Peter Beaumont: The final rules regarding statutory mortgage regulation have been published by the Financial Services Authority (FSA), what detailed plans have you made to date with regard to this?
The proposition surrounds and builds upon the existing Friends Mortgage World platform. We are going to have an extended panel so we can be representative of the whole market because one of the things we believe is essential is that existing Appointed Representative (AR) members and new members can trade as independent mortgage brokers.
Peter Beaumont: What is happening to your employed sales force and current distribution channels?
We recently announced we would be closing our direct sales force. We have over 380 employed consultants within this operation and intend to transfer the best of them – in excess of 200 – over to self-employed AR status.
Ben Marquand: How many ARs are you looking for in total when you become a principal firm?
We already have 300 AR firms tied to us, with something like 1,200 individuals, and we are looking to double the number of individual ARs.
Peter Beaumont: Which product lines will you be acting as a principal for?
We are already a player in the protection market, so everything we are doing is designed to enhance our own protection offering. We will obviously be a principal for mortgages and are investigating the possibility of a number of general insurance lines such as buildings and contents, and accident, sickness and unemployment, so we have actually got a holistic one-stop shop offering.
Ben Marquand: What are your views on multiple principals, will they work?
As a company we already have a comprehensive product range in the investments and pensions area, so what we are trying to do is to build on an extra tier and I think we will have a good offering. We would be more likely to look at forming relationships with advisers where they can offer the whole spectrum. That is not to say we would not consider those looking for a multiple principal approach but I think we would prefer to enter into a relationship where they are not dealing with other principals. I think that if it was to work you have got have a very clear legal agreement up front between companies who understand exactly where their responsibilities lie and exactly who is doing what. If you have got a lot of different companies involved that is going to get very time consuming.
Peter Beaumont: How many principals can you see an AR actually wanting to work with in practice?
In our experience most people only want one principal – provided that they can provide them with everything that they want. Essentially, they really only want one compliance regime to operate within.
Peter Beaumont: Will you be offering packaging facilities?
We are not ready to announce our packing panel but we are going to have a small, quality panel of packagers. Some of them are already with us as an AR, but have a separate packaging arm so it makes sense to extend the relationship. But we are are looking to have around five or six. Our view is that we have to offer choice. We do not want to bind anyone who might want to join with too many restrictions. We believe this is the right number, and they will predominantly work in the adverse, sub-prime market. I think the number of packagers out there will decrease as technological solutions are developed.
Peter Beaumont: More and more firms are saying they will adopt principal status, realistically, how many do you think there will be?
I think in many respects they will not all make it. They have to get to a certain critical mass in order just to cover the costs, and then only those who offer true value as well will survive. If you look at all these people who have said they are going to become a principal you have to ask how many are going to last. If you look at firms who already have experience of this, such as Friends Provident, they know how to manage intermediaries, they understand compliance and have actually got an infrastructure in place. I think there will only be around 10 to 12 who make it.
Peter Beaumont: How many brokers do you think will choose to become an appointed representative?
For those independent financial advisers that are directly authorised already, I do not think it would take a lot to persuade them to actually change. I think that for those who are currently an AR, that is the way they will stay too. I think the vast majority of those who are not directly regulated at the moment will probably take the AR route provided that the principal firm is right for them. You hear lots of figures, like around 7,000 individuals might become ARs, and if this is the case then you are looking at 500 advisers per principal.
Peter Beaumont: What offering do you have for those who want to be directly authorised or be an introducer?
We have a significant number of introducers already, and we are looking at how we can enhance support and service we give to these firms. In the same way, as far as directly authorised advisers are concerned, most of our business comes through this route at the moment. For that reason we are a developing a proposition for directly authorised firms in the mortgage market, which will be launched in the new year.