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As the first generation of mortgage brokers reaches retirement age, brokers are being urged to consider what their brokerage is worth without them.
With the founding members of the broking industry now nearing retirement age, there has been a flurry of activity in brokers selling their businesses.
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As more brokers think about retiring (more brokers consolidate/merge operations to benefit from economies of scale and aggregators move to take equity stakes in broking businesses), brokers are being urged to ensure that they are keeping the value of their business front of mind – no matter what age they are.
A key way of doing this is by identifying a succession plan to ensure continuity, protect client relationships, and maximise the value of a broker’s business.
Here, The Adviser speaks to a range of industry professionals to understand the importance of developing a strategy early to prepare for the transition.
What are buyers looking for?
Sam Boer, business development director at financial services group Empower Wealth, regularly works with brokers planning their exit strategies. Boer leads the group’s mergers and acquisitions function and supports brokers in transferring the custodianship of their client bases.
Speaking in the Dec/Jan edition of The Adviser, Boer said that buyers are primarily concerned with how a brokerage will perform after the principal leaves.
“If I take [the principal] out of the business, what’s its performance going to look like in the next two, three years?” Boer said. “We look at factors like runoff, callbacks, and anything that could impact its value.”
Boer said that client and staff retention are critical considerations for buyers. “The big question is: will customers stay? Will staff stay? If the principal is actively loan writing, can we replace that revenue? These are the considerations that drive the valuation process.”
For smaller brokerages, where the principal plays a key operational role, the risks can be greater.
“In smaller businesses, the principal is often the primary loan writer and the face of the company,” he said. “Without other supporting structures, there’s a higher risk of upfront income dropping off quickly.”
What are valuers looking for?
Nick Young, managing director of trail book purchaser Trail Homes, said that valuers focus on a business’s structure and income streams when assessing its worth.
Young categorises brokerages into three types: expanding, mature, and declining. Expanding businesses typically generate higher upfront income compared to trail income. Mature businesses have a balance of upfront and trail income, while declining businesses rely more heavily on trail income.
“The structure of the business determines the valuation approach,” Young said. “For instance, an expanding business may offer more growth potential, while a mature business might require a closer look at sustainability and client retention.”
Young also stressed the importance of sound business practices and long-term planning.
“Valuers look for businesses that are structured well, with clear goals and systems in place,” he said. “Starting with the end in mind can make a significant difference in the valuation process.”
What is the broker experience like?
Mortgage Choice broker Tony Schelling shared his firsthand experience with succession planning after more than 30 years in the industry. Speaking on the Elite Broker podcast in July 2024, Schelling outlined the challenges he faced in transitioning his business.
Schelling said that early offers from potential buyers fell through because they were not prepared to take over.
“When they made me an offer, they weren’t ready operationally,” he said. “We told them: ‘You need to get your MFAA accreditations, complete your Cert IV, and be ready to operate from day one.’”
To address market-specific challenges, Schelling ultimately valued his business based on its trail book. He analysed the runoff rate and set clear expectations for buyers.
“I was upfront about what I could and couldn’t do to manage the book,” he said. “This helped buyers understand the value they could add.”
Early action critical
Industry members are therefore being urged to start succession planning early. By developing a plan, brokers can prepare their businesses for a smooth transition, retain client trust, and maintain operational continuity.
You can find out more about succession planning – and top tips from trail book buyer Trail Homes – in the Dec/Jan edition of The Adviser magazine, out now!
[Related: Planned to perfection: Succession planning success]
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