Lending - “to diversify or not to diversify” Macquarie Practice Consulting Libby Beeching August 2012

Agenda – Your lending options Outsource to a referral partner or panel Introduction Assessing lending options – critical questions Develop an in house capability The ‘do nothing’ approach 6Key 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

Case study – firm ABC 5 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

Phase 1 6  Develop an in house capability  Strategy:  Increase revenue opportunity (predominantly mortgages but also accounting & insurance)  Maintain control of the brand  Deepen relationship with client

Develop an in house capability 7 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)

Develop an in house capability 8  Steps to implement Months Task Licensing Recruitment Induction & accreditation Engage accountants & financial planners Data mining Marketing plan Implement

Develop an in house capability 9  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

Key considerations of in house lending 10 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

Phase 2 11  Outsource to a mortgage broker (referral partner)  Financial analysis –Medium level revenue opportunity –Low to medium level expenses (no licensing costs, remuneration)

Phase 2 12  Steps to implement Months Task Recruitment Agree terms Engage accountants & financial planners Data mining Marketing plan Implement

Outsource to a referral partner (broker) 13  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.

Phase 3 14 Outsource to a referral partner (panel model)  Financial analysis –Low level revenue opportunity –Low cost (no licensing costs, remuneration)  Steps to implement Months Task Training session Refer immediate opportunities Engage accountants & financial planners Data mining Marketing plan Implement

BrokerBankPanel 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 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 15

The ‘do nothing’ approach 16  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?

Key learnings 17  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 May need to be reviewed Outsource to a referral partner or panel Yes/No Low Loss of control Low May need to be reviewed Do Nothing Yes/No N/A Potential to lose N/A

What lending solution is right for your business ? 18

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