Upwards of 70% of mortgage agents in Canada work at one of the top 10 brokerages or broker networks. And then there are the rest. Mostly independent, these agents faithfully serve their clients under their own flag.
But it’s getting harder to maintain margins these days, especially if you’re an independent broker. In many cases, independents simply don’t have the support, nor do they have sufficient buying power, key relationships and top-tier compensation with enough lenders. Those are meaningful benefits they might otherwise receive with certain superbrokers.
That may be partly what sparked John Bargis’s newest idea. Bargis, who owns the brokerage Mortgage Edge, has spearheaded the new “Coalition of Independent Mortgage Brokers of Canada” (CIMBC). It’s essentially a club that, among other things, aggregates volume to improve the economics for independent brokers.
Now, if you’re an industry watcher you might be saying to yourself, just what we need, another broker network. But this one has a different twist. Bargis reportedly has commitments for more than $3 billion in volume from some major brokers. We’re talking about heavyweights like Monster Mortgage, Oriana Financial, his own Mortgage Edge and others.
Bargis believes that this volume and a focus on efficiencies will create value for lenders and suppliers. For broker-owners, the intended result is extra compensation at many of the top 25 broker lenders, including cash rebates. And it’s this last piece (rebates) that may cause an industry ruckus.
Many agents don’t know this but several lenders and suppliers (e.g., D+H) pay rebates or incentives to the top brokerages, franchisers and networks. Bargis has apparently built a system that flows those rebates through to the coalition’s broker-owners. In most cases, we’re talking from zero to a few basis points, depending on the lender/supplier. For a $200-million team, that might translate into maybe $30,000+ per year in additional revenue, according to estimates we’ve heard.
On top of that, the coalition (as we understand it) charges no membership fees to broker-owners and their agents — i.e., no commission split, no franchise fees and no advertising fees. We’ve heard unconfirmed reports that CIMBC’s management may take roughly one basis point to fund its operations, plus a share of ancillary product revenue.
That and the aforementioned rebate plan are sure to rile management at CIMBC’s top competitors. Right or wrong, Superbrokers may take aim at the coalition for having a leaner operational staff, minimal branding, limited technology, less payroll and compliance support, and modest back-end infrastructure. But the broker firms the coalition has targeted thus far are virtually self-sufficient, so these may be moot points.
There’s also a question of governance. Will the coalition be run by consensus of the broker members? If so, what is the potential for conflict among members who are accustomed to being totally independent?
As for lenders, Bargis says the response has been positive. In querying a sampling of lenders myself, they seem to view it as just another broker organization. A few lender execs we spoke with were happy to hear of a new entrant in the marketplace. Their concern was that certain broker organizations may be amassing too much market share and attempting to dictate their terms on lenders and suppliers.
The biggest question is what kind of rebates CIMBC will get. One brokerage executive tells CMT that he’s spoken with all major lenders and they purportedly claim that CIMBC will get no special treatment. “I think [the broker members] will be surprised at the amount [these rebates] actually work out to.” It averages out to a basis point or two, he says. Moreover, most lenders don’t pay any such rebates until a firm reaches a high-volume threshold, sometimes in the billion-dollar neighbourhood. The question remains, how many lenders will CIMBC qualify with for rebates?
And finally there’s the question of broker interest. So far that interest seems real, and broker Ron Butler may be representative of it. “If a new network has all of the lenders on board with the same bonus levels I have today,” says Butler, “and if Morweb or D&H are on board with the same service I have today, and I can stop paying fees to the network and instead start receiving money from the network,” it’s undeniably compelling, he says.