Attracting new brokers remains the industry’s number one issue. But what will the repercussions be if it fails to do so? And what more can be done to recruit and retain the next generation of brokers? The Adviser investigates…
When The Adviser an industry lunch for 10 of the top lenders to the third-party channel recently, the question of the “current biggest industry issue?” came up. And the answer was unanimous – a worrying lack of new talent joining the broker ranks.
The issue’s nothing new, but if left unresolved the repercussions to the broker channel itself, aggregators, lenders – particularly lenders without a branch network whose business model is reliant on the third-party channel – could be enormous.
But no matter where you sit, gaining new recruits is vital in order for the industry to sustain itself.
And it’s not just a matter of attracting new brokers. With a disturbingly high number of new recruits leaving the industry within the first 12 months, there also needs to be a focus on keeping them.
So why is recruitment such a big issue? What sort of damage could it cause the industry if there is a decline in new brokers entering the marketplace? What can be done to make the profession more attractive and stem the flow of fresh talent leaving the industry?
The Adviser spoke to brokers, aggregators, lenders, and of course, industry associations. The general consensus is that attracting and retaining new brokers is a key issue going forward. And, there’s also a related problem: some brokerages are reluctant to hire new loan writers because they may one day steal all their clients.
Mortgage broking was originally filled with younger people but has since acquired the reputation of being an ageing industry. So how did this happen?
Finding new blood
“Our sector is ageing, and we certainly need a source of fresh blood to come into the industry. It’s one of the issues that we’ve been looking at pretty seriously over the past couple of years,” MFAA CEO Phil Naylor says.
Marshall Condon, the 25-year-old managing director of Mortgage Choice’s South Yarra franchise, agrees that there is a big age gap in the broking industry at the moment, and says there is definitely a shortage of new recruits coming through from university.
“For the industry to continue to grow, it’s going to need a lot of young brokers coming through to take over from the older brokers,” he says.
Peter White, FBAA president, is also noticing a large amount of brokers retiring from the industry.
“In the past, there hasn’t really been a focus on where the next level of broker is coming from. A lot of them have come from banks or other sectors and just floated into the industry and out again,” he says. “When you look at what’s happening dynamically in the movement of the industry, you see that there’s not a lot of young blood coming in.”
Buyer’s Choice Home Loan Advisory Service actively recruits and trains new brokers (often from outside the industry) and its managing director, Mick McClure, agrees there are many brokers on the cusp of retirement with mature businesses who aren’t really looking for any more clients.
“They’re in business maintenance mode rather than business growth mode,” Mr McClure says.
Retaining new recruits
Another problem the industry faces is the ability to retain existing brokers. Research by the MFAA says that up to one-quarter of new brokers quit the industry in their first 12 months. Mark Woolnough, ING Direct’s head of third party distribution and a lender dependent on the broker channel, calls this first-year dropout rate “a pretty alarming stat”.
“It’s the risk versus the reward that’s the issue,” he says. “You’re asking a lot of brokers to work on a commission and reduced-earnings basis for 12 to 18 months, and some of them just can’t sustain it. Those that haven’t had immediate or early success as they may have predicted are sometimes forced to walk away because they need that immediate income.”
“It’s also a result of a lack of business leads and their ability to go out there and make money,” says Connective director Mark Haron.
Mr Naylor says the high attrition rate has also got a lot to do with the expectations that some of the new industry entrants have.
“People who come into the industry not fully understanding what it entails and thinking it’s easier than what it actually is – they’re the ones that are coming in and staying for a year or so and then find that it’s too tough,” he explains.
Citibank’s head of broker distribution and a strong advocate of broker recruitment, Aaron Milburn, agrees that some new brokers have a vision that simply doesn’t match the reality.
“This is an industry where you do need the hunger and desire to go into battle day after day to fight for your portion of the market,” he says. “That is difficult and it’s not for everyone.”
“It’s a lonely business,” adds Mr McClure. “There’s no one there to hold your hand for those first couple of years when you’re trying to get all your systems set up and running.”
However, not everyone is seeing a high rate of new brokers leaving the industry in such a short space of time.
“We don’t see that sort of statistic at all,” says Mr White on his rival organisation’s high attrition rates. “About 82 per cent of our memberships are new to the industry, and they certainly don’t leave in 12 months’ time – they stay long term.”
The failure to recruit and retain new brokers poses a big threat to the industry, but very few seem to be tackling these issues. So why is that?
“I think many people in our industry aren’t taking a long-term view on the issue and creating strategies to ensure the younger generation of brokers are coming through the ranks,” says Anthony Alabakov, CEO of My Mortgage Freedom in Melbourne.
The reluctance of brokerages to hire new recruits may also come from a fear a new recruit will gain the experience, walk out to start their own business and take the client book with them!
“It depends on the individual you’re hiring,” says Mr Condon. “If you’ve got someone who’s a really good operator and knows how to network and can write loans, there is a risk that once they do get up and running and you have given them the training, they can go out and do it for themselves.”
But Vow Financial CEO Tim Brown thinks that it is more about the time that they have to allocate to train someone new.
“The problem today is that almost 70 per cent of brokers are sole owner-operators, and it makes it very difficult to bring a new person into that environment when you’re a small business that has only one or two people,” he explains.
While Mr Woolnough reckons that brokers are reluctant to hire new recruits for parts of their business that aren’t as proficient or strong.
“When you get digital natives and digital youngsters into your business, essentially it then becomes a reverse-mentoring relationship where you need to learn from them to make sure that the decisions you make are the right ones. I think brokers might have a bit of a reluctance to hire in that sense,” he says.
So let’s imagine that the industry does end up failing to recruit enough new brokers in the future. How much and what sort of damage will it cause?
Loss of competition and quality
Sarah Wells, a broker at Perth’s Rate Detective Agency, believes it will make it a lot harder for one- or two-person brokerages to remain sustainable, and a lot of older brokers will be left wondering what to do with their books.
“I think older brokers who plan on living off their trail book for a period of time will suffer,” she says. “The issue at hand is how do you retain good talent now to stop brokers wanting to go out on their own and run small businesses.”
Mr Haron agrees with Ms Wells that the failure to bring in the next generation could have a detrimental effect on mortgage brokers and their businesses.
“There won’t be people to take over those businesses – there won’t be as much of a capacity for the sale of the business or for proper succession planning without bringing on future generations of brokers,” he says.
Mr White also believes the industry could lose its competitive edge and the levels of service it offers.
“If it weren’t for the non-bank sector and finance broking, we wouldn’t have the competitive industry that we do today,” he says.
“If you don’t have the sector live and fluid, the banks will fall back into dictating terms and doing what they want to do, and you won’t have people providing levels of service.”
Matthew Carr, director of MC Mortgage Solutions in Brisbane, believes non-bank lenders would be greatly affected if broker numbers continued to dry up.
“Non-bank lenders largely rely on mortgage brokers to originate their new business, and the consumer relies on the non-bank lenders to drive competition,” he explains. “Without mortgage brokers, choice and competition is likely to depart the market.”
Mr Condon says that by losing brokers and not replenishing them, the industry will also lose some of its professionalism and its ability to deliver the same outcomes.
“It might be better for some, given that the market share would be bigger, but ultimately as an industry, I don’t think it would improve our image at all,” he says.
Brokers must modernise
In order to minimise the damage, you have to look at it from the point of view of what consumers want. With a plethora of information at their fingertips and with the help of technology, customers are taking a more proactive approach toward financial matters.
“If we as an industry do not have the skill set and the people to be able to converse with the customers of not only today, but into the future, there could be a cleansing of the ranks in terms of those that can operate in a new and futuristic sense versus those that are stuck in old, traditional habits,” says Mr Woolnough.
And if the industry finds it tough to find new recruits, Mr Brown says that brokers may look to use the internet more instead of face-to-face service when it comes to operating their businesses.
“This could be a catastrophe because it means that brokers and clients will then make the shift to online a little earlier than anticipated,” he fears.
Crisis? What crisis?
Let’s be clear, it’s not all naysayers. Some are more optimistic about the future of the industry and believe that there is enough interest being expressed from outsiders.
Mr Naylor says the industry is seeing “seeds of green shoots of interest” from people wanting to be brokers who come from outside the industry.
“The good news is that we are attracting more and more talent to the industry, so I don’t believe we will fail,” says Mr Milburn. “That said, the pace of growth needs to increase, along with a firm strategy that addresses the many avenues of new talent and the continued championing of our industry at all levels.”
Where to now?
It is all well and good recognising that there’s a problem in the industry, but what can be done to solve it? And who should take action?
There is a misconception that the MFAA and FBAA should carry the burden of trying to attract and foster new broker talent.
Mr Haron says it annoys him if brokers turn around and say that is the industry bodies’ fault. “It’s not their (the associations’) responsibility. We are the industry, and it’s up to us to get out there and make it happen,” he says.
According to Mr Woolnough, an industry body should always promote the benefit of their industry, but the responsibility ultimately rests with the aggregators and business owners, as they’re the ones that have the resources and the capital to be able to bring on board new talent.
Mr Milburn thinks that everyone involved in the broking industry has a role to play in making it more attractive.
“There’s no silver bullet here. We need to work together across the industry to attract talent and not assume that one part of the industry carries the sole responsibility for doing this,” he says.
Cast the net wider
There’s a theory that broking is an unknown science to anyone outside of the industry, with brokers and aggregators calling for better promotion and education about the profession.
“A lot of people don’t know what brokers do and how we can assist, and unfortunately there are still some negative connotations attached to our industry,” says Mr Condon.
“Maybe as an industry we can advertise it a little bit more black and white so people can understand exactly what we deliver and the service offering we have.”
Mr Milburn believes the key is to promote the industry as dynamic, fast-paced and rewarding, and highlight the career opportunities that lie in the broker space. “I believe university open days and college career expos will also help open up interest,” he adds.
Mr McClure is also an advocate for educating and exposing the industry to people, and has already noticed results from doing so after manning a stand at a Melbourne career expo.
“I manned the stand for a few hours and we attracted interest from a reasonable number of people, but there needs to be more of that,” he says.
There is also the question of whether introducing specific courses or topics on mortgage broking to universities could increase the number of new brokers.
“The choice for most university graduates is ‘Which bank do I go to?’ Broking is not even considered,” says Mr Condon who, after university, initially took his finance degree to work at a bank. “It would be great to get those graduates before they decide to go into banking.”
And the universities don’t appear adverse to the idea of a broker course either.
Monash University’s finance program director, Dr John Vaz, says the university tries to anticipate the needs of the market in terms of where the regulators are taking things and what the professional bodies are demanding of graduates.
“If it’s something that comes out of the FSI, then it may be something that we look at, but we haven’t got it on our radar at this point in time,” he explains. “But that doesn’t mean that it doesn’t appear as something we need to look at.”
Associate professor Graham Partington, head of the finance discipline at the University of Sydney, says it is not impossible for mortgage broking to be introduced as a subject area in his university’s program.
“It would depend on whether we expand our area of teaching in banking, where mortgage broking could come in as a possible sub-topic under a banking major if we introduce one,” he says.
In a bid to attract more industry recruits, the FBAA developed a new student-based career path to become a finance broker in 2013.
In a previous interview with The Adviser, Mr White said that while mentoring, Certificate IV and diplomas are the traditional introductory steps into broking, these don’t stimulate someone into looking at making finance broking a career.
“The industry needs to step out of the shadows and be seen as exciting and prosperous,” he said. “We need to connect with young people when they are at high school and university and making decisions about their careers.”
Other industry organisations run internal training and mentor programs which aim to create and retain a new pool of diversified-focused brokers. Vow launched its Certificate IV course in Finance and Mortgage Broking in June. It runs for eight days rather than the standard three, and allows participants to better learn about the company’s diversified model.
“We also follow that up with mentoring,” says Mr Brown. “We’ve started to train our own mentors, and we have our own internal mentoring program.”
Salary: the ultimate yardstick
Ms Wells believes that brokers need to have a sustainable business model in order to attract, recruit, educate and retain.
“Recruitment is one issue, but providing a sustainable model where you can retain good talent is incredibly important,” she says. “I don’t think the industry has got the remuneration model quite right.”
Mr Carr recommends providing more certainty around the cash flow as a way of enticing new brokers to stay.
“With one of our brokers, we simply agreed to continue paying him the same salary he was receiving at the bank. Initially, this was a strain on our cash flow; however, over time it has proven to pay massive dividends,” he says.
How to spot talent
As is the case in any industry with recruitment issues, it needs to be ‘quality’ of brokers and not just ‘quantity’.
What are the skills needed to succeed? Is a finance background an advantage? Do you need to be young to succeed?
“You need to be organised, motivated, personable, good at listening, system and process driven, and be willing to work hard,” says Mr Alabakov.
Mr Condon says that while being young certainly helps in terms of energy levels, he believes older brokers have just as much chance of succeeding.
“The only way you can really succeed is if you have the right mindset and know what you need to do. If they know their stuff, they’re committed to it and they know how to network, then it doesn’t really matter what their age is,” he says.
A recruitment perspective: Hays regional director Nick Murphy
“Whether it be retail banking or broking firms, there is definitely an increased demand for new mortgage brokers. I think that probably goes hand in hand with the boom we’ve seen in lending over the last couple of years, as well as residential construction.
There’s definitely a big demand for brokers, and it’s an area with quite a candidate shortage.
Most of the brokers that we are placing are experienced and come from branch-based and mobile lending backgrounds. The people that are moving into broking roles tend to have worked within lending processing at a more junior level and have some sales experience.
Surprisingly, a lot of the banks tend to prefer candidates with less experience – one to two years maximum – and for that reason a lot of brokers are quite young.
Although we don’t discriminate on age, most of them would be in their 20s, and I think that’s because banks and lenders often find it easier to train new recruits from scratch rather than try to correct bad habits that they may have picked up in another role.
When it comes to attracting new brokers, I think it’s not so much about salary and more about the whole employment package – providing a work/ life balance, flexible work options, good quality training and devices that allow them to operate and interact on the go.
Broker Q & A: Australian Credit and Finance managing director David Hyman
We talk to young broker David Hyman about why he decided to join the industry and what he is doing to attract and retain new talent
What made you get into broking? What attracted you to the industry?
We set up the business specifically because we felt that there was an opportunity to bring in new types of personalities into mortgage broking.
We all come from diverse backgrounds outside of broking where we were all accustomed to the challenges of attracting large numbers of people to our industry and having a scaled support model to ensure success.
We noticed a lot of new entrants to the industry were being asked to invest a huge amount of money in building their advising businesses, but there wasn’t a lot of support surrounding that, so we saw a huge opportunity to build a centralised model with the support that young brokers need and bring some new blood into the industry.
What more can be done to bring in the new generation of brokers and make the industry more attractive? What strategies and initiatives has your organisation put in place to attract and train new brokers?
I think it’s all about having an overall structure that allows them to enter the industry and overcome the challenges that they typically face under the current model.
These include upfront costs, a lack of income over the first 12 months, a gap in broking knowledge and dealing with different scenarios, finding customers, and back-end operations.
The way our model fixes that is through a few avenues. Firstly, we run a large-scale, centralised, online marketing funnel which makes sure our brokers are always getting in front of new customers and are not having to rely on the traditional referral-based channels. Our new brokers go through our training academy, are fed leads to grow their pipeline and are supported by our back-office team to ensure they are settling deals as quickly as possible.
They are also mentored by our senior brokers, who run scenario workshops to improve their knowledge gap. The net result of this is that we can help new-to-industry brokers get up to critical mass in their first few months, and reduce the turnover of brokers in the critical first 12 months in the industry.