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Once you’ve decided to become a mortgage broker, what are the steps to joining a brokerage, completing training and becoming licensed?
This guide runs through each step including a rundown of the upfront and ongoing costs.
Broker study and training
The first requirement to become a mortgage broker is to complete a Certificate IV Finance and Mortgage Broking [FNS40815].
However, this is just to act as a credit representative for your brokerage and aggregator.
You should invest as much as you can in your professional development so you can better serve your customers.
The mortgage broker training page delves deeper into the costs and types of ongoing education you should consider undertaking.
Complete a credit history check
The aggregator and the industry association you join will ask for this as proof that you’re of good character.
If you have a bad credit history, some lenders will not accredit you and your aggregator and industry body may reject your membership application.
You can request a credit report check from Equifax:
- Cost: $79.95
- Turnaround time: Up to 10 business days
If the company you’re working with has a subscription with Equifax, they can complete a report on the spot if you sign their privacy declaration.
In order to get your credit licence, ASIC and the association you join will complete a bankruptcy check via the Australian Financial Security Authority (AFSA) Bankruptcy Register on top of your Equifax check.
You won’t have to cover this cost.
Complete police history check
Under ASIC’s financial services licensing requirements, you’re required to get a ‘Class 25 Federal Police Check’.
This is a specific requirement for obtaining your Australian Credit Licence (ACL) or to become an Australian Credit Representative (ACR).
Keep in mind, it’s a little different to a standard police check, will cost around $42 and you need to allow about a week to receive it.
Minor offenses that are unrelated to work may be considered by some aggregators but there are some lenders that will not accredit you.
Set up costs
- Aggregator joining fee: $0 – $150,000 for a franchise.
- Monthly aggregator fee: Typically $1,000 per month
- Credit licence (if operating under your own): Approximately $2,000 in ASIC fees and up to $8,000 in consultant fees.
Apply for EDR membership
You need this before applying for membership with an industry association.
If you’re operating directly through an aggregator or you’re a self-employed contractor, you’re required to join an External Dispute Resolution (EDR) Scheme.
This falls under the requirements set out in Regulatory Guide 165 (RG 165) ‘Licensing: Internal and external dispute resolution’.
There is one ASIC-approved EDR now: the Australian Financial Complaints Authority (AFCA). Previously, there were Financial Ombudsman Service (FOS) and Credit and Investments Ombudsman (CIO).
If you’re a PAYG broker, you can simply be added to your brokerage’s membership so you can avoid the costs.
If you’re self-employed under your own ACL, the fees for each EDR will vary slightly:
- AFCA upfront and ongoing fee: The upfront fee for an ACL holder is $350 with an annual fee of $140. You should check the AFCA website for the current fee schedule.
- Turnaround time for each scheme: Allow around 10 business days.
Apply for Professional Indemnity Insurance (PI Insurance)
You cannot join an industry body without sufficient PI cover in place.
If you’re a PAYG broker, you can simply be added to your employer’s policy.
PI will protect you and your business against claims for any financial loss your clients incur as a result of your services.
For mortgage brokers, this refers to events where you make an error in a product recommendation after assessing a client’s situation.
In this way, you can protect yourself from potentially large legal costs and reputational damage.
Similarly, you need Public Liability Insurance (PL insurance) to protect against any bodily harm, injury or third party property damage that may occur when you undertake day-to-business.
For example, this could be a client injuring themselves in your business premises or office.
Typically, insurers offer policies that cover both PI insurance and public liability insurance.
We can’t provide you with a figure of how much the premium will be.
However, it’s important to note that ASIC requires you have a minimum of $2 million in aggregate and $1 million per claim of PI cover.
You should ask your aggregator for a recommendation on insurer. The MFAA and the FBAA often get a negotiated group discount so consider their recommendations as well.
We also suggest you speak to an insurance broker and find out what other cover you may need such as management liability and office and contents insurance.
Join an industry association
Once you’ve been approved for an EDR scheme and PI insurance, you need to become a member of a professional industry body.
This will either be the MFAA or the FBAA depending on the brokerage you join.
Both are excellent organisations and add a lot of value to the mortgage broking industry.
There can be slightly different fees between the two organisations but ultimately you should look at the unique offerings of each association and decide which better fits your needs.
Members of the industry have argued that the requirements of the MFAA are quite stringent when compared to the FBAA, specifically that the MFAA requires you to have a diploma to become a full member whereas the FBAA only requires a Cert IV.
However, under the MFFA Mentoring program, you don’t need to hold the Diploma in order to join.
However, you do need to be enrolled and complete it over the first 12 months.
At any rate, joining either organisation is fairly straightforward and requires you to provide a copy of your Cert IV, PI insurance, AFCA membership, criminal history check, credit check and basic forms of ID.
To give you an idea of the costs:
- MFAA: $470 (plus the ‘MFAA Initial Compliance Pack’ at $215).
- FBAA: $420.
Different fees may apply for companies and employee memberships.
It’s important you check each association website for up-to-date pricing.
Once your membership is approved, provide a copy to your aggregator or employer.
You need ID
Once you have your certificate and professional body membership, you’re ready to join a brokerage.
To sign up to a brokerage and their aggregator, you have to provide 100 points of identification:
- Birth certificate.
- Citizenship certificate.
- Current passport.
- Drivers licence.
- ID card.
Set up your Australian Business Number (ABN)
Note: If you’re an employee, you do not need an ABN to become a mortgage broker.
You should speak with your accountant before setting up as a self-employed contractor or if you’re working as a sole trader directly through the aggregator.
If you set up as a trust, only a company or individual can be a credit licensee with ASIC which means the trustee should be the licence holder.
It’s important to understand that you’re responsible for paying your own tax, GST, superannuation and workers compensation insurance (if you have staff).
You also won’t be entitled to sick leave, annual or long service leave.
To register for your ABN, you can do so yourself but you could be facing a 28-day waiting period.
To speed up the process, enter your Tax File Number (TFN) when registering online.
Better yet, apply for your ABN through your accountant from the start.
Sign the origination or sub-origination agreement
The aggregator or sub-originator contract is the agreement you have in place with the aggregator, or your employer, depending whether you’re a PAYG employee or self employed.
It sets out the terms and conditions of upfront and trail commission rates and membership fees.
Membership fees can be anything from an annual fee or a percentage cut of your trail commission per year.
You have the right to seek legal advice before you sign.
Discuss the terms with the licensee and understand that the agreement can be negotiated.
Do I need an Australian Credit Licence?
Since 1 July 2010, anyone wishing to work as a mortgage broker is required to obtain an ACL or become an authorised credit representative (ACR) of a licence holder.
The question is whether there is any benefit to getting an ACL at all. The administrative costs are certainly high so check out this page for more information.
Choosing an aggregator
An aggregator, otherwise known as a franchisor or dealer group, is effectively the middle man between a bank and a mortgage broker.
Choosing the right aggregator for your business model is essential.
Check out the how to choose an aggregator page for a comprehensive guide on the largest aggregators in Australia, how they work, what their fee structure is like and being weary of empty promises.
Setting up lender accreditations
In order to access the home loan products available from the aggregator’s panel of lenders, you have to get accreditation.
See the setting up lender accreditations page for information.
Both the MFAA and the FBAA require all new brokers to be mentored for the first two years of practice.
It may be a requirements but it’s a great opportunity as well!
Being in a good mentoring program is one of the greatest tools in your arsenal if you’re looking to be the best broker you can be and rapidly grow your own business (repeat and referral customers).
Go to the mortgage broker mentor page for a great guide on how to choose a mentor and what the process is.
Want to join an award-winning team?
Home Loan Experts is Australia’s leading specialist brokerage and we’re always looking to hire the right mortgage specialist to join our team.
Think you have what it takes?
Check out our careers page to learn more about the role and our company and then send through your resume to firstname.lastname@example.org.