After months of attention focused on Mortgage Day, there is almost a sense of relief that it is over and that the industry can now get on with implementing the changes.
Trevor Galvin, mortgage proposition manager of Friends Mortgage World (FMW), describes the day as a huge change for the industry and as one of his best moments in his 32-year career in financial services.
He says: “I was part of the decision that Friends Provident made to launch the network FMW and take responsibility for appointed representatives’ (ARs) mortgage advice, which is something that it had not done before. Having taken that decision and then to see it come to life has been hugely rewarding.”
Friends Provident has not been as outwardly aggressive about its network proposition as some of the smaller names in the market, but it has nevertheless been one of the more successful, attracting more than 350 ARs to date.
FMW, which was set up in 1999, became a network this year, having previous operated as a mortgage club.
At the outset, the group had a very small panel, but this has been expanded to include more specialist lenders – mainly due to product innovation which has advanced so much that it had to keep pace, according to Galvin.
“We wanted to make sure that we had a panel that was whole of market representative,” he explains. About 18 months ago, FMW did some roadshows across the country to listen to advisers about what they wanted from FMW in the run up to regulation and the make-up of the panel was a large part of that feedback.
Galvin heads up the 10-member strong FMW support team, which includes a procuration team and three members on the road.
Galvin confesses that he never started out wanting to go into financial services and that he eventually fell into the mortgage market. “I studied business studies when I was younger, but never really knew what I wanted to do,” he says.
But after more than three decades in the industry so far, he has no regrets, and has every intention of staying with mortgages, saying: “Mortgages is a great industry – it is a people business and one of the advantages is that I get out and about to meet a lot of different people.”
Galvin lives in Exeter, but describes his second home as his car, due to the 40,000 miles he clocks up every year, meeting ARs, lenders and other business contacts. As such, it is understandable that he likes to get out in the fresh air as much as possible when not at work, counting travelling, gardening and watching Manchester United among his favourite pastimes.
As the industry looks to the future, Galvin believes a number of trends will emerge as a result of regulation. First, he suggests that because regulation demands advisers give best advice, they will be looking for the most competitive deals and so lenders will need to respond with appropriately competitive products.
“Regulation is a good change, but this does not mean to say that the industry needed it as the amount of complaints beforehand was negligible. It has taken a long time to get mortgages regulated,” he says. “Products will become simpler because they will need to be more transparent, better value and better products. There will be a lot of streamlining.”
Second, he suggests the demand for adverse business in mortgages will increase due to a rise in the level of consumers in debt. As this area develops, more lenders understand it and feel comfortable in this marketplace, and are more tolerant with regard to what type of business they will accept.
He denies that increased gearing by borrowers is storing up problems for the future, but adds there has been a stretching of income multiples and says rising interest rates means that people are beginning to feel the pinch on their financial purse strings. “This does not mean to say lenders have been acting irresponsibly, but to get more business done, they have had to stretch income multiples,” he says.
Another industry trend has been the increasing amount of business being done online. “If you compare the mortgage industry with the rest of the financial services industry, the financial services industry could learn a lot from us,” he says.
Galvin promotes the advantages of advisers working online, saying it cuts out excessive paperwork. Friends Provident is already encouraging advisers to use electronic trading on the protection side of its business, where they go straight through to the group’s back office and its underwriters.
“Advisers have to be technology minded in the current climate,” says Galvin. “Lenders have really cottoned on and the likes of GMAC and BM Solutions have a complete end-to-end processing for adverse business.”
Like several others, he believes there will be a reverse in the popularity of packagers as lenders beginning to question their benefits. “Packagers are effectively an outsource administration for the lender, but lenders are developing their online systems to enable advisers to go straight to the lender, even for adverse business,” he points out. “So unless packagers can bring something else to the party, the number of packagers is bound to decline.”
Galvin goes on to say that sourcing systems have become more sophisticated as a result of regulation and acknowledges they are looking beyond simply sourcing. “They have had to build a compliance sales process back office functionality,” he says. “Advisers do not only need to know how to source a mortgage, they also need to be complaint – which means being able to produce compliant documentation, such as the initial disclosure document and key facts illustrations. They need to keep proper records which are presented in the way required by the Financial Services Authority (FSA). As such, mortgage sourcing is only a small part of the picture for sourcing systems.”
And he applauds the news that sourcing systems are developing compliance data warehouses where the documentation that an adviser uses is kept in an archive – this provides a complete audit trail of the business an adviser has carried out.
From a network point of view, FMW wants to see that audit trail because it is taking responsibility for ARs. “We need to be able to see what our ARs have done and how they have done it,” says Galvin.
He adds: “In the past, some advisers have been acting very much on their own, and the whole point of being an AR is being able to say to someone else: ‘Take care of me’. We had a heavy recruitment programme throughout this year and we would like to continue that next year.”
There is unlikely to be much movement of ARs between networks until the end of the year, in spite of highly-publicised difficulties, according to Galvin. He believes most ARs understand that teething problems can be expected following Mortgage Day and that they will accept these are going to take a few weeks to smooth out. It is only then that ARs are going to begin asking whether their networks are delivering on the promises that they made, which could prompt a wave of switching. “Most of that movement will be in the first three months of next year,” says Galvin.
Friends Provident is to pull out of the investment market for ARs at the beginning of 2005, to focus on mortgages and protection. These areas are its future, adds Galvin.
He concludes that a lot of advisers which have gone directly authorised may soon realise that they did not really understand what this meant in practice. As a result, Friends Provident is opening up its network to directly authorised firms.
There has been a huge amount of change in the industry this year, and FMW has embraced the new era of regulation and is looking forward to a prosperous new year.
