Mortgage Professional Australia magazine Issue 13.06

MPAMAGAZINE.COM.AU ISSUE 13.6

THE BROKERS WHO ARE MAKING BIG MONEY FROM NON-MORTGAGE DEALS LOW-DOC WHY IT ISN'T AS SCARY AS IT SEEMS

STEPHEN MOORE CHOICE CEO REVEALS THE AGGREGATOR'S BIG PLANS

TRAIL BOOK BUYING YOUR VITAL 10-POINT CHECKLIST

CONTENTS / 13.6

18

HEAD TO HEAD

Choice CEO Stephen Moore talks about the flexible relationship that the aggregator aims to foster with its brokers.

L OW

D O C L E N D I NG 36

Why this potentially lucrative market isn’t as scary as it seems

NEWS & VIEWS

22

COVER STORY

The diversifiers How these brokers have branched out into various financial services and are thriving under a diversified business

6 | Round-up The latest market intelligence from the world of property, economics and mortgages 12 | Online The best from MPA Online and Australian Broker Online 14 | News Analysis Credit growth is picking up, but the banks are playing a tight game. Where do brokers fit into the picture?

JUNE 2013 | 1

CONTENTS / 13.6

SMART BUSINESS 52 | How to deliver exceptional service Focus on the little things and you can go from a bad customer service provider to an excellent one 56 | Referrals Turn one new client per week into 1,200 happy clients in just two years 60 | Trail book buying: Your 10-point checklist Trail Book Buyers’ James Turk and Mark Osborn offer 10 vital considerations to take onboard

52

HOW TO DELIVER EXCEPTIONAL SERVICE

Focus on the little things and you can go from a bad customer service provider to an excellent one

STATS 64 | Your Mortgage Index The latest mortgage hunter trends from our sister website

LIFESTYLE 62 | A day in the life of …

Robynne Jemmott, Suncorp 63 | My favourite things …

Frank Paratore, Ballast

2 | JUNE 2013

WEEKLY INVESTIGATIONS NOW ONLINE: How to get the best out of your team Broker branding mistakes to avoid mpamagazine.com.au

EDITORS LETTER / 13.06

BRANCHING OUT Diversification is an issue that appears to polarise the mortgage broking community. Some argue that it’s possible for brokers to successfully wear two, three or four hats and provide a quality service proposition across several fields, while others believe that it’s better to stick to what they know best.

This is an issue that we explore in depth in this month’s cover story (p22). We spoke to 10 brokers who have managed to diversify into various areas within the financial services spectrum, and it struck me how different each of our diversifier’s models were from each other.

Some have chosen to keep things relatively straightforward and diversify into equipment finance or ‘no-advice’ risk insurance, while others have gone all out and added a complete financial planning arm to their business. Some work across various sectors themselves, while others have a team of specialists. Whatever you make of each of the business models presented, it’s certainly invaluable reading for brokers who are looking to add an extra string or two to their bow but don’t know where to start.

On the product front this month, MPA explores the world of low-doc mortgages – or alt doc mortgages as several lenders now prefer to label them – and discovers that this is an area that may not be as scary as it first seems (p36).

Throw into the mix our head to head interview with Choice CEO Steven Moore (p18), essential business strategy advice on how to boost your service proposition (p52) and turbocharge referrals (p56), plus some savvy tips on how to buy a trail book (p60) and I hope that you’ll emerge from reading this issue of MPA with plenty of inspirational ideas to help you take your business to the next level.

Robin Christie, editor, MPA

4 | JUNE 2013

COPY & FEATURES EDITOR Robin Christie JOURNALIST Amy Rosenfeld CONTRIBUTORS James Veigli, Nikki Heald PRODUCTION EDITORS Roslyn Meredith, Moira Daniels

ART & PRODUCTION DESIGNER Ginni Leonard

SALES & MARKETING NATIONAL SALES MANAGER Rajan Khatak ACCOUNT MANAGER Simon Kerslake MARKETING EXECUTIVE Anna Farah TRAFFIC MANAGER Abby Cayanan

CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley MANAGING DIRECTOR Claire Preen CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR – BUSINESS MEDIA Justin Kennedy ASSOCIATE PUBLISHER Rajan Khatak CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Robin Christie tel: +61 2 8437 4787 robin.christie@keymedia.com.au Advertising enquiries Sales Manager Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Account Manager Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Subscriptions tel: +61 2 8437 4731 • fax: +61 2 9439 4599 subscriptions@keymedia.com.au

CONNECT

Contact the editor: robin.christie@ keymedia.com.au

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NEWS / ROUND-UP

LENDERS

SMSF

SMSF PROPERTY PIMPS IN THE FIRING LINE

ASIC has announced plans to heavily focus on self-managed super fund (SMSF) property investment professionals in coming months, in an effort to thwart “spruikers” in the industry.

The regulator’s CEO, Peter Kell, said there is a certain level of market confusion when it comes to operators recommending that investors purchase a property through an SMSF, with some mistakenly thinking they don’t require an AFS licence.

“Let me be very clear – a person requires an AFS licence if they recommend that an existing or proposed member of an SMSF purchase a property through their SMSF,” said Kell. “This is because the vehicle through which the underlying investment is made is an SMSF and an interest in an SMSF is a financial product. It does not matter for licensing purposes that the underlying investment (real property in this case) is not a financial product.”

In the past year, Kell said, ASIC has seen an increase in the number of advertisements pushing property purchases through SMSFs. “We do not want to see SMSFs become the vehicle of choice for property spruikers,” he said. “Where we see examples of unlicensed SMSF advice, we will be taking regulatory action.”

INFOGRAPHIC

RBA RATES VS HOUSING FINANCE COMMITMENTS MONTH

TOTAL DWELLINGS

OFFICIAL CASH INTEREST RATE 4.25%

Apr 12

$20,450,000

May 12

$20,194,000

3.75%

Jun 12

$20,723,000

3.50%

Jul 12

$20,051,000

3.50%

Aug 12

$20,301,000

3.50%

Sep 12

$21,203,000

3.50%

Oct 12

$21,564,000

3.25%

Nov 12

$21,065,000

3.25%

Dec 12

$20,837,000

3%

Jan 13

$21,485,000

3%

Feb 13

$21,825,000

3%

Source: RBA, ABS housing finance commitment data – seasonally adjusted estimates

6 | JUNE 2013

BOQ’S BUMPER PROFIT

STATS

26% The percentage of consumers who indicated they were more likely to save money compared to the same time last year Source: D&B Consumer Credit Expectations Survey

BOQ’s half-year results have revealed a 16% increase in cash earnings after tax to $119.9m, and a 37% increase in statutory profit to $100.5m.

The lender’s annualised lending growth of 3.1% was fully funded by retail deposit growth, with the bank improving its deposit mix and reducing its reliance on wholesale funding during the half.

Managing director and CEO Stuart Grimshaw said the improvement in BOQ’s profitability and other financial indicators underlined the significant” progress being made.

“Our solid results for this half demonstrate we are delivering against our strategy, with all key financial indicators heading in the right direction. We have worked hard to re-establish BOQ’s business fundamentals and are now organisationally fit and in a better position to focus on sustainable and profitable growth,” he said.

NEWS / ROUND-UP

REGULATION

MFAA TACKLES NCCP ‘NO MAN'S LAND’ FOR BROKERS

The MFAA has made a submission to the federal government’s Department of Treasury seeking a resolution of the potential breach by brokers of the National Consumer Credit Protection (NCCP) legislation because of the way some lenders treat loan variations.

The submission points out that, while some lenders treat loan variations as just that, others require a new loan contract.

MFAA CEO Phil Naylor said the problem this creates for brokers is that, if a broker initiates a variation to the loan contract on behalf of a client, when the lender treats this as a new contract NCCP regulations require the broker to go through the whole NCCP responsible lending obligations process as if the variation was a new loan.

8 | JUNE 2013

VALUES

PUBLIC HOUSING TRIMS PROPERTY VALUES

STATS

93% The percentage of Australian homeowners who say they are ‘comfortable’ with their mortgage Source: ING DIRECT Financial Wellbeing Index

Wanting to investigate whether a high proportion of public housing in an area could indeed affect property values, buyer advocacy company Secret Agent recently did a study of a public housing estate in Richmond, a suburb west of the Melbourne CBD. Richmond was chosen because it had a high density of public housing within a confined area. The estate itself spanned an entire block.

Collecting property price data between 2008 and 2012, Secret Agent focused on all property sales that had occurred within a 400 metre radius of the Richmond estate.

They discovered a general trend of increasing median house prices as the distance from the Richmond Housing Commission increased. The average increase was $72,104 for every 100 metres a sale was from the estate.

Delving further, Secret Agent divided the data into two groups, one measuring sales within the first 200 metres of the estate and one within the next 200 metres. Arranging the data this way, it was found that the average price of houses in the first group was less than in the second group, where the sales were located further away from the housing commission. Further studies were done in Flemington and North Melbourne, which showed similar findings.

INFOGRAPHIC

BIG FOUR BUSINESS SATISFACTION CBA

63.7% 12-month change +0.5%

NAB

63.9% 12-month change -1.9%

Westpac

67.9% 12-month change +0.5%

ANZ

60.4% 12-month change -3.5%

Source: Roy Morgan Business Single Source survey

NEWS / ROUND-UP

REPAYMENTS

SECURITIES

MORTGAGE PAYMENTS JUMP 105% IN 10 YEARS

Monthly mortgage payments have doubled in the last 10 years, increasing by 105%, according to Canstar.

The Home Loan Star Ratings report used ABS data to compare mortgage repayments over the decade, and showed home loan rates consistently bypassing inflation.

“While the market is currently flat, the past 10 years have nevertheless seen a doubling in the cost of monthly mortgage repayments,” the report said. “This compares to an average wage increase of

54.5% and an overall inflation rate of just 31.4%.

In other words, our mortgage commitments are now taking a higher proportion of our income.”

However, the report argues this hasn’t caused an affordability crisis, largely due to low interest rates. “Our standard mortgage interest rates of approximately 6.42% are a great deal lower than the average of 10% that mortgage holders were experiencing in March 1993. Even that was low compared to rates of over 17% in 1989–90.”

INFOGRAPHIC

HOMEBUYER ‘NON-NEGOTIABLES’

Secure parking

3%

Second bathroom

Internal laundry

Outdoor area/balcony

26% 28% 43%

Source: Loan Market online poll

SWAN CHOPS SUPPORT FOR MORTGAGE-BACKED SECURITIES

Treasurer Wayne Swan has announced that the government will terminate its support for the mortgagebacked securities market, a move which has the MFAA disappointed, if not surprised.

MFAA CEO Phil Naylor said it was only a matter of time before this decision was made.

“To be fair, the government has always said its support of the mortgage-backed securities market was going to be temporary, and that’s been the case,” Naylor said. “We’ve argued against that in the past, saying they should take a more long-term view like they do in Canada, but we’ve never been successful.”

Swan made the announcement in a speech defending the government’s management of financial markets since the GFC, as well as arguing for the preservation of the “four pillars” policy under which mergers between the major banks are barred.

The Australian Office of Financial Management, which has invested a total of $15.5bn into the market (which is reportedly worth $45bn) since October 2008, will hold on to its remaining stock for the immediate future but won’t be making any more purchases.

The government has done its part and is now ready to step away from the industry, Swan said.

“The four pillars policy has endured, in one form or another, through seven successive Treasurerships over more than two decades and has served Australia well in all that time. Not only is it hugely important for banking competition, but it wouldn’t be prudent to have the soundness of our banking system resting on the strength and risk management skills of three banks rather than four.”

Nevertheless, Naylor is concerned over the impact the decision could have on smaller lenders.

STATS

$9.9bn The value of new residential building carried out in the December 2012 quarter Source: ABS

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PRODUCT NEWS Your bite-sized guide to the industry’s newest products and initiatives

WHO: Pepper WHAT: Better Business Program: a broker education series KEY FEATURES: • A new and ongoing professional education series that will assist brokers in building stronger relationships with clients, enhancing their marketing and earning CPD hours • Developed in close consultation with brokers, independent sales leadership and business development experts SalesDNA. com.au, Pepper’s sales team and the MFAA • Initially spans 12 months and launches with a series of nationwide half-day interactive workshops led by SalesDNA.com.au • Includes follow-up online coaching modules and videos They say: “This is the first time brokers have been offered such a substantial professional development and education program that doesn’t involve any sort of product push by a specialist lender, and I am delighted we are leading the way in supporting our brokers and adding real value to their ongoing businesses” – Pepper director of sales Mario Rehayem We say: Pepper’s collaborative approach with key stakeholders should ensure that brokers who take part in the series take home some useful business development tips.

WHO: RP Data and BGL Corporate Solutions WHAT: Simple Fund desktop and Simple Fund 360 web SMSF administration solutions KEY FEATURES: • BGL Corporate Solutions, supplier of administration software to self-managed super funds (SMSFs), has partnered with RP Data to provide automated property data to the market • Clients will be able to obtain property valuations, complete land title searches, request depreciation schedules, and access a number of additional services provided by RP Data • RP Data is partnering with BGL in order to provide access to its range of valuation and analytics services for the benefit of the SMSF industry They say: “Clients will be able to request residential and commercial property valuations in a number of different forms through their BGL software. The valuation details will then flow back into Simple Fund, and a PDF of the valuation will automatically be attached to the appropriate fund. This is a sensational new and unique service for our clients” – BGL managing director Ron Lesh We say: With Lesh stating that the latest ATO statistics show around 17% of SMSF assets are held in property, and this figure continues to grow, it’s clear to see why this partnership has been forged.

WHO: Acuity Funding WHAT: Loyalty Plus KEY FEATURES: • Could potentially reduce the risk faced by parents acting as guarantors for their children • Labelled as an affordable solution for those looking to utilise their superannuation to invest in residential property, even their own home • A rewards program that provides a mortgage solution to members. Members can be individuals or SMSFs who have an investment in an accredited investment fund • Members can purchase property directly, either for an investment or an owner-occupied property in their personal name • Members will have access to either a Loyalty Plus shared equity or a fixed rate loan, allowing borrowings of up to 95% against the property, with no LMI, which is replaced by a $1,100 risk fee They say: “Under the Loyalty Plus product, parents can now have their super with an accredited super fund or in an SMSF, which will provide them with membership benefits. The parents can then pass those membership benefits to any family member they choose, allowing them to access the Loyalty Plus home loan” – Acuity Funding managing director Ranjit Thambyrajah We say: This provides a means for cash-strapped children to buy with only a 5% deposit plus fees – and the 5% is not required to be genuine savings.

JUNE 2013 | 11

ONLINE / MULTIMEDIA

ON

ARE YOU BROKING IN THE HAPPIEST CITY IN THE WORLD?

The latest highlights from MPA Online

LINE

IN MOTION The latest from Broker News and MPA TV

DISCUSSIONS RUN BY BROKERS FOR BROKERS LONG OVERDUE

Stephen Dinte of the Independent Finance Brokers Forum says that panel discussions are a clear case of brokers helping brokers.

Close your eyes for a moment and imagine, if you will, the happiest city on earth. You likely envision an urban paradise pasted yellow with sunshine, surf and fine dining – but do you think of Sydney? Apparently, the rest of the world does. According to Forbes, Sydney is the second happiest city in the world (behind Rio de Janeiro), and Melbourne crops up at number five.

According to the international survey, Sydney is known for its “balmy weather, friendly locals and iconic opera house” and has been helped along by its association with a popular ‘brand’: Australia.

However, policy advisor Simon Anholt and market researcher GfK Custom Research North America, who conducted the research, say the results are more likely demonstrating the ideas that those living outside of Australia have about our two largest cities.

“It’s where everybody would like to go. Everybody thinks they know Australia because they’ve seen Crocodile Dundee. There’s this image of this nation of people who basically sit around having barbecues,” Anholt says.

“This is a survey of perception,” he adds, “not a survey of reality.”

Anholt says his findings more or less support historical trends, with one notable exception. “The cities on this list would probably be the same if I’d been running this survey in 1890, aside from Sydney and Melbourne,” he says.

“Australia is kind of a branding miracle.”

BAD HABITS LIMIT NEW LEAD GENERATION

Bad habits can mean brokers aren’t getting the best return on the time and money invested in lead generation, says Broker Profits Vault founder James Veigli.

SAY WHAT? THE BIGGEST QUOTES FROM THE MONTH

“There seems to be a fair amount of competition, but everyone is fighting for what, at the moment, is a smaller cake, because people are not borrowing as much” – Westpac senior media relations manager Danny John joins the competition debate

“We do not want to see SMSFs become the vehicle of choice for property spruikers. Where we see examples of unlicensed SMSF advice, we will be taking regulatory action” – ASIC CEO Peter Kell talks tough on self-managed super funds regulation

“Antony and John are well respected in the industry and will continue to provide great leadership for NAB in their new roles” – NAB’s Anthony Waldron reacts to the bank’s broker team shake-up

12 | JUNE 2013

TOP 10 HAPPIEST CITIES IN THE WORLD 10. Buenos Aires 9. Paris 8. Rome 7. San Francisco 6. Madrid

TO FIND OUT MORE...

5. Melbourne 4. Amsterdam 3. Barcelona 2. Sydney 1. Rio de Janeiro

To find out more on all of these stories, as well as latest business strategy advice, special reports, profiles, news, views and analysis, visit mpamagazine.com.au

NEWS ANALYSIS / BANK STRATEGIES

DEBT DIL LIGHT ON

Housing credit growth may be picking up from historic lows, but the banks are still playing a tight game to take their slice of the market. Is there light on the horizon for brokers?

Are there shafts of light peering out from the economic doom and gloom that’s been weighing down consumer sentiment and contributing to Australia’s low credit growth environment? Figures from the first quarter of the year suggest that this may be the case, with signs pointing to mortgage market activity being on the up.

Take a look at the March figures from the recently launched RP Data Mortgage Index, for example, and there are signs of continued robust mortgage activity.

14 | JUNE 2013

“The National Index reading of 91.1 remains historically high, with the National Index value 6.8% higher than February in raw terms and 6.2% higher in seasonally adjusted terms. This strong national result may be partly indicative of a seasonal lift in mortgage-related activity but also appears to be driven by increased activity from borrowers looking to take advantage of refinancing opportunities, with low interest rates and investors also being increasingly active in the market,” says RP Data head of corporate affairs Craig Mackenzie.

But don’t reach for the champagne bottles quite yet. Looking at the bigger picture, Mackenzie believes that March’s result isn’t necessarily a surefire harbinger of things to come.

“However, the strong result comes at a time when we are also seeing a sustained lift in many other housing market measures, including a recovery in dwelling values, higher auction clearance rates, and less discounting from vendors. It will be important to monitor activity across our finance platforms over the coming weeks to see if the level of activity is maintained,” he notes.

On a state-by-state basis, Mackenzie points out that WA saw strong levels of activity, but, “more

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EMMAS:

THE HORIZON? surprisingly”, Victoria was also a strong performer.

Meanwhile, Queensland saw a flat performance, while “relatively soft” mortgage activity events were recorded in NSW and SA.

RATE MOVEMENTS No doubt the lenders’ rate movements will be a key determinant as to whether mortgage activity continues its robust performance or eases off as the year progresses. Brokers may well be interested to hear, therefore, that the authors of J.P. Morgan’s latest Australian Mortgage Industry report believe that out-of-cycle rate reductions – a trend that has been mooted to take hold, given recent RBA rate decisions – “are likely to be contingent upon improvements in deposit pricing”.

“The case for out-of-cycle rate cuts really seems dependent upon whether deposit pricing improves (which we are approaching with a degree of caution),” says the report. “There is a strong likelihood that the potential margin benefit from the improving average cost of wholesale funding may be strategically reinvested.”

That said, the report’s analysts believe that housing credit growth may have bottomed out and start-

ed to rebound, despite the absence of out-of-cycle rate movements from the banks. It notes that the historic low in housing credit growth seen last October (3.7%) was beaten – albeit modestly – in February (4.5%).

“Older down-traders are starting to look to move, which typically delivers net credit growth by selling to younger up-traders with higher loan to valuation ratios,” says the report. “We expect limited positive impact from first-time buyers, given affordability remains stretched.”

Other observations included: OWNER-OCCUPIED REPAYMENTS

First-time buyers are barely moving the needle, whereas down-traders have made significant inroads into their debt.

INTEREST BURDENS HAVE IMPROVED, BUT INDEBTEDNESS REMAINS HIGH

Particularly high for first-time buyers, and particularly low for down-traders.

STATE CONDITIONS VARY

Growing demand in WA from first-home buyers and investors, focusing on houses. In NSW there is a demand for units, especially from down-traders.

Demand in Queensland and SA is “considerably more insipid”.

JUNE 2013 | 15

NEWS ANALYSIS / BANK STRATEGIES

BANKING ON GROWTH So which demographic will the banks be eyeing up going forward? The report notes that up-traders could be a target market, “given they have the highest average mortgage and the highest average income to service the debt”. However, it adds that down-traders may also be on the banks’ radars despite having the lowest average mortgage size.

Crucially, this sector of the market has the highest average property value, the report’s authors observe: “They are more likely to be targeting equity release – thereby substantially increasing cross-sell potential into deposit and wealth products.”

Overall, however, J.P. Morgan’s boffins believe that the current economic backdrop doesn’t leave the majors with much wiggle space when it comes to their mortgage strategies, drawing the following conclusions:

In the best position to sustain domestic mortgage growth, thanks to flexibility in its refinancing profile relative to its annual issuance target range.

Expected to hold current market share levels.

Likely to continue to grow modestly and accumulate further modest gains in market share.

Will look to grow “at system” but not above, due to having the largest funding gap in its domestic retail business.

16 | JUNE 2013

“The good news is that brokers’ stake in the new home loan market is on the up – brokers are now writing around 45% of new home loans – a figure approaching preGFC levels” THE PLAY FOR BROKERS The good news for brokers is that their stake in the new home loan market is on the up, with the report noting that brokers are now writing around 45% of new home loans – a figure approaching pre-GFC levels.

However, the report is quick to point out that, while the broker-written proportion of this market may have increased, the overall volume of mortgages that have come through the third-party channel remains subdued.

Zoning in on the big four, the analysts at J.P. Morgan have some interesting comments regarding each of the big four’s strategies for engagement with mortgage brokers, and how this has affected each major’s market share.

Westpac, for example, “has continued to focus on proprietary distribution channels”, says the report, while CBA “has retained broker usage levels, further supported by its move to increase its stake in Aussie Home Loans”.

Meanwhile, ANZ has to compensate for its “underweight branch presence” by continuing with its strategy of high broker usage, say the J.P. Morgan team, but “it has been NAB whose growth rates are benefitting the most from re-engagement with the broker channel”.

HEAD TO HEAD / STEPHEN MOORE

IT’S YOUR CHOICE MPA: What is Choice’s key service proposition?

S

Stephen Moore: Choice really provides genuine business partnership, and with that is a proven ability to help take broker businesses to the next level.

So our focus is on helping brokers to realise their core business potential. That’s irrespective of whether they’re a successful business today and wanting to take their business to the next level, or new to the mortgage market. The nature of Choice is that we’re a larger business, and brokers can choose to use their own brand, join one of our groups, or use our own brand (Choice Home Loans).

MPA: So are you quite flexible in your relationship with brokers?

SM: Yes – it’s your business; it’s your choice. That’s how we position it. And our role is to work with brokers to work through whatever the right decision is for them, one thing being constant, and that is the great support we provide to help them realise their business potential. Financial strength and security is one key point that sets us aside from much of the marketplace, as are a strong focus on industry-led training and development and a proven track record of growing broker businesses. This industry can talk a lot, but it’s the results that count.

Choice CEO Stephen Moore tells MPA about the flexible relationship that the aggregator aims to foster with its brokers, and reveals big plans for the Choice Home Loans brand

MPA: Tell us more about Choice Home Loans SM: Choice Home Loans is the heritage of Choice originally, and it’s an area that we are giving increasing focus to. It’s a nationally recognised brand and certainly growing in brand awareness.

We provide business level coaching and comprehensive support, so it is probably the most comprehensive support with a focus on managing an effective and efficient business. The tradition is a strong heritage of Choice Home Loans. In fact, that’s how Choice Aggregation started 15 years ago. But, most importantly, it’s a future-looking business. There’s an exciting future lined up, with online as a core component of the business.

STEPHEN MOORE’S CAREER TIMELINE

18 | JUNE 2013

1991

1994–1996

1996–1998

1999–2000

Completed Bachelor of Business: Double major in finance and marketing.

National product manager, Prudential: Established Prudential as number one group insurer.

Senior manager – insurance operations, ING: Responsible for new business, call centres, admin and underwriting.

Business development & support manager, MLC: Integral in re-establishing insurance business.

Achieved sales CAGR of 24% in two years.

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COMING NEXT ISSUE...

2000–2002

2003–2005

2005–2006

General manager – group insurance, MLC: Full profit responsibility.

Transformed and grew business by over 50% in two years.

General manager – platform development, MLC: Developed and implemented business transformation program for insurance business.

Head of cross marketing, NAB: Responsible for development of cross-sell strategy and CRM development for Australian region.

Insurance Business sits down with XXXXX 2009–2010 XXX XXXX XXX XXX 2007–2009 XXX Acquisition of Challenger: Worked Head of product, UBank: Start-up responsibility for on the successful acquisition of Challenger, which included Choice.

UBank (new direct bank backed by NAB); program 2010–Present management; product, strategy, contact centre. CEO, Choice

JUNE 2013 | 19

HEAD TO HEAD / STEPHEN MOORE

“This industry can talk a lot, but it’s the results that count” Stephen Moore

MPA: What kind of broker would be well suited to the Choice model?

SM: One theme is commitment to grow your business, and this is where the Choice proposition comes into its own. If you’re truly committed to growing your business, then we’re truly committed to help you to do so. The pinnacle of that is Choice Home Loans, and that’s for brokers who are looking for more holistic business support, business coaching, etc. So it’s not just about writing more deals, it’s about running a better business. For CAS [Choice Aggregation Services] it’s really about an aggregator who truly understands your needs. That’s what we focus on. It’s not about a macro-level view of the world about what generically we think broker needs are. It’s individual, one-on-one, and tailoring our support to their needs accordingly.

MPA: What are the key differences between Choice and the other two aggregators within the Advantedge group (FAST and Plan)?

SM: The way we look at the three businesses from a segmentation perspective is about the natural strengths of the different brands. So in Choice’s case the natural strength is in the high support and proven ability to take broker businesses to the next level. In FAST, for example, it’s more about the independent self-directed broker – more of a user-pays model; they may not necessarily look for the high support we provide in Choice. And Plan’s natural strength is with larger groups – ‘supergroups’ is the term we use. Each business provides great corelevel support for brokers, but they’re probably the key differences across the three brands we focus on.

MPA: What would you say to brokers who have concerns about Choice being owned by NAB? SM: Choice being owned by NAB is a godsend for brokers. It really is. There are a couple of things.

20 | JUNE 2013

One is the financial certainty for brokers. A broker’s number one asset is their client base and the income they receive from that client base. So it is critical to have financial strength and security behind your most important business asset, and that’s what NAB is bringing to the table. The second is the ability to invest in the business. And what we’re investing into Choice simply would not have been possible under private ownership. It’s now three and a half years since NAB acquired the business, and members directly benefit from the investment. Podium is a great example: $20-plus million invested to date and continuing. Our investment in Choice Home Loans is the most recent example of that – simply because it would not be possible under private ownership.

MPA: What kind of feedback have you been receiving from brokers about Choice’s services over the past 12 months?

SM: First of all, broker feedback is what drives our priorities. It’s something that we’re very disciplined about. Our latest broker satisfaction survey is very positive – an 83% satisfaction rate, which is increasing and a good result overall. The relaunch of Choice Home Loans is something that’s been received extremely well from the existing membership. Rebranding, a new online presence, increased marketing support; and we’re getting lots of interest now from brokers wanting to join a premium retail brand – that’s certainly something that Choice Home Loans now provides. That’s a bit of a ‘watch this space’ – we’ve got more coming on Choice Home Loans this year.

MPA: What are your key strengths and also key areas of focus?

SM: Number one is around Podium – certainly a key strength. The focus, and that’s what our members are asking for, is to embed CRM in their businesses.

The other is business management. As an industry we spend a lot of time on the technicalities of being a broker as a practitioner, but not enough on running an effective business. So Choice are really focused on helping brokers to run an effective business. It’s about business fundamentals, business planning, practice management support – and we have a range of forums that we use in that space.

The third is around peer-to-peer learning. That’s around best practice: facilitating best practice sharing amongst our members, more networking and learning from other brokers.

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We hold roundtable sessions on certain topics.

From an academic perspective, peer-to-peer learning is in fact the most effective learning type.

And intuitively it holds true as well. I’d much rather learn from someone who’s living and breathing it today. And that really resonates with Choice members. It’s really about the core culture in Choice which makes it quite unique – members’ willingness to share with each other, to help each other and participate at a local level really does make it quite a special culture.

MPA: How is this peer-to-peer learning implemented?

SM: We do a range of things. We facilitate webinars that involve brokers on specific topics – and they’re driven on the back of broker demand: the use of CRM, SMSF [self-managed super funds], whatever it might be. We run breakfast sessions on specific topics. We run breakout sessions at our business development days, and again they’re driven on the back of member demand. In the case of Podium, we have a Podium champions forum – so they are comprehensive early adopters of the system who directly input into our enhancements but also provide a mentoring source of expertise at a local level in the state – and they run sessions with brokers as well.

MPA: How are brokers adapting to Podium?

SM: We released it around 18 months ago now, and it’s an area that we’ve really invested in. So over the last 12 months what we’ve seen is a fairly fundamental shift in broker satisfaction with it as well. In our latest pulse-check survey, 73% of Choice members say Podium is good or excellent.

MPA: Were there any issues with brokers adapting to Podium initially?

SM: Podium is a functionally rich system, and when we first released it, given that richness in functionality, it wasn’t the easiest to navigate. So we spent a lot of time not only on functionality enhancements but also on useability. And now Podium 2.0 is a very good system. Podium 2.0 is an end-to-end business system, and its focus is to help brokers to realise the efficiency of capturing data once and reusing it right through the loan’s life cycle – and, most importantly, to realise the benefits of running a business with CRM at its core, and that’s really the basis of it.

JUNE 2013 | 21

ANDREW BARLEY

MACQUARIE COMMERCIAL FINANCE

CORPORATE FINANCE AND LEASING

MORTGAGE CHOICE GLENWOOD

BIANCA LONG

GEORGE COLLINGS

SCOTT BAMENT

MELINDA PATTERSON

GORAN JAKOVLJEVIC

TONY BICE

NICK REILLY

JAYESH KASIM

8888 LOAN GROUP

22 | JUNE 2013

GRAHAM LEE

8888 LOAN GROUP

FIRST CHOICE MORTGAGE BROKERS

CHARLES KNIGHT FINANCE

INOVAYT

MORTGAGE CHOICE MORPHETT VALE

YELLOW BRICK ROAD MT ISA

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These brokers have branched out into various financial services and are thriving under a diversified business. But, as Robin Christie and Amy Rosenfeld discover, not all diversification strategies are the same Diversification has been a buzzword in the mortgage broking industry for some time, but differences of opinion still remain as to whether brokers should branch out from their traditional territory of bricks and mortar loans and dip their toes into other parts of the financial services spectrum.

The amount of regulation now levelled at financial services professionals in Australia dictates that there are only a certain amount of areas that a mortgage broker can diversify into without undergoing significant additional training or taking on already qualified staff.

So, should a broker stick to the basics, wear several hats and qualify in several areas, or take on a team of specialists?

MPA canvassed some of the country’s largest aggregators to put forward brokers who have successfully diversified, and discovered that it’s possible to make a go of diversification by following various different strategies.

It would seem that, just as no two brokers are the same, no two diversification strategies will be identical. But it’s vital to know your strengths, what you want to achieve and be realistic about the amount of work that goes into successfully branching out of the mortgage space.

Profiles of each of the brokers interviewed are presented within this special report and – whether you’re looking at increasing your presence in the equipment finance, insurance, financial planning or commercial finance space – these brokers’ insights make for some fascinating reading.

“Just as no two brokers are the same, no two diversification strategies will be identical” JUNE 2013 | 23

COVER / DIVERSIFIERS

NICK REILLY

Nick Reilly

CEO, inovayt

LOCATION: North Melbourne, Vic How did you diversify into equipment leasing and insurance?

The leasing came first. The main reason we did that wasn’t revenue based, it was purely just adding another service for our clients, rather than having to send them somewhere else. We’ve got the clients, we’ve got the trust, so we might as well write the business.

2012

Business breakdown CAR LOANS

5%

Has that led to word of mouth referrals?

INSURANCE

Yes, without a doubt. Existing clients may refer someone else to you who does a car loan, and then you may be able to pick them up for other things such as a home loan and insurance. It’s another reason for people to call you who may not have already been on your book.

How important are insurance sales to your business?

Insurance is a major one for us. We realise how hard it is to get a client base, so we thought ‘we’ve worked so hard in getting the client base – why would we not offer them insurance?’. It’s very relevant when you’re putting people into a home loan that they’ve got the home loan protected. So we saw a great opportunity. If we’re doing the home loan and people have our trust, why wouldn’t we do a life/income protection/TPD/trauma policy? It’s a similar revenue to a home loan, so the immediate thing I saw was doubling the revenue on the same amount of clients – while also assisting them.

Is it quite easy to bring up insurance when selling a home loan?

It actually forms part of our process during our fact find: Do you have insurance? And we’re looking at tightening that up even more so that as a business the process will be that the clients will go through three or four steps including a first home loan appointment and then an insurance appointment. It will be an education process; we’re hoping it will convert well.

What kind of home loan to insurance conversion rate do you have?

We’ve only been going at it for nine months. We’ve 24 | JUNE 2013

15%

HOME LOANS

80%

“[Insurance is] a similar revenue to a home loan, so the immediate thing I saw was doubling the revenue on the same amount of clients – while also assisting them” set targets around 50% and that’s achievable at the moment. And it’s not that the other 50% don’t want insurance, it’s generally the case that they’ve already got it. They have a relationship with a financial planner and that’s ok.

Do you have a financial planner who sells insurance?

Short term I’ve stepped away from home loans and I’m doing it. And I have another contractor who writes insurance and mortgages as well. I got my financial planning qualification [RG146] specifically to sell insurance, and it was all pretty painless – and time well spent. I would see home loans being around 60% of our business in future, and insurance being around 35% – and we’d be very happy with that.

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GRAHAM LEE

Director, Corporate Finance and Leasing

2012

LOCATION: Keilor Park & Mt Waverley, Vic

Settlement figures

Which areas, other than mortgages, do you diversify into?

In addition to mortgages we do business lending, loaning to new business and franchises, and specialised industries such as hotels, motels and caravan parks. We also do construction and development finance and self-managed super fund lending. So our business is not just a one product shop. We’re very diverse in what we do. We always look for a home for a client. We look after our clients and word of mouth goes a long way. That’s how we pick up a lot of our business, through existing clients, existing referrals and even from time to time existing lenders. My immediate partner and myself have a strong affiliation with the lenders we deal with. We deal with senior lenders and those we know have a lot of input in the decision making process.

Why did you choose to diversify into these areas?

It’s always been a diversified business, but we went through a unification of two businesses at the end of June last year and that’s where we unified with the leasing side of things. Also under the structure with PLAN we are one of two recognised brokers for the whole of Victoria who are assisting with new brokers coming into the marketplace to provide equipment finance and commercial finance. So you’ll get brokers that come in who are just straight residential lenders but have enquiries in those fields. I guess it was also the changing economy and the effect that had on the residential market, as the number of buildings and subdivisions dropped off. It was also about getting out and catering for the small and medium enterprises; working with them to get them out of their rental properties and into owner occupied properties via property trusts and SMSFs.

How did you go about adding these areas to your service proposition?

With the staff we’ve got here, quite a few of us are exbankers, so we cross-sell with everything. We’re also working with other sources; and with insurance professionals, we’ve got agreements in place with insurance people. So to that end we’re becoming a one stop shop.

LEASING

$41,748,419 RESIDENTIAL

$15,929,533 COMMERCIAL

Graham Lee

24,927,000

What kind of additional training/development have you had to do to be able to diversify?

We do a lot of webinars; we have PD days where we get lenders in to talk about product upgrades and what they actually look for in a transaction. We’re continually working with all our staff to make sure they get updated in terms of current policies and procedures, so it’s an ongoing thing.

How have you handled the additional compliance burden that comes with diversification?

In terms of things like NCCP and reverse mortgages we’re continually upgrading. With reverse mortgages we’re going through the SEQUAL update, that’s a training we’re taking on board ourselves. We have no problems with paying for webinars for our staff to keep them continually updated. We also try and have staff cross-pollinate between the areas of mortgages and leasing so everyone has a grounding in both.

What advice would you offer brokers who want to diversify?

If they’re looking to diversify straight out of mortgages, like with commercial and leasing type businesses, we can work with them mentor them and get them the experience and knowledge to get into it market.

But if you’re looking to do that you should be doing it now. Between May and June those areas heat up. In terms of diversification, if you don’t diversify you will get left behind. You need to be able to cover more than just one product. The days of single product brokers are quickly diminishing and the days of one-man brokers are diminishing as well.

JUNE 2013 | 25

COVER / DIVERSIFIERS

BIANCA LONG

Principal, Mortgage Choice Glenwood

2012

LOCATION: Glenwood, NSW

Settlement figures

Why did you choose to diversify?

I personally believe it’s what we have to do; it’s our duty of care. It’s almost unheard of that people purchase a car but don’t insure it. What we’re doing is offering home loans, but so many brokers aren’t actually offering the other component of it, which is insuring the mortgage. When you look at the pros and cons of it – look at the value of a house versus the value of a car.

Also from personal experience, unfortunately, I lost both my mum and my dad very unexpectedly. I lost my dad not six months ago and he was insured – and I was the one who set that insurance up for him.

My mother passed away without any insurance, so I watched that happen. When my father passed away, it made such a critical difference to the grieving process – to everything really.

Were you already selling life insurance before you set a policy up for your father?

Absolutely, I’ve been an avid believer ever since I became a broker. My numbers stepped up significantly once I lost my dad, but prior to that I believe I was always ALI’s number one policy writer almost Australia wide month-in, month-out, and that’s simply because I believe in the product.

Do you also sell income protection insurance?

I don’t do any income protection. The life insurance is a ‘no advice option’. When you move into income protection, that does have an advice component so, not being a financial adviser, that’s where I draw the line.

How can you sell life insurance without being a financial adviser?

It’s a no advice option. I’m also heavily into building and contents insurance. I probably convert about 40% of all my purchases [from home loans to insurance], and again it’s just duty of care. The other reason why I’m heavily into commercial loans, car loans, insurance and things like that is because it effectively makes the client more sticky. It provides a one-stop shop to clients. You can get them in and say that you’re going to take care of absolutely everything for them, and then on the back end of the system you can go ahead and get all the quotes for insurances and show them 26 | JUNE 2013

LIFE INSURANCE

$10.23M COMMERCIAL

$5.2M RESIDENTIAL

Bianca Long

just how cheap it is once someone’s taken all that hassle and homework out of it for them.

What can and can’t you say to clients under a no advice model?

We’re not allowed to go into the nitty-gritty of it.

Basically we’re allowed to advise them of the cost associated with it, what that cover will include and go through what the importance of it is: things like death, illnesses – and with the one we do there is a 12-month free employment benefit as well. We’re not comparing it to anybody else; we’re saying ‘here’s what we’re offering, and this is what it covers’. But we can’t talk about any taxation benefits to them or any other options that they have available. Existing conditions are also part of what we’re not allowed to delve into.

Would you consider moving into financial advice in the future?

I think there is a need to move into the financial advice side of things, and I think that’s the way the industry’s moving. I think if we don’t move into that financial sector we are going to be left behind.

Is life insurance the main area you diversified into?

No, life insurance would have the highest number [of clients] but not the highest return. I also diversify into commercial loans. I do quite a lot of car loans and leasing options for my business customers. I also move into home and contents, building insurance and LMI. Only about 10% of my business comes from commercial, but that 10% pays a significant amount of money.

$39.36M

2012

diversification income (including trail) Total: $62,685 Including: Life insurance: $8,947 Commercial: $46,188 Deposit bonds: $2,559 Home insurance: $1,389

COVER / DIVERSIFIERS

GEORGE COLLINGS

Charles Knight Finance

LOCATION: New Farm, Qld Which areas have you diversified into?

We’ve just started to do insurance, but that’s very much in the early stages. We’re doing leasing, which is in the early stages, and we’re now moving into the more creative aspects of mortgage broking, such as SMSF lending. We also do commercial lending.

Apart from that, we’ve also developed some strategic alliances with both accountants and financial planners. Two years ago we changed aggregator from one of the bigger ones to Outsource Financial.

2012

Business breakdown HOMELOANS

20%

DIVERSIFIED SERVICES

George Collings

Why did you diversify?

I looked at the increasing complexity of compliance issues and realised that mortgage broking was going down the same road as financial planning.

Certainly with the changes in legislation relating to some of the issues like Storm financial that have occurred – there has been a response from the government in relation to those sort of events – and I realised in future there would be a merging of the work done by both mortgage brokers and financial planners, and they’d be subject to the same degree of rigour and legislation. So I realised that if I was going to survive in the industry I would need to attain a financial planning qualification, and develop what NAB were calling at the time a ‘trusted adviser’ status.

What did you do next?

Having made those changes, I then looked for another aggregator that might be able to be more in tune with what we were doing. We moved away from a home operation into leasing a larger office, and we joined together with some other likeminded individuals – not so much in mortgage broking but in sales of property – because we saw that a lot of my referrals had been from real estate agents. So we thought if we went one step further and formed a partnership with people that were selling real estate – mainly geared towards investors – then that would be a whole new market niche.

So have referral arrangements been central to your strategy?

Yes, and certainly being able to widen our client 28 | JUNE 2013

base. We decided on a couple of market niches – one being investor clients. We decided to move away from looking at the traditional referrers, such as real estate agents, and then looking at some of the niches that might be available to us.

Have you been looking into the SMSF market?

Yes, and that’s now an aspect of our business. We also have developed an advice system whereby we would offer some sort of advice to individuals looking to buy investment property.

And also we’ve linked with more experienced financial planners to be able to provide some of the planning advice that might be relevant [to SMSF clients]. We want to have a relationship in place to make sure that our clients are able to access advice [for compliance and estate planning]. And also, when people take on more debt, you need to ensure that whatever they’re doing is going to link to some sort of key benefit for them in relation to insurance as well.

Do you provide any financial advice yourself?

We have, as far as risk insurance is concerned. All the brokers working with us, and there are four of us, have financial planning qualifications. Only one of us focuses on insurance. I think it’s really important to say to them ‘you’re now taking on more credit, what if something does happen?’.

Unless you ask those questions, I think you’re leaving yourself liable to a duty of care issue further down the track.

80%

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MELINDA PATTERSON & GORAN JAKOVLJEVIC 8888 Loan Group

LOCATION: Narellan, NSW Which areas have you diversified into?

Melinda Patterson: We’re a one-stop shop for finance.

We’re very excited to be able to offer a full suite of products to our clients to ensure that everyone’s best needs are met. Around 70% of our business is derived from residential home loans and construction loans, around 10% is commercial, but we plan to increase that over the next 12 months as we have been forming relationships and referral partnerships in the commercial sector. Fifteen per cent is a mix of asset and equipment finance. The remaining 5% is SMSF lending but I see this expanding rapidly as we are developing strategic alliances with business partners who specialise in this sector.

We also have 8888 Wealth, with an in-house accountancy service and an in-house risk specialist dedicated to servicing our clients’ needs. We currently have a team of 12 with each credit representative specialising in specific areas. Goran Jakovljevic and myself write the majority of equipment and asset finance.

Has being a one-stop shop been the key to diversification?

MP: Absolutely, I think it’s very important that you can identify all of the client’s individual needs and be able to offer a blanket coverage to make sure all of those needs are met. We’re a team of brokers, and we have brokers that specialise in different areas. For example, my area of expertise is probably construction finance, whereas Goran specialises in equipment finance.

How do you generate leads and service the client to meet all their needs?

Goran Jakovljevic: Essentially what we do is we work with developers and builders, so that’s where the majority of our leads come from. And we work with a couple of referral partners as well. We sit down with them and work out their goals and requirements, and from there we move on to our proposal and guide them through the purchase – through to settlement. Once that’s done we look at things like insurance.

MP: I believe that lending is very much relationship focused and that good referral channels are the key to

Melinda Patterson

Goran Jakovljevic

our business. We get a lot of leads from our existing accounting clients, our referral partners and a lot of it is word of mouth. People are very satisfied and they refer us on.

What advice would you offer brokers who want to diversify?

BUSINESS BREAKDOWN RESIDENTIAL/ CONSTRUCTION

70%

MP: I think it’s very important to gain a full understanding of each area you diversify into so you can take a holistic approach and make sure that the products you’re offering the client are the best for them.

10%

Do you have specialists in each area?

15%

MP: Each of our brokers is accredited in all of the areas, but you fall into being specialised in a certain area by default. If there’s something that you really like doing you become very good at it very quickly.

COMMERCIAL

ASSET/ EQUIPMENT FINANCE

SMSF LENDING

5%

Which specialist areas are in demand in your area?

MP: This time of year people are looking at their tax positions, and we’re noticing an increase in equipment leasing and an increase in the number of people looking to move their finances. People are becoming very interest rate conscious and very savvy. With the internet and product availability at their fingertips they’re a lot more savvy than they were a few years ago.

How do you deal with compliance?

MP: As ACL holders we’re very compliance conscious in each of the activities of our business. We have a designated person in the office who manages compliance.

It’s pretty much a full-time job. It’s something that you need to keep on top of the whole time.

JUNE 2013 | 29

COVER / DIVERSIFIERS

SCOTT BAMENT

Owner-partner, Mortgage Choice Morphett Vale

LOCATION: Morphett Vale, SA

Where does most of your non-mortgage business come from?

Where I probably write most of it is risk insurance, through ALI. When I first started out Mortgage Choice went through a fair bit of work to try and find someone that was a suitable offering, and I found that really suits my clients quite well as a non-advice model.

How do you present insurance offerings to clients under the non-advice model?

“If you’ve got an [insurance product] you can believe in, and have the client’s trust and understanding then, if they’re going to get it, they’ll be happy enough to get it through us” 30 | JUNE 2013

It is part of our compliance requirement that we get the clients to sign a document that says we have discussed their insurance situation. And I do a bit of home and contents via Allianz. So basically as part of my presentation and meetings with the clients we run through what sort of cover they’ve got within their super, and whether they’ve got any external insurances. We’d ask them to bring in their super statements, so we could have a look, and ask them if they have any existing insurances.

I allow them to make the decision as to whether they’re adequately insured or not. I just put it on the table as an alternative or addition that covers them.

We can’t offer it unless we’ve had a conversation about the home loan, so it’s purely related to their main mortgage debt. I have pretty reasonable success with it. We’re in a lower socioeconomic area, so people are very price conscious. But I do point out that it’s just as much protection for their family as it is for themselves.

Are clients only insured for the amount they’re borrowing?

They have the capacity to go further. We’re restricted, I think, to $750,000. There is death and terminal illness, plus the living benefit for heart attacks, paralysis, cancers, etc. There is also a small proportion of income protection in there. I position it as, at the very least, they should be covering themselves for a year’s worth of income to buy themselves a bit of time if something does happen.

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2012

Settlement figures RESIDENTIAL

$42,554,278 LIFE INSURANCE

$4M Scott Bament

Are you tempted to go down the financial planning route?

Personally, no. We have looked at it within the business – adding a financial planning arm – but I think, rather than try to be a jack of all trades, we would bring in an expert to complement the business. But that would then shift the focus, because you wouldn’t look at offering the no-advice model if you’ve got a full advice model available.

Which other areas do you diversify into?

Most of it is insurance. I do a little bit of personal loans and car finance, and that was generally direct to one of the local credit unions previously. But now Mortgage Choice has set us up through Mildura Finance, which is a bit of a panel lender. You need to have that diversification, while being conscious of trying not to know a little bit about a lot, so to speak.

I try and concentrate on what I do know and what I’m good at, rather than spread it too thin.

How do insurance commissions compare to mortgage commissions?

Certainly a lot less, but it’s a good subsidising income. But as part of the NCCP we have to have that discussion about it and make sure they’re fully aware of it, so I think it’s a good add on as part of the business. If you’ve got something there that you can believe in, and have the client’s trust and understanding then, if they’re going to get it, they’ll be happy enough to get it through us.

HOME AND CONTENTS INSURANCE

$16,778

COVER / DIVERSIFIERS

TONY BICE

First Choice Mortgage Brokers LOCATION: Chiswick, NSW Why did you diversify?

It wasn’t long into starting to grow my mortgage business that I recognised the power of diversification. So the first thing I did, which was the easiest transition into diversification, was get into leasing and Chattel mortgages, debtor finance and stuff like that. I could see that was just a natural spin off from writing a mortgage. You can see they need to update their car, or they may be in business – straight away you can identify opportunities. And to become accredited to write leases, Chattel mortgages, commercial hire purchases – asset finance – back then was a fairly easy transition.

Tony Bice

I toyed with the idea of setting up a cross-referral relationship [with a planner]. Many brokers go down that path. The downside to that path is you do lose control to a certain degree. And you’re heavily reliant on it being a 50-50 split with regard to referrals going both ways. Invariably what happens is that one party will supply more than the other party and that leads to the demise of the relationship. The reason I know about that is I did it twice. I’m not saying it’s not the way to go. I’m just saying it’s not the way to go for me.

involved. For me to see the growth that I’ve got now, it probably took two years. The first two years were really about understanding how best to cross-sell the product. The challenge in becoming a financial planner, in my case specialising in risk and superannuation, is you need to be able to make the client feel comfortable seeing it as an add-on to the original reason that they came to you – which was for a home loan. It took me quite a bit of time to get my model right to the point where I now convert 80% or 90% of my home loan clients to take out risk insurance and rollover their super.

How much training did you do to become a planner?

How do you convert home loan customers into insurance customers?

I got my diploma in financial planning. The first decision is to realise you’ve got to take on extra studies. And that comes with a little bit of heartburn and a fair bit of juggling, because your business doesn’t stop. Mine was a six-month course, five or six years ago. The first transition is to get your head in the space to study again, and then come up with the funds to do it. Once you get your diploma that’s where the fun starts. But there’s a fair bit of anxiety around ‘where am I going with this monster?’ and ‘how do I get it to crystallise?’. You need to find yourself a dealership group, then you’ve got to get your accreditations with the life groups. You’ve also got to undertake a number of hours of exams.

Most people don’t have a lot of disposable income leftover once they budget for their mortgage instalments. So I got involved in understanding the power of superannuation, and how the client can have their instalments put inside their super. And that eases the cash flow, and that’s the key.

How did you get into financial planning?

What advice would you give brokers who want to move into planning?

Have a clear strategy, and there’s a fair bit of work 32 | JUNE 2013

How do you manage the compliance burden?

The secret is support, it’s that simple. Just as a mortgage broker will have a loan processor to assist them, I have a financial planning processor. I also engage a paraplanner. They have the skills and expertise to be able to analyse superannuation statements and prepare a complicated document called a statement of advice, which enables me to come back into the process and focus on selling it. I have two loan processing staff and I have a financial planning processor – and the paraplanner that I engage one day a week.

Average settlement figures Mortgages: $40m pa Insurance (life, TPD, income protection & critical Illness): $110m pa Asset finance: $6-8m pa

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ANDREW BARLEY

Director, Macquarie Commercial Finance LOCATION: Sydney & Cronulla, NSW What is the main focus of your business?

Vehicle and equipment (asset) finance has been our focus since we established our business in 1997. It continues to be our principal source of revenue.

Asset finance was really our core business. It assisted greatly that I had a corporate background in this market segment from my banking and finance days.

How did you go about adding extra areas to your service proposition?

Due to my industry expertise and knowledge it really became about identifying a likely target market of clients, colleagues and referrers, then emphasising the value we could provide being a viable asset finance service from SMEs through to multinationals alike.

How did you go about persuading your existing client base to also buy your mortgage services?

One of our challenges over the last five to 10 years has been to educate our target market of our mortgage broking services (in particular residential broking).

It all comes back to customer awareness and education. Just a part of that is branding-related when you’re talking about small broking enterprises with limited marketing budgets.

What kind of additional training/development have you had to do to be able to diversify?

There are always changes to asset finance products that we need to be aware of. For example, PPSR changes (Personal Property Securities Register), accelerated tax advantages surrounding capital acquisition and GST on terms charges for hire purchase contracts to name a few. Maintaining strong links with your lender and industry bodies is imperative.

How have you handled the additional compliance burden that comes with diversification?

As an asset finance broker in the main, we still live in an unregulated environment (although this may well change in the future). The reverse really

Andrew Barley

“Asset finance can provide another reason to contact your client, with more touch points in between mortgage transactions” applies to us – embracing compliance under NCCP has been more of an issue than any compliance within the asset finance segment.

What advice would you offer brokers who want to diversify?

I would strongly recommend considering adding asset finance to your range of products – of course, depending on the demographic of your client, colleague and referral network. Asset finance can provide another reason to contact your client, with more touch points in between mortgage transactions.

Asset finance transactions, generally, are quicker turnaround transactions, providing a solid compliment to what can often be the slow process of a mortgage transaction. From application, to settlement to commission payment!

JUNE 2013 | 33

COVER / DIVERSIFIERS

JAYESH KASIM

principal, YBR Mt Isa

LOCATION: Mt Isa, Coorparoo, Townsville (Qld) Which areas of finance do you service?

We look at financial plans, investment strategies, general insurance, life insurance, business insurance, corporate super… so a whole range of services.

With insurance we can do the basics, which are car, and home and contents. But then we’ll do the higher services like professional indemnity for contracting as well.

Is financial planning the main focus of your business?

No. We have a very good split in our business revenue – it does come from various sources. The three main areas are mortgage broking, financial planning and risk insurance [around 30% of revenue each], and then other services such as general insurance and business insurance make up the rest.

Jayesh Kasim

Where do most of your leads come from?

We did a lot of marketing in town when we started.

So that was the first thing. And having a good brand behind us was the second thing. We also spoke to businesses. And the more clients you see the more word of mouth there is, so for every client we see we usually get about three referrals. But I try to keep referrals at 50% and try to get new business for the other 50%. If referrals go up to 60% then the marketing’s not working well enough.

What local marketing do you do?

The first thing is if you land at Mt Isa you’ll see us at the airport. We’re on the radio and local TV, plus every week we have articles in the local newspaper, and from time to time we do advertisements. And there’s sponsorships: we’ve got sponsorships at the golf club, and we like to support the local community and are enrolled in five or six different clubs.

What advice can you offer to regional brokers?

It’s mainly customer service, because all these regional brokers are in very small places, so you’ve got to give the customers the best possible service. You’ve got to keep in touch, that’s most important. We have our annual review process 34 | JUNE 2013

that we follow up with our clients. So that’s the key thing, because if you aren’t doing a good job it won’t take too long for people to find out. The second thing is supporting the local community wherever you can.

Are you a qualified broker and planner?

I am. We like to have all of our staff dually qualified. We really believe in having a true wealth manager system. I don’t like the idea of a mortgage broker passing on to a financial planner. So in our team you’ve got to be dually skilled. And it’s not for everyone.

How do you keep on top of both roles?

It’s important to have systems and procedures in place, and it’s very important to have a very good admin team as well to keep on top of these things.

We have three admin staff keeping on top of all the paperwork. If you incorporate compliance into your day to day process and procedures, it’s not as hard, but if you leave it to fix at the end of the month – that’s a problem, it’ll never get done.

BUSINESS BREAKDOWN MORTGAGES

30% FINANCIAL PLANNING

30% RISK INSURANCE

30% OTHERS (INCLUDING GENERAL INSURANCE)

10%

L OW

FEATURE / LOW-DOC

30cm 300mm

25cm 250mm

25 250

D O C LOANS

20cm 200mm

15cm 150mm

10cm 100mm

30 300

20 200

15 150

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Low-doc loans may be seen as a risky proposition, with brokers being spooked by the NCCP, and ASIC’s renewed focus on the area. However, as some of the country’s leading low-doc lenders tell MPA, this potentially lucrative market isn’t as scary as it seems Low-doc loans. They’re seen as the bête noir of the mortgage broking industry. But does this area of lending deserve the reputation that it’s developed – especially in the post-GFC, post-NCCP era?

Not only do brokers have to tick all the boxes in terms of compliance and fulfilling their duty of care responsibilities to the client, but getting the deal over the line with the lender can also be a tricky proposition.

However, as MPA discovers in conversation with

some of the low-doc lending sector’s leading lights, there is still an important segment of the mortgage market’s client base that has a very genuine need to look outside the box for their lending needs.

The message is clear: don’t turn your back on the low-doc market – the opportunities are still there and we’re here to help.

Read on to hear it from the horse’s mouth, and to discover their responses to major broker concerns about low-doc lending.

AUSTRALIA’S SELF-EMPLOYED POPULATION (‘000s) Owner-managers of incorporated enterprises

Source: ABS

Owner-managers of unincorporated enterprises

2005

2006

2007

2008

2009

2010

2005

2006

2007

2008

2009

2010

NSW

222.8

234.4

210.9

237.3

217.7

269.8

NSW

433.1

416.1

416.3

399.1

389.5

420.8

VIC

203.9

198.2

184.5

204.5

184.7

227.1

VIC

274.5

292.7

292.0

280.3

299.7

285.2

QLD

124.4

126.9

143.7

168.5

153.7

152.3

QLD

292.2

269.2

284.1

259.4

266.7

276.4

SA

39.3

41.4

40.5

40.0

47.9

50.0

SA

96.3

92.1

95.7

107.4

102.5

100.7

WA

57.8

61.4

59.4

71.8

62.7

76.7

WA

160.7

143.6

150.9

128.2

129.2

152.3

TAS

10.4

10.1

9.8

10.7

10.9

12.3

TAS

28.7

32.1

29.1

28.2

29.4

29.9

NT

4.1

5.5

3.0

6.1

5.5

6.5

NT

9.3

9.6

9.8

8.7

11.2

10.0

15.1

14.3

13.4

11.7

14.1

13.2

ACT

7.6

8.9

8.5

11.2

10.7

10.9

ACT

AUS

670.4

686.8

660.2

750.2

693.9

805.6

AUS

1310.0 1269.7 1291.4 1223.0 1242.1 1288.4

JUNE 2013 | 37

FEATURE / LOW-DOC

CORY BANNISTER HEAD OF ASSET ORIGINATION – RESIDENTIAL, LA TROBE FINANCIAL WHAT WOULD YOU SAY TO BROKERS WHO FEEL LOW-DOC LOANS ARE A RISKY PROPOSITION?

A: Talk to us. We have been successfully writing low-doc loans for over 23 years since their introduction in Australia in 1990. We are more than happy to sit down with brokers and explain the process in detail. Educating our business partners on ‘responsible lending’ is something we pride ourselves on, and something we have done regularly, even prior to the introduction of the state and territory based Uniform Consumer Credit Code on 1 November 1996, and then the revised and broader National Consumer Credit Protection (NCCP) Act on 1 July 2010.

“By providing brokers with direct access to our decision-makers in credit without delay, the time from scenario to approval is exceptional” HOW LONG DO LOW-DOC LOANS NORMALLY TAKE TO REACH APPROVAL?

A: Approval times for our low-doc loans are very similar to our traditional loan products. By providing brokers with direct access to our decision-makers in credit without delay, the time from scenario to approval is exceptional.

Whilst we have made some very good enhancements to our technology resources recently, the one thing we have always been good at, and will continue to be, is offering exceptional service to brokers by making real people capable of making speedy decisions available to brokers. We believe this method outperforms automated systems for efficiency and reliability. We also believe this method better suits the compliance requirements of responsible lending.

38 | JUNE 2013

WHAT MEASURES HAVE YOU TAKEN TO SPEED UP APPROVAL TIMES FOR LOW-DOC LOANS?

A: We have recently upgraded our online application software, adopting the ApplyOnline system, which has significantly reduced approval times. Also, we are currently undertaking a complete review of our product suite with a view to increasing the speed and efficiency of our approval process, including simplifying our product matrix, which will be announced to the market shortly. This review is not limited to low-doc loans; it is a top-to-bottom review to ensure our speed and service offering continues.

HOW HAS THE LOW-DOC MARKET FARED OVER THE PAST YEAR?

A: In recent years the specialist lending industry and low-doc product in particular was unfairly tarnished due to the actions and practices of a limited number of unskilled and often unscrupulous players. The impact of the GFC and recent NCCP legislative changes have helped remove such practices from the marketplace, allowing experienced and responsible loan brokers and lenders to continue assisting a genuinely underserved segment of the economy.

We have had steadily increasing volumes of loan applications over the past 12 months as brokers return to this space following NCCP uncertainty. A number of our valued partners have benefited from the recent events because of reduced competition in the low-doc market. We believe the mortgage broking industry is now much better in terms of experience and quality of people, which is one of the many positive outcomes from the NCCP. DO YOU SEE LOW-DOC DEMAND INCREASING IN THE YEAR AHEAD?

A: We expect to see a modest increase in volumes in the year ahead as the economy recovers. Our commercial and construction products have been very popular; we are seeing unprecedented demand for these products from brokers as we keep the process simple. Brokers that haven’t written commercial or construction loans previously are now able to do so through our easy-to-use products. This is a segment of the market we can help brokers with, improving their business capability. This, combined with the pending relaunch of our Lite-Doc Residential product, will see us grow significantly in the coming year.

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HOW HAS THE NCCP CHANGED THE LOW-DOC APPLICATION PROCESS?

IS THERE ANY TYPE OF BORROWER THAT WOULD BE PARTICULARLY SUITED TO A LOW-DOC LOAN?

A: We assess a loan as unsuitable if the borrower is “unable to comply with their financial obligations under the contract, or could only comply with substantial hardship”. Following Report 262 we conducted a detailed review of our processes. We have always operated on the basis of lending responsibly and ensuring loans meet the requirements and objectives of borrowers. The most important test is to ascertain by reasonable enquiry the borrower’s requirements and objectives and their financial position, which can be independently verified.

A: We feel the self-employed consumer has been underserved by major lenders over the years, and it was our empathy for their situation that led to us to launch our first Lite-Doc loan in 1990.

Since then, our experience in this area has allowed us to evolve our Lite-Doc product suite where we now offer both commercial and construction loans in addition to our residential products for self-employed applicants.

WHAT KIND OF PAPERWORK DO APPLICANTS NOW HAVE TO PRODUCE FOR LOW-DOC APPLICATIONS?

A: For our method of income verification we require low-doc applicants to provide a certification of their gross earnings that is confirmed in writing by their accountant. If the applicant is unable to obtain an accountant’s certification in our format, we will request further information, such as BAS or trading account statements to confirm sufficient cash flow exists relative to their declared income.

WHAT TIPS CAN YOU OFFER BROKERS TO ENSURE LOW-DOC APPLICATIONS GAIN LENDER APPROVAL?

A: Ensure you have completed your fact find and obtained sufficient information to make an assessment that the loan is not unsuitable for the applicants. This is the most crucial and fundamental part of a loan assessment. Talk to our credit team directly to explain the application in detail where something out of the ordinary is presented on the application.

We find that by discussing the detail directly, we gain a better understanding of the applicant’s situation, often increasing the probability and speed of approval.

Remember that we work together to ensure that the loan the borrower is offered is not unsuitable.

WHAT ARE THE COMMON LOW-DOC APPLICATION MISTAKES THAT SHOULD BE AVOIDED?

A: Our low-doc products are not available for PAYG applicants or start-up operations. They cater only for self-employed applicants with a track record of successfully running their business, and who are unable to provide their most recent financial statements.

ASIC GUIDANCE

BANNISTER TALKS MPA THROUGH ASIC’S FINDINGS ON LOW-DOC LENDING The NCCP did cause uncertainty for brokers because it was new and introduced a duty of care on brokers referring a loan to a lender. The NCCP regime specifically requires brokers to make an assessment as to loan suitability, and ASIC released RG 209 to give guidance to lenders (and brokers as service providers).

In November 2011 ASIC published Report 262, the Review of Credit Assistance Provider’s Responsible Lending Conduct, focusing on ‘low-doc’ home loans. Report 262 sets out ASIC’s findings, including potential compliance risks, following a review of home loan applications submitted to lenders by credit assistance providers between July and December 2010.

ASIC selected 18 credit assistance providers to review, with a focus on entities with websites that publicised home loans promoted as low-doc, and obtained from them a description of their approach to responsible lending compliance, and details of the consumer credit assistance they had provided between July and December 2010.

A total of 324 instances of credit assistance were reported for this period. Of these, 166 instances (51.23%) were for credit applications where the home loan was promoted as low-doc. ASIC initially reviewed the details of those credit applications to identify factors that raised a greater risk of non-compliance with the responsible lending obligations. Following this risk-assessment process, ASIC obtained and reviewed 104 files (32%) from 16 credit assistance providers for consumer credit assistance provided between July and December 2010. These 104 files comprised 78 instances where the credit assistance was for home loans promoted as low-doc.

The main finding contained in the document was that no systemic lack of compliance was found and that income verification should not rely solely on one source of information or one document.

It appears from this report by ASIC that low-doc lending is a legitimate source of business and can meet responsible lending requirements. By demonstrating first-hand the thoroughness of our low-doc assessment procedures, brokers are comfortable to write these loans again. There is no legislative need for brokers to pass up this opportunity to grow their business.

JUNE 2013 | 39

FEATURE / LOW-DOC

PAPERWORK

PHIL ROCHE, NATIONAL SALES MANAGER, NATIONAL FINANCE CLUB WHAT WOULD YOU SAY TO BROKERS WHO FEEL THAT LOW-DOC LOANS ARE A RISKY PROPOSITION?

A: If a broker does their proper due diligence, it is unlikely that it is a more risky proposition. The loan will generally fit within low-doc parameters, provided that the broker is confident the client has accumulated assets commensurate with their age, from business income.

There are other checks available to the broker to mitigate any perceived risk, whether they are asked for by lenders or not; for example, bank statements, credit history or BAS. HOW LONG DO LOW-DOC LOANS NORMALLY TAKE TO REACH APPROVAL?

A: There is no material difference in the length of approval between a low-doc and a full doc loan.

Servicing assessment actually tends to be faster; however, other fundamentals of application criteria are fundamentally the same.

WHAT MEASURES HAVE YOU TAKEN TO SPEED UP APPROVAL TIMES FOR LOW-DOC LOANS?

A: Our approval times for low-doc loans are fundamentally the same as for a full doc loan.

HOW HAS THE LOW-DOC MARKET FARED OVER THE PAST YEAR?

A: The low-doc market has declined due to the uncertainty of many brokers as to when their clients should be applying for a low-doc loan, the implementation of accountant’s certification, and the interpretation of supporting documents such as business and personal bank statements and BAS returns.

“These loans are more about the profile of the applicant, not the technicalities of the lending policy” 40 | JUNE 2013

ROCHE TALKS TO MPA ABOUT THE KIND OF PAPERWORK THAT LOW-DOC APPLICANTS MUST PROVIDE There are different levels of paperwork, depending on the underlying funder. Apart from a standard application, other documentation that may be required includes self-certification of income, declarations, accountant’s certification of income declarations, BAS returns, personal bank statements and business banking statements.

DO YOU SEE LOW-DOC DEMAND INCREASING IN THE YEAR AHEAD?

A: Demand for low-doc is high and will remain.

However, utilisation is hindered by limited understanding of the product guidelines.

HOW HAS THE NCCP CHANGED THE LOW-DOC APPLICATION PROCESS?

A: The application process is unchanged. However, there is greater scrutiny by both brokers and lenders on supporting documentation and whether low-doc is the right solution for the client.

WHAT TIPS CAN YOU OFFER BROKERS TO ENSURE LOW-DOC APPLICATIONS GAIN LENDER APPROVAL?

A: Take care to look at the client’s assets and liabilities position and ensure it makes sense when compared to declared income. Look at any statements provided, make note of any lump sums, overdrawn instances or unusual transactions; also make sure the statements support declared income.

WHAT ARE THE COMMON LOW-DOC APPLICATION MISTAKES THAT SHOULD BE AVOIDED?

A: These loans are not for self-employed applicants that have sufficient equity in a property to comply with LVR guidelines. They are for self-employed applicants that do not currently have tax returns to support their application but who have, however, shown over time the ability to accumulate personal wealth. These loans are more about the profile of the applicant, not the technicalities of the lending policy.

IS THERE ANY TYPE OF BORROWER THAT WOULD BE PARTICULARLY SUITED TO A LOW-DOC LOAN?

A: Medium to high net worth applicants with complicated financial affairs.

FEATURE / LOW-DOC

ALLAN SAVINS COO, RESIMAC WHAT WOULD YOU SAY TO BROKERS WHO FEEL THAT LOW-DOC LOANS ARE A RISKY PROPOSITION?

A: Low-doc loans aren’t new to the marketplace.

This product was created for self-employed borrowers who couldn’t produce current financials for whatever legitimate reason, and for non-banks to lend to them based on their self-declared income, whereas the banks had access to their bank accounts to be able to review their financial position.

The original purpose of this product still remains today, as not all self-employed borrowers have their current financials readily available and this product enables everyone to compete, not just non-banks but also other lenders in a highly competitive mortgage environment.

HOW LONG DO LOW-DOC LOANS NORMALLY TAKE TO REACH APPROVAL?

A: That all depends on the effort invested upfront by the broker in the quality of the loan packaging, and the scalability of enquiries necessary to satisfy oneself as to the reasonableness of the loan and income declared.

Granted the type of paperwork is different to a standard full doc loan for a self-employed borrower, but that does not mean they take any more time to assess and reach a decision.

FROM LOW-DOC TO ALT DOC

SAVINS EXPLAINS RESIMAC’S PRODUCT NAME CHANGE Unfortunately, low-doc loans have been abused in the past. This, and the changes in legislation, have led some brokers to feel this is a risky product.

We work closely with our lawyers in understanding the legislation, and we firmly believe that if this product is used as it was and is still intended, it isn’t a riskier proposition. RESIMAC now calls this product Alt-Doc, as it is really an alternative documentation product as opposed to a low-doc product. The alternative documentation is just that – providing alternative documentation to substantiate or validate self-declared income.

WHAT MEASURES HAVE YOU TAKEN TO SPEED UP APPROVAL TIMES FOR LOW-DOC LOANS?

A: This all centres around the quality of the loan packaging and understanding of our policy. To this end, RESIMAC has both a national training manager and broker scenario line to support our distributors, to help them understand our policy and improve the standard of their loan packaging to provide faster turnaround times. The lending team also work to strict service level agreements to support the efforts of our sales personnel.

HOW HAS THE LOW-DOC MARKET FARED OVER THE PAST YEAR?

A: We have seen the proportion of our new business in alt doc lending increase over the past year as brokers’ confidence returns in writing this business.

This has been slower than we would have thought, noting this business proportion fell from the heights of around 25–30% of new business in 2006–07 to under 2–3% in 2011–12.

We believe this segment of the market has been underserviced for some years. The number of selfemployed borrowers hasn’t reduced in Australia, yet the proportion of alt doc loans reduced dramatically due to a range of reasons: the GFC, lenders and mortgage insurers’ reduced risk appetite, poor market practices, and changes in legislation. RESIMAC’s alt doc performance has performed extremely well throughout the GFC, as the additional income documentation now sought supports genuine self-employed borrowers, which the product was originally designed for.

DO YOU SEE LOW-DOC DEMAND INCREASING IN THE YEAR AHEAD?

A: We believe demand for this product will increase in the year ahead. The ability to sell this product is all about brokers’ awareness and confidence. As brokers regain confidence in selling it, and understand more about what is required in terms of additional income documentation, demand will only increase.

HOW HAS THE NCCP CHANGED THE LOW-DOC APPLICATION PROCESS?

A: The application process hasn’t changed but the 42 | JUNE 2013

MPAMAGAZINE.COM.AU

level of necessary enquiry has. The alternative income documentation now required is how this product should always have been assessed. It is a way to validate self-declared income. As an industry, we should never have got to a position where someone could declare earnings without a ‘reasonableness’ or ‘sniff’ test, as it is commonly referred to. If someone says they earn $300,000, they should have something to support this, such as asset and liability position, bank and BAS statements, contracts, something...

WHAT KIND OF PAPERWORK DO APPLICANTS NOW HAVE TO PRODUCE FOR LOW-DOC APPLICATIONS?

A: The types of alternative documentation required include an accountant’s letter, personal and business bank statements, and BAS statements. RESIMAC has two alt doc products, one requiring only an accountant’s declaration for clear credit borrowers, and one requiring an accountant’s declaration with business and personal bank statements for credit-impaired borrowers and/or short-term self-employment.

WHAT TIPS CAN YOU OFFER BROKERS TO ENSURE LOW-DOC APPLICATIONS GAIN LENDER APPROVAL?

A: Ensure they submit the right levels of alternative

documentation required as per policy; review all income documentation provided and provide commentary where necessary (eg adverse entries on bank statements); do your own ‘reasonableness’ test to make sure the deal makes sense; and tell the lender as much as possible about the borrower’s business.

WHAT ARE THE COMMON LOW-DOC APPLICATION MISTAKES THAT SHOULD BE AVOIDED?

A: The common alt doc application mistakes would be not knowing the lender’s policy and information requirements or ensuring documentation reflects the self-declared income, not reviewing documentation provided (eg Centrelink payments on bank statements), a lack of financial benefit, and providing insufficient notes about the deal.

IS THERE ANY TYPE OF BORROWER THAT WOULD BE PARTICULARLY SUITED TO A LOW-DOC LOAN?

A: Any self-employed borrower who cannot produce current financials. RESIMAC provides solutions to self-employed borrowers, varying from clear credit borrowers, to short-term self-employed, to contract employment and even credit-impaired borrowers, regardless of the degree of impairment.

JUNE 2013 | 43

FEATURE / LOW-DOC

SURESH PILLAI GM OF COMMERCIAL, LIBERTY FINANCIAL HOW LONG DO LOW-DOC LOANS NORMALLY TAKE TO REACH APPROVAL?

HOW HAS THE LOW-DOC MARKET FARED OVER THE PAST YEAR?

A: We’ve been assisting clients with non-standard documentation requirements for over 15 years. As a result, we’ve established processes that allow us to conduct a detailed review of a borrower’s situation while ensuring swift response times. We can often complete our assessment within 24–48 hours of receipt of the application, although it will really depend on the nature of the deal.

A: We’ve seen really strong growth in this sector. It may be because small businesses have not been getting a fair go from their banks. We’ve found those same small business owners are pretty good at finding alternatives, and that’s meant growth for them and us.

WHAT MEASURES HAVE YOU TAKEN TO SPEED UP APPROVAL TIMES FOR LOW-DOC LOANS?

A: We’d expect recent growth to continue. Small businesses in particular are finding themselves cash strapped, which makes cash flow management a key consideration. Self-employed business owners are also looking to release funds for working capital and to consolidate debts, in particular to meet ATO demands.

A: There’s a balancing act between speed and appropriate review. It’s not a good result if increasing speed leads to poorer quality process or decisions.

We take an appropriately cautious approach, driving efficiencies while preserving the quality of our decision-making through the intelligent use of technology. That means we can typically complete assessment within 24–48 hours of receipt, which our business partners tell us is fast enough.

DO YOU SEE LOW-DOC DEMAND INCREASING IN THE YEAR AHEAD?

HOW HAS THE NCCP CHANGED THE LOW-DOC APPLICATION PROCESS?

A: The dual focus of serviceability and suitability has meant that we continue to see increasing analysis and forethought by the broker, which is often reflected in clearer loan submissions.

A RISKY PROPOSITION?

PILLAI ADDRESSES BROKER CONCERNS ABOUT LOW-DOC RISKS In many ways low-doc lending is about achieving more with less so brokers are right to reflect on the risks. Given the need to perform reasonable investigations of a borrower’s requirements, objectives and financial position to determine suitability and serviceability, most people would prefer to have more, not less, information. That said, there is an important role for low-doc lending in the right circumstances. For example, for the self-employed or small businesses where access to finance is a key issue, low-doc lending has a valuable role to play. These borrowers can have a hard time obtaining loans, in many cases because of the volume of documents required. That standard is at odds with the demands of small business, which often mean borrowers struggle to maintain back-office administration and complete financials in a timely manner. So, if brokers approach such lending methodically and with integrity, low-doc loans represent a significant opportunity to add value to clients.

44 | JUNE 2013

WHAT KIND OF PAPERWORK DO APPLICANTS NOW HAVE TO PRODUCE FOR LOW-DOC APPLICATIONS?

A: Generally, small business borrowers need to show evidence of an existing business, for example via an ABN/ACN. Borrowers also provide evidence in a range of ways, including 12 months of Business Activity Statements, business and personal bank statements, six months of loan statements for loans being refinanced and/or the latest account statements on debts or loans not being refinanced.

WHAT TIPS CAN YOU OFFER BROKERS TO ENSURE LOW-DOC APPLICATIONS GAIN LENDER APPROVAL?

A: I’d say give us a call. Liberty recognises that not all brokers have extensive experience with

MPAMAGAZINE.COM.AU

alternatively verified loans. That’s why we provide training and deal-by-deal support. Our business development managers are there to help brokers identify opportunities across the range of Liberty’s products and to help with loan submissions.

WHAT ARE THE COMMON LOW-DOC APPLICATION MISTAKES THAT SHOULD BE AVOIDED?

A: We sometimes see borrowers trying to shoe-horn themselves into a low-doc option where it is not appropriate; for example, they have a limited trading history as a self-employed or small business owner.

“The dual focus of serviceability and suitability has meant that we continue to see increasing analysis and forethought by the broker” IS THERE ANY TYPE OF BORROWER THAT WOULD BE PARTICULARLY SUITED TO A LOW-DOC LOAN?

A: The self-employed and small businesses.

JUNE 2013 | 45

FEATURE / LOW-DOC

MARIO REHAYEM DIRECTOR, SALES AND DISTRIBUTION, PEPPER WHAT WOULD YOU SAY TO BROKERS WHO FEEL THAT LOW-DOC LOANS ARE A RISKY PROPOSITION?

HOW HAS THE LOW-DOC MARKET FARED OVER THE PAST YEAR?

A: I would say that the ASIC Responsible Lending Guidelines (RG 209) don’t discriminate against PAYG or self-employed borrowers, and hence the way you assess their income and the time taken is proportionate to the complexity of their asset position and their number of income sources.

If a self-employed borrower is unable to provide their last two years’ tax returns and assessment notices, then an alternative documentation loan (the new low-doc) is a viable option. As long as a broker makes reasonable enquiries regarding the borrower’s financial situation, takes reasonable steps to verify the financial situation (eg business bank statements or BAS), and then assesses whether that borrower will be able to meet the proposed credit obligations without hardship whilst meeting their requirements/objections, then there is nothing risky about the alt doc solution.

A: We have seen an increase of 25% for our alt doc products. This is a direct result of brokers feeling more comfortable with the alt doc proposition and genuinely wanting to find a solution that meets their self-employed customers’ needs.

HOW LONG DO LOW-DOC LOANS NORMALLY TAKE TO REACH APPROVAL?

A: At Pepper an alt doc loan has the same approval turnaround times as a PAYG loan. If the deal has been submitted to adhere to Pepper’s checklist, we can process an approval within 24 hours.

WHAT MEASURES HAVE YOU TAKEN TO SPEED UP APPROVAL TIMES FOR LOW-DOC LOANS?

A: By having an experienced credit team that underLOW-DOC APPROVAL TIPS

REHAYEM’S TOP TIPS ON GETTING THAT LOW-DOC LOAN OVER THE LINE Ensure that the loan services carry out a commonsense approach to your assessment; undertake a quick income-to-asset test, which will give you an initial level of comfort, and then simply follow the lender’s application checklist, just as you would for any other loan. Another tip would be to use multiple sources to confirm income. Examples include business bank statements, ATO portal statements, Business Activity Statements, etc.

46 | JUNE 2013

stands how to assess the different characteristics of a self-employed borrower, we have been able to expedite approval times.

DO YOU SEE LOW-DOC DEMAND INCREASING IN THE YEAR AHEAD?

A: Alt doc loan demand will increase as specialist lenders like Pepper continue to educate the market on the need and appetite for this type of lending, and as more brokers begin to accept that, as long as they carry out a proper preliminary assessment for self-employed borrowers, their obligations under the NCCP are met and alt doc is just another product offering in their suite of home loan options.

HOW HAS THE NCCP CHANGED THE LOW-DOC APPLICATION PROCESS?

A: The NCCP should not have changed the application process of any loan; brokers should have always carried out a fact find/preliminary assessment pre- and post-NCCP. Where the game has changed is that lenders no longer place the onus on the borrower to tell the lender what they earn; the lender now has a duty to assess the income that the borrower has declared. This can be via business bank statements, income to asset position, accountant verification, and so on.

WHAT KIND OF PAPERWORK DO APPLICANTS NOW HAVE TO PRODUCE FOR LOW-DOC APPLICATIONS?

A: The way a broker reviews a borrower’s financial situation can be approached in many different ways, and therefore they may request different paperwork than what the lender requires to satisfy their assessment. It is important for brokers to adhere to their own credit policy, instead of solely

MPAMAGAZINE.COM.AU

following the lenders.

The fundamental assessment of a borrower is the same, regardless of whether they are PAYG or self-employed; the difference lies in the supporting documentation. For Pepper alt doc, we require a declaration of financial position, plus either six months’ business bank statements, six months’ business activity statements, or a Pepper accountant’s letter.

WHAT ARE THE COMMON LOW-DOC APPLICATION MISTAKES THAT SHOULD BE AVOIDED?

A: Brokers should never pre-fill or coach their clients on what to fill out on the borrower’s declaration form. Another key consideration is to ensure the borrower has GST registration if they declare a turnover that is over $75k.

“Where the game has changed is that lenders no longer place the onus on the borrower to tell the lender what they earn” IS THERE ANY TYPE OF BORROWER THAT WOULD BE PARTICULARLY SUITED TO A LOW-DOC LOAN?

A: Alt doc loans are well suited for self-employed and small business owners that do not have all the paperwork necessary to document their income, ie the last two years’ tax returns.

JUNE 2013 | 47

FEATURE / LOW-DOC

BARRIE GAUBERT DIRECTOR, IDEN GROUP WHAT WOULD YOU SAY TO BROKERS WHO FEEL THAT LOW-DOC LOANS ARE A RISKY PROPOSITION?

A: Low-doc loans are less risky now than pre-NCCP due to more robust substantiation of income via BAS and trading statements. Our current credit policies reflect this risk by mitigating other areas of risk. In effect, now they are no more risky than fully verified loans as they are supported by an accountant’s declaration and/or BAS statements or trading account statements. You do need to ensure that you have conducted your due diligence as per the NCCP Act and responsible lending guidelines.

If you do not feel comfortable with the information the client has given you, do not do the deal.

“Non-bank lenders are becoming more creative and willing to adopt greater risk” HOW HAS THE LOW-DOC MARKET FARED OVER THE PAST YEAR?

A: There is less demand for above 60% lend loans due to the additional requirements from mortgage insurers. Some self-employed borrowers have probably been shut out of the market who cannot demonstrate cash flow and require an LVR above 60%.

DO YOU SEE LOW-DOC DEMAND INCREASING IN THE YEAR AHEAD?

A: Non-bank lenders are becoming more creative and willing to adopt greater risk, with low-doc at LVRs of up to 85%. This will increase supply.

Whether or not it increases demand remains to be seen. With the tougher assessment we’re unlikely to see much of an increase in demand.

HOW HAS THE NCCP CHANGED THE LOW-DOC APPLICATION PROCESS?

A: The NCCP has placed more responsibility on the 48 | JUNE 2013

broker to ensure the information declared by the borrower is true and correct.

The additional requirement of BAS or business account statements for above 60% LVR loans has tightened lending capacity, but that’s not necessarily a bad thing. It is certainly harder for borrowers to qualify for loans.

WHAT KIND OF PAPERWORK DO APPLICANTS NOW HAVE TO PRODUCE FOR LOW-DOC APPLICATIONS?

A: Generally, the documentation required is a lowdoc declaration by both the borrower and their accountant confirming income stated, along with BAS and business banking statements.

WHAT ARE THE COMMON LOW-DOC APPLICATION MISTAKES THAT SHOULD BE AVOIDED?

A: The client not being registered for GST but claiming over $75,000 per annum.

IS THERE ANY TYPE OF BORROWER THAT WOULD BE PARTICULARLY SUITED TO A LOW-DOC LOAN?

A: A self-employed borrower who has not completed their current tax return requirements and therefore cannot go full doc.

APPROVAL SUCCESS

GUABERT’S TOP TIPS FOR ENSURING LOWDOC APPLICATIONS GAIN LENDER APPROVAL • Ensure borrowers are a genuine going concern by satisfying yourself as to the applicant’s cash flow, even if it is not required under the lender’s policy.

• Ensure that the information provided is consistent through the application; supporting documentation needs to support the income declared.

• Ensure that your client has had the ABN registered for a minimum of two years.

If earning over $75,000 they must be registered for GST for the past 12 months.

Look at the BAS or business banking statements to ensure there is evidence of income as declared.

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BUSINESS STRATEGY / SERVICE

Bad service damages your public perception, credibility and market reputation. In short, it reduces revenue and drives up costs. But, by focusing on the little things, you can go from a bad or average customer service provider to an excellent one, argues Nikki Heald

HOW TO DELIVER

EXCEPTIONAL

SERVICE 52 | JUNE 2013

MPAMAGAZINE.COM.AU

JUNE 2013 | 53

BUSINESS STRATEGY / SERVICE

Often, we’re so intent on making the sale that we have a transactional view of our clients, rather than taking time to build relationships or demonstrate service excellence. We use them (to increase our profits), abuse them (by giving them inferior service), and then treat them like a one-night stand – attentive today, neglectful tomorrow!

Sound silly? Well, complaints such as “You never call”, “You’re always too busy”, and “Why were you late?’ are legitimate gripes made by disgruntled clients. In today’s competitive market, client service expectations have increased. Clients are savvy, realise they have a multitude of choice, and expect to be treated exceptionally by their brokers.

So what is exceptional service? Exceptional client service is about going beyond what is realistically expected of you. It’s about surprising and often delighting clients, turning them into enthusiastic referral sources that will stick with you, not only because you do great work but also because of the value you bring. Imagine if you could get existing clients to tell others about how wonderful you are? It would certainly save on all of those marketing and networking costs.

Exceptional client service is about going beyond what is realistically expected. It’s about surprising and often delighting clients Great service is not about just doing your job but about establishing connections on an emotional level. It’s about value-adding and finding ways to be unique. Interestingly, research suggests that emotion influences purchasing decisions six more times than rationale. Think about it – when something makes us feel good, we are more inclined to buy.

Unfortunately, many businesses believe that delivering stand-out service will cost them too much in staff time, training and developing service standards and procedures. These in-focused organisations are only concerned with company profit and cutting costs, and little thought is given to how to make 54 | JUNE 2013

clients happy. Additionally, staff recognition and retention is low, which can impact significantly on growth and profit.

When you think about it realistically, bad service is actually more costly to your brokerage than great service. Bad service influences more than just a negative customer experience – it reduces revenue and drives up costs. It damages public perception, credibility and market reputation. As we all know, a dissatisfied client is more likely to spread the word about a poor service experience than a positive one.

Providing exceptional service is not overly difficult, and it’s important to recognise that little things count with clients. So what are some simple things you can do to ensure your service is exceptional?

RESPOND AS SOON AS YOU CAN Speed is everything, so try to reply to your clients as soon as you can and keep them in the loop as to your progress. Procrastination doesn’t help anyone, and you’re going to have to respond sooner or later. May as well do it now!

LISTEN TO YOUR CLIENTS Avoid speaking, and really listen to what they’re saying. It’s important you understand what your clients are communicating to you. That way, you will be able to meet their needs successfully and provide the correct product or cover.

KEEP PROMISES One of the biggest gripes in business today is that people simply don’t do what they say they’re going to

DELIVERING EXCEPTIONAL SERVICE

01 02 03

Lower cost to manage and service client base - higher profits.

Increased customer loyalty - raises revenue, lowers marketing fees.

I ncreased staff loyalty - better service culture.

MPAMAGAZINE.COM.AU

DID YOU KNOW?

93%

do. If you say you’re going to do something, make sure you do it. It enhances your professionalism and personal brand, and demonstrates that you value your client.

of customers indicated that quality customer service was vital to

MAINTAINING BRAND LOYALTY.

KNOW YOUR STUFF The perception of your client is that you are the paid expert. That’s why they’ve come to you. So it’s imperative that you keep yourself up to date and top of game within your profession. Be ready to answer client questions; unfortunately, if you convey a lack of knowledge, you risk ruining your credibility.

IT’S 6-7 TIMES

GIVE A LITTLE If a client asks you to do something that really won’t cost you a lot in time or money, then treat it as an opportunity to go the extra mile. By doing so, you not only have a contented and indebted client but someone who is more than happy to refer to you.

MORE EXPENSIVE TO GAIN A NEW CLIENT

USE YOUR KNOWLEDGE Once you’ve built an emotional connection with your client, you would have figured out how they prefer to communicate. Some clients are not detail driven and won’t require excessive information.

On the other hand, some prefer to know every step of the process. Learn to gauge your client’s preferences and use this knowledge appropriately in the service experience.

than it is to retain an existing one.

IT’S NOT SAFE TO WORK ON THE PREMISE OF

FINAL THOUGHTS Finally, within the financial services profession brokers really should view their book of clients as their most valuable asset and take good care of them. More than that, they should take the time to develop long-lasting relationships by keeping in touch regularly, both in good times and bad. It’s not sufficient to wait until renewal time to contact them, but rather, go for an ongoing communiqué.

Remember, you’re not just selling a product but providing expert advice that can significantly impact on people’s livelihood. So if you haven’t given much thought to your service levels, then perhaps it’s time to conduct a self-audit. If you don’t make the client feel valued, respected and important, your competitors will!

Nikki Heald is a corporate trainer, presenter, businesswoman, founder of Corptraining, and co-author of “Views On The Way To The Top”.

Head to corptraining.com.au for more information.

‘NO NEWS IS GOOD NEWS’.

Chances are, if your client is

NOT HAPPY

they’ll walk, and they won’t even forewarn you of their departure.

JUNE 2013 | 55

BUSINESS STRATEGY / REFERRALS

THE POWER OF

COMPOUNDING REFERRALS How would you like to discover a strategy for turning one single client generated each week into 1,200 happy clients in just two years? James Veigli explains all In this article, I’ll reveal a system that will keep you flush with business and with willing clients lining up at your door.

First, I love numbers and you should too! I remember when I was nine years old a friend and I started a game called ‘Numbers’. The game was simple: grab a piece of paper, a pen, and start writing numbers on the paper: 1, 2, 3, 4, etc. The challenge was to see who could write the most consecutive numbers. I’m pretty sure this went on for weeks, producing dozens of pages of numbers, all written by hand. I even did this (for fun) as homework!

I wish I could remember how far we got, but I’d say it was into the tens of thousands. Yes, I was a numbers nerd.

Today, I’m still obsessed with numbers and a concept known as the compounding effect – not just so that I can see how big numbers can get but because I can use the power of compounding (combined with the power of effective marketing

56 | JUNE 2013

and sales systems) to make money and teach other brokers how to do the same.

If you’re not familiar with the compounding effect, consider this: if you start with $1 and double it, you will have $2. Double it again, and you will have $4. Then, if you double your initial $1 10 times, you will have $512. Double that single $1 20 times and you will suddenly jump to having $524,288 in your pocket, and doubling it 30 times will give you $536,870,912! Yes, over half a billion!

So, in theory, you could start with $1, gamble it on roulette (betting on red or black), and if you won 30 times in a row (betting all your winnings each time) you would have over half a billion dollars!

Of course, the odds of winning 30 times in a row are low (you have a 0.00000009% chance), and the purpose of this article is not to promote or endorse gambling but to get you thinking about how to grow your client base and business fast using compounding referrals.

MPAMAGAZINE.COM.AU

So what do I mean by compounding referrals, and how can one client each week potentially turn into 1,200 clients in just two years?

First let me explain the numbers, and then I’ll tell you the strategy of how to go about it.

COMPOUNDING REFERRALS: THE NUMBERS I’m going to assume that you can generate just one new client each week in your business. (There are dozens of ways to do this, and if you don’t know how, visit my website for help.) To keep the numbers simple, we’ll say this equals to four new clients each month, which would give you a total of 96 new clients in two years’ time. Simple maths so far, but a far cry from 1,200 clients.

Here’s where the power of referrals comes in.

In this example, to get 1,200 clients in two years you will need each new client you see to give you five referrals. Now I know you might be wondering exactly how you would do this, but bear with me as I’ll get to that in the strategy section.

The next part of the numbers is where the compounding kicks in. Here we need to assume a conversion rate for the referrals. I’m going to say in this example that you can convert 20%, or one out of the five referrals each month, into a new client (which is a conservative estimate in my view).

You start by generating just one new client a week, or four new clients in the first month. Each of those four new clients gives you five cold referrals – so 20 referrals in Month 1. In the next month, you convert 20%, or four of those 20 referrals, into new clients, and those four new clients each provide you with five referrals. Plus, in this second month you also generate another four new leads, so you have a total of 40 new referrals in the second month.

This may be a little confusing, so let’s break it down in a visual table:

New clients New clients Referrals Clients (self-generating) (referrals) (monthly) (total)

Database

MONTH 1

4

0

20

4

24

MONTH 2

4

4

40

12

68

MONTH 3

4

8

60

24

132

MONTH 4

4

12

80

40

216

MONTH 5

4

16

100

60

320

MONTH 6

4

20

120

84

444

MONTH 12

4

44

240

312

1,068

MONTH 24

4

92

480

1,200

6,096

Assumption: number of referrals per client = 5 Assumption: conversion of referrals into clients = 20%

Take a look at Month 6: you have a total of 84 clients, having started with just one self-generated client each week. What’s more exciting is that during this time your total database has grown from zero to 444 people. That means there are still 360 people on your database who are not yet clients (444 minus 84) and you can put them on a contact management strategy to ensure a good percentage of those prospects convert into clients at some point in the future.

Working the numbers out to the two-year mark, Month 24, you can easily see the significance of this strategy. Simply put, just two years after starting from scratch, you would have 1,200 clients on your books, with a total database of 6,096 people, of which a huge percentage could potentially become

JUNE 2013 | 57

BUSINESS STRATEGY / REFERRALS

clients over time, using a smart contact strategy (a topic for another article).

Are you excited by these numbers? Are you sceptical? Good! Now that you’ve seen the numbers, you need a strategy in order to play this game successfully. If you’re sceptical, it’s probably because you’re not following the strategy below.

COMPOUNDING REFERRALS: THE STRATEGY In the numbers section, I said that for each new client you see you should extract five cold referrals to get your 1,200 clients. Now I’m not talking about being annoying and hard-selling or pressuring clients. I’m not even talking about asking for ‘warm’ referrals; I’m just after ‘cold’ referrals. Here’s the difference, which is key to making this work: • A ‘warm’ referral = a direct personal endorsement or recommendation from the client to the referral. For example, you tell your best friend about a new café they should visit.

• A ‘cold’ referral = provision of contact information (email, postal address, mobile phone) without the client having to directly engage with the referral. For example, providing a friend’s email address when entering a competition (or taking up an offer) so they too can enter or take advantage of the offer.

As an aside, five referrals is by no means a hard-and-fast number. In fact, you can make this number anything you like. Not happy asking for five? Go for three. Not satisfied with just five?

Go for 10! Of course, changing the number of referrals per client will dramatically alter the speed in which you grow your database and business.

Play around with the numbers and do what suits your goals and makes you comfortable. Then, if you want to extract your target number of

referrals from every single client, you’ll need to implement my five pillars strategy.

Here’s a breakdown of the five pillars in terms of compounding referrals:

‘WOW’ EVERY CLIENT

If you want your clients to be happy to refer upon request, you need to design and orchestrate your client process so that every single client has a ‘wow’ experience – it cannot be left to chance.

TALK ABOUT REFERRALS WITH EVERY CLIENT

If you don’t proactively discuss referrals and prompt them, this strategy will not work. Request referrals from each client as part of your standard sales process. Do this by educating them on the value of referrals to you and your business, and convey your passion for helping as many of their friends, family and colleagues as possible.

USE A 100% NON-THREATENING REFERRAL OFFER

A non-threatening referral gives your clients the comfort of knowing there will be no sales pressure on friends they refer you to. Do this by offering to send your client’s referrals an information pack on how you can help, the benefits of your service, with a special offer for taking the next step. If they take action and call you, that’s their decision.

MAKE IT EASY TO REFER

Referring people to you is low on your client’s list of priorities. That’s why the referral process must be very simple for the client. Ask who they know would benefit from your services, and have them open their phone and write down the names, emails and postal addresses of five of their friends or family members.

INCENTIVISE REFERRALS

Most people are motivated (at least on some level) by what’s in it for them. So create incentives for people to refer, such as value-based incentives of gifts, vouchers, fee rebates or charity donations.

Gratitude-based incentives are powerful too – a thank-you call or card is very personal and acknowledges their efforts. Winning-based incentives create a competition environment that brings out people’s desire to try their luck and win.

58 | JUNE 2013

MPAMAGAZINE.COM.AU

So there you have it. The five pillars for making the power of compounding referrals work. Of course, there are numerous other execution details that I don’t have space to cover in this article, but hopefully at least you now have the motivation (from the numbers) plus the building blocks (the five pillars strategy) to help you get more referrals so that you can help more people and make more money.

The only downside is that you could get too busy

and have to expand and take on support staff or brokers. A good problem to have, I’m sure you agree!

If you’d like me to customise and integrate the complete Compounding Referrals strategy in your business, contact my office and make an appointment with my assistant, Clare. My final note is this: don’t fall into the trap of dismissing this strategy before you seriously consider and trial it yourself.

Go get ’em!

THREE STEPS TO MAKE THIS HAPPEN

1. Set yourself a non-negotiable target of extracting a certain number of cold referrals (say three, five or even 10) from every new client.

2. Study the five pillars and design your strategy to cover each of these points.

3. Integrate referrals into your standard sales process with each new client. One suggestion would be to raise the topic of referrals just after you have signed a client up – at the point when you have clearly demonstrated that you can help them and solve their problems.

James Veigli helps mortgage brokers multiply their income using less time and effort so that they can have the business and lifestyle they deserve. Learn more at brokerprofitsvault.com.au.

JUNE 2013 | 59

COLUMN / TRAILBOOK BUYING

TRAIL BOOK

BUYING: YOUR 10-POINT CHECKLIST Trail Book Buyers’ James Turk and Mark Osborn offer 10 vital considerations that all brokers should bear in mind before taking on a trail book

1

KNOW YOUR MOTIVATION AND PLAN THE TRANSACTION ACCORDINGLY

Are you looking purely to acquire trails from a cash flow perspective, are you looking to build you client list – or is your motivation a combination of the two? If you’re looking for cash flow your primary concern should be the integrity and longevity of the loans.

If you’re looking for customer relationships you should plan for the transfer of the relationship including: obtaining contact details; planning an introduction; ongoing marketing; and integration with your existing database.

Acquisition vehicle, tax planning, contractual terms and pricing will all depend on what you are trying to achieve. Professional advice should be sought to ensure the outcome matches these objectives.

4

NON-COMPETE CLAUSES

BE AWARE OF THE TERMS WHICH GOVERN THE PAYMENT OF THE TRAILS

These need to be not just from the company but also from whoever wrote the loans that form the trail book. Often the owner of the book will be a company or person related to the main business writer. If they are benefitting from the sale of the book they should agree to sign-up to non-compete clauses. Furthermore a purchaser should identify key brokers who are or were staff or contractors of the company selling the book. If they have relationships with the clients or access to client data and do not have non-compete clauses in their contracts then this will open the book up to the risk of wholesale churn.

Brokers should review and understand the introducer agreement and any additional terms concerning the conditions on which the aggregator has agreed to pay the trails to the purchaser and under which circumstances it may suspend or terminate payments entirely. You are buying a contractual right so you should know exactly what you are buying.

A purchaser will often receive much of the information on which it decides to purchase a book verbally. It is important to verify as much of this information as possible. In particular contracts, trail statements and client details should be verified

2 60 | JUNE 2013

3

WHO ARE YOU BUYING FROM?

If you’re buying from a company you need to consider how long after the sale of its trail the company will continue to exist. Certain warranties that are standard in most purchase agreements may be worthless if the company is wound up or deregistered. Purchasers should therefore obtain warranties not only from the company but also the directors and key loan writers where possible.

5

DUE DILIGENCE

MPAMAGAZINE.COM.AU

to the maximum extent possible. The identity of the seller, ownership and rights to the trail by third parties should also be questioned and verified. In all cases company searches should be conducted.

6

BE COMFORTABLE WITH THE PERSON YOU ARE PURCHASING FROM

If you don’t believe they are an honest operator this may cause problems in the future. Fraud and dishonesty can lead to termination of payments of trail, breach of agreements with lenders and aggregators and legal claims by borrowers. Issues post settlement that may also arise include trying to recoup clawbacks of upfront commissions and churn.

7

SETTLEMENTS/DEPOSITS/HANDING OVER INFORMATION

You should avoid the payment of deposits as much as possible and ensure that everything required to be done at settlement is prepared for in advance. If the vendor is providing information, databases, or any assistance at settlement these should be handed over simultaneously or prior to handing over funds. Once you hand over the settlement funds it is often difficult to get cooperation or timely action from a vendor.

8

PAYMENT

Never hand over money without first receiving the approval of the transfer from the

aggregators in writing. Most introducer agreements require the consent of the aggregator to assignment of the rights to trail. Without this you do not own anything so you should not hand over settlement funds. The aggregator should provide in writing that it approves the transfer, when the transfer will take place and to which loans it applies.

9

James Turk

MAKE THE CONTRACT REFER TO THE PURCHASE PRICE AS A MULTIPLE OF THE TRAIL

If a purchase is delayed and the book drops in value in the meantime you do not want to pay for trails that you will not receive or overpay. Therefore the contract should state that the price is a multiple of the trails received by the vendor in the last commission run before settlement. In that way the price reflects the most up-to-date information.

10

USE UP-TO-DATE INFORMATION

Mark Osborn James Turk and Mark Osborn are directors of Trail Book Buyers.

Visit trailbookbuyers. com.au for more information.

Often a purchaser will make a decision on whether to purchase a book and pricing and then have some time pass before the transaction actually goes ahead. In this case you should ask for up-to-date information and review the purchase and the pricing. Even a single loan being paid down, going into arrears or dropping off entirely can make a significant difference to the makeup of a small book. Never make a decision on out-of-date information.

JUNE 2013 | 61

LIFESTYLE / DAY IN THE LIFE OF

Day in the life of...

Robynne Jemmott, Suncorp Bank national aggregation manager 6.30am: I awake to my one and only four-year-old

10.00am: Meet with a key aggregator partner for

son Jamison ready and waiting for his morning milk and a cuddle, which always puts a spring in my step.

our quarterly update to review market share position, understand areas of opportunity, and keep abreast of their current initiatives and challenges.

6.40am: As I jump in the shower I hear my husband

12.00pm: Off to gym for a lunchtime jog. This ‘me’

in the background saying “Come on, mate. Eat your breakfast”, and I know that by starting work early I often get the better end of the deal.

time helps me clear my head and prioritise what needs to get done by the close of play today.

1.00pm: I grab that salad from the fridge and use 7.15am: Grab my lunch (pre-packed the night before) and head out the door. Being a household of two working professionals means our family routine is finely tuned to ensure everything runs like clockwork (most of the time, anyway!).

7.30am: I arrive at work and power through emails, read up on overnight news, review priority lists, and prepare for the day’s meetings. As a morning person, I find this my most productive time of day.

8.00am: The peace and quiet is over! Steven Degetto, our Victorian state manager, arrives to share a success story with me about one of our elite brokers and how happy he was with the postsettlement service our branch channel provided to his customer, which is great to hear.

8.30am: Meeting with our marketing team to complete a full review of our sales collateral and existing broker communications. We discuss some exciting new ideas for increasing consideration with brokers who haven’t used us lately, to encourage them to ‘try us out’.

9.45am: I review the daily operations update and call executive manager Stuart Neilson to congratulate him on the team’s outstanding turnaround times. Our broker call centre average call wait time was down to 12 seconds in busy times yesterday – a stellar result. Great to see the hard work we’ve done on our broker proposition and service levels putting us ahead of the pack.

62 | JUNE 2013

the time to catch up on emails and return phone calls that I’ve missed while working up a sweat.

Robynne Jemmott

“Our broker call centre average call wait time was down to 12 seconds in busy times yesterday – a stellar result”

1.30pm: Our head of strategy, Sean Doolan, and I get together to work on one of our key strategic projects – an advanced CRM system to help us drive stronger relationships with our brokers and be more effective in our sales processes.

3.30pm: Time for our weekly national sales call, led

by GM Steven Heavey. Gain some really good ‘on the ground intel’ and discuss survey results from our recent national roadshows. Pleased to hear that, of the 1,200 brokers that attended, three in four rated the event as good to excellent value – and 94% are keen to see a similar event held annually.

4.15pm: Take another quick look at emails that have come in, and decide which can wait for later.

4.30pm: Run out the door and head to daycare, where my son gives me more amazing cuddles and deftly negotiates a stop-off at the playground – already picking up business skills from mum and dad!

5.30pm: Home to cook dinner, pack lunches and negotiate bathtime before my husband comes home.

After dinner is family time, which tonight features a jigsaw puzzle and blocks.

8.30pm: Jamison is finally in bed, so it’s time for a cup of tea while we watch the news and get an opportunity to catch up on those emails…

MPAMAGAZINE.COM.AU

Favourite things Frank Paratore, CEO, Ballast

Frank Paratore

Book: MPA...

Vacation spot: Looking forward to a forthcoming holiday in Europe: cruising for two weeks around Italy, Greece, Spain and France and then spending two weeks in southern Italy.

Oops – sorry, that’s a magazine!

Music: Don’t mind variety, but ACDC is a favourite band.

Sport: I love to watch AFL, especially West Coast Eagles. I also love watching international soccer, especially the World Cup.

Drink: Rusty Nail on ice: two parts Scotch, one part Drambuie.

Or a nice Heytesbury Shiraz.

Place to be in Australia: Fremantle, which also happens to be where I live. Yes, I know, I live in Freo but support West Coast!

Hobby: Fishing.

Food: Seafood, Italian, Thai, Chinese, Indian, rib-eye steak Movie: Without a doubt, it’s hard to go past the Godfather movies or Scarface.

cooked medium rare, hot apple pie with cream and ice cream... Where does it end? I’m not suggesting that I’d eat all of that in the same sitting!

JUNE 2013 | 63

BUYER TRENDS Data from Yourmortgage.com.au shows the borrower breakdown for the past months ANNUAL HOUSEHOLD INCOME

HOW MUCH DO YOU STILL OWE ON YOUR MORTGAGE?

20% $0-50,000 50,00117% $70,000 70,00127% $100,000 100,00030% $200,000 200,0005% $300,000 1% $300,001+ WHAT TYPE OF MORTGAGE DO YOU HAVE? Fixed 17%

Unsure 28%

Variable 55%

14%

25%

$0-100,000

$300,001400,000

17%

21%

14%

9%

$100,001200,000

$200,001300,00

$400,001500,000

$500,001+

WHAT'S YOUR COMBINED LIMIT OF CREDIT CARDS? $0-2000

47%

$2,001-4,000

9%

$4,001-6,000

12%

$6,001-8,000

6%

$8,001-10,000

8%

$10,001-15,000

6%

$15,001-20,000

5%

$20,001+

7%

HOW MUCH DO YOU WANT TO BORROW?

$0100,000 9% 64 | JUNE 2013

$100,001200,000 9%

$200,001300,000 21%

$300,001400,000 26%

$400,001500,000 17%

$500,0011m 18%

$1m+ 2%