Mortgage Professional Australia issue 18.08

MPAMAGAZINE.COM.AU ISSUE 18.08

RISING UP Leading commercial lenders deliver on what the majors can’t THE HEM Lenders drill down on household living expenses

PETER LOCK A positive spin on the royal commission scrutiny

MARK VILO Churn – Is it reality or just a dirty word?

AUGUST 2018

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CONTENTS

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UPFRONT 02 Editorial A whirlwind of change for brokers

32 FEATURES

SCRUTINISING THE HEM

SPECIAL REPORT

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Demands on brokers are increasing as lenders drill down on household living expenses, but what else is at stake?

04 Statistics Borrowers’ confidence in brokers seems undiminished, MFAA data shows

06 Head to head How are brokers dealing with the scrutiny of the royal commission?

08 News analysis As regulatory requirements and customer needs grow, how will brokers manage it all?

11 Opinion Suncorp’s Mark Vilo analyses the issue of churn and whether it’s really a dirty word

FEATURES

COMMERCIAL LENDERS ROUNDTABLE

42 Building workplace confidence How balancing confidence and cockiness can lead to success in the workplace

How these lenders are capturing clients and commercial opportunities as the majors face other distractions

46 Customer service mindset FEATURES THE BIG INTERVIEW

PETER LOCK The CEO of Heritage Bank on the impact of one-size-fits-all regulation and the positives of the royal commission scrutiny

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The importance of being compassionate

CONNECTIONS THAT COUNT

50 Managing stress

Building a supportive network not only brings wellbeing and value to brokers’ lives – it also attracts new customers

PEOPLE

Building resilience for a life less stressed

52 Brokerage insight Learning how to let go is helping this broker drive business growth

54 Career path A route less travelled: from car dealership to Connective head of asset finance

56 Other life

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FEATURES

UNSHACKLING BROKERS Connective lets its brokers build a business that’s truly theirs, and the model has piqued interest

Banker makes a lifelong dream come true

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UPFRONT

EDITOR’S LETTER www.mpamagazine.com.au

Pace of change accelerating

I

t’s mid-winter, the financial year has ended, and it feels like the pace of change in the broking sector has started to accelerate.

This month we saw Bankwest become the second mover after Macquarie in making changes following the Combined Industry Forum’s recommendations. It also quietly announced the closure of 29 east coast branches. Mortgage Choice introduced a new remuneration structure to address the concerns of disgruntled franchisees, with trail payouts costing the company $30m in FY18. And The Australian published a bombshell of a story about the Productivity Commission allegedly proposing a policy solution in its final report to eliminate trail.

Alas, it’s been a whirlwind of a month, to say the least.

At MPA, however, we did slow down a bit this month to host our first long lunch and Commercial Lenders Roundtable discussion with a group of non-banks, brokers and one non-major. If there are two areas of banking that are actually rejoicing in this atmosphere of increased scrutiny of the majors

Continuity, speed and quality of service are often top priorities for customers … and those core functions are increasingly hard to come by in the mainstream space, some say and tightening of responsible lending obligations, one of these is the non-bank sector. Not only is it seeing an increase in near-prime and low-doc customers who are being turned away by the majors, but many said these customers were coming to them because they wanted to. Continuity, speed and quality of service are often top priorities for customers – sometimes even before a cheap rate – and those core functions are increasingly hard to come by in the mainstream space, these lenders reported. We were also thrilled to have two top commercial brokers there to give us a first-hand glimpse at some of the challenges they’re encountering in the field. Read what they had to say on page 16.

The second area of banking that’s attempting to leverage the royal commission revelations to its benefit is the customer-owned banking industry. I spoke to Peter Lock, CEO of Heritage Bank, about this for August’s ‘Big Interview’ (page 12). He also gave me a behind-the-scenes understanding of how APRA’s macroprudential regulations have affected the momentum of smaller lenders and how they’re getting back up to speed – with the help of brokers.

Otiena Ellwand, editor, MPA

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AUGUST 2018 EDITORIAL Editor Otiena Ellwand Journalists Nicola Middlemiss Abel Riototar Contributors Dr Ron Ehrlich, Jaquie Scammell, Georgia Murch, Mark Vilo Production Editor Roslyn Meredith

SALES & MARKETING National Sales Manager Claire Tan Account Manager Simon Kerslake Marketing and Communications Manager APAC Michelle Lam Marketing Manager Danica Mendoza

CORPORATE ART & PRODUCTION Designers Cess Rodriguez Martin Cosme Traffic Coordinator Freya Demegilio

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

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UPFRONT

STATISTICS

Brokers still winning trust

DRIVERS OF COMPETITION

Borrowers’ trust and confidence in brokers seems to be undiminished despite government scrutiny and criticism, report shows THE MFAA recently released a fact sheet analysis, Mortgage Broking: A Different Lens, which brings to light the dichotomy between what the critics are saying and what the regulatory reviews and industry data reveal about mortgage brokers.

“Consumers do not have a confidence deficit in the broker channel,” MFAA CEO Mike Felton told MPA. “Why would [market share] be growing right in the height of the storm when the

industry is being portrayed at its most negative; why would it continue to grow?”

The analysis looks at arrears, complaints and market share growth. The MFAA has started distributing the data campaign to government, regulators and mainstream media, and will continue to advocate on brokers’ behalf, according to Felton.

The research has also been published on the association’s website so brokers can use it on their own websites or distribute it to clients.

Brokers help drive competition by increasing the market share of smaller lenders. According to the latest AFG Competition Index for May 2018, non-major lenders have claimed an overall market share of 41% of new loans, while the majors’ market share continued a five-month decline to 59%.

“While the decimation of the broker channel would be very good for the profitability of some traditional lenders who want a return to branchbased lending, it would automatically destroy competition,” said the MFAA’s Mike Felton.

Growth of small lenders Market share of smaller lenders not associated with the four majors has also grown.

28%

21.5%

55%+

500,000

1,452

17,000

residential mortgages originated through brokers

broker-originated loans per year

people per broker in Australia

registered mortgage brokers

2013

2017

Source: Mortgage Broking: Through a Different Lens

Source: Mortgage Broking: Through a Different Lens

NEXT TO NO COMPLAINTS

PENALTIES DROP

Complaints about brokers represented less than 1% of the total number of complaints received by the Financial Ombudsman Service between 2013 and 2017.

In the last 10 years, the MFAA has expelled, cancelled or suspended the membership of 75 brokers, amounting to one in 1,580 brokers per year. As broker activity has increased over the last six years, however, complaints have gone down. Brokers originated about 500,000 loans in 2017 and the MFAA received only about 50 complaints.

Complaints received by the MFAA/Matters referred to the Investigating Officer (IO) compared to industry activity 300

10%

Banks and credit providers

Other

N0. of complaints

1%

89%

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Complaint matters received by the MFAA

Matters referred to IO

250

500,000

200

400,000

150

300,000

100

200,000

50

100,000 0

0

2008 Source: Mortgage Broking: Through a Different Lens

600,000 No. of home loans originated by brokers

No. of mortgage loans originated by brokers

Mortgage brokers

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: Mortgage Broking: Through a Different Lens

Majors total

63.2%

36.8%

64.0%

35.9%

66.5%

66.1%

62.4%

37.5% 33.8%

33.4%

Non-majors total

63.8% 60.8%

60.2%

59.0%

39.1%

39.7%

40.9%

36.1%

QUARTERS Source: AFG Competition Index, June 2018

HIGH MEMBERSHIP, LOW COMPLAINTS By 2016/17, the number of Credit and Investments Ombudsman (CIO) broker members reached more than 22,000, or 91% of the organisation’s membership.

Despite the high membership rate, mortgage brokers only made up 6% of CIO complaints, or one complaint in 1,427 broker-originated contracts.

9% 6%

STRONG GROWTH FOR BROKERS The MFAA’s quarterly market survey shows brokers still have a stronghold in the home loan market.

Brokers originated 55.3% of all new residential home loans in the March 2018 quarter, the highest share for any March quarter, suggesting a positive trajectory for broker loans for the year to come.

91% 94%

Broker market share

Mortgage brokers Other

CIO membership 2016/17

CIO complaints 2016/17

Source: Mortgage Broking: Through a Different Lens

0%

53.7%

Jan-16

50.1%

Apr-16

53.6%

Jul-16

51.9%

Jul-16 Oct-16

53.6%

Jan-17

51.5%

Apr-17

55.7%

Jul-17

53.6%

Oct-17

55.3%

Jan-18

10%

20%

30%

40%

50%

60% Source: MFAA quarterly survey 2018

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UPFRONT

HEAD TO HEAD

How is royal commission scrutiny affecting brokers?

Brokers say the royal commission will elevate professionalism and strengthen the value and service they offer customers

Aaron Christie-David Managing director Atelier Wealth

“Our business is embracing the industry scrutiny coming out of the royal commission. Our industry has low barriers, and the impact of tightening policies will ensure quality brokers continue to thrive while poor operators get squeezed out.

“We have a ‘measure twice and cut once’ approach, which means we minimise rework by being thorough with our applications, loan structuring and lender notes. This improves the quality of our submissions despite the level of compliance not getting any easier.

“We also manage clients’ expectations by constantly updating them during the loan application experience. This means we’re more high-touch and high-service than ever before.”

Michelle Kerr

Bianca Patterson

Franchise owner Nectar Mortgages

“The royal commission’s scrutiny of our industry has had no negative impact on my business. Media reports have delivered awareness, but not a full understanding of the commission’s findings to clients.

Some new and existing clients have touched on our remuneration structure, but none of them have been negative. It has been purely to confirm that there is no out-of-pocket expense for the client.

“No client that I’ve met has had any issue with our remuneration structure.

In fact, it appears to reinforce to them, and to me, why they continue to use brokers.”

Director Calculated Lending

“While the royal commission has been shining a spotlight on the industry, the number of enquiries and the amount of customer engagement my business has received has actually increased.

“I have used the royal commission as an opportunity to initiate quality discussions with clients and referrers.

The consensus is that there is now distrust of lenders, and the royal commission has cemented the need – more than ever – for brokers to act as consumers’ intermediary because of our ability to offer outstanding service and advice.

“I see the investigation as the broking industry’s moment to showcase its skill sets, market the value it offers, and increase its market share.”

CONSUMER CONFIDENCE IN BROKER CHANNEL REMAINS HIGH Brokers are still retaining a stronghold on the home loan market amid the increased scrutiny of the royal commission, according to the MFAA’s quarterly market survey. The survey shows brokers generated 55% of new residential home loans in the March 2018 quarter, the highest share of any March quarter. MFAA CEO Mike Felton believes the data demonstrates that the broker channel is very sound, even in the wake of the Productivity Commission report. “The consumer does not have a confidence deficit in the broker channel. In the last three months it has continued to grow,” Felton said.

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UPFRONT

NEWS ANALYSIS

The forces shaping the future of broking As demand for brokers increases, so too will expectations, regulatory requirements and customer needs, according to a Deloitte panel of mortgage experts EVEN THOUGH ‘consumer outcomes’ is the most bandied-about term these days, one still has to wonder how the recent reports, inquiries and media headlines focusing on the mortgage industry will actually come to affect the lives of everyday Australians.

That is the gist of one of the most interesting questions posed in Deloitte’s latest Australian Mortgage Report 2018, which brought together a panel of representatives

from some of the nation’s biggest lenders and broker groups to get their thoughts on the most significant forces shaping the sector.

Deloitte asked the experts what consumers would most benefit from with the current regulatory and political focus on mortgages.

Surprisingly, very few (10%) chose the royal commission.

The majority of respondents (35%) selected APRA allowing limited banking

WHAT WILL BENEFIT CONSUMERS MOST IN 2018?

APRA’s reduced capital level for limited banking licences (allowing entry of start-ups)

10%

APRA’s potential greater regulation of non-bank lenders

35% 15%

ASIC’s continued focus on broker and lender sales practices The royal commission into the financial services sector

10%

5% 20%

ACCC investigation into the mortgage interest rate setting process APRA speed limits continuing on investor and interest-only lending Source: Deloitte Australian Mortgage Report 2018

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licences to neo-bank start-ups, followed by ASIC’s continued focus on broker and lender sales practices (20%).

The low ranking of the royal commission likely has to do with the fact that its recommendations won’t make waves until next year, after its report is presented to government. And even then it will be a long time before those recommendations influence the market.

Adrian Buckley, Suncorp’s head of customer product and pricing, said that while previous royal commissions in other sectors had made strong findings around culture and processes, little of these had resulted in new legislation.

“So it will be interesting to see if this Commission has a greater impact into direct legislation,” he said in the report.

As the industry awaits the conclusions of the banking royal commission and the Productivity Commission around improving lending practices, the more immediate need is to address ASIC’s remuneration review.

This is expected to flow on to affect “broker and lender sales practices” when many lenders start implementing the Combined Industry Forum’s reforms.

Smartline director Joe Sirianni called the recommendations made by ASIC “reasonably moderate”. And while he said stopping volumebased incentives and banning soft-dollar commissions wouldn’t radically change behaviour, eliminating them did address ASIC’s concerns and “should give the consumer more confidence in the objectivity of the broker”.

In turn, that focus on broker and lender sales practices should encourage broker groups and aggregators to evolve and improve their processes and practices, providing the borrower with that much-talked-about “good consumer outcome”.

At the same time, the regulators’ demands for higher standards around serviceability won’t make getting a mortgage any easier for borrowers. In fact, the majority of Deloitte’s panellists (60%) expect settlement volume to decrease by 1–5% this year, or flatten (20%).

In 2017, settlements reached around $36bn a month, totalling $380bn for the year.

But that flattening isn’t the situation for every lender. According to Liberty’s chief financial officer, Peter Riedel, the lender has

actually seen above-system growth due to the uncertainty in the market.

Despite the somewhat grim prediction for settlement figures, this doesn’t signify that there will be less business for brokers. As the market becomes more complex, all indications point to an increase in demand for brokers from confused borrowers.

Even though half of Deloitte’s panellists believe consumers are “significantly more informed and knowledgeable” about mortgage product and pricing today than five years ago, borrowers are still not choosing to lodge their mortgage applications alone.

Consumers may have vast amounts of mortgage and property comparison information at their fingertips, but they still want a real person to interpret and explain it.

“They want to know if it is a good deal. They want validation and confirmation. They’re gathering information, but given that it’s a significant purchase, when it comes to the final decision they want reaffirmation or confirmation,” Sirianni said.

“The mortgage broker took the hassle factor out, which was absolute gold” Heather Baister, Deloitte Most people want to have a relationship and a proper discussion with the person who is helping them make such an important financial decision. They don’t want to just be seen, heard and represented by their data, according to ING’s head of retail bank, Melanie Evans.

She said the conversation should be around what’s going on in the consumer’s life.

“That’s a better conversation than a data entry process. But the reality is we tend to do the latter. There is an expectation for us to pull up our socks and make life easier,” Evans said.

Heather Baister, a partner at Deloitte, summed up a broker’s competitive edge: “The mortgage broker took the hassle factor out, which was absolute gold.”

How to add benefit for customers When it comes to understanding the needs of the consumer, brokers are best placed to get to the bottom of this, being in front of them on a daily basis.

What the Deloitte report shows is that the sales and customer service side of broking and lending is now multipronged.

It’s not enough to just meet a customer in person, sign the documents and be done with it. Besides price, customers will be most likely to consider technology and customer service capabilities when selecting a mortgage provider, according to the panel of experts.

Andrew Toone, general manager of lending at Bank of Queensland, said it was important for providers to understand the

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FEATURE / BROKER EDUCATION UPFRONT

NEWS ANALYSIS

WHAT WILL BE THE MAJOR DISRUPTIVE FORCE IN THE BROKER CHANNEL OVER THE NEXT FIVE YEARS? 0

1

2

3

Robo-advice and artificial intelligence challenging the need for broker services

importance of being omnichannelled.

This means that while a potential borrower may start the loan process online, they’ll likely also want to talk to someone about it but not have to explain everything to them from scratch.

“Don’t treat technology as a means to not talk to the customer; instead use it to flow seamlessly into the process the way they want,” Toone said.

Baister wondered whether it was still too hard to fully automate a mortgage when one needed to understand “not just [the customer’s] financial numbers, but their mindset, their strategy, and their long-term view. You can’t pull all that information from their numbers alone”.

Lisa Claes, CEO of CoreLogic, said that while service and experience were powerful tools, they were more useful as methods of retaining customers than acquiring them.

“Given that it’s a significant purchase, when it comes to the final decision, [borrowers] want reaffirmation or confirmation” Joe Sirianni, Smartline Improvements to broker distribution

Significant renumeration model changes impacting viability of the sector Mature brokers retiring and a new generation of brokers entering the market Success of online and auction-style broker business models Customer preference for traditional face-to-face significantly reducing

Source: Deloitte Australian Mortgage Report 2018

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third party distribution at HSBC, said her team was initially concerned about how hard it would be for brokers to adapt to the added compliance, but they had been pleasantly surprised.

“We are asking for so much more: more data, more customer information, as well as more checks on what we receive. I’m pleased to say we haven’t had as much pushback as expected,” she said.

Del Vecchio chalks that up to HSBC’s built-in compliance processes, which provide information and guidance on what is needed throughout the loan submission process so brokers can’t proceed without providing it.

As a lender, HSBC also weeds out those it doesn’t want to partner with.

“I want to partner with groups who are happy to be part of this process, who are comfortable with it and also put procedures

As brokers move towards having these deeper conversations with clients that lenders keep encouraging them to have, an added layer of record-keeping and monitoring will be required.

The experts ranked that as the main area for improvement in broker distribution this year, followed by addressing ASIC’s findings on volume- and bonus-related payments and incentives.

Improving documentation and recordkeeping may be a significant challenge for some broker groups, Sirianni said.

Alice Del Vecchio, head of mortgages and

in place to allow for it to happen,” Del Vecchio said.

But the monitoring shouldn’t extend to brokers alone, Baister said. Lenders should also be checking on aggregator groups. She believes that through the initiatives of the CIF, which has the participation of all parties, a framework will emerge that can be consistently applied across the board.

The only foreseeable challenge will be to balance the need to get this operating as soon as possible with also being cognisant that the royal commission could decide on a very different approach, altering the forces at play once more.

UPFRONT

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OPINION

Is churn a dirty word?

As the government contemplates regulatory reform for the industry, Suncorp’s Mark Vilo analyses the issue of churn I’VE BEEN talking to many brokers recently about how freely the term ‘churn’ is used to describe moving a loan from one lender to another. There are negative connotations around the word, but I don’t believe the way it’s being used accurately reflects what’s really happening.

In the finance lexicon, churn means to “encourage frequent turnover of investments in order to generate commission”.

I don’t think any of us believe that loans are being ‘churned’ solely to fill the pockets of brokers.

As a broker, you have an obligation to ensure that your clients don’t meet the ‘unsuitability test’ when they take out a loan; it must be appropriate at the time they take it out. Any broker worth their salt will already be conducting regular client reviews to ensure their finance arrangement remains appropriate – it’s just good practice.

panel that is likely to have an appetite that meets their financial requirements. Plus, they’ll do all the legwork.

So where does churn figure in all this?

As a broker, you are best placed to work with new clients and can help them review their finances. That’s often why they seek you out.

You’ll know when they’re coming off a fixed rate. You’ll have insight into their motivations: to maximise cash flow, create wealth, manage tax, consolidate loans – the list of possible reasons is endless. When they come to you for guidance, given the current market dynamics it is entirely appropriate for you to meet their needs. And it is quite likely that the

The negative connotations associated with churn are explicitly tied to commission. The term itself implies that customers are being moved between lenders for the financial benefit of the broker.

Whether or not commissions are a good thing is not the subject of this article, but is perhaps an important discussion to have at another time.

Can ‘churn’ be defined?

The life insurance industry has long analysed the motivations, but recognises that business moves for very good reasons. This has resulted in the industry attempting to come up with its own definition of transition business.

CBA has introduced a Credit Assessment Summary asking for information to support a loan lodgement. Recent calls for an industry ‘best interests duty’ as well as a focus on more comprehensive living expenses data to better assess a customer’s true financial position are also up for discussion. The opportunity to provide meaningful information on why a recommendation was made, in the form of more comprehensive data for a new or existing client, can only be a positive step forward.

We believe mortgage brokers provide a balanced and long-term service to customers who need to address their lending needs, and

The term [churn] itself implies that customers are being moved between lenders for the financial benefit of the broker

When the customer wants a change While the property market has slowed, particularly in NSW, there’s still a strong demand for mortgage finance. Price is one of the primary drivers in selecting a mortgage provider. In fact, this key motivation has risen from 15% to 23% over the past five years.

These days, the customer has multiple ways to engage with the lending market. They can investigate online; talk to a mobile lender, virtual lender or contact centre; walk into a bank; or have a discussion with a broker.

More than half of all home loan customers are choosing the services of a broker. Brokers are experts in their field; they understand the credit process and can choose a lender from a

appropriate solution might be to transition their loan from one lender to another.

Any transaction like this may have traditionally been considered ‘churn’.

Fair remuneration for work done Brokers are paid a commission by the lender with whom they place the loan, which means that the customer doesn’t pay a fee. This commission ensures that competition remains in the industry as the customer has the freedom to choose whether to go to a direct lender or to a mortgage broker, and the financial impact of their respective service to the customer is the same – zero.

that’s great for everyday Australians.

From time to time, business will transition from one lender to another. That’s not a bad thing if it is in the customer’s best interest. It keeps lenders on their toes and ensures the customer can continue to find the most appropriate deal to meet their needs. So is churn a reality or just a dirty word?

Mark Vilo is the head of bank intermediaries at Suncorp,p, responsible for driving strategy and creating reating best practice, and growing relationships ationships with Suncorp’s aggregator or and broker partners.

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PEOPLE

BIG INTERVIEW

PETER LOCK: THE SILVER LINING The CEO of Heritage Bank on the impact of one-size-fits-all regulation on smaller institutions, the positive spin of the royal commission, and how the lender is growing its broker footprint

HERITAGE MAY be Australia’s largest customer-owned mutual bank, but the Toowoomba-based institution is still a small player in the greater banking landscape.

And its size is what makes it vulnerable to APRA’s one-size-fits-all approaches to regulatory change.

The lender didn’t mince words in its submission to the Productivity Commission, criticising the “oligopolistic nature of the Australian banking sector” that gives the major banks too much power to prioritise shareholders over customers. It said APRA had advanced its objective at the expense of competitive integrity, and had put the burden of regulatory change “disproportionately” on smaller ADIs with limited resources to absorb the costs.

“The macroprudential reactions of APRA play to the advantage of the big banks and to the disadvantage of the smaller banks,” Heritage CEO Peter Lock tells MPA, referring to APRA’s cap on investor lending.

“The problem that they were trying to address was of the making of the majors. And APRA quite rightly said it could fix that by introducing caps on investor and interestonly lending, but [it did] not [recognise] the

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detrimental impact on smaller players with smaller books. Any change of that puts us very close to limit.”

Last September, Heritage had to pull out of the investor market for six weeks so it wouldn’t breach the cap. Closing up shop on

motion, it will take a while to get back up to speed, Lock says.

“When you come out of the market for a little while, then you’ve got the royal commission being announced, a bit of a lack of optimism or confidence in the market at

“We see people coming in and telling us that they’re closing accounts and opening with us, or giving us a go because of the findings of the royal commission” this front for more than a month had a significant impact on the bank’s momentum.

“At that point we were lending and had very strong mortgage growth across all our sectors, in broker and branch. So in pulling out of investor, that obviously impacts us in the broker market because we had to tell our brokers that we were not lending in that environment,” Lock says.

Heritage was upfront with brokers and didn’t make any promises it couldn’t keep, so it’s managed to hold on to brokers’ trust and support, but like anything that’s stopped in

the moment, and you’re seeing heavy media headlines on home prices … coupled with jobs [being made] redundant – confidence is a very fragile thing,” he says.

“We will have a slower year in mortgage growth, which in some respects can be pinpointed back to that [APRA] decision.”

The 10% benchmark for investor loan growth was effective in APRA’s view. In April, the regulator announced its plan to remove it.

Lock says, if APRA does bring it back, the regulator should take into account the range of players in the market and how those

PROFILE Name: Peter Lock Company: Heritage Bank Title: CEO Years in the industry: 33 Career highlight: “Being appointed the CEO of Heritage and getting to run your own shop is huge, in a bank with this prestige and heritage. … Getting the opportunity to be the CEO of what is Australia’s 12th-largest ADI is a huge career highlight and a privilege.”

Career lowlight: “The GFC was challenging, but I wouldn’t say it was a lowlight. It was a really great experience to realise again how important the financial services are to the strength of the economy. ...

We provide so much, and the ability for people to better their lives and achieve their ambitions.”

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PEOPLE

BIG INTERVIEW

measures impact them based on their size.

“I know the regulators are always concerned that they don’t want to create regulatory ghettos where the regulation doesn’t apply evenly … but we would caution that there is competition in the sector, and very good competition, as proven in the customer-owned banking sector.”

A public relations boost The royal commission hasn’t been bad news for all banks. The Customer Owned Banking Association has been proactive about leveraging the swell of attention to showcase its members, launching a campaign to encourage customers to make the switch to one of those alternatives.

According to a poll commissioned by COBA, 17% of respondents said the royal commission had led them to consider changing banks, even if they hadn’t done so already.

Lock agrees that the spotlight on the mainstream banks’ misconduct has been generally positive for the likes of Heritage.

While Lock is happy to see the profile of customer-owned banks on the rise, he’s aware that “banking is done on confidence, so you don’t want to be dancing on someone’s grave”.

Heritage and the broker channel Heritage has been working with brokers for 20 years, but it only established a dedicated sales and origination channel for brokers less than three years ago, says Lock.

The broker distribution arm is headed up

by Michael Trencher. By investing in broker infrastructure and its back-office support, Heritage has seen its share of brokeroriginated loans grow to about 55%. It is now on 18 aggregator panels.

Heritage recently introduced a fast-track home loan approval process for its broker channel. Straightforward applicants can now get approval within 24 hours, with the fastest approval to date taking just 90 minutes.

The bank trialled the process in recent

“The macroprudential reactions of APRA play to the advantage of the big banks and to the disadvantage of the smaller banks” “In the branches, we see people coming in and telling us that they’re closing accounts and opening with us, or giving us a go because of the findings of the royal commission,” he says. “I’m not about to suggest that we’re being inundated, but there is a trend.”

There is a reason customer-owned banks are not being asked to appear in front of the royal commission, he says, and that’s because they operate on a very different model than the shareholder-based banks.

Customer-owned banks put their profits back into providing better products and services for customers and the community, rather than paying dividends to external shareholders who might not necessarily be customers. They are also not listed on the stock exchange.

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months and successfully approved more than 10% of total applications received via brokers.

The new process delivers a better outcome for everyone involved and helps ensure greater certainty and comfort for brokers and their clients so they’re not left in limbo wondering when they’ll get approved, Lock says.

As Heritage looks to expand the bank’s reach beyond its stronghold in Southeast Queensland, its next plan is to increase its branch presence in the eastern states, concentrated in Sydney and Melbourne, where more than half of its broker-introduced business comes from.

“Having that presence around we think will deepen our relationships with our clients that are broker-introduced,” Lock says.

CUSTOMER POLL: AT A GLANCE A poll commissioned by COBA suggests that Australians are now more receptive to banking alternatives as a result of the revelations of the royal commission.

1 in 3

Source: Customer Owned Banking Association

people are more likely to consider switching banks

8% have already changed their provider

17% say the royal commission has led them to consider changing banks

18% are not sure if they will consider changing Source: Customer Owned Banking Association

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COMMERCIAL LENDERS ROUNDTABLE Non-banks, a non-major and two top brokers talk about how they’re capturing clients and commercial opportunities as the majors face other distractions

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OVER THE last few months, the royal commission’s spotlight has been squarely trained on the residential lending sector, leaving commercial lending matters mostly out of the mainstream conversation.

Meanwhile, in the background commercial business is booming. According to APRA, total commercial property exposures for all ADIs increased to $273.6bn in March 2018, up $8.8bn (3.3%) from March 2017.

MPA’s inaugural Commercial Lenders Roundtable on 21 June at Otto Ristorante in Sydney sought to direct the conversation towards how brokers can take advantage of opportunities in the commercial space. We invited five lenders and two top commercial brokers to share their insights on what’s happening in the space.

The discussion covered the current state of the commercial and small business lending environments; how foreign investment has slowed and what that means for the economy; the growing need for brokers to have more education and training in order to write

commercial loans; the challenges and flow-on effects of the royal commission; and where the most opportunities exist for brokers.

Our panellists could have kept talking about all of this for hours, there’s that much going on. What’s obvious is that commercial lending is ripe for brokers who are looking to expand and diversify their businesses, and the non-banks are not shying away from capitalising on the major banks’ distractions.

For the non-bank sector especially, the future looks bright. Many of these lenders are seeing a flood of business as customers look beyond their usual credit providers.

While this might be the pricier option, many panellists said customers were willing to pay if it meant they would get speed, service and be treated like a valued business partner over the long term.

While the number of brokers writing commercial loans has increased, it’s still only 17% of the total broker population, according

to the MFAA’s Industry Intelligence Service report for April–September 2017.

At the end of that period, brokers settled $8.8bn in commercial loans, up 12% from the period before.

As our panellists reiterated, there are plenty of resources and support systems out there to help eager and engaged brokers make the move into commercial lending, but they need to commit to increasing their skills so they raise the professional bar.

In their eyes, though, it’s worth brokers investing time and effort to learn, because there’s plenty of business to go around.

Many thanks to our panellists for contributing to such a fascinating and wideranging discussion: Cory Bannister from La Trobe Financial; John Ewens from Liberty; Robynne Frost from Suncorp; Lachlan Heussler from Spotcap; Jonathan Street from Thinktank; and our two commercial brokers, George Karam from BF Money and Kevin Wheatley from Bayside Residential and Commercial Mortgages.

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COMMERCIAL LENDERS ROUNDTABLE

AROUND THE TABLE

OFFICE AND RETAIL SPACES ARE TOP-PERFORMING COMMERCIAL CATEGORIES Commercial property exposures and limits by type, as at 31 March 2018 Office

Retail

Cory Bannister La Trobe Financial

John Ewens Liberty

Industrial

Land development Other residential Tourism and leisure

Robynne Frost Suncorp

Lachlan Heussler Spotcap

Other 0

Actual exposures

20

40

60

80

100 $bn

Limits Source: APRA, March 2018

What is the current state of Australia’s commercial lending environment?

George Karam BF Money

Jonathan Street Thinktank

Kevin Wheatley Bayside Residential and Commercial Mortgages

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The commercial property market is in healthy shape right now, particularly in Brisbane, followed by Sydney and Melbourne.

“Commercial has had a good run, and in the area that we’re in, we’re not seeing the overheating that’s associated with residential,” said Jonathan Street, CEO of Thinktank Commercial Property Finance, which specialises in small-ticket loans up to $3m.

Kicking off the roundtable on an optimistic note, he said the fundamentals were looking solid.

“Lower interest rates, general direction of the economy, low unemployment – those are all good, positive factors for where

commercial property should track in the next little while, absent of external factors, Trump, North Korea … a few things there that could easily disrupt,” he said.

“There are a few things that we need to be mindful of in how we communicate risk appetite.”

John Ewens, NSW state sales manager at Liberty Financial, said that with the major banks tightening their lending appetites, the non-bank was jokingly calling itself the “Steven Bradbury of the commercial sector”.

(Steven Bradbury went from last place to first place when he won the short-track speedskating competition at the 2002 Winter Olympics after a massive wipe-out knocked out the rest of his competitors. “Doing a Bradbury” now refers to an unexpected or unusual success.)

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Ewens said Liberty had seen a rise in the number of loans for retail and mixed-use businesses.

“A lot of the investors are starting to go for multiple income streams, so mixed shops down in the front, residents up top, and we’ve seen a big influx of that this year in particular,” he said.

“I think the market and the clients are going for rental returns rather than appreciation, so cash flow is becoming an issue.”

The other trend Liberty is seeing is a massive push for SMSF loans.

“We’re seeing a lot of commercial SMSF both for retail shops, office spaces and medical practices,” Ewens said.

Liberty also accepts alternative securities for properties such as boarding houses, childcare centres and adult entertainment establishments.

“What we’re seeing a lot of is no-doc; we’re seeing that come back drastically. It would be our number one selling product in our commercial suite by a long way,” he said.

Why are you seeing so many no-doc loans?

“Clients are … not too concerned about rate.

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They want that short-term asset lend,” Ewens said. “Get in, make it as easy as possible, especially if we’re seeing those more astute investors who have multiple companies and trusts.”

Top commercial broker and director of BF Money George Karam added that the customer didn’t necessarily choose or run towards paying a more expensive rate, “but after the recent experiences they might have

they were now seeing more value in the loan products and solutions offered – mainly for that ease and reliability, he said.

Another top commercial broker, Kevin Wheatley, managing director of Bayside Residential and Commercial Mortgages, said currently the two key drivers for borrowers were rate in exchange for LVR, and faster processing times, which the nonbanks are offering.

“There’s so much in and out, toe in, toe out with the banks’ changing appetites; it’s so hard for, one, consumers and, two, finance brokers to be able to navigate” Cory Bannister, La Trobe Financial had trying to deal with their existing bank … they’re more than happy to pay that rate for a certain certainty of outcome”.

In Karam’s experience, this is actually pushing higher-calibre or more credible applicants to apply to the non-bank lenders for loans.

When once upon a time these customers never would have considered such rates,

The big four banks just aren’t delivering in this climate, Wheatley said.

“What’s your point of difference?

I might as well go offshore to get the money.

Australian institutions are the main four now, and they’re running scared, big time,” he said.

With the big four banks tightening their credit assessment and serviceability policies as a result of the royal commission and recent APRA scrutiny, there has been an increased level of unpredictability in the market.

This can make it difficult and even embarrassing for brokers who are on the coalface with clients and have to explain why the bank has suddenly changed its appetite with little notice, Wheatley said.

“We just don’t have the capacity to fund the bigger projects that I work on, so I’m forced to go offshore now. Last month I was in Beijing for two and a half weeks raising capital. And if you think you have some challenges ahead of you, try and get money out of China.”

Wheatley is now getting about half of his funding from offshore sources.

“Anything over $100m, forget it here,” he said.

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What are you seeing in the commercial market in regard to foreign buyers, and how might that change in the next few years?

Cory Bannister, vice president and chief lending officer at La Trobe Financial, said it was not that foreign buyers were fleeing Australia; they were just downsizing their property goals and investment strategies.

“The lumpy assets and trophy properties seem to be going out of favour for Chinese buyers. The investment in the country has decreased by 53% in terms of investment in real estate, but it’s still a significant amount.

Chinese are still net buyers of commercial real estate in Australia. They’re still investing; it’s just what they’re investing in is changing.”

On the commercial front, while a lot of these investors are stepping away from the larger property developments, retail shopping centres are still in favour, Bannister said.

Based on the larger Asian clients that BF Money represents, Karam said his firm was starting to see more appetite for joint ventures with Australian locals.

“That is part of diversification, but it’s also risk mitigation. So we’re starting to see them now either involve some of the locals in participating in some assets that they already own, or they’re looking to invest in assets in conjunction with Australian locals rather than trying to go at it alone,” Karam said.

WHERE’S THE FOREIGN MONEY COMING FROM? While China and the US continued to be the top two sources of approved investment in Australia in 2016/17, the total value of approvals dropped from the year before. Canada, on the other hand, has emerged as a key source of investment. $bn

50

$47.2 bn

40

9,714 approvals

$38.8 bn 316 approvals

30

$30.9 bn

20

$23.2 bn

$15.7 bn 10

0 2016/17

2015/16

2016/17

China

What impact will fewer foreign investors have on the Australian economy?

With fewer foreign investors coming into the market and more difficulty accessing foreign funds, the time frames for infrastructure projects and major developments will no doubt draw out, according to Wheatley.

He’s witnessed some of the difficulties already, giving one example of some of the “big players in the market” struggling to get capital and attract offshore investors for a 10-year $3bn plan to transform Sydney’s inner-west suburb of Marrickville.

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193 approvals

$26.4 bn

2015/16

US

2016/17

2015/16

Canada

Source: Foreign Investment Review Board Annual Report 2016–17

“Where we have foreign investors who want to come into Australia, there are a lot of tight constraints on them, which is going to slow down what we’re trying to achieve here on the back of political issues,” Wheatley said.

In addition to that, verification of nonresidents is even more complex. “You’ve got to have agents in other countries,” he said.

“The agent is responsible for identifying the intended borrower.”

What are some of the trends that you’re seeing in the SME sector?

Lachlan Heussler, managing director of Spotcap Australia and New Zealand, an online balance sheet lender, said there was ample amount of capital to supply the SME market.

“It’s more about building the demand side and making sure that the SMEs are aware that this type of financing is available

to them and the benefits of it,” he said.

While alternative lenders might be more expensive than a typical mainstream bank facility, they come with other perks, Heussler said.

“We offer the facilities completely unsecured; 24-hour turnaround processes, a very streamlined application process – everything is online,” he said. “It’s more about creating the awareness that this capital is available to them and that we’re a port of call other than the big four banks.”

According to a new report from the Australian Small Business and Family Enterprise Ombudsman, banks’ automated processes that use checklists to assess a borrower’s initial enquiry often shut small businesses out of approvals.

“As SMEs typically have less documentation and shorter financial histories than large corporations, they often fail at this first hurdle,” the Affordable Capital for SME Growth report found. “A successful loan application by these SMEs will always require tailored assessment.”

Just as some other brokers and lenders have experienced, Spotcap has found a different kind of customer knocking on its door, Heussler said. Business clients with yearly revenues of $30–$50m are coming to Spotcap for $250,000 loans because “they’re sick of dealing with the banks”.

“Often the SME owners are after the surety of finance or the availability of capital, and price is the second, third or fourth consideration for them down the track,” Heussler said.

Bannister agreed, saying that clients were often willing to pay for consistency and continuity of service.

“Price isn’t always what they’re chasing,” he said.

“There’s so much in and out, toe in, toe out with the banks’ changing appetites, it’s so hard for, one, consumers, and two, finance brokers to be able to navigate.”

Robynne Frost, Suncorp’s national manager for SME and commercial, said the non-major bank had seen an uplift in

businesses wanting to buy their own premises, which was stimulated by the low interest rate environment and PAYGs wanting to invest in commercial.

Suncorp has invested prodigiously over

transactions, and aims to build consumers’ confidence in going to their brokers for their commercial needs.

But Frost said that journey had been a lot harder than expected.

“We can create an industry that is so much more efficient and focused on the customer outcomes … if the quality and education of brokers increases” George Karam, BF Money the last three years in encouraging brokers to diversify into SME lending. The bank’s two-pronged approach helps brokers to upskill so they can handle small business

UP YOUR COMMERCIAL GAME The Commercial and Asset Finance Brokers Association of Australia has launched its Certificate IV in Financial Services, a program for brokers who want to specialise in commercial and asset finance. The course contains four modules and is available online or through a combination of online and in-person workshops.

What will brokers learn?

Product knowledge and usage Tax treatments, legislative issues, regulation and documentation Pricing and credit and the tools used by the credit underwriter Skills required to educate and inform clients How to analyse financial statements and performance How to build a customer relationship program and marketing How to develop relationships with key strategic partners

“A typical home loan broker is not skilled around financial analysis, and it’s kind of a little bit scary because there is a phenomenal opportunity there for them. If they’ve got strong relationships with their customers, they should be looking at more than just having a conversation about a home loan,” Frost said.

Heussler said this was something Spotcap had been working on as well: encouraging brokers to go beyond the home loan conversation and ask those second and third questions that could lead to a new revenue stream for their businesses.

“We’re trying to make the products super easy for the layman broker to write, and we also offer all sorts of infrastructure and education materials. ... It might turn into a nice commission cheque without that much work for the broker,” he said.

Liberty’s Ewens said the lender’s ‘Do More’ sessions taught brokers how to become their clients’ go-to financial advocates. The goal was to be more than just “a conduit between a bank and the client for a cheap-rate mortgage”.

“This is what we’re educating all of our members on: that it’s about doing more with that one customer,” Ewens said.

Karam warned, however, that encouraging home loan brokers to become commercial brokers wasn’t just about the sell. He said they needed to understand the legalities, tax implications and fine details of the product or they would not be able to deliver a good consumer outcome.

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Bannister said he was not against raising expectations of commercial brokers, but “to be certified or seen as a finance broker, there should be a barrier to entry that ticks a lot of those boxes before you’re able to practice.”

What are some of the key challenges in the commercial space right now?

“If you’re too pushy with the broker who doesn’t have that skill set, and try and get them to ask that additional question or make the sale of that particular product before they understand what they’re actually selling, then you are not helping the customer at the other end.”

Unlike home loan brokers who are regulated under the NCCP Act, there is no specific regulation for commercial brokers who help small business borrowers obtain finance or restructure debt. While most brokers who work in the commercial finance space are already licensed home loan brokers and members of one of the broker associations, the lack of commercial regulation shows how important it is to bolster broker education, accreditation and credentials.

Karam doesn’t think the quality of education programs is the problem but the fact that lenders are too focused on driving home loan brokers into selling the occasional commercial deal without providing them with a pathway to becoming experienced commercial brokers. “How is it that you’re vetting the broker who is selling your loan products?” he asked.

Ewens countered that Liberty didn’t just

accredit brokers if they ticked a box. He said they were required to complete a 10-step questionnaire and have a commercial BDM visit their office. That BDM would show them Liberty’s platform, talk to them about their business and clientele, and walk them through the lender’s niches and product line.

They would help them package the loan, and

One of the larger challenges the market will encounter as needs change is the availability of funding, Bannister said.

“I think the royal commission is still probably the greatest headwind facing the industry, which will only impact the availability of funding further. It will be 18 months before that plays out,” he said.

While the royal commission has been cast as a dark cloud over the industry, Thinktank’s Street sees it in a different light.

“We tend to see it as a positive in many ways, firstly because of how the majors have retracted from our part of the market, so that’s certainly putting wind in the sails of the non-bank sector,” he said.

“But ultimately, all of this is designed to contribute to a better industry.”

APRA’S COMMERCIAL LENDING FOCUS In 2016, APRA conducted a thematic review of commercial property lending in a number of large domestic and foreign banks operating in Australia. It found that the “risk profile of lending has often been hampered by inadequate data, poor monitoring and incomplete portfolio controls”. The regulator found that many ADIs needed to improve underwriting standards and tighten their portfolio controls. While most of the lenders involved in the MPA commercial roundtable are not considered ADIs, APRA’s notes provide some important observations on areas of commercial property lending that need improvement.

Underwriting standards Insufficient constraints on debt size Debt yield (net operating income to total debt) could be used as a complementary underwriting measure Need for greater focus on refinancing risk Sponsors to contribute sufficient equity Presale quality and coverage Need to consider end product, location and quality

Portfolio controls Availability of transaction data lacking Portfolio limits could be improved Better practice is for deep dives into heightened risk segments Inadequate monitoring of exceptions to underwriting standards Insufficient justification for deviations from standards Source: APRA

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19 October • The Star Sydney

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Award sponsors

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Organised by

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The lenders, aggregators and brokers who increase their professionalism and contribute to a better market will turn things around for the better in the long term, Street said.

“So we’re looking to be as proactive as possible in supporting those principles and themes that are coming out of the royal commission.”

That also comes with backing the industry and helping brokers and aggregators to diversify and strengthen their businesses.

“There will be challenges ahead as interest rates rise and other credit factors intercede, so we’ve got to be there through thick and thin and we’ve got to be prepared for what the future offers, and we might as well embrace it,” Street said.

Bannister highlighted the return of the term ‘shadow banking’ as one of the

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results of the royal commission.

“They’re talking about the rise of the shadow banking sector, and to me it really doesn’t do justice or service to what we offer in the market,” he said.

maintained the APRA standards and we meet those standards sufficiently, so there is no lesser standard in how we apply our credit techniques.”

Street said non-bank lenders had actually

“We tend to see [the royal commission] as a positive in many ways, firstly because of how the majors have retracted from our part of the market, so that’s certainly putting wind in the sails of the non-bank sector” Jonathan Street, Thinktank “We benchmark ourselves off the APRA guidance model, and we’ve for many years

been faster than the banks in responding to the responsible lending themes that had emerged from the royal commission, and yet they’d actually had to do far less because they already had many of these practices and principles in place.

Karam suggested that the real challenge would arise as the non-banks became more relevant and saw their volumes grow, and then had to resist starting to act like the big banks.

“How do you maintain the small lender type culture? We’ve already started to see the turnaround times blowing out,” Karam said.

Wheatley added that the non-banks’ point of difference right now was in their processing, speed to market and speed to funding. Where the big banks were failing was in their inability to maintain long-term business relationships.

He said customers were demonstrating that they were prepared to pay for that relationship when they found it.

Bannister’s view was that it all came back to culture and values, but no one was immune to change.

“We’re seeing our turnaround times struggle from where they normally are, and that’s probably only going to stay that way for now. Volumes are up 45% from Christmas to now,” he said.

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What are some of the opportunities out there for brokers in commercial and SME lending, and how should they capitalise on it?

BROKERS SETTLING MORE COMMERCIAL LOANS

There’s good reason why more than half of all consumers are turning to brokers, according to Wheatley. “They’re sick of the banks,” he said.

“The mainstream banks are just out of control. They don’t respect long-term customers, no value at all, so really what this is doing for us and what we’re seeing is an amazing opportunity. Most brokers are honest, hard-working people, and they’ve got diverse knowledge because they don’t represent one particular institution.”

Wheatley said he had 80 lenders on his panel and that he and his staff had to have knowledge of every single one, so much so that sometimes even bankers came to him to ask about one of their own products.

“Brokers in the commercial space who understand complexity are probably the best advisers out there when it comes to providing funding for clients,” he said.

When it came to adding SME finance to their business offering, Heussler urged brokers to have more of a “deep-dive” conversation with their customer base to find out which ones were self-employed.

“It’s an easy question to ask, and for those who are lacking the skill set or confidence, we can help educate them. With the processes that we have designed, it’s really on us to make an informed credit decision.”

The broker also has options, Heussler

Apr 15–Sep 15

5,736,395,471

Oct 15–Mar 16

4,816,727,532

Apr 16–Sep 16

8,050,813,038

Oct 16–Mar 17

7,902,933,892

Apr 17–Sep 17

8,847,171,816

0

1

2

3

4

“We have a very prudent credit policy.

We’re here for a long game, not a short game, in terms of building awareness in the sector,” Heussler said.

John Ewens, Liberty

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6

7

8

9

$bn 10

Source: MFAA Industry Intelligence Service report, April–September 2017

“This is what we’re educating all of our members on; that it’s about doing more with that one customer” said: they could prequalify clients before introducing them to Spotcap, or they could make a direct referral to the lender.

5

Ewens said brokers needed to take the “blinders off ”. He explained that Liberty had done a survey of 1,000 settled mortgage-

broker-introduced customers recently and found that 40% of respondents had a seven-year-old car or older. When they were asked how many brokers had enquired whether they wanted to upgrade their vehicle while being put into a new home, the answer was zero.

“We’re not even identifying opportunities that are staring us in the face right now,” he said. “We all sit here and talk about the royal commission, [but] we need to be seen as a value-add industry. McDonald’s doesn’t ask if you want fries any more; it’s already in a meal deal. They say, ‘Do you want to upsize?’ This industry isn’t even at the fry stage yet.”

“Often the SME owners are after the surety of finance or the availability of capital, and price is the second … consideration for them down the track” Lachlan Heussler, Spotcap

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The final word With all that’s going on in the finance sector at the moment, it’s hard not to commiserate with the broker who has to make sense of it all and communicate constant changes to their client.

But this also emphasises the importance of ensuring brokers are adequately qualified.

“A lot of brokers are confused in terms of what their options are for their customers, and that reinforces the importance of a really strong aggregator relationship and a damn good BDM that they can trust and who really knows their stuff, or they’re just going to get lost,” Frost said.

Karam said that if you were to imagine the future of broking, it should be one in which a balance was struck between education, credit and sales.

“We can create an industry that is so much more efficient and focused on the customer outcomes … if the quality and education of brokers increases and if the communication,

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standards and compliance of the banks are able to be streamlined. Then the commercial mortgage broker can be a real extension of the supply chain of the lender,” Karam said.

Frost agreed that while training was one

online educational platform that consists of module-based learnings, with exams and hands-on assistance from the bank’s SME BDM team. “[If] you really want to move down this

“If they’ve got strong relationships with their customers, they should be looking at more than just having a conversation about a home loan” Robynne Frost, Suncorp thing, execution was another. As part of its investment in broker education, Suncorp has identified 150 brokers from around Australia who it will be supporting through an intensive ‘Licence to Lead’ program. Brokers will spend 150–180 hours on the program, using an

path, we’ll partner with you, but it means that there’s skin in the game and you really need to want to be there,” Frost said. “We’re targeting brokers that have big portfolios in home lending and who have supported us. We’ll help you diversify and educate you.”

FEATURES

HOUSEHOLD EXPENSES

Pulling back the curtain Demands on brokers are on the rise as lenders drill down on household living expenses. But it doesn’t just mean more work – it could also mean a dip in customers’ borrowing capacity

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THE DEBATE around household living expenses cracked wide open halfway through the royal commission’s first round of hearings.

That’s when counsel assisting Rowena Orr suggested ANZ had failed to take proper steps to verify borrowers’ living expenses, contrary to its obligations under the National Credit Act. Questioning William Ranken, ANZ’s general manager home loans and retail lending practices, on 19 March, Orr said: “What I’m putting to you is that you’ve got bank accounts to show that the expenses are different to what is recorded in the documents submitted by the broker. You say you do nothing about that?”

For loans submitted by brokers, Ranken admitted that the bank had not conducted any further checks of borrowers’ general living expenses.

“We’re talking about the manual review of paper-based bank statements, and to use those to verify a customer’s statement of position, particularly general living expenses, would be highly complex, very time-consuming, very costly, and ultimately not necessarily that helpful,” he said during the interrogation.

In an earlier review of ANZ’s home lending processes, KPMG took a sample of hundreds of loan files and found several flaws.

Of the 418 files reviewed, 68 contained incomplete and incorrect borrower financial information used in the bank’s assessment of the home loan. Of those 68, borrower income was recorded as incomplete in 24 files as a result of the bank’s practice of only verifying income to demonstrate that uncommitted monthly income was positive.

The royal commission’s interrogation of ANZ thrust the calculation – or lack thereof – of household living expenses into the spotlight.

Shortly after that hearing, ANZ released an industry-standard Broker Interview Guide for Regulated Lending Secured by Residential Property, which it said it had worked with a number of other major lenders to develop.

“The Interview Guide aims to encourage more consistency in the collection of this

information across the industry, while maintaining simplicity in your business,” a broker note said.

That is just one outcome of many that are likely to impact brokers and lenders as a result of the recent exposure around poor verification of household living expenses. And according to some experts, it’s one that could influence a larger ‘credit crunch’ in the housing market.

loans in Australia prior to 2017 were underwritten using the HEM benchmark to estimate living expenses. As a result of the scrutiny of APRA and the royal commission, banks have started to show more initiative to strengthen the collection of this information.

Advantedge GM Brett Halliwell says the white label lender uses “actual household expenses” to assess all applications.

“There is a significant concern for many brokers that the increase in tighter policy will further restrict the availability of credit” Mark Norman, Specialist Finance Group “Numerous banks have been requesting itemised living expenses in their servicing worksheets for a number of years. The key issue that is being faced now is whether those living expenses expressed in the worksheets accurately reflect a customer’s living expenses,” says Mark Norman, Specialist Finance Group’s national compliance manager.

ASIC’s Review of Mortgage Broker Remuneration called out both lenders’ and brokers’ over-reliance on the Household Expenditure Measure (HEM) benchmark, which provides a conservative estimate of a household’s expenses based on various general categorisations and is used by the banks to determine borrowing capacity. APRA has cautioned that the HEM is a floor, but should not replace making reasonable enquiries or be treated as a proxy for actual expenses.

ASIC found that both lenders and brokers were making insufficient enquiries into consumers’ real expenses. Most borrowers’ actual living expenses are likely considerably higher than the HEM, so when they are at or below it, questions should be raised.

According to UBS, 70–80% of all home

“We require brokers to ask customers detailed questions in order to generate a comprehensive picture of their living expenses,” he says. “But a customer’s expenses, or their knowledge of their expenses, can vary.”

Many brokers have traditionally relied on disclosures and statements from applicants as their main source of evidence, but a consumer will often underestimate discretionary expenses and education, Norman adds.

With the banks providing more extensive lists of expense categories, their clients should be able to use these as a guide to better reflect payments that are often overlooked, he says.

While some lenders have already been asking for itemised living expenses for some time, it is often easier said than done.

Adrian Willenberg, managing director of Broker Intelligence, has seen the increased scrutiny around expenses play out firsthand, and says it has added to his workload.

“Lenders are incredibly stringent with living expenses now,” he says. “It’s not just as simple to use HEM anymore. Times have changed.”

As a result, Willenberg has made some adjustments. “I now thoroughly analyse daily transaction statements to double-check the existing spending habits [of borrowers] are accurately reflected in the new home loan application. Often clients may say, ‘Adrian,

CUSTOMER SPENDING PATTERNS MUCH HIGHER THAN HEM SUGGESTS Estimated minimum assumed living expenses vs gross income $60,000

$54,000

$50,000 $40,000

$38,000

$44,000

$45,000

$125,000

$150,000

$47,000

$40,000

$30,000 $20,000 $10,000 $0

$80,000

$100,000

Estimated new Income Adjusted Minimum Living Expenses

Age Pension

$200,000

$500,000 Previous HEM

Note: The above minimum living expenses are UBS estimates based on home loan calculators for each income bracket. The ‘previous HEM’ was not regularly adjusted by the banks for income until six to 12 months ago.

Source: UBS data and estimates, Australian Government

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HOUSEHOLD EXPENSES

we spend roughly $2,000 per month’, but upon further investigation they’re actually spending closer to $3,000.”

That anecdote underlines why a broker cannot merely record what the customer tells them. They need to make reasonable enquiries and verify the information provided.

“At a minimum, brokers should be ensuring that the declared expenditure makes sense and appears adequately stated in light of their customer’s personal and financial circumstances,” Halliwell says.

Advantedge requires its brokers to complete an expense verification worksheet that captures the client’s expenses across various categories, including utilities/bills, food/groceries, transport, childcare costs, etc. This is used by the lender to assess their suitability for the loan.

While it may be daunting for the customer to see their expenses laid bare, it can be a positive experience with a broker’s guidance.

“Often customers simply don’t know how much they spend and on what, on a monthto-month basis. Brokers can add enormous value to their customers by helping them to understand their existing spending patterns, which is a vital step prior to considering how the customer will afford the repayments on any proposed credit,” Halliwell says.

In the end, lenders also have to do their due diligence to ensure sound oversight of brokersubmitted loans. In its Prudential Practice Guide, APRA advises that “a prudent ADI would have appropriate procedures in place to verify the accuracy and completeness of the information provided … Good practice would be for an ADI, rather than a third party, to perform income verification”.

In Norman’s opinion, any changes that require a more appropriate investigation into a customer’s financial position should be welcomed. “Development of comprehensive analysis of living expenses and affordability assessments will assist in bringing similar standards across the industry,” he says.

But there is a risk that this could go too

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SEVEN FACTORS THAT COULD AFFECT AVAILABILITY OF CREDIT More rigorous enquiries into borrowers’ income and living expenses

More risk-averse bank boards

Changes to broker remuneration that could reduce access to credit

Comprehensive Credit Reporting giving a more complete picture of a customer’s financial position Federal election in 2019 and Labor Party’s stance on limiting negative gearing

Decline in foreign investment in Australian property

$120bn in interest-only mortgages reverting to P&I each year until 2021 Source: UBS, Credit Crunch? Seven Factors to Consider, June 2018

far, with lenders asking for predictions around future living expenses. “Some lenders might expect a numerical value to be entered against a future expense that cannot accurately be quantified,” Norman says.

Facing the credit crunch The royal commission has found that banks have at times applied responsible lending laws too liberally, especially when interpreting borrowers’ financial situations. Not only should brokers therefore brace for more demands from banks in this area, but customers should be prepared to see their borrowing limits drop once their living expenses are more realistically calculated, according to an analysis by UBS. Credit availability is affected by a number of factors, including tighter expense verification,

higher assessment rates and other algorithms, Norman says. And the market has already seen a tightening of credit policies in relation to LVRs for investment lending, foreign income and non-resident borrowers.

“Many of the restrictions we have seen placed on particular market sectors are as a result of issues that have been identified through investigation into poor lending practices or government/industry initiatives,” Norman says. “There is a significant concern for many brokers that the increase in tighter policies will further restrict the availability of credit, where vanilla deals become the only acceptable options.”

One thing is clear: the expectations of brokers and lenders – and the stakes – have been raised.

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NETWORKING

Make your connections count Brokers who forge genuine connections will find that it not only brings value and wellbeing to their lives and their customers but also leads to diversification opportunities and a more sustainable business FORMING CONNECTIONS is the bread and butter of what brokers do. Building relationships and cultivating a network of personal, professional and community contacts is integral to sourcing future leads and referrals. For the 40% of brokers who work as sole operators, it also ensures they feel less isolated in their jobs.

The definition of an effective network continues to evolve and is perceived differently depending on the business and its goals, says FAST CEO Brendan Wright.

For instance, a new-to-industry broker might seek to establish mentoring relationships, while an established broker might be looking to partner with someone who can offer a complementary service that will take their business to the next level.

Regardless of what an effective network means to brokers, the benefits are clear.

“Developing meaningful professional relationships is proven to provide opportunities to grow and diversify businesses, deepen knowledge and foster innovation through diversity,” Wright explains.

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That said, it doesn’t mean networking always comes naturally to brokers.

“I think most people feel some degree of trepidation when meeting with those they don’t know well,” Wright says.

Most of those who are attracted to broking will probably already have the soft skills required to meet and build connections with

connections to build, grow and succeed.”

Partnering with the right aggregator can also help facilitate those conversations and make the experience more comfortable. end At FAST, brokers are encouraged to attend nts regular professional development events and forums, as well as those of lenders and now industry associations, so they can get to know mal their colleagues in both formal and informal nel settings, build contacts across the channel and share insights with their peers. lop In turn, this helps brokers develop sses broader capabilities within their businesses ing and create strategic business-building opportunities, Wright says. kers Making connections is something brokers ness should prioritise and embed in their business k to culture by setting aside time each week connect with others and maintain existing relationships, he says.

They should also look to their aggregator as a resource on this front. FAST’s partnership managers support their brokers in establishing new and different professional relationships. They work with brokers, lenders, industry bodies and partners to set up regular and more intimate workshopstyle sessions.

“These sessions have targeted content

“The key is to consistently connect with people, both those that brokers know and those they don’t, inside and outside of the industry” Brendan Wright, FAST new people. They just need to remember to move away from a sales pitch and instead focus on establishing a genuine connection, he says.

“The key is to consistently connect with people, both those that brokers know and those they don’t, inside and outside of the industry. Here they can share insights, be inquisitive, listen with care, and enable their

and the potential to enable brokers to learn from each other and establish solid working relationships that create value,” Wright says.

“We also have strong connections outside of finance broking and can help brokers to establish diverse connections with professionals to differentiate and deliver more to their clients.”

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HOW TO BUILD AN EFFECTIVE NETWORK Look beyond your inner circle: Reach out and make connections with employees, customers, community groups and other business owners in diverse fields.

Diversify your business through your network Going for coffee might be the first step towards building a positive rapport, but fostering long-standing connections can genuinely help brokers grow their businesses, create advocacy and deliver a broader range of client solutions.

Broker businesses that traditionally work in the commercial lending space,

advisers, property consultants and legal advisory services, can build on the foundation they’ve already established, Wright says.

“Brokers might also want to consider getting to know different industry segments and their governing bodies to identify opportunities to attend events and develop broader capability in their business. And of course, connecting digitally through social media has become a powerful way for

“Developing meaningful professional relationships is proven to provide opportunities to grow and diversify businesses, deepen knowledge and foster innovation” Brendan Wright, FAST for instance, might find it worthwhile to establish connections with home lending specialists through referral arrangements, or by adding them as in-house specialists to better meet the home and investment needs of their business-owner clients.

Brokers who surround themselves with a wide yet relevant range of subject-matter experts, such as accountants, investment

brokers to reach new markets.”

When deciding whether to partner with an associate, it’s important to try to understand their mindset by asking plenty of questions, Wright says.

“You can evaluate if there are any areas where you can add value to their business.

You will usually find that, if you do this, the other party will reciprocate.”

Work with your aggregator: Take advantage of PD days, industry events, workshops and other formal and informal gatherings to build a rapport.

Make it a habit: Set aside time each week to catch up with new people and maintain existing relationships.

Master the exchange: Find a business that complements your own, and partner with them. If you can add value to their business, they will generally be willing to reciprocate.

Show you care: Ask questions, be inquisitive, listen attentively, share insights, be genuine and try to understand their mindset.

Follow up: Keep the conversation going, whether that’s online or at a future meeting. Show that you respect their time and their business.

A good example of this is a brokeraccountant relationship. This sort of partnership allows the accountant to meet more of their clients’ financial needs, improve client retention, increase revenue per client, and ultimately drive customer advocacy.

Likewise, for the broker it can lead to a new source of clients, revenue growth, and longevity of clients and business partners.

In the end, when it comes to establishing a supportive network of contacts, brokers should show they genuinely care, Wright says.

“Share insights, be inquisitive, listen and understand. If you meet someone you would like to connect with again, be sure to follow up in a way that shows a respect for their time and business.”

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SME LENDING

Unshackling the handcuffs Connective has given its brokers the capability to build a business that’s truly theirs, a model that’s piqued the interest of others. Connective’s director, Mark Haron, explains why the aggregator doesn’t put handcuffs on its brokers REFLECTING ON last month’s MPA Brokers on Aggregators survey, it’s clear that most brokers are satisfied with the service they receive – in fact, a whopping 75% said it would be extremely unlikely that they would switch providers any time soon.

Of course, it’s unclear how much of this reluctance is actually due to the encumbrance of changing aggregators.

It’s a notoriously tricky and onerous task, and brokers cited more than 20 different obstacles standing in the way of a switch, including contractual obligations, clawbacks and licensing issues.

However, the most prominent obstacle by far was data migration and IT issues. With this deterrent to change receiving 36% of the votes, it seems many brokers are concerned that their valuable client information would be at risk if they switched – and they’re not wrong.

Mark Haron, director of Connective, says brokers often struggle to move customer data or loan data when changing platforms and could face having their trail commissions frozen by their existing aggregators.

“Connective has data import processes

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for all of the biggest aggregator platforms and independent CRMs. We can synchronise data, workflows and other business-critical processes. Brokers can also choose to keep their data in their independent CRM and complement their business processes with our platform,” Haron says.

Since day one Connective has been committed to removing the obstacles that prevent brokers from being in control of their businesses.

It’s a method that has always suited brokers. When asked in the survey which aggregator they’d opt for if they had to switch tomorrow, one in three selected Connective – for the second year in a row –

making it the most appealing partner by far.

“I think one of the reasons a lot of brokers would come to us if they were going to leave their current aggregator is because we don’t put handcuffs on our brokers,” Haron tells MPA. “We’ve got a very fair agreement which says the data and client information belongs to the broker, so they’re able to export that data when they need to and we’ll help them pull those files off our Mercury platform – likewise, there are no handcuffs on their trail commissions either.

“It means brokers are able to build a business within Connective which is truly theirs – it’s not owned by Connective; it’s owned by them. It’s their customers, their book, and that’s really appealing for a lot of brokers who find the current aggregator they’re with isn’t quite as fair as they might have first thought.”

Of course, giving brokers the freedom to leave without repercussions is only possible because Connective is confident in its own value proposition, says Haron – brokers may have the ability to go elsewhere, but there’s no reason for them to do so.

The Brokers on Aggregators survey supports Haron’s stance. In the survey, brokers pointed to poor IT and CRM support as the top reason they would leave their aggregator – a category in which Connective came out top of the field.

“We’re constantly improving Mercury, as a lot of the time it’s the many small,

WHICH AGGREGATOR WOULD BROKERS CHOOSE? In MPA’s Brokers on Aggregators survey last month we asked them, if they were to switch aggregators, which would they choose?

1/3 of brokers chose Connective – it was the top choice by far and the second year in a row Connective has been the favourite.

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DEMANDING MORE Aggregators are under pressure to deliver more than ever before, and one of the growing expectations is an increased focus on the quality of broker accreditation.

“That’s particularly important in terms of lender relationships,” Connective director Mark Haron says. “Lenders need to be able to rely on aggregators.”

Connective’s push to improve broker quality is evident in ProfileMe – a market-leading initiative that has delivered a behavioural profiling tool developed specifically for mortgage brokers.

incremental changes that allow brokers to see a big improvement,” Haron says.

One particular upgrade that was embraced by brokers was a refresh of the company’s Connective Wiki, which provides brokers with support and how-to videos on demand.

“They can access support 24 hours a day, seven days a week, which we know is important to them because brokers don’t just work nine to five,” he says.

Brokers can also access a personalised assistant from Connective’s help desk team, and live chat facilities are available within Mercury to help give brokers a better and quicker result.

One of the most significant updates to Connective’s CRM has been its application program interface, which allows different software to interact seamlessly. Brokers are now able to use their favourite programs – such as Xero, MailChimp or Microsoft – within the CRM system itself.

“It allows brokers to choose the best tools that suit what they want to do with their business and the direction they want to take their business in,” says Haron.

The development has also allowed Connective to establish a new marketing automation platform, the Digital Marketing Hub, which gives brokers the opportunity to use and develop customised campaigns in order to boost their revenue and build

“That helps us have a discussion with them about their suitability for the role as well as identifying areas they may need to work on to be successful,” Haron says.

“We’ve also made ProfileMe accessible to our broker businesses so they can recruit the best people possible.”

“Brokers are kept informed about any changes, as well as being given guidance on how to leverage them to their full advantage,” Haron says.

“Brokers are able to build a business ... which is truly theirs – it’s not owned by Connective; it’s owned by them” Mark Haron their businesses.

Importantly, the company has also developed a bank of videos to help brokers understand the improvements that have been made over the last 30 days, and what’s going to be worked on over the upcoming 30 days.

These, among many other improvements, come as brokers continue to expect more from their aggregators – something Haron is strongly supportive of.

“Absolutely, brokers should be demanding more,” he says.

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BROKER SUPPORT

BOQ plans growth trajectory driven by brokers The Bank of Queensland’s new broker head, Natasha Kelso, is redefining the bank’s offering to the broker market

NATASHA KELSO has 2,800 broker partnerships to manage as the newly appointed head of broker at the Bank of Queensland, and already she’s set herself a lofty goal. She wants to see a 30% uplift in the non-major’s broker-originated loan flows, which currently sit at 28% for the BOQ Group (as of FY17). This would be a significant feat considering the bank only entered third party lending five years ago.

She may say it’s still “aspirational”, but if anyone can do it, it’s Kelso. And she has a strong base to start from. BOQ Group saw a 19% spike in total retail housing settlements in 1H18 compared to the same period the year before.

Kelso entered the financial services industry 16 years ago and “fell in love with the feeling you get from helping people make their dreams come true” while working in the financial planning space.

She entered third party banking as a BDM at Suncorp, and from there moved on to become a state relationship manager at CBA in Queensland. During her time at CBA, she received the Best Bank BDM award at the 2011 Australian Mortgage Awards. Her most

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recent position before joining BOQ was as national manager of broker sales at CUA for more than five years.

Those experiences solidified Kelso’s reputation as a strong leader and relationshipbuilder in the third party channel, which are just some of the reasons she was scoped out for the job at BOQ. For her part, Kelso says she was drawn to the position, having known the brand since a young age.

“When they launched back into the broker channel, I watched their progress from the sidelines, and when the position was offered, I saw the opportunity to grow the broker channel, deepen the relationships, and gain

a larger market share,” Kelso says.

Over her career, Kelso has shifted seamlessly between non-majors, a big four bank and a credit union, which has given her a strong understanding of the broker market and the ability to see the industry through a prism of perspectives.

“Having originally moved from a major bank to a credit union, the cultural shift to a non-major has been relatively easy,” she says.

“There are many similarities between a credit union and a non-major. Both being smaller organisations, it allows for the opportunity to get to know the other areas of the bank quickly and connect with people who can work with me to enable change.”

BOQ’S PRIORITIES FOR THIS FINANCIAL YEAR Upgrade online platforms and partner with fintechs to improve user experience in digital channels Move infrastructure into the cloud to improve customer experience and speed of delivery, and reduce costs Launch new deposit products to assist customers with better money management Improve merchant capability through a partnership with a digital payments provider to assist SME customers

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BOQ KEY FIGURES

“I will be working on ensuring the brand is one our broker partners will discuss with their clients – as a bank that will not only meet their needs but will exceed them”

Established in 1874

$182m cash earnings after tax in 1H18

$671m in total lending growth in 1H18

28% of home loans originated by brokers in FY17

190 branches

211,000 internet banking customers $4.4bn in lending to niche business

segments 39% women in leadership positions $577,500 in community investment Source: BOQ 2017 Shareholder Review; 1H18 results

Being still relatively new to the position, having been appointed in May, Kelso’s focus has been on strengthening and building up the sustainability of the channel so brokers are better able to navigate and manage the changes to come in the future.

“I will be working on ensuring the brand is one that our broker partners will discuss with their clients – as a bank that will not only meet their needs but will exceed them,” she says.

In the short term, Kelso is working on defining BOQ’s offering and making sure it delivers on its promises. That starts with training its BDMs on how to be true business coaches so they can enable their brokers to assist with more than just their clients’ home loan applications.

She sees her BDM team becoming actively involved in providing brokers with individual business coaching and training, and offering a second pair of eyes when brokers need them

on loan files and other matters.

“I want the BDMs to be a true business partner with the broker and their team to ensure we grow into the future together and we support brokers along in their journey,” Kelso says.

She plans to do that by remaining close to the broker market and by being involved in the many discussion groups and forums underway to ensure the bank continues to meet its obligations and introduces changes in step with industry expectations and standards.

As BOQ makes gains in the broker market, Kelso says she’s looking forward to reinforcing the non-major’s position as a key alternative to the major banks.

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CONFIDENCE

Get what you want in the workplace Business culture expert Georgia Murch explains how to balance cockiness and confidence to achieve success

YOU KNOW the type. Their ego walks in the door before they do. They love talking about how good they are and what they’ve achieved, and have little or no self-awareness. Their belief in themselves often outweighs their interest, or desire, to understand the needs of others. Their concern is with themselves and how things impact them. Yep, they have fallen prey to the ‘ego monkey’, that silent whisperer that sits on their shoulder and tells

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them that people are much more interested in them than they actually are. Their ego distorts their perspective. It happens easily and it’s damaging to them and the people around them.

But not all ego is bad. Ego is described as a person’s level of self-worth or self-belief.

We all need a healthy level of ego to achieve what we do in life, work and relationships.

In fact, we all deserve it. But when it tips

over to arrogance it is unhealthy and can distance us from the people around us and limit our own personal growth.

It gets in the way by making us no longer as open to feedback from others, not to mention less enjoyable to be around. If you believe you are better than someone else, they will sense it, and your words won’t make a difference. After all, people hear your content, but they smell your intent.

FEATURES

CONFIDENCE

There are many diagnostic tools to measure the culture of an organisation.

One that I like is Human Synergistics’ Organizational Culture Inventory tool, which allows organisations to understand what type of culture they have and, more deeply, the behaviours and performance of their people.

In its simplest explanation, the data is split into three categories:

1. Aggressive and defensive: These cultures are highly competitive with each other. They remain in silos, hold back information, and do not value collaboration. This leads to mixed performance and volatility.

2. Passive/defensive: These cultures are nice. Nice is good but it’s often ineffective in pushing things forward. People are not comfortable with challenging the status quo, and innovation and creativity do not occur. People are not comfortable taking risks or being vulnerable.

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3. Constructive: These are cultures that get things done. They deal with conflict in a healthy way. They hold each other to account and push ideas and strategies forward, which leads to effectiveness and sustainability.

While we need a combination of all of these styles for an organisation and its people to perform at their best, we mostly need the constructive style of leading and dealing with each other. This can push through the awkwardness of tough situations and conversations and deal with things as they arise. This is where we are at our most productive, highly engaged, and profitable or successful.

When there are unhealthy egos, an arrogant culture permeates and creates high levels of competition. It’s survival of the fittest. Conflict, the unhealthy type, is the norm. Blaming and finger-pointing become the way of thinking, rather than asking, ‘How do we work through the issue?’ These cultures are toxic. There are some industries

that have higher levels of this than others, such as consulting, financial services, the legal profession, property and sport. But these cultures are not ideal.

So, what would the opposite look like?

A humble workplace means people are interested in working as one and collaborating first. Creativity thrives because people are OK with taking risks; people choose to work together and celebrate and work with differences; leaders reveal their flaws and work around them rather than hiding them; and people are committed to growing each other, not bringing each other down.

Sometimes we see confidence as cockiness because our relationship with confident people is skewed. Confidence is not the enemy; arrogance is.

How do we build great relationships and make great decisions to create more constructive cultures and relationships?

Start with how we communicate and collaborate.

We need conversations, not accusations.

Arrogance does not hide when we work and talk with people, nor does humility. The difference is your intent.

Before you have that conversation, be still; breathe. Ask yourself: what am I bringing to the conversation that will serve it? What am I bringing to the conversation that will detract from it? My attitude? My thinking?

How do we balance cockiness and confidence? Work on yourself first and take responsibility for how you treat others.

That’s when humility follows.

Georgia Murch is an expert in creating feedback cultures. She iss the bestselling author of Fixing Feedback back and has just launched her new book, ook, Feedback Flow: The Ultimate ge in Illustrated Guide to Embed Change sit 90 Days. For more information, visit www.georgiamurch.com.

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CUSTOMER SERVICE

Creating a service mindset In this age of digital transformation and technology, many argue we are more connected than ever before. But at what cost? Customer service relations expert Jaquie Scammell investigates IT’S NOT uncommon today to provide products and services to consumers without ever having a face-to-face conversation.

Customers type questions into live chat feeds on websites, Facebook Messenger and other online services. We see more and more people in stores with headphones on, sending a strict message to service staff that they are not to be disturbed.

Our desire for speed and convenience is compromising our customers’ greatest and basic needs as humans: care, kindness and one-on-one attention.

Service is simple Yet we have made it overly complicated.

We have created complex systems and internal processes that, while designed to help our teams, often stop us from delivering the service we know our customers crave.

We get set in our ways, stay in our own heads, and forget that we are simply serving humans with our product or service. We try to control what happens in a service environment, which as you well know isn’t possible.

Like many other small business owners and companies, you have probably tried many times – and failed – to operationalise your customer service culture. You’ve probably forgotten that human beings are

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CUSTOMER SERVICE

unpredictable creatures and customer service is anything but routine and automatic.

Customer service is a privilege, and those employees who interact with your customers on a day-to-day basis have the power to positively impact someone’s life, not to mention your brand.

Look at your behaviour When it comes to winning the hearts and minds of your customers, it’s the behaviours

service mindset that will give you and your organisation an extra edge.

When we are highly tuned into the people in front of us, we start to frame questions differently, pause before we speak, and even start to see things from the other person’s perspective.

Small business owners and leaders who operate with a service mindset help build a service culture: a high-performing culture in which customer loyalty is constantly

Set procedures for service may be great for robots and androids, but it’s ... the emotional connection staff create with your customers that will determine your ultimate success of your frontline employees that influence the performance and results of your entire organisation.

How customers feel when they interact with your employees determines how they feel about your company itself. This is what determines whether they will be a one-click wonder or a customer for life.

Set procedures for service may be great for robots and androids, but it’s the way your service staff act and the emotional connection they create with your customers that will determine your ultimate success.

Rather than looking at complex customer service strategies and ways of engaging your staff, you must look to the most powerful and influential people in your business – you and your frontline employees.

Get the edge As a small business owner, you are responsible for your people, who are responsible for your results. Even if everyone in your business is already excellent at what they do, sharpening their emotional competencies and their behaviours at work will contribute to a

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increasing. In fact, if we replace the word ‘customer’ with ‘human’, we can say that our goal in business is to create greater loyalty in other humans.

Develop six service mindsets So the best, simplest and easiest way of developing this successful service culture is to work on your service mindset. This is a continuum of behaviours that impact the performance of your employees, which in turn impacts your customer interactions and loyalty, creating a virtuous circle that enhances your whole business.

The six mindsets you need are:

1. Empathy: Practise empathy to create a team of employees who feel understood. Cultivating trust in this way is essential if you have teams who are continually coaching, mentoring, teaching and caring for others.

2. Questions: Show sincere interest in your employees as humans in order to help them

grow into their roles. Ask the right questions and you’ll start to encourage your staff to think for themselves and learn the effect of their decisions.

3. Energy: Shift the focus, the energy, towards supporting all of your employees in delivering great service. What you give attention to grows.

4. Heart: Trust and appreciate your staff and they will have a greater willingness to serve, which automatically increases their discretionary effort. This creates a cumulative advantage for a business.

5. Purpose: Make your staff feel valued and that will motivate them further. An engaged workforce interacts with your customers more positively, and this creates customer loyalty.

6. Practice: Seek information, develop your people, and help them grow in their working roles.

Knowing that you are only as good as your last performance is the key to continual growth and improvement, as well as the longevity of your business.

When you work to build a service mindset in your employees instead of just relying on automatic procedures for customer service, then and only then will you start to move the needle in your business. You will connect with your customers as humans and watch your profits grow.

Jaquie Scammell is a customer service relations expert. She workss with companies who want to influencee their staff to love serving customers. Shee is also the author of Creating a Customer omer Service Mindset. To find out more, visit www.jaquiescammell.com.

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STRESS

Building resilience for a life less stressed Everyone experiences stress, but in order to control and reduce it we first need to identify where it comes from and what it’s about.

Then we need to commit to the five pillars of good health, writes Dr Ron Ehrlich

LIFE IS stressful. The Stress and Wellbeing in Australia Survey, conducted by the Australian Psychological Society, found that five million Australians reported their current stress levels had an impact on their physical health. This may be an underestimation as it seems everybody is stressed and this is having a significant impact on the health of the population as a whole.

There is a growing epidemic of preventable chronic health problems, such as heart disease, cancer, over 80 different autoimmune diseases, diabetes, dementia and obesity, not to mention mental health issues such as depression and anxiety – and

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it’s not just because a large percentage of the population are getting older. Children are not faring well either. One third have allergies, one in four have asthma, one in 10 have ADHD, and one in 100 have a diagnosis of autism spectrum disorder (ASD). To put that in perspective, in the 1970s the number diagnosed with ASD was one in 5,000. Childhood cancer and depression have doubled in the last 30 years.

To expect to have no stress is unrealistic.

A more realistic goal is to live a life less stressed, to build resilience and enjoy health and wellness. But there are many stresses that go unrecognised and yet also challenge our health.

Today we require a broader definition of stress, which includes any factor that compromises the immune system and promotes chronic inflammation, the common denominator in all chronic disease. Recognising these stresses means people can make informed decisions, build resilience, and take control of their own health.

In order to solve a problem, to deal with the stresses of modern life, individuals and organisations need to understand what those stresses are. A useful model is to identify the five stresses: emotional, environmental, nutritional, postural and dental. The final stress may surprise people,

A consistently good night’s sleep boosts [the] immune system, memory and ability to think logically. It ... positively affects almost every measure of physical and mental health but it is the story of a hidden epidemic going on right underneath our noses.

The key to dealing with these stress challenges is to minimise them, and then to build resilience. As today’s world becomes more complicated, the solutions are actually remarkably simple. There are five pillars of good health, which give

an individual a model for taking control of their health. These include breathing, sleeping, nourishing, moving and thinking.

Let’s just take two of those. Sleep and breathe are key pillars. Forty-four per cent of respondents to the Stress and Wellbeing in Australia Survey recognised that lack of sleep was a key contributor to their

stress levels. Sleep is an individual’s nonnegotiable, built-in life-support system. It’s cheap, accessible and profound. Put simply, use it or lose it.

A consistently good night’s sleep boosts a person’s immune system, memory and ability to think logically. It improves blood sugar levels, which is important in all diseases, decreases the likelihood of a heart attack, and positively affects almost every measure of physical and mental health and wellbeing, including a person’s sex life.

A consistently good night’s sleep is a function of quantity (getting enough) and quality (breathing well). Poor sleep and breathing habits affect the young and old alike, and yet the return on investment is well worth it.

If there is one goal in life, it should be to fulfil one’s potential. Whether talking about the potential of an individual, a family, a community or, for that matter, a company, enjoying good health is central to that goal. Healthy individuals make for a healthy society, or a healthy company. This is the type of society that people will want to live in, and the kind of company that people will want to work for.

Taking control, recognising the stresses in life that break us down, and focusing on the pillars of health so we build mental, physical and emotional resilience to deal with the modern world are a good start towards fulfilling that potential.

Dr Ron Ehrlich is a leading holistic tic health advocate with over 35 years of clinical experience. He is the author of A Life Less Stressed: The 5 Pillarss of Health and Wellness and hosts the podcast c t cas Unstress with Dr Ron Ehrlich. For more information, visit www.drronehrlich.h.com.

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BROKERAGE INSIGHT

How letting go is part and parcel of business MoneyQuest Wollongong owner Paul Wright is learning how to empower his team to grow the business without constantly relying on him to drive it BEFORE JOINING the mortgage industry, MoneyQuest Wollongong owner Paul Wright earned a living as an employee of CBA and the Bank of Queensland. His career took a turn when he was working as a BDM in BOQ’s broker market and someone suggested he would make a good broker. That comment prompted some thinking, which later kickstarted a new chapter for Wright.

In 2002, just as the broking industry was evolving, Wright took a leap of faith and finally became a mortgage broker. He had the full support of his wife, Julie.

“The decision was definitely the right one,” he tells MPA. Wright initially operated under his own brand and then moved across to Choice Home Loans for a few years. When Choice Home Loans merged with realestate.com.au, he took it as an opportunity to review his business direction.

Finding the right brand Wright launched a new MoneyQuest franchise in December 2017. Having known MoneyQuest founder Ross Begley and managing director Michael Russell for many years, Wright was confident that this was the brand he wanted to be associated with in the long run. He knew Begley and Russell would provide the support and guidance he needed to grow his business.

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MONEYQUEST RESPONDS TO PRODUCTIVITY COMMISSION Since mortgage brokers started to evolve in the 1990s, consumers have been benefiting more than ever from the increased competition for brokers’ business, MoneyQuest managing director Michael Russell wrote in the franchise’s submission to the Productivity Commission’s draft report on Competition in the Australian Financial System last March.

Mortgage brokers continue to seek out competitive interest rates that no single lender is capable of offering. This is why consumers are increasingly turning to mortgage brokers rather than taking a chance with their banks, Russell wrote.

The submission asks the commission to consider what the consequence would be on price competition in a market void of brokers.

Wright is an accredited property investment adviser and mortgage consultant, and a member of Property Investment Professionals of Australia and the MFAA. His extensive finance and property knowledge enables him to provide professional services and practical advice.

MoneyQuest Wollongong specialises in

home loans, investment loans, and selfmanaged super funds.

With Wright’s wife Julie as operations manager, the brokerage has a number of finance specialists who manage its various loan segments and help first home buyers get onto the property ladder.

“We take pride in the number of clients who we have helped build wealth by educating them on how to build a property portfolio,” Wright says. His team puts great effort into understanding every client’s situation so they can get the right loan for their particular needs.

Wright considers his business to be advice-based, rather than transactionbased. His team remains in constant contact, communicating with every single client and prospect at least 17 times a year.

This regular and ongoing communication allows Wright’s team to keep existing clients updated on market conditions to ensure that their loans meet their changing requirements.

By continuously developing his systems and procedures, and by having a team of investment-savvy mortgage brokers under his tutelage, Wright is confident his business will remain at the top of its game.

“I always work on a yearly target, and I increase it by a minimum of 10% each year,” he says.

FAST FACTS Company: MoneyQuest Wollongong Owners: Paul Wright Location: Wollongong Year founded: 2007 (Choice Home Loans Wollongong changed to MoneyQuest in December 2017) Services offered: Home loans with a strong focus on property investors and first home buyers Number of employees: 6 Major awards: • Australian Mortgage Awards Mortgage Broker of the Year (Insurance) 2011 • Highly Commended Mortgage Broker in Your Investment Property’s 9th Annual Readers’ Choice Awards • Choice Aggregation Services NSW Business of the Year 2017 (2–5 Writers)

Letting go On a personal level, Wright’s biggest challenge is letting go in order to enable his team to grow the business without being

By developing his team and empowering his brokers to grow their individual outputs, Wright hopes to double the business’s yearly volume over the next three to five years. His

By developing his team and empowering his brokers to grow their individual outputs, Wright hopes to double the business’s yearly volume over the next three to five years totally reliant on him. “I’ve learned that you cannot do it all by yourself. And, quite often, other people can do the job just as well as you do, if not better,” he says.

team also includes experienced support staff who handle non-income-producing tasks.

Apart from consistent year-on-year growth and positive client feedback, Wright takes

pride in how his team develops and retains its members. They recently recruited two additional brokers who share the team’s drive, and Wright is keen to equip them with the necessary knowledge and tools to fulfil their ambitions.

Wright knows the financial market is tricky to navigate, especially as a newcomer. To help promising brokers begin their professional journey on the right track, he instils in them how important it is to develop a business plan and know what to aim for early on.

“Specialise in what you enjoy and are good at,” Wright says. “Develop policies and procedures, and follow them religiously. Keep developing them as the market changes and your team grows.”

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CAREER PATH

THE DRIVE TO SUCCEED Experience working for a car dealership led Connective Asset Finance head Brent Starrenburg down the road towards broking

2006 FINANCE CAREER REVS INTO GEAR Starrenburg transitioned from being a car sales agent to a finance and insurance manager at a car dealership. His role involved marketing finance and insurance products to vehicle-buying customers. “It was an interesting transition, and the finance industry has certainly evolved since those beginnings.”

2010 FOCUSES ON COMPLIANCE Starrenburg became Connective’s compliance manager just as the National Consumer Credit Protection Act was introduced. He was responsible for broker training and accreditation. His duties included visiting brokers to conduct file reviews, and providing feedback on processes that could be improved.

“I educated brokers about what responsible lending is, and what it means to both client and broker.”

2017 GROWS ASSET FINANCE TEAM When Connective Asset Finance was launched, Starrenburg was appointed as its head, and he expanded his team to include two BDMs and an administration associate. A partnership with Positive Lending gave brokers access to BOLT, an online quoting and application portal connecting them with asset finance lenders.

“The expansion [of the team] allowed me to concentrate on developing our lender panel offerings to the Connective network.”

“Our aim is to be an asset finance aggregator that settles over $1bn in transactions and continues to see that number grow. We want to be the asset finance aggregator brokers can’t imagine doing business without” 54

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2009 JOINS BROKING INDUSTRY A business relationship at the dealership led Starrenburg to Connective.

As Connective’s Victorian sales manager, he had to recruit brokers and offer solutions to its broker network. He also conducted professional development training to equip brokers with the skills needed to become and remain successful. “It was a rapid learning experience because I wasn’t really across the mortgage industry, let alone the role of an aggregator.”

2013 ACCEPTS NEWLY FORMED POSITION Connective offered Starrenburg a position focused on helping brokers grow the firm’s asset finance division. Being Connective’s national BDM for plant and equipment gave him an opportunity to take on responsibilities the aggregator hadn’t offered before. “Given my background in the motor dealer space, I was able to provide training and support to brokers. I taught them some of the typical dealer tactics, and that saw consistent year-on-year growth of 30–35% in settlements.”

2018 SEES BUSINESS VOLUME DOUBLE The year has begun well for Starrenburg, with business volume increasing by approximately 116%. His team provides asset brokers with a clear, transparent aggregation model like the one they have in the mortgage space.

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OTHER LIFE

“Another factor that continues to draw me to the law is my belief in the justice system and the legal process”

4

2

8–10

Number of years it will take Halliwell Number of nights per week Number of hours per day he spends to complete the Juris Doctor he attends class during term time studying on weekends

INSPIRED BY THE LAW Advantedge GM Brett Halliwell juggles his day job as a banker with his after-hours law school studies, making a lifelong dream come true WHEN ADVANTEDGE general manager Brett Halliwell was a teenager, he used to spend his school holidays watching court proceedings.

That interest and passion for the law was kindled within him over many years until it finally drove him to enrol in a graduate degree in law at Melbourne's Monash University.

“I have always had a keen interest in courtroom proceedings, and I think

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there is something exciting and inspiring about how courts uphold principles that underpin the effective functioning of our broader society,” Halliwell says.

He now juggles his full-time job at NAB with lectures and tutorials after work, and spends hours studying on the weekends. This challenging balancing act requires time management, as well as support and flexibility, which he praises Advantedge and NAB for giving him.

“It’s great to work for a business where higher education is both encouraged and supported,” he says.

Going back to school to supplement his other tertiary education in commerce, finance and business management has given Halliwell a new way of thinking and problem-solving.

“I am grateful for the opportunity to academically pursue something I have had a genuine interest in my entire life.”