A director and finance broker provides her insights after the brokerage looked at the recommendation for fee-for-service
Do you know how much it costs to write a loan? Until recently, our team at Atelier Wealth - like many other brokers - had no idea.
When the Royal Commission initially recommended that broker remuneration be changed, we decided to investigate how a fee-for-service model might work in our business. That led us to scrutinise how much it costs us to write a loan.
This has turned out to be an incredibly powerful insight. By understanding how much it costs us to write a loan, it has transformed how we think about our business.
Mortgage broking as a ‘product’
We embarked on a journey to look at our services through the lens of a ‘product’ that attracts costs to produce. This is what is known as ‘cost of goods’. This is an extremely important business metric and yet it isn’t discussed openly or widely in our industry. It’s certainly not something I’ve spoken to other brokers about until now.
Mortgage brokers “sell” home loan services. This is our product and we should know how much it costs to produce our product. Given most brokers don’t charge for their services, it’s no wonder we don’t have a good understanding of the value of our offering and how much it costs us to deliver it. This is very different to other financial service professionals such as financial planners, accountants and buyer’s agents, who have to charge a fee.
By understanding what it costs the business to write a loan, we can better understand our profit margin and set benchmarks for improvement, ensuring we can continue to build a profitable and sustainable business.
So, how much does it cost to write a loan?
For Atelier Wealth, we’ve calculated that it costs us $1,800 + GST to write a loan. While we believe this is competitive with the majority of our industry colleagues, it is likely there are larger and more established brokerages who outperform us. We have set a target to bring this down to $1,200 + GST.
What factors contribute to this cost? Well, we all know that the work involved in writing a loan in the current environment has increased. Lenders are asking for more information and documentation, there are new compliance processes we need to adhere to, and the turnaround times have become longer for some lenders. This equals more time spent to write a loan. It’s no wonder so many mortgage brokers are working harder than ever before, without much change to their bottom line, given we work in such a high touch service industry.
How do you calculate the costs of writing a loan?
We started by breaking down our entire process, step by step. We determined who undertook each task and how long each task took to complete. We also did a time audit. Every 15 minutes we noted down what we had been working on to ensure that we had accurately estimated our time and weren’t underestimating how long tasks actually took or task frequency.
We then looked at each team member’s hourly rate and multiplied it by the hours they spent on a loan. This became our total cost to produce an average home loan, end-to-end.
We also broke down our operating costs from annual to monthly to weekly to daily to give us a clear understanding of how much we were spending and when.
How can we bring the costs of writing a loan down?
We wanted to be clear that while this was an exercise in improving productivity, it wasn’t about compromising our client’s experience. When we set out to bring the cost of writing a loan down, our major focus became to reduce the amount of time we spend on each loan by increasing our efficiency.
By gaining a clear idea of every task undertaken and by whom, we are able to streamline our service delivery and create efficiencies. This process also helped us understand the team’s capacity for the year and which resourcing gaps will need to be filled as we scale.
We were able to assess whether each task can be outsourced, delegated, standardised via a template, or automated via technology to create efficiencies. The goal is to focus on what we call “Highest and Best Use” – where each team member focuses on the tasks they do best and most efficiently. By focusing on high value and high impact work we can get a better outcome in less time.
We have set clear targets about turnaround times and number of ‘touches’ per file. And we have also become much more conscious of how we can avoid rework through working more efficiently and collaboratively. Rework is the ultimate killer to productivity, our client experience and our profitability.
By ensuring every team member is as productive as possible, it brings the time and cost spent on each loan down. It also means we can write more loans and bring in more revenue without adding any additional costs each year.
While bringing the time and cost spent on writing a loan down makes good sense, there are of course limits. The last thing we want to do is to compromise the quality of our service delivery and client experience. We continue to hire staff onshore with the support from offshore staff. We have an experienced team and we would never sacrifice excellent customer service for a speedier loan writing process.
By understanding how much effort and time goes into each mortgage application, we now have a baseline to tweak our processes and make continual improvements to keep reducing our costs of doing business without compromising our client experience. This is crucial for us to be able to scale our business and remain profitable, while delivering the best service possible.
About Bernadette Christie-David
Bernadette Christie-David is a Director and Co-founder of Atelier Wealth, an award-winning mortgage broking business with a difference. Bernadette is a specialist broker, focusing on Self Employed and Self Managed Super Fund lending.
In 2018 Bernadette was recognised as a Finalist for the NSW Connective Empowerment Award for her work on the MFAA Young Professional and Women in Broking initiatives. In 2019, Atelier Wealth was recognised as Highly Commended as Brokerage of The Year at the Australian Mortgage Awards and also Office of the Year at the Australian Broking Awards.