Banks Strive To Be More Advice Driven

mortgage-adviceThis came from yesterday’s Financial Post:

(BMO) doesn’t want to just market mortgages to customers. It wants to advise them.

“Advice and guidance is core to our brand promise.”

The quote is from BMO executive, Frank Techar.

Don’t be surprised if you see more “advice-oriented” marketing from the big banks in coming quarters.  BMO, RBC, Manulife and other non-broker lenders will use the “advice” angle as a key selling point.

Advice is a major differentiator for mortgage planners, who generally:

  • Are independent
  • Specialize solely in mortgages
  • Employ analytical tools and research when making mortgage recommendations
  • Compare mortgages from dozens of lenders, as opposed to selling their employer’s (i.e., bank’s) one line of products.

Banks realize that this is an advantage of mortgage planners and they would love to align themselves in this respect.

As a result, banks will likely be stepping up their investments in advice-centric marketing, resource-based mortgage websites, mortgage advisory technology, and additional sales force training.

The reality, however, is that while banks’ internal sales forces may be competent, the bank business model makes it near impossible for them to be objective.

Dropping by a bank for a mortgage is not unlike walking into a Buick dealership. The salespeople may have quality cars to sell, but they’ll never tell you that a more suitable car exists at the [insert your favourite car company] dealership down the road.

By contrast, mortgage planners know the pros and cons of numerous mortgage products—even products from competitors. Admittedly, most planners don’t deal with every lender, but they nonetheless provide many more mortgage options to clients than a bank branch can. And, unless banks radically change their business models, that will always be an advantage exclusive to the broker channel.

In the next few years, it will be essential for brokers to capitalize on this advantage to boost broker market share. We, as planners, owe it to each other to represent our industry well. The best ways we can do that is by enhancing our trusted advisor role and operating with the highest standards of professionalism. That means, for example:

  • Thoroughly analyzing a client’s present and future cash flow, financial goals, and risk factors before making a recommendation. (Brokers who think they can survive as “order takers” [without adding tangible value] should probably find other work.)
  • Keeping up-to-the-minute on rates, mortgage research, products, and lender guidelines
  • Performing detailed amortization comparisons to show clients which term is best for them
  • Not making generalized statements like “This is the best mortgage there is” or “this is the best rate in the market” without actually having compared all lenders.
  • “Letting a deal go,” on occasion, when you know a client can be better served by a lender you don’t deal with.

Our industry, through the efforts of our trade groups, regulators, and brokerage executives, has strived hard to instil the importance of quality advice. As mortgage planners, we must continue to elevate our trusted advisor status so we’re ready for when the banks start positioning themselves in a similar fashion.

  1. Well said, I couldn’t agree more. Thanks for this post.
    Jim – Banks do not have Mortgage Agents, they have employees of the banks that are regulated by the Bank Act. Mortgage Brokers and Agents are rgulated by FSCO and the MBLAA Act. Huge difference. Also Bank employees have targets to reach for their own products, they are not giving unbiased opinions to clients for competitor products. A Mortgage Broker is the way to go. BMO stopped dealing with the Broker channel in 2007 and their mortgage market share has dropped by 9.2% while every other bank dealing with Brokers has increased.

  2. Personal banking representatives, aka the banks sales force cannot possibly fullfill a role that many of them are not trained in. Many PBR’s don’t even own a mortgage or significant assets. Would you take driving lessons from a person who does not own a driving license or your dog to a vet who does not own any pets?
    At best, the banks sales force know how to sell the bank’s products. As for investment advice, only a fool would solely trust a banking representative with their money.

  3. It’s nice to talk about providing good advice, but the proof is in the pudding.
    I like that we are heightening customer awareness around this issue because quality advice SHOULD be the deciding factor in who wins the customer’s business.
    Over time, the cream will always rise!

  4. As a former Financial Advisor at TD I could not agree more that the level of knowledge of the sales people is extreemly low!
    Financial Advisors went to wal-mart style training sessions quartely. They focus on the “flavour of the day” and we were told how to sell THE ONE BEST PRODUCT.(The one that EVERY customer needs. We were told a bunch of ONE-LINERS to use to overcome objections) I honestly believe that many of my former colleagues believe that they are knowledgeable. It was an absolute JOKE! There is NO employee loyalty. I was a bank teller then four months later I was giving mortgage advice. Looking back only SUCKERS took the advice. The branch gets the EASY customers that have NO CLUE what good rates are. I was often able to negotiate a free bank account for someone instead of a better mortgage rate! Customers actually TOOK the posted rate.
    If you go to a branch for a mortgage ask how GDS and TDS are calculated, and what is included in each. They will have no idea. The branch staff simply enters information into a form with very little knowledge of what is happening behind the screens.
    I am sure there are good personal bankers out there (I was NOT one of them), but generally there is a lack of knowledge.

  5. Rob,
    I think the big thing is missing here is cash flow. For example, which is better no mortgage and no cash, or a balance left (mortgage) and money that is growing tax free that is equal (or nearly)to the mortgage balance? If one gets sick or losses a job, which is a better postion?
    Another example:
    Life insurance on the mortgage bought through the bank or owning your own policy? How about more coverage for less money? How about getting all your premiums back if you want.
    Since this takes time to develop a plan using cash flow from a mortgage which may include consolidate debts, showing people how to pay less taxes and have more money in retirement, I think the edge goes to the brokers who do this, or works with someone who can do this.
    Since rates are the talking points and the general public does not know what can be done with a mortgage (cashflow, risk management,taxes,etc.)this is a tough battle for everyone in that game. The sad part is many brokers and advisors generally do their own thing. If banks get better over time, (which they will) we have only ourselves to blame.

  6. Who are they kidding? Bank employees are not trained as independent brokers. They are representing the interests of their employer. Their interests are aligned with the party that provides their pay cheque. How can they make claims that they are acting in a fiduciary manner when the conflict of interest is so obvious?
    In Ontario, mortgage brokers and agents are governed by the MBLAA whereas bank employees are governed by the Bank Act, which is far less comprehensive when it comes to regulating mortgage activities and transactions.
    Assume that a client wants to launch a complaint against a bank employee for misleading them on their mortgage terms. Who would the client go to? The bank’s ombudsman? The CBA? In contrast, all mortgage brokers and agents are required to answer to FSCO and risk serious consequences in cases of fraud and misrepresentations including the potential loss of license and a significant fine for both the brokerage and the agent. What does a bank employee lose exactly? At best a promotion, at worst their job.
    Another key issue that separates brokers from bankers is the experience of dealing with more complex and unconventional transactions. What do bank employees know about private financing, arranging mortgages for individuals with credit problems, stated income qualification, specialized financing for construction, etc.? Indeed, they can lure people by offering the rates that top brokerages provide to just about anyone and then convince the client about how valuable they are to the bank and the great deal they’re getting. Oh please!

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