Although 2008 was a year which many mortgage brokers may wish to forget, 2009 could be the year in which their new business model takes shape. The equity release market has held up amazingly well as the economy around us suffers, and 2009 is expected to be a strong year for many in this sector for relatively simple reasons.
Firstly, the over-55s have been hit by the economic collapse with falling savings and investments, failed pension schemes, increasing unemployment and the denial of traditional refinancing routes, such as downsizing or loans and credit cards. Some of the factors that take away the supply of customers from traditional mortgage brokers are now the very source of increasing demand for equity release.
But caution must be exercised from the beginning. If you want to enter this sector, you must take it seriously and plan how to build a successful business that is compliant in this specialist arena. We have seen many brokers who have entered the sector in recent months who now wonder where their first case will come from.
Start at the beginning
So, where to begin? Without clients – and more importantly, prospects – a broker will fail. This sounds obvious, but it is essential in this market as there is not a ready supply of elderly clients turning up on your doorstep seeking advice. My initial guidance is not to plan on building a bank of clients from advertising. This is simply because the clients you want often do not understand equity release, and trying to convey a simple message in an advert under FSA rules can mean that the message does not get across.
Unless advisers can commit to a regular and sustained campaign, then they will be better served looking at other sources. In later articles, we will look at how to build leads and business supply, but suffice it to say that at this stage, it will not happen by itself.
To get started, intermediaries need to consider their regulatory setup and whether they are in the right place to begin with. If you are in a network, then you need to establish whether you are allowed to transact sales, and if so, whether the network is fully independent and will allow you to offer both lifetime and reversion products.
It would also be worthwhile to ask other members if they feel the network is supportive and tuned into the market. Brokers should also ensure that they hold the correct qualifications – it is important to be aware that if you are planning on working under ‘grandfathering’ arrangements made when mortgages were first regulated, these arrangements expire in 2009, so you must hold equity release qualifications.
If brokers are directly authorised, then they should check with their professional indemnity (PI) insurer that they will be covered, and if not, whether the insurer will provide cover. Do remember that even if you choose not to be authorised to sell reversions, under MCoB rules, you are obliged to discuss all alternatives.
Fee planning
The next thing to do is to make a business plan. Product providers can provide invaluable input in this area, giving you a handle on case sizes (normally over £1000) and how much to charge as a fee for your advice. It is expected that in this market you will charge a fee, with leading firms already charging in excess of £800. Brokers entering the market really only need to decide if it will be paid in one chunk by the client on completion, or broken into stages. I would worry about a broker trying not to charge fees – this is an advice driven sector and you will need to be a professional, so charge what any other professional will charge. Organisations like Equity Release Club can offer guidance and ideas of where to get templates to lay out plans.
To begin with, simply identify what you wish to earn and work it backwards. For example, with an earning requirement of £50,000 per annum, an average case size of £1000 and an average broker fee of £500, the adviser would require 35 sales in a year, or approximately three per month.
With a conversion of one in four from appointment to sale, intermediaries would need to therefore see two to three people per week. Now your plan needs to simply conclude how you are going to get in front of two to three people per week to earn £50,000, though on top of this, you will need to add in the costs of areas such as compliance and marketing.
The equity release sector is beginning to emerge from the shadows and offers brokers a great opportunity. It also offers fantastic customer satisfaction and clients will tell you how this product has transformed their lives – thanks to your help. But, if you should fail to plan, then you will plan to fail. However, if you get it right, then this is a different and dynamic sector, which offers brokers an exciting dimension to 2009 and beyond. n
Stuart Wilson is managing partner of the Equity Release Club. In coming articles, he will look at building your business growth, compliance and record keeping, best practice and product choice, and services and support in the market.
