Brokers have their say on channel conflict

Now, with the banks tightening up their credit policies and serviceability criteria, brokers are increasingly taking to our website to voice their frustration at their belief that banks are making it easier for borrowers to get loans approved by going direct to the lender.

As such, we asked several leading brokers what they thought about channel conflict and how it had impacted their businesses.

But, while all the respondents seemed resigned to the fact that channel conflict happens, there was a feeling of optimism that lenders, and regulators, were working harder to try and limit the problem.

Philippe Brach, CEO at Multifocus Properties & Finance, said that he had not yet been affected by channel conflict, but said that if banks were pricing loans “in favour of branches”, then the competition would become “very lopsided and brokers will be seriously disadvantaged”.

He said that he would expect regulatory bodies to “know that such a situation is not in the best interest of consumers and will no doubt intervene to prevent an uneven playing field”.

Mr Brach added: “I hope that sanity will prevail and that banks will concentrate at looking why branches are costing so much rather than artificially skewing their offer.”

Tanya Sale, CEO at Outsource Financial, said that channel conflict will “always be around”, but it was the “extent to which it affects brokers that is important”.

“No question, the same interest rate reductions should be available to both mortgage brokers and bank lenders, for no other reason than to give customers the best possible outcome,” she said. 

Keep in contact with your client

According to Susan Lepidi from The Local Financial Group, the risk of channel conflict is increased if brokers do not have frequent contact with their clients.

She explained: “Channel conflict has been around the whole time I’ve been a broker, but I don’t think it has increased or decreased; it’s just dependent on how much contact you have with your client as to whether the banks get to them before you do.

“If you're not in constant contact with your clients — and that doesn't mean every month — but if you're not contacting your clients at all, then channel conflict seems to be a bigger issue.”

Ms Lepidi added: “In saying that, people do slip through. It may be that they are just caught at a time when they needed that one particular thing and the bank has offered it to them.

“In the end, the client belongs to the client — they don't belong to anybody, and the best thing that brokers can do is be there for them and give them good advice and build relationships with them." 

Serviceability standards should be uniform

Nicole Cannon of Pink Finance said that while it “doesn’t happen often” to her (as she spreads her loans through non-majors, non-banks, second-tier lenders and white-label platforms), it can result in around four loans a year being taken away from the broker, resulting in “a couple of million dollars’ worth of loans a year”.

The broker and Pink Finance director said that she had seen channel conflict where “clients can get a cheaper rate going into the branch direct and certainly can get quicker turnaround times and faster approvals, often with less information provided and less detail”.

For example, Ms Cannon said that she had previously had assessments using disclosed living expenses rejected, while the (major) bank then used the minimum index. She suggested that this could deliver poor consumer outcomes, because “technically, based on the client's budget, and their actual day-to-day living expenses, they may not have been able to afford a loan”. 

“But, because the branch lending manager may have just used the minimum living one, it gets them across the line,” she said.  

Ms Cannon added: “Mortgage brokers’ practices have been heavily scrutinised, and I seriously think that the lending managers within the major branch networks need to really be looked at. For them to just be able to quote the minimum living expenses — as opposed to their lifestyle and budget like we do — it’s just not a level playing field. Lending managers — not all of them, but some — treat it like an application, as opposed to what is the most suitable product for this customer.”

Partnership working with banks is key

However, Glen Barnes, managing director at Commercial Finance Connections, suggested that channel conflict can go both ways.

He said: “Channel conflict happens from time to time, and you also hear stories of it originating from other brokers. In fairness, sometimes the banker doesn’t even realise they are doing it — hey, we all have sales targets.”

Mr Barnes added that the deliberate “poaching” of broker-introduced clients was rare, and that it was more often a result of new staff not realising that the deal was broker-introduced, or was offering a discounted pricing “in view of competitive offers from other banks”.

He also suggested that good relationships are key to reducing client loss, as having a good working relationship with business development managers (BDMs) or banking executives will help ensure “it’s sorted out 99 per cent of the time”, while good customer relationships will mean your client tells you about any direct approaches, and — ultimately — tells the bank that they are happy with their broker.

Indeed, Ms Lepidi agreed that relations with banks were key, noting that she had recently been contacted by a branch manager because one of her clients had been interested in a top-up, and the manager called her to tell her to get in contact with her client.

Ms Sale similarly added that lenders have become “better at keeping a pricing concession register and that has helped mitigate channel conflict”.

She continued: “What we’ve seen in the current landscape are lenders and their mobile lenders actively trying to form relationships with mortgage brokers.”

Ms Cannon concluded that if brokers had confidence that banks would “absolutely work in partnership with [brokers]”, then they would get more business.

“We're all here just to do the right things by our customers,” Ms Cannon said, “and if they're going to get torn and conflicted information by going into [a] branch, about what we can offer them, it doesn't create the great customer experience that we want. We should all just be here to work together.”

[Related: Broking boss dismisses channel conflict]