Segmentation and running costs are forcing broking’s one-man shows to weigh up their options – and sending some out of business, says a top broker.
Jeremy Fisher, director of 1st
Street Home Loans, says he has received a number of inquiries over the past 12 months from individuals looking to form partnerships or join larger businesses and he says the banks are partly to blame.
“For a number of brokers I don’t think it’s working for them as one-man shows anymore, compliance and running costs are high and the economies of scale aren’t there.
“With segmentation, if you don’t do a lot of business with all the major banks, you don’t get looked after, but by joining a brokerage you’re getting better service all-round which in turn means clients are getting better service… it’s a shame because I don’t think it’s fair that brokers are almost forced a little bit to make that change in their business however that’s the way it is heading.”
Fisher ran 1st
Street as a “one-man band” for close to seven years when the business first started up, but says the barriers to entry are now much higher.
“When I started they didn’t have this segmentation… they didn’t have the barriers to entry they do now. I’m not talking from a compliance perspective, because even if you’ve got 20 people in your office you’ve still got to deal with compliance and follow the same guidelines, it’s more about being able to do business in a timely manner and being able to provide a great service to your clients.”
But Daniel O’Brien, founder and sole loan writer at PFS Financial Services, says it makes sense that loyalty and volume should be rewarded by the banks.
“I started as nothing, with nothing; I had to work my way up the food chain. Why should new guys be any different? Does Coca Cola look after the suburban corner store the same way as it does McDonalds? Segmentation is everywhere, it’s not always ‘fair’, but this is business, not a charity.
“Service segmentation is always going to be a contentious issue. The big fish, love it, milk it and leverage off it. The small fish hate it and are against it. Both sides have merit though.”
Fisher says there are a number of brokers who are the sole loan writers in their business and refer to 1st
Street their clients who are looking to lodge a loan through certain major banks in order to receive better service and faster turnaround times.
“If the broker knows they can get it approved in a fraction of the time, they’d rather forgo some of the commission than to say to a client ‘You’ve got to wait a week’.”
O’Brien, however, argues that if one-man bands are savvy about their alliances, and treat their customers right, segmentation needn’t be a big issue.
“Supporting 15 banks equally is not smart business, especially considering that they all offer similar products and prices… At the end of the day, if a broker can win the customers trust and belief; generally the time a pre-approval takes is irrelevant (within reason of course).”
Fisher argues that the mentor system is counterproductive to a culture of entrepreneurialism and innovation, and favours those who have come from a banking background.
prefers brokers with no experience to be mentored for two years which is automatically saying ‘If you haven’t got experience in the industry you’re going to have to work under someone’ - either have to go and join [a franchise] or join an established broker group, so the ability for someone to be entrepreneurial and want to do it themselves is much tougher unless they have experience and have worked in a bank or a related industry. It’s a consolidation of the industry with less and less individuals joining as sole operators.”
Increased support from banks for new entrants to help them effectively build their businesses would be a step in the right direction, says Fisher.
“I definitely don’t think it’s a positive for the industry… the new brokers can’t prove themselves straight away, it takes time to build a business and a brand and a reputation, so there needs to be some changes, a program to help the new brokers get better treatment from all the lenders in the first 2 years of business.”