If you’re a solo mortgage broker, your days are numbered. You need to seriously consider your options if you want your business to exist in the coming years.
The mortgage broking industry is undergoing a significant transformation, and the era of the solo broker may indeed be coming to an end. Consolidation in mortgage broking is already occurring and those who fail to acknowledge this will be left behind.
In this evolving environment, there are three pathways forward for solo brokers: mergers and acquisitions (M&A), building a brokerage (and doing it quickly), or die. There is no issue with any of these options, but it is crucial to be clear about which path you are on.
Mergers and acquisitions present a significant opportunity for brokers moving forward. Merging with or acquiring another brokerage is an opportunity to unlock efficiencies, rapidly achieve scale and lower your cost base.
If this is the path you want to take, there are a few things you need to consider. Whether you plan to merge, buy another brokerage or be bought yourself, you need to know what you are bringing to the table. It’s time to get serious – you’ll need more than a laptop and some clients to present a strong business case to any potential suitors.
If a merger is on the cards, it is critical to honestly assess if your values align with the business you are partnering with. This alignment is essential for ensuring a smooth transition and maximising the potential for success. Remember: successful M&A activities allow brokers to leverage the strengths of both entities, creating a more robust and competitive business.
In recent years, mortgage broking has seen a small but growing number of industry leaders become more sophisticated in how they run their businesses to maximise efficiency and profit. These leaders are the ones who will be buying up brokerages, and anyone who can align themselves with this model is likely to be rewarded handsomely. The key to success in this environment is to have a clear strategy, documented processes, and to be proactive in seeking out opportunities for growth and consolidation.
We have already seen this in the financial advice industry, where private equity players are actively targeting advice practices. AZ NGA is a good example. The Sydney-based business invests in financial advice practices that require capital to grow, either by acquiring other firms, book builds or funding new shareholders and succession planning strategies. The group was recently acquired by US private equity player Oaktree Capital, demonstrating a global appetite for smaller Australian financial services businesses.
There are a few interesting dynamics playing out in financial planning that brokers should be aware of. Before the Hayne royal commission in 2018, most advisers worked for major banks and other large institutions. Independent financial advisers (IFAs) were a small section of the industry. Today, IFAs are the majority and have largely become self-licensed. You now have small and medium-sized businesses that have become corporatised and are taking a sophisticated approach to business growth.
In its 2024 Australian Financial Advice Landscape Report, Adviser Ratings provides a snapshot of what a successful advice firm looks like today:
The optimal practice has a profit margin of more than 40%, has increased its revenue by more than 15% and onboarded more than 30 clients. A minority of practices have managed to achieve this status, but those who have are well set up for the future. These practices have embraced AI, maintain FUA between $200 and $500m and employ an average of five advisers, one paraplanner and four customer service representatives.
If we look at the mortgage market in Australia, we can also see how fragmented the industry has become from the days when major retail franchises dominated the landscape. As independent brokerages become more corporatised and profitable, it is only natural that we can expect an influx of private capital.
Those who have levelled up from solo broker to scalable brokerage will be well positioned to capitalise on the opportunities that this new era of mortgage broking presents.
