The draws of the mortgage broking industry have long been known: unlimited earnings; flexible working hours; and professional satisfaction, to name a few. But it’s a hard nut to crack, with up to half of new-to-industry brokers failing in the first two years of business. The Adviser investigates the challenges facing those entering the industry, and how they can overcome them.
Think back to when you first started out as a mortgage broker. Chances are you were wide-eyed, full of enthusiasm, and raring to earn those mega bucks on offer. You wouldn’t have been the first to be so, nor will you likely be the last — with 70 per cent of young brokers citing income growth potential as a motivation to pursue a career as a finance broker (according to the Young Professionals Report: Understanding the Next Generation of Brokers by the Mortgage & Finance Association of Australia (MFAA) in partnership with Pepper).
Indeed, Matt Fitzpatrick, national franchise recruitment manager at Smartline Personal Mortgage Advisers, says that as well as the high potential salaries (“over $900,000 in some cases”), one of the most attractive parts of the industry is the residual trail income that people are drawn in by.
“A lot of jobs will pay commission in a one-off scenario, but to have a continual passive income that is a saleable asset is attractive. You'll have made money before you get out of bed, and it's something that you can sell later on — that's attractive to a lot of people.”
After financial gain, lifestyle factors and better future prospects are also common draws to the industry. And, an increasingly complex mortgage environment is proving to be a great opportunity for mortgage brokers, says Lynda Harris, GM for people and culture at Aussie.
“With complexity comes an increasing demand for experts, which is growing the popularity of the profession”, she says.
But perhaps what’s most different now with new brokers, is that there are an increasing number of mortgage brokers coming from industries outside of financial services/banking.
Peter White from the Finance Brokers Association of Australia (FBAA) says that his association has experienced an uplift in new-to-industry members in recent years, with more and more people coming to the industry because “you can set your working hours, you have unlimited earning capacity, and — one of the magic things in our industry — you are helping people fulfil their dreams and goals. It's a very rewarding and satisfying career”.
Stephen Hale of the MFAA adds: “If you talk to the industry 10 or 15 years ago, nearly everyone came from a banking retail or banking finance background so that would have been 89 per cent if not higher. It was an industry built around ex-bankers taking lending out in a different format.
“Over the years, the trend of ex-finance people getting into broking has gone down and we think it will continue to drop. We think it will get down to as low as 25 per cent — so three-quarters of the industry will come from other places.”
According to Mr Hale, members of the MFAA range from ex-accountants, to those with retail backgrounds (“like running supermarket cadetships”), to award-winning mathematicians. Indeed, of the young professionals that answered the MFAA/Pepper report, just under half (47 per cent) came from the finance industry, with 19 per cent coming from “white collar roles”, 12 per cent coming from university, 12 per cent coming from a “wealth knowledge industry”, such as accounting, and 6 per cent coming from “blue collar roles”, amongst others.
Mr Fitzpatrick from Smartline says the company has seen similar trends, with 40 per cent of its new recruits last year coming from outside of the industry.
“They're coming from quite varied industries,” he says. “Although there is a heavier slant in other financial services, particularly accounting, we've had one guy come through who had given 20 years to the navy and another who used to own a tree lopping business and left that for broking.”
Big brands are also seeing an increasing amount of new-to-industry brokers. According to Aussie’s Ms Harris, the brand’s recruits into the mobile broking channel (such as Tina Assadour, see broker profile on p.15) are more likely to be new-to-industry, with “a lot” of recruits coming through with backgrounds in sales, retail, accounting and customer service, or have previously been self-employed.
Ms Harris added that women are also increasingly coming into the male-dominated industry, with Aussie seeing high numbers of female brokers recruited, particularly in its retail channel.
But, those coming to the industry for the first time often find it more difficult than expected, says the FBAA’s Mr White. “We see it first hand in our membership. Of the new-to-industry members, about 50 per cent of them don’t make it in the first 18 months of business.”
Indeed, Brendan O'Donnell, managing director of Liberty Network Services (LNS) says that although its rate of failure is much lower, of the 28 new advisers that joined the company in the last two years, 32 per cent are no longer with the business. But, he adds “68 per cent are still with us and their business is growing”.
Barriers to success
So, what is the barrier to success? According to Mr White, the challenge largely lies in the fact that some brokers “walk into the industry with empty pockets”.
“The challenge in the marketplace is that it's a commission-based role,” he says. “People need to come into this industry with their eyes open and not with rose-coloured glasses. They need to realise that this isn’t a job where you will earn a million dollars tomorrow. It will take a bit of time, and they will have to outlay money on things like costs of licencing and registrations, equipment, motor vehicles, petrol, mobile phones and laptops and all that sort of stuff you need to get going.
“So, anybody entering the industry for the first time needs to ensure that they have some sort of capital backing behind them to support them through their first three, six, nine months whilst things get up and running. Whether that’s family backing or personal asset backing, they need to have something to make it work.”
He adds: “The first three years are the hardest in any new business, but once you get going, it can be one of the most rewarding careers you could venture down.”
Ms Harris at Aussie suggests that some new-to-industry brokers might also find the working hours difficult, as “brokers need to be prepared to see customers when they want to be seen”.
“For some, flexible hours suit their lifestyle, especially females with a young family,” she says. “However for others — such as our younger brokers who place greater importance on their social lives — it can be an adjustment.”
As well as large initial financial outlay and flexible working hours, new advisers also need to work hard at establishing active referral partners and customer engagement, says Brendan O’Donnell from Liberty Network Services.
“The technical stuff is easy once you know it,” he says. “It’s the soft stuff, the marketing and relationship building that is the hardest thing to surmount.”
Mr O’Donnell adds: “We’ve found that the common areas new advisers are struggling in are customer engagement (and initial confidence) and establishing active referral partners.
“To succeed, an adviser not only needs the technical knowhow and business acumen, they also need to be self-starters, with good connectivity and, of course, financial stability.”
Another challenge that brokers cite as a common hurdle is that they are “less likely to receive support from other brokers on the life skills and stress management of the industry, which is more peer support than the proven success of mentoring,” says the MFAA’s Mr Hale.
Although ASIC requires new brokers to be mentored, some companies are going beyond just offering the basics to new brokers, with LNS offering a six-month business coaching programme and marketing support, Smartline offering a 90-day fast-track programme, business plan and offering new brokers a rent-free space in the state office for the first six months of their career, and Aussie running online, face-to-face and group workshops and offering ongoing learning through an online portal.
Smartline’s Mr Fitzpatrick says: “I know the reason why people are failing in the industry in general: it’s because of a lack of support. A lot of times people are brought in and given a desk and phone and are left on their own to make it or break it.
“Our failure rate is way below 50 per cent — it's around 10 per cent and that's across all franchises, not just new. If it took it back to just new, it might drop a little bit below that, maybe to 10 or 12 per cent. That low figure is down to our support and mentoring systems.”
Mr O’Donnell from LNS agrees that “nothing beats practical, on-the-ground support — one can go through all the theory in the world but you need someone to hold your hand in those initial deals.”
According to Smartline’s Mr Fitzpatrick, the cost of training new-to-industry brokers could be between $15,000 to $20,000, and he thinks that this cost — coupled with the relatively high risk of failure — could “turn off” some companies from hiring them.
But, once new brokers are on their feet and have a good support system, Mr Fitzpatrick says they’re more likely to succeed, and crucially, stay with the company they came up with.
“It’s all about investing the time and taking the time to understand what is needed [in terms of support], because if you invest the time you will have a quality person who is producing really well for you. So, you have to look long term, it’s not a short-term fix.”
Michael Trencher, head of broker distribution at Heritage, is of a similar mind, and says that the customer-owned bank is “aligning [itself] with new-to-industry brokers”.
He says: “It fits really well in terms of building deep relationships; if we can start those relationships and build them [when brokers] first start in the industry, we'll have ongoing partnerships for a long time going forward.”
He adds: “We can't compete with the Diners and Platinums of the world, and why would someone who's been there for seven or eight years switch across to a mutual? So, it's about getting people to know us a bit more early on.
“Secondly, we’re refreshing ourselves at the moment and through that professional process it's good to say: ‘We're different and we're doing things differently than we have from a few years ago. You're different. Let’s talk about our new proposition.’"
Mr Trencher says that although Heritage isn’t exclusively focusing on new brokers, he thinks “it's a market that we can really push on”.
“I've spoken to aggregators about this approach and they've all welcomed it, because I think that it's an area that people are neglecting, to a degree … [just] because the volumes [of loans being written] aren't there at the beginning. So, it’s a long-term play, and it's exciting.”
The support of the industry is a positive thing, and should be welcomed, says Mr White. “We have to give back support to new-to-industry participants in those early years. And I suspect we'll see a succinct decline in the number of people leaving the industry because they don’t cut it in the last 18 months if we do.”
Preparing for the industry
For those looking to enter the industry, there are steps that can help boost the chances of success. According to Mr O’Donnell at LNS, people looking to move into the mortgage industry should “read all [they] can on the industry, choose a partner that can give [them] an honest assessment on the journey [they] will go on, make sure [they] have cash flow for a minimum of six months, connect with peers in the industry, and join a brand — as the support is essential”.
Ms Harris adds that while preparation is key to breaking the industry, for them, it is not the particular industry that candidates have experience in that indicates the likelihood of future success, rather “a particular personal style”.
She explains: “We place just as much importance on screening our candidates for passion, commitment and a willingness to look after people and solve their problems, as we would their experience and where it was gained.
“Essentially, we are looking for high-calibre, dynamic and motivated business professionals so we can continue to cultivate greater broker and store productivity.”
Ms Harris concedes, though, that a history of self-employment is “looked upon favourably, as it demonstrates an ability to manage a business, self-motivate, be productive and organised and plan ahead” and a “qualification is also a good indicator of future success — whether it is TAFE or university — as it reveals an ability to manage time, and achieve an end goal and be tenacious”.
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