In this episode of Elite Broker, Annie Kane chats with broker and owner of Sydney-based brokerage PFS Financial Services, Daniel O’Brien, to find out why he made the move from banking to broking and how he went from “failing miserably” to writing more than 360 mortgages a year.
Recognised as Best Residential Broker 2017 at the Better Business Awards (NSW) and is a finalist in two categories of the Better Business Awards this 2018, the broker also shares his thoughts on the royal commission, the Productivity Commission and the current regulatory environment.
Tune in to find out:
And plenty more!
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Announcer: Welcome to the Elite Broker Podcast. This is your host, Annie Kane.
Annie Kane: Hello and welcome back to The Adviser's Elite Broker podcast. I'm Annie Kane, editor of The Adviser and I'm flying solo today, because James Mitchell, managing editor of mortgages, is actually off sick unfortunately. Get well soon, James. Never fear, because we have a fantastic guest with us today. It's Daniel O'Brien, owner and broker at Sydney-based brokerage, PFS Financial Services. How are you doing, Daniel?
Daniel O’Brien: Good. How are you?
Annie Kane: Yeah. I'm very well, thank you. Now you might know Daniel's name already. He's a well established broker with more than a decade of experience under his belt and last year won the Best Residential Broker Award at Our Better Business Awards New South Wales, and he's a finalist this year again for Better Customer Service and Best Residential Broker with the brokerage itself also in the running for an award for Best Customer Service in the office category. Daniel's also one of our Elite Business writers, having come 11th in our 2017 ranking after writing a whopping 360 mortgages totalling $147.8 million over the 12 months to June 2017. Those are huge figures. Daniel, obviously now you're bringing in a lot of business, but as we always like to do in this podcast, can you take us a little bit back to the beginning of how you actually started out broking? You came from banking, is that right?
Daniel O’Brien: That's right. I was with the Commonwealth Bank basically out of high school. That was essentially my financial apprenticeship, if you will. I was there for about five and a half years and started the business, the broking business in November 2004. Basically, had a connection through the bank who was a real estate agent in the city. Long story short, this was a connection that was going to be a life-changing referral source that was going to make me a gazillionaire, and-
Annie Kane: Oh, wow.
Daniel O’Brien: Based on that, and having that referral source, and liking the concept, and the idea of what a mortgage broker does, which in short, to me, was all the good stuff about what I liked in the bank, just minus all the politics of working for a big bank in modern place. Long story short, that referral source didn't work at all.
Annie Kane: You're not a gazillionaire now.
Daniel O’Brien: I'm not.
Annie Kane: That's a shame
Daniel O’Brien: Yeah, I know. Dreams shattered. That didn't work out, but I was already doing it, committed by that point, and found to make it work via other means.
Annie Kane: Wow.
Daniel O’Brien: But that was the initial prod to get me into it. That didn't work out, but we were fortunate enough to make it work via other means.
Annie Kane: How did you? How did you end up finding the leads? If you're a new broker, it's obviously one the first things you need, is to have that word of mouth, but it's so hard to get that started. How did you go about doing it?
Daniel O’Brien: The good thing about me ... I was 24 at the time, so I was young enough, dumb enough, arrogant enough to think that I could do it. If I wasn't those things, I wouldn't of had the courage to do it possibly at this age now. Anyways, I was failing miserably at the start, but fortunately managed to partner up with some referral sources in the early days. Some real estates, solicitors, financial planners, etc and little by little gained some momentum. Based on getting those referrals I was able then able to get some word of mouth business. But I guess the tricky thing was in the beginning, as good as I thought I was, that meant nothing if I couldn't get in front of people.
Annie Kane: Yeah.
Daniel O’Brien: Getting in front of people is the hardest thing initially. I was going to have that coming from that real estate agent that I mentioned, but didn't write one deal in the end from that, so I had to improvise.
Annie Kane: So how did you actually find your referrals? Did you go loads of networking events or did you call people up? How did you actually secure those relationships?
Daniel O’Brien: Back then, just very serendipitously, met a real estate agent. They then put me in contact with a gentleman by the name of Gary Lees, at the time through LJ Hooker Financial Services. That was a big catalyst for me in the early days, like this is 2005. Just allowed me the opportunity to have a data base of referrals to deal with. I guess the good thing about those models, which not so suitable if you're well established, but very suitable if you don't have a database and are new to the industry, but it's essentially a referral mechanism. You've got an active audience of real estate agents that are dealing with people that are looking to buy or sell property that will no doubt need some money. So having that at my disposal, where I could build relationships and get referrals, was the platform that I was able to jettison from.
Annie Kane: You've sort of talked about the hardship there, when you first started and you were sort of left stranded with no referrals, but how did you actually get to the point where you thought, "Well, I've already started my own business ..." Did you ever think, "Maybe I'm going to go join a bigger group and get my leads that way."?
Daniel O’Brien: I reached a point very early on, where I was failing miserably. I started applying for jobs. I didn't know what I was going to do. The only jobs I could get at the time, I had no formal qualifications, but I was a bank manager with the Commonwealth Bank.
Annie Kane: Yeah.
Daniel O’Brien: The only jobs I could get were working for another bank or ... The only other job offer I got was working for Clark Rubber at Blacktown. I didn't want to do that.
Annie Kane: Nothing wrong with that, Daniel. Maybe not the area you wanted.
Daniel O’Brien: Yeah, it just wasn't the area for me. I didn't want to deal with inflatable pool toys.
Basically I decided to stick it out. I saw some light at the end of the tunnel. A few scary moments, like I'd be doing cash advances on credit cards to pay for mortgages and thing like that.
Annie Kane: What?
Daniel O’Brien: I have to put the proverbial on the line, but decided to stick it out. I didn't want to go sideways or back to what I was doing. I saw enough light at the end of the tunnel, to dig a bit deeper and assist a bit more. By the middle of 2005, I was starting to get some settlements come through. It was a bit more bearable. I can still remember my net profit from November until June was $42.
Annie Kane: Wow.
Daniel O’Brien: Yeah. Which is good for now, because the sweet ain't as sweet without the sour. Having those times, definitely put me in good stead to when the business was going well, not to fall into traps of just going silly and spending money, or over extending myself. It was good to have that.
Annie Kane: Wow. How long did it actually take before you were sort of comfortable with the amount you were bringing in? We always hear it's around 18 months, 12 months, for people to really secure in what they're doing as a broker. Do you find that it was the same or was it a bit longer?
Daniel O’Brien: It was probably around ... Yeah, it was about 18 months actually. I started the end of '04 and I got my first person on board mid '06. A key thing for me was, I wanted to get my tradable gut up to a level that could cover the wage of that employee.
Annie Kane: Yeah, that makes sense.
Daniel O’Brien: So if we had a bad month, it was fine. I've always structured the business where I haven't invested more or spent more, to hope to get to the next level. I would always get to the next level, then get the office, or then get the extra staff.
Annie Kane: So less risk taking.
Daniel O’Brien: Correct, and again, the cash advances on the credit card to pay for mortgages and things like that. I didn't want to go back to that point again. So I was quite conservative, and the person that I brought on was a friend from high school as well. So I wanted to have protection in place for them as well.
Annie Kane: So they weren't a broker. They were like low support staff?
Daniel O’Brien: No. A chef.
Annie Kane: Oh!
Daniel O’Brien: With my staff, the majority of them, 3/4 of them, have always been outside of finance. From my banking days, it was a key thing that I learned, it's more about the behaviours and the attitude of the person. Skills can be taught, but I guess I wanted the right behaviours. It just so happens that all, but one, of my staff, have never worked in finance before.
Annie Kane: Does it also mean you get food cooked for you, in the office or no?
Daniel O’Brien: No, sadly not.
Annie Kane: You're going to have the put that in the contract.
Daniel O’Brien: I know right.
Annie Kane: You need delicious food.
You now have ... You've mentioned there about 3/4 of your staff came from outside of the financial industry, but how many staff do you have now?
Daniel O’Brien: I have four. So there are five of us in total.
Annie Kane: Okay. You were saying there about getting to the next level and then deciding to bring someone in, but what is for you the determination of the next level? And the mark where you think, "I can now bring somebody else." Or "I need to bring in someone else." What is your turning points that made you bring in new people?
Daniel O’Brien: In the early days, it was more a financial goal. To get to a point that definitely warranted the extra person. For the last two staff members it's more about maintaining a certain level of service that our clients are accustomed to, and what I expect and demand. Our last staff member, as an example, we don't necessarily need, but it just allows us to give quicker, more thorough, better all around service.
Annie Kane: Talking about the volume there and the amount of loans that you're writing. As I mentioned in the introduction, 360 mortgages. Almost a loan a day in the 12 months to June 2017. Are you still writing at that level? Have you gone up?
Daniel O’Brien: We've gone up a little bit. I think one of the things we're going to talk about was the average changes in things and that's been something that has been a positive on our business. Look for 14 years, each year our outturn has grown. I think the last nine years, our settlements have grown. We're in a good place. That all comes on the back of good systems, and processes from my staff, and having a really tight back office to get that word of mouth and repeat business.
Annie Kane: Yeah. A lot of things we always hear and whenever we publish Elite Business Writers ranking, is people look at the numbers that brokers do, and they go, "There's no way they're doing that on their own. How are they managing to write everyday?" But it's because you've got the support staff that can do the back end stuff for you. How do you actually ... If someone said to you, "Oh, I don't believe your numbers. How are you managing to do that?" What is your response to that?
Daniel O’Brien: Tall poppy syndrome is definitely alive and well in this country. I am the only broker in my business. Allowing for commercial loans, we do over 400 loans a year. I'm the only broker there, but I have four support staff. That allows me to be less on the tools and less talking with banks. We have two sides of our business which is the getting of the business and getting it in. Then the other side of business is the processing of, once the deals in and liaising with banks, clients, etc. By having the back end doing the data input for me, the evaluations, the discharges, the speaking with banks ... I don't speak to banks anymore. I just deal with the client. I structure the deal. I do the servicing. Having my staff do such a good job and take so much load off, allows me to get through that volume.
The other major thing, is so much of our business is ... 80% of our business is word of mouth or repeat. The beauty of that business is it takes a lot less time to do the business. If it's a repeat client, I don't necessarily need to sit there for an hour winning their trust, because I've already got it. It can be done over the phone, or email sometimes, as well because they don't need to see me because they've dealt with me for five or ten years.
With the word of mouth business, the job is half done before I see these people. If their friend or brother has said, "Hey, this guy is great use him." As long as I don't sound like an idiot, I'll get the business, because it's 1/2 to 3/4 done based on the word of their friend or colleague. The time it takes to get that business is much, much quicker. Once we get it, all the data inputs done for me and all the heavy lifting with the banks is done for me. I focus speaking with people, getting the business, structuring the business. I leave the other stuff to the team.
Annie Kane: All the fun stuff you get to do.
Daniel O’Brien: That's it!
Annie Kane: You mentioned that a little bit, about commercial loans. You do both resi and commercial.
Daniel O’Brien: Yes.
Annie Kane: What else do you offer in brokerage?
Daniel O’Brien: Basically, anything that requires borrowing money. Whether it's for buying a business, equipment finance, car finance, rent roll finance for real estate agents. Anything basically.
Annie Kane: What do you most enjoy doing?
Daniel O’Brien: Residential. It's definitely a lot sexier to get an $11 million commercial deal or $20 million commercial deal, which we don't tend to do. Residential is definitely the most profitable business. It's the quickest and the easiest. I think it's the easiest to replicate and have a good system in place to have a strike rate for and conversion everything ... Everything is quicker and easier with residential, in my opinion.
Annie Kane: Yeah. And we talked a little bit about outward changes and blending changes that have been brought in. Specifically, really in the last six months, it seems to be in a lot more from the lenders cracking down on what they will actually lend ... Who they will lend to and what the will lend. Have you found in the commercial space there's been a lot of change there? And has that impacted the business?
Daniel O’Brien: Well, definitely. There has been a lot of changes and I think compared to two years ago, especially in the residential space, borrowing capacities probably, depending on the person, 20% to 30% lower than it was a few years ago, specially for investors. The biggest impact on our business, is it's made us busier. It does take more time and effort to get a loan approved now than in past years.
The other thing is ... One thing I didn't see coming, I thought we were going to slow up and do less business as a result that. Because it slowed the property market a little bit. People's borrowing capacities are less, so they're borrowing less. But it's actually had the opposite effect, where were writing more business. Because it is harder to get money, it's made us more relevant.
Annie Kane: So people are coming to brokers because they've struggled to find finance with the bank?
Daniel O’Brien: Correct. We're getting a lot more, at the moment where people are falling over else where. Whether it be a referral partner, which I guess is the minority of our business these days. Or just somebody else that is just a friend or a colleague, that say, "Look, don't muck about. Speak to this guy. He knows what he's doing."
Although it's harder to get money, I think it's made any decent broker, that's experienced, it's made them more relevant.
Annie Kane: Yeah. One of the things I was going to talk to you about, is in the last few weeks, we've seen a few different commission reports come out. We've had the role commission begin. It seems to me, that anywhere you go at the moment, mortgage broking is in the limelight. A lot of the time we have to defend what mortgage brokers do, which we shouldn't have to, but because of the inquiries that are painting mortgages in a certain light, we have to do a lot of work to try to negate those. Have you ever had a customer come to you and say, "I've been reading some of this." You have to kind of work that way, and if so what have you said to them?
Daniel O’Brien: Not really. Again because my business is word of mouth. So they trust the opinion of their friend or family member over what some nameless, faceless, journalist writes. Back when I first started, mortgage broking wasn't as prevalent or as well known as it is now. You'd get some people asking, "Why should I use a mortgage broker?" Or "I've heard bad things." But the whole commission and investigation and reporting ... I know Choice had that article last year, which was a very ill informed and ignorant opinion of our industry. I think that I'm one that can answer this better than most, because I've been on both sides of the fence. I've been a branch manager of a bank. I've been a mortgage broker. I know how much it costs to run a branch and all the things that go in to running a branch, paying staff wages, super, equipment, and also the risk.
One thing that is not spoken about is the risk of writing loans. If a bank employee commits fraud, that's on their professional indemnity. Whereas if I do it, it's on my professional indemnity and not the bank committing that. All this talk about justifying trail commissions ...
The reality is, if you take trail commissions away, all that's going to happen is banks will make more money. They're not going to pass it on to their clients. On the other side of things, on their first party channel, they still have to pay people on that channel to do loans. They pay us to do loans as well. The benefits of us, is they don't pay us a wage. They don't have all the other ancillary costs that's associated with a business of that size and magnitude. Having run a branch I can tell you, it's so much more profitable to use a broker compared to a branch lender.
I used to be the branch manager of Martin Place Sydney. The target back then was a million dollars a week. Which is nothing ... That's our Wall Street. That's Martin Place Sydney. That's a massive, expensive business. They have all these costs, before they've written a single loan.
But the whole thing about taking away trail, it's just absolute BS. It's not going to change anything for the client. The only thing it'll change is less good people will be in broking, maybe go to financial planning or something, because the money is just not there anymore. It's such a beautiful and pure profession where the client genuinely pays us nothing. Any decent broker will get a better deal than if they go direct to a bank, as well. If you're doing more business with the bank, you've got better leverage. So clients get the best deal. All the work is done for them. They don't have to deal with someone at a bank. They don't have to chase the bank. They don't have to be holding the bank's hand.
The whole talk about the ongoing trail not being justified ... In some cases, it's not going to be justified. In any profession, there's good and bad in that profession. I'm sure there are brokers not doing a great job, but by and by, I think most mortgage brokers add a lot of value and generally make things a lot better, cheaper and easier for clients.
Annie Kane: Yeah. You obviously, this year, are in the running for the Best Customer Service Award, for our Better Business Awards, New South Wales 2018. What for you is the sort of thing you pride yourself most on for best customer service?
Daniel O’Brien: It's just the basics. The things that are simple to do, but even more simple not to do. If you say to someone you're going to have an answer in two days, even if you have no news, still touch base with them. It's all about communication and call control. If we're making the call to the client to update them on what's happening or that there has been a delay, it shows we're in control. Whereas if we don't get back to them and they're calling us, we've lost the control over that conversation and that transaction. So just by being on the front foot with communication, when you do have that communication with a client, it's quicker and easier, because we're initiating it.
Annie Kane: In terms of actually, the management of that, knowing and remembering who to contact, and the clients you need to follow up with, I'm guessing that comes down to a really good CRM system. How do you rely on technology to help manage those processes? Is it much more that you are still manually doing something on Excel or do you have a software that you rely on that aggregates provide to you?
Daniel O’Brien: We've got our own software outside of the aggregator that we use. We use the aggregator software for the client information, doing applications, etc. For a live application we've got essentially an electronic checklist that we use, that is outside of our aggregator software. That takes the guess work out of what we need to do and when we need to do it. Off the back of that check list, we have assigned tasks to different people. So at any point at any time, someone can look at the checklist and see "Well, okay, it's pre approved, evaluation was ordered on the tenth. Today's the 13th, so our service standard is three days, so based on our service standard we now need to chase that up." Off the back of our check list, we have a service standard, that talks about how long each step should take and who chases what when. So if I get hit by a bus tomorrow, someone can look at the file, see where it's at, and based on our service standards and processes, know when they should be chasing it and who should be chasing it.
Annie Kane: Yeah, so there's still that transparency across the board. Everyone knows where everyone else is and who is responsible for what.
Daniel O’Brien: Correct.
Annie Kane: And touch wood, you don't get hit by a bus tomorrow.
Daniel O’Brien: No, but Josh, who I built the business with, who's the guy I went to school with ... Essentially, we're both not academics. We're both simple guys from the western suburbs. We built this business for idiots because we're borderline idiots ourselves. The systems and processes for the business, we just wrote it down, so if anyone ever asked a question, essentially all the questions are already answered via the systems and processes that we have.
Now we don't have an abundance of them. We don't have processes for making a coffee and processes for processes. The important meaty stuff, is a very concise way to do it. We've structured it in a way that is very simple. It is very basic. But because of that it's easy to replicate. And goes back to simple things, like communication. We have a meeting every morning about every active file, work out where it's at. What happened yesterday. What are we doing today. Who's going to do what. Again, that's all off the basis of having a live checklist for each file, knowing exactly where it's at. And on that checklist it tells you who's done what, and who's assigned to get the next task. It just makes things very transparent to know who's doing what and when.
Annie Kane: In terms of actually the broking side of things, now you're the sole broker. Have you got any plans, or do you think you'd ever bring in another broker to help you with the business?
Daniel O’Brien: Look, it's something I've dabbled in before. I've had brokers come on board for generally short periods of time. It doesn't tend to work out. It's not something that I actively look to do, and I don't particularly want to do. I know that would go against what most brokers want to do. I just like my model. At the end of the day, as long as I'm still enjoying writing loans, it's the most profitable way to go. If I'm doing the loans myself and I get to the point where I'm too busy, I can just get more admin staff. But weighing up the cost to recruit brokers, train brokers, retain brokers, and what I get out of it, just ... To me I'd rather write loans myself and make a lot more money.
Once they get to a point where they're any decent, generally, they want to go and do their own thing and make more money themselves, which so they should and is fair enough. So I have no grand plans to have a bunch of brokers under me. I still enjoy what I do and I'd rather make more money by doing it myself. When I eventually do go to sell the business, I think it's going to inherently be worth more as well. If I'm the one doing all those loans versus a constant flow of brokers coming in and out the door over a number of years ... The numbers will tell me that the quality may slip when you have just a constant open door of people coming in and out of the business versus one person doing it over a consistent amount of time.
Annie Kane: You've got to think about once you've been in broking for a while, and even when you're starting up your own company, is the value of the company. As you mentioned, an exit strategy, when you actually start thinking about succession planning also running a business, you know what your book is, and you're responsible for the loans in it.
Daniel O’Brien: Correct. When the brokers go, they had the relationships with the clients, so a good chunk of those clients will follow them, no doubt anyways as well. It works for some people, but in my opinion it's definitely more profitable to do it yourself. I realise some businesses out there, that do more than me, just simply cannot do that. The level of business I do, I don't particularly want to do that much more than, or any more than. I'm just happy to maintain where I'm at at the moment and just keep plugging away.
Annie Kane: Yeah, well best of luck with it all. And good luck for the Better Business Awards in March in Sydney.
Daniel O’Brien: Thanks.
Annie Kane: That's pretty much all the time we have today, so thank you so much for coming in and sharing your story. And for all the news, features, and insights into the mortgage market and mortgage broking, please visit theadviser.com.au
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