Business Beagle
Spunky chick
Finance Industry
Songshi QuanBanks launch assault on Mortgage Broker market
June 11th 2008 02:48
How many microseconds would it take for the media to latch on to this headline and milk it all the way to ratings season?
“Banks slash staff wages by 30%” or “Banks force staff to work for free in 1st year”
The Current Affairs programs would go into a feeding frenzy of ‘impact’ interviews. Our television screens would be filled with the sad faces of small children forced to go without food while their parents worked for free to shore up bank profits in these times of financial industry turmoil.
Such a travesty would never occur though, would it?
It has! And, it is spreading like the black plague across a sector of the industry responsible for nearly 40% of all new mortgages in Australia. If you accept the notion that competition feeds the market with lower prices and better products as suppliers fight for marketshare, then Mortgage Brokers bring to your table offerings from up to 50 lender choices in the market. It is the ready availability and consumer awareness of these 50 options as opposed to the big 5 options that some banks would like you to think was all that existed that provide true competition and force the big players to keep their offerings competitive in order to maintain or even grow their marketshare.
In addition to greater competition, there is also service. Don’t laugh, I was careful not too mention service and banks in the one sentence for fear of losing all credibility with you the reader. Ahh… I just did it, and now you’re laughing.
But, you are not alone there. In a recent customer satisfaction survey conducted by Bankwest and the Mortgage broker association MFAA as reported in issue 5.9 of Australian Broker magazine, Mortgage Brokers were rated at 7.5 out of 10 compared with banks at 6.9. Maybe not a huge difference, but the survey is conducted every six months and mortgage brokers rated between 7.5 and 7.9 compared to banks that never got out of the 6’s. In this same report by Australian Broker magazine, it mentioned another survey by Fujitsu Consulting that found that “80% of people who use a broker were happy to refer them on to someone else, compared with just 20% who were happy to refer on a lender…”
So, competition and service. It seems to me that Mortgage Brokers are a valuable part of the financial services landscape. Why then, at a time when the big 4 Banks are still reporting half yearly profits ranging from $1.9 Billion to $2.6 Billion (as reported by PricewaterhouseCoopers – Perspectives, Major Bank Analysis May 2008) do we also see a trend to reduce commissions paid to Mortgage Brokers by as much as 30%?
And why is the media essentially ignoring it?
So far, Westpac, Commonwealth Bank, NAB, St George and Suncorp have all announced reductions in commissions paid to Mortgage Brokers. In some cases, a flat 30% cut in commissions, in other cases amending the commission structure so that it starts paying the standard trailing commission only after the customer has had their loan for 1 year on top of a reduction in upfront commission of up to 20% as well. Ok, well, perhaps we should tell the banks that we are changing our mortgage repayments as well. We now will only pay interest on loans that have been provided to us for a year free first!
At a time when petrol prices are hitting all time highs, grocery prices are climbing faster then inflation and interest rates are nudging the psychologically daunting 10% mark (yes, Mortgage Brokers have mortgages too), Banks feel it is ok to slash the income for a channel that produces almost 40% of their business by 30% or more and delay some of their income for up to a year or more. Their justification for this is that with the higher cost of funds squeezing bank margins, they feel that the broker channel should share the burden as well. Hmm, show me a Mortgage Broker who has just reported a half yearly profit of $2 Billion and I’ll begin to be swayed by your argument. No, banks just feel that they can get away with squeezing the small business players as they have no real collective voice to combat the media spin of the big banks.
So, I challenge you, ask your local bank manager (if you haven’t already ditched them for a more service oriented Mortgage Broker) if they would be ok with their employer cutting their salary by 30% or holding their salary back a year while they proved their loyalty to the bank? The silence would be deafening.
So, the alternative?
Mortgage Brokers can charge upfront fees to clients, can’t they? Some already do, but customers are not stupid and neither are the banks. Why would a customer pay a fee to a Mortgage Broker to give them what the bank would give them without the additional cost?
Of course this is exactly what the banks want. A re-distribution of the Mortgage Broker market share back through their branch doors and into their coffers. The big banks will benefit the most through market awareness and brand image. Competition will suffer, prices will rise, product variety will diminish and the already deplorable service levels will fall, because you will have nowhere else to go.
We, the consumer have the power to stop the rout. We can CHOOSE to use lenders that do the right thing by the Mortgage Broker channel. Mortgage brokers are mostly small business or sole operators just like you. Big business should not be allowed to squeeze out the small players. Mortgage Broking today, YOUR industry tomorrow.
This is the Business Beagle reporting from the new ‘Consumer Border Patrol’.
More to follow.
“Banks slash staff wages by 30%” or “Banks force staff to work for free in 1st year”
The Current Affairs programs would go into a feeding frenzy of ‘impact’ interviews. Our television screens would be filled with the sad faces of small children forced to go without food while their parents worked for free to shore up bank profits in these times of financial industry turmoil.
Such a travesty would never occur though, would it?
It has! And, it is spreading like the black plague across a sector of the industry responsible for nearly 40% of all new mortgages in Australia. If you accept the notion that competition feeds the market with lower prices and better products as suppliers fight for marketshare, then Mortgage Brokers bring to your table offerings from up to 50 lender choices in the market. It is the ready availability and consumer awareness of these 50 options as opposed to the big 5 options that some banks would like you to think was all that existed that provide true competition and force the big players to keep their offerings competitive in order to maintain or even grow their marketshare.
In addition to greater competition, there is also service. Don’t laugh, I was careful not too mention service and banks in the one sentence for fear of losing all credibility with you the reader. Ahh… I just did it, and now you’re laughing.
But, you are not alone there. In a recent customer satisfaction survey conducted by Bankwest and the Mortgage broker association MFAA as reported in issue 5.9 of Australian Broker magazine, Mortgage Brokers were rated at 7.5 out of 10 compared with banks at 6.9. Maybe not a huge difference, but the survey is conducted every six months and mortgage brokers rated between 7.5 and 7.9 compared to banks that never got out of the 6’s. In this same report by Australian Broker magazine, it mentioned another survey by Fujitsu Consulting that found that “80% of people who use a broker were happy to refer them on to someone else, compared with just 20% who were happy to refer on a lender…”
So, competition and service. It seems to me that Mortgage Brokers are a valuable part of the financial services landscape. Why then, at a time when the big 4 Banks are still reporting half yearly profits ranging from $1.9 Billion to $2.6 Billion (as reported by PricewaterhouseCoopers – Perspectives, Major Bank Analysis May 2008) do we also see a trend to reduce commissions paid to Mortgage Brokers by as much as 30%?
And why is the media essentially ignoring it?
So far, Westpac, Commonwealth Bank, NAB, St George and Suncorp have all announced reductions in commissions paid to Mortgage Brokers. In some cases, a flat 30% cut in commissions, in other cases amending the commission structure so that it starts paying the standard trailing commission only after the customer has had their loan for 1 year on top of a reduction in upfront commission of up to 20% as well. Ok, well, perhaps we should tell the banks that we are changing our mortgage repayments as well. We now will only pay interest on loans that have been provided to us for a year free first!
At a time when petrol prices are hitting all time highs, grocery prices are climbing faster then inflation and interest rates are nudging the psychologically daunting 10% mark (yes, Mortgage Brokers have mortgages too), Banks feel it is ok to slash the income for a channel that produces almost 40% of their business by 30% or more and delay some of their income for up to a year or more. Their justification for this is that with the higher cost of funds squeezing bank margins, they feel that the broker channel should share the burden as well. Hmm, show me a Mortgage Broker who has just reported a half yearly profit of $2 Billion and I’ll begin to be swayed by your argument. No, banks just feel that they can get away with squeezing the small business players as they have no real collective voice to combat the media spin of the big banks.
So, I challenge you, ask your local bank manager (if you haven’t already ditched them for a more service oriented Mortgage Broker) if they would be ok with their employer cutting their salary by 30% or holding their salary back a year while they proved their loyalty to the bank? The silence would be deafening.
So, the alternative?
Mortgage Brokers can charge upfront fees to clients, can’t they? Some already do, but customers are not stupid and neither are the banks. Why would a customer pay a fee to a Mortgage Broker to give them what the bank would give them without the additional cost?
Of course this is exactly what the banks want. A re-distribution of the Mortgage Broker market share back through their branch doors and into their coffers. The big banks will benefit the most through market awareness and brand image. Competition will suffer, prices will rise, product variety will diminish and the already deplorable service levels will fall, because you will have nowhere else to go.
We, the consumer have the power to stop the rout. We can CHOOSE to use lenders that do the right thing by the Mortgage Broker channel. Mortgage brokers are mostly small business or sole operators just like you. Big business should not be allowed to squeeze out the small players. Mortgage Broking today, YOUR industry tomorrow.
This is the Business Beagle reporting from the new ‘Consumer Border Patrol’.
More to follow.
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Comment by Harry
Sydney Diary
Personals
Brisbane Diarystar
Zoo Parent
Comment by Business Beagle
Business News
Robert Keanalley
Contrary to popular belief, bank employees are also on bonuses, although the incentives might not be something to write home about.
I guess the point is that this is an industry that offers the consumer greater choice and knowledge, something that individual bank employees can't provide as they are not aware of the offerings from other lenders.
Take away the profitability of the industry and in the end it is the consumer who suffers the most in the long run.
Cheers and thanks again for the feedback.
Business Beagle.
Comment by Songshi Quan
You see this with other industries (Woolworths vs the local baker, butcher, grocer). In areas without one of these services there is anecdotal evidence that large businesses will milk every bloody cent they can out of the consumer.
Need I draw anyone's attentions to what home loan interest rates were before Mortgage Brokers became well known?
Trust me, the Banks would love to kill off the Brokers. If that service wasn't there, where would a consumer go?...direct to the Bank of course. The Fat Cats in the upper echelons would be rubbing their lucky bellies with glee over that one.
As a consumer, I wouldn't mind paying a little bit extra to obtain a mortgage with an Institute that actually rewarded it's Brokers with renumeration comensurate with their work and abilities - not a Bank that decided they can live off a deep lungful of air.
After all, how could you trust Westpac, Commonwealth Bank, NAB, St George and Suncorp not to shaft you once their done grinding the Broker's into the dirt?
But then again, I'm sure the Banks wouldn't do that to their customers. After all they have passed on all the interest rate cuts the Reserve Bank have put in place.
Oh wait a sec....no, they didn't.