Mortgage brokers seeking alliances with advice firms

Mortgage brokers are increasingly seeking alliances with advice firms and dealer groups as a result of growing disaggregation in the sector, according to Centurion Market Makers director Wayne Marsh.

He said mortgage broking has been "particularly impacted" by the shake-up of the financial services markets, with the value proposition of mortgage aggregators coming under pressure on a number of fronts.

"Key loan providers have cut commission rates and overrides, funding sources have reduced, new loan volumes are down 30 to 40 per cent (off their recent highs), while costs have increased," he said.

These factors are driving some disaggregation, encouraging all mortgage providers to look at new forms of revenue, including alliances with advice firms, as well as general and life insurance firms.

The alliances represent a real opportunity for advice firms and dealer groups to "acquire client books" and to "grow their client base", Marsh said.

"Acquisitions of mortgage books at 1.2 times to 1.4 times annual revenue appear more attractive than the (current) financial planning valuations of 3.0 to 3.5 per cent."

At a practice level, he said, loans have always been 'sticky', with the average loan (of around three years) offering 15 to 25 bpts trail commissions, and 0.6 to 0.8 per cent upfront.

The alliances also represent "opportunities for arbitrage, including the prospect of converting some mortgage clients to financial planning, and increasing the value of a business".

"While client books with many clients taking out loans for the first time are not ideal (for this arbitrage), books of investors (such as do-it-yourself super fund investors) offer more scope."