Mortgage brokers expanding financial services presence

The overlap between mortgage broking firms and other segments has raced ahead in 2011 as companies search for diversified revenue streams in a gloomy financial environment, and more diversification is on the way.

The opportunity to retain clients rather than risk losing them under another referral arrangement if they go elsewhere for other services is also a factor, according to The Selector Group director Brett Abikhair.

"It's about protection - it might have been driven by protecting your client base, but it's all about helping that one person with as many things as you possibly can," he said.

Two weeks ago one-stop-shop Yellow Brick Road Holdings (YBR) announced it would be venturing into funds management, teaming up with Coolabah Capital to create a vertically integrated joint venture called YBR Funds Management.

YBR said the move was aimed at helping it diversify its cashflows and moving up the product value chain by offering a range of low-risk, high-return, high-liquidity cash and fixed income products. YBR itself is only four years old, but has branched from mortgage offerings into services including financial planning, accounting and insurance.

Mortgage aggregator Vow Financial launched financial planning division Vow Wealth Management - a joint venture with The Selector Group's financial planning arm Wealth Selector - in May this year.

The service is promoted to Vow's broking clients via a referral arrangement, and Vow chief executive Tim Brown said the group is trying to capture as many opportunities as it can at that point of the mortgage transaction.

Vow currently has two joint ventures in place, and plans to launch two more between now and January, expanding further to a total of six in 2012, Brown said. The group also plans to launch Vow Legal in 2012, and eventually other services including accounting, Brown said.

Abikhair said mortgage commissions were cut by 35 to 40 per cent during the global financial crisis, but the work involved in getting a loan processed doubled as banks passed that work back on to the brokers, making broking a far less profitable business.

The Selector Group - which is currently made up of mortgage, financial planning, real estate, and leasing services - eventually rolled into financial planning practices to leverage off its broking relationships, and that's how the business has grown, he said.

"I think the industry is headed down this [diversification] path because at the end of the day if you've got a relationship with a client, that's what it's all about. If you've got a relationship, why can't you do 10 things for them? Most clients will tell you that's what they want," he said.

"I think that's the natural progression of the industry - it's a matter of when. When is the Yellow Brick Road [model] going to become the norm? It's not an 'if'. You'll find consolidation in the mortgage broking industry - there's a lot of one-man bands. They'll move towards bigger groups as the planning industry has," he said.

Mortgage and Finance Association of Australia chief executive Phil Naylor said the different licensing arrangements and regulatory environments would present an issue for firms looking at diversifying, which meant it would likely only occur in larger and better resourced groups.

Diversification within the broking industry has been a trend for a while now and there is clearly a search for alternative streams of revenue, as well as a tendency for broking and planning to move closer together, he said.