as published in the latest issue of CMP Magazine
During a recent meeting with a representative of a lender the conversation drifted to a topic which I’m sure is always one of interest to readers of your publication;
Client Retention. Whose client is it anyways?
As we wrap up a potentially record breaking renewal year, considering 2007/2008 volumes, there has been much discussion amongst Brokers regarding various lenders retention team efforts and tactics. From one lenders renewal letter that goes out with a full-color picture of a retention team representative introducing that individual to the clients as their new mortgage contact, to lenders offering renewal rates well below what we are offered short of an aggressive, if not impossible, buydown. i.e. As recently as Aug 15 one lender continue to offer a 2yr fixed .40% below their Broker rates to renewal clients.
Perhaps it makes me sound a bit of the heretic to some Brokers, but I simply do not understand why any of us are surprised or offended by such offerings. Brokers should not only understand why this is happening but they should consider gaining an understanding of the full dynamic. I know I wanted to and here are a few of my conclusions thus far;
1) Brokers must do a better job communicating with clients as renewal time approaches, a better than the job the lender does.
2) Brokers have the ability to do a superior job of communicating directly with clients throughout the term of the mortgage, which offers a tremendous foundation to build on at renewal time.
3) Brokers should be sending their own form or renewal letter citing current market offerings along with our own smiling face printed on it. Both email and a snail-mail version.
4) Lenders and Brokers each share a base motivation for retaining/moving a client at renewal, we each get paid only if one wins and the other loses. A fundamental flaw in the system one might argue.
Lets leave the trailer fee model debate aside for the purposes of this article, but it obviously plays a role in mitigating this win/lose scenario.
5) Historically lenders have played the rate game with great success managing to lock the majority of their clients into higher than market rates, as long as this strategy is followed it presents an excellent advantage for Brokers able to clearly communicate the true market rates of the day. Although the lender may be able to come from behind and match or even beat us on rate at least they are now doing it with egg on their face. Always value integrity, your clients will too. People respect and appreciate straight talk.
To Broker’s credit at large, we have done a very good job of educating the public on the concept of floor rates and spreads. So much so that fewer and fewer lenders are wasting time before dropping right to their own floor rate with the client. Lenders now understand what brokers have always understood; that the majority of clients do not want to haggle over interest-rate any more than they wish to haggle over the price of a new car. Offer the sharpest deal right up front and lock things down. This approach earns client respect.
The concept that there exists such a thing as a ‘brokers lender’ is not inaccurate, however I believe that the perception of the definition varies widely. Attached to it are some unreasonable expectations on the Brokers part.
Is a ’Brokers lender’ one that gives up the client at renewal time without a fight? From a basic business perspective that would be a lender that would be unlikely to remain profitable and thus equally unlikely to stay in business over the long haul without alternative streams of revenue. In other words Banks are able to afford to be less effective on the client retention side, not that they necessarily are. The non-Bank lenders are significantly more motivated to hang on to their sole revenue stream. They truly cannot afford to lose clients at renewal time, at same time it is far more difficult for a Broker to be able to afford to compete with the monoline lender at renewal time without sacrificing the aforementioned integrity.
It only ever makes sense to move a client if there is a strong business case that you can present to the client. If the Broker knows the current lender will match the rate in the 11th hour and the product is also a match, then that Broker may be better served by acting as an agent to the current lender for the client and simply short circuiting the process to get the client the market rate. You maintain your relationship with the lender, and also keep things simple for the client. One must have faith that the Universe will pay them mind you, as nobody else is in this scenario. I find most often that appreciative clients are referring clients. Do the right thing, the money part will work itself out.
I do a fair bit of my business with the Chartered Banks, and often it is suggested to me that I am being foolish as I am giving up ‘control’ over ‘my’ clients.
It seems to me that the main points of the exercise are being missed.
1. The client owns the client.
2. Lenders pay an upfront commission to brokers for ‘lead generation’, this is what a broker is to and for a lender; a generator of new clients.
3. A ‘Brokers Lender’ is, in my opinion, a lender with strong products, fast and logical underwriting, and great client support post funding.
Any business is acutely aware that it far more expensive to attract new clients (i.e. paying broker commissions) than it is to retain current clients. The Brokers role is lead generation for the lenders, however the Brokers role to the clients is to be a trusted advisor. On occasion that will mean assiting the client with staying where they are, on others it will entail assisting them with a move to another lender.
Neither the lenders needs, nor the Brokers needs dictate the course of action.
The clients needs must always dictate the best course of action.