Picking your Aggregator Path - The Adviser (August 2013)
With more than one third of brokers indicating they would consider switching aggregators in the coming 12 months, The Adviser looks at the reasons driving these brokers' decisions.
IN THE world of aggregation, competition is fierce. Australia's aggregators are constantly trying to outdo each other in order to win brokers and market share.
Statistics obtained from the Mortgage & Finance Association of Australia (MFAA) show there are not many new entrants into the industry.
Today, the proportion of the MFAA membership under the age of 30 has almost halved, from 11 per cent to six per cent.
MFAA chief executive Phil Naylor says he is understandably "concerned about the low levels of young people entering the profession".
"We are making representations to the federal government for the establishment of a traineeship program suited to a contractor model, which mostly applies in this sector," Mr Naylor says.
Of course, until this comes to fruition and the industry starts to see a steady stream of new recruits entering mortgage broking, it is fair to assume the level of broker poaching will continue to grow.
According to the findings of The Adviser's annual Switching Aggregators survey, 77.9 per cent of brokers have been approached by another aggregator in the past 12 months - up from 72.4 per cent the year before.
And, if the survey results are anything to go by, the aggregators' plans to poach brokers from their rivals could be paying off, with more than one third of brokers admitting they will review their current aggregation agreement in the next 12 months.
Of the 400-plus respondents, 38.5 per cent said they would review their "aggregation agreement/contract" over the next year; 46.6 per cent said they wouldn't; the rest were "unsure".
More interestingly, almost 20 per cent of all brokers said they currently review their aggregation contract at least once a year.
While 32.2 per cent admitted to having "never" reviewed their contract, the remainder not only said they have evaluated their contract, but that they do so on a fairly regular basis.
Eighteen per cent claimed they review their contract "once a year", while 21.1 per cent said they look at their contract every "one to two years" and 28.7 per cent do it every "two to five years".
Outsource Financial's chief executive, Tanya Sale, said she wasn't surprised to see so many brokers reviewing their contracts. According to Ms Sale, the sluggish credit growth environment forces brokers to look at other business avenues and different ways to make money.
"Brokers know if they want to grow their business, they need to diversify and strike up referral partnerships with other industries. However, to do that, they need help and assistance," she says.
"As such, they are looking for an aggregator that can offer them extensive business support.
"I have always said biggest is not always best. Today, brokers are looking for more than good commission splits.
You can offer someone a 100 per cent commission split and it won't mean a thing to them unless they have business coming in the door.
"Brokers want an aggregator that works in partnership with them and helps them to grow their business and, in turn, their bottom line."
Indeed, many brokers said they would switch aggregators if it meant they would receive greater business support.
According to the survey, 78.2 per cent of brokers identified "business support" as being either "important" or "very important" in any decision to switch or join another aggregator.
Business support, however, is just one factor among many that brokers weigh up when considering whether tolook further afield.
Software, commission structures and trail portability were also identified as key considerations.
THE POWER OF TECHNOLOGY
A poor software/technology platform was identified as the number one reason brokers would choose to switch aggregators.
Of the surveyed respondents, more than 70 per cent said software would be "very important" in their decision to switch.
This is the second year in a row that software was identified as the number one reason for switching - hardly surprising, when you consider some of the broker comments obtained during the survey.
OnePoint Financial Services' Ted Naim says he is disgusted to see some aggregators taking a commission split and charging brokers an additional fee to use their software.
"Charging a fee to use their software is a joke and it needs to be looked at," he says.
One Western Australian broker said she was recently forced to switch from PLAN after more than 10 years with the aggregator because of its software program, Podium.
"The software system had so many flaws that it almost became impossible to write loans in a timely and efficient manner," she says.
"As such, I felt I had no choice but to switch."
Over the past 12 months, however, PLAN, FAST and Choice have worked through the broker criticism surrounding their software platform to release a new and enhanced version of the technology.
In May, Advantedge unveiled its latest version of Podium 2.0.
According to Advantedge's former general manager for broker platforms, Steve Kane, the group has managed to resolve Podium's initial "teething problems" to release a software platform that is "ahead of its class".
"We officially launched Podium 2.0 in November, but since then we have continued to make various enhancements to the product. We then released an updated version of the platform in May and will bring out yet another version in September this year," Mr Kane says.
"Our focus has always been to create a platform that serves the best interests of the broker and the borrower.
"We recently went back to the broker base and sought feedback. From that feedback we decided to enhance the functionality of the system.
"For example, we have released things like 'Podium Target'. In addition, the platform now allows electronic lodgement by the customer."
According to Mr Kane, the broker will have the client's needs analysis completed by the borrower electronically and fed directly into the application.
"Enhancements like this will allow brokers to improve their overall efficiency," Mr Kane says.
But FAST, Choice and PLAN are not the only aggregators to have made enhancements to their software platforms recently.
Earlier this year, Aussie significantly overhauled its platform, introducing brokers to the new 'Toolbox' program.
Aussie's executive director, James Symond, says the aggregator understands just how important a good technology platform is to brokers, which is why the company has committed $20 million to the installation of the new software package.
"While it is not without its challenges, we are comfortable that the software will provide the massive boost to brokers and their workflow that it was built to deliver," he says.
Connective principal Mark Haron says he isn't surprised to see so many aggregators overhauling their software platforms, as brokers have made it clear time and time again that poor software would encourage them to switch alliances.
"If the software system a broker uses is not working properly or is overly difficult to use, they will look at their options and potentially consider switching," he says.
And, with so many aggregators all hungry for business and prepared to offer flexible contracts, switching has never been so attractive an option.
Connective, therefore, makes sure its software platform does over and above what a broker needs.
"At Connective, all of our systems are integrated into our software platform, Mercury," Mr Haron says.
"Brokers can have their business statistics recorded, which helps them track what is happening in their business.
In addition, they can communicate with clients on an automatic basis through the software's CRM system.
"Moreover, if a client visits a broker's website and enters their details to get more information, their details are automatically uploaded into Mercury.
"Perhaps most importantly, they can lodge loans easily and efficiently."
This last comment is echoed by AFG's general manager, sales and operations, Mark Hewitt.
Mr Hewitt says the aggregator is "constantly" refreshing its software platform so that it stays current and evolves alongside a broker's needs.
According to Mr Hewitt, AFG is currently focused on providing point of sales tools that are usable on tablets.
"We have spent a lot of time developing those tools so brokers can provide their clients with information that is relevant to them and their needs," he says.
"We have also spent a lot of time working on ways for our brokers to deliver information to clients ahead of sale. At present, some brokers are meeting with their clients three or four times in order to fulfil the client'sneeds and meet their own obligations under NCCP.
"We are working on ways to help brokers deliver information to clients ahead of the interview process, so that the client can be prepared for the meeting. Once we have mastered this, it should reduce the number of times a broker has to meet with the client."
As Mr Hewitt explains, broker businesses are always trying to be more efficient and a good software platform can help with that.
"A software platform can help brokers capture all of their clients' information, market to their database and stay in touch with customers on a regular basis," he says.
"A good software platform should also help a broker manage all of their back-end processes, such as reconciling their commissions."
IT'S IN THE FEES
While technology is regarded as the number one reason why brokers would look to change aggregator, aggregation fees and the portability of trail are also very important to the third party distribution channel.
According to this year's Switching Aggregators survey, aggregation fees are becoming increasingly important to brokers.
Almost 20 per cent of brokers highlighted "unfair commission structure" as the main reason for which they would leave their current aggregator - up two per cent on last year.
Moreover, 73 per cent of brokers said their "commission splits" would be "very important" to their decision - up from 65 per cent this time last year. Vow's chief executive Tim Brown says commissions are a broker's livelihood, so it is fair to assume they would play a big role in any aggregation decisions.
"We understand that different brokers will want different commission models, which is why we offer all the different commission structures," he says.
"I believe this is one area where Vow has really differentiated itself in the market. We offer all the commission plans and give brokers the right to change structures as they need or desire.
"We often change our brokers from one commission model to another. We don't handcuff them to one structure - we want whatever is best for their business."
When asked which commission model brokers would choose if given the opportunity, a majority said "flat fee".
Based on the survey's results, 51.6 per cent of brokers would choose this model, while 38.4 per cent indicated they would prefer a "commission split" model. The remainder said they would prefer to be associated with a branded group or franchise.
Interestingly, while the flat fee model was most popular among brokers, its overall popularity has waned since last year's survey, falling by 3.7 per cent.
The popularity of the commission split model on the other hand has continued to rise - jumping by 1.6 per cent.
But while brokers identified commissions as one of the "key reasons to switch", not everyone is convinced.
Loan Market's national director of sales, Mark De Martino, says brokers are only worried about their commission splits and software quality because their aggregator does not provide them with anything else.
"All brokers want to write more business," Mr De Martino says. "That said, in this market, writing greater volumes is tough. Brokers need support in order to write more business, but they know they won't receive it from their aggregator.
"Moreover, they don't expect to receive quality support from their aggregator.
"They do not expect their aggregator to become their business partner and help them take their business to the next level. Instead, they expect their aggregator to provide them with good commission splits and the software needed to write loans - as such, they identify these things as 'important' in their decision to switch."
This may well be the case, as brokers also indicated that portability of trail was "very important" when choosing an aggregator.
Brokers understand that some aggregators will keep their trail if they choose to leave, while others are more flexible and give brokers ownership of their trail book.
Many brokers won't leave their current aggregator because their trail is not portable. As much as they would like to switch, they don't want to have to start from scratch.
One NSW broker says he would definitely switch aggregators if he was given the opportunity to transfer his trail.
"It is this one reason that makes it difficult," he says. "Financial planners are able to transfer their book so easily, which raises the question: why can't brokers?"
His thoughts were echoed by a Queensland broker who said trail ownership also prevents him from switching.
"Many aggregators try to smother the competition by not allowing you to transfer your trail if you decide to leave them," he says.
And these brokers aren't alone.
According to the survey, a majority of brokers indicate that portability of trail is "very important" in a decision to switch aggregators.
Of the brokers surveyed by The Adviser, 69.9 per cent indicated trail portability was "very important", while a further 17.4 per cent said it was "important".
QUESTIONS TO ASK
Before deciding to switch to another aggregator, brokers should understand exactly what they are getting themselves into.
To do that, says Liberty Network Services' Brendan O'Donnell, it is vital that they do their due diligence and ask their potential new aggregator plenty of questions.
It is imperative that brokers know what they are looking for from their aggregator - and for their own business, Mr O'Donnell says.
"Ask yourself, 'What are you not happy with at the moment?'" he advises.
"Brokers need to understand what they want to do with their business. Do you want to be a sole operator, or are you looking to build a branded business in your local area?
"Once you understand what you want your business to look like and what goals you want to achieve, you can ask your potential new aggregator questions that relate to that. You can test them to see whether or not they will be the right fit for you.
"Ask: 'How are you going to help me grow my existing client base? How are you going to help me engage with my clients? How are you going to help me generate more leads?"
AFG's Mark Hewitt adds that it is also important for brokers to question the 'safety' of their aggregator.
Brokers should check to make sure their aggregator has a balance sheet that is strong enough to withstand any shocks, he says.
"It often surprises me when I see brokers not asking their potential new aggregator for a look at their financials.
In the same way you check a client's financial history, you should also check your aggregators," he says.
"I would also suggest that you ask your aggregator how they plan to reinvest in your business. At AFG, we run a model based on mutual rewards. When our brokers do well, AFG does well, so it is in our best interests that our brokers successfully grow their business."
Connective's Mark Haron says once brokers have established which aggregator they would like to join and they are happy that their new aggregator can meet their needs, it is vital that they look over the contract and make sure there are no hidden fees or charges.
"Always read the contract before signing anything. At the end of the day, aggregator BDMs will tell you anything in order to get you to come and join their group, so make sure what they are offering you is also in writing," Mr Haron says.
"Read your aggregator agreement and make sure the terms and conditions are exactly what you want.
"If necessary, go back to your aggregator and negotiate with them. Make sure you are happy with everything they say - you don't want to get caught out when it is too late."