In a difficult market where efficiency is key, diversification can seem like the logical next step for brokers, but can a broker really do it all?
Simon Bednar, Finsure Victoria state business manager says as credit growth remains flat, more and more brokers are looking for new ways to boost their revenue.
“So we’re finding brokers are doing one of two things. They’re either trying to rejuvenate their book by going back over their client list and trying to rewrite loans that they’ve already written, which is essentially a form of cannibalisation, or they’re looking for alternative income streams, and one of those is diversification.”
Diversification, says Bednar, can be a good option for brokers, but only if it’s done right.
“There’s been a lot of media beat-up about it and I think a lot of brokers are jumping into it without necessarily understanding it.”
Brokers that attempt to take on too many new things at once, says Bednar, consistently end up being a “master of none”.
Diversification is something that every good broker should have on their radar, but a detailed business plan and strategy for supporting clients is crucial, says Bednar – as is a bit of realism.
“A lot of people think they can walk in and shake someone’s hand and then expect leads and business to come their way, it’s not like that, it does take a lot of work.”
Mario Borg, director of Master Brokers Group, says brokers looking to diversify simply as a means to bring in more revenue run the risk of losing client trust.
“If you’re coming at it from a selling angle, if your priorities are around how many dollars you can squeeze out in terms wallet-share for each client, you might get away with it for a while, but most people aren’t silly. They can see if someone is being genuine versus somebody that’s all about trying to make a dollar.”
While NCCP has made it easier to have conversations around risk, insurance, and other financial needs, said Borg, that doesn’t mean brokers should try and sell these things to every client.
A better option, said Borg, is often to have trusted referral partners in all areas of finance, whether these relationships are based on money or reciprocity.
“If there’s a dollar in it for a broker, great, but what’s more important is keeping your client sticky so that you’re seen as a trusted contact point for these things: You specialise in one area but have the right contacts in others.”
Graham Couper-Smith, co-author of Pay Off Your Mortgage Fast, works as a management consultant as well as a broker, and has a referral relationship in place with a financial planner.
The key to diversifying while maintaining a positive relationship with clients, says Couper-Smith, is to be candid about what you’re doing.
“If you’re upfront and honest people trust you, and people will buy things from people that they like.
“I say to people ‘If you buy from this guy I will get a commission… So you should go out and buy the most expensive thing you possibly can.’ And people laugh and generally they will use him, because they appreciate honesty and because we have a good relationship.”
Diversification is crucial to modern broking for two reasons, says Couper-Smith: To stop clients from looking to other businesses, and to keep revenue above costs.
“Everyone’s costs are going up and a lot of places are getting less enquiries. There is that pressure to maximise productivity so that you get paid the maximum you can for the hours that you put in.
“But you need to meet those productivity needs in a way that agrees with your own ethics. I believe that you can meet all of those targets by only selling things to people that they genuinely need - and then everyone trusts you too.”