When the nation’s top broker challenges the merits of diversification, it begs the question: is cross-selling all it’s cracked up to be?
When the nation’s top broker challenges the merits of diversification, it begs the question: is cross-selling all it’s cracked up to be?
The Australian Lending and Investment Centre’s Mark Davis is no stranger to success. The 2012 winner of the Australian Broker of the Year Award has taken the number one spot on MPA’s Top 100 list two years in a row, settling more than $169m in 2011/12. While his goal is to hit a billion dollars in funds under management by 2016, he says diversification is not part of the business’ growth strategy.
“I believe in specialisation,” he says. “Cross-selling dilutes you as a business. I think there are very few good brokers in Australia and that’s because too many try to be a jack-of-all trades. They lose focus, and they lose focus on the client and on the lending structures, and what they are there to do.”
Davis works with high-net-worth investment clients who are looking to implement lending structures that support their investment portfolio. He doesn’t call himself a “broker”, preferring the term “investment lending manager”, and says he doesn’t sell loans.
“A loan is the end result of where you need to go. We’re looking after investment clients, so we’re talking to them differently. We don’t even talk about rates when customers come to see us.”
His clients come to see him because they value his expertise, which he says has nothing to do with getting them the cheapest rate. Likewise, he believes they stick with him because they know he’s not trying to flog a bunch of products to them.
“I don’t market or advertise, I want clients to walk in my door and know that I’m here to look after them. So if I can put that across and they know that I’m not going to sell them anything, then most of my clients will stay with me.”
If he wanted to make more money, Davis says he could double his revenue by bringing in a buyer’s advocate and a financial planner, but that won’t make The Australian Lending and Investment Centre a better business.
“I didn’t go into business to make the most money. If you’re making the most money from your clients every time, are you also doing the right thing by them?
“The business gives a thousand referrals to other parties, but that’s all I want it to be – a referral. I don’t want it to be a payment – I don’t want it to be a motive. If you’re good at what you do, you’re going to earn enough money. If you do the right thing you’ll get paid enough money.”
Davis admits, though, that his model and focus on specialisation isn’t for all brokers. “Cross-selling is required for a lot of brokers who only write average numbers. But if you’re going to be good, you’ve got to back yourself.”
The other side
Survey results from the Commonwealth Bank and the MFAA Home Finance Index, which were released in September 2012, revealed that only half of the 1,423 survey respondents were offered home loan protection (53%), home contents and building insurance (48%), and life insurance (31%) when they took out a loan.
Of those offered insurance, 34% took up home protection insurance when it was offered. “The survey shows that mortgage brokers continue to enjoy a huge opportunity in cross-selling insurance products, with both young and mature borrowers showing they are open to opportunities to protect themselves,” said Phil Naylor, chief executive officer of the MFAA, at the time of the report.
But if cross-selling is such a “huge opportunity” why are more brokers not jumping on board? Martin North of Digital Finance Analytics is a bit “sceptical” as to the potential power of cross-selling and says there are several issues affecting brokers’ willingness to engage in diversification.
“I think the first point is there’s a degree of complexity about getting across more products. So for example if you’re cross-selling a personal loan, a credit card or even insurance, there is a whole bunch of additional things you need to know and some of them of course, such as the credit card sales process, are regulated.”
North also indicates cross-selling to clients who are in the process of setting up a mortgage and moving house is often bad timing.
“From my research, consumers don’t tend to necessarily think about credit cards or personal loans at the same time as their mortgage – the only exception to that is insurance. But I don’t think home insurance is one of those products that is very central to where the brokers play at the moment.”
And lastly, North indicates that cross-selling products generally isn’t lucrative enough to entice brokers.
“The commission payments that are made for other products are a lot lower. So in fact you spend a lot of time trying to cross-sell a product to get a very small reward for it, rather than spending your time selling another home loan. So I’m not sure the economics back up that well either.”
A better way?
North isn’t anti-diversification, but he does advise brokers looking to improve their cross-selling opportunities to tailor their approach to target segments of their customer base.
“You’ve got to have a customer who is ready to be cross-sold to. If basically all you do is every time you have a conversation you try and sell six products it’s never going to work. It’s like throwing mud at a wall – it will just slide down to the floor. So you need to be much more meticulous in spotting the opportunities and working the specific lead at the right time, which might not be when the customer is settling their home loan.”
Case Study: Peter Gwynne, Financing Property
The best thing Financing Property’s Peter Gwynne did for his business in 2012 was drop his diversification strategy. Although qualified as a financial planner, Gwynne decided to focus solely on finance last year after finding the compliance and knowledge required to do both successfully to be too onerous.
“It set me backwards for two years I reckon. I was number 76 on the MPA Top 100 in 2012 and I reckon I can get to the top 30 this year and that’s because I’m just concentrating on being a finance broker.”
According to Gwynne, finance is a much more specialised field now. “If you want to be good at it you’ve got to be studying finance. I look at policy just about every night. I look at different lenders and everything that’s happening in the industry every day. To try and diversify and do a number of things – I don’t think you can do it. I think if you want to be a good finance broker that’s what you’ve got to be.”
Financing Property specialises on investment clients and wealth creation, an area Gwynne finds “exciting”. “And the other thing is I love doing the finance – I have no interest in doing anything else. And I find insurance is such a negative world.”
The other bullet to his cross-selling strategy was customer reaction. Gwynne says he found most didn’t want to be offered other products and cross-selling risked a negative reaction not only from clients, but also his referral partners.
“Clients don’t want you to sell them insurance and neither do my referral sources. They don’t want me cross-selling stuff and putting in to other companies where they may lose them.”
How to cross-sell effectively
1. Look for a good match: Brokers who are successful at cross-selling focus on products that fit with their current offering. As MFAA research shows, mortgage protection insurance is closely aligned with residential mortgage and take-up of home protection insurance is significant.
2. Bone up: If you’re going to be effective at cross-selling, you have to have the knowledge and confidence to back-up your sales pitch.
3. Pare down: Offering clients everything under the sun will likely overwhelm them. Focus your offering on a few products and stick to your core capabilities.
4. Time it well: Research indicates the best time to sell additional or complementary products is during the first three months of your relationship with a customer. Timing follow-up conversations to occur during this window could improve your chances for success.
5. Don’t be greedy: Customers don’t want to feel like they have a dollar sign on their heads. Take care of your customers and the money will take care of itself.
6. Refer: If you’re not comfortable or familiar with offering insurance products, have the “are you covered” conversation with clients but align with providers who do the rest.
7. Target: Not all homeowners are interested in auto insurance. Make sure your customer is a good fit for additional products and services or you might risk losing them. As well, time wasted going through products a customer doesn’t want or need is taking away time from what you are best at – home loans.
