In this episode of Elite Broker, The Adviser talks to Sydney-based broker Chris Sales about his thoughts on the ASIC remuneration review, how he converted a client into an employee, and why he believes industry bodies need to work harder to get brokers “out of the gutter” and improve the financial literacy of clientele.
Find out how this broker:
• Builds and maintains his networks with the big banks
• Plans to expand Finance Warehouse
• Selected his aggregator
James Mitchell: Hello, and welcome to Elite Broker. I'm your host, James Mitchell, editor of The Adviser, and we're joined today by our regular co-host, Annie Kane. How are you doing, Annie?
Annie Kane: Yeah, good thanks, James. How are you?
James Mitchell: Very well. We've also got Chris Sales from Finance Warehouse, a Sydney-based brokerage. How are you doing, Chris?
Chris Sales: Good morning. Good, thanks. How are you?
James Mitchell: Very well. I guess to kick off, tell us a little bit about your story about how you got into broking. I understand you've been in the industry for three and a half years, broking, that is, but you've had some banking experience before.
Chris Sales: Correct. I did the whole university degree, finance-economics, which is pretty much useless in the game of mortgage broking. It's there on the resume, if I ever need it again. I was at St. George for a couple of years doing credit analyst in the residential front. I was there for about four years. Then I decided to jump over to ANZ in the commercial space. I was an assistant manager there for about four years, I'd say. I just wasn't getting challenged the way I wanted. I did go for a promotion within the company, and I got declined, so I threw the toys out of the pram and went and got a personal loan for $40,000 and started the business up.
James Mitchell: Wow. All with a personal loan?
Chris Sales: You know, I was going to try and save a bit more, but my brother said, "You know what? Just do it now. Now's the time. Get a loan and just jump in the deep end." That's what I did.
James Mitchell: Was there any sort of hesitation, or did you get any naysayers or dream killers, like I like to call them?
Chris Sales: Plenty. Plenty.
James Mitchell: They're always like, "Oh, it's over saturated."
Chris Sales: “It's too hard. Aussie do it. What makes you different? How are you going to do it? It's too hard.” I guess something that I learned after I started it, you never ask someone who hasn't started their own business whether you should start your own business.
James Mitchell: Yeah, that's probably good.
Chris Sales: Because people that are used to the nine to five comfort zone, they'll never want to leave.
James Mitchell: They're the ones saying that it's too hard.
Chris Sales: Too hard. So if anyone ever asks me if they want to start their own business, I'll be all for it. That's something I learned early on.
Annie Kane: Did you go straight into residential, or were you doing commercial as well? Because you have a commercial background.
Chris Sales: Yeah, so when I started, it was both from day one. A lot of brokers, I find, don't know how to write commercial, and I know they had to write commercial for some quite amount of time when they first start, so I was lucky that I had the commercial background so I got accredited with both sides. It's definitely helped my business because I can cater for both. When I capture that commercial client, I'll look after their resi stuff, and also when I capture that resi client, if they do have commercial lending, I can review both at the same time. It just adds that feather to the bow. You want to be that one stop shop. You don't want to broker a client going to another broker for their commercial debt because what's that broker going to do? They're going to take the residential side. That's what I do to other brokers that don't have the commercial lending.
James Mitchell: You are in such a great position to have the resi training at St. George, and then obviously the business banking at ANZ to then go and launch your own brokerage because you've got that background. For brokers that I guess are looking to break into commercial or business finance or what have you, they've been writing resi loans, how valuable is that training you got at the bank over those years, in terms of writing deals as a broker? Do you recommend some sort of course or some way brokers can train to be as proficient in writing commercial deals as someone who has come out of a bank, for example?
Chris Sales: It's very different. Commercial is such a complex kind of ... Residential loans, no deals are the same, but commercial takes that even further. The policies behind them, what you need to do, and just the connections you make. You don't realise how much you actually know until you step out. It's the whole thing, take one step at a time, but when you look back, you don't realise how many steps you've taken. When I came out of commercial, my knowledge about it was so in depth, and I guess I kind of only realised that when I started training the other brokers in the office, as to wow, there's so many layers to commercial lending that you don't really realise until you step back and have a look at it.
James Mitchell: You would have been doing it nine to five day in, day out.
Chris Sales: Day in, day out.
James Mitchell: It just became commonplace.
Chris Sales: Yeah, and I was the assistant manager, too, so I did all the real work. You know, the relationship managers were out to lunch all the time. I was the guy in the office doing all the compliance and the follow ups and even sales training. I guess the hardest part with a new broker is learning the credit and knowing how to write a loan. I guess the biggest asset that I took out of the banking industry was knowing what a deal is straight away and how to structure a deal straight away. To the end client, they get the benefit of that. It's less time that they have to wait for an approval. It's the less questions they ask. I know which bank to place them with because I know now which banks are doing what and who wants and what's playing in what space.
In commercial specifically, I'm very happy and very lucky to have good bankers behind me. It's true that you can place a deal with the same bank with two different bankers, and one banker will want to do it, and they'll push to get it done, and the other banker will probably not want to do it or find excuses not to do it. I have the bankers in the right banks that are going to do work for me. That's invaluable. It takes less stress off my job, and it allows me to leverage off their experience, as well.
Annie Kane: How did you find those relationships? Obviously, you're there. That's why it's so important to know the right people and know what they like doing, as well. How do you form those relationships?
Chris Sales: With ANZ, I've got that down pat. A guy, I was best man in his wedding, he's my relationship manager at ANZ, so he always looks after me. I've got a good relationship with the under million dollar space with ANZ, so they're market leaders in that space. You get your big, chunky deals, but a lot of the deals I write are sub-million dollars, so I tend to keep it to ANZ because of the products that they offer.
Annie Kane: So is your advice just to go crash weddings where you can?
Chris Sales: Yeah. 100%. 100%. With the other banks, how I guess I got my network up, I was fortunate to have some big deals when I first started. Not all of them went through. A lot of them fell over, but you kind of get that reputation of this guy knows what he's doing, he knows how to place deals, let's look after him. So with all the big banks, I've got a very good relationship with all the business development managers. That's a thing that a lot of people need to do. They're there to help. Leverage off them and you get more ... What it is? You attract more bees with honey than you do with ... Is it vinegar? I don't know the saying.
Annie Kane: I've never even heard that one.
James Mitchell: Bottom line, get a good relationship with the BDMs.
Chris Sales: Correct. 100%, and your bankers, as well. They're there to help. I think a lot of brokers, they find that if you're constantly arguing with your bankers and stuff like that, they know. When I was at St. George, you know the bad brokers, and you know the ones that don't want to work with you, and that definitely leaves a bad taste in the mouth of the people who are assisting your files. They'll look a little bit harder or a little bit closer if you're a broker that breaks their balls.
Yeah, definitely, it's something I tell my brokers, as well. Obviously you get frustrated with assessors, but it's important to definitely keep them on side because at the end of the day, their the avenue that we take to get our clients what they need.
Annie Kane: Just, in terms, though, you were saying that you brought on a few more brokers. Was it last year or the year before?
Chris Sales: Yeah, I brought Jack on about a year and a half ago, so he's the rising star, shooting star.
Annie Kane: Newcomer.
Chris Sales: He's over the moon to get that nomination, but it's all the hard work that he puts in. I've seen him blossom from, like he had zero experience in banking and brokering. He was a client of mine. I did a car loan for him, and he came and said, “What's this all about? How does this work?” I sat him down. I taught him all about it, and he goes, “Would you be willing to take me on?” I said, “Look, yeah, why not?”
It was an early stage in my business. I was working out of a fish bowl in Caringbah with another transport company. We were sharing an office. It probably fit about two people, but we had about four of us in there. Yeah, he took the leap of faith, and he's reaping the benefits now.
James Mitchell: He was a client, and you manage to sell him into...
Chris Sales: Friend, client, employee.
James Mitchell: Look at that. That's awesome. What a process.
Annie Kane: In terms of actually, you know, he had no background, it's a bit of a gamble taking on someone who doesn't know the industry.
Chris Sales: It's a massive gamble.
Annie Kane: Do you think that's an advantage?
Chris Sales: It is a massive gamble. My mentality is if you're a good broker, why are you going to come work for me? If you're good at what you do, you do it on your own. I don't really want to take someone on board that has ... I don't mind someone who has experience, but I like to train them my way and the right way, rather than get someone who kind of has bad habits. You know?
Ideal would be if you had experience as a credit analyst, or you knew about the industry, but I guess the number one thing that I see in new brokers, what I look for is ability to sell. You need to be able to get your name out there, get referrals, network. No one's going to knock on your door. You could be the best loan ... You could know every single policy under the sun, what your LVRs are, who you can borrow to, what bank best suits, how much borrowing capacity is casual employment, and blah, blah, blah. But if you don't have people that want to get loans off you, your knowledge is useless.
I can teach the credit side. One thing that's hard for me to teach is the selling side. I look for certain qualities in that person, can they accept a no, are they willing to go knock on doors, how do they handle rejection? Stuff like that. I think that's the main quality that I like to see in new brokers, the ability to network. Either you get the credit or you don't – that's something you find out later. Initially, I like to get...
James Mitchell: Yeah, sort of entrepreneurial spirit.
Chris Sales: Correct. You need to have that because like early on, I didn't make any money for a very long time. You have to have that mindset, that all right, look, you know what? This isn't a short term plan. It's a long term plan.
Annie Kane: How long actually, because you were just saying that...
Chris Sales: How long did it take me?
Annie Kane: Yeah, how long did it take for you to break into it or start making money that you were comfortable?
James Mitchell: Was it like a year or something?
Chris Sales: The penny just dropped one day, and I was like, you know what? Just the way he spoke and carried himself, the confidence started coming in. Maybe after maybe eight months, he started to really get it. He did have difficulty understanding that what we did helped people. I think a lot of people see brokers as a lot of they're a bit scummy. They're making money of people's loans. When it actually clicked that we're here to help, we're free of charge, there's no obligation to use us, I think he had a struggle in his mind to get that into his head. Once that penny dropped for him, he realised you know what? I'm value adding to the whole process. I'm helping people. And then he really went out and smashed it.
He's building his network. He can talk the talk now, so he's definitely starting to walk it. I guess that's evident in his nomination for the young rising star award.
James Mitchell: How many brokers have you got in the business now?
Chris Sales: At the moment, it's myself, I've got my assistant, and three brokers, so Jack, Richard, and another guy who is starting in a couple of weeks.
James Mitchell: And you're looking to grow that through this year?
Chris Sales: Definitely. It's the consolidation time for me now. I want to invest in my business, it's growth phase, so three and a half years past the startup. It's time to definitely invest in bigger office, bigger space, more desks, marketing, got a PR campaign going on. All that stuff. Investing in the business. Hopefully it pays off in the not too distant future.
Annie Kane: Yeah, sorry, I think you were telling James ... He was about to say something then.
James Mitchell: That's all right.
Annie Kane: I think you were telling James earlier that you had a balance of $200 marketing budget for each broker. What could that actually get you?
Chris Sales: I take a percentage of what the brokers make. We had a sit down, and he was like, “Look, I want to see something invested back into the business.” I said, “100%, you're correct.” Jack's really into his marketing campaigns, and he comes to me with his I want to do these flyers, I want to do that, so I said to him, “Instead of coming to me and asking me for money to spend, I'll give you a budget of $200 a month. If something comes in a bit more expensive, I'm happy to put my hand in my pocket.” I'm always happy because at the end of the day, if I promote his business, I'm promoting mine at the same time. It's just spreading the web of Finance Warehouse, I guess.
James Mitchell: Why Finance Warehouse? Where did you come up with that name? Because we had a chat with a few brokers, but some brokers go down the sort of like the finance route, some like Marshall Condon with Neue Black doesn't say anything about loans or about finance. What was the thinking behind it?
Chris Sales: It's a funny story because the name was the hardest part. I was like what do I do. In hindsight, the name is irrelevant. It is. At the end of the day, the name is just a front of who you are and what you can do. I kind of leveraged off ... I spoke to my step-dad, he's like just write all these names down and see what you can brainstorm.
To be honest with you, it was Bunnings Warehouse, Chemist Warehouse, it's the whole, like, when you're starting out, you're trying to be bigger than what you are and kind of create that nostalgic about your brand. I guess I kind of tried to leverage off their marketing campaigns. I was a one stop shop, little lap top in Caringbah in a little fish bowl, as I said. I guess the word warehouse kind of gave me a bit of all right, cheaper?
Because at the end of the day, I don't want to cheapen my brand, but at the end of the day, people are coming to a mortgage broker, what, to spend more money or to save more money? That's kind of where I got the idea from – “Warehouse” – to get access to all the banks, and finance obviously because that's what I do. I put the two together, and I put a roof on top of it. I added a logo, and away I went.
James Mitchell: Aside from growing your team, and you just recently moved into a new office, as well, what are some of your personal or professional aspiration as a broker, not just necessarily for the business, but for yourself and the volumes you're writing and that sort of thing?
Chris Sales: Well, the aspiration is always to write more volume, isn't it?
James Mitchell: Do you have a figure in mind or something?
Chris Sales: Every year it gets bigger, the target I get. I just want to sustain consistent growth. That's number one priority for me. I guess it's kind of an industry where you can grow big fast and not have too much of a concern in regards to costings and stuff like that. The economies of scale are pretty good for brokering. You can write $10 million in the same budget as you can write $1 million, I guess. When you start getting into bigger spaces, then it's more assistants, stuff like that.
I'd like to grow the office to 10 this year. I think that's a good number to start with, with the plan to potentially get another office maybe in Sydney or even Melbourne. I did have someone who was going to start with me late last year, but she decided not to. She was based in Melbourne, as well. It's the second biggest economy. It makes sense.
Yeah, 10 by the end of this year, and then second office, and then let's double it for 2018, but that's a big call. But why not?
James Mitchell: I like it. Big dreams. In terms of that commercial aspect, obviously the brokers that you've got who are in the business now, like Jack for example, they're writing home loans. They're still in this sort of learning process, even though they're going pretty well. How much of your strategy is sort of getting them across to the commercial side? Or if not that, then educating them enough to know that a client has a commercial opportunity and to bring it to you, that sort of thing?
Chris Sales: One of the benefits of coming to work for someone like me or what Jack kind of gets is I'm very sales-oriented. I taught him definitely how to capture opportunities and what to look out for and sort of thing, whether that's reading financials for asset finance, stuff like that. I guess it's an organic thing. You can't sit down and go all right, click your fingers, your commercial ready. With the residential loans, you come across commercial debt, and it's about sitting him down and talking him through all right, what it is, how it works. I don't really have a formal if you hit eight months, you're commercial ready. It's more of an, all right, let's get the resi side.
Your resi is your bread and butter, for me. Then your commercial is kind of like an extra hat you get to offer your clients. For some brokers, your commercial is your bread and butter, but not my office. My office is more residential focused, but we also offer commercial. In saying that, I have some substantial commercial clients. I'm doing a construction loan at the moment for about 18.8, and I've got another quite a large construction company on my books. They're at about 19 mil, as well. I'm quoting on a nursing home at the moment, which is another quite substantial construction loan. We say we do resi, we definitely cater for the commercial side, as well.
James Mitchell: Do those bigger deals take a decent amount of time to sort of structure and put together?
Chris Sales: Yes, definitely.
James Mitchell: It's not like mum and dad owner occupied coming in and doing a home loan.
Chris Sales: That's right.
James Mitchell: What's the sort of time frame when you're working one of those deals, in terms of looking at it, the first sit through of the financials to settlement. How long could that process take?
Chris Sales: The Epping client I met about two and a half years ago, and I haven't been paid for it yet. I've seen the first draw down. Everyone sees the big dollar number, but written more than that in home loans in two and a half years. You can't lose sight of the bread and butter because the commercial is good, but the resi stuff... If you write the same amount in residential loans as in commercial, I would have made a lot more on the residential side because you can't price the same. With commercial, you pick what you charge the client in regards to your up front, and obviously you want to retain the client, so you can't charge too much. It's that whole balancing act.
James Mitchell: Do you charge a fee for service with a commercial loan?
Chris Sales: No. I don't charge mandates. I don't think brokers should be charging mandates when we're getting paid by the bank no matter how difficult it is. You're going to get your difficult client. Just wear it. You're going to get more clients from that. Look after them, and they'll refer you to 10 other people because you helped them out. You don't charge them a mandate. There's an option there, but I don't do it, and I wouldn't do it.
Annie Kane: And this is the whole thing with the remuneration review with ASIC. Potentially, if they do get rid of trails, what do you end up doing? You're going to have to do that, and then the argument is that, well, that's actually not going to be great for the customer because you get them in, you meet the money, and then you're not necessarily going to be nurturing them, well, in theory, in the same way that you would with a trail.
Chris Sales: Once that came out about ASIC reviewing it, I was like, it did my head in reviewing everything. Look, in regards to that, I'm all for everyone getting paid the same because there probably are brokers out there that put you with one bank because they get a better upfront or a better trail.
I don't look at what people get paid, or what I get paid. I just put the client with the best bank that I think fits them. I hope that they don’t remove trail, and if they do, I think a lot of brokers will have to leave, even the new brokers, because they won't stay. I have the ability that I'll be able to stay in the industry because I've got that trail book built up, but new-to-industry brokers, they won't have that security, and you'll find that the only person that suffers isn't the new brokers, it's the end customer because they have less options to go to brokers, less brokers to look after them, and ultimately, if they go back to the banks, then they're not getting the best deal they possibly can. They're not having that one stop shop, that one solution, the access to everybody.
Speaking of something like that, who pays the trail? The banks. At the end of the day, why are worried about banks' profits because they're making that much money. We shouldn't be really concerned about it. If their customer was paying, 100%, I totally agree. There should be something to talk about. At the end of the day, the banks are making less money, whether they're pricing that into their price of the end customer, that's the debate as well, but that's an argument for another time.
James Mitchell: I think another important thing with all the remuneration reviews, you obviously have the ASIC thing ongoing, you've had the Sedgwick interim report from the Bank Association which came out. I guess one thing which needs to be said, and it always isn't said enough, is that none of this is being driven by bad customer outcomes or customers saying like oh, you know, this didn't work out for me. Obviously, financial planning, they had their own problems, and that's been well documented, but the value that brokers provide to their customers would pretty much be taken away, I think, if commissions were to go.
Chris Sales: For sure.
James Mitchell: Because I don't think people would pay two, three thousand dollars to see a broker to get a mortgage.
Chris Sales: No. No way.
James Mitchell: It would probably kill the industry to a degree.
Chris Sales: For sure. I think another thing people need to remember as well ... or not to remember, a point I wanted to make. I don't think we do enough to promote what brokers do.
James Mitchell: No, definitely not.
Chris Sales: Banks don't, our industry bodies don't, no one knows. A lot of people ask me how much do they have to pay me for this service I provide. It's an absolute joke. We need to spend more money on telling people how good brokers are, what value add they do to the whole process, and get our name out of the gutter. It's brokers get paid this, brokers get paid that. Speak to all my clients and tell them what they think about brokers. They'll all tell you good things about us. Where are those stories? I think we need to do more, or not me, people that are relying ... Banks need brokers. They want brokers. They've got teams for brokers. They've got people in the banks that are working purely for brokers. If brokers stopped working and stopped sending them deals...
James Mitchell: It's a big saving to the bank that goes out of business, as well.
Chris Sales: No, the banks don't go out of business, but the people that work in the banks, they'll all lose their jobs. My BDM that looks after my brokers, if they brokers aren't sending them work, are they going to be working? No, they're not.
James Mitchell: Obviously, you've got the aggregation side, as well. I wanted to ask you just before we let you go, how did you go about choosing an aggregator when you first went into broking?
Chris Sales: Yeah, very difficult, confusing.
James Mitchell: We've been writing a couple of features in the magazine for new to industry brokers and that sort of thing about getting qualifications and choosing an aggregator. What was that like?
Chris Sales: Confusing. I had a friend of mine that was already a broker, and I spoke to him. He wrote large volumes. I think he was with Connective. I had a look at them, just too expensive. They take too much off you at the start. You're starting out, that's when you need the most money – don't take a big chunk off me, but I get it. Earn your stripes, you get to pay less to the aggregator. I was put in touch with someone from Loankit, Trish Taylor. She came to my house, we had a chat. Lovely woman, and they were pretty cheap. So I said, “You know what? What are these other guys going to give me that Loankit can't give me?” They’re now Finsure, under the one banner. I realised at the end of the day it's just a name, and I don't care if you have a bigger whatever. If I can launch my deal and get it picked up in the same amount of time and pay less money. Cutting cost is what you've got to do when you start your own business, so that's the avenue I went.
To be honest with you, they're a lot bigger than they used to be because they've got Finsure to take them over, but I like the fact they were smaller. I felt that I was not just a number. I was actually important, especially when you're not writing that large volume at the start. They still cared. Then when you start to actually put some good numbers up, they actually take you under their wing, and I really appreciate that. Whereas I find if you went to like a large, large company, they wouldn't ... Oh yeah, you're writing, oh, yeah, okay, but we've got guys over here writing 20 million or whatever a month, or whatever they write. You kind of get lost along the way. I definitely found go to your smaller guys, if they offer the same as the bigger guys, and you're paying less, then it's a no brainer, pretty much.
James Mitchell: Good stuff. Well, I think that's all the questions I had. Did you have any more questions, Annie?
Annie Kane: I think we covered everything. That was great.
James Mitchell: That was really good. Well, thanks very much for taking the time, Chris.
Chris Sales: No worries. Thanks for having me.
James Mitchell: We'll have to catch up with you again. I've been your host, James Mitchell, editor of The Adviser. A big thanks to Annie Kane and Chris Sales, again. We'll catch you next time. Be sure to catch all the latest news, insights, and analysis on theadviser.com.au. Catch you next time.