Remortgage

1
Remortgaging and Churn Protecting your business
Mungo Dunnett Managing Director, Mungo Dunnett
Associates
2
Background

• I run a business that operates across a range of
  professional service sectors including IFAs
• We are also the main marketing consultancy
  operating in the UK mortgage market
• And have dealt with significant number of
  Building Societies and Banks, on issues of
• Cross-selling
• Retention
• Databases
• Profitability

3
My approach

• What interests me are issues of strategic clarity
  and commercial efficiency
• The questions I ask are
• How can you operate more efficiently?
• How can you function more profitably?
• How can you generate more profitable revenue?
• Right now the greatest period of structural
  change in the history of lender/intermediary
  relationships
• Your operating efficiency and decisions are
  key

4
How are you placed?

• In amongst all the structural and regulatory
  uncertainty, there are some important factors in
  your success that are not changing
• Why customers use you, instead of going to the
  lenders direct
• What it is that customers like about you
• And the remortgage market
• Dont lose sight of these things theyre key to
  your future

5
Remortgaging what has happened in recent years

• Dominates the lending market
• And its here to stay (25 year fixes? I dont
  think so)
• Systematic educating of customers youre crazy
  to stay on SVR
• The lenders have created the phenomenon
  themselves, through their marketing
• But the message is fundamentally price
• Save some money now dont be daft
• Mortgages are largely a commodity price counts
• Not who they are where they are or how they
  operate

6
Remortgaging what has happened in recent years

• There is no meaningful benefit in remaining
  loyal
• Why stay on SVR?
• No amount of soft benefits will compensate
• Remortgage customers no longer simply the most
  astute (or the Money Mail obsessives)
• Its becoming everybody and once the knowledge
  is out there, it wont be forgotten
• Attrition by channel branch best, intermediary
  worst
• So what are the lenders thinking?

7
The lenders perspective financial stress

• The chickens have come home to roost
• Remortgaging has been easy money
• Particularly for those driven by market share
• Or by sales targets (gross lending)
• While FTBs are disappearing
• And branch footfall is dropping
• The proportion of their mortgage book that is
  paying SVR is systematically disappearing
• There are the early signs of real financial
  stress
• Future solvency even coming into question

8
Lenders responses very varied

• Some are wedded to the old sales model
• Best Buy tables
• National business (augmenting regional retail
  base)
• Record lending
• Issues of sales culture if they change (or more?)
• Others have allowed access to new borrower rates
• Or to an in-between product
• Some are offering it to all customers
• And others are selecting the most valuable /
  highest risk
• Some are debating it without resolution

9
Much of this involves you

• Intermediary business offers lenders a convenient
  means of increasing their sales volumes
• And their national reach
• Including the ability to turn on the tap to hit
  short-term lending targets
• Their opportunities for cross-selling are far
  reduced and also for longer term
  relationships
• But these are usually lesser considerations
• Sales volume on the core product still dominates
• But the strategic / financial worry is now there

10
The lenders options

• Withdraw from the intermediary market
• Unlikely think of that footfall issue
• And what are the alternatives? Closing to new
  business entirely?
• Selective customer profiling
• Attracting controlled numbers of clearly-defined
  customer (and product) types
• Supplementing the retail customers in precise
  ways
• HBoS has built an interesting mortgage portfolio
• Paying proc fees to avoid churn
• Would it be enough? And would you do it?

11
Summary the broker outlook on remortgages

• Remortgaging is here to stay
• Unless we get negative equity (possible)
• Or its outlawed (unlikely)
• Lenders will remain dependent on intermediary
  business and on the remortgage market
• Customers will continue to look to brokers as an
  honest advisor amidst the plethora of marketing
• You are perfectly positioned to be the main
  beneficiaries of the remortgage boom
• The question is How can you best capitalise?

12
You are different to lenders

• Its easy to forget how simple the intermediary
  proposition is
• That you will help the customer that is
  unfamiliar
• Or uncertain
• Or has no time
• The more complex a market is, the more customers
  need help
• Finding 2004 complex? Thats how customers feel!
• And the critical factor in your favour
• What are their alternatives?
• How do the lenders compare?

13
How lenders win mortgage business

• By having a local brand presence shops, and a
  strong name that is distinctive
• First thought how many can genuinely say this?
• By advertising
• Do customers trust what they see?
• Can they even understand it?
• Through Best Buys
• Which they can ill afford to do see earlier
• Where is the trust? Is this how a sustainable
  service business should operate?

14
Your key strength the customer experience

• Service and customer relationships are your
  livelihood as intermediaries
• Lenders have tended to use all the right-sounding
  slogans to market themselves
• Customer first
• Customer centric
• Customer relationships
• TLC not PLC
• CRM and all the rest
• But what is the actual customer experience of
  going direct to a typical lender?

15
The branch customer

• Typical scenario
• Significant effort by (usually) a single key
  individual, from enquiry to application
• But from application to offer, communication
  drops
• And between offer and completion, it drops
  further
• Perception are the branch staff really experts
  at all?
• By the time of completion, many branches have
  handed over entirely to head office
• And thereafter?
• Nothing from most branches Annual statement
  (thanks!)
• Clunky cross-selling mailings
• And suddenly maturity contact

16
The call centre customer

• Typical scenario
• Good and swift response from Direct team
• Named individual during enquiry process
• New person often takes over at application
• Now service levels drop call waiting, new
  people, missing documents lost history
• And post-completion same as branch customers
• How do customers feel about this?

17
Customer feedback (various lenders)

• Sense that the person they formed an initial
  relationship with has disappeared
• Which undermines the whole relationship
• Primary allegiance for branch customers the
  person in the branch
• Then the local branch itself
• And only last the lender as an organisation
• Sense that they were conned once the sale is in
  the bag, service levels drop, proactive effort
  falls and they are ultimately ignored
• Confirms worst suspicions about marketing puffery

18
By contrast typical intermediary customer

• Typical scenario (face to face transaction)
• Customers almost always handled by the same
  advisor throughout the sales process
• An old fashioned type of personal service
• Seen as providing objective advice
• Willingness to go the extra mile
• Proactive and also efficient in returning calls
• Personal chasing of the lender sparing the
  customer
• On the customers side battling the lenders
  rules and inefficiencies on the customers behalf
• Reduces worry, hassle, personal time and effort
• Post-sale continuing contact, continuing loyalty

19
The opportunity and the salutary lesson

• There is significant in-built resistance to the
  notion that lenders should be the first port of
  call
• It is part of the modern consumers increasing
  scepticism of spin, advertising and salesmanship
• This presents you with a huge opportunity
• The lenders need you
• The market is still booming
• Customers respond to your service values
• But you can also kill your reputation
• By unprofessional behaviour
• By abandoning your service roots

20
Dont start acting like big corporates

• Your reputation is everything
• It is founded not on puffery and over-promises
  but on good practice and careful attention to
  customer needs
• Which is the key to any long-term service
  business
• But you can also wreck this, and quickly
• By lowering your service standards
• By not trying as hard
• By losing the personal touch
• By chasing one-off deals, not repeat business
• By thinking cost, not return on investment

21
But dont just use the old techniques

• As an industry, IFAs are only just starting to
  adopt the real service efficiencies driving other
  service sectors
• Though I usually find a very real commitment to
  quality service, repeat business and word of
  mouth referrals
• There is often less business rigour than there
  should be
• So beyond your technical skills as financial
  advisors, are you running it like a business?

22
You need information

• Although you are (usually) good at handling
  customer enquiries, maintaining service standards
  and seeking referrals
• All this time-consuming activity is often spread
  very generically
• Across all customers equally
• And not necessarily making the key contact, in
  the right way, at the right time
• Key to successful business efficiency the
  effective generation of profit is your use of
  information

23
For bigger firms customer research

• After all this flattery
• Can you be sure you know what your customers,
  prospects and lost customers think about your
  service?
• This is phone interview work
• Dont do it yourselves, if you want to hear the
  truth!
• A small amount of customer research is guaranteed
  to reveal uncomfortable insights about your
  business
• Why people like your firm and dont like it
• How you compare against local competitors
• And what you need to change to be more successful

24
For all firms proper database management

• You are uniquely well placed to understand your
  customers needs
• Retail FS organisations have struggled for years
  and at huge expense to achieve this
• Through expensive systems operating on
  technological guesswork
• Or through attempts to get customers to reveal
  personal information, plans and aspirations
• These are all things that your customers
  willingly impart to you
• Use this knowledge properly

25
Its not the systems, its the people

• Watch out expensive database systems will not
  make things better theyll only make them
  quicker
• A simple system used by clever people is better
  than a clever system used by idiots
• Think what do you really need?
• The information the customer has told you about
  themselves (with permission)
• Their product details
• Diarised future contacts

26
Outmarket the lender

• Remember what they dont tend to do
• Maintain meaningful local contacts
• Maintain meaningful contacts from anywhere
• Or use the information the customer has given
  them intelligently and sensitively
• Stay in touch
• With relevant messages
• Personal wherever possible (not newsletters!)
• Avoid the scramble at maturity time
• Most lenders are now waking up to this
• Have a relationship established

27
And prioritise

• Not all customers are equal focus your efforts
• On those most likely to respond
• On those most likely to lead to further business
• Or to be profitable (from the initial factfind,
  or later)
• If this means wading through multiple customer
  records and prioritising them get it done
• Its a people business this is where the
  lenders are failing
• Your personal efforts are the vital
  differentiator
• This takes your time so use it properly!

28
Summary a perspective on your industry

• This is a time of rapid change and real
  uncertainty
• Change always weeds out the weakest
  and benefits the strongest
• Make your strategic decisions but dont lose
  sight of what you are distinctively good at
• The market and the lenders are in your favour
• The power is now with the mortgage brokers
• But use the opportunity properly
• Business rigour information focus
  communication service quality

29
Questions
Oxford and Edinburgh
Mungo Dunnett Associates 11 Polstead Road, Oxford
OX2 6TW Tel [phone] Email
info_at_md-as.com Web www.md-as.com