Still biting the hand?

The past…

Initially, bank and building society retention strategies were concentrated internally though a head office team. In the branches, customer advisers were required to identify individual’s circumstances, spot sales opportunities and make necessary notes. Branches had ways to identify customers targeted on various performance factors, such as marking a letter and date on the customer’s passbook or mortgage payment card to confirm they had been asked about that month’s promotion.

I remember the days when I’d walk into my local building society branch to pay my monthly mortgage payment, each month the customer adviser would ask me different questions about my finances. One month it would be, “Would you be interested in a personal loan, which currently offers an attractive rate?”, the next would be, “Do you require a further advance?” and so on. The more astute customer adviser would get to know you, the customer, and they’d find out the right information to spot various sales opportunities. On one occasion, I’d talked about putting my house on the market as I’d seen my dream home and how excited I was about the property that I’d found. The customer adviser had picked up on this and mentioned her colleague, who was the mortgage adviser located at the branch, would be available to discuss my mortgage requirements, the next steps of the mortgage process and so on. You could say that this was the beginning of lender retention?

Altering the focus

During the last three to five years, the focus started to alter again. Lenders needed to find new ways of retaining their customers so they could maintain or increase their market share. With continued IT developments, less people were going into their local bank or building society branch to pay their mortgages, instead they paid them via alternative methods e.g. by Direct Debit or standing order. Investors who previously made cash deposits or withdrawals from their passbook accounts had been encouraged to open cash card accounts for use in Automated Teller Machines (ATM’s).

One of the reasons behind this move was to free up customer adviser’s time so they could concentrate on other sales and mortgage customers. However, with reduced footfall within the branch network, customer advisers found it increasingly hard to spot sales opportunities as the customer base had greatly diminished. Lenders were required to reassess touch points when contact was being made in relation to individual’s mortgage accounts as well as finding alternative ways to retain their borrower.

With competition for two-year mortgages and the propensity of borrowers to redeem after the promotional period, many lenders decided to take drastic action and a number of lenders set up their own ‘Customer Retention Units’. The aim of these units was to enable the lender to become more proactive in retaining existing borrowers. They’d ask questions when redemption statements were requested, to try and establish whether borrowers were remortgaging or moving house and to offer their services.

It was also noticeable within the industry that lenders were contacting existing borrowers when third parties e.g. packagers/other lenders/secured loan companies had requested lender’s references to enable a new mortgage/loan application to be processed to identify the conduct of the borrower’s current mortgage account. Lender’s replies were taking longer to receive and a small percentage of applications were either cancelled or placed on hold. One such reason given for an application to be cancelled was, ‘customer changed mind, staying with existing lender’. This may have been good news for the existing lender but was the customer receiving the better deal and was the originating intermediary involved in this process? The answer to this is ‘not on your nelly’. But things are starting to change.

Looking at the present

There has always been a battle between lender and the intermediary to gain mortgage business. The lender has the advantage of various routes for distribution via the branch network, internet and intermediaries. However, since ‘Mortgage Day’, the intermediary market has seen business rapidly increase. Consumers have also become more savvy with information being readily available via various channels, e.g. internet, consumer magazines, national press and television programmes. The days have gone when prospective borrowers would walk up the high-street and call into a couple of banks or building societies to see what was available.

However, with the increased amount of information available to the consumer, and the fact that a property purchase in most cases is the biggest financial decision one makes, a large percentage of individuals still seek comfort in dealing face-to-face with a mortgage intermediary to ensure they gain the correct advice before proceeding with their application. The reason for this is because intermediaries offer a wide range of products that would otherwise be unavailable to clients, in addition to a whole wealth of experience.

Not taking it lying down

With lenders investing more time and money in retention strategies, brokers are by no means lying down and taking this. Intermediaries have also been developing their own client management systems, either bespoke to themselves or have invested in programs available to the marketplace, so they have the ability to contact existing clients when their current product is about to come to an end.

Results show the distribution of mortgage products to the intermediary varies, and they must ensure they have a system in place to retain their customers to avoid risk of losing them.

There is still a dilemma for lenders between their retail operations and intermediary customers. Who should receive the better deals? A number of lenders offer two distribution channels, branch networks and a separate brand that services the intermediary, e.g. Britannia Building Society – branch network and Platform – intermediary brand. We have had occasions where the pricing for the branch network product has been keener than the pricing through the intermediary route. Lenders will argue they are only cheaper as it will give them the opportunity to cross-sell ancillary products. However, the intermediary would argue the lenders have higher costs associated with distribution through the branch network e.g. running the branch, training of staff, assuring risk of regulation and so on. So could the broker argue that lenders are biting the hand that feeds them?

Lenders have recognised that intermediaries are increasing their market share. At last year’s Building Society Association (BSA) annual conference in Harrogate, Matthew Bullock, chief executive of Norwich and Peterborough, was reported to have said: “Intermediaries, rather than banks, are the real threat to the growth of building societies.”

So, how much business is produced by you the intermediary? A recent analysis carried out by Network Data confirms a staggering 64 per cent of mortgage business originates from intermediaries. In other words, nearly two-thirds – or just under £200bn.

The future

So do lenders need to include intermediaries in their retention strategy?

I believe they do. Existing lenders will want to ensure they retain their current market share as the number of new lenders entering the market could have a substantial impact on their business. The announcement of a number of lenders publishing their retention strategy over previous weeks confirms my thoughts. Big players in the marketplace, including BM Solutions, Halifax and Bank of Scotland, believe this is the way forward and the broker needs to play a part in the success of their growing businesses. BM Solutions will offer the dedicated product transfer facility for existing borrowers who had considered remortgaging. The broker can assess retention products through the One Minute Mortgage application site. The rewards for the existing customer will be access to competitive rates across their entire range of mortgages. Remortgaging can be expensive and so the customer would not have to worry about solicitor or valuation fees.

However, this does not mean the brokers do not still have to do their job. Firstly they need to be in a position to contact their client to carry out a review. Here is where a good client management system comes into play. Secondly, the broker must update the factfind in order to understand the clients changing needs. Thirdly, and this is where things are changing, the broker will be in a position to not only offer the possibility of remortgaging to another lender but also advise on the existing lenders retention products.

So what are the rewards for the broker? Once the best deal has been sourced, not only will there be less paperwork but a full procuration fee, across the entire product range will be paid, processing time will be reduced through the online One Minute Mortgage, and, subject to borrowers existing mortgage conduct, no further underwriting will be required, and many more benefits are available.

The retention strategies will certainly offer customers increased options and this can only be a good thing. However, one should be mindful that retention products are seen as ‘an easy option for the broker’ and the broker should continue with the factfind process and treat them as a normal advice based sale, as I’m sure the FSA will be assessing whether best advice continues to be recommended.

All I can say is hats off to HBOS for launching a well thought through retention strategy. Rather than the intermediary being excluded from its strategy, they now are inclusive. As long as the advice process is being followed everyone will be a winner.