The aggregation sector is geared for consolidation as sweeping changes to broker remuneration and cost pressures intensify.
Regulation, online lodgements and commission restructuring are expected to pile pressure on the aggregation industry, with the smaller groups tipped to struggle the most.
Mark Hewitt, general manager of sales and operations with Australian Finance Group (AFG), described smaller aggregation groups as “dead men walking”.
He predicted that smaller groups would be forced to join larger players to mitigate cost demands, and that just six to eight main aggregation groups would be left when the dust settles.
“Rising costs are really going to put the pressure on aggregation groups to survive and there’s going to be a lot of consequential consolidation in the coming months,” he said.
Mr Hewitt also emphasised that brokers would look, in particular, to join those aggregation groups able to negotiate top tier commission structures.
Michael Osborne, head of sales and distribution at The Brokerage, agreed that the tumultuous nature of the current market could see increased consolidation activity however he doesn’t see it as the definitive means for aggregators to mitigate market pressures.
“Acquisition for acquisition’s sake is fraught with danger,” Mr Osborne said. “Groups coming together with different cultures and value propositions are prone to fail.”
According to Mr Osborne, small unestablished groups – those set up within the last five years – that are based in just one or two states will struggle to maintain position as a result of commissions changes, and will most likely be ripe for acquisition.
While Mark Haron, principal of aggregation group Connective, also expected market change, he said reduced income would deceide which aggregation groups would survive.
“Revenue is certainly going to decrease as commissions change and broker numbers drop. Two groups will be most vulnerable: the smaller and mid-size aggregators,” he said.
Mr Haron said increased pressure would lead to more M&A activity over the coming months; alternatively vulnerable groups would look to secure agreements to aggregate through larger groups.
“What brokers want and need from their aggregation group has changed, and moving forward brokers will be looking for increasing value from their aggregation partners,” he said.
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