With the “Best Interest Duty” legislation set to take effect from 1 July 2020, it seems like a non-event for pretty much every mortgage broker. Isn’t this exactly what we have been doing – acting in the best interests of our customers?
However, I do feel the implications of this Bill will be felt on a micro-business level not on a macro-industry level. I believe that the way a mortgage brokerage will be set up will radically transform in the coming years, and I'll give you a few reasons why.
Statistically, they say about 60% of our industry are solo operators, i.e. a one-person business. I’d estimate, over the last few years, the additional work for a broker to process a loan application has increased by about at least two to three hours per loan application (think living expenses verification, additional comments on exit strategy, postcode checks, loan structure justification etc).
This presents several complexities for a solo mortgage broker trying to operate a viable business from 2020 onwards, with the extra level of:
1) Compliance notes;
2) Loan rework and more information required; and
3) Loan notes and commentary on each application.
With these additional layers in getting an application to move straight through without multiple touch points and rework (such as going back to our customer for more documents) potentially means that the broker’s role and the way a brokerage is structured is going to be moving to different directions, and I’ll explain…
You either are going to become a credit-focused or sales-focused broker.
That means you know bank policy intimately and you are a strong technical broker. This means you potentially may become a credit specialist. You may have a deep knowledge of particular niches, whether that’s SMSF or complex lending, or you are an expert on investment lending, or construction loans. If you intimately know a particular product or niche as a “credit specialist”, that can become far more valuable rather than being a generalist.
The next type of broker is the client-facing broker, or the sales broker. This is the hunter – the broker that doesn’t struggle with leads but needs the support of a team who can workshop a scenario and know exactly which lenders policy will fit this client.
Neither broker is better than the other. In fact, they cannot survive without the other in the new brokerage model. But if you’re going to wear both hats moving forward as a mortgage broker, from 1st of July 2020, you may just start feel a squeeze on your bottom line, which means the time per deal isn’t going to equate to the revenue per deal, as we spend more time on each loan application.
So where am I going with this and what does that mean as an industry?
I’d say we need to look at industry pathways, whether that’s the brokerage model, like the “super-brokerages”, like Home Loan Experts, Shore Financial, Australian Lending and Investment Centre.
These are stand-out brokerages who can provide a pathway for a new or a technical broker to access shared services. This will provide you with access to administration support, credit support and BDM support.
It also means post-settlement support, which is huge. So when your existing customers do come back to you, they are supported with a huge amount of shared services which could otherwise take you out of client-facing (revenue generation) and more to customer service (revenue protection).
Crystal balling this idea, I’d say that if you’re at the crossroads, you need to understand where is my strength? Am I great at lead gen? Am I the hunter? Or am I a technical broker and I’m a farmer? And I think, sometimes, we focus on the hunter (i.e. all about volumes/ loans written) but the farmer equally has an important role in this industry to do deal structuring, credit policy very well, but not underestimating the power of getting leads through the door as well.
An interesting conundrum for mortgage brokers moving forward, but this is potentially where I see the shifting landscape of brokerages to now become professional offices. As an industry we’re evolving from brokers who, when the industry started, were working from home, to then the franchise model, to then started working independently, to then having an office and brand, to now the evolution being the fully-fledged mortgage-broking professional office.
Exciting times ahead for mortgage brokers!