Is consolidation harming the broker channel?

Is consolidation harming the broker channel?

Is consolidation harming the broker channel?

As Canada’s two monolith mortgage networks lock horns in a bid to grow their shares of the broker channel, some are questioning how positively consolidation impacts brokers.

“The jig is up—people understand they’re being bought, sold and traded like cattle,” said Chris Turcotte, president and CEO of Centum Financial Group. “Consolidation reveals the biggest pain point. When they accept these cheques, they’re locked down and there’s no exit. These brands know what they’re doing luring people in with giant cheques, but then locking them down. Some offices have signed decade-long deals, huge cheques, and then they start doing the math of what it will cost over a 10-year term.”

There are loud whispers of consternation throughout the broker channel about losing sovereignty in day-to-day operations. That is perhaps most evident in brokerages being forced to adopt new technologies.

“Consolidation is not only leading to broker disillusionment, but also concern,” said John Bargis, owner of Mortgage Edge and founding member of the Coalition of Independent Mortgage Brokers. “Much of the concern is surrounding the issue of losing one’s sovereignty and the intrusive solicitation of their brokers’ database, as many have already experienced with the networks that have pushed their own technology. Our broker member partners at CIMBC don’t have this issue since our technology insulates each brokerage’s data. The lack of complete transparency and trust seem to be a recurring theme.”

Both Bargis and Turcotte say they’ve noticed that ceding sovereignty eats into brokerages’ bottom lines, however—while still early—that trend could be waning.

“[Remaining independent] is more profitable in both the short and long run,” said Bargis. “The challenges we’ve seen with brokers that have expressed interest in independence are that they either don’t take the appropriate time to properly investigate their options or that they’ve regretably signed a long-term contract without understanding the costly implications. But we are noticing that this trend is changing as contracts come due.”

Centum is a network, but using Century 21—its sister company—as an example, Turcotte says it seeks out entrepreneurs and gives them relative autonomy. One reason Centum is able to do that is it isn’t buoyed by private equity firms.

“Brokers understand that’s the game,” said Turcotte. “There are huge private equity firms behind the two biggest networks, and private equity firms aren’t in business of holding companies long-term. It’s naïve to think there’s a long-term plan for any of these guys.”

4 Comments
  • David Larock 2018-10-19 10:00:29 AM
    One other important point to make on this topic.

    Brokerages often rationalize moving to a large firm as a way to increase their pricing power. But when you hitch your wagon to a large network, your funding ratios are also typically amalgamated.

    Brokerages that over expand inevitably dilute the quality of their brokers, which leads to more declines and cancellations. Lenders are increasing their focus on funding ratios and are now much more willing to cut off brokerages that waste their time. This trend is only going to intensify.

    Bigger won’t prove better over the long run. Quality will win out.
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  • Wane Davis 2018-10-19 11:29:35 AM
    As it has often been said, but can always be repeated...the market share the broker channel should be after is the banks market share, not eating consolidation which is basically like eating its own young.
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  • Chris 2018-10-19 1:18:26 PM
    Amen Wane, Amen
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