Buzz words they may be, but diversification/integration is also here to stay, with many diversified brokers beginning to reap the benefits of broadening their business offerings. This month, The Adviser takes a deeper look at the options for offering additional products and services
According to Frank Paratore, Ballast’s chief executive officer, brokers should see integration as an opportunity to improve their business.
Mr Paratore says there has been so much talk about the ‘importance of integration’ and the ‘need for diversification’ that he can understand why some brokers have been put off. What he can’t understand, he says, is that brokers would let this get in the way of good business.
Some brokers dismiss integration as just another buzz word because they don’t fully understand it or know how they can do it.
And according to Mr Paratore, it’s the mindset of brokers that is the greatest single challenge when it comes to integration.
“They hear ‘integration’ and think they have to go out and get all the qualifications to become an accountant or a planner or even lawyer,” he says. “Many are worried they’ll be seen as a jack of all trades and a master of none – and this just isn’t the case.”
There are many misconceptions about integration, but with these cleared up, brokers could find themselves with access to more clients, new revenue streams and a stronger business.
While integration certainly isn’t always easy, it doesn’t have to be difficult. There are many models that brokers can follow to build their business effectively.
This special report will take brokers through the integration process to demonstrate the benefits and the pitfalls, the challenges and the opportunities.
The Adviser surveyed the industry and spoke to brokers who have chosen a variety of paths toward integration to ascertain where to start, what to offer, how to do it and what effect integration has on clients.
According to Mr Paratore, it’s about making the most of your opportunities –“Why leave money on the table for services that your clients genuinely need?” he asks.
A recent survey conducted by The Adviser revealed that a majority of industry respondents think that within the next five years all brokers will offer additional services.
Mortgage broking is evolving and many believe those who do not adapt will be left behind. One survey respondent, a broker from Victoria, commented that “Mortgage brokers need to diversify to keep clients and to survive”.
Another, from NSW, simply said “Change or Perish”.
DIVERSIFY TO DIFFERENTIATE
As the broking industry becomes more competitive, the fight for clients will intensify. Integration is one form of differentiation that brokers can use to win clients.
Most clients looking for a home loan will want to discuss complementary products, such as insurance. If one broker can offer that advice too – or direct the client to a trusted partner – then the broker will appeal to more customers.
According to Mr Paratore, winning business requires offering convenience: “Whilst you don’t necessarily have to offer the service yourself, you need structures in place to make the process convenient,” he says.
LOOKING AFTER YOUR CLIENT
Integration can also have legal and regulatory benefits since it allows brokers to better look after their clients’ financial needs.
Under the National Consumer Credit Protection Act brokers must understand “the consumer’s requirements and objectives and their financial situation”.
Mr Paratore says brokers should see themselves as a ‘financial doctor’ monitoring the health of their clients.
“As a broker, their obligation is to have a look at the customer’s scenario and identify any issues,” he says. “Brokers need to become more of a financial GP rather than just a home loan provider,” he says.
“They should be able to turn around and say, ‘Mr and Mrs Joe Blow, do you realise that you should be talking to a financial planner?’ or ‘You really need someone to have a closer look at your super’.”
In response to the survey, one broker from Tasmania put it simply: “Our role as an adviser is to assist the client with a financial need. Often this need develops into multiple financial transactions.”
BUILDING BETTER RELATIONSHIPS
Almost 90 per cent of brokers surveyed by The Adviser said integration improves client relationships.
According to Mr Paratore, this is because integration is a relationship-based model for working with clients, rather than the transaction-based model that brokers have traditionally used.
“Integration gives brokers the opportunity to better look after the needs of their clients. It’s a model focused more on relationships than transactions,” he says.
Rhion Bennet, director of West-Corp Finance has been integrating additional products and services into his business for the past five years. He says the banks show how effective using multiple touches to develop stronger client relationships can be.
“When the banks do their professional packages they’re looking to get multiple touches on a client because they know if they have a savings account, credit card, a home loan and a car loan they’re not going anywhere,” he says.
Mr Paratore says multiple touches are also key to client retention for brokers. “If you can get to that two or three products per client, the likelihood of them leaving becomes very, very minimal,” he says.
“If you want to protect your tail base, there is no better way to do it.”
Having multiple touches doesn’t necessarily mean the one broker having to sell all the products. Referral networks allow brokers to keep in contact with the client while outsourcing the work to a specialist with the appropriate knowledge and qualifications.
Of the brokers surveyed by The Adviser, around 60 per cent of those intending to integrate further services into their offering will do so in-house; around 30 per cent said they would outsource additional services to another professional; and only 10 per cent said they would hire specialised staff.
Where to begin?
With so many options, it can be hard to know where to start...
Some mortgage brokers are reluctant to approach clients with additional products or services for fear of jeopardising their core business.
Traditionally, borrowers have visited a broker to get a mortgage, so many brokers have thought pushing anything else on them might drive the client away.
According to Ballast chief executive Frank Paratore, however, brokers just need to show clients ‘the big picture’.
“From one transaction, many possibilities can arise. The brokers should be recognising this and helping their clients this way,” he says.
“If they have decided on buying an investment property but haven’t settled on a particular one, I’d refer them to Ballast Property. If they haven’t considered how an investment will affect their current Will, I’d refer them to Ballast Legal.”
All the brokers whom The Adviser spoke to for this report said having ‘that’ conversation is a lot easier than they had first thought. Whether or not a broker outsources or has integrated services in-house, the conversation begins with identifying the client’s needs.
According to West-Corp Finance’s director, Rhion Bennet, it is a natural progression from the mortgage discussion.
“It’s really not a difficult thing because it’s all tied in together,” he says. “We look at their situation to see what may be required. For instance, they may have six different superannuation accounts and maybe life insurance they haven’t looked at in five years.
“We just ask them straight out: Do you want to see if we can clean this up for you, or would you like to see if there are any alternatives out there that you can compare with what you have that might save you some money?”
Mr Bennet says he is completely upfront with clients from the start and that means they are more open to his suggestions.
“We just provide them with honest information,” he says. “We say, ‘Here is something we can provide for you if you want to do it’— it’s not a hard sell.”
That honest and upfront approach has improved Mr Bennet’s relationships with his clients to the point where they seek him out for additional services.
“Ninety-nine per cent of the time it’s them coming to us saying, ‘We want to do this’,” he says.
Anne Clarence, owner of Advanced Financial & Accounting Solutions, agrees that the conversation is a natural one.
“The first thing I do is have a look at my clients’ existing situation, and most people don’t understand insurance – they don’t understand the difference between insurance inside and outside of super so I explain it to them,” she says.
“My job is to teach them what to do, not to sell them something but to show them where there are good products and show them possible failings in the products that they have already chosen.”
Ms Clarence says she uses the conversation to strengthen client relationships.
“I want them to understand where their money is going. I have them set small goals for the next 12 months, two years – three years even – that I can monitor for them,” she says.
WHAT SHOULD I OFFER?
One of the most important decisions a broker must make when pursuing an integration strategy concerns exactly which products and services they would like to offer.
Mr Paratore says it’s important to consider your own individual circumstances and remember not all brokers can offer all things.
“Understand what you can do and what you have available to you,” he advises, adding that “with Ballast, you have all of our services available by simple referral.”
Many aggregators, including Ballast, offer referral networks to their brokers, connecting specialists in a wide variety of fields.
However, protective products, such as life insurance, are generally considered the easiest place to start when it comes to a strategy for integration.
In a recent survey conducted by The Adviser, 48.3 per cent of brokers who have added a new product or service offering in the past 12 months added protection products.
One survey respondent said, “The simplest starting point for diversification is home insurance. Customers need home insurance to protect their new asset”.
The same survey revealed financial planning as another popular choice, with almost one third of brokers saying they had integrated planning into their business within the past 12 months.
One respondent said he has chosen to offer financial planning in-house as it fits well with mortgage broking.
“I see the integration of financial planning and mortgage broking being synonymous because we are collecting essentially the same information and we can then leverage that quite well,” the broker said.
“We are looking at the client’s asset and liabilities sheet every time we are looking at a mortgage client so it makes sense to integrate the financial planning.”
A WORD OF WARNING
Some products and services are not so easy to integrate in-house. Self-managed super fund (SMSF) loans, for example, are complex products that require specialist knowledge.
In fact, the amount of training and type of qualification required to offer SMSF loans is currently the subject of debate, both within the financial services industry and among its regulators.
Interestingly, however, 37 per cent of survey respondents looking to introduce a new revenue stream in the next 12 months said they were planning to offer SMSF loans. That is more than any other product.
Phil Naylor, chief executive of the Mortgage & Finance Association of Australia (MFAA), has indicated that the Australian Securities and Investments Commission (ASIC) has raised broad concerns with the association about brokers’ involvement in SMSFs.
“As evidence about the concerns they’ve got, they recently cancelled the licence of a broker who was, without the appropriate licence, providing advice to clients about getting into an SMSF to buy property with finance,” Mr Naylor said.
“The problem there is he didn’t have the appropriate licence to do that, and he didn’t recognise that you need to have the involvement of other professionals in the field to do the whole process.”
Mr Naylor told The Adviser’s sister publication, SMSF Adviser, that the MFAA recommends brokers exercise caution in the area.
“Our board decided that although it was important that brokers be involved in the SMSF lending space, that we should be cautious about that and make sure that any of our members that do get involved really do understand what they have to do, what they can’t do and the whole implication of being involved in the SMSF space,” Mr Naylor said.
These concerns are widely held and must be borne in mind when brokers are considering entering the SMSF loan area.
One regional broker commented on The Adviser’s website about the growing trend of brokers offering SMSF loans, noting that “we, as an industry, need to exercise a great deal of due diligence and caution in doing these loans, particularly making sure that [they] ‘fit’ within the investment strategy of the fund at the time of doing the loan, and the structures used.
“Brokers really need to ensure the client is well advised by a qualified solicitor [and] accountant/ investment adviser.”
A ‘how to’ guide to integration
The Adviser looks at the pros and cons of the different options available when integrating a new product or service.
There are several different approaches to integration that brokers can take.
Most brokers choose one, or a hybrid, of the following: recruiting specialised staff to the business; offering additional products or services in-house through undertaking further training; and outsourcing through referral partnerships.
Each method has its own costs and benefits, and the method of integration a broker chooses should be carefully considered alongside the particular product or service that the broker intends to bring into their business.
RECRUITING SPECIALISED STAFF
Bringing in additional staff can be a very effective way of integrating products and services. Lisa Sanders from Your Future Strategy says she has hired specialised staff because she wants to keep the clients as close to her business as possible.
“If you have set up a referral relationship with an accountant, but they have a relationship with another person doing insurance, where does it stop and who touches the client where? I think it can become confusing for clients around that.
“It becomes very, very difficult for any one person to own a client.”
Employing specialists in several different areas allows a business to keep in close contact with its clients and negates the risk of competitors stealing their business.
However, employing full-time staff can be a costly exercise that many brokers are understandably reluctant to do.
This is reflected in The Adviser’s recent survey, with only 10 per cent of brokers indicating they would hire additional staff in order to add new revenue streams over the next 12 months.
According to the same survey, however, 60 per cent of brokers looking to integrate within the next 12 months will do so through adding additional revenue streams in-house.
That is to say, these brokers plan to undertake additional training themselves to offer new products and/or services. There are many benefits to this model of integration as well, although it is not without its risks.
One Victorian broker commented on the recent survey: “It is impossible to be a master of everything, and trying to do everything oneself will lead to average knowledge and skills in many areas, which is not our business philosophy.”
Another respondent highlighted the regulatory and compliance complications brokers face when bringing financial planning into their business.
“The challenge here is whether mortgage brokers can accommodate all new regulations, legislation and meet a compliance ‘checklist’ whilst coping with the new [Future of Financial Advice – FOFA] and post-FOFA regulations,” added a NSW broker.
To integrate financial planning into a broking business in-house, the broker will need to become compliant with the Australian Securities and Investments Commission’s (ASIC’s) Regulatory Guide 146: Licensing: Training of financial product advisers.
Becoming compliant will require additional training with an ASIC-approved training organisation to complete the RG146 Diploma of Financial Planning.
The diploma comprises four units: the Practice of Financial Planning, Practice of Risk Management, Practice of Superannuation and Retirement Planning and the Practice of Investment Planning.
Once the diploma has been completed, planners must also undertake a minimum amount of professional development each year to earn CPD points, allowing them to stay up to date with an industry that is evolving rapidly.
Some brokers say that with the right training, a broker can move seamlessly into financial planning since the fields are so closely related. “Finance and mortgages, as well as financial planning, complement each other,” said one survey respondent.
Anne Clarence of Advanced Financial & Accounting Solutions believes financial planning is a natural progression from broking. Ms Clarence has successfully integrated financial planning in-house, although she admits it required considerable study and so may not be a suitable path for all brokers.
“It was a lot of work, but I enjoy studying and I like to stay abreast of law reforms,” she says. “I see it all as opportunity rather than study.”
Ms Clarence was an early diversifier, and says she made the decision to expand her offering to improve customer service.
“I started doing my diploma in 2002 and I’ve just continued on studying from then. It all took around four years initially but I saw it as necessary for me to better serve my clients,” she said.
However, she admits that even someone who enjoys studying and having the most up to date knowledge can’t do it all. Eager to offer her clients all the services she possibly can, Ms Clarence outsources certain services through referral partners.
Ms Clarence says that for her, outsourcing is all about helping her clients – she doesn’t get paid for her referrals.
“I just want my clients to have good service that suits them,” she says. “For example, if I want something done in a timely manner then I have much more chance of that with good referral relationships and I’m referring on more than one client.”
Referral partnerships usually work two ways and can facilitate inward referrals, adding even more value to a business.
West Corp Finance director Rhion Bennet says he has expanded his business through referral partnerships as a way to increase revenue.
“I see it as having more fingers in more pies. If things start to dry up in one area you’ve still got referrals coming in from all the different areas,” he says.
There are, however, some risks in outsourcing that cannot be overlooked.
According to Ballast’s Frank Paratore, “If you’re a broker and you want to refer your customer to a financial planner who is not part of your network or anything along those lines, how do you know that you’re ever going to get that customer back?
“How do you know the financial planner doesn’t know their own broker and won’t turn around and say to your client, ‘You really should deal with my broker, he can get you a better deal’,” Mr Paratore says.
Finding the right referral partners can sometimes be very difficult.
Lisa Sanders, managing director of Your Future Strategy, says she has had great difficulty finding quality referral partners.
“I have wasted thousands of hours in meetings over the last 13 years,” she says. “It’s because every business has their own way of doing things and every business has its own agenda.
“The client is the commodity, so what happens when you are sharing that commodity? How do you manage that?” she asks.
According to Mr Paratore, however, aggregators can sometimes provide brokers with a network of referral partners to capitalise on the positives of outsourcing and to control some of the negatives.
THE BALLAST WAY
Ballast, explains Mr Paratore, is a specialist in diversified financial services.
“Having everything under one roof has allowed us to create a referral network that brokers can trust,” he says.
A trusted referral network allows brokers to direct their clients to other professionals without the fear of losing them – it’s all about risk mitigation, he adds.
“Referring within our network means you never have to worry about cannibalisation of your own database,” Mr Paratore says. “In fact, we guarantee not to cross-market back to your database.
“The benefit in dealing with us is that you are only dealing with one group as opposed to multiple partners.”
The Ballast model is also very flexible; brokers are able to integrate some services in-house while referring other services to the network.
“As a broker, you can integrate in-house whatever services you want to and then simply refer the other ones out, so you can still provide the whole package,” says Mr Paratore.
Ballast can also work with a broker’s partners individually to build up their business.
“We can work with brokers to build their business too,” he says. “If a brokerage has four or five brokers and a good database, they may not want to refer out to a planner. We can work with them to get them a planner of their own.”
Meanwhile, referral partners can access a web portal, which allows brokers to refer clients directly to a Ballast-affiliated service provider, such as a financial planner. The system allows the broker to track all leads and receive feedback on their progress.
Ballast has a number of flexible fee structures to accommodate these various options.
According to Mr Paratore, this is an easy and safe way for brokers to look after their clients. “You can refer out to a trusted partner and you can track it all through our system,” he says.
The Ballast network can also create revenue for the broker since a referral fee is paid on success.
Lisa Sanders says she sees great potential in the Ballast way of integration.
“If a broker is just handling the mortgage but they have the ability to hand the client over and get another service offered, and they then get referral commission on that, then that’s all well and good. Brokers will be willing to hand over names and numbers all day,” she says.
“I think Ballast will be successful in facilitating that and if they do, they will certainly make brokers’ lives a lot easier.”
Marie Belfiore talks diversification
In this Q&A, director of Mortgage Achievers Marie Belfiore reveals that for a brokerage, while identifying a client’s non-core business needs is one thing, setting up a structure for providing them with additional products and services is another
Why have you decided to offer your customers additional products and services beyond mortgage broking?
“Mortgage Achievers has a significant cross section of clients ranging from first home buyers to sophisticated investors. These groups have a diverse range of ages, income and financial acumen. Over the many years we have been providing home loans for our clients we have come to realise the importance of staying close to our clients with regular communication and ongoing annual reviews.
“Our initial client needs analysis and annual reviews are used in part to identify client needs and referral opportunities. We have found our structured review process brings up clients’ needs for our non-core business and led us to believe that a ‘one-stop shop’ model would be a natural extension of our business.”
How have you chosen to offer these additional products and services to your clients?
“In early 2012, we added an internal financial planner. However, due to the complexities of the industry and time commitment to establishing another business channel, we quickly realised that the right model for us was to stick to our core business and establish referral relationships with specialists.”
How have you selected your referral partners?
“The selection of a referral partner was not a revenue-driven decision; our primary objective is to work with a professional organisation that has a track record of great customer service and professional advice delivered cost effectively.
“Equally important to us is having a good referral system that is supported by smart technology, ensuring the clients’ expectations are delivered in a timely manner.”
How does your aggregator help you to expand your offering?
“Our aggregator, Ballast, is our largest referral partner as they provide an all finance solution incorporating planning, accounting, legal and property. They have worked closely with us and have developed an online automated referral system.”
Where do you see the mortgage broking industry heading?
“Since the global financial crisis, there has definitely been a slowdown in the residential mortgage industry. It became very popular for commentators to suggest mortgage broker product offerings needed to be expanded to underpin revenue streams.
“Whilst we dabbled in this space, our firm belief is that resources are better used to focus on our core business. Our client after-care program is designed to deliver us a client for life, not a client for the life of the loan. As our clients mature, equity is created in their home, their superannuation balances increase and disposable income improves – and it is these things that we believe provide us with the greatest opportunities.
“Mortgage Achievers’ business model will see us focusing on our residential and commercial mortgage products whilst working closely with a small group of referral partners.”
Do you currently offer more services than just mortgage broking?
Have you integrated a new product or service into your business in the past 12 months?
If you have integrated a new product or service into your business over the past 12 months, what did you add?
I’ve not added a new revenue stream 18.1%
Protection (e.g. life insurance, income protection) 48.3%
Commercial loans 18.1%
Business finance (inc. debtor finance; equipment/leasing etc) 20.7%
Financial planning 28.4%
SMSF loans 43.1%
Specialist loans 13.8%
Do you intend to integrate a new product or service into your business in the next 12 months?
If you do intend to integrate a new product or service into your business in the coming year what are you planning to add?
Protection (e.g. life insurance, income protection) 24.2%
Commercial loans 11.3%
Business finance (inc. debtor finance; equipment/leasing etc) 29.0%
Financial planning 19.4%
SMSF loans 37.1%
Specialist loans 17.7%
If you intend to integrate further products or services, how will you do so?
Integrate additional services in-house 60.7%
Outsource to another professional 28.7%
Hire specialised staff 10.7%
In your opinion, does having an integrated product and service offering improve relationships with clients?
Do you believe all brokers will offer additional services within the next 5 years?
Don’t know 17.3%
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