June 26, 2017
Where will your bank manager be next year?
Over the past decade, the broker market has rapidly expanded. Back then, mortgage brokers accounted for 15 per cent of residential loans, and now it’s more than 53 per cent.
The commercial broker market is also on the rise, although it started to develop a little later. Currently commercial brokers are responsible for around 12 per cent of all commercial loans written in the banking market in Australia.
And as the traditional role of the bank manager changes, I expect this will only continue to grow.
Have you seen your bank manager lately?
Like any large organisation, banks suffer from staff turnover – and this seems to be increasing. In fact, the number one reason clients come to us is because they have been let down by their experience with the bank. When relationship teams within banks constantly change, it can lead to lack of continuity and frustration for the borrower when they have to explain their business yet again.
The rise and rise of red tape
The increased focus of regulators such as APRA on banks also restricts their service. Ongoing compliance reporting takes time, and that means less time for the proactive advice for their clients.
There is one upside. The bank managers who are frustrated by the high level of bureaucracy are moving into commercial broking – where they can apply their deep knowledge of lending with more freedom and independence, and a focus on delivering for the client.
Your broker for life
As brokers, our primary responsibility is to provide continued and consistent service to our clients. We can service a client throughout the entire lifespan of a deal and we provide valuable advisory services and structuring advice for borrowers.
We’re also seeing the rise of the specialist broker, with deep market knowledge and experience in particular industries. This can add significant value to clients when originating, structuring and executing deals.
Independence and diversity
One of the biggest advantages of using a commercial broker is their access to a broad range of capital sources. Banks are restricted by the debt options that they can offer, where brokers have the freedom to provide non-biased advice, acting as an independent advocate for the client. A good broker understands the capital options market, and when to recommend bank or non-bank capital, or other financing arrangements such as subordinated debt, preferred equity and even joint venture equity.
This is not to say it should be ‘bank versus broker’. In fact, banks depend on brokers: a good broker is essentially the first port in the credit chain. Our banking partners tell us that because brokers understand credit, they will approach banks with a deal that they are comfortable with underwriting, making that first transaction straightforward and seamless. And when it comes to entering the deal execution phase, brokers can help with negotiating documentation.
How to choose your broker
The key with securing the right broker is experience. There are three questions you should ask a broker before working with them:
How long have you been in the business?
What deals have you been involved with in the past?
Can one of your clients provide a reference?
Once you find a broker whose answers satisfy you, then a long-term relationship can begin.
If you’d like to find out more about finding the right broker, please get in touch.