How often do members of staff attend appraisal meetings that are vague and ineffective at best and a complete waste of time at worst?
Only by taking a truthful and focused look at an employee’s performance can we hope to improve what they offer a firm and give them the support they need to successfully develop their own career.
The same applies at a corporate level and if we are to take a view of the future, then it must be a ‘warts and all’ approach. Otherwise what’s the point? How else can we look to negotiate the challenges ahead and take advantage of opportunities that arise?
Lenders and brokers in the secured loans market have done well over recent years in spite of the obstacles that lie in their way. One of the biggest issues for brokers in this market is establishing a model that can bear the brunt of the upfront costs of acquiring business, while converting enough cases to keep it sustainable.
Unlike other sectors, valuations, legal costs and searches all have to be paid for by the broker and when the cost of advertising and processing is added to this, every piece of business comes at significant expense.
When business is pouring through the door this is not a problem, but when things get more difficult then it is easy to see how certain models will struggle. There can be little doubt that things are getting more difficult and the secured loans environment is only going to get harder. It may not make pleasant reading, but unless we are frank about what lies ahead we will be unable to protect ourselves.
Dampening appetites
Since the Summer of 2003 the Base Rate has trudged up a steady incline and the rates for secured loans have risen in tandem. This has dampened the appetite of borrowers looking to take on extra finance and so affected business volumes.
Interest rates may have peaked, but there is no question of them returning to the historic lows we saw a number of years ago and the current uncertainty that remains in the financial markets has fed through into the consumer psyche and left many cautious of how they manage their debt.
We are also in a situation where lenders are more discerning about the clients they accept and the criteria offered is tighter than it was only a number of months ago.
There is no doubt this is as a result of the credit crunch and every lending institution is seeking to create lending portfolios that will bear up to scrutiny from investors and deliver profit on the higher cost of funding these institutions are themselves having to meet. The knock-on effect of this is that more applications are being declined.
There are also a number of factors that are set to put increased pressure on the market in the future. Payment protection insurance has gone through a sustained period of criticism and the Competition Commission is set to conclude its review of the market next year. This follows on the back of an investigation by the Office of Fair Trading and ongoing work that is being carried out by the regulator.
Downturn on commissions
The cumulative effect of this will be sustained and significant downward pressure on commissions and there is little doubt that this will have an affect on those that are paid by lenders in the secured loans sector.
Commission disclosure is already a requirement in some markets and for those selling secured loans it is already mandatory with some lenders. Whether this is through refined regulation or market pressure is irrelevant and in having to state their remuneration it is inevitable that brokers will see earnings whittled down.
Legislation impact
Come the New Year, there are going to be a number of changes put into effect regarding the Consumer Credit Act and there are two aspects of the changes which will be most pertinent when it comes to the impact they have on commercial enterprises.
The first is the increased amount of time that consumers will have to cancel their loan should they so wish. How this affects the number of cases which end up being cancelled during this extended consideration period remains to be seen, but it is very likely we will see more consumers decide they do not actually want to take on the loan once it has come through.
This is not to say that such an approach is incorrect, and consumers should be given all the protection they need to avoid being corralled into a product they do not want or cannot afford. The point is simply that brokers and lenders are likely to see the legislation have an impact on the amount of business they are doing.
The second big change revolves around the rebate that is given to clients for loans over £25 000. These loans have so far been unregulated, but that status will soon be consigned to history.
For those who wish to redeem their loan early, the maximum fee they will have to pay for this option is two months’ interest. Again this will work in consumers’ favour and no one would advocate that they should be punitively penalised when it comes to squaring off their credit. However it is very likely that the new regulations will change the nature of the product and see consumers use it for a purpose it was never intended.
Secured loans are there to provide long-term finance for borrowers. By changing the rules around loan redemption, it is highly likely that many will use the secured loan market to provide them with low-cost bridging finance and there is nothing that providers or brokers can do about this.
At the moment, a borrower redeeming their loan may have to pay up to six months’ interest with that being reduced to under two come the rule changes next year. Such a difference can equate to thousands of pounds and means that for brokers who have placed these loans, they are likely to end up being out of pocket on the business.
The UK has one of the most sophisticated consumer credit markets in the world and it affords excellent protection for borrowers. This is as it should be, but the worry is that by accident rather than intention, the regulations in place allow borrowers to use the market in a way which is not commercially viable to those providing the service. There has to be a balance and the desire for transparency and fair play for some, is likely to result in higher costs for consumers.
For those looking to survive and prosper in the coming months and years, introducing efficiencies to their operating model is going to be imperative. Put simply, this means using IT to good effect and implementing sales processes which deliver consistently high conversion rates.
Brokers must be able to effectively and quickly ascertain if clients can afford the loan, are serious about the loan and are seeking to take it out long term, if they are to generate business that is profitable.
As with any changing market there are also opportunities and the majority of these lie for master brokers in the secured loan market. There has been an influx of mortgage brokers into the secured loans space as they seek to develop new revenue streams, and for those who can provide them with fast, accurate and easy access to the products they need for clients, there is new business to be had.
But even master brokers will need to develop minimal, low touch processes to ensure the margins are sufficient for themselves and their introducers. There is no point cursing the changing trading environment we find ourselves in and many of the regulations being introduced will have a positive effect for consumers.
What we must seek to do is work within these new regulations and offer a service to clients, when appropriate, that makes them see a secured loan as a safe, trusted and effective option. Similarly dialogue must be kept open with the regulators to make sure the market remains a place where firms can realistically operate.
It is very easy to view some of the challenges ahead with a slightly depressed air, and make no mistake, their will be considerable pain. But those who position themselves now to manage the future will not only be able to ride out the difficulties, but will also have secured a front row seat to take advantage of the opportunities that arise.
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