Letting the bank advise on debt

For some reason, most people still consider bank staff to be pillars of respectability who always act with the utmost regard for their client’s best interests. We blame the movie Mary Poppins. In truth, these days banks are little more than financial supermarkets: they pretty much all sell the same thing, with slight variations in pricing and packaging, and they work best when customers decide what they want before they go shopping. When was the last time you asked the checkout chick at your local Woolworths what you should buy for dinner?

Recently we spoke to an adviser about recommending that their client re-negotiate a NAB home loan. The clients were paying 5.2% interest, while the adviser knew other clients in similar circumstances who were paying only 4.8%. The difference is significant. $500,000 times 0.4% is $2,000 a year. And at a 40% tax rate the client has to earn $3,333 in salary to pay the extra $2,000.

So, we suggested that the adviser recommend that the client simply e-mail his bank manager asking for same interest rate as the NAB’s other customers. This was not a credit recommendation and thus did not require the adviser to be a licenced credit adviser. The adviser simply stated a fact: that he knew other clients paying a lower interest rate to the same lender, and suggested that the client liaise directly with the bank.

The email took less than ten minutes to write and send and, what do you know, it worked. The bank read between the customer’s lines (it would probably be worth the client refinancing with another bank to save $2,000 in interest every year), and made the move quickly and painlessly. The effect was the same as the client receiving a $3,333 pa salary increase. Over the next ten years the amount saved will compound up to more than $24,000 cash.

The client’s problem had been to assume that the bank was giving her the best interest rate possible. In a sense it was – but it was the best interest rate for the bank, not the customer. Happily, the adviser no longer makes the same mistake. He now routinely compares the interest rate being paid with what he knows other clients are paying, and against the interest rates advertised on the lender’s website. This takes just a few minutes, but each time him identifies a client over-paying he potentially saves that client thousands of dollars. In those cases, his client is benefitting from the relationship from the time they first sit down. His clients love him.  

The Dover Group