Many established packagers are looking to expand their distribution by appointing satellites. Typically a satellite will be a small packager who wants access to a wider panel or a broker who wants an enhanced income. Tying into a large packager seems to benefit all parties. Is this the case?
Some packagers appear to be appointing satellites without performing any due diligence. A satellite is effectively using the master packager’s agencies but if the quality of satellite business is bad, the master packager’s reputation suffers.
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Many lenders, whilst keen not to miss out on the distribution opportunities, are anxious about the risks posed by satellites. They know the master packager very well, but may have little or no knowledge of the satellite. The overall risk becomes much more acute if the master packager has limited knowledge of the satellite as well. This is another reason for initial due diligence.
Lenders tend to be more comfortable where the master packager is able to demonstrate a reasonable level of control over its satellites. Due diligence, a legal contract, provision of effective operating procedures including a compliant complaints handling procedure and regular desk-based and field-based monitoring are all key elements in helping to demonstrate this control.
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The FSA has made it known that it would like providers and distributors to take much greater interest in the propriety of the people with whom they deal. Lenders permitting master packagers to grow their satellite packaging operations without having effective controls in place could be heading for a fall.
At GHL Group we have developed a satellite-packaging network alongside our regulated adviser network. Although the regulatory requirements and responsibilities are different, there are broad similarities allowing us to use a commonality of approach to both networks with due diligence and monitoring arrangements. This gives great comfort to our lenders and also indirectly to our satellites, who can be confident their packaging arrangements are much more secure than would otherwise be the case with a less stringent network.
Satellite packaging has a great future for those prepared to invest in the infrastructure. For those that are not, longevity is a distant dream.
Frank Thurlby is compliance director at GHL Group.
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