We are all acutely aware that the distribution landscape has had to evolve during the past few years and the continued economic concerns highlight the need to have a robust distribution strategy and strong strategic relationships.
Intermediary distribution has inevitably had to undergo a degree of change and maintain the flexibility to cope with the demands of the market and the external influences of the global economy.
Lending levels remain relatively low and it is doubtful that 2012 will see any great improvement. Lenders will continue to concentrate on tight distribution policies with a limited number of strategic partners, in order to manage risk and offer greater control over the tranches of available funds.
Historically, the intermediary market has been built on the foundations of sound relationships between providers and intermediaries.
Even within an industry dominated by such close working relationships, yet more emphasis is being placed on strategic partnerships as integral components in today’s marketplace.
Intermediary firms should not enter into a strategic partnership as a knee-jerk reaction to what is perceived as a potential opportunity. It needs to be well-planned, carefully thought out and not entered into without sufficient background research.
With that in mind, here are some areas that firms need to be aware of before going ahead with any potential affiliation.
Research
Make sure you know everything you can about the company you are getting involved with in terms of its history, personnel, systems and business volumes.
It is also wise to engage with a solicitor to draft up a contract to make the agreement binding and save any potential disagreements or disputes in the future. This does not mean this expertise has to be expensive but, for a small cost, it could prove valuable protection and offer peace of mind.
Make a checklist
Before entering into any agreement, make these simple checks:
- Check out a potential partner’s website. Does it look professional? Are the services on offer attractive and applicable to your range of clientele? Would you be happy to use such a firm yourself?
- Speak to people who already have affiliations with the firm in question. Ask them about their dealings and their experiences.
- It is not always easy, but try to establish that your potential partner is financially secure and that it has a reputation for paying on time. Ensure that any potential referral payments, either way, are clear and that there are no grey areas to contest.
- From an income perspective, check out the potential fees on offer compared to their competitors. Of course, we all know that the level of fee is not everything but do the background checks to make sure the fees are not exorbitant for your clients and that you are getting or paying a respectable commission levels.
- Check if they are FSA regulated, if they need to be. The FSA website will have this information. And check the TCF implications as this remains a vital component in the eyes of the regulator and the industry in general.
- Finally, think about the reputational risk of this association. Again, this harks back to the initial research. Speak to your peers, clients and other industry figures about the association in question. Remember that you will be recommending this firm to your clients, so if the service or quality of products is not great it will reflect directly on you and, despite getting an initial fee, you could end up losing a client for good.
When looking to form partnerships it often works best for smaller firms when done in conjunction with local firms and in most areas there will be a plethora of solicitors, accountants, IFAs and independent property agents that could work to benefit both parties.
However, even if this firm is your neighbour or friend of a friend, all the previous rules still apply and it is important that firms do not fall into a you-scratch-my-back-and-I’ll-scratch-yours basis without some form of agreement in place.
Networks and clubs
It is also worth highlighting the part networks and mortgage clubs can play as an important link in this chain.
Clubs and networks have a panel of providers and services across numerous sectors, many of which will have been in place for some time.
This means that much of the due diligence should have been already done on firms and, due to the nature and buying power of such organisations, they may have been able to negotiate an enhanced commission rate for their members.
Again, it is important to underline that such partnerships must be chosen carefully. However, a good club and/or network can certainly provide added value and support for intermediary firms of all sizes in the form of some solid strategic partnerships.
From a lenders perspective, it is our aim and I suggest it is that of many providers to continue working closely with strategic partners and individuals whose relationships remain integral to delivering a robust distribution strategy.
For intermediaries, the very nature of the market demands becoming a truly holistic adviser.
Whilst it is not always possible to be the master of all trades, there are good quality specialists out there that can be used to fill in the blanks for any proposition to ensure that all their clients’ needs are taken care of.
However, it cannot be stressed enough – choose wisely.
