Smart brokers have exit strategies

But turning a single operator business into a saleable asset can be a hard thing to do. Aggregators have recognised this and have come up with programs and support systems to make the exit process as smooth as possible.

One point that aggregators stress is the importance of long-term planning. Vow Financial’s chief executive, Tim Brown, goes so far as to suggest that brokers should start thinking about how they’re going to exit the industry even before they’ve entered it.

Vow has educated brokers on the importance of succession planning through webinars and professional development sessions. When ‘exit time’ comes around, the aggregator will help brokers sell their trail books to other Vow-affiliated brokerages, Mr Brown explains.

The best way to help brokers who are leaving the industry, according to Mr Brown, is to find fresh blood to replace them. Vow launched a mentoring program last year designed to help new people enter the industry and possibly acquire the businesses of brokers who are exiting, he says.

National Mortgage Brokers is also committed to helping brokers prepare exit strategies, says managing director Gerald Foley. He agrees with Mr Brown that this is something brokers need to think about well ahead of time.

“We understand that the ageing of the broker population is occurring and we’re working on ways to assist our brokers get ready for a sale. The way to maximise the value of the broker at exit time is to make sure they’re doing all the right things today,” he says.

Mr Foley notes that a brokerage will have limited value if it’s based around the personality of its founder. Potential buyers need to be convinced that the brokerage is a sustainable operation with strong systems that can flourish under new ownership.

“If you’re selling a business, you’ve got to be able to show where the new business will come from and how you manage your relationships,” he says.

However, Mr Foley has good news for brokers who are looking to dispose of their trail books as they head into retirement: “We’ve always got brokers within the group looking to buy books of other brokers in the business,” he says.

AFG general manager Mark Hewitt says brokers usually manage to sell their businesses or trail books without much difficulty. However, that doesn’t mean they are getting the best possible price. Selling prices suffer when brokers don’t take steps to maintain the value of their assets, he says.

According to Mr Hewitt, brokers are great at making sales on any given day, but they can then struggle at keeping in touch with the client in the months and years ahead. This negligence is not attractive to potential buyers, who will attach less value to a database if the information is out of date and the clients haven’t been contacted recently.

AFG has responded to this concern with an automated marketing tool that helps brokers stay close to their clients. The aggregator sends out messages on the broker’s behalf and in their branding; an example might include a Reserve Bank interest rate decision. Clients are reminded about their broker and remain more loyal as a result, which in turn adds value to the business, he says.

Ballast Corporation’s business model is based around helping brokers turn their businesses into saleable assets, says chief executive Frank Paratore. The aggregator helps brokers establish secure foundations, strong systems and long-term plans so the business is always ready for market.

Not all brokers are happy vendors, notes Mr Paratore. Some want to sell because they’re ready for retirement; others have been driven to that position because  everything has become too hard or they feel let down by their partner. Ballast can work with those brokers to find solutions and potentially allow the broker to remain in business, he says.

Finsure managing director John Kolenda says diversification is the best way to add value to a business – and that risk products are particularly valuable. A diversified business generates more sales from each customer and engenders greater loyalty, he says. “When you incorporate a number of different solutions you dramatically improve the value of the customer relationship.”

Mr Kolenda says Finsure provides training and support for brokers who want to diversify. “We’re seeing a lot of success coming out of that initiative and brokers being able to more than double their income from the traditional single home loan sale. They dramatically improve their current income and dramatically improve the exit multiple from their business.”

Brokers can also turn to Finsure when they want to leave the industry. “We’ll help them, we’ll provide them with advice and solutions,” Mr Kolenda says. “We’ll help you find a buyer, document it, legally execute it properly and even look at buying it out ourselves.

“There are multiple solutions – whatever they choose,” he says.