The one significant difference between the Australian and Canadian broker market is broker market share. CMHC just reported that in Canada, broker market share is 27%. In Australia, it’s 42%.
Attending the MFAA Conference has accorded me the opportunity to garner insight into the Australian broker market. The stakeholders in Australia are as passionate and committed to their industry as we are in Canada. I am struck by the market similarities we share, as it relates to the overall economy, and the broker market specifically. One similarity we share is negative press. The issues are different but the press in Australia is as committed to fear mongering as it is in Canada. There’s no talk of too much consumer debt here, yet their average mortgage balances are no different than in Canada. Here the primary focus is all that could go wrong beyond Australia’s boarder, which in turn will lead to the destruction of the Australian economy.
Europe’s an issue; however, the press in Australia is casting its worrisome gaze in China’s direction, which on the surface is laughable. China is Australia’s largest trading partner. The Aussies distanced themselves from the U.S. market years ago. They decided to hook their wagon to an emerging market like China, and fortuitously decided to distance themselves from the world’s largest sub-merging economy, the US. Ah, but gory headlines are needed, so the focus is on China’s slowing economy. It appears that 7 1/2% growth is no reason to celebrate or feel comfortable. The talk is will China have a soft or hard landing, which ultimately will impact the Australian economy. Can you imagine, if the US was forecasting 7 1/2% growth, and what that would mean for the Canadian economy? Yet somehow 7 1/2 % growth in China could have a negative impact in Australia. Just wondering what part of 71/2 % growth produces a hard landing? I guess the old saying about the press is no different in Australia – “if it bleeds…it leads”.
The one significant difference between the Australian and Canadian broker market is broker market share. CMHC just reported that in Canada, broker market share is 27%. In Australia, it’s 42%. I’ve asked every Aussie I’ve spoken to at the conference the following: “how did brokers grow their market share to 42%”? As I suspected, there was no one definitive answer, but there were some underlying themes.
It appears that the psyche of the average Aussie plays a part in those market share numbers. Aussies have a deep distrust of the banks and animosity towards their profits. Many Aussies believe the higher cost of borrowing has contributed to those bank profits. Yet, banks in Australia have a 90% market share of all broker business. So that distrust and anger has not resulted in less business for the banks. In large part that is due to the lack of competition, but it appears also that consumers look to brokers to provide them with the best of the least tasteful option. Interesting, to say the least.
Another critical factor which contributes to the success of the broker channel is the investment that the large firms make towords advertising. I had the pleasure to speak to Michael Russell, CEO of Mortgage Choice in Australia, about this very subject. Without getting into specifics, Mortgage Choice invests multiple millions of dollars in advertising. Their individual franchises advertise on their own, which collectively exceeds the dollar amount committed to advertising by Mo rtgage Choice corporately. Throw in Aussie Hone Loans, and number of other firms which advertise, and it’s easy to see why an Aussie consumers would chose a mortgage broker. Some of the larger broker firms in Australia spend more on advertising than the banks do, as it relates to mortgages. The messaging is choice, service, quality of broker, trust and yes, pricing. Since the GFC (Global Financial Crisis), Aussies are far more focused on price. However, price alone is not enough. The Aussie borrower is looking for utility and competency.
There’s plenty to learn from the Australian broker experience. Volumes speak, like $90 billion a year in origination. I’m looking at a rate sheet from Westpac, one of the major banks in Australia, and their 5 year fixed rate is 6.99%, and the good news is their ARM pricing has been reduced to 7.09%. You may be surprised to learn that 60% of all mortgages in Australia is ARM. The most recent MFAA Home Finance Index, which measures consumer sentiment, indicates that the percentage of consumers who would chose a broker first, as compared to those who would chose a bank first, is almost identical. We share many similarities with the Aussie broker market, yet some of the differences are profound.
Until next time