Mortgage Broking Business Opportunity

I noticed there are a few brokers on here and thought they may be able to share some insights.

I have recently completed the Cert 4 in Mortgahe Broking and I am currently looking at opportunities in Hobart to work as a broker. I have been in discussions with Moneyquest about buying a franchise with them in Hobart and starting a broking and finance business.

I was just hoping to get some input from anyone who has experience in franchising and broking etc and if they think it could be something that could be rewarding as a career and financially. I don't have experience as a broker but I have been investing in property for 6 years and I am hoping to convert my passion for property investing into a career of some sort and I thought broking would be the best way to do this.

Thanks

John

 

From an outsider looking in the mortage broker business looks like its overcrowded and poorly regulated. I see a lot of similarities between it and personal training, lots of franchisors and training institutions spruiking how rich you'll be in it. I mean its probably not quite as bad as the current rep of the financial advice industry, but it basically seems to be commission sales & there are a lot of cowboys.

To put the questions back on you, what makes you think that
A: it will be rewarding as a career?
B: it will be rewarding financially?

What are your skills and abilities that are going to help you stand out amongst the crowd of mortgage brokers? I'm a member of a club with less than 100 members and we would get easily 3-4 mortgage brokers a year applying to join who are just trying to prospect for new leads. Its a running joke for my brother's football team, they get a new broker every season.

Off topic, but mortgage brokering also strikes me as an industry that is ripe for digital disruption. As soon as I can get a better deal via a brokerage site where a person isn't skimming a 0.x% commission per annum + scoring an upfront $xxxx finders fee, I don't really see how the majority of brokers will survive. There is certainly an advisory element to it at present and some very knowledgeable members on here about loans, structuring and serviceability who are brokers, but I would personally much rather get that advice from a financial advisor who is being remunerated based on the quality of their advice and doesn't have a vested interest in getting me to sign up for the products they are advising on. Which funnily enough is also the problem with the Financial advise industry at the moment..

 

Hi John,

Good on you for having a crack, the first thing to remember is the average mortgage broker makes less than $60k according to the MFAA, if you think you are going to make $400k in year one you're probably going to be disappointed.

My suggestions would be

• Talk to at least 10 different aggregators/franchisees before making a decision
• Really get in and use the aggregator software to test it out, see how long it takes to put a new deal through, the quality of the software varies greatly.
• If you wish to leave the aggregator/franchise can you take your trail book with you?
• Are you restricted geographically by the franchise agreement? Is so, will you be happy long term in a situation where it may be difficult to expand your business?
• How are your networks, do you know accountants, financial planner, real estate agents ect. with whom you could form a relationship?
• The first year or longer is going to be a hard slog, this may be reduced if going under a franchise, but make sure you have at least six months living and business expenses, preferably 12 months.

That's all I can think of at the moment, hope that helps

 

I would suggest it is not a good time to start a brokering business. Commissions will be cut, regulation will be tightened, competition is tough. Tassie prices are generally low as well which means lower commissions compared to writing loans for Sydney properties (although you could also do that from there).

Be very wary of paying money to join a franchise. Most franchise leads are time wasters from what I hear.

 

Most brokers would be happy to offer fee for service if that's preferable to you - I find most people would rather take the free option.

In regard to the OP - have you ever run a business before?

Considering you will be a brand new broker learning the ropes, throwing a whole lot of overheads into the mix, plus (I'm assuming) learning to run a biz at the same time - sounds like a recipe for disaster unless you have a couple of years wages up your sleeve to tide you over until a) you start getting consistent leads b) learn the biz c) gain some traction to cover the franchise overheads/staffing/rent etc.

 

I also did the Diploma of Financial Planning and as mentioned the industry seems to be full of Cowboys flogging off insurance products or bank products, which is something I'm not interested in.

I actually want to be able to provide a professional service to people and help improve their financial outlook long term, hence I thought being a broker might enable me to do this if I am able to specialise in providing not only products but strategic advice also.

I do have my reservations about my lack of experience, but opportunities in Hobart for new brokers are limited and if I'm honest there is probably to many brokers for the demand in the area. And having a lower median price a broker would need to be writing a lot more loans than needed on the mainland to really make a decent income etc.

Thanks for sharing your thoughts and advice. It all helps!

 

It sounds like you're more interested in being a financial advisor than a mortgage broker?

 

Personally I don't think it should be a paid service at all & I doubt it will be a decade or so. Certainly not anywhere near the number that are running around today. They provide a service right now because Australian banks have ridiculously clunky lending processes but fundamentally I don't see why anyone should be getting paid to shop a loan around when they are fairly easily comparable.

On the advice/structuring side, people who are providing you advice shouldn't have a vested interest in you following it beyond a continued paid advisee/advisor relationship. I'm hoping again within the next decade we will see minimum requirements of an RG146 for anyone providing "financial advice" + a total ban with hefty penalties on spruiking products under the guise of advice that pay the advisor finders fees and or any form of trailing commission. It looked like we were heading in that direction recently, will probably need another labor government to actually legislate it. Brokers have no place (in my opinion) providing advice. There is too much risk of bias & apparently fairly minimal training to becoming one.

 

Product/price is easily comparable. Policy is not - and for serious investors, it's (nearly) all about policy.

 

I'm not going to really comment on the pro's/con's, but an article which came out today which is interesting and related to this conversation: Broking industry to shrink

 

The hardest part of being a successful broker is generating business. There is a perception that brokers make a lot of money and certainly a few do, but most don't simply because they can't generate a consistant flow of enquiries. The failure rate in the industry is well over 80%.

The franchises offer quite good entry level training, but there's more than a few ways to get this. It's entry level training only, in my experience 80% of the brokers out there are competiant but not great. Franchises don't offer good leads either, the success rate from enquiry to an actual loan is appalingly low. As a reward for that they tend to have high costs and nasty agreements that lock you in for live. You're building their business, not your own.

Certainly trying to source business from sporting and social clubs is a complete waste of time.

Right now the environment is the toughest I've ever expeirenced. There's plenty of demand but the benchmarks are changing so rapidly that it's incredibly difficult to do business effictively. Regulation and renumeration are also being adjusted but these are trivial compared to the real challenges occuring right now. Digital disruption has a very, very long way to go before it can replace brokers. It's easily argued that the current environment makes only brokers more valuable to consumers than any other origination channel.

In many respects there's never been a better time to be a mortgage broker, but there's never been a more difficult time to be one either. With every challenge I've seen (GFC, licensing and now regulation) the supply of brokers tends to decrease, but the demand for brokers increases.

 

It says a lot that the UK has 12,000 brokers with a population of 64,000,000 & we have 12,000 - 14,000+ with a population of 23,130,000

Edit: PC isn't remotely representative of the regular population & I'm sure a lot of you have clicked this thread because its about the broking industry, but so far this thread is:
1x wannabe broker
5x brokers
1x regular mug (me)

 

Even if all brokers were to disappear overnight, I assume all the business would go directly to the banks/lenders, is a high school dropout with minimal financial knowledge really the right person to be assisting you with one of the biggest financial decision of you life? Not only do they have a vested interest in getting their commission, but they only have one bank to choose from!

It's interesting to look at the commercial space were broker penetration is less than 10%. In that market the rates the big 4 bank offer are at least 1% higher than the market leaders because it's so difficult for people to compare they just go straight to the bank and take what they are offered.

 

I'm ~HOPING~ the traffic will get driven toward actual financial advisors and we will see more people forming a proper trinity of Accountant | Solicitor | Financial advisor. Vs the current trend of accountants & solicitors offering advice in areas that they really shouldn't be & financial advisors being guerilla commission salespeople. It already works well at the top end of the town where high net worth individuals are working with actual established white shoe firms, not small business operations who will sell anything they can charge even if they aren't qualified to do so.

Commercial is a bit of a different experience due to the added due diligence requirements & I would assume the 1%-ish higher interest is actually pretty reasonable given the very different risk profile for commercial property lending.

I don't see why 99% of resi lending can't be automated with the remaining 1% being each bank can have a team to manually approve/reject applications that are outside of their automated guidelines based on the current state of their book & risk targets.

 

I question whether people who stand to make a commission (aka have a vested interest in the lending products they present) and aren't qualified as financial advisors should be providing any advice on the policy.

 

Id suggest finding a local broker and see if he wants a loan writer, rather than buying a franchise, or trying to set up shop yourself.

You want to do two things, write loans, and become a business owner. Learn how to write loans first (by working for someone else) and then learn how to run a business.

Many brokers are happy to bring someone on board on a commission only basis. they take a part of the commission and you get to use their business/brains to learn.

Don't pay for a franchise, whatever you do.

 

Accountants and solicitors have a vested interest in their advice too I'm afraid. Accountants (bad ones) advise people to buy forestry products and solicitors advise people to pursue legal remedies when mediation is often a cheaper alternative.

There's loads of other countries where mortgage broking has been replaced with an algorithm, and the huge savings have been passed straight back to the consumer.. Hang on wait....

No, I cant actually think of one. In fact in countries where brokers play a significant role lending margins for the banks decrease, so without them consumers would be paying more for their lending.

 

Luckily I do have my Diploma of Financial Planning (I'm not licensed). I would actually love to be able to give personal advice, the issues is the legislation makes it very difficult to do both. I know the AMP licensees signed an agreement with AFG last year to make their planners, loan writers.

But it's important to remember if you go see a planner just for a loan, they will not offer any personal advice, you need a statement of advice (SOA) to give personal advice. I have seen a few new planners doing free SOA with a loan refinance, but it's not really viable for them at the moment.

 

Good luck finding a financial advisor who has any idea at all about lender policy.
We are not qualified as 'financial' advisors, we are credit advisors - specifically qualified to advise on lender policy. It's a different thing.

 

Pretty intelligent comment

For the OP - yes it could be financially rewarding, but not having any experience might limit or delay the timeframe for this to occur. Having a strong interest in property investment will definitely help. I've found the best brokers I've had dealings with are investors themselves - makes sense.

I've personally considered becoming a broker many times over the years, but haven't taken that step further as my current employer looks after me very well, have good relationships across the bank, enjoy working with other staff and at this stage don't believe being a broker would increase my service to my customers - I believe it would actually have impact at the moment.

Best of luck with what you decide, I would suggest speaking with @Peter_Tersteeg or @Corey Batt for some feedback about what hurdles you might face and best way to get over them.