As the final rules emerge from the Financial Services Authority (FSA), what opportunities do you see for your company in the post-regulatory market?
A main point is that it gives us a chance to work more closely with brokers. In our view, particularly if a broker becomes one of our appointed representatives (AR), this is an opportunity to develop our own and the broker’s business in tandem, leading to increases all round. We can also diversify by offering mortgage-related general insurance products that will become regulated by the FSA from January 2005. This is a new range of products for Mortgage Intelligence – we will be offering them through a separate panel of providers for each of the products.
How many product categories will you act as principal for?
As well as the two core categories of mainstream mortgages and lifetime mortgages we will be acting as principals for life, critical illness, mortgage payment protection, buildings and contents and income protection.
What is your estimate of your market share?
That is a difficult question at this point. We are looking for between 500 and 1,000 ARs but we have also offered a solution to those brokers who wish to be directly authorised. At the moment many, if not most, brokers are unsure which way to go, making it difficult to say what the split will eventually be. As time passes they will become more aware of exactly what will be expected of them in order to be directly authorised and things will become clearer. However, being able to offer solutions to both camps, we believe we will have a decent market share. Of course the size we can cope with in terms of ARs is finite but the amount of brokers wishing to join is also dependent on the number of other networks offering an attractive deal to brokers, that too is very difficult to gauge at the moment. There are very few out there at present.
What is your proposition to ARs in terms of cost?
We are asking for a monthly fee of £100 per firm, plus £50 per adviser per month. Added to that is a percentage based on turnover, which will vary between 8% and 10% of income. Of course at the moment anybody signing up will be subject to Mortgage Code Compliance Board (MCCB) rules. While we remain under the MCCB we are offering a 1% discount on those fees. We will be taking out professional indemnity (PI) insurance as required by the MCCB and FSA to cover our regulatory responsibility for the advice given by our members. The PI costs will be charged through to ARs as a percentage of turnover. The same percentage will apply to all members. But the percentage charged will be fixed as soon as we have completed terms with our PI insurer. The cost we will pass through to our regulated members will be no more than 2% of mortgage business turnover.
What services will you offer?
The whole key to this is to make life as easy as possible for brokers so we built our own software. The broker inputs details once and that pre-populates across both the mortgage forms and associated insurances. This system is linked to a choice of either Mortgage Brain or Trigold so brokers will not have to learn how to use a new software system, and can stick with the one they currently use.
How much will the changes in regulation cost your business?
It has been a huge investment for us, but we want to make sure that we are going to be there for the future. It is important to have a robust proposition so that if brokers choose to come with Mortgage Intelligence they can sleep at night. We are backed by Close Brothers, the UK’s largest independent merchant bank. All brokers should be looking at the financial stability of any other company they decide to link with.
What are your views on how a multiple principal approach will work in practice?
This is going to be a difficult situation and one that I feel is unlikely to end up being used by brokers to any great extent. It would keep throwing up situations where there were questions over who is classed as the main principal. I doubt very much whether the FSA expects to see it widely used.
A number of companies have said they will offer principal status, how many do you see making the full journey?
The worry at this stage is that, of the large amount of companies saying they will become principals, very few have actually set out their stall with costs on the table. I worry how many will be ready in time and we all have to apply for authorisation as well. I keep hearing ‘don’t rush into it’ but, by not giving full details early, they are making it very difficult for brokers to make any kind of informed choice. I think some networks are stalling for time but brokers want to be able to sort out the future of their business now, rather than wait until there is no choice.