Never mind butcher, baker, candlestick maker, Brian Pitt’s time in the mortgage market has seen him play lender, broker, third party outsourcer, and he is not done yet. Pitt is a director at Beacon Mortgages, which he bought into in 2003, and hopes the operation will become a national brand in time.
If the success of the other start-up businesses he has been involved in is an indication of future success, it is unlikely he will fail. Running his own operation was always key for Pitt who found out in the earliest days of his professional life that he liked to have some control in what was happening. He explains: “After a year I got bored with my first job at Prudential, and in particular I did not like the way we had to go in to meet the boss at Christmas to find out what our pay rise was going to be, having never seen him all year. I thought I could probably do better.”
Pitt has been involved in a number of start-up operations. He says: “Beacon Mortgages is the third start-up I have been involved in. The first one was at Household Mortgage Corporation, which was bought by Abbey National, rebranded and is now owned by GE under the FNMC banner. Future Mortgages was the second start-up I had been involved in and it was basically a group of entrepreneurial thinkers finding a gap in the market place, getting funding from the venture capitalists with a three to seven-year business plan to create value in that niche area. The intention was always to sell the company and once it was established we began to get approaches from people interested in our distribution platform and our profitability. The venture capitalist support of the business decided that the best acquirer was Citigroup and it was in July 2001 when the purchase went through.”
Pitt is building his current enterprise as part of the existing financial services company Beacon Capital Holdings. He explains: “Beacon was an existing IFA business and has been around for 10 years. I knew the proprietor, Simon Goldborne, both professionally and personally. Beacon was in a place where a lot of IFAs find themselves. It had a heavy cost base, and had an old style model, which was not IT based. It was also a traditional IFA in that it tried to do everything for everyone but was largely a one hit sale. There was an opportunity to try and put some IT platforms in place, change the model to a more marketing and sales driven one, look after clients a bit better than they had been doing, and try to get as many sales out of each client.”
He continues: “One of the things that Beacon did not do in any significant volume was mortgages. Alongside the IFA model we saw the opportunity to do mortgage business within the group. We have brought more mortgage expertise in and there is now a business-to-business proposition, focused on advisers we know, which is trying to come up with an alternative packaging strategy for them. There is also a business-to-consumer operation, which is more local, working through professional entities such as estate agents, solicitors and accountants. The packaging arm could be a real opportunity for us. Through my past life I have seen that the quality of packaging is variable beyond belief.”
Explaining how the operations will fit together, Pitt says: “The holding company is called Beacon Capital Holdings (BCH), which is directly regulated by the FSA. There is a subsidiary called Beacon Asset Management, which is an appointed representative of BCH. Both of these deal with regulated activities. Beacon Mortgages, which is our packaging arm, is a subsidiary of BCH and deals with non-regulated activity and does not have any client contact.” Pitt says the mortgage operation will generate £125m of completions this year and then grow that figure to £250m or £300m by the end of its third year.
Unlike many packaging operations, Pitt is not looking to recruit large network partners to generate the volumes he seeks, but is instead tailoring the company to provide a service for smaller, directly authorised advisers. He says: “A number of packagers have decided to try and secure networks as distributors, but we believe there is a place for smaller players and we are going to try and support smaller advisers who do not have access to quality packaging facilities without going through bigger operations. It does not mean that we do not like networks, but merely that we are choosing to support the advisers that have gone directly authorised.”
If Pitt has a gripe about networks it is about the messages that have been coming from that part of the market, and he feels too much has been said about the necessity for smaller brokers to become appointed representatives. Not only does he believe this is unnecessary, but he also feels that for many it will not present the best option for their business in the long term. He says: “What has been really disappointing in the last few months is that most of the comments in the press have been about which networks people are going to choose, and there has been little support of the directly authorised route. This means the debate has been slanted in the networks’ favour and become merely one about the various appointed representative (AR) offerings they have.”
He adds: “What happens to an adviser’s client once they have recommended a product from a network panel, and what happens to the renewal commission? Where is the equity in their business going forward? If an adviser goes down the network route, the majority are going to tie intermediaries in knots so that if they try to get out of the contract then they are going to lose control of their clients. Any equity value that has been built up by creating those clients in the first place is going to be given away. It is a flawed process, and is not good for an adviser trying to sustain an independent business. The statements coming out of networks are also confusing. Some are saying they are whole of market, others are saying they are restricted panel, some are offering a three-month notice period to leave, while others are not. You almost need a key facts illustration (KFI).”
Regulation has created many debates in the market, and Pitt believes not everyone was as ready for it as they could or should have been. At the moment he is sceptical of the sourcing systems, and their ability to cater for the entire market.
He says: “None of the sourcing systems have convinced me that they are ready yet. We have yet to see something that is able to look after our business and the only option is going to be to rely on the lenders direct until the sourcing systems have got the whole of the market proposition sorted out.”
Pitt does not know why the KFI proved hard to sort out. He says: “It is bizarre that lenders, which have had so much time, found this so difficult. I know of multinational companies that recruited external consultants to try and get the KFI issues sorted out, when they have got huge IT resources of their own. At the end of the day it is a quote system. I know it has to have certain information in it, and the variable detail is where the problem lies. But they were saying they did not know what advisers’ fees were being charged. But why did they not know? They had long enough to talk to their business partners. If there were so many deals in place that the variables were running to hundreds then they should have thought about that beforehand.”
Being unable to keep control of and manage the business in hand is not part of Pitt’s professional philosophy. He says of Beacon’s future: “We believe in building businesses from the bottom up so we will not go and get 1000 applications a month if we do not have the systems in place to process it.”
Although Pitt is coy about a future sale of Beacon, he is very clear about wanting to build it up into something that becomes a key player in the mortgages distribution industry. If he succeeds it is hard not to believe he will soon be looking ahead to his next challenge.
