Australian Broker 11.05

MARCH 2014 ISSUE 11.05

$4.95 POST APPROVED PP255003/06906

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

+ ANALYSIS MORTGAGE GROWTH RETURNS Deloitte’s new report sees good days ahead P10

+ ANALYSIS DISAPPEARING ACT

In spite of tantalising rates, first home buyers are nowhere to be seen P14

+ MARKET TALK THE PROS AND CONS OF AVMS

Matt Lawler:

MOVING BEYOND MORTGAGES Yellow Brick Road’s CEO says the company has done what pundits said it couldn’t

T

he convergence of financial services is a common topic in the mortgage broking industry, and lenders and aggregators seem convinced that the roles of brokers and planners will move closer together. What few seem to be pushing, however, is a truly blended model that sees brokers become planners. One company, though, says it’s possible.

FULL STORY PAGE 18

A look at automated valuations P20

+ SPOTLIGHT WORKING HAND IN HAND

NAB Broker’s Steve Kane on how brokers and banks come together for clients P26

+ CAUGHT ON CAMERA Westpac’s Luna Park broker roadshow P29

NEWS 2

brokernews.com.au

NUMBER CRUNCHING

CONSUMERS LESS CONFIDENT

HOUSING GETTING DEARER

Consumer confidence in January 2014 vs January 2013

Prices are performing strongly across Australia Darwin $590,000 $473,500

NO 20% January 2013

Is now a good time to buy a house?

YES 80%

Brisbane $465,000 $390,000

Perth $530,000 $407,000

Sydney $690,000 $553,250

Adelaide $410,000 $297,500

NO 24% January 2014

YES 76%

Melbourne $463,000 $420,000

Houses Units

Source: RP Data

Canberra $532,000 $408,500 Hobart $370,000 $261,000 Source: RP Data

WHAT THEY SAID...

GREG MEDCRAFT

“It is frustrating – both for us and the public – when the penalty available to respond to misconduct is much less than the profit someone made in the process” P4

MATT LAWLER

“There is no longer one great Australian dream; there are two dreams running in parallel – to own your own home and to retire comfortably” P12

STEVE KANE

“The immediacy and intimacy of what customers require today is very different than … five years ago” P26

PHIL NAYLOR

“It is just a matter of time that brokers provide more than half of all home loans provided in Australia” P8

NEWS 4

brokernews.com.au brokernews.com.au

Overseas property investors flocking to Oz $30bn

■ According to Cushman

Greg Medcraft

ASIC seeks harsher penalties to cull ‘bad apples’ ■ ASIC has been fairly

aggressive in its punitive actions of late, and the regulator has now called for even harsher penalties in the financial services sector to help remove “bad apples” from the industry.

Speaking at the first public hearing of the Senate Inquiry into ASIC’s performance, ASIC chairman Greg Medcraft lamented the lack of strong penalties available to the regulator.

“It is frustrating – both for us and the public – when the penalty available to respond to misconduct is much less than the profit someone made in the process,” said Medcraft.

“If the thinking of lawbreakers is a tussle between fear versus greed, then we need penalties that amplify the fear and smother the greed. We need penalties that create a fear that overcomes any desire to take risks and break the law.”

ASIC requested the ability to ban a person from managing a financial services business, suggested a “streamlining” of search warrant powers and a review of the “consistency and availability” of penalties.

& Wakefield, the world’s largest privately held real estate consultancy, a record US$487bn was invested in the real estate sector in the Asia-Pacific region in 2013.

Australia emerged as the fourth highest investment market in volume terms, with the total investment volume recorded at US$27bn (A$30bn), a rise of 19% year-on-year.

Cushman & Wakefield Australia managing director David Woolford said that last year the greatest volume of transactions since the onset of the GFC was recorded in Australia.

NON-MAJOR STREETS AHEAD IN BUSINESS BANKING SATISFACTION ■ Bendigo Bank has been named

Business Bank of the Year in Roy Morgan Research’s Customer Satisfaction Awards.

This is the third consecutive year the bank has received the award, which the company says is because it looks after its staff.

“Over the past 12 months we have invested heavily in staff training, and looked at innovative ways to engage with our business network,” said Bendigo retail executive Dennis Bice.

The bank has also been investigating how it can do business better digitally, he said.

“We know we must remain nimble and evolve to meet the changing needs of our business customers.”

Roy Morgan’s research shows Bendigo is well ahead of competitors, with 81.5% customer satisfaction.

Total investment volume

EDITOR Adam Smith PUBLISHER Simon Kerslake COPY & FEATURES JOURNALIST Calida Smylie PRODUCTION EDITORS Roslyn Meredith, Moira Daniels ART & PRODUCTION DESIGN MANAGER Daniel Williams DESIGNER Loiza Caguiat SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Alex Carr

“Ultimately, the level of investment in 2013 could have been greater but for the severe lack of prime stock. We expect the market this year will record an even greater number of sales, as investors move up the risk curve in an attempt to secure assets,” Woolford said.

HAPPY HOME LOANS DRIVE CUSTOMER SATISFACTION Major bank customer satisfaction, six months to January

Commonwealth Bank – 82.1%

NAB – 80.3%

Westpac – 78.5%

ANZ – 77.9%

Source: Roy Morgan

TRAFFIC MANAGER Abby Cayanan CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Adam Smith tel: +61 2 8437 4792 adam.smith@keymedia.com.au Advertising sales Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Subscriptions tel: +61 2 8437 4731 fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Auckland, Toronto, Denver, Manila 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 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.

NEWS

brokernews.com.au

6

Longer loan terms should spur broker caution

WORLD NEWS UNITED STATES OF AMERICA

■ As property prices continue to rise and lenders fight for market

BIG BANK AXES MORTGAGE JOBS

Once again, a big bank in the US is giving mortgage employees the axe. Wells Fargo has announced that it’s cutting 700 mortgage employees as demand for home loans continues to shrink.

That’s on top of 250 cuts already made in January, and further reductions are possible as the year goes on, according to a Bloomberg report.

Wells Fargo spokesman Tom Goyda told Bloomberg that the cuts had come as a result of shrinking demand for mortgages.

“We saw some significant declines in mortgage originations in the last half of 2013 and we expect to see a continued decline at this point in the first quarter,” Goyda said.

The cuts have come as many major lenders in the country have announced similar reductions. JPMorgan Chase, Bank of America, Nationstar and PHH have all announced significant cuts to their mortgage units.

CANADA CANADIAN HOUSING AFFORDABILITY TO BE ERODED

In its latest housing affordability report, the Royal Bank of Canada predicts interest rates will soon rise, putting housing affordability in many markets across the country in jeopardy.

“RBC anticipates that as longer-term interest rates begin to moderately rise, the costs of owning a home at market value will gradually outpace (growth) household incomes by late-2014, leading to strained affordability in several markets across Canada, much like the trend in Toronto,” RBC chief economist Craig Wright said in the report.

If the forecast proves correct, it will mark the greatest change in affordability since 2010.

FAST FACT

85.2% The auction clearance rate for Sydney for the weekend of 22–23 Feb. The clearance rate set a new record for the city Source: RP Data

TOP FRANCHISE SEES BEST EVER RESULTS ■

Mortgage Choice has announced a net profit after tax of $9.7m for the six months to 31 December 2013. The result is a 28.5% increase on the first half of the year. Taking into account the business’s sale of aggregation arm LoanKit to Finsure, that profit jumps to $11m, a 46.4% increase on the first half of 2013.

Mortgage Choice also saw a rise in its total loan book, with its portfolio hitting $46.4bn, up from $44.4bn at 31 December 2012. Home loan approvals for the company rose 21.6%, while settlements were up 18.8%. CEO Michael Russell predicted an improving property market would see the brokerage’s loan settlements continue to grow in 2014.

share, borrowers are increasingly opting for loans with terms of up to 40 years – and brokers are being warned to be cautious.

Peter Wood, Australian general manager of Bluestone Mortgages, says that while Bluestone does not offer a 40-year term, many other lenders are now doing so, and longer-term mortgages have become increasingly popular of late.

“It’s probably a function of the market from an affordability point of view; obviously with the longer-term mortgage it does make it easier, for example, for first home buyers to enter the market,” says Wood.

With the average lifespan of a loan sitting somewhere between three and five years, Wood expects most borrowers will choose this path anyway.

“If a borrower is taking out a 40-year term and the borrowers are 30 years old then brokers need to, as part of the analysis, talk with the borrowers about how they exit those loans should the loan go for 40 years,” says Wood.

“The brokers are very much up to speed in terms of the legislation and how they need to portray themselves in the market, the needs analysis and fact-find missions and the need to discuss with borrowers.

I think as long as they maintain the level of education required by the legislation we’ll be well covered in this area.”

Peter Wood

Non-major boosts loan book in spite of decreased earnings ■ AMP’s loan book continued to grow during the last financial year,

despite an overall decrease in earnings.

The bank’s total loan book, of which just over half comes from the broker channel, increased by 7.6% in FY13, up to $13.3bn from the previous financial year’s $938m.

Meanwhile, the bank’s operating earnings decreased by $21m (34%) to $83m in 2013 from $62m in 2012, “driven mainly by higher net interest margins and mortgage book growth”.

An AMP Bank spokesperson said the broker market was a “significant” channel for the bank, and the bank would continue to invest in the broker sector.

“The bank has a number of priorities over the coming year, including investment which will improve the broker experience with AMP Bank, such as upgrading our technology and the online application process, which will improve turnaround times,” said the spokesperson.

Total residential mortgage growth for the bank was 7.1% throughout the financial year. Owner-occupied loans made up 68% of the mortgage portfolio at year end, while investment property loans comprised 32%.

NEWS

brokernews.com.au

8

Broker market share soaring

Company director accused of stealing $2.68m

■ New data from the MFAA indicates that the

■ A man involved in a company that persuaded existing homeowners

mortgage broker market share hit 47.3% in the December 2013 quarter. The association said the volume of loans through the third-party channel reached $123bn in 2013, up 23% on the year before.

“Our information suggests that borrowers are seeking in great numbers to take advantage of the historically low interest rates to secure a more cost-effective mortgage through the use of credit advisers,” MFAA CEO Phil Naylor said.

Naylor predicted brokers would continue to see their share of the mortgage market grow, and that it was on pace to hit 50% in 2014.

“The figures clearly show that the mortgage brokers are a trusted source of information and advice about home loans, finding the deal most appropriate to their needs. It is just a matter of time that brokers provide more than half of all home loans provided in Australia,” he said.

Phil Naylor

DID YOU KNOW?

32.9% Investment loans in January accounted for 32.9% of all loans, the highest proportion ever recorded

with lots of equity to gear up their loans and advance those funds as home loans to other borrowers in cheaper suburbs will stand trial on 136 criminal charges.

Anthony Nicholls, 61, of Mitcham, will stand trial in the Victorian County Court in May next year, ASIC has announced.

Nicholls is charged with 113 counts of breaching his duties as a director of Zantholls International and Peton Properties, three counts of making false and misleading statements, 19 counts of obtaining a financial advantage by deception, and one count of obtaining property by deception.

Around 20 people who invested $2.68m with the companies suffered losses. The money was to be invested in property developments in Ballarat, but ASIC pointed out it was impossible for the developments to occur in the timeframe promised to investors.

It is also alleged Nicholls dishonestly authorised the withdrawal of $1.8m in investor money from a Peton Properties bank account and a solicitors’ trust account for his own benefit, the benefit of his co-director, Peter Scully, and for the financial obligations of related company The Key Result.

Source: RBA

New look for aggregator ■ PLAN Australia has had an image overhaul in a bid to appeal to

the ever-changing broker market.

When Phil Quin-Conroy took over as CEO around six months ago, he saw the need to stay relevant to brokers and their clients.

Since then, the company has overhauled its image, invested in its team, and as the “final piece of the puzzle” refreshed its brand proposition. “This lets us constantly evolve with changes in the market and prioritise the needs of our members,” Quin-Conroy told Australian Broker.

The brand refresh includes an updated logo, a revived colour scheme, and a new philosophy around “excellence through evolution”.

The company has also spruced up its broker website, as Quin-Conroy understands the importance of digital communication.

“What the rebrand does is communicate to members what they can expect via what we offer to them. We connect with the broker as an entrepreneur as we help them run a good-quality business that delivers great client service,” Quin-Conroy said.

GOOD NEWS STORY FOR HOUSING MARKET ■

Housing market predictions for this year are looking positive for borrowers and brokers alike.

The Housing Industry Association’s (HIA’s) National Outlook report forecasts that new dwellings will break the 165,000 threshold for only the second time in a decade.

“Our latest set of forecasts suggests that the housing industry will be one of Australia’s good news stories over the next 12 months,” HIA senior economist Shane Garrett said.

HIA thinks the Reserve Bank will leave its interest rate unchanged for the remainder of this year at least.

ANALYSIS 10

AHEAD +

ANALYSIS

DISAPPEARING ACT

In spite of tantalising rates, first home buyers are nowhere to be seen P14

+ MARKET TALK

brokernews.com.au

Welcome back, mortgage growth

THE PROS AND CONS OF AVMS

A look at automated valuations P20

+ MARKET TALK AUCTION ACTION

Clearance rates are hitting all-time highs P21

+ PEOPLE LENDERS LAUDED A look at the winners of the Australian Lending Awards P28

+ INSIDER GOING OUT WITH A BANG

Epic last day hijinks P30

Deloitte’s new mortgage report shows an optimistic outlook for 2014, so long as companies remain at the cutting edge

ANALYSIS 11

brokernews.com.au

A

THE ORGANISATIONAL WINNERS WILL BE THOSE THAT CAN MAKE THE BEST SCIENTIFIC INTERPRETATION OF THE MASSES OF ‘BIG DATA’ THAT FINANCIAL INSTITUTIONS AND OTHERS CONTINUE TO ACCUMULATE – J AMES HICKEY, DELOITTE At the end of last year, annualised settlement growth of greater than 20% drove a record number of housing commitment applications across the market, according to the company’s recent mortgage industry report.

“Settlements across Australia on a monthly basis in 2013 reached more than $28bn. This is the highest single monthly settlement rate on record, and a clear jump since the onset of the GFC, when they struggled to reach $20 billion,” said Hickey, who helped write the report.

DIGITAL GAME-CHANGER

As consumer confidence in the housing market grows, lenders and brokers will be looking at ways to capture those consumers. In a digitally driven market, mortgage industry players will have to be at the cutting edge of digital trends, according to a recent Deloitte mortgage industry roundtable.

The consensus of the roundtable, which drew in representatives from Deloitte, Yellow Brick Road, Macquarie, Mortgage Choice and Pepper, among others, was that digital resources and data would be

the main game-changer for the $1.3trn Australian mortgage market over the next three years.

“Much of this change will be consumerled and driven by the need for both simplicity and advice from customers as to how best to manage their finances,” Hickey said.

“The organisational winners will be those that can make the best scientific interpretation of the masses of ‘big data’ that financial institutions and others continue to accumulate and use this to facilitate successful proactive and valuable interactions for the consumer. Digital will be a critical enabler of that.”

Deloitte Digital partner Katherine Milesi said the greatest challenge would not be about the technology itself, but how it was “stitched” together.

“There are 23 million Australians, and we have 32 million mobile devices, which will grow to 100 million in five years’ time.

So digital is not just about laptop, it’s about mobile – smartphones, tablets and phablets – as well as social media, and how all of these can come together to assist consumers with simplicity and assisted

HOW AUSTRALIAN CONSUMERS SEE THE ECONOMY SHAPING UP Would you say that you are more or less optimistic about the economy than you were a year ago?

Much more optimistic Don’t know or prefer not to say Much less optimistic

2.9 %.8% 1

s we plunge ahead into 2014, there seem to be some seriously mixed signals for the mortgage market. Housing is still hot, with auction clearance rates hitting record highs and the aggregator AFG recently booking a record-breaking February. At the same time, the Reserve Bank has been content to leave interest rates at record lows as concerns about unemployment continue to cast a shadow on the economy. And while Australian consumers seem confident about the housing market, they aren’t confident about much else.

Nevertheless, the mortgage industry has headed into the year with renewed confidence. The latter part of 2013 saw a fire lit under the housing market, and conditions for 2014 seem reasonably favourable. The results of the January RP Data – Nine Rewards housing market sentiment survey saw 1,047 participants answer a range of questions on what they expected from Australia’s property market over the next six to 12 months.

Seventy-six per cent of those surveyed think it is a good time to buy property now.

While the overall results showed that Australians are generally positive about the housing market, the proportion is now lower than the results of a year ago (80%) but slightly higher than those of October last year (74%).

The survey showed that just over three quarters of all respondents think it is currently a good time to purchase a home, with the most optimistic responses coming from respondents in areas where dwelling values have not shown a substantial rise over the current growth cycle.

However, the response from residents of Sydney and Melbourne, where dwelling values have shown a substantial level of growth over recent cycles, was more pessimistic.

Half of the survey respondents expected dwelling values to rise over the next six months, compared to just 38% a year ago, while only 5% of respondents expected values to fall over the next half-year.

Just over half (56%) of those surveyed expected values to rise over the next 12 months, compared to 51% a year ago.

Deloitte banking partner James Hickey has said that consumer confidence led to some massive jumps for the housing market in 2013. And this renewed confidence is expected to continue to buoy the market.

“Confidence among borrowers is high,” he said. “Investors have made a comeback and funding pressures are easing, promising a vibrant and competitive mortgage market this year and through to 2017.”

Deloitte’s current market outlook for 2014 is that mortgage settlement growth is back, and competition will intensify.

More optimistic

18.5%

7.9%

27.2% Less optimistic

41.7% About the same Source: Aussie Home Loans

ANALYSIS 12

brokernews.com.au

CUSTOMERS WANT THEIR BANKS TO MAKE LIFE EASIER FOR THEM BY USING THE UNIQUE DATA THEY HAVE, TO HELP THEM BETTER MANAGE THEIR MONEY – K ATHERINE MILESI, DELOITTE self-serve. The challenge also is to bring the technology pieces of the puzzle together in a way that makes customers feel like they’re interacting with the same brand, and getting support across all touch points and through all channels,” she said.

Part of the seamless interaction consumers want, Milesi says, comes from different channels being able to integrate with one another.

“Customers want their banks to make life easier for them by using the unique data they have, to help them better manage their money. A simple example is being able to save an incomplete online application form and then call a sales assistant who can expedite completion.

Being able to switch from one channel to another, without losing data or context, is exactly what omni-channel banking will deliver,” Milesi said.

While the mortgage origination process is seeing some of the pieces come together for data and digital, with positive credit

scoring and electronic conveyancing taking shape this year, this is just the tip of the iceberg for data and digital, the report said.

“The big banks have a clear advantage at this point. They have the depth of customer data, and they have the investment spend for digital innovation.

Others will have to make smart choices about how to position themselves for future opportunities.

“Those lenders and brokers that can successfully marry data capture, with proactive and valuable interactions with customers, will surge ahead.”

INQUIRY TO LEVEL PLAYING FIELD

Another potential game-changing event for the mortgage industry will be the upcoming financial services inquiry.

The Murray Inquiry, due to deliver its final report in December, may help the mortgage broking and superannuation industries to integrate better and ‘level the playing

field’ within the mortgage market.

The two largest engines in Australian financial services are mortgage lending with $1.3trn and superannuation with $1.5trn. The inquiry needs to explore how these two significant systems can better interact at a macro and a micro level, and presents an “exciting” opportunity for financial services to be more integrated, Deloitte banking partner Graham Mott said.

“To be able to allocate greater levels of superannuation money to fixed income as an asset class and away from the dominance of equities would be a good thing for the banking sector and competition, as it would support a more vibrant securitisation market.”

Getting superannuation right will be paramount, according to Yellow Brick Road CEO Matt Lawler.

“There is no longer one great Australian dream, there are two dreams running in parallel – to own your own home and to retire comfortably,” Lawler said.

According to Deloitte, the potential lack of competition, and what regulations the mortgage industry can create to level the playing field, should also be examined by the Murray Inquiry, and will have an effect on the mortgage industry this year.

Competition will continue to ramp up over the next year as new online lenders

CONSUMER CONCERNS In spite of renewed confidence in the housing industry, consumers do have their fair share of worries: 80

73% 66%

70 60

53.6%

50

43.8%

40

30.1%

30

21.1%

20 10 0

18.5% 15.8% 14.9% 14.8% 1.7% 4.7%

IN

CR

EA

IN

NO AU H N MY RE KE N OT ST HE TA SA T H A N OUS FO O ES R E EP I T H OT H CR RA IL R VIN AV R F TA IN D U ING NG P E E SE SE S A S I L G D EC I BL NG IN Y I I G A DD R I N U R A IN T M S S L G E O P I A S N S E C E E C N F T B TO N EN UN A IL SS AR GO NT MY FO OV OM OT HO HED ER EM L I V OUG YL DD S M VE R D ER TIL ME HO Y I HE GY OR RN PL EO HS IVI AB Y S L E S I RIN U B B L C O T NG ME L E LO N W UP MP G T U Y SE OW GA OS YM W NT CO ER S RO ME GE TS EN H E ER A S ST DE V IN .

T N N S BT I R NU G E T AT I R E ION / CR

EA

IN

CR

EA

Source: Aussie Home Loans

ANALYSIS 13

brokernews.com.au

KEY FOCUSES OF THE FINANCIAL SYSTEM INQUIRY While the inquiry will look into a variety of areas of finance, Deloitte has tipped a few areas of focus as particularly relevant to the mortgage sector:

INTEGRATION: How the superannuation and mortgage lending sector can better integrate and support one another

REGULATION: What pace the regulatory environment could and should evolve at

HOUSING AFFORDABILITY: The inquiry could look at the long-term balance of supply and demand for property

COMPETITION AND TECHNOLOGY: How new competitors in the mortgage market can emerge, leveraging technology-led innovations

and non-financial services players seek to enter the mortgage market, said Mott.

“While newly originated loans are still delivering a healthy 200bps of NIM for the majors, banks have had to deepen their discounts to customers and increase their commissions to brokers to compete for new flows in the market. And while some heat has come out of the deposit war, any equities market rally could put upwards pressure again on deposit rates for banks,” he said.

“As Australia leads the world to position for growth and the nation looks to the financial services sector to finance its future, the need for Australia’s $1.3 trillion mortgage market to have the agility to deliver earnings in a volatile market, is paramount.”

The inquiry will also likely look at housing affordability and the challenges faced by first home buyers entering the market, and, at the other end of the age spectrum, the growing longevity challenge, with many retirees living the traditional ‘asset rich, cash poor’ lifestyle and having little incentive to downsize from the family home.

ANALYSIS 14

brokernews.com.au

Affordability aggravation Interest rates remain at record lows, but affordability has taken a hit that’s keeping FHBs out of the market

T

he latest Adelaide Bank/REIA Housing Affordability Report shows it’s increasingly difficult for young Australians to get a foot on the bottom rung of the property ladder. Home loan repayments are a larger proportion of median income, the average loan size is headed up and even in a low interest rate environment, first home buyers seem to be steering well clear of the housing market.

The number of first home buyers was the lowest since the Australian Bureau of Statistics started to collect data and is also persistently low compared to the long-run average despite eight interest rate cuts since November 2011, the report said.

First home buyers made up only 12.5% of the owner-occupier market compared to 13.6% in the previous quarter.

Adelaide Bank general manager Damian Percy said owner-occupier first home buyers are staying away from the property market “in droves” and this should concern policy makers. ““We know that owner-occupier first home buyers are staying away from the property market in droves and have been for some time. In spite of a benign interest rate environment, on current statistics, a historically low number of Australians do not seem to feel they are in a position to step onto the first rung of the property ladder. With a view to the future, I can’t see this playing out well,” Percy said.

The reason first-time buyers seem to be staying away is the lack of affordability. REIA president Peter Bushby said all states and territories – apart from the Northern Territory – recorded affordability downturns in the last quarter.

However, compared to the same quarter of 2012, affordability improved over the long term with the proportion dropping by 1.8 percentage points. The proportion of income required to meet loan repayments now stands at 30.8%.

If young people are staying away from the property market, this could have a flow-on effect as Gen Y ages, Percy said.

“If you look at pretty well all the budget-based estimates on people’s retirement income needs prepared by organisations like ASFA, the modelling assumes home ownership. We need to better measure and understand what could happen if the current figures reflect reality and

FAST FACT

3.6%

Increase in average loan size for new lending commitments over 2013

plan accordingly. Unless we can reverse this trend, the most obvious outcome will be that there will be lots of people renting right up until they are of pensionable age. The rents they may be able to afford on the aged pension in the private market at that point in time – in 40 to 50 years – are likely to be in areas well away from healthcare and the other services they will require as ageing Australians.”

NextGen.Net sales director Tony Carn said if housing is to become more affordable there needs

AVERAGE PROPORTION OF FAMILY INCOME TO MEET RENT REPAYMENTS DECEMBER QUARTER 2013

SEPTEMBER QUARTER 2013

DECEMBER QUARTER 2012

NSW

28.6%

28.3%

28.1%

VIC

23.0%

23.2%

23.1%

QLD

23.4%

23.9%

24.2%

SA

23.1%

23.2%

23.6%

WA

25.2%

25.8%

26.3%

TAS

26.4%

25.5%

26.3%

NT

33.7%

35.8%

34.9%

ACT

18.0%

18.4%

19.0%

Australia

25.4%

25.6%

25.6%

AVERAGE PROPORTION OF FAMILY INCOME TO MEET LOAN REPAYMENTS DECEMBER QUARTER 2013

SEPTEMBER QUARTER 2013

DECEMBER QUARTER 2012

NSW

35.6%

33.8%

37.0%

VIC

31.6%

30.9%

33.4%

QLD

27.9%

27.6%

30.5%

SA

27.4%

26.5%

29.7%

WA

26.0%

25.4%

27.0%

TAS

25.1%

24.6%

27.0%

NT

27.1%

27.2%

28.0%

ACT

20.2%

19.8%

23.5%

Australia

30.8%

29.8%

32.6%

ANALYSIS 15

brokernews.com.au

Damian Percy

Tony Carn

to be “real innovation” in the way a mortgage is offered over the next three years.

“One of those things is cost innovation. Obviously there’s a growing need to assist an ageing population in how they downsize and also how they fund their retirement. There’s a lot of asset-rich income-poor people, and I think there’s a demand for mortgage products like reverse mortgages to help them.”

Percy noted the decline first home buyer activity appears to have been offset to an extent by the latest RBA investor housing loan aggregates, which grew by 0.8% in January and by 7.4% for the 12 months to January. “So there could also be other behavioural forces at work here.”

Bushby theorised that the surge in investor activity could mean young people may not be staying away from the market entirely.

“There is anecdotal evidence that younger Australians are opting for living in rental accommodation or with their parents longer and investing in property rather than becoming first home buyers.”

According to Bushby, some buyers may see more wisdom in making their first property an investment property rather than owner-occupier.

“With the removal of assistance (First Home Owner Grant, stamp duty concessions) to first home buyers of established homes in the majority of states and territories, younger Australians may be realising that there are better incentives to becoming investors rather than home owners. For some, this is the only way to get a foot in the door.”

For AFG general manager of sales and operations Mark Hewitt, the first home buyer problem is not a new one. He said first home buyers have been struggling for some time, but that national figures were unnaturally inflated by states where grants were in place.

“The overall, national figure for first home buyers has for some time concealed the reality that first home buying in NSW and QLD has been at very low levels since state government grants were withdrawn. Now that the WA figure has come off its very high levels, the issues faced by first home buyers are becoming more apparent,” he said.

BY THE NUMBERS The national median weekly family income rose 1.8% to $1,569 during the December 2013 quarter. This represents a 3.9% increase when compared to the December quarter of 2012.

Mark Hewitt

AVERAGE QUARTERLY VARIABLE INTEREST RATES WERE:

THE AVERAGE FIXED (3 YEAR) INTEREST RATES WERE:

BANK – 5.6%, unchanged over the December quarter.

BANKS – 5.1%, unchanged compared to the previous quarter.

PERMANENT BUILDING SOCIETIES – 5.5%, unchanged from the previous quarter.

PERMANENT BUILDING SOCIETIES – 5.1%, an increase of 0.1 percentage points from the September quarter of 2013.

OTHER LENDERS – 5.1%, an increase of 0.1 percentage points from the September quarter of 2013.

OTHER LENDERS – 5.1%, a 0.1 percentage points increase from the previous quarter.

AVERAGE LOAN SIZE DECEMBER QUARTER 2013

SEPTEMBER QUARTER 2013

DECEMBER QUARTER 2012

Banks

$341,971

$326,318

$330,547

Building societies

$256,801

$255,658

$258,951

Other lenders

$292,373

$265,090

$271,638

DID YOU KNOW?

7.1% The total number of new lending commitments (excluding refinancing) issued nationally over the December 2013 quarter increased 7.1% to 111,386.

This represents a rise of 15.2% compared to the December quarter of 2012.

Hewitt said AFG figures for February showed first home buyer activity at a four-year low.

Nationally, first-time buyers made up only 9.9% of the market in February. WA still has a high proportion of first-time buyers, at 19.5%, but this has fallen from 24.2% in January. NSW, meanwhile, has languishing first home buyer participation, with first-time buyers making up only 3.4% of the market.

Hewitt said some property commentators had claimed that first home buyer figures weren’t being represented accurately, and that first-time buyers were more active than the numbers indicated. He refuted the notion.

“There has been some media commentary indicating that the ABS FHB numbers are understated, however we disagree with this view.

First home buyers are included in our data irrespective of whether they qualify for a grant or not and we clearly see a concerning downward trend.” Percy argued that supply issues were constraining affordability, and that this could be the key to removing barriers to entry for first home buyers.

“Encouraging home ownership should be a key priority for any home lender and Adelaide Bank is committed to working with the REIA to contribute to the development of sound public policy that, if implemented, will help ease the supply side problems that are putting pressure on housing affordability.”

NEWS 18

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CONTINUED FROM PAGE 1

Matt Lawler:

MOVING BEYOND MORTGAGES Yellow Brick Road’s CEO says the company has done what pundits said it couldn’t

Y

ellow Brick Road, the brainchild of Apprentice host and former Wizard head Mark Bouris, has claimed it is indeed possible to make advisers out of brokers.

The franchise operation claimed revenue increases of more than 200% per annum, and has said the result lends validation to its one-stop-shop model. YBR also saw a major rise in its wealth management business, with non-mortgage revenue equalling 32% of total revenue, up from 7% in July 2011. Bouris, the company’s executive chairman, has said that YBR has found success in doing what many in the industry have warned against: turning brokers into advisers.

“When we started Yellow Brick Road, the pundits said we couldn’t make a wealth adviser out of a mortgage broker,” Bouris said.

Bouris claimed the company has found a way to effectively lead brokers through the transition.

“It’s something that our competitors have struggled with, and they said it couldn’t be done.

Yet here we are with the intellectual property to recruit, train and accredit individuals to provide the full spectrum of advice.”

The company still holds firm to its mortgage broking roots.

YBR’s home loan business makes up the majority of the revenue, and the company has built a home loan book worth $2.2bn in just over three years. But non-mortgage revenue now makes up 32% of total revenue, up from a mere 7% in July 2011.

Obviously, something appears to be working.

Matt Lawler, former NAB exec and YBR’s CEO, said the above-

trend growth in the company’s wealth management arm is because the market YBR is targeting is severely underserviced.

“We position our brand as providing advice to mums and dads in the suburbs, so what is challenging them at the time is why they come to see us. Our market is predominantly the 30- to 45-year-old age market, and a mortgage is the predominant thing on their mind,” he said.

This sets YBR apart from other providers of wealth advice, Lawler said.

“If you think at where a lot of financial advisers position themselves, a lot of their clients are retired or nearly retired, and they have a lot of money already, but the market that really gets forgotten is people aged 30 to 45.

They probably need advice more than anybody – they’re still working and they’ve got lots of financial issues they need to deal with and a lot of the organisations around aren’t set up to deal with them in regards to all their advice issues,” he said.

Bouris agreed, and said the company has been intentional in building its retail footprint in underserviced areas.

“For the past three years we have been focused on building a recognised brand and distribution footprint that is entrenched in the hard working Australian communities that need financial advice and services the most,” Bouris said.

And advisers helping clients source a home loan are perfectly placed to deal with the broader spectrum of those clients’ financial needs, Lawler said. He argued that the home loan process was an opportune time to address other areas, such as

NEWS 19

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WE STARTED THIS MODEL WITH THE PREMISE THAT IF YOU’RE GOING TO JOIN YELLOW BRICK ROAD YOU’RE GOING TO HAVE TO HAVE THE DESIRE TO DEAL WITH MORE THAN ONE PRODUCT. SO IF YOU’RE A MORTGAGE BROKER YOU’VE GOT TO ACKNOWLEDGE AND AGREE THAT YOU WANT TO BE MORE THAN A MORTGAGE BROKER IN THE FUTURE - M ATT LAWLER

insurance, superannuation and financial planning.

YBR, which started in 2007, has been successful while competitors failed with the joint mortgage broking and financial advice model because many brokers or advisers struggle to diversify, Lawler said.

Lawler said brokers who join YBR are buying into the model from the very beginning.

“We started this model with the premise that if you’re going to join Yellow Brick Road you’re going to have to have the desire to deal with more than one product. So if you’re a mortgage broker you’ve got to acknowledge and agree that you want to be more than a mortgage broker in the future,” he said.

This also means that the model doesn’t fit everyone, Lawler conceded.

“If someone came to us who had 10 to 15 years’ experience as a mortgage broker and expected to do the same for the next 15 years, we very quickly made those people aware of our intentions, and if it’s what they wanted to do we proceeded but if it wasn’t, they moved on.”

JACK OF ALL TRADES?

One of the common criticisms levelled at the one-stop-shop model – and in particular, at duel licence holders – is that diversifying into advising on both sides of the balance sheet results in a lower standard of advice all round. In other words, broker/planners become a jack-of-all-trades and master of none. But Lawler said the level of advice – and the expertise required to give that advice – is completely scalable. Yellow Brick Road advisers must hold AFSLs and be credit representatives, but don’t necessarily have to be certified financial planners. Lawler said the company provides a high level of support to its 174 branches, and that someone new to the industry need not master every aspect of credit and wealth advice at once.

“We’ve simplified the different

DID YOU KNOW?

32% Non-mortgage revenue for Yellow Brick Road now accounts for 32% of its total revenue, up from 7% in 2011 Source: YBR

stages that people need to go through in terms of becoming comfortable and competent in giving financial advice on broader product issues,” Lawler said.

This, Lawler suggested, is where scalability comes into play. The company provides different levels of support to its franchisees depending upon their needs, he said.

“That’s a bit of intellectual property we’ve built up over a number of years where we will provide various levels of service to the branches, be it a fully outsourced option where we get a specialist to come in to work with clients; a mentoring option where we’ll stick with them and coach them but eventually let them give clients that advice themselves; and if they are competent, we’ll act as a support network for that branch and sit behind them with all that research and infrastructure that is required to give their clients great advice,” he said.

Moreover, Lawler said the “mum and dad” suburban clients who come to YBR usually need a lower level of financial advice.

“A lot of the perceived complexity around financial planning and mortgages can be broken down. A lot of our clients have simple, basic needs that we can help them with,” he said.

And as those needs grow more complex, Lawler said YBR can help its franchisees gain mastery.

“To become a financial adviser you don’t need to move into the most complex pieces of strategy and advice that financial planning can offer, you can move step by step and our model lets brokers move into advice in a timely way, and also a protected way, because they’ve got all our support behind them,” he said.

Lawler’s advice to mortgage brokers wanting to move into financial planning is to find a good mentor.

“Choose a partner who will help guide and support you make that transition, because it doesn’t happen overnight, it can take months or even years before you are fully competent,” he said.

“But make no doubt about it, the person has to want to make the transition, and if they’ve got the will, we’ve got the resources and support to be able to help them through this process.”

MARKET TALK

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20

THE INCREASED USE AND RELIANCE ON AVMS IN THE REAL ESTATE AND MORTGAGE INDUSTRIES WILL NECESSITATE BETTER EDUCATION FOR ALL PARTICIPANTS

The pros and cons of AVMs RP Data’s Chris Spanos tackles the controversy of automated valuations

R

ecent real estate industry angst at the increasing use of Automated Valuation Models (AVMs) is understandable given this technology’s recent availability to consumers. Lending institutions have been utilising AVMs since the early 2000s, but they have entire risk teams to help them understand and use AVMs. Despite lenders being incredibly sophisticated consumers of AVMs, it’s easy to forget that they also resisted AVMs when they first entered the Australian market.

How are the models constructed?

What data do the models rely upon? How reliable are the estimates? As with all new technologies, AVMs have some fundamental pros and cons.

AVMs are cheaper, faster and allow for use in cases where full valuations simply cannot compete. For example, AVM technology allows Australia’s largest lenders to value their entire loan book in an instant and to update the portfolio valuation on a weekly basis.

Additionally, AVMs allow lenders to perform stress testing of their loan book by tweaking underlying risk assumptions to analyse loan book performance under variable economic conditions.

Full valuations, on the other hand, involve an internal and

DID YOU KNOW? RP Data has argued that because AVMs are electronic computer estimates, they are immune to human interference, fraud or high- or low-balling

*The FSD or Forecast Standard Deviation is an estimate of the variation between an AVM and the market value of a property. A smaller FSD indicates an AVM is likely closer to the true market value of a property than a larger FSD

external inspection of a subject property to obtain a market value opinion from a professionally qualified valuer. Internal features such as new kitchen appliances, renovated bathrooms and premium light fixtures all feed into the ultimate valuation amount. Of course, this accuracy comes at a cost both in dollar terms and time taken to complete the valuation. Nor does a full valuation always predict the ultimate sale price of a property, as many auctions make clear.

Given the cons associated with full valuations, their use in the real estate industry has been limited at best. As they cost several hundreds of dollars at a minimum, how many consumers pay for full valuations before making an offer on a property?

Anecdotal evidence suggests this number is incredibly low – perhaps as low as 1% of investors.

In light of this, it is misleading to suggest that property investors have been abandoning full valuations in favour of AVMs. Rather, investors have shown significant interest in any new property information they can get their hands on – AVMs are just another type of property information investors are consuming in their constant thirst for more data. Given that demand, it should be no surprise that organisations have moved to meet that demand. From the CBA smartphone app Property Guide, to listings and wealth management portals that include AVMs, consumers have never had more property information available to them than they do now – much of it free.

For as little as $25, consumers can purchase AVM reports that include attribute data, sales history, comparable recent sales and suburb statistics. Better yet, property investors can often get these AVM reports for free from real estate agents or mortgage brokers that subscribe to a property information service like RP Data’s RP Professional.

It may sound trite to say that more information is better, but it has always been RP Data’s belief that the liberation of property

information is a good thing for the industry. An investor armed with a healthy dose of data is a confident investor, and a confident investor is more likely to put in an offer.

THE EDUCATION DISCONNECT

So where is the disconnect?

In a word, education. While some property investors understand the limits of AVMs, many do not and may rely on them inappropriately.

Additionally, many real estate agents and mortgage brokers have had little experience with AVMs and struggle to explain to prospective clients what the pros and cons are.

For these reasons RP Data has chosen to supply AVMs through its consumer channels as a value range rather than a point estimate and associated FSD.* Additionally, RP Data’s AVM reports are branded as ‘‘RP Estimates’’ and include a traffic light colour code to help consumers interpret FSDs. Consider a recent industry example of investors refusing to make an offer because a public AVM was considerably less than the ultimate selling price. An agent needs to do more than just say “the AVM is low”. They need to look at the recent sales in a suburb, consider the prevailing stock, interpret the FSD for the investor, and suggest reasons why the subject property may well sell for considerably more than the published AVM. Engaging with prospects more thoroughly educates investors and gives real estate and broking professionals an opportunity to sell themselves.

RP Data offers a number of resources to professionals who can use these to better understand AVMs, and runs training courses and seminars that can help you better utilise AVMs in your business. The increased use and reliance on AVMs in the real estate and mortgage industries will necessitate better education for all participants. It is a journey we look forward to taking alongside our clients and partners.

MARKET TALK brokernews.com.au

21

Clearance rates heating up as consumer confidence surges Confidence in the property market is picking up, and record auction clearance rates are the proof

C

onfidence in the market is growing, and if your clients are looking to sell off any of their investments, putting them under the hammer might just be the way to go as auction clearance rates break records across the country.

Like the contents of a champagne bottle, the national auction clearance rate has been building pressure week after week, rising and rising, until last weekend the cork finally popped and records were broken in capital cities across Australia.

Now all eyes will be focused on auction clearance rates as we wait to see if the month of March will also deliver recordbreaking highs.

The weekend of 22–23 February saw preliminary auction clearance rates recorded at 82% across 2,847 capital city auctions – the highest clearance rate on record, according to RP Data.

Sydney led the way with clearance rates reaching a record 87.5%, the highest rate on record for the month of February.

The number of auctions also rose to 1,060, compared to 614 the week before.

Sydney also claimed the highest price paid at auction over

the record-breaking weekend, with a first-time offered waterfront penthouse in Kirribilli selling for $4.325m, $1.325m above reserve.

The dual-level, two-bedroom apartment offered 180-degree water views, three bathrooms, a rooftop terrace and an open-plan design.

It is understood the buyer, from Adelaide, didn’t stop there, later purchasing a one-bedroom apartment in the same building for $690,000.

In Melbourne, Australia’s largest auction market, preliminary clearance rates for last weekend also smashed records at 79%, increasing from 69.2% in the week prior.

This was the highest auction clearance rate recorded for Melbourne since the beginning of June 2013.

Bernard Lawry, managing director of Victorian Property Auction Services, says Melbourne is seeing a “catch-up” in the property market after what was a reasonably depressed market in 2013.

“Low interest rates are stimulating the market, particularly the investor segment as well as new developments,” he says. “2014 has seen a wider

FAST FACT

$4.325m The selling price of a waterfront penthouse in Kirribilli, Sydney.

The property went for $1.325m above its reserve Source: RP Data

choice of quality properties, especially in the upper segment in suburbs such as Brighton, South Yarra, Toorak, Ivanhoe, Balwyn and Doncaster, and there has also been a strong return in the overseas buyers, especially evident in the Chinese segment.

“We expect this trend to continue throughout 2014, although the lower end of the market will start to slow with employment uncertainty.

However, a further cut in interest rates by the Reserve

Bank, which seems likely, may ease this pressure in the short term.”

Other capital cities also experienced high clearance rates last weekend, with Brisbane, Australia’s third largest property market, clearing 76.1% of properties from 157 auctions, while Adelaide recorded an incredible 83.3% from 116.

Canberra was also a big mover, clearing 84.6% from a total of 61 auctions, with Perth at 57.1% from 47 and Tasmania recording 80% from 10 auctions.

BEST PRACTICE 22

brokernews.com.au

THE BUCK STOPS HERE:

Your responsibilities when it comes to fraud

A recent ASIC ban raised the question of how much the burden of sniffing out fraud falls upon the broker

A

SIC recently sparked a debate by handing a ban to a Melbourne broker. Last month, the regulator cancelled the licence of Parmjit Singh after ASIC alleged he had “failed to verify payslips, bank statements and employment references in circumstances where suspicions should have been raised as to whether these documents were valid”.

The banning raised the issue of how much the onus falls upon brokers when verifying documents. After all, banks have sophisticated systems for verifying documents – systems brokers often don’t have. But according to ASIC, brokers still bear responsibility for spotting and stopping fraud.

Emma Curtis, ASIC’s senior manager, deposit-takers, credit and insurers, said the regulator had provided brokers with guidance on its expectations when it came to document verification.

“ASIC has issued Regulatory Guide 209 which sets out our expectation with regard to the responsible lending requirements,” she said.

For brokers, this means the steps taken to verify income

depend on the situation, and must take place before passing on information to a lender, she said.

“The obligation is to take reasonable steps. It is a scalable obligation, so it will vary depending on the circumstances, but brokers need to make sure that if they have concerns about the information, that they don’t pass it on to prospective lenders and that in some cases it may be appropriate to provide information to the police if they have concerns about fraudulent conduct,” Curtis said.

documents which raise suspicion is when there are inconsistencies in the documents that can’t be explained. For instance, discrepancies in the letterhead, the company name and ABN; issues with the colour used or the fonts or graphic issues; issues where the payslips contain dates that aren’t consistent or where the salary ranges are provided for an occupation that aren’t consistent with that occupation,” she said.

Curtis reiterated the importance of passing the

BROKERS NEED TO MAKE SURE THAT IF THEY HAVE CONCERNS ABOUT THE INFORMATION, THAT THEY DON’T PASS IT ON TO PROSPECTIVE LENDERS AND THAT IN SOME CASES IT MAY BE APPROPRIATE TO PROVIDE INFORMATION TO THE POLICE – E MMA CURTIS, ASIC So what should brokers look for?

Curtis said the signs of fraud could often be rather glaring in documents provided by borrowers.

She gave examples of red flags brokers should look out for.

“Some examples we’ve seen of

information on to the relevant authorities, and not to the lenders, if alarm bells sounded when looking at a prospective borrower’s supporting documents.

“If brokers have reason to question the information

I SMELL A RAT RG209’s advice on when brokers should dig deeper: “In some circumstances, taking reasonable steps to verify information should involve making additional inquiries about the consumer where: the information that a consumer provides is inconsistent with other information that you hold about the consumer (e.g. in a credit report or account information for existing customers); and/or the information that a consumer provides is outside the standard range for the consumer (e.g. the income stated is far greater than would be expected for the type of work the consumer undertakes, or their expenses are far lower than would be expected, as indicated by relevant benchmarks).

“For example, you may believe that an application involving a full-time student with a $6,000 per month income should warrant further verification.”

BEST PRACTICE

brokernews.com.au

23

provided to them, then they do need to take further steps to verify that information. If they do have concerns about information, then they shouldn’t provide it to the lender and they do need to report it to the police if they have concerns about fraudulent information being provided to them.”

Curtis said brokers could take some fairly simple steps to verify documents, should anything look suspicious.

“Brokers could contact employers to verify employment if they have questions around that aspect, or they can take further steps to seek further information to confirm the information they’ve been provided with,” she said.

Regardless of how they went about it, Curtis stressed that brokers needed to verify borrower information before talking about product options.

“So the requirement is to take reasonable steps to verify the information and to verify that to a reasonable standard before steps are taken to assess whether or not a product is suitable for a consumer.

As I said, the obligation is scalable so it will depend on the circumstances,” she said.

“It’s very important for brokers to familiarise themselves with the requirements of the credit legislation, and that includes ASIC’s guidance on the issue,

and brokers should take steps to get advice if they feel they need further assistance in this area.”

TECH GAP CAUSE FOR CONCERN

So it’s clear ASIC expects brokers to be the first line of defence against fraud. But QED Risk Services director Greg Ashe said a lack of technology made this difficult for many brokers.

“There’s a resources gap between what the brokers have got access to and what the banks have got access to,” said Ashe.

“A broker might have absolutely no idea and no way of knowing that a particular bank statement is fraudulent, but the banks with their technology and the information sharing between them might do – and then the broker gets flicked for it! Now that’s tough.”

Ashe has seen a number of instances – especially when the major banks have been involved – in which a broker has lost their accreditation for failing to pick up false documents, even though they may not have had the resources to do so.

Otto Dargan, director of Home Loan Experts, said this had been a real issue for brokers in the past.

“The key thing for us is it would be really good if we could have a contact at each of the major lenders where we could verify documents. They do this with each other; if CBA receives

DON’T GET STRESSED ABOUT COMPLIANCE; IT SHOULDN’T BE HARD. IF IT’S TOO HARD, YOU’RE DOING IT WRONG – G REG ASHE, QED RISK SERVICES a Westpac statement and they’re unsure about it, they can email it to somebody at Westpac and they’ll just come back and confirm it.”

Dargan said he had requested this from “a few” lenders in the past, with no response. In the case of one particular statement he had asked to be verified, the bank initially said they would help and then failed to respond to emails and phone calls on the matter.

“We’re making an effort; when are they going to make an effort?” said Dargan.

“I understand there are privacy concerns, but it would be really good if brokers and banks could work together on this.”

While Ashe admitted that the seemingly vague guidance on the issue could be a problem for brokers, he said the key was to “go with your gut”.

“I think brokers are used to rules, and with this whole world of NCCP comes this thing called ‘principles-based legislation’ whereby they don’t set rules, they set ‘guiding principles’, and then they throw in words like

‘reasonable’, so it’s up to the individual to work out what they think is reasonable in the circumstances,” said Ashe.

“On the other hand, when I start talking about it with a group of brokers, especially the experienced guys, it usually gets to the point where I say, ‘Come on, guys. You’re all really experienced; you’re really good at what you do. Stick your hand on your heart and tell me you don’t know what’s reasonable and what’s not’.”

If brokers are concerned about their ability to verify documents, they should call on their aggregators to help, said Ashe.

They often have similar resources to some of the banks and a good understanding of the issue as a whole.

Overall, however, he didn’t think the issue was something brokers should get too hung up on.

“Don’t get stressed about compliance; it shouldn’t be hard,” said Ashe. “If it’s too hard, you’re doing it wrong. Go with your experience and go with your gut.”

WHOSE RESPONSIBILITY?

A look at RG209’s take on who should verify what in the credit provision process

CONSUMER

TYPES OF INFORMATION

WHO SHOULD GATHER THE INFORMATION

For PAYG employees

RECENT PAYROLL RECEIPTS/PAYSLIPS Confirmation of employment with the employer (subject to the requirements of the Privacy Act 1988)

Credit assistance providers, credit providers and lessors (see RG 209.49–RG 209.52 for guidance about sharing this information)

For self-employed consumers

FINANCIAL STATEMENTS Business bank account statements; recent income tax returns; a statement from the person’s accountant setting out details of the consumer’s financial position; business activity statements

Credit assistance providers, credit providers and lessors (see RG 209.49–RG 209.52 for guidance about sharing this information)

For all consumers

CREDIT REPORT Information/reports from other credit providers (subject to the requirements of the Privacy Act 1988).

Bank account or credit card records held by the credit provider (eg expenses can be verified by examining account statements over a period of time), and other information held about an existing customer

Credit providers and lessors For small-amount credit contracts – credit assistance providers and credit providers

Source: ASIC

FINANCIAL SERVICES 24

brokernews.com.au

ASIC slammed for giving ‘green light’ to flout FoFA

ADVISERS TO GET PAY BUMP The future appears to be looking bright for Sydney-based financial planners after a new survey has suggested they will receive a substantial annual salary increase this year.

The increase, highlighted in the 2014 Robert Walters Salary Survey, indicates a pay rise of up to $50,000 from 2013 for senior financial planners and up to $25,000 for financial planners. But what exactly is behind the salary jump?

Pamela McDonald, Robert Walters’ manager of financial services operations and financial planning, said it was partly due to FoFA regulations, which are moving away from commission-based models and into a fee-for-service structure.

This has seen base salaries adjusted as commissions stop being collected, she said.

“It’s going to change the market. Some of the advisers and planners aren’t too happy with it. It will be a period of adjustment,” she said.

“From the client’s side, they are expecting a lot more. They are looking at what’s happening abroad and becoming more market savvy.”

The move towards fee for service may have contributed to the Australian wealth management sector becoming one of the biggest growth industries in 2013, due to the necessity for increased customer engagement in order to focus on retention and winning market share.

A

SIC was hauled over the coals about its lack of enforcement of the FoFA legislation during its recent appearance before the Senate Economics Legislation Committee.

Senator Sam Dastyari questioned representatives of ASIC as to why it had chosen not to enforce some FoFA regulations.

He used a document issued by ASIC on 20 December 2013, which stated that it would not take enforcement action in relation to the specific FOFA provisions that the government was planning to repeal.

Particularly, it would not take action for breaches of current Section 962S of the Corporations Act 2001, which requires fee disclosure statements to be provided to retail clients with ongoing fee arrangements entered into before 1 July 2013.

But Dastyari said ignoring a law that was passed in Parliament based on an intention to change it was not good enough.

“Is an intention enough for you to make decisions on what you do or don’t enforce?” he asked. “There’s a big difference between what you said today, and what you’re issuing as a statement. This is a green light [for advisers] to be able to do what [they] like and ignore the FoFA changes,” he said.

Assistant treasurer Arthur Sinodinos fought back, stating that “all ASIC is trying to do is provide some certainty in the marketplace”.

During the appearance, ASIC insisted that any major breaches would be enforced; however, while there was confusion due to the exposure draft on the FoFA, it would be taking more of a facilitative approach.

CYBER ATTACKS ON FINANCIAL SERVICES INEVITABLE

SLOW START FOR SUPER The new year has started off slowly for superannuation members whose median balanced funds dropped by -0.9% for the month of January.

The poor performance was a reflection of the markets, which saw growth assets fall across the board. The median superannuation Australian shares option fell by -2.7% compared to a -3% drop in the S&P/ASX 200 accumulation index over the month. Abroad, international shares also performed badly.

But the news is not all bad, says Jeff Bresnahan, founder and chairman of superannuation funds database SuperRatings.

“When the share market goes down it drags SuperFunds down with it, but February has been very strong so these losses have been pretty much recouped already,” he said.

Returns across all other asset classes remained positive in January, offsetting some of the falls in Australian and international equities, according to the SuperRatings report.

This means that despite January’s “hiccup”, this financial year will hopefully see a double-digit return, Bresnahan said.

FAST FACT

$30,000 The concessional contribution cap for superannuation will be raised from $25,000 to $30,000 per annum from 1 July 2014 Source: ATA

Too few organisations have plans in place for how they should respond following a cyber attack, which is especially dangerous as the likelihood of suffering one is close to inevitable.

That’s the view of John Ellis, enterprise security director at IT firm Akamai. He told Insurance Business that all businesses should have firm crisis response strategies in place in case a cyber attack takes place.

“I see a lot of people who don’t focus on when things go wrong,” said Ellis. “At some point, things will go bad. A database will get popped, we’ll have a data breach of some description, a denial of service attack. How do you detect it?

How do you respond to it? How do you engage with media? How do you recover, and how do you know what you need to recover? Those simple questions are difficult for people to answer, but it changes the mindset.”

Ellis highlighted that one of the biggest threats is cybercriminals attempting to ‘pop’ customer databases to sell personal information. Personal data can sell for between $2 and $40 per record on the black market, depending on the completeness of the record and the information contained.

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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, March 2013

Firstfolio aims to set the record straight on ‘clean-up’ job

Firstfolio chairman Eric Dodd last year told Australian Broker a swarm of negative publicity surrounding the company’s financial results was likely drummed up by competitors, and was false and misleading. Dodd said the board was “comfortable” with the company’s position, and that a recapitalisation with CBA was proceeding as planned.

“From the company’s perspective we’re proceeding very well and will likely procure at least twice the capital we need,” Dodd said.

What’s happened since?

All has not gone according to plan. The company recently reported a $300,000 loss for the six months to December, and had to be given a waiver from complying with loan covenants with CBA. With its recapitalisation program missing targets, Firstfolio parted ways with interim CEO Mark Flack.

Symond denies tax cheat allegations in Gadens stoush

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Brokers and banks must work ‘hand in hand’

T

he broker industry has undergone a raft of changes in the last five years, and brokers and banks need to work together to ensure customers receive the best possible service, according to NAB head of broker distribution Steve Kane.

The increasing digitalisation of the sector means that consumers are now looking for “instant satisfaction” to their queries, Kane told Australian Broker TV. “That will flow through into the mortgage channel as well, so it’s that working together hand in hand between the mortgage broker and the bank where we’re trying to achieve a fair outcome and a fair value for the customer,” he said.

“A mortgage broker may have a good relationship with a bank and that mortgage broker and bank will work together to service the needs of the customer, but it’s about that integration and it’s about the customer of today wanting to be able to touch a lending institution in any way that they can to satisfy the needs they have at the time.

“The immediacy and intimacy of what customers require today is very different than, say, five years ago.”

Over the last 10 years the industry has more than quadrupled its market share, while dealing with a number of legislative changes, Kane said, but the key principles of good service have not changed.

“It is really about the relationship between the individual broker and the customer and then that customer, the individual broker and the lender of choice and ensuring a professional outcome at all times and that the customer is at the centre of everything we do.

Aussie Home Loans’ John Symond used a tax-free $58m windfall to build his Sydney mansion, according to information filed before the Supreme Court as part of an ongoing dispute between the industry bigwig and law firm Gadens.

But Symond denied media reports this could constitute tax evasion. Symond commenced legal action in the NSW Supreme Court in 2008, claiming damages for allegedly negligent tax advice provided by Gadens Lawyers and Abbott Tout Lawyers over the course of several years.

What’s happened since?

Symond was vindicated in his court case, with Gadens ordered to pay the Aussie chairman $4.9m. Supreme Court Justice Robert Beech-Jones ruled that “aggressive and wrong” advice given by ex-Gadens partner Ross Seller between 2003 and 2004 was “negligent”, “misleading” and in breach of the firm’s contract of retainer.

STEVE KANE

For the full interview, head to www.brokernews.com.au/tv

FORUM 27

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Consumers ripped off by LMI? LMI portability is an issue that still gets brokers fired up

HOW FAR SHOULD BROKERS GO TO VERIFY INFO?

ASIC recently cancelled the licence of a Melbourne broker for failing to adequately verify documents, but the ban raised further questions for brokers – just how far do brokers need to go to verify information is correct? And are there sufficient resources available to them to do this?

Reader Oldbroker highlights the importance of the issue, while calling on industry bodies to play their part:

“This is a very important issue, because good brokers who are only doing their job could be caught up in this. The question is: what constitutes reasonable investigation on the part of the broker’s due diligence?

I would hope that the MFAA (if this broker is a member) would investigate this to determine whether the broker is indeed negligent or did adequate duediligence but was stymied by inadequate tools, access to correct data, etc. If it is shown that the broker tried to do the investigation, then the MFAA should lobby on his behalf.

Regardless of this particular broker’s guilt or innocence, however, the MFAA should be lobbying to remove this ambiguity from the NCCP regulations. This is very important.”

Oldbroker on 20/02/2014 2:57PM What do you think?

Leave your comments at brokernews. com.au

F

BAA CEO Peter White has once again taken LMI providers to task, accusing them of ripping off Australian consumers.

He’s renewed his calls for LMI portability.

Paul Sheedy not only agreed with LMI portability; he offered a practical model for it.

“It shouldn’t be too hard to implement. There are only two insurers and the risk should stay with the original insurer. They would be given the opportunity to review and re-approve the proposal. A review fee would be appropriate and if approved the risk transferred to the new lender. Each loan could be given a ‘risk rating’, depending on the LVR, the financial position of applicants and quality of the deal. If the insurer deemed that there was an increased risk, then a ‘top up’ premium would be charged as well as a review fee.

The risk would not be able to be transferred to the other LMI provider. The insurer retains the right to decline the new application, if they deem it beyond their risk appetite.”

Shane pointed out that LMI used to be structured very differently in Australia.

“LMI used to be a government owned body called HLIC; it was created to help people into their own homes sooner. Like everything else it was flogged off and privatised and now we are reaping the rewards of greed and profit. Funny how things created to help the least well off end up being sold off to benefit the most well off while ripping off the least well off.”

And Rip-Off, not surprisingly, argued that LMI premiums were a rip-off.

“The mortgage insurance premiums keep increasing, yet the loan delinquency rates as reported remain quite steady.

More and more borrowers have to cut back on their lending because when the ever increasing LMI premiums are added to the loan, the LVR easily exceeds lenders’ 97% limit. Also the out of control greedy stamp duty charges by state governments are a huge disincentive for buyers. Genworth and QBE clearly monopolise the market and they know it.”

AUSTRALIAN BROKER ONLINE POLL Are ASIC guidelines clear enough on broker responsibilities to verify documents?

YES, but the requirements are too much

38%

YES

34%

AUSTRALIAN MORTGAGE REFORM ‘PALE REFLECTION’ OF UK

Industry analyst Martin North has claimed Australia should look to the UK to see how to get mortgage reforms right. He has argued that lenders should bear more responsibility for assessing serviceability.

Again on 27/02/2014 10:40AM “Given the Australian financial system was

28%

NO

one of the few – if only – to survive 2007, it then seems appropriate that we change it to match all the countries whose systems didn’t work? To sum up his article: ‘let’s take lessons from the losers’.”

TomTom on 27/02/2014 11:45AM “I like the idea but I can see the commissions from banks dropping as a result. This industry is already painful enough to operate in.”

PEOPLE 28

brokernews.com.au

MOVERS AND SHAKERS CINQUE RETURNS IN CEO ROLE

Lifetime membership for industry vets

A high-profile leader who left the mortgage broking industry last year has returned to take the reins of a technology company.

Sal Cinque, the co-founder and former general manager of sales and marketing at National Mortgage Brokers, has returned to the mortgage industry after stepping down from nMB in March of last year. Cinque will take on the role of CEO at technology company Infinitive.

Cinque takes over from outgoing CEO Jega Rajan.

“It is a privilege to be part of Infinitive, as it is uniquely positioned as the only proprietor of a lead-to-lodgement platform for lenders and mortgage

Two industry stalwarts have been awarded lifetime MFAA membership for their contributions to the industry

McKEON TAKES OVER AS AMP CHAIR

KEVIN MATTHEWS

T

wo industry veterans have been given life membership by the MFAA for their long voluntary service to the organisation.

AFG director Kevin Matthews and law firm Gadens’ Brisbane partner Craig Green were given the award at the MFAA Excellence Awards in Sydney last month. They join 13 other industry stalwarts awarded this status.

Matthews, a founding director of AFG and former MFAA director, said he was honoured and humbled to be recognised for his commitment, which made him reflect on his career and how far the industry had come.

“When we began AFG 20 years ago, the aggregation business did not exist. To have realised the ambition of creating a gateway for brokers and their customers to access the broader lending market, rather than just the few

banks that brokers could sustain relationships with on their own, is immensely satisfying. And negotiating the first ever trail commission payment would have to be one of my most significant career highlights.

“The fact that we are now the largest mortgage broker in the country and have remained unlisted and debt free speaks volumes to the business plan we started out with – that the key to our growth was to help our members build their businesses.”

Green is one of only two lawyers to get life membership, the other being Jon Denovan of Gadens’ Sydney office. He was recognised for more than two decades of contribution to the MFAA in various capacities, including as board director and national vice president.

Green also helped develop and deliver the diploma in mortgage lending at the Securities Institute.

AMP chairman Peter Mason will retire from the board of the financial services major in May after eight years in the role and more than 10 as a director.

Former Macquarie Group executive Simon McKeon will replace him.

The AMP board thanked Mason for overseeing the successful transition of two CEOs during his decade of service, for his “calm stewardship” during the GFC, and for the fruitful negotiations leading to the $4bn-plus acquisition of AXA Asia Pacific Holdings three years ago.

Mason said it had been a great privilege to chair the company. ‘‘During the tenure of this board we oversaw the merger between AXA and AMP, which has delivered transformational

brokers. This appears to be the industry’s best-kept secret and I look forward to building the awareness of Infinitive and its capabilities,” Cinque said.

Cinque said part of his role would also be a shift in perspective for the company.

“Also high on the list of priorities is to transform the way Infinitive perceives itself, from a technology company to a customer service business, which facilitates the connection of buyers and sellers with leading e-commerce solutions.

By collaboratively focusing on the business requirements of our customers, the group’s results will look after themselves.”

change. The new AMP has significant scale and capacity, market-leading products and platforms, is number one in key market segments, has an expanded financial planner footprint and is well positioned for growth,’’ he said.

“Succession planning has always been a key focus of the AMP board and I am pleased that Simon McKeon will take over from me as chairman when I step down after a full cycle of board renewal. The company and the board are in very capable hands.”

CBA TOPS LENDING AWARDS Commonwealth Bank has taken home top honours at the Australian Lending Awards. The awards, presented by research group RFi, are based on more than 8,000 consumer and 500 broker interviews, and have an independent panel of judges. They acknowledge achievement in lending, as well as by those catering to niche market segments.

CBA was named 2014 Mortgage Lender of the Year, and also received

awards for Best Third Party Lender and Best Customer Marketing.

Other winners included St.George for First Home Buyer Lender of the Year, Resimac for Best Self-Employed Lender, ANZ for Investor Lender of the Year and ME Bank for Best Customer Experience.

CBA was also awarded Tier 1 Lender of the Year at the MFAA Awards, with Macquarie winning Tier 2.

brokernews.com.au

IN FOCUS

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estpac’s Broker Road Show has invited brokers to bring their families and friends along for a day of fun at various theme parks. The bank’s Sydney and Melbourne road shows treated brokers and their families to a day out at Luna Park.

CAUGHT ON CAMERA 29

INSIDER 30

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Quitting with style Stories of people leaving their jobs, and leaving an impression

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eaving a job can be the end of an era, a time for goodbyes, a time for celebration and new opportunities… or it can be just plain bizarre.

Even if you’re thinking of getting out of the broking business for good, these are some tactics you probably don’t want to try…

‘CALLING’ IT QUITS…

One advertising agency employee, pushed over the edge by his boss claiming credit (again) for a project she hadn’t done, used his work phone to call his grandmother’s house in Oman. When she answered, he told her not to hang up the receiver. He placed the phone in his bottom drawer and locked it.

Then he grabbed his bag, suit jacket, sauntered over to his boss’s office and said, “For two years, you’ve made everyone’s life on this floor a living hell.” He caused such a scene security was called and he was escorted out of the building.

He had the last laugh though.

Since it was a Friday, by the time

his (ex-)workplace realised that his phone line had been on the entire weekend, it had racked up no less than 71 hours in silent, super-expensive international phone call hours. Ace.

AND ANOTHER INTERESTING USE FOR THE WORK PHONE…

A secretary, finally fed-up with her boss referring to her as “hey” and “you” came in to work one morning with her name taped to her forehead.

He never cracked a smile. In fact he still refused to use her name. That afternoon, when he yelled at her for not answering his phone within the accepted three-ring time frame, the secretary tore the phone out of the wall jack, threw it through his office door and walked out.

THE CALM, NAKED EXIT…

I guess you could call this method ‘The Minimalist’…

Up until recently, Oslo’s National Museum had manual security only, “nice men and women in anonymous uniforms, sitting quietly on chairs in their respective parts of the museum”.

One security guard, after coming in to work at 8am every day including Saturdays for 30 years to “smile at visitors and shush the kids and the students”, decided she had had enough.

“She stood up, took of her uniform, folded it neatly and placed it on the chair where she had spent most of her adult life, and walked naked through the entire museum with her hands above her head.”

THE GUY WHO RUINED TV FOR THE WEEKEND… A programmer for a local TV station was left in charge of working over Independence Day weekend, when everybody else was out of town.

Sick of angry bosses and slack co-workers, the employee programmed the commercials in for the weekend, but nothing else.

“What was usually their highest-rated weekend was now nothing but dead air and commercials, and the two other people who knew how to work the programming software were out of town.”

When the program director called on

Monday, the programmer said a succinct and not-too-polite goodbye, and moved interstate.

EMERGENCY EXIT

Flight attendants put up with their fair share of abuse, but one day it all got a bit much for New York City steward Steven Slater.

After dealing with one particularly rude passenger, Slater apparently got on the plane’s public address system and cursed at everyone aboard.

He then activated the plane’s inflatable evacuation slide, launched himself off the plane, ran to the employee parking lot and left the airport in a car he had parked there… not before grabbing himself a few beers for the road from the galley on the way out.

Source: nymag.com

DIRECTORY AGGREGATOR / WHOLESALE BROKER

PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 16 & 17

BANK

Suncorp Bank 1300 308 973 businesspartners.suncorp.com.au Page 7

FINANCE Semper Capital Pty Ltd 1 800 SEMPER (1 800 736737) www.semper.com.au enquiries@semper.com.au Page 21

LENDER

Liberty Financial 13 11 33 www.liberty.com.au Page 3

Macquarie 13 62 27 macquarie.com.au/mortgages Page 32

ME Bank (03) 9708 3994 mebank.com.au Page 5 MKM Capital 1300 762 151 www.mkmcapital.com.au Page 4 Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 13

SHORT-TERM LENDER

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

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

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

WHOLESALE

Resimac 1300 764 447 www.resimac.com.au Page 9

OTHER SERVICES

Deposit Power 1800 678 979 www.depositpower.com.au Page 8 Trailerhomes 0417 392 132 Page 26

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