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Dollar signs: Brokers switch lenders for bigger commissions

Some brokers are burning the midnight oil to make up for the commission cuts seen in the wake of the GFC - but is there a better way? We speak to Tim Brown of Vow Financial and James Green of Oxygen Home Loans for their thoughts on how to increase margins.

Video transcript below:

Donna Sawyer, Australian Broker TV
Donna Sawyer:
 Brokers have been under the pump since commissions took a 30% hit in the wake of the GFC.  Well some have been burning the midnight oil to make up for the profit losses, others like James Green of Oxygen Home Loans prefer to work smarter, not harder.

James Green, Oxygen Home Loans
James Green:  I think commissions are really important.  People say that you shouldn’t be looking at commissions when you are choosing a loan from a lender.  However, you should be choosing lenders on your panel based on commissions because your business ultimately has to make a profit, we have to be profit mechanics, so we need to look at running a business that’s profitable.  So it’s ridiculous to discount the fact that you shouldn’t look at commissions when looking at running your own business.
Donna Sawyer:  He says brokers should be re-evaluating their lender panels, especially when some of the non-banks are offering better rates than the majors.
James Green: I think we have bottomed out on commissions.  I see upward pressure in fact on commissions. I see that non-banks now are being competitive in the market with the increased margins that are being included in bank rates.  That’s allowed non-banks to enter the market again with a more competitive borrower rate and a higher commission proposition to the brokers which is very compelling and it will be very interesting to see in the coming months watching the non-banks market share grow which is my prediction.
Tim Brown, Vow Financial
Tim Brown:  We are a big fan of non-banks and international and foreign banks, regional banks.  We would have the highest percentage of any aggregator that actually deals with non-banks and even national banks and regional banks.  28% of our volume goes to those groups.  Well as you know the industry average is up as high as 88 – 89%.  That’s certainly not the case with Vow.  We don’t have a white label product either.  So we really promote all the products and services from all our lenders and we give them all equal time, we don’t favour one over the other and what we find is through that, a number of our brokers are starting to use other products.
Donna Sawyer: Tim Brown of Vow Financial says smart brokers are taking their business to the next level by employing a diversification strategy.
Tim Brown: Most brokers now have come to the conclusion that this is the way forward and I think many have started to look at consolidating with other brokers to try and offset some of their expenses and others through Vow which Vow has put as part of their diversification strategy has started to help by cross selling.  So they are maximising every opportunity that they have with clients.
Donna Sawyer:  So what more can brokers do to create a viable business?  James Green of Oxygen Home Loans says brokers should be looking to increase their margins.  
James Green:  I think brokers should now be shopping around, looking at their business plans, it’s end of financial year, looking how can we increase our margin.  Increasing our margins are a very simple way to increase the profit of your business.  So if you can find a very competitive compelling offering from your borrowers and increase your margin, you should be doing that, end of story.
Donna Sawyer:  This is Donna Sawyer reporting for Australian Broker TV.