Independence is a precious thing. The State of Missouri is called the Independent State, the whole of the USA goes on holiday for a day in honour of it and Will Smith has built a career around it.
Independence is also particularly important in the world of financial services. For brokers, the ‘independent’ label has been, for some, what they have built their business proposition on since regulation. There have since been musings on what the phrase ‘whole of market’ means and how panels should be built, all emanating from what constitutes independent advice.
Similarly, as firms have built their businesses, how they run themselves is of equal importance, and how they can operate independently of intervention from other forces, such as lenders.
However, in these difficult times, there has to be some involvement from other partners in the industry. No doubt, there will be some consolidation in the packaging industry, and sadly there will also be some closures and insolvencies. If a packager firm is no longer able to operate, there is no way a network or broker firm can demand any outstanding fees.
To prevent this from happening, there have been calls for some proactive intervention from packager partners. Now that the sub-prime crisis is well and truly on our shores – but affecting us in markedly different ways to our American cousins – there have been suggestions put forward for new arrangements to be made by packagers in order to safeguard the fees owed to brokers.
Either fee-splitting or ring-fencing of funds have been suggested, with both networks and lenders suggesting new contract terms need to be agreed to safeguard the monies owed to brokers.
Although many packagers have commented publicly to Mortgage Solutions that in theory, they agree this is the best way to proceed during these rollercoaster days, others privately have been whispering words of disapproval, claiming this is a means of stripping away their independence.
I would strongly disagree. This emphatically is not a means of networks or other parties to meddle in the operational models of packager businesses. Nor is it a threat to eventually cut them out of the picture. It is purely a means of safeguarding businesses in what can only be an extension of stress testing, an imperative practice during unstable financial periods.
Ring-fencing funds is not new. The pensions world has been discussing how providers can ring-fence their with-profits funds, for example.
What this industry does not need is for one packager to close down, leaving a messy trail behind it of networks desperately trying to pay members. Whether ring-fencing is the right idea, or for lenders to pay the broker fee directly, action should be taken now, so there is no panic later on.
Perhaps it is pride. Perhaps it is fear. But ultimately, the industry needs to step up and make sure all participants’ interests are preserved to minimise damage if the worst happens. n
