Small and medium aggregators face tough competition and have stepped up their proposition to brokers in response
Here's Part 1 of MPA's latest feature on challenger aggregators. Meet the six challengers here.
Small and medium aggregators face some of the toughest competition in the industry, and have stepped up their proposition to brokers in response, writes Sam Richardson.
Brokers want it all, and so aggregators promise it all; cutting-edge technology, fawning BDMs and ultracompetitive fee structures. The problem with over-promising, however, is the danger of under-delivering. Nowhere is this truer than the world of ‘challenger aggregators’, where the battle against hubris, and lock-in clauses by established aggregators, necessitate a particularly impressive proposition to brokers.
That’s not the only balancing act which challenger aggregators need to perform. Smaller organisations in this industry, not just aggregators, have generally been associated with independence, personal service and below-average pricing. All of the challenger aggregators consulted for this article subscribed to at least one of these mantras, while recognising the extreme difficulty of achieving them all.
For this article, we’ve investigated how the key challenger aggregators are approaching this balance and the benefits for brokers. We’ve also considered the role of technology – once considered a death-knell for smaller operators – and how challenger aggregators approach or avoid the ‘armsrace’ with larger aggregators’ IT systems. With so many different strategies, just one thing is certain: the intense competition in this sector is driving innovation at a formidable pace.
Small Operators
Challenger aggregators are often equated with small aggregators. While major aggregators have broker numbers in the thousands, smaller players have numbers in the hundreds. William Lockett, manager and owner of Specialist Finance, argues a small size gives a big advantage: “We say it’s never been better for a boutique aggregator… a large part of the enquiries we get is because we’re not big and we’re not controlled by a bank or industry partner.”
In fact, Specialist Finance has a number of offices overseas, but Lockett insists their numbers in Australia remain small enough for him to deal personally with his brokers. Having a single manager able to converse directly with individual members gives Specialist Finance particular flexibility, he adds: “It’s very easy for us to adapt to market changes and industry trends because we have that flexibility and I own the business and can decide to go in that direction – I don’t have to sit in a board meeting with 10 people and take a vote.”
In recent years, smaller broker groups have been linked with exclusivity, with some smaller aggregators going as far as setting limits on their broker numbers. Outsource Financial was one of those aggregators, Tanya Sale notes, and whilst the success of her approach has pushed numbers over the target of 200, it remains an exclusive organisation: “We have grown over 200, but the big thing for us is that we’re still interviewing and picking and choosing who comes under our umbrella.” This includes Sale meeting all prospective members.
Controlling numbers is difficult not just because well-regarded aggregators are approached by prospective new members, but because larger brokerages want their new staff to be included. In Outsource Financial’s case it was their growing financial planning and accountancy clients who pushed up numbers, Sale explains: “We can’t say ‘200 members – wahoo!’; we can’t because our members are saying ‘we want this person accredited’.”
Distinguishing between small and medium aggregators can be difficult. Liberty Network Services is presently crossing that divide, according to managing director Brendan O’Donnell. With 62 brokers covering all of Australia’s capital cities and many of the major regional towns, they hope to grow to 100 by the end of this year; “This phase of growth is going to get us to that critical mass level”. Once beyond 75 brokers, O’Donnell reckons, it will suit Liberty Network Services to add national marketing campaigns to its present localised approach.
Debating Independence
Smaller operators, not just in aggregation but industry-wide, tend also to be associated with independence. Indeed among challenger aggregators are some of the most vocal critics of vertical integration in the industry, perhaps none more so than Outsource Financial’s Sale: “It comes down to why the third party channel was built… over 50% of mortgages go through brokers and this was built on independence; it was built on aggregator groups going out there and saying that we’re going to keep the major four honest.”
Sale regards the Recommendation 40 of the recent Financial System Inquiry’s report – which argued brokers should ‘disclose ownership structures’ – as an encouraging nod towards independent operators: “If ASIC are pushing disclosure, and there’s a bank-owned aggregator with that bank’s products on its panel, why shouldn’t there be disclosure all the way through?” She also notes that major changes in the financial planning industry won’t go unnoticed by the new generation of brokers: “I think opportunities will be created because more and more brokers, not just the old-school ones, but also the new entrants to our industry, want independence.”
Not all challenger aggregators see independence in such black and white terms. The 2012 acquisition of National Mortgage Brokers (nMB) by franchise giant Aussie was perhaps the most striking example of vertical integration in the challenger aggregator space. Encouragingly for the proponents of challenger aggregators, nMB has remained a separate business, and are headquartered in a different city to Aussie. In fact, Aussie’s white label product was only added to nMB’s lender panel in late 2014.
“We don’t hide the ownership,” insists nMB managing director Gerald Foley. “I don’t think there’s anything disadvantageous to the brokers or the consumers they deal with that you’ve got strong corporate backing.” At the time of the acquisition, Foley pointed to “talk in the market about consolidation and the need for growth and sustainability, and you have the option to get in front of change or to follow it”. The raison d’être for the acquisition – that aggregators require significant investment – has not gone away; NAB Broker chief Steve Kane noted at MPA’s recent Major Banks Roundtable that “to run aggregation today requires a lot of capital; you can’t just sit on the same software for extended periods”.
At the opposite end of the independence scale is Liberty Network Services, which was set up by non-bank lender Liberty Financial to distribute its products, although its brokers also have access to a 16-strong lender panel. The association provides excellent value for brokers, argues O’Donnell: “We don’t take a large proportion of the upfront or trail, in fact we take a very small proportion, because the focus is the business we write through Liberty and the margins we make on that business.” Close association, O’Donnell adds, also increases the benefits of the branded retail model (explained below), as brokers benefit directly from Liberty Financial’s extensive marketing campaigns.
Look out for Wednesday's Part 2 on what the challenger aggregators have in store for brokers.
This content originally appeared in MPA magazine issue 15.04.
Small and medium aggregators face some of the toughest competition in the industry, and have stepped up their proposition to brokers in response, writes Sam Richardson.
Brokers want it all, and so aggregators promise it all; cutting-edge technology, fawning BDMs and ultracompetitive fee structures. The problem with over-promising, however, is the danger of under-delivering. Nowhere is this truer than the world of ‘challenger aggregators’, where the battle against hubris, and lock-in clauses by established aggregators, necessitate a particularly impressive proposition to brokers.
That’s not the only balancing act which challenger aggregators need to perform. Smaller organisations in this industry, not just aggregators, have generally been associated with independence, personal service and below-average pricing. All of the challenger aggregators consulted for this article subscribed to at least one of these mantras, while recognising the extreme difficulty of achieving them all.
For this article, we’ve investigated how the key challenger aggregators are approaching this balance and the benefits for brokers. We’ve also considered the role of technology – once considered a death-knell for smaller operators – and how challenger aggregators approach or avoid the ‘armsrace’ with larger aggregators’ IT systems. With so many different strategies, just one thing is certain: the intense competition in this sector is driving innovation at a formidable pace.
Small Operators
Challenger aggregators are often equated with small aggregators. While major aggregators have broker numbers in the thousands, smaller players have numbers in the hundreds. William Lockett, manager and owner of Specialist Finance, argues a small size gives a big advantage: “We say it’s never been better for a boutique aggregator… a large part of the enquiries we get is because we’re not big and we’re not controlled by a bank or industry partner.”
In fact, Specialist Finance has a number of offices overseas, but Lockett insists their numbers in Australia remain small enough for him to deal personally with his brokers. Having a single manager able to converse directly with individual members gives Specialist Finance particular flexibility, he adds: “It’s very easy for us to adapt to market changes and industry trends because we have that flexibility and I own the business and can decide to go in that direction – I don’t have to sit in a board meeting with 10 people and take a vote.”
In recent years, smaller broker groups have been linked with exclusivity, with some smaller aggregators going as far as setting limits on their broker numbers. Outsource Financial was one of those aggregators, Tanya Sale notes, and whilst the success of her approach has pushed numbers over the target of 200, it remains an exclusive organisation: “We have grown over 200, but the big thing for us is that we’re still interviewing and picking and choosing who comes under our umbrella.” This includes Sale meeting all prospective members.
Controlling numbers is difficult not just because well-regarded aggregators are approached by prospective new members, but because larger brokerages want their new staff to be included. In Outsource Financial’s case it was their growing financial planning and accountancy clients who pushed up numbers, Sale explains: “We can’t say ‘200 members – wahoo!’; we can’t because our members are saying ‘we want this person accredited’.”
Distinguishing between small and medium aggregators can be difficult. Liberty Network Services is presently crossing that divide, according to managing director Brendan O’Donnell. With 62 brokers covering all of Australia’s capital cities and many of the major regional towns, they hope to grow to 100 by the end of this year; “This phase of growth is going to get us to that critical mass level”. Once beyond 75 brokers, O’Donnell reckons, it will suit Liberty Network Services to add national marketing campaigns to its present localised approach.
Debating Independence
Smaller operators, not just in aggregation but industry-wide, tend also to be associated with independence. Indeed among challenger aggregators are some of the most vocal critics of vertical integration in the industry, perhaps none more so than Outsource Financial’s Sale: “It comes down to why the third party channel was built… over 50% of mortgages go through brokers and this was built on independence; it was built on aggregator groups going out there and saying that we’re going to keep the major four honest.”
Sale regards the Recommendation 40 of the recent Financial System Inquiry’s report – which argued brokers should ‘disclose ownership structures’ – as an encouraging nod towards independent operators: “If ASIC are pushing disclosure, and there’s a bank-owned aggregator with that bank’s products on its panel, why shouldn’t there be disclosure all the way through?” She also notes that major changes in the financial planning industry won’t go unnoticed by the new generation of brokers: “I think opportunities will be created because more and more brokers, not just the old-school ones, but also the new entrants to our industry, want independence.”
Not all challenger aggregators see independence in such black and white terms. The 2012 acquisition of National Mortgage Brokers (nMB) by franchise giant Aussie was perhaps the most striking example of vertical integration in the challenger aggregator space. Encouragingly for the proponents of challenger aggregators, nMB has remained a separate business, and are headquartered in a different city to Aussie. In fact, Aussie’s white label product was only added to nMB’s lender panel in late 2014.
“We don’t hide the ownership,” insists nMB managing director Gerald Foley. “I don’t think there’s anything disadvantageous to the brokers or the consumers they deal with that you’ve got strong corporate backing.” At the time of the acquisition, Foley pointed to “talk in the market about consolidation and the need for growth and sustainability, and you have the option to get in front of change or to follow it”. The raison d’être for the acquisition – that aggregators require significant investment – has not gone away; NAB Broker chief Steve Kane noted at MPA’s recent Major Banks Roundtable that “to run aggregation today requires a lot of capital; you can’t just sit on the same software for extended periods”.
At the opposite end of the independence scale is Liberty Network Services, which was set up by non-bank lender Liberty Financial to distribute its products, although its brokers also have access to a 16-strong lender panel. The association provides excellent value for brokers, argues O’Donnell: “We don’t take a large proportion of the upfront or trail, in fact we take a very small proportion, because the focus is the business we write through Liberty and the margins we make on that business.” Close association, O’Donnell adds, also increases the benefits of the branded retail model (explained below), as brokers benefit directly from Liberty Financial’s extensive marketing campaigns.
Look out for Wednesday's Part 2 on what the challenger aggregators have in store for brokers.
This content originally appeared in MPA magazine issue 15.04.
