How one brokerage turned obstacles into drivers for growth
NFS mortgage brokerage is living proof of the success that can be achieved with a mindset acknowledging “the obstacle is the way“. A partnership between two former co-workers, founded in 2016, the business grew by 28% to $233m in 2020 alone. Their experience and approach provide key learnings for similarly resilient brokers.
How one mortgage broker grew his business through ingenuity, diversification and smart funding
Back in 2015 Craig Vaughan had an idea. Already running a successful mortgage brokerage (since 2007) he knew there had to be a better, smarter, more efficient way to write more business and create a better client experience without being insanely overworked.
Given that his concern was fairly universal for mortgage brokers, Craig decided the solution was a workflow engine specifically for brokers, geared around enabling teams to effectively allocate, time and track tasks to enable efficiencies and greater loan volumes to be written within agreed SLAs.
Understanding the factors and what they mean for your financial planning business
For financial planners, like most industries, 2020 continues to present a litany of challenges that colour the future with a particular shade of uncertainty that appeals to only the most hardened opportunists. And that’s just the pandemic part. With the transition of financial planning to a profession with massively increased educational and regulatory burdens, the planning industry is under more pressure than most.
As the industry rapidly consolidates, how are the smartest and most adaptable financial planning practices adjusting to the myriad challenges being presented? And where are the opportunities to turn these challenges into upside, build resilience and create additional value in your business?
Understanding the drivers and what they mean for your brokerage
For the mortgage broking fraternity, like most industries, 2020 continues to present a litany of challenges that colour the future with a particular shade of uncertainty that appeals to only the most hardened opportunists.
If we get down to it, how are the smartest and most adaptable mortgage brokerages adjusting to the myriad challenges being presented? And where are the opportunities to turn these challenges into upside and create additional value in your business?
Navigating the valley of death
One thing we have learnt from businesses who have teetered on the precipice and successfully navigated through the valley of death and out the other side, is they often emerged far stronger – and done so by embracing change not just once, but again and again. Think Lego, Apple, Disney and Amazon. Each has used setbacks as catalysts for innovation, reinvention and disruption.
Mortgage brokers have also had to overcome their share of market shifting adversity over the last decade – be it threats to trail, regulation cuts, a Royal Commission and an ever-heavier compliance and educational burden. So those that are still standing have already had their resolve tested and proven their resilience. COVID-fuelled recession is just another round of fire, albeit an unprecedentedly heavy one.
Where is the value?
So far, we have not seen any notable negative impact on the value of trail book and mortgage brokerages from the current COVID-19 market maelstrom. But there has been a clear split in the pack with an increase in brokers leaving the industry. As a result, we’ve seen an uptick in stronger brokers approaching us for larger loans to fund book purchases as they sniff out opportunities.
We have identified seven drivers of trail book value and what you need to look at when buying a book or preparing your own business for sale at the optimal value:
1. Seasoning. This is the length of time individual loans have been on the book. The longer they’ve been in your book, the higher the value.
2. Underlying run off. This looks at how quickly the book is losing loans. Focus on embedding those relationships.
3. Arrears and clawbacks. Frequency with which clients slip into arrears or loans are clawed back. A potential challenge in the current market.
4. Growth in underlying loans. Growth in the number and value of those loans. Hold tight to the loans you do have.
5. Growth in trail. A growing trail book is a valuable asset, particularly in a time of uncertainty. Tap into gaps in the market.
6. Not all loans are equally valuable. A properly structured investment loan, for example, could be a more valuable asset than a residential loan. Write loans where you haven’t previously.
7. Underlying spread of lenders, borrowers and products. Focus on the mix and diversity. Concentration risk is a negative.
And a dollop of better, smarter, faster will not go astray
Innovation is not necessarily about scrum masters and setting the world on fire. It can be as simple as getting the basics right. If you look hard enough, there are quick wins out there both from a resilience and value-building perspective. Check out our five tips to help prepare your business for what comes after COVID-19.
Take two minutes to get a sense of your trail book value
Check out our free trail book valuation calculator to get a sense of the value range for your trail book today.
You can also download our valuations flyer for further information.
In an excerpt from his recent interview with Stuart Donaldson at the Mortgage Business Commercial Masterclass, M&A specialist and TrailBlazer Finance Managing Director, Jeff Zulman, explains why brokers who can hold on through the current cycle will emerge stronger.
Adapting Geoffrey’s Moore’s Crossing the Chasm, which taught the start-up community how to leap the chasm between early adopters and the early majority, Jeff applies this model to the mortgage broking industry in a COVID-19 landscape.
He surmises that the Australian mortgage broking industry has experienced its halcyon stage, growing its market share from 18% in 2002 to a high of 60% in 2019 to hover around 55% in 2020 (Source: MFAA). Along the way it has suffered a litany of setbacks – the GFC, increased regulation and then the threat of abolition of trail – and finally finds itself in the COVID-19 chasm, the “valley of death”.
For those brokerages with the strength and resilience to survive this current phase – those that can demonstrate their ability to transcend cycles, build value and sustainability and come out the other side – steady, mature growth awaits, and, with it, tremendous opportunities from an M&A perspective.
Watch the short interview: M&A expert Jeff Zulman tells mortgage brokers to hold on
Crossing the COVID-19 chasm
If you are looking for advice around acquiring or selling trail books or need a cash flow boost, contact us today for a confidential conversation.
Words of advice for mortgage brokers and planners from an eternal optimist, TrailBlazer Finance Managing Director, Jeff Zulman
I am a person who thrives on stress. This is often much to the ire of my wife and family – work and otherwise. However, there are certainly times when the added clarity provided by a productive burst of cortisol can help shape the path forward when others are understandably mired in anxiety and indecision.
The COVID- 19 pandemic is, of course, a disaster on a global scale. Yet, perversely, it provides each one of us an opportunity to adapt, modify, seize the opportunity that change affords and ultimately thrive. The challenge is to retain enough presence to see the opportunity, even in a crisis situation.
My focus, as a businessman and financier, is on the things I can influence and change in order to prepare now for what will inevitably follow.
By way of example, my team has instituted daily Zoom “stand-up” calls. Previously these daily physical meetings were simply rapid-fire sessions designed to ensure we were all on the same page. Today, our Zoom calls not only ensure that clear communication continues, but they have become a vital vehicle for team engagement.
Of course, mortgage brokers and financial planners are well acquainted with working from home or small offices; coffee shops their second meeting room. Now we are all adapting to a world where young and old alike have a new litany of words in their Lexicon: Zoom, Hangouts, Webex. And there’s plenty of upside for our new virtual reality. We can bank the time savings gained from not sitting in traffic and commuting to client meetings, and in doing so improve productivity as well as increasing the frequency and depth of interactions – cut through the superficial and connect on a deeper level. When we deal with how people are feeling, just as much as what they are thinking, we can drive more genuine, long-lasting engagement.
So how do you identify those areas where you can retain control, adapt where you need to and identify and seize opportunities, however small?
What can you do to prepare for what lies ahead?
1. Embrace your learnings and see them as opportunities.
This time of crisis will ultimately forever shape and change the way we do business. As the founder and MD of a small business, by design, I have been able to build and scale my business so it can operate virtually. Most in the broking and planning community would find themselves in a similarly fortunate situation. There is a chance many businesses will never look back from having remote workforces. I will certainly encourage my team to continue to work increasingly from home– provided they remain goal-focused and productive. I see these six months as a training ground for a new, more virtual tomorrow.
2. Sniff out inefficiencies and solve them.
Process improvement. A lot of us despise the term, and like even less identifying, designing and implementing process enhancements. But all of us know that there is only upside if we can get it right. Think about how to do things better, faster and cheaper. Are there out of the box software solutions you can use to solve ineffective client management systems or product delivery? Where can you automate workflows and repetitive tasks? What gaps need to be plugged in the way you do things so you can do them better?
3. Futureproof. Adapt your business model.
A common cause of anxiety is around concentration risk and subsequent exposure. Diversifying your business – products, verticals– it takes time, cost and energy, but this sort of transformation has the potential to drive tremendous top-line growth and defray risk. It doesn’t mean you have to become an expert in a variety of new financial services yourself. Rather seek out others who have a similar profile, work ethic and value system as you. Together provide a broader range of services. Remember that often 1+1=3. We have helped countless clients build value in their businesses by embracing a more diverse revenue model through acquisition of established books of business, mergers, or funding the hiring of additional skills and expertise to target new markets.
4. Cultivate your relationships.
One thing we will come out of social isolation bearing is an appreciation for the strength of our relationships. We are seeing some of the best and worst, but largely the best, from other people, Governments and businesses, as we grapple collectively with the ever-changing situation. Collective goodwill and compassion are at an all-time high, so now is the time to reflect on how we can pay that forward in our personal and business relationships. People will remember how we responded during this time and it will colour the way we move forward.
5. Above all, prioritise.
Fight your battles and direct your energies where they most need to be focused–be that towards your families and well being, finances, clients or communities or, most likely, a combination of all of the above. Be kind to yourself and do what you can. Structure, routine and exercise help me keep moving forward. Where you can, try to prioritise and set realistic goals – it can be a good way to reclaim a sense of control.
I don’t know how long this will last, but I do know that the world will not come to an end in three to six months. It may be battered and broken in places and undoubtedly there will be a period of rebuilding, but ultimately many will emerge from this wiser and stronger, and certainly more resilient.
And we can help. We are here to do what we have always done, assist other small businesses to survive and thrive through uncertainty and beyond.
Just remember, you are more adaptable than you realise. Stay safe, be well and take care.