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Distribution time

by: Mortgage Solutions
  • 26/04/2010
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David Finlay looks at how consolidation will affect distribution in the mortgage industry

While distribution has always been an integral element sitting at the heart of the intermediary market, this is an area that has had to change dramatically over the last couple of years. There is an argument that distribution has never stopped evolving, even before the recent financial turmoil, mainly due to increased competition within the specialist markets. But it is also fair to say that recent funding issues have thrown up a raft of challenges, the like of which even this hardy sector of the market has never previously had to face.

It does no good to dwell too much on these issues, but the well-publicised lack of funding, continuing credit issues and global economic problems have all contributed to the trials and tribulations experienced by the industry as a whole. Continued concern over these issues has formed the bedrock for new market conditions and has really highlighted the need to impart a robust distribution strategy and strong relationships.

In terms of intermediary distribution, we have seen a number of consolidations within the market and the unfortunate demise of some networks. Limited funding means that many lenders are still having to work with lower volume tranches. This inevitably results in stricter distribution policies with smaller numbers of strategic partners in order to manage risk and offer greater control over the tranches of available funds.

Let’s not be too negative though, as there are many positive signs that increasing degrees of competition appear to be coming back into the market. New entrants continue to circle various sectors with an envious eye and by the end of 2010, I am sure that we will see some of these making a greater impact on the market. This has to be a good thing as competition remains one of the great drivers in the industry.

Naturally attitudes to risk have had to change, and looking to the future, lenders have to continue to adapt and evolve in what heralds a new era of lending and distribution. Control is the key word for lenders and their distribution channels, as both try to implement greater control and reporting mechanisms to track the volumes of business they are writing.

The strength of relationships between lenders and their strategic distribution partners are vital moving forward, especially in light of regulatory factors resulting from the Mortgage Market and Retail Distribution Reviews. Understanding what needs to be done to accommodate these changing regulatory and compliance requirements has to be integral in ensuring these relationships maintain a sound platform.

In a market of diminished risk and controlled distribution, it is inevitable that lenders need to ensure that those distributors handling the valuable product tranches have a good understanding of individual providers’ operational and strategic objectives alongside robust internal procedures to ensure these are adhered to. Lenders also have to ensure that their chosen distribution partners have the necessary compliance and a cost-effective route to market. There is no room for any shortcuts, as the FSA’s iron fist has well and truly emerged from its velvet glove. We all have to understand fully the values of controlled risk and the benefits offered by stronger relations in terms of the quality, compliance and regulatory support that these will bring.

Historically, the intermediary market has been built on the foundations of sound relationships between providers and intermediaries. As the market developed, a number of other conduits such as packagers, networks and mortgage clubs also began to form partnerships with lenders to open up new ways to market. Of course, these provider-broker relations remain critical.

Inevitably, when there are fewer lenders and fewer distributors of size there will be question marks posed as to whether these larger players will start flexing their muscles to get their own way or if true partnerships can develop. This only goes to further illustrate the importance of competition within the marketplace.

It is a fact of life that intermediary firms have had to diversify and improve relations with other service providers. Partnerships have had to grow across a range of financial services offerings alongside such parties as estate agents, solicitors, networks and mortgage clubs to become more holistic advisers. There is the argument that in the good times sustaining such relationships comes a little easier, but it is these relationships which should underpin the partnership approach to support one another during the bad times too.

This support can come in many forms, whether it be through technological enhancements or in the form of a direct point of contact within the provider’s organisation. Firms operating in the intermediary market must be able to evolve with market conditions, especially when it comes to distribution channels and in the ways we communicate.

As a direct result of consistent broker opinion, Barclays has recently restructured its intermediary sales team to provide named points of contact for brokers depending on how they want to deal with it. This has been implemented so that brokers can establish a relationship with a named contact as was the overwhelming request from this feedback.

Of course, this partnership approach takes work and constant evaluation from both sides to ensure the relationship remains vibrant and successful going forward. In addition, it is fully apparent that for many workers in the UK, the nine to five working day is generally speaking a thing of the past.

The lines between clocking in and out have been blurred by the vast enhancements made in technology and our ease of access to information. The world of financial services is certainly no exception to the rule. We are increasingly having to operate in a 24/7 world, which is why we have taken the step of introducing a new online funds booking system. This new system will offer significant improvements to the intermediary business experience as it will enable brokers to book funds 24/7, 365 days a year so that the many brokers who work evenings and weekends can get instant confirmation in a matter of seconds.

This allocation of funds has helped give brokers increased stability as Barclays has been able to maintain its service proposition even through the peaks and troughs of volumes. It has allowed it to control the volume of business coming into it on any given day and helped it to keep its market-leading products available for longer without having to withdraw them at short notice.

Whatever channel they go through, brokers continually need access to providers who have good quality products with no hidden catches. They also need reliability, consistent service, a fair reward and above all good levels of support to see a client’s mortgage through to completion quickly and seamlessly.

When all is said and done, creating a transparent and professional environment is the holy grail for the whole industry, including the FSA, in order for consumers to get the most from their financial services offerings. The intermediary market and in particular controlled distribution is key to fulfilling these ideologies. Lenders are increasingly looking to distributors to deliver more than just the core offering of old and intermediaries are relying more and more on their provider and distribution partners for their support to expand propositions. Each link in the chain has to work hard for one another in order to bring the best offering to market and it is this flight to quality that will ensure that the intermediary market continues to prosper.

David Finlay is intermediary business director of Barclays

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