Building sustainable success Mortgage Broking Benchmarking Report

Transcription

1 Building sustainable success 2015 Mortgage Broking Benchmarking Report

2 Foreword Welcome to Macquarie s 2015 Mortgage Broking Benchmarking Report a revealing insight into the financial performance of mortgage brokers across Australia and the emerging trends set to shape the industry over the years ahead. The mortgage broking industry is a key pillar of the financial services landscape in Australia, with about 50% 1 of all loans now sourced through a mortgage broker. This year s report confirms that the industry has built a solid foundation for continued growth and established a unique position to influence consumer behaviour and choice. It also reinforces that there continues to be significant scope for brokers to extend and diversify their service offerings. We encourage businesses to leverage their strengths by evolving into multiproduct providers, positioned to service the varied needs of a growing client base. Intermediaries are the cornerstone of Macquarie s retail strategy. Our strategic partnerships with trusted and well respected brands brings competition to the marketplace and helps to support the continued growth of the sector as a leader and influencer. We are proud to be working with you as custodians of this important industry and believe the future looks bright, underpinned by industry partnerships built around respect, integrity and trust. We re confident that intermediaries market share can continue to increase as the industry evolves. By working together, we can provide you with support to capitalise on insights in reports such as this, adding value with ideas and expertise to create bigger, stronger and more resilient intermediary businesses. I am confident the insights in this report can help you to benchmark your business against your peers, as well as reflect on the changes you may consider to capitalise on growth opportunities for your continued success. Frank Ganis Head of Personal Banking Intermediaries Macquarie Bank 1 Source: The Mortgage and Finance Association of Australia (MFAA) Mortgage Broking Benchmarking Report

3 Introduction In this report, we analyse the characteristics that have helped highperforming mortgage brokers succeed and reveal how you can put industry best practice to work in your own business. Based on a wide-ranging national survey conducted in March 2015 and covering data from the 2014 financial year, this report combines key performance data with best practice benchmarks you can use to compare and improve your own business, focusing on the drivers that contribute to sustainable success. Over the three years since our last report in 2012, the industry has seen a resurgence, with revenues and profits growing strongly on the back of low interest rates, a buoyant housing market and rising property values. This is coupled with an increase in broker market share to just above 50% in the December 2014 quarter. Brokers have responded by hiring staff, adding scale and competing enthusiastically for market share. But while most have succeeded in lifting revenues, many have often been less successful in maintaining productivity in the face of rapid growth. Our analysis suggests that there are still opportunities for brokers to create a more diversified and sustainable revenue stream by offering a wider range of services across a larger client base. The best performing businesses are already creating new efficiencies and finding more effective techniques for acquiring, engaging and retaining a larger pool of clients at a lower cost per client. In fact, one of the key insights from our analysis around diversification is that a broker doesn t necessarily need to establish an adjacent business such as financial planning, but rather invest in the capability to offer a wider range of products and services either directly or indirectly through referral sources. The findings confirm that social media can be a powerful tool for building and maintaining relationships with clients at scale. While social media adoption is still in its infancy among mortgage brokers, our analysis is already good evidence to show that early adopters have higher revenues, increased profits and greater productivity than their peers. Thank you to everyone who participated in our 2015 Benchmarking Survey. We hope you find this report both enlightening and thought-provoking, and we look forward to speaking to you further about our findings and the potential implications for your business. Doug Lee Head of Sales & Distribution Intermediaries Macquarie Bank James Angus Head of Relationships, Alliances and Investments Macquarie Bank Mortgage Broking Benchmarking Report

4 Contents 01 / Executive summary 5 02 / About this report 6 03 / Financial profile 8 Revenue profile 9 Expense profile 11 Profit profile 13 Case Study Diversification, scale 15 and productivity 04 / Business management 16 Business planning and performance 17 People management 18 Opportunities for aggregators / Client management 20 Social media and mass personalisation 23 Case Study Bridging the digital divide / Outlook 27 Future growth plans 29 Achieving sustainable success Mortgage Broking Benchmarking Report Contents

5 1 Executive summary A strong market has boosted revenues and profits across the country with most firms expecting this to continue. Financial profile Revenues have recovered strongly over the last four years, with the average mortgage broking business now generating around $317,200 in revenue. Larger firms with four or more brokers recorded the strongest growth, due in part to a greater diversification of revenue sources and a significant expansion in mortgage books. Across the industry, the proportion of revenue attributable to home loans has fallen slightly from 85% in the 2011 financial year to 79% in the year to June 2014, while the average mortgage book has grown more than 18%, from $86 million to $101.7 million. Despite some margin pressure in a highly competitive market, profits are also up strongly, with 78% of firms reporting an increase over the last financial year and two-thirds saying that increased referrals from existing clients were a key driver of this growth. However productivity increases have become less significant in boosting profitability, suggesting efficiency has increasingly taken second place to growth. Client management Since 2012, the average number of clients per firm has almost doubled, from 304 in 2012 to 580 in 2015, reflecting the growing number of large firms with multiple brokers. Referrals remain the primary source of new business, with 87% of leads generated by word of mouth. Yet many firms do not have formal referral arrangements in place, with 46% relying on loose or informal arrangements, while 21% have no referral relationships at all. Three in four brokers (76%) now use at least one social media channel, although only one in five (19%) use all three dominant social media platforms: Facebook, LinkedIn and Twitter. However, businesses that leverage all three platforms tend to significantly outperform their peers, with higher gross revenues, better overall revenue and profit growth expectations, improved productivity and a wider range of referral sources. Business management Business management practices continue to improve, although there is still scope for many firms to lift performance. While most brokerages update their business plans at least once a year, one in ten do not conduct any business planning. Industry growth and competition for skilled staff have kept wages buoyant, with half of all practice principals and 19% of commissioned consultants now earning over $100,000 a year. The key challenge for 39% of businesses was simply recruiting the right people, which rose to 45% for more established businesses. Generally, brokers are very satisfied with the service they receive from aggregators. Nonetheless, there are some areas where they would benefit from an even higher level of service, particularly in lead generation, human resources and recruitment. Outlook The overwhelming majority of firms expect the positive conditions to continue, with 82% forecasting further revenue growth in the 2015 financial year. However, Western Australian brokers are noticeably more cautious than their peers, reflecting concerns that the local market cycle has peaked. Many firms are planning to add further scale, with 42% of firms intending to hire new staff over the next 12 to 24 months. However, fewer firms plan to expand into new product and service areas than in 2012 (67% in 2012 versus 47% in 2015), suggesting that principals are consistently focusing on their core business in a strong market. Most principals have succession plans in place, with many intending to retain ownership of the existing mortgage book while paying a manager to administer it. This is a clear indicator of the industry s optimism for the future Mortgage Broking Benchmarking Report Executive Summary

6 2 About this report Based on a survey of 1,146 mortgage brokers across the country, this report provides wide-ranging insights into a rapidly evolving industry. The third Macquarie Bank Mortgage Broking Benchmarking Report builds on the results of previous reports in 2011 and 2012, tracking key performance indicators and adding new measures to capture emerging trends. This year s report is based on a national survey of 1,146 mortgage brokers conducted in March 2015, with participants drawn from metropolitan and regional areas around Australia. The sample included a diverse range of respondents representing a variety of markets, aggregator groups and business models. This year s respondents reflect a maturing industry, with a higher proportion of larger, more established businesses, and a growing number of female principles and staff. There has been a noticeable shift in business size, with the proportion of sole operators falling from 49% in 2012 to 29% in 2015, and significant increases in the number of businesses with two to three staff (up 11% in 2012 to 41% in 2015) and four or more staff (up 9% in 2012 to 30% in 2015). [Figure 1] Meanwhile, the proportion of female respondents has increased to almost one in four, up from 18% in However, this statistic shows that the mortgage broking industry still has some work to do to attract a greater share of women. The age mix also highlights the very small percentage of brokers under 30 (5%), which highlights the point of how to attract younger entrants into the industry. [Figure 2] Figure 1. Age and size of business Age of business Size of business Under 3 years 4-10 years Over 10 years 33% 32% 35% A A % 30% 49% 41% % 29% Individuals 2-3 staff 4+ staff Mortgage Broking Benchmarking Report About this report

7 Figure 2. Survey participants at a glance Broker position Type of license holder A A 24% 32% 68% 76% Loan consultant Credit license holder Principle Credit representative Gender 77% 23% Age Under years years 50+ years Location Queensland 20% Western Australia 16% New South Wales /ACT 31% South Australia 6% Victoria 25% Tasmania/Northern Territory 2% Mortgage Broking Benchmarking Report About this report

8 3 Financial profile Driving new business in a competitive market A strong property market has driven revenues and profits higher across the industry. Yet there are also signs that efficiency has suffered in the race for growth and increased market share, reducing productivity and eroding margins Mortgage Broking Benchmarking Report

9 Revenue profile A healthy property market has seen revenues across the industry recover strongly since The average mortgage broking business generated around $317,200 in revenue during the 2014 financial year, up from $288,000 in the 2011 financial year [Figure 3]. Seven out of 10 brokers reported gross earnings of more than $100,000, while 38% earned more than $250,000 and 17% more than $500,000. On average, brokers enjoyed a 34% increase in gross revenues year on year. Yet not all firms have benefitted equally from the market upturn. In general, larger firms with four or more staff recorded the strongest revenue growth, with average revenues rising to $602,000, up from $472,000 in the 2011 financial year. Almost half of these larger businesses turned over more than $500,000 in total revenue. In contrast, 17% of sole traders reported no change in revenue from the previous financial year. [Figure 4] A key advantage enjoyed by larger firms is a greater diversity of revenue sources across all reported revenue streams. Over the last three years, diversification has increased across the industry, with the average proportion of revenue attributable to home loans falling from 85% in the 2011 financial year to 79% in the year ending in June However, larger firms with four or more staff remain significantly more diversified than their smaller peers, typically earning around one fifth of their revenue from a source other than residential or commercial mortgages. [Figure 5] This tendency towards diversification has not only helped these firms achieve higher revenue growth, it is likely to support more sustainable business performance across market cycles in the future. Mortgage books on the rise Another important driver of revenue growth has been a significant expansion of mortgage books, which have grown considerably among larger firms over the last three years. The average book has grown by more than 18% since 2012, from $86 million in 2012 to $101.7 million in The research showed that 52% of all firms now have a mortgage book of $50 million or more. [Figure 6] Yet almost all of that increase has been captured by larger, established businesses with four or more brokers. However among smaller businesses, book size has remained steady or actually fallen. [Figure 7] Nonetheless, book size per broker tends to fall as scale grows. Where sole traders typically have books of around $50 million managed by a single broker, book size per broker falls to just $22.9 million among larger firms. Furthermore, book size per broker has fallen across every segment since 2012, suggesting that productivity has taken second place to growth in an expanding market. Figure 3. Average gross revenue Figure 4. Revenue change by firm size $602K $472K $363K $288K $317.2K $283K $290K $144K $153K FY10 FY11 FY14 Individuals 2-3 staff 4+ staff Mortgage Broking Benchmarking Report Financial profile

10 Figure 5. Revenue breakdown by firm size Mortgage broking - home loans 78% 73% 85% Mortgage broking - commercial loans 6% 8% 7% Financial planning 1% 5% 9% Leasing income 2% 2% 4% Insurance - fees and commissions 2% 2% 4% LARGER BUSINESSES Real estate commissions Other 1% 1% 2% 2% 3% 2% Individuals 2-3 staff 4+ staff MORE DIVERSE SOURCE OF REVENUE Figure 6. Mortgage book size A 6% 9% 6% 3 6% 22% 48% Under $50m $50m - $100m $100m - $150m $150m - $200m $200m - $300m $300m - $500m Over $500m Over 1/2 of all firms now have a mortgage book of $50 million or more 1/2 $50M Mortgage Broking Benchmarking Report Financial profile

11 Figure 7. Average book size By firm size Per broker $176.1m $145m $85m $84.9m $57m $50m $57m $50m $56m $47.2m $31m $22.9m Individuals 2-3 staff 4+ staff Individuals 2-3 staff 4+ staff Expense profile Just under a third of business revenue is consumed by business expenses, although the expense ratio increases as business size increases. With an expense ratio of just 29%, sole traders have the lowest business expenditure proportionate to their revenue. [Figure 8] While the greatest expense across all businesses is salary and wages, the proportion of spending devoted to paying staff has decreased since 2012, down from 40% to 35% in Unsurprisingly, larger businesses devote a higher proportion of their spending to salary and rent, with these costs making up 60% of their overall expenditure. However, economies of scale help them reduce costs in other areas, while devoting a higher proportion of revenue to attracting and maintaining high quality employers. Sole traders, in contrast, spend proportionately more on attracting new business through marketing (14%) and referrals (12%). [Figure 9] The proportion of spending devoted to paying staff has decreased by 5% from FY2012 to FY2014 5% FY2012 FY Mortgage Broking Benchmarking Report Financial profile

12 Figure 8. Business expenditure as a percentage of revenue Figure 9. Business expenditure breakdown by size With an expense rate of Salary and wages 40% 43% 45% sole traders have the lowest business expenditure (proportionate to their revenue) Rent and premise costs Marketing Travel Referral fees Phone 11% 14% 15% 14% 10% 9% 13% 9% 8% 12% 8% 9% 9% 7% 6% 29% 32% 35% Individuals 2-3 staff 4+ staff IT costs Compliance Training and development 9% 7% 6% 10% 7% 5% 9% 6% 6% Individuals 2-3 staff 4+ staff Business advisers/ consultants 5% 4% 5% Other 26% 26% 22% Individuals 2-3 staff 4+ staff 78% of firms reported an increase in profit over the last financial year 78% Mortgage Broking Benchmarking Report Financial profile

13 Profit profile Profits are up strongly across the industry, with 78% of firms reporting an increase in the 2014 financial year, compared to the previous year. Once again, profit growth was greater among larger firms, with 84% reporting increase in profits in the 2014 financial year, compared to 73% of sole traders. [Figure 10] But while profits have risen, they have not always kept pace with revenue, suggesting that margins have suffered as brokers lift expenditure in pursuit of growth. While 82% of firms across the industry reported higher revenues in the 2014 financial year, profits were up among just 78%. [Figure 11] Referrals remain the key to growth Asked to name the reasons behind their higher profits, two in three firms said increased referrals from existing clients were a key driver, a similar result to However, among sole traders this figure was three in four, suggesting they continue to rely more heavily on word of mouth than larger firms, who leverage a broader and more diversified repertoire of marketing opportunities, including social media. More mature firms were also more likely to have benefitted from strong market conditions and lower costs, while newer businesses were more reliant on an increased book size to drive higher profits. [Figure 12] Nonetheless, increases in productivity have become significantly less important as a profit driver across the industry, reflecting both the benefits and pitfalls of a strong market in which productivity takes second place to growth. Productivity was named as a key reason for higher profits by just 35% of firms in 2015, down from 51% in Among the 6% of brokers whose profit has fallen, around half (49%) say declining conditions in their local market have been a key factor, along with higher operating costs (45%) and the impacts of more intense competition (30%), including downward pressure on commission rates (30%). It is likely that these businesses are facing a high level of competition from multiple brokers and other lenders pursuing a limited number of clients, with sole operators particularly vulnerable to local competition from strong national brands. [Figure 13] Figure 10. Change in profit Figure 11. Revenue growth versus profit growth 73% 78% 84% 82% 78% 6% 7% 5% 21% 15% 11% 5% 6% 12% 16% Increase Decrease No change Increase Decrease No change Individuals 2-3 staff 4+ staff Actual revenue Actual profit Mortgage Broking Benchmarking Report Financial profile

14 Figure 12. Reasons for profit increase Strong market conditions Decrease in costs 7% 13% 20% 30% 38% 46% 2/3 Increased referrals from existing clients Increased referral from referral partners/ centres of influence Increase in book size 38% 52% 46% 47% 42% 40% 62% 65% 73% firms said increased referrals from existing clients were a key driver 10% Other 4% <3 years 1% 4-10 years 11+ years Figure 13. Reasons for profit decrease (among those with falling profits) Deteriorating market conditions 49% Cost increases 45% Increased competition 30% Decrease in commissions rates Changes to compliance and regulation requirements 30% 29% Unexpected capital expenditure 23% Loss of key clients 23% Mortgage Broking Benchmarking Report Financial profile

15 [ CASE STUDY ] Diversification, scale and productivity How do you achieve consistent growth across market cycles? This year s report underscores both the benefits of greater diversification and scale, and the challenges of maintaining and promoting productivity as scale grows. Our analysis reveals that larger businesses with a more diversified product and service offering tend to outperform those who have remained more narrowly focused on home loans as their primary source of revenue. We compared diversified firms, relying on home loans for less than 50% of their gross revenue, with undiversified firms, relying on home loans for all of their income. Firms relying on home loans for less than 50% of their gross revenue typically have: HIGHER AVERAGE GROSS REVENUES with 53% achieving revenues of $250,000 or more in the 2014 financial year, compared to 22% of undiversified firms HIGHER AVERAGE PROFIT GROWTH with 78% of diversified firms increasing profits in the 2014 financial year, compared to 73% of undiversified firms A LARGER CLIENT BASE with an average of 884 clients at the time of our survey, compared to 298 clients among undiversified firms. By establishing a broader and more varied revenue stream, these businesses also help to protect themselves against future market fluctuations. Yet many larger businesses have found it difficult to maintain productivity as they scale up. That prompts the question: how do you achieve diversification and growth without sacrificing productivity? Here are five key principles to consider. ways to achieve diversification and growth without compromising on productivity Diversification can mean more than just branching into other 1. industries. You can achieve diversification while still focusing on your core client base, by supplying more products and services per client. 2. Managing your client base effectively remains fundamental to long-term success. Your existing client base is the most important tool for more diversified revenues. 3. The opportunity is to sell more products to existing clients, diversifying by supplying a greater range of products within the business. Establishing effective referral networks is also key. You don t 4. need to establish an adjacent business, such as a financial planning business. Instead, you may be better served by establishing mutually beneficial referral relationships that complement both your own business and those of your referral partners. 5. Consumers are increasingly looking to brokers to offer more than just a mortgage; in fact, they expect to be offered additional products and services. According to Australian Broker, eight in ten consumers would consider getting a non-mortgage service from a mortgage broker Mortgage Broking Benchmarking Report Financial profile

16 4 Business management Building relationships, finding skilled staff Business management practices continue to improve across the industry, although many firms still find it challenging to attract and engage the skilled staff they need. Meanwhile, most brokers remain satisfied with the support they receive from their aggregators, despite a potential service gap Mortgage Broking Benchmarking Report

17 Business planning and performance As the industry matures, business management practices continue to improve. Nevertheless, many firms still have scope to create new efficiencies and lift overall performance. While most brokerages update their business plans at least once a year, almost one in 10 (9%) do not conduct any business planning whatsoever. [Figure 14] Mature businesses (those established for 11 years or longer) tend to plan less frequently, with only 62% undertaking formal business planning at least annually, compared to 79% of businesses less than three years old. Almost one in four mature businesses only carry out planning as deemed necessary, relying on experience, but risking being overtaken by market shocks and emerging trends. Asked to name the attributes that characterise a good mortgage broking business, 72% of firms said that actively managing existing clients was crucial. In general, firms see building relationships and communicating value as essential to business success. [Figure 15] While older businesses are more focused on maintaining existing relationships, younger businesses are more likely to emphasise developing strategic alliances. Businesses established in the last three years also place higher importance on developing strong brand and marketing materials as they strive to increase market share. Figure 14. Business planning Figure 15. What makes a good broking business? 18% 4% 9% 69% Actively managing existing client base The ability to clearly articulate your value to clients Developing strategic alliances Allocating specific amounts of time to business development activities 32% 43% 48% 72% Strong brand and supporting marketing/promotional materials 28% A Annually/more than once a year Every 2-3 years Only when we think it s needed Never Reviewing business performance monthly Regular formal business planning Focus on cost efficient back office 15% 15% 25% 69% undertake formal business planning at least annually. 69%X Mortgage Broking Benchmarking Report Business management

18 People management Industry growth and strong competition for skilled staff have kept wages buoyant. Half of all practice principals were earning over $100,000 a year at the time of our survey in March 2015, along with 19% of consultants on commission and 11% of consultants on salary. In general, loan consultants receiving commission tend to earn more than those on a salary. [Figure 16] The majority of firms continue to prefer a commission structure as a method of attracting, motivating and retaining talented staff. Over one-third (37%) of businesses hire loan consultants on commission, compared with less than one in four (23%) who employ salaried consultants. When it comes to managing staff, 39% of businesses said their key challenge was simply recruiting the right people, rising to 45% among more established businesses. In fact, most aspects of staff management were perceived as a greater challenge for large, established businesses with higher staff numbers, rising in direct proportion to the age of the firm. [Figure 17] Businesses have adopted a range of measures to manage staff performance, depending on each individual s role and the size of the firm. Principals are most likely to have documented key performance indicators (KPIs), with almost half of all firms setting specific targets for principals, while only 36% set KPIs for loans processors (commissioned and salaried). Similarly, firms are most likely to provide detailed job descriptions to administration and support staff (54%) and salaried loans processors (45%). Meanwhile, 41% of principals are subject to no performance management techniques of any kind. Figure 16. Annual salaries and commission structures 61% 66% 59% 49% 35% 38% 16% 22% 22% 11% 19% 1% <$50k $50k-$100k $100k+ Principals/directors Loans consultant (salary) Loans consultant (commission) Loans processor/admin staff Figure 17. Challenges managing staff Recruiting the right people 39% Developing and implementing effective workflows Developing your staff Managing employee performance 22% 22% 24% GOOD BUSINESS MANAGEMENT Effective delegation of roles and responsibilities Creating the right cultures/ behaviours for your business Remuneration 19% 19% 18% CLIENT MANAGEMENT IS CRITICAL Mortgage Broking Benchmarking Report Business management

19 Opportunities for aggregators How can you support your brokers to create new growth? Overall, brokers are very satisfied with the service they receive from aggregators, especially for core business functions. [Figure 18] However, there are also some key areas where brokers would be pleased to receive an even greater level of support, creating opportunities for aggregators to improve their service and drive satisfaction higher. In particular, a number of brokers see lead generation as an important need that could be better supported, with fewer than half of all firms satisfied with their current service. [Figure 19] Yet even here there are significant differences between networks, reflecting the varying value propositions offered by pure aggregators and fully fledged retail brands. Figure 18. Satisfaction with aggregator services IT support 82% 13% 5% Help with compliance (NCCP) 80% 15% 4% Training business management or personal development (CPD) 75% 19% 6% Training technician/loan writing (CPD) 75% 20% 5% Software 73% 16% 10% Help with marketing 68% 24% 8% Business consulting or coaching services 68% 26% 6% HR and recruitment services 50% 44% 6% Lead generation 47% 32% 20% Satisfied/very satisfied Neither satisfied nor dissatisfied Dissatisfied/very dissatisfied Figure 19. Importance versus satisfaction OPPORTUNITY due to high importance and low satisfaction Software Help with compliance (NCCP) Importance Other Lead generation Buying groups discounts Help with marketing Training business management or personal development Business consulting or coaching services HR and recruitment services IT support Training technical/loan writing Generous terms of payment Conference Satisfaction (average score) Mortgage Broking Benchmarking Report Business management

20 5 Client management The digital divide While referrals remain the number one source for new business, a growing number of firms are leveraging new opportunities for marketing and brand promotion through social media, and enjoying higher revenues as a result Mortgage Broking Benchmarking Report

21 Recent years have seen client numbers surge across the industry, with the average number of clients per firm almost doubling since 2012, from 304 to 580 in In part, that increase reflects the growing number of larger firms across the industry, with established businesses adding scale by growing staff numbers, even as the number of clients per broker declines. In contrast, sole operators have seen average client numbers fall back since 2012, reflecting the challenges of competing against a rising population of larger firms. [Figure 20] Overwhelmingly, businesses continue to rely on referrals as their main source of new business, with 87% of brokers citing word of mouth as the main source for lead generation. [Figure 21] This confirms the insights from our 2012 survey, which found that consumers typically discuss their choice of broker with friends and family before reaching a decision, making satisfied existing clients a key source of new business. Despite the importance of referrals, many firms do not have formal referral arrangements in place. Almost half of firms (46%) rely on loose or informal arrangements, while 21% have no referral relationships at all, including 25% of sole traders. In contrast, more than half of larger businesses receive referrals through documented arrangements, joint venture partners or partly owned businesses. [Figure 22] Figure 20. Average client numbers per firm and broker Per firm Per broker 1,128 / / /1,128 Individuals 2-3 staff 4+ staff STAFF CLIENTS Recent years have seen client numbers surge with the average number of clients per firm almost doubling since X Mortgage Broking Benchmarking Report Client management

22 Figure 21. Lead generation Existing clients/word of mouth 87% Financial planners/accountants/ business brokers Real estate agents 52% 56% Internet/web site/social media 35% Legal firms/solicitors 27% Leads from aggregator 21% Leads generated by call centre 11% Figure 22. Referral relationships by size 42% 46% 46% 45% 36% 31% 25% 20% 19% 13% 10% 6% 5% 10% 7% Yes, joint venture or ownership held in referral partner Yes, formal arrangement which is documented Yes, loose or informal arrangement Other arrangements None of the above Individuals 2-3 staff 4+ staff 87% Existing clients still major source for lead generation Mortgage Broking Benchmarking Report Client management

23 Social media and mass personalisation For rapidly growing businesses, building scale while maintaining high quality client relationships can be challenging. Some of the most successful brokerages have overcome this challenge by using social media to achieve mass personalisation, communicating directly with existing and potential clients at scale. Three in four brokers (76%) now use at least one social media channel, although only one in five (19%) use all three dominant platforms: Facebook, LinkedIn and Twitter. Nonetheless, businesses that leverage all three platforms significantly outperform their peers. [Figure 23] Younger brokers are most likely to use social media, including 88% of those under 30, compared to only 69% of those aged over 50. New businesses are also more frequent users, with those established less than three years ago outpacing their more established counterparts. [Figure 24] In general, businesses that embrace social media: have higher gross revenues, with 42% of businesses with a social media strategy earning more than $250,000 a year, compared to 37% of non-social media businesses expect significantly higher revenue growth, with more than half anticipating an increase of 20% or more over the next financial year are more likely to forecast profit growth, with 91% of social media adopters expecting profit to increase in the 2014 financial year, compared to 77% of non-users tend to offer a greater range of services, including access to financial planning and insurance advice. This underlines the benefits of using social channels to promote additional services to existing clients, creating a virtuous circle of communication and diversification tend to have higher productivity, with more client meetings and settlements per week, higher average loans size and greater conversion rates. Social media users also tend to leverage a wider range of referral relationships and lead sources more effectively. While other brokers rely heavily on existing clients to generate leads, those who use social media generate leads from multiple sources, including financial planners, accountants, agents, solicitors, investment clubs and the internet. [Figure 25] Figure 23. Revenue growth by social media use 54% No social media LinkedIn+Facebook+Twitter 40% 35% 36% 25% 88% of younger brokers use social media. 9% At least 20% higher 1-19% higher Same or lower Mortgage Broking Benchmarking Report Client management

24 Figure 24. Social media usage by broker age and firm age By firm age 38% 43% 33% 31% 31% 24% No social media LinkedIn+Facebook+Twitter 3 years or under 4-10 years 11+ years By broker age 75% 66% 63% 59% 76% 73% 61% 55% 88% 82% 78% 69% 31% 27% 23% 14% 31% 25% 27% 20% 22% 18% 13% 12% LinkedIn Twitter Facebook Use at least one Use all three No social media Under Mortgage Broking Benchmarking Report Client management

25 1/5 One in five brokers currently do not have a website Figure 25. Lead sources by social media use 84% 87% 47% 65% 38% 59% 51% 38% 16% 16% 15% 19% 5% 13% 9% 10% 0% 2% Existing clients/word of mouth Financial planners/ accountants/ business brokers Real estate agents Internet/website/ social media Legal firms/solicitors Leads from aggregator Seminars/ investment clubs Leads generated by call centre Purchased lists (eg lists) No social media LinkedIn+Facebook+Twitter Three in four brokers now use at least one social media channel. 3/4 X Mortgage Broking Benchmarking Report Client management

26 [ CASE STUDY ] Bridging the digital divide How can you put social media and digital communications to work in your business? Social media is not only a valuable channel for communicating directly with existing clients and reaching new prospects. It also provides an opportunity to engage new clients without the hard-sell, building trust and credibility before the sales process has begun. ways to get more out of social media. Share your knowledge Use LinkedIn or Facebook to share insights, post best practice tips and showcase your expertise, then promote them to a wider audience through Twitter. By sharing the knowledge you have already developed within the firm, you can demonstrate your knowledge and build your brand as a trusted adviser. Personalise your content Social media provides a unique opportunity to reach out to specific customer segments with targeted content that speaks directly to their needs. Build an online community Unlike traditional, one-way marketing communications, social media provides an opportunity to interact directly with your customers and create a community of interest. Attract prospects to your site By promoting your business on the platforms where existing and potential clients already live online, then linking back to your core site, you can attract new prospects to your website and increase conversions. Cross-sell additional services Use your social media presence to grow your share of wallet and promote a wider range of services to your existing clientele, supported by case studies and testimonials to demonstrate value. Connect with and generate referrals Build an expert network online by connecting with likeminded businesses and sharing content with their clients. Create valuable content and encourage clients to share it with their contacts, then reward them when they do Mortgage Broking Benchmarking Report Client management

27 6 Outlook Pursuing future growth Most firms forecast rising revenues and profits over the year ahead, with many ready to pursue new growth initiatives Mortgage Broking Benchmarking Report

28 Looking ahead, sentiment across the industry is overwhelmingly positive, with the vast majority of brokers predicting increases in revenue and profit for the coming financial year. The research highlighted that 88% of brokers said that prospects are improving, up from 73% in [Figure 26] Overall, businesses of all sizes are optimistic about continuing revenue growth, with 82% expecting to see further increases in business revenue in the 2015 financial year and 46% expecting revenue at least 20% higher than the 2014 financial year. Similarly, 85% expect an increase in profit. [Figure 27] Nationally, Western Australian brokers are noticeably more cautious in their growth forecasts. Many seem concerned that they have passed the peak of the local property cycle and that investor confidence may decline in the months ahead. Figure 26. Broker sentiment 2% 10% 88% 88% Positive Neutral Negative of brokers say that prospects are improving, up from 73% in Figure 27. Revenue and profit growth forecasts Forecast change in gross revenue FY2015 Forecast change in business profit FY2015 At least 20% higher 46% 10-19% higher 23% 1-9% higher Roughly the same 13% 11% 12% 3% 1-9% lower 2% 10-19% lower 2% At least 20% lower It s impossible to say at this stage 1% 4% 85% Increase Decrease No change Mortgage Broking Benchmarking Report Outlook

29 Future growth plans Unsurprisingly given this upbeat outlook, many firms are planning further growth, with 42% intending to hire new employees in the next months and almost half (47%) of all new hires planned for back office administration and support roles, supporting continued business expansion. [Figure 28] Almost half of all firms (47%) also plan to expand into new product and service areas, down from 67% in With markets generating ample demand, it seems that many business owners are content to focus on their current core offerings, rather than diversifying. [Figure 29] The proportion planning growth through acquisition has also declined, falling from 25% in 2012 to 22% in Again, it seems likely that many businesses now believe they can generate sufficient growth organically, rather than through purchases. Nonetheless, the most common motive among intending buyers is to increase scale, although a significant number are also interested in creating efficiencies by leveraging existing infrastructure. [Figure 30] Most respondents have succession plans in place, although few are in a hurry to leave a thriving and profitable business. The most common plan is to retain ownership of the existing mortgage book while paying a manager to administer it. This is a clear indicator of the industry s optimism for the future. [Figure 31] Figure 28. Hiring intentions Admin/support 47% Loan writer 23% Broker 17% 58% 42% Loan processing Adviser/consultant Sales/marketing 5% 3% 12% Financial planning 3% Business development 1% Finance 1% Compliance 1% Intend to hire new staff in the next months Don t intend to hire new staff in the next months Other Not specified 4% 3% Figure 29. New products and services Will integrate new products and services within next 12 months Will integrate new products and services within 1-3 years May integrate new products and services in the next 4-5 years 12% 11% 35% Insurance Property Super and investment products Accounting Legal Tax advice Cash products 18% 11% 10% 5% 36% 43% 59% Don t intend to integrate new products and services 42% Direct shares Other 4% 14% Mortgage Broking Benchmarking Report Outlook

30 Figure 30. Acquisition plans Plan to acquire a new business within next 12 months Plan to acquire a new business within 1-3 years 11% 11% Acquire size Improve profitability by leveraging current infrastructure and systems Broaden product or service offering to clients 28% 47% 53% May plan to acquire a new business in the next 4-5 years 12% Access a new market or region 25% Not planning to acquire a new business 66% Acquire key staff Other 3% 15% Figure 31. Succession plans I don t have a succession plan 29% Continue to own book while paying another broker to manage the book 24% Sell to another mortgage broker 14% An equity arrangement with staff Sell arrangement within the business 8% 8% Sell to another business (eg financial planner, accountant) 5% 71% of principals have a succession plan 71% Mortgage Broking Benchmarking Report Outlook

31 Achieving sustainable success How do you build a strong business that flourishes across market cycles? Despite buoyant conditions, many businesses remain concerned about their ability to create sustainable success in the face of internal and external pressures, including increasing competition and the potential for adverse regulatory change. [Figure 32] To counter pressures like these, it s important not to lose focus on the fundamentals of good business practice. While it can make sense to expand your business now to harness overall market growth, it is also important to invest in strong financial management and a high performance business culture. By investing time in refining your value proposition, improving your workplace culture and training staff, you can potentially raise productivity without having to seek out highly skilled (and expensive) people in a competitive employment market. Figure 32. Threats and opportunities Internal External Attracting enough new target clients 59% Government policy 52% Maintaining and growing profitability 49% A soft property market 46% Retaining existing client base 49% Reduced investor confidence 44% Workflow and process efficiencies 45% Threat of new and competitors 30% Managing compliance tasks and risks 39% Channel conflict with the banks 29% Diversifying income sources effectively 29% Outcomes of the Financial Services Inquiry 28% KEY AREAS ON HOW TO BUILD THE FOUNDATIONS FOR SUSTAINABLE SUCCESS Have a clear understanding of what your business does and how it does it. Be clear on who is responsible for each part of the strategy. Once you have a clear aim, set goals and KPIs for the next 12 months, then use them to set a monthly goal. Set clear targets for your staff and hold them accountable to those targets. Regularly benchmark your performance in both revenue and expenses to your competitors, allowing you to see if you are growing ahead or behind the market. Learn from your mistakes, asking your clients for feedback and seeking to improve your performance Mortgage Broking Benchmarking Report Outlook

32 Discover how we can help you outperform the market Over the year ahead, the team from Macquarie will be sharing the key insights with brokers to enable a comparison to their peers and industry best practice highlighted in this report. These insights may prompt brokers to consider if they need to change any of their business practices and strategies to maximise profitability and growth opportunities. If you would like to discuss this report, please contact your Macquarie business development manager or call This information has been prepared by Macquarie Securitisation Limited (Australian Credit Licence ) ACN (Macquarie) for general information purposes only and is based on statistics and information sourced from the Macquarie Bank Mortgage Broking Benchmarking Survey, March 2015 conducted by CSI Analytics ( the Survey ). This information does not constitute advice. Before acting on this information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. This information is current as at May Whilst we have taken all reasonable care in producing this information, subsequent changes in circumstances may occur at any time and may impact the accuracy of information. Graphs and forward looking forecasts have been included for illustrative purposes only and have been derived from information provided by you and third parties as part of the Survey. We do not warrant the accuracy of any information provided by you and/or third parties. Past performance is not a reliable indicator of future performance. Forward looking forecasts are estimates only and are based on the Survey results. We do not warrant the accuracy of these estimates and actual results may vary based on a number of market, regulatory, financial and environmental factors. Copyright is reserved throughout. The information contained in this document must not be copied, either in whole or in part, or distributed to any other person without the express permission of Macquarie Mortgage Broking Benchmarking Report August 2015