Bridging the divide to ensure broker value outperforms

Marathon runners are keenly aware of their position in the field and conditions around them as they approach the middle of a race, partly because of the importance of the “negative split” – performing better in the second half of the race than the first.

Mortgage brokers today find themselves approaching such a juncture, with clients’ higher expectations setting an increasingly demanding pace. Clients want quick decisions, transparent communication, and seamless execution – all conditions that good mortgage brokers strive to provide. But at the same time, many are concerned about a growing divide in their relationships with lenders that may jeopardise their ability to deliver.

Those who can’t keep up risk falling behind, while the most successful brokers and lenders will be those who can adjust to the environment quickly and finish strong.

On one side are lenders that prioritise genuine partnerships, working closely with brokers to meet client needs. On the other, some are more concerned with their own direct channels, leaving brokers frustrated by a lack of understanding and support.

This crossroads is creating pressure on all sides – rising costs, evolving client expectations, and technological disruption.

Two senior managers at industry technology partner NextGen recently met in Sydney with a group of mortgage brokers and financial service experts to discuss related issues in the mortgage broking industry and related borrower markets with Australian Broker.

Industry leaders point out that while some lenders are genuinely collaborative, others prioritise their own interests, often creating conflict. Brokers need better communication, faster approvals, and more reliable technology to help them manage the rising demand for speed and certainty in the lending process. Although technological advances like open banking and AI have been slow to live up to their promise, brokers remain hopeful that with the right support from lenders and aggregators, they can evolve into proactive advisers who add even greater value to their clients’ financial decisions.

The lender divide

Darren Little, General Manager – Lending at Smartmove Professional Mortgage Advisers, sees a clear split emerging among lenders.

“We’re seeing some lenders that are absolutely hell-bent on understanding our business, our clients’ needs, and working with us,” he said. “Then there’s some other business partners that tell us what’s going to help them make their life easier, but don’t actually understand the impacts on the client or the broker.”

This sentiment is echoed by other brokers, who are increasingly frustrated with lenders that pay lip service to partnership while prioritising their own channels.

“Some of these banks are turning up to our offices and industry events, pretending to support the industry, but meanwhile, there’s channel conflict and they’re telling their direct channels that they can do things that brokers can’t. It’s very frustrating,” said Theo Chambers, chief executive of Shore Financial.

This division is becoming increasingly pronounced.

“It’s like they’re playing both sides of the field, and we’re caught in the middle. We need lenders who are genuinely committed to the broker channel, not just when it suits them,” said Chambers.

This sentiment is echoed across the industry, with brokers increasingly frustrated by lenders who pay lip service to partnership while prioritising their own channels.

“It’s probably more prevalent today than ever in the last 10 years that I’ve been a broker.” The distinction lies not just in the tools and services offered, but in the fundamental approach to the broker-lender relationship,” said Little.

The result is a growing rift between lenders who genuinely seek to understand and support brokers, and those who view brokers as simply another distribution channel to be managed.

What brokers want: certainty, communication and speed

While certainty is crucial, it’s not enough on its own. Brokers are calling for regular, meaningful communication from lenders. But importantly, they want this communication to be a two-way street.

Nathan Smith, director of Birdie Wealth, boiled down broker needs to three key factors: “We want certainty. We want communication from the bank. We want speed.”

“We want them telling us what’s changing on their end, but [want them] also listening to us around what’s changing in our businesses,” Smith explained. This two-way dialogue is essential for building true partnerships between brokers and lenders.

“It’s not just about them broadcasting information to us. We need lenders who are willing to sit down, listen to our challenges, and work collaboratively to find solutions.”

This communication extends beyond just policy updates or product information. Brokers are looking for lenders who are willing to engage in meaningful discussions about the challenges and opportunities in the industry, and who are open to feedback and collaboration.

The third key factor – speed – is becoming increasingly critical as client expectations shift. “The expectation is that it shouldn’t take two weeks to get an approval,” Smith pointed out. “That’s not what their lifestyle is about anymore. They want quick, speedy results. They want to go to auction in a day, and they expect to be approved on the day.”

Sarah Thomson, director at Loan Market Geelong, added that speed is often the deciding factor when choosing between lenders with similar offerings. “If they’ve got the same rate as another lender, best interest duty is met, and we know it’s going to be approved quicker and seamlessly through this lender, they’re definitely getting more business.”

Getting it right has a significant impact for both broker and lender.

“The lenders who can consistently deliver quick turnarounds and a common sense lending approach are the ones who are winning our loyalty. It’s not just about the products anymore; it’s about the entire service package,” said Thomson.

“Client expectation today versus three or four years ago is just totally different. You know, during that COVID period, we had some blowouts, everyone understands that. But that expectation is very different now,” said Little.

While measures such as Net Promoter Scores (NPS) at some institutions have improved markedly in recent years, client satisfaction levels vary widely across financial services.

The need for better service is driving brokers to seek out lenders with streamlined processes and efficient technology.

Will Foster, director at Foster Finance, highlighted NAB’s credit coach program as an example of a lender providing the certainty that brokers crave. “We’re being taught on an intimate level about their credit policy by somebody who has $3m delegated lending authority,” he explains. “It’s changed the way that we think about the NAB brand. We understand what they need, and we’re going to provide it.”

This level of certainty gives brokers the confidence to present solutions to clients, especially in challenging cases. “Being able to talk to a client who’s been knocked back two or three times and say, ‘Well, I’m not going to submit that application until I’ve got a pencil sign-off from someone who has a pen and sign off’ – that gives them so much confidence,” Foster added.

The tech opportunity and the human factor

Artificial Intelligence (AI) is a technology that brokers are watching closely, but with some trepidation due to how quickly the playing field is changing. “AI is somewhat keeping me up at night,” Smith confessed. “I don’t feel that I’m adopting it quickly enough in my business.”

However, like any new technology, apprehension is not a positive framework for tackling the challenges.

“We need to be looking at this technology and incorporating it, making sure that we are not doing it from a place of fear and doing it from a base of being solid and clear and having a long term strategy so that we are aware of consequences with parts that we don’t know,” said Blethyn.

NextGen is exploring AI’s potential for various solutions, and has already incorporated it in their open banking products. She said the aim was to make the service “really speedy, clever, smart, [and] accurate… from both [a broker] perspective in terms of when brokers are sitting in front of the client, getting that picture in an instant and getting that as accurate as possible, but then also from the lender perspective, being able to recognise, categorise and recognise patterns in transactions.”

Chambers pointed out other challenges of implementing AI: “The problem with it at the moment is, firstly, certain people have issues with the information being shared on an AI platform. And secondly, we’re struggling to integrate with third-party platforms for a proper two way API with full data sets.”

As the industry continues to evolve, it’s clear that the most successful lenders will be those who can provide brokers with the certainty, communication, and speed they need – all underpinned by technology that truly enhances the broker-client relationship.

Expectations are higher for the impacts that AI will have on financial services than in many other industries, particularly in terms of automation or augmentation of regular work tasks. A recent Accenture report showed that up to 68% of working hours in the global banking industry are in scope for to be automated or augmented by generative AI.

While the industry is clearly moving towards greater technological integration, there’s also a strong emphasis on maintaining the human element that sets brokers apart.

This sentiment was echoed by Little, who emphasised the unique value that brokers bring: “There is that uniqueness about human beings that can’t be replaced.”

Despite the challenges, brokers remain optimistic about the potential for technology to improve their businesses and client outcomes.

Cybersecurity as a growing concern

The flipside of the positive effects that technology can have on the industry are illustrated by the growing threats around cybercrime in finance. Brokers are attractive targets for hackers and simple human error is often a key contributor to security breaches.

Data security concerns loom large, as evidenced by the rising incidence of financial crimes involving digital payments. According to a recent LexisNexis Risk Solutions study, 46% of organisations reported an 11-20% increase in such crimes over the past year while a further 19% reported more than a 20% increase. The vast amount of personal and financial data that brokers handle has made cybersecurity critical.

“As brokers, we’re really privileged with the amount of information we do hold on behalf of our clients, and it staggers me,” Little said. “To this day, a lot of our business partners, predominantly banks, still want us to be emailing in documents to BDMs. They won’t accept even password-protected documents because it doesn’t go through their OCR (optical character recognition) facilities. It’s crazy as the level of information we have and what we’re sharing and in the manner we’re having to share.”

Little’s comments highlight a disconnect between sensitive data handling and outdated submission methods, increasing the risk of data breaches and creating inefficiencies.

Mitigating these risks requires a multi-faceted approach. Robust cybersecurity measures, regular staff training, and adherence to stringent data protection protocols are crucial.

Rising business costs squeeze profitability

Simultaneously, brokers are grappling with increasing operational costs on the back of lingering high inflation.

“I think from a business perspective, we’re facing the same difficulties that consumers are, and there are pressures on the costs that are coming into the business,” Thomson explained. This puts brokers between a rock and hard place in terms of running the business.

“The difficulty is, as brokers, we can’t raise the commission rate at which we’re paid on loans, so we just have to settle more loans to generate more revenue to cover those costs.”

Brokers are left with two options: accept lower profit margins or increase efficiency.

“I think as a whole industry, you could say the cost of doing business has gone through the roof and revenue’s going the other way. So that margin squeeze is a real issue,” said Smith.

The need for standardisation

Another recurring theme was the need for greater standardisation across the industry, as it sometimes seems there are as many different ways of solving a problem as there are stakeholders in the industry. While these solutions are welcome, more unification is perhaps the next step needed.

“I just sense at the moment, everyone’s got a different agenda. And it’s pretty fragmented,” said Little.

This shift towards more streamlined, data-driven processes about both efficiency and about meeting evolving client expectations. Processes are evolving quickly.

“A few years ago, asking for a bank statement was the norm. Now, obviously, we run screenscraping, and I can see in a few years time, that’s just not even going to be in the realm of what gets asked,” said Little.

Aggregators, with their unique position in the industry, could play a crucial role in solving this fragmentation.

“That’s really where the opportunity sits. You know, having that single source of truth, one we can rely on, and the bank can rely on, and that essentially meets customers expectations.”

Chambers believes aggregators should be at the forefront of technological innovation given their scale and resources – that they could become a ‘single source of truth’ for various broker processes.

“I do feel aggregators should be doing more with technology. I feel like they have the justification in the budget to spend with technology. Most aggregators don’t even have a system that can give you that single source of truth. And we’ve been building solutions around their limitations.”

Smith also sees the need to overcome such limitations.

“We all use aggregator software, but the amount of other software and systems we have to plug in to make it work – it can be frustrating… that’s where we’re losing a lot of efficiency.”

In an ideal world, all the systems that brokers use should be integrated into a true ‘single source of truth’.

“The ability to have all the platforms talking to each other effectively, is what we’ve been asking for,” said Smith.

Significant challenges – and opportunities

As the mortgage broking industry continues to evolve, it’s clear that the most successful lenders will be those who can provide brokers with the certainty, communication, and speed they need – all underpinned by technology that truly enhances the broker-client relationship in a manner that is efficient and secure.

The challenges are significant, but so are the opportunities.

Despite technological advancements, the human element remains crucial in mortgage broking and speed isn’t everything. Brokers who can balance quick responses with thoughtful, personalised advice will likely see the greatest success.

“There is that uniqueness about human beings that can’t be replaced. This human touch, combined with efficient processes, can create a powerful value proposition for clients,” pointed out Little.

Brokers are increasingly aware of the long-term impact their work has on clients’ lives. Foster highlighted the importance of understanding and meeting client needs, including those who have faced setbacks in their plans and making sure that any applications filed were going to be accepted by the lender.

“That gives them so much confidence – and what you get on the back end is a lifelong client,” he said.

This focus on long-term outcomes rather than quick transactions leads to stronger client relationships and increased referrals.

Many of the brokers also saw a growing opportunity for the role to move from reactive intermediaries to proactive advisors. Little sees potential in using data to anticipate client needs, for example.

“If we can get into data and understand what’s happening in our clients’ lives, that’s where I really think we can turn the dial,” Little said. “The ability to go to that client and say, ‘Hang on, you’re going to Bondi a lot. Are you going to get engaged?’ Just using data to actually be smarter, add more value to our clients, rather than that reactive approach.”

A shift towards proactive advising could significantly enhance the value proposition of brokers, further differentiating them from direct lending channels. The frequency of interaction with clients will also increase, as brokers gain insights into financial trajectories perhaps before the client themselves is aware of an issue or opportunity.

Rather than a series of short sprints where brokers jump in only when a loan is needed, the relationship becomes more of a marathon over the lifetime of a business or geared towards much longer-term financial goals.

Indeed, the growing market share of mortgage brokers reflects a clear consumer preference for the personalised service and choice that brokers offer, a key advantage over direct lending channels.

As Little pointed out: “We have so much choice, and that’s the beautiful thing about our industry. We have so much choice, and just have to dig a bit.”

This article was originally published in Australian Broker on 11 November 2024.