It doesn’t seem very long ago when certain voices in the press all but had the packaging industry dead and buried. Others of course argued that the entrepreneurial spirit and energy that fuelled the rise of the packagers in the first place would help the best of them to re-invent themselves and, indeed, this is exactly what happened.
Research by the Intermediary Mortgage Lenders’ Association (IMLA) has shown that 81 per cent of packagers experienced increased volumes of business in 2006. As recently reported by Godfrey Blight, IMLA director: “Packagers clearly think their sector is in good shape. The largest proportion of respondents – almost 60 per cent – reported that business increased a lot between 2005 and 2006. 22 per cent said it grew to a lesser extent.”
Packagers’ views of how they add value to advisers matched closely those of intermediaries in IMLA’s recent survey of brokers, with support for difficult cases mentioned by eight out of 10 respondents and access to several lenders and knowledge of providers mentioned by six out of 10.
Another facet
Now we’re seeing another facet of packager evolution, with the emergence of the satellite packager. Like most good ideas the concept is simple – a packager goes out to a larger broker and opens up packaging rights to them. The resulting satellite then gets products – often exclusives – enhanced technology, any marketing promotion the parent packager may be running and, of course, increased fees.
Ian Balfour of Solent Mortgage Services believes that satellites are a valuable business model. He explains: “Satellite packaging has been with us for some time and at SMS we have a good spread of satellites, both B2B and B2C, who are able to offer products and services that they would not ordinarily have access to.”
“Satellite packaging has evolved over the past few years and is now becoming an intrinsic part of the intermediary mortgage market with a number of national packagers offering a solution to the marketplace,” says Doug Hall of 3mc. But while enthusiastic about the concept, Hall has reservations about the term ‘satellite’. He explains: “The word implies that an entity is dependent upon another and by definition may be a smaller organisation than the lead packager. Satellite packaging should be seen as a partnership and not one firm dependent upon another and, as such, a firm undertaking satellite packaging should be seen as a ‘mortgage distributor’ and that alone.”
These mortgage distributors or satellites, whichever term you prefer, fall broadly into three types of business model – packagers that already package, brokers who produce high volume business and those national packagers who are looking for access to restrictive lender panels.
“Packagers that already package have – and will continue to offer the market – a personalised service and they may well have negotiated lender exclusives,” says Hall. “Intermediaries providing volume business could, and should demand a greater control on the processing of business generated. Finally, those national packagers wishing access to restrictive panels are looking for lenders that they may well not be able to gain access to due to the distribution model of a particular lender.”
A national packager looking to support satellite packagers should have the infrastructure to offer a solution to all of the above three business models. The relationship should be very much a partnership and typically the satellite should expect benefits including online application submission, online case tracking, offers produced on-site, ‘plug in and play’ packaging software, lender credit search facilities, a dedicated packaging team, enhanced mortgage distributor fees, access to restrictive lender panels and a panel management service for valuations at reduced cost. This list isn’t exhaustive, but should form a minimum requirement for satellite packagers when forming a relationship with a national packager in return for the extra work involved.
A robust concept?
But what part does this new entity of satellites really play in the distribution picture, and is the concept robust enough to stand the test
of time?
Some would say that rather than adding value, satellite packaging is merely a different way of securing distribution. “Yes, it does secure distribution, but this is not in opposition to adding value, it’s part of the added-value proposition for authorised firms,” says Tristan Pile of Complete Mortgage and Loan Services. “Satellite packaging does add value to the distribution process, for both the main and the satellite packagers. It gives the satellite packagers more control over timescales and this helps them to form stronger relationships with their clients and introducers. Because they are doing more work, they get paid more money. At the same time, the main packager can do increased volumes without having to grow its employment base, which strengthens relationships with their panel lenders.”
While there is widespread enthusiasm for the development of a satellite sector as a permanent feature of mortgage distribution, it won’t necessarily be plain sailing.
“The problem for the industry is that there are responsibilities that are in a lot of cases just not being met,” warns Balfour. “We insist on a proper training programme before any satellite takes on a relationship with us, regardless of how experienced they are. What tends to be forgotten is that living as we do in a regulated world, our relationships with our lenders are not just guided by the volume of business we generate. We have a contractual responsibility to ensure all our satellites are up to the job of packaging in a way that is consistent with the high standards that our lenders expect.”
The point is that to ensure a credible sector, those national companies offering satellite facilities must be careful to ensure that they continually assess their satellites to check that the job is being done compliantly to an agreed standard. Their systems and processes should be congruent with the host and they should be able to demonstrate clear systems for auditing business. If these commonsense safeguards aren’t in place then it’s inevitable that the whole satellite packaging sector will sooner or later find itself under very close scrutiny.
As Balfour observes: “Offering satellite packaging comes with obligations and unfortunately some providers are offering neither value nor guidance.”
‘Satellite arrangements do need controls in place,’ agrees Tristan Pile. ‘At Complete we have a Satellite Packager Manager who oversees the whole process. Full references are taken, and an application is made to the lenders for whom the new candidate will package. Lender training and on-site training from Complete then follow, and all satellite packager cases are subject to a quality control system. The relationship is formalised in a satellite packaging agreement, which also sets minimum business volumes.’
Realistic figures
Another interesting question for the satellite sector is how many satellites could ultimately appear in the marketplace. Clearly this is dependent on the number of national packagers offering the service, and the number of satellites each of those parent packagers can realistically support.
‘We don’t operate a numerical minimum/maximum number of satellite partnerships,’ says Tristan Pile. ‘Instead we’re careful to make sure that our arrangements are a good fit for the business model of any prospective satellite firm. We currently have 17 lenders that have agreed to Complete’s satellite arrangements. Each satellite will choose the lenders they want to package for, some opt for all thirteen and others only four or five, depending on the type of business they do.’
It’s perhaps typical of an industry that is now changing with unprecedented speed that while the satellite model is still in its infancy, an evolved model is already emerging – the franchised packager brand. This would be offered by a large, successful packager to smaller packagers who may be feeling the squeeze as some lenders rationalise their panels. Under the franchise arrangement, the smaller packager benefits from the strength of the larger brand and maintains an open channel to a large lender panel. An added attraction of franchising is its flexibility, in that a franchised business can elect either to be directly authorised by the Financial Services Authority or to become an authorised representative of the parent packager network.
In the IMLA research, nine out of 10 respondents cited the most important benefits for mortgage intermediaries of dealing with a packager as the support they provide for difficult cases and their knowledge of lenders products. With the rise in the numbers of difficult cases appearing in the marketplace it looks clear that the role of the packager is secure for the foreseeable future. Perhaps the parent or satellite model will be the face of packaging going forward, provided those all-important controls are in place. Or will franchising be the preferred development? We’ll just have to wait and see as, once again, packaging re-invents itself.
