Banks do not understand their customers like brokers do, writes Tim Brown, CEO of mortgage broking business investor Recludo.
I often get asked: why does the broker market share continue to increase?
Firstly, banks are paid employees. There is no incentive for them to work past 9–5. The mortgage broker relies on their customers for income, so they go out of their way to ensure they are always available.
The banks do not understand their customers. The banks never directly communicate with their clients once the loan has been established and have no ongoing relationship. I have had several mortgages with a number of banks, and not once have they called me to ask how things are going and if there is anything more they can help with.
Mortgage brokers, on the other hand, have regular communication with their clients and are more in touch with their clients’ needs.
Everything the banks do is transactional. Their processes are so fragmented, there is no ownership of the client. They are generally selling the one product, and their policy is set. Mortgage brokers have a plethora of products and features, and clients want choice.
Add to this, banks don’t look after their existing clients. They are so hung up on writing new clients, that existing clients end up subsiding cash promotions and Qantas or Virgin frequent flyer points giveaways.
Mortgage brokers are lender agnostic and will move their client to the next best offer in the market (ASIC take notice, best interests duty at work). Banks have created this environment of churn by not maintaining their existing clients at competitive rates.
The banks believe going direct online with little or no human contact will solve their market share problem. This just confirms to me the banks have no idea what customers want.
Banks could suffer from scrapping trail commissions
Changing commission structures to only upfront and no ongoing trail will only encourage mortgage brokers to move their clients to other lenders more often.
In Canada and the US, mortgage brokers are paid over 1 per cent of the loan advance, and at the end of the fixed rate period, the mortgage broker will move their client to the next best offer in the market, generally every two to three years.
All I can say to Westpac New Zealand is be careful what you wish for – the end result will be that you pay more for your acquisitions than you do now.
Tim Brown has worked as a senior executive at Aussie Home Loans, Suncorp Group, and Macquarie Bank. He was previously the CEO of mortgage aggregator Vow Financial and chairman of the Mortgage and Finance Association of Australia (MFAA).
[Related: Mortgage broker market share climbs to record high]
