OPINION -- A revolution in relevance

While walking across a road this broker waves to a person; when asked who he was waving to he replied: “Oh, someone I did a loan for”. That statement was a defining moment for me for not only did it sum up how our industry views consumers, it also summed up exactly how consumers view the mortgage broking industry.

If you were to do a survey of consumers and ask them this question: “What do mortgage brokers do”?, the answer inevitably would be something like “they sell loans”. Therein lies the problem and an enormous opportunity.

The problem is that the ‘average consumer’ simply doesn’t perceive mortgage broking as a profession – they perceive it as an occupation. That’s not to say someone who sells loans can’t be professional; in a lot of instances that’s the reality. The trouble with reality is that when it meets perception reality always loses.

So, what’s the answer? Well, the first thing to understand is that trying to change the perception of consumers is a futile exercise. One hundred pieces of good media exposure can all be bought undone by one bad piece. One would have to admit the media is pretty good at making mountains out of mole hills when it comes to bad news broking stories.

The answer is to create a new market segment with a new perception.

One of the fundamental laws of creating a successful business is that it must be market driven, not product driven. No one wants your product; they want what it can do for them.

In the mortgage industry no one wants a mortgage, it’s a grudge purchase – what they want is the security of their own home or a vehicle to create wealth to provide income in retirement. A mortgage is no more than a means to an end.

So, what is the market telling us at the moment – or in other words, what’s relevant right now. The answer is simple: we’re in the midst of a process of de-leveraging.

We’ve had a wonderful time over the last few years spending our future. In fact, according to the ABS there are about 7.6 million households in Australia who collectively spend around $20 billion more than they earn each year. That means that the average Australian household spends $2,600 more than it earns!

Put this together and three opportunities stand out like the dog’s biscuits. The first opportunity lies in the creation of a new, more valuable financial professional market category. I’ve named this new professional category “credit planning”.

This new profession should have the ability to charge fees for service, generate both mortgage and risk sales, and have a reason to maintain an ongoing relationship with the clients.

The second opportunity exists for whoever is first to market with this concept. Whoever creates this new market category will secure market leader status and receive a huge amount of free advertising via the news media because this is about the only good news finance story going.

I saw how powerful this free media advertising was in the early 90’s when Aussie Home Loans launched. I can still remember the front page of the Sydney Morning Herald screaming: “Sydney gets new bank”.

Of course that wasn’t the case, but the public perception was “new bank, better deal”. The rest, of course, is history with Aussie being credited with creating a new finance category, that of non-bank lender and securing a market leading position it still retains. I’ll cover the third opportunity a bit later on.

The point here is this: changing an existing perception is almost impossible. So why not simply create a new market category with a new perception. Credit planning would be the new market category and because it’s brand new, all the things that need to be done to have it perceived as a profession can be done right up front.

Now, I believe that if you can’t define something you can’t do it. So here’s my definition of credit planning.

“Credit planning is the profession of providing a written plan and the subtle ongoing active monitoring of that plan to ensure accountability so as to enable clients to better manage cash flow, control debt and protect assets”.

And here’s the good news. All of the tools, technology and training to become a credit planner are already in existence.

Remember the third opportunity I spoke about earlier? Well here it is. Aggregators and broker groups continue to struggle with the value proposition they present to their brokers.

Imagine however, if your aggregator provided all the tools you needed for you to become a credit planner. What if your aggregator provided you with a vehicle that enabled you to charge a fee for service and have clients happy to pay? What if you had the ability to sell mortgage products to clients that weren’t rate sensitive and distribute risk products with little or no objection? How valuable would that be and what would you pay to be a part of that?

To understand how valuable the early mover premium can be (early mover premium is how business schools articulate the old adage of “fortune favours the brave”) just ask anyone who sells broking franchises how much they sold for in the early days and how much they get for them now.

Will credit planning become a reality? – well that depends on how eager we are to embrace change. Maybe it’s time for a revolution.