Australian Broker 12.14

NEWS ASIC targets One Big Switch The regulator takes aim at the consumer campaign p4

OPINION Tackling conflicts of interest CoreLogic RP Data’s Chris Spanos on how brokers can avoid conflicts of interest p10

ANALYSIS When the bubble bursts Australian house prices are continuing to head north. Does this mean we are in the midst of a property price bubble, and if so, when will it burst and what will it look like? p12

JULY 2015 ISSUE 12.14

BUSINESS PROFILE LJ Hooker Home Loans Eastern Suburbs LJ Hooker Home Loans Eastern Suburbs is the true definition of a one-stop shop PG16

SPECIAL REPORT Tough deals

MATT BAXBY

Bank of Queensland’s group executive for retail banking on re-entering the broker space

Lenders share examples of how they’ve helped get tough deals across the line PG20

PEOPLE Diary of a first-year broker First year brokers Phil Barton and Natalie Duong on the joy of variety PG28

NEWS

NEWS

BANKS

LEGAL

Consumers betting on rate cut P4

Non-major hikes commissions P6

Peter Langham on new options for SMEs P8

BROKERNEWS.COM.AU

AUSSIES SUSPICIOUS

7%

6%

High level of trust

Not sure

EDITORIAL

SALES & MARKETING

Editor Adam Smith

Sales Manager Simon Kerslake

News Editor Julia Corderoy Journalist Maya Breen Production Editors Roslyn Meredith Moira Daniels

CORPORATE Chief Executive Officer Mike Shipley

Design Manager Daniel Williams

Chief Operating Officer George Walmsley

Traffic Coordinator Lou Gonzales

35%

Marketing and Communications Manager Lisa Narroway

ART & PRODUCTION

Designer Lea Valenzuela

Australian consumers show little trust in the major banks

Account Manager Rajan Khatak

Publisher Simon Kerslake Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

51%

Low level of trust

Moderate level of trust

Adam Smith +61 2 8437 4792 adam.smith@keymedia.com.au

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tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au

ADVERTISING ENQUIRIES

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BY THE NUMBERS

AFG INKS LEAD GENERATION DEAL

$4.64bn

Loans to households for housing investment increased by $4.64bn in May, despite lenders announcing restrictions on loans to investors Source: APRA

AFG has teamed up with RealEstate.com.au to launch a new home loan tool, which has been integrated into the RealEstate. com.au website, commencing with a pilot program in Victoria.

In an Australian first, the tool is integrated into property searches, presenting loan options available through AFG from a range of lenders that are potentially available to a consumer at the same time as they view properties.

The home loan tool appears within each property details page near the listed price of the property.

On interaction with the tool, users are presented with a range of loans available through AFG’s panel of more than 30 lenders (based on the listed property price).

They can then customise these options by property price, deposit amount, payment term and payment frequency, which then alters the home loan information provided by AFG. After reviewing the options available through AFG, users can request that an AFG broker contact them at a convenient time.

Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak +61 2 8437 4772 rajan.khatak@keymedia.com.au Key Media Pty Ltd Regional head office, Level 1O, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 www.keymedia.com Offices in Sydney, Auckland, Denver, Toronto, Manila This magazine is printed on paper produced from 1OO% sustainable forestry, grown and managed specifically for the paper pulp industry 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 4

FAST FACT

CONSUMERS BETTING ON RATE CUT

63%

Proportion of Australians who don’t believe home values will drop in the next five years

Source: Citiwide Home Loans

Variable rate home loan demand is on the up following speculation that another rate cut may be in the works.

According to the latest national home loan approval data from Mortgage Choice, variable rates accounted for 82.47% of all loans written throughout the month of June – up from 81.83% the month prior.

Of the variable rate products on offer, ongoing discount home loans dominated, with this product accounting for more than 46% of all loans written.

Mortgage Choice CEO John Flavell says the slight lift in variable rate demand isn’t surprising given that the Reserve Bank continues to make it clear that it will cut rates “as necessary”.

“The RBA governor Glenn

Stevens has made it crystal clear in recent weeks that the board will cut rates again if needed,” he said.

“It would seem the combination of low consumer sentiment and below-trend growth is encouraging the Reserve Bank to contemplate their current stance on monetary policy.

“But regardless of whether the Reserve Bank cuts the cash rate again in the short to medium term, it is clear that the board has no intentions of raising the official cash rate any time soon.”

Across the country, variable rates were most popular in WA, with this type of home loan accounting for 91.55% of all mortgages written. Victoria wasn’t far behind, with variable rates accounting for 88.6% of all loans written.

WHAT THEY SAID...

Peter White “It’s a worry because these additional entrants in the consumer lending arena are not brokers per se and pose a concern as to conflicts of interest and possible poor advice” P8

Tim Lawless “With the RBA cutting the cash rate in February, there was an instant buyer reaction across the Sydney and Melbourne housing markets” P12

Matt Lawler “If you’re in the mortgage broking market, you have to be adaptable to change” P26

Peter Kell

ASIC TARGETS ONE BIG SWITCH An independent review of consumer campaign ‘One Big Switch’, commissioned by ASIC, has identified that the advertising of its recent insurance campaigns was misleading.

The company advertised a ‘price beat guarantee’ without prominent and proximate qualifications to the offer, such as a minimum age requirement and the need to be switching from a comparable policy.

It also advertised an “average 30% saving on life insurance”, when the pricing of this product depends very much on the health and lifestyle of the individual applicant, and advertised car insurance with an email titled “Could you save $600, and lock it in for 2 years?” when that saving was not necessarily representative of the savings that could generally be achieved.

“In a time when household budgets are tight, offers of group discounts can be attractive to consumers,” ASIC deputy chairman Peter Kell said.

“ASIC wants to ensure those making the claims are appropriately licensed and complying with important consumer safeguards.”

NEWS 6

WORLD NEWS

PAIN AND GAIN IN HOME SALES

Proportion of houses sold for a loss versus gain, March 2015 quarter

National

Regional

Capital cities

FANNIE AND FREDDIE CEOs GET PAY HIKE Fannie and Freddie CEOs in the US are set to enjoy massive paydays, after years of having their salaries capped following the economic crisis.

Fannie Mae CEO Timothy Mayopoulos and Freddie Mac CEO Donald Layton will each earn annual base salaries of US$750,000, with a US$2.1m fixed deferred compensation and US$1.2m in at-risk deferred salary.

That will equate to US$4m per year for both, a substantial increase from salaries that have been capped at US$600,000 per year for the past few years.

According to the Federal Housing Finance Agency (FHFA), the deferred compensation components are meant to entice both CEOs to stay with their respective companies.

FHFA director Mel Watt said the pay hikes were done to “promote CEO retention, allow reliable succession planning and ensure the continuity, efficiency and stability of Enterprise operations,” according to the Wall Street Journal.

However, the decision to increase their salaries is already drawing criticism.

“As long as American taxpayers continue to serve as the backstop for Fannie and Freddie, FHFA should make decisions that protect taxpayers instead of ones that expose them to further risk,” Senator Richard Shelby of Alabama, who heads the Senate Banking Committee, said in a statement, according to the Associated Press.

The Wall Street Journal also reported that the US Treasury Department was critical of the move. “(It) does not support FHFA’s new approach to CEO compensation at Fannie Mae and Freddie Mac and urged the agency to reject any increase,” a spokesperson told the Journal.

7.LOSS 7%

11.LOSS 9% 92.GAIN3%

5.LOSS 2% 88.GAIN1%

94.GAIN8% Source: CoreLogic RP Data

NON-MAJOR UPS COMMISSIONS ME Bank has announced it is increasing upfront commission to brokers from 0.60% to 0.65% (excluding GST) of the home loan amount settled.

The increase will apply to all settlements that occur on or after 1 July 2015, so brokers with applications currently in the pipeline may be eligible.

It will also apply to top-ups of $50,000 and over.

ME Bank says it will continue to maintain a commission structure commensurate with its growth plans, recognising the vital role brokers play in the promotion and distribution of the bank’s home loan products.

The move comes on the back of ME Bank’s announcement of a tech overhaul which it says will allow it to offer new competitive home loans and

speed up turnaround times.

ME CEO Jamie McPhee says the bank has invested nearly $90m over five years, employing 25 vendors and over 700 personnel to write over one million lines of code.

“We’ve built and integrated seven new software systems and moved 320,000 customers on to these systems, all with minimal disruptions.”

NEWS 2

NEWS 8

A LOOK AT THE REGIONS: ANNUAL CHANGE IN REGIONAL HOME VALUES

REGIONAL NSW

REGIONAL VIC

REGIONAL QLD

REGIONAL SA

REGIONAL WA

14.5%

-0.9%

1.1%

-2.1%

-3.1% Source: NAB

BROKERS OFFERED NEW OPTIONS FOR SMEs

Peter White

FBAA WARNS OF RISE IN UNQUALIFIED BROKERS The FBAA has raised concerns about the number of people entering the industry who are not trained as mortgage and finance brokers.

According to the association, in July 2011 there were more than 20,000 Australian credit licences (ACLs) and Australian credit representatives (ACRs) in the industry, with 92% being brokers.

However, in four years, combined ACL and ACR figures have jumped to 39,000, with only 56% noted as being broker trained.

FBAA CEO Peter White is concerned at the huge variation and big increase in non-brokers holding this status.

“The total market of these credit licence and representative holders has climbed a staggering 88%, but the broker market’s only risen 15 out of that 88%,” he said.

“It’s a worry because these additional entrants in the consumer lending arena are not brokers per se and pose a concern as to conflicts of interest and possible poor advice.”

White believes that many credit reps, such as accountants and financial planners, are cross-pollinating into the broking market.

“Who holds these ACR holders accountable and responsible for their conduct, their ongoing education, and to see that best practice is met?

Brokers will be offered another funding option for SME clients, with the announcement of the first non-bank lender to be approved by the federal government’s export credit agency.

Traditionally, the government’s export credit agency, Efic, has partnered with the major banks to encourage Australia’s export industry. But now, Australian small to medium sized businesses involved in exporting or supplying to export projects have a new financing option, with the

announcement that Scottish Pacific has been approved as a partner.

Efic supports Australia’s export industry by guaranteeing commercial finance facilities taken out

by Australian companies exporting or operating in the export supply chains, helping them expand their businesses overseas and source opportunities in emerging and frontier markets.

“Being able to work closely with Scottish Pacific will allow us to help even more SMEs receive the finance they need to succeed

overseas,” said Andrew Hunter, Efic’s managing director and CEO. Scottish Pacific CEO Peter Langham said Efic’s approval of Scottish Pacific would provide brokers and their SME clients with more options.

“We are delighted to be the first non-bank lender to be approved for this type of arrangement with Efic. It is great recognition for Scottish Pacific and our growing product suite that supports Australian businesses engaged in international trade,” he said.

BANKS SUPPORT LIFE INSURANCE OVERHAUL

DID YOU KNOW?

Consumer banking satisfaction hit 82.9% in May, equal to a 20-year high

82.9% Source: Roy Morgan

ANZ and Suncorp have welcomed the life insurance reform package recently announced by assistant treasurer Josh Frydenberg.

“The life insurance sector is vital for our community. Life insurance advisers and product manufacturers help to provide essential financial security to Australians,” Frydenberg said.

ANZ Global Wealth deputy managing director Gavin Pearce said, “We’re pleased to see acceptance across the industry that the insurance and advice sectors need to change in order to rebuild trust and fulfil the important objective of ensuring Australians are properly protected.

“In my opinion, the prior and ongoing work of shadow treasurer Chris Bowen and, more recently, assistant treasurer Josh Frydenberg has been outstanding,” said Suncorp Life CEO Geoff Summerhayes.

“These ministers have facilitated a solution that appropriately balances the interests of the stakeholders involved.”

OPINION

Chris Spanos Head of valuations and government solutions CORELOGIC RP DATA

as a top-tier law firm, a Chinese wall may be enough to deal with a conflict of interest. For example, a solicitor with a declared conflict may decide to work in a different department of the firm so that they have no visibility of a particular deal. Their computer access may be restricted and their daily team may agree to not speak to another team on any matter for the duration of a deal.

The role of buyers’ agents in US real estate

CONFLICTS OF INTEREST IN REAL ESTATE CoreLogic RP Data’s Chris Spanos on how brokers can avoid conflicts of interest CONFLICTS OF INTEREST can occur in any industry where buyers and sellers routinely interact.

Adding further industry participants into the mix, such as real estate agents, financiers, brokers, and valuers, further increases the possibility of a conflict of interest.

Given this, it’s no wonder that other real estate markets like the USA’s have evolved to a point where they routinely include an agent on both sides of the transaction.

What is a conflict of interest?

While there are many different scenarios, a conflict of interest arises when an individual or corporation has competing interests in a single transaction or relationship. While conflicts of interest may be hard

to define, they are often simple to understand in practice.

For example, how many first-time buyers even understand that the real estate agents they meet at all those inspections are, in fact, vendors’ agents acting exclusively to get the best deal for the vendors.

Mitigating conflicts of interest Given how often conflicts of interest arise in commercial transactions, especially in large deals where only a handful of professional advisers have sufficient scale, there are many techniques to deal with, or mitigate, conflicts of interest.

1. Declaring or disclosing: When a conflict of interest emerges or is identified, an important first

step is for the conflicted party to disclose their conflict. This does not necessarily mitigate the conflict, but transparency is an important first step.

2. Removal or recusal: This refers to the practice of removing oneself from a transaction or situation where a conflict of interest has been identified. For example, a solicitor should not ordinarily advise on a merger where they are a material shareholder in one of the entities being merged. Similarly, a judge will not ordinarily preside over a hearing where they are a relative of the plaintiff or defendant.

3. Chinese walls: Where advice is provided by large practices, such

Given the potential conflicts of interest that can occur in real estate, especially when buyers have no professional representation at all, some jurisdictions, like the USA, have evolved to include an agent on both sides of the deal. This can help minimise conflicts, and ensures, as a minimum, that buyers have access to professional advice when making a purchase.

In many ways it is Australia that can be considered odd, with buyers routinely spending hundreds of thousands of dollars on property, absent of any independent professional advice. Without experience, it can be difficult even to know what questions to ask a vendor.

The rise of buyers’ advocates Given the obvious benefits, why have buyers’ agents not taken Australia by storm? The short answer is agent commissions. In Australia, we are used to 3–4% of a sale’s proceeds going towards agent fees. In the USA, it is more like 5–6% of a sale’s proceeds being split as commission between buyers’ and vendors’ agents.

In an attempt to sidestep the perception of a ‘commissions grab’, we have observed the rise of ‘buyers’ advocates’. The principal difference between an agent and an advocate is the method of their compensation – an advocate gets paid for services rendered, usually on an hourly basis, as opposed to a commission. This method of compensation means that a buyer’s advocate can give independent advice without the constant pressure of pushing for a sale.

In fact, some would argue that the commission structure for agent compensation (for both vendor and buyer) introduces an obvious conflict from the moment an agent is selected. If an agent only gets paid when a property transacts, aren’t they incentivised to push for a transaction at all times… regardless of whether it is in a vendor’s or buyer’s best interest?

ANALYSIS WHEN (OR IF) THE BUBBLE BURSTS Australian house prices are continuing to head north. Does this mean we are in the midst of a property price bubble, and if so, when will it burst and what will it look like?

THE AUSTRALIAN property market is continuing to sizzle. The latest statistics from CoreLogic RP Data’s June home value results revealed that Australian capital city house prices rose 9.8% higher over the 12 months to June, although the increase was slightly lower than the 10.1% price gain in the 2013/14 financial year. Sydney and Melbourne surged by 16.2% and 10.2% respectively over the same period.

CoreLogic RP Data’s head of research, Tim Lawless, says the interest rate cuts in February and May reinvigorated the already-heated Sydney and Melbourne housing markets, which are now seeing auction clearance rates at their highest level in six years.

“Growth conditions had been moderating from April last year through to the end of January 2015,” Lawless says.

“With the RBA cutting the cash rate in February, there was an instant buyer reaction across the Sydney and Melbourne housing markets where auction clearance rates surged back to levels not seen since 2009, capital gains once again accelerated, and we are now seeing Sydney and Melbourne homes selling in record time; Sydney homes are selling in just 26 days and Melbourne homes are selling in 32 days.”

Just as interest rate cuts reinvigorated the interest in Sydney and Melbourne property, they also reinvigorated speculation of a property price bubble.

And if we are in the midst of

a housing bubble, when is it going to pop and what is it going to look like?

It is going to be a ‘bloodbath’ In a submission to a parliamentary inquiry into home ownership, LF Economics economists Lindsay David and Philip Soos say the Australian property market is in the midst of the largest housing bubble on record.

Unlike many industry commentators who deny the existence of a bubble and have instead put rising house prices down to a shortage of supply to meet growing demand, including Mortgage Choice chief executive John Flavell, David and Soos argue that Australia’s housing

shortage is fictitious.

In fact, economic modelling by LF Economics suggests that Australia has an overall oversupply of housing, to the tune of 165,000.

According to David and Soos, Australia’s ever-rising house prices are a result of artificial demand and a gross oversupply of mortgage debt.

debt to speculators to bid up housing prices which led to the entry of ever-more buyers.

“It is during this period these institutions claim a dwelling shortage is the cause of record high housing prices. The failure of the RBA and government to identify the oversupply

severe downturn.”

While they do not say when the bubble will burst, Soos and David believe it is only a matter of time before house prices fall – and it will be disastrous.

“Australian economic history and recent international events illustrate collapsing housing bubbles

“Overall, housing is showing some bubble-like features, but it lacks a trigger to pop it near-term” “What these housing markets experienced was artificial demand generated by their banking and financial systems, having lent colossal sums of private

of mortgage debt in the household sector as the real culprit has now left the housing market and economy exposed to financial instability and a

can quickly increase the number of unsold properties (stale stock), shattering the pervasive myth of a deleterious dwelling shortage,” the submission states.

SPECIALIST LENDING UPDATE

ANTHONY ALABAKOV TURNS TO SPECIALIST LENDING Mario Rehayem talks to Anthony Alabakov, CEO of My Mortgage Freedom “A bloodbath in the housing market, however, appears a near certainty due to the magnitude of falls required for housing prices to again reflect economic fundamentals.”

…Or maybe it won’t be Australian house prices are likely drop from 2017, according to an economic forecast, but doomsday predictions are highly exaggerated.

BIS Shrapnel’s Residential Property Prospects 2015 to 2018 report says low interest rates will support further price growth in undersupplied residential markets in 2015/16, but the prospect of tightening interest rates coupled with rising supply will create conditions for price declines in a number of cities from 2017.

However, BIS Shrapnel senior manager and study author Angie Zigomanis says doomsday predictions, such as that from LF Economics, for the residential market are likely to be overblown.

According to Zigomanis, although Australia’s residential property markets are forecast to steadily weaken from 2016/17, any downturn will be similar in magnitude to that seen over 2011/12.

The economic forecast says the heated Sydney market – where prices have increased by 45% over the past three years – will ease back to single-digit percentage growth of 7% over 2015/16, before falling by 4% over 2016/17 and 2017/18.

The total price growth in Sydney over the three years to June 2018 is forecast to be 2% – resulting in a real decline of 6% over the period.

“The combination of higher interest rates and recent price growth is expected to discourage both owner occupiers and investors, particularly as pent up demand pressures are beginning to ease,” Zigomanis says.

The Melbourne housing market is also set to experience a downturn.

According to the report, the Melbourne market has been underpinned by strong net overseas migration inflows, as well as unprecedented net interstate migration inflows.

This has allowed population growth to match the elevated level of new supply over recent years.

However, net overseas migration has been trending downwards, while new dwelling construction, particularly of apartments, is now again at record levels.

“As a result, the rate of price growth is forecast to progressively slow over the next three years, particularly as interest rate policy begins to be tightened,” Zigomanis says.

Median house price growth in Melbourne is expected to total only 4% over the 2015 to 2018 forecast period, with a 5% rise in 2015/16 offset by a small fall in the following two years. After accounting for inflation, prices are forecast to fall by 4% in real terms.

In a report comparing past price rises and corrections to current conditions, leading investment bank UBS admits that the Australian property market is showing some bubble-like features and, like BIS Shrapnel, it says house prices will drop in the next two or three years. However, it also does not predict any doomsday bloodbath.

In fact, when the property bubble ‘bursts’ it is just going play out like previous price corrections in the Australian market in 2003, 2007 and 2010.

“Overall, housing is showing some bubblelike features, but it lacks a trigger to pop it near-term,” senior economist George Tharenou says.

“Those downturns were only triggered when the RBA hiked. Historically the key catalyst for housing approvals to peak is RBA rate hikes; not excess supply or unemployment.”

UBS also highlights that Australia’s house price to income ratio is sitting at 5.5, which is similar to the peaks seen before the corrections in 2003, 2007 and 2010.

Mario Rehayem Director of sales & distribution, Pepper

Anthony Alabakov CEO, My Mortgage Freedom

What turned you on to specialist lenders?

What feedback have you received from clients?

When I first started as a broker I really didn’t have any idea of what specialist lending was all about. The turning point for me was after meeting a self-employed client with a situation that the mainstream lenders couldn’t deal with. This client had a number of income streams that couldn’t be verified by up-to-date tax returns. I asked my aggregator what I should do and they suggested speaking to a specialist lender. Pepper was able to help by looking at alternative income documentation. The client was thrilled we could help them and from there, my relationship with specialist lending developed.

In my experience, the feedback from clients has been more than positive – our clients are really grateful for that alternative option and a chance to move forward when their bank or current lender won’t help. When you weigh up the interest and fees, for the sake of an extra $5,000 to $15,000 over that period, it’s really not a deal breaker for them and that client has an understanding that we can restructure things in the future. For us, it provides a stickier client and a more solid and longer lasting client relationship.

Which of your clients have required a specialist loan?

For me it’s predominantly self-employed clients where I’ve seen the greatest use for specialist lending. I believe the selfemployed market is hugely under-serviced by the major banks so being able to tap into this market has been beneficial for my business and developing our referral partner relationships. Some great niches specialist lenders service are around a common sense approach to income verification as well as more flexible policies such as refinancing ATO debts and debt consolidation. For my business, it’s about having another feather in our cap and being equipped to service the next client that walks through the door.

Has specialist lending improved your referral relationships?

Absolutely, I’ve been able to go to my referral partners and let them know that there are some terrific alternatives out there. We deal with a lot of accountants, financial planners and real estate agents so it’s simply a different conversation we can have with them around how there are options out there for freelancers, contractors and self-employed customers.

Specialist lending is just an alternative solution for certain clients at a given point in time.

What have been the key benefits of using specialist lenders?

It’s about making sure we help more clients that walk through the door. In the past I would have shied away from a ‘nontraditional’ client because I believed I couldn’t assist them. Now we like to think that if there is a solution out there, then we have the resources to find it. There is a whole range of options that specialist lenders - and Pepper in particular - can provide to most clients. For my business, it’s a point of difference compared to other brokers and banks that turn nonconforming customers away.

What advice would you give to brokers who currently don’t use specialist lenders?

I think there is still a bit of a stigma around specialist lending because it’s a case of the unknown. My advice is just to get out there and speak to lenders. Pepper has got some really good initiatives and their solutions continue to evolve to meet the needs of the changing market. It’s about building a good business by finding the ideal answer to your clients’ needs. When a client throws a curveball and doesn’t have the usual documentation or financial background, having the knowledge that you can provide a solution then and there is priceless.

Pepperonline.com.au/specialist

COVER STORY RE-ENGAGING WITH THE BROKER MARKET Bank of Queensland has made moves to show brokers it’s serious about the third-party channel. Group executive of retail banking Matt Baxby explains how the bank is focusing on brokers

WHEN BANK OF Queensland re-entered the mortgage broker channel in 2012, the chief executive of the time, Stuart Grimshaw, vowed its move back into the broker channel was not just a quick fix solution to revive the bank’s struggling profits after it posted a $91m first-half loss. Now, over two years later, Bank of Queensland’s home loan portfolio is growing at 0.8 times the system and the non-major has major plans to invest further into the broker channel.

Speaking to Australian Broker, Bank of Queensland’s group executive of retail banking Matt Baxby said the renewed focus on third party investment is a direct result of what its customers are saying they want.

“A significant part of BOQ’s strategy is focused on making it easier for customers to deal with us how and when best suits them, whether it’s face to face in a branch or with a broker or through digital and online channels,” Baxby said.

“With around half of all home loans originating with brokers, we are very focused on continuing to develop these relationships, but equally aware of the need to continue to invest in our other distribution channels, including branches, as well.”

Bank of Queensland’s renewed focus on third party investment has also driven the lender’s diversification strategy. According to its 2015 firsthalf results, released in March, 57% of home loan applications originated from outside of Queensland.

This was largely driven by the broker channel, which contributed $420m of loan growth and accounted for 14% of settlements.

According to Baxby, the rapid growth in mortgages originated by brokers is a trend which the bank expects to continue.

“At the 28 February half year, around 14% of our new home loan settlements originated from brokers – 18 months ago this was less than 2% so we’ve made a lot of progress. We expect this percentage of settlements to continue growing, particularly as we have recently started accrediting brokers in Queensland where the BOQ brand is strongest,” Baxby said.

“BOQ has significantly diversified its business

by geography and industry over the last few years and we expect this trend to continue. Brokers, our Business Banking expansion and the addition of BOQ Specialist and Virgin Money are all factors that will continue to drive this diversification, though Queensland obviously continues to be an important market for us.”

In April 2013, Bank of Queensland acquired the exclusive rights to the Virgin Money Australia brand for 40 years. In April this year, Baxby – who was himself chief executive at Virgin Money Australia for three years before joining Bank of Queensland in 2012 – announced the new chief executive of its subsidiary, as well as unveiled plans to launch

recognisable in the world and strongly resonates with its customers,” Baxby told Australian Broker.

“It’s too early to give away much of the detail around our new Virgin Money mortgage offering but rest assured that our marketing and distribution of this product, as well as its customer service proposition, will stay true to the ethos of the Virgin brand.”

In the meantime, Baxby says the non-major will continue to campaign fiercely for a more competitive banking landscape for brokers and consumers, as well as continue to grow and better its relationship with the broker channel.

“We will continue to look for ways to invest in

“With around half of all home loans originating with brokers, we are very focused on continuing to develop these relationships” mortgages through Virgin Money Australia in the next 12 months.

“One of the factors that really attracted BOQ to the Virgin Money business was the opportunity to distribute banking products and services to new customers who are unlikely to ever be BOQ brand customers,” Baxby told Australian Broker.

“We have committed to delivering a BOQmanufactured, Virgin Money-branded mortgage product to market within the next 12 months. This is strategically important to the organisation – it will allow BOQ to enhance its on-balance sheet growth and Virgin Money to expand its product offering to customers.”

According to Baxby, the group is planning to distribute Virgin Money mortgages exclusively through the broker channel initially, before extending into the direct space over time. However, brokers will have to wait and see what sort of products they can expect, as the group finalises and perfects its new offering.

“The Virgin brand is one of the most

all of our distribution channels over the next 12 months. In the broker space this means expanding our relationships with broker groups and working to ensure our products and service proposition continue to meet the expectations of brokers and their customers.”

BUSINESS PROFILE

FINACIAL SERVICES

BUILDING AN EMPIRE LJ Hooker Home Loans Eastern Suburbs is the true definition of a one-stop shop, providing a full suite of financial services to 40 different LJ Hooker real estate offices throughout Sydney

ALEX LAMBROS entered the mortgage broking industry eight years ago with no experience and no contacts. But eight years on he is managing a team of 13 mortgage brokers who are responsible for 40 different LJ Hooker real estate offices throughout Sydney. Lambros is the director, franchisee and senior lending specialist at LJ Hooker Home Loans Eastern Suburbs.

Speaking to Australian Broker, Lambros said it was a long, hard road building his reputation and finding his feet and his point of difference as a new-to-industry broker.

“I doorknocked with a lot of banks and they kept closing the door in my face [because I had] no experience. Then it was about whom I knew, not what I knew. I met a real estate agent who put me in touch with a mortgage broker, and she was kind enough to train me. I did a lot of work for her on a very low income. I did that for about six months while I learnt the ropes, and then started mortgage brokering.

“I stayed with her for about two years and serviced the LJ Hooker network, managing about five offices. What I realised pretty quickly was that I can’t be everywhere, so I really narrowed it down and focused on two good operators and worked with them, and got some good results for them and myself.”

While having an experienced mortgage broker as a mentor was Lambros’ lifeline as a new broker, he also turned to horizontal industries to round out his knowledge, experience and contacts.

“There was more to learn, so I partnered up with a financial planning business and started doing the mortgage brokering for them,” he said.

“I got to better understand strategy and structure as opposed to interest rate, which really armed me well for the future.”

Building an empire After working alongside financial planners to gain an alternative and deeper understanding of the finance industry, Lambros returned to LJ Hooker.

However, this time he came back as a franchise owner – the director of LJ Hooker Home Loans Eastern Suburbs. “… [We] started off managing about eight to 10 real estate offices at that time. It was just myself and my two business partners, who were financial planners. We started having different conversations, not just about rate but about strategy and structure, wealth creation, and the difference between offset accounts and redraw facilities, which not everyone is really across.

“After many years of doorknocking with those real estate agents and convincing them to work with us, which was hard, eventually the tide kind of turned and they were wanting to work with us.

They could see we were getting some results for them, and the feedback was well received from the clients they were sending our way.”

Since then the business has grown rapidly from managing eight to 10 real estate offices, to currently managing around 40 LJ Hooker real estate offices throughout Sydney. Lambros has had to constantly be on a recruitment drive to keep up with growth, but he says there are no plans to start slowing down.

“Recruitment has been tough, but it has also been pretty rewarding when you have got some people that have stayed with you for a number of years and you have seen them grow, just as someone once gave me the opportunity. That has been really enjoyable.

“Now we are sitting at about 11 active brokers with two in training, so we will be at 13 soon and wanting to grow. We will need to get to about 20 to work with the current territory that we are supporting. Once we get there, the territory will grow again and we will recruit again.

“We had to move into this office space because we got to the point in our last office where we were telling brokers ‘sorry, you will have to actually work from the office or you have to work from home because we don’t have the room for you’.

That was not an ideal conversation so we moved

SPONSORED BY

SPONSOR MESSAGE

Brokers are not only important to ING DIRECT’s ability to provide mortgage solutions to consumers, they are also critical in engendering competition across the industry. They provide choice for consumers, and also impart knowledge and expertise to guide consumers through the home loan process.

At ING DIRECT we see brokers as our partners; an extension of our business.

With an online business model and no branches, brokers are essentially our face-to-face branch network.

The growth and success of ING DIRECT, the nation’s fifth-largest home loan lender, is testament to consumer demand for the broker community and the hard work and commitment of brokers across the country.

Regardless of the role played, be it lender or broker, we are all working towards the same goal – to provide customers with the support they need across their full financial life cycle and ultimately seeing them happy and secure in their homes.

Across both residential and commercial, we pride ourselves on our strong relationships with brokers and look forward to our continued mutual success into the future.

Mark Woolnough Head of third party distribution, ING DIRECT

Sean Martin, Rebecca Antone, Alex Lambros

FEATURES 18

FAST FACTS

October 2009

Alex Lambros officially opens the doors of LJ Hooker Home Loans Eastern Suburbs

$197m The value of loans the franchise settled in FY2014/15

23

The total staff headcount, including brokers, financial planners, buyers’ agents, conveyancers and support staff Sophie Zou, Sharon Barlow

to a bigger place where we can now house everyone.”

But LJ Hooker Home Loans Eastern Suburbs isn’t just about the home loan. Lambros also has a team of financial planners, buyers’ agents and conveyancers. He has built the true definition of a ‘one-stop stop’.

“It is all about understanding the ‘why’ with us: why do you want to do this? What is your idea of your financial freedom? Once we understand that, we can then go into the structuring and the strategy and we can pull in whoever we need – whether it is a financial planner or a buyer’s agent or a conveyancer,” he told Australian Broker.

“We want to be that business where people don’t have to look anywhere else, and the internal communication is so clear that everything goes well.”

Currently, there is an entire team of 23 working in the modern, open-plan office overlooking the city on Castlereagh Street in Sydney’s CBD.

important to have support systems in place for more experienced brokers. He organises this through a unique colour-coding system: red is the code for administrative tasks, blue is the code for sales tasks, and black is the code for structure and strategy.

“When a broker ends up doing too much

Supporting growth

red, they can’t do enough blue, and then what ends up happening is they did. Their sales drop because they are doing all this paperwork and they are then back on the treadmill trying to get your results back up,” he said.

“So a broker will get to a certain point where

Lambros has a team of client service managers dedicated to processing loan applications for brokers. While all new brokers are required to learn how to process their own loan applications at first, Lambros says it is

they are doing too much red, and that’s when we say they should start handing their paperwork over. They know what to do, so now they can rely on someone full-time and they can get back to doing more blue.

“That’s how you get a mortgage broker going from settling $30m in a year to $60m in a year.”

“After many years of doorknocking with those real estate agents and convincing them to work with us, which was hard, eventually the tide kind of turned and they were wanting to work with us. They could see we were getting some results for them, and the feedback was well received from the clients they were sending our way” LJ Hooker Home Loans Eastern Suburbs also supports its new brokers by supplying leads from its real estate partners, helping them build their networks and make a living quicker. “… [When] I bring a broker in here, it is not a sink or swim situation which was kind of given

SPONSORED BY 19

The LJ Hooker Eastern Suburbs team

to me. If you join us, we really want you to succeed. We will do everything we can to make you succeed. So recruitment is really critical to us, but it is a give and take.

“We will give you everything we’ve got, but you’ve also got to give us your time and energy.

When [a new broker] come[s] in, we will give them 60 or 70 leads a week and we will say, ‘go and connect and book as many meetings as you can’. And if you walk away booking four meetings you are doing well, because out of the four, you will hopefully meet three. And out of the three, you will probably lodge one. And if you do one a week, and you do one a week for the next 48 weeks with an average deal size of $500,000, you are not doing too bad. That is how we give them those leads.”

Train hard or go home A major part of Lambros’ business model is centred on building a solid training program.

This involves a company-wide weekly sales meeting, delivered by Lambros personally but directed by the brokers themselves. Each training session – or sales meeting – will generally cover both product knowledge and skill development.

“I have really increased the focus [on training],” he told Australian Broker. “In the sales meeting, we generally have a lender come

in and talk about what they’re offering. It is also about getting a face-to-face understanding of who everyone is, so then when the broker does actually need their help, they can just pick up the phone because they have already got a bit of a relationship.

“Then at the tail end of that sales meeting, we would do training for about an hour. We do anything they want. I always ask them every week and they generally throw something at me and I will put it on the list… The next week, we don’t waste time thinking about what we are going to train in; we know what we are going to work on. Whatever they add to the list goes into the next week and the next week.”

As a one-stop-shop broker/planner/buyer’s agent/conveyancer, Lambros also leverages the varied skill sets in the office when conducting the regular training sessions.

“It is constantly evolving… [We] will bring in the financial planner and they will talk about SMSF stuff – how to structure the lending, what to look out for, the pitfalls, how to read a payslip, how to read a tax return, and how to read company financials. What do these things mean? How do they work together?

“Last training session was bank policies and who’s got the niches. So we listed all the banks we work with and said, ‘right, who is good for this and who is good for that?’”

No topic is off-bounds at these training sessions, whether it is small administrative tasks or technical knowledge. Previous sessions so far have included everything from how to conduct yourself in a phone conversation better, to how to deal with rejection and how to structure your day. They have also covered more technical aspects of broking, such as how to process an application, how to structure a submission, and when to do your compliance.

Creating a culture focused on training comes from the top, says Lambros. This is why he, as the director, is heavily involved in both running and attending all training sessions.

“It is about getting their knowledge up, and in order to do that, it comes from the top.

I need to make sure that I am at the peak of where I need to be in order to give them what they need in order to lift them.

“Some days they might be down and out because they have had a lot of rejection on the phone and it is tough. And I have got to be there to help them go ‘look, today was a tough day; don’t worry about it. You have got to shake it off; you have got to dust yourself off. Tomorrow you will pick yourself up and go again and it will be alright’.

“There is that, and then you just keep adding to their skill set and it is all a part of their training,” Lambros said.

SPECIAL REPORT GETTING TOUGH DEALS ACROSS THE LINE Many brokers deal with fairly straightforward residential deals the vast majority of the time. But some clients’ circumstances call for outside-the-square thinking. Nonconforming lenders specialise in outside-the-square. Here’s how lenders helped brokers deliver solutions to clients who didn’t fit the typical major bank scenario.

LIBERTY FINANCIAL

BLUESTONE

The scenario: A family with three young children faced financial crisis after the sole income earner injured himself at work and was off for a lengthy period. As a result, they racked up over $100k of credit card debt across 15 different facilities and soon got behind on repayments. Although the family had plenty of equity in their home, the sheer number of debts and arrears meant they had limited options with numerous lenders turning them away.

The solution: An experienced broker introduced them to Liberty who approved a loan to refinance and consolidate all their debts into one manageable repayment, saving them a staggering $3,000 in interest each month.

The scenario: A broker was seeking a lending solution for a client who wanted to purchase an owner-occupied property after his divorce. Prior to the divorce, he owned and operated a childcare business with his ex-partner. However, as part of the divorce settlement, his partner took over this business and the borrower returned to his previous trade as a glazier. Being self-employed and only trading since January 2015, his ABN was only five months old at the time of application.

Having been in business for less than six months, the borrower found it impossible to secure finance, which would allow him to move on with his life post-divorce, through traditional lenders. To make matters worse, the borrower also had some minor defaults on his credit file as a result of the divorce proceedings.

The solution: The takeaway: Regardless of the circumstances or the enormity of the challenge, it always pays to call Liberty first.

The scenario: A young professional with a healthy deposit and clean credit was looking to purchase his first investment property. Numerous lenders declined his application on the basis that he was self-employed for less than six months and was unable to provide two years’ business financials as proof of income.

The solution: He eventually approached a broker who knew to quickly contact Liberty, knowing they offer great options for short term self-employed applicants. Liberty reviewed his recent bank statements together with his previous PAYG Group Certificate to confirm his current self-employed income and prior PAYG earnings. Although his business was new, Liberty approved his application given his previous industry experience and that he was able to sufficiently service the loan. This is just another example of how Liberty thinks ‘outside the box’ to create solutions to help customers.

John Mohnacheff, National sales manager, Liberty Financial

The broker contacted Bluestone Mortgages and explained the borrower’s situation. Bluestone was able to come to the rescue with its innovative new product launched to help self-employed borrowers who have only been in business a short time – from three months. Business Easy is a fresh approach to the specialist lending market, providing brokers with real solutions for their customers who are looking to purchase a new home or refinance their existing home loan(s) to access equity that can be used as additional capital in their business.

As long as the borrower can demonstrate a good cash flow and revenue through their business to support the serviceability of the loan, they can secure finance through Bluestone’s Business Easy product. In this instance, the borrower was able to show Bluestone that he had the ability to service the loan by submitting his business bank statements, which showed income derived from the construction company he subcontracted for on a regular basis.

The takeaway: By managing the expectations of the borrower over time the broker will be able to refinance into a prime loan when he has a longer employment history and an improved credit position.

The borrower was extremely happy with the solution provided as he had been unable to find someone who could help. As such he will be a great advocate for the broker in the coming years.

Royden D’Vaz, National sales manager, Bluestone

HOMELOANS The scenario: Alastair wanted to refinance his mortgage, consolidate his credit card debts and obtain $80,000 in cash out in order to undertake home improvements. The total LVR for his application was 80%.

Self-employed for three years, Alastair’s income has increased considerably from the first two years of the business and he has not yet done the latest year’s financials. Therefore a lo doc solution was going to be the most appropriate for his situation. His business is GST registered, and he is able to provide business activity statements (BAS) to verify income.

To further complicate matters, Alastair had a default for council rates of $1,800 due to a marriage breakdown. This was listed in August 2011 and was paid April 2012.

The combination of being lo doc, requiring cash out and having a default meant it prohibited most lenders from being able to provide a solution to Alastair’s needs.

The solution: In this particular instance Alastair had a need for a product covering both these niches. The Homeloans Accelerate RED low doc 80% LVR product was the answer to Alastair’s needs.

This product does not use credit scoring for assessment, nor are applications required to satisfy criteria of mortgage insurers as LMI is not required.

The Homeloans Accelerate RED low doc is generous on the tolerance of credit impairment, with unlimited adverse credit (paid or unpaid) when registered more than two years ago, and minor defaults of under $1000 ignored. Discharged bankrupts are also considered.

It is also accommodative with regards to loan purpose, being available for refinance, debt consolidation (no limit to the number of debts), unlimited cash out to 80% for acceptable business purposes including ATO debts, working capital and purchase of business equipment.

It also offers a range of verification options.

The takeaway: The biggest takeaway from this scenario is, never assume that a deal can’t be done. Despite being a borrower with credit impairment, requiring a lo doc loan for cash out purposes, the deal could still be done.

Homeloans’ broad product range covers such a wide variety of scenarios. We offer loans not requiring genuine savings to 95% LVR and up to 85% without LMI or Lender Protection Fee, and that are assessed without credit scoring.

We have loans for varying credit impairment situations including discharged bankrupts from day 1 to 95% LVR, paid and unpaid defaults listed more than two years ago ignored, defaults under $2,000 ignored (paid or unpaid), defaults paid more than one year ignored and unlimited arrears considered.

And what’s more, we offer loans to 457 Visa holders to 95% LVR, for vacant land to 90% (non-build), and tax debts (including ATO arrangements).

Ray Hair, General manager of sales, Homeloans

FEATURES 22

RESIMAC

PEPPER The scenario:

The scenario: A broker recently presented a loan application for a selfemployed borrower who was going through a divorce. The loan purpose was to refinance an existing joint mortgage into the name of the borrower solely combined with the consolidation of a few smaller consumer debts. Additional funds were also required to pay out the ex-partner. The borrower had been in business for 16 months.

Unfortunately for the borrower the relationship had broken down to the point that unknowingly to them several utility bills had gone unpaid. The accounts were held in the name of the borrower, so as a consequence their credit report contained two recent default listings. These listings were a $1,600 electricity account and a $400 phone account. The borrower had maintained the repayments on the mortgage and the consumer debts.

A loan to 80% of the property value was required, and due to the stresses associated with the breakdown of the relationship the borrower had not yet had the opportunity to finalise their current taxation returns.

The solution: The broker presented the application with a full explanation as to the default listings, together with six months’ repayment history on the mortgage being refinanced. Recent statements on the consumer debts being consolidated were also provided. To support the income position of the borrower, the broker provided a stated income declaration together with an income verification letter from their accountant.

With the documentation provided, Resimac Financial Services was able to offer a Specialist Clear Alt Doc solution. With the two recent default listings both under $2,000, the borrower qualified for our entry level Specialist Lending solution.

Resimac Financial Services disregards all adverse credit report listings under $2,000, irrespective of when they were listed. Selfemployed borrowers who are unable to provide the current two years’ taxation returns have the option of providing either an accountant’s verification letter, six months’ BAS or three months’ business bank statements to support their stated income declaration. Solutions for self-employed borrowers are available to those who have been trading for at least six months.

The takeaway: Brokers needn’t be put off by the fact that a potential client may not fit the guidelines of mainstream lenders. The underlying principles of the loan assessment process haven’t changed.

The application still needs to meet servicing guidelines, the security being offered must be acceptable to the lender and finally the loan must not be unsuitable. The only additional requirement for a Specialist Lending application is the background story must detail why the borrower requires a Specialist Lending solution and more importantly what has changed to ensure the borrower isn’t in the same situation a few months down the track.

In the scenario examined, the broker was easily able to explain why the borrower had adverse credit listings. In addition, by demonstrating that the borrower was already maintaining the required loan repayment across the current debts the broker was able to show that the borrower should not default in the future.

Allan Savins, Chief commercial officer, Resimac

My Mortgage Freedom broker Anthony Alabakov experienced an unusual lending scenario for a client recently.

“The client was self-employed as a real estate consultant with many different income streams that couldn’t be verified by up-todate tax returns. There was also a complex corporate structure, as he’d only had an ABN for 18 months,” said Anthony.

“He purchased a residential property for over $2m, with an extended settlement period of 12 months. Unfortunately his bank was not prepared to consider his individual circumstances to offer alternative financing, as he did not fit the bank’s mould of having complete and up-to-date tax returns,” Alabakov said.

“With settlement fast approaching, his accountant advised him to contact a broker to find an alternative financing option and a solution.”

The solution: Knowing that the traditional lenders Alabakov often deals with couldn’t provide a solution for his client’s situation, he turned to specialist lending for help in providing a resolution for his client’s unusual circumstances. Alabakov reviewed a number of options and decided that with Pepper’s known expertise in assisting self-employed borrowers, they were the best fit. He also knew they would take the time to properly analyse and investigate the client’s circumstances.

“When I approached Pepper and explained about my client’s situation, they offered a couple of options. As he didn’t have up-todate tax returns or financials, we had to provide alternative income verification in the form of income declaration, supported by six months worth of business activity statements which my client and his accountant were more than happy to provide.

“Based on the information supplied and taking into account my client’s needs, Pepper were able to accept an ABN less than 24 months old and service the loan through their alt doc offering, which was fantastic to hear,” Alabakov said.

The takeaway: Brokers should focus on the client and their needs, and how they can work with specialist lenders to find alternative solutions when someone doesn’t fit the mould or traditional profile of a borrower.

“Non-conforming loans may not be a long-term solution for all clients.

They are a solution often only for up to 12 or 24 months, but the point is that the loan fits a client’s situation at that point in time. Though there is a cost involved for a non-conforming loan in higher interest – after all, it’s not the same financing as clients would experience with a conforming loan with a bank – clients generally understand this and accept it. In fact, it’s usually not that different to the interest a conforming loan from a bank would accrue,” Alabakov said.

Mario Rehayem, Director of sales and distribution, Pepper

FEATURES 2

LA TROBE FINANCIAL The scenario: Self-employed applicants had been operating their business for three years and were looking to expand by modifying the business premises and purchasing new stock. Applicants required $120,000 to modify the premises and $80,000 for additional stock, giving a total “cash-out” requirement of $200,000.

To facilitate this, the applicants were looking to access equity by refinancing their owner-occupied home (currently owing $340,000), borrowing 90% of an expected value of $600,000 (Loan Amount of $540,000) to provide them with the $200,000 they required.

Following lodgement of the application with a major bank, the applicants encountered two challenges: The valuation of their owner occupied residential property came in lower than expected at $575,000, and one of the applicants had three unpaid defaults totalling $26,000 and an ATO debt of $25,000 relating to unpaid tax and debts originating from an extended period off work for the applicant to treat a serious illness two years prior.

Due to the outstanding ATO debt and unpaid defaults, the applicants were unable to obtain LMI and their loan application was declined by a major bank.

The solution: We were able to refinance the applicants’ owner occupied residential property to 80% of the valuation amount under our PRIME risk grade, giving a loan amount of $460,000.

From this, we repaid their existing mortgage ($340,000); unpaid defaults ($26,000) and ATO debt ($25,000); leaving equity release of $69,000 for business expansion.

In addition, the clients owned the commercial property from which they operated their business. The clients estimated that the property was worth $800,000 and they owed $420,000 against it.

We were able to refinance their existing commercial mortgage accessing additional equity by approving a loan of $560,000, giving them additional cash of circa $140,000.

The overall result being that we achieved the applicants’ objective of accessing $200,000 for business injection and cleared their outstanding debts in the process.

All loans were approved using our Lite-Doc products.

The takeaway: Specialist Lenders are a great alternative for brokers and their clients when the major banks and LMIs are unwilling to assist. La Trobe Financial is able to provide specialist lending solutions across its broad product range, which includes Residential, Commercial, SMSF, Development Finance and Non-resident loans. These products are available on a Full-Doc or Lite-Doc basis, and can cater for credit impairment where it has occurred as a result of an unforeseen life event. Having specialist options across multiple asset classes allows brokers to structure better solutions for their clients. The scenario above resulted in the broker refinancing two mortgages from a major bank earning full commissions on both – from day 1 with no clawback applicable. We were able to turn around a possible cancellation to a profitable restructure, a winwin for the clients and broker.

Cory Bannister, Head of distribution, La Trobe Financial

MARKET WRAP FINANCIAL SERVICES

REGULATOR CRACKS DOWN ON PAYDAY LENDER ASIC has taken aim at the country’s largest payday lender Australia’s second-largest listed payday lender, Money3, has stopped offering its two-payments ‘fixed fee’ loan arrangement and agreed to refund more than $100,000 to consumers following concerns raised by ASIC in its crackdown on payday lending.

Money3’s fixed-fee loan required only two repayments, despite having a term of 16 months. Under the terms of the contract, the first repayment (generally due a week after the loan was taken out) was for a nominal amount, and the much larger second repayment was due 15 months later. This second payment usually accounted for more than 90% of the total amount to be repaid.

ASIC was concerned that the product was likely to be unsuitable for most of the financially vulnerable customers who obtained it, and in breach of the national responsible lending obligations.

Consumers may also have been misled into believing the terms of the loan enabled flexible repayments when the contract in fact disclosed that a large fee could be charged if the consumer asked for a variation of the repayment schedule.

ASIC saw examples where the second

repayment was as high as 170% of the customer’s Centrelink benefit for that pay period.

According to the regulator, Money3 has agreed to finalise outstanding loans and will refund approximately 400 consumers a combined total of more than $100,000.

These refunds will ensure current consumers have not repaid any monies above the principal amount lent and a cost recovery fee.

“Small, high-cost loans such as this with large one-off payments are likely to be of limited benefit to customers who have no savings or savings history as they would be unable to finance the second repayment of the loan without considerable hardship,” ASIC deputy chairman Peter Kell said.

“The difficulties for these vulnerable customers are amplified where there is a large fee where the consumer wants to make any changes to the repayment schedule or amount.”

Money3 has now changed the product and its marketing. As a result, all contracts now have the repayments spread at even monthly intervals across the 16-month term of the contract.

ASIC HANDS PERMANENT BAN TO BRISBANE FINANCIAL PLANNER A Brisbane-based financial planner has been permanently banned by ASIC from providing financial advice.

ASIC found that Lee Robert Robin of Camp Hill, Queensland, engaged in conduct that was misleading or deceptive while issuing unsecured fixed interest notes in Protect Ensure. ASIC also found that he failed to comply with financial services laws.

An ASIC investigation found that between July 2013 and December 2014, Robin behaved dishonestly by depositing clients’ monies into an entity associated with the Protect Ensure group, using those funds for personal expenses and making payments to other noteholders.

He also engaged in misleading and deceptive conduct in failing to provide an Information Memorandum, and he failed to properly disclose that client funds would be pooled with other monies in the Protect Ensure business.

“Mr Robin’s wrongdoing is inconsistent with the honesty, integrity, diligence and judgment that is expected and required of those in the industry,” said ASIC deputy chair Peter Kell.

“ASIC will continue to take action to remove from the industry advisers who breach community trust.”

Robin has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

BY THE NUMBERS

396 x x x x

Throughout the 2013/14 financial year, there were 396 malicious damage insurance claims made by landlords in Victoria

Victoria

Source: RACV

COULD GREEK CRISIS SPUR RATE CUTS? Worsening financial troubles in Greece and other parts of the world could cause the official cash rate to fall this year, according to a survey of leading economists.

A survey of industry experts and economists by Finder.com.au found that nearly two out of five of the experts surveyed (38%) are expecting the cash rate to fall by the end of the year, and they believe it could start dropping as early as next month.

Out of the 12 who expect the cash rate will fall this year, five are expecting a drop in August or September, while the remaining seven are expecting to see the cash rate fall in the last quarter of 2015.

Just two (6%) are expecting the cash rate to rise this year. The majority (56% or 18 panellists) are expecting the cash rate to start rising next year, while 13 analysts believe the

cash rate will increase after 2016. The average forecast for when the cash rate will rise is the last quarter of 2016.

Almost four out of five analysts (79% or 26 experts) believe house prices will continue to rise this year, while one expects house prices may start to fall.

“The Reserve Bank is in between a rock and a hard place on this now, with a weak economy and property prices starting to bubble in some areas. Ideally it needs the currency to do the work for it, but this is remaining stubbornly strong,” said Mark Brimble, associate professor of finance at Griffith University.

“This continued uncertainty in Europe and Asia and expectations of a rate rise in the US later this calendar year, the Reserve Bank is likely to sit on its hands.”

SPOTLIGHT BEST FORUM COMMENTS

FORUM

ONE BIG SWITCH COPS ONE BIG CANING The controversial consumer campaign has run afoul of ASIC

An independent review of consumer campaign ‘One Big Switch’, commissioned by ASIC, has identified that the advertising of its recent insurance campaigns was misleading.

The news saw brokers indulging in some Schadenfreude.

Regional Broker asked if ASIC would pursue One Big Switch with the same fervency that it pursued rogue brokers.

“Are they going to prosecute as they would brokers? It’s time for ASIC to stand up to this group and prosecute, One Big Switch have broken the law. As the primary champion for consumer rights in Australia they have been found to A: Operated without an AFS licence

which saw 74,000 people potentially given credit advice and now, B: had advertisements that potentially are deceptive and misleading.

ASIC has no choice. They must launch a legal action, if they do not want to be seen as having double standards. At the very least they must get One Big Switch to issue an apology and post a note on its website for 12 months. Will it happen? Nope.”

Rocket Scientist summed things up elegantly ...

“One big rort. What? Just saying!” … then followed up the scathing irony with an update on the campaign’s current activities.

BROKERS NOT THE ONLY GAME IN TOWN FBAA president Peter White has warned of the rise in financial planners and accountants moving into broking, and claims it runs the risk of seeing a rise in unqualified brokers.

“Seems that Peter White is throwing the toys out of the cot because brokers don’t have 100% of the market to themselves.

“Seriously, there’s legislation in place to govern what people can and cannot do with respect to credit activities.

Does Peter White believe that a simple Cert 4 qualification makes someone more capable than a degree qualified accountant who completed 3-4 years of tertiary studies. Maybe the Cert4 qualified broker is in a better position to discuss an SMSF lending solution than the accountant or planner who oversees the clients overall SMSF strategy? If brokers think they are more qualified to provide credit advice than a trusted adviser such as an accountant or financial planner is then the FBAA and perhaps many of the brokers they supposedly represent are asleep at the wheel.

“If brokers (and the industry bodies representing them) think that mortgage brokers themselves provide the only genuine mortgage solution in the third party space then they should think again.

Recent announcements by the CPA and the many other industry member bodies making a move away from partnering with traditional brokers solutions support the fact that mortgage broking is no longer the only game in town.”

Disruptive Desmond on 1/07/2015 at 5:19PM

BE READY FOR CHANGE IN PROPERTY CYCLE Since the Reserve Bank started its monetary policy easing cycle in August 2013, brokers have been the major beneficiaries of the record-low interest rate environment. But the market may not always be so buoyant. Yellow Brick Road CEO Matt Lawler told Australian Broker TV that brokers should prepare now for an eventual change in the property market.

“We’re definitely getting used to a new

landscape. I think if you’re in the mortgage broking market you have to be adaptable to change. There’s change coming all the time, and this is just another part of the cycle where change is required. Adapting to those changes and making sure you’re well equipped to deal with clients in a different environment, that’s going to be the first thing that brokers will have to deal with,” Lawler said.

Lawler said that, despite an incredibly strong housing market, it was important for brokers to begin to prepare now for the eventual slowdown.

“We’ve had a great run in the marketplace. It hasn’t been as good as this for a long time. The low interest rate environment [with] lots of activity around the country in certain pockets, that may not go on forever. We think it’s time to get prepared for that change in cycle,” he said.

ONE YEAR ON

YBR ON THE MOVE What a difference a year makes ... or not. Australian Broker reflects on the punditry, new and trends that made headlines 12 months ago 11 JUNE 2015

9 JULY 2014

29 APRIL 2015

Yellow Brick Road continues its acquisition path by buying Resi Mortgage Corporation

Vow Financial announces 56% growth in settlements following its acquisition by YBR

500%

56%

Resi branches begin formally rebranding as YBR branches

10 MARCH 2015

1 MAY 2015

YBR sees its acquisitions of Vow Financial and Resi push its loan settlements up by more than 500%

The Australian Financial Review claims YBR is in talks with major non-bank lenders regarding possible mergers. Chairman Mark Bouris tells Australian Broker the company is open to further acquisitions

PEOPLE DIARY OF A FIRST-YEAR BROKER First-year brokers Phil Barton and Natalie Duong on the joy of variety AUSSIE WARWICK has been gifted a year of excitement, anxiety, frustration and joy as we have seen the business grow from a dream into a reality. As Natalie and I have invested in our business, nothing provides us with more satisfaction than being able to warmly greet a new client at our door and introduce them to the services we offer.

There is never a day when we can predict what type of client will walk through the door, and that’s just fine by me.

Through our doors come tradies with muddy boots, shift workers on the edge of sleep, mums and dads with their five children in tow, professionals, teachers, nurses, and many of the traditional Aussie battlers.

In turn we have been rewarded with gifts, invited for meals, and welcomed into their homes.

My fondest memory is of being invited to the house of a client from the Ethiopian community to meet the elders and participate in the blessing of the home.

My favourite to date is a new client, a busy GM of a construction company and recent Australian citizen, but more importantly an impressionable first home owner.

His first attempts at securing finance were in my eyes a disaster, an application dancing in the dreaded oxygen-starved zone of 95% LVR. I always love working with first home owners, but here was a good potential client to leverage future referrals.

If any application consumed me for longer than should have been necessary, this was the one.

The loan amount was significant, employment stable and security sound. Research was done and analysis completed. Naively, assurances were given. What could go wrong?

There was just one area of weakness that

The Aussie Warwick offices

was enough to kill the deal, and we were left embarrassed and frustrated. Plenty of time and work for no reward. However, my worst fear was the loss of a client and the feeling that we had let him down. Perception is everything for a business owner, and failure to secure finance may be perceived as an overall bad job by me.

As the dust settled and time was given for the client to provide more of a deposit, contact became less frequent due to the nature of his job. Then out of the blue the call came that he had found a property again and was ready to go, with Warwick as his brokerage!

All he remembered was the lengths we had gone to and the tenacity we had shown in assisting him.

Success was achieved and earlier promises fulfilled.

Time and time again I am taught that you cannot judge a book by its cover. The key thing I live by is that if all our clients were the same then we would be overcome with boredom. I welcome diversity in our clients and respect that all have different levels of understanding and experience.

You have to expect the good and the bad and remember that no matter which client walks through your door they are the key to growth in your business.

CAUGHT ON CAMERA Australian Broker’s sister publication MPA recently held its aggregator roundtable in Sydney.

The heads of major aggregators attended to discuss the service they offer to brokers, white labelling, vertical integration, and other issues facing the industry.

INSIDER

FINACIAL SERVICES

DINO-SIZED LIABILITY

BOSS TAKES CHANCE ON BANK ROBBER

How do you insure against dinosaur attacks?

ON A RECENT episode of the UK program Mock the Week, a BritishCanadian comedian responded to the prompt “Lines You Wouldn’t Hear in a Sci-Fi Movie” with: “The dinosaurs are killing everyone. Why do we keep reopening this park? Who keeps giving us public liability insurance?”

As it turns out, however, coverage for a real-life ‘Jurassic World’ may not be so far-fetched.

In fact, Mitchel Kalmanson, president of the Lester Kalmanson Insurance Agency, Inc., recently told Vulture.com that he believed Jurassic World would be able to obtain an expensive package similar to those written for large zoos and other animal-themed entertainment parks.

First, however, it would need to address certain liabilities and establish precautionary safety measures, such as ensuring proper barriers between dinosaurs and humans.

“If the animal is 20-feet tall, we may have to have a 30 or 50-foot wall,” he told the site.

“We’re going to make sure we have a lot of electric fencing, a lot of voltage to keep from climbing or scaling over the enclosure. We’ll put some netting over it, so nobody can get in like that guy at the Bronx Zoo who jumped from the monorail into the tiger pit. Then maybe we’ll put up some Lexan, a bulletproof glass that doesn’t obstruct views, and people can’t get over it.”

Kalmanson would then determine the

park’s composite rate, which is typically based on a three-tiered system.

“Class 1 is your elephants, lions, tigers, bears, big primates. Class 2 would be the smaller cats, desert cats, margays, servals, maybe cheetahs. Class 3 are all others,” he said.

He would also enquire whether the dinosaur wranglers were properly trained to handle an escape, and could administer sedation, euthanasia, chemical immobilisation or a tranquilliser dart gun if required.

Kalmanson then noted that if the dinosaurs still managed to escape and cause a major outbreak or stampede, the ensuing payouts would be substantial.

“We had a monkey get hold of a kid once. There was a barrier fence but the mother decided to put the kid over the fence, so what’s the kid going to do? Walk up to the monkey. What’s the monkey going to do? Bite the sh*t out of the kid. Now the kid’s scarred for life.

That could be a $300–500,000 claim,” Kalmanson said.

Any fatalities would automatically trigger the full policy limit.

Finally, after assessing all the risks, Kalmanson would recommend excess liability insurance for Jurassic World to safeguard it against any “extreme situations” that might arise.

“If we’re dealing with dinosaurs, we’re probably looking at 25, 50, up to $100 million limit of liability to protect the public. That’s probably an $800,000 to $1.5 million premium,” he said.

A US boss refused to baulk at the prospect of hiring an employee with a criminal past, and went out of his way to give a desperate jobseeker a second chance.

Last June, David Potchen robbed a bank in Merrillville, Indiana, but the 53-year-old didn’t try to make a getaway – he simply sat outside and waited for the police to arrive.

Out-of-work Potchen was so fed up with being unemployed that he’d decided going back to prison was a better option – but the Lake County judge who heard his case didn’t agree.

Instead, the judge issued a public plea to any employers who were hiring, and the boss of an Illinois trucking company answered.

The owner of the company, known only as Duane, visited Potchen in prison after hearing about his story, where he conducted an on-the-spot job interview.

Duane, sensing that Potchen wanted nothing more than a second chance, offered the convicted felon a job working at his family-owned company.

“David definitely needed a fresh start. We definitely needed a welder,” explained Duane.

Now, Potchen earns $18 per hour as a welder with planned step increases. The position also comes with benefits and a retirement plan.

“Until they kick me out of here or shut the door on me, I ain’t leaving,” said Potchen. “It’s overwhelming that they put all this time and effort into somebody, took a chance on somebody.

“The people have been more than helpful in this whole situation,” he added. “The job, everything, it’s just been – I can’t believe it. It’s just unbelievable.”

Duane confirmed that since he’d started with the company Potchen had been a model employee.

REJECTED JOB APPLICANT STAGES SIT-IN They say persistence pays, but one UK jobseeker took the turn of phrase a little too literally when she refused to leave an unsuccessful interview.

The woman – who remains anonymous – staged a 90-minute sit-in after bosses in Manchester, UK, told her she had not been chosen for the position.

According to reports, the woman was rejected because she had failed to bring her passport – a requirement that had

been stated in the initial job posting.

Exasperated employers warned the woman that the police would be called, to which she allegedly replied: “Go on!

Call the police!”

And it seems they did.

The Greater Manchester Police shared their side of the story on Twitter: “Odd job 11am. Woman who attended job interview staged 90 minute ‘sit-in’ after being told she wasn’t being considered.

Left upon our arrival”.