Brokers face bankruptcy if market turns, warns Vow

Vow Financial has warned brokers that they risk bankruptcy if they fail to cover themselves financially against potential headwinds in the home loan market.

Speaking to brokers at Vow's mini-conference in Sydney last week, general manager Leighton King compared the oil crisis in Russia and Saudi Arabia to the third-party channel, warning brokers that failure to diversify could put their business at significant risk.

“Russia and Saudi Arabia will go bankrupt … because they relied on one source of income and didn’t diversify,” Mr King said.

“When oil was $100 a barrel, Russia and Saudi Arabia were flying, but when oil dropped down to $30 a barrel and below, that massive drop in revenue for them put them in a situation where they will go bankrupt.

“I thought, ‘Why is that relevant today?’ and ‘Why is that relevant for mortgage brokers in the Vow network?’ It’s because I can see some similarities.”

Mr King noted that while the mortgage market is currently “flying” and brokers are settling “record numbers”, many are choosing not to protect themselves if the mortgage market starts to decline.

“The risk is, if the market slows and if those volumes slow, what have you put in place to cover yourself financially against any potential headwinds? What have you got in terms of other revenue streams to ensure your business against any potential risk? It’s a very important question that you need to ask yourself,” Mr King said.

“We’ve got brokers who have moved into SMSF and they’ve created a whole new wealth for themselves in terms of what they’re doing but by and large you need to be looking at that.

“Every single business needs to look at where they’re at. Are you going to be the Russia and Saudi Arabia?”

Mr King added that diversified services give brokers an opportunity to grow their business while offering complete customer care.

“If we see a client and we do a loan for them at $750,000 – married, three kids, husband is a truck driver – and we push them out the door and we don’t do anything to protect them against any potential risk, work-related or otherwise, that’s not duty of care, that’s not complete customer care. That’s sausage factory stuff,” he said.

“What’s happening at the moment is that the brokerage network and aggregators are punching out all this volume and probably the only ones doing the right thing in terms of offering clients these [diversified services] are the banks.

“We should be the people that are offering them.”

Mr King told brokers that the banks average 5.2 additional products to each home loan customer across the Vow network.

“That’s your client that they’re offering their product to because you didn’t,” he said.

“As a businessman and as a mortgage broker for 17 years, that would worry me and I think we need to look at that and we need to get serious about it. At Vow we’re going to get very serious about it.”

[Related: Resi investors turning to commercial opportunities]

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