The future of variable rate pricing; value versus rate; and competing to win.
These are topics that Merix Financial CEO Boris Bozic hit on in an informative webinar hosted Thursday by 180 Degrees Coaching’s Greg Williamson.
Boris’s position as head of a major non-bank lender keeps his finger on the pulse of broker performance, lender practices, capital markets and rate trends. He shared several candid perspectives and these were some of the important quotes and takeaways (our comments in italics):
Mortgage Rates
- “We’re going to be in an environment very shortly where we’ll be prime-plus on variable-rate mortgages,” Bozic said.
- “This is the new normal for the foreseeable future.”
- “The days of [prime – 0.60% or better] are behind us.”
- Increased regulation, including IFRS (which officially takes effect at banks next month), is raising mortgage capital costs.
- That added cost is being “placed on consumers.”
- “I highly doubt that we’ll go back to [pre-crisis] mortgage discounts,” he said.
Mortgage Funding
- Non-bank lenders rely on banks for much of their funding. Fortunately, “there will always be a supply chain” to fund non-bank lenders, he said, because banks “want to get their money out” and earn a return.
- Banks have greater capital resources and don’t have to be as choosy with their customers as a monoline lender like Merix Financial (which relies on securitization and Canada Mortgage Bonds and has a “finite limit” of such funds).
- “The name of the game going forward is customer retention and (franchisable) customers” (i.e. customers who can be can be cross-sold a range of non-mortgage products)
- “In the next 12 months, all the banks will invest even more in their proprietary sales forces.”
Value Versus Price
- In today’s mortgage market, “We’ve replaced the word ‘competitive’ with ‘cheapest’.”
- Many brokers associate themselves with brands like Prada, Mercedes and Porsche, but “market themselves like Walmart.”
- “Interest rates matter a great deal. There’s no doubt about it…(But) eventually, someone can always be cheaper than you are.”
- Lenders have been forced to create “quick close” programs “because we’re constantly told we need more competitive rates.” Reducing rate hold periods to 30 days lowers costs 5-10 basis points, Bozic added.
Changing Our Paradigms
- Going forward, “It’s all about the customer experience…You need to re-engineer. You need to come up with a different experience for your customer.”
- People pay $5 for a Starbucks coffee largely for the experience.
- “Spend all of your time thinking, How can I be different?”
(Greg Williamson added, “The primary thing people are shopping for is value and information.” He said brokers have an edge over banks in that respect.) - In a comment he admitted was controversial, Bozic said: “One of the things that has to change is our mindset….We have to move away from being consumer advocates to being business people.”
(That was admittedly somewhat surprising but we know what he means. Ideally, brokers can continue as both consumer advocates and successful businesspeople.) - “We’re in the business of mortgages.” We’re not in the business of giving “free advice,” said Bozic
(Apart from initial consultations, that’s true. Investment advisors, accountants, and other financial practitioners perform valuable services and incur expenses. They obviously can’t afford to misuse time and work for free, and neither can mortgage planners.)
Consumer Awareness
- The mortgage broker industry could benefit from a greater investment in consumer awareness.
- “If every broker was to contribute 1 bps (from every closed deal) that would equate to $5.5 to $6 million a year,” which could be leveraged in a national broker ad campaign.
- Consumer awareness campaigns have been pivotal in other sectors, such as the insurance industry.
- If we don’t do something like that….“we should be content that our market share will remain around 20-25%.”
Source: The quotes above appeared in a seminar produced by 180 Degrees Coaching. For more information see: www.doa180.ca
Rob McLister, CMT
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Last modified: April 28, 2014
Great summary of the Webinar Rob.
Both Greg and Boris are beacons of hope and clarity in our industry. The slippery slope is ahead of us and we need to think about throwing down some dirt now before it becomes too much to fight against. Bank’s will definitely increase their salesforce but I firmly believe it won’t match the knowledge, value, and experience that we in the Broker world can provide.
Thanks Rob. Banks are investing a lot in training and they’re taking pages from brokers’ playbooks, particularly when it comes to mortgage planning. One of the things they can’t match is the choice brokers provide. Bank reps have little incentive to make homeowners aware of competing products that are superior. That means something because a single lender never has the right mortgage for everyone.
“We’re in the business of mortgages.” We’re not in the business of giving “free advice,” said Bozic ”
Couldn’t agree more although this requires a delicate balancing act for newcomers to the business. I think that brokers, just like financial planners, need to focus on clients that appreciate the value in what they offer and there’s a compatibility of ideas. It’s a fact that brokers (and financial planners, accountants, even Realtors) who specialize in a specific niche almost never have problems with clients running to their banks with a commitment to get the same deal.
After a brief consultation, if all that matters is the rate I’ll just tell them to go elsewhere because I know that the closing ratio on clients who are obsessive compulsive with finding the LOWEST rate no matters what is insanely low. I learned this lesson the hard way when I first started in the business and there’s no better learning experience than real-life experiences.
In fact, our business can learn a lot from financial planners, especially fee-only planners.
I like the idea of getting more information out to the consumer to raise our credability. A national TV campaign for mortgage brokers.
Boris’s comment about the client experience is the answer to our channel’s long term success and marketing/awareness aspirations. To be most effective, brokers and monoline lenders need to get serious about this and work together to develop and deliver that experience..Lets be creative and innovative with a serious client centric re-engineering of process and products/policy. That will truly be our differentiator in the market..not rate.. Professional and trusted exceptional service and advice is a tablestake. Lets develop and deliver a truly differentiating experience for our clients.The marketing/awareness and success will come..
Carlo
re: “the closing ratio on clients who are obsessive compulsive with finding the LOWEST rate no matters what is insanely low.”
That is completely true. I forsee it someday leading to customers being charged an application fee to discourage and offset cancellations. I think RBC is already doing that to some extent.
The Canadian market is unique in itself in that respect. In England, for example, there’s no such thing as a no-fee mortgage even if you have immaculate credit. Borrowers are required to pay a fee ranging from 750 to 1,000 pound sterling (about $1,500 CDN) when they receive a mortgage commitment. There is a cost to originate and underwrite a mortgage, whether it’s through a broker or an internal sales force, and I wish the industry, monoline lenders and banks alike, make it clear to consumers and actually start charging fees to discourage the practice of pitting lenders against each other for miniscule pricing differences. I’m sure the banks are as affected by this as independent brokers and at the end of the day it’s money out the window. Considering that the lender is taking the bigger share of the risk, it’s appropriate to have the borrower cover some of the costs involved.