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According to Broker Essentials’ Jason Back, “there’s no right or wrong way.”
“The issue around whether you bring somebody in on a commission split or whether you go salaried is actually really quite important. And if you’re going to go salaried, how do you structure the incentives? What happens to the loan book?” said Back.
“And the most important thing is, when you’re ready to start, look at bringing on brokers is about bringing in the right broker. Now there are a lot of brokers who actually want to do the job. They want to deal with the customers, they want to get the right outcomes. They like the process, but they don’t like the uncertainty.
“They’re not good with the referral partners, they’re not good with the lead generation. And not everyone’s going to be chairman of the board. But I know from experience that there are lots of brokers that are daunted by the uncertainty of the sales side of thing, but they’re extremely good at the process. So that would lend itself to perhaps bringing in a broker on a salaried basis.
“However, there’s a cash flow issue then because you have a responsibility as a business owner to pay that person’s salary. You then have the added challenge of looking structurally at how you incentivise and reward them around hitting certain volumes and so forth. If you’re going to start building a salaried workforce, you’re probably going to want to bring in other people.”
Clearly a lot to think about. However, one mistake to avoid is having a mix of both, said Back. He also said that most brokers in Australia are commission-based.
“I work with a lot of really big brokerages and even some small ones that are very good at generating leads and inquiries and the salary broker that’s graduated through their internal academies that come in that want to learn the craft that are what we would call farmers rather than hunters, are fantastic fits for those business. They’re passionate about solving customer problems,” he said.
“They just don’t love going out and selling. They may not want to run their own business. They love this certainty of a salary and they’re fulfilling a fantastic position in that business. Now those salary brokers, those salaries are ranging from [$60,000] and [$70,000], with some sort of incentives all the way up to [$150,000] plus these days. So, it can be a really big commitment, and to a degree a risk. If those leads dry up then that business still has those expenses in play.
“But the salary broker plays a really important role. They can be embedded beautifully for long term into businesses. Depending on your aggregator’s interpretation of volume-based incentives, there can be different interpretations. So please do speak to your aggregator about your compliance and your requirements under those legislations around volume-based incentives or profit shares or dividends.”
Further, brokers may want to transition from salary to commission once growing their portfolio.
Back said: “If they want to move into a commission-based role because they’re starting to generate their own business rather than being lead fed, then there’s opportunities and there’s a pathway to move them into that. And then beyond that there can be equity within the business.
“There’s lots of really different models out there, but you have to define the business you’re in. If you’re a lead fed business then it might be salaried. If you’re not a lead fed business, then what you’re looking at is then providing them top grade support.”
The transcript of this podcast episode was slightly edited for publishing purposes. To listen to the full episode of Business Accelerator, click below.
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