Shaun Godfrey is Group Sales Director Of Bankhall
It has been clear to me for some time now that there isn't enough cake to go round. Quite why so many potential networks have applied to become principals is a mystery to me. I can only presume that they have crunched the numbers and are confident they can launch an attractive proposition for brokers and make it pay. But I am not sure why any appointed representative would want to put their business at risk by opting for a principal without a proven track record or the necessary scale and infrastructure to deliver. Having said that, large is not necessarily always good but a strong capital base is key.
I believe that mortgage brokers are no different to any other customer in any other market in that they want a service that is better, faster and more financially attractive than they can get elsewhere. In all these respects it is the organisations with an existing presence in the marketplace that are best placed to deliver these key benefits.
However, this still leaves brokers with a long shortlist. While price will be a factor, there seems little to choose between networks' fees even though they may adopt different structures that can be irritating and make comparisons difficult.
The key attributes of those firms which will survive in the long run are:
Quality compliance support under the FSA regime: Brokers should be clear about what support will be available and how it will be delivered. Asking a potential network how many compliance officers it has is a good starting point.
Scale of distribution: It stands to reason that the bigger networks will have more clout with lenders and product providers and this will lead to higher proc fees for brokers.
Strong financial backing: Setting up a quality network cannot be done on a shoestring; it's an expensive commitment if done properly. Furthermore, brokers will want to avoid the hassle of having to change principals should a network fold.
Quality IT support: An effective IT infrastructure is key in order to meet FSA obligations in terms of accountability and reporting. It will also save brokers time and effort so that they can concentrate on looking after their clients and lead generation.
I have heard it said that the most important benefit that a small network can offer to a broker is a high level of personal service. But what does this mean in reality? Given the key attributes above, I would argue that the opposite applies – that it is actually the big players that can deliver a high level of service to brokers.
Choosing a network boils down to substance and one thing's for sure, we will see some familiar names fall away over the next couple of years.
Sally Laker is managing director of Mortgage Intelligence
I fear that even a cursory investigation by the FSA into the substance behind many of the so-called regulatory solutions currently on offer would reveal little more than a virtual network built on hot air and puffery.
The fact is, setting up a viable, long-term regulatory proposition is an expensive and time-consuming commitment and one that should not be taken lightly.
I also suspect that some networks are not taking a long-term view and are only in it for the financial gains associated with selling the network. I think they intend to cut and run as soon as they have built a membership base.
My advice to brokers is to take a long, hard look at what you are actually going to get from a network for your money before making a commitment.
Ask searching questions of its IT systems and its compliance infrastructure. Assess what clout it is likely to have with lenders in terms of being able to negotiate exclusives. Look at the size and breadth of its mortgage and insurance panels. Go and visit its offices. Look at its financial stability. After all, changing principals will be costly and disruptive.
While short-term special offers and discounted deals to attract brokers are fine, the fact that some networks are offering the earth for next to nothing in terms of standard fees also makes me sceptical about their long-term viability. Don't forget, they say that if something seems as though it is too good to be true, it's usually because it is. Brokers should make sure that they compare like with like as pricing structures can vary widely.
Having said that, competition for appointed representatives' business will be fierce and there will be good deals to be had. I also expect to see a strong aftermarket for switchers – those ARs who realise that they made the wrong initial choice because their network is not delivering against its promises.
Perhaps the networks with the best chance of survival are those with established brands and solid reputations – ones that are already known to brokers. People in all walks of life are inclined to favour those they know and can trust to do a good job as this reduces risk and uncertainty. That's what building a brand is all about. Therefore, without a unique selling proposition, the new entrants will find it tough to compete.
We live in a world of oversupply for most things and as in any market there will be winners and losers – as usual, only the strongest will survive.
I only hope that brokers are not too inconvenienced as market forces prevail and the networks that lack the necessary investment and infrastructure show their shortcomings and ultimately disappear.