Right network partner can help you grow

22 March 2010 | By Christine Toner, Robert Thickett

It’s been a roller coaster ride for networks over the past six years. In the run-up to Mortgage Day in 2004 around 100 networks emerged, all looking to attract brokers seeking shelter from the incoming storm of the Financial Services Authority.

Competition was fierce, with networks offering various perks and gimmicks to entice brokers to sign up.

This pattern continued over the next four years, with firms competing fiercely for members.

At the height of the market in 2006 and 2007 business was booming and so were networks. But like everything else in the UK and indeed around the world, the game changed fundamentally once the credit crunch hit.

There had been gradual contraction after M-Day, with many networks purely set up as vehicles to sell on to larger networks. But this process accelerated in mid-2008, with the collapse of several of the biggest networks in the market.

In November 2008 Prestbury Financial went into liquidation following months of uncertainty, during which time many of its appointed representatives contacted Mortgage Strategy to voice their concerns.

Just months later the situation at Prestbury was mirrored when ARs of Network Data, one of the industry’s largest and until then most respected networks, were left angry and confused as they attempted to obtain commissions owed to them.

Several months of confusion and frustration followed for ARs before finally, in May 2009, the network had to call in the administrators.

But as we now know that was not the end of the bad news for networks. Just before Christmas The Mortgage Times Group became a casualty.

Mortgage Times staff were told on December 21 that the firm was going to go into administration although a formal application was not made until last month.

At the same time the firm emailed its ARs to let them know that they could no longer trade under the network’s FSA number. This ended months of speculation about the future of the network although it was hardly an ideal festive gift for staff or ARs.

All the networks mentioned followed a similar process before they collapsed. ARs start to complain - first in dribs and drabs and then in hordes - that they have reached the end of their tether and want the commission they are owed.

Networks then state that commission will be paid shortly, with backlogs or internal errors blamed for delays. Sometimes ARs are paid but the number complaining about unpaid commission continues to grow.

Then there is a communication blackout - ARs cannot get hold of network directors and increasingly have to rely on the scraps of information they find on internet forums or in the media.

Finally, the network goes under.

In the case of Mortgage Times and Network Data the result is that a large number of brokers have been left seriously out of pocket.

Along with Prestbury and Premier Network Group, the collapse of all these networks has brought sharply into focus the fact that it is vitally important that ARs choose their partners with care.

After all, there’s no point in joining a network that charges the cheapest fee if it fails to look after you and your business, holds onto your commission payments and then loses everything when it goes into administration.

But how do you gauge whether or not a network is strong?

As the recession has shown, size is no guarantee of success. But firms with a strong parent have been able to be flexible and adapt to dire market conditions.
It’s also worth speaking to ARs who are already members of networks. Have they had any problems with payments? Do they like the culture in the network? Speak to BDMs of lenders too to find out if they are credible firms to do business with.

And it’s worth considering whether a network is living beyond its means. For example, Network Data’s headquarters - Botleys Mansion in Surrey - was an impressive place but ultimately it was also a major noose around the network’s neck.

When the firm went under, selling off the grand mansion was a key part of paying off its debt to its mortgage lender. Unfortunately, this has so far meant there has been little left to pay the millions owed to ARs in commission.

Support for your firm as you look to capitalise on other income streams is also important. For example, if you are looking to increase the amount of protection or general insurance business you are doing but lack the necessary skills you need a network that can help you with this.

“The better networks have spotted this, embraced it and adapted,” says Peter Curran, head of distribution at Lloyds Banking Group.

“They will provide support and an environment in which advisers are able to do different things. This way, ARs have breadth and depth in terms of products in their armoury so they have been able to adapt and stay in business as the mortgage market has contracted.”

Last and probably most importantly, what sort of compliance support does the network provide?

Many brokers who have seen their networks collapse over the past year have commented that it was only when they joined a new firm that they realised how a proper network should operate.

Many complained that they had had little contact with their previous network since M-Day. That may have been fine while regulation was relatively light touch. But now the FSA has recanted its laissez-faire philosophy and is looking to get tough.

While the Mortgage Market Review is still in the consultation stage there is no doubt that whatever is finally decided on will radically change the way both brokers and lenders do business. And the same goes for the insurance side of the market as a result of the Retail Distribution Review.

Many large networks are not just readying themselves for changes to their systems, they are also in dialogue with the regulator about the future of the financial services industry.

Another key point to bear in mind is that lenders are now dealing with fewer key partners when it comes to offering exclusive deals.

The days of multiple exclusives doled out to vast numbers of networks are over and lenders are now choosing key partners to help them trial or pilot their latest products.

“Generally speaking we’ve seen some consolidation in the market and the networks that are still around are doing the lion’s share of business,” says Curran.

“The number of exclusive products has shrunk dramatically and the ones that are available tend to go to the organisations that we have key account relationships with.”

“When we want to try anything we now immediately turn to our key account partners,” he adds.

Lloyds group is far from alone in doing this. With rapid consolidation having taken place in networks over the past year all lenders have to place business through a smaller number of firms.

“We are moving towards a corporate partnership-style of distribution,” says Lee Gladwell, sales and proposition director at Platform Home Loans.

Platform returned to the market in 2009, initially via a pilot with the old Thinc network, and expanded the list of networks it had as distributors.

From the start it made no bones about the fact that it wanted closer partnerships with a select number of organisations rather than to deal with the broker market en masse.

“We choose our partners carefully and use a wide range of criteria to do that - not just on the volume of business produced but also factoring in quality of business and compliance standards,” says Gladwell. “The other thing we look at closely is the cultural fit of the business as a partner to work with.”

The days of mortgage lending being down to a simple question of volume distribution are long gone.

Providers are looking for distribution they can turn on and off like a tap as and when funds become available, and for both parties involve to enter into a long-term dialogue.

“We are increasingly looking to work more closely with networks,” says Gladwell. “Instead of just putting out products in the market we have developed a model of corporate partnership whereby we talk to the firms we work with about product design and take their advice on service issues.”

The key word at the moment seems to be partnership.

Lenders are looking to develop closer relationships with their key distributors and by the same token ARs should be looking to work with networks that want to partner them and help them grow their businesses.

The network collapses of 2009 clearly show the damage that can be done to ARs’ businesses by networks that are not founded on a strong business base.

With just £143bn of gross lending completed last year, life for brokers is difficult enough at the moment.

They don’t need the additional hassle of networks failing to pass on commission payments and effectively not doing their job properly.

So for any broker looking to switch networks or join one, doing your homework and ensuring you make the right choice of partner has never been more crucial.

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