Australia’s major banks were quick to acknowledge the findings of The Adviser’s second annual Third Party Banking Report – Major Lenders. While each of the lenders has its own shortcomings, all managed to improve their broker rating significantly in the past 12 months
THE FIVE major lenders currently account for more than 83 per cent of all ADI housing investment and owner-occupied home loans in Australia, according to the Australian Prudential Regulation Authority.
These five dominate mortgage lending and their approach to third party distribution has a massive influence on the broking industry.
Brokers were recently given the opportunity, through The Adviser’s Third Party Banking Report – Major Lenders, to provide the big five with critical insight into their entire third party operations.
The report revealed the views of almost 500 professional brokers, all of whom regularly write business with the majors.
Each respondent was asked to rate the five big banks on a scale of 1 to 5 (1: ‘very poor’; 2: ‘poor’; 3: ‘average’; 4: ‘good’; 5: ‘very good’) across 17 categories covering product, support, technology and commissions.
The responses were then analysed by leading financial services research house RFi, ensuring the results were both credible and transparent.
The majors were subsequently given the chance to consider what are – in the eyes of their customers, the brokers – their perceived strengths and weaknesses.
FINDINGS OF THE REPORT
In certain areas – most notably, channel conflict, training and education, commission remuneration and structure – there were shortcomings across the board. Overall, however, there were many positive findings.
Most of the brokers surveyed were largely satisfied with the majors’ product range and policies, cross sell and online lodgements.
In the product range area, ANZ stood out although CBA was hot on the top lender’s heels, having lifted its broker rating in this category by 0.36 points compared to last year’s performance.
As far as product pricing is concerned, NAB blitzed the field. This result is hardly surprising, given that the lender has boasted the sharpest standard variable rate on the market for the past 19 months.
CBA was the clear leader in the support area through the work of the bank’s BDMs and credit support staff. Almost one full point separated the lender from its nearest competitor in the latter category.
St George performed strongly in channel conflict, while Westpac received positive feedback for the second consecutive year on its technology platform and web presence.
While all five lenders managed to improve their overall broker proposition from this time last year, what will be of interest to brokers is how they go about building on their individual successes and addressing their shortcomings in the year ahead.
NAB/Homeside has already shown it takes the results of The Adviser’s Third Party Banking Report – Major Lenders very seriously.
After the 2010 report was released, the lender sought to redevelop its broker proposition and made significant improvements in the areas judged as ‘poor’ by survey respondents.
The changes NAB/Homeside made to its overall proposition have obviously paid dividends, with the lender improving its ranking from fifth last year to third in 2011.
Over the past few weeks, The Adviser spoke to each of the third party heads to find out what impact the report had made on the banks, and how broker feedback would influence their approach to the third party broking channel in the coming 12 months.
In this issue of The Adviser, the majors reveal their responses to the survey, and in many cases outline how they plan to address the areas of their business where brokers have agreed there is room for improvement.
A LONG ROAD AHEAD
Despite being ranked fourth in the 2011 Third Party Banking Report – Major Lenders, Westpac was one of only two lenders to improve across all 17 categories, an achievement of which the bank is very proud
WESTPAC REMAINS bullish about the bank’s performance in the third party distribution channel.
General manager of mortgage broker distribution, Huw Bough, says he is pleased with how Westpac performed in the survey, despite the bank’s being placed fourth for the second consecutive year.
“While we failed to improve our overall ranking in the survey, we did make slight improvements in every category,” he says.
“This is a significant milestone for us because it shows that brokers believe we are making significant improvements to our proposition across the board.”
Westpac and NAB/Homeside were the only lenders to improve their broker rating in all 17 categories of The Adviser’s Third Party Banking Report – Major Lenders.
According to the survey, Westpac recorded the greatest improvement in turnaround time, lifting its broker rating 0.41 points from 2.88 in 2010 to 3.29 this year.
The result was pleasing, according to Mr Bough, since the lender has invested considerable time and resources in the last 12 months on improving this aspect of its operations.
“After last year’s survey, we saw that we needed to make significant improvements,” he says. “While our turnaround times were not the worst, they were still unacceptable.
“In the past 12 months, we have put a concerted effort into reducing them and we are committed to further reducing our times over the next year. We would like to significantly increase the percentage of applications that go unconditional within 24 hours.
“This time next year, we aim to be ranked first in this category.”
Mr Bough adds, however, that the lender will not be 100 per cent happy until Westpac is ranked number one in all 17 categories: “That is our aspirational goal and we are 100 per cent committed to achieving it,” he says.
“We want to become the lender of choice for professional brokers. We are committed to deepening our broker relationships and are actively communicating with our broker partners to identify the key areas we can improve in.”
One key area that Westpac has already identified through communicating with its brokers is valuations, with many of the lender’s broker partners disgruntled with the time it takes to order property valuations.
The lender has responded to this concern by trialing a new initiative that allows selected brokers to order valuations upfront.
“Provided the trial goes well, we will look to roll out this initiative to all of our broker partners in the near future,” Mr Bough says.
The initiative is one of many that Westpac plans to introduce over the next 12 months.
CORRELATION AND DISCREPANCY
Mr Bough says The Adviser’s Third Party Banking Report – Major Lenders reflects the feedback the bank receives from its brokers.
Westpac surveys approximately 1,200 of its key broker partners every year, aiming to identify the areas in which the lender excels and those in which it needs to work harder.
Both surveys found Westpac failed to compete with its peers on pricing, although this result came as no surprise to the lender.
In 2009, Westpac lifted its standard variable rate by 45 basis points – 20 basis points above the Reserve Bank – which effectively priced Westpac out of the market.
It also cost the lender broker support and today, its broker partners still regard Westpac as the least favourable lender when it comes to pricing.
Mr Bough is not deterred: “We are not the sharpest priced lender on the market and we don’t try to be,” he says. “Instead, we aim to be very competitive with certain segments. Sixty-five per cent of our broker-introduced customers fit into the ‘mass affluent’ borrower segment.
“In the last 12 months, our average loan size has increased by over 15 per cent. To us, this result means we are attracting the right type of customer. Being competitive isn’t just about offering the sharpest variable rate, it is about offering the best holistic service.”
While Mr Bough concurred with The Adviser’s findings on price, he was reluctant to accept the survey’s finding that Westpac performed poorly in the area of channel conflict.
“Our independent research suggests we are market leaders in this area,” he says. “We have spent a lot of time and resources on improving our position in this area, so we were disappointed to be ranked so low.”
Despite this, Mr Bough says the rest of the results align with Westpac’s own independent findings.
“We are happy with the survey,” he says. “It shows us exactly where we have made inroads, and what areas need to be improved.”
DOWN BUT NOT OUT
Despite a very challenging 12 months, St George is back – better than ever – and ready to challenge CBA for the top spot
THE PAST 12 months have been a rocky journey for the majors’ smallest lender.
Market conditions forced St George to pull back in the third party distribution space, which ultimately had a negative impact on the lender’s overall ranking in this year’s Third Party Banking Report – Major Lenders.
St George was the only lender to move downward in the ranking, slipping from third place in 2010 to fifth this year.
While this result is obviously disappointing for the major, St George’s general manager of intermediary distribution, Steven Heavey, says it will motivate the bank to do better next year and make significant adjustments to the St George broker offering.
“Obviously, the past 12 months were tough for banking and St George made some decisions to dial down in mortgages, which certainly impacted the way we’re viewed by brokers,” he says. “That said, St George is in a different position now: we’re back and we want to confirm our commitment to the broker channel.
“We know where we are and we know where we need to be. St George is committed to making it easier for brokers to do business with us and we have been making significant investments in the broker channel, with process improvement initiatives, product innovation and service enhancements.”
WEATHERING THE BACKLASH
One area in which the bank plans to make significant enhancements is cross sell.
Mr Heavey says the lender was greatly disappointed to have dropped from second in 2010 to last in 2011 and St George will look to rectify the problem over the coming 12 months.
“St George and the brokers that deal with St George have done an extremely good job in terms of cross selling other products to customers they have introduced to St George and I want this to be reflected in next year’s results.”
Commission is another area in which the lender failed to deliver, according to the survey.
St George finished fifth in commission structure after seeing its broker rating fall from 2.90 last year to 2.72.
The drop in broker ratings was disappointing, says Mr Heavey, given that the lender had recently adjusted its remuneration structure in favour of brokers. However, he admits that the change was poorly conveyed to the broker partners, which could explain the poor result in this area.
“Late last year, we announced a new commission structure, which was intended to promote and reward individual performance and deal quality whilst encouraging industry best practice,” he says. “Unfortunately, this was not well received initially, and there were some misconceptions in the market.
“We are currently seeing 35 per cent of our brokers being paid 70 basis points upfront, which we believe is a strong position. Clearly we need to do some work around perception there.”
But it is not just broker perception of the commission structure that needs to be improved, according to the results of The Adviser’s survey. St George also fell down in broker communication and broker interaction.
In a bid to improve in this area, the bank has committed to holding more broker roadshows to canvass a large number of broker opinions and actively seek feedback on potential policy and price adjustments.
St George has also committed to increasing its BDM footprint, enhancing back office support and investing in more technology, Mr Heavey says.
Of most interest though is St George’s commitment to reposition itself as a local bank. Mr Heavey explains that the bank wants to create a local branch feel but on a national scale.
“We want to keep ourselves humble and deliver the quality service that brokers and their customers have come to expect from local building societies or mutuals,” he says.
LEADER OF THE PACK
CBA has once again topped the table, but despite a stellar result, the bank admits it is still improving its broker offering
THE COMMONWEALTH BANK has reinforced its reputation as Australia’s leading major lender, placing first in The Adviser’s Third Party Banking Report – Major Lenders for the second consecutive year.
The major consistently ranked first or second in the survey, except for broker interaction, in which CBA placed fourth.
CBA ranked first in 12 of the 17 categories, but performed exceptionally well and firmly ahead of its peers in business support, training and education, turnaround times and credit assessment staff.
Kathy Cummings, CBA’s executive general manager of third party and mobile banking, says the survey results correlate very closely with the continuous feedback the bank receives from its broker partners.
“The results build on and validate brokers who have voted for us time and time again at the MFAA Excellence Awards,” she says.
Ms Cummings says the bank is committed to being the number one lender for brokers – and it would appear it is on the right track, having extended its lead on number two rival, ANZ, in the past 12 months.
Extending its lead on the rest of the pack is one achievement of which CBA is particularly proud, she adds.
“Brokers are recognising the efforts and resources we are committing to their business, such as the professional development days we offer to improve their understanding of the market and the economy, and the workshops we run to increase their knowledge of our product and policy,” she says.
“I also believe the results show brokers appreciate all the support we have provided to help them deal with the new [NCCP] regulation by making it simple and easy for brokers to do business with us.”
FOCUS ON CROSS SELL
One area in which CBA managed to improve its broker rating over last year’s score was cross sell.
The lender improved its rating from 3.82 out of five last year to 4.00 in 2011 – cementing its position as a market leader in cross sell.
Ms Cummings says the bank has invested in cross-sell improvements over the past six years, so it was good to see that investment was now paying dividends for the lender.
“Our CONNECT Referral Program is an easy process for brokers to build on their income stream,” Ms Cummings says. “Brokers embrace CONNECT because of the referral fee and because it helps them meet their customers’ total banking needs.
“We have expanded the program with additional products such as our high-interest saving products, GoalSaver, and new transaction accounts which are accessible on our real-time banking platform.”
CBA currently runs training workshops to help brokers understand how to use and maximise profitability through the CONNECT program.
Technology was another area in which the bank managed to excel. CBA not only managed to improve its personal broker ranking from last year’s survey, but also widened its lead over the rest of the majors.
In the technology sub-category of online lodgements, the lender extended its lead to 0.21 points, a statistic of which Ms Cummings is particularly proud.
“Our CommBroker website continues to play a critical role for brokers to lodge and track their home loan applications,” she says.
Despite the bank’s surging ahead of the pack, however, Ms Cummings says CBA will not rest on its laurels over the next 12 months.
ROOM FOR IMPROVEMENT
While CBA managed to win favour with the third party distribution channel in most areas, the major failed to hit the mark with brokers when it came to commission remuneration and structure, placing only third out of five in both areas.
But despite the lender’s less than favourable results, Ms Cummings says CBA has no immediate plans to change its commission levels or structure.
“Our broker remuneration is in line with the market and we are very competitive when commissions are based on a five-year loan life,” she says.
The bank also offers additional revenue on the referral of products through the CONNECT Referral Program, she adds.
“The fact is, the more products a customer has with a lender, the stronger the likelihood they will remain with that lender. This means the broker can feel more secure over the continuity of their trail,” Ms Cummings says.
“We also recognise customer retention and quality, and reward our key strategic business partners and head group partnerships through our Growth Bonus Incentive.”
So, with no plans to alter the lender’s commission levels or structure, what improvements can the broker channel expect from the bank in the coming 12 months?
According to Ms Cummings, the bank plans to roll out various “exciting initiatives” over the course of the year that will give brokers “more power in the home loan process and more control over the delivery of results”.
“We are planning to allow our quality producers to self-verify their customers’ proof of income documents,” she says.
“We will also help brokers improve efficiencies by providing their administrative staff with log-ins to CommBroker, enabling their senior staff to track the business they are doing with us.”
EYES ON THE PRIZE
Despite being pipped at the post by CBA in this year’s Third Party Banking Report – Major Lenders, ANZ remains bullish about the year ahead and continues to eye the number one spot
FOR THE second year in a row, ANZ has placed second in The Adviser’s Third Party Banking Report – Major Lenders, with CBA taking out top honours.
However, ANZ’s head of broker distribution, Andrew Everington, is not discouraged by the ranking: “We were extremely pleased with the result and it’s a great recognition of the work that we’ve done to improve our relationship with brokers,” he says.
“While coming second is really positive, it definitely highlights that there is still lots of room for improvement for us.
“The report gives us really great information on our strengths and also areas that we really need to focus on to ensure that brokers are getting exactly what they need from ANZ.”
According to the report, ANZ failed to meet broker expectations in business support as well as in training and education, placing fourth in both.
Mr Everington says feedback such as this is invaluable to the lender because it “helps us understand which areas of our broker proposition require extra work”.
“We recognise that providing support for brokers to get their job done quickly and efficiently is vital,” Mr Everington says. “We need to make sure we are easy to do business with – it’s as simple as that.
“We’re always looking to our brokers for feedback about what we’re doing well and what we’re not. The result shows that we have improved in some areas, but there’s still work to be done to ensure that our broker support model hits the mark.”
The broking channel remains an integral part of ANZ’s business, according to Mr Everington, who adds that the lender takes any feedback it receives from the channel very seriously.
“We embraced mortgage brokers more than 12 years ago and we greatly value the relationships we have developed,” Mr Everington says.
“You only have to look at the scale of our broker channel to know that we’re committed to the broker market and will continue to focus on building a sustainable model that provides competitive pricing, great products and service whilst ensuring that we are easy to do business with.”
EASY DOES IT
By all accounts, ANZ is particularly easy to do business with, claiming first place in broker interaction and product range.
While the lender was pleased to have topped the leader board in some areas, Mr Everington says the bank will be far from complacent in coming months. ANZ is now looking to expand its product suite where possible and invest further in BDM support.
The bank aims to “tweak its product suite to ensure its customers are well catered for”, Mr Everington says.
“We are not looking to have the biggest suite of products; rather, we want to have a suite of products that suits all of our customers’ needs.”
ANZ is known for excelling in product range and has received numerous awards, including the Australian Lending Awards’ Top Investor Lender.
“We invested a lot of time in creating market leading products for our customers and it’s great to see our work pay off,” Mr Everington says.
Another area in which ANZ is known to excel is broker commissions and its refusal to cut commissions last year helped cast the bank in a favourable light with brokers.
“It’s about creating a sustainable commission model that makes it easy for brokers to do business with us,” Mr Everington says. “We consult heavily with the industry around this.”
ANZ’s efforts to seek feedback from broker partners on a regular basis would explain why the lender placed first in the broker interaction category.
“We were one of the first major banks to embrace mortgage brokers more than 12 years ago, and we have long-standing relationships,” he says. “We’ve learnt we need to interact with brokers daily and make sure we resolve their issues quickly.”
Despite ANZ’s achievements and recognition this year, Mr Everington says the road to success is long and winding and the lender will continue to focus on the areas in which it did not perform as well.
NAB/Homeside has made dramatic improvements to its broker proposition in the past 12 months, but the lender says there is still room for improvement
LAST YEAR, NAB/Homeside failed to meet broker expectations in the BDM support, turnaround time and remuneration categories.
Brokers therefore ranked the bank last in The Adviser’s Third Party Banking Report – Major Lenders.
This year, however, the story is quite different.
The lender managed to improve its standing in the industry significantly, making inroads in broker support, training and education and product pricing.
But despite NAB/Homeside’s dramatic turnaround, NAB Broker general manager of distribution John Flavell says there are still several areas in which the bank can improve.
“We are really pleased with our forward progression,” he says. “However, we are disappointed not to have placed first overall.
“The survey ranking shows we have made significant improvements to our broker proposition over the past year.
“However, we are acutely aware that there is still a lot to be done.
“Our goal is to be number one. We have a lot of hard work ahead of us to achieve that, but achieve it we will.”
Mr Flavell says the lender will continue to simplify its product policies and deliver a consistent service.
“We know that to be the best, you have to be the most consistent,” he says. “While our turnaround times are still not where they should be, they are far more consistent than 12 months ago, and our broker partners respect that.”
In fact, according to the survey, NAB/Homeside improved its broker rating on turnaround times dramatically and while the lender still finished last in the category, it managed to increase its broker rating by a massive 0.79 points.
The only area in which NAB/Homeside made a greater improvement was broker interaction.
In this category, the major increased its broker rating by 0.82 points – the biggest improvement made by any of the lenders across all of the survey categories.
That result did not, however, come as a shock to the lender.
According to Mr Flavell, the result closely corresponds with the lender’s own market intelligence.
“We go to the market on a quarterly basis and ask for direct feedback from our business partners on everything from support to service to policy and products,” he says.
“Our own research found that we have made significant inroads in the areas of broker communication and turnaround times.
“In addition, we were described as ‘market leaders’ by our broker partners in the area of commissions, which is consistent with The Adviser’s findings.”
According to the survey, NAB/Homeside blitzed the field both in commission structure and remuneration.
Despite its success, Mr Flavell said the bank has no plans to rest on its laurels in the coming 12 months.
“We have offered the sharpest standard variable rate for the past 19 months and we plan to maintain this position. In October 2009, we launched our price for risk initiative, which enabled our brokers to go out and provide their strongest applicants with the best rates in the market.
“This initiative has stood the test of time and we have no plans to abandon it in the future,” he says.
“A lot of our competitors take part in window dressing. They offer rate specials, in a bid to attract business. But the fact is, these products are not competitive over the longer term and I think brokers and their customers are intelligent enough to see straight through this window dressing.
“With NAB, you get what you pay for,” Mr Flavell says. “We take a fair approach to mortgage products and we are very transparent in everything we do.”
LESSONS FROM THE FIELD
While NAB/Homeside is arguably the biggest success story in this year’s ranking, the lender failed to impress the third party channel in client support and broker communication.
Mr Flavell manages to look on the bright side: “There are many positives we can take away from this,” he says. “We knew we needed to make a lot of improvements to our broker offering, but now we know which specific areas to target.”
Over the next 12 months, Mr Flavell says the lender will look to improve its overall broker communication by simplifying its policies and process and consistently interacting with the channel.
“In the past, we have communicated with our third party channel via email, but this is a slow medium. In many instances, it is much quicker to pick up the phone and speak with the brokers direct. We have started doing this recently, and we will continue to do it moving forward.
“We are going to ensure we tell our brokers exactly what we need upfront, which will not only reduce loan reworks and turnaround times, but it will also improve overall broker efficiencies.”
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