How I scaled a Broking Business … you can too.

There has never been a better time to build a multi-broker group or brokerage, than today.

When aggregators first came into existence in the 90’s, commission splits paid to brokers were in the range of 70-80%, technology was non-existent and only a handful of lenders, including two majors, were playing in the space.

When I decided to launch Australian Mortgage Brokers in 2000, I wanted it to be a business with a national footprint from day one, but the economics of partnering with an AFG or the like just didn’t stack up.

I needed 100% of the upfront and trail for my model to work, therefore it would only work if I was able secure direct accreditations with lenders.

People said I was nuts (they were probably right), but we got there.

We were able to secure a few directs with smaller lenders, and we jagged Westpac from day one on a promise to settle $10M in year one, which we smashed (thank you Neil Edwards).

A direct with ANZ was secured when a broker who joined us in QLD was a big ANZ writer and thanks to Tim Carroll for making that happen.

I pulled a few shareholders in, mostly friends from university and some strategic investors (two big real estate businesses) and we were open for business.

The great news, today aggregation has evolved to the point where commission splits paid to the broker are so high, technology so good and lenders so supportive of aggregator training and education programs, it is substantially cheaper to sub-aggregate now.

So how did I scale a multi-broker national business so quickly, that went from zero brokers to 70 in 7 years, settled $100 million a year in year one, with settlements growing $100 million a year to $700 million plus in year 7?

I didn’t… my brokers did!

Ok they wrote the deals and I focused on lead generation.

Then many of them replicated what I did, and started generating opportunities for sub-brokers.

My formula was quite simple. I wanted the business to make 20% upfront /20% trail minimum on every settled deal.

Most aggregators were paying 80/80 at the time so we were in the market, but the bigger opportunity existed in the untapped real estate industry.

In early 2000, Ray White Financial Services (now called Loan Market) was really the only broker group that had successfully tapped into a real estate network, and they still had heaps of volume upside.

I was an Associate Director at Ray White Financial at the time and I suggested to the other members of the Senior Management Team, that perhaps instead of only paying $100 per lead to the office owner that we pay a small percentage of upfront and trail to the Principal. I had partial support, but ultimately my co-Associate Director, one of my best mates to this day as it turns out, opposed the idea with the clanger “real estate agents don’t care about money”.

After I stopped laughing my ass off and picked myself up off the floor (do people still say #ROFLMFAO?) I told him I’d prove him wrong, resigned that day and I started drafting the business plan for what was to become Australian Mortgage Brokers the next day. 

Leading up to AMB launching on 3 July 2000, we built a very basic data base, and I spent all day and lot of my nights data-basing real estate offices and group across Australia.

Next thousands of one-page letters sent in the post (stamps much cheaper in those days), outlining how our referral partnerships worked. Most went in the bin, however we did get a few incoming calls, which I complimented with hundreds of outbound follow up calls to office Principal and CEO’s of real estate groups, which led to signed referral partnerships.

We got very lucky in year one and were able to put corporate referral partnerships in place with two large real estate groups, one based in Victoria, one based in Queensland and quite a few mid-sized groups in Melbourne.

To be fair we had very little competition in what we were offering agents, but it was still a grind to get face to face with decision makers.

Once we had the referrers on board, and created an abundance of leads, brokers were easy to recruit. The referrals fees came out of the brokers comm. split which they were more than happy to fund, as it was business they wouldn’t have written otherwise.

We attracted a lot of experienced bankers, nervous about making the jump from a guaranteed salary to commission only. Many of these people were able to write $20-$30 million in their first year from a standing start.

The reason this formula worked and still works today, is due to the inconvenient truth… most brokers find it very difficult to self-generate leads at the start.

most brokers find it very difficult to self-generate leads at the start.

I am a huge fan of paid referral partnerships to this day, for this reason. At the start of a business it matters little what the return on each transaction is. The most important thing is to build a client base of raving customers as quickly as possible, and eventually the client base generates a lot of referral volume.

What happened next … within a few years a lot of the brokers were generating excess lead capacity from both their client base and referrers so they sub-contracted brokers.

I love the power of leverage!

A simple concept, that demonstrates the power of leverage. Me personally settling $20M per year at 100/100 provides the same return as two sub-brokers writing $20M each of volume generated by me at 50/50. 

Incidentally (these days), for loans self-generated by the sub-broker the rate paid needs to be circa 70/70 at the start to 90/90 for the top-level performers.

There is still tremendous opportunity to establish referral partnerships with real estate agents, accountants, financial planners, lawyers, builders however a lot has changed over the past 20 years and most of these referral sources are now locked in… the door never closes though.

Every broking business owner approaching retirement needs to consider their succession planning. You have three choices… sell your trail book, let your trail book run down or add loan writing capacity, become a bookkeeper and keep the business going.

And trailer handcuffs!! If you are serious about building a big business get rid of them. If people don’t want to be in your business, let them go and let them keep their trail.

Let’s have a chat soon.

PG