I have been watching with interest for some time the interaction between some in the mortgage packaging community and the appointed representative (AR) networks with whom they have entrusted so much of their future prosperity. In the 18 months before ‘Mortgage Day’ many packagers were busy tying up appointments to most, if not all, of the network panels. The aim was to retain access to vast numbers of ARs who would now be told by their networks where they must place mortgage business. There is no doubt that access to these panels would be preferable, but in the long run I believe these marriages are a dangerous route for any packager to rely on.
Undoubtedly there have been some spectacular packager successes for a handful of firms, who managed to negotiate exclusive or semi-exclusive arrangements with networks prepared to strictly enforce the use of their panel by their ARs. This has given the lucky few a ‘captive audience’; although I do not believe such restrictions can be in the consumer’s best interests. However, that’s a story for another day. So what lessons can be learnt from the past year and what does the future hold for ‘network dependant’ packagers?
Two categories
Firstly, there are two categories of network – there are those who have put a panel together but do not feel the need to strictly enforce it or, more worryingly, in some cases do not have the proper systems and controls to police their ARs activity. The second group run a tightly controlled panel and strictly enforce its use by their ARs.
For packagers dealing with the first group of networks, the results from the panel appointment will clearly have been a disappointment. Far from being the gateway to vast increases in new business, they have proved to be little more than an avenue to maintain the status quo – still having access to the ARs but with no mechanism to stop them using whoever they wish. The packager has nevertheless been asked to pay higher proc fees to the network, provide detailed management information regarding business volumes, and face the threat from ARs that failure to comply with their every whim would be reported to the network in a bid to have the packager removed from the panel. Not exactly what you may describe as a massive step forward for the packager.
Assured success
So what of the ‘lucky’ few who managed to secure the exclusive panel appointments with the second group? Surely their success is now assured? Well, as I said earlier, in the short term at least, yes. But they too must beware. Consider these facts; we are told lenders would like to reduce the cost of their distribution, we know packagers make a healthy profit from their activities and also that networks are under constant pressure to increase their own profits. Finally, we know the properly resourced networks control distribution well and are fully aware of the margins available to the mortgage packager. How long before they decide they need to squeeze more profit from the packager or that they can make maximum profit by launching their own packager operation, as Personal Touch recently announced?
I believe Personal Touch is the first of many, and packagers who are closely aligned to certain networks are nothing more than a short-term stopgap. Margins will be squeezed, networks will be forced by their investors to increase profits and the easiest and softest target will be the packager. Many will be cast aside by networks in favour of their own operations and unless they have a broad alternative channel of distribution, I do not see how they will survive.
The introduction of regulation may not end up being the biggest threat to packagers. It is more likely to be the threat from networks that see the existence of panel-appointed packagers as nothing more than an obstacle to greater profits for themselves. To be sure of a long-term future, packagers must innovate and diversify.
David Wylie is managing director of c2-financial
