A group of five high-performing RBC mortgage specialists have decided that the grass is greener in the broker world. The group formed a company called Denova Group and has joined Mortgage Alliance, a national mortgage brokerage.
Mortgage Alliance President & CEO Michael Beckette pegs the team’s trailing 12-month volume at half a billion dollars.
We spoke with David Goncalves, one of the group’s founding partners, to find out why he left the “golden lion” to be an independent.
Goncalves, a 10-year RBC vet, has been a top-10 RBC mortgage specialist (in total sales) for five years running, says Mortgage Alliance. RBC has somewhere around 1,500 mortgage specialists.
“It came down to more entrepreneurial activities,” said Goncalves, who wanted to expand his private and commercial lending.
Rates were another key issue. “The rates are similar,” he said. “The difference is that banks are cyclical and they go through stages when they’re competitive and not competitive. In the broker word it’s a lot more consistent.”
“The ability to advertise (good rates) gives brokers a bit of an advantage,” he added. Banks don’t allow mortgage specialists to mass-advertise the lowest rates.
“One of the things that restricted us [at the bank] was that when we’d send up an advertisement, it had to have a marked up rate." That’s no longer necessary as a broker, he says. “Now we can send out mass marketing with best pricing. It’s exciting.”
“The biggest advantage of brokers is not so much rate, but selection of products,” Goncalves notes. RBC, for example, offers one lump-sum prepayment option (10% lump-sum prepayments makeable once a year). By contrast , brokers can access lenders with up to 30% lump-sum prepayments, makeable anytime.
“As a broker, you might start off with 10 lenders that fit the client’s bucket," he said. "Then you can start narrowing it down to one or two lenders that meet the client’s needs very well.”
Goncalves also cites compensation pressure as a factor in his group's decision. With banks forced to match brokers, specialists often have to give up compensation to “buy down” their rates. That's sometimes hard to swallow because they make less per deal to begin with.
And then there’s the matter of creditor life insurance. Banks often use quotas to pressure mortgage specialists to sell creditor life insurance. Sometimes they’re expected to sell insurance to one out of every three applicants. But many clients don’t need it. Moreover, bank-issued creditor life is typically inferior to regular life insurance, or even broker-offered creditor life (which is portable, unlike most bank policies).
On the downside
When a broker leaves a bank, he/she has a far weaker brand behind them, especially when they’re a start-up. RBC is the #1 mortgage name in the country, based on volume. It spent $385 million on marketing and PR in 2012 alone.
Another thing that bank-rep defectors lose is the extended builder rate hold. RBC, like other major banks, offers rate holds as long as 2-3 years on “new build” purchases. Most brokers are limited to one year or less through lenders like B2B Bank.
But Goncalves admits, “I’ve gone away from long closings…(Many) don’t close with you so it’s not as lucrative to do that business…So often, the client no longer qualifies (when it comes time for occupancy). Or, the buyer assigns the unit and the bank claws back your commission." (Despite this, I spoke with another RBC insider who says that top builder reps close upwards of 70-80% of their deals.)
I also asked him about non-compete contracts, which he wasn’t able to comment on. In speaking with other bankers-turned-brokers, non-compete agreements (which last 9-12 months in many cases) haven’t dissuaded them in the least.
And lastly, there are pensions and benefits to consider. Most brokerage owners and agents have no pension, stock options or RSP matching. One bank rep told us that his pension is based on his best consecutive five years of income. Try to find that security in the broker world. Moreover, monthly premiums for health/life benefits are a fair bit more expensive for brokers, for often inferior plans.
(Side note: Some banks, like RBC, also send branch leads to their mobile sales reps. That can amount to decent volume on an annual basis, albeit less volume than most top brokers generate.)
Why Mortgage Alliance
There are several value-added broker networks to choose from. Goncalves says he picked Mortgage Alliance because, among other things, “They didn’t require us to take a franchise…but they allowed the same benefits. We weren't prepared to take on the liability of a franchise.”
Goncalves found Mortgage Alliance’s team building offer the most attractive enticement. “They were prepared to put on paper that they were going to help us build a team.” That’s something that most other brokerages don’t do.
Beckette cites two other advantages, among others, that brokers find appealing about Mortgage Alliance:
Its integrated technology platform, called MortgageBOSS, has payroll, software-assisted compliance, CRM and deal management functions.
Its proprietary mortgages (like the RightMortgage, which lets customers add/delete features to customize their rate).
“We’ve got any model that you might want,” says Beckette. “If you want maximum compensation, we can facilitate that. If you want service and support, we can facilitate that.”
“They (Denova) were looking for more than a signing bonus. They could have got more money in other places.”
”We’ve got to the point in our business where our investment in technology has put us ahead of others. We could add 400 brokers without adding staff or other infrastructure.”
Mortgage Alliance Momentum
Denova Group is the latest big producer to join Mortgage Alliance. Beckette says his company has added $2 billion of net new volume in the last 12 months.
He adds that Mortgage Alliance was the first to build a consumer brand, the first to offer unique mortgage products and the first to create a mortgage originating software platform specifically for brokers.
Which Side Will Prevail
There are no industry statistics to document how many mortgage professionals switch sides (from bank to broker, or vice versa). On an anecdotal basis, we’ve talked with at least a dozen large-producing bank specialists in the last 12 months who have moved to the broker side.
We’ve also spoken with bank recruiters who have claimed to snag a large number of ex-brokers. One thing about banks: they don't advertise when they bring on big broker teams.
In the end, best access to rates, products, marketing and total compensation/benefits should win out. Banks may have to narrow some gaps in those areas if they want to retain their top talent.
Sidebar: These are production estimates from RBC sources we spoke with:
In mortgage volume alone, top-10 reps typically close a minimum of $80+ million a year, with some significantly higher.
The annual minimum expected production for RBC specialists is about $15 million.