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.
A pinball machine sits in the reception of our offices. For stress relief, I am rather partial to the occasional game. It struck me that pinball is an ideal metaphor for mortgage broking: brokers are like the ball – constantly being bumped around at the whim of big external players, bounced off the bumpers to help others score points. For some brokers, the potential abolition of trail might spell “Tilt” or even “Game Over”.
But never fear, for what I’ve always liked about pinball is that it has five balls. So even if you suffer a loss, if you understand the game and how to play, you can keep playing. Here are some tips from a “pinball wizard” on how to play on in the current environment, and perhaps even earn bonus points and an extra ball.
1. The UK trail experience
In 2014, trail commission was banned on new products in the UK. Two years later, it was completely abolished. Yet concerns over churn have seen UK lenders pay retention fees to brokers, to encourage consumers not to switch lenders. In effect, these ‘retention fees’ are just another name for trail commissions. So even if trail is abolished in Australia, it seems likely that trail will reappear in another form – another ball.
2. Federal election pressure on the ALP
The Liberal party’s turnaround in their stance on trail clearly shows the power of political pressure. With the ALP still planning to remove trail for new loans from 2020, the Liberals’ win in the recent NSW state election could lead Labour to reconsider its position, as they try to win votes in the upcoming Federal election. Notice that the ALP rhetoric is starting to shift – they recognise that bumping the machine too hard could lose them lots of credits.
3. Our exclusive revenue projection calculator
We have built an indicative revenue projection calculator which is available here. Our modelling indicates that even if trail is abolished on new products, many brokers’ income will actually improve in the medium term due to the combination of larger upfront commissions, coupled with grandfathered trail payments. Think of it as a period of double scores and more points for playing on.
4. The FOFA experience
Even if the ALP wins the election and abolishes trail, they’ll have to enact legislation to this effect, which must then pass through the Senate. In the case of financial advisers, the FOFA legislation was supposed to be passed relatively quickly but ended up taking over 18 months. And even then, it was watered down from the original proposal. In short, even if the current trail regime does change, it is likely to be some time before any changes take effect. So there is time to play until the credits expire.
At TrailBlazer Finance, we’re optimistic about the future of the mortgage broking industry. We’re playing on, writing more loans than ever to help mortgage brokers grow their business. Whatever happens to trail, the game isn’t nearly over. In fact, I can see smart players racking up some pretty big scores.
Within hours of the Hayne Royal commission’s final report being handed down, I was inundated with calls from clients and interested parties, all of the mortgage brokers. Although their words were different, there was a common theme: “Should I be worried? What has happened to the value of my trail book?”, they asked uneasily.
With the Commission recommending the abolition of trail commission on new loans – and the sitting Liberal Government pledging they will enact this recommendation from July 2020 – it’s no surprise that mortgage brokers are concerned. But brokers needn’t panic.
Brokers can take comfort in the knowledge that our valuation methodologies have always focused on the value of the trail in force; with no presumption of the new trail being earned after the valuation date. At times that conservatism may have seemed draconian; now it feels justified. As long as the existing trail is ‘grandfathered’, it continues to exist and therefore remains a source of value and at this time no changes have been made to valuations algorithms.
But what multiple will people pay for that trail? That is a question of supply and demand. Market forces always trump theoretical valuations. In the rising bull-market we experienced over the past few years, books often changed hands at premiums to valuation. This is no different from what we’ve seen in the property market. If there is panic selling or a rush to exit, books may trade at a lower price for a while.
At the same time, it’s important to remember that the Commission’s recommendations are just that: recommendations. Until the Senate passes new laws, their commendations are not binding; politicians can change their stance depending on constituent pressure (think Malcolm Turnbull and climate change); and with elections looming we don’t even know which party will be in power, let alone what will be traded, as politicians wrangle to be elected.
In the meantime, as long as funding lines don’t dry up, it’s business as usual. We continue to receive calls and emails from brokers seeking guidance, funding and exit options and buying opportunities. Brokers are resilient beasts (they have no choice!) so I expect that most will adapt rather than succumb.
I’m proud to share that only today we issued an agreement to acquire a book at a valuation agreed last year– so we are standing our ground and supporting brokers as they face the changes and transitions likely to arise out of the Royal Commission.
2019 is likely to be a challenging and scary time for many in our industry. And Australia may – depending on political manoeuvres – join most other countries in not paying trail commissions to brokers. While this could become our sad reality, it is not the end of the road for well-resourced and well-capitalised brokers. On the contrary, those brokers who are able to adapt are likely to flourish, as struggling participants exit, or are absorbed into larger groups, and the market thins out. Those with the means and the will to persevere will not only survive but very likely emerge larger and stronger.
Unlike the fictional Chicken Little who created hysteria with her scaremongering -“The sky is falling!” – I am confident that the Hayne Commission’s findings do not spell the end of the broking industry for all.
