The Pareto Principle

A CMP survey in April suggested that 49% of mortgage brokers are considering exiting the brokering industry in the next 12 months. That’s a stunning proportion compared to just 5% who responded similarly last year.

You may or may not buy into these numbers. Frankly, we find them almost implausibly high, but we haven’t seen the raw data. Whatever the case, our industry is undoubtedly shedding non-performing brokers. We’ve heard unconfirmed reports that as many as 20% of brokers in certain provinces did not renew their licenses last year.

None of this is to be unexpected. Vilfredo-ParetoVilfredo Pareto first proposed in 1906 that 80% of wealth is generated from 20% of the population. Mortgage brokering is a good example of an 80/20 business.

Anecdotally, we’ve heard a few lenders suggest that the ratio is closer to 90/10 in some cases. In other words, as much as 90% of the volume at some lenders’ broker divisions comes from the top 10% of broker teams.

For the little guy who’s not at least cracking the top 50% percentile, life is not easy, and it’s getting harder. Small independents are being flanked on multiple fronts (banks, credit unions, other discount brokers, etc.). Furthermore, lenders are increasingly demanding minimum volumes for their best rates and turnaround times.

Despite all this, business is still very healthy for most in our industry. CMP, for example, says that 50% of brokers expect to be hiring in the next year. That means the strong brokers will likely get stronger through expansion and volume aggregation.

In the meantime, there is one thing we are certain of. If we were a small broker today, we’d find a big “school of fish” to swim with (i.e., work for a larger and stronger broker team). In a volume-driven business, scale is undeniably paramount.

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(Survey source: CMP’s last Broker Sentiment Poll. Sample Size: ~300+)

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