The Mortgage Broker Movement

Transcription

1 The Mortgage Broker Movement Preface This is a vision statement, a direction for our industry, some leadership, a bigger reason for why we do what we do. This is not my document. I don't own it. I have written it for the industry, for you... so you are welcome to adopt it as your own vision - in part or in whole. And if you care, please share it. The premise of this manifesto is that I believe we're about to enjoy a tremendous amount of economic growth over the next 3 to 5 decades. In addition, I believe that Australians lack direction and trusted advisors because the financial service industry is broken. The combination of these two things means mortgage brokers have a once-in-a-lifetime opportunity to transform the financial services industry... and that's the movement I hope to start. Part One It ours for the taking! Most Australians have tremendous opportunities. Historically called the lucky country, Australia definitely lives up to that name today. At least 80% of humanity lives on $10 or less per day. The richest 20% of the world s population accounts for three-quarters of its income. The majority of Australians are amongst the richest people in the world. This is only set to improve. Australia s proximity to China, India, Indonesia, Japan will have a massive wealth effect, as these four countries will account for 61% of the total GDP produced by the top 10 countries by China s GDP is expected to be 11 times larger by 2050 than it is today. By 2040, China will have over 1.4 billion middle class people - 4 times as many as the USA currently have (remember, middle class are the highest consumers of products, technology, leisure and brands). In the late 1800's to early 1900 s, Australia had the highest income per capita in the world thanks to the gold rush. We were one of the wealthiest countries and we could be set to enter into gold rush Mark II because of a combination of things, including the mining boom and proximity to growing economies (which will attract spending and investment). Will Australians make the most of these opportunities? My concern is that we won t, simply because we don t know how to manage money. Too many people live from pay-cheque to pay-cheque, spending what they earn (or more). Too many people don t measure how much they spend not budgeting per se just knowing where their money is going. Most people have no idea. No one teaches you Where do we learn how to manage money? Parents, friends, the internet? Rarely are we given formal education about how to make the most of our financial situation and the dangers of financial mismanagement. So, it s no wonder that many people aren t making the most of their opportunities.

2 Arguably, financial education at school could be a waste of time, because it s probably 10 years too early. It s when you finish formal education (school/university) and get your first job, where financial habits are formed. You can get access to credit cards, personal loans, mortgages and all kinds of financial drugs. But if you have good money management from day one (i.e. you know where you re spending your money and you regularly save a portion of your income no matter how small), it s likely you ll lay the foundations for a successful future. Money management is fundamental The ability to earn a huge income isn t a magic bullet to achieving financial security. There are plenty of people on average incomes that have accumulated a strong and stable asset base, whereas there are plenty of high income earners that have no material assets to their names. Without a doubt, the most critical element is the ability to manage cash flow, not income. That is what will determine if someone will achieve a good level of financial security. Without cash flow management, financial success is accidental and improbable. Two reasons Australian's fail According to a report prepared by ASIC in 2011, Australian's fail to make the most of their financial opportunities because: 1. they make poor financial decisions (i.e. invest in the wrong assets or take inappropriately high risks); and/or 2. they disengage and fail to make any financial decisions (procrastination). Access to information to aid decision making is no longer a hurdle unlike 10 to 20 years ago. Now, most people have trouble deciphering which information is relevant to their decision and they can t do this without some help from a person. I believe the missing piece of the puzzle is a "trusted advisor". When people seek advice and the advice received is quality, most people will do very well. Part Two The financial services industry structure is broken! Research shows that between 60% and 80% of people believe that the best source for financial advice is to see a financial planner. However, the proportion of Australians that have an ongoing and engaged relationship with a financial planner appears to be in the range of 10% to 20%, based on various studies (I suspect it's towards the lower end of this range). Why are people so reluctant to engage with a financial advisor? I believe they have generally lost the trust of the Australian public because of their reliance on commissions from only one investment asset class (managed share investment products) and reluctance to consider property investing in their advice. The important point is that Australian's don't believe that they can get independent and reliable advice from financial planners. Accountants are the second most popular source of financial advice (behind family and friends!) according to ASIC's research. However, accountants tend to get bogged down in tax compliance

3 activities and rarely have time (and perhaps knowledge, license, PI cover, etc.) to spend time on delivering proactive advice and planning. Few accountants have a robust knowledge of investment opportunities and investment strategy development. So, in the main, they stick to what they know: preparing tax returns and providing tax advice. The third most popular source of financial advice is bank staff (and perhaps we can assume this also includes mortgage brokers). My belief is that the financial services industry is broken because Australians don't have a trusted source they can call upon to help them make financial decisions. This is evidenced by the fact that people seek more financial advice from family and friends rather than trained professionals (as confirmed by ASIC research). Part Three The massive opportunity to change people s lives I am very proud that mortgage brokers, on the whole, seem to have captured Australian's trust and respect with our market share hovering between 40% and 45%. I believe that the combination of the structural changes in the world economy (with wealth flooding into our region) and the absence of a category of financial services professionals putting their hand up and working hard to earn Australian's trust, that we (mortgage brokers) have an enormous opportunity to help Australians make this country the richest in the world. I believe that mortgage brokers are well positioned to rise to the challenge because: most people that earn any material income will eventually buy a property and will need to engage the services of a mortgage broker; astute liability (loan/mortgage) management interlinks with many other areas including tax, cash flow management and investment planning; we don't charge a fee for our service so the opportunity to engage a broker has few barriers; we already have 40% to 45% market share so we enjoy strong awareness of our services. An envisioned future I dream of a future where mortgage brokers are seen as an essential relationship by every Australian. Finding a trusted mortgage broker is not only necessary, it s desirable. Mortgage brokers possess the same trust and respect as the old bank manger relationship did over 40 to 50 years ago. People contact their mortgage broker as the first point of call to solve their financial problems or get questions answered. Mortgage brokers foster a network of trusted advisors to whom they call upon to solve their clients problems. The term 'mortgage broker' doesn't encompass the help offered, so perhaps 'financial broker' is a more accurate description. A Financial Broker's relationship with its clients is based on mutual respect, honesty, trust and advice - quite distinct from a simple product sales relationship of past financial services participants.

4 Steps forward... It s a great vision, but what does it mean in a practical sense? Well that's for us to work through as an industry but to help us get started I think its means: Disregarding the product and focus on "helping" and "advice" Looking beyond the mortgage and helping the client map their financial future Help clients understand the importance of cash flow management (perhaps using tools and training) Referring clients to other trusted advisors that put the clients interest first Giving the client the confidence to make timely financial decisions Asking questions and listening Give value first. In essence, we simply need to help clients avoid making poor financial decisions and avoid procrastination. We don't have to morph into financial planners or tax advisors - I'm not suggesting this - although some of us may choose to engage in further training. In simple terms the approach I m suggesting is "thinking beyond the mortgage". A favour I ask of you To create a movement, we need to inspire great brokers and industry participants (such as you) to adopt this vision as their own and act accordingly. So I ask you for a favour. Please sign on as an Ambassador (on the website). Ambassadors agree to do whatever they are able to do to lead the industry in the direction of this vision. This could be as simple as incorporating the vision's beliefs in your day-to-day business and how you interact and build relationships with clients. Movements are created one person at a time. Perhaps you'd be kind enough to do more; talk about the vision with your colleagues, contribute to the blog on the Broker Revolution site, encourage lenders, aggregators and suppliers to support this vision - anything to get people talking, thinking or acting upon this vision. Of course, subscribe to the blog on You can invite me to present on this vision. My presentation typically lasts an hour and aims to educate, entertain and inspire brokers to join the revolution. Contact me if you are interested in inviting me to speak at your next PD day. Many of my presentations are done without charge but depending on the size of your group, location and type of organisation, some cost may be unavoidable. You can contact me at stuart@brokerrevolution.com.au. In short, I need your help. How will we know? How will we know if the movement has gained momentum? Perhaps the simplest measure is market share. For many years, the mortgage broking industry's market share has hovered around 40% to 45%. Inspiring great brokers with a big and bold vision, will hopefully allow our industry to increase our penetration and hopefully break through the 50% market share barrier. This is my ultimate goal -

5 improvement in market share. If we can act as a unified industry and push our market share beyond 50%, we'll create history - so that's my challenge to you... get out there and support the movement. Thank you and good luck. Stuart Wemyss P.S. Please pass this manifesto onto as many people as possible... please! P.P.S. If you have any comments about this manifesto, positive or negative, I invite you to share. Return to the page where you downloaded this manifesto and leave a comment there.