The process of incentives can often be a minefield for the company providing the bait for the customer. With many options available, hitting on that inspirational idea and determining how it will attract attention can often be the Holy Grail for any marketing team.
This naturally transfers strongly into the mortgage industry, as lenders and networks look to attract brokers to use their services, introduce clients to them and –perhaps most importantly – ensure that they use them over and over again.
Procuration fees
What are the key tactics with this though? Intermediaries are familiar with procuration fees, which arguably remain as the primary incentive that any lender can offer, but this is only claimed when the loan is approved and there will be instances where a broker will introduce a client to a lender, only for the mortgage not to be approved.
Naturally this does not leave a pleasant taste in the mouth of the broker, who will be looking for some kind of incentive to introduce another client to the lender – often regardless of whether a procuration fee is paid or not. Still the procuration fee remains the strongest part of the lender-broker relationship and is apparently the primary resource for a broker income.
However one critic of procuration fees is Paul Suchet, managing director of Money Plus, who claims that the fees are a means between reward and greed as many are often higher than necessary and can result in a financial burden on the client.
Suchet claims: “Procuration fees should never be more than 0.4 per cent. Just like the Base Rate, we should have a procuration fee rate. Anything above 0.4 per cent and brokers’ minds can become clouded. Anything less and the time they spend researching products is not adequately compensated.
“I use the word ‘client’ rather than customer. This is because we as brokers provide a service often more valuable than that provided by respected professionals such as accountants and solicitors. Yet high procuration fees can stop us from treating clients fairly.”
Suchet adds: “It is the advent of the non-conforming market that has given rise to ridiculously high procuration fees and spawned a flood of so-called brokers constantly searching for products that service not the client’s, but their own needs..
“Non-conforming should be a mechanism to assist in the credit rehabilitation of clients who suffered in the 15 per cent-plus interest rate era. Therefore high procuration fees paid under the guise of higher interest rates and completion fees, to name but two, are not consistent with the ‘Treating Customers Fairly’ (TCF) initiative.”
Service and relations
So if procuration fees are a standard offering, what else can brokers demand from lenders as an ‘incentive’ for them to put business through them, and introduce their clients to them?
Danny Lovey, sole trader at The Mortgage Practitioner, took a different stance on what brokers can do for him to encourage him to put business forward.
Lovey says: “The main thing that lenders can offer as an incentive is great service, not free pens or other items.
It’s all about good service. You can take the biggest lenders and you will see how an unrecognisable attitude developed over the past few years. You can call on them for anything and they say ‘we’ll try and do that’ or ‘we’ll make a case of doing it’. They will approve the client with no quibble and minimum fuss.”
One problem between brokers and lenders is regarding who represents the client, as they initially approach the intermediary who then introduces them to the lender. Lovey claims that this is often a problem with some lenders, and good relations are another incentive for business.
He says: “Often the argument between brokers and lenders is over who the client belongs to. The best experience I have had is with Accord which, in my opinion, is the most enlightened lender.
“I’ve been banging on about lenders keeping brokers in the loop, as once a client has been introduced, they are the lender’s client, which I believe is a very short-sighted policy. Accord, has been working hard on that and will tell brokers about arrears and what to do when clients have problems with repayments.”
Lovey continues: “We’re in the business to help people out. Lenders will employ people to chase borrowers up, but by using us they’re going direct to the first point of contact and we can sort it out before the financial situation gets too bad.
“If lenders would just relax about the client matter, we’ll be better off. It’s not about TCF, it’s about communication. If you told the adviser, they would be straight onto the client and would sort any problems out. In practice, clients are shy in coming to you, and by the time they do, and talk about their problems, they are often in big trouble.
“I believe that a lot could be done in the future about this. It could be a simple solution, but some lenders will write to the borrower while some will simply charge them which isn’t TCF. One client of mine had adverse credit and went into arrears simply because they didn’t have an overdraft and it was months before they found out about the problems they were in.”
“All of these things could add up if lenders were less aggressive and better at talking to intermediaries. Sharing information is crucial and if lenders choose to keep brokers in the loop they can decide whether to opt in or out,” Lovey concludes.
Making brokers’ lives easier
So what do the lenders offer to encourage intermediaries towards them? And is it enough, or are brokers seeking more? Nicola Severn, head of PR at edeus, claims that the company’s proposition is built on providing systems and processes that make intermediaries’ lives easier.
Severn says: “In the initial stages of launch it was vital that we communicated the online features, and encouraged brokers to test them out. The launch strategy consisted of a range of promotional activity including PR, advertising, and roadshows, all of which successfully conveyed the benefits of using edeus.
“However, to ensure that mortgage intermediaries logged on to experience the system for themselves we used a number incentives, including competition entries for those who registered in the early stages, and an enhanced procuration fee for those who submitted business up until the end of 2006.”
As the trials roved successful, and edeus is now a well established name within the broker market, the process of involving advisers and encouraging them through further incentives seems to have paid off.
Severn says: “Now that brokers appreciate the added value that using edeus can bring, incentives are no longer required. Brokers are able to access a wide range of competitive specialist products, use our system any time of the day or night, process cases at a pace that suits them using automated valuation models technology, and reach our call centre at a drop of hat, and at no cost. The advantages of using edeus, both in terms of time saving and ease of use are incentives in themselves.”
So if a mortgage lender has a product and has used broker expertise to test it out, the next stage is to get brokers to use the product and for lenders to attract intermediaries to both the product range and deal. Is this a challenge?
Severn says: “Brokers are not hard to source if you have a strong offering and a commitment to communication. Clear, weighty promotion in terms of marketing, advertising and PR go a long way to encouraging interest in your brand.
“At edeus our marketing activity sits hand-in-hand with our intermediary relationships. Our highly experienced sales team visits brokers on a regular basis to ensure they are using the system to their best advantage. If, as a lender, you are able to live up to your promises there will be no need to ‘incentivise’. In terms of sales volumes, incentives might encourage short-term use, but only genuine quality service and consistent delivery that facilitates results, will ensure long-term commitment.”
Shifting focus
So once again the primary incentive seems to have shifted from procuration fees to good service – brokers are seeking availability and access above financial reward.
In agreement is Andy Pratt, chief operating officer at Alexander Hall, who believes that the best proposition is a combination of a good products, reliable service from the business development manager and the processing unit and the procuration fees.
Pratt says: “Incentives are a key part in developing strong relationships between brokers and lenders. When run in isolation they do not work for any party. The key with an incentive is to promote a new or under-used part of the lender’s proposition and kick-start the relationship. If the components of service are in place, then following the incentive, the business can hopefully develop further and establish a long-term relationship.
“Our clients are our most prized asset and we will only recommend lenders that we can be sure will deliver on service. The product has to be reasonably competitive but it does not have to be the best rate in the market. A lender offering top procuration fees will always demand attention but will not attract the business unless they can back it up in terms of product and service.”
Fee variety
So if procuration fees are among the the primary incentives, the question is, do they vary from lender to lender? Taking Suchet’s earlier comment that they should ‘never be more than 0.4 per cent’ into consideration, is there much variety between lenders on how much is offered?
Pratt says: “Procuration fees are largely the same across the market, with only one or two exceptions per product area. Usually these lenders have a different proposition and the different procuration fee is integral to the overall proposition. This breadth in the market is welcomed by brokers who want choice for their clients.”
Getting brokers’ interest
Looking back at how lenders publicise their products, the key factor is making the broker aware and getting them interested in the first instance. So in what ways do lenders make brokers aware, and encourage business?
Pratt says: “The most common form of incentive is a product exclusive. This is primarily a marketing tool for the broker and is useful in attracting customers, or brokers in the case of mortgage clubs. There are very few incentives based upon service changes and this is not expected by brokers; this is because reliability and consistency is all that is requested in this area.
“Some lenders will develop incentives where the brokers get the opportunity to win a prize. These are usually based over a defined period and based upon a pre-set criteria. These incentives have to be carefully planned so that they are compliant and not just won by the intermediary who places the most business, for example.”
Overall there is a wide scope of ideas for incentives, and lenders could offer ideas such as days out, cakes on the doorstep or nights out drinking in order to encourage brokers to introduce their clients towards them, but overall there seems to be just a handful of incentives that mortgage intermediaries are keen on.
Mortgage intermediaries are in the advice business for financial profit, and procuration fees are still the most popular factor when it comes to the kind of remuneration they prefer. However, the service angle is commonly mentioned, and if lenders want to attract business then swift service and accessible phone service should be the biggest incentive on offer.
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