Mortgage distribution is in a race for scale.
Capital wants market share. Consolidators want distribution. Networks want advisers. Good businesses are commanding serious valuations.
If I wanted to sell, I’d probably be delighted with the market we’re in.
But I don’t. So I’m looking at it from the other side and I’m much more interested in what happens after the cheque clears.
We’re buying tomorrow’s businesses using today’s economics. And those economics are already changing.
The investment case is easy enough to understand. Buy distribution, create scale, find synergies and improve margin.
Eventually though, the language changes.
Market share becomes margin. Headcount becomes productivity. Acquisition becomes integration. Valuation becomes return on capital.
Someone has paid today for a return they expect tomorrow.
Eventually, tomorrow arrives. That’s the bit I find interesting.
Because at exactly the same time as significant amounts of money are being used to assemble scale, AI is starting to change the economics of operating it.
Forget the AI hype for a minute and just look at the numbers.
Take two networks with 1,000 advisers. Same headcount. But one generates more revenue per adviser, retains its firms for longer and needs materially less operational resource to support them.
On a league table they might look the same.
Economically, they’re completely different businesses.
Now imagine technology helps improve productivity across those 1,000 advisers by 10%.
That’s the equivalent production uplift of another 100 advisers at the previous average, without having to go out and acquire another 100 relationships.
That’s when the growth equation starts to change.
Maybe the biggest opportunity isn’t always finding the next adviser. Maybe it’s helping the advisers you’ve already got become more productive.
That’s why I think the numbers we all watch will change as well.
Adviser headcount will always matter, but I’d increasingly want to know four more: Revenue per adviser. Profit per adviser. Retention. Cost to serve.
If technology materially changes the productivity and cost base of a 1,000-adviser network, surely it changes the economics of owning that scale too.
And that raises the question I keep coming back to: What if some of the assumptions being used to value and acquire mortgage distribution businesses today are already changing?
We’ve already had a glimpse of what happens when the numbers don’t follow the growth story.
Public markets can be incredibly supportive of acquisition, scale and ambitious growth plans. But when expected earnings don’t materialise, sentiment can change very quickly.
There can be any number of reasons for that, and it would be far too simplistic to blame acquisition alone.
But it is a useful reminder: the market might reward you for buying growth. Eventually, it judges you on what that growth actually produces.
I don’t think consolidation stops. Far from it.
But I do think we’re moving into the next part of the cycle.
The last few years have been about acquiring scale. The next few will be about what you can actually do with it.
Buying scale was phase one. Making scale work is phase two.
And there’s another part of this that I think we’re going to have to talk about.
Mortgage businesses aren’t factories. Their value is created by people — advisers, staff, founders, introducers and the relationships between them.
You can acquire the company, the revenue and the adviser headcount. But you can’t guarantee what those people do next.
And in a people-led industry, that may prove to be the hardest part of the investment case to model.
