Australian Broker 11.01

$4.95 POST APPROVED PP255003/06906

JANUARY 2014 ISSUE 11.01

+INSIDE + NEWS A look at what’s been making headlines P4

+ ANALYSIS

Christa Malkin:

HANDS-ON LEADERSHIP

Bank of Melbourne’s Christa Malkin has said the lender will be ‘hands on’ in taking its message to the broker market in 2014

C

hrista Malkin may have been in her role a short time, but she’s ready to hit the ground running. Recently announced as broker head for Bank of Melbourne, Malkin already has a wealth of experience in the broker channel, and has said she’s looking forward to taking a hands-on approach to the Victorian broker market.

FULL STORY PAGE 16

THE LMI WAR WAGES

Brokers are still taking LMI providers to task P10

+ ANALYSIS FLAWED BELIEFS 10 broker beliefs that could throw you off course P12

+ BEST PRACTICE THE FINE ART OF NEGOTIATION Four keys to negotiating successfully P18

+ BUSINESS

INTELLIGENCE

REMEMBERING MANDELA

Leadership lessons from the life of Mandela P22

+ PEOPLE RACE TO THE TOP

Deposit Power’s racing dynasty P28

NEWS 2

brokernews.com.au

WHAT THEY SAID...

NUMBER CRUNCHING

ASSESSING THE YEAR

HARLEY DALE

A look back at the highs and lows of the property market in 2013 BEST-PERFORMING CAPITAL CITY Sydney +4.1%

FAST FACT

WEAKEST-PERFORMING CAPITAL CITY Canberra -1.3%

49%

HIGHEST RENTAL YIELDS Darwin houses with gross rental yield of 6%; Darwin units at 6.2%

“It’s no secret that there’s a general hope within the Australian business community that we see a lower average dollar rate for 2014 than we have over the last few years” P8

LOWEST RENTAL YIELDS Melbourne houses with gross rental yield of 3.4%; Melbourne units at 4.2% MOST EXPENSIVE CITY Sydney with a median dwelling price of $655,250

JENNY BODDINGTON

The proportion of homeowners paying ahead on their mortgage

“We regularly review our pricing to ensure stable and reliable provision of LMI across the economic cycles” P11

Source: ING Direct

MOST AFFORDABLE CITY Hobart with a median dwelling price of $330,000 Source: RP Data

DARYL HILL

“Consumers, no longer babes in the woods, are increasingly taking the lead in selecting their home loan providers” P14

NEW YEAR, NEW START

48% 23% 22% 1 IN 10

(12%)

of Australians will make a New Year’s resolution say they will improve their health (lose weight, increase fitness)

DID YOU KNOW?

11.6%

The rise in Sydney house prices over 2013 Source: Colliers International

will improve their financial position will be looking to get a better job or further their career

Source: ING Direct

GLENN WILLIAMS

“I have seen many brokers grow their businesses and exceeding their goals in both professional and personal contexts” P23

NEWS 4

brokernews.com.au brokernews.com.au EDITOR Adam Smith

Economists: Time to Fixing in favour as consumers hedge bets take too-big-to-fail out ■ Demand for fixed-rate home loans has reached of the system its highest levels in nearly six years, with figures climbing in almost every state in the final stages of 2013.

According to the latest data from Mortgage Choice, fixed-rate home loans soared to 33.06% in December, significantly higher than the 30.56% recorded the month before.

Across the country, demand for fixed-rate products increased in every state bar NSW, which recorded a 0.58% drop.

At the other end of the spectrum, Queensland recorded the biggest jump in demand for fixed rates, with this type of product now accounting for more than 44% of all home loans written.

Overall, variable-rate home loans continue to prove the most popular among borrowers, accounting for 66.94% of all home loans written in December.

MORTGAGE PRODUCT DEMAND FOR DECEMBER Basic variable Standard variable

8.69%

Fixed

14.29%

%

2 .6 8

Line of credit

2 .0

6%

33.06%

39.21% Ongoing discount

Introductory rate Source: Mortgage Choice

Major slams credit constriction accusations ■ CBA has hit back at accusations that banks

are constraining growth by restricting credit to small businesses.

With Goldman Sachs economists describing business borrowing in Australia as “anaemic” and analysts accusing banks of cherry-picking clients following lower risk tolerance post-GFC, CBA’s Grahame Peterson has defended the bank’s position.

“We’re not capital constrained, we’re not constrained by credit policy; we’ve been very consistent with our clients and our approval rates are relatively similar (since pre-GFC) and we’re very keen to do business,” the bank’s head of business and private banking told The Australian.

“The reality is if you look at any of the data out there, pre-GFC roughly two-thirds of business enterprises borrowed or had some form of debt, and now post-GFC the number is around 30%.”

The business banking market remains intensely competitive, said Petersen. “Where would the logic be for any enterprise to say: ‘No I don’t want to do business?’”

Petersen said confidence had improved, but businesses had not yet started borrowing more.

PUBLISHER Simon Kerslake COPY & FEATURES JOURNALISTS Amy Rosenfeld, Cameron Edmond PRODUCTION EDITOR Roslyn Meredith

■ The previous two major financial system

inquiries categorically failed to address competition issues in the nation’s banking sector, say leading economists.

Former ABA policy director Nicholas Hossack and Pegasus Economics principal Alistair Davey say the major four banks have consistently lagged the regional banks in customer satisfaction, yet continue to dominate the market.

“The major banks have always lagged [in customer performance results] and only recently have managed to make headway, narrowing the gap,” Hossack and Davey wrote in an article in The Australian.

“In a normal market, you would expect this divergence to have an effect on market share.

The opposite has happened. The least popular institutions have increased market share, both through attracting customers and by mergers.”

If the ‘too-big-to-fail’ issue had been addressed previously, the Australian banking system would be markedly different, they wrote.

“This doesn’t necessarily mean it would be superior, but the major banks would be smaller and the regional banks would be larger. There may also be more divergence in strategy among banks.

“Rather than the system dominated by four, Australia’s banking system would likely be characterised by about 10 medium-to-large banks, with each institution having an asset base of about $200 billion.”

Australia’s banks are also heavily invested in domestic real estate, restricting support for small businesses and entrepreneurs, particularly those reluctant to risk the family home as loan collateral, said the pair.

While the big four have been blamed for these issues in the past, too-big-to-fail is really a political issue, they said.

“If a credible commitment to competitive neutrality cannot be made, then this opens up a whole series of other questions. Do we just accept an uneven playing field? Should large banks be able to earn commercial profits if they are actually implicitly taxpayer subsidised?

“Neither Campbell or Wallis cracked this nut. If Murray can do so, he will add considerable value to the system going forward.”

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

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

PROPERTY LISTINGS PLUMMET ■

FAST FACT

7.2%

Asking prices for houses have risen 7.2% over the past year Source: SQM Research

The number of property listings fell in most states in 2013, with Darwin and Sydney recording the biggest yearly change.

According to the latest figures from SQM Research, year-on-year property stock was down 4.3% nationally, with Darwin’s listings falling 19.8% and Sydney’s down 19.6%.

In December the nation’s most populous city also took the biggest hit, with residential listings falling 26.4% in Sydney that month. Darwin saw an 8.5% drop in the final month of the year, in line with the national average.

Canberra saw the second-largest fall in December, with stock levels falling 17.6%.

Hobart was the only capital city to record a monthly rise in listings in December, increasing by 0.4%. Yearly figures in Hobart were down 5.7%, however.

NEWS

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Banking Code breaches double

WORLD NEWS UNITED STATES OF AMERICA US GOVERNMENT TRUMPETS FORECLOSURE MILESTONE

The US government has celebrated a foreclosure milestone, with more than three milion homeowners being kept out of foreclosure by assistance programs.

The country’s Federal Housing Finance Administration (FHFA) announced that Fannie Mae and Freddie Mac had completed more than three million foreclosure prevention actions since the start of conservatorship in September 2008.

“Three million completed foreclosure prevention actions is a significant achievement,” acting FHFA director Ed DeMarco said. “It represents real assistance to homeowners, improved stability for their communities, and has produced meaningful savings for taxpayers.”

CANADA CANADA’S MORTGAGE BOOK IMPROVING

The Canada Mortgage and Housing Corporation (CMHC) has reported that mortgages in the country are seeing an improvement in arrears.

“As of June 2013, 0.31% of residential mortgages were three or more months in arrears, compared to 0.33% 12 months earlier,” CMHC’s yearly Canadian Housing Observer report states. “Canada’s internationally recognized conservative mortgage lending practices are among the key factors contributing to this outcome.”

In terms of home financing, Canadian mortgage holders, as a whole, are making larger prepayments in a bid to pay off their mortgages sooner.

“About 31% of recent buyers reported making a lumpsum payment and/or increasing their regular mortgage payment in 2012 in order to pay off their mortgage sooner and 44% had their payment set above the minimum,” the report said.

■ Breaches of the Code of Banking Practice have almost doubled in

FAST FACT

898,000 The number of Banking Code-related complaints in 2012/13, up 11% from the previous year Source: CMCC

the past year, with breaches in credit assessment increasing 260%.

According to the latest Code Compliance Monitoring Committee (CCMC) Annual Report, 9,415 breaches of the Code of Banking Practice were reported in the 2012/13 financial year. This is a significant jump from the 5,794 recorded in 2011/12, and close to four times the figure recorded in 2010/11 (2,541).

CMCC chairman Brian Given said the details indicated that “generally the banks are continuing to improve their self-monitoring and reporting of code breaches and customer complaints”.

“On this occasion there has also been an increase in matters reported to the CCMC for investigation,” said Given.

Two banks accounted for 72% of all reported breaches, said the report. The largest increase in breaches was in the credit assessment category, in which 1,499 breaches were reported, up from 331 last year.

“This increase is primarily due to one bank’s activities in implementing stricter monitoring and more detailed reporting of non-compliance with internal credit provision policies and procedures which related to this provision,” said the report.

There were 12 significant breaches reported, which was two more than during the previous year. Significant breaches are ones where a large number of customers are affected, the breach occurs frequently, customers are exposed to potential loss, or an event indicates inadequate compliance arrangements.

Three of the significant breaches involved client confidentiality, one involving mortgage statements mailed to incorrect addresses, and another two involving sensitive customer information emailed to a group of clients.

EDR oversteps the mark – Naylor ■ The MFAA has raised concerns with Treasury that the external

dispute resolution (EDR) system has “overstepped its original purpose”.

MFAA president Phil Naylor said this view was shared by many industry groups attending a recent Treasury briefing on the upcoming Financial System Inquiry.

The EDR system “seems to have drifted from being a ‘dispute resolution’ body, as intended, to a consumer protection body”, Naylor said.

“We haven’t yet defined our position, but essentially EDR should focus on being an independent facility for settlement of disputes.”

Naylor also has similar concerns for the NCCP legislation, saying a focus for the MFAA will be “ensuring that NCCP sticks to the general principle of ‘responsible lending’ without attempting to micro-manage the operations of the industry”.

Phil Naylor

NEWS

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Conman jailed after impersonating broker

US Fed decision good news for Aussie brokers

■ A convicted con artist who – among other things – impersonated a

■ The US Federal Reserve’s announcement last

month that it would trim its US$85bn-a-month (A$95.7bn-a-month) bond-buying program to US$75bn, with future reductions dependent on economic data, could yield positives for brokers in Australia.

While the announcement of a gradual taper of US$10bn per month is “very modest”, the move signals a positive outlook for brokers, the housing market and the economy, HIA chief economist Harley Dale said.

“It’s no secret that there’s a general hope within the Australian business community that we see a lower average dollar rate for 2014 than we have over the last few years, and news that the Fed’s tapering is underway should bolster the US dollar and therefore lead to some depreciation in the Australian dollar – so in general it’s a tick in the box.”

Ultimately, the news should lead to higher business confidence, more investment in the economy, and a “sustained recovery” in residential construction and property transaction volumes, said Dale.

“The question mark is how long it takes for some decent traction in that recovery to form – and that’s probably where there’s still some uncertainty.”

The RBA has made it clear in a number of announcements recently that the Australian dollar is still uncomfortably high, with RBA governor Glenn Stevens stating at its most recent meeting that the board “has an open mind” about the need to lower interest rates further.

Speaking at the House of Representatives last month, Stevens indicated the Reserve Bank was increasingly looking to methods other than rate cuts to lower the dollar.

“Watch this space, work in progress, and we will be evaluating these things as time goes by,” said Stevens.

The Federal Government’s announcement has further decreased the likelihood of rate cuts, said Dale.

DID YOU KNOW?

1.8%

The rate of Australian population growth last year Source: ABS

mortgage broker now faces nearly 10 years in jail.

Gabriel Werden, a Victorian man who posed as a mortgage broker, solicitor, conveyancer and real estate agent simultaneously, was convicted of fraud totalling nearly $6m, the Herald Sun reported.

Werden, who at one point changed his name by deed poll to Robbie Rocket, used women’s voices and disguises to conceal his identity, and managed to fool homeowners into providing him with personal and banking details. He then used the details to secure mortgage loans against their homes, and withdrew money in cash from ATMs around Melbourne.

County Court judge Howard Mason called Werden’s conduct “callous”, the Herald Sun reported.

“People were prepared to put their trust in you, and most applicants appeared quite desperate.”

MEERKATS AND MORTGAGES ■

A leading comparison website is to launch a home loan vertical in early 2014, partnering exclusively with an aggregator group to offer lead generation to brokers.

Compare the Market, an insurance comparison website that made a name for itself last year with its meerkat mascot, revealed its plans to enter the mortgage market in an exclusive interview with Australian Broker.

Rob Clancy, general manager of business development and account management, said the model would provide an opt-in lead generation tool exclusively for brokers belonging to a particular aggregator, the name of which would remain under wraps for now.

“It’s too early to talk about who we’ll be partnering with at this stage but it will be a partnership with an aggregation business that will actually have its own brokers, so that will fulfil our broker requirements Australia-wide.”

With online home loan comparisons and the broker channel both seeing significant growth, it made sense to combine the two, said Clancy.

The consumer-driven focus of the broker channel was also an ideal match for Compare the Market, he said.

“We offer choice. So from a broker point of view they have a lot of products in the market and they allow customers more choice, so I think that’s probably the main reason we decided to go that way.”

ANALYSIS 10

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$30

$250M

20

90

The LMI battle rages on Brokers have continued to sound criticisms of the state of Aussie LMI

I

t looks as though the battle between brokers and LMI providers isn’t going away any time soon.

Late last year, QBE revealed disappointing results for its international business. The LMI provider experienced a $250m net loss in 2013 on the heels of disappointing results in its North American business. Analysts had previously predicted a profit of up to US$1.1bn.

QBE shares plummeted by 20% following the announcement.

“It is disappointing that in a year when we made excellent progress in improving our current accident year profitability, strengthened our key capital ratios and our balance sheet, successfully launched our Operational Transformation Program and strengthened our executive team, that we continue to be hampered by the past,” says CEO John Neal.

While the losses were driven by the insurer’s North American business – particularly $600m in goodwill write-downs and an increase in prior

accident claims provisions of around $300m – Australian mortgage professionals took the opportunity of the news to issue their refrain that the Aussie LMI marketplace remains broken.

Marty McDonald, director of Mortgage Experts Online, says premiums for loans with an LVR of over 90% have “almost doubled” in the past five years.

“I understand that APRA wants them to have enough contingency in case there was ever a property crash, but I think they’re gouging and there’s no competitive pressure between [Genworth and QBE].”

Currently, for a client looking to purchase a $700,000 home at 97%, the LMI will be approximately $28,500, calculates McDonald.

“Then there are stamp duties and legal fees which equate to about $30,000 and then they have to fund the deposit … so basically they’re going to have to come up with about $82,000 for an average-priced house in Sydney.

“Everyone’s got their finger in the pie, and the poor first home buyers are left with 3% equity and they’ve put $82,000 into it.”

A common refrain of criticism levelled at the LMI landscape in Australia is the lack of competition. With only two providers of LMI, ‘incumbent lender agreements’ may be serving to

11

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0,000 EVERYONE’S GOT THEIR FINGER IN THE PIE, AND THE POOR FIRST HOME BUYERS ARE LEFT WITH 3% EQUITY AND THEY’VE PUT $82,000 INTO IT – M ARTY MCDONALD

discourage more competition from entering the market, says McDonald, and other providers are likely cautious following difficulties in overseas property markets.

“But I think if they had a closer look they might find it’s quite an attractive proposition because they could just charge a little bit less than what Genworth and QBE are charging and I’m sure they’d be making some very healthy margins.”

Genworth Financial Mortgage Insurance recorded a net profit of $172m in the last financial year, while QBE Lenders’ Mortgage Insurance recorded $154.5m.

A Genworth spokesperson, while acknowledging that premiums have increased in the past five years, refutes the claim that there is insufficient competition in the market.

“While it is true that prudential capital requirements and pre-existing relationships could potentially pose difficulties for new entrants, Genworth believes that there is already healthy competition in the mortgage insurance market given the options available to lenders.

“Our premiums have increased over the period specified (though they certainly haven’t doubled), not least because of the impact of the GFC and the risk associated with continuing global economic uncertainty, but prior to this premiums had not increased for several years.”

Lenders have the option of using one of two private insurers, their own ‘captive insurer’ in some cases, or can choose to retain the risk themselves, says Genworth.

QBE LMI CEO Jenny Boddington echoed this sentiment, adding that lenders have the option of providing a low equity fee as an alternative to LMI. “We regularly review our pricing to ensure stable and reliable provision of LMI across the economic cycles. Changes to premiums in recent years have mainly been driven by increased regulatory capital requirements, continuing subdued returns on our investment portfolio and increases in claims,” says Boddington.

FAST FACT

Genworth Financial Mortgage Insurance recorded a net profit of $172m in the last financial year, while QBE Lenders’ Mortgage Insurance recorded a profit of $154.5m

Both providers pointed to LMI as an ‘enabler’ for first home buyers, assisting those who are unable to save a large deposit to get on to the property ladder sooner.

Encouraging more first home buyers into the market is an important issue for government and the industry, says Genworth.

The insurance provider is looking at hosting a summit in Canberra next year, focused on housing affordability, as well as contributing to the Senate’s Economic References Committee’s hearing.

“LMI is a financial product that may or may not suit each of your customer’s individual needs.

It is an effective tool that can be used to get people into homes more quickly and avoid the rental trap.

“We believe that consumers are best served by being presented with a range of options, with the costs and benefits clearly articulated, and that brokers are ideally positioned to provide this valuable service.”

BROKERS SOUND OFF Brokers on the Australian Broker Online forum have railed against rising LMI premiums and the lack of marketplace competition

MAC “Something has to be done about the escalating premiums. They have lost all touch with reality. Median house prices are nudging $700k in Sydney and yet any deal over 90% and over $500k and the LMI is absolutely punitive”

INCOGNITO “Can we all chip in and get an actuarial opinion on Australian LMI and pricing? That is the only way to prove what we all suspect. We can then put it out to the world to come in and shake this cartel up”

JAMES “Something certainly needs to be done.

Two LMI providers with very similar policies and pricing is not enough. This space needs competition like anything else”

ANALYSIS 12

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TOP 10 mortgage industry beliefs La Trobe vice president and head of major clients Daryl Hill shares 10 misguided beliefs that could impact your business in 2014

T

he following lists what we discern to be the top 10 beliefs governing mortgage businesses today, and are likely to be the cornerstone of many business plans for 2014 within the industry and worthy of some discussion:

TOP 10 BELIEFS IN THE MORTGAGE INDUSTRY

1

2 ECONOMIES OF SCALE ARE A KEY TO PROFITS

THE MORE VOLUME THE BETTER

4

3

5 SYNERGISM WORKS IN FINANCIAL SERVICES

7

6 CENTRALISATION BEATS DECENTRALISATION

8 CREDIT RISK IS NOT A CONCERN: PASS IT ON

10

CROSS-SELLING IS A KEY TO PROFITS

WHOLESALE FUNDS PROVIDERS ARE BROKERS’ FRIENDS

9

HOUSING IS A MAJOR MARKET . . .

THE CAPITAL MARKETS AND GOVERNMENT SUPPORT WILL ALWAYS BE THERE

IN THE MORTGAGE BUSINESS, THE SHORT RUN IS ALL THAT MATTERS

TECHNOLOGY WILL FAVOUR LARGE PLAYERS AND CONSOLIDATE THE INDUSTRY

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BELIEFS 1 & 2: ‘BIGGER IS BETTER’ – SIZE AND ECONOMIES OF SCALE FIX EVERYTHING Mortgage industry participants worship size and volume and believe firmly in the magical powers of economies of scale – a genuine fallacy of the more volume the better. Research on financial institutions shows economies of scale are neither automatic nor continuous with size. In fact, except in narrow operational fields, the most efficient financial institutions in a field are not the biggest companies.

The largest banks, non-banks and broking firms are not the low-cost producers. Furthermore, where scale economies are gained through re-engineered operations, in large organisations they are often lost to higher bureaucratic costs and in poor communications and response times up and down the chain of command. On the other hand, boutique operations with a specialised approach and high customer focus are often small but highly profitable

as they command a specialist price for their unique services.

This ‘bigger is better’ fixation is no more evident than in mergers and takeovers, which the industry has termed ‘consolidation’. In almost every instance of a takeover activity seen to date, promises are made about the cost savings to be achieved through size and new and improved service levels for consumers.

Regrettably, in practice the real economic synergies in the deal are the potential for staff redundancies rather than eliminating duplicated IT or improving other systems and processes.

But consolidations do eliminate competitors. The bad news is that in every instance the remaining competition has got bigger and more price oriented.

ANALYSIS 14

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BELIEFS 3 & 4: CROSS-SELLING AND SYNERGISM

BELIEF 5: CENTRALISATION BEATS DECENTRALISATION

As a corollary to the ‘bigger is better’ belief, the financial shores are littered with dreams of well-intended bank and non-bank organisations who believed consumers wanted a one-stop shop for financial services. The casual observer may not recognise the truth of that statement because of the many major companies who have bought that thesis – but many have entered and left the field. They entered with great fanfare and strong publicity; but when the strategy did not work, they put the concept to bed as quietly as possible.

Consumers, no longer babes in the woods, are increasingly taking the lead in selecting their home loan providers. Some players are now consumed with joint ventures or strategic partnerships, and large corporations like American Express, Qantas and BMW are offering mortgages to their members as a value-added perk.

However, examples of cross-selling failures abound: how about Sears with its ‘socks and stocks’ and real estate and banking theme (late 1980s); Wingspan, an IBM-BankBoston joint venture of 1998; and others? Operating a multichannel, multiproduct, multidiscipline business efficiently is capital and labour intensive, and consumers may not in fact wish to place all their business with one provider.

This is the equivalent of a ‘one size fits all’ or attempting to be ‘all things to all people’ approach, which has always proven not to be a sustainable business proposition.

Valuable lessons can be learned from studying other commoditytype consumer businesses: the grocery business, department stores, beverage companies and fast-food companies. All use pricing and specials as competitive weapons. They also use loss leaders and vigorous cost control, but, significantly, they focus on niche marketing and brand management. They seek to recoup their costs in the commodity business, while making their profits on niche products, exclusive brands and special services.

Mortgage brokers may be well advised to seek out proprietary niche values as specialists in holiday home loans, immigrant loans, affinity group loans, renovation loans, impaired credit/subprime loans (loans with previous repayment delinquencies), home-computer shoppers, small-town residents, refinance mortgages, bridging loans, farm or rural loans, or low-rate, high-fee loans. Any one of these could produce 5% of volume but 15% of profits. McDonald’s is said to make more money on French fries and drinks than on hamburgers. Many movie theatres make more money on popcorn than on films.

In tomorrow’s world one could see two competing mortgage brokers with the same origination volume and the same cost structure, yet one is highly profitable and the other operates at a loss. Why? Because one believes all home loans are created equal as far as profitability is concerned; the other knows better and markets for profit.

Neither centralisation nor decentralisation is the winner in business organisation for financial services. Both have advantages and disadvantages. Central control can get too tight and can stultify an organisation’s responsiveness to consumers, and then too loose and drain profits. Decentralisation can lead to a lack of harmonised standards operating throughout the company, as different staff interpret company policy and procedures differently. This has significant implications for bankers, broker intermediaries, and other players in the industry in terms of how best to serve the customers via their chosen distribution channels and networks and/ or respective business structures (eg retail direct, wholesale path, broker only, franchise, etc).

BELIEFS 6 & 7: WHOLESALE FUNDERS ARE THE BROKER’S FRIEND, AND CREDIT RISK IS NOT OUR CONCERN – PASS IT ON The banks are the mortgage purchasing giants in Australia and their predominance will continue. That means they are the principal direct as well as indirect (through capital market securitisation programs) suppliers of funds to housing and industry players. This has been good for housing and home ownership but now has a downside risk for brokers.

The bankers currently encourage loan broking as a source of replacement distribution resulting from branch closures, and have significant trail commission exposures to brokers’ groups.

Should any significant losses arise from this distribution channel, then the bankers will either close it down or perhaps be forced to adopt the ‘full recourse’ model of the US, which makes the broker responsible for buying back bad loans.

In competitive markets, credit risk will stick to banks and the investors of securitisation issues and can materially affect profits. In commodity markets with razor-thin operating margins, mortgage players are well advised to be sensitive to any increase in delinquencies or defaults. Remember the business cycle is not dead, and when an international credit crisis hits it can turn already-thin profits into gnawing and life-threatening losses quickly; bankers, however, are very adept at recouping their losses.

Housing finance will be commodity business for years to come, and the entry price for any operator’s viability will be operational efficiency, low costs and controlled growth.

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BELIEF 8: POLITICS OF HOUSING – GOVERNMENT SUPPORT WILL ALWAYS BE THERE The commonly held political belief of mortgage operators is that housing will always get the equivalent of ‘most favoured nation’ status from the government. The words may continue to be there, but the economic arguments are beginning to wear thin. The current thrust of governments around the globe has always been to regulate and push to balance budget deficits, and once the regulators perceive a need to protect consumers from bad practices, the only question is when will regulation be implemented?

This could mean matters such as negative gearing, capital gains discounts, and first home owner grants will come under increasing scrutiny.

Moreover, the advent of the modern multichannel broker offering a wide range of home loans from multiple bank and non-bank suppliers has resulted in the ability to offer convenience to many customers, who have a limited time to visit banks themselves and work their way through various products (a panel of 20 lenders is average in the broker industry) – which in itself builds a ‘know your product, know your client’ principle, where the broker recommends a suitable product for the client from a range of choices. This is clearly a regulatory matter for the future, including the vexed issue of trail commissions under FOFA.

BELIEF 9: TECHNOLOGY FAVOURS THE BIG Technology investment should be selective. Experience in Australia and overseas repeatedly shows that with technology you are either: • pioneer (the ‘bleeding edge’); • fast follower; or • road kill.

Current-model computers are 2,000–3,000 times faster than the first personal computers of 1984. Within the next three to five years they will be 2,000–3,000 times faster again. This obsolescence can be punishing to any business continuously reinvesting to stay on top.

While it is interesting to see automated loan underwriting and loan credit scoring, the difficulty with technology is that it does not apply to all demographics (ie the online community has vastly different expectations to the offline community, in terms of service speed), and users must be educated in it. Issues are not technical; they are human behavioural and legislative (privacy and security).

Also, technology will generally work against margins; that is, it will reduce them over time. As an example, it is our view that in markets such as the refinance market, plain vanilla loans will eventually go to the competitor that can produce the fastest outcome.

BELIEF 10: SHORT RUN VS LONG RUN (‘BRAND’) STRATEGY A short-term strategic focus has served mortgage operators well in the past. It has kept them at the cutting edge of financial, credit and housing markets. It has invited confidence that perhaps ‘king of the hill’ (‘biggest is best’ strategy) could be played after all. Yet evidence from other competitive industries gives the lie to this premise. The winners in the grocery, department-store, fast-food and beverage fields, and even among securities firms, are those with a long-range plan.

NEWS 16

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CONTINUED FROM PAGE 1

MY MESSAGE TO THE BROKER MARKET IS THAT BANK OF MELBOURNE IS A GREAT BRAND AND IS GOING TO CONTINUE TO BE OUT THERE AND BE AT THE FOREFRONT OF WHAT YOUR CUSTOMERS ARE ASKING FOR

T

CHRISTA MALKIN

Christa Malkin: Hands-on leadership Bank of Melbourne’s Christa Malkin has said the lender will be ‘hands on’ in taking its message to the broker market in 2014

he rapid expansion of Bank of Melbourne throughout Victoria means the bank presents great opportunities for brokers, Malkin said.

“Certainly the few discussions I’ve had with brokers that I have good relationships with show that customers want to look at Bank of Melbourne as an option,” she said.

“That for me is really exciting because if customers want to get into a product that Bank of Melbourne offers then it’s just a case of making sure that brokers are informed about our product range as well as the processes and credit policies.”

Malkin’s experience with the broker channel spans seven years at Bankwest, and she said this background stands her in good stead for her new role.

Malkin said she is looking forward to hitting the ground running and meeting with as many brokers as possible; to “really working closely with the Flame brokers and the Gold brokers that Bank of Melbourne already has, and looking at opportunities in terms of new brokers we can bring into that great service offering”.

And she’s keen to work closely with the broker market to understand brokers’ businesses and get a feel for areas in which Bank of Melbourne can better meet its clients’ needs.

“My message to the broker market is that Bank of Melbourne is a great brand and is going to continue to be out there and be at the forefront of what your customers are asking for. I’d like to go into this role and go into 2014 with brokers giving us the feedback we need to strengthen our relationships with them.”

Part of building those strong relationships, she said, will be actively getting out into the broker market. Malkin said Victorian brokers could expect her, as well as the Bank of Melbourne brand, to be a very visible part of the marketplace.

“I’m a hands-on leader. First and foremost I want to work closely with the BDM team, and I think it’s important to understand brokers’ business and how our products and policies will complement their business.”

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I THINK IT’S IMPORTANT TO UNDERSTAND BROKERS’ BUSINESS AND HOW OUR PRODUCTS AND POLICIES WILL COMPLEMENT THEIR BUSINESS

FACING CHALLENGES

Malkin is open about the challenges she faces in the role, and has vowed to meet those challenges head-on.

“What I’ve seen so far is that Bank of Melbourne has had a few rough patches in terms of how brokers see the service delivery, and I think most of that can be overcome with education.”

Along with education, Malkin said an important part of meeting the challenges ahead will be maintaining a strong presence in the broker community and building relationships based on mutual respect.

“The really important message from a state manager perspective and from my BDM team is that we’re on the front lines and ready to create relationships based on mutual respect with brokers.”

Part of that commitment is also acting on feedback from brokers, Malkin said.

“It’s important to listen to the market, and the reason I want to get out there is to listen to brokers’ feedback and act on the common feedback that’s being reported.”

Malkin pointed to some early areas where the bank has acted on feedback from brokers, and said its initiatives had set a good precedent for the year ahead.

One of those areas was Bank of Melbourne’s decision to adopt the ApplyOnline platform for

FAST FACT

Bank of Melbourne launched on 25 July 2011

uploading supporting documents. Describing the decision as a “massive tech win”, Malkin said the initiative would make the application process smoother for brokers, borrowers and the bank.

“The ApplyOnline document upload Bank of Melbourne has done is a massive tech win that delivers enormous benefit to the broker. A new initiative like that to go into 2014 in an area that has been a challenge in the past is a good message to get out there.”

Banks will need big wins like this in the year ahead, Malkin said. The lending market is growing increasingly competitive, and lenders will have to step up their game to catch the attention of borrowers and brokers.

“It’s great that there’s so much competition in the marketplace. It’s a fantastic opportunity for brokers to be able to give the customer a competitive list of offerings. For lenders, keeping up with competition and being able to set themselves apart will be the really big challenge across the board.”

But Malkin is confident her team and Bank of Melbourne are up to the task, and her message to brokers is that the bank is passionate about winning their business.

“Our clear message to the Melbourne broker market is we want to work with you so you can offer Bank of Melbourne to your clients and be confident that they’re going to get a really good result.”

BEST PRACTICE 18

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Four keys to SUCCESSFUL NEGOTIATION Negotiation is an essential part of daily life and crucial to a successful business.

Unfortunately, negotiation is also a fine art – and one that doesn’t come naturally to every broker

W

hether you’re haggling with the banks, disputing a valuation, dealing with aggregators, bosses, employees or clients – or just trying to get the kids into bed – business coach Lynda Bayada offers strategy tips to get the best solutions for you and your business.

WANT IT, NEED IT

A common pitfall for negotiators is going in with a firm and fast idea of the result they’re looking to achieve, Bayada says.

While defining your goals is crucial, focusing on one ideal solution can close your mind to other alternatives and see you hit a standstill if the other party has different ideas.

“It creates a barrier between you and the other party because you’re not looking for possibilities outside of that,” she says.

Take the time to clearly define what you really need to achieve from the negotiation – not what you want or the solution you would prefer, but concrete needs.

“It’s important to not be stuck in your position and to have a willingness to go outside of that,” Bayada advises. “Have an interest in what the

Linda Bayada

Source: What Negotiators Can Learn from Improv Comedy, by Lakshmi Balachandra (lecturer, Harvard University) and Michael Wheeler (professor, Harvard Business School), first published in the Negotiation newsletter

other party needs and know what their interests are, and then be willing to explore that. You might find their interest and their needs have a common ground with yours.”

If the other party is able to shape a solution of their own that aligns with your needs, it will also give them a sense of empowerment.

“They’ve made that decision themselves so they own it and become more committed to it,” Bayada explains.

KNOW YOUR ISSUE

Defining clearly what the problem is that you’re looking to overcome, and isolating that problem from other factors, is another crucial step in preparing for a negotiation.

“People will often define a problem alongside the people that are involved,” Bayada says. “We need to be very careful that we’re not assigning blame to anyone, that we can take the emotion out of it and start looking at this objectively rather than subjectively.

“It also isolates us from looking at other options.

The reality is we need to be working as partners – not opponents – in that situation.”

In this pre-negotiation phase it’s often a good idea to enlist the help of someone you trust. This person can be used as a sounding board to bounce ideas off, and can also help dig down to discover what your true wants are and what the issue is from your perspective.

ATTITUDE IS EVERYTHING

Once you’re clear on what you’re heading into the negotiation to achieve, it’s important to go in with the right mindset, Bayada says.

“In competitive industries especially, there is always pride and personality that gets in the road, and people’s attitudes and pain points. People are concerned about leaving themselves vulnerable – we are all human at the end of the day and negotiation is similar to any relationship in that sense.”

People are often worried about giving anything away in the beginning of a negotiation, but by

BEST PRACTICE 19

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maintaining this attitude negotiators often hinder progress. A crucial part of getting the negotiation process moving is to state your objectives up front, Bayada says.

“You’ll get some parties that come in with their cards close to their chests, and if both parties are doing that there’s really not a lot of room for movement and one party has got to give.

“That comes from trusting yourself in the process and opening yourself up. Extend an olive branch and say what you’d be willing to move on and willing to negotiate on and that in turn builds trust and rapport from the other party.”

Using cooperative and collaborative language and ensuring you are actively listening to the other party – rather than concentrating on your next move – will help to move the process along.

“We all want to feel like our side of the story is valued, and when you’re coming into a negotiation you can very easily show that you support the other party through active listening,” Bayada suggests.

“Paraphrase and summarise what the other party has said, what they want and why you think they want that. Take the time to show your understanding of the other party.”

KEEPING ON TRACK

Once the ideas start flowing and solutions start coming to the table, it’s important to thoroughly test any solution before going ahead.

“Mortgage brokers are often very adept at this, but it’s so important to ensure you’ve chosen an option that is realistically viable before you go ahead,” Bayada says.

“There’s nothing worse than brainstorming something and getting to a possible solution and then realising you don’t have money or the time or it’s going to take longer than expected and you need to walk away from it.”

Time is of the essence in any mortgage deal, and indeed any business deal. When deadlines are involved it’s essential to check in regularly to ensure the other parties involved are keeping on track, Bayada advises.

“It’s always good to check in two or three days before any deadline to see how it’s going. Don’t let things get to boiling point and have someone say, ‘Oh, actually I haven’t really had time in the last week’.”

And this checking in extends to post-negotiation too – something that many otherwise successful negotiators forget.

“A very easy thing to do is wrap up negotiations and walk away,” Bayada says. “A lot of people will leave negotiations with the best intentions but they’ll never follow through on those actions.”

Follow-up times will vary with the type of negotiation and relationship, but a good general rule of thumb is to contact the other party in writing about the results of the discussion within 24 hours.

After the initial written follow-up it’s a good idea to set up a checkpoint around a week later.

Negotiation tactics will vary from broker to broker, Bayada says, but going into a negotiation with a clear understanding of your purpose and an open mind to listen to that of the other party will serve you well in any tricky situation that may arise in business or life.

NEGOTIATE LIKE A PRO: Top 10 negotiation tips Sales and negotiation expert Mark Hunter shares the 10 cardinal rules for a successful negotiation

NEGOTIATE WITH ANYONE WHO IS NOT QUALIFIED TO NEGOTIATE. 1 NEVER

If you do find yourself negotiating with someone who is not qualified, you should shift your approach to only looking to obtain information.

PUT THINGS INTO WRITING UNLESS YOU’RE PREPARED TO LIVE WITH THEM. 2 NEVER

If you do put anything in writing, it must include specific expiration dates and information that could be interpreted in several different ways to give you the ability to control how the information is used.

HAVE ROOM TO GIVE SOMETHING THE OTHER PERSON WILL DEEM AS A PERCEIVED BENEFIT. 3 ALWAYS WHEN TO WALK AWAY AND BE CONFIDENT IN DOING SO. 4 KNOW

To execute this requires the ‘walk-away point’ being shared in advance with others in your company to ensure accountability is in place if and when this tactic has to be used.

AT LEAST FIVE THINGS THE OTHER PERSON WANTS 5 KNOW THAT YOU CAN OFFER. KNOW AT LEAST FIVE THINGS YOU CAN SAY THAT WILL DISCOUNT WHAT THE OTHER PERSON IS OFFERING (PRICE 6 NOT INCLUDED).

TREAT THE OTHER PERSON WITH RESPECT AND DIGNITY. 7 ALWAYS

Never allow the negotiation to become personal in nature. This applies even to those situations where a close personal relationship may exist. If a negotiation does become personal in nature, do not hesitate to step away and arrange a follow-up time to resume negotiating.

ENTER A NEGOTIATING PROCESS UNTIL BOTH SIDES ARE CLEAR ON WHAT IS BEING NEGOTIATED. 8 NEVER

By doing this up front, it’s possible to avoid a waste of time and, more importantly, inadvertently negotiate things that don’t need to be discussed.

PUT THE NEGOTIATED OUTCOME IN WRITING IMMEDIATELY. 9 ALWAYS

Do not leave issues open for further discussion.

When putting information into writing, it is acceptable to put it into writing as you see it. This then becomes your opening position when the negotiation process resumes...

REACHING AN AGREEMENT, THANK THE OTHER PARTY, BUT DO NOT CELEBRATE! 10 UPON

Celebrating the completion of a negotiation will always leave the other party feeling you ‘won’. It will automatically put you at a disadvantage when the next sales or negotiation event begins.

Mark Hunter, The Sales Hunter, is author of High-Profit Selling: Win the Sale Without Compromising on Price. He is a consultative selling expert committed to helping individuals and companies identify better prospects and close more profitable sales.

MARKET TALK

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The year in property Australian Broker sister publication Your Investment Property considers what happened to markets last year and looks at what we can expect from 2014 2013 UNDER THE MICROSCOPE

Property observers are largely in agreement that the Australian property market, as a whole, saw a turn midway through 2012. Since then, the market has been a story of low interest rates and years of pent-up demand finally being released on to the market.

“The market has been keeping under wraps for the last three years, generally speaking, and in 2013 there was a change in the underlying nature of its supply and demand drivers,” says Australian Property Monitors senior economist Andrew Wilson.

According to Wilson, markets with strong underlying factors performed better over 2013, while those with less strong underlying factors were weaker performers. That may have been no surprise given that this is how housing market cycles typically run their course, but the difference has been in the gulf between strong-performing markets and flat markets, with the former being isolated to only a few key markets.

“Markets have been headed the same direction more or less, but the gears have been different.

There’s a multispeed scenario unfolding in markets and there has been a divergence in housing market activity. Some markets have clearly been engaging buyers at a much higher level,” Wilson says.

The standout performer has been Sydney. Other markets may have grown at a faster rate, but since they aren’t as big, they haven’t been pushing the entire Australian real estate market up in quite the same way.

BIS Shrapnel figures have growth in the Harbour City’s values at 7% over 2013, a rate of growth that hasn’t been seen in Sydney for years. Driving that growth has been a severe shortage of housing, and other capital cities with the same problem saw similar results. This explains growth in Perth (6%) and Darwin (+7%).

However, the real surprise was Melbourne.

“We expected Melbourne to stay weak, but it’s definitely had a rebound driven by low interest rates,” says BIS Shrapnel’s Angie Zigomanis. That rebound saw Melbourne values climb 8% over the year, despite the market having lesser demand pressures.

In the majority of markets, save Perth, first home buyer activity has been subdued and below long-term levels. This is despite a slew of interest rate cuts that trace back to November 2011 and put the cash rate at a historic low of 2.5%.

Low interest rates usually bring first home buyers into the market, but 2013 saw the

emergence of an Aussie real estate market dominated by investors and upgraders.

“A lot of that is a perception that now is a good time to buy,” says Wilson. “Prices in many areas are still below what they were three years ago and there’s been a value opportunity perspective from investors.”

2013 IN NUTSHELL Most capital city markets saw a recovery Interest rates fell to historic lows Investors and upgraders responded strongly to low interest rates There was little growth in the first home buyer market Unemployment grew

HOW 2014 WILL COMPARE Markets with a shortage of housing will continue to grow Capital cities that have benefited from a lot of resource investment activity may start to see an easing off of growth, although they should still perform reasonably well Interest rates are forecast to stay low The economy is expected to grow at a more modest rate Job markets may soften, with the unemployment rate likely to grow modestly

2013’S BIGGEST LOSERS

Not everyone had a good year for property. Here are the suburbs that saw the most dramatic declines over the year: STATE

SUBURB

PRICE FALL OVER 2013

NSW

North Albury units

-49%

QLD

Portsmith units

-48%

WA

Wongan Hills houses

-45%

QLD

Glen Eden units

-43%

NSW

Daleys Point houses

-43%

QLD

Moranbah houses

-40%

QLD

Peregian Springs units

-40%

QLD

Gladstone City houses

-39%

QLD

Ravenshoe units

-39% Source: RP Data

MARKET TALK brokernews.com.au

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10 OUTRAGEOUS

economic predictions for 2014 These ‘outrageous’ predictions may not come true in 2014 – but they could

O

nline multi-asset trading and investment specialist Saxo Bank’s annual set of ‘outrageous predictions’ for the year ahead reveal some interesting views on where the global economy is headed.

Although the probability of any of the predictions coming true is low, they are deduced strategically

by Saxo Bank analysts based on a feasible – if unlikely – series of market and political events.

OUTRAGEOUS PREDICTIONS FOR 2014: 1. EU WEALTH TAX HERALDS RETURN OF SOVIET-STYLE ECONOMY

Panicking at deflation and lack of growth, the EU Commission will impose wealth taxes for anyone with savings in excess of US$ or EUR 100,000 in the name of removing inequality and securing sufficient funds to create a “crisis buffer”. It will be the final move towards a totalitarian European state and the low point for individual and property rights. The obvious trade is to buy hard assets and sell inflated intangible assets.

2. ANTI-EU ALLIANCE WILL BECOME THE LARGEST GROUP IN PARLIAMENT

Following the European parliamentary elections in May, a pan-European, anti-EU transnational alliance will become the largest group in parliament. The new European Parliament chooses an anti-EU chairman and the European heads of state and government fail to pick a president of the European Commission, sending Europe back into political and economic turmoil.

3. TECH’S ‘FAT FIVE’ WAKE UP TO A NASTY HANGOVER IN 2014

While the US IT sector is trading about 15% below the current S&P 500 valuation, a small group of technology stocks are trading at a huge premium of about 700% above market valuation. These ‘fat five’ (Amazon, Netflix, Twitter, Pandora Media and Yelp) present a new bubble within an old bubble, thanks to investors oversubscribing to rare growth scenarios in the aftermath of the financial crisis.

4. DESPERATE BOJ TO DELETE GOVERNMENT DEBT AFTER USDJPY GOES BELOW 80

In 2014, the global recovery runs out of gas, sending risk assets down and forcing investors back into the yen with USDJPY dropping below 80.

In desperation, the Bank of Japan simply deletes all of its government debt securities, a simple but untested accounting trick, the outcome of which will see a nerve-wracking journey into complete uncertainty and potentially a disaster with unknown side effects.

5. US DEFLATION: COMING TO A TOWN NEAR YOU

Although indicators may suggest that the US economy is stronger, the housing market remains fragile and wage growth remains non-existent.

With Congress scheduled to perform Act II of its ‘how to disrupt the US economy’ charade in January, investment, employment and consumer confidence will once again suffer. This will push inflation down, not up, this year, and deflation will again top the Federal Open Market Committee’s (FOMC’s) agenda.

6. QUANTITATIVE EASING GOES ALL-IN ON MORTGAGES

Quantitative easing in the US has pushed interest expenses down and sent risky assets to the moon, creating an artificial sense of improvement in the economy. Grave challenges remain, particularly for the housing market, which is effectively on life support. The FOMC will therefore go all-in on mortgages in 2014, transforming QE3 to a 100% mortgage bond purchase program and – far from tapering – will increase the scope of the program to more than US$100bn per month.

7. BRENT CRUDE DROPS TO US$80/BARREL AS PRODUCERS FAIL TO RESPOND

The global market will become awash with oil, thanks to rising production from non-conventional methods and increased Saudi Arabian output. For the first time in years, hedge funds will build a major short position, helping to drive Brent crude oil down to US$80/barrel.

8. GERMANY IN RECESSION

Germany’s sustained outperformance will end in 2014, disappointing consensus. Years of excess thrift in Germany have seen even the US turn on the Euro area’s largest economy, and a coordinated plan by other key economies to reduce the excessive trade surplus cannot be ruled out.

Add to this falling energy prices in the US, which induce German companies to move production to the West; lower competitiveness due to rising real wages; potential demands from the SPD, the new coalition partner, to improve the wellbeing of the lower and middle classes in Germany; and an emerging China that will focus more on domestic consumption following its recent Third Plenum.

9. CAC 40 DROPS 40% ON FRENCH MALAISE

Equities will hit a wall and tumble sharply on the realisation that the only driver for the market is the greater fool theory. Meanwhile, the malaise in France only deepens under the mismanagement of the Hollande government. Housing prices, which never really corrected after the crisis, execute a swan dive, pummelling consumption and confidence. The CAC 40 Index falls by more than 40% from its 2013 highs by the end of the year as investors head for the exit.

10. ‘FRAGILE FIVE’ TO FALL 25% AGAINST THE US$

The expected tapering of quantitative easing in the US will lead to higher marginal costs of capital from rising interest rates. This will leave countries with expanding current account deficits exposed to a deteriorating risk appetite on the part of global investors, which could ultimately force a move lower in their currencies, especially against the US dollar. Five countries fit this category − Brazil, India, South Africa, Indonesia and Turkey.

BUSINESS INTELLIGENCE 22

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Leadership lessons from Nelson Mandela Nelson Mandela is gone but will never be forgotten. Cameron Edmond investigates Mandela’s lasting leadership impact

L

ate last year the world lost a titan of leadership when Nelson Mandela passed away at the age of 95. However, his legacy will live on forever – in his home of South Africa, and abroad.

Mandela displayed tremendous leadership qualities. What can HR and business leaders learn from this man’s actions and attributes?

DO NOT RETALIATE THROUGH ESCALATION

While situations as extreme as the ones faced by Mandela simply do not occur in the corporate world, business leaders and HR should still take note of his calm and rational responses to situations, such as the assassination of the black leader fighting for equal rights, Chris Hani.

Paul JH Schoemaker, research director at Wharton University’s Mack Institute for Innovation Management, highlighted Mandela’s response – before his rise to presidency – to the assassination. The event had resulted in anger sweeping much of South Africa’s black population, who wanted revenge against its racist government.

Sensing this, Mandela gave a speech that called for unity of blacks and whites in standing together against violence.

Such a response highlights the need for leaders to remain calm in the face of extreme situations, and to act with rationality and not out of pure emotion. Responding to a situation in an escalated way only causes the problem to grow; the ability to remain calm and adopt a reserved response is a key asset of any leader, and HR must foster such a culture within the workplace.

STAND FOR THE GREATER GOOD, NOT FOR PERSONAL GAIN

During his 1994 speech following his election as president, Mandela announced that he would not stand for a second term, although he could have done so under the constitution. Schoemaker accredits Mandela with understanding that, despite progress, many of the business, legal, social and educational institutions needed to keep the country afloat resided with the white minority population, many of whom were leaving the country.

“Never, never and never again shall this beautiful land experience the oppression of one by another …

The sun shall never set on so glorious a human achievement,” Mandela said in his speech.

Schoemaker saw this as a move by Mandela to signal his representation of all South Africans, and the need to rise above all past injustices and focus on a shared and democratic future.

The understanding of the importance of the greater good for an organisation over personal status or overt self-belief is something all leaders

should understand – knowing when to step aside is a key aspect of leading and being part of a team.

LISTEN AND LEARN

Steve Denning, author of The Leader’s Guide to Radical Management¸ recalled in a Forbes article his meeting in 1991 with Mandela, prior to his election as president. Other members of the African National Congress (ANC) leadership team and Lew Preston, then-president of the World Bank, attended the meeting, at which Mandela acted primarily as a mediator. Denning was there as director of the World Bank’s South Africa Department.

When asked how everything was going, Mandela turned to one of his associates and asked him to speak. The associate spoke primarily in Marxist and Leninist terms, detailing a need to nationalise the private sector. This indicated the economic policies of the ANC at the time, which the World Bank feared would lead to economic disaster akin to what had occurred in other parts of Africa.

Preston did not respond, instead turning to Denning, who reportedly spoke in vaguer terms about the need for development, the flow of money, the necessity of education, etc.

Mandela listened and smiled throughout all of this, and later asked if there was a way to arrange a secondment of his staff to the World Bank so they could understand “what was going on in the world”, as they had been isolated for too long and needed to see what was happening and learn from it.

The result was a complete shift in the ANC’s economic policies. Mandela’s openness to new ideas and willingness to learn from others ensured the success of South Africa following his election to government.

This highlights the need for all business leaders to be willing to learn from other people. Having a vision is great, but becoming too invested in one’s own views can lead to problems down the track, so leaders must always be open new ideas and the thoughts and opinions of others.

THE COALFACE 23

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Glenn Williams: Earning respect The Choice BDM says industry knowledge is key to serving brokers effectively

A

s Choice Aggregation partnership manager of NSW/ACT, Glenn Williams loves his BDM role – and it shows.

Williams won ‘Best Aggregator BDM’ at last year’s AMA awards and believes his success comes down to a solid focus on servicing brokers and being fair and honest at all times.

“In my role, I need to have knowledge across a broad range of areas and I pride myself in keeping up to date with industry issues. Whether it’s relating to lenders’ products, software, business practices, commissions, coaching, onboarding, or NCCP regulation, I’m always available to my members and respond to calls and emails as quickly as possible.”

Williams says managing relationships with both brokers and lenders when issues arise is a key part of his job, and that taking an “honest and polite approach” is crucial.

“This approach gains me respect from my members and helps in reducing the chance the issue will repeat, improving the overall relationship between brokers and lenders.”

Of course, it probably helps that he’s been in the mortgage industry for 27 years – first as a lending officer at Advance Bank, before eventually being promoted to branch manager of the Newtown, Marrickville and Redfern branches. In 1997, he became an area manager with Advance and St George (who later merged) and went on to manage a team of 20 brokers at Advance Loan Direct, which was eventually acquired by Choice.

Williams currently supports 130 active member brokers and around 90 business agreements in NSW and ACT. He says there’s a wide spectrum of experience in his group of members, which affects his role in relation to particular brokers.

“In my group of members, there is a vast range of experience. We have members who have been with us since we started in 1997, who have a

WORKING WITH [THEM AND] SEEING RESULTS OF THE BROKER’S HARD YARDS IS A GREAT FEELING – GLENN WILLIAMS wealth of experience and knowledge, as well as new industry members who need a lot more support. My aim is to make sure I provide support to these members, and this can vary depending on the broker and their business.”

Williams says the thing he loves the most about his job is working with brokers and helping them grow their businesses.

“I have seen many brokers grow their businesses and exceeding their goals in both professional and personal contexts. My role as a BDM means I often provide guidance and be a sounding board to discuss their plans and goals.

Working with these businesses and ultimately seeing results of the broker’s hard yards is a great feeling.”

FINANCIAL SERVICES 24

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Advisers’ top New Year’s resolutions

2013

A survey of 800 financial advisers has yielded a top-five list of New Year’s resolutions, all set to grow business in 2014, assuming, of course, they keep them.

The findings come courtesy of the SEI Advisor Network, an asset and practice management provider in the US, and capture the strategic thinking of hundreds of advisers plying their trade in an increasingly competitive environment.

Their resolutions for 2014 reflect collective priorities. Without further ado, here are the Top Five Resolutions for 2014:

A top-performing year for SUPER

L

ast year was a top-performing year for superannuation funds, according to superannuation researcher SuperRatings.

Based on the research house’s estimates, the median superannuation balanced option was up 15.5% for 2013 – the best-performing year since SuperRatings began tracking this index in 2000.

Median superannuation balanced options give exposure to growth-style assets of between 60% and 76%. According to SuperRatings, around 60% to 70% of Australians who are part of major funds are invested in their funds’ default investment option, which in most cases is the balanced investment option.

The research showed that, despite a poor start, super funds recorded a gain of around 0.9% for December.

The performance of listed equity markets was the key driver of this recovery in the second half of December, SuperRatings said. Both Australian and international equity markets recovered strongly to finish positive for the month.

The S&P/ASX 200 Index closed higher in five out of the last seven trading days to end the year, and finished December up 0.6%.

Markets across the globe also recovered strongly, with the MSCI World ex Australia Index recording a 2.1% gain for the month.

The fall in the Australian dollar over the month also helped international equity returns for those funds that remain in an unhedged position, SuperRatings said.

NEW ZURICH CFO TAKES REINS AFTER TRAGIC SUICIDE Former Swiss Re Group CFO George Quinn will be taking over the position left vacant at Zurich Insurance Group, following the tragic suicide death of Pierre Wauthier last August.

Quinn also becomes member of the Group Executive Committee, effective May 1, 2014, leaving Swiss Re Group where he served as CFO since March 2007.

“I am very pleased to welcome George Quinn to Zurich and our team. The wealth of experience he brings makes him a great addition to our group,” said Martin Senn, CEO of Zurich. “We are delighted to welcome him at this important

time as we implement the strategic direction for 2014 to 2016 outlined at our recent Investor Day. With his strong track record as CFO, George is very well positioned to contribute to the delivery on Zurich’s strategy and help take the company to the next level.”

Quinn was the regional CFO for Swiss Re Americas based in New York. He joined Swiss Re in 1999 as chief accounting officer based in Zurich and later served as CFO for Swiss Re Group’s Financial Services.

Quinn started his career at KPMG in London, where he held several positions working with the insurance and reinsurance industry.

FAST FACT

83% Proportion of advisers who anticipate increased profits in the next 12 months, up from 74% in 2012 Source: Macquarie Practice Consulting

5

Developing better adviser-client relationships is a top priority for those who answered the survey. Where relationships are simply too strained to be productive and they compromise trust, advisers are looking to cut ties with those clients rather than continue on.

4

Some 59% of respondents identified a strong need to reach out to the investor pool outside their traditional client base as a key resolution for 2014. But more specifically, they plan to court other professionals currently servicing those groups to win referrals.

Estate-planning lawyers and chartered accountants across the country may soon be deluged with adviser calls. (Sorry, guys.)

3

Using technology to meet clients where they live is a growing concern for advisers and a top resolution for 2014. Look for advisers to evaluate and possibly change their client relationship management systems in the new year, in an effort to better manage contacts, email systems and the myriad daily tasks all industry professionals perform.

2

The back offices of many firms will also be put under the microscope in 2014 as advisers look to gain efficiencies through the better management of resources. “Most of the knowledge around client relationships and key processes are in the heads of one or two people, and not documented,” said SEI practice management expert John Anderson. “How can you expect your office to run smoothly and clients to remain satisfied if you are the only one that can do it?”

1

No surprise here, but most advisers are absolutely resolved to win more referrals from their existing clients, which experts consider to be the single best way to grow business in 2014 or any year. SEI offered some advice to help you meet that goal. “It’s best for advisers to define their ideal ‘five-star client’ and provide the description to their clients. That way, clients will better understand what their advisers are looking for and will be more engaged in the process.”

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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, Jan 2013

House prices on the rise? No way

As 2013 dawned, the property market was showing signs of life. Value declines throughout 2012 had slowed, and some pundits were predicting modest rises for the year ahead. Fitch, however, wasn’t buying it. The rating agency predicted stability for the Aussie market, but no price rises.

What’s happened since?

The Australian property market surprised the naysayers in 2013, and actually saw such strong growth that house price rises in Sydney and Melbourne were branded unsustainable. RP Data figures show house prices across the country gained 9.8% over the year.

ACCC launches Aussie review

Upon news that Commonwealth Bank was seeking to move to majority ownership – and eventually total ownership – of Aussie Home Loans, the ACCC said it would conduct a review of the takeover bid. The competition watchdog said it was concerned that CBA’s Finconnect business, which distributes mortgages through professional firms, could be a stumbling block to the deal, given the extent of crossover in mortgage broking.

What’s happened since?

The ACCC cleared the path for CBA’s Aussie takeover. The bank has increased its stake to 80%, with an eventual option to move to 100% ownership. Founder and executive chair John Symond has remained in place, however, and the bank has vowed it will be business as usual for the franchise brokerage.

brokernews.com.au

ASIC keeping close eye on advertising

A

SIC has warned brokers it will be paying close attention to their advertising.

Late last year, the regulator issued penalties to franchise operation Mortgage Choice and an infringement notice to SMSF Property Capital over advertising, and Tasmania regional commissioner Chris Green told Australian Broker TV ASIC would be keeping an eye on claims made in financial services advertising.

“Advertising plays a crucial role in consumer decisions about financial products, and as such advertising is a focus of ASIC.” Whenever claims are made in advertising it’s important those claims are accurately supported by evidence, said Green.

“For example, if a product is advertised as ‘free’, it can’t have any hidden costs or transaction fees or anything like that, otherwise it will be in danger of being misleading.

“Brokers also need to take particular care around claims about consumers getting projected savings when those savings are not yet evident.”

Green said advertising needed to give consumers the full picture.

“It is also important that an advertisement contains balanced information to ensure that the ad gives an overall impression that is realistic about the product or the service. For example, a particular product may be cheap, but it also may have strict limitations or extra costs, and all of that needs to be reflected in the advertisement.”

He advised brokers to seek advice on their advertising before putting it out to market.

“My best advice to brokers is to seek robust legal and compliance advice before publishing advertisements. We have issued guidance which contains real examples from the credit industry where brokers and credit advisers have tripped up with misleading advertising, so if brokers and their advisers read our guidance they may be able to learn from the mistakes of others.”

BROKERS ALSO NEED TO TAKE PARTICULAR CARE AROUND CLAIMS ABOUT CONSUMERS GETTING PROJECTED SAVINGS WHEN THOSE SAVINGS ARE NOT YET EVIDENT – C HRIS GREEN

FORUM 27

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Broker/valuer grudge match continues After a claim that low valuation fees put strain on the broker/valuer relationship, the frayed relationship came to the fore

Fed taper could boost brokers’ fortunes

The US Federal Reserve’s move to taper its bond-buying program could mean a lower Australian dollar, a stronger Australian economy and potential good news for brokers, according to HIA chief economist Harley Dale. One commenter questioned how the Australian dollar got so high in the first place.

“How the Australian Governments and Opposition has sat on its hands the last 10 years focussed on political fighting and letting the Australian Dollar go so high is treason. Other governments rolled out programs to actively reduce their currency, whilst we bent over to sign up one-sided free trade agreements and overly promote foreign buyouts of Australian businesses and property. Governments all around the world worked to lower their currency in order to effectively steal Australian jobs and industries with us priced out of business. Australians will be paying heavily over the next 10 years whilst we rebuild the non-mining areas of the economy. Many tens of thousands of Aussie jobs are lost forever. Yes a lower Australian Dollar means more expensive petrol, expensive overseas holidays and you will have to pay more for your BMW, but at last our farmers, manufacturers, tourism, service, foreign education and construction industries can start to claw back lost ground. The record forecast Australian Federal Government deficits show that revenues have collapsed due to our faltering economy. Our housing industry is the only economic bright light, as long as enough people keep their jobs to afford their mortgages.

Abbott needs to ensure his decisions are focussed on rebuilding the economy and finances instead of being expensive pet political projects.”

Giles (PIAA) on 20/12/2013 11:47AM

A

PI NSW president Tyrone Hodge said low valuation fees and tight timeframes were an impediment to open dialogue between brokers and valuers, and strained the broker/valuer relationship.

As happens anytime brokers and valuers are brought together, a debate ensued.

Regional Broker agreed that valuers received too modest a fee for their services, but said this wasn’t the fault of brokers.

“I agree valuers are underpaid for the job they do, they have seen a situation where they are receiving less for a pro-forma valuation on a house now than they did 10 years ago, I do not know how they can do the job for the fee they receive.

Surely this is not the brokers’ fault; it is between the lenders and the valuers.”

Peter Blakers said some valuers were unwilling to put in the time to do valuations properly.

“In spite of what the API say in its glossy mag (everything’s fine here, look here’s a man in a tie and a pretty graph, oooh) the situation in the trenches is becoming more than concerning. There are companies who are virtually head-hunting, [and] valuers are job-hopping hoping to get an extra $100/week or a few less hours so they can see their kids.

The ‘new breed’ IMHO just won’t investigate diddly-squat, if it does not pop-up on a drop-down list on the tablet or Samsung Galaxy it does not go in to the val.”

Of course, Valuer showed up

on the scene in defence of the industry.

“What most brokers don’t seem to understand is that we are professionals – we report ‘x’ value of a property for an extremely good reason. We have done a degree, are highly educated, and work daily in the field. What we say is the truth, backed up by fact. We don’t need brokers calling us and contesting valuations. It is what it is – there should be no negotiation. You are driven by the desire to get a deal to go through (and get paid) – how can you possibly be impartial in your analysis?

SHOULD WE BE ON THE SAME SIDE INSTEAD OF CRITICISING EACH OTHER? Valuers on the other hand are all business – we rely on steadfast facts that PROVE the value – not hearsay, dodgy internet data, dodgy owner information or any variety of pressure to make a deal happen.”

Positive Broker called for a ceasefire in the broker/valuer war, and pointed to a common enemy.

“Seems to me that valuers and broker are both being screwed by the banks. Should we be on the same side instead of criticising each other? A little respect either way may just ease this tension.”

RATE RISES LOOM

Dun & Bradstreet economic adviser Stephen Koukoulas has predicted the possibility of interest rate rises later in the year.

Richard on 8/01/2014 9:24AM “What a surprise to see Stephen predicting counter intuitive, counter cyclical rate movements. Take a look at commentary from Stephen over the last few years, more changes in the direction of predicted rates than a rollercoaster.”

What do you think?

Leave your comments at brokernews. com.au

PEOPLE 28

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Race to THE TOP

Lionel continued to race until 1968, when he was tragically killed in a Speedway accident.

Keith was two years old at the time, and went on to be involved in racing himself. Today, his family continues the Levy racing dynasty through Keith’s son Mitch and his daughter Danielle, whose Formula 500 car bears the number 68 in commemoration of her grandfather.

“That’s the year he passed away, and they didn’t wear numbers back then so we thought that was probably the best way to honour him.”

For Deposit Power’s Keith Levy, racing is a family affair

LIKE FATHER, LIKE DAUGHTER

I

t’s no exaggeration to say that the Levy family are a racing dynasty in Australia. In some way or another, members of Deposit Power national manager Keith Levy’s family have been involved in racing since the 1930s.

“My father and his family were all involved in Speedway, all the way up to the Second World War, when my dad served in the Air Force. Even then when he did that, he was still riding bikes because he was a dispatch rider.”

Lionel Levy, in fact, was one of the best-known Australian motorcyclists of his time. Resuming racing after the war, Lionel flourished in the late 1940s and through the mid-1950s before retiring to start a family.

“He made a comeback in 1967 to try to make the Australian test team against England, and he just missed out,” Keith says. “He was 51 at that point, so it wasn’t a bad effort.”

Photography by Simon Kerslake

For Danielle, family plays in important role in her life, both on and off the track. She works alongside Keith, handling events and marketing for Deposit Power, but she says her racing career is also driven by a passion for family. “[Growing up] I always had an interest in it. I still did my netball and all my girly stuff, but when Dad was racing I’d always be down in the pit, and I used to love helping Dad out. The opportunity came up for me to do it, and I decided I’d have a go at it,” she says.

And in “having a go at it”, Danielle pulled out all the stops, Keith says.

“She essentially built her car. The chassis came in from America, and then she bought a wrecked motorbike, pulled out the engine and engineered it to go in the car. We had a lot of help along the way, but Danielle has done the majority of it, all the way down to painting it,” he says.

Danielle managed to place third in NSW last year, and says she hopes to continue to advance in

brokernews.com.au

PEOPLE 29

her racing career, possibly even stepping up into another division, though Keith says she’s already picked an incredibly competitive division. The cars travel at up to 140km per hour on dirt tracks in a confined space with 20 competitors.

“This is a highly competitive class. This isn’t a weekend warrior type of thing. She probably picked it because it was the hardest category to go into, but why not?”

THE PASSION YOU HAVE FOR ANYTHING CAN BE TRANSFERRED TO THE PASSION YOU HAVE FOR YOUR BUSINESS – K EITH LEVY A RARE FIND

Keith has also bought a workshop to serve as the epicentre of the Levy family’s racing efforts. He foresees the shop one day serving as a working museum of Australian racing, and he’s well on his way. The Hornsby garage is a treasure trove of racing memorabilia, with racing bibs from around the world, oil bottles, signs, and everywhere Speedway bikes in various states of restoration.

One restoration project in particular takes centre stage in the shop.

“When my father passed away, most of his stuff disappeared,” Keith says. “He passed away tragically, and the family didn’t want things around to remind them of it. When I was a teenager I started thinking, ‘Where did it all go?’”

So Keith began placing ads in vintage bike magazines, joining vintage clubs and scouring contacts in the UK and Europe – where his father had raced – for any sign of his father’s racing memorabilia.

“Early in 2013 I was on eBay and I saw an ad for an old Speedway bike, and I thought it was an unusual-looking bike. I started to research it and I looked at a picture of my father on a bike, and I

thought it looked similar. I bought it not knowing for sure.”

After the purchase, Keith was able to track down the bike’s manufacturer, now in his nineties, who was able to identify the bike from various modifications.

Sure enough, it had belonged to Lionel Levy.

“It’s really been 30 years in the making trying to find it,” he says.

The Levy family’s passion for racing mirrors their passion for their business, Levy says. Every year, Deposit Power puts on a charity go-cart day to raise money for the O’Brien Lifehouse.

“The passion you have for anything can be transferred to the passion you have for your business,” he says. “The people in our business love what they do. They love helping customers to get into their homes.”

And Keith says the business has also allowed him and Danielle the flexibility to pursue racing.

“It’s a real family thing. If Danielle races we all go, and if my son races Danielle goes down there and works the pits. It keeps us busy but it keeps us together,” he says.

“It seems to grow each year. It’s more than racing. It’s the whole camaraderie.”

INSIDER 30

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(Four managing partners around the table, jaws dropped in awe) CEO: “She is the mother of my child.”

Peyre: “...”

CEO: “Indeed, she is insane. We split up a few months ago.”

And yes, he got the job.

STALKERS SOMETIMES PROSPER

World’s WORST interview answers

S

ometimes even saying the worst possible thing doesn’t end in disaster, as a recent Quora thread shows. Quora lets users ask and answer queries from people around the world on any topic imaginable.

When the question “What is the craziest thing you have ever said (or done) at an interview and still got the job?” was asked, Australian Broker knew there would be some gems from HR departments – and we weren’t disappointed.

THE POCKET COW

Richard Waddington was ready to move on after spending a decade with the same company but was understandably nervous about his first interview in more than 10 years. When he was on his way out the door, his four-year-old daughter handed him a small plastic cow for ‘good luck’, which he put in his pocket.

The interview went well, until the VP of HR told him she was concerned he was “a pretty straight-laced guy… How do I know you’ll fit in?”

Without thinking, Waddington blurted out, “I have a cow in my pocket!”

There was a “moment of very awkward silence,” Waddington said, “and I was convinced I’d just blown it, but I found the cow, and set it on the table. Another second or two went by before she burst out laughing.

“I got the job.”

INSULTED THE EX

Olivier Peyre had the following potentially awkward conversation with his interviewer: CEO and founder: “So, since you worked at X, you must know Ms Y?” Peyre: “Oh, I do know her. Quite a nutcase if you ask me.”

An anonymous contributor described their dedication to finding a job in finance in New York City, which could have ended in a restraining order instead of a job offer.

“I managed to get the contact information for a managing partner at one of the most selective banks in the world,” they wrote.

“I made several strikes from the beginning.

I sent him an email letting him know when I was available (any Friday), instead of asking him when it was convenient for him. I did not tell him how I got his contact information.”

When the partner did not reply, the anonymous writer kept emailing him until his assistant arranged a meeting – which was cancelled at the last minute. After four more cancellations, they decided to just show up anyway.

“When I walked into Mr. managing partner’s office, he looked up and asked, ‘Are you that kid who won’t stop emailing my assistant’, and laughed,” they wrote. “I told him I wanted to work on his trading floor, and that I’d be the best analyst he had if he gave me a shot. At the end he said ‘I have no idea who you are or how you got in my office, but you’ve got conviction and I like that.

I’m going to help you’.”

IF YOU MAKE ME AN OFFER I CAN’T REFUSE, THEN I WON’T BE ABLE TO REFUSE IT TURNED DOWN THE JOB OFFER

During the interview process Gil Yehuda asked each interviewer independently what the number one job specification was, and all told him it was the top-listed trait. However, the chief technology officer said it was a different trait. Confused by the varying answers, he tried to clarify and discovered a disconnect and confusion around the job description. When the company made a job offer he had to think twice.

“The truth is, I really wanted (needed) this job.

But I said: I’m sorry, I don’t think I can take the job if the company doesn’t know what the job is,” Yehuda wrote. “You need to figure out what you want before you make an offer. I don’t think anyone could succeed in a job where the very role is in dispute.”

Instead of looking for someone else, the company told Yehuda it was a new position and they wanted him to come in to determine what was required. They asked what it would take for him to take on the task.

“If you make me an offer I can’t refuse, then I won’t be able to refuse it,” he said.

Just 15 minutes later he had accepted the position – “No regrets either.”

DIRECTORY 31

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Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 13

AGGREGATOR / WHOLESALE BROKER PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 7

OTHER SERVICES

RP Data 1300 734 318 Page 23

NON BANK LENDER

Trail Book Buyers 1300 742 306 or 0434 742 306 info@trailbookbuyers.com.au www.trailbookbuyers.com.au Page 15

SHORT TERM LENDER

Trailerhomes 0417 392 132 Page 26

Australian First Mortgage 02 9643 4300 www.australianfm.com.au Page 9

FINANCE

Rhino Money 1300 654 355 www.rhinomoney.com.au Page 8

Interim Finance 02 9982 2222 www.interimfinance.com.au Page 2

Mango Credit 02 9555 7073 www.mangocredit.com.au Page 1

LENDER

La Trobe Financial Services 1800 707 707 latrobefinancial.com.au Page 5 Liberty Financial 13 11 33 www.liberty.com.au Page 3

MKM Capital 1300 762 151 www.mkmcapital.com.au Page 6

WHOLESALE

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

To advertise in Australian Broker, call Simon Kerslake on 02 8437 4786

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