Mortgage Professional Australia issue 17.07

MPAMAGAZINE.COM.AU ISSUE 17.07

FACING THE STORM 10 independent brokerages defying policy changes and commission uncertainty to become Australia’s best

BRETT HALLIWELL White label in a tough market

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FEDERAL BUDGET Bank bashing and interest rates

FINTECH Saving you time and money

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JULY 2017

CONNECT WITH US

CONTENTS

Got a story or suggestion, or just want to find out some more information? twitter.com/MPA_Australia facebook.com/Mortgage ProfessionalAU

UPFRONT 04 Statistics

Brokers are entering the industry faster than the market can keep up

06 Head to head

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34 FEATURES

BROKER FINTECH New systems, tools and tweaks to save your brokerage time and money

TOP 10 INDEPENDENT BROKERAGES 2017

THE BIG INTERVIEW

BRETT HALLIWELL The general manager of Advantedge on white label’s prospects in a tough market

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08 News analysis

The federal budget’s ‘bank tax’ and what it means for major and non-major banks

10 Opinion

Mortgage Choice CEO John Flavell on why he’s backing ASIC, not Sedgwick, when it comes to remuneration

MORTGAGE INSIDERS

COVER STORY

The strategies, innovations and tough decisions that helped Australia’s top performers endure a tough year in broking

Three top brokers on whether they could do business with a flat fee from the banks

52 Arthurmac & Co

42 FEATURES

SMSF LENDING

A look at the regulatory and lending policy changes impacting the SMSF space

Two-time AMA winner Stuart Styles talks about his non-conforming brokerage

54 Lachlan Heussler

From GFC casualty in New York to Australia’s fintech disruptor at lender Spotcap

56 Anita Marshall

Broker and founder of ‘The Sisterhood of Bras’ on holding it all together

BUSINESS STRATEGY 50 Team meetings

They don’t need to be so dull

46 FEATURES

FIRST HOME BUYERS

As government finally turns its attention to affordability, FHBs need brokers now more than ever

MPAMAGAZINE.COM.AU NOW ONLINE: Our new daily newsletter Every day you can expect news analysis that goes beyond the headlines to discover what matters to your business, in addition to property market trends, business strategy, industry leader opinions, and the stories of real brokers on running their businesses.

It’s free to subscribe; simply go to our website.

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UPFRONT

EDITOR’S LETTER www.mpamagazine.com.au JULY 2O17

TIME = MONEY

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ost-cutting isn’t a word anyone wants to hear. For employees it means uncertainty; for business owners it means tough decisions. Cost-cutting has not been a pressing issue for brokers since the GFC, but talking to this year’s Top 10 Independent Brokerages, cost-cutting is back on the agenda.

This has little to do with the housing market. Following the publication of Stephen Sedgwick’s report, all four major banks vowed to enact its recommendation to uncouple commissions from loan size. Sedgwick did not specify what would replace percentage-based commissions, other than saying that the banks, not consumers, should pay brokers. Assuming this means a flat fee, how would this affect your business?

The average dwelling value in Australia’s capital cities is currently $625,000, according to CoreLogic. Writing an 80% LVR loan, a broker would presently receive $2,703 in upfront commission, using ASIC’s average commission

It’s not obvious that, given the opportunity, banks would even peg their fees to current commission levels levels of 0.54% after going through an aggregator. So if the banks were to take a national average, their upfront fee would be somewhere around the $2,700 mark. Trail is extra, of course, but not much help for new brokers.

A fee of $2,700 would catch Sydney and Melbourne brokers out, given the average dwelling value in these cities is above $625,000, but it could help brokers in other capital cities. Many elite brokers serve wealthy clients with higher property values and would also be hit. Furthermore, it’s not obvious that, given the opportunity, banks would even peg their fees to current commission levels, given that many bankers see brokers as an expensive distribution arm (as a damning report by UBS made clear).

To borrow a piece of advice from this year’s No. 1 Independent Brokerage, you need to consider your costs per hour. Could assigning more work to junior and thus cheaper staff save you time for higher-value activities? Or could you find ways to improve your income per hour to meet your costs? At our HighPerformance Business Summit in Sydney in May, broker Tony Bice told us how he’s now selling insurance with every loan where possible.

The banks have until 2020 to implement Sedgwick’s recommendations; the Treasury will consider ASIC’s recommendations later this year. How could you use that time to restructure your business?

EDITORIAL Editor Sam Richardson Journalist Maya Breen Contributors John Flavell Matt Malouf Production Editor Roslyn Meredith

SALES & MARKETING Publisher Rajan Khatak Account Manager Simon Kerslake Marketing and Communications Manager Lisa Narroway

CORPORATE

ART & PRODUCTION

Chief Executive Officer Mike Shipley

Design Manager Daniel Williams

Chief Operating Officer George Walmsley

Designer Loiza Caguiat Traffic Coordinator Freya Demegilio

Managing Director Justin Kennedy Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

tel: +61 2 8437 4720 sam.richardson@keymedia.com.au

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rajan.khatak@keymedia.com.au simon.kerslake@keymedia.com.au

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Mortgage Professional Australia is part of an international family of B2B publications and websites for the mortgage industry CANADIAN MORTGAGE PROFESSIONAL justin.darosa@kmimedia.ca T +1 416 644 8740

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

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UPFRONT

STATISTICS

NO ROOM FOR MISTAKES Brokers are entering the industry faster than the market can keep up, warns the MFAA’s third Industry Intelligence Service report

APPROACHING SATURATION POINT Nationally, growth in the number of brokers is exceeding growth in the marketplace, intensifying competition. In NSW and Victoria this problem is particularly acute. The graphic shows growth rates in the number of brokers versus growth rates in the value of new loans settled, from April to September 2016.

Number of brokers BROKER CAPACITY is “approaching saturation” as numbers rise in states where the property market is stalling, according to the MFAA’s new Industry Intelligence Service (IIS) report for April to September 2016. The IIS is compiled by Comparator, which uses data from aggregators to cover over 95% of residential brokers and found that 18% of brokers, many of them new to industry, did not write a single loan in the six-month period of the survey.

$6m

Average volume of loans settled per broker in six-month period

$38m

Average home loan portfolio per broker

BROKING’S GENDER BALANCE The IIS report found that growth in the number of female brokers is now outpacing that of male brokers by 8.7% to 5.7% respectively, and that this is gradually changing broking’s gender balance:

28% of current brokers are women

32% of newly recruited brokers are women

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The IIS report is the latest in a series of reports to warn that although house prices are growing, lending is not. In fact, in NSW the value of new loans settled actually dropped by 4%, yet the number of brokers increased by 5.5%. The effects of this intense competition were already apparent: NSW had 18 applications per broker, with only the NT and Tas having lower numbers, a finding the IIS describes as “thought provoking”.

$83,000

Average upfront remuneration generated per broker, per annum

Value of new loans settled Total nationally

6.4% 1.1%

$59,500

Average trail commission generated per broker, per annum

IS YOUR BROKERAGE TYPICAL? The industry continues to be dominated by sole- or double-operator businesses, according to the IIS report, although much larger businesses of 11 or more loan writers are beginning to have an impact.

Brokers working as sole operators or in multi-broker offices April to September 2016 40% NOTE: Percentages do not add up to 100% because results 35% 36.7% for 5, 6, 7, 8, 9, 10 mortgage brokers have been omitted.

30% Each category accounted for 2.2% or less.

25% 20% 21.6% 15% 15.9% 10% 8.2% 5% 4.8% 0% Sole operator – Two loan Three loan Four loan 11 or more loan one loan writer writers writers writers writers

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Northern Territory

Queensland

Western Australia

-4.0%

6.0%

3.5%

-2.0%

8.3%

5.5% New South Wales and Australian Capital Territory South Australia

5.5%

5.1%

-4.0% Victoria

9.8%

7.5% 1.7% Tasmania

25.1% 17.9%

PASSIVE, DORMANT AND UNDERPERFORMING BROKERS The proportion of brokers not settling a single loan in six months increased from the previous half-year. The IIS report suggests these brokers could be new to industry; previous reports have also put the figure down to established brokers living off trail commission.

Taking the figures for application numbers and the figures for settlements, the IIS report calculated a conversion rate for brokers nationally. This conversion rate was lower than the previous year’s, which the report puts down to “more promotions by lenders, a low point in the interest rate cycle, more conservative lending policies, and intense competition amongst brokers”.

7% 18%

In the six months from April to September 2016

Did not settle a loan

35%

Six months ended March 2016 80%

Settled up to and including $5m Settled between $5m and $20m

CONVERSION RATES ARE FALLING

40%

Six months ended September 2016 73%

MPA Top 10 Independent Brokerages 2017 Settled above $20m

86% Source: MFAA Industry Intelligence Service report, 1 April 2016 to 30 September 2016.

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UPFRONT

HEAD TO HEAD

Would you be happy with a flat fee from the banks?

The Sedgwick review has proposed a move away from volumerelated commissions. Three top brokers share their thoughts

Josh Durrant

Daniel Hustwaite

It’s hard to comment on how these changes will impact my business without knowing the full details.

However, I will say the effort that goes into organising a loan is not always directly related to loan value.

Sometimes smaller loans can be just as complex, which means more hours worked for less revenue. In this industry you take the good with the bad and try to provide the best service you can for all clients. The banks ultimately control how much people borrow, so continuing to look at lending policy and borrowing justification rather than commissions would be best.

Whilst loan complexity is not directly correlated to loan size, it would be fair to suggest that, generally, this theory holds true. Higher net worth clients will generally have more complex lending needs (eg cross-collateralisation), more complex structures, and their goals may need to be addressed with niche products (eg for doctors and lawyers).

These clients invariably require a larger time commitment to fulfil their specific needs. In the absence of a more suitable remuneration model that can identify and reward effort, we believe maintaining the status quo is the best way to proceed as opposed to a flat fee from the banks.

Director Choice Capital

Principal Aqua Financial Services

Xavier Quenon

Owner Go Mortgage Corporation I believe it is a flawed model – not only as it could lead to abuse from the banks in how much they pay brokers but also because of the potential effect on borrowers and interest rates. Would the Tax Office like every taxpayer to pay a ‘flat tax’? No, because the bigger taxpayers help pay for the system so the little taxpayers benefit too.

With a flat-fee model the smaller loan borrowers would end up compensating the system, which could be high in percentage to their loan amount, and the banks may need to justify the fee with more aggressive interest rate tiers for smaller loans.

ACCORDING TO THE SEDGWICK REVIEW... ''The second proposal is to move away from payments to Aggregators and Mortgage Brokers that are related to the value of the loan in favour of arrangements more nearly tied to the effort required to secure a loan … loan complexity, and thus the effort required by Mortgage Brokers to secure a loan on behalf of the consumer, may be more closely correlated with the characteristics of the borrower. An alternative to a value-related commission, therefore, might be fees for service paid by the bank but set either as a flat amount or related to the characteristics of the borrower.”

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UPFRONT

NEWS ANALYSIS

TAX ONE, TAX ALL As Australia’s government indulges in another round of bank bashing, brokers could get caught in the crossfire, writes MPA editor Sam Richardson

AT 10AM the ASX opened and the bank stocks began to plummet. ANZ, CBA, NAB and Westpac were hit, as well as Macquarie: nearly $14bn was wiped from their share prices in total. This would all have made sense on 10 May, the day after the government unveiled a new 6 basis point bank levy, but the price collapse occurred on 9 May, nine and a half hours before the budget was unveiled.

Evidently someone knew the bank levy was coming, if not the banks themselves.

“This new tax is not a well-thought-out policy response to a public interest issue,” commented Australian Bankers’ Association CEO Anna Bligh. “It is a political tax grab to cover a budget black hole.”

Although it is equivalent to just 0.06% of a bank’s liabilities, and affects only the big banks and Macquarie, the levy is expected to bring in $6.2bn over four years. The government says the levy will apply from 1 July, although it is less clear when it will end, or how the banks will pay for it.

Raising rates isn’t an option, according to Treasurer Scott Morrison. “Don’t do it,” he told banks the day after the budget. “Don’t confirm their worst impressions. Tell them another story. Tell them you will pony up and help fix the budget.”

Rate rises and competition Australia’s banks don’t appear to agree.

Commonwealth Bank CEO Ian Narev has already warned that “higher costs are either passed on to customers through reduced service levels or higher pricing, or to

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shareholders through lower returns. There is no middle option to absorb costs.” While not explicitly stating they’ll raise rates, the other banks have made similar points to Narev’s.

Major bank borrowers’ interest rates could rise by 20 basis points, analysts from investment bank Morgan Stanley have predicted.

Martin North, principal of research firm Digital Finance Analytics, made a similar claim when speaking to MPA. “Because the mortgage book is half of the total book you assume there would be a 15–20 basis points hike in mortgage rates, if they put it all through.”

Although the levy will only affect the big five, refinancing your customers with the nonmajors may not be the best option, North warns. “If the big four reprice their mortgages

Foreign-owned banks could be the main beneficiaries of the budget, according to the major banks. ING DIRECT and HSBC have the ability to raise funds from overseas while being exempt from the levy due to their small presence in Australia. Foreign-owned banks

“If the big four reprice their mortgages I’m pretty sure the regionals will follow” Martin North, Digital Finance Analytics I’m pretty sure the regionals will follow anyway, because they need to do margin repair on their books.”

Adelaide and Bendigo Bank CEO Mike Hurst and others in the non-major sector have welcomed the levy as a way to even the competitive playing field. Deloitte told MPA that concerns about competitors could dissuade the banks from making aggressive rate hikes.

However, North says the non-majors still face a “significant competitive disadvantage” because of higher capital requirements.

start from a low base, however: ING’s share of AFG’s lending was just 3.51% in February, while HSBC only resumed dealing with brokers in June.

Unscrambling the egg Standing between major bank borrowers and higher rates is the ACCC. Morrison has tasked the ACCC with forcing the banks to explain future rate changes and ensure they don’t use rate hikes to pass on the levy.

Unfortunately for the Treasurer, explaining

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WHICH BANKS WILL BE HIT HARDEST? The Australian Financial Review has predicted how the federal budget’s 6bp bank levy will impact the banks over the coming financial year.

$417m 5.9% of 2018’s net profit after tax (estimated)

$339m 4.9% of 2018 NPAT

$393m 3.9% of 2018 NPAT

$335m 3.9% of 2018 NPAT

$77m 3.4% of 2018 NPAT Source: Deutsche Bank, Australian Financial Review

rate hikes is “like trying to unscramble an egg”, says DFA boss North. “I think it would be impossible to identify which elements of funding, or the levy, would be responsible for moving prices up or down. There’s a whole host of reasons why, outside the levy, prices will continue to rise,” he explains. International funding is still expensive; the banks are still hindered by overly cheap loans from last year; APRA is forcing them to reduce interest-only lending, and, finally, capital requirements continue to increase. At the end of the year APRA will publish a paper which North expects to recommend raising rates and consequently rates on mortgages.

Therefore, says North, “we have not seen the end of the mortgage rate hikes”.

Impact on brokers The government’s bank bashing could end up hitting brokers.

“This levy comes at a time when bank earnings and profitability are already facing multiple headwinds,” warned credit ratings agency Moody’s, pointing to moderate credit

growth, low interest rates and rising capital requirements. Coupled with further scrutiny of vertical integration by the Productivity Commission later this year, the banks have the incentive to take radical action.

Banks could save billions of dollars by

rates over the next few months, the analysts have predicted. “While mortgage brokers are unlikely to be happy with this outcome, we believe there is little they can do,” they said.

Competition between banks would keep interest rates low, however, and “offset the

“There is no middle option to absorb costs” Ian Narev, Commonwealth Bank cutting broker commissions, according to UBS. The investment bank claims that the cost of brokers is rising and accounted for 23% of the cost base of the major banks’ personal/consumer divisions in 2015.

Analysts Jonathan Mott and Rachel Bentvelzen wrote: “We estimate mortgage broker commissions add 16bp per annum to the cost of every mortgage in Australia, irrespective of whether the mortgage was broker or proprietary originated.”

Following the ASIC and Sedgwick reviews the banks will start to lower commission

additional repricing expected by the banks as they adopt the new Bank Levy”.

Sedgwick’s review gave the banks until 2020 to enact its recommendations, without explicitly recommending cuts to commissions.

The consultation period for responses to ASIC’s review closed in June, making it unclear how banks would radically change commissions in time for the implementation of the levy on 1 July.

Whatever the outcome, the budget has created a $6.2bn reason for Australia’s banks to start making changes.

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UPFRONT

OPINION

GOT AN OPINION THAT COUNTS? Email sam.richardson@keymedia.com.au

THE YEAR OF BROKER SCRUTINY Mortgage Choice CEO John Flavell explains why he’s backing ASIC and blasting Sedgwick when it comes to remuneration WHAT A year it has been so far! Within the first few months of this year, we have seen not one but two reports that focus on broker remuneration structures.

In March, ASIC unveiled its Review of Mortgage Broker Remuneration report. I, for one, welcomed the report and its findings.

Over the last 12 months or so, Mortgage Choice worked very closely with ASIC, providing the regulator with all the information it needed in order to conduct a thorough investigation into broker remuneration structures.

And we weren’t the only broker to work closely with the industry watchdog. ASIC constantly asked for feedback and the industry was quick to provide it with exactly that.

From the time ASIC launched its investigation and right throughout the entire process, it sought industry input and we happily obliged.

Thanks to ASIC’s extensive consultation process, I believe it presented a well-thoughtout, fair and reasonable report.

At the core of its report, ASIC made it clear that brokers play a very important role in the home loan market.

According to the report, brokers can help match the needs of consumers with the right home loan products and lenders; they navigate the home loan application process, which can be daunting for many consumers, and improve consumer understanding of

I do not believe it is brokers’ or the Australian Bankers’ Association’s role to tell regulators what to do home loans, as well as their financial literacy.

Indeed, ASIC made it abundantly clear that brokers play an important role not only in promoting good customer outcomes but also in driving competition within the home loan market.

In addition, ASIC has made it clear that it believes the logic behind the current commission model, which involves an upfront and trailing commission payment, is sound.

That said, the regulator also believes there is the potential to make some subtle changes around the fringes of the current remuneration structure. This feedback

SEDGWICK REVIEW Sedgwick proposes that banks end volume-based incentives, non-transparent soft-dollar payments, and increased commissions during sales campaigns. However, the most controversial recommendation is no. 18: “Banks adopt approaches to the remuneration of Aggregators and Mortgage Brokers that do not directly link payments to loan size and reflects a holistic approach to performance management”

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wasn’t surprising; in fact we were totally prepared for it.

At the moment, Mortgage Choice looks forward to continuing its work with ASIC and conducting an ongoing consultation with the Treasury over the coming period.

But while we welcome ASIC’s Review of Mortgage Broker Remuneration report, I cannot say the same for the second report into broker remuneration structures we have seen this year.

One month after ASIC released its report, Stephen Sedgwick released his Retail Banking Remuneration Review.

Unfortunately, this report was long on anecdote and short on facts.

I do not believe it is brokers’ or the Australian Bankers’ Association’s role to tell regulators what to do, or what changes need to be made.

While some of the recommendations made within the review could be considered ‘interesting’, I think the timing of Sedgwick’s

report was odd, to say the least. It is important to note that at the time Sedgwick released his review, ASIC was (and is) still going through its process.

So, with regard to the two reports into broker remuneration structures, I just have this to say: ASIC’s Review of Mortgage Broker Remuneration was well researched, and the level of consultation it went through should be commended.

Looking ahead, at Mortgage Choice we will be focusing our energy and efforts on working with the regulator.

John Flavell has been CEO of Mortgage Choice since early 2015. Before that he led NAB’s wealth advice arm and ran NAB’s third party channel operation. He also has experience of working at Aussie and RAMS. Mortgage Choice was extensively involved in the consultation process for ASIC’s Review of Mortgage Broker Remuneration and was mentioned in the report.

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PEOPLE

BIG INTERVIEW

BRETT HALLIWELL: SHIFTING THE GOALPOSTS Advantedge’s general manager has long predicted a breakthrough for white label, but a rapidly changing market presents new challenges, he tells MPA editor Sam Richardson IF WHITE label lending becomes the norm in Australia, it’ll have Brett Halliwell to thank. While Advantedge is certainly not the only lender in Australia to fund white label mortgages, Halliwell has been promoting these products incessantly since joining the NAB-owned lender in 2009.

Halliwell is finally getting to the point of ‘I told you so’. From humble beginnings white label now accounts for 7% of overall lending, according to MFAA Comparator data – its share having doubled over the last two years.

AFG’s quarterly Competition Index puts white label’s share ahead of that of many non-major banks. Halliwell has reasons for optimism: “[White label] is fairly understood: it is gaining good traction, and most brokers in the market do have a fairly good feel of what it’s about.”

Yet the market Halliwell seeks to dominate has also changed. Whether through APRA’s changes to investor and interest-only lending or ASIC’s proposals on mortgage broker remuneration, Advantedge has been forced to alter its strategy. Furthermore, being owned by NAB, Advantedge stands at the eye of the storm following the publication of the Sedgwick review. Halliwell talked to MPA about the challenges and opportunities on the horizon.

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Regulation and response “The market landscape now is a lot more complicated,” Halliwell explains. “Most lenders will have differences between investors and owner-occupied, P&I and interest-only. What the market and us have done is move to a matrix-based price structure, and that includes LVRs.” As part of the matrix-based approach, Advantedge raised variable interest rates in January and April, the former affecting all borrowers and the latter restricted to investors. However, in February Advantedge actually reduced fixed and variable rates, in

changes,” he says. “Advantedge has been on the front foot with BDM support and operational support to walk brokers through these changes to make sure they’re fully up to date with where we’re placed in the market at any given time.”

Policies were simplified in May and will be further simplified in the coming weeks, says Halliwell. “They go to areas like income verification, further changes to our valuation policy, and our definition of self-employment.”

What hasn’t changed is Advantedge’s ‘two-pronged’ strategy and target borrower.

The lender is well known for mainstream

“The market landscape now is a lot more complicated. Most lenders will have differences between investors and owner-occupied, P&I and interest only” conjunction with the removal of its Quality Discount Program.

Halliwell recognises the confusion such shifts can cause. “With the market making many changes to pricing and many changes to policy, it’s difficult and confusing for brokers to keep up with a lot of these

mum-and-dad products but, Halliwell explains, “at the other end of the spectrum we’ve worked hard at being able to do bigger and more complex deals, and I define bigger as being loan sizes over $2m, and complex is self-employed business owners who might have, for example, complex trust structures.”

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PROFILE Name: Brett Halliwell Title: General manager Company: Advantedge Years in the industry: 22 Career highlight: The phenomenal growth of white label. According to the latest MFAA Quarterly Comparator data, white label now accounts for 6.6% of overall home loans, a figure that has doubled over the past two years. Advantedge white label home loans are also now accessible by 85% of brokers in the industry.

Career lowlight: Working in investment banking trading esoteric derivative products that had no connection with customers.

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PEOPLE

BIG INTERVIEW Taking the initiative with technology While many lenders are being forced to go on the defensive, reacting to one regulatory upheaval or another, Halliwell insists that Advantedge is proactively improving its offering to brokers, particularly when it comes to technology.

In March, Advantedge launched an SMS service to allow customers to pick a valuation appointment themselves. “The convenience of being able to organise it is a real value-add for the purchaser,” says Halliwell, pointing out the difficulty of coordinating buyers, owners and tenants. That’s in addition to the kerbside and electronic ‘desktop’ valuation options available.

“The world is very much moving towards digitisation and how we make things easier through digitisation of everything we do,”

“During the course of the consultation period we will certainly be looking at [ASIC’s proposals] from those different perspectives,” says Halliwell. “I understand that PLAN, Choice and FAST are looking to provide additional disclosures to customers, through the likes of credit guides, which will actually mention the NAB ownership and call out that Advantedge is a white label under that aggregator and is owned by NAB.” Nor did ASIC entirely overlook white label, Halliwell observes. “Lenders who own aggregators had broadly the same market share across all aggregators, including those that were now owned; but where they have a white label, in addition to the primary brand, they capture an additional market share,” he says. “I don’t think ASIC reflected on whether that was a positive or

“We’ve worked hard at being able to do bigger and more complex deals, and I define bigger as being loan sizes over $2m” Halliwell observes. Advantedge is playing its part in this, running pilots on electronic customer identification, electronic documents and electronic settlements.

One project, in which brokers use mobile phones to identify customers, demonstrates the spin-off benefits of technology, according to Halliwell. “It’s convenient for the broker, it’s convenient for the customers, but as a lender it also offers the benefits of ensuring that deals are lodged with things like privacy declarations and broker consents. That means there’s a better chance of us getting it right first time, which allows us to deliver a better and faster experience back to the broker and their customers.”

ASIC and Sedgwick The ASIC Review of Mortgage Broker Remuneration examined both Advantedge and white label, but neither were mentioned in ASIC’s six proposals. Nevertheless, Advantedge will be directly affected by Proposal 4, for “clearer disclosure of ownership structures within the home loan market”.

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negative outcome; certainly from our perspective we very much take the view that brokers act very much in the interests of customers.”

Advantedge will be adopting relevant changes “consistent with the themes and findings of the ASIC report”, while making a submission, Halliwell explains. “Broadly our position is that we support the findings and proposals that were made by the regulator.”

Advantedge will also need to respond to the Sedgwick review. Sedgwick recommended that banks decouple commission from loan size by 2020, and NAB has committed to implementing the recommendations. Will Advantedge also be ending percentage-based commission? “We are reviewing our position,” Halliwell says. “Advantedge, as a part of NAB, will be encompassed by the lender’s response.”

For now, Halliwell is determined to keep pushing white label, confident it will succeed.

“All of us go to supermarkets, and if we can embrace white label in supermarkets, it’s a really easy extension to take that into a bigger and more important purchase like mortgages.”

ADVANTEDGE UNDER ASIC’S SPOTLIGHT ASIC looked at vertical integration and found that white label products – rather than ownership – can raise a lender’s market share, with Advantedge being a key example.

13.2% NAB/Advantedge overall market share

12.7% NAB share of FAST/Choice/PLAN loans

22.3% NAB + Advantedge share of FAST/Choice/PLAN loans Source: Table 10, ASIC Review of Mortgage Broker Remuneration.

Note: Figures refer to 2016.

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SPECIAL REPORT

TOP 10 INDEPENDENT BROKERAGES

2017

TOP 10 INDEPENDENT BROKERAGES

Emerging from a tough year in broking, these 10 brokerages are supporting top brokers with new approaches to processing, marketing and management

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READ THROUGH the names in this year’s Top 10 Independent Brokerages list and it might seem that not much has changed. The same pack of top-performing specialised brokerages is continuing to write huge volumes of loans, but the conditions they face have become much, much tougher.

Top independent brokerages aren’t just exposed because of a lack of brand awareness or head-office support. Many of the brokerages in this list are highly specialised in the client sectors recently targeted by regulators, namely investors and foreign buyers. Many long-term clients now cannot get finance, leaving brokerages with tough choices to make over how to allocate their time. The fact that eight of last year’s Top 10 made it to this year is therefore hugely impressive.

This report – alongside its sister report Top 10 Franchise Brokerages – is about finding out how these brokerages weathered the storm. We talked to brokerage owners and managers about the decisions they’ve made to change their processes, cut costs or even charge fees to clients. However, as many brokerages reminded us, the sustainability of their business models is now beginning to stand out, with some brokerages continuing to raise volumes while others survive on their trail books.

Applications for MPA’s Top 10 Independent Brokerages list were open to all independent brokerages with five or more loan writers through an online application system.

Brokerages were ranked in the categories of loan book size, settlements over a 12-month period, average settlements per loan writer, and conversion rates. We combined the rankings in individual categories to produce an overall ranking, with settlements over a 12-month period being used to separate brokerages in the case of a tie.

We’d like to thank all the brokerages that took the time to apply, whether or not they are recognised in this list, as well as the aggregators that helped us verify all the numbers you see here.

HOW 2017’S TOP 10 COMPARE TO 2016’S Changes to investor and owner-occupier lending caused lending to fall nationwide in 2016, with some independent brokerages being particularly vulnerable due to their focus on property investors. Here’s how MPA’s leading independents performed:

On average, Top 10 Independent Brokerages produced marginally higher settlements in 2017: 2016 Average settlements

$ 461,787,737

2017 Average settlements

$462,290,674

However, they also had more brokers, on average, meaning per-broker settlements were considerably down compared to 2016: 2016 Average settlements per broker/loan writer

$53,395,743

2017 Average settlements per broker/loan writer

$46,495,908

Conversion rates for the Top 10 also fell slightly this year: 2016 Conversion rate

91%

2017 Conversion rate

88%

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SPECIAL REPORT

TOP 10 INDEPENDENT BROKERAGES

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ALLIANCE MORTGAGE SOLUTIONS Donald Tang and Eric Cui’s brokerage has survived foreign buyer restrictions by making some tough decisions Established 2012

Total loan book

$1,211,947,566

Total settlements 1 March 2016–28 February 2017

$227,067,446

Number of brokers/loan writers

10

Average annual volume per broker

$22,706,745

Conversion rate

79%

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WHILE MANY brokerages worry about their business being disrupted by new regulations, Alliance Mortgage Solutions has been through all of that and emerged in one piece. Alliance played heavily in the foreign buyer space, and the decision of most banks to stop lending in this space was a big blow to the brokerage, recalls sales director Donald Tang, who estimates that 35% of the brokerage’s business was affected. Staying in the Top 10 has required a major change in strategy and some tough decisions.

Foreign borrowers are not entirely without options.

A couple of non-banks still lend to foreign buyers, says Tang, although “the interest rates are higher and their fees are expensive, so not many people want to choose them”.

Loans now require much more work to process, and so Alliance has begun charging clients fees of $2,000–$5,000. This is dependent on the difficulty of the scenario and whether the client has been preparing to buy for a long time; it’s new clients that are mainly charged fees. “Not many [are put off ],” Tang explains. “They know the situation, they know the market is very hard; they want to find a professional broker who can get the deal done and keep the property.” Alliance doesn’t charge the most in this particular market, Tang adds.

Tang’s longer-term strategy is to shift Alliance’s focus towards local clients. “We are putting more energy and time into local markets, both residential and commercial lending as well.” Alliance has plenty of off-the-plan referral partners and is expanding its network of local real estate agents.

Ninety percent of Alliance’s business previously came from residential lending, but Tang wants to reduce this to 70%. Alliance has set up a business dedicated to commercial deals, for which it is hiring only experienced commercial lenders – a big shift from the new-to-industry brokers it previously targeted.

Despite all the upheaval of the last 12 months, it’s somewhat surprising to hear that Alliance is still hiring for both the residential and commercial businesses. The brokerage has balanced this with cost-cutting: it has dropped a number of support roles and will be leaving one of its offices on Sydney’s Castlereagh Street when the lease expires this year. Nevertheless, as Tang puts it, “I don’t think there are other costs we can cut”.

Hiring experienced brokers has another advantage in an industry plagued with uncertainty, Tang explains.

“A lot of [our] brokers are worrying about the industry and their income. If I can get maybe two or three experienced brokers to join us, that’ll give them confidence.”

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SPECIAL REPORT

TOP 10 INDEPENDENT BROKERAGES

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GREEN FINANCE GROUP Heading up the leading commercial brokerage in our Top 10, Daniel Green faces a different set of challenges to the rest Established 2011

Total loan book

$702,498,973

Total settlements 1 March 2016–28 February 2017

$209,892,693

Number of brokers/loan writers

9

Average annual volume per broker

$23,321,410

Conversion rate

95%

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GREEN FINANCE Group isn’t just a long-running Top 10 Independent Brokerage. Its founder Daniel Green and several of his brokers have also been featured in MPA’s annual Top 10 Commercial Brokers reports, and Green Finance Group offers a vast array of services beyond residential lending, financing everything from pubs to hair salons.

“Commercial and equipment finance makes up the bulk of our business and this isn’t going to change,” Green explains. “Naturally we provide a onestop shop for our business clients, which ensures we also cater to personal and home finance as well as insurance and financial planning needs, so I’d be more likely to say it’s our commercial expertise that brings clients in the door and the diversification of services that keeps them there. It’s a simplistic approach but it works!”

This diversification has helped insulate Green Finance Group from lending changes this year, but residential lending remains part of Green’s one-stop shop. This year the brokerage expanded its residential lending arm into northern NSW and has been advising residential clients on how they can minimise costs, for example by switching from interest-only to P&I while banks still allow this for free. Quality residential advice is paying off, Green believes. “We are starting to see the benefits of cross-border relations with commercial referrals, and it’s proved a rewarding challenge for the team.”

ASIC’s review of broker remuneration excluded commercial lending, and Green’s not worried in any case. “I’m certainly not putting my head in the sand on the matter, but we’ve weathered changes of this nature previously and I’m confident that a commercially viable solution will be found that will work for professional brokers.”

The brokerage is continuing to hire, taking on new commercial brokers in April and May and looking to rebuild its residential lending team in Queensland, having sent some members into NSW. “The aim is to

“We provide a one-stop shop for our business clients, which ensures we also cater to personal and home finance needs” grow the residential component of the business, which will see the recruitment of at least two to three new resi brokers in the short term,” Green says. “Realistically, recruitment is always a focus, but I’m not interested in bums on seats; they’ve got to be experienced, passionate about the business, and the right fit for the team.”

As a commercial broker, Green sees plenty of businesses that have failed to control costs, but Green Finance Group isn’t one of them. “I am acutely aware that for the right activities you have to spend money to make money, and we constantly measure performance and change spending behaviours to generate a greater return.” He’s confident the brokerage is well placed for future lending changes. “Changes are inevitable, but we will always go in to bat for our clients with a view to negotiating better loan terms and conditions.”

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N1 LOANS Thanks to real estate, Ren Wong’s business now has 40% of its revenue coming from outside mortgages as it responds to tough lending conditions

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Established 2012

Total loan book

$780,000,000

Total settlements 1 March 2016–28 February 2017 PREVIOUSLY A buzzword, now a pressing issue, diversification is a strategy used by many brokerages to respond to changes in lending and remuneration. For most brokerages that means 10–20% of revenue coming from outside mortgages, but what happens when that number hits 40% and growing?

That’s the case at N1 Holdings, the parent company of N1 Loans, where real estate has become the major growth driver, says CEO Ren Hor Wong. N1 Realty was launched in late 2016 and since then “we’ve refocused very much on the real estate business, the resales and the auctions, because that’s very much how we generate leads for our brokers, at the open inspections”.

Investor lending changes and particularly the banks’ reluctance to lend to foreign borrowers has hit N1’s traditional target clients. “It’s much lower nowadays,” Wong explains. “I’m doing one at 5% LVR; imagine that! ... there is lending happening, but our average loan size has reduced and we have to do more work to achieve the same result.”

The average loan size has dropped from $600,000 to $450,000, with a corresponding hit to commission, but Wong doesn’t see fee-for-service as a way to bridge the gap. “Personally, I don’t think feefor-service works for residential because people can walk into a branch and get a loan for free, so why

would they want to talk to a broker?”

Clients can just as easily save time and money by using comparison sites, Wong says, which is an eventuality he has prepared for by launching his own website, chengdai.com.au, Australia’s first Mandarinlanguage property comparison site.

Although the tail is now truly wagging the dog, the rise of real estate at N1 is good news for brokers. A surge in listings means Wong needs more brokers. “On a Saturday we could have seven or eight open inspections, but we can’t possibly have just one broker.” N1 took on three new brokers in April and has a dedicated recruiter in-house to carry out its “aggressive” hiring plans.

These hiring plans are achievable because at present controlling costs isn’t a huge concern for Wong. “We’re lucky that we have the trail book and a huge book of property management.” N1 Holdings is ASX-listed, but its share price has remained stable despite the publication of the ASIC and Sedgwick reviews.

The synergy between real estate and broking that now drives N1 certainly isn’t a coincidence, says Wong.

“We’ve had this plan for 18 months to diversify. Our aim is to have mortgage broking revenue less than 50% of the overall revenue composition. That doesn’t mean the mortgage broking revenue won’t grow; it’s that the other parts of the revenue growth is higher.”

$310,000,000

Number of brokers/loan writers

9

Average annual volume per broker

$34,444,444

Conversion rate

80%

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SPECIAL REPORT

TOP 10 INDEPENDENT BROKERAGES

7

SHORE FINANCIAL Marketing, remuneration and software are undergoing major changes at Shore Financial, explains CEO Theo Chambers Established 2013

Total loan book

$1,650,000,000

Total settlements 1 March 2016–28 February 2017

$872,000,000

Number of brokers/loan writers

22

Average annual volume per broker

$39,636,364

Conversion rate

55%

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ENTERING THE Top 10, as Shore Financial did this year, can hardly be accomplished through business as usual. “We’re actually going through a massive restructure,” CEO Theo Chambers explains.

“We’re looking at becoming a bit more of an online brokerage, generating leads online on the back of our real estate data.”

Shore has long had a close relationship with real estate agents, especially Sydney estate agent Richardson & Wrench. Going online will enable Shore to target real estate clients in new ways, Chambers explains. “You can market to the landlords, market to the buyers … it’ll increase our value proposition to brokers.”

Chambers’ restructuring at Shore goes beyond marketing, however. The roles of learning and development coordinator and operations manager have been combined under a new operations manager, who brings with her several years of experience in finance. The brokerage’s commission splits will also be tiered to better incentivise brokers, passing on up to 80% of commission to the broker.

Costs will be controlled by outsourcing some marketing and social media tasks, Chambers adds.

“We’re probably getting more done now that it’s outsourced.”

Shore Financial is heavily dependent on residential lending commissions, a fact Chambers is particularly conscious of in light of the recent ASIC and Sedgwick reviews. “That’s why we’re looking at vertically integrating and getting a credit licence and selling our own product, to have our own team we can get things over the line with.”

The brokerage has already begun to diversify, taking on several financial planners and setting up Shore Legal, covering conveyancing and estate planning. “It’s not about the profit to be made in legal for us,” Chambers says. “It’s more about the value-add to our referral partners and clients.”

Finally, in an effort to improve the relationships between brokers, referral partners and clients, Shore will be introducing Oceania, a new CRM system for brokers. Oceania is geared towards better marketing for clients, allowing a broker to contact all clients with a particular bank to warn of rate rises, for instance. The system integrates with AFG’s Flex software and, according to Chambers, “it saves data entry work for the broker as it copies information from the customer automatically”. He’s confident Oceania will provide Shore with a major advantage.

“I believe it will increase efficiency by 30% and increase actual sales results by 30%.”

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ACCEPTANCE FINANCE

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Facing investor lending restrictions and possible commission changes, CEO Daniel Di Conza is restructuring his brokerage Established 2002

Total loan book

$1,249,100,000

Total settlements 1 March 2016–28 February 2017 ON THE face of it, nothing much changed in the past year at Acceptance Finance, says Daniel Di Conza. “It was very much business as usual the last 12 months.” The period 2016–17 was the calm before the storm as changes to investor lending changes are about to bite, Di Conza warns. “We haven’t really seen the impact of that in settlements yet, but we expect to get a reduction.”

The review of remuneration by ASIC and the Sedgwick review are also on Di Conza’s mind. “It certainly caused some concern and confusion in our team.” He’s encouraged by the support for broking in ASIC’s review but concerned by Sedgwick’s call for flat remuneration. “Fingers crossed it’ll be like it was in the late 2000s when a number of entrants left the industry and we got a bit more professional; there was a lot of consolidation at broker level and we might be going through another cycle.”

Aiming to be one of those brokerages left standing when the dust has settled, Di Conza has already begun making changes to Acceptance Finance. The retirement of a member of management provided an opportunity for restructuring.

“Previously we had one sales manager running the whole team. What we’re really doing is dividing the brokerage team reasonably equally amongst the

three leaders – the CEO, GM and sales manager.”

This will help brokers get more tailored advice while helping management keep up with an expanded workforce. The new structure aids professional development, Di Conza believes. “We try to keep a step ahead. As your brokers mature and become more competent, I think having a different approach and working with different people in your leadership team is important.”

Being 80% dependent on commissions, Acceptance Finance is vulnerable to changes but is countering this by cutting costs.

“We like to review our costs every year anyway – there’s no point having excess staff or non-productive staff,” says Di Conza, adding that he’s looking at new office premises and using technology to cut down on costs, just as email reduced postal expenses over a decade ago.

While Di Conza doesn’t think commissions will be cut, he is concerned that a reduction in volumes caused by tight lending restrictions could have a similar effect. “I think controlling costs is going to become even more important. When the GFC hit and our commissions changed, we had to change the way we did business; I think we’re probably going to have to do a similar thing.”

$313,441,538

Number of brokers/loan writers

13

Average annual volume per broker

$24,110,888

Conversion rate

93%

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SPECIAL REPORT

TOP 10 INDEPENDENT BROKERAGES

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TRILOGY FUNDING Ed Nixon’s investor-focused brokerage is growing and climbing the rankings despite major changes to investor lending Established 2003

Total loan book

$1,108,927,843

Total settlements 1 March 2016–28 February 2017

$261,000,000

Number of brokers/loan writers

6

Average annual volume per broker

$43,500,000

Conversion rate

93%

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THIS IS the second year that Trilogy has climbed the rankings in defiance of market conditions. In 2016 Trilogy clinched sixth place despite APRA instituting a 10% cap on investor lending. In 2017 Trilogy has reached fifth spot in a year when investors have been hit with rate hikes and tough serviceability criteria. So how has an investor-focused brokerage with few diversified services managed it?

Trilogy has not emerged entirely unscathed, admits CEO Ed Nixon. “It’s had an impact on us, definitely, as we focus on the investment field.”

The brokerage’s annual settlement volume was $10m lower this year despite having an extra broker on board.

Trilogy markets the company as ‘the property investor’s mortgage broker’, working on portfoliobuilding strategies, but serviceability criteria has stopped some clients in their tracks.

“We have clients who can’t even borrow what they already have!” Nixon says. “It’s changed a lot.”

However, he’s confident these clients will return.

“That’ll change over time as their rents go up, as their incomes go up, as rates change; they’ll come back into the fold again.”

What lending changes haven’t impacted are Trilogy’s processes. In fact, Nixon explains, brokers

aren’t necessarily having to spend longer on investor loan applications given how strict the new requirements are. “It’s a bit more black and white whether they do or don’t work, because it’s a bit more down to serviceability with the stress testing that the banks have put on … it’s just the criteria has changed; it’s not a bad thing.”

Nor is Nixon particularly concerned about the outcome of the ASIC and Sedgwick review recommendations. “I think everybody is concerned about ASIC and Sedgwick, but we’ve got an old business; it’s been around for a good few years. We’ve got a big client base with around 15,000 people in our CRM. So whilst the Sedgwick report is probably of more concern, with potential upfront and trail changes, we’ll embrace it. It won’t be as bad as in 2008 when the banks, without notification, changed the rules of what they wanted to pay us; this at least has some consultation.”

Should the changes turn out to be extreme Trilogy may diversify, Nixon explains, but with business partner and director David Thomas currently away there will be no immediate changes. The brokerage is looking to grow rather than diversify going forward.

“We’ve been on a growth trajectory, recruiting. I’ve invested more in staff than ever before.”

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SPECIAL REPORT

TOP 10 INDEPENDENT BROKERAGES

WHAT AN ELITE INDEPENDENT BROKERAGE LOOKS LIKE IN 2017 CONFIDENCE

SALARIED BROKERS We asked brokerages whether any of their brokers’ remuneration was mainly salary-based:

9/10 brokerages are planning to hire staff over the next year

4/10 brokerages – some brokers on staff are salary-based

6/10 brokerages – all brokers on staff are on commission WHAT DO YOU LOOK FOR WHEN TAKING ON A NEW BROKER? “Attitude: the persistence to learn. Somebody who has the ability to sustain the initial stage, because being a broker you won’t get immediate results.

Ren Wong, N1 Finance

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“Most importantly is that they’re the right fit within the 1st Street business, our philosophy and our way of doing things … it’s got to be someone who’s well experienced, self-sufficient and loyal.”

Jeremy Fisher, 1st Street Home Loans

“It’s not techniques; we can train them with techniques and knowledge. It’s attitude; they have to have the passion to serve our clients and the standards to keep compliant.”

Donald Tang, Tang Alliance Mortgage Solutions

“Culture is a really big thing for us at Smartmove … we focus very much on people with very strong customer service, relationship and communication skills … we can teach them the credit skills.”

Darren Little, Smartmove

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7 HUMAN RESOURCES SUPPORT

7/10 brokerages had a staff member dedicated to human resources/office management jobs

TOUGH TIMES FOR ELITE INDEPENDENT BROKERAGES When you compare on the basis of settlements per loan writer – which removes the advantage of brokerage size – it becomes obvious that independent brokerages have struggled over the past year. In many ways our Top 10 Independent Brokerages’ rankings mirror the performance of those in our Top 100 Brokers report.

Settlement total per broker/loan writer ($)

100,000,000

Some brokerages also had staff dedicated to training and recruitment. One brokerage used software to carry out HR tasks, using the bambooHR system.

80,000,000

60,000,000 “Experience is essential. Our team members, while all resi, commercial and EF experienced, work a specialty or niche industry so it’s important that they have a unique offering, or are at least willing to develop in a specific area.”

Daniel Green, Green Finance Group

40,000,000

20,000,000 Average Top 100 Brokers

0

2014

2015

2016

Maximum Minimum

2017

*Note: Top 100 refers to the minimum volume required to make the Top 100 Brokers report published in MPA in November of the preceding calendar year.

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SPECIAL REPORT

TOP 10 INDEPENDENT BROKERAGES

4

TIFFEN & CO Gerard Tiffen’s brokerage continues to challenge the big capital city brokerages from its base in Canberra Established 1995

Total loan book

$1,928,135,877

Total settlements 1 March 2016–28 February 2017

$411,972,153

Number of brokers/loan writers

6

Average annual volume per broker

$68,662,026

Conversion rate

96%

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GERARD TIFFEN’S biggest challenge this year hasn’t been ASIC, the banks or investors. “I’ve hit this weird stage in my life,” he explains. After years working with a tight-knit group of staff, several are now taking time off to have children. “It’s a strange period for me, but that’s business, isn’t it?”

In practical terms, this has meant a year of consolidation. With so many staff on maternity leave or working from home, Tiffen says, “you need to make sure you stay on top of that culture”.

Through boot camps and or weekly drinks Tiffen has been trying to hold the brokerage together, and it seems to be working: in a year when many brokerage settlements went down, Tiffen & Co’s numbers continued to climb.

Canberra has always been both a blessing and curse to the brokerage. “We’ve only got 380,000 people in Canberra,” Tiffen says. “It’s not like a 4.6 or 5 million market like Melbourne or Sydney.” However, being based in Australia’s capital has meant that Tiffen’s clients are relatively wealthy mum-and-dads, not property investors, meaning they’ve not been hit hard by recent lending restrictions.

As for ASIC and Sedgwick, Tiffen isn’t rushing to judgment. “[It’s] not that I think it’s a storm in a teacup; I think it’s serious stuff. You just don’t know

with banks, do you? I genuinely think they value us, and I don’t think they’d chop off their nose to spite their face.” He’s more pessimistic about the ASIC review: “It’s not impartial; I don’t think they’ve spoken to the right people.”

Although other brokerages are responding by going down the fee-for-service route, Tiffen is not convinced. “I’m not changing our business model … I don’t think I could charge people for doing what I do.” Nor does he believe that the brokerage, which is heavily dependent on revenue from commissions, needs to diversify. It’ll be business as usual for the coming year.

Tiffen & Co can sit tight, in part, because of its ingenious approach to controlling costs. With little marketing spend, the brokerage needs to maintain great relationships with referral partners and existing clients, who they invite to special events. “We do a lot of entertaining in-house,” Tiffen explains. “We’ve got a kitchen upstairs and we might get a speaker in who’s a client.” This month Andy Friend, Australian Sevens coach, will be coming to the brokerage, along with the captain of the Sevens, to talk to referrers.

“There’s some little gems in Canberra like that,” says Tiffen. “It creates strong relationships with our referrers; they love that kind of stuff.”

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SPECIAL REPORT

TOP 10 INDEPENDENT BROKERAGES

3

SMARTMOVE Darren Little sees changes in the market creating opportunities his brokerage is well positioned to take Established 2004

Total loan book

$1,767,097,433

Total settlements 1 March 2016–28 February 2017

$561,352,318

Number of brokers/loan writers

12

Average annual volume per broker

$46,779,360

Conversion rate

92%

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AS GENERAL manager Darren Little sees it, Smartmove hasn’t changed, but the market has. “We still operate on a word-of-mouth business model,” Little says. “The big change this year has been with the regulatory change, which actually is creating a lot more opportunity for us.”

Smartmove is one of those brokerages that you’d expect to be heavily exposed to changes in investor lending. Little makes no secret of the fact that the brokerage is relatively undiversified. “Our business model for 13 years has been a very residentialfocused business.” Many of Smartmove’s clients are investors, requiring finance to meet Sydney’s skyhigh property prices.

However, Little sees the changes as an opportunity. “We’ve always been a process-driven business, and that’s holding us in quite a good position,” he explains. “When we get improvements we improve the process for everyone.” Smartmove has spent time on education, bringing in bank BDMs to explain policy changes to its Sydney and (via video link) Manila offices. It has a dedicated trainer in-house to help the growing team improve their skills. “With half our team here and half in Manila we need to keep across these changes.”

All that education takes time, which is already

in short supply, according to Little. “There’s a lot more work involved: we’re using 18–19 lenders a month, whereas historically we’d use around 12, because we’re needing to look at those banks to get solutions for the client.” More documents are also required to move forward. “Now you really need everything up front so you can find the solution. If they drip-drip that information over a week you’re not going to have all the information to provide a solution,” Little says.

Smartmove is making some concessions to market conditions. It recently took on a commercial broker and is controlling costs with standardised processes and equipment. However, the brokerage is not planning to charge fees, and Little doesn’t believe it needs to change its core model. “We run a PAYG model with untapped earning potential and that’s held us in a good position for today, and I’m very confident for the future.”

That’s why, when many other brokerages are cutting support staff, talent acquisition is Little’s number one priority for the year ahead. That includes expanding Smartmove’s Manila support team “so the brokers we have on the ground here in Sydney are well placed to provide clients with those solutions and build relationships”.

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1ST STREET FINANCIAL

2

Jeremy Fisher isn’t fazed by regulatory turmoil as he restructures his brokerage in preparation for growth Established 2002

Total loan book

$4,288,378,000

Total settlements 1 March 2016–28 February 2017 FOR 15 years 1st Street has been slowly growing and developing, but the model has remained relatively unchanged, until now. Previously, managing director Jeremy Fisher oversaw a team of brokers writing mainly residential loans with a minimal support structure. But this year the brokerage made a huge change, he explains. “We’ve brought on a COO, and his role is to look after our broker relationships and look at bringing on new brokers.”

Ofer Greenberg is 1st Street’s new COO, coming from a background in private banking at ANZ. “He’s out on the road working with some large organisations to set up additional referral opportunities,” Fisher says.

The COO will also work on recruiting new brokers.

It’s a change Fisher has wanted to make for some time. “Now instead of going home at midnight I can go home at 9pm,” he quips. “It enables me to spend time on the business and on helping brokers … it’s taken a great deal off my shoulders, but the flipside is it means business growth, so I can’t take my finger off the pulse, that’s for sure.”

Over the past year 1st Street has brought on a second financial planner as the brokerage diversifies into planning, insurance and commercial lending. “We’re seeing more clients being introduced into the insurance space and conversion is a lot higher than in previous

“These changes have made the broker proposition even more valuable” years,” Fisher says. Commercial lending is bringing new clients to the brokerage, while the rate of home loan clients taking out insurance is increasing. 1st Street is expanding nationally, with brokers being recruited in Perth, Brisbane and Melbourne, taking the overall count to 16–17 within 12 months, Fisher predicts.

These changes aren’t, however, a response to lending restrictions. “If anything I feel these changes have made the broker proposition even more valuable,” Fisher says.

“It’s almost impossible for a client now to be able to go and understand what exact rate they’re entitled to, based on their requirements.”

While Fisher isn’t “overly enthused” by the Sedgwick review’s call for flat fees, which would hit 1st Street as a Sydney-based brokerage, he doesn’t anticipate any immediate changes. “I’m confident that the broker space and proposition is for the long term, and I’m equally confident with all these reviews that common sense will prevail … at this point not knowing what is to come, I’m one of those glass-half-full people.”

$719,345,190

Number of brokers/loan writers

9

Average annual volume per broker

$79,927,243

Conversion rate

95%

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SPECIAL REPORT

TOP 10 INDEPENDENT BROKERAGES

THE AUSTRALIAN LENDING & INVESTMENT CENTRE Jason Back and his team of high performers have made it four in a row as they develop in experience and confidence Established 2009

Total loan book

$2,817,000,000

Total settlements 1 March 2016–28 February 2017

$736,835,397

Number of brokers/loan writers

9

Average annual volume per broker

$81,870,600

Conversion rate

97%

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THE MORTGAGE industry in 2014 was a different world. Unconstrained investor lending was growing fast, at similar interest rates to owner-occupier lending, while broker remuneration was not a topic of discussion. Many of the industry’s certainties have evaporated since then, except one: the Australian Lending & Investment Centre (ALIC) is still Australia’s No. 1 Independent Brokerage.

As a property-investor-focused brokerage, ALIC is certainly not immune to changes in lending.

“The mantra in our office at the moment, unfortunately, is that it’s 25% harder and 25% less fun!” says managing director Jason Back. Yet the brokerage did grow its annual settlement volume, and Back’s view of 2016/17 is broadly positive: “We’ve actually had a fantastic year of stability, and that in itself is a change.”

ALIC’s proposition is by now well known: it positions its brokers at the centre of a ring of expert referral partners to give clients a holistic service offering. Its strategy, however, revolves around talent development. While lead brokers Mark Davis and Kevin Agent are legendary names in the industry, and they are holders of several awards, ALIC brokers such as Natasha Choi have been appearing in MPA’s Young Guns list in recent years.

Now those young guns are becoming experienced brokers, giving ALIC an important advantage, Back says. “It meant that SLAs, processing and customer experience got better, because our staff were more experienced when things came up with the banks.”

His brokers aren’t being ‘tripped up’ by policy changes. “They were more agile in their thinking, which effectively allowed us to remain competitive.”

The brokerage has been open with its clients about the uncertainty in investor lending and has used this to improve turnaround times, telling clients “to get you what you need we need to bring forward SLA dates; we need to bring forward commitment dates”.

The recommendation of the Sedgwick review, that commissions be uncoupled from loan size, is “grasping at straws”, Back argues. “The reality is the larger the loan size, generally the more complex the client. We don’t work with a cookie-cutter approach.”

Back has recently been educating brokers on cost control and understanding their hourly rate, and he is acutely aware that with a limited fee – such as $1,500 per deal – ALIC’s business model would collapse. “It’s incredibly dangerous to go down that path for our industry,” Back insists. “It’s not going to add value to the client experience.”

ALIC has taken recent steps to control costs and this year will begin outsourcing basic processing tasks to Manila, freeing up staff in Australia to face clients. Nevertheless, the majority of ALIC’s costs are fixed costs, with payroll being particularly substantial, meaning growth, recruitment and professional development remain crucial.

Listening to Back, it’s obvious that ALIC’s relentless focus on talent is set to continue, and with it the brokerage’s dominance of the Top 10. Back has big plans for his new generation of high performers: “The brokers coming in have very high targets – first year $40m, second year $60m, third year $80m. What we’re looking to build effectively is a good pool of $80m writers over the next two to three years.”

“We’ve actually had a fantastic year of stability, and that in itself is a change”

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Managing director Jason Back (left) with ALIC top broker Mark Davis

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FEATURES

FINTECH

Fintech for when the going gets tough With remuneration in the balance, cost control has become a big issue for brokers. MPA talks to several technology providers who can help you save time and money where it counts

THERE’S NO room for mistakes in broking in today’s market, especially wasted investments. The days when brokers could plough money into technology for prestige, or simply for the sake of it, are gone, replaced by a more hard-headed approach to technology and the business bottom line.

As small businesses with limited resources, brokerages have always needed to treat new technology with caution. However, the changes to remuneration discussed by the recent ASIC and Sedgwick reviews suggest that at least some brokers’ incomes could be cut. All the major banks and several of the non-majors have now committed to Recommendation 18 of the Sedgwick review, to decouple commission from loan size by 2020, if not earlier.

The problem for brokers is that large loans often mean large workloads. As David Hustwaite of Aqua Financial Services told MPA, “higher net worth clients will generally have more complex lending needs – for example cross-collateralisation; more complex structures; and their goals may need to be addressed with niche products, such as for doctors and lawyers.”

For brokerages with slim margins, timeconsuming deals may end up costing a broker

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in a very real sense. Luckily, technology is making it possible to drastically cut down the time you spend on applications. In this article we’ve talked to technology providers across the application process who can save you time with minimum investment or training required, giving your brokerage a critical advantage in the stormy waters ahead.

Identification The supposedly simple act of borrower identification has long presented major challenges for brokers and borrowers, ZipID

an hour of touch time and maybe holding up the broker’s deal, and maybe requiring the customer to do more to get clearance.”

ZipID has two different solutions to this problem. The first is a full ID service, using Toll employees to identify customers on their doorsteps. This service has been eagerly adopted by the new wave of online brokers, such as Lendi, ISelect and Uno, Simmons explains, as these brokers have no face-toface interaction with clients.

For brokers who meet clients, ZipID offers a free mobile app which puts together a fully

“When everything’s booming the cost of processing is not always front of mind. When things get a bit tighter and credit gets squeezed a bit there’s more of a focus on the costs” Tony Carn, NextGen.Net founder Sean Simmons says. “Forty percent of the time the processing team are having to ask questions and go back to collect more information. What that’s doing is adding half

compliant identification report for lenders.

This has a distinct advantage over the old documentary method of identification, claims Simmons: “ID using our app is not

THE NUMBERS BEHIND BROKING $142,000 Average upfront and trail commission generated per broker per year, BEFORE costs1 73% Average conversion rate in the six months ended September 2016, DOWN on the preceding six months1 $2,700 Average upfront commission per deal received by broker2 $700 Average trail commission per deal, per annum, received by broker2 15–20% Percentage of commission taken by aggregators2 Sources: 1 MFAA, Industry Intelligence Service, April–September 2016; 2 ASIC Review of Mortgage Broker Remuneration, March 2017

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FEATURES

FINTECH

HOW CONSUMERS WANT TO GET A MORTGAGE KPMG surveyed more than 600 of its own employees on their home loan preferences, to give lenders and brokers an idea of the channel preferences of the ‘mass-affluent’ professional consumer.

Computers 77% of consumers use desktops and laptops for researching home loans BUT just 33% apply for a mortgage through their computer Mobile phones 9% of consumers research mortgages on their phones and tablets Just 4% apply through their phone or tablet Branch visits Only 9% of consumers would go to a branch to research mortgages BUT 45% would prefer to apply in-branch Source: KPMG, The Australian Home Loan Market, May 2017

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captive to any particular lender: it gives the broker flexibility to provide that to any lender, and that can reduce the number of meetings and documents the broker needs to ask for.”

Document sourcing Many top brokers now assign support staff to collect customers’ documents. However, for single-operator brokerages, or brokers looking to make better use of their staff, document sourcing remains an unnecessarily labourintensive and unrewarding task. With lenders unlikely to reduce compliance requirements, technology providers are turning their minds to the problem of document collection.

Knowing what to collect helps, which is why NextGen.Net introduced dynamic checklists for their ApplyOnline system. Sales director Tony Carn sees the problem from two different perspectives. “It’s not just the brokers, but the lenders are very critical on this,” he says. “When everything’s booming the cost of processing

Group allows brokers to do, explains CEO Jaci Smith. “Our brokers are collecting that data within three hours of submission.

That first stage of collecting data from the customer is now done by the customer – completing their own fact-finding expenses, uploading their own documents.”

Customers are willing to help, providing brokers have already established a relationship with them, Smith claims. It’s also important to emphasise the benefits: “If we can say to them, ‘you’re going to get your answers quicker by providing this information’, then they’re going to be more than happy to provide it.”

Document uploading Next comes document uploading. ApplyOnline has now been around for a number of years, but NextGen.Net has recently worked with lenders to make uploading supporting documents easier. They’ve also been encouraging lenders to adopt electronic commercial loan applications.

“Forty percent of the time the processing team are having to ask questions and go back to collect more information” Sean Simmons, ZipID is not always front of mind. When things get a bit tighter and credit gets squeezed a bit, there’s more of a focus on the costs.”

The best way to reduce costs is to cut down on rework, requiring brokers to send the right documents first time, which is difficult without clear direction from lenders. “It’s garbage in, garbage out, with all respect,” says Carn. “We know rework rates are enormous with lenders … what brokers feel is agitated customers.”

There’s another way to reduce the time you spend hunting for documents: get the customer to collect them. That’s what the Chief CRM system by aggregator My Local

Suncorp was the first bank to allow this last year, and a major bank is set to come on board this year.

Document sending is an area you’re sure to hear more about over the next few years due to the increasing concerns around cybersecurity. While this was previously a concern for large corporations and governments, the WannaCry ransomware attack in May showed that small businesses and individuals are also at risk. NextGen. Net’s Carn confesses he’s shocked that some brokers still email customers’ personal information, and he predicts an increasing focus on cybersecurity in coming years.

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FEATURES

FINTECH

HOW CONSUMERS WANT TO DEAL WITH YOU MPA’s Consumers on Brokers survey asked consumers who had already used a broker how they would prefer to deal with brokers in future.

51% at least some in-person meetings

28% at least some phone calls

13% several in-person meetings

5% email only

3% at least some video conversations (ie Skype/Facetime)

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Ordering valuations As every broker will know, valuations can make or break an application. More often, however, valuations simply delay the application process. Lenders use their own valuation-ordering systems, meaning brokers can be left with dozens of different platforms to use and login details to remember.

of doing this are abundant, explains sales director Carn: for example, “if [as a broker] I’m halfway through dealing with someone and they say, ‘I’ve found a property’; or if I’m doing an approval and find a property months later, or they go to auction, miss out and come back again.”

Furthermore, a single valuation-ordering system allows brokers to avoid using lenders’ different systems. “You don’t have to rekey any data; you order it once.”

Brokers can also change their approach to ordering valuations to get a better view of their application pipeline, Carn explains.

Brokers can order a valuation at the start of the application and get a concrete estimate of the LVR of the loan, making the scenario easier to explain to lenders. With the valuation out of the way, any delays in the application process can be traced to their source, enabling a broker to remove inefficiencies within their own brokerage.

Pre-populating data Pre-populating data – ie when the computer fills out a form for you – is not new. Most web browsers will now offer to remember and enter your login details for websites, saving the time and stress of hunting for long-

“It’s garbage in, garbage out, with all respect. We know rework rates are enormous with lenders … what brokers feel is agitated customers” Tony Carn, NextGen.Net Different valuation systems mean brokers frequently have to re-order valuations should they decide to use another lender for a particular application.

Now NextGen.Net is encouraging lenders to allow brokers to order valuations through ApplyOnline at any time during the application process. The advantages

forgotten passwords. Unfortunately, in the broker space legacy CRM and application systems lag well behind.

Data entry and mapping was the numberone issue My Local Group wanted to address when it designed its Chief CRM system, explains CEO Smith. Partnerships with Equifax (previously Veda) and CoreLogic

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mean brokers already have access to borrowers’ credit information and local property data. “The next phase,” explains Smith, “is to map that data off that file and pre-populate the home loan application.”

Within six to 12 months, Smith estimates, the Chief system will be able to automatically pull this information from providers and enter it directly into the application without the broker having to manually transfer information. Chief will then organise data ready for submission to lenders. Using this information Smith hopes to finally eradicate the dreaded ‘ApplyOnline Red X syndrome’, where data fails to transfer from an

“That first stage of collecting data from the customer is now done by the customer – completing their own fact-finding expenses, uploading their own documents” Jaci Smith, My Local Group aggregator’s CRM to NextGen.Net’s system.

Using third parties carries a cost, which at present is divided between My Local Group and its brokers. However, Smith believes prices for services such as credit checks will

come down over time. “You’ll find that a lot of these prices will become bundles in a package based on the number of calls,” she says. “We can see technology in those areas become a lot cheaper moving forward.”

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FEATURES

FINTECH

WHY CONSUMERS DON’T APPLY ONLINE MPA’s 2017 Consumers on Brokers survey asked a range of consumers who had used a broker what their main concern was about online mortgage applications.

9% 31%

14%

23% 23%

Lender using data So far this article has mainly discussed broker technology, but what about lenders? Millions of dollars have been invested in new systems by lenders, generally with the objective of saving lenders time and effort, rather than brokers.

In fact, the major banks have also played a major role in delaying the implementation of potentially time-saving technology, by delaying the introduction of Comprehensive

Local Group and other aggregators are striving towards, pulling data from third parties to assist an application, saving brokers time in the process. One example is bank statements: “We can get read-only access to a bank statement, which can provide information about the conduct of a business.”

For small business loans, Prospa has taken this automation to its logical extreme: a system that requires barely any broker involvement at all. The broker’s website hosts an iframe

“The customer came to us, and in 29 minutes we had the money in their bank account, which is pretty much unheard of in financial services terms” Matt Bauld, Prospa

My needs are too complicated to fit in an online form I feel more comfortable face-to-face I have no concerns Not confident filling in the form without assistance Privacy concerns

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Credit Reporting, whereby lenders share information about customers to allow smarter and more personalised solutions. Yet lenders, with their resources and access to information, are best placed to drive technology forward, as the example of Prospa demonstrates.

Prospa does small business loans and prides itself on its turnaround times. Its fastest-ever decision time was 17 seconds, recalls general manager of sales and development Matt Bauld. “The customer came to us, and in 29 minutes we had the money in their bank account, which is pretty much unheard of in financial services terms.”

They typically provide 24-hour turnaround on loans under $50,000.

What’s most interesting is not Prospa’s turnaround times, however, but how it has achieved them. “All we’re looking to do is remove the pain points from an application process,” Bauld explains. “Where at all possible we’re pulling data and trying to use data in a different way so a customer doesn’t have to provide us with reams of paper.”

In short, Prospa already does what My

through which clients can apply for loans for which brokers earn commission. It’s typical of Prospa’s mission, to make commercial lending easier: “The market has been talking about broker diversification for a long period of time, but I think what we’ve tried to do at Prospa is provide the tools to do so, rather than just talking about the need to do it.”

A note on training It’s great saving time with technology, but not if the training and installation process takes you away from your business. All the providers MPA spoke to use relatively simple systems, many of them app- and cloud-based, meaning no installation is required. Training, if needed, is often provided through webinars, and in some cases aggregators and lenders cover the costs involved. Not all training can be avoided, however, as NextGen.Net’s Carn explains: “You’ve got to invest in new technology. Upskilling is not hard, and for the vast majority of brokers it’s not even them doing it; it’s just pointing their admin staff in the right direction.”

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FEATURES

SECTOR FOCUS: SMSFS

Caught in political crosshairs Labor is intent on banning borrowing by SMSFs, but will this happen and what could it mean for brokers? Maya Breen talks to three non-banks to find out more

IF YOU’RE a broker with clients in the selfmanaged superannuation fund space, your heart may have sunk somewhat on 21 April this year, when the Labor Party announced its plans to restore a ban on direct borrowing for real estate purchases by SMSFs. But what spurred this proposal and should brokers be concerned? MPA decided to take a closer look and asked leading nonbank lenders La Trobe Financial, Thinktank and Liberty Financial about the potential impact such a change could have and what it could mean for brokers.

When Labor’s proposed policy measures were revealed, Opposition Leader Bill Shorten told the media they would help address the housing affordability crisis, claiming direct borrowing by SMSFs had skyrocketed from $2.5bn in 2012 to more than $24bn currently.

However, this reasoning that they would help cool the housing market prompted quite a backlash, with assistant treasurer Michael Sukkar describing Labor’s policy as “a half-hearted dog’s breakfast”, according to the Australian Financial Review. “Their rushed proposal includes a ban on borrowing for commercial property, including shops and offices, which have nothing to do with improving housing affordability,” Sukkar said.

Although direct borrowing by SMSFs has seen high growth in the last few years,

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La Trobe Financial’s VP/chief lending officer, Cory Bannister broke down the figures and suggested that changes to SMSFs wouldn’t make much difference to the housing market. “Australian Tax Office statistics show SMSFs hold $24.3bn in limited recourse borrowing arrangements [LRBAs], which is split almost 50–50 across residential and non-residential security.

“If we take the estimated $12bn SMSFs

have borrowed to invest in residential property and stack that up against the total value of all residential property in Australia – a staggering $6.43trn – it is clear that, at just 0.18% of the market, any changes made to this space will have next to no impact on the overall performance of the housing market.”

Bannister adds that the banning of LRBAs “goes against the fundamental principles of being able to ‘self-manage’ your

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superannuation fund – it is your retirement nest egg, therefore you should be able to choose how you manage it”.

The SMSF Association was quick to voice its disapproval of Labor’s measures.

Managing director and CEO Andrea Slattery said on the day of the announcement that there was “little or no convincing evidence that the use of LRBAs by SMSFs is playing a significant role in affecting housing affordability”.

SMSFs investing in residential property, whether through borrowing arrangements or not, “should not be singled out from other investors when looking at policy solutions to improve housing affordability”, she added.

“The idea that SMSFs have plunged into property investment in recent times also is not borne out by the statistics, with SMSF residential property holdings – both geared and ungeared – being consistent between 4–6% of total SMSF assets in recent times.”

Per Amundsen, director of Thinktank, points out that the majority of residential real property held in SMSFs consists of units rather than houses, “so any impact, however small it might be, would be largely confined to the unit market. It is our impression that this is not the main target of Labor’s policy, and as such on close examination is not

likely to engender broad-based support”.

John Mohnacheff, Liberty Financial’s group sales manager, says that although the government’s intentions to cool the property market down are appropriate, it will take a combination of factors to achieve it.

“It’s worth going back to first principles to understand the benefit of SMSF borrowing.

more limited in their ability to diversify their investments.”

What could it mean for brokers?

Despite the looming potential of a ban, for brokers it will still be “business as usual”, at least in the short term, La Trobe Financial’s Bannister says. He even points out a silver

“Realistically we do not expect Labor’s ban to be implemented in the end as the logic and the rationale simply do not stand up under scrutiny” Per Amundsen, Thinktank Often the reason someone establishes an SMSF is to have greater control over investment decisions, including which asset classes to invest in over the longer term,” Mohnacheff says.

“Given that the minimum amount of funds needed to invest in property is substantially higher than for many other asset classes, borrowing within an SMSF to buy real estate can be a significant benefit for investors.

If SMSFs are no longer able to borrow for real estate purchases, SMSF holders will be

lining. “In fact, the recent uncertainty around the product’s future has encouraged more activity in this space, meaning the opportunities for brokers right now are currently high.”

Bannister doesn’t see a significant drop in those borrowers searching for SMSF loan products any time soon, explaining that “we genuinely feel LRBAs are a positive mechanism for consumers to accumulate wealth for their retirement, and we expect the number of SMSF participants will

FOUR SMSF INVESTOR TYPES 13%

22%

The 0utsourcer

The Coach Seeker

“I’d rather someone else do it”

“I’d rather do things myself but I am looking for someone to help me”

Source: SMSF Association and CommBank The SMSF Report Edition 1 – 2017

30%

The Self-directed Investor “I’m interested in it and I like doing it myself”

35%

The Controller “I’d rather do things myself but I need information to support my decisions”

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FEATURES

SECTOR FOCUS: SMSFS

SMSFS SEEKING ADVICE

19% of SMSFs don’t have an adviser

SMSF investors with advisers on how they chose them:

41% recommended by friend or relative

21% recommended by an accountant SMSF investors who want more support:

50% of advised SMSFs

59% of unadvised SMSFs Source: SMSF Association and CommBank The SMSF Report Edition 1 – 2017

continue to grow”. He says this is only good news for brokers expanding in SMSF lending.

“For brokers who have introduced SMSF lending as complementary to their existing product offering, any changes that may be made in the future will have a limited impact on their overall business.”

“Brokers who specialise solely in SMSF loans should heed the warning, based on the Labor Government’s proposed banning, that this market segment could be taken away overnight” Cory Bannister, La Trobe Financial But Bannister also reminds brokers to diversify their services and avoid relying on one borrower or asset class in particular.

“Brokers who specialise solely in SMSF loans should heed the warning, based on the Labor Government’s proposed banning, that this market segment could be taken away overnight and therefore they should be looking to diversify as a precaution.”

Liberty’s Mohnacheff notes that brokers are used to keeping up with changes in lending and will manage the SMSF space just the same. “It is unlikely that brokers would be deterred by the changes that are happening around SMSF lending given the opportunities that still exist to benefit customers,” he says.

“While there are always going to be new rules and regulations imposed on the SMSF space, there are still opportunities for brokers to expand into this area of lending.”

Confident outlook Although SMSFs are currently in an undesirable spotlight, Thinktank’s Amundsen believes the proposed ban is unlikely to be implemented. “Typically, these proposals start

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with a general statement of policy aspiration and only some time later the details are given proper attention, which then results in the amendment or the issue being dropped entirely as unworkable or too unpopular.”

Looking at it realistically, he says, the reasoning behind Labor’s ban isn’t strong

enough to see it become a reality, especially with respect to an SMSF borrowing to hold commercial properties for the long haul.

“Even if Labor’s proposed ban on borrowing is introduced at some point in the future, one traditional principle that has generally been well respected by both major parties is that of not making retrospective changes, so any decisions made now by SMSF trustees should not place their long-term wealth plans at risk.”

La Trobe Financial’s Bannister adds that the Turnbull Government does not share Labor’s view on the ban but points out that it is cracking down on the amount of debt SMSFs take on to make property investments, through inclusion of leverage in their superannuation balance and transfer caps.

He expects these changes may have an impact, particularly around nonconcessional contributions made by those with superannuation balances on the larger side, but he says “there will still be significant demand from Australians looking to take charge of their retirement savings by investing in property, an asset Australians are comfortable with, and in love with”.

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FEATURES

FIRST HOME BUYERS

No easy climb As the first rung on the property ladder seems to hover ever higher for first home buyers, MPA and ANZ team up to explore recent changes on that bumpy road to home ownership. Maya Breen reports BUYING YOUR first home isn’t an easy endeavour these days. Faced with high house prices, first home buyers have to scrabble together weighty deposits while keeping track of regulatory changes and which benefits apply to the state they live in – all this before they actually get on the ladder leading them to home ownership at a later age than previous generations. When they do purchase, getting caught out by rising interest rates or overstretched budgets could lead to losing their homes if they’re not careful, so the guiding light and expertise of brokers is needed by this particular sector now more than ever.

CoreLogic’s recent Perceptions of Housing Affordability Report found that almost two thirds (62%) of Australians believe housing affordability is worse than 12 months ago and 58% expect next year to be no different, if not worse.

This is a grim picture when most nonhomeowners (89%) believe it’s important to own your own home but 87% have doublts that they will be able to afford to do so.

FHBs thinking twice?

New data from aggregator Australian Finance Group, however, has found that the number of first home buyers is going up nationally.

Its mortgage index for Q3 FY17 revealed that FHB lodgements had jumped to 10% of the total number of loans written, levels not hit since 2014.

But in contrast, two brokers MPA spoke to from opposite sides of the country actually saw a fall in FHB clients. Simon Kahl, general manager of Western Australian brokerage The Loan Company, leads a team of 16 brokers and has seen many changes in the more than 20 years he’s been in the finance industry.

The Loan Company is a division of BGC, one of Australia’s biggest residential building groups, and as a result about 70% of its core business is FHB construction clients.

However, Kahl says in the past year they have seen a decline in these clients.

Unemployment is high in Perth and people are moving interstate to find work.

“Also, our mining industry has gone from the development phase into the production phase, which generally means that you need about 10% of the workforce that you actually needed when these particular mines were being built, so that’s also caused quite a significant downturn in the market,” Kahl says. But he is optimistic that a balance will return over the next few years.

“People still love the great Australian dream of building and buying their first home, and that mentality is definitely prevalent in WA,” he says. “There’s definitely a market for the first home buyer construction client that wants to borrow beyond 95%.”

Over in Sydney, the owner manager of Mortgage Choice for both Glenwood and Kellyville, Bianca Long, says over the past 12 months they have also not seen as many FHBs as they used to.

“At the moment we are predominantly seeing mainly existing homeowners and a lot of investors in the market. As far as what we’re seeing come through, for first home

HOW TO GIVE FHBS A CHANCE When it comes to opinions on improving housing affordability, there’s a clear divide between those of Australia’s public and those of its leading experts and economists, according to recent Finder.com.au research.

What can be done to make housing more affordable for first home buyers? (Multiple answers can be selected)

Experts

Public

Add additional supply to the market (build more houses)

97%

27%

Get rid of or reduce negative gearing

37%

29%

Get rid of or reduce stamp duty for first home buyers

27%

51%

Increase the First Home Owner Grant

17%

40%

Allow property purchases through superannuation

17%

25%

Nothing needs to be done

3%

4%

Source: Finder.com.au consumer and RBA surveys, April 2017

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owners the number has dropped significantly.

“A lot of the times it’s not so much a case of affordability at the moment; it’s purely just based on deposit.”

FHBs’ biggest worries Buying a house brings with it many challenges, but nationally, saving for a deposit is seen as the biggest impediment to purchasing a property, according to CoreLogic’s report.

Stamp duty costs come next, followed by the threat posed by foreign buyers.

From a state perspective, stamp duty was the greatest concern for respondents from NSW (48%), whereas Western Australians’ biggest fear was finding a deposit (47%).

Despite these concerns, there seems to be a lack of awareness around what options can help them become homeowners.

Only half (51%) of respondents knew there were stamp duty concessions available; 42% realised property purchase was possible with less than a 20% deposit; and just 25% were aware of restrictions on foreign buyer purchases.

Long says that among her clients only

30–40% are in a position to proceed, with most relying on parent-gifted funds. She finds their lack of knowledge in certain areas interesting as “this is a generation now that is so highly educated on everything, and when it comes to buying their first home they’re not educated on the deposits”.

Catching a break Some welcome news for prospective firsttime buyers, however, is the government’s recently announced First Home Super Saver Scheme, allowing FHBs to access voluntary superannuation contributions for a housing deposit.

The measures in the 2017 Federal Budget will allow FHBs access to $15,000 a year and $30,000 in total, with contributions able to be made from 1 July 2017.

“I actually believe that’s a step in the right direction,” says Kahl, but he adds that “because property prices are expensive, it is getting harder and harder for someone to save that deposit for a new home. This is a fantastic idea, but there needs to be a little bit more”.

Many first home buyers find buying a home complicated and stressful.

They want someone they can trust and will guide them through the process and make it easy!

This is why we know a majority of first home buyers will seek out a broker to help them, and we recognise the important role they play in helping the next generation of Australians get on the property ladder.

Together we have a critical role to play, which is why it is ANZ’s mission to be Australia’s leading bank for brokers, one that ensures broker customers receive an excellent service, for the life of their loan.

That’s why we’re investing in education, simplifying our processes and ultimately improving the overall ANZ broker experience.

ANZ BDMs can partner and support you, to help navigate rapid industry change and make the most of every opportunity.

Confident first home buyers are important to all of us, and we hope you enjoy MPA’s deep dive into this topic. Contact your ANZ BDM if you’d like further info about how ANZ can help you help your first home buyers.

Simone Tilley, GM of broker distribution, ANZ

www.mpamagazine.com.au

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7/06/2017 10:18:47 AM

FEATURES

FIRST HOME BUYERS Sponsored by

Finding safe passage

PERCEPTIONS OF AFFORDABILITY The CoreLogic Perceptions of Housing Affordability Report, based on a study conducted by Galaxy Research, reveals that many Australians are increasingly reliant on their parents and highly concerned about how they will manage to buy their own homes.

62%

87%

62%

of people believe housing affordability is worse now than it was a year ago; 82% believe next year will be the same or worse

of Australian non-property owners are concerned about being able to afford their first or next home

of people living with parents say the reason they remain at home is that they can’t afford to move out

89%

The greatest impediments to housing affordability are

of non-homeowners say it is important to be able to buy your own home if you can afford to

having the desposit, stamp duty, and foreign buyers

30% are looking to an inheritance or their parents to buy them a house

Source: CoreLogic Perceptions of Housing Affordability Report, May 2017

“A 30% rebate on what they would’ve paid on their usual tax bracket, I don’t think is enough,” he adds, referring to the fact that from 1 July 2018 withdrawals for a deposit will be taxed at marginal tax rates less a 30% offset. “If it’s going into the super fund for the purpose of buying their first home, why not actually do something that’s a little bit more generous?”

But Western Australians face a more pressing hurdle after the state government recently announced a cut to its First Home Owner Grant, which gave eligible FHBs building their own homes access to $10,000 for purchases up to $750,000, plus a boost amount. It was announced in May that the closing date for the temporary $5,000 boost, which came from the former Barnett Government last December to help FHBs get into property, has been moved

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back six months to June 2017.

WA Treasurer Ben Wyatt said the move would contribute $20m in savings to help repair the budget. “The boost is not an effective mechanism for stimulating additional construction of homes, and given the disastrous state of the finances which we have inherited, we need to remove any ineffective spending,” he said in a statement.

But Kahl says, “I can tell you right now that is so far from the truth it’s extremely disappointing,” especially as the decision was apparently made without consulting the housing industry, according to news reports.

“What’s now going to happen is a lot of people that were considering building a home and having a conversation over the next three to six months are now going to try and be pulled into the next six weeks [at the time of writing].”

Clearly it’s a turbulent time for first home buyers, with many hoops they must jump through to become homeowners. But once they have the mortgage, it’s still not smooth sailing. CoreLogic’s report found that meeting repayments was of greatest concern in NSW (41%) and WA (40%) as a barrier to housing affordability.

Mortgage Choice’s Long says a possible strain on repayments could be down to these buyers’ lifestyle choices. “Their lifestyle is very different to what the older generations is – they spend much more within their disposable income; their entertainment lifestyle is certainly more expensive than what the older generation is.

“So even though the benchmark is saying that they can afford it, I do think that there is a real sense of urgency for first home owners to pull the reins in a bit with what they’re spending, because if the rates do rise it is very much going to hurt them.”

Jamie Alcock, associate professor at the University of Sydney Business School, believes interest rate rises pose the greatest risk to first home buyers if they lead to hiked mortgage repayments that they can’t handle.

ANZ’s BlueNotes managing editor, Andrew Cornell, recently wrote that “housing is a Gordian knot of complexity and there’s no Alexander the Great to simply untangle it with one swing of a sword. In Australia, while raising interest rates may tamp down some property lending and offer investors relatively more attractive alternative investments, higher rates may also choke off broader economic growth – in turn affecting salaries, employment and business investment.”

The good news for brokers is it’s probably a safe bet that first home buyers will need them more than ever before to help them successfully navigate the increasingly complex road to home ownership.

www.mpamagazine.com.au

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BUSINESS STRATEGY

MEETINGS

SAY NO TO DULL MEETINGS Business strategist Matt Malouf explains how getting the rhythm and subject of your meetings right can turn tedious encounters into business turning points THE KEY to great management, whether your staff are local or overseas, virtual or in your workplace, is regular communication and a good meeting rhythm. You need to think of these meetings as the pulse of your business.

If it’s not beating regularly and rhythmically, then inevitably you’ll get an unhealthy system.

In the 15 years I’ve spent working in or with growing companies, the companies that are consistently growing and achieving their goals are those that have established a routine and rhythm of having meetings. The faster they are growing, the more meetings they have.

Now while this may sound counterintuitive and even crazy to you, I need to clarify that I’m not talking about having a meeting for the sake of having a meeting. I’m talking about having short meetings that are run to time, with a specific structure and agenda.

Most meetings are poorly run, demotivating and, to be frank, a waste of everyone’s time. If run properly, your meetings will be inspiring and positive and enable the business to grow at a faster rate.

A big key to running successful meetings is to prepare for them properly. This is why the daily, weekly and monthly reports are so important. The reports are designed to give you the information required to run a short and productive meeting. This way the meeting can cut through the information-gathering stage that often takes up the majority of most

50

meetings and get straight into constructive discussions and/or sharing.

A great meeting rhythm that I have implemented with many companies is: a daily meeting (sometimes referred to as a daily huddle), a weekly meeting and a monthly meeting.

Daily meeting (huddle) – a must in growing companies A daily meeting or huddle is a short meeting (five to 15 minutes) designed to support discussions around tactical issues and provide short updates. This is a great way to bring everyone together, keep everyone focused and build a culture of camaraderie and teamwork.

need another meeting. In my experience, when implemented well, the daily huddle will save you time, reduce impromptu conversations and increase the efficiency of information sharing.

I have worked with many organisations that have implemented this well, and the results are immediate. Your team will be more aligned, and you will be able to control the internal

I’m not talking about having a meeting for the sake of having a meeting. I’m talking about having short meetings that are run to time, with a specific structure and agenda While this may seem like overkill and not necessary, this is a practice that many fastgrowing companies around the world have implemented and are practising on a daily basis. You may feel like you don’t have the time to conduct such a meeting, or that you are having enough interactions already so you don’t

energy together with accelerating the growth of your company. Let me delve a little deeper on the structure and limits that lead to a successful daily huddle.

Timing It is recommended that you set the start of the

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people in less meetings, not more meetings with less people”. It is for that reason that I recommend you involve the maximum number of staff members. The ideal number to keep the meeting short and allow a good exchange of information is 10 to 20 people. In larger companies I would recommend you create a daily huddle in each department, and another daily huddle with the heads of departments.

Agenda The last point to consider is the heart of the daily huddle: the questions. The agenda should be the same every day, and only three items long (allowing up to five minutes per item). An agenda that has worked with many of my clients revolves around the following three questions: Did you achieve your primary focus yesterday?

What is your primary focus today?

What obstacles will keep you from completing it?/Where are you stuck?

daily huddle at an odd time, such as 10.10am or 12.12pm, to make it memorable. Starting at an odd time often leads to people being on time, believe it or not. As this is quite a short meeting you don’t really have very much time to waste. So it is important to the success of the huddle that you start and finish on time (ideally the meeting shouldn’t go for longer than 15 minutes). In the beginning I recommend getting someone to time the meeting and to end the meeting regardless of whether the agenda is finished or not.

Setting In order to the keep the meeting short it is best to conduct the daily huddle standing up.

This keeps the energy high and will help you to avoid extending the conversation – people don’t want to have to stand for too long.

The meeting rhythm will depend on the role and on the organisational culture. Depending on what other meetings are scheduled, I usually have a daily meeting with my personal assistant. That daily meeting is critical to her role and her ability to support me in what I’m doing. Those meetings are prebooked in my diary, one month in advance.

It’s a 15-minute meeting and the conversation starts with “How can I help?”, and then my assistant will give all the updates for the day. The meeting shifts when she says, “Matt, how can I help you?” and then I update her on what I need done. While hosting this meeting, we use Asana (our project management tool). We both have it open and make changes in real time so we can both see the capture of those tasks and make sure they get managed properly.

Weekly and monthly meetings Participants Verne Harnish, author of Scaling Up and a leading pioneers of the daily huddle concept, says, “In general, the goal is to have more

The second meeting type is the weekly meeting, which is a 50-minute meeting with a clear agenda that talks about the critical progress updates within a business. It engages

conversation to help people understand, and gathers feedback from the team on what the business should keep doing, stop doing and start doing.

When it comes to one-on-one, team, weekly or any other meetings that follow an agenda, culturally it’s good to start with: What are your wins for the week and why do they matter?

What has been your biggest challenge and why does it matter?

What have you learnt in the past week and how can you apply it?

This helps set a positive mood and tone for the meeting, providing a chance to celebrate individual victories as a team and praise individuals in front of the team. ‘Wins and positives’ for the week could be the first item on your meeting agenda. From there, move on to the remaining items.

I always end my weekly meetings with these two questions: As an organisation, based on the past seven days, what should we STOP doing?

As an organisation, based on the past seven days, what should we START doing?

These two questions allow people to voice their concerns or frustrations as well as provide ideas or solutions that can enhance the business.

Monthly meetings follow a similar agenda to the weekly meetings, except you need to add a strategic layer to them. By this I mean you should check in with the company’s goals and solve any major challenges to enable you to continue moving forward.

Edited extract from The Stop Doing List (Wiley $27.95) by business strategist Matt Malouf

Matt Malouf is a business strategist and the author of The Stop Doing List, which draws on Malouf’s work with big businesses and start-ups to help business owners free up time to build their businesses. You can find The Stop Doing List in bookshops and online. For more information on Matt Malouf, visit www.mattmalouf.com.au.

www.mpamagazine.com.au

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PEOPLE

BROKERAGE PROFILE

ARTHURMAC & CO Two-time winner of the AMA for Pepper Broker of the Year – Non-conforming, Arthurmac and Co’s managing director, Stuart Styles, has mastered the niche brokerage MPA: How has business been going at Arthurmac & Co over the last 12 months?

Stuart Styles: “We had a massive year last year, and this year is shaping up again as well.

It’s grown and grown because the business actually changed. So what actually happened is we were based in South Melbourne from 2005, and Angela Simonetta [a co-founder] left the business in 2009. I bought her out at that point.

There were about five of us in the business there in South Melbourne, so we had brokers and assistants and receptionists – but as the GFC bit our grosses dropped 30% year-on-year for about three years, so the pie basically just shrank. It got to 2012 and I was really left with myself and one assistant, and I decided to shut the office and actually move the business back home. But our model of obtaining business at that point was doing a lot of advertising – we were in the Herald Sun every day for seven years and also did radio advertising.

We pumped a lot of money into advertising through that South Melbourne period, but

what actually happened in 2009–12, we had a lot of changes and some of them were regulatory. We had the NCCP come out, the GFC hit there as well, and I reckon at about the same time we had the change in attitudes – we had smartphones coming into play, and

“When clients actually find someone that’s willing to sit down and spend the time to find the solution and get it done, there is a lot of gratitude there” internet advertising was really lifting off. And so the model we had where we were paying for column inches and radio time – I wouldn’t say it stopped working; it just changed.

MPA: So you bounced back well from a difficult time?

SS: In early 2012 I said to my assistant, who’d been with us for five years, was terrific

RISING RATE OF NON-CONFORMING LOANS IN ARREARS According to a recent S&P Global Ratings report, non-conforming loans more than 30 days in arrears rose to 4.43% in Q4 from 4.36% in Q3.

However, the figure was still down from 4.63% in Q4 2015 and a “far cry from their post-financial crisis high of 17.09%”, the report stated. “This partly reflects the improved collateral quality of more recent vintages, evidenced by a lower proportion of low-documentation loans.”

Source: S&P Global Ratings RMBS Performance Watch: Australia report, March 2017

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and I was really reluctant to let her go: “Look the time’s come and I’m going to move the business back home.” And I thought I could run it from there and I thought that was going to be the norm going forward. But once I’d actually made the decision and we’d tidied

everything up and at the end of April I started back at home, it just started getting busier, and all the way through 2012 it got busier, and then low and behold 2013 was really busy. I ended up buying a little office in Cheltenham where we are now and moved into that in August 2013. So it didn’t last long, the home office.

MPA: Where did the influx of business stem from in 2012?

SS: We’d had that period where the pie had shrunk for our business 30% year-on-year for three years, so that’s quite a hit and I was a little bit dejected. But the real thing that turned around for me was I didn’t advertise at all and I decided just to concentrate on a few referrers, to service them properly and build the business organically. And where we’re

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FAST FACTS Year founded 2005 Specialty Non-conforming loans and self-employed (low-doc) loans Accolades Winner of AMA for Pepper Broker of the Year – Non-conforming in 2016 and 2013; finalist in 2012 Premises Cheltenham, Vic Owner Stuart Styles Income Upfront and trail commission

sitting now is really a result of that. We also have a lot of return clients – we deal with developers, so sometimes we’ll do the purchase of the site and then work on the development funding for them.

MPA: Why specialise in non-conforming?

Is it the client’s situation itself or the challenge of the loan application?

SS: It’s probably a bit of both – you tend to get get a lot of interesting scenarios and sometimes the clients are challenging in that they may be in a situation because of themselves – generally that’s the case. So trying to overcome that is sometimes the biggest issue.

Certainly you do spend a bit more time digging a bit deeper, asking a few more

questions, getting to the nub of the issue of why they are in the position of needing a nonconforming loan, and then working out the solution and going from there.

One thing I’ve found with non-conforming clients is that they are usually over the moon that you’ve been able to help them, because most of the time we get clients that have been elsewhere and have been rejected. So when they actually find someone that’s willing to sit down and spend the time to find the solution and get it done, there is a lot of gratitude there.

makes Arthurmac & Co stand out in the non-conforming space?

SS: I’d like to say knowledge and expertise, but I think a fair amount of it is persistence and dogged determination. In the end, these are people’s hopes and dreams I guess – you’re talking about their biggest asset, their biggest debt, and they’re trying to find a way forward with it, so it takes a bit of time and certainly a lot of determination sometimes to get these ones done. But we’re also realistic.

MPA: You’ve won the AMA for Pepper

MPA: What is your top tip for new brokers?

SS: One thing that I would say is niche is

Broker of the Year – Non-Conforming twice, in 2016 and 2013, plus being a finalist for the award in 2012. What

probably the best. By choosing to go with a niche you’re playing in a smaller pond and you’ve got a chance to be the biggest fish.

www.mpamagazine.com.au

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7/06/2017 10:07:50 AM

PEOPLE

CAREER PATH

THE DISRUPTOR Spotcap Australia and New Zealand managing director Lachlan Heussler knows a thing or two about expanding a business in the fast lane

Lachlan Heussler began his career in Sydney as a junior spot FX trader at Citibank. This was his first WORK LIFE BEGINS introduction to work life and financial markets and 2000 services, which would become TRAVELS THE WORLD his area of expertise over the next At the turn of the millennium, Heussler took 12 months off to travel the world, 15 years, until his long-held interest in from Asia to South America. “For me, that was not only fun but eye-opening technology changed his career path. in terms of spending time doing a bit of temping in London and seeing what it was like in a big city.” Upon returning home he sought out employment in 2004 equities and joined UBS Investment Bank.

MOVES TO NEW YORK “It allowed me to come back as a 25-year-old with a little bit more of a rounded, worldly education.”

Feeling it was time to see new cities once again, Heussler took up a position in New York at Deutsche Bank as vice president – equities trading. After two years he transferred back to Sydney to spend another year at the bank. “I 2008 worked in New York for two years on Wall Street, which again helped shape my TAKES REDUNDANCY world view on financial markets – this was all pre-GFC, so it was a pretty bubbly market and time over there.”

After the GFC hit, Heussler took a redundancy from Deutsche Bank, which he describes as “definitely the hardest point in my career”. He explains that it was the first time in his career when “you’re feeling a little bit less than bulletproof”. But as father of a young daughter, he took time out to focus on raising 2011 her over the next few years until a business idea struck him.

CO-FOUNDS A START-UP

1996

Heussler co-founded Investable, a social network for investment ideas, marking his first venture outside of financial services (banking). Although the start-up didn’t take off, he took what he learnt with him to managerial roles at Lonsec Fiscal and Stockspot.

“It didn’t work but I learnt a hell of a lot about how to start a business.”

“Career hiccups can be a little bit difficult at the time, but they absolutely make you as a person”

2015

JOINS SPOTCAP

2017

NAMED AMONG TOP 25 FINTECH INFLUENCERS Heussler was recently named among the top 25 fintech influencers in Australia

by Finder.com.au, a clear indicator that he is in his element as he looks to grow Spotcap locally and globally. “Managing a fast-growth business is definitely a career challenge that I’m enjoying at the moment and something that I’m looking forward to completing over the many years to come.”

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After discovering Spotcap on the internet, Heussler contacted the founders to see if they had an interest in expanding their product to Australia. He then joined the company and starting building its Australian operations from his bedroom. Now, nearly two years later, he manages a team of almost 20 people in Sydney and New Zealand that is growing fast.

“A lot of the time you make your own luck, and it’s very important to go out of your own way to make that luck happen for you.”

www.mpamagazine.com.au

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PEOPLE

OTHER LIFE

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THE SISTERHOOD OF BRAS Meet a broker who is helping women beyond Aussie borders NSW BROKER Anita Marshall of Advanced Finance Solutions is a good deed personified. She is a founding member of The Sisterhood of Bras, a group of women united by social media since 2015, who provide donated bras to women of the South Pacific unable to afford them.

Their Facebook group has over 260 members who collect and bring bras to

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women of the Pacific Islands, from New Caledonia and Vanuatu to the Cook Islands and beyond, as well as back home at the Kalumburu Mission in WA. “The response has been overwhelming,” Marshall says. “There have been times when we can barely eat our lunch in there [the back office] because we’ve got so many bags of bras.

“I’ve had ladies cry when they received their first bras because they got so excited.”

Marshall also donates materials to local teacher Mary in Vanuatu for parents who cannot afford school fees. “[Mary works] completely voluntarily out of a tiny room at the side of her house, and she teaches about 60 kids a day.”

www.mpamagazine.com.au

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7/06/2017 10:09:30 AM

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