Mortgage Business surveyed key decision-makers across Australia’s aggregation industry to map the drivers for panel selection in 2008
Back in the pioneering days of mortgage broking most lenders were begged by brokers for access to their home loans.
Today, the tables have well and truly turned. A changing lending market and the broking industry’s stellar growth mean that lenders are now competing for a spot at the brokers’ table. And there are a growing number of seats, as PLAN Australia’s founder Alex Moulieris highlights.
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“Around eight years ago we only had around half a dozen [lenders] on our lending panel,” says Mr Moulieris. “Back then, we were thinking that our panel would grow to include 10 to 12 lenders; we now have over 35.”
But in a highly competitive market in which many mortgage businesses – especially those that depend on third-party distribution – see it as essential to achieve aggregator panel status, competition is fierce. And aggregators are increasingly selective about who’s included.
To better understand the dynamics of the broker-lender relationship it’s important to consider how the aggregation industry has evolved over the last six or seven years. The term ‘loan aggregation’ has taken on a very different meaning as the industry has evolved.
Where aggregators once focused solely on products, heightened competition in the industry has led them to make a considerable investment in providing their members with access to technology, training, education, business coaching and other services to help them grow their businesses.
Aggregators arguably now genuinely listen to their broker members and work hard to meet their needs. And in an industry focused on delivering value to its members, the same applies to lenders that want to ensure their panel status.
Dare to be different
According to Steve Kane, CEO of FAST, there’s no room for confusion in a highly competitive market. Lenders, he believes, need to understand the changing dynamics of the broking industry and be able to respond to changing customer needs to secure a place on FAST’s panel. “The methodology is now more targeted with the emphasis on lenders who provide a product that is needed,” says Mr Kane.
Chris Acret, managing director of Smartline, is also clear about what a lender must do to get Smartline’s business.
“First and foremost the lender needs to offer genuine value to our clients whether this is product, policy, service or price… if the lender does not have a unique offering for the end client they will find it difficult to gain access to the lender panel,” Mr Acret says.
Comments such as this highlights the tough criteria panel selectors are now applying to lenders, with uniqueness of product offering one of the key criteria.
Warren O’Rourke, national manager corporate affairs at Mortgage Choice, is another who sees a lender’s product offering – and the ability to respond to changing customer needs – as a main factor influencing panel selection.
For Mortgage Choice, any panel appointment is “strategic”, says Mr O’Rourke, and considered against the background is whether it is “adding value to the existing panel in terms of product offerings to the consumer”.
So with the focus heavily on product differentiation, the pressure is on for lenders to deliver innovative solutions to borrower and broker alike. Those expecting to compete on price alone are likely to struggle in the long run.
Slash and burn
A key finding of this special report is that seven out of 10 aggregators plan to either rationalise their current lender panel or at best maintain it at current levels, with only three groups saying they may add to their panels.
This news will unsettle many panel-approved lenders, who not only have to grapple with the possibility of being booted off a panel, but also the challenge of responding to product rationalisation in the aggregation industry.
But it’s not an impossible task. Success in achieving panel status is undoubtedly harder than in earlier years but lenders that can demonstrate an ability to deliver innovative products backed with a sound service offering not already available from existing panel members can take heart.
Commercially minded
Interestingly, when it comes to new products those currently favoured by aggregators lie squarely outside the residential mortgage bracket. Lenders offering commercial products that offer innovative features and benefits – outside of those on offer by other panel members – are ripe for panel inclusion, as Connective principal Glenn Lees highlights.
“Commercial lending is developing rapidly in terms of both competition and innovation,” says Mr Lees. “We’ve already seen a significant increase in settlements.”
Providers of leasing finance and insurance are also well-positioned to increase distribution via aggregator broker channels, with half of the aggregators surveyed identifying these products as a key area of growth for their members over the coming year.
While this may indicate a saturation of product offerings in the residential space it also signifies the evolution of the aggregation and broking industries from that of home loan specialists to more diversified providers.
Power brokers
The good news for lenders looking to win panel selection is that most aggregators regularly review their panels on a formal basis.
Four out of the 10 aggregators surveyed say they do so on a monthly or ongoing basis while two undertake reviews on a six-monthly basis and two annually. Another two say they do not have a formal review process.
But a key finding that has emerged is the significance of broker opinion as a factor influencing which lenders are included on their panel. The majority of those aggregators that review their panels less than monthly or on an ongoing basis say they would make an exception if broker demand indicated that a new lender should be included. They would also not hesitate to review the panel if some lenders weren’t coming up to scratch.
“We test the size, strength, value, service and commitment of each of our lenders and if they fail to maintain standards they run the risk of being removed from our panel,” says Michael Osborne, head of sales and distribution at The Brokerage.
So with brokers calling the shots on individual lenders, what is the overall feeling about the embattled non-bank lending sector at aggregator level?
There’s little doubt that the average Australian borrower’s confidence in the non-bank sector has, for the time being, been dented.
Brokers are writing less non-bank business, reflected in shrinking volumes. In December, for example, the number of bank-financed owner-occupied dwelling purchases rose by 0.8 per cent according to the ABS, while the non-banks’ share fell by a disappointing three per cent.
The hard truth in the current climate is that when a non-bank product is stacked up against a similar bank product, the broker is more likely to focus on the product that will give the borrower the highest level of comfort. So how does this perception influence support for the non-bank sector when it comes to panel selection?
Don’t believe the hype
The overwhelming message is that the Australian aggregation industry remains firmly behind the non-bank sector, despite its recent media mauling.
Each of the groups Mortgage Business surveyed underlined this commitment, putting a great emphasis on the significance of the non-bank sector to the broking industry.
“I’ve always supported the non-bank sector,” says National Brokers Group acting CEO Steve Lambert, adding: “I believe that many of these smaller lenders offer strong and competitive solutions for brokers.”
All indicators point to the fact that the service proposition, product niches, agility and innovation that helped propel the non-bank sector to the forefront of the mortgage industry in Australia is still very much alive and well, with aggregators seeing great value in the diversity non-bank lenders bring to their panels.
As Smartline’s Chris Acret points out: “The growth of the non-bank sector over recent years has been based upon being innovative, nimble, responding to client needs quickly and creatively. If the non-banks stay true to this approach, we believe they will continue to play a major role in the market moving forward.”
Panel selectors will have their sights on the pace setters in the industry in 2008 – those who can fill gaps in the market quickly with unique products, quality service and the latest technology. And that’s also good news for the non-bank sector.
Getting technical
“Broker demand is essential – but from here on we’ll look across the board at product range, quality, service, channel parity, electronic and application capabilities, commission processing and the safety of their ongoing trail payments,” says general manager sales and operations with Australian Finance Group (AFG), Mark Hewitt.
Investing in progressive systems and technologies will give lenders an advantage over their competitors – not only in terms of streamlining their business processes, but also with brokers who expect prompt and accurate payment of commissions.
Says Connective’s Glenn Lees: “Given the amount of work required at our end when putting on a lender, they have to have a business approach that complements ours – that is, [one that’s] technology-focused and that rewards quality and professionalism.”
James Symond, managing director, consumer and commercial at Aussie Home loans, stresses that lenders offering “quality of products and policy, support, priority of service for Aussie, commitment to electronic lodgements of loan applications as well as ongoing development of the LIXI platform” will be those assured of access to Aussie brokers.
So when it comes to achieving or maintaining panel status, the message to lenders from the aggregation industry is certainly clear: offer a value proposition and products that are sufficiently different to others on the panel – and above all, that appeal to brokers.
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SURVEY PARTICIPANTS
AFG – Mark Hewitt
Aussie Home Loans – James Symond
Connective – Glenn Lees
FAST – Steve Kane
Mortgage Choice – Warren O’Rourke
National Brokers Group – Steve Lambert
PLAN Australia – Alex Moulieris
Smartline – Chris Acret
The Brokerage – Michael Osborne
x inc – Jennifer Nielsen
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SURVEY RESULTS
Do you intend to increase or decrease your lender panel in 2008?
No change – four
Increase – three
Decrease – three
What product area of your panel is most likely to evolve?
Commercial – seven
Leasing finance – six
Insurance – four
Personal loans – three
How often do you review your panel?
Monthly/ ongoing – four
Six-monthly – two
Annually – two
As required – two
What are the main factors that influence panel selection?
Value to members/ brokers – four
Value to clients – four
Service – four
Electronic applications – four
Product quality – three
Differentiation – three
Price – three
Product range – one
Lender size – one
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CASE STUDY: X INC AND AUSTRALIAN FIRST MORTGAGE
Australian First Mortgage (AFM) was recently added to x inc’s lender panel – Mortgage Business asked x inc CEO Jennifer Nielsen and AFM’s Tania White to explain the process.
JENNIFER NIELSEN, x inc
What initially led you to consider AFM for your panel? They offer products that none of our other lenders really provide.
What was the assessment process? New panel members are almost always proposed by brokers first, and then the final assessment is made by the executive team. We road tested them among brokers that supported them in the first place.
What were AFM’s key differentiators from other groups? AFM offered a range of niche low doc and high LVR products that no other lenders really had, while their service and support also made them stand out.
TANIA WHITE, AFM
How long was the process in joining the x inc panel? We first approached x inc about inclusion on their panel around ten months ago.
What was the process? We were aware that x inc was reviewing its panel at the time and so met with a number of the directors for an initial discussion. Then after around four months things went quiet, which we later realised was due to the eMOCA merger. Once the merger was complete, discussions resumed and we submitted a formal and detailed proposal profiling AFM as a partner and detailing our unique product offering and volume amounts from x inc members to highlight our relevance to the group.
What do you believe were the deciding factors? We already had agreements and sound relationships with a number of x inc brokers, which was certainly a major influence in prompting the discussions. We are also a proven panel member with a number of other groups. We’ve taken a measured approached to aggregator panel selection over the years, ensuring the infrastructure was in place before looking to increase volumes.
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