Bankhall is a relatively new player in the mortgage industry, having only entered it in 2001 with the launch of its mortgage division, Bankhall Point One Mortgage Club. But in spite of its fairly recent entry into the market it has already made its mark, having acquired both Norwich Union Mortgage Club and Premier Mortgage Services (PMS) earlier this year.
The group may be new to the mortgage market, but Shaun Godfrey, group sales director at Bankhall, asserts that it is very familiar with the issues surrounding regulation because of its vast experience in the investment market, which was regulated back in 1988.
Godfrey himself has 25 years experience in the financial services sector, having started out at Legal & General as a composite inspector selling insurance policies. After five years with the group, he joined Vanbrugh Life, a division of Prudential.
He stayed with Prudential for 12 years working his way up the management ranks until he became sales director. In 1996 he moved to Bankhall where he has helped to build the profile of the company and promote the services it offers to intermediaries and product providers.
Godfrey describes Bankhall as a support services provider, explaining that its current services were born out of its experiences when the investment industry became regulated by the Financial Services Authority (FSA). Like many others, the early 1990s saw Bankhall Investment Associates struggle with the compliance demands of regulation as an IFA firm in the investment industry. Godfrey says it was unable to find the required support externally without joining a network, so set up its own compliance support service. Other companies saw its support services as a good idea as buying into it allowed them to retain independence from networks, which Godfrey says have restrictions.
In 1993, Bankhall Investment Associates changed its focus to concentrate on supplying support services to IFAs, putting less energy into its own IFA business, which disappeared at the end of the decade.
Godfrey defines the Bankhall proposition as offering a range of services to make its members more efficient, compliant and profitable. “Firms might join us because we can get them better deals on commission, but basically Bankhall is an outsourcer. People that are in business outside of our industry outsource all the time. They outsource their payroll, their human resources department, and the fleet management of cars – and so why should they not outsource their purchasing?”
In spite of its historically strong position in the investment market, Godfrey confesses there were many product providers that were not aware of its existence in the mortgage market until recently. He says that while some product providers knew of Bankhall it was largely those that had dealings in the life and pensions market.
“There was a stunned silence among the lender community when we bought Norwich Union Mortgage Club and Premier Mortgage Services. There was an element of ‘Who are you?’ And so the lenders would ask us questions such as how does Bankhall work, why do people come to you, and why do you see regulation as so important? Nobody could really get their head around how important regulation was going to be before Mortgage Day or beyond,” he says.
Lenders found themselves trying to get to grips with the structure of the organisation. One recurring issue which Bankhall encountered while integrating Norwich Union Mortgage Club and PMS, centred on lines of communication.
Some lenders suddenly found themselves with three separate national account managers – one for Bankhall Point One Mortgage Club, one for Norwich Union Mortgage Club and one for PMS.
“They had to deal with a situation where we would say we wanted one national account manager, but they hardly knew us. Lenders would be a little thrown by that and so it took a little time to settle down.”
Another factor lenders had to adapt to was Bankhall’s lack of support, as an organisation, for the appointed representative (AR) route. Godfrey says this stems from Bankhall Investment Associates experience as an IFA in the early 1990s when it failed to find the support it needed except by becoming an AR to a network. Godfrey says the problem was that Bankhall did not want to lose its independence. “Becoming an AR means agencies are not in your name, the clients are not yours, the capital value is not yours, and there is an extra layer of regulation above the FSAs. In addition, the commission goes direct to the network and if the network collapses, you lose the whole lot,” he says.
While few networks actually collapsed in the investment market, Godfrey says a lot of IFAs became dissatisfied with the lack of independence they had under the AR system.
Another reason, which has become topical again recently is inducements, and Godfrey argues that it would be difficult to see how firms such as Bankhall could be influenced by inducements when the majority of its members are directly authorised. Only 490 of Bankhall’s members are ARs.
He says: “The FSA has been regulating inducements for a significant number of years – all the way back to 1986. The real issue is about having the ability to use financial instruments to materially influence someone’s decision to sell one policy over another. That is what the regulator is truly interested in, and not whether an adviser is taking people out to dinner during the normal course of business.”
He adds: “The mortgage industry is not used to regulation. It had the Mortgage Code Compliance Board (MCCB), but the FSA is different and the industry thinks it is restrictive, when it is not.
“The four key objectives for the FSA are consumer protection, maintaining market confidence, reducing financial crime, and promoting awareness of financial instruments. Consumer protection considers whether an uninformed client has been sold a policy which is appropriate for their needs, rather than because it helps an adviser to reach its sales target. If selling a particular product affects an adviser’s commission, they may be tempted to sell the wrong product.”
Godfrey also believes that some of the problems associated with key facts illustrations (KFIs) have been exaggerated by the industry, and suggests that they are mostly to do with the industry adjusting to the new regulatory regime. He remembers when key features illustrations generated a similar amount of disruption when they were introduced in the investment industry.
He points out that mortgage brokers have been left with liability for KFIs. “The regulator states that the KFI has to be accurate, but the problem is that advisers are responsible for the accuracy of the KFI as it goes out in their name,” he says.
As such, Godfrey advises brokers to be vigilant in their checks of systems and processes. “Advisers should transact business based on the information they have, because they have no reason to believe that it is inaccurate. At the end of the day, they should be able to believe the product they are selling is an accurate product. But in six weeks’ time, I would requote on all of the business I had done and test it is all accurate. If there is a problem, it should be addressed.”
Godfrey says all the FSA wants is brokers and lenders to have systems and processes in place to deal with any problems that may affect consumers and that they take responsibility for the problems. “It is not that the FSA does not expect things to go wrong, it wants to see that there are procedures in place to pick up anything if something happens, and that there is a plan of action to make sure it will never happen again,” he says. “It wants to see advisers managing problems and protecting consumers,” he concludes.
While Bankhall has only recently launched its mortgage division, its strong standing in the investment market means it is well placed to deal with mortgage regulation.
