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The royal commission’s scrutiny of the banking sector hasn’t been bad news for all financial institutions. To the contrary, it’s been “a fantastic opportunity for customer-owned banks to shine a spotlight on the alternatives that exist to the for-profit banks”, said Stewart Saunders, head of broker distribution at Heritage Bank.
Four customer-owned banks— Bank Australia, Heritage, Beyond Bank and Teachers Mutual Bank— and two brokers, Patrick Sheppard from Appian Way Financial Services and Gio Migheli from Astute Financial, gathered last Friday for MPA’s first mutual banks roundtable where they discussed the reforms currently underway in the broking sector, the challenges and opportunities they foresee for 2019, and what their biggest learnings were from the royal commission.
A recurring theme at the roundtable was the alignment between the philosophy and principles of customer-owned banks — which are beholden to their customer-members, not shareholders— and good customer outcomes. The roundtable bank participants said that since their organisations are not driven by increasing profit margins they’re able to deliver better customer outcomes as a result. Customer-owned banks are also known for giving back to the community and are often engaged in ethical and sustainable investments.
Another difference, the group said, was how they deal with people and business partners.
“We take the feedback whether it’s from brokers or client-members themselves. We take feedback and do something about it. We ring back and say, ‘We’ve addressed that, here’s the outcome’, and they’re surprised that someone has actually listened to them. I don’t think that’s what’s happening at other banks,” said Mark Middleton, head of third-party distribution at Teachers Mutual Bank.
Over the last year customer-owned banks have seen an increase in business, and this is due in part to brokers who are looking for more ethical and sustainable options for their clients, Middleton said. “As an industry the brokers have been very supportive of the new opportunities as mutuals have come in. We’re very thankful that brokers have taken to us.”
Vincent Lewis, manager-partnerships at Bank Australia, said in the last three to four months the bank has seen a massive uptick in business. In November, it received more than 500 loans when it usually receives around 250. Lewis said what brokers appreciate most is that Bank Australia keeps them in the loop along the way. “Our scenarios team doesn’t just say ‘no’,” he said. “We talk about how we can structure it. …We’re constantly communicating [with the broker].”
However, customer-owned banks are facing some challenges of their own. With the royal commission’s recommendations looming, the biggest unknown on the horizon is how further regulations will affect smaller lenders.
“The one-size-fits-all is unfair and that’s one of the things that should change,” said Darren McLeod, head of third party at Beyond Bank.
“We got really heavily penalised [by the APRA investor and interest-only caps] and our business really suffered as a result.”
Looking forward, though, the pros seem to outweigh the cons for customer-owned banks, who are seeing a shift in what the new generation of bank customers are looking for— companies that act ethically and sustainably and abide by the values they espouse.