Over the next couple of years the market will see an expansion of the services on offer, both from the current players and a whole new breed of firms entering the fray, all jockeying for position in gaining a (larger) piece of the changing shape of the broker market.
There are many traditional checks that can be made when searching for the right partner:
• Companies House ‘ for the latest audited financial statements
• Corporate credit check
• Bank reference
• Accountant’s reference
The problem with all of these is the issue of information and bias. Even bankers and accountants will look to make the reference look as rosy as possible in their client’s favour.
Make sure that all avenues are explored and compare the costings and rewards across the whole of the market. Remember that sometimes big is not always better. Recent failures with networks and packagers have come from over-extending their resources. Small can be beautiful because that way you can work closer with the individuals who have a direct impact on you and the broker’s business. What you want is a ‘low maintenance’ arrangement where you can get on with your job without worry or having to chase your partner to do theirs.
The most important, and easiest, thing to do is to make sure you take lots of personal references from brokers currently using the services of your target partner. These other brokers will have first hand experience of your proposed partner and will give you the truth, good or bad. So get a long list of names and call them personally.
Finally, because this will be a moving feast, try not to lock yourself into any time restricted or business volume contracts. What is right today will, almost certainly change in the next year or so. Keep your options open.
The Mortgage Placement Company debacle has highlighted the massive risk to independent financial advisers (IFAs) in dealing with mortgage companies which are financially unstable.
Therefore, it is becoming increasingly important that IFAs fully research a packager before doing business with it. Assessing mortgage companies is, fundamentally, subject to the same principles of assessing any company. It involves assessing the quality of management and track record, the financial strength of the company, its risk management, its corporate reputation and commercial backers and partners.
It is fairly easy to make basic checks on the company and its directors. Companies House holds a list of disqualified directors at its website www.companieshouse.gov.uk. It also holds a list of the trading names of companies, and any previous names these may have traded under. This can help identify companies or managers with poor track records.
IFAs may well have to perform credit checks on packager companies ‘ a factor that is particularly ironic, given that many packagers insist on credit checks with the IFAs they deal with. There are a huge number of companies that offer company credit checks.
A good corporate reputation is no guarantee of financial stability, but with new packagers cropping up the whole time, IFAs would do well to seek out companies or management with a strong reputation. It is also worth assessing whether a company has any commercial backers and, if so, the nature and extent of their relationship with the packager ‘ and whether they financially support it.
I feel a good place for any broker to start is by evaluating the long term business objectives of a packager, ascertaining that they have a strategy for business continuity within the future regulated environment.
With regulation approaching in autumn 2004, we will see the disappearance of smaller packagers as lenders stop dealing with them and networks opt for principal status. This move has begun with the likes of BM Solutions cancelling packager relationships and clear water appearing between the sophisticated distribution channels. Compliance, sourcing solutions, professional indemnity, lender panels and a host of other business solutions are now the backbone of the offer opposed to packaging alone.
Distribution of high street lender’s products is not an indication of stability ‘ although it may give the appearance of credibility. Therefore, lenders need to act responsibly by giving distribution/packaging agreements only to those companies that that can satisfy their own sophisticated financial checks.
Brokers should take up references with other brokers using speed of payment, quality and transparency of financial information and method of payment as the key indicators of a packager’s attitude towards its broker base and procuration fee payments.
It also surprises me how many brokers are willing to commence a relationship with a packager without having first visited its offices to meet the directors and other senior management to evaluate the operation.
Ultimately, with regulation, will come the need for a packager/network to demonstrate financial adequacy. This will bring protection to brokers operating within these networks and freezing out of the market organisations that do not have the financial backing to operate at these new professional levels.