John Malone, Premier Mortgage Service

This new sector will see significant reduction in actual numbers by year end. Most of these mortgage networks failed to achieve the level of recruitment they originally forecast. Their business plan item will have given the Financial Services Authority (FSA) an opportunity to show major concerns over the principal’s ability to remain in business at an early stage of the process.

One must bear in mind the significant investment required to establish principal appointed representative (AR) networks, as most established insurance networks and insurance companies will tell you. This comes against a backdrop of predicted lower volumes of mortgage and property transactions for 2005. So there will be approximately 10 to 12 – a number I have predicted throughout the last 18 months.

The main reasons are cost, lack of business volumes and cash flow and the realisation that no venture capitalists or institutions are going to pay millions of pounds for a business model that is now doomed to fail.

Finally, lenders will start to look closely at this group and decide who they can trust to be there in six to 12 months time.

Tim Sutcliffe, Pi financial

There will certainly be fewer networks by the start of 2006 as size is becoming increasingly important. At the beginning of 2004 I would have thought any network with a turnover of £15m would have been secure. Now I would suggest that figure is nearer to £40m.

Any network not reaching this size will simply not be at the table to get the best deals from product providers for their members. It has become clear in the new world of financial services that product providers cannot continue to deal with all advisers.

Historically, product providers have supported the networks financially – investment that has seen no real return in terms of influence or made its way from head office to the advisers. The withdrawal of this sort of funding has highlighted the financial insecurity of some networks but enabled others to continue. This will be a year for efficiency and transparency for those networks that still want to be playing the game next year.

Matthew Bright, Optoma Broker Solutions

The most important question is how many ARs will there be this time next year? Networks will only be around if directly authorised brokers find the protection, infrastructure and costs of a network sufficiently appealing to join in large numbers.

From our experience ARs are still joining up so perhaps there is a chance that some of the networks will reach their target membership.

The second issue is how much business the ARs are writing and what level of quality it is. Networks will only be around if they can make a profit. However, with volumes dropping, this seems unlikely.

So how many networks have been able to control costs according to their recruitment, and how many still have the appetite for the business model when they may have spent hundreds of thousands of pounds for no return?

There will clearly be 10 or so corporately-owned networks where the management have committed their cheque books to supporting their network for an indefinite period – whether or not it makes either financial or strategic sense.

John Cupis, Legal & General (L&G)

There is no doubt that regulation has added cost to the sale of a mortgage, and when costs are involved, it is those that can reap economies of scale that will survive and grow.

History shows that it is more a question of when, not if, smaller networks decide to get together to share in those essential economies of scale. It may be next year or it may be 2007.

Our own experience in The L&G Partnership has shown that the new regulatory requirements of day to day trading have increased costs. We will have to accommodate future substantial reporting requirements to the FSA. We will invest further in technology, and adapt and change our model to the new rules that will inevitably come.

With so much cost to absorb, around a dozen or so networks will remain in 12 months’ time, with three or four major players, of which L&G will be one.

Mark Mountney, Premier Mortgage Management

There is a great deal of financial pressure in the market that ordinary folks are not privy to and this certainly applies to some of the networks. It follows that smaller entities are not likely to have the financial strength to cope with the effect of lower than anticipated ARs. They will need to re-visit their business plans and activities to determine their way forward. Many will not make it.

Similarly, the stronger networks will become predatory, looking to pick up ARs themselves and bargains to boot.

I expect to see at least 50% less networks in a year than there are now and time will see further consolidation to no more than a dozen or so. This will result in a market of big players and domination.

Michael Bolton, BM Solutions

Many networks have been living on borrowed time. We have said this more times than I care to remember over the last 18 months but there will be a substantial reduction in the number of networks.

Regulation has driven a flight to quality across all parts of the supply chain. This means the bigger quality distributors such as Sesame, for example, will win out while the small to medium-sized players will begin to either go out of business or grasp the nettle and merge (or at the very least share back-office systems and processes).

Across these smaller networks you have simply not got enough brokers to make them all viable. The compliance overheads are high while the margins are far too low – it is simple economics. Towards the end of this year many brokers may turn to a directly authorised approach or go for a more quality network.