To The Pointwith Boris Bozic
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3 Comments Diversification

Article written by Boris Bozic on the 21 Jul 2011 in Mortgage

Diversification has been a topic of interest in the broker space.   Yesterday Mortgage Broker News was in my office to record, on video, my thoughts on this matter.  If CMP (Canadian Mortgage Professionals) is covering this story, there must be a lot of chatter on this issue. Here’s my two cents. diversify business - mortgage

It’s prudent for every business to consider diversification.  The reasons are obvious, increased revenues, new market opportunities, risk mitigation etc.  What has to be carefully thought out is that potential new revenue streams may take your focus away from your core competency.  In our world it’s mortgages.  We do not have the luxury of treating mortgages as a loss leader.  This is what we do, this is who we are.  Therefore, ancillary revenues are secondary, and the amount of resources allocated to such endeavors should not come at the expense of your core business.

As I thought about this issue two questions came to mind…
Firstly, why is there interest in diversification of broker space today?
Secondly, how successful have mortgage brokers been to date relative to offering ancillary products?

With the respect to the why, beyond the reasons I stated above, I believe uncertainty in the market is driving some of the interest.  The competition has become fierce, and the broker market is realizing this is the new norm.  Furthermore, mortgage brokers are learning (from the banks) that selling a customer multiple products increases customer retention.  When the market was buoyant very little planning or commitment is accorded to this issue.  Over the last ten years there were plenty of philosophical discussions about this issue but there was little will.  Today, the market is different, and brokers are looking for ways to cannibalize the customer’s application.  Brokers know that some entity is going to sell their customer other financial products, and they’re contributing to someone else’s success by handing over the data/mortgage application.

As to how successful brokers have been to date offering ancillary products, we need to look no further than creditor life insurance.  This product has been available in the broker space for well over a decade.  To date the success rate or penetration ratio is somewhat underwhelming.  Most recent statistics suggest that brokers have a penetration rate of approximately 22%.  Yet the banks have penetration rate in the high 60’s to low 70’s in terms of percentages.  Why is that?  Is it because brokers view the selling of creditor life as a nuisance? Does the broker not believe the compensation is worth it?  Is there no structure or discipline around selling creditor life insurance?  Do brokers have a moral issue around selling this product?  It appears that bank employees have figured out the answers, and I believe the answer is simple.  Bank employees are mandated to sell creditor life.  It’s not voluntary, and that’s why they’re successful at selling creditor life and other ancillary products.  What gets measured gets done.

The idea of being able to offer multiple products to your customer is very appealing.  However, we need to ask ourselves the following; “is being able to offer multiple products a must have or a nice to have?”.  Creditor life penetration ratios suggests that ancillary products may reside in the “nice to have” bucket.

Until next time



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David Grossman Website Reply

Hi Boris, interesting post and observations about life insurance. As an agent, I do view it as a nuisance so I think you may have hit the nail on the head. I am not an insurance expert and am of the opinion that if someone needs life insurance they would be best served by talking to an expert.
Keep up the great work! Sincerely, David Grossman

MortgageMarkHer Website Reply

Hi Boris:

I wonder if any brokers have measured their $/minute earned while working on a client file.

If they did they would clearly see that the single highest $/minute is from the mortgage insurance discussion. There is no higher pay/ second in our industry then that insurance conversation.

What gets measured get done!

These are exciting times,

Mark Herman.

Barb Morgan Reply

the word “selling” is a dangerous one as mortgage originators aren’t allowed to “sell” mortgage insurance unless they are a licensed insurance agent. They can suggest that the clients consider the option presented to them, however any real insurance questions should be referred to a licensed professional. Many originators do have reciprical relationships with insurance agents, and while they realize they are leaving potential income on the table by not offering it themselves, also recognize their limitations when discussing insurance. If the reciprical relationship is working, they are making this lost income back from mortgage referrals from the insurance agent. This is an another area they excel above a bank employee as originators are truly looking out for the clients best interest by referring them to a specialized professional.

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