1. Race to the bottom and fight for the lowest rate for the client (which we can almost never achieve due to the banks’ online presence), or
2. Become a lynchpin for our clients, the trusted adviser, indispensable
The broking world has evolved, satisfying a demand in the marketplace that the banks underestimated. While the banks were consolidating and centralising, brokers were turning up and developing relationships. Mortgage brokers have done so well in caring for their clients that the major banks have changed tact, trying to copy the service model of mortgage brokers with branch managers forced to build relationship with both clients and brokers alike.
Banks have vertically integrated by purchasing aggregators and what I see as the biggest impending threat to mortgage brokers: online mortgages.
Race to the bottom
If we now only compete on interest rate, we will lose. If you look online you will find many mortgages that we cannot compete with purely on interest rate. Obviously there is the advice component missing and yes the clients could potentially be costing themselves money with an incorrectly structured loan but I foresee that an ever-increasing percentage of vanilla mortgages will be transacted purely online. Similar to the music industry, retail, books, then journalism, online competition starts as something that may happen in the future but will have a marginal impact on the industry, then it becomes closer than we think and then one day it is the more accepted format of doing business in that space. Industries seemingly overnight fall off a steep cliff if they underestimate online competition, only leaving those who have accepted this event and made it work for them. Once the music industry accepted the new way of doing business they were able to find ways to become relevant again through providing music how and when clients wanted it. As a broker we will never have the budget to compete in a purely online industry. It is a race to the bottom, low margin and high transaction business.
…or as marketing genius Seth Godin correctly identifies it in his book of the same name, a ‘lynchpin’. A mortgage broking lynchpin will have to, in the future (if not now): Continue to emotionally connect with their client. Mortgage brokers are successful for many reasons but I believe we care for our clients. We are a part of their life, meet their children, work with them through the good and the bad but we give emotionally of ourselves. Clients are not a number to us. Accept that we are in the property business. Sure, we facilitate many other financing requirements but primarily a large part of all our business is when a property transaction takes place. Proactively be contacting the client, not just for a chat but to show them what they can do. If you wait for the client to ring you, you lose. Position yourself as the go-to person and you generate opportunities. Facilitate the purchase, with a range of skilled professionals, either internal or external to your business. These professionals include a property advisor/strategist, financial planner, lawyer, accountant and general insurance adviser. If your client has a good relationship with any of these professionals outside your team or professional circle you should work with them. It is a great opportunity to make connections and can detract from what we are trying to achieve if we force our preferred providers. The client has no regard for what you do, but highly values what you do for them.
The broker of five years ago could meet a client and be fairly comfortable they would win their business. Sure the bank branch or accountant might steal the ‘deal’ at the last minute but it was rare and you became more diligent in the appointments following to gain some commitment from the client. You can’t settle for that sales method today as competition is everywhere and you will be out of business if you operate like that in the future.
Mr and Mrs Smith come to you looking to finance their investment property; you must understand that everyone from their conveyancer, to their bank (the one you likely introduced them to!), their iPhone and the real estate agent is asking for their finance business also.
It is a credit to you that they take the time to give you an opportunity, often because they like you. These opportunities will continue to diminish unless you educate them on the opportunities that exist once they have some equity in their home. How would you feel if you were Mr or Mrs Smith? Your mortgage broker contacts you congratulating you on paying down your home mortgage.
Your broker mentions that people in your position consider investing in property and they have a trusted team of professionals that can assist, asking if that is of interest. His team mitigates the risk of you purchasing on emotion, paying too much for a property or buying something that will be difficult to finance or leverage against in the future. If my broker took the time to alert me to the opportunities that were available, introduced me to professionals to advise me in their respective fields, fully disclosed his relationships and financial remuneration for these introductions, acted as a lynchpin, I would be genuinely thankful and in my experience clients who receive this service repay their gratitude in kind.
Introductions to external parties can fall down and this can be stressful. The solution is two-fold.
1. If you don’t act you won’t have any stresses, as you will slowly lose your clients to more convenient, or cheaper ways to do business or worse still, to someone else who cares.
2. Be proactive. Stand by your client, do what is within your control to rectify the troublesome situation, answer their calls and often they will come back to you and refer their friends and family as long as you continue to care.
Okay, so you are proactive, your client wins. But what does this mean to you and your business? Successful mortgage brokers and those who will continue to not only be relevant but will excel in the future understand that Mr and Mrs Smith paying off their home is wonderful but introducing Mr and Mrs Smith to the option of successfully investing in property can mean: Raving fans, more referrals Larger loan sizes and greater respect from your preferred lenders. Greater trust in your finance recommendations, not purely price driven. Commercial arrangements with like-minded professionals. The law of reciprocity: the more business you introduce to your network, the more business they will want to send back to you. Profit.
This is a slightly amended version of an article written by Matthew Clark, author of Amazon Bestseller The 2014-2015 Guide to Property Investment and is a property strategist/advisor. It has been shortened to make it suitable for web publishing.
My observation of the mortgage broking world during the last 15 years has shown me that we have a choice.