What’s a bigger threat to your business – artificial intelligence or rogue operators who tarnish the reputation of the industry? And what other challenges and threats are around the corner? The Adviser investigates what’s in store for the broker of tomorrow, and how aggregators will help you thrive in the new world
When you’re thinking about switching aggregators, it’s easy to get caught up in the opportunities – and the challenges – of the here and now.
How much more money could I be earning each month if I had a more competitive commission agreement? How difficult is it going to be to take my trail with me? How can I make sure I get the most out of my potential new aggregator’s offering? What did I even agree to when I signed my contract with my current group? Is the grass really greener on the other side?
Just as placing a client into a loan isn’t simply about the coming three months or even the next couple of years, but is instead a process of setting them on a path to financial freedom, home ownership and wealth creation – switching aggregators isn’t just about the immediate benefits and rewards.
Brokers looking to switch groups need to look at what’s around the corner – for their business, for the aggregation model they’re switching to and for the third-party distribution channel as a whole.
In 2016, brokers looking beyond the immediate future face an almost contradictory set of circumstances.
On the one hand, broker market share has surpassed the previously elusive 50 per cent mark, and many believe it’s on track to soar beyond 60 per cent as borrowers and banks recognise the value proposition offered by third-party operators. In addition, broking businesses are now often sophisticated operations headed by highly-skilled financial professionals. And there are fewer “cowboys” and “sharks” circulating in the industry. Despite talk of a bubble for more than a decade, Australia still believes in property as a means to create stable and sustainable wealth – and we’re yet to see a ‘pop’ or ‘crash’ beyond some isolated markets, such as those found in mining-reliant regions.
On the other hand, there are significant changes facing service-based industries across the world economy that cannot be ignored – and a few potential challenges closer to home as well.
Online lenders, comparison websites and artificial intelligence are only going to become more sophisticated and who knows what else could be around the corner? It wasn’t so many years ago that the thought of being able to conduct all your property and finance research from a small device in your hand as you travel to work on the train would have been ludicrous. And the prospect of Microsoft’s foray into displaying its artificial intelligence capabilities with a ‘chatbot’ on Twitter would have seemed like the beginning of a robot-based disaster movie from the 1990s. Instead, it was just another PR disaster in the age of innovation, technological changes and the battle for people’s attention.
These innovations are now just all part and parcel of 2016. We expect advances in technology almost every day. Our smartphones seem to regularly updating their operating systems and apps constantly have a new version available. Innovation, fintech, disruption and the closure of traditional companies are a daily occurrence.
Then there’s the more immediate, and possibly more tedious, challenges. The regulator is looking into brokers’ remuneration model after the federal government asked them to determine the effect of current remuneration structures on consumer outcomes.
This review isn’t just about how you are paid – aggregators, their ownership structures, white-label offerings and how you discuss these intricate details with your clients will likely come under the microscope as well.
What does this all mean for you? Does your current aggregator have the innovation, business clout and future-proofing necessary to survive in the changing market? If you’re looking to switch groups, how can you find one that will help set you and your clients up for long-term success?
Surviving beyond 2016
Despite the vast array of potential threats on the horizon, Choice Aggregation’s CEO Stephen Moore believes one of the biggest challenges for brokers looking to survive and thrive beyond 2016 will be people and their changing benchmarks – rather than any sci-fi inspired new competitor.
“Customers are increasingly recognising the value a broker can bring and we’ve seen that as the industry’s share of the home loan pie has grown,” Mr Moore says. “This places brokers in great stead for the future. The challenge will be rising to meet the increasing expectations of customers. As an industry we all need to continue to raise the bar and keep ahead of customer expectations.”
Mr Moore has strong faith in the ‘human’ appeal of brokers and says technology isn’t going to make them redundant.
“Digital and social will certainly continue to change the industry. For brokers it’s going to be critical to embrace technology, not to fear it. But remember that technology cannot replace the human element. Success will come from marrying the digital world with high-quality personal interaction.
“I expect to see increasing focus on our industry, as we continue to grow our share of the home loan market. As brokers come to be seen as leaders in this market, it will be important to act as leaders. And this will mean focusing on high-quality advice and best practice.”
Finsure’s managing director John Kolenda, however, warns that brokers will need to step up as stiffer competition and higher expectations put pressure on the broker proposition.
“More of the same competition is guaranteed and increased market share penetration from online lenders is virtually assured,” Mr Kolenda says. “Lenders have recognised that the third-party channel is a cost-efficient and valuable distribution channel relative to branch networks. However, the standard of [broker-originated] loan application packaging continues to be problematic for lenders.
“This area will receive increased scrutiny from lenders in an attempt to improve process efficiencies and cost savings. Historically they have aligned commissions and/or turnaround times as leverage to improve the standard of loan applications.”
To tackle this increased scrutiny and changing expectations, brokers are going to have to adapt their business models and learn to better cater to Generation Y, according to Mr Kolenda.
He says the value of the internet and social media will continue to strengthen – and will transition from being a leads and education-based tool to being a place where people can lodge loans without the assistance of a third-party operator.
“Gen Ys and Zs who are very comfortable interacting via social media will soon become borrowers who will be relaxed to apply for a mortgage over the internet after doing their research through social media,” Mr Kolenda says.
“Brokers will need to be a ‘change agent’ and embrace these mediums to generate leads, retain clients and compete. Brokers can no longer be a ‘transactional, set-and-forget operator’ – but a service-orientated, client-for-life broker. Nurturing a client through multiple service solutions will not only deepen the relationship but ensure relevance over the long term.”
The changes and challenges don’t stop there.
“Online lenders will continue to increase market presence,” Mr Kolenda says. “If brokers don’t embrace internet and social media in the mortgage space, they face the possibility of being locked out of a significant segment of the market, particularly if they do not adopt a strong online presence within five years.
“We are also likely to see the emergence of large consumer brands into the mortgage space in the near future from companies with significant client databases – such as Coles, Woolworths and Google.
“Brokers need to ask themselves, ‘What will their 2020 customers look like?’
“We believe they will have an instant focus and demands – that is, they will want everything immediately, available through their smartphones. They will have a high propensity to give instant feedback via social media (i.e. complaints).”
Connective’s director Mark Haron believes that in order to overcome the challenges presented by the changing marketplace, brokers need to make sure they have a high standing in the community, and in the eyes of governments and regulators.
“The biggest threat to brokers are brokers themselves,” Mr Haron says. “To continue to grow we need to continue to be trusted by customers. Every time a broker doesn’t complete their compliance obligations properly, puts a customer into a product because of an inducement that is not disclosed or blatantly does something fraudulent, we decrease the trust of the community.
“As an industry, I think we can be very proud of what we do and we need to keep an eye out for each other. If you feel one of your colleagues is not doing the right thing, speak to them or your aggregator or industry body.”
Switching for the future
With so many changes all but guaranteed, brokers who are looking to switch groups need to look beyond the here and now – but what are Australia’s aggregators doing to help them prepare for the challenges ahead?
Mr Moore says brokers should not be intimidated by the future, and should find an aggregation partner who will help them prepare and thrive.
“There has never been a more exciting time to join the mortgage broking industry,” he says. “Brokers’ share of the home loan market has firmly passed the 50 per cent mark and the broker proposition is stronger than ever, as brokers help borrowers navigate the increasingly complex home loan market.
“We are committed to supporting our brokers adapt to changes in the market and rise to the challenges it presents head-on. This means continuing to invest in our team, our support services, our technology and our professional development program.”
Astute Financial’s head of sales Nathan Kerr says preparing for the future is all about diversifying your revenue streams to ensure your business is sustainable and appealing to tomorrow’s client – something he says the aggregator can help brokers to navigate.
“The Astute business is built around ensuring our members are able to position themselves as the centre of their customer’s financial world. We believe that by diversifying the services that brokers are able to offer their clients, not only is there potential to increase revenues, but also importantly, potentially shield the broker’s business from changes that will inevitably occur from time to time.”
Vow Financial’s general manager Leighton King says switching for the future isn’t necessarily about crystal ball gazing. Instead, brokers should focus on finding a partner who has their best interests at the forefront of their offering.
“It’s about having an aggregator that has a ‘drop everything’ approach to ensure that we provide our brokers with the highest levels of support,” Mr King says.
“Aggregators often think of brokers as just another number – not with Vow. We are in true partnership with our brokers and are willing to jump into bat for them when required.”
Preparing for the unknown
The most difficult part about discussing the future of aggregation is that there are so many unknowns. How can the third-party distribution channel prepare for a threat that may not even exist yet? How can you future-proof your business when no one is entirely sure what the future will entail?
This is why choosing the best aggregator for you and your business is so crucial. Facing an uncertain and possibly unpredictable future without the right business partner will only make things harder.
“Brokers who don’t have an aggregation partner that will support and equip them to innovate and run an efficient business will face significant challenges,” Mr Moore says. “As the standard of broking continues to rise, those brokers who don’t move with the market will be left behind. Brokers want to ensure that they are with an aggregator that has the financial means to evolve their aggregator support model well into the future.”
He says Choice is ready for the challenges of the future.
“Choice is always thinking ahead about how we need to adapt our businesses to cater to the changing needs of our brokers,” Mr Moore says. “We are committed to helping brokers continue to succeed with focus on high-quality business processes and service, and providing opportunities for brokers to share best practice business strategies with each other.”
Mr Kolenda says far from becoming extinct, the aggregation model will only become increasingly relevant as more competitors and threats emerge. Brokers just need to make sure they’re partnered with the right group.
“The potential for regulatory change will result in all brokers having to sell a suite of products, not just residential mortgages,” he says.
“Furthermore, as the online space matures, single broker operators simply won’t have the resources to compete with large internet lenders, and as a result will rely on the scale of intermediaries, like aggregators, to assist them. Brokers need to look at choosing partners that will allow them not only to compete, but excel over the long term.”
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