Recently banks have been increasing the rates they charge clients and stating that they will (for the near future) concentrate on their existing clients in order to generate income for their shareholders. They have also (in tranches) cut brokers commissions, many opting to for a punishing 50% reduction (not so nice when you are on the receiving end may I add!). So now banks will make a higher margin on the money they lend, and juice the deal even more because now they don’t have to pay brokers as much, and brokers place over half of the residential homeloans in Ireland.
Some lenders have gone so far as to leave the mortgage intermediary market. The papers are touting that ‘Brokerage is an endangered species’, that we will face the same fate as travel agents. I would say that this couldn’t be farther from the truth and in today’s post we will look at the proposition of the direct model versus brokerage and why brokers will not only thrive but they will also increase market share whilst doing so.
Brokers for a start are (in my opinion) much more proficient at dealing with clients when it comes to mortgages than banks and bank managers are themselves. Why? Because any bank manager has to balance about forty other things simultaneously, such as current account problems with Mrs. Mulligan or a cheque that went missing belonging to Joe Bloggs, a good mortgage broker on the other hand spends all day every day focused on mortgages, in the same way that a cardiologist is specialist in hearts. I was looking for my bank manager today, and he won’t be in the office again until Thursday.
In an article in the Herald on the 28th of April Dan White said [quote] ‘maybe instead of going to a mortgage broker Nell (the person who wrote to him) should go online and check what’s on offer from various lenders and make her own choice’ to think that the internet will replace human interaction and professional advice is laughable and only indicates the lack of understanding that proponents of this thinking have.
If Nell needs legal advice should she simply look up www.irishstatutebook.ie? This site lists literally every law in existence in Ireland, by Dan’s reasoning we should perhaps get rid of Solicitors too? And if you need some medical advice why not use the Dan Solution? Simply go online to a medical siteand find out whats wrong there? If it so happens that you require surgery a quick trip to Lidl will get you a cheap electric drill and a few cans to numb the pain.
The fortunate thing for Dan White full of …. sorry, I lost my train of thought, full of ‘Advice’, is that he is NOT regulated by the Financial Regulator, because if he was industry would shred him, for that reason I am grateful that all he has is a sideline view of the game. Lets look at some of the ‘facts’ he missed out on… [quote] ‘Only AIB has resisted the temptation to cut its broker commissions’ when an article in the Indo on the 24th – by Joe Brennan (and published a full four days before his article went to press) blared out that ‘AIB slash broker commissions’.
It’s that kind of attention to detail or lack of it that makes any professional look like a hack, I’m glad he’s not in brokerage. Then there are the quality reporters such as Charlie Weston (who is actually a reputable and factual commentator), he mentioned in an article about the need to rid the industry of ‘Cowboys‘ (and he’s totally right) as well as pointing out that there is in fact a risk of brokers serving their own interest (again he’s on the ball and accurate). Dates, figures, and stories all accurate, he is actually holding tenet of responsible journalism above the need to get a story.
In another sentence Dan said that ‘a number of banks have stopped dealing with brokers’, namely Ulsterbank (I shed a reverse tear when I heard that!) and NIB…. A question for Dan… ‘When did NIB ever deal with brokers?’ aw heck, I’ll answer that for you. NEVER! And in all of this there is an overtone of anti-broker sentiment.
Some people are tuned in enough to do their own research, and they are into it, the same way as some people like doing DIY rather than getting a carpenter in. Does that mean that carpentry is a dead trade? Or that those who are carpenters will not be able to charge for their work, only for materials? For people in this category it’s a case that they were never going to be broker clients to begin with, the are clearly from the other 45% of people who don’t use brokers (55% do use brokers, in fact if the number and value of loans placed was done as an election there would be a broker in the finance office.). Dan writes a column on finance, he of all people should be clued in, so I actually would hope that he doesn’t need a broker! But does that mean his readers don’t? Broker clients almost exclusively come from two backgrounds.
The first are people who are not very financially literate, there is a fundamental flaw in our education system that creates students who know theorems for trigonometry but not how to budget their incomes – but that’s a seperate gripe. And they need the personal touch and expertise of a broker in order to decipher the market, they know that they don’t want to deal directly with a lender as Banks are only required to advise on their own products. For these people brokerage is a safety mechanism.
The second group are time poor or they simply value the service, it is known in lending that the in general larger loans are generally sourced by brokers than by direct channels, is this because the crowd who have the money to afford these large loans know something the small loan folks don’t? Perhaps, but in any case it’s still a fact, and that’s not disputable. Are these people willing to pay a fee if we decided to levy one? For the most part yes, they would be willing to pay for our service, and if you don’t ever want to pay a broker or think you can do a better job yourself then you rightly belong in the other 45% bracket.
Sometimes the press is less than loving in their opinion of brokers, and as a broker I don’t have a problem with that as long as they are accurate about the issues, I would urge people to read the article (link is embedded in the page) about brokers ‘serving their own interests’, and in fact we published a story on this blog only days about about key questions to ask a broker so that you don’t end up with one of the small minority who may potentially put their own interests before the clients.
However, if we (brokers) were anything less than excellent then brokers market share would decrease in size right? That much is down to simple economics, and a lot more objective than some of the views I see written. However, brokerage has grown year on year every year in the last decade! So to believe in our demise means you must therefore have reason to believe that banks will come out with a better proposition. Here is a simple experiment, call us and then call an 1890-BankName number, and see what your initial impression is.
Brokerages tend to be a service microcosm, when you call it’s not through to a call centre, it’s through to a person whom you have likely met, a person who you trust, and a person who likely doesn’t see the role they perform as a minimum wage McJob. We might earn more than the folks in call centres around the country but we are also likely more experienced and likely to have several qualifications in the area that we advise in, dealing with a good broker is like dealing with a master tradesman, of course, if you only need an apprentice for the job at hand then call the guy doing his 4 month stint in a McJob before he goes travelling.
We (brokers) live, work, and spread economic benefit to the communities we live in, brokerage doesn’t jump ship when Ireland is no longer a ‘tax haven’ the way some international companies have done in the past. We stay, and we are part of enterprise, SME is actually the largest employer in the country and we are a link in that chain.
There is also mention of the ‘Threat’ to introduce fees? Please remember, we are brokers, not soldiers, we don’t ‘threaten’ anything, and why was the mention of banks increasing rates and cutting the broker not shown for what it really is? A dash for cash at any price, he failed to point out that in all of this its not a case that the end client gets a better deal! In fact Joe Public will now pay more, yet he doesn’t begrudge the banks a profit throughout the story? That’s kind of odd I think?
Fact: The only winner in this whole debacle is in fact the Banks.
Brokerage employs tens of thousands of people, there are real lives at stake, and yet with zero warning our livelihood gets cut in half, the once level playing field is now skewed in every direction and while getting a 50% chop, the potential move to fees is a ‘threat’? It’s a move towards survival and more importantly towards transparency, and it is wrong to view that in a negative light.
Dan claims brokers will manipulate clients to their own end by charging fees and commissions, please provide examples! Certainly in our own firm we are currently thinking of embracing a model that is considered on a worldwide scale to be the most transparent, but of course, that doesn’t sell papers (on the other hand, if a broker said the wanted a 2% fee and whatever maximum commission they could get it would make the front page). I would equally claim that he manipulates stories to his own end! Do brokers have a vested interest in commissions? I guess we do, but no more than he has a vested interest in stories that sell papers.
There are grey areas in everything but in order for simplicity lets use a black and white example, you are either ‘pro’ or ‘anti’ broker. If you are anti-broker then by default you must be pro-direct sales, which means you must therefore be fundamentally against the competition that brokers brought into the market, you must not like tracker mortgages (also introduced to Ireland via brokers), and you certainly must disagree with independent advice. If you tick all of those boxes then please never call us! In fact, ring a random number before even thinking about calling us.
Brokers brought competition into the market, and we even helped the people that never did business with us! Find that hard to believe? Well, if you are one of the 45% who didn’t use a broker I’m not looking for thanks, but all of those ‘Direct Deals’ in the market, where did they come from? They were there due to brokers, and as a method to combat market share being created via brokerage.
NIB’s tracker? where did that come from? Even though it was the best it was still brokers that brought ‘Trackers Mortgages’ to Ireland initially! If NIB had all this incredible foresight then why didn’t they introduce trackers independent of brokerage ten years ago? Because back then it was a cosy situation with high margins and there was no incentive to change, Bank of Scotland Ireland enter and presto, the market was shaken up and competition was the result.
Advising people to ‘take a look at the internet’ instead of seeking professional advice is simply retarded, I’m disappointed to see that in print, even in a publication as luminary in scope, breadth and insight as the Evening Herald. My next blog will be about the solicitors letter or threat of same that I expect to receive for having the audacity to have my own opinion on this because I am going to email this to Dan himself.