Franchisee Aurelio Tenaglia is calling for change to the Mortgage Choice business model. (ABC News: Louie Douvis)
Mortgage Choice, one of Australia’s biggest publicly listed mortgage brokers, faces a revolt from almost half its franchisees who claim the business model is squeezing them dry and pushing many into financial stress.
- Franchisees have to write $1.5 million of home loans a month
- If they fail to meet the target they are penalised
- Mortgage Choice says its business model is “outdated”
A joint media investigation by The Age, Herald and 7.30 can reveal as many as 173 Mortgage Choice franchisees are considering setting up a fighting fund to take legal action against the company.
The investigation also found some franchisees were cutting corners in an attempt to write more home loans to meet high targets and avoid being penalised with lower commissions.
‘Many thought about taking their own lives’
Aurelio Tenaglia, a Mortgage Choice franchisee who operates out of Parramatta in Sydney’s western suburbs, said if he leaves his business he will lose his main asset, his loan trial book; the commission paid on loans he has put his clients into.
“The Mortgage Choice franchisor is only interested in the share price, shareholder dividends and company profits,” he told 7.30.
Mr Tenaglia became aware of problems inside the franchise network when he became a member of the Franchise Advisory Council in 2011.
“As I got to know more and more people I realised they were selling their homes, marital breakdowns … I’ve heard many people confess to me they have thought about taking their lives because they feel like they are a failure in this business,” he said.
Mr Tenaglia decided to speak publicly despite the risk of a breach or termination of his franchise agreement.
Mortgage Choice franchisees have a target to write $1.5 million of home loans every month, which is almost one third higher than the monthly industry average.
If targets are missed, Mortgage Choice takes a greater share of the fees.
Franchisees say these targets incentivise them to spend less time on existing customers and more time writing new business.
Franchise Redress, an assistance and support business run by Maddison Johnstone and Michael Fraser for disaffected franchisees, visited Mortgage Choice stores in May.
“Some of them are even suicidal, and some have abandoned their business, they’ve gone bankrupt,” Mr Fraser said.
Mortgage Choice promising change
After 7.30 contacted Mortgage Choice with questions, it released an ASX statement saying it was “consulting with its franchisees regarding a more competitive remuneration model”.
Mortgage Choice chief executive Susan Mitchell said the model was “outdated” and needed to be more competitive with the rest of the industry.
“It was my first priority when I became CEO two months ago,” she said.
Before becoming chief executive, Ms Mitchell was the company’s chief financial officer for nine years.
In that position she says she dealt with many issues and financial difficulties of franchises.
She declined to say how many franchisees were receiving financial assistance, or how many had been terminated for misconduct pointing to robust compliance processes.
“These changes are designed to support the long-term sustainable growth of Mortgage Choice, increase franchisee remuneration and attract new high quality franchisees to our network,” she said.
Since it listed on the ASX in 2004 at $1.05 a share, Mortgage Choice has produced record or near profits and fat dividend payouts for shareholders every year.