Diversification: Lessons from the top

Bernie Lewis and Acceptance Finance generate around one third of their revenue in the non-residential mortgage area and believe the integrated model produces three times the profit that a single revenue stream model would.

Tiffen & Co, however, only generates five per cent of its business through diversification, with no plans to further it.

A critical issue
Bernie Lewis, placed second in the diversification category in The Adviser’s Top 25 Brokerages, generates 31 per cent of revenue through non-residential mortgages.

This comprises wealth and insurance products (25 per cent), home loan advice (3 per cent) and conveyancing (3 per cent), says CEO, Stefan Lipkiewicz

A review five years ago found the key area was the wealth industry. “We therefore implemented an integrated model,” said Mr Lipkiewicz. “Our core belief is you can’t do debt by itself; you’ve always got to do debt with protection and wealth analysis because debt is only one component of someone’s overall financial situation.”

Now, around 45 per cent of clients who come in for a home loan end up seeing a financial adviser. “Most of our clients coming in for a home loan are in complete disarray when it comes to their protection, their investment and their super,” said Mr Lipkiewicz. “So, if you care about your clients, it’s the right thing to do.”

Bernie Lewis now aims to have multiple revenue streams make up 50 per cent of the business in three years’ time.

“It’s critical to diversify,” Mr Lipkiewicz said. “No business would only ever have one revenue stream. When you integrate and have a wealth service you actually start to increase rather than diminish revenue. As clients get older ... if you look after them, you will continue that revenue stream for 10 to 20 years.”

Retaining the best
Acceptance Finance also invests significantly in diversification, with around 35 per cent of revenue generated from non-residential and commercial loans.

CEO Daniel Di Conza says diversifying was matter of staff retention.

“If brokers can’t make a good living, they’re going to do something else,” Mr Di Conza said. “With reductions in margins and the additional work a broker has to go through to get the transaction done, the business is becoming less and less profitable to the point where brokers question if they should be in the industry.

Diversification is an easy sell if you’re all under the same brand, he added. “A significant part of our staff’s business is identifying opportunities for others so we incentivise individuals to refer to each other.”

‘If it ain’t broke...’
By contrast, Tiffen & Co. is a brokerage with no plans to diversify. With a trail book of $1.4 billion and annual settlement of $360 million, managing director Gerard Tiffen said he didn’t see diversification boosting the bottom line.

“I’m not missing out on anything and the numbers show it,” he said. “If it ain’t broke, why fix it?”

Diversifying in-house would mean severing strong relationships he already has with current referral partners, he explained.

“I have very good referral sources, including three great financial planners – so why would I try and burn those leads?” he says.

“[Also], if someone said, ‘Talk to me about the best fixed rate’ then I can tell you about that, but I have no idea about hire purchase leases. It’s a totally different area.”

If, however, you choose to diversify, it’s important to introduce a model that fits your brokerage. Mr Di Conza emphasised that, for him, getting it right involved a lot of trial and error – but which is now clearly paying dividends.