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Turn back the tide

by: Kevin Paterson
  • 29/03/2010
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Kevin Paterson suggests ways for brokers to increase their income in a difficult and challenging market

There has been considerable debate over the past few months surrounding dual pricing and the increasingly common practice of lenders taking intermediary business in-house, as they try to build margin in what has been a shrinking market. Intermediaries have naturally been up in arms as they try to protect their corner and successfully manage their way through the downturn.

King Canute ably demonstrated to his courtiers that even the highest power in the land could not stem the tide, so rather than trying to fight the inevitable, is it time for intermediaries to embrace these developments and find a way to make them work to their advantage?

The simplest solutions are more often than not the ones right in front of us, and I believe that this is very much the case when it comes to the changes that have taken place in the mortgage advice sector over the last couple of years. If you start from the premise that fee-free mortgage advice is dead, and begin to think about how you can adapt your business to make money, then you are halfway to achieving your goal.

I have long been an advocate of mortgage advisers charging their clients for the knowledge that they pass on. Think about it. It has taken you years to acquire this knowledge. You have probably learned some valuable lessons along the way, all of which have brought you to the position in which you now find yourselves. You have amassed knowledge and experiences that no sourcing system will ever be able to teach you. If there was ever a need for your clients to take advantage of all that knowledge and expertise, surely it is now?

I would suggest that you break down your sales process into three identifiable sections. Talk through each section and the services available under each one, so that it is clear to the consumer what they are accessing and what they should pay for.

Let us start with the source. Helping your client source a mortgage deal from across the whole market, not just the intermediary routes, has as much value today as it has ever done. I believe that many intermediaries have shied away from this in the past for fear of losing the case to a lender direct deal. However, I would encourage you to embrace this route rather than fearing the outcome. Demonstrate to your client that for an appropriate fee – say £149 – you are able to collate all their relevant details, research the whole market – including direct deals – match their requirements and recommend the most appropriate solutions before presenting your findings in a professionally produced report.

If you point out how long it would take for them to try to research and review even half a dozen mortgage deals through the likes of moneysupermarket.com, then all of a sudden your proposed solution and fee does not look quite so bad.

I think the value of this proposition is made even clearer at stage two – the placement of the business.

Having produced your report, you present your client with several choices. They can simply take your advice and do with it as they wish – having effectively paid for it, they own the report. More likely, however, they will look to you for some additional help.  This is where intermediaries have more recently come unstuck. An intermediary-friendly route will invariably generate a procuration fee, which should cover some or your entire fee.  But what if the recommended route is not a deal available through an intermediary, rather a direct deal? How do you help your client and, more importantly, how do charge for your assistance? You offer them a coaching facility to guide them through the process.

While there are undoubtedly more deals out there now when compared to last year, most lenders continue to apply unparalleled levels of scrutiny to every application. Most are looking for reasons not to lend and your clients, particularly the less financially astute, are not necessarily best placed to present their case. This is where your coaching service comes in.

Using your knowledge of what lenders are looking for, and what is likely to make them nervous, you can ensure that your clients say and do all the right things to put them in the best possible situation to make a successful application. You can take them through what the lender is looking for and identify what pitfalls, if any, they may encounter. You can help them complete the paperwork, making sure they present all the right pieces of information and do not unwittingly volunteer additional and probably unnecessary information that could jeopardise their case. It is also important with such a service to help your client understand that they will probably get only one shot at obtaining a loan. Rejected applications are registered on the Hunter system, as are previous credit searches.  An unsuccessful application could reduce the attractiveness of your client to another lender.

This is a pretty comprehensive service offering and a fee of £199 is not unreasonable. It may not match previous procuration fee levels, but when combined with stage one of the staggered sales approach and a fee-based model, it does represent a decent recompense for the time spent.

Having completed stages one and two of the sales process, you then move on to stage three. Your client will need at least one insurance solution in the form of buildings and contents, but there are also a number of others to discuss with them. Life insurance, income protection and cover for critical illness should all be highlighted. You can offer a sourcing service, just as you have already done for the mortgage itself, paid for by the commission you receive from the insurer. This minimises the actual cost to your client, and saves them valuable time as well as potentially securing a better deal than they could find themselves. They may not want your assistance and choose to source their own policy but insurance is not that simple and very often requires advice – something the price comparison sites really cannot provide.

Of course, your client could reject one or all three services you can provide, but you won’t know if you do not try. I recently tested the theory on a friend who is active in the mortgage advice sector. It transpired that he was already offering part of the service, but he got really excited about extending his proposition to include the additional areas I proposed. He resolved to try them out the following day and 24 hours later I got an excited call to say that the new service worked like a dream. More importantly, he said that it made good sense to his client who was more than happy to pay for his expertise.

Much has quite rightly been said about the need to diversify to survive. Work your general insurance business and explore parallel opportunities like debt management and IVA referrals. Consider up-skilling your permissions to encompass other areas of expertise like pension and investment advice. But do not ignore the fundamental core skill and expertise in your business built up over many years. Value that knowledge accordingly by helping your clients in this extraordinary market.

Kevin Paterson is sales and marketing director at Assurant Intermediary

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