The Broker Cross-Sell

Cross-sellingIn the next 36 months, the mortgage business as we know it will noticably change. Among other things, we’ll see cannibalistic rate battles from online sources and a stronger direct-to-consumer marketing push from lenders.

The result is that mortgage margins and per-deal broker compensation will compress. This will have profound impacts on profitability in the prime mortgage market, and brokerage owners have started to realize that.

To make up for smaller mortgage commissions, brokers and brokerages will do their best to create new profit centres. One obvious way is by cross-selling non-mortgage products.

Access to financial products could become an increasingly important differentiator for agents choosing a brokerage. Brokerages are responding by offering a growing array of auxiliary products to add revenue and attract new agents.

This has a range of implications, especially for smaller brokerages that don’t have the scale to negotiate product deals. We suspect it’s also one of the reasons why some industry leaders—like Dominion Lending Centres President Gary Mauris—say: “We’re absolutely going to see more consolidation than ever before” in the brokerage market.

All that said, here is a sample of what various firms are starting to cross-sell:

Unsecured Credit Lines (ULOCs)

Unsecured-Line-Of-CreditULOCs are a flexible product with many uses. They can fund a mortgage prepayment to lower penalties, cover closing costs, be used as a short-term source of liquidity for a small business, and so on.

Currently, most brokers have to go through a bank or credit union contact to get their clients a ULOC. As a result, brokers generally don’t get paid on them. But we hear that’s about to change for agents with Mortgage Centre Canada (MCC), a division of CIBC.

MCC brokers will soon be able to sell CIBC ULOCs. The rate is pretty decent (starting at prime + 2% and up, depending on approved credit), and the maximum limit (subject to qualification) is reportedly $40,000 or more. We’re told that clients will apply through an online portal and that there is no branch involvement. If arranged to coincide with a mortgage closing, CIBC can even direct ULOC funds to the client’s lawyer.

MCC brokers also have access to other CIBC products, like its:

GICs

Major broker networks like Mortgage Alliance, VERICO, DLC and Mortgage Architects have now partnered with firms like Home Trust to sell GICs. These GICs and short-term deposits can be registered or non-registered and range from 30 days to five years. A quick perusal of rates shows that Home Trust pays ~20+ bps more than Big 6 bank rates. Brokers reportedly earn up to a point or more on a 5-year term, and proportionately less on shorter terms. Home Trust’s GIC referral program “is the equal of any stand-alone deposit brokering business,” says John Kelly, COO of VERICO.

Credit Cards

DLC-Credit-CardBrokers have long been able to refer clients to secured credit card providers. And a few lenders, like National Bank, have even distributed unsecured credit cards through brokers. But now, DLC has launched its very own DLC-branded VISA card. (See here)

“We already have borrowers’ financial information, and they feel comfortable completing their mortgage with us,” says Gary Mauris, “So it’s a natural step for them to also get a credit card through us.”

“Our credit card products also offer great value to our clients, including an excellent low-rate option as well as no blackouts in our travel program.” Mauris says DLC brokers are paid on the VISAs in perpetuity.

Other Stuff

There’s no shortage of products that brokers can cross-sell via referral programs, including: term life insurance, creditor life insurance, leasing, high-yield savings accounts, tax services, car loans, online trading accounts and property insurance, to name a few. If borrowers can access special promotions on these products through their mortgage broker, there’s no doubt that some will take advantage of them.

The Risks

Despite the revenue potential, cross-selling is fraught with challenges.

Distraction:  Product knowledge is essential to successful cross-selling. Even when you are referring clients to suppliers for product details, clients will still expect you to know what you’re selling. Most brokers who spend time learning and keeping up with auxiliary products must, by definition, spend less time on their specialty (mortgages). That can impact their ability to provide exceptional mortgage service, which is why customers come to them in the first place.


ValueProduct quality
:
  Customers won’t buy subpar offerings just because a broker packages them nicely. People want best-of-breed products and/or uncommon value. Brokerages will have to be careful who they partner with, and be prepared to sacrifice pay for greater client benefits.

Low Uptake:  Execution is half the battle. If it’s not ultra-easy for clients to act on cross-sell offers, and there isn’t tremendous value, people won’t bite. It may become necessary to position side-products as money-saving promotional offers, which cuts into revenue.

One hassle with certain referral programs is the need for a separate application. That’s a legal and technological challenge that has yet to be overcome. For side-products sold by lenders, customer response would be significantly greater if they could just initial an “Approve Me” box on their mortgage lender’s commitment (and sign a terms of service agreement later). This is something  all lenders with credit card offers should explore.

Broker Adoption:  Effective sales techniques and presentation are essential if brokers hope to feel confident enough to cross-sell a new product. Without easy training and pre-written sales scripts, most brokers won’t make the effort to hone their cross-selling techniques. It’s just not worth their time to make $100 off a credit card, ULOC or GIC referral (albeit, some products pay much more than this.)

Lost Business:  If a broker or third party drops the ball on a cross-sell product, the client may hold the broker responsible. That could eliminate all future business from that client and his/her referrals.

The Takeaway

If brokers can provide clients with exceptional special offers and their suppliers provide service that reflects well on the broker, then cross-selling can add incremental revenue.

But it’s not without risk, and there is no way (in our view) that it will offset the compensation drop that online competition will wreak on our industry.


Rob McLister, CMT

  1. Rob, kudos to you for another well-written article. I’m glad that you used the sub-headline ‘Distraction’ for one of the paragraphs. You are absolutely correct that the effect for many agents and brokers who choose to pursue offering ancillary products will be a loss of focus on applying their core competencies to deliver their core product: mortgage loans.
    Lou Perrotta, CPMB

  2. Time for another one of those New Year’s resolutions–Cross Selling.
    Finding the time is my biggest challenge and unless I make a goal for cross selling, I never end up making time for my activities.
    Timely topic, Mr. McLister.

  3. Great article, Rob!
    What about regulatory issues? I don’t know for other provinces, but here in Quebec, a mortgage broker cannot give advice on financial products. It has to be a pure referral in the sense that you give your contact’s coordinates to the client who contacts the person directly. Is it the same way in ROC?

  4. With commissions tiny on these extra products, time involvement becomes the constraining element. Having “sold” credit cards and GICs in previous broker lives, what seemed like a quick exercise was almost always filled with questions and concerns that, in handling, over spent the commissions involved. And even today, offering as add-on “loss leader” service, you have to deal with Rob’s point: “People want best-of-breed products and/or uncommon value”- not just another credit card or ordinary GIC. Therefore, these extra services / products have to have built in efficiencies or simply be referral exercises to be economic.
    Having said that, a program that provides a constant drip ( Gary’s visa with on going commission format, “in perpetuity” or mortgage life insurance products) can build, over time, with very small up front commissions in to a VERY healthy monthly residual

  5. We have an exclusive contract with a company that allows the client to call and get a quote both on car insurance and house insurance. It is up to the client whether they call to get quotes.
    There is no extra work in promoting it. When sending out keep in touch letters the toll free number is added in to the letter and you tell them they can pass it on to friends and family. It is a feel good item -they can save money – and your name can possibly be passed on and remembered if that new person ever is looking for a mortgage.

  6. Great article Rob, very good insights and some spot-on comments from posters.
    I am all for more products (more is always better even if they are not all used today) but the smart comment is about low income products requiring too much work.
    The sleeper product is Life Insurance and I don’t mean MPP. Many big brokerages have hired life insurance brokers and partnered wiht them to offer their own life insurance products as home purchase is a key driver in the insurance sales cycle. There are decent grosses and a long term revenue streams in life sales other than the add ons like MPP.
    These brokerages are often silent about their returns from their life sales operations but I can tell from the smiles on the broker owner’s faces that no one is shutting down those partnerships.

  7. Here’s the thing, while this all might be happening over the next 36 months I can tell you personally I’ve been touting that this was going to happen for the last 36 months!! I’m a fairly new mortgage agent (3 years now) and I’ve seen nothing but phenomenal growth to my book of business because I use a tool called InterestBLOCKER to help my clients’ budget and rid themselves of both their consumer debt and mortgage debt.
    I got into the mortgage industry because I saw a need to provide consumers with education and a plan how to become debt free years sooner. I am in no way a financial planner or claim to be, but you’d be surprised to learn how many families out there don’t have a money making problem, they have a money management problem.
    Being a mortgage agent that helps people, allows you access to the business out there!! You won’t have to be as worried about shrinking commissions if your book is steadily growing. Besides if some of these products actually make sense and you can make a small commission split on some of them.. Why Not????
    Derik R

  8. Thanks for the great comments everyone.
    @Philippe: You highlight a genuine risk in that some brokers will “sell” instead of “refer.” There’s all kinds of liability there if something goes awry.
    @DrMortgage: Further to your point, GICs, for example, are largely commodities. There are always a slew of providers with better rates than most mortgage brokers can access. Now, if mortgage brokers could get paid from a GIC broker that sells multiple FI’s products at best rates, then that would be interesting.
    @Doug: In my experience, the brokers that maximize add-on revenue gently but convincingly promote what they’re referring. Conversion rates wouldn’t be too hot if all they did was pass out a brochure or business card and say call _____. But again, there’s often a fine line between referring and selling.
    @Ron: You’re right about life insurance. Incidentally, Manulife’s life referral program is supposed to pay a similar referral fee as MPP, but we have yet to see the details.
    Cheers…

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