Eight major aggregators debate the industry's most important topics
The fight for the broking industry would not have been so successful had it not been for the combination of both public and private campaigning.
While the TV ads, social media campaigns, petitions and interviews reached out to consumers for their support, industry associations and broker groups were also in meetings behind closed doors, educating government representatives and legislators on the importance of brokers.
The aggregators who took part in MPA’s live-streamed aggregator panel worked tirelessly in the campaign, whether in the background, out in front, or both.
While the federal election was to be held the day after the panel – meaning we could not discuss with any certainty what the broker industry might be facing – it provided an opportunity to explain to brokers watching live how these groups would continue to have those discussions no matter which party was elected.
As one panellist said, the election result wouldn’t mean it would stop there.
Eight aggregators took part on the day – AFG, Choice, Connective, FAST, Outsource Financial, PLAN Australia, Specialist Finance Group and Vow Financial.
Clive Kirkpatrick from Vow made it just in time for the cameras to go live after a heroic dash across the city, which is why he is not included in the group photo.
The eight panellists had a very lively conversation about what the future might look like, as well as the work they had been doing with new-to-industry brokers and those considering diversifying.
As is often a controversial subject, the discussion of bank ownership of aggregators sparked a great deal of debate.
Tanya Sale, CEO of Outsource Financial, kicked it off by saying, “This is one of my favourite subjects.”
The aggregators also received some great questions from brokers watching live, including on the topic of clawback and what the Combined Industry Forum would do going forward in terms of standardising the adoption of commissions calculated net of offset.
One of those broker questions was, “Given the inconsistency across lenders with the adoption of commission calculated ‘net of offset’, broker sentiment is that we have been short-changed.
Will the CIF or aggregators push for standard regular reviews of loan accounts and top up commissions applying where drawdown has occurred?”
This opened up a great discussion in which Mark Haron, director of Connective and deputy chairman of the CIF, admitted it had been disappointing that not all banks had adopted the recommendations as intended.
More on that question will be covered in the following pages, alongside other important topics, which will hopefully give you a better insight into what your aggregator is doing and where they stand.
You can watch the discussion in full on our website at mpamagazine.com.au/tv.
Q: While it wasn’t one of Hayne’s recommendations, greater disclosure of aggregator ownership is something the industry has been working towards. What have you done to make sure your brokers are being transparent, and why is it important?
The topic of aggregator ownership is one many expected to be raised in the royal commission’s final report, and although it was not, there is still an ongoing discussion in the industry about the impact it has and how ownership is made clear to customers.
This is an area that the Combined Industry Forum included in its reform package, to address ASIC’s proposal that there should be clearer disclosure of ownership structures within the home loan market to improve competition.
The aggregators in the live panel discussion had differing views on the benefits of being bank-owned, but all were making sure their customers knew exactly where they stood.
Tanya Sale, CEO of Outsource Financial, spoke first, saying it was one of her favourite topics.
“It’s actually quite easy for us being independently owned, and passionately independently owned,” she said.
Outsource brokers have had documentation clearly stating the group’s independence for years, Sale said, not just in the last 12 months because of Hayne’s scrutiny.
“On documentation that our members use, they can easily slot in about the independence or the ownership side – that we’re not aligned to any lender or dealer group, wealth group, anything like that.
So, for us it’s quite easily completed and has been for years.”
For NAB-owned aggregator Choice, transparency of ownership has always been fundamental to everything the group does, according to CEO Stephen Moore.
“What we know is that transparency is key to trust, and trust is the most fundamental thing that we need to continue to have in the broker market for our success, but equally across financial services more broadly,” Moore said.
He added that Choice was a “better business today because of NAB’s ownership”, saying the group would not otherwise have been able to invest at the level it had or to attract the same level of talent.
“The net result is we can provide better services to brokers because of that ownership,” Moore said.
“We’re a long way down the path of being transparent around ownership; many of our brokers have already been doing that over many years.”
After rolling out the CIF’s recommendations on ownership disclosure, Moore said there had not been one negative comment from customers.
When asked how aggregators were able to keep track of this and how their brokers were being transparent about ownership, Mark Haron, director at Connective and deputy chair of the CIF, said the forum’s reforms had outlined the requirements.
These included disclosure in advertising and on websites, but also in the credit disclosure documentation brokers give customers, in which they disclose the panel of lenders, the commissions they receive and their ownership structure.
“We really need to free up time for people to have that quality discussion [with the customer], and the biggest inhibitor to that is the gathering of the paperwork” Mark Hewitt, AFG
“It’s fairly easy to map and track back to that particular document,” Haron said.
“And that’s a requirement put on us as an industry. It’s not been forced on us, but it’s one that we chose to accept and adopt because we know it’s the right thing to do, and again it pushes the industry to better customer outcomes and best interest duties.”
Speaking on behalf of another independently owned aggregator, Blake Buchanan, aggregation, acquisition and strategy at Specialist Finance Group, said he would like to see further transparency of bank owned aggregators, possibly with a new conflict document to ensure that customers fully understand.
“As a business it would be great to have that investment as an aggregator, but we don’t require it,” he said.
“We deployed new systems last year; we’re probably pound for pound the fastest-growing aggregator; we take pride in our support metric, and the economy of it is all pretty comparable.
“We’re able to do that without bank ownership, so I would like to see more disclosures in place and not just a line on a needs analysis saying, ‘Were you aware we’re owned by a bank?’”
With respect to these extra disclosure practices, Simon Southwell, head of Southern region at FAST, said the aggregator had already implemented documents that showed it was owned by NAB and listed its top six lenders to demonstrate its flow.
“I find personally that one of the most offensive questions I could ask one of our brokers is, ‘Does the fact that your aggregator is owned by a bank influence your recommendation?’ They don’t respond well to that question, so I think we’ve done really well as an industry,” he said.
Q: What are brokers asking for when it comes to tech changes, and how are you staying agile?
Technology is continuing to develop, and the bigger players are now having to compete with the smaller and more nimble fintechs that are breaking through.
As borrowers and brokers are now expecting things to be done faster, aggregators are also having to improve their technological offerings. PLAN CEO Anja Pannek said her company had just embarked on a relaunch of its platform after about a year and a half of planning and design.
“Often when we think about technology, at the heart of it is how do you engage with your customers and how does it make it easier for you as a broker to do business?” she said.
Working with Salesforce, for example, would enable brokers to bring their customers mobile-first into the journey, Pannek said.
But individual digital plans are not the only thing the industry needs to consider.
Pannek said the introduction of open banking would be a “game changer”.
“The broking proposition is really going to be amplified when open banking comes to life,” she said.
“You’ve already got the trust factor, which a lot of us have spoken about, and brokers working with their customers. Customers will be able to get faster decisions, greater guidance when sharing their information straight up. So I think that’s also something that, as we look forward to 2020 and beyond, will play a very big part.”
Mark Hewitt, general manager, residential and broker, at AFG, said that in retooling AFG’s digital platform the aggregator had gone back to the broker and the customer to focus on the purpose of the technology. “At the end of the day it’s an enabler. It’s not the business,” he said.
AFG found the three things brokers wanted to be able to do were to grow their businesses, hire more staff, and have more time for quality conversations with customers.
“We really need to free up time for people to have that quality discussion, and the biggest inhibitor to that is the gathering of the paperwork, the employment letters, the income letters, getting that into the system; that takes an inordinate amount of time backwards and forwards,” he said.
“So, we’re working on a system that brings this to the front of the customers.”
Haron agreed that it was about enabling the broker’s business. He said that while some customers were really happy to be using technology, others still wanted that face to face conversation.
Connective has developed its platform, Mercury, so that the broker can use it flexibly, based on how they want to use it within their business, and also on the customer experience they are looking to deliver.
“Behind it all sits the person, sits the relationship, and if the customer wants to do most of the transaction digitally, they’ll be able to do that,” Haron explained.
“But when and where they need to have that good customer dialogue face-to-face, that’s a key part of that broker proposition.
I think that’s why brokers will always be strong and why customers are not racing down the digital path.”
“We’ll start to get clarity on commissions, but there are many other things around how our industry is going to shape up, and how our customers and brokers will behave” Anja Pannek, PLAN
Turning back to open banking, Haron said it was an area the industry had to work on to make sure brokers benefited from as much access to information as the banks.
At the moment it is not clear how it would work, but Haron said ideally there would be an open banking platform with brokers, aggregators and lenders each having their own keys and being able to access the same information.
“I know the MFAA’s done a bit of work on that in the last two weeks to ensure the broker industry has as much access to the open banking platform as the banks,” Haron said.
“That’s the thing we’ll be working really hard on from an industry perspective, to ensure it’s not just a bank open banking platform, it’s for all.”
Q: How are you working with brokers who want to diversify, and is it something you are encouraging?
Particularly over the last year, diversification has been a big talking point, as brokers have been encouraged to look for additional revenue streams due to falling house prices and loan volumes as well as the threat to commissions.
Aggregators have been educating brokers on diversifying for a long time, however, and as AFG’s Mark Hewitt said, it has almost become an industry buzzword.
Despite that, AFG has not overlooked its importance. Hewitt said commercial and asset finance was a “great opportunity” for brokers, especially when around 25% of their home loan borrowers were small businesses, and those borrowers had already built trust in these brokers.
He said it was not always easy though. “Traditionally it’s been very hard for brokers to access commercial finance.
There’ve been barriers in relation to accreditation; hurdles they’ve needed to cross.
“So, what we’ve done is we’ve designed the AFG business platform. It’s an intuitive system that matches the client’s needs with a lender’s risk appetite and helps brokers make the progression from being a residential home loan lender into a commercial lender.”
Agreeing with Hewitt about borrower trust, Vow Financial’s general manager of lending, Clive Kirkpatrick, said that was the reason borrowers chose to use brokers.
He said it was why, for a broker, diversification was not just about income streams but about fulfilling more of their customers’ needs because they had put their trust in them.
“It’s around customer need, it’s around trust, it’s around diversification of income stream, but it’s also around customer outcome and fulfilling more of their needs” Clive Kirkpatrick, Vow Financial
“If you don’t fulfil those needs, someone else will, and they’ll be working to take the home loan away from you,” he said. “So it’s around customer need, it’s around trust, it’s around diversification of income stream, but it’s also around customer outcome and fulfilling more of their needs.”
FAST’s Southwell said diversifi cation had been a focus for the aggregator for the last seven years. This had led to around 60% of its brokers meeting more than one customer need on a regular basis. “We’re all talking about what’s going on in your business at the moment.
Diversification of revenue streams is important, but if you take it back to a consumer perspective, meeting more needs of your client, deepening that relationship with your client, is more critical than ever,” he said.
FAST has focused on building the capability of its partnership managers to support brokers in their diversification strategies, whether they are residential brokers looking to get into business or equipment finance, or the other way around.
“This is not just about mortgage brokers becoming commercial brokers; it’s also about helping commercial brokers meet the home lending needs,” Southwell added.
Q: We’ve seen a number of lenders pull back from areas of lending such as SMSF and reverse mortgages. What are you doing to keep on top of these changes and ensure your brokers have a diverse lender panel to support a wide range of client needs?
The bigger banks have changed their appetites; they have either completely pulled products in certain areas or restricted lending in others.
The overwhelming response to this question was that lenders pulling back was creating new opportunities. Sale said the industry had seen more players coming into the market to fill those gaps, particularly in terms of small business lending.
“I think this is a great time for our industry, to tell you the truth. We’re seeing more and more funders come into play, which brings the competitive streak out there.”
As for how Outsource is helping its brokers keep on top of the changes, Sale said, “Education is empowerment. We as aggregators have to have systems and processes. Outsource has just created ieducate, which provides business coaching clinics, etc., for our members to actually grow and evolve.”
Moore agreed about the opportunities for alternative lenders entering the market, but he said Choice had found it was having to say no to certain new, niche players wanting to join its lender panel.
“That’s just a reality, because when we put a lender on our panel we’re putting our reputation on the line, just as a broker is when they’re recommending too,” he said.
“There’s a bit of a shift where for some lenders it’s almost an expectation; it’s a right to be on an aggregator panel. It’s not; you need to earn that right and meet minimum standards.”
Not expecting these lenders to stay out of these markets forever, Buchanan referred to finance as a “big wheel” turning, depending on appetite.
“When we see some providers pull out of a segment, it wouldn’t be unusual to see them come back in at some point in time.”
Buchanan referred to lenders specialising in the reverse mortgage space, in which they could really capitalise on the fact that big players were leaving the market, but he said he didn’t expect this to last forever.
“Down the track, as more people get more appetite for that, I wouldn’t be surprised if they deployed those reverse mortgage products again,” he said.
Kirkpatrick reiterated that it was about fulfilling customers’ needs and remembering that while some of these lenders may be in it for the short term, customer relationships were for the long term.
From an aggregator’s perspective, his message was clear: “Every lender has the right to decide if they want to be in a market or not be in a market. So we have to find the right providers to help brokers satisfy the needs of their customers.” He admitted he had some bias on topics like this, and he gave the example of his mother.
If she wanted to buy a car or visit family in Queensland but didn’t have the money, he and his brother would help her through that. But again, there’s a customer element there.
“There’s a need – but the provider of the lending, the provider of the advice, and the families need to be engaged in that decision making,” Kirkpatrick said.
Q: What is the ‘customer first’ duty?
The Combined Industry Forum included in its reforms that it would develop a ‘customer first’ duty, and this has been a talking point for some time.
In Commissioner Kenneth Hayne’s final report, he recommended a ‘best interest’ duty, and questions have arisen as to how those terms differ and what these duties would look like. Having worked hard with the CIF on this subject, Pannek took on this question first.
She said the proposal for a best interest duty was something that collectively as an industry they needed to work through. While the CIF had a definition of customer first duty, she said the industry needed to engage in discussion about what the best interest duty would involve.
“We’ve got to be very careful when it comes to best interest duty,” Pannek said.
“We’re talking about a shift, a regulatory shift, in how a broker works with their customer.
Often, and understandably, we’ll look at financial planning. We’ve got to learn from other regulatory regimes about how to implement this in a way that works for customers.”
One of the questions Pannek posed was around how brokers would demonstrate a best interest duty, because it was not just a “tick-a-box exercise”. She said, “You question if getting a loan is necessarily putting a customer in a better position.
So you’ve really got to think about that, about how you actually demonstrate you’ve achieved best interest duty.”
Hewitt added that this had to be something that was considered at the time the loan was taken out, “because no one can predict the future”.
“Transparency is key to trust, and trust is the most fundamental thing that we need to continue to have in the broker market” Stephen Moore, Choice
Pannek elaborated: “We think about the work we’ve done around customer first duty; it’s appropriate, it’s affordable, it’s compliant, at the time the advice and the recommendation are given.
“The circumstances that a borrower is in can change over time. So I’d encourage everyone to engage on this topic. I think we’ll start to get clarity on commissions, but there are many other things around how our industry is going to shape up, and how our customers and brokers will behave and work together. This is one of them in and around best interest duty.”
As another CIF member, Moore said the industry was trying to avoid unintended consequences by working on the definition. He added, “But it shouldn’t detract from what we know brokers do today.
Brokers absolutely focus on providing the best outcomes for customers, and our message to brokers is just to keep doing that.”