At the start of the last market downturn, David Copland was working at Bear Stearns, a US-owned centralised lender. That was until he was made redundant in 1992, as Bear joined with other US lenders in pulling out of the UK market. As such the similarities between then and now in terms of US lenders dropping their UK brands are not lost on him.
“The retrenching of American-owned brands is very familiar,” says Copland. “They come over here in the good times, but when things get hard they pull out of the market and go home with their tails between their legs. The difference this time around is that a number of these lenders have not just had to abandon their subsidiary operations but have actually gone bust or been financially battered back home. In terms of funding problems we are not on the same page as we were in the 1990s – it is much worse now.”
As managing director of a successful mortgage network, which itself developed out of one of the most successful packagers, Copland can comment on the development and role packagers have played in the market with authority.
In the early 1990s, the fledgling packager market grew out of what were essentially master brokers who had grasped the complexities of the products the new centralised lenders were bringing with them. Initially it was something of a cottage industry; the market had not seen them before and their fee structures were fairly ad hoc. Copland says: “The cuts were really small for these guys in the beginning. They would make a turn on the valuation and perhaps take a £100 fee for the packaging itself.”
There was then an explosion in the number of packagers when the sub-prime market started to take hold, but when the centralised players left, lending volumes pulled right back and packagers really started to feel the pinch. What kept them going were a few ‘White Knight’ lenders such as Platform and Bristol & West.
However, this time the economic situation is different and Copland feels that with no ‘White Knight’ to save them this could finally be the end of ‘pure’ packagers: “I think the packaging community was expecting someone like GE – with the backing of its massive parent company – to keep offering exclusive products, but the crisis goes much deeper this time and no-one has been able to really provide the products in the right areas. I do not think we will see pure broker to broker packagers survive this market. Unless you have some form of closed distribution then you are going to be or already are in trouble.”
However, Copland feels that the current downturn does not mark the end of packaging as a function, as those – like Pink – that have either secured their own controlled distribution, or formed an attachment with a network, still find that there are lenders willing to use a few networks’ appointed representatives (thereby limiting their partners) to use their closed distribution. It is not just packagers who are reliant on the umbrella of networks, and while in the last downturn there were very few specialist independent mortgage advisers, now there are more than 10,000 who are finding their sole operations increasingly lonely. Copland says: “From my own personal experience we are now seeing more and more quality brokers who were formerly directly authorised looking to join our network.”
Copland feels that the rising demand for mortgages we have experienced in recent years fuelled the rise in the number of new advisers coming to the market, but as a result, it is mainly the older advisers who have experience of selling other products. He notes that in the last downturn, the brokers who were around were better trained at selling savings and protection insurance because a lot of them worked out of life offices.
He says: “During the boom years, advisers left the life offices and started out on their own as the market accelerated. But as the market got stronger we have tended to find that that many of those who had been selling protection stopped or sold less, and the newer brokers they employed as they expanded never really sold it because of the pace of mortgage business coming through the door. In the last 12 months the penetration of ancillary products sold through our network has doubled – critical illness, income protection, life, ASU – but we have been proactive in asking our ARs if they want help.
“We are now going back to the life offices and asking them to run insurance sales course for us. Again, pre-credit crunch brokers were too busy, but now interest has come back. We have found that, like last time, the best training comes from the life offices. They have a bigger number of experts who are prepared to come in and offer help and support – more so than the lenders in any case.”
Aside from protection sales, the one product area Copland can see coming back into vogue is equity release. “It has taken years for the equity release market to get over the problems of the last crash, but as a product it has moved on. And if you look at what has happened to investments and pensions markets, life offices are not making money and so pensioners have a need for capital. Perhaps now is the time when equity release will see more advisers and more column inches espousing its virtues.” n
