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Building a Brokerage: Opening an independent brokerage

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Malavika Santhebennur 12 minute read

In the second instalment of the two-part Building a Brokerage feature, The Adviser explores what is entailed in opening an independent brokerage and top tips from brokers who have done it.

In the first instalment of the Building a Brokerage feature series, we took a look at how franchise brokerages can offer brokers the total package when it comes to setting up a business (see the May 2021 edition of The Adviser magazine for more).

But, as many brokers are first drawn to the broking industry because they want to own and operate their own business, others wish to put their own stamp on their offering.

Some brokers choose to launch their own independent brokerages because they want to form their own signature brand, create their own systems and processes, and craft their own style of broking. As the name suggests, they enjoy the independence of creating and running their own business, however they like.

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While some prefer to chart this route after gaining some broker experience, others begin their broking career by establishing their own business.

Perth-based broker and Inca Mortgage Solutions owner Amy Ferguson first became a broker around five years ago and immediately established her own business instead of joining an established franchise or brand.

Speaking on The Adviser’s Elite Broker podcast (recorded live in Perth where she was crowned Best Newcomer for WA at the 2021 Better Business Awards), she explained: “I decided that I would start my own brand straight up from the word go because I thought, ‘You might as well start as you mean to continue rather than swapping down the track and losing trail and things like that’.

“So, I was fortunate. I started straight up as my own sole broker business under my own brand.”

Several brokers have told The Adviser that they enjoy the flexibility that owning and running their own business offers them, particularly those with young children. Non-franchise brokers have the liberty to work from home, or in an office, or even remotely, and determine their own working hours. This can be attractive to those who wish to juggle the business with family commitments and establish a work/life balance to suit their requirements.

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Establishing an independent brokerage can be overwhelming, but brokers do not have to go it alone. While having a mentor is compulsory for new brokers in their first two years of broking, brokers like Ms Ferguson (who met her mentor through her personal network) have continued to lean on their mentors while operating their business.

Choosing a business structure

Brokers have to make several choices when establishing their brokerage. For example, they would have to choose a business structure that would not only suit their current circumstances, but the evolving business over time. This would require vision and foresight into how a business might perform in the future.

While some brokers may choose to operate as a sole trader (especially in the initial stages of their career, when they’re not bringing in any income while loans wait to settle), others may opt for a partnership with another broker and combine resources, capital and skills to build the business together.

More established businesses with increased turnover may opt for a company business structure because it could provide asset protection and lower company tax rates (compared with the personal tax rate applicable to sole traders).

While independent brokers working as sole traders have the benefit of flexibility and their own strategy, the downside is that they are responsible for every part of the business. An independent broker has to perform multiple functions while being a business owner, including client-facing brokering, loan processing and administration. However, as the business becomes more established and the client base begins to grow, some brokers then look to recruit additional staff (for example, administrative staff to oversee backend operations, client service managers or more brokers) who can tend to the growing client base.

Brokers also need to consider how they are going to generate leads to build their loan book and grow revenue within their business (and eventually create profits). While franchise brokerages benefit from store presence and brand recognition, independent brokers often need to work a little harder to create leads.

They can generate leads through word of mouth; referral partnerships with accountants, financial planners, real estate agents and property developers; and marketing strategies such as social media posts and content creation to attract new clients. But, without someone with experience to guide them and provide these contacts, it can be hard graft. In many instances, aggregators are able to support brokers in coming up with these strategies.

Zeroing in on an aggregator

In fact, choosing an aggregator may be one of the most crucial decisions an independent broker has to make. Many brokers assess their requirements and consider several factors when choosing the business they would like to partner with, including the culture, lender panel selection, compliance support, CRM systems and processes support, and the technological tools on offer.

Brisbane-based mortgage broker and Woodrow Finance director Daniel Woodrow, who aggregates with Purple Circle, told The Adviser that choosing an aggregator whose vision aligns with your own and is able to modify their offerings according to the broker’s needs is crucial.

He said: “For me, because I’m writing high volume, I needed to have the appropriate software in place that allows me to do that.

“If you’re an independent broker and you’re not used to a process, having that system that has an inbuilt process, or allows you to create one, is really powerful. This allows you to write high volume. Purple Circle has listened to their brokers and changed over their software (to Salestrekker) to allow their brokers to access the best technology.”

Wanting access to better software also motivated Ms Ferguson to change her aggregator. She switched to Finsure about a year after she established her business because she found that she was doubling up on data entry, she said.

“At the time, the software I was using wasn’t pushing through very well to a client line. There was a lot of data that I had to re-enter… That was a lot of extra work,” she said.

Hobart-based mortgage broker and Derwent Finance director Emmanuel Marios – who established his brokerage in 2017 – first began aggregating with eChoice. While he told The Adviser that he initially contemplated becoming a branded broker under eChoice, he eventually decided on the independent route instead.

He said: “I was leaning towards operating under their brand because everything was there, ready for me. But my mind said ‘no’; nobody knew about me and that I was in the industry. So, that was a really good time to get the ball rolling and start the brand [Derwent Finance] from scratch.”

Mr Marios added that he thought it was important that brokers chose aggregators that had a lender panel that suited him. Indeed, he revealed that he changed aggregators (to outsource Financial) when eChoice stopped offering certain lenders on its panel, particularly Tasmanian-based lender MyState Bank, which many of his clients used.

Mr Marios said that a strong mentorship program, the provision of webinars and accessibility were also top of his wish list when he was choosing an aggregator, adding the fact that outsource Financial is independently owned was also appealing.

“We’re in Tasmania, so our state is pretty unknown in the mortgage industry and with aggregators, but our aggregator actually comes to Hobart quite often to see us and provide us with general advice,” he said.

Let the money do the talking

In addition to the software and mentorship, brokers must also consider the payment models when choosing an aggregator.

Brokers could opt for a commission-split model with their aggregator, which would mean that they have to pay some of their income back to the aggregator, or they could choose to keep all of their upfront and trail commission and pay a higher fee to their aggregator.

Some aggregators offer brokers the option of either. They might be able to pay a monthly fee and keep 100 per cent of their upfront and trail commission, or split their commissions (typically on a sliding scale) so that they can retain higher commission as their loan volumes increase.

The costs of running a brokerage

Other than the payments model, there are additional costs for brokers to consider when opening their own brokerage, including regulatory, compliance and overhead costs.

At the outset, the costs of establishing a brokerage would vary for everybody depending on individual circumstances, but according to Mr Woodrow, upfront costs could range from between $5,000 and $10,000, while ongoing costs could total around $30,000 to $35,000 a year (or more) as the business grows.

He told The Adviser: “You’ve got to think about all the other elements such as marketing or setting up your website.

“Obviously, if you don’t have the appropriate certificates in place, like your diploma and your indemnity insurance, these also add to the costs.”

Other ongoing costs could include rent on the business premises (for those working in offices), professional indemnity insurance, education, training and professional development, aggregator fees, marketing and communications, professional industry body membership (such as the Finance Brokers Association of Australia and/or the Mortgage & Finance Association of Australia), external dispute resolution scheme membership/the Australian Financial Complaints Authority, IT systems, and salaries of other employees and support staff once the business begins to expand.

Most importantly, Mr Woodrow advised that brokers would need to accumulate sufficient cash flow for at least the first two to three months of establishing the business because they may not be writing any loans or generating revenue.

He said that his business began to see performance consistency after 12 months, and growth after a two-year period. Now in his third year, he said he is looking to expand and increase his business.

The rewards of a legacy

Establishing an independent brokerage can be a challenging task, but brokers have found it to be a rewarding experience because it offers them the chance to create and put their own stamp on a brand in the broking sector. Indeed, creating this legacy can be a rewarding experience. 

Mr Marios concluded: “I’ve always wanted to start my own legacy and my own brand to potentially pass that down to my kids.”

 

Top tips for building an independent brokerage

"Check your scenarios with your BDMs. They’re a great support. Build diverse relationships. If you are pretty confident that you’re right, don’t hesitate to push back. If you’re sure of what you’re doing, you have that confidence. It grows with the experience."

- Amy Ferguson, owner, Inca Mortgage Solutions

 

"Nike says it best: “Just do it”! I think if you think about things too long, you just don’t do them. The old saying goes, ‘Those who think that they can or can’t are both usually right’. Let’s just do it."

- Daniel Woodrow, director, Woodrow Finance

 

"When you open an independent office, you don’t need to make everything perfect at the start. You can do that down the track. We started in 2017, but to this day we’re changing our branding and processes, and the way we conduct business on a daily basis. Nothing has to be perfect. You can always develop it, and test and trial things to make sure that it fits your personal requirements."

- Emmanuel Marios, director, Derwent Finance

 

 

Building a Brokerage: Opening an independent brokerage
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Malavika Santhebennur

Malavika Santhebennur

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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