The storm surrounding the Retail Distribution Review has been something mortgage brokers have so far been able to avoid.
With the RDR confined to the retail investment market – for now, at least – brokers have on the whole managed to steer clear of arguments about disclosure requirements, minimum qualifications and fee charging.
But although brokers seem to have sidestepped the implications of the RDR in the short term there may be unforeseen consequences. So where does the drive to raise professionalism among IFAs leave mortgage brokers? There’s a danger that as IFAs step up their game brokers will be left behind.
And then there’s the issue of age to contend with. Unfortunately, the adviser profession is an ageing one and this, when taken in conjuction with the fact that many of the intermediaries leaving the industry are not being replaced, makes for a pretty disconcerting picture.
But is there a case for an infusion of new blood into the market? It could be argued that the lack of business at the moment doesn’t warrant more brokers coming in.
“One of the issues right now is that because there’s not enough business to go round, the need for fresh blood is not screaming over the horizon,” says Robert Sinclair, director of the Association of Mortgage Intermediaries. “Most firms are struggling to hit their targets. At the point when we see more funding become available this may change but because we’ve got so many qualified people who were recently active and are likely to come back at some point, I’m not sure we need to fill that space.”
With the demise of direct sales forces the industry has lost an effective route for new entrants to get a foot in the door
But Jonathan Clark, mortgage partner at Chadney Bulgin, disagrees.
“We need to employ more brokers,” he says. “Clearly, business levels aren’t going to be fantastic for a year or so but they will recover and if they get back up towards 2005 or 2006 levels we will be short of brokers.”
Attracting new brokers has the added advantage of bringing a fresh perspective, where the shackles of the past are no longer an issue.
“With the broker market we need some people with fresh ideas, who haven’t got all the baggage of the ups and downs we’ve seen,” says Mike Fitzgerald, sales director at Emba Group. “These advisers will switch on their sourcing systems and see 2,000 products – they won’t know that once there were 23,000.”
But although a strong case can be made in favour of bringing in new blood it’s going to be a tough sell. This much is obvious, especially with recent polls revealing that the majority of advisers wouldn’t recommend their career choice to their children.
“It used to be a good career because you could earn a decent living out of advising if you put the hours in,” says Robert Winfield, managing director of Chartwell Funding. “Now you have to put the hours in just to earn an average wage so it’s not so attractive.”
That said, Winfield recognises that the mortgage industry could do with freshening up.
“We’ve still got a substantial ’silver surfing’ brigade who have been in the game for a long time,” he says. “They haven’t really evolved since regulation came in so I think there would be merit in getting rid of some of the old blood too.”
The trouble is that the traditional door to market for would-be brokers seems to be closing. In the past prospective advisers would learn their trade by joining a large firm – either a brokerage or more likely a bank or insurer.
The company would cover the costs of training and sitting exams, then recruits might move on to an estate agency before joining a brokerage. Nowadays there are fewer companies around willing or able to foot that training bill.
A campaign to bring new blood into the industry does not have to mean an influx of low-level employees
“Maybe over the next couple of years there will be more scope to take on employees but at the moment I’d imagine bigger brokers are not looking to take on employees on a substantial scale,” says Aaron Strutt, broker with Trinity Financial Group. “Instead, they’re more likely to be looking to take on qualified intermediaries on a self-employed basis.”
Winfield sees evidence of this too.
“The market is stagnating and will do for a while yet,” he says. “As we lose brokers we don’t necessarily replace them unless we can get people to come in on a self-employed basis. It’s something of a dying industry I’m afraid.”
Keith Richards, distribution and development director at Tenet Group, also believes that access to the market for prospective brokers has been hard hit.
“With the demise of direct sales forces, the industry lost an important and effective route for new entrants to get a foot in the door,” he says.
“The intermediary sector is predominantly made up of small firms and few now have the time, capital or infrastructure to recruit, train and retain advisers, which is exacerbating the situation.”
And as for the fledgling brokers who do manage to carve their way into the sector, Strutt makes the point they are likely to come up against all the same problems the rest of the market is facing.
“Getting good quality mortgage leads is the real problem facing brokers who want to enter the market,” he says. “Some of the most skilled brokers are having problems getting business and many of them have established client banks. More brokers are working in estate agencies and this is a good way of getting new business but it is difficult to see how anyone new will get a chance.”
Then there’s the problem of how to recruit in the first place. The obvious solution would be to flag up being an adviser as a career track at colleges and education centres, perhaps through bodies such as the Financial Services Skills Council.
Then there’s the possibility of a government-led initiative, although it seems unlikely the state of the advice profession will top the new government’s agenda after the general election.
And the same goes for any guidance that could be provided by the Financial Services Authority as a cloud hangs over the regulator’s future. But there are some training schemes available if you seek them out. Tenet introduced two apprenticeship programmes last year for mortgage and investment advisers with the help of the National Skills Academy for Financial Services.
The programmes were launched in partnership with Babington Business College in Derby, with government funding to provide work-based training for potential brokers.
Apprentices have to complete their professional qualifications and attend specialist tuition at Tenet’s training department in Leeds before being assessed on their work.
“This initiative forms part of our wider professional development programme which provides the structure and support required for everyone from industry new entrants to experienced and competent professionals,” says Richards. “Providing effective entry routes and career development to attract talented professionals is vital for the long-term success of the advice sector.”
But the mortgage market won’t be restored by new brokers alone – far from it.
Sinclair suggests that rather than bringing brokers in, the market as a whole needs to step up its game. The problem appears to be that while there has been development in other parts of the financial services industry this has not been echoed in the mortgage market.
“I was talking to an IFA the other day who told me that although there has been a quality uplift in the way investment providers operate their business he hasn’t seen the same level of improvement in the mortgage world,” says Sinclair.
“The investment sector has changed the way it does business but this IFA didn’t see any evidence that mortgage lenders are getting that much slicker in terms of the way they deal with him.
“Key Facts Illustrations still come out wrong, while lenders keep changing their rates and withdrawing products at a rate of knots,” he adds. “The adviser told me that he’s reached the point where he no longer feels comfortable dealing with mortgage lenders.”
There appears to be a widening gap between the propositions available on the mortgage side and in the investment world. When faced with an inefficient way of working for not much reward, it begs the question why fresh-faced graduates would want to enter the mortgage market.
Fitzgerald argues that fresh blood also needs to be attracted towards working with lenders to fuel more innovative development.
“We need more people entering the mortgage market as a whole,” he says. “It will brighten up the industry.
“We want younger people working at lenders, especially product designers who can come up with exciting and innovative ways of doing business. We need cutting-edge products, not just a new fixed rate every now and again.”
And Kevin Friend, strategic partnerships director at Mortgages.co.uk, says a campaign to bring fresh blood into the market doesn’t necessarily have to mean an influx of low-level entrants.
“We need to get a large amount of new blood coming in,” he says. “But where we most need new blood is at a higher level if we want to see genuine change. “New people have to be brought in at management level. Then the good guys who are left will be seen as forming the building blocks of the future financial services sector.”
Meanwhile, some argue that the key to building a vibrant advice sector lies not in attracting fresh blood but in concentrating on driving up standards within the existing broker community.
“I believe that quality must come before quantity,” says Lee Gladwell, business development director at Platform. “The focus of the industry must be on professional standards – more should be done to promote advice to consumers and raise the reputation of the sector. This would drive demand and increase the need for more brokers.”
Strutt says turning advice into a numbers game also introduces an element of risk for companies taking on new recruits.
“It should be about quality rather than quantity,” he says. “It used to be the case that brokerages were looking for numbers just to have more staff picking up the telephone. But if you take on brokers who don’t know what they’re doing there’s a risk.”
And Gladwell says that although having more brokers to choose from is good from a customer perspective, consumer choice shouldn’t derail the direction of the industry in the long term.
So everyone wants to see the mortgage broking sector perceived as it should be – an advice-driven industry that is trusted and a drive for quality over quality is evidently the way to achieve this.
But Fitzgerald argues that, while not chasing numbers for the sake of it, there is an urgent need for more brokers now.
“What we need is to get more brokers on board first, then go for a position of quality rather than saying we’ll only go for highly qualified brokers,” he says. “That could take 10 years. In the meantime where will people go for cheap life insurance? The answer is Tesco.”
Clark agrees that the time to inject fresh blood in the market is now. While IFAs are gearing up to be RDR-ready Clark says it is only a matter of time before the same requirements are brought to bear on brokers. And as we know only too well, more regulation could lead to an exodus.
“IFAs seem to be 10 years ahead of mortgage brokers but what’s happened in their industry is bound to happen in ours,” he says. “At the moment the lack of brokers is not a significant problem but the regulator is bound to want to increase qualifications for mortgages and that’s when we’re going to have a serious shortage.
“And by then it’s going to be too late to do anything about it because it takes a while to get new brokers in.”
But Clark admits that as much as they are needed, attracting brokers is going to be difficult, as would-be recruits will look at the short-term prospects and not see the career as particularly lucrative.
So while brokers agree on the need to attract fresh blood and drive up the number of people offering mortgage advice it is difficult to see how the idea can be translated into practice. Training schemes offer some hope and support to aspiring brokers but for the most part trainee advisers walk a lonely path, with few large firms ready to bear the cost burden of training them from scratch. It is up to the individuals to get the relevant course materials, sit the exams and pay for the privilege of becoming a broker.
In the meantime, the threat remains of an advancing IFA sector and a diminishing broker presence on the high street.
Unless the industry makes a concerted effort to develop the reputation of mortgage advisers as well as draw in new ones there’s a risk the mortgage broking world will be left out in the cold.
Broker firms must shape up if they want to win the battle for talent
Bob Hunt, Chief Executive Paradigm Mortgage Services
The comparison between mortgage broker and IFA competence is often made, and in general terms intermediaries could be left feeling like second-class citizens when it comes to the esteem in which their profession is held.
Many attempts have been made to get fresh blood into the mortgage broking sector and no doubt during the boom years the number of advisers held steady. But we have seen a significant fall in numbers in the past few years, and with the onset of the Retail Distribution Review and attempts to ensure greater professionalism in the IFA sector there is a danger that mortgage brokers could be left behind by their IFA peers.
In an increasingly controlled market it is reasonable to assume that where possible the regulator will seek to establish a level playing field and a higher level of competency across all advisers.
IFAs have had many more years of regulation than their mortgage counterparts and are generally in better shape to cope with the Financial Services Authority’s requirements for minimum professional qualifications. Brokers should take heed and at least consider benchmarking those who work in their businesses.
Attracting new blood will be tough for any firm that is offering only mortgage advice at the moment
This will be particularly necessary if businesses want to attract bright and intelligent new blood into the industry. We should remember that mortgage firms are not just competing with IFAs for talent but that there will also be a raft of other careers vying for the attention of the same people.
But can practitioners afford the investment required to bring in new blood at the moment, and if they can where will they find these bright young things? Well, they could tap into the growing number of academically gifted people leaving university with no job to go to, but if they do they must weigh up the pros and cons for their business.
Attracting new advisory blood is likely to be difficult for any firm offering only mortgage advice at the moment. It is becoming standard practice among many brokers to cross-sell life, buildings and contents insurance, all of which offer significantly improved renewal commission terms.
Just as importantly, such sales can help in developing sustainable client relationships rather than simple transactional practices.
Conveyancing, will writing, overseas mortgages and other related opportunities are all areas that require increased knowledge. A firm will look much more attractive to recruits and buyers alike if it does not have all its eggs in one basket and offers a professional career path that has training and qualifications at its heart.
Housing market revival is leading to an increased need for brokers
Charles Haresnape, Group Mortgage Services Director
Connells GroupAlthough volumes in today’s mortgage market bear little resemblance to the peak of 2007, steady year-on-year growth is on the cards going forward. During this time interest rates are likely to stay historically low which is good news for the purchase market, while gradual increases to the Bank of England base rate will boost the remortgage market in the medium term.
In 2010 the reviving housing market will contribute to the growth of the mortgage sector. Our figures are encouraging so far this year, showing a marked improvement in the desire to move home. This is reflected in rising levels of new seller instructions. Comparing Q1 2010 with the same period in 2009 we see 25% more individuals putting their properties on the market and 70% more first-time buyers showing an interest in getting on the property ladder. In contrast, the remortgage market remains at a low ebb.
Growth is now happening so it is inevitable that new blood will need to be recruited into the mortgage market. Intermediaries who had to reduce costs and staff numbers in the downturn are now gearing up for growth once more.
Broker firms that had to cut staff numbers in the downturn are gearing up for growth once more
Indeed, at Connells we are in the process of recruiting a significant number of additional mortgage consultants in response to green shoots in the mortgage market and increased demand for these services in our branches across the UK.
Clearly, attracting the right calibre of brokers into our business is going to be a priority during this period. We might also bear in mind a recent Platform survey which showed that ease and convenience were the main customer requirements, over and above finding the best deal.
But looking at the market as a whole, we can’t simply talk about what needs to be done to attract new blood, nor should we be looking exclusively at quantity. In today’s mortgage market the focus needs to be on getting the right people in place and making sure they are close enough to the property market to be able to provide rounded advice to customers.
It will be interesting to see if there is an influx of broker businesses or whether already strong providers will simply get stronger. Finding new customers will put many new entrants under considerable pressure, especially in the short term as they will not be able to rely on remortgage and sub-prime income. For that reason brokers working in or in association with estate agents seem best placed.
In the next year or so success will be linked to an improving housing market which will be supplemented in the medium term by a returning remortgage market.
Training recruits is too costly
Peter Brodnicki, Chief executive officer, Mortgage Advice Bureau
The mortgage industry needs new blood, and urgently. We are told that the average broker is edging close to 50 years of age and this alone should be a warning that something needs to be done to attract a new generation.
Of course, this is easier said than done. The cost of training raw recruits, authorising them with the appropriate qualifications and ensuring they have ongoing support, development and access to decent lead sources is high.
At a time when spare cash is thin on the ground it’s no surprise that this area of the industry has suffered in recent years.
For large retail banking groups, with their extensive infrastructure and financial strength, training recruits is not such an issue but there’s no question that small to medium-sized broker firms are struggling to take on trainees in the current climate. They are simply too much of a cost – and they come with a long payback period.
When new blood is required, going for experienced brokers who can hit the ground running is the most viable option right now. It also carries less risk as there’s nothing worse than training recruits only for them to be poached by a competitor with deeper pockets.
Going for brokers who can hit the ground running is the best strategy at the moment
Focussing purely on mortgage advice is also becoming less commercially viable. Small broker firms and one-man bands with low overheads may be able to survive on mortgages alone but many companies are finding they need to broaden their propositions to boost their revenue stream.
For many experienced brokers this has always been the way – they originally trained as life insurance salesmen and mortgages were just one of the products they could advise on. In other words, they were skilled financial advisers in the first instance rather than primarily being mortgage brokers.
But the present generation of brokers have not been trained to see clients as customers for life and are less aware of what servicing clients means.
Intermediary firms will need to be more adaptable and multi-faceted to attract the best recruits. While a small number of brokers are still earning good money, average earnings simply won’t attract trainees of sufficiently high calibre.
The firms that will attract the best advisers will be those with efficient systems and processes, strong marketing and individually tailored development plans for their advisers.
In turn, recruits will have to show ability and adaptability if they are to be hired by progressive advisory firms that are embracing change and remain firmly focussed on understanding the way business needs to be done in the future.