Mortgage Professional Australia issue 14.11

NON-CONFORMING LOANS A SECTOR BEING TRANSFORMED

BY TECHNOLOGY WILLIAM LOCKETT AGGREGATOR WITH A PERSONAL TOUCH

MPAMAGAZINE.COM.AU ISSUE 14.11

DISCOUNTED RATES WHY SOME CUSTOMERS ARE LOSING OUT

T N E D N E P E D N I KERAGEES T S B BRO ROM THE

0 1

TOP INN

D N A N O I T A V O

F E C I ADV

CONTENTS / MPA 14.11

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42

NEWS 4 | News and tips Intelligence and tips for the cutting-edge mortgage professional 10 | News analysis Commission vs service: what brokers really think

WEEKLY INVESTIGATIONS NOW ONLINE 30-second round-up The week’s product updates, every Friday Movers and shakers Arrivals and promotions in the industry, last Monday of every month Lenders wanted Our popular weekly loan scenario returns MPA TV Aggregators roundtable videos and much more mpamagazine.com.au

56 | YM data The latest statistics from MPA sister site Your Mortgage 62 | Discounted rates Not everyone is enjoying the good times

BUSINESS STRATEGY 54 | Networking Books are the forgotten marketing tool

MORTGAGE INSIDERS

COVER STORY 18 | Top 10 Independent Brokerages 2014 Find out how Australia’s leading brokerages stand out from the crowd

61 | Day in the life Join FAST CEO Brendan Wright on his morning cycle and evening flight

34 | Kelly Cameron-Tull Queensland Top 100 broker on her unorthodox career path

Non-conforming loans

How specialist lenders are raising their game

58| Motivation Why your health and your time are your business’s greatest assts

14 | William Lockett The chief of Specialist Finance Group on being an aggregator with a difference

FEATURES

FEATURES

64 | Favourite things Vodka, tonic and some red meat hits the spot for Interim Finance’s Andrew Littleford

38

BUSINESS STRATEGY

Leadership

How to leave ordinary behind

NOVEMBER 2014 | 1

EDITOR’S LETTER / 14.11

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AND NOW FOR SOMETHING COMPLETELY DIFFERENT It’s nice to think that simply being good at your job makes you stand out from the crowd.

However, given the current level of competition, this view may be a little naive; if everyone does traditional broking well, how do you stand out?

This month I’ve been talking to industry professionals who do things differently, whether they be brokers, aggregators or lenders. For the average broker, the price of standing out is leaving your comfort zone. Yet the barriers to experimentation may be lower than you think, whether it’s specialist lenders ditching policy guides in favour of intelligent software, alternative aggregators offering flexible commission structures, or micropublishers who are making books a realistic marketing tool.

Don’t take it from me – read the examples of Australia’s leading independent brokerages. Whatever your side of the independent/ franchise divide, independent operations have an ability to experiment that puts the best at the cutting edge of this industry’s development. When talking to them, experimentation and innovation were constantly reappearing themes; the Top 10 is no place for those who sit on their laurels.

It’s easier than ever to try something different, but great brokers make experimentation a standard part of their business, day in, day out.

Sam Richardson, editor, MPA

2 | NOVEMBER 2014

COPY & FEATURES

EDITOR Sam Richardson PRODUCTION EDITORS Roslyn Meredith, Moira Daniels CONTRIBUTORS Sarah Megginson, Karen Gately, Roland Hanekroot, Blaise van Hecke

ART & PRODUCTION

SR. GRAPHIC DESIGNER Red Redrico DESIGN MANAGER Daniel Williams

SALES & MARKETING

NATIONAL SALES MANAGER Rajan Khatak ACCOUNT MANAGER Simon Kerslake MARKETING EXECUTIVE Alex Carr TRAFFIC MANAGER Abby Cayanan

CORPORATE

CHIEF EXECUTIVE OFFICER Mike Shipley CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR Justin Kennedy ASSOCIATE PUBLISHER Rajan Khatak CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Sam Richardson +61 2 8437 4787 sam.richardson@keymedia.com.au

CONNECT

Contact the editor: sam.richardson@ keymedia.com.au

Printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry

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ROUND-UP / NEWS AND TIPS

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ROUND-UP / NEWS AND TIPS

UNDERSTANDING BUSINESS CHALLENGES:

THE VUCA METHOD

VUCA stands for Volatility, Uncertainty, Complexity and Ambiguity – four different situations any business will encounter, requiring four different approaches

HOW WELL CAN YOU PREDICT THE RESULTS OF YOUR ACTIONS?

HOW MUCH DO YOU KNOW ABOUT THE SITUATION?

AMBIGUITY

UNCERTAINTY

• Characteristics

The causes of your problems are completely unclear, and you’ve never faced these problems before.

You face ‘unknown unknowns’

• Example

You’re just started marketing your brokerage on social media

• Approach

Experiment. Try different methods, and see how they affect traffic to your website and actual lead generation

COMPLEXITY

• Characteristics

You only know the basic cause and effect of an event, but have no other information on how it will impact the market

• Example

A lender launches a new SMSF product with great features

• Approach

Invest in information – read reports, read MPA and compare with other lender offers. It also helps to build research into your business structure, by subscribing to useful sources of information and having a staff member check these regularly

VOLATILITY

• Characteristics

• Characteristics

• Example

• Example

You have a number of problems with a number of causes. Information is available, but you don’t have the time or ability to make sense of it You run a diversified brokerage, doing very different types of business with very different clients

• Approach

Restructure, by hiring or developing specialist brokers in each field. Back them up with other resources; some brokers have technical experts (i.e. quantity surveyors) in office

An unexpected event creates instability in the market for an unknown duration. Although it’s unexpected, the event can be understood, and additional information is available Banks cease to pay trail commission

• Approach

Invest in the business, to make it more shockproof. In this case, you need to look into fee-for-service options, and perhaps invest in lead generation techniques if you feel your fees will struggle to compete

Source: Adapted from a structure developed by Nathan Bennett, Professor at Georgia State University’s Robinson College of Business and G. James Lemoine, Doctoral Candidate at Georgia Institute of Technology’s Scheller College of Business.

4 | NOVEMBER 2014

ROUND-UP / NEWS AND TIPS

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ROUND-UP / NEWS AND TIPS

FIRST HOME BUYERS’ MISERY INCREASES

FIRST HOME BUYER

NUMBERS

Competitive rates alone won’t solve first home buyers’ problems For all the talk of Australia’s property boom, firsttime buyers continue to be the market’s ‘dark underbelly’.

Or perhaps that should now be renamed ‘open sore’; the situation of first-time buyers is getting worse, not better, two recent reports show.

In the June quarter the number of loans to first time buyers increased, yet their proportion of the total market fell. Adelaide Bank/REIA’s report shows that the proportion of first home buyers fell from 12.8% in the March quarter to 12.7% – and although that doesn’t sound drastic, bear in mind the long-term average is 19.7%. In August, first-time buyers comprised just 9.5% of all AFG-processed loans made in August – the lowest such figure since June 2010.

Of course the plight of first-time buyers is easily forgotten, and AFG’s September report suggests why. Of the $3.9bn worth of loans processed by the company in August, $324m were for first-time buyers – less than a quarter of the $1.5bn arranged for investors. This came in a month where some lenders’ fixed rates reached historic lows.

What’s to blame? AFG sales manager Mark Hewitt

attributes these numbers to the withdrawal of home buyer grants in NSW and Queensland in 2012, and Sydney’s rising property prices. “This represents a double-whammy for first home buyers,” he explained. “It also has important socio-economic implications when, even with interest rates at historic lows, people can’t afford to get on the property ladder.”

REIA president Peter Bushby called for the return of First Home Owner grants, and also added that the uncertainty surrounding the Federal Budget is putting off first home buyers more than most: three quarters said they would hold off buying until they see the budget’s impact.

The overall message is clear: first home buyer performance is not responding to the usual stimuli; affordable loans are no substitute for utterly unaffordable properties. This is hardly helped by structural uncertainty at a federal level, and varying support at a state level. Brokers specialising in first home buyers in the most expensive and least supportive areas – i.e. NSW – should be seriously worried.

In NSW, firsttime buyers comprised just

7.5%

of new loans

Affordability has increased

BY ONLY

0.1%

(since 2013)

WHERE FIRST HOME BUYERS DO BEST ACT is the most affordable state, where mortgage repayments are

19.8%

of income

SA is getting cheaper fastest, where mortgage repayments dropped 0.3% to 27.1% of income

TAS recorded the largest increase in loans to first home buyers, jumping

26.6%

However, the number of loans to first-time buyers increased by

10.4%

Sources: Adelaide Bank/REIA Housing Affordability Report June Quarter 2014 / AFG Mortgage Index September 2014

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ROUND-UP / NEWS AND TIPS

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ROUND-UP / NEWS AND TIPS

EXCITING DEVELOPMENTS IN CONSTRUCTION

A recovering sector is moving away from mining and towards residential construction, fuelling business for brokers, figures for August show

NEW ORDERS UP (the highest level in 9 months)

50.8 POINTS July

55.7 POINTS

August

APARTMENT CONSTRUCTION UP

51.9 POINTS July

64.9 POINTS August

ENGINEERING CONSTRUCTION DOWN

47.2 POINTS July

43.7 POINTS

August

Source: figures refer to the Australian PCI Index report, September 2014

8 | NOVEMBER 2014

NEWS ANALYSIS / COMMISSION VS SERVICE

NEWS ANALYSIS /COMMISSION VS SERVICE

Generous commission

or superior service

Which is more important?

As a number of lenders announce improved commission incentives, brokers are left pondering: does service still matter, or should they go for a larger slice of the commission pie? Sarah Megginson investigates In a perfect world, of course, the answer is both. Brokers would ideally like to work with responsive lender business development managers, setting clients up with suitable mortgages that settle without complication and on time, all while raking in ‘cream of the crop’ commission cheques.

In practice, however? Well, achieving all of these goals with the one lender can be easier said than done.

Perhaps that’s why banks and lenders appear to be more understanding of the value and opportunity that brokers offer, with several increasing the financial compensation they offer for bringing a six or seven figure deal to their door.

Earlier this year, Westpac boosted its upfront commission to aggregators by 10 to 15 basis points, and Australian First Mortgage increased trail commission on its Alliance program to 0.25%.

Suncorp has increased upfront commission payments from 0.50% to 0.65% effective as of 1 August, and from October, NAB will start to pay brokers a 0.15% trailing commission in the first year of new loans, compared with zero today.

CommBank was mid-review at time of print.

10 | NOVEMBER 2014

“Intense competition is driving interesting changes to commission structures from some lenders,” says Fons Caminiti, senior manager, broker distribution for Adelaide Bank. “We have one of the most flexible commission structures available to our partners and their members, so our partners get to choose which option best suits their business model.”

CASHING IN ON COMMISSION HIKES Low interest rates, strong consumer confidence and fierce competition in the mortgage market is bringing record levels of buyers – from first-timers to baby boomers, and everyone in between – to the home finance table.

This is prompting lenders to lift their game, particularly in the area of mortgage commissions.

Banks and lenders are increasingly boosting both their upfront and trail commissions in an effort to attract greater market share, according to the latest J.P. Morgan Australian Mortgage Industry Report.

“Banks have become more reliant on brokers as an essential pipeline for new business,” explains Martin North, principal of Digital Finance Analytics, who collaborated with J.P. Morgan to produce the report.

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“They’re very keen to grow their lending book, and credit growth is growing much more slowly than house price growth, which is fostering a very competitive environment.”

Having only ever sourced mortgage applications from brokers, Murray Cowan, managing director, Better Mortgage Management, says they have always structured their products and commissions to appeal to the broker market.

“But with brokers now originating over 50% of mortgage finance, it’s no surprise that other lenders are also now making brokers more of a priority,” he said.

It makes commercial sense to incentivise brokers, as it is often cheaper for banks to write a loan via a broker, compared with the internal first party channel of the branch, North adds.

But those extra dollars, which are being directed towards brokers in boosted commissions rather than to consumers with out-of-cycle rate cuts, may be going to waste – as it appears that money alone is not enough to drive brokers to funnel borrowers towards one bank over another.

THE HOLY GRAIL: FOUR-HOUR TURNAROUND Generous commissions and prompt service are always well-received, but it’s the lenders that go the extra mile when it really counts that brokers truly value.

For Josh Bartlett, mortgage broker at Loan Market, it’s the ability to get a same-day response that he says delivers a true market advantage.

“I can get a guaranteed four-hour turnaround time with one lender,” he explains. “They might not pay the best commission, but I like to give my customers some absolute comfort around their approval, rather than think about what bank is going to pay me the best trail.”

His views reflect those of many brokers, and they’re not lost on Steve Kane, broker general manager for NAB, one of those lenders to have recently announced a commission increase.

Kane says that while there is “no magic bullet” to instantly reduce processing times, the bank has long been working on improving their response rates.

“Working on our turnaround speeds has been a gradual process, as it’s really about looking at how the loan process works for brokers on a practical, daily level,” he confides.

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“With brokers now originating over 50% of mortgage finance, it’s no surprise that other lenders are also now making brokers more of a priority”

NOVEMBER 2014 | 11

NEWS ANALYSIS / COMMISSION VS SERVICE

NEWS ANALYSIS /COMMISSION VS SERVICE “When we look at our broker proposition, we’re looking not only at the product and rates, but also where we can make sure we can tighten our processes, deliver a competitive product, as well as better, faster service to make sure our brokers and their clients are happy.”

BOOSTING BDM SUPPORT Increasing the level of support on the ground is precisely what some banks and lenders are doing.

In September, Suncorp Bank announced that it had appointed seven new business development officers, while Adelaide Bank is also investing in staff training and development.

“To improve our service offerings to brokers, we’ve focused on our staff. We’ve worked to get the right people into roles supporting brokers and we’ve invested in their training and development, along with providing them the tools they need to deliver,” confirms Caminiti.

“The reputation of our brokers and their customers sits on our shoulders, so we work to support them to ensure our accurate and timely touch points, from the time a loan is submitted through to the settlement and just as importantly beyond.”

Non-bank lender Homeloans Ltd has also recently appointed two new BDMs, Jasmine Kourouche and Leon Stern, to its New South Wales team.

“At Homeloans Ltd, our service proposition to brokers is accessibility, consistency and convenience,” explains Ray Hair, Homeloans’ general manager national sales.

“Experienced BDMs and local credit managers who are available to brokers on a deal-by-deal basis provide a level of service and individualised assessment, which ensures we’re working with our broker partners to meet client needs.”

While admitting they are always on the hunt for ways to leverage technology and process improvement to attract and retain brokers, Hair is currently focused on delivering an application process that delivers long-term benefits to brokers and their clients.

“Across the industry, there has been an increased focus on credit scoring and credit reporting, and as a consequence borrowers need to be more aware of the detrimental impact of multiple credit enquiries,” Hair says.

“We’ve improved our credit assessment and broker liaison processes to be more efficient and 12 | NOVEMBER 2014

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TOP 3 BROKER WISH-LIST 1. Clawback reform “Keeping in contact with my clients after settlement to make sure they’re still happy with their situation is a big part of my job. However, if I ring a client a year later and they tell me they’ve found a bank with a better rate and they would like to refinance their loan, I can get clawed back if I help them refinance,” says Josh Bartlett, mortgage broker at Loan Market. Reform to the rules around commission clawbacks would be welcomed, so brokers can help their clients make the best decisions for their situation without “getting penalised by clawbacks for doing so”.

2. Faster turnaround times Bartlett points out that it’s not just when processing the loan application itself that brokers – and their clients – require feedback from lenders. Pre-application services such as property valuations or LMI premium calculations are often deal-breakers for would-be borrowers, which is why “turnaround time when it comes to getting answers from the bank is important”, Bartlett says. “I value a lender whose BDM is honest, proactive and can get back to me promptly with an answer. Banks should invest in solid training for their BDMs before investing into new commission structures.”

3. Fair play “We’ve had a number of members telling us that bank branch managers have intentionally tried to influence their clients to switch to bank products directly, bypassing the broker who introduced the client to the bank in the first place,” says Peter White, FBAA chief executive officer. “If the banks truly... want to increase broker business, then they must educate their branch managers to support brokers, not intentionally try and claim brokers’ clients.”

effective, so that both brokers and their customers benefit.”

Although some lenders are increasing their financial incentives, it appears that alone won’t be enough to sway brokers in their direction, unless their position is backed up with improved service levels.

The best incentive a bank can offer, adds Smartline mortgage broker Rebekah Gould, is teamwork.

“It is my job as a broker to understand my clients and educate them so they can make informed decisions,” she says. “Therefore, I want a lender who wants to join our team – so when a client makes a decision about which bank will finance their home loan, we all have very sure expectations about what is going to happen each step of the way.”

HEAD TO HEAD / WILLIAM LOCKETT

HANGING ON THE TELEPHONE Not many aggregator chiefs these days will talk directly to brokers, but William Lockett, managing director of Specialist Finance Group, insists it makes all the difference 14 | NOVEMBER 2014

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MPA: You pride yourself on being directly contactable by your members – how can they benefit from this access?

MPA: Can you realistically compete with large aggregators when it comes to offering backoffice IT and CRM systems?

William Lockett: The ability and accessibility of our members to contact me directly gives great comfort to our members in that they can deal if required directly with the owner of the business.

This normally ensures quick answers and resolutions which supports our members without the need for their queries to be referred to other parties or a board structure which takes greater time and is simply not that flexible. Our members can ring or email me directly as I am a full-time managing director. You can argue with me over a particular matter. More and more people like that over the last three years, given the erosion of aggregators’ independence.

WL: If anything, being of a more boutique aggregator ensures that we have time and staff to support all our brokers in all aspects of their business from assisting with loan scenarios to commission queries. Our growth in the last 2-3 years has been from brokers who have left and transferred from larger aggregators as they feel as though they do not get the general support from the large aggregator and they have simply become a number in their system. We have received great feedback from these new members who have advised us that they have received more support from SFG than what they received from their previous aggregator and again the fact that they can deal directly with the owner of the aggregator makes them feel significantly more important in their business relationship with an aggregator.

MPA: What do you think brokers want most from aggregators?

WL: First of all I think what brokers want from an aggregator is flexibility to be able to provide them with the suitable support structure that they feel is best for their business and not what the aggregator thinks is best. With SFG our members are given the flexibility they require as some brokers require more assistance than others and this is also reflected in the flexible aggregation agreements we have available. Brokers also want a suitable and easy to navigate software system, a reliable commission payment system, accessibility, flexibility and a guarantee from their aggregator that their client and database is theirs which is protected and no third party will cross-sell to them. They also want protection of their trail income.

MPA: What sort of brokers could benefit most from Specialist Finance Group’s offering?

WL: In our current membership we have a wide range of large brokering companies and medium to small groups through to individual loan writers.

Again the flexibility in our aggregation model which offers four unique models [of commission] allows the brokering group/brokers to achieve the best possible option that is available for them today.

Our growth in the last 2-3 years has been from brokers who have left and transferred from larger aggregators as they feel as though they do not get the general support from the large aggregator MPA: What sort of training and professional development support can you offer?

WL: Regular professional development days as well as software training through symmetry to one on one sessions with bank BDMs are all part of the service SFG can offer. Compliance audits are also beneficial to our members.

NOVEMBER 2014 | 15

HEAD TO HEAD / WILLIAM LOCKETT

WILLIAM LOCKETT’S CAREER TIMELINE

MPA: Is diversification now essential for brokers, and how are you supporting brokers who want to diversify?

WL: Whilst diversification is certainly an add on to all our members’ businesses, it is very important that they have “bedded” down their core business first. Once established, accountants and financial planners are an important outsource and many of our members are now enjoying their relationships through diversification.

MPA: What do you see as developing trends in broking – and does Specialist Finance Group have any plans in these areas?

1979

Leaves school at the age of 15 and takes up job in a kitchen

1983

Earns Diploma in Credit Management

1989

Sells catering business and joins Collier Constructions

1996

Investment and Development Consultant at Dale Alcock Building Group

2002

Joins Specialist Finance (then Specialist Mortgage)

Greatest achievements “One of the greatest things I’ve done is the rebranding of our business from Specialist Business to Specialist Finance Group. It’s always been a baby of mine, something I’ve wanted to do... now being the sole owner of the business, we can take up a much clearer direction moving forward” Lockett is also a proud father of three

16 | NOVEMBER 2014

WL: As above, diversification into financial planning and accountancy groups are seen as important and we can assist brokers in finding these sources. We assist all members with the diversification as required but the greatest support all brokers generally require is better relationships with their existing database that will firstly see their primary business of finance broking improve, and when that main part of their business is running successfully we suggest and assist with any plans to diversify their business model.

At the end of the day you can’t ring up Mr PLAN; you can’t ring up a Mr AFG; you can’t ring up a Mr Connective.

That’s the difference MPA: Is consolidation in the industry, particularly banks acquiring aggregators, a huge concern for you?

WL: Not at all – by staying independent we are allowing our members to look after their own clients without any “Big Brother” potential of cross selling and third party preferential lending. In fact, we can say that our business has grown alongside consolidation within our industry as a number of

BROKING FOR AUSSIES LIVING ABROAD Specialist Finance Group has brokers in offices worldwide, helping Aussies who live abroad but want broking services. Here’s Lockett’s top tips for this type of business: 1.

Distinguish between borrowers who work abroad, and those who actually have their permanent address abroad: this is what makes the big difference

2.

You’ll have fewer lenders to deal with: learn their views on foreign incomes and foreign tax laws

3.

Be careful when converting foreign currencies in Australian dollars, and don’t forget about Australian tax rates

This type of business can be very lucrative: broker Helen Avis, based in Singapore, has been St.George’s Top Broker for two years running

our new brokers/members have clearly stated that they do not wish to be with a major corporation that has an ownership structure where there is bank involvement.

MPA: How important would you rate evolution and providing new services in terms of Specialist Finance Group’s brand?

WL: We have just gone through an evolution with our rebranding and letting members and the public know that we are now a “Complete one stop” aggregator with several offerings and a flexible approach.

MPA: Specialist Finance Group also has offices in South-East Asia – how and why did you expand in this region?

WL: There was a definite market for Australians living overseas looking for an accessible and compliant group in assisting them purchasing Australian property on foreign incomes. We opened our Singapore office and we quickly saw the great potential in this area which now sees us doing major volumes for ex-pats living abroad. This

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Whilst diversification is certainly an add on to all our members’ businesses, it is very important that they have “bedded” down their core business first growth has seen us open offices in Hong Kong, Dubai and London and again this is for the same reason. We also have business partners abroad which look after the tax returns for all Australian citizens living abroad.

SPECIALIST FINANCE GROUP’S BUSINESS Composition 75% residential finance, 20% commercial and 5% for plant and equipment finance

Performance Settlements have increased by 30% over the last two years

Location Staff across Australia (excluding NT) plus offices in Singapore, Hong Kong, Dubai and London

MPA: Is a different approach required by brokers dealing with foreign investors? How can you support them?

these matters and deal with a lending institution that is also experienced within this field.

WL: Dealing with foreign investors and ex-pats is a completely different spectrum for our finance brokers/members. Not only is there a cultural difference, at times there is a language barrier and then of course they are submitting deals outside of Australia back to Australian financial institutions.

They have to deal with a large degree of different issues which also includes different income and tax systems therefore they need to be fully versed on

MPA: Could you explain in one sentence what is your unique value proposition?

WL: The value of any member being able to deal directly with the owner of the aggregator on any level and to achieve the most flexible aggregation agreement that best serves their requirement. At the end of the day you can’t ring up Mr PLAN; you can’t ring up a Mr AFG; you can’t ring up a Mr Connective. That’s the difference.

NOVEMBER 2014 | 17

SPECIAL REPORT/ TOP 10 INDEPENDENT BROKERAGES

TOP 10 INDEPENDENT BROKERAGES AUSTRALIA’S STANDOUT INDEPENDENT BROKERAGES TELL US HOW THEY’RE TURNING OPERATIONAL FREEDOM INTO BUSINESS INNOVATION

18 | NOVEMBER 2014

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T

o find the next big thing, you need to find the true innovators. Too much attention in this industry is lavished on big names, big players and vertical integration, and it can become tempting to assume these developments will define the businesses of the future. But big things can come from small beginnings, and this is where independent brokerages step in.

If this year’s Top 10 Independent Brokerages had to be defined by one word, it would be ‘flexibility’. Providing customers with a solution, not just a service, can be far easier when you’re free to experiment and innovate, without being held down by procedures. These brokerages are vanquishing old demons – back-office costs, effective marketing, hiring – through a continual process of trial and error.

However, this survey also shows that independent brokerages don’t succeed without support. Many pointed to their relationships with their aggregators as a vital component in their success. This suggests that those dealing with independent brokerages should take an active part in growing these businesses, and should be as flexible as the brokerages themselves.

Read on for innovative approaches and essential tips from Australia’s leading independent brokerages. If you turn to the middle of this feature, you’ll find a special spread covering the big issues – diversification, contacting clients and hiring are all covered. And if you are looking for the next big thing, well, we’re betting you’ll find it here.

A MESSAGE FROM OUR SPONSOR NAB Broker is proud to sponsor the 2014 MPA Top 10 Independent Brokerages report, in support of Australia’s independent brokerages.

The success of independent brokerages is a true testament to the professionalism of the broking industry, as well as the ability of brokers to adapt in an ever-changing market. We know it takes a lot of hard work, industry expertise, and dedication to excellence in service to build a successful independent brokerage, which is why we value the role brokers play in nurturing the direct relationship with the customer.

It’s also important to recognise what independent brokerages have contributed to the third-party lending channel. Many independent brokerages have paved the way for the evolution of our industry by pioneering growth of residential and specialist lending, and this has changed the role of the broker as we know it today.

Your innovative business strategies and commitment to delivering better outcomes for your clients also inspires us to deliver our best as a lender.

We’ve made significant improvements when it comes to our service and product propositions, and we will continue to listen to our broker partners to ensure we meet the needs of your clients. As a recent example, our rebrand and first-year trail are both changes designed to show our long-term commitment to the broker channel.

To be recognised as one of the top 10 independent brokerages in Australia is a major achievement, and we wish you all continued success in your business.

From everyone at NAB Broker, congratulations and thank you for your hard work and support.

Steve Kane General manager, NAB Broker

NOVEMBER 2014 | 19

SPECIAL REPORT/ TOP 10 INDEPENDENT BROKERAGES

9 JOINT

HOME LOAN EXPERTS Began in 2006 / Main client base in Sydney / Managing director Otto Dargan lender and if the lender has any influence as to where their brokers submit business.

Are back-office costs a major concern for you?

Absolutely, this is a challenge for anybody trying to make the shift from being a small business to a big one. You need to invest a lot of time and money up front before you get the economies of scale that come with a larger business. We have Connective as our aggregator and we benefit from their systems, we use off-the-shelf technology wherever possible, we focus on quick wins, and we get expert help where it is needed.

Total loan book

$752,316,785

Total settlements 2013/14

$344,802,852

Number of brokers/loan writers

9

Average annual volume per broker

$38,311,428

What have you changed over the last year to bring you success?

What is the key to reaching potential customers on a limited budget?

We’ve changed our business from thinking like a small business to thinking like a big business.

Firstly that means promoting a lot of people. We had a flat management structure and all of our managers were spread too thin to do their job effectively. … we [also] hired a large number of experienced people as brokers. It’s much easier for us to hire now because good people often find us or have heard of us before.

Working with your past clients will always be the best way to get more customers. To be honest, we can improve in this area so we’re starting a dedicated team to assist our existing clients …

We’ve tried many approaches and found seminars also work well. We occasionally run seminars to educate first home buyers about how to buy a home.

As a broker, how do you benefit from being outside the franchise system?

By being outside [a franchise] we’ve been able to innovate quickly. We don’t have any boundaries stopping us from marketing, selling or operating in our own way. We like to try lots of ideas quickly, then kill off the ideas that aren’t working and invest more time in the ones that are.

How do your customers benefit from you being an independent brokerage?

Conversion rate

81%

20 | NOVEMBER 2014

Firstly we can deal with any lender that can deal with us … Secondly, we don’t have anyone influencing which lenders we do business with.

I think most brokers are professionals and put their customers first. However, it does concern some customers if a franchise group is owned by a

Is it getting harder to succeed as an independent brokerage?

The industry is becoming more complex and competitive all the time. However, technology allows you to become more efficient with it. I talk to a lot of other independent brokerages that are successful, and share ideas with them. We all have the same challenges and usually someone has overcome them. I think it is easier to be an independent brokerage now as our industry is well established.

What would you say to a broker looking to set up an independent brokerage?

Being independent means setting up your own systems, processes and marketing. If you can’t do it better than the franchises, then stay with a franchise. If you can, then go for it!

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9 JOINT

ACCEPTANCE FINANCE Began in 2002 / Main client base in Vic/NSW/Qld / CEO Daniel De Conza

Total loan book

$1,050,000,000

Total settlements 2013/14

$221,000,000

Number of brokers/loan writers

11

Average annual volume per broker

$20,090,909

Conversion rate

88%

What have you changed over the last year to bring you success?

What is the key to reaching potential customers on a limited budget?

A year ago we had some key personal changes which made us take a closer look at our business.

We looked at where our business came from, how we processed it and how we allocated funding.

The review took a few months and we ended up with a business model that brought our clients, credit advisers and the business’s goals into alignment. With all parties working towards the same objective, we have been able to make major changes to fundamental parts of our business without causing much disruption. This has delivered us improved productivity, a better working environment and more satisfied clients.

I believe your clients should also be your biggest advocates, and getting referrals from your clients is a very efficient way of getting new customers.

The key is great service; a customer is much more likely to refer someone to you if the experience they received exceeded their expectations. There is, however, a cost in delivering great service.

Typically this is in the form of good back-office support. Good back-office support not only increases the efficiency of processing loans but can be the key to generating new clients and should easily pay for itself many times over.

As a broker, how do you benefit from being outside the franchise system?

Being independent you set your own course; you can create a business that suits what’s important to you. When we started the business a good work-life balance was important to a number of us who had young families. This balance is still a focus of our culture. As a result we have been able to attract and retain quality team members who share our values.

Are back-office costs a major concern for you?

They were for some time; however, I’m pleased to say they are no longer a major concern. We revamped our back-office support team, intro­ ducing strict procedures for both credit advisers and the support team, which has delivered us a significant increase in efficiencies and capacity.

Is it getting harder to succeed as an independent brokerage?

No, I don’t think so. Brokerages face similar challenges, and being independent can sometimes allow you to make decisions quicker, which can be an advantage.

What would you say to a broker looking to set up an independent brokerage?

Find your niche; don’t try to be everything to everyone. When starting out it is very easy to run around trying to get every deal across the line, but actually getting very little done. It is important to focus your energy on the type of business you are best equipped to handle. Sometimes saying no to an opportunity, or referring it to someone else, can be more beneficial than trying to do it yourself.

You need to write efficient business that allows you to provide your client with a positive experience.

NOVEMBER 2014 | 21

SPECIAL REPORT/ TOP 10 INDEPENDENT BROKERAGES

8 Total loan book

$1,146,870,543

Total settlements 2013/14

$270,748,525

THE LOAN ARRANGER Began in 1996 / Main client base in Adelaide / Director Steve Marshall What have you changed over the last year which may have contributed to your success?

We have employed two new brokers under a mentoring program. Brokers have increased their marketing activities.

As a broker, how do you benefit from being outside the franchise system?

As an independent brokerage we have invested in our brand. We have been advertising on the radio in excess of 10 years, creating awareness and credibility.

How do your customers benefit from you being an independent brokerage?

We have a core group of experienced brokers who work together on a collaborative basis to get the best outcomes for our clients.

Are back-office costs a major concern for you?

Number of brokers/loan writers

15

Average annual volume per broker

$18,049,902

We have certainly increased our overheads since online lodgement was introduced. The data input has become time-consuming and added to the workload. We have increased our staff by two, adding to our overheads.

What do you look for in new brokers?

What is the key to reaching potential customers on a limited budget?

We are strong believers in face-to-face marketing to attract customers; we mix our approach with marketing to referral sources, keeping in touch with regular newsletters and an ongoing radio campaign. We have opted out of print media, for social media.

Have you diversified? Are you planning to?

Conversion rate

93%

22 | NOVEMBER 2014

Our core business continues to be home loans.

However, in today’s market it is important to be across all segments. We have an equipment finance arm. We have specialists in commercial lending, self-managed super fund lending, and we have a financial planner linked to our business.

Young people with good personalities and sales skills. We believe we can provide the technical skills and marketing advice and direction.

Is it getting harder to succeed as an independent brokerage?

We have been operating for nearly 20 years. Our company has been very consistent as an established business. Succeeding into the future is directly linked to increasing broker numbers. It is not easy to find good young, quality people to enter the market.

What would you say to a broker looking to set up an independent brokerage?

Take a long-term view.

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7 Total loan book

$1,000,000,000

Total settlements 2013/14

$457,000,000

Number of brokers/loan writers

16

Average annual volume per broker

$28,562,500

THE LOAN COMPANY Began in 1999 / Main client base in Perth / General manager Simon Kahl What have you changed over the last year which may have contributed to your success?

The WA construction market was accelerating last year so we quickly invested in recruiting a number of brokers and support staff to ensure that we were in a position to leverage off the increased business. There was a two-month period late last year where we recruited seven new staff. Over the last two years our team has also grown from nine brokers to 19 brokers … We continue to invest time and effort into broker support to upskill our staff, and constantly tweak and improve our process flows. We have also established a career path where new recruits wanting to become brokers will work in the support team for 12 months prior to becoming a trainee broker.

Are back-office costs a major concern for you?

As in all businesses they are a concern, but our primary concern is providing a flawless service proposition to the clients building through the various builder groups that we look after under the BGC banner. Separate to the above, BGC has 4,500 employees, so we also have the advantage of leveraging of a range of shared services, including IT, human resources, legal and payroll.

I prefer to look at back-office costs as more of an investment, for the most part. With the right procedures and support being made available to reduce the workload of the loan writers, they are then able to spend that time writing additional business while our specialised team carries on servicing our clients in the most professional way possible.

What is the key to reaching potential customers on a limited budget?

Conversion rate

72%

Like all broking groups we rely heavily on referral business, with word of mouth always being the most cost-effective and most powerful referral tool. For this reason there should be a constant focus on a client’s needs and overall experience from start to finish to encourage the referral business. However, I believe it’s equally important to have an innovative and effective database management system that properly keeps your

existing clients up to date to increase client retention. AFG’s SMART marketing software provides the perfect tool to allow this to happen.

Is it getting harder to succeed as an independent brokerage?

Any brokerage company is only going to be as strong as its core group of personnel. If you have the right mix of people who complement each other professionally and are willing to pull together and work as a team towards a common goal, then success would almost certainly follow.

It does help, however, to work under a powerful aggregator such as AFG, as you pick up the benefits of the investment that goes into their aggregator model.

What would you say to a broker looking to set up an independent brokerage?

Ensure you are confident with where your business is going to come from, and choose your aggregator well, as a strong and supportive aggregator partnership is crucial if you opt to be independent.

NOVEMBER 2014 | 23

SPECIAL REPORT/ TOP 10 INDEPENDENT BROKERAGES

WHAT AN ELITE

INDEPENDENT

BROKERAGE CONTACTING CLIENTS Don’t believe the social media revolution just yet: the phone is the most popular method of contacting clients among these brokerages. However, e-newsletters and social media are also strong performers, in particular Facebook, LinkedIn and the Chinese-developed social network WeChat.

E-newsletter

What top independent brokerages look for in a new broker “We look for those that may not have the traditional banking background, but may come from corporate, institutional or planning backgrounds ... We are looking for those that are willing to learn, are willing to sit in 300 plus interviews with Mark Davis and Kevin Agent to see how the best investment lending managers in the country operate.”

– Australian Lending and Investment Centre “A couple of years ago we introduced a three-step interview process that involves meetings with management, our business coaches and staff. This approach has ensured we only recruit the right people to our business.”

– Acceptance Finance “The number one attribute must be a ‘can do’ attitude. Then the other traits required are a willingness to work in a team; a resilience for knock-backs; being personable and a good networker; good organisational and time management skills.”

– In Mortgage and Finance Services

Postal newsletter Phone Tex t Cards Social media

0

2

4

6

8

10

HIGH CONFIDENCE

9/10 24 | NOVEMBER 2014

HIRING NEW TALENT

BROKERAGES ARE PLANNING TO HIRE STAFF OVER THE NEXT 12 MONTHS

“Firstly we look for people with drive. I can’t teach someone to want to be the best at what they do. Next we look for intelligence.

If they can’t recommend the right loan or their applications get declined, then they don’t belong in our company ... Lastly we look for a great attitude.”

– Home Loan Experts “The ability to develop a personal relationship with a client, to be able to empathise with them as they go through the process and ensure that they are looked after personally from start to finish, is, in my opinion, one of the most important things a good broker can do.”

– The Loan Company

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DIVERSIFICATION STRATEGIES How many services do the top brokerages offer?

Which services are the most popular?

NO. OF SERVICES

Residential finance Commercial finance Equipment finance Financial planning Insurance Other 0

2

4

6

8

10

6 4 2 0

1

2

3

4

4

6

7

8

9

9

RANK

Why you should “We have diversified by bringing vehicle and equipment finance and financial planning in-house but also by creating a network of financial planning, accounting, legal and property services that we can refer our clients to. I believe it’s important to be able to provide your clients with solutions to all their financial needs, whether in-house or a referral to a trusted firm.” – Acceptance Finance Why you shouldn’t “Concentrating on doing what you do well and focusing on core capabilities is vital. If you do not offer services such as financial planning, ensure you have strong referral relationships to cover the gaps.” – Oxygen Home Loans

METHODOLOGY To compile this Top 10 list, we went out to aggregators and asked them to nominate their highest-performing independent brokerages. We only accepted nominations for clearly independent brokerages whose numbers had been verified by their aggregators.

We also took the decision to limit nominations to brokerages of five or more loan writers. Although there are plenty of excellent independent operators out there, this feature is about broker cooperation and running productive offices, not about individual broking tips. For those, see our next issue, 14.12, in which we profile the Top 100 Brokers.

The ranking of brokerages resulted from a combination of metrics. These included total loan book value; performance over the last financial year; average volume per broker/loan writer; and conversion rate. Of these, we placed particular emphasis on last year’s performance: we wanted to celebrate established brokerages that had continued to improve their businesses.

Total loan book ($)

Total settlements 2013/14 ($)

Number of brokers

Average volume per broker ($)

Conversion rate (%)

Rank

Brokerage name

1

Australian Lending & Investment Centre

1,318,055,924

537,618,577

6

89,603,096

92

2

Tiffen and Co.

1,673,333,373

407,367,528

7

58,195,361

99

3

1st Street Home Loans

1,145,265,000

388,792,615

8

48,599,077

95

4

In Mortgage and Finance Services

933,651,126

216,726,592

12

18,060,549

95

4

Apple Home Loan

906,000,000

713,000,000

13

54,846,154

68

6

Oxygen Home Loans

1,600,000,000

607,000,000

24

25,291,667

54

7

The Loan Company

1,000,000,000

457,000,000

16

28,562,500

72

8

The Loan Arranger

1,146,870,543

270,748,525

15

18,049,902

93

9

Acceptance Finance

1,050,000,000

221,000,000

11

20,090,909

88

9

Home Loan Experts

752,316,785

344,802,852

9

38,311,428

81

1,152,549,275

416,405,669

12

39,961,064

84

Average

NOVEMBER 2014 | 25

SPECIAL REPORT/ TOP 10 INDEPENDENT BROKERAGES

6

OXYGEN HOME LOANS Began in 2002 / Main client base in NSW, ACT and Qld / General manager Alan Hemmings What have you changed over the last year which may have contributed to your success?

Working smarter, not harder, with our focus remaining on productivity and recruitment.

Total loan book

$1,600,000,000

Total settlements 2013/14

$607,000,000

As a broker, how do you benefit from being outside the franchise system?

The ability to drive our own business and maintain our own brand. The ability to make changes quickly and regularly where needed, or maintain the course if things are working well.

How do your customers benefit from you being an independent brokerage?

It is all about the customer; our key focus is on delivering excellent service to our clients without any distractions from a master.

Are back-office costs a major concern for you?

Number of brokers/loan writers

24

Managing costs should be a concern for any business, whether they are operational costs, marketing costs or acquisition costs. Under­ standing the value being generated in all parts of the business is part of building a sustainable business.

What is the key to reaching potential customers on a limited budget?

Average annual volume per broker

$25,291,667

Building strong referral relationships. We work with McGrath Estate Agents who deliver 50% of new business for our brokers. The team then utilise excellent service and ask clients for referrals, and also build referral networks with other businesses such as buyers’ agents, accountants and financial planners.

Have you diversified? Are you planning to?

Conversion rate

54%

No, concentrating on doing what you do well and focusing on core capabilities is vital. If you do not offer services such as financial planning, ensure you have strong referral relationships to cover the gaps.

What do you look for in new brokers?

Drive, passion and a will to succeed. The technical skills can be taught. However, the passion to own

26 | NOVEMBER 2014

your own business and drive it is vital; and the desire to want to be part of a larger business and leverage off the benefits that come with being part of a group.

Is it getting harder to succeed as an independent brokerage?

No – provided you have a strong business plan and understand your position in the market, any broker business can continue to succeed.

What would you say to a broker looking to set up an independent brokerage?

Understand what your offer is going to be and make sure it is relevant in today’s market. Also, ensure it is attractive to brokers: will you provide processing support, training or leads? Make sure you have strong systems in place (including compliance) and understand that this business is all about relationships, whether with clients or lenders.

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4 JOINT

APPLE HOME LOAN Began in 2005 / Main client base in Sydney / Senior lending manager Roger Guo

Total loan book

$906,000,000

Total settlements 2013/14

$713,000,000

Number of brokers/loan writers

13

Average annual volume per broker

$54,846,154

What have you changed over the last year which may have contributed to your success?

What is the key to reaching potential customers on a limited budget?

Customer focus, professional services and the team’s hard work.

Professional and customer-tailored services will let brokers get more referrals from clients.

As a broker, how do you benefit from being outside the franchise system?

Have you diversified? Are you planning to?

There is a freedom in business strategy for us to do business.

Conversion rate

68%

How do your customers benefit from you being an independent brokerage?

We provide independent mortgage product advice and choice for customers.

Are back-office costs a major concern for you?

Yes, but we try to minimise the cost.

No, we are trying to do that now.

Is it getting harder to succeed as an independent brokerage?

Not really. We mainly focus on our Chinese customers because we have a language advantage for that.

What would you say to a broker looking to set up an independent brokerage?

Try to build a high standard of professional service and customer service with clients.

NOVEMBER 2014 | 27

SPECIAL REPORT/ TOP 10 INDEPENDENT BROKERAGES

4

MPAMAGAZINE.COM.AU

JOINT

Total loan book

$933,651,126

Total settlements 2013/14

$216,726,592

Number of brokers/loan writers

12

Average annual volume per broker

$18,060,549

IN MORTGAGE AND FINANCE SERVICES Began in 1998 / Client base in Perth / General manager Lisa Corlett What have you changed over the last year which may have contributed to your success?

We have streamlined our sales process to create a more uniform IMFS customer experience, and also improved the efficiency of our back-end processes to improve the overall experience for the client.

As a broker, how do you benefit from being outside the franchise system?

We can tailor our marketing to our own client base, and additionally we can respond to our own clients when and how we choose to, given we do not have any rules or structures imposed by a parent company.

How do your customers benefit from you being an independent brokerage?

We can be more flexible with our responses to our clients. We can make all decisions quickly within our own business. We do not have another layer of bureaucracy that a franchise model presents.

Are back-office costs a major concern for you?

Costs are a concern for all businesses. We have a monthly board meeting where all costs are reviewed and all business plan initiatives are reported on for progress. This allows constant focus and attention on back-office costs and allows us to quickly adapt and change if budgets are not being met, or if costs are above budget.

What is the key to reaching potential customers on a limited budget?

An active and data-rich CRM system. This allows for regular and relevant touches to clients. An annual and ongoing marketing plan that is regularly reviewed and monitored for success is also required.

Have you diversified? Are you planning to?

Conversion rate

95%

28 | NOVEMBER 2014

depreciation schedules and settlements. In this way we can provide a very simplified finance transaction for our clients to prevent them having to do any running around to find all of these service providers.

Yes, we have a financial planner that sits in our business. We also have a commercial business broker who can do leasing, equipment finance, etc., and we have a car finance provider. We have referral arrangements for general insurance, property management, building inspections,

Is it getting harder to succeed as an independent brokerage?

No, I think it is getting easier. Consumers more and more are looking for independence, as they believe it is giving them the best options without any perceived hidden agendas. Clients are becoming far more educated in understanding the various options and benefits of different lenders and loan types. The independent brokerages present a more intimate and personalised service proposition which larger franchises and also banks struggle to provide.

What would you say to a broker looking to set up an independent brokerage?

I would tell an individual broker to come and work for us, to avoid all of the compliance and processing paperwork now required with mortgage broking.

We offer a full-support model for our brokers, so that they can concentrate on the next client and the next sale, whilst we provide all of the lodgement, follow-up and administration support required to make them look good.

SPECIAL REPORT/ TOP 10 INDEPENDENT BROKERAGES

3

1ST STREET HOME LOANS Began in 2003 / Main client base in NSW/Qld/Vic / Director Jeremy Fisher

Total loan book

$1,145,265,000

Total settlements 2013/14

$388,792,615

Number of brokers/loan writers

8

Average annual volume per broker

$48,599,077

What have you changed over the last year which may have contributed to your success?

Over the last year we have had a greater focus on financial planning as well as residential/ commercial mortgage broking. With highly experienced in-house financial planners, we have been providing clients with a greater level of service and a more diligent duty of care. We have also had a stronger online presence – our website is consistently high-ranking on search engines and we have over 10,000 followers on social media such as Facebook, Twitter and LinkedIn. This year we have more brokers and staff than ever before, including a new post-settlement client liaison department to continue to service and guide clients after their loan settlement and beyond.

As a broker, how do you benefit from being outside the franchise system?

As an independent brokerage we have complete control of our direction, our marketing, our systems and our future. This freedom also allows us to react quickly to any changes in the market, and to consistently meet our clients’ requirements.

How do your customers benefit from you being an independent brokerage?

Conversion rate

95%

As an independent brokerage we can respond to client feedback and requests immediately and do what is required to enable their transactions. We can be flexible and adaptable, going outside of regular operations to meet client requests.

Are back-office costs a major concern for you?

These costs are not a concern as such; the back office is a major part of our business model and it 30 | NOVEMBER 2014

enables us to offer an exceptional service. Our clients are our business, and we continue to evolve our operations to meet and exceed their requirements and expectations. A well-operating back office plays a large part in a successful brokerage.

What is the key to reaching potential customers on a limited budget?

One often overlooked yet highly effective way to reach potential customers on a limited budget is to be creative with your existing client base and find ways to tap into their networks. It is also important to have lots of touchpoints with clients and prospective clients throughout the year, and to stay front of mind. Communications such as newsletters, social media updates and emails are all low cost, instantaneous and effective.

Have you diversified? Are you planning to?

We have diversified in terms of offering a wider range of financial planning services. We now have two dedicated in-house financial planners, a car leasing specialist, and we were recently ranked 10th in the Top 10 commercial mortgage brokers in Australia.

What would you say to a broker looking to set up an independent brokerage?

New brokers can benefit from meeting with the owners of lots of different brokerages, both independent and franchise, and then decide how they’d like their business to be, decide on the core focus, and think about effective ways of attracting and retaining clients.

MPAMAGAZINE.COM.AU

2

TIFFEN AND CO. Began in 1995 / Main client base in ACT / Managing director Gerard Tiffen

Total loan book

$1,673,333,373

Total settlements 2013/14

$407,367,528

Number of brokers/loan writers

7

What have you changed over the last year which may have contributed to your success?

We haven’t changed much at all, to be honest. We stand by our original beliefs and genuinely care for our clientele which contribute to the continued success of our company.

It puts fewer limitations on us as a business. We have strong work ethics and can create our own company culture the way we want with our own direction and goals in mind.

How do your customers benefit from you being an independent brokerage?

$58,195,361

Being a smaller, boutique company, we can put more focus on our clients as individuals.

Are back-office costs a major concern for you?

No. We have great support staff whose average time at the company is over six years. And what they can do in nine hours amazes me ...

99%

No. We are good at what we do and want to continue to concentrate on that. We have had a risk insurance professional with us for three years now; however, this is more of a complement than it is diversifying.

What do you look for in new brokers?

As a broker, how do you benefit from being outside the franchise system?

Average annual volume per broker

Conversion rate

Have you diversified? Are you planning to?

Committed professionals with drive and enthusiasm.

Someone who can build relationships and has passion for what they do.

Is it getting harder to succeed as an independent brokerage?

Not in our business. We offer a point of difference and are a lot more than just a middle man. Our clients appreciate what we do for them: • • • • • •

keep them informed provide a road map make the process easy work hard be open and transparent understand the stress and take it away

What is the key to reaching potential customers on a limited budget?

What would you say to a broker looking to set up an independent brokerage?

For us it’s definitely database-focused. We have fans everywhere, so they are our number one focus.

However, you need to ask them. If not, you are wasting opportunity.

Be passionate about what you do. Create a peer group, have a plan, and be fully committed to making it work. Aim to write one loan, then two loans, and build slowly from there. Plus be prepared to do lots and lots of hours!

NOVEMBER 2014 | 31

SPECIAL REPORT/ TOP 10 INDEPENDENT BROKERAGES

1 Total loan book

$1,318,055,924

Total settlements 2013/14

$537,618,577

Number of brokers/loan writers

6

Average annual volume per broker

$89,603,096

AUSTRALIAN LENDING AND INVESTMENT CENTRE Began in 2009 / Main client base in Victoria / Managing director Jason Back What have you changed over the last year which may have contributed to your success?

What is the key to reaching potential customers on a limited budget?

With an increase in volume through an active client base in the market and referrals from both clients and business partners, we have focused strongly on both efficiency of process as well as the quality of our people, both of which contribute heavily to the consistency of the client experience we wish to deliver. The focus on process de-risks the client from the challenges of what is an inefficient industry that is still fundamentally manual and labour-intensive.

Doing more with less is a common challenge of all businesses, great or small. We have found that doing less things well has worked well for us, and targeting your market and potential clients. ALIC has over 90% of its clients who are investors, and although we service other needs of our clients, we do not actively chase the market.

As a broker, how do you benefit from being outside the franchise system?

The non-franchise model allows us to be agile in our decision-making process; we can act in the best interests of clients and business partners as we see fit and quickly. The ability to test and learn allows us to grow our business using a variety of strategies without having to seek approval from others that may not understand our business model.

How do your customers benefit from you being an independent brokerage?

We have spent significant time over the last four to five years working with the banks and our business partners, coaching them on servicing the specific needs of our client base. With investor clients not all banks are the same, and we work closely with those that see past the transaction in hand and are focused on building the wealth of the client in the future years ... We can be hard work; we push our banking partners hard and our BDMs even harder.

Are back-office costs a major concern for you?

Conversion rate

92%

32 | NOVEMBER 2014

MPAMAGAZINE.COM.AU

The balance of income- and non-income-producing staff is always a challenge in business ... We are currently hiring again and increasing our backoffice support from nine to 11 this year to support the 2014/15 goals.

Is it getting harder to succeed as an independent brokerage?

We don’t believe so. You need to surround yourself with great people and great business partners.

Work with and use the support of your aggregator.

We have a fantastic relationship with Connective and leverage as much as we can from Mark, Glenn and Murray. Don’t waste your time being courted by those that don’t want you to be as successful as they are. Work with your business partners and banks. Demand greatness from your BDM, but get to know them and what works; don’t assume.

What would you say to a broker looking to set up an independent brokerage?

Do your research. Think hard about what it is you are looking to achieve. You can make your business into whatever you want, but it is hard work and more hard work. Surround yourself with the best; get advice and take some risks.

Sometimes in our industry you need to check the ego at the door and just be prepared to forget what you think you know and learn from others that do. Life is short, and the journey is just as important as the destination. Don’t forget to have fun along the way!

MPAMAGAZINE.COM.AU

Mark Davis, principal of Australian Lending and Investment Centre, is presented with the trophy by NAB’s Lino Pelaccia SEPTEMBER | 33

PROFILE / KELLY CAMERON-TULL

THE LONG ROAD

TO BROKING 34 | NOVEMBER 2014

MPAMAGAZINE.COM.AU

Kelly Cameron-Tull tried to retire at 30. But after a career journey spanning three universities, the Asian currency crisis, and MPA’s Top 100 brokers, she couldn’t simply walk away from the job she loved. Now leading her own brokerage, she shares what she’s learned along the way Brokers, Kelly Cameron-Tull reflects, used to follow similar career paths: “they just worked in a bank, and one day they thought they wanted to be a broker”. And indeed Cameron-Tull, who runs Get Real Finance in Brisbane, has a banking background, which she credits with helping her become Australia’s 30th most successful broker last year, with over $75m in settled loans in 2013/14. But her career path, with its numerous twists and turns, reflects the increasingly varied profession broking is becoming today.

MOVING TO KOREA While she’s originally from Queensland, at the age of 21 Cameron-Tull took the audacious step of moving to Korea. This followed an undergraduate degree in international business, and graduate diplomas in the Korean language and export management; a sparkling academic background which had nothing to do with broking. In fact she was in Korea for an internship in a merchant bank.

“Two weeks after I started at the merchant bank, the Asian financial crisis happened” “Two weeks after I started at the merchant bank, the Asian financial crisis happened,” recounts Cameron-Tull. The 1997 Asian financial crisis started with the collapse of Thailand’s currency, before spreading to other Asian economies; the South Korean won went from 800 to the US dollar to 1,700. With her wages being paid in

FOREIGN LANGUAGE SKILLS: A BLESSING OR A CURSE? While Kelly values her time in Korea, she has decided not to exploit her Korean language skills in her work at Get Real Finance. This unusual decision stems from her time at NAB. “Every day, I would get phone calls from people in branches saying, ‘Oh, we just talked to this lady...’, and I would translate and tell them what they needed – but I still had to do my job. My job was as a business banker, to service my own set.” She warns brokers that an office needs more than one bilingual speaker to provide consistent service to clients, “otherwise I would have to make every single email, every single phone call, and talk to all these clients”.

won, Cameron-Tull’s salary effectively collapsed, although she counted herself fortunate to remain in a job at all, with 15 other merchant banks shutting down.

Yet Cameron-Tull was in the right place at the right time. “I was actually there to learn currency training, and I was kind of a pivotal person in that company.” With her Korean language skills and financial education, she ended up translating documents from Korean to English, for the Ministry of Finance and Economy to present to the IMF for a bailout package (the IMF eventually doled out a staggering $40bn to stabilise Asian currencies).

Cameron-Tull’s unique experience caught the eye of her superiors, who put her forward for advanced banking roles at J.P. Morgan and Credit Suisse. Yet recruiters at these banks didn’t take her so seriously. “Speaking Korean, in Korea, they were just gobsmacked when I turned up for the interview with blond hair and blue eyes.”

Turning to Australian banks was Cameron-Tull’s next option, albeit an option that required her to leave Korea.

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PROFILE / KELLY CAMERON-TULL

LEARNING AT NAB So Cameron-Tull went back to square one, applying for NAB’s sought-after graduate scheme back in Australia. With 1,400 applicants in 1998 for just seven jobs, it was far from an easy option, but Cameron-Tull is insistent that it helped her later as a broker. “The exposure I had was to every part of what we do [now] … it’s a real technical experience, that someone who’s just sold home loans for five years, they still might not have the technical knowledge I have.”

The key was variety. “I learned how to do settle­ ments; I learned exactly what happens. I worked in the security and administration departments in the banks. So I learned what happens if there’s an error on a mortgage document. I learned what happens if there’s a typo on a loan contract.” Yet during her time at NAB, Cameron-Tull was still not interested in broking. “When I left NAB, I did not know what a mortgage broker was! When I started at NAB, they were talking about mortgages, and I did not understand what ‘mortgage’ meant; I did not understand even what the concept was.”

“I worked in the security and administration departments in the banks.

So I learned what happens if there’s an error on a mortgage document.

I learned what happens if there’s a typo on a loan contract” In fact, departing NAB had less to do with broking and more to do with the bank’s internal politics, claims Cameron-Tull. Quickly promoted to a business banking role, she was then put forward for a minority-market manager position, drawing on her language skills – but her boss blocked the move. Cameron Tull recalls her boss’s reasoning: “ ‘You haven’t been in the bank long enough; you’ve only been here nine months. We’d like you to be in the bank for two years’ … and I thought, who are you to cap my potential?”

FINDING A WAY INTO BROKING Cameron-Tull’s move into broking was pure chance – a family friend needed financial advice for selling 36 | NOVEMBER 2014

REACHING THE TOP 100 Kelly’s customer relations and diversification tips • FULL-SERVICE PROVISION “I will do everything from a hardship application to just having a chat, holding their hand and having a cry about everything that’s been happening in their life.”

• CONTACT SCHEDULE “We have a regular newsletter... that goes out once a month; we send them messages for their birthdays – text messages – that actually pick up clients all the time as well. And we contact them annually for the review on every single loan.”

• DIARISING “If a client comes to me because they just want one new loan, and they’ve been referred by someone, and I pick up they’ve got two other loans from some other place, we will diarise to pick them up in the relevant month. So moving forward, every month we have work built in.”

a house. “Every week I used to go between nine and midday and worked out the money.” But then she realised the house was not the source of the friend’s financial difficulties. “I told the real estate agent we needed to get another loan … and they said, ‘You should be in real estate’.” This wasn’t a career that particularly appealed to Cameron-Tull, but luckily, a month later, she was introduced to a broker.

Broking instantly appealed to her. “I just thought: do you know what? I actually enjoy this work; I really like the fact that I can help people every day.”

Between leaving NAB in 1999 and setting up Get Real Finance in 2007 she assisted a number of senior brokers (not always a positive experience, she warns) and set up her first business, Borrowers Choice, writing home loans.

Attempting to retire at 30 was thanks to the success of Borrowers Choice, but also gave birth

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to Get Real Finance. She found the boredom of retirement unbearable after just a few weeks, and moved to Sydney because of her husband, where she set up Get Real Finance in 2005, despite having no local contacts. She built the brokerage for two years, before her husband’s job took them back to Queensland.

GET REAL FINANCE Get Real Finance now employs five full-time staff, of which three are brokers, processing around $130m worth of loans a year, and is a former finalist for Independent Brokerage of the Year in the Australian Mortgage Awards. Cameron-Tull also made last year’s Top 100 brokers, coming in at 30th with 230 loans totalling $75m.

While home loans are Get Real Finance’s focus, the brokerage depends on referrals rather than advertising, and so is moving into car finance and insurance for the purpose of servicing existing clients. In order to do this, Cameron-Tull has drawn upon her banking experience, but also her personal

interest in property development; she owns several properties and is considering charging for property investment advice.

Of course Cameron-Tull now has other concerns: three children aged three, 19 and 24, the older two

“When I left NAB, I did not know what a mortgage broker was!” coming from her husband’s previous marriage.

She has been with her husband for 14 years and runs a “busy family, busy household” in which travel, cake-making and property development compete with Get Real Finance for attention. The prospect of another early retirement is tempting, but this time it seems that broking has got the better of her: “I had a date of 40, which is next year, but I really will never retire; I might just reduce my hours.”

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BUSINESS STRATEGY / LEADERSHIP

Inspired ordinary THE REAL COST OF POOR LEADERSHIP

Without strong leadership, your business will continue to sit on top of a wealth of untapped potential. Karen Gately reveals how to inspire the best in your staff – not just aim for ‘ordinary’

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Read any research on employee engagement and you are likely to find a similar story. Global statistics show only 30% of people are actively engaged at work. Active engagement means that people feel a sense of emotional ownership and are committed to achieving the objectives of their role. The remaining 70% fit somewhere between somewhat engaged and actively disengaged. The actively disengaged are those deliberately looking for ways to minimise their contribution and even sabotage success.

These statistics show the vastness of the untapped potential sitting in most organisations.

The unfortunate reality is that at the heart of the issue is poor leadership. Through recruitment decisions, leadership development and employee engagement strategies, there is much you can do to inspire far more than ordinary. The most important things you can do to inspire your own team and support business leaders to do the same are explored in this article.

STRIVE FOR EXTRAORDINARY Leaders who bring an uninspired, lethargic, conservative or cautious approach undermine the ambition and confidence of their team. Hesitant and reserved leadership diminishes the belief people have in their own potential and drains the team of vital energy needed to succeed. Without confidence and energy, people are unlikely to strive.

Thriving people and teams are ambitious and push beyond safe boundaries to give new or challenging things a go. They work hard to achieve results and take the opportunities that come along.

Leaders who accept the mediocre fail to inspire other people to reach beyond ordinary standards of performance. Equally they struggle to inspire people to be committed to their organisation and excited about their future. Aiming for easily achievable goals is only ever likely to inspire ordinary levels of engagement and outcomes. The real cost of this approach to leadership can be seen in suboptimal operational performance, customer satisfaction, staff loyalty and engagement.

PLAN TO SUCCEED The starting point of any successful endeavour is understanding and articulating the specific outcomes you want to achieve.

Laying out your plans and what you need from

TOP 8 REASONS WHY PEOPLE QUIT Forbes has listed the top reasons why your best employees leave. As the saying goes, ‘people quit their bosses, not their jobs’: 1. You’ve overloaded your best people with too many responsibilities 2. You’re a micromanager 3. You’re never around 4. You’re not in touch with how some of your hires or promotions are driving your best people nuts 5. You’ve never given your people a sense of where they can go with their careers 6. You run terrible meetings 7. You communicate that you care more about yourself than the team 8. You’ve never given them the big-picture vision of where your group is heading, or you are constantly changing the big picture Source: Forbes.com

each person is fundamental to your ability to leverage the talent and energy of your team to drive optimal results. However, the hectic pace at which so many managers and teams operate makes achieving this clarity and focus difficult at times.

With our minds occupied with here-and-now priorities, there is often little energy and space created for reflecting on future possibilities. See planning as essential and forge the time needed to do it well.

Engage your team by not only sharing insight into your own thinking but also allowing them to contribute. Allow people to be a part of the process you work through to determine where you are heading and how you plan to get there. Ask the people on your team to work with you to define the strategies, values, behaviours and capabilities needed to achieve more than ordinary outcomes.

Don’t underestimate the quality of the contribution people can make, irrespective of the seniority of their position in your team.

Hesitant and reserved leadership diminishes the belief people have in their own potential and drains the team of vital energy needed to succeed

CREATE AN INSPIRING VISION OF THE FUTURE Every leader I have observed achieving extra­ ordinary results has done so by first creating an

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BUSINESS STRATEGY / LEADERSHIP

Karen Gately is a leadership and people management expert and a founder of Ryan Gately, a specialist HR consultancy practice.

She is also the author of The People Manager’s Toolkit: A Practical Guide to Getting the Best from People, and The Corporate Dojo: Driving Extraordinary Results Through Spirited People.

For more information, visit www.karengately. com.au or contact info@karengately. com.au.

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inspiring vision of the future that people believed in.

These managers have won buy-in by encouraging belief in exciting possibilities and in the team’s ability to succeed. However, all too often I meet leaders who know what they want the future to hold but fail to share their dreams with anyone else.

Other leaders I meet struggle to create a clear picture in their own mind and therefore fail to lay down a path for their team to follow.

Paint a picture of what you are aiming to achieve as well as the contribution you need each person on your team to make. Ensure vision isn’t limited to the ‘big picture’ view of your organisation’s ambitions; the vision each team has of their own future matters just as much in inspiring people to strive. Influence your team’s confidence that big things can happen, but also inspire in them a passionate desire to strive to get there.

curiosity and the desire to keep exploring new and better options or approaches. Leaders who lack imagination and are happy to evolve slowly will struggle to inspire other people to strive for excellence.

Plodding along doing what you have always done is not necessarily going to serve you well in the future. Organisations who ‘stick to their knitting’ and fail to innovate are those most likely to be adversely impacted by change. Unless you inspire people to challenge what they do and how they do it, you are unlikely to keep pace with the rapidly changing world in which all businesses operate. No matter the competitive advantage your organisation may have today, that can change quickly and you are wise to be ready to respond.

THINK BEYOND CONVENTIONAL WISDOM

Inspiring a team to strive for excellence requires that leaders should hold people accountable for the standard of contribution they make. It’s essential that immediate steps be taken to address mediocre through to inadequate performance. As poor performers drag down a team’s results, those who are making a positive contribution begin to lose motivation. Failing to deal with the issue will eventually lead others to give up, resigned to the fact that only ordinary is possible.

One of the most commonly reported reasons people leave an organisation is that they are unhappy with their manager. While it’s common for complaints to relate to the manager’s style, just as often people express frustration with their manager’s failure to deal with the poor performance or behaviour of their colleagues. Often when strong performers feel held back by their manager’s failure to hold some people accountable, they choose to move on.

To achieve the best possible outcomes it’s essential that your team challenges conventional wisdom.

Limiting dreaming to within the boundaries of what is commonly understood or accepted is likely to lead to, at best, ordinary results. Being a leader in any industry takes a willingness and ability to think beyond what is typical – to have the courage to take the road less travelled, or even one that has never been travelled at all. Our history is rich with examples of the achievements of people who dared to think differently and give new things a go.

By promoting a creative culture you are more likely to continue to expand your own vision and realm of possibilities over time, and it is these expanded possibilities that will empower you and your team to reach the highest peaks of your potential. Your own ability to conceive of a bigger and brighter future matters, but so too does your ability to inspire that belief in others. Challenge limiting beliefs and make it OK for people to suggest and try things that haven’t been done before.

KEEP DREAMING Visioning is neither a one-off nor a once-a-year event. Looking into the future, dreaming about what might be possible, and imagining the places you would like to go are crucial if a business or team is to achieve its full potential over time. Our ability to continuously grow and evolve depends on

UPHOLD STANDARDS AND DEAL WITH POOR PERFORMANCE

IN SUMMARY Expect more than ordinary and you will have taken the first step towards inspiring people to give more than ordinary. Lead by example and showcase what it means to strive to achieve the heights of what is possible. Bring energy to your own role and hold people accountable for doing the same. Give people something to strive for and keep them informed about how your team is progressing towards turning your dreams into reality.

FEATURE / NON-CONFORMING LOANS

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Non-conforming lenders aren’t just back in business; they’re taking on stereotypes, sceptics and the big players with a new generation of specialised products and technological innovations Australia’s non-conforming lenders have not had a great winter in the press. August saw international ratings agency Moody’s reveal that $3bn worth of non-conforming loans were written in 18 months, a move that ABC instantly portrayed as a revival of subprime. What could have been a celebration of non-conforming lenders’ success in recovering from the GFC and adapting to NCCP regulations instead was seen as reflecting fragility, conjuring up memories of cowboy subprime lenders from the pre-GFC years.

Non-conforming lenders know these stereotypes this will always be a struggle, but they believe their internal processes and Australian regulations now make the subprime comparison impossible.

Indeed Moody’s analyst Roberto Baldi argued that the National Consumer Credit Protection Act “gets around the fact that in the US you saw those loans being written to borrowers pre-2008 with little to no income verification; in Australia that just can’t happen”. Another ratings agency, Standard and Poor’s, gave Pepper a ‘strong’ rating in March, and many other non-bank lenders are also highly rated.

What recent events have done is to accelerate a trend, whereby lenders are moving away from the old ‘non-conforming’ – in both name and product offerings. Lenders feel that many brokers are yet to grasp the new reality.

CONFRONTING STEREOTYPES “What we do is a traditional home loan,” Bluestone’s Royden D’Vaz insists. “It’s just that we have to price it differently due to the higher risks.” This is a message repeated by all the lenders; they want brokers to see them as another option in their panel, not a last resort. Moving away from the latter has involved an extensive process of rebranding their businesses and customers.

While all the lenders commend 2010’s NCCP regulations, many highlight that while the number of potential borrowers has increased, fewer brokers feel qualified to handle such borrowers.

Stricter rules on bank lending have pushed

THE LENDERS

Allan Savins COO, Resimac Home Loans

Mario Rehayem Director of sales and distribution, Pepper

Paul Grant National sales manager, Australian First Mortgage

Royden D’Vaz National manager, sales and distribution, Bluestone Group

Murray Cowan CEO, Better Mortgage Management

Paul Wells CFO and head of asset origination, La Trobe Financial

Ray Hair General manager of sales, Homeloans Ltd

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FEATURE / NON-CONFORMING LOANS

HISTORY OF THE TERM ‘NON-CONFORMING’ One reason ‘specialist’ lenders have dropped the term ‘non-conforming’ is its background.

The term originates in the US, explains La Trobe’s Paul Wells. There, he says, “a loan either conformed to the government funding programs - FHA, VA, Freddie Mac or Fannie Mae - or it was non-conforming”.

“Most brokers have no idea about that technical derivation,” Wells continues, “and are left guessing what it really means here in Australia.”

While non-conforming‘s US roots are known, the original meaning has been confused with subprime lending’s role in the GFC, a purely American phenomenon, Australian lenders argue.

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customers into the non-conforming sector, explains AFM’s Paul Grant: “Banks’ scoring policing [is] strict and [is] not suiting or accommodating, for example, the current way people are being paid.” Pepper’s Mario Rehayem argues that bank reluctance has “nothing to do with the borrower themselves; it’s about the market squeeze out there”. Resimac estimates 80% of their borrowers have clear credit.

Despite this, non-conforming products are still “the most underrated product within the market”, laments Rehayem. Non-conforming lenders still have a tiny share of the market – around 3% of outstanding residential mortgage backed securities (RMBS), according to Standard and Poor’s, and this is partly because many brokers still believe NCCP regulations make it just too difficult to write non-conforming loans.

Non-conforming clients are still a relatively rare occurrence for brokers. “You could go three months without seeing a client like this,” reckons Resimac’s Allan Savins. Evidently many brokers feel they’re not worth the effort.

The response from lenders is unwaveringly direct. Those who turn down non-conforming clients “need to be a broker, not just a bank broker”, says Rehayem. Similarly, Savins reasons that “when you start off being a broker, writing a prime loan isn’t really what it’s about; it’s about providing a solution … specialist provides that; it’s about not letting your client walk out the door, providing brokers with a client-for-life opportunity”. For La Trobe’s Paul Wells, “it’s about maximising earning potential, and [brokers] owe it to them­ selves to assist all loans that they inevitably come across”. He says: “Never put all your eggs into one prime basket.”

THE INDIVIDUAL APPROACH In conjunction with rebranding, lenders are reforming their processing to counter brokers’ perceptions that non-conforming borrowers require more work. But they are also increasingly eager to stress how their assessment process differs from banks, and can in fact be superior to institutional models, a crucial claim as they transform from ‘non-conforming’ to ‘specialist’ lenders.

“There’s an art to this type of lending, which makes it specialist by nature,” stresses Resimac’s

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FEATURE / NON-CONFORMING LOANS

FEATURE / NON-CONFORMING LOANS

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Savins. Homeloans’ Ray Hair is more circumspect: “Whether you call it non-conforming or specialist, I don’t think is really the issue. It’s around understanding that it’s an individualised approach to credit assessment as opposed to a credit scoring or institutionalised model.”

For all these lenders, assessment necessitates an analyst looking at each and every application. The sheer volumes handled by banks make them “more like a production line”, argues Pepper’s Rehayem, whereas Pepper’s approach is “like the old days when you use to walk into a branch and have the bank manager look you in the eyes”.

Assessment processes are in reality a little bit more advanced than that. Some lenders, like Better

“When you start off being a broker, writing a prime loan isn’t really what it’s about; it’s about providing a solution” Mortgage Management, have taken to viewing borrowers’ properties on Google Street View, for example. Yet a number of mantras remain, such as Bluestone’s and Resimac’s ‘three S’s’, these being security, serviceability, and scenario (ie story).

Acquiring information for the latter is what separates specialist lenders from the traditional approach; they need documents to back up the story. This also requires brokers to go a little deeper in their research. Resimac gave one example in which a borrower had a huge one-off credit card bill on record. The reason? They had just paid for a course of IVF – an emotional decision, but hardly one that made them a bad borrower.

While this is extra work, lenders are prepared to do much of it themselves. What they disagree on is how far to respect a broker’s control over the client.

Pepper and Homeloans say they never talk directly to borrowers; La Trobe and Better Mortgage Management make it a requirement for an application, feeling it’s a vital step in checking details. “At first some of our broker partners have been a little surprised by that,” recalls Better Mortgage Management’s Murray Cowan, “but once we explained to them that it helps with compliance for us, for them and their aggregator, they normally don’t mind that.”

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FEATURE / NON-CONFORMING LOANS

ASSESSING NON-CONFORMING CLIENTS: THE 3 S’S

Security “Two of the 3 S’s are exactly the same as you get for prime lending,” Resimac’s Allan Savins argues.

“They are security and servicing.” Security is often determined from credit reports, but some, like Better Mortage Management, will go as far as to look at borrowers’ properties on Google Street View.

Servicing A crucial question that Bluestone’s Royden D’Vaz asks is: do they service the loan? That also extends to whether they can service the loan. Resimac insists that “we will not put a borrower in a worse position – there has to a financial benefit for that client”.

Scenario This is what non-conforming lenders pride themselves on understanding. As Royden D’Vaz explains, “What we ask is, if you’re falling behind on your repayments, what’s your story? What happened?”

Lenders look to distinguish the one-off unlucky borrower from habitual defaulters.

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PROMOTING TECHNOLOGY Most lenders claim that, for properly submitted loan applications, their rejection rates are very low – around 10–20%. The same applies to turnaround times, which are usually 24–48 hours. To help brokers write non-conforming loans, they’ve developed a number of tools, ranging from standard checklists to specialised online assessment programs.

Smart educational tools are becoming a core offering for non-conforming lenders. There was considerable media attention when Pepper recently launched a new module on specialist lending for its Better Business E-Learning Hub. Other lenders have similar tools. Better Mortgage Management has its PAL (place a loan) system, through which brokers present criteria about a client, such as whether financials are available, and they’ll be directed to a loan. Resimac’s ASK tool also allows brokers to test scenarios before submitting applications. Homeloans has LoanZone, a website for brokers, with calculators and other tools and a single application form for all their products.

Of course all these IT pre-application systems could be seen as putting work back into brokers’ laps. But Resimac’s Savins doesn’t agree: “We’ve got a 300-page policy document sitting in Resimac, but you don’t have to remember anything because our rules are sitting in the system.” Such systems, he argues, are already standard for mainstream lenders, so brokers don’t have to do any extra work. He believes technology will increasingly replace checklists and guidelines sheets – “we can’t expect our distributors to remember every lender’s policy”.

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NON-CONFORMING NUMBERS IN CONTEXT

97.55% PRIME

NON-CONFORMING’S SHARE OF THE RMBS MARKET

2.45%

NON-CONFORMING 40

DELINQUENCY RATES FOR NON-CONFORMING LOANS WORLDWIDE

35 30 25 20 15 10 5

3%

36%

25%

0

Sources: Standard and Poor’s RMBS Performance Watch, 30 June 2014 / Moody’s Investor Service

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FEATURE / NON-CONFORMING LOANS

Nevertheless, lenders still emphasise the contribution made by their BDMs and sales teams.

Better Mortgage Management runs training workshops, while Resimac’s selling team “help with selling skills, overcoming objections, such as how do we stop selling on rate all the time, because everyone is so fixated on interest rates”, Savins says. “We teach them skills of breaking the payment down to a weekly rate.” Training also aims to improve broker confidence, he explains. “A lot of the time the broker says, ‘we can’t offer that interest rate; they won’t take it’. How do you know they won’t take it?”

“A lot of the time the broker says, ‘we can’t offer that interest rate; they won’t take it’. How do you know they won’t take it?”

EMBRACING PRIME LENDING Perhaps the ultimate – and some might say most brazen – example of rebranding the term nonconforming is the move of such lenders into prime lending. It’s important, however, to point out that this isn’t a new phenomenon: Resimac, Homeloans and Better Mortgage Management started as prime lenders, and many others have been tentatively involved in the sector for some time. Recently, however, the move towards having a ‘wide shopfront’ has markedly accelerated.

The beginning of 2014 saw Pepper move into prime lending with its Pepper Essential product.

“We moved into the area,” explains Rehayem, “purely because brokers and borrowers demanded we have some sort of exit strategy for them.”

Prime lending, for Pepper, was at least in part a distribution strategy. Australian First Mortgage’s Paul Grant also notes that AFM’s specialist products were “short-term in nature and will involve an exit strategy”. The emphasis on exit strategies resulted in part from the emphasis on

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TIPS FOR REDUCING TURNAROUND TIMES

Putting in the application You need to get applications right the first time – repeat applications look bad to funders, and ‘drip-feeding’ information extends turnaround times. Use nonconforming lenders’ calculators and checklists, because the details required may be very different.

Quality of packaging Look out for details that could easily be missed – superannuation funds for self-employed people; the staff numbers and history of a business, for example. Be careful with titles. Describing a client as a ‘painter’, when they own several painting firms, won’t help an application make sense – a core concern for lenders.

Tell the story Non-conforming loan applications are individually checked, so take this opportunity to tell the client’s story, in an understandable way. Lenders are looking for that single disruptive life event – deaths in the family, divorce and losing a job are the most obvious examples. You need to contrast this event with the good character of the client.

responsible lending. “It helps to give the customer something to work towards,” says Better Mortgage Management’s Cowan.

Proactively moving borrowers to prime loans is a strategy also aimed at brokers. “We’re looking to transition the borrower over time,” Resimac’s Savins explains. “If you have 12 on-time payments your rate will reduce accordingly, so it’s a great one for our brokers because it gives them an ability to touch base with the client again in 12 months.”

Homeloans is also developing a process to automatically move non-conforming customers to prime or transitional products, in consultation with the broker. Pepper claims that brokers prefer to keep clients with them, because its policy of no

FEATURE / NON-CONFORMING LOANS

direct contact distinguishes it from banks, who can attempt to cross-sell to borrowers.

Whether non-conforming lenders can go beyond rehabilitating their borrowers and genuinely compete in the prime lending space is open to question. Both Bluestone and La Trobe feel that prime lending is too much of a distraction from their core focus. “The two propositions are different,” argues La Trobe, “and any reason to bridge the two requires careful consideration.” Prime lending makes up about 25% of La Trobe’s deal flow.

Bluestone’s D’Vaz is even less convinced. “The alternatives that the broker has [in prime lending] are massive. We want to play in the space where we feel the competition is minimal … we want to concentrate on our core offering.”

Nevertheless, the move towards prime and transitional products does not look likely to slow down any time soon. All non-conforming lenders tell brokers that a non-conforming client could be a good client for life; many see moving clients to prime products as a key step in forming that relationship. Furthermore, many non-conforming lenders are already well-known non-bank contenders: Better Mortgage Management came top in MPA’s recent Brokers on Non-Banks survey.

Pepper’s Rehayem is particularly insistent on that point: “Any non-conforming lender that’s in the business that’s serious about client retention, servicing clients and brokers, then they must have a prime product to make sure they’ve got longevity”.

UN-CAUTIOUS OPTIMISM Over the last few years, the future has been unerringly bright for non-conforming lenders. The GFC has played a part in this, admits Pepper’s Rehayem: “In all honesty, the market from 2011 started from a very low base.” Many non-conforming lenders took huge hits, and Bluestone only re-entered the market in 2013, for example. So in the years since 2008, a recovering economy and cheaper credit have obviously helped these firms. Several lenders commented on both the reducing cost of funds and the increasing appetite of the RMBS market, highlighted by Moody’s announcement, as key drivers of the non-conforming market. “We have seen month-on-month growth,” Pepper boasts.

“Hockey stick growth is an understatement.”

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has owed much to banks’ caution in taking on borrowers. However, the move to Comprehensive Credit Reporting earlier this year by the Australian Retail Credit Association could push many more borrowers out of the banking system, as these borrowers become penalised for late payment, where previously only defaults counted. Hair notes that, in the short term, non-conforming lenders’ individualised approach will benefit: “It will take some time for credit models to build up the experience around such things to make any allowance for them, and if you’re a large-volume player the economics of accommodating that don’t stack up.”

Evidently, it no longer makes sense to describe the non-conforming market as ‘recovering’. That era is over; a number of aggressive and ambitious players have now emerged, no longer content to stay in the non-conforming sphere, proud of their alternative approach. All state their commitment to the third-party channel, but brokers who ignore the sector face pressure from both sides, as rebranding eventually impacts on borrowers’ thinking. As Rehayem concludes, “those brokers who don’t make non-conforming part of their business model should be worried: the best of the best use it, so why don’t they?”

BUSINESS STRATEGY / NETWORKING

BOOKS

THE NEW BUSINESS CARD?

With social media becoming a more popular platform for sharing information about ourselves and our businesses, it is becoming increasingly difficult to make sure these messages are actually received among the noise. Publisher Blaise van Hecke explains how books are fast becoming an effective alternative

54 | NOVEMBER 2014

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We live in an age of sharing. It’s become a form of both self-promotion and networking.

Look at social media: outlets such as Facebook, Twitter, Google+, et al, allow us to tell the world the minutiae of our everyday lives. Parents post pictures of kids and boast of their accomplishments.

Partners profess their love for (or frustration with) one another. People tell you when they had a great day at work, or when some idiot cut them off on the road, or when they’re miserable because they have a cold.

We share everything, and while some of us might frown on this as a practice, it’s only going to become increasingly prominent as the next generation adopts this as their standard, and more and more outlets become available.

Ten years ago it was MySpace. Then Facebook came along. Then Twitter. There are new ones popping up all the time. Those who are successful are those who have learnt to complement the existing avenues, rather than supplant them. It’s also instructive that people need to get in front of social networking to capitalise on their benefits.

Businesses have done this to an extent with Facebook pages. LIKE them on Facebook to learn more about them and get their updates – unless you’re one of those people who LIKES indiscriminately and then disregards notifications of updates.

Still, we might catch an update in our news feed.

These can serve a threefold purpose: 1. To inform consumers of that business’s existence 2. To interact with consumers 3. To advertise to consumers

The issue with this sort of thing is that any connection with a reader is both brief (in that it can only communicate a limited amount of information) and fleeting (in that the information is only there temporarily, before it’s replaced by the unending Facebook feeds). It’s hard to make a mark, and to engage people on any meaningful level.

So, where do we turn? Outside of typical avenues of advertising via television or radio, in print or on the internet, how else can we reach out and touch people, to let them know we’re out there and what we do?

There is another traditional route remaining, and one that’s becoming increasingly popular: writing a book about your business.

The issue with social media is that any connection with a reader is both brief and fleeting. It’s hard to make a mark, and to engage people on any meaningful level It’s actually astonishing that this is not an outlet that’s been used more in the past. Sure, we might get weighty biopics about magnates or their fat corporations – particularly when they fall into disrepute, or bankruptcy (or both) – but nobody has actually married the idea of writing a book with a form of promoting their business.

Now, this isn’t meant to be a mindless commercial, an endless practice of selling yourself, ie the literary version of an infomercial. There is no better way to disconnect from a reader than by abusing their hospitality. The intent here is to establish a meaningful dialogue.

A book allows you to develop a relationship with your readers that the transitory nature of social media or other forms of advertising do not. You can explore your past, the nature of your business, as well as your goals – the boundaries are yours to determine. But in doing this we are promoting ourselves and our business (and our values), as well as engaging consumers in a way they have not been engaged before: intimately, with a view towards developing a long and productive relationship.

Books are becoming the business card of the current generation. They are ideal particularly for smaller businesses trying to find an edge on their competition, trying to entrench themselves in the community or in their field, or simply trying to establish themselves and gain a foothold.

We all have a story to share with the world.

Businesses themselves have their own story.

What’s yours?

Blaise van Hecke is the publisher and co-owner of Busybird Publishing.

She is also the author of The Book Book: 12 Steps to Successful Publishing and a contributing author of Self-Made: Real Australian Business Stories. For more information, visit www.busybird.com.au or contact busybird@bigpond.net.au.

NOVEMBER 2014 | 55

THE DATA / YOUR MORTGAGE INDEX

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BUYER TRENDS Key stats from borrowers making enquiries at Yourmortgage.com.au LOAN AMOUNTS $420,000

Average loan amount

$403,000 $392,000 $381,000 $370,000 Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

HOW SOON MORTGAGE IS REQUIRED 60% 50% 40% 30% 20% 10% 0% Sep

Oct

Nov

Dec

Not immediately

61% First

10.7% Moving

home buyers

home

Jan

Feb

Mar

Apr

May

In the next few months

Jun

Jul

Aug

Right now! Hurry!

TYPE OF MORTGAGE REQUIRED 50% 40% 30%

PURPOSE OF MORTGAGE

20% 10%

0.2% 0.2% 2.8% Other Give my Buy an

home a investment makeover property

to get a better deal

Intro

Standard variable

Basic variable

Fixed

Visit www.mpamagazine.com.au/consumer-borrowing-data for all the latest borrower trends

56 | NOVEMBER 2014

Jun

May

Apr

Mar

Feb

Jan

Dec

Nov

Oct

Sep

Aug

25.1% Refinance

Jul

0%

Congratulations Thank You to Our Sponsors &

to All Award Winners EVENT PARTNER

EVENT CHARITY

AWARD SPONSOR

media partners

www.australianmortgageawards.com.au 13th Annual Australian Mortgage Awards

BUSINESS STRATEGY / MOTIVATION

LOOKING AFTER

NUMBER ONE Is it time that you started to look after the most important person in your business? asks Roland Hanekroot

58 | NOVEMBER 2014

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ADVERTISING FEATURE

Let me paint you a picture. As a business owner you feel overwhelmed on a day-to-day basis. Stress is constant, crises are everywhere, and no one seems to be able to get on with the job without you.

If it’s not a staff member who’s causing you grief it will be a client, or a supplier, or the tax department or a landlord or the council … the list goes on.

There are so many important things you’d like to get around to, but you get to the end of every day with just as many loose ends as you started.

And to top it off, your health is suffering, your kids wonder who that strange person is that walks in and out of the house sometimes, and when you took a holiday last year, you were forever looking for mobile phone reception to keep the business afloat.

Recognise that picture at all?

NOBODY ‘GETS IT’ What makes it all even harder is the sense that nobody ‘gets it’. When you try to explain your life to someone who doesn’t run their own business, chances are their eyes will glaze over before you’ve even finished the first sentence.

The feeling of isolation and being alone adds to the consistent feelings of being overwhelmed and stressed, and will often cost the business owner dearly, both personally and professionally.

Yet as business owners we just ‘soldier on’, don’t we, because we don’t know what else to do; nobody else is going to do it for us and we can often feel trapped.

So, what can you do to get out of this trap and start to build a business that’s fun and that sustains you for years to come?

YOUR TIME As a business coach working with small business owners, I often ask my clients what they believe are the most valuable resources of their business. The most frequent responses I get are: my staff, my customers, my relationships, my bank balance.

And while those are all, of course, very valuable, there are two things that are more valuable than all of the others put together: your time, and your health.

Think about it; all other resources you can hire, buy or borrow more of. Your health and your time are the only truly limited resources in your business, and what’s more, the business can’t develop and grow without an ample supply of your focused time and if you are not in optimum health.

SHORT TERM

LENDER

CELEBRATES

All other resources you can hire, buy or borrow more of. Your health and your time are the only truly limited resources in your business

10 YEARS Over the past decade Prime has managed to secure its place as one of Australia’s leaders in the short term loan market. Is there a secret to their success?

Managing Director Merrick Malouf says, “Prime weathered the financial storm back in 2008 and came out of it stronger. There’s no secret to our success. It’s just old fashioned hard work and whether it’s back office support, or racing crew on the track, it’s about having the right team for the job.”

“We have a great network of brokers/accountants and a strong database of over 6000 referrers. We’re grateful for the work we receive and reward our brokers with generous commissions and promotions like the Apple products that we’re constantly giving away.

“The future looks even better for Prime with the expansion of a Western Sydney office. Back in 2004 we started with 2 staff now we are up to 7 full time, and creating new lending opportunities with top tier institutions, in the house and land package arena, has brought us to the forefront of this market.

“We have seen other short term lenders come and go over the last 10 years but Prime finance is still going strong and is well and truly here to stay.”

ADVERTORIAL

NOVEMBER 2014 | 59

BUSINESS STRATEGY / MOTIVATION

So, take a deep breath and ask yourself: isn’t it time to treat those two key resources with the respect they deserve? Isn’t it about time to start to look after yourself and acknowledge that you just can’t do it all on your own?

Because the good news is this: you don’t have to do it all alone; there are other people out there who ‘get it’. Honestly. These people are called fellow business owners, and getting involved with fellow business owners may be one of the most effective things you can do to lower your stress – and build your business.

WENDY GETS CONNECTED

Roland Hanekroot is a highly experienced business coach and mentor for small business owners, and author of The Ten Truths books for business owners.

As a special offer for readers of this magazine you can download the first of Roland’s books, The Ten Truths for Raising a Healthy Bouncy Business, for free as an e-book or audiobook. Just go to this web page to access your free copy now: www. newperspectives. com.au/alfreebook/.

60 | NOVEMBER 2014

Wendy is a client of mine with a small financial advisory business in Brisbane. A few years ago Wendy’s life looked just like what I described above: she was lacking in sleep, stressed and worn out.

One day a business customer invited Wendy to come along to a weekly business breakfast group in the CBD. Although Wendy had never been much of a networker, she decided to attend.

The meeting was eye-opening for Wendy, because there at the breakfast table were 35 small business owners in similar circumstances to herself. Clearly, here was a group of people who did ‘get it’, because they lived it every day, just like Wendy herself. The difference between this group of business owners and Wendy was that they had decided to ‘get out there’ and stop trying to do it all on their own. These business owners had made a commitment to support each other in the development of their businesses, every week.

Wendy decided to join the group more or less on the spot, and has attended the breakfast meeting every week for the last three years. The change in Wendy’s outlook on life and business has been amazing. She said to me: “For the first time in ages I feel optimistic and excited about my business again.”

WENDY’S ADVICE Besides attending the breakfast meeting each week, Wendy also regularly meets with her fellow members one-on-one. She’s often asked for advice, and for once people’s eyes don’t glaze over when she talks about a pressing issue. On the contrary, they roll up their sleeves and want to know more.

MPAMAGAZINE.COM.AU

One of the objectives of the group is to refer business to each other, and by the end of year three of her membership, Wendy’s business had grown by 50%, largely as a result of joining the group.

The best news is that Wendy doesn’t feel so isolated anymore; she is even sleeping again and her family get to see her as well.

THE BENEFITS Getting involved with other people in business is one of the most effective ways to look after yourself.

The benefits are well documented and include: 1. Support and feedback from others who do get it and have probably ‘been there, done that’ 2. Opportunities for business growth through word of mouth and networking 3. Shared knowledge and access to experts 4. Building relationships and alliances for future business development

OPTIONS Here are some options for getting involved: 1. Join your local MFAA, socials, network meetings, trainings and other gatherings 2. Join your local or state Chamber of Commerce and get involved 3. Become a member of the Business Enterprise Centres and attend their functions and workshops 4. Investigate Meetup groups (meetup.com); there are so many of these groups, some really active and some less so ... just go and try some out 5. Search in Google for networking groups and networking meetings 6. Join a business referral group, such as BNI (BNI.com.au) and get involved 7. Join an advisory board program, or instigate your own advisory board made up of fellow business owners

Surrounding yourself with like-minded people will reduce your stress levels and be one of the best business decisions you ever make … I promise you.

So go on … get out there!

LIFESTYLE / DAY IN THE LIFE OF

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Day in the life of...

Brendan Wright, CEO of FAST aggregation services

4.30am: Get out of bed, throw down a

10.00am: My next meeting is with one of

7.30pm: I put in a call to the family on

the lenders from our lender panel and a marketing/brand company to provide feedback on the review the lender is undertaking on their customer value proposition.

the way to the hotel. Even though I travel frequently for work, I always make sure I’m well connected with the family.

home-made breakfast bar and get my cycling gear on, preparing myself for a chilly five degrees outside – that actually feels more like two!

10.45am: I head to the next meeting,

5.00am: Say good morning to my 17-year-

11.00am–1.30pm: I sit down to a working

old daughter who is heading out for a run to clear her head before a day of exams.

to meet one of the groups I ride with midweek. It’s cold out but I love my morning cycle – helps me to clear my mind and keep energised and focused.

lunch session on the FAST strategy with our Advisory Council of FAST brokers and the FAST team. It’s a 150-minute meeting, but the time flies by, with energetic discussion, flip charts and sandwiches everywhere. It’s great to get involvement and feedback from all areas of the business.

6.30am: After a good 80-minute ride I’m

1.30pm: Return a few calls, check some

still on the bike. I peel off from the group to have a quick meeting with one of my team members, who happens to cycle a little too. We jam in a long black and the best almond croissant you will find anywhere.

emails, and prepare for the next meeting at 2pm.

5.10am: I’m now on the bike, heading off

7.40am: I ride into the driveway at home after my 67km ride. The sun is only just rising and it hasn’t gotten any warmer, though I’m certainly feeling pretty warm.

I quickly get ready to head into the office.

8.17am: I jump onto the train for the

grabbing a long black along the way.

It’s been a while since my first coffee of the day.

8.00pm: I reach the hotel and retire to my room for some room service and some light reading. I have an early start the next day, with a morning of ‘skip level’ meetings with some of our team, so I’m keen for an early night. I’m also looking forward to the afternoon when I will be speaking at one of our Women in Finance events, with over 60 brokers and lender staff attending.

2.00pm–4.00pm: I attend the monthly Risk Management Forum. With its jampacked agenda and many papers for approval, I’m glad I spent the time last night to read the pack in detail.

4.30pm: I catch up with my assistant to check and confirm my calendar for the next few days. It looks busy!

30-minute trip into the office. I spend the trip skimming the media feed on the tablet and checking and banging out a few emails.

5.00pm: I head to the airport, travelling interstate. I put in some calls on the way to the airport to lenders to discuss the last month’s results.

8.55am: I arrive at the office for the 9am

6.15pm: I board the flight, spend the time

weekly Leadership Team meeting. The key highlight was discussing the number of brokers and other members of our team who have been announced as finalists for an upcoming industry awards event.

in the air reviewing the agenda, preparing for my part at our upcoming Business Excellence Conference in Hong Kong, which I’m pretty excited about.

Brendan Wright

NOVEMBER 2014 | 61

THE DATA / KEY STATS

NOT ALL DISCOUNTS ARE EQUAL How banks pass on rate discounts to customers, and why this might be about to change All brokers know that mortgage discounts are increasing, but a new J.P. Morgan report suggests not all customers are benefiting equally.

The J.P. Morgan Australian Mortgage Industry Report examined how banks have used cheaper funding over recent years. Funding costs over the last two years are equivalent to a 10bps out-ofcycle rate cut, the report noted, and costs will continue to fall over the next three years. While banks have passed this on to mortgage customers in the form of discounts, they have been selective in who gets the biggest discounts. Correspondingly, the disparity between the most and least generous

1.6

1.4

rate discounts is growing at a startling pace.

Furthermore, the report notes that the party may soon be coming to an end, thanks to the Financial Services Inquiry (FSI). “The overall regulatory framework will have an important role to play,” commented J.P. Morgan banking analyst Scott Manning – “one of the key themes of the FSI is the notion of shifting the burden of systematic risk away from the tax payer towards the private investor”. If the FSI recommends that banks should hold more regulatory capital relative to risk, then banks will find this capital by trimming rate discounts.

1.2

HOW MORTGAGE DISCOUNTS HAVE FLUCTUATED OVER TIME

1.0

% 0.8 0.6

0.4

0.2

0.0

2007

62 | NOVEMBER 2014

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WHO IS BENEFITING MOST FROM DISCOUNTS? There’s good news and bad news for brokers. The bad news is that generous discounts on rates do not appear to be randomly distributed, ie they are not necessarily being given to those borrowers with the most effective brokers. Instead discounting is being “skewed towards the upside”, explained Martin North, principal of Digital Finance Analytics, who contributed to the report. North added that “larger balances [are] seeing higher levels of discounts”. Banks are targeting discounts at low LVRs – less than 80% – and loans with higher exposure, for more than $500,000.

Luckily for brokers, they too are benefiting: average upfront commission rates have increased alongside commission rates, J.P. Morgan’s graph shows. If the FSI does recommend holding more regulatory capital, J.P. Morgan predicts this will increase inter-bank competition, giving brokers a silver lining to alleviate the cut in rate discounts.

0 . 70% 0 . 6 5%

AVERAGE UPFRONT COMMISSION RATES MAJOR BANK AVERAGE OTHER ADI AVERAGE MACQUARIE

0 . 60% 0 . 55% 0 . 50% 0 . 45%

JUN-09

DEC-09 JUN-10

DEC-10

JUN-11

DEC-11

JUN-12

DEC-12

JUN-13

DEC-13

JUN-14

Source: Mortgage Choice. Commission rates exclude add-on incentives

UPPER-LEVEL DISCOUNTS MID-RANGE DISCOUNTS LOWER-LEVEL DISCOUNTS Sources: J.P. Morgan Australian Mortgage Industry Report, September 2014; Digital Finance Analytics; Mortgage Choice

2014 NOVEMBER 2014 | 63

LIFESTYLE / FAVOURITES

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Favourite things

Andrew Littleford, managing director, Interim Finance Favourite drink: Vodka and tonic.

A highly underrated food group.

Favourite winter activity: Skiing of course. Colfosco, Italy – best so far. I am sure there are more testing runs, but the Dolomites have a great backdrop and a pleasant absence of those pesky snowboarders!

Favourite music: Yesterday’s hits – not today’s misses. If you want to see me in pain, play some rap music.

Favourite book: Outliers – Malcolm Gladwell. The effects of birth and environment, etc., on success. Sounds dry but quite a fascinating read.

Andrew Littleford

Favourite summer activity: Dual-sport motorcycling. Haven’t nailed this yet, though my mechanic is happy with the upswing in his business.

Favourite food: Pretty much anything my wife cooks. Two ordinary meals in 26 years.

She’s a keeper.

Favourite holiday destination: Horse-riding safari though Kenya.

This great picture was our guide doing the invitational jump over the breakfast table on the last day. There is no OH&S in Kenya.

Movie: The Last Picture Show – Peter Bogdanovich.

64 | NOVEMBER 2014

Favourite thing about short-term lending: Globally, STL is a growth market. It’s challenging and relationship-driven. No one deal is the same, which keeps things interesting.

Favourite bar/restaurant: Prime, Martin Place.

Dark and cavernous.

You can eat red meat and drink strong wine without feeling compelled to order vegetables.