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Former aggregation boss fears for future of broking

by James Mitchell11 minute read
The Adviser

Pressure on bank margins and the emergence of new technologies could force the mortgage market to “cut out the middle man” in coming years, warns the former CEO of a mortgage aggregator.

The rise of new online platforms has been well documented by The Adviser. So far these players have made little impact on third-party distribution. However, while many new online platforms are still in their infancy, former Loankit CEO and director of mortgage comparison website HelpCompare.com.au Simon Dehne says the third-party channel could look drastically different in a decade as block chain and peer-to-peer lending gain traction.

“In 10 years what impact will peer-to-peer lending and block chain have? [Block chain] is really an online ledger that becomes the trusted adviser. You marry those two emerging trends and you may have a disruptor that could take out the middle man — the broker, real estate agent and conveyancer,” Mr Dehne said. “Even a bank. We assume that banks will be here for ever.”

Australian banks have faced ongoing regulatory pressure in recent years. Additional capital requirements and record-low rates have squeezed their net interest margins, reducing the profitability of home loans.

NAB this week revealed that it was feeling the pressure of higher funding costs after posting a 3 per cent fall in cash earnings. 

Last week Bendigo and Adelaide Bank managing director, Mike Hirst, said the RBA rate cut this month will have an impact on the profitability of its home lending:

“August price changes aim to deliver neutral margin outcome following recent cash rate reductions.”

As bank margins get squeezed and the RBA continues to reduce rates to drum up growth, Mr Dehne believes people will be forced to find other ways of generating returns.

“If you can cut the middle man out and reduce costs then people will cut out the middle man. That’s my fear for a mortgage broker,” he said.

The broking industry is currently being reviewed by the corporate watchdog in preparation for a report on remuneration to be handed to government by the end of the calendar year. Most industry figures agree that the commissions review will be a positive for the industry.

“Short term regulation can be a healthy thing because it provides credibility to the industry,” Mr Dehne said, adding that in the long-term, bank margins — rather than regulation — could be the real game-changer.

“Banks are constantly under pressure. I’d be more worried about what happens with commissions and if a new player from a different industry comes into the market and disrupts the mortgage industry.

“Look at Uber. What is stopping Apple or Google coming in and playing in this space and finding a platform that delivers our solution without too much grief for the client?”

[Related: Online broking platform taps into underserviced market]

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Comments (5)

  • <p>Hi Simon, thanks for the response and while I understand what you are saying I think at the end of the day the value proposition that brokers provide (no matter what the consumer values will be) will remain the same, the delivery of the broker proposition will change. Must admit bit surprised that you think the broker industry hasn't changed much in 20 years. Where have you been? ;-)</p>
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  • <p>Of all the responses, i chose this one to respond to. The learning is we cannot predict the future, however we can use foresight by looking for patterns from emerging trends to help us anticipate what might be so we can can make better informed decisions today. The purpose of my message was to challenge peoples assumptions that what is important today (our value add to the client which I think is very good one for today) may not be the same in 10 to 20 years. History, can teach us many lessons and my key point is look outside the industry and look at what might change e.g. peoples values around home ownership, affordability, block chain technology, there are many emerging trends and although we have not seen that much change with the broker industry in the last 20 years that does not mean business as usual will continue. My comments are not meant to undermine the honourable work that mortgage brokers do, but as I have said it was to question the unchallenged assumptions that we assume will be the same everyday and into the future. The other option is we put our head in the sand and continue with typical conventional thinking and hope/pretend nothing will ever change.</p>
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  • <p>Describing brokers as a middle man shows a certain level of misunderstanding of the role of a broker. Good brokers don't just provide a customer sourcing and data entry service to lenders. If this was all brokers did I think we'd already have been deleted. This description covers about 20% of the role of a broker.</p>
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  • <p>Mr Dehne makes some valid observations. Plenty of Industries have been disrupted by new technology where the middle men have largely been removed - Taxi's and Airlines for example. However Mortgages are still very much an advice led proposition and given the complexity of product choices facing consumers when selecting a mortgage its no wonder they seek professional advice, and here in lies the strength of the broker proposition. Brokers deliver choice and increasingly higher professionalism - and there are plenty of alternatives to the big banks with much lower overheads to fund that can provide the right solution.</p>
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  • <p>“If you can cut the middle man out and reduce costs then people will cut out the middle man. That’s my fear for a mortgage broker,” he said. Not sure that these new tech's will be cheaper, they all have VC's and shareholders that need to be appeased and they build these businesses to make money not to help banks. Time will tell and trying to guess what will happen in 10 years time in this industry is impossible.....just ask any economist or RBA board member.</p>
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James Mitchell

AUTHOR

James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.

He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.

He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.

James holds a BA (Hons) in English Literature and an MA in Journalism.

 

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