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Having the right aggregator is essential to any brokerage, while switching aggregators can bring with it both big rewards and major disruption. So, is it really greener on the other side?
In August 2013, The Adviser published its annual aggregator survey based on the opinions of brokers. And, as in years past, the survey hauled up its fair share of industry red herrings. More than 45 per cent of brokers polled said they had no plans to change aggregators in the coming 12 months.
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Steady as she goes, it would appear. However, dig a little deeper and the survey reveals that almost 39 per cent said they were considering a move, while just shy of 15 per cent ticked the “unsure” box.
And interestingly, in 2014 it’s proving to be the aggregators that are chasing the brokers to switch camps – via a raft of inducements – rather than fedup brokers simply looking for a better deal elsewhere.
Stephen Moore, CEO of Choice, says it’s an aggressive time for the industry as a whole so the third-party channel’s three ‘pillars’ – lenders, aggregators and brokers – are all looking to aggressively expand their businesses.
“It’s a growth market,” says Mr Moore, “and that leads to competition and competition gets exacerbated. That means it’s an exciting time but it can also be a trap.”
While brokers may switch aggregators for a short-term gain – chasing the next deal – they may overlook what’s best for their business in the long term, he suggests.
Contemplating a change? Well, as you’d expect, there’s no right or wrong answer to whether you should switch (unless, of course, you’re getting absolutely no support whatsoever from your incumbent). Whether an aggregator is the ‘right’ aggregator depends on a raft of things but primarily, it concerns the maturity of the broker’s business.
A new brokerage, with few leads and poor cash flow, will have quite different demands to make of its aggregator than a more mature business that may be looking at things like improved technology or marketing support.
Don’t jump in blind
So you’ve decided to ‘test the water’ – what now? Well, the advice from the experts is clear: changing aggregators can be a very disruptive process and, more often than not, it’s younger brokers – the inexperienced ones – who are looking to change.
However, it’s the brokers who are less settled, with less cash flow, that are least able to handle any disruption.
Tim Brown, CEO of Vow Financial, agrees with the general industry sentiment that any broker considering a swap should research at least three ‘potentials’.
And by ‘research’, we mean a thorough investigation of the aggregator’s proposition, researching existing brokers allied to the aggregator and, perhaps even more important,researching brokers who may have recently left.
“If you don’t do your research,” says Mr Brown, “you can often find yourself in a worse position than when you left.”
Always think long-term, he stresses: “These days an aggregator has to offer more than just software and compliant lending; you have to offer ongoing development and the opportunity for the broker to take their business to the next level – as well as diversification.”
Finding the right model
So you’ve decided to switch, but which model is best for you? Choice’s Stephen Moore says the franchise model is the fastest growing and a lot of that has to do with a change in industry perceptions.
According to Mr Moore, in the past the franchise model was seen as the better model for industry newcomers who needed a lot of support, but he says it’s now much in vogue with “forward thinking brokers who recognise the value in having a systemised approach to business, strong marketing support and a ready-made online presence”.
As for the merits of the boutique model over the large, according to Mr Moore, it depends on the broker’s needs and the services provided by a particular aggregator. Boutiques offer more service but take more commission, while many of the larger ones can be quite “hands off” and a broker only pays for the services they choose to use.
Vow’s Tim Brown says you’ll get more service from a boutique aggregator but you’ll pay more for it, while larger aggregators offer “good systems and processes but the commissions are pretty much the same at that level, so it’s really all about the service.”
However, he adds that the support you’ll get from the franchise model still makes it an excellent choice for newcomers, although he agrees the upfront fees can be a bind for brokers who aren’t yet writing loans.
Flat fee, service fee, commission split?
One thing that stood out clearly in the 2013 aggregator survey was that an overwhelming 52 per cent of brokers prefer a flat fee model when dealing with their aggregator.
Nevertheless, each model has its pros and cons: “The flat fee model is probably best for well established brokers who don’t need a lot of support,” says Tim Brown.
“A commission split is best for brokers who are just starting out and won’t have high volumes and, hopefully over time, their volumes will improve.”
A service fee is best for brokers who don’t write a lot of business, but the business they write is big loans; they may only do three deals a month but they might be $2 million deals.”
