One of the most interesting developments from the software sector this year has rather crept up on the mortgage market. While a lot of the focus has been on the sourcing systems and online trading facilities available from specialist providers, one of fastest growing areas has been in companies’ customising or ‘white-labelling’ this mortgage sourcing and compliance software as their own.
There are now a lot of these systems currently operating in the market under the branding of brokerages, clubs and networks, and the majority of these white labels have been released in the past 12 months. This white labelling approach means that not only has the brand of the software provider been separated from the core functionality but also that bespoke versions can now offer a competitive advantage to principal firms looking to attract appointed representatives. If we compare this to the old adage that you could have ‘any Ford as long as it was black’ or any software as long as it was standard, it would be true to say that as we move into 2004 neither holds true any more.
Prior to this, firms either took the view that they would be content with an ‘off the shelf’ solution, or they attempted to develop the software themselves. This was both a costly and time-consuming exercise that very few felt brave enough to undertake. Therefore, from the evidence of the number of apparent systems now in the market, there has either been a sudden and massive injection of cash and commitment into the sector or, and what is more likely, new compliance regulations have spurred mortgage firms to look at other avenues.
The desire for customisation is not new, as mortgage firms have always sought to differentiate themselves in the market, but it is only recently that this has become possible. This is thanks to the technical advancements that now provide a level of flexibility within a low-cost structure to make specific alterations. Branding has also always been a major issue but never more so than now when individual advisers are placing the accountability for Financial Services Authority governed regulation in their hands.
So what is involved with setting up a white-labelled system? The first thought for most firms is a white label is simply replacing the software provider’s logo with the firms’ logo on the front cover of the CD. It is true that branding changes are part of the overall change, but the real benefit is the delivery of that firm’s specific proposition to the market.
There is usually a menu system for customisation that allows individual firms to alter as much or as little of the core product as they require. On the branding side, there is the ability to re-brand the CD, the main screen, the results screen and even to control daily adverts. This is not a ‘one size fits all’ approach and so while some firms choose basic branding as an advert, others may make regular changes to highlight new product exclusives.
In addition to these basic, superficial, modifications comes the delivery of the firms’ individual proposition to the market. This can include the creation of a panel or selection of panels, product listings that include only available exclusives, and individual procuration or valuation fees negotiated by the firm. Effectively, all of the aspects that make the marketing of the firm unique are ‘as standard’ in their white label version.
Other customisations that support the flow of business are facilities to store the many documents that are generated on the system. From the initial fact find to the product confirmation letter (and all documents in between) the firm can ensure that it is their documents, and their documents alone that are at the disposal of the individual adviser.
Another common customisation is in the development of cross-sales opportunities. With a white label the firm can specify their preferred third parties and create a full integration that allows the sharing of client information between the systems. Through customisation, the intermediary can re-enforce commercial links with their business partners. In addition, this encourages cross sales because a significant proportion of the work will be done by the system on advisers’ behalf.
The fundamental benefit for a principal firm is the opportunity to bring its own, defined proposition to the market without the expense and time spent developing its own systems. It can promote its own panels, fees, documents and branding to its ARs for a fraction of the cost of any alternative. The average cost of a white label development with Trigold ranges from £5000 to £15,000, depending on the level of customisation.
The other main factor is in the added control that the compliance software provides a principal firm. It is not difficult to work out that the cost of hiring an army of compliance officers to inspect each and every adviser on a daily basis will be massive compared to a system that lets them conduct some of the monitoring and auditing from a remote office. Most firms say that software costs are merely a fraction of the cost of the additional head count that would be needed. Another control factor is in simple administrative functions such as the dissemination of documents. A principal firm will have its own version of the required letters and documents. If, as is commonplace, a sentence or paragraph needs updating or changing the principal can simply alter their head office white label version. The next time an AR performs a product update this change is automatically made to all of their systems. This process is ‘invisible’ to the individual adviser, creates no extra work and offers far more ease and security than emailing new documents or burning new CDs. Control is going to be the watchword of new regulation and many principals are relying on customised systems to provide this for them.
So what are the benefits for advisers? If you are an AR, using advanced software provided by a principal, you can be confident that any products you see or documents you use are verified by the principal firm. On the compliance side, if the principal is using an integrated compliance solution you will not have to take on any additional tasks such as emailing documents or filling filing cabinets with them. Compliance documents will be automatically time and date stamped and sent to the compliance manager when the adviser performs a standard product update. Because these documents can now be monitored and audited remotely, you will not be subject to constant visits or be forced to store hundreds of documents in your office for the requisite three years.
The impact for outsourcing companies will come from regulation as many broker firms consider the possibility that they will have to outsource their compliance support. However, a move towards customised compliance software will remove a significant amount of the administrative burden. Consequently, intermediary firms that did not believe that they could cope may now be looking to keep this process in-house.
This is not the death knell for outsourcing companies by any means as there will still be firms that wish to focus on core business areas and skills and have certain functions managed by a third party. What is significant is that at least now there is a choice and not a necessity. The software should not dictate the way that a firm does business but merely facilitate it.
So what will happen next year? The emergence of white labelling to mitigate impending compliance regulation has created an opportunity for new firms to enter this competitive market with an immediate solution that brings their individual proposition to the market. This particular ‘barrier to entry’ has now been comprehensively removed.
From an individual advisers’ point of view, it is essential that if they are considering becoming an AR, they find out which software system the principal has selected – remember, advisers will be staring at this software every day until they retire (or change networks). Therefore, advisers will be concerned about the usability of the sourcing system, how they will be monitored, how compliance evidence will be collected from them and what extra activity will they need to do. They could also ask how many inspection visits will be made to your office every year.
Becoming an AR delegates compliance accountability but does not abdicate responsibility. If you were considering two job offers and one had a Porsche as a company car and one had a Skoda it would certainly influence your decision. The systems offered by principals are just as tangible and important a factor. Remember to ask the question and make an informed choice.
Systems can usually be customised and firms can choose from a menu of options.
Principal firms can tailor software to ensure their brokers act in the desired, compliant manner.
Brokers should check which system is behind a principal’s white-labelled offering to see if it is acceptable to them.