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The dominance of major banks in lending has encouraged some aggregators to reconsider their lender panels. MPA asks superbrokers the secrets to maintaining a good mix.

Most cooks don’t throw all the ingredients into a pot and hope for the best. The same is true for aggregators when it comes to building a diverse lending panel. While there’s no secret recipe, the best outcome isn’t achieved by adding lenders at random.

While aggregators regularly review their panels to ensure they have a good mix of lenders, sometimes the decision to keep a lender is made for them by outside forces. Over the last 18 months, the industry has witnessed a rapidly shrinking non-bank sector, which has significantly reduced the number of players out there.

In other cases, aggregators are the ones being cut by lenders. Both Bankwest and RAMS have limited their aggregator relationships to a reduced number in order to concentrate their efforts on the superbrokers giving them the most volume.

MPA looks at what it takes to pick a panel and maintain its integrity in these turbulent times.

Pick and choose
Mortgage Choice says it looks at four important qualities when deciding which lenders will make the grade for its brokers.

“When considering whether a new lender is suitable for the Mortgage Choice panel, key aspects that we thoroughly research are its reputation, quality of products and service plus how well it fits in with our systems and processes. Each lender’s offering must add value to our customer service proposition and strengthen our standing within the mortgage market,” says head of corporate affairs Kristy Sheppard.

Australian Mortgage Brokers’ CEO Paul Gollan agrees that when adding lenders to a panel it’s critical to ensure they bring value to the table.

“There’s no point just adding another lender to boost our numbers. We don’t see a lender as just another logo so we can say ‘hey look at all the lenders we’ve got’,” he says.

The other thing AMB looks at when adding a lender to its panel is the robustness of that particular company.

“Pre-GFC we were very careful about who we added to our panel. What we took into consideration was the financial stability of that company, because if they’re not around in a few months then we’re putting a lot of trail income at risk.”

Another point of consideration is whether a particular lender has prominence in specific area. PLAN Australia looks to add lenders which have a strong regional presence, be it a bank or non-bank, says CEO Ray Hair.

Numbers game
Is bigger always better when it comes to panel size? Sheppard says there’s no magic number.

“There needs to be a balance between having a panel of enough lenders at the broker’s fingertips for them to provide a wide range of customers with a wide range of quality choices and not overburdening the lender panel with providers that do not contribute a point of difference. I don’t think there is an ideal number, it all boils down to the strength of service provided to customers, but I do believe over 15 reputable lenders is a good start.”

Adding lenders for the sake of it is pointless, adds Gollan.

“I think as a whole a lot of aggregators have taken a really sloppy approach to this. Many have just added every single brand name they can to their panel. A broker’s job is to be professional and to have a really good knowledge and understanding of the options they have available. So if you’re a broker and you’re trying to project to a customer ‘hey I have 30 or 40 lenders and I know everything there is to know about them’, then you have no credibility. I think you need to know six to eight lenders really, really well inside out and you might have a whole bunch of other lenders who compliment that.”

Mixing it up
In an effort to maintain a diverse panel, aggregators have actively engaged a number of smaller players to step into the fold.

An example of which is the recent inclusion of AFM to Choice’s panel. The announcement, which was made at the end of September, was heralded as a significant milestone for the mortgage manager.

"The timing for our addition to the Choice panel is ideal considering the improving economic climate matched with ongoing low interest rates and a strengthening property market – which should drive increased broker business. We look forward to forging closer links with Choice members as they capitalise on current market opportunities," said Tanya White, AFM's managing director.

According to Brendan O'Donnell, CEO of Choice, the addition of AFM to its panel is particularly valuable given that major banks currently write 90% of new loans.

"Considering current bank dominance it's imperative that all brokers diversify their lending panel – rather than just sending business to a handful of the majors they need to embrace the variety of other lenders available that have comparable products and pricing," he says.

O’Donnell says Choice has tried to ensure its lender panel reflects the needs and businesses of our members.

“While banks currently dominate the lion’s share of broker business, it’s essential that as an aggregator our panel reflects the very nature of broking – that’s to offer choice.”

As other aggregators have stated, it’s imperative that lenders added to the panel offer brokers a point of difference. Choice also added Resi and La Trobe this year to its panel because it saw “considerable value in their broker offering as well as the level of support they offer its members.

O’Donnell predicts that as funding returns to levels of normalcy, and non-banks’ position in terms of products comes in line with the banks, the industry will see a drive back to non-banks.

“Remember, mortgage broking was essentially built off the backs of the choice non-banks brought to the market and I’m confident that non-banks will regain market share lost to banks over the previous 12-18 months.”

But at the moment, most customers’ demands and needs are being met by the major lenders, says PLAN Australia’s Hair.

“We always encourage the membership to look at different members across the board, longer term issues around competition and cost to consumer. But brokers are driven by what’s happening in the market, and the fact is banks have the access to the funding and competitive pricing.”

Mortgage managers
AFM’s White says she’s encouraged by the number of aggregators vocalising support for the non-bank sector.

“Even though we might have been on the panel of quite a few of them, we’re actually finding now that the message to their members is a lot stronger and clearer about using the non-banks, or to remember that the non-bank have a good offering, or turnaround times, etc. So it’s really just reinforcing that.”

As a result, she says AFM has noticed and increase in enquiries from brokers.

“For the last three to four months our business has steadily been increasing, the quality and conversion rates have improved, so without a doubt it definitely is picking up.”

While winning support from brokers and aggregators is one step, the other big hurdle for mortgage managers and non-banks is convincing borrowers that the sector is healthy and has something better to offer than the banks.

“The NAB/Challenger acquisition will certainly put us back onto a more even playing field against the banks. But if you’re looking specifically at confidence it’s still a hard road. And we need the brokers and their customers to believe that yes this is a good alternative product,” says White.

AFM is currently speaking with two other aggregators; however, White says she doesn’t want AFM to be added to more panels at the expense of neglecting its current relationships.

Cutting back
As part of aggregators’ regular review of their lending panel, they occasionally drop lenders that are no longer adding value for their brokers. Mortgage Choice says it is a rare event and they haven’t cut a lender in a number of years, but have done so in the past. For example, says head of corporate affair Kristy Sheppard, the broking group dropped one lender because it wasn’t providing quality service delivery.

On the flipside, lenders themselves have removed themselves from panels of aggregators whom they feel aren’t providing them with volumes. Bankwest was the first to announce such action – reducing its relationships to the top 17 aggregators. ING Direct followed suit shortly after and more recently RAMS has made a similar decision.

Australian Mortgage Brokers was one of the aggregators culled by Bankwest and RAMS.

“The principal reason that any aggregator would lose the lender accreditation is they’re not actually doing any volume with that lender, then you have to ask the question if the aggregator is not really doing any business with a particular lender, then is that lender actually adding any value to your panel anyway,” commented Paul Gollan, CEO of AMB.

However, Gollan says AMB brokers that did use those products have been offered accreditations through another wholesale aggregator.