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another reason for it. PB: Knowing your broker panel is one thing but there are always other commercial and risk distribution limitations that have to be taken into account. RS: When you get to some of the very big boys as well you get into other considerations such as contractual discussions and debates.
LARGER NETWORKS AND CLUBS OPERATE TRANCHE MANAGEMENT WHICH ALLOWS THEM TO DIRECT DEAL FLOW TO CERTAIN LENDER SPECIFIED LENDERS AND DAS. HOW OPEN ARE THEY BEING ABOUT THIS TO MEMBERS? NS: We’ve not seen this from our panel. DC: I have heard that it’s happening but we’ve got a web-based tranche management system. There’s no human intervention there at all so we can’t say that we’ll put one brokers case in and not another’s. It’s very transparent, lenders can go in and see how much of that tranche is being used. PB: There’s no secret around the tranches. For example we work very closely with Legal & General and they work very closely with a number of specialists and special tranches of money and distribute as fairly as they can or in accordance to how lenders want it distributed. There’s nothing unreasonable about it. I don’t think individual brokers get to find out how much are in the tranches and who gets what. That’s not known at broker level, it’s known at lender and distributor level. LK: Certainly when BDMs come out and see us, there’s no mention of any special tranche or anything like that. Whispers were mentioned once but I couldn’t believe they were true. They wouldn’t want brokers knowing that, they just couldn’t release that type of information but we understand that tranches are there and that they probably will be there for as long as we’re broking. RS: Exclusives come on the same basis in a limited capacity. DC: In our mortgage club we have had products which are available to club
38 MORTGAGE INTRODUCER APRIL 2012
VIP members but not the rest of the DA market. There are lots of ways to do that.
WHAT ARE SMALLER INDEPENDENT ADVISERS SUPPOSED TO DO TO SURVIVE IN THE FACE OF THIS LARGER MARKET MOVE? NS: There remains scope for different business models. The small IFA who does pensions/funds/wealth and a few mortgages remains a perfectly valid business model. Granted it is getting to be a much more difficult model – particularly with RDR and MMR and the rapidly increasing cost of in-house compliance. It means that this model is under pressure going forward. But I believe that good advisers who run professional help services will continue. Some of those people thrive on independence.
WHAT ABOUT SMALLER NETWORKS WHICH ARE VERY WELL RUN THAT HAVE GOOD RELATIONSHIP WITH LENDERS, HOW DO THEY FIT IN THE BIGGER PICTURE? RS: They get gobbled up by slightly bigger firms. DC: I think they have to sell themselves. They have to sell themselves to a lender and perhaps have strategic partnerships with larger firms and sit under that
umbrella. It isn’t just about quantity, it’s quality. PB: If you can’t stack up on scale then you’ve got to stack up on all the other parts which a lender considers important. NS: Networks are difficult generally. If for a mortgage you get paid 40bps and the network pays to the adviser 38bps you can only afford 2bps of cost. So you need scale and volume to cover costs and make any money. PMS is a fabulous example of how this can work. But it is going to be harder and harder to provide extensive services at a low cost as RDR and MMR come into play. You will need scale to afford to do this. So smaller networks and networks that aren’t charging sufficient levy or properly charging compliance costs will inevitably get squeezed going forward.
IS IT GOOD OR BAD FOR THE MARKET IF WE GO FURTHER DOWN THIS ROAD? PB: Lenders do need to be a little careful on the basis that when the market does recover and it will, intermediary business will remain highly attractive from a cost and quality perspective and you’ve got to be able to have sufficient good quality business on board. DC: You don’t want to get to too few very large players. NS: We have the top six lenders doing 80% plus of the lending. Similarly in mortgages we have the our biggest broker distributors now doing around 70% of the lending so I’d say we are already there and the market seems to be working okay. I think capital will become increasingly important as only larger companies can afford to place
a large sum of money for regulated capital purposes. I think the big will get stronger and the rest will diminish over time. Look at the top networks and distributors now and they all have access to capital. These are scale players with scale backers. The industry will get more professional as a consequence because they must run their businesses properly - it is too important to shareholders not to.
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