As a number of lenders announce improved commission incentives, brokers are left pondering: does service still matter, or should they go for a larger slice of the commission pie? Sarah Megginson investigates
As a number of lenders announce improved commission incentives, brokers are left pondering: does service still matter, or should they go for a larger slice of the commission pie? Sarah Megginson investigates
In a perfect world, of course, the answer is both. Brokers would ideally like to work with responsive lender business development managers, setting clients up with suitable mortgages that settle without complication and on time, all while raking in ‘cream of the crop’ commission cheques.
In practice, however? Well, achieving all of these goals with the one lender can be easier said than done.
Perhaps that’s why banks and lenders appear to be more understanding of the value and opportunity that brokers offer, with several increasing the financial compensation they offer for bringing a six or seven figure deal to their door.
Earlier this year, Westpac boosted its upfront commission to aggregators by 10 to 15 basis points, and Australian First Mortgage increased trail commission on its Alliance program to 0.25%.
Suncorp has increased upfront commission payments from 0.50% to 0.65% effective as of 1 August, and from October, NAB will start to pay brokers a 0.15% trailing commission in the first year of new loans, compared with zero today. CommBank was mid-review at time of print.
“Intense competition is driving interesting changes to commission structures from some lenders,” says Fons Caminiti, senior manager, broker distribution for Adelaide Bank. “We have one of the most flexible commission structures available to our partners and their members, so our partners get to choose which option best suits their business model.”
CASHING IN ON COMMISSION HIKES
Low interest rates, strong consumer confidence and fierce competition in the mortgage market is bringing record levels of buyers – from first-timers to baby boomers, and everyone in between – to the home finance table.
This is prompting lenders to lift their game, particularly in the area of mortgage commissions. Banks and lenders are increasingly boosting both their upfront and trail commissions in an effort to attract greater market share, according to the latest J.P. Morgan Australian Mortgage Industry Report.
“Banks have become more reliant on brokers as an essential pipeline for new business,” explains Martin North, principal of Digital Finance Analytics, who collaborated with J.P. Morgan to produce the report.
“They’re very keen to grow their lending book, and credit growth is growing much more slowly than house price growth, which is fostering a very competitive environment.”
Having only ever sourced mortgage applications from brokers, Murray Cowan, managing director, Better Mortgage Management, says they have always structured their products and commissions to appeal to the broker market.
“But with brokers now originating over 50% of mortgage finance, it’s no surprise that other lenders are also now making brokers more of a priority,” he said.
It makes commercial sense to incentivise brokers, as it is often cheaper for banks to write a loan via a broker, compared with the internal first party channel of the branch, North adds.
But those extra dollars, which are being directed towards brokers in boosted commissions rather than to consumers with out-of-cycle rate cuts, may be going to waste – as it appears that money alone is not enough to drive brokers to funnel borrowers towards one bank over another.
THE HOLY GRAIL: FOUR-HOUR TURNAROUND
Generous commissions and prompt service are always well-received, but it’s the lenders that go the extra mile when it really counts that brokers truly value.
For Josh Bartlett, mortgage broker at Loan Market, it’s the ability to get a same-day response that he says delivers a true market advantage.
“I can get a guaranteed four-hour turnaround time with one lender,” he explains. “They might not pay the best commission, but I like to give my customers some absolute comfort around their approval, rather than think about what bank is going to pay me the best trail.”
His views reflect those of many brokers, and they’re not lost on Steve Kane, broker general manager for NAB, one of those lenders to have recently announced a commission increase.
Kane says that while there is “no magic bullet” to instantly reduce processing times, the bank has long been working on improving their response rates.
“Working on our turnaround speeds has been a gradual process, as it’s really about looking at how the loan process works for brokers on a practical, daily level,” he confides.
“When we look at our broker proposition, we’re looking not only at the product and rates, but also where we can make sure we can tighten our processes, deliver a competitive product, as well as better, faster service to make sure our brokers and their clients are happy.”
BOOSTING BDM SUPPORT
Increasing the level of support on the ground is precisely what some banks and lenders are doing. In September, Suncorp Bank announced that it had appointed seven new business development officers, while Adelaide Bank is also investing in staff training and development.
“To improve our service offerings to brokers, we’ve focused on our staff. We’ve worked to get the right people into roles supporting brokers and we’ve invested in their training and development, along with providing them the tools they need to deliver,” confirms Caminiti.
“The reputation of our brokers and their customers sits on our shoulders, so we work to support them to ensure our accurate and timely touch points, from the time a loan is submitted through to the settlement and just as importantly beyond.”
Non-bank lender Homeloans Ltd has also recently appointed two new BDMs, Jasmine Kourouche and Leon Stern, to its New South Wales team.
“At Homeloans Ltd, our service proposition to brokers is accessibility, consistency and convenience,” explains Ray Hair, Homeloans’ general manager national sales.
“Experienced BDMs and local credit managers who are available to brokers on a deal-by-deal basis provide a level of service and individualised assessment, which ensures we’re working with our broker partners to meet client needs.”
While admitting they are always on the hunt for ways to leverage technology and process improvement to attract and retain brokers, Hair is currently focused on delivering an application process that delivers long-term benefits to brokers and their clients.
“Across the industry, there has been an increased focus on credit scoring and credit reporting, and as a consequence borrowers need to be more aware of the detrimental impact of multiple credit enquiries,” Hair says.
“We’ve improved our credit assessment and broker liaison processes to be more efficient and effective, so that both brokers and their customers benefit.”
Although some lenders are increasing their financial incentives, it appears that alone won’t be enough to sway brokers in their direction, unless their position is backed up with improved service levels.
The best incentive a bank can offer, adds Smartline mortgage broker Rebekah Gould, is teamwork.
“It is my job as a broker to understand my clients and educate them so they can make informed decisions,” she says. “Therefore, I want a lender who wants to join our team – so when a client makes a decision about which bank will finance their home loan, we all have very sure expectations about what is going to happen each step of the way.”
This feature is from Mortgage Professional issue #14.11. Download the issue to read more.
In a perfect world, of course, the answer is both. Brokers would ideally like to work with responsive lender business development managers, setting clients up with suitable mortgages that settle without complication and on time, all while raking in ‘cream of the crop’ commission cheques.
In practice, however? Well, achieving all of these goals with the one lender can be easier said than done.
Perhaps that’s why banks and lenders appear to be more understanding of the value and opportunity that brokers offer, with several increasing the financial compensation they offer for bringing a six or seven figure deal to their door.
Earlier this year, Westpac boosted its upfront commission to aggregators by 10 to 15 basis points, and Australian First Mortgage increased trail commission on its Alliance program to 0.25%.
Suncorp has increased upfront commission payments from 0.50% to 0.65% effective as of 1 August, and from October, NAB will start to pay brokers a 0.15% trailing commission in the first year of new loans, compared with zero today. CommBank was mid-review at time of print.
“Intense competition is driving interesting changes to commission structures from some lenders,” says Fons Caminiti, senior manager, broker distribution for Adelaide Bank. “We have one of the most flexible commission structures available to our partners and their members, so our partners get to choose which option best suits their business model.”
CASHING IN ON COMMISSION HIKES
Low interest rates, strong consumer confidence and fierce competition in the mortgage market is bringing record levels of buyers – from first-timers to baby boomers, and everyone in between – to the home finance table.
This is prompting lenders to lift their game, particularly in the area of mortgage commissions. Banks and lenders are increasingly boosting both their upfront and trail commissions in an effort to attract greater market share, according to the latest J.P. Morgan Australian Mortgage Industry Report.
“Banks have become more reliant on brokers as an essential pipeline for new business,” explains Martin North, principal of Digital Finance Analytics, who collaborated with J.P. Morgan to produce the report.
“They’re very keen to grow their lending book, and credit growth is growing much more slowly than house price growth, which is fostering a very competitive environment.”
Having only ever sourced mortgage applications from brokers, Murray Cowan, managing director, Better Mortgage Management, says they have always structured their products and commissions to appeal to the broker market.
“But with brokers now originating over 50% of mortgage finance, it’s no surprise that other lenders are also now making brokers more of a priority,” he said.
It makes commercial sense to incentivise brokers, as it is often cheaper for banks to write a loan via a broker, compared with the internal first party channel of the branch, North adds.
But those extra dollars, which are being directed towards brokers in boosted commissions rather than to consumers with out-of-cycle rate cuts, may be going to waste – as it appears that money alone is not enough to drive brokers to funnel borrowers towards one bank over another.
THE HOLY GRAIL: FOUR-HOUR TURNAROUND
Generous commissions and prompt service are always well-received, but it’s the lenders that go the extra mile when it really counts that brokers truly value.
For Josh Bartlett, mortgage broker at Loan Market, it’s the ability to get a same-day response that he says delivers a true market advantage.
“I can get a guaranteed four-hour turnaround time with one lender,” he explains. “They might not pay the best commission, but I like to give my customers some absolute comfort around their approval, rather than think about what bank is going to pay me the best trail.”
His views reflect those of many brokers, and they’re not lost on Steve Kane, broker general manager for NAB, one of those lenders to have recently announced a commission increase.
Kane says that while there is “no magic bullet” to instantly reduce processing times, the bank has long been working on improving their response rates.
“Working on our turnaround speeds has been a gradual process, as it’s really about looking at how the loan process works for brokers on a practical, daily level,” he confides.
“When we look at our broker proposition, we’re looking not only at the product and rates, but also where we can make sure we can tighten our processes, deliver a competitive product, as well as better, faster service to make sure our brokers and their clients are happy.”
BOOSTING BDM SUPPORT
Increasing the level of support on the ground is precisely what some banks and lenders are doing. In September, Suncorp Bank announced that it had appointed seven new business development officers, while Adelaide Bank is also investing in staff training and development.
“To improve our service offerings to brokers, we’ve focused on our staff. We’ve worked to get the right people into roles supporting brokers and we’ve invested in their training and development, along with providing them the tools they need to deliver,” confirms Caminiti.
“The reputation of our brokers and their customers sits on our shoulders, so we work to support them to ensure our accurate and timely touch points, from the time a loan is submitted through to the settlement and just as importantly beyond.”
Non-bank lender Homeloans Ltd has also recently appointed two new BDMs, Jasmine Kourouche and Leon Stern, to its New South Wales team.
“At Homeloans Ltd, our service proposition to brokers is accessibility, consistency and convenience,” explains Ray Hair, Homeloans’ general manager national sales.
“Experienced BDMs and local credit managers who are available to brokers on a deal-by-deal basis provide a level of service and individualised assessment, which ensures we’re working with our broker partners to meet client needs.”
While admitting they are always on the hunt for ways to leverage technology and process improvement to attract and retain brokers, Hair is currently focused on delivering an application process that delivers long-term benefits to brokers and their clients.
“Across the industry, there has been an increased focus on credit scoring and credit reporting, and as a consequence borrowers need to be more aware of the detrimental impact of multiple credit enquiries,” Hair says.
“We’ve improved our credit assessment and broker liaison processes to be more efficient and effective, so that both brokers and their customers benefit.”
Although some lenders are increasing their financial incentives, it appears that alone won’t be enough to sway brokers in their direction, unless their position is backed up with improved service levels.
The best incentive a bank can offer, adds Smartline mortgage broker Rebekah Gould, is teamwork.
“It is my job as a broker to understand my clients and educate them so they can make informed decisions,” she says. “Therefore, I want a lender who wants to join our team – so when a client makes a decision about which bank will finance their home loan, we all have very sure expectations about what is going to happen each step of the way.”
Top 3 Broker Wish-List
1. Clawback reform
“Keeping in contact with my clients after settlement to make sure they’re still happy with their situation is a big part of my job. However, if I ring a client a year later and they tell me they’ve found a bank with a better rate and they would like to refinance their loan, I can get clawed back if I help them refinance,” says Josh Bartlett, mortgage broker at Loan Market. Reform to the rules around commission clawbacks would be welcomed, so brokers can help their clients make the best decisions for their situation without “getting penalised by clawbacks for doing so”.
2. Faster turnaround times
Bartlett points out that it’s not just when processing the loan application itself that brokers – and their clients – require feedback from lenders. Pre-application services such as property valuations or LMI premium calculations are often deal-breakers for would-be borrowers, which is why “turnaround time when it comes to getting answers from the bank is important”, Bartlett says. “I value a lender whose BDM is honest, proactive and can get back to me promptly with an answer. Banks should invest in solid training for their BDMs before investing into new commission structures.”
3. Fair play
“We’ve had a number of members telling us that bank branch managers have intentionally tried to influence their clients to switch to bank products directly, bypassing the broker who introduced the client to the bank in the first place,” says Peter White, FBAA chief executive officer. “If the banks truly... want to increase broker business, then they must educate their branch managers to support brokers, not intentionally try and claim brokers’ clients.”
1. Clawback reform
“Keeping in contact with my clients after settlement to make sure they’re still happy with their situation is a big part of my job. However, if I ring a client a year later and they tell me they’ve found a bank with a better rate and they would like to refinance their loan, I can get clawed back if I help them refinance,” says Josh Bartlett, mortgage broker at Loan Market. Reform to the rules around commission clawbacks would be welcomed, so brokers can help their clients make the best decisions for their situation without “getting penalised by clawbacks for doing so”.
2. Faster turnaround times
Bartlett points out that it’s not just when processing the loan application itself that brokers – and their clients – require feedback from lenders. Pre-application services such as property valuations or LMI premium calculations are often deal-breakers for would-be borrowers, which is why “turnaround time when it comes to getting answers from the bank is important”, Bartlett says. “I value a lender whose BDM is honest, proactive and can get back to me promptly with an answer. Banks should invest in solid training for their BDMs before investing into new commission structures.”
3. Fair play
“We’ve had a number of members telling us that bank branch managers have intentionally tried to influence their clients to switch to bank products directly, bypassing the broker who introduced the client to the bank in the first place,” says Peter White, FBAA chief executive officer. “If the banks truly... want to increase broker business, then they must educate their branch managers to support brokers, not intentionally try and claim brokers’ clients.”
This feature is from Mortgage Professional issue #14.11. Download the issue to read more.
