Broker market share may be at an all-time high, but that doesn’t mean consumers are as educated as they should be about what a broker does. A new report from NAB Broker shines a light on the importance of consumer awareness
The broker market share figure gets thrown around a lot these days. And for good reason. The fact that over half of all borrowers now see a broker for their home loan is a significant milestone for the third-party channel. Yet it shouldn’t be the only measure of its success.
Consumer awareness is equally important, particularly if brokers wish to defend their majority share of the Australian mortgage market. There is a gap in the market for this industry to better educate the public about the value a broker provides.
Word-of-mouth referrals are still the most powerful source of advertising for brokers. By better educating your clients, you can easily create a ripple effect and build an army of referrers – happy customers that can educate their friends and family about the value of your service as a broker.
In July 2015, NAB Broker partnered with Genworth to gain unique insights into consumer perceptions of brokers, and the tools brokers need to better understand their customers and further improve their value proposition.
The report was based on an online survey of 1,000 Australian adults, equally made up of aspiring first home buyers and broker applicants, who had taken out a loan with a broker in the past 24 months.
NAB Broker also validated the research with a number of mortgage brokers by interviewing them around what they offer to homebuyers, their role in the home buying journey and their customers’ post-settlement experience.
Lack of awareness
One of the more striking figures from the report was that 35 per cent of aspiring homebuyers were unlikely to use brokers because they simply hadn’t considered it. Meanwhile, 27 per cent said they were most likely to apply for their mortgage through a broker, rather than direct to a lender. However, the same proportion of would-be homebuyers also thought they could get a better deal by going directly to a lender.
According to NAB Broker general manager Steve Kane, these figures point to a lack of awareness of the “true value” that brokers provide for Australians looking to buy a home.
“Brokers and their lender partners and the industry press and everyone that is involved in this industry, that believe in this industry, have got a responsibility now to really look at this and say, ‘Okay, let’s bring this to the forefront’,” Mr Kane says.
“Clearly mortgage broking is getting more airplay in the mainstream press simply around the FSI and all the other things that are happening with the regulatory piece, so that’s great, that’s one side of it.
“It’s actually a very good thing, because it will also clear up a lot of misconception around the quality of advice and the services written by brokers. But we’ve got to work with the industry to make sure that we clearly articulate what the value proposition is.”
Recent reports of brokers in the mainstream press have centred around the FSI, which in turn has led to further publicity of broker remuneration as ASIC prepares to launch a review into broker commissions and ownership structures.
The fee-for-service question
According to the NAB Broker/ Genworth report, there remains a high level of misunderstanding among consumers about how brokers get paid. The report found that almost half of consumers likely to use a mortgage broker (47 per cent) expect to pay a fee for engaging their services.
“There are brokers who charge fees, no doubt about it, but to think that half of the respondents thought that they would have to pay a fee if they go to a broker once again goes to show that the actual customer value proposition of brokers to the wider market is not clear,” Mr Kane says.
“I think the industry needs to work on how we do that.
“In the industry press it is so well covered, but I don’t think we do a great job of talking to the rest of the market. I think that is what is clearly coming through here.”
Mr Kane says that customers can be quite surprised when they discover that they don’t need to pay a fee for a broker’s service.
“In a perverse way, it devalues the proposition,” he says.
“But I think the broker value proposition is credible enough to not have to charge a fee.
“I’m not advocating that brokers should charge fees, but I think it will evolve that way over time anyway.”
Engaging the public: whose job is it?
The MFAA and FBAA have a critical role to play in communicating the value of brokers to the general public.
FBAA chief executive Peter White says improving consumer awareness about brokers remains the industry body’s number one priority, but believes the major banks must also start pulling their promotional weight. He says awareness campaigns about brokers is and will always be the FBAA’s top concern, but he argues it is time the banks also start actively promoting the entire broking sector.
“In the end, it’s the banks who ultimately profit from finance broker-introduced loans and the more loans transacted, the better the bottom line is for them,” he says.
“It is also a bit rich that the banks make a lot of money off the third-party broking channel without having to do a shred of promotion in the marketplace.”
Mr Kane believes it is the MFAA and FBAA who have a responsibility to better inform the nation about brokers.
“As the industry matures, groups like the industry peak bodies need to take a lead role in doing this sort of thing, because I think that’s where they should put their emphasis and it’s really about developing the professionalism of the industry,” Mr Kane says.
However, Mr White dismissed these comments, saying “nothing could be further from the truth”.
“As CEO, I am on national television, talkback radio and in the mainstream print news on a regular basis extolling the wide-ranging benefits of using a broker,” Mr White says.
“The FBAA has also undertaken several comprehensive public campaigns to educate and highlight our strengths and mission statements.”
Mr White says the FBAA’s educational initiatives being launched in 2016 to borrowers, and learning initiatives for brokers, form a major part of the education process so brokers know the best way to maintain communication with customers.
“The FBAA does not rest on its laurels and is fully aware of the importance of broker engagement,” he adds.
While the NAB Broker/Genworth report clearly shows plenty of room for improvement in lifting consumer awareness, it also revealed some interesting insights about the changing competitive dynamics in the mortgage market.
Competition: broker or bank?
According to the report, 43 per cent of broker applicants spoke to more than one broker, a sign that competition between brokers is on the rise.
The competitive dynamic once lay between brokers and banks, but as broker market share continues to increase, competition between brokers will only grow more intense.
Mr Kane believes education will form a central part of a successful broker’s arsenal when it comes to differentiating themselves. Recent lending changes, for example, provide the perfect opportunity for brokers to engage with their clients on a level that gives them a competitive advantage.
In August last year, NAB Broker partnered with The Adviser for a national roadshow aimed at educating brokers about the underlying drivers behind the onslaught of pricing and policy changes that largely defined the latter half of 2015.
“When we did the Knowledge is Everything roadshows, it was quite evident that many didn’t understand what was going on in the regulatory piece,” Mr Kane says.
“They really didn’t get what was happening and there’s more of it to come, so APG223 and all of those things are still to roll through and that will bring significant change.
“From a broker perspective, this is an ideal time to be talking to your customer, explaining what’s going on. It comes back to this communication piece all the time.”
A key focus of NAB’s relationship with the broker channel, Mr Kane says, is to move beyond the transactional, providing brokers with the tools and support to enable better quality conversations with their customers and build long-term loyalty in their client base.
“We commissioned this report with the aim of providing unique insights to brokers around how their customers perceive them and what drives them to build a long-term business relationship with their broker.
“We hope it will serve as an important resource to brokers when they are looking at where they can add value in the customer experience, how to better engage with clients and prospects, and where to focus their marketing efforts,” he says.
TOP THREE TIPS FOR ENGAGING CONSUMERS
NAB Broker general manager Steve Kane gives his top tips to help brokers actively market themselves to their customers and boost business
Tip 1: Education is key
One of the ﬁrst themes we explored was consumer awareness of brokers. The most common reason aspiring homebuyers don’t use brokers is non-consideration: meaning that they are simply unaware of the broker offering. It was also interesting to see that of the survey respondents who were planning on getting a home loan in the next 24 months, only 27 per cent said they would go through a broker. This is at odds with the current MFAA ﬁgures that suggest over 50 per cent of all mortgages are initiated through the broker channel. What do these ﬁndings tell us? Well, it is not all ‘doom and gloom’ – but we can certainly identify areas for improvement. As an industry, we can do more to educate homebuyers about the important role that brokers can play in the home loan process. Despite the huge leaps and bounds that the broker channel has made in the past few years, many consumers are still unaware of the basics such as the range of products and deals available through a broker. Ultimately, educating homebuyers about brokers is an ongoing process we should continue to focus on as more new homebuyers come to market.
Tip 2: Stand out from the crowd
The next theme we looked at was how consumers choose brokers. The survey found brokers need to actively differentiate themselves if they want to attract as many customers as possible. Almost half of all broker applicants spoke to more than one broker before making a decision, so it’s clear that brokers are as much in competition with each other as with lenders directly. So what were some of the factors that made homebuyers go with their chosen broker? A quarter (26 per cent) chose their broker because they liked them on a personal level, so it’s clear that service, expertise and a friendly attitude are important from the get-go. Almost a third of applicants also said they valued transparency in their broker, while 29 per cent said being available regularly to answer their queries was important. While I am sure the majority of brokers consider these factors important, this survey truly shows that personality, customer service and diligence are all qualities customers actively seek out.
Tip 3: Stay in touch post-settlement
Another interesting insight from the survey was the importance of keeping in contact with clients after their loan is settled. Almost half of the homebuyers who used a broker found them through a personal referral, so it’s clear this is still the most important and powerful form of marketing for brokers to focus on. Repeat business also stood out as a business path brokers should focus on – whether it was for a new loan, or for refinancing. Satisfaction was very high among the broker customers we surveyed, with 65 per cent saying they would go to a broker again for their next mortgage, and almost three quarters saying they would come back to their original broker. The strong interest in refinancing among broker customers indicates the importance for brokers of keeping in contact with customers after settlement and encouraging them to come in again to refinance. Overall, the survey shows customers appreciate the value brokers provide as experts who operate with a high level of customer service.
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
APRA has given the green light to BNK offloading its mortgage agg...
The weekly round-up of the biggest news stories from across Momen...