A necessary evil to close deals?

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Sometimes the only option to close the deal is the one most brokers push back against at almost all costs.

“I had a situation where a client came to me and said the bank offered the same rate as I had offered them with the promise of a discount on their banking fees,” John Greenlee wrote in the comments section of MortgageBrokerNews.ca. “With this information I did the math on how much I was going to make on the deal really quickly if I bought it down 5 points and then offered to cover the costs of their entire banking fees for the 5 year term which came out to around $700.

“Fact is at that point I was going to make $0 if I didn't do something. The client took my offer and I closed the deal. I made less, but it was better than zero.”

Brokers have a tough enough time competing with the banks, and players are finding it difficult to compete with big banks’ relationship pricing offerings.

“[Bank employees] have a target on a weekly basis for not just selling mortgages but other products that they have to cross-sell, and to meet that target they have to look at other ways to changing their wording in delivering their speech to customers to cross-sell other products,” Deepak Bansal of Dominion Lending Centres told MortgageBrokerNews.ca. “They have to watch their discretions as well – if their discretions allow them to go on a five-year rate down to 2.69 but 2.79 is competitive, they’ll offer 2.79 but [say] ‘Mr. Smith if you’re able to open a bank account with us and apply for a Visa we might be able to bring that rate down to 2.74 or 2.69.’”

Bansal, who worked in the banking industry for a number of years, says this kind of practice has gone on since he was a banker. And bank employees are using this method to hit their sales targets for a number of products, not just mortgages.

According to Bansal, it’s called coercive tied selling and is in breach of the Financial Consumer Agency of Canada Act.

The Act states that banks are not permitted to engage in “coercive tied selling” or “forced purchases” – meaning banks cannot force clients to buy certain products as a condition of approval for others, such as mortgages.

But is what Bansal is describing in violation of the Act?

Not according to the wording on the FCAC’s own website.

“Banks (and their affiliates) are allowed to offer consumers, in conjunction with one of their products, another product or service on more favourable terms than they normally would provide. This is similar to a company offering a deal or discount to its customers if they purchase more than one item from the company,” the FCAC page on tied selling states. “For example, if you obtain a loan from a bank to purchase a Registered Retirement Savings Plan (RRSP) investment, the bank might offer you a better rate on your loan if you also purchase your RRSP investment from them.”
  • Jake Abramowicz on 2015-02-15 2:46:36 PM

    In one corner we'll have Ron Butler et. al. In the other corner we'll have the rest of the mortgage world. Annnnnnnd, GO!

    All kidding aside, I can't wait to read the comments of people who claim they either 1. never ever buy rates down and/or 2. people who do buy down rates are killing the business.

    It's 2015 - I think we can find a better topic to report on personally. This is old news.

  • mo money on 2015-02-15 3:31:40 PM

    Hi there, I do mortgages and am life licensed, when i do a mortgage for client 90% of the time I am doing their insurance too. Life critical illness etc.

    I earn on average 2,000 per insurance client so I can afford to do these types of things for clients too. I have a licensed mortgage assistant who does all my deals for me. I introduce client to her and she handles the rest. In the meantime I "sell" insurance. I pay her hourly wage plus 5% of the commission.

    Whether you are mortgage licensed only or are multi licensed, you are a fool if you only do the mortgage and not the insurance.

    Doing one product (mortgage only) doesn't do the client any favors in case they die or get sick they need insurance.
    It doesn't do you any favors either because you are throwing away commissions by not selling the insurance.

    If Mr Butler reads this what percentage of the time do you sell the insurance?

    If he is only getting 35 bps commissions on his mortgage he has got to be selling insurance with every mortgage to increase his margins per client.

  • mo money on 2015-02-15 3:33:39 PM

    I would like to retract part of earlier statement. calling people a fool is inappropriate.....

    Let's say you are foolish if you don't sell the insurance.

  • Ronnie Kartman on 2015-02-15 3:38:41 PM

    If you, as a mortgage broker or agent, are permitted to offer discounts or rebates to your clients with their mortgage closing, then I would suggest the following: As an individual or small brokerage firm you will never be able to compete "toe-to-toe" with the banks insofar as the specific financial products offered by the banks to their clients.

    However, what's to stop you from offering discount programs and other incentives that are totally unrelated to the mortgage itself? I'm referring to incentives that won't cost you a dime (just your time and a little creativity).

    For example (I’ve been there, done this myself), you go to a local furniture store and speak directly to the owner and approach him/her with the following proposition: "You will offer my clients a limited, agreed-to discount or specific furniture package deal, and you will allow me to display a letter-sized, acrylic stand somewhere in your store depicting my mortgage services, along with a supply of my business cards."

    Sounds corny and old fashioned? Nonsense. This method has always and will always work. (you just have to be prepared to experiment with the right venue). In terms of closing the mortgage with your client: most people like the idea of being able to spend a few hours in a store to "redeem" a coupon or discount.

    It's an excuse to leave the house, etc. The furniture store owner stands to have the odd extra client visit his store, and the client gets to take a break (perhaps with spouse and/or family in tow) for a momentary break from "smart phone fatigue."

    This is also known as “offering perceived value”. And yes, it would be great to offer straight cash to your client, but instead of trying to go “on top of and over " what the banks do, going around them by being creative with “surprise”, unrelated incentives.

    Also, you can try doing what we do with our participating mortgage agents: Find a home-related service company and offer a discount of sorts on their services if your client purchases the mortgage with you. You just have to be careful which company to select, and make sure that you provide some sort of disclaimer so that you won't be held responsible (in case).

    For example, The Renovation Co-op offers its own clients a $10,000 Renovation Credit with the purchase of a home through a participating realtor or mortgage broker that the client can use (in segments) towards renovations purchased through one of its member-services.

    The deal you make with a small service company does not have to be that "bold." The bottom line is that even the perception of added value is a strong incentive to use as a "weapon" in your arsenal for closing deals.

    Happy "Mortgaging"

    Ronnie Kartman
    The Renovation Co-op

  • mo money on 2015-02-15 3:44:34 PM

    great Idea, Ronnie, I already do that with a local furniture store, I have my own branded referral cards. The store offers a 2% commission to me as well for everything they sell to the people I direct there.

    Client gets a corporate discount and I get a referral fee (very small) , which I can then use to spoil client again with.

    Being creative does pay off

  • Ronnie Kartman on 2015-02-15 4:43:55 PM

    Dear Mo Money:
    That's "music to my ears" I hope you and the furniture store do a ton of business together. Unfortunately, many of the newer agents come from the banking industry itself, and have not been trained how to to create new business (sell). If you do come from the industry, then my hat is really off to you for doing what you are doing.


  • Business for Self on 2015-02-15 5:12:09 PM

    Love the "creative" idea gentlemen, and thank you for sharing.
    The greatest thing about commission based earners is that when faced with adversity, the creative and industious part of the mind becomes active (at least successful ones that is).
    There is nothing 9-5 about your strategy, it's purely entreprenerial!!

    Have a successful 2015!!

  • Jeff on 2015-02-18 2:01:51 PM

    I called ficom to complain about a credit union doing this, and the response I received was that it was not tied selling as a company can offer an "incentive" for them proceeding that is not considered tied selling. To me, it is a difference in semantics. They wouldn't give him free banking without him getting a mortgage, so the fee bank account is tied to his taking the mortgage.

  • Ronnie Kartman on 2015-02-18 5:27:56 PM

    Jeff: I don't actually think it is tied selling either for a bank or credit union to offer a "no fee" bank account (if that is what you are referring to) if the client purchases the mortgage. Goes back to the days of "Open up a bank account with us and receive a free toaster." By definition, tied selling is "The illegal practice of a company providing a product or service on condition the customer purchases a product from the same or related company. It is mainly used in reference to banks and referred to as coercive tied selling”

    Example: If a bank told a client: “If you purchase your mortgage from us, you will receive a “no-fee” bank account (or toaster), but only on the condition that you also purchase a minimum of $5,000 in mutual funds from us to stick inside your RRSP.” I believe that would constitute “tied selling” and would therefore be illegal (or as they say in Timbuktu… B.S!) In this case, the sale of one product is being offered to the client, with an incentive that will only be applicable if the client purchases a further product. My suggestion: start thinking of a way to offer your clients something else that's of "incredible value" to them, instead of wasting time and emotional energy worrying about what "stunts" the institutions are pulling. You're better than they are and, after all, you are not trying to capture 10-25% of the entire marketplace...just a small, teensy part of it that will hopefully make you a comfortable if not wealthy individual.

  • Nancy on 2015-02-21 4:46:11 PM

    Could anyone share with me what the low and the very high end salary one would expect to earn as a mortgage specialist with a bank? What would a realistic salary be?

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