It’s really a question of experience
Those considering becoming a mortgage broker are enticed by the prospect of building their own brand, working their own hours and the unlimited earning potential.
One of the first decisions you need to make is whether to start broking as a Pay As You Go employee or operate under your own Australian Business Number (ABN) as a self employed broker.
The pros and cons of being an employee
Pros
- No set-up costs and few ongoing expenses.
- Stable income.
- Base income to provide a buffer during tough months.
- You’ll be provided with leads.
- You’ll get sick leave and annual leave.
- Administration, IT and marketing support (varies between brokers and aggregators).
- Free training and mentoring.
- No need to manage, market or do accounting.
Cons
- Your commission rate will be lower.
- Your employer will have more contractual control so potentially less flexible work hours.
- Most of the time you don’t receive trail commission. We pay it!
When working for a brokerage, there are support staff and systems in place to help handle what is your core business: providing home loan solutions.
Of course, not all brokerages are created equal.
At some of them, brokers are starving for leads and it’s created an unhealthy culture where brokers are fighting each other for business.
This can lead to poor outcomes for clients because there is a “do or die” attitude to getting a deal to qualify or recommending a product that may not be in the client’s best interests.
At Home Loan Experts, we have a fair lead distribution system built on the basis of training each brokers to specialise in a particular niche, such as self employed borrowers, non-residents, those with bad credit or medical professionals.
Check out our careers page to learn more about the benefits of joining our team and how our brokers are paid a base salary plus uncapped commissions.
If it sounds like the brokerage for you, send your resume to careers@homeloanexperts.com.au.
The pros and cons of being self-employed
Did you that expenses are typically four times more than expected and small expenses can add up?
This is the reality of being a sole trader but let’s breakdown the benefits and drawbacks.
Pros
- Potential for higher revenue.
- Greater autonomy over working hours.
- More freedom over how you market yourself and the type of loans you want to do.
- Greater tax benefits.
Cons
- Very high failure rate.
- Higher revenue but not necessarily higher profit.
- High setup and ongoing costs.
- You have to hire, train and manage your own staff including IT and support staff.
- You have to do your own marketing and communications to attract leads.
- It can be a lonely working environment and difficult to learn from others.
- Ultimately, you have to wear many hats such as accounts, manager, marketer, salesman, loan processor and HR.
Generally speaking, choosing to work under your own ABN is really only suitable for a very high performer with more than 5 years mortgage experience.
Where the costs really add up
The regulatory and overhead costs of keeping your brokerage up and running is what most people new to the industry fail to consider.
PAYG staff and contractors that work for a brokerage will typically have most of these expenses covered by the business.
However, if you’re purely self-employed, around 50% of your commissions will go into operating costs.
These costs include:
- Rent for your business premises.
- Aggregator fees.
- Marketing and communications.
- Telecommunications and IT.
- Market data subscriptions such as RP Data.
- Travel costs and client entertaining (mobile mortgage brokers).
- External Dispute Resolution (EDR) Scheme membership such as the Australian Financial Complaints Authority (AFCA).
- Professional industry body membership such as the Mortgage and Finance Association of Australia (MFAA) or Finance Brokers Association of Australia (FBAA).
- Insurance such as Professional Indemnity Insurance (PI insurance) and public liability insurance.
- Your education, training and professional development.
- The salaries of support staff and other employees.
As a general rule, a sole trader mortgage broker will have a profit of around 50% of their turnover.
However, this can vary significantly depending on if you pay for advertising and how lean you run your business.
Tax implications of being self employed
Operating as a sole trader means you’re personally liable for your tax debts and the same tax brackets apply as if you were a salaried employee.
So what you really need to be careful of is setting enough money aside during the financial year to cover your tax bill.
Of course, most self employed brokers choose to run their business within a company owned by a discretionary trust.
Other brokers choose to use a discretionary trust to hold their aggregator agreement and licence and then use a company to subcontract broker services to that trust.
This is otherwise known as a sub-aggregation model but it’s really only typical with brokers intending to expand their business by partnering with other brokers.
If there’s more than one broker in the business, the trust structure allows for less exposure to each other.
Benefits of a trust structure are:
- Asset protection, which is probably the biggest win.
- Limited liability.
- Tax flexibility.
- The ability to transfer shares.
- Easy to add partners should your intention be to grow the business.
Be careful though: it can cost $2,000 – $3,000 in initial set-up costs and thousands per year in administration.
It’s crucial that you seek tax advice from qualified accountant when considering your self employed business structure.
In particular, consider what your long term business plans are.
Get advice
The best thing you can do is to speak with many mortgage brokers about their experience of either working as a PAYG employee or as a sole trader.
Chances are you’ll find many mortgage brokers started as PAYG and later turned self-employed to run their business at their own pace and work on business they wanted to work on.
The point is, they needed to gain the experience first.
Others still may have went from being a sole trader to operating under a mortgage broker banner due to the unprecedented regulatory and administrative costs of running your own broking business.
At Home Loan Experts, you’ll receive:
- A base salary (paid monthly) plus competitive uncapped commissions (paid monthly).
- Trail commissions that build over time.
- 50+ leads per month guaranteed.
- A secure long-term role.
- Industry-leading training and mentoring.
Think you have what it takes to join our industry-leading team?
Send your resume to careers@homeloanexperts.com.au.