Every now and then we get a chance to delve into a brokerage firm’s model and see how it ticks. The inner workings of Invis-Mortgage Intelligence are of particular interest, for three reasons:
Its unique online lead partnership with Kanetix (industry watchers want to know how that’s been performing)
Its Access desk (where small brokers get “big broker” volume discounts)
Its management (The company has a relatively big organizational chart—and one that’s been in a state of flux in recent years.)
CEO Cam Strong was gracious and candid enough to speak to us about all of these points, including our big question—conversion ratios on Invis-MI’s online mortgage leads.
Here is that chat…
CMT: Thanks for being with us Cam. Let’s start with Invis-MI’s payroll. You’ve got a fairly big one, including eight regional managers. That’s more than most of your competitors. Why are that many regional managers worth the money?
Cam: Why are we investing in this staff? First and foremost, as you know, we stuck to a full service model for 13 years, which really means giving our brokers support in the field. And we feel that that’s even more important in difficult markets.
The past year we have seen quite a few Invis-Mortgage Intelligence brokers return…They commented that after spending time at other models, one of the things they really appreciated, other than things such as payroll and compliance, was having regional manager support. Really, it’s for training, marketing, planning their business out for the year and team building, including recruiting members to their team.
In our opinion, our regional managers gave us an edge in terms of strongest feet on the street, if we can coin that expression. It put us closer to our brokers to gauge their needs, and better respond to them. We are also very mindful of lenders who are looking for quality deals. Our brokers look to our regional management to help them with deals at times, and we want to maintain our reputation with lenders.
This year, because we’ve had a lot of teams come back, our net recruitment numbers are up…It’s approaching one billion (dollars) this year (calendar 2013) and this is net recruitment. That is, new hires minus anybody who exits from us, including whoever gets poached and goes to another type of model. A lot of it has come in the last four months since I took over, in part because I pushed our people to be better at that particular aspect of our business, the recruiting side.
CMT: You mentoned “difficult markets.” Are we in a difficult mortgage market right now?
CMT: What makes you say that?
Cam:You’ve got a poor economy at the border, which hugely affects Canada, and we’ve got stimulus rates. The stimulus rates look like they’ll stay for another three years, according to Bank of Canada…at least till 2015, 2016. That should tell you all you need to know. When you see governments offering stimulus rates, you know your economy is still in the depths.
CMT: Is it the economic weakness that is the only factor making the Canadian mortgage market more difficult?
Cam: No, consumer confidence is a big factor. It’s very competitive out there. The whole marketplace is fairly commoditized, as you know because you are dealing with it as a practicing broker yourself. There are lots of rate shoppers out there, et cetera. We are seeing a change in dynamic in the marketplace as consumers become more and more educated.
CMT: On the topic of staying competitive, Invis-MI has an access desk where brokers can route deals for top status rates. Apart from Mortgage Alliance and a few others, most brokerages and networks have either tried deal desks and failed, or simply refuse to implement them. Why has Invis-MI’s been successful?
Cam: The Access desk is really a centre of excellence for our brokers when they are having trouble placing a deal and need help. The other thing that Access gives us, and this is the point that you hit, is it gives top lender status rates, and you (as a broker) really don’t have to worry about volume.
There is no cost unless you are doing an interprovincial deal. We do charge a fee for interprovincial deals, and that has become a fairly heavy traffic of late. We offer that service for our brokers to keep them ahead of the curve with regulators. More and more, regulators have been scrutinizing interprovincial deals and we’ve had our access desk involved in that.
CMT: Who mans your deal desk?
Cam: We’ve staffed it with seasoned professionals who have both a broker background and an underwriting background. We’ve put some teeth into the positions there. I took a number of them on the speaking tours with me across the country and it went over really well. It’s something that brokers weren’t necessarily aware was available to them. There is also deal coaching there. If you’ve got a problem with a deal and you are not sure where to take it…the Access desk will help you place it.
For the deal coach side, that helps our reputation with lenders. Lenders are looking for efficiency, as you know. They are willing to compensate for that. It’s important that we drive that efficiency for our lenders. They respect you a lot more and you get a lot more help from them.
CMT: So, if there’s no cost for brokers to use the desk, how do you make money from it? Just from your split with agents?
Cam: That’s right… We get a deal that otherwise wouldn’t get through, and we are happy with that. The Access desk also handles some of our lead generation that comes through Kanetix, but they often funnel that out to brokers.
The desk does charge for interprovincial (deals), which have been heating up. We charge because we have licensing and insurance issues with interprovincial files that we want to cover off. The fee brokers get charged is quite small in comparison to having to co-broker with someone. It’s also a good retention tool for brokers.
CMT: Can you talk about the volume of the desk?
Cam: It’s approaching half a billion right now. I expect next year it will do more than that.
CMT: Why the uptick in interprovincial deals?
Cam: Maybe it’s always been there but (maybe) agents have been co-brokering their deals. I want to keep them safer than that. I’m just leery of the regulators there. We’ve seen some brokers, not from our company, get slapped and fined. We want to stay ahead of the curve with them. I think we were first to really draw brokers’ attention to interprovincial rules. If a broker is doing an out-of-province deal and doesn’t understand the regulations, they really should have the help of experts to get a deal done
CMT: What’s the story with your white label mortgages? Any unique value-adds there for brokers, or clients for that matter?
Cam: We offer two private labels, Partner and Wealth Line. Both offer really decent rates, they also pay commission on successive renewals. It’s not a trailer. They get 50% of the prevailing commission rate at renewal.
CMT:How much volume do you try to steer to these products?
Cam: When I’m on the PD (professional development) days, I tell brokers, “Look, we are not competing against the Scotia’s and First Nat’s of the world, but this should be part of your strategy.” Ten per cent might be a good number of clients to put through there because it builds [for the broker] an exit strategy. The more annuities (or renewals) you have attached to your business, the more it gives you something to sell down the road.
It also gives them an important client strategy. You can build a book of business around the client. If you’ve got a client that you really like working with, and they like working with you, this is a strategy to keep them.
We think this is important for brokers. If you look at other professionals like financial planners and life insurance agents, they have books of businesses they can sell. If I look at the life insurance agents we deal with, they can sell their books for up to three times annual premiums.
Why wouldn’t we give brokers that opportunity, not only with the private label (mortgage) product but also with an insurance book they can build?
CMT: How do you calculate that book value? Is it the revenue in the last year, or…?
Cam:What they will do is look at the net commissions they are earning on that particular book, and they look at the quality of it. Is it turning over properly? If the clients are renewing, they look at the renewal and run off rates.
CMT: You brought up Kanetix. How is your deal with Kanetix going, in terms of bringing in online mortgage leads?
Cam: Although we just started with Kanetix, this strategy will bring in maybe 1,000 leads in 2013. And for the most part, we send those to the brokers in the field to close. We do have our Access desk that can close them, but we try not to put too much through there. We really are not trying to compete with our brokers on this. This is just a value add (to them). I would say well over 90% of the leads go out to the broker.
CMT: What have you learned so far about mortgage business that’s sourced online?
Cam:Well, we’ve learned that there are a lot of customers shopping and kicking tires online. We wanted to have this channel for web shoppers who needed some guidance. We really wanted to marry them up with the brokers. We feel it’s a disservice to just bring them in on rate and not marry them up with a broker. We want to give them the full guidance that brokers give.
We partnered with Kanetix, who were experts in the field. They were dedicated to building something on a national scale and they have extensive SEO experience. We didn’t have that experience. They have done quite a bit in the insurance world.
We recognize that Internet shopping is growing out there and we’ve seen that trend for 10 years. Invis and MI started strategies in this space a long time ago but both were too early for the market. Online is another lead generator. We’d be remiss to ignore the channel. I think all the major houses should have this strategy and I’m surprised not all of them do.
CMT: Online origination is not a huge channel right now, but do you think that in 10 years, that will change?
Cam: Might very well be. It might be the only thing, Rob. Maybe you and I won’t be working. (Laughing)
CMT: (Laughing) Well, hopefully we’re not working by choice.
Cam: Maybe consumers won’t be asking us for any advice. They will say, “Oh just give me your best rate. I don’t really want to talk to a human being.” Then they may have no use for banks either. The future of online mortgage shopping is uncertain and new territory in Canada.
CMT: I find your approach interesting because if these folks are coming off of a rate site, obviously they are really focused on the rate. When they run into someone on the call centre who says, “We’d like to put you in touch with a broker for advice, yada-yada,” one might expect some pushback from clients who just want to know, “What’s your best deal?” Are you seeing that?
Cam: For most of them, if they’ve gone through the questions they have to go through (on Kanetix)…and they have taken the step to email or call the call centre, they are pretty open to having a conversation with a real live broker at that point.
It is at that point they start to understand that maybe this is a bigger step than they thought. There is a lot of money involved. Can you imagine them doing it all online for a $500,000 mortgage? You are taking a pretty big risk. Most want to talk to somebody.
CMT: What kind of conversion ratio are you seeing on the online leads?
Cam:You might get 40,000 hits to your website, and (only) 1,000 are legitimate…Those (1,000) then go through at the normal closing rates that you would expect. If you get 1,000 really decent leads, what do you close? We are finding 4:1 typically.
CMT: 4:1 for online leads? Wow.
Cam: I’ll get into this later but we partner strongly with financial planners. Those leads are pretty good (also). Financial planning leads are almost one-to-one (conversion ratio). It all depends where the lead comes from.
CMT: 4:1 is good for an Internet-sourced lead.
Cam:Remember, they are going through prequalification. On the leads you are getting, if they haven’t hung up the phone, you’ve got a pretty good shot at them — as long as you put them in front of a broker who can sell. There is a big prequalification before you get to that 1,000 (leads). If we are starting off at 40,000 hits (on the website) and then get down to 1,000, we then close those at 4:1.
CMT: Is that 1,000 people the number of online leads who call you guys? Is that what that represents?
Cam: It represents people who will go through our actual Access desk or our call centre.
CMT:Are you happy with your online strategy thus far?
Cam: It’s a tough strategy. Let me put it this way, I’m sure the ratio of deals we’re closing is probably commensurate with what happens on other rate shopping sites. Maybe it’s less. Maybe they do better than us. Because those guys are offering really deeply discounted rates. Just go on (the rate sites) and see what they are doing. Those rates are pretty low.
We are very careful with this. The rates we advertise on Kanetix are rates our brokers can get themselves, or through the Access desk. We will not undercut our brokers.
I’m looking online (at a rate comparison site) and I see 2.40% for a five-year variable. That broker is offering a bought-down rate. It’s commodity driven and the broker is willing to take a lesser commission on that. I don’t want to compete against my brokers.
CMT: I suspect it’s advantageous that Invis-MI is still the only brokerage on Kanetix.
Cam: That may change, and that’s okay. I’m not sure I want to be the only one on there. I get accused of so many things… (Laughing)
CMT:You mentioned buy downs, which are becoming more prevalent. What effect do you think this will have in time on broker compensation overall?
Cam:It’s going to drop.
CMT: And how will that impact a superbroker or broker network model?
Cam: Brokers are demanding 95/5 splits, if they’re a top broker. You’ve got rate buy downs and competition eating at all these splits.
CMT: OK, so how do you counteract that margin pressure?
Cam: One of the things we did for our brokers over 10 years ago is start an insurance program that’s our very own. We were really the only brokerage house that had their own.
CMT: You’re referring to creditor life insurance?
Cam:Yes. What we did is start to diversify our company into insurance. In addition to our own creditor life program, we have a full insurance subsidiary that can (also) offer home and auto to our brokers, at quite low rates, because you need home insurance to close your mortgage.
CMT: Do you offer term life as well?
Cam:We have relationships that allow clients to get term life, however they can get up to half a million of creditor insurance in a fast and inexpensive way, with features that banks don’t offer. Portability for example. Term life is part of a client’s greater financial planning strategy, as is home ownership.
CMT: Let me change gears back to competition for a bit. Let’s say brokers are getting 90 basis points on a five year fixed. What could that look like five years from now, given the current trend?
Cam: We will continue to face this war with rate buy downs and competition. The consumer is much more educated, as you know. They are certainly going on the Internet to see what the rates are.
CMT: Do you think that five years from now, brokerage profitability will be higher or lower than it is today?
Cam: It could be very well the same. It depends. Are brokers still relevant to their clients in five years? That’s the key question. I think if we can stay relevant to them as their liability experts, and cross-sell to them, we should be all right.
CMT:What types of things would make us less relevant to consumers in five years?
Cam: First of all we’ve got to get our act together on our designation, the AMP. That’s number one. I had the advantage of being a chartered accountant so I have 100 years of history with the CA in this country. I think mortgage brokers have to get recognized by other professional bodies, number one. They can’t continue down the path they are. They have to raise their professionalism. We’ve got to attract more educated people. We’ve got to push the AMP. Maybe it has to have force of legislation behind it at some point, or at least be regarded by the regulators as authoritative. To be relevant you’ve got to be professional.
CMT: Cross-selling is also a relevance strategy, but how realistic is the cross-sell strategy? As a client, I’m coming to a broker looking for a mortgage. Generally speaking, I don’t come to my mortgage broker looking for insurance or investments.
Cam:No, but if you [provide] the right mortgage advice, very quickly you can refer that client to other professionals, especially with first-time buyers…(As a homeowner) you need home insurance, and you should have creditor life insurance. It’s the same with title insurance. You wouldn’t close your house without title insurance anymore.
CMT:Is the fact that mortgage brokers cross-sell other financial products going to help our broker market share in five years?
Cam: Yes, because I think it’s going to make clients loyal to you. It’s going to provide stickiness. You are giving them reputable products and people that they can rely on. You may or may not get the best rate out there but you will get a very competitive rate, and your needs will be met. Most of sales is about relationships. This model just magnifies the relationship.
We have a pretty deep network with financial planners and insurance specialists. We’ve been establishing that over 10 years. Time will tell.
CMT: How do super-brokers build volume today? In the next five years, will the majority of your volume come from attracting brokers from other firms?
Cam: No, our focus is really attracting educated professionals who value our culture. We’ve got high-touch regional managers and a full-service offering. We have never varied from that. We offer payroll, compliance, marketing and lead generation. We even offer office space, and have the access desk and deal coaching.
CMT: But where are these recruits going to come from?
Cam: We are seeing them come from banking and financial planning backgrounds…We are seeing a new kind of person come in right now; people who value our structure.
CMT: Out of your one billion in net new volume this year, how much of that has come from other brokerage firms?
Cam: Maybe only 40%. That includes a subset of brokers that were originally with us, who are now coming back. The bulk of it is coming out of the financial planning and banking space.
And listen, that’s who we want to bring. We can’t be continually poaching from each other. We’ll just stagnate. The channel will not grow that way. We’re looking at the larger picture for avenues that will actually grow our industry as a whole.
CMT: You guys have seen some high-profile management turnover, which some might equate with instability. Can you speak to that?
Cam: I believe Invis-MI has dramatically improved the management team over the years…While some might argue we have gone through a lot of change in leadership in the past 13 years, the changes are for the better. Professional management has risen to positions of authority, like Scott Musselman as VP Operations. And we’ve hired competent specialists to further our offerings. Marketing has strengthened, for example, with the steady guidance and creativity of Kelly Neuber. And our insurance depth has strengthened with the experienced Elena Lombardo.
CMT: OK. Thanks for the time Cam.
Rob McLister, CMT
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