Referral Fees v Aussie John
I'm a passionate advocate for paying referral fees, in fact built a national top 10 brokerage using this marketing strategy and thousands of other brokers have built amazing broking businesses doing the same.
I have a confession to make.
In the early 2000's I was invited to be part of an industry panel, the final session at an MPA magazine conference held on the Gold Coast. On the stage were moderator Peter Switzer, Aussie John Symond, Brett McKeon (founder & MD of AFG), Steve Sampson (industry icon), a bunch of other industry heavyweights... and me.
I was very aware that Aussie John was dead against paying referral fees so when the call went out for conference delegates to pop questions in the suggestion box, I may have secretly handed a 'friendly' question to one of the conference organizers and assured them if it were asked there would be fireworks.
Peter Switzer: "The next question... Is the payment of referral fees unethical?"
Aussie John: "I'll take that one Peter" and Aussie John went on to articulate a perfectly good argument against paying referral fees, finishing with something along the lines of "customers would be very concerned if they knew a broker was paying a referral fee to a real estate agent" ... to a rousing applause from the audience.
My cue... "John, my company Australian Mortgage Brokers has referral partnerships in place with real estate groups across Australia, we pay referral fees which are fully disclosed to every customer in writing and our experience has been they are not concerned ...the most important thing to them is getting a good deal"... more applause from the audience.
BOOM!! It was on. At this point things got a little heated with audience members fighting over the microphone to express their view. In fairness most agreed with Aussie John and I recall one broker expressing the view "If I don't want to pay referral fees and other brokers do, that's unfair" and she got the biggest applause of the session. I kind of felt happy to be part of the minority at this point.
So who's right?
There are solid arguments either way and if you are able to build a successful brokerage business by not paying referral fees, don't pay referral fees! However my experience has been a mortgage broking business that pays referral fees (which is really just a marketing expense after all) gets to where they want get to, faster!
Let me explain. A mortgage broking business goes through three early stages of growth and it is easiest to understand the power of paying referral fees by looking at these three stages in reverse.
Stage 3: 200+ Customers - assuming the broker has provided great service to their customers, has a sound customer care program in place and consistently touches (calls!) their customers, at this stage the broking business will be generating significant volumes of customer referrals. If the broker also has referral partnerships in place they are likely already outsourcing their processing due to a leads oversupply.
Stage 2: 100-199 Customers - at this stage a broker is starting to generate leads from customer referrals, however the brokers with referral partnerships in place will get to the next growth stage faster.
Stage 1: under 100 Customers - every broker should be aiming to get to 100 settled loans as quickly as possible (trailer will be around $50,000 p.a. +). A Broker generally has no client base when starting out so paying referral fees is one of the most effective ways to get to 100 customers as quickly as possible.
The best way to learn is by doing and it's better to be in front of a prospective customer talking about their next home loan (and sharing say 20% of your upfront commission with a referrer), than sitting at home watching 'Home and Away' wondering where your next deal is coming from.
Like to know more about referral partnerships or how much you should pay? Message me or call me anytime on 0449 999 888.
Making things happen for those in business
8 年Yes I agree that paying referral fees is all part of the game. Some people are happy to pay more than 100% of the annual turnover for a business but don't agree to pay a referral fee of just 20% of the annual fee collected. Some say it does not look ethical but if you want to grow how can you when some markets are quite saturated and others will not look at you otherwise. No harm done from my perspective.
Mortgage Broker, Owner - No Fuss Home Loans
8 年I agree with you Paul, referral partners were integral to the growth of my business in the early stages. Although I no longer actively seek out referral partners I still have strong relationships with referrers. These relationships are an important part of my business.
Director at My Loan Expert
8 年Great article Paul. My entire broking career and that of my team has been built off referral partnerships. The tougher the referral the better as these are the "stickiest" clients, knowing you have gone to considerable lengths to solve the clients financial issues. I have set up over 35+ referral agreements in my career, and now run a firm that has a reputation in the industry for delivering the results. The referral fees generated are just the icing on the cake for the referral partner. You produce the numbers and results, and the figures just work. If you only write one loan this month then paying a referral partner will hurt your bottom line, because one loan a month on commission means your bleeding slowly already.....but if you write 8 - 12 new loans per month, then the numbers will speak for themselves. If one referral partner isn't generating enough leads to provide the volume, then simply go and get more referral partners. It's not that hard. It just takes guts to approach the accountant, financial planner, or real estate agent to have these conversations. No guts, no glory. My only "marketing costs" are my phone to say hi, my car to personally say hi, and my business cards. I started broking in 2007 with Australian Mortgage Brokers under Paul Gollan's leadership, with no past financial / loan / banking background at all. The fact that so many brokers resist adopting this type of business agreement, means the opportunities for new new entrants to participate is awesome. I even have agreements with Real Estate offices that have loan brokerages in their franchise model, because the local broker supplied to them expects without any effort on their part that the said business will send them the business regardless because of the card they carry. This is a relationship business, with the lender, accountant, real estate agent, conveyancer, financial planner often part of and sometimes all of them involved. I now have a trail income that means I can give more of the referrals I receive to my team, whilst concentrating on the team as a whole and my existing client base of 600+ active clients. This model is really a recipe for success, you just have to treat it as a business strategy and work the numbers until the numbers work for you. It worked for me and all my team work this strategy successfully. Our business now has 10 brokers in our team and growing..... for the simple reason that we have a strong, active, reliable, referral stream of new business coming in.... we no longer wonder where the next lead is going to come from, just look after the referral partners involved and the business takes care of itself. Regardless of your approach, I wish you every success.
Medical Lending specialist with a focus for dental industry with a little known secret: Instagram/Facebook Influencer with 400k+ followers combined.
9 年Paul, I'm working on a model with my referral partners that if I'm providing a "solution" to a complex scenario, then I will not pay referral, but if it's a vanilla deal, then I don't see why not.
Black Belt Broker & Co-owner at Sydney Mortgage Experts
9 年great article, very informative especially just leaving the Aussie model it really opens up to more opportunities. of course we all don't want to pay referral fees but there there is a market for that.