3 Ways Diversification Can Safeguard Your Broking Business During A Downturn
More and more brokers seek to protect their business by diversifying. Find out how you can, too.
2018 was a turbulent time for brokers, and 2019 is promising to be no less rocky. Market conditions and changing lender policies mean brokers are now working harder than ever to pull together increasingly detailed applications on behalf of their clients. At the same time, the royal commission has raised doubts about commission structures.
This has called into question the future profitability of small broking businesses.In light of this uncertain future, brokers should not lose hope. Instead, it’s time to start putting in place strategies to safeguard your business.
One of the words on everybody’s lips these days is diversification – and for good reason. Diversifying your business can be a great way to strengthen its resilience and increase profitability along the way. If you’re not convinced, have a look at these three ways you can fortify your business by diversifying.
Diversify your lender panel to protect your revenue streams
It’s no secret that it’s getting harder to achieve unconditional approval with increasingly conservative mainstream lenders. Brokers who primarily deal in prime mortgages with the big banks will have a much harder time making ends meet at the moment. Their viable lead pool is getting smaller, and the work they are expected to put into each application is growing.
By becoming familiar with what other lenders in the market have to offer, you can help more customers by finding solutions elsewhere. Smaller lenders and non-banks have seen rapid growth over the past year because of their ability to provide the products and services the mainstream lenders no longer offer.
As a broker, you can help borrowers who may not know where to turn when their bank rejected them. To do this, it’s crucial that you stay aware of a wider selection of products from more diverse lenders. If you haven’t dealt with a non-bank like Bluestone before, a good first step is to reach out to your BDM and ask them to walk you through the scenarios they may be able to help with. They’ll also be more than happy to workshop scenarios and help you write your applications. You’ll learn the slightly different processes and requirements in no time, and can diversify your income sources as a result.
Diversify your target market to keep your lead gen healthy
As anyone who has spent any time in the sector can attest, the property market moves in cycles. Periods of decreasing values and slowing demand are inevitable. As a broker, to avoid being powerless against changing demand, it’s crucial to have strategies in place to keep customers coming through the door. One of the best ways to achieve this is by diversifying your potential client base.
Currently, property sales are declining amid weakening conditions. This can have a negative flow-on effect on broker business. At the same time, a growing number of small business owners find it difficult to access finance they need. And a record number of residential property investors are approaching the end of their interest-only periods with reduced ability to refinance due to stricter policies from their lenders.
As a broker, you’re in the perfect position to help these borrowers and grow your pool of potential business.
Diversify your product offering to retain more clients
Broking is a business that lives and dies by its relationships. A good rapport with clients is critical to help them feel comfortable discussing sensitive financial information, and guide them through what is often a stressful and emotional purchase process. Attracting new clients and building these relationships takes a lot of time and effort. So, where possible, you should always keep one eye on client retention and return business.
But even if you regularly check in with former customers, if you only offer new home loans or refinances, most of them won’t turn into reliable return business. Apart from some professional property investors, borrowers usually don’t need these services more than every few years at most.
Instead, think about diversifying your product offering into other financial products. For example, many brokers offer services like ongoing wealth management, insurance, and even accounting and financial advice. This can create the type of client relationships that last decades, as the broker becomes a one-stop-shop for financial advice and planning.
Others prefer to remain in the broker space, but on top of residential lending diversify to include specialist loans like commercial, asset and personal finance. Especially SME lending has recently gained a lot of publicity, as many small business owners find themselves starved for high-quality financial advice.
If you only deal in residential loans, it’s still worth occasionally checking in with customers as it can lead to valuable referral business and will keep you top of mind when the time for the next purchase or refinance comes around. But diversifying your offering can help kickstart your customer retention and drive up value for your customers.
The broking sector is set for uncertainty and upheaval over the next twelve months, and many brokers worry about what this will mean for their ability to survive. In times like these, it can feel like you have lost control over your own fate, but nothing could be further from the truth. By taking action early to position yourself to weather the storm, you can build a business that can continue to thrive even as the market remains in turmoil.