Lisa Claes, executive director of customer delivery with ING DIRECT, believes that, as mortgage brokers deal with narrowing margins, a sluggish credit growth outlook, added compliance, rising costs and national consumer credit protection (NCCP) regulations, closer ties will be forged with financial planners – and bringing mortgage and financial advice together under one roof may be the sustainable business model of the future. Read on for her thoughts.
The decision by a customer to buy a home occurs relatively early in the financial life cycle and more importantly prior to phase of wealth creation.
Most of us follow the same financial journey. We save, transact, borrow for a home, invest and then retire.
At this formative stage within the financial lifecycle customers seek out a mortgage broker for tailored personalised advice. This is the time they’re yearning for advice, reassurance, education and direction as they make one of the biggest financial decisions of their lives so it makes complete sense.
What an opportunity.
A broker must capture a full financial snapshot of the client to comply with the NCCP requirement – that the credit assistance a broker provides is suitable to their specific needs.
The fact finder and the interactive process experienced by broker and customer delivers a platform to the broker to become the financial “go-to” person for their customer now and into the future.
I understand that a broker cannot offer financial advice without proper authorisation under an AFSL and that is an option some are embracing, but there are other ways in which to become part of the broader customer financial life cycle.
They are doing this in various ways. Time will stress test these models emerging in the market and determine those which will prove most resilient and profitable.
The information gleaned throughout the fact finding process not only guides the broker on providing robust credit assistance but should also be leveraged to partner with the customer on his or her journey through the various financial phases. Irrespective of whether the customer chooses to indulge in the more exotic product offerings within the realms of SMSF, property investment or margin loans, the inevitability of these phases provides the opportunity to add future value to the more mainstream financial activities whether it be refinancing, upsizing or downsizing, taking out insurance, investing in managed funds platforms, direct shares, or superannuation offerings.
The most simple way to test the waters is to develop a referral relationship with financial planners located in areas mirroring the demographic of your client base.
The ideal referral relationship is built on trust. Both parties are expected to perform to the satisfaction of the customer, thus ensuring positive feedback to the referral source, instinctively creating a loyal referral base and increasing their respective customer bases. This referral exchange often flourishes without referral fees.
However this system of sending customers to an outside source has its sceptics.
Another and potentially more sustainable approach is to co-locate and brand under the one roof. Pitching the brand in a manner that telegraphs a more holistic financial offering has proven to enhance success in businesses locally and overseas. The model operating beneath the brand can be an integrated one or with two distinct operations. There is appeal to customers to know that their broader financial needs can be serviced all under the one roof. Some businesses take the extra step of matching employee and customer within the respective planning and broker businesses using personality profiling tools or a common recruiting agency to shore up consistency of customer experience within the conjoined brand.
And then there’s full convergence where the entity running the business holds both an AFSL and an ACL.
Daniel Di Conza, CEO of Acceptance Finance runs a converged model and is convinced it’s the way of the future. The group has three financial planners piggy backing off 12 mortgage brokers.
Ultimately Daniel believes that the ratio of two mortgage brokers to one financial planner will eventually be about right.
His brokers and planners remained specialised but they operate as a one stop solution for the customer under the one brand.
“The future is about the whole financial relationship with the customer across property, investments and insurance.”
Daniel thinks that small specialised mortgage brokers face a challenging future.
“As an example half of our profit used to come from trail commissions, that has dropped to just 5%.”
“The simple fact is that there are better margins in financial planning products than mortgages.”
Daniel says the crucial step for brokers in the converged model is to introduce the client to the financial planner.
“It’s potentially a complete solution for the customer”.
Of course the other advantage and challenge with the fully converged model is one of scale. Scale is necessary to defray the costs of establishing and maintaining dual licensing however the benefits of the diversification of income and greater share of customer wallet far outweigh these.
Do you believe that one-stop shops are the business model of the future? Have your say by commenting below.
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