The Interview
“Getting more funding and competition
into the market for the benefit of our members and also the wider market is a key priority,” says Thompson. Smith nods in agreement. “Legal &
General investment management has a 4.5% or 5% shareholding in every UK company,” he says. “We manage billions of pounds. Our chief executive, Tim Breedon, pointed out that we have these relationships through our investment arm and we should be using them.” Consequently, the pair has met
and spoken to a total of 67 banks internationally and domestically. “We’ve been trying to leverage those relationships to bring new lending into the club,” says Thompson. “That went really well. We had several successes through those discussions, one big one being ING Direct. Ahli Bank – the United Bank of Kuwait - was another. That was a big focus for about six months and it remains an ongoing project.” Smith adds: “We’re confident now that
if sentiment does change, we have the relationships in place that mean people will pick up the phone to us.” Another aspect of designing the new
mortgage market is looking at the role of the intermediary. “We’re doing some work around the
role of the intermediary, looking at earnings per hour and trying to assess their value to the market,” says Thompson. “Pre-credit crunch proc fees were
obviously very varied and that’s flattened off as funding has declined. But we’re now almost at the point of saying enough is enough. When the market does recover, whenever that might be, lenders do need to be in a position to access the distribution they may need.”
Value of adVIce That’s the lender side of the coin but Smith is firm that advisers need to start valuing the advice they give their clients as well. “Coming over the horizon is the Retail
Distribution Review which will force the whole area of wealth management and the investment adviser base into a new way of thinking,” he says. “They’re no longer going to be selling products because there’s no commission. What
“IN SPITE OF A SHRINKING MORTGAGE MARKET AND A STILL SHAKY ECONOMY, SMITH AND THOMPSON ARE OPTIMISTIC ABOUT THE FUTURE.”
they’re selling now is advice and they will have to get consumers to pay for that value. “We’ve seen the beginnings of that in
the mortgage market but I think there’s still work to be done to convince mortgage advisers that they are providing something valuable. It’s not just access to product. It’s all about the serious commitment that a customer enters into when buying a mortgage and the responsibility they take on when they buy a property.” Smith is not alone in his thinking on this
subject – it’s been a hot topic across the industry with many brokers still feeling unsure about whether their clients will accept having to pay a fee. “I think the hurdle brokers face often
is down to where they’ve come from,” says Smith. “In a hugely competitive market brokers were very focused on rates. And because of the constant flow of customers coming in, they probably didn’t need to do a lot more than chase down the best rate for their clients. In that environment intermediaries may feel they aren’t able to get a fee for that service. It hasn’t been part of their nature.” But Smith points to some firms which
have been charging fees from M day in 2004. “They have complete confidence to
charge a fee,” he says. “They understand how to answer objections and questions from the client and they’re confident they’re providing good advice. Consumers ought to pay for that advice. The amount the lender pays the broker for selling a mortgage product, in our view, is adequate but you can’t live on it.” This view is based on research by
IMG Intermediary Census that showed the average mortgage case takes about 11 hours: three hours of interviews and eight hours of associated admin. Legal &
General’s average proc fee is £483 which works out at £44 an hour gross income. “When you consider that lawyers and
accountants charge in excess of £100 an hour, it doesn’t seem unreasonable to charge the customer fees to top this up,” says Smith. A move in this direction would help to
shift the intermediary market from volume focused to quality focused. It’s ostensibly the move from broker to adviser – and would improve the professionalism of the industry, Smith argues. “MMR doesn’t do anything that will
make it simpler for consumers, if anything it will make it more complicated,” says Smith. “The need for advice will be there. Already, despite the fact that you can apply for a mortgage online and over the phone, huge numbers of people start that process and then fall off it. They end up with a broker because they need help. It is a big complicated transaction.” Thompson agrees. “I think three years
ago there was a worry that mortgage completions would swing back to the direct channel but the numbers tell us that consumers still value advice and go through intermediaries.”
come raIn or shIne So in spite of a shrinking mortgage market and a still shaky economy, Smith and Thompson are optimistic about the future. Keeping a business afloat through the bad times isn’t harder than doing well in the good times as long as you think about what your strengths are and see change as an opportunity to innovate. Smith has an anecdote that fits this
attitude neatly. Ex tenebris lux. Out of darkness light. “It used to be emblazoned on the side
of the coal wagons in Yorkshire when I was a kid,” he says. “In a bad time is the opportunity to build your distribution and your network to give yourself a good footprint so when the market returns you’re very strongly positioned. That’s exactly what we have spent the past two years doing.” Whether the pair will need that iconic
brolly for further downpours or to shade their heads from some much needed sunshine, the point is they’ve got the brolly to hand either way. n
mortgage introducer FEBRUARY 2011 35
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