Everywhere in the mortgage market, predictions abound of the forthcoming knell that is soon to ring for the small independent mortgage broker, and the easiest option seems to be to run for the cover offered by the larger operations. There may be storm clouds on the horizon for the independent mortgage broking community, but they are not beyond help. The mortgage market has seen an explosion in size, product type, product providers, technical capability and distribution channels, and as such there must be a way forward for the provider of specialised mortgage broking services.
In past years, the nirvana for many financial institutions has been a one-stop shop for customers. This is still a prized goal, and being able to cater for all of a client’s needs is obviously a competitive advantage. But at what cost is this achieved? Many have seen their customer proposition diluted by stretching their expertise too thinly over the broad shoulders of the financial markets and have ended up losing sight of their core business.
However, as the financial product providers, and other professionals who service the markets, realise they cannot offer everything a client needs in-house, the independent mortgage broker must seize this opportunity to offer their services through partnerships with these other professions. This will help extend existing customer bases and generate increased amounts of referral business. These types of partnerships are already in place between many brokers, solicitors, estate agents and surveyors, but in the main, especially at the smaller end of the market, are conducted on an informal basis.
Despite modern-day technologies, business is still very much influenced by personal relationships and dependent on the success of face-to-face meetings. Informal agreements are an integral part of how the mortgage industry operates, but there is no reason why these cannot be mined to be as profitable and productive as possible.
For the smaller independent, a relationship with local law and accountancy firms may provide some business, as will an acquaintance with the regional estate agents. But do they really pay dividends, or just serve up bits and pieces of business that come in handy from time to time?
At the smaller end of the market, it is more critical to ensure business opportunities bear as much profit as possible. Competing against the bigger intermediary chains is always going to be difficult, and when the likes of Bradford & Bingley feeds all its estate agency mortgage leads into subsidiary networks such as Charcol and The Marketplace, it is difficult to get a foot in the door. However, there are scores of independent estate agents and commensurate legal and accounting practices across the country. They themselves are trying to offer the widest service possible service to clients, and could benefit from being able to refer business to a reliable mortgage broker.
This philosophy is one that mortgage broker Mortgage Talk has centred its business on. Established eight years ago, the company now completes over 500 mortgages a month. It operates on a franchise basis and offers estate agents the chance to set up inhouse financial service operations. It will give them all the IT and administrative support they need, and provide the financial consultants needed to cater for provision of customers’ mortgages.
Andy Frankish, new build director for Mortgage Talk, says the system allows smaller estate agents to offer a more complete, professional service to their customers. In dealing with an operation like Mortgage Talk, Frankish says the estate agents benefit from its size in terms of improved commissions, and its ability to put pressure on lenders with regard to surveys and application processing. Although the smaller brokers cannot offer such leverage with the lenders, they can nonetheless dramatically improve a small estate agency’s customer proposition.
Mortgage Talk allows the estate agency to keep the money it makes from the franchised financial services operation, but then charges it a percentage of the total turnover it makes on the business.
Some estate agents and solicitors are loathe to pay to have an in-house mortgage and financial advice service provided, believing they can do it better themselves and keep the fee they would otherwise be paying out. Frankish says the numbers speak for themselves and has seen small estate agents quadruple their turnover on the back of offering the franchised advice. This would not be possible on their own, he believes, and is the kind of expertise independent brokers could be selling into small legal or estate agency operations.
Indeed this is a model that Frankish believes will take hold increasingly. For the smaller intermediary, formalising the arrangements they have in place may be the only way to prevent the larger lenders and intermediaries stepping in and doing so themselves.
Operating as an estate agent’s in-house adviser may not provide sufficient business to occupy even smaller intermediaries full-time, but as a one or two-day weekly commitment it may prove very valuable.
For intermediaries, self-sourcing leads is an integral part of business which becomes more important the smaller the operation is. However, Andrew Drummond, director for Cobalt Capital, believes it is something many do not do as well as they could, and feels too many are reactive as opposed to proactive when it comes to generating business. The team at Cobalt was initially established as the self-sourcing division for John Charcol and then went its own way when the intermediary was bought by Bradford & Bingley. By putting together databases of every lawyer, accountant and surveyor that came through on mortgage application forms, it soon established a growing network of contacts it could forge relationships with. Putting together the likes of best-buy tables in the days before they were commonplace also helped agencies and solicitors see the team as a professional and useful partner.
Although, such measures are not new, they are not employed to full effect by many operations according to Drummond. Many also fail to note down the source of enquiries when they do come in. Not only does this make it impossible to gauge the effectiveness of any advertising that has been placed, but also to follow up and develop relationships with those referring occasional business. Developing relationships this way has seen Cobalt take care of all the financial needs, including mortgages, for a raft of accountants and estate agents. Some of these are on a formal basis where set fees and commission structures are in place. Others are less structured in terms of respective payments, but are serviced with equal enthusiasm in terms of making sure the relationship remains profitable and is not allowed to deteriorate into thin air. Drummond is the first to admit that continually servicing these relationships is demanding in terms of long hours and late nights, but says without that effort they will soon evaporate along with the profits they bring.
As the mortgage market has exploded, some intermediaries have not made enough of their expertise in the sector. Companies like mortgageforce and Inter Alliance have realised this and established referral operations to service business from intermediaries not able or interested in dealing in mortgages themselves. The IFA market is another area where the mortgage brokers should be looking to source business from, and although many will know other IFAs working in their area, how many have established solid lines of communication?
While incoming regulation and rising insurance costs are going to put the squeeze on mortgage advisers, they can also be met without having to lose independent status. For example, packager, Optoma, is offering intermediaries the option of joining its professional indemnity insurance scheme without the need to alter the nature of their business. Matthew Bright, managing director of Optoma, says: ‘Intermediaries will be expected to put a number of cases through the business, but they will in no way have to deal through Optoma on an exclusive basis.’
In a market that has changed so dramatically over the last decade, it is inconceivable brokers will be able to operate in the same way in the years ahead as they have done in the past. However, this does not mean they will not be able to continue at all. Change is not easy to incorporate, but brokers must sell themselves on the qualified expertise they have. This will become a more sought-after commodity as regulation approaches and is enforced. By looking to act less unilaterally, but more through partnership, there is no need for advisers to lose all measure of independence, or indeed become extinct.