Beyond the numbers

The Adviser’s Top 25 Brokerages Report highlighted those who are succeeding at doing this.

The report revealed that settlement volumes, broker productivity and loan books are at record highs, demonstrating that these groups know what works in their business and what makes their customers tick.

But, as important as they are, the numbers only tell part of the story.

In this follow-up report, we delve beyond the raw numbers to uncover some of the key reasons why these brokerages have succeeded.

In the process, we identify a range of broader trends that are playing a big role in shaping how the mortgage brokerage space is likely to evolve in the coming years.

White-labelling

White-labelling is a trend that has grown significantly since it first made its debut into the Australian mortgage market and the Top 25 report revealed brokers are gradually becoming more educated about its benefits.

Just last year, NAB executive general manager of growth partnerships, Anthony Waldron told The Adviser that their white-label book grew from $4 billion to a whopping $20 billion in five years.

Choice chief executive Stephen Moore says white-label lending has really moved from niche to mainstream.

“It provides a fantastic opportunity for customers outside the major brands; to me that’s important because it gives brokers another alternative but the beauty is, it is only available through brokers,” he says.

Launch Finance broker Steve Milligan uses white-labelling and says the offer is invaluable as he works in the lower- to middle-income demographic where the cost of funds is particularly important to his customers.

“My clients are very keen on saving money. The white-label product is probably one of the most important tools I’ve got in my bag,” he says.

Over the past few years, Mr Milligan has averaged about 14 different lenders but says PLAN’s white-label solution gets about 30 per cent of his business, bringing in approximately $30 million last year.

“One of the things about white-label products is that they are owned by the majors. I tell my clients that they are buying NAB money and I certainly don’t have any issues selling it,” Mr Milligan says.

General manager of Advantedge Distribution Brett Halliwell says despite white-labelling sometimes being a hard sell, he has seen major growth in the trend over the last 12 months and believes it is here to stay.

“The growth in the last year for us has really been around white-labelling having a core place in the industry more broadly. It has been adapted and adopted by PLAN, Choice and FAST brokers in particular who have really seen the benefits,” he says.

“We have found that the demand from the other aggregators has been enormous in terms of them wanting to offer a white-label product to their brokers.”

Education and training

It’s no coincidence that, as consumers become savvier and better educated about mortgages, so too are the better-performing mortgage brokers.

Increased regulation is also driving brokers to become better educated.

It’s for these reasons that mortgage brokerages need their brokers to be properly equipped with the required knowledge and skills before exposing them to consumers.

When taking on new brokers, The Loan Arranger has a steady process to ensure they learn the ropes first.

“We have them in an admin role for six months where we get them to learn the back office function and the systems and the operational side and then we mentor them from there,” managing director, Steve Marshall says.

The vast majority of the Top 25 have requirements in place that state their brokers need to have a minimum of a full diploma in financial services.

Aussie Home Loans invests $1 million annually to the ongoing training, education and development of its brokers and franchisees, while Mortgage Choice offers bi-annual state conferences, monthly PD days, a two-year accelerated program for newcomers and varying webinars.

Others offer regular internal and external training and mentoring as well as workshops on sales, social media, marketing and compliance.

Even established brokers accept that greater education and training is needed, especially in relation to specialist lending, according to Pepper Australia’s director of sales and distribution, Mario Rehayem.

Mr Rehayem says brokers are often reluctant to take up specialist lending opportunities, thinking they are too difficult to write, take too long to assess or are not NCCP-compliant.

He believes brokers are often misled into thinking that specialist lending is solely about “bad credit”.

“This reputation dates back to when specialist lenders were considered only as lenders of last resort, which may have been the case seven or so years ago,” Mr Rehayem says.

“Specialist loans are in more demand than ever before, for a range of reasons: the tighter credit policies; the need for alternative income verification to allow a genuine self-employed borrower to have a crack at the housing market; and to allow a borrower to consolidate their debts to increase their cash flow.”

Victoria-based Pepper BDM, Brett Conway says educating brokers about the benefits of specialist lending is crucial as there are many who do not understand how it can positively impact their business.

“It is very common that you will walk into an office and the first thing they will say is, ‘We don’t get much of your business’. But in the same suburb you will meet a broker who is an advocate who writes a whole heap a business,” Mr Conway says.

It’s about educating the broker that they can do this and showing the opportunity for clients they have been pushing away, Mr Conway says, because other brokers will get them.

Commercial lending

The Top 25 report showed more brokers are choosing to sink their teeth into the large SME market by adding commercial finance to their product suite.

Over the last 12 months the commercial lending space has grown significantly and with that growth, the opportunities for brokers looking to integrate this new revenue stream into their businesses have multiplied.

Adding commercial finance can improve the net value of a broker’s business anywhere between 10 to 30 per cent, according to FAST chief executive officer, Brendan Wright.
He says SMEs are crying out for the kind of specialised service that only a broker can provide.

Mr Wright says he’s seen a number of aggregators helping brokers build their businesses with commercial finance, adding that it’s a revenue stream that’s just as valuable as the residential mortgage space.

“More than half of new mortgages written in Australia are done through brokers and it’s certainly playing out the same way right now in commercial and asset finance,” he says.

Mr Wright notes that the banks are also on board to make commercial lending easier, after noticing the trend emerging in the broker channel.

“The four majors, St George and Macquarie are all prepared to support and help brokers build the capability to be able to do commercial and asset finance,” he says. “They know by doing that, that not all the deals will come to them but they see the
long-term opportunity in this space.”

The relationship between brokers and banks is strengthened when this revenue stream is added to a broker’s toolkit, says Mr Wright.

“It is an ongoing partnership and structurally the banks are starting to line up behind it. The banks that are supporting this, they’re commercial, they’re residential and they’re asset finance businesses working together to help brokers meet the needs of their clients more and more,” he says.

Real estate group brokerages

Another trend The Adviser found when compiling this year’s Top 25 Brokerage report was the growth in brokerages linked to real estate groups.
In this year’s list there were four groups that fitted this profile.

Oxygen Home Loans is a prime example. Oxygen is a wholly-owned subsidiary of McGrath Estate Agents, and it is this partnership between finance and property that is becoming more common in the broking industry.

Lead generation is a key benefit of being attached to a real estate group, Oxygen general manager Alan Hemmings says.

“As property and finance go hand in hand, it is only natural to have a broker as part of the business to make the transaction process for a buyer as seamless and easy as possible,” he says.

He cites the roles of a broker and real estate agent being very similar as a reason as to why we’re seeing more growth in brokerages linked to real estate groups.

“The roles of a broker and real estate agent are very similar – it is all about activity,” Mr Hemmings says. “Prospecting, building a pipeline, listing and selling or for the broker, lodging and settling, the activity needs to be the same.”

Mr Hemmings notes that the level of energy is paramount when a brokerage and a real estate group combine.
“When you walk into the office you can feel the buzz,” he says.

“The activity in a real estate office helps to push you further and I believe that energy is contagious when around a result-driven environment.”
Mr Hemmings anticipates these groups will continue to grow in the broking sector.

“It was recently announced that McGrath will be expanding into other regions as too will Oxygen. We will continue to grow in Queensland with a number of offices set to open in the next few months.

“We recently launched an app for the agents, which we will continue to refine to help drive leads for the brokers,” he says.

Outsourcing

One Top 25 brokerage that has made outsourcing work for them is Smartmove Professional Mortgage Advisors. The company, which is based in Sydney, also has an office in Manila, the Phillipines, which was set up four years ago.

General manager, Darren Little says it has been a long and expensive journey but one that has ultimately helped support its Sydney staff.

“We’re at that stage now that because we’re really process-driven and of the proficiency now in the staff, we’re starting to really benefit [from outsourcing] because we can actually focus our staff in Sydney on giving outstanding customer service, knowing that they’ve got a really strong support functionality behind them that’s there for the long haul,” he says.

The role of a broker is to sell and build relationships, however getting stuck in the back office, trying to get a loan approved takes away from valuable time that could be spent on that priority.

Smartmove believes using outsourced staff to fulfil that function is a great way to combat the problem.

“Because it’s so process-driven, we know it doesn’t matter if you’ve been with us for 10 years or one month, the main application that you can produce and submit to the bank is of the same quality,” Mr Little says.

Outsourcing isn’t necessarily right for every mortgage brokerage.

In a recent blog Ruan Burger, of Time Home Loans, said while outsourcing could prove beneficial for some brokerages, he preferred to work closely with his own employees. He felt this ensured they understood how he wanted his business to operate, moreover, he was keen to give them a career path, which in turn would help him grow his business.

The opportunity remains though. Only last year, a mortgage broker set up a processing hub in India designed to absorb a broker’s CRM management and administration tasks.

Process Assist, established by Andrew Morel, was designed to allow brokers to focus on sales and referral relationships rather than paperwork and compliance obligations.

Referral partners

Referral partnerships remain an important source of new business for mortgage brokers. But should brokerages seek payment for referring their customers onto other business professionals?

The answer is an emphatic ‘no’ for two of this year’s Top 25 brokerages.

Northern Territory-based brokerage, Easy Loans aims to offer clients a full-service option. But if there’s something they can’t do for a client, they’ll refer them to other professionals.

“We try to tick all the boxes but if we can’t, we can refer you to someone within our circle that will look after you,” Easy Loans lending manager, Michelle Goody says.

This, she says, ensures the firm maintains an active relationship with both their customers and their referral partners. Easy Loans doesn’t have ‘kickback’ arrangements with financial planners but they do have financial planners that they work very closely with, according to Ms Goody.

“It’s being able to meet all of the client’s needs, even though it might not be an income stream,” she says. “For us, it’s about servicing that client knowing that we’ve ticked boxes.”

Ms Goody notes having that type of a partnership reiterates their commitment to the referral partners which benefits Easy Loans in the long run.

“We know that even if a client sees that planner, the planner knows they deal with us as a broker so it goes full circle and everyone is happy at the end of the day.”

Ms Goody says that with their smaller size, Easy Loans can’t cover everything so they pick and choose their battles carefully.

“Rather than try and take on a million and one things, we tick what things we can tick and have the ability to refer other things on to those specialists,” she says.
Meanwhile, The Loan Arranger describes their referral partnerships as “old school”.

“As a business, the way we’re structured, we like to think is traditionally an old school finance broking type business,” Mr Marshall says. “Our predominant focus is on the retail side but if you have connections with accountants, you’re more likely to see commercial business come through as opposed to real estate agents, which is predominately the main source and volume of our business.”

Mr Marshall says while accountants are not necessarily referral partners for The Loan Arranger, they operate in a “you scratch my back, I’ll scratch yours” type of relationship.

“A network is developed by mutually helping each other out and helping each other without having to make payments which is the go now,” he says.

“Having established some relationships with accountants in the early stages and maintaining those relationships has given us an opportunity in commercial lending.”

As far as a lot of other brokerages go, new business structures are being formed with financial planning firms in place of traditional referral deals.

General manager of Centrepoint Lending Solutions (CLS), Kevin Frost, says the method of business partnerships between brokerages and financial planning firms is undergoing a shift.

“Many advice practices are now setting up new business structures and either employing brokers on salaries or both parties are taking a financial stake in a joint venture or partnership,” he says. “This approach means that internal referral processes can be property integrated, and office and administration costs can be shared. Most importantly, it means the mortgage broker becomes an integral part of the business.”

This change in business structure could see an increase in the volume of loans written.

“It also means the mortgage broker can properly leverage their client base by referring them for financial advice,” Mr Frost says. “This approach isn’t for all mortgage brokers, advice or accounting practices.”