA “In an environment of historically low interest rates, lenders should consider whether they are using appropriate interest rate buffers and margins on living expenses when assessing serviceability” P4 GREG O’NEILL “The question all brokers should be asking is: ‘Are my clients being charged a risk fee, and what benefit do the borrowers receive from that fee versus what benefit I as the broker am receiving, or is there an alternative provider?” P8 TIM LAWLESS “The ongoing debate about a housing market bubble is clearly an issue that has the potential to dampen housing market sentiment” P19
SIMON ORBELL “Customer service for us is all about making sure the customer becomes an advocate of our business from the moment they leave our offices” P26
brokernews.com.au brokernews.com.au EDITOR Adam Smith
Credit Ombudsman Broker dies a hero: warns borrowers are Saves wife and friends ‘stretching themselves from avalanche ■ Mortgage Choice brokerage director, Dean too far’ Higgins, has died in the Tibetan Himalayas after
■ COSL Credit Ombudsman, Raj Venga, has
warned that new homebuyers may be stretching themselves too far in the pursuit of their dream home. “Interest rates at record lows are reported to have fuelled a surge in house prices. New homebuyers and investors seem to be caught up in a housing frenzy which has already pushed Sydney’s auction clearance rates to record highs. Australians are borrowing more to purchase properties,” he said. Venga noted that most lenders tightened their lending criteria post-GFC, but that there are now an increasing number of loans available to homebuyers with small deposits, some as low as 5%. “Borrowers may be left with loans they cannot afford when the record low interest rates start to rise, as they inevitably will. As it is, one third of the complaints we receive are about mortgage stress and financial hardship.” He also said the rate of growth in New Zealand house prices had prompted the New Zealand Reserve Bank to impose restrictions on the loan-tovalue ratio of housing loans – something which isn’t entirely off the cards here. “Whether or not this is or should be introduced in Australia, we expect lenders to maintain prudent lending practices and adhere to their responsible lending obligations under the law. In an environment of historically low interest rates, lenders should consider whether they are using appropriate interest rate buffers and margins on living expenses when assessing serviceability.”
PUBLISHER Simon Kerslake COPY & FEATURES JOURNALIST Mackenzie McCarty PRODUCTION EDITORS Roslyn Meredith, Moira Daniels ART & PRODUCTION DESIGNER Loiza Caguiat
saving the lives of his wife and two companions trapped in an avalanche.
SALES & MARKETING SALES MANAGER Simon Kerslake
HE ENDED UP SAVING EVERYONE ELSE BUT HE WAS ONLY WEARING A T-SHIRT AND HE WAS UNABLE TO SAVE HIMSELF, HE DIED OF HYPOTHERMIA - K EITH CAINE OF DEAN HIGGINS
ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Anna Farah 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
Higgins, husband of well-known South Australian broker, Wendy Higgins, along with two friends, had been sleeping in a tent on the side of a mountain when an avalanche covered their campsite on Monday night, according to The Australian. It is believed that 116 people were rescued from the disaster and that three others, understood to be locals, died. A fellow broker and friend of the couple, Keith Caine, told reporters that Dean Higgins spent six hours digging his wife and friends out of the ice, rock and snow, in the pitch-dark, before dying of hypothermia. “He ended up saving everyone else but he was only wearing a T-shirt and he was unable to save himself, he died of hypothermia,” said Caine. The Higginses and their two companions faced an eight-hour trek down the mountain to the nearest town in order to reach medical help. While Dean attempted the journey on foot, he had to be carried part way down due to overwhelming exhaustion. Dean Higgins is said to have been alive at the bottom, but passed away soon after. Wendy Higgins has owned the franchise for 15 years and has won numerous industry accolades, including this year’s MPA Number One Franchise Brokerage in Australia.
HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Adam Smith tel: +61 2 8437 4792 firstname.lastname@example.org Advertising sales Simon Kerslake tel: +61 2 8437 4786 email@example.com Rajan Khatak tel: +61 2 8437 4772 firstname.lastname@example.org Subscriptions tel: +61 2 8437 4731 fax: +61 2 9439 4599 email@example.com Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, New Zealand, Manila, Toronto, Denver 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.
Non-major extends broker bonus campaign ■ ME Bank has extended its broker bonus commission campaign
by a month to the end of December 2013. The campaign calculates bonus commissions on home loan settlements greater than $1m that are accumulated during the four-month period from 1 September 2013 to 31 December 2013. All accredited brokers are eligible, regardless of the number of home loans they currently put with ME Bank. Stewart Saunders, ME Bank’s national manager brokers, said the campaign was extended due to a high response rate from brokers and favourable feedback. TOTAL VALUE OF SETTLEMENTS
UPFRONT BONUS COMMISSION
The average annual salary of a mortgage credit analyst in Sydney
(on top of current commission)
Source: Robert Walters
Report slams government’s housing approach: Get rid of stamp duties, now
UNITED STATES OF AMERICA
■ The Australian government has been advised to eliminate stamp
BANK OF AMERICA LIABLE FOR MORTGAGE HUSTLE
A federal jury has found Bank of America, one of the nation’s largest lenders, liable for defrauding Fannie Mae and Freddie Mac. The case was the first US lawsuit against a bank over defective mortgages to go to trial. At issue in the case were millions of dollars in defective loans sold to Fannie and Freddie by the bank’s Countrywide unit. Former Countrywide executive Rebecca Mairone – the only individual named as a defendant in the case – was also found liable for the fraud. According to prosecutors, Countrywide ran shoddy mortgages through a program known as “High Speed Swim Lane” or “Hustle”, in which underwriting standards were sacrificed for approval speed and volume. Thousands of the deficient mortgages were sold to Fannie and Freddie, which saw a gross loss of more than $848m and a net loss of more than $131m. Countrywide, meanwhile, earned at least $165m selling loans through the “Hustle” program. Prosecutors said that loans processed under the program saw approval times reduced from 60 days to as little as 10 days. The program also transferred the job of approving loans from trained underwriters to “loan specialists” who were little more than glorified clerks who lacked sufficient training, prosecutors maintained. The government’s star witness, former Countrywide official-turned-whistleblower Edward O’Donnell, said he repeatedly warned company officials about the failure rate of the loans.
CANADA UNCERTAIN IF HOUSING LANDING WILL BE HARD OR SOFT
In its annual Global Wealth Report, Credit Suisse paints an opaque picture of the Canadian financial future, which it attributes, in large part, to an unclear housing forecast. “Rapid growth in mortgages has fuelled a continuing rise in household debt,” the report stated. “Mortgage terms were tightened in 2012 and the market cooled somewhat, but there are continuing concerns; it is not clear whether the final landing will be soft or hard.” The report also touched on the modest household wealth growth experienced by Canadians. “Measured in US dollars, household wealth grew at an annual rate of 6.7% between 2000 and mid-2013,” the report stated. “Discounting exchange rate effects, the rise in wealth is a more modest 3.7% per annum. The 25% contraction in USD wealth in 2008 is also much less evident when expressed in Canadian dollars.” And although it admits Canada has experienced a smoother recovery from the economic recession than the United States of America, it also states that wealth holdings in the two countries are similar. “In some respects, the pattern of wealth holdings in Canada resembles that in the US: in both countries, for example, financial assets account for more than half of household wealth,” the report said. “Canada has lower wealth per adult than the US, and the gap grew last year from 9% to 17%, reflecting both USD appreciation and better stock market performance in the US.” However, the distribution of wealth in Canada is more equal; which has resulted in a higher median wealth than in the United States.
$275m The size of AFG’s other RMBS deal this year, completed in March Source: Insurance Council of Australia
duties, reform tax incentives for property investment and shape-up the private rental sector in order to ease first homebuyers onto the housing market ladder. “Stamp duties discourage households from moving to housing that better suits their needs. In comparison, annual property taxes such as land tax and municipal rates are less likely to distort households’ decisions. They also distribute the tax burden more fairly,” wrote Jane-Frances Kelly, author of the Grattan Institute’s Renovating Housing Policy report. She said stamp duty should instead be replaced by an annual broad-based property tax levied by state governments. Furthermore, Kelly argued, reforms to tax arrangements that favour property investment would help to reduce investor demand, easing pressure on house prices and making it easier for households on the margins of home ownership to buy a home. Federal and state governments currently forgo more than $40bn in revenue from tax concessions and exemptions to homeowners and property investors, while providing little assistance to renters, according to the report. JANE-FRANCES KELLY
STAMP DUTIES DISCOURAGE HOUSEHOLDS FROM MOVING TO HOUSING THAT BETTER SUITS THEIR NEEDS -
AGGREGATOR PRICES MASSIVE RMBS DEAL ■
Major aggregator and white label lender has completed a $300m RMBS deal, the second this year. AFG has announced the pricing of its second RMBS deal for 2013. The transaction priced at $300m with 14 investors, both onshore and offshore. The deal follows on a $275m RMBS transaction in March. AFG CFO David Bailey said the transaction saw the aggregator meeting its goal for the year. “We aimed to complete two RMBS transactions in calendar 2013 and what is particularly pleasing is for us to welcome a number of new investors to our program and to also complete a slightly larger overall transaction size,” he said. The $300m RMBS pool was originated through the aggregator’s network, and is managed by AFG Home Loans and Securities.
Pepper slams RHG board, cedes takeover war ■ Pepper has officially pulled out of the bid war
over RHG, following a media release in which RHG confirmed it had reached agreement with the Resimac Syndicate on the key terms of a revised offer, which included an increased cash offer to all RHG shareholders of 50.1 cents per share. Patrick Tuttle “Despite our belief that the Pepper offer remains clearly superior to the revised offer made by the Resimac Syndicate [on October 18], the RHG Board has decided to approve it within three days of its receipt, despite having been in possession of the latest Pepper Offer since 6 September,” said Pepper co-group CEO, Patrick Tuttle. He also added that, over a period of nearly six weeks, the RHG board made no attempt to engage with Pepper in any ‘meaningful’ way. Tuttle’s fellow co-group CEO, Mike Culhane, said the company could only assume that by increasing its cash offer to 50.1 cents per share, the Resimac Sydicate was of the opinion that the Pepper offer was superior to their previous offer. “It is inconceivable that, for close to six weeks, the RHG Board was in receipt of a superior proposal but failed to take any positive steps to explore whether agreement could be reached on the terms of our proposal. Yet, surprisingly, they were able to promptly respond, within three days, of receiving the revised offer from the Resimac Syndicate”, said Culhane.
Brokerage director convicted of fraudulent activity ■ David John Barrett, previously of Glenhaven, New South Wales,
has been convicted after being charged by ASIC with one count of fraudulent concealment of property from a liquidator. Barrett pleaded guilty in the Downing Centre Local Court on 1 October 2013. He was the sole director of Preferred Finance Solutions Pty Ltd, a mortgage broking business in Parramatta that sourced and negotiated home loans for consumers on behalf of various financial institutions. ASIC’s investigation found that Barrett failed to provide details of a company bank account that was receiving trailing commissions from the loans that had been secured for consumers. Barrett failed to provide the details of the bank account to the liquidator until 2 September 2008. During this period the account transactions were approximately $40,000. “Directors who run companies must do so with honesty. In this instance, the fraudulent concealment of the bank account from the liquidator is an example of a failure to act honestly and ASIC will take action where directors fail to do so,” said ASIC Commissioner Greg Tanzer. As a result of the conviction, Barrett is automatically disqualified from managing corporations for five years.
Enforcing fees for service: Is lodging a caveat ever ok? ■ Revelations that a South Australian finance broker has been
banned from the industry for six months after threatening to lodge a caveat to enforce a fee for service has left many brokers confused about their rights when it comes to claiming service fees from clients. Gadens Lawyers partner, Jon Denovan, said the NCCP Act explicitly states that brokers are not allowed to lodge a caveat for credit assistance. “If you’re a licensee, you can’t put a caveat on for credit assistance, nor for other services. Even if you’re charging for these other services… you can’t put a caveat on. Once you are a licensee, you cannot put a caveat on, full stop.” Furthermore, he said, the legal ability for brokers to enforce fees for service is somewhat murky. “What the NCCP deals with is charging a fee for credit assistance. ‘Credit assistance’ is a technical term which means to suggest a specific loan through a specific lender to a customer. If that’s the case, then that’s what the NCCP is regulating.”
WHY RISK FEES DON’T MAKE SENSE Twenty-eight-year industry veteran and CEO of La Trobe Financial, Greg O’Neill, has come out hard against the charging of risk fees by specialist lending industry participants. O’Neill said one concern he holds for the specialist lending sector future is not interest rates, unemployment, or whether there is or is not a housing bubble, but rather the ‘unnecessary practice’ of particular specialist lenders charging borrowers a ‘risk fee’ without providing any correlated borrower/consumer benefit. He argued that there are three things all brokers should now be asking before referring clients to any lender:
Greg O’ Neill
1. IS ANY RISK FEE BEING CHARGED TO MY CLIENT? It has become common practice for specialist lenders to charge borrowers risk fees of up to 1.5 % – and often 2% – to obtain the loan in addition to the higher rate of interest offered. These amounts can add up to $5,000 or more on some loans. Unlike LMI offered by independent third party providers, O’Neill claims these specialist lender risk fees offer no consumer benefit or protection level at all for the borrower. “A risk fee charged by specialist lenders is merely pocketed as profit.”
2. AM I PUTTING MY CLIENT’S INTEREST FIRST IN REFERRING THEM TO THIS LENDER? O’Neill said some brokers could appear to be potentially conflicted by the very existence of such risk fees without knowing it. It seems payment of risk fees may assist the chosen lender to pay the referring broker a higher upfront loan origination fee. The question all brokers should be asking is: ‘Are my clients being charged a risk fee, and what benefit do the borrowers receive from that fee versus what benefit I as the broker am receiving, or is there an alternative provider?”
3. IS THERE A BETTER ALTERNATIVE? The ‘handful’ of remaining specialist lenders were deeply buffeted by the GFC due to increased costs associated with reliance on capital market securitisation funding, said O’Neill and they also had to contend with the Federal Government’s decision by Wayne Swan in December 2010 to axe loan exit fees in an effort to increase competition. “Ironically the current market outcome and distortion were foreseen by the May 2011 Senate Economics Committee inquiry into ‘Competition in the Banking Sector’, which stated the exit fee ban could lead to higher upfront fees and reduce competition… Unfortunately common sense did not prevail and the legislation was enacted with much fanfare about saving consumers.”
No Country for Old…..? Kym Dalton shares insights on the US landscape, and what it means for Australia
have just spent a few weeks in a strange and mysterious land lacking a functioning central government. No, not some third world dictatorship but ‘the world’s largest economy’ – the US. I arrived the day prior to the ‘Government Shutdown’, expecting there to be some last-minute compromise, only to awake to find the Government had, in fact, shut down! I was in the US as the sole Australian representative at an amazing Housing and Housing Finance ‘Think Tank’ with delegates from across the global spectrum of business, government and the regulatory apparatus. What made this conference so amazing was the frankness of the dialogue. The conference was ‘sponsor light’; there was a no-media policy and it was clearly stated that the speakers’ and contributors’ opinions were their own and did not necessarily represent the opinions of their employers. The speakers and delegates grabbed the opportunity presented to really let rip!
A BIT OF CONTEXT
Firstly, some stats from the conference for some context. The fastest growth in the labour force is in the 55+ age bracket, with the average baby boomer’s age being 56. Thirty per cent of Echo Boomers/Millennials/Ys live at home with parents, and their average savings balance is $3,000. Thirty-nine million of them have student debt, with an average balance of $25,000. The median house price nationwide is $210,000. The average loan-to-value ratio of all new originations (purchase and refinance) is 89%, with another commentator stating that 50% of owner-occupied loans are over 90% at closing. From the low point in housing originations, new owner-occupied loans are up 1%, while investor loans are up 15%. It was commented that cashed-up older investors are crowding out younger purchasers who have “virtually disappeared”. The average job tenure now in America is 3.4 years and, with this in mind, the continuing validity of the ‘traditional’ prime 30-year fixed rate mortgage was questioned.
DID YOU KNOW?
The proportion of after-tax income the average American spends on their mortgage payment Source: Federal Reserve
STATE OF THE UNION
Moving on to some of the broader content, there was much discussion about ‘future homeowner’ and ‘future borrower’. Commentary included: “Millennials are the first generation that doesn’t slavishly believe in house price appreciation.” Increasingly, their largest lifetime investment decision is buying a car! Many of them see homeownership as a “lawn to mow” and there’s a discernible shift in the labour/leisure paradigm, with a mortgage seen as a ball and chain, lessening mobility. There was consensus that ‘the crisis’ wasn’t just about poor lending – it was also about incredibly poor servicing of loans. The crisis was definitely exacerbated by what was described as the “new couch syndrome” – additional consumer debt taken
Kym Dalton is the founder and chairman of ‘CreditED’, a program of concise, confirmed comprehension for residential mortgages
on soon after settlement, commonly swelling debt-to-income ratios to 60%! As a financial literacy advocate and self-styled ‘comprehensionist’, I was naturally interested in the fact that the conversation then segued to the critical need for increased consumer comprehension. Some quotes from the discussion included: “We should teach consumers about fiscal responsibility rather than spend taxpayer dollars on punitive penalties”. “We need to push back some responsibilities to consumers; they have to be held accountable if don’t make their payment”. And again: “It all begins with education”, and “We must educate our population as a first priority”. It seems as if this newfound passion for education is a direct consequence of the tsunami of post-crisis legislation, much of which is unclear, evolving and yet to come into force. Notably, for what was meant to be a forwardlooking conference, there was huge focus on the past, ‘the crisis’, and where did it all go so wrong? It’s abundantly clear that ‘the crisis’ was cathartic for the US and the US housing finance industry – with the reverberations to echo for years to come. Most of the focus on the future was around the shape and size of the housing finance industry to come, especially whether homeownership would remain a core component of the ‘American dream’ and where the future borrower would come from.
JOINING THE DOTS
It’s acknowledged that there are considerable structural differences between the US housing finance market and our own; however, I think there are enough similarities to make the following of value. I’ll leave you to join the dots. With successive rounds of quantitative easing pump priming the economy, and with economic policy resulting in the lowest interest rates on record, basically everyone with a mortgage and equity in their property has refinanced. Similarly, everyone with clear credit and an adequate down payment has purchased to take advantage of the low rates and house prices that represent value. (Yet again) economic policy has brought forward future demand. Consensus is that in the near term interest rates will have to rise, meaning that the refinance market will stop dead and the purchase market will reduce from current levels. There’s much angst about the shape and ‘right size’ of the housing finance industry given that the tailwinds of stimulating future demand are likely to shortly turn into the headwinds of economic and demographic reality. So in addition to the realisation that the US is “no country for a lack of comprehension”, there’s general, begrudging consensus that the housing finance industry is “no country for an industry of the present size”. Looping back to the subject of the lack of a government, I did suggest to a few people that after taking the mickey out of us for the past 237 years, there is a solution: the Westminster system. All they had to do was say sorry for the American Revolution and hand the original 13 colonies back to Britain. Strangely, they didn’t think this was terribly funny. Clearly No Country for (attempted) Aussie Humour. I blame the fact that getting the US housing finance scene repaired and right-sized is no laughing matter.
Rebuilding after the blaze “I live on acreage, so I spent all weekend ensuring that my home is as safe as possible by removing any potential fuel for a fire away from the house and surrounding area. In recent days we have been hearing lots of choppers overhead, and sirens too. “I … had to postpone a few appointments when things seemed a little dangerous for us – there were blackened leaves falling on my verandas and in the gardens close to the house. While the threat wasn’t imminent, it was important that I took a little time to make the home immediately safer,” she said. Porter admitted it was hard to concentrate “100%” on her job while listening and watching for fire updates each day.
Catastrophic bushfires ripped through NSW recently, and some brokers found themselves in the midst of the crisis
he New South Wales bushfires wreaked devastation across huge swathes of the state, destroying 200 homes and costing two people their lives. As fires raged across the state, brokers were thrust into horrific situations, fending off flames threatening to engulf their own homes, and comforting clients who had already lost theirs. Springwood-based Aussie Home Loans broker Kylie Pickham was made to evacuate her home as her husband stayed behind to help firefighters battle a blaze just across the road. “I’ve got five clients who have been affected… three of them have lost their homes,” she said. “I’ve spoken to all of them and guided them in the right direction as to what they need to do – ‘stay safe, contact your insurance company’. I’ve also been trying to help them find accommodation through the local real estate agents up here. We’re very limited as to what we can do, but the community up here is just amazing and everyone helps one another out… It’s tough. It’s really tough.” While Pickham’s house escaped, 43 homes were lost on her sister’s street, just a kilometre away. “Another fire’s sprung up close to Springwood again; not so close to us, fortunately. They’re saying the next few days are going to be pretty bad because it’s windy today and they’ve got a fire that’s not contained.” Lynne Porter, a Mortgage Choice broker servicing Nepean and the surrounding area, said there was a lot of smoke and an eerie “orange haze” in the sky.
$145m The estimated losses from the NSW bushfires Source: Insurance Council of Australia
LENDING A HAND While the bushfires raged, the industry pulled together to help those affected. The FBAA arranged a collection of clothes, goods and vouchers for victims of the fires. “At times like this, it’s important we all support each other, and I know that finance brokers will dig deep to make a difference,” FBAA president Peter White said.
“My home is not too far from the State Mine Fire (Lithgow, Hawkesbury and Blue Mountains), which is also a threat to some of my customers. Some of my customers are also affected by the fires at Mount York Rd, Mt Victoria and Linksview Rd, Springwood.” Fellow Mortgage Choice broker Debbie Worthington is based at Lake Macquarie and said many of her customers were evacuated during the blazes. “One customer in particular is halfway through the construction of their new home at Murrays Beach. Due to all the evacuations, a few of my customers weren’t able to get their loan documents over to me in time for purchases that were already underway. Some of my customers have moved to a hotel in anticipation of another bad week ahead. Once a fire has taken hold you cannot get off their peninsula, so it is best to be prepared in advance.” As NSW puts the pieces back together, residents who were unfortunate enough to lose their homes or suffer damage are left to deal with insurance companies, and Worthington said it is important that brokers in affected areas should make sure their clients ensure their construction insurance will cover this type of disaster. The Insurance Council of Australia (ICA) claims insurers have made a “sterling effort” to address claims in the wake of the catastrophe. “Insurers have responded incredibly quickly and we believe this is in the best interests of residents and business owners affected by the bushfires,” ICA CEO Robert Whelan said. “Insurers can now go to the next step in guiding policyholders through the recovery process by seeking quotes from approved tradespeople and detailing scopes of work. Once these have been agreed, the rebuilding phase can then start in earnest.”
Some welcome relief
Losses racking up for insurers
Lenders stepped up during the bushfires to offer relief packages to their customers. All four majors, along with several non-majors and non-bank lenders, announced plans to help borrowers whose incomes may have been affected by the fires. The relief incentives allowed customers to suspend home and personal loan repayments, and included a number of other initiatives, such as the waiving of some home loan and personal loan fees and charges.
Suncorp recently announced it had received 400 claims from the NSW bushfires, valued between $60m and $70m. Meanwhile, IAG’s Australia Direct and CGU businesses received around 600 claims. Suncorp Group CEO Patrick Snowball said assessors had been deployed to affected regions. “With the fires now contained, we can begin the task of helping customers rebuild their homes and communities following these devastating bushfires,” he said.
The Ombudsman’s look at the industry The EDR scheme’s annual report gives insight into how brokers and lenders are performing
ay what one will about external dispute resolution (EDR) schemes, they tend to provide an insightful snapshot on the state of the mortgage industry, as well as a look at how consumers feel they’ve been treated. The Financial Ombudsman Service (FOS) has released its annual report on the industry’s two EDR schemes. For brokers and mortgage lenders, there’s good news and bad news. First the bad news: almost half of the complaints accepted by FOS related to credit products, with disputes about home loans and credit cards the most common in 2012/13. Another potentially worrying trend is the drop-off in FOS membership. The service saw an overall 5% decrease in its membership for the year. While there could be many reasons for the attrition, it does point to the possibility of dwindling broker numbers. FOS blamed the decrease on industry consolidation. “A number of reasons account for the slight drop in members. One key factor was that there were a considerable number of mergers between FSPs [financial service providers] in the last 12 months – particularly in the credit union and general insurance sectors – which means that where there
were once multiple memberships, there is now only one.” But the report offers some positive news as well. After four years of “large” increases in dispute numbers, FOS says it has finally experienced a reduction in overall dispute numbers. Registered disputes are down 17% from last year, while accepted disputes fell 5%. FOS chief ombudsman Shane Tregillis says a key contributor to the reduction in overall disputes was a 22% decline in financial difficulty disputes. “This appears to be a result of the improvements by the major banks and other financial service providers to their financial hardship programs over the last few years following the changes introduced under the 2010 National Credit Code.” Many Australian borrowers have also had a reduction in repayment pressures, given the lower interest rates of the past
few years, and Tregillis says this may have played a part in reducing the number of financial hardship disputes coming to FOS. “There was also a big reduction in natural disaster disputes due to a much higher prevalence of flood cover following recent legislative changes and the efforts by the insurance industry to improve practices in this area over the last couple of years. “Investment disputes have also declined 25%; the main reason appears to be that the impact of the GFC on the number of disputes coming to FOS is now diminishing.” Tregillis says the early resolution of disputes continues to be a key focus for FOS. “Fifty-five per cent of all disputes were closed within 60 days and 73% within 120 days in 2012–2013. “We recognise there is still much work to be done to improve how quickly we resolve disputes and this will be a key focus of our efforts over the coming year.” Here’s a look at some further insights from the FOS report:
HOW THE BIG FOUR FARED FOS disputes among the major banks BANK
RESOLVED BY AGREEMENT
RESOLVED IN APPLICANT’S FAVOUR
RESOLVED IN FOS CONFIRMED OTHER/ BANK’S FAVOUR BANK’S DISCONTINUED ORIGINAL OFFER
BY THE NUMBERS
A LOOK AT FOS MEMBERSHIP NUMBERS -2%
CREDIT DISPUTES ACCEPTED DOWN 6%
30 June 2012
TOTAL: 16,038 30 June 2013
INVESTMENTS DISPUTES ACCEPTED DOWN 25%
GENERAL INSURANCE DISPUTES ACCEPTED 0% CHANGE
WHO LODGED DISPUTES?
FINANCIAL DIFFICULTY DISPUTES ACCEPTED DOWN 22%
WHAT ARE PEOPLE COMPLAINING ABOUT?
GEOGRAPHIC DISTRIBUTION OF FOS DISPUTES General insurance Credit products
NT – 1% QLD – 20%
WA – 9% SA – 6%
NSW – 33%
ACT – 1%
VIC – 29% TAS – 1%
Investment Life insurance
4% <1% Traditional trustee services
CONTINUED FROM PAGE 1
Quality recruitment doesn’t happen by accident The Aussie executive director on how the franchise giant looks to draw new talent to the industry
ut, while the franchise has had great success on paper when it comes to sniffing out new talent, industry criticism abounds. One recent Australian Broker Online comment summed up the issue by accusing Aussie of turning ‘taxi drivers’ into brokers, indicating hasty recruitment tactics and a lack of adequate training. But Aussie executive director, James Symond, is making no apologies. “I think that Aussie has unquestionably been the company in the industry that has trained more professional mortgage brokers than any competitor. And we’re very proud of that. Now, as the industry is growing – and it has been for 22 years – you certainly can’t hold on to all those people. We’re proud to have accrued some
amazing people throughout the years, but also to have retained some amazing people. We’ve got over 50% of our current mortgage brokers that have been with us for over five years and we’ve got 29% of our mortgage brokers who have been with us for over 10 years. Our attrition is fabulous.” While it may be safer in some respects to recruit new brokers from within the industry, Symond believes that pulling talent from outside is, in fact, an integral part of Aussie’s success when it comes to growing its market share. “The industry does need to recruit quality people external from the industry and we’re one of the only companies that are actively doing that out there. As a general rule, most of the other companies just try to recruit from within. Now, that’s a limited game. So if we get accused of trying to recruit quality people external from the industry, rather than joining the club of mauling each other – well, I’m happy to be accused of that.” Recruiting fresh talent is one of the toughest challenges facing the broking industry today, for reasons both practical and ideological, according to Symond. Locating individuals who are prepared, both mentally and financially, to work without pay for several months while waiting for commissions to trickle in is an obvious struggle – but the issues, he believes, run deeper than that. While other financial services professions enjoy high levels of recognition, mortgage broking remains somewhat in the shadows. People, as Symond puts it, don’t walk out of university and say ‘great, I want to be a professional mortgage broker’. Instead, it’s often a profession that people fall into and that makes recruitment, again in Symond’s words, ‘bloody hard’.
IF WE GET ACCUSED OF TRYING TO RECRUIT QUALITY PEOPLE EXTERNAL FROM THE INDUSTRY, RATHER THAN JOINING THE CLUB OF MAULING EACHOTHER – WELL, I’M HAPPY TO BE ACCUSED OF THAT – JAMES SYMOND “I’ve been in this industry now for nearly 22 years. It has always been the case where recruiting and retaining quality people – in particular, recruiting and retaining quality sales people – is probably the biggest challenge for a growing mortgage broking business, because it’s not like you’ve got stock on the shelf. Everyone has the same products, everyone runs a very similar sort of service. What defines you is the brand and the perception from the community… where they see it and trust the people who deliver that brand promise. And that’s mortgage brokers.” As far as Symond is concerned, the only way around the problem is to recruit individuals from outside the industry, train them and then offer ample opportunity for career advancement in order to keep them around. “Mortgage broking is still relatively young. We’re still, arguably, a 20-year-old industry. Aussie would probably have the highest national [public] awareness of anyone for a mortgage brokerage, so we’re trying to do our bit in terms of getting people to understand, by way of media, who a mortgage broker is…As a whole, [mortgage broking] doesn’t get the PR, it doesn’t get the ‘kudos’ that it deserves to get.” Regardless of what you might think of their recruitment tactics, it’s hard to argue with Aussie’s full-on approach to training, at least from a resource perspective. The company boasts both a broking academy and a mentoring program and, as Symond will happily tell you, is able to turn anyone with the right attitude into a broker, regardless of background. “We can turn a butcher, a baker, a candlestickmaker into a professional mortgage broker, as we have done hundreds and hundreds of times. We do this through having some of the best training in the industry and through having some of the best career paths in the industry. They can be a mobile broker, they can be working in one of our corporate offices, they can be a mobile broker working in one of our shop fronts, they can own the shop front, they can own several shop fronts. There are many ways that we can train the mortgage broker through our first-class training process and mentor program and then there are many ways in which people can choose their path as to what suits them best.” But it’s one thing to have a household brand, a massive distribution footprint and seemingly infinite training resources – it’s entirely another to maintain the high-quality service standards consumers expect in today’s market. And this, Symond would argue, is where Aussie shines brightest. “It all starts with quality recruitment and we believe that, over 20 years in this business, we’ve come up with a formula that is very successful.
When you talk about success, we have some of the most successful mortgage brokers in the country working for Aussie. We have more mortgage brokers in the [MPA magazine] list of the top 100 names than any of our competitors. That’s under the one roof, that’s under the one brand. That doesn’t happen by accident.” DID YOU KNOW?
Aussie Home Loans’ total home loan portfolio Source: Aussie
STRENGTH TO STRENGTH James Symond has said Aussie’s recruitment drive is a sign of strength for the franchise business. “The business is extremely buoyant. We’re in a marketplace where the wind is at our backs and a marketplace which is extremely strong, in particular in our segment of the market around Australia,” he said. The fact that Aussie lodged its highest monthly home loan volume on record – at $1.6bn last month, up 23% on the same month last year – has also no doubt played a part in the group’s decision to swell its broker numbers. The company’s total loan portfolio rose from $43.2bn to $47.3bn during the financial year ended 30 June 2013 and Symond expects this figure to break through $50bn in the current financial year. “We are experiencing record growth and are keen to lift the numbers of our mortgage brokers nationally to meet demand in a buoyant property and lending market,” says Symond.
Are there still positives in negative gearing? The government has been advised to put changes to negative gearing policy on the table
hile the Melbourne retail market has outperformed Sydney in the postGFC period, a recalibration is in the wings, according to the latest ViewPoint from CBRE. Negative gearing is a touchy subject. Depending upon who you talk to, it’s either the only way to ensure a steady supply of rental properties, or a tax concession favouring the rich that pushes up the price of housing. While it’s unlikely negative gearing is going anywhere, one group has advised the government to put it – along with every other aspect of housing policy – on the table. The Australian government has been advised to eliminate stamp duties, reform tax incentives for property investment and shape-up the private rental sector in order to ease first homebuyers onto the housing market ladder. “Stamp duties discourage households from moving to housing that better suits their needs. In comparison, annual property taxes such as land tax and municipal rates are less likely to distort households’ decisions. They also distribute the tax burden more fairly,” claims Jane-Frances Kelly, author of the Grattan Institute’s Renovating Housing Policy report.
IF GOVERNMENTS WANT TO INCREASE HOME OWNERSHIP AND AT THE SAME TIME GIVE THE MANY RENTERS A BETTER DEAL, THEY SHOULD REJECT POLICIES THAT REWARD THOSE WHO ALREADY OWN HOMES WHILE MAKING LIFE HARDER FOR THOSE WHO DON’T - J ANE-FRANCES KELLY, GRATTAN INSTITUTE She says stamp duty should instead be replaced by an annual broad-based property tax levied by state governments. “This would also replace the existing narrow land tax regime that exempts the family home. As proposed in Grattan Institute’s 2012 report, Game-changers: economic reform priorities for Australia, the new property tax could be administered through the existing municipal rates system, which already has a much broader base than land tax.” Furthermore, Kelly argues, reforms to tax arrangements that favour property investment would help to reduce investor demand, easing pressure on house prices and making it easier for households on the margins of home ownership to buy a home. In other words, rethink negative gearing. “If governments want to increase home ownership and at the same time give the many
The amount the Grattan Institute says its recommended economic reforms could contribute to the Australian economy Source: Grattan Institute
renters a better deal, they should reject policies that reward those who already own homes while making life harder for those who don’t.” Federal and state governments currently forgo more than $40bn in revenue from tax concessions and exemptions to home owners and property investors, while providing little assistance to renters, according to the report. “Expenditure on housing policy most benefits households that already own a home, followed by households that invest in residential property; and within both groups higher-income households receive the greatest subsidies.” “It’s a rising form of inequality that damages economic productivity and the fair go,” says Kelly. But the housing industry, unsurprisingly, does not agree. The REIA says it agrees with the Grattan Institute Renovating Housing Policy report in that a major overhaul of housing policy in Australia is needed, but disagreed with what needs to be done. “We strongly agree with the report’s recommendations to eliminate stamp duties, however it’s essential negative gearing be retained in its current form for the purpose of property investment,” says REIA president Peter Bushby. “REIA has always supported negative gearing because it helps in the provision of rental accommodation. Negative gearing for property investment is complementary to the goals of the Government’s Housing Affordability Fund (HAF) in addressing the supply of rental accommodation.” Bushby said removing negative gearing would show that Australians ‘haven’t learnt anything from history’. “When negative gearing was abolished in 1985 it had disastrous consequences for the property market and for people trying to rent. Rents rose 37% across Australia and by 57% in Sydney. “Thankfully, negative gearing was reinstated in 1987. It is far too short-sighted to link investor interest in housing to negative gearing alone. Negative gearing is only one of a range of factors that contribute to the level of investment in property. Other factors include interest rates, availability and accessibility of finance, share market performance, the unemployment rate, housing supply and consumer confidence.” Bushby said the ‘myth’ that negative gearing is a plaything of the well-heeled also needs to be dispelled. He claims the majority of taxpayers with negatively geared property earn less than $80,000 per annum. “Findings in the Renovating Housing Policy report are important and let’s hope they assist in kick-starting a debate on housing policy. With the new government, expectations that industry will be involved in finding workable solutions to these old issues are high.”
MARKET TALK brokernews.com.au
A good time TO BUY Most Australians feel now is a good time to enter the property market, but that number is shrinking
early three-quarters (74%) of Australians feel now is a good time to buy property, according to RP Data’s Nine Rewards Survey of housing market sentiment. While the results show the vast majority of those surveyed think the timing to purchase a home is good, there was a reduction from the survey’s May 2013 results, where 80% of respondents thought it was a good time to purchase a home. The final figure is also slightly lower than a year ago, when 76% of respondents thought it was a good time. Results varied dramatically from state to state, however, with not a single respondent in the Northern Territory believing now is a good time to buy. Similarly, the survey shows a smaller proportion of Sydney respondents (63%) think now is a good time to be purchasing a dwelling – the May results were 10% higher for Sydney, at 73%. RP Data’s Tim Lawless says dwelling values have moved 12.2% higher across the Sydney housing market since bottoming out in May, 2012 and that many prospective Sydney buyers have either been priced out of the market or would be viewing the current level of capital gains as unsustainable. “The ongoing debate about a housing market bubble is clearly an issue that has the potential to dampen housing market sentiment,” Lawless said. More than 80% of survey respondents thought it was a good time to be buying a home in Adelaide, Regional Western Australia, Regional Queensland and Brisbane. Furthermore, 60% of survey respondents believe the Australian housing market may be vulnerable to a significant correction in values. While the survey didn’t probe further into what level of value decline would be considered ‘significant’, Lawless says it’s clear that there is a level of unease about the future of Australian dwelling values. Respondents based in the Australian Capital Territory, Perth and Sydney showed the most significant level of pessimism when it came to their belief that dwelling values are vulnerable to a significant correction. Conversely, respondents in Tasmania, where the housing market has been the weakest of any state or territory, are much less pessimistic. Only 36% of respondents thought the housing market was vulnerable to a significant correction in dwelling values. The proportion of pessimistic responses was below 60% for respondents based in the Northern Territory, regional NSW, Adelaide, Brisbane and regional Victoria. Finally, just over half (51%) of respondents expect home values to rise over the next six months, compared with just 33% of respondents in October last year. Only 6% of respondents were expecting values to fall over the same time period.
CONFIDENCE IN THE HOUSING MARKET VARIES SIGNIFICANTLY FROM CITY TO CITY
70% Sydney ACT
DID YOU KNOW?
Proportion of Australians who believe the housing market is vulnerable to a significant price correction Source: PRDnationwide
Source: RP Data
IS NOW A GOOD TIME TO BUY?
NO 24% YES 74%
October 2012 Source: RP Data
IS NOW A GOOD TIME TO SELL?
NO 29% YES 53%
YES 71% October 2012 Source: RP Data
BUSINESS INTELLIGENCE 20
If at first you don’t succeed … Failure may shake your confidence, but one business coach offers advice on how to pick yourself up after a setback
very business goes through its rough patches, and many brokers have had more than their fair share in recent years. So how can you pick yourself back up after a setback? And what happens if you have to completely rebuild? Jon Dale, director of Small Fish Business Coaching, learnt his lessons the hard way, when tough times during the GFC forced him to shut down his franchises and downsize his business. “I went from being the CEO of a global business coaching franchise back to being largely a business coach again. It was a complete rebuild, going back to focusing on doing my own marketing and meeting clients… back to the basics and all the things you did in the beginning – except you’ve got no money to do it with.”
“I use that to reassure myself that I’m not wasting my time. You have to focus on the process a little bit too and you have to know that going to your networking group or investing time and energy in your website is worthwhile.” Persistence is one of the most crucial, and difficult, aspects to recovery after a setback, says Dale. “It’s very easy for people to try things and give up, move on, say ‘That’s not working’ and go and try something else, whereas really a lot of these things that we do require a good long go. You can’t go and see five people and say ‘Oh no one’s interested anymore I’m going to stop’ or ‘I’m going to stop putting my ad out there because of four people who called me who weren’t suitable’.”
PERSISTENCE PAYS OFF
Dale found breaking goals down into manageable chunks, using something he terms ‘reduction to the ridiculous’, helps with this. “How many loans are written every year? Millions. And how many does a broker need to succeed?” he asks. Work out approximately how many loans you need to write each year to earn a comfortable income, break that down into a weekly and daily number, followed by approximately how many meetings or phone calls you think you’ll need to have to write that number. “It’s about breaking it down into things you can influence,” says Dale. “You can’t sit there and say ‘I’ll write 200 loans in a year’ but you can get up every day and make enough phone calls or go to enough meetings to get you on the right track.”
While Dale admits his confidence was shaken, he didn’t let his setbacks bring him down. He put in the hard yards to keep his business afloat, and now employs a team of business coaches across Australia, with a view to continue to expand Small Fish in the future. “I’ve gone out there trying to be a business coach and find clients again, and it’s harder than it was in 2006 when I started but there’s still business out there. I’ve worked really hard and done all of the things that I know worked, and lo and behold it’s starting to pay off.” The key to finding the motivation to keep going has been the realisation that, while the market has shrunk, it hasn’t disappeared altogether, says Dale.
BREAKING IT DOWN
BUSINESS INTELLIGENCE 21
YOU CAN’T SIT AND EXPECT YOUR AGGREGATOR’S WEBSITE TO SEND YOU ENQUIRIES. YOU CAN BUY A SHOP FRONT IF YOU’RE MORTGAGE CHOICE OR SOMEBODY AND EXPECT YOUR SIGNAGE TO DRAW A FEW PEOPLE IN BUT YOU’VE GOT TO GO AND SEE PEOPLE AND NETWORK AND ASK THEM TO CONSIDER YOU IN A VERY DIRECT WAY - J ON DALE, SMALL FISH BUSINESS COACHING Dale gives similar advice to his staff, and also requires them to report to him regularly on their marketing, lead generation and communications. “If you’ve got mortgage brokers working for you hold them accountable for that activity. I’d ask my clients to report back to me and I’d ask them ‘How many times yesterday did your business ask somebody to consider your service or product?’ “It’s particularly important for people like mortgage brokers because we’ve got to go and prospect ourselves. You can’t sit and expect your aggregator’s website to send you enquiries. You can buy a shop front if you’re Mortgage Choice or somebody and expect your signage to draw a few people in but you’ve got to go and see people and network and ask them to consider you in a very direct way.” Picking yourself back up after a fall is never easy, but by focusing on the small things and determining what gets you motivated you can find success again, says Dale. “It’s about that persistence. Most of the people that have failed have failed because they gave up. If you keep the faith and you do the things that you know work you can succeed.”
CASE STUDY: TISH NAUGHTON Tish Naughton survived the failure of two businesses before finding success as the founder of Black Sheep Finance and corporate advisory firm Square Projects, and she admits there were times she thought she may have chosen the wrong path. “I guess the only thing that stopped me quitting was my pride, because when you’re at your lowest and you’ve got debt and no income coming in you think ‘Why am I doing this?’. But there were people in the industry that said ‘Don’t give up, you’re good at what you do, just keep going’, and I guess I’ve always believed that if you don’t give up you’ll make it.” At one point Naughton took up work at a friend’s building company to make ends meet, having had experience renovating her own properties. “There were times where at the start of the day I was helping lay stormwater trenches and then I would go home, shower, and go meet a client, and they’d have no idea what I’d just been doing.”
The trail to success Top broker Jeremy Fisher says brokers should treat their trail as a ‘management fee’, and use it to look after existing clients
reat brokers should treat their trail commission as a kind of ‘management fee’, and invest trail back into looking after existing clients, says top broker and 1st Street Home Loans director Jeremy Fisher. 1st Street was awarded the coveted Best Customer Service from an Individual Office at the annual Australian Mortgage Awards, and says concentrating on giving the best service to his current client book has been key to his success. “I think the chase for new business can sometimes be a distraction or cloud the main focus of how you got to where you are today – which is because of your existing clients. They’re not going to be as profitable compared to going out and getting new loans… but it’s so important to invest time and resources into your existing clients to ensure their on-going experience is rewarding and simple and easy.” Making a complicated loan process seem simple and seamless to the client is crucial to a positive customer experience, says Fisher, and feedback that reinforces this confirms that they are doing the right things by their clients.
THE CHASE FOR NEW BUSINESS CAN SOMETIMES BE A DISTRACTION OR CLOUD THE MAIN FOCUS OF HOW YOU GOT TO WHERE YOU ARE TODAY – WHICH IS BECAUSE OF YOUR EXISTING CLIENTS - J EREMY FISHER, 1ST STREET HOME LOANS Further reinforcement of this comes from the fact that almost all 1st Street’s new business comes via referrals from existing clients. “The proof is in the pudding given that other brokers are sourcing all their business from paid leads or websites, SEOs and AdWords and paying referrers to give them business, whereas our existing clients are our biggest supporters. “Our focus from the outset has not been on simple advertising and trying to will people in the door, it’s been purely based on existing customers, fostering relationships and being 100 per cent responsive to their needs so that our client retention is pretty much at 100 per cent of our database.” This means responding to emails and phone calls on the same day, says Fisher, and if you find yourself too busy to respond in detail right away, send a brief message to let them know that they will have a response overnight. Clients of 1st Street are also contacted at a minimum of 14 touch points per year, including
personalised, client-specific newsletters at relevant times. 1st Street also regularly uses questionnaires to get feedback from clients on their service, and takes this on board for future client communications. Monthly meetings with 1st Street brokers also serve to generate ideas for constantly improving their customer service, says Fisher. When recruiting new brokers, Fisher strives to ensure that they fit in with the company’s values, and that they will prioritise a client’s needs well after their loan has been settled. Putting in place a structure for customer service has helped to ensure all 1st Street clients receive the same high level of support. “When it was just me I didn’t need the systems in place but as the business has grown I had to realise that not having a solid kind of CRM and lodgement platform in place meant I wasn’t able to manage the business effectively from a larger perspective. I’m not able to step back and look at what’s going on to ensure we’re not missing any opportunities.” A strong structure has also helped with time management, freeing up Fisher to spend more time with clients. While he freely admits he still hasn’t got everything right, and works much longer hours than he would ideally like to, customer service is something he believes there is no excuse for skimping on. “Service is a simple thing. It’s free and it takes just a couple of extra minutes out of your day to provide that little bit extra and it’s not that hard. I’m pretty busy; I’m doing a lot of loans and I’m looking after eight brokers, but I never want a client to feel like they’re waiting for me.”
KEEP IT SIMPLE Jeremy Fisher’s 1st Street Home Loans took out the award for Best Customer Service from an Individual Office at the 2013 Australian Mortgage Awards. Fisher said his business’ customer service philosophy was simple, but effective. “I think we try to do everything we possibly can with the client’s interests at heart. It’s a simple approach: we treat the clients how we want to be treated. It’s simple, but it obviously works.”
THE COALFACE 23
Collecting accolades He’s only been in the business for four years, but Canberra broker, Brad Quilty’s stockpile of awards just keeps growing
anberra broker Brad Quilty’s collection of accolades reads like a shopping list of top broking awards: He took home Elders Home Loans Young Gun of the Year in 2011, MPA Magazine’s Young Gun 2012 and was a finalist for the MFAA 2012 Achievement Award. His brokerage, Tungsten Home Loans, was a finalist in the AMAs for Best New Brokerage in 2012 – a prize he eventually won at this year’s event. Looking at what he and his fiancé, Micarla, have been able to achieve over the past four years, you could be forgiven for expecting an extensive finance background was at play. You would be wrong. “I started mortgage broking in mid-2009…I had no prior banking or finance experience, except for what I had read in magazines about loan structuring. After looking at quite a few options, I started with Aussie and was there for about 16 months before being asked to join Elders Home Loans. Eighteen months with them and my partner Micarla and I decided we would like to establish our own brand with our own identity – and Tungsten Home Loans was born.” Quilty says Micarla’s – who used to manage a national conveyancing office – legal expertise is a major business strength and something that
offers clients peace of mind. “We do find that occasionally we come across solicitors and real estate agents trying to put one over our clients and Micarla can step in on our clients’ behalf and sort things out.” He says educating clients about how the lending process works is another major focus at Tungsten Home Loans. “We like to educate our clients into the reasons for the loan that is chosen and how to use the features it comes with. We would rather get the right loan for the client first time, rather than having to change it…We also have an underlying goal to get all of our clients into a better financial position by being the catalyst for that to happen. ” Furthermore, while he admits there are issues, Quilty believes that brokers are in for a relatively smooth ride over the next decade or so as long as the industry can attract enough new entrants. As this year’s AMA New Brokerage award winner, he advises new brokers ensure they do the best they can for every client. “In the end, that is what our industry is created around. In the months and years ahead, that is what will set you apart from others and gain you a solid reputation. The first 18 months in the industry is some of the hardest times you could ever have, but the rewards are amazing.”
FINANCIAL SERVICES 24
ASIC gets serious with jail time A former Bell Potter Securities adviser who pleaded guilty to dishonest conduct involving more than $1.7m has had his original suspended sentence quashed and been jailed for one year by the NSW Court of Criminal Appeal. The court sentenced Lawson Stuart Donald to two years in jail, with release after one year. Commenting on the original suspended sentence, the court said: “... the sentence failed to reflect the gravity of the offence and failed in particular to serve as an effective deterrent to other similarly intelligent, competitive professionals in the financial markets...”. Following an ASIC investigation, Donald was found to have dishonestly used his position as an employee of Bell Potter with the intention of directly or indirectly gaining an advantage for himself, or someone else, by rebooking share trades, or transferring trades from one client account to another.
US calls on Australia to put
FA Institute, the global association of investment professionals, has proposed the concept of an ‘Investor First’ day to emphasise that all participants in the financial sector should put the investor first – and it’s targeting Australia. Paul Smith, CFA Institute’s Asia-Pacific managing director, says this is a prerequisite for improving investors’ trust in the financial system. “We’ve already started to do this in the US, and we’re taking the concept national there. Australia is one of the countries in which we’d also like to see such a day adopted,” says Smith. “While Stronger Super and Future of Financial Advice reforms are a step in the right direction, the new Coalition government has the opportunity to further steer Australia’s investment industry towards a more transparent system, instilling a renewed focus on ethical behaviour rather than focusing on performance-centric standards.” Smith says that investors expect the government to help build trust in capital markets. A CFA survey found that 52% of investors believe that national and global regulators have the greatest opportunity to effect change and enhance trust. “However, it is up to us all, including CFA charterholders, fund managers, brokers, advisers and regulators, to build a more robust and trustworthy financial system,” says Smith. The recently released CFA Institute & Edelman Investor Trust Study shows that investors worldwide have little trust in the investment industry. The survey of over 2,100 retail and institutional investors in the US, UK, Hong Kong, Australia and Canada found that 53% trust investment firms to do what is right. The survey found retail investors are less trusting of the industry (51%) than their institutional counterparts (61%).
In April 2013, Donald, a former first-grade captain at Sydney’s Randwick District Football Club and an Australian Barbarians player, received a suspended jail term upon entering a good behaviour bond. The Commonwealth Director of Public Prosecutions, in consultation with ASIC, appealed the sentence, on the basis that it was manifestly inadequate. The court added: “It has also been repeatedly observed that the real bite of general deterrence takes hold only when a custodial sentence is imposed ... notwithstanding judicial statements to the effect that a suspended sentence is a sentence of imprisonment, the community (including those in ‘white collar’ occupations) might be justifiably forgiven for thinking that an offender who is serving a bond in the community has escaped meaningful punishment.”
THOUSANDS STUNG BY BOQ ERROR
The drop in UK financial advisers from 2011 to 2013 Source: Financial Planning Standards Board
The Bank of Queensland (BOQ) will expand its review of its compliance systems, following a request from ASIC. There have been further reports of errors in the bank’s interest rates and fees. The review was sparked after BOQ self-reported to ASIC a $12m customer error following a system issue. This error was caused by a failure to link mortgage offset accounts (MOAs) to some eligible home loan accounts over several years. The failure meant borrowers paid more interest than they should have done. In August 2013, BOQ said an internal review had identified further errors, some dating back to 2004, resulting in customers
being overcharged in fees and underpaid in interest. The bank confirmed it would refund an additional $34.5m and pay another $11.5m to fix these further errors. The MOA and additional errors have impacted on approximately 46,000 customers, with refunds and remediation costs amounting to $58m. “We want to make sure the expert’s review leaves no stone unturned and all customers are appropriately compensated. The review will also ensure that any necessary compliance system improvements are made to minimise the occurrence of similar errors in future,” ASIC deputy chairman Peter Kell said.
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ONE YEAR ON 26
ONE YEAR ON What a difference a year makes … or not. Australian Broker reflects on the punditry, news and trends that made headlines 12 months ago Australian Broker Online, Nov 2012
Non-bank collapse puts investors at risk The market was shocked last year when non-bank lender Banksia was put into receivership, putting $600m of investor funds in peril. The company entered receivership at the behest of its board, who feared for Banksia’s solvency. Investors were warned at the time that they would no longer receive regular payments, nor would their investment be returned to them on maturity.
What’s happened since?
Investors received a ray of good news this year when Banksia’s receiver, Tony McGrath, said debenture holders were likely to receive a repayment higher than original estimates. Unfortunately, this meant debenture holders could expect 70-80% of their original investment rather than 65%. Cold comfort.
NAB most popular major bank in history NAB’s aggressive marketing campaign last year paid dividends, as the bank received the highest Roy Morgan customer satisfaction ranking of any major since the firm began its survey in 1996. The bank saw 80.3% customer satisfaction for September of last year, becoming the “clear market leader”, according to Roy Morgan.
What’s happened since?
Falling interest rates have seen the other majors curry customer favour over the last year, with customer satisfaction among the Big Four hitting its highest point in 18 years. NAB has been unseated over the past year, though, with CBA taking the crown at 81.4% satisfaction as of September.
Making your customers your biggest advocates
reat customer service is an integral part of any successful broker’s service proposition, which is why BrokerTV caught up with two 2013 Australian Mortgage Awards nominees for Best Customer Service from an Individual Office for some wise words on dealing with clients. Justin Doobov of Intelligent Finance believes it’s all about exceeding expectations and fellow nominee, Simon Orbell of Smartmove, maintains it’s more about the personal touch. “It means going the extra mile, setting the bar higher and then aiming to exceed it and offering consistent service…it doesn’t matter if it’s a small loan or a multimillion dollar loan, consistency’s the key there,” says Doobov. Orbell says customer service at Smartmove is all about ensuring the client becomes an advocate of the business when they leave the office. “All of us want to give the same advice that we’d give to our own sister and that’s sort of how we run things and that’s, I feel, a big part of our success. We’re just so focused on what’s right for that particular person and that particular situation... Customer service for us is all about making sure the customer becomes an advocate of our business from the moment they leave our offices.” When it comes to industry trends, Doobov says clients are increasingly rate sensitive and often need to be reminded of the value of advice. “Over the past few years, we’ve noticed a lot more clients are rate sensitive, because all the advertising in our market’s about price, price, price. Though, after our initial meeting with our clients, we show them that the advice and the service is the most important – as long as we can do that at a competitive rate. We deal with over 40 lenders, so we’re able to get cheap interest rates and then we can work out how much service a client expects from a lender and we can make sure we can match that so that the service levels the lender offers meets the expectations from the client.” Furthmore, Orbell believes technology is likely to play a major part in how brokers interact with clients in the near future. “I think one of the biggest things that technology can do to strengthen and create more efficiency in our industry is in regards to the loan documentation process. At the moment it’s an extremely manual, physical part of the process and I believe that as time goes by, that whole process could be taken online.”
ASIC points the finger at brokers Recently accused of failing to investigate allegations of fraud among lenders, ASIC claimed brokers shouldered more of the blame
Negative gearing still a positive?
The REIA recently took aim at a suggestion from The Grattan Institute that negative gearing be overhauled. While many see negative gearing as a tax dodge driving up the cost of property, Broker Tony said the policy was a public service.
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“It is about time there was a fundamental recognition that negative gearing is not a product that someone can invest in to reduce their tax. It is a genuine situation where an investor has made insufficient income to cover their costs and consequently incurred a loss. It is no different to running a business and over time the rent should increase and the property will eventually make a profit on which tax will be paid. If the earlier losses are due to depreciation claims then the eventual capital gain will be higher and tax will be paid then. At best negative gearing is a deferral of tax, a recognition of the realities of investment in geared assets and minor compensation for genuine losses incurred to assist put a roof over a tenant’s head. If you are negatively geared by $10k pa your tax refund on that will for most people be $3k-$4k at best , i.e., you are genuinely losing $6k-$7k which will never be recovered except by capital gains which are also taxed. This is not a rort – it is a public service and should be recognised as such.” Broker Tony on 23/10/2013 9:55AM
SIC was recently accused by the Banking and Finance Consumers Support Association (BFCSA) of failing to properly investigate allegations that lenders had committed widespread low-doc fraud. ASIC denied the accusations, and added that loan fraud was more commonly instigated by brokers rather than lenders. Brokers were unimpressed with the regulator’s claim. John Broker said ASIC’s claim was disappointing, but far from surprising. “Statements of this kind by ASIC are disappointing, yet are to be expected from a group that is somewhat successful in whipping the little guys, but have been so far hugely unsuccessful in their multiple futile attempts to crunch the big end of town. That said, I applaud their removal of any dodgy operators in the broking space. It is just a shame they aren’t telling the whole story.” Ray claimed that if ASIC had not found fraudulent activity
THE RISK OF RISK FEES
La Trobe Financial recently came out against the practice of specialist lenders charging risk fees to clients.
Bank said no on 23/10/2013 10:03AM “When La Trobe offers a 90% loan for people who are one day out of bankruptcy I will care about their opinion about risk fees at high LVRs. Clients are happy to
BORROWERS STRETCHED TOO THIN
COSL has warned borrowers to be wary of stretching themselves too thin in a low interest rate environment. Noel on 23/10/2013 10:12AM “Everyone knows that the lenders’ serviceability calculators are a joke. Get real and service each loan to each individual applicant’s own circumstances.”
BROKER OF THE YEAR REVEALED
The Australian Mortgage Awards named Colin Lamb Australian Broker of the Year.
instigated by lenders, it was merely because the watchdog wasn’t looking hard enough. “I am sorry ASIC but you are either not looking hard enough or you are blinkered in relation to questionable lender activity. Coming from a long term banking career what some of the bigger lenders are doing nowadays leaves me breathless and shaking my head! To me they seem to be pushing the envelope as to what is ethical and what is not.” Keith of the West said he had seen questionable activity by lenders firsthand. “In another life I managed sales personnel as a Senior Team Leader in a major bank, and it never used to cease to amaze me some of the dishonest behaviour conducted by bank staff, under pressure of course set targets almost humanly impossible to achieve. In one case, an individual lowered the computer calculated tax rates in order to get deals approved. This like so many buried by big corporation without knowledge to the external regulators.”
pay it and higher interest rates because they have no other choice. Why doesn’t La Trobe give them a better option? Smoke & Mirrors on 23/10/2013 11:28AM “La Trobe do not have a risk fee, but they have a percentage-based application fee that is not payable at application stage, only at settlement! Risk fee, application fee: one and the same?”
overtheborderbroker on 23/10/2013 9:38AM “COSL’s warning should be heeded as it’s the broker in a few years’ time who will get the first call when rates go back up to the high six percents and borrowers can’t pay, and it’s the broker who will go through an agonising COSL investigation process to clear their name.”
That Guy on 24/10/2013 10:31AM “I was robbed.”
Financing a future A group of Sydney equipment financiers has decided to band together to give Ugandan children a future
uliet has spent much of her life earning money for her family by digging ditches. The back-breaking labour along with poor nutrition have stunted her growth, and at 4ft 10in and 40kg she’s tiny for a 21-year-old. She’s spent the past six years living in an orphanage, her father having died during her mother’s last pregnancy. Now, against all odds, Juliet will be going to university. The young woman’s bright future has been made possible through an unlikely source: a group of Australian equipment financiers. In a project
spearheaded by Sydney-based S.E. Rentals and its managing director, Steve Sykes, two other finance providers, Macquarie Equipment Rentals and Capital Finance, have come on board to donate a percentage of their new business to charitable activities. S.E. Rentals raises money for projects focused on educating disadvantaged children like Juliet, as well as supporting an orphanage in Uganda’s capital, Kampala. The idea took shape after Sykes and his wife visited Uganda and began supporting 16 boys in the Kampala orphanage. After a second visit, Sykes decided his business would step up its support. “Due to the high level of poverty, sickness and death from HIV/AIDS and malaria, a lot of children are placed in orphanages. In some cases, the children do have parents but they are unable to provide for their children’s basic needs and know their children will be safe, fed and educated in these homes,” Sykes said. Earlier this year, Sykes’ efforts saw a bakery built in the Kanani village community, with the goal of providing a sustainable income for the orphanage. And as a result of the financiers’ charity efforts, construction – previously halted due to a lack of finance – was completed on St Stephen Memorial School. The program also sponsors 11 children at another orphanage in Kankobe. The ultimate goal is for the orphanages to become self-sustaining, creating small-business opportunities for their communities and a source of income to support the children who live there. Andrew Gee, head of Macquarie Equipment Finance, said his company was proud to be involved in the project. “Macquarie Equipment Finance is pleased to support this initiative. We hope that our support will make a meaningful contribution to developing and strengthening the orphanages as well as the local communities that the children come from.”
ow Financial recently held its annual National Conference in Hawaii at the Sheraton Waikiki. Brokers were treated to a reception at Sea Life Park.
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Smelling like an idiot and other fun side-effects of stress 2. STRESS MAKES YOU LOOK OLD
While it’s a myth that stress can turn hair grey, stress can cause hair loss. In fact, hair loss can start up to three months after a stressful event.
3. STRESS MAKES YOU FAT
The stress hormone cortisol not only causes abdominal fat to build up, it also enlarges individual fat cells, leading to what researchers call ‘diseased’ fat.
4. STRESS MAKES YOU STUPID
Chronic stress floods the brain with powerful hormones that are meant for short-term emergency situations. Chronic exposure can damage, shrink and kill brain cells.
5. STRESS CAN BE INVISIBLE
You can be physiologically experiencing stress, yet mentally oblivious to it, because your brain’s become accustomed to it. Some people have become so adapted to stress that it can seem to be their natural state.
tress is part and parcel of being a mortgage broker and, while we know full well that it’s bad for our health, it turns out it can also make you smell incompetent to those around you – particularly if you happen to be a woman. New research has found that women who are stressed omit a smell that makes them come across as incompetent and untrustworthy to men. Scientists have proven that people’s perceptions of someone under pressure change when they can smell stress sweat – which is different to the sweat caused from exercise or being hot. Compared to exercise or heat-induced sweat, the sweat odour given off by a stressed woman is perceived by both sexes as unpleasant and causes them to judge the sweater as lacking in confidence and competence and as untrustworthy, reports the Daily Mail. Scientists explain that exercise and heat sweat is produced from one type of sweat gland, whereas stress sweat comes from two and when those liquids mix with bacteria on the skin it makes a particularly foul smell. However, smelling like an idiot isn’t the only unpleasant side-effect of being under pressure. We’ve compiled a list of five little-known stress facts below – and we should probably warn you that the following information is likely to stress you out:
1. STRESS IS WORSE IN SOME PROFESSIONS THAN IN OTHERS (THOUGH YOU PROBABLY ALREADY GUESSED THAT)
A recent study found the top most stressful jobs were: surgeon, commercial airline pilot, photojournalist, advertising account executive, and real estate agent. The least stressful jobs were actuary, dietician, astronomer, systems analyst, and software engineer.
VALUING MURDER If there’s somethin’ strange in your neighbourhood, (or you’re trying to sell a home where Satan worshipers made bloody sacrifices on the hardwood floors), you don’t ask questions: You call Randall Bell. Bell’s a US-based real estate appraiser who’s travelled to seven continents over more than 20 years researching the effect that disasters and horrific crimes have on real estate values – and his case load is essentially just a list of all the places where famous (and nasty) things have happened over the last two decades. According to a recent Los Angeles Times article, as well as his own CV, Bell has been charged with appraising everything from the Rancho Santa Fe mansion where 39 Heaven’s Gate cult members committed suicide, to JonBenet Ramsey’s house in Colorado, to the World Trade Center site and Bikini Atoll nuclear testing location. “I love a challenge – the biggest, baddest, bring it on,” Bell tells the newspaper. “Every day of the week, there are new places to go and new disasters.” Like all real estate appraisers, Bell uses sales of similar properties to judge value. However, the fact that each of the sites he deals with has experienced some sort of traumatic event, whether it be a
natural disaster or a mob hit, means he needs to travel a little further afield to find viable comparisons. As a result, Bell travels around the world collecting relevant information and anecdotal evidence on the effects disastrous events have on property values. While he’s gone to a number of eerie (or just downright terrifying) places, he admits he has reached his limit on one occasion. In 2010, Bell travelled to Egypt, Jordan, Israel and the West Bank, searching for sites in places attacked by terrorists. Near the Ibrahim mosque in the West Bank city of Hebron, where an American-born Israeli settler massacred 29 praying Palestinians in 1994, he encountered a man waving a machine gun who threatened to kill him and his guide. “Then,” reports the LA Times, “came the whine of an air-raid siren, the crackle of machine-gun fire and a bomb going off in the distance.” “I hit my limit with Hebron,” says Bell. Luckily, he’s amply rewarded for his efforts: Bell reportedly charges a cool US$375 per hour.
AGGREGATOR / WHOLESALE BROKER
Quantum Credit 1300 135 212 www.quantumcredit.com.au Page 8
Liberty Financial 13 11 33 www.liberty.com.au Page 3 Macquarie 13 62 27 macquarie.com.au/mortgages Page 11 ME Bank (03) 9708 3994 mebank.com.au Page 9
Choice Home Loans 1800 188 288 www.choicehomeloans.com.au Page 7
Commonwealth Bank 13 20 15 www.commbank.com.au Page 5
Semper Capital Pty Ltd 1 800 SEMPER (1 800 736737) www.semper.com.au firstname.lastname@example.org Page 21 LENDER Homeloans Ltd 13 38 39 www.homeloans.com.au Page 13
Resimac 1300 764 447 www.resimac.com.au Page 32 OTHER SERVICES Deposit Power 1800 678 979 www.depositpower.com.au Page 15 RP Data 1300 734 318 Page 23 Trailerhomes 0417 392 132 Page 26
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
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8/10/2013 2:38:23 PM