Approximately 29 complaints received by the Australian Financial Complaints Authority (AFCA) were directly aimed at mortgage brokers.

The new external dispute resolution scheme announced earlier this month it had received 6,522 complaints in its first month of operation.

Averaging about 310 complaints a day from consumers and small businesses about financial products or services, it received 47% more complaints than the three predecessors.

The banks received the greatest number of complaints with 2,367, followed by general insurers with 1,159 complaints and credit providers with 1,040 complaints.

Australian Broker reached out to AFCA to determine the number of complaints received regarding mortgage brokers.

A spokesperson from the group said, “In November 2018, AFCA’s first month of operations, we received 29 complaints against mortgage brokers, out of a total of 6,522 complaints received.

“Please note that complaints that have been more recently received in November might not have the industry or financial firm recorded, so these statistics might change.”

Commenting on the figures, MFAA CEO Mike Felton said, “It is pleasing to see complaints relating to mortgage brokers remain at remarkably low levels. At just 29 out of 6,522 grievances being logged by AFCA in its first month of operation, broker related complaints represented less than half of one percent of the overall figure.”

He added, “While this is a positive story for brokers, it is not a new story and brokers have for years had strong satisfaction ratings. Consumers’ Net Promoter Score of brokers is for example in excess of 70 as compared to an average score for the big four banks ranging from zero to minus 15.”

According to Felton, if conflicted remuneration was causing “systemic harm to consumers”, the new complaints figures from AFCA would be “high and rising”, along with relative arrears. In addition, he said that competition and consumer support would be shrinking and net interest margins “inevitably rising”.

“But this is not the case,” he said.

“The truth is brokers are focused on their customers’ needs, and on giving them choice, convenience and access to credit. That’s why broker share of the home lending market is now more than 55% and growing,” Felton continued.

Consider a typical month or week in your business. How much money are you able to generate and use for expenses in this set time frame? This is a cash flow summary, and it reflects how money moves in and out of your business. In some cases, you may want to generate a cash flow summary for a quarter or even a year. However, a cash flow summary does not take into account how your current assets impact the financial responsibility of your business.

Since the net profits for your business reflect your expenditures or liabilities against your income, the cash flow summary will never accurately reflect your net profits. Essentially, the cash flow summary is a means of measuring and tracking how much money can be gathered from your business in any given time frame.

The key consideration in understanding the difference between working capital and cash flow involves assets and liabilities. Unlike your expenses in a cash flow report, working capital takes into account how your outstanding debt compares to your current assets. For example, if you have a current loan of $10,000, you would expect to make payments on this loan as time goes on. However, an unforeseen decline in your customer base results in your inability to make payments, and the lender demands full repayment of the loan at the end of the month. The working capital allows you to see what debts can be resolved by liquidating your existing assets.

Obviously, this is an extreme scenario. In most cases, the working capital report is generated on a 12-month scale, and it takes into account all debts due within the next 12 months. The working capital report identifies what can be liquidated or sold to generate cash to pay down existing debts if your business experiences a sudden or gradual decline. This is a vital aspect of scalability. Unlike the cash flow report, working capital does not routinely include your planned monthly expenses that have not been paid for on loan or credit.

Growing your business can be difficult. You must determine how much product your customers will need, how many staff members will be needed to ensure your customers are happy and satisfied, and what business processes will change to adapt to the new demand. Unfortunately, even well-planned businesses will sometimes experience a periodic decline in sales. This may be the result of economic instability, new competition, or unidentifiable factors.

When a decline occurs, how will you pay your bills in the meantime? You may be able to generate enough cash flow to scrape by if business picks up. However, if business does not pick up, can you liquidate your existing assets to cover your liabilities and debts? Now, consider how the expenses of growing your business play into asset and liability generation.

If you purchase new equipment, lease a new office space, or take out a loan to cover your expenses in the process of growth, you will incur a new liability. Regardless of how successful growing your business turned out to be, you owe this debt. Physical items, such as desks, computers, inventory, and proprietary information, can be liquidated to generate cash flow. As we’ve explained previously, you can minimize the risk of developing a negative working capital by growing in stages.

Scalability is often used to refer to business growth. In reality, the term can be applied to either the growth or contraction of your existing business. Resiliency, on the other hand, refers to how quickly your business can respond to a problem and return to its original state. In the event of a decline, your business can be more resilient if your working capital exceeds the debts you can expect to pay in the next 12 months.

If you were to apply this idea to the cash flow summary, you would be incapable of determining how your business would stay afloat. The only information you would have would be how much money was generated and how much was spent. Ideally, in the event of a decline, your cash flow will increase and your debts will be paid. Unfortunately, this type of thinking will lead to problems and an even greater chance of failure.

To help safeguard against uncertainty in the success of your business, you need to understand the differences between working capital and a cash flow summary. The cash flow summary simply shows how much money came and went, but the working capital report shows how stable your business will be in the coming year, an absolute necessity in meeting your business’s goals.

Do you need help with your cash flow – do you have a Cash flow gap?

Chat to Sokudo Finance – we can help you with understanding your cashflow requirements.

“When it’s good it’s very good, and when it’s bad it’s terrible” – these are the two extremes many SME business owners are experiencing, as highlighted in the latest Scottish Pacific SME Growth Index results.

At the positive end of the spectrum, in a promising rebound of confidence more small businesses are predicting revenue growth than at any time since early 2016. Around 51 per cent are expecting a revenue boost, of on average 4.5 per cent.

The other end of the spectrum is more concerning – those small businesses who are struggling are having a tougher time than at any stage over the past four years. Of the 1200 businesses responding to the SME Growth Index, 25 per cent are predicting static revenue over the next six months. The 24 per cent who expect revenue to decline is much higher than the 13 per cent in a similar position in 2014.

Tellingly, the current revenue decline average of 6 per cent has ballooned from a 4 per cent average in 2014, and the range of decline (now 4.8 per cent to 13.7 per cent) has significantly widened. In that same timeframe, the percentage of consolidating/contracting SMEs has doubled.

Given these statistics, it’s no wonder SMEs are exhibiting heightened concern around cashflow issues. SMEs are being squeezed at both ends, with suppliers reducing payment terms and customers paying later.

Whether an SME is predicting growth or struggling to maintain their current position, they need strong cashflow and the sector is hungry for working capital alternatives that meet their business’ needs.

The SME Growth Index highlights the continuing trend of business owners looking beyond bank lending to fund their growth. Fewer than one in 10 SMEs would prefer to use property to secure a business loan.

Alternative lenders are firmly on the SME radar, driven by fast credit approval turnaround times and streamlined compliance requirements.

The most popular alternative funding choices were: invoice finance (used by 77 per cent), merchant cash advances (23 per cent), P2P lending (10 per cent), crowdfunding (9 per cent) and other online lending (five per cent). Only four per cent of SME respondents said they would never consider using a non-bank lender.

Business owners seem to be seeking a little or a lot – more than a third of SMEs need funding of $50,000 to $250,000, another third are seeking $500,000 to $2million and one in five need less than $50,000.

Throughout the four-year history of the SME Growth Index, the most consistent finding has been the incredibly high number of business owners relying on their personal funds to invest in the business (always around 89 per cent). For many of these businesses, there are better options for funding growth.

With three quarters of SMEs telling us they put in 50-80 hour weeks, many just may not have the time to dedicate to researching appropriate funding options. I’d encourage business owners to ask themselves “is my growth being stunted by a lack of working capital?”. If the answer is yes, talk to the different alternative lenders.

The nature of the relationship between financier and SME is critical, so ask questions to get a feel for which providers will be there for the long haul, will work hard to understand your business and be able to provide funding no matter where you sit within the economic cycle.

Wayne Smith, Head of Debtor Finance, Scottish Pacific

• 79% of SMEs say cash flow issues cause the most sleepless nights, up from 73% in 2016. The opportunity cost of poor cash flow is staggering. With an average 17% revenue hit estimated by SMEs, East & Partners have extrapolated that poor cash flow costs the SME sector A$234.6 billion in 2017.
• SMEs are being squeezed at both ends, by customers increasingly paying late (a major issue for 31% of respondents) and suppliers cutting payment terms (the key stress factor for 19%).
• The issue that most impacts on cash flow continues to be red tape and compliance (nominated by 73% of SMEs and focused around BAS, the Fair Work Act and company tax concerns).

Cash flow is an increasing problem for the sector, and business owners are really putting in the hard yards (on average, spending 66 hours a week working on or in their business).

“Many business owners are cash-strapped, time-poor and confused about the options available to them to fund their growth,” Mr Smith said.

“With a declining property market and banks exercising caution, the concern is that a lack of credit could hamper growth prospects. Business owners will need to consider funding alternatives to traditional property secured lending. Those SMEs who find alternative ways to fund growth and master cash flow management will have a clear advantage over their competitors,” he said.

Continuing the trend of SMEs looking beyond banks to fund growth, 96% could name a key reason to borrow from an alternative lender, with fast credit approval and reduced compliance the main drawcards.

Almost one in 10 business owners (8%) say revelations from the Banking Royal Commission will prompt them to seek out non-bank alternatives.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said today that Scottish Pacific’s latest SME Growth Index identifies the issues most raised with ASBFEO by SMEs across the country.

“Extended payment times impact business cash flow, which is critical to SME day-to-day operation. Reduced cash flow impacts the ability to pay staff, superannuation and the quarterly BAS, and an overly complex workplace relations system inhibits employment, which in turn inhibits growth,” Ms Carnell said.

“The Index also points out SMEs are looking at alternatives to banks to access finance, including invoice finance, fintechs, government grants and crowdfunding. We’ve done considerable work in this space, recently releasing our Affordable Capital for SME Growth report and Borrowing from fintech lenders guide.”

• SME owners don’t clock off. Despite technical and digital innovations, more than 40% of business owners put in 60-80 hours a week on the job and one in five clock 80+ hours a week.
• Two-thirds of SMEs said their major cause of sleepless nights is not having enough time in the day to get everything done. This was the second biggest SME issue, only cash flow caused more concerns.
• A growing number of SMEs (25%, up from 17% in 2016) are worried about the potential for sudden disruption of their business model.

• More than a third of respondents (37%) identify as growth businesses – and they are really feeling the pinch from cash flow issues. 59% of growth SMEs are seeking additional finance to fund projected growth, with one in three looking to borrow $50,000-$250,000 and a similar proportion seeking $500,000-$2million.
• About one-quarter of SMEs expect revenue to hold steady, and one-quarter expect revenue to decline, by an average of 6%. For those predicting revenue decline, the range (5-13.5%) is almost double that of 2014.

By far the most common way for SMEs to fund growth is to use their own funds (89%), ahead of borrowing from their primary bank (23%), using alternative lenders (15%), taking on new equity (13%) and borrowing from secondary banks (10%).

“It’s crucial to have reliable working capital, yet nine out of 10 SMEs reach into their own pockets to fund growth rather than use options that help them retain working capital within their business. Why are so many SMEs using inflexible, debt such as personal credit cards instead of more sustainable funding solutions that would allow them to grow without such intense cash flow pressures?” Mr Smith said.

Scottish Pacific (ASX:SCO) is Australasia’s largest specialist working capital provider, who for 30 years have been lending to the owners of small, medium and large businesses, with revenues ranging from $500,000 to $1 billion. Access a free copy of the SME Growth Index at www.scottishpacific.com/news/research

Media contact:
Kathryn Britt

State by state: An October update on Australia’s property markets Michael Yardney / Friday, October 19, 2018

It’s time for our monthly whip across Australia’s property markets.
Yes, prices have fallen a little further. As you can see from the figures below, combined city capital dwelling values slipped a mere 2.7% over the last 12 months.

This is hardly a ‘crash’, and the rate of decline is slower than in the previous property market downturn that occurred between 2010 and 2012. Yet the extent of this fall is continuously exaggerated by some media outlets. No, it is not Armageddon, and no, the sky isn’t falling.

While there’s no doubt we are in the slum phase of the property cycle, the correction has largely occurred in the Melbourne and Sydney real estate markets.

Property values have dropped 6.1% in Sydney, but this is after a number of years of double-digit growth, In fact, the value of many Sydney dwellings doubled over the last decade.

And as always, there are markets within markets. The value of some properties in Sydney fell more than others, with some locations and investment-grade properties still holding their values well or increasing.

And there are many locations where property values have increased over the last 12 months. Just look at the figures above for Brisbane, Adelaide, Hobart and Canberra.

As a result of the mining construction boom coming to an end in 2013, the Reserve Bank of Australia (RBA) cut interest rates to encourage general economic growth.

This led to a property construction boom. Many of the displaced mining construction workers moved to our capital cities to help construct all those new high-rise apartment buildings that now stand tall, proud and somewhat empty.
In other words, the RBA created a property boom by lowering the cost of funds and encouraging investor activity.

At the same time, many foreign investors hopped onto the bandwagon, competing for new and off-the-plan properties.

Sure, dwelling prices rose more than they should have in some locations, but this came to an end, with the Australian Prudential Regulation Authority’s (APRA) macro-prudential controls making it harder for investors to borrow money.

Of course, the federal and state governments didn’t help when they pulled the welcome mat out from under foreign investors with a raft of taxes and levies that scared many of them away.

Fortunately, we’re currently experiencing a soft landing as APRA has orchestrated a sensibly designed credit squeeze which has slowed our markets in a low interest rate environment, meaning fewer investors and home-owners will experience mortgage stress.

If property values keep falling to a worrying level, the RBA can easily intervene as it has in the past.

Call me naïve, but I can’t see a government of either persuasion or the RBA wanting property prices to fall too steeply, so the good news is many of the measures brought about to slow down our markets can easily be reversed.

Lowering interest rates or stimulating first home buyers through grants or incentives is what’s reversed the last two property slumps — back in 2009 and 2012.

However, this may not be necessary this time, as many researchers believe we’re already halfway through this downturn.

So let’s take a look at what’s happening across Australia’s property markets as we unpack the latest Corelogic charts and stats.

Look at how big the residential property market is in Australia.

Remember, close to 70% of these homes belong to owner occupiers and about 50% of home-owners do not have a mortgage. And many of those who do have a mortgage are ahead in their payments, having kept up the same payments as interest rates dropped. This is one of the many factors underpinning our property markets.

As always happens at this stage of the property cycle, the more discretionary premium end of the market is showing the greatest value declines.

The Sydney property market peaked in mid-2017 and real estate values have been falling consistently since then.

Interestingly, there has been a larger decline in the value of houses (down 7.6%) compared to apartments (down 2.6%).

This is in the context of median dwelling prices having increased by 51.0% in Sydney over the last five years.

As the market slowed over the past 12 months, buyer activity has reduced by 18.5%.

With advertised stock levels 22% higher than a year ago and fewer buyers, the average selling time across Sydney has risen to 52 days compared with 37 days a year ago, and auction clearance rates are consistently in the 40% to 50% range.

Strong economic growth and jobs creation is leading to population growth and ongoing demand for property in Sydney. And with underlying demand well ahead of supply, the rental market is tightening.

At the same time, international interest from tourists, migrants and investors continues.

Now more than ever, critical property selection is required to find an investment-grade property that will outperform the property markets
Sydney is currently offering investors an opportunity to buy established apartments in the eastern suburbs, lower North Shore and inner west in a ‘buyer’s market’ with the prospect of the market moving forward again in late-2019.

The Melbourne property market peaked in November 2017 and is experiencing a soft landing after five years of strong price growth.

Property values are now 4.4% below their peak.

Weak conditions have been mostly confined to high-value properties, with the top quartile of the market down 6.7% over the past 12 months, while property values across the lower quartile of the market are actually up 4.1% over the same period.

More recently, values have started to trend lower across all of the broad valuation bands as Melbourne’s downturn becomes more broadly based.

However, over the past five years, median property prices in Melbourne have increased by 41.5% and over the past decade, they are 77.3% higher.

It is now taking a little longer to sell a home in Melbourne, with the average time on market being 41 days compared to 30 days a year ago.

Similarly, vendors are discounting their asking prices a little more (down 5.9%) than 12 months ago (down 4.6%).

But overall, Melbourne is experiencing a soft landing, with no crash in sight.
While Melbourne’s property prices are likely to fall a little further, they will be underpinned by a robust economy, jobs growth, population growth and the influx of 35% of all overseas migrants.

Property price growth in Brisbane has been slow over the past few years, however, dwelling values reached a new record high in September.

And all indicators suggest the Brisbane property market has the potential for significant growth over the next three years, with Queensland leading the nation in net interstate migration over the past year.

One of the positive signs emerging is Queensland’s strong job creation, in part due to infrastructure development.

Another good sign is Brisbane’s longstanding oversupply of new apartments is slowly being soaked up.

These positive signs have been reflected in shorter selling times, with properties generally selling within 37 days compared to 52 days this time last year.

Similarly, vendors are having to discount their asking price less, down 5.4% compared to down 6.9% in September 2017.

There has been a significant increase in local and interstate consumer confidence, with many more home-buyers and investors showing interest in property.

The annual rate of property price growth continues to slow in Adelaide, with property prices up only 0.6% over the last 12 months.

Despite the slower growth rate, houses are selling quicker than they did a year ago. And Adelaide is the only capital city to record a higher number of property sales than a year ago (up 2.5%).

Currently, interstate investors are looking at Adelaide as a future ‘hotspot’. But I see few long-term growth drivers in Adelaide, and history has proven this year’s ‘hotspot’ becomes next year is ‘not spot’.

Currently, Adelaide is experiencing above-average unemployment rates and poor employment growth.

While Adelaide might be a lovely city to live in and is still very affordable, I suggest investors look elsewhere.

For example, there are better long-term growth drivers in the Brisbane property market.

The Perth property market has been on a downward trajectory since peaking in June 2014.

Although values are still falling, many of the other metrics suggest the Perth property market is bottoming out, though it has not found a floor yet.
Properties are selling a little faster. The average selling time is gradually reducing, falling 73 days from 77 days a year earlier, and vendors are discounting their asking prices by a lesser amount.

Additionally, there is less advertised stock for sale on the market now.
While the Perth market may level out in the next six months, it’s much too early for a countercyclical investment in the west. I can’t see prices rising significantly for a number of years.

Due to the significant oversupply of new apartments, there is little to no prospect of capital growth or rental growth in the Perth apartment market for many years.

As in other states, Western Australia’s population trend has a significant impact on the overall performance of its property market. To get people back to WA more jobs will need to be created.

Hobart has been the strongest performing capital city over the last two years, but indicators are suggesting this market has now topped out.

Over the last five years, median dwelling prices have increased at about double the rate of household income growth, creating a deterioration in housing affordability.

This together with investors moving their aim to the next ‘hot spot’ suggests Hobart’s property prices may now gently start falling.

The Darwin property market peaked in August 2010. It is still suffering from the end of the mining boom eight years on, falling another 3.7% over the last year. House prices are likely to keep falling for some time yet.

Darwin is Australia’s most affordable capital city due to its high wages and falling house and rental prices.

Over the past decade, prices are up 30.3% compared to a 60.8% increase in household incomes.

As opposed to the east coast capital cities where many jobs are being created, Darwin had a net loss of jobs last year, showing how its economy is languishing.

Darwin does not have significant growth drivers on the horizon and would be best avoided by investors.

Canberra’s property market is a quiet achiever.

House values increased 3.1% over the last 12 months, but apartment prices are still falling (down 1.4%) which pull down the overall figures.

If history repeats itself, the uncertain political climate leading up to the federal election next year will reduce local consumer confidence and dampen housing demand. But as always, this will correct itself after the election and Canberra’s property market is likely to continue to do well.

Our quieter markets have translated into fewer property sales with transaction volumes 10% lower than they were a year ago.

Settled sales have been down even more substantially in Sydney (down 18.5%) and Melbourne (down 15.8%).

In general, there are two types of vendors. Those who must sell their property because of personal circumstances, and discretionary vendors who are happy to upgrade their homes when conditions are right.

Currently, discretionary vendors are sitting tight, riding out this flat stage of the property cycle.

On the other hand, motivated vendors are still putting their properties on the market, creating great opportunities for homebuyers who are keen to upgrade or investors looking to buy the type of property they would have had to compete strongly for last year.

At the same time as house prices have fallen, rental growth has been sluggish, and rents have fallen a little in Sydney and Darwin.

Further signs of our slowing markets are the increased length of time it takes to sell a property, which increased relative to a year ago, as well as the discounting required to make a sale.

With deteriorating vendor confidence and, as mentioned, with discretionary vendors being reluctant to put their properties in the market, fewer new properties are being listed for sale than there were a year ago.

However, with properties taking longer to sell and with fewer properties selling, there are 9.5% more properties for sale than there were a year ago and this number is even higher in Sydney (22.2%) and Melbourne (16.7%)

Lower auction clearance rates are another sign of the lack of depth of our property markets.

Population growth remains strong, however, and this will underpin our property markets.

APRA has quelled our property boom and demand for investor finance is waning, leaving owner-occupiers as the dominant source of finance demand.

We’re clearly in the next stage of the property cycle, one of moderate growth in some regions, virtually no growth in others and falling prices in others.
Australia’s property markets are very fragmented, driven by local factors including jobs growth, population growth, consumer confidence and supply and demand.

This makes it an opportune time for both home-buyers and investors to buy as they’ll face less competition.

However, correct asset selection is important. Only buy in areas where there are multiple long-term growth drivers such as employment growth, population growth or major infrastructure changes. Similarly, suburbs undergoing gentrification are likely to outperform.

An executive from a big four bank has weighed in on recommendations outlined in the Productivity Commission’s final report, which proposed the removal of trail commission and the broadening of licensing provisions to enable financial planners to offer credit advice.

Speaking to The Adviser, NAB’s executive general manager of broker partnerships, Anthony Waldron, has defended the existing broker remuneration model, warning that the Productivity Commission’s (PC) call to ban trail could have “unintended consequences”.

Mr Waldron made note of the positive effect that trail commissions have on service affordability and on enhancing competition across the banking sector.

“I think there are some questions that get raised off the back of that recommendation,” the EGM said. “We [NAB] believe that commissions make broker services affordable to customers, and that they create some alignment between the lender and the broker.

“[They also create] a level playing field for competition for all lenders, whether they be small or large and geographically dispersed.”

Mr Waldron claimed that trail commissions incentivise brokers to produce good consumer outcomes, warning that removing trail could increase churn to the detriment of borrowers.

“Trail commissions are there to both help place customer in a loan that is not unsuitable for the longer term, but also to recognise the services that a broker will provide on an ongoing basis,” Mr Waldron continued.

“There’s a risk in some of the discussion around unintended consequences if you were to remove trail.

“[Brokers] might end up in an environment where [they’re] having to write more loans and constantly having to rewrite loans, which may not be in the customer’s best interests and could actually create more costs for lenders and brokers, and ultimately, therefore, potentially customers.

“They’re questions that we need to work through off the back of those recommendations.”

Mr Waldron was also asked if NAB supported the PC’s recommendation to extend provisions under the Australian Financial Services Licence (AFSL) to include credit advice.

The NAB executive said that “it’s probably a bit early to comment”, claiming that the bank would need to see the “specifics” of the recommendation, but highlighted the strengths of existing arrangements, echoing comments made by Mortgage Choice CEO Susan Mitchell.

“I think that if you look at a lot of industry models today, there are a number of officers that have both broking and financial planners operating out of them, in an environment where they have both an ACL and an AFSL — and that’s meeting customer needs,” Mr Waldron said.

Mr Waldron is also chair of the Combined Industry Forum (CIF), which released its interim report on Monday (27 August), outlining the progress that the CIF has made in introducing broking industry reforms.

Westpac CEO Brian Hartzer has highlighted the importance of the current broking model, despite stating that a fees-for-service model would be “worth considering”.

Appearing before the House of Representative Standing Committee on Economics, Westpac CEO Brian Hartzer noted the importance of the role that mortgage brokers play in the lending landscape.

“We [Westpac] recognise that brokers are an important part of competition in the market and creating the perception for customers that they can see the market more effectively,” the CEO said.

“Brokers provide price transparency, they provide a service in terms of convenience of going through paper processes and the like.

“In many cases, they [also] provide an ongoing relationship with the customer as circumstances change.”

However, Mr Hartzer said that the bank is “certainly in favour” of more transparency in the broking industry and noted that a shift toward a fees-for-service model in the broking industry would be “worth considering”.

“I’ve been on record saying that I certainly think it’s worth considering whether brokers should charge customers directly and explicitly,” Mr Hartzer continued.

However, the major bank CEO said that such a move would be “tricky”, noting that it would raise questions as to whether a broker is acting as an adviser.

“[There] has been some questions about what the broker obligation to the customer is, and [whether or not] there should be more obligations there.

“We would say that it’s worth considering, but the is kind of in the name ‘broker’. They are essentially, on one level, a shopping service for the customer, helping them navigate as opposed to advising them explicitly about what they ought to do.”

He added: “We think it’s absolutely worth examining. We think at a minimum, more transparency is a good thing, but there are pros and cons to this; this is a tricky one.”

When asked by deputy chair of the committee and Labor MP Matthew Thistlethwaite whether a FOFA-style “best interest duty” could be extended to mortgage brokers, Mr Hartzer said that while it could be extended, the current broker model “mostly works well”.

“I would say we have issues at the edge, which doesn’t mean we shouldn’t deal with them, but I wouldn’t say that the whole model has a problem,” Mr Hartzer said.

The Westpac CEO again stated that it would be “worth considering” such a move but warned that it may “dramatically” alter the broking model, which he said could have an adverse effect on customers.

“I would just highlight that if you did that, you would dramatically change the economics of the brokerage model, because the amount of compliance, training and cost impost that it would bring to many of those companies would be significant, and it may therefore change the competitive dynamics of the brokerage industry, which may not necessarily be to the benefit of customers,” the CEO said.

“That’s why I would say, certainly transparency is an important part; you could consider that, but I would think it through pretty carefully.”

Further, Mr Thistlethwaite alleged that the existing remuneration model could be incentivising brokers to write a higher portion of interest-only loans, which he claimed would prolong the term of a loan and the payment of trail commission.

However, Mr Hartzer said that there “could be a risk”, but he noted that there is no evidence to suggest that it was the case.

“Statistically, an [interest-only] loan amortises at the same rate as a [principal and interest] loan, which might sound counterintuitive, but it’s because [most] people who are taking out an interest-only loan are taking an offset account and they’re often affluent people or investors who have lumpy cash flows — so they’re putting the cash in an interest-only account and then paying it down overtime” Mr Hartzer said.

“The evidence doesn’t suggest that those loans amortise at a different rate.”

Author: Charbel Kadib – The Adviser

The new group, the International Mortgage Brokers Federation (IMBF), was launched in Canada today (16 October) by founding partners the Finance Brokers Association of Australia (FBAA) and the Canadian Mortgage Brokers Association (CMBA).

As well as including Australian and Canadian broking associations, the new federation also comprises members from the USA, New Zealand and the United Kingdom.

According to the executive director of the FBAA, Peter White, the new broker federation will help foster greater collaboration between member countries and will help deliver greater understanding of international regulation around broking.

Further, brokers can utilise the federation as a “global referral network” should their clients move abroad. It is hoped that this will enable brokers to maintain contact with their client once they move to a member country through the new cross-border group.

Mr White commented: “I was doing the FBAA’s global research paper in 2016 after discovering that Canada was also looking at establishing a collaborative international group of finance brokers.

“One of the catalysts for creating the federation was the realisation that finance regulators in each country had been talking to each other and sharing knowledge and regulatory outcomes, and we felt we would benefit tremendously by doing the same thing.

“We worked with the CMBA to form the IMBF on a platform of sharing ideas, referring clients, gathering market intelligence, identifying trends, and keeping up to date on regulatory matters and industry best practices.”

He added: “From today, the IMBF is the leading global forum for bringing the international mortgage broking community and its suppliers together to collaborate.”

The head of the FBAA said that he hoped the federation would become a strong body to influence regulation and legislation through global advocacy.

“The organisation also aims to develop and adopt new and existing standards that enhance the industry and promote strong ethical practices by its members,” Mr White said.

A board of governors has been established and the executive team will be announced shortly.

Several other countries who use third-party origination networks to distribute loan products have also been invited to join.

Article written by Annie Kane – The Advisor

ANZ CEO Shayne Elliott has responded to calls for broking reform during a parliamentary committee hearing in Canberra.

Appearing before the House of Representatives Standing Committee on Economics, ANZ CEO Shayne Elliott issued a warning regarding “unintended consequences” that may arise off the back of broking reforms.

Deputy chair of the committee and Labor MP Matthew Thistlethwaite asked Mr Elliott whether he believes brokers should charge fees for service to address what he considered conflicted remuneration practices.

However, in response, Mr Elliott joined Westpac CEO Brian Hartzer in highlighting the role that brokers play in the market and noted the work of the Combined Industry Forum (CIF).

“We [ANZ] think brokers play a really important role in the market. More than half of all mortgages that are originated in Australia come through brokers, so consumers like the service,” Mr Elliott said: “I accept that there is the potential for conflicts of interests in remuneration and we’ve moved away from volume-based commissions.”

The ANZ CEO said that remuneration reform is “worthy of discussion” but warned: “My only caution is that no system is perfect, and any system will have potentially unintended consequences”.

He continued: “I think the [broking industry and regulators] can sit down and consider improvements to that model, but as of today, we think they perform a valuable role that consumers actually prefer and choose to increase the amount of business they give to brokers every year.”

However, when asked if a “best interest duty” should be imposed on brokers, Mr Elliott questioned why such a duty was not already in place.

“I imagine that most people that go to a broker think they do have a best interest duty,” Mr Elliott said: “Mums and dads imagine it’s true, so I think there’s an absolutely valid argument to say that they should have some obligations in that area.”

Mr Thistlethwaite, an opposition MP, suggested that the government needed to introduce legislation, alleging that brokers don’t work in the best interests of their clients.

“The notion of a broker, in its purest form, is a good one,” the Labor MP said.
“Someone that has expertise will use that expertise to shop around on behalf of their client to get them the best deal. But it appears based on the evidence that has come out of the [financial services] royal commission that it doesn’t always happen.”

Mr Thistlethwaite continued: “Banks have tried to establish relationships with brokers using various means of bonuses, holidays and the like so that they will have an incentive to refer people to that bank.

“That’s the reason why we’re in this mess, isn’t it, and why we have to be considering best interest duties.

“We would all hope that they would act in the best interest of the customer, but that’s the problem — they don’t, and that’s where we have to step in and regulate.”

However, in response, Mr Elliott said: “I think it can be a problem; I’m not sure it’s the problem. I think that most brokers are decent, honourable people who do the right thing for customers.

“Most brokers have a lifetime relationship with those clients, not just transactional, but I do think there can be improvements there around that, [and] I don’t doubt that for a second.”

Author: Charbel Kadib – The Adviser