By Antony Field
When the topic of diversification comes up for brokers, there are a number of ways they can choose to go, with options like alternative lending, specialist loans and non-conforming borrowing immediately springing to mind.
But Peter Vala, general manager, partnerships and distribution at Thinktank, says these approaches are just scratching the surface.
He suggests there are a number of other key areas in which brokers can create significant diversification opportunities – and that now is the ideal time to look at offering these services.
“The first opportunity is within the commercial property market, where the challenges of COVID-19 have highlighted the need for business owners and investors to be able to more easily and effectively refinance, purchase and release equity,” Vala says.
“The second is in cash flow funding solutions, which is again a major priority, particularly during difficult and uncertain economic times. These can range from fintech or major bank unsecured facilities through to debtor finance solutions.
“Finally, asset finance is a clear go-to area, with most people in business having vehicles and/or equipment under finance and regularly replacing or upgrading them.”
Diversifying into these different sectors or markets not only helps brokers assist their clients with a broader base of solutions but also enables them to “future-proof ” their own businesses to ensure they remain sustainable and thriving, regardless of market forces or economic conditions.
“The best-case scenario for a business owner is to generate an income from a number of clients or debtors, rather than be reliant on one major client and risk losing that client or suffering issues with non-payment. It’s no different for a broker,” Vala says.
“Do you want to be exposed to one source of income or channel, for example the residential property sector? Or would you like to supplement this income from a number of other sources, such as equipment finance or commercial property lending? Diversification is a great way to future-proof your business as it also broadens referral sources and serves to deepen the client relationship.”
Cory Bannister, chief lending officer at La Trobe Financial, agrees that with the unexpected events of 2020 there’s no time like the present for brokers to be seriously evaluating what drives their businesses, with a view to adding more opportunities to assist clients as they rebuild in 2021 and beyond.
“Like any sound investment strategy, for a business to succeed over the long term it’s important to diversify and offer a range of products and services that meet different market opportunities and respond to different economic conditions and trends. The recent transformation taking place across the financial services sector is likely to continue, particularly in finance broking, and by adopting a more holistic proposition, many ‘mortgage’ brokers have now become ‘finance’ brokers.
“We believe this shift will result in a ‘diversify or die’ outcome for many, similar to the impact of supermarkets on high-street butchers and grocers as consumers look for the convenience of a one-stop shop,” Bannister explains.
“The most obvious benefits of diversification exist around attracting and retaining clients, with the end result being increased revenue and improved business value, but the understated and potentially most important benefit is revenue protection.”
Of course, it makes sense that when you offer a range of different finance options you have the potential to drive more lending business in a number of different ways, Bannister says.
Some brokers have been resistant to the idea of diversifying as they prefer to specialise in one area – namely residential – and build expertise in that specific space. But while this may have its benefits, he warns that with the challenges of the pandemic-induced economic downturn, all brokers should be looking for opportunities to ensure their businesses remain viable.
“We believe there are a couple of services that will be in high demand; however, they will be met with limited supply by the major lenders, resulting in more borrowers looking for the experience and guidance of a trusted adviser such as a finance broker,” Bannister says.
“These are near-prime ‘specialist’ loans. With the next six months presenting financial challenges for many people, we anticipate a further increase in demand for specialist lenders. It is unlikely that major banks will reverse their long-term ‘simplification’ trend that has seen them focus on ‘vanilla’ home loan borrowers and lay off thousands of staff. Clients that have been directly or indirectly impacted by the COVID-19 pandemic will need to seek the support of a specialist lender who will take the time to fully understand their unique position and provide an appropriate tailored solution to meet their objectives and requirements.”
The other major opportunity is bridging loans, which assist borrowers in meeting immediate finance needs with short-term funding.
“There are three trends at a macro level to support borrower demand for this product: an ageing population driving downsizers; upgraders looking to capitalise on buying opportunities but being met with limited supply; and borrowers looking to build,” Bannister says.
This is just one of the more creative ways that brokers can seek to meet the needs of the business community. Tas Tzimos, head of sales at Moula, says business lending to SMEs has seen strong growth in recent years, meaning brokers could be missing out on huge opportunities to drive business in this space if they choose not to diversify their offerings.
“In just three and a half years to September 2019, the value of commercial loans settled by mortgage brokers through aggregators in Australia almost doubled, reaching a record high of $43.1bn. The increase in brokers writing commercial lending suggests that in a challenging home loan market more brokers are diversifying into this sector, expanding their portfolio beyond just residential home loans into a faster-growing sector,” Tzimos says.
“Furthermore, there are over two million SMEs in Australia that will need business finance at some point in the future. For brokers specialising in mortgage lending, a significant percentage of their clients will have a need for business finance. At the same time, more people are looking for a single source to meet all their finance needs, which creates an opportunity for brokers to broaden their services.
“By diversifying and becoming multifaceted lending experts, brokers can build stronger relationships and make a more meaningful contribution throughout the customer’s journey. Brokers who don’t offer business lending to clients who need it could see them go elsewhere and eventually switch their mortgage lending as well.”
“Brokers should look to partner with lenders that offer not only easy access to a variety of products designed for new entrants but can also provide hands-on assistance, both in terms of upfront training and ongoing support. La Trobe Financial has seven decades of deep experience with a loan underwriting team of 150 people – the largest of any non-bank in the country – standing ready to assist brokers with their diversification strategy.
“For brokers who are not comfortable with exploring particular areas but recognise the need to provide these solutions for their clients, another option could be to partner with other financial service providers in your area. If you can find someone that you trust to cover the gaps in your offering, you can effectively establish a quasi-financial services network into which you can cross-refer.” Cory Bannister, chief lending officer, La Trobe Financial
“If you’ve been thinking about diversifying but aren’t sure where to start, I encourage you to contact your Liberty BDM. They can answer any questions you might have and provide advice tailored to your individual business goals. Remember, we’re here to support you through the process – you don’t have to figure it out on your own.
“At Liberty, we know how important it is to have the right support, especially when you’re trialling something new. We work closely with business partners to help them take those first steps towards diversification, and it’s our goal to make the process and seamless as possible.” John Mohnacheff, group sales manager, Liberty
“Brokers don’t have to look for new clients to diversify into business lending, as many of their existing clients will need business finance. It’s a matter of knowing customers and asking questions to determine if they have business lending needs.
“If you’re a residential broker wanting to test the waters and start moving into commercial lending, we have a team of BDMs who are dedicated to helping you on your journey. Our online platform gives you all the tools you need to get started, and we also offer our broking partners the opportunity to submit light referrals as well as full applications.” Tas Tzimos, head of sales, Moula
“Make sure you partner with institutions that are willing to support and workshop transactions with you. This is critical in order for you to respond and adjust quickly to the needs of your customers. For this to happen you really need two to three dedicated RMs/BDMs that have the time to work with you openly and honestly about your transaction. Trust is an essential factor.
“Finally, don’t put your eggs all in the one basket. It’s far better to have a spread of manageable business on the go at any one time rather than hanging your hat on that one big commercial deal that in the end didn’t come off, or that loan that took so long to settle that the return didn’t match the effort. Again, diversification can be a great way to both expand and protect your business.” Peter Vala, general manager, partnerships and distribution, Thinktank
Tzimos adds that there aren’t any major risks to diversification, as clients won’t always qualify for lending but brokers can save time by knowing what the options are and what is the most suitable lending solution.
“Any risks can be minimised with effective support from the lender. Moula BDMs, for example, work closely with brokers to help them understand the business lending process and what it takes to maximise successful outcomes,” he says.
“Even brokers with the most loyal databases could lose customers to competitors who can do it all, so it’s important to explore the options that are available to you” John Mohnacheff, group sales manager, Liberty
John Mohnacheff, group sales manager at Liberty, suggests that as Australia adapts to a new way of working and the industry evolves at a rapid pace, then perhaps one of the greatest risks brokers face is falling behind the competition.
“For many borrowers, convenience is key, and being able to have all their lending needs met by one trusted adviser can be a powerful drawcard. Even brokers with the most loyal databases could lose customers to competitors who can do it all – so it’s important to explore the options that are available to you,” Mohnacheff says.
“It’s certainly an interesting time to be a broker, and we’re currently seeing many brokers taking their businesses in exciting new directions. In recent months, there has been a significant shift in the needs of the Australian business community, and SMEs need our support now more than ever. At Liberty, we know how important it is for brokers to have the right support, especially when you’re trialling something new. We work closely with business partners to help them take those first steps towards diversification, and it’s our goal to make the process as seamless as possible.”
“By diversifying and becoming multifaceted lending experts, brokers can build stronger relationships and make a more meaningful contribution throughout the customer’s journey” Tas Tzimos, head of sales, Moula
While it’s difficult to pinpoint exactly what the future of the industry will look like, Mohnacheff says one thing we do know is that it’s important for brokers to start taking steps to safeguard their businesses.
“There is simply no better way to do so than by establishing a strong and diverse customer offering. Liberty has long touted the benefits of diversification, and we’ve always supported our business partners to look beyond home loans and explore new ways to do more. Whether it’s moving into commercial, motor, SMSF, personal loans, business finance or all the above, diversification can open your business up to a whole host of new opportunities,” he says.
“Something we can be sure of is that the lending landscape will not return to the way it once was. If these past few months are a fair indication of what’s to come, we can expect to see an increased demand for flexibility and the need for a far more personalised approach.
“More broadly, we are seeing an uptick in the number of customers needing the help of a more tailored lending solution, whether that’s for business or personal needs, so this is the perfect time for brokers to explore the benefits that specialist lending could bring. Customers are looking for more than just a mortgage broker, and ensuring you can provide a comprehensive suite of services will help you remain competitive in the years to come.”