Challenger Aggregators Part 2 of 2 looks at whether, big or small, independent or owned, what do you, the broker, prefer?
Here's Part 2 of MPA's latest feature on challenger aggregators. If you haven't already, meet the six challengers here.
Small and medium aggregators face some of the toughest competition in the industry, and have stepped up their proposition to brokers in response, writes Sam Richardson.
Target Brokers
Big or small, independent or owned – what do you, the broker, prefer? This question, it should be noted, works both ways. Challenger aggregators have strong individual personalities and unique value propositions, so it’s worth checking if your aims and identities align and deciding whether you are that aggregator’s target broker.
A word of warning here: aggregators are understandably reluctant to turn away prospective members. Indeed some, such as Specialist Finance, target the entire market with its four different fee models. “The flexible fee agreement represents all the options out there to brokers today,” explains Lockett. Yet a common theme running through all these aggregators is providing more than a service and instead being a ‘business partner’. Many are set up to support particular types of partners, and told MPA who they’re looking for.
For nMB, their ideal broker is focused on growth: “Our approach historically, and more so in the future, is we will work with brokers on a mission to building a broker business.” nMB has a number of high profile members who’ve built leading brokerages, such as Gerard Tiffen’s Tiffen & Co, and nMB aims to replicate their success by providing customised support on such issues as picking a partner, establishing processing procedures, and moving brokers away from reliance on family members.
eChoice, both part of and now the new name for the entire Firstfolio group, is looking for brokers that mirror the technology-driven strategy of new CEO Peter Andronicos. Newly appointed general manager of sales and distribution Paul Liccione notes that “ideally our broker is either comfortable with technology, or simply appreciative of where things are heading and comfortable in adopting technology. That’s really a key criteria if they’re to take advantage of everything eChoice can provide”. eChoice prides itself on a number of technological tools, with database marketing at its centre.
Ultimately, taste in brokers is central to business identity, such as in the case of Astute Financial, explains director Brad Wood: “I don’t know if the word boutique is what we’d class ourselves as… aggregation is aggregation; challenger; boutique; Top 10; all that business we don’t concentrate on. We’re probably a specialised aggregator; we deal with experienced brokers with strong businesses who want to build them further.” Astute does admit novice brokers, but puts them in contact with experienced members, which they believe increases their chances of success.
In similar style, Liberty Network Services also links broker type to its business model; O’Donnell argues their branded retail model has particular attraction for the new entrants: “New to industry brokers will be looking for a good, solid home which gives them the flexibility to manoeuvre. There are exceptions to the rule, there always is, but as a general rule the branded model has become a lot more attractive, a model which will look after them for the duration of their time as a mortgage broker.”
Finally, Outsource Financial is an example of an aggregator which serves a variety of members, but is currently targeting a specific group, in their case also new entrants. “We’re a vibrant and innovative industry and that’s what we should be attracting,” comments Sale. “New entrants were just as quickly going out the door because of the cost; they were being charged, put under one of the aggregator’s large broker groups, their commission was lower than normal, and they just couldn’t survive.” Outsource Financial’s free, new entrants program, she claims, has already attracted a number of new brokers and is emerging as a major success.
Race to the Bottom
Clearly, challenger aggregators have strong identities and are interested in strong partnerships. And undoubtedly the business partner approach provides a huge number of advantages for brokers in terms of services and attention. When it comes to fees, however, this approach has both positives and negatives – ranging from individual deal-making to traditional inflexibility.
For all aggregators, the launch of Connective’s flat fee model proved a watershed moment, in terms of both flexibility and the idea of minimal and inexpensive core aggregation services with optional add-ons. The move divided the industry: for some aggregators it was a natural development in industry relationships; for others it marked the beginning of a dangerous ‘race to the bottom’ where profitability is becoming increasingly threatened.
The challenger aggregators MPA spoke to largely veered towards the latter opinion. “I’m not a fan of these flat fee structures,” notes Sale. “I can’t see them being very profitable or viable; I guess people on flat fee structures rely on very high volume, [whereas] we rely on quality.” Sales’ opinion was echoed by Astute Financial and also eChoice’s Liccione, who notes that “over the last few years there’s been a trend towards giving more and more away. This is becoming more and more common and is less and less profitable because ultimately we’re a business like anybody else, so our proposition is around what we are doing to add value to your business”.
eChoice does offer optional extras, and takes great care to show return on individual broker investments, Liccione insists. “We’re not just trying to sell you these programs… we’ve got statistics to show that your $1,000 investment equals a $25,000 net return within six months.” However, some challenger aggregators believe the whole culture of measuring individual services by short-term dollar value imperils the very business partner relationship which attracts brokers in the first place. nMB chief Foley is among them: “We like conversations with brokers who are on that journey; ‘how can I work with my aggregator to grow my business’ rather than focusing just solely on looking to achieve a greater commission split with my aggregator; that’s not the answer for the success of the industry long term.”
Two players who do unequivocally compete on price are Liberty Network Services and Specialist Finance. Liberty can do this because of their abovementioned relationship with the lender, O’Donnell told MPA, but Specialist Finance is somewhat more typical of challenger aggregators. “As you grow the business you need to have agreements which are representative of where the market is today,” reasons Lockett. “It’s the way the industry has gone. We can do that more easily because of our boutique size; you and I can cut a deal, because you’re liaising directly with me.”
If, as Lockett says, the challenger aggregator model promotes more flexibility, one is left wondering how the dream combination of personalised service and low fees affect an aggregator’s margins and sustainability; although it should be noted that Specialist has been operating since 1991. Then again, perhaps brokers have cause for concern at the conservatism of other challenger aggregators and their unwillingness to reconcile the terms ‘business partner’ and ‘flexible fees’; they risk being left behind in an industry turning towards the latter.
Affording Technology
Beyond fees and the sustainability of individual business models, the sustainability of the entire challenger aggregator proposition is a question that refuses to go away. It all comes back to the question of capital, independence and nMB’s 2012 acquisition by Aussie. John Symond argued that the cost of technology would drive out smaller aggregators, a view shared by the outgoing nMB CEO Paul Gollan, who told Australian Broker that “it is not so much the cost of operating a boutique aggregation business that is prohibitive, but the cost of not being able to match the big boys’ technology that will see the process of consolidation continue”.
Sitting at that supposedly hopeless crossroads between cutting-edge technology and smaller size is eChoice and, naturally, they don’t agree. “Symond was talking about combining new operation systems while being price-driven,” Liccione responds. “We invest in technology to provide income opportunities for everybody.” Every investment in technology by eChoice is made with a specific return in mind, both for the broker and for eChoice from the broker’s increased settlements, Liccione argues. “It’s a different approach to where aggregators traditionally come from, which is ‘jeez, technology costs a fortune but the brokers demand it’, to us, where investment in technology is based on return on investment.”
It’s debatable whether other aggregators do think like that of course, and some challenger aggregators are adopting a more reserved attitude towards technology. “My personal view is you’ve got to be at the table,” nMB’s Foley comments. “You’ve got to meet minimum requirements. Do you need the best technology in the market? I don’t think so. It’s got to be competent, malleable and flexible… there’s quite a range of views in the broker space around what systems do for the broker, so it’s got to be flexible.” Technology is a significant cost, but nMB’s biggest spend and biggest offering is people, Foley concludes.
In technology as in many other areas, challenger aggregators need to pick their battles with the major aggregators carefully; many prefer to concentrate their strength on a single area. But some refuse to envision a conflict in the first place, including Astute chief Wood: “I think at the end of the day you’ve got to listen to your members and do what they want and then create the service offering and support structure to support the businesses they want. I think if you get that right the rest of it comes anyway. I don’t see us as a challenger aggregator trying to challenge the likes of PLAN, AFG and Connective anyway. We’re just doing what we do and we’re doing it to the best of our ability.”
Specialised Futures
Wood’s conclusion is enviable, but the reality for most challenger aggregators is that they do need to attract brokers away from the big players. Those who succeed in doing so share a common theme: brokers might want it all from their aggregator, but the real innovation is coming from specialised firms. All these challenger aggregators provide the full range of basic marketing, IT, training and support services, but they also have individual strengths, whether it be technology, building businesses, independence or flexible fees.
Looking forward, it appears that major aggregators and brokers could learn a lesson from challenger aggregators. For aggregation to continue being profitable and avoiding dependency on bank capital, there’s certainly an argument for accelerating the process of specialisation, which is already evident in their branding and marketing. Continuing with that argument, one could claim that brokers need to drop the idea of an aggregator for life. Perhaps an intense training-heavy ‘partnership’ aggregator suits a very different stage in your career from a flat-fee minimum service offering, even if both have their merits.
Encouragingly, the survival and in some cases growth of challenger aggregators shows that innovation is being rewarded. Their success depends on asserting their identities and ultimately reaching out to those brokers who share those interests, and whose dissatisfaction with the big players is matched by real action – are you one of them?
If you missed Challenger aggregators: Part 1 , check it out here.
This content originally appeared in MPA magazine issue 15.04.
Small and medium aggregators face some of the toughest competition in the industry, and have stepped up their proposition to brokers in response, writes Sam Richardson.
Target Brokers
Big or small, independent or owned – what do you, the broker, prefer? This question, it should be noted, works both ways. Challenger aggregators have strong individual personalities and unique value propositions, so it’s worth checking if your aims and identities align and deciding whether you are that aggregator’s target broker.
A word of warning here: aggregators are understandably reluctant to turn away prospective members. Indeed some, such as Specialist Finance, target the entire market with its four different fee models. “The flexible fee agreement represents all the options out there to brokers today,” explains Lockett. Yet a common theme running through all these aggregators is providing more than a service and instead being a ‘business partner’. Many are set up to support particular types of partners, and told MPA who they’re looking for.
For nMB, their ideal broker is focused on growth: “Our approach historically, and more so in the future, is we will work with brokers on a mission to building a broker business.” nMB has a number of high profile members who’ve built leading brokerages, such as Gerard Tiffen’s Tiffen & Co, and nMB aims to replicate their success by providing customised support on such issues as picking a partner, establishing processing procedures, and moving brokers away from reliance on family members.
eChoice, both part of and now the new name for the entire Firstfolio group, is looking for brokers that mirror the technology-driven strategy of new CEO Peter Andronicos. Newly appointed general manager of sales and distribution Paul Liccione notes that “ideally our broker is either comfortable with technology, or simply appreciative of where things are heading and comfortable in adopting technology. That’s really a key criteria if they’re to take advantage of everything eChoice can provide”. eChoice prides itself on a number of technological tools, with database marketing at its centre.
Ultimately, taste in brokers is central to business identity, such as in the case of Astute Financial, explains director Brad Wood: “I don’t know if the word boutique is what we’d class ourselves as… aggregation is aggregation; challenger; boutique; Top 10; all that business we don’t concentrate on. We’re probably a specialised aggregator; we deal with experienced brokers with strong businesses who want to build them further.” Astute does admit novice brokers, but puts them in contact with experienced members, which they believe increases their chances of success.
In similar style, Liberty Network Services also links broker type to its business model; O’Donnell argues their branded retail model has particular attraction for the new entrants: “New to industry brokers will be looking for a good, solid home which gives them the flexibility to manoeuvre. There are exceptions to the rule, there always is, but as a general rule the branded model has become a lot more attractive, a model which will look after them for the duration of their time as a mortgage broker.”
Finally, Outsource Financial is an example of an aggregator which serves a variety of members, but is currently targeting a specific group, in their case also new entrants. “We’re a vibrant and innovative industry and that’s what we should be attracting,” comments Sale. “New entrants were just as quickly going out the door because of the cost; they were being charged, put under one of the aggregator’s large broker groups, their commission was lower than normal, and they just couldn’t survive.” Outsource Financial’s free, new entrants program, she claims, has already attracted a number of new brokers and is emerging as a major success.
Race to the Bottom
Clearly, challenger aggregators have strong identities and are interested in strong partnerships. And undoubtedly the business partner approach provides a huge number of advantages for brokers in terms of services and attention. When it comes to fees, however, this approach has both positives and negatives – ranging from individual deal-making to traditional inflexibility.
For all aggregators, the launch of Connective’s flat fee model proved a watershed moment, in terms of both flexibility and the idea of minimal and inexpensive core aggregation services with optional add-ons. The move divided the industry: for some aggregators it was a natural development in industry relationships; for others it marked the beginning of a dangerous ‘race to the bottom’ where profitability is becoming increasingly threatened.
The challenger aggregators MPA spoke to largely veered towards the latter opinion. “I’m not a fan of these flat fee structures,” notes Sale. “I can’t see them being very profitable or viable; I guess people on flat fee structures rely on very high volume, [whereas] we rely on quality.” Sales’ opinion was echoed by Astute Financial and also eChoice’s Liccione, who notes that “over the last few years there’s been a trend towards giving more and more away. This is becoming more and more common and is less and less profitable because ultimately we’re a business like anybody else, so our proposition is around what we are doing to add value to your business”.
eChoice does offer optional extras, and takes great care to show return on individual broker investments, Liccione insists. “We’re not just trying to sell you these programs… we’ve got statistics to show that your $1,000 investment equals a $25,000 net return within six months.” However, some challenger aggregators believe the whole culture of measuring individual services by short-term dollar value imperils the very business partner relationship which attracts brokers in the first place. nMB chief Foley is among them: “We like conversations with brokers who are on that journey; ‘how can I work with my aggregator to grow my business’ rather than focusing just solely on looking to achieve a greater commission split with my aggregator; that’s not the answer for the success of the industry long term.”
Two players who do unequivocally compete on price are Liberty Network Services and Specialist Finance. Liberty can do this because of their abovementioned relationship with the lender, O’Donnell told MPA, but Specialist Finance is somewhat more typical of challenger aggregators. “As you grow the business you need to have agreements which are representative of where the market is today,” reasons Lockett. “It’s the way the industry has gone. We can do that more easily because of our boutique size; you and I can cut a deal, because you’re liaising directly with me.”
If, as Lockett says, the challenger aggregator model promotes more flexibility, one is left wondering how the dream combination of personalised service and low fees affect an aggregator’s margins and sustainability; although it should be noted that Specialist has been operating since 1991. Then again, perhaps brokers have cause for concern at the conservatism of other challenger aggregators and their unwillingness to reconcile the terms ‘business partner’ and ‘flexible fees’; they risk being left behind in an industry turning towards the latter.
Challenger vs. Boutique aggregators
You may have noticed we’ve used the word ‘challenger aggregators’, whereas some of the aggregator chiefs themselves use the term ‘boutique’.
It’s an important distinction to make: all of these aggregators here are challenging the main players, but only some are boutique aggregators. And how do we define that?
The Oxford Dictionary defines a boutique business as “a business serving a sophisticated or specialised clientele”; while all these aggregators want to grow profits, only some intend to do that by increasing market share; whilst others have a specific type of broker they’re looking for – they’re ‘boutique’ in this more specific sense.
To further complicate matters, some ‘boutique’ aggregators reject the term, preferring to describe themselves as ‘specialised’. Thus ‘challenger aggregators’ is a useful term to group together these small and medium-sized aggregators.
You may have noticed we’ve used the word ‘challenger aggregators’, whereas some of the aggregator chiefs themselves use the term ‘boutique’.
It’s an important distinction to make: all of these aggregators here are challenging the main players, but only some are boutique aggregators. And how do we define that?
The Oxford Dictionary defines a boutique business as “a business serving a sophisticated or specialised clientele”; while all these aggregators want to grow profits, only some intend to do that by increasing market share; whilst others have a specific type of broker they’re looking for – they’re ‘boutique’ in this more specific sense.
To further complicate matters, some ‘boutique’ aggregators reject the term, preferring to describe themselves as ‘specialised’. Thus ‘challenger aggregators’ is a useful term to group together these small and medium-sized aggregators.
Affording Technology
Beyond fees and the sustainability of individual business models, the sustainability of the entire challenger aggregator proposition is a question that refuses to go away. It all comes back to the question of capital, independence and nMB’s 2012 acquisition by Aussie. John Symond argued that the cost of technology would drive out smaller aggregators, a view shared by the outgoing nMB CEO Paul Gollan, who told Australian Broker that “it is not so much the cost of operating a boutique aggregation business that is prohibitive, but the cost of not being able to match the big boys’ technology that will see the process of consolidation continue”.
Sitting at that supposedly hopeless crossroads between cutting-edge technology and smaller size is eChoice and, naturally, they don’t agree. “Symond was talking about combining new operation systems while being price-driven,” Liccione responds. “We invest in technology to provide income opportunities for everybody.” Every investment in technology by eChoice is made with a specific return in mind, both for the broker and for eChoice from the broker’s increased settlements, Liccione argues. “It’s a different approach to where aggregators traditionally come from, which is ‘jeez, technology costs a fortune but the brokers demand it’, to us, where investment in technology is based on return on investment.”
It’s debatable whether other aggregators do think like that of course, and some challenger aggregators are adopting a more reserved attitude towards technology. “My personal view is you’ve got to be at the table,” nMB’s Foley comments. “You’ve got to meet minimum requirements. Do you need the best technology in the market? I don’t think so. It’s got to be competent, malleable and flexible… there’s quite a range of views in the broker space around what systems do for the broker, so it’s got to be flexible.” Technology is a significant cost, but nMB’s biggest spend and biggest offering is people, Foley concludes.
In technology as in many other areas, challenger aggregators need to pick their battles with the major aggregators carefully; many prefer to concentrate their strength on a single area. But some refuse to envision a conflict in the first place, including Astute chief Wood: “I think at the end of the day you’ve got to listen to your members and do what they want and then create the service offering and support structure to support the businesses they want. I think if you get that right the rest of it comes anyway. I don’t see us as a challenger aggregator trying to challenge the likes of PLAN, AFG and Connective anyway. We’re just doing what we do and we’re doing it to the best of our ability.”
Specialised Futures
Wood’s conclusion is enviable, but the reality for most challenger aggregators is that they do need to attract brokers away from the big players. Those who succeed in doing so share a common theme: brokers might want it all from their aggregator, but the real innovation is coming from specialised firms. All these challenger aggregators provide the full range of basic marketing, IT, training and support services, but they also have individual strengths, whether it be technology, building businesses, independence or flexible fees.
Looking forward, it appears that major aggregators and brokers could learn a lesson from challenger aggregators. For aggregation to continue being profitable and avoiding dependency on bank capital, there’s certainly an argument for accelerating the process of specialisation, which is already evident in their branding and marketing. Continuing with that argument, one could claim that brokers need to drop the idea of an aggregator for life. Perhaps an intense training-heavy ‘partnership’ aggregator suits a very different stage in your career from a flat-fee minimum service offering, even if both have their merits.
Encouragingly, the survival and in some cases growth of challenger aggregators shows that innovation is being rewarded. Their success depends on asserting their identities and ultimately reaching out to those brokers who share those interests, and whose dissatisfaction with the big players is matched by real action – are you one of them?
If you missed Challenger aggregators: Part 1 , check it out here.
This content originally appeared in MPA magazine issue 15.04.
