White label lending

White label products have the dual benefit of providing mortgage brokers with a viable and credible alternative, while also giving consumers more choice and flexibility. They are a great way to boost competition and, most importantly, ensure consumers are able to find the right product to meet their specific needs. 

The Adviser’s annual White Label Report provides practical and educational guidance around how brokers can strengthen their relationships with clients and add value to their businesses through white label solutions.

Brett Halliwell
General manager,
Advantedge Distribution

As Australian lenders continue their recovery after the tumultuous times of the global financial crisis and consumers regain confidence in the national banking system, competition is heating up in the mortgage market.

Lenders are competing for business like never before and this is great news for brokers. As competition increases in the home loan market, so does the broker value proposition. Competition amongst lenders creates more viable choices for consumers, and more options mean more value in the broker service.

In this highly competitive market, white label lending has become more prominent as an additional option brokers can present and one that suits many of their clients. White label products are usually basic and cheap – just what many consumers want. 

While in the past some borrowers have been cautious of obtaining funding from an unrecognised name, this now appears to be changing. The rise in prominence of the non-major banks and non-bank lenders is an example of this trend. Previously, borrowers have flocked to the perceived safety of the big four, but the majors can’t rely on their size to win all the business anymore.

According to AFG, the percentage of total mortgages written through the third-party channel by the major banks dropped by 3.4 per cent in the 12 months to February 2014. This change in Australian borrowers’ perception has set the scene for white label lending’s rise to prominence. 

Brett Halliwell, general manager distribution at leading wholesale lender Advantedge, says the recent growth of their white label offering has been phenomenal, increasing by just under 50 per cent in the last year.

“There has certainly been a coming of age in the last 12 months. As a category it was really only established a few years ago and came to prominence with brokers who understood it, but is now an absolute major force within the third-party market,” he says.

“Our white label lending now regularly features on our lender panel at number three or four … we are very much a major lender in our own right,” he adds.

As borrowers gain the confidence to look outside of the big four lenders, brokers have been tasked with identifying alternative solutions that suit their clients’ needs – something Mr Halliwell says has driven many brokers towards white label products.

“We have become a mainstream credible option that brokers are really understanding,” he says.

“They are becoming very comfortable in selling it, they understand the benefits to their customers and as a result of that we are really becoming a lender of choice.”

Simple, cheap and effective

White label offerings tend to lack all the extras of some other products on the market, and for some clients that is actually a good thing.

Competition in the mortgage market continues to drive innovation in products. A greater number of lenders are offering more when it comes to a mortgage. From offset accounts to credit cards, some mortgages now come with the lot; but not everyone wants that.

Stephen Moore, chief executive officer of Choice Home Loans, says many borrowers just want the basics.

“There is often a perception of bells and whistles being really important, yet we know a majority of clients just want a simple loan that is written on the label, no hassles, easy to apply for, low costs and has support there when you need it,” says Mr Moore.

“What I know is that most customers want a simple process and most customers have a product need that’s pretty simple as well,” he adds.

Mr Halliwell says most white label products, including Advantedge’s white label offerings, are designed to suit the more basic needs of these clients.

“We made a very conscious decision that we didn’t want to be all things to all people. Our positioning is very much around the simple end of the market that will meet a vast majority of customer needs,” he says.

“We deliberately don’t play in some of the more niche areas … we think other lenders are better able to support those niches.”

According to Mr Halliwell, staying away from these niche market segments is actually one of the reasons white label products can be so competitively priced. 

“With our simple positioning we have actually attracted extremely high quality lending … we don’t play in the fringes of the lending environment – the quality of the Advantedge book is probably amongst the best in the industry in terms of low LVR lending and other credit qualities that give us a very strong arrears performance,” he says.

“What that means is our loans have lower capital consumption, which gives us good returns, and because of that we can pass on the benefits to our customer base as having lower rates.”

In addition, Mr Halliwell points out that the lack of branch network also saves on large overhead costs many lenders have to factor into their pricing.

“We don’t have to support a branch network and a lot of the other infrastructure that major lenders have,” he says, “so we derive cost savings and again pass them onto our customers.”

Simple solutions, solid benefits

White label solutions may be basic products, but they provide very solid benefits for brokers.

The success of the white label space is a win for the entire third-party channel. The broker value proposition is based on competition in the mortgage market, and white label products certainly add to that. 

“More choices for brokers to meet their customers’ needs is a really good thing,” says PLAN Australia chief executive Phil Quin-Conroy. 

Customers choose to engage a broker based on their knowledge of all the loan products on offer.  For brokers, it is important to demonstrate this knowledge by talking about a wide variety of products, not just those on offer by the well-known banks. Providing a solution that is well priced, meets the customer’s needs and that is not available through any other channels can be very effective in demonstrating value.

Stephen Moore of Choice Home Loans says clients see a white label solution as the brokers owning something they could not have got anywhere else – and as such, it is great for customer relationships.

The fact white label products are only available through the broker channel, with no branch networks to compete with, also eliminates channel conflict and gives the broker an opportunity to position themselves as the face of the mortgage solution.

“Good brokers provide ongoing support for their clients, so it’s not just about establishing a loan. This is where the beauty of white label lending comes,” says Mr Moore. “It really does reinforce the relationship with the client.

“The beauty of white label lending is in the fact you can only get the product through the broker; it’s the broker’s own product. Certainly from our experience and feedback from brokers, that is one of the real benefits; it really cements the relationship between the broker and the client.”

Commission

After the drastic cuts in commissions following the GFC, brokers are finally beginning to see some movement in the right direction with regards to remuneration, and while brokers don’t write loans based on the commissions alone, reward for hard work is important.

In this respect white label products are leading the way because these products typically have great commission structures. Mr Quin-Conroy says PLAN’s white label offering has been specifically structured to help out brokers.

“One of the areas we are big on is cash flow for brokers, so PLAN has come out with a strong commission offering where we as the aggregator pay weekly, so that upfront commission component is delivered to a broker in a really timely manner to support a broker’s cash flow,” he says.

“It also pays trail in year one, so it’s a competitive offering that I think is good for the economics of broker businesses.

“They are well rewarded for the quality service they provide to their customers so they can continue to service customers into the future,” adds Mr Quin-Conroy.

Brendan Wright, CEO of FAST, says aggregators are in a position to offer great commissions on white label products because they profit from the lend in other ways and don’t need to “clip” commissions as they may for other branded products.

“Using language from the industry, there is no clip of the upfront; the broker gets all of that should the client decide to use that product,” he says.

Selling made simple

Some brokers may still be a little apprehensive about pitching a white label product, but as The Adviser discovers, selling these products is really quite simple.

Gone are the days where borrowers had to have a home loan from one of the major banks, just as gone are the days where every homeowner wants a local branch to walk into. 

Even just a few years ago selling a white label loan could have been a difficult proposition, but now it’s safe to say many customers just want a simple product at a good price.

In this age of readily available information, where borrowers can quite easily scour the internet and compare rates for themselves, brokers need to prove their value when sat in front of clients – and this is the perfect time to talk about white label products.

As white label products are only available through the third-party channel they are a product every broker should at least be discussing. Of course, not every client is suited to a white label loan, but given their simplistic nature they will suit many clients’ needs.

The pitch itself for a white label product should be as easy as any other offering. After explaining how the loan meets the client’s needs, it is simply an issue of explaining the white label concept; where the funds are coming from and who provides post-settlement support.

According to Mr Halliwell, there are three steps to selling a white label product:

1. Explain the product meets the needs of that particular consumer
2. Explain how white labelling works and who the funder is behind the product
3. Reassure the client there is going to be ongoing post-settlement support

Paul Lambess, director of CVG Finance, who regularly offers PLAN Australia’s white label products, says that while the sales pitch may be a little different, it’s no more difficult than any other loan. 

“What I find is that because they are coming to me as a broker they are not particularly worried about a brand per se. We become the branding for that loan,” he says.

“They have come to me as a broker, as their trusted professional adviser, and they are happy with my recommendation.”

According to Mr Lambess, white label products allow him to position himself as the first stop for all of the client’s finance needs – something he says can be hugely beneficial to a broker’s business.

“They see us as their banking contact, their relationship manager or banker if you like, and that’s the value-add of the white label product … it enhances your brand and your broker offering because they’re coming back to you as a broker,” he says.

By positioning himself as the first point of contact Mr Lambess says he develops very strong client relationships, which lead to repeat business as well as solid client referrals.

“We have noticed a much higher percentage of clients coming back to us for changes or tweaks to their loans compared to major bank customers because even though they may not need to come back to us at all, they are thinking of us with white label, not so much the bank they are with,” he says.

Michael Hughes, a mortgage broker from Platinum Financial Solutions has had great success offering white label products, saying there is no longer any real difference between them and a branded product. Mr Hughes writes Advantedge white label products through ChoiceLend.

“Once brokers realise it’s a market-leading product, they realise it’s an easy product to sell,” he says.

“A lot of brokers have a misconception about white label products; as far as I’m concerned, products like ChoiceLend’s white label offering don’t even need to be referred to as a white label product anymore ... it’s simply a product that only brokers can write, so why wouldn’t you write this product.”

Follow-up support

One of the biggest concerns for consumers when a broker suggests a white label product is the lack of a branch network, which they may perceive to mean a lack of follow-up support.

However, Mr Halliwell says this is a needless concern that brokers can easily dismiss. Despite having no branch network, Advantedge offers all the support borrowers could ever want.

“If you ask most borrowers ‘When was the last time you went into a branch to make a transaction or do something with your home loan?’, the answer is inevitably ‘I don’t ever recall doing it’,” says Mr Halliwell.

“So what we do offer is a telephone-based call centre in Australia, in Melbourne, where customers can contact us directly to be looked after.  We also have web-based services where they can make transactions on their account.”

Mr Wright says that for the FAST Lend white label products, the Advantedge team offers all the support of any other lender, ensuring nobody misses out on post-settlement support.   

“Customers don’t miss out,” he says. “FAST Lend is an award-winning product and that’s based on the services provided through Advantedge and their team of BDMs, and obviously the credit team and the servicing team as well. Like any other lender, they have to stack up in the marketplace.

“If they don’t have the service, brokers will quickly switch to another lender even if it is a white label product provided by their aggregator,” he says.

Broker profile

Amie Tennant, director, Future Finance Group.

How regularly are you writing white label products?

I have around 20 to 25 appointments a week and I would say at least 50 per cent of my business goes to white label products.

The white label space has seen massive growth recently. What do you put that down to?

I think clients are definitely more aware of the fact there is so much competition at the moment with mortgages, so much media speculation on getting the best interest rate, and they’re more inclined to look at a white label product because of that. So if anything, the major banks are doing me a favour because we can pretty much beat them nine out of 10 times.

When did you start regularly writing white label loans?

I started writing white label loans over two years ago. It definitively was a big step for me because I was always a major bank broker. I did used to put a lot of business through Commonwealth Bank, and then all of a sudden ChoiceLend came in and their offering was basically too good to ignore.

How has writing white label products helped you to build better relationships?

I say that I’m here to help you out. I think that as there are no branches out there, the clients are more inclined to contact me if they want to increase their payments, switch their loan, do a top up; they’re going to call me.

What type of borrowers do white label products typically suit?

I think I would only use a white label product for lower LVR clients – anything under 80 per cent definitely. When you start going into mortgage insurance then it’s a little bit different. They have a stricter criteria, so while I write a lot of 95 per cent loans, I wouldn’t put those clients with ChoiceLend.

Is pitching a white label product any different from pitching a branded loan?

Yes it is because nine out of 10 times they haven’t actually heard of it. It does help that NAB funds ChoiceLend, so once you throw that in they feel comfortable with it. However, I basically say at the end of the day the reason they can offer such excellent interest rates is because they don’t want to cater for everybody. They’re going for your type of business – good conduct, good equity in your property and things like that. They don’t have branches, so they don’t have huge overheads with marketing and employees doing the work for them; everything’s online and I just basically say as long as you are computer savvy and you know how to transfer funds and so forth, then it is going to be suitable for you.

What advice would you give to a broker considering breaking into this area?

I would definitely say give it a go. Use a good quality client and test it out. See how that goes, and if you have a good experience just gradually ease your way into it. Before you know it, like me, you will be writing 50 per cent of your business through it. I find that when brokers are scared about using a new product they will always give the client a difficult deal and will then wonder why it didn’t go so well. If you give them a good deal to begin with then you will have a good experience and get to know the systems and processes. Before you know it, it will be second nature to you.