Brokers have had their say and it's time to find out how the big four banks are really faring
AS BROKERS increasingly dominate the mortgage market and the ‘four pillars’ remain as strong and hungry for business as ever, how is this symbiotic relationship working?
There’s no question that the big four banks need brokers to bring them business. At the same time, a broker’s panel of lenders would have a gigantic (four pillar-shaped) hole in it if it didn’t offer the major lenders to clients.
Banks and brokers need each other – but what do you think of the banks’ performance lately?
Are the big four banks delivering brokers and their clients what they need? Are they helping brokers run the most efficient and profitable business possible by communicating effectively, providing adequate training and education, and investing in quality business development managers?
Depending on who you speak to in the third-party distribution channel, the four major banks (Westpac, NAB, Commonwealth Bank and ANZ) either have a stranglehold on the mortgage market which needs to be challenged and diluted by more broker-originated loans, alternative lenders and industry disruptors; or they’re essential business partners for brokers and dominate the market for a reason – their size and scale enables them to provide safe and secure solutions for borrowers across the country.
Whether their dominance is by default or by design almost isn’t as important as what they do with this position at the top. It wasn’t so long ago that brokers were aspiring to parity – that is, a situation where they wrote 50 per cent of home loans, with lender-originated loans constituting the other 50 per cent.
This almost felt like an inevitability – we all knew brokers would get there, it was just a matter of when.
In the past decade, we’ve watched as the number slowly ticked over, getting closer and closer to 50 per cent, with industry stakeholders, brokers, armchair experts and even the odd journalist taking a unt on when we would reach this apparently elusive goal.
We made it though. Now, in 2016, brokers account for more than 50 per cent of home loans written, and lenders – big or small – all rely on third-party operators as part of their distribution strategy. It’s almost accepted wisdom that brokers’ influence will continue to grow as more consumers realise that the choice, knowledge and guidance brokers can provide is unparalleled.
With this growing influence, the number and overall percentage of broker-originated loans will surely surpass its current levels.
For years now, we’ve read about ‘fintech’, ‘digital disruption’ and the threat posed to traditional service-based industries by artificial intelligence and online options.
However, there are those who view technology as an opportunity. In the third-party space, it is opening up the opportunity for faster and more efficient loan applications, as well as easier access to updates and information and the ability to service more clients.
But utilising the latest technology to advance and even transform businesses remains a pipe dream if banks aren’t providing the platforms and infrastructure for brokers. If a bank’s loan lodgement processes are clunky or their technology platforms are out of date, clients may end up blaming these inadequacies and inefficiencies on you, the broker.
Which brings us to the crucial question – how satisfied are you with the big four banks’ technology offerings? Can you easily order a valuation online? How simple is it to track your application status online?
Are their mobile device interfaces updating regularly enough to keep up with the rapid advancement of smartphones?
This year’s Third-Party Lending Report – Major Banks aims to answer all these questions and much more.
The Adviser surveyed more than 1,000 brokers to uncover how you really feel about the major banks – where they’re helping you and where they can improve.
The final rankings are based only on respondents who indicated they had done business with a lender over the past 12 months.
Responses also came from a broad spectrum of brokers – with 23.3 per cent of survey respondents settling between $2 million and $3 million worth of loans a month in the 2014/2015 financial year, and a further 16.5 per cent settling more than $5 million per month.
There was a good split of industry experience as well, with 45 per cent of respondents with more than 10 years’ experience (11.7 per cent with 19-plus years) and 25.6 per cent having between one and three years under their belt.
The report’s results reflect brokers’ feedback, with respondents ranking the banks across products, support, technology and commissions.
Let’s find out how the big banks performed and what your industry peers really think of the majors.The big four – what’s the score?
As recently as 2014, Westpac was firmly in fourth position in The Adviser’s Third-Party Lending Report – Major Banks, where they sat for several years. In 2015, they jumped straight to the top of the table, switching places with NAB which had dominated the prime spot for years.
Westpac came out of 2016’s survey with the highest score once again, improving their final score by 2.14 per cent from 2015 – a remarkable turnaround in a short space of time.
A large part of Westpac’s advancement in recent years can possibly be attributed to perceptions about its commitment to the third-party channel.
Each bank scored well above 3.5 out of five in this category and all, except CBA, recorded an improvement. CBA’s drop was minor (-0.01) and its score of 3.80 in the commitment to the third-party channel category is higher than the scores recorded in 2014’s report.
The survey found there has been overall improvement in the banks’ attitudes to the third-party channel. In 2014, 3.68 out of 5 was enough for NAB Broker to be placed first, but a score above four was required to come out on top in 2016.
The biggest improvement in overall score came from ANZ, with a year-on-year difference of 3.31 per cent. Despite the improvement, ANZ took third place, behind CBA.
Westpac claimed the top position with a score of 93.96 out of 115.Despite emerging from this year’s survey with the lowest overall score, NAB has improved year-on-year. It is perhaps reflective of improvements across the board that NAB came in fourth place, despite their score climbing. They won in 2014 with 83.71, but came fourth in 2016 with a higher score of 85.56.
THERE IS no doubt that lenders with a solid product offering will appeal to brokers and their customers. After all, if the facility on offer doesn’t help a borrower achieve their goals and build financial security, or is too complicated or expensive, there are always better options in the marketplace.
Westpac once again topped this category, coming first across all four product rankings – product range, rate competitiveness, product cross-sell and competitiveness of policy.
All banks, with the exception of NAB, improved on their score from last year – but NAB’s score was still higher than its 2014 result.
All banks improved in the product range and product cross-sell categories, but Westpac and NAB took a bit of a hit when it came to competitiveness of policy.
NAB and ANZ also suffered when it came to rate competitiveness, and a few brokers vented their frustrations with NAB in this area.
“NAB Broker have really slipped back in the level of pricing and policy competitiveness over the past six months,” a survey respondent lamented.
Another said the bank was “changing the rules all the time”.
The effects of changing rules, policy and procedures was a theme of responses to the survey, with another broker saying there “needs to be a little more clarification around policy changes with CBA” especially because they were “occasionally not receiving clear information”.
One broker was not satisfied with what any of the banks were offering. “They are all too expensive and need to drop rates considerably”, the broker said with reference to basic loan products.
Despite all banks faring fairly well in this category, a number of brokers were keen for the majors to sharpen their pricing.
“CBA and WBC [Westpac] are the only ones being truly aggressive with pricing if requested,” said one broker. “NAB and ANZ seem to have no idea what client segment they’re after.”
Perhaps it’s no surprise that this is an area where brokers vented their frustrations. Several major and non-major lenders made adjustments to their pricing and policies throughout 2015 and into 2016 in response to regulatory pressures and changing market conditions.
The Adviser has not been immune from publishing numerous ‘Another bank hikes rates’ stories in light of all the changes which have been unfolding.
However, rate hikes and continual policy shifts aren’t all bad news, with one broker arguing recently that future rate increases would bring “discussion, disturbance and opportunities” to the third-party channel.
John Tindall, principal of Accumulus Holdings, told The Adviser that a rise in rates could spur a series of positive developments for the mortgage broking industry.
“In the last couple of years, there’s been a huge wave of business generated by people wanting to buy homes and investment properties in Sydney. That wave is now starting to ease off,” Mr Tindall said in February.
“The second wave is going to be refinancing, when people are looking to fix their mortgages when interest rates start to rise.”
Mr Tindall said the refinancing wave will be followed by a wave of equity restructuring driven by baby boomers seeking to put their home equity to good use.
“The third wave, which I don’t see happening for another few years, but I’m looking forward to down the track, would be where there’s been another few years of home equity in the baby boomers,” he said.
“They’ll be looking to get an investment property or help their kids, or get some other benefit out of their home equity which is currently paying them zero dollars.
“I think [a rise in interest rates] is going to generate a lot of discussion, disturbance and opportunities for us."
SUPPORT FOR brokers from the lenders is a major component of the business partnership between the two third-party players.
This is reflected in the emphasis the Third-Party Lending Report – Major Banks placed on this category, with brokers asked to rank the banks across 11 different metrics.
Brokers scored the majors on credit assessment staff, call centre support, turnaround times, BDM support, client support, broker communication, broker interaction, channel conflict, training and education, commitment to channel and business support.
Results were mixed in this category of the survey, with the biggest overall improvement coming from ANZ which jumped from third place in last year’s ranking to second in 2016.
The only areas where all banks improved were BDM support and broker communication.
Channel conflict clearly remains a contentious issue. It was one of only two areas (along with business support where no bank scored four or above out of five. All banks, except CBA, made a marginal improvement in this area.
Earlier this year, several brokers spoke to The Adviser about this evolving threat spurred by strong competition in lending.
Top Mortgages finance broker Mike Watts said channel conflict not only still exists but has “evolved over time” and is presenting a “new threat to mortgage brokers”.
“Recently we have seen lenders (via their direct sales channels) target accountants or real estate agents and offer them financial incentives to refer business,” he said.
“I believe that such payments being made by lenders have the potential to undermine the broking channel by effectively turning traditional referral sources into sales representatives for the bank, and by bypassing the advice and range of choice a qualified, licensed and experienced mortgage broker can offer.”
Credo Financial Group director Nathan Taddeo said bank branches, in particular, are a major source of conflict.
“I’ve had situations where clients have gone into a branch to take out money, cash or cheque or whatever it might be. The teller will speak to them, ask them about their loan and if they’ve been thinking about buying a house. From there the business has been taken away from me, rewritten within the bank,” Mr Taddeo said.
“Last week alone, I had two or three situations where clients were coming back to me with offers from branches that I couldn’t get matched. These were the big four ones obviously.”
Tungsten Home Loans national finance manager Brad Quilty said some lenders seem to take issue with brokers, “whether it’s claiming that the broker didn’t set up the loan correctly, didn’t fill in some other paperwork properly or any other wild claim that we have done badly by our mutual clients”.
“The bad-mouthing and loan refinancing is just not conducive to a professional working relationship,” Mr Quilty said.
Respondents to the survey appeared to agree, with some describing channel conflict as “chronic” and another saying it “damages my business”.
However, not all brokers experience ongoing channel conflict issues.
FrontRunner Finance Solutions mortgage broker Laurie Parkes said he has not had a loan taken from him for many years.
“If anyone’s going to be blamed for that, that’s the broker’s fault for not keeping in contact with his clients,” Mr Parkes said.
Despite the issues, a number of business development managers received shoutouts in the survey for their support and superior service.
“[I’m] a Platinum broker with Westpac and our BDM Shannon Gibbons is engaging, informative and always available,” one broker commented.
“His productivity and effectiveness in problem-solving is profound. Shannon always ensures that he actions the tasks at hand and obtains the desired outcome to please our highly-valued clients, always keeping the client forefront of mind.”
COMMISSIONS WAS the weakest section of the report. All banks, except Westpac, recorded declines in their overall score, as well as in the subcategories of remuneration and structure.
Some brokers lamented the slow payment of commissions and others called for a restructure of clawbacks.
A number of brokers said they did not pay attention to the commission rates or structure – or even who’s paying them. This is perhaps reflective of the increasing professionalisation of brokers and their focus on what is best for their clients, rather than just their bottom line.
Nonetheless, commissions remain the way in which the vast majority of brokers get paid, and the importance of rates and structure in this area cannot be underestimated.
Speaking on the condition of anonymity to The Adviser in March, one broker said that despite their love of the industry, their passion for their job and their desire to help clients – if commissions were to change significantly, they would be forced to reassess their career path and their business.
“I love this industry and I truly don’t want to be doing anything else, but if it gets to a point where we’re forced to charge fee-for-service because commissions are changed or removed, then I would have to seriously consider selling my business and leaving the industry,” the broker said.
“My entire business is built around commissions. I’m happy with it and my clients are happy with it. The banks should continue to pay us for the business we introduce to them. Why should the banks get off scot-free here and why should the clients be forced to shoulder that burden?”
If commissions were abolished or significantly reduced, there would likely be a rush to sell broker businesses as industry veterans and those unwilling to change their business model looked to abandon ship, the broker said.
“I’m keeping an eye on things and I’d get in before that mad rush,” they said.
A few brokers were of the opinion that many banks were remaining tight-lipped on the issue of commissions because any changes would likely benefit them.
“The banks probably aren’t inclined to speak up and defend our remuneration model because they’d prefer not to be paying commissions I guess. Our aggregator is fighting hard for us though,” one broker said.
“It will be interesting to see how this plays out.”
AFG chief executive Brett McKeon spoke out in January amid ASIC’s inquiry into remuneration structures in the third-party channel.
In a letter to AFG brokers, Mr McKeon said he was “disappointed to read recent reports denigrating the use of commissions to remunerate mortgage brokers”, adding that AFG believes the current remuneration structure meets consumer demand.
“I have repeatedly made the point that brokers are required to disclose any commission and fee payments they may receive from the recommendation of a product,” he said.
In the letter, Mr McKeon wrote about his displeasure with talk of eliminating upfront commission payments and said it would have “a massively negative impact on the sector if enacted”.
“Brokers would in effect derive no income for two years. This is not a sustainable model for employment.
“If this were to occur, ultimately new mortgage brokers into the marketplace would be limited as there would be a significant ramp up before regular income is generated.”
Mr McKeon added that he believes the suggested fee-for-service model will have a negative impact on both brokers and consumers.
“Under a fee-for-service model, it is likely that potential customers will seek to avoid this payment by engaging directly with a mortgage vendor at the branch level, where no fee would be applicable,” he said.
“Real choice would be lost, which is not in the interests of the consumer.”
HOW OFTEN in recent years have you read that in ‘x number of years’, ‘y percentage of people’ will work in ‘z number’ of jobs which do not even exist yet?
These changes are obviously going to be driven by technology and the rapid rate of innovation and digital developments.
The Turnbull government has been keen to spruik its credentials in this area and has been promoting a ‘National Innovation and Science Agenda’ which includes an ‘Ideas Boom’.
Even the nature of how people are encouraged to find out more about these initiatives has changed. Advertisements promoting government spending in this area, direct Australians keen to discover more to “Google ‘innovation’”. Government search engine optimisation (SEO) staff have clearly worked hard to get the page which proclaims “WELCOME TO THE IDEAS BOOM” to the top of Google’s rankings (well, it does come below the definition for innovation – which, if you’re interested, is “the action or process of innovating”).
Cynicism about what actually constitutes an ‘Ideas Boom’ aside, there is no doubt that we can’t avoid technology’s increasing influence in our personal and professional lives.
Smartphones, which most of us cannot live without, are far more powerful than large desktop computers that existed just decades ago. The way you run your business is probably changing each year without you even realising the full extent of the changes. You, and the banks, are expected to just keep pace and keep evolving.
The importance of technology for brokers, banks and businesses engaged in the third-party channel cannot be understated. Brokers were asked to rank the four major lenders across web presence, mobile device interface, online lodgements, online resource, online application status tracking and valuation ordering online.
In these six categories, the banks all recorded improvements, with the exception of CBA which saw minor declines in mobile device interface and online resource.
NAB Broker recorded the biggest overall improvement, with a spike of 0.83 points, but this was not enough to lift the bank out of fourth position.
The banks will perhaps spend the next 12 months investing in improving their mobile interfaces, as this was the weakest area across the board. No bank received a score above 3.98 (still an impressive result).
A few brokers offered feedback and said there was room for improvement in this area.
“Integration with aggregator software needs to be improved across the industry,” one survey respondent said.
“No training [is] provided and [I am] unaware of any broker-specific interfaces that I could use from my iPad or iPhone,” another broker said.
“Often it is too hard to navigate around,” another said.
Several lenders were commended for their web presence, which is getting better across the board, according to brokers. However, several brokers pointed out that policy information needed to be far easier to access.
Responding to last year’s survey results, NAB Broker’s general manager of broker distribution, Steve Kane, said the major banks, including NAB, were looking to utilise the power of technology.
At the time of the 2015 survey results, Mr Kane said the bank was continually looking for ways to improve connectivity between the customer, the bank and the broker. He forecast that in the 12 to 18 months after last year’s report, NAB Broker would explore ways to benefit from the increased digital interaction with customers and bring brokers into the loop.
“We are always focused on our technology piece… One of the things we say to brokers is that the digital space is not something to be frightened of, it’s something we should learn to use to our advantage in the channel.”