To be or not to BDM

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When Equity Financial Trust launched in March, its CEO Nick Kyprianou quietly embarked on a little experiment.
Could an upstart lender jump out of the starting blocks, attract and retain broker business, and do it all without the power of a Business Development Manager (BDM)?
Sales numbers for the alternative lender provide a clue to the outcome.
“April was a successful month for us and we hit our target,” the top executive told CMP, pointing to a book split between refinances and new purchases. That growth continued into the rest of the lender’s initial quarter, with Equity Financial recording just over $20 million in originations. Commitments to fund another $14 million were also in play.
“We did quite well without a BDM,” he said. “The way the BDM is today, I don’t see them as adding a value proposition, or rather, it’s not a measurable, verifiable value proposition.”
The thinking places the industry veteran in the increasingly vocal minority of lenders and brokers now questioning the role of business development managers, who have over the last 10 to 15 years become all but indispensable players in the mortgage process.
That isn’t to say the silent majority aren't themselves making note of the ways lenders are switching up the mortgage originations process. The re-jigs – most notably, transferring key BDM duties to underwriters and minimizing their mediating roles – are all about trimming costs and maximizing their support for brokers now fighting in the trenches of the rate war.
Some of those changes haven’t sat well with brokers, pointing to a growing number of BDMs less willing or, in fact, less able to intercede on their behalf if a deal comes up against the brick wall of underwriter objections.
“Relationships with BDMs have changed as much as the BDMs have themselves changed,” said Bradley Shearling, a branch executive for Centum One Financial in Toronto. “For my business, at least, a relationship with the BDM is very important, and the ease of access to that BDM is very important. But despite the promises that you hear from pretty much every BDM about being there to help a deal if it gets into trouble, I haven’t found that to be the case with many of them anymore. I’m now bypassing the BDM and going to the underwriter.”
That may, in fact, be the plan of some broker channel lenders, looking to streamline their operations and attract new brokers to make up for falling funded volumes in several markets.
It’s a chief reason why Kyprianou is advocating for a sea-change in the way BDMs are deployed, a suggestion many other lenders, both A and alternative, seem to be taking to heart.
“We don’t use them now,” Kyprianou told CMP, “but we are planning to introduce BDMs next year. But their duties will be focused on where they are really needed: bringing in new business and troubleshooting in cases where we see a significant drop-off in deals being submitted by an existing broker partner and need to find out what we need to do to change that. In all other cases, our underwriters will deal with existing broker clients directly.
“What the BDMs won’t be doing is visiting those brokers that we already have good existing relationships with – those where the broker is sending in a good flow of business each month. Where is the value proposition in having the BDM going to see that client?” That hasn’t yet become the thinking of most lenders, where BDMs remain a key go-between for the broker and the underwriter. Still, that relationship is changing at some institutions, if not his own, said Harry Singh, residential sales manager at Equitable Trust.
“There are individuals out there who don’t necessarily see business development managers as adding value and, erroneously, they’re thinking cuts can be made to BDM teams without sacrificing deals,” he told CMP. “But as a seasoned BDM, I know that brokers continue to remain very loyal to their BDMs, so when that relationship is severed, the broker has to make a decision about whether to follow that BDM or to stay with the lender. They’ll often go with the BDM, unless their relationship with the underwriter is a very strong one.”
That may, in fact, explain what, if any, move there is to reduce the reliance on BDMs to prevent pipeline disruptions. By promoting direct underwriter-to-broker relations, some lenders may more effectively retain ownership of their broker clients and minimize their defections given the increasingly short turnover rates, brokers are increasingly concerned about.
“There are lenders that seem to be going through BDMs like water,” said Shearling, in the business for just under five years – long enough to pick up on the trend. “Turnovers of 12 months, or even shorter, are becoming more common.”
Brief stints may be a reality not only for BDMs but also underwriters, said Chris Hoeppner, the regional VP of sales for Street Capital in British Columbia’s Fraser Valley and the interior. More than three years at the monoline, he doesn’t fit that bill.
“In the case of BDMs leaving a lender, it’s often a case of a lender’s product having changed and it losing its relevance and then being harder to sell,” Hoeppner told CMP. “Or it could be a case of the territory being difficult to sell in based on the local competition or product mix – that’s another factor that might contribute to the turnover the industry has seen in this position.”
While not specifically speaking to turnover rates, Toronto broker Calum Ross suggested BDM performance is often affected by those same conditions and remuneration should be as well.
“I am very fortunate to have worked with competent BDMs who are generally responsive and proactive in their approach to problem resolution,” Ross, the senior VP of The Mortgage Centre- Mortgage Professionals Inc. “I think one of the biggest challenges for the management of BDMs is the need to align their compensation with
performance metrics that are within their control.
Many exceed, or fail to meet, performance targets based on working in the right territory and/or a change in pricing or policy by the lender they represent. I also believe BDMs should be given discretion to make exceptions on mortgage deals but only if they are also held responsible if the mortgage ends up in default.”
Few lenders have taken that tack. Still, Street Capital has resisted the move to restrict the intermediary role of BDMs, still called upon for help by brokers grappling with the underwriting on a particular fi le.
“As I see it, the goal is still to help brokers fund more business and help Street fund more quality deals,” he said.
It means both Hoeppner and Singh still act as go-betweens, fielding broker calls about funding decisions, querying them with underwriters and escalating those challenges when necessary.
“It’s a balancing act,” said Hoeppner, who actively interacts with all 40 of his main accounts. “You have to see it from both sides.”
Still, ultimately, that intermediary role has the power to place a wedge between underwriter and broker, said Kyprianou.
“If anything, it could screw up the relationship the broker has with the underwriter if the BDM is over-promising something that they can’t deliver,” he said. “It creates a lot of ‘us versus them’ mentality and that creates friction between the broker and the underwriter.”
Under the model Kyprianou plans to implement next year, most existing clients will deal exclusively with his underwriting team. Where disputes arise, brokers can themselves ask for a supervisory review of a funding decision. His underwriters will also take responsibility for more proactive communication with brokers, creating the kind of relationships more commonly associated with broker-BDM relations. That is, in fact, the idea.
But replacing BDMs with underwriters may not be that easy.
“Underwriters and brokers don’t tend to speak the same language,” said Singh. “BDMs do a good job of translating: they understand the perspective of the broker; they know the brokers; they have an interest in seeing the broker fund deals; they also know the lender’s underwriting guidelines and what the underwriter needs to approve the deal.”
There are other considerations: “BDMs make themselves available outside of business hours to discuss deals whereas underwriters are generally done at five.” Singh added. “That would translate into lost business for companies relying only on underwriters to receive deals. And as the number of lenders increases in the marketplace, companies operating without BDMs struggle to market themselves against companies that have BDMs actively calling on existing and new clients and able to keep abreast of industry developments and competitor actions. Underwriters are in the office.”
Hoeppner echoed the sentiment.
“We still have BDMs that spend just as much time with the existing clients as with the new ones on account development,” he told CMP. “BDMs tend to be outgoing personality types, like brokers, and that helps, too.
“The role of the RVPs is to solicit new broker accounts and identify new target brokerages/agents to develop business with, set targets with each account, assess brokers’ level of satisfaction and raise concerns with management, and provide all product, underwriting and marketing info to brokers.”
While industry lenders have traditionally relied on extroverts to reach out to brokers, build relationships and keep deals coming their way, those traits aren’t exclusive to business development managers, said Kyprianou, pointing to an industry in the early 1990s that functioned without those dedicated salespeople.
“There are underwriters who have the necessary communications skills to reach out to brokers and to understand where they’re coming from,” said the industry veteran, himself an underwriter between 1986 and 1995. “So they have those skills and also the knowledge about underwriting guidelines, (which) often BDMs don’t have.”
Even in the drive to manage costs and streamline the originations process, the industry might compromise profitability with any move to phase out BDMs, suggested Hoeppner.
“There’s danger in undervaluing the BDM’s role,” he told CMP. “I think a lender looking to cut out BDMs would need to hire substantially more underwriters to maintain and grow their business if the role of sales and underwriting were to fall o one individual. If somebody has a very good relationship with their underwriter, the loss of a BDM may not cause them to move, but a very good relationship with a BDM can certainly play a key role in broker loyalty.
“Our role and mandate is to be a trusted professional to our mortgage brokers.”
  • BDM on 2011-10-15 1:30:55 AM

    I couldn't even read the entire article as I was fairly annoyed. I don't think people realize the actual value a BDM plays. Most have absolutely no idea how much work is involved. It isn't lunches out and golfing folks. Underwrites are not sales people. This business is based on relationship number 1. If sales were that easy, everyone would do it.

  • John Dearin on 2011-10-17 2:08:51 AM

    I think in our small brokerage, there is a direct correlation between the amount of business done with a lender to the QUALITY of the BDM. We like our lunches but we also throw a couple of parties a year for our BDMs and underwriters (the few that are allowed out) and the lenders in general, as payback. If you are in town, you are invited.
    It is the QUALITY of the BDM and the underwriter that directs our business. Can I live without them?….sure…do I want to….No, not the QUALITY ones

  • Let's See on 2011-10-18 4:11:59 AM

    Hmmmmm,Nick,left his predecessor company and openned up a nice little operation that launched products to compete against his predecessor company. Did he go out and introduce these products to a whole new set of broker relationships? No, he went after relationships he already had as an insider...would you need a bdo for that job? And He said "hey I dont need bdo"s I will go to all my accounts and sign them up to send me business and then we will see. If I can live with those in-house accounts and continue to grow my business that way then we will we will all be happy. So Nick is now adding BDO's in 2012....I guess he's tapped out on who he knows. Thanks Nick as your example is exactly the case for BDO's and why BDO's are required. Rock on baby.

  • Nick Kyprianou on 2011-10-21 1:57:42 AM

    I think many people missed my point. I believe most BDM's have a role that can't be measured. I would have a BDM however the role should be to bring on new brokers not keep visiting existing brokers who send business. I believe when a broker is sending ongoing business is because he has a good relationship with the underwriter. I strongly believe the underwriter is the backbone of any mortgage lending business. If you don't have good underwriters you won't have a business. BDM's have a place as I mentioned earlier. If you can't measure it you can't manage it or know the value of it. If BDM's focus on new brokers you can measure their what they achieved.

  • BDM on 2011-10-25 12:36:54 AM

    I have worked as a BDM for several years and the role involves not only maintaining and growing exsting accounts but always seeking more. This is what I believe you are missing. Agreed lending is very important in the relationship, but they are not sales people.

  • Dan Beresford on 2011-10-28 12:02:46 AM

    I'm an ex-BDM. I was trained as an underwriter. The real problem in all of this is one of communication and education. At one lender I was able to grow our sales because I helped the brokers and agents I worked with grow their business with marketing tips, educating them on who an ideal client for a product was and helping them understand where that client could be found. I used to do over 90% of my business by email and telephone. Unfortunately the lenders I worked for didn't understand the speed and efficiency of telephones and email; they wanted me driving all over the place interrupting busy brokers and agents with visits.
    Lenders could increase their business by having better product material, helping their clients understand who the product was suited for and by using the technology available to open the lines of communication.
    BDM's with the power of the pen? A great idea but there would be a breakdown on the educating and communication side which would result in a decrease in business.

    I am no longer directly in the mortgage business but I have brokers and agents as clients.

  • Risk on 2011-10-13 7:15:11 AM

    Would you give a BDM approval authority? Need a line between the two for potential conflict of interest scenarios.

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