Mortgage Professional Australia magazine Issue 10.6 by Key Media

www.brokernews.com.au ISSUE 10.06

Guiding you » through the new lending landscape

LICENCE AND REGISTRATION, PLEASE NEW INDUSTRY INSIGHTS

PAUL MULLENS TALES FROM A PASSIONATE OPTIMIST

BANK ACCREDITATION SEGMENTATION» POLICIES EXPLAINED

EDITOR’S LETTER

A new field of play There is no denying that the broking industry has weathered some major upheavals over the past few years. While the battles have been bloody, with brokers up in arms over commission cuts and a lack of competition, most now agree that it’s time to set sail for new horizons and an industry that has ultimately changed for the better.

issue

10. 06

Paving the new road for brokers are this year’s most influential players in the aggregation sector, the Superbrokers. Sharing their views on the broking industry in MPA’s annual Superbrokers survey, these actors have unanimously agreed that changes to lending and licensing have changed the broking industry forever. Most agree that stricter licensing requirements will force a more professional industry to emerge, with all unanimously urging brokers to take seriously the importance of diversification. In an echo of years past, this year’s Superbrokers speculate that part-timers will leave the industry in the wake of higher operational costs and education requirements. Those who remain will benefit from a leaner, tighter, more controlled environment that has the potential to provide even more opportunities. With competition finally returning in the form of innovative advances from the non-bank sector, things are finally looking brighter, say the Superbrokers. The key, they say, is to be flexible and open to the experiences the evolving industry is offering. To a solid year ahead,

Verity Snaith Associate Editor

MPA 2.0 Our multimedia edition features on-camera interviews with the industry’s biggest players. Visit Brokernews. com.au/MPA to hear their thoughts on the hottest issues facing mortgage brokers.

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CONTENTS

cover story

Divide and prosper MPA reveals the accreditation and segmentation policies of five major banks

34 Superbrokers: MPA breaks down who is left in the aggregation sector and how they plan to tackle recent licensing and credit changes

10. 06 issue

BROKERNEWS TV VOW FINANCIAL’S MANAGEMENT TEAM TELLS US: »» how the name Vow goes to the heart of its business ethos »» why it focused on increasing the range of products its brokers would have »» what its complete independence means for brokers »» its diversification growth plans for the future www.brokernews.com.au

CONTENTS

NEWS ANALYSIS 10 Despite growing confidence in the economy and rising house prices, first homebuyers are feeling the pinch

PUBLISHER Justin Kennedy

DESIGN MANAGER Jacqui Alexander

12 Senate inquiry reveals the drought on funding to small businesses could soon be over

DIRECTOR Claire Preen

FEATURES

REGIONAL MANAGING EDITOR George Walmsley

DESIGNERS Paul Mansfield Lucila Lamas

16 Licence and registration, please: MPA discusses the options on applying for an Australian Credit Licence

48 Responsible lending 101: Principal of Innoinvest Consulting, Su-King Hii, discusses responsible lending obligations 52 Marketing the right message: Doug Mathlin on the role of proper planning in a marketing campaign 54 Engaging an independent workforce: MPA asks Matthew Franceschini, CEO of Entity Solutions, for his advice on how to engage contract workers

SALES MANAGER Rajan Khatak

ASSOCIATE EDITOR Verity Snaith

ACCOUNT MANAGER Simon Kerslake

JOURNALISTS Sarah Megginson Andrea Cornish

HR MANAGER Julia Bookallil

PRODUCTION EDITORS Moira Daniels Carolin Wun Jennifer Cross

MARKETING EXECUTIVE Kerry Buckley TRAFFIC MANAGER Stacey Rudd

MPA LENDER 56 News: GE Capital has ‘no plans’ to re-enter the mortgage market; NAB wins CANSTAR CANNEX’s first Banking Leadership Award; Macquarie CEO indicates that the bank intends to build its loan book 62 Q&A: Bibby Financial Services’s Greg Charlwood on the rise in demand for invoice financing

PROFILES

10. 06 issue

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20 Leader: St.George’s loyal optimist Paul Mullens on the importance of teamwork in leadership 24 Broker: David Brell on how working as a liquor store clerk, ski instructor and wholesale fund manager has helped him find his niche 58 Business: Jeff Chapman, head of credit and risk operations at National Mortgage Company, on how the non-bank is ready to rise to the top once again

LIFESTYLE 64 My favourite things: Michael Watson

Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as MPA magazine can accept no responsibility for loss

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Editorial enquiries tel (02) 8437 4790 fax (02) 9439 4599 Editorial enquires: verity.snaith@keymedia.com.au Key Media Pty Ltd Level 10, 1 Chandos Street St Leonards, NSW 2065 www.brokernews.com.au

This magazine is printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry

NEWS PROPERTY

First homebuyers happy with their purchases According to a recent survey, 86% of Australians who purchased their first home during the last two years do not regret their purchase. In fact, they were so satisfied that 70% plan on holding on to it as an investment. Despite interest rate increases, rising living costs and underemployment concerns, the results of the 2010 Mortgage Choice First Homeowners Survey revealed first homeowners are more resilient than they are given credit for, with many prepared to weather the interest rate storms. With 95% buying between October 2008 and December 2009, over 50% of respondents said the federal government’s incentive “definitely” influenced their decision to buy. Eighteen per cent were not influenced by the grant, and another 32% indicated it was only “somewhat” of an influence. Because of their choice to purchase during record low interest rates with the aid of heavy stimulus, Mortgage Choice spokesperson Kristy Sheppard said there was “much speculation” about the resilience of the new first homeowners. However, she also indicated this speculation appeared to be unfounded. “Our survey results show that the majority are confident, prepared and aiming for a long-term strategy,” she said.

Property investors storm the market Accountancy firm Chan & Naylor has discovered that post-GFC, Australians are increasingly using self-managed super funds to invest in property rather than shares. With over 60% of mortgage sales Sal Carrero now made to investors, the shift is creating a new class of client that is looking for a stable investment. “Increasing awareness of the potential of SMSFs to borrow and invest is creating new demand for residential property,” said Chan & Naylor chief executive Sal Carrero. “It seems Australians feel comfortable with property as an investment class,” he explained. According to Carrero, the GFC prompted many Australians to question whether they could invest their own money better than their super funds. “Compulsory superannuation has meant that Australia has one of the largest pools of retirement savings. Even if a small percentage of the nation’s $1.3trn in superannuation savings are directed into residential property, it will add substantially to the demand for limited housing stock,” he added.

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40% The drop in first homebuyers during the first quarter » of 2010

Rocketing property market cools A recent report from Australian Property Monitors has shown that property prices have finally started to stabilise after strong annual growth. APM’s Quarterly Housing Report revealed the national median house price in the March quarter grew a moderate 3.1%, compared to an annual rise of 16.2%. Melbourne’s growth remained strong after leaping 27% in the 12 months to March 2010, recording a quarterly gain of 6.8%. Sydney’s median was up 14.7% year-onyear with quarterly growth easing to 2.1%. Canberra grew 13.9% for the year with Adelaide up 12.1%, Perth 9.4% and Brisbane 9.1%. APM economist Matthew Bell points to falling house finance as a leading indicator towards the median drop. “If past trends hold, house price rises should moderate further in the coming quarters,” said Bell.

NEWS MARKETS

Broker commissions under fire After a recent announcement by the government that the payment of commissions to financial advisors is coming under threat, some are asking whether mortgage brokers will be next. The federal minister Chris Bowen for financial services Chris Bowen recently announced that commission paid to financial advisors would be phased out by 2012 to ensure that consumers do not receive bad advice in order that the advisor receives more money. “As ASIC found in 2006, poor financial advice is six times more likely where commissions are paid in order to get various recommendations made,” Bowen said, adding that a similar initiative is taking place in the UK. Financial advisors will have to use an ‘advisor charging regime’. This will be agreed between the client and the advisor upfront and the advisor will be paid either on hourly fees or fees as a percentage of funds under management. While this is clearly aimed at financial advisors and not mortgage brokers, there are concerns that the same logic could be applied to the commission structure that brokers receive. Bowen sought to reassure brokers that their income is not under threat via these reforms. “There’s a different regime that applies to mortgage broking and that applies through our national credit reforms,” he said. “Mortgage broking is quite different to the issues that we’re talking about here today but they are regulated through the national credit reforms.” Are commissions under threat? Have your say online at www.brokernews.com.au

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95%

The new 95% LVR Hemisphere product signals the return of the non-bank lender

Hemisphere spearheads non-bank resurgence A new product created by Hemisphere Financial Solutions, launched by RESIMAC in February, is providing borrowers with up to 95% of the value of the property being purchased. Sparking hopes of a sustained recovery in the non-bank sector, the new product fills a niche for younger borrowers and first homebuyers who are struggling against rising rates and property prices in their efforts to save a deposit. Frank Knez, head of product & marketing at Hemisphere, is happy with the new offering. “We are delighted with the early progress of the Hemisphere brand and have received a positive response from consumers,” said Knez. “A new loan requiring only 5% deposit is not widely available amongst other lenders and we are looking forward to the impact of this product enhancement.” The entry of Hemisphere to the market has increased optimism among brokers that nonbank lenders are making a comeback in the mortgage arena.

Brokers benefit from the Henry Tax Review Company tax rates will fall from 30% to 28% for small businesses with less than $2m in revenue, according to a recent announcement by the Rudd Government. Those who earn more than $2m are excluded from the review, which recommended the definition of small business be changed from one that has $2m in revenue to one that has $5m. Most brokers will be better off from the changes which go into effect from 2012 to 2013. Brokers will also be able to take advantage of the instant small business asset write-offs worth up to $5,000 and will be able to depreciate assets in a single pool at 30%.

NEWS ANALYSIS

Banks expected to » boost small business funding A recent senate inquiry has revealed that the drought on funding to small businesses could soon be over

Guy Debelle

mall businesses’ access to finance was significantly curtailed during the GFC, but a recent senate inquiry has shown the situation could soon turn around as competition in the banking sector returns and banks loosen credit criteria. During assistant governor (financial markets) Guy Debelle’s appearance before the senate inquiry into ‘Access of Small Business to Finance’ in April, he stated that recent improvements in the economy could result in more finance being made available to small business. “In the end, the banks are in the business of trying to make profit, so if they can see profitable opportunities out there, they will probably try and go for that. And, given that the economy is now looking better, there are probably … more profitable opportunities out there than you would have expected even a year ago,” Debelle said. “I think you will see the banks start to compete more aggressively for those opportunities and potentially pull back on some of that tightening in lending standards as has clearly happened over the last couple of years.” But not all funding for small businesses is expected to come from ADIs. Non-banks are expected to play a bigger role in providing credit.

Debelle noted that there was a significant reduction in activity from the non-banking sector during the GFC compared to years previous. “I think you’ll find activity in that sector start to pick up as the economy has improved and as people’s worst fears have proven not to be realised.” Senators questioned whether regulators took into account the effect of government guarantee programs, which have since ended, and the relative advantages it gave major banks over other lenders such as credit unions. Debelle admitted that competition was sacrificed during the GFC in an effort to create a stable banking system. Going forward, senators questioned the effect of rising rates on small business. “In talking to a lot of small businesses, yes, the economy is recovering to some extent, and they would like to take advantage of that, but now they’re worried about increasing rates … and other fees and penalties for overdraft overruns,” said Senator Annette Hurley. Hurley asked Debelle if the RBA took that into account when determining rates. Debelle said the RBA does take into account “both the rate we set, which is the cash rate, but also the rate that businesses actually pay”. He added that rates are about the average they’ve been since 1997. MPA

NEWS ANALYSIS

First homebuyers sinking in buoyant economy Despite growing confidence in the economy and rising house prices, first homebuyers are feeling the pinch more so than other borrowers

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ecent reports suggest borrowers are confident in their ability to meet repayments despite a rising interest rate environment, however there is evidence first homebuyers are more vulnerable than others. Data from the March MFAA/Bankwest Home Finance Index revealed that 80.2% of respondents stated they were more likely to be easily making loan repayments, compared to 67.4% in April 2008. In addition, the number of respondents feeling “some difficulty” in meeting repayments is down to 16% – a significant decrease from the 25.7% recorded in April 2008. The index also found fewer people are making late payments and even fewer are behind. “The latest MFAA/Bankwest Index showed many people were expecting the cash rate to keep climbing; almost half (47.1%) predict interest rates will rise by more than 0.5% by March 2011,” said Phil Naylor, CEO of MFAA. While the majority of Australians feel they are ready for rate hikes, the latest Fujitsu report indicates first homeowners are the most vulnerable. It found they are typically borrowing about the same amount as other borrowers ($280,000), however they are borrowing at higher LVRs, and a higher multiple of their income. While borrowers will typically have a household income of $100,000, first homeowners are below $70,000, the report found. According to Fujitsu, this means that at current interest rates of 6.2% (headline rate of 6.9% less 70bp package discount), first homeowners are committing 34% of their post-tax income toward servicing interest payments (not even accounting for principal reduction), compared to 24% for typical borrowers. “Mortgage rates returning to the 15-year average of 7.7% sees 42% of first homeowners’ post-tax income committed toward servicing interest payments, while mortgage rates approaching their pre-GFC highs will result in first homeowners committing about half of their post-tax income to interest servicing, while other borrowers

will only see their serviceability rise modestly to 33% of their post-tax income,” the report stated. It’s also worth noting that the percentage of first homebuyers has significantly dropped. The latest AFG report revealed the development of a two-tier market as investors take 60% of all new mortgages. This compares with 10.2% for first homebuyers and 16.3% for upgraders. The balance of new mortgages in April, 36.6%, were arranged for refinancing purposes. “Every month we go through this ‘will they or won’t they raise interest rates’ debate,” said Mark Hewitt, general manager of sales and operations, AFG. “It’s hard for ordinary families to make the huge financial decision to buy a property when they don’t know what repayments will be in three months’ time, let alone next year. Investors are somewhat more insulated. They may have the option of rent rises or negative gearing to protect them. This is why we’re seeing the emergence of a two-tier mortgage market.” AFG Mortgage Index shows that average LVR was 63.3% in April, compared with 73.7% in April 2009. This reflects the growing proportion of relatively well-funded investors as well as the decline of first homebuyers over the past 12 months, it said. And it is unlikely the market will witness a return of the first-time buyer soon. According to data from MFAA/Bankwest Index, prospective first homebuyers are more cautious about the market going forward, with only 43.7% saying they believe now is a good time to buy, compared with 74.8% of next-time buyers who believe the time is right. According to Vittoria Shortt, chief executive of Bankwest Retail, although rates are rising next-time buyers are returning to the market because of confidence in the economy and the jobs market. “Historically, the market has proved a good barometer of homeowners’ confidence in the economy,” Shortt said. “During the early stages of the GFC house prices slipped, then the market recovered as first-time buyers flooded the market. Now the baton has been passed to upgraders.” MPA

COLUMN

A DAY IN THE LIFE OF…

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COLUMN

A DAY IN THE LIFE OF...

A day in the life of… Matthew Erwin, Bibby Financial Services state manager business development – NSW, shares a day in his busy life with MPA readers

0530h

Wake up and do a 40-minute ride on the bike trainer, a great heart-starter before a long day. Then it’s a quick breakfast of cereal, coffee (strong) and a piece of fruit as I cool down.

0645h

Matthew Erwin

“ New technology can save a lot of time which can be spent doing more productive things ”

I head directly to a meeting with a local finance broker to discuss a client who needs cash-flow funding after slow debtor payments caused issues with meeting creditors and wages. We solve some of the preliminary issues and move the application forward to a formal quotation.

0900h

I drive into the office making a number of catch-up calls with a few brokers on the way in (hands-free of course!) I always ask for new business.

0950h

Back in the office I check some e-mails, process some applications and write up credit submissions, then have a short informal meeting with my team to get an update on the progress of deals in the pipeline. I make some follow-up calls with a number of leads I’m working on to keep them progressing, the ‘juggling act’ we all do. It’s important to prioritise correctly, ensuring too much time isn’t spent on deals not likely to go forward, and more on those certain to go forward.

1430h

It’s off to the Westpac branch in King Street to pick up a hefty cheque for a settlement at 1500h. All goes well and it’s ready on time, noting sometimes it is a bit of a rush.

1455h

I arrive at the client’s bank to settle their overdraft and commercial bills, and am out by 1515h. I make some calls, first to my office to release the funding to the client, then to the finance broker to let them know of our success – and then importantly to the client to let them know the facility is up and running. This is one of the highlights of the job. A great feeling after a lot of hard work to make it happen.

1600h

Back in the office to send a few more e-mails and fill next week’s diary. I try to put an itinerary together to save time, and call my brokers in the area.

1715h

I leave the office and head to a meeting with a broker to discuss a client whose current banker cannot refinance the business, so Bibby’s job will be to pay out the secured creditor, set up a new cash-flow facility and provide a strategy for the business to move forward.

1200h

2045h

Now on the bench in Martin Place, I check my messages and e-mails on the Smartphone. New technology can save a lot of time which can be spent doing more productive things, and it’s important to know the capabilities of the technology available.

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It’s lunchtime and I have organised a table of five for a group of brokers, an insolvency practitioner, an accountant and a lawyer to network to discuss opportunities to service our client bases together. These lunches always go well with the right group of people, and particularly when the food and wine is decent!

I am out of the office to attend a networking function at 1800h with a group of brokers, business consultants, accountants, lawyers and other specialist financiers to hear a seminar on ‘Moving Forward from the GFC’. This is followed by a drink and canapés and a catch-up with colleagues.

1100h

1230h

It’s back to the car for the drive home to see the family, the real highlight of the day. Today was a long one, but not too unusual when you are in business development!

FEATURE LICENSING

Licence and registration, please The deadline to register with ASIC is looming, but brokers have another six months to decide whether to apply for an Australian Credit Licence or operate as a credit representative. MPA examines which option might be best for your business

bout 40% of new borrowers utilise the services of a mortgage broker. While it may sound impressive, Advantedge’s general manager of distribution Steve Weston says it’s not good enough. “We may think that at 40% of the market, we’ve done a hell of a good job,” he told journalists at a media briefing. “The fact is, we probably haven’t done as well as we should have. When you go across to the UK, pre-GFC, just under 70% of customers were taking their loans out via a broker.” Weston added that brokers should win “comfortably every time” because they will come to see the customer, will work with the customer for their loan, and will see them through a complex process. “Banks are always going to struggle to replicate that,” he says. “I, for one, think we should

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be doing a lot better than 40% and the question is, why aren’t we doing better than that?” According to Weston, the question is ‘Why not choose brokers?’ “Brokers are rated the second highest risk just behind stockbrokers. Now we know that just isn’t reality and I talked to brokers, and they say, that’s not right.” The key to fixing that, he says, is regulation. And the time for regulation is now. For years the industry has been gearing up for this pivotal moment in the history of mortgage broking – a complete and compulsory registration for all providers of credit. Anyone who plans on making a living as a mortgage broker will probably have already registered with ASIC in anticipation of the deadline. ASIC has stipulated that brokers registered by 30 June can continue to engage in credit activities until 31 December 2010. But during this six-month period brokers have a very important decision to make – to apply for the Australian Credit Licence (ACL) or to become authorised to engage in credit activity on behalf of a licensee (also known as becoming a credit representative or CR).

FEATURE LICENSING

What’s the difference? Industry participants applying for an ACL will need to comply with general conduct obligations, demonstrate competence and training, meet the adequate financial requirements and comply with the responsible lending rules. Brokers can choose to apply for the licence themselves, or they can join an aggregator or mortgage company who holds the licence on their behalf. The responsibility for meeting the new requirements under ASIC therefore lies with the aggregator or that company. Pros and cons The Independent Finance Brokers Forum is a group of 180 brokers that meets once a month in Parramatta, NSW to discuss industry issues. The topic of whether to apply for an ACL or become a CR has been widely debated in its circle. According to a spokesperson for the organisation, the benefits of holding an ACL are many: the ACL holder has full control of his business; they can authorise sub-contractors to be a CR under their licence; they can determine who they want on their lending panel; there is no danger of another party withdrawing their licence (other than ASIC); they don’t have to meet certain conditions outlined by a third party (such as minimum volume); and it also gives them the freedom to operate a business model that does not require approval from a third party. However the disadvantages are just as weighty. The process of obtaining an ACL may be daunting for some and they may require specialist assistance to prepare their application, notes the organisation. As well, brokers applying for an ACL will be required to meet a number of policies under the guidelines outlined by ASIC such as compliance, conflict management, HR, information technology and internal dispute resolution. They will also need to appoint a ‘responsible officer’ who may not be a director. As the forum points out, should the responsible officer retire a suitable replacement is then needed. Lastly, brokers must consider that ongoing compliance may interrupt day-to-day activities. Meanwhile, there are both benefits and disadvantages for choosing to become a credit representative under a third party’s ACL. According to the forum, the benefits to brokers who opt to be a CR are they don’t need to go through the process of lodging an application; also, there’s no requirement for ongoing compliance other than what’s established by the ACL. And as

already discussed, a number of written policies are required for the ACL including compliance and human resources – policies that a CR isn’t responsible for demonstrating to ASIC in order to keep working. Lastly, a big advantage for CRs is there is a low entry cost as a sole trader. But brokers should also be aware of the downsides of being a CR. “You’re effectively under the control of the ACL,” says the forum’s spokesperson. He adds that the ACL can cancel the broker’s CR licence at any time, which would leave the CR unable to practise. Alternatively, there is a danger that the ACL could have their licence cancelled, which again would end the CR’s ability to practise as a broker. According to the forum, brokers must also consider that changing as a CR from one ACL to another could impact their trail income. And limitations set by the ACL may make it difficult for the CR to sell the business. In addition, brokers operating as a CR must be aware they’ll be unable to appoint a sub-CR where they are a corporate entity – instead they need to be directly appointed by the ACL. The forum points out that the ACL can impose special conditions on the CR. These could include which lenders they are permitted to use, what PI insurer they can have, minimum loan settlements, and they could prevent the broker from being a CR under another ACL. As the forum says, “the ACL may restrict you from being a truly independent broker”.

“ The process of obtaining an ACL may be daunting for some and they may require specialist assistance to prepare their application ”

Suits you! So which model best suits you? The forum suggests that “the CR model in our opinion would best suit brokers who only write loans for a limited range of products supplied by their ACL. This CR option would also suit those who operate a small oneperson practice and don’t wish to be tied down with compliance and regulation required for an ACL”. As to the cost, it is hard to determine which model is more expensive. Some aggregators have stated they will pay for the cost of an ACL for their members, while others are charging $125/month to maintain their CR with the ACL. Also, should a small brokerage become an ACL, the compliance costs other than the annual fee could be an issue. Given the two options, the forum predicts the majority will opt for CR. “[We] believe once many find out the complexities of holding an ACL they may go for a CR – particularly if they are already attached to an aggregator or franchise group.”

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FEATURE LICENSING

Aggregator options Some aggregators have suggested brokers should apply for their own ACL, while others are offering their members the chance to become CRs under their licence. Vow Financial, however, is giving its members the option to do either. According to CEO Jeff Zulman, the aggregator urged its members to register with ASIC in their own right, irrespective of whether they intended to apply for their own licence. This allows them to continue to practise while they weigh up the benefits of becoming a CR versus their own ACL. “We recognise there are many different types of brokers in our network. Some will have the capacity to gain their own licences, and will do so with our full support. Others, however, will be more suited to becoming CRs. “If brokers are CRs and build their businesses to the point they feel they wish to gain their own licence, they will be able to do so. Likewise, if brokers hold their own licences and decide they’d rather focus on writing loans and growing their business without devoting resources to compliance, they can apply to become a Vow CR.” In terms of what obligations Vow CRs will have to meet, Zulman says the aggregator is yet to finalise its offering. In order to do so, the aggregator is examining the requisite elements of the new legislation as well as the brokers’

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historical relationship with Vow. As for trail, brokers will be bound by the terms of their agreements with the aggregator. On the question of PI insurance, Zulman says this detail has yet to be finalised, however it’s “reasonable to assume that Vow CRs will be required to take out PI insurance with a Vow ‘preferred insurance provider’.” ALCo is another aggregator that was one of the first to announce its options to members. The subsidiary group of Professional Investment Services (PIS) is allowing members to become CRs. The ALCo business model includes compliance and operation procedures, training and marketing assistance in the Australian Financial Services Licence style of the parent company – PIS. “By modelling all facets of our business, including compliance, training and development, on the established PIS model, we have enjoyed a reputation with lenders of being a quality service provider,” says ALCo GM Lesley Wood. Mortgage Choice also released details of its licence offering for franchisees. Unlike other aggregators, the group isn’t allowing its brokers to apply for their own licence. However, it says the advantage for brokers operating under its ACL is that there will be less time and energy spent on red tape which frees

brokers up to concentrate on the rest of their business. “It removes the need for them to put in place formalised compliance, risk management, business continuity and disaster recovery systems, thereby providing considerable savings. It also takes away the need to renew the licence each year. We have a Compliance and Corporate Standards department that looks after brokers’ licensing requirements and is a one-stop shop of knowledge, which brokers can access any time,” says Kristy Sheppard, senior corporate affairs manager. She adds that all Mortgage Choice brokers already meet the criteria to be credit representatives. “Maintenance of that status under licensing requirements isn’t linked to volumes, but primarily to them following the prescribed procedures relating to responsible lending.” With regard to trail, Sheppard says being a credit representative is directly tied to being a franchisee. “If a franchisee sells up they forgo their credit representative status and their trail goes to the buyer. If a franchisee is terminated they lose both trail and CR status. If a franchisee loses their credit representative status because they engaged in misconduct, they will be terminated and lose their trail.” Mortgage Choice brokers are free to choose their own PI insurance provider. MPA

Jeff Zulman

Kristy Sheppard

PROFILE LEADER

St.George regional manager of intermediary distribution, Paul Mullens, shares his thoughts on the importance of teamwork in a leadership role

On your side 20

elf-proclaimed ‘passionate and loyal optimist’, Paul Mullens is a name that many in the banking sector would find familiar. Having worked in the industry for over 30 years, the 53-year-old father of four has demonstrated his effectiveness as a leader time and time again, making him a natural choice for the role of regional manager of intermediary distribution – Northern NSW at St.George. A true people person, Mullens’ commitment to his team has seen him help brokers grow their business. “Leadership is by example,” says Mullens. “You can be a manager, or a leader. I’m a great believer in the power of the team so when my team is there working, I’m right there beside them.” This dedication to his people could not be more important in his current role at St.George. Working with his team to set clear expectations and achieveable outcomes, Mullens is responsible for supporting St.George’s third party distribution channel in NSW. City versus country A career banker, Mullens has been working in the banking industry for over 30 years. Starting in 1975 as a batch clerk with National Australia Bank, his career has taken him all around NSW, including three years as a country bank manager in Holbrook, 491km south-west of Sydney. “I loved it there,” says Mullens. “I don’t think I’d ever worked as hard but it was something different, exciting, and I was learning about farm management and all sorts of principles that a city, northern bred person had ever come across.” Fancying himself as a “bit of a country boy”, Mullens moved his wife and four children to Holbrook in 1990. “The reality was that it suited us at the time to go bush. We had four kids, and a house and a car were provided. It was a nice family lifestyle, even though I was still working six days a week,” laughs Mullens.

PROFILE LEADER

However, Mullens still found time to engage with the community, joining Rotary, acting as a treasurer for an arts council, and playing on both the local cricket and rugby teams. “It was brilliant,” he enthuses. However, it wasn’t all play for the branch manager. With satellite branches reporting to Holbrook, Mullens found himself at the centre of a hub of activity. “I was managing some struggling branches at the time, and the writing was on the wall back then. Most of those branches spread through country NSW have now closed,” he says. Moving his family back to Sydney in 1992, Mullens spent 18 months working on a business interest he had established with some friends. “I used to clean National Bank branches,” says Mullens. “I noticed that the bank always struggled to find a good cleaner and thought it was a good opportunity. With a couple of other mates we built a fairly good business but after five months, I was brain-dead. I lasted another 12 months before joining St.George as a branch manager at Balmain in 1994.” Wanting desperately to be in a role that gave him face-to-face time with people, Mullens felt positive about returning to a branch role. “You go back to what you know, and I knew finance,” he says. “I had a good career at NAB so it felt right to go back into a branch role where I would be helping people,” he says. Managing branches across the inner west, Mullens’ intrinsic leadership skills shone through and by 1997 he was promoted to lending sales and operations manager in the

Hornsby/Parramatta area. After five years of working with a team of what Mullens describes as “high achieving performers,” in 2002 he took on what was to be both the most challenging and rewarding role in his career. Moving into third party, Mullens began a two year tenure at St.George’s Broker Mortgage Services in Parramatta, where he was responsible for re-building both the team and a third party process that was largely out of date. “It was six months of working huge hours, six to seven days a week, trying to bed that place down,” he says. “Morale was terrible and the third party function was dysfunctional at that time. We were using an outdated process that couldn’t handle the volume we started to receive as a result of the campaigns we were running to seek a larger share of the market,” he explains. “The process just wasn’t built for that and so there was all that to deal with, all the while asking people to make an extra effort despite not having the best tools.” Yet Mullens achieved an almost total turnaround for the office, bringing in consultants to assess and improve the processes while working on building morale for his team. “We had to show we were committed and that it wasn’t just all talk,” explains Mullens. “Changes to the processes, and little things like painting the place, showed we were committed to making it a better place to work. We worked on getting people to understand the big picture and their role within the organisation. It was about engaging them in the whole conversation

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Up close and personal Paul Mullens

about how the team was key in delivering market share which changed the whole feel of the place to something positive.”

+ Age: 53 + Family: Wife Colleen and four children (KateMaree, Sarah, Beth and Sam) and now five grandchildren (Ryan, Connor, Jack, Sophie and Blake) + Favorite band: Red Hot Chilli Peppers + Favourite sports: Cricket (still play!), rugby league and horse racing + Favourite movie: Unforgiven with Clint Eastwood + Self described: Passionate and loyal optimist + Hobbies: Bushwalking and reading + If not in the mortgage industry: History teacher + If the house was burning and the family was safe, what would you grab: Photos, my Canon PowerShot camera and my cricket bat + Retirement plans: None yet – still too much to do! + Turning point in your career: Leaving National Bank in 1992 after 18 years of service and moving to St.George Bank in the early 1990s. It is most unusual to leave a long-term employer in the banking industry. I am usually risk-adverse but this was a gamble that paid off! + What qualities do you most admire in business people? Strong communication and leadership qualities

Onside It is Mullens’ understanding of what makes people tick that helps him strengthen the teams he leads. “You have to find out what’s important to each one of them,” he says. “Everyone is made differently, and each of us tackle problems and challenges differently. You need to respect that everyone is an individual – but the real power comes from working together and putting your support behind the team.” According to Mullens, sport plays a great role in teaching people the lessons of teamwork. “Through playing sport you learn about doing things for the good of the team. You learn that together you can achieve a lot more than you can individually. That was always a key lesson for me; it’s not always the side with the best individuals but the side that works together the best that wins,” he says. As a leader, he is guided by his passion for people. “I believe what I say, I am passionate about what I do, and I back my people,” he explains. “Communication is important. You need to make sure people know what you are about and what’s important to you. I’m really big on setting expectations with my team so they know what outcomes they need to achieve.” This, explains Mullens, has been vitally important in revitalising and motivating his teams to reach performance goals. Drawing lessons from the people he has worked with, he believes that both the good and the bad are effective teachers. “When you’ve had a career as long as mine you work with a lot of different people. Some are great, and some are bad, but it’s just as important to learn from the bad operators as it is to learn from the good,” he explains. For Mullens, being a good leader is all about bringing to St.George a competitive edge. “You have to excel in what you do,” he says. “Understanding what you and your competitiors are selling, where your processes are better than others and understanding your niche is what a good leader needs to do to give a competitive edge. Competitors change, the market changes, but if

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you evolve with that and change your focus you will be a good leader. Field of play Never could this ability to evolve and change be more important. As St.George refocuses its business strategy and moves to strengthen business with key partners, Mullens is there to see his people through. “St.George has acknowledged and identified the changing market,” says Mullens. “The market has gone from being just a volume game to one that focuses on strengthening relationships and developing business partnerships with partners who share the same customer values. We want to deal with brokers who have the same mantra as us, who are professional and have built an understanding of the importance of delivering quality service based on a customercentric culture in their business.” As the market evolves, Mullens suggests it is reminiscent of an earlier time where relationships were the main focus. “Right now we have issues with the cost of funds. I don’t think focusing on volume is going to be sustainable in what’s being called the ‘new normal’,” he says. “Now it’s more about the profitability of relationships through customer cross-sales. Single transaction relationships are going to change because there is more of a strain on margins. Now we will be looking more at the overall relationship and what else we can offer.” For brokers this means stickier clients, says Mullens. “By focusing on maintaining and building relationships, brokers will have clients who stay with St.George for longer. They’ll maintain their trail and improve referrals with more satisfied clients,” he says. Moving forward, Mullens is hoping to build on St.George’s strengths by showing brokers how they can benefit from the bank’s commitment to quality business. “Education and clean business is just as important to a broker as the number of loans settled. It is important that they know we will look after their client,” Mullens explains. “We pride ourselves to be known as a bank that offers brokers the strength, security and a full range of products and services – along with the genuine support and friendly service of a small bank.” MPA

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From ski instructor to savvy mortgage broker David Brell has worked his way through a diverse range of jobs, including stints as a liquor store clerk, ski instructor and wholesale fund manager. But it’s in his role as the founder and director of his own mortgage broking firm, Smartmove, that Brell has truly found his niche

t just 34 years of age, David Brell has already packed quite a bit into his impressive CV. He completed a Bachelor of Business, majoring in accounting and management, at the University of Technology in Sydney, before embarking on a postgraduate course in finance and investment. “After university I worked in a number of jobs, but I couldn’t really survive longer than three to six months in each one because I just couldn’t find what I was looking for,” Brell admits. “I was working with Mercantile Mutual at one point and was involved in investment management, and while I enjoyed wholesale lending, I didn’t like dealing with companies – I prefer dealing with people. I knew I wanted to help people but I kept asking myself, how could I help people in finance when I was working day-in, day-out with companies?”

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Brell took a break from the corporate world and worked in a liquor store, which he describes as a “big learning curve”. “I learnt more from that job than from anything else,” he says, “because I was constantly dealing with customers and there was continuous interaction.” Shortly thereafter Brell’s wife finished her law degree, so the couple hightailed it to the snow and worked as ski instructors for a season. “That was another huge learning experience, because I was meeting eight new people a day and had to remember their names, show them how to ski and teach them by example. It was a really good learning base in terms of customer service and teaching techniques.” Learning and leading They’re all skills that Brell employs today as the founder and director of Smartmove, a boutique

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Neutral Bay-based mortgage broking firm that specialises in residential, commercial and investment lending. At Smartmove, Brell and his business partner, executive director Simon Orbell, oversee a tight-knit team of seven employees. “The business has moved from having just one person – me – to now having a team of nine, and we’re looking to employ two more, which is kind of exciting,” he explains. “There has been a lot of hard work involved to get to this point, but we’re

David Brell

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all very close. We’re all good people and we enjoy each other’s company; it’s almost like a family.” Brell is quick to point out that the Smartmove philosophy goes beyond simply arranging finance for would-be homeowners and investors. Rather, they structure and negotiate loans that meet the diverse needs of each individual client, and “work for the client by treating them as a human being, not just a number.” “We work primarily on word of mouth and our mission is to make the client an advocate of our business, which we achieve by delivering consistent good service,” he says. Perhaps that’s why during the global financial crisis, Brell wasn’t too concerned about sourcing new leads and growing their client base in the face of mounting challenges. The mortgage industry was in a constant state of flux, with lender policies, borrowing criteria and loan interest rates changing on a weekly basis, but Brell says the testing conditions simply gave his team an opportunity to shine. “During the whole crisis, the effects actually benefited us because people were looking much more closely at their finance, and our clients were realising that we were doing the right thing by them – so we only got busier,” Brell says. “In many ways, the GFC has made the customer far more aware, so it’s only strengthened the relationship between us and our clients. Our biggest challenge has been facing the volume of new business!” Developing the right culture Brell has definitely found his niche in mortgage broking at a retail level, where dealing with human beings “makes me feel good at the end of the day, because I’m able to work with people and help them become educated about finance.” He’s also enjoying the process of recruiting and developing his loyal team, which includes Haley, Cameron, Michael, Mark, Jason, Mireille and Malcolm, as well as his business partner Simon. “When you’re hiring staff, I think you’ve got to look for people who are not just exceptional in their work, but who also have the drive, morals and principles that fit with your culture,” Brell explains. “You want them to become selfmanaged, and to do that you need to support

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them, spend the time to train them and reward them. We all work together as a group, and it’s a great working environment.” Brell has the same philosophy for his employees as he does for his clients: treat them with respect, and communicate how much you value their involvement in the business. “If you take the ego out of it and treat people properly, then they’ll be inspired to work hard and they’ll actually want to come to work every day,” he says. “It creates something of a self-management style. Perhaps that only works with a small team – it might change as we grow, but it’s worked well for us so far.” By way of example, Brell describes a recent reward he offered to each of his team members. “Recently, we all went to Hamilton Island for a conference, including our partners,” he says. “And rather than just appointing one person from the company to attend, we all went together as a group.” His overall goal is to create a work environment where everyone is involved in creating success, rather than Brell shouldering the full responsibility, as the owner, to push the business forward. “As the business becomes more successful, I want to make sure that the staff all enjoy that success too,” he says. “It’s about trying to create a better work-life balance, not just for me but for everyone involved, so that we can sustain the growth in the business, and ensure that we all continue to love coming to work!” The future of lending In Brell’s opinion, the future of the mortgage industry looks bright, with a few specific challenges facing brokers – specifically in regards to the level of service they can offer. “I think competition will return to the market, but as the world becomes so out of touch – in terms of connecting and how the internet impacts that – I think that ‘face-to-face’ service will become even more important,” Brell says. “I also believe that you’ll need more experience and qualifications to successfully compete within the mortgage industry in coming

David Brell Up close and personal + Family: Married with an 18-month-old son + Favourite sports: Golf, tennis and skiing + Favourite past-time: Relaxing with family and outdoor activities + If not in the mortgage industry I’d be working in: Financial planning + If the house was burning and the family was safe, » I would grab: My grandfather’s war medals + Myself in five words: Driven, determined, family values, considerate + Qualities I admire most in business people: People who do the right thing and respect others

years. One of the challenges that the new generation coming into the industry is facing is the skill set – they must continue to upskill themselves in order to have the skills they need to deal with each customer’s demands.” As a mortgage broker, Brell faces another set of challenges in that the service he delivers to his clients is effectively framed by the service they receive from their financier. Thus, even if Brell and his team deliver a smooth, hassle-free experience, all of their hard work can be undone if the bank or lender fails to live up to their end of the service agreement. “Lenders having the ability to service adequately can be an issue,” he says. “Ultimately, the client that gets introduced will become the client of the bank, and if the bank or lender doesn’t provide good service, it can be hard for us to treat the client well. As an industry as a whole, how we deliver service needs attention.” On a personal front, Brell says managing the work-life balance will always be top of mind, but he’s more than happy with his current position. “I like where I am right now,” he says. “Work is going really well, I love my wife and my family, and while there is uncertainty in the market that may impact us moving forward, I’m not really concerned about it, because change is good. It just means that you need to adapt.” MPA

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FEATURE SEGMENTATION

MPA broker segmentation report Lender accreditations have long been a topic of hot debate. MPA reveals who is offering what and how to get the best rewards for your business

ender accreditation is not a new phenomenon for brokers. For years lenders of all types – bank and non-bank – have required brokers to undertake some form of accreditation process in order to sell their products. The process in itself is valuable, ensuring brokers understand the product offering of that particular lender and can effectively process the loan on the lender’s behalf. However, in July 2009 the dynamic changed significantly. Following the commission cuts of 2008 that saw brokers talk about ‘voting with their feet’, brokers were caught between a rock and a hard place as their customers flew to the big banks in the wake of global credit instability. Banks began demanding that brokers lift their game and introduced quality and conversion metrics – and in some instances, volume hurdles – that brokers had to meet in order to maintain their accreditation. Predictably, the broker industry was outraged. When CBA announced it was going ahead with plans to charge brokers who did not meet the bank’s minimum submission requirements a $500

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re-accreditation fee, the vitriol that the news was met with was hardly surprising. CBA’s introduction of volume hurdles was also called into question, with the FBAA arguing that the approach was “flawed”. However, CBA maintained its position, telling Brokernews.com.au that the hurdles CBA had introduced were not onerous, and would provide “professional brokers with ample opportunity to maintain their full accreditation with us and other lenders”. Brokers weren’t convinced. They argued that volume metrics affected their ability to write independent loans, damaging their value proposition. Many also questioned whether suitable advice would be given to consumers. In instances where brokers were under pressure to complete a certain number of volumes, many argued that unsuitable loans would be pushed on clients in order to retain certain lender accreditations. But as the dust settles on the broker industry in the wake of all these changes, the majors have defended their stance. They argue that newly

“ The major benefit of NAB accreditation is to engage brokers prior to conducting business, to train and familiarise them with our policy and processes ” John Flavell, NAB

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National » Australia Bank + Year established: 2008 + Highest level: Four stars + How to get there: Achieve an application quality of more than 80% (based on the proportion of conditionally approved loans that proceed to settlement) + Accreditation process: Must attend an accreditation session, hold a Certificate IV in Financial Services and be an MFAA member + Re-accreditation process: There is no lapse date on a broker’s accreditation, however if a broker’s star rating falls to one star or below, no new applications will be accepted from that broker

introduced accreditation metrics and segmentation allow them to reward brokers who are professional and dedicated to their businesses. As regulation changes put the onus on brokers to provide the correct information about the product and the credit policy, banks believe that strict accreditation guidelines are now more important than ever to brokers who are becoming more accountable. Moreover, those that have instituted changed accreditation or segmentation policies argue that the changes are rewarding brokers who are keeping up to date with an evolving industry. In light of this, MPA has laid out the accreditation and segmentation policies of each of the five major banks currently dominating the Australian lending marketplace. We show you who is offering what, and how to get the best rewards for your business.

NAB launched its Star Rating system in 2008. In an effort to reward brokers who continue to write quality business despite challenging times, the rating system focuses on application quality rather than volume. As such, brokers are measured based on conversions from conditional approval to settlement, the delinquency rate once settled, and their qualifications. John Flavell, GM, NAB broker distribution, says the Star Rating system gives brokers the opportunity to benefit from conducting business with the bank. “The Star Rating system gives NAB Broker an opportunity to continue to build and develop strong partnerships with brokers,” says Flavell. “The major benefit of the accreditation process is NAB Broker’s ability to engage brokers prior to conducting business with us in order to train and familiarise them with our policy and processes,” he says. According to Flavell, feedback from brokers John Flavell about NAB’s accreditation process has been very positive. Much the same as many of the other major banks’ accreditation procedures, potential NAB brokers need to attend an accreditation session, complete an accreditation form signed by their aggregator, hold a Cert IV and be an MFAA member. Once accredited, brokers are not at risk of having their accreditation lapse. However, Flavell notes that “if a broker’s star rating falls to one star or less then no new applications will be accepted.” The maximum of four stars can be achieved by reaching a high level of application quality, defined as having more than 80% of conditionally approved loans proceed to settlement and by having less than 1% or fewer than three loans in the broker’s loan book over 90 days in arrears. New NAB brokers automatically commence on three stars, one of which is a star for holding relevant industry qualifications.

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St.George Bank + Year established: 2007 + Highest level: Flame + How to get there: Invitation only and is based on a demonstration of broker advocacy, volume, conversion ratios, customer loan life and the quality of loan submissions + Accreditation process: Undertake an accreditation exam. To remain accredited brokers must settle four loans every 12 months + Re-accreditation process: Free re-accreditation exam

St.George introduced its revised accreditation program in 2008 as part of a number of initiatives to help brokers grow their business. This process is in place to ensure brokers are knowledgeable about their products, policies and processes and can ultimately provide the best possible experience to mortgage customers, according to Steven Heavey, GM of intermediary distribution. To remain accredited, brokers must settle a minimum of four loans every 12 months. Heavey believes this hurdle helps ensure brokers stay up to date with relevant policies and prices. “It is an operational risk for us to maintain an accreditation and to have the right level of comfort that brokers are aware of our policies, processes, products and pricing,” he explains. “We want to make sure that brokers who use our products are well-educated, up-to-date and can offer their customers the best possible service and St.George experience. “Brokers who use St.George more often are more familiar with our products, policies and processes and deliver a superior level of service to their clients,” says Heavey. These brokers will benefit from longer lasting relationships with their clients, provide the best St.George experience to the end customer and maintain their trail commission for longer, says the bank. For brokers whose accreditation has expired, the bank offers a free re-accreditation process and exam that can be organised via their aggregator. Brokers are segmented into one of four categories: Non-Accredited, Silver, Gold and Flame. • Non-Accredited brokers cannot use the St.George brand or lodge business with St.George • Silver segment brokers constitute the largest percentage of the accredited broker base and tend only to use St.George on occasion • Gold brokers represent approximately 30% of the accredited broker base and St.George tends to be one of a number of preferred lenders for those brokers • Flame represents a select group of accredited brokers who primarily use St.George for the majority of their business. Flame brokers are St.George’s greatest advocates with superior conversion rates and deal quality Silver brokers enjoy the benefits of Mortgage Central, which is the St.George broker support

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centre that offers product, policy, loan status, relationship consultants, scenario specialists and post settlement support. All consultants are Cert IV qualified in Financial Services and are able to assist all “ accredited brokers. Brokers who In addition to the use St.George Silver offering, Gold often are more brokers have their loan submissions treated familiar with with priority, receive our products, important product and policies and policy updates direct processes, and from St.George and deliver superior have access to a service dedicated BDM. Flame brokers benefit from ” Steven Heavey, St.George having their lodgments managed by an exclusive loan processing team, access to senior management as required and access to exclusive professional development events. The segmentation review process is conducted regularly and measures brokers on a balanced scorecard of considerations including volume, end customer experience, deal quality and conversion rates. The approach is working for St.George, who regularly measure broker satisfaction by calculating a Net Promoter Score (NPS). “Every six months we conduct a broker satisfaction survey and derive a broker NPS,” says Heavey. “This is done to measure broker advocacy of St.George and by building broker advocacy we build deeper and more loyal relationships with our brokers.”

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Westpac + Year established: 2009 + Highest level: » Not stated + How to get there: Not stated + Accreditation process: Must hold an MFAA accreditation, submit a current business plan, complete a Westpac Business Needs Review and supply a current resume and police report. To stay accredited brokers must submit one loan every six months + Re-accreditation process: Attend a re-accreditation session, $150 recovery fee

Westpac’s statebased accreditation process was reengineered in May 2009. Designed to help ensure brokers who write Westpac products are up to speed with relevant policies and application criteria, Westpac’s new accreditation process aims to help brokers help their clients make informed decisions on what is a significant financial commitment. According to Huw Bough, general manager of Westpac mortgage broker distribution, the rationale behind the accreditation process is to “reduce risk for all parties involved in the transaction” and to ensure Westpac provides a “consistent service level” to key broker partners. In addition to the accreditation changes, Westpac has also invested in creating new state accreditation and development manager roles to further help brokers succeed in the changing climate. Prior to becoming accredited with Westpac, a broker must be a member of the MFAA, submit a business plan and resume, complete a Westpac Business Needs Review and undergo a police check. Brokers will then be required to complete an accreditation on-boarding. “After feedback from business partners last year we added a number of enhancements to our initial broker on-boarding,” says Bough. “The accreditation on-boarding is now spread over one day, covering Westpac’s commitment to the broker channel and ways that introducers can improve conversion to deal quality.”

“ We believe the timeframes ensure introducers remain informed about Westpac products and can continue to offer customers high-level service ” Huw Bough, Westpac After completing the accreditation process, new brokers will be supported by their state accreditation and development manager up to the point where they have successfully lodged three applications. After this time they will be supported by a BDM. From 1 May 2009, new brokers are required to submit one loan within their first three months to retain their accreditation. Existing brokers are then required to settle one loan every six months to maintain accreditation. “We believe the timeframes ensure introducers remain informed about Westpac products and can continue to offer customers a high level of service,” explains Bough. Brokers who do not meet the minimum timeframe requirements will receive a reminder communication prior to having their accreditation reviewed. “New brokers that haven’t submitted a loan application within their initial two month period will receive a 30-day reminder. Existing brokers that haven’t settled a loan application in a four-month period will receive a 60-day reminder prior to accreditation being reviewed,” says Bough. Brokers who need to be re-accredited can attend a half-day session that includes a $150 recovery fee.

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Commonwealth Bank + Year established: Present since inception + Highest level: Diamond partner + How to get there: Achieve more than $20m in settlements or settle 100 loans each year, exceed submission quality metrics of 90% plus conversion ratio, and meet arrears and portfolio growth metrics + Accreditation process: Complete accreditation training and lodge a minimum of two deals in three months. Brokers must settle a ‘reasonable’ sample of applications over a six-month period, stated as three settled in a sixmonth period + Re-accreditation process: Attend a re-accreditation workshop plus $500 workshop fee

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Commonwealth Bank has been at the centre of the accreditation storm over the past year. Brokers who didn’t meet set volume hurdles were outraged at the bank, which enforces a $500 re-accreditation fee for lapsed brokers. However, Kathy Cummings, executive GM of third party and mobile banking, argues that CBA’s accreditation changes are a necessary step in judging whether a broker is competent and familiar with the product. “We find that brokers who don’t use us regularly receive the most customer complaints because they don’t understand the processes,” says Cummings. “They’re the ones whose submissions need the most rework.” Volume plays a part in the accreditation process too, though Cummings argues that the guidelines are more about competency than volume. “To become accredited a broker must complete our accreditation training which comprises two workshops, of two hours and three hours each, and lodge two deals in three months so that we can ensure they are competent in their knowledge of our products, processes and credit policies,” says Cummings. Once accredited, brokers need to ensure they continue to demonstrate competency in the bank’s products and policies by settling a “reasonable sample” of applications over a six-month period. Defined, this “reasonable sample” equates to four loans lodged and three settled every six months. “These requirements are about competency and we think this is a reasonable sample to judge if a broker is competent,” Cummings explains. According to Cummings, the real reason behind these competency measures is to ensure brokers are providing accurate information in regards to affordability. “Under the new regulations, the onus is on brokers to make sure they provide correct information about product and credit policy, ensuring customers can afford the loan now and in the future,” she explains. “Over the past 12 months, our analysis of loans in arrears indicates a significantly higher arrears rate for loans from brokers that use us infrequently or submit less than our minimum requirements.” This, Cummings says, helps CBA develop knowledgeable brokers who ensure customers’ home loan needs are met,

and also contributes to the growth and long-term sustainability of the broker channel. Brokers are reviewed every six months to assess the amount and quality of business they submit. Those who don’t meet the specified accreditation requirements are invited to attend a re-accreditation workshop. “The aim of the re-accreditation workshop is to ensure the broker has good knowledge of our products and policy which allows them to confidently sell our products,” explains Cummings. According to CBA, providing brokers with a solid understanding of how to lodge an accurate application helps ensure submission and conversion metrics are met. “We’ve noticed that once brokers attend our re-accreditation workshop there’s a marked increase in the number of applications they lodge with us,” says Cummings. “This means that brokers have customers who are suitable for our products but they weren’t knowledgeable enough to sell to them. Re-training gives them confidence to recommend our products.” Of the 1,800 brokers who were identified as not meeting CBA’s accreditation criteria, less than a quarter have attended re-accreditation workshops since December 2009. However, Cummings is confident that the program raises the quality of business being submitted and its potential customers. Additionally, those who have maintained or regained their accreditation are rewarded through CBA’s segmentation program. “CBA has more than 7,000 accredited brokers,” says Cummings. “The premium segment is our Diamond Partners who achieve more than $20m in settlements or 100 loans settled each year and exceed our submission quality metrics of 90%, conversion ratio, arrears and portfolio growth metrics,” explains Cummings. While there are other segments on CBA’s accreditation tier, the bank has stated that it prefers not to share information about those segments with MPA at this time.

“ We find that brokers who don’t use us regularly receive the most complaints because they don’t understand the processes ” Kathy Cummings, CBA

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ANZ + Year established: Over a decade ago + Highest level: ANZ does not have any tiers of accreditation, however commissions can be improved by meeting certain benchmarks of volume, conversion and online submission + How to get there: Be part of an aggregator or franchise that is meeting stated benchmarks + Accreditation process: Online or through a face-toface meeting with a BDM + Re-accreditation process: Accreditations are only cancelled for fraudulent activity

Established over a decade ago, ANZ’s accreditation process has remained largely unchanged throughout the recent credit storm. According to Meg Bonighton, head of broker distribution, any changes to the program have been driven by changes in “technology and industry”, creating a program that has suffered only minor variations since inception. For ANZ, accreditation is more about helping brokers do business. “We believe that our accreditation program helps brokers do business without being hindered by volume hurdles,” says Bonighton. More important, states Bonighton, is the ability for brokers to choose the right product for their client without any impediment. “This approach has been unanimously welcomed by broker principals and brokers across the country,” says Bonighton. As the fastest growing major bank in 2010, according to recent data from the Australian Prudential Regulation Authority (APRA), ANZ is on a mission to wake up its mortgage division. The good news for brokers is that new Australian CEO Phil Chronican is committed to ensuring service levels do not slip as volumes increase. “As volumes have picked up we have had some operational issues to do with the physical ability to approve and settle in a timely manner,” he says. While ANZ is still ranked number one in customer service, Chronican argues that it is important not to let standards slide in such a competitive market. Committed to any broker who chooses to bring their business to the bank and to help brokers further understand their business model,

“ Essentially, we want brokers to be brokers, driven by customer choice rather than prescribing minimum levels of business they must provide to us ” Meg Bonighton, ANZ

Bonighton explains to MPA how brokers can become – and remain – accredited with ANZ. According to Bonighton, the accreditation procedure for brokers is relatively straightforward. To be eligible, Bonighton says brokers must be members of either the MFAA or FBAA. “Both memberships require Certificate IV in Financial Services and have continuing professional development requirements,” she says. Brokers with the required memberships can complete their accreditation with ANZ either online, or through a meeting with a BDM. The online process includes training on ANZ products and policies, as well as compliance requirements, and can be completed at the broker’s own pace. Brokers who complete their accreditation face to face with a BDM do not need to complete the online training. According to Bonighton, the accreditation meeting is likely to take “an hour or two”. Support material is provided and includes an operation manual, training book, broker website, product fact sheets, and both a product and a policy matrix. Once accredited with ANZ, brokers need only focus on running their business. “As long as brokers abide by ANZ policies and compliance requirements their accreditation is indefinite,” says Bonighton. “At ANZ we don’t cancel broker accreditations other than for fraudulent activity. We believe that the cancelling of any broker’s accreditation should be the role of the aggregator group, not the lender.” Further to this, Bonighton also highlights to MPA that ANZ does not have any accreditation tiers. “Our doors are open for business from all brokers regardless of the lending volumes they provide to us,” she says. “Essentially, we want brokers to be brokers, driven by customer choice rather than prescribing minimum levels of business they must provide to us.” While ANZ may not have a reward program for individual brokers, it does reward at an aggregator or franchise level. “In terms of commissions at ANZ, brokers are offered a base upfront commission and a trailing commission. At an aggregator or franchise level, the base upfront commission can be improved by meeting certain benchmarks of volume, conversion and online submission,” explains Bonighton. However, she assures brokers that service levels remain the same across the board. “We aim to offer a high standard of service to all brokers who choose to bring their business to ANZ.” MPA

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Rocked by commission cuts, consolidations and a decline in competition, the mortgage industry has finally set sail for new horizons. With new licensing regulations changing the landscape forever, MPA finds out which aggregators have lasted the journey and takes a peek into where they are headed

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“ New licensing and lending requirements are the focus for brokers this year and as the industry prepares itself for a new regime of professionalism and growth, some brokers will be left by the wayside

till standing? Time to give yourself a pat on the back. Over the past couple of years you have waged a hard war against commission cuts, volume hurdles and various other market fallouts. During the financial crisis it was almost as though the bombs just would not stop dropping. But well done, you survived and have enjoyed that glorious moment of record low interest rates and a First Home Owners Grant that drew borrowers to you in droves. With business once again flowing through your doors you probably took the opportunity to pack away your violin. But before you loosen your bow it is time to get ready for one last recital. A tighter market, interest rate rises and the rollback of the First Home Owners Grant are all affecting business. But if it is one thing we all agree on, it is that change is afoot. New licensing and lending requirements are the focus for brokers this year and as the industry prepares itself for a new regime of professionalism and growth, some brokers will be left by the wayside. At this point it is vital that you form an alliance with an aggregator who will guide you through the changing landscape. Commission cuts are here to stay so it is time to ask: is your aggregator helping you to diversify and grow your income? Superbrokers 2010 gives brokers an insight into the current aggregation market. Using historical data from the past three years, MPA reveals who the stayers are, how they are faring, and we also take a look at some of the newer players entering the market.

The survey Size does matter: consolidation has been an important trend over the past 12 months. As such,

” this year’s survey includes aggregators of varying size; from superbrokers with over 2,000 members to boutique broker groups with as few as 200. There are a few stalwarts in this year’s survey who have been with us since the beginning. Thanks to their ongoing participation we have been able to gain a real insight into trends affecting the mortgage industry and the growth of the aggregation sector as a whole. We also have two new groups participating this year – RAMS and Vow Financial, a consolidation of National Broker Group , The Mortgage Professionals and The Brokerage – and we look forward to a strong relationship with both. While some aggregators elect not to reveal their data, making it difficult to accurately assess their growth or provide accurate comparisons, all have been more than willing to share their insights into the industry. From this feedback we have gathered some valuable information about the current industry and predictions for the year ahead. MPA would like to thank all of this year’s Superbrokers for their time and support. Without their participation we would not be able to provide this insightful glimpse into the state of the aggregation sector.

Membership Despite being rocked by commission cuts, tighter accreditation processes and stricter industry requirements, memberships have largely remained stable for the 2009 financial year. While many aggregation groups were expecting members to drop significantly in line with the introduction of strict volume hurdles and new licensing regulations, most groups seem largely unaffected to date. Last year, Loan Market Group

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Loankit :: Year established: 2004

Kym Rampal

Head office location: Sydney, NSW States/territories operating in: NSW, ACT, VIC, QLD, WA Senior management team: Kym Rampal & Carolyn Samer. Industry association membership: MFAA/COSL Broker breakdown by state: QLD 8%, VIC 6%, WA 2%, ACT

Survey year

2009

Employees

Lenders on panel

Average settlement by broker

$710,000

Residential loanbook

$2.16bn

Number of brokers

1%, NSW 81%

Australian Finance Group :: Year established: 1994 Survey year

2007

2008

2009

2010

Employees

202

169

155

143

Lenders on panel

Average settlement by broker

Com $1.7m; Res $7.3m

Residential loanbook

$39.6bn

$49bn

$53bn

$57bn

Commercial loanbook

$1.7bn

$2.7bn

$3bn

Annual residential settlements

$18.8bn

$19.5bn

$16.2bn

$17.2bn

Annual commercial settlements

$1.4bn

$1.6bn

$1.25bn

$1bn

Number of brokers

2,270

2,285

2,129

2,363

Loanmarket :: Year established: 1994 Head office location: Sydney, NSW States/territories operating in: Nationwide Senior management team: Sam White (executive chairman), John Kolenda (executive director), Dean Sam White Rushton (chief operating officer) Industry association membership: MFAA

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Survey year

2009

2010

Employees

Lenders on panel

Average settlement by broker

$1m p/m

$13m pa

Residential loanbook

$13.5bn

$14.5bn

Commercial loanbook

$400m

$500m

Annual residential settlements

$4.95bn

$5.49bn

Annual commercial settlements

$280m

$260m

Number of brokers

400

240

*data to December of each previous calendar year

Head office location: Perth States/territories operating in: Nationwide Senior management team: Anthony Gill (chairman), Brett McKeon (managing director), Bradley McGougan (executive director), Kevin Matthews Kevin Matthews (executive director - national operations), Malcolm Watkins (executive director - IT & marketing), Jim Minto (nonexecutive director), John Atkins (non-executive director) Industry association membership: MFAA and FBAA Broker breakdown by state: NSW: 22.7%, QLD: 29.1%, SA: 9.4%, VIC: 20.7%, WA: 18.5%

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predicted that the industry would see some reduction in numbers, specifically from part-time brokers. “Part-time brokers will find it more difficult to retain accreditations with lenders and comply with industry requirements,” it said. Suffering a drop in numbers from 400 to 240 (a reduction of 40%), for Loan Market Group at least its prediction has rung true. Mortgage Choice and Choice Aggregation Services also suffered a drop of 17% and 18% respectively. In spite of the gloomy predictions, others emerged relatively unscathed – even with strict volume hurdles eliminating a number of brokers from the market. While Connective predicted a drop of 10–15% in broker numbers in last year’s survey, the group grew its member base by almost 8%, rising from 990 brokers last year to 1,120 in 2009/10. Australian Finance Group (AFG) also saw a marginal increase of 9%, and Smartline remained relatively stable, adding five brokers to its member base this year. From this year’s survey responses, it is clear that most aggregator groups are still predicting a decline in numbers. “You have to question the viability of the part-time model when you consider the economics, administration and education requirements. Lender accreditation policies are also making part-time broking increasingly difficult,” says Loan Market Group. Steve Kane, managing director of FAST, agrees. “Part-time brokers will need to assess both from an economic basis and individual skills basis whether they continue in the industry,” he says. Loankit director, Kit Rampal, echoes the thought. “Part-timers will find the new regime too onerous

and exit or will have to decide to enter broking on a full-time basis,” he says. Rampal suggests that those who decide to remain may decide to focus on their core business and service mortgage enquiries from their clients by entering into alliances with other brokers. Cost is certainly a factor for many part-time brokers with the expense incurred to maintain a professional business increasing with the new legislation. “We will see many part-time brokers leave the industry as the costs to maintain a professional business increase,” says Brendan O’Donnell, the chief executive officer at Choice. O’Donnell also says that those who spend less than 50% of their time broking will find it difficult to remain abreast of changes, leading them to provide poor advice to clients. Smartline managing director, Chris Acret, shares the sentiment. “Over time I think new brokers to the industry will start to look a bit different. It definitely won't be a ‘fast-buck’ type industry, which it was looking like five years ago,” he says. “New brokers will have to invest heavily in experience and education, and will need to have a high level of commitment. Those not 100% committed to their mortgage broking business will be faced with increasing costs and lower returns and will need to choose whether they commit more focus to making it work, or exit. Some part-timers will leave, but others will continue to flourish – it is not so much part-time versus full-time, but commitment and professionalism that will be the key differentiators,” explains Acret. Others argue

“ You have to question the viability of the part-time model when you consider the economics, administration and education requirements... ”

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that new licensing requirements will encourage growth in broker numbers. A new entrant to the MPA Superbroker survey, Vow Financial, believes that with the industry becoming more regulated it would also become more rewarding. “The new compliance regime will prove a testing time for many brokers,” it says. “Many who have been in the industry since its inception in the early 1990s will take the opportunity to gracefully bow out.” Vow hopes that its ranks will be filled with newcomers who will see the new regime as an opportunity to build a diversified business based on long-term client relationships. “There is little doubt that the industry is becoming more sophisticated, more complex, more demanding, but, at the same time, for those brokers who have the ability and ambition to meet these challenges, it will be more financially rewarding and professionally fulfilling,” it says. This, Loan Market Group argues, will attract those looking for a career in broking. “There will be an increasing attraction for graduates entering financial services to consider mortgage broking as a career opportunity. It will also be a catalyst for existing advisors to transfer to the mortgage space.” Plan agrees. “All brokers, not just parttime brokers will adapt or exit the industry.”

Licensing and regulation No longer a question of if or when, new licensing requirements established under the National Consumer Credit Protection Act come into force from 1 July, 2010. A key new requirement of the National Consumer Credit Protection Regime is that all brokers or lenders dealing with consumer credit must obtain an Australian Credit Licence (ACL) in order to continue to engage in credit activities after the July deadline. But what do the new requirements really mean for the broking industry? According to our surveyed aggregators, the general consensus appears to be a tighter, more professional industry. “The new regulations will force higher standards of professionalism in the industry and a more competitive market environment,” says Vow Financial. With brokers being encouraged to expand their suite of products, Vow believes that despite the increased paperwork and higher costs, brokers will ultimately benefit. “There is an opportunity for brokers to use the new regulatory regime to write more business as brokers spend

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“ The new regulations will force higher standards of professionalism in the industry and a more competitive market environment ”

more time explaining the product to clients, and, in the process, forging closer, more professional relationships with them.” PLAN and RAMS both believe that licensing would create a more professional broker base and as such, a more professional industry. “Regulation will contribute to making the industry more professional,” says PLAN. However, PLAN cautions that regulation was not a ‘fix-all’ solution. Advocating instead for positioning mortgage brokers as professionals in the consumer perception, PLAN suggests that “regulation assists in this process by setting standards and increasing consumer confidence.” AFG agrees, saying that “the majority of our industry is already very professional, but the introduction of licensing will help provide consumers with that added level of confidence – that they are dealing with a person with the appropriate skills and knowledge to assist them.” Many of the surveyed aggregator groups note that licensing serves an important purpose of weeding out ‘undesirables’. Kym Rampal from Loankit says “a lot of marginal brokers will drop out as the effort and costs involved will not be worth it for them. The remainder will need to treat their clients in a much more mandated fashion and will need to have policies and procedures in place that can only be achieved in a professionally run environment.” Mortgage Choice also believes that licensing will help phase out the small percentage of unscrupulous brokers who tarnish the broker brand. It says “licensing should improve the awareness of the value of our service. It should also heighten the perceived integrity of the industry and provide customers with a greater level of comfort in dealing with us.” Brendan O’Donnell from Choice concurs. “Over the past few years the industry has come a long way in terms of professionalism,” he says. “The introduction of licensing will be the catalyst to securing a truly professional industry and will eliminate those brokers who have in the past not embraced professionalism.” According to Mortgage Choice, advocates of national regulation since 2002, the introduction of licensing and regulation will be a ‘significant step’ towards making the industry more professional overall. Mortgage Choice also suggests that a national uniform approach will benefit brokers

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FAST :: Year established: 2000

Steve Kane

Head office location: Sydney, NSW States/territories operating in: Nationwide Senior management team: Steve Kane (MD), David )'Toole (National sales manager); Laurie Duffus (National Business Development Manager); Deborah Tran

(Operations manager) Industry association membership: MFAA/FBAA Broker breakdown by state: VIC/TAS: 31%, NSW/ACT: 29%, QLD: 16%, WA: 13%, SA/NT: 10%

Survey year

2007

2008

2009

Employees

Lenders on panel

Average settlement by broker

$5.9m pa

Residential loanbook

$22.9bn

Commercial loanbook

$1.4bn

Annual residential settlements

$11.5bn

Annual commercial settlements

$1.8bn

Number of brokers

2,279

2,850

Head office location: Melbourne, VIC States/territories operating in: Nationwide Senior management team: Michael Russell (CEO), Peter Ritchie (chairman), Steve Jermyn (director), Peter Michael Russell Higgins (director), Rod Higgins (director), Deborah Ralston (director), Sean Clanc (director) Industry association membership: MFAA and COSL Broker breakdown by state: NSW/ACT – 34.9%, VIC/TAS – 21.6%, QLD – 24.1%, SA/NT – 6.9%, WA – 12.6%

Survey year

2007

2008

2009

2010

Employees

100

Lenders on panel

$7.7m

$13.6m

$1.4m pa

$31.6bn

$34.2bn

$37.7 bn

$5.2bn

$192m

$0.22bn

$8.39bn

$4.8 bn

$67m

$33.7m

600

565

Average settlement by broker Residential loanbook

$29.64bn

Commercial loanbook Annual residential settlements

$9.25bn

Annual commercial settlements Number of brokers

663

678

Survey year

2007

2008

2009

2010

Employees

120

Lenders on panel

PLAN :: Year established: 1995

Ray Hair

Head office location: Melbourne, VIC States/territories operating in: Australian and New Zealand Senior management team: Ray Hair (CEO), Alex Moulieris (managing director), Drew Hall (director), Glenn Mitchell (National Commercial BDM), Brett Mansfield (Manager

National Broker Groups) Industry association membership: MFAA and FBAA

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Average settlement by broker

$600,000

*data to December of each previous calendar year

Mortgage Choice :: Year established: 1992

who are currently struggling with interstate buyers. “One national uniform approach will be beneficial to industry participants because it will (hopefully) reduce the red tape and confusion that is often a result of dealing with customers buying and living in different states. A broker who is less bogged down by red tape is a more professional, efficient mortgage broker.” Steve Kane from FAST agrees that standardised platforms will raise the level of service. “The rigour around gaining and maintaining a licence will see only those brokers who are genuinely motivated remain in the industry. The introduction of credit representatives will also lift the bar as licence holders provide standardised platforms to work from,” Kane explains. Finally, aggregators believe that alongside professionalism, new licensing and regulation changes will promote a higher level of quality advice and accountability, essential for survival of the broker proposition. “We are looking forward to working under clear guidelines that are independently governed,” says Mortgage Choice. “Consumers will gain reassurance from knowing they are dealing with a licensed and reputable mortgage broker that has a governing body looking over their shoulder.” Smartline agrees. “The introduction of licensing and regulation represents an important step forward for the industry. Whilst it won’t always be a smooth ride, ultimately it will lift standards through ongoing education, setting barriers to entry to the industry and putting more focus and rigour around the quality of the advice given to borrowers.”

The return of competition In the wake of the GFC the mortgage industry saw competition collapse. Nervous borrowers turned to banks for loans as they saw both local and overseas institutions fail. As non-bank lending took a nose-dive, banks cornered the lion’s share of the market that led to the reduction in commissions and implementation of strict volume hurdles. But with the worst of the crisis now over, non-bank lenders are making a comeback. While our survey results have shown a slight decline in the average number of lenders on an aggregator’s panel, competition is returning as second-tier lenders starting to make their presence felt with new niche products and high service standards. MPA asked aggregators what it would

Are you ready for the Personal Property Securities Act? The Personal Property Securities Act 2009 received Royal Assent by both Federal Houses of Parliament last December. Most provisions in the Act are expected to commence application in May 2011. The new law requires financiers to make changes to their documentation and also to their practices and procedures if they take security over property other than land. As well as applying to instruments which have traditionally been regarded as security, such as charges and bills of sale, the new law applies to instruments such as hire purchase agreements, equipment leases, retention of title agreements and conditional sale agreements relating to all property – with the exception of land, buildings and fixtures or water rights. There are detailed rules for the creation, registration and priority of security interests set out in the new legislation. A national online register of security interests will be established. All registrations of security interests at the time the law comes into effect, such as fixed and floating charges already registered on the ASIC register, REVS registrations or bills of sale registered on State and Territory registers, will automatically be transferred to the new national security interest register. Traditionally, only some instruments which are security interests (as defined by the new law) are registered. This is because under the superseded law it is simply not possible or required that they be registered. An example is property which is the subject of a retention of title clause, an equipment lease or a hire purchase agreement. Holders of these interests will have 24 months in which to register on the new register. In some cases it may simply not be worth registering, for example in the case of an equipment lease with only 12 months to run. In other cases, a financier will want to register the interest to preserve its priority against other security holders or a liquidator. Implications for financiers Financiers will need to be ready for the commencement of the legislation. This will include reviewing the following things: 1. existing documentation with a view to updating it in the context of the new legislation; 2. unregistered security interests currently held such as hire purchase agreements and equipment leases and planning for their registration ; and 3. policies and procedures for new securities going forward.

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take for non-bank lenders to be competitive again, and how long it would take. “When talking to brokers, they will tell you that they have never seen such a concentration of lending power by the Big Four since the early 1990s,” says new industry force, Vow Financial. While non-bank lenders might not be flying high yet, according to Vow Financial, they are at least off the ground. “Looking at the statistics, banks were writing more than 90% of all new mortgages towards the latter half of last year. Since then, the market has started to open up and we are seeing second-tier lenders and white-label mortgage managers emerge from an enforced hibernation. Those who survived are well placed to capitalise as clients’ appetite for debt picks up.” According to Loanmarket, the non-bank sector is already competitive with a steadily increasing market share. “It is a different landscape postGFC where fast turnaround times are no longer a guarantee for a seat at the table,” it says. “The key for non-banks is working hard on niche opportunities and new product and policy development.” Smartline also believes that the non-bank sector is now “much more competitive” than it was a year ago. However, for it to become truly competitive again, there are two key factors that the aggregator group believes need to be addressed. “The first is funding cost and risk management frameworks around credit controls,” explains Smartline.“The more markets normalise in this area, the more competitive non-bank lenders will be,” it says. The second factor is the mindset of brokers and consumers. According to the aggregator, non-banks need to “overcome some of the concerns that sprung up in the height of the financial crisis,” a confidence-building process that will “take time.” The issue of accessible and affordable funding was a common one with many of the surveyed aggregators. Groups such as PLAN suggested that the non-bank sector would only become competitive with access to “sustainable, competitive wholesale funding. Whilst there have been signs of improvements, the margin on recent bond issues still disadvantage non-banks who are reliant on wholesale funding markets,” it says. PLAN predicts this situation will continue to present a challenge for non-banks, for at least the next three years. In order to thrive, FAST suggests the non-bank sector find new alliances.

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“ Brokers will tell you that they have never seen such a concentration of lending power by the Big Four since the early 1990s ”

“Whilst showing signs of recovery, the non-bank sector will need to look for different funding strategies and alliances other than securitisation, and this will take time,” it says. Predicting a strong resurgence, FAST told MPA that strong competition is still likely to be “12 to 18 months away.” CHOICE implicitly agrees. “Increasing funding at reasonable margins will enable many ‘tier 2’ lenders to become more aggressive in the market. We are already seeing some signs of the re-entry of a number of players but it will take a good 12–18 months before we see any significant shift in market share away from the mainstream banks.”

Lender relations Brokers and banks have long had a love-hate relationship. However, changes in the lending landscape over the past year have heightened the levels of frustration and disappointment. With the glut of new buyers on the market taking advantage of the First Home Owners Grant, banks struggled to cope with demand, dropping their level of service and blowing out timeframes. Volume hurdles were also introduced which frustrated brokers who felt the move was directly contrary to their value proposition. Despite some disappointment, the relationship of necessity between brokers and banks continues. Watching the story unfold from both sides, aggregators have indicated that while brokers may forgive the lapse in service standards over the past couple of years, the general feeling of antipathy towards banks enforcing volume hurdles is likely to remain. A major concern from last year’s survey was the struggle lenders were facing when dealing with application volumes. The Loan Market Group’s executive director John Kolenda told MPA that “the remaining lenders are struggling with application volumes which affect the broker service delivery – something which has been a key benefit of the channel.” Kolenda’s view certainly took hold, with this year’s respondents all claiming that the downturn in service has put brokers on edge. “There’s no doubt that the past two years have put a strain on the relationship, but ultimately brokers and lenders are in partnership,” says Smartline. “At different times one partner will let the other down. We really feel for our brokers because some of the service levels have taken a real toll on them in terms of stress and frustration.

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Smartline :: Year established: 1999

Chris Acret

Head office location: Sydney, NSW States/territories operating in: Nationwide Senior management team: Chris Acret (managing director), Joe Sirianni (executive director), Jayson Billings (General Manager), Niel Pinner (director), Michael

Brennan (director). Industry association membership: MFAA and FCA Broker breakdown by state: NSW 32%, VIC 30%, QLD 12%, SA 10%, WA 16%

Survey year

2007

Employees

2009

2010

Lenders on panel

Average settlement by broker

$1.48m pa

$15m

Residential loanbook

$5.10bn

$9.8bn

$10bn

$350m

$400m

Commercial loanbook Annual residential settlements

$1.75bn

$2.75bn

$2.8bn

Annual commercial settlements

$170m

$150m

Number of brokers

140

200

205

Connective :: Year established: 2003 Head office location: Melbourne, VIC States/territories operating in: Nationwide Senior management team: Glenn Lees, Murray Lees, Mark Haron Industry association Glenn Lees membership: MFAA Broker breakdown by state: NSW: 500 , NT: 3, QLD: 146, SA: 84, TAS: 8, VIC: 306, WA: 61

Survey year

2007

2008

2009

2010

Employees

Lenders on panel

$852,237

$ 905,000

$11.79bn

$18.6bn

Average settlement by broker Size of loanbook

$2.77bn

$6.5bn

Annual residential settlements

$1.60bn

$4.5bn

Annual commercial settlements Number of brokers

153

$9.2bn

$283bn

$261m

690

990

1,120

*data to December of each previous calendar year

Rams :: Year established: 1991 Head office location: Sydney, NSW States/territories operating in: NSW, QLD, VIC, WA, NT, ACT Senior management team: Melos Sulicich (Chief Executive); Susan Bannigan (Chief Financial Officer); John Melos Sulicich Loughran (Head of Human Resources); Clive Kirkpatrick (Head of Franchising); Craig Walker (Acting Head of Marketing); Mark Austin (Head of Operations & IT); Joanne Reid (Head of Product); Colin Davenport (Head of Risk and Credit Operations); Samantha Hellen (Head of Channel Development) Industry association membership: MFAA Broker breakdown by state: NSW 37%, QLD 30%, VIC 19%, WA 10%, NT 2%, ACT 2%

Survey year

2010

Employees

380

Lenders on panel Average settlement by franchisee

$62m pa

Residential loanbook Commercial loanbook Annual residential settlements Annual commercial settlements Number of brokers

270

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And it’s the better brokers who really take pride in their service that seem to feel it the most. But it’s not about tarnishing one or the other’s reputation, we’ve got to try and work together more constructively for ultimately the benefit of all.” PLAN says that while the blame game is inevitable, each party needs the other to engage in a cooperative professional relationship that will provide the customer with the right solution. While that outcome is ideal, PLAN acknowledges that “the need to reduce cost, fluctuating application volumes, inconsistent service levels and application quality, changing credit policies and inconsistent consumer actions all contribute to frustration between parties.” However Kym Rampal from Loankit argues while brokers may talk of “pay-back”, professional brokers will always do what is best for their clients. “Poor service levels are very often symptomatic of greater than normal values. However, professional brokers will refuse to allow past performances stand in the way of their judgment when placing clients.” For Choice, a quieter market has meant an improvement in service offerings. “The majority of banks have made excellent progress over the past six months in getting back to acceptable service standards. Clearly the market volumes are a little subdued and these have given lenders time to re-group and re-engineer their processes.” While service levels tend to create temporary pain, according to Loan Market Group, accreditation issues are far more detrimental. “Accreditation issues are more damaging with brokers and have led to a number of brokers ‘writing off’ a lender. These brokers can be above-average writers but for whatever reason are not utilising a lender to the degree required over a certain period.” Vow Financial has also found accreditation to be a sore point. “Many brokers feel slighted that quantity is being used as a surrogate for quality and that in some cases they are being given volume quotas to retain their accreditation – a policy that will put them on a collision course with the needs of their own clients,” it says. Vow Financial also notes that brokers are disappointed by the actions of banks who gave clients preferential treatment through a branch channel as opposed to the broker channel. “It smacks of negative selection and those brokers

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“ Brokers will remember which lenders supported them during the difficult times and will look to keep on supporting those lenders wherever possible ”

who have experienced this are very wary of the banks and not afraid to express their disdain.” From Connective, the word of caution was clear. “Brokers will remember which lenders supported them during the difficult times and will look to keep on supporting those lenders wherever possible.”

Commissions The broker industry has been dominated by talk of commissions over the past two years. In the 2008 Superbrokers survey, commission cuts topped the list of concerns for aggregators. The first signs of diversification were appearing, with a number of aggregators emphasising the importance of cross-selling opportunities and focusing on creating additional revenue streams. By 2009, the broking industry had settled into the rhythm of the new lending landscape and had resigned itself to a reduced level of competition. Some predicted more commission cuts while others speculated that commissions had reached their plateau. This year the general consensus is that commission cuts are here to stay. ‘Diversify or die’ is the catchcry of 2010, with the broking industry rushing to ensure incomes remain steady despite the loss of commission levels and trails. “The banks, backed by the Federal Government’s guarantee, were in a powerful position as the non-bank lenders contracted from the market, and took an almost unassailable market position” says Vow Financial. Reducing broker commission levels and cutting both upfront and trail commissions had a major impact on brokers’ income, says Vow, who highlight that as old trail books run off, brokers should be prepared to suffer more with new loans paying as much as 40% less trail commission. However, Vow Financial says that the return of the non-bank lending market should allow for an increase in commission levels. “We may see an increasing trend towards differential commissions, where lenders encourage and reward certain behaviours and pay incremental commissions for some business, but hold or potentially reduce base commissions for other types of business.” With future commission levels largely dependent on competition between lenders for market share and the profitability of the broker channel, PLAN suggests that revenue diversification and emphasising the lifetime value

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BROKERS ON AGGREGATORS

of a customer should be the focus of all brokers and broker groups. Smartline agrees. “Income diversification and maximising the value of each client has become more important and is the future for brokers,” it says. Loan Market Group suggests that income diversification is essential in a climate where the effects of past trail changes are still flowing through the bottom line of most brokerages. However, the group adds that diversification remains a real opportunity for brokers, as funding improves in the commercial and personal lending sectors. Also, insurance opportunities are proving a solid avenue for growth. While commission levels appear to have stabilised, Smartline says that a shift of focus is taking place. “Commissions are linking more and more to the quality provided to the lender,” it says. Choice shares the opinion, adding that “the focus has shifted to getting efficiencies through process improvements with more discussions taking place around ways in which we can work with lenders to improve processes, procedures and quality of submissions.” With the re-emergence of the non-bank sector, Rampal from Loankit suggests that any perceived threat to commission levels will decline as secondtier lenders increase competition. However, Rampal reiterates that brokers should take diversified products seriously. “Diversification should not simply be contemplated from a broker’s own income perspective but as a true service to the

“ Many brokers feel slighted that quantity is being used as a surrogate for quality and that in some cases they are being given volume quotas to retain their accreditation... ”

client’s interests,” says Rampal. “Clients may not always be paying attention or be aware of the need for products that could aid and protect them and it is a broker’s duty and obligation to ensure that all clients are aware of products that could be suitable to the client’s circumstance.”

Consolidation As a result of the GFC, the broker industry has seen significant consolidation over the past two years. Banks were bought out by bigger, stronger cousins and aggregator groups merged. Many argued that consolidation was bad for competition; with non-bank and second-tier lenders leaving the market, banks were given a monopoly on lending that hurt both the bottom line and the broker value proposition. In 2010, aggregators are predicting still more consolidation, this time within the broker ranks. As licensing and regulation changes make operating more costly, it is predicted that brokers will band together in an effort to increase profitability. Supporting the consolidation trend is Vow Financial, created when National Broker Group, The Mortgage Professionals and The Brokerage merged. “Aggregators are merging or being acquired,” it says. “Brokers are forming alliances with financial planning groups to provide a diverse and specialised offering. Those who survive will provide the nucleus of a leaner, more

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COVER

BROKERS ON AGGREGATORS

Vow Financial :: Year established: 2010

Jeff Zulman

Head office location: Sydney, NSW States/territories operating in: Australia and New Zealand Senior management team: Jeff Zulman (CEO); Alan Gibbons (CIO); Steve Lambert (COO) Industry association membership: Member of all

Survey year

2010

Employees

Lenders on panel

Average settlement by broker Residential loanbook

$16bn

Commercial loanbook Annual residential settlements

industry bodies Broker breakdown by state: WA: 174, SA: 144, VIC/TAS: 427, QLD: 239, NSW/ACT: 378

Annual commercial settlements Number of brokers

900

Choice Aggregation Services :: Year established: 1997 Head office location: Melbourne, VIC States/territories operating in: Nationwide Senior management team: Brendan O’Donnell (CEO); Garry Dowd (National BDM); Dennis D’Angelo (national sales Brendan O’Donnell and commercial manager); Julianne Mcknight (head of compliance and risk); Andre Szarukan (head of marketing); Tobin Fonseca (GM operations). Industry association membership: Member of all industry bodies Broker breakdown by state: WA: 174, SA: 144, VIC/TAS: 427, QLD: 239, NSW/ACT: 378

Survey year

2007

2008

2009

2010

Lenders on panel

35 (30 residential, 17 commercial)

35 (28 residential and 19 commercial)

Average settlement by broker

$12m-13.2m pa

$1.4m

Size of loan book

$20.10bn

$25.6bn

Annual settlements

$9.20bn

$10.3bn

Number of brokers

1,271

1,394

1,442

1,362

Specialist Mortgage :: Year established: 1991

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Survey year

2007

2008

2009

Employees

2010 12

Lenders on panel

Average settlement by broker

$11.07m

$11.m

$11.9m

$13.7m

Residential loanbook

$3.89bn

$5.13bn

$5.75bn

$6.68bn

Commercial loanbook

$39.2m

$73.83m

$93.5m

$84.3m

Annual residential settlements

$2.16bn

$1.97bn

$2.2bn

Annual commercial settlements

$63m

$37.2m

$47.9m

Number of brokers

196

168

167

*data to December of each previous calendar year

Head office location: Subiaco, WA States/territories operating in: WA, VIC, NSW, ACT, QLD, TAS, Singapore, Hong Kong, Dubai, London Senior management team: William Lockett (managing William Lockett director), Steve Ayris (BDM), Paul Hansberry (product & compliance manager), Richard Bland (state manger), Cathy Wallace (finance controller/group accountant), William and Jane Lockett (directors). Industry association membership: MFAA.FBAA Broker breakdown by state: WA 54%, NSW/ACT 22%, VIC 15%, Overseas 3%, QLD 3%, SA 2%, TAS 1%

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BROKERS ON AGGREGATORS

profitable, more service-oriented industry.” Loan Market Group also believes that there is further consolidation on the horizon for small to medium size aggregation groups. “It is likely that a number of groups that currently sub-aggregate under the top ten groups will realign or look for merger opportunities to allow them to go direct,” it says. Connective agrees, suggesting that brokers will move to larger brokerages or merge to create larger practices where a higher level of support is offered. Brokers are also being pushed to consolidate their practices thanks to the changes in licensing. “National licensing has the potential to drive further consolidation in the broker market, as smaller operators struggle to manage licensing fees and adapt their businesses to suit the new requirements,” says Mortgage Choice. “Undoubtedly, some brokers will feel the pressure of licensing paperwork and the cost and time involved with adhering to new industry regulation. Moving to a larger broker group that can take care of it for them will be a temptation many brokers will find too strong to resist.” Rising costs, coupled with reduced commissions, are also forcing brokers to look for alternatives. “As costs rise, business complexity increases and commission cuts continue to bite, economies of scale will become more important,” says Smartline. However, it adds that bigger is not always better. “There is a point in any business where there are diseconomies of scale, especially in regard to business culture and service ethic.” “Banks are demanding volumes and brokers are finding it impossible to maintain their accreditations because they cannot possibly

“ National licensing has the potential to drive further consolidation in the broker market, as smaller operators struggle to manage licensing fees... ”

achieve volume requirements with each lender,” says Loankit’s Rampal. The solution, he says, is to band together and specialise. “Three or four brokers may get together and each broker takes on the responsibility of all submissions to a particular bank, no matter which of the brokers in the businesses sourced the business. Thus each of the bank’s volume requirements can be met, the business can be run more professionally, the business can write larger volumes and each partner can concentrate in their areas of expertise,” Rampal explains.

The year ahead The industry has suffered significant changes over the past few years. Consolidation, commission cuts, and changes to licensing are all affecting the business model in radical ways. Yet change is not always a negative thing. New credit regulations are prompting a higher level of professionalism in the industry, offering a boost to the broker value proposition. While conditions may be strict, this ensures only the best will succeed, creating a more stable industry driven for success. Competition is also returning to the marketplace, with non-bank and second-tier lenders offering competitive and tailored products targeting specific niches. Brokers are increasingly being provided with new options and opportunities to build their business through diversification. Stronger partnerships are being formed through consolidation, and business strategies are becoming leaner and more efficient. In short, the industry is maturing, and while the road may have been rough in patches, its direction is clear. MPA

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COLUMN

Responsible LENDING OBLIGATIONS

compliant under the new National Consumer Credit Protection Regime (NCCP). The new act means that it is time for all mortgage and other finance brokers to front up to their responsible lending obligations. Principal of Innoinvest Consulting, Su-King Hii, tells MPA how the new requirements will affect brokers, and discusses how brokers can ensure they don’t steer consumers into credit contracts that are deemed unsuitable under the new laws.

With the new National Consumer Credit Protection Regime (NCCP) coming into play from 30 June, 2010, brokers face dramatic changes in the lending landscape. Su-King Hii explains the legal ramifications of these changes in a discussion on responsible lending and understanding the new definition of loan suitability

riggered by the collapse of large financial institutions, bank bailouts and a downturn in the global stock market, the worst financial crisis since the Great Depression has changed the lending landscape forever. While the Australian marketplace largely escaped the battle, the shockwaves created overseas have created tremors around the globe, with changes to lending in Australia now almost upon us. From 30 June, 2010, a new national consumer credit regime requires lenders and brokers dealing in consumer credit to be registered with ASIC before engaging in any credit activities. Once registered, lenders and brokers have six months to apply for an Australian Credit Licence (ACL) to be

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Unsuitable credit contracts Firstly, it is necessary to understand what makes a credit contract unsuitable. A contract is deemed unsuitable if it is likely that the consumer will be unable to comply with their financial obligations under the contract, or will only be able to comply with their obligations via substantial hardship, or where the contract will not meet the consumer’s requirements or objectives. Central to these determining factors is the broker’s role in ascertaining a reasonable understanding of the consumer’s ability to meet all repayments, fees, charges and transaction costs associated with complying with the proposed credit contract. Furthermore, the broker must also ascertain the capacity of the consumer to repay the loan by taking into account the amount of credit, term of repayment, and the payment of a small principal amount versus a high amount of interest on the loan. Substantial hardship Understanding the suitability requirement of a credit contract also involves understanding the concept of substantial hardship. The National Credit Act does not define substantial hardship, nor does the Australian Securities and Investments Commission propose to define it in Regulatory Guide (RG) 209. However, it does point out how this concept is defined in a superannuation context. In this context, ASIC defines a person as suffering substantial hardship if they are “unable to meet reasonable and

lending 101 immediate family living expenses.” ASIC also sets out several other factors to be considered, ranging from money the consumer is likely to have remaining after living expenses are deducted from their after-tax income, to considering whether or not a consumer’s expenses are likely to be significantly higher than average. The general presumption is that repayments should be made from the consumer’s income rather than from equity in an asset. If repayments could only be made by selling the consumer’s principal place of residence, then substantial hardship would be implied – unless the contrary is established. The examples above, along with the

“ The general presumption is that payments should be made from the consumer’s income rather than from equity in an asset ”

factors listed by ASIC, demonstrate the uncertain nature of substantial hardship. This is because there will always be cases where consumers experience temporary periods without income, or one-off events that incur large expenses which could temporarily, but not permanently, affect the consumer’s ability to make repayments. Suitability Further to understanding the suitability requirement of a credit contract is questioning whether a credit contract will meet a consumer’s requirements and objectives. Crucial to this question is an understanding of the purpose for

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COLUMN

LENDING OBLIGATIONS

“ Brokers must make reasonable enquiries – and verify their findings – into the consumer’s financial situation... ”

which the credit is sought. Once established, the broker should determine whether the type, length, rate, terms, special conditions, charges and other aspects of the credit contract meet this purpose. If not, the broker should suggest credit contracts that do match the consumer’s purpose. ASIC further suggests that the assessment should include measures that cover the complexity of the credit contract, and whether a more basic product is better suited. For example, whether the consumer will need to finance a large final payment under the contract; or if the loan is to purchase a specific item, the term of the loan relative to the likely useful life of the asset; and in relation to switching, the extent to which switching to the new contract will benefit the consumer. Finally, to comply with responsible lending obligations, brokers must make reasonable enquiries – and verify their findings – into the consumer’s financial situation, requirements and objectives in order to determine whether the credit contract is suitable or unsuitable. Practical tips

While the new responsible lending obligations are principle-based, not prescriptive, there are some practical tips licensees can adopt to ensure responsible lending guidelines are adhered to: 1.

Familiarise yourself with the concepts of ‘unsuitable contracts’ and ‘substantial hardship’

2. Ensure that your employees or credit representatives possess adequate qualifications and skills in the provision of credit assistance 3.

Make sure your employment or credit representative agreement sets out the scope of duties clearly, particularly the covenant not to provide credit assistance if the credit contract is unsuitable

4. Ensure questionnaires incorporate a wide scope of inquiries dealing with a wide array of situations, such as the number of dependants, possible divorce, redundancies, etc 5. Ask existing customers to provide updates on any change of circumstances when they seek further credit 6. Obtain certified copies of documents where possible 7.

For complex contracts, conduct face-to-face meetings where possible and avoid relying on internet communication and paperwork alone

8. Make sure a translator is present if necessary 9. Maintain detailed file notes of conversations with clients

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These reasonable enquiries and verification requirements are scalable. This means that what the broker needs to do will vary depending on the circumstances. Accordingly, ASIC has set out several factors that it deems relevant in this regard. These factors include an assessment of the impact on the consumer when entering into an unsuitable contract; the complexity of the credit contract; the capacity of the consumer to understand the credit contract; and whether the consumer is an existing or new customer. Riskier areas While there is no mention in the legislation of low-doc or no-doc lending, these types of lending generally carry higher interest rates, compulsory mortgage insurance and potentially more onerous repayment obligations. Generally, these loans are riskier from the borrower’s point of view, given that borrowers who are likely to choose low-doc or no-doc loans are more often self-employed or casually employed individuals with irregular income. Additionally – and particularly in the case of no-doc lending – a broker is very unlikely to demonstrate compliance with responsible lending obligations that require making reasonable inquiries. Verifying the customer’s financial situation is a core requirement of the National Credit Act. Dealing with low-doc lending under the new requirements will probably be more problematic and tricky given the scalable nature of the obligations. Paragraph 5.4 of the All in One Guide published by the MFAA states that “in some cases (for example, a low LVR loan to an experienced customer), minimal enquiries and verification will be sufficient. There will be some cases where stated income from a borrower, unsupported by an accountant, or from a borrower supported by the accountant will be acceptable.” It would follow that brokers need to be extra vigilant and careful dealing with low-doc lending, in light of the guiding principles pronounced by ASIC. When offering low or no-doc loans, brokers still need to have regard to the potential impact on the consumer entering into an unsuitable low-doc contract. Relying on the borrower’s selfcertification on their income level may not be sufficient in many cases. In these circumstances, even if the low LVR loan was made to an existing customer, reasonable

COLUMN

LENDING OBLIGATIONS

inquiries and verification would still be required to ensure that the financial circumstances of the borrower had not materially changed. A letter or statement from the borrower’s accountant may become more necessary. Challenges Given the scalable nature of responsible lending obligations, it will be challenging for brokers and lenders to incorporate these new guidelines into the current compliance structures. An additional hurdle is ASIC’s expectation that credit licensees will be able to demonstrate that they have adequate processes in place, to ensure that reasonable inquiries are made and that adequate supervision of such activities are in place. In order to achieve compliance, it is suggested that adequate supervision could include a combination of having compliance staff in regional offices, making regular auditing and spot checks, or the use of a centralised system for assessing credit applications. MPA

Resources For more information about the new national consumer credit regime and licensing requirements, go to: ASIC: http://www.asic.gov.au/Credit ALB Credit Reform masterclass: http://www. albmasterclass.com/NationalCreditReform/40423/ details.aspx Innoinvest Consulting: http://innoinvest.com.au/

Su-King Hii Bio

Su-King Hii is the principal of Innoinvest Consulting, established to assist the financial services and credit industry participants to apply for, and maintain their licences. Comments are welcome and can be sent to: info@innoinvest.com.au

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COACH’S COLUMN MARKETING FOR BROKERSE

The role of proper planning in an effective marketing campaign can make your ‘communication’ more than just a buzzword. Doug Mathlin shows you how

t a recent coaching session with a broker, we worked on developing a marketing plan for his business. He hadn’t done much marketing in the past and was not achieving the level of business that he was aiming for – despite being a reasonably successful broker. One of the messages that I recalled saying in my previous presentations and training sessions is that clients see home loans and mortgages as ‘set and forget’ commodities, while brokers try to become their ‘lender for life’. See the disconnect? Borrowers are reminded that they have a home loan with each repayment, loan statement and interest rate rise, but they don’t necessarily think of their broker at these times. In fact, another brand name is usually associated with these occasions (the lender’s). Therefore, brokers have to work pretty hard to remind their clients that they are still around – and of their value proposition.

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Your value proposition is something you need to constantly work on, and ensure is delivered with every client interaction. If you have been a broker for 10 years or more you will have had to change your value proposition over the years. A decade ago most brokers would have said that they could find cheaper rates than the major banks were offering (up to 2% in some cases). A compelling reason for most borrowers to see a broker. Today, things are different. Brokers can’t deliver on this value proposition and are certainly not in control of interest rates, so they need to promote or market something that they can deliver on. That is, their experience, client service excellence, constant contact, value-add services, referral network, and service guarantee. Interestingly, many brokers confess that the majority of client referrals happen within the first few weeks of doing business with them. This proves that ‘set and forget’ is true, and also tells me that the brokers’ sales presentation and personal interactions with clients are their most effective marketing activity. It also says that future marketing messages should be delivered directly as opposed to in text. Most of the marketing plans that I have seen in broker businesses include a newsletter and sometimes

COACH’S COLUMN

MARKETING FOR BROKERS

rewards for referrals. Unfortunately, the newsletters are not very exciting (or relevant to the brokers’ business) and are probably discarded by most who receive them without being read. Implementing a marketing and client communication program is not a task that can simply be outsourced and ticked off the ‘to-do’ list, if you want it to achieve best-practice results. The problem with this type of marketing is that you rarely hear back from the client. Some brokers manage to get a referral or recommendation from up to 20% of their clients but sadly, the average broker would be lucky to achieve 5%. To work out your ratio, calculate the total number of referring clients and prospects (anyone that has referred you in the past) and divide that number by the total number of clients and prospects in your database and multiply by 100. If you are in the 5% bracket it can only mean one of two things: • You haven’t provided your client with enough value • Your clients have forgotten about you Have you noticed that the lenders keep in touch with your clients much more often than you do? They send statements, cross-sell products, telephone your clients, email and advertise on TV, radio, newspapers. The client is unlikely to forget them anyway as they repay their loans regularly! A smart client marketing plan would look like this: • Develop a smart suite of marketing materials including an easy-to-follow website, a flyer or brochure that clearly explains what you do and why someone should choose you along with professional stationery. • Ensure that your sales presentations are first-class. Spend some quality time making sure that you have rehearsed all the key

“ Have you noticed that the lenders keep in touch with your clients much more often than you do? ”

messages that you want to deliver to a client when you meet with them. Make sure that you ask some great questions! • Call your clients at least weekly during the application-to-settlement process to keep them up to date with the progress of their loan (especially new clients). If nothing has happened during the week, call them on Friday to touch base and wish them a good weekend. • Conduct a post-settlement review (face to face or on the phone). Get some feedback on what they thought of your service. You want to ensure that your client is happy before you embark on marketing to them. This is also a good time to help your client use the products that you arranged for them (credit cards, offset accounts, insurance, etc). • Send an email, letter, SMS or call your client on a regular basis (monthly or bi-monthly at a minimum). Make sure that the content of your message is relevant to the service that you provide. Keep an eye out for news articles that you can comment on that your clients would be interested in. Shorter messages get read! • Conduct annual loan reviews with your clients. Try to meet with all your clients at least annually. Face-to-face meetings are much more compelling than written marketing pieces. This is a really simplistic marketing plan – and when implemented correctly it will ensure that your clients remember and recommend you – for all the right reasons. MPA

Bio Doug Mathlin is a founder of FrontRunner Consulting Group, which provides performance coaching programs for people in finance. For more information or to contact Doug visit www.frcg.com.au

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FEATURE EMPLOYMENT

Engaging an

independent workforce With over one million independent contractors in the Australian labour force, MPA asks Matthew Franceschini, chief executive officer of Entity Solutions, for his advice on how to engage contract workers

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ne of the biggest challenges small business owners face is the perceived need to wear every hat. Full-time employees that specialise in fields such as marketing, accounting, design and taxation may be out of reach for many small businesses, that don’t have the budget to take advantage of personnel with specialised expertise. However, over the past 10 years there has been a significant shift towards employers engaging independent workers. Over one million independent contracts now exist within the Australian labour force, providing specialised skills and experience to small business while enjoying independent working lives. Offering a number of benefits to small business, contract specialists provide a high level of expertise and experience, often at short notice and for less than the cost of a full-time employee. They are often entrusted with critical projects and are provided with a remarkable degree of freedom – which can be unsettling for employers who are used to dealing with more traditional 9 to 5 employees. Perhaps unsurprisingly then, contract workers often feel a high level of attachment to their client organisation. A recent survey conducted by Entity Solutions and Monash University found that in general, contract workers are enthusiastic and happy at work while being satisfied with their independent working life. The survey also showed that many contract workers are open to close engagement with their

clients, who they readily identify with and will, given the right support and encouragement, go beyond the extra mile to deliver quality results. How then does a small business take advantage of this experienced, knowledgeable and loyal workforce? Matthew Franceschini, CEO of Entity Solutions, offers his advice. Character traits According to survey respondents, contractors feel very positive about their work: 87% report that they are satisfied working as a contractor and 87% are satisfied with the kind of work that they do. Pride in work is almost a defining trait. They’re happy when working intensely, and bring an enthusiasm and energy to their tasks. Their sense of personal well-being is high as the independent way of working also builds confidence. 85% of contractors feel they are prepared for most of the demands in their jobs, and 88% are comfortable that they can usually handle whatever comes their way. Most contractors are likely to be highly competent and self-aware individuals. How they feel about you From psychologists to HR management practitioners, much has been written about the need for gaining commitment to the organisation from permanent employees. Yet there is rarely any consideration given to building commitment among

FEATURE

EMPLOYMENT

a company’s contracted workforce. The good news is that a large number of contractors feel positively about their clients. One in two agree that they would be very happy to spend the rest of their careers working for their current client organisation. The same number feels as if their current client organisation’s problems are their own. These results indicate that contractors feel commitment to their client, which is pleasing for organisations that engage a contractor’s services. It also suggests there may be potential for a reassessment as to just what the client/contractor relationship can deliver. The majority of contractors also believe that the commitment is a two-way street. More than 70% believe that their client organisation cares about their opinions, is there to help if they experience problems, and that the client takes pride in their accomplishments at work. These positive perceptions indicate that contractors are aware that any increased effort will be noticed by their client – and rewarded. It is a solid basis for the relationship and has important implications for employers, because contractors who believe they are valued are likely to increase their desire to help the organisation reach its objectives. In other words, if managed effectively the contractor /client relationship will foster mutual trust between the parties, matching the objectives and commitments of the contractor to the organisation.

Successful strategies So how do you get the most from your contractors? The first step is to ensure you have ‘good’ contracts with your contractors. This includes clear start and end dates, transparency in expectations, and good communication and documentation. Being prepared prior to the commencement of the contract is helpful – as is paying your contractors on time! Another aspect of a successful relationship is ensuring that you are compliant with the latest workplace legislation – paying your contractors on time every time; and managing your back-office processes as seamlessly as possible, in terms of providing a safe workplace and having all your insurance policies in check. There are organisations that can help with the entire engagement process: ensuring all insurances, statutory and OH&S and other legal requirements are covered, streamlining processes and establishing benchmark standards. Another theme to emerge from the survey was the ‘hidden value’ contractors bring to client organisations. As their name suggests, contractors are independent and professional. Organisations engage them because of their expertise, so acknowledge their skills and consult with them where appropriate. A lack of integration between contractors and permanent co-workers can be a cause for frustration. If your contractor is engaged for the mid to long term consider offering access to induction programs and including the contractor in team activities. If the project merits, you may even consider incentives such as performance bonuses or professional development opportunities. Recognise that contractors like the challenging and demanding nature of contracting: give them the change and stimulation they seek. Understand that as a client you are the ‘significant other’ in your contractor’s working life, so show them that you appreciate their efforts. Encourage them in their work and they will more than likely repay you and your organisation with enthusiasm, energy and results. Finally, recognise that contractors choose to contract because they want the flexibility, variety of work and sense of freedom. Contented staff makes for a productive workplace. MPA

“ As their name suggests, contractors are independent and professional. Organisations engage them because of their expertise, so acknowledge their skills and consult with them where appropriate ”

Bio

Matthew Franceschini is the CEO and founding partner of Entity Solutions, a leader in the professional engagement services industry. Questions and comments are welcome and can be sent to: enquiries@entitysolutions.com.au

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MPA LENDER NEWS

CONTENTS 56 NEWS: A REVIEW OF NEWS IN THE WORLD OF NON-BANK LENDING AND MORTGAGE MANAGEMENT 58 IN PROFILE: NATIONAL MORTGAGE COMPANY

NAB wins leadership award In recognition of it taking the razor to its bank fees and forgoing around $110m in profits, CANSTAR CANNEX is presenting its first Banking Leadership Award to NAB. NAB’s action over the past eight months deserves to be acknowledged and applauded for its boldness and far-reaching effects, the financial services group said. NAB has “blown the banking world apart” with its sudden announcement to scrap the things customers and businesses hate most about banks – fees, said CANSTAR CANNEX head of research Steve Mickenbecker. “It’s not just the odd token fee either. Some customers can operate fee-free, and almost all will see some saving to their bottom line,” he added. Late last year, and again in January this year, NAB announced it would be slashing fees on a range of its customer accounts. Westpac followed, doing the same to fees across credit cards, personal accounts and business accounts. CANSTAR CANNEX envisages its Banking Leadership Award will only be used when a product or service merits this accolade.

GE has left the building Australia’s largest non-bank financial services company, GE Capital, has revealed it has no plans to re-enter the mortgage market. Continuing its strategy of targeting markets where the major banks cannot or will not operate, GE Capital’s CEO Skander Malcolm has indicated that the company has largely completed its restructuring that saw it sell off the Wizard franchise as well as its car finance business. Malcolm, who took the helm two months ago, said the business was committed to the remaining businesses it operated. GE Capital is still a major financier of corporate finance, inventory finance, fleet and equipment finance, credit insurance and personal lending.

Macquarie to increase participation in the mortgage market Macquarie CEO Nicholas Moore has indicated that the investment bank intends to build its loan book but said he has no intention of taking on the major lenders. “We have quite a degree of liquidity available, but as for us going up against the major banks, forget about that,” Moore said in an interview with The Australian. Macquarie’s loan book currently stands at $2.2bn after it exited the Australian mortgage industry a couple of years ago. Since then it has regained a foothold, working with new aggregator Vow to build a value proposition to its members. The bank has more than $4bn of cash on its books and Moore said it would be used to create growth but there was no hurry to spend it. “We are happy to have it on the balance sheet,” he said. “It’s a good position to be in.”

$110m 56

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Profits NAB sacrificed when it slashed fees on a range of customer accounts

BUSINESS PROFILE NAtional Mortgage Company

‘This is ourNtime’

Pre-GFC, National Mortgage Company was just hitting its stride in the non-bank sector. Two years on and it’s ready to rise to the top once again

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ational Mortgage Company has set its sights high. “In the next financial year we expect to write over $1bn in new mortgages. National Mortgage Company will become a household name with many consumers, and our wholesale and retail offerings will be seen as market leaders in their respective fields,” says Jeff Chapman, the organisation’s head of credit and risk operations. It’s a bold promise from the non-bank, but not unattainable given National Mortgage Company’s proven track record. In 2008, the company swept MPA’s non-bank survey, taking the top spot in all six categories, as well as Non-Bank Lender of the Year.

Two years on and one global financial crisis later, the Gold Coast company appears to be ready to lead the market once more. “The future looks fantastic,” Chapman says. “The market is providing a number of opportunities. We are working on large strategic partnerships with several introducers. We’re opening up an office in Brisbane, and most likely in Sydney soon. We need more head office space so we’ll be moving prior to the end of the financial year.” According to Chapman, “For quality non-bank lenders with strong balance sheet funding, this is our time.” Broker beginnings CEO Steve Dover started National Mortgage Company in 1996, after identifying a need to control the service he was offering to his clients. As a broker – first with Aussie Home Loans, and then independently – he increasingly became frustrated with inconsistent service levels and credit decisions. Dover saw that the only way to be a point of difference to the banks was to enter the mortgage management space and control all aspects of the customer experience, both pre- and post-settlement. National Mortgage Company entered the market at an opportune time. Chapman characterises the period as one where the market

BUSINESS PROFILE

National Mortgage Company

embraced quality mortgage managers “who delivered on message”. “The value of service never diminishes and uptake of our products and services via our introducers was excellent. The company grew rapidly and made inroads into all states across Australia. Proving ourselves via strong credit and customer service, we were able to attract quality funding lines that helped continue our growth.” The first big step for National Mortgage Company was earning the support of Bendigo Adelaide Bank – ING Direct followed in 2004. “Having the ability to sign off loans inhouse up to $2m allowed us to deliver on the consistent service levels we promised, which also helped us attract a large number of quality mortgage brokers writing strong volumes,” Chapman says. What started with three people, steadily grew. Based on the Gold Coast, the company now employs more than 50 staff and has close to $2bn in loans under direct management.

“ Proving ourselves via strong credit and customer service, we were able to attract quality funding lines that helped continue our growth ”

Chapman adds that the company is seeing a return to the market conditions of the early to mid-1990s. The company says its point of difference is in the provision of “consistent solutions to clients and introducers”. “We provide one application form, consistent high service levels, commercial in-house credit decisions, all supported by stable on-balance sheet funding lines from banks such as ING Direct, Bendigo Adelaide Bank Limited, and Advantedge.” National Mortgage Company also offers products via Resimac. On the retail side, it supports its personal bankers via leads, marketing initiatives, and the ability to speak directly to positive credit people. While on both wholesale and retail, the full service offering is backed by competitive, consistent commissions, and market leading post-settlement service. “We have specialised people in client contact, arrears management, loan variations, and

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BUSINESS PROFILE NAtional Mortgage Company

construction loans,” says Chapman, adding that he believes the company is Australia’s market leader in construction loan delivery with solutions for clients, introducers and builders. Surviving the GFC National Mortgage Company managed to grow its overall loan portfolio during the global financial crisis. Chapman adds that having strong margins in its book allowed the company to remain very profitable. “Like all lenders, including the banks, we focused on a ‘flight to quality’ by shoring up funding for our strongest supporters. It was well documented that funding was tight and we had to cope with the restricted ability to write loans. That said, we had always seen the strength in funding off large balance sheets as being a safeguard for our business, which proved very valuable during the GFC. All our funders showed support. ING Direct was excellent for us during the GFC.” Chapman adds that the company also focused on arrears management and quality credit so as to protect the interests of its funders and emerge post-GFC as a tier-one mortgage manager. As a result of the effort it put into its business during the GFC, Chapman says the company’s relationships with funders have grown stronger. “We also aim to build on our relationship with Advantedge as their strong funding proposition in the mortgage manager space takes place,” he adds. While the crisis forced many lenders to re-think their product mix and tighten lending criteria, National Mortgage Company says its in-house sign off gives the company more control. “So we were able to write quality volumes and target markets that were still performing well,” Chapman says. National Mortgage Company has recently launched market-leading products such as a 95% LVR loan, and is currently rolling out a ‘no valuation’ product, along with a Self Managed Superannuation loan. Focus on brokers The company maintains it has also strengthened its bonds with brokers. “National Mortgage Company has always ensured that we remain close with our core brokers, and this was evident in the way we partnered with them during the GFC,” says

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Taking competition

Competition suffered a major setback during the GFC in Australia, however National Mortgage Company’s head of credit and risk operations Jeff Chapman is confident the pendulum will swing back again. “We are already seeing funding problems the banks may be having due to too much volume, especially at high LVR levels. Funding is now well and truly back for most quality players in the market and the need to write volumes is here. Products and policy are improving, however the market and consumers need quality service providers more than ever, given the market share that the banks took during the GFC. That has to, and will come back, for the market to be healthy. Consumers and brokers need choice.” Chapman says the perceived flight to brand quality during the GFC was fuelled by media spotlight on the safety of lenders. Securitised funding platforms could no longer access ‘cheap’ money and consumers sought the safety of big banks, especially Australian banks that were in a better position than most. “The government guarantee on deposits also caused a flow-on effect in this area,” he says. “However, consumers were always upset at the service delivery that came with this. Now that lending rates are evening out with quality lenders who can access balance sheets, service and product will become king. Non-bank lenders will again be at the forefront of product innovation, and those that also deliver quality service will become important players in the mortgage market. Given the current market dominance of the major Australian banks, consumers need quality alternative lenders more than ever.”

“ National Mortgage Company has always ensured that we remain close with our core brokers, and this was evident in the way we partnered with them during the GFC ”

Chapman. “Nothing changed throughout that period in terms of our service proposition and support provided to our brokers.” Post-GFC, the company is working to improve its proposition – to provide multiple funding lines and solutions behind one consistent credit decision and service platform. Chapman says it is introducing licensing support, ongoing training, and unique products tailored to individual broker requirements to meet this goal. Technology is also a major target area. The company is building online lodgment platforms that will provide value to introducers – tools that will assist at the point of sale. But the non-bank’s main focus at the moment is to keep up with its current volumes. The lender has dramatically increased its sales and credit staff numbers to keep up with renewed support from its introducers and retail personal bankers. National Mortgage Company currently has 70 core broker groups (all with multiple loan writers). Chapman says it keeps its core broker numbers tight so that it can form close business relationships with them. “That way we learn more about their businesses, and can build on this to form strategic platforms,” he says. MPA

FEATURE Q&A

Demand for invoice financing presents opportunities for brokers Despite a general improvement in business confidence and conditions according to several indicators, it is evident that many small to medium sized businesses are still suffering from the economic slowdown

Greg Charlwood

ecent comments from the Australian Banking Association indicate that after nearly two years of difficulty, there may be some circumstances where banks are no longer able to support struggling businesses. In addition, it has been suggested that the ATO may take a harder line with businesses that lodge late payments. These conditions have resulted in a rise in demand for invoice financing over the past 12 months. With demand predicted to continue, Greg Charlwood, the MD of Bibby Financial Services, discusses how the current environment can benefit brokers. What is pushing increased demand for debtor finance? A combination of factors: firstly, tighter bank credit, particularly for SMEs, has made debtor finance one of the most accessible forms of business finance available, due to the fact facilities do not typically require real estate security. This also means debtor finance is ideal for growing businesses in the current climate, as the funding limits grow in line with sales and are not capped to a percentage of the property value. In addition, uncertain trading conditions and slow debtor payments are placing added pressure on cash flow. On average, it takes approximately 54 days for invoices to be settled, almost double standard trading terms, and many operations cannot absorb this temporary cash-gap, particularly those with COD terms from suppliers. Looking at the bigger picture, certainly the GFC has highlighted the importance of strong cash flow for business owners. As a result there is now a greater awareness of debtor finance products by finance professionals and business owners alike. Add to this that debtor finance has all but lost its tag as ‘emergency lending’ and is considered a viable mainstream funding option for SMEs in Australia, which has broadened its distribution. What opportunities does Bibby offer brokers? As a growing industry, debtor finance not only offers brokers an additional revenue stream, but also more numerous revenue opportunities. Brokers need only ask clients “how is your cash flow” to uncover a need for a working capital facility such as debtor finance.

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Bibby Financial Services specifically offer brokers an independent specialist in debtor finance supported by a strong global parent. Being independent allows us to be flexible – we have a ‘can do’ approach to business at a time when we understand many lenders are selective or not actively seeking new business. We also believe we have the right product mix to meet the unique requirements of SMEs, including full service products. We can handle the accounts receivable function, invoice discounting and a variety of hybrid products in between. We don’t require real estate security and our independence from the banks provides us with flexibility to look at businesses in a wider variety of situations. We know our referrers value a fast turnaround on enquiries and settlement with a minimum of paperwork and processing, and I believe this is an area of competitive advantage for us. In addition, we also believe we have one of the strongest referral incentive schemes in the marketplace. How is Bibby helping brokers diversify? Our BDMs are available to provide free training seminars to finance professionals looking to broaden their understanding. Brokers need only call their existing contact or our marketing hotline to arrange this. We also provide those brokers who have attended the seminars with a suite of training and reference materials. What response has Bibby had from brokers? Support from brokers in 2009 and so far in 2010 has been tremendous. Referrals from finance brokers are 12% above 2009 levels and 40% above in terms of the value of settled deals. What is also worthy to note is the overall spread of referrals in terms of deal size, with not only established businesses but also growing small businesses being referred to us. Our clients value our flexibility, speed, personal service and the stability that comes with being part of a global business. We’ve had over 25 years experience in 11 countries and are the largest independent provider in the UK. As such, we’re able to share and adopt best-practice in each of our businesses, which ultimately results in better outcomes for the client – and also our referral partners. MPA

LIFESTYLE FAVOURITES

BOOK Bleak House by Charles Dickens. It’s based on the lives of the wards of an ongoing civil suit and full of all the usual Dickensian wit and scorn

CELEBRITY Is Francis Greenslade a celebrity?

Michael Watson + operations and marketing manager » + MKM Capital

MOVIE Commando, which just goes to show that if Arnie kills enough people you don’t have to worry about editing the film, proof reading the script or using trained actors

PLACE TO BE Home with the family. I have a wife and two kids (one three years and one four months), which is great

Favourite things DRINK» A Corona with a slice of lime always hits» the spot

MUSIC It’s hard to narrow down, but Primus, Rage Against The Machine and Parliament Funkadelic are probably my favourites

SPORT Test match cricket without a doubt. Followed by Aussie rules

FOOD If I had to order a last meal it’d probably be seafood linguine with a glass or three of red!

VACATION SPOT Towns around Bright (Victoria) – Myrtleford, Beechworth, Milawa. Quality produce, quality wines, fresh air and exercise…

HOBBY Music. I played bass and drums in a couple of bands (that never made it…) but now I’m mellowing out – I’ve just purchased an acoustic guitar

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“Winning this award has given our whole team a great sense of achievement and satisfaction, as well as positioning us as market leaders in the eyes of our clients and importantly, our referral partners. It has also been a ‘good news’ focus point for marketing to our clients”.

CHOICE HOME LOANS - BERWICK WINNER: BROKERAGE OF THE YEAR MORE THAN SIX STAFF AMA09

September 24, 2010 The Westin Hotel, Sydney

Online nominations now open www.australianmortgageawards.com.au Official event partner

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