The Net Trend

CMP-Top-75-BrokersCMP’s 2011 top broker ranking is out. As usual, it excludes the bulk of brokers in the industry since most don’t submit their volume for consideration.

Despite that, it does provide an intriguing glimpse of successful brokers who do significant business.

One thing about the list that sticks out is that it’s top-heavy with brokers who market aggressively on the Internet. We’re talking about the Dan Eisners (ranked #1) and Jim Tourloukis’ (ranked #3) of the world.

With Eisner’s True North Mortgage closing $400+ million of deals and having arguably the most recognized national Internet brokerage brand, it’s clear that online mortgage origination is taking hold in Canada.

The net is forcing brokers and lenders to be increasingly competitive. And the industry is slowly realizing how important the Internet is for lead generation.

Ron-ButlerBut success with online generated clients takes infrastructure and a very different low-margin model. “The transition from traditional brokering is massive,” says Ron Butler of VERICO Butler Mortgage Inc.

Butler knows the game well. His firm will top $200 million in funded volume this year, after making the transition to mostly Internet-sourced leads. A huge chunk of his business comes from RateSupermarket.com, to which he pays thousands of dollars per month in lead fees.

“Business is hugely up with Internet. It’s a tiny bit more money but volume is up astronomically.”

The Internet has radically altered the economics of the business. “You can’t afford to give these deals to a regular agent because the grosses are so low.” As a result, Butler pays four salaried agents to help process the deals. “We’ll never hire another commission person for Internet business again,” he says.

Nine-figure volumes may sound enticing, but Butler says that Internet mortgages come with big tradeoffs:

  • His average Internet deal pays 45% less than normal.
  • Clients are mostly rate-driven so loyalty is “non-existent.”
  • His “funding ratios in some cases are not good.”

online-mortgage-shopperCritics of the net model abound (although the same was true before Internet trading took off). Detractors question the advice that low-margin brokers give clients. They claim that many borrowers simply have no idea where to start when arranging financing.

But in Butler’s experience, “You don’t get those people on the internet.” Online clients are far more informed and generally more qualified, with credit scores that are 40+ points higher than average, he estimates.

Butler explains that he’s basically “selling loans.” People usually want the same advice, he says, which includes help deciding on a term, getting the best rate, reviewing the contract properly, and paying off the mortgage quicker. He provides that advice easily and efficiently by phone.

None of this is to say that traditional brokers are dead. Despite the Internet’s influence, “There will always be full service brokers,” Butler states. “There is a group of customers who want advice and deep relationships, or a local broker they can drive to.”

But as time goes on, this group will inevitably shrink.


Sidebar: Interestingly, Ron’s son Dave Butler runs a separate division of Butler Mortgage where 90% of the business comes purely from personal referrals. The two business models are run independently with Dave’s side of the business ranking #4 in the country with $153 million in 2011 volume, according to CMP.


Rob McLister, CMT

  1. So that does lead to an interesting question. We know who has the highest Gross income but maybe CMP should look at who has the highest Net Income. Send in your NOA’s and lets see your line 150. From my investment background I always though the company that makes the higher net income has the bigger return on investment. So if you are buying down all your rates and paying a fortune for advertising does it really pay off. I guess it is good for your ego and you get published as number one but who has more marbles at the end of the game?

  2. True North Mortgage also has the retail locations accross the country. I guess the internet business and store front leads is a good combo with 400+ million. Good on ya Dan!

  3. Great article Rob! I can’t help but wonder though, how would the list look if it were ordered by revenue instead of volume?

  4. I agree that dollars funded is great and all. The real number is the one that hits the bottom line – profits.
    I suspect I would be first on this list by a long shot. My expenses are next to nothing – 1 assistant and 2 underwriters, and 2 phone lines (my assistants and underwriters pay their own expeneses – phone lines, supplies and even rent!!).

  5. Exactly my point Jim. I think today more then ever, the connection between volume and profit is a thin one. I would rather be the guy making 75bps off my 55M than 10bps off of 400M!
    All the same, some amazing numbers!

  6. The next step for Lenders is to limit the number of buy down files you can do. I am not sure the online discounters have factored that into their business plans. The Bank of Canada is not allowing the Banks to offer rates below 3% so there is an underlining warning here to a Brokerage that continues to defy the Bank of Canada. The Banks have a lot of power, and buy business from the Monoline Lenders. I hate to see the Broker World change because of a single business plan. I applaud Ron Butler and the other Brokers the bottom line is all that matters- not the fact you have a pyramid brokerage firm eating up Lender profits or by buying down every single deal so you can say you are a top 75 Broker. PS There are many Brokers not on the list that would remove half of the ones reported.

  7. The next step for Lenders is to limit the number of buy down files you can do. I am not sure the online discounters have factored that into their business plans. The Bank of Canada is not allowing the Banks to offer rates below 3% so there is an underlining warning here to a Brokerage that continues to defy the Bank of Canada. The Banks have a lot of power, and buy business from the Monoline Lenders. I hate to see the Broker World change because of a single business plan. I applaud Ron Butler and the other Brokers the bottom line is all that matters- not the fact you have a pyramid brokerage firm eating up Lender profits or by buying down every single deal so you can say you are a top 75 Broker. PS There are many Brokers not on the list that would remove half of the ones reported.

  8. The next step for Lenders is to limit the number of buy down files you can do. I am not sure the online discounters have factored that into their business plans. The Bank of Canada is not allowing the Banks to offer rates below 3% so there is an underlining warning here to a Brokerage that continues to defy the Bank of Canada. The Banks have a lot of power, and buy business from the Monoline Lenders. I hate to see the Broker World change because of a single business plan. I applaud Ron Butler and the other Brokers the bottom line is all that matters- not the fact you have a pyramid brokerage firm eating up Lender profits or by buying down every single deal so you can say you are a top 75 Broker. PS There are many Brokers not on the list that would remove half of the ones reported.

  9. “The next step for Lenders is to limit the number of buy down files you can do.”
    As a consumer I find that idea repulsive. Any lenders restricting a broker’s ability to offer his or her client a better rate should be reported to the competition bureau. Brokers who fight change will go the way of buggy whip manufacturers.

  10. I take my hat off to Jim who is a great competitor and sincerely, a brilliant mortgage broker. I have heard from other people in the know that he really does run a very lean operation.
    I have not yet figured out a way to make the rate site leads highly profitable. We make money at it but not enough money. We are constantly tweaking and re-evaluating our approach to try to improve the bottom line, but it is challenging.
    The only thing I know for sure is that even if Dan and Jim and I stopped doing it tomorrow; the public will continue to get more and more information about low mortgage rate offers faster and easier as each month passes.
    The web based information ship has sailed, none of us can change that.

  11. Ron, thank-you very much for being so honest, open, and authentic in the article and especially in your comment. I for one find that refreshing.
    I have been vocal about brokers cutting commission, let me be clear on my position. I see the virtue and wisdom of the model that you and True North are playing out on-line. I see it as a great example of capitalism at play. It is however a high volume play I think, and to that end congratulations on having the staying power to reach this level of success. Great job.
    I think you would agree that the average broker doing business in the standard way will struggle trying to adopt a low margin position, but alas it will continue I think.
    The threat for all of us I think, is the herd effect. If brokers think they are forced to join the rate war, then they all do to compete with your model. Then, it shifts. I think for the industry it is certainly looking more and more like this is a race to the bottom.
    I know you and your counterparts take heat for causing this, however I think this heat is misplaced. What will cause it is when the broker community at large takes the position “the client only wants rate” and as a whole they all start reluctantly or otherwise cutting commission to compete, and then it is downhill from there, as there will always be someone cheaper.
    On another point, I guarantee, and I think you probably already know this, but many large, powerful, and smart brokers read this same story today, and many I bet said, hmmmmm, this model seems easy to do and is considering entering this space, despite your warnings of the profitability and struggle. In fact I know for certain there are big players thinking about joining the fray. It is too enticing I think. No question, ALL of our customers start on-line looking for rate and/or other things. Who has the next shiny object wins for a while and then it changes again.
    By the way, I think to answer your question, “how do I make lead sites more profitable” I encourage you to think about more then rate. I suspect that the profitability of this model is really around the gross profit which is directly proportional to closing percentage. I am certain there is more in your arsenal, that you could offer that clients will choose you more frequently, for other then just rate alone. Keep pushing…
    Cheers,

  12. Some great points Greg. When the rate battle pushes broker margins to the brink — and it will — brokers who add minimal value will try to match the high volume shops on pricing (which will be impossible to sustain long term). This spiral has already started and there’s no reversing it. The average broker needs to take a careful look at his/her business model because the economics of our business are changing radically and forever.

  13. This was a great article and a lot of great points and views have been made and pointed out.
    Personally the bottom line is things change and if you’re not willing to embrace that change then you will likely get “pushed out” of the industry.
    Look at the times, people are happy to take more time to shop to find better deals on basically everything from clothing to mortgages… And when they find that deal its the “instant gratification” that closes the deal in my opinion. It’s just how society as a whole (or mostly whole) has evolved.
    Not that the days of loyalty shopping are completely gone but loyalty if definately re-defining itself at the very least.
    If your not willing to adapt to the change that the internet and new media has brought you will get left behind. Simple as that really.
    Personally I would focus on the instant gratification angle of things and if you can consisitantly keep your clients and new potential leads instantly gratified then you should do alright.
    Thanks for my 2cents.. Really enjoyed this article.

  14. Many thanks for the post Jason. I’m with you in that people’s need for real-time information, service, and solutions is a tremendous force today. In some circles I’ve heard it called “Nowism” (i.e., needing ___ now).
    One thing that doesn’t move so fast, however, is trust and brand building. Trust is indispensable in financial services and it takes time and repetitive touches to build. Albeit, those positive impressions can often be garnered indirectly through word of mouth, credible online reviews, etc.
    Essentially, it’s akin to saying “slow and fast” wins the race. Businesses that couple these two principles can really have a leg up.
    Cheers….

  15. just curious what it may mean to this marketplace (canadian mortgage brokers) in the next while.
    will brokers become call centre agents?
    will brokers go the way of the travel agent?

  16. I would put Calum Ross’s or Gord P’s income numbers up against yours in a heart beat. Those guys do all their own leads and don”t buy down rates.

  17. Butler Mortgage = Horrible customer service (in my opinion).
    They might have good rate but their documentation is sloppy and their attitude will need improvements before they can be considered a serious player.

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