The business of broking: Year in review

2012 too was full of changes and developments in the broking channel. There were mergers and acquisitions, legislation changes, technology developments, increased competition in the aggregation space and education pressures.

Fee for service, diversification, ASIC’s crackdown on rogue operators and the ways in which aggregators report their figures all proved to be contentious issues, with comments left on theadviser.com.au proving that brokers are engaged, informed and ready to defend their industry.

The businesses and brokers involved in the broking channel both saw some significant changes and interesting developments this year – something which is sure to continue into 2013.

THE BUSINESSES

Some of the most interesting stories about broking businesses this year came on the back of mergers and acquisitions.

In March, the sale of Refund Home Loans to State Home Loans collapsed. The troubled brokerage again hit a speed bump when Independent Home Loans was named as a potential buyer – before that too fell through.

The matter was somewhat resolved in May, when Homeloans purchased Refund’s loan book, distribution network and certain items of intellectual property.

“As a part of the sale, current franchisees will also be offered the opportunity to become a Homeloans broker,” a statement from administrators SV Partners said at the time.

“The sale to Homeloans will see the company’s fixed and floating charge holders and employee entitlements paid out in full and will also provide a return to unsecured creditors. The sale will also see refunds owing to clients paid out and will provide an opportunity to franchisees to continue to operate a business and receive future trail income.”

Despite the sale, just 54 of the 350 plus Refund franchisees had switched to become Homeloans branded mortgage brokers by June.

Speaking about the acquisition, Homeloans general manager retail sales, Greg Mitchell, said even though the company would love the newly acquired Refund franchisees to write Homeloans’ products, the brokers would be free to sell loans from any lender currently on the Choice aggregation lender panel.

“The brokers will continue to aggregate under Choice and they will be mortgage brokers rather than Homeloans representatives.

“While Homeloans is perceived as a non-bank lender, we are slowly starting to change that mindset. We are still a non-bank lender first and foremost, but we are looking at ways to broaden our scope and become a full solutions provider, and the Refund acquisition helps us to just that.”

Also on the acquisition front, Aussie purchased National Mortgage Brokers (nMB).

The acquisition gave the Aussie group a loan book of over $50 billion and helped the company with its expansion goals.

Aussie executive chairman, John Symond, said the company is on the expansion trail and saw nMB as a strategic acquisition in building its distribution capabilities.

In other business news, 2012 saw Firstfolio experience some staffing challenges.

On Friday 14 May, the company’s managing director and chief executive officer, Mark Forsyth, resigned in a cloud of intrigue.

Mark Flack was appointed as acting chief executive while the board searched for a replacement.

Yet, within a matter of months, the aggregator had lost its second CEO. In October, David Hancock left the position after assisting the company with its “recent transition phase”, according to a statement on the ASX.

Greg Pynt and Tony Harris were appointed to act as executive directors until a permanent chief executive officer was found.

Less than one week after Mr Hancock’s departure, Firstfolio’s non-executive director Greg Paramor resigned from his role.

Also, in staffing news, 2012 saw Steve Kane resign from his post as MFAA president.

Mr Kane announced the decision in July, and said his work commitments as Advantedge’s general manager broker platforms meant he could not give his role with the MFAA the attention it required.

“It is important for any president of the MFAA to be able to give 110 per cent commitment to the role. In my new role I simply wasn’t able to do this, so I made a decision that I believe is in the best interests of everyone,” Mr Kane told The Adviser.

The MFAA Board subsequently elected Martin Leedham, AFG’s South Australian state manager to the position.

2012 was a significant year for Mortgage Choice. The brokerage celebrated 20 years, and topped The Adviser’s Top 25 Brokerage ranking for the fourth consecutive year.

The brokerage’s volumes teamed with its productivity levels helped it to secure the coveted title.

In addition to all the big business moves of 2012, brokers were experiencing their own business issues and decisions.

The ‘fee for service debate’ raged on, diversification was pushed by some industry stakeholders as the only way forward – and rejected by others as the latest buzz word – and many struggled with how to attract and retain new recruits in the face of an ageing industry.

THE BROKERS

Brokers were faced with all kinds of challenges and opportunities in 2012.

Issues around education, or ‘the diploma debate’ spanned the entire year.

In March, Mortgage Choice’s chief executive officer labelled the MFAA’s diploma requirement “poor timing”.

Speaking at an aggregator’s luncheon hosted by The Adviser in March, Mr Russell said many mortgage brokers were still coming to terms with their obligations under NCCP and to slap them with another business requirement was “tough”.

“The MFAA, I feel, have failed to comprehend the sheer magnitude of change that brokers have had to contend with post NCCP.

“It’s only been 12 months and many are still refining their processes and coming to terms with what is required to be fully compliant. With this in mind, I feel now is not the right time to force them to complete a diploma.

“Our lenders are not requiring it, nor for that matter is ASIC,” he said at the time.

Mr Russell was one of many industry stakeholders to recommend brokers gain some industry experience prior to being asked to complete their diploma so they would better absorb the education.

The education debate continued into May when the MFAA’s chief executive, Phil Naylor, announced the association’s deadline would be extended to 1 January 2013.

Under the new requirements, MFAA brokers were required to enrol in a diploma course by 30 June, but would have until the end of the year to complete it.

The announcement was met with relief by some brokers and Mr Naylor said that the diploma would ultimately benefit the industry.

Brokers also used 2012 to continue adapting to NCCP. Yet, as the dust settled, and many in the industry became accustomed to the legislation, there was talk of more change.

In May, The Adviser reported that the government was looking to make changes to the legislation – including restricting the use of the terms ‘independent’ and ‘impartial’.

In August, Gadens Lawyers released a summary of changes that have been made to the NCCP Act.

According to the legislation enhancements, brokers will not legally be allowed to refer to themselves as ‘independent’ if they receive commissions that are not 100 per cent rebated to the customer.

In addition, brokers will be unable to use words such as ‘financial counsellor’ or ‘financial counselling’ unless they are given exemption by the regulator.

Speaking to The Adviser, Gadens partner, Jon Denovan, said the enhancements were “overkill” and there were no apparent commercial or legal reasons behind the changes, which come into effect on 1 March, 2013.

Yet perhaps one of the most discussed and debated stories of the year was ex-broker Kate Thompson’s claims that lender’s used “inappropriate” lending practices.

In August, Ms Thompson told the ABC that various lenders were offering low doc home loans to applicants they knew could not afford the repayments.

Ms Thompson said she was encouraged by the banks to make up fictitious stories about customers so they could get loans and falsify their income.

Her claims however, were widely slammed across the industry as brokers sought to defend the lenders, and the validity and security of low doc loans.

In more positive news, many brokers used 2012 to grow their business, despite the tough property market.

In November, in The Adviser’s Elite Business Writers Ranking, all of the country’s top 50 brokers recorded volumes of over $60 million.

With the industry continuing to extend its reach, there is no doubt that 2013 will be another eventful and exciting year for the third party distribution channel.