Broker Coalition Causes a Stir

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.

Rob McLister, CMT

  1. As always, I admire anyone with a commitment and the initiative to create a new compelling business model.

    Of the 6 groups that have come together (under the coalition) most of them have great reputations and are well respected.

    But I am a little unclear on how the model can work long term. All healthy businesses need to be profitable so that they can continue to innovate, create structure and build out value propositions that all good brokers require and demand today.

    It’s my understanding that this is a zero split system and that they are hoping the lender will provide additional incentives, better and discretionary pricing, sponsorship dollars and other volume targets that will trigger incremental incentives which will be shared among the group.

    If they are not going to change their names to a Universal one and register under a single banner with the licensing bodies then why on earth would the lenders recognize their volumes as consolidated?

    Scotia Bank, First National. MCAP, Manulife (MPP) and D&H have all told me directly that they can’t possibly support this. They have all said emphatically that they will continue to do business with these companies but they will not be offering special pricing, or additional incentives to a coalition.

    Maybe they win a small amount of traction from the struggling lenders but who are fighting tooth and nail for every deal but ultimately this will be a mistake for the industry as a whole.

    If it were that easy, everyone should be a coalition. Lenders can give everyone special pricing, exclusive products, unlimited buy down capabilities and then pay everyone more money, just because everyone comes together and says we are a coalition so we need more! Give me a break. The lenders are way smarter than that.

    These teams have nothing to lose. Make an announcement, see what kind is buzz it creates, cross their fingers and hope that the odd group joins them, and then pray that the lenders play ball. If they don’t and most won’t, it will be business as usual and all the wonderful teams will be go back to their independent operation, no harm no foul.

    I have had two of the Coalition brokers ask for tickets to the our DLC Party tonight. Guess they aren’t having one, lol. I

    love this industry, I love the people and I love the opportunities that it continues to afford our families. If we continue with models that don’t create revenue for things like education, consumer awareness, government lobbying and innovation for our agents to become better and grow their businesses, then we will officially be going backwards.

    Thanks for considering this perspective.

    Gary Mauris

  2. Interesting comments Gary and I would say that I agree with some of your comments but disagree with the other parts. Also find your comment of some of them having a bad reputation comment so You! I believe you should show more class then this!

    I agree with the comment that companies need to make profits but take DLC for example. A DLC Team of $300 Million (50 Agents) gives you Almost $240,000 (5% on $300M= $150,000 plus marketing fee of $90,000) annually, that’s $1,680,000 for a 7 year term. You provide no licensing, No Payroll, No Compliance, …… Why should a team like Monster mortgage join your company and give you that much money?

    I know the only reason you were able to grow this big was, you bought most of these broker houses with signing bonuses and now the only way to keep them with DLC is to open your wallet again!

  3. The insurance industry had Equinox. It worked so well, that Manulife had to end up buying them, and took them out of the MGA marketplace. It doesn’t surprise me to learn MPP is against it. hehehe

    CIMBC, will work as a good arena for the independent mortgage brokerages, and every mortgage agent deserves to sell good products.

    I don’t know what CIMBC is yet, but the idea is long overdue.

  4. Thank you for your article Rob, but there are several inaccuracies in your publication about what the Coalition represents. The value proposition to the industry has been clearly misunderstood.

    Much has been said about the Coalition in the past several months while it has been work in progress, and much more will continue to be said about it. This is no different than every other start up on both the lender and broker side of our industry, but they’ve all prevailed regardless of the unfortunate mud slinging.

    The sad part is that there are those who feel the need to make unprofessional, misleading and unwarranted postings as a result of feeling threatened. I won’t participate in any of this unconstructive exchange, only to look foolish.

    To be clear, the Coalition represents a co-operative effort of several strong industry players, who’s successes and reputations speak for themselves. They have all considered the model very carefully and see a considerable value in the Coalition and its objective to raise the bar in our industry, rather that to participate in models described above by Vahid, who seems to know the inner workings of the DLC quite well.

    If anyone has an interest in learning more about CIMBC, they are welcome to contact us directly at info@cimbc.ca……Stay tuned.

    1. Thanks for the note John. Any clarifications are welcome and we’ll happily publish them. Unfortunately we didn’t get much response to the fact check draft of this story that we sent several weeks ago. Regardless, all the best to you and CIMBC on this very unique initiative.

  5. I can appreciate your sentiments Rob…….Thanks for the well wishes on the Coalition. It will be a success. ….The response has been overwhelming since the Coalition went public yesterday.

  6. “70% of mortgage agents in Canada work at one of the top 10 brokerages or broker networks”

    Is anyone able to share a more detailed breakdown of this?
    Also, would anyone like to take a guess at how much of the remaining 30% CIMBC accounts for?

  7. Gary, I assume its safe to say your Mortgage lender, “Canadiana” will not be giving any special deals to John and his new start-up?

    Cheers

  8. I find it interesting that Gary Mauris would so quickly dismiss this alliance. VERICO, arguably one of the most successful brands in the business, does not require their offices to advertise their brand, and the lenders support them.

    Is Mr. Mauris spreading mis-information to try to benefit his brand? Well let’s talk a little bit about that… I just returned from CAAMP in Montreal, it was for me by all rights a great event. Except for one thing. It seemed to me that certain DLC’ers spent a lot of time bashing the other brands. I heard statements like “We are going to buy you”, or “You should just join us now because eventually we will be the only game in town” – one of the franchise sales reps from DLC suggested to my face that the brand I belong too was crap and full of losers. It felt like bullying to me. There is no other way I can describe it.

    I may not belong to a brand that is as large as DLC, but at least I can be proud of the people who lead our brand. I can emphatically state that our leadership would never resort to these types of tactics. If I was a franchise owner of DLC, the behavior I saw in Montreal this week would make me seriously question the quality of the brand. I want to associate myself with people I am proud of, people who represent the best that this industry has to offer. TV advertising be damned, it’s not worth it when the moral compass of some of the leadership is broken.

    [This post represents the opinions of this poster only and not CMT. It has been edited to remove various unsubstantiated claims. -CMT]

  9. James, I would be very disappointed if any of our team members suggested the competitors were crap and full of losers. I have been around since day one and we would never tolerate that.

    We have very good relationships with our competitors and many of them have paved the way in our industry for many years. Are we competitive? Of course we are. They get some of our team members and we get some of theirs.

    Please contact me directly and I will make you a promise: if one of our people said those things then they will be dealt with appropriately and swiftly.

    It’s not easy in our business and everyone competes but that kind of crap will never be tolerated, I can assure you.

    I appreciate the loyalty you show for your existing company and admire your stance. We will be following up on this and feel free to contact me directly at gary@dominionlending.ca if you want to share more or let me know who you were speaking with. Thanks

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