Mortgage Professional Australia issue 16.09

MPAMAGAZINE.COM.AU ISSUE 16.9

HIDDEN JEWELS Australia’s best non-bank lenders, as discovered by you

BREXIT How and why it affects your business

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JANELLE PEARCE Westpac’s third-party commercial push

AGRIBUSINESS Broking far from the bright lights

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SEPTEMBER 2016

CONNECT WITH US

CONTENTS

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

UPFRONT 04 Update

Commercial lending, regulators and lender appetites

46

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FEATURES

AGRIBUSINESS FINANCE Top brokers and lenders on a huge but often-ignored area of Australian business

36 FEATURES

JANELLE PEARCE

18 Westpac’s commercial chief on the bank’s search for third-party commercial partners

08 Statistics

The Australian property investor in 2016, by the numbers

10 Opinion

CoreLogic head of research Tim Lawless on the fear of oversupply

12 News analysis

MORTGAGE INSIDERS

BROKERS ON NON-BANKS

THE BIG INTERVIEW

Three brokers on how they approach after-settlement service

Brexit: Welcome to broking in a world of political and economic instability

FEATURES

Brokers say why they’d pick a non-bank, which non-bank they’d go for, and what their customers think about this sector

06 Head to head

FIRST STEPS INTO COMMERCIAL

An expert BDM and a new broker to the space explain how it’s done

60 Steve Matsoukas

Loan Gallery chief on partnerships and a detailed approach to hiring

63 Steve Dover

Building National Mortgage Company brick by brick

64 Carl Violeta

Making charitable work mean more than just a fun day out

BUSINESS STRATEGY 52 Connected leadership

Simon Hayward’s new approach to leadership looks beyond the individual

40 FEATURES

CONSTRUCTION FINANCE

Builders need brokers’ help more than ever as the banks pull back

56 Expanding overseas

University of Melbourne experts talk through setting up businesses outside Australia

FEATURES 44 Unsecured lending

Technology, usability and making unsecured business lending worthwhile

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FEATURE / BROKER EDUCATION

EDITOR’S LETTER www.mpamagazine.com.au

STAYING AFLOAT VS STAYING AHEAD

T

he struggle with news magazines is timing. The month spent putting together this issue of MPA was one of the most eventful in the publication’s history, dominated

by Brexit and a drawn-out federal election. Articles were delayed because, as odd as it sounds, we didn’t know whether the financial system would be recognisable by the time the magazine appeared on your desk. Fittingly, this MPA is all about responding to change.

That starts with unpacking what the big news stories mean for brokers.

Mainstream media outlets have covered Brexit with one eye on the stock market and the other on exports; we examine what it actually means for Australian mortgage brokers, while looking at how it relates to the recent election results. While both of these are ongoing developments, we’ve identified the specific consequences that matter to your business, and which you should keep an eye on.

There are also a number of more gradual medium-term changes taking place in lending. Regulators are turning their gaze towards commercial finance, an area until now heavily targeted by banks, and covered by several of

We didn’t know whether the financial system would be recognisable by the time the magazine appeared on your desk our articles. Conversely, the constriction of credit in the construction finance space means brokers and non-bank lenders are more needed than ever. We’ve provided an introduction to this area of finance, while our annual Brokers on Non-banks survey reveals which lenders provide an alternative or superior solution to the banks.

Immediate and medium-term developments require a business to be reactive; longer-term shifts allow for proactive strategies. Agribusiness is a huge industry that a few brokers are beginning to do extremely well in, which you’ll have noticed if you’ve attended an awards ceremony recently. Our in-depth feature on agribusiness analyses the industry and discusses how viable it is for commercial brokers to enter this space.

Inevitably, the financial world will have changed between the time I write this and you read it, but that makes it all the more important to see what great brokers and lenders are doing to not just stay afloat but stay ahead.

SEPT 2O16 EDITORIAL Editor Sam Richardson Journalist Maya Breen Production Editor Roslyn Meredith

ART & PRODUCTION Design Manager Daniel Williams Designer Loiza Caguiat Traffic Coordinator Lou Gonzales

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

CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Publisher Rajan Khatak Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

tel: +61 2 8437 4787 sam.richardson@keymedia.com.au

SUBSCRIPTION ENQUIRIES

tel: +61 2 8011 4992 • fax: +61 2 8437 4753 subscriptions@keymedia.com.au

ADVERTISING ENQUIRIES

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

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

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

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UPFRONT

COMMERCIAL LENDING NEWS BRIEFS Commercial buying intentions fall nationwide The proportion of investors looking to buy Australian commercial property has fallen from 51% to 37% in 12 months, according to CBRE’s Australia Intentions Survey 2016. Conversely, the proportion of respondents intending to sell has risen from 26% to 38%.

CBRE’s report focused on the growing concerns about oversupply in Australian cities, with the proportion of concerned respondents doubling from 10% to 21% in 2016. Despite this, Australia remains the most popular destination in the APAC region for cross-border investors, ahead of Japan and China.

Sydney remains the most popular investment destination within Australia, with Brisbane moving above Melbourne to claim second place. The gap between Sydney and the rest remains considerable, with 45% of respondents seeing Sydney as most attractive for property investment, and 26% of respondents opting for Brisbane. Retail property is the most preferred sector (45% of respondents), moving ahead of offices and industrial property.

Office sector return best since GFC Investors in Australian offices received a 15.1% return in the year to March 2016, the best performance since 2008, according to the IPD/MSCI Property Index. This compares with a 10-year average of 10% and a return of 14% for commercial property as a whole.

According to the executive director of MSCI, Anthony De Francesco, commercial property will hover around this peak for the rest of 2016. “Concern about the weakening domestic economy and global economy are likely to constrain demand for space,” he says. “We are already noting weakness in consumer demand and early signs of weakening employment growth, and this is likely to accentuate the disconnect between the strong capital market conditions against

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softer space market fundamentals.”

In terms of cities, Sydney and Melbourne’s office markets benefited from strong economic conditions in these states, while demand in Brisbane and Perth was substantially weaker.

Rental yields are declining, the MSCI said, as a result of strong demand in commercial property compared to relatively flat rental rates nationwide.

Homeloans and RESIMAC in $13bn merger Non-bank lenders Homeloans Ltd and RESIMAC Financial Services are to merge, with the combined portfolio to exceed $13bn. The aim is to combine RESIMAC’s strength in securitisation with Homeloans’ popularity within the broker channel.

Vow partners with commercial comparison site Aggregator Vow Financial has partnered with Valiant Finance, a comparison website dealing in business loans, equipment finance and debtor finance for SMEs. Brokers will be able to use Valiant’s platform, which was only launched in November 2015, to quickly match clients to lenders.

Alex Molloy, CEO of Valiant, was reported by MPA’s sister title Australian Broker as saying the partnerships would make small business lending worth brokers’ time. “The challenge for brokers is that serving customers in the short-term funding space takes a disproportionate amount of time – and for hard-to-fund customers it is often difficult to find a market-winning solution.

“With this partnership, Vow brokers can now see in minutes whether their clients would be eligible for a wide range of short-term secured and unsecured loans. The speed and efficiency of the marketplace platform should prove an immediate fit for the brokers looking for working capital, equipment finance, and debtor finance solutions.”

HALTING THE CRANES APRA and the RBA see commercial property and development – not housing – as a danger area and are regulating accordingly First APRA came for the investors, and the banks raised rates. Then they came for the foreign buyers, and the banks tightened restrictions. Now Australia’s regulators are looking at commercial lending, and commercial brokers are already feeling the effects.

According to Lucy Ellis, head of financial stability at the RBA, commercial real estate and property development are the “vectors of distress”, and are far more risky than residential real estate lending. “The thing that has tended to be the causal agent in a banking crisis, even though you saw something go wrong in housing prices, it was the property developers,” she said. Ellis was talking at the Centre for International Finance and Regulation (CIFR), responding to a study of potential crisis predictors, while the RBA discussed commercial property extensively in its April Financial Stability Review.

Australia’s ADIs are exposed to commercial property to the tune of $214bn – a 10.4% increase over a quarter, according to APRA, compared to an increase in residential housing finance of 8.7%. “We’re dialling up our systemic supervisory focus on commercial real estate,” noted Charles Littrell, APRA’s executive general manager of its Policy, Supervisory Support Division, also speaking at the CIFR event. “We’re off in a space in terms of asset valuations and interest rates and wealth, and leverage we’ve never been in as a country before, and that tends to make us think rather more conservatively even than usual about what our settings should be.”

Speaking to MPA for a recent article on infrastructure, George Karam of Byblos Finance, Australian Mortgage Awards Finance

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Broker of the Year, lamented that banks were pulling back from development. The banks “are not articulating that properly in the marketplace”, argues Karam. “You’ve had many examples of where loans have been awaiting approvals for months, and they don’t come through, and people don’t understand why.”

Karam’s stomping ground of Parramatta is seeing a huge number of approvals but less and less development is occurring, with the availability of credit being the main driver.

Unlike 2015, when APRA’s 10% limit on investor lending was well publicised, there’s been little clear direction given by banks or regulators when it comes to commercial property. In MPA’s recent commercial lending round-up (issue 16.7), Suncorp and La Trobe Financial noted that there had been some ‘tightening’ in the appetite for commercial loans, without elaborating further. No one likes to be the bearer of bad news, but that’s just the information commercial brokers need from their banks right now.

COMMERCIAL LENDING Jonathan Street CEO THINKTANK

Fast fact NAB’s Q2 2016 business survey recorded the highest conditions for SMEs in six years

Are regulators looking more closely at commercial lending, and what could this mean for brokers?

From our perspective, it would only appear that the construction and apartment segment is of any genuinely elevated concern with the regulators as fears of an oversupply in major metro markets rise.

Mainstream lending for typical commercial properties seems to be no more in the spotlight than would normally be the case, although we are seeing some of the banks tightening up on commercial lending appetite as they balance the cost of capital on commercial versus other types of lending and manage their prudential limits around how much they can lend in this area.

How can brokers make the most of a restricted credit environment?

Keeping right up to speed with what their panel of lenders might be implementing with product and pricing changes, and making sure they have good access to a range of lenders, is the first thing to do. The better the range on panel the better equipped brokers will be to work through which lenders are keen to support their business and the specific needs of their clients. Aggregator BDMs and commercial specialists will be right on top of what is happening in the market and are ideally positioned to steer brokers in the right direction as they are talking to lenders all the time.

Which parts of commercial lending is Thinktank focusing on for the 2016/17 financial year?

Our focus remains firmly with our core expertise in commercial property across the entire range of full-doc to alternate verification and self-certified income, SMSF lending and, increasingly, residential property being used for a commercial purpose, including where it may be captured under the NCCP. Activity has been very strong this year, with record volumes that look set to continue, and yet we are seeing a number of the banks being more selective in how they choose to support brokers and clients. We are unaffected by those forces and we are keen to assist brokers with any type of commercial property transaction.

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UPFRONT

HEAD TO HEAD

How are your after-settlement services different?

Deslie Taylor

Andrew McBay

Justin Baboucek

I actively stay in touch with my clients before, during and after settlement. At formal approval, I ensure my customer’s chosen lender calls them to set up all of the necessary banking accounts. We also request they call again at settlement to ensure clients know their repayments and home loan account numbers, etc.

After settlement, I will touch base with my clients on a monthly basis through a newsletter that is filled with market updates as well as pertinent information that is tailored to their unique set of circumstances.

In addition, I phone my clients at different points after settlement. I like to call them one week after settlement to ensure all of their accounts are set up and they are happy with everything. I will also call them a couple of months after settlement to ensure they are still happy and see if they need additional support.

Following that, I will actively phone my clients at least once a year to ensure they are still in the right set of financial products for their needs.

To deliver ongoing exceptional service after settlement for every client, we make sure our data gathering, conversations and method of information delivery support a deep understanding of who they are as people and what is in their hearts and their minds … what life is all about for them.

To be long-term-relationship focused rather than transactional is at the core of what we do at The Money Room.

Before we assist our clients into debt, we create a plan of how they get out of it.

Monitoring their progress on a monthly basis becomes our purpose and a relevant reason to stay in contact regularly for years to come.

From finding out what ‘makes them tick’ to budgeting and cash flow systems, we are there as a trusted money coach to guide our clients and grow with them. The AFG SMART Program is a vital tool in us achieving this, as it never forgets to send that email to the right person with the right messaging at the right time – the critical mix as we all know when it comes to retention and growth.

I strive to deliver more than just a ‘transactional’ service to our clients. At Fortune Finance, we build our processes entirely around our ability to align our clients with the most appropriate banking products and services available, which tend to change as time goes by.

Developing a trusted and diverse group of professional services providers within our network is also something we have built our business around. I position myself as not just a finance broker but the first point of contact for my clients for ongoing assistance and advice regarding planning their next steps or goals in life, and work closely with them in conjunction with the relevant industry professional to ensure the client is receiving the assistance that they deserve.

As a co-director of Fortune Finance, I am strongly of the view that consistency is important when it comes to client relationships, and set processes and guidelines for our brokers and loan writers to ensure they also adapt to our approach.

Franchisee Mortgage Choice Ormeau

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Managing director The Money Room

Director/finance broker Fortune Finance

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STATISTICS

PROPERTY INVESTORS

MEET JOE BLOW, PROPERTY INVESTOR

CHARACTERISTICS OF INVESTORS

One in six Australian taxpayers is an investor, and the typical investor:

With Australian property investors on the way back up, CoreLogic has released an extensive report on what the average investor actually looks like IF YOU’VE been following the negative gearing debate for a while, you may have got used to the lack of real data informing the arguments on both sides. The data behind negative gearing and property investors more widely is elusive, requiring the use of several sources: the ATO, the ABS and house price indices, to name but a few. Luckily CoreLogic has knitted together this data into a single report: Profile of the Australian Residential Property Investor, released in June 2016.

For anyone in the property industry, this

report is nothing less than essential reading.

While much of it addresses the debate over negative gearing, it also features a profile of the average property investor, including breakdowns of capital city areas, which brokers can use to identify potential investor clients and target their marketing accordingly.

The CoreLogic report also looks at longerterm trends, most of all the decline in yields, driven by increasing property values and falling rents, which reduced by 0.2% over the past year.

NEGATIVE GEARING

VALUE OF INVESTOR PROPERTIES

CoreLogic’s report used ATO data to narrow down the property investors who are most likely to utilise negative gearing (as evidenced by claiming a net rental loss). The typical ‘negative gearer’:

According to CoreLogic, the average investor-owned property is likely to be substantially cheaper than the average owner-occupied property. Comparing investor property values with the median price in Australia’s capital cities produces interesting results.

-50%

earns

Darwin

Greater Hobart

Perth

Sydney

Brisbane Melbourne Adelaide

Canberra

$60,000–$80,000 p.a. is aged 25–29 (but claims the most if aged 45–59) has an average net loss of

% under median value

-55%

-60%

-65%

$8,722*

*This figure applies to the 2014/14 financial year – CoreLogic expects this to decrease to reflect lower interest rates

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-70%

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owns one rental property owns a unit (48% of all Australian units are owned by investors) is aged between 50 and 64 uses negative gearing (61.8% claimed a net rental loss) owns property in Darwin, the Gold Coast, Melbourne, Sydney and Brisbane (the top five areas by proportion of dwellings owned by investors)

RENTAL YIELDS CONTINUE TO FALL

SMSFS AND INVESTING

Rental yields are continuing to fall. The reason is likely to be dwelling values, which increased by 29.4% across Australia’s combined metro regions over the last five years, partially driven by the falling average standard variable mortgage rate.

$24.4bn worth of residential property assets are held in self-managed super funds, representing a 67.1% increase from June 2011 to March 2016, according to the ATO. Overall, however, residential property still represents a small share of SMSF investments.

12% Standard variable mortgage rate

10%

Listed shares

Rental yield

30.2%

8%

Cash and term deposits 27.3%

6%

Non-residential real property 13.1%

4%

JAN 2016

JAN 2015

JAN 2014

JAN 2013

JAN 2012

JAN 2011

JAN 2010

JAN 2009

JAN 2008

JAN 2007

JAN 2006

JAN 2005

JAN 2004

JAN 2003

Other managed investments 4.3%

JAN 2002

0% JAN 2001

Unlisted trusts 5.1%

JAN 2000

2%

Residential real property 4.1% Source: CoreLogic, Profile of the Australian Residential Property Investor, June 2016

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UPFRONT

OPINION

HOW MUCH IS TOO MUCH? CoreLogic research director Tim Lawless looks at the concerns about oversupply in some housing markets AS AUSTRALIA moves through the largest housing construction boom on record, debate around housing supply has intensified. The question is, are we building enough homes to house the growing population, and are we building the right types of homes that buyers desire?

The 12 months to October 2015 saw a record number of dwelling approvals across Australia, with almost 241,000 approvals over the period. While not every approval will proceed through to a commencement and ultimately completion, we can still expect the majority of these approvals will proceed, creating a surge in building activity over the coming year and subsequently a substantial addition to housing supply.

Importantly, approved housing supply is diverse across the regions and is also biased towards specific product types.

At the same time as dwelling approvals peaked, the proportional split between house approvals and unit approvals also reached a historic high at 50.5%. This is the first time on record that approvals for detached dwellings have been outnumbered by ‘other dwellings’, which include a mixture of low-rise, mediumrise and high-rise unit projects as well as

townhouses. Clearly, the surge in unit approvals has been the primary driver of the swift upward trajectory in dwelling approvals. Detached dwellings have also seen an upswing; however, the number of approvals have been lower than what has been recorded over the peaks in previous building cycles.

Digging further into the approvals data shows that high-rise units are the fastestgrowing segment of approvals. High-rise

It’s important to view the supply additions in the context of the existing number of unit dwellings in the same region approvals have comprised more than 30% of all annual dwelling approvals since June last year.

The important thing to remember about high-rise unit developments is that these projects are mostly confined to specific precincts, typically around the CBDs of the largest capital cities, and along key transport spines or around major working nodes such as office precincts, hospitals and universities.

The CoreLogic settlement risk report identifies the inner-city areas of Melbourne,

REGIONS WITH THE LARGEST PIPELINE OF UNIT APPROVALS City

Approved units, next 12 months

Approved units, next 24 months

Existing stock count

Stock uplift (2 years)

Melbourne City

Melbourne

5,055

13,476

77,251

17.4%

Brisbane Inner

Brisbane

3,245

10,032

31,875

31.5%

Sydney Inner City

Sydney

2,649

8,988

108,955

8.2%

SA3 region

Brisbane and Sydney as the locations where the largest number of unit developments have been approved. Over the next two years, on the assumption that all unit projects proceed (which is unlikely), CoreLogic is expecting 13,476 new apartments to be settled across inner Melbourne, 10,032 across inner Brisbane and 8,988 across inner Sydney.

While the numbers look substantial, it’s important to view the supply additions in the context of the existing number of unit dwellings in the same region. The approved new supply represents a substantial uplift of 17.4% in unit numbers across inner Melbourne. In Brisbane, the approved supply would increase unit stock levels by almost one third; while in Sydney the supply additions are much more moderate, representing only an 8.2% uplift in unit stock.

In this context, the inner-city region facing the most substantial challenge in absorbing this approved apartment supply is likely to be Brisbane, where the supply pipeline is set to

increase stock levels by almost one third.

Of course, not all these apartments will proceed, and CoreLogic will be updating the approved supply pipeline each month as more projects are added and some are withdrawn or reconfigured. Historically, the typical withdrawal rate for apartment projects has been approximately 15% (ie 85% of unit approvals proceed through to completion).

There is a strong likelihood that the withdrawal rate will increase from the historical average as unit developers face tighter financing obligations or simply decide to delay or withdraw the project from the market due to concerns about high supply.

Tim Lawless heads up the research team at CoreLogic and is a regular media commentator on trends in housing, demographics and economics. CoreLogic provides data to the housing industry, including brokers.

Source: CoreLogic

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NEWS ANALYSIS

BREXIT

WHEN THE DUST JUST WON’T SETTLE Brexit has not only shocked the world economy; it’s set in motion a process that will take years and have very real consequences for Australian brokers, writes MPA editor Sam Richardson IN A year of drama, Brexit is the undisputed

Brexit for lenders and the economy

star of the show. As word came through on the afternoon of 24 June that British voters had defied politicians and experts worldwide in voting to leave the European Union, the financial markets reacted immediately, overshadowing Australia’s federal election and even Donald Trump.

Brexit was almost immediately framed as a financial disaster, and the initial effects read like a ticker tape of woe: the pound dropping to a 30-year low, the UK losing the prized AAA rating it had held since the 1970s, and over US$3trn wiped from stock markets in the two days of trading following the Brexit vote, easily surpassing the GFC to rank as the worst day of global trading ever.

A webinar, held by ratings agency Standard & Poor’s to discuss its downgrading of the UK, summed up the mood of bewilderment.

Moritz Kraemer, global chief ratings officer, sovereign ratings, was asked about the benefits of Brexit.

“I don’t think I can see any obvious benefits here,” Kraemer responded, “beyond lawyers and duty-free shops.”

What about brokers? The speculation has already begun on Brexit’s consequences for Australian property; and as MPA has found, its consequences for brokers are more complicated but no less important.

For a start, Brexit is a long-term phenomenon.

The reaction of the market to Brexit was astonishing, but the market is fickle: indeed, by the Wednesday after the vote the UK’s FTSE 100 stock index had fully recovered its value. Moreover, Brexit is officially yet to happen: the UK first has to trigger Article 50, which begins a two-year countdown to Britain leaving the EU, and Britain’s new Prime Minister, Theresa May, has said she

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“There’s a real possibility for an out of cycle rate rise post the Australian federal election as lenders look to pass on the increased cost of doing business” Brett McKeon, AFG will not activate Article 50 before the end of 2016. Therefore Brexit, a second Scottish referendum, an EU-wide recession and any spin-off effects are all possibilities but none have actually materialised thus far.

Closer to home, it’s important not to overstate the UK’s economic links to Australia.

S&P was not adjusting its forecasts for Asia as a consequence of Brexit, its director and chief economist Asia-Pacific Paul Gruenwald told the webinar, noting that “the direct trade links

with the UK are minor across the region”.

In fact, the whole of the EU takes less than 5% of Australia’s exports, and the UK doesn’t have the impact on tourism or migration it once did, explains CBRE’s Australian head of research, Stephen McNabb. “Asia/China has replaced Europe as a major source for migration, tourism and trade over an extended period of time. Furthermore, APAC was the largest source of capital into Australian commercial real estate last year, not Europe or Britain.”

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AUSTRALIA AND THE UK TODAY

The UK accounts for just 2.4% of the world economy and 3% of Australia’s export market

The UK accounts for less than 2% of Australia’s goods exports and 10% of service credits However:

The Eurozone accounts for 12% of the world economy

Australia’s fortunes are no longer tied to those of the UK, but they are affected by global capital markets and investors. The ASX had its worst day of the year, falling 3.2% after the Brexit vote, with Australian banks hit hard before recovering in the following days.

Brexit is expected to set back the US Federal Reserve’s raising of interest rates, and CommSec and many others are predicting the RBA will again cut rates in August, having not done so in July, when the Reserve Bank argued that “any effects of the referendum outcome on global economic activity remain to be seen and, outside the effects on the UK economy itself, may be hard to discern”.

AFG managing director Brett McKeon was one of those predicting a cut, in an article on the impact of Brexit that he published on

LinkedIn. The RBA could find itself at odds with the banks, suggested McKeon, as there was a “real possibility for an out of cycle rate rise post the Australian federal election as lenders look to pass on the increased cost of doing business. The RBA may take a waitand-see approach, but if lenders make the first move this may be the catalyst for the RBA to step in”.

In terms of investors, McKeon predicted that new securitisation transactions would struggle – which could make life hard for many non-banks – as investors demand bigger spreads.

CBRE expert McNabb expects a ‘waitand-see approach’ from investors as they look for clarity on future investments, adding that investors will also look closely at the results of Australia’s federal election (see box, p16).

The UK is the second biggest foreign investor in Australia

Around 113,000 Australians live in the UK

Australian businesses had $80bn in direct investment in the UK in mid-2015 Source: ABS/NAB. Note that ‘foreign investment’ here includes all sectors, not only real estate

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FEATURE / BROKER EDUCATION NEWS ANALYSIS

BREXIT FOREIGN PROPERTY INVESTORS AND BREXIT Figures published by the Foreign Investment Review Board suggest that brokers and lenders should be far more concerned about Brexit’s indirect effects through Asian and American investors than direct consequences from British and EU investors.

APPROVED INVESTMENT IN 2014/15 China $24,349m United States $7,103m

Singapore $3,850m Malaysia $3,430m South Korea $2,528m United Kingdom $2,063m France $770m Germany $761m Source: Foreign Investment Review Board Annual Report 2014–15

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Brexit for brokers and their clients Global financial turmoil is hitting brokers and clients on the ground. MPA spoke to Home Loan Experts broker Jonathan Preston, who had an Australian client who was hit by the fall in the value of the pound just as they were approaching the settlement of their loan.

“He showed he had plenty of funds and it was actually sitting in an Australian bank account, but in pounds – more than half a million in pounds in there,” Preston explained.

“When Brexit happened the pound fell something like 7–10%, and that created a pretty big swing in terms of the realisable balance in Australian dollars … it was nearly a $50,000 move that he saw in that single day.”

Eventually the client managed to plug the gap and satisfy the banks, but it was a shock for both broker and client. Preston had dealt with Aussies buying Australian property with foreign incomes for several years, with increasing demand in recent months, but this experience was a first for him. “Most people do convert their currency prior to getting serious about purchasing. That tends to be the thing.

I think he [the client] was feeling comfort based on the pound being a fairly stable currency, and even if it moved a little bit that it wasn’t going to affect him too adversely.”

Preston’s experience of Brexit may not be reflective of all brokers. Australian brokers dealing with EU-based clients buying in Australia are not a large group, and while anecdotally some buyers were frustrated by currency fluctuations, brokers in this space reminded us that dealing with currency fluctuations is a routine occurrence.

To take a long view on the impact of Brexit for Aussies based in the UK and Europe, MPA spoke to Netherlands-based Craig Joslin of The Australian Expat Investor, an author and consultant for Australians looking to invest down under, about the reaction he was seeing in the Aussie expat community.

In common with much of the world, the first reaction was shock, says Joslin. “People didn’t really expect the leave vote to happen, so now there’s a lot of uncertainty with expats in the UK over what it means in the long term.” While Australia’s migration arrangements with the

UK won’t be directly affected, many Aussies use the UK as a base to access Europe, enjoying a freedom of movement that could be curtailed.

Many Australians also work in London’s financial services sector, which is heavily dependent on access to European markets.

Joslin is nevertheless positive about the long term, even if the pound remains poor.

“That will have an impact on what people can afford in terms of property, but I don’t think it will turn people off investing in Australia,” he says. “It may even reinforce to people the importance of investing your money back in Australia rather than keeping it in a bank account in the UK.” Ironically, if and when Aussie expats decide to invest their earnings back into Australia, they’ll need a broker not so much because of the UK economy but because of Australian banks’ policies, says Joslin. “What they’re looking for from a mortgage broker is someone who is knowledgeable about the policies of the different banks, and can direct them to banks that are going to evaluate their circumstances in the best possible way.”

Shooting oneself in the foot In the months leading up to the Brexit referendum, it appears that the policymakers within Australian banks were not looking at Aussie expats but instead at China, as they oversaw a significant tightening of criteria for non-resident investors. These rules have also affected Australian expat borrowers, explains Home Loan Experts broker Preston.

“Not only has it been tightened by banks but there’s been a significant deviation in policies by the big four and a number of second-tier lenders. They’re not uniform in their policies right now, so there’s a significant need by brokers to set the right bank for the client.”

Most relevantly, the banks are taking their own views on different currencies and restricting lending accordingly, Preston explains. “Some lenders have restrictions now on what currencies they’re accepting, and they’ll take different currencies at different percentages; they’re more trusting of some currencies.”

Nevertheless, as a currency sterling is at

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FEATURE / BROKER EDUCATION NEWS ANALYSIS

BREXIT present viewed positively by the banks, and Preston doesn’t see that changing. “I think most people will just see this as a blip on the radar; perhaps if we were to see increased volatility over the next six to 12 months that picture might change a little bit, but presently it’s still one of the favoured currencies by the banks as far as I know.”

It’s possible that Australia’s banks and state governments, several of which recently raised stamp duty for foreigners, have effectively shot themselves in the foot. Many commentators have predicted that international, and specifically Asian, investors may look to move their money from London real estate to the supposedly more stable environment of Australia. Several property funds in the UK stopped withdrawals in July, with UBS expecting prices for commercial real estate to fall by 20%, and residential prices already showing signs of cooling.

Donald Tang, of Top 10 Independent Brokerage Alliance Mortgage Solutions, believes Brexit has worried Asian investors and “will bring more business opportunity for Australia”. However, the immediate effect of Australian bank criteria, Tang notes, has been that “individual Asian buyers were scared off from the Australian property market. There are signs that lots of ‘purchased’ investors are reselling their properties, and that could lead the property market to slow a bit. Also, the majority of ‘planning’ investors are very

conservative these days. I do find lots of real estate agents complaining about this situation”.

The rise of the Australian dollar since Brexit has also made potential investors hold back, Tang adds.

contentious issue being fishery rights.

“What you have now is much more complex,” lamented Kraemer. He said it was possible negotiations could take a lot longer or even that “after two years the UK just

“[Brexit] may even reinforce to people the importance of investing your money back in Australia rather than keeping it in a bank account in the UK” Craig Joslin, The Australian Expat Investor Gavin Norris, head of Australia for Chinese property investment website Juwai.com, believes it’s “too early to tell” if Brexit will push Asian investors towards Australia, noting that many investors are locked in by long-term commitments, such as a child’s university education. “So far, it seems that most investors from China are confident that the UK remains good long-term value, regardless of market fluctuations caused by Brexit in the shorter term,” he says.

Out of the bottle What we definitely know about Brexit is that this is not only a news event but a long-term shift. There is only one precedent for a country voting to leave the EU, noted S&P chief Kraemer: Greenland, in 1985, a process which took three years despite the only

crashes out of the EU, if the negotiations aren’t handled very carefully”.

This does not mean that the outlook for Australia is negative. As CBRE’s McNabb argues, Australia’s economy is supported by sound fundamentals: “The current situation with Brexit is not necessarily any more challenging than these earlier ‘shocks’, which have been accompanied, for the most part, by rising offshore capital inflows to Australia.”

What it does mean is that pre-Brexit outlooks are now out of date, and these outlooks matter to brokers, whether you’re talking about RBA policy, bank securitisation or foreign investors. Given time, Brexit will change finance irrevocably, and that process has already started; as Kraemer characterised it, “the genie” is now out of the bottle, and “it’s quite unclear how to put the genie back in”.

WHAT ABOUT THE FEDERAL ELECTION? Choosing to focus on Brexit ahead of Australia’s federal election was obviously a difficult decision. With the Coalition just managing to get out of a hung parliament, it became clear that any relevant policies from the new government would take time to emerge, whereas many of Brexit’s outcomes were (frighteningly) immediate. Nevertheless, the election has raised some issues brokers should be aware of: Negative gearing and CGT breaks With Labor’s failure, immediate changes to negative gearing seem very unlikely. However, independent senator Nick Xenophon – whose party controls three seats – and the Property Council of Australia have proposed a cut to the capital gains tax (CGT) concession available to buyers.

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Credit rating Australia has not yet lost its AAA credit rating, but it has been put on a negative outlook, and AMP economist Shane Oliver says a downgrade will be hard to avoid given the composition of the senate.

While a downgrade would theoretically increase borrowing costs, there are relatively few AAA countries remaining for investors to consider.

Housing minister The Housing Industry Association (HIA) has renewed calls for a Commonwealth housing minister – a cabinet position to coordinate housing programs and lead reform. “A lack of federal focus on housing policy reform increases the chance of a ratings downgrade,” warned HIA chief economist Harley Dale.

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THE BIG INTERVIEW

JANELLE PEARCE

“Business owners are looking for more from their broker and for them to be a thought leader and adviser, with the ability to talk to them about all of their needs”

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JANELLE PEARCE: TIME WELL SPENT Westpac’s head of commercial introducers tells MPA how her team works with brokers expanding into commercial lending

MPA: Why are we hearing so much about brokers and commercial lending right now?

JANELLE PEARCE: If we look at brokers themselves, the majority of them are business owners, and to really have strong, sustainable businesses they shouldn’t be one-dimensional and solely reliant on mortgages. Business owners are looking for more from their broker and for brokers to be a thought leader and adviser, with the ability to talk to them about all of their needs and not just their mortgage. I think it’s particularly customer demand that’s driving this, but also if you look at aggregators they’re encouraging their members to spread their wings, through continuous improvement; expanding into commercial lending is a part of that growth.

We also in the last couple of months conducted a series of roadshows down the East Coast, and we invited a mix of our existing commercial brokers and also brokers who had the potential to become commercial brokers.

That was based on the recommendations of some of our colleagues in the residential business, but also by the aggregators. Every single one of those events was full to capacity, which for me was evidence of residential mortgage brokers wanting to do more than just mortgages.

MPA: Are business customers becoming more and more prepared to work with a broker?

JP: We’re starting to see it more and more

and there are things that are driving that.

One is if there’s been a continuous change in [banking] manager, if the customer has been with a particular bank for some time.

Banking is a career, so managers do move on, but in some cases customers had five or six managers in a two-year period – I’m not

MPA: With so many industries out there, are there any that brokers should take a particular interest in?

JP: I think a big opportunity for brokers could be to specialise in cash flow lending.

That would go across many of those different industries … Having a strong understanding

“Most people are time-poor, and having to continually keep telling your story gets hard. For them the broker is the constant in the relationship” saying that doesn’t happen at Westpac – and I think customers are looking for another alternative to be able to facilitate their needs for their business.

Most people are time-poor, and having to continually keep telling your story gets hard.

For them the broker is the constant in the relationship; the broker is running their business based on building sustainable relationships with customers. It makes it a lot easier for a customer then. They don’t have to continually provide the information to the bank or tell them about their business history over and over again; the broker does that on their behalf.

We then continue to build that relationship with both the broker and the customer into the long term.

of the balance sheet and how we can lend against the balance sheet instead of having property-secured backing. In some of these newer businesses that we’re talking about, these guys starting out have brilliant minds but they may not have had the assets to back what they’re doing. In those cases we’re really backing innovation and looking at it in a different light. So if I was a broker I’d be looking at more cash flow type situations rather than any specific industry.

MPA: What can brokers expect from Westpac’s commercial partnership managers?

JP: They can expect a relationship which is a partnership, which is the reason why I chose the title of partnership manager for

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THE BIG INTERVIEW

JANELLE PEARCE

JANELLE PEARCE’S CAREER TIMELINE

1983 Joins NAB, rising to lead a group of bankers specialising in SMEs

2004 Appointed senior executive at one of NAB’s biggest business banking centres

2006 Moves to managing partner of NAB’s NSW business acquisition team

2008 Transfers to Westpac as head of key accounts

2009 Becomes national head of commercial introducers and key accounts

my team on the ground as opposed to the BDM title that most of the banks have. They can also expect that time spent with their partnership manager is time well worth spending. The PMs are not just there to be a conduit to introducing

“We’ve actually got many of our commercial brokers who want to come into our offices and attend roundtable sessions with our bankers and credit managers” a client into Westpac; I see them there rather to create value for their brokers through their knowledge across a broad range of industries and product offerings.

Time is a precious commodity, and we get that, so the way we recognise that is we’re very mindful that if a broker gives us an hour or so of their time they can come away thinking that was an hour worth spending because my partnership manager has imparted industry insights or gifts of knowledge that increase the broker or their clients’ knowledge base.

MPA: How can the commercial expertise your PMs have help brokers who may be new to a specific industry?

JP: They know what it takes to be successful as a broker, because they’re working with so many of them, and the best in the industry … I think my guys get it; they’re all pretty much ex-commercial bankers, so they understand what is a deal and what isn’t a deal, so they can help a broker understand that as well.

The other thing is just to be really honest with the brokers: we’re looking for people that want to partner with us into the future. We

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want to have sustainable long-term relationships. We’re not interested in just doing a deal with someone; we want to be seen as a partner and a valued partner. If they think they don’t have the client base or the network to be able to introduce business clients regularly, then maybe that isn’t the solution for them. They might be better off working with their aggregator, who in most cases have an in-house specialist to help them with facilitating a commercial loan for a bank.

MPA: Commercial loans can be long and complicated – how does Westpac keep everyone involved?

JP: We take a flexible approach when it comes to how a broker introduces the customer. We provide them the option to be involved the whole way through, or just at the beginning and the end. We leave that entirely up to the broker – how they want to manage the process with us. We’ve actually got many of our commercial brokers who want to come into our offices and attend roundtable sessions with our bankers and credit managers, which helps speed up the decision-making process.

For me it demonstrates the commercial acumen of the broker in the eyes of the banker and our credit team. We find that to be quite valuable and the brokers find that valuable as well.

MPA: What’s the advantage of your two-tier accreditation system, and how can a broker move from one to another?

JP: There are two programs that we offer: the first one is the full broker accreditation, and that means they would be remunerated by way of an upfront payment as well as an ongoing trail commission. To be accepted into that program we’re looking for people that have a previous commercial lending background or have been a chartered accountant or something of the like. They can put together a detailed credit paper so that we understand what the transaction is; they provide us with all of the security, etc.; they’ve got to be able to work their way around a balance sheet and profit-and-loss statement

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THE BIG INTERVIEW

JANELLE PEARCE

INDUSTRIES AND INNOVATION IN 2016 Key industries Westpac’s commercial team are focusing on commercial property investment, residential commercial construction lending, healthcare, education and the social sector, and professional services. They’ll also look at retail, transport, wholesaling, national resources franchising, manufacturing and emerging industries, including technology, solar and sustainable energy.

New website Westpac’s new website for commercial introducers will be live by the time you read this, which they say will be much easier, and will contain information on local banking contacts and a number of other insights from business and industry experts.

Innovation challenge Westpac ran an innovation challenge for businesses in the healthcare space, with $40,000 and business assistance offered to the winner. Finalists included smartphone apps, artificial intelligence software, and financial and communication platforms.

and provide an understanding of the industry that the customer is playing in.

The other offer we have is the commercial referrer program. That program is great for anyone who wants to start out in commercial; anyone who has no prior commercial experience and wants to learn; or anyone who wants to outsource their commercial lending

“We want to have sustainable long-term relationships: we’re not interested in just doing a deal with someone: we want to be seen as a partner and a valued partner” to us, and we’ll pay an upfront fee for that. So we’ll do all of the work to get the deal assessed, and then if it’s successful, if it’s approved, they’ll be paid at the end of the period.

So again, even though it’s simply a spotand-refer program, for us it’s about building a sustainable partnership with the brokers, so that we’re not just considering one deal.

We don’t have the resources to bring on every single person that wants to be a commercial broker, but what we can do is for those that have the desire and have the right client base or network, we’re more than happy to work with them to help them grow their business.

If you’re on the referrer program initially and can demonstrate over time that they’ve learnt a lot, which may be learning from our partnership manager or coming to meetings with clients and the banker and credit teams, then if [the broker] believes they’ve done enough to warrant full accreditation as a commercial broker, we’d ask them to submit an application. If it meets all the criteria, then we’d be happy to upgrade them to full commercial accreditation at that time.

MPA: How does Westpac manage relationships between brokers and business bankers to avoid channel conflict?

JP: We’ve worked incredibly hard to amplify the commercial third-party story within

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Westpac, so there is a strong understanding of the relationship that we have with our brokers, who in essence we see as being our customers.

The bank understands that relationship, so if there is a situation where conflict arises – and I’m not going to say it doesn’t arise or has never arisen – then what we do is work with the banker to understand that it was

the consumer’s choice to work with a broker.

I think pretty much on every single occasion that has happened we just moved on and continued the deal with the broker. So I just think the work that we’ve done internally has helped to really alleviate channel conflict, and when it does we move swiftly.

But I’d be lucky to see one or two in a year where it happens, which shows we have a strong message out there.

MPA: How would you like Westpac’s commercial operation to be viewed by brokers 12 months from now?

JP: I think the coming year is a really important one for brokers, because on the 18th April 2017 we’ll make history as Australia’s oldest bank and first company to enter its third century, and we’ll celebrate that incredible milestone in a big way and we’re currently working on plans to do that.

For me, I see in 12 months’ time we’ll have continued to deliver a strong proposition to our broker partners, with a continued focus on creating value for them and delivering best-in-class service.

My ambition is to remain strong and continue to build a sustainable business for the longer term. It’s always about quality over quantity and that continuous improvement; the CI business is better tomorrow than it is today.

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28/07/2016 11:56:27 1:09:38 AM PM 1/08/2016

SPECIAL REPORT

BROKERS ON NON-BANKS

2016

BROKERS ON

NON-BANKS Non-banks are being called upon by brokers to do more, provide more products that can appeal to more clients, all while maintaining a high level of service. Can they manage it?

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THIS IS not just a survey of lenders; it’s a survey of an entire sector of lending. Non-bank lenders are incredibly diverse, both in terms of their funding and the products they offer, and MPA’s Brokers on Non-Banks survey asks brokers which of these approaches works for them.

However, this survey also asks brokers about non-banks as part of a wider lending landscape: why they’d use them instead of a bank, what stops brokers from using nonbanks, and how consumers use non-banks.

These questions have certainly been asked many times before, but changes in lending over the past 12 months suggest they should be asked again. Banks have pulled back from lending to property investors, giving non-banks an incredible opportunity, albeit one that not all have been able to exploit. With the raising of capital requirements for banks, increased interest rates for existing owner-occupier customers mean the price advantage banks once enjoyed has been narrowed considerably, giving non-banks a route to prime customers.

What all this means is that non-banks need to do more than ever before: appeal to a wider range of customers, and add sharp rates to a long history of excellent service which brokers again applauded this year. It’s no coincidence that this year’s rankings were topped by a non-bank with several funding lines and multiple products covering everything from non-conforming to vanilla owner-occupier, while having a traditional high-touch support model.

This survey is relatively similar to our recent Brokers on Banks survey, ranking non-banks in a number of categories and taking the winner from an average, as well as highlighting a product of the year. We’ve also asked brokers a number of questions about the non-bank sector as a whole, and collected their comments on how it can improve. Finally, we’ve also included a lender-by-lender analysis and interviewed the boss of 2016’s Non-bank of the Year, which you can read at the end of this report.

OUR TYPICAL RESPONDENT

Is aged 46–55

Has an annual volume of

$10m–$20m

Has been a broker for 9 years

Is most likely to work in VIC (29% chance)

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SPECIAL REPORT

BROKERS ON NON-BANKS

PRODUCTS AND PRICING Narrow niches are out and flexibility is in, as brokers look to non-banks with credit policy and products to suit all tastes

5 = very important

WHAT DO BROKERS WANT FROM NON-BANKS? BDM support (4.52) Turnaround times (4.51) Credit policy (4.44) Interest rates (4.08) Product range (4.06) Online platform & services (3.75) Communications, training & development (3.74)

1 = not important

Commission structure (3.52) Product diversification opportunities (3.48) Marketing and brand awareness (3.29)

IF YOU’RE going to talk about the ‘products’ of the non-banks, and why brokers prefer one over another, you first need to define what it is they’re selling. MPA’s Brokers on Non-banks survey took a multifaceted approach to this, asking brokers which non-banks they preferred; what they wanted from non-banks; and why they’d pick a non-bank over a bank.

Homeloans Ltd dominated the product categories, with a strong showing overall from Liberty Financial, and Bluestone topping commission structure. While brokers prioritise BDM support and turnaround time – categories that will be discussed in the following section on service – it’s notable that credit policy, interest rates and product range occupy the third, fourth and fifth priority spots.

Credit policy is crucial here: not only can it lure customers over from other non-bank lenders but it can also attract customers who might otherwise have gone to a bank.

‘Taking a wider view than customer’s credit score’ was brokers’ biggest reason for taking a

client to a non-bank lender. Having a wide range of products goes hand in hand with a wide credit appetite, and judging by its category wins Homeloans evidently has this, plus a broad range of funders that it has recently added to, as Homeloans Boss Ray Hair told MPA. Pepper, which came third in this category, seems to be benefiting from its ‘cascading’ application approach, where one form can be used to direct clients to three different products without having to resubmit, depending on their credit situation.

There are other ways to attract clients, as Liberty demonstrates. The option of ‘Recent regulatory changes have prevented client going to the bank (ie investors)’ was intended to draw out from brokers how they and their clients have reacted to investor lending changes over the past year. Eighteen per cent of brokers selected this option, and Liberty was one of the non-banks that marketed the fact that they were still open to business from investor clients and advertised more

NON-BANK PRODUCT OF THE YEAR: LIBERTY STAR VARIABLE HOME LOAN Liberty Financial’s Star Variable Home Loan was brokers’ most popular non-bank product for a second year running. It offers a maximum LVR of 95%, interest-only options, offset and redraw options, fixed rates on request, and is available to owner-occupiers and investors.

What respondents said about Liberty Star: “Similar to majors package but lower annual fee. Great for someone wanting off-set account”

“95% LVR plus LMI is necessary for some clients with low equity, this enables them to get into the property market”

“Lower interest rate than other non-conforming lenders”

“It is one of the only products on the market that will still allow a 95% LVR with interest-only payments” Note: Product details correct at the time of writing (early June)

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flexible serviceability requirements.

Another result that suggests Liberty is benefiting from ex-bank clients is its success in the Non-Bank Product of the Year category.

Also the winner in 2015, the Liberty Star loan was available to owner-occupiers and the crucial investor segment, with variable and fixed rates. As the survey comments make clear, brokers liked the Liberty Star loan because it offered a similar package of services to the majors but catered to a wider range of clients, with a 95% maximum LVR, ticking the categories for credit policy and product range.

It appears that interest rates aren’t helping non-banks take customers from the banks – they are only a reason to place customers for 12% of brokers – but can help non-banks take customers from each other.

Interest rates were brokers’ fourth priority when picking a lender, and it’s notable that Homeloans, Liberty and Firstmac took the top places in this category given that they

also comprise three out of the top four nonbanks overall.

It’s also useful to note what brokers don’t prioritise when choosing lenders. Commission came low on the list of priorities, as it did in our Brokers on Banks survey, perhaps reflecting the combination of regulatory scrutiny and very similar commission levels across the industry.

Seventy-nine per cent of brokers told us there was ‘no difference’ in the level of commissions this year, and 15% said they had improved.

Interestingly, only 6% of brokers said a lack of documentation was the reason to take a client to a non-bank. In all our recent conversations with non-banks they’ve indicated that low-doc lending now effectively means self-employed lending. The number of other low-doc clients is very low indeed (or at least lenders just don’t want to deal with them). Evidently, non-banks need access to documentation of some sort to make the flexible and personalised lending decisions that attract brokers and clients in the first place.

WHY PICK A NON-BANK? Takes a wider view than customer’s credit score 33% More personalised services 21% Recent regulatory changes have prevented client going to the bank (ie investors) 18% More competitive rates 12% The client lacks standard documentation (ie payslips) 6% Others 10%

HIGHLIGHTS: PRODUCTS AND PRICING

Interest rates

Commission structure

Product range

Credit policy

Product diversification opportunities

1st

Homeloans Ltd

Bluestone

Homeloans Ltd

Homeloans Ltd

Homeloans Ltd

2nd

Liberty

Liberty

Liberty

Liberty

Liberty

3rd

Firstmac

Pepper

Australian First Mortgage

Pepper

Pepper

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SPECIAL REPORT

BROKERS ON NON-BANKS

TECHNOLOGY, TURNAROUND AND SERVICE Quality BDMs and great turnaround times are at the centre of this survey, but the latter can be difficult to maintain ACCORDING TO our respondents, service

HOW COULD NON-BANKS IMPROVE THEIR SERVICE LEVELS?

Better technology 27%

23%

20%

16%

14%

Better technology

Simpler income verification process

More BDMs/credit assessors

Better-trained BDMs/ credit assessors

Other

HOW HAVE TURNAROUND TIMES AND COMMISSION STRUCTURES CHANGED OVER THE PAST 12 MONTHS?

Turnaround times Improved significantly

5%

Commission structures

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Improved

34%

15%

Improved

Worsened

24%

6%

Worsened

Worsened significantly

3%

– as encapsulated in BDM support and turnaround times – is without doubt the deciding factor for picking a lender. These two categories have occupied the top two spots in brokers’ priorities in the Brokers on NonBanks and Brokers on Banks surveys for years, and in both 2015 and 2016 the lenders that topped these categories also topped the reports overall – in this case, Homeloans.

If that isn’t enough to convince you, 21% of brokers said ‘more personalised services’ was a reason to pick a non-bank over a bank. As banks tighten credit policies for investors and shy away from non-vanilla scenarios (discussed in our products section), having quality BDMs and credit assessors who can make these decisions in a timely manner gives brokers a practical alternative to present to those clients.

Service may also be the reason for Liberty losing the top spot to Homeloans this year.

Both lenders performed impressively across almost all categories, with very similar scores for BDM support. For turnaround times, however, Liberty’s score was considerably lower, and didn’t put the lender in the top three for this category. As discussed in our lender-by-lender analysis at the end of this report, it appears Liberty struggled to deal with a huge influx of business that in many ways represented the fruits of their success.

What the scores for BDM support versus turnaround times also suggest is that while

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turnaround times can fluctuate considerably, good BDMs tend to stick around. Homeloans and Liberty also excelled in this category last year. This ties into another finding of this survey: that 66% of respondents thought turnaround times had changed in some way (as opposed to 34% who thought they had stayed the same). With 39% of brokers seeing an improvement in turnaround times and 27% seeing deterioration, some lenders have clearly upped their game – in particular Firstmac – while others have struggled.

In a new question for this year’s survey, we asked brokers how non-banks could improve their service levels, and ambitious non-banks should note that ‘better technology’ was the most popular response. The category of ‘online platform and services’ tends to be ignored but was in fact the sixth most important category for brokers. Moreover, Firstmac – a non-bank that was nowhere near the top in 2015 and has now placed fourth overall – topped the online platform and services category.

Firstmac also did well in the category of ‘Communications, training and development’, as did Pepper in second place, no doubt aided by the Pepper Insights Roadshow, a series of videos featuring top brokers and online

was one exception: 23% of brokers said a simpler income verification process would improve service. While income verification can be assisted by technology, altering a process can simply require fresh thinking on

“We simply need a combination of sharp pricing, quick turnaround times in not only credit, but also documentation and settlements” Vic Broker learning modules. Nevertheless, this category was won by the omnipresent Homeloans, suggesting that broker perceptions of ‘communications, training and development’ may be as related to excellent BDMs as much as to individual events and campaigns.

Other popular ways to improve service were also relatively investment-heavy, including more BDMs and better-trained BDMs. There

the part of a non-bank, in terms of forms and submitting paperwork.

Overall, it’s essential to keep in mind that non-banks are doing extremely well when it comes to service. Just 2% of brokers see poor service as a barrier to using non-bank lenders, and 3% poor turnaround, almost negligible numbers, while 21% would use a non-bank because of personalised service.

HIGHLIGHTS: SERVICE AND SUPPORT

Turnaround times

BDM support

Communications, training & development

Online platform & services

1st

Homeloans Ltd

Homeloans Ltd

Homeloans ltd

Firstmac

2nd

Firstmac

Liberty

Pepper

Homeloans Ltd

3rd

Pepper

Bluestone

Firstmac

RESIMAC Financial Services

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SPECIAL REPORT

BROKERS ON NON-BANKS

CONSUMERS AND THE NON-BANK SECTOR Lack of consumer awareness is holding non-banks back, but brokers and pioneering non-banks have a number of solutions CONSUMER AWARENESS occupies an odd position in surveys about lenders. Ideally, when picking a product it shouldn’t matter at all; ‘marketing and brand awareness’ was brokers’ least important priority when picking a broker. However, for non-banks as a sector, consumer awareness, or lack thereof, is a major issue; in fact it’s the single most important reason for not putting more business through non-bank lenders, selected by 36% of respondents.

Here’s another notable statistic: 87% of our brokers said consumers would consider a non-bank product. Contrast that with the proportion of business that brokers actually put through non-bank lenders (see box).

What this suggests is that non-banks don’t have an image problem; they’re not even

being seen by consumers in the first place.

It’s also notable that the proportion of brokers’ customers who would consider nonbank products hasn’t changed significantly since 2015 (when the percentage was 90%).

With banks tightening criteria for investor lending, increasing interest rates for existing customers, and continuing to pull back from non-vanilla lending, you might presume this would increase, but then 90% is already a very high proportion. The challenge is converting consumer awareness into an increasing proportion of deals actually going to non-banks.

Brokers have put forward a range of excellent solutions to this challenge. Quite a few suggested a joint non-bank marketing drive to promote the sector – not an entirely

THE NON-BANK OPPORTUNITY GAP We asked brokers how much of their business they currently put through non-banks and how much they’d ideally put through non-banks.

Percentage of loans through non-bank lenders 0–20%

21–40%

41–60%

61–80%

81–100%

Currently 53%

19%

11%

7%

10%

Ideally 26%

30

31%

19%

12%

12%

unlikely situation, given credit unions and mutual currently cooperate through the Customer Owned Banking Association. Other respondents suggested more training of brokers; brochures illustrating non-banks’ funding lines and comparing non-banks directly with banks; and even abolishing the term non-bank entirely. A few brokers suggested non-banks should target clients that banks have pulled back from, namely those in rural areas.

Another problem noted by brokers is consumer concerns over non-banks’ stability.

One broker asked “to be able to provide them with something that demonstrates the strength of lender, so that it addresses the clients’ concerns on what happens to their loan if there was trouble in the mortgage market”. This extends to questions of price, the broker added, asking for “stats that show that the lender won’t increase rates down the track outside of Reserve Bank. They have concerns that what looks good now, may not be down the track. Making them feel comfortable and confident that they are ‘safe’”.

For non-banks that aim to flourish entirely through the third-party channel, this survey may provide cause for concern. It’s no coincidence that the top three non-banks in the survey – Homeloans, Liberty and Pepper – invest relatively heavily in marketing and brand awareness. As one broker put it, “brand awareness is a big one. Liberty has started to advertise on popular local radio stations and this made it very easy for me to discuss them and their services with my clients”.

Homeloans sponsors the Perth Scorchers; Firstmac – which jumped to fourth place this

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year – sponsors the Brisbane Broncos; and Pepper gave their name to the Pepper Stadium in Penrith.

The problem for smaller lenders is the cost of traditional advertising and sponsorships. As Homeloans’ Ray Hair told MPA, this can be a challenge even for Homeloans.

Social media is often touted as a low-cost solution, but this can be difficult in practice.

Perhaps a joint social media effort could promote the message given by 2016’s ‘Star Commentator’ (see box): that consumers should feel free to use different financial providers for everyday banking and finance needs. That way non-bank lenders can get the level of business that their products and services deserve, without becoming just like the banks in order to do so.

STAR COMMENT We asked brokers: What is the one change that could make consumers more likely to consider non-bank lenders? Our favourite answer looked at the difference between lending and transactional banking:

“The exposure and promotion of non-banks as a legitimate funding source for all consumers. This together with the promotion of the idea, through media channels, that consumers can retain their transactional bank accounts with their major banks and are simply utilising a non-bank lender for their funding needs” The winner walks away with a bottle of Glenfiddich 21 Year Old Gran Reserva Scotch Whisky

HIGHLIGHTS: CONSUMER AWARENESS

THE NON-BANK AWARENESS GAP

36%

Proportion of brokers who said ‘lack of brand awareness’ deterred them from using non-banks (more than any other category)

87%

Proportion of brokers who said their clients would be open to considering non-bank products

Marketing & brand awareness 1st

Homeloans Ltd

2nd

Firstmac

3rd

Pepper

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SPECIAL REPORT

BROKERS ON NON-BANKS

FINAL RESULTS We present 2016’s Non-Bank of the Year, analyse the leading contenders, and hear directly from brokers

HOMELOANS LTD

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LIBERTY FINANCIAL

4th

FIRSTMAC

Position in 2015: 2nd

Position in 2015: 1st

Position in 2015: Not listed

This report includes two perspectives on Homeloans’ success: our data-based analysis, and general manager of sales Ray Hair’s strategic view, which you can read on p34. What’s immediately apparent is that Homeloans’ success is broad-based: it won eight out of 10 categories; its popularity is not based upon a single stunning interest rate or a temporary hike in commission, and in fact commission was the only category in which Homeloans didn’t make the top three.

As much as you can infer a lender’s proposition from a set of numbers, Homeloans’ proposition rests on excellent BDM support and a wide product range.

BDM support was voted by brokers as their number one priority, and links to credit policy, another category that Homeloans won. When it came to product range and the related category of product diversification opportunities, Homeloans outperformed its competitors by a considerable margin, with new and existing funders aiding the creation of new products over the past 12 months.

However, a tough economic climate for mortgage managers, and immediate competitors which can raise their own funds through securitisation, means Homeloans will have to work just as hard to retain the number one spot come 2017’s Brokers on Non-Banks survey.

When APRA and the banks announced sweeping restrictions to investor lending, Liberty stepped into the breach, continuing to lend at 95%. This appeared to pay off, with national sales manager John Mohnacheff reporting a “significant increase in applications from brokers who value sharp pricing, innovative products and superior service”.

In fact the number of applications doubled – but this “unprecedented influx” clearly affected turnaround times, as Liberty admitted at the time.

The last 12 months have seen Firstmac on a mission to get brokers’ attention, and it appears to be working. Its decision to pass on RBA rate cuts immediately and its Broker+ digital training scheme got Firstmac into the top three for interest rates as well as communications, training and development. Firstmac’s sponsorship of the Broncos also drove it to second place for marketing and brand awareness.

Brokers weren’t impressed by Firstmac’s product range, diversification opportunities or credit policies, however, so these should be first choice for future marketing drives.

PEPPER Position in 2015: 3rd Pepper continued to impress brokers this year with its cascading product form, which can be used for prime, near prime and specialist loans, contributing to top three finishes in credit policy and turnaround times.

What’s keeping Pepper from the top spot is disappointing results in BDM support, interest rates and product range. That said, brokers voted Pepper as among the best lenders for product diversification opportunities, so it may be that Pepper needs to tackle broker and consumer confusion about its product suite.

5th

AUSTRALIAN FIRST MORTGAGE

Position in 2015: 5th With Iain Forbes’ retirement and a takeover

by National Mortgage Company, AFM could be forgiven for having a quiet year of consolidation, yet it evidently continues to impress brokers.

NMC has kept the AFM brand and introduced a new logo; what’s needed now is a focus on particular areas of strength.

AFM’s survey results were solid across all categories, but with the exception of product range it is not yet challenging at the top level.

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OVERALL RESULTS

BROKERS RESPOND: What is the one change that could make consumers more likely to consider non-bank lenders?

To come up with the overall results, we took an average of individual category scores for each lender. This means every category had an equal impact on the results. We would advise you to look at the importance ranking at the start of this report to see which categories matter most to brokers.

Lender

Overall score

Homeloans Ltd

3.85

Liberty Financial

3.63

Pepper

3.58

4th

Firstmac

3.56

5th

Australian First Mortgage

3.45

6th

RESIMAC Financial Services

3.40

7th

Bluestone

3.36

8th

Better Mortgage Management

3.30

9th

La Trobe Financial

3.25

Hundreds of brokers told us how non-banks could engage consumers. Here are some of the best responses: “There would have to be more brand awareness of that lender and who they are backed by. That goes to the public but I think more training to the third party needs to happen, to get customers comfortable.”

“Have more BDMs on the road meeting with brokers and updating us on product and Policy niches so brokers are more confident selling product to clients. Sharing other brokers’ success stories and how they introduce non-bank lenders into the mix with the main banks. Try to be more price competitive with banks for AAA clients.”

“Having easy access to the client’s information, having access points to the lender via general sales agents eg. Post Office. Focusing on regional locations as a go to for business (big banks are pulling away from regional lending) SERVICE, SERVICE, and SERVICE.” “I do think that non-banks are useful, especially in a changing market like the one we currently have. Clients are happy to go to a non-bank and follow broker advice but I really think that an online quick scenario form that gives all non-banks a crack at quoting and reply with policy concerns would help us all.”

“The customer has to be assured that their initial interest rate will not be impacted by fluctuation of the market and the rate they went with initially becomes very uncompetitive over the next few months and they then want to refinance.”

“Non-bank lenders need to increase brand awareness, not just of each non-bank lender, but of all non-bank lenders. To assist this ALL non-bank lenders should consider establishing a non-bank lender marketing body to plan marketing campaigns to increase brand awareness and the benefits of non-bank lenders.”

“If all non-bank lenders were to join together and nominate one of the lenders with a good branch network to be able to deposit cheque’s and large cash deposits or even withdrawals it would give clients a quicker/ smoother loan process and also comparable service to the majors after the loan has settled.”

“1) Change the term ‘Non-banks’ (that word itself is a negative, as if lender lacks something because they are not a bank!) 2) Change perception that only Banks are ‘Safe’ ... Through media, rating agencies or the like.”

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SPECIAL REPORT

BROKERS ON NON-BANKS

HOMELOANS’ RAY HAIR ON TOPPING THE CHARTS Homeloans’ general manager of sales puts success down to the lender’s wide funding and product range, combined with its excellent team MPA: What has Homeloans changed over the past year to go from runner-up to the number one spot?

RAY HAIR: It’s been a two-year transition, and it’s been the fundamentals … Homeloans is a traditional mortgage manager; a hightouch, high-service proposition, not a pricing proposition, although price is very important.

We’ve got good people in our business at BDM level: experienced lenders who know how to pull apart and construct a deal and know how things best stick with our six different funders so we’ve got that diversity of funding … everybody knows why they’re there and what their job is, and I think that’s reflected in broker feedback around turnaround, service, BDM availability and knowledge, and that transition from second to first is about improving and developing on that service proposition.

MPA: Were there any particular products that you think drove broker interest?

RH: Because we have six different funders and diversity therefore available to us in terms of what we can offer and/or promote… we’ve introduced RedZed as a funder this year, which gives us an extended component of specialist lending and our first opportunity to do commercial lending. With Pepper as a funder, we introduced the near-prime construction product, which was very much about listening to the market.

MPA: When you’re dealing with a range of prime and specialist products, how do you maintain a fast turnaround time?

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RH: There’s a diversity of brokers, funders and products, but the consistency is a very stable, experienced credit and BDM team that act as that first gatekeeper; what product is going to fit, and where are we going to place it, providing the broker with recommendations for their customer ... we have a team of support officers who work with credit, so once the conditional has gone out they work with the broker to make sure the conditions are being met and we can get a formal out of it.

ambassador, and whilst Matthew’s footballing career is in its last season, he has been an extremely good ambassador in the market for us, in terms of our values and his profile and his values. The rest of it is the online, the social media: Will Keall, our online marketing manager has driven a very successful campaign … our biggest challenge is the Perth Scorchers, because as they get more successful the price goes up, as you’d expect, so we need to continue looking for cost-effective marketing opportunities and take advantage of that.

MPA: Does Homeloans look to compete with the major banks?

MPA: What’s in the pipeline for the next 12

RH: We look to compete with everyone in the

months?

mortgage market because of our diversity of product range, in terms of specialist, near prime, prime. We’ve got such a range of products we think we can provide a solution to most home loan opportunities; our challenge is not which of the banks we’re competing with but whether we can get brokers to consider us as the first port of call, instead of those usual competitors to the majors.

RH: I don’t want to be boring, but more of the

MPA: How can Homeloans – and the nonbank sector more generally – increase its consumer awareness?

RH: Our sponsorship of the Perth Scorchers in the Twenty20 Cricket has been a major success for us, on the back of the Perth Scorchers’ success, but also the successful broadcasting of that event into nearly every Australian household during the summer, when there were few alternatives for people to watch.

We also use Matthew Pavlich as our brand

same in a sense ... we’d like to have funding lines that are more proprietary and therefore unique to us … finding some unique to Homeloans offers is very high on our priority list … we want brokers to be seen by customers as the heroes, and if we can do that we’re doing our job.

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FEATURES

COMMERCIAL FINANCE

Crossing the commercial bridge MPA teamed up with Choice Aggregation Services to give you an insight into taking those first steps into commercial finance – and to show how your BDM can guide you along the way

EVER CONSIDERED adding commercial lending to complement your residential portfolio but were stumped on where to start? To help make this process less daunting, MPA spoke to a highly experienced business development manager, as well as a broker who’s recently taken the leap into the commercial space, to get their views on how to make diversification painless.

Glenn Williams, Choice Aggregation partner­­ship manager for NSW/ACT, routinely specialises in helping both new-to-industry and experienced residential brokers diversify in this direction, and has seen what works best and the challenges involved.

Our broker Louisa Sanghera started broking three years ago, with 30 years in the finance industry behind her. She launched NSW brokerage Zippy Finance in 2015 and stepped into the commercial space five months ago.

We hope you’ll find their insights useful and that their practical advice will help you get started in the commercial space.

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From the BDM The most successful commercial brokers often have a few things in common, says Williams. They have a team of support staff in their office, and have forged strong ties with accountants, planners and key commercial funders.

It therefore follows that the time it takes to get a foothold in the commercial space depends on what level of experience you’re starting from. Williams says a newto-industry broker may take a few years to build into the commercial space, whereas it would be quicker for a broker coming from a commercial banker or bank manager background. Established residential brokers could introduce commercial finance into their business within six to 12 months.

Brokers need to particularly careful about keeping up with what commercial lenders are looking for, says Williams, such as lender policies and maximum loan amounts against security. “Commit to education; embrace all the opportunities out there

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Sponsored by

provided by the lenders and the aggregators to attend commercial workshops, business development days and training programs.”

A broker’s BDM can arrange training sessions with their lender partners and tailor them to suit the broker’s skill set.

facilities or assets that they can then bring up in conversation with their client.

Williams notes that leasing with selfemployed clients is also a good place to start.

“Leases are probably an easier way to sell, and they’re quick turnover – it’s quick to

“By highlighting the clients that are self-employed, you then know that they may need to engage in cash flow lending or commercial funding to buy a property for their business” Glenn Williams, Choice Aggregation Services When it comes to finding commercial clients, Williams says brokers can spread the word about their new offering to their referrers but should also utilise opportunities within their existing client base, such as looking at how many clients are self-employed.

“By highlighting the clients that are selfemployed, you then know that they may need to engage in cash flow lending or commercial funding to buy a property for their business,” Williams says. The broker can then look at whether there are any commercial debts,

TAKING COMMERCIAL TO THE NEXT LEVEL “For the more experienced commercial brokers, as they get further into that commercial space they love the challenge of structuring a deal to get the result the client wants. As you develop and grow over a period of years, you’ll find it’s probably more challenging and just as rewarding in getting a solution for a client. If you really love finding a solution and structuring a complex transaction, commercial can provide that to you.”

Glenn Williams, partnership manager NSW/ACT, Choice Aggregation Services

lodge the application and you get your money the day after settlement. So it’s a quick way to increase cash flow to your business as well as start stepping towards commercial.”

Commercial lending can be split into three tiers, Williams explains: there’s small business lending up to $1m, which can take longer than a standard home loan but is quicker than some commercial deals; commercial lending over $1m; and development funding for more experienced commercial brokers. As Williams puts it, “if [brokers] get in the small commercial lending space it’s not unlike a residential-type facility to start that process”.

Williams says there are two ways of getting accredited with a lender for business – spot and refer, or writing the transactions and submitting them to the lender. If a broker starts with spot and refer, their BDM can introduce them to appropriate lender partners for writing transactions/further education so they can reach the stage of writing the deals themselves, which naturally involves a better commission split.

A broker’s database is crucial. “Where we spend a lot of time developing and growing is getting the brokers to see there is opportunity in the commercial space, accessing their database to see the opportunities, then

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FEATURES

COMMERCIAL FINANCE Sponsored by

MESSAGE FROM OUR SPONSOR For brokers whose core business offering has long been in residential, branching out into commercial finance can seem daunting. But the new revenue streams commercial finance presents are compelling, and there are many small yet impactful steps brokers can take to incorporate commercial lending into their businesses.

Of course, the help of a quality aggregator can be an invaluable addition. Choice works closely with brokers to help them succeed, and part of that is working with brokers to help them diversify their businesses.

We are seeing a groundswell of brokers starting to make the move into commercial finance, recognising it as a powerful way to strengthen client relationships by being able to take care of more of their needs.

I hope this feature offers some helpful insights for all brokers thinking about making their first step on the commercial finance journey.

Stephen Moore CEO, Choice Aggregation Services

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letting their clients know that they’re in that space and making sure they engage the right partners within the aggregation business to submit those deals to.”

From the broker Five months in, Sanghera has found her experience in commercial finance very interesting. “It’s lovely helping people get their dream homes and that side of it, but business is really interesting – it’s interesting learning how different businesses actually work.”

Doing spot and refer to get an idea for commercial loans, Sanghera is now starting to write some of the deals herself. Her brokerage already offers residential, asset and

lender. But she says this was her choice to take on a coach and it wouldn’t be a necessity for brokers looking to add commercial to their business, but brokers should seek out the help of BDMs. “The BDMs are enough for you to go and do the commercial lending, absolutely.

“The BDMs are there to help you structure deals and there to educate you. I think a lot of brokers feel they don’t want to take up the BDMs’ time to sit down and go through applications with them, but that’s what they’re there for.”

Sanghera also chose to outsource processes to free up more time for commercial deals.

“I think a lot of brokers spend too much time doing their own processing, trying to

“Spot and refer is a great way for brokers to get involved in commercial” Louisa Sanghera, Zippy Finance car finance, and it seemed like the right time to tackle the commercial space. “Because I’ve got the time, I’ve got the right staff in place, I’ve got the right systems in place and I’ve built my knowledge over the last few years, it’s the right time for me to do it myself.”

Initially choosing to spot and refer because she didn’t have the time to write the transactions herself, Sanghera says there is a downside to it. “You do lose control of your client to a certain extent … potentially you could lose control over future borrowings,” she explains, as the client is referred on – but it is a great way to get involved.

“Just by doing spot and refer [brokers] can speak to the business managers, they can hear what they’re doing – the business manager I first worked with used to show me what she was doing so I could see how she was structuring it.”

Sanghera also sought out a business coach to help her break into the space: an ex-broker, ex-BDM and strong commercial

save money – I think if they look at the bigger picture and spend that money on processing, it frees their time up so that they can get out and bring in more business. But a lot of brokers are reluctant to spend money on external processing, so they sit at desks for hours just processing paperwork.

“We need to be doing the complex, structured deals, getting out there, finding the business and letting other people do the paperwork for you – that’s the way I’m doing my business anyway, and it’s working for me.”

If you’re a broker thinking about diversifying into commercial loans, we hope this feature has shown you the steps it will involve through the eyes of a broker who has taken on the challenge – and that your BDMs are there to support and guide you throughout the process.

Whether you are looking to spot and refer commercial loans or are set on tackling development funding, there is no doubt commercial lending can be a challenging and exciting addition to your business offering.

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FEATURES

CONSTRUCTION FINANCE

Bricks, mortar and finance With the lending environment shifting, the construction industry needs brokers more than ever. MPA has partnered with AFM to explore the opportunities in construction finance

‘WHEN THE loan settles, the hard work begins’ is an old and illustrious cliché on broking, intended to get brokers to think about after-settlement service as more than the odd newsletter. Except, that is, in construction finance, where it’s 100% true.

Construction finance takes the usual broking timelines and turns them on their head, necessitating new ways of thinking about clients, processing and lenders. MPA has partnered with Australian First Mortgage to understand how brokers fit in.

Lending in the construction finance space is undergoing a major shift. MPA recently spoke to a major construction finance broker (whose interview you can read in MPA 16.10), who revealed that in the 2014/15 financial year he used the majors 64% of the time; that figure has since plummeted to 28%. Australia’s number one commercial broker George Karam told MPA a similar story in our recent article on infrastructure. On the developer side, a survey by the Urban Development Institute of Australia recently found that three out of five Melbourne developers were struggling to access finance from banks, and half said this could cause delays of over six

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months. In particular, banks – both major and non-major – have been tightening lending criteria for new apartments.

Clients By fracturing the established links between developers and bankers, this turmoil has created an opportunity for brokers. MPA spoke to Matt Mannaert, of Victoria-based

townhouses, house and land packages and the occasional super fund lending as well,” explains Unsworth. “It’s really a variety.”

With these individual projects the clients can come in all shapes and sizes, and you can’t rely on borrowers having construction experience. “Most clients aren’t really aware, particularly those clients doing their first construction loan,” Unsworth notes. “They need to have their hand held the whole way through, so it’s very important as a business owner to make sure those clients get that service.”

There’s much to do after the loan settles, insists Unsworth. “They have five or even six progress payments during the construction phase. A lot of these people don’t live in the same state; they live in different states. They want to be kept informed; they want to see photos, how the property is being built.”

The importance placed upon ongoing service also comes up in remuneration structures. Many major commercial brokers dealing with large developers charge a feefor-service, but for Unsworth’s brokerage trail commission plays an important role. “We don’t charge a fee-for-service. Trail allows us to grow a business and look after clients after they settle. After they settle it’s not finished;

“After they settle it’s not finished; you’re always getting phone calls in those first six months. They need their hand held the whole way” Kristen Unsworth, National Financial Services (Aust) Top 10 Independent Brokerage Acceptance Finance, and Kristen Unsworth, director of National Financial Services in the Gold Coast, both of whom are established brokers in the construction space. Both mainly deal with single residential construction projects; for Mannaert, this came from working with investors, while Unsworth was previously a BDM at AFM. “It’s more your traditional

you’re always getting phone calls in those first six months. They need their hand held the whole way; you’re their point of contact.”

Lenders Communication is crucial. Unsworth’s brokerage has a contract manager, and many other brokerages in this space have a disproportionally high number of support

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Sponsored by

TAKING ACTION IN YOUR BROKERAGE staff to handle after-settlement service (see MPA’s Top 10 Independent Brokerages, issue 16.8). Lenders can also be of assistance. MPA spoke to AFM sales manager Natasha Sultan about a tracking website that the non-bank has introduced for construction loans. Sultan says “a customer, broker or builder can see live tracking of their progress through all the stages, plus their history notes, anything outstanding, and we even go as far as a photograph of the different stages”. Builders, for example, can see when to expect payments, giving them the confidence to stay on site; additionally, brokers can get the site effectively white-labelled with their branding.

In the 12 months to December, the number of dwellings constructed in Australia hit

Relative to population growth, some states are growing faster than others. For every extra person entering the following states, the number of new dwellings increased by:

SA/NT

1.0

QLD

1.6 ACT

1.3

190,072 An all-time record high, according to CoreLogic analyst Cameron Kusher

VIC

*Dwelling construction in Tasmania is therefore not keeping up with population growth

1.9

NSW

2.4 TAS*

0.8 Source: ABS/CoreLogic

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FEATURES

CONSTRUCTION FINANCE Sponsored by

AFM ROADSHOW AFM’s Sales Team will be conducting a national roadshow during October in Sydney, Melbourne, Brisbane, Adelaide and Perth for the exciting release of our state-of-the-art software – Construction Site – supported by a dedicated Construction Team, to assist builders, brokers and customers through the construction phase of their dream home or investment property.

We make construction loans easy!

For attendance or to register your interest in these events, contact our Sales Support Team on support@afm.com.au

Technology can go so far, but a good BDM team remains vital. In fact, for Acceptance Finance’s Mannaert it’s the most important reason to pick a lender, especially being able “to talk directly with the post-settlement team and iron out different issues pretty quickly, because once the land settles all the developers want it to settle within two weeks, and then

“I constantly go to my referrers’ offices and tell them where lending currently sits, what the problems are … it helps cement the relationship” Matt Mannaert, Acceptance Finance you’ve got all the post-construction parts of it… If you’re going through a hotline it can take half an hour to get the right answer, and it takes too long out of your day.”

Direct access to decision-making needs to be complemented by consistent turnaround times and a long attention span when dealing with a lender, Unworth explains. “Some builds can take six to eight months, so it’s a long time to keep in contact with clients and make sure the process is going smoothly for them.”

Referral partners Another defining feature of construction finance is the importance of referral partners.

AFM’s Sultan characterises referral partners as the gateway to the entire sector. “The important thing is finding the right referral relationships,” she says, “because once you have cracked developers or someone that has a unit complex, or builders that do house and land packages, it’s then big, big volume’.”

Building those referral links, Mannaert says, was “a lot of hard work, to be honest … you get a couple of tricky deals, and if you can get them across where another broker has failed, you’re in a better light to the referrer”.

Having Acceptance Finance’s brand credibility behind him helped. He’s also tried

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to add value whenever possible and advises other brokers to do the same. “That could be education: I constantly go to my referrers’ offices and tell them where lending currently sits, what the problems are; for instance the recent changes with overseas investment lending … all that is value-add stuff to referrers and it helps cement the relationship.”

The main referral partners in construction finance are accountants, financial planners, developers, builders and other construction groups. It’s also helpful to maintain a network of valuers, notes Mannaert, as different lenders view different valuers in very different ways, and can potentially derail a project even before it gets started.

Specialised lenders in the construction lending space can provide guidance on which referral partners to approach first, says Sultan. “[Brokers] could ask the BDM for tips on the types of referral groups they should be targeting. The BDM would then tell them the right types of conversations to be having and that as a broker they can give the referrer a lot of control over the process.”

Construction finance needs brokers, and specifically brokers who have the attention span and resources to provide excellent service after settlement. Brokers need to prove to clients and referral partners that they can make this leap. “It’s all about service,” concludes Unsworth. “Getting in contact with people, going to meet people, getting out there and making yourself known. I’m not afraid to go into a real estate office, hand a card over and say, ‘I will look after my clients for you’; I back myself from a service perspective.”

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FEATURES

UNSECURED LENDING

WHEN SPEED MATTERS Technology is opening up the hitherto clunky area of unsecured business lending. MPA has partnered with fintech lender Prospa to find out how brokers can make it into an ongoing revenue stream

BROKING IN the era of diversification is Awards and winner of Deloitte’s Fast 50 supposed to mean an ability to lend for all of a award. Prospa uses technology to radically customer’s needs, whether they be residential, speed up unsecured lending – down to 24 commercial, vehicle finance, aged care or any hours to approval – and use digital sources of other. For most brokers in 2016, however, information to do the entire process online.

But while the technology is that’s still an unattainable goal.

WHY SMALL impressive, that’s not actually Unsecured lending remains a FINANCE what this article is about; it’s void that lenders and brokers MATTERS about how a quick turnaround have seemed unable or even can make unsecured lending a unwilling to fill until now. viable income stream for your Indeed the typical application brokerage. process for an unsecured loan is Andrew Browne is director of a deterrent in itself, recalls Beau TAG Financial Group, based in Bertoli, CEO of Prospa. “The 33% of entrepreneurs want Como, WA, and has been dealing traditional banking system really to grow their business hasn’t provided solutions that (67% for those aged 18–29) with small business owners for years. Given TAG was and still work for small business owners … is a ‘solutions-based company’, the application process was pretty unsecured lending “was always a atrocious and still is to this day.” bit of a void for us ... quite often After multiple forms and years of it wouldn’t suit the mainstream business history – often involving 40% of budding lenders, or the loan size wasn’t a trip to the accountant – and two entrepreneurs need less efficient enough to whet their to four weeks waiting, an approval than $50,000 to get their appetite and quite often the client was far from guaranteed. If it did business off the ground didn’t have adequate security”. arrive, the conditions could be Moving into new areas of offputting. “If the answer was lending can be burden on a yes, they’d want the family home brokerage’s infrastructure, says as security. We’re talking about a Banking support was cited as Browne, but this was negated as $30,000–$40,000 business loan, the second biggest requirement the lender (Prospa) was providing which is absurd.” to get a business off the ground the marketing collateral and Bertoli’s company, Prospa, (49%), after business planning IT support. Technology greatly is one of the emerging stars of Source: NAB Group Economics’ aided set-up; in Browne’s case Australia’s fintech boom; it was The Lure of Entrepreneurship survey report, July 2016 Prospa provided a link that a finalist in Telstra’s Business

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actually embedded an online application form into TAG’s website. This had huge commercial advantages, Browne recalls. “Within 48 hours we had an iframe built into our website, which meant our clients could make applications and we were getting responses back within 48 hours.”

In essence, all small businesses may have a need for quick, unsecured capital. Browne has a typical example: “We had a client early on who set up their restaurant and possibly 14 months after they opened their doors, unbeknown to me, the business was going so well that they decided to take over the lease next door and expand into that space. I believe it happened fairly quickly and they looked at the opportunity to grow without thinking ‘how are we going to fund it?’ ” The loan was small – only $50,000 – but enabled them to quickly get back in business after the expansion.

According to Prospa boss Bertoli, there are numerous other ways businesses use this capital: as working capital during lulls, to take advantage of short-term stock discounts; for marketing campaigns and hiring and training staff. Key industries include retail, hospitality, building and trade and professional services, healthcare, gyms and fitness. However, capital

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Sponsored by

“Ask a business owner, ‘If I gave you $25,000 right now, could you find a good use for it in your business?’ And the overwhelming answer is yes, of course they can” Beau Bertoli, Prospa is always in demand, insists Bertoli. “A really good exercise I do is to ask a business owner, ‘If I gave you $25,000 right now, could you find a good use for it in your business?’ And the overwhelming answer is yes, of course they can.”

With typically small loan amounts, it’s important to ask yourself whether unsecured business lending is worth your while. The commission splits can be relatively generous: Prospa pays 1–4%, depending on the features of the loan and the strength of relationship, which shouldn’t be underestimated given they lend up to $250,000, although the average loan size is much lower, at $25,000.

Realistically, for most brokers unsecured lending must be treated as an additional revenue stream, albeit one, Browne points out, that you currently don’t have. Unsecured lending is also an additional service for your

existing customers. This is making a difference to TAG’s finances, says Browne: “It really supplements it, and it’s a tough market here in WA at the moment, so it’s really helpful.”

Furthermore, this is an ongoing revenue

stream. The above-mentioned restaurant client of Browne’s has since returned for another loan, as do 70% of TAG’s settled unsecured lending clients. That need for capital is not going to go away, as Prospa’s Bertoli points out. “If you ask small business owners what the biggest obstacle is to growing their business, they’ll near universally say access to capital.”

For Browne, it’s an example of technology making an immediate and concrete contribu­ tion to his business. “I just think with the fintech guys, who are using technology to provide a solution for clients, partnering with brokers is certainly a thing of the future.”

PUMP MARKETING TOOL Launched in late June, the Prospa Uplift Marketing Portal (PUMP) is an online platform that enables brokers to: download printed application forms and fact sheets send customised emails and direct mail pieces to their clients – all with their own brand (logo and colour palette) and contact details (phone, email, website) download images for use on social media With the exception of direct mail campaigns, Prospa covers the cost of marketing, including image rights. The platform also tracks customer analytics, with the data being available only to the broker and not Prospa. Broker Andrew Browne has used the tool to engage his current clients. “We’ve spent a lot of time circulating it around our database and letting them know that we can fill that void that maybe we were not always able to,” he says.

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FEATURES

AGRIBUSINESS FINANCE

FIELDS OF GOLD Australia’s booming agribusiness sector is driving some of the nation’s top brokers, with significant opportunities for new entrants, writes MPA editor Sam Richardson

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AUSTRALIA IS one of the most urbanised countries in the world – nearly 90% of us live in cities – so it’s unsurprising that housing and thus broking is similarly attracted to the bright lights. It goes deeper than that, however: from the archetypical ‘conversation around the BBQ’ to the BDM networks of the banks and house price data, it all revolves around the capital cities.

CoreLogic’s monthly Home Value Index, for instance, has figures for each capital city, but only a single ‘rest of state’ option for the rest of the nation. And what was the ‘rest of state’ house price growth year-on-year to May 2016? Just 1.9%.

In a sense this data is failing: failing to explain why a handful of rural brokers are winning awards and gaining national recognition, and failing to alert other brokers to the opportunities out there. While there have been specific rural broker awards for several years, rural brokerages have begun to pick up generalist top brokerage and even top broker awards at recent ceremonies held by the MFAA and others.

What’s driving these brokerages is not a new industry but one in rapid evolution.

That industry – or rather group of industries - is agribusiness. In 2015 Deloitte nominated agribusiness as one of the five industry sectors that could drive growth in the post-mining era; nine of Australia’s top 20 growth areas by exports are in agribusiness, including rice growing, beef farming and dairy processing.

Whatever the trajectory of the market, agriculture is an industry with an integral need for finance and, increasingly, brokers.

Here, leading brokers, lenders and aggregators tell MPA what’s happening to the industry, and why now is the time for brokers to make themselves indispensable.

AGRIBUSINESS

BY THE NUMBERS

The agribusiness industry is worth

$258bn

Between 2011 and 2016, its average annual growth was

2.6%

It comprises

169,665 businesses

In 2016/17, farm production is forecast to rise

2.7%

Source: IBISWorld/Australian Bureau of Agricultural and Resource Economics and Sciences

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FEATURES

AGRIBUSINESS FINANCE

KEY SECTORS

What an agribusiness brokerage looks like

Beef • Prices of live and slaughtered cattle will rise by 9% in 2016/17 • Ninth fastest-growing industry by export growth over the last five years • Producers recovering from five years of poor conditions

The two brokerages featured here demonstrate the diversity of the agribusiness space.

Robinson Sewell Partners is based in Wagga and Dubbo in NSW for good reason, director Ian Robinson tells MPA. “We’re located in Wagga and Dubbo purely to be operating at the coalface in the centralised arena of New South Wales primary production.” Wagga is in the heart of the Riverina food bowl; Dubbo, further north, is home to larger broad-acre livestock operations. However, their clients reach a lot further, meaning Robinson often

Dairy • Prices to rise 4% in 2016/17; however, cash income to fall 26% • NAB says no prospect of major price increases due to stable global supply • Government’s Farm Household Assistance package available to farmers hit by recent price cuts

Wheat • Cash income to increase to highest level in 20 years • Production to rise 1% but prices to remain low • Lack of rainfall a threat in states other than WA and SA

Wine • Prices of expensive wines increasing (ie Grenache up 36%); however, cheaper wines (ie Chardonnay) are struggling • Production to meet or increase on five-year average Source: CANSTAR’s Agribusiness Outlook for 2016/17, comprising reports from ABARES, ANZ, Rabobank, NAB

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capture booming opportunities in Asia.

“We’re seeing that agribusiness is going through a cyclical boom at the moment, both from a domestic point of view and from a global commodities perspective,” says Robinson. Yet at the same time “banking is getting more complicated and bank policy is getting fine-tuned on the margins. That means it’s a lot more difficult for farm managers seeking to borrow a lot more money to negotiate with their banks”.

That’s not to say banks aren’t interested in this space; quite the opposite. Cosi De Angelis, general manager of commercial

“We’re seeing a lot more sophistication with business owners outsourcing their financial needs to third parties like ourselves.

It’s very much an exciting phase we’re going through” Ian Robinson, Robinson Sewell Partners drives down into Victoria and his co-director Brad Sewell regularly completes a 4,500km loop through Central Queensland.

In South Australia, Dunartin Finance provides finance to a vast range of industries, ranging from open-cut mining to aquaculture (shellfish) through to vineyards and beyond.

That stems from the experience of its director, John Duncan, who has himself worked in agriculture, as well as banking and as an accountant at KMPG. Based in Adelaide, the brokerage has another small office in the Clare Valley and is trying to open an office in Mt Gambier in the southeast. Again, there’s a lot of driving involved – every four to six weeks Duncan will pay a visit to Port Lincoln.

Although these brokers have years of experience in agribusiness banking, their brokerages are relatively young. Dunartin Finance was established in 2007 and Robinson Sewell Partners in 2010. That’s no coincidence; agricultural businesses are struggling to get finance from banks at just the moment they need capital to expand and

origination at ANZ, tells MPA why he’s interested in agribusiness. “From a sector perspective, the opportunities for Australian agriculture are evident as we can take advantage of our proximity to Asia.” And ANZ sees its role as alerting agribusiness to those opportunities. “ANZ’s insights on Australian agriculture and trade with Asia help our broker partners and customers see agribusiness as part of the broader economic picture and help identify their key strengths and opportunities, even at a single business level,” De Angelis says.

As these businesses grow, the time they can devote to these increasingly complicated negotiations with the banks is decreasing, says Robinson. “We’re seeing a lot more sophistication with business owners outsourcing their financial needs to third parties like ourselves. It’s very much an exciting phase we’re going through.”

At the macro level, Brendan Wright, CEO of FAST, believes the growth of the thirdparty channel is now being recognised in

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agribusiness. “As brokers’ market share and presence grows, they are increasingly being seen as experts in this space,” he says.

Clients and lenders in the agribusiness space Although the mainstream media tends to focus on huge agricultural operations, such as the politicised S. Kidman & Co sale, both Duncan and Robinson tell us the vast majority of the businesses they deal with are family-owned; Robinson believes that to be around 95% of farms. These businesses can nevertheless be quite large, says Robinson, and worth between $3m and $50m. “The average loan that we do is approaching $4m,” he says, “but there’s quite a number of cases where we go a lot larger than that, up to $50m in borrowing on a per-transaction basis.”

The lenders in the agribusiness space include all of the majors, with the nonmajors becoming a growing presence, including Suncorp, St.George, Rural Bank (a division of Adelaide and Bendigo Bank) and Bank of Queensland. Rabobank is a dedicated agribusiness bank; however, it doesn’t usually work with brokers. Beyond that, options are scarce, observes Duncan.

“I don’t think solutions for funding have really diversified deep enough,” he says.

In response, he’s recently begun working with a specialised non-bank lender based in Sydney.

Bankers have long been working in the agribusiness space, and all banks have divisions dedicated to agribusiness, explains Robinson. “Most of the banks have broken off agribusiness as a separate almost quasiindependent part of the banks, with their own credit policy, underwriting standards and dedicated resources in terms of the bank managers and various internal support key stakeholders. So it’s very much a key strategic part of the banks’ overall lending.”

Unusually, bankers in this space tend to stick around, with many having more than 15 years’ experience, according to Duncan.

De Angelis says ANZ’s agribusiness support team includes specialists in

business risk, financial planners, interest rate management advisers and asset finance managers. “Our expertise extends throughout the supply chain, including

“[Agribusinesses] are looking for stable funding solutions going forward; someone to manage it for them, not just now but timelining it into the future” John Duncan, Dunartin Finance processors, suppliers, wholesale and retail.”

He explains that “we provide working capital solutions, core debt, transactional, equipment finance, interest rate risk management, business planning and wealth creation”.

The many faces of agribusiness finance In agribusiness, a broker’s biggest role is providing working capital and debt consolidation. According to Duncan, debt is in the top five expense items for 80% of his clients requiring less than $10m in funding.

Managing debt is an ongoing requirement for these businesses. “They’re looking for stable funding solutions going forward; someone to manage it for them, not just now but timelining it into the future,” he says.

Working capital is vital because of the challenge volatility poses for agribusiness, as Christine Linden, general manager of regional business banking at ANZ, told CANSTAR. “We see the biggest challenge as managing volatility in the form of commodity prices, seasonality and input costs,” Linden said.

As Robinson puts it, “getting the client is just the start of the journey – the client’s business is never static; it’s always evolving with the variabilities of agribusiness and where the client is in their business cycle. In addition to that, the banking environment is continually shifting as well”.

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FEATURES

AGRIBUSINESS FINANCE

USEFUL RESOURCES Agribusiness Australia www.agribusiness.asn.au Industry group for the entire agribusiness industry. Runs multiple events in each state, with expert speakers and networking opportunities Australian Society of Agronomy www.agronomyaustralia.org The professional body for agronomists, who are important referral partners.

Runs biannual conferences FAST’s Commercial Referral Panel Connects specialised commercial brokers, who can advise new entrants to a particular industry.

Training There are Certificate IV, diploma and degree-level qualifications available in agribusiness, offered by a variety of TAFE and other institutions.

Alternatively: Rural Biz Online www.ruralbiztraining.com.au Online agribusiness courses, including focused short courses (ie understanding farm financial statements) Marcus Oldham College www.marcusoldham.vic.edu.au Offers a wide variety of courses on agribusiness finance, including tailored corporate training, having previously worked with Commonwealth Bank and ANZ

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Secondary funding needs include equip­ ment finance, trade finance and expansion finance. The latter two play an important role in making farms more profitable, notes Duncan – “improving farming practice or better returns or yield. So it might be a higher crop yield from increased fertiliser application; it might be new technologies which need to be purchased which give the client better control over the end product”.

ANZ’s De Angelis is seeing a similar picture. “Many farmers are considering expansion, not just land acquisition but land development (eg irrigation) and equipment purchases,” he says.

“Given there are varied levels of business acumen across the industry, there is opportunity for brokers to assist clients prepare for finance and credit discussions.”

only bringing us in on a need-by-need basis, and at the last minute. We sat down with them and said, ‘We want to be part of your business and your planning’.”

Fee-for-service plays an important role in Duncan’s business for the same reason, although banks do pay upfront and trailing commissions in the agribusiness space.

Building a reputation in agribusiness finance All these types of finance could of course be obtained directly through a bank. Even if a broker makes financial sense, the third-party channel still needs to build trust within the agribusiness community.

While some operations are increasingly corporatised, brokers need to be attuned to local culture, says Robinson. “In the

“As brokers’ market share and presence grows, they are increasingly being seen as experts in this space” Brendan Wright, FAST Finance also plays an integral role in farm expansion. “Probably close to 100% of expansions in farming is financed by debt products,” says Robinson. “They actually use our services for expansion capital.

Primary production is very capital-intensive as you’d imagine, and roughly 80% of all funding requirements is underpinned by the acquisition of land, which is the core asset, and the residual 20% would be the working capital.”

You may have noticed a focus on ‘ongoing’ and ‘evolving’ by Duncan and Robinson.

Broking in agribusiness is by necessity a partnership, not a transactional relationship.

Consolidating debt and financing acquisitions only works if a broker is brought in at the planning stage, Duncan argues. “It needs to be long-term; we have a very large market gardener and we had difficulty providing the services we felt we could give at the level we wanted to provide them, because they were

bush, culturally, a good reputation and credibility is everything, so having that embedded reputation within the marketplace is paramount to be able to engage on an ongoing basis within the market.”

That means face-to-face contact and going to clients – hence the time spent driving – and “the experience and pedigree who’s very sympathetic and has a strong understanding of agribusiness. It’s obviously a very specialised area within commercial lending and so a very strong track record [helps],” Robinson says. Consequently, Robinson Sewell Partners’ website is packed with case studies, including video content, in addition to information on their brokers’ career credentials.

It’s debatable exactly how essential experience is for new entrants to agri­business finance. For Duncan, “today’s farmer is looking for someone that can deliver on the expertise they say they have: there’s credit

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advice and broking; there’s agronomy, which is advice for spraying of crops and growing; and there’s consultancy and small business convenances coming in, so you don’t have to have necessarily a strong background in farming, but it helps”.

ANZ’s De Angelis agrees that brokers should be aware of the issues. “Agribusiness customers want to be well connected with a broker and lender with good industry knowledge and insights and across the major issues and challenges impacting their business,” he says. Specific knowledge of these issues isn’t essential, however. “Brokers don’t need to know them inside out as the ANZ team are ready to work right alongside the broker to finalise the right customer solution.”

At FAST, CEO Wright finds that brokers focusing on agribusiness aren’t necessarily from rural areas, although experience is nevertheless important. “They tend to be well established in the industry and have been operating in the trade in one way or another for some time ... agribusiness brokers generally have a strong background in the specialist industries they fund, with a strong credit background. Often they come from a background working with an agribusiness lender or a specialist agribusiness consulting firm.”

Training is also available, both from aggregators and organisations within agribusiness. “It would certainly help if you did a short course in agriculture,” says Duncan. “There are certainly a lot of those available to young up-and-coming brokers if they were keen to better understand the people they want to provide services to.” (See ‘Useful resourses’, p50.)

What is undoubtedly vital when entering the agribusiness space is contacts. Duncan advises brokers to “pick a niche market and get to know it, and perhaps enter into that through a consultant or adviser in that area, very similar to what they’d be doing now by chasing a real estate agent”.

In particular, get to know an agronomist, urges Duncan, as “that’ll bring trust and endorsement into the industry if that

agronomist is prepared to endorse you”.

Brokers must be prepared to work with others, observes De Angelis. “The broker (and subsequent banker) should be an extension

“The broker (and subsequent banker) should be an extension of their professional advisory team” Cosi De Angelis, ANZ of their professional advisory team, including their accountant, solicitor, agronomist and farm consultants. The broker needs to be reliable, with good communication and customer service skills, along with being consistent and transparent.”

More than just farming Agribusiness is a niche area, and pretending otherwise ignores one of the reasons why brokers are doing so well in this space. At its core, however, are the key relationshipbuilding and commercial lending skills that brokers are already using in other industries, and demonstrating these skills can negate the need for specialised agribusiness experience in the eyes of clients.

There’s another reason for building a reputation in a rural area, Duncan concludes.

“For some people, regional is just farming.

It’s a lot more than that. There’s your rent roll and real estate agency businesses, there’s your larger intermediary accounting firms that are usually positioned where your business banking centres are, and there’s small banking and car dealerships and pharmacies, doctors and hospitals.”

“It’s a good, fun space to operate in; the entry barriers are in my view quite low. You just need to talk to people who are in the agricultural industry; that’ll take you a long way to achieving your goals.”

AGRIBUSINESS INSIGHTS FROM ANZ ANZ won CANSTAR’s 2016 Bank of the Year – Agribusiness award, and general manager of commercial origination Cosi De Angelis told MPA what brokers should look out for in agribusiness.

Key challenges for agribusinesses: Volatility and seasonality of income Land title security Ability to source finance Carbon abatement schemes Environmental stewardship payments Water licence classes According to De Angelis, the key opportunities for Australian agribusinesses derive from international developments. “From a sector perspective,” he says, “the opportunities for Australian agriculture are evident as we can take advantage of our proximity to Asia, and the growing demand for ‘clean and green’ produce as Asia’s diet becomes more ‘Westernised’ and demand for protein increases.”

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BUSINESS STRATEGY

CONNECTED LEADERSHIP

CONNECTING THE DOTS: A NEW MODEL OF LEADERSHIP Today’s businesses need to be agile, responsive and collaborative – all the things traditional leaders are not. Sam Richardson reviews leadership consultant Simon Hayward’s new book, Connected Leadership, a practical guide for the modern boss, and talks to the author

CONNECTED LEADERSHIP: How to Build a More Agile, Customer-driven Business is best described as a practical handbook for hands-on leadership. It’s not an inspirational memoir or academic overview; instead it contains 250 words of case studies, bulletpoint guides and bite-size management techniques. Nevertheless, the book draws on the latest academic thinking on the subject, providing an invaluable resource for leaders who need to drive change in their businesses today.

Simon Hayward, the author, is CEO of Cirrus, an international leadership consultancy, and the book is the product of his experience in the business and of his own PhD research. Hayward’s practical experience certainly lends credibility to the book. The case studies generally feature companies Cirrus has worked with: international corporations such as hotel chain Mandarin Oriental and savings and investment business Standard Life. While this carries with it the risk of the book being a brochure for Cirrus, this is thankfully not the case; the book is a stand-alone aid to leadership, not just a starting point.

Connected Leadership has 11 chapters, moving from an analysis of the current business environment to the introduction

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and explanation of ‘connected leadership’.

It describes the principles of connected leadership and then provides a selection of guides and case studies on how it actually works, reaching impressive levels of detail.

Because it builds on itself, the chapters can’t initially be read in isolation.

As Hayward puts it, “connected leadership is a synthesis of major research into leadership in the 21st century ... so if you omit any of the factors it will be incomplete”. That said, for a 250-page book Hayward provides a lot to take in, and the best way to do this might be to revisit individual chapters.

THE FIVE FACTORS OF CONNECTED LEADERSHIP Factor

What it means

Leadership’s role

Devolved decision-making

Decisions are made at the appropriate level closest to the customer

Sharing power and supporting others to make the right decisions

Collaborative achievement

Working together as teams to achieve shared outcomes

Enabling teams to operate effectively and to work well along the whole process

Agility

Always improving and adapting to changing circumstances in line with purpose and direction

Encouraging learning, improvement and adapting within strategy

Purpose and direction

Everyone buys into what they are doing together and why it is worthwhile

Telling the story and helping people to make sense of it

Authenticity

Building trust and establishing a corporate reputation

Acting with integrity and balance to build trusting relationships

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What connected leadership actually is ‘Connected leadership’ is Hayward’s vision for management. It can firstly be defined by what it is not: it’s not the ‘heroic’-inspirational leadership of the Steve Jobs or, more locazlly, the Mark Bouris variety. Hayward doesn’t believe the person at the top is always right, isn’t impressed by speech-making or motivation through setting ambitious goals.

Instead he’s interested in “the shared process of leadership that really makes organisations successful in a sustainable way”.

Of the five factors that make up the connected leadership framework (see table), it’s arguably the first, devolved decisionmaking, that makes Hayward’s approach so definitive. In its most basic form this is about a firm’s structure: “While strategic decisions are made centrally, service-orientated decisions are taken as close to the customer as possible.” The advantages of this approach

for a company’s agility – which is another factor of connected leadership – are obvious.

“What makes the difference is that colleagues don’t have to refer all decisions up a chain

enough to put in extra effort. A strong spine of consistency will facilitate experimentation, so the business gradually ‘learns’ what’s needed in a changing environment.

“Essentially we want leaders at all levels engaging their people in relevant discussions which lead to the best decisions they can make” and wait for a response.”

While some of the factors appear wellmeaning but vague – such as collaborative achievement and authenticity – Hayward is quick to spell out how these practically benefit businesses. Through connected leadership a business can respond quickly to customer demands and competition; employees will be empowered to make decisions and engaged

The research behind connected leadership You don’t need to be convinced by Hayward’s language; perhaps the strongest justification for his arguments is the case studies he puts forward. For each of his five factors Hayward presents a number of case studies: Standard Chartered Bank’s ‘Here for Good’ statement of purpose and direction; retailer Marks and

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BUSINESS STRATEGY

CONNECTED LEADERSHIP

Q & A WITH SIMON HAYWARD MPA: Much of your book addresses the problems faced by managers of large, unwieldy corporations – how should leaders of ambitious small businesses approach this book?

Simon Hayward: The principles apply, but in quite a few areas it’s easier to be connected because you’ve got much more direct contact with people, so the leaders of the business probably have a shared history: they set up the business together; they work together; there’s a sense of shared history. But there’s still a need to maintain a fresh sense of why we’re here, and remind people where we’re going; the level of authenticity and trust in a business and whether people trust the leadership group is still an issu, whether they’re really committed or not.

We’ve seen data on when people are quite engaged with a business but don’t believe in the senior leadership. So that can happen in a small company as well as a large one, but the problem is that can have an impact on the customer experience. In a small company, most people are having an impact on the customer experience, whether you’re in accounts sending invoices or directly providing a service, such as selling mortgages. If the people don’t feel a level of trust, they’re unlikely to provide a genuinely caring or authentic customer experience, which will ultimately impact on revenues and customer satisfaction.

The issues around devolved decision-making are less of an issue, although I myself run a business of 50 people, and there’s always an issue of the founder or decisionmaker believing they always make the best decisions, and other people who’ve joined that business are used to that syndrome, and they adjust accordingly. But as a business grows or becomes more diverse, the idea that one individual has the absolute licence on good decisions means you’re probably missing out on good ideas and insights … it’s still something that needs work on, but you can do it more personally and more directly.

MPA: Are the lessons of Connected Leadership applicable internationally, or are they restricted by different work cultures in different countries?

SH: I think it’s a really interesting question. The next stage of research, and one we’re talking to one or two universities in Asia about, is to extend this research to look at how it plays out in different cultures. So, absolutely, there is a cultural factor in here that needs to be accommodated. But also there’s a lot of lessons about large corporate multinationals, which need to work in a coordinated way, and about human interaction, which is fairly universal.

MPA: Is there any truth in characterising connected leadership as leading from the middle?

SH: The idea of being at the centre of a network, and all the people in the network being important, there is something in that; there’s a diffused ability across the network, but there is a central point of coordination … like being the centre of the web.

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Spencer’s Plan A sustainability program for authenticity; retailer Zara’s shop-level stock ordering for decision-making; Three mobile network for agility; and, most surprisingly, the UK Olympic Team for collaborative achievement.

It’s unfortunate that most of these case studies are UK-centric, but you can’t make

“While strategic decisions are made centrally, serviceorientated decisions are taken as close to the customer as possible” the same criticism of the book itself. It references data and management thinking from across the Western world, much of which is surprisingly practical. Good examples include the RAPID technique (recommend, agree, perform, input, decide) for designating decision-making roles, drawn from Rogers and Blenko in the Harvard Business Review, and Hayward’s use of the ‘Ethical leadership at work questionnaire’ by Kalshoven et al to build an ethical leadership checklist.

Occasionally the level of detail becomes unnerving: discussing Eric Berne’s analysis of childlike behaviour in adults, Hayward notes that “physical signs to look out for include a quivering lip, laughter/giggling, rapid and changeable movement, shrugging of shoulders, or a whining tone of voice”.

Having a basis in academia is important of course. What brings the book back down to earth is the inclusion of a number of questionnaires which get you to analyse your own business and management style, both at the start and the end of the book. After passively absorbing Hayward’s writing, having to actively assess yourself is an engaging and confronting experience, cementing this book

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as a practical guide to connected leadership, not a mission statement.

TAKING ACTION IN YOUR BROKERAGE

A confronting read As a book, Connected Leadership strikes the balance between easy airport-bookshop read and serious strategy guide. The writing is witty: describing a case study of innovative cooperation between retail and category managers, a deadpan Hayward concludes that “the resulting chocolate underpants for Valentine’s Day were a great commercial success”. The metaphors are generally convincing: Hayward writes that agile companies respond “just as a successful soccer or rugby team shares a collective intelligence that allows highly fluid movement without losing its tactical shape”.

On occasion the writing is notably pointed and confronting. As one memorable passage on the value of authenticity goes, “If you say you prize integrity (and possibly have it emblazoned on your corporate website and boardroom walls), but demonstrate that you prize success above all things, people are more likely to do whatever it takes to succeed rather than worrying about integrity”. Hayward doesn’t shy away from directly instructing the reader, such as when he talks about agility: “As a leader, you also need to have the courage to slash through any bureaucratic thinking or activities which could slow down innovation and learning”.

Brokers may find that the weaker chapters in the book are where the writing heads too far in one direction and loses touch with practical examples, as at the end of Chapter 11, or when it dawdles on secondary topics, such as a section on sense-making in Chapter 4. For the small business reader, Hayward’s focus on international corporations can be frustrating, but the principles of connected leadership remain relevant, although a few small business examples could have widened the book’s appeal considerably.

Concentrating on the ‘how’ For a small business leader, Connected Leadership is an interesting and useful

Read the book – particularly the questionnaire sections – so you understand how far your brokerage embraces connected leadership.

Delegate more – could you allow more experienced brokers to take a bigger role in marketing and finding their own client niches?

Spell out your purpose – draw up a mission statement with your staff which gives them the confidence to act by themselves.

And of course actually delegating decisionmaking to your staff and being willing to tolerate mistakes presents more of a challenge in a small business struggling to stay afloat.

It’s much easier to commit to making these changes when you trust the thinking behind them, and luckily Hayward’s justification of connected leadership is eloquent, believable and practical. The book is also surprisingly comprehensive; although it could have more on small businesses and non-Western work cultures, it’s far more satisfying than the inspiring but brief ‘starting point’ leadership writing we’ve grown accustomed to.

A perfect example of Hayward’s concise

“Just as a successful soccer or rugby team shares a collective intelligence that allows highly fluid movement without losing its tactical shape” book, mainly because it concentrates on the ‘how’. It allows for immediate application to your organisation, which in a small business is particularly viable. However, by concentrating on the ‘how’, Hayward assumes you already know the ‘why’ behind connected leadership. Admittedly, you might imagine someone who’s willing to read a leadership book would be open to change, but that’s not guaranteed; a vast amount of leadership writing still revolves around heroic individuals, and many readers will expect that when first reading this book.

Furthermore, while it’s possible to immediately apply the principles of connected leadership to your business, actually doing so requires a lot of courage.

In the excellent Chapter 10, ‘Taking people with you’, the numerous bullet-point guides and infographics make clear that this is a difficult process, and that alienating your existing staff could be a real possibility.

approach, and of connected leadership more broadly, comes towards the end of the book in the penultimate Chapter 10: “Essentially we want leaders at all levels engaging their people in relevant discussions which lead to the best decisions they can make. When followed up and reviewed these will then become new habits. This is when change occurs.”

“Connected Leadership: How to Build a More Agile, Customer-driven Business”, by Simon Hayward and published by FT Publishing, is now available in print and electronic versions.

Simon Hayward is the founder and CEO of Cirrus, an international leadership consultancy. He has a doctorate from Manchester Business School, and has spoken about leadership to the Financial Times, the Guardian and the BBC.

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BUSINESS STRATEGY

EXPANDING ABROAD

EXPANDING ABROAD: HIGH RISK BUT POTENTIALLY HIGH REWARD Australia might be a big continent, but there are millions of customers beyond our shores that you could be servicing. University of Melbourne lecturers Eric Mooi and Peter Gahan explain the risks and rewards of expanding overseas

INTENSE COMPETITION, new enabling technologies, and a desire to grow are some of key drivers leading firms to expand abroad. International expansion can be very rewarding but may also carry significant risk.

Why expand It is well known that expansion is risky. In the late 1950s Edith Penrose noted that “there are important administrative restraints on the speed of the firm’s growth. Human resources required for the management of change are tied to the individual firm and so are internally scarce. Expansion requires the recruitment of more such resources.

New recruits cannot become fully effective overnight. The growth process is, therefore, dynamically constrained”.

This is still true today. Nevertheless, many firms have forgotten this reality. According to Fortune magazine, the three fastest-growing US firms in 2005 were Yahoo, CompuCredit, and Ceradyne. A decade on, Yahoo is in a struggle to survive; CompuCredit was a

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subprime lender and has been involved in legal battles culminating in a name change and a fight to survive; and Ceradyne has fared worst of these three superstars of 2005: it no longer exists as an independent firm after acquisition.

Given these troubles, why would firms want to expand? In fact, there are many good reasons why businesses need to manage the curse of rapid growth. For some, growth is driven by strategy. With high-tech start-ups

Having sufficient means to innovate – or to acquire innovative firms – inevitably means global expansion for example, fast growth is important to lock down a first-mover advantage, especially where the business model is based on having a critical mass of customers or users. For other businesses, moving outside their domestic base becomes the only means of growth.

Again, expansion into new markets – such as establishing a new presence in the growth markets of Asia – becomes imperative.

Finally, rapidly evolving markets and accelerating rates of innovation mean competitors taking market share. Having

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TAKING ACTION IN YOUR BROKERAGE Identify whether virtual expansion could be an option – many brokerages already deal with clients abroad (see MPA 16.1, ‘Broking beyond borders’).

Would it be best to expand through acquisition or franchising? Franchising can be a low-cost expansion strategy but requires a proven business model.

You may wish to seek legal advice, given the widely varying restrictions on brokers in different countries (even in NZ, the UK and Canada).

precise nature of the risks that individual firms are likely to face will vary greatly from industry to industry.

Virtual expansion

sufficient means to innovate – or to acquire innovative firms – inevitably means global expansion. Yet the rate at which firms attempt to grow, and the means by which they aim to achieve this, differs enormously from business to business. Some firms will try to expand quickly and make growth the number one priority, while others pursue slow but steady growth for the sake of being profitable and getting things right. Amazon, for example, has expanded to a physical presence in just 10 countries after 21 years of operation, despite

having over 200,000 employees and revenues greater than $130bn.

In deciding to expand, firms need to balance the risks and rewards. Key risks include political risks, cultural and people issues, and compliance and legal issues.

In the financial industry, legal obstacles to expansion are formidable. Banking licences are hard to obtain and registering as a financial adviser is not trivial. Taxation, disclosure, and data security regulation add to the burden of expansion. However, the

With the growing prevalence of new internetbased platforms, firms can expand virtually, physically, or use a combination of both.

Virtual expansion happens through digital offerings outside the current market, while physical expansion may occur through the opening of new offices, or through acquisitions or franchising.

Virtual expansion is typically the fastest approach to expansion. It is usually cheaper and will generally face fewer regulatory burdens than are encountered in establishing a physical presence. Virtual expansion through the internet and mobile networks has revolutionised financial services provision.

Because financial services are often provided as ‘bits’ to customers, the possible opportunity for new entrants to be disruptive is large.

For example, BillGuard offers alerts to users on hidden fees and integrates different accounts. This provides users with far greater transparency with any transaction, and allows them to select the least costly account for a type of service. If adopted broadly, this has the potential to revolutionise the financial industry in the same way that the music and publishing industries

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BUSINESS STRATEGY

EXPANDING ABROAD

GOING GLOBAL THROUGH NEW TECHNOLOGY

TransferWise is a peer-to-peer financial firm which has disrupted the profitable market for retail customer currency exchanges and money transfers.

TransferWise offers a digital platform through which money is transferred by matching up buyers and sellers of currencies. TransferWise asks 0.5–0.7% for this service when transferring Australian dollars, considerably less than most banks or exchange bureaus charge. Since it was first launched in 2010, according to CNBC, TransferWise has grown to become the eighth most disruptive firm in 2015. TransferWise has transferred around $US4.5bn across nearly 300 currencies.

NEW COMPETITORS FROM ABROAD

While you may want to consider expanding abroad, others have considered entering Australia.

ING DIRECT, a bank originating in the Netherlands, commenced in 1999 in Australia and has over 1.5 million savings and mortgage customers.

The Rabobank focuses on agribusiness and commenced in 1990. It now operates 61 branches throughout Australia. Both businesses compete successfully through differentiation, but have also considerably adapted their business models when expanding abroad.

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have changed. SocietyOne, an Australian fintech start-up based in Sydney, provides crowdsourced personal loans to individuals. It has, for example, found a ready market among farmers wishing to raise capital to buy new stock. The compulsory RIFD tagging of cattle in Australia means that potential lenders have a great deal more information about the quality of stock and their provenance that they are being asked to loan against.

Virtual expansion is also typically much cheaper than establishing a physical presence.

While Amazon has a physical presence in just a few countries, the Amazon app store sells in more than 200 countries. By contrast, internet behemoths such as Google, Dropbox, and Netflix are now present in almost all countries. One reason why such expansion is possible is that it does not draw on scarce human resources and therefore removes much of the constraints Edith Penrose considered critical in the expansion process.

creative assets to build websites, videos, apps, and graphics, has chosen a similar steady growth path. It found that after very rapid initial expansion the quality of the services offered on its marketplace was occasionally lacking. Through slower growth quality could be assured, which in turn meant it was a more appealing place for its buyers.

Physical expansion Expanding by opening operations abroad is much costlier but in many instances is the only option. Complex financial products, such as advice on share offerings, require people and operations ‘on the ground’, while for other financial products, such as private banking, physical operations are the norm.

Firms choosing to expand can either do so by opening their own operations; through acquisition; or by seeking outside help to expand. Own operations are relatively expensive but can be managed directly.

While virtual expansion may not have the same resource constraints that physical expansion imposes, slow expansion may still be needed While virtual expansion may not have the same resource constraints that physical expansion imposes, slow expansion may still be needed. Take Seek.com, for example, a leading provider of employment marketplaces. Seek has expanded to 17 countries, recognising that it needs to have good market share for it to make a difference. People seeking employment only apply to job marketplaces if sufficient jobs are offered, while employers require a steady supply of qualified jobseekers. An additional reason for Seek to take a steady approach to growth is that it is easier to retain ownership of the firm as capital requirements for expansion are lower.

For companies, expensive growth strategies often imply capital acquisition through share offerings, which subsequently dilutes ownership. Envato, a digital marketplace for

Acquiring companies requires careful due diligence, is often expensive, and typically involves a degree of resistance from the acquired company. It is also high-key and may tip off competition, but established operations and likely prior success help.

Acquiring outside help to expand might seem unusual, but the approach – franchising – is highly common in the hospitality and restaurant businesses. Think, for example, Marriott, McDonald’s or Subway. Franchising involves helping in operations, setting operating guidelines, and drafting specific contracts in return for which franchisees pay royalties.

Franchising is also viable for financial services. It is, for example, quite common in tax preparation, insurance, and financial

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planning. The critical benefits associated with franchising are lower capital needs, lower risk for the franchisor, and inherent franchisee motivation because the franchisee commits capital to the business and works for profit rather than a salary.

In turn, for the franchisee it represents an easier and less risky pathway into entrepreneurship, and provides ready access to a brand, ideas, knowledge, and business systems which would otherwise be costly to

location to run the operation, or looking to hire local staff with knowledge of the sector, or some mix of both.

Conclusion As Edith Penrose noted, growth is dynamically constrained. When expanding physically, constraints are particularly important, but virtual expansion suffers less from the constraints that Penrose considered critical. Through careful consideration of the

Entering a new market via a physical presence requires careful consideration of the pros and cons associated with relocating personnel access or develop. Importantly, it also lowers the risk compared to going it alone. Even if you are currently a franchisee, franchising abroad may be possible. Many franchisors allow master franchisees that run multiple businesses and set their expansion plans in conjunction with the franchisor.

Adapting to new markets A critical risk faced by a business expanding into a new country is whether their existing business model, however successful, is fit for purpose in a different environment. There are many reasons why such a business would need to consider how best to adapt their business model. Adaptation may be needed because of regulatory requirements and cultural and management differences. Adaptation may also be needed because expansion abroad involves a new set of competitors who themselves operate differently, using models that your business has likely not dealt with in your home market.

Economic instability can add to these woes. For example, Barclays and ABN AMRO found that their expansion was much short of success.

Entering a new market via a physical presence also requires careful consideration of the pros and cons associated with relocating personnel from an established

risks, in particular HR constraints, firms can grow through international expansion.

Physical expansion is typically costlier than virtual expansion, but in some cases is needed because the products sold require it or because operations on the ground are the norm and expected by customers. When physical expansion is needed, franchising is less costly than setting up own operations or acquisition of other companies, but this also comes with constraints: franchisees are harder to manage and require a degree of independence. Acquisition is typically very expensive and requires careful due diligence.

Virtual expansion is in comparison typically much cheaper and faster but requires more careful consideration of data storage, and good digital platforms need to be available for it to be a success.

Peter Gahan is director of the Centre for Workplace Leadership and professor of management in the Department of Management and Marketing at the University of Melbourne. He has held academic positions at Monash University, Deakin University, the University of New South Wales, the University of Southern California, Los Angeles, and the European University Institute.

AUSTRALIA’S EXPANDING FINTECH SECTOR Finance and banking have always been at the forefront of new technology adoption and innovation in Australia – from credit cards to computerisation and, more recently, workplace design. This appetite for innovation has been spurred in part by a highly competitive – and profitable – operating environment.

As smartphone penetration has risen, competition has intensified from a number of sources, including an emerging fintech ecosystem. Fintechs have sought to bring new finance and banking products to market, employing a variety of online platforms.

Centred in Sydney and Melbourne, Australia’s fintech start-ups have included firms such as CoinJar (a bitcoin exchange platform), Tyro (an alternative EFTPOS payment system), VisualRisk (data visualisation and analytics), Sharesight (a budget management platform), Prospa (for commercial business lending), SocietyOne (personal loans), and SelfWealth (providing financial advisory services). While still an emerging sector, all these firms promise to disrupt dominant financing and banking models and inject new competition into the sector.

Erik Mooi is a senior lecturer at the University of Melbourne and works on topics such as outsourcing, interfirm contracting, technology licensing, and franchising. He has published his research in the Journal of Marketing, the International Journal of Research in Marketing, the Journal of Business Research and others. He is also the author of A Concise Guide to Market Research, published by Springer.

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PROFILE

STEVE MATSOUKAS

STEVE MATSOUKAS: STRONG PARTNERSHIPS Construction specialist Steve Matsoukas tells Maya Breen how he built his powerhouse brokerage through builder partnerships and a scientific approach to hiring

“AT ABOUT the six-month mark I thought, ‘You know what, I’m enjoying this’ – I was making a difference to people, so I kept at it.”

‘Kept at it’ seems like an understatement as Steve Matsoukas has since built up a multiaward-winning property and construction finance brokerage and runs a team of over 60 staff.

The director of Loan Gallery Finance in Victoria’s Thomastown, Matsoukas thought broking wasn’t quite suited to him when he first started as a sole operator. Yet 14 years later he has carved a niche in construction, specialising in loans for house and land packages, with 44 loan writers throughout Victoria and in Queensland.

Although he registered Loan Gallery Finance in 2012 after changing aggregators to AFG, Matsoukas has been building up his business since 2002. “In the background it’s been the same company and people the whole way through,” he says.

He has won AFG’s Master Agent award three years running, and Loan Gallery also made MPA’s Top 10 Independent Brokerages list in 2013 and was an MFAA Excellence Awards finalist for Victoria for the Commonwealth Bank Finance Broker Business Award – 6+ Writers.

Niche in construction

specialist in construction loans, working directly with builders and development companies. “Very early on, because I liked new homes, we started specialising in construction and house and land packages,” Matsoukas explains. “Off the back of that we became quite good at it.”

As its expertise in this area became noticed, large-volume builders approached Loan Gallery for help and it teamed up with a major Victorian builder. “We started in one of their regions, in metro north, and we slowly picked up the rest of their metropolitan regions.” Then the brokerage expanded into the regional areas and had the whole state covered before expanding to Brisbane and partnering with major builder Metricon in 2013.

“So we jumped from one volume builder to probably the best volume builder in the

country. I know I’m biased but there it is. We haven’t looked back since – it’s been a magnificent journey with Metricon.”

The company is constantly growing, but Matsoukas says a turning point for him was the uncertain times during the GFC when many brokers were quitting the industry. “Where there’s uncertainty, there’s opportunity,” he says.

“Basically what we did was we capitalised on the opportunities that were available, and from then it’s almost been an exponential growth path. Every time we achieve something, we find that more opportunities present themselves.”

During 2012 and 2013, Loan Gallery rapidly increased its settlement loan values from $344m to $480m and is targeting $850m for the end of FY2016/17. The company has also achieved a broker benchmark of under 10% finance applications being rejected; introducing

THE TEAM AT LOAN GALLERY FINANCE Director

2 loan administrators/processors

Broker development managers (Tabatha Lee and Simon Halman)

7 personal assistants

Compliance manager (George Andonioff)

1 bookkeeper (Georgia Capuana)

Team administrator (Rebekah Sander)

HR is provided by Inject HR, an HR consultancy for small businesses lacking dedicated resources

44 brokers

1 area manager in Brisbane (Peter Dunne)

1 financial planner

Loan Gallery has built a reputation as a

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“I tell people quite simply, ‘If doing this is going to keep you awake at night then don’t do it’ – it’s a very simple rule of thumb”

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PROFILE

STEVE MATSOUKAS a VEDA pre-submission credit check on new applications made a huge difference in achieving this figure.

Matsoukas points out that the extra time they spend with the client at the beginning of the loan process pays off as it reduces the chance of problems further down the track.

“Both our builder referrers and our clients took confidence in the fact that we would actually spend the time to explain to them what they needed to do to make sure they had no problems, so we’re spending that extra time upfront. They can make an educated decision.

“I tell people quite simply, ‘If doing this is going to keep you awake at night, then don’t do it’ – it’s a very simple rule of thumb.”

As the business has continued to expand and takes on more staff, Matsoukas has honed his recruitment process into a fine art.

“We’re at 44 [brokers] and we’re still recruiting fairly aggressively. We could probably comfortably accommodate another 30 or 40, but we’re a long way from that.”

A finely tuned recruitment process Loan Gallery recently changed its recruitment strategy and now employs brokers on salaries rather than on contract. Matsoukas says as a business owner it’s easier for salaried brokers to conform to their compliance requirements than for self-employed contractors. He has also noticed that applicants applying for salaried positions are of higher quality.

There is also a psychometric test as part of the recruitment process to gain insight into a person’s character. “Basically we’re looking for an indication of the character of someone before we put them on. We can train for skill, we can train them for credit, but we want the right people to start with. The test was developed with consulting psychiatrists in Sydney and tailored for the company and its needs,” Matsoukas says.

“In the past, it was a case of if you had a Cert IV and a pulse then off you go.” But now they have upped the requirements and also have a comprehensive training program in place.

New recruits need to be diploma-qualified or in the process of completing a diploma within a certain timeframe; they will be

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office-bound for one to three months as they undertake training, and the training includes credit policy, selling, relationship building, debriefing client phone calls, and simulating client interviews with senior brokers.

As the company has shifted from contracted to salaried positions, the processing of a file has been split between front office (brokers) and back office (loan processors – where the broker passes on the completed files to a loan processor, who takes over after submission through to settlement).

“It frees the broker up to see more people and help more people, and also for us it’s a good training ground for future brokers; the intention is the loan processors will eventually step up into a broking role.”

Looking ahead Having been part of the industry for 14 years, Matsoukas says brokers really need to put

LOAN GALLERY’S YOUNG GUNS Loan Gallery’s salary structure, psychometric testing and in-house training appear to be paying off: three of its brokers made MPA’s Young Guns list this year, an incredible achievement for a single brand. Here’s what Matsoukas had to say about them: Hardik Shah $22,936,517* “Hardik encompasses all that Loan Gallery stands for in regard to customer service, presentation and delivering on promises” Sudesh Sapla $42,681,151* “Sudesh prides himself on being a construction finance specialist, and finds off-the-plan and established home clients to be very easy to service as well” Bharat Deriya $24,146,315* “Bharat’s mild-mannered temperament combined with his attention to detail and high customer service levels makes him a broker that many of our referrers enjoy working with and would like to handle their customers” *Total annual settlements

more emphasis on compliance. “I think we’ve got a compliance program internally which is probably industry-leading – we don’t audit just for NCCP; we actually go into a lot more detail with our files.

“I think compliance has had a bad rap – people see it as a big stick, while my attitude to compliance is compliance is your best friend. From a broker’s perspective your compliance manager should be the person you speak to the most, just to make sure you’re helping people in the correct manner.”

He would also like to see more rigorous educational programs that include a focus on things like relationship building. “A broker’s business is all about symbiotic relationships – I don’t think that’s covered off in enough detail,” he says, pointing out that looking after your customer goes beyond the person you’re writing a loan for and includes the lender, aggregator and valuers too.

And building those relationships doesn’t come easy. “Work really hard,” says Matsoukas, advising new brokers to build a solid foundation of credit and policy knowledge. “You need to know your credit policy – you need to know the differences between the major lenders and how they treat house and land.

“There isn’t a one-size-fits-all rule; they aren’t all the same – different lenders have different amounts that they’ll release at a land settlement or a house and land package.

You need to know what those differences are, so that when you’re talking to people you are the expert that they can rely on.”

And it’s all worthwhile, Matsoukas says, as it’s great to see the difference you make in people’s lives. In the early days, he recalls how he would personally hand the final cheque to the client – often a first home buyer client – on-site so they could give it to the builder.

“Seeing the joy on their faces – how happy they were and how excited – I got a real buzz out of it. You can see that you’ve made a difference to people.

“The fact that we can help so many people achieve the things that they want to achieve – it makes a big difference to me. It’s not just helping one person; it’s literally helping thousands.”

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PEOPLE

CAREER PATH

THE LONG VIEW 2015’s takeover of AFM brought Steve Dover into the limelight, but National Mortgage Company’s group CEO has been quietly building his business for years

1990

SALES Dover’s first job was in marketing, of the old-school variety: selling billboard space. He attributes many of his sales skills to the door-knocking and 1994 cold-calling the job required.

BROKER He later moved on to cinema Dover joined the original Aussie as a mortgage broker, where he realised advertising his colleagues were missing out on construction lending because they saw the effort required as being too high

1996

OWNER Having developed a reputation in construction lending, Dover branched out and started his own brokerage in Underwood, NSW. Following the move to Chevron Island in the Gold Coast, the company became a mortgage manager, getting Delegated Lending Authorities from Origin, Adelaide Bank and ING DIRECT

2013

2008

GLOBAL FINANCIAL CRISIS With the GFC forcing many mortgage managers out of business, NMC reduced its presence to a head office, limited settlement volumes and introducer numbers, and concentrated on organic growth. As Dover puts it:

“learning to say no so the business would grow – making strategic decisions”

OUTSOURCING Responding to increased competition, NMC expanded to Manila, initially outsourcing IT and gradually expanding to include credit teams, portfolio management and business operations. With a growing family and a desire for more work-life balance, in 2012 Dover purchased 100 acres of land in Possum Creek near Byron Bay in northern NSW

2015

ACQUIRING AFM NMC acquired Australian First Mortgage, doubling its portfolio to $4bn. Dover rebranded AFM and focused on diversification into the construction space, with ‘virtual office’ offerings and further acquisitions in the pipeline

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B

PEOPLE

OTHER LIFE

BROKING FOR A BETTER TOMORROW Victoria broker Carl Violeta and his wife Jo have found innovative ways to combine mortgage broking and charitable work

www.acnc.gov.au The Australian Charities and Not-for-profits Commission has a searchable database of over 54,000 charities which you can narrow down by purpose and location.

FUN RUNS, bake-offs, Movember … there are a million ways to raise money for good causes, and, encouragingly, more and more brokers are lending a hand. However, for Carl and Jo Violeta at Violeta Finance, charity has become an integral part of their brokerage, to which they devote the same level of effort and attention as they do to broking.

Seaford-based Violeta Finance, which won the MFAA’s 2016 Community Champion Award for Victoria, was set up with charitable work in mind, recalls Carl. “The charity arm was something we always planned to be part of our business, because it is cool to give back and be a part of your community.”

Jo had a background in social work and Carl was inspired by his childhood in an impoverished farming community in the Philippines. “There were a lot of people who needed help around us, and I kind of learnt from a young age that it’s really a vital thing, if you’re in a position where you can help others, that you do so,” Carl says.

The brokerage supports a number of initiatives, most recently Australia’s Biggest Morning Tea, which raises funds for the Cancer Council, and for which Jo brought together local businesses to provide prizes for auctioning.

They’ve also directly connected fundraising with their brokerage to support domestic abuse charity Mums in Need, Carl explains. “We do a first home buyers seminar and we charge a fee for potential clients … all the fees that we obtain from the seminar we donate back to that charity.”

Making the most of charitable work – and the community awareness it brings – requires a serious commitment, insists Carl. “The way we’ve been able to integrate it into our business is to really focus on a few key charities, and really commit to those charities, and do whatever we could to maximise our community engagement … it’s being consistent: not just doing it once or twice, but doing it for months and years.”

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