That’s a great question, and one that our readers have actually requested we cover off, so thank you for that. This article will cover three different aspects of banker versus broker: product, service and pricing. We’re also assuming a good and honest banker, as well as a good, accredited broker. Let’s play with the type of scenario where either one was so good, that your trustworthy friend referred you to them. This analysis will aim to be as fair as possible, without any biases. Realistically, we know that there are cowboys in any industry, so let’s just evaluate the services for what they are.
What is a banker?
For the context of this article, a banker is the loan officer in a specific bank who helps customers with loan applications. This person could also deal with transactional products and refer you to Wealth & Insurance advisors, but their primary focus is typically dealing with consumer (or business) products. Bankers typically have high sales targets to meet, though they can only deal with the bank that they work for. Many loan officers climb their way through the banking ranks and start out from teller or call centre positions, so they can be especially knowledgeable. However, people from all sorts of industries start working in finance and banking.
What is a broker?
A broker is a third party who doesn’t work for a bank, but acts as an intermediary between customers and the banks. It is the aim of a broker to try and get the best deal for their customer at any lender. Brokers must be accredited by either the MFAA or the FBAA. FBAA brokers must only have their Certificate 4 in Finance Broking, but MFAA brokers must have a Diploma, which covers complex lending. Many brokers used to work at banks, and many come from entirely different industries. Good brokers will often chase the bank so that their customers don’t have to, put their customer’s applications together in a beautiful way and get a loan approved in a smoother way than if a customer went into the bank.
Banker: Bankers can only sell you the products of the bank for which they work. This means that if there’s a better product on the market, the banker will not be able to recommend it to you.
Broker: Brokers typically have a ‘panel’ of lenders, often more than twenty, that they can get your loan approved through. This of course depends on your circumstances. When you go to a broker, they will input your information into their software and it will give them a few options to present to you.
Verdict: Brokers definitely win this category because you’ll have a much greater market exposure than with a broker, rather than a banker. Bankers are highly limited by their product offering.
Banker: Remember, this article assumes a great banker who does everything they can. However, even a great banker could have hundreds of customer enquiries to deal with. If your loan is ‘too small’ or the bank you got a loan with doesn’t have a relationship management framework beyond a call centre, you could be stuck with unresolved issues and lots of frustration. This is especially true for when your loan has already been set up and you just need maintenance.
Broker: Again, we assume a great broker in this instance. If you have an issue with your bank, the broker will likely have contacts to help sort the issue out. The downside is that you may not have such a good relationship with your bank, but it’s always good to have an extra person on your side. Brokers can make a lot of noise because they can affect the volume of deals that a particular banker is getting. However, there are many things (for example, transactional enquiries) that a Broker won’t be able to assist you with.
Verdict: It’s always better to have one more contact. However, you may still need to deal with the contact centres or branches even if you have a broker. So this one is a little more neutral, but leaning towards a broker.
Banker: A banker will typically charge you an application fee, which can be in the several hundreds of dollars. However, some banks have been waiving this. Beyond this, there’s also a risk that the interest rate you’ll be paying is higher because unless you do independent research and show much better offers from similar-level banks, there’s little a customer can realistically do to move the bank on rates or pricing. The banker’s job is to try and sell you the value and benefits of going with the bank.
Broker: Many brokers don’t charge fees, and you can typically find out upfront if they do. Sometimes, if your case is very complex, they charge fees or a small commitment fee to ensure you don’t run away to another broker. However, the actual loan’s pricing is where a broker truly competes. Brokers get the most up to date rates from all of their lending panel, many on a weekly or bi-weekly basis. Some diligent brokers will also forge strong relationships with important bank stakeholders, including ones who have influence over the pricing areas of various banks. Although brokers get paid commissions from the banks, the rates they can get are still typically better than what’d actually have been offered to the customer if they walked into the bank from the street.
Verdict: Brokers win on price, as they can shop around for you and get you a better deal on your lending and the bank can only go back to their own pricing area.
In many cases, going to a broker costs nothing and you can get a second opinion and some extra options. Given the above, I think brokers are the way of the future because they can help you. It’s just important to ensure they’re listed with the relevant industry bodies and have up-to-date accreditation. The best place to get a referral to a broker is from a friend who’s had a good experience.