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Building a brokerage: The foundation

Building a brokerage: The foundation

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Building a brokerage from the ground up, like any business, is no easy feat. It holds plenty of promise and potential, but there are also challenges — expected and unexpected — that first-time brokerage founders will need to confront. Tas Bindi spoke to Australia’s top brokers about how they navigated their first year in business.

Loan Market broker Nelson Bedoya, director at Build Invest Grow Financial Group (BIG), admitted that starting a brokerage was one of the most daunting decisions he has ever made. He was comfortable working as a home loan specialist at a bank, but witnessing his parents’ struggles with purchasing property inspired him to build a business dedicated to helping Australians navigate the complexities of the home loan market.

He launched BIG from the corner of his bedroom in 2014 with a small budget but great faith that his approach to building and maintaining relationships will carry him forward.

The decision to launch a brokerage was also not easy for George Samios, director at Madd Loans. However, he said that looking his clients in the eye and saying, “This is the best deal for you”, when he was working for a bank was more difficult for him. So, after investigating the mortgage broker proposition, he realised that he could better advise his clients with complete confidence knowing that he has, in fact, found the best solution for them.

Thus, Mr Samios went all in, spending nearly all of the $40,000 he had in his savings account in the first two months. He leased an office, purchased furniture and technology, ordered business cards, set up a website and even secured a kiosk at a home show. He was a “one-man band” with a big business mindset.

On the other hand, for Adam Nelson, director at RateOne, the decision to start a full-fledged brokerage was a no-brainer, though he admitted that the execution was challenging. His journey began in 2009 after attending a Loan Market conference centred on business growth and diversification. For a while, Mr Nelson was sharing resources with another broker, including support staff and office space, until they decided to “go big and do it properly” rather than continue operating under a contractor model.

Meanwhile, Theo Chambers, chief executive at Shore Financial, knew from the start that he didn’t want to be a self-employed solo broker, but he admitted that he probably would’ve never started his own brokerage if he hadn’t secured a 15-year exclusivity agreement with Richardson & Wrench’s real estate network nationwide. The agreement allowed Shore Financial to start off on the right foot. The company’s proposition was more compelling with a big name behind it.

All of these brokers are thriving today, but their entrepreneurial journeys did not unfold without challenges and surprises.

Choosing the right aggregator

When it came to selecting an aggregator, the terms and conditions for being a member of an aggregator group was one of the main deciding factors for Mr Samios.

He had met with three aggregators, one of whom he felt was “too institutionalised”. There were a number of constraints written into the aggregator’s contract, such as the minimum value of home loans to be settled per month.

Under the terms of the contract, if the broker had failed to meet their minimum monthly loan volume, the aggregator would be within its rights to withhold the broker’s commission.

Additionally, the contract specified that a certain percentage of the volume had to be aggregator-packaged home loans.

“As a broker, I should be giving my clients the best loan for them, not the best loan for the aggregator,” the Madd Loans director said.

Mr Samios admitted that he, as a young 23-year-old broker, hadn’t picked up on these terms in the contract until he sought advice from a lawyer.

“You need to think about the future and make sure that you can sell your trail book to another aggregator or anyone else in the industry when you retire. There are [some aggregators] that don’t let you do that,” Mr Samios said.

The Madd Loans director said that he “felt very comfortable” when he met with Connective’s state manager.

“There weren’t any red flags in their contract,” the director noted.

“They also have a good CRM. Coming from banks, a lot of people who have become mortgage brokers don’t really understand how important the CRM is. In the mortgage industry, without a good CRM, you can’t write big numbers. So, you have to think about whether the technology the aggregator provides will actually make [your] life easier as a broker.”

RateOne’s Mr Nelson said that he was initially drawn to Loan Market because of certain contractual terms that made it attractive for him and his business partners to build out their team, but when they changed their terms, he had to reconsider.

“The way that we were rewarding our brokers, it essentially made it untenable to stay with Loan Market under the pay scale that they were proposing. We were well and truly up and running as a business at that stage,” the RateOne director said. Hence, the broker moved to Choice.

But for Mr Nelson, it was the additional support that Loan Market could provide — not just access to its lender panel — that was especially important when it came to selecting the aggregator.

He explained: “I know there are other aggregation systems that pay more money, but [Loan Market] has a very good support network. There have been times when I was stressed out thinking about where I could take [the business] next and I had someone who spent a lot of time with me helping me grow my business and run through my ideas.

“Having someone show me the bigger picture is more important to me than someone who is going to pay me a lot more for every transaction. It’s all about value- add.”

Mr Chambers believes that choosing an aggregator is “quite minute in the bigger scheme of things”, especially when you’re trying to get a business off the ground. “We didn’t do too much research into aggregator alternatives when we started because we didn’t want the distraction of swapping aggregators while starting a business,” the Shore Financial CEO said.

“We were already with [Australian Finance Group] in our previous broking businesses and were well established with our own processes using their systems… We chose to stay with AFG because we had a good relationship with them.

“At the end of the day, an aggregator is a software business. They’re just trying to make sure their software is great. So, I don’t think that’s going to be the ‘make or break’ in terms of establishment.” Mr Chambers did, however, concede that it would be worthwhile for a broker to shop around to find a suitable aggregator as their offerings are continuously changing.

Generating leads through partnerships

The brokerage founders largely agreed that one of the most effective and least expensive ways to generate leads in the early days is by building relationships, especially as it can be unfeasible to allocate funds to advertising and marketing activities when a business has limited or no cash flow.

Mr Samios, for instance, attended open house inspections every Saturday from 9am to 4pm, connecting with potential clients and referral partners. He was focused on building mutually beneficial synergistic partnerships with professionals such as accountants, financial planners, insurance brokers, lawyers and real estate agents.

However, six years later, Mr Samios said that this became his biggest referral source: his clients.

“If I had known how to treat my clients from day one, I would have been more successful faster… When you see [prospective clients], you need to really sit with them, find out their goals and explain the whole mortgage application process as simply as possible,” the Madd Loans director said.

“Because I came from a mobile lender role, I thought I could drive to people. As I got more experience, I realised that this is actually the worst thing you can do. You need to get the client to come to your office and you need to have a whiteboard and explain everything in a 45-minute presentation.” Mr Bedoya similarly focused on building relationships, which he considers his biggest strength.

He said: “I consider myself very good at building relationships to the point where [my clients and I] talk about day-to-day stuff, how their weekend went… I even play soccer with some of my clients.” In the first stage of his entrepreneurial journey, the BIG director created a list of prospective clients — sourcing them from his personal network — and started targeting them from day one.

“You can’t walk in on your first day and say, ‘Hey, I’m a mortgage broker’, and expect people to approach you. You need to build trust,” Mr Bedoya said. “If you’re getting people to reveal financial information and their whole private lives to you, you need to make sure they trust you.”

Sharing the same sentiment, Mr Chambers said: “I feel that people want to be able to have some confidence in who they’re dealing with… I think you need to have some credibility behind you, even in the form of experience in the industry or [connection to] a brand that’s got some awareness.”

According to the Shore Financial director, having an affiliation with a nationwide real estate network gave his brokerage credibility.

Mr Chambers said: “You’re more likely to get in the door, have someone to hear you out on the phone and listen to what you have to say about your services. If you don’t have a recognised brand behind you, you’ve just got to build one-on-one relationships with people and build their confidence [in you] through your performance and [quality of ] service so that they’re comfortable referring you.”

Mr Bedoya’s ability to forge close relationships proved to be fruitful when it came to acquiring customers and referral partners — and not just in the first year. Today, Mr Bedoya proudly claims that 93 per cent of his business is driven by word-of-mouth referrals.

“My whole philosophy has been if I can build my word-of-mouth business and create a reliable source of referral networks that way, everything else that I add on top of that is just a bonus,” the BIG director said.

Not only has his clients referred other customers to BIG, they also helped him build his network of referral partners, which includes accountants and real estate agents.

“All of the referral partners I’ve had are purely because I had been referred to them by my clients,” Mr Bedoya said. “I have a method of keeping people involved in what’s happening… If there’s a purchase, I make sure that I call the real estate agent every single time, saying, ‘Hey, I’m just introducing myself and letting you know that I’m going to be assisting you with so-and-so’s purchase’. I keep them updated, too.

“I know of a lot of people who forget to update the real estate agent because they don’t see [them] as a key part of the process. For me, everyone is a key part of the process.”

According to Mr Nelson, the first step to building sustainable referral partnerships is understanding what is important to the prospective partner.

“You need to understand what floats their boat, and more often than not, it’s actually not money. If it is, it is not a sustainable referral relationship,” the RateOne director said.

“When you think about what’s important to real estate agents, it’s listing opportunities, appraisal opportunities. Accountants are usually looking for self-employed clients that they’ll be able to nurture over a long period of time. For financial planners, it is going to be opportunities to [provide advice] around risk cover, SMSF, that kind of thing.

“You need to find out what’s important to them and have the belief that you have to give before you’re going to get.”

Aggregator Q&A

Mark Haron, director at Connective, shares his advice for brokers just starting up.

What things should brokers have in place before starting a brokerage?

Brokers need to have a business plan and test it with somebody in the industry to see if the numbers are realistic, especially because in the first six months, they won’t earn much in the way of commissions.

They also need a good aggregator to support them, but more crucially, they need a mentor or trainer. It’s starting to become an industry requirement from lenders and aggregators because we’ve unfortunately seen poor retention of new-to-industry brokers — around 50 per cent are actually making it. The success rate increases to 75 per cent to 80 per cent when someone starts with a mentor.

In most cases, it will cost money to have a professional mentor, but clearly from a statistical point of view, it’s worth every cent, because it means the difference between success and failure. With in-house mentoring arrangements, where the broker is mentored within the business or aggregator they’re joining, the fee is usually a percentage of the broker’s commission. With professional mentorship service providers, you’re paying between $300 and $600 a month. They usually have two-year contracts because it’s a two-year mentoring process.

What should a new broker look for in an aggregator?

They need to make sure, before rushing into any relationship, that the aggregator offering and business model fit in with their own business plan and aspirations. The other important thing to do is get the aggregator agreement reviewed by a solicitor and highlight any clauses that could be problematic down the track, such as clauses that lock the broker in. Don’t just take the aggregator BDM’s word on things. Look into the agreement, and make sure that what they’re saying is backed up by what is actually in the agreement.

How can brokers future-proof their brokerage?

Building a sustainable referral network is key because a majority of brokerages depend on repeat and referral business — that is, happy customers referring new customers and existing customers coming back. But that doesn’t start to kick in until after 18 months or two years. If you do the right thing by a customer, you’ll start getting enquiries. The initial phase is about figuring out where those initial enquiries and leads are going to come from and how realistic they are.

Broker Insights

Damien Roylance from two-year-old firm Entourage Finance shares his top tips on starting a brokerage.

When it comes to selecting an aggregator, Mr Roylance suggested choosing a business “that will treat you as a partner, not dictate their terms on you”.

“You need to carefully look at their agreement and ensure the commission splits and fees are going to suit you during your start-up phase and be able to support you as your business grows,” the Entourage Finance director said.

Mr Roylance recommended taking a “client for life” approach with every client.

“Look past the transaction and potential income attached to it and think about how you will be able to help that individual across their lifetime. The long game is going to serve both you and the client in the long term.”

Establishing strong referral partnerships is also key to building a successful brokerage, according to Mr Roylance, who uses LinkedIn and door-to-door to nurture those partnerships.

“Happy customers and referrers are always happy to do the hard work introducing you to people they know if you’ve put in the effort to help them,” Mr Roylance said.

Given how competitive the broking industry is, the director said that brokers need to identify ways to stand out from the crowd.

“Do something that no one else is doing — whether that be events, social media or sponsorships… If you are coming in new, feel free to try things that others aren’t.

“I’m very passionate about trying new things, giving different systems a go and either embracing or rejecting them within our process. I’ve spent money on marketing that weren’t as effective as I hoped, but I don’t regret it as I was experimenting and a lot of things I have done has worked.”

Building a brokerage: The foundation
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Tas Bindi

Tas Bindi

Tas Bindi is the features editor with The Adviser magazine, Australia’s leading magazine for mortgage brokers. She writes about the mortgage broking industry, fintech, financial regulation, and mortgage market trends.  

Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business. 

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