Imagine a world where the fax machine hadn’t even come out yet. Imagine each loan application being written by hand, and the various documents being submitted by post, with instructions delivered by messenger. Imagine there being no such thing as trail commissions. Sound like the basis of a horror movie? This was real life for the pioneers of the broking industry as it stands today…welcome to the first instalment of The Adviser’s three-part series on the evolution of broking in Australia
A lot of questions about the future of the broking industry have arisen in 2015. A 52 per cent market share, banking regulation, booming (some would say bubbling) Sydney and Melbourne housing markets, the never-ending onslaught of technological development and restrictions on investors – foreign, domestic and SMSF – have all created much speculation about how the broking industry will fare going forward.
Yet with so much debate surrounding the industry’s future, The Adviser has decided to take a look back at the industry’s past – to consider how it got to where it is today, the challenges it has previously faced and how this evolution over time has set the industry up to deal with challenges in the years ahead.
Of course, a dynamic and rapidly growing industry doesn’t just appear decades even – over which businesses have been established, service offerings changed and added, companies merged or acquired or folded, and careers forged.
Add to that external factors, including the impacts of government regulation, the ebbs and ‑flows of the property cycle and of course the colossal changes resulting from the global financial crisis (GFC), and it becomes quickly apparent what a sizeable history broking has packed into just a few short decades.
Too much history, in fact, to fit into just a couple of pages of the industry’s leading magazine.
As such, we’ll be presenting the evolution of broking as a special three part series over the coming issues of The Adviser. In this, our first instalment, we take a look at the very inception of broking and the formation of a fledgling industry during the 1980s and 1990s. From the foundations of how the need for third-party lending specialists first arose to the key players in the development of what have become powerhouses in the mortgage market, take a trip back in time with us to discover how broking in Australia first came about…
Evolution of broking
The origins of mortgage broking are less clear-cut than many realise....
Many people believe that the mortgage broking industry began in Western Australia (WA), and really only took off in the early 1990s. To a degree, that is true.
The WA legislative framework was much more accommodative to third party players in financial services than most other states before that time – indeed as Firstmac’s managing director Kim Cannon points out, it was illegal in Queensland prior to 1984 to offer lending services over property if you weren’t a certified bank or lender. Yet Interstar founder Vernon Spencer notes that he came across Victoria’s Finance Brokers Act more than a decade earlier in the early 1970s, highlighting what a patchwork of state-based regulation was in place at the time.
Having pro‑ led a number of veterans from across the industry, it is evident that the early 1990s is simply when the industry started to become just that – an industry; a collective of service providers with a specialised skillset being presented to consumers. And as these players began to connect and the industry took shape, so too did it generate greater awareness among consumers, regulators and indeed the wider lending market.
The now retired John Bignell is credited by many, particularly those on Australia’s west coast, as being one of the first true mortgage brokers in Australia, establishing The Mortgage Gallery (date unknown). “John Bignell was probably the real pioneer; he was getting paid a commission from one of the small building societies here in Perth before the R & I Bank [now Bankwest] came into the market,” says AFG co-founder Kevin Matthews.
Yet a number of individuals admit to operating what we now know as mortgage and finance brokerages at that time or even earlier – as far back as the 1970s and potentially even the late 1960s.
These individuals were scattered in pockets far and wide across the country, including in Sydney, Perth, Melbourne and Brisbane. Many focused more on commercial lending, while residential loans were more commonly written with legal ‑firms than banks. Gradually, these early brokers individually began establishing the securitised lending market and relations with predominantly regional banks and small non-bank lenders.
What is clear, though, is that particularly during the 1990s, there was a concerted and increasingly co-ordinated push emerging to better educate consumers about their ‑ nancial options and to establish a genuine, sustainable alternative lending channel as a means of introducing meaningful competition into the mortgage lending space.
Increasing awareness of brokers and theirproposition – by both consumers and within the sector itself – helped to formalise broking as an industry in its own right.
A word of thanks
A feature like this doesn’t happen by accident. In fact, The Adviser has spent several months researching, interviewing and compiling the list of key events, people and companies that have made the broking industry what it is today.
Of course the industry is not shaped by just a handful of individuals – every single participant within the industry has, does and will continue to shape it as it evolves to meet changing consumer needs. We spoke with
just a small number of people from across the country and the broking spectrum for this feature – sadly it is just not possible to speak with everyone.
A huge thanks goes out to all of those individuals and organisations The Adviser spoke with to put this feature together. We would also like to pay homage to those who have retired from the industry and pay our respects to those veterans no longer with us. And to those who we did not speak with as part of this feature but feel you have something to say, please get in touch!
It's a man's world
The early days of broking, and indeed the broader finance industry, were pretty much an all-boys game – and not just for people employed in the sector.
“When I started working in the financial services industry, a single woman could not get a loan,” says prominent consumer finance specialist Lisa Montgomery.
“If she was married and working full time, 25 per cent of her wage would be taken into consideration for qualification. If she was working part time, none of her wage was taken into consideration.
“In 1985, I wrote my first mortgage and…I remember that I couldn’t interface with customers, because a lot of customers wouldn’t want to interface with a short statured, long blonde-haired girl who was not yet 21. I’d be doing all the work behind the scenes.”
Yet while things have changed since these times for women as consumers, and there are a much larger proportion of women in the industry in 2015 than in the 1990s, there is still a noticeable lag.
“It’s bizarre,” says Firstmac’s Kim Cannon.
“I don’t know why, because if you went to the US, it’s probably 75 per cent women and 25 per cent men! So I don’t get that.”
According to the FBAA’s Peter White, concerns about personal security may have been – and may continue to be – an issue which deters women from entering the profession.
“One of the issues we found in the early 90s, reflecting on various businesses and bits I was a part of, was that there was always a consciousness of asking a lady to walk into somebody’s home that they don’t know, and sometimes that could be late at night, to do an interview with people,” Mr White says.
“I don’t know if that held back the growth of women in finance broking, but it was a real concern.”
Brokers in the field seem to concur, particularly before retail and office based brokers have become more prominent in recent years.
Kelly Cameron-Tull, director of Brisbane based Get Real Finance and a 16-year veteran of the industry, says security was definitely an issue for her.
“In the beginning, for probably the first 10 years, I drove to people’s houses and there were times when I did not feel safe,” Ms Cameron-Tull previously told The Adviser.
“I used to have signage on my car, and I stopped that as a form of marketing after attracting a few unwanted stalkers.”
While initially established as a non-bank lender, most people in the broking industry recognise that the company’s founder “Aussie” John Symond, and later RAMS Home Loans and Mark Bouris with Wizard Home Loans, showed the Australian public that they didn’t have to be at the mercy of the big four banks to secure a mortgage.
With tens of millions of dollars spent on advertising their non-bank loan alternatives, and famous catch-cries like “We’ll save you”, consumers began to recognise and flock to non-bank lenders, and in doing so, became better educated about making financial decisions.
Brokers benefitted significantly from this shift in public mindset, as consumers sought out professionals who could help them identify suitable options and then manage the application process on their behalf.
“When you’re talking about people who have revolutionised the industry, you have to look at Mark [Bouris], you have to look at Aussie John. And really, they believed in what they were doing: a different proposition to consumers,” says independent consumer finance specialist Lisa Montgomery.
“Come the turn of the millennium, there was a lot more information out there, so consumers really were informed and had the capability to make better decisions.”
Without the public profile achieved by these alternative lenders, it’s clear that broking could have turned out very differently.
1994: Bank branch closures
Many people look to the mid to late 1990s as the period where the major banks, ironically, promoted the very industry they were initially loathe to support.
“The banks made a decision to actually close down branches with the intention of driving people to their telephone and mobile banking channels to become more efficient. But it actually backfired on them,” explains Michael Russell, the former CEO of both Choice Aggregation Services and Mortgage Choice.
“Australian banking customers at that time – and still largely today – view mortgages as very much relationship driven rather than transactional.
“That, I think, opened the door and a number of very clever-minded individuals recognised that opportunity.”
Government statistics show that the number of bank branches in Australia peaked in 1993 at 7,064. After this, all the majors began closing what they deemed to be under-performing branches.
Combined, the banks closed an average of 284 branches nationwide each year between 1994 and 2001, taking the total to just 4,843.
With consumers left bewildered by such a substantial loss of local presence, brokers wasted no time seizing this opportunity and filling the void in local service provision.
1996: Regulation means recognition
The June 1996 introduction of the Uniform Consumer Credit Code (UCCC) marked a significant step in the recognition of broking as a professional industry in its own right. “In 1993, the government started thinking about regulating home loans. This eventually happened in June 1996, when the Uniform Credit Code (aka UCCC) commenced. This was the first time that home lending had been regulated to any material extent,” explains Jon Denovan, a partner with Gadens law firm.
However, the legislation itself had more to do with lenders than brokers, and throughout the next decade, brokers continued to muddle through a myriad of state-based legislation.
Tools of the trade
In the modern-day rush, it’s all too easy for the brokers of today to forget that they have a luxurious suite of tools and technologies at their fingertips compared to those available to their industry ancestors.
“We had excellent tools – it was pieces of paper and leather on the bottom of your feet!” declares the FBAA’s Peter White.
“I used to wear out shoes on a monthly basis. I would walk and knock on doors day in, day out handing out business cards, handing out fliers on the services I could do, and that’s how you grew your business.”
Kim Cannon describes technology as a major boon for the broking industry.
“If you ask me, the greatest inventions in business as a broker in my time were two things: one was a fax machine – you don’t believe how important a fax machine was! And the other was a PC,” he says.
What about other big tools of the trade in those formational years, you ask? Calculators, manila folders, notepads, receipt books and the car boot – which was a library of lender application forms!
Several longstanding members of the Australian financial sector share their thoughts on the birth of the industry we’ve come to know today…
Peter White, CEO, FBAA
In the late 1980s, Peter White (now head of the FBAA) established his own brokerage in rural NSW, having worked his way through mainstream banking and vehicle financing.
“I got an opportunity to do some more things progressively with a private firm in the broking sector, so I did that and then thought I might do that for myself,” says Mr White.
Yet he was lured back to the big smoke of Sydney, selling his brokerage and entering the non-bank lender space, first with RAMS and then with Wizard.
“I loved the non-banking sector; I always love a bit of an underdog challenge,” he says.
Having seen the broking sector from all sides, Mr White has plenty of wisdom to impart on younger people joining the ranks.
“Never think you know it all,” he advises. “I’m constantly learning, and I very much take the philosophy that I don’t know it all, and I try to surround myself with people that bolster the knowledge that I don’t have.
“It’s a great industry. Treat it with respect, and it will treat you with respect.”
Lisa Montgomery, independent consumer finance specialist
Having spent the early part of her career in banking with Newcastle Permanent before moving to Wizard and then Resi, where she worked her way up to become CEO, Lisa Montgomery has a somewhat different view of the broking channel as an observer rather than direct participant. So much so, that she has positioned herself as an independent commentator and consumer advocate on matters of personal finance.
“I would be sitting in my office and I knew that every customer standing in that line was on the same interest rate, because there was no negotiation,” she recalls.
“The talk of the day, from the mutual sector and the banking sector, was that ‘These people won’t last. How could they possibly last? They’ve got no foundation. Consumers will see through this’.”
Of course, the sector turned that belief on its head. “It’s not about product, it’s about the provision of service,” she says.
“I don’t mean a pretty letterhead. It’s about being more than just product providers to your clients: it’s about being an expert that they take along for the journey.”
John Denovan, partner, Gadens
Younger brokers may not have heard of Jon Denovan. Yet the mortgage lawyer has played a significant role in establishing and supporting the industry which now sustains us all.
“I was a corporate banking lawyer who was left with nothing to do thanks to Mr Keating’s high interest rates,”
he says of the ‘recession we had to have’.
“And so I dreamed up the funding structure of Origin and put it in place on a speculative basis.”
As the non-bank lending and broking sectors grew side-by-side, so too did the need for regulation of the burgeoning industry. This first came in the form of the Uniform Consumer Credit Code in 1996.
“This was the first time that home lending had been regulated to any material extent – it was now classed as just another form of consumer finance like personal loans, car loans and credit cards,” Mr Denovan explains.
“I worked with government and consumer bodies to develop the law and make sure it struck a fair balance between consumer protection and permitting commerce to flourish.”
A decade later, Mr Denovan would again be called to help formulate what would become the NCCP.
Gerald Foley, managing director, National Mortgage Brokers (nMB)
Gerald Foley is probably best known to most people across the third-party channel as the managing director and co-founder of aggregation group nMB.
However, Mr Foley’s entrance to the broking scene actually came a lot earlier, having been one of the people who first orchestrated ANZ’s recognition of and engagement with third-party loan introducers.
“ANZ had dealt with brokers more as referrers and more as a very, very decentralised model – so different branches or centres might deal with brokers around the place,” Mr Foley says.
“But ANZ took the view that they needed to grow their share of new loans being written, and needed some centralised processing control over accrediting brokers and processing the loans.
“I joined ANZ specifically with another person to set up the broker channel with ANZ Bank. To their credit, they were the first major bank to deal with brokers within their own brand.”
Having achieved this for the bank, Mr Foley – like so many of his contemporaries – recognised the possibilities within the burgeoning channel, which led him towards joining Mortgage Choice to set up their Victorian office before later establishing nMB in 2001, where he has remained since.
“I just think the consumer proposition is unparalleled anywhere, where you can tap into an experienced finance professional who will assist you through a whole range of lenders and products and education on property,” he says.
Mr Foley suggests that banks and brokers can sometimes clash in the customer service stakes, yet each should remember their unique proposition and work to their strengths.
“Brokers don’t exist for the benefit of banks – brokers exist for the benefit of consumers. The banks are best at gathering deposits, developing loans, creating products and features because that’s what they are good at.
Brokers are far better at sales because they have a broader proposition, and consumers understand that.”
PROFILE: NUTTING OUT THE RIGHT PATH
Warren Nutt, the recently retired director of Sydney-based Waratah Mortgage Corporation and a life member of the MFAA, holds a perspective on broking that most can only dream of
Imagine a career in mortgage finance spanning 57 years, with the number of loans you have written nearing something close to 10,000. With such a wealth of experience, it’s clear that Warren Nutt is a true veteran of the mortgage industry and the very definition of persistence and longevity.
“We started out as Randall & Co stock and share brokers, and I started the mortgage division [in 1975],” Mr Nutt recalls.
“There were a number of mortgage brokers over in Western Australia that had been there for a long time with varying reputations…but there were also a number of mortgage brokers in Sydney.
“We’re going back to the 1960s and you could count on one hand the number of mortgage brokers in Sydney. The mortgage broking firms were all virtually one person.”
Mr Nutt says it wasn’t easy going in the early days as it built trust from the public.
“Borrowers’ solicitors…told their clients to be very wary of brokers,” he says.
And while most banks were un-enthused about engaging with the channel initially, it wasn’t a universal feeling.
“Most of the lenders were private lenders initially, people who had wealth. But we actually, when we started off in the late ‘70s, had two banks who referred clients to us! They referred the clients who wanted to borrow and they either didn’t have the money to lend, or it was outside their guidelines, so they would send the people to us to retain their business,” Mr Nutt says.
“It wasn’t done in a precise method using computer systems etc – we just worked on a pretty simple 40 per cent of the total income, and it worked. The default rate was virtually nil.”
Mr Nutt says the industry should be proud of how far it has come, particularly in terms of market share.
“At one stage, we got up to five per cent [market share] and we thought ‘We’ve come of age now’.”
Having “hung up my boots”, as Mr Nutt puts it, at the beginning of 2015 and ceased lending at his Sydney-based firm Waratah Mortgage Corporation, Mr Nutt looks back at his career with great fondness.
“We had many funny stories. We had a loan to do, it was on a rural property up the top part of Australia, and we were told the chap’s income was good, he had a good business.
“[It turned out] it was a crocodile farm – he bred crocodiles. We didn’t have any luck getting that place, because I think the [lenders] thought if there’d been a default on the mortgage, evicting the tenants may have been a bit of a problem!”
SHOW ME THE MONEY
The means, methods and amounts of money brokers are able to make is another thing that has changed over the years – yet in some ways, perhaps not as much as you may expect …
“I go back to the mid-80s and I think I invented trailing commissions with a couple of small brokers that were doing commercial loans with me,” recalls Firstmac’s Kim Cannon.
In the early days of broking, remuneration was concentrated solely on an upfront commission as lenders such as Citibank entered the market.
“The Rural and Industries Bank (now Bankwest) commissioned a report on the best way to distribute home loans and they considered opening these huge home loan centres here in Perth." says Kevin Matthews, who negotiated the first trail commission on behalf of AFG.
“The other option they considered was paying brokers a fee per new loan, which was $350 back in those days. They opted for the variable cost of the $350 per loan. Then Bank of New Zealand Australia decided they would pay $400 for each completed loan application.
“Then, because they were competing for business, a couple of other lenders became involved... and they were offering $400 plus 0.25 per cent of the loan amount.”
Mr Matthews says that around 1995-96, AFG then went on to negotiate a trail commission with Citibank.
“Trail commission contributed greatly to the evolution, professionalism and ultimately sustainability of the industry.”
Another point of difference to today’s structure was when brokers actually received their payment.
“Banks used to pay on approval, not settlement, and then they would in some cases not even claw back if it didn’t settle!” says Gerald Foley of nMB.
PROFILE: AN ACCIDENTAL CAREER CHANGE
Around 1971-72, a young chap by the name of Vernon Spencer writes his first loan while working for a stockbroking firm. That one deal leads him on a path towards creating mortgage originator/manager/securitiser Interstar, which then merges with and later rebrands to NAB’s Advantedge in the 2000s
“I’M a chartered accountant. I had left what is today KPMG and joined a medium-sized stockbroking firm,” Mr Spencer recalls.
“One lunchtime, one of the firm's clients rang me because all the partners were out and he asked if we could help him with a mortgage loan on one of his investments. My first reaction was ‘I wouldn’t have a clue what you’re talking about’. But I said ‘Look, I’ll get back to you. Give me some details.’
“I spoke to one of the partners and the partner said ‘I really don’t know, but maybe we could help him. These days where do you get a mortgage from? Banks. But he would have talked to his bank. Why don’t you talk to our firm's solicitors because they sometimes help?”
Mr Spencer did just that, providing details of the client, the property and the transaction, and thought that would be the end of it. “About three months later, I had a letter from this law firm – bear in mind we’re talking 1972 – addressed to ‘Vernon Spencer Esquire’ on official letterhead. It read ‘Dear Sir, Thank you for referring Mr X to us. We have arranged a mortgage loan for him for $680,000 and attached herewith our procuration fee of one per cent being $6,800’.
“I thought: ‘You give a lawyer just a name and an address, three months later you get a one per cent fee – that’s like taking candy from babies, how easy is that?!’”
Recognising the potential to connect more borrowers with the funds available for lending held by law firms, Mr Spencer convinced the partners at the firm to advertise for more clients.
“Legal firms have been doing it for a long, long time. They usually handled the a airs of deceased estates and in Victoria there was a thing in those days, the Trustee Act – whilst it exists today, it’s been amended – which said the trustee could lend up to two-thirds loan to value against a first mortgage residential property.”
And the rest, as they say, is history.
PROFILE: YES WE CANNON
A commitment to providing alternative lending options for consumers is what helped Firstmac and its leader Kim Cannon through the challenges of starting up an entirely new industry
There's no denying that in nearly four decades working in the industry – “this is our 37th year in business” – Kim Cannon, the founder and managing director of lender Firstmac, has seen more than most. Yet he is quick to point out that even he hasn’t seen everything.
“I started in 1978-79 as a lease broker, and there were already a number of people that were around in those days when I first started!” Mr Cannon recalls.
“We were doing equipment finance in those days and it wasn’t until the mid-80s that we started becoming mortgage managers.”
Mr Cannon knows better than most about the differences in state based legislation in those days.
“In Queensland for instance, it was illegal to lend money on property or anything unless you were a bank or building society. So you couldn’t be a broker in those days, in the 70s probably to mid-80s,” he explains.
“The first signs of true mortgage broking started to appear probably about the late 80s out of WA – it was fairly obvious they had different state legislation in those days.”
That changed around 1984 when the Bjelke-Peterson government overturned this, legislating in favour of establishing a secondary mortgage market in the hope of making the Sunshine State a financial hub, according to Mr Cannon.
In the 1990s though, as broking and non-bank lending began to take off, a different kind of challenge emerged.
“As we started out in the early days, we did see a lot of the staff move away, set up their own broking company, and aggregation is something that probably appeared in the early 2000s,” Mr Cannon says.
In addition was the struggle to gain trust with consumers.
“It was always a frustration I suppose, because you had to sit down with mum-and-dad – Mr and Mrs Average Australian were so conservative – and you would have to spend half an hour trying to explain who you were, because you weren’t a bank. ‘Can we trust you to lend us money?’ That was always the biggest single issue,” says Mr Cannon.
“The average Australian was financially illiterate; they just believed everything the bank said to them in the early 1990s.”
PROFILE: THE BIRTH OF AGGREGATION
Many industry insiders look to AFG as one of the pioneers in the aggregation space. It was from the experiences of people like Kevin Matthews that the notion of broker support and mediation with lenders first emerged
“I went into financial broking in 1985 and I used to do commercial transactions specialising in fishing boats and fishing licences and onshore processing facilities,” says Mr Matthews.
“The whole idea of aggregation, which is what AFG started, was based on what happened in insurance offices, where the more agents you got and the more premiums you wrote, the higher the commissions and the higher product you could demand of the product manufacturers.
“We had the same concept – I went out knocking on doors until my knuckles bled getting banks to agree to do that. Obviously they didn’t want to, but eventually persistence beat resistance and they all started to agree to the concept of aggregation.
“When AFG got up and running in 1994, we were doing a lot of business for Citibank, which was one of the first major banks – they are a large bank globally, but they’re a non-major in Australia – they had a product called Mortgage Power, which was a line of credit.”
Mr Matthews is candid about the proposition of the third-party industry and how it has cemented a place in the Australian psyche.
“It’s a pretty damn good service if you’re a consumer if brokers do it correctly. Why would you want to walk into a bank and talk to a spotty-faced teller about a home loan when they’ve only got four or five products they can offer you? It’s a fantastic value proposition.”
PROFILE: GROWING UP ON THE INSIDE
Everyone knows the story of “Aussie” John Symond – he is, without doubt, the most publically recognisable figure in the Australian broking and mortgage market. Somewhat less well known, however, is the experience of the man now at the helm of the Aussie business as its chief executive – Mr Symond’s nephew, James
Having started his career as a 19-year-old with Aussie when it first began in 1992, James Symond has literally “grown up with the industry” and his career has mirrored the growth of the third-party channel, from new kid on the block to industry heavyweight.
“John gave me a call and said ‘Look, can you come and help me out for a week?’ I’d just finished school, I’d got my real estate agent’s licence. I said ‘Sure’,” recalls Mr Symond.
“We started at the end of January in 1992 and there was a small handful of us. I had an uncle with a big vision – he had a nephew who was eager to learn.
“One week turned into six months, six months into 15 years, 15 years has turned into nearly 24 years.”
Mr Symond worked his way up through the ranks of the business, from call centre operator to settlements clerk and credit assessor, loans consultant, state manager and national sales manager, before eventually winding up in the chief executive’s chair with his famous uncle remaining as chairman. As he admits, there isn’t much he hasn’t seen.
“I remember when I was a salesperson, I was 21 years of age and I remember going out into to the western suburbs…there’s been some interesting situations behind front doors,” Mr Symond quips.
“As a broker, when you go into people’s homes and when you have the privilege of sharing their lives at that moment, [you come across] all sorts of interesting stuff!”
BANK ENGAGEMENT WITH BROKERS
Late 1980s/early 1990s: Bankwest (then R&I Bank) deals directly with brokers. Recollections of WA brokers suggest R&I Bank may have engaged with brokers as early as 1987.
1988: Citibank begins distributing via brokers, initially paying only an upfront commission.
Early 1990s: Having acquired the LJ Hooker real estate network in 1989, Suncorp launches LJ Hooker Home Loans, and subsequently begins engaging with brokers more broadly.
1992-1993: Macquarie Bank starts providing mortgages in partnership with Aussie. Directly engages with brokers from 1998-99.
1998: Westpac begins paying commissions to third-party brokers.
Early 2000s: Bank of Queensland initially enters broker channel, before exiting again soon after in June 2004. BOQ re-enters the space in August 2013.
2011: In November, ME Bank enters the third-party channel.
2013: Teachers Mutual Bank engages with brokers from November; first commission is paid in March the following year.
2014: MyState Limited becomes MyState Bank in October; the lender had already been engaged with the broking channel prior to its change of status.
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