Brokers consider their aggregator's fee structure as part of their growth strategy - so what's the right choice for your business? We speak to Will Foster of Property Planning Australia and James Green of Oxygen Home Loans for their thoughts on how to get the most bang for your buck.
Video transcript below:
Donna Sawyer, Australian Broker TV
Donna Sawyer: Mortgage brokers reviewing their aggregator will no doubt consider their fee structure. So what’s the right choice for your business? Whether it’s commission split or flat fee, James Green of Oxygen Home Loans says it all comes down to bang for your buck.
James Green, Oxygen Home Loans
James Green: The pros and cons on the commission split process or flat fee is quite simple. On the commission split model, if you are a startup, it’s obviously very low cost, you don’t actually pay the aggregation fee unless you have actually earned income. With the flat fee model, you have to pay the fee every month regardless of whether or not you have written a loan. So therefore if you are a startup or a low volume producer, obviously the commission split model has its advantages on a cost basis, where the flat fee model is obviously better if you are doing a large volume or if you’ve got a large team, now it may be cheaper for you under a fee service model. With the pros and cons on which model is better, again it comes back to a very simple thing, what do you get, for what you pay?
Will Foster, Property Planning Australia
Will Foster: The biggest thing to do with aggregation is having trust in your aggregator and knowing that they have a viable business model. I am very confident that Connective has that. I think the next thing is probably obviously how much commission they pass through to you and how much you actually earn for every loan that you settle. And I think the really big thing to consider is, how much that will actually be in, sort of Year 5, Year 6 or Year 10, once your trail builds up and if your aggregator is taking out 5% or 10% of your trail every month and you got 10 years worth of trail in there, it’s going to be a significant amount of money.
Donna Sawyer: Will Foster of Property Planning Australia says it’s crucial to negotiate an exit clause upfront with your aggregator or things may get messy down the track.
Will Foster: In terms of negotiating a new agreement with an aggregator, being able to leave and keep your trail and also some aggregators will actively try and, if you want them to move the trail to your new aggregator, if you want them to, I think that’s very important from I mean, it gets very messy having two trail books and having to check two books every month. But also if you want to sell, it’s much easier for a buyer to look at one trail book and ascertain the value in that one trail book than have to look at two different trail books and two different aggregator agreements to work out what they are buying.
James Green: It’s worth making sure that you are keeping your aggregator honest by comparing the cost of one aggregator back to their costs and saying, “hey look you are not competitive anymore”. And I think they want that feedback, but it’s a very large project to have all your clients sitting there and to sign up with a new aggregator. You would want to get a really strong proposition from that aggregator because it’s opportunity cost.
Donna Sawyer: Beyond the fee model, what should brokers be looking for in an aggregator?
James Green: The number one thing you should be looking for in an aggregator is obviously access to a decent lending panel, because ultimately that’s the core business you are doing. The second thing is a really strong system or robust system that allows the payments to be handled by the system, so you don’t have to build an account for a payroll division to actually distribute the monies to your referrers. I guess then the third thing would be any extra benefits like, certainly support around compliance. You know with the changing environment we are in, you need to be able to have someone that can advise on that and I think an aggregator really needs to have that role, especially ensuring they have the master relationship between you and the lender.
Donna Sawyer: This is Donna Sawyer reporting for Australian Broker TV.