The past 12 months has seen a new level reached in the competition between brokers and the Big Banks. Increasing pressure in the form of low rates has forced some brokers to compete for clients soley on rate, while others say customer service is what separates the broker industry from banks. In Part II of MortgageBrokerNewsTV’s broker panel, our group of experienced and successful brokers from across the country share their thoughts on this topic, which has seen much debate in the industry over the past year. In the coming weeks the panel will touch on other mortgage industry hot-button issues. Find out on MortgageBrokerNewsTV, your home for the industry’s best news, opinion and analysis.
Video transcript below:
John Tenpenny: Another big issue, especially in the last year has been competition between brokers and banks, especially with banks being much more aggressive recently with rates and offering rates and sometimes pulling deals away from brokers at the last minute and there have been calls by both sides and the brokerages about whether to compete against banks and others with rates or rate only and Dan have you got an opinion on that?
Dan Eisner, CEO, True North Mortgage
Dan Eisner: Yeah, first of all every mortgage broker needs to pick a model that they want to [compete with] on, you know they actually, they really target real estate agents, they target financial planners, they deal with B business, people who work in small communities, maybe they speak a specific language. At True North Mortgage we really are about the rate, all our stores are located in downtown cores across Canada where there, they are all $100,000 a year, they offer good credit and they come in and we have every major bank within a two block radius of every one of our stores, okay. Every one of our stores has a major bank all the major banks within two block radius. So rate is very important to us.
Now I have been, a lot of brokers come up to me and criticise the model. Why do you compete against rate, you know you are hurting the industry. In my mind rate, no matter [what anybody says] no matter what anybody says, okay, rate is half, rate is half of the case, okay. 50% of the decision a client makes is based on the rate. The other 50% is the branding, the prepayment privileges, services you give, toll free numbers, you know all those other things, but half is the rate. So if you come to the table with a good rate, you are halfway there, then you have good service, you have the toll free lines, you get everything else and oh the good locations in our case and so that’s what makes our business. If you would not, if you would not, if you would take away that rate, half our business would disappear. So rate in my mind is going to be more important in the future, people are beginning to be more savvy, people are using that internet more and more and that information that brokers used to have or it used to be exclusively brokers, we get our rate sheets every day, is disappearing, it’s going on the internet and information has power and the power is going to the consumer. The rate is just being of much more impact to that, much more important.
John Tenpenny: Right, Greg?
Greg Martel, Owner Broker, Dominion Lending Centres, Harbour View Mortgages
Greg Martel: My models is particularly different like I try to think about if I can get through a full process with my client without even discussing rate, I have done a really good job with the client and I try to train my brokers that, if you want to add value to your client that you are going to, that the bank’s not doing. If it’s going to be some kind of strategic planning which rate is variable to a fixed product or some kind of pay down method but when it comes down to 10 basis points on an average mortgage, it’s really not that substantial, if you have good service and a good value to the client. I do think rate is important, but I really don’t want to come out and market rate. I think if you are advertising rate, you are training your client to shop for the rate. So if you are always putting a picture with your face on it with the best 5 year, now all we are going to do why would he even need to call you now, they know what your best rate is.
So my theory is and it’s worked well for me is that, I don’t even talk about rate I try to give tremendous value to my client, that’s much more than what the bank can offer and we put our clients into, we try to really strategically plan our system for our clients that they are going to be in a lower average rate for 8 to 10 years, instead of just for 5 years [cookie cutter] fixed rates the banks are selling. So ideally I would like to put a more of a variable model, lock them in half way through which obviously isn’t best for my renewal business but I think it’s best for the client and ideally they are getting a lower and longer rate and you are not, you are getting a product that no one else is really offering, specially the lenders. In this way they are getting tremendous value and also you know I see the rate boards when you drive by those brokerage firms and it’s like why would I need to go in there now. I see what their best 5 year is, I can just go back to my bank and say hey, x and x is offering this, can you guys match it, here is the newspaper, can you guys do this. So you kind of lose your leverage with that and we have, I have trained my brokers to go in a different direction and really focus on adding tremendous value and don’t get into the rate, obviously you are going to have that [a certain] culture as like you mentioned that it’s all about rate and there is nothing else, I don’t care what value you are going to give, you are going to have that, it’s going to be, if you want to have it like that 15 or 10% of your portfolio, you know.
Callum Ross, SVP Agent, The Mortgage Centre, Mortgage Professionals Inc.
Callum Ross: I think too that it also depends on the actual [originator, I mean], if there was a kooky kind of way for every single mortgage person to be successful, you know there would no panel. Everyone would be doing the same volume and I think a big part of it is based on your relative financial skill set, the market you service, you know I can tell you that you know if you look at the CMHC market surveys, rate has never come in the top three. So it depends obviously what markets you are in, you know like Greg in your market out on the west coast, it’s different fundamental market dynamics than Toronto, [since I said] we all know that price is not a sustainable competitive advantage, but you have to be in the ball game. We offer what’s called a low cost guarantee, we focus more on the idea of saving people the most amount of money, rate is a good point of it, I think most people think that they want to get the lowest rate, when in reality what they want is to save the most amount of money and they think those two are inextricably linked and many times we had situations where we have banks that only allow annual prepayment privileges or these [no frill] mortgages and at face level when the client thinks all they want to do about rate, it’s a little like a parallel like the investment industry, picking out say clients want the mutual fund or the ETR for the stock, it’s got the greatest return but what they really want is after tax rate of return.
And you know I think that when you are looking at the more sophisticated clients in the bigger markets, if you bring in the more holistic elements of their overall financial plan in terms of what the privileges are, what the costs of not having those privileges are and things like that, people can get away from rate. So despite being in the market that Dan is in many cases, we specialise in hiring professionals. You know it’s very rare in my office that we don’t see someone who has got a 6 figure income. Someone who has got less than the 700 beacon squad, it’s a rarity yet you know we go with more of the [brick] model where generally rate doesn’t come up as part of the discussion. We start out by saying, you know you are dealing with a competent team, the rate will be competitive. Will it be most competitive? No, not necessarily, but in the long run do I believe that clients working with my team will save the most amount of money I do find [them] and we believe that.
John Tenpenny: That’s great. Deb, you work in a small urban market, so maybe you have, what’s your take on this on this selling rate?
Deb White, Owner Broker, Dominion Lending Centres, White House Mortgage
Deb White: Well listening to my fellow brokers here, it’s just like oh my goodness it’s so different. When I get a mortgage approval and my client comes into my office, I have had some of my brokers that work with me, sit in with me so they can mentor or I can mentor them and they can see how I present the offer to the clients. And I start off with the payment. Okay, because in my small area, what’s important is, how much amount am I going to pay per month and how much is this going to cost me per month. That’s what they want to know. So I start off with the payment and go through the mortgage amount, then I go through the conditions and oh yeah, what is my rate, then I go back and take them to the rate. So 9 times out of 10 in my small community, rate it’s not important. Now Dan you said you don’t do B deals or Calum when you said you don’t do those B deals but I do on a regular basis. So for me to present a client with a 6.99 and a 11% rate because that’s what their credit and if all my clients had 700 beacon scores they would be very happy.
Deb White: What I got those I go, what do I do?
John Tenpenny: Right.
Deb White: You know, so it’s you know it’s very very common for me. So rate is not a factor for us so much. We do get clients that come in and say, hey you know I saw that, I can get [319 at Gold & Fraser], well we can’t get it in our area. So there is a lot of banks that I can’t get in my area that you guys can get in a larger area, so our communities, we’ve got our small credit unions which are 3.69 right now, which is a year ago, it would have been yay great rate, but not right now, right. So in that respect then yes we are competitive, but the last thing I show the client is the rate, not the first.
John Tenpenny: Yeah.
Greg Martel: I think if you look at CMHC’s most recent stat that our mortgage share is gone 23%, down from 26 and the main thing is if we educated our clients and all, if everybody who had a mortgage in Canada knew what a mortgage broker did for them, if it’s you know we provide them with a service that we can get them the best rate, our service is free, it’s covered by a lender, I wouldn’t say it’s free, but it’s covered by the lender and if they knew that, if we just did a better job of educating our clients in what we did, would we still have 23% market share or we would be closer to the US where they have got 85% market share. I think that’s the main thing, it’s just educating our clients. If everybody who knew, everybody who had a mortgage in Canada knew what we did and how we worked, our market share would be a lot higher. So I think we really got to focus on is educating our clients on what we do as a service.
Callum Ross: You know I think that you are getting away from the commodity trap is a big big element. Earlier on we had it mentioned here if we are going after a niche, you cannot be all things to all people. You know I know unequivocally I am not a B mortgage broker and I have a lot of respect for people who do that. As I said when I first got into mortgage business I could barely do A deals, so I certainly wasn’t going to do more difficult ones. And you know as time went on I had more product or financial planning knowledge or my knowledge of holistic financial well being than the actual mortgage product itself but I mean I think that each one of us have developed your respective skill sets, you cannot be all things to all people, you have to decide which set of market conditions are you going to compete in and you have to understand your competitors as much as you understand your close friends and make sure that you selectively pick the type of clients that you can be effective with.
Dan Eisner: [Let me say sorry].
Dan Eisner: My father is in an ophthalmologist and he has been 42 years as an ophthalmologist. He sells, he sells he does eye exams of course and he sells glasses, about half his revenue comes from the sale of glasses which is very important for an ophthalmologist. What has he noticed in the last 5 years, people come in, they get a exam and say can I have that prescription, because your price is [too high], you get them for half price on the internet. And so what’s happened is obviously he sees his revenue for the sale of glasses falling dramatically, because people are decoupling the purchase process. They are saying I can buy that piece from you and this piece from somewhere else. And Greg they are going come to you, get all this knowledge, they are going to see my rate online and get the rate from me. And because we cannot hook them in, it’s not like you pay them the upfront then you give them a bunch of knowledge and whatever rate. Decoupling the purchase process in 5 years.
Greg Martel: Yes, I do agree with that, in 5 years yes. But I think right now that market is small, I think that online market is 10 to 15%, right now maybe 20, but it’s going to gravitate towards 50 or 60 in the next and I know that’s where the industry is going, I am aware of that but I think today this is the focus we want to go because you look, it depends on your clients, you see their age group where they are, they are typically surfing the web, you know if you look at the echo boom, they are going to be definitely doing everything online, but Baby boomers not a chance,
Callum Ross: That’s our space big too, I mean the fact of the matter is, it’s a competitive marketplace. The nature of competition is, you know I don’t care whether you are wanting a good value, when you get up in the morning you better be right. The fact of the matter is it’s going to get more competitive, that people are going to get more educated, clients are going to become more rate conscious, we are going to have deliver increasingly better value propositions and if you are not sitting back at these tables or these conferences improving yourself and realising that rate is going to become a bigger and bigger issue, I mean you are kidding yourself.
The fact of the matter is that these people who are recreational mortgage brokers, they do one or two deals a year, who don’t have the knowledge base or access to understand how to shop the markets on behalf of their clients are going to be forced out of the market. It’s going to be something that is going to be dominated by a few select players and that’s just the nature of the beast.
Greg Martel: I think if we continue to brag, broadcast the fact that rate, rate, rate then we are just training our clients in the future to, oh we should search for the rates and then they are going to be towards that model, instead of our model.
Callum Ross: Yeah, [becomes itself during the process you are]
Dan Eisner: Yes.