Bulletproof your business

Combine that with high wages and a growing economy, and all this should herald a very comfortable time for mortgage brokers. Michael Russell, CEO of Mortgage Choice and a 20-year industry veteran, has dubbed recent times “the best mortgage broking market that I’ve worked in”.

But typically, as with anything that seems too good to be true, the question that seems to be popping up more and more these days is: how long can it all last?

According to a recent straw poll on theadviser.com.au, a majority of brokers believe market conditions will start to slow over the next 12-18 months, while 74 per cent believe we will see a rise in interest rates before the end of 2014.

What’s more, economists have started to talk again about the dreaded ‘bubble’. With price growth continuing, albeit starting to ease nationally, and interest rates staying at record lows, this is starting to cause some genuine concern that property prices are reaching unsustainable levels and – very possibly – could head southwards sharpish.

And if history is anything to go by, seemingly good markets can sometimes end in disaster – cue the 2008 GFC. The question then is: will Australia have a similar story to tell?

Not that there’s any reason to panic. Yet. In fact, brokers and industry leaders remain positive about the next two-year period. But they also give a warning: now is not the time to be complacent.

Start preparing now

If the GFC has taught us anything, it’s that a market collapse can happen when you least expect it. So what can brokers and business holders do to prepare for possible downturns in the market?

According to experts, the best thing you can do is to make the most of economic conditions now, while the going is good.

We spoke to 15 industry leaders and experts about how brokers and business owners can bulletproof their businesses against future headwinds. These are their top pointers:

Offer more services

This is still the big one. According to experts, diversifying your income line will be your greatest barricade against a cooling market, and the best way to stay in the competition.

Mr Russell puts service diversity as the number one way to capitalise on client opportunity. It’s a lesson he says was hard learned during the downturn of the GFC.

“Prior to 2008 there was the argument about whether we should diversify our revenue streams,” Mr Russell says, “and the GFC answered that once and for all. It was a real wake-up call around complacency and the need to continue to grow your business and develop your skills.”

In 2008, Mortgage Choice diversified its product range by introducing mortgage protection insurance; while 18 months ago it launched a financial planning franchise.

“We believe combining the two services under one brand provides a very compelling proposition to our customers,” Mr Russell says, before adding that with more clients today asking for alternative services, now is the right time for businesses to be making steps to diversify.

Diversify your client list

Diversification is not just about adding more services to retain clientele; according to experts, it’s also important to be looking for business outside of your usual zone.

Intelligent Finance’s Justin Doobov believes he owes a huge part of his success at the time of the GFC to having a range of clients with different backgrounds and different needs. He explains those who specialised and focused on only one client base before the 2008 crash were less likely to have come out unscathed.

“Instead of tying our business to just one industry or one category, we were involved in first home buyers as well as investors. High net worth and low net worth. Sydney people, Queensland people, people from all areas,” Mr Doobov says.

“During the GFC, investors just disappeared. But we were still very strong in first home buyers and the owner-occupied market. In recent times, first home buyers have been a little priced out and investors have come back in. So in the market, as one goes up, one goes down.”

Senior analyst of RP Data Cameron Kusher agrees with this sentiment, adding brokers should be careful about specialising in one geographic market, as Australia’s myriad housing areas all operate very differently.

“Look for opportunities outside of where you are. So if you’re in Sydney, look to some of those areas where there hasn’t been much capital growth, such as Wollongong or Newcastle for example,” he says.

The key point, experts explain, is that investing in one market means you’re highly vulnerable to changes in that market. In the end, it’s essentially about ensuring you have all your bases covered if (or when) any one market slows.

Engage with your customer between transactions

Ensuring good customer engagement comes up as the second most important action brokers and businesses can take. While it’s something that all good brokers understand the importance of, during the good times it can be easy to let it fall to the wayside.

Martin Grunstein, a leading customer service expert, says good customer engagement means keeping in touch with clients even between transactions. He believes where most businesses go wrong is that they invest in the success of the transaction, rather than in the customer relationship. It’s a move, he says, that’s dangerous because it means as soon as the market drops, the client is likely to start looking for a better deal.

“If all they’re doing is talking about having the lowest home loan interest rates, that’s fine, until the client can get a cheaper home loan interest rate somewhere else. And there’s always someone offering a better rate out there,” says Mr Grunstein.

Director of FrontRunner Consulting Group Doug Mathlin also says that during busier climates brokers tend to do as many transactions as possible, rather than creating more value with existing clients.

“It doesn’t build client loyalty and what I call ‘client advocacy’. And it’s too late to do it 12 months after the transaction is completed,” Mr Mathlin explains. “You need to be allocating the time now to be building on your value proposition with clients. And what that means is finding a way to over-deliver on their needs.”

Keep up to date with technology

Only a couple of our experts specifically mention this point. However, according to Deloitte’s recent annual Mortgage Report, forecasters are expecting a significant growth in this area over the next few years, and this will be focused largely on the continued digital revolution.

With a predicted surge in customer-driven online demand in mortgage dealings, Deloitte’s report suggests it’s something brokers may soon need to get ahead on if they want to stay in the competition.

General manager of Bluestone Asset Management Peter Wood, who last year switched to using online portal ApplyOnline, believes keeping on top of technology is one of the most important moves an organisation can make.

“Technology is becoming more and more acceptable as a means of interacting with potential clients. Many lenders have made large investments in technology to enable better communication with their customers,” Mr Wood argues.

“The relationship with the customer will always be the number one focus, as it should be for the broker. However, brokers who continue to invest in and use technology to enable better communications and ease of doing business with their customers will thrive in the years to come.”

Aussie Home Loans founder John Symond also agrees digital is the way of the future, and gives some sobering advice: “It’s the new world. Whether it’s Facebook or Twitter, you name it, it’s a very different world to how it was a decade ago. So if brokers aren’t already hooked into it, my advice is you’d better get into it pronto,” Mr Symond told The Adviser.

Regularly re-evaluate your business plan

Having a good business plan with risk management strategies may seem obvious, but a recent report from Gold Seal consultancy group found most brokers don’t have even a basic one!

According to Jeremy Fisher, director and founder of 1st Street Home Loans, having a solid business strategy is one of the most important steps to ensuring longevity. He says it’s vital in making sure mistakes made in the past are not repeated.

“Businesses can map out what has happened in the past and then put a plan in place,” he says. “Given that we’ve seen what happened five or six years ago now, brokers can look back at the time, see how it impacted their business, see how it impacted their clients and make plans.”

Finsure’s John Kolenda agrees it’s one of the simplest and most overlooked components among brokers. “I think if someone spent the time to actually build a business plan, they’d get a lot more consistency out of their business, and generate ongoing prospects,” he says.

Speak to existing clients about refinancing

According to Buyer’s Choice managing director Mick McClure, strengthening your business means making sure your existing clients are well prepared for market downturns. While some brokers see a change of interest rates as a trigger for customer refinancing, Mr McClure advises now is the time to be talking to clients.

“Brokers should be using this time to communicate with customers about a review of their current loan, to make sure it’s in the best shape and to see if this is the best opportunity for them to consolidate some of that lending,” Mr McClure says.

He adds that with rates as low as they are now, brokers should be discussing locking in fixed rates with their clients. “No one wants to be sitting there with egg on their face if interest rates go up. There are no winners there,” he says.

Mr Mathlin says this also comes back to keeping up good client interactions. He says making sure existing clients are well serviced, even in ideal market conditions, will help to promote client loyalty while barricading yourself and your customer against potential downturns.

“Brokers should always be seeing if there are new opportunities. Is your client looking at buying a car, or needing to refinance or structure the loan in a different way? Now is the time to be on the front foot, because the market will eventually turn down,” says Mr Mathlin.

Invest, but don’t go crazy

Experts all say now is the time to be investing in business growth. Up-skilling, recruiting new staff, adding new technology and solidifying your brand is most achievable in the good times.

However, they also warn now is not the time to be less diligent in financial decision making. With competition in the broking industry expected to increase fiercely over the next three years, brokers will need to play their cards right.

Wendy Higgins of Mortgage Choice Glenelg East – South Australia’s Broker of the Year at The Adviser’s recent Better Business Awards – says careful financial planning is needed now for brokers looking to cushion any future downturn.

“I suggest businesses make sure that in the good times they ‘save for a rainy day’ and allow for any periods where income may be a bit lower. Making sure all your expenses are controlled is also a must,” she says.

It’s a sentiment that Mr McClure agrees with, and he attributes this cautiousness to one of the prime reasons Buyer’s Choice survived and thrived after the GFC.

“We didn’t spend money on stuff that didn’t matter,” he admits. “A lot of the other broker groups went on mad acquisition strategies and invested in a lot of things that didn’t matter. We concentrated on our knitting, our core business, which is providing great service to our customers, and great support for our broker network.”

So what can we look forward to?

Doom and gloom aside, most experts are expecting interest rates to stay low for a while yet and for property demand to remain strong until at least the end of 2015. And according to Mr McClure, the third-party channel already has close to 50 per cent of the business and he expects that figure to rise to 60 per cent by 2017. And, he says, it’s confusing banking policies that mean more customers prefer to use a broker to get the best possible deal they can.

“Customers are realising the three things they can’t get from a bank: firstly, choice of lenders; secondly, detailed advice around the price of all of those lenders; and thirdly, service for the life of the loan, not the life of the transaction. So I think all brokers will benefit from more customers choosing to use them,” says Mr McClure.

Mr Russell also remains upbeat about the health of the industry over the next couple of years.

“We’re working in an environment of historical low interest rates, we’ve got housing finance demand and housing finance commitment at record levels. We’ve got a really strong lender engagement across our panel that has a high demand for our business. And we’ve got consumers that are far more understanding of the value mortgage brokers can provide to them. So it’s a great market at the moment,” he says.

And while Mr Russell doesn’t expect there to be any significant downturn in the market for the next couple of years, he argues mortgage brokers should be able to handle anything thrown at them.

“Mortgage brokers are reasonably resilient individuals and remarkably resilient business people; it’s an industry led by incredibly passionate and competent people,” he says. “They’ve weathered storms in the past and the industry will continue to weather these sorts of potential headwinds in the years to come.”