Speaking to this publication, Richard Howells (pictured), recently appointed group managing director for financial services at LSL Property Services, said that the current mortgage market was “volatile” and while market activity had picked up at the start of the year it was still early days.
“I don’t think we can yet see a trend where we can say this is going to be a good year or it’s going to be a bad year. For me, I think I think one of the focuses for us and what we’re going to do is insulate brokerage firms from those market extremes,” he said.
Howells said that a vital way to navigate those extremes was firms becoming “composite or holistic”, making sure that they offer mortgages, protection and general insurance.
“Not only is that commercially good for the broker, but it’s also a good news story for clients.”
Howells said that there “no one answer” to make firms more holistic, and that it was a mixture of training and education.
He said that “there is a real return to a one-stop shop” and that “convenience” was driving a lot of consumer behaviour, pointing to the success of Amazon as something that the industry should “take on board”.
“I think there’s a lesson to be learned for the industry there that it’s a good news story for consumers to be able to get everything they need under one roof, from a brand they trust, and they do trust mortgage brokers,” he said.
Howells said this consumer trust, along with a full service proposition, would help insulate firms from market extremes.
Plan is to create tech-enabled full service brokers
Looking ahead Howells said that the near-term priority was how do we get as many of our firms “operating on this full-service model” and that could be executed by encouraging firms to upskill and do the work internally or strike up referral partnerships.
In the longer term, he wanted to explore how to leverage technology to allow brokers to become more holistic, adding that did “believe that there are threats to the market that we haven’t yet seen come through”.
He said technology companies were “already thinking” of targeting customers further “upstream” by capturing a customer using data and AI when they are just starting to think about embarking on their homebuying journey, for instance when customers are looking to get “match fit” for a mortgage or starting to look at properties.
“That digital process could bypass the traditional broker market. Now if you talk to brokers, they say that they’ve got more clients than they know what to do with, that is their problem so it’s hard for brokers at the moment to see it,” he said.
Howells said in order to “combat” that competition it was crucial to make full service brokers “tech-enabled” and “give them the capability where they can use data so they can engage with customers earlier in the process”.
He said on the technology side, it would be about “clever integration” rather than creating proprietary technology in-house.
“Brokers ask me which CRM should I use? And I think that is the wrong question. The question now is, what’s the combination of tech? Because there isn’t one solution that does everything.”
He said that the role that LSL would play would be in “selecting technology” and then “cleverly integrating” it to “enable us to deliver for the broker in the office”.
“There is a place for build because I think you buy for the functionality, and you build for commercial advantage. So, there’s no reason why you can’t build elements on top, particularly in a SAS environment where it’s easy to do, but ultimately, I think we’ve got to focus on what we’re good at.”
CMCs looking at foreseeable harm and vulnerability
Howells continued that some brokers were looking to become more holistic due to “fear” around claims management companies (CMC).
He said that one factor CMCs would be looking for in broker firms was the avoidance of foreseeable harm.
“If you are a CMC and you say to a consumer, so did your broker tell you about all these insurances? No, they didn’t. It’s kind of an own goal because, unless the broker has got it well documented, there is an argument that says you are leaving yourself wide open as a business to a claim as you could have foreseen that harm, you chose not to [give that advice], and you left the customer uniformed,” Howells explained.
Howells said that vulnerable customers and Consumer Duty was another aspect that CMCs may pursue.
He said that the difficulty was with hidden vulnerabilities, as how would brokers identify and be aware of these, and the other issue was documenting vulnerability.
“There is a concern that with freedom of information, you can document what you believe to be a vulnerability, and somebody puts in a subject access request in and says hang on a minute you said I was ‘x’ and I am not,” Howells said.
He continued: “Brokers desperately want to serve the customer, do it in the right way and make sure that customers are completely comfortable with the advice that they get, that’s the sentiment but the execution of that is difficult.”
Howells said that the regulator has suggested that almost half of customers could be vulnerable at some stage, and the “wrong way” for the market to address vulnerability was with a “blanket system” that could say entire cohorts of customers, like first-time buyers, were vulnerable.
He continued that if it became so “difficult” for advisers they could “make a decision to walk away from a certain market segment, it’s a bad [consumer] outcome”.
“I think Consumer Duty is one of the most positive bits of regulation that has come out in a long time. I think it absolutely supports what good advisers do, I really do, but the application of some elements of it are proving tricky,” Howells said.
Mortgage broker network consolidation ‘inevitable’
Howells said that network consolidation was “inevitable”, especially for smaller networks who may struggle with the heightened regulatory costs.
He explained: “If you are a small network and you have a cohort of adviser firms who are hit harder by market conditions, I think that’s a really difficult business to run, particularly when you can’t skimp on regulatory resources.
“The main reason networks are in place is to offer a compliance shield, so you can’t skimp on those resources and if you’re not getting the business in and you’re loading up costs you will find your margin squeezed really quickly.”
He said the way LSL and its networks differentiated themselves was in terms of community, entrepreneurship and scale, as well as growth.
“Growth comes in different ways, it can be growing profits, advisers, reach or proposition. Whatever growth is in the terms of the firm, we’ve got a reputation for delivery of that growth, and I think that’s what sets us apart.”
Howells said that it was “always looking to recruit” the “right [broker] firms” but it was “becoming increasingly choosy about the type of firms”.
“We want firms who have got that commitment to the full service model…even specialist firms can have a full service model. We’ve got a recruitment team that are really active, and lots of advisers who want to join but I’ll make no apologies for the fact that we will turn some of those down if they’re not right for us.”
