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Why the banks can’t compete with brokers

Posted by Jul02, 2012 Comments Comments Off
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I read with great interest an article written recently by Stuart Grimshaw, the CEO of Bank of Queensland (BoQ). I was particularly interested for two reasons. Firstly, I’m a student of the Net Promoter Score methodology and have recently implemented it in my business (more on this later). Secondly, the reasons he cited for why he believed BoQ could win customers away from the Big Four Banks are sound in my opinion and even more applicable to mortgage brokers. Click here to read the article.

Mr Grimshaw suggests that the trend in banking is moving towards “a heavier emphasis on personalisation in financial service” and that people were seeking a “trusted relationship with their banker”. He went on to suggest that BoQ is well placed to achieve this through its owner-managed branch model because it means that branch managers hang around for longer and can build personal relationships with customers. He believes that regional banks like BoQ are nimble and small enough to compete at this level. I agree with him.

If BoQ believes that size and ownership structure have positive impacts on the ability to deliver sort-after, tailored, personalised and trustworthy banking services then mortgage brokers are a step ahead of the regional banks and probably two steps ahead of the big banks.

The Net Promoter Score methodology proves that loyal clients (call Promoters) are more profitable, do more business, buy more products, generate 80% of the referrals you receive, cost less to service and so on. It is proven that the key to generating more Promoters is simply to deliver a better service experience. Brokers have the most control over service delivery compared to their competitors. Let’s make the most of it!

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Recently, I was asked to nominate three activities that are common traits of high performing mortgage brokers. It is both an interesting and thought-provoking question. Typically, our greatest learning’s come from studying the habits of successful people. Often, it’s the small things they do consistently (i.e. daily habits), rather than spasmodic genius, that have the greatest impact on their success. Unfortunately, many people overlook these seemingly simple, repetitious tasks and instead search for the magic bullet. Success is rarely the result of one or two decisions or activities. Rather, it’s normally a series of daily habits as demonstrated in Verne Harnish’s book Mastering the Rockefeller Habits (highly recommended reading).

So here are my three habits of highly successful brokers:

Habit # 1: If you don’t value your time, no one else will!   

Successful brokers have a dogmatic focus on the profitable use of their most scarce resource… time. A successful broker will always consider what’s on offer when considering whether to accept a new lead. For example, if I was approached by a nonprofessional property developer that was seeking funding for his second development worth $2 million and it was a smallish development with no pre-sales. The first two questions I would ask myself are:

  1. How likely am I to win this deal (including how likely is it this deal will go ahead)?
  2. How many hours do I estimate it would take to get this deal settled?

I wouldn’t get dazzled by how much potential commission I could earn because commission is only one side of the equation (i.e. revenue). I’m focused on profit.

Focusing on these two questions initially allows me to hone in on the likely profitability of the lead. For example, I know very little about development finance. However, what I do know is there are many issues that could arise which may prevent the project from ever proceeding. I also know that obtaining finance for a property developer that doesn’t have a lot of experience can also be challenging – particularly without pre-sales. Finally, it could be year until the development actually proceeds. Therefore, while at face value, the upfront commission may appear attractive, I personally think it is unlikely that I couldn’t turn a profit by taking on this lead. I would probably refer the client to another broker better equipped to help this client (possibly with the agreement for a comms split – which is pure profit by the way).

I find that brokers tend to waste an extraordinary amount of time by trying to be all things to all people. In the morning they might work on a low doc refinance opportunity, over lunch they will be researching a non-genuine savings LMI scenario for a first home buyer and in the afternoon to try and help a professional with a waiver LMI for a large loan. The variability of all these scenarios means that you either have to be the most technically astute broker in Australia, or (more likely) you’ll end up spending way too many hours to solve each of these clients’ problems and not make any profit. If you try and chase too many rabbits, you won’t catch any.

If you’re spending any more than say two hours (on average) finding a solution (lender) for a client, then you’re probably not playing to your strength. I was able to write large volumes of business because I was disciplined to stick to what I was good at and do it over and over. The profit you make is largely determined by the leads you choose not to deal with as opposed to the leads that you do help. I always considered what was the most profitable use of my time.

Habit # 2: Hunt daily… make it part of your process

The second habit of highly successful brokers is that they are always prospecting the new clients. This has two advantages. Firstly, they have a consistently level of leads each month and secondly, they have the luxury of picking and choosing which leads they deal with (the profitable ones). That is, they don’t feel compelled to deal with a lead that they probably know isn’t profitable (not their specialty) because they are desperate.

In my experience, the best marketing activities tend to be no or low cost so it’s not like you have to do dedicate a lot of resources to generate consistent leads. Things like webinars, seminars, newsletter articles, blogs, telling people you want referrals and existing client reviews tend to be very effective and things that you can do on a consistent and daily basis. The challenge however, is that consistent prospecting for new leads is very important but it is not urgent. Brokers tend to rush to the urgent tasks at the expense of the important ones. I believe that if you want to become a successful broker and double the amount of profit you make over the next 12 months, you need to spend 1 to 2 hours per day (12% to 25% of your time) on prospecting and building your pipeline of leads. Do this, and after three months I promise you that you’ll see your volumes dramatically in increase.

Habit # 3: Shooting fish in a barrel

Most brokers are excited by the chase. We love the challenge of finding a great prospect and winning them. We are sales people after all. That’s great personally, but commercially it’s kind of dumb. It’s a fact that it’s far easier to win business from an existing client than it is to find a completely new client. That’s my third habit – successful brokers work their CRM database… hard!

Regular personalised contact with your existing clients builds familiarity, likeability, trust, loyalty and shows that you care. This ultimately results in a consistent flow of referrals. I believe that brokers should aim to call 1 to 2 clients every day with an aim of generating a conversation that adds value to the client. The value adding conversation must not be something that is laden with self-interest such as asking them “when they’re going to buy the next property”. Instead, it needs to be directed at helping the client with the challenge or cementing a common interest =- doesn’t actually have to be about finance or mortgages. It can be as simple as something like giving them the details of a comparable property sale or bringing to their attention an interesting article on a common interest such as golf (for example). The key to this habit is that it must be genuine so pick carefully the clients you choose to do this with. Pretending that you’d like someone that you really find irritating will come across fake and superficial and it will be complete waste your (and the clients) time. Build strong relationships with the clients you like – it’s the old 20/80 rule.

Resistant the urge to hunt for new blood until you’re confident you’ve exhausted all the opportunities in your existing client base first. This is truly the low hanging fruit.
It’s not rocket-science

You will note the lot of these habits are pretty simplistic – there is no rocket science here. The key therefore, is consistency. World renowned author Jim Collins says “the signature to mediocrity is terrible inconsistency”. The challenge is to do the same things each day, even though you know you can put them off until tomorrow. It’s doing the important, before the urgent. It’s discipline.

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