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Your Trusted Mortgage Broker?

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I know, it sounds like an oxymoron, a setup line for a cheap joke. Indeed, mortgage brokers got a very bad name during the recent real estate bubble and financial downturn.

But that’s my point. Industry is not destiny. You do not have to live down to your industry’s reputation. In fact, a trustworthy approach to business is all the more apparent when you’re surrounded by the opposite.

Caught in an Interest Rate Updraft

I heard from Daniel Milstein, of GoldStar Mortgage Financial Group, who told me this story:

In 2003, interest rates were near an all-time low—about 4.875 percent for a 30-year fixed rate mortgage. However, they started creeping upwards to about 6.75 percent. Many mortgage originators weren’t overly concerned about locking in rates for their customers. (Later they blamed others and  ‘market conditions’ for not being able to secure rates for their customers’ benefit.

I chose to pay more than $48,000 in rate lock extensions. Most people thought I was crazy. “Why are you doing that?” they would ask. “It’s not as if those customers are coming back,” one of my colleagues stressed. But I felt my reputation was on the line.

As it turned out, every one of those customers continued to do business with me. I delivered on what I promised. As a result, I assisted them with refinances, investment home purchases, second mortgages and new homes, in addition to the second and third generation referrals that resulted. My investment of $48,000 was repaid – many times over.

I was intrigued enough to continue to the dialogue.  Here it is.

Interview with Daniel Milstein

Charlie: What perception do you think people have of the business practices of the mortgage industry?

Daniel: Here’s the thing. The financial meltdown, people losing their homes, the foreclosures and everything that the banking or lending industry has done over many years is still fresh in people’s minds. There was a point where used car salespeople were treated and looked at better than the mortgage people, but the industry has cleaned up considerably. It’s not the same anymore.

Now, it’s difficult to get licensing. With so many rules and regulations, it’s the best of the best and the smartest of the smartest people who are still in business; we saw a decline of 65% in mortgage jobs over the last couple of years. That has had a cleansing effect.

Charlie: What are some of the changes the industry has had to make?

Daniel: You now have to have a clean criminal record, a certain educational attainment level, and those exams are not easy to pass. That has put a higher premium on experience, and I believe on ethical behavior.

Charlie: Do you think people recognize good and ethical behavior when it’s  presented to them?

Daniel: Absolutely. Knowledge is important more than ever before.  Many years ago, loan officers were taking applications on a napkin. There were no regulations or training. It was a wild, wild world out there.

In my book I talk about a loan officer who was convicted of fraud and sent to jail. While in prison, he taught free classes on how to become a loan officer. There was a waiting list for his class, and they had testimonials from people who got out and got jobs in the mortgage industry as to how much money they were making.

Charlie: Wow.  I guess that’s some progress we’ve made. Though, that’s from a pretty low starting point.

Daniel: I’m told that only 55% of people pass the exam on the first try these days. We have disclosure rules now; we have cooling-off periods. These are all pluses.

Charlie: Why do you think more people in this industry don’t behave in the eminently sensible ways that you have described in your stories?

Daniel: I like to say, “desperate people do desperate things.” In our industry historically, the top 10% make 90% of the income, and the remaining 90% are out there scrambling. They do whatever they need to do to get the sale. So, out of desperation, they do things they shouldn’t be doing. Thath’s why we’ve now got safeguards and checks and balances in place.

Charlie: Do you believe that good, ethical, customer-focused businesses are also high-profit practices?

Daniel: Absolutely. Don’t look at a client as a paycheck. If you love what you do, the money will come; and if you do a good job, you’re going to get referrals.

In any kind of sales, it’s all about getting referrals and repeat clients. If you don’t do good by your client the first time around, they will not come back and they will not refer. And you lose. It’s as simple as that.

Over 80% of my business is from repeat clients and referrals of satisfied clients. You don’t make all the money up front, but you make more over the years. You have to take a long-term perspective. And clients aren’t dumb; if you’re in it for the long haul, that’s part of what makes them trust you.

Charlie: Daniel, thanks so much for spending time with us.

Daniel: You’re most welcome.

If you haven’t already, be sure to get your hands on a copy of Daniel’s book “The ABC of Sales: Lessons from a Superstar.”

Trusted Advisor? Or Just Not a Crook?

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The term “trusted advisor” has been around a long time.  Recently I wrote about how the phrase has undergone “trusted advisor inflation” and become far more casually used.

When Maister, Galford and I wrote the book The Trusted Advisor back in 2001, one of our aims was to debunk the idea that trust was mainly about competence, credentials and cognition. We said:

..becoming a good advisor takes more than having good advice to offer. There are additional skills involved, ones that no one ever teaches you, that are critical to your success…you don’t get the chance to employ advisory skills until you can get someone to trust you enough to share their problems with you.

The theme of this book is that the key to professional success is not just technical mastery of one’s discipline (which is, of course, essential), but also the ability to work with clients in such a way as to earn their trust and gain their confidence.

We went on to say:

The trusted advisor is the person the client turns to when an issue first arises, often in times of great urgency, a crisis, a change, a triumph or a defeat.

Issues at this level are no longer just seen as organizational problems, but also involve a personal dimension. Becoming a trusted advisor, the pinnacle level, requires an integration of content expertise with organizational and interpersonal skills.

That was then (2001). To my astonishment, it appears that not everyone in the world has read our book and committed it to memory. (Imagine that.)

Thin Trust

That’s not the way a lot of the world has come to use the term “trusted advisor.” The following quotes are taken from current promotional literature:

Full disclosure of conflicting interests is the only way to build and keep trust with your clients.

For decades, CPAs in public practice have laid a foundation of trust with clients by competently handling confidential financial data and performing core services such as tax preparation.

There has been much talk about how accountants should embrace value based, business improvement services so that they can step up and truly embrace their trusted advisor status. Yet little has been written on how to go about doing that in a way that sits firmly within the accountant’s heartland – the numbers.

A trusted adviser offering objective solutions in wealth structuring based on XYZ Research and industry leading global resources…who understands clients’ specific investment needs, structure and area of interest…the trusted advisor is complemented with a team of financial experts and corporate resources.

As your trusted advisor, XYZ delivers a wealth strategy service to manage the financial complexities in your life.

Your loan closing is just the beginning of our relationship.  Annual mortgage reviews and rate watches are just a few of the benefits XYZ provides to their clients.   That is why __ will not only be your mortgage Planner, but your Trusted Advisor as well.

I’m deliberately not providing links here because I’m not trying to embarrass anyone, but rather to make a simple point: the idea of a “trusted advisor” as synonymous with nothing more than competence, credentials and procedural compliance clearly lives on.

Who should you trust? According to these views, someone who’s been vetted by the industry, many will tell you. How will you know you can trust them? By the number of letters after their name, or by the stress tests they’ve passed. Or in some cases, by the way they are paid (via fees, rather than transactional commissions).

Let’s be clear: basing trustworthiness on whether or not one structurally faces financial temptation is a pretty low hurdle. It reminds me of Nixon’s famous utterance, “I am not a crook.”

Barring someone from temptation doesn’t create deep trust in them. While avoiding conflict of interest is a good thing, it’s entry-level stuff.  We reserve deeper trust for those who face temptation, and who nonetheless rise above it through ethics and character.

The bar for being a trusted advisor is higher than not being a crook, being competent, and passing industry equivalents of drug tests.

Reclaiming Trust

A few years ago, we wrote a White Paper: If You Think Competency Sells, Think Again. In it we provided research proving what Maister, Galford and I had claimed a decade earlier: that the dominant factors driving trustworthiness are not competence, business acumen and procedural rigor.

The more powerful drivers of trustworthiness are, in fact, the ‘softer’ side of things: the “intimacy” and “other-orientation” factors we identified in the trust equation.

It may have become fashionable to deny it, but human wiring has not changed in the last decade; we are still prone to trust those we feel secure confiding in, and those whom we feel have our best interests at heart.

They’re only beginning to teach that at business schools (Bill George is an exception). And you will not find it by mastering documented procedures or by improving your business acumen.