It is obvious that lenders need distributors because they cannot generally satisfy their lending objectives through their branch and other sales channels. The amount of intermediary business each lender attracts depends on its appetite for business through such a channel, but some lenders such as The Mortgage Business, UCB, Mortgage Trust and others receive all their business from intermediaries. A look at the Council of Mortgage Lender’s figures for 2005 reveals that 65% of all gross lending was introduced to lenders by intermediaries.
The mix between direct and introduced business is particularly important to new entrants which do not have the perceived benefit of branches or significant consumer awareness.
Certain lenders also recognise that distributing mortgages through intermediaries is more cost effective than employing staff in their own premises. Simplifying such distribution issues using intermediaries is more cost effective as lenders are able to carry out the mortgage sales function at a fixed cost and more cost efficient as the mortgage flow tap can be turned on and off to suit treasury and profit needs without leaving employed sales staff with little to do.
This means that there is a growing trend for lenders to focus on introduced business rather than direct business. Evidence of this is shown in the increasing number of lenders in the CML’s top 30 list that receive 100% of their business through intermediaries (there were 13 in 2005). The CML list does not take into account the 2006 new entrants such as db mortgages, edeus and others which also receive 100% of their business through intermediary distributors. Given the current trend, more than half of the lenders in the CML top 30 list will receive 100% of their business from introducers this year.
The future success of the intermediary marketplace is critical to the success and survival of lenders themselves. If a lender’s own existence is linked to that of a healthy intermediary marketplace, then lenders have to take steps to ensure that intermediaries survive.
At the same time, our industry is seeing “There is an increasing number of lenders in the CML’s top 30 list that receive 100% of their business through intermediaries”a confident regulator that takes appropriate action when those it regulates get it wrong. Moreover the intermediary marketplace in our industry is predominately made up of small and medium sized firms.
From my old days helping the Mortgage Code of Compliance Board I recall that out of 11,841 registered firms in 2003, 7,227 were sole traders and 3,982 were firms with two to five sales people – that is 11,209 firms out of 11,841 firms (94.66%) with less than five sales people. I have no reason to believe this industry profile has changed significantly. Firms of this size do not have large resources to consider principles-based regulation and other business issues. So they need help to improve sales, marketing and compliance.
In recent months we have seen a number of product providers in our marketplace expand their marketing efforts to launch products to help intermediaries comply better, market their business more effectively and to grow their business. We have seen Mortgages plc launch a marketing and financial promotion toolkit, while Securah launched a series of compliance seminars and Platform has helped with treating customers fairly programmes.
There is still more that lenders can do to help. In my experience when there is a compliance or audit visit by a regulator the end result will often be influenced by the impression gained in the first half an hour or so of such a visit. Where the Financial Services Authority asks for pre-visit documentation to be provided such an impression might be formed even before the site visit. Maybe a lender could develop and sponsor a simple library, held on its website with a master compliant copy of all the forms, processes and procedures the FSA would expect a firm to issue and hold. These could include complaints a log, rule breach log and so on. The obvious benefit to the intermediary would be they would know they had the correct documents in place. For the FSA the benefit would be that if it saw an intermediary using the lender-branded templates it would know they were correct. The benefit to the lender would be a closer working relationship with intermediaries.
I am sure lenders are not too proud to learn from other industries. The way to secure future distribution is to ensure the survival and growth of those who distribute your products.
By Nick Baxter, director, Mortgage Promotions