The necessity of evolution and economies of scale will see independent brokerages become rare, according to brokers.
Independent brokerages will become rarer as businesses look to merge and evolve due to economies of scale, according to brokers.
Last week (16 November), broking group Court Financial Services and financial services provider UFinancial announced that they were merging operations.
Under the new agreement, Court Financial Services (CFS) will consolidate its operations under the umbrella brand of UFinancial and take up residence in UFinancial’s head office in Melbourne.
Kris Court, director of Court Financial Services, emphasised the strategic importance of the merger in fuelling further growth and elevating the customer experience.
"This alliance with UFinancial will drive operational efficiency as we gain easy access to abundant resources, leveraging various facets of the business for mutual growth and success,” Mr Court said.
“Together, we are poised to chart a path of enhanced offerings and streamlined operations.”
UFinancial Director Leigh Deledio cited the “incredible synergies” between the two companies as the key reason for the merger.
“This union marks a significant milestone in our commitment to enhancing financial services., underlining our dedication to providing clients with unparalleled opportunities, innovative solutions, and a stronger foundation for financial success,” Mr Deledio said.
“I am confident that this merger will not only amplify our capabilities but also set new standards for excellence in the ever-evolving landscape of the financial industry."
The move is the latest consolidation in the brokerage space. Smartmove Professional Mortgage Advisors announced in August that it would become a part of Viridian Financial Group Limited, forming a “strategic integration”.
Speaking to The Adviser about the consolidation trend, several brokers suggesting that the industry will likely see diminishing numbers of independent brokerages.
Peter Kennedy, director at Peter Kennedy Consulting, stated that as businesses are pushed to evolve, partnerships and mergers were a likely path for many businesses.
Speaking to The Adviser, Mr Kennedy stated: “Scalability gives you efficiency. As you scale up you can add additional resources such as admin, marketing, business development and compliance.
“It’s difficult as a small operation to have significant alliances and influence when required. If you operate on a relatively small basis, volume wise, you won’t have much of a voice when trying to push for a better offering.”
Mr Kennedy also commented that he believed the days of independent brokerages were coming to a close with the way forward likely to be that of groups.
He said: “The successful firms are the ones where they share the skills with the group. If you are on your own and lodging your own deals, you won’t have time to prospect via business development.
“If you don’t expand your offering your business will be under threat from more robust groups that can offer many different solutions.
“Many lenders now won’t allocate BDMs to small operators and you’ll end up with a call centre solution, this then is difficult to build a great connection with many lenders.
“Many aggregators now are moving away from recruiting single operators as they know many will fail and the evidence shows this, they won’t waste their time in onboarding as the cost is too high.”
Founder and chief solutions officer at Cinch Loans, Suvidh Arora, felt similarly, stating that partnerships and mergers made “complete sense” to utilise “economies of scale as well as the ability to provide next-gen solutions for clients”.
Mr Arora commented that he believed mergers, acquisitions and partnerships were just another step in the evolution of the industry.
He continued: “I think the past few years have shown us how much potential to evolve exists within the industry and that is where market and economic pressures and in some cases the pure need to survive in a challenging environment are leading to players looking at innovative ways to stay ahead and have a competitive advantage.
“Evolution is necessary and more brokerages should be looking at tech, diversification, M&A or a combination of these as opportunities to keep evolving and staying ahead of the curve.”
Despite this, Mr Arora also added that he did think independent brokerages could remain viable as long as they were agile enough within the market.
“There is always room for the independent brokerage that is agile enough to change with the times, so it is not necessary to merge in order to stay ahead, however, everyone needs to find some area they can outthink the rest of the players and come up with an innovative solution,” he concluded.
[Related: Smartmove integrates with Viridian]