Give networks a good going-over before signing up

25 January 2010

With two large networks falling by the wayside recently it is clear the recipe for success is not size at all costs.

I have always been of the opinion that running a successful network is about quality rather than scale.

The pile it high, sell it cheap approach adopted by some networks is unlikely to lead to longer term value and sustained profitability.

That’s why I urge brokers to do their homework carefully when particularly important to understand their finances and funding models.

It’s tempting but risky to go for the cheap and easy option. It may sound like a good deal but it could prove expensive if proc fees and commissions are not paid.

Also, lenders are checking the quality of the business they receive so a good network will help in that regard too.

Choosing a network is like taking on a business partner - the cost is high if you choose wrongly.

Financial security is key. Check whether the network you are considering joining carries huge amounts of third party debt and also look at its profit record, especially in 2007 as things were buoyant then.

By now all firms should have their accounts available on record at Companies House for 2007, and most for 2008. These are easily accessible online for £1 - money well spent.

We have seen what happens when there is a shortage of cash - proc fees are used to prop up failing networks

When comparing your network options it is also important to be clear about precisely what is provided, as this can vary.

You need to be aware of what is required from a compliance perspective and what is available from a product point of view, including access to exclusive deals. Of course, good proc fee and commission terms are also crucial.

Choosing a network that pays proc fees upfront is an advantage as this means they are paid more speedily and there are sufficient funds in the network’s bank account to pay brokers before funds are received by lenders.

We have seen what happens when there is a shortage of cash - brokers’ proc fees are used to prop up failing networks and unfortunately, as many intermediaries have found to their cost, this can mean thousands of pounds worth of revenue lost.

On top of this there can be onerous contracts that prevent appointed representatives from moving between networks. Suddenly a broker business can be struggling because of unpaid fees.

It’s also clear that lenders want to work with networks they trust, have a good record and intend to be around for a long time.

After all, lenders pay networks and if a network goes under and fees don’t get passed on to brokers this is in neither party’s best interests.
More network failures are possible, especially given the current state of the mortgage market.

Things will improve but there are sure to be casualties along the way. Some networks will merge to enable them to cut costs and improve their propositions. These are likely to thrive. Meanwhile, some will not make such attractive partners.

Choosing the correct network to support you through the tough times and back into the realm of prosperity has never been more important.

SALLY LAKER
MANAGING DIRECTOR
MORTGAGE INTELLIGENCE HOLDINGS

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