Personal Touch Financial Services in the U.K. is going to put up a ‘Rogues Gallery’ on their website in order to criticise lenders who are directly undercutting the broker market. What is starting to surface in the UK is a price structure that embraces the ‘Direct Model’ rather than the ‘Independent Model’, what this means is that banks would rather have people call directly into their branch or ring them on their 1850-McCallCentre line rather than see a market that is dominated by independent advice. One of the main reasons is that they can juice Joe Public even more.
Recently Ulster Bank withdrew completely so that it can ‘cross-sell customers other high-margin products, like credit cards and overdrafts’ [quote sourced from Independent.ie]. It would be fair comment that if they got the mortgage via a broker they would probably not get the chance cross sell these products, and this is therefore the main reason for any bank to leave the broker market or to try and compete with brokers using such policies as ‘dual pricing’.
The outcome remains to be seen but we might not see every hippo in the pond being quite as fat next year as they were this year.
That’s the reason banks don’t want to see the broker market grow any further than the nearly 60% it now represents, how do you obtain that ‘squeeze’ when only 40% of the people will voluntarily walk through your door? Hence brokers are not really loved by banks, and the recent moves by lenders both in the U.K. and Ireland are reflecting this.
The official response of Brokerage in the U.K. is ‘Many of the activities are absolutely disrespectful to the broker market and breaking agreed protocols. This is not about profit – this is about distribution. This practice has to stop! Brokers only want a fair playing field and parity. In a tough market place, we feel as though brokers are being kicked while they are down’. And as a show of independent thinking the Irish banks have followed suit, I’m pleased to see that originality is dead, it simply guarantees that entrepreneurs will survive.
Last week Bank of Ireland pulled the same stunt, they now have one set of prices for those that come in via brokers and another for people who come in directly, this is on top of a 50% reduction in commissions! The tough thing for brokers is that to get back to the old position we will need to see a 100% increase because if you bring 100% to 50% its a 50% reduction, but a 50% increase will only bring you back up to 75%.
The main point here though, is they cut brokers commissions in half and on top of that they want to drive brokers further out into the cold by giving people better rates if they don’t use a broker? That is just a punishment for choosing independence! It’s about the worst consumer decision going and one the will earn them a list in any rogues gallery under the moniker ‘we hurt people who opt for independence’. The loser on this particular point will be the Bank of Ireland PR machine, sadly I don’t believe this was even thought out….. I’m sure that shareholders will question the thinking on this one.
So you cut a person in half, and while they are rolling around on the ground trying to hold their guts in you start to kick them in the face, that’s the equivalent of what’s going on in the intermediary market, and I will verify this with any CEO of any bank live on the air. This is opportunism at its worst.
Banks in the U.K. are arguing that ‘market conditions’ are forcing them to put higher interest rates on broker loans, but do they have to pay for a brokers office space, distribution, pension, employees etc? No, because in truth brokerage is a low cost distribution model, in fact Bank of Scotland got 15% market share by dealing solely through brokers.
A Halifax spokesman says: “Halifax remains committed to the broker channel and believes that the vast majority of consumers prefer the choice, advice and service of a broker.” Exactly the reason why they should offer competitive deals through brokers one would think?
Many people don’t know that if a loan is changed in a certain amount of time (up to 5 years!) then the broker is ‘clawed back’ this means that the bank takes back the money they gave the broker in the first place! They can’t take back wages from direct staff though. So if we look truly at the market it will tell you that broker loans don’t have built in costs the way that direct loans do because you only pay out for a loan that is issued. However now that its hammer-time banks are not content with only a mortgage, they want that Cherry, they are purely focused on getting a client for all they can and retaining them.
Direct clients tend to do all of their business through one bank, and the banks love that, why wouldn’t they! Broker clients often have a mortgage with one provider, their insurance with another, and other bits of business spread about based on prices and service.
Here’s a few things to ponder, firstly, why is the brokerage channel always growing? Is it because we offer choice, independence, and flexibility?
Why is the Bankers ‘Direct’ model failing? Are they not meeting their clients needs? Do people think a Bank doesn’t have their interest at heart?
We don’t know for sure, but what we do know is that banks are making a concerted effort to ensure that brokers are a dying breed, the sad thing is that if they manage to successfully rid the market of brokers then there will likely be a ‘miraculous dissapearance’ of competition as we have seen in so many other markets where competition is non-existent.