It’s been a rollercoaster ride since Hayne handed down his recommendations earlier in 2019. So it’s no surprise that some mortgage brokers are considering ways they can diversify their business.
That said, diversifying to deliver a complementary – or even completely different – service to your existing clients or new ones can be a good business move, as well as a way of mitigating risk.
In fact, the MFAA also hosted a webinar back in July on how mortgage brokers can successfully future-proof their businesses by introducing new revenue streams. They discussed how to integrate new services and partner programs, as well as going beyond the initial loan settlement to consider your clients’ lifestyles and identify opportunities to offer additional services and help retain them. Similarly, the FBAA has announced workshops on service diversification.
So where could you start?
You can diversify vertically, horizontally or even diagonally!
An example of horizontal diversification is broking finance for clients outside of your existing base. These could include developers raising capital to build multi-residences, shopping centres or other facilities they will be either on-selling or renting to others. It could also include asset finance – not just for construction, but any industry where heavy equipment is purchased and paid off over a long period, such as trucks, excavators, harvesters and even logistics or manufacturing plants.
The challenge in this approach is that you will need to go out, find and cultivate a whole new group of clients. You may also have to gain new knowledge and skills. Your aggregator may be able to assist you with this, and you could consider partnering with other businesses with market expertise.
Diversifying vertically is offering additional, related services to your existing clients: financial planning, car loans, business loans, pre-sale house preparation services for their existing home, or even property management services for investors buying homes for the rental market.
Diversifying diagonally? This is the big leap: different customer base and unrelated service offerings. For this reason, it’s not to be taken lightly by a small firm or single operator. Diversification can become a distraction from your core business – and you could wind up doing neither of them effectively or profitably.
What are the barriers?
The barriers to entering any trade or industry vary widely. Perhaps the greatest barriers are understanding a new set of clients and their needs – as well as the ability to deal with new sets of products and their suppliers.
Diversifying your income stream will mean you need new networks, training and time to build your experience – even if you just move from offering 100% residential mortgages to other kinds of loans.
Will it affect my insurance policy?
That depends! If you are planning to go horizontal and offer different kinds of loan brokerage to different categories of clients, it should not affect your Professional Indemnity (PI) policy – which should cover your own professional activities without any rise in costs. However, you must advise us in advance of changing the services you offer to comply with your insurer’s terms and conditions.
If you are going to be venturing into another profession, it’s important to talk to us about any supplementary or additional PI cover you may need.
An important thing to think about, if you are not already covered, is whether diversifying your business will change your Public Liability (PL) risks. Even if you are covered as a mortgage broker, branching out may introduce new risks – plus, it is just as important that you notify us of any change to your business for the purposes of your PL cover as well.
If you’d like to know more about the difference between PI and PL insurance, read this article. And if you have any questions, please contact our Customer Service team on 1300 444 142 or email firstname.lastname@example.org.