Diversifying to survive

Diversification is a word that gets pretty well worn in the pages of The Adviser, but its repetition emphasises the importance of adding new revenue streams to
your business.

This theme ties into the bigger picture of why you do what you do and, more crucially, what your end goal is. If you’re looking to build up a business to eventually sell, then having more than one book is going to be beneficial.

So what other products do aggregators offer? Which ones should you be considering?

Aussie chief executive James Symond has no illusions about what the Aussie brand is associated with. “There’s no doubt that home loans are our core,” Mr Symond says.

“There’s no doubt that the river that runs through our business is residential mortgages, but there are streams that run off that, which are synergistic to the mortgage: like home and contents insurance, personal loans, and life insurance attached to the mortgage that are really important products to sell along with the mortgage.

“In fact, since the early days, our diversification strategy has always been one where we’ve always tried new stuff, and we’ve always tried to meet the customer’s needs,” he says.

Aussie has had one of the most successful credit card programs in the mortgage broking industry. Its personal loan sales and insurance sales are also strong.

However, Mr Symond acknowledges the limitations of diversification; the danger of becoming a ‘jack of all trades, master of none’.

“You’ve got to specialise in one particular thing as your core and obviously at the same time diversify where it’s appropriate to meet the needs of the customer. And that’s where I think Aussie has got it right and that’s what I think we do well.”

Insurance

Choice Home Loans treats its diversification strategy no differently to any other revenue stream: referrals are key, says CEO Stephen Moore.

“We partner with both ALI and Allianz,” Mr Moore says. “That’s lining up your business with a likeminded financial planner that we help facilitate.

“The ultimate end of the spectrum is then a JV or some sort of an alliance with a group that provides support in financial services and that’s in addition to what we do on the commercial and asset finance side, that’s absolutely a very strong growth area. The emphasis that we provide is tailored to the individuals’ needs,”
he explains.

Mr Moore says he hears a lot of commentary like ‘unless you do this the world will end’. “Well hang on a minute: different businesses, different models, different focus – hence having the full spectrum of Choice.”

Asset finance

Mark Haron of Connective has an issue about the use of the word ‘diversification’. “We try to turn that on its head,” he says.

“We want it to be more about integration. It’s the things that brokers already do, we want to integrate it into their business.

“Diversify means you’re going off and creating a whole new set of skills and challenging yourself.”

As Mr Haron sees it, if you start thinking about integration, you go ‘OK, I’m going to integrate car finance, plant and equipment finance, small business lending, commercial lending into my business’.

“That’s kind of what we’ve started with our business, helping them down this integration route, particularly around doing the plant and equipment and car finance,” he says.

“It’s a loan – it’s so simple. They settle quickly, it’s a lot less paperwork. You don’t make as much money but you can do more of them so we’ve been busy pushing out to our brokers to do a lot more and identify the opportunities within the client base.”

Connective has seen its equipment finance volumes increase 122 per cent over the last 12 months as brokers look to diversify.

“We’ve also seen a really significant uptake in terms of the SME business and the commercial business as well. “Some of that I think is also reflective of the market conditions. I think the banks have certainly opened up a now that make it much easier formortgage brokers to write the small business loans as well – generally up to $1-2 million.

“If you can do a home loan for a self-employed applicant then you can do an SME loan for $1-2 million as well,” Mr Haron says.

Commercial

As more and more banks expand their business lending offerings the opportunities for brokers are peaking right now in the SME space.

For brokers keen to cash in on the boom, FAST is one aggregator known for commercial asset finance.

“We’ve got a significant number of brokers in the commercial space who have switched on the residential opportunity,” FAST chief executive Brendan Wright says.

“They’ve done commercial for forever and a day and they’ve decided to invest in putting on residential loan writers and for some of these businesses, it genuinely means half a million to a million extra revenue out of their existing customer base just by meeting the personal investment and home loan needs of the business
clients, whether it be the directors or employees,” he says.

More than 50 per cent of mortgages are now written through third parties. Mr Wright says that, conservatively, around 15 per cent, but more likely 30 per cent of a resi broker’s customer base are self-employed business owners.

“So if you’re one of those brokers who are not looking after their business needs, you need to or someone else will,” he says. “It is a really significant opportunity, particularly for the broker able to create the space [and] time to look after the small businesses.”

SMSFs

WA-based boutique group Ballast prides itself on diversification, with many opportunities available to brokers and their clients across the company.

Its fully integrated and comprehensive service offering allows seamless product integration, and a structured referral program with an online electronic tracking platform designed by the company provides a host of tailored financial solutions across Ballast, says CEO Frank Paratore.

The aggregator offers brokers the opportunity to integrate the following into their business: Ballast Financial Management, Ballast Superannuation Management, Ballast Accountants, Ballast Finance, Ballast Property, Ballast Legal and Ballast Lending Central.

But it is SMSFs where the company really has a point of difference. Brokers don’t need an RG146 qualification in financial planning to write SMSF loans.

However, based on the level of complexity surrounding the structure, these types of loans are not suitable for every broker, says Mr Paratore.

“It is more about gaining an understanding and that education piece. A broker entirely new to the market would struggle with the SMSF and understanding the relationship side of it, as opposed to a more mature broker with a deeper level of understanding,” he says.

Financial planning

Three years ago, Mortgage Choice launched a financial planning arm, which continues to go from strength to strength. Today, all of its brokers have access to a Mortgage Choice financial planner who can assist their clients with their broader financial needs.

“Having an in-house financial planning arm has really helped our brokers to strengthen their overall customer service proposition and create happier, stickier clients,” Mortgage Choice chief executive Michael Russell says.

“Furthermore, at Mortgage Choice we encourage our loan writers to diversify their core businesses to include other revenue streams, such as commercial finance, car and equipment finance, personal loans and debtor finance to name but a few.

“We offer extensive, diversified training programs which helps our brokers to diversify successfully.

“We want our brokers to be able to cater to all of their customer’s growing financial needs,” he says.

eChoice is an aggregator with an open mind to new revenue streams, but remains cautious about being impatient and causing damage to its brand and the brands of its partners.

Most eChoice brokers don’t want to be forced into a partnership, Mr Liccione explains.

“So we look out for them – we don’t dictate what they do,” he says. “We’re keen to help brokers increase their income opportunities, but want to make sure that it’s done properly.”