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Coast Capital’s New Pricing Strategy

A core selling proposition of mortgage brokers is choice. The more lenders that a broker works with, the greater their ability to source a mortgage tailored to the client.

But some lenders (e.g., CIBC, BMO, ING, HSBC, Macquarie) have left the broker channel, reducing choices for broker customers. Those exits have typically been blamed on insufficient profitability, and one reason for that is inadequate cross selling.

In other words, mortgage brokers don’t push a lender’s other products as well as a lender rep would. And that is exactly why Vancouver-based Coast Capital’s new broker model is intriguing.

A few weeks back, Coast Capital, the country’s third-largest credit union, started offering its best rates only if a broker customer takes four of its other products. It’s a type of “relationship pricing,” something that’s long been practised at banks and credit unions in one form or another.

In the broker market, however, it’s quite unusual.

Lest anyone think this is tied selling, it’s not. Choosing fewer products does not affect your approval, Coast says, only the mortgage rate you receive.

Asking mortgage brokers to offer other products is great for the credit union…if it works. If it doesn’t, the risk is that it slows client acquisition and costs hundreds of millions in lost mortgage production. That outcome would be unfortunate for Coast, which has solid products (it was our Mortgage of the Year winner in 2011) and a top-notch broker team.

The problem is this: Given the extra sales effort that Coast expects from brokers, the carrot at the end of the stick isn’t that big. The reward for a 5-year fixed borrower who gets four other products is a rate of 2.99%. That’s the 6th-best retail lending rate in B.C., so not exactly terrible. But it’s also 25+ basis points more than the lowest full-featured rate a borrower can get online, and 10 bps more than the lowest widely available broker rate. Some brokers will refuse to pitch other products just to get an average rate.

That said, Ian Thomas, Coast Capital’s VP Retail Services, notes that clients are sent to a branch for non-mortgage products. Coast reps do most of the heavy lifting in signing them up, not the broker.

“Generally as long as the client commits to the (other) products before closing” they can get the respective discounted rate, says Thomas. And some clients will already be Coast customers, so existing products will count in their favour.

He adds that Coast’s retail reps generally sell three or more financial services to new mortgage customers. Those can include HELOCs, VISA cards, unsecured credit lines, free chequing accounts, savings accounts, GICs, RRSPs, TFSAs, non-registered investments, and creditor life insurance.

The Gist of It

If this type of strategy keeps lenders like Coast in the broker game, it’s more positive than negative. But the incentive for brokers to cross-sell has to be more than slightly better-than-average rates.

The good news is that this strategy now equates Coast’s retail and broker pricing, says Thomas. “We wanted to ensure we have a consistent offer through both of our channels (branch and broker) to maintain channel neutrality.” That’s important, because there’s almost nothing more aggravating to brokers than when a lender gives better pricing to its retail reps.

Will Coast make this a permanent change?

“We’ll definitely be monitoring the volume,” Thomas says. He stresses that the program is just a pilot at this point.

Rob McLister, CMT