There is a common misconception of the term "advice" and its place in the mortgage industry. It is often associated closely with the financial planning industry, and this can cause confusion, according to Matt Lawler
It is important to realise that being a mortgage broker is about far more than the mortgage product sale. It is advice that will keep clients satisfied and brokers in business for a long time to come.
When we talk about advice in the mortgage industry it is not in the context of 'advice' as a regulated term. However, we do need to look at the situation through the client's eyes. Ongoing advice is critical to the success of the mortgage as it provides client education and realistic debt strategies from the outset, then helps clients to manage these through their various life stages and changing circumstances.
Regulation
The pending regulation of the mortgage industry should legitimise the term of advice in lending. Whilst restrictions apply in the short-term, in relation to the promotion of what brokers can say or promote themselves, this should not preclude us from investing in and implementing changes to our business model which reflect an advice-giving approach.
So what do we mean by advice? Put simply, helping people achieve their aspirations. This means helping people to understand their options, to understand the risks they are taking on, to make better choices, and even to 'stay the course'. This is where a broker adds value.
Consider this scenario, a client seeks the services of a mortgage broker to solve a debt or mortgage need. The broker is able to respond to this by having the knowledge of what is available from different providers in the market place. The broker then presents options to the client based on their needs and talks through the pros and cons of each. The client then makes a decision based on this discussion with the broker. Call it what you will but most, including the client, would consider this to be advice - Lending Advice. And more than that, this is what clients expect.
What is Lending Advice?
In a more detailed sense Lending Advice involves four main areas of consideration: financial organisation, managing risks, structure and product, and implementation planning.
Financial organisation
Firstly, financial organisation is about bringing structure to the financial lives of clients. Fundamentally it is about managing repayments, though beyond that it involves guidance around budgeting, effective cash flow management and streamlining facilities. This is the 'sleep at night' section where a broker's assistance makes it easier for clients to have peace of mind, knowing they have an achievable goal and that they are working towards it.
Managing risks
Importantly, Lending Advice is also about managing risks. Taking on debt requires serious consideration and can involve significant risk on many levels. The role of the broker is to identify and mitigate these risks and help the client to understand them. Some of the risks the client will never have even contemplated. There are economic risks such as interest rate fluctuations and inflation, health risks, property risk, employment risks and more. What if the client loses their job as the economy slows? How will this impact their debt and how will it be managed? It is the responsibility of the broker to assist with reducing and removing these risks wherever possible.
Structure and product
The third area for consideration, structure and product, is one which brokers have historically given the most attention. Crucially though, it is about far more than the product sale or the cheapest interest rate and involves recommending a suitable solution to the client's debt situation. This is a multifaceted area that requires significant research around items such as features & flexibility, fixed or variable facilities and long term interest rate considerations. Brokers also need to provide lender profiles to clients and help them understand the relevance and importance of their recommendation.
Implementation planning
Finally, implementation planning plays an integral role and can have a positive impact on the client's experience. A good question to ask brokers wondering why this area is so important is; do you want to be on the periphery of the transaction or at the centre of a life long journey? Implementation planning represents a great opportunity for brokers to really add value and sets a strong foundation for a long term relationship with the client.
Is is safe?
Now some people hold the view that talking about 'advice' is somehow dangerous or impractical. Why? How? What is the fear here? Perhaps the fear is that the needs of clients will require the broker to acquire new knowledge, skills or capabilities within the business to provide the relevant advice. Would that be such a bad thing? It comes back to what should be the key focus for every broker, that is, the client. If a client requires more or something different from a broker then they should accept the challenge of change and meet that request head on. One thing can be guaranteed for certain, if the broker doesn't do it, someone else will.
One of the most important things for brokers to remember through all of this is that their role is about managing life events, not executing transactions. Each of these distinct areas of Lending Advice should be reviewed and researched at regular intervals to maintain contact with, and the confidence of, the client.
The broker's advice toolkit
Brokers require a sound support system to be able to deliver quality ongoing advice to their clients. Firstly, they require a broad range of solutions to meet the varied and ever changing needs of their clients. This is not about being all things to all people but about being aware of the target audience and what features, products or services are suitable for them.
Brokers also require a remuneration system which reflects, supports and rewards a long-term approach to servicing client needs. Quality and effort should be rewarded at an individual level providing the ability for brokers to influence their level of remuneration. The remuneration structure should be careful to avoid incentives of any kind that are based on cross-sell hurdles, soft-dollar arrangements or volume bonuses as these practices only serve to erode consumer confidence and discourage the fostering of long-term client relationships.
It is also interesting to note that a broker never has more information about their client than early on in their relationship. This is a legacy of a transactional approach to mortgage broking where the information is required to make a sale and then the client is often forgotten. This needs to change. Brokers should be provided with real-time access to comprehensive client information to enable them to deliver appropriate and relevant ongoing advice to their clients. It is much easier to develop an appropriate solution when you can take the current and complete financial situation of the client into consideration.
It makes sense then that brokers should be looking to partner with institutions that allow them to leverage their broader range of products and services, and not simply those that offer the cheapest product of the day.
Matt Lawler is regional general manager of NAB Broker responsible for products provided by NAB, Homeside and MLC. He has more than 20 years experience in the Financial Services industry having managed MLC's Financial Planning groups of Garvan, Godfrey Pembroke, Apogee and NAB Financial Planning (approximately 1,500 Financial Planners) through the introduction of regulation in the form of the Financial Services Reform Act (FSRA) in his previous role. After spending several years on industry committees for the FPA including being a key architect of the FPA's Conflict of Interest Policy, Matt recently resigned from the FPA Board after 2 years and has now taken up a Board position on the MFAA.
These views are personal views based on Matt's experience and do not reflect the views or policy of the MFAA Board.
