With regulation about to hit the mortgage market, many in the industry see the use of aggregators, such as mortgage clubs, networks and mortgage franchises, becoming more popular among brokers.
These organisations offer a range of services, apart from the core range of mortgage products, exclusive and otherwise. Arguably the most useful of these services can be loosely grouped under the headings of marketing support and training. In future intermediaries may also look to those offering compliance support.
After the Financial Services Act came into force, the 11,000 IFAs in the market reduced to 3,000 directly-authorised IFAs. Obviously it was not the case that 8,000 IFAs disappeared ‘ it was a result of the majority of firms joining ‘aggregators’ in the IFA sector. Impending mortgage regulation may have a similar effect and push small to medium-sized brokers towards ‘umbrella’ organisations.
Any broker currently looking to join an umbrella organisation will come across the problem of definitions. It seems reasonable to assume clubs are loose organisations offering minimal support and no contractual relationships, that networks have stricter contractual obligations and offer more in the way of support and services, and that franchises are akin to being an employee, but in fact there is a considerable blurring of the boundaries between these definitions.
Nick Baxter, director of mortgage network Mortgage Promotions, illustrates the point. ‘We call ourself a network, but in many ways we have aspects of a club. A network would typically use one MCCB number for all its members. All our members remain independently registered, and they are not locked in to a contractual relationship. The term network was originally generic, but it is coming to mean more. We are not a club, but not a traditional network either,’ he says.
Joining a franchise
Although many mortgage intermediaries are independent operators and would shrink from the level of control required, the greatest level of support available to intermediaries comes from joining a franchise.
Brokers benefit from working under one brand name with one set of marketing costs. For example, the national franchise network, mortgageforce has invested £500,000 in creating a range of national and regional adverts that franchisees have free access to. It also offers an internet-enabled marketing toolbox, giving members the tools to focus on the various sectors, on a secure area of its website. All services are free of charge.
Training tends to have a greater importance in franchises as all members are working under the same brand.
Rob Clifford, managing director of mortgageforce, says: ‘We have always offered a five-day residential initial development program which is mandatory for all brokers. We also provide a marketing workshop training day; this is also compulsory, describing which adverts work in which situation, when direct mailing is worthwhile and so on.
‘We offer continuing professional development (CPD) and like to get all our members into regionally-convened training sessions on at least a quarterly basis. We also conduct personal assessments with our members to target training to their specific needs. We try to do all this in a hand-holding, rather than a prescriptive fashion.’
As a rule franchises will be taking on full responsibility for compliance within their membership.
For those who would consider a franchise a step too far, the next level of service comes from networks. These tend to have a contractual relationship with their members and require a certain amount of business be put through the network, although, this is by no means always the case. Mortgage Promotions does not offer marketing support, leaving that to lenders and takes the same approach to training.
Baxter says: ‘We have a relationship with a few of our lenders who are happy to offer training to members. This has been particularly useful recently with regards to CeMAP training. For example, Standard Life Bank is running road shows for our members and Woolwich is prepared to visit members in their offices and offers CeMAP help.’
In common with many networks it does offer compliance services to members, including CPD.
Mortgage clubs are loose organisations, based on the principle that brokers who ‘gang’ together can negotiate discounts and increased procuration fees on products. This market is dominated by three big clubs: Prudential Mortgage Club, Legal & general Mortgage Club and Zurich IFA (ZIFA) Mortgage Club.
Prudential is keen to point out it does not claim to offer any marketing and training support directly through its offices.
John Malone, national mortgage manager at Prudential Mortgage Club, explains: ‘We are a mortgage facility within a life company and are governed by Financial Services Authority rules on benefit selling. Under these rules we could not offer additional services to one member over another. If we were to offer training and support we would have to offer it to every person on the database ‘ 15,000 people.
‘Lenders such as Woolwich and Standard Life Bank will help train members, but I cannot claim that is what we do, as the people doing the work are the lenders. If an organisation has qualified trainers on the payroll then that is fine, but if you are simply picking up the phone, booking a hotel and getting someone to stand up in front of them, can you take credit for offering training? People are sometimes misled as to the services that are being provided.’
Legal & General Mortgage Club offers marketing support in lead generation, remortgage campaigns and pre-approved advertising. However, to join the club the intermediary must undertake to sell Legal & General protection products, either as a tied agent or as an IFA, making the idea of having a loose contractual relationship with the mortgage club possibly a moot point.
John Cupis, sales and marketing director at Legal & General mortgage club, says: ‘If they are a business partner of Legal & General, members can get marketing support through their local Legal & General sales manager. If they are IFAs they get the same support through their local IFA sales manager. The important point is Legal & General Mortgage Club is a support service to our business partners and IFAs who have chosen to sell our protection products. Training is along the same lines.’
The third of the big three, ZIFA, provides Mortgage Brain free on the proviso that members commit to one mortgage a month, or three a quarter. It also provides help in lead generation, to identify customers ripe for remortgaging and advertising support. It has a range of different messages, depending on what is being sold and these are tailored to each individual firm. A core series of events are held which are based around core skills. Training and marketing support is free.
There are, of course, plenty of smaller clubs to choose from and these are still able to offer a fairly comprehensive service in marketing support.
The mortgage club, Mortgage 2000, offers members its own sourcing system. It has help desks to answer any specific queries about the system, and a enquiry team for any product questions. It also provides a manual to subscribers and a twice-monthly newsletter giving club and product information, but it does not offer training.
None of the clubs had any plans in place to offer compliance functions to their members.
Stuart Glendinning, marketing director at Mortgage 2000, sums up the general opinion: ‘I do not know if we are going to be providing compliance functions after regulation kicks in. Many of our members are also members of networks. We expect that most brokers will be taking their compliance services from the networks. If they are already members of a network it would be pointless for us to double up on that.’
The sting of regulation
Although it is too early to say how, there is no doubt the advent of regulation is going to change the market for mortgages. So what, if any, effect will this have on intermediaries organisations?
Until specific proposals coming out of CP121 are revealed we cannot determine the shape of the mortgage intermediary market, although it does tend to suggest fewer, larger groups.
What clubs and networks will offer depends on the outcome of mortgage regulation. As regulation ‘ and the cost of regulation ‘ bites, intermediaries are going to be looking to maximise income, and those who do least business will not be able to get the best deals by themselves.
Baxter sees the future as bright for those groups with loose arrangements with their members. He says: ‘There is no doubt that more people will be joining organisations. There are an ever-increasing number of brokers who want a loose relationship with groups such as ourselves and it is up to us to build loyalty. I prefer that and I do not think mortgage brokers like being made to do things. The benefits of clubs and networks are tangible.’
However, not everyone sees this as the case. Clifford says: ‘One of the problems faced by clubs and networks is that they have no control over distribution. The lack of a contractual relationship does nothing to lay foundations for a meaningful long-term relationship. Some clubs and networks simply do not know what level of business they will get tomorrow. Some advisers are members of up to four clubs and use them for the best procuration fee that may be on offer that week. The clubs may move towards ‘officialising’ their relationships with their members.’
Glendinning also sees change in the relationship with lenders. He says: ‘Lenders are going to become more choosy about who benefits from exclusives and higher procuration fees. In the way that lenders have reduced the number of organisations they allow to package for them, they will reduce the number of clubs they deal with. This will end in fewer but bigger and stronger clubs.’
Paul Robertson is a staff writer
The boundaries between networks and clubs is becoming blurred.
A franchise offers the most support, but may involve a partial loss of control.
Networks and clubs may have to tighten up membership to secure exclusive deals in the future.