In practice, the difference between Independent and Dependent is not absolute, it is a continuum where you should always be trying to move yourself to being more in control of your own lead generation and therefore your client base and financial future. No one is ever truly independent of others.
There are specific ways to achieve this with your referrers, which effectively ‘flips the script’ of the normal ‘please refer your clients to me’ discussion that Brokers have with them. I will discuss these in more detail later in the book, but the basic principle is to help them build their business first to become valuable to them and then expect them to help yours.
A Dependent Broker is one that I define as needing others for their leads without having control over these relationships. At the very dependent end of the scale you have the Broker who is a direct employee of a business that shuffles clients into his office for him to provide finance, such as an accounting, real estate or building firm.
Even if the Broker is not officially an employee, such as if they are commission only, might have their own company and may even have others that work for them – if that Broker has no control over the business that gives them their leads, they are a Dependent Broker.
Probably the litmus test of the difference between an Independent Broker and Dependent Broker is — can someone else in the future stop you getting new clients? Can the tap be turned off by someone else? This might be because they replace you as their Broker or they change their business and can no longer refer clients to you, but the result is the same.
I’m not saying there is anything inherently wrong with this as there are many ways to be a successful and profitable Broker, just as long as you are aware that you are essentially in an employee position and the inherent vulnerability to external forces that brings, albeit possibly you have your own business name and branding.
One of the biggest trends I see in our industry is businesses that have access to new clients or a large client base and are bringing Brokers ‘in-house’ to provide mortgage services. Most major real estate agencies, accounting and financial planning firms will have a Mortgage Broking company that they own. These Brokers may also generate their own business, but by and large they are Dependent Brokers.
I see this as a negative for borrowers because a Broker who is tightly controlled by a third party has a potential conflict of interest. They are getting the loan essentially for both their referrer and for the client. Whilst these conflicts can usually be managed, sometimes the interests of the builder to sell a property at the maximum price, and the interests of the borrower to get the best loan, can be at odds. No matter how you look at it, the more interested parties there are in the loan the more divided the Broker has to be. Ideally, a Mortgage Broker has just one master and just one goal, their client and getting them the best possible financial result.
I also see this trend as a threat to Independent Brokers as ultimately it keeps shrinking the pool of potential borrowers. It therefore makes it even more critical to have effective marketing systems that build trust with potential clients so they can get assistance from a Broker that only has their interests at heart.