Lending - “to diversify or not to diversify”

Macquarie Practice Consulting

Libby BeechingAugust 2012

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Agenda – Your lending options

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Outsource to a referral partner or panel

Introduction

Assessing lending options – critical questions

Develop an in house capability

The ‘do nothing’ approach

6 Key learnings

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

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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

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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

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Develop an in house capability

MPC provided financial analysis and a project plan

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)

Jan-

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Mar

-12

May

-12

Jul-1

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Sep-1

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Nov-1

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Jan-

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Mar

-13

May

-13

Jul-1

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Sep-1

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Nov-1

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Jul-1

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Nov-1

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-$20,000

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

RevCostNPBTAccumulated NPBT

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Develop an in house capability

Steps to implement

Months

0 1 2 3 4 5 6 7 8 9Task

Licensing

Recruitment

Induction & accreditation

Engage accountants & financial planners

Data mining

Marketing plan

Implement

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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

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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

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Phase 2

Outsource to a mortgage broker (referral partner) Financial analysis

– Medium level revenue opportunity– Low to medium level expenses (no licensing costs, remuneration)

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Phase 2

Steps to implement

Months

0 1 2 3 4 5 6 7 8Task

Recruitment

Agree terms

Engage accountants & financial planners

Data mining

Marketing plan

Implement

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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.

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Phase 3

Outsource to a referral partner (panel model) Financial analysis

– Low level revenue opportunity– Low cost (no licensing costs, remuneration)

Steps to implementMonths

0 1 2 3 4 5 6Task

Training session

Refer immediate opportunities

Engage accountants & financial planners

Data mining

Marketing plan

Implement

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Broker Bank Panel

Relationship

Two-way referral relationship witha 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

You agree a relationship and referral fee that works for both of you

Easy to implement

Reliable commission payments

Easy to implement

Reliable commission payments

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

Product recommendations will be limited to the bank’s product range

You aren’t in control of the client experience

Not a face-to-face service

Considerations when outsourcing lending

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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?

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Key learnings

No one right option – each have their advantages & disadvantages

Consideration

Overall business strategy

Financial Modelling

Clients

Compliance

Staffing

Process

Ease of Implementation

Business Structure

Inhouse capability

Yes/No

High

Maintain control

Med to High

Medium to High

Medium to High

Medium to High

May need to be reviewed

Outsource to a referral partner or panel

Yes/No

Low

Loss of control

Low

Low

Low

Low

May need to be reviewed

Do Nothing

Yes/No

N/A

Potential to lose

N/A

N/A

N/A

N/A

N/A

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What lending solution is

right for your business ?

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Disclaimer

 

• Macquarie Practice Consulting ("MPC") is a consulting service offered by Macquarie Financial Services Holdings Limited ABN 59 128 948 498 ("MFSHL") which has been offered to the person(s) or entity named in this presentation (“You”) .

• deposit-taking institution for the purposes of the Banking Act (Commonwealth of Australia) 1959, and MFSHL's obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 or any Macquarie Group entity. Neither Macquarie Bank Limited nor any member of the Macquarie Group guarantees or otherwise provides assurance in respect of the obligations of MFSHL.

•  For the purpose of the preparation of this presentation, we have made a number of assumptions based on the information provided to MPC in relation to the operation and management of your business (“the business information”) and have relied upon them. These assumptions include, but are not limited to, that the business information provided to MPC by You and or your directors, officers or employees, (whether verbally, in writing (including hard copies of documents) or electronically) is accurate, up to date, complete, without omission and that there is no other relevant business information that has not been provided to MPC. MPC is not aware that any of these assumptions are in any way incorrect or cannot be relied upon.

•  The information contained herein is provided in good faith based on the information as provided by to MPC by You. No responsibility for the accuracy, completeness or timeliness of the information is accepted. The use of the information in the  Presentation by You is at your compete discretion and is wholly your responsibility. MPC does not accept any liability for any loss howsoever caused arising from reliance upon the information contained in this presentation. The  Presentation is based on information obtained from You which we have assumed as stated above is reliable but we do not make any representation or warranty the presentation that has been produced using the information that has been provided to us by You is accurate, complete or up to date nor do we accept any obligation to correct or update the information or opinions in it. Opinions  or recommendations that are expressed are subject to change without notice.  

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• All industrial and intellectual property rights contained in any processes, methodology and assessment framework referred to or used in the Presentation are owned and will be retained by MFSHL and cannot be used in any way by You without the prior written consent of MFSHL.

• The registered proprietor of the Macquarie name ("the Name") and the Macquarie logo ("the Logo")  that appear on the Presentation is Macquarie Group Limited ABN 94 122 169 279.  The use of the Name and the Logo in the Presentation does not confer on You any rights in respect of the Name and the Logo.  All industrial and intellectual property rights in the Name and the Logo are owned and will be retained by Macquarie Group Limited.  The Name and the Logo cannot be used by You for any purposes other than those approved of in writing by MFSH