Broker, meet your Frenemy, Rate Site

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So why do it?

To be honest, we ask ourselves that question almost every day, this is some of the least fun you can have in the mortgage business; it’s an endless frustrating grind.

But we do it. We do it because it will likely generate $300 million in mortgage volume this year just in Ontario; if we expand to other provinces that number could be $450 million.  We have other divisions in our company that will do about $225 million of traditional mortgage broker volume but the fastest growth is from the rate sites.

We do it because rate discounting may be the future of this business, and we want to be successful in this business for years to come, so we want to master the discounting trade now, not later. We do it because 80 per cent of the applicants are absolutely perfect candidates: 800 Beacon scores, government jobs, smart, well-educated; they have all of their documents at their fingertips. We do it because it is a seductive business challenge: can we tweak a ton of different variables to improve profits, reduce overheads, increase pull-through and wring greater net income from a tough to execute business model? It keeps you awake at night but it’s an intriguing battle.

Many will tell me that we are only doing harm to a great industry by advertising discounted rates. Many think we debase the whole business by commoditizing it. Many say rate discounters cannot take the time to give real counsel and get to know our client’s needs properly because we need to work very quickly and efficiently on every file.

I don’t have all the answers, but I think I have a couple. Banks are advertising discounted rates so why should mortgage brokers be afraid to do the same? Should we just roll over and give up?

Maybe this business will be commoditizing itself anyway, so why not try to get ahead of the curve? Almost all of the extremely qualified clients who use the rate sites do not want advice or council; they want service and they want us to execute the instructions they give us. Perhaps we as brokers may have better rate and product ideas, but if the client is mature, well-educated, and successful and tells us they have done their product research and they have determined the mortgage is suitable to their needs, why would we contradict them?

Conversely, if the applicant does ask for advice and guidance our brokers have a combined 50 years of experience from billions of dollars in funded mortgages to give the clients the counsel they ask for.

John Webster once said the greatest thing mortgage brokers can offer is choice and advice and he’s right. I firmly believe a full-service, highly proficient, full-commission mortgage broker will always be here, and nothing a rate site can do will replace deep knowledge, long experience combined with great lender relationships. Particularly, I think niche brokers have a bright future, whether it is sub-prime or investment property specialists. But I firmly believe the public gets to decide what mortgage source they want and if technology makes mortgage rate information highly available to the public, someone will discount rates to attract leads just as sure as night follows day.

So either we will provide those discounted rates on rate sites or someone else will do it, it’s going to happen anyway. Remember: travel agents did not get to decide if Expedia or Priceline was a good idea, the public made the decision.

Not a strategy for individual agents - continued on page 3


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  • Ross Taylor on 2013-04-12 6:53:57 AM

    Excellent article thank you

    AskRoss

  • Rob Campbell on 2013-04-12 7:22:12 AM

    Very well done, Ron.
    Well said.

  • Wane Davis on 2013-04-12 7:39:47 AM

    Just for clarification, Banks sell rate because, even with little or no margin, they attract customers to cross sell more profitable products like credit cards, chequing accounts and other deposit products...you may get them with your rate site and low bought down rates but you haven't solved the problem of renewal when, after acquiring the homeowner you have no sticky product to get the renewal...you are just continuing to feed the machine and letting banks eat your lunch. Brokers need to do more to KEEP the client and the only way is to do more than mortgages.

  • Kerri-Lynn McAllister on 2013-04-12 10:02:33 AM

    Ron, I applaud you for giving such an honest and straightforward view on rate sites. Your comparisons to travel sites are spot on, and obviously those in the industry who want to work with rate sites do have adapt their businesses.

    Like any competitive industry, there are areas to segment. It's just that rate sites is the fastest-growing segment at the moment, and other brokers wishing to specialize in other segments will have to have a strong and defined value proposition.

  • Paul Therien - CENTUM on 2013-04-12 10:41:43 AM

    Ron - Great article - well thought out and well explained. I think that in our industry we often forget one key thing however... Back 20 odds years ago when I started in the industry mortgage brokers had two key selling points, and they were what built our industry. #1 – If you can’t get approved by the bank, we can help and #2 – we can beat the banks rates. #1 started to wane as more and more A lenders entered into the broker origination channel and felt that it was an excellent low cost source of mortgage business for them. Because of that lower cost of funds – independent brokers could offer lower rates than the branch network. There were also much more limited options for the consumer 25 years ago.

    Our industry rode the low rate methodology for many years in order to gain traction in the A side of the business, and it worked - beautifully.

    Banks now directly compete with us on rate, and you are 100% correct that we need to compete on a different level because a mortgage is about so much more than rate. Product, terms, etc. all play a fundamental role in the suitability of a mortgage for the consumer. I just think that we need to remember that brokers have been selling rate for decades, as have the banks. WE have created a culture in Canada where rate is king and sold the consumer on this concept. Ron is correct that we need to move away from the concept, but don’t be surprised when it turns out to be much more difficult than anticipated.

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