www.brokernews.com.au issue 9.10
australia’s top commercial brokers Danny Masri shines in a tough, tough year PART-TIMERS THE DEBATE RAGES ON
EXPERT VIEW SHORT-TERM LENDING OPPORTUNITIES
INDUSTRY PROFILE LIBERTY FINANCIAL
Applause for commercial brokers
If residential brokers think they had it tough this year, they should spare a thought for their broker brothers slugging it out in the commercial trenches. Last year, MPA’s top commercial broker described 2008 as a “dog-eat-dog, nasty year”. Unfortunately, 2009 was worse. The numbers tell the tale. Commercial finance including leases plunged by 7.7% or $2.266bn in June to $27.093bn – that’s 22.2% below the 2008 average and 36.6 % below 2007. The figures are a startling contrast to housing finance numbers, which showed a seasonably adjusted 1% growth in finance for houses purchased by owner-occupiers – with the trend running at 1.8% growth. The fact that brokers in our 2009 Top Commercial Brokers survey were able to rival settlement volumes of previous years is a true testament to their expertise and sheer doggedness to get deals over the line in a dreary economic climate. Also in this issue are two features to help brokers diversify their businesses and improve their income streams. MPA 9.10 includes a special look at short-term lending and the marriage between property buyers and mortgage brokers. On a different note, as we put this issue of MPA to bed, NAB announced its acquisition of Challenger’s mortgage management business. Look for a full examination of how this will affect NAB’s place in the mortgage market in the upcoming issue. Until next time,
Andrea Lavigne Editor
MPA 2.0 Our multimedia edition features on-camera interviews with the industry’s biggest players. Visit Brokernews. com.au/MPA to hear their thoughts on the hottest issues facing mortgage brokers.
34 Top commercial brokers MPA’s annual survey of Australia’s top performers
Look for extras in MPA's 2.0 eMag edition. On-camera interviews with:
Mark Reid 20
Tanya Sale 30
Paul Giezekamp Michael 48 Yardney 48
30 moonlighting Andrea Lavigne investigates whether part-time brokers really are sucking the professionalism out of the broking industry
9. 10 issue
Features 44 Short-term lending: industry players provide a snapshot of the state of the market
PUBLISHER Justin Kennedy
SALES MANAGER Rajan Khatak
DIRECTOR Claire Preen
Account MANAGER Simon Kerslake
REGIONAL MANAGING EDITOR George Walmsley
HR MANAGER Julia Bookallil
48 Buyers’ agents: a legal route into real estate
12 Online vs traditional methods
EDITOR Andrea Lavigne
JOURNALIST Tim Neary
24 Round up: MPA profiles three IT providers and the services they offer the broker market 29 Web tips: online marketing ideas from Sam Benjamin
Case study 47 A broker helps her client buy their beach house
9. 10 issue
MPA LENDER 54 News: a review of news in the world of non-bank lending and mortgage management
PRODUCTION EDITOR Tim Stewart DESIGN MANAGER Jacqui Alexander
64 My favourite things: James Green
MARKETING COORDINATOR Jessica Lee TRAFFIC MANAGER Stacey Rudd
DESIGNER Ben Ng Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as MPA magazine can accept no responsibility for loss
16 Brokers: Beverley Brandl 20 Leaders: Mark Reid
MARKETING MANAGER Danielle Tan
This magazine is printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry
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GOVERNMENT AND REGULATION
Govt sets licensing fee The cheapest option for brokers applying for an Australian Credit Licence is $450. New draft regulation documents have set the entry level application fee for an Australian Credit Licence at $450, provided the application is made electronically. Non-electronic applications start at $565. This entry level fee applies to an application that includes only one credit representative and then rises dependent on how many representatives are included in the application. Applications with between two and five representatives will cost $1,050 for electronic submission, rising up to as much as $21,000 if there are more than 100 representatives included in the application. Fees for the lodgement of an annual compliance certificate will be charged using the same scale. There will be a 10% discount for ADIs and persons applying for a streamlined process, such as brokers already licensed under WA state legislation. Additional fees will be charged if applications are not submitted within the specified period – $65 for those submitted within one calendar month of the specified period and $270 for those lodged more than one calendar month after the specified period. At the time of writing, the government was still seeking submissions on the draft regulations.
20% According to the IMF, a price correction to house prices – which are overvalued by as much as 20% – could lead to a sharp deterioration in bank asset quality and deepen the downturn
IMF predicts economic downturn for Australia The International Monetary Fund has poured cold water on Australia’s recent economic optimism. The IMF’s annual review stated that “the near-term outlook for growth is weak and highly uncertain” – a view that is in stark contrast with the Reserve Bank of Australia’s outlook which portrayed a much rosier picture. While the RBA predicted 0.5% growth, the IMF is expecting the Australian economy to contract by 0.5% this year.
AB, MPA top independent survey Australian Broker has ranked as the No. 1 industry news magazine and Mortgage Professional Australian as the No. 1 industry business publication, according to the latest independent survey. The survey, carried out by Ehrenberg-Bass Institute of Marketing Science, University of South Australia, found that AB is the most widely received magazine with 94% of respondents reporting to receive the magazine, followed closely by MPA with 86% AB and MPA continue to be the most often read publications and almost three quarters (72%) of respondents claim to read every issue of AB.
Banks cut lending to first homebuyers
NAB purchases Challenger’s mortgage arm In the major banks’ race to gain control over the mortgage market, NAB has gained a considerable advantage. In late August, National Australia Bank secured Challenger Financial Group’s mortgage business for $385m. The transaction included the aggregation platforms of Choice, PLAN and FAST (which Challenger acquired two years ago) and $110bn in mortgage under administration. The deal also included multi-brand lending using white label mortgage product capabilities and relationships with distributions associates such as Homeloans Ltd. As well, NAB will acquire $4bn worth of residential mortgage loans in existing warehouse structures. As a result, NAB will have ownership of a network of 5,700 loan writers and 400 mortgage managers. The deal excluded any interest in non-conforming and commercial loan business as well as an $11bn backbook of residential mortgages. In the past two years, the majors have stepped up their mergers and acquisitions activity. Westpac bought RAMS and merged with St.George Bank. CBA acquired BankWest and 33% of Aussie Home Loans (which acquired Wizard from GE Money). The NAB/Challenger deal is subject to approval. As long as there is no objection from the ACCC, the deal is expected to be completed in late 2009.
Overall the CBA’s mortgage book grew by 20.3%, compared to system growth of just 7%
A mystery shop has revealed that six banks cut their maximum loan amounts to first homebuyers between November last year – when the boosted First Home Owner Grants started to flow into the system – and April this year. Deutsche Bank researchers called all the banks claiming to be a buyer with an annual income of $70,000, a full-time job, no dependants and a good credit history, the SMH reported. Researchers found that St.George had made the biggest cut to its maximum loan amount by lowering it by $55,000 to $400,000, Westpac cut its by $33,000 down to $456,000, ANZ dropped from $485,000 to $439,000, BankWest fell by $28,000 to $442,000 while Bendigo dropped by $10,000 to $420,000. NAB, which has largely stayed out of the first homebuyer market, cut its maximum loan amount in April to $290,000.
CBA’s broker channel up 34.3% The importance of brokers to the CBA has been highlighted in its 2009 annual results, which revealed that mortgage origination via the broker channel grew twice as fast as through its branch network. Broker origination was up by 34.3% over the 2009 financial year, while branch origination grew by 17.7%.
ANZ less reliant on wholesale funding after RBS buys - Moody’s Moody’s said the $5bn net growth in deposits (over loans) gained through the recent acquisition of the Asian RBS businesses, would reduce ANZ’s overall reliance on wholesale funding. Moody’s said this reliance was “a key constraint on the bank’s ratings”.
Wait until 2011: BIS Shrapnel
St.George launches new commission model St.George’s new commission structure takes effect this month. As of 1 October, brokers will be paid according to a new simplified commission structure. Under the new structure, upfront commission will by 0.50% (on standard loans) with an extra upfront of 0.10% earned for a conversion ratio greater than 70%. Trail commission of 0.15% pa will be payable from year one, with extra trail of 0.05% pa paid where run off is less than 15%. Further changes include trail payments being calculated on gross balances, (meaning offset account balances are no longer netted off), mandatory electronic lodgement, and the removal of the utilisation clawback on portfolio/line-of-credit loans This replaces the previous structure, announced in June 2008, in which upfront commission earned was between 0.70% and 0.50%, and trail commission between 0.25% pa and 0.15% pa. Under the old model, brokers earned the extra commission by lodging applications electronically; assisting with cross selling of non-home loan products during the life of the loan; meeting or exceeding an agreed percentage of home loan applications that convert to settlements; and meeting or exceeding an agreed home loan book run-off rate. The bank said the new simplified structure was aimed at providing brokers with “less variability and increased certainty of income”. “The changes also mean that brokers will support St.George’s strategy to further lower arrears levels and increase customer retention,” the bank said in a media release.
Aggregator transfer fee not a handcuff: Connective Brokers should not be handcuffed by the $100 accreditation transfer fee imposed by the CBA, says Connective. The aggregator says it will pay the fee charged to brokers that switch aggregators, provided the broker meet the group’s “quality performance requirements”. Mark Haron, Connective principal, said the decision to pay the transfer fee was taken to “promote competition and free market movement in an industry that’s becoming increasingly restrictive”. “In our view, the accreditation transfer fee could also lead to greater levels of complacency among some aggregators with regard to their value proposition if they mistakenly view the transfer fee as a handcuff to their existing brokers,” he added. The CBA said the fee was purely to cover the administrative cost associated with brokers transferring aggregators – an activity which has picked up in recent times.
For the next 12 months, BIS Shrapnel has forecast a 17% decline in business investment, falling household incomes and weak consumer spending, which will result in a fall in employment
Brokers shouldn’t expect too much of a turnaround in 2010, but there could be a strong recovery in 2011, according to BIS Shrapnel. Strong pent-up demand in combination with low interest rates, high rents and high rental yields is set to drive a strong phase of construction from 2010/11, which will strengthen over 2011/12 and 2012/13, BIS Shrapnel reported in its Long Term Forecasts, 2009–2024 report. The group predicted that the Australian economy’s most difficult phase would occur over the next year, though it would avoid a recession with 0.1% growth in calendar year 2009 and 0.5% in 2009/10.
Zobel on Xbox
South Australian franchise Zobel will soon be appearing in an Xbox video game. The broker’s logo and website address will appear in the latest Xbox car racing game – Forza Motorsport 3 – which will be released internationally and in Australia in October. The unexpected coverage comes after Zobel sponsored the Jay Motorsport Car in Adelaide’s Clipsal 500 event earlier this year – one of the cars subsequently chosen for the Xbox game.
online vs traditional
evolution ‘No more pencils, no more books, no more teachers’ dirty looks’. Will online education replace the traditional classroom? MPA investigates…
nline education has its advantages over the traditional classroom: reduced travel time, the ability to study at your own pace, the option to eat ‘in class’, and the list goes on. But can it replace the benefits one gets from the traditional classroom – the ability to ask questions as you go, get feedback from other students and maintain a structured study schedule? The government is still deliberating on the final educational requirement for mortgage brokers, but it looks like a Certificate IV will be the minimum standard. The MFAA, however, has indicated it will be raising the bar for its membership. As mortgage brokers prepare themselves and their staff for the new industry standards, the question of what educational method to use becomes increasingly important. Peter Heinrich, director of the National Finance Institute (NFI), has been offering education to mortgage brokers since 2003. Since its inception, NFI has always offered students the choice of learning in a traditional classroom environment, by distance or online. Its courses include Cert. IV, Commercial Origination, CPD courses and seminars, as well as recognition of prior learning (RPL) and a WA supplement. The number of students using the online method of learning has remained constant, Heinrich says. “It’s been very, very steady for a few years now and probably at any one time we have 200 people online.” Heinrich says it’s difficult to imagine online instruction completely replacing traditional teaching methods, “simply because a lot of the trainees we have love to come along and get the experience of the
Top: Paul Eldridge Above: Peter Heinrich
trainers”. Many new brokers are entering the field from stable, employed positions and making the transition to a self-employed job is a big step, he adds. “I think they like to try and get a bit of a headstart in the sense that they like to get the experience of the trainers. I have to say that I prefer the face-to-face option, and it’s got nothing to do with money – it’s just that it’s really good to get to the trainees and give them your anecdotes and past experience.” Intellitrain CEO Paul Eldridge agrees that online instruction will never overtake face-to-face courses as the only method of learning. “But they’re quite useful if people are time poor,” he says. Currently, Intellitrain’s numbers reveal that more people prefer the traditional class over online lessons, but he adds that it is gaining in popularity because it allows people to complete the training in bite-sized chunks. He says the type of people preferring to use online over traditional classroom methods isn’t limited to those in a certain generation. “It’s more about how comfortable they are using web-based technologies. We have brokers in their early 50s who are quite happy to do online courses. Equally, we have Gen Yers who want a face-to-face course,” he says. Eldridge adds that new brokers in the industry tend to prefer the face-to-face training because it gives them the ability to have immediate interaction with the instructor. But brokers looking to earn CPD points are taking advantage of Intellitrain’s recently introduced webinar program. The CPD Webinars are short, web-based training sessions that are live and interactive. Eldridge says that the benefit to the broker is they get 1.5 CPD points for each session with no travel costs, parking hassles or wasted travel time. mpa
Next please The good ol’ days of mortgage broking are gone. Reduced commissions and increased quality metrics mean brokers have to do more to pull the same numbers they were getting in the past. Impending regulation will also make it a little more difficult for mortgage brokers to operate. And while most welcome the changes, the new hurdles combined with a drop in pay raises the question of whether the profession will be less attractive to potential recruits. Intellitrain CEO Paul Eldridge is in a pretty good position to see how many new brokers are entering the industry. He says he hasn’t noticed a fall in the number of students taking Cert IV. “I am seeing quite a number of brokers join the industry. But there’s definitely been somewhat of an exodus of older brokers,” he says. National Finance Institute director Peter Heinrich says he honestly thought he’d see a slowdown in the number of students walking through the door, but both courses in Sydney and Melbourne have been full. The MFAA recorded 1,400 new members this year, which CEO Phil Naylor says is slightly below other years.
“We’re still getting new people coming in, but there are also people dropping out. In net terms our membership has dropped marginally.” Naylor adds that about 30–40% drop out within the first 12 months. FBAA president Peter White also says membership has remained relatively flat as the number of people entering the industry has balanced out the number exiting broking. However, White remains optimistic that new blood will be attracted to broking as the banks continue to make redundancies. “And I think the industry will continue to grow and thrive under a new level of regulation and professionalism. I hope regulation will result in more people being attracted to the industry.” Tanya Sale, general manager of finconnect, also believes that the regulations will make the profession more attractive to people who are serious about succeeding in the market. But in saying that, she’s noticed a lot of new brokers exit the industry within the first 12 months. Many aggregators are pumping up their services to encourage new brokers to make it past those hard years. Firstfolio supports the brokers in Lawfund through its mentoring program and BDMs, as well as by providing them leads through its eChoice platform. The Loan Market Group also gives its brokers leads through its Ray White real estate network.
“By investing heavily in lead/referral generation we are able to support brokers by quickly building solid customer bases, which leads to higher productivity and profitability,” says executive director John Kolenda. It also offers support for senior brokers looking to build teams by supporting new loan writers through its rookie program. LJ Hooker Financial Services supports its brokers in a similar fashion – its direct relationship with a well known real estate brand gives brokers a proven referral base. In addition, LJ Hooker’s franchise model pays special attention to training. “When commencing with LJ Hooker, all company staff undertake introductory courses that showcase how real estate principals can build revenue and profitability on the back of non-property products such as LJ Hooker Financial Services,” says general manager Peter Bromley. LJ Hooker Financial Services provides induction programs and ongoing training programs that cover all aspects of the business – whether this is marketing, sales skills, loan writing skills and business management.
“Our business maintains constant development programs that brokers can utilise to build their business.” Choice says its new Perform@ program is a major advantage for new brokers looking to build their business. “We’ve recently launched Podium Perform@, a new cash-flow management platform that allows brokers to view and assess their current and future trail commission payments and the impact on their business up to five years into the future. “This is a ground-breaking, industry first and helps our members to develop their business for the long term. It also identifies actions they need to undertake and activities they need to implement to meet cash flow targets and realise business growth aspirations,” says Brendan O’Donnell, CEO. O’Donnell foresees the number of brokers contracting in the year, but he says he is confident that overall broker share of the market will continue to rise. “The vast bulk of brokers will remain, and with decreasing competition they have the opportunity to increase their volumes.” mpa
Credit: Rick Kowalczykowski
which way to the
After moving to Canada "to see what moose looked like," Australian ex-pat Quick stats Beverley Brandl and CMP Top 50 broker Beverley Brandl has made Ontario's northern + Dominion Lending beach getaway her permanent home – but it's no Gold Coast Centres
ocated at the southern edge of Georgian Bay and about two hours north of Toronto, the town of Wasaga Beach has a population of around 17,000 full-time residents – a number that doubles during the summer months as cottagers descend on the otherwise sleepy town and take advantage of the 14km stretch of white sand beach. Since the first half of the 20th century, Wasaga has made a name for itself as a place for fun in the sun. Today it’s unofficially the place for Ontario urbanites to escape to every summer weekend – and they show up in droves (some put the number of summer tourists at around two million). Wasaga is almost as famous now for its beach as it is for its main strip of arcades, restaurants and bars, with traffic permanently ground to a halt every Saturday and Sunday (not unlike weekday gridlock in downtown Toronto, where a lot of the seasonal visitors come from). When you do drive in to Wasaga, one of the first things you notice is the abundance of billboards for mini-putt courses, hotels, campsites and cottages for rent. But amid them, standing at four and a half metres, is a sign for Beverly Brandl’s Dominion Lending Centres Integrity Plus. Brandl has been carving out a comfortable network of referrals for her two-year-old brokerage. “It took until last year to get really busy,” she says over the phone in her Australian accent. “I’ve been very aggressive in the last year and finally put signs up.”
+ Integrity Plus Dominion + Lending Centres + Hometown: Sydney, Australia + Broker Since: 2005 + Background: in the financial industry since 1982, starting with Avco Financial in Australia + Number of staff: Five + Accolades: CMP Top 50 (#25) + Hobbies: wakeboarding, waterskiing and fishing
From the Gold Coast to Georgian Bay After working at Avco Financial in Australia for 16 years, where Brandl and her husband (a commercial pilot) had a waterfront property on the Gold Coast, they decided to uproot – setting their sights on Canada. Without ever having been there before, they ended up in Swan River, Manitoba. Because they “wanted to see what moose looked like. My god that was nasty,” she laughs. After two years in Swan River, followed by a stint in Thunder Bay, she ended up in Wasaga “by accident.” They saw the potential of the nearby Barrie market – once noted as the fastest growing city in Ontario – but they simply couldn’t find a property there, so the beach was the next best thing. And besides, maybe the beach culture and white sand of Wasaga would remind her of back home? At this thought, Brandl lets out another good-hearted laugh. “Wasaga is nothing like Australia – with its rolling waves and salt water. When we first saw the sign for the beach here we sort of had to laugh. Here was this dirty little stretch of water that is completely flat.” That said, it didn’t prevent her from settling down and staying put for the last four years. She even owns a waterfront cottage just outside of town – approximately three minutes from her home. “It’s just this little yellow thing,” she says. “The goal is to actually knock it down and build on the land someday.” It’s from this little cottage that she is able to enjoy a lot of thing she loves in her non-existent free time, whether that’s wakeboarding or waterskiing (two things that the flat water is actually good for) and fishing. As for brokering, with 27 years of experience in the industry, and as a broker for the last five, she finally decided that she had built up a big enough referral network to sign up with Dominion
Credit: Rick Kowalczykowski
But it’s not like she needs them, as this 27-year veteran of the financial business landed herself at number 25 on this year’s Canadian Mortgage Professional Top 50 list.
Lending Centre (DLC). This was one of the greatest risks she ever took, simply because of the commission income, she says. But she’s fared well for herself, and credits it to her time spent at Citi Financial (and Avco before that). “It just made me unafraid to ask,” she says. “You can’t take rejections to heart.” With her husband doing the administration work (“it’s my one weaknesses,” she says), Brandl has gone from a team of one to including two assistants, one underwriter and even some ‘stand-alone’ brokers who work for her company but file their own mortgages. And oddly enough, from her office in Wasaga she has been able to build up a strong business from all over Ontario and the rest of the country. “This month I may do 30 deals, but only two of them will be in Wasaga,” she says, adding that she often deals with clients in British Columbia and even Quebec, despite the language barrier. “The biggest issue was in Quebec, just because of the [French] language, but for the most part they are all fairly straightforward. The one thing is that occasionally the lender may insist that I co-broker it with a broker from that province. That’s just when I’m working with regional lenders though, and for the most part I do them entirely myself.” Brandl says this is just one of the side-effects when you believe, as she does, that “you cannot
“ You cannot possibly suit all the needs of your clients working with only one lender. I believe very strongly in having access to many lenders and products ”
possibly suit all the needs of your clients working with only one lender. I believe very strongly in having access to many lenders and products.” It’s that attitude that saw her fund more than $50 million last year – not bad for a town with a population of 17,000. Efficient and aggressive Despite funding only a few local deals a month, Brandl markets Wasaga hard, with a monthly radio show on 97.7 (‘The Beach’) which she acquired after paying for some advertising on it. “I guess they liked what I had to say so now I do a show once a month,” she says. Other than that, most of the business she acquires is just from being “very aggressive – I chase, I get back to people,” she says. And if she’s even remotely as fast as she was getting back to CMP for this article, then it’s no doubt that any potential client would be impressed. In fact, she was once able to meet a client and close with him in just eight days. “I had a referral from a local realtor who had a client that bet his friend a case of beer he could close within eight days,” she says. “The realtor who referred him to me already had a place in mind, which he ended up liking, and I was able to
close the deal in eight days. His friend brought him the beer, and I’ve done three deals since with him.” One of the approaches she takes is to send a questionnaire to her clients to help pinpoint which lender to go with. It helps her identify her clients’ wants, even if it’s just a preference to work with a ‘name’ brand. Not only has this approach helped her maintain a funding ratio of around 90 to 95 per cent, she says, but it allowed her to surpass the goal of growing the business by 20 per cent. “Last year we doubled that number,” she says. “We may even look at opening another location, perhaps in Barrie or Collingwood at some point.” This would help her realise her other goal of being able to “eventually manage the business more than working in it the seven days a week,” she says. Not only that, but it would allow her to enjoy the Canadian weather that much more. “You know, I thought it was really cute for the first few months, but then you get over that. I’ve gotten used to it though, and have gone from wearing thermal underwear in the winter to normal jackets.” MPA
Canadian mortgage news at a glance… Mortgage brokers are striking a chord with Canadian first homebuyers. A recent survey by the Canada Mortgage and Housing Corporation found mortgage brokers share of the first homebuyer market increased to 44%, up from 35% in 2007. The survey found brokers were favoured by the Gen X and Y set (ages 25–34) and female borrowers. More than half of survey respondents said getting the best rate was the most important factor in their satisfaction. “Our results confirm what we have seen in previous surveys: when it comes to their mortgages, Canadians are informed and manage their debt prudently,” said Francois Blouin, CMHC’s director or insurance products and strategic direction, adding that 90% of respondents said they believe homeownership is a good long-term investment.
In an effort to encourage new lending, the Canadian government bought $1bn of mortgages from banks. The stimulus was less than the $4bn it had originally offered, but it is hoped the action will encourage banks to fund new loans to consumers and businesses. Canadian finance minister Jim Flaherty began with a $25bn program but has expanded the scheme to $125bn. Canadian housing starts dipped dramatically in July by 4.1%, according to the Canada Mortgage and Housing Corporation (CMHC). Starts fell from 137,800 in June to 132,100 in July, but the CMHC insists the industry will improve through the rest of 2009. The country is facing its first recession since 1992 as the jobless rates inches upward to an 11-year high. Meanwhile, consumer spending has waned and bankruptcies have risen.
Person A prominent figure in the Australian mortgage landscape, BankWest’s Mark Reid is living proof that nice guys don’t always finish last. Tim Neary spoke to him at his Darling Harbour office in Sydney
limbing to one of the highest, most remote parts of the world is an impressive achievement in anyone’s language. But when Mark Reid conquered Kilimanjaro it was an even bigger accomplishment – especially given that he is not a seasoned climber or someone who likes to spend time on their own. When he first mentioned it, my response was: “Awesome!” “No it bloody wasn’t!” he laughed. But then he conceded: “It was good to get up – but equally good to get back down again.” Psyche Doing it – getting up and then back down again – involved seven days and six nights of fighting fatigue, altitude sickness and solitary discomfort. The higher he climbed the more thorny it became, and a week is a long time to be doing it tough. But the fact that he even attempted it – let alone stuck it out – speaks volumes about the psyche of Mark Reid, BankWest’s energetic head of retail sales. The Reid mindset is that when you start something, make sure you finish it.
And while he may not be a natural at mountaineering; it is plain to see that he is a born leader. His enthusiasm is electric and, that morning, all of us in the room experienced a little of its pied-piper charge. As you might expect, delivering on a promise is a quality that he most admires in all business people. It is also an idea that is at the root of his management philosophy. “Getting results, treating the customer as the most important stakeholder in the business, and always being among people with passion and drive are the three things managers should do to give their businesses a competitive advantage,” he says. In fact, the people factor is extremely important for Reid. Accordingly, when leading people he says that conveying new ideas effectively is the key to securing their buy-in. “Engagement is the secret,” he says, “it’s got to be. The earlier you can involve people in any change that is likely to affect them, the better the outcome of that change is going to be.”
Savvy leadership “Our people are our most valuable resource, and I have worked closely with many of my team who are eager to progress. We are to building succession plans, sponsoring tertiary education and road mapping opportunities for them within the bank. It’s no secret that professional development offers the same benefits to an organisation as it does to individuals, but I believe it goes beyond just that. It’s all about retaining enthusiastic people – they are fundamental to BankWest’s philosophy.”
Back to the future Reid knows this from first-hand experience. Twenty years ago, when he started his career as a cashier with Halifax in the UK, his working life was in a constant state of flux. “And I often felt the leadership team didn’t always know what the change issues were. So one thing I am very keen on doing in any change situation is understanding what it means to
everyone involved, and really involving them in that change process,” he says. At Halifax, Reid progressed from the counter to the position of area manager, before running the bank’s card acquisition operation. In 2002, he moved to Australia where he first ran the branch network and then, from 2005, the network and the broker channels as well.
Extreme measures “When I first started at BankWest, there was no emphasis on the significance of customer satisfaction. This is something that I really had to drive within my team by developing a specifically dedicated group of colleagues to closely track our customer satisfaction ratings. Today this is central to everything we do at BankWest, and we use our customer satisfaction ratings as a benchmark for success.”
Australia has been good to him. It must have been – initially, at the time when HBOS acquired RBS and inherited a share in BankWest, the plan was to come out “just for six months”. That was six years ago, and he’s got no immediate plans to go back. It’s been a busy time though, and a productive one. One of his most satisfying achievements, apart from climbing Kilimanjaro, was getting – along with the rest of the team – the BankWest national expansion program off the ground to where it is today. And the work has only just begun. Trading conditions have inexorably been altered since the onset of the global financial crisis. For Reid this spells out a new set of engagement rules. “The word capital gets used now a lot, and banks are going to want to use theirs more effectively,” he says. The net result is an inevitable shift towards quality, from volume. And get used to the term ‘profitable growth’, he says: “Rather than just building market share for its own sake.”
“ The bigger you are the more you will succeed. In 10 years from now there will only be a few large aggregators – probably no more than six ” Regulation But the liquidity squeeze is not the worst of it. In Australia, Reid describes the market as being “quite steady” – and based on volumes he thinks we’re just about to come out of the GFC. But regulation is coming, and it is coming at a cost. “At a cost for brokers,” he says, “and I think that scale is going to win at the end of the day. Aggregators that have scale are going to be in a much better position than others.” Size counts. “The bigger you are the more you will succeed. In 10 years from now there will only be a few large aggregators – probably no more than six,” he says. And from a broker perspective, his advice is this: “The businesses that focus on quality now will be the ones that will come out well and sustain that for a longer time.” mpa
personal profile Age – 38 – just. Family - Single. Favourite band – Coldplay. Sport – Football; up the Liverpool! And I like watching cricket – especially when England is beating Australia in the Ashes. Movie - Shawshank Redemption. Self described – passionate, enthusiastic, fun and delivery focused. Hobbies – Playing football, working out in the gym and I like a bit of running. If not in the mortgage industry – I would like to be involved in sport in some capacity, as a sports coach or something along those lines. If the house was burning and everyone was safe, what would you grab? I’ll try and get some photo albums to hang on to some of the memories. Retirement plans/ goals – It’s a long way off still, but I’d like to travel the world by boat. Not that I sail, but I think it would be quite relaxing to do something like that. Qualities most admired – Passion, trustworthiness and a commitment to deliver what you say you are going to deliver. Toughest challenge – Climbing Kilimanjaro. I like the luxurious things around me and climbing up the mountain took me out of my comfort zone. Unfulfilled ambitions – From a personal perspective I’d like to have a family. And from a work perspective to one day become a CEO. Greatest risk – Coming to Australia, no doubt. I like all my friends around me and my family – but when I got off that plane, it was a Friday night and the hotel didn’t have me checked in! But it has been for the best. What was the turning point in your career? Same event – coming to Australia. Because at the time I didn’t know anybody so it was the most challenging thing I ever did. And it has been an absolute fantastic six years – I have been given opportunities in Australia with BankWest that I would not have been given in the UK.
25th September 2009 The Westin, Sydney
the wait d l o
is almost over s
t u o
Join us for the announcement of the winners and a night of alternate possibilities...
Book your table online at www.australianmortgageawards.com.au
IT Industry players co-published with MPA
In good hands It’s becoming clear that industry players with a sound technological capability will have an advantage. In a copublished feature, MPA asked three of the leading IT service providers to give us an idea of the support they offer
he demands of the new professional broker era are forcing brokers and lenders to smarten up on their businesses practices, and more and more of them are turning to technology for the benefits it offers. Just as an example, as MPA 9.10 was put to bed, St.George announced its new commission structure combined with a new mandatory requirement that all loans be submitted electronically by brokers. Accordingly, IT companies are responding by bringing their offerings into line with the new market requirements. Those that are ahead of the game will surely progress to play an more significant role in the future shape of the industry. In this issue, MPA profiles three prominent IT service providers. We find out who they are, what they offer and how their own points of difference can assist the businesses of mortgage brokers.
IT Industry players
co-published with MPA
Loan Works Technologies Loanworks Technologies specialises in turnkey solutions for lead management, loan processing, CRM and commission processing within the financial services industry It has been providing solutions to the mortgage industry since 1998. This experience, responsiveness and innovation means that it is the trusted solutions partner to some of the premier brand names in the financial services industry. Loanworks Technologies enables profitable growth for broker groups, specialist lenders, mortgage managers and franchise networks by delivering quality new business and customer management protocols from paperless platforms that are easy to use. “Our customers value our flexibility and trust us to deliver solutions that work. We know that it’s not just about the software – we have a proven track record and bring a depth and breadth of experience that acts as an instant knowledge base that our customers tap into,” says Ben Binder, managing director of Loanworks.
Next-generation enabled products Loanworks has brought to market a nextgeneration enabled application for use on mobile phones and PDAs. This cutting-edge product comes in two flavours: one which gives the customer a retail presence; and an impressive third party B2B version that supports application tracking for mobile sales forces with complex referral networks. “It’s an interesting time in the evolution of mobile applications. On the one hand, businessfocused applications are still very much cutting edge. On the other hand, with broad acceptance of iPhones, Blackberries and other next-generation handsets, we see that mobile technology has reached critical mass. There’s arguably a fine line between being an early adopter of this technology and having to play catch up when every man and his dog has a next-generation presence. In some ways, it’s where web sites were in the late 1990s. This initiative is generating huge levels of interest,” says Wayne Macartney Loanwork’s business services manager. In addition, LWT’s core product, Loanworks Enterprise, remains an efficient sales pipeline management tool. For broker groups, specialist lenders, mortgage managers and franchise networks the product combines processed applications through a workflow of borrower needs analysis and product selection at the front end of a transaction. It also handles document management and channel management in the middle office and has CRM and marketing capabilities to cover the client management after sale side of the business. “Our workflow engine extends through to automatic measurement of SLA standards; including integrated credit checks, needs analysis and decisioning,” says business development manager at Loanworks, Andrew Duerden. Loanworks has allowed LWT’s customers to go paperless, and has enabled the company to streamline every aspect of its business – from lead generation through to approval and ultimately commission processing. “Our customers have gained ISO9000 quality accreditation on the strength of the system features,” he adds. In addition, Loan Works Technologies introduced LWT Enterprise Commissions as a stand-alone solution earlier this year. This product
Key Staff Loan Works Technologies + Ben Binder – Managing Director + Andrew Duerden – Business Development Manager + Wayne Macartney – Business Services Manager
IT Industry players co-published with MPA
is used by lenders, aggregators and broker groups, and its key features include channel management, data validation, invoicing, web portal, payments and enterprise integration. “LWT Enterprise Commissions enables commissions to be processed efficiently and accurately. It’s a proven, fully configurable system which delivers flexibility in delivering strategic remuneration models. We’ve been benchmarking our current customers, and have been impressed by the feedback we’ve received,” says Macartney. Manila After spending a lot of time researching the move, Loanworks opened a development and support office in Manila, in the Philippines, in 2008. “Team members spend an intensive induction period in Australia learning the ropes and becoming part of the company. We’ve moved second level support and some development across at this stage and will continue to grow this team. The response from our customers has been fantastic,” says Binder Loanworks is also in discussions with business process outsourcing (BPO) solution providers. “We currently process commissions on behalf of some of our customers and see this as growth area. We know commissions, and have the system and processes in place to provide cost-effective outsourced solutions,” says Duerden. Impact of legislation Loanwork’s customers are well positioned to implement the changes implied by the National Consumer Credit legislation. Macartney says he is experiencing a renewed level of interest in the company’s needs analysis and product selection capabilities – so that there’s full traceability back to the client interview as to why an applicant was recommended a particular product. “This then flows through to the automatic generation of a document along the lines of a Statement of Advice,” he says. He says he’s also very interested to see the implications of the disclosure regime concerning commission payments: “Will this translate to a need for commission quoting capabilities?” Meanwhile, Andrew Duerden says that the mortgage industry has evolved since the 1990s. Initially it was about volume: channel growth and
“ We know commissions, and have the system and processes in place to provide cost-effective outsourced solutions ” –Andrew Duerden
getting the punters in the door. “Then people thought ‘It’s all very well to have volume, but are we making any money?’ The focus shifted from volume to cash-flow. With the GFC and beyond, the focus is now fairly and squarely on profitability,” he says. In some ways it’s been a case of survival of the fittest, he adds. And he estimates that “perhaps 20%” of Loanwork’s customer-base has closed doors and moved out of the industry. And those still in have trimmed their sails, and looked to become more innovative and more efficient. “There’s also an acknowledgement that with the changes in the industry, you need to write twice the number of home loans each month just to maintain the status quo. You could say that the conversations we’re having with our customers are about profitable growth: how do I get smarter, how do I systematise, how do I innovate? Many are more profitable now after downsizing than they were at the peak” But the general consensus is that things have already started to turn around. Duerden says he’s experienced a definite spike in customer confidence levels – especially when they talk about the future.
Finware As a technology partner to mortgage broker clients, Finware provides a full range of technical, software, internet and data solutions to the broker market. “Every product in the Finware suite has been designed and built in response to a need expressed by our broker clients,” says Jason Hayden, Finware’s managing director. Hayden says that the products are designed to increase professionalism in the industry. All of them are designed with legislative changes as standard features. “We provide cost effective access to new technology by securely storing, backing up and encrypting the broker’s client data,” he says. Size Because it is independent of lenders and aggregators, Hayden describes Finware as being a small business capable of delivering big solutions. He says its product suite offers the only integrated solution from front-end marketing
IT Industry players
co-published with MPA
managing their client database and indeed their whole operation with a myriad of spreadsheets – or maybe an Act database,” he says. These days brokers want to automate all of their workflow processes, Hayden believes. The penny has dropped that the client is king – and accordingly, that the real value of their business is determined by the quality of their database. “Not just the trail book. So it seems that as an industry we have grown up. And there is a lot more change to come,” he says.
through to middle office CRM to the back-end data management. “Our iLend solution is an installed application so you don’t need the internet. There’s no waiting for pages to refresh during client presentations or embarrassing drop-outs. Updates and backups are fast and efficient. In seconds we do what our competitors take 20–40 minutes,” he says. Hayden adds that updates to the Finware mortgage database occur every three hours, while its mortgage data and calculators are the most accurate, up-to-date and complete of any tool in the industry. In addition, he says the team is as experienced as it is passionate. Its four operational managers and two directors have been in the business an average of six years each. Positive Hayden says that a lot has changed in the industry since the beginning. And the vast majority of it has been positive. “When we first started with iLend in 2002 most of the brokers we spoke to were
Research Hayden says Finware researches the UK and US markets each year. “The number one take-home for the Australian market is to understand that we are not behind these countries as so many experts would have us believe. These are three very different marketplaces. We have more complex products being sold to a consumer with different drivers in a more secure marketplace,” he says. Similarly, he says most technical experts – both international and local – seem to completely underestimate the complexity of the Australian mortgage market. Efficiencies While not everyone’s hip-pockets may agree, but Hayden argues the GFC has been “great for the industry as whole”. Commission reductions have forced the brokers still in the industry to increase efficiencies, he says. It’s all about doing more – for less. “And that’s where software comes in. We have been inundated by existing clients calling us and saying ‘we know iLend can automate our standard letters, but we have never gotten around to setting this up’.” “So after years of using our solutions below capacity, clients are now keen to ensure they are extracting as much value as possible,” he says. Furthermore, as we leave the GFC behind Hayden believes a very robust industry will remain – being operated by professionals with very satisfied consumers.
Finware Product Suit + iLend: A complete mortgage broker solution, offering modular-based access to ensure maximum efficiency, professionalism and compliancy. + iWeb: Build industry specific interactive websites, with connectivity to the rest of the Finware product suite. + iNews: An online newsletter that keeps you in touch with your clients. Use Finware’s purpose written articles or write your own. + iCalc: Simple to use web calculators that can be loaded to any website, or used with other products in the Finware range. + iRefer: An online tool to professionally manage and encourage referral relationships. + iControl: Reconcile your aggregator commission statement back to your loan book, or account manage your clients. + iClipse: Find the answers to tough, strange or hard-to-find policy questions.
IT Industry players co-published with MPA
NextGen.Net NextGen.Net provides a complete range of electronic lodgement and application processing solutions. Its electronic lodgement solution, ‘ApplyOnline’ is a widely used platform across the Australian industry for both lenders and brokers. “And our mortgage processing solution delivers real straight-through processing benefits, with a highly automated workflow that interfaces with service provider’s systems,” says Curtis Brager, NextGen.Net’s commercial director. Comprehensive Brager says that NextGen.Net products improve service levels and reduce costs across all elements of the industry value chain. “We continually strive to reduce the friction and increase the transparency between the broker and the lender. We work with our customers to identify the ‘bottlenecks’ in their processes and develop innovative solutions to address them,” he adds. To differentiate it from its competition, NextGen.Net uses open standards – such as LIXI – to enable customers to ‘loosely couple’ systems. This improves information flow, and maximises data reuse and efficiency. “Our customers can mix and match our solutions with their existing systems to access the benefits without the cost or risk that some of our competitors’ ‘whole of business’ solutions demand,” says Brager. In the lending space, he adds that whiles NextGen.Net’s competitors focus on large scale, highly custom solutions – requiring large investments in infrastructure, licensing and
development – its “Software as a Service” (SaaS) model allows customers to access services on demand. “They can use our services as part of their short-term change management or use them as the core of origination business.” NextGen.Net’s support for a full range of products on one platform offers it another competitive advantage. “Not just prime mortgages; non-conforming, equity release, personal loans, credit cards, deposit products, leasing and equipment finance, as well as insurance products. ApplyOnline supports them all, for both lodgement and processing,” Brager says. Continual improvement NextGen.Net continues to innovate and bring new services to the Australian market “that add value, increase data reuse and improve efficiency across the industry.” In addition Brager says it will be launching several new services in the coming months – and in conjunction with LIXI, deliver a number of industry-wide standards to support them. “Supporting document handling, increased information reuse and open identity management will be some of our key areas of innovation in the coming months,” he adds. Grown up The lending industry has matured greatly since NextGen.Net started out as a database-oriented software developer in the early 1990s, according to Brager. “We have seen the maturation of one of the most competitive mortgage lending markets in the western world, with an unsurpassed breadth of products available. We have seen the rise – and some would now say fall – of a healthy non-bank sector, participation of international banks in the market, as well as a range of local wholesale funding options for originators,” he says. Now, as far as Brager is concerned consolidation is the obvious outcome from the GFC – in all of the banking, non-bank and broker spaces. “Coupled with increased funding costs, commission cuts and impending legislative regulation, it has been a tough 18 months for the industry. But all signs are that the industry as a whole will emerge stronger and more resilient – if a bit leaner,” he says.
“ All signs are that the industry as a whole will emerge [from the GFC] stronger and more resilient – if a bit leaner ” –Curtis Brager
tool kit Sam Benjamin examines website tools brokers can use to improve their online presence
f you are like many small business people, you may find yourself swamped by all the different hats you are required to wear these days as a business owner. Who has time to think about an effective online marketing strategy? In February 2008, Barack Obama raised $US45m – all of this online via his website. He did not host a single fund raising function to do this or solicit funds from large corporations – the money just rolled into his campaign from small donors and all via his website. I would call this an effective online marketing strategy. The key is to marry your website with your marketing objectives. Obama’s goals were to garner support for his political campaign financially and to spread the word to as many people as possible to ultimately win the election. This was achieved in many different ways and while you may not have the budget of Barack Obama, you too can create an effective online strategy with a little thought and planning. Online Surveys Surveying your clients is one of the easiest ways to find out more about your business and the customer’s experience with your business. The information you receive can help you to identify opportunities for improvement and to highlight areas of your service which need tweaking or finetuning. It is important to keep the survey brief and to the point, especially if it is the first survey you are conducting with your clients. You may even limit it to two questions such as “Would you recommend my business to your friends and family? If so, why – or why not?” This simple question could form your customer satisfaction survey. Of course you could elaborate on this, but my point is, it does not have to be long winded to be worthwhile. Analysing the feedback you receive is obviously the point of the exercise – so make sure you do this. You will more than likely see a pattern emerging in the responses received. This will point
to areas you need to target or address in your business. Effective “About Us” Page and Testimonials The ‘about us’ page on any website gives the business the opportunity to really set itself apart from its competition and to tell the site user why they should choose this business over others. You need to let the site user know you and in turn your business. What are your areas of expertise? What can you offer your clients? It is the perfect place to explain to your clients why you got into the business, what your unique story is and how this could benefit your clients. Combine the well thought out ‘about us’ page with some nicely worded testimonials from existing, satisfied clients and you are well on your way to building a relationship of trust with prospective clients. While some people feel testimonials are a bit ‘cheesy’, a website often speaks to a viewer in a subliminal way. Linking to Affiliate Websites This is an effective strategy which helps a business to overcome the barriers in buying decisions by having other trusted businesses recommend your services. The key to the success of affiliate links lies in the choice of website or business you link to. You want to choose businesses which complement yours, rather than compete with you. Also, if you can link to a website which has a lot of web traffic, this will boost your website visits. There are two approaches to link to another website. Firstly through the use of free affiliate links or reciprocal links. Secondly you may set up an affiliate link as a result of a joint venture or offline marketing strategy you have in place – for example, a mortgage broker that arranges finance for a real estate agent. If you take a little time to establish a set of specific goals for your online marketing, you can improve your online efforts. You may not be able to raise $US1.5m a day – but then again chances are you are not running for the top job either!
Sam Benjamin works for Finance Tools. To contact Finance Tools visit www.financetools.com.au or call 1300 300 790
moonlighting So called ‘brokers by night’ are being painted as industry villains. But are parttimers really sucking the professionalism out of the broking? Andrea Lavigne investigates
hen did ‘part-time’ become a dirty word? The mortgage industry is undergoing an extreme makeover, but in its quest to eliminate rogues and cowboys, a growing desire to shut down the services of part-time brokers has also been revealed. But should part-timers be lumped in with the few bad apples that are spoiling the barrel? The debate has been explosive. Arguments about the continued existence of part-time brokers raged on Brokernews after a web story featured comments from Citibank’s Peter Hayward which backed part-time brokers on the basis that they were “professional”. “It’s not about whether you are part-time or full-time, but whether you are professional or not,” he told Brokernews. “If you maintain professional standards, keep your business in good order, follow the CPD regime, attend training sessions and provide excellent service, then who cares if you are full-time or part-time?” he asked. A few days later Brokernews ran a story with comments from MFAA CEO Phil Naylor, who echoed Hayward’s support of part-timers. He
agreed that they had a place in the industry so long as they had a “professional mentality”. But not all brokers felt the same way. Some full-timers argued that the part-timers are responsible for slowing lender approval times by submitting incomplete applications; that ‘part-time professional’ is an oxymoron; and that part-time brokers can’t possibly give their clients the attention needed, which in turn tarnishes the whole industry. Others compared part-time brokers to parttime doctors – if you wouldn’t trust your health to someone who ‘dabbled’ in medicine (between playing golf and gardening) why would you entrust a part-time broker to handle the single biggest purchase of your life? The MFAA says about 20% of its membership derive their primary source of income from outside mortgage broking. “That might mean they are a financial planner who does broking, or an accountant who does broking,” says Phil Naylor, adding that the MFAA doesn’t focus on how many hours a broker commits to the job – just whether broking is their sole focus. So it’s difficult to say how many brokers out there
fee for service
are working part-time. The classification also includes new moms, caregivers for someone else in the family, or those simply transitioning into retirement. MPA decided to ask a few part-timers, as well as other industry players, what the future holds for these industry members. Broker moms Mortgage broking has long been considered an option for women looking to juggle a career with kids. Kylie Platt, director of The Local Loan Company in Perth, started out as a part-time broker 10 years ago and has watched her business grow in step with her children. “The debate is: can you be professional and be part-time? And I would say absolutely. Professional is defined by your clients. If I’m putting up good quality submissions and my clients and the lenders are happy, then I’ve done a professional job.” While she’s confident in her abilities, Platt admits she struggled with other people’s perceptions about part-timers until she realised that it’s really her clients’ opinions that count the most. Now that her kids are older, she has turned her full attention to broking and is building up her already successful business.
“It’s been my [crusade] for such a long time. Sometimes I think there are some real gems out there that over time will become brilliant brokers.”
Broking and… Peter Rohr started in the mortgage industry two and a half years ago, but continues to run a small family publishing business. He says that the re-accreditation policies will make it harder for part-time brokers. “I can see some brokers placing a deal just to keep their accreditation, rather than doing what is best for the client. I haven’t seen the stats that say it’s the part-timers that are pulling these numbers down. I’ve heard full-time brokers say it’s good because it’s a clean-out of the system, and will make it more professional. But what about the part-time brokers that are placing quality deals? They are getting a raw deal.” Rohr says part-time brokers are unfairly blamed for the ills that exist in the industry, while in reality many have the time to put together good quality applications. Rohr does have an advantage in partner Michelle Coleman, one of the country’s top female brokers. Coleman, who recently gave birth to their daughter Ava, has acted as mentor for Rohr. “The software provided helps, as do BDMs, but support and mentorship is paramount. I don’t know how anyone could start as a part-time broker
(not within a broker organisation/company) and have enough knowledge to provide sufficient support to clients – especially when it comes to structuring a loan and the pros and cons that come with the different options. The minimum requirements to become a broker don’t give enough practical requirements, support or tests,” he says. Lifestyle broker Daniel Thorpe worked in banking for a long time before he transitioned into mortgage broking. He spent several years as a full-timer, and then moved to part-time hours seven years ago. Now he deals with two to four customers a week and says they get his full attention and “superb service”. “I compare that to a broker who does 40 deals a month – they couldn’t possibly be doing that.” A major argument made by full-time brokers is that part-time brokers aren’t able to offer the same level of service to their customers because they’re not working a full day. But Thorpe argues he’s available when his customers need him. “I think this is the basic answer to the whole debate between full-time and part-time – I give my customers full-time service, but I handle less customers overall.” Even though he’s handling fewer customers, Thorpe says he’s still pulling full-time numbers. “I have never done less than $1m a month since I’ve been part-time.” He also agrees lender re-accreditation will affect part-timers, but he’s got a solution for his customers. If he loses a particular accreditation, and one of his customers looks to be a good fit with that lender, Thorpe says he’s happy to refer the client to another broker he has ties with. It’s a practice he already employs. Industry bodies Like Naylor, FBAA president Peter White says there’s a place for part-timers as long as they can maintain the standards of professionalism. But he says the future of part-timers in the industry is shaky. “I feel it’s going to be very difficult to be a part-time broker in the future. That’s not saying that I don’t think they should be there, I just think it’s going to be difficult to comply. “I reckon doing it part-time will be damn hard. The complexities of
the market and the demands and needs are really going to force people to make a decision one way or another.” The current re-accreditation policies being implemented by banks will affect part-timers, he adds. “I think you can see that already. Maybe the banks are trying to force the part-time people out. If the banks are saying there’s a problem, then maybe there is?” The FBAA doesn’t currently have any stats on the number of part-timers in its membership. Aggregators CEO Steve Lambert says National Brokers Group keeps stats on its part-time brokers, the majority of whom are accountants, financial planners or other related professionals who write loans as part of their core business. Lambert says he believes there is a place for such part-time professionals, but accreditation restrictions will be force many to re-evaluate their distribution of work.
Westpac on part-timers Westpac’s Huw Bough, head of sales third party distribution: MPA: Some suggest that the new re-accreditation policies being adopted by lenders will reduce the number of part-timers in the industry. Was this the intention? Will full-timers benefit as a result? Bough: The sole focus of the minimum volume quotas introduced by Westpac was to drive quality outcomes for the customer, by ensuring brokers who represent our brand are fully up-to-date with our products and policies. Our concern is whether or not the advice provided by the broker to the borrower is accurate. Westpac is committed to supporting brokers who deliver a high quality service to borrowers, and we will continue to partner quality operators that meet our minimum standards. We also recognise that a professional broker needs to be up-to-date with all the legislative requirements and latest information, and we would expect that in order for a broker to be up-to-date and offer advice they would be full-time. Professional brokers will benefit from the changing environment, which will result in a smaller number of brokers MPA: Some full-time brokers suggest part-timers are responsible for submitting incomplete applications, resulting in slower turnaround times for everyone. Has Westpac found any evidence to support this theory? Bough: It is very hard for us to differentiate between full-time and part-time brokers when it comes to quality. What we have found, however, is that brokers who rarely use us are generally not up-to-speed with our processes and systems, and this can result in a poor customer experience. We want to develop deeper relationships with brokers who choose to recommend Westpac products on a regular basis. Our goal is to ensure that the customer gets a great experience, and this means they need to deal with a professional broker. We don’t have any specific data to indicate which brokers are full-time or not, but I understand that some aggregators are doing some data comparisons to see if there is any correlation between the quality of applications and the employment status of the broker.
“This may mean they push into the brokerage area further, or move away from direct writing to an arrangement with a broker,” he says. Lambert acknowledges that some part-timers may be submitting incomplete applications, but he suggests that the vast majority of members are submitting quality deals. Like Lambert, CEO Paul Gollan says there’s a place for part-timers. Australian Mortgage Brokers insists new brokers make a full-time commitment to their business, but Gollan says a handful have chosen to cut back to part-time hours to take care of kids, sick family members or purely for lifestyle reasons. “The important thing is they attend PD Days, stay up-to-date with product changes, and adhere to our strict compliance requirements,” he says. Gollan suggests it’s probably easier for professionals like financial planners or accountants to do broking on the side. “Brokers can spend up to 50% of their time generating leads, so professionals like financial planners and accountants have the advantage in this area. These professionals are well placed when it comes to compliance, but once again
minimum volume hurdles will mean they have fewer options available.” Tanya Sale, finconnect’s general manager, takes a contrary view to the continued presence of part-timers. “We’re trying to clean up this industry, and we’re trying to say to the general public and the government that we’re a professional industry. And if we want to be taken seriously I don’t think there’s a place for part-timers.” Sale says her company doesn’t count any part-timers among its members, although finconnect’s members are accountants, financial planners or other finance professionals that also do broking. The debate over the continued presence of part-timers in the industry may be academic, as lenders are pushing them out regardless of the industry’s preference, she says. “The banks are putting up volume requirements and submission quality/conversion metrics. They’re saying ‘if you can’t provide so many loans per month than you really don’t know about the products.’ So we don’t have to worry about pushing our part-time brokers out because the banks will do it for us.” MPA
see the interview live Tanya Sale tells MPA why she doesn’t think there’s a place for part-timers at Brokernews.com.au/MPA
TOP Commercial brokers fought tooth and nail through the last financial year to get deals over the line. Congratulations to the victors…
he description of the last 12 months was unanimous among commercial brokers: 2009 was a tough year. The numbers are telling. Commercial finance including leases plunged by 7.7% or $2.266bn in June to $27.093bn – that’s 22.2% below the 2008 average and 36.6 % below 2007. David O’Toole, national sales manager for FAST, says the aggregator’s commercial settlement volumes are down by 40% from the previous financial year. The aggregator has a high concentration of some of the industry’s best commercial brokers; it includes about 150 commercial brokers who have been in commercial corporate lending for more than 10 years. FAST’s commercial membership is reflective of commercial brokers as a whole. According to MPA’s top commercial brokers list, almost every one of this year’s participants has come from a business banking background. Many said that having banking experience was beneficial in 2008-09 – especially those brokers who lived through the last economic downturn in the late ‘90s and saw first-hand how banks tweaked policy during times of difficulty. Contributing factors Tightened credit policy, the reduced number of lenders in the market and low business confidence combined to make 2009 an extremely difficult time to be a broker operating in the commercial space. Not only has credit policy become tighter, but some say it’s a moving target. One broker described the situation as “policy on the run”.
O’Toole says less available funding overall means lenders have become increasingly picky about who they will lend to. “If there’s limited capital for the bank, they’ve got to work out ‘are we going to get a better return lending to commercial businesses?’ and ‘what risk do we have there versus other areas of the bank?’” he says. By way of example, lending $40m to one business at a smaller margin makes less sense than approving 40 deals of $1m each at bigger margins. Lenders make more money that way and spread their risk. For that reason, many commercial brokers have done well in equipment finance this year compared to other areas of commercial lending. As a reflection of this, MPA opened up its survey of top commercial brokers to include all kinds of commercial transactions. While a few brokers managed to pull some massive deals in this particularly difficult time, others relied on the smaller deals to get them through. The reduced number of lenders, of course, meant it was harder for commercial brokers to get fringe deals across the line. Lenders that relied on super funds have either pulled back on lending or pulled out altogether. The upside is that some brokers have been busy refinancing maturing deals away from lenders exiting the market. A NAB survey released in August found that businesses were more confident in July than they had been for nearly two years. A recent survey by Dun and Bradstreet also found businesses expected growth for sales, profits, employment and capital investment for the upcoming December quarter. Another key factor is interest rates: some economists think the RBA should put off raising them until business lending increases. O’Toole is bullish about the next 12 months. “I predict a 10–15% lift in terms of our commercial settlements. And for our equipment finance settlements, I’m looking at a 20% increase.”
TOP COMMERCIAL BROKERS 2009 Golden Grove
Queensland Financial Services Pty Ltd
Centric Lending Services
Prosperity Advisers Pty Ltd
Peel Finance Brokers
Brandi Financial Services Pty Ltd
HJT Mortgage & Finance
Ken Gordon Financial Services Pty Ltd
Uniq Finance Australia Pty Ltd
PFG Capital Pty Ltd
Dunartin Capital Finance Pty Ltd
Mortgage One Australia
Victory Commercial Finance Pty Ltd
Loanwise Pty Ltd (Choice Home Loans)
State by state NSW
MEN v WOMEN QLD
20% 13% 7%
15 Tim Victory Victory Commercial Finance Pty Ltd Golden Grove, SA Settled:
Top commercial brokers The difficulties in commercial lending this year contributed to fewer applications for MPA’s top commercial brokers survey. And while we received fewer entries than in previous years, the quality of the applications remained high. Our 2009 top commercial broker Danny Masri hit $126m, $9m more than last year’s top figure. Regardless of where our commercial brokers placed in the list, MPA wants to thank all of this year’s participants. We’ve provided a short bio on our top commercial brokers, to give others in the field an idea what it takes to make it in the commercial broking world.
Tim Victory has only been a commercial broker for three years, but, he gained a wealth of experience as a business banking manager at NAB (where he worked for nearly two decades). He followed that up with a stint at BankWest as a business banking/ business development manager where he worked with brokers. “BankWest really taught me about the broker market, and it’s where I learned that I had the skills to do it myself,” he says. Victory does both residential and commercial loans but usually one set of needs flows from the other. Victory markets himself to self-employed clients and, after looking after their commercial lending needs, he usually takes care of their residential loan requirements as well. At BankWest, Victory was a franchising specialist. “In the franchise market, I knew I had skills that were unique,” he says. “I knew I didn’t want to just be a home loan broker, and I knew I didn’t want to be out at nine o’clock at night with ‘tire kickers’. I like to meet people with businesses – it’s just a more interesting area. So while more time goes into a commercial transaction, if you achieve your goal you get your client for life and you then get the easier stuff. And self-employed people are always active – buying equipment, or cars, or looking at the next transaction, so the spin-offs are there.” While the last year has been tough, Victory says he can’t complain. Each year, his business has grown and his clients have kept him busy. Victory had one major deal this year with Citibank: a $2.1m refinance.
Ronelle Gors is in a minority in the commercial broking world: she is the only female to ever break into the top commercial Ronelle Gors brokers list. Loanwise (Choice Another unique thing Home Loans) about Gors is that unlike most commercial brokers, Ballajura, WA her background is accounting and taxation Settled: – not business banking. $10,821,000 Gors got her feet wet in residential broking before moving into commercial. She might not have benefit of a business banking background, but Gors says she has learned a lot from bank BDMs. “I rely on the BDMs heavily. You find out as much as you can from the client: what they want, what their assets are, what sort of funding they want, and whether they have their tax returns. Next, you go to the BDMs and say ‘this is my scenario, where to now?’ Mostly, I’ve found the BDMs to be fantastic.” While commercial deals tend to be more involved, Gors says she much prefers the work. “It’s easier in many ways, although I know that might sound a bit strange. But when someone is looking for a commercial loan they’ve got their tax returns and they have a business mindset, whereas with residential they don’t always have the figures.” Gors has high expectations for next year and believes the economy has turned a corner.
13 Terry Hill Queensland Financial Services Pty Ltd Noosaville, Qld Settled:
Terry Hill has been a commercial broker for seven years, but admits this year has been the most difficult. While he completed more deals in the last financial year compared to 2007–08, his overall settlement figure dropped from $12.71m to $11m. “The deals are just harder to get through the lenders, and their appetite is significantly smaller too,” he says. Hill spends a lot of time working with the various lenders to find out what their specific interests are, so he can ensure he’s not wasting his time or his client’s trying to ‘shoehorn’ deals. Residential loans remain Hill’s bread and butter – making up about 80% of his income. “It’s very hard to make a living exclusively out of commercial loans because it’s such a tough market.” But Hill says he sticks with commercial lending because he enjoys the variety that comes with the work, and he sees it as a growing area for brokers. This year, he says he’s seen some improvement in business finance, but development finance has really fallen off. While residential brokers have been suffering from poor turnaround times, the delay in commercial lending has been particularly frustrating. Hill says the best way to manage clients’ expectations is to be honest and upfront. “You try to communicate as best you can and set the expectations at the beginning of the process. And certainly people understand that commercial tends to be more involved than residential, so the expectations are different anyway.” All of Hill’s commercial clients are referred to him by existing clients, or even by banks that can’t do certain deals. “That’s the advantage of knowing a few of the banks. If they can’t help the client then they like to send them on to you.”
Barry Schilling, a newcomer to MPA’s top commercial brokers survey, has an impressive business banking background. Schilling spent 25 years at CBA and one year at Suncorp before being lured to the world of commercial broking. “One thing the bank does do is train you well in that space,” he says. The hardest thing since throwing his hat into the broking ring has been to expand his focus across the lending spectrum. “I found the most difficult part was working out which banks had an appetite for which sort of deals. Coming from a bank, you know its policies are. But when you’re dealing with everyone, you’ve got to work out all of their policies.” And it’s been a moving target, he adds. “So that’s why you need good relationships with the bank BDMs.” But Schilling is confident the market will improve, saying: “I think the share market has turned up, and I think Australia is better placed than most countries. So with that in mind we’re predicting growth in the commercial space – but not overall. This financial year will be better than the last.”
12 Barry Schilling Centric Lending Services Sydney, NSW Settled:
Matt Smith Prosperity Advisers Pty Ltd
Peter Famlonga Peel Finance Brokers
It’s Matt Smith’s debut on the Top Commercial Brokers list. Smith, who hails from Newcastle, settled 17 deals totalling just over $12m. While he only started broking in April 2008, Smith has more than 15 years experience specialising in residential and commercial finance. Before joining Prosperity Advisors, he worked as a senior business development manager in northern NSW with GE Commercial Finance. Smith holds a Bachelor of Economics from the University of Newcastle.
It’s been a busy year for Peter Famlonga, but despite doing 15 more commercial deals this year than last, his total settlement figure fell from $14.30m in 2007–08 to $12.32m. “Volumes were down, which I expected, but we were still really busy because it’s been twice as hard to get a deal through than it was in the previous 12 months,” he says. Famlonga does about 65% residential and 35% commercial. Of the commercial, only $1.5m was attributed to equipment finance, while the rest relate to commercial property transactions. He describes the last financial year as being “very, very tough”. “The biggest issue that we have is what I call ‘policy on the run’. You know what the bank’s normal policy is, but by the time you get the deal in it has changed.” The other major obstacle has been the lack of competition. “There’s not enough depth there,” he says. “While there are some come good products available, they are only for a very narrow set of deals.” After 11 years as a commercial broker, Famlonga says most of his deals come via referral. Some clients have been with him since the beginning. Famlonga also maintains strategic relationships with financial planners, accounting firms, a general insurance broker and a couple of management consultants – which helps keep the customers coming through his door.
Sam La Company: Brandi Financial Services
Harry Tan HJT Mortgage & Finance
$23,460,268 While Sam La has only been a broker for 20 months, he worked as a business banker with Westpac for several years. “As a business banker I used to generate a lot of leads from other commercial brokers. I also found that there was a lack of understanding about packaging, and working out whether commercial deals were genuine. So I figured I could take my banking experience and expertise across into the broker world, and hopefully try and make a buck for myself.” He switched over right as the credit crisis took hold in Australia, which he says maybe wasn’t the best time. The daily mantra, he adds, is: ‘If I can make it now, I can make it anytime’. La tackles all aspects of commercial lending, and it currently represents about 60% of what he settles per month. The challenging part right now for both residential and commercial is managing clients’ expectations on loan turnaround times. “I try to keep them informed throughout the entire process and set the expectations from the very beginning.” Most of La’s deals are going through the majors at the moment, but it’s not his preference, he says. “The majors are good to a point as they’re still fairly socially responsible when it comes to the fees, but their service is lacking. They’re experiencing levels of business above and beyond anything they’ve ever received.”
Harry Tan’s commercial figures are down from 2008 – from $75.6m last year to $28.8m in 2009. But his numbers are reflective of the commercial market as a whole. Like most commercial brokers, the majority of Tan’s deals were put through the majors. He placed 22 loans with Westpac totalling $16.2m, while the rest was done through ANZ, BankWest, CBA and ING. Tan is celebrating his 10-year anniversary as mortgage broker this year.
Ken Gordon was one of the few brokers who described last year as being “pretty good”. “We’re in an area that probably has missed most of the recession anyway. So business has been good. I think we may have been a little bit down on the year before, but not a lot.” Because Gordon operates in an agricultural belt, the economy is just one of the factors affecting business. Rainfall, crop production and prices also play a major part. “I’ve been there for 13 years, and every year has improved on the year before.” Gordon settled 431 deals in 2008–09, the majority of which were equipment financing. The investment allowance brought in by the Federal Government helped “fire things up” for the Ken Gordon company in June, he Ken Gordon says, but the lenders Financial Services have tightened up. While they’ve still Gatton, Qld managed to get deals Settled: across the line, it’s been $29,274,759 a much harder fight. The reduction in the number of financiers has also been difficult, as some important players such as Suncorp have stopped lending for equipment finance. “The current financiers are writing the rules, and it’s very hard to push a deal when you think it’s worth having a run with. When there are more lenders out there they have to work for your deal and know they have to be a little bit more flexible.”
6 Veki Brdjanin UniQ Finance Australia South Melbourne, Vic Settled:
While Veki Brdjanin has been a broker for seven years, he moved into the commercial side of things about five years ago. Unlike most commercial brokers, Brdjanin came from an accounting background. His interest in broking was piqued when he started doing some small scale commercial developments on his own. He approached a broker to help him source a competitive deal, and from then on he took an interest in brokering himself. “And the rest is history,” he says. While his business is about 60% residential and 40% commercial, he says 2009–10 is already shaping up to be a stand-out year on the commercial side. At the time of writing, UniQ had already settled $9m and had another settlement go through in a few days worth $22m. To put it in perspective, Brdjanin settled $36m in total for 2008–09. “We are concentrating a lot more on the commercial side of things as well. The residential is very well established at the moment,” he says. The transaction size and the complexities behind the deal keep him intrigued, he says. But he acknowledges the last financial year was incredibly tough with the reduced number of lenders operating in the market and the tighter credit conditions. But one positive from the last financial year is that the interest in using brokers’ services has risen. Brdjanin says long-time bank clients that have traditionally approached their bankers directly have suddenly found it more difficult to get lending approved. And some have had their the rates squeezed upwards. “So they’re picking up the phone and utilising brokers, whereas previously they never would have done that. So the enquiries and opportunities have grown,” Brdjanin says. Another silver lining of the credit crisis is the need for clients to refinance away from lenders that are pulling out of the market. “Where a lot of that is coming from is the mortgage trusts that are not providing roll-over facilities,” he says. Brdjanin’s main concentration is property lending and a lot of construction finance.
5 Samuel Testa PFG Capital Mermaid Beach, Qld Settled:
$42,243,048 Samuel Testa is in the minority of brokers whose background is in accounting and tax. But the ability to read financial statements and apply an analytical mind to situations has made his transition into broking 10 years ago fairly smooth. Last financial year, Testa placed nine deals through a mix of traditional and nontraditional lenders. The biggest deal was $24.8m through BankWest. “The secret to being an effective broker is knowing which lender has the capacity to complete a transaction,” he says.
Two major deals propelled Paul Jones to fourth place on this year’s list. But both deals took a long time to come to fruition, as the timing coincided with the credit crisis and the banks’ unwillingness to lend money. “I’ve had two very difficult deals, and I’ve managed to get them both through in very difficult times. That says to me that if I can a get 100% success rate now, then when the good times do roll around we’ll be able to leverage off that pretty quickly.” Jones is well recognised for his expertise as a broker. Last year, he won MFAA Young Broker of the Year and was named as a finalist for the Telstra Business Awards for the Northern Territory. He started off as a residential broker, but he got his first big break on the commercial side of things when he received a referral from an accountant for a $70m development. At the time, he didn’t have the expertise or the accreditation to handle the deal, so he worked in partnership with a Money Advisers commercial broker and was taught how to put a commercial finance package together over the following two years. Unlike other parts of the country, Jones says Darwin is in a development phase and growing rapidly. “I do see a turnaround. And it’s more locally-based than nationally-based. In Darwin we have a completely different economy. That said, the the head assessors that I’m dealing with are down in Melbourne and Sydney and they have a very dim view of life in general. Whereas in Darwin the situation isn’t like that at all. Unemployment is half the national average. We have a lot of oil and gas revenue. The problem we’re finding is getting the credit managers in other states to recognise that when some of them have never even been to Darwin.”
4 Paul Jones Money Advisers NT Darwin, NT Settled:
While 2008–09 was a tough year “with the supply and demand equation for commercial finance being tipped on its head”, Pete Dossett says there were also many opportunities. Pete Dossett Zobel As banks and finance companies changed their Norwood, SA policies and squeezed up margins, clients looked to Settled: brokers to help them out. $48,814,035 This year, Dossett settled $48.8m, slightly below last year’s $67.7m. That said, he completed nearly the same number of deals. “This won’t come as a surprise as we have had to work at least 50% harder for the same result, but that is what it means to be in business. Every business or industry has periods where you can make a good income with a moderate effort, only to move into a phase where you work far harder for less.” Dossett’s business mix also changed as a result of the credit crisis conditions. “In the year just gone the mix of our business certainly changed and this wasn’t really anything to do with changing strategy or focus. It was a matter of the market moving us in a different direction. Of the nearly $50m we settled, just under $12m related to plant and equipment funding – which was certainly driven in part by the Federal Government stimulus measures.”
John Duncan says he was attracted to commercial broking because it provides a great mix of dealing with people and applying expertise. He credits his agricultural background and experience at a major bank’s accounting firm for giving him both those skills. As he says, it was a “natural fit”. Duncan describes the last financial year as being very interesting. “Perhaps the main obstacle was the increased cost of funds when seeking a loan term over two years. Other obstacles were reduced upfront fees and trail; increased lead time for loan approvals or responses; and consolidation of broker relationship managers by some banks.” “Often you will find the answer – just in a different way. Therefore knowledge of different types of products is critical to finding a solution. There is an expectation that the broker relationship manager of a bank should be knocking on your door – but we see this as a two-way street. You have to maintain that relationship. Secondly, do not submit an application unless it is complete – quality is key. If you do these two things the process is much smoother. In short we want people putting their hand in the air when they see our name on an application.” Duncan predicts there will be a shift from clients’ focus on cost of funds to ‘what will additional funds do for my business?’ He also says commercial brokers will experience an increase in activity as business operators seek assistance in presenting their business more professionally to a bank.
2 John Duncan Dunartin Capital Finance Burnside, SA Settled:
1 Danny Masri Mortgage One Australia Gladesville, NSW Settled:
Danny Masri has been inching his way up the Top Commercial Brokers list since its inception three years ago. At Masri’s first attempt he placed fourth with a sales volume of $69.68m. Last year, he stood one better, ranking third with a settlement total of $99.34m. This year, Masri outperformed his peers and improved his own record with a volume total of more than $126m. “We had a few big loans in the pipeline. But the First Home Owner Grant really gave things a push. We had some developments with 70-odd units, and [the FHOG] really allowed those projects to move forward.” One secret to his success has been to outlast his peers. “More brokers have disappeared, so we’ve been able to get a bit more penetration. Some mortgage managers that did some referral arrangements on the commercial side have come back to us. So we’ve been able to do a bit more there,” he says. Masri adds that the tightening up of major lenders has meant that some people have had to seek a broker to get business through, because their traditional banker was suddenly unable to do their business. Having solid relationships with the Big Four has also helped business. “When things got tough, the qualities of our previous loans have helped get the new ones over the line.”
Before becoming a mortgage broker, Masri worked as business banker. Having experienced the economic downturn of the late ‘90s while working at the bank helped him understand how lenders look at situations and change policy during tough times. “It’s given us a bit of an inside advantage,” he says. Masri already operates a diversified business – offering all parts of finance, general insurance and financial planning. The general insurance side of the business has really taken off, giving the business about 30–35% in growth, he says. “So we’ve really concentrated on that and it has really started to feed us through on the commercial side.” He doesn’t have plans to diversify further, but Masri says there’s opportunity in the new regulatory environment in terms of sub-aggregation. “We can provide for those mortgage brokers who will never be able to implement a general insurance and financial planning business by having them join our group, and being a fully-fledged service provider on all sides of financial services. That’s where we see our ability to add people.” Masri takes an upbeat view of economic situation and months ahead. “I think the market has turned. If this is as bad as it gets then we shouldn’t be complaining.”
short term lending
Quick fix Short-term lending is becoming popular as brokers look towards the post-GFC era. MPA asks five of the industry’s leaders to comment on the new practice
usiness confidence has deteriorated dramatically since the onset of the GFC, which has significantly shrunk the market, according to HomeSec Finance Express’s Paul Stone. “But many fringe lenders have also shut up shop, so the serious lenders who are in this for the long term have toughed it out and have finetuned what they do and how they do it,” he says. The risk element has also increased for short-term lenders as exit strategies have become less prolific. “For example, refinancing became harder for many clients. Refinance LVRs have reduced, and property prices have flattened out. In mining states, property prices have become a worry, so caution is the key to survival,” he says. But as business confidence returns, demand will return for short-term lending as well. “Hopefully the credit market overall will also be freed up a little more to create more opportunities for entrepreneurs. Provided commonsense prevails, this will be a major factor in the recovery of the Australian economy,” he says. Stone says consumers go for these short-term loans for business or investment purposes. For brokers, in addition to providing additional income, it creates solutions for clients. “If they
don’t have the short-term caveat loan product available, then they can’t provide a solution to a client who wants to refinance but needs the funds immediately.” Expect regulation and licensing to “shake the short-term industry’s tree” and get rid of a lot of private ‘back yard’ lenders, he says. It will almost certainly mean increased costs for borrowers. But provided the laws are realistic, it should also lead to a more disciplined market over the long term. Stone says that those who have staff, offices, and infrastructure will be in good shape to comply. One substantial fear is that the impeding regulation might further tighten the credit market. “And this at a time when the economy desperately needs it be freed up,” he adds. Pricing for risk Now, as a result of the onset of the GFC, the market is pricing risk properly. This is the view of Graham Mendelowitz, managing director of MKM Capital. “And with less competition and more clients in need, the result will be more business for those lenders that have access to funds,” he says. The access lenders have to capital will remain the key issue once the Australian economy has
short term lending
recovered from the global crisis, although Mendelowitz doesn’t think it will be at the same pricing levels. “That will mean a healthy existence for those lenders who do have access to capital, who risk price it properly, and who implement the compliance and regulatory requirements appropriately,” he says. MKM is not a short-term lender per se. Rather, it is what Mendelowitz describes as a “circumstance lender” that provides tailored lending solutions to customers who don’t meet the traditional banks’ criteria. He feels the short-term market still offers consumers whose circumstances don’t meet the lending criteria of the mainline trading banks an alternative funding solution. So for brokers it offers an alternative mechanism to assist clients – and earn revenue in a capital constrained environment dominated by the banks. The next hurdle for the industry will be regulation. Here Mendelowitz believes short-term or private lenders not geared up from a compliance, regulatory and systems perspective simply won’t be able to operate when the industry comes under ASIC’s control. “In particular, asset lending will become extinct, which will affect those private lenders who tend not to focus on serviceability,” he says. Mendelowitz feels brokers won’t be affected by the fee for service versus traditional commission debate, since brokers constantly need to find appropriate lending solutions for their customer’s circumstances – no matter how they are being rewarded. Opportunities for growth In Australia the GFC has had no impact on funding sources in the bridging sector, because the volume is fairly low and largely the domain of private lenders whose funds are sourced domestically. So says Andrew Way, director of Commerce Credit and chairman of the Short-Term and Bridging Finance Association (SBFA). But he adds that there has been a radical reduction in volume in the business and investment sector, as bridging finance is usually used to take advantage of opportunities in a vibrant market. “Of course,” he
says, “the market is not currently vibrant.” He says the future of the bridging finance sector lies in the ‘coded’ consumer space – lending that is covered by regulations. “We see great opportunity for growth in the bridging sector. As underwriting pipelines of traditional lenders grow and, as the market volume grows and costs come down, consumer bridging will be a very attractive means to securing a property purchase. And it will also be a very good source of broker commissions,” he says. Way feels the reduction in competition has affected the sector in two noticeable ways: “Firstly, by causing a tightening of credit conditions; and secondly, by lengthening the credit process.” So bridging finance, he says, offers consumers a viable source of short-term funding to secure a purchase pending finalisation of bank funding. This is often the difference between securing a property purchase opportunity or losing it. And for brokers, bridging offers the ability to retain a client. “Especially one with a need to secure funds rapidly, pending placement of alternative traditional funding. In addition, it offers value-added commission-earning opportunities,” he says. He says regulation and licensing will play a role in the short-term industry as well. “In the consumer bridging sector, lenders that are not currently licensed with APRA will have to become licensed with an appropriate regulatory body,” he says. But the biggest impact will be in the tightening of oversight in relation to lenders’ determinations of an applicant’s ‘ability to repay’. It will also mean a greater workload and higher administration costs. “Although,” he says, “these costs are borne ultimately by consumers.” He says that he doesn’t see how the argument about ‘fee for service’ versus traditional commission income could affect brokers in this space. “We already insist that commissions to brokers are fair, by being in line with industry norms and transparent. They are always disclosed to the borrower. This should not change post regulation,” he says. But he adds that it will mean that lenders will prefer to deal with brokers
“ In the consumer bridging sector, lenders that are not currently licensed with APRA will have to become licensed with an appropriate regulatory body ” –Andrew Way, director of Commerce Credit
short term lending
in their own words… “For brokers, in addition to short-term lending providing additional income, it created solutions for clients.” Paul Stone
“So for brokers it offers an alternative mechanism to assist clients – and earn revenue in a capital constrained environment dominated by the banks.” Graham Mendelowitz
“Within reason, the short-term market offers brokers a far greater level of flexibility in selecting their level of commission.” Andrew Littleford
“Since most short-term borrowers are business operators or investors and are likely to borrow more than your average consumer, a broker who provides short-term loans will broaden his customer base for repeat business.” Merrick Malouf
“For brokers, bridging offers the ability to retain a client and value-added commission-earning opportunities.” Andrew Way
who work harder in preparing applications and scrutinising documents. Upswing “The restrictive credit conditions that currently prevail, and the absence of second tier lenders, has certainly resulted in an upswing for shortterm loans,” says Andrew Littleford, director of Interim Finance. He makes the point that the market in this country is still fairly immature – and that it is divided into two camps: “Legitimate lenders with a reliable funding source and competitive fees and rates; and the more rapacious lenders and brokers seeking to feed off the current credittight markets.” He says banks clearly have the monopoly on funding, and as most brokers will attest, are cherry-picking transactions at will – and certainly not setting records for settlements. “So long as these tighter credit conditions prevail, the market for short-term loans will remain strong,” he says. Littleford says that the key benefit of the short-term market to borrowers is that they get access to capital within a short time frame. They also have the ability to borrow for shorter time periods than offered by the major banks. And for brokers it is essentially another income source that yields payment in a short time frame – between four and five days from the point of application. Furthermore, within reason, he says brokers also have a far greater level of flexibility in selecting their level of commission. Accountability is the watch word with the industry’s impending regulation – especially as the market continues to mature. “Brokers and lenders looking to dip their toes in the “consumer loan waters” will be held far more accountable as the legislators look to loan purpose, serviceability, exit strategies and the level of independent advice offered or required by the lender,” he says. To this end he says that un-coded loans (which make up the bulk of short-term loans) will need greater detail on the loan purpose and the plausibility of the exit strategy. On the fees versus commission issue, Littleford says that the GFC certainly has caused casualties in the broker ranks. He thinks that increased legislation and accountability will ultimately weed out a few more. “But it’s not a bad thing since legitimate and professional brokers will see this as an opportunity and stand to benefit by it.”
“ The banks clearly have the monopoly on funding and, as most brokers will attest, are cherry-picking transactions at will ” –Andrew Littleford, director of Interim Finance
case study specialist lender
Tightening credit policies The GFC has prompted lots of change in the short-term finance market in the past year, according to Prime Finance’s Merrick Malouf. Short-term lenders have either failed, or are no longer lending as they try to liquidate their loan books. While others, he says, have tightened credit policies to the extent that new business activity has dwindled. “Also, banks have increasingly offered equity release or line of credit (LOC) loan products to compete with short-term lenders. The government deposit guarantee has encouraged investors to move funds to the banks (ADIs) away from Managed Investment Schemes or similar unregulated investments.” And even worse, brokers – who are the main introducers of short-term loans – have had their numbers reduced by more than a third during the GFC. And the softening of the real estate market in all capitals has left less equity available to borrow against for the remaining brokers, he says. Malouf still anticipates difficult times ahead for
the economy, and expects all business lending – including short-term lending – to remain slow. But he forecasts a gradual recovery for business finance over the next 12 months “although the soft real estate market will keep short-term lending slow.” The GFC and proposed legislation will bring more significant changes to the way short-term lenders do business in Australia. “Asset-lend and no-doc application products are gone, and will be replaced with verification of income and serviceability,” he says. For brokers, the short-term market provides an additional income channel and a value add opportunity by pointing customers to a part of the lending market that they otherwise would have had difficulty finding. “And since most short-term borrowers are business operators or investors and are likely to borrow more than your average consumer, a broker who provides short-term loans will broaden his customer base for repeat business,” Malouf says. MPA
Case study Name: Kathy Curry
Learn from another broker’s experience. This month’s case study gives looks at a unique deal involving a specialist lender and a broker
commitment to the process (they would do what they had to do to get the house).
Company name: Auscredits No. of years as broker: Five years Describe the deal: Two clients, one self-employed and one employed by the selfemployed client, seeking to purchase an owneroccupier property with a 20% deposit. A low-doc application with two defaults for the primary self-employed applicant. The deposit came from the sale of shares. Relationship with Borrower: I had done previous lending for their parents and leases for equipment for the gym they own/operate. Merits of the deal: Good deposit, strong repayment history, long standing business,
Obstacles associated with the deal: Low-doc lending with defaults and PAYG income coming from self-employed loan party. Therefore, they were not eligible for Mortgage Insurance. This limited the options, despite the borrower’s strong asset and income position. Solution: BMM Specialist Access – Lite Doc (Resimac Specialist Lo Doc Plus). This product has the flexibility to accommodate some defaults, and Anthony Hong from BMM held my hand all the way through the application to make sure we had what was needed to get it over the line.
Final outcome: The loan was settled, and they now have a beautiful house one street away from the beach!
Strategic relationships: property buyers
a real advantage Craig Swan and Bailey Compton examine the legal issues brokers must face before they get into the real estate market
hese days, seemingly everyone wants a piece of what was once the exclusive domain of the mortgage broker. In recent times developers, project marketers, real estate agents and financial service companies have been aggressively encouraging mortgage brokers to refer their database to them in return for a referral fee. Real estate operators have gladly been paying mortgage brokers for these referrals, because they represent ideal real estate purchasers (ie, people who already have the finance in place to complete a transaction). Not without reason, those in the real estate sector have recognised the power of mortgage brokers well ahead of any movement in the mortgage broking industry itself. In comparison to mortgage brokers, project marketing professionals and real estate agents are limited in their marketing efforts by their predominantly ‘vendororiented’ databases. As such, their enquiries are driven by traditional marketing, seminars and networking with those who might have the requisite database.
Even on the acquisition of a good enquiry (a lead), your typical real estate sales agent will have little idea what style of property is required or the extent of the purchaser’s buying power. Understandably, this is why mortgage brokers are being enticed into the property game. Each mortgage broker has their client list. They know the purchasing power of that list, and they understand what those people want to buy. Profit Properly introduced and executed, this is a highly lucrative extension to a mortgage broker’s business model. Although mortgage brokers typically form just one part of the property investment chain, they are arguably the most critical link. More than simply procuring finance, mortgage brokers looking to expand and diversify income streams by: creating business models which allow them to refer purchasers to real estate agents; acting as buyer’s agents for their clients; and even expanding into other investment marketplaces.
Strategic relationships: property buyers
case study #1
see the interview live brokernews.com.au/mpa
Name: Michael Yardney Company: Metropole Metropole Property Investment Strategists has a working relationship with about a dozen brokerages around the country. The company started in 1979 and has been a buyer’s agency since 2001. It currently has offices in Melbourne, Sydney and Brisbane. Director Michael Yardney says the most common complaint he hears from brokers is that they spend a lot of time dealing with clients to get them pre-approved for a loan, but then the clients don’t go through with a purchase. “Some brokers say up to 60% of people they see and get approved don’t go ahead,” he says. “So they’re wasting a lot of the broker’s time.” Yardney adds that many customers have been particularly hesitant about moving forward in that last 10 months. “Mortgage brokers find people drop off after getting pre-approved because they’re nervous, or because they go to one of the real estate chains (who refer them to another broker for a commission) and they lose them.
But according to Yardney, brokers can stack the odds in their favour by referring customers to a property buyer. Buyer’s agents have the same end goal as broker – to help customers successfully obtain a property, he says. Plus, brokers have a better chance of retaining their customer, as property buyers aren’t interested in pinching the customer’s loan. The customers also benefit, he says, by having someone on their side who is an experienced negotiator, can bid correctly at auctions and save them stress. “A lot of buyers get disheartened, disappointed and nervous; but having a buyer’s agent on their side levels the playing field and can even give them an advantage. Therefore they end up buying, and that helps the mortgage broker because the deal goes through.” Metropole doesn’t have a referral fee system with brokers, it only refers people on the basis of good service. Similarly it expects referrals back on the basis that it provides good service for the client.
Strategic relationships: property buyers
While the banks are getting tougher and loans are getting harder to settle, savvy mortgage brokers are in the process of reinventing themselves on the back of their existing and valuable client databases – potentially increasing their profit many times. Rather than investing in the expensive and time consuming ‘broker to planner’ strategy, a new breed of mortgage brokers are looking much closer to home and adopting a more incremental approach. By becoming remuneratively involved in the underlying transaction upon which mortgage broking is based – the real estate sale – mortgage brokers avoid the risks of migrating to new and less related areas of business. At the same time, they are enhancing their core value proposition and boosting their ‘profit propensity’. Prohibition Regrettably however, the conduct which mortgage brokers have been encouraged into by the property sector is prohibited. Throughout Australia, the buying and selling of real estate is strictly regulated by state/territory based legislation. Although expressed differently in each jurisdiction, the principles are essentially the same. If a person is in the business of buying and selling real estate on behalf of another for reward, they must hold a licence in each of the jurisdictions they are acting in. There is a low threshold in place that requires any person who induces, or attempts to induce, a person to buy and sell property to hold a licence. The sale of property without a license constitutes a clear and easily identifiable breach, which can and does incur heavy penalties.Furthermore, other than in Victoria, it is illegal for a person to receive money by way of referral without holding a licence. A way through When the new NSW Property, Stock and Business Agents Act 2002 (PSBAA) came into force, it introduced an additional category of licence – namely the buyer’s agent. Those in the business of buying property on behalf of another, for reward, can now be licensed in NSW under a Buyer’s Agent Licence (without having to hold a full Real Estate Agent’s Licence).
Importantly, Section 33 of the PSBAA, states that no real estate agent can share commission with any other person unless that person has a licence or works as an employee of that agent (ie, holds registration). This permits real estate agents to share commission with buyer’s agents or with persons holding licences or registration under other licence categories. This previously prohibited conduct on the part of mortgage brokers can now be addressed and easily overcome. A mortgage broker can refer a person to a licensed real estate agent or, alternatively, act in the capacity of a buyer’s agent (on behalf of their clients and customers) if they hold a buyer’s agent licence. The licensing requirements in New South Wales require all buyer’s agents to attain a set number of competencies. Because mortgage brokers are now required to obtain a Certificate IV in Financial Services (Mortgage Broking), along with their experience in the industry, most of these competencies will be able to be satisfied through recognised prior learning (RPL). As such, specialist registered training organisations (RTOs) are offering buyer’s agents courses that are specifically designed to allow mortgage brokers to become compliant – thereby creating a legal pathway to remunerative participation in the real estate sector. The course offered by the Australian College of Professionals is currently being conducted over three days, in combination with a simple RPL process. MPA
Bailey Compton is a practicing solicitor, licensed real estate agent, licensed strata manager, licensed business agent, accredited mediator and accredited mortgage broker. Craig Swan is a solicitor offering specialist mortgage certification services. Swan holds a 1st Class Honours Degree in Land Economics, a Law Degree and a Diploma of Financial Services (Financial Planning).
see the interview live Paul Giezecamp explains how customers benefit from his diversified approach, while Michael Yardney describes the natural marriage between brokers and buyers on Brokernews.com.au/MPA
Strategic relationships: property buyers
case study #2
see the interview live brokernews.com.au/mpa
Name: Paul Giezekamp Company: Property Secrets Property Secrets was born from Paul Giezekamp’s own frustrations as a property investor. Thirteen years ago when Giezekamp started to build up his investment portfolio, he found he had to do a lot of the legwork himself. Through trial and error, he found that he gained knowledge that was highly sought after by others looking to invest. So when his security company wound up in 2002, he became mortgage broker and eventually opened up a property buying division. He prefers to call his team members mortgage planners, rather than brokers, as they look at what kind of loans suit a client’s best interests in terms of their overall investment dreams. But Giezekamp didn’t stop there. Over the years, he slowly expanded Property Secrets to include six other divisions: property coaching, renovation, property management, protection, development and net worth. Customers can use all of Property Secrets services or just pick and choose. Other brokerages often refer clients to Property Secrets to help them find investment opportunities and to help keep the deal from falling over. By diversifying early, Giezekamp says Property Secrets was wellpositioned to withstand pressure from commission cuts. While many brokers are packing it in, Property Secrets continues to look at expansion. For more information on Property Secrets, see MPA’s on-camera interview at Brokernews.com.au/MPA
book excerpt fool’s gold
Fool’s Gold Financial Times journalist Gillian Tett follows a small tribe of exceptionally talented bankers from the genesis of the financial crisis to its ultimate conclusion. This short excerpt from her book Fool’s Gold details how it all began…
On half a mile of immaculate private beach, along Florida’s fabled Gold Coast, sits the sugar-pink Boca Raton hotel, designed in a gracious Mediterranean style by the Palm Beach architect Addison Mizner. Since the hotel opened in 1926, it has styled itself a temple to exclusivity, boasting Italianate statues and manicured palm trees, a dazzling marina with slips for thirty-two yachts, a professional tennis club, a state-of-the-art spa, a designer golf course, and a strip of private beach. A glitzy roll call of celebrities and the wealthy have flocked to this resort, billed as a ‘private enclave of luxury’, where they can relax well away from prying eyes. On one summer’s weekend back in June 1994, a quite different clientele descended: several dozen young bankers from the offices of J.P. Morgan in New York, London and Tokyo. They were there for an off-site meeting, called to discuss how the bank could grow its derivatives business in the next year. In the humid summer heat, amid the palm trees and gracious arches, the group embraced the idea of a new type of derivative that would transform the wider world of twenty-first-century finance, and play a decisive role in the worst economic crisis since the Great Depression. ‘It was in Boca where we started talking seriously about credit derivatives,’ recalls Peter Hancock, the British-born leader of the group. ‘That was where the idea really took off, where we really had a vision of how big it could be.’ As with most intellectual breakthroughs, the exact origin of the concept of credit derivatives is hard to pinpoint. For Hancock, a highly cerebral man who likes to depict history as a tidy evolution of ideas, one step of the breakthrough occurred at the Boca Raton off-site. Some of his team, however, have only the haziest, alcohol-fuddled memories of that weekend. The young bankers had arrived in Florida determined to party as hard as they could, full of youthful exuberance and a sense of entitlement. They worked for the ‘swaps’ department – a particular corner of the derivatives universe, which was one of the hottest, fastest-growing areas of finance. In the early 1980s, J.P. Morgan, along
with several other venerable banks, had jumped into the newfangled derivatives field, and activity in that arcane business had exploded. By 1994, the total notional value of derivatives contracts on J.P. Morgan’s books was put at $1.7trn, and derivatives activity was generating half of the bank’s trading revenue. In 1992 – one year when J.P. Morgan broke the number for public consumption – the total was $512m. More startling than those numbers was the fact that most members of the banking and wider investing world had absolutely no idea how derivatives were producing such phenomenal sums, let alone what so-called ‘swaps’ groups actually did. Those who worked in the area tended to revel in its air of mystery. At the time of the Boca meeting, most of the J.P. Morgan group were still under thirty years old. Some had just left college. But they were all convinced, with the heady arrogance of youth, that they held the secret to transforming the financial world, as well as dramatically enhancing J.P. Morgan’s profit profile. Many arrived in Boca assuming that the weekend was a lavish thank you from management. On Friday afternoon they greeted each other in wild high spirits and headed for the bars. Many had flown down from New York; a few had come from Tokyo; a large contingent had flown over from London. J.P. Morgan prided itself on a close-knit, almost fraternal culture. Those on the outside viewed the J.P. Morgan crowd as elitist and arrogant, overly enamoured of the bank’s vaunted history as a dominant force in American and British finance. Insiders often referred to the bank as a family. The derivatives group was one of the most unruly but also most close-knit teams.
This is an edited extract from Fool’s Gold by Gillian Tett, published by Little, Brown. Price: $35, out now
mpa lender news
contents 54 A review of news in the world of non-bank lending and mortgage management 56 opinion: Mortgage Ezy CEO Gary driscoll on surviving the GFC 58 in profile: liberty financial coo James Boyle 62 Opinion: Genworth report on EXIT fees
Investors rush to ME Bank bond issue With securitisation markets effectively frozen, ME Bank (formerly Members Equity Bank) has used the government guarantee of wholesale funding to place a $500m bond issue, Reuters reported. Paul Garvey, manager financial market at ME Bank, said the issue was part of plans to continue to “diversify the funding base available to the bank.” “Further deals will be considered over time,” he said. ME Bank is one of the few triple-B-rated banks to make use of the government guarantee, which has a sizeable fee of 150bps attached to it. In contrast, major banks, which only pay a fee of 70bps due to their higher credit rating, have raised $112bn in funding by issuing government guaranteed bonds offshore and onshore since the scheme was announced in October last year, according to Deutsche Bank data. ME Bank priced $500m worth of three-year bonds at 50 basis points over swap. It issued $250m in fixed rate and $250m in floating rate notes. Macquarie Bank, NAB and Westpac Institutional Bank jointly lead the offer.
Pepper expands product mix Pepper Homeloans has set its sights on borrowers who fall outside the major banks’ and mortgage insurers’ lending criteria by launching a range of new mortgage products. The new products are geared towards selfemployed or small business owners (or otherwise good quality customers) denied access to housing finance as a result of the GFC, said Patrick Tuttle, Pepper’s managing director and CEO. “These products will provide many of the features that mortgage introducers have been previously accustomed to, including: unlimited debt consolidation; the ability to refinance an existing low-doc loan up to 80% LVR; and the ability to consider past adverse credit registered two years prior to application,” he said. The new products are a Full Income Documentation Loan (full-doc) and an Alternative Income Documentation Loan (alt-doc).
500m ME Bank priced $500m worth of three-year bonds at 50 basis points over swap
mpa lender news
Credit unions seek approval for liquidity fund Credit unions are banding together to create a $1bn liquidity fund. In a bid to give the majors some competition on the home lending front, credit unions are seeking approval from the Australian Prudential Regulation Authority (APRA) for the creation of a $1bn liquidity fund, which will be supported by super funds. Should the APRA approve the fund, more than 25 credit unions will have access to another source of funding that could see more balance in home lending. Currently the majors write more than 90% of all home loans. While banks have been able to raise money using the government-backed guarantee, credit unions say they’ve been unfairly disadvantaged by the scheme. In a submission to the Federal Government, mutuals said that the current fee structure penalises building societies and credit unions twice. They added that lower-rated ADIs issuing government guaranteed debt pay a fee of 150bps or 100bps, compared to the big banks which pay 70bps. Mutuals also pay an additional premium despite the guarantee. The proposal before APRA is the creation of the Credit Union Mutual Fund. Credit unions are hoping to offer industry super funds and investors a rated financial instrument. The money in the special purpose vehicle would earn a return every quarter for the super funds, and that would come onto the balance sheets of the credit unions which could then use it to lend to their members. Once investors get used to the idea, the fund would be opened up to other mutuals.
NAB to keep Challenger team The existing Challenger management team will be retained following NAB’s agreement to buy its mortgage management and aggregation businesses. “The existing management team will be retained and continue to run the business as a separate entity reporting to NAB Broker within NAB Personal Banking,” said NAB Personal Banking group executive, Lisa Gray. The transaction is subject to regulatory approvals (including confirmation from the ACCC) and is expected to be completed by the end of the year.
41% NAB’s Challenger purchase also includes an interest of about 17.5% in Homeloans Ltd, with the potential to increase this to about 41% subject to Homeloans Ltd shareholder approval
SA credit unions propose merger South Australia’s Savings & Loans and Australian Central have put forward a merger proposal that would create the second-largest credit union in the country. The merger is still subject to member approval, but it has already been given the green light by both boards. Should it be successful, the credit union would create branches in SA, Vic, NSW, WA and NT and count 350,000 members. The joint assets would be more than $7bn – just slightly less than Credit Union Australia’s $7.7bn. Consolidation among credit unions has been gathering steam. Earlier this year Mecu and RegionalOne announced a merger proposal.
CBA annual results reveal bank dominance The balance between banks and non-banks is severely tipped to one side, according to the CBA’s 2009 annual results. They reveal that one in four home loans (25.1%) in Australia is now either a CBA or BankWest product. The CBA has 21.9% of the mortgage market while BankWest has 3.2%, the results revealed. On a combined basis, the two brands increased their market share by 1.8% since the CBA acquired BankWest in December last year. On a standalone basis the CBA’s market share increased by 2.6% from a year ago.
mpa lender opinion
survival guide Mortgage Ezy CEO Garry Driscoll presents five tips to survive the GFC 1: Know where you want to be after the crisis The first question you need to answer is: are we going to survive this crisis? If the answer is yes, then where do you want to be when the crisis finishes? If you don’t think you’ll make it, then act quickly and get out – but it may be a bit too late. Unless you have a clear vision of where you want to be, you will never get there. Every decision you make needs to be with the long-term goal in mind. You don’t want to be making short-term decisions simply to try and survive.
2: Know your margins A very successful businessman once said to me “we do it for profit, not for practice”. Sounds simple, but it is really important. You need to know what you can sell – at a price that it is competitive but still profitable. In the mortgage management business there is no point selling huge volumes of product or services if you cannot make any money. Look at the total package and find innovative ways to generate income from the base product. 3: Know your costs even better When you know rough times are coming, you must make sure that all unnecessary costs are cut from your business as soon as possible. The real issue is that what is unnecessary for one business may be vital for the next. For some small businesses travelling business class is never an option, but for some of the larger corporations this is a standard feature of their travel, and written into the HR policy. The bottom line is that in these times you must look at all your costs and analyse every cent to establish what value each spend brings to the company. Also, the best way to know where the money goes is to make sure you sign the cheques or authorise the payments yourself. Nothing gives you a better ‘finger on the pulse’ than the hands-on experience of signing off payments. This is a given in a small company, but tends to be forgotten in larger companies where the executive management gets removed from the day-to-day
activities. In large corporations this is not possible or practical, but there should be adequate systems in place to keep a close track on the type of expenditure – not just the performance against budget. The monthly P&L statement needs to be examined and any trends identified and explained. 4: Keep your good staff No one is irreplaceable, but if you have good people do everything in your power to keep them in these tough times. Not all of them may be superstars, but like the old footy adage says: “a champion team will always beat a team of champions”. Identify the staff that you want to retain, and make sure you use these slower times to train them and motivate them so that they are ready to fire up once the market improves. Good staff solve problems, and poor staff cause problems. It is also a great time to recruit new staff as there are some incredibly talented people in the market who for reasons beyond their control are ‘between jobs’ at the moment. For example, two years ago you would have had to pay 50% more to employ an average business development manager. Now there are a number of fantastic candidates available who are realistic about their salary expectations and are keen to work hard to prove themselves. 5: Look for opportunities Adversity creates opportunity. If you are cashed up and prepared to be picky, then there are a number of opportunities out there to consider. These range from established businesses that are struggling and that need to sell; business owners who have prospered during the good times but have no desire or lack the skills to manage in the tough times; existing markets that have been abandoned but are still viable; and new sources of business that have previously been serviced by competitors that are no longer in business. The list is endless, but it is important to look hard at any opportunity and make sure it will work in the long run.
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business Profile lender
business profile lender
Free at last The economic meltdown forced Liberty Financial to reduce its lending, but the AOFM investment combined with a growing need for its products has brought the specialist lender to back into the lending fold
iberty Financial had to make some hard decisions early on in the global financial crisis, and they proved to be prudent moves. “We were very quick to react to the calamities we were facing in 2007, and as a result of making difficult decisions early we’ve been able to continue lending throughout. I think there are only a few other lenders in our space that can say the same,” says James Boyle, Liberty’s chief operating officer. The non-conforming specialist was forced to reduce staff and cut back on lending. Boyle says they’ve had some ‘white knuckle’ moments over the last two years, but their doors are still open and they continue to offer good service and sound products. Liberty Financial opened shop in 1997 under the auspices of managing director Sherman Ma and backed by Credit Suisse, Deutsche Bank, Macquarie Bank and NAB. Its focus was on the non-conforming residential lending space – an area that Boyle says was being ignored at the time. “Back in 1997 there were really no products on offer to customers who fell outside the traditional lending criteria. This meant there were a number of people who weren’t being appropriately serviced with a lending product. We saw that as an opportunity to innovate and provide a solution, which was what customers needed.” The market was generic and conservative, Boyle says, and many customers who couldn’t borrow funds from traditional lenders were left to source funds from very ‘cottage industry’ groups, such as solicitors’ funds and payday lenders. Liberty’s foray into specialist lending was strategic move in a lending environment that Boyle describes as being “hotly contested” until about two years ago. “And to this day, servicing niche markets is part of our DNA,” he adds. Liberty has since diversified into several different asset classes including: consumer motor, commercial motor, residential commercial property and cashflow financing. While the lender is active in all asset classes, Boyle says the non-conforming market remains its
heritage; and with a drop in competition in this space as a result of the GFC, it remains a popular choice for non-conforming products. He adds: “And we expect that with small businesses struggling and the economy correcting, there will be more and more need for nonconforming products and fewer people able to provide them. So it’s an important part of what we do, but it’s only one part of what we do today.” The company started with just two or three employees, but ballooned in step with its growth. The current number of staff is just under 200. Boyle joined the organisation almost six years ago from State Street Corporation, a global administration company. He says the attraction of working with Liberty was a combination of the way it does business and the people. “Liberty’s culture is special. It’s a team of 200 people who work together very well on the commercial challenge to provide products that otherwise wouldn’t be in the marketplace – and it’s hard not to get excited by that,” he says. The lender’s growth was matched by its evolution, and according to Boyle one of the things about being a provider of niche lending products is you’ve got to be very good at managing those loans once you’ve made them. “We’re well recognised for our capabilities in servicing – that is, providing customers with assistance in the life-of-loan contract. We are one of the very few companies in the Southern Hemisphere (and I’m pretty sure the only one in Australia) to receive positive ratings from two of
“ We expect that with small businesses struggling and the economy correcting, there will be more and more need for non-conforming products ” brokernews.com.au
business Profile lender
the major rating agencies for our capabilities in that area. In diversifying into different asset classes, we’ve developed disciplines away from our initial consumer segment. So more recently we’ve been very focused on business lending, which is a new arrow in our quiver.” In 2002, Liberty launched its New Zealand operations. By 2003, Sherman Ma was worth $19m, making him the 38th richest young Australian in 2003. And things continued to look up as the home loan market hit its stride. By 2007, Australia’s economy was enjoying a 16-year expansion and home loan approvals were rising in the first quarter. At the time, Liberty had 360 employees and had raised more than $10bn selling mortgage-backed securities to finance its loans. That same year, industry sources claimed that Liberty was preparing to float. It was a seller’s market. Australia’s sharemarket was booming – the Bloomberg Australia IPO Index was up 11% while the S&P/ASX 200 Index gained 9%. However, Liberty’s listing plans fell through when Macquarie Bank pulled its offer to facilitate the float in July 2007 after receiving a poor response from institutional investors. The tide had started to turn as the fallout from the US subprime market crept its way across global markets and securitisation died. RAMS became the first high-profile victim, and competing non-banks such as Bluestone revamped their lending criteria and pulled back on business. Liberty, which remained unlisted, had to take steps to refinance. The specialist lender raised money through several sources. Deutsche Bank, CSFB, Macquarie and NAB all committed funding facilities. Through it all, Boyle says communication was also key to surviving the GFC. “Even if it wasn’t necessarily going to be well received, we were always very careful to explain why we were making tough decisions. And I think if you take the time to communicate with people and defend your actions, even if it’s not appealing, they appreciate your position and respect you.” While it is still negotiating the fallout from the economic downturn, Liberty has opened up its lending as of late. “We’re out there looking for business and providing great rates for the right customers. We think we have the broadest solution set of any lender in the market,” Boyle says. The company was helped in part by a $500m investment from the AOFM, which has bolstered the lender’s ability to offer competitive rates. Liberty is also a part owner/investor in BEAT
“ Some of our contemporaries who are no longer in business were lending 100% plus LVRs to customers with limited verification. We never got into such practices ”
Home loans, which provides an alternative to banks in the prime space. The AOFM investment has allowed the lender to compete in that area more effectively. Liberty has changed its product mix. Like other lenders, it has altered its credit criteria. While it hasn’t been inclined to carry the same amount of risk as in previous years, it’s still providing a wide range of product solutions for borrowers outside traditional lenders’ boundaries. Boyle adds: “But we certainly weren’t out there pursuing aggressive business before the GFC. Some of our contemporaries who are no longer in business were lending 100% plus LVRs to customers with limited verification. We never got into such practices. Our changes have been made to reflect our view of the challenges in the economy that lie in front of everybody. You have to be a bit more conservative when you’re lending to people based on what you believe the environment they’re going to be operating in is.” Liberty never chased volumes, Boyle says, and adds that players who did before the GFC hit have either exited the industry or failed. The result has been less competition in the non-conforming space, but Boyle says some of the lender’s products compete head to head with banks. Liberty is also competing with the banks on the broker level. Boyle says one of the big advantages for the non-bank is its ability to turn loans around quickly. “Importantly we have a guaranteed 12-hour turnaround. If a broker were to send an application for credit this morning, by this afternoon we’d have conditional approval.” Liberty has upwards of 6,000 active brokers on its books – and while not all are giving the lender business every month or every quarter, Boyle says the lender tries to nourish those relationships, as brokers have been the foundation on which Liberty was built. And while commissions vary depending on the amount of business a broker does with Liberty, “in all cases it is more handsome than bank remuneration”. As far as implementing re-accreditation fees for brokers who fail to regularly feed loans Liberty’s way, Boyle says it’s not in the plans. “No, and I think those moves are the moves of people who are struggling to deliver their commitment to service and rather than addressing the issue that they have, they’re making it an issue for the broker.” MPA
business profile lender
Exit fees most unpopular: Genworth report People don’t think about exit fees until they have a mortgage, and when they finally do have one they are almost never happy with them, according to Retail Finance Intelligence’s research director Alan Shields. His comments follow the 2009 Genworth Financial Mortgage Trends Report’s finding that while borrowers placed the highest level of importance on exit fees when choosing a lender, it was also the category they were most dissatisfied with. “It is very significant,” said Shields, “because an exit fee is one of those things where hindsight is perfect. Borrowers need to give more attention to exit fees from the outset.” He added that people might claim that it is not fair to have to pay a fee to get out of a fixed rate deal, but the real problem was that the borrower didn’t think about the ‘get out’ implications at the time when they opted for the fixed rate. Another finding of the report (which was produced in conjunction with RFI) was that, in contrast, overall satisfaction remained “quite high” – particularly regarding aspects like product features and branch accessibility. Also, in support of the ‘flight to brand quality’ theory, the survey found there had been a significant shift in choice drivers in the past year – with categories such as broker recommendations and teaser rates now being considered much less important than the stability and reputation of the lender. Furthermore, borrowers placed a “high level” of importance on the ability to overpay (make additional repayments on their mortgage without penalty). Shields made the point that the instances of ‘flight to quality’ have been exacerbated by the tightening of lending standards. But he added that the phenomenon was likely to reverse in the post-GFC period. “I think that when non-bank lenders have the money to lend again, there will be greater competition in the market. People will see more
brands advertising out there, and that will drive the reversal of the ‘flight to quality’.” But he made the point that people would always want their mortgage to be with an institution that “is going to be around for the long term” – because, rightly or wrongly, they worry about losing their house if a mortgage lender goes under. “That theory is always going to be there, and it will take a little while for people to forget what has happened,” Shields said. On the issue of the popularity of payment flexibility, he felt that non-bank lenders had been “pretty good” in the past at providing what consumers wanted. “So once they are able to play in the market, those factors will probably be a strength for them again.” Resi’s head of marketing and consumer advocacy, Lisa Montgomery, said that the Genworth report’s findings on exit fees might have been affected by the increased volume of people wanting to get out of their fixed rate loans in recent months. “Many got caught out by not reading their contracts, or thinking that nothing would go wrong with their interest rate predictions,” she said. She also made the point that as borrowers become savvier, they begin to look more discerningly at other factors that make up a good mortgage package. In addition, Montgomery had no doubt that any perceived ‘flight to quality’ would reverse once the GFC had passed. She said that one of the reasons that nonbanks became popular in the first place was because banks did not provide consumers with individual attention. “A mortgage transaction is a highly emotional exchange, so people are going to want a high level of support,” she said. She also agreed with Shields that non-bank lenders have a better understanding of what consumers are looking for.
James Green + General manager + Oxygen Home Loans
Favourite things Vacation Spot I would really love to go to Santorini, Greece for my next family holiday.
Hobby Trading shares. I love trading the market. Some call it a job but I call it a distraction!
Movie Mitch-A-Palooza ring any bells? Sport Rugby. How good are the boys in green and gold looking? I can smell a 2011 World Cup victory in New Zealand.
TV Star Ari Gold from Entourage Food They greatest dish ever eaten is the Morton Bay Bugs in black pepper and Indian curry leaf sauce at Flying Fish. It's not on the menu, so you have to ask for it.
Music/Band I like most music genres but I am currently listing to a section of Soul, Motown and Funky tunes. My first tape was Tour of Duty and those tracks won't leave my soul!
Drink I love drinking an ice cold beer by the pool at my favourite summertime venue, the Ivy.
Book I am currently reading You Inc. – it’s great. However, My favourite book would have to be Monsoon by Wilbur Smith. How could you not love a book about pirates, drinking rum, singing songs and plundering on the high seas?
Place to be winning that deal or having a day off with my wife at Balmoral Beach.
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22 September 2009