KEY POINTS:
Adam Parore has moved to defend his mortgage-broking business after a pointed attack from rival Mike Pero, who has questioned its future.
The war of words between the two high-profile businessmen comes at a time when mortgage-broking franchises are under pressure due to the downward trend in the property market and the global credit crunch.
Pero, who made his name with Mike Pero Mortgages, believes cricketer Parore's business model cannot be sustained.
"For a long time it's been thought that what they [Adam Parore Mortgages] were trying to achieve with the small number of franchises is unsustainable," says Pero. "It is top-heavy."
Parore has rubbished the suggestion Adam Parore Mortgages (APM) is winding down, saying he remains "100 per cent committed in an operational capacity to the business".
And, he says, he has big plans for the future of the company.
"A lot of people seem to think I live in India these days, which is absurd," says Parore.
"I go there twice a year for four to five weeks at a time. Other than that I'm in the office every day, working and running a business.
"We're travelling pretty well," he says, adding the business is winding up, not down. We are recruiting and volumes are up 20 per cent year-on-year.
"Our focus is on expanding broker numbers and continuing to work hard in a tough market, so we are well-positioned when the cycle turns."
Parore says Mike Pero Mortgages' business volumes have dropped 30 per cent, which Pero confirms.
"They're feeling the pinch as much as anybody in this sector," says Parore.
Three other Auckland-based brokers have also questioned the sustainability of APM's model, despite it being named in a Colmar Brunton survey as one of the two most-recognised mortgage-broking brands in New Zealand.
One of them, a former associate of Parore, says Parore is offering "cut-price models" for people to use the same services franchise holders originally bought for $48,000 - referring to licences the company has introduced to be an Adam Parore broker.
But Parore says the licences do not create more competition for franchise holders. He says they are designed so franchise holders can "have other brokers working for them in their businesses".
Another product APM offers at a lower cost than the $65,000 price tag on new franchises is known as an aggregator, in which a group of brokers get together to qualify for bonus commissions by jointly putting a certain volume of business through a particular bank.
One broker source suggests a reason for offering the product is because the APM group is writing insufficient volumes to qualify for the bonuses. Pero says it looks like "a desperate plea for income in the form of an offer to the mortgage industry".
Parore says it "certainly helps" with APM's volumes, but that wasn't the primary driver in terms of getting into the aggregation market.
Adam Parore Financial Services aggregates for the franchise business and independent brokers as a "natural revenue extension".
He says APM is on maximum commission levels with all its lenders and has been "for many years".
Broker Daniel Feller says twice this year APM offered him the opportunity to buy into its aggregator for $4800, plus GST.
He doesn't see the benefit in buying in, saying: "If you are not interested in cricket, you wouldn't know who Adam Parore is, and I don't think outside Auckland anyone would know about the mortgage business either.
"The only person I think has a brand is Mike Pero. Nobody else really does."
Broker Nick McCorkindale says Parore is well-known as a cricketer, but this doesn't necessarily translate into the same recognition Pero has achieved in becoming synonymous with mortgages. If APM is struggling, he says that it's not alone. "Every single mortgage-broking franchise in New Zealand is either reduced or winding down," says McCorkindale.
Another broker source says the time for franchising in the broking industry ended when banks removed trail commissions.
These residual payments over the life of a loan are "the one thing" that give franchises their lasting or increasing value, he says.
McCorkindale believes most mortgage-broking businesses have reduced resale value without a substantial client base and some residual income - without which "you won't realise the wealth you've invested".
APM initially sold franchises for $48,000 and Pero believes that was "more than their worth."
Parore says the last APM franchise owner to sell their business realised $160,000 for it.
"That franchise owner made a capital profit of about $110,000 on an investment of $48,000 over two years, which is a pretty tidy investment."
Broker Kirk Vogel bought the first APM franchise three years ago and says he has "no problems whatsoever" with the value he's had from the business. "It is what you make of it - if you are willing to work hard, you'll do well out of it.
"From my point of view, we are growing a strong brand with good public recognition."
Parore says it is hard to sell or resell mortgage-broking fran-chises because the global credit crunch means people don't want to work in the finance industry. "It's a cyclical industry and this year will be tough."
There is certainly a consensus that many brokers are feeling the pinch at this point in the market cycle, as are real estate agents.
The weak housing market has seen the annual rate of growth in lending to the household sector plummet to its lowest level since June 2002.
Broker Kris Pedersen says the downturn in the market across the Auckland region means only about half the number of houses are selling now compared with this time last year. With commissions having been "cut between a third and a half late last year, the whole franchise model is really going to struggle in the next couple of years".
McCorkindale adds: "If you're also paying a clip-off to a franchiser, then you're on a fraction of the income you were on last year."
Yet Pero says he's doing "particularly" well. "We've got guys who are buying and selling franchises at the moment, and it's business as usual.
"Admittedly the market's quieter, but we're still getting high return against purchase price for our franchises - normally three times as much."
He says no Mike Pero Mortgages franchisee has ever sold a franchise for less than the amount they paid for it.
Parore has big plans for the future of his business. Last year he decided to try international expansion, and is running a pilot scheme under Australian cricketer Michael Bevan's brand.
He says it is operating well and he intends growing the business further when the market conditions allow.