I have just come hot foot from chairing a conference on mortgage customer retention. One theme that came through loud and strong was that if lenders want to encourage customers to stay with them at the end of the deal, then they will have to work with intermediaries and distributors, not against them.
If at least two-thirds of UK lending is intermediated – maybe more by now – a customer retention programme which cuts out the intermediary is not likely to get far. Broker feedback at the conference was supportive of lender programmes that embrace intermediaries and distributors. If the industry works together, then the customer will be better off. After all, aside from treating customers fairly, it is good business practice to service customers over the longer term and review their circumstances when deals expire.
While some lenders continue to struggle with the front book/ back book pricing imbalance, the situation where customers have to switch to get a better deal looks likely to persist for a while yet.
It is still going to take some years for this pricing imbalance to work its way through the system. But now is the time for distributors to consider how they introduce lender retention schemes and customer reviews into their processes. I predict lenders will further develop their approach in this area over the coming months and years.
From a distributor’s point of view, if customer management gets into the psyche of intermediary businesses then maybe we can start to address the 2.3bn protection gap (source: Swiss Re Term and Health Watch 2006) in terms of managing customers’ holistic needs, not just protecting the mortgage. Customers who buy more from you tend to stay with you longer. It’s a rule of business.
So who does ‘own the customer’? The conference conclusion was that nobody does but in terms of mortgage business, a good starting point is to assume as a minimum that the intermediary is closest to understanding customer needs and owning the relationship.
If lenders embrace this position, the rest is easy and opens up a world of opportunity to develop strategies and propositions to bring distributors with them.
Four lenders have led the way in this market – Accord, Woolwich, Halifax and BM Solutions. Their approaches differ slightly but the sentiment is the same – there is a need to remunerate distribution where the most suitable product recommendation is to stay with the existing lender, and to make the process as easy as possible.
Making the process easy involves the thorny issue of data protection and being prepared to share customer data with intermediaries. The online access provided by the Halifax system already sets the standard in this area, as does the Accord initiative of contacting the broker three months before a deal matures. Accord is also planning to engage with brokers in the arrears process to help intermediaries manage customers.
But we must also ensure lenders do not consider reducing procuration fees for retained business in the future. All of that built-up goodwill will quickly evaporate if fees are reduced. It is not just about lenders paying for business, they are paying for compliant business. Every product transfer to an existing lender contains an advice and recommendation process which is the same as if it were recommending a remortgage.
As brokers get better at managing existing clients, and holistic mortgage and protection financial planning becomes the norm, product transfers will become more common. There will also be an expectation of appropriate remuneration for the adviser, just as with a remortgage. Lenders need to be on the case, as their commitment to managing existing customers with intermediaries will be a public demonstration of their commitment to an overall partnership with intermediaries.