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Macquaries $16bn aggregator takes shape
POST APPROVED PP255003/06906$4.95 ISSUE 6.22
November 2009
The fog surrounding Macquarie Banks play in the aggregation
space appears to be lifting as details start to emerge about the
new business venture.
At the time of going to press, a source close to the deal told
Australian Broker that the scheme was still moving forward with key
points being finalised and an expected start date of
mid-November.
All the agreements are here. We are just going through the
legalities, AB was told.
It was confirmed that the three aggregators who have signed up
to the co-operative are Sydney-based National Brokers Group, The
Brokerage and The Mortgage Professionals.
Based on research carried out by sister publication MPA,
combining these three businesses would give Macquarie an
aggregation business in excess of 1,000 brokers and a loan book of
around the $16bn mark.
This would rank it among the five biggest aggregators in the
country and would give Macquarie a significant foothold in the
broker market.
The industry source said as many as two or three other
businesses were in peripheral talks with Macquarie while Australian
Broker is also aware
that at least one other aggregator was invited to join the
venture, but declined.
South African-born IT executive Jeffrey Zulman is expected to be
CEO of the new business, while Macquarie division director Tim
Brown is also involved in putting the merger together. With Zulman
at the helm, a big focus will be on
the technology platform, believed to be one of the big selling
points of the new entity.
This information aside, details of how the business will operate
have not yet been divulged and the bank has remained extremely
reticent on its plans.
Macquarie Bank set to launch new venture
Resilient first homebuyers
Bet local
Lying about the truth
RAMS says that first homebuyers will remain in the market
despite the end of the boosts and possible interest rate rises
Australian shares continue to provide better return prospects
than mainstream global shares dominated by the US, Europe and
Japan
Even if youre telling the truth, if you give off the wrong
signals, borrowers may not believe you anyway. Melbourne Business
School Professor Karen Jehn pinpoints these signals
Page 18>>
Page 26>>
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Challenger businesses, NAB Broker kept separateFollowing the
acquisition of the Challenger mortgage management business, Matt
Lawler revealed a new third party structure at the October roadshow
that will see the three aggregators operate as a separate entity to
NAB Broker.
A new division called NAB partnerships led by Lawler will
operate under the NAB retail banking division.
NAB Partnerships will consist of two divisions a wholesale
division incorporating NAB Broker and Advantedge, an advice
division incorporating the three aggregators PLAN, Choice and FAST
acquired from Challenger.
While the businesses will remain separate, with the focus on
offering an undifferentiated, impartial service regardless of
whether a broker is part of a NAB-owned group or another
aggregator, Flavell said NAB Broker would be vying for its slice of
the business from brokers and aggregators in the Challenger
group.
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NAB Broker set up for better service
John Flavell has begun his tenure as GM for distribution at NAB
Broker, by revealing an enhanced service proposition. Speaking at
the October NAB Broker roadshow, Flavell said service enhancements
had been
made in submissions, verification, underwriting, valuations and
mortgage insurance.
In terms of submission, he said NAB Broker was committed to
providing brokers with a comprehensive and up-to-date view of what
is required in terms of documentation and checklists.
On the underwriting front, he said the bank would no longer
consider maybe credit applications, where only 10% of these
actually went through to unconditional approval, while chewing up
time and resources of both the bank and brokers.
A quick no, is often much better than a maybe or long protracted
no, he said.
Flavell apologised to brokers for the absolutely horrible
service they received earlier in the year.
to the extent that it had an
impact on our relationship with you and the impact it had on
your relationship with your customers, you have my apology and that
of the team at NAB Broker, he said.
At the height of the crisis (MarchMay) time to unconditional
approval at NAB Broker ballooned to 30 days. But Flavell put to bed
any conspiracy theories that the bank may have deliberately
designed the slowdown saying the grey hairs on his head were not
part of any strategy
The delays, he said, were the result of three environmental
factors (consolidation, tighter lending and an influx of first
homebuyers) and two factors contributed by NAB.
Firstly, the bank had got the timing wrong when it chose to
centralise its mortgage processing; and secondly, it gave brokers
just one months notice that from May, only four-star brokers would
have access to 95%+ LVR loans at a time when other lenders were
pulling out of the high LVR space entirely.
John Flavell
NAB key third party executivesLisa Gray NAB personal banking
group executiveMatt Lawler GM of NAB Partnerships
Heading up NAB Broker wholesale business
John Flavell, GM for distribution.Advantedge aggregation
business
Drew HallSteve WestonBrendan ODonnell (Choice)Ray Hair
(PLAN)Steve Kane (FAST)
Whos who
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Hall said Challenger had held the belief that term funding for
the non-bank sector still had material headwinds facing it.
Principally, it felt that the securitisation market, the
mortgage managers traditional form of funding, would not yield the
same volume it had prior to the onset of the GFC.
So we were looking for an alternate funding source, and NAB was
the perfect partner for that, he said.
Also, Hall identified mortgage insurance as another business
hurdle which put the non-banks at a competitive disadvantage, being
required to hold mortgage insurance on some deals not required by
the banks. In terms of the cost of the insurance premium and the
extra set of hands that the applications need to be assessed by, he
said. Another business hurdle
Challenger faced was that a large proportion of money market
funds investors were no longer investing in RMBS and Hall didnt
expect them to return in a hurry.
Only the banks treasury areas and some real money investors
might still be in the market to buy RMBS, he said.
But he added that these made
Material headwinds prompted NAB deal: Challenger
Fresh from being named as one of Australias richest bachelors,
Wayne Ormond, MD of Refund Home Loans, has told AB the mortgage
broking franchise will vigorously defend itself against allegations
made by the ACCC that it breached the Trade Practices
grind, he said.Proceedings commenced in the
Federal Courts fast track list in Brisbane on 12 October 2009
with a scheduling conference listed for 4 December 2009.
The 2009 BRW Young Rich List revealed that Ormond had amassed a
personal fortune of $25m.
Defiant Ormond
up only 40% of the traditional investors in RMBS. The lost 60%
are now investing in government bonds and other government
guaranteed instruments, he said.
A further impediment Challenger faced prior to the NAB
acquisition was that warehousing, the first step in the loan
funding chain, had become more difficult and expensive to
obtain.
In the new order, the Challenger mortgage management business is
to be re-branded and will sit under the newly-formed NAB
Partnerships business area.
It will be run independently, a bit like MLC, Steve Weston,
general manager for distribution at Advantagedge told AB.
All but five of Challengers 400 staff will move across under the
NAB ownership an outcome which Weston describes as being terrific
as well.
Drew Hall
The ACCC is seeking declarations that the alleged statements
breached the Act
Ormond claimed the action was in relation to a dispute some
years ago involving ex-franchisees. We have no current disputes.
All our franchisees are happy, I believe it is a couple of
ex-franchisees with an axe to
Challenger looking aheadSecuritisation market unlikely to
return same volumeMortgage insurance puts
non-banks at competitive disadvantage
Reduced investment in RMBSWarehousing facilities difficult
and expensive to obtainAdvantagedge to remain
independent
Key points
When Challenger made the decision to sell its mortgage
management operations to NAB it was looking to the future, said
Drew Hall, Advantagedges CEO (formerly CEO of Challenger Mortgage
Management)
Speaking at PLAN Australias Celebrate and Accelerate member
conference in Cairns,
Previous ACCC dealingsWayne Ormond has dealt with the ACCC in
the past, though on the other side of the fence.
In 2004, Ormond complained to the ACCC that ANZ sought to cap
the amount of money a similar business, Mortgage Refunds, could
return to customers. Following its collapse, the intellectual
property of Mortgage Refunds was acquired by Refund Home Loans in
May 2007.
In August 2007 the ACCC instituted proceedings in the Federal
Court against ANZ in relation to Mortgage Refunds. The ACCC sought
a declaration that ANZ contravened the price fixing provisions of
the Trade Practices Act 1974 by seeking to limit the level of
refund Mortgage Refunds could provide to customers in respect of
ANZ home loans. ANZ is the only major bank not listed as a lender
on the Refund Home Loans website.
Act. The competition watchdog announced on 20 October that it
had commenced proceedings against Refund Home Loans and Wayne
Ormond over allegations that Ormond made false and misleading
representations in breach of the Trade Practices Act 1974 about
having a special relationship with the ACCC.
The statement read: It is alleged that Mr Ormond made statements
over a number of years to franchisees to the effect that the
ACCC:advisedRefundHomeLoans
and Mr Ormond about their conduct towards franchisees
approvedactiontakenbyRefund Home Loans in respect of franchisees
and former franchisees with whom it was in dispute.
Wayne Ormond
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Quite appropriately, NAB chose the completion of its acquisition
of the Challenger Mortgage Management business to unveil a new
brand for its aggregation platform, renaming it Advantedge.
The new entity will sit within the newly-created division of NAB
Partnerships alongside, but separate, from NAB Broker.
Matt Lawler, executive general manager at NAB Partnerships, said
the creation of NAB Partnerships and the acquisition of Advantedge
marked the completion of an important milestone for NAB Personal
Banking. NAB Partnerships provides us with a great platform to
build relationships with brokers, mortgage managers and financial
planners, he said.
Lawler added that the mortgage broking and the mortgage
management segment was an important component of the home lending
landscape, and that the Challenger acquisition gave NAB the
capability to increase its footprint in this growing market.
One of the significant benefits from this acquisition is in
gaining the talents of the teams from Advantedge, PLAN, Choice and
FAST were very excited to welcome them all to NAB, he said.
Announcing the new brand, Drew Hall, Advantedges chief executive
officer, said: This business is about giving brokers and mortgage
managers an edge in business with great lending products,
sophisticated systems and support in the new credit legislation
world.
The PLAN, Choice and FAST aggregator brands remain unchanged and
will continue to operate as standalone businesses.
Kathy Cummings, executive general manager for third party
banking at the CBA, says the bank is working with aggregators to
encourage those brokers with weak competency levels out of the
mortgage industry.
She said she had the support of its head agreement holders as it
identifies those brokers that are operating on a casual basis (as
part of its segmentation program).
Cummings said the CBA was working in consultation with these
agreement holders to move those brokers identified as not having
the required competency levels out of the industry.
However, for those that do wish to continue writing loans, she
said that the bank was more than happy to give them the opportunity
to retrain.
If they want to pay $500 every 12 months to retrain, thats fine,
Cummings said.
Brokers need to have full product knowledge and understanding
because anything they recommend, the bank is going to be held
accountable for.
We need to know that when they are sitting in front of the
customer, they are giving them the right product, explained
Cummings.
James Sheffield, GM for Mortgage Wealth, said with new
regulations about to come in, it should be kept in mind that there
would be criminal, not just civil penalties, for wrong advice.
He said there were two tiers in the industry the really
professional brokers and those just out there to make money, the
taxi driver by day, broker by night operator.
NAB hoping to gain Advantedge
But Cummings said the CBA had no issue with genuine part-time
brokers doing 30 hours per week but it did have an issue with
someone who spends just 10 or 20 hours a week.
Those doing broking on the side, are the real concern I think
there are quite a lot of these, she said.
Concern was also expressed at other finance professionals
financial planners and accountants writing one loan a month, who
were putting their businesses at risk.
CBA: poor performers must go
Kathy Cummings
Top brokers understand cost of funds The CBAs Diamond brokers
have a good grasp of how increasing cost of funds affect mortgage
rates, according to Kathy Cummings.
Diamond brokers have all been shown a video presentation by Lyn
Cobley, CBA group treasurer, explaining how wholesale funding costs
have jumped dramatically in the wake of the GFC.
Having this understanding, Cummings said, meant brokers were
able to have a good conversation with their clients and help them
work through the various product offerings whether to fix or stick
with a variable rate product.
She said it was important that brokers understood the economics
behind mortgages.
The video, shown to Australian Broker as a part of a media
briefing, explained that wholesale funding from institutional
investors accounts for 42% of the CBAs total funding base, with the
remainder made up of retail deposits.
The spreads (on wholesale funding) are coming in, but they are
still at incredibly high levels [compared to pre-GFC], Cobley
said.
As a result, when cheaper wholesale funding is rolled over, the
bank has to replace it with more expensive funding, pushing up the
costs of both its fixed rate and variable rate mortgages.
The presentation also highlighted the fact that a fixed rate
mortgage is determined on a different basis to variable rate
mortgages the former based around the fixed interest swap rate
(plus long-term wholesale funding costs), the latter on the RBA
cash rate (plus a risk cost, plus long-term wholesale funding
costs).
To the growing frustration of the CBA, many journalists, still
make the mistake of linking fixed rates to the cash rate, said GM
for Mortgage Wealth, James Sheffield.
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Research taken by the Loan Market Group has pinpointed key areas
brokers need to focus on if they wish to be successful: be experts,
build trust and develop ongoing relationships with your clients.
This was the key message delivered by executive chairman Sam White
as part of his opening address at the groups international broker
retreat held
in Melbourne on 2123 October. Everyone we spoke to agreed that,
fundamentally, what we sell is trust, White said.
Prior to the conference, the aggregator conducted a number of
focus groups involving different clients in different cities aimed
at shaping communication strategies for the year ahead.
Out of these sessions, White said, the understanding had come
out that customers expect brokers to be experts on the market and
on the products available.
The importance of offering advice and building a long-term
relationship with clients also struck a chord with consumers.
Consumers look to us to be advisors. Its not just the deal that
they want done they also want us to have an ongoing relationship
with them.
Post-GFC, borrowers want more security and more stability with
those who help them make financial decisions. They want to know
there is continuity in the
Be trusted advisors and build relationships
relationship, he said. Loan Market also uncovered a degree of
negativity towards the banks: Those that dealt with branches felt
their branch manager was not as capable as their broker.
In addition, customers showed little brand loyalty: They are
happy to move [lenders], but they need to understand why, White
said. One surprise finding, he noted was just how knowledgeable
the consumers are becoming with many doing research online before
their appointments.
As a result, borrowers dont want to be patronised, they dont
like to be talked down to that really annoys them.
Current affairs jabDuring his opening conference address, Loan
Market chairman Sam White contrasted the current strong positivity
about brokers generated from its own vox pops and customer research
with what made headlines in some current affairs shows.
With more than a hint of sarcasm, he referred to these shows as
examples of quality journalism.
White was more than likely referring to a particular piece of
quality journalism Channel Nines A Current Affair show, which in
early 2008 ran with a sensationalistic story about Loan Market
broker Nicole Orchard alleging that she told a borrower to submit a
fake statutory declaration even if it was signed by the borrowers
dog.
At the time the program was aired Ray White issued a statement
saying Orchard regretted her offhand comments and that they were
the product of frustration and not intended to be taken literally.
Loan Market said it was considering legal action and described the
report as demonstrably false and defamatory.
Orchard was suspended by the MFAA for three months, but was
later cleared by the Credit Ombudsman Service (COSL).
The segment about Orchard can no longer be found on the A
Current Affair website.
Sam White
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It may have taken seven years, but the death knell of
inconsistent, and in some cases, ineffective state-based broker
regulation has been sounded.
On the 26 October the Senate approved the National Consumer
Credit Protection and Financial Services Modernisation reforms.
As a result a single, standard, national law for the regulation
of consumer credit will commence on 1 July 2010 with broker
registrations kicking off three months earlier on 1 April.
FBAA national president Peter White described it as a
significant moment that would shape the industry.
Its something that has been worked on forever and a day and is a
long time coming. But its now done and dusted things are now set in
stone, he said.
White said he had been involved in lobbying for a new regulatory
model as far back as 2003. He said what had been put together was
as fair and reasonable as it could be expected.
Issues will arise and things will need to be reviewed. he
said.
MFAA chief executive officer Phil Naylor described the passing
of the bill as a welcome but long overdue event.
It is the culmination of seven years lobbying by the MFAA for
national regulation. Its principal object is to protect consumers
from irresponsible lending from whatever source, he said.
While the early focus was on brokers, Naylor said he welcomed
the governments acceptance of the MFAA view that if their desire is
to protect consumers, they must provide legislation which regulates
the whole credit industry.
He said no MFAA member should have any difficulty in obtaining
and maintaining a licence.
While we are still working with Treasury and ASIC as they
finalise details of regulations and guidance papers accompanying
the legislation, we think the legislation, as passed, gets it
pretty well right, he said.
Besides regulating brokers, the new laws will also see for the
first time consumer protections and regulation put in place for
margin loans, as well as the national regulation of trustees and
debentures.
These reforms have really been a long time coming, minister for
financial services, Chris Bowen said.
They will help provide greater certainty to the credit sector
while strengthening the range of protections that are in place for
vulnerable consumers.
The focus for the government now is bedding down these reforms
and working with key industry and consumer groups as well as the
credit regulator, ASIC to allow for a smooth transition to the
National Consumer Credit Code, he said.
Brokers reserve biggest cheer for ANZ
If theres one thing the Loan Market Group International Broker
Retreat made absolutely clear, it is this: brokers do not like
minimum volume quotas.
A huge cheer erupted from the audience when Tim Brookhouse,
senior BDM at ANZ, said the bank had no intention at this point of
putting in minimum volume quotas.
Glenn Haslam (head of broker distribution) has the view that if
a customer wants to come to ANZ, we should not stop them from
coming to ANZ simply because they use a broker that does not use us
a lot, said Brookhouse.
His comments came towards the end of a lively panel discussion
involving third party banking executives.
The discussion on minimum volume requirements was kicked off by
moderator Sam White, who asked the banks to explain some of the
thinking behind their policies.
Emoke Palos, state manager for the CBA in Victoria, defended the
banks controversial policy of four loans required every six
months.
Its eight deals in a year, not even one deal a month to a major
lender, she said.
Palos said the CBA had identified around 5,000 of its 8,000
brokers which it categorised as D brokers those that submit between
zero and 10 deals per year. If you submit only one deal a year, how
up to date are you on the products you are offering?
She backed this up by saying statistical information revealed
that complaints the bank received related mainly to brokers who
submit one or two or three deals a year.
But she said the requirement was only a starting point and would
change.
Westpacs Victoria state manager, Michael Ianchello, said its
minimum quota (one deal every six months) was also based around
quality.
Ianchello said conversion rates at the bank were sitting at
about 60% across the industry.
Submitting one deal every six months should not be an issue when
about one in every five deals is a Westpac product, he said.
Seven years wait for licensing finally over
1 April to 30 June 2010 brokers must register with ASIC
1 July to 30 Dec 2010 brokers must be registered or hold ACL
1 July 2010National Credit Code (NCC) begins, state enforcement
of UCCC ceasesrequirement not to arrange or provide credit that is
unsuitable begins (non-ADIs, non-RFCs only)
31st Dec 2010all registered brokers must have applied for an
ACL
1 Jan 2011 requirement not to arrange or provide credit that is
unsuitable applies to ADIs and RFCsOther Responsible Lending
Obligations (including disclosure requirements, such as the
provision of quotes, credit guides and assessments) commence
30 June 2011all registration cancelled (brokers must hold
ACL)
Regulation timeline:
The meat in the sandwichBrokers may consider themselves the
industrys middlemen, but it seems the feeling of being the meat in
the sandwich applies to bank BDMs as well.
The sentiment to come out of the panel discussion at the Loan
Market conference was that BDMs face frustrations of their own in
trying to communicate head office policy changes to brokers, some
of which BDMs might not actually agree with themselves.
Emoke Palos from the CBA said: As a sales team we need to accept
that things change there may be a lot we dont agree with, but we
need to accept that and find a way to make it work for the
individual broker. That is what we concentrate on.
Mark Woolnough, head of partnerships at ING, said BDMs needed to
be strong, be able to understand the reasons behind decisions and
then articulate these with clarity to the people that they deal
with.
At times there are difficult conversations that have to be had
that goes with the territory. But you deal with it and get on with
it, he said.
Brokers though should avoid losing their temper when speaking to
a BDM about these changes.
Palos said when she received a heated call from a broker she
would cut them off and ask to speak to them at a later time when
the emotion is out of the conversation.
Emotion just creates more emotion, she said.
Loan Market panel discussion
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LJ Hooker Financial Services is likely to increase its
recruitment targets following the real estate group returning to
the family fold in October.
Peter Bromley, GM of LJ Hooker Financial Services Operations,
told Australian Broker that it would be looking for more brokers
than originally planned. In February this year, the company
announced it was on the hunt for 100 brokers to supplement its real
estate business.
Asked what would attract brokers to LJ Hooker, Bromley said it
was the opportunity to be part of a key industry brand, access to
the LJ Hooker network and the ability to build relationships with
local real estate offices.
Looking ahead over the next 12 months, Bromley said his
priorities would be to expand the franchising model to align it
with the recruitment strategy and looking at ways to integrate
financial services into the real estate business to create a client
for life.
The Rudd government is correct in thinking that the aggression
it showed in stimulating the economy has been really important in
Australias economic recovery but it was only able to do so because
the dollars were available for it to spend in the first place,
according to chief economist at Commonwealth Securities Craig
James.
Government would like to think they have solved the problem by
putting the dollars into the economy; $900 into the peoples
pockets, money spent on schools and small business tax breaks but
they were only able to do that because the budget was in surplus,
he told PLAN Australia brokers attending the annual conference in
Cairns.
So the current government can say they did the right thing, he
said, but equally the previous government can claim it left office
with the country in good shape in terms of a budget surplus. By
paying off all its debts, the
From the top executives to brokers at the coal face, the mood in
the industry is almost unrecognisable from what it was 12 months
ago.
A new sense of optimism was obvious to anyone attending either
the PLAN Australia or Loan Market Group annual conferences held in
Cairns and Melbourne respectively.
Both conferences focused on the strength of the broker
proposition despite enormous challenges and the opportunities for
growth in 2010 a far cry from the doom and gloom at the start of
the year.
In Cairns, the mood was encapsulated in the theme of the
conference celebrate and accelerate with growth being the central
message.
Perhaps the spirit can be summed up best by Challengers Steve
Weston in just two words: What GFC?
A few thousand kilometres down the Eastern seaboard, Loan Market
executive chairman Sam White, was congratulating brokers on their
resilience and reminding them that the
Government aggressive stimulus played leading role in
recovery
Credit also to previous government for budget surplus
Also to RBA, credit unions and banking sector
Key points
Brokers and real estate: the major market players
Real estate business
Broker arm
LJ HookerLJ Hooker Financial Services
Ray WhiteLoan Market Group
McGrath Estate Agents
Oxygen Home Loans
Century 21Century 21 Home Loans
Raine & Horne
Raine & Horne Financial Services
A shift in the moodindustrys customer proposition remained
stronger than ever.
Despite all the turmoil, the confusion and frustration, at a
time when the broker proposition was being challenged like never
before, our share of market actually grew, he said.
Our key reason for being has actually improved during this
time.
Such upbeatness tallied well with similar sentiment forming at
the top end of the industry.
According to a survey of the financial services industry
undertaken by Finsia, morale has remained surprisingly robust, with
72% of senior industry professionals saying that they are either as
optimistic or more so than one year ago with regard to the overall
job security within their workplace.
Another positive finding was that nearly two-thirds (63%)
believe that the actions taken by their organisations in response
to the crisis had not jeopardised the integrity of those companies
to the point where prospective future employees may be deterred
Govt not alone in engineering Aussie recovery
previous government can claim some credit as well, said
James.
Equally, the RBA did the right thing by slashing interest
rates.
And the unions can also claim some credit too since they have
not been out agitating employers for wage increases, he said.
James also paid credit to the banking sector for the recovery,
which he described as having been super strong.
So there are a number of areas that can claim credit for the
economic recovery. It wasnt just from the government spending money
on the economic stimulus package, said James.
from joining. Commenting on the survey findings, Dr Martin Fahy,
chief executive officer of Finsia, said: As we closed this survey
one year to the day of the Lehman Brothers collapse in the US, the
overriding conclusion was that Australia, on account of its
enviable regulatory environment, has so far escaped this crisis
lightly. And while pointing out that up to 10,000 jobs had been
cut across the Australian financial services industry in the last
year, he said that the industry had maintained an overwhelming
sense of optimism which has held up despite the sacrifices and
adjustments this period has demanded.
LJ Hooker to expand broker recruitment
The sale of the LJ Hooker business back to Janusz Hooker, the
grandson of founder, Sir Leslie Hooker, came about at the same time
as another real estate group, Ray White, took 100% ownership of
mortgage broker, Loan Market Group.
Bromley said these developments were a good thing for the
industry. Owning both sides (broking and real estate) is a key
benefit, he said.
He described the sale of the business back to the founding
Hooker family as very positive.
All smiles at the PLAN Conference: (LR) Warren Tahere, Sandra
Vallance and Kerry Kalendra
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14
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Suburban mainstream
Disadvantaged fringe
Battling urban All segments
Sept 2009 56,678 41,303 24,498 166,750
June 2010* 83,264 56,119 33,297 229,253*Fujitsu Consulting
estimate
Number of households in severe stress
Source: The Fujitsu Consulting September stress report
Australias middle class are suffering more severe stress than
any other household group, according to the September 2009 Fujitsu
Consulting Mortgage Stress report.
The report said severely stressed households (those facing a
potential sale or foreclosure) rose by a further 3.9% with the
biggest proportion being in the suburban mainstream segment.
This segment is defined by Fujitsu as a mix of white and
blue
Having just acquired the Loan Market Group, Ray White chairman
Brian White, delivered an address at its international broker
retreat during which he admitted that no one had as yet got the
real estatemortgage broker partnership right.
And while he said the Ray White and Loan Market Group
partnership was still so far below the potential that could be
achieved by working together, he was quick to divert attention to
rival real estate and financial services group LJ Hooker, which
recently ended its two-decade-long ownership by Suncorp Bank.
Suncorp purchased the LJ Hooker business 20 years ago
Ray White sticks knife into biggest rivalwith the intention of
growing the business and it was a disaster, White told the more
than 220 brokers present in the room.
In response, a spokesperson for Suncorp hit back: LJ Hooker
remains one of the strongest real estate brands in Australia and
the returns that we received from our interest in that business
were very good.
The sale to Janusz Hooker was a good move for Suncorp and its
shareholders and it was also the right move for LJ Hooker and we
look forward to seeing that business continue to prosper under his
leadership.
As part of a statement made following the Hooker family
Middle classes feeling the strain
collar workers in a variety of industries, predominantly not as
decision makers, many have children and they earn above average
income.
The biggest cause of mortgage stress among the middle class was
investment performance followed by fear of unemployment and fear of
redundancy.
The most stressed out segment (combining mild and severe stress
numbers) was the disadvantaged fringe which were those
re-acquiring the business back from Suncorp for $67m, executive
chairman Janusz Hooker thanked Suncorp for taking care of the
business. He commended the bank for actually expanding the LJ
Hooker network over the past two decades.
Besides having a dig at his rivals and expressing his concerns
at the failure of the real estate and broker partnerships to live
up to its potential, Whites presentation was largely focused on
leadership. He urged brokers to develop into business leaders and
to not be afraid of the challenge of leadership.
Profit is the payment you receive for good leadership, he
Australias biggest real estate chains
*Ray White 870 offices
*LJ Hooker 535 offices
*Raine & Horne Less than 450
First National Less than 450
*Elders 400
*Century 21 260*Also have a broker arm
Source: AFR, Macquarie
households living in disadvantaged peripheral urban and country
areas with low income levels where state rental accommodation is
common.
Overall, Fujitsu said the increase in severe stress was due to
short-term relief experienced though the cash stimulus packages
decaying quickly as net hours worked and incomes fell.
In totality, the report found that the number of households
experiencing some degree of mortgage stress fell by 1.1% in
September with approximately 554,000 households in some degree of
mortgage pain, compared with a peak of 900,000 in August 2008. The
future mortgage stress outlook remains
said. The mistake people make is thinking theyre not born
leaders, he added, describing the journey of leadership as a
thrilling one.
uncertain, according to the report, hinging on unemployment
levels and expected interest rate rises in the coming months.
By June 2010, Fujitsu Consulting estimates 879,000 households
will be in some degree of discomfort with perhaps as high as
229,000 in severe stress.
House price movements have been reviewed prices are now expected
to rise by up to 8% over the next 12 months, putting further stress
on affordability.
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Usually we would need to take account of what a lot of the
advanced nations are doing; but now with developed nations like the
US, UK, Japan and Germany all experiencing serious economic
contractions we have to be much more focused on what is happening
in China, according to Craig James CommSecs chief economist.
Speaking at the 2009 PLAN Australia member conference in Cairns,
he said that recently released Chinese economic data showed Chinas
retail spending was growing close to the fastest rate on
record.
And, since Chinese consumers were buying more goods like washing
machines, fridges and cars it meant Chinese manufacturers needed
additional aluminium, iron-ore and copper to produce them.
Also, it is because China is an Australian trading partner that
this increase in raw material demand will have a positive spin-off
for the Australian economy, said James.
But he warned that in economics, along with the winners come
losers there are those in Australia who will be negatively impacted
by the buoyant Chinese economy.
Immediately you think of the mining sector being one of the
winners. But the benefits spin into other sectors as well; like the
construction and transport sectors which are experiencing growth as
a result of the need for services to go out to the mining areas, he
said.
There is no doubt that the boost to the FHOG was a catalyst and
an enabler for many Australians to get a foot on the property
ladder, but expect the healthy demand it created to continue for
the rest of the year and well into next.
This is the view of RAMS head of brand and marketing, Lynne
Wyatt and it follows new research by RAMS Home Loans which found
most first homebuyers would remain in the market regardless of the
boost, even if interest rates were to increase.
We believe that in 2010 between 15 and 20% of our customers will
continue to be first homebuyers, she said.
According to the RAMS First Home Buyers Pulse Check, less than
40% of people looking to buy their first home in the next 12 months
are trying to secure a property before the boost ends at the end of
the year.
Also, it found that only 21% of the respondents suggested their
search for a first home was reliant on interest rates remaining at
their current low levels.
Wyatt was encouraged by the findings. Earlier this year we saw
an unprecedented number of first homebuyers entering the property
market. Since then we have seen their numbers return
Both CBA and Westpac have lost some ground, but they still
continue to account for more than half of the loans written by
National Mortgage Brokers (nMB), according to its October Intell
newsletter.
For August 2009, CBA accounted for 29.2% and Westpac accounted
for 23.2%, for a combined 52.4% of the nMB loan book. This compares
with a combined 55.3% for the 2010 year to date figure (CBA 31.1%,
Westpac 24.2%).
Traditional developed nations experiencing serious economic
contraction
China growing at near record levels
Demand increase for Australian resources
Economic winners and economic losers
Mining sector, spin offs to benefit
Tourism set to suffer
Key points
Big two still dominant at nMB
Lenders to gain ground were ANZ, up to 12.9% (from 10.1% for the
year to date) and BankWest which claimed fifth spot from NABs
Homeside with 5.28%.
nMBs fourth biggest lender was St.George, which saw a slight
drop in business, down from 9.7% for the year to date to 9.1% for
August.
With over 200 brokers, the nMB loan book provides a good overall
snapshot as to the dominance of the Big two in the mortgage
space.
Resilient first homebuyers to remain in the market: RAMS
to a more sustainable level as the pent up demand of the last
few years has been satisfied, she said. The reports results point
to a real resilience amongst first homebuyers.
In the first Pulse Check report, released in April 2009, 70% of
first home seekers said they had been influenced to look for their
first home by the boost, while the findings of the second survey
indicated the influence of the FHOG had diminished as the year
progressed.
In addition, the report found that 30% of first homebuyers were
triggered by getting a steady job to look for their first home.
This has overtaken moving in with a partner as the number one
reason first homebuyers gave to start looking for their first home,
said Wyatt.
The biggest barrier to entering the market was high property
prices. This was followed by not having the ability to save for a
decent deposit.
The percentage of respondents citing a fear of not being able to
meet repayments as a barrier dropped from 10% to 6%.
Perhaps this is as a result of the Australian economy not
struggling to the extent many had feared, said Wyatt.
Economic recovery emphasis placed on China
Also, if the mining sector is doing well it will have extra
income to invest in the share and property markets.
But other areas in the economy will be experiencing more
difficult times, warned James.
He used Cairns as an example. This sort of economy in this
sort of region is doing it tough and part of the reason is that
they rely on tourism, he said.
With the Aussie dollar up at US$0.93 in October from US$0.63 in
March, it means a lot of Australians are going overseas for their
holidays and less overseas tourists are likely to come to Australia
because its cheaper to go to other places.
James said that it was an economic reality to always have both
winners and losers regardless of whether the markets were
performing well or poorly.
What we have to do is sort that out, and see what each economic
cycle means in terms of our own businesses, he said.
FHOG helped many Australians get into the property market
Demand will remain high despite boost being withdrawn
RAMS anticipates as much as 20% of new business from first
homebuyers
Higher interest rates not a deterrent
Getting a steady job is the main buying criteria
No fear for high prices, or meeting repayments
Key points
Lynne Wyatt
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Not only must brokers have a strong online presence, but they
need to ensure their websites rank prominently on Google, according
to Loan Market executive chairman Sam White. Speaking at the
aggregators annual
conference, White stressed the importance of a brokers
individual online presence in attracting business and generating a
positive perception about how they operate.
Clients search for and find mortgage brokers firstly through
word of mouth and secondly through Google, White said.
Research carried out by the Loan Market Group uncovered how
brokers use Google to find a broker: What we found is that
borrowers are Googling mortgage brokers in their area, he said,
then seeing who comes up and starting from there.
During his talk, White presented a screen shot of a broker that
appeared at the top of a Google search.
We must get our websites set up so they are optimised for Google
we have got to be doing that, he said.
Its disappointing that our web presence is not better, given
that the resources are there to create and drive our own profiles
online, he added.
Just having a web presence though is not good enough.
Clients dont just want a name and number as part of an online
presence, they want to get a feeling of who they are dealing with
and whether, through their web presence, the broker demonstrates
professionalism, White said.
And not only are borrowers using the web to find a broker. After
meeting with a broker, many are going online to verify the details
of that broker and to see if they should have any concerns about
him or her.
Loan Market Group is not the only aggregator to focus on the
web, and more specifically using Google as a business tool.
Franchise group Mortgage Choice recently announced it was
transitioning staff and franchisees to Google Apps which is Googles
suite of enterprise communication and collaboration tools.
Mortgage Choice said that by the end of 2009, the
franchisors
entire operations (1,000 users) would be running Gmail. To date,
the franchise group has transitioned more than 400 of its users to
Gmail, and is also using Google Sites for planning, collaboration
and information sharing through written and video
communication.
Mortgage Choice CEO Michael Russell said going Google would
result in a more productive mortgage broker network and staff than
previously achieved.
We're actively preparing to deploy further web-based
applications across our entire business, he said.
Google second best referral source
Google search a great referral tool Loan Market research
Brokers need a strong web presence
Website must be optimised for Google search
Websites must be personalised and promote professionalism
Key points
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21www.brokernews.com.au
Dutch bank ING Direct, which sells its mortgages via brokers,
has scored a customer satisfaction rating of 84.2%, soundly beating
the major banks. This was the finding of the latest Roy Morgan
research, which put current satisfaction levels at the CBA,
Westpac, ANZ and NAB at a combined 71.7%. By far the most satisfied
customers were those of building societies (87.9%) and credit
unions (86%). The strong showing of ING correlates strongly with
the MPA Brokers on Banks survey carried out earlier this year,
which ranked ING Direct second behind AMP on overall service. ING
Direct ranked first on broker support in the MPA survey and second
on BDM support.
Stephen Mark ONeill, of Port Melbourne, Victoria, director of
equity release scheme Money For Living (Australia) Pty Ltd and MFL
Property Holdings Pty (both in liquidation) was sentenced to
perform 150 hours unpaid community work over 12 months. He was
convicted on two charges of managing a corporation while
disqualified. The charges were brought by ASIC. Money for Living,
which collapsed in September 2005, targeted elderly retirees. It
offered a loan, similar in some respects to a reverse mortgage that
allowed owners to sell their home, be given a lump sum and monthly
payments for the term of the mortgage, and be guaranteed lifetime
tenancy.
Aggregator Connective has ranked 24th overall on the 2009 BRW
Fast 100 list. Were obviously very pleased with our ranking as its
the pre-eminent recognition of Australias fastest growing companies
across all sectors, said principal, Mark Haron. There were only
four companies from the finance and insurance sector in the top 100
and of these, Connective was ranked highest, he added. Haron said
the ranking on the list was testament to Connectives unique
business model as well as the dedication and hard work of the team.
In the last 12 months, Connective broker numbers have grown by 65%,
and its loan book has eclipsed $14bn.
Overall net profit at NAB fell 42.9% to $2.6bn for the 2009
financial year ending 30 September, while its mortgage book
recorded just 4% growth. The NAB home loan book rose by $6bn (4%)
to $154bn, below system growth. NAB Group CEO Cameron Clyne
described the acquisition of the Challenger mortgage management
business as an important component of NABs retail banking growth
strategy. He attributed the decline in net profit to several
longstanding and previously announced legal and tax proceedings,
accounting volatility, and investment in the Efficiency, Quality
& Service program which was not reported as an operating
expense, consistent with the March 2009 half year results.
ING beats big four on service
Community sentence for Money for Living director
Connective rapid expansion recognised
Small growth in NAB mortgage book
INduStry NEWS IN BrIEF
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That the Commonwealth Bank has more diamond brokers from PLAN
than from any other major aggregator is testament to the quality
within the business, according to Sam Boer, GM for broker sales at
the CBA.
In addition Boer said quality was something that brokers would
hear about more often from the CBA as it was likely to become more
important in the new era both in terms of the brokers role and in
the role of the CBA.
[At the CBA] were all about quality deals, quality brokers,
professionalism and regulation, he told the auditorium of brokers
at the PLAN annual conference in Cairns. Boer said that in spite of
the economic recovery the market was about to get tougher, and that
brokers who understood the implications of that would do well.
He said people who were investing in their businesses and making
the necessary changes would be the ones to prosper.
Australian home prices grew by 3.7% in the September quarter the
highest quarterly growth seen in six years.
The Australian Property Monitors (APM) September Quarterly House
Price Series report found that the rapid turn-around has been
fuelled largely by more expensive houses which were hardest hit
during the downturn.
Matthew Bell, economist for APM said, the extraordinary recovery
at the upper end of the market that was experienced in June in most
major capitals has now spread to the rest of the country. Nearly
all capital city quarterly growth rates have been driven by strong
sales of the more expensive homes.
In Sydney, the countrys largest housing market, median prices in
the most expensive 50% of suburbs grew by nearly triple the rate
experienced in the least
PLAN supplies CBA with the most diamond partners
Quality set to become increasingly more important
Brokers who invest in their businesses will prosper
CBA confirms it is committed to the broker channel for the long
haul
CBA acknowledges some pain in its segmentation strategy
Key points
House prices surge in September quarter
PLAN produces the most diamonds
Adding that it was keen to partner with those prepared to make
the investment, he described the CBA as being totally committed for
the long haul. And while he agreed there would be some pain for
brokers as the bank began to execute on its segmentation strategy,
Boer said the CBA recognised the value in aligning with the people
prepared to make those necessary investments who wanted to
grow.
expensive suburbs. Another quarter of improving employment
results and the share market rising by 20% has meant that buyers
are stepping into the oversold top end of the market to purchase
properties at prices still below their late 2007 highs, added
Bell.
The report also suggested that sellers who sold properties into
the booming first home owner market over the past year have used
sale proceeds to upgrade to more expensive homes and units, placing
even more pressure on upper end markets.
Despite concerns about softening demand from first homebuyers
affecting the property market following the decrease in the First
Home Owners Grant boost in September and increasing interest rates,
mortgage brokers are reporting increases in enquiries from property
investors.
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The Balmain (MMT Mortgage) Trust, to be relaunched in November,
will be the first mortgage trust to reopen since the sector froze
last year. The sector froze 12 months ago being apolitical about it
as a direct consequence of the sovereign guarantee not being
extended to mortgage trusts. There was a heightened request for
redemptions which the sector couldnt meet, Balmain (MMT Mortgage)
Trust chief executive John Thomas said. The relaunched Balmain (MMT
Mortgage) Trust will be a term investment, rather than an on-call
investment where money is locked up for three years at a variable
rate. We believe that interest rates are on the way up, so
investors can expect their investment to go up, Thomas said.
Existing investors will also have a new offering to consider.
LMI provider Genworth Financial Australia performed soundly in
the third quarter of 2009, according to results filed by its US
parent. Revealing international mortgage insurance results,
Genworth reported that new insurance written in Australia grew 9%
versus prior year to US$8.9bn ($10bn) while Canadas new mortgage
flow grew by 14%. Genworth Australia reported a net operating
income of US$42m ($47m) in the third quarter of 2009 compared to
US$48m in the third quarter of 2008. Other good news was an
improvement in loss ratios sequentially in Canada and Australia
mortgage insurance as well as in lifestyle protection.
The US report said: International earnings reflected sound
mortgage insurance performance in Canada and Australia as housing
markets improved and economies stabilized... Overall Genworth
International reported third quarter results for 2009 of net
operating income available to Genworths common stockholders of
US$81m compared to US$220m for the same quarter last year.
Accountant, former mortgage broker and former company director
Rex Charles Goldring of Meadowbank, NSW has pled guilty in the NSW
Local Court in relation to two charges brought by ASIC and was
committed to the NSW District Court for sentence on 13 November
2009. Goldring was charged with two counts of obtaining money by
deception under the New South Wales Crimes Act in relation to
investments of almost $240,000 made by four investors. Each charge
carries a maximum penalty of five years imprisonment. Between
February and September 2004, whilst a director of Australian
Synergies Group Pty Ltd, Goldring obtained the deferral of the
repayment of loans owed by the company to investors by omitting to
tell the investors material information about their investments.
Goldring also assisted a number of investors to refinance their
mortgages and redraw equity on their property to fund the
investments he promoted. Australian Synergies Group Pty Ltd was
deregistered after its liquidation. The Commonwealth Director of
Public Prosecutions prosecuted the matter.
In a further sign that securitisation markets may be starting to
thaw, UK lender Nationwide has announced a 3.5bn ($6.2bn) issue of
residential mortgage-backed securities (RMBS). This single
transaction, due to be closed in November, is nearly 80% of the
value of the entire AOFM-backed securitisation program, which the
federal government has just recently extended by a further $8bn. It
is only the second significant securitisation deal launched since
the start of the GFC last month Lloyds Banking Group launched a 4bn
mortgage-backed bond issue. This was lauded at the time as a sign
that the securitisation markets had finally reopened. Prior to
this, the last securitisation deal was carried out in August 2008,
a 400m ($713m) issuance carried out by Alliance & Leicester.
The Nationwide RMBS is made up of prime mortgage assets with an
average LVR of approximately 65%.
Bendigo and Adelaide Bank has called on the credit ratings
agencies to upgrade its ranking, saying its funding risks are
substantially lower now than at the start of the GFC. According to
a report in BusinessDay, the bank has told investors that its
triple-B rating has marred its ability to secure funding at a
reasonable price.
First mortgage trust reopens since onset of GFC
Genworth: Sound performance in Australia
Former broker pleads guilty
uK lender launches $6.2bn rMBS
INduStry NEWS IN BrIEF
Bendigo and Adelaide Bank call for rating upgrade
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News analysis24 www.brokernews.com.au
Economic recovery: the shape of things to come
In addition, James makes an interesting point about the GFC
being the first global downturn to occur in the internet era.
Along with some good websites like the RBA website you also get
some blog and Twitter sites that spread a lot of speculation and
innuendo, he says.
So this is the first downturn where everyone in the world knows
what is happening at any one point in time, he says.
But, in the same way it exacerbated the rapid deterioration of
the markets it has enabled an equally rapid restoration of both
business and consumer confidence and a return to spending,
employing and investing.
And this 21st century phenomenon, James says, acts as an
additional stimulant that contributes to Australias swift
recovery.
That said, National Australia Bank economist Alan Oster was more
circumspect than James in his assessment of the nature of the
recovery, when delivering a talk (via video) at the recent NAB
Broker roadshow in Sydney.
Not convinced that the recovery would be as sharp as to
constitute a V shape, he feels there could be some steadying in
momentum before things began to ramp up again suggesting more of a
U-shaped return.
However, Oster is equally of the opinion that it is unlikely for
a dip to occur now and is steering clear of predicting a W-shaped
economic recovery.
For that to play out he feels something on the Lehman Brothers
scale would need to occur on the global stage first.
Meanwhile, at the recent Loan Market Group broker retreat in
Melbourne, John Pilkington, GM for liquidity operations at CBA,
said it was too early in the recovery to make accurate
predictions.
While certainly we need to have a V before a W, well need to
wait and see how the recovery develops from here, he said.
Pilkingtons feeling is that the industry has come out of the
economic downturn very strongly, but it remains hard to see the
recovery just continuing at this rate.
Expect some sort of plateau, he says.
Chief economist at CommSec, Craig James, says he is often asked
why he has been so positive about the Australian economy; so upbeat
about its prospects.
His answer is quite simply that he has gone out and spoken to
CBA customers and clients in small- and medium-sized businesses and
they have told him that the Australian economy is in good shape and
doing very well.
Going on the basis of what our customers are doing and what our
accounts are looking like overall they have been pretty good the
economic outlook remains good, he says.
That informal acid test notwithstanding, he adds that as far as
an economic recovery is concerned the fundamental facts speak for
themselves.
Australia is the only advanced nation that is showing positive
economic growth at the moment; it is one of only four advanced
nations that hasnt gone into recession over the last 12 months, and
it is the first G20 country to have lifted interest rates it is
credited with driving share markets around the world higher, he
says.
So now that the Australian economy is in recovery mode, perhaps
the real question is what shape will the recovery take?
U, V or W; or even the latest one on the block, the square-root
sign shaped recovery where you pick up and then flat line for a
period of time, he says.
While the US scenario could fit a square-root or even W-shaped
recovery, James believes the V shape is more appropriate to the
Australian recovery.
He makes the point that the current economic reality mirrors
both the 1982/83 and the 2000/01 economic cycles both of which
Australia moved swiftly out of.
All indications are that the GFC is beginning to thaw and
markets around the world are on the mend, with the Australian
economy leading the charge. Tim Neary gets the inside track from
the industry experts on how the recovery is shaping up
Australia is one
of only four advanced nations that hasnt gone into recession
over the last 12 months
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25www.brokernews.com.au
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Dr Shane Oliver is head of investment strategy and chief
economist at AMP Capital Investors Inside economics
26 www.brokernews.com.au
For brokers considering a range of investment options, AMPs
Shane Oliver says Australian shares continue to provide better
return prospects than mainstream global shares dominated by the US,
Europe and Japan
Bet local
The relative success of Australia in navigating the global
financial crisis is now widely recognised. It is the only major
developed country not to have had a recession since the early
1990s. This is owed to both good luck
and good economic management.But what does this mean for
investors in shares? Does
it mean Australian shares are a better bet than global shares?
Or has it already been factored into share markets? For example,
over the last 10 years Australian shares have dramatically
outperformed global shares
returning 9.5% pa over the last 10 years versus a loss of 0.2%
pa from global shares in local currency terms.
In fact, once allowance is made for the rise in the Australian
dollar, global shares have lost 2.3% pa over the past 10 years. Can
this outperformance continue?
The theoretical case to have more global shares The standard
arguments for Australians to have a greater exposure to global
shares are as follows:
localsharesarejust4%oftheglobalsharemarketgreaterexposuretoglobalequitiesandforeign
currency provides diversification
benefitstheAustraliansharemarketdoesnthavemuch
exposure to technology and consumer stocks and is over
represented by financials and resources
significantinternationalexposureprovidesanoffsetto our high
foreign liabilities and our high exposure to domestic assets via
residential real estate
globalsharesoffermorescopeforfundmanagerstoadd valueThe trouble
is that such arguments are highly
theoretical. The benefits of global diversification are hard to
explain given the poor returns from global shares over the last
decade. It is also debatable whether the extra opportunities
offered by global equity investing have ever been consistently
realised by fund managers, with similar or less value added
relative to benchmark returns over time compared to Australian
equity funds. These arguments also ignore the actual return
potential for Australian shares over a more relevant horizon of say
five years.
but strategic view still favours Australian sharesDespite the
theoretical case to have more global shares, for many years I have
favoured Australian shares over mainstream global shares and, even
though Australian shares have outperformed for the last 10 years,
this remains the case for the following reasons:
Firstly, despite recent cuts in dividend payments, Australian
shares pay a higher dividend yield than mainstream global shares.
In fact, the average dividend yield on Australian shares is 4%
versus 2.6% for global shares.
Secondly, the Australian economy offers higher growth potential
than those underpinning traditional global share markets in the US,
Europe and Japan. Australia is experiencing much stronger
population growth (more than double that of other developed
countries), which is feeding through into much stronger labour
force growth. In addition, Australian households have not seen the
same deterioration in their asset-to-debt ratios as has occurred
elsewhere, public sector debt is very low compared to most other
developed countries and we are heavily exposed to high growth in
Asia and
Region Dividend yield, plus
Growth, equals
Projected total return
US 2.3% 5.0% 7.3%
UK 3.6% 4.0% 7.6%
Europe 3.6% 3.8% 7.4%
Japan 1.8% 2.8% 4.6%
Asia, ex Japan 2.5% 8.0% 10.5%
World local currency
2.6% 4.7% 7.3%
Australia 4.0% (5.2*) 5.5% 9.5% (10.7*)
*Adjusted for franking credits. Source: Bloomberg, AMP Capital
Investors
Table 1: Projected medium term pre-tax equity returns, % pa
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27www.brokernews.com.au
The benefits
of global diversification are hard to explain given the poor
returns from global shares over the last decade
strength in commodity prices. Reflecting the last two points,
return projections (see Table 1) based on current dividend yields
and likely earnings growth tend to favour Australian shares.
Australian shares with a five-year pre-tax return projection of
9.5% pa come out well ahead of traditional global shares with a
return projection of 7.3% (which will be even lower if, as we
expect, the Australian dollar continues to rise).
Franking credits should not be ignored because they add over 1%
to the post-tax return from Australian shares for Australian
investors. The higher dividend yield from Australian shares and
franking credits mean Australian shares have a 2.5% pa return
advantage over traditional global shares for Australian-based
investors.
While Asian shares offer similar returns to Australian shares,
they also come with more risk. They are also only a very small
portion of traditional global share funds and so dont alter the
case for a strong bias towards Australian shares over traditional
global shares. Instead, exposure to Asian shares can be better
achieved through a specific Asian equities allocation rather than
through traditional global share funds.
Australian shares rightly at a premium to global sharesWhile
some fret that Australian shares are no longer good value as they
no longer trade at a PE discount to global shares, our view is that
they should trade at a premium.
The PE discount for Australian shares that prevailed up until
around 2005 reflected a combination of factors that are no longer
relevant. These included: a perception that Australian shares were
more volatile than global
shares; post-1987 concerns about the quality of Australian
companies; Australias past high inflation status; and Australia
missing out on the late 1990s IT bubble. In fact, over the past
decade or so, Australian-listed companies have generated better
earnings growth than global shares, despite paying out a higher
proportion of earnings as dividends and with lower risk in part
reflecting the lower volatility of the Australian economy (with no
recession in 18 years).
On this basis there is no reason why Australian shares should be
trading on a PE discount. In fact, given their higher growth
potential they should be trading at a premium. It is worth noting
that despite Australian shares lacking the breadth and
diversification of global shares, over the last century they have
had better real returns with similar volatility.
In other words, there is no long-term evidence of
under-performance by Australian shares on a risk adjusted basis. In
fact, on the contrary, Australian shares have a better long-term
track record than most global share markets.
Concluding comments On a strategic, or five-year basis, the
combination of better likely returns and franking credits suggest
investors should maintain a bias towards Australian shares over
traditional global shares.
Eventually, its possible that investor enthusiasm for Asian
shares, emerging markets generally, commodities and Australian
shares will go too far and become the next bubble but that is
several years away and in the meantime returns from such assets are
likely to be strong.
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News analysis28 www.brokernews.com.au
What was the last book you read?Leo Tolstoys Anna Karenina
If you did not live in Australia, where would you like to
live?New York for the buzz, the excitement and the energy. In a
penthouse definitely, overlooking Central Park.
If you could sit down to lunch with anyone you like, who would
it be?A few people all in the visionary category. Paul Keating, the
financial visionary who floated the Australian Dollar, the
superannuation scheme and many others. Love him or hate him, he
just did so much. Bill Gates, who revolutionised information
technology. And David Bowie, the musical visionary never afraid to
push new genre boundaries and the first to set up a bond issue on
the royalties of his music. All of them are very clever people.
What was the first job you ever had?I worked in a health food shop
when I finished high school. I learned that work was really quite
challenging, having to maintain a focus over a long period of
time.
What do you do to unwind?Although I dont have a lot of time, I
find mothering and interacting with my children to be relaxing. I
also like to run, read and spend a small amount of time alone.
Whats the most extravagant gift you ever bought yourself?In
terms of the price to volume to value ratio it has to be a pair of
True Religion jeans. The price you pay for a pair of denims is
ridiculous.
What CD is currently playing in your car stereo?Richard Clapton
The Definitive Anthology
If you could give anyone starting out in business one piece of
advice, what would it be?Run early and run hard.
If I was not working in the mortgage industry, I would like to
be?Teaching English literature to children.
Where was the last place you went on holiday?Noosa
What is the one thing most people would not know about you?When
I was about 14, I camped outside the Park Royal in Queensland
because the band Queen was staying there just to catch a sight of
them. And after all of that, I didnt even get to see them. Dont
tell my mother.
oFF thE CuFF
Lisa ClaesING directs executive director of mortgages
Dear editor,
In AB 6.19 (page 4) a broker recently culled by the MFAA made
the statement that Certificate IV is a farce. I have several points
I would like to take issue with, but will begin by saying the
broker concerned seems to have totally missed the point.
While the MFAA culled him because he didnt meet membership
standards it was in fact preparing him for the impending National
Consumer Finance Credit Act. The proposed legislation clearly
states the minimum required standard of education will be
Certificate IV in Financial Services.
I have been phoned by another experienced broker who informed me
that a piece of paper is not going to make me a better broker. I
agreed with him that it probably wont, but the point is that ASIC
wants to be able to go to the public and say all brokers have a
minimum standard of education (and that is Certificate IV in
Financial Services).
ASIC (nor MFAA for that matter) cannot go to the public and say
some or most of the licensed brokers have Certificate IV. It is not
credible or realistic for some to be exempt simply because they
believe a Certificate IV wont help them. Can you imagine ASIC
pronouncing some financial planners have a diploma of financial
planning?
All brokers have had two years to obtain the qualification and
those that failed to act are now angry that their bluff has been
called. ASIC will not be so generous in allowing time to comply.
You will either be qualified, and licensed, or pursuing other
career options. Those who are proud of the fact they were culled
will be
able to take great comfort in the fact that whatever they do
(other than broking) they will already know everything. They will
certainly not need training, apparently.
Andrew Gooding from Mortgage Fair was reported in another
article as saying Certificate IV is not an onerous requirement, and
that if brokers arent willing to make the time to do it, youve got
to ask how seriously they take the advice they give to customers.
Gooding says the changes will give consumers a higher degree of
comfort. He is spot on.
It is inevitable that educational requirements will increase
over time. There is still a gap between the mortgage industry and
other areas of financial services. The MFAA have already announced
that it will require brokers to obtain a diploma in coming years to
retain membership and there can be no doubt the regulators will be
looking for higher qualifications in due course.
Many of the other financial professions have an advanced diploma
as their standard. Training companies have geared up to offer
diplomas and the forward-thinking brokers are taking advantage of
the opportunity to upgrade now they have their Certificate IVs.
Thinking back to the culled brokers, I dont think they will be a
great loss to the industry. They have struggled to obtain a
Certificate IV so can you imagine how they would be dragged
kicking, scratching and resisting into a diploma. The next step
should be that the lenders also cull them and then the job would be
complete.
Peter HeinrichThe National Finance Institute
Letters to the editor: Cert IV not a farce
Do you have an opinion on any story you may have read in the
magazine or in our weekly newsletter? Australian Broker is eager to
hear back from its readers, so if you feel strong about something,
send an email to: [email protected]
Do you have a bone to pick?
You will either be
qualified and licensed, or pursuing other career options
-
29www.brokernews.com.au
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30
Featurewww.brokernews.com.au
Contact Karen Jehn at [email protected] Karen Jehn at
[email protected]
Lying about the truthEven if youre telling a borrower the truth,
if you give off the wrong signals, they may not believe you.
Melbourne Business School Professor Karen Jehn pinpoints the
signals you dont want to give off
to hear. Jehn claims thats not necessarily the truth. If theres
a flight delay, people want to know about it.
If the delay is caused by bad weather, or something mechanical,
tell the passengers straight out and they will trust in the
credibility of the airline to accommodate or fix the problem.
Dont tell them the plane is on time when they can clearly see
their bags sitting on the tarmac outside. People dont mind hearing
bad news. They prefer to be informed and told the truth.
This is crucial to building respect and repeat business. Once
you lose that trust in your customers, its difficult to
retrieve.
Something else to avoid is stonewalling when customers complain.
If something goes wrong, there are usually a lot of dissatisfied
customers, but not a huge number of them actually make a formal
complaint. When they do, if the organisation deals with the
complaint in an honest and respectful way, Jehns research shows
they generate the most loyal repeat customer, who gets right back
on board.
If the customer perceives they were being lied to, she says they
will defect immediately.
Women better attuned to liarsPeople always ask me whether men or
women make better liars. This is not something I studied but if I
was to speculate based on gender research in other projects, I
would suggest that women are more relational beings and naturally
more in tune to physical cues.
This gives them an advantage because they can use that knowledge
to manipulate the truth or detect lying.
Honesty however, is not always the best policy. In cases
involving, say an impending harmful disaster, some people prefer to
be lied to. When Jehn discovered this in her research, she first
thought she was asking the wrong sort of question or that she had
interpreted the data incorrectly, then she realised that its a
personality difference. Some people prefer not to know if the truth
involves something thats hazardous or dangerous. Others want to
know.
Jehn added, I would want to know in case I want to dance on the
seat or have my last drink. But she admits that in an aeroplane
thats about to crash, it would be difficult to evaluate who to tell
and who not to tell.
Therefore, she advises honesty is generally always the best
policy.
Organisational research has created a new way to generate repeat
business it involves training staff to appear to be telling the
truth.
Most people are not good at detecting lies. Research by
Melbourne Business School Professor Karen Jehn found in 80% of
cases, customers perceived they were being lied to, when actually
they were being told the truth.
She says that this perception of lying matters because it
influences repeat business and the satisfaction of the customer and
employee.
Its better for the organisation to actually train their
employees on how to appear more genuine and reliable so that when
they do tell the truth, customers do not misinterpret it.
Basic cluesThere are no clear specific signs that someone might
be lying but there are some basic clues based on physiological
research.
One clue is that people who lie tend to look up to the left or
avoid eye contact. Jehn says, looking to the left instigates the
creative hemisphere of the brain. The right side is typically
considered the more rational side. This is a clear indicator that
the police use all the time.
Other physiological signs that might tip you off straight away
that someone is being creative with the truth is if they fidget or
pause. Taking too long to respond can also be an indicator that you
are trying to fabricate a lie.
She advises that if you want to convince someone that you are
telling the truth, dont look to the left and look people in the
eye. Better yet, just be honest and forthcoming.
The truth they want to hearSome organisations, airlines for
example, think its best to tell the customer what they think the
customer wants
lookinguptotheleft avoidingeyecontact fidgeting pausing(when
responding)
Four signs that indicate you may be lying
Rathertellthetruthaboutbadnewsthanlie
Customersthatperceivetheyhavebeenliedtowilldefect
Dontstonewallwhenyoureceiveacomplaint
Dealwithcomplaintsinanhonestandrespectfulway
Inexceptionalcases,lyingisbetterthanrevealinga
hazardous truth
Tips to building respect and repeat business
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Contact Karen Jehn at [email protected]
31www.brokernews.com.au
Contact Karen Jehn at [email protected] Dr Tony Hayek is the CEO of
Blue Wealth Property, an independent research house that assists
mortgage brokers and intermediaries in sourcing investment
properties. He holds a PHD in Organisational Psychology and before
establishing Blue Wealth has worked as a business consultant, sales
manager and property developer.
Congratulations Good idea but... on winning the $10,000 media
package
Commented by: Good idea but... The devil is in the detail of
such proposals. While well intended, the proposal may be unworkable
as lenders may have trouble dumbing down their cost of funding to a
single number (or set of numbers) that brokers could understand,
let alone most consumers.
visit www.brokernews.com.au The place where the industry comes
to meet
be in the runninG this month:if you have an interesting view on
industry developments, register your contact details and share it
with us! professional, thought provoking opinions are what our
readers want share your expertise
Winner!Comment of the month
Bouris wins support for cost of funds watch A recommendation
from Mark Bouris that Australia establish an industry benchmark to
track the cost of banks wholesale funding has been backed the CEO
of NAB.
The Australian reported that Cameron Clyne sees great merit in
the establishment of an independent barometer.
The regular publication of a benchmark cost-of-funds rate would
better inform the debate surrounding the movements in variable
mortgage rates and the official cash rate, according to comments
the paper attributed to Clyne.
Bouris proposed bankwatch as a means for consumers to predict
interest rate movements outside of official monetary policy.
We should have a benchmark rate for the cost of wholesale funds.
That way, if the benchmark rate is 7%, for example, and my variable
rate is 6.5%, then I should start thinking about fixing, because I
could soon be paying 9% if you allow a 2% margin over costs, he
said.
top tEN tIpS
to uSING propErty MArKEt rESEArChGetting access to property
research is becoming essential for brokers as property investors
return to the market and need help in finding the best investment
opportunities.
Blue Wealth property believes that not all research is the same.
here are 10 tips to ensure your clients decisions are based on
sound research:
tIp 1: Research should use a clear and transparent methodology
tIp 2: Research should be quantifiable and empirical tIp 3:
Research should analyse market drivers such as employment,
infrastructure spending and population growth tIp 4: Be aware of
reports using median values to assess market performance this can
be misleading tIp 5: Sales volume is important to take into
consideration when assessing changes in market prices tIp 6: Past
performance is no indication of future performance tIp 7: Market
sentiment can be misleading and often fuels misguided consumer
media opinion tIp 8: Beware of all projections no one has a crystal
ball tIp 9: Understand the source of your data tIp 10: A whole
range of statistics should be used when selecting markets;
individual property statistics often dont give a good enough
picture.
When Australian Broker last contacted Macquarie for an update, a
spokesperson delivered the standard response that discussions are
ongoing we may be able to provide you with an update next week.
Reasons as to why the bank has been so silent on its aggregation
play have been circulating the industry rumour mill for some
time.
The most popular and widespread is the belief that some of the
major lenders have been reluctant to grant accreditation to the new
aggregator, with the CBA as the bank most often named.
The Macquarie spokesperson said they had heard similar rumours,
but dismissed it.
However, when Australian Broker contacted the CBA to
cont. from cover>>comment on the rumour, the response
received suggested some reluctance on the banks part: We await
further information regarding the proposed entity(s) in order to
make an informed decision, said Kathy Cummings, executive general
manager for third party banking at the CBA.
News that Macquarie was planning a return to third party banking
via a co-operative style aggregation business came to light on
Broker news in February this year.
In June, Broker news was told that six aggregators were believed
to be involved in the project one from South Australia, one from
Western Australia, one from Queensland and three from Sydney.
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32
Insiderwww.brokernews.com.au
Got any juicy gossip, or a funny story that youd like to share
with Insider, drop us a line at [email protected]
Nothing lost in translation
did in defending their goal, he quipped cheekily.
Seems Woolnough is just as adept taking on the major banks in
the mortgage space as he is the armed forces on the sporting
field.
Indeed, many brokers will be hoping his sporting success carries
through into the lending arena as well.
Some choice serves from Rod McGeoch
When not rattling off what must surely be the most impressive CV
in Australian business, Rod McGeoch, the man who led Sydneys
successful Olympic bid, threw in some cracking jokes that had
brokers attending the Loan Market Group conference in stitches.
This was McGeoch on comparing George Bush Senior with George W.
Bush:
One was responsible for the fall of communism and the Berlin
Wall, the other the fall of capitalism and Wall Street.
His perception of Athens, as host of the Olympics:
Alexander the Great told the people of Athens: Dont change
anything while I am gone and they didnt.
At his opening address to brokers at the Loan Market Group
annual conference in Melbourne, Sam
White included a slide which segmented its brokers according to
the volume of business they write (along with corresponding
information on PAs, shop fronts and number of loan writers).
As he explained, this sort of information is designed to help
the company uncover areas where brokers may be lacking and then
help them work their way up into the top performing categories.
Of concern, Insider noted, was the small category of brokers who
appear to be writing nothing for Loan Market, or so the slide
said. Luckily Sam White had noticed it too.
That shouldnt say nothing, he said, explaining much to the
amusement of his audience that he had actually dictated the slide
over the phone and had asked for that part of the matrix to be left
blank.
MO-BROs, pre MO
November of course means Mo-vember and leading the industry
charge to raise funds and awareness for prostate cancer and mens
depression, will be Ballast Finance.
The Perth-based brokerage has registered a team of MO-BROs who
are all set to grow an
assortment of moustaches to support the annual charity
mo-vement.
So serious are the guys about cultivating their inner Mervs that
they have appointed an official Mo Sister in the form of Kaylene
Blazejczyk who will be keeping a keen eye on the progress of the
participants.
And to prove that the Ballast team started 1 November clean
shaven, they even sent Insider the above picture of the MO-BROS,
pre MO:
Woolnough leaves defence in tatters
Congratulations to Mark Woolnough, head of partnerships at ING
Direct broker sales, after winning a hockey gold medal at the
Seventh World Masters Games held in October in Sydney.
Woolnough was part of a team made up of previous hockey
Olympians, current Australian indoor hockey reps and over 35s
representative players, which played seven games over just nine
days.
Included among the opposition was an Australian Defence Force
outfit made up of a combination of players from the defence
forces.
Having seen this team off, (and done battle with teams from
Switzerland, New Zealand, South Afr