Brokers call ‘smoke and mirrors’ on RBC employee pricing

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The biggest of the big banks has brought back its “employee pricing” on mortgages, but the industry argues brokers will be the biggest beneficiaries.

“At 2.69 per cent we can easily be competitive,” Brent Irving of Dominion Lending Centres Valley Financial told MortgageBrokerNews.ca. “Though we don’t have the big marketing budget that RBC does and we’ll never have that budget, if anything the promotion will pique buyer interest and make our phones ring and hopefully it creates some inquiries as to whether there are better offers out there.”

The Royal Bank of Canada is currently offerings employee pricing to its customers until July 3, including a five-year fixed at 2.69 per cent, making it the lowest advertised rate by one of the Big Five.

The promotion will place RBC firmly back in the mortgage game, with many clients likely to be swayed by the bank behemoth’s name recognition alone. But brokers aren’t prepared to give up that business without a fight.

“It’s a lot of smoke and mirrors,” David Skinner of TMG The Mortgage Group said. “Brokers can easily beat it – I still have a five-year fixed at 2.59 per cent from two different lenders. Royal Bank’s offer does not cost me any business at all.

“If our rate is the same as Royal’s, let alone if we beat them, we will get nine out of ten clients.”

Irving believes monolines are doing their part to give brokers every advantage in the current record-low rate environment.

“They are very competitive these days,” he said. “As soon as RBC comes out with their 2.69 and start marketing it, 90 per cent of monolines will come out with a competitive offer.”

However, one RBC mortgage specialist suggested the bank would go even lower than its advertised 2.69 per cent five-year fixed rate if necessary.
  • Marie Illerbrun on 2015-03-31 11:40:55 AM

    I am not sure where you can get 2.59% for a 120 day rate guarantee like RBC has under their new rate. I can beat them on quick close but that is not the norm for business in my city. So if David Skinner can give me better details on the smoke and mirrors I would appreciate it.

  • Maurice on 2015-03-31 11:55:43 AM

    rbc employee pricing is a joke,

    I did a mortgage recently for an rbc employee and beat RBC's rate for employees, plus no nasty ird penalty in case she breaks it early

  • Donna on 2015-03-31 11:59:33 AM

    has anyone looked at the form borrowers sign regarding discount received and what that will mean if early payout happens?

  • Donna on 2015-03-31 11:59:54 AM

    has anyone looked at the form borrowers sign regarding discount received and what that will mean if early payout happens?

  • Marie Illerbrun on 2015-03-31 12:05:37 PM

    yes its a huge penalty because of the large discount off posted rate.

  • timmy jimmy on 2015-03-31 12:13:11 PM

    I spoke to a RBC mtg rep, and he said he felt embarrassed calling it the "employee pricing mtg" . He admits it is a direct ripoff of the employee pricing offered by some car dealers, and since it worked in the car business, it should work in the mtg business.
    This bank thrives on the gullibility of the general public.

  • Diane on 2015-03-31 12:16:18 PM

    Well right now 2 lenders are offering 2.64% on a 5 year with 120 day rate guarantee and 2.59% quick close, so that is great business for mortgage agents. Let the race begin, I am ready!

  • M. Robertson on 2015-03-31 1:19:18 PM

    Well, what I am about to say is not going to make me a popular person, but OH Well, I am sure that I will survive.

    Brokers need a bit of a reality check on the business that they are in and a little dose of truth goes a long way to making that happen. So here goes. In Canada the independent broker earns an up-front commission of an average of 1% of the total advanced mortgage amount (including VB). (YES, this amount does vary and in recent years we have seen that this average has gone up, but let’s use 1% as the standard.) The average mortgage originated in Canada in the broker channel is $289,000.00 – so average commission paid is $2890.00 (not including points programs).

    That means that with today’s spread, and in fact even if rates were double what they are, the bank does not recover that dollar outlay until the 6th month. When you factor in hedging costs, and other origination costs, the bank is not profitable on a broker originated mortgage until the 18th month. OK, most would say that is not too bad given that the average term of a mortgage is 5 years… right? Well, you would be wrong. According to most of the bank statistics a broker originated mortgage only lasts for a max of 29 months on average. Alarming? Not really as it has gotten worse in the past couple of years, it is down to 26 months with many lenders in the broker channel.

    Mortgage brokers, in times of a slow down need to eat too, the solution… churn your book. Solicit your existing customers to refinance.

    That means that a mortgage will earn “positive” revenue for a period of 8 – 11 months. Seems OK? Well you would be wrong. On a branch originated mortgage the average staying power is 44 months, and 80% of those – early renew with the same lender. The bank also starts positive earnings on these mortgages a full 6 months earlier. That means that a branch originated mortgage is earning positive revenue for 21 – 24 months LONGER than a broker originated mortgage. That is more than twice the profitability.

    Now, some would argue that the banks and credit unions have to pay for all the brick and mortar costs associated with branches… guess what? They have to pay it anyway and they have other sources of revenue that help to cover those costs. In fact, the big five in Canada make far more money off of their other channels of business than they do mortgage. Mortgages originated by brokers are a loss leader for most banks, it is why so many have exited the broker channel and why when brokers demand lower rates they have no concept of how much that impacts the bottom line of the monoline lenders in this country. Yes, they are profitable in the end, but at current levels of profit, how sustainable do you think this all is?

    My point? Brokers in Canada get paid their commission no matter what the profitability ratio of the product they are selling is. They do not take a hit like the lender does when margins narrow, and any lender who even contemplates having brokers share that pain is ostracized by the broker community. The reality? The broker channel as it exists today is unsustainable. In almost every other country in the world there has been change because of this, and it means that brokers in Canada better watch out… because it will come to Canada too. It is only a matter of time.

  • Matt on 2015-03-31 1:38:34 PM

    Most of the comments on this board relate to how brokers can sourse better deal than 2.64%. This all but proves most that the broker industry is completelt rate reliant and when the time comes that Scotia and TD pull their funding (and it will happen) you will be fighting for scraps at the table. For every comment about winning a deal on rate I've personally won with a higher rate based on service alone. My client know that if push ever comes to shoev that I will always pick the phone and am empowered to resolve most issues within 5-10 min. It doesn't take long for a client to understand the difference between a service provider and a relationship manager... no one likes working with a 1-800#, especially for something as important as their mortgage... funding is drying up, significant market share loss year over year... writing is on the wall guys.

  • Alex on 2015-03-31 2:01:38 PM

    MRobertson, your comments are clear indication that you have no clue what you are talking about!

  • M. Robertson on 2015-03-31 2:22:49 PM

    Alex, you clearly do not understand the economics of mortgages, hedging costs, etc. if you think I do not understand what I am talking about. Numbers do not lie.

  • Maurice on 2015-03-31 3:48:25 PM

    MRobertson td bank rep told me that mortgage brokers are a way for td to get new customers. So unless they don't want new customers to do insurance, rrsps, bank service fees, lines of credits and credit cards then they will cut out mortgage brokers.

    Banks need us brokers because we have the client. So you got to pay us to get that client. or client goes somewhere else.

    ps . I never sell td or scotia anyways. their ird penalties stink!!!

  • M. Robertson on 2015-03-31 4:29:06 PM

    Maurice, with all due respect to brokers, banks do not NEED brokers to grow their business. They have a 200+ year history of growing their business, and the largest bank in the country does not even deal with independent brokers.

    Banks have utilized brokers and the broker channel because it made good business sense. That is not necessarily the case anymore as that has started to erode with narrowing margins and will continue to do so as broker compensation continues to increase. Brokers do not take a hit when the lender does. For example… if the bank rate is 3% and the margin is say at 2% as an example, at this margin everyone is happy… the broker gets their commission of 100bps, the lender has a comfortable margin. Well if the lenders margin drops to 1.5% then they take a hit on their earnings, but the broker still gets their 100bps. Compress that margin even more and before you know it the broker originated deal has lost much of it’s lustre.

    As for the ability to cross sell… that is the biggest complain that brokers have. That the banks are “stealing” their customers by soliciting them to get other products and build a stronger relationship thus (hopefully) keeping the customer with the bank as opposed to going back to the broker for future needs. With margins as tight as they are and the profitability of broker originated mortgages limited as compared to mortgages originated by bank employees… why wouldn’t they do everything they can to keep the customer and eliminate the broker part of the relationship?

    The fact is that mortgage brokers in other countries have already had to face this challenge and they all had their commissions cut. Australia saw a 50% cut in the rate of commission paid, and in some countries brokers are only offered a trailer model. If the brokers in Canada seriously think that a change in compensation could never happen to them, they need to give their head a shake. It happened in other countries and there is absolutely no reason at all why it could never happen here as well. People who think that it will never happen are simply naïve and have their head buried in the sand.

  • Walid Hammami on 2015-03-31 6:48:54 PM

    Regarding the comment about M.Robinson.
    Here are some facts, I used to be a mortgage rep (commission only) at Laurentian Bank (B2B outside Quebec). The bank closed down their mobile mortgage specialists and decided to rely on the broker channel because it was more profitable. The overhead cost of managing the mortgage reps was not worth it even with 40bps.

    They hired another BDM and they are extremely happy now.

    Mortgages are used to acquire new clients, with a mortgage application lenders can see all the assets a liabilities. Banks also will probably sell a bank account, a line of credit and savings account. So in a sense they are profitable. Banks inCanada don't engage in money losing transactions, they always find a way to make money.

  • Cat on 2015-04-01 10:35:09 AM

    Bank employee mortgages are a taxable benefit. I have a few monotones offer this rate (and lower) based on quick close and No Frills.

  • Andrew on 2015-04-01 2:27:58 PM

    If clients don't care about big penalties and poor customer service, a GIANT insurance company is offering a 5 year fixed at 2.44%. However, I find most clients like offerings from the largest mono-line... 2.20% variable with a fully discounted lock-in option. The projected savings and rates make it the best option in my mind. Plus, a 3 month interest penalty to break the mortgage sweetens the deal.

  • Rates on 2015-04-01 5:30:09 PM

    How is RBC 2.69% news. Here is what we get today:
    Scotia - 2.59
    TD - 2.64
    Nat Bank - 2.64
    monolines - 2.44 - 2.59

    Brokers have better options

  • James on 2015-04-01 5:39:44 PM

    @M. Robertson
    I need to be blazing what you are blazing!

    RE: Banks take the hit when margins narrow...
    1. are you suggesting that their margins were even higher then before the yields dropped? Crap, Canadians got screwed for the longest time then!
    2. margin is a function of what?

    Quit talking from both sides of your mouth.

    RE: RBC employee pricing
    of course it is a ploy...just like their crazy ass prepayment penalty.

  • Michelle on 2015-04-04 1:48:57 PM

    It all comes down to customer service and treating the client right. It is only possible to steal a client away from a bank if the customer feels unappreciated, unimportant and experiences bad service. Rates, Fees and Mortgage Features matter too - but ultimately it is poor customer service that pushes them out the door. Brokers can match and often beat rates offered by banks - so rate is not an issue for us, we compete more on our outstanding customer service. End of story.

  • Ghenghis on 2015-05-20 9:11:26 PM

    Who cares about the mumbo jumbo?
    All the customer cares about is the best value for money and lowest rates. Dollar better saves in customers pocket than banks coffers. Simple.

  • momoney on 2015-05-21 6:49:16 AM

    I had to put a client with Scotia the other day.... So I tagged along at the signing at the branch. Hour and a half appt almost, 90% of the time talking about credit cards and lines of credit by the bank lady. Zero mention of the cost or calculation of the Interest Rate Differential Penalty by Scotia banker.

  • John Greenlee on 2015-05-22 1:16:33 PM

    On the topic of the employee pricing, did anyone else notice on the RBC twitter feed that the "employee pricing" is only available in Quebec? I took a screen shot of it when I saw it come up.

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