Special Opinion piece for Mortgage Brokers and Agents.
August 26, 2020 | Posted by: Haystax Mortgage
When you invest your time, money, and energy into building a business you generally don't do it for the regular income that you earn, or at least most entrepreneurs don't. You hope to build a business that you can sell when you are ready to retire. So why is it so different in the mortgage broker space?
First let's be clear that someone who operates a mortgage brokerage, either as an independent or as a franchise, is an entrepreneur. If they were not, they would not have started the business in the first place. They would be mortgage specialists at a bank, or have a regular job. They would probably even just be an independent mortgage agent, but even in this scenario the same question applies. Why is it seemingly OK in the mortgage brokerage space in Canada to work for decades building a business that has little or no tangible equity?
I ask this question because historically it is very difficult for a brokerage to be sold simply due to the nature of the industry and how it is set up. Mortgage Agents are independent contractors who can easily float from one brokerage to another because their clients are loyal to them and go where the agents goes. The brokerage is then left with a business that is deeply reliant on the broker owner to do mortgages to drive their own personal income and support the business.
Some people will read this and say that there are examples where this is not the case, and they would be correct - but they are the rare exception. There are examples across the country of Mortgage Brokers and Agents working well into their 70's because they need to do so in order to survive in their golden years.
As Haystax is a new franchise brand, I want to take a look at this model in particular. Not the hybrids, like The Mortgage Group, but the true franchised systems like Centum, Dominion Lending, etc. Under this model, and regardless of the brand, companies have told their prospective franchisees for decades that by joining their brand they will build a business with saleable equity. One brand even ran with the tagline 'Number one equity builder for your business' for years before it was shelved because like all of the other brands, the saleability of a mortgage brokerage franchise is simply not there under the current business models.
Here's the thing though... why would someone purchase an existing brokerage when it is cheaper for them to just buy a new franchise? The existing brands have very loose territorial restrictions (if any) so I can open a new franchise a stone's throw from an existing one for a fraction of the cost. Also, given that most professionals who buy a franchise are already established mortgage agents, they don't really see the value in trying to assimilate someone else's client list and since the brand does little or nothing to facilitate the transfer, it is easier to start from scratch.
Most of the brands rely on new franchise sales to compensate for the ones that simply die away, or merge with their larger super brokerages. The reason why they do not have established territories is to facilitate the sale of new franchises. While good for the brand, not so good for the franchise owners because they often end up competing with locations that operate under the same brand as they do. The fierce competition in the industry is only further exacerbated by the selling of same brand offices, sometimes in the same office building. This confuses the consumer, dilutes the value of the brand, and makes it more difficult for entrepreneurs to build a business that has the desired tangible equity.
Personally, I don't get it. Why is this OK in our industry? Why do some of the most innovative, creative, and successful entrepreneurs in our country think that this is a smart business decision?
When you invest in something, you do so to get a decent return on that investment. Mortgage Professionals tout the wisdom of investing in property due to the safety and return of the investment. So why doesn't the same rationale apply to the very businesses that these Mortgage Brokers and Agents run?
When you purchase a vehicle, you know that you are buying a depreciating asset. It is why, in addition to the tax benefits, so many people today lease their cars as opposed to buying them. Owning a business is not like leasing a car, it is more akin to owning a home. You spend decades investing time and money into the upkeep of your home to improve it's value, and you do the same when you own a business. If home ownership was a depreciating investment, no one would want to own their own homes. Why take on the burden of upkeep if you are just throwing your money away?
The same is true for a franchise. Why own one if you are not building tangible equity? The extra stress of managing a business, plus driving income through your own client database, hardly seems worth it when the brand you belong too is just going to keep selling franchises on your doorstep to drive their own growth at your expense.
When we were building Haystax we expressly took a different approach and looked outside of the Mortgage and Real Estate industry for examples of franchise systems that work. What we discovered was that the phenom is not exclusive to our industry. The results are apparent and the residual equity in the brands that their franchises have, basically little to none. There are however a host of companies that have done it right. They built their model with two key focuses: (1) Build a strong network of franchises. (2) Build franchises that have tangible, saleable, equity with defined territories.
We took a page from those companies, and we built the model that Haystax has launched with to encompass the best of what they offer. Then we took it one step further, and unlike any other franchised company in our industry, anywhere in the world, we will guarantee - in writing - the equity that our franchisees and agents build in their business. That is how confident we are in the strength of our brand, and business model.
Owning a business, either as a brokerage owner or as an independent agent, should not mean that you are throwing good money after bad. The royalty that you pay supports the brand you belong too, just as the initial fee a franchisee pays is in truth a business investment. I believe that it is long overdue for the entrepreneurs and professionals in our industry need to start treating the money they contribute as the investment it really is.
Making a lot of money and having good savings for retirement is great, but you can achieve that doing a multitude of jobs. The freedoms and flexibility that being a Mortgage Professional has should not mean sacrificing your hard work and paying a franchise fee or royalty with no expectation of a long-term return on that money. That simply doesn't make for a sound investment strategy, after all… a business is not a car.