Nadine: What do you see is the biggest problem or challenge in the industry today and how do you think that brokers can meet this challenge?
Barry: There are three or four challenges here — naturally the first one for me is the property market. Property market is in I guess at the bottom of the cycle, as we can say, and we’ve seen housing prices being reduced in southern states and to a lesser extent, that in Brisbane. We’re seeing a bit of oversupply as a lot of these development projects and around units and now are coming to completion. As a result we’re seeing investors standing off, they’re just biding time. We’re also seeing property upgraders, that perhaps are waiting for prices to dip a bit further, but also they’re being constrained a little bit because they’re not probably able to borrow the money that they might have been some time ago to upgrade. So we’re in this holding pattern at the moment, we’re at the bottom of that cycle so the expectation is we can only go forward from here. Most of the experts are predicting that will be in that 2021 period ahead, but traditionally when the property market, the purchase market slows — the reform market for us grows. But one of the challenges this time is I guess the ability to borrow, and the credit squeeze is making it harder for people.
But having said, that there’s some great products out there — but there’s also some important niches. So we’re seeing first homeowners that market has been going pretty strongly for the last 12 months, and we expect that that would continue going forward. Given that there’s some great pricing out there for these people we’ll also see those renters perhaps now, a great time for them to get into the market space as well. So I guess targeting a couple of niches, I’m sticking around that refi but making sure that I guess you’re educating the people in terms of what they need to be in a better product, and focusing on those couple of niches.
The other big impact is the around the Royal Commission and the regulation, I guess overview of the industry. And this this point around best interests Judy now, what we’ve seen is the credit reduced somewhat. So we’re seeing the supply being tightened by the lenders as they I guess try and meet the regulator’s requirements around the amount of investment lending growth, the amount of interest are only learning that they do and the like. We’re seeing as a result of that, a lot more work required to get the same piece of business done. Before the Royal Commission, 30% of applications to lenders would come back asking for more information. Since the Royal Commission that figure is now pushed out to some 70%.
Barry: So we’re looking at a lot more work to get the same business done, a lot of instances we can’t get business done that we used to get done, simply because of that credit tightening and supply. It’s taking up to five days for a good broker now to get the information to give a good application, and we’re probably looking at up to 10 or 12 days to get that application to approval, and hopefully you know you’ve got a 30% chance of getting it to float in first go. There’s a lot of instances it’s going to come back and delay time as they ask for more and more information.
Nadine: So having the ability to prepare applications to be perfect before they go in might save a little bit of time?
Barry: Well, I guess diving a little bit deeper into the client for clients’ personal circumstances, getting probably more information than you would think you would need, so that you can give a really comprehensive submission to lenders, and tick every box that you can possibly think. So I guess the best way to look at is look at the worst case scenario and provide everything that you would need in a worst case scenario, or have that information available so that if you do get asked for more information it’s readily available. So it’s a great opportunity I think to review your process so you take some time to close in the backend of your business you know, look to embrace automation.
There’s some great tools available, great applications that will assist you in that application process. And also look to automate where possible and look to outsource as well so there are some people that are providing some great outsourcing opportunities for you to look out for those areas that perhaps you’re not as good at, and that is taking a lot of your time. So those considerations I think in that space.
Nadine: Yeah you want the automation of tasks to not be any of the tasks that are your client touch points, you know. So definitely take advantage of all of the software and other things that can speed up that back-end process for you but always be able to give that additional time to your client in an environment like this?
Barry: Yeah also we’ve gotten some unintended consequences as a result of this layer of layer over-regulation so the financial planning industry went through the FOFA where they’ve now got is this complex documentation, and the consequence of that is it’s taking a lot more time to prepare and the cost to prepare that is having to be absorbed by the business is the benefit to the consumer and as a result of that — well that’s you know, one of those consequences so it’s something that you really need to review. How you’re going about this because at the end of the day you need to be in business to be profitable and if is using up your time and resource then you need to look at other ways.
The other concern of course is broker commissions and the changes to broker commissions, so with the recommendation, that trail disappears and the opposition party pushing that bar at the moment, there is a lot of uncertainty in and around the income attached to this style of business in six, twelve months’ time. We have no idea where that’s leading, any shape or form, but traditionally our brokers relied on trail to I guess, offset some of the costs of businesses so some of these rents some of these overheads is relied on the trailing income, so if that disappears, then it’ll also put pressure on the business in terms of those ongoing costs. And even the cost of staff and staffing in your business. So that uncertainty is sort of training again this unintended consequence you know, we’re in business to be profitable here, but will it be profitable in this new regime? So I guess the obvious thing to do is to look at other income streams, so look at car lending, look at small business lending, look at you know, referring insurances — look at other income streams that you can obviously refer or suggest to your clients.
Nadine: So diversify your offering just a little bit?
Barry: Oh very much so. You should be doing that now. The other one of course is you might consider a fee for service. There are different ways of using a fee for service and of course the financial planning business have embraced this. Have a look at other businesses, have a look at what they’re doing, and see if there’s an opportunity for you to incorporate that in your business, but I guess you need to work out how much money you need to make this a successful business from your perspective and just where that money or that income is going to come from under a new world.
Nadine: Yeah and maybe even kind of changing some of the processes or internal flow of work to be able to handle if trial commission does disappear.
Barry: Yeah very much so you should be thinking that stuff now, and looking at ways and means that you might be able to accommodate that. As I said we’re living in an uncertain time, we don’t know when we’ll get certainty again, it could be six months, could be 12 months, it could be two years — we’re not quite sure, but it’s best to be considering those things now and there’s nothing that’s going to hurt you to employ a lot of those things yeah sooner rather than later.
Nadine: Because if you can have your business kind of handling the worst case scenario now, that’s just going to set you up for if it actually happens.
Barry: Yeah, and I guess the other challenge for us as an industry is just the political and economic landscape that we’re currently in. We’re in election month, or next month we are at least. The policy for the opposition is sort of fairly rigid and round reducing the benefit of negative gearing and of course capital gains tax, now that’s going to have a significant impact on future investors, so that should also see you know home prices fall perhaps. And of course rents will increase, so the dynamic will change a lot. So brokers need to be on the front foot so they should be looking at, I guess how we can introduce more renters to become first-time buyers, and how we can target some marketing towards that particular sector, and that’s probably 30% of the 34 percent of the market in Queensland. So it’s a big market space.
Also, they need to be looking at ways to educate investors, because you’ll have some, or the concession won’t change if you’re investing into new property. So there’s some education and the likes that they could be conducting now and around the opportunities for investors in the new world.