The ASX-listed broking group has responded to media criticism regarding a high-sales culture and poor remuneration structures for franchisees, saying that it is working closely with franchisees to assist them in growing their business.
Mortgage Choice responded to the reports from the Sydney Morning Herald and the ABC’s 7:30 program, suggesting that its franchise system — which was introduced 25 years ago when the group was established by multimillionaire brothers Peter and Rodney Higgins — was in need of update.
“The market has evolved, with other business models being introduced, specifically aggregator models that have higher payouts but don’t offer the same level of support services,” Mortgage Choice said in a statement.
The brokerage acknowledged that the balance between services offered and remuneration “needs adjusting” to encourage franchisees to invest in their businesses. As such, the group has said that it will be undertaking a review of its franchisee remuneration structure, with a view of implementing a “more competitive” model.
Mortgage Choice has been consulting with its franchisees regarding a new remuneration model “to underpin long-term sustainable growth” and attract “new high-quality businesses to the franchise network”.
The company has reportedly been undertaking a “confidential and collaborative process” to update the remuneration model, which has included numerous workshops across Australia with franchisees and reviewing more than 30 different remuneration structures.
Subject to discussions with its franchise network and board approval, the new remuneration model would be introduced by August 2018.
Speaking following the media reports, Mortgage Choice CEO Susan Mitchell said: “We acknowledge that our model is outdated, it needs to be more flexible, it needs to be less volatile in the way it pays our franchisees.”
She continued: “Our business was started as a full service model. All the services that were need to help a broker start their own business, providing brand, marketing, IT, compliance, training and all those sorts of things.
“Over the years, since the introduction of the Mortgage Choice model, there have been other models that have been introduced — aggregator models — that pay out a higher proportion of income but don’t offer the same level of service. So what’s happened is, I believe, our balance between remuneration and provision of service has gotten out of kilter, so we just need to address that balance between remuneration and service provision.”
The new CEO said that one of the most important things she wanted to do as CEO was to “drive a change process”, and her “first priority was to change this model”.
Indeed, the need for updating the commission model has been further emphasised by the findings of the 2018 Momentum Intelligence Broker Group of Choice: Switching Aggregators report.
Based on a survey of mortgage brokers from across Australia, Mortgage Choice was rated the lowest of nine groups, with 90 per cent of Mortgage Choice brokers saying that the number one reason they would leave the group would be because of its commission structure.
However, the group did score highly for its compliance assistance.
Allegations of poor behaviour “strongly refuted”
Addressing some of the allegations in the 7.30 report, the CEO said that the company “strongly refutes allegations in the media that its current model encourages poor behaviour or practices”. It added that the company has in place “robust” compliance processes and credit policy controls, which franchisees must adhere to.
Ms Mitchell said: “Our franchisees are very diligent and want to do the right thing for their customers. We take any allegation of fraudulent behaviour extremely seriously and we have a very thorough and structured compliance regime in place.”
Several commentors on The Adviser website have also voiced their frustration with the misrepresentation, with Renee saying: “I have owned a Mortgage Choice franchise for nearly four years and the model has assisted me in building a successful business that I am very proud of.
“These recent media allegations are not a reflection of my experience with Mortgage Choice or a reflection of how I do business, and it’s disappointing that I am put in a position to have to defend this. Doing the right thing by our customers, and being known for this, is how my business has grown, and this will continue to be our priority.”
Likewise, Mortgage Choice franchise owner Maria Zappia said that while she supports the right to “demand a more consistent payment model”, she absolutely “refute[s] out of hand any suggestions displayed in recent media reports that ‘desperate times have called for desperate measures’ in terms of fraud or any other wrongdoing”.
The commenter said: “I have been with this business 15 years and have worked hard to build a strong vibrant business, as so many of my fellow franchise owners have done. I can assure you we have (and have had for quite some time) one of the most stringent compliance regimes of any aggregator in this country. We are well known among our panel of lenders, including all of the major banks, for the high quality of our loan submissions. Very importantly, we are well known among our many thousands of customers for our incredible levels of customer service.
“The challenges of running a small business in this industry are many, but those of us who choose this path do so with the utmost integrity and always in the best interests of our clients.”
She continued: “At Mortgage Choice, we are in the midst of great change and I’m convinced that our CEO Susan Mitchell, together with the executive team and our board, ha[s] matters well in hand and [is] committed to delivering a remuneration solution that will benefit all franchise owners. Let’s give them every opportunity to finish the job.”
Noting some of the suggestions that brokers have been affected by stress-induced health issues as a result of financial distress from running a franchise, Ms Mitchell said that she did not believe it was a “fair representation” of Mortgage Choice.
The CEO said: “It’s very difficult to run a small business in Australia today, and one of the reasons why you would join a franchise organisation like Mortgage Choice is we help you do that, and you have a higher chance of success by doing that.
“Having said that, as CEO, there have been circumstances where I worked one on one with franchisees on a confidential basis to help them when they had hardship or health issues.
“So, I think the important thing is we want to help franchisees through their issues. They just need to come and talk to use about them, and we’ll proactively work with them for a solution tailored to their needs.”
Ms Mitchell continued: “The wellbeing of our franchisees is our number one concern.
“We provide any business owner experiencing hardship with personalised support, including from our field‐based teams.”
She concluded: “We are well progressed in consulting with franchisees on a new remuneration model that will help them to succeed and invest in growing their businesses.”
[Related: Mortgage Choice belongs in franchise sin bin]