The 1970s saw John Parker work his way through four different organisations, before taking a job with the Stroud & Swindon Building Society in 1984. The move put a stop to his wanderings, and he has stayed there ever since. Indeed he has become a permanent fixture in the mutual sector, and earlier this year this was recognised when he was elected as chairman of the Building Societies Association.
Parker believes he typifies many of the executives in the building society sector, and that the longevity of service from members of mutual boardrooms throughout the country is one of the strongest strings in the sector’s bow.
He says: “I think you have to have a consistent message. Building societies are providers of mortgages and savings, which are long-term issues, and consistency of approach is important. We all re-brand from time to time, but I think it has to be a development, and not a big step change. What happens all too often in public limited companies is that there are dramatic changes of policy and strategy every three to five years, because either the chief executive is changed or a new consultancy group is hired.
Bradford & Bingley is a recent example, where it seems to have changed chief executive and strategy and that tends to unnerve staff and customers. What customers want from an institution that they are borrowing money from, theoretically for 25 years, is some consistency of approach. Building societies are typified by having longer serving board members and executives and in the nature of the business we are in that is no bad thing.”
Since Parker arrived at Stroud & Swindon it has grown tremendously. In 1984 it had assets of £81m and this year boasted assets of more than £2bn. Parker is delighted and says: “When I joined we had assets of £81m and now they are more than £2bn, which is a huge growth record. That is partly to do with inflation, but also because of the asset acquisition with mergers, and from having products that customers want to buy. Growth is an aspiration but you have to have policies that engender customers to come to you and that develop long-term trust. And you have to have a way of ensuring that there is some continuity of maintaining the relationship with them.”
Currently Stroud & Swindon is the fifteenth largest building society in the UK – there are 63 left. Parker does want the growth to continue, aware of the benefits of being a smaller operation. He explains: “It is one of the advantages of our scale. I can gather my managers together twice a year and we can have open meetings and financial briefings, and we all have regular visits to branches, and so the potential for communication is easier.”
Wanting to preach a single message is admirable, but knowing what that message should be is where the skill lies, and Parker says regulation has thrown up some big questions for market practitioners, and the respective futures they face. He says: “In order to detail what your strategy is, you have to understand what is happening in the market where you are operating. The one sector with the most change at the moment is the mortgage market, and there has been a lot of debate that is still to be resolved as to just how regulation is going to affect the distribution structure of the market.”
Parker continues: “How many directly authorised intermediaries will there be? If there is a huge reduction of the number of directly authorised brokers and there are only a certain number of clubs, then that is going to be a huge concentration of distribution power. Then the medium sized lenders will struggle to get on those panels, as they do not have national coverage.
“My argument from the BSA point of view is to say, regulation should not restrict competition, and it should be an enabler of competition. Providing there are enough directly authorised intermediaries, and the FSA can keep the cost of direct authorisation to a reasonable level and keep the burden of regulation light, then there should be no restriction on distribution structure and so less pressure from the distributors on the manufacturing structure.”
This is only one scenario, according to Parker, but it is imperative for companies in the mortgage market to be thinking in terms of future changes if they want to be able to direct their operations safely in the years ahead. For boardrooms across the market it is about keeping eyes fixed firmly on the horizon and trying to anticipate how the landscape will change, and how best to adapt to that change.
How many societies can continue on their present course remains to be seen, but Parker feels many will have to change. He says: “Societies will have to look very carefully at their intermediary distribution and think how that is going to change and how big the change is going to be and then whether they can find a niche. If you think that you cannot then you have to go back and look at your direct supply.”
For many of the medium-sized building societies, Parker accepts that changes will have to come, and innovations made, if they are going to survive in the recreated distribution market following regulation. A fine balance will have to be found, between being represented on panels, writing the volumes of business that these panel memberships will produce, keeping service standards high and ensuring profit margin and capital adequacy requirements are met. He says: “At our scale, to be on more than one of the nationals would be probably ‘over egging’ the amount of business that we could consistently write.”
Parker says Stroud & Swindon is yet to finalise its panel arrangements, but is confident it will deliver everything needed. Work is also continuing on the information technology side, and Parker admits there is still a lot to do.
He says: “Our IT provision is in truth around one month behind where we want it to be, and we still have some slack in our testing. We are now in a situation where we will be doing a lot of our testing through the summer holiday months, which we did not want to do and it is getting to a point where there are some pressures. Everybody is well aware that it is a must have and that on 1 November it has to be in place.”
While accepting that regulation is the main focus, it cannot be the only focus according to Parker. He explains: “The main challenge is regulation and it is the dominant influence on everybody at the moment. The danger we all face is that we become too inward looking and stop looking at the market and the consumers and start worrying about our internal processes and making sure they are compliant. It is a difficult year but it is a must do, and we must comply with mortgage regulation on 1 November and we must comply with general insurance regulation on the 14 January. It has to be done.”
Whether Parker feels regulation itself is actually worthwhile is a different matter entirely. It is coming and that cannot be changed, and Parker is working hard to ensure Stroud & Swindon is prepared and his BSA members have all the information they need to take on the challenge. However, he questions if regulation is actually going to meet its targets.
He says: “There is no point agonising about it as it is now a done deal and we have to get on with implementing it. If you view regulation as a done deal then I think the FSA is doing the best job it can to make the thing workable, but if you sat back and asked what is it going to achieve then I am not so sure. There are risks of concentration in the market and risks of limitation on either competition through range of product or the change in distribution patterns. I would have to ask if these are the intended consequences of regulation and I am not so sure.”
Parker will be keenly watching how the changes affect Stroud & Swindon, and its mutual cousins.
