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Finding chinks in big banks’ armour

Where do you get your inspiration? Some of us find it in Dragon’s Den, others seek parallels with sporting triumphs. Books, newspapers and even song lyrics provide it for others. As a former teacher I am happy to take inspiration and soak up knowledge from a variety of sources and recently I’ve found it in the big four banks.

I’m a huge fan of big banks and think the mortgage industry can learn a great deal from their processes and practices. But we have a lot to teach them too.

It is clear that big banks’ distribution strategies work. Profits of 42bn in six months equates to Tesco’s annual group sales, and that’s a lot of tins of beans. Distribution success stems from the banks’ dominant high street presence – a footfall-based vision that drives high volumes of lending and ancillary sales.

So the first lesson to learn from banks is location, location. location. Take a look at your geography and make sure you are accessible. Whether you have a high street or a superhighway virtual presence you can use a range of techniques from advertising to promotional giveaways that will ensure your business is at the front of your target audience’s mind.

Banks’ growth has been at the expense of the life industry. While life companies foundered trying to decide whether their future lay in manufacturing or retailing, banks expanded their brands and moved in on fresh financial services markets.

There are two lessons here. We need to keep our eye on the ball while developing a flexible business strategy that allows us to take advantage of market conditions. Less than a month ago, Home Information Packs would have been a good example of how flexibility can open up fresh markets. But flexibility should also allow you to exit markets at the right time.

I am on record as stating there will be network consolidation and indeed a small number of significant networks are struggling to evolve their business models to meet the complex demands of brokers and clients. This typically results in a cost base that is too high and an inability to achieve profitability.

By contrast, banks have been effective in growing their sales forces without a high cost base. This may be because their talent is home grown rather than bought in – regular readers of this column will know I’m not a fan of golden hellos, handcuffs or any other euphemisms for soft loans – and they don’t subscribe to expensive reward structure, focussing instead on offering salaried posts and the security of employed status.

Winning the hearts and minds of brokers requires more than deep pockets. We started our business with a blank sheet of paper and asked brokers what they wanted. Competitive proc fees is what they asked for but many other factors – training and mentoring, compliance, technology – were just as important on their wish lists.

Banks understand the need to distribute in volume and at profit. At Home of Choice, we recommend brokers focus on a four-strong product density to capture the hearts and minds of their clients. In our experience, four is the magic number that creates loyalty. Any less and brokers risk losing clients to rivals.

Maybe banks were lucky in having a resident target audience of millions of current account holders who would one day require financial advice. Banks are also lucky in that they have been untarnished by the criticism of financial advisers. And they might even benefit from generations of branding that sees them perceived as more trustworthy and softer than the aggressive, commission-hungry financial adviser along the street. But the bottom line is that whereas we work for every sale, banks are almost certainly getting rich on the back of inertia.

Client relationships is just one of the areas in which brokers excel. Banks are the antithesis of this with their centralising, outsourcing and re-engineering processes all taking decision-making further from the front line.

This is just one of the chinks in the big banks’ armour. Brokers have dev-eloped trust with their clients and created loyalty – and the longer the client relationship, the more opp-ortunities there are to de-monstrate the tangible differences between brokers and banks.

The only flaw in this strategy is that mortgage brokers’ capacity is finite. Therefore, they will have to work together to find ways of working smarter and developing a more efficient business model that can cope with a larger volume of clients.

Unlike banks, brokers who offer regular reviews are not only meeting clients’ individual needs, but also offering alternatives to meet these needs. And unlike banks that focus on standardised products that appeal to large volumes of people, brokers have the market knowledge and expertise to develop more bespoke solutions to cater for clients’ more complex needs.

It all boils down to the quality of advice and the choice and range of products available. And brokers are well placed to tailor not only the mortgage but the protection package too. No single life provider can meet clients’ every protection need – that’s one of the reasons that networks offer a panel choice.

Brokers’ expertise and continued professional development is in stark contrast to the hot-housing of school leavers and graduates of the banks, and not only in terms of the salaries earned. After all, brokers have to be aware of the more than 100 mortgage deals that are available from scores of providers at any one time.

The more I talk to brokers about today’s market, the more convinced I become that this small army of professional, focussed advisers will reshape the distribution landscape. We all have lessons to learn along the way and we will continue to push the boundaries and challenge all comers – even the big four banks.

Where banks differ from brokers

Ask yourself these questions to pinpoint the underlying difference in service values:
  • How many of your clients are still paying the SVR?
  • How many people do you know that have all their protection needs catered for by a single provider?
  • How many of your clients would be happy to speak to someone different each time they call your office?

I’m confident you will answer ‘none’ to each of the above questions. And this is the most important lesson we can learn from banks. With such a huge client base, they cannot provide the required level of customer service.

And because they don’t always get it right, networks like us and brokers like you have an opportunity to shine. After all if banks were so great why would companies like Home of Choice come to market?

Richard Coulson chief executive, Home of Choice


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