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We may be coming off the high of the festive season, but the rapidly evolving mortgage landscape indicates we don’t have the luxury of ‘easing into' the new year.
Emerging hot topics such as digitalisation and remuneration have been simmering for some time and look to take centre stage in 2016, while the prospect of expanding the broker proposition continues to challenge the industry.
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A digital environment
The impact of digital technology on financial services is nothing new. According to research released last year by business management consultancy RFi, Australians are now some of the most digitally engaged consumers in the world. We’ve seen ourselves at ING Direct how digital engagement, particularly via mobile channels, has increased exponentially over the past year, and it’s set to continue at a rapid pace.
What’s crucial to note is that it’s the customers themselves who are driving change – not the financial services industry. Digital has given customers immediate access to knowledge via a range of digital sources, enabling them to make better financial decisions and fuelling their desire for control.
Online tools and calculators which make it easier for people to plan for the future; social media forums which allow consumers to learn from the experiences of their peers; and comparison sites which offer independent reviews – this is the changing face of personal finance management, and it isn’t unique to banking.
There’s no doubt that home buyers value the role of brokers in the home loan process – 50 to 60 per cent of customers still prefer to obtain a mortgage via their broker, so there is an established need. But it’s only a matter of time before customer behaviour will change the way in which they want to interact. Now is the time to consider how to adapt your proposition and evolve your service offering to operate in a digital environment, in a way which adds value to your customers.
The remuneration challenge
Revitalising commission structures in the financial services space has been bandied about for some time in an effort to deliver fair value to customers. We’ve seen efforts to get rid of commissions for financial planners through the introduction of FOFA regulations, and the insurance industry has attempted to self-regulate by implementing structural changes outlined in the Financial Services Council’s Trowbridge Report.
While it’s early days in Australia, change has been in progress in other jurisdictions for a while. In the Netherlands, the regulator moved to reform remuneration to mortgage advisers in January 2013 and a fee-for-service model was introduced.
The challenge for brokers has been to shift their proposition to deliver real value for the customer, not just in terms of giving advice, but also in aligning themselves with the lenders that deliver the most reliable service proposition. From a customer’s perspective, there is greater transparency – while the average fee is 1 per cent of the home loan, with a number of service propositions on offer, customers only pay for what they need. If they want a full service, they pay more, yet if they only require execution, then their fee for service is naturally reduced.
Will this be the natural evolution on our shores? It’s too early to say, but as in the rest of financial services, it’s likely that discussion around remuneration structures will come to the fore soon enough.
What the challenges inherent in digitalisation and remuneration highlight is the importance of listening to your customers, acting in their best interests and thinking ahead to deliver what they need and will value.
So, if you’re still weighing up your new year’s resolutions, it makes sense to consider them in tandem with the changes on the horizon. Grasp the opportunities, look at how you can align your proposition to your customers, and set yourself up for success in 2016.
