Charles Schwab started to offer discount brokerage services (low commission trades) way back in 1975.
Much of the financial industry paid little attention to the upstart firm but it nonetheless continued to grow and capture more and more market share.
And then finally, 44 years later, Schwab announced that they would charge no commissions at all for stock trades.
It was a combination of deregulation, improved technology and increased competition that pushed commissions lower and lower over the years.
Why should the mortgage and real estate world care about Schwab?
B/c the same thing will likely happen to us, but at a much faster pace.
During my Digital Marketing presentations, I share the following data to illuminate just how much faster change takes place in today’s economy.
It took radio 38 years from its inception to acquire 50 million listeners; it took TV 13 years to cultivate 50 million viewers; but it took Instagram just over a year to get 50 million users.
Even more telling is the video-sharing mobile app, TikTok which added 500 million users in just over six months!
My point is that we are all going to see continued pressure on our commissions and fees and that change will come much sooner than we expect.
It is not the end of the world of course as long as we all adjust.
- We will all need to do more volume with less work with the aid of technology and increased efficiencies. If any of us are unable to achieve this kind of efficiency on our own, we should look to align with a firm that can help us do so.
- We will all need to add more value. I repeat this often, but clients still like to have expert advisors at the ready to walk them through major transactions (while also demanding reduced fees more and more often). Schwab navigated this dichotomy beautifully by always having free financial advisors available for everyone and then trying to earn fees through other channels like asset management or proprietary funds (which had additional fees).
- Five years from now, it may take as little as fifteen minutes to get fully approved for a mortgage (as opposed to hours currently) b/c of the technological changes on the horizon. And if and when that happens, commissions will of course plummet. JVM will need to do far more volume to make money, and JVM’s team members will become “expert advisors” as opposed to the pre-approval and mortgage experts that they are now. Our job will be simply to match borrowers to the best possible mortgage according to their needs and to answer questions – lots of questions. The one certainty is that we will need to add tremendous value in terms of cost and advisory services to keep clients coming our way.
The race is on.
Note in regard to Interest Rates: Rates shot up yesterday in response to loosening trade tensions.
This is significant b/c it indicates just how sensitive the markets are to trade issues.
President Trump will be under tremendous pressure to push through trade deals with China and other countries prior to the election next year, and if he succeeds, expect rates to shoot way up in response.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646
