Fresh start

12 July 2010 | By Christine Toner

Q: How did the purchase of Home of Choice come about?
A: LSL Property Services, of which I am financial services director, bought Halifax Property Services so we already had a strong relationship with Lloyds Banking Group. In fact, it was through Lloyds group we found out about HoC. The largest loan HoC had was with Lloyds group. Our chief executive Simon Embley had a conversation with Lloyds group after the other deal collapsed.

Q: Is this after Tony Murtagh, managing director of The Money Group, made a bid for HoC?
A: No, it was nothing to do with him.

Q: How quickly was the deal done?
A: We had a meeting with the senior management team at HoC on a Thursday - May 27 -at 6pm. HoC’s then chief executive Gerry O’Brien, its deputy chairman Richard Coulson and finance director David Rance were there.

We met again the following morning, had a conversation with the Financial Services Authority in the afternoon and then on Sunday and bank holiday Monday our compliance team went to HoC’s Chippenham office. The network’s staff came in over the bank holiday weekend, which shows amazing loyalty, especially as they had missed their last pay packet.

By the end of the week the deal had been done. We had no choice - we had to do it that quickly as other networks were lined up to take on the appointed representatives who were understandably looking to sort out their futures. At this point they thought they’d lost all their money.

Q: so were you looking to buy a network?
A: We are always looking to buy things but they need to strategically fit. Embley has an eye for businesses he believes can make money for our shareholders.

One other important thing about LSL is that we generally have good relationships with other business leaders - the last thing you want if you’re looking to sell a business is for someone to take it over and start causing problems. We like to think that we’ve established ourselves as a good company to do business with because we make sure things happen as seamlessly as possible. And all those come with us - the employees - benefit from coming along on the journey.

Q: why did you opt for HoC?
A: Because it strategically fitted with the group and we felt we could grow it. We didn’t see it as the finished article but we could see it had some fantastic sales people. They are entrepreneurial which is something we like, and they have shown they can adapt to a changing market.

When the mortgage sector went down their penetration in terms of the life products they were able to sell was excellent, as was the way they diversified.

So the challenge from our point of view wasn’t the sellers in the network, it was to ensure that the other part - the business part - could make money, which it obviously wasn’t doing at the time. We think the skills we bring to a company include business acumen and the way that we run firms at a high level. We will bring those skills to what is now First Complete.

We’re happy with the way the sales part is going but strategically our influence will take the business into the black. No doubt the loans that HoC had and the interest on them were crippling the business but it would be remiss of me to say that this was the only reason the business wasn’t progressing, otherwise it would be in profit now.

Q: What other problems were there?
A: Basically, the market. If you speak to any network at the moment you’ll see they’re all finding it hard to make money. There are fewer people selling so if networks are still paying the same commission to brokers there’s not enough volume. You either need to double your field force or double production in the current climate. This is the challenge that faces networks.

The amount of money we’re bringing in from sellers is less than the amount the network is using to support everyone else involved so we need to understand why so much money is going out when less is coming in. Do I think we’ll move to a regime of cutting costs? No, because I don’t think that would necessarily be good for the business. What will be good for the business is using our skills to help brokers enhance the income they generate.

Because you earn money from the people who are selling you have to ask - are they all earning money? How are their businesses running? We believe we’re good at sitting down with professionals and helping them improve their business and cash flow.

So we will ensure that we prudently run the network but this will never be to the detriment of expansion. We will take some time to look at the firm and understand what areas we may be able to save some money in but this process will not damage the long-term good of the business.

Q: Market conditions have been a problem for everyone but why did HoC struggle in particular?
A: It was about to be bought but that deal fell through at the last minute. I can’t speak for the HoC management team but when you’re in the process of being bought by someone you don’t change the business at that time. In hindsight, if nobody had shown any interest before HoC had got to the point of going into administration it probably would have cut its costs accordingly. So some things could have been done but if you’ve set yourself up to be purchased you tend to leave them because you don’t know what the firm that’s going to buy you wants or does not want.

The timing was unfortunate but all networks are struggling in the current climate and some are doing a better job than others of diversifying their business models. Of course, in any industry you have peaks and troughs. In good times you’re supposed to squirrel away your money and hoard it. You’re not going to make money every year but if you’ve done that bit right you should have money to fall back on. But if you’re a network that’s been growing you’re not hoarding any money because you’re using it to expand. Then, when the market turns you’ve got less to fall back on.

It seems to me that with HoC being a new network the market turned on it while it was still expanding. It wasn’t in consolidation mode and the networks that fared better were probably those that had finished expanding and were in consolidation mode anyway. They had deeper reserves.

Q: What changes will be made?
A: No immediate changes need to be made. The main change will be in terms of strategy and the direction of the business. It’s been only four weeks since the deal went through and that’s hardly a long time in terms of an overview. The short-term priority is to meet the network’s 400-plus ARs and that process is ongoing.

John Round, group services director at LSL and now chief executive of First Complete, and I are seeing as many people as we can to talk about ideas for First Complete and reassuring them on how important they are to its future.

Q: Are existing HoC staff involved in this process?
A: We’ve had one meeting with them but I hope they understand the people who pay their wages are the ARs, and if they’re not bringing in income the staff don’t have jobs. So although employees are important our top priority is to meet the brokers. Then we will know what brokers want from their network and we can take that back to First Complete in Chippenham and have a conversation with all the staff there.

Q: So they’re not involved in talks with ARs?
A: Coulson, who is now business development director at First Complete, is involved because these are his meetings - we’re there as guests. Each meeting lasts about four hours and I probably speak for 25 minutes. But the key is that after the regional meetings all ARs can have one-to-one meetings with Round or myself to talk about their business.

If someone wants to expand their business we sit down with them and do a proper business plan including cash flow and how they plan to borrow money. Would we invest in their business as well? Maybe, if it has a solid business plan. What’s important to us - and this is the message I want to get across when we go out - is that they are the foundation of our business.

I’m not saying we won’t be looking to get others to join the network but our number one priority is looking after those already in it, and if we’ve got money to spend it will be spent helping them expand their businesses. We will grow organically, given a sound and proper business model.

We’re not interested in our members getting into debt so we can expand our income - that would be a false economy. Nor are we interested in paying ’golden hellos’ to join us like other networks do. We only want professionals to join us because they think our business is sound, they know they’ll get paid and they will have the financial backing of a business that made £28m profit last year. So we want them to join for all the right reasons. So would we ensure they are not disadvantaged if they join us? Yes. But will we give them a bribe to join? No, we’re not in that game.

Q: Will you be making any changes to staff numbers?
A: Not yet. It could happen that when we meet the people in Chippenham they will tell us there should be changes because the structure isn’t right for the current climate. But we’re not going to make changes for the sake of it. Once we understand how the business needs to be structured, if changes need to be made we’ll make them - but only after everybody has had their say. At the moment the business isn’t making any money so it’s pretty clear that something isn’t right somewhere.

Q: Will there be any changes for advisers?
A: Will they notice any changes on an everyday basis? I doubt it. The sales structure is still in place but whether it’s set up in the right way I don’t know because we haven’t yet looked at the management structure and how that works. The ARs I have spoken to are complimentary about the support they have had from the network. I’ve been to a couple of meetings with Round and we’ve been impressed with the positive way the group is perceived, and the way sales directors have a rapport with ARs.

Bearing in mind these people haven’t been paid, it’s to everybody’s credit that they are carrying on like it’s business as normal. And nobody has taken it out personally on any of the sales team at First Complete. These things happen - emotions ran high at the time but everybody I’ve seen is prepared to draw a line in the sand and move forward. They are excited about the future and what we can achieve together.

Q: How long were ARs not paid for?
A: It was just a couple of weeks because the original deal broke down at the last minute. But a couple of weeks is like a lifetime for professionals paying off mortgages and bank loans, especially in an industry where we’re more or less getting by month to month. So it doesn’t matter whether it was two weeks, two months or two days - it was always bound to cause a lot of people a lot of hardship just missing a single payment.

Q: How many brokers left the network while all this was going on?
A: I don’t think any left. Lots had started filling in forms to join other networks because they believed their network wasn’t going to be around. And some obviously continued down the route they’d already started on as they were far enough down the line. Obviously, we had other challenges in terms of supervisory compliance.

Q: Will brokers be tied in for a certain amount of time as some reports have suggested?
A: The difficulty when you have a vacuum of power and have communications coming from all sides is that it’s difficult to know who’s saying what.

Our deal probably hadn’t been completed when those press reports surfaced because the story about our interest broke before we’d finalised the deal. We were not in a position to comment. As soon as we had done the deal we announced that the existing contract would be honoured, so all we did was confirm that terms and conditions were exactly the same and took them over. We were playing with a straight bat - there were no strings attached in terms of ARs getting their money. We had to find that money and LSL did so because the other part was already in administration.

Professionals will stay with us because we’re going to be judged on our merits. I have no interest in people staying because we tried to tie them into long-term contracts. You can’t run a business with people who don’t want to be with you. How can you run a regional meeting if half the people want to be there and the other half have been forced to be there? You can’t run a business that way. Ultimately some may leave - I hope they don’t but they might. Some networks may target people in our business but I hope they won’t leave because this is an exciting place to be at the moment.

Q: With several networks collapsing, are brokers worried about joining networks?
A: I think they’re worried and it must be almost impossible for them to figure out where to go. What’s worse is that those who are doing the pitching to get them to move on are salesmen. It must be a nightmare.

Q: How are you going to promote the benefits of joining the new network under LSL?
A: LSL made profits of £28m last year. I don’t mean to sound glib but if I was someone looking to join a network I’d look at its financial security, not because a salesman is telling me I’ll earn more proc fees - that’s irrelevant if the business isn’t around in six months’ time.
We’re going to see further consolidation in our industry which means some professionals will end up working for companies they didn’t think they’d be with.

If you think back to what I said earlier, there just aren’t enough advisers selling for all of the networks to top-slice and earn enough revenue. The market is shrinking and advisers have been writing less business so models don’t stack up. Everyone is looking at diversifying and in many cases they’re running on cash reserves. But I’m not getting in the scaremongering game. All I’m going to say is what our network does, this is how we work, look at the balance sheet of LSL and make your decision.

Q: Would you buy another network?
A: We always look at opportunities to grow the business. First Complete was set up not only as a brand for HoC. Strategically, it’s the focus of financial services growth within LSL.

Q: What are your plans for the rest of this year?
A: We’ve been encouraged by the quality of sellers in the network. We looked at figures and the life penetration rate, and they’re much better than any other network I know of.

So I’m excited about working with senior management at the old HoC. But we will also put our views across.

We aim to be the strongest and most supportive network in the UK - we’re not interested in being the biggest. We might end up being the biggest through acquisitions and growth but we just want to be the most solid network.

 

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