Leap of faith: Part 2

THE AGGREGATION sector has evolved significantly since its early days, more than 20 years ago.

Originally created so that the banks would no longer have to deal with brokers individually, the concept of aggregation has since expanded and flourished.

Aggregators today offer brokers a lot more than just access to a panel of lenders; they offer software platforms, marketing support and more.

They also offer access to other financial institutions, because brokers no longer simply transact a residential mortgage for their client; today, with the help of their aggregator, brokers find a raft of financial solutions for their client.

Brokers guide their clients during their financial journey, which as well as a residential mortgage can include investment, superannuation and retirement segments.

Of course, to do this they need the help of a company with an economy of scale within the third party space – which is where aggregators come into their own.

Aggregators act as sophisticated financial services providers that have significant influence over the banks and their third party distribution strategies.

But with aggregators now critical to the third party proposition, it is vital that brokers choose the right one with which to partner – the one that will provide the support the broker needs.

Brokers all have different needs and therefore they require different things from an aggregator.

To find out exactly what brokers are looking for in an aggregation partner, The Adviser surveyed the third party distribution channel in detail.

In the inaugural Switching Aggregators Survey, we asked what would encourage brokers to switch or join another aggregator – and the results were surprising.

WHAT THE SURVEY REVEALED

According to The Adviser’s survey, the ability to take trail weighs heavily on a broker when deciding whether or not to switch aggregators.

Of the 400-plus brokers who responded to the survey, 95.7 per cent said the ability to take trail would be “important” or “very important” in a decision to switch groups.

These data suggest the companies that advertise a ‘no handcuffs’ approach to aggregation would be viewed more favourably than those that do not let their broker partners take their trail book.

And, with competition between aggregators running hot, this could be leveraged in a bid to recruit a greater number of brokers.

Technology was also deemed “very important” by brokers, with 70.7 per cent saying they would consider switching for a better software platform.

This result surprised many aggregation heads, including Loan Market Group’s Mark De Martino.

“It doesn’t matter how strong an aggregator’s software is and it doesn’t matter how strong their relationship with their aggregator BDM is,” he says, “if a broker wants to write an extra $1 million, $2 million or even $3 million a month, they will need leads to do it.

“Brokers who receive a consistent stream of good quality leads from their aggregator will be hundreds of thousands of dollars better off in the long term. Trail books grow at an exponential rate with leads – it’s as simple as that.”

Interestingly, leads did not rank highly in the survey, with just 20.6 per cent of brokers deeming them “very important” in any decision to switch aggregators.

Instead, a vast majority of brokers said leads were “one of a few considerations”.

Similarly, brand did not play a key role in a broker’s decision to switch aggregators, with just 19.1 per cent saying this particular business area plays a “very important” role in their decision.

What emerged from the survey was that the monetary components – commissions, aggregation fees etc – were seen as playing a “very important” role in a broker’s decision to leave their current aggregator.

According to the results, 59.6 per cent of brokers said aggregation fees were “very important” in the decision-making process, while 67.8 per cent said commission rates were “very important”.

THE FUTURE OF AGGREGATION

While generally not surprised by the results, Vow’s chief executive, Tim Brown, thinks business support would also have played a larger role in a broker’s decision to switch aggregators.

“I would have thought brokers would say the level of business support and compliance support offered by an aggregator would play a ‘very important’ role in their business decisions,” Mr Brown says.

However, this proved not to be the case: just 38.7 per cent of brokers said business support plays a “very important” role in their decision-making process.

Similarly, just 35.9 per cent of brokers said compliance support was “important”.

“The brokers that join Vow are always looking for greater support from their aggregator,” Mr Brown says.

“They want to partner with an aggregation group that can help them take their business to the next level. Brokers understand that their clients want them to do more than a residential mortgage transaction. As such, they look to partner with aggregators that can provide them with the support they need to evolve from a transactional broker into a holistic financial adviser.”

Mr Brown believes aggregators will need to evolve further so that they can help their broker partners grow their business to incorporate additional financial services.

“I definitely think we will see the industry move away from the traditional mono-line broker to a holistic financial adviser. We will see wealth and broking merge together, moving forward, and aggregators must be on hand to support this move.

“While brokers do not, at this stage, believe business support plays a ‘very important’ role in their decision to switch aggregators, I do believe the role it does currently play will continue to grow in importance and evolve in line with the industry.”

But it seems not everyone agrees.

Loan Market’s Mark De Martino says he is not surprised to see brokers foregoing “business support” for other areas.

“Brokers don’t expect as much support from wholesale aggregators because they believe these types of aggregation groups do not earn enough to invest back into things like marketing, additional BDMs or compliance,” he says.

“I am not saying these models are wrong; they definitely have their place in the market, I am just not surprised to see that business support does not rank highly on a broker’s ‘very important’ list.”