Specialist lending: The year of conversion

After the mayhem of 2015, now is the perfect time to conduct a thorough inventory of your business and see where you can improve on productivity.

While some brokers might be tempted to ramp up their pipeline of leads, it’s worth taking stock, looking at your existing deal flows and seeing if specialist lending can help convert those leads that may have slipped away.

When the going is good and leads are coming at you thick and fast, little thought is given to those customers who don’t quite fit the mould. It’s easy to throw these leads on the scrap heap. Now is the time to take a second look and see what you can do for these customers – that’s where specialist lending comes in.

Pepper has been one of the most active players in the market when it comes to educating brokers about specialist solutions. According to Pepper’s director of sales and distribution, Mario Rehayem, there hasn’t been one broker business that the ASX-listed group has sat down with that hasn’t increased its conversions by 10 per cent after receiving training on specialist lending.

That’s a 10 per cent increase in a broker’s bottom line. Not an easy feat in a cooling market – particularly if you consider the money you’d need to spend to generate that kind of additional revenue from new leads.

According to Vow Financial chief executive Tim Brown, the aggregator has seen a 50 per cent increase in loan volumes over the past 12 months as a result of specialist lending. Consider the number of new brokers it would need to hire to see that sort of growth, or the cost of generating enough leads to see a 50 per cent lift in volumes.

This Broker’s Guide to Specialist Lending will not only outline how specialist lending can provide alternative options for your clients, but provide examples like this from Australia’s leading loan writers about the bottom line benefits to their business.

The X-Files

Once brokers have educated themselves about specialist lending, the first place to start on the path to conversion is to go back and look at old files that didn’t reach settlement.

According to Pepper’s Mr Rehayem, this is a big part of the lender’s training and education experience with brokers.

“By looking through old files on the system and understanding where that deal went or didn’t go, and then better understanding where it would have been placed, there is a clear message to that business that it needs to focus on, and keep on focusing on, the awareness and understanding of what alternative options are available,” he said.

With larger broker groups and aggregators, Pepper has revisited leads that were deemed no good. One group actually had a 20 per cent increase in settlements by converting old leads into interviews, and then from interview into applications.

“A highlight for this particular business was that the leads that were coming in were automatically getting knocked out, purely because there wasn't enough awareness of what Pepper could do for their clients,” Mr Rehayem said.

By taking a thorough inventory, brokers can effectively diagnose the weaknesses in their business and set about strengthening their deal flows.

In another broker business that Pepper became involved with, Mr Rehayem said leads were being followed up with interviews and then proceeding to application, only to be declined by the lender.

“This particular company that we visited is a normal, run-of-the-mill brokerage that relies on referrals from accountants,” he said. “We went in there and actually looked at old files and better understood where the deal went, why it was knocked back, and if there was an opportunity for Pepper to write that loan.

“We were able to increase circa 15 per cent of the business that were straight-out declines, being able to be rewritten by Pepper. So they were eligible. But this particular group was not aware that they would have been eligible for an alternative product, and had literally told the customer they couldn't help them.”

A broker’s market

With broker market share tipped to hit 60 per cent this year, having a sharp set of tools is essential in an increasingly competitive market. By adding specialist lending to their toolkits and continuing to educate themselves about alternative solutions, brokers will no doubt continue to dominate the Australian mortgage market.

According to recent research conducted by Pepper, non-conforming borrowers have a much greater chance of being accepted by a lender if they work with a broker.

Unlike a bank manager, brokers play a critical role in understanding and analysing the unique needs of these clients, and then meeting those needs with specialist options.

The market for non-conforming loans is clearly growing, and still under-served. If a broker doesn’t position for this unmet need now, their competitors certainly will.

“Customer demand for non-conforming products is at an all-time high, yet I believe some brokers are losing business every day,” Mr Rehayem says.

“There are some disruptive brokers entering the market who cannot believe how much volume they are writing in this area – and all they are doing is focusing on the customer,” he says.

“They don’t have any preconceptions on the value of prime or non-conforming, but they know it is worth the customer satisfaction.”

Beyond conversion

It’s far cheaper to increase your settlement figures by converting forgotten leads than it is to generate new ones. It can also be an expensive mistake to ignore, or simply fail to understand, all of the options available to your clients.

Demand for specialist solutions is booming. The risks of ignoring this demand go beyond simply losing one or two clients who don’t fit the traditional mould.

“If you decide the customer won’t want to consider a specialist home loan or refinance – without explaining the option first – you’ll discover they will eventually find another broker who will,” Mr Rehayem says.

“They’ll then question your capabilities, and you could lose your referral source,” he says. “There is a domino effect.”

Broker businesses that rely on referral partners and word-of-mouth recommendations also put their reputation on the line by not exploring specialist lending and exhausting all avenues to find a product best suited to the client, according to Mr Rehayem. Not only do they risk losing the deal and the specialist client, but they also jeopardise the relationship with the referral partner.

So there are knock-on effects.

In today’s market consumers have the upper hand when it comes to choice. Pepper has observed an increasing number of customers shopping around different brokers for the best deal. If a borrower is going from one broker to the next looking for a specialist solution, sooner or later they are going to find it. Why not save them the time and offer it yourself? The client will be better off and no doubt share their experience with friends, family and colleagues, increasing your potential for future business.

“Ultimately, writing a non-conforming loan is just as simple as writing a prime loan,” says Mr Rehayem. “And it may be easier than diversifying your income streams into areas you don’t necessarily specialise in, such as self-managed superannuation or insurance.”

An army of salespeople

Brokers in today’s market no longer have to worry about just losing business to the banks. You're losing business to the broker next door. Specialist lending is the perfect way to gain a competitive advantage and create happy clients for life who go on to generate leads for you through word-of-mouth referrals.

The nation’s best brokers all have one thing in common – great customer service. Meeting the needs of a client is at the heart of that, and specialist lending can’t be ignored if brokers want to excel in servicing their clients’ needs.

According to real estate coach and Better Business Summit speaker Tom Panos, the best form of lead generation is providing incredible customer service.

“If you do it very well, what you are doing is recruiting and creating an army of salespeople for you. And they are happy customers that go off and create other happy customers.”

Mr Panos says the job of an agent or broker is “process driven”. He finds it interesting that engineers make excellent salespeople because they have “logic in the steps”.

“What we clearly know is that in broking and in real estate, the person who has the most amount of conversations and stays in contact with those people means that they are on the shopping list at a time when a client needs to make a decision,” he says.

Brokers are in the perfect position to create market share and increase conversion through specialist lending. All it takes is an open mind and a willingness to consider alternative options.

More consumers are seeking out a mortgage broker than ever before. With regulation on the rise and more market complexity on the horizon, the broker proposition will become increasingly valuable.

Specialist lending goes hand in hand with the true value a broker provides – the ability to deliver finance solutions to clients where others can’t, to provide choice, and to ultimately convert a dead lead into a client for life.