The latest figures from the FSA register show there are now only 41 networks operating in the intermediary sector. The number of this type of operation has fallen substantially since those heady days of M-Day, when there was a vast proliferation of networks marketing their services to potential appointed representatives (ARs).
As was widely predicted at the time, there has been a contraction of network numbers, with the majority having substantial financial backing. One could argue that 41 is still a lot. However, we seem to be entering another period of network consolidation that could see the number drop further. The most recent example of this is the news that Manchester Building Society-owned Mortgage Broking Services Ltd (MBSL) is to take on the network operations of Cotswold Mortgage Services.
There will no doubt be a number of AR firms out there that will have changed principal a number of times since M-Day either because of their own lack of satisfaction or because they have found their existing network has effectively been bought out by another. Consolidation will always exist as long as there are corporate factors to be fulfilled and firms wish to grow their market share. As ARs of other networks, particularly those of smaller-sized operations, look on there will undoubtedly be concerns raised about their future and ability to survive in a particularly difficult marketplace. Emerging from this uncertainty we are finding individual brokers, and clusters of brokers, actively questioning the strength of their networks and whether they will exist in a year’s time.
As a firm which exists in essentially the same sphere and provides franchise services to brokers it has been noticeable that, for the first time since M-Day, we are receiving a significant number of inbound enquiries without actively having to market our proposition. These enquiries are coming from AR brokers who have worries about their own networks – worries which tend to focus on the financial strength of the proposition and its ability to keep on providing them with all the services they need to run their businesses. They are also ARs who are not satisfied with mortgage leadflows. These fundamental concerns about the firms that brokers rely on to conduct substantial levels of business do not begin and end with ARs. There are also a number of directly authorised (DA) brokers who are asking similar questions of the mortgage clubs and aggregators they currently use. They are looking at the financial strength and ongoing capability of the distributor to continue to deliver, for example, exclusive products and the top rate procuration fees. If a firm has been relying on one distributor, what would happen if it were to close? How would this impact on their ability to access those exclusive deals and that level of income?
Mortgage distribution as we know it is undergoing fundamental changes – lenders are working within different liquidity parameters which means many of their distributor relationships of the past are not required to the same extent, if at all. There will of course be winners and losers and it is safe to assume that it is those firms who have significant financial backing and strength who are most likely to come through the storm.
Let us also not forget that the situation is the same for many brokers who work on a self-employed basis but are attached to a broker firm. These practitioners suffer the same fears as the AR brokers, namely, will the firm I am attached to exist in this market in the near future? If it does go out of business not only will their future livelihood be affected but also the firm could fall, leaving the broker out of pocket to the tune of six months’ worth of life commission or procuration fees. It is happening. All mortgage intermediaries must consider the relationships they currently have, whether they are AR or DA.
The financial strength of any firm is crucial and should be a determining factor in reviewing whether to continue a particular relationship or look for a new partner. Having the backing of a corporate and the financial muscle to continue in this tricky market should ease the worries of those brokers who use their services. Unfortunately, not all propositions out there are as fortunate and brokers must err on the side of caution if they are not to lose out should another operation cease to exist. n
