Lending
- “to diversify or
not to diversify”
Macquarie Practice
Consulting
Libby Beeching
August 2012
Agenda – Your lending options
1
Introduction
2
Assessing lending options – critical questions
3
Develop an in house capability
4
Outsource to a referral partner or panel
5
The ‘do nothing’ approach
6
Key learnings
2
Introduction

Practical solutions for your business

Diversification – the numbers tell a different story
Assessing lending options – critical questions
1.
Strategy
2.
Clients
3.
Your skills
4.
Expected payoff
5.
Your priorities
Case study – firm ABC
Successful suburban accounting & financial planning
practice
 Clients: Predominantly pre retirees, medical
specialists and business owners, and a recent
acquisition of accounting clients had a strong
accumulator base. Accountants were frequently
came across opportunities for debt and financing.
 Current solution: Referring to a big four (local
branch). Unhappy with this solution as clients
were at risk of cross sell, no revenue being
received and missed opportunity to properly brief
the lender as to the financial planning strategy
 Strategy: wanted to build an in house capability
(similar to financial planning arm) to maximise
revenue share, ensure the client received good
lending advice and range of solutions
5
Phase 1

Develop an in house capability


Strategy:
Increase revenue opportunity (predominantly mortgages but also accounting &
insurance)
Maintain control of the brand
Deepen relationship with client


6
Develop an in house capability
MPC provided financial analysis and a project plan
$140,000
$120,000
$100,000
$80,000
Rev
$60,000
Cost
$40,000
NPBT
$20,000
Accumulated NPBT
$0
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
-$20,000

Financial analysis
– High revenue opportunity
– Loan volumes of $20m in first year
– Remuneration structure for broker base & bonus
– 12 months to breakeven (including licensing costs)
7
Develop an in house capability

Steps to implement
Months
0
Task
1
2
3
4
5
6
7
8
9
Licensing
Recruitment
Induction &
accreditation
Engage accountants
& financial planners
Data mining
Marketing plan
Implement
8
Develop an in house capability





Outcome
expected payoff: recruitment was taking much longer than expected
priorities: other areas of the business needed attention
the proposed solution was no longer preferable
decided to consider other options
9
Key considerations of in house lending
Advantages
 Control
 Revenue
Disadvantages
 Cost
 Payoff
Tends to suit
 Full service offering
 Draw on scale and resources
Does not tend to suit
 Reactive offering
 Sole operators
Licensing
 ACL or authorised rep ?
Resources
 Dedicated role
 Upskill or recruit ?
Aggregator group
 Options
 Value proposition
Client ownership
 Who owns the client
10
Phase 2


Outsource to a mortgage broker (referral partner)
Financial analysis
– Medium level revenue opportunity
– Low to medium level expenses (no licensing costs, remuneration)
11
Phase 2

Steps to implement
Months
0
Task
1
2
3
4
5
6
7
8
Recruitment
Agree terms
Engage accountants
& financial planners
Data mining
Marketing plan
Implement
12
Outsource to a referral partner (broker)

Outcome
– found a local mortgage broker who was very keen to partner with the firm
and look after their client base lending needs
– expected payoff: negotiations fell over in the final stages.
– Tip: communicate your make or break terms as early in the process as possible !
–
–
clients were continuing to be referred to the local Big 4 during this time as no
other solution in place
priorities: successfully transitioning the acquisition was a higher priority by
this stage. An immediate solution was required, so an introduction was
provided to our panel solution.
13
Phase 3
Outsource to a referral partner (panel model)
 Financial analysis
– Low level revenue opportunity
– Low cost (no licensing costs, remuneration)

Steps to implement
0
Task
Months
1
2
3
4
5
6
Training session
Refer immediate
opportunities
Engage accountants
& financial planners
Data mining
Marketing plan
Implement
14
Considerations when outsourcing lending
Broker
Bank
Panel
Relationship
Two-way referral relationship with
a mortgage broker. An agreed referral
fee arrangement.
One-way arrangement.
A ‘spot and refer’ fee.
One-way arrangement with an service
provider. You receive part of the upfront
loan as commission.
Benefits
 You choose a partner who fits your
value proposition
 Easy to implement
 Easy to implement
 Reliable commission payments
 Reliable commission payments
 You agree a relationship and referral
fee that works for both of you
 Product from a range of lenders
 Some services agree not to market to
your clients and will keep up to date
with your client’s progress
Drawbacks
 You need to invest time in managing
the relationship and you need to have
a remuneration agreement in place
 You aren’t in control of the client
experience
 Your clients may receive marketing
offerings for similar services
 Not a face-to-face service
 Product recommendations will be
limited to the bank’s product range
 You aren’t in control of the client
experience
15
The ‘do nothing’ approach


lending may not fit with your business strategy or client needs and ‘doing nothing’
is a legitimate option.
if you decide to ‘do nothing’ , you need to ask yourself – how does this impact my
business strategy and my clients?
16
Key learnings

No one right option – each have their advantages & disadvantages
Consideration
Inhouse capability
Outsource to a referral
partner or panel
Do Nothing
Overall business strategy
Yes/No
Yes/No
Yes/No
Financial Modelling
High
Low
N/A
Clients
Maintain control
Loss of control
Potential to lose
Compliance
Med to High
Low
N/A
Staffing
Medium to High
Low
N/A
Process
Medium to High
Low
N/A
Ease of Implementation
Medium to High
Low
N/A
Business Structure
May need to be reviewed
May need to be reviewed
N/A
17
What lending solution is
right for your business ?
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