Broker attrition rates are sky high, raising concerns of reputational damage to the industry as a whole
Depending on who you ask, anywhere between 50% to 75% of mortgage brokers tap out of the industry within a year of setting up shop.
If you specifically ask Steve Lake, director of partnerships at sub-aggregator National Lending Group (NLG), potentially up to two-thirds of aspiring mortgage brokers fail within the first 12 months.
To make matters worse, more than 15% of mortgage brokers are classified as "inactive", per the Mortgage and Finance Association of Australia (MFAA)’s latest Industry Intelligence Service report.
Whatever the exact figure is, it’s clear that the broking industry has a massive problem with attrition.
It has led to a wake up call for the industry, prompting a groundswell of support for better standards of education and professionalism for the 22,000-plus brokers that settle over 76% of home loans in Australia.
Attrition is the symptom, but what is the cause?
“People are going in ill prepared,” Lake said in a chat with MPA, citing the lack of financial resources to get them through the opening stages of the mortgage broking profession.
It is a common grievance of the broking industry.
Aggregators do educate novice brokers about potential financial challenges, but Lake believes these difficulties are often understated.
“The reality is you need somewhere between probably 18 months to two years to replace an income,” said Lake.
“Before somebody comes into the industry, we actually sit down with them and do a business plan and cashflow forecast,” said Lake. “We uncover the likelihood of them being able to weather the storm before we give the green light for somebody joining us.”
And despite – or perhaps because of – more brokers than ever joining the industry, it is becoming harder to carve out a slice of the market.
“Mortgage broking has changed,” said Lake. “Ten years ago, you could come in as a broker and you were competing against the banks. It was like shooting fish in a barrel to get a loan. Nowadays, you're competing against other brokers who are highly skilled and seasoned salespeople.”
Lake argues that there is a lack of sales experience, training and mindset in the broking industry – not just with newcomers but also with the older generations.
It makes for a dangerous mix of not getting in front of enough quality clients quick enough, combined with a lack of preparedness in the cash-flow situations.
Clawbacks also play a big role in a brokers’ cash-flow uncertainty, although this is less of an issue for new-to-industry brokers.
“You can only get clawbacks if you write loans. A lot of people don't even get to that point,” Lake said.
But while it’s clear that the broking industry has a big problem with attrition, the question is, why does it matter?
Unprepared brokers risk damaging industry reputation
Having a "have-a-go-mindset" is quintessentially Australian, and while many brokers fail, many go on to build successful small businesses or franchises. The cream, so to speak, always rises to the top.
But Lake warned of the reputational damage attrition does to the broking industry.
“Client experience suffers because you've got a lot of people that are incredibly poorly trained and lack the guidance that they need to be able to take their clients through the right customer journeys… it's not just brand damage, it's reputational damage in terms of the mortgage broking industry as a whole.”
It also causes an administrative burden that can clog up the industry’s credit pipelines.
Attrition causes accreditation process delays “because (lenders) are dealing with people that aren't proficient with what they do”, Lake (pictured below, left) said.
Lake boasted that the attrition rate among NLG brokers is far below the industry norm at just 15%.
He chalked this up to initiatives including the new 15-week ‘NLG New Broker Fast Start Program’ designed in partnership with Mr. Mentor, weekly sales training, and pre-entry business planning for new brokers.
“Our vision is to remove a core barrier to entry by providing a clear pathway that builds broker confidence, competence, and compliance,” Lake said of the new program. “What makes this model unique is its dual structure, which equips brokers with both technical skills and practical business knowledge from the outset.”
He explained that Mr Mentor delivers the formal training, while NLG’s in-house mentoring team provides the day-to-day operational and compliance support.
“Too many brokers are left to ‘sink or swim’ in their first year,” added Mr Mentor chief executive Brett Mansfield (pictured above, right). “Our goal is to equip brokers with practical skills early, to enable them to engage clients confidently, secure business quickly, and ultimately improve a broker’s early career trajectory.”
The NLG New Broker Fast Start Program is being headed up by NLG's director of education Vanessa Lewis (pictured above, centre), who spoke of “raising the professional standard for the entire industry”.
A rising tide
NLG is far from the only one pushing for higher standards of education and professionalism in the broking industry.
Whether it’s the MFAA’s landmark launch of Australia’s first-ever university-level broker qualification, LMG’s popular Brokerversity platform, outsource Financial’s asset finance mentoring program, or the Commercial & Asset Finance Brokers Association (CAFBA)’s launch of online education platform PACE Premium, clearly there is a unified effort to raise the bar.
However, these programs are only available to accredited, working brokers. Shouldn’t there be greater effort to raise awareness of the broking industry at the pre-accreditation phase? Surely that would be the best way to cut down on sky-high attrition rates.
After all, as Lake said, “a diploma can only do so much in preparing people… We've seen people come through (the diploma) and become absolute superstars, and we've seen people go through the diploma and really fail”.
For Lake, it comes down to working together as an industry to provide adequate resources for prospective brokers.
“We’d love to collaborate with basically anybody who's got the same vested interest in making sure that all boats rise with the tide of education. It’s desperately needed.”
