aul Munford has challenged Phis firm, Mortgage Centre IFA, to generate £6m in pro-fit in the next 36 months, after which time he will consider his next career move.
It’s a tall order, given that his firm – which is said to cater for the UK’s cel-ebrity and property elite – currently generates just £2.5m of profit off £15m of business.
Nevertheless, at the age of 42, Munford says the hardest part of the plan has already been completed.
“After the first £1m, it gets easier,” he says. “It would be harder to take the business from nothing to £15m than from £15m to £50m because we’ve got currency. We now have a strong balance sheet and can use this to acquire other businesses.”
And that’s what he’s doing – Munford is on the verge of agreeing the first acquisition in his firm’s 20-year history, previously preferring to grow the business organically.
He insists the move is part of his 36-month plan to maximise the value of the company, rather than in the interests of personal gain.
“There are a lot of people who own businesses just to earn a living out of them but I passed that stage a long time ago,” he says.
“I’m now in business to build the best company I can. Of course it’s also a financial thing because that’s how you’re judged and it’s important to keep score but ultimately, it’s about building what I call a financial services boutique.”
Munford explains that this means generating recognition from his peers and clients based on the success of the financial performance of his business, which is now 100% mortgage-based.
This is the antithesis of his motivation when he first ventured into the financial services market in the 1980s.
Munford makes no bones about the fact that it was the commission and yuppie lifestyle that attracted him to broking in the golden capitalist years of Thatcherism.
So in his “red braces, big shirts and pinstripe suits”, Munford set out to make his millions. This phase followed a management training stint with Norwich Union during which he worked in the commissions department. He says this is where he decided on broking as his route to success.
“In my first week, I remember that I was setting up commission cheques and one broker was getting £6,000 for selling a pension to one of his clients,” says Munford.
“Back then, I couldn’t comprehend that brokers got that sort of remuneration but from that day forward, I star-ted mixing lot more with the broker community.”
Munford’s ditching of his studies at Sunderland University (which was then Sunderland Polytechnic), his three-year management training stint at NU – he left after two years – and a short stint working at Winkworth es-tate agency all provide evidence of a man on a mission.
“You’re either a nine to five person or an entrepreneur,” he says. “When you’re 23, you have nothing to lose – it’s all about opportunity.”
For Munford, this opportunity came in the form of Marc Ahearne, a colleague from Winkworth with whom he founded Mortgage Centre IFA. The pair opened a number of dedicated mortgage shops on high streets across London, boosted by mailshots to build a customer base.
“Consumers hadn’t had access to dedicated branches before,” says Munford. “I’m not saying that we broke the mould but in those days, people either went to insurance brokers or direct to banks.”
He says the timing of the launch was key to his firm’s success. Privatisation had gained momentum under Prime Minister Margaret Thatcher and this resulted in an explosion of personal wealth, then considered by many to be synonymous with personal worth.
For Munford, this meant queues of prospective clients desperate to acquire homes. This appetite was satisfied by an influx of foreign investors, bringing with them a huge fund of credit to meet demand. Of course, access to this credit was provided by brokers including Munford.
“Back then, we had the combination of an affordable market, liquidity and more lenders with more credit available,” he says. “And we still had pretty lax application systems too. I remember that one lender never undertook credit searches and as a broker you’re always looking for loopholes – it was primitive.”
Munford’s firm is registered with the Financial Services Authority as an independent financial advisory firm and authorised to advise on all areas of the financial services industry, al-though he says his focus has always been, and will remain, on mortgages. This begs the question why he included IFA in the firm’s name.
“If you look at the tied advisers who were around at the time, they were with firms such as Allied Dunbar and Abbey Life and they were looked down upon – they were the poor relations of the industry,” Munford says. “As an adviser, it became important to show you were whole of market.”
That said, Munford’s firm started out as an IFA with financial planners but has since shifted its focus to mortgages, although its regulatory requirements remain the same.
“We’re still regulated by the FSA since we cannot deregulate to offer just mortgages,” says Munford. “That’s an-other issue for us to consider – we have to do all sorts of things from Retail Mediation Activities Returns to compliance checks. We’ve got to show we can do it but we want to be specialists in things related to mortgages.”
Munford’s target client base is more straightforward, with his eye set on high net worth individuals, hence the location of his office on Berkeley Street in the heart of London’s Mayfair.
He is in the process of setting up a second office on Dover Street, a stone’s throw from Berkeley Street. This will be the firm’s corporate office, focussing on commercial and investment business as well as overseas property.
The new office will also be used to support leads generated through the firm’s business-to-business relationships. For example, it is the sole broker on Premier Mortgage Service’s panel for commercial mortgage business.
But expansion has not come cheap – Mayfair is the world’s most expensive office location, costing more than £1,000 per square metre. Accordingly, Munford has just signed a £300,000 contract for his Dover Street office alone.
You have to wonder whether Munford could hit his profit target sooner if he moved his business to a less expensive area.
This is an argument Munford de-lights in, particularly given that his neighbour, confectionery giant Cad- bury Schweppes, has announced its in-tention to move out of its Berkeley Square offices as part of a £300m cost-cutting exercise, despite its £14.8bn market capitalisation.
That said, if either business has the better reason to remain in the heart of the capital its Munford’s, given its London focus, although the expense still seems hard to justify.
A prerequisite of the office expansion plan is a recruitment drive, which Munford is midway through. He plans to transfer five of his Berkeley Street staff to the new offices and recruit an-other five externally.
Again, his timing could not have been better. The vast number of people moving in the mortgage market over the past few months means he has not had to resort to headhunting.
“There’s a lot of movement of staff in this industry,” he says. “A common complaint is that firms’ goalposts, management and strategies are constantly shifting.”
The recruitment drive will be limited to 10 staff, due to Munford’s belief that the firm has an optimum size of 70, which he says it is fast approaching.
“Once you go much further than that it’s hard to keep hold of your culture,” he says.
This is why he has shunned a floatation as a possible exit route.
“The best people thrive in private, entrepreneurial environments,” he says.
“Look at John Charcol, for example. When it was bought by Bradford & Bingley it became more of a commoditised sort of operation.”
Munford says he had two approa-ches from stock brokers to float his business earlier this year, but dismissed them due to the size of his management structure. While he considers this to be at its optimum, he feels it is too small for a floatation.
He adds that his reluctance is also due to the image of IFAs, which he fears could deter investors.
“We’re not IFAs but it’s in our name,” he says. “There has never been a successful IFA on the stock market – they’ve all been disasters.”
Munford, who owns 100% of his firm, says he is reviewing its name des-pite his admission that the inclusion of IFA shouldn’t necessarily stand ag-ainst it in the event of a floatation.
“When considering what is needed for the next stage of a business, you’ve got to look at everything,” he says. “I’m 42 and the exit routes for chief executives running business are either selling or listing. You’ve got to look at how you sell the concept.”
So what would a prospective buy- er or investor get for their money? In short, a Mayfair-based firm that is fo-cussed on high net worth clients – but not City types who are “all hard work and lack loyalty” – specialising in all mortgage-related business for which Munford charges a 1% fee.
In terms of lenders’ proc fees, Munford says he has trail fee arrangements with a number of private banks. He adds that this is an approach more brokers should be encouraging from high street lenders.
But he dismisses his own ability, as well as the collective bargaining power of Concordia, to force lenders to en-gage in the trail fees debate.
“I don’t really buy into the Concordia thing,” he says. “I think it will fail to get off the ground. When you consider people such as PMS’ managing director John Malone and companies such as Legal & General are in the market, why should Concordia get better treatment than them?
“Also, there is no single person running it,” he adds. “It’s made up of people with differing vested interests.”
Investors should be mindful of the fact Mortgage Centre IFA is a specialist business which means that while its clients may get competitive deals and good service, they have to source their tax advice elsewhere.
Of course, this is a common business structure for most brokers but it’s a surprising one for Munford, given the time constraints that inevitably dom-inate the lives of his high net worth clients.
“You may say it’s disjointed but I call it specialist,” Munford says. “If our clients are going into any type of business – from selling sweets to cars to pro-perties – they should get proper tax advice, and this is not something we want to get involved in.”
Insurance is another market Munford steers clear of, hence his introductory arrangement with Lark Insurance Broking Group for clients’ valuables such as diamonds and works of art.
“Otherwise, we could find ourselves coming up against complex situations such as dealing with a client’s lost diamonds which, under the terms of their insurance policy, should have been in a bank but weren’t,” says Munford.
“We like to stick to what we’re best at, which is financing structures and giving our clients the best service in mortgages.”
So having spent 20 years perfecting the structure of his business, Munford will now focus on reshaping it in preparation for heading for his chosen exit route in 36 months’ time. It will be in-teresting to see if a rebrand prompts him to reconsider the initial public off-ering route.
Then again, if he hits his profit target and is subsequently offered a good price to sell up, it seems more likely he’ll scoop up the cash and continue to enjoy the entrepreneurial and lavish lifestyle to which he has become accustomed, well into his early retirement. l