Banks and brokers are a fine romance
Increasingly, the links between brokers and banks have been in the media spotlight which has gone a long way towards unpicking the intricacies of the relationship for customers hungry for information.
This comes as new research predicts a broking industry boom, with the sector tipped to grow from $1.5 billion to $1.9 billion among its 5,740 businesses over the next five years.
Long story short, customers now know that most of the big players in the broking industry are at least part-owned by the banks and, naturally, those customers are questioning how much this influences the brokers’ recommendations.
And it is only fair to consider whether the banks can funnel home loan customers into their system via their broker networks, especially as more reports come to light of extra incentives being paid to brokers who achieve the banks’ volume targets.
What makes customers uneasy is the thought that they could be recommended a loan product because the broker is being encouraged by the lender to give their product preferential treatment, rather than because it is the best product for the customer.
There is no question the broking industry is a tidy one to be in, with IbisWorld research finding the sector will grow 5.3 percent after a quiet post-GFC period.
New brokers joining the industry as it grows are tipped to increase competition and customers will continue to look to brokers for help in choosing the right home loan product for them.
There are many reputable brokers whose consistent work over many years has earned them a loyal client base. These brokers do not deserve to have their good names compromised by bank practises that leave customers questioning whether mortgage advice is truly independent.
There is a new breed of customer, an informed consumer, who is happy to do their own research and find the best deal for themselves. These are the customers who will compare all aspects of loan products and take into account the true cost of fees, features, and flexibility as well as interest rates. These are the customers who will secure a home loan they know is the best deal for their own circumstances and can be confident it is a product that has stood out to them on its merit.
So where does this leave brokers and big banks? Interest rates are at record lows and the big banks have chosen not to compete on price, other than with each other. It’s a dynamic environment where smaller lenders are gaining market share and customers are empowering themselves by going outside the traditional bank branch/broker/customer model.
Perhaps brokers may consider going down a fee for service path where they do the shopping around for the best deal and the customer pays them a set fee, rather than the lender paying a commission. That means the broker is never seen to be compromised in a ‘kickback’ situation because it is the customer paying for the broker’s time and expertise, not the lender paying to be recommended.
Watch this space.