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Open House

Openwork, the brainchild of Zurich, came into being in 2005 as part of the post-mortgage regulation network boom. Some three years later its life story is still in its early chapters while other networks are writing their last.

But you are unlikely to hear Paul Shearman, mortgage proposition director of commercial development at Openwork, boasting about the network’s success and its growing army of appointed representatives. The company has lain low in recent years, slowly growing in strength and now, as other networks begin to flounder, it is positioning itself for the kill.

Shearman is fresh from appointing GHL as an AR and adding its 300 members to Openwork’s existing 2,500. The network is in a strong position but he remains tight-lipped when asked about any other acquisitions or mergers that might be in the pipelineSome readers may be surprised to learn that Openwork is the largest AR network in the UK in terms of mortgage origination and the quality of business it originates, based on research by Touchstone.

“If you are a lender with limited funding you are going to give what you have to players that you feel comfortable with in terms of quality,” says Shearman.

And it’s not a tough choice for lenders when confronted with the figures. According to Shearman, his network is performing up to 13% better than its counterparts in terms of arrears.

“I recently had a meeting with a mid-sized society that told me our business had 50% less arrears than the rest of its intermediary book, and was performing 20% better than its branches,” he adds. “That’s why professionals should focus on us.”

Shearman is confident his network will play a prominent role in the mortgage market in future and earn a coveted place on lenders’ distribution lists.

“There will only be five key distributors by the end of the year and we’re looking at playing a major role in terms of consolidation and driving our mortgage market share up past 10%,” he says. “A new mortgage landscape will emerge around the surviving lenders. We are already starting to see a significant migration of directly authorised firms as well as ARs in smaller networks towards us.”

In December the network recruited more than 70 advisers, which Shearman puts down to a flight to quality.

“Brokers have to think about their financial security,” he says. “If you are worried your network is going to freeze your commission or that it is going down you are likely to move to a firm you think is financially strong. Access to capacity is going to be crucial this year. Lenders are going to be deciding which firms they are going to support and that will influence smaller DA brokers who are worried they will be frozen out of the market.”

Shearman does not seem phased by the prospect of lenders cutting ties with networks and is confident his will not be part of the cull, instead viewing this as an opportunity.

“We are at a tipping point,” he says. “We will see a significant amount of integration activity this year, particularly among mortgage-only networks and clubs. Most of these firms probably suffered a 40% fall in business during 2008 and Council of Mortgage Lenders figures for this year point to another 30% drop.

“Few business models will be able to sustain a 70% drop in business after taking costs into account. A lot of clubs and smaller networks will think about joining forces with stronger players. I think that’s going to happen pretty quickly.”

Unlike mortgage-only networks, Openwork has designed its proposition around offering a range of products including invest-ments, insurance, protection and pensions.

“We have seen about 200 of our mortgage advisers become fully fledged financial advisers, and some of these are starting to put in significant business volumes,” says Shearman.

Having said that, he acknowledges that not all mortgage brokers want to diversify.

“Some want to make that step while others find it a bridge too far,” he says. “We are working closely with all our mortgage ARs to ensure they make the most of every client opportunity in terms of mortgages, mortgage payment protection insurance, life cover and conveyancing.”

Openwork is no stranger to innovation. When it was created the network decided to offer every member a slice of the action so members own around 68% of the business, staff own 7% and Zurich holds the remaining 25%.

When Shearman explains that the network is building itself up to be worth 1bn by 2012 it is easy to see why advisers could be tempted into joining.

“Parties on both sides of the Openwork fence have an interest in driving the business forward,” says Shearman. “This has resulted in a positive environment in which advisers and staff can operate efficiently. Any adviser who joins immediately becomes a share-holder in what I believe is the largest partnership in the financial services sector.”

For this reason, the network has to do a substantial amount of due diligence when it comes to advisers entering its fold.

“We are about quality not quantity, and when we set up Openwork we decided not to offer contracts to certain players in the market,” says Shearman. “We have about a 7.5% share of the mortgage sector and are looking to grow this to more than 10% by the end of 2009, but quality remains crucial.”

The mortgage market has been a numbers game for the past few years, with networks competing for the largest number of ARs. But Openwork has always shied away from such games.

“Our industry has been poor in terms of distribution and it has been all about volume,” says Shearman. “We are looking to change that in a significant way.”

The network has recently restructured its mortgage lender panel which now comprises two tiers – corporate partners and lender partners.

This structure replaced a three-tier model that had been in place since 2005. Openwork’s corporate partners include Barclays/Woolwich, HBOS, Lloyds TSB, Nationwide, Santander and the Royal Bank of Scotland. These lenders have committed themselves to work closely with the network and strive to add value.

The network has also put in place lending agreements for the coming year with lender partners that include the likes of Accord, Astra, Chelsea, Coventry, First Trust, Leeds, Northern Rock, Platform, Principality, Skipton and Standard Life Bank.

“Broadening product penetration across our client base will be a key aspect of the new model,” says Shearman. “Given that we operate a full financial planning model we are well placed to make this a reality for our clients and partners.”

But it’s not just corporate partners that will add value. The network’s success will stem from its ability to offer more than just a mortgage proposition. Last year saw the launch of Omnis, a joint investment venture between Openwork and Octopus Investments.

Omnis has partnered with a number of specialist providers to create three global, multi-dimensional funds that aim to deliver optimal returns for well defined levels of risk.

The creation of Omnis enables Openwork to enhance its in-vestment offering for the benefit of its partners and their clients, and capture some of the margin associated with the distribution of financial products.

Shearman believes that Omnis will help Openwork achieve its 1bn objective.

“Omnis is a crucial part of how we deliver that 1bn,” he adds. “We have driven down our costs but tried to minimise the effect of this on our advisers. We looked at how we could get down to the guts of our business without affecting frontline services. That is why we have outsourced functions such as HR as well as most of our desktop IT work.”

If the business was to be floated it would present an attractive package.

“We are the largest introducer of business for our pensions, general insurance and protection providers,” says Shearman. “A number of players have a vested interest in being closely aligned with us, which means it is more likely that trade buyers will come into the business.”

Unlike with a lot of businesses at the moment, Shearman is able to look to the future of the network with a certain amount of hope, mainly because he has sliced up the business so it does not suffer too much from a loss in any particular sector.

“Roughly a third of our business comes from mortgages and the rest from other sectors we are involved in such as pensions, investments and protection,” he says. “So if the mortgage business suffers, we can look to other areas.

“Last year we were down by about 5% in terms of mortgage turnover, which we don’t think is too bad. And this was balanced out by a successful year in investments and pensions.”

In fact, the network’s business model is much like its average member’s – a model Shearman describes as entrepreneurial.

Shearman has also displayed his entrepreneurial side since starting the network. Since its inception he has led the development of the mortgage proposition for Openwork to the point where the business is the largest originating AR network in the market.

Prior to Openwork, he headed partnership marketing at Zurich on the GI and life sides, driving growth through many of the UK’s largest banks and societies. Earlier in his career he spent time with what was then Abbey National, helping it to launch into the direct home and private medical insurance markets.  

Shearman began his career by spending seven years working for a marketing consultancy, specialising in due diligence for the venture capital sector and trade marketing. During this time he worked with many leading manufacturers. And he has seen the market through several highs and lows, as have many of the network’s ARs.

“Many of our ARs have been with us for a long time,” he says. “They have seen various investments suffer over the years and this time it’s mortgages, so they are finding new ways of doing business.”

Openwork is not shy of dipping its toe into new areas of the financial sector. It recently teamed up with Enterprise Finance to launch secured loans provider Openloans. This is an area Shearman admits Openwork would not have probably touched a few years ago. Openloans is now the exclusive provider of secured loans, bridging and non-standard commercial finance for the network’s advisers.

“Following recent changes to the Consumer Credit Act, the secured loans sector has changed for the better,” he says.

“We believe secured loans are a viable capital raising alternative in many instances – particularly in the current economic climate.”

Of course, the network has not been immune to the collapse of the mortgage market.”2008 was a horrible year for our industry and unsurprisingly our mortgage figures were down around 30%, but that is where the breadth of our proposition comes in,” says Shearman. “Our overall turnover dropped but we achieved 280m in total for the business during the year, which was only marginally down on the figure for the previous year.”

For the first time in its relatively short life Openwork also broke even at an operating level.

“When it comes to our predictions for 2009, we don’t expect to see anything like the sort of decline in our mortgage business as the CML predicts for the market as a whole,” says Shearman. “This comes back to securing capacity from key lenders and driving up capacity in the network.”

To cope with demand for mortgage business, the network has put in place a tranche system so if a lender launches an exclusive product with limited funds Openwork can control what is lent. Advisers can go to the firm’s intranet and look at a site that includes all products, then click on a lender or product and book it.

“If we have, say, 60 cases in a day the 61st will be declined but the broker who submitted it can return next day and submit the case again,” says Shearman. “Accord supported us in 2008 in terms of exclusives, and we got to the point where its products were selling out quickly. We even had one AR who stayed up to put a case online at six minutes past midnight.”

The network also entices ARs by offering to buy their businesses when they retire, says Shearman.

“If an AR is coming up to retirement we offer to buy their business,” he adds. “It’s sometimes hard for small business people to know what to do with their firms. We work out how much their company is worth and offer them that.”

Shearman believes the result of the financial crisis will be fewer mortgage-only advisers and more what he calls ‘financial stewards’, able to advise clients at various life stages and build long-term relationships across a wide range of products.

The demise of many networks is predicted but Openwork is confident this year will not be the end of its story, more the start of a fresh chapter.

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