Brokerage director talks about customer outcomes, incentivising staff and Consumer Duty
As advising director of Bristol-based mortgage brokerage Advantage FS, Steven Morris is certainly in a position to attest that running a business is tough.
“‘Heavy is the head that wears the crown’ is a phrase for a reason,” said Morris (pictured). “So much responsibility is bestowed on anyone who is held to account for the work of others, with so little actual control over the people being managed.”
Morris said that Advantage FS had been “very lucky to launch the business during an ironically great market, during the pandemic.”
He elaborated: “We were lucky enough to need more advisers so quickly, but our biggest luck was being able to call on a back-book of advisers we knew, liked, trusted, and in some cases, trained. We are now at a total headcount of 14 team members, of which 11 are advisers, with two more due to start next month. They are all just absolutely brilliant.”
While Morris has been fortunate with his team, a thought crossed his mind. “What if our advisers weren’t all brilliant?” he explained. “How would you run a business that was all about customer outcomes and doing the right thing, if we assumed we couldn’t control for the people working in it? Is it possible to structure a company to do that?”
The answer, Morris explained, lay in using end to end conversion rates that could not be manipulated.
Playing the game
“Too many mortgage businesses I have seen over the years have their controls and bonus schemes set up as a game,” Morris said. “When you set up ‘games’, the participants will be spending their time ‘playing the game’ rather than actually working on, and delivering, customer outcomes.
“Ironically if you have business values that are all about delivering customer outcomes, but you run a game-based bonus scheme, that contradicts those values. Guess what? It isn’t going to work. You are telling staff to act in one way, but financially incentivising a totally different, or at worst, opposite behaviour.”
It was important, Morris pointed out, to align the metrics of a bonus to the final outcome the customer hired the adviser for, and only pay adviser bonuses once the job was completed.
“Stop paying advisers bonuses for mortgage application numbers,” he stressed. “Change it to completion, alongside end to end conversion rates, so it can’t be manipulated.
“Why would an adviser waste their time submitting 40 applications to only have 10 of them complete, and therefore, only 10 count towards their bonus? Whereas, if bonused on applications, you can bet some advisers will waste their time doing so, if they are paid for 40 applications, but only face a small reduction due to poor completions or conversion rates.
“Alternatively, you would need to make the bonus penalty for applications not completing so punitive that you may as well just target completions, which is what the customer wants and what it should always be about.”
Conversion rates and quality measures
Conversion rates and quality metrics were key, said Morris, and needed to make a big difference to the adviser’s pay.
“Even if you are a business that pays commission splits, involve conversion rates and quality metrics,” he urged. “For example, their commission split could be linked to their lead to app conversion rate, compliance rate, or customer service ratings.”
Morris added that this worked for admin bonus schemes too.
“Every bonus scheme I have ever seen has bonussed admins for getting a high number of offers and quickly too, which sounds right, doesn’t it?” he reasoned. “Unfortunately, it incentivises admins tuning out after the offer is produced and guess what? The offer isn’t the customer outcome, completion is. Change your admin bonus focus, from offers to completions.”
Adjustment period
Morris, however, stressed that all mortgage businesses should have a responsibility to ensure that business volume was not being achieved at the expense of the customer.
“With Consumer Duty now in full swing, customer outcomes are now the target,” he said. “I would be amazed if the regulator doesn’t start looking at enquiry to outcome conversion rates. This will vary naturally on business type, but this is more to show you have a handle on underperforming staff and are doing something about it.
“Some staff will be annoyed for about six months while they get used to focussing on a different outcome. They may be purposefully submitting applications they knew wouldn’t pass, or just aren’t doing enough due diligence. Either way, customers understandably hate it, and so do your profit margins.”
Morris said other managers responded by utilising their management controls to defend against this.
“If we find they aren’t doing proper due diligence, or if we get a justifiable service complaint, we reduce the bonus,” he said, noting that required time to dig into individual cases.
“Just set your metrics up properly to model what customers need,” Morris explained. “I am not saying management won’t be needed, but you are now paying people to perform, so are pretty much guaranteed to see a reduction in management intervention required.
“I am really hoping that this is old news to everyone reading this. However, my experience in the industry tells me it is not, and change is needed.”
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