In May this year Bank of England economist DeAnne Julius issued a report into UK banking that identified a need for brokers to secure co-ownership of the Mortgage Code.
The report recommended that brokers seek to obtain a direct say in the scope and running of the Code, as they are bound by its requirements and pay the cost of its monitoring through the MCCB. It urged them to take strides to establish a trade association, both representative and respected enough to claim a legitimate stake in co-ownership of the Code with its sponsor, the Council of Mortgage Lenders. It is a recommendation endorsed wholeheartedly by some of the UK's most respected mortgage brokers.
Charcol senior technical manager Ray Boulger says: “With FSA mortgage regulation coming in next year for lenders, the Code clearly will be geared more towards brokers – they are therefore going to need to have more say in its running. To co-own the Code through a trade body would undoubtedly prove a highly advantageous way for brokers to do this.”
David Hollingworth, mortgage specialist at London & Country, says a trade association could prove to be particularly beneficial to smaller firms in terms of compliance.
“Where an association is really going to come into its own is in guiding the smaller brokers through the changing requirements of the Mortgage Code. As most do not have the luxury of a compliance officer, I can imagine they will be crying out for help next year to keep themselves on the right side of the rules,” he says.
Since the publication of the Julius report, there has been much musing from brokers – and, to a certain extent, lenders – as to how and when such an association can be established, if at all.
Scottish Amicable national mortgage manager John Malone, who runs one of the biggest mortgage clubs in the UK, has his own views as to what an association – and the people running it – must possess to succeed.
“Firstly, I think any association needs a life office or a lender to sponsor it, because it will be an uphill task to make it work without proper funding. It is essential that whoever runs it is credible, committed and accepted, or working on a number of committees like the MCCB advisory panel. Good contacts in government circles are very important, and my ideal candidate would be an ex-IFA, or someone in day-to-day contact with brokers.”
It is a tall order, but Malone believes it is far from insurmountable. He believes a trade association for brokers is years overdue and could bring countless benefits to the intermediary sector. In particular, he says, a broker association would be able to do for brokers what the CML has long done for lenders – lobby the government.
“The establishment of a recognised trade body would certainly be a move in the right direction in allowing mortgage intermediaries to project a united front to the Government, especially in relation to their views on mortgage regulation. I don't think many brokers would argue there is a need for this.”
There is wide support for Malone's view. But while few brokers believe the lack of a respected broker body played a major part in the government's decision not to regulate mortgage advice, there are many more who believe something is clearly amiss when it is left solely to the CML to harangue the Treasury for its folly.
“The trouble is that the CML is fighting for its own membership, and only them,” says Bob Riach, proprietor of Riach Independent Financial Advisers. “If its lobbying happens to have a positive effect for intermediaries, then it is purely incidental because it is looking out for lenders. So, I think there obviously is a need for a trade body that battles for brokers and represents their interests, but how long that will take to establish I don't know.”
Even so, it is clear the CML will be pivotal to the future of any prospective trade body over the coming months. As sole owner of the Code, it has full responsibility for who or what is allowed to bear influence over it. If the Julius report's recommendation for ownership of the Code to be shared is to be made a reality, the CML must surrender total control to another trade body. The question is whether the CML is prepared to do this, or is content to swat aside Julius' recommendations – something it has already done by refusing to overhaul the Mortgage Code in advance of N3.
If sources close to the CML are to be believed – and there is no reason not to – it will be prepared to negotiate. In fact, there are even suggestions that at the very least the CML would willingly concede part-ownership of the Code because it is unsure of the strength of any alternative position under competition law.
But a far more persuasive reason is that the CML may soon be facing a fight for its own survival, as statutory regulation looms ever larger.
Under its own constitution, CML members must be signatories to the Mortgage Code or be forced to leave the organisation. It is a clause that may yet leave it in a very difficult position. Rumours abound that many of the major lenders – and a considerable number of the smaller players – plan to abandon the Code after FSA regulation kicks in next August. As one high-profile lender puts it: “Why be a slave to two masters?” If there were to be a exodus from the Code, all non-signatory lenders would be forced from the ranks of the CML, leaving the body at best devalued and at worst non-existent. In a bid to secure its future, industry sources believe the CML is prepared to offload the Code – partially or fully – before N3 to a trade body that boasts the support of the majority of brokers.
“I think the CML would be prepared to give up ownership to a trade body, as long as it's one that carries weight,” says one source. “There is a strong impression coming from the CML that it is not that concerned about relinquishing up the Code, especially after N3 when it will focus more on brokers. They know lenders will be worrying far more about meeting the FSA's monitoring requirements.”
To a certain extent, this claim has been bolstered by the Julius report itself, which states: “The CML's advocacy of statutory regulation of mortgage advice makes it difficult for them to be committed to the Mortgage Code.”
But the CML is staying tight-lipped, with communications manager Bernard Clarke saying that ownership of the Code will be considered only when the FSA releases the final draft of its mortgage sourcebook. However, there are suggestions that CML director general Michael Coogan is not ruling out a more radical move and investigating the possibility of the trade body establishing a broker arm, which, in effect, would be a Council of Mortgage Intermediaries.
“It is definitely being considered,” says a senior industry source close to the CML. “Coogan thinks there is significant logic in extending the CML's membership to brokers and it should comply with the Julius recommendations.”
The CML denies the suggestion, but it is not a road down which many brokers are keen to travel. The overriding concern seems to be what the CML would do if ever put into a position where there was a polarisation of opinion between lender and brokers.
Rod Murdison, proprietor of London-based mortgage broker Murdison & Browning, says: “I think it is true to say that most brokers would not think it right that the CML should launch a broker association. What happens if there is a discrepancy between the views of lenders and brokers? In a dispute, the CML is bound to throw its weight behind its lenders, I just cannot see it doing anything else.”
If brokers are less than keen to see one trade body spawn another, the question is who would they accept and, more importantly, be willing to provide with both moral and financial support. With the CML seemingly at its most willing to negotiate, who can step forward and take it up on its offer? At present, there are two main options on the table, both at embryonic stages. They are the National Association of Mortgage Brokers & Advisers (Namba), and an untitled body proposed by three MCCB advisory group members – Jim Gaskin, Rob Clifford and Dave Seviour.
First on the scene was Namba, originally announced in May by chief executive designate Julian Jennings, a former compliance consultant.
He stated that his main intentions for the body were to promote the provision of mortgage advice as a professional service, and to lobby the FSA and OFT on behalf of member brokers. He also said he wanted the body to work in conjunction with the MCCB to help his members resolve any compliance concerns they have surrounding statutory regulation.
It is due to launch in January – although Jennings concedes there “may be some slippage” in this timetable – and is currently attempting to persuade between 200-500 brokers to stump up £100 each as a 'founder' donation, a one-off payment to get the association off the ground.
Coming hot on the heels of Julius' well-received report, brokers reacted favourably to the idea of Namba and were clearly taken by the idea of a body that took an active role in guiding them towards meeting their compliance requirements, the biggest headache for most mortgage intermediaries.
“A trade body for brokers to give them a coherent voice would be extremely valuable in itself,” says London & Country's Hollingworth. “But if that body can help brokers – especially the smaller firms – comply with the forthcoming FSA regulations, then it would represent a hugely significant addition to the mortgage market.”
However, just weeks after Jennings' announcement, dark clouds – which have yet to blow away – appeared on Namba's horizon. Rumours began to circulate about Jennings' past business life, principally his alleged role in the demise of Century Mortgages, a lender shut down by the DTI in 1999 for compliance failings. Jennings had been its compliance consultant, something not easily forgotten by an elephantine mortgage market wary of a relatively unknown offering the solution to brokers' regulatory problems.
Jennings does not deny his involvement, but has sought to distance himself from the debacle by claiming the timescale he imposed for Century to sort itself out was cut short by the DTI's decision to pull the plug.
“Century was making genuine efforts to comply with the Code – on my recommendation – but it was the activities of agents in the field that caused the management the most problems, with which it was unable to deal. The DTI closed it down before it had a chance to rectify the situation.”
Despite his protests to the contrary, there is little doubt Jennings' negative baggage has weighed down his efforts to establish Namba as the trade body for the intermediary sector. Justly or not, in many brokers' minds, Namba is already damaged goods.
“By definition, Jennings' credibility has been badly affected by his role in the affair,” says Murdison. “I cannot think why anyone would join Namba when there is competition out there. If Namba was the only show in town, then it could have a chance. But the fact is, it's not.”
And, in a move that has done little to improve Jennings' standing, Namba's public relations firm Axis Communications last month withdrew its representation. Its head, Tony Yorke, says he “cannot confirm nor deny” that his decision to back away stemmed from the Century Mortgages saga, only that: “I don't want to be associated with Namba.”
Just weeks after the storm gathered over Jennings' head, it was revealed that three MCCB advisory group members were planning to launch a body in direct competition with Namba. Former Exchange FS managing director Jim Gaskin, Allied Dunbar franchise development director Dave Seviour and mortgageforce managing director Rob Clifford admitted they were intending to offer brokers an alternative. Unlike Namba, it would be non-commercial and, by virtue of association, have the tacit blessing of the mortgage market's regulator.
Gaskin says: “We want a body that is focused on representing brokers and consumers, has a good deal to say about the Code and has no commercial interests whatsoever. I think it is always better to distance an association from activities that are profit-making.”
In theory, this body would appease those who had expressed concern over the commercial bias of Namba and satisfy sceptical brokers of the heritage of the figures behind the organisation.
But, as with Namba, it has hit something of a barrier. For the founder members, the development of the association is in addition to their day jobs: Gaskin, until recently, had his hands full with the sale of the Exchange to Marlborough Stirling, while Clifford has been busy developing his rapidly expanding broker franchise business.
As Clifford admits, it is difficult for them to meet on a regular basis, let alone find the time to drum up the kind of support – financial or otherwise – they will need. This ad-hoc style has led some to believe that the establishment of the association was a knee-jerk reaction – orchestrated by the MCCB – to the announcement by Jennings that he was setting up his own trade body.
“You have got to remember that the MCCB has got to work closely with these people,” says a source close to the MCCB. “The personnel of a trade body must be able to be welcomed at the door of regulators, consumer groups, the government and so on. Paul Smee at the Association of Independent Financial Advisers, for instance, is probably greeted with open arms wherever he goes. The head of a broker body must command the same respect.”
The theory that the three men were asked by the MCCB to establish a competitor to Namba is supported by the initial plans for the new association. The proposed management structure – Gaskin pencilled in as chairman, with Clifford and Seviour as joint chief executive – is intended to be a temporary solution, with elections for long-term replacements due to be held as soon as the association is up and running. It is not a situation that indicates the three men are doing anything other than using their combined clout to lay the foundations for others to take forward.
They are finding it an uphill struggle to whip up support among brokers. With an at-best loose management structure and an intermediary sector largely ignorant of their efforts, Clifford admits things are not exactly moving at the speed of sound.
“We are still looking at it, but we do need a large proportion of intermediaries to support us, and that means contributing financially. I think something will get off the ground, but I am not sure whether it will be on a full-blown subscription basis or not. If brokers refuse to get their chequebooks out, then you would have to be a fool to set up a body that requires serious financial backing.”
The reluctance of brokers to dig deep is a problem that not only Clifford, Gaskin and Seviour appear to be having. Jennings, who recently sent out Namba mailshots to around 3,000 brokers, says he is getting good feedback for his association, but admits he has run into something of a brick wall. With Namba due to launch in less than two months, the next few weeks could well prove to be make or break for Jennings.
For both organisations, the battle could well be won or lost on the number of brokers who are prepared to back them, yet brokers seem apathetic about the prospect of their own trade body. With statutory regulation coming rapidly into focus, they may well need it sooner than they think. So why the reluctance? One theory is money.
“The major question is, of course, how much a trade association is going to cost,” says Hollingworth at London & Country. “Is the monthly or annual subscription going to be at a level that brokers can bear? Will they be prepared to pay it? The whole concept could stand or fall on this point.”
Jennings says Namba needs a one-off payment of £100 from 200-500 brokers to enable the body to get off the ground. If he manages to achieve that goal, then the monthly subscription will be around £9 per month. Jennings says he is “reasonably confident” of success, but others are not so sure.
Siobhan Hotten, head of PR at Charcol says: “In the current environment, I think he has an extremely slim chance of persuading hundreds of brokers to hand over £100. It is not a huge amount of money, but at the moment I wonder how many people would be prepared to give a donation to a fledgling organisation.”
The rival association, as Clifford says, is unlikely to charge brokers a start-up fee, which would give it a firm advantage over Namba. Yet if it does establish itself, brokers would be likely to have to give financial support and that would suggest a monthly subscription. With brokers seemingly loathe to contribute anything other than their vocal support for a trade body, Hollingworth's fear that economics could sound the death knell for both could become a reality.
With both bodies bogged down by their respective difficulties, there does not seem to be much in the way of tangible progress. Time is running out for an association to get going, with the FSA regime due to take over in August – assuming the CML fails in its efforts to persuade the FSA to postpone the introductory date, which seems likely. The Mortgage Code may well be up for grabs, but while the associations remain hamstrung by their problems the CML will be left with a responsibility it does not necessarily want.
However, it may yet be helped out by the organisation that monitors compliance of the Code. The MCCB is thought to be considering turning its advisory group – containing Gaskin, Seviour and Clifford, but also many others – into a trade body, which would seek to be the official voice of the intermediary sector.
However, Brad Baker, an MCCB spokesman, is keen to play the rumours down: “The existing terms of reference do not allow the advisory group to be extended to this type of role under the current rules.” Nevertheless, there are suggestions that such a move could represent a third option.
Clifford, for one, does little to dispel the notion that the idea has potential: “The MCCB extending the group and taking ownership of the Code would make it judge and jury, but in my opinion something like the FSA is a lot like that already, so I doubt it would be much of an issue. I don't think there would be any legal problems with changing the group in this way – it would simply require a more formal board structure and an electoral process.”
One of the main advantages of an MCCB-backed trade body is that it would remove what is fast becoming a huge obstacle in the way of the mooted associations – substantial financial backing. With a vast built-in membership and no real start-up costs, it could yet prove to be the most viable and cheapest option.
“The principal advantage of an MCCB-backed body is that it would be relatively inexpensive to establish and would send out a message that it is a professional organisation for professional people,” says London & Country's Hollingworth.
Simon Jones, associate at Savills Private Finance, agrees and says he cannot see any difficulties with the MCCB both co-owning and policing the Code. “As long as the MCCB ensures the proper safeguards are in place, then there really should be no problems. In fact, in some ways, it will be better as the people at the MCCB are closer to the ground.”
The intermediary sector could be said to have three main options, one of which – the Council of Mortgage Intermediaries – looks likely to meet fierce opposition from brokers. All have obstacles they need to overcome (even the MCCB option because it would require a change to its rules) before brokers would be willing to give them their backing and before the CML is prepared to hand over half (or more) of the Mortgage Code. With N3 due in August, the clock is ticking.
Chris Duncan is the mortgage reporter for Mortgage Strategy's sister publication, Money Marketing Aifa's shining example
A trade body that could point the way for a prospective mortgage broker association is the Association for Independent Financial Advisers (Aifa).
Aifa represents around 70% of IFAs and is considered a valuable part of the financial services industry, with director general Paul Smee cutting a high-profile and well-respected figure.
But, as is likely with a mortgage broker association, Aifa has endured its fair share of difficulties getting to this stage. It started life in 1986 as the National Federation of Independent Financial Advisers, before merging with another body, the British Insurance & Investment Brokers Association, in 1994. The new body, the Independent Financial Advisers Association, then changed its name to Aifa in September 1999.
It is entirely funded by its membership and is looking to recruit more IFAs, but as Tracy Mullins, Aifa's public affairs director, says, with 70% of advisers already signed up, the association may already have reached the limit. Mullins says they will not stop trying, however.
Aifa is run by a council of 15 members, which decides all its policy positions. It meets once a month and is made up of a representative sample of IFAs, with large networks, medium and small IFA firms on the panel. Council membership rotates, with each firm serving a term of three years, although elections are held annually in the run-up to Aifa's AGM, at which the results are announced.
Aside from the panel there are only eight members of staff and, because it is funded by IFAs, it has to be highly cost-conscious. Its main function is to lobby the FSA and the Government – much-needed in the mortgage intermediary sector – but it cannot represent mortgage brokers because its membership must be made up only of IFAs with FPC qualifications.
John Malone, national mortgage manager, Scottish Amicable “A recognised trade body would be a move in the right direction to give brokers a single voice.”
David Hollingworth, mortgage specialist, London & Country “An association would be invaluable in allowing brokers to respond in a unified position.”
Paul Smee, director general, Aifa “It is very important that mortgage intermediaries are ably and professionally represented. I would look to help in any way I can to ensure this is the case” Julian Jennings, chief executive designate, Namba “Forming a trade body helps promote the view that giving mortgage advice is a professional service giving order to the marketplace.”
Ray Boulger, senior technical manager, Charcol “There currently is no one that can speak to the government on behalf of brokers. A trade body could.”
Jim Gaskin, former managing director, Exchange FS “We want a body that focuses on representing brokers and consumers and has a good deal to say about about the Mortgage Code.”
Rob Clifford, managing director, Mortgageforce “There is definitely a need for brokers to co-own the Mortgage Code through a trade association.”