Australian Broker 12.07

MARCH APRIL 2015 ISSUE 12.05 12.07

$4.95 POST APPROVED PP255003/06906

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

+ OPINION CREDIT REPORTING AND REPAIR

How new laws could hit credit repair P10

+ OPINION THE 25-YEAR SHAKE-UP

Australia’s economy is undergoing a massive shift P12

+ ANALYSIS COMMISSION KERFUFFLE

Associations hit back at the RBA P14

Allan Savins:

SIMPLIFYING THE MARKET S Resimac’s COO says the lender has taken the complexity out of specialist lending

pecialist lending can – by its very nature – seem an intimidating sector for brokers to enter. Specialist borrowers by definition have needs that cannot be met by many of the lenders brokers are accustomed to using. But Resimac COO Allan Savins says the specialist market doesn’t have to be daunting or complex.

FULL STORY PAGE 16

+ BEST PRACTICE TOO TIRED TO CARE Fatigue could be endangering your business P20

+ CAUGHT ON CAMERA NMB’S GOLD COAST CONFERENCE P29

NEWS 2

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NUMBER CRUNCHING RATE CUTS NOT ALWAYS A POSITIVE

TOP 10 SELLERS’ MARKETS IN AUSTRALIA

HOW HOUSEHOLDS WILL FARE AFTER ANOTHER REDUCTION IN RATES

1%

45%

NO CHANGE

WORSE OFF

FAST FACT

TOP 10 SUBURBS ACROSS AUSTRALIA WHICH HAVE THE MOST PEOPLE SEARCHING PER LISTING

1 DID YOU KNOW?

2

10.5

3

years

Research shows that the average number of years a capital city house is owned has climbed from 6.8 years a decade ago to 10.5 years over the past 12 months

11.1% Rise in multi-unit sales for February Source: ABS

54%

Source: CoreLogic RP Data

4 5 6 7 8

Parkside (SA) Unley (SA) St Clair (NSW) Cherrybrook (NSW) Gymea (NSW) Ringwood North (VIC) Semaphore Park (SA) Vermont (VIC) Montrose (VIC) Drummoyne (NSW)

9

BETTER OFF

10 Source: SAS-NATSEM

Source: Realestate.com.au

WHAT THEY SAID...

BRIDGET SAKR

MALCOLM WATKINS

TONY MACRAE

JEREMY FISHER

“Our research suggests that the first homebuyer segment appears to be more concerned about gaining access to the property market than their ability to service a mortgage” P4

“I think the pressure is on the brokers to respond to the way the consumer is moving” P6

“The industry is changing and the level of skill and knowledge that is needed is just stepping up” P8

“By offering a very high level of customer service, brokers can reduce the chance of clients contacting lenders directly” P19

NEWS 4

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ASIC BANS ‘UNFIT’ BROKER ■ A Victorian mortgage

BY THE NUMBERS

FHB CONFIDENCE HITS NEW HIGH ■ The 10th edition of

Genworth’s Streets Ahead saw first home buyer confidence increase to a record high of 102.1 in March 2015, with 66% believing that now is a good time to buy a home.

However, Genworth’s chief commercial officer, Bridget Sakr, says accessibility still remains an issue for first home buyers.

“Our research suggests that the first homebuyer segment appears to be more concerned about gaining access to the property market than their ability to service a mortgage,” she said.

“Over a third of prospective first homebuyers indicated that high property prices are the greatest barrier to home ownership, while one in five suggested it was saving for a deposit.”

While the average deposit, as a proportion of property value, has remained relatively stable since 2009, the time taken to source a deposit has decreased.

One reason for this is that the proportion of first home buyers using non-savings sources for their deposit has increased, from 46% in 2009 to 57% in 2014, according to the report.

51% The proportion of homeowners making overpayments on their mortgages increased from 45% in September 2014 to 51% in March 2015 Source: Genworth

broker has been forbidden from engaging in credit activities for five years and has had her company’s Australian credit licence cancelled, after ASIC deemed her unfit.

Meenakshi Devi Callychurn, of Maribyrnong, Victoria, is the sole director Peter Kell of Unique Mortgage Services (UMS) and the sole key person and fit and proper person under the company’s credit licence. UMS was formerly owned and operated

by Rudy Frugtniet, who was permanently banned from engaging in credit activities by ASIC last July.

However, ASIC also found that Callychurn failed to actively engage in the operations of the business and failed to meet the standards expected in the roles of sole director, key person and fit and proper person. This made her unfit to engage in credit activities.

As result of ASIC’s findings in relation to Callychurn, ASIC also cancelled UMS’ credit licence. In the circumstances, ASIC had reason to believe that UMS was likely to contravene the credit legislation. Further, the banning of Callychurn means there is no one to carry on the business and to ensure that UMS can meet its obligations under the National Credit Act. “ASIC expects those engaging in credit activities to have the requisite competence and knowledge and to act with integrity.

Those who fail in this regard will be removed from the industry,” ASIC’s deputy chairman Peter Kell said.

Real estate company’s move into broking a success ■ Barry Plant Real Estate’s expansion into mortgage broking through

Barry Plant Financial Services (BPFS) has returned positive results for the company, according to BPFS general manager Peta Siebert. Siebert said their broker confidence was high.

“The referral relationship between offices and brokers is strong, which is evident in steadily increasing lodgements month-on-month for the last six months,” said Siebert, referring to the company’s average 140% increase in lodgements based on the last two quarters.

BPFS has added 11 new brokers to its team in the last year and grown the network of offices it deals with from four to 43.

The company’s customer interaction has increased from an average of 50 active customers a month to 204 within the last six months.

“The joy in my work is in helping our brokers grow their own business within a business and seeing the job satisfaction they gain from building positive referral relationships with agents while helping the end customer in realising their dreams,” Siebert said.

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

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

NEWS

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6

Broker market share to surge

WORLD NEWS

■ The proportion of mortgage settlements

UNITED STATES OF AMERICA

GOOD NEWS FOR HOMEOWNERS IS BAD NEWS FOR BANK EMPLOYEES Wells Fargo & Co. has announced it will cut 1,000 jobs and close its home lending servicing office in Milwaukee, USA. “As the economy has improved over the last two years, we have seen steady declines in delinquencies and fewer customers needing extra assistance to remain in their homes,” the San Francisco-headquartered bank said in a statement about the layoffs.

Wells Fargo’s Milwaukee location has focused largely on troubled mortgages, a segment of the market that rose rapidly after the mortgage collapse of 2008, according to USA Today.

The bank, which will close the office in late July, said it would inform employees of other job opportunities within the company.

About 48,000 people work for the company’s home lending business. Wells Fargo’s total workforce includes about 265,000 employees.

CANADA

CANADIANS NOT SAVING Canadians are not well placed to cope with changes in the economy, because they lack savings. A report by Chartered Professional Accountants of Canada shows that households are confident in their financial health, with 59% saying they are doing well and 70% saying they do not have problems paying their mortgage. However, 53% of non-retired Canadians do not save regularly and 40% do not pay down debts on a regular basis.

DID YOU KNOW?

1.5x ING Direct recently reported that broker-introduced loans were outgrowing its direct channel 1.5 times Source: ING Direct

represented by brokers will grow to between 51% and 60% over the next three years, according to a roundtable of eight lenders and aggregators.

Currently, broker market share hovers at around 50%, but six out of eight participants in the Deloitte Australian Mortgage Report Malcolm Watkins 2015 roundtable said they expected the broker channel would continue to gain market share.

As lenders increasingly invest in their digital capabilities, this may pose a challenge for the broker proposition, said ME Bank group executive of sales Angela Middleton. However, she doesn’t believe there will ever be a time when the broker value proposition will be redundant.

“There will always be an important role for brokers to have a face to face with customers, particularly customers who wish to better understand the product and get more information about what is available and what’s best for them,” she said.

Malcolm Watkins, a founding director of AFG, said the way brokers responded to the digital age would determine the future of the industry.

“I think the pressure is on the brokers to respond to the way the consumer is moving. We need to continue to provide constant ongoing service to our customer base. I don’t think that’s going to fall off. I think most of the big broking groups around the country are investing in ongoing customer communication pushing through that value proposition of choice and convenience and independence,” he said.

Brokers drive diversification strategy for non-major ■ Bank of Queensland’s latest

half-year results reveal solid growth in lending and a more diversified loan book as a result of the expansion of its mortgage broker channel.

BOQ’s 1H15 results saw its housing book increase diversification, with 57% of applications originating from outside of Queensland, largely driven by the broker channel, which contributed $420m of loan growth and accounted for 14% of settlements.

BOQ managing director and CEO Jon Sutton said the result showed the non-major was continuing to make steady progress in delivering its strategy.

“Strong foundations are now in place and we’re well into building a bank that is lower risk, lower volatility, and set up for sustainable growth,” he said.

“I am particularly pleased to see lending growth improve while the Bank’s risk settings, margins, balance sheet and capital position are all strengthening.”

NEWS

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8

MACRAE: BDMS CAN’T JUST BE TRANSACTORS ■ Westpac has touted its commitment to

the third-party channel by investing in a huge education push for its national network of BDMs. Westpac general manager for broker distribution Tony MacRae says the major bank has partnered with a leading university to upskill and educate its BDMs. “We’ve partnered with Deakin University and so [our BDMs] are going through both classroom plus practical-style education,” he said.

“It has been a two-year journey, so it isn’t just this year but it will culminate with professional qualifications for all our BDMs by the end of the year. This will give them the skill sets and the ability to stand out as real growth consultant experts in the marketplace.”

BDMs can’t just be transactors any more, says MacRae. They need to be true business consultants and business partners with brokers.

“We believe that the industry is evolving.

The industry is changing and the level of skill and knowledge that is needed is just stepping up and expectations are stepping up more and more,” he said.

AFG elevates Slater ■ One of the country’s biggest aggregators has tapped a

long-time leader as general manager of its white label division.

Chris Slater, former head of sales and operations for the own-label division, will be the new general manager of AFG Home Loans.

After eight years with the organisation, Slater went from national account manager to state manager for NSW/ACT in 2008, to head of sales and operations of AFG Home Loans in 2013.

AFG managing director Brett McKeon said Slater’s hands-on experience and intricate knowledge of the business Chris Slater were two key drivers of the appointment.

“AFG is a holistic provider of financial services, and the AFG Home Loans division is a key plank of our business strategy.

“Chris has been a key player in growing this part of our business,” McKeon said.

Banking body backs broker disclosure ■ The Customer Owned Banking Association (COBA) supports the

FAST FACT

90,000 Approximate population growth in Sydney in 2014 Source: SQM Research

Tony MacRae

recommendation made in the Final Report of the Financial System Inquiry, which states that greater transparency regarding the nature of advice and the ownership of brokers will help build confidence and trust in the financial advice sector.

“Often, consumers do not understand their financial adviser’s or mortgage broker’s association with product issuers,” the final FSI report notes. “55% of those receiving financial advice from an entity owned by a large financial institution (but operating under a different name) thought the entity was independent.”

In its response to the Final Report, COBA said it was vital for the health of the industry that consumers understood who they were dealing with.

“The recommendation acknowledges that vertical integration of product manufacture and distribution by large financial institutions can be detrimental to consumers seeking independent advice,” the association said.

“COBA urges the Government to implement measures that require disclosure of ownership structures in product branding, including on websites, on shop fronts and on any official documentation, including disclosure documents. Consumers must be aware of broker and adviser linkages to large, vertically integrated players.”

OPINION

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10

Is credit reporting reform impacting on credit repair?

Clean Credit managing director John Dickinson explains how changes to credit reporting could impact on credit repair

A

John Dickinson

s you are no doubt aware, credit reporting reform is well and truly underway, and credit files are slowly changing to contain more data as part of the move to a more positive reporting platform. A positive reporting platform means positive outcomes such as loans being serviced and retired without incident are now recorded in a credit file, as well as the negatives such as late payments or defaults. The idea is to provide a far more rounded and objective summary of a person’s or company’s profile.

While credit providers already have the ability to provide this information to the credit reporting agencies, it is taking some time for this data to show on credit files. I feel one of the reasons for this is that the method for providing this data is no doubt complex, and credit providers and credit reporting agencies both want to make absolutely sure that the information being displayed is correct prior to making it available

to third parties. After all, any document is only as good as the accuracy of the data.

companies room to offer their services and provide a benefit to the consumer.

HOW REPAIR WORKS

In the future it will be common for a credit provider to not only list a default for a delinquent account but also provide the repayment history that led to the default being recorded. This means that other credit providers will have two points of reference: the default itself, along with the repayment history of the account in question, and, even if the default was removed on the basis that the listing party did not follow the necessary legal process, the repayment history would remain. This would mean that another credit provider could still make an objective and informed credit decision, even in the absence of the default listing.

Some may see this as the end of credit repair; however, I think differently…

Many credit providers will react differently to a default listing than a payment history with some missed payments. For some a default could mean an automatic decline, while late payments may still mean the application could be considered for approval.

Let’s quickly touch on how credit repair works. Having a negative listing such as a default removed from a credit file is generally based on the process the credit provider followed, or in many cases didn’t follow, leading up to recording the listing. It’s not always about whose account it is or even if money was or wasn’t owed.

When a credit listing is removed from a credit file, in most cases the person’s credit score will be positively affected, and if the score is increased sufficiently, that person may be in a position to secure credit where before it was not possible due to the negative listing. Some credit providers do have an issue with this as they hold the view that, given the account in question was behind at the time the default listing was made, having it removed on the basis that the law was not followed is not in itself sufficient reason for the removal of the offending item.

I’m not going to comment on this view; however, to suggest this is the same as the courts still sending people to prison even if due legal process was not followed. This is Australia, not North Korea, and I don’t think anyone would want a legal system like that. While credit providers have a right to list a default if an account is sufficiently in arrears, like all of us they also have a legal obligation to comply with the law.

The root of the objection is clear: credit providers want to be able to make correct decisions when deciding to approve or decline an application for credit. If a default has been removed from a credit file, they feel this has the capacity to impact on their ability to make correct decisions. Some have even suggested that credit repair undermines their credit scoring systems and adds potential risk to their portfolios.

The truth is that most credit providers would like to see the demise of the credit repair industry for this very reason. I believe the introduction of positive credit reporting and the inclusion of loan repayment histories may give credit providers what they want while still giving credit repair

WHAT THE FUTURE HOLDS

I’M CONFIDENT THAT CREDIT REPORTING REFORM IS A GOOD THING FOR ALL CONCERNED There is little doubt that in most cases a default being removed from a credit file will result in an improved credit score, even if the account conduct was questionable, and could lead to fewer system declines. That would at least give the borrower a chance to explain what happened and hopefully secure the credit they need.

It’s still early days, and how this actually plays out is yet to be seen; however, I’m confident that credit reporting reform is a good thing for all concerned, and we might yet see a time when credit providers and the credit repair industry can exist together, if not in harmony then at least in toleration!

John Dickinson is managing director of Clean Credit

HOW TO YOUR BUSINESS INDUSTRY LEADERS ROUND-TABLES DID YOU KNOW? 95.9% of the Australian economy is comprised of small business, employing almost half of the entire Australian workforce. How can you, as a business owner, effectively leverage marketing, business relationships, insights and partnerships to get the most out of your business? What are you currently doing to maintain competitive advantage and what can you be doing better?

REGIS T NOW! ER

Harnessing the Opportunity for Future Growth

How can you use insight and expertise to grow your small business? CEO of FAST, Brendan Wright, will provide quality service, support and advice to help answer this crucial question and help you deliver sustainable business return. Having previously owned and operated a timber manufacturing business, Wright knowns what it means to have your own capital on the line.

Mastering Business Relationships & Referral Networks

Founder of Super Fund Pro, Peter Dunworth, and Founder of FrontRunner Consulting Group, Doug Mathlin, share successful tactics used by high-performing credit advisers to establish and manage referrer relationships.

How to Build and Maintain an Award Winning Business

What are the secrets of an award winning business? James and Marissa Schulze of the successful Rise High Financial Solutions, who built a thriving business in under three years, will present their formula for success at this round-table event. Rise High Financial Solutions is a multi-award winning business and success story that will challenge you to look at your business plan for the future.

Evolution and Revolution as Brokerages Grow Tips and Traps from the Trenches The key to understanding and managing the growth of any business is to embrace the ‘revolution’ and manage the ‘evolution’. Industry heavyweight Rael Bricker will discuss various systems and strategies employed to grow a business – from simple visual management systems to CRM, customer engagement and low-cost marketing tactics.

Marketing Actions that Keep Growth Happening

What are the key marketing questions that all business owners must ask? Industry leaders Stephen Hale and Justin Cooper weigh in on the discussion, workshopping answers that are most relevant to the credit adviser community. With more than 40 years’ combined marketing experience, Hale and Cooper will help test your current approach and improve insights to create a more sustainable business model.

Diversifying Your Business Revenue

The importance of diversifying your business revenue cannot be underestimated. Leapfrog Financial Founder, Dominique Bergel-Grant will discuss how to find the right balance to extract value from your existing client database and learn how to make the tough choices that may truly transform your business.

“These sessions were outstanding! It was fantastic to be in smaller groups and gain access to high-profile industry leaders who could provide insight, while also letting us know where their business and operations are heading.”

- Feedback from the 2014 MFAA Industry Leaders Round-Tables

Back by popular demand…

The MFAA round-tables give you the opportunity to interact directly with industry leaders in a relaxed and informal environment. Informative and thought-provoking, these sessions will result in real business ideas that can be immediately implemented in your business.

The MFAA National Convention will feature tables with actionable topics including marketing your business, mastering business relationships and harnessing opportunities for future growth.

For more information about speakers, ExpoMart and networking functions at the MFAA National Convention, visit

mfaaconvention.com.au

OPINION

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12

The 25-year shake-up I

’m often asked about the economy and what is happening. My simple answer is: “Australia is going through a 25-year restructure that is being forced upon us by the global economic system.”

Unfortunately, I do not believe that the so-called economic experts who dominate the media, with their use of the latest economic indicators, are explaining what is happening.

They seem to be more focused on using the latest economic statistic either to confirm their economic forecast, or as a justification for changing their views. I do not intend to fall into the same trap, but rather to provide my analysis based on major macro and socio-economic trends.

AUSTRALIA – FALLING LIVING STANDARDS

Australia is the 17th largest economy in the world by GDP and Indonesia is the 16th.

However, by the year 2050 we will be ranked around 25th and Indonesia will be eighth. Many of us have been to Indonesia,

usually Bali, and the difference in living standards is obvious, despite the major advances in Indonesia over the last 20 years.

So, while Indonesia has a larger GDP, its living standards, although lower, are increasing because of the internet, outsourcing/offshoring, cheaper and accessible international travel, and better and wider access to education. The living standards of the two countries are very slowly converging.

I have used Indonesia as a comparison as it’s our nearest neighbour; however, increasing GDP and rising living standards are occurring in other parts of the world, specifically in Brazil, Mexico, Nigeria and Vietnam, which will all be ranked in the Top 20 by 2050.

These countries are trading their way out of poverty, as are India and China, which now have a middle-class population of around 300 million each.

This is a good thing as their rising living standards mean there will be greater demand for our natural resources, particularly food and minerals.

The flip side for Australia is that

Wealth Today CEO Michael McAlary shares his predictions for the shifting Australian economy

lower-cost-of-production economies are causing a fundamental restructure in our economy. The car manufacturing industry is closing down, and now the services sector is being impacted on by offshoring, outsourcing, and the mobility of labour. For corporations to compete they must lower their production costs through productivity improvements, either by lowering wages or by improving efficiency through innovation, or both. Companies are implementing these efficiency changes, and this is resulting in a fall in real wages, which will eventually flow through to lower living standards in Australia. At the same time there is a rush to invest in property and other assets that is driving up prices.

Our floating exchange rate will help cushion the impacts, but it will take another 10–15 years before the wage differential is substantially reduced, ie at the moment it may cost $30 per hour in Australia against $30 per day in an offshoring economy.

Unfortunately, over the last 40 years Australia, with a few exceptions, has failed to commercialise its innovations, whereas US economic growth has been driven by its technology giants, eg Google, Apple, Microsoft, etc., that 40 years ago either did not exist or were fledglings. Short-termism appears to be the hallmark of successive Australian governments riding on the back of agriculture, mining and financial services. Governments should not pick winners, but they should provide the environment for companies to take appropriate levels of risk, and recognise that Australia cannot compete internationally in mass manufacturing production and services.

A simple examination of the Federal Budget papers reflects the above and that our living standards are falling, given a structural problem with the budget, ie receipts are less than expenditure. Tax receipts have fallen by about 30% since the start of the GFC; this trend of falling tax receipts plagued the Rudd/Gillard eras and is doing

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THE FUTURE CAN BECOME BRIGHTER FOR THOSE WILLING TO BE FLEXIBLE, TO RESKILL, AND TO EMBRACE CHANGE

the same with the Abbott Government.

FINANCIAL SERVICES – CONTINUED REDUCTION IN JOBS

The financial services industry is a case in point. The major banks combined make approximately $30bn in profit a year; however, their performance is also characterised by ongoing job shredding across many areas. In particular, there is downsizing in branch and administration areas as well as transaction processing, in which a process can be automated or outsourced/ offshored or the activity forced back onto the customer to do (self-service). Partially offsetting these losses are new jobs being created in those areas where skills are required, such as digital sales and marketing, compliance, and sales channel management. However, the overall trend is a reduction in personnel in financial services, as it is important to understand that banks are mobilisers of capital and enablers of investment, not wealth creators in their own right. The financial services sector is too large a component of our economy.

TECHNOLOGY

Twenty years ago it was commonplace to hear an executive complaining about the cost of technology and its inadequacy in solving business issues. Today, the reverse is the case: technology is looking for a problem to solve. The world’s increasing reliance on technology is accelerating, and it will continue to provide new opportunities while driving down the costs of production and distribution.

PROPERTY MARKET – CHANGING DYNAMIC

Residential property is a good study in behavioural economics. Historically, property prices did not, in the medium term, rise faster than average weekly earnings. In the 1980s, this equation changed to that of

OPINION 13

combined average weekly earnings of couples as people delayed marriage and having a family so they could “get on top of their mortgage”.

The equation appears to now need modification again because of consumer behavioural changes.

Parents are more actively helping their children enter the residential property market as they see property as a good and safe investment, given that many have done well from property. Parents understand that their children must first pay off their HECS debt, and with the trend towards more casual employment this means today’s youth may be locked out of the property market. Foreign buyers are aggressively entering the market, as they are attracted to Australia’s democratic system of government, particularly the separation of powers, which means property title is guaranteed.

Despite all analysis showing that property prices are overvalued, it is apparent that there is a new behavioural dynamic at play in the residential property market, which probably means the historical measures of fair value need modifying. Property prices in the immediate future may continue to increase, although this should not be sustainable in the long run because over the long term there is a performance correlation between and across all asset classes.

Falling real wages coupled with increasing asset prices means the gap between the wealthy and the poor is widening. The dreams of the lower middle class are being washed away, while the middle class are beginning to feel they are on the slippery slope.

Australia is going through a 25-year economic restructure, with the catalysts being the GFC, technology, and international (and inter-generational) changes. Even though living standards are falling and will continue to fall, the future can become brighter for those willing to be flexible, to reskill, and to embrace change.

Michael McAlary is CEO of Wealth Today

DID YOU KNOW?

25TH By the year 2050, Australia is predicted to have fallen from the 17th largest economy in the world to the 25th Source: Wealth Today

ANALYSIS 14

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been seriously considered.”

An ASIC investigation into life insurance advice conducted in October found that more than a third (37%) of the advice consumers received failed to comply with regulation governing a consumer’s best interest.

Peter White

Commission kerfuffle

Siobhan Hayden

The RBA has issued a warning on broker commissions, much to the consternation of the industry

B

rokers have once again found themselves in the crosshairs over remuneration, this time from a rather unlikely source. The RBA has warned banks over increasing broker commissions, saying they could create “significant amounts” of risky lending.

In its most recent Financial Stability Review, the central bank says competition in the residential mortgage market has remained vigorous over the past six months, causing lenders to compete more vigorously for new business – such as by increasing commission rates or other incentives paid to brokers to help gain market share. With these competitive moves, the RBA warned that banks could find themselves at risk of eroding lending standards. “… [I]ndustry estimates indicate that 40–50 per cent of new housing loans are now sold through mortgage brokers,” the report states. “The more banks use brokers, the greater is the risk that a misaligned broker incentive structure would generate significant amounts of lending that is outside their risk tolerance or is otherwise inappropriate.”

INSURANCE IN THE HOT SEAT AS WELL

Worryingly, it’s not just mortgage broker commissions that are drawing criticism. The insurance industry has also found itself the target of questions over remuneration.

A comprehensive review of the life insurance sector, commissioned by the

FINANCE BROKERS ARE FAR BETTER EDUCATED ACROSS MORE LOAN PRODUCTS AND AROUND COMPLIANCE WITH LAWS UNDER THE NCCP – P ETER WHITE, FBAA

Financial Services Council, has called for an overhaul of “conflicted” remuneration.

The Trowbridge report, produced in response to ASIC’s review of retail life insurance advice, has recommended that the industry should introduce a $1,200 cap on upfront commissions for life insurance advice.

“Misaligned incentives that have been found to influence the quality of life insurance advice require urgent attention. It is up to the industry to take the initiative to respond positively to these recommendations,” says John Trowbridge, author of the independent report.

“Consumers are at the heart of these recommendations which aim to restore trust and confidence in the life insurance sector through eliminating misaligned financial incentives offered to advisers and licensees, and encouraging competition through a wider choice of products so Australians are adequately insured for their lifecycle needs.”

However, some are calling for commissions to be banned completely.

Industry Super Australia says the state of the retail life insurance sector is abysmal, and capping commissions won’t solve the fundamental conflict of interest it causes.

“Conflicted remuneration structures are the primary cause of poor advice in Australia, featuring in every major advice scandal of the past decade.

If allowed to remain, they will continue to undermine the quality of advice and insurance outcomes for clients,” says Robbie Campo, deputy CEO of Industry Super Australia.

“A transition towards phasing out commission-based remuneration is the only long-term sustainable solution compatible with a professional financial advice industry. Other options, such as allowing capped commissions only up to the value of advice provided, do not seem to have

STANDING UP FOR BROKERS

With commissions a thing of the past for financial planners, and the spectre of commission bans being raised for the insurance industry, brokers could find their remuneration structure the victim of guilt by association. But industry bodies are stepping in to hold the line for brokers’ livelihoods.

Peter White, chief executive of the FBAA, says the fact that brokers have been writing around 50% of the home loan market for some time is proof of the diligence, professionalism and ethics in the industry. White says brokers have actually increased the professionalism within the finance sector.

“Finance brokers are far better educated across more loan products and around compliance with laws under the NCCP,” he says.

“It is important to remember that it was the advent of finance brokers in the early nineties that bought service standards that borrowers wanted, when the banks were shutting branches.

“It is finance brokers that have delivered not only the service demanded by the market but also the availability of a range of products unseen in this country’s lending past.”

According to Siobhan Hayden, chief executive of the MFAA, the number of brokers that have been investigated or convicted is less than 0.5% of the total number of brokers in the market.

“Loans introduced through the broker channel carry less risk than those sought by consumers directly from lenders.

“Brokers must meet significant barriers to ensure that a loan will be made by a lender, and on many occasion loans declined via the broker channel are then made directly by lenders,” she says.

In fact, branch inducements are more at risk of a conflict of interest than broker commissions, Hayden says.

“Employees within the direct channel are often remunerated based upon achievement of total monthly lending volumes and are also responsible for the approval of the same loans, demonstrating a clear conflict of interest,” she says.

“Brokers are not remunerated if and when a loan defaults or is in slight arrears. If this does occur in the short term, the broker involved is likely to actually lose all or most of his/her income through a ‘clawback’ provision by the lender.”

NEWS 16

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CONTINUED FROM PAGE 1

Allan Savins: Simplifying the market

Resimac’s COO says the lender has taken the complexity out of specialist lending

S

avins says the specialist lending market has changed considerably since the end of the GFC. Directly following the GFC, specialist products became increasingly complex, he says.

“The product has changed a lot in the last seven years. When we first started, we had a full suite of specialist lending products with multiple levels of credit impairment.

It was quite overwhelming to brokers,” he says. “Because brokers thought the specialist market was closed, they started gravitating to prime, and everyone started writing prime loans.

When they started to understand that the specialist lending market still existed, the products looked a little different. There were a lot of interest rates to look at, risk fees to look at, credit impairment tables to look at.

It was very overwhelming.”

Savins says the lender has taken a step away from complexity, and has instead instituted sweeping changes to simplify its product suite. This was driven by a desire to make the lender more user-friendly for brokers, Savins indicates.

“What we’ve chosen to do is to simplify that offer. We have to recognise that a lot of people may not specialise in specialist lending solutions, but they want to know about

the solutions that are out there because, when a client comes in for a prime loan and the broker can’t help them, they want to know that they didn’t let them go away empty-handed,” Savins says.

This meant massively reducing the complexity of its products, as well as adding more flexibility. The changes also included a number of product and policy enhancements, such as increasing the amount of defaults that will be disregarded to $2,000 (up from $1,000) and introducing an interest-only option on all specialist products for owner-occupiers.

“We introduced a complete simplification program on our specialist products. We’ve gone from 27 interest rates down to 14. We’ve gone from 17 risk fee price points down to eight. Instead of having impairment tables in the product, we’ve merged it together, so now we simply have the full-doc and the alt-doc option. We have three different products to pick from as alt doc and three products to pick from as full doc. It’s nice and easy to understand,” Savins says.

Savins suggests this drive towards simplicity and flexibility is what brokers wanted. He says the lender had to concede that not all brokers had the time or inclination to become experts in specialist lending.

“I think that simplification is what brokers were looking for, because I think we may have taken for granted that we understand it, so they [brokers] must understand it. We need to realise that brokers may not come across specialist borrowers every day. We need to provide that simplicity for people to understand, because everyone’s busy at the end of the day,” he says.

And thus far, Savins says the strategy is working. “The feedback has been fantastic so far in terms of what we’ve released. Our volumes are up pleasingly. We’ve definitely hit the mark in terms of what’s on offer. Now it’s just a case of spreading the word.”

SPECIALIST LENDING ‘MISCONSTRUED’

Savins argues that simplifying the products on offer can help dispel some of the hesitation some brokers feel

WE HAVE TO RECOGNISE THAT A LOT OF PEOPLE MAY NOT SPECIALISE IN SPECIALIST LENDING SOLUTIONS, BUT THEY WANT TO KNOW ABOUT THE SOLUTIONS THAT ARE OUT THERE

NEWS brokernews.com.au

about specialist lending. Much of this hesitation, Savins says, is the result of misconceptions about the sector.

“I think specialist lending has been misconstrued as being difficult, or being for the riskier borrower. It’s really just solutionbased lending at the end of the day. The solution has always been there. There really hasn’t been any fundamental change with it,” he says.

This means the type of client being served by specialist lenders is much the same as it has always been. Those clients are simply borrowers who fall outside the parameters of traditional lending, Savins says.

“Resimac started our specialist lending program in 2007, and the type of borrower we were looking for really was someone who didn’t fit in with traditional lending requirements. That didn’t mean we were lending to riskier borrowers. It just means someone who couldn’t satisfy bank requirements. That ranges from clear credit to adverse credit borrowers,” he says.

The words ‘adverse credit’ may give some brokers pause, but Savins says it’s all about recognising the mitigating circumstances that may have led borrowers to their current situations.

“With adverse credit, what we try to look for is the life event.

SWEEPING CHANGES Last month, Resimac announced it would no longer require mortgage insurance on standard prime full-doc loans to 80% LVR and SMSF loans to 70% LVR. As a result, all of Resimac’s standard prime full-doc loans to 80% LVR will no longer require credit scoring and will have no limit on consolidation – both policies that were previously imposed by LMI providers.

The non-bank has also announced it will increase the maximum loan amounts to $1.5m, accept late payments of up to seven days on refinances, and accept defaults of up to $500 (maximum of two listings). Other policy enhancements include the acceptance of units with a minimum floor size of 40sqm as security. Previously, the minimum was 50sqm under 80% LVR.

17

Has there been a life event like sickness, an accident, divorce, loss of job or self-employment failure that’s caused a disruption in their normal life? Everyone deserves a second chance. For us, it’s working out the habitual defaulters – the ones that consistently don’t pay – versus ones that genuinely just have circumstances that have caused adverse credit,” he says.

And Savins argues that specialist lenders apply no less rigour to their assessments than prime lenders. The point of difference, he says, is that specialist lenders seek more context to understand the client’s circumstances.

“We fundamentally go through the same techniques as a prime lender in our assessment. We still want serviceability. We still look for security. The only difference is we’re looking for the story. What makes them a specialist lending borrower? Why don’t they conform with the banks’ requirements? Once we understand that, it’s a simple process. To us, there is no difference between prime and specialist because we follow the same techniques,” he says.

It’s also important for brokers to understand this context, Savins says, as well as to understand that solutions exist for clients that fall outside the scope of traditional lenders.

“The biggest difference is awareness. It’s people not being aware that these solutions exist.

“It’s about awareness and education and making sure brokers continually remind themselves that these solutions are available for them.”

To this end, Savins says Resimac is creating material to help brokers understand how to position specialist products.

“We spend a lot of time trying to educate brokers on how to sell [these products]. I think there’s a misconception that they’re hard to sell. We’re bringing out a series of videos that may help that process,” he says.

Ultimately, though, selling specialist products is much like selling traditional products. It’s about helping clients achieve their goals, Savins says.

“It’s about selling the dream to the client that ‘I’m still here with you through every step of the process’. It’s a means to an end.

It’s an opportunity cost at the end of the day. They’re capitalising on the dream today rather than waiting for a period of time down the road when that opportunity may have passed.”

ANALYSIS 18

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Brokers versus branches:

Channel conflict in a competitive market As both brokers and branches try to take advantage of the heated mortgage market, how can you avoid channel conflict?

A

s low interest rates and solid house price growth continue to drive vigorous competition in the Australian mortgage market, lenders are under pressure to drop rates, maintain margins and increase settlements.

But as lenders fight to make the most of the competitive housing market, how can they ensure that they are balancing their investments in both the retail and third-party channels while avoiding channel conflict?

In an online broker poll conducted by Australian Broker, 78% of brokers said they had experienced some form of channel conflict with a bank branch.

Of this, 44% said they experienced channel conflict “often” while 56% said they experienced it “infrequently”.

WHO OWNS THE CUSTOMER?

This is a question that is often aired in any discussion over branch/broker channel conflict: does the broker who originated the loan own the customer, or does the bank who finances the loan own the customer?

THE AMOUNT OF INFORMATION WE HAVE NOW ABOUT EVERYTHING IS MASSIVE, AND THE SOURCES OF DATA ARE GOING UP EXPONENTIALLY

The answer is both “no one” and “everyone”. Fons Caminiti, senior manager of broker distribution at Adelaide Bank – the intermediary-only arm of Bendigo and Adelaide Bank – says both brokers and branches have a responsibility to the customer.

“In my opinion, once the customer is settled, it is the bank’s responsibility to manage that customer. There is also, in my opinion, an obligation for the broker to manage the relationship with the customer as well. Now, at what level the broker is able to or wants to or can manage that relationship is up to them,” he told Australian Broker.

“The majority of the brokers have a relationship at some level with their customer, but the deeper they can build that relationship with the customer, the more likely they are to retain that customer.”

However, Caminiti also says that neither the broker nor the branch can call dibs on a customer. In reality, the ownership of a customer comes down to the customer’s own choice.

“Yes, Adelaide Bank is an intermediary-only bank, and we only deal with brokers … However, from that perspective, our value proposition differs vastly from the Bendigo retail proposition. Our value proposition is branchless while Bendigo retail doesn’t deal with intermediaries,” he said.

“There are times when we have Adelaide Bank customers that go into Bendigo Bank branches, but we do have rules around those sorts of things in our network, so the push-back is back to a broker if that is the case.

However, it is driven by customer choice. If the customer wants to explore the branch-based proposition, then so be it.”

Tony MacRae, general manager for broker distribution at Westpac, says it doesn’t have to be a question of ‘or’, but a question of ‘and’ – how can brokers and branches share the customer to create a more holistic experience?

“There is no point in [banks] having a strong and a weak channel either way, so our view of the world is that we need both channels to be very strong. [Westpac] continues to invest in both channels. We continue to innovate in both channels to provide the best solutions. It is not a question of ‘or’ but a question of ‘and’,” he told Australian Broker.

“Both our channels do work together, which is the other reality. We couldn’t sell five products per customer if we didn’t work really closely with the retail network who onboard the customer and cross-sell to them.

Our retail branches also wouldn’t be able to continue to grow if we weren’t introducing great home loan customers.”

DEALING WITH CHANNEL CONFLICT

While both banks and brokers can’t deny that channel conflict can arise, both say that working with each other rather than competing against each other is the most effective way of avoiding a conflict of interest.

Jeremy Fisher, director of 1st Street Home Loans, says a broker’s relationship with lenders and branches

ANALYSIS 19

brokernews.com.au

Fons Caminiti

BROKER POLL

15%

of brokers have never experienced channel conflict

34%

of brokers have experienced channel conflict “often”

7%

of brokers are unsure

44%

of brokers have experienced channel conflict “infrequently”

Source: Australian Broker

Jeremy Fisher

Tony MacRae

is just as important as a broker’s relationship with their client.

“We work closely with local branches, and their teams know that we are all working to benefit the client, so we all have a common goal. By offering a very high level of customer service, brokers can reduce the chance of clients contacting lenders directly as clients should be in the frame of mind that their broker is their first point of call.”

MacRae agrees, adding that brokers and branches should see each other as an extension of each other’s business. “[Westpac] spend a lot of time ensuring brokers feel a part of the network. I always say that branches should see brokers as an extension of their sales force, and brokers should view branches as an extension of their operation.

“We spend a lot of time ensuring our branches and specific people in the branches spend time with brokers.

We hold events in our branches, particular in our new ‘Bank Now’ branches, where we hold a big broker function and invite all the local brokers so they can see the really neat technology that we have and the service we are able to provide there for both personal and business customers.

“But also so [brokers] can feel really comfortable about being able to send their customer there because they know that we care and we treat them as a holistic customer. It comes down to relationship and ensuring that we do have the right relationships.”

A SHIFT IN THE RIGHT DIRECTION

While fostering relationships between branches and brokers is important in circumventing channel conflict, Caminiti says banks can play a more proactive part in educating retail staff about the role of the broker.

“One of the things that is high on my

agenda is to ensure that our brand and our value proposition is understood by the Bendigo retail division, and at the moment it is. I do a lot of talks to different parts of the Bendigo business to make sure that they are aware of how we do things and how they operate. There is a level of respect between both channels,” he said.

“There has been an odd instance where [channel conflict] has occurred, and that has been dealt with at a managerial level and a staff level to make sure those particular parties understand why we ask that a broker customer goes back to a broker. But at the end of the day, it is very, very few and far between in our business.”

He also adds that banks can play a more proactive role in educating brokers too.

“The relationship that we have with the brokers is really important as well, because if we can manage those relationships effectively then we are more likely to keep all parties happy – the customer and broker.

“When I do my presentations, and I have done some to the Bendigo network managers and Adelaide Bank brokers, I put up a visual of all our competitors by logo, and the Bendigo brand is not there. I make it very clear that they are not a competitor.”

However, despite a majority of brokers admitting to having experienced channel conflict during their careers, Fisher admits it becoming less frequent as banks continue to understand the value proposition a broker offers a customer.

“Occasionally we do experience channel conflict, but it happens a lot less than it did in the past. These days, branches and brokers are mostly working together for the best interests of the client, which is a shift in the right direction,” he told Australian Broker.

BEST PRACTICE 20

brokernews.com.au

Too tired to care Fatigue can put a major dent in your effectiveness, which can have big consequences for brokers

I

n November 2013 a young intern working in the banking/financial services industry suffered an epileptic seizure – believed to be caused by overwork – and consequently died.

In October that same year, the so-called ‘Mona Vale inferno’ in Sydney’s northern beaches was a devastating trucking accident caused by workplace fatigue. The human cost was tragic: two dead, five injured. Add to that the environmental damage caused by leaking fuel, and the massive business costs: Cootes Transport Group was hit with more than $50,000 in fines and penalties, incurred $9m in compliance costs, lost major contracts, and restructured from being one of Australia’s largest transportation groups into a small, specialist transport company.

While it’s true that fatigue-related incidents in transportation and front-line industries such as mining, healthcare and aviation make the headlines, the first example above – as extreme and isolated as it might appear – demonstrates that white-collar jobs could also benefit from a focus on fatigue management and more effective rostering and time and attendance management.

Fatigue management has wider benefits as part of an overall workforce management strategy. Aberdeen Group’s 2014 report, Bottom Line Reasons for a Total Workforce Management Strategy, highlighted why:

• 9% boost in workforce utilisation capacity • 6% improvement in customer satisfaction scores James Kissell, a senior manager at WorkForce Software, says that in any industry, regulated or not, fatigue can take a toll on business performance. There are strong parallels (and research) showing how working as a fatigued employee is akin to working under the influence of alcohol or drugs. In fact, being awake for 17 hours straight has been equated to having a blood alcohol content of .05 – the legal limit for most drivers in Australia.

WHY IT MATTERS

The most significant impact is on productivity, worker safety and even employee satisfaction.

WorkForce Software’s white paper, titled Examining the Hidden Costs of Fatigue: Risks & remedies for Australian businesses, provided these insights: “There is increased likelihood of errors amongst fatigued workers. For brokers looking to remain NCCP compliant and avoid any potential fallout with ASIC or an EDR, this can be particularly perilous.

When tired workers are faced with tasks that require alertness, mental acuity or decision-making (in short, most jobs), a measurable decrease in accuracy and quality will result. Fatigued persons are slower at interpreting visual information than alert peers – a limitation that can have significant • 4% increases in revenue per FTE for impacts on job performance.” those organisations with a workforce Fatigue can also lead to an increase in management solution tolerating or undertaking risky behaviour.

Fatigued individuals frequently have a very different opinion of WHAT IMPACT DOES FATIGUE HAVE ON EMPLOYEE what’s ‘good enough’ PERFORMANCE IN YOUR ORGANISATION? compared to fresh, non-fatigued Major impact colleagues. Fatigued No significant impact workers are prone to 7% 24% cutting corners, which can have a negative impact on everything from worker safety to 22% the quality of your Minor impact brand and its products and services.

47% Moderate impact

FIXING THE PROBLEM Source: HRD magazine

Fortunately, there are solutions. The first

essential step is preventing the work conditions that cause employee fatigue in the first place. A thorough review of all jobs and shifts within the organisation will identify those functions that cause fatigue, require statutory rest periods, or are at risk of fatigue-related incidents.

A step further is to provide an automated technology solution in order to better manage the three components that make up fatigue management:

Time and attendance: This is your

master record of hours worked, spelling out who worked, on what task, and for how long. Having accurate information about time worked is crucial to knowing which employees may be approaching the threshold of fatigue.

Fatigue factors: A configurable rules engine tracks the rules, regulations and policies that govern your organisation’s fatigue mitigation strategy. This allows you to create a system that meets the unique needs of your business and allows managers to override alerts in certain circumstances. To be maximally effective, it must be able to consider different factors for specific jobs, in order to accurately reflect the distinct risk profile of a given shift and type of work.

WHERE TO NEXT?

Don’t wait until there’s an accident!

Business leaders should act now.

Employers in Australia can kick their fatigue management systems to the next level by: • Monitoring employee productivity • Focusing on the roster cycle – An important part of the solution but not the whole solution – Provides strong indications of when employees need resting • Checking on absenteeism • Implementing an IT-driven fatigue management policy – IT solutions will automate processes, remove complexity, and give you greater coverage across the organisation

BUSINESS INTELLIGENCE

brokernews.com.au

21

qualities of a successful

leader

Accenture chairman and managing director Jack Percy describes the qualities that top leaders share

A

t the recent National HR Summit, Jack Percy, chairman and managing director of Accenture Australia, spoke about his style of leadership, providing insights into his success.

He revealed the four strategic categories that have contributed to his success as a leader: • Authenticity • Collaboration • Decision-making • Courage

1

AUTHENTICITY

Percy explained that some leaders are in their roles as a stepping stone to something else.

“It’s difficult to pretend you’ve got authenticity,” Percy said. “It’s not possible to pretend you care. If you’re in a role because it matters for your career, it will come through.”

So, how do you generate a sense of authenticity? According to Percy, leaders have to walk the walk.

“Follow the company’s ethical guidelines yourself,” he explained.

“Support things such as flexible work practices and maternity leave – make people feel comfortable to return to work when they feel ready.”

Percy also pinpointed a must-have for demonstrating authenticity in leadership: vulnerability.

“Coming across as authentic without a degree of vulnerability is difficult,” Percy said. “One technique that worked for me is storytelling. If you tell personal stories enough, people start telling them about you, which is way more powerful.”

He recounted an anecdote to the audience, involving a spontaneous cycle for charity.

“Data is forgotten, but stories are remembered,” Percy added.

Another piece of advice Percy had was to remember it was “better to do one thing and do it well than to spread yourself thinly over several tasks”.

Putting efforts into a task “before the fight starts” helps to create the authentic leader image – but if problems do arise, Percy advised that they should be solved before blame is allocated.

How does Percy maintain a balance between displaying authenticity and vulnerability and leading with authority?

“I don’t see those as conflicting issues,” he explained. “In fact, I think displaying vulnerability enhances authority rather than undermining it.

A lot of people assume the opposite to be true and don’t let their vulnerability shine through.”

In today’s world, authority is not limited to military styles of leadership, Percy continued.

“It comes from people wanting to follow,” he said. “A leader is no good if they’ve got no followers. Having people work for you because they need a job is different from people working for you because they want to work for you.”

2

COLLABORATION

Many employers have noticed the adverse effects that having a multigenerational workplace can cause.

“Silos create politics and boundary issues,” Percy said. “But they are inevitable – they can’t be avoided, but can be managed.”

He advised leaders dealing with the silo mentality to: • Create a shared vision • Set rules on how this vision will be managed “In a leadership team, it’s important that everyone holds each other

HIRE AND PROMOTE PEOPLE WHO ARE BETTER THAN YOU – JACK PERCY, CHAIRMAN, ACCENTURE

accountable for actually doing what we said we’d do,” said Percy.

“Make it clear when a decision or commitment has been made.”

3

DECISION-MAKING

Percy’s decision-making framework revolves around an ‘intellect over ego’ mantra.

“Make a decision and then make it the right decision, rather than focusing on analytics and ultimately delaying a decision being made,” he said.

“Leaders almost always don’t have enough information, but consider whether gaining more information will actually make a difference.”

He also advised leaders to remember that behaviour is non-linear.

“Because we understand things more easily in linear terms, we try to extract everything into that,” he explained.

4

COURAGE

According to Percy, successful leadership is also aligned with the ability to take risks, which he admits is not always easy.

He said leaders must have the courage to make unpopular decisions, and to take responsibility for them.

“Leaders need to be able to make these decisions and explain to those involved, ‘I know you don’t like it, but here’s why’,” Percy said.

“It’s important to own it and explain the rationale behind the decision, then to stick to it and follow through.”

He added that people will always try to push back against unpopular decisions, but warned those in leadership positions to be wary of this.

“If you allow that to happen, you undermine your credibility to make decisions stick,” Percy said.

Another aspect requiring courage, according to Percy, is onboarding.

“Be bold,” he advised. “Hire and promote people who are better than you.”

He referred to the mantra of a Dutch colleague: “A players hire A players; B players hire C players”.

MARKET TALK

brokernews.com.au

22

Surviving a property downturn Veteran investor Sam Saggers shares tips for riding out a property decline

A

fter enjoying healthy economic growth during the past couple of decades, Australia is now experiencing a slowdown. This is evidenced by below-par economic growth and rising unemployment that started over a year ago.

This slowdown in economic activity has prompted the RBA to slash the interest rate to a new low of 2.25%, and there are predictions of further rate cuts in the near future.

While this is welcome news for property investors as it means cheaper interest rate payments, it is a worrying sign that the economy is getting weaker.

But although you might not be able to entirely protect your property portfolio from a downturn, understanding how this could affect you will help minimise its impact.

It may also lead you to opportunity in adverse times.

HOLDING ON TO YOUR NERVE

People often lose faith in the property market when they have a property that is losing value because the market is soft. What they fail to understand is that losses only occur if you need to sell during a downturn.

On the surface, selling could be considered a fair and reasonable strategy. However, selling when prices are soft will do nothing but ensure your losses.

At times of instability everybody is thinking the same way: they’re nervous and contemplating selling, which usually leads to a race to the bottom.

It’s important to remember that, in time, all markets in Australia have proven to move from one cycle to the next at a higher rate.

Therefore, if time is on your side, holding on to your property could prove very sensible.

So ask yourself: Is selling a smart move, or am I better to go for the long haul?

MANAGING THE DOWNSIDE

Your ability to ride the downturn depends on how you manage the risk. Here are some factors to consider when assessing risk:

• Location and neighbourhood

Are you buying in a desirable area? Does that street carry risk? An example of risk in terms of location would be buying near a waste management centre or a high Housing Commission area.

• Land Is there much planned for the area? Is there a risk of overdevelopment? How will this impact on your property?

• Environment

Is there a risk of environmental impact?

An example would be a bushfire-prone area or property in a known flood zone.

• Improvements

Is the property overcapitalised, or is it in keeping with the area? In this case, it

may be the best house in the worst street, which in a downturn will suffer heavy losses.

• Value or reduced value

Is the property you’re buying today selling at a rock-bottom price? Or will the market fall further, meaning the property you’re buying could actually be worth less soon?

• Impact on local economy

Is the area going to be adversely impacted on or could an external force be capable of devaluing the market? An example would be a one-mining-company mining town. The town could suffer huge price losses on property values if the mine was shut down.

MAXIMISING RESALE POTENTIAL

During a downturn, solid properties that appeal to both renters and homebuyers will rent and sell faster than the alternative. Therefore, it’s important that you stick with properties that appeal to both demographics, in order to ride out the downturn.

Here are the basics of what people want:

• Location

Proximity to public transport, shops, schools, parks and all amenities. Within walking distance is best practice.

• Absence of noise

Tenants and buyers prefer quiet areas and absence of direct noise.

• Security

LOSSES ONLY OCCUR IF YOU NEED TO SELL DURING A DOWNTURN time. In essence, the market acts like a snake that slithers.

A cycle does not do a consistent loop or circle like a property clock. Though property clocks are a good visual way of explaining a point in time, a rolling index is far more accurate and will show more highs and lows than a circular clock face.

What you will need to know is that there are three market trends as the market slithers along:

• Bottom of the market

The market is near the bottom of its low.

This can stagnate for some time. As a property investor it can be a long wait period for recovery to come. It can be a great time to buy, but patience is a virtue.

• The counter cycle

• Cleanliness

This is when there is weakness in the market. Yields are low but great locations are available. This could be a period of trough in the market cycle, in which economic sales activity is slow. This often means you can buy at a discount or get into a great neighbourhood that you couldn’t previously afford.

Provided care is taken to identify micro activity, this is a great way to buy in the best suburbs, but for those thinking of selling at a loss, don’t do it! It won’t be long before a rise will come. It may be a few years, but if the property is measured against the entire cycle, your property should go up normally as the cycle changes.

• Everything works

This is where most capital gains occur; sales volumes are extremely high and days on the market are low.

Locks on windows and doors, security screens and alarm systems make people feel safe. Safety is a great driver for tenancy and resale.

• Sizeable bedrooms

Big rooms are popular with most tenants as well as homebuyers.

• Temperature and lighting

This means air conditioning/heating, ceiling fans and the property’s aspect relative to the sun. Tenants and prospective buyers prefer a light and bright property, not a dark and gloomy property.

A clean property attracts great resale value and tenants. Age of the property is less of an issue than its cleanliness.

This includes taps, sliding doors, and the oven. Ensure that everything included with the property is safe and working properly, so your return for the rent or sale price is not questioned.

UNDERSTANDING PROPERTY CYCLES

In an ideal world, you’d want property prices to just keep rising, but in reality, during a property cycle, which on average is 13 years, you will experience a series of swings.

It’s common to see around three highs and two low periods of economics during this

• Rising market

CONCLUSION

Being an investor of any kind carries risk. I like to think that property is lower-risk; however, there has been a huge degree of economic property bliss of late.

Investors need to have better fiscal consideration and use vigilant planning and forecasting to anticipate the challenges ahead. You need to plan not only to endure a downturn, but also to triumph.

Sam Saggers is an active property investor and CEO of Positive Real Estate Group

MARKET TALK brokernews.com.au

23

Valuer inexperience an issue A major valuation firm says valuer shortage and inexperience is an issue that must be addressed

THE PROBLEM OF UNDERQUOTING

By Chris Spanos, RP Data

By now many of you would know that NSW Fair Trading is ‘cracking down’ on the practice of underquoting by real estate agents (REAs). Do you know what this is, why it is considered harmful, and what to expect in the future?

WHAT IS UNDERQUOTING?

A

major property valuation firm says valuer shortage and inexperience needs to be addressed to avoid making it more difficult to cater to a growing industry.

WBP Property Group COO Brendan Smith says the last five years have seen the valuation industry change, bringing new opportunities to the profession but challenges as well.

“As a career path, being a property valuer can be very rewarding; however, a greater number of barriers to entering the industry have had a

WE BELIEVE THAT EDUCATION AND UNDERSTANDING FROM BOTH PARTIES IS THE KEY TO A BETTER RELATIONSHIP – B RENDAN SMITH, COO, WBP PROPERTY GROUP dampening effect on the profession, with implications for the availability of valuers at a time when lending on property is at such highs,” Smith says.

He says 2015 has brought even more stringent barriers to entering the profession than there were five years ago.

Valuers must complete a three- to four- year degree plus 12 months of practical work experience, all before being able to sit their exam for Residential Practising Valuer (RPV) status.

“In order to obtain one’s Certified Practising Valuer (CPV) licence, a further two years of experience in both residential and commercial property are required,” Smith says.

“While it’s advantageous for

valuers to hold CPV for prospective employment purposes, it’s another milestone for valuers to meet in the profession.”

WBP says it is committed to working with brokers to ensure there is understanding on both sides, particularly when brokers query a valuation.

“WBP Property Group engages with groups such as the MFAA on a regular basis to provide information about market performance and the valuation process,” he says.

“We believe that education and understanding from both parties is the key to a better relationship – and encourages valuers to be open to reviewing a valuation, should a well-researched and justified query warrant such.”

Smith says an amendment can take anywhere between five minutes and 24 hours to resolve, depending upon the nature of the query, but that WBP has received queries on less than 1% of their valuations.

“WBP’s minimal amendment rate is a testament to our processes, technology and the experience of our personnel.”

WBP’s employees are active members of many organisations, including the API and MFAA, and actively promote the profession to encourage and support the next generation of valuers.

The firm launched its Cadet Programme four years ago to hone the skills of the industry’s latest graduates and new talent.

“The advantages of this programme are we can nurture both professional and cultural development, utilising bestpractice training and valuation methodology,” Smith says.

Underquoting generally refers to the tactic used by some REAs of purposefully understating the probable sale price of a property in order to induce multiple bidders. The theory is that this can stimulate more bidding activity, leading to a higher overall sale price.

Underquoting is illegal in NSW, carrying a penalty of a maximum fine of $22,000, and the cancellation of a REA’s licence under the Property, Stock and Business Agents Act 2002 (NSW). Perhaps more than any fine, a successful prosecution of underquoting can permanently damage an REA’s professional reputation.

It is often difficult to infer underquoting during a strong property market, as has been the case in recent years. An agent’s strongest defence is to ensure that the advertised price of a property is in line with the price guidance given to vendors.

Overquoting is also illegal in NSW, but for now, NSW Fair Trading is focusing on underquoting.

WHAT HARM DOES UNDERQUOTING CAUSE?

Late last year the Fair Trading Minister for NSW, Matthew Mason-Cox, said about underquoting that “not only does it seriously compromise the integrity of the real estate market, it puts enormous financial stress on innocent home buyers”.

More specifically, markets work best when buyers and sellers have what economists call “symmetric information”. If buyers and sellers have access to the same data, then they can both make informed decisions. It is this market need that drives companies like CoreLogic to empower all market participants with accurate, relevant and timely data.

The desire to prevent practices such as underquoting is so great that some states, like Queensland, have banned price guides altogether for properties being auctioned. Whether this proves to be an effective strategy in the long term is questionable, but it underscores how much scrutiny practices like underquoting and overquoting are under.

FAIR TRADING CAMPAIGNS

Departments such as NSW Fair Trading have been attempting to curtail underquoting for some time. In November 2012, Operation Poseidon was launched to investigate, among other bad practices, underquoting. In order to carry out Project Poseidon, NSW Fair Trading conducted 44 rolling inspections at auctions in a period of just three months. As big data sets become easier and cheaper to consume with time, the need for inspections to catch rogue agents will diminish.

In November 2014, NSW Fair Trading launched Operation Belaya, once again focusing on underquoting in NSW. With rich analytic data sets like CoreLogic’s Suburb Scorecard, it is now easier than ever to compare yields, vendor discounting and time on market.

Where properties differ significantly from their suburb’s median or mean, NSW Fair Trading may request additional information. In this circumstance, guidance given to vendors and potential purchasers will be scrutinised more than ever.

FINANCIAL SERVICES 24

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STANDARD OF LIVING UP FOR AUSSIE HOUSEHOLDS Australian households’ standard of living has risen, new research has revealed.

The SAS-NATSEM Household Budget Report shows that, while the cost of living was up 1.4% last year, incomes outstripped growth, rising by 2.7%. As a result, the standard of living increased by 1.2%.

Living standards saw the biggest increase in the NT (4%), followed by NSW (2.1%) and Tasmania (2.1%). Living standards decreased in the ACT, Victoria and WA, falling by 2.3% in the ACT, 0.3% in Victoria, and 0.7% in WA. While the standard of living has risen, growth in living standards is increasing at a slower pace, the study said.

“Following two decades of continual growth in living standards, Australian household living standards are not increasing nearly as strongly.

Between June 2012 and June 2014 there was no change in standard of living. Through the December quarter Australia’s standard of living increased by 0.7% and 1.2% through the year,” the study said.

FINANCE HIGH ON TOP 1,000 LIST

FAST FACT 1.2% Yearly rise in the Australian standard of living in 2014 Source: SAS-NATSEM

The finance and insurance sector has continued its dominance of the Australian economy, with these companies accounting for 138 positions in IBISWorld’s 2014 Top 1000 Companies report.

The big four banks all retained Top 10 positions on the list, with NAB leading the way in fifth position. This was followed by Commonwealth Bank (sixth), Westpac (seventh) and ANZ (eighth).

The highest-ranking non-major bank was Bendigo and Adelaide Bank, which ranked as the 117th top Australian company, despite slipping six spots from 2013. ING Direct was the secondhighest-ranking non-major, although it was well behind Bendigo and Adelaide Bank, taking 152nd position.

CUA was the first credit union to make the list, landing the 578th spot, followed by People’s Choice Credit Union coming in at 857th.

Non-bank lender Pepper also squeezed into the Top 1,000, making the list as the 962nd top company in Australia. However, the specialist non-bank lender dropped 43 spots from 2013, when it placed 919th.

According to IBISWorld, the Top 1,000 Companies list provides an overview of Australia’s largest private, public and government organisations, ranked by revenue. During 2014, average revenue growth across the Top 1,000 companies was 7.5%, down from 14.6% growth across last year’s list.

Stop cutting rates, says ANZ chairman

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NZ Bank chairman David Gonski says interest rates are only one factor in the economy’s performance, and he has urged the Reserve Bank not to cut rates again this month.

Speaking at a business lunch in Sydney recently, Gonski said lower oil prices and the falling dollar were already adding stimulus to the economy.

Rates are at a current record low of 2.25% and Gonski hopes the RBA will “think twice” before cutting rates again, The Australian reported.

“Oil prices are low, interest rates are historically low and the dollar seems to be moving lower anyway,” Gonski said.

“Those are quite conducive to business activity so … I’m not convinced that one should drop interest rates.”

Former Howard government minister and assistant treasurer Helen Coonan also urged caution, The Australian reported, saying the last RBA rate cut in February to 2.25% “hasn’t really done very much” to restore confidence.

AMP chairman Simon McKeon also told the lunch that the big issue was businesses holding back, and not because “the cost of money is high, because it’s not”, but due to uncertainty about the future landscape and opportunities.

“I think business is quite timid actually making those decisions … for the longer term,” he said.

“I’m not sure what’s actually required, obviously not just further lowering of interest rates. I agree with Helen that it’s not had a huge impact in recent times.”

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MINZ MAKING EXIT Heritage Bank chief executive John Minz has announced that he will retire later this year, when the term of his current contract concludes.

Minz joined the mutual bank in 1993 as head of internal audit. After fulfilling a number of managerial roles, he became deputy chief executive in 2002 and then was appointed chief executive in 2003.

He said his decision to leave came with considerable sadness.

“I look back with enormous satisfaction John Minz at the culture we have created and the way this organisation has evolved. Despite the GFC and a prolonged period of strong competition, we have grown to be Australia’s largest mutual bank. I leave knowing that Heritage has a proven performance pedigree and is in a very strong position.

“However, there comes a point when you know it is the right time to walk away and entrust the CEO responsibilities to the next person honoured to take on this stewardship role.”

Heritage will advertise the CEO position nationally in newspapers and online on 17 April, with applications to close at the end of May. Minz said he would now look for non-executive opportunities to support his current charitable and community interests.

ONE YEAR ON 26

ONE YEAR ON What a difference a year makes … or not. Australian Broker reflects on the punditry, news and trends that made headlines 12 months ago Australian Broker Online, April 2014

Young brokerage takes off

Last year, newly established Shore Financial announced it had hit a new milestone, lodging $100m in home loan applications in one month. Managing director Alex Nochar credited his young team and their enthusiasm with the company’s success. Nochar said Shore Financial had developed a robust training and mentoring program that developed potential while retaining a strong, trusted value proposition.

What’s happened since?

Shore has continued its rise, recently hitting the $1bn mark. The company is now hoping to crack $1.5bn by the end of the 2015 year. Founding director Theo Chambers says the firm will be launching a recruitment drive which aims to grow Shore’s team to 40 brokers. The firm grew from three staff to 20 in its first year, off the back of securing a 15-year contract with Richardson & Wrench Real Estate to be their exclusive mortgage brokerage.

Stop sitting on your hands, RBA Following the Reserve Bank’s decision last year to leave the official cash rate at a record low of 2.5%, commentators called on the RBA to begin to hike rates to stave off unsustainable house price growth. Digital Financial Analytics principal Martin North said the Bank was sacrificing sustainable house prices for growth.

What’s happened since?

The calls for the RBA to stop sitting on its hands intensified over the last year, but shifted direction. As the country’s economic fortunes began to look less bright and house price growth moderated, commentators called on the Reserve Bank to trim the cash rate even further than its already-record low. The RBA pulled the trigger in February, with prognosticators predicting more rate cuts to follow.

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Industry stalwart says farewell

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ustralian First Mortgage managing director Iain Forbes recently announced his retirement following a career of over 50 years in banking and finance.

A legend in the mortgage industry, Forbes founded the AFM Group in 2003, together with his daughter Tanya White and her husband David. Since then, AFM has grown from being a small regional non-bank lender into a multilayered national group of companies. Forbes told Australian Broker TV that AFM’s growth had been due to dedication to the company.

“I have put 200% into what I do and how I do it.

At the end of the day I’ve got no regrets. I don’t know why I’m different, but at the end of the day, I enjoy work,” Forbes said. “My wish and desire in life is to be successful in what I do.”

Looking back on his career, Forbes said his “old-school” approach to business – a commitment to honesty, service and personal contact – is what he was most proud of.

“I do believe in communication. I’m still the old school. I like emails because they’re quick, but just pick up the phone and fix the problem. That’s the way to do business,” Forbes said. “If you’re going to decline a loan, don’t just send an email.

Pick up the phone and talk to the broker.”

Forbes said that, as the industry developed, he would like to see some of the red tape removed.

“What I’d like to see really happen is quicker turnaround times. The red tape [and] the bureaucracy our credit staff have to go through is a bit of a nightmare.

I’d like to think we could go back to that old-school approach of providing service and getting things done.”

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

FORUM 27

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Banking association calls for broker disclosure A banking peak body has backed the FSI’s recommendations for brokers to disclose ownership structures to clients

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he government must act on recommendations that require mortgage brokers to disclose ownership structures, according to the Customer Owned Banking Association (COBA). COBA recently came out in support of the Final Report of the Financial System Inquiry, which states that greater transparency regarding the nature of advice and the ownership of brokers would help build confidence and trust in the financial advice sector.

Neil lamented that brokers were once again finding themselves the scapegoats of the finance industry.

“What! After all the issues around the likes of Storm

MORTGAGE BROKERS, JUST STEP BACK AND TAKE A LAUGH AT THESE CLOWNS

Financial (and BoQ) and CBA staff offering poor financial advice (and admitting as much) brokers are again in the cross-hairs! Wake up COBA, and tackle a real issue. Do banks declare who their largest stakeholders are when a staff member approves a home loan?

Really. What nonsense.”

GC argued that it was banks – not brokers – who needed more oversight.

“In my 17 years in the industry I have constantly come across instances where the client didn’t understand the loan they had and were given the wrong loan and wrong advice – and 99% were as a result of the banking staff.

The majority of bank staff are untrained and don’t give a shit about the quality of advice they give the customer ... because they are on the banks payroll so it won’t hurt their pockets if the client moves away to another lender. Brokers are far more educated, responsible, honest, trustworthy and forward thinking. If we screw it up for the client it can cost dearly. It’s about time groups like this and ASIC seriously looked into the banks’ behaviour. It’s also about time people put up the proof of their comments instead of simply coming out with rubbish like this and just trying to justify their existence.”

QEDRisk said the comments were too ridiculous to take to heart.

“I think this just shows COBA’s utter ignorance of the industry. Mortgage brokers are nothing like financial planners in terms of their ownership.

There is no close alignment to the product manufacturers like there is in financial planning world. Mortgage brokers, just step back and take a laugh at these clowns. It’s not worth you wasting your breath getting upset by the comments.”

And SEQ Broker said COBA was merely trying to justify its own existence by stirring up controversy.

“Another industry body attempting to prove with the use of BS that they are still valid. Wind up your useless industry body.”

IVORY TOWER RBA

The RBA has argued that broker commissions could create “significant amounts” of risky lending. In its Financial Stability Review, the central bank says competition in the residential mortgage market has remained vigorous over the past six months, causing lenders to compete more vigorously for new business – such as by increasing commission rates or other incentives paid to brokers to help gain market share.

“I do wonder where the RBA have been all these years. They get some data from APRA and in total isolation, without actually bothering to get the word from the street, they go and make these sweeping statements. I wonder if the folks at the RBA that royally decide these things have ever seen a mortgage broking business? So many of our mortgage broking clients complain that QED’s audits mean they have to turn away business on real-world affordability and the consumer then goes off to a bank branch and gets the loan. Try that on for risk Mr Stevens! This all just smacks of ivory tower syndrome. Good on the MFAA and FBAA for going after these idiots.”

QEDRisk on 26/03/2015 at 12:36PM

HOCKEY DENIES NEGATIVE GEARING DRIVES SPECULATIVE INVESTMENT Treasurer Joe Hockey has argued that the decision to invest in housing is more about Australia’s capital gains tax arrangement rather than the tax treatment of negative gearing.

Trev on 31/03/2015 at 4:14PM “Is Joe on another planet? Negative gearing does not drive investment in rental properties.

As if his rhetoric on Q&A wasn’t enough evidence of his complete misunderstanding on the matter. Or is he just too vested himself?”

Papery on 31/03/2015 at 11:33AM “There’s either a ‘substantial proportion’ of investors and accountants who have it wrong or one very out of touch Treasurer!”

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

BIG IDEA 28

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Brokerage looks to Chinese buyers A Sydney brokerage has made innovative moves to cater to the Chinese market

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1 Finance, a mortgage brokerage based in Sydney, Brisbane and Melbourne, has created the first Australian mortgage comparison site in Chinese.

The site will offer rate comparisons for more than 30 lenders.

The website – www.chengdai.com.au – removes language barriers for Chinese speakers in searching and comparing lenders and offers a greater level of transparency, with all relevant costs associated with every product outlined clearly, the brokerage says.

Ren Wong, managing director of N1 Finance, says although educated local Chinese speakers comprehend English well, speaking in their first language is always going to be preferred, especially around complex financial matters such as home loans.

“In developing this website, we wanted to create a comprehensive solution. Many people are too busy to speak with multiple banks, and each lender often has its own niche policy which requires research. This site makes this information accessible and offers a one-stop research tool for Chinese buyers looking for financing,” he says.

Wong says he expects the website to initially attract 400 unique visitors per month, but it is expected to grow quickly with approximately one million people from a Chinese heritage residing in Australia.

“We believe there is a huge opportunity for the website locally, and will aim to capture an overseas audience over the long term, but building out scale locally will be the key. We plan to do this through the website’s unique platform, which will offer property agents with Chinese clients incentives to refer customers through to the website,” he says.

“By partnering with property agents, our referral network increases but also offers those agents a solution to offer their Chinese clients a simple solution for financing and removing the language barrier.”

According to Wong, Chinese investors will continue to seek investment opportunities in Australia, despite the potential fee foreign buyers may be charged to purchase Australian property.

“Property is more cultural than an investment practice for Chinese, who buy housing at different life milestones, including marriage, when children are born and when kids grow up.

“Given the close proximity of Australia to China, Australia will remain a relevant destination for Chinese investors as long as it remains an attractive place to live and tertiary education standards remain high on a global scale. Assessing Chinese investor demand for property by focusing purely on economic indicators or potential fees is likely to be a mistake as non-monetary drivers can be just as important.”

MOVERS & SHAKERS ■

LA TROBE BOOSTS BDM TEAM

Credit specialist La Trobe Financial has announced a new appointment to its NSW sales team to support its expansion in the state’s market.

Ben Flood has joined the distribution team with over 20 years’ experience in financial services. He has previously held positions within St.George and Bendigo and Adelaide Bank. More recently, he founded boutique mortgage brokerage BMG Financial Services and held a senior position at another brokerage, First in Finance.

La Trobe Financial’s head of distribution, Cory Bannister, said the new appointment would support the credit specialist’s expansion plan.

“In line with the company’s strategic expansion in the NSW market, Mr Flood will make a significant contribution to the team because of his strong credit and commercial background and market knowledge. The addition of Mr Flood further strengthens our experienced distribution team in NSW, now totalling three experienced individuals.”

La Trobe Financial has said it will continue to expand its footprint in the Sydney market with a number of key appointments to be announced in the coming months.

LET FHBS USE THEIR SUPER, SAYS BROKER First home buyers should be able to dip into their superannuation to help buy a property if it is restricted to new housing, according to a leading broker.

John Manciameli, principal of Hunterwood Solutions, told Australian Broker that early access to superannuation to help buy property was a good thing if it went hand in hand with housing supply.

“If it doesn’t address the supply issue, then it shouldn’t be done; it is simple economics. If it isn’t restricted to purchasing new homes, then it will increase demand while the stock remains the same, which will just create a price spike,” he said.

For most Australians, their house is their greatest asset, Manciameli said, so any initiative to help them get onto the property ladder is going to benefit them in the long run. “Property is one of the greatest wealth generators; it’s a major pillar in increasing wealth for most Australians.

“Super was designed in the first instance to help Australians avoid the pension and increase their wealth. There is some sense in helping first home buyers to get on the property ladder this way and increasing their wealth.”

However, Manciameli told Australian Broker there would need to be certain regulations enacted.

“There will need to be some caveats around it, such as you have to pay it back in 15 years; we can only do it with coordinated efforts from the government – so releasing land; and, obviously, you’re only allowed to buy brand new so it allows supply to come into the equation.”

In an online poll conducted by Australian Broker, 56.6% of brokers said first home buyers should be able to access their superannuation for a home deposit, while 32.1% said they should not be allowed. The remaining 11.3% said they were unsure.

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IN FOCUS

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ational Mortgage Brokers recently held its annual conference on the Gold Coast, where brokers heard from speakers such as Steven Bradbury, Allan Sparkes and Geoffrey Knight. Attendees also received complimentary Fitbits to reinforce the conference’s theme of being physically fit, mentally fit, and fit for business.

CAUGHT ON CAMERA 29

INSIDER 30

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Ditch the

SCRAPPING COMMUTE LIKE MONEY IN THE BANK

to hit peak performance It’s news no one wants to hear, but cutting caffeine could be the key to success

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or anyone looking to improve their performance – and potentially save money at the same time – emotional intelligence expert Travis Bradberry says he’s found one way to do so. The only catch is: you’ll have to say goodbye to your daily coffee run.

“Most people start drinking caffeine because it makes them feel more alert and improves their mood,” says Bradberry – but once you’re hooked, it actually has a negative impact on your performance.

THE MYTH

In the past, several studies have suggested that caffeine actually improves cognitive task performance in the short term, but Bradberry insists this is only because these studies failed to consider the participant’s caffeine habits.

New research from the Johns Hopkins School of Medicine shows that performance increases due to caffeine intake are actually the result of caffeine drinkers experiencing a short-term reversal of caffeine withdrawal.

By controlling caffeine use in participants, researchers found that caffeine-related performance improvement was non-existent without caffeine withdrawal.

“In essence, coming off caffeine reduces your cognitive performance and has a negative impact on your mood,” explains Bradberry. “The only way to get back to normal is to drink caffeine, and when you do drink it, you feel like it’s taking you to new heights.

In reality, the caffeine is just taking your performance back to normal for a short period.”

MANAGING YOUR EMOTIONS

TalentSmart recently surveyed more than a million people and found that 90% of top performers are high in emotional intelligence.

These individuals are skilled at managing their emotions and remain in control, even in times of high stress.

“The ability to manage your emotions and remain calm under pressure has a direct link to your performance,” says Bradberry. But caffeine actually makes it harder for a person to control their emotions, by triggering the release of adrenaline and ultimately our ‘fight-or-flight’ response.

“The fight-or-flight mechanism sidesteps rational thinking in favour of a faster response,” says Bradberry. “This is great when a bear is chasing you, but not so great when you’re responding to a curt email.”

THE VICIOUS CYCLE OF LOSING SLEEP

Self-control, focus, memory, and information-processing speed are all reduced when you don’t get enough, or the right kind, of sleep, and having even a small amount of caffeine in your system makes catching enough shut-eye much harder. Not only that, but the sleep you do get isn’t as effective.

“When caffeine disrupts your sleep, you wake up the next day with an emotional handicap,” says Bradberry. “You’re naturally going to be inclined to grab a cup of coffee or an energy drink to try to make yourself feel better.”

Coffee lovers are then left feeling tired in the afternoon and too often reach for their next fix.

This leaves greater amounts in your bloodstream at bedtime.

“Caffeine very quickly creates a vicious cycle,” asserts Bradberry.

MAKE AN IMPROVEMENT

Giving up caffeine for good – or at least cutting down – has the potential to improve your performance and make you a much better manager, insists Bradberry, but it won’t be easy.

Researchers at Johns Hopkins found that caffeine withdrawal impairs concentration, and causes headache, fatigue and sleepiness. Some people even reported flu-like symptoms, depression and anxiety after reducing their daily intake by just one cup.

One of the perks of being a broker is the ability to work from wherever you want.

And brokers should evidently rejoice, because a new study has found the morning commute can be seriously draining.

So-called “happiness researcher” and National Geographic Fellow Dan Beuttner took it upon himself to quantify just how much happier a person would be if they cut out their commute.

The answer? About $40,000 happier.

“If you can cut out an hour-long commute each way out of your life, it’s the [happiness] equivalent of making up an extra $40,000 a year,” insists Beuttner in his book Thrive: Finding Happiness in the Blue Zones Way. “The top two things we hate most on a day-to-day basis is, No. 1: housework and No. 2: the daily commute in our cars,” he explained. “It’s an easy way for us to get happier. Move closer to your place of work.”

Beuttner’s conclusion comes as the result of a five-year study on residents living in some of the world’s happiest places, including Denmark, Singapore, Mexico and California.

He says the keys to happiness lie in fundamental, permanent changes to the way we live, but he asserts that a person’s daily commute has a real impact on their mental wellbeing.

Other surveys have reported a more modest figure, saying the average person would give up a 10% raise if they were able to work two or three days from home.