Maybe it is stating the obvious that lenders need intermediaries, but so much of their business comes from them. You only have to look at the success of various distributor models to see that lenders also need assistance from many business types (mortgage clubs, networks and packagers) to distribute their products effectively.
I often wonder how many warning shots the Financial Services Authority has to fire before some people take any notice. Even publicity surrounding FSA fines does not change some organisations’ behaviour, just as publicity over compensation for mis-selling has not stopped others.
But if there is one product intermediaries should heed the warnings about, it is lifetime loans. The recent letter from the FSA to intermediary firms arranging lifetime loans should be seen as a wake-up call to the whole market.
You do not need a very long memory to recall the BBC Cook Report taking a major UK lender to task, and the eventual fall-out and compensation claims.
You don’t need a long memory to recall the many regional building societies which were nearly finished off by an excessive amount of lending to elderly couples on home income plans which eventually collapsed, leaving the customers with no means of making repayments or paying off the loans.
Since one of the statutory duties of the FSA is to maintain financial stability, its most recent warning about lifetime loans is hardly surprising.
The potential market for lifetime loans is huge, but no-one at the FSA would want to be the one to explain why the economy was collapsing and social security funds failing because of large-scale repossessions of elderly people’s homes.
It is reassuring that the FSA has been so proactive over this and I applaud its recent letter to all regulated firms arranging lifetime mortgages.
Its insistence that “there is no place in this market for firms that do not develop the necessary skills and do not implement appropriate systems to ensure they give suitable advice” is a wise warning on such a complex product. But if its advice is heeded, there are major consequences for ” Do lenders and distributors have the gumption to move from ‘order takers’ to professional key account managers?”intermediaries and lenders. Firms need to consider the key issues raised in the letter, and it might be the best course of action to refer this type of business to a specialist company.
While this sounds sensible, it has wider implications for appointed representatives rather than directly authorised firms.I have always argued the major benefit of being a DA firm is the ability to choose your own destiny. DA firms are free to assess the market, identify any knowledge or process gaps, and either train and reorganise to close the gaps or make a commercial decision to pass on the business.
Who makes the ultimate ‘fitness’ decision for an appointed representative? The network principal. And while some principals might make the decision on a one-to-one basis, others might think the risk to their business in respect of possible fines or compensation as a result of their ARs’ activities is simply too great.
Under agency law, once a principal has made such a decision, their agent (the AR) has to follow it. In how many other high-risk areas might principals make similar decisions? You do not have to think for long – how about self-certified loans to employed people, buy-to-lets to inexperienced borrowers, semi-commercials or income multiples above 4x? The list could go on.
In a market where the number of distributors is reducing, lenders have to think strategically. They will have to become more professional in their approach to account management and recognise that their key accounts are customers in a business-to-business market.
Good key account management is more than just a ‘one-to-one’ relationship with a business development manager. It involves, among other things, joint research and development, a collaborative approach to the market, joint business and marketing plans and shared training and resources.
It is only with this level of professionalism that the objectives of the FSA and the business needs of lenders and intermediaries will be achieved.
In a market where major suppliers have seen exponential growth both in terms of volume and new niches, the key question is do lenders and distributors have the gumption to move from ‘order takers’ to professional key account managers who work together to ensure the consumer’s needs are satisfied?
By Nick Baxter, director, Mortgage Promotions