A conflict of interest?

Brokers wish it was not an issue – something they didn’t have to contend with. Lenders on the other hand, are often keen to emphasise the strategies and initiatives they have implemented so that the risks of, and incentives for, channel conflict are reduced.

Despite this, many brokers continue to list channel conflict as the primary source of tension with lenders. In a recent straw poll conducted by The Adviser, 82.2 per cent of respondents said channel conflict was still an issue.

Only 17.8 per cent of the 129 respondents said it was no longer of concern.

When pushed on the issue of channel conflict, third party heads will often say brokers and branches can work together and there need not be conflict or concern.

But if brokers still feel threatened – or indeed, are losing clients – then what’s really going on? Is this talk about ‘working together’ in fact just talk?

Conflict or competition?
Channel conflict may exist, but brokers should not be concerned, according to FrontRunner Consulting’s Doug Mathlin.

“Channel conflict should just be another word for competition,” he says. “From a broker’s perspective, channel conflict can mean that the branch is undercutting them on rates and fees – which can be annoying, but doesn’t mean you will definitely lose the client.”

Mr Mathlin says banks may have ‘sharp and shiny offers’ to lure customers, but brokers shouldn’t begrudge them this strategy.

“This is what they’re selling,” he says. “They have a budget; they have a job to do and targets to meet. Bank branches can only sell their own products though, so brokers do have an advantage in this arena.”

Mitchell Blackburn, director of Respond Finance, says the lenders have made significant inroads in the area over recent years, but in some cases, more needs to be done.

“I definitely think there’s still an issue with channel conflict. I think a fair bit still needs to be done from the top down to change the culture,” he says.

Mr Blackburn explains that he can understand branch workers’ predicament – “they have their own KPIs that they’re trying to adhere to or meet” – but points out that some bank branches also suffer from inconsistency.

“The rotation of staff within the banks is quite high, so what might be the ethics of one branch where a staff member has been may not be the ethics of another.”

Another broker, who asked not to be named, says his brokerage has lost clients to branches in the past but the situation has been steadily improving.

“It was years ago that it happened and it’s definitely getting better,” he says. “I think the lenders have really improved their practices. The broker channel and the branches are really working on it as well.”

According to Mr Mathlin, brokers ultimately need both to work with their competition and hone their own skills. That way, should a battle for a borrower commence, the broker will be in a good position to retain the borrower’s business.

“You have to work with your competition and also sharpen your own sword so you can beat them,” he says.

Strong client relationships
A surefire way to reduce the risk of a bank’s poaching your client is to ensure you have strong and honest relationships with your clients.

“Brokers need to make sure they are their clients’ trusted adviser when it comes to debt and any other service they can provide,” says Mr Mathlin.

“Brokers need to sharpen their own skills, be accessible and talk about their industry experience. Clients need to know that their broker is the only person they need to contact.”

Mr Mathlin adds that if brokers have honest conversations with their clients about what branches may offer – and how they fit into the picture – then they are more likely to retain the business.

“You should get to the stage with your clients where if a bank does try to undercut you or take your client, your client will question it. If there is conflict, the client should ring you and say, ‘This is what’s happened. This is what’s been offered to me. What should I do?’”

One broker tells The Adviser that he lost a client a few years ago but doesn’t place full responsibility for what occurred on the lender.

“It was probably also my fault because I didn’t educate the client well enough about what we could offer them,” he says.

“So from the client’s point of view, their loan was with Lender X and it didn’t really matter to them who put the loan through and who they were dealing with. They were just trying to reach their end goal.”

Mr Blackburn has also learned the value of customer service and says it will help reduce the risks associated with channel conflict.

“It’s like anything,” he says. “If you’ve got a good customer service-centric model in your business then customers will want to deal with you. They want to refer back to you and they will trust the advice that you give.”

Working with the branch
In addition to having strong relationships with your clients, you can reduce channel conflict by also having solid relationships with your local branches.

Warren Dworcan, director of Rate Detective Home Loans, has built strong relationships with his local branches and bank staff which has helped to minimise potential problems.

“I have a very good relationship with the banks themselves and if something like this were to take place, I’d like to think I would have the means to go and discuss it with the appropriate person,” Mr Dworcan says.

Mortgage Choice Gymea principal Ben Herden also advocates getting to know bank staff and offering to help out where possible.

“We get to know our local branches and the staff there,” he says. “If we can flick them any business, like a personal loan or a term deposit or something like that, then we will. That way, they know we’re on their side and we’re trying to help out their figures and their business as well.”

If, even after attempting to communicate and connect with your local branches, you haven’t managed to reduce instances of the bank attempting to take your clients, Mr Mathlin says you still shouldn’t worry.

Borrowers aren’t just looking for the cheapest rate, so the bank won’t necessarily ‘win’ the client on that basis, he says.

“It’s not all about price,” Mr Mathlin explains. “Quite a few of the banks have cheaper products online in various forms now anyway and that represents only a small part of the market.

“Most clients want a full-service product. The better brokers don’t tend to suffer as much when it comes to channel conflict or competition because the service proposition they provide is superior.

“Clients buy trust.”

The lenders’ perspective

With so many brokers continuing to cite channel conflict as a concern, several lenders have been keen to stress that brokers and branches can work together.

In March last year, Westpac launched its ‘local squad’ campaign, which it hoped would quash brokers’ perceptions that they are in direct competition with local branches.

Westpac’s general manager, mortgage broker distribution, Tony MacRae says the squad was designed to help brokers form sound relationships with their local Westpac branch managers.

“We wanted our brokers to feel as though the branch is an extension of their operation and therefore they feel comfortable introducing their customers to the branch,” Mr MacRae says.

“We wanted our brokers to feel confident that their customers would enjoy the same quality of service from the branch that they do from them.”

When the initiative was introduced last year, Westpac’s regional retail general manager for greater western Sydney, Rob Ewins, said the lender was keen to change the view that bank managers and brokers are competitors.

“Up until a few years ago, bank managers were rewarded on home loan sales. This created a relationship of distrust between broker and banker.

“Under our new local strategy, bank managers don’t get rewarded on home loan sales. What they get rewarded on is the profitability of their portfolio.

“We are encouraging all bank managers to form relationships with brokers so that they can cross sell other products – not a home loan – to the broker’s client.”

Mr MacRae said the bank had worked “very hard” over the past 12 months to dispel the idea of channel conflict and he believes it has “almost” achieved that.

“We do not want to have a strong branch network and a weak broker network or vice versa,” he says. “We both need to be strong and we need to work together so that we can all win in this market – and there is room for all of us to win in this market.”