How has the role of aggregators changed during your time in the industry?
Historically, aggregators have been seen as a commission clearing and processing centre. With Ballast, the changes have been based around education and becoming a true business partner with our broker groups – we’ve worked more intimately with them to help them grow their business, rather than just processing commissions. It’s a much more hands-on, strategic role that we’ve taken on.
Are boutique aggregators such as Ballast under pressure to merge and consolidate with other smaller groups?
I don’t believe so – the reason being that I don’t believe bigger is necessarily better, and I believe boutique groups have advantages over the bigger players. To me, the boutique groups keep the bigger players honest. Don’t forget that these guys have got a massive economy of scale that they’ve got to get through to maintain margins, and we all know that margins are pretty thin these days. I think the groups that will come under the spotlight will be the ones that aren’t classed as either big or small. They will have to decide with their cost structure whether or not to ramp up their offering and become a bigger player or streamline their business to keep generating a reasonable amount of revenue. The relationships formed with members are another factor these groups will have to consider. Keeping abreast of 2,000 members like the major aggregators is a pretty tough task, whereas we at Ballast are able to easily form close relationships with the groups we have on board.
How should brokers approach diversification?
I don’t think it’s for everyone. For starters, they have to understand what diversification and integration is all about. They can’t have the mindset of just being everything to all people – they need to recognise their strengths and potentially outsource other services. They definitely shouldn’t go in with a ‘one size fits all’ approach.
What are the benefits and opportunities available to brokers from offering risk insurance?
First and foremost, they are able to offer multiple services to their client base. The more products and services brokers provide, the less likely that their customers will go elsewhere. And if you’re not going to do it [sell risk insurance], then someone else will – and the market is moving that way. Offering risk insurance as a broker increases your ability to attract and retain clients, without a doubt. It’s a model that banks have been using for years – multiple products and services for the one customer. Again, the more products and services that are tied to one group, the less likely that the customer’s going to leave them. Bringing a financial planner on board to deal with risk insurance gives you the opportunity to leverage off their database, and they can do the same off your database. A referral only takes a couple of minutes to complete, and you’re getting paid for it.
For brokers, are there any downsides to adding risk insurance to their product and service offering?
There is a common misconception among brokers that they feel they have to do it [risk insurance] all off their own back. The opportunity is two-fold: if a broker has the competency to take on the requirements and do financial planning, and wants to provide risk insurance as well, that’s fine. However, if a broker wants to offer risk insurance but doesn’t want to complete the necessary qualifications and requirements for it, there’s no reason why they simply can’t refer it. Either way, they are still satisfying the requirement for their customer by at least asking the question. Brokers may face some downsides in offering risk insurance, such as having to conduct more marketing and training or increasing their workload for not much more income, but if they don’t want to experience those downsides, they can simply refer the client to someone more experienced in risk insurance. The broker doesn’t have to be the risk adviser; rather the GP directing the traffic. Brokers shouldn’t be frightened of [risk insurance] – it should be something that they’re embracing. Brokers don’t have to be the jack of all trades; they can simply refer customers to a financial planner or group like Ballast that provides the services required for them.
How does the changing regulatory environment impact a group with such diversified offerings?
To be honest, I think it’s actually played in Ballast’s favour. When the NCCP came through [in 2010] and there was the whole ASIC change, we were already under the ASIC regime with an Australian Financial Services Licence. So it’s been pretty easy for us to adapt to the changing regulatory environment – it hasn’t really impacted on us at all.
Tell me about Ballast’s strategic alliance with MyState. How has it evolved?
At this point in time, the relationship between Ballast and MyState involves lending only, but we plan to add other key MyState products like general insurance, personal loans and transactional accounts in the near future. The mortgage management space has been challenging for MyState as well as Ballast, and they have gone through some pretty massive staffing changes recently with Melos Sulicich, Huw Bough and Sandi Sims coming on board, so the crux of our strategic alliance with MyState was to really solidify our mortgage management proposition. They’ve got some really great products in the marketplace that are genuine alternatives to their competitors, and their SMSF product is one that Ballast is very passionate about, as we are very strong in this area of lending. MyState have helped us to play to our own strengths and not be seen as a ‘me too’ business.
Do these types of partnership reflect the way the industry is going?
I think there are partnerships being formed on a number of different levels, whether they’re with mortgage managers or for other products. I think there are definitely more groups out there looking to shore up partnerships, distribution and whatever else is being offered – everyone is trying to create a point of difference for their business. We’re pitching ourselves as a boutique, integrated financial services group, and I’m hearing more and more that other groups are seeing it that way. Tim Brown from Vow recently said he sees businesses that offer both planning and finance of greater value – I’ve been saying the exact same thing for years.
What challenges do aggregators face moving forward?
Getting new blood into the industry is certainly one challenge. Margins are being squeezed and everyone is fighting for the same broker, so they’ve got to claim their territory and stick their flag in the ground. The challenges for Ballast are a little different to the major aggregators because our risk adversity is spread across multiple business streams rather than just one. We’re not reliant on one key area of our business – we don’t have to keep adding brokers to make our business viable. There are other aspects of our business that work well within what we do. Changes to the regulatory guidelines and potential changes to SMSF lending will also impact aggregators.
Source: The Adviser