Mortgage Choice saw its shares plunge 41 per cent on Tuesday after Fairfax and the ABC reported 173 of its franchisees were considering putting money towards a fighting fund to take on the home loan giant and get a better and fairer remuneration scheme.
On ABC’s 7.30, a number of struggling Mortgage Choice franchisees spoke about having to sell their houses, losing their Super and feeling like “caged animals” because of their financial struggles brought on by the business.
Franchisees are pressured to sign $1.5 million in loans per month, much higher than the national average of any other company.
If brokers fail to meet that target, Mortgage Choice takes a greater section of the franchisee’s profit.
Melbourne franchisee Russell Chellew told the program he’s become physically sick since owning his own Mortgage Choice franchise.
“If you take time off work, if you’re sick or family members are sick, then you take time off and it impacts on your income in the future, so that’s where it’s really disturbing,” he said.
“I’ve had sleep apnoea and psoriasis, depression, and I’ve had some mental health issues.”
Mr Chellew also stopped paying himself Super 18 months ago — a desperate decision business owners make to stay afloat but one that always has a direct and detrimental impact on their retirement.
Robyn Lang, another Mortgage Choice franchisee, ended up having to sell her beloved Melbourne home after exhausting all other options.
“I loved this business. I loved Mortgage Choice,” she said.
Ms Lang, who invested in an existing franchise with Mortgage Choice, spent 70 hours a week building up the business, employing staff and getting cars branded.
“Business was booming,” she said.
But when the 2008 Global Financial Crisis hit, Mortgage Choice changed its commission scheme and imposed “aggressive” monthly targets.
“It got to the stage where I just — I couldn’t do it, I couldn’t maintain the pressure, I couldn’t maintain the volumes that I needed to do, and we made a decision after we had lost and invested a lot of money into the business that we had to pull the pin,” Ms Lang said.
Eventually, she closed the shop and started working back home as a mobile broker.
“The trail commission I get — look, it’s not sufficient to survive on,” she said.
But even closing the shopfront didn’t help because she had racked up $300,000 worth of debt.
With the bills piling up and staff needing to be paid, the Lang family did the last and only thing they could do — they sold their beloved Melbourne home to “take the pressure off”.
“The stress has taken its toll… Anxiety, it’s out of control, depression was out of control, I was on pretty strong doses of antidepressants. I was broken. I would love to own a home, but I can’t” she said.
Another franchisee Aurelio Tengalia, told 7.30 he feels “trapped” in his Mortgage Choice business.
“I feel like a caged animal, I’m afraid. I feel like I’m locked up,” he said.
Mr Tengalia said despite his struggles with his Mortgage Choice business, he can’t leave because he’ll lose his loan book and all the commissions that come with it. After 20 years with Mortgage Choice, Mr Tengalia has built up a lot of clients.
“I’m trapped in an environment where I cannot sell my business to anybody,” he said.
Mortgage Choice is one of Australia’s largest mortgage brokers and was launched in 1992 by Peter and Rod Higgins.
The financial services provider lost $50 million in market value Tuesday after reports surfaced the 173 franchisees were contributing to the fund in an attempt to fix the company’s brutal business model.
The share drop comes after Retail Food Group dropped 2.6 per cent to 76 cents after the Gloria Jean’s and Donut King operator forecast an annual loss of $87.6 million, due to previously flagged writedowns on some of its brands and the closure of up to 200 stores.
The confidential internal documents, seen by Fairfax and ABC, revealed the lower performers were gearing up to fight back.
News.com.au has contacted Mortgage Choice for comment.
In a statement to the ABC, the financial company’s CEO Susan Mitchell said Mortgage Choice was changing the way its franchisees will be renumerated.
“The wellbeing of our franchisees is our number one concern. We provide any business owner experiencing hardship with personalised support.
“We are well progressed in consulting with franchisees on a new remuneration model that will help them suceed,” she said.
It’s a model that seems to collapse over and over, often ruining first time business owners. So is it a good idea to buy a franchise?