Frank Paul, COO and head of research at Blue Wealth, explains why brokers are the missing link when it comes to successful investment and setting financial goals
Performance peaks – and their subsequent troughs – are characteristic of property markets around the world, and, despite its steady run of strong performance, Australia is no different. However, in the investment space recent developments have created some less-than-ideal outcomes.
Following recent contractions in credit policy, Reserve Bank figures for June showed a decline in investor loan growth for the first time since February 2009 and, incidentally, for only the fourth time in history. Simultaneously, property values are in decline in major cities as many markets enter a new delivery phase.
But the news doesn’t signal the end for Australia’s investment market – rather, it’s all part of the cycle.
“Clients can be forgiven for panicking because this industry isn’t their day job, but it is the role of the professional to bring some realism to it and take a longer-term view,” says Frank Paul, COO and head of research at Blue Wealth.
“For an experienced broker, even with the recent changes to credit policy, bank lending and APRA, they know that actually it’s all cyclical.”
In short, what goes down must also come back up.
According to Paul, there are three types of investors: the first-timers; those looking to boost an existing portfolio; and rentvestors, who don’t own their own home but want their first property purchase to be an investment.
Highlighting the continued strength of each of these despite recent trends, Paul says, “We cater to all three and the third profile is on the rise.
“The work that we do and ultimately the value we bring to the table is a methodical process that ends up improving the odds of success. There are no guarantees in any investment strategy, but there are ways to improve the odds of success.”
While time and patience are the obvious methods, knowing what to buy – as well as when and why – also plays a significant part.
Maintaining a level-headed approach to market cycles, Blue Wealth specialises in the research that underpins informed investment decisions, applying a four-step methodology.
The first step is to leverage historic data to determine the current point in the property cycle and gauge the market potential. This is followed by macro research on employment growth, population and demographic changes, infrastructure and demand.
Next, micro research focuses on value, transport, quality, design, amenities and rent.
Finally, the Blue Wealth Index is applied, awarding a score out of 10 for growth and cash flow potential.
The Blue Wealth team works strategically with its referral network of business partners – predominantly brokers, as well as financial planners and accountants – to educate new and experienced investors on how to create wealth from property.
This year, the firm has renewed its focus on business development for its partners through training events and the launch of the dedicated Blue Wealth app, now available on iPhone and Android.
The mobile tool allows partners to access investment details, bookmark information, share content, connect with the Blue Wealth team, and book into upcoming seminars.
“I think we have been one of the standout businesses in this space, and we have historically done more training than others. It’s good for our business and it’s good for the referral partner’s business,” Paul says.
Of late, a huge element of that training has centred on reframing the property conversation. While many are aware that property investment is a long-term game, others require a little more direction as to how it can create wealth and security.
“Investment is a means to an end,” says Paul. “Nobody wants to be a landlord – they buy investment properties to create wealth so that sometime in the future they can stop work and have some degree of financial independence.”
From the Blue Wealth perspective, property and retirement are two sides of the same coin, and this means that through in-depth conversations with the client the role of the broker has room in which to evolve and diversify. In turn, this will transform the challenges posed by recent market activity into opportunities and, ultimately, position a broker as the primary finance professional in their client’s life.
“The vast majority of real estate wealth in Australia is created in situations where investors have behaved really well and held for a long period” - Frank Paul, COO and head of research, Blue Wealth
Observing a convergence of the roles of broker and financial planner, Paul says expectations of the traditional mortgage broker are changing.
“A broker may never have sat down with a client to ask them about their future plans, but now those questions are included in the fact-find and that is straight from the financial planner’s playbook,” he explains.
Supporting this diversification, Blue Wealth’s education program includes full-day masterclasses with in-depth conversations about the role of the broker and how to create a functional client relationship, among other topics.
“We are seeing brokers come out of these programs with a new perspective on their client relationships, and also how they want to help their clients solve some pretty big long-term issues, particularly around creating wealth for retirement,” Paul says.
There is no shortage of rags-to-riches stories from seemingly ordinary people who leverage their credit score – or the bank of mum and dad – to create extraordinary wealth.
The traditional lifelong savers and investors who have diligently grown a small property portfolio over years don’t make the news cycle like couples in their 20s who reportedly snap up multiple homes while earning average salaries.
Rather than allowing such stories to skew client expectations, brokers need to channel their clients’ objectives with sound advice. The secret ingredient to turning a profit is time, and lots of it.
“An experienced and educated mortgage broker can do a lot to shape the expectations of a client through good conversations and education,” Paul says. “Investment is a long-term commitment. The vast majority of real estate wealth in Australia is created in situations where investors have behaved really well and held for a long period of time.”
In order to do this, the investor needs to be financially comfortable and buffered against the unexpected. This allows them to ride through multiple market cycles without being forced to sell – at a loss or reduced profit – when the going gets tough.
“Brokers should facilitate transactions that take into account a client’s borrowing capacity and cash flow capability. They are positioned to facilitate responsible transactions that take into account interest rate rises and so on,” Paul says.
Blue Wealth’s focus for the next 12 months will centre on arming the traditional mortgage broker with the skills required to drive more meaningful and long-term client conversations.
In addition to its new app, the firm will also reveal marketing and lead generation initiatives to support its referral network, and there are targets to increase the number of partner brokers by 100, to reach a total of 250.
“Mortgage brokers who decide to diversify their conversations are viewing their role more as a solution provider rather than a transaction administrator, and that is a mental shift many are making,” Paul says.
“It’s about helping mortgage brokers see how that can work in a positive way rather than them viewing the changes in the market as a compliance burden. More brokers are realising that they need to start thinking that way in order to survive, and survive better.”