Australian Broker magazine Issue 8.21

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ISSUE 8.21 November 2011

Beware Refund model, buyers warned

Wayne Ormond

 Refund Home

Loans seeking new ownership, as suitors warned model doomed to failure Potential suitors of Refund Home Loans, which was forced to enter voluntary administration in October, have been warned they could be buying into an inherently flawed business model.

Refund Home Loans announced to franchisees in October the business would enter administration due to $2.5m in debt. The company’s

communications consultant Peter Sawyer told Australian Broker in an exclusive interview that franchisees may even launch their own bid to buy the business.

“It is feasible,” Sawyer said, commenting that Refund founder Wayne Ormond first announced the developments to a group of senior franchisees. “Their immediate reaction was, ‘we must support this, we must maintain business as usual and we must look for like-minded colleagues who want to bid for the business.’

Wayne and the directors are going to take a bit of a personal battering probably, but the support of the franchisees was

really good to hear,” he said.

However, interested parties have been warned by leading brokers and aggregators that their interest in continuing the business itself and the refund model may be a mistake.

Investors Edge Finance founder Andrew Gardner said buyers and particularly franchisees should be sceptical.

“I’d be thinking the franchisees need to be extremely cautious in putting more good money after bad into such a model that’s proven to be unviable,” he said.

Gardner called into question whether franchises could see sustainable returns under Refund’s model of partially rebating commissions to clients.

“The way the industry is now, with commissions declining by 37%, it’s very difficult to run a profitable business on anything but the simplest of loans without charging fees, let alone without charging fees and giving half the commission back,” he said.

Lower loan volumes and credit demand only compound this problem, Gardner said. “There’s no way you can make money out of this industry without all that commission, and to split that commission between the franchisor, the franchisee and the client, there’s nothing left to run the business with,” he said. “Even aggregators are struggling, and they don’t have to provide anywhere near the level of support that franchisors are required to.”

Page 14 cont.

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AMA winners Top brokers recognised at premier awards event Page 2

Giving mates rates New white label allows commission and rate flexibility Page 4

Westpac reshuffle New faces for Westpac and St.George broker business Page 6

Inside this issue Analysis 20 The future of Refunds Viewpoint 22 Disclosure documentation Forum 23 Brokers in Refund debate Insight 24 Learning not to yield Market talk 26 Booming amid the bust The AMAs 27 Wisdom from the winners Caught on camera 28 AMAs celebrates 10 years

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News AMAs lauds industry’s finest in 10th year The 10th annual AMAs delighted a who’s who of the mortgage industry at Sydney Town Hall in October, as the industry gathered to celebrate the success of colleagues and peers.

Australian Lending & Investment Centre’s Mark Davis took home the coveted Australian Broker of the Year Award, while his business was also named New Brokerage of the Year.

Accepting the award, Davis said it is his passion for the business and a focus on high-net-worth

clients in Melbourne that has seen him succeed. “It’s something I love; I love property, I love structures, I love gearing, I love investments, I love lending, I love banking, I love cash flows, so if you actually bring all that together it is very powerful,” he said.

The Australian Brokerage of the Year Award was awarded to Oxygen Home Loans, which also took out the Independent Brokerage of the Year Award for a business of greater than six staff.

Oxygen’s Peter Scott put the win down to a lot of hard work.

“I think there has been a lot of hard work from a lot of energetic and keen people and there is not much else to it – it’s just people putting in 100% all of the time,” he said.

Meanwhile, the Australian Young Gun of the Year Award was taken home by Andrew Morel of Club Financial Services, and Connective’s Fiona Brown won Australian BDM of the Year.

Morel said “persistence” was the key to his success starting out in

the business, while Brown said Connective’s model, including its technology platform, made her role as a BDM easy.

A stalwart of the AMAs and last year’s Australian Broker of the Year – Mortgage Choice’s Wendy Higgins – was awarded the Golden Morgie for lifetime achievement in the mortgage industry, the first time a broker had taken home the prestigious industry gong.

Higgins said it was “amazing” to be the first broker to win, considering their importance.

“I just think brokers are an integral part of our industry – if we didn’t have brokers, we wouldn’t’ have an industry. So it’s amazing to be the first broker to win a Morgie award.”

For a full list of winners, visit www.australianmortgageawards. com.au, while industry photos are being hosted on Australian BrokerNews at www.brokernews. com.au  For more from the AMA winners, see page 27

Kolenda launches aggregator Finsure Industry stalwart John Kolenda has launched a new aggregator that will seek to reward brokers with attractive commission remuneration in addition to high levels of support.

Branded ‘Finsure’, the new aggregation offering promises brokers “unrivalled brand, marketing and online support” in addition to “market-leading remuneration plans”.

Kolenda said the Finsure model could achieve both ends by the creation of systems and processes that increase efficiencies and allow for more value.

“It is the most comprehensive value and commission proposition in the industry,” Kolenda said.

The group will field a total of eight

BDMs – two in Queensland, three in NSW, two in Victoria and one in WA and SA – and aims to recruit 200 brokers within the first 12 months.

Kolenda said while the business would launch with a finance focus, it would transition to providing a suite of finance, insurance and wealth services for the ‘mass affluent’ market.

Kolenda said there was a large number of brokers who were dissatisfied with their current aggregation offering.

“Brokers are questioning the value of what aggregators are providing,” Kolenda said. “There are more looking for a fresh alternative who are dissatisfied with their current arrangements.”

Kolenda said aggregators usually fall somewhere between two ‘extremes’ – one that provides non-branded back-end systems with a high commission split, and another that provides the full suite of branding, marketing, training and compliance at the expense of commissions.

However, some brokers are looking for greater value and support, according to Kolenda, while others were seeking a better commission split. He said Finsure would meet both needs.

The Finsure launch comes on the back of the ongoing growth of Kolenda’s 1300 Home Loan business, and will begin being advertised to consumers early in 2012.

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Connective white label allows ‘mates rates’ Connective has launched flexible pricing for its white label product that will allow brokers to deliver ‘mates rates’ by dialling commissions up and down.

The new pricing structure for the aggregator’s recently-launched Connective Home Loans will give brokers control over pricing, allowing them to set rates for individual clients and build commissions around rates, which the aggregator says will ultimately benefit borrowers.

Connective head of sales and business development Michael Goerner said the structure will enable brokers to tailor product pricing around their commission needs, or even substitute commission for fee-for-service.

“It just cuts down the margin so there’s no upfront and no trail. In feedback we’ve had from brokers, one of their main concerns is that

they’re going to have to introduce a fee-for-service. Probably the two biggest concerns at the moment are fee-for-service and clawbacks. This addresses those concerns, because obviously if you charge a fee there’s no clawbacks,” Goerner said.

Brokers will be able to structure each individual deal differently dependent on the needs of their business, according to Goerner, who added that they could even structure the product to benefit their friends, families or staff by offering ‘mates rates’ deals.

While pricing can vary from borrower to borrower, Goerner said a maximum allowable rate will ensure the product cannot disadvantage borrowers to the sole benefit of the broker. “We have capped out the maximum borrower rate at 7.17%, so they can’t price the product any higher. We didn’t want any brokers out there with

eye patches and buccaneer caps.”

Connective is not expecting any complaints from borrowers about potential inequity in the rates they are offered. “The worst case scenario is two people with Connective Home Loans bumping into each other at a pub and talking about their rates. In that case we would hope the one with a cheaper rate was maybe charged a fee-for-service and that’s why they got it cheaper,” he said.

NCCP requirements will also serve as a check to ensure competitive pricing on the products, Goerner said. “The thing to be mindful of is that under the NCCP environment, brokers are required to provide comparison products. Whatever they’ve priced the Connective Home Loan at will be plugged into that, and they’ll have to provide suitably-priced products in the comparison. The

rigour around compliance has been one of the main points to this stage to make sure everything is ship-shape and in Michael Goerner order,” he said.

Ultimately, the flexible pricing was designed to give flexibility to broking businesses. “For more established brokerages, the annuity income from trail and the value it builds in their business is important. These brokers now have the opportunity to dial-up trail and scale down the upfront commission, while still delivering a competitive wholesale rate to their clients,” he said. “Conversely, a brokerage in its infancy relies on upfront commission for cash flow so they may elect to forgo the trail commission and instead boost the upfront.”

Battlers see no benefit from bank wars Home loan competition between the banks has primarily benefited high income earners, it has been claimed.

Waning credit demand has seen aggressive moves from major lenders moving the average discounting of new home loans to 80–90 bps below the headline rate.

However, not all borrowers are seeing the benefits of these moves, it has been claimed.

Mortgage broker Loan Market has suggested discounting by major banks has delivered greater benefits to borrowers with assets

in excess of $1m or households with annual incomes above six figures than to average wage earners. The company’s COO, Dean Rushton, cited a survey of brokers which found 48% had seen high net worth clients offered the best deals by lenders.

“The current price war between the major banks may have the perception of helping all customers equally, but the reality is that the greatest opportunities exist for clients who have a high net worth,” Rushton explained.

Rushton did concede, however,

that high net worth clients with a strong base of assets presented less risk and higher returns for lenders. He said this afforded wealthier borrowers more opportunities to secure good deals from lenders.

“There is no question in this case that those who borrow more have more room to negotiate on their rates,” he said.

While high net worth borrowers were tipped as the biggest beneficiaries of bank competition, 29% of brokers polled said they believed bank discounts favoured

investors, while 20% said first homebuyers were the biggest beneficiaries. Rushton stated that the least likely group to see dividends from bank discounting were self-employed borrowers.

Only 3% of the survey’s respondents argued that selfemployed borrowers had seen benefits from bank pricing wars.

“Banks are certainly looking at investors as an attractive borrower with established equity, whereas credit and loan-to-value ratios remain tight for self-employed borrowers,” he said.

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MacRae takes baton St.George taps RAMS from Bough at Westpac for new head of broker

Tony MacRae

Westpac has appointed Tony MacRae as its new general manager of third party distribution, with Huw Bough having moved to RAMS as the general manager of its franchise business.

MacRae will take a step up from his current role as NSW state general manager of Westpac’s commercial banking business, having previously held positions that have included acting CEO of RAMS Financial Group and general manager of Westpac third party distribution.

Westpac group executive retail and business bank Rob Coombe said MacRae brings strategy, sales management and specialist knowledge in distribution business to the role.

“Tony’s breadth of financial service leadership experience means that he is well positioned to grow Westpac’s mortgage broker business,” Coombe said. “Westpac’s third-party distribution network is an integral part of the bank’s strategy, with approximately 45%

of all new residential home lending business written through the broker channel,” he said.

The moves come as part of a broader management change which included Westpac’s multibrand St. George group, where Clive Kirkpatrick has been named general manager, broker.

Kirkpatrick was previously head of franchise at RAMS, the role Huw Bough will now fill.

Speaking with Australian Broker, Huw Bough flagged continued Westpac initiatives to improve its broker offering under the new leadership of Tony MacRae. “I think it is always healthy for there to be change in any institution; different people put a different lens across things,” Bough said. “Given the whole bank is totally committed to customer choice, you are going to continue to see innovation from Westpac,” he said.

Bough said he has long held a strong passion for RAMS, having served as head of broker business from 2004 to 2008 before moving across to Westpac as head of third party.

“I’m really excited about the opportunity to directly lead a team of new and long-term franchisees, and I’m honoured to be able to share the responsibility for driving increased value for stakeholders,” Bough said.

Bough added the brand had survived the GFC. “If we compare RAMS pre-GFC to now, it actually shows the resilience and strength of the brand - it’s as strong today as it was before the GFC,” he said.

Looking forward, Bough argues retail brands will play a large part in the distribution of home loans.

The new head of broker for the St. George group of brands, Clive Kirkpatrick, has been charged with identifying potential short and long-term improvements to its service.

Joining from his pervious role as head of franchise at RAMS, Kirkpatrick will be responsible for general management brokers across St. George, Bank of Melbourne and BankSA brands.

Melos Sulicich, who was named St. George’s general manager of third party distribution in August in addition to his duties as RAMS CEO, said Kirkpatrick had direct responsibility for broker business across the St. George group of brands. “He will have responsibility for driving business and ultimately making the St. George group of brands easier for brokers to do business with so we can build on this relationship and partnership.”

Sulicich said part of what Kirkpatrick will need to do is meet with aggregator heads as well as individual brokers in the market, to identify things that can change quickly, and “things that will take longer to do” to make its proposition more attractive to brokers.

He identified an increased business development manager headcount as a priority, flagging one new imminent BDM appointment in Queensland and another two in Victoria.

“We want to grow our BDM base on the ground. The view we took is that we needed to beef up that presence, as it does make a huge difference in this business,” he said.

The bank will keep its broker

segmentation strategy, which includes Flame, Gold and Silver brokers, but will aim to “broaden the base of activity we get across the broker segment”, according to Sulicich. He added that Kirkpatrick had been appointed after a wide search for a replacement for Steven Heavey, both from St. George and the rest of the market. “We had a look around the general market, and spoke to a lot of people. We also had a look internally, and took the view that at this point in time it was the most appropriate move for us.”

Kirkpatrick, who started in October, was head of RAMS’ broker channel prior to his appointment as head of franchise.

He previously worked in Bankwest’s retail division and headed up the financial services and third party distribution at Clearview Retirement Solutions.

He has also held other senior roles at Westpac, including national manager of alternative distribution and sales.

Clive Kirkpatrick

Disclosure could speed broker retirements More brokers might consider retiring before the end of this year due to the impact of recently rolled out consumer disclosures under NCCP coupled with the tougher economic conditions.

Advantedge Financial Solutions head Craig Saville said the business was watching its trail book buy/sell register closely, due to a “gut feeling” that it may see an increase in activity as brokers Craig Saville leave the industry

earlier than they had originally planned.

“We are expecting further broker exits in coming months due to the increase in workload and complexity resulting from the recent disclosure changes under NCCP,” Saville said.

“We think that for brokers thinking of retiring or leaving the industry next year, these recent changes may get them to bring that forward,” he said.

Saville said this would likely be because of the extra work, training and knowledge that is required to ensure they are

meeting the disclosure requirements under NCCP. “NCCP increased the workload and compliance costs for brokers; the additional disclosure requirements may be ‘the straw that breaks the camel’s back’ for some,” he said.

Advantedge Financial Solutions’ buy/sell facility has so far undertaken 18 purchases of broker trail books, and expects this will rise to approximately 30 by the end of this year.

Saville said the average multiple being paid by Advantedge so far is 1.425 net,

including all costs associated with the transaction, such as the provision of contracts for the sale.

Advantedge does not charge fees or impose any clawbacks on trail book vendors.

“We provide this as a service to FAST, Choice and PLAN brokers,” he said. “It’s really important to have the buy/sell facility in place, so if someone wants to exit or retire, they have a solution.”

Saville said that the facility gives brokers peace of mind in knowing they are dealing with someone they can trust in the trail book broking market.

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Heavey vows Suncorp ‘total strategic review’…

Incoming head of third party for Suncorp Steven Heavey has vowed the bank’s credit policies and broker processes will go under the microscope when he begins his role.

Heavey, the former third party head of St. George, said Suncorp had already begun making changes aimed at courting the third party channel, and said he would conduct a “total strategic review” of the bank’s policies and processes to ensure Suncorp was “easier to do business with”. He stated that credit policies would be a key part of this review.

“In this environment if you really want to grow your business, you need to have a credit policy consistent with where the market’s at, while balancing that out with bringing good quality business in

for Suncorp. Credit will be high on the agenda, as will processes. I’ll be devoting a lot of energy to that,” Heavey said.

Commissions will also be under review, though Heavey said he did not foresee major changes other than ensuring commission structures were straightforward.

“I think the key to commissions is you don’t want to get overly technical. You want to keep it simple. I believe Suncorp has already made some changes to their commission structure in recent times. I don’t envision too many changes other than trying to simplify things,” he said.

Heavey said that Suncorp had a renewed commitment to the broker channel, and that its strategy to grow through intermediary

business drew him to the role.

“One of the things I liked about the discussions I had with Suncorp is that at every stage of the recruitment process they demonstrated a very strong commitment to be in this space.

The CEO, David Foster, is genuinely committed to building the business through brokers. This isn’t just jump in, jump out. They seriously want a long-term relationship with brokers, and are committed to growing the business using that channel,” he said.

Indicative of this commitment, Heavey said, was the creation of the role he will now fill. “The role didn’t exist previously. The very fact that they’ve decided to bring someone in at my level is a clear demonstration to the industry that

Steven Heavey

they’re serious about distribution through brokers,” he said.

…while ‘Champion’s Club’ overhauled Suncorp Bank has rolled out changes to its ‘Champion’s Club’ segment, as it seeks to meet increasing competition from other lenders for business from the upper echelon of brokers.

The bank has announced that it will offer brokers special offers on

Harry Hills

loan pricing and commissions, as well as maintaining and improving service, turnaround times and efficiency.

Suncorp regional general manager Harry Hills told Australian Broker the new measures have been designed to meet competition from similar ‘elite’ broker offerings in the market.

“Our improved benefits now puts us on par with - if not better than - most elite club propositions,” Hills said. “Feedback from existing Champions was that our offering was not competitive enough, and feedback from other key high volume brokers was that we needed to improve our proposition to attract their business.”

Hills said that Suncorp had been working at building the whole broker channel, and had not wanted to go down the path of segmenting too much. “However, I think we now acknowledge the fact

that the landscape has changed a bit and it is getting much more competitive,” he said. “The benefits will be an improved service offering, providing brokers with the confidence and trust that their customers’ needs will be met through knowing that Suncorp Bank will deliver on their promise of service, turnaround times and efficiency.”

Previously, Champion’s Club brokers were guaranteed faster turnaround times as well as a dedicated business development manager. Hills said improvements will include upfront valuations and the ability for brokers to have documents emailed to them directly.

Suncorp kick-started the new Champion’s Club offering this month with an exclusive promotion on its Back to Basics product which offered a 0.26% discount on the carded Back to Basics rate as of the end of August.

Redconcierge brokers Sarah

Wells said banks need to ensure that segmentation did not act as a barrier to entry for new people coming into the industry and that it benefitted consumers.

“If it is solely based on volumes, it may be we are forced to align ourselves with one or two lenders, which I don’t believe ultimately benefits the consumer in terms of why they may come and see a mortgage broker as opposed to going to a bank direct,” she said.

Hills said the relaunch was a tool to reward both volumes and quality loans.

Suncorp Champion’s offer • Special commission deals • Special pricing offers • Faster turnaround times • Dedicated BDM support • Upfront valuations • E-mailed loan documents

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Citi lowers LVRs in quest for affluent borrowers

Bank wars ‘disproportionately’ benefit small lenders

Citibank has cut LVRs and dropped LMI requirements in its drive to draw an increasing number of high net worth clients.

Going against current market trends, the bank cut its maximum LVR back to 85% across its mortgage products, and has ditched LMI requirements for loans between 80–85% LVR. Citibank head of mortgages strategy, marketing and product Belen Lopez Denis said the move was part of the bank’s overall strategy to draw affluent clients.

“We’ve been reviewing the types of customers we want to attract and the type we have been attracting. We’re focusing on affluent customers who have a large amount of deposit,” Lopez Denis said.

She commented that the bank has structured its products and rates to attract homebuyers with a large amount of equity, as well as high net worth investors. The lender earlier this year launched a range of variable rate discounts to benefit borrowers with access to larger amounts of equity or cash for deposit, and also dropped fixed rates to 6.25% for its one-, twoand three-year products. Lopez Denis said the bank’s fixed rate suite, along with a free 60-day rate lock feature, were attractive to the borrower demographic it was targeting.

The changes in LMI requirements are expected to be

Brokers and lenders are finally beginning to see the effects of mortgage price wars, though major banks are not the sole beneficiaries.

Recent research from the Market Intelligence Strategy Centre (MISC) has indicated that brokers saw an 11.4% rise in refinancing in the June quarter.

This followed a number of lender refinancing incentives launched during the March quarter, and indicates aggressive competitive moves by lenders have accelerated many borrowers’ decision to refinance.

MISC pointed to rebate offers launched by NAB during the March quarter in the context of its “break up” campaign, which it said were followed by similar rebate offers from competing banks.

“While the recent growth is good news in a stressed lending market, it suggests that while some banks achieved business gains at the expense of others – a pattern that would have been evident with static refinance growth – the fact that it grew by 11.4% suggests that the rebate activity may have

Belen Lopez Denis

particularly attractive to property investors. Lopez Denis said the change could not “be looked at in isolation”, but formed part of the bank’s overall strategy which included targeting highincome earners across its credit card products.

“That’s really where our strategy is. We consider ourselves a niche lender. We realise we cannot be everything for everyone,” she said.

Citibank’s targeted growth strategy may be paying dividends.

The bank said in a statement released in June it would seek to grow its mortgage book by 10%.

Lopez Denis commented that wooing high net worth borrowers had seen the lender make headway towards this goal.

“Since the beginning of this year we have seen significant growth in our overall portfolio, and expect this change will bring in even more of our target segment,” she said.

encouraged borrowers who might not have refinanced to do so and others to accelerate their decision,” the MISC research concluded.

Non-major brands have also seen a spike in activity from their refinancing incentives. The MISC research pointed to the $1,000 rebate offered by ING Direct and the $600 cash-back incentive from non-bank lender Homeloans, saying such offers yielded a 13.76% increase in refinancing activity for non-majors, as compared to 10.5% growth for the Big Four banks.

The company stated that lenders employed differing strategies to drive refinancing, with Commonwealth Bank offering fee-free products, NAB instituting a $700 rebate and Westpac utilising a package of discount fee waivers and LMI. Though rebates and special offers were not universal among regionals and non-banks, they were found to have “disproportionately benefited” these lenders.

Refinancing as a share of broker-written loans also increased in the June quarter, up to 28% from 26% in the December quarter.

Refinancing growth by lender type Lender type

June quarter growth

Major banks

10.5%

Regionals and non-banks

13.76%

Total

11.37%

Source: MISC

BIS tips 9% rate peak, after near-term cuts BIS Shrapnel remains bullish on interest rates, despite predicting the next RBA move to be a downward one.

The company has predicted mortgage rates to hit 9% by 2014, and has forecast that the RBA will cut rates 25–50 bps before tightening again some time in 2013. BIS Shrapnel managing director Robert Mellor predicted the Reserve Bank could move to lower rates as soon as November, but said rates would not come down significantly before labour and inflationary pressures forced another round of tightening.

The company has previously predicted tightening by the RBA, last year saying that labour market pressures and

accelerating household spending would push the official cash rate towards 6.5%. In its 2010 Long Term Forecasts report, BIS Shrapnel posited that unemployment was set to drop to 4% by early 2013. With unemployment rising over much of the past six months to settle at 5.2% in September, the company has now pushed this forecast back to mid-2013, but still contends robust resources investment will see employment prospects improve.

Mellor also predicted that first homebuyers would re-enter the market in the period after 2011.

He commented that the results of the First Home Owner Grant Boost and the subsequent

downturn in demand following its withdrawal had largely filtered through the market.

“By now we’ve effectively balanced out the pull-forward of first homebuyer demand to 2009, and we’re set for recovery.

We’re already seeing signs of growth coming through,” Mellor commented.

Mellor forecast 5–10% per annum growth in demand among first homebuyers, and said some of this would have flow-on effects for upgraders. Likewise, Mellor predicted house prices would return to growth over the next three years, with Sydney expected to see 19% appreciation over three years and Brisbane tipped to see prices escalate 16%.

However, he said the company believes Melbourne, Adelaide and Hobart will see declines in prices over the next three years.

Melbourne, he predicted, will see the most pronounced price correction, with prices declining by 4.2% in real terms by 2013/14.

“Melbourne will see fairly little growth in prices over the next three years, and probably not even for the next five years,” Mellor said.

Robert Mellor

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More innovation needed, not higher LVRs: QBE LMI More targeted products – not higher LVRs – are needed to aid first homebuyers entering the housing market, according to mortgage insurer QBE LMI. QBE LMI CEO Ian Graham has stated that new product innovations will be necessary to help first homebuyers enter an increasingly expensive housing market. However, he said that simply lending more money is not the appropriate response. “[Raising] LVRs is not the answer. Clearly, through the GFC that was highlighted. The Australian market always had a limited appetite for 100% [LVRs].

We certainly don’t expect that to be one of the innovations that would come back, and it’s not one we would support.”

Instead, mortgage products are likely to become more targeted to specific borrower profiles, with Graham saying mortgage products for investors, upgraders or first

homebuyers needed to be differentiated in order to suit individual needs.

“We think it’s going to come through better segmentation of the market. The major development we would suggest is better segmentation of the mortgage product, and one that’s better targeted to meet the needs of different borrowers,” he said.

New product innovations, Graham stated, would be driven by the willingness of mortgage insurers to price and rate risk.

He argued that any innovation in the mortgage industry, from the wholesale RMBS market to increased LVRs, had been made possible by mortgage insurers.

“Product innovation can sometimes create new risks, and that’s where LMI comes in. We don’t take a short-term position.

We look through to the next three to five years and say whether that’s a risk we’re prepared to

write. We’re not on the leading edge, but if we can price and rate the risk we’re prepared to support the mortgage market going forwards,” he said.

The post-GFC moves back to higher LVRs does not represent any erosion of lending standards, according to Graham, who said QBE LMI’s average claims had not risen as a result.

“Some lenders have moved back up from 90% to 95% LVR. For us that’s not a big change because our core business is first homebuyers.

Insuring loans up to 95% LVR is our standard insurance offering.

Some have commented that it’s a sign banks are loosening their lending standards. We haven’t seen any loosening of standards, because we’ve always had an appetite for 95% loans,” he said.

The advent of NCCP legislation is tipped to prevent a return to questionable lending standards.

“Another positive going forwards is

Ian Graham

the NCCP, so that’s having a positive influence in terms of reinforcing the need to do full and adequate documentation.

“I think lenders have a greater obligation to borrowers, and have obviously put more responsibility back on brokers.

“That is making the process more robust, because more of those marginal loans that would have gotten through prior to the GFC are not having the same prospect of getting done,” he commented.

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Read the latest issue of Australian Broker online www.brokernews.com.au

Bank discounting ‘as ‘Changing of the guard’ good as it’s going to get’ predicted in lending The current level of discounting from major banks is “as good as it’s going to get”, a leading industry analyst has claimed.

A sluggish home loan market has seen banks make aggressive moves to win more mortgage business, with discounting off the standard variable rate now reaching around 90 bps.

J.P.Morgan banking analyst Scott Manning has stated that discounting off headline rates has now reached historic levels as banks try to trump one another.

“Although discounting off headline rates is nothing new, the speed with which it has developed – and the depth at which it now is – is quite remarkable,” Manning said.

However, the current level of discounting leaves little more room for banks to move without eroding their profitability. “The current rate of discounting is about as good as it’s going to get,” Manning said.

According to J.P.Morgan research, current bank discounts had taken return on equity for mortgage products to around 24%.

Manning said this level of return on equity may be the threshold below which lenders will be

unwilling to move. “We think the mortgage return on equity they would still want to retain is in that 20–25% level,” Manning said.

“Somewhere around the current levels are logically as low as you can go in terms of the RoEs these banks are targeting.”

The current rush of fixed rate discounting and promotion from lenders is largely a reaction to reaching the limits of variable rate discounting, Manning said.

He pointed out that due to a downswing in the funding yield curve, banks were seeing more profitability from fixed rate products, despite the lower rates offered to borrowers.

“The interesting thing is there’s actually a sag in the yield curve around the three-year mark at the moment, so banks get a better spread off that product. The borrower gets a better rate, and the return to the bank is higher,” he commented.

Manning predicted banks would continue to aggressively promote fixed rates rather than variable rate products. He said reduced returns on equity and low credit growth meant it was imperative banks retain existing higher margin clients.

Standard variable

Discounted variable

Standard 3-year fixed

Discounted 3-year fixed

Rate

6.90%

6.65%

6.59%

6.44%

Discount

90 bps

115 bps

0 bps

0 bps

Return on Equity

37%

24%

48%

41%

A “changing of the guard” is at hand as major bank dominance begins to be eroded, J.P.Morgan has claimed.

The company’s most recent Australian Mortgage Industry report, conducted with Fujitsu’s consulting firm, noted that major bank market share growth has slowed substantially.

“The GFC has resulted in divergent outcomes for the majors, and we have seen a changing of the guard,” the report read.

While housing credit growth for the major banks saw an average three-month annualised growth rate of 14.4% prior to the GFC, J.P.Morgan indicated this has slowed to rates in the mid- to high-single digits, a trend the company expects to continue over the coming years. As of July 2011, the three-month annualised growth rate for home lending had fallen to 5.2%, and as the pace of housing credit growth has slowed for the majors, J.P.Morgan said the gap between the majors and other players may narrow.

“Since mid-2010, the market share shift towards the major banks at the expense of other

Lending Growth May to July 2011 5.2% -1.2%

2.3%

-2.8% Home lending

Source: J.P.Morgan, published on 5 October

ADIs and wholesale lenders has slowed down substantially.

“This is consistent with our views … that the major banks were unable to ‘swim against the tide’ of lower system housing credit growth dynamics forever,” the report stated.

This slowing of market share shift has been most notable among credit unions and building societies, with mutuals growing consistently faster than major banks. The report noted, however, that mutuals still constituted a relatively small share of the mortgage lending market.

J.P.Morgan predicted that housing credit growth was unlikely to recover in the near future, and could slip further given volatile economic conditions.

“We are forecasting system housing credit growth to remain at mid-single digits over the coming years, relative to the mid-teen growth rates experienced pre-GFC. The coming 12 months are, however, likely to remain fragile with housing credit growth to remain at the lower end of this range,” the report read.

Personal lending

Business lending

Total lending

Source: RBA

Aussies pessimistic despite improving attitudes Consumer sentiment saw a mild up-tick in October, but Westpac says Australians remain pessimistic overall.

The Westpac–Melbourne Institute Index of Consumer sentiment rose from 96.9 to 97.2 for the month amid what Westpac chief economist Bill Evans called “conflicting signals”.

“On the downside, financial markets were again unsettled with sharp falls in both the share market and the Australian dollar,” Evans commented. “On the positive side we saw a marked change in the rhetoric from the Reserve Bank,” he added.

Evans pointed to the Statement of Monetary Policy from the RBA’s

October meeting, stating that the RBA had “adopted an easing bias”.

He said some recovery in the currency markets towards the end of the survey’s cycle may also have contributed to the result.

“Overall, however, the Index remains quite weak. It is 16.9% below its level of a year ago and 6.8% below the average for the first half of 2011.

“It is consistent with the Australian consumer remaining pessimistic,” Evans said.

Evans also pointed to weakness in several of the “time to buy” indexes that form part of the survey. The proportion of consumers tipping that it was a good time to buy a dwelling fell

10.4%, largely reversing the 15.1% rise in last month’s index.

Evans reasserted Westpac’s view that a rate cut is likely, pegging December as the month the RBA will move.

“The Reserve Bank Board next meets on 1 November. We were pleased to see a considerable softening in the Governor’s rhetoric in his last Statement following the decision to hold rates steady in October. He noted that, ‘an improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary’. When central banks make such statements, a rate cut is a reasonable possibility.

On 15 July Westpac signalled a likely rate cut by the Board meeting in December. That remains our call while noting that the possibility of a move in November is quite real,” he said.

Bill Evans

14 www.brokernews.com.au

News Valuing Refund

Vow Financial CEO Tim Brown questioned the quality of refunddriven businesses. With Refund Home Loans franchisees splitting commissions with clients after the franchisor has already taken a cut, Brown said the motivation for excellent service could be undermined.

“I think in general it undermines the professionalism of the industry.

What sort of value are you putting in as a broker if you’re getting less commission? Are you going to work as hard if you’re getting paid much less per hour? What people don’t understand is that brokers put in a lot of time and effort to make sure the client gets the right product,” he said.

Brown commented the model could cause clients to undervalue the service provided by brokers and lead to lower service levels to match this expectation.

“People don’t value what they’re getting, so the service is only half of what they normally get. With commission cuts, we still feel brokers are getting underpaid for the service they provide. If someone gets half that pay, what sort of service are they delivering?”

Brown said.

Brown stated the result was that Refund Home Loans seemed often to draw franchisees with a lack of industry experience, and that many ran the risk of becoming disaffected with the model.

“I think there are very good people among them, but I’ve also

seen them attract a lot of people without any experience. I’d say some would survive, but a lot wouldn’t. We’ve heard about and seen a lot of turnover once people see the amount of work required of them,” Brown said.

Blame the growth, not the model

Following its demise, Refund Home Loans’ communications consultant Peter Sawyer defended the model, saying that franchisees had continued to see good business returns. He put the company’s financial troubles down not to a flawed business model, but instead to rapid expansion.

Sawyer said Refund saw “overexuberant growth” in the years following its founding. “Refund went through a very heavy expansionary stage at the end of 2009, adding Refund Financial Planning and earlier this year Refund Real Estate. All that was funded out of cash flow,” he said.

This rapid expansion saw the company grow to more than 350 franchisees by this year, and resulted in Refund being named in BRW’s Fast 100 and Fast Franchises lists three consecutive times. Refund also took out Choice Aggregation’s award for national group volume for four consecutive years. Sawyer said this growth at the expense of cash flow was exacerbated by banks retreating from financing the company’s debt following the Queensland floods.

“The growth was to take advantage of the conditions and the market at that time. What knocked it around was not the business model. What knocked it around was the reluctance of the banks after the January floods,” Sawyer said. “We’re a company that’s had valuations of $50m that only has to clear $2.5m. That’s ridiculous.”

While Ormond sought to finance the debt through outside investors, Sawyer said the “relationship didn’t work out”, and the investors decided to “put their money in something else”.

He said despite the company’s growing debt, franchisees had continued to do well.

“They’ve been doing good business recently, and the market up here [Queensland] through Refund Real Estate is looking very positive,” he said.

MFAA CEO Phil Naylor agreed that the failure of Refund Home Loans does not necessarily negate the refund model in general, but is merely a sign of difficult economic circumstances taking their toll on Refund’s specific business model.

“I think in these uncertain times I’m not shocked about anything.

It’s a difficult time out there and different business models will be challenged. I wouldn’t criticise anyone’s business model. There are lots of different business models out there, and some work and some don’t. That’s life, unfortunately,” Naylor said. “It’s a competitive industry, and different people have tried different points of interest to attract consumers. The difference is if it works or not. The key is that it’s got to work.”

Indeed the company’s franchise network could prove attractive to investors, as could its $2bn mortgage portfolio. Gardner argued, however, that whoever does eventually buy Refund Home Loans should consider fundamentally changing the company’s business model.

“Maybe the new buyer of Refund will look at a more traditional model and add more value for the franchisees. If you take the Refund Home Loans model and compare it to Smartline – and Smartline was named Franchisor of the Year, mind you – it doesn’t take a genius to work out which one’s working,” he said.

Brown said any buyer of Refund Home Loans could face difficulty in changing what is already a highprofile and well-known consumer proposition. Any potential buyer would also be buying into Refund’s existing franchise network.

“They’d be buying a model that already has a set offering. How do you then change that? I think the distribution structure sounds appealing, but you would have to look at the quality of the people in that structure,” he said.

Any potential buyer of the business will need to take this into account, though changing an existing model could prove a significant hurdle for any new owners.

“Could it evolve into a new model? I don’t know,” Brown said.

“It seems a big move from where they are today, and it’s already been shown the current model doesn’t work,” he said.

Buyer beware

Refund has reportedly seen other interest outside of its own franchisees.

“There are a number of parties who respect the company and the brand, and for whom the franchise network is obviously attractive,” Sawyer said. “The task of the administrators is to sell the business, and interested companies have chosen to wait for the administrative process to play out so they know the transaction – if they choose to take it on – will be problem free,” he said.

Refund Home Loans: A timeline April 2004

Wayne Ormond launches Refund Home Loans

October 2009

Ormond named number 74 in BRW’s Young Rich list

October 2009

Ormond denies ACCC allegations that he contravened the Trade Practices Act in statements to franchisees

November 2009

Refund signs up its 300th franchisee

March 2010

Ormond admits to misleading franchisees with statements regarding communications with the ACCC

October 2011

Refund Home Loans announces it is entering voluntary administration

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15

Choice to continue to pay Refund commissions Choice Aggregation Services has vowed to stand by Refund Home Loans brokers after the company entered voluntary administration, and Choice’s CEO Stephen Moore has said the company will continue to pay commissions as normal.

“I can confirm that Choice will continue to meet its obligations with Refund when it comes to the payment of commissions,” he said.

Following the announcement that Refund Home Loans would enter administration, Moore said he had written directly to Refund franchisees to ensure them Choice would continue to provide them with aggregation services.

“Obviously, we are disappointed to hear that the step has had to be taken to appoint an administrator to Refund, and we understand the anxiety that may cause its franchisees. But we are a people business, and the relationships we have with individual brokers are enduring relationships,” he said.

Choice has confirmed with the company’s franchisees that while Refund continues conducting business, it will continue to provide aggregation services for the company’s brokers. Moore said Choice had contacted Refund’s administrator, and would work with them “in relation to the ongoing conduct of Refund’s business”. Though he said he could not speculate on the administrator’s plans for the Refund business, the administrator’s public position was that it would look for buyers for Refund rather

than liquidating the company’s assets.

“The administrator’s stated position is to look for a buyer to sell the business to as a going concern,” Moore said.

While Choice will continue paying commissions to Refund, Moore said commissions to individual franchisees falls to Refund Home Loans.

“The relationship on paying commissions to Refund franchisees is Refund’s responsibility, so we have no say over that. We’ve certainly encouraged the administrators to continue to support the franchisees,” he said.

Moore confirmed that the group’s trail books are owned by Refund rather than Choice, and hence are at the mercy of administrators. With this in mind, Moore said Choice had actively advocated for Refund brokers with the administrator.

Stephen Moore

Refund failure should serve as warning: AFG AFG has warned brokers to be diligent in keeping abreast of their business partners’ financial situation following the collapse of Refund Home Loans, and has said the company had a duty of care in making its franchisees aware of its financial troubles.

Refund announced last week it would go into voluntary administration over $2.5m in debts. AFG managing director Brett McKeon said the development should serve as a warning to brokers to be aware of the financial position of their aggregators and franchisors.

“Brokers – for a living – assess risk.

They look at a client’s creditworthiness and if they don’t think it’s strong enough, they don’t proceed. A lot of times when choosing an aggregator or franchisor, they don’t do the same assessments,” he said.

While McKeon urged brokers to be proactive in knowing their business partners’ finances and assessing their own exposure, he said Refund Home Loans also had the duty to inform its franchisees of its financial position before reaching the

point of insolvency.

“I think companies have a duty of care to their brokers or franchisees. For most brokers, their number one asset is their trail book, and companies Brett McKeon have to make sure they don’t put their franchisees’ trail books at risk,” he said.

For this reason, McKeon argues it is important for aggregators and franchisors to make their financial position readily accessible for their brokers.

“We post all that information publicly.

We host our financials on our website so brokers will know whether they have any exposure or not,” McKeon said.

Ultimately, McKeon said Refund franchisees may have bought into a model doomed to failure.

“That model was maybe not a sustainable model from the outset,” he commented.

16 www.brokernews.com.au

News ANZ turns bearish on rates, housing

AFM resurrects alternate funding Non-bank lender Australian First Mortgage has re-launched its alternate funding product range, after retiring it due to a rise in cost of funds during the GFC. AFM’s alternate range of product promises a “flexible alternative” to mainstream funding available via the major banks, and is targeted at non-conforming clients, such as self-employed borrowers and those in ‘unique circumstances’.

Australian First Mortgage’s national head of sales Clint Hawthorne said the re-launched product would add to the funding opportunities available through the non-bank lender.

“The program caters for self -employed applicants who have traded less than two years and applicants who have unique circumstances where they need to seek alternative funding,” he said.

Speaking with Australian Broker, director and head of credit David White said the alternate funding option would help a niche group of customers such as those who have a Telstra default and can’t get mainstream credit, or the short-term self-employed. “It will help them to get a loan now instead of waiting a couple of years,” he said.

White said the previous incarnation of the alternate funding products had run “really, really well” prior to the global financial crisis, but had been retired due to the cost of funding.

White said that it was now re-launching as it had been a “great success”.

Hawthorne said the non-bank had strengthened its value proposition as a result of the move.

“We are continuing to introduce new funding opportunities and develop a flexible suite of products for our broker customers to remain competitive and provide our accredited brokers with viable alternatives to the major banks.

AFM said it would continue to offer competitively priced products, conditional approval within 24 hours, access to in-house credit managers and no current clawback on trail commissions.

David White

outperform other asset classes, they are also unlikely to see returns as high as those experienced in the last two decades. ANZ predicted that

equities will see an average annual return of just below 8% over the next decade, compared to the 8.9% average of the past 24 years.

Asset returns: historical vs. projected (next 10 years) 12% 10% 8% 6% 4%

Projected

Historical

Bad building outlook could cost jobs Conditions in the building industry have fallen to their lowest level since February 2009, it has been claimed.

The Australian Industry Group – HIA Australian Performance of Construction Index (PCI) has fallen 2.1 points in September to 30. Any number below 50 is considered contractionary, and the index has now tracked below 50 for 16 consecutive months.

The Australian Industry Group claimed the result was the lowest PCI reading since February 2009, and was driven by weakness in residential and commercial construction. The group’s director of public policy, Peter Burn, said the index highlighted the need for an RBA rate cut, but that a cash rate cut alone would be unlikely to see conditions turn around.

“Lower interest rates would assist in reigniting demand for housing and commercial construction in particular.

However, the extent of uncertainty hanging over the domestic and global economy points to a continuation of tough times for the industry. This is borne out by the ongoing weakness of the new orders across all the sub-sectors,” Burn commented.

HIA chief economist Harley Dale said the PCI indicated

s itie Eq u

ve Pr stm op en er t ty

In

Co

m m Pr er op cia er l ty

2%

si Pr den op tia er l ty

downward revisions to global growth forecasts,” Calhoun said.

Calhoun added that in spite of ANZ’s prediction of rate cuts, the bank did not foresee the drastic moves currently priced into the markets, but rather expected the RBA to move from a slightly restrictive to a neutral stance.

While a potential rate cut could provide a boost to the housing market, the bank has still tipped property to underperform as an asset class over the next decade.

ANZ’s Asset Returns: Past, Present and Future” report has found residential property saw the highest returns of any asset class over the previous 24 years.

Residential property averaged annual returns of 12%, compared to 8.9% for equities. However, the trend is not set to last, with the bank forecasting owner-occupied housing to see annual returns of only 5% over the next decade.

While equities are predicted to

Re

ANZ has joined Westpac in its predictions of a downward rate move on the back of poor jobs data.

The ANZ Job Advertisements series for September showed job ads online and in newspapers fell 2.1% for the month. The result puts the year-on-year rise in job ads at just 3.1%, and has led the bank to forecast a rise in unemployment to 5.5% by mid-2012.

ANZ head of Australian economics and property research Ivan Calhoun said while the bank was forecasting a rise in unemployment, it would not be as sharp as that seen in 1995-96 or at the onset of the GFC in 2008-09.

However, Calhoun predicted the RBA would cut rates as a result of rising unemployment.

“We expect the first of two 25bp cuts are likely to be enacted at the next board meeting in November.

This would be a prudent move given global uncertainties and

Source: ANZ

weakness in residential building was accelerating.

“A majority of Australian PCI components contracted at a faster rate in September, amidst a deteriorating global economic climate, which is adding fragility to consumer and business confidence here at home,” Dale said.

The deterioration in conditions may also lead to a loss of jobs, Master Builders has claimed. The organisation has pointed to a survey of industry sentiment, which showed builders believe construction activity and profits will decline over the next six months, and expect to have to reduce employees or subcontractors.

Master Builders chief economist Peter Jones said falling housing and credit demand means private sector projects have not filled the gap caused by the winding up of government stimulus programs.

“The building and construction industry has lost the cushioning effect of government stimulus programs whilst the credit squeeze and other regulatory constraints continue to affect business operating conditions,” he said.

Jones commented that conditions are expected to deteriorate across both commercial and residential building, and could lead to job losses in the industry.

“With activity and profits under pressure, it is little surprise that builders have indicated that they will be looking carefully at workforce levels in the period ahead,” Jones said.

18 www.brokernews.com.au

News

For all the latest mortgage industry news, visit www.brokernews.com.au

NMC names new CEO Malizis Former Wizard CEO Angelo Malizis has been appointed as chief executive of National Mortgage Company.

Most recently engaged in a management consulting role at Firstfolio, Malizis has held senior roles at banks, wholesale funders and mortgage managers in addition to his previous role at Wizard.

The group said Malizis had been brought on board to drive “an aggressive multi-channel growth strategy”, which would focus on white label and generic mortgage manager funding programs.

Speaking with Australian Broker, National Mortgage Company head of wholesale mortgages Sergio Delvescovo said the business was ramping up its white label product and service

AMP Bank launches upfront vals AMP Bank has launched upfront property valuations for brokers, stating that the development is part of the institution’s desire to grow its share of the mortgage market. AMP has stated that the previous process of conducting valuations after the submission of applications could result in “a longer and more complicated loan process”.

AMP Bank head of sales and marketing Steve Craig said he expects upfront valuations to dramatically improve the bank’s turnaround times.

“The aim here is absolutely to reduce turnaround times for customers, for brokers and for planners alike. I think one of the frustrations is that the mortgage product has multiple steps based on multiple pieces of information.

By being able to provide all that information in one go we should see a dramatic improvement in turnaround times. It really does make for a lot more efficient and better experience for the borrower waiting to get approval,” Craig said.

offering, which includes servicing to products including the newly launched Connective Home Loans.

In addition, Delvescovo said it was setting up a mortgage manager funding line, which would provide smaller mortgage managers access to funding from funders including ING Direct and Adelaide Bank.

Despite the white label and mortgage manager initiatives, Delvescovo said the group was also focused on continuing to grow its mortgage broking originator channel, though it had always taken a selective approach to accreditations and would continue this approach.

Malizis replaces owner and former CEO Steve Dover, who has moved into an executive chairman role with the business.

While many lenders have already introduced upfront valuations, the timing of the AMP launch coincides with the bank’s renewed appetite for business following the GFC. “It’s something we’ve been keen to do for a while now. We just had to get the timing right. During the downturn in the market there were not a lot of new initiatives from lenders. As we’ve come back to the market it’s one of the improvements we want to offer to brokers. It’s all about AMP Bank’s desire to grow,” Craig said.

The system will allow brokers to order valuations online, and Craig said the bank has built its platform with ease of use in mind. The platform will allow brokers to complete straightforward information fields, with business rules programmed into the system’s back end.

“What we were keen to do is deliver a system that’s easy to use out in the field. It was about getting the business rules right in the back end to make the experience for the broker easy. The key thing is the simple information you need to put in as opposed to lengthy completion of data fields. The valuation goes back to the broker, which they can then submit with the deal. By ordering the valuation upfront they can provide a fully documented deal,” he said.

Flashback: AMP to give brokers deposit control AMP announced in September it was working with key aggregators to enable brokers to arrange on a no-advice basis the full range of AMP ‘basic’ deposit products, including term deposits and ‘at-call’ accounts.

The lender’s head of sales and marketing Steve Craig said it would allow brokers to arrange for customers to obtain a deposit product by assisting the customer to complete and submit the application to AMP Bank for fulfilment.

Steve Dover

Angelo Malizis

NMC’s former CEO and owner Steve Dover moves into an executive chairman role

Former Wizard CEO Angelo Malizis appointed as chief executive of NMC

Brokers to clear asset finance ‘logjam’ Brokers keen to develop equipment and asset finance streams of their businesses are expected to benefit from a heightened appetite for capital acquisitions starting in 18 months.

East & Partners analyst Paul Dowling told Australian Broker that a “definite” opportunity for finance brokers would begin to open up in 2012 or 2013, despite a severe decline in broker-sourced business in the sector since the onset of the financial crisis.

“There has been a dam building up in demand – a lot of customers have put off capital acquisitions and also their financing needs,” he said. “SMEs and micro businesses are not investing in their business, so there is quite a logjam. If not next year, then certainly in 2013, we see that starting to break, because there is only so long businesses can stay in limbo for.”

Broker market share of equipment and asset finance loans has declined from 40% to 36% of the market due to trends associated with the financial crisis. However, actual total loan volumes through brokers has declined by over a third during that period.

Dowling said part of the cutback

had been due to customer perceptions about where credit availability now exists – namely with the end lender – and that businesses were now willing to pay for credit at almost any price, rather than rate shopping. The number of these lenders had also declined, and players had “severely” rationalised their broking distribution.

Dowling said bank cross-sell behaviour since the GFC and the active leveraging of all their credit relationships to secure a greater share of customer ‘wallets’ had contributed to this state of affairs.

He added that the equipment and asset finance market had been a market “under some siege” and had “fallen off a cliff” following the GFC, causing “tough times” for brokers who haven’t been in commercial and asset finance for long. However, he said that the “logjam” would soon start opening. “This new wave of demand will give an opportunity for newer players to come back into the market and start adding value,” he said.

Dowling said that brokers who were around prior to the GFC in this market had seen their businesses actually strengthen, compared with new players entering the space.

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19

What a difference a year makes … or not. Australian Broker reflects on the punditry, breaking news and trends that made headlines in the magazine 12 months ago Australian Broker Issue 7.21 Headline: ‘Unhealthy’ market to see ING Direct push (Cover) What we reported:

ING Direct vowed in 2010 to combat the “unhealthy” state of lending competition with a comprehensive review of its credit policy, and by ramping up mortgage lending by 20%. The bank’s Lisa Claes told Australian Broker ING Direct had “quietened down during the GFC”, but was ready to ramp up to its pre-crisis mortgage lending levels. She lamented the trend of brokers sending the majority of deals through the major banks, and called into question whether this met the responsible lending criteria of the NCCP.

What’s happened since:

ING Direct saw a bit of a broker stoush earlier in the year after comments from Claes urging brokers to support second tiers.

Brokers praised ING Direct’s products, but took aim at the bank’s credit policies, lack of access to credit assessors and documentation processes. ING Direct responded with a raft of changes to address broker concerns, including opening access to assessors and conducting another review of its credit policy, as well as allowing for further automation in its loan application and variation process.

Headline: House prices to rise ... along with rates (page 6) What we reported:

BIS Shrapnel displayed its bullishness on interest rates, predicting last year that the official RBA cash rate was likely to hit 6.5% by mid-2013. The company said the first adjustment to the cash rate would not occur until the first half of 2011, and would see the Reserve Bank hike rates to 5.5% by June 2012. BIS Shrapnel also forecast rising house prices, with Sydney tipped to see 20% growth by 2013, and first homebuyers set to return to the market in 2011.

What’s happened since:

The jury is still out on BIS Shrapnel’s forecast for 2013, but the company missed the mark in tipping the RBA to stay sidelined until mid-2011. Merely a month after its prediction of RBA restraint, the Reserve Bank lifted the official cash rate to 4.75%. BIS Shrapnel has stuck to its prediction of a 6.5% cash rate by 2013, but now says the next RBA move will be downward before the bank begins tightening rates again in 2012. As for house prices, the company remains bullish, still calling for a near-20% rise in Sydney.

Headline: Mortgage Ezy bullish on low-doc future (page 8) What we reported:

Following predictions that the incoming National Consumer Credit Protection regime would kill low-doc lending, Mortgage Ezy CEO Garry Driscoll defended the loans, saying any NCCP issues could be addressed with alternative forms of documentation. Driscoll said low-docs would have a positive future as competition returned to the mortgage market, and lenders who retreated during the GFC re-entered. He argued that demand among self-employed borrowers had built up during the GFC while the products were not readily available.

What’s happened since:

Low-doc lending has yet to be killed by the nascent NCCP and disclosure regime. Traditionally low-doc lenders like Liberty Financial and Pepper Home Loans have expanded into near-prime offerings, while CBA-subsidiary Bankwest re-entered the low-doc market.

Select Finance director Bruce Gibbons recently spoke to Australian Broker in defence of the loans, saying demand had not eased and lenders were active in the market. He argued that the NCCP had ended no-docs, “lie” docs and “sceptical” docs, but in no way prohibited low-docs.

Headline: Financial pressures push borrowers to budget (page 12) What we reported:

Last year’s Bankwest/MFAA Home Finance Index revealed that more than 50% of Australian households were making financial sacrifices to meet rising living costs and the possibility of higher interest rates. The survey indicated 50% of respondents were eating out less and going out less, 47% were taking lunch to work and 42% were taking cheaper holidays or forgoing holidays altogether.

Interestingly, 17% of respondents said they were trying to improve their finances by buying more lottery tickets.

What’s happened since:

Last year’s Melbourne Cup Day rate rise meant that more Australians were subjected to financial pressures, and the cost of living has continued to be a major concern for households. A recent study commissioned by lobby group Australians for Affordable Housing found one in 10 households were at risk of being unable to meet their bill payments after paying for housing costs. The study claimed 26% of renters and 15% of homeowners were experiencing housing stress.

20

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Analysis

Refundamentally flawed?

Wayne Ormond’s Refund Home Loans may have entered voluntary administration, but does this sound the death knell for all industry refund models? Adam Smith reports

N

avigate to the website of the now defunct Refund Home Loans, and you will find claims from the group – and particularly founder Wayne Ormond – of its critical importance to the development and success of the mortgage broking industry throughout the last decade.

“The launch in April 2004 of Refund by Wayne Ormond was the most significant factor in that change in that he effectively transformed the way Australian homebuyers organise their home loans,” the website tells borrowers.

While these claims may strike today’s brokers as self-aggrandising on Ormond’s part, the collapse has indeed caused shock to an industry once shaken by the launch of refund models.

However, it has also raised serious questions about the future of the commission refund model in general. In a low credit growth environment – especially where lenders have already severely trimmed broker commissions – some industry players have questioned whether handing a portion of commission back to borrowers will allow brokers to operate profitably. And beyond the concern of profitability, does the model detract from the industry as a whole?

Value through refunds?

AFG managing director Brett McKeon has contended that refund models have not added value to the industry and has called into question whether brokers could operate a sustainable business while giving away part of their commission.

“I’m personally not one in support of Brett McKeon a refund model.

I would question the profitability and motivation of someone writing some of that business broadly,” he said.

The real problem with the models may be the perception they create among borrowers. McKeon said refunding commissions could undermine the work brokers do, and lead to the perception that commissions are undeserved or easy to come by.

“I don’t think it helps the industry. I think a lot of people feel the same way. I think it undervalues the broker’s effort. A lot of people see commission as something that’s easily earned, when in fact it’s not. It’s not that easy to build a business and see returns, or to do applications and get applications to settlement when consumer expectations are so high and lenders have particularly high expectations,” McKeon said.

FBAA president Peter White agreed, saying brokers must first value their own contribution before they can expect consumers to value it. “You’ve got to get paid for your work unless people believe your time is of no value. If brokers don’t, maybe they shouldn’t be in the game.”

Higher costs, lower commissions

White believes brokers giving their upfront

commissions back to clients could find themselves hard-pressed to cover their daily operating costs.

“It really comes back to how the model is structured. Most businesses are structured so upfronts cover day-to-day expenses and trail is the cream on the cake. If you refund your Peter White upfront, you have to get a reasonable book up to run the business off trails.

That’s a highly risky model,” he said.

And while the model may have found success during times of high credit demand and fat commissions, a weak housing market and shrinking commissions mean models that were viable prior to the GFC may now be doomed to failure. Strachan Taylor, founder of referral service Refunds Direct, said the current business climate means that brokers refunding commissions can’t count on volumes to make up their shortfall.

“The GFC allowed lenders to cut broker commissions, and recent additional compliance requirements of brokers has delivered a double whammy – revenues dropping and costs increasing – to the industry. This has squeezed the broking industry in general and more so if you were refunding part of your commission as well,” Taylor said.

How it succeeds, when it succeeds

Refund models have seen success, however. Peach Home Loans and Mates Rates Home Loans still offer commission refunds, with Mates Rates founder Trent Lee even launching a business model which charges a flat fee and refunds 100% of upfront and trail to clients. Taylor’s own business, Refunds Direct, offers a no-advice referral service and commission rebates. The failure of the Refund model versus the success of similar models, Taylor said, comes down to operating costs.

Where the model has seen success, Taylor said, it is success brought about by extremely low operating costs.

In addition to low operating costs, White said charging a fee-for-service could also prove to be a potentially viable model for commission refunds.

What could prove more beneficial for both the borrower and broker, White said, is charging a fee and forgoing commission to secure a better rate rather than merely refunding commission to the borrower.

“You could go to the lender and say, ‘You don’t have to pay me a commission, but I want a reduction of the interest rate. If I don’t get an upfront, let’s negotiate on the rate.’ The client over a period of time would be far better off,” he said.

A flawed philosophy

Regardless of the model, the philosophy behind refund brokerages may be flawed. McKeon said they operate under the assumption that broker commissions are somehow excessive.

“Some people have the wrong idea about what brokers do and think brokers earn a lot more than they actually earn,” he said.

And following the failure of Refund Home Loans, McKeon summed up the company’s legacy in questioning the motivation behind the model in the first place.

“I don’t think it’s added any value to the industry at all,” he said.

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Comment VIEWPOINT

Disclosure requirements came into force on 1 October, but was the mortgage market fully ready? We asked brokers and aggregators what they thought of the changes.

Stephen Moore

Brett Abikhair

Tim Brown

Choice Aggregation Services

The Selector Group

Vow Financial

Do you think brokers were ready for disclosure? The main issue really is that this is new. It’s new documentation and new processes. In the short term that has been a bit of a distraction as well, but in the longer term though, we think it is a real positive.

Are the disclosure requirements reasonable for brokers? We do think it is a bit onerous in terms of the sheer number of documents required. That said, the intention is right, but going forward we would like to see a streamlining of the number of documents to help make it easier.

Are there benefits to NCCP disclosure requirements for brokers? One of the great flow-on benefits is capturing rich customer data. That’s not only great to reinforce the proposition that brokers provide, but if you capture that data right in a good CRM system then it is actually a very efficient way of doing business. You can capture the data once, reuse it the right way through the process with all the respective documents, and also make ongoing servicing of customers very efficient, besides having the opportunity to identify other needs as well.

What are the major challenges presented by disclosure requirements? Not surprisingly, the challenges we have found come from clients. They think we are making their life harder simply by doing what we have been told we have to do. So we’ve had to manage client expectations a lot more than before, which takes time and effort, and we have also had to spend a lot of time and money on developing systems with very little guidance from ASIC. It was basically, here is the broad set of what you are meant to be doing, and the rest you have to make up yourself – so it’s a lot of time, a lot of effort, and a lot of client dissatisfaction.

What do you think may be the future of mortgage broking compliance? Back to the financial planning days, we originally had a 100–120 page SOA (statement of advice) and it was a nightmare, that was bureaucratic red tape. But over time that drifted back to 30-, 40-, 20-page records of advice. It became far more client focused on the compliance side.

Does disclosure documentation present opportunity? If you are not asking more questions and directing the client to the right place for related products and services, are you doing the right thing under NCCP? It’s a very good excuse to engage with clients on a far broader range of subjects than in the past.

What are some measures you took to get brokers ready? We took the brokers through our webinar, which allowed them to come online, where we took them through a formal presentation that allowed them to ask questions online and we obviously replied to that group. The feedback was pretty good, and I think generally most people were comfortable as we transitioned to the 1st that they were ready to operate.

Do you think brokers were ready for disclosure? I think for licencees it’s probably a little less clear, because they have to make up their own processes and systems; but that’s the road they chose, and we always offer them the option of coming back under our licence at any time. We are finding more and more brokers are moving back under our licence because they want that guidance and uniformity so they don’t have to worry about it.

Are brokers operating part time these days? I think with the costs associated with compliance, you can’t afford to be a part-time broker anymore. Really what you are dealing with are full-time brokers who are well educated and well informed credit advisors.  To see the full story online, visit us at Australian BrokerNews, and click through to www.brokernews.com.au/tv

OPINION

Segment clients by tech habits for success Knowing your client’s preferences and behaviours online can assist in matching them with the right lender, argues Century 21’s Charles Tarbey and Geoffrey Slater With regulatory reform, an ever-changing economic landscape and rapidly advancing technologies, never before has it been more important for mortgage brokers to develop a strong understanding of the needs, preferences and behaviours of clients in order to successfully pair borrowers with the most suitable finance products.

Alongside age and risk profiles, a key consideration for all brokers has become the preference of clients to use technology, and the impact this has on the types of mortgage products they will favour. Should they wish to access it, borrowers are now privy to constantly updated data on global financial conditions, currency movements and economic sentiment, with more the tech-savvy receiving up-to-theminute information from both mainstream news sources and social media networks.

As can be reasonably expected, more techsavvy borrowers are often at the younger end of the market, usually within the first homebuyer category. Many of these first-time buyers are information hungry and will rely on a variety of sources to base their mortgage decision, including both mainstream media and other unofficial mediums.

These borrowers are often already aware of, and involved with, lenders who operate largely online, which can see them display more flexibility in their lender choice, and less concern at the lack of a bank shopfront and the fact that many transactions will occur over the internet.

These borrowers may therefore be suited to appropriate mortgage products from second-tier lenders that, due to a lack of physical presence, could be more intimidating for other borrowers.

While tech-savvy borrowers offer opportunities to brokers, their online behaviour also has the potential to cause credit issues, which may require education on the part of brokers. As prospective borrowers search the internet for information, they may unwittingly agree to terms and conditions where an online enquiry triggers an official credit application (which can happen fairly easily). If unsuccessful, such applications have the potential to significantly damage the borrower’s chances for obtaining credit.

At the other end of the spectrum lie borrowers who are less tech-savvy, and wish to borrow from a physical outlet due to a perception of stability. Many of these borrowers have entrenched relationships with top-tier banks with which they already hold many financial products and accounts and have done so for extended periods for both personal and business purposes. Due to this relationship, a good deal of these borrowers believe that larger institutions will work with them to achieve the best product

possible, with the prospect of switching institutions quite a difficult issue to overcome.

While the products of larger banks may be better suited to these clients, education is also an important function for the broker to perform.

With new credit laws focusing on the concept of responsible lending, the ability of a bank to lend is dependent on a borrower’s financial situation at a particular point in time, based on their assessable income, the amount they wish to borrow, and so on. Thus, despite an existing relationship, a bank’s lending criteria may not permit them to write the loan if requirements are not met satisfactorily by the borrower.

For all borrowers, whether they are first-time investors or investors with several properties, the mortgage market is ever-changing and can be complex to navigate.

Successful brokers will understand how mortgage products can be best placed based on a variety of their client’s preferences, particularly their uptake of technology, and also the need to understand how client education will benefit all parties in the long term.

Savvy brokers would be wise to take the time to fully understand a potential client from many different angles, before attempting to communicate and interact. Developing the right communication platform and the right messages is vital for any sale.

Charles Tarbey is a regional owner of Century 21

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FORUM When Refund Home Loans went into administration, our online readers responded with an outpouring of commiseration for franchisees and opinions on the viability and future of the refund home loan model (Franchisees could buy Refund, 14/10/2011).

Well it was only a matter of time, as their business model was seriously flawed from the day they opened their doors. It’s hard enough to make a decent income in this industry, without gifting a portion of your income away and therefore creating unrealistic expectations from borrows that wish to utilise a broker.

May those that reimburse trail go the same way ASAP, for the betterment of this industry. Does your mechanic, doctor, dentist, physio or accountant give you a kick-back on his fees received? I doubt they would survive if they did; why brokers would ever consider this is beyond my imagination.

Broker on 13 Oct 2011 09:55 PM So what about Wayne Ormond – he was reported as very wealthy – why can’t he save his poor franchisees for only $2.5m? What’s the rest of the story we are not being told yet? I recently looked at their franchises and could tell they were struggling. They had a great customer idea but just way too many costs. Wayne kept going on TV drumming up low value customers with his “if you’re struggling come to us” message. I then looked at other models – and I am not here to promote anyone – but there are some new players around that offer customer refunds and have much easier businesses to run. I wouldn’t be a broker these days and I feel sorry for franchisees now being pressured to dip into their pockets to save Wayne’s world. anne1966 on 14 Oct 2011 07:59 AM A boring business and a flawed structure. No imagination and a surprising lack of vision.

Jon on 14 Oct 2011 09:55 AM Worst business concept ever. And they deserve to fade into oblivion. oldBroker on 14 Oct 2011 09:56 AM I’m surprised they lasted as long as they did! It just seemed like a very lazy business model from the start that was doomed to fail. It’s what happens when you have to “buy” business.

Nick on 14 Oct 2011 11:02 AM I really feel for the franchisees who bought in on good faith, but the exit of Refund is a good thing for the industry. Any downward pressure on commissions is only going to reduce competition as more and more brokers realise they can earn money working for wages. And that’s all Refund did. They placed downward pressure on commissions! positivebroker on 14 Oct 2011 12:17 PM

It was more than a flawed model; it was designed for franchisees who had zero sales skills, and whose only means to obtain client business was to buy it by way of refunds.

FinanceTart on 14 Oct 2011 12:39 PM I feel for the franchisees who have obviously been hoodwinked into buying a Refund Franchise. Over 12 months ago I attended a PD day with my (now previous) aggregator, and among the group were several Refund Franchisees. I was appalled and even more concerned with their lack of knowledge of the basics of lending. For example, the difference between PPR and IP (Principal and Interest or Interest Only). Too scary to think these people are out and about selling loans to the public and assisting them to make the biggest decision of their life. How can people with no knowledge become credit reps? It seems to me the whole licensing debacle is really not protecting the public – it is farcical. At least now with Refund gone it may limit the numbers of brokers entering the field who have no experience. megs on 14 Oct 2011 03:13 PM This is a complete warning to us all.

Make sure your aggregator is either owned by a large financial institution, has very solid asset backing and a good track record, or has all trails put into a trustee type arrangement. If the trails do not continue , ASIC need to be involved to look at how Refund was run, and if it is found that the law was broken the directors need to be held responsible. The MFAA and FBAA need to get involved to try and secure member positions in cases like this. countrybroker on 19 Oct 2011 10:45 AM That’s hilarious. Wait a minute, perhaps if you give more of your commission away you’ll be more successful. Business model completely wrong.

Notarefundfan on 19 Oct 2011 11:25 AM

Poll: How many lenders do you regularly recommend to customers?

With NCCP now introduced, are brokers shopping from and recommending a wider range of ‘not unsuitable’ loans? We asked brokers how many lenders they usually recommend.

2 or less (25%) 3 or 4 (22%) 5 or 6 (31%) 7+ (22%) Source: Australian BrokerNews Poll date: 11/10 – 19/10/2011  To vote in our latest online poll or get involved in our forum, visit our home page at www.brokernews.com.au

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Insight

Learning not to yield Controlling your behaviour can result in more positive sales results, so how can you do less ‘yielding’? Sue Barrett explains how to be a more assertive professional

D

o you experience difficulties asserting yourself with others in a sales context? Is maintaining positive relationships with clients so important to you that you are concerned these relationships may be damaged if you are perceived as pushy or intrusive? Do you hesitate to prospect, sell or self-promote due to a reflexive fear of being considered too pushy, intrusive, or selfish?

If you recognise any of these behaviours you might just be suffering from the debilitating behavioural issue known as ‘yielding’ which affects many salespeople and keeps them from earning what they are worth.

Despite the fact that selling requires assertive behaviour, ‘yielding’ is a common behavioural issue for salespeople. The result of yielding is underperformance in sales and devastating consequences for the individuals concerned, their teams, customers and managers.

So how do you stop yielding and start earning?

Defining behaviours

Sue Barrett is the founder and managing director of Barrett, a group that specialises in sales coaching and training. She can be reached through www. barrett.com.au

Make no bones about it, selling is an assertive profession.

Selling requires people to ‘push’ themselves out into the marketplace and put themselves in the right position to work with the right customers.

People who act assertively are: • Positive – rather than negative • Calm – they’re at peace with themselves and others • Enthusiastic – they complete tasks with zest and feel they’ll succeed at them • Proud – they accomplish what they do without stealing ideas from others • Honest – when they give their word that they’ll do something, they do it • Direct – they don’t play manipulative games to get what they want • Confident – they take calculated risks • Satisfied – they know where they’re going and how they’re going to get there • Respect for others – they recognise others have needs and rights • Energetic – their energy is directed towards achieving their goals By contrast, yielding is passive, fear-based behaviour and is usually learned to avoid dealing with difficult or confronting situations. If practised too much it can become a deeply ingrained habit affecting many situations in life. Some of these habits include: • indecisiveness, non-committal or excessively subjective • tend to agree with everything, hesitate to challenge or contradict • waiting for the ‘right time’ to prospect or sell • needing to be liked over making sales • sometimes manipulates others through nonconfrontational means such as gossiping, pouting, and passive-aggressive power plays • super-sociable, a rapport-builder, empathetic, always agreeing on the surface yet can be critical behind others’ backs • conflict-avoidant; and have difficulty speaking when angry • experiences difficulty when closing sales and talking about money

• focused on rapport-oriented sales presentations rather than having real discussions about clients’ priorities, issues or needs • too quick to accept client objections and let them walk all over you • give away margins or discount unnecessarily • would rather make friends than clients Sadly, sales teams have far too many people with yielding behaviour producing poor sales results.

Individuals with yielding behaviours often show a lack of prospecting capability, have poor up-selling and crossselling skills, have issues with quality control because they will not speak up about issues, often undermine the actions of others, which all leads to the erosion of trust in relationships which is the very thing yielders do not want.

The result is stakeholders and clients not getting what they really need because people with yielding behaviour will not ask more in-depth questions, assert themselves or challenge the views of others; instead accepting everything on the surface while often disagreeing beneath the surface, and so on.

Often labelling people who act assertively as ‘aggressive’, people with yielding behaviour will justify their actions and often resist attempts to be more assertive. What people with yielding behaviour often do not realise is that when they yield, other people feel: • irritated – they wish you’d stand up for yourself and make your own decisions • withdrawn – they avoid you because your negative attitude makes it difficult for them to maintain their own positive attitude • superior – they lose respect for you as a person, because you aren’t willing to stand up for what you believe in • tired – they waste valuable energy dealing with their negative reactions to you Yielding is not cool. Never has been and never will be.

While building rapport with clients is important, a reluctance to adopt more assertive selling behaviours such as speaking up for yourself, challenging ideas, asking questions, etc, is likely to prevent you from initiating and closing sales. So how do you overcome your yielding tendencies?

How not to ‘yield’

Here are a few tips for overcoming yielding: 1) Remember that the price, terms, conditions, and other related aspects of your product and service have been set with a lot of forethought and planning in mind. Try not to fall for the trap of undermining your own product or service before you begin the negotiation.

2) Negotiate for positive outcomes, ie, win/win outcomes.

Quite frequently giving way, for its own sake only serves to damage the longer-term relationships with your clients and others.

3) If you give something, ask for something back in return.

4) People respect assertive people who speak well of their products or service. Inject enthusiasm and real warmth into your discussions. Particularly when you have to say ‘no!’

5) Speak up about how you feel and what you really want – we cannot read your mind.

6) Don’t make assumptions – always ask questions to uncover what people really need.

7) Challenge yourself by asking some questions about the situation.

8) Ask yourself ‘What is the worst thing they can say if I ask for what I want?’ The worst answer is ‘no’, however, you will be surprised how often they will say ‘yes’.

Some people have personality traits which are more passive by nature, this means they will exhibit more ‘yielding’ behaviours. However, they too can learn to be more assertive with training. Most people have learned how to be passive or yielding which means they can unlearn these destructive behaviours.

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Market talk

Brokers finding booms amid busts Despite the challenges facing brokers, some are still managing to find the upside in a down market

T

he market at the moment can seem a fairly bleak landscape. House prices are flat to falling, credit demand is shrinking, banks have significantly cut commissions and increased compliance costs are beginning to filter through to brokers. In such a market, it can seem tough for brokers to scrape by. However, many brokers are still managing to prosper – and write a great deal of business – even in a tight market. Australian Broker asks some of the nation’s top brokers how they have managed to see success in the midst of difficult conditions.

Q

What area or segment of the market do you work in most often?

Jeremy Fisher – 1st Street Home Loans: The majority of my clients are in the Eastern Suburbs of Sydney and the North Shore, but I do see clients from all of Sydney and interstate. The Eastern Suburbs market has held up exceptionally well and remained buoyant and active throughout the past year.

Ruan Burger – Home Loans Etc: Things are good here [Gladstone in Queensland], but talking to a few agents, things have slowed down as stock is more limited, and the demand is in the lower brackets.

Justin Doobov – Intelligent Finance: We cover many segments, but mainly professionals and self-employed clients on high incomes looking to buy or refinance a residential or commercial property.

Q

What sets your business approach apart from others in the industry?

JF: [We have] a high level of personalised service from start to finish and beyond. Also the strong relationships I have with all the banks ensure I can deliver the desired results to my client each and every time.

RB: Our staff acts as if this is their business, and hence the clients at all times feel like they deal with people who

Jeremy Fisher

truly do have their best interests at heart. A good team makes all the difference.

JD: We are heavily focused on the service experience that the client receives. While we create loan structures that save clients thousands of dollars a year, we also want clients to remember us for the market leading service we provided them.

Q

How do you keep volumes up in a weak credit market?

JF: I ensure I maintain a consistent service at all stages of the market and thankfully this has provided me with a stable source of business from both existing clients and strategic referrals partners.

RB: You have to ensure you get out there to be seen.

Relationships will be the common denominator; hence, you have to keep on building on that perfect relationship.

JD: We keep improving our service levels, which keeps increasing the flow of referrals from happy clients. It becomes a self-perpetuating cycle.

Q

Where do you see Australian property prices heading?

JF: [I see them] remaining fairly stable over the next 12 months.

RB: [It’s a] hard one to predict. Things will remain the same for awhile depending on certain pockets in Australia. Luckily, I just have to do the home loans and not predict the growth.

JD: I don’t see them dropping like some people have predicted, though I do believe that there are and will be bargains to be purchased when some vendors become desperate and need to sell at any cost.

Q

What advice would you offer to brokers struggling in the current economic climate?

JF: Work on forming strategic alliances with businesses that can complement your business [and] that also can provide referrals.

RB: Make sure you are 100% committed to the cause.

Broking is not something you can do nine to five. Build on your relationships with your BDMs from different lenders. They are the be-all and end-all when things go wrong. Deal with a good aggregator group that understands your business and helps you grow. AFG has been very good to me in this regard.

JD: Think big picture. Don’t compromise on your service or advice [to] current clients. They will be the future referrers of new business.

NUMBER CRUNCHING Broker survey: What kind of movement have you seen in valuations in the September quarter?

Rental growth: Houses versus units 5.90%

5.70%

4.50% 3.10%

2.80% 0.00% 0.00%

1.90%

2.70%

5.90% 4.90%

Increase

3.30%

2%

1.60%

0.00%

0.00%

No change

More than 10% lower

30%

31% -6.00%

Source: Australian Property Monitors

At a glance…

65.3%*

The year-on-year increase in stock on the market in Melbourne, Vic *

Source: SQM Research

37%

Up to 10% lower Source: Loan Market

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THE AMAs

Being a winner

The AMAs rewarded the industry’s best with the recognition they deserve – but how did they succeed, and what are they planning next? Here’s some wisdom from the winners

Australian Broker of the Year targets $1bn

Higgins to beat tough times with cross-selling

AMA Australian Broker of the Year winner, Mark Davis, will work with business colleagues to hit a total of $1bn in annual lending volumes over the next three to four years.

Davis said he had achieved $175m in lending personally the previous year, and that the Australian Lending & Investment Centre as a business had hit a total of $300m.

However, Davis said the business was on a fast growth trajectory, and was aiming for a lending target much, much higher than this.

“Our goal is to take the business to writing $1bn a year over the next three to four years,” he said.

Australian Lending & Investment Centre director Kevin Agent said to achieve this they needed to find the best lenders, and were “struggling” top to find these at the moment.

Davis said the business would

Mortgage Choice broker and AMAs Golden Morgie winner Wendy Higgins says she is the “world’s worst” at diversification, but that this will be the next step in her market-leading business.

Speaking after her impressive win at the awards night, Higgins told Australian BrokerNews that she would aim to increasingly diversify her business into other aspects of financing outside mortgages.

“I am really into that now,” Higgins said. “I can see the dollars that can be made, and the need for customers to have that whole experience, so that is the next focus,” she said.

Higgins said that the postfinancial crisis market has been challenging for her and her staff.

“It is tough. It’s the toughest I have seen in my 14 years. I’ve struggled to keep the motivation going when we have not been so busy, because we love being busy,” she said.

However, Higgins argues that the future of the mortgage broking proposition is bright.

“I’m really excited about the future even though it’s been down and things have been tight. With diversification and insurance and car loans and cross-selling, it’s just going to be positive.”

Higgins said while having made a decision to step back from writing as many loans as she had in the past, her love of getting the deal and achieving her customers’ dreams was pulling her back.

Mark Davis

also seek to recruit new brokers to ramp up lending volumes.

“We are after writers who can write $60m-plus, and we can teach them and educate them in the way we actually work,” Davis said. “If we do that, we believe we can be one of the best brokerage firms in Australia within three or four years,” he said.

Agent said the business had achieved its success by treating clients better than what the banks do. “I guess we just saw the opportunity following the financial crisis; the banks weren’t doing as much as they could do for clients, and we thought we could take it out into the market and do it a bit smarter and do it a bit better,” he said. “We treat clients like relationships as opposed to numbers.”

Davis said focusing on high income earners had been key to his success, as is his unwavering passion for broking.

“I know what clients want, and what they need. I’ve probably been working it for about 10 or 15 years.

I really live and breathe it, I work on it every day, and I want to improve all the time, so I suppose those attributes don’t come unless you are really passionate about what you do,” Davis explained.

“It’s something I love; I love property, I love structures, I love gearing, I love investments, I love lending, I love banking, I love cash flows – so if you actually bring all that together it is very powerful,” he said.

Andrew Morel Club Financial Services Quality Young Gun of the Year I am very self-driven and what we do is go out there and talk to the customer, and if we can get a good result for them, that’s a good result for us. Combine that with a good work ethic, and you get a good result. This year has been a bit about persistence. The market’s flat, but we are just out there working hard and putting a positive message out to our clientele. Next, diversification is key. We are setting up a real estate arm next to the Club Financial Services mortgage broking side, and we have also got some financial planning that has started now, so between the three we hope to build a strong business model.

Peter Scott Oxygen Home Loans Brokerage of the Year (≥6 staff) There has been a lot of hard work from a lot of energetic and keen people and there is not much else to it – people putting in 100% all the time. It is a young and energetic team, and we are growing and will continue to grow. This year we have added a lot of new talent – the number of brokers in the team has at least doubled in the last year. There is a lot of talent there, and there is a lot more to come. Our plans are to keep growing at the same rate as it is currently growing, if not faster. I believe we are the fastest growing mortgage company in Australia and there is no sign of that stopping any time soon.

Wendy Higgins

“I’m getting back into it more and more because I am just so excited where we are going. There is a future and we just need to build that market share more.”

Higgins said her success is attributed to her drive for getting things right for the client.

“I’m driven from within to do the right thing, to get things done and do the right thing by people. If someone asks me something, I will answer them – I’ll answer emails at 10 o’clock at night. I am driven to keep things moving, I always have a sense of urgency, I am always looking to do the right thing by people,” Higgins told Australian Broker. “People come back to me years and years after I have done something for them and refer people to me and that’s what I live by; my integrity and my honesty and doing the right thing by the client. If the customer is happy then I am happy, and that is what it is all about.”

Justin Doobov Intelligent Finance Brokerage of the Year (≤5 staff) Having a fantastic team behind me and support from my wife who can look after the family has been important, but it’s also hard work and lots of customer service – that is what we have excelled in. This year, we exceeded the levels of service that we offered before, and I have built a fantastic team. Most other businesses will grow their business first, and then put a decent team on; I put the team on first, and now we are going to grow.

We’ll write double the volume of business we wrote last year, and we are going to have more fun, more work-life balance, and not working crazy hours seven days a week.

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Caught on camera The AMAs celebrates 10 years The Australian Mortgage Awards celebrated its tenth anniversary at Sydney’s Town Hall in midOctober, where the night’s MC Peter Sterling mingled with a who’s who of the mortgage industry for a night of glamour, entertainment and acclaim for the nation’s best in broking.

Photography by Simon Kerslake.

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Insider

Got any juicy gossip, or a funny story that you’d like to share with Insider?

Drop us a line at insider@ausbroker.com

A wing and a prayer

building, afraid to move, and the aforementioned abseiling expert was asking him to look around and enjoy the view. It was then (after looking down, and feeling his world spin as vertigo took hold) that Insider realised that all he wanted to do was get down – as fast as possible. Fixing his eyes firmly at the concrete wall of the building, he proceeded to descend in a series of awkward jumps, to the amusement, no doubt, of the crowd cheering (or jeering?) from below. Now that Insider’s feet are firmly planted on the ground, he would like to thank AMP for the invitation (though those who invited him did not go over the edge). However, Insider does not think he will so readily volunteer for any event from now on that takes him higher than the ground floor.

Throwing some ideas around

Insider is quite an independent and cautious type, and as a result doesn’t often find himself in treacherous positions, such as, for example, dangling 105m in the air by a rope from a city skyscraper, at the complete mercy of the staff associated with a financial institution. But that’s just where he recently found himself, at the invitation of AMP. The group, working in tandem with the Sir David Martin Foundation to raise money for the youth charity, was assisting in pitching 200 ready volunteers and fundraisers over the edge of its 26-story Circular Quay building, where they were left to abseil all by themselves to the ground. Now Insider likes a good cause, so when AMP said someone had been forced to drop out at the last minute (no doubt coming to their senses) he readily volunteered to fill the breach. Having said the necessary goodbyes (just in case), he proceeded to the top of AMP’s lodgings, where he was greeted by a panoramic view of Sydney, on which all those who were not about to go over the edge proceeded to persistently comment. However, Insider was not so appreciative of the heights,

in the knowledge he would soon be standing on the balustrade, with only the assurances of a few abseiling experts to allay his abject fear of the sheer drop behind him.

Soon enough, he was dangling from a rope at the top of the

Joblessness continues to be a serious problem for our American friends, who are sitting at around 9.1% unemployment while jobless numbers in Australia just saw a decline. In the quest to move the disenfranchised into gainful employment, people in the States have come up with some pretty innovative solutions, but one Florida lawmaker and professional mortgage broker has found the key: dwarf tossing. You see, dwarf tossing was banned in pubs in Florida back in 1989 under the radical argument that throwing human beings around for sport while mocking their physical characteristics might be dangerous and offensive (cue a shocked response from the English Rugby side). However, Republican lawmaker Ritch Workman wants

to overturn the ban so that more little people can find jobs. While Workman called the practice “offensive” and “stupid”, he said the ban could keep some willing participants out of work. Yes, in a country where some companies are receiving 10,000 applications for every 90 open positions, Insider is sure the real way to put a dent in unemployment is to bring back dwarf tossing.

Signs, signs, everywhere a sign

Insider has been watching with interest over the past month as the Occupy Wall Street movement has picked up steam, eventually going global and even landing on Australian shores. Any good protest movement, of course, comes with signs and placards.

Most protest signs are short, pithy slogans easy to remember and chant while being tear-gassed.

Punchy sayings like “We are the 99%” are easily latched onto, and have some immediate connection for onlookers. One protestor at Occupy Wall Street went a bit far, though. A photo of her sign went viral, because it bore the unlikely protest slogan “It’s wrong to create a mortgage-backed security filled with loans you know are going to fail so that you can sell it to a client who isn’t aware that you sabotaged it by intentionally picking the misleadingly rated loans most likely to be defaulted upon”. Truer words have never been spoken, but it’s tough to get a group of people chanting that.

“What do we want?” “The gradual phase-out of animal testing over the next three years!” “When do we want it?” “Over the next three years!”

“Let’s try it again – together this time. It’s wrong to create…”

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