Australian Broker 11.24

DECEMBER 2014 ISSUE 11.24

$4.95 POST APPROVED PP255003/06906

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

+ OPINION BAD BEHAVIOUR

BY THE ATO

The ATO’s lack of mercy for those in hardship P10

+ SPECIAL REPORT YEAR IN REVIEW Looking back at the stories that shaped 2014 P12

+ BEST PRACTICE A PRIMER ON TRUSTS

Explaining SMSF structures P23

Tony MacRae:

TRANSFORMING THE INDUSTRY Westpac’s head of third party says brokers and banks must work together to see the industry evolve

A

s the year comes to a close, banks and brokers are looking ahead to 2015. After a prosperous 2014, it would be easy to chart a similar course for the future and settle into a comfortable rhythm. But Westpac’s Tony MacRae argues that customers are changing in the way they interact with the home loan process. To remain relevant, brokers and lenders will have to work together to transform the industry, he says.

FULL STORY PAGE 22

+ BUSINESS PROFILE

BY LEAPS AND BOUNDS

Leapfrog Finance and the challenges of growth P20

+ CAUGHT ON CAMERA AFM’S MELBOURNE CUP DAY CELEBRATIONS P29

NEWS 2

brokernews.com.au

NUMBER CRUNCHING

FAST FACT

BROKERS ON THE MORTGAGE MARKET

BROKERS ON THE GOVERNMENT

HOW MUCH BROKERS AGREE THAT THE MORTGAGE MARKET IS HEALTHY AND SUSTAINABLE

HOW MUCH BROKERS AGREE THAT GOVERNMENT POLICY SUPPORTS A SUSTAINABLE MORTGAGE MARKET

NEUTRAL

10%

DISAGREE

14%

29%

BY THE NUMBERS

62,947

68% Proportion of Australians who believe the housing market is vulnerable to a significant correction Source: CoreLogic RP Data

National residential vacancies dipped slightly during October, recording a vacancy rate of 2.1%, or 62,947 vacancies

SOMEWHAT AGREE

54%

STRONGLY AGREE

22%

32% 22%

17%

Source: SQM Research

STRONGLY AGREE

Source: Genworth

SOMEWHAT AGREE

NEUTRAL

DISAGREE

Source: Genworth

WHAT THEY SAID...

SIOBHAN HAYDEN

MARIA RIGONI

STEVE MUNCHENBERG

CRAIG DUNNING

“The 67% contribution to growth indicates that customers are increasingly turning to brokers, irrespective of the health of the general market” P6

“Australia must belong to its people now and in the future, no matter where we have come from” P8

“Consumers will face a more complex and burdensome banking experience [due to FoFA changes]” P24

“When a broker is ringing me, I’m trying to empower the broker to say, ‘Look, you are an expert’” P26

NEWS 4

brokernews.com.au brokernews.com.au

INDUSTRY MOURNS LOSS OF MORTGAGE LENDING GIANT ■ The mortgage industry has mourned the loss of a “giant in the mortgage industry”, Homeloans Ltd chairman Tim Holmes, who died last month at the age of 66.

Peter White, CEO of the FBAA, said the association was deeply saddened by the news of the passing of Holmes, and he extended condolences to Holmes’ family and friends and all at Homeloans.

“Mr Holmes was highly respected in the finance industry. He was a leader and innovator of his time who will not be forgotten. His achievements were profound, and his work will be an inspiration for years to come. Tim Holmes will be deeply missed,” White said.

Holmes helped found the company as International Financing and Investment Party Ltd with co-founder Rob Salmon in 1985. He had more than 44 years’ experience in the finance and banking industry and was a fellow of the Australian Institute of Company Directors. Holmes was also the former international president of the Young Presidents’ Organisation and a former vice president of the WA Chamber of Commerce and Industry.

Holmes had been chairman of Homeloans since 2003.

“Tim Holmes was a giant in the mortgage industry,” said co-founder Rob Salmon. “He had a true passion for the business, was a great communicator, and he was an inspiration to so many people who have worked in our company over the past 30 years.”

Current non-executive director Robert Scott has been appointed chairman of the company.

Australian Broker Online forums shared their condolences on Tim Holmes’ passing “I had the pleasure of meeting Tim on a number of occasions and he was very much a ‘people person’. As an early adopter, he loved his gadgets and I remember him at a function perhaps four years ago taking out an iPad from his coat pocket to show us all. Thoughts and wishes to his family and all his extended family at Homeloans. RIP” – Sean A “A very sad day indeed! Our thoughts are with his family, friends and all at Homeloans.”

– Frank Paratore “Worked at Homeloans years ago and always had a lot of time for Tim. A very personable pleasant giant.

What a sad day, my condolences to family and friends.” – Varian Heenan

JOURNALIST Julia Corderoy PRODUCTION EDITORS Roslyn Meredith, Moira Daniels ART & PRODUCTION DESIGN MANAGER Daniel Williams DESIGNER Lea Valenzuela SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Alex Carr 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

Tim Holmes

■ Westpac CEO Gail Kelly recently announced her

■ Commenters on the

DID YOU KNOW?

2.3% The number of home loans fell 0.7% in September, while the value of home loans rose 2.3% Source: ABS

PUBLISHER Simon Kerslake COPY & FEATURES

New chief for big bank

Honouring a legacy

EDITOR Adam Smith

long-mooted retirement. Westpac chairman Lindsay Maxsted praised Kelly’s work with the bank.

“Gail is one of Australia’s most successful CEOs. She was appointed as the global financial crisis was unfolding, and her leadership and dedication has seen Westpac emerge a stronger and better company.

During her tenure the value of the company has more than doubled, with market capitalisation increasing from just under $50bn to around $104bn.”

Maxsted also pointed to Kelly’s role in Westpac’s merger with St.George Bank.

The board has appointed retail banking exec Brian Hartzer as its new CEO. Hartzer is currently the chief executive of Australian Financial Services for the group.

“I’m delighted Brian Hartzer has been appointed to the role. Brian and I have worked closely during the past two and a half years. He is a proven leader and a wonderful fit for the Westpac culture. This is an exciting time for the group,” Kelly said.

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 8011 4992 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

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6

Russell announces retirement

■ Mortgage Choice has announced that its chief

WORLD NEWS UNITED STATES OF AMERICA

DEMOCRATS TARGET BANKS OVER DATA BREACHES US Senator Elizabeth Warren (D-Mass.) and Representative Elijah Cummings (D-Md.) have sent letters to 16 major banks and other financial firms requesting detailed information about recent data breaches. Bank of America, Citigroup, Goldman Sachs, Wells Fargo and Morgan Stanley were among the policymakers’ targets.

The duo are asking the financial institutions to explain how the hacking happened and to be transparent about what they lost. Warren and Cummings said their goal was to gather information to inform possible new federal cybersecurity legislation.

The news comes a month after JPMorgan announced it had no plans to notify the estimated 76 million affected by its most recent security breach. When asked why, a spokesman said, “That’s just what we’re doing”, according to MarketWatch.

In their letter, Warren and Cummings wrote that law enforcement officials believed the US financial sector was one of the most targeted in the world. “Your ability to protect consumers and safeguard their personal information is central to earning and maintaining consumer confidence in our economic system.”

executive, Michael Russell, will retire after completion of the 2015 financial year.

Russell joined the company as its chief executive officer in 2009 and was a driving force in helping the company grow and prosper through the aftermath of the GFC. A Mortgage Choice spokesperson told Australian Broker that Russell said he had come into the business with the intention of growing profitability and launching the brokerage’s financial planning arm, and having Michael Russell succeeded in these goals he felt it was time to move on.

Mortgage Choice chairman Peter Ritchie acknowledged the outstanding job being done by Russell, and said he looked forward to working with him over the coming months to identify and transition his replacement.

Brokers dominating growth in mortgage market FAST FACT

52.1% Proportion of NSW residents who say they are “comfortable” with their finances – significantly higher than the 27.9% of those who consider themselves to be “uncomfortable” Source: Mortgage Choice

■ Mortgage brokers were responsible for 67% of the growth in the mortgage market in the year to September, according to research group Comparator.

The research commissioned by the MFAA showed that of the $56.2bn increase in mortgage lending according to ABS Housing Loan statistics, brokers accounted for $37.7bn, comparing the four quarters ending September 2013 and the four quarters ending September 2014.

During the same period, the total business attributable to brokers was $151.7bn and represented growth of 33%, materially outpacing total housing finance commitments, which grew by only 20%.

During the September 2014 quarter, brokers increased their share of residential home loans by 5.1%, initiating $41.32bn of retail, residential home loans. This significantly outpaced the 1.5% increase for total housing loans.

“The 67% contribution to growth indicates that customers are increasingly turning to brokers, irrespective of the health of the general market,” commented MFAA CEO Siobhan Hayden.

The data shows the broker market share for the quarter at 51.5%, from just under 50% for the previous quarter.

Hayden was pleased with the result. “The broker channel is going from strength to strength over time and represents the consistent efforts that brokers are making to offer the best possible service to their customers,” she stated.

The MFAA issues these figures each quarter, with research group Comparator calculating the quarterly loans transacted by 19 aggregator groups as a percentage of ABS Housing Loans statistics.

NEWS

brokernews.com.au

8

Aggregator inks major lead gen deal

Maria Rigoni

BROKER RUNS FOR OFFICE ■ Federal leader of the Palmer United

■ Firstfolio has announced a partnership to launch a new home buyers’ guide website, FirstHomeBuyers.com.au, which could see the aggregator supply an extra 2,000 leads per month to its brokers.

FirstHomeBuyers.com.au will operate as a partnership between Firstfolio’s eChoice business and Domain. It will provide news, help and access to financial solutions to first home buyers, potential investors and homeowners wanting to upsize.

The website will allow consumers to compare their financial options and then refer them to an eChoice mortgage broker or apply to the bank directly. Firstfolio estimates the website could generate a further 2,000 home loan enquiries per month via the eChoice platform.

Rob Towey, Domain’s director of business development and strategic partnerships, said, “The decision to partner with eChoice was driven by its industry-leading platform which provides consumers with unbiased access to more than 27 lenders and thousands of loan variations matched to their personal finance situations.”

Party Clive Palmer has endorsed finance broker Maria Rigoni to stand for the party in the Victorian Legislative Council’s (VLC) Northern Metropolitan region at the November 29 election.

“Maria [is] passionate about improving Victoria, and by voting

BY THE for the Palmer United Party in the NUMBERS VLC, Victorians are voting to bring back integrity to the government,” Palmer said.

Rigoni said she believed it was time Victorians demanded things that 34% would improve life for all, not just for those with money and power.

“Australia must belong to its people now and in the future, no More than one third matter where we have come from, of borrowers (34%) and we need to vocalise our love for who refinanced our country,” she said. their homes in Palmer said that, with Rigoni October did so as a candidate, contractors would with a non-major no longer be a hidden workforce with poor protection via bad laws, Source: AFG because as a finance broker she understood the reality of working in a contractor environment.

Rigoni said she was passionate about improving Victoria by fighting corruption and speaking out1about QC15867/BIKE/AB_Layout 19/11/14 2:50 PM Page 1 bad laws.

Brokers worried about regulatory meddling

■ While brokers are confident about the health of the mortgage market, they fear new regulations could scuttle their businesses, an aggregator head has claimed.

Genworth’s Home Grown report has revealed that the majority of brokers are confident about the health of the mortgage market. Asked whether the current state of the market was “healthy and sustainable”, 54% of brokers said they somewhat agreed while 22% said they strongly agreed. Ten per cent were neutral on the question, while 14% strongly disagreed.

Although brokers overall were optimistic, they were less positive than their lender counterparts. Only 3% of lenders said they didn’t believe the market was healthy and sustainable. Genworth put the discrepancy down to brokers’ front-line view of the market.

“Brokers are at the coal face and are therefore more likely to see a few cracks and stresses in their respective markets. As a consequence 14% disagree that the mortgage market is healthy, compared to just 3% of all lenders. However, the vast majority of both brokers and lenders believed that the mortgage market is relatively healthy and sustainable,” Genworth said.

Connective principal Mark Haron said brokers were more concerned about the regulatory environment than the strength of the housing market.

“I think brokers would all agree that the market is going very well. The issue brokers are concerned about is the potential interference from regulators such as the RBA and ASIC and APRA. They’re small businesses, and minor regulatory changes can have a major impact on their business,” Haron said.

OPINION

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10

The ATO and financial hardship Just Budget director John Dickinson on bad behaviour by the ATO

A

s you can imagine, there are many people and businesses that find themselves unable to pay their tax. Often this is due to circumstances beyond their control; however, the fact remains that the money is owed, and ignoring the problem will only make matters worse.

One would think the solution would be to tackle the matter head-on and deal with the ATO in a positive and productive manner.

Sadly, in many cases this may not be enough.

Before I begin I do appreciate that the ATO is not a credit provider, and in a perfect world everyone would pay their tax on time, every time. I am also aware that the many laws surrounding financial hardship, such as the National Consumer Credit Protection Act, do not apply to the ATO. That being said, it is clear that despite people’s best efforts many find themselves struggling financially at one time or another.

In many cases people acknowledge their debts and want to do the right thing; they just need a little help and understanding to do so.

IT WOULD SEEM THE ATO WOULD PREFER TO BANKRUPT A MEMBER OF THE COMMUNITY RATHER THAN HELP While the ATO does have a financial hardship area and states that they will help people who are finding it difficult to meet their taxation obligations, there have been many examples of what I believe to be inappropriate and immoral behaviour by the ATO.

AT THE ATO’S MERCY

I’ll share one such story as I feel many others would have experienced a similar situation and found themselves at the ATO’s mercy, or lack thereof. This person, let’s call her Mary, is a small business owner. Due to a downturn in business, along with some personal

problems, she found herself owing the ATO a large amount of money for GST. Mary was aware she was required to pay her GST; however, when people are faced with paying tax or being able to provide for their family, they will most likely opt for the latter. Our client’s intention, like many others’, was to make up for the missed payments as soon as things improved. Unfortunately, like many others, Mary’s situation remained challenging, and she found herself owing money to the ATO that she was unable to pay in a lump sum.

Mary wanted to do the right thing and arrange a payment plan with the ATO to clear her debt in full. Looking at her current financial situation and taking into account her other debts and fixed living expenses, it was determined that Mary could afford $2,200 per month towards this debt.

Payments at this level would have seen the debt paid in full over a reasonable period.

The ATO was provided with a detailed Financial Position Statement, along with supporting documents that confirmed without question that the amount offered represented a true and accurate portrayal of her current financial position and was the best she could do at that time.

One would have thought the ATO would have been happy to find that Mary was taking a proactive stance towards her debt and was willing to commit to significant monthly contributions, but like for many others this did not prove to be the case.

We soon received a letter from the ATO headed up: “We can’t accept your payment offer”. One paragraph of this letter said: We are here to support and work with you to meet your tax obligations. We understand your circumstances may be difficult and we will consider another payment plan offer.

You can: Increase your offer Make a significant upfront payment and offer the balance by instalments.

One wonders if the ATO even read the information provided, as if they had it would have been clear that Mary was simply

unable to offer more at that stage.

Being very disappointed with this response, I contacted the ATO to discuss the matter.

I was told that, unless Mary could increase her payments or pay a lump sum towards the debt, they would obtain judgment and move to bankruptcy. I couldn’t believe what I was hearing and spent the next 20 minutes pointing out that Mary had little in the way of assets and wanted to honour the debt; however, this seemed to make no difference.

It would appear the sentence in their letter that stated “We are here to support and work with you to meet your tax obligations” was merely rhetoric. It would seem the ATO would prefer to bankrupt a member of the community rather than help. How can this possibility be in anyone’s interests including their own? This attitude defies common sense.

The ATO needs to understand that there are people at the end of these decisions, and moving to bankruptcy when there are better options available has the potential to ruin lives, destroy families and place even more burden on an already strained social welfare system.

This story is not designed as a ‘beat up’ on the ATO but does go to highlight what appears to be a systemic issue that needs to be addressed.

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SPECIAL REPORT

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12

The year in review

A look back at the events that shaped the mortgage industry in 2014

I

t’s been another eventful year for the mortgage broking industry. With the housing market going full steam for most of the year, brokers have seen a pick-up in business. Meanwhile, regulatory changes still threaten to encroach on the industry, while lenders have competed fiercely for brokers’ business and industry associations have seen major shake-ups. Here’s a look back at the stories that have shaped the year.

SPECIAL REPORT

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13

AUSTRALIAN BROKER 11.1

AUSTRALIAN BROKER 11.2

COVER: CHRISTA MALKIN Bank of Melbourne’s new broker head explained how she wanted to take a hands-on approach to the Victorian broker market. Christa Malkin said she was keen to work closely with the broker market to understand brokers’ businesses, and get a feel for areas where Bank of Melbourne could better meet their clients’ needs.

COVER: SAM BOER In the wake of long-time third-party head Kathy Cummings, the bank’s general manager of broker sales, service, cross-sell and business productivity improvement, Sam Boer, took a more active role as the face of the bank’s third-party channel. Boer said the bank’s strategy would remain the same, but that CBA would implement a number of initiatives over the course of the year.

THE LMI BATTLE RAGES ON

“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” – CHRISTA MALKIN

Brokers argued that the Australian LMI marketplace suffered from a lack of competition and transparency. Marty McDonald, director of Mortgage Experts Online, told Australian Broker that premiums for loans with an LVR of over 90% had “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].”

WHAT’S HAPPENED SINCE One of those initiatives is a shake-up to the bank’s commission structure from 1 January 2015 that will see it pay 15bps year-one trail for all new settlements

BROKERS TIPPED TO BE IN HOT DEMAND

Hays’ Quarterly Hotspots report early this year revealed a list of skills in demand for the first quarter of 2014, identifying mortgage broking as one of the areas with strong job opportunities.

“Mortgage Brokers continue to be sought after due to demand from investors and first home buyers,” said the report.

With changing demographics in the Australian property market, and increasing interest from Asian investors, bilingual brokers are also in hot demand, said the report.

SPECIAL REPORT

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14

AUSTRALIAN BROKER 11.3

AUSTRALIAN BROKER 11.5

COVER: MARIO REHAYEM Pepper this year announced the launch of its first prime product, Pepper Essential, and the lender’s head of third party, Mario Rehayem, said Pepper’s move into the space was years in the making.

He argued that, while many Pepper borrowers came to the lender with impaired credit and then subsequently moved on to another lender, the push into prime lending would open up options to keep those borrowers in place.

COVER: MATT LAWLER Yellow Brick Road’s CEO Matt Lawler said the company had accomplished what pundits said was impossible: bridging the financial services. Lawler said the franchise brand had managed to succeed in a truly blended model that saw brokers moving into financial planning.

DOMINATING CONVERSATION: BROKERS’ RESPONSIBILITY TO VERIFY INFO

LIST OF DEMANDS

“WE’VE GOT GOOD ADVOCATE BROKERS THAT HAVE BEEN ASKING US FOR A PRIME PRODUCT BECAUSE THEY REALLY APPRECIATE AND UNDERSTAND THE WAY WE DO BUSINESS” – MARIO REHAYEM

Prior to the release of the federal budget, the housing lobby called on the government to tackle low levels of first home buyers, and soaring house prices.

REIA president Peter Bushby said the 10 proposals put forward by the lobby group aimed to stem the rapid decline of first home buyers.

“We want to see a marked improvement in the standards of delivery of vocational education, and adequate data on the supply/demand imbalance of housing for informed decisionmaking by policymakers and stakeholders,” said Bushby.

AUSTRALIAN BROKER 11.4

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

COVER: STEVE KANE NAB head of third party Steve Kane unveiled internal research conducted by the bank showing that brokers brought a higher calibre of customers to banks than the retail channel. “The reality is the average loan size is higher, the tenure of loan is longer. If you look at the quality of the customer from a delinquency perspective, in the main, broker-introduced customers are better than or at least equal to the retail or direct channel,” Kane said.

ASIC cancelled the licence of a Melbourne broker for failing to adequately verify documents, but the banning raised further questions for brokers on the Australian Broker Online forums: “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 due-diligence 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’s broker 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 at 2:57PM

AUSTRALIAN BROKER 11.6 COVER: PHIL QUIN-CONROY PLAN Australia CEO Phil Quin-Conroy shared the importance of recognising shifting trends in technology. Quin-Conroy said technology was changing to be less focused on back-office solutions and more focused on providing brokers with tools to better serve their clients. He pointed to overarching trends in technology, such as the rise of cloud technology, the importance of social media, and a drive toward mobile.

BROKER BUSINESS SOUND

57% of broker clients are degree educated, versus 48% of retail clients

74% of broker clients are employed full-time, versus 65% of retail clients

56% of broker clients are under 40 years of age, versus 48% of retail clients Source: NAB

LONE VOICE ON THE RBA

Westpac chief economist Bill Evans predicted that the Reserve Bank could issue another rate cut before the end of the year. Evans said the RBA was “a little too optimistic” in its outlook on a “flaccid world economy”, and that another cut could be in order.

“MY ADVICE TO BROKERS IS TO HAVE A TECHNOLOGY STRATEGY, AND TO OBSERVE WHAT IS HAPPENING IN REGARD TO THE MAIN TECHNOLOGY TRENDS” – PHIL QUINCONROY

SMSF FACTS AND FIGURES Earlier this year Australian Broker took an in-depth look at the SMSF lending market, and the opportunities it presents for brokers.

As of June 2011: The gender split of SMSF members

913,500

The average SMSF balance was

$506,000 The median balance was

$302,000

The approximate number of SMSF members

52.6% 47.4% MALE

FEMALE

Source: La Trobe

brokernews.com.au

15

AUSTRALIAN BROKER 11.7 COVER: KIM CANNON Firstmac founder and managing director Kim Cannon said the non-bank lender was making moves to enter the ADI space. He said the company was making a submission to the FSI to allow bank ownership rules to be loosened to promote competition. On top of this, he said Firstmac had taken a significant shareholding in a small ADI that would enable it to perform more banking functions.

ASIC ASKS FOR HARSHER PENALTIES

WHAT’S HAPPENED SINCE

“IF YOU’RE GOING TO BE IN THIS BUSINESS, YOU HAVE TO WORK AT IT AND KEEP AT IT AND NOT JUST COME AND GO BECAUSE YOU’RE MAKING MONEY” – KIM CANNON

Chairman Greg Medcraft has claimed that ASIC’s trifling penalties do not do enough to deter white-collar fraudsters from breaking the law.

In his opening address at this year’s ASIC annual forum, Medcraft highlighted the need to “inject fear” into would-be criminals.

ASIC remains unsatisfied with the level of penalties available to deter white-collar crime.

Medcraft recently claimed Australia’s lax penalties make the country a “paradise for whitecollar criminals”.

“In Australia we haven’t indexed penalties to inflation for 20 years,” Medcraft said. “I mean, hello.

In many cases all we do is give a slap on the wrist and it’s not discouraging bad behaviour.”

AUSTRALIAN BROKER 11.8 COVER: FONS CAMINITI Adelaide Bank head of broker distribution Fons Caminiti said the bank wanted to position itself front of mind with the third-party channel as “the broker’s bank”. He said the bank aimed to be known for its consistency, reliability and affordability, and its advocacy on behalf of brokers. Caminiti urged brokers to make sure they expanded their scope beyond the major banks.

“EVERYTHING WE DO IS GEARED TO PROVIDING QUALITY PRODUCTS AND SERVICE TO BROKERS AND THEIR CLIENTS” – FONS CAMINITI

AUSTRALIANS AND THEIR MONEY A survey by Mortgage Choice this year offered a glimpse at how Australians were coping with their finances

How worried are you about your current financial situation?

GEN Y

GEN X

BABY BOOMERS

BUILDERS

Very worried

12.8%

11.5%

9.6%

16.7%

Slightly concerned

42.3%

39.9%

44.2%

16.7%

29.3%

31.5%

26.3%

50.0%

15.6%

17.1%

20.0%

16.7%

Neutral

Not concerned

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SPECIAL REPORT

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16

AUSTRALIAN BROKER 11.9

AUSTRALIAN BROKER 11.11

COVER: KEIRAN EVANS ANZ third-party head Keiran Evans said the bank was pouring serious investment into delivering better service to brokers and their customers. Evans said the bank would invest $1.5bn over five years “to transform the way we do things”.

One major area of focus was bolstering BDM numbers and delivering training and development to its broker-facing team.

COVER: PHIL NAYLOR The outgoing MFAA head discussed his tenure at the helm of the industry association. Phil Naylor looked back on his early days when the group had 2,000 members, broker market share was only 20%, and media criticism of the channel abounded. As he prepared to move on from the role, the association had reached more than 10,000 members, broker market share had surged past 50%, and brokers were increasingly seen as professionals.

FOREIGN INVESTMENT THE TALK OF THE YEAR

BDM BUILD-UP

35% ANZ said it had increased its BDM team by 35% in an effort to better serve brokers Source: ANZ

Foreign investment in Australian real estate has dominated conversation this year. In the first quarter of the year, NAB found foreign ownership had reached an all-time high of 13.9% of national demand. Foreign buyers were particularly active in Queensland, making up 24.4% of new property market demand. In NSW foreign buyers preferred to buy established property, and made up 12.7% of demand in this market.

DIVERSIFICATION DRIVE

GROWING THE RANKS

10,336 As of June, the MFAA saw its membership reach 10,336 Source: MFAA

AUSTRALIAN BROKER 11.10

AUSTRALIAN BROKER 11.12

COVER: BRENDAN O’DONNELL Liberty Network Services was launched as Liberty Financial’s branded proposition in late 2011.

Earlier this year, LNS managing director Brendan O’Donnell argued that branding would become increasingly important in lending brokers both credibility and scalability. He said the support of a brand could help brokers remain relevant in a shifting competitive landscape.

COVER: RAY HAIR Mortgage industry veteran Ray Hair moved into a new role as general manager of sales at Homeloans Ltd. Hair said the new role came with a mandate to grow the non-bank lender’s market share.

“It’s about getting the message out to brokers and through brokers to their customers. We need to get the message out there, and get aligned with the right brokers; those willing and able to provide alternative solutions to their customers,” he said.

MILLENNIAL PRIORITIES

NAYLOR ANNOUNCES DEPARTURE

“IF YOU’RE NOT PART OF A BRANDED PROPOSITION, IT’S HARD TO KEEP UP WITH REMAINING RELEVANT” – BRENDAN O’DONNELL

At the MFAA Annual Convention this year, long-serving CEO Phil Naylor surprised the crowd with his announcement that he would leave his position at the end of the year. After rampant speculation as to Naylor’s successor, the association named Finware’s Siobhan Hayden as its new chief executive.

“NOW BROKERS ARE CONDUCTING PROPER INVESTIGATIONS WITH THE CUSTOMER, IDENTIFYING THEIR NEEDS – AND IT SHOULD NATURALLY FOLLOW THAT THEY WILL SEEK TO MEET ALL THOSE NEEDS” – STEVE KANE

Australian Broker took an in-depth look at diversification and some of the ways brokers could broaden their revenue base. Industry leaders such as ING Direct’s Lisa Claes, La Trobe’s Paul Wells, FAST’s Brendan Wright, NAB’s Steve Kane, and Chess Wealth’s Matt Mercer discussed the increasing convergence of financial services.

ON THE MOVE

A study of American millennials found they plan to ask their parents for help with a home loan deposit. The study found there were a variety of comforts millennials said they would be unwilling to sacrifice to save for a deposit Car

65%

Smartphone

12.4%

45% 20%

Cable Netflix subscription

15% 14%

Vacations Eating out/takeout

Homeloans saw a 12.4% increase in lending volumes in the first half of 2014 Source: Homeloans

13%

Clothes shopping

10%

Organic shopping

10%

Gym membership 7% A morning latte or 5% cappuccino Source: La Trulia

SPECIAL REPORT

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17

AUSTRALIAN BROKER 11.13

AUSTRALIAN BROKER 11.15

COVER: TIM BROWN Vow Financial CEO Tim Brown said the company was looking for further growth in the wake of its acquisition

by Yellow Brick Road. Brown said the aggregator had seen a significant improvement in settlements, much of it due to new recruits.

“We’re up 42% on the same time last year. Now, 18–19% of that is the market, but the rest is new growth. When you can double the market, you’re travelling pretty well,” Brown said.

GROWING DEMAND FOR NON-CONFORMING

“COMPETITION BETWEEN AGGREGATORS IS AS INTENSE AS IT’S EVER BEEN. BROKERS ARE NOW SEEING THROUGH SOME OF THE DISCOUNT OFFERS OUT THERE, AND THEY WANT VALUE FOR MONEY” – TIM BROWN

Australian Broker took a look at the specialist lending market, speaking to leaders such as Homeloans’ Ray Hair, Resimac’s Allan Savins, AFM’s David White, La Trobe’s Cory Bannister, MKM Capital’s Mary McGowan, and Tony Shield of Allstate Home Loans. Industry figures told Australian Broker the volume of specialist lending in Australia was around $150m per month.

COVER: STEVE KANE NAB Broker’s head of distribution Steve Kane discussed the lender’s decision to rid itself of its Homeside brand. The move garnered praise from brokers, and Kane said it would help cut through confusion in the marketplace.

While the rebrand meant a change of name and philosophy for what had been Homeside, Kane said the bank’s broker offering would retain its price for risk strategy and ramped trail.

“THIS IS A TESTAMENT THAT WE’RE PREPARED TO PUT THE FLAGSHIP BRAND BEHIND THE THIRD-PARTY CHANNEL. WE BELIEVE IN THE THIRD-PARTY CHANNEL” – STEVE KANE

64% 50% 37%

Flexible hours

33%

33%

Flexible Social life Modern/pleasant benefits around work offices or working space Source: Hays

AUSTRALIAN BROKER 11.16

COVER: MARK WOOLNOUGH ING Direct’s head of third-party distribution discussed the rapid change in consumer expectations and demand. Technology is driving the change, Woolnough said, and brokers have to adapt with the times.

Woolnough predicted that the future would see technology put even more control in the hands of consumers.

MELOS SULICICH TIPPED TO LEAD MYSTATE

WOOLNOUGH

Australian Broker examined how brokers could adapt to generational changes in the workforce. A survey revealed some of the qualities Gen Y look for in a work environment

Interesting work

AUSTRALIAN BROKER 11.14

“CUSTOMERS WITH MORE CONTROL WILL WANT GREATER REWARD FOR THE STEPS THEY TAKE TO FIND SOLUTIONS” – MARK

HIRING GEN Y

MyState announced in June that it would appoint former RAMS head Melos Sulicich as its managing director and CEO. Sulicich also served as general manager of mortgage broker distribution at Westpac from 2008 to 2013. MyState chairman Miles Hampton said Sulicich’s previous experience in wealth management and broker distribution were significant selling points.

WHAT’S HAPPENED SINCE MyState continued its trend by later announcing the appointment of Huw Bough as its general manager of sales and distribution. Bough previously served as Westpac’s general manager of mortgage distribution, before moving on to a role as general manager of RAMS.

HONOURED

BY THE INDUSTRY Loan Market was recently named Commonwealth Bank Strategic Business Partner of the Year at the Third Party Banking 2014 National Conference.

The company was awarded for industry-best conversion rates.

COVER: SAM WHITE Loan Market made the move this year to a full franchise offering. Chairman Sam White explained that the switch was about empowering brokers, not restricting them. White said the brokerage had sought to differentiate its offering from other franchises by not locking brokers into restraints of trade, and allowing brokers to own their databases and trail books. White said this meant people could join the network with the assurance that there was flexibility, and they wouldn’t remain locked in should they decide to leave.

MFAA CHANGES TO ENGAGE MEMBERS

The MFAA rolled out sweeping changes to its board structure this year. The changes mean the board will be comprised of five directors, directly elected by the MFAA’s membership. There will also be a requirement that at least four of these board directors are brokers, or the representatives of broking or mortgage management businesses. The board will also be able to appoint other directors as it sees fit, provided brokers (or broker or mortgage manager representatives) are always in the majority. The proposed changes will also ensure that there can never be more than two directors from any one state.

SPECIAL REPORT

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18

MACQUARIE COMES OUT ON TOP

Macquarie topped the Brokers on Non-majors survey for the second year in a row. Doug Lee, Macquarie’s head of mortgage sales, put the bank’s success down to its recognition of the important role brokers play in its distribution strategy.

This recognition, Lee said, has led the bank to proactively seek out broker feedback.

AUSTRALIAN BROKER 11.17

AUSTRALIAN BROKER 11.19

COVER: BROKERS ON NON-MAJORS For the second year, Australian Broker polled the industry on the performance of non-major lenders.

We surveyed brokers on a range of topics regarding non-majors and their service proposition, and asked them to rank the importance of different aspects of lender service and then rank Australia’s individual non-major lenders across these areas.

COVER: JOHN KOLENDA Finsure managing director John Kolenda discussed the aggregator’s rapid growth trajectory.

Kolenda said the company had seen its broker ranks swell from nothing to more than 600 in two years, with its network settling more than $600m per month in mortgages. The company also acquired a stake in a financial advice firm, adding 250 financial planners to its portfolio.

HOW MUCH DO BROKERS USE NON-MAJORS?

The percentage of loans brokers say they directed through non-majors in the last 12 months 81–100 61–80

0–20 21%

12% 13%

32%

22%

41–60

21–40

“FROM MY POINT OF VIEW, IT MAKES MORE SENSE TO DIVERSIFY BY SETTING UP YOUR OWN PLANNING ARM RATHER THAN DOING IT THROUGH A THIRD PARTY” – JOHN KOLENDA

PEPPER HITS MILESTONE

Pepper hit an important milestone in October, adding its 1,000th employee. Mario Rehayem, director of sales and distribution at Pepper, said the broker channel had driven the lender’s growth. The channel represents almost 95% of total origination for Pepper, and Rehayem said Pepper was fortunate to receive good buy-in from brokers when it released new products into the market.

Source: La Trobe

AUSTRALIAN BROKER 11.20 COVER: GLENN GIBSON AMP Bank head of sales and marketing Glenn Gibson said the bank had carved itself out a variety of niches in the market, but that it was still seeking to compete across the broad market. He said the bank had launched a variety of initiatives to improve its broker proposition, and was looking forward to a higher profile in 2015.

AUSTRALIAN BROKER 11.18 COVER: CLIVE KIRKPATRICK St.George general manager of mortgage broking Clive Kirkpatrick said the bank was working hard to be the vanguard of technology in the industry. He pointed to St.George’s historic positioning as a tech pioneer, as the first bank to introduce online banking in Australia. Kirkpatrick said the bank was continuing to leverage technology to make it easier “for brokers to get into the bank”.

FINALISTS FOR AUSTRALIAN MORTGAGE AWARDS ANNOUNCED

“FROM A STRATEGIC POINT OF VIEW, I THINK IF WE CAN BE THE VANGUARD ON TECHNOLOGY TO MAKE BROKERS’ LIVES EASIER, AS A BANK THAT’S IMPORTANT FOR US” – CLIVE KIRKPATRICK

September saw the announcement of the finalists for the Australian Mortgage Awards, the industry’s most prestigious and highly coveted honour.

The finalists represented the top brokers and service providers in the industry, and lent recognition to their outstanding achievements.

BLUNT INSTRUMENTS FROM THE RBA

“WE’RE LOOKING FORWARD TO 2015, BECAUSE SOME OF THE ENHANCEMENTS WE’VE DONE THIS YEAR TO BE ABLE TO COMPETE WILL FALL INTO PLACE” – GLENN GIBSON

There’s been much talk in the market regarding the possible use of macroprudential tools to cool investor demand. With interest rates holding at historic lows, the RBA could look to new methods for taking the heat out of the housing market. But instituting macroprudential tools could have dangerous consequences, according to some pundits.

Residential Development Council executive director Nick Proud said the RBA could risk harming first home buyers.

“ARBITRARILY INCREASING LENDING MEASURES RUNS THE RISK OF SHUTTING MORE FIRST HOME OWNERS OUT OF THE PROPERTY MARKET” – NICK PROUD

SPECIAL REPORT

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AUSTRALIAN BROKER 11.22

AUSTRALIAN BROKER 11.21

COVER: JAMES SYMOND Aussie Home Loans executive director James Symond told Australian Broker the company’s key to success was its strategy of diversifying distribution models.

Symond pointed to the franchise’s various models encompassing mobile brokers, retail storefront brokers, and wholesale aggregation through its NMB acquisition.

COVER: SIOBHAN HAYDEN The new chief executive of the MFAA spoke to Australian Broker about her plans for tackling the high-profile role.

Hayden said she was passionate about the work brokers do and the challenges they face. She said she would look to meet face-to-face with as many brokers as possible in her early days in the role, in order to gauge what they wanted out of their association.

WHAT’S HAPPENED SINCE Siobhan Hayden has kicked off her national tour, ‘MFAA Paving the Road’.

Speaking to an audience of about 40 brokers and industry professionals in her second Sydney workshop, Hayden asked brokers to discuss what they believed were their main barriers to success. The overwhelming answer in the room was compliance, particularly the difference in compliance requirements placed on brokers compared to branches.

FOREIGN BUYER FURORE

The debate around foreign property investment continued throughout the year. A survey

by NAB showed a significant pick-up in foreign buying activity in new property markets across the country.

NAB Group chief economist Alan Oster said, “Foreign buyers accounted for 16.8% of total demand for new property in Q3, or about one in six of all buyers, with this share tipped to rise to 17.3% over the next year.”

AUSTRALIAN BROKER 11.23

MAJOR AGGREGATOR SPOTLIGHT

FAST FACT

HITTING NEW HIGHS Aussie Home Loans recently announced it had lodged $2bn worth of home loan applications in October, a new record for the company.

The brokerage also hit a settlement record of $1.4bn for the month.

Australian Broker examined the value propositions of some of the country’s largest aggregators. Choice’s Stephen Moore, PLAN’s Phil Quin-Conroy, FAST’s Brendan Wright and Connective’s Murray Lees discussed the benefits of scale, how to keep a personal touch in a large company, and the unique offerings they bring to the broker market.

GOOD TIME FOR INVESTORS Total returns from capital city homes 12 months to October 2014

COVER: RAYMOND XUE Australian Broker spoke to this year’s Australian Mortgage Awards Broker of the Year about how he’s achieved his success. Xue argued that brokers looking to emulate his success should be aware that it requires hard work and commitment. He told Australian Broker he was looking forward to slowing down in the new year and taking time to study.

BRISBANE

DARWIN

10.6%

11.5% PERTH

7.9%

SYDNEY

17.6%

ADELAIDE

13.3%

2.2% Proportion of home loans to NSW first home buyers in October – the lowest on record Source: AFG

Economists uniformly expected the Reserve Bank’s decision to keep the cash rate on hold on Melbourne Cup Day, with all 33 economists surveyed by Finder.com.au correctly tipping the RBA to hold rates steady. Ninety-one per cent (30 out of 33) expect the cash rate to start rising next year, while two respondents forecast rates to rise in 2016. Just one of the 33 economists – Andrew Wilson, senior economist at Domain Group – predicts the next cash rate move will be a drop in the first quarter of 2015, due to falling house prices, low inflation, high unemployment and Australian dollar, and a weaker share market.

5.3%

AUSTRALIA

CASH RATE CONTINUES TO HOLD STEADY

FAST FACT

CANBERRA

8.9%

MELBOURNE

12.7%

HOBART

10.1% Source: RP Data

68.1% Proportion of respondents to MPA’s Brokers on Aggregators survey who said they were extremely unlikely to change aggregators in the next 12 months

“FOR MY SUCCESS, IT’S BEEN FOCUSING LIKE A LASER BEAM AND CONCENTRATING ON THE AUSTRALIAN RESIDENTIAL MARKET. WHEN YOU REACH A CERTAIN POINT YOU CAN DIVERSIFY, BUT YOU HAVE TO POSITION YOURSELF FIRST” – RAYMOND XUE

GOOD TIME FOR INVESTORS Non-major home loan market share for October

NON-MAJORS

28.3%

MAJORS AND SUBSIDIARIES

71.7%

Source: RP Data

BUSINESS PROFILE

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20

Leapfrog Finance: By leaps and bounds At three years old, Leapfrog Finance is already on an impressive growth trajectory

W

L-R: Kathryn Fitch, James Poka, Dominique Bergel-Grant, Christopher Walker

alk into Leapfrog Finance’s Crows Nest NSW office and you’re greeted by a massive whiteboard in a client meeting room. On it is written a meticulous financial plan. Director Dominique Bergel-Grant says the plan was for a client’s first meeting.

“For her it was a first appointment, so I was trying to work through what was important to her. She had a number of different financial concerns, so I was really trying to draw out the reasons behind that.”

Bergel-Grant says she uses the whiteboard to help clients visualise their long-term goals, and to help her understand their motivations. She says this is part of building a deeper relationship with clients.

“I’m not in the job of just doing transactions between myself, my client and the bank. My job is to find out their purpose and make sure it’s long-term and sustainable for them. If you focus too much on the transaction piece, you can easily be replaced by the mortgage broking robot of the future,” Bergel-Grant says.

For Bergel-Grant, moving beyond a transactional relationship means offering holistic financial advice to her clients. While diversification has been the trendy buzzword bandied about by aggregators over the past few years, Bergel-Grant was an early adopter of the strategy. She’s both a broker and a financial planner.

“I started with mortgage broking, and I actually think that’s the easier way of doing it. Being a mortgage broker, what you do for your client is transactional, but it’s very much about understanding the purpose of that transaction and how it fits into the puzzle. As a financial planner, how can you give good advice if you’re not building something and you don’t understand your client’s biggest cash-flow asset? I find it quite strange that there are financial planners out there who completely ignore debt and ignore property. How can you give genuinely good advice if you don’t understand the mechanics of a mortgage? The two go hand in hand, but you kind of need the mortgage

broking first to understand that emotional roller coaster.”

Bergel-Grant concedes that adding financial planning does require a high degree of expertise.

“The subject matter is massive.

There are so many more products and they’re so much more complex. You really have to know not only the products but know your client to a much deeper level,” she says.

Adding this kind of expertise to their business offering can be a bit intimidating for some brokers, but Bergel-Grant says it’s important to remember that it’s a process.

“Financial planning is about gradually building your skills over time. Where people go wrong is trying to do everything as a financial planner. In reality, I’ve been a financial planner for just over 10 years and a mortgage broker for 12-and-ahalf, and I’m still learning things today as a financial planner.”

Mortgage broking became a logical starting point when Bergel-Grant began her career in financial services.

After graduating with a Bachelor of Economics from the University of Sydney, Bergel-Grant worked for BT and Zurich before deciding to move into client-facing roles. She says starting as a mortgage broker was a better entry point.

“I realised that dealing face-to-face with clients in my early 20s and talking to them about financial planning, I wasn’t necessarily going to be taken that seriously. But when you actually have a client need you can provide a solution for, it gives you

brokernews.com.au

BUSINESS PROFILE 21

that skill to build up your communication skill set with any age group,” she says.

Moreover, the immediacy of the transactions in mortgage broking helps to build credibility quickly, she argues.

“Being a financial planner, the solutions you provide to clients often don’t come to light for 10 or 15 or 20 years. You can prove yourself with mortgage broking.”

Connective principal Murray Lees.

Bergel-Grant was competing against FPA financial planner and Northern Wealth Advisory Group managing director John Tyson, and CPA Australia accountant and founder of Linton Solutions, Caxton Pang. They were judged on their commitment to business transformation and their ability to perform in a series of gruelling business challenges. At the end of the competition, Bergel-Grant

WHAT I DID IS I STARTED EMPLOYING PEOPLE IN THE BUSINESS WITH MORE EXPERIENCE; PEOPLE WHO COULD ADD VALUE AND CHALLENGE ME IN THE BUSINESS - D OMINIQUE BERGEL-GRANT This allowed Bergel-Grant to launch her own business, Leapfrog Finance, three years ago.

“I started the business just over three years ago, and it was without a doubt because of the mortgage broking part of my business that I was able to start a business from scratch. If I’d done so only with my financial planning qualification, I think it would have been almost impossible. It’s that immediate result you’re able to deliver to clients as a broker than helps bring you referrals right off the back of it.”

Recently, Bergel-Grant’s business received another windfall. BergelGrant competed in the Sky News Business reality television competition No More Practice Transformation Series. The series is dedicated to showing wealth professionals how to grow their personal, professional and business value. The show featured both Vow Financial CEO Tim Brown and

was crowned the winner and walked away with a prize package worth more than $100,000. Even more valuable were the lessons she learned, she says.

The series has changed the way she has gone about growing her business.

“When I did the No More Practice Transformation Series, I went into that and I guess what I thought I was going to do was for me to be the head of a young team and pull them along behind me. The biggest thing I learned from that is that’s not the way to build a business. The biggest thing I learned was understanding that what I needed is an experienced team. What I did is I started employing people in the business with more experience; people who could add value and challenge me in the business.”

Adding this expertise means Bergel-Grant can focus on personal goals, she says.

“Your business should be able to operate without you there.”

NEWS 22

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CONTINUED FROM PAGE 1

TONY MACRAE: Transforming the industry Westpac’s head of third party says brokers and banks must work together to see the industry evolve

O

ne of the changes both brokers and lenders will have to confront, says Tony MacRae, is the change in customer expectations about how the home loan process works.

Specifically, borrowers now expect quicker turnarounds than ever before, he suggests.

“Customers have changed that expectation dramatically in the last five years. Now we’ve got the immediate culture – the old expectations that I go in, talk to someone and wait a week … we talk about time to ‘yes’ being at the point of sale. And that’s a challenge to all of us. If we don’t keep up with customers’ lifestyles and customers’ demands, we will become irrelevant, and that’s our main challenge,” he says.

Keeping up with changes in borrowers’ lifestyles and demands means figuring out new ways to add value, MacRae says. This becomes particularly true in light of new developments in technology and how they change the home loan process, he argues.

“One of the biggest challenges this industry has is how we remain relevant when the transaction of a home loan becomes so simple it’s self-service, and that’s where we are investing a lot of time and energy in our BDMs, and we’re getting them

IF WE DON’T KEEP UP WITH CUSTOMERS’ LIFESTYLES AND CUSTOMERS’ DEMANDS, WE WILL BECOME IRRELEVANT

qualified so they can go out and help brokers develop their businesses, so they don’t spend time just dealing with transactions,” MacRae says.

Merely focusing on the transactional element of the home loan process could result in a quick trip to irrelevance. MacRae says both banks and brokers have to step up their proposition to borrowers, because offering sharp pricing will not be enough to remain competitive in the future.

“If we as an industry continue to have an obsession with trading on price, then we’re ripe for a disruptor to come in and take a slice of that market, because comparison sites are available and they make a transaction really simple and you cut out that value, whereas I think brokers have the opportunity to step above that and add real value to their customers and become an adviser and have a real relationship with their customers,” MacRae says.

BANKS DOING THEIR PART

MacRae understands that the onus for change is not on brokers alone.

The responsibility for transforming the industry is a shared one, he says.

To that end, Westpac will be investing heavily in adding value to brokers’ businesses in the year ahead.

MacRae says the way Westpac invests in the channel has changed over time.

“Ten years ago we all spent a lot of money in our processing centres, and we just focused on efficiency, production lines, all of those things.

But our more recent priorities have just gone back to that fundamental question of what are we here to do and how do we best facilitate it? So we’ve started to change the mindset of our people. How do they better work with brokers? How do they communicate better? We started with

simple things, like picking up the phone rather than through email and other means. Technology can take some of the inefficient processes away, but it never replaces that relationship, the human interaction, so that’s the key for us.”

And in the year ahead, MacRae says this investment will continue to shift to better enable brokers to transform their businesses and the industry as a whole.

“We certainly will be investing in our BDMs, both expanding the number of BDMs that we have but also the education, and we’ve partnered with Deakin University to lift the whole standard of professionalism amongst our BDMs. Digital technology and mobility will be a key platform that we’ll be investing in. We have an iPad app for brokers; we’ll be expanding that to give brokers better information at their fingertips. We’re equipping our BDM team with full mobile devices, so they’re able to do their jobs anytime and anywhere on the road.

“Customer services are obviously at the centre of what we do, and we’ll be investing, particularly in our process centres, to make sure they’re better aligned, and they have better relationships and better lines of communication and access to brokers.

“And I think at the cornerstone of what we do and our strategy is all around partnerships, and partnerships with our brokers and aggregators are particularly important; partnerships with our retail network and private banks and being able to provide brokers with more avenues for revenue through better relationships across the bank.

So it’s not just the broker bank; we allow the broker to have access to all of the banks, and allow them to see the bank as an extension of their organisations,” MacRae says.

BEST PRACTICE 23

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You know what an SMSF is, but do you know what a trust is?

RP Data’s Chris Spanos offers a primer on the ins and outs of trusts

B

y now almost everybody who works in property has heard of an SMSF, but many still don’t know that SMSFs are a type of legal entity known as a trust.

So, what is a trust, what are its elements, and why are SMSFs structured as trusts?

WHAT IS A TRUST?

Under the British common law system we inherited, the law only recognised one type of property owner – the strict legal owner. This had all sorts of unintended consequences and left no room for structures or bequests like “I want to leave this house for the benefit of my child that is aged five, but would like my brother to control the asset until my child is of age”. If your brother ran off with the proceeds of an asset sale in his own name, there was little anyone could do to enforce your original intent.

To solve this dilemma, the law of equity evolved, allowing for a legal owner and a simultaneous beneficial owner.

Additionally, the legal owner of property would have a fiduciary obligation to act in the best interests of the beneficial owner.

The easiest way to understand a fiduciary duty is to think of the relationship between a parent and child, or in a business context the duty of directors to act in the best interests of the company.

A trust is a structure whereby trustees are the legal owners of the assets held within the trust, and are required to deal with these in the best interests of the beneficiaries.

WHAT ARE THE ESSENTIAL ELEMENTS OF A TRUST?

Just as a company has a constitution, shareholders and a board, what are the elements that make up a trust and how do they work together? The settlor places assets into the trust, the trustee is given legal ownership of those assets, and the

beneficiary is the ultimate equitable owner of the assets.

When establishing a trust, the settlor must demonstrate a clear intent to transfer assets into the legal ownership of a trustee for the benefit of a beneficiary – this intent is generally declared in a trust deed. The settlor can also decide on whether a trust will be fixed or discretionary, which limits or empowers trustees to decide how and when assets are distributed to beneficiaries.

An SMSF is a unique type of trust that is heavily regulated by statute. One of the key differences between an SMSF and a regular trust is that distributions to beneficiaries cannot be made until certain prescribed events occur, such as reaching retirement age or being permanently incapacitated.

SO WHY ARE SMSFS STRUCTURED AS TRUSTS?

Given the above, it should be relatively apparent why trusts became the preferred SMSF legal structure. The standard elements of a trust help to achieve the stated goals of an SMSF – that is, assets can be pooled and managed by a legal owner (the owner may be a corporation) for the benefit of all nominated SMSF beneficiaries. The beneficiaries can include a spouse and children, allowing families to create a retirement nest egg while setting aside funds for their children’s future.

Rather than create a completely new legal structure to help administer retirement assets, Australian legislators smartly leveraged a pre-existing structure. Attempting to read an SMSF trust deed with no context can be confusing, to say the least. Hopefully the discussion above will help you better understand the meaning of your SMSF trust deed when you next embark on some bedtime reading!

FINANCIAL SERVICES 24

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FoFA move slammed

T

he successful disallowance of the Federal Government’s amendments to wind back the original Labor Government’s FoFA reforms has been slammed as having the potential to significantly harm the financial services industry and its consumers.

Steven Münchenberg, CEO of the Australian Bankers’ Association, said this would disrupt the banking and financial services industry and result in bank customers not being able to do their banking transactions as they do now and have been doing for some time.

“If a motion to disallow the FoFA regulations successfully removes the technical amendments, it will mean banks and other financial services businesses will be at risk of non-compliance with the law,” he said.

“Consumers will face a more complex and burdensome banking experience. For example, bank customers might not be able to speak to one bank teller or specialist about a deposit product, general insurance product, consumer credit insurance, and loans or credit cards. They might have to speak to multiple staff just to complete their enquiries and transactions – this doesn’t make sense. It will cause customer confusion and frustration and additional compliance complexities and costs for banks.”

David Hasib, a partner at Chan & Naylor wealth planning group, said the disallowance of the Federal Government’s changes to Labor’s FoFA reforms is a significant setback for the financial services industry, particularly the independent sector, and the clients it serves.

“Implementing Labor’s proposed FoFA rules will significantly stifle the financial services industry, with the potential to render it a basket case on the international stage.”

APRA CALLS FOR GREATER BANK RESILIENCE

DID YOU KNOW?

71% Wealth Today has announced 71% annualised growth in funds under management and 49.9% growth in insurance premiums since partnering with brokers Source: Wealth Today

APRA has warned that Australian banks are ill-prepared to recover from a financial crisis.

Speaking at the ABF Randstad Leaders Lecture Series, APRA’s chairman revealed the results of the regulator’s industry-wide stress test of Australian banks’ mortgage books.

“If we draw one conclusion from the stress test this year, it’s that there remains more to do to be able to confidently deliver strength in adversity,” APRA chairman Wayne Byres said.

As banks have been riding the property market wave, both the Murray Inquiry and APRA have openly expressed concerns about what will happen when the housing market eventually corrects and property prices fall.

In his speech, Byres said, “The low-risk nature of Australian housing portfolios has traditionally provided ballast for Australian banks. But that does not mean that will always be the case.”

The banks have argued that they have not only passed through the GFC intact but have increased capital buffers since then. However, Byres disagrees, saying they are “virtually unchanged” from a decade ago.

But it wasn’t all bad news for the banks. Byres admitted that the Australian banking industry appeared “reasonably resilient” to the immediate effects of a severe downturn impacting on the housing market. However, it is the bank’s recovery plans that have left him concerned.

a

ASIC CRACKS DOWN ON PROPERTY PROMOTER Property investment promoter Park Trent Properties Group has been taken to court by ASIC for unlawfully promoting the use of SMSFs to purchase investment property.

ASIC alleges and is seeking declarations that Park Trent is unlawfully carrying on a financial services business without an Australian financial services licence.

According to the regulator, Greg Tanzer Park Trent has advised at least 500 members of the public to establish and switch funds into an SMSF, which are then used to purchase investment properties that are owned or promoted by Park Trent companies.

“Collectively, Australians hold over $1.85trn worth of assets in superannuation funds, with $557bn held in SMSFs. It is important when making decisions regarding superannuation to consider obtaining appropriate advice from an authorised financial adviser,” ASIC commissioner Greg Tanzer said.

“Dealing with an authorised adviser affords specific protections under the law, such as acting in the best interests of clients, a duty to avoid conflicts of interest, and providing access to dispute resolution schemes.”

ASIC TO CUT DISCLOSURE RED TAPE

ASIC is seeking feedback on proposals to make it easier for businesses to deliver financial services disclosures electronically, while preserving choice for consumers.

The regulator has released Consultation Paper 224: Facilitating electronic financial services and disclosures (CP 224), which aims to encourage innovative formats for Product Disclosure Statements.

“ASIC is focused on making disclosure more effective and meaningful for consumers of financial services. We want to encourage more innovative ways of delivering important information presented in a way that consumers can understand and act on,” ASIC commissioner John Price said.

“At the same time, we believe electronic disclosure could reduce costs for providers and enable them to better align their disclosure with consumer preferences.”

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FoFA changes knocked back The disallowance of changes to FoFA has some in the industry crying foul

APRA IN THE DARK ON BROKER ROLE

Connective principal Mark Haron recently argued that while brokers were confident in the property market, they were concerned about regulatory meddling scuttling their businesses. One commenter said a particular regulator was the primary offender.

T

he successful disallowance of the Federal Government’s amendments to wind back the original Labor Government’s FoFA reforms has been slammed by the Australian Bankers’ Association (ABA) as having the potential to significantly harm the financial services industry and its consumers. But commenters on the Australian Broker Online forums were split on the move.

QED Risk said the ABA had erred in assuming all regulation was bad regulation.

“What an absolute load of toss, the whole notion that all legislation is automatically just bad. For the most part FoFA requirements actually assist advisers to understand and comply with what are their existing obligations under the Corporations Act. Furthermore if you have the right software to automate the little bit of extra paperwork involved it will only add mere minutes to your processes.

Oh but that would require advisers to get out of the dark ages wouldn’t it.”

Jason, however, sided with the wind-back of FoFA regulations.

“Thanks for your input QED. I suggest you come see what it’s actually like to be an adviser and understand the business before you just slam the industry. Opt in is going to require clients agreeing to continuing service. If a client is away

on holiday and don’t return the form, is the public going to be happy that their adviser did nothing in the case of a falling market, simply because they weren’t allowed to? Largely speaking, FOFA has simply increased the cost of advice for small businesses, which clients won’t pay, and then the media complaints will continue that all planners are bank employed or aligned.”

William said that if FoFA had any drawback, it was that it wasn’t tough enough.

“It would seem that Labor’s legislation does not go far enough.

According to news reports, the big four banks and a few large insurers have a stranglehold on the financial planning industry. A real step forward would be to force these organisations to divest themselves of these activities. Unfortunately that seems unlikely as federal politicians seem to be in awe of the banks!”

And Vic Regional Broker said banks needed to get with the regulatory program.

“These are self-serving comments by a banker’s representative. It means the banks will now have to be as compliant as the rest of the industry, stop carrying on! Get the technology right as the mortgage brokers have had to. It is not difficult. Can a teller provide sound financial or credit advice over the counter? No!”

“The really big worry is APRA who clearly have no idea how Mortgage Brokers operate. They operate from the songbook of urban myth and spin over reality. However, if they persist with their arguments that Broker loans are more risky than propriety loans the regulators start to listen (and act by more regulation). Somebody (anybody) in APRA needs to actually look and see that brokers only refer loans to lenders (not approve them) to modify their stupid and uneducated statements. The regulators have no idea, they just react to the people who should know better. Note the deafening silence of disapproval coming from the Banks. I am not sure any have spoken out to dispel the myths proposed

by APRA?” Peter Heinrich on 20/11/2014 at 11:17AM

ASIC CRACKS DOWN ON PROPERTY PROMOTER Property investment promoter Park Trent Properties Group has been taken to court by ASIC for unlawfully promoting the use of SMSFs to purchase investment property.

Old Broker on 13/11/2014 at 9:13AM “This is going to be the next collapse of the integrity of our financial system in this area of advice. This will make the Storms and ACR irrelevant in the scale of losses.”

Don Perth on 12/11/2014 at 1:19PM “It happened to me last year in May when the property developer advertised the property as NRAS approved.

A month after contract was signed and sealed, a letter came from their lawyer saying there was no NRAS for this property. The contract itself has a big NRAS letter printed on the first page! Reported to ASIC and the Consumer Affairs and both did nothing about it. Met with Consumer Affairs and their top dogs in their office in Perth and was told it was not in the interest of the public to prosecute this people!! The applicant does not have the money to take the developer to court.”

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

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Industry icons undertake new ventures Two high-profile industry leaders have partnered for a new opportunity

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wo industry leaders have united to launch a new finance company, The Broker Group, which they say will revolutionise the mortgage industry.

The Broker Group’s executive directors, Jeremy Fisher and Sal Cinque, have many years of experience in the Australian mortgage and finance industry.

Fisher, founder of 1st Street Home Loans, is consistently ranked one of Australia’s top brokers and Cinque was a founder and director of the aggregator nMB prior to its acquisition by Aussie.

Cinque told Australian Broker that the idea behind The Broking Group came from a desire to fill some of the gaps in the industry.

“We were exploring ideas on how to create a broker business of significant scale by filling current

market gaps – we identified three key areas. Firstly, an accessible platform for brokers to realise expansion capital by selling a non-controlling stake of their business. Secondly, an attractive option for brokers looking to retire or exit the industry by selling their business as a going concern at a multiple that exceeds current industry standards. Thirdly, a gateway to introduce new talent to the industry and therefore contributing to its further grow.”

The main objective of The Broker Group is to establish Australia’s leading group of mortgage and finance brokers by selectively acquiring partial or complete positions in successful and independent broking businesses, while providing a mechanism that will improve the value or resale value of a broking business.

Cinque says they want to give brokers a viable option that values the hard work they put into building their businesses.

“The Broker Group will provide successful, mature broking businesses the ability to unlock capital in their business for growth and expansion. For example, a broker may sell-down a noncontrolling stake of around 10% to 20% of their business to The Broker Group, providing the broker with their desired level of expansion capital. The valuation model will consider financials, IP, goodwill and capacity to grow and the result will deliver values in excess of standard trail income multiples. Under this model, brokers will also be provided with equity participation in The Broker Group.

“Or, by offering succession planning options for brokers that are not readily available today.

Businesses acquired outright by The Broker Group may be used as a vehicle to introduce new-to-industry brokers, or may be plugged-in to a host broking business, which the group already holds shares in. As a succession plan for brokers looking to retire or exit the industry, their businesses will be valued as a going concern including IP and goodwill in addition to trail income.”

There aren’t many options for an SME broker to have a hand in the overall group, says Cinque, so The Broking Group gives them another option. As the group grows, their equity also improves in value over time. It is all about providing unique opportunities for brokers seeking to re-capitalise and accelerate growth by selling a non-controlling stake or those seeking to retire and exit the industry by selling the business as a going concern. It is about moving the industry in a positive direction for brokers.

MOVERS AND SHAKERS

MYSTATE ADDS NEW TALENT Martin Liszewski has been appointed as the New South Wales BDM for non-major lender MyState.

Liszewski has more than 20 years’ experience primarily as a BDM and sales strategist with some of Australia’s leading mortgage providers including RESIMAC, RAMS, Colonial and HomeLoans Limited.

Most recently, he was responsible for managing sales across intermediaries and mobile lending at Suncorp Bank.

MyState Limited’s general manager of sales and distribution Huw Bough said the appointment reflects the Group’s strong and continued commitment to improving products and services to third party mortgage origination partners.

“Martin is recognised within the mortgage broker industry as a passionate and driven person who knows that behind each loan scenario and each application are people that are affected greatly by the outcome and the experience,” he said.

“Martin has an extensive and impressive record in driving service improvements for brokers.

Importantly, he shares our belief that brokers are essential in driving competition which, ultimately, benefits the customer.”

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IN FOCUS

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ustralian First Mortgage recently held its annual Melbourne Cup Day luncheon. The highly anticipated event saw brokers, funders and the media gather to share a meal and drinks, and have a punt on the races.

Photography by Peter Secheny

INSIDER 30

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Foreclosed home not such great deal A US buyer got more than he bargained for when he made a grisly discovery

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man who purchased a Florida home at a foreclosure auction in the US made an appalling discovery in his newly acquired property. He found a dead body.

According to News-Press.com, William Wilson found the body, which was believed to be that of the previous owner, in the master bedroom beside the bed. Authorities said the previous owner had been missing since late 2011 and suspected the body had been there for at least three years.

Wilson purchased the home on SE 19th Lane at auction for US$96,000.

According to Zillow, the house includes three bedroom and two bathrooms.

The Cape Coral Police Department said they had checked the vacant home twice last year and noted it appeared to look OK. Wilson said the most recent piece of mail at the house was from November 2011, and the house had three years of unpaid taxes.

News-Press also reported: “The corpse was on the floor of the master bedroom next to the bed. Longtime neighbors say an older woman from Miami last lived at the home with her sister, but they hadn’t seen or heard from her for several years. Some thought she moved, others said she just disappeared.

Outside, the grass grew long and the community speculated. Inside, Wilson said all that remained were bones, skin and the smell of remains.”

AGENTS AREN’T PHOTOGRAPHERS There’s no doubt you’ve come across a listing on Domain that had the most ridiculous photos: blurry kitchens, stretched bedrooms, and maybe a few pictures that you couldn’t decipher at all.

Well, now you can find all those hilariously awful real estate photos on a new blog.

This blog has collected all those horrible photos and effectively created a long list of don’ts when it comes to real estate photography.

For example, make sure to wait until after the dog has finished its business before taking a photo, and remember to repair the shattered glass door. To see the pictures in all their awful splendour, visit terriblerealestateagentphotos.com.

SKY-HIGH LIVING If you think Australian property prices are sky high, one airline has set a new standard for opulent living.

Etihad Airways is now offering a first-class “apartment”, The Oregonian has reported. For around $20,000, travellers can book “The Residence”, a suite with a living room, a two-seat reclining leather sofa, a private bathroom (with shower), and a 32-inch flat-screen TV. The airborne apartment also comes with a double bed and a full wardrobe for those who don’t like luggage piling up around their feet.

As if all this weren’t enough conspicuous consumption, the suite is supplied with its own butler and chef.

MASTER YOUR SPEAKING AND PRESENTATION SKILLS After 35 years as a radio and television broadcaster, John Henry now consults to companies who have an interest in improving or polishing the speaking confidence and speech presentation skills of their employees.

John also works with individual professional clients and executives in a one on one environment, to rehearse and boost confidence for speaking or presentation preparation.

Working with people talented in their chosen fields but who lack just a little confidence to speak in public or make a sales presentation, John helps them identify where they can improve and then coaches them with friendly constructive direction.

Travelling to your premises John will conduct training on site for half or full days depending on numbers.

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