CK: We have seen a slowdown in the business leaving our books. We are retaining customers better than before, mostly because we have played well in the tracker market. We have made product changes where customers that took out trackers over the last couple of years now realise that they have some very good, attractive deals in the current difficult environment. We also see customers on existing fixed rates moving onto new fixed rates.
PB: Do you feel that you are retaining clients not due to the products you offer, but because they do not have anywhere else to go?
CK: There are some customers that cannot go anywhere else, but equally there are others that can go elsewhere and find other deals.
PB: In terms of the customer relationship strategy that brokers have and where retention sits within that, we are talking to clients about how much moving away from their fixed rate will cost them and how moving onto another fixed rate could actually save them more money.
RB: Client relationship management (CRM) is certainly something we do, especially where we feel it appropriate. With fixed rates going up, I would be surprised if more rates do not move up due to the sharp increase in swap rates. We can talk clients through this. Clients have different circumstances and different deals, and in many cases, it is not that straightforward to recommend one solution.
DF: I wonder whether clients are looking at what they pay to the lender or taking a longer-term perspective and looking for security. Swap rates will go up, but Bank base rate could stay where it is for a few months and then go up so some customers may want a fix for the security and others may want to be better off financially in the short term. The question is will this cost you more now, but save you money in the long run?
RB: That is more a question if you are coming off a fixed-rate deal. Fixes are going up at the moment, but for customers, it also depends on how long they think fixed rates will stay low and how quickly they may go up. If you are on a tracker, it depends how good the tracker rate is. It is hard to know how long the bank rate will stay low. With some trackers, people can afford to wait another six months before they switch to a fix. Some people have lifetime trackers, which will beat good rates, so it is very difficult to generalise and say everybody should switch to a fix now. People paying a very low rate may prefer to stay on that rate.
PB: In terms of retention of clients, we are considering giving people a constant feed of information to tell them what rates are looking like and where they are going. We have two models put into place in the broker divisions in estate agencies in Sheffield and Leeds, with nine brokers in each. One gives the brokers complete autonomy to go out and charge a fee or not. The broker does higher volumes for lower amounts but has not got as strong a retention model. In the other model, the broker charges per mortgage and offers lower volumes, but with higher case value and there are different levels, depending on the services and extras that clients want.
DF: Customers will be prepared to pay for advice. Recently, I met a broker who made a decision to charge his clients a monthly fee and focus heavily on creating a bond between him and the client. For instance, he had a deal with Amazon where he would read a financial book and mark a chapter and get Amazon to send it to his clients. Another broker, overhearing this, said he never realised that would work and he realised the barrier was himself. Although as an industry we focus on retaining the mortgage, it is really about retaining the client. This leads to the broader debate of ownership of the client and sharing in the value of joint ownership of a client. If lenders as manufacturers, and brokers as distributors, are competing, nobody wins. A partnership where the embedded value in customer relationships is shared equally is better.
CK: For our retention, we are transparent over the end of our terms. We tell clients what will happen at the end of their fixed rate, what happens if they do nothing and what product they will roll over onto. We tell them to talk to a financial adviser because we know that clients will go to advisers in the first place for a mortgage and are likely to go back, so we try to work as far as we can in partnership with the broker.
PB: The other thing to consider is how good the brokers are in that situation. They are expected to be able to retain and not lose clients. If you go back two years ago, I think the figures were horrendous in terms of how many brokers kept cases. That is the broker’s fault.
RB: In those cases, it shows that the initial broker did not provide a value for money service or the broker did not keep in touch and did not do his job properly.
PB: The best brokers always retain clients and have fewer lapses, so other brokers are not able to get in there and write the business.
DF: Do you think that in the past, broking was seen as an easy route to making some fast money, and those people have now left the industry and this now leaves us with a core group who will be more professional?
PB: The cream will rise to the top and the bottom will flow away because they are not good enough.
DF: Is your view that if you are broker not looking at customer retention or mortgage retention that you will struggle and leave the industry? Should every broker do this, because it seems that many brokers do not do this?
PB: I believe we are moving towards being financial advisers rather than mortgage brokers. I am not saying it will happen wholesale in the industry, because there will always be those who specialise in mortgages, but I think brokers need to take a more rounded view on selling add-ons. We have always been good at extra things like building and contents and brokers should focus on that rather than just selling mortgages. That will help retention. If customers take one product, they may buy more and come back.
RB: It also depends on the type of business. If you see a lot of first-time buyers, it is easier to cross-sell to them rather than to remortgage customers. Cross-selling happens with lenders too. Over the next few months, we are likely to see some lenders saying to customers that if they have a current account with them, they will give them a better deal on the mortgage, though either a lower fee or cheaper interest rate.
DF: Cross-selling is very important or else you are wasting time, effort and money. Models based on product penetration are successful. Lenders must have transactions going through along with retail deposits. I also think lenders will focus a lot more on their own customers. I would not surprised if a lender gave their customer options through all distribution channels. That is what lenders will do in terms of retention.
PB: Do you see customers with current accounts going to another lender for their mortgage, in case they sell more services to that client, as a threat?
CK: It has always happened to a greater or lesser degree, but there is a question of whether or not that activity will step up. Every lender is in the same situation, so if we look at bringing mortgage business over from other lenders, we must have a better deal than clients get from the existing lender. Equally, a lot of customers will go to a broker for their mortgage, but not necessarily the same broker every time they move their mortgage, so building and maintaining CRM is important.
RB: We have a CRM programme and we have collected email addresses and send a monthly email newsletter to clients. At one stage, we sent out a printed version as well, but not any more, partly for cost reasons and also because we are covering a bigger proportion with the email version. It is important to maintain contact because the challenge and opportunity for brokers over the next few years is that there will be many customers in different situations thrown up by various market problems looking for advice. Brokers cannot be too prescriptive because different people have different requirements in terms of deals, LTVs and future plans.
DF: As an industry, we are not as good at actually keeping in contact with the customers and doing the regular reviews as we should be. We have done the various sales and promised contact but not really done it until a mortgage is up for renewal. Getting better at contact does come with a cost and it is weighing up cost versus the long-term benefit.
CK: It is about quantifying the payback. It has been beneficial in the past for us to send quarterly magazines to borrowers but it was difficult to say there was a benefit from the cross-sale. Another question is whether electronic contact has as much impact as the traditional older routes.
PB: If we position ourselves as financial advisers, not just mortgage brokers, clients will come back and ask us before doing anything. If brokers revisit the client, they will be selling other products to them anyway. Even if customers stay where they are, brokers have the opportunity to discuss the customer’s overall situation which should help from a retention perspective. It leads onto the point that brokers must be of high quality and have retention on their mind. It is actually hard to recruit good advisers at the moment. We are looking for brokers and the poorer ones are going out of the industry.
RB: I agree. We have been on a recruitment campaign for the last few months and thought it would be easy to find consultants, but we did not even see the vast majority who applied, so the quality out there is quite poor.
CK: Is that because the good advisers have changed industry?
PB: No. The brokers we have lost were not that good. The good advisers are still doing ok and writing decent business but they have switched their focus to life and general insurance. They have changed their tack and have adapted within the industry because they are not just good brokers, they are quality sales people so we have not lost any.
