Brokers considering exiting broking
Continuing gloomy forecasts about the state of the mortgage sector as well as the recent commission cuts have prompted some to reconsider their commitment to the industry. AB's Kate Carr spoke to several brokers considering heading for the exit sign
Patrick Byrne, from Achievable Mortgages in Brisbane, is one broker who has more than made up his mind his days in the sector are numbered, telling AB he is keen to get out of the industry ASAP.
"I'd like to be out next week if I could," he notes, adding that he had been mulling over the move for around a year.
"It's been flashing signs for the last 12 months that broking is about to come to an end," he says gloomily.
Byrne's experience isn't an isolated one. A Sydney broker who spoke to AB on the condition on anonymity said he believed many in the industry were considering their options.
"Who hasn't given [leaving] some thought over the last 12 months?" he asks.
For Byrne, one of the major problems on the horizon is the impending government legislative change. "I've been broking since 1990 and the broking industry has changed dramatically in that time," he says.
According to Byrne, the legislation will change it even more, making it almost impossible to continue on as a broker.
The requirement that a broker take a borrower's future prospects into consideration and the need to verify income are particularly onerous, Byrne says.
"[The future prospects clause] means you couldn't do a loan to anybody," he claims, noting that brokers cannot be expected to predict the likelihood of the borrower experiencing future hardship.
Income verification is also something outside the scope of brokering, he says.
"Now that's never been a broker's job," he notes.
"A broker is an intermediary who brings a willing borrower and introduces them to a willing lender and that's all a broker's ever been and to make them anything else in the system is definitely wrong."
Byrne says the industry has been left vulnerable by the reluctance of brokers to charge a brokerage fee.
"The biggest problem in the mortgage industry is brokers not charging a brokerage fee. If you don't charge a brokerage fee and are dependent on the lender's kickback - that is purely at the lender's whim."
Because he does levy a fee, Byrne says commission cuts are not having a major impact on his business, however, this is certainly not the case for most brokers.
Sean Sylvester, a broker with Mortgage & Financial Solutions, says reduced earnings have been a major factor in his decision to leave the industry.
"[The] reasons for my decision are commission cuts and lack of business," he says. A lack of business was also a factor in Byrne's decision. "[Volume is] well and truly down," he says.
"I put a half page ad in papers and I do not get a phone call. It's just not a market at that's really workable at the moment."
Asked if he knew others who were considering leaving brokering, Byrne said he was seeing fewer and fewer old timers.
"When you go to one of these MFAA functions or something like that ... I'm finding a lot of new faces. A lot of the guys that I've known are just not turning up."
Byrne, who is looking to enter the education sector, says the nature of broking means there is very little opportunity for brokers to sell their business. "There's nothing to sell," he says.
"You've got a trailing book and that's it. Today's broking businesses have got no value because it all depends on what you do day-to-day."
Raw numbers
At the moment, however, for every broker like Byrne who has had enough there are others keen to check out the industry.
"What we have seen over the last two years and more so this year is that whilst we've got an increasing number entering the industry we've got a large number, a lower number, going out," MFAA CEO Phil Naylor says.
"We are seeing people having a look at the industry, maybe staying for a year or so and moving on."
This was certainly the case for former broker Shane De La Cruz, who told AB he hardly got started in the industry before he reconsidered.
"I got accredited with a lender but then I didn't really pursue getting any contacts or getting a database," De La Cruz says.
"I felt like I would have been a bit thrown into the deep end."
According to Naylor, as the industry continues to tighten, more and more people will shy away from the industry.
"As things start tightening up I think you will see fewer and fewer people coming in," he notes.
"We've certainly factored-in that the whole industry will shrink over the next 12 months or so. I don't know what the numbers will be but I certainly don't think we will have as many members in 12 months time as we have now, and right now we have about 13,500."
Expectations of a fall in broker numbers are widespread in the sector, with PLAN CEO Alex Moulieris and Smartline director Joe Sirianni both tell telling AB they are anticipating a decline in the industry.
"The liquidity crunch, the changes in lender commission, the introduction of national regulation ... and the current slow down in the domestic economy all have a impact on the future viability of all brokers," Sirianni notes.
According to Moulieris, it is newer brokers who will be most affected.
"Those who are fully committed and therefore rely on broking solely and who are in their early stages are the ones that are going to be more affected," he says.
Glenn Roddicks, director of the Victorian Finance Group, agrees, telling AB he believed the downturn will particularly hit brokers working from home and those who relied solely on 'letter box drops' and buying leads from internet providers.
New horizons
Given the slow market aggregators, the MFAA is encouraging brokers to diversify their income streams.
"We are certainly going around with road shows explaining to members that we see the future of the industry being not just tied to one remuneration stream so they've certainly got to look at ways of attracting revenue. So we are running courses on that," Naylor explains.
"What we've got out in the market is equipment finance courses and introduction to commercial lending and advanced commercial lending which are aimed at brokers who have mainly been mortgage brokers before but are interested in widening their sphere of operations."
"We've also got the reverse mortgage course."
Moulieris says PLAN is also investigating new opportunities for members. "We've over the last year introduced financial services into PLAN, primarily life insurance," he says.
"At this point we've recruited a small group of life insurance writers which our members can refer [business to]. The life insurance writers would write the insurance for the clients of our members and there would be commission sharing arrangements."
"So we are trying to identify new revenue streams to put on the table for our members."
Moulieris accepts that it's going to be a very trying time. It isn't all doom and gloom, however, with Naylor noting consumers were as willing as ever to use brokers.
"I think the positives are that there is no sign that the share of the business being transacted by brokers is going to decrease.
"All the indicators are ... that consumers like dealing with brokers, and the share brokers have is more likely to increase rather than decrease or stay where it is.
"If so with less people in the industry that means there is more business for those that remain."
However, there is no denying there are still plenty of tough times ahead. As Naylor notes: "We have come to the first bump in the middle of the road and it's a fairly big one."
