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Growth

Refund decision stuns industry

by Staff Reporter13 minute read
The Adviser

Jessica Darnbrough

Refund Home Loans' announcement that it has gone into voluntary administration has sent a shock wave through the industry.

Yesterday, the brokerage told The Adviser that it had called in the administrators to conduct a clean and quick sale of the business.

When Wayne Ormond launched the Refund Home Loans business in 2004, it stirred controversy within the industry.

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The idea of refunding borrowers part of a broker's commission concerned some in the industry because they believed it undervalued the broker service proposition.

After its launch, Refund Home Loans grew quickly, claiming a spot on BRW’s Fast Franchises ranking in 2008, 2009 and 2010.

In addition, the company was also recognised with a BRW Fast 100 ranking in 2007, 2008 and 2009.

Of course, the path to success hasn’t always been smooth for Refund Home Loans.

In March last year, a government enquiry found the company had engaged in false and misleading activities.

In October 2009, the ACCC commenced proceedings against Refund Home Loans and its managing director Wayne Ormond over accusations it breached the Trade Practices Act.

But despite the company’s turbulent past, few in the industry expected Refund Home Loans to go into voluntary administration.

Speaking to The Adviser, Australian Mortgage Brokers chief executive Paul Gollan said the news came as a complete shock to him and his team.

“We were surprised, that’s for sure. That said, I guess there is always a certain amount of risk associated with low margin businesses such as Refund Home Loans,” Mr Gollan said.

When asked whether or not Refund’s voluntary administration would affect the discounting model, Mr Gollan said no.

“In theory, I think the Refund idea is sound; it is the size of the refund that puts the business at risk.

In 2008, broker commissions were cut by up to 30 per cent, yet Refund’s chief executive Wayne Ormond remained adamant that the company’s business model would not change.

“It is never nice to see a business go under, but there was a large degree of risk associated with Refund’s business model,” Mr Gollan said.

“I think it comes down to mismanagement at the top end.”

Mr Gollan said he hoped this incident would not tarnish the reputation of other franchises.

“When something like this happens, it can make people think twice about joining another franchise model. But, I am happy to say that we have no debt at all and run a very profitable business.”

MFAA chief executive Phil Naylor said other franchise models should not worry.

“Ever since the broking channel was created, there have been a number of different business models. Some have worked and some have not – Refund Home Loans did not work,” he said.

“It is not nice to see a business go under, but we are living in volatile times where anything can happen.”

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