Lead generation is one of the sectors in the mortgage market that is still haunted by the ghost of poor service in the past. For the most part, established players say the horror stories of brokers paying for bad leads are firmly in the past. Better players have tightened up their offerings but criticism has been impassioned as brokers have paid for leads that don’t bear fruit.
Lead generation is attracting new provider entrants but also users who are recognising the value of having good potential leads in terms of consumers to contact, as packagers and networks do deals for their members with lead generators.
The industry is still dogged by questions about how sustainable the market is, given the number of players piling in, and there are varying schools of thought as to the best ways to provide the best leads for brokers.
Mortgage Strategy canvassed pro-viders with differing approaches to the market on their views on market sustainability and what they see as the core criteria for a successful and sustained leads offering to brokers.
Growth in the lead generation market has come about largely because cold calling potential clients by phone was knocked on the head by the Financial Services Authority in 2004.
Making a call to someone who has requested contact from an adviser or broker is a way round this and companies have popped up to source and pass on these leads to brokers looking for clients.
As to how sustainable the market is, there are conflicting views – it is either massive or there is not enough space for more lead generation firms. Consolidation and merger predictions abound.
Those defending the market’s sustainability reason that it is the growth of the internet that will drive more leads. The first port of call for many consumers researching a mortgage is the internet, these days. During this process they will respond to offers to find an intermediary who will source the market for them.
Ironically, it seems that one of the factors driving the market could also threaten its sustainability for some players.
While there is increased use of the internet to source leads enabling providers using that source to operate on tight margins, it is this screwing down of costs that could threaten small players. Also, the emergence of bigger players with the budgets to advertise will make life harder for smaller players.
Vanessa Blount, head of paa-leads.com, whose parent is moneysupermarket.com, is not afraid of the competition and argues instead that it will be poor business practice that drives firms out.
“Business will continue to grow and if we are talking specifically about internet leads, more people will get broadband and more will be using the internet seeking advice and information,” she says.
“Internet lead generation has a sustainable future. Any adviser that does not use internet marketing as a way of attracting business may at some point find themselves restricted as to how they can source new clients.”
The problem for small advisers and the ready solution the internet lead generators present stems from the difficulties of running an interactive website and driving traffic to it.
“It is a full-time job just doing search engine optimisation so advisers must look at viable alternatives,” says Blount. “Internet generation is the only way a small adviser can harness what the internet can do for their business in terms of securing business.”
But she warns that advisers must be cautious of new players coming onto the market and research who they are doing business with. She says there’s a difference between someone looking to enhance a business relationship and someone coming into the market to make some quick money.
“Anyone can generate internet leads but a quality internet lead needs work and research. This is why we work on reputable leads and check the source and how leads are generated. It is only by asking questions about refund policies and whether a provider is compliant that you will be able to sort the wheat from the chaff.”
Obviously lead generators can’t guarantee a request for a call back will result in a sale but brokers need to have some confidence that the request was genuine, the details of the caller correct and that when they are given the contact it has not also been given to another adviser.
There have been mutterings in the market about a code of conduct for lead generators, in an attempt to focus the market on meeting basic standards and sift the reputable players from the less reputable. But as yet, nothing has emerged.
There have also been calls for the FSA to regulate the market, something it has indicated it is not about to do in the near future.
In August this year Leadbay wrote to the FSA to ask if certain lead generation firms were acting compliantly, voicing the frustration of many players who see themselves as compliant but others as less so.
“We spend a huge amount on compliance and find it irritating some firms do not adhere to the FSA rules,” says Toby Hughes, business development manager at Leadbay. “We are tired of companies saying they are compliant when they are not.”
But there seems to be a growing consensus that regulation by the FSA is not the way forward. Regulation is not thought to be relevant for lead generators.
Blount says that as her company clearly displays the source of a lead and how it has been generated before the adviser signs up for that lead type, it has proved there is no need for the industry to be regulated.
“Best practice has set the standard for lead generation and competitors will be forced to follow,” she says.
Nick Chapman, managing director of LeadPoint, agrees the FSA does not need to get involved.
“In terms of the selling of financial products to consumers, the companies which are authorised by the FSA are doing that,” he says, “Lead generators are introducers they are there to facilitate the process and are not really involved. The FSA just needs to clear up any grey areas.”
But a code of conduct is a different thing and many firms say they would readily sign up to one – the problem is getting one agreed. That this hasn’t happened yet is largely down to a lack of commitment on the part of players to get one drafted – everyone is too busy doing business.
“I would be happy with a code of conduct,” says Blount. “There are more and more reputable companies out there. Competition is a good thing because it validates the industry, but if the Association of Mortgage Intermediaries got behind a code and provided a good practice guide we could sign up to. It would be a benchmark for others to strive towards.”
“A code of conduct would be good,” Chapman agrees. “We had conversations with AMI a while ago but nothing has come of it. We are happy to sign up to any code of conduct which is in the interest of professional, legitimate good quality lead generation companies.”
The issue of paying for leads upfront is contentious. Certain lead generators feel once they have sourced and are about to forward a lead they should be paid for it straight away. They do not see it as incumbent upon them to wait until a broker has made a satisfactory contact or sale before they should be paid.
But similarly, some brokers object to paying for something which may not generate business for them. This is a classic impasse and the best brokers can be advised is to choose carefully the generator they do business with so they can be confident they are offering leads in good faith. They should seek references from other brokers who have used a lead generator.
Blount is adamant leads should not be paid for by brokers upfront. “The point I would emphasise is – never pay upfront for your leads,” she says. “In my experience, what the company then does is use the money the adviser pays upfront to pay for pay-per-click advertising campaigns. A broker should not pay upfront because there is no guarantee a lead is going to be delivered – and no guarantee of the quality of it either.”
But Chapman sees upfront fees as fair. He charges upfront fees because he says “we pay our suppliers every seven days. You’ve got to be in it to win it.
“Our model is built around efficiency and I haven’t got the time to chase 30-day invoice terms with our brokers.”
Brokers don’t have to deposit ridiculous amounts of money, Chapman says in some cases they only have to deposit £100 which might buy them five leads. The key point is brokers are not tied in to LeadPoint and can come and go as they please.
“But in order for the system to work and be efficient on the client and seller side – brokers have to have a certain amount of liquidity in their account to be able to win the leads or the model breaks down,” says Chapman. “They don’t have to have thousands in their account. It still their money but it shows a commitment they will pay for a lead.”
On the lead generator side, those that offer rebates on fees where leads have quite obviously been inappropriate or contact information has been wrong is an encouraging step towards redressing the balance of risk. And Chapman makes the point that a fair refund service should balance brokers’ concerns about paying for leads before they get them.
“We have to police these things and we have a commitment to the lead buyer and also the lead seller to validate leads. Sometimes brokers return leads that are perfectly valid,” says Chapman. “Brokers have to remember they are buying leads, they are not buying customers. They need to work that into their economics of they are paying X for leads and they can make Y on the returns.”
Brokers should follow up leads within five minutes of receiving them and spend a maximum of 20 minutes working those leads to get the best return from their investment, Chapman advises.
“Brokers need to appreciate the internet is delivering an amazing marketing source for them whereby they only pay on a per lead basis, with no financial commitment to something they don’t know is going to work,” he says. “These people have expressed interest in getting mortgage advice, they have given their consent to be contacted, they have said how much they want to borrow, how much their property is worth and they have provided full contact details. Brokers need to appreciate they have been provided with that information but it is important that they market it.”
Brokers should probably talk to at least two lead generation companies to find the right one for them, in Blount’s view. They should also establish how any refund policy works. “It is no good having a wishy-washy refund policy that either party can try to get out of,” she says.
Brokers have driven the way the lead generation propositions on the market stack up and not only by demanding good quality leads because they won’t return to a generator not providing such leads. Brokers are also looking for flexibility and choice in the type of leads they get. First-time buyer leads are plentiful and remortgage deals becoming so, but adverse leads can present a better business case.
Competition is sneaking in from various quarters and lead generators are exploring more options to source good leads and channel those leads to the broker market.
Mortgageangels, for example, is not limited to sourcing through parent group Estateangels.
“Estateangels is just one of many sources for mortgage leads,” says managing director Nat Daniels. Mortgageangels recently announced it was in talks to acquire a rival firm and also talking about a new distribution deal with ononemap.com to source leads.
Leads are being used to incentivise and reward brokers.
Packager c2 is offering mortgage leads to brokers who submit sub-prime deals to it to underwrite.
“What we are doing is using paaleads.com to provide us with leads,” says Justin Caffrey, managing director of c2. “We buy the leads as if we were a normal broker but our angle is to encourage brokers to give us a case and every time they do that we pass across a lead to them from paaleads.com.
“We chose paaleads.com because we found it to be the most consistent performer. These are the best leads because what brokers want is to get sub-prime leads rather than prime leads.”
Leads will increasingly come via the internet
Justine Tomlinson is marketing director at Mortgage Next
A study by Standard Life Bank shows that while one-third of brokers believe they could run their businesses and retain clients without the aid of the internet, two-thirds say they would lose business if they did not use the web.
Our experience of dealing with hundreds of appointed representative and directly authorised firms is that the internet has become an essential business tool, especially when it comes to new business. More brokers are using web-based lead generation firms to source clients and the truly adventurous are even developing their own lead generation systems.
We regularly get feedback from brokers who have undertaken a detailed analysis of the costs and benefits of using lead generation companies over six and nine-month periods. The conclusion they usually come to is that using lead generation companies pays, but only if they are used correctly.
Intermediaries need to carefully select the firms they work with and ensure they act on leads as soon as they are provided. Leads can go cold quickly and if left for a day before being progressed, can be as good as useless.
Interestingly, as the market becomes more competitive prices are tending to increase. It is usual for prices to fall as markets become more competitive but the opposite appears to be true here. The reason for this is that increased competition is making it more expensive for firms to generate leads in the first place. Prices appear to be on the rise.
This has encouraged more firms to have a go at generating leads via the internet. But this is not a project for the faint-hearted. It requires a detailed understanding of the internet and the way in which search engines work. Websites also need constant attention and maintenance if they are to do their job correctly. Most firms have wisely taken the decision to outsource this task, having come to the conclusion that paying a third party is more cost effective than paying for a system’s development and maintenance.
I suspect the development of inhouse lead generation systems will only appeal to a minority of brokers and most will continue to use established lead generation companies.
Although pricing appears to be on the increase, the good news is that the companies themselves are becoming more professional and there is more information available to intermediaries.
When I undertook research among lead generation companies only 12 months ago, few had a detailed knowledge of the regulations that govern what brokers can and cannot do when it comes to prospecting for business. That is no longer the case. What’s more, lead generation companies can now provide more information about conversion rates as they build up a record.
I believe lead generation firms are not a ‘here today, gone tomorrow’ phenomenon but are in it for the long run. The 30% or more of brokers who believe they can exist without the internet should think again because while they ignore the benefits the web can deliver their techno-savvy colleagues will be cleaning up the commercial opportunities it presents.
Brokers should take care when selecting their lead generation partner
Rob Griffiths is associate-director of the Association of Mortgage Intermediaries
It is important as a mortgage intermediary to know what you are getting when you purchase leads from a lead generation company.
First, be sure that these are leads. You may end up with a so-called lead taking your advice and the mortgage you recommend but there is never any guarantee of this.
Lead generation firms are not offering guaranteed sales. If they were there would be far fewer of them and the ones that could provide this would be highly profitable.
Buying leads requires an acceptance from that not all will convert. The leads will require plenty of work to convert to sales and therefore buying leads should be used as just one part of a marketing mix, not form only component. Buying leads can be a valuable business tool but firms should ask the right questions of the lead generation company and ensure they get the answers they want before embarking on a relationship with a firm.
Lead generation operations offering good quality leads do exist. As a broker it is your job to make sure you are dealing with such an operation.
So, how do you sort the less scrupulous firms – those who will take your money and provide little – from the quality operators? Here are some issues you should consider and questions you should ask:
• References Good firms will be able to provide you with references from satisfied customers to testify to their levels of service. Remember to check these carefully – it is not that difficult to forge references. Also, ask colleagues and associates who they have used in the past.
• Service What will the lead provider give you in terms of both the leads themselves and customer service and support? Is your contract based on a trial sample? Are you contracting for a specific number of leads and if so, over what time?
• Position Are you one of many firms waiting for leads? How much competition do you face?
• Penalties What sanctions can you impose if the lead provider does not deliver on its promises?
• Break clauses How long are you tied into your contract and how do you terminate it? Set out in advance clauses to ensure that you are not tied into a service that is not working for you.
• Payment terms What will you pay? When will you pay it? What are you paying for, quantity or quality? What happens if you miss a payment?
• Hidden charges Is there an upfront fee? Is it reclaimable?If so, how? Does the cost of leads increase at a certain time or when an artificial ceiling is reached?
• Operating record How financially stable is the company? How long has it been in business?
• Knowledge of the market Does the lead generator understand mortgage regulation?
Finally, remember that if something looks too good to be true, it usually is. Firms offering leads that “do not need to conform with FSA rules” should be avoided.
AMI’s lead generation factsheet is available to all members from the AMI website that can be found at: http://www.a-m-i.org.uk/closed/cug/publications.asp
Expect to see more bidding models launched
Simon Baker is operations manager at Leadbay
Lead generation is becoming increasingly popular with mortgage advisers who see it as a cost effective way to procure new business and with potential lead generators who see a way to make easy money.
There seems to be an increasing number of lead generators in the mortgage market and the sustainability of that market is in question, but the failure rate of new firms is high. Lead generators often enter the market in a blaze of publicity but the UK mortgage market, and the regulation surrounding it, is more complex than many think. This lack of understanding causes many firms to die off quickly.
But internet lead generation is a growing market. As home computers and internet shopping become integral parts of our lives, an increasing number of potential borrowers are choosing to source their mortgages as well as request their advice over the internet. Some £8.2bn was spent online in the UK in 2005 and this is forecast to increase substantially this year.
Internet-sourced mortgage leads are therefore increasing in number, but advisers need to know that any lead bought will be good quality so that they stand a decent chance of converting it to business. Often, smaller lead generators cannot generate the volumes to guarantee brokers a sustained supply of leads or to guarantee quality.
It is important that if advisers are spending money on leads they see a return on that investment. To do this a broker should work with a lead generator they can trust.
A broker also needs to know that any lead they buy has been obtained in a compliant manner and the firm has gained express consent for to them phone clients. If it hasn’t, the broker could be liable.
So with so many new entrants to the market, there are a certain things advisers should look out for when choosing a lead generator:
• A UK-based company that is easily contactable.
• Leads delivered instantly that are exclusive.
• No minimum number of leads contract.
• A broker can choose what leads to buy and where to buy them.
As a broker you should make sure you can choose the area of the country you want to buy in, can set the value for the leads you want and most importantly ensure that you can choose the mortgage type you want.
With regulation banning cold calling, an increase in use of the internet, and the cost effectiveness of buying leads the generation market will go from strength to strength and we will see increased competition among lead generators.
Obviously new entrants and existing players alike will try to copy the most successful lead generators and emulate their success. Leadbay has set the standard that all lead generators have to reach and already has imitators, so expect to see an increasing number of firms moving to a bidding method of buying leads.