Peter Mann, chief executive of compliance and business development supplier Bankhall, is very much the embodiment of both the patient teacher and the eager pupil. Having spent his first years after university teaching English as a foreign language in exotic locations, he turned to financial services where he became the eternal scholar, trying to mould the growth of one of the most successful support services groups for directly authorised advisers.
Measured transition
Moving through the ranks, by the time Prudential acquired Scottish Amicable, he was running its IFA sales force. Ever the torch-bearer for advisers, he met Paul Hogarth, then joint chief executive with Simon Taylor of Bankhall, through the appointed representative (AR) division of the life insurer, and so he started his transition from manufacturing to distribution, enhanced by his need to learn about the adviser community.
He remembers: “My observation of Hogarth was that Bankhall had achieved exponential growth in numbers – the land grab was on – and they had done a fantastic job of gaining membership. But that was always going to come to a plateau, as there is a finite number of advisers out there. My idea was that it would be good if we could get more from the people we had, rather than trying to recruit more members.” Following the decision of Hogarth and Taylor to part from the group, he became chief executive in 2005.
With continued speculation as to the future of other similar operations, such as Sesame and Millfield, to what does Bankhall owe its perceived success? Mann believes the first successful move was to pull out of the network business altogether. He says: “We had Investment Strategies Ltd and decided to close it. That was an interesting decision because my view, not shared by all, is that the economics of the AR principle arrangement are particularly challenging. In order to operate a fully compliant, efficient and effective AR network, you would have to charge a price that most ARs would not be prepared to pay – that was the dilemma.”
As far as Mann is aware, Investment Strategies is the first network that has gone to the FSA and worked with the regulator to create an internally initiated wind-down procedure. The de-commissioning notice from the FSA came through this month. He adds: “We are out of the network business. And that is hugely profitable for us.”
With little humility, he thanks himself for the successful exit from the network world – “I have to thank myself for having the idea” – but also thanks parent company, Skandia. He says: “You need strong parental support. That is why Millfield went bust, because it did not have anybody to stand behind it and say that an orderly wind-down was a possibility.”
He rejects the idea that the FSA is a keen supporter of the network model for ease of regulation, particularly in the mortgage industry. He says: “The FSA is concerned to maintain a vibrant intermediary distribution channel where intermediaries can exercise choice. I think it is a fallacy to say because somebody is responsible for their submissions, the FSA prefers the network model. From a resource point of view, it does not make any difference. It is more about continuing positive public perception when significant people go bust.”
The winding down of the network changed the economics of Bankhall, Mann explains. He says: “Look at the list of the size of different mortgage networks. Look at the premier league and look at the member firms they have got – you see the economics just do not work. That was why we absolutely would not have allowed our network to go bust, that would have been irresponsible.”
Mann then continued to mould Bankhall into its recognisable form today. He said that once he had taken over from Hogarth and Taylor, he noticed that their style was certainly entrepreneurial. He says: “We did too many things for people, not all of which they valued and many of which they did not understand. I think that it is a function of a natural entrepreneurial style. Entrepreneurs have ten great visions and ideas – they see ten opportunities, one of which is a fantastic proposition, but the problem is they try to do all ten. That is the mark of a great entrepreneur. So what we had was a great proliferation of services.”
It occurred to Mann that a better approach would be to do “less, better”, to ultimately simplify and streamline Bankhall’s offering. He adds: “For the first time, our members understood what we were doing, what price we were doing it for and what we were delivering, and that was hugely important.” This also allowed Mann to streamline the resources within the Bankhall organisations – there were obviously some economics to come out of employing less people.
Astonishing results
Mann says he has achieved an astonishing turnaround as a result. He says: “I cannot tell you how much we would have lost last year, but we have turned a potential loss into quite a material profit and we are now a profitable organisation. And we are on a basis where that profit, because it is established and embedded, looks to be sustainable and will continue. It doesn’t half change the relationship with your parent if you are generating profit.”
It was at this point of rationalisation in 2006 that Skandia was going through its acquisition by Old Mutual.
There have been rumours since of a Bankhall sale, or even a management buy-out being staged, but Mann, for now, brushes this off as speculation. He emphasises that Bankhall was never instrumental in the purchase of Skandia, but nonetheless, it was important for Bankhall and new parent Old Mutual to establish what should be done with the group. Therefore all the alternatives were explored.
He says: “People think that a management buy-out was discussed. It was never going to happen. If you looked at our accounts, as the Old Mutual acquisition took place, we were right in the middle of this transition phase. It was not the right time to make a significant change in ownership.”
Of course there is a caveat to that, which lies in the fact that Skandia paid a lot of money for Bankhall in 2002 – approximately £210m. He explains: “I do not know what value was attributed to the purchase of Bankhall last year, but it was certainly not £210m. Now, we are a profitable business, we are delivering sensible returns against the purchase price to Skandia and Old Mutual, and that is something that informs the view.”
He says: “As far as I know, we will remain part of the Old Mutual Group because we have a job to do. We have demonstrated we can stabilise a business. We have two years to show that we can grow a business. So 2007 and 2008 will be all about growth from a profitable and stable base. We do not want to do that in an environment where other things are influencing us, such as a management buy-out, when management time is distracted.”
Non-core sales
The period of inevitable streamlining at Bankhall culminated in the sale of its general insurance arm which Mann describes as “non-core”.
Although many firms turned their backs on the mortgage distribution sector last year – Friends Orion and St James’s Place the most significant of them all – Mann stresses that Bankhall is dedicated to the mortgage market and that there is no more streamlining to come in the foreseeable future. He puts this down to Premier Mortgage Service (PMS) and the colourful and well-respected John Malone, its current managing director.
He adds: “We want to use 2007 as the year in which PMS transports itself into another arena. Let me give you an example. Look at the FSA’s announcements around the quality of advice (www.mortgagesolutions-online.com 08/01/07). There was a strong message from the FSA that the mortgage market needs some assistance in understanding what compliance really means. That is our business. In the early part of 2007, we will be very aggressive about taking our compliance and support services messages to the community, starting with our PMS colleagues.”
PMS has already announced that it will unveil a new service offer in March. In addition to existing club services, it will offer mortgage compliance and protection panels, underpinned by an IT platform that offers members a free back-office system and integrated links to both Trigold and MBL. If the FSA’s recent paper on the quality of mortgage advice is anything to go on, Bankhall’s proposition, and others similar to it, will prove very popular.
He adds: “Mortgage brokers are struggling with truth and consequence. The truth of having to do it has existed since Mortgage Day – the consequence of not doing it has not really been evident in the period of time since then. The broking community, until they understand the consequences of doing something wrong, will tend to bumble along.” The FSA showed very clearly in its document that there are people who are committing significant breaches with alarming regularity. But what the consequences are has yet to be seen, says Mann.
“Mortgage brokers are going to have to get compliance right, because compliance is not something you just do, it is a culture you adopt. If you treat compliance as something you have got to tick off, you will never get there. If you have a compliant culture in your business, then it just becomes the way you operate. So we will see how tough the FSA gets. 2007 might be the year the FSA shows its teeth,” he adds.
The suite of compliance offerings from Bankhall will depend on the amount the adviser wants to pay. It will be heavily based on technology, which is an important feature of the mortgage market. Mann summarises: “One of my predictions was that 2007 will see the first year of the instant offer. Edeus is near enough there. Most business is transacted electronically in mortgages. You just do not get that in life and pensions.
“The combination of technology, aggressive rates and the strength of PMS in our proposition will not be the cheapest. In life and pensions, it is good to be reassuringly expensive. In the mortgage market, people do not yet understand the relative importance of quality, so we will be competitive, but we will also deliver quality services at the right price.”
Indeed, technology will continue to be a huge dynamic for Bankhall members. In Bankhall’s February marketing seminars, the group will talk to its members about its views on the wrap market and which proposition it intends to support. Wrap is a single, web-enabled platform that allows brokers to transact, administer and report on a client’s entire investment portfolio.
Mann says: “Many of our competitors – Sesame, Tenet and others like that – have supported traditional wrap models. We think we ought to do something different because my view, supported by members, is that wraps at the point of distribution still resonate better with the IFA market than wraps at the point of manufacture. There is a degree of cynicism around a product manufactured wholly and exclusively by a product provider because one of the important things to IFAs is client data. The degree to which you want to share client data with a third party is something that IFAs are concerned about.”
It’s a wrap
Although the wrap market appears to be miles away from the mortgage market, Mann believes it will have its day in the not too distant future. Mann says: “The mortgage broker deserves the opportunity to be able to aggregate his business in the same way as a life, pensions or investment adviser, but we have got to find a way of doing it. The vehicle that we support will have mortgage wrap as part of its development cycle, but like Standard Life, for example, that will be quite a way down the line, as you have got to sort out the things that are important from the outset.” It is unlikely the technology link-up will be with his ex-colleague Hogarth, who has entered the wrap arena.
With the lesson over, Mann’s plan for the rest of the afternoon was to meet old colleagues before rushing off to the Association of IFAs, where he sits on a committee, with a clutch of other business associates. Perhaps the learning process for Mann has only just begun. n
