“We earn as much now from packaging mortgages as before we launched fees-free packaging, so that shows you the proposition has worked,” says Brilliant Solutions managing director Matthew Arena.
“Others in the market are more transactional, that’s why they have to charge a fee because brokers aren’t doing that much packaged business. We’re in the fortunate position where we can value that broker relationship over time.
“It takes a long time for that to build up and have that impact on the bottom line but that’s starting to work,” he says.
Perhaps the biggest surprise was hesitancy among brokers who Arena says were interested but cautious and expecting a fee to “come out of the woodwork” at some point.
But the change in policy has seen two significant shifts within the business and how brokers are using the firm.
“One is with packager exclusive deals where brokers may not have a strong relationship with the packager, they just use them because they have to,” Arena continues.
“Now they are seeing our fee-free offering, they use us and then they start asking questions, get to know us and so we’re starting to see more activity on the packager exclusives.
“And the other change is with buy to let, but not necessarily packaged enquiries.
“Because of all the changes in that sector and with our fee-free deal, brokers have the comfort to talk to us and feel they are not going to be sold a packaged solution. That is very positive,” he adds.
No customer interaction
It’s at this point in explaining how the firm has developed and operates its packaging proposition that Arena makes a slightly surprising admission.
“We don’t expect to deal with the customer at any stage in the process,” he says.
“Wherever possible we like to support the broker – that’s what our business is built on. We look at the component that we are better at managing, where we’re able to help them and we don’t specialise in direct to customer engagement.
“Those skills are what brokers are all about, so we go back to the broker with the information, we engage with the broker to do their job better,” he adds.
This is something of a contrast to much of the master broker market evolution.
In recent years it has become more customer-centric as firms are increasingly taking on the task of ‘borrowing’ customers from brokers to service them for specific deals and transactions.
So how does Arena see the master broker sector developing? One concern raised within the specialist sector especially is that distribution is too centralised among just a few key firms and packagers.
While Arena understands where this issue comes from, he believes the cause and main place for concern is further up the chain.
“The distribution market for mortgages is skewed,” he says.
“Looking at the prime sector there are a tiny number of businesses that control a huge swathe of intermediary mortgage distribution – that’s not right, there’s no reason for it, there’s no basis for it.
“Often people point the finger at the specialist sector, but that level of control is not right.”
He also targets networks for putting too many boundaries around their authorised representative (AR) brokers.
“The big thing for me is the networks restricting ARs from accessing a mortgage club, a packager, a second charge broker and it’s done for no other reason than to control distribution to extract more profit from it,” he continues.
“And it’s to the detriment of customers and brokers.
“They will always say there’s a get out jail free card to go off panel, but the reality is these brokers aren’t aware of what’s available off panel. They’re not given the opportunity to research that space,” he adds.
Arena accepts there are some aggregation problems within the specialist market where there are a limited number of distributors that have a strong presence.
“That’s not necessarily good,” he admits, “but if we tackle the fundamental problem that not all brokers in the land are free to choose what’s best for the customer in terms of distribution channel or access to product, then that solves itself as competition takes place in a free and fair world.
“In that situation the business with the best proposition for that broker at that point in time will win out.”
With much debate and controversy around master broker fees in the second charge sector, Brilliant has also taken a transparent approach here – charging a flat fee of £695 for all cases.
Again, this is done under the same premise to provide an opening to work with brokers in the future.
“It’s a very low margin for the work involved and the broker keeps absolutely everything else,” Arena continues.
“I’m not one for scaremongering about fees – if brokers do their due diligence they will know what’s out there and they will pick and choose, but a flat fee of £695 is more than competitive.”
This sector has been one of the most turbulent in the last year, particularly for lenders, and Arena sees this moving into the distribution side too.
“There are a lot of changes going on in the second charge market but it’s not just lenders, I think certain large brokers have been targeted to change their practices too,” he says.
“A lot of second charge, bridging and commercial brokerages are still working on pre-FCA business models with incentives for staff and so on and that’s got to stop.
“As I understand it that’s being looked into at the moment and I am aware that the lenders have been in touch with the regulator,” he adds.
All plugged in
Finally, Arena addresses the movement of technology into the market.
This is one of the key strands which he believes will mean Brilliant can add scale efficiencies to its current operations with an application programming interface (API) ready platform.
However, while there is interest from lenders this may take time due to the costs involved.
“The scale of the task is significant for any business,” he says.
“When you deal in the prime, specialist, packaging, bridging, seconds and commercial markets that is a fantastic opportunity and it won’t be long before they are all plugged in.
“But there’s a huge cost resource involved in working with that before the market is ready for it and we’re at that stage where it’s great to see but the market isn’t quite ready for the benefits it brings yet. But it’s just a matter of time,” he concludes.