In the first instalment of the two-part Building a Brokerage feature, The Adviser finds out what is involved in opening a franchise office, the opportunities and challenges brokers can expect along the way, and top tips for those thinking about joining a major broking franchise.
Becoming a business owner is a major attraction for those joining the broking industry. While some brokers choose to go down the independent route (stay tuned for the second part of the Building a Brokerage feature in The Adviser magazine for more on this option), others look to leverage the expertise and business models of existing brands by buying into a franchise.
In the mortgage broking space, there are several major brokerage brands that offer franchise opportunities, including Aussie, Mortgage Choice, Smartline, Yellow Brick Road and Loan Market.
Several franchise brokers have told us that they were drawn to the franchise model because it allowed them to “just plug and play” and begin operating and managing their business while receiving hands-on support from their brokerage brand, whether that be assistance with staff recruitment, marketing strategies, and implementation of systems and processes, including compliance with best interests duty (see page 38 for firsthand perspectives on becoming a major brokerage franchisee).
Franchisees can operate as a one-man band operating from a business of their own location (such as a home office) or open shopfronts with several employees.
While becoming a franchise broker usually means taking on the colours and systems of the head group, it doesn’t mean giving up their sense of independence, according to Sam Boer, CEO of REA Group-owned franchise broking group Smartline.
Speaking to The Adviser, Mr Boer explains: “Brokers can be their own boss and create their own business model and work culture, as long as it is within our agreement.
“There are also low barriers to entry to becoming a franchisee, as the business has low start-up costs and overheads,” he adds.
Mr Boer says that becoming a franchise broker also helps brokers build a valuable, saleable asset.
The ability to grow an asset is a sentiment that Mortgage Choice’s general manager, broker and wealth management distribution, David Zammit, echoes.
According to Mr Zammit, franchise brokers often find that after opening one franchise office, they then see the benefit – and have the financial freedom – to acquire more franchises, which can help them “progress into new marketing areas” and create a succession plan for the business.
“You have the opportunity to build a legacy business where the second or third generation of your family can come through and take over the business that you built,” he tells The Adviser, noting that figures from the Australian Small Business and Family Enterprise Ombudsman’s (ASBFEO) Small Business Counts December 2020 study found that two in three businesses (66 per cent) survive for more than five years, while this figure jumps to 82 per cent for businesses with five to 19 employees.
Indeed, Australian franchises are a large part of the Australian economy, contributing nearly 10 per cent of Australia’s gross domestic product.
“So, it’s worth working through what can seem like a roller-coaster ride at the beginning,” Mr Zammit reasons.
Things to think about
The path to building any brokerage business is often laden with challenges, and Mr Boer cautions that new-to-industry brokers – regardless of whether they are joining a franchise – should be aware that it can take time before income starts flowing in.
Indeed, Mr Boer cautions new brokers that the first year after setting up shop can be particularly difficult, as brokers need to build their presence and gain a comprehensive understanding of legislation and compliance requirements.
“You’ll need to work long hours to build up your network and your business. You typically won’t see much income within the first six to 12 months,” he warns, highlighting that even after lodging their first loan with a lender, settlement periods are usually between one and three months, and upfront commission is only paid after the loan settles.
Like joining any aggregation group for the first time, getting to understand how the model works, the structure of the commission packages, and the contractual agreements in place (for example, understanding trail agreement/commission structures and who “owns” the client etc) is an important step for a franchisee to consider. So, too, is the ability to receive leads and generate new business. This can help franchise brokers forecast how much they can expect to earn and how they can build value in their business.
Indeed, the cost of setting up a broking franchise is also an important point to consider. While costs differ depending on the model that brokers choose (for example, the cost of a shopfront greatly adds to the cost of being a brand-new franchise broker with no client database), the cost of setting up a franchise brokerage can range from several thousand dollars to tens of thousands, to over a hundred thousand dollars.
Generally, the cost of setting up a mortgage broker franchise can start from around $30,000 – but each group has its own set-up costs and models that need to be considered.
Moreover, franchises also frequently offer deals. For example, last year, Mortgage Choice launched a new franchise package of $8,400 for brokers joining the Mortgage Choice brand – regardless of whether they are a storefront owner or a broker working from home.
The package covered initial marketing (for example, setting up business websites, social media, Google optimisation), local area marketing, business stationery and business management and training.
For brokers looking to open a shopfront, the cost of the property (rent, taxes etc) can push those costs up to hundreds of thousands of dollars (turn to page 38 to find out more).
Location, location, location
According to Aussie’s chief sales and distribution officer, Brad Cramb, one of the steps that any broker should consider before opening a business is to understand where their clients will come from and what footfall will be like if they’re opening a storefront.
He reveals that Aussie’s franchise territories are established to ensure that demand is present when a franchise opens its doors – for example, by considering factors such as population growth and developments, population density and the number of employees.
“We also look at the match-fit of the local area to Aussie’s traditional target market, options for shopping strips or centres, market size dollars per square kilometre in the region, and market activity,” Mr Cramb says.
For brokers who wish to open a franchise, their first point of enquiry is usually through a local growth/area manager to walk through business goals and ambitions.
Following an initial meeting to establish the broker’s qualifications and goals and identify opportunities of interest, the major brokerage usually then engages a network development manager to work with the local support team, existing franchisees and the broker to provide guidance in creating an application.
Mr Cramb says that in addition to outlining industry memberships and qualifications, all new franchise applications would be required to include an application summary outlining a comprehensive business plan, cash flow modelling, credit and criminal background checks, and an interview process.
“Once approved, our specialist team provides support by finding possible site locations, landlord negotiations, onboarding, building a team, local area marketing plans and accreditations (if required),” Mr Cramb reveals.
“Our goal is to ensure our franchisees are empowered with information and actions to look forward to their next five, 10 and 15 years with Aussie,” he adds.
Mr Cramb says that Aussie will also support new franchisees with locating a site, lease negotiation, store design, as well as on-the-ground support in the first 12 months, adding that the brokerage has an offer where it will provide a $30,000 store-fit contribution for franchisees.
While it is difficult to project the length of time required to establish a brokerage (as this is dependent on various factors, including broker goals, current circumstances, site availability, territory opportunity [new or existing], location and construction etc), both Aussie and Mortgage Choice suggest that franchisees can establish their franchise office within one to three months, with most typically taking 10-12 weeks.
Other factors that may influence the time taken to open a franchise office is the level of qualification that a broker already has. Mr Boer says that all franchisees without lending experience would receive training and mentorship, but adds that it would take brokers without the experience longer to hone their skills.
Mr Zammit outlines that new-to-industry brokers will need to complete their accelerated Certificate IV in Finance and Mortgage Broking, following which, they could be operational within four to six weeks.
Under the Mortgage Choice model, brokers must then update their certificate qualifications to a diploma within their first 12 months of joining Mortgage Choice, with Mr Zammit stating that the course can be incorporated into a broker’s joining package as a new franchisee.
“Before you open your brokerage, you will also have to become a member of the Mortgage & Finance Association of Australia (MFAA) and the Australian Financial Complaints Authority (AFCA), as well as have the correct franchise insurances, finances and business plans in place,” he notes, adding that the major brokerage will also assist brokers with accreditations and training on lender expectations to ensure that the business is compliant.
One of the benefits of joining a major franchise broking brand is the ability to connect with fellow franchise owners and share learnings. The major franchise brokerages all provide case studies and networking opportunities with existing franchise owners, and recommend that brokers get to know existing franchisees in their local areas.
Furthermore, franchise brokerages will offer mentoring and franchise development programs, too.
Mr Zammit states: “Concurrently, our franchise business managers in each state will assist in the execution of [a broker’s] marketing and business plans, and beyond that, there is training to scale up from a beginner to master throughout the entire life cycle of owning a franchise.”
Similarly, Mr Cramb notes that Aussie provides continuous support to its broker franchisees for the “lifetime of the business, tailored to suit the franchisee and their growth needs”.
It’s all in the mind
Above all, however, Mr Zammit says that brokers wishing to open a franchise should have the “right attitude” and “mindset”.
Smartline’s Mr Boer expresses similar sentiments, stating that while lending or finance industry experience would serve as an advantage, it is not essential.
He says: “We can provide training, mentoring and development opportunities for motivated and capable individuals.
“However, a strong work ethic, the desire to learn, and willingness to build a business from the ground up is critical. You should have the right temperament and personal skills to be a broker.”
Mr Boer suggests that the key skills required include: good analytical skills, an affinity with numbers and the ability to problem-solve.
“Advisers also need to be good with people and have high level communication and negotiating skills.
“Other highly regarded attributes include good organisational skills and attention to detail, patience and empathy,” he adds.
Several franchise groups are set to grow in size this year, which could bring in more opportunities and support for brokers.
For example, Mortgage Choice has more than 500 brokers and 380 franchises across Australia, but this could increase to over 900 brokers if the proposed acquisition by REA Group (as announced in March 2021) gains all relevant approvals and eventuates.
With the acquisition, the group would add the Mortgage Choice enterprise to its global operation, which already includes the brokerage brand Smartline.
Another major brokerage that is due to take a new direction is Aussie Home Loans, with its parent company, the Commonwealth Bank of Australia, announcing in 2020 that it had entered into an agreement to merge Aussie with online brokerage Lendi.
The proposed transaction – which is expected to complete mid-2021 – would combine Aussie’s brand and its broker and franchisee network with the digital technology of Lendi. Indeed, Aussie has said that the move could help drastically increase its number of brokers.
In March, Aussie announced plans to increase the number of its stores across Australia by 24 stores this calendar year, taking the total number of Aussie stores to a total of 244. The franchise group is seeking to reach a total of 300 stores and 1,200 brokers by 2023.
Top tips on becoming a franchise broker
“Be accountable, dream big and take advantage of every opportunity. Join a business that means business – leverage best practice, utilise brand, digital and support functions. Finally, don’t stop scaling.”
- Brad Cramb, chief sales and distribution officer, Aussie
“Understand what your value proposition will be as a franchisee and what you can bring to the Mortgage Choice network. Be part of a strong community of like-minded business owners who have walked the path you are setting out on and lean on their experience. And remember that growth is the oxygen to your business.”
- David Zammit, general manager broker and wealth management distribution, Mortgage Choice
“Prepare and get on board mentally and financially. You should ensure you have the cash reserves – or family support – to get through the first six to 12 months without much income. Be proactive and build your database. Hit the ground running by getting all your potential referral sources together on a database.”
- Sam Boer, CEO, Smartline
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.
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