Mutually beneficial: Why you should use mutuals

Using mutuals isn’t an ‘either-or’ proposition. Brokers can have their cake and eat it too. Not all deals are suitable to mutuals and not all customers feel comfortable using a bank with which they’re unfamiliar. But they’re a great option for brokers to have alongside the majors and their favourite lenders outside the big four. Brokers who are willing to take a fresh look at mutuals may be surprised by the extra options they identify for their clients.

No loan writer is going to recommend a lender that isn’t in their client’s best interests. But imagine how good you would look if you could put your hand on your heart and tell your client a mutual was their best option. Any broker can recommend a Commonwealth Bank or an ANZ – but it takes a real financial expert to nominate an institution outside of the mainstream. What client wouldn’t want to boast about how ‘their’ broker had used his or her superior knowledge to find them a better deal than their friends?

Why we use mutuals

Mortgage Choice’s Monica van Riet is one broker who sees the benefit in mutuals. Ms van Riet, who owns the South Melbourne franchise, sends about 10 per cent of her volumes through Heritage Bank and 6.5 per cent through CUA. She believes they are more flexible on price than the bigger banks and also offer better service.

Want an example? She says Heritage’s state manager phones new borrowers after settlement to welcome them to the bank. That makes the borrowers feel secure, and makes her look good, and is the sort of service that sets mutuals apart, she adds.

“They go over and above,” says Ms van Riet. “I’m more than happy to work with them and I put people into them whenever I can. I’ve put my friends into them and they’re very happy.”

Peter Ellis from Century 21 Home Loans in Canberra relies on ME Bank and Heritage for a combined 15-20 per cent of his volumes. A large part of the reason he uses them is because they offer “exceptionally competitive” products and “consistently sharp” rates.

“I use ME Bank because they’ve got a market-leading three-year fixed rate. We’ve had quite a lot of volume going through them of late. I use Heritage on their fixed-rate mortgage because you can make unlimited extra repayments and redraw – and the rates are very competitive,” he says.

Mr Ellis stresses he is also a fan of the big banks, but he says mutuals are important because they make a point of filling niches the other lenders don’t touch.

“It’s good to have them on our panel. You want to be able to offer choice to your clients as a broker,” he says. Mr Ellis adds that he would also love to have CUA and Newcastle Permanent on his panel if they were affiliated with his aggregator.

Newcastle Permanent is on the panel of LJ Hooker Hunter Valley principal Ben Eick – and he uses it for about 35 per cent of his deals. Mr Eick says the lender is very prominent in his region: it has many branches and ATMs, it advertises widely and it has a strong community focus.

Mr Eick has been Newcastle Permanent’s leading writer for seven or eight years. He says he has kept turning to the lender because it has kept offering consistently cheaper rates and a broad range of quality products. One gentle criticism is what he calls Newcastle Permanent’s “tight” credit policies, although he adds these are very transparent and easy for the broker to read. “You know straight away if the deal isn’t going to sit,” he says.

David Coates from Mortgage Choice Bayside writes about 10 per cent of his loans with CUA. He says it is generally a positive experience for both broker and client. “The relationship manager I have at CUA responds to my phone calls far more readily than any of the big four banks,” he says.

As for his clients, they enjoy well-priced fixed-rate loans with 100 per cent offset facilities, he says. “That comes with access to services you would normally expect from the larger banks, with the exception that there’s not enough branches. If you do need a branch, I get positive feedback from my clients about the experience they have in the branches,” he adds.

P&N Bank is another mutual to win broker approval. STK Financial Services director Susan Lepidi says the big banks could learn something from P&N’s approach to credit.

“With their credit policy, they have a more hands-on approach and a more personalised approach to credit lending, so you can give them a scenario and they will judge it on its merits, rather than one size fits all,” she says.

Ms Lepidi says that goes hand in hand with P&N’s attentive broker liaison officers. “There are times when you might have some different circumstances that clients have been through that a computer just can’t understand, so you want to be able to talk to someone before it gets three quarters of the way down the process.”

Some brokers make the argument that mutuals are too narrowly focused, but Ms Lepidi says no one can accuse P&N of not having a broad enough offering. “If a bank has a line of credit, transaction account, credit cards, home loans that you can split – does that not cover everything?” she says.

Brokers who don’t use mutuals

While there are a lot of brokers willing to sing the praises of mutual banks, there are also brokers out there who don’t feel the need to use them. Glen Barrett from Barrett Lending Solutions is one. He mainly handles loans above $500,000, and he finds major banks are more willing to offer special deals for those types of clients. He also says his clients show no interest in mutuals when they’re offered among a mix of lenders.

“All of them are small and they don’t seem to be doing anything to put themselves more in front of the consumer’s face,” he says.

The Loan Room director Martin Bennett rarely uses mutuals, although he has recently placed a deal with Teachers Mutual Bank due to an impressively low rate. His concern is they don’t have the all-round offering of the banks. He says The Loan Room makes a point of introducing borrowers to their local branch manager, but that is impossible if you opt for a mutual without a local branch.

Will Foster from Foster Finance is an occasional user of mutuals, but isn’t completely sold. “I guess what worries me most is they’re smaller operations and their service and processing isn’t going to be as good as a bank that has higher volumes and has been working with brokers for a longer amount of time,” he admits.
Austin Brothers director Mahesh Arora has never felt any reason to look at mutuals because he has always felt satisfied with the banks he uses. However, he’s open to the possibility of sending business their way if they can offer the pricing and service he’s looking for. “Nowadays I’m getting a lot of different scenarios and my current lenders may not fit those, so there’s no harm in trying different options,” he says.

Mutuals state their case

That’s just the sort of argument put forward by mutual banks like CUA. Group general manager of distribution Darrin Northey says mutuals play a valuable role in keeping the big four honest by offering a credible alternative.

“There’s no doubt Australian consumers are screaming for competition in the retail banking industry. For years, it’s been very heavily dominated by the major banks and continues to be incredibly dominated by the majors,” he says.

The philosophical differences between major banks and mutual banks can be explained by their ownership structures, he says. The big four focus on delivering returns for their shareholders; the mutuals, by contrast, focus on providing value for borrowers – because mutuals are owned by their customers. So profits that might otherwise be paid out in dividends are reinvested in lower fees and better products, he says.

Another key point of difference is the closer relationships mutuals form with brokers and their clients, according to Heritage Bank’s head of contact centre and intermediaries, Sheena Harris.

“The people we’ve got on the ground in terms of our BDMs have been around for a number of years. We don’t have high turnover,” she says, echoing a point made by other mutuals.

“Mutuals, and particularly Heritage, have a people-first philosophy. For a broker whose business is built on customer relationships, it would give them comfort to know they were handing their customers’ loans over to an organisation that values the relationship as much as they do.”

That’s why diversity is so important, says Wide Bay Australia’s general manager of third-party and strategic alliances, Charlton Nevis. Diversity isn’t just a fluffy, feel-good factor; it actually delivers tangible benefits for consumers. “It drives creativity. It drives innovation. It drives options. If we were simply a one-dimensional industry ruled by the larger institutions, everything would become a bit too comfortable,” he says.

Mr Nevis also dismisses the old arguments that customers should nevertheless stick with the majors because they are somehow safer than their smaller rivals. He notes that mutuals are regulated by APRA, just like the majors, while the mutuals are actually required to hold a proportionally higher amount of capital.

Newcastle Permanent’s head of marketing, Michael Leach, wants to bust another myth – that mutuals are one-trick ponies.

“Some brokers state their clients assume a mutual cannot offer a full-service proposition, in terms of home loan products, services, specialised loans and internet banking facilities. However, that is not the case,” he says. Mr Leach notes that comparison website Canstar has awarded Newcastle Permanent more five-star home loan ratings that any other lender, while Newcastle Permanent also made history last year when it became the first non-major to win Money magazine’s Home Lender of the Year award.

“Mutuals like Newcastle Permanent provide a genuine alternative to traditional banks by offering a better way of banking with a comprehensive range of retail banking services and meaningful support for the communities we serve,” he says.

“What is also very important to home loan customers generally is the consistently competitive nature of a lender’s pricing. Our members greatly appreciate our consistently great value home loan interest rates, rather than some lenders who may be relying on customer inertia and ignorance and offer new customers a better deal than their existing customers.”

Mutuals not only believe they have better prices and service and BDM networks than the big banks – they also claim to have less channel conflict. One of the criticisms sometimes levelled at mutuals is that they don’t have enough branches, but that can also have its advantages, says Mark Middleton, the national manager of third-party distribution at Teachers Mutual Bank. Brokers are less likely to have their clients pinched if there are fewer branches for those clients to access.

“Usually the big four banks say they are right behind brokers, but there is a lot of resistance to using the channel. Here, we are completely behind this distribution channel. The reason for that is we don’t have the distribution out there on a bricks and mortar basis, so we can use brokers without channel conflict. We don’t have that issue and we can use brokers to represent us out in the market so we can gain that share,” Mr Middleton says.

P&N Bank is another mutual trying to grow its market share. Chief executive Andrew Hadley says the Perth-based lender made a commitment to boost its third-party presence last year. 

“This includes changes to credit and process policy, product offering, competitive pricing, an additional BDM on the ground and a consistent, strong focus on meeting the ongoing needs of both our broker partners and customers,” he says. Mr Hadley adds that P&N’s third-party business has grown 100 per cent over the past 12 months as a result.

Mr Hadley says mutuals aren’t for everyone; some people prefer to bank with majors, just as some people prefer Coles and Woolworths to their local IGA. However, he says that with the investment that P&N and other mutuals are making in the broker channel, and with the clear value they can provide customers, it makes sense for brokers to include at least one mutual on their panel.

The challenge for mutuals

ME Bank, just like P&N, is focused on becoming a bigger presence in the third-party channel, according to ME Bank’s national manager brokers, Stewart Saunders. One point made by Mr Saunders and his counterparts at some of the other mutuals is that it would be wrong to assume their small market share is the result of being ‘rejected’ by brokers and their clients. Rather, they are practicing human nature by sticking to what they know.

“I don’t really hear objections as to why brokers don’t use mutuals,” he says. “What we see more of is the challenge for mutuals to get into the consideration of brokers. Customers may have a negative association with banking with larger institutions, and this is where brokers need to take into account those intangible aspects. Rather than just looking at products, rates and features, they should look at how their customers want to be treated by their bank.”

Therein lies the challenge. Mr Saunders says what mutuals need to do is keep reminding brokers of everything they offer, from great prices and stable BDM networks to customer service and community values. ME Bank and the other mutuals are convinced they have a very attractive all-round package. They’re confident that it won’t be long before most loan writers share their view.