Mortgage Broking Business Opportunity

You're right, it hasn't happened yet. I still think we're probably 10-ish years away from it too but it seems like a fairly outdated practice ideal for some disruption.

I would try to pick an argument with you over this claim, but you haven't really given any numbers and its a bit much effort to attempt to challenge such a broad statement. I think its also worth pointing out that "paying more" does not equal better off. The loan repayment amount is one (important) factor to consider if we were to review whether or not brokers are a positive and or whether brokers are the best possible way we could structure our lending industry, it isn't the ONLY factor to consider, APRA has already found in the past that default rates are higher for broker written loans, so the industry likely isn't as rosy as some try to suggest.

Back to the topic of of starting a new broker business, given that:

1. In my opinion Its ripe for digital disruption

2. ASIC are currently reviewing the remuneration structures for brokers (I think they are also looking at non monetary remuneration too?) and the very real likelihood that Australia is going to implement some NZ style reform which saw their brokering industry go from 1,400+ brokers to under 500

Now seems like a pretty bad time to launch yet another broker business without some sort of clear competitive advantage or existing skillset that can be provided as a value prop to prospective clients.

 

Its been probably 2-3 years since I've looked at this, but aren't the majority of brokers only regulated by the NCCP to assess whether credit is not unsuitable & actual advice requires an RG146 as wouldn't commenting on lender policy as it relates to a borrowers financial circumstances qualify as tier 1 advice?

 

When the question is about getting into a certain profession, odds are the best people to answer that question are those who have already experienced it.

Accountants, solicitors and financial advisors aren't licensed to give advice on lending. Mortgage brokers are. All are heavily regulated professions (including mortgage broking) and a separate license is required for each (including mortgage broking). Brokers are allowed to give advice within the parameters of their credit license. This is separate from financial advice and RG146.

For example, a broker is licenced to give advice on a persons borrowing capacity with lender ABC. A financial advisor cannot do this. There isn't really a licensing system for advising on property, probably because it's almost impossible to predict the financial performance of an individual property. The amount of bad advice around credit from accountants and solicitors is astounding.

The term, 'not unsuitable' is very much open to interpretation.


The current ASIC review is about renumeration structures in general and the outcomes for consumers. Not just mortgage brokers but people in branches, mobile bankers, online lenders, etc. Brokers are already required (by law) to disclose commissions and non monetary inscentives, I don't believe this is the case for your friendly branch manager.

Personally I welcome the review and think it will put this issue to bed once and for all. I don't think upfront or trailing commissions will disappear, but they will likely evolve somewhat. I suspect brokers will be required to demostrate to some degree that trails are being earned, most likely via ongoing communication.

 

Getting the RG146 is a piece of cake and no guarantee of quality of anything. It's just another (easy) hurdle to jump that anyone can achieve, same as the Cert IV and Diploma we have to get as brokers.

A piece of paper isn't a guarantee of anything, unfortunately. Credit advice does not require that particular cert as we don't operate under an AFSL, but rather an ACL (Credit License). They are different things.

 

Some great input here guys. Thanks heaps!

Obviously a big step and I'd need some capital to see me through the first year. I have my reservations about the franchise model, but a 2 year mentor program is included along with an online training platform, website, lead generation, marketing and business operations support, which is handy.

I think my better option would be to approach a local broker and work on a commission structure writing loans and go from there as less risky and then I can learn the essentials to being a broker.

I completed the Diploma of Financial Planning during the time the Government made it a requirement that FP have a token degree, as they believe this will clean the industry up (laughs). I personally know someone who did his degree and got a job as a FP and he lost over $100k trading stocks on a daily basis and is in a terrible long term financial position with no real sound plan for retirement, apart from striking it rich through speculation. So anyway I wasted my time doing the Dip of FP, but I guess it can be a token bit of paper to use if I get work as a broker as I understand SOA's and property investing etc.

I do worry about losing my capacity to burrow for IP though as I heard banks want to see two years of income for brokers and the like before they lend (ouch).

Lots to consider anyway

 

I see numerous issues here:
Firstly you are expecting a financial advisor to add yet another strong to their bow? I am an IT professional and this to me is like saying all IT professionals should be able to do networking, system admin and of course develop applications. It just makes no sense, each is very specialised where you can spend your entire life in.

Sure there are IT professionals who can do all of them as I am sure some financial advisors could broke as well. But what would you rather? Someone good at doing a bit of each or a specialists in each field? I don't have to think for a millisecond before answering that question.

Secondly the mention of automation of the most important financial aspects of a persons life is just scary. I work on automation for a living but I shudder at the thought of this.
Mortgages should NEVER be automated and thankfully I do not think they ever will be.
I would be interested to see that website though "Enter Salary" "Enter Liabilities"...."Congratulations you have been successful, please open your CD-Rom where you will find your new house keys"...

 

Ordinarily your posts demonstrate a reasonable insight , but in this instance you are well off the mark. Let me politely address your erroneous contentions

Overcrowded - possibly. Poorly regulated. Not at all. What is your basis for saying this? The regulatory paperwork a broker is required to do before they can even discuss a credit product with you is significant, and each mortgage aggregator has robust audit procedures in place .

You have this back to front. Planners ( unless they go to the expense of taking out their on PI insurance and hold their own AFSL ) generally take a default position where they sell from a pre-determined approved product list, dictated to them by their deal group/AFSL holder - which by large, are owned by the big 4 banks and AMP. If they don't have access to a product because their dealer groups risk and investment committee hasn't approved it for the APL - tough luck for you as a client in most cases - they will likely not even mention it to you... AMP planners sell AMP products. One Path planners sell ANZ products. BT planners sell Westpac product. and so on.... They are the quintessential example of an industry that has nothing but a vested interest in selling you their specific products. This is why FOFA materialised. It is evolving now, but they required significant intervention in order to evolve

RE their capacity to offer credit advice - I speak from far more experience than you on this, and I can absolutely assure you the overwhelming majority of planners are quite poor at writing mortgages. I know more than a little bit about this, having worked in multiple senior BDM roles for over a decade, and my current mortgage aggregator is owned by a parent company whop also owns the largest non bank planner group in the land. I have watched them, and many others before, try and integrate credit into their planner network. In fact, I had lunch today with the mortgage channels head of sales and he told me that in spite of a CEO driven , boots and all drive from the top down, planner penetration for loan writing is still less than 20%.

Planners prefer quick , high comm paying work., where they can charge fee for service and /or make a quick comm... Most of them - and you as well I suspect given your comments - completely underestimate the work involved in writing loans, and when they do try and take it on, are literally overwhelmed with the number of hours it takes to generate a commission that they can make far quicker writing insurances and renewing them annually...

This already exists. UBank. Loans.com.au But if you believe those services will satisfy your needs for complex structuring, or those services will assist you in building a portfolio... you will be sadly disappointed. If you only need a single loan facility at the lowest rate - yes these services have the potential to disrupt the broker industry a little... but never forget that several have tried before these two brands and failed. I give you One Direct as exhibit A- they had the full force of ANZ and their wholesale funder Origin behind them, and they failed.

In order for an e-loan service to become the norm, all loan platforms have to become homogenised. All credit policies need to become homogenised. Until that occurs, you need someone to put all the pieces together for you.

 

As a rule in any industry, franchise agreements always protect the franchisor not the franchisee. They have slick models that are supposed to generate leads, help with business support blah blah blah but generally it's all crap.

I think your best move is to get a mentorship from someone who's work ethic and business manner you admire rather than some company that is looking after themselves.

Make sure you have all your eggs lined up before you do the big move - ie get all your loans approved, savings saved up and lifestyle adjusted.

Then go for it. If its something that you are passionate about then give it ago OR consider what other ways you can also get the same passion 'fix'

 

Hard but not impossible.... thankfully on this forum we have @Terry_w

 

I actually gave up my financial planning licence. It costs too much to maintain and few clients are interested in it - the ones that wanted 'financial planning' were confusing legal advice with financial advice.

 

Shrinking industry. The trend for Net Interest Margin compression for banks will continue (and should in fact gather pace from here) Where would the banks save costs, to attempt to maintain their profits? By implementing direct, online, automated lending solutions. Look to NAB's U-bank model as a teaser of whats to come.

 

I started out a while back by becoming a licensee of a franchised company. Much cheaper than being a franchisee with similar training benefits. Being brand new to broking it was a great entry point to learning about the industry and being part of a team. I agree with the others tho that the leads they promise are usually useless. I wasted a lot of time on leads that were usually either a few days old so the client was gone or lots of people shopping around.

Like another poster mentioned, it's all about the leads/networking. I knew policy very well but was new to my area and so work was quite infrequent. I took a few years off broking and have just returned. I now have local networks, both business and personal and since I opened shop again I have been flat out. I don't advertise so no tyre kickers or those who want to interview 5 brokers before making a decision.

If you have yourself a good network and you work hard to learn process and policy, you will do well.

 

You don't seem to have an understanding of the industry you are critical of. Doesn't matter who your licensee is, if you want to recommend a product that is not on the approved product list you just get approval from compliance. These rules prevent advisers from recommending the likes of Guevara for a commission.

Yeah just a quick commission hey, most planners work is charged in fees which is negotiated with a client not commissions. Insurance can be commission based and saying 10 minutes shows your lack of understanding of the process undertaken. It's a little like a person uneducated in the mortgage process saying a mortgage broker just fills in application forms and gets paid "quick commissions".

 

Yes took me hours upon hours to do an SOA and research products and legislations etc. for a case study as part of the DIP of FP.

In general though most people look for the shortest root possible and I'm sure being my first SOA I took the longest root.

 

It would be helpful if you read what I wrote.... I said fee for service or comms...

But to the wider point - Ive got hundreds of planners as referral partners - and just about every one of them has someone else write their loans for them ( if they even offer loans) because they cant justify the time involved for the small earn. That's the reason provided to me, anyway.

Your industry ( I assume you are a planner) required massive intervention from regulators because of how commission hungry it had become and how biased the advice being provided had been measured to be as a result - and that was determined after an exhaustive process so Im not opining there- it is fact. it happened. Now maybe that's not how you run your business but it is how plenty of your colleagues saw fit to run theirs.

My point to Pluto was - and remains - that he was making ridiculous comments about mortgage brokers being an unregulated, commission hungry rabble and suggesting planners do mortgages better because somehow they are more trustworthy, less commission driven, better regulated etc...

anyway- to the question of whether to become a mortgage broker - especially a franchise broker - I would ask you a few questions.

Are you willing to work 18 hour days, 7 days a week, for the first couple of years?

Are you willing to deal with extreme confusion for the first 6-12 months as you learn the myriad of lender nuances, policies, etc? You wont learn these from a training day- you need to see lots of scenarios and write lots of loans and see the results play out, in order to really learn ,and for your lender knowledge to reach a point where you feel confident you can stand alone as a broker?

Do you have 12 months worth of income set aside as a buffer?

If it was me advising a newbie today, I'd say that unless you are willing to live and breathe it for the first couple of years - and I really do mean that - I'd work as a loan writer for an experienced brokerage for a while first... which one of your posts suggests you are leaning towards anyway - which I think is the sensible approach .... but perhaps you could ask @Redom and @Steven Ryan who have become brokers in the past 2 years or so, what they would advise.

 

Is that something like Red Rock Brokers Group?

About the Business
Red Rock Brokers Group offers an outstanding independent business opportunity for individuals looking to build and grow their own finance broking business. So basically you join as a member with them but work under your own business name eg. Hobart Brokers etc. and use thier services for mentorship, training and support, website design and marketing, CRM etc.

Benefits of Becoming a Member
• Very Low 'Start Up' costs, with no franchise fees!
• Highly flexible, scalable commission model delivering more profit to you
• Market Leading Web based Mortgage Software & CRM
• No lock-in contracts, just 30 days exit notice
• Wide panel of Residential & Commercial lenders
• Hassle free electronic compliance systems
• Online system for Continuing Professional Development (CPD) training and tracking.
• Expert advice and support from experienced mortgage professionals
• Gain the benefit of building a re-saleable asset through your loan book.

Our Unique Advantages
• No Franchise Fees or Territory Restrictions
• Operate under your own business and brand, your clients remain yours.
• No marketing levies or minimum sales volumes, work when & where it suits you
• Ongoing support & advice from experienced lending professionals

Cost is about $7k

 

That just sounds like an aggregator. Have a look at Vow, I've found them to be good, and flexible as you grow.

 

I just had a new loan approved, the broker commission was close to 5k, and it was a nice easy deal.I think this is pretty good $$$$ for what is actually done.I am sure there is a breakdown of costs in the commission to different hands, but still its not a bad payday for writing 1 loan, plus ongoing commissions.

 

I think it would be more interesting to compare the number of loans per year with the brokers. Australia seems to have a much higher turn over rate than Europe.

 

You're right. Nice deal, good pay. All I want is one of these a week!

Unfortunately the majority of loans are about one third of that. There's also a lot of activities that brokers don't get paid for. At least 60% of pre-approvals never actually convert to a settlement, but 90% of the work and most of the costs are still applied to these applications.

The last industry profile I read suggested the average income in the industry is $70,000. This is roughly the Australian average full time income. I would suggest the stress levels and liability exposure of the job is well above the national average.