Cross selling - In search of pastures new

Against this background, the traditional role of the broker channel as residential mortgage specialists may soon make way for a future based on a broader product offering as cross-selling becomes part of a broker’s everyday business – driven in part by their willingness to expand but also caveats imposed by lenders to achieve higher commissions rates or replace lost earnings.

But the transition phase is likely to be tough for many brokers, who will need all the support they can get to respond to the varied demands of lenders, the wants of their customers and needs of their own businesses.

Under pressure

These are tough times for brokers. The first few months of 2008 saw residential loan volumes dwindle as borrowers struggled with higher interest rates. Then the channel sustained an even bigger blow in May when many of Australia’s leading banks changed their criteria for broker commission payments.

The combined pressures of a 5.3 per cent drop in loan commitments over February and March this year and a potential 15-40 per cent reduction in commissions has driven the channel to explore other revenue streams. One of these is cross-selling – and it is gaining momentum.

“Most brokers have realised that they have to diversify to maintain their proposition to the market,” says general manager of third-party and specialist distribution at St George, Steven Heavey.

St George was among the first of the major lenders to introduce changes to its broker remuneration structure. The bank has made it clear that the broker channel’s focus needs to change to extracting better value from its own unique customer relationships and sharing that value with the lender – who will return the favour.

“For us the reality is that there is a base level of commission that we’re prepared to pay but where we’re able to generate a more profitable customer we’re happy to share that with the broker,” says Mr Heavey.

It’s a strategy that makes sense according to Alex Moulieris, head of broker platforms at Challenger Mortgage Management. He says customers have typically sought out brokers for their advice and the choice of products they offer, making cross-selling a logical extension of the broker’s service offering.

“If it helps to facilitate all the transaction accounts and other banking facilities required by the client when they are undertaking the home loan application I think it must add to the value proposition that the broker brings,” says Mr Moulieris.

Changes and challenges

Cross-selling is not new to the broking channel but it has taken some time for brokers to warm to the idea.

“Brokers approach a mortgage with a lot of certainty because if they get asked questions they can answer them – they live and breathe mortgages,” explains Mr Moulieris.

When it comes to selling secondary products, it is a different story. There is some debate over the level of involvement the broker should require as lenders introduce full advice style models and significantly less complicated ‘tick and flick’ referral models.

With CBA, for example, a broker will be paid a commission for referring their customer into CBA branches for additional products like insurance.

“Our approach has been to keep it as simple as possible for the broker and their customer. We understand that it’s about the broker staying focused on their core business, which is the mortgage business,” says CBA’s head of third-party banking Kathy Cummings.

Many lenders are putting their weight behind an advice-based model of mortgage broking – a model likely to gain further ground with the introduction of the proposed national broker legislation.

“I think there are a lot of situations where brokers are crossing the line and giving advice – so why not just do the professional thing and get educated, get licensed and put brokers in the position of being trusted advisors for clients and not just product sellers,” says NAB Broker’s regional general manager, Matt Lawler.

The gaps to fill

While on the face of it there are benefits to cross-selling, brokers will still need a competitive and compelling offering from lenders to help them cross-sell successfully.

For many brokers, including additional products and services into their offering will mean a significant commitment and investment of their time. But it is a commitment they will have to make.

“Training and skilling is the most important consideration for brokers as they need to meet the education and requirements of the licensing regime,” says Mr Lawler.

Brokers will also need to be able to rely on the systems and processes of lenders and aggregation groups to support their cross-selling capabilities.

In the case of aggregation groups, for example, it will mean negotiating relationships with the right partners to ensure brokers are supported not only by the right products but also the same level of service they would receive for a mortgage product.

“The last thing a broker wants is for somebody following up a cross-sell opportunity to deal with their customer in a less than professional manner than they would themselves,” says NextGen’s commercial director Curtis Brager.

Mr Brager says the key is to make cross-selling as intuitive as possible, stressing the importance of brokers being able to receive status updates via back channel messages throughout the cross-sell.

“Ideally the process should be as close as possible to what the broker does day to day for a mortgage application, without having to re-key any data,” he says.

To do this a broker must have access to a platform that integrates cross-sell products into the same platform as the broker’s mortgage products, eliminating the need for double handling of data and providing product information that is easily accessible.

Many banks have already implemented electronic lodgement systems but other service providers will need to lift their game if brokers are to successfully diversify.

Good business relationships supported by the right technology will be integral to the broker channel reaching its maximum potential, requiring the same quality of feedback and status up-dates as they would receive with a mortgage application.

“This is an area that insurance and other key service providers need to look at, much in the same way the banks did in the early days of electronic lodgement in order to ensure that there is benefit to all parties, including the consumer,” says Mr Brager.

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A TALE OF TWO BROKERS

Paul Moulday from KP Credit and Peter Smith from Express Finance Options have the luxury of experience when it comes to cross-selling.

What initially motivated you to move into cross-selling?

Paul Moulday (PM): I saw the writing on the wall about two years ago and set myself up to make sure that I was not only well positioned to sell mortgages but also leasing finance, insurance and so on.

Peter Smith (PS): As a broker I saw an opportunity to offer a better and fuller service to my customers.

How much of your business now involves cross-selling?

PM: Every customer is exposed to other products and services that I offer from the beginning. At the moment 30-35 per cent of my revenue would be generated through cross-selling products and services.

PS: With every application there is opportunity. That extra income stream is noticeable and most importantly it helps to generate referrals.

What is the secret to successful cross-selling?

PM: It really comes back to relationships. I have a really good relationship with six or so lenders; you have to share that kind of relationship with all of your referral partners if you are to cross-sell successfully.

PS: It’s about offering the service and backing it up – you have to have the right people behind you to support your business.