It’s official. After weeks of speculation, CIBC has announced that they will be selling FirstLine and therefore, will be pulling out of the mortgage broker channel. The only question left now is: will it pay off for them?
With their announcement CIBC did give a couple of reasons for the move, saying, “Benefits of this will include higher net interest margins and deeper relationships as these clients enter into CIBC branded channels.” At first glance, it may seem with this reasoning that CIBC is just trying to keep more of their profit margins to themselves (and let’s remember that it’s okay for any business to do that.) But, the bank does give some other reasons for the sale, saying that they also want to start signing clients up for products based on what they need, and not by the product category they’ve been “grouped” into. So when a customer contacts CIBC Credit Card services, they’ll still be able to talk to someone about taking out a second mortgage; and if a homeowner visit a branch, they’ll also be told about the credit card products CIBC offers.
The question of whether or not this will be good for consumers is always the one that’s first on everyone’s minds. After all, even if CIBC is trying to deepen relationships and help the customer, the truth of the matter is that they’ve just taken away so many of a customer’s options by taking away the services of a mortgage broker who can truly show them all their options. Truthfully, it really might not be the best thing for the customers, which will also eventually prove to not be the best thing for the bank. A reported 20% of the bank’s profits came from FirstLine, which means that at least the same percentage of people have to refinance and renew their mortgage with CIBC when the time comes. But the customers have to decide that’s what’s best for them first; and they may not.
CIBC isn’t worried. They said in the statement that “Over the past number of years, we have invested in our branch-based mortgage business, including a substantial build of our mortgage advisers. The results of these investments are paying off as evidenced by our growth rates over the past year. CIBC branded mortgages have grown at a rate of 10% over the past year compared to the industry average of 7%.” They went on to say, “Our existing client base is relatively large but has not shown appropriate levels of growth. Once this process is complete, we plan to increase renewals into our CIBC brand from the FirstLine platform over time.”
First-Line accounts for one-fifth of CIBC’s profit margins, so they better know what they’re doing with this one. Even though they talk a lot about how well they’ve done “in the past,” and how they’ve increased their branch mortgage business, it might be time for CIBC to start thinking about the future – and how it looks without their major mortgage line. Customers are going to know the difference between “mortgage advisers” that work for a bank and a “mortgage broker” that works for the customer; and many of them may choose to renew with a different bank – a notion that CIBC hasn’t even seemed to entertain, thinking that customers will be happy to sit around and wait “over time” as their mortgage is switched from FirstLine to a CIBC branch.
