I have been to numerous industry events over the past few months and there has been just two subjects on everyones’ lips, namely key facts illustrations (KFIs) and the effect on networks of the apparent ‘loss’ of some 3,000 or so MCCB-registered mortgage firms.
So, as the KFI issue has been flogged to death, I will swiftly move on to what is possibly of even more concern; the probable (not possible) demise of many would-be mortgage networks.
Scores on the doors
The FSA’s recent announcement of application and authorisation numbers showed similar figures to that of its prior statement a month or so ago. These showed a surprisingly high count of direct authorisations and ‘variation of permissions’ (VOPs) totalling nearly 7,000 firms or, perhaps more interestingly, over 60 per cent of those registering with the MCCB for the last time in April 2004.
This then leaves just 40 per cent or approximately 3,000 firms of that same MCCB number which will fall to the remaining outlets of the market including;
Appointed representatives (ARs).
Introducers.
Leavers.
Speculation
So, why have more firms apparently elected for direct authorisation (DA) or a VOP than was previously thought? The speculation of the final balance between DA and AR has been heavily discussed from the outset. Early views were that the AR route would be of greater attraction due to the risks of being directly regulated and the costs associated. However, as successes began to mount against the regulatory overkill of the FSA - primarily through the efforts of AMI - the pendulum began to swing towards more advisers taking the plunge into direct authorisation. This was primarily due to the self-determination of independence. Certainly, many smaller mortgage brokers who are also IFAs have elected for a VOP. They are clearly confident that knowing the nature of the beast is half the battle.
But, in this debate the great unknown was always going to be the final count of firms who would continue to trade and their guise. Even now, at this late stage, we simply have no idea where the 3,000 firms will end up. The majority will clearly elect for AR status but just how many will decide that introducing is a simple route through all the paperwork or just depart the industry is anyone’s guess.
Negative impact
What is clear is the negative impact that the low number of AR applications has had on the networks. If business plans have been calculated with a critical mass in mind then there is going to be a great deal of re-working of numbers going on as you read this article. Even a much reduced count of say 3,000 AR applicant firms is perhaps some 40 per cent down on the expectations from just a few months ago and as much as 60 per cent down on early projections. A business can only spread itself so far and already we have seen early signs of strain, invariably driven by the financial impact of too few AR applicants.
So, if there are any would-be ARs reading this article I would strongly suggest that the critical question now to be answered of a prospective network has to be that of its financial strength. All other issues fall by the wayside unless you can be assured of the network actually being in existence in six month’s time. So do your research carefully.
Looking ahead
And, as a look into the future I believe that, as per the IFA industry, financial strength will remain the driving force behind the shaping of the mortgage equivalent. Small independent practitioners will always be able to craft a living but it will be the big guns of consolidated ‘mega-distributors’ that will dominate the market. This means a massive fallout from the 100 or so network applicants to, perhaps, less than half that in just a year’s time with further consolidation thereafter. The reasoning is obvious; running a profitable network does not come cheap and it is a fool who thinks otherwise. There is no short-cut to this and the FSA will make no allowance for any mistakes. It is their credibility that is also at risk.
I would therefore make a call to those networks who are looking down the barrel of a gun and have not yet made a decision on their future, let alone a public statement as to their quandry. No one will feel hard done by or lay blame if hands are held aloft and defeat accepted. However, please remember you are dealing with the livelihoods of many hundreds of advisers who will not necessarily be able to cope financially with being out of the market for a month or so when you do finally call it quits. We still have two weeks to go until ‘Mortgage Day’ so isn’t it better for everyone if the medicine is taken sooner rather than later. Having been caught in this trap myself some years ago I can assure you that you will receive no thanks for delaying the inevitable.
Mark Mountney is managing director of Premier Mortgage Management (PMM)
