By Jill Fraser for Lending Central
Wanted: Team players and self-starters who possess problem solving and networking attributes.
After emerging relatively unscathed from the mortgage fatigue that has beset the industry for the past couple of years Smartline is embarking on a period of expansion.
Referring to 2009 as the year when the industry suffered “death by a thousand cuts” Smartline Managing Director, Chris Acret told Lending Central that serious soul searching prior to the Global Financial Crisis helped Smartline survive.
He has no doubt that commission cuts will reshape the industry over the next few years and admits to being quite “underwhelmed” by the meekness of the proposed regulations.
Acret spoke to Lending Central about Smartline’s philosophy of nurturing franchisees and establishing a positive, non-competitive culture within the team whilst offering rare insight into his personal satisfaction and frustrations.
LC: Why did you choose the franchise model?
CA: When you start a business you have a sense of what you want to achieve. We wanted to build a group that wouldn’t necessarily be the biggest or the most well known but would always be synonymous with quality.
In some ways it would have been easier to put on every man and his dog and simply aggregate. But we chose a franchise because it’s a team approach and has a consistency within it, which provides an ability to highly systemise the business.
LC: Yet it allows for a degree of independence and individuality.
CA: That’s it. There’s a myth that franchising is about regimentation when in fact it allows you to systemise your client care and create a team culture, which becomes very important in terms of motivating and sharing.
LC: I understand that only one out of 100 prospective franchisees make the cut at Smartline.
CA: The majority of our franchisees have come from a banking background because that’s where we’ve concentrated our recruiting in the past.
Other people we bring into the business are what we call ‘clean skins’. That is, people without industry experience.
We’ve never done a huge drive in the broker market but now for the first time we’re looking at bringing brokers in to Smartline.
LC: Talk to me about the difference between clean skins versus those with banking backgrounds.
CA: People with a banking background are definitely the lower hanging fruit because they come with lending experience, especially about the technical side of the business.
Mortgage broking has two distinct sides of the coin. You need to be quite technical and enjoy the problem solving aspect of lending but you’ve also got to be a good communicator, a networker and a self-starter, which is a large leap for bankers who are often relatively institutionalised.
LC: What prompted you to start looking at brokers?
CA: In the past we’ve felt that people wouldn’t be prepared to move from their existing group into a franchise. But as the industry matures and regulation starts to bite it will become a tougher industry and more people will start feeling lonely and realise the importance of systems and support and a team culture.
LC: So you’re one of the many who think it’s going to be tougher for brokers?
CA: The last two years have been extremely tough for brokers. They’re tired not just because the market was down and commission cuts hurt but because the daily grind and battle with banks has been debilitating. Getting a loan through today is much harder than it was a few years ago.
LC: Do you sympathise with brokers?
CA: Very much so. It’s a stressful occupation when you’re the middleman.
What we see are brokers who are passionate about looking after their clients yet incredibly stressed because getting approvals through has become so tough.
Last year was like death by a thousand cuts, not just for Smartline but the whole industry.
LC: Was there any time during the GFC when you felt it was getting too hard?
CA: Before commission cuts came in we had an inkling that it was going to happen and we started questioning whether or not a broking business was viable. We did a lot of soul searching well before the GFC.
There’s no doubt that commission cuts are going to reshape a lot of groups.
That was one of the reasons we concluded that a higher level of scale was needed. In some ways when you do a merger (Smartline merged with Mortgage Force in July last year) it becomes all encompassing and by necessity you become internally focused. That meant we weren’t too worried about what the market was doing or not doing, which in some ways was a positive.
LC: Now you’re going through a period of expansion.
CA: We need to grow on an ongoing basis. We have 200 franchise owners but it’s not the sort of business where you can’t just sit back and relax. You need to evolve. That’s the story of Smartline. We’re always trying to improve our systems, our marketing and our service and slowly but surely grow our franchise team.
LC: What is your goal for the next couple of years?
CA: I would like to get close to 300 franchises. But I don’t expect that will be simple or easy.
LC: What sort of risk does this entail?
CA: Once you get to a certain size it becomes harder to grow because there’s natural attrition. So growing means putting on considerably more people than you’re losing and ensuring you nurture them so a good percentage are successful in long-term businesses.
We’re not a churn and burn business. Ideally we want the majority to run sustainable businesses. That’s our core philosophy. We’re not just an aggregator. We maintain that we’ve got a successful, sustainable business when our franchises are successful.
LC: What impact does it have on Smartline when one of your franchises fail?
CA: Failure is as natural to a broking business as breathing. It’s incredibly hard to build a business from the beginning and a percentage of people will always find it too hard. They won’t get enough traction or make it through that initial barrier of 100 clients.
LC: What do you enjoy about the business? Do you handle stress well? Are you a people person?
CA: I get a lot of satisfaction out of running and improving the business. There’s nothing more satisfying than seeing a culture grow within a company. The times I’m most proud is when I see what’s been created and look at that culture in action. It’s really important to us to have a happy group of campers.
LC: Has it always been thus for you?
CA: It wasn’t at Mortgage Choice. (Acret along with former colleagues Bill Rankin and Roy Hessey caused a few waves when they left Mortgage Choice in 1999 and co-founded Smartline.)
But it’s definitely something we have focused on at Smartline. It’s never easy and I think that’s the nature of any organisation where you have a team. You need to work hard at building a positive culture where people are happy to share information, help others and contribute to a positive working relationship between the group office and the franchise owners.
When you achieve that it’s worth its weight in gold. Life is too short to be working in an environment where there’s an ‘us and them’ attitude. That sort of negativity is demoralising for everyone.
LC: You describe the culture you want to establish as positive, what other words can you use to describe it?
CA: There’s a real sense of team playing. I don’t use the word family because it’s become a corporate cliché.
There’s a sense that if someone is in difficulty others will support them. We don’t want a situation where everyone is looking at a fellow franchise owner as a competitor.
LC: Isn’t competition inherent within franchisees?
CA: It can be but it doesn’t happen within Smartline. The spirit is much more; I’ll share with you because others have shared with me.
We have a National Franchise Advisory Council and I’m told they while franchise advisory groups can be quite negative ours, touch wood, has been very worthwhile. We’ve put in place over 150 initiatives.
LC: Are you accessible to staff and franchisees?
CA: I’m so accessible I don’t have a door. We’ve always been open plan. That’s the style of our business. We don’t believe in a hierarchical approach.
LC: Your loan portfolio is currently around $10 billion, where do you see Smartline in five year’s time?
CA: In terms of the loan?
CA: I would like to build on the foundation we have in place. Fundamentally Smartline was built looking ahead to how the industry would evolve. So we would like to have a stronger presence, which means heading towards 300 franchise owners.
I don’t aspire to be a household name.
LC: You don’t?
CA: No. That’s unrealistic for a group our size.
Aussie Home Loans is spending in the order of $20 million a year. Our approach has always been the referral approach. And whilst that’s a quieter way of going it’s also profitable.
In five years time I would simply like us to be a bigger version of what we are today.
One fundamental change we’re making is looking to evolve from 99% mortgage broking to risk insurance becoming a core part of our business not just an add-on.
LC: What could occur to upset your plans?
CA: The shakedown in the industry as a result of the commissions was substantial: I don’t think anyone expected such severity or bluntness.
We’re welcoming regulation but are quite under whelmed by the meekness of the proposal.
LC: You’re not satisfied?
CA: There’s a lot of talk about regulation reshaping the industry but the reality is that banks are reshaping the industry, not the government.
LC: What additional issues would you like to see addressed?
CA: We were expecting something closer to the financial planning industry regulations.
The proposed legislation will be aimed essentially at individual brokers. It would make more sense to aim it at aggregator groups. These groups take responsibility for their people similar to authorised reps in the planning industry. They probably play more of a role.
We consider ourselves an aggregator and that’s the role we think we should play.