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Bank branches offering better products and rates than is made available to the third-party channel are the number one cause of channel conflict according to brokers.
In The Adviser's recent straw poll, just shy of 37 per cent of respondents cited lenders favouring their branches as the number one concern around channel conflict. Just over 22 per cent of brokers felt branch staff would try and steal their customers, while just under 20 per cent agreed the bigger the size of the loan the more the more banks would want the customer solely for themselves.
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Specialist investor lender Ed Nixon, CEO of Trilogy Finance, agrees the bigger a loan, the bigger the threat that banks will attempt to seduce a customer away.
"Typically we only go to $1–1.5 million per lender," Mr Nixon said of his preferred loan size. "Once you go past [that], the bank's personal banker gets involved and you have the very real risk of being cut out of the transaction."
However, if there was an upside for the banks, The Adviser survey found that one in five brokers reported that channel conflict wasn't even an issue for them or their businesses.
Contrary to that, the FBAA's CEO Peter White said the brokers he speaks to rank it as a very real concern.
"I've been very vocal about it [channel conflict] and I've never heard anyone say I was wrong about banks taking clients from brokers," he said.
"The biggest issue we're [The FBAA] seeing is branches writing loans from their broker portfolio onto their branch portfolio. You write a loan through a bank's broker division, the branches then get access to that data, and what happens is the banks change the coding to that loan and the broker ends up losing their trail.
"There's a saying that goes 'It's cheaper to retain a client than it is to find a new one' and I think that's true of the banks, too. It's easier for them to get an existing client from the broker network than it is to try and attract new clients through their branch networks. It's a cheap acquisition [for the banks].
"It may be, however, the brokers who are complaining most about it [channel conflict] are the ones who have the weakest relationship with their clients," Mr White said.
1st Street Home Loans's Mardee Thomas – the top-placed female in The Adviser's recent Elite Business Writers – agrees that brokers who don't service their customers are more susceptible to losing them to banks.
"If brokers aren't in contact with their clients, then you probably shouldn't have them as customers anyway," she said. "Brokers are paid a trailing commission to look after them and that's what they should be doing."
Ms Thomas agreed the industry once had a problem with channel conflict but, to the banks' credit, things have markedly improved in recent times.
"One of the biggest problems is that banks have such a high turnover of staff and that really impacts on forming those sorts of close relationships. But I work very closely with the local branches and I don't find they're trying to undercut us or steal business away," she said.
"We also work with a lot of existing clients and referrals, so we get to see them long before the branch does and if there's ever been a problem I've found the banks have referred any problems back to us rather than them say, 'Look we can do better than that'.
"But you never know, it could be the customer who's just shopping around for the best deal."
Mr White says channel conflict will only cease to be a problem when the lenders acknowledge it and form policy around it.
"This problem will only be rectified until all the banks come out with a clear and open policy that says 'We do not take loans from brokers and deliberately put them into our branch network'," he said.
"Sure, if that's what the client wants, the client thinks their broker is an absolute tool and they don't want to deal with them any more then that's acceptable. There simply needs to be some honesty here."
[Related: FBAA says channel conflict must end]
