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When we market to prospects we often talk about interest rates and interest rate discounts – comparing rates to other banks, variable versus fixed, compared to the standard variable and so on. The problem with this is that interest rates don’t mean much to people and there’s research to back it up.

In his Ted talk, behavioural economist Dan Ariely talks about how we measure the attractiveness of certain options (click here to watch the presentation and if you are short of time, fast forward to 12 minutes and watch for about 3 minutes). Dan suggests that humans aren’t good at making decisions and selecting which ‘option’ (or choice) is best for them. Often, they are so confused that they select the easiest path (in our industry that’s the decision not to refinance or switch banks). His research further demonstrates that providing a client with 3 options (including one that is clearly inferior), helps people make a decision. Let me explain by example. Let’s assume our client (Jane) has a home loan with NAB for $300,000 at an interest rate of 6% variable – so interest only repayments are $1,500 per month. We want to suggest that Jane should consider refinancing to Westpac and fixing her interest rate. We could present two options: 1. refinance to Westpac at 100% variable at a rate of 5.95% (repayments = $1,488 p/mth) 2. refinance and fix at an interest rate of 5.50% (repayments $1,375 p/mth – saving $125 p/mth). Dan’s research suggests that including the first option will help more people select the second option.

I’m not suggesting that you purposely set out to manipulate people into refinancing – not at all. Instead, all I’m suggesting is be careful with how you communicate the benefits of one product compared to the next. For example, comparing repayments (in dollar terms) will typically be far more powerful than quoting rates. People think in dollar terms, not percentages. Secondly, recognise that it’s difficult for people to make decisions. Therefore, you either have to only provide one option (recommendation) or ensure that you are providing enough information to make comparisons but not too much information that will result in confusing the client.

Do you have any experiences with helping clients made decisions that you can share? Comment below.

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Will broker market share reach 70%?

Posted by Nov01, 2012 Comments (2)
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The CEO of LoanKit expects the mortgage broker market share to go over 70% – interesting comments and I agree – click here to read. But its up to us… we all need to aim high.


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Key profit driver: 3 levels of advice

Posted by Nov01, 2012 Comments Comments Off
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Knowing how to advise clients is just as important as knowing what to advice to give. You can have the most valuable advice in the world but if the client doesn’t follow it, it’s worthless. What is your approach to delivering advice and do you change it depending on the client? Are you aware there are 3 levels of advice?

Yes, I believe that there are three levels of advice and you need to build (earn) trust with the client before you can move up a level. However, from conversations with many brokers, it has become obvious to me that many brokers are reluctant to move up a level (or they aren’t aware of the levels) – even though they have earned it and the client wants them to. Here are the levels:

Level 1: information – clients initially come to brokers as an information source. There are two facets to this – firstly, brokers have ready access to mountains of product and policy information at their fingertips. Secondly, because the volume of information is so large, most borrowers need help wading through it and deciding which information is important and which information can be ignored when making their decision.

Level 2: advice – once you have developed trust with the client (hopefully during the first transaction) delivery of information will not be enough. They will want to know what you think they should do – which option should they choose. Providing information and choices at this stage will irritate the client – they trust you and believe that you know more than them and want your advice. You must help them make a decision. The more trust you have the more definitive and strong the advice needs to be to make the client happy.

Level 3: direction – once you have developed a very high level of trust with your client they will start wanting direction. Direction means they want to delegate the decision making to you. We have all had those calls from repeat clients: “I have just purchased a property, the agent will fax you the Contract and I’ll wait to hear from you which lender we will use this time”. However, it won’t be that obvious with some clients. Some clients may think they want advice but at the end of the day, they need to be told what to do (which I guess is still advice but more direct advice).

The higher the level, the more profitable the client because Level 3’s take a lot less time to service than Level 1’s.

The art in mortgage broking is to know when to move your advice approach up a level. The faster you can take a client to level 3, the more profit you will make. And there are systems that you can use to build trust fast but that’s another blog for another day.

I’d love to hear about your experiences in delivering advice.


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This morning I did a radio interview and I was asked what I thought the common mistakes property investors make with respect to borrowing. My answer was that people didn’t seek credit advice which resulted in poorly structured loans (giving rise to lack of flexibility, poor tax planning and poor risk management). I suggested that borrowers should first seek credit advice on things like how much they should borrow, how to structure it, how much to repay, fixed or variable and so on. This advice is bank-neutral (i.e. isn’t affect by the lender selected). Once borrowers have this advice, they can then turn their attention to the question of which bank to use.

I think it’s important that clients understand that we (brokers) deliver these two distinct services. The first service (advice) can deliver a large amount of value in the client’s eyes – although the value might not be obvious until your work has been done. Finding the best loan and doing all the paperwork is attractive too. However, the “value” is typically less than the advice bit – because the key benefit is saving the client some time.

In marketing, there’s a saying “tell them what they want to hear and educate them about what they need”. Most borrowers (that have not used a mortgage broker in the past) want a broker to save them time and get them the best deal. This is what you should tell them you do in your marketing. However, your sales process should aim to educate your client as to the need, importance and value of your advice. A good broker provides two services – talk about each of them at the right time and you’ll be successful. If you make the mistake of only talking about one of them, you’ll find it much harder to win clients.

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A few weeks ago I had the pleasure of listening to Shawn Achor speak at a conference in Istanbul, Turkey. Shawn is a Harvard-trained researcher and an expert in happiness and human potential. He has a fantastic Ted Talk which only lasts 12 minutes which you should listen to – click here to watch it online.

Let me share with you some of my notes from Shawn’s presentation:

  • Most people are not average – average is just a statistical measure – it’s not relevant. If you study the average you miss out on learning. Best to study the above average.
  • It’s not reality that changes us, it’s the lens that we view the world that changes us. What you focus on is your reality. If we know everything about your external world, we can only predict 10% of your happiness. 90% of your happiness is how you process that information. Learn how to control your mind and focus, then you can only focus on the positive.
  • School grades do not predict success. In fact, studies suggest that a roll of dice is 2% more likely to predict success.
  • If we know a child’s IQ we can only predict one third of success – so intelligence has little to do with it.
  • There are three things that determine success/happiness: 1) Optimism – belief that behaviour matters and you can alter the outcome 2) Strong social connection 3) View stress is a good challenge – not a negative thing.
  • Be careful because negative patterns train your brain. E.g. If you always look for mistakes at work (e.g. such as an auditor does) you’ll look for mistakes in personal life.
  • Happiness is a choice. What you attend to first is your reality.
  • Happiness spreads. The best way to change someone is to change yourself.
  • Happiness is a work ethic – it takes effort.

So how do you make yourself happy?

Shawn offered a few exercises that you can do daily – start by doing one of them only – don’t try and do all of them at once:

  1. 3 gratitude’s – each morning write down and say out loud 3 things you are grateful for
  2. The doubler – think about one meaningful experience and write it down and think about it and visualise it
  3. The fun fifteen – 15 minutes of exercise
  4. Meditation – start with one minute of meditation and do more gradually
  5. Conscious act of kindness – do something nice for someone such as sending someone an email of appreciation (because it creates social connection).

Do one of these for 3 minutes a day for 21 days and that is all that is required to rewire your brain.

How do you ensure you follow through with these ideas?

Reduce your activation energy. Activation energy is the initial investment of time to start doing one of the tasks above. Decrease the energy it takes to do something to 3 to 20 seconds and the chances of you doing it increases significantly. For example, if you are going to exercise in the morning, sleeping in your training gear will increase the likelihood of you actually doing the exercise. The reason is that it takes less energy to get start – you don’t have to think “now I have to get out of bed in the cold, get changed and then go – it’s all too hard”.

Final thought

The problem is we think we might be happy when we achieve a certain volume in our businesses – $3m, $5m, $10m… whatever it is. So you work harder and harder to get to that volume so that you’ll be happy. Once you are there, you’ll move the happiness goal post up – so you’re never really happy. Problem is, that’s broken – it doesn’t work. Get happy first and that is what’s likely to get you more volume. A happy brain is 37% better at sales than a natural or negative one. Get happy first and success will follow.

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