Perhaps it’s no surprise, though, that this change has been driven by FSA intervention. But this awakening is long overdue, especially with the lack of structured relationships between organisations.
The focus on ‘knowing your distributor’ will help drive up standards, ensuring intermediaries are rightfully regarded as truly professional partners by lenders. This wasn’t always the case in the past.
Why the change in behaviour?
One reason is the Mortgage Market Review (MMR), which encourages closer working relationships between lender and distributor.
Perhaps more influential though, is the FSA’s thematic review on fraud. This, combined with an increasingly challenging supervisory regime, is driving lenders to ask new questions such as:
• What vetting procedures do you use for new recruits?
• How is training and competency assessed and recorded?
• Describe the quality checking regime you adopt
• What fraud controls do you operate?
• What procedures do you have for managing departing advisers?
• What MI do you collect on your adviser performance?
Questions like this help lenders gain confidence that robust, consistent processes are being adopted at network level.
However, increasingly lenders are generating more specific data – at network, firm and adviser level – regarding things like:
• Decline rates
• Application to completion conversion rates
• Average LTVs
• Average credit scores
• Rates of non-performing assets (i.e. loans in arrears)
• Percentage of Interest only versus capital & repayment cases
• Percentage of cases involving lending into retirement
• Packaging quality/right first time
• Quality of responses to requests for further information
Fighting advisers’ corner
We are hugely supportive of lenders driving standards where it’s possible to influence outcomes (e.g. action on partially completed application forms, insufficient income evidence, etc.)
More problematic is advisers being judged on dimensions that are hard for them to influence. For example, credit scores in an area with high public sector employment may be poor, while, arrears may be high if the adviser has undertaken work-site marketing within a business making redundancies.
However, this doesn’t make the broker ‘bad’. Ultimately, it is the responsibility of lenders to weed out poor business through their criteria, underwriting and credit searches. Distributors need to continue to make this case vigorously.
What brokers can do
The message is clear – lenders are beginning to take action on advisers and firms they believe are not delivering the right ‘quality’ of business.
Improving quality is therefore a priority if brokers are to be recognised as a strategically valuable distribution channel moving forward. You can make an important contribution by ensuring you are:
• Up to speed on lender processes / criteria and using appropriate lenders in different circumstances
• Submitting quality documentation – don’t just complete minimum data requirements, tell the whole story
• Rigorously assessing clients’ circumstance – including their credit position
• Vigilant when watching out for mortgage fraud
• Monitoring your own business metrics, such as spread of lender usage, app to completion ratios, proportion of interest only lending and lending into retirement
Fundamentally, make sure you are one of the advisers whose cases are flying through, rather than requiring lots of intervention.
But it can’t all be down to the broker, it must be a combined effort. Lenders and brokers need to work collaboratively to achieve the changes desired.
Paul Shearman is mortgage, protection and GI proposition director at Openwork
