In this episode of Elite Broker, The Adviser talks to Empower Wealth founder Ben Kingsley about his origins in the broking industry, how he set up his own business and became a qualified property investment adviser, and the advice he has to offer brokers looking to diversify and differentiate themselves from their competitors in the industry.
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James Mitchell: Hello, and welcome to Elite Broker. I'm your host, James Mitchell, editor of The Adviser, and we're joined by Annie Kane, deputy editor. How are you doing, Annie?
Annie Kane: I'm well, thanks James. How are you doing?
James Mitchell: Good, thank you. We've also Ben Kingsley in the studio. How are you doing, Ben?
Ben Kingsley: Really well, James. Thanks for having me.
James Mitchell: No worries. Ben is a Chair of the Property Investment Professionals of Australia, or PIPA, as it's regularly known. We might just start off, Ben, just by if you could tell us a little bit about your story, and your history in terms of getting into real estate, and property investment, and the mortgage side as well.
Ben Kingsley: Yeah, sure. Back in 2004 I finished up in the tourism industry. I had a fun time looking after Hamilton Island and Ayers Rock Resort.
James Mitchell: Nice.
Ben Kingsley: Two fantastic. I had the best job in the world back in the day, but I was living in Sydney, and working out of Sydney, but I wanted to move back to Melbourne. Trying to work out exactly what I wanted to do. I had a few ideas around a coffee business in China, but I don't drink coffee, so that was more around the magic of the dollars and the international travel, and all that sort.
Once I got over myself I then decided, you know, "What am I really passionate about?" The answer to that was property investment, and certainly PIRs, personal wealth creation. I made the decision to look at property. I bought my first investment property when I was 23.
I was well and truly on my way, and then I just needed to understand what it was that I was looking to do. That's the logical connection to come into Mortgage Choice, so I did my apprenticeship with Mortgage Choice. I took a franchise out with them, moved back to Melbourne. Got myself repositioned back into that market.
It was always part of a bigger vision that I had, which was around, if you've ever been to the Spruka events, and you know, all the seminars, and all that, that are out there. You take away a couple bits of good information, but predominantly, they're there to sell you something. There was no real independent advice around property investment, but I knew that the numbers were the main part of the story. I thought if I can nail, and understand, how lending takes place then I can start to build out what I saw for the bigger vision for the business.
James Mitchell: Cool. How was that time in Mortgage Choice? What was it like, I guess, getting your sort of start in the broking side of things, and then having that transfer into property investment for yourself, I guess, and for your wealth creation?
Ben Kingsley: Yeah, I think from my point of view, you know, Mortgage Choice gives excellent training. They got good systems and processes, you know, obviously a well-established brand. From that point of view, that was terrific early on. It allowed me to sort of understand, you got the mentors, and that type of thing, as well. For someone completely new to the industry it was a good, certainly, introduction.
The interesting part of that though was back in the day, they were very protective about their brand. I approached them about wanting to set up a property investment advisory arm of what I was doing. At that moment in time their management of the day were basically, sort of, a little bit apprehensive of that type of opportunity. I had to make a call, in terms of what I was going to do, and the vision. That was around 2007, so early 2007. That's when I pulled the plug on them and set up Empower Wealth.
Annie Kane: Empower Wealth now does mortgage broking, and as you were saying, obviously, wealth advice, financial planning, buyer's agents.
Ben Kingsley: Yep.
Annie Kane: Kind of, the whole gamut of, really, financial planning and, sort of, advice for that area. How did you find people, firstly, to come board to start the different aspects of the business, or were you doing everything to begin with?
Ben Kingsley: Yeah, so early on it came in stages. I'm pretty conservative, and conservative around the business that I run, and conservative around the advice that we give. From that point of view, I wasn't about to go and set everything up overnight, and just basically throw huge amounts of dollars at it. The logical step for me, is if I could understand money management.
We've got to key principles in our business. Elite money management, so cash flow modelling, and all of those types of things are really important. When you're getting people into debt you need to make sure it's understood. Then, the research piece around property investment. We could be market leaders, in terms of our insights, in terms of what we were delivering, as opposed to delivering off the shelf products and trying to shoehorn people into that.
That was always our big step. We set up, sort of, education and money management in June of 2008. Built a pretty sophisticated software modelling tool that measures household cash flow movements every month, for 40 years. That was woven into building multiple property portfolios. That took us awhile to, firstly, build the software. Almost two years to get it where we wanted to, and then we needed to put a product around it.
That was my background into PIPA, so I was also saying, "Okay. Well, I'm a qualified broker, and I have multiple property portfolio, but what qualification have I got? Like, what sort of a background?" People are going to come and see me and say, "Well, you've got the experience, but have you got a formal qualification behind me?" That's where I reached out and found the Qualified Property Investment Advisor course at PIPA. Which was, at the time, being offered through DeakinPrime, so part of Deakin University.
I went and did that part-time for two and half years, and got my qualification as a QPIA. That sort of led to opening up the doors of getting involved in PIPA, and then ultimately joining the board, and then ultimately becoming the Chair of the Board. There was a combination of things going on there, and it allowed the business to then start to look at offering, sort of, some property investment advice along with the mortgage piece. That's probably where I always had this vision. We've sort of focused our business on being more like a medical practise. You go to a GP, you get a diagnosis, and then they refer you on to the specialists.
James Mitchell: Yeah, that's good.
Ben Kingsley: That's probably the –
James Mitchell:The diagnostic thing to begin with, and then it goes on.
Ben Kingsley: Correct. Yeah, yeah, yeah. No, because every person's circumstances are completely unique, and their goals and aspirations are completely relevant to them, but not necessarily to everyone else. It's a lot harder to do because as we explore the idea from the brokerage point of view, well, our IPI coverage didn't allow us to do property investment advice. We had to set up a separate company for that.
Then we had to set up a separate company for the financial planning, and then for the buyer's agency, because they all operate under different regulation and compliance. It's a lot harder to do, but I think ultimately if you can get a team of professionals who are specialists in their area, guiding a household onto their future wealth, and have a relationship as opposed to a transaction, you're on a pretty good thing.
Annie Kane: How does that actually work on a practical base if I was a client coming into the company. Who would be the first point of contact for me, and how do you then decide who I then go and see?
Ben Kingsley: Great question. Depending on how you respond to our initial inquiry, so we'll ask you, "Are you looking for finance, or are you looking for property investment advice?" Now, if you're looking for property investment advice, you'll firstly meet with a property investment advisor. We've trialled it where we've had mortgage brokers having that first conversation, because ultimately it still comes back to the cash flows, and what you can borrow, but where we want to probably take it is because some of our property investment clients have their own brokers. For them to be sitting down talking to a broker, initially, in the back of their mind they're like, "Why have they put me in front of a broker?"
Annie Kane: Right.
Ben Kingsley: Where we're going is to try and make sure that all of our clients are seen by the property investment advisor, if they've asked for property investment advice. If they've asked for a mortgage review, then obviously it automatically goes in to the broker. We have a very extensive fact finding. In fact, it can take the client up to an hour to complete that fact find, so that's a real test for us.
We're washing out all the tyre kickers, and really dealing with the people who, you know, and we want to give them some takeaways. Our first initial consultation is free, and we hopefully should be giving them two or three really good takeaways as a thank you for giving us the information that they've given us. Obviously that's where we diagnose them, and see where they're opportunity is to try and take them on a journey.
Annie Kane: Okay, and obviously with the advisors that I'm assuming that you're charging a fee for service, but what would happen with the mortgage brokers? Are they also fee for service, are they just on commission?
Ben Kingsley: They're just commission based. Our financial planning is fee for service except for the personal insurances. We use the commission model there. Mortgage broking is commission model, property advisory is fee for service, and our buyer’s agency is fee for service.
James Mitchell: Yep. In terms of, I guess, the idea to sort of diversify, or have a diversified company like this where you've got the buyer's agent business, you've got the mortgage broking, you've got the sort of different strands. Was there any thinking on your part, in terms of when you wanted to set something up this way? Which, we're sort of looking at, I guess, ring fencing or protecting remuneration by having multiple sources. In a way, I'm thinking about mortgage broking, and how they're so reliant on commissions at the moment, but then you have people who say, offer a buyer's agency service where they charge a fee or this sort of thing. Yeah, was that part of the thinking early on?
Ben Kingsley: Yeah. Look, you know, as a business owner you've got to make interesting observations around how you're going to remunerate your people. Like, a lot of our mortgage brokers still refer ring to our property wealth planning team, so that service fee is anything up to $5,000. Now, the mortgage broker doesn't get anything for that, so we made it very clear that we didn't want to incentivize internally, because that was more about what's in it for them rather than what's in it for the client.
Annie Kane: Yeah.
Ben Kingsley: We've been very clear about that. Now, what we have done across the group though, is set up an employee share scheme. We've set up an ESOP. Effectively, if the business is growing nicely, and we hit certain targets, then there's going to be some money that's put into a trust for all the staff, and they basically start to earn some of the business.
James Mitchell: That's really good.
Annie Kane: Yeah.
James Mitchell: It's like an equity.
Ben Kingsley: Yeah, it is.
James Mitchell: You own equity.
Ben Kingsley: Exactly right. Yeah, it's an employee share scheme. They're buying into the company.
Over time, which means obviously all of the original shareholders, including myself as the founder, are diluting our interest. The reality is we want talented people to stay-
James Mitchell: Yeah.
Ben Kingsley: We want to reward them for the effort they bring to the table.
James Mitchell: Fantastic. I just want to talk a little bit now about, I guess, the investor lending space. You know, there's been so much change that's happened. I think there was a few people speculating that they were going to introduce further crackdowns. How busy does it keep you, and does it keep you up at night, all the changes that continue to take place?
Ben Kingsley: Look, as a business owner if our value proposition is good, and long term property investment is viable, then we see it as an opportunity from a market share point of view. Everyone's in the property space at the moment, and to be honest with you, it's absolutely unsustainable. We cannot have 40 or 57%, I think January's number was 57% of all New South Wales lending was investment again.
That's scary territory. I mean, there are people who are going to lose money when it comes to property investment. They're paying at the top end of town. Now, they might be board-less investors and looking to invest in, say, Queensland or somewhere else. Good luck where they are.
It's unsustainable to think that everyone can make a winner out of property investment in the short term, so I don't mind some of the initiatives. I understand then the banks have got the challenges around making sure their shareholders, you know, they're trying to do business with one hand behind their back. What's the low hanging fruit that's politically sensitive? Owner occupied mortgages, so we'll play in the investor space, and we'll slug them for a little bit more.
I get disappointed that there's a margin gab going on. I understand it, but I still don't like it for my clients. I don't like that it's available for all existing customers, not necessarily new customers. I think we'll see a bit of this ebb and sway, and to be honest with you, yeah I think there's going to be some carnage out there in probably three or four years.
Whilst the sun's shining everyone's trying to make hay out there, but I think if you stick to your fundamentals, and if you've got a good business, you should be able to ride through this. In fact, a lot of those clients who may be getting pushed into the wrong type of property by their broker, or their accountant, or their financial planner because of the incentive offered to them, will either basically give up on bricks and mortars, and investment, or look to businesses maybe like ours that might be able to deliver that. I get it, and you know, when I put my paper hat on I'm going to advocate heavily for those changes to be sensible, negative gearing to be sensible. The housing affordability debate, you know, is not really a debate for me.
It's something that it's not solved in any major cities around the world, and they don't have negative gearing, so don't blame the investor. Politically, it's a hot potato that gets Labour and Greens a little bit of traction. We've got to do the right thing to make sure that that message is out there, in terms of, "We're open to reviews of all taxation and all of that, but don't just try and bring one element of market manipulation in because you just don't understand the consequences of what you're doing for the long term viability of direct employment, and indirect employment."
The economy, and the wealth of the nation, is backed up by residential property, so you start trying to manipulate that to get 10 or 15% of the people into the market, and you don't really know where that's going. I think if you look at all treasury estimates, and all forecasting on that space, seriously, they've all comeback and said, "We really don't know what will happen." If you want to start doing that, you're playing with a recessionary lever, in my view.
James Mitchell: Yep.
What would you say to, say, someone like David Murray, for example? He came out late last year on Sky and said that, in his view, "All the signs of a bubble are there." I think was the exact quote. He mentioned tulip mania, you know, the Dutch tulip thing.
Which was, for a journalist, that's brilliant headline grabbing stuff.
Annie Kane: Yeah.
James Mitchell: In terms of reality, and obviously you're completely across property investment, are those statements based in any sort of fact? I mean, he did mention investors, and he did mention SMSFs, and a little bit with the foreign investment angle. Do you think there's any basis to those sorts of concerns?
Ben Kingsley: There is some basis. I mean, he's a smart man. You don't run a bank like he did successfully, like he did for a while. I think sometimes though, when you look at the macro data it can be a little bit misleading, in terms of the markets within markets.
I think, from my point of view, if you focus on the fundamentals of supply and demand, and you look at what's underpinning that, in terms of people's income to be able to do that. Now, I think the banks have been reasonably prudent. You know, 2% sort of loading on interest rates, I think is reasonably prudent. From that point of view, I get it, but I still think there's going to be, again, markets that get absolutely smashed. People won't make money.
If you look at the momentum for this last five years of growth that we've had, money in the bank wasn't giving you anything. There's really just been has been very little. The share market's been quite volatile, so all roads point to bricks and mortar. I think people are taking that view, and I think it's something that they believe they can understand better than they can understand the macro economics, and global economy, and those types of things.
From that point of view, it's always challenging to try and educate those investors. To sort of say, "Hey, look. Not every investment's going to be a good one." It's not lost on me, and all of our advisors in our business, and our buyer's agents. We sit around a table once every two week, and sit back, and go, "What markets do we need to move out of?"
James Mitchell: Yep.
Ben Kingsley: We've currently got over 65 clients that we're trying to buy property for at the moment, and that's growing exponentially. We want to make sure that every post is a winner. We're moving into state, and moving in different locations to try and find those right investments at the right time, because it's challenging.
Annie Kane: Are there –
James Mitchell: That's a real. Sorry, no you go.
Annie Kane: I was just going to ask if there were any boom markets at the moment that you'd be happy to share with our listeners?
Ben Kingsley: Aw, look, I think Melbourne's still got a little bit more in it. It's an interesting marketplace. You still got a lot of migration to Melbourne. If you look at the overlaying income ratios to, say, Sydney and also Brisbane, for that matter. Melbourne's got a bit more spare capacity in that sort of seven to 10 kilometres from the city, where maybe properties are still pushing sub a million. Whereas, you've got to move 15, 20, 25 kilometres in some areas of Sydney to actually get sub 1.2.
I think if you take a long term view, you know, I still love Melbourne and Sydney as property markets, but I just think Sydney is a market that we haven't been buying in since early 2000. Sorry, late 2014 was pretty much it for us. We pulled up stumps, and the clients that we got in there are pretty happy with us, but that the risk we take. That's why we invest back in research, to try and get it right.
James Mitchell: Is that from an affordability perspective? Just because the price to get into the market from 2014 till about now has just been, you know, it's not going to happen. I mean, there's still been growth there.
Ben Kingsley: Yeah, but –
Annie Kane: Was it the risk?
James Mitchell: Yeah.
Ben Kingsley: Yeah, there's a risk. I mean, ultimately, we're funny creatures us humans. We can justify things that are irrational in a logical sense, so we have this FoMo event that rolls over us. This fear of missing out. When we're sitting down there, and we're looking at the value of properties moving quicker than we can afford, we actually think we've got to get in.
You overlay that with a booming New South Wales, and Sydney, economy. I mean, credit to the government. They've done a tremendous job in getting the economy moving, and they've got good plans for infrastructure. That bodes well for confidence. Then, there's the wealth effect, which basically if people feel like their household wealth is growing, they spend.
All of those things are at the natural part of the cycle, and I think Sydney's still, from a state economy point of view, is actually still sitting quite well. It's actually when we get to the other side, and the interest rates, and the sentiment, and then the media like you guys, mate. You know, you got to have a headline, you got to get eyes on the screen. From that point of view, that'll start to slow that sentiment and then there will be starting to be buying opportunities. I think that'll be sort of '19 to '22, that'll be the time that there will be buying opportunities out there that weren't out there at the moment.
Annie Kane: I'm just am interested, I mean, hearing from an obviously massive investment company that you're not really looking at Sydney. Obviously everyone's going, "Sydney, Sydney, Sydney. Buy, buy, buy, buy." How do you actually, sort of, educate your clients on the reasons for that, and do you have people who've come up to your doors and say, "I want to buy in Sydney."? Then, because if you're not offering it, they just walk out? Do you manage –
James Mitchell: Yeah. Do you have to arm wrestle with them a little bit?
Annie Kane: Yeah, do you manage to try to shift them over to other markets?
Ben Kingsley: Well, that all comes back to the data, so the data that we're overlaying is supply and demand, as the main data. We also study human interest and human behaviour. What underpins property values is what owner occupiers are willing to pay for a property.
Annie Kane: Mm-hmm.
Ben Kingsley: That's it. What the perfect test of that? Well, you have to look at the mining towns. When the jobs go, and the big incomes go, we actually find out where real value suits. That's where someone's willing to live in that community, and pay a fair price for that asset.
Now, when you've got a booming economy like you have here in Sydney, you could understand why people are in the swing of things in thinking that they're going to miss out. For someone who's lived in Sydney for 10 years, from '96 right through to 2004. I saw between 2001 and 2004, the market was even hotter than what it is now. There were some amazing buying opportunities, but then we look at the data post that time period, and basically two thirds of those suburbs actually gave back value. They lost value after that time.
Yes, "Would we still buy in pockets in Sydney?", and yes, "Are there buying opportunities?" They are, but it may take us six months to 12 months to actually win a property that we think is at fair market price, as opposed to paying 2020 prices for it. If the client comes back to us and says, "I don't care. I want Sydney." and they're taking a 20 year view on it, we'll come into this market, and we'll try and buy. Generally speaking, we'd probably say to them, "Come to Melbourne. There's probably a better opportunity in Melbourne, or there might be a better opportunity in Southeast Queensland, or we've been buying in Adelaide. We've been buying in Adelaide for 15 months."
We try and go counter-cyclical to what's going on in the market, and it won't be long, probably another 12 months, before we're in Perth. When everyone else is fearful, that's when we become greedy to try and get into those markets. We've just got to explain that to the client. We got to use the data that we use to be able to do that. Once they see that, and they understand that there's a bit of science, as opposed to just following the trends, we get a good result.
James Mitchell: Good stuff. Well, we're almost out of time, but I just wanted to ask you one more question. That was about brokers that specialise in the investment space. We've had a few of them on the show. What advice would you give them if they're looking, I guess, to sort of carve out more of a niche, or differentiate themselves from their competitors? Would one thing be getting a qualification so that they can give that property advice, do you think?
Ben Kingsley: I'd love to see that happen. I mean, I'm a big advocate for the fact that mortgage brokers are elite money managers, and can give fantastic advice and strategic strategy, and structure around how they set up the mortgages for investors, but what do they know about property? Where's the 10,000 hours of expertise that they've gathered to be able to do that? I mean, everyone has a view property, and that's the biggest challenge, and why everyone's playing in the space at the moment
There can be a monetization piece to that. Our property wealth planning division will generate around $950,000 in fees for property investment advice this year. That just gives them an idea that you can potentially charge, and it's a wonderful complimentary service to what they're doing. Then, if they want to implement that plan there's also that connection that they can make with a buyer's agent as well. I think there's an amazing opportunity, James, in terms of what's going on, to be able to diversify your business. It's not easy, but if you do it well you'll have a client for life.
James Mitchell: Yeah. Good stuff. Alright, I think that's all the time we've got this week. Thanks again, Ben.
Ben Kingsley: Pleasure.
James Mitchell: Thank you, Annie.
Annie Kane: Thank you.
James Mitchell: We'll be back again next week, and of course, do log onto theadviser.com.au for the latest news, insight, and analysis on the mortgage broking industry. I've been your host, James Mitchell. Catch you next time.
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