Chris Cummings, director of the Association of Mortgage Intermediaries, has one word for the impact FSA regulation is likely to have on how broker firms recruit and retain staff: massive. It will change everything, from how they select new staff, how they train them, when they let them loose on customers and how they monitor their performance.
Companies that fail to adjust to the new reality will pay the price in fines and other punishments. The FSA hasn't just been baring its teeth, it's been ripping chunks out of offenders, including seven-figure penalties for high street names such as Abbey and Lloyds TSB and the ultimate sanction – a lifetime ban slapped on IFA the David Aaron Partnership.
Mortgage Strategy doesn't like to be alarmist but unless you get your recruitment policy right, there could be a big fat fine settling into a seat in your interview room right now. Fines can be targeted at individual directors and there's no insurance policy that can protect against that.
This type of threat should really concentrate the mind, which is of course the FSA's intention. Under the outgoing Mortgage Code Compliance Board it was enough to check a new staff member's qualifications, take a reference from their previous employer and start them with clients on Monday, Cummings says. Not anymore.
“It's not enough to check new staff have CeMAP then simply tick the box and off you go. Firms must carefully validate a person's professional abilities. If they don't come up to scratch the firm must set up a training regime and supervisory arrangements until the person is competent enough to meet FSA requirements,” says Cummings.
Broker firms must put recruits through a supervisory period with competency checks, followed by regular inspections to ensure they are still up to the job. This must be done for all brokers, no matter how experienced, and cannot be safely delegated.
“Directors can't leave this to the human resources department or responsible line manager because they are in the firing line,” Cummings says. “If staff aren't up to the job, the director can be held responsible and fined in the region of six figures.”
If this sounds like a grim burden, that's exactly what it is. “It's a big responsibility demanding lots of paperwork, regular reporting, complaint chasing, tackling struggling staff, assessing recruitment procedures and making sure every adviser has a personal job description with training and development needs regularly updated. If staff leave, their colleagues' job descriptions will probably have to change. Keeping on top of this paper trail will be a full-time job,” he adds.
And rules don't only apply to front-line staff dealing with customers but also back-office staff such Mas administrators who may talk to customers when chasing information such as payslips.
Cummings cheerfully admits that senior managers who approach him on the subject of regulation depart somewhat chastened. AMI aims to help by launching a booklet informing broker firms how to ensure new staff can be properly trained and qualified.Catchily titled A guide to the contents of your training and competence scheme, it examines the differences between the MCCB and higher requirements imposed by the FSA.
Andrew Reynolds, partner at Reynolds Recruitment, which spec-ialises in recruitment for the mortgage industry, says the main change from October 31 is that failing individuals can no longer hide behind the company name.
“Brokers must have an identifying number and supply the FSA with information on their qualifications, credit history etc. There is no longer anywhere to hide.”
The FSA will visit companies as single entities but examine the quality of individuals' advice, documentation and data collection, forcing intermediaries to tidy up their act.
“Anybody recruiting a broker to deal with the general public should know that having CeMAP or MAQ is no longer enough – they must also have experience in giving advice. Personal skills will be increasingly important as brokers have to deal with people from all walks of life,” he says.
One difficulty for directors is how to identify shortcomings in their salesforce. “Many broker firms have appointed representatives spread across wide geographical areas. How can they monitor them to see if they have the right professional attitude or are diverting business to lenders with high procuration fees?” Another problem is that many compliance officers are currently sales staff with a dual role. “This saves money but seems like a conflict of interest. On one hand they will be trying to get staff to drum up more business, on the other they will be checking if they have done the paperwork and kept files up to date,” Reynolds adds.
Networks also have the tricky task of deciding how much to charge brokers for their compliance services. “It's a competitive market and many are quoting figures of between £20 and £40 a month. But this assumes they will sign of hundreds or thousands of representatives which may not happen as many brokers have already registered directly with the FSA,” he adds. “If a principal firm ends up with 200 instead of 2,000 brokers they may have to hike charges to, say, £100 or £150 a month at renewal. Smaller firms may struggle, with brokers deserting them for a lower charging network.”
And all of this with the FSA snapping at directors' heels. “The scale of the challenge will become clear when the FSA starts site visits and punishing shortfalls in ARs. If staff are lazy or badly trained, employers will have to introduce better training and tougher compliance, all of which takes up a huge number of man hours,” Reynolds says.
Mike Boles, director as Savills Private Finance, says the rush to compliance is already causing one recruit- ment headache as broker firms compete for a limited pool of compliance experts meaning salaries are going through the roof. “It's a bit like Y2K. Specialists are charging a premium for their services and salaries have risen around 20% over the past 12 months.”
And compliance experts aren't the only ones in demand. Companies can't afford to put up with inferior brokers any longer and this will make experienced brokers an increasingly precious commodity, says Colin Lloyd, operations manager at recruitment agency Reed.
“Advisers with an excellent sales history are being poached and recruitment will become increasingly competitive with high quality brokers demanding higher spec positions. Those who are only CeMAP qualified, rather than CAS, will be in a weaker position when it comes to finding jobs.”
David Bitner, head of retail mortgages at Bradford & Bingley, has already seen brokers' negotiating power strengthen. “It's increasingly difficult to recruit the right people at the right price. You have to pay over the odds to get them.”
The bubbling mortgage market has already played a part in pushing up salaries but regulation has given them a further boost. “It's fantastic news for brokers with a proven record who are worth more than somebody just coming into the industry. Recruitment agencies are placing people on basic incomes up to £40,000 with benefits and bonuses on top,” adds Bitner.
Employers will also have to work hard on staff retention, particularly with recruitment agencies scouring the market for quality staff. “You can spend two years getting somebody up to speed at which point they'll move to another job so you have to find new ways of locking them in, for example with share options or bonuses.”
Bitner anticipates a major recruitment drive and an upsurge in poaching in the short-term. “The number of mortgage intermediaries will shrink as smaller brokers drop out of the market while major firms jostle to become front-runners. Trainee brokers have traditionally come from the bancassurers but it's a big leap from selling one company's products to covering the whole market. I expect to see a 12 to 18 month gap when it will be more difficult to find the right people.”
And Simon Tyler, managing director of Chase de Vere Mortgage Management, says there won't just be a clearout of smaller brokers, many IFAs who only dabble in mortgages will refer business to specialist brokers rather than stump up for the cost of regulation. “This is likely to mean big brands such as Chase de Vere, Charcol and Savills will get even bigger while the number of small operators plummets.”
Chase de Vere's recruitment policy concentrates on taking on young talent and nurturing it from within, which breeds loyalty.
“Regulation gives us the opportunity to employ some of the best small brokers in the country who have hitherto gone it alone. We will be talking to those who want to join a leading brokerage rather than meet the demands of regulation.”
The current generation of brokers may benefit from stronger demand for them but new entrants may find changes to exam standards constrain job mobility, warns Richard Fox, compliance director at the MCCB and from November chief executive of the Society of Mortgage Professionals.
Under the outgoing regime brokers had to pass an approved exam either from the Institute of Financial Services, Chartered Insurance Institute or the Chartered Institute of Bankers in Scotland. In future, they will only have to pass an 'approved exam'. “Larger mortgage firms could create their own approved exams but staff could lose portability if that exam isn't approved by other firms. You could hold, say, the Halifax exam, but what will that mean if you apply for a job with Bradford & Bingley? Firms may be able to retain staff for longer but this could stifle their career options.”
Many people expect M-Day to drive consolidation in the mortgage industry as regulation did in the IFA market but Fox believes there will be a natural limit to consolidation, pointing out that some 7,000 of the 15,000 broker firms are sole traders, “independent characters who don't want to consolidate with anybody”.
He also expects poaching to be less prevalent than among IFAs. “When the IFA market was regulated, smaller firms that hadn't invested in staff training poached staff from larger companies who had. But exams introduced by the MCCB during the past two years mean most mortgage brokers have got the necessary qualifications so firms should already have the right people on their books.”
Joe Wiggins, spokesman for Nationwide, rejects suggestions that consolidation could reverse the standard career path and lead to lenders poaching mortgage brokers. “I don't see why any broker would want to make that switch. If they are worried about directly authorising themselves, they can become an AR of a mortgage network or mortgage club that will handle all compliance for them. That's much more likely than becoming a mortgage broker for a lender.”
Nationwide has been concentrating on bringing its own ranks of staff up to speed in time for Mortgage Day. “All our mortgage brokers are CeMAP qualified and this will be acceptable under the new regime but we have introduced additional training to ensure all our brokers are aware of the forthcoming changes and are fully compliant.”
AMI's Cummings agrees that any movement of staff will continue to be from lenders to brokers. “Brokers working for lenders will still want to move into the intermediary market because that is where the big opportunities lie. Lenders are large organisations with defined pay structures and it's easier to make money if you work for yourself.”
With networks struggling to get enough ARs, entrepreneurial brokers should view regulation as a huge opportunity. “Brokers who invest in themselves and get professional qualifications and build their skills will be in demand, as will those who have the experience to supervise junior staff,” adds Cummings.
This isn't just about collecting the right pieces of paper. “What will really count are softer skills such as communication. If the client understands what you are saying there is much less chance of a misunderstanding leading to a complaint. This is an area most firms haven't focussed on before but must address now.”
A selection of specialist mortgage recruitment agencies
Absoloot RecruitmentRecruitment@absolootrc.co.uk01634 727220 Badenoch and Clarkefinancialplanning@badenochandclark.com020 7832 3976 Hillman Saundersmanchester@hillmansaunders.com0161 819 2255 email@example.com 7929 0707
firstname.lastname@example.org 8686 7771
leeds@hillmansaunders0113 300 2015
Independentbmcmillan@indappts.co.uk0113 244 0846
Jupiter Servicessduffy@jupiterservices.com020 7849 3017 Key Selectionkaren@keyselection.com020 8547 4116
Mackenzie Clarkeknowhow@mackenzieclarke.co.uk01727 898811 Merlin Recruitmentdave@merlinrec.demon.co.uk01543 433317 Mortgage Recruitment Consultantskim@mrec.co.uk020 8567 0055 Pure Resourcingcv@pureresourcing.com01753 626 777
Questinbound@questrecruiters.com0845 458 1938
Recruitment Connectionenquiries@recruitment-connection.co.uk01372 728822 Red Sales Recruitmentinfo@redsalesrecruitment.co.uk020 8676 8574 Reed Insurancerismortgage@reed.co.uk0870 720 1007
Reynolds Recruitmentregister@reynoldsrecruitment0870 240 5846 Sales Recruitment Networkvacancies@tsrn-north.co.uk0845 456 9388 Searchfs.email@example.com 848 142
firstname.lastname@example.org 308 8000
email@example.com 835 8611
Sterling Crossdan@sterlingcross.com01303 233 842
We are likely to see more head-hunting
Andrea Brammer is director of recruitment at Cartel In recent months we have seen more companies advertising positions for those advisers who would prefer to use their expertise in a non- regulated environment, promoting second charges and commercial loans. Those who fear regulation may well choose this route. Some principals will be unable to secure the number of ARs required to commercially exist in the long-term as the number of qualified and active advisers in the industry falls. In the months following M-Day many expect to see a reduction in the recruitment of people into the industry because the minimum requirement will be CeMAP 1 before an adviser, under supervision, can contact potential clients. We are likely to see more head-hunting of quality advisers as companies look to recruit from the same pool of experienced advisers. This will, of course, mean that lenders, insurance companies and brokers will have to look at their remuneration packages closely to attract and retain advisers. If average salaries increase there will be a knock-on effect in several areas.
Firstly we would see a shift from self-employed advisers to PAYE as packages for the employed become more attractive and the cost of conforming in a regulated environment affects profit margins. Those companies willing to be among the first to offer attractive packages are likely to benefit most. More salaried positions and an overall increase in the value of remuneration packages to attract quality candidates may ultimately have an effect on the cost of distribution. This would then have an impact on the amount lenders charge and, finally, an impact on the cost of mortgages as increased costs are passed on to the consumer. Companies that promote on results are likely to be able to achieve the growth they desire as results-orientated individuals seek out those firms that can offer the greatest opportunities for development. Other employers, whose development schemes motivate their advisers but have limited or insufficient management opportunities available, will lose ambitious advisers.
One recruitment agency, Expo Recruitment, recently conducted a survey of industry employees regarding their aspirations.
Out of the 236 respondents, 55% expressed a desire to be contacted with a view to discussing alternative employment opportunities. When asked: “What are you looking for in a future position?” 27% said greater salary; 20% said better commission structure; 17% said they wanted to have their qualified appointments supplied; 15% said they would hope for a personal assistant; 14% said better administration support and 7% said they would be attracted by bespoke products.
Many practicalities will only be resolved after the FSA audit visits Andrew Reynolds is partner at Reynolds Recruitment Variance in the interpretation of which staff need which qualifications, training and monitoring is surprisingly wide. This appears to hinge on the specific duties of new employees and whether they are deemed to be providing advisory assistance.
The practicalities will be resolved after the FSA audit visits. These resolutions could be explosive in terms of staff reorganisation, retraining, qualification-led recruitment and replacement.
Many organisations with introducer networks have created compliance department structures with the initial focus on senior management personnel – staff with a close association with high-profile regulation, often with an MCCB and FSA background or links. These departmental set-ups are gearing up with compliance teams on the ground to manage business, introducing outlets in different geographic areas. The scope of these officials is still untested. It is too early for organisations with such regulatory commitments to calculate the logistics of evaluating individual firms and their need for training, reassessment and ongoing quality monitoring. This information will filter down with experience.
The FSA has learned from the experience of regulating the old financial services regime. In many ways the mix of business models is even more fragmented, with mortgage organisations ranging from the home-based sole trader to large brokerages. The focus adopted with mortgage regulation – concentrating on individual advisers and not on firms – is essential. After all, it is advisers who are the givers of advice, not corporate bodies.
Many organisations are leaving the fine-tuning of their regulatory commitments to the last minute. Specific requirements for many will only become painfully obvious after FSA visits. In the case of most firms with widespread intermediary introducer customers, this will mean a geographic reorganisation of audit and monitoring officers.
They will need to ensure every introducer is visited and screened within a reasonable timescale. Rigorous procedures will have to be defined to ensure revisits are regularly carried out. As a result, diagnosis of compliance procedural errors and shortfalls will be highlighted in potentially large volumes.
Organisations will then have to embark on a robust means of re-education and re-assessment.
The bar has been raised for mortgage advisers
Kevin Paterson is managing director of Park Row Independent Mortgages Since the implementation of N3, the date by which all mortgage advisers had to be fully qualified (December 31, 2002), the bar has been raised for mortgage advisers and in particular what employers are looking for when recruiting. With the onset of FSA regulation I suspect this trend will continue, especially as the death knell has been sounded for the CeMAP bridge paper in favour of a new range of exams to be introduced by the Skills Council after N4.
It's a given that advisers will place a greater value on their qualifications and will look harder at opportunities because of this, and firms will start to place a premium on experience and qualifications. However, this will come with a caveat. Under the fit and proper rules the process by which advisers are underwritten by firms becomes a lot more transparent and rigorous. Firms will expect advisers to match their expectations – something the mortgage industry has never really experienced before. This has been present in the investment side of the industry for some time and as a result the number of advisers has dramatically fallen by 60% to 70% over the past ten years and non-qualified advisers are now restricted to a handful of companies who still take on and train non-industry advisers. The barrier to entry on the investment side of the industry is now significant and I am sure the mortgage advice side will follow.
Golden hellos, lock-ins and attractive incentive packages will become the norm in an attempt to secure distribution in the new world but let's not forget we were all non-industry once so the real innovators will be those firms who can build custom-made distribution.
Non-industry recruitment, while potentially labour-intensive can be rewarding. Advisers who come into the business via this route tend to be more loyal and do not come with any bad habits and so can be moulded to the firm's requirements.
MCOB provides the scope for non-industry recruitment if you are brave enough to embrace it and put in place a process to invest in your business in the long-term – a fact I am sure that is not lost on a lot of firms who see higher recruitment fees as an unacceptable additional burden on what is going to rapidly become a thin margin.
Short-term cannibalism may help prop up the numbers but given the lead time of the business and the cost of recruitment it is a false economy and best avoided. After all there is just so much to go around and we can't feed on each other for ever.