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

  1. Wow, very interesting concept: “not tied selling because the customer is APPROVED, only the rate changes”

    I wonder if other lenders will embrace this idea because it is possibly a game changer: 2.94% if only the mortgage, 2.89% if you take the VISA / PLOC combo, 2.84% if you take the VISA / PLOC and the life insurance. In a world of shrinking margins this could be the answer.

    That being said it will eventually get into the paid media and social media and that could track badly for the FI.

    Still, I see this as a potential answer to compressing margins and possibly the next wave of product differentiation.

  2. Coast Capital has been a very solid lender for us at MortgagesLab, great products and guidelines. This needs to be explained more to brokers, we are not used to selling other products. We do like the choice Coast Capital is introducing in terms of pricing.

  3. What if Coast Capital’s other products are inferior? I’m not saying they are but how would a mortgage broker know unless he/she were a specialist in that type of product? Do we really want to push products we know nothing about to get a rate everyone else has?

  4. I am not a big fan of tied selling,(however you want to call it), just as I dont like the pick a finder fee, pick a rate for your client format. I also am not a fan of my staff selling other products for which they dont have expertise. I also think it should be the lender’s responsibility to sell the customer on becoming a full service client, by their offer of other great products, with terrific service backed personnel. Having said all that, I do think this fight over whose client the mortgage customer belongs to is unhealthy as it leads to brokers seeing lenders as one product providers. We do need to recognize that our long term survival and growth is dependent on us providing good clients to our partners, however that is DEFINED BY OUR lenders. Although I often complain about the branch (pre-closing) interview process required by some of our lenders when they want more from the client than a mortgage, this is the perfect opportunity to ask for and start a bigger relationship with “our” clients. But if their experts are unable to sign up the 4 products desired, then neither I nor the client should suffer on the mortgage rate. I would feel very supportive in saying to my clients ” you will be meeting ( or preferably, someone will be calling you a week after closing) to welcome you to your new “home / financial institution” They are providing you with this great mortgage rate in hopes of EARNING more of your other business. I think this credit union (or..) has other great products that you might want to consider” …….
    But the word is HOPE, not MUST.
    The negative to the branch interview is that some clients dont even want to see me, let alone a second step, “interview / selling opportunity” meeting with the lender, prior to closing, That would be why my preference is to a “free welcome to the branch coffee interview “, after closing. This would be unique and more easily supportable
    Surely we can come up with more creative ways to support our lender partners than using tied selling.

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