Theo Chambers, the CEO of North Sydney-based Shore Financial, joins Annie and James in the studio to discuss why he diversified the brokerage to include in-house legal and wealth departments, why he’s “in-sourcing” data entry and why he’s launching a white label product next year.
Theo also reveals his experiences of transitioning from broker to CEO, his advice for those considering the same journey and the factors that became the keys to his success.
This broker also tells us:
Speaker 1: Welcome to the Elite Broker Podcast, this is your host Annie Kane.
Annie Kane: Hello everyone, and welcome back to the Elite Broker Podcast. I'm Annie Kane, editor of the Adviser and I'm here with James Mitchell, managing editor of Mortgages here at Momentum. How you doing James?
James Mitchell: Good thanks Annie.
Annie Kane: This week we're also joined by Theo Chambers, CEO of Shore Financial here in North Sydney. Now many brokers already know a little bit about Shore, started about four years ago and has since become one of the largest independent brokerages in the country. But to get started lets just find out a little bit about you, Theo, how did you get started in mortgage broking?
Theo Chambers: Originally I was working in another real estate mortgage group where we learnt how to sort of generate leads from real estate agents. That was obviously McGrath's Business Oxygen, I was there for a couple of years. Prior to that I was doing home loans actually at Commonwealth Bank, I couldn't say I really developed much skills of being a mortgage specialist at Commonwealth Bank. You're quite robotic in a retail branch there of how you process home loans, that's probably going to be a controversial comment itself.
James Mitchell: Did you learn sort of like credit skills? There must have been some sort of stuff you picked up?
Theo Chambers: The real basics, but when I joined broker industry, I really learnt that I knew nothing about mortgages from my previous experience at Commonwealth Bank. In fairness though at Commonwealth Bank, I wasn't really writing much. I was doing two or three applications a month, but that's 'cause I had a tier three branch and that was the only inquiry I was really getting. But you know yes you still use the same old servicing calculator and the same sort of policies as a broker would, but it's like you're just filing one set of policy, one set of servicing and you don't really understand what's probably tweaking the outcome. With broking, it's so diverse that you learn what's behind it a lot more.
Annie Kane: So you went from CBA, started out your own company, what was the decision to do that?
Theo Chambers: No, I went from CBA to McGrath. Look the decision to leave McGrath was we were trying to get equity into the business 'cause me and my colleagues were writing in about 60% of the volume, or something like that. John being John McGrath wasn't really open to the idea, and; ...
James Mitchell: Probably just as well now.
Theo Chambers: Yeah, I'm glad I probably didn't jump on that ship actually. Look then an opportunity came up to look after Richardson and Wrench, that was really the opportunity that got us going and was the key to success. Initially we had 100 offices to deal with from day one, 100 real estate offices to service and plug in a mortgage solution to. They had a tried and failed attempt prior to Shore Financials, someone offering mortgage broking service to the network. It was literally an individual with maybe two or three staff in his office, so obviously it couldn't really service the network. We'd had experience in the field, we were successful at Oxygen, so we were a good match. So it seemed like an opportunity to run with.
We had a good wave of highs as well in the first year or two, which also helped with servicing that network.
Annie Kane: Yeah, and so what proportion of your leads now come from real estate? Is it like 100% or?
Theo Chambers: With time naturally like any mortgage brokerage, a lot more word of mouth comes off the back of those real estate leads. So now about 61% of our business is just word of mouth, about 30% is real estate referred and the difference is financial planners and other sort of referral partners, like accountants and what not.
Annie Kane: In terms of just yeah touching there about accountants, so I know that you guys have a sort of like a broader offering, you're not just offering mortgage brokering at Shore, you also have a legal side. Is there also a wealth side too?
Theo Chambers: Yeah, the last 12 months we've really focused on diversifying our offering, purely for a relationship point of view with the clients. I think if you, as that famous statistic, if you sell a client 3.8 products or services, they're technically a client for life. We're catering to hopefully get 3.8 on everyone.
James Mitchell: Yeah, yeah nice. That's what the banks call it share a wallet, don't they?
Theo Chambers: Yeah, that's why they have a professional package on your mortgage, to get a credit card, insurance and all types of different bank accounts and products so that you can sort of tie yourself in, which works. Some people once they've got their credit card that has all the direct debits coming in and out of it, it's just one more reason why you can't be bothered refinancing or leaving that bank. If you've spent an hour on the phone going through all your general insurance sort of policies, and making sure they're covering you correctly. It's another thing you have to do to leave.
James Mitchell: Just before we got started with the interview, we were talking about this diversification piece, the real estate channel, the financial planning channel, they're sort of like well trodden paths. But conveyancing and legal seems a little bit further left field in terms of creating stickier clients for, in a broking sense. Tell us a little bit about how having a couple of solicitors in the office, for example, has been able to sort of generate leads mortgage wise?
Theo Chambers: It's firstly we actually went there's two options, you can have a conveyancing solution, or a proper legal solution. We went the upper end on the legal solution, so it's means you can actually give advice on the purchase transaction, where a conveyancer can't. The reason to go that direction, look, it's because it's also complimentary to our referral partners, being real estate agents. The first thing they do when they appraise someone’s property that's keen to go ahead, is send them a contract of sale, and if we can say, "Yup, we've got a solicitor that's ready to do that for you." From a relationship point of view with the client, every time they review your contract, they're speaking to the solicitor who's sitting side by side with the mortgage broker. So the solicitor can let the mortgage broker know that they're looking at other property again, confirm that obviously their approval is still valid and what not, and everybody's sort of dealing with the one transaction in house. Does that answer your question?
James Mitchell: Yeah, no, it does for sure. I mean it seems like their sort of more on the ball in terms of if the clients going ahead or not, essentially, because they're dealing with the paperwork and actually the legal ramifications. Rather than ah I might be in the market, or I might not. Seems like they'd know if the clients going to pull the trigger on a sale or not.
Theo Chambers: Yeah, exactly. I tell you another thing that's quite common unfortunately in the industry of broking is for the solicitor or conveyancer to sort of bag the broker.
James Mitchell: Oh yeah?
Theo Chambers: Yeah, they always do.
Annie Kane: Great.
Theo Chambers: I don't know, I think it's they just get frustrated with brokers in general and so it's better if they're dealing with your solicitor then you're not going to get bagged. They love pointing the finger at any issue in the process, even if it's the solicitors fault, like not getting names right on the transfer or something like that. They'll somehow blame it on the broker, and naturally the consumer the solicitor is going to have more credibility than the mortgage broker, purely 'cause they're in the legal industry.
James Mitchell: 'Cause they're a lawyer.
Theo Chambers: Yeah, yeah, so it stops anyone from pointing the finger in the process, and instead just working together to get the right outcome for the client.
Annie Kane: Yeah, having less friction, which I guess at the end produces that golden good consumer outcome, that we're looking for. Just going back to sort of your background, so obviously you started off broking and now you're CEO, are you still writing loans yourself?
Theo Chambers: Yes, I'm writing a minor amount of loans just to sort of retain my existing book of clients. Mainly also from just a policy and sort of credit point of view, so I stay across the actual frustrations of the brokers in our team, of writing home loans. The changes and actually be able to relate to brokers in our team. I don't want to become redundant in that capacity, so that when I'm hiring and training brokers and they're expressing a frustration to me I don't know what they're talking about. 'Cause then I'd feel I'm sort of becoming a bit redundant in my role. But luckily I've got a very good support member, Alicia, who really helps doing majority of that work obviously, and I'm just sort of managing from a high level point of view.
Annie Kane: So now you have sort of, is it around 40 staff? How many members?
Theo Chambers: Yeah, I think there's 46 staff.
Annie Kane: 46, so how did you find that transition? So a lot of brokers that listen to the podcast for example, might be now moving into that space where they are ready to sort of take on more staff, or they're ready to become a more of a managed type role. How did you find that transition? Would you have any advice to someone who's about to get on that journey?
Theo Chambers: Look a lot of our advisers, we've got a few advisors that sit on our board, always said just you should stay on the tools and you should hire someone to manage the business. Theoretically someone who's got a Masters in Business, and in some academic, who's been to university and studied all this sort of business management stuff in theory, would say that's the best approach. But things in theory are very different to things in practise, and in practise it's not that easy. You'll never get someone who really understands your business from the bottom up, which you built yourself, and how it works, to come in and manage it as well as you could. I wish that person existed and even if they did exist, getting them to actually care about it as much as you do is the other issue. So look in an ideal world I would have loved that, but I sort of fell into the path of managing the business and getting the business sort of addressed and growing the business.
Then over time I just sat down with my business partners and I said, "Look I'm naturally doing most of the work here, maybe I should take more of a management position." So they were appreciative and understanding said, "Yup I think you, it's probably best that you just take over and sort of wind down your broking." In saying that I still do about half the volume I used to do, so there's still a decent volume there.
James Mitchell: It's interesting in terms of that owner manager versus bringing someone in. I know there are a few groups who do it pretty well, like Smart Move for example, Darren Little obviously was at St George, and then he's now General Manager of Smart Move. It was interesting to look at their model in terms of how they've outsourced stuff to Manila and they've got an office down there to do that sort of thing. Do you guys outsource anything? Do you use any sort of particular technologies to sort of streamline efficiencies? 'Cause you've got so many staff at the moment.
Theo Chambers: Yeah, we definitely look we're outsourcing a lot of our data entry, to a couple of different organisations actually. One for application data into Flex and another just for our general data off real estate agents. Another thing sort of we've launched in the last 12 months is in house sort of back office solution, which manages that data entry of the applications. 'Cause you can't, in my opinion, purely rely on off shore processing team to liaise with your clients.
James Mitchell: Yeah, very true.
Theo Chambers: I want that done in the business, in house, on shore, in the same office next to the broker who's speaking to the client about an application.
James Mitchell: Have you found; ...
Annie Kane: Then you know what's being said.
James Mitchell: Yeah, exactly. I mean it's funny with, outsourcing, I was having a chat with someone who used to run a financial planning ... Sorry used to run a mortgage choice franchise, or work in a mortgage choice franchise, she worked with CBA as well. We were talking about Fintech and Block Chain, all this sort of stuff, which Annie knows all about 'cause she's just come back from San Francisco. So we were talking about how technology can I guess streamline the process if banks get on board with it. We were talking about out sourcing and how a lot of banks have offices in India, and in Southern parts of Asia, and all this sort of stuff, and that it's actually creating more headaches than efficiencies sometimes. Particularly for brokers having to deal with ... As a broker yourself have you ever experienced difficulty in the outsourcing processes that banks have done in terms of having to deal with that, jump through so many hurdles to get through the system in terms of speaking to credit, speaking to assessors, all that sort of stuff.
Theo Chambers: Yeah, look I think historically some banks have gone offshore and then come back onshore right? Yeah, there's always a frustration when you try to change a process. I think that's just human nature. I think people just don't like change and even though it might be one step backwards but two steps forwards with due processes changing, that one step backwards for most people is just quite hard to justify. 'Cause they think, hang on today I need to do X, Y, Z, you're telling me not to do X, Y, Z, and focus on this process change, which is just going to slow me down. But they don't realise long term it's for the best. We've got that issue at the moment, we launched a new sort of system that's going to be in line with that back-office processing, and see applications from ... Or see a client from lead all the way to settlement and even managed by a post settlement officer, for post settlement maintenance.
James Mitchell: Like a CRM sort of system?
Theo Chambers: Yeah, we're using SalesTrekker, but because there's different people are now involved in the process from start to finish. The broker does the front end, the packaging team does all the application processing, and then our post settlement specialist does all the post settlement maintenance. We want to make sure everyone's on the system, so they understand where, what's being done.
James Mitchell: That's the hardest thing, getting everyone on the platform. We've got problems with that, haven't we?
Annie Kane: Tell us about it, yeah.
Theo Chambers: Look I think every business has that problem, right?
James Mitchell: Yeah.
Theo Chambers: In any industry it's standard.
James Mitchell: Stubbornest. I don't want to get on board.
Theo Chambers: Yeah, I remember even when I was at Comm Bank, just getting used to the new updated CommC, or whatever it was, I just was like ugh.
Annie Kane: Yeah, go back to just like doing things on a slate.
Theo Chambers: Pen and paper.
Annie Kane: Yeah. You recently announced Theo that you were going to be launching a white label product next year. Can you tell us a little bit about the decision to actually do that?
Theo Chambers: White labelling was always a long-term goal and plan for us, obviously it wasn't on the top of the agenda in the early years of establishment. Even right now it was probably something I wasn't thinking about doing so soon, we probably were focusing on just improving the business infrastructure and systems, and maybe a bit more recruitment and volume growth. But volume wise we're probably at a decent enough level to start testing it. An opportunity came up with a group of guys that look like their credentials and their profile were perfect to do it with. So yeah, we raised some capital, invested in a sort of a new wholesale funding programme, you could say. Very different from the historical sort of securitization platform, using technology, in terms of technology, technologies’ the key change here in this whole new process. There's a few organisations out there doing it and it involves block chain, and sort of algorithmic assessment programmes.
Annie Kane: This is the, as James mentioned, when we went to the US Adviser study tour in San Francisco was all sort of talking about how Fintech's developing this sort of exactly as you're saying, like block chain to help with the mortgage process. With that sort of funding side of things, and I guess one of the questions that people keep on bringing up with things like block chain, is the security thing. There seems to be a lot of concern about security, but I think what I understand at least of block chain is that it's actually more secure than systems we have already. How are you sort of ensuring that all this data that is coming through is secure?
Theo Chambers: Well on the algorithmic assessment sort of side of things, the system that's assessing risk, that comes down to really still being, can be human error right?
James Mitchell: Mm-hmm.
Theo Chambers: The algorithms are designed and built by an individual, so that individual needs to have some experience in lending. So luckily the individuals behind this system have been in lending for 30, 40 years, and built these systems for some of the biggest securitization business to date. So that's hence the reason I had a bit more confidence in the overall funding programme, and they've tested it ... I wouldn't say tested it, but we've profiled our existing book of clients, so we got our two billion dollar book of clients and we put it through the system to give an average risk rating. Then we sort of said, well since these are loans we've funded and were approved by major banks mainly, you could assume that they should come out the other end on quite a low risk, and they did. It scores clients from one to 500, this new system does, and our average client Shore Financial got 170 points, which is low risk, 500 being high risk.
James Mitchell: So will it be a risk based pricing product, the white label loans?
Theo Chambers: Yeah, look there's going to be the prime product, being that the sharpest rate will be risk based definitely. It'll do things like also if you score 300 points or below, 90% loans with no mortgage insurance, regardless of profession. Even 100% loans on sort of the lower risk rated clients. Things like cash outs up to $100,000 without having to do a full application, if they were low risk. The pricing model is something that we're going to tweak over time, I think we're going to test what rate we can sell it at. If it works out to be attractive at that rate, well fine. If it needs a bit more tweaking, we'll tweak it, it's kind of a bit of a pilot programme for the next 12 months obviously. Hence why these guys actually approached us, 'cause they needed someone to test it.
James Mitchell: Yeah, of course.
Annie Kane: Who's it sort of targeting? Is it owner occupiers, investors?
Theo Chambers: The whole lot really, it's not going to be limited to one or the other. You're not bound by the same APRA sort of guidelines that the major banks and even the second-tier lenders who generally are getting the major bank funding from the; ...
Annie Kane: Not being ADI.
Theo Chambers: Yeah, exactly, so they're still exposed to the same APRA ruling, even if you're a second tier getting it through the same wholesale funding channels. But because this is not doing that the traditional funding, it's not bound by that and you can sort of get away with doing different things in terms of the investor spaces in particular. I think the assessment rate for example will be about 5.8, six percent, that alone is a huge difference.
James Mitchell: That's interesting.
Annie Kane: Yeah, watch this space.
James Mitchell: It's funny with the white labelling how it's coming more back into the fore now. I mean it's always been around, but you know you've got LJ Hooker Home Loans, I was having a chat with Paula Reagan from LJ Hooker Home Loans the other day. Their whole model is basically, I think they've got about 20 offices or something like that, but they're not doing a panel of lenders at all. It's purely their own branded loans, and they're funded by Macquarie, Pepper, Advantedge I think, and YBR, obviously Mark Bouris just recently came out in his four-year report and said they're looking to do their own sort of stuff. They've just brought Frank Ganis from Macquarie on board to work on the securitization piece. So it's funny how it's sort of gone full circle, like the mortgage management models coming back.
Annie Kane: Yeah mortgage managers.
Theo Chambers: Well like everything it's cyclical, and it hasn't really ... Nothing’s changed since the GFC, no one’s come back into the market and white labelling the last sort of eight years have just been literally mortgage managing. Just putting your brand on someone else's product.
James Mitchell: Yeah, that's right. Nothing really innovative?
Theo Chambers: Yeah, exactly, there's nothing innovative at all, and you're still really getting the same pricing and policy. Like I said earlier, we're in discussions of doing white labelling with Pepper as well, purely just from a volume point of view. It's not much things we can really tweak with that product, even if we do have substantial volume at the end of the day it's still just going to have to be Peppers product, and pricing.
James Mitchell: I guess the brand play is still a big one in terms of getting the Shore branding out there on mortgage products?
Theo Chambers: Yes and no, that's not my sort of incentive, my incentive is actually getting a different line of funding with a different pricing and policy offering. That's like I said, it hasn't really been an opportunity to do so since the GFC and it was always going to be about when markets have changed. That change has happened now, everybody's talking about it, the banks pulled back their being regulated and can and can't do certain things. It was just a matter of time for someone else to come into the market and say, "Well hang on we can offer this product at this rate and under these policy for X, Y, Z reasons." It all came down to, which players can get funding from what avenues. Like I said, yeah this group is getting their funding from a very niche and unique, and sort of innovative funding channel.
James Mitchell: Yeah, interesting.
Annie Kane: Well just before we close Theo, you mentioned just earlier that you've now got a loan book of around two billion. What in your eyes are the keys to your success? How did you get there?
Theo Chambers: A great team behind us obviously, we trained a very positive and sort of energetic team culture, which made everybody sort of work hard and drive good results. Definitely the avenues of where we got our business from, we had the experience in real estate driven referrals and leads. We were successful at it before starting the business so you're then teaching other brokers to be successful at it wasn't something new. It's that old saying, if it's not broken, don't fix it. Something was working, we just had to tweak some things with it, and so we just taught that same strategy to other brokers.
James Mitchell: Do you think that sort of mentorship, or leadership of the McGrath, of having working for the John McGrath organisation and him, and his I guess gravitas as a business leader. Did that play into sort of like some of your early success and your ambition?
Theo Chambers: Well, from a cultural and motivational point of view, definitely. You've got to understand I was a mortgage broker working at a real estate business, and the focus was real estate. So there wasn't much training on mortgage broking at John's business, at McGrath, it was more just ... But the culture and the ... Well just the culture of the business was inspiring. McGrath itself had an inspiring culture and it was a great team to be a part of and how they ran their business and what they did with terms of team events and the work ethic and what not that everyone sort of instilled amongst each other was inspiring. So I was probably inspired and motivated from the business that McGrath was, not from the broking point of view, just from the real estate point of view. Then just trying to plug in a mortgage solution off the back of it was just a bit of self discipline and just thinking outside the box. It wasn't really that much innovative stuff either there, but just doing things that other brokers weren't.
Annie Kane: Yeah, well best of luck with the launch next year. We look forward to hearing more about it.
James Mitchell: Yeah for sure.
Annie Kane: Thank you so much for coming in.
Theo Chambers: No worries.
Annie Kane: Sharing your story.
Theo Chambers: Thank you.
Annie Kane: For all other news and features please do visit www.theadviser.com.au and we'll catch you next week.
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