The five biggest threats facing the broker channel have been uncovered in a new report commissioned by the MFAA
According to the survey conducted by Ernst & Young, digital threat was the first on the list as digital banking continues to become more accessible and more popular. Currently, Australia has one of the highest take up rates of digital banking in the world and the potential threat of the digital world to the broker channel will continue to increase as the Millennial Generation - who have grown up in a digital world - become the core mortgage consumer.
Regulation was also perceived as a threat to the future prosperity of the broker channel, as commission structures have come under fire both locally and globally. Although there have been no signs of banning commissions in mortgage broking by Australian regulators at this stage, commission structures have been banned in other countries, so the threat remains a possibility.
However, the findings from the consumer survey do reveal that brokers are able to add value to customer outcomes and they are not any more risky than proprietary channels. But brokers need to be demonstrating these facts more proactively to the financial services sector to ward off any potential threat to commission structures.
Revenue concentration was another concern with the report stating that the current focus of brokers in providing a single product creates potential risks. The concentration of revenue heightens risks associated with a dislocation in the market - whether this is due to a correction in property prices or regulatory intervention - but also that many customers prefer to take care of all their financial needs under one roof.
With the industry’s fairly low barriers to entry, competition was another threat, with digital businesses like online real estate classifieds or supermarkets highlighted as potential disruptors. However, the survey reveals several ideas offered by lenders on how brokers could maintain their competitive advantage in the future. One such option is to innovate the current customer experience through the use of digital analytics. Brokers could potentially look at creating partnerships in order to deliver this innovation.
Lastly, intergenerational change was listed, as many brokers have a small team of staff and their legacy may be in doubt if their succession plans have not been formalised. Further, the industry is not perceived to attract younger generations, which means succession is not even an option for some brokers.