The intermediated mortgage market, like the protection and general insurance (GI) markets, is often referred to as a people’s business. At a time when face-to-face contact with clients is being diluted by the introduction of improving technologies, which minimise that personal contact, it may seem strange to still believe the market is so strongly dominated by personal relationships. However this is definitely the case and few businesses can hope to succeed if they are unable to develop and manage their third party arrangements effectively. Indeed while the expanding use of technology may help facilitate the work that firms do, it is the underlying personal relationship in place between lender and intermediary that ensures the relationship can be maintained to the benefit of both parties in the long term.
The right people
Whether setting up a business or looking to relaunch something that is already in existence, getting the right people in to do the job from the start is imperative. Recruiting quality staff is an issue the mortgage market has struggled with for years. It has to fight strong competition from the banking, accountancy and insurance sectors for the pick of the graduates in the market, while more experienced senior management are always in short supply.
In a specialised arena such as the intermediated mortgage market, having the right experience at management level is essential and you only have to look at some of the new lending operations being established and the way in which they have sought to bring proven teams on board to get their businesses up and running.
Indeed, in putting together the management team for Freedom Lending’s launch two years ago, personal relationships with the individuals that were brought on board proved fundamental. Not only did it mean there was already a knowledge that a successful working relationship could be developed, but there was also an understanding of the individual expertise that each person could bring to the operation.
In looking to parachute staff into an organisation from their roles in other firms in the market it is important to try and do so in such a way as to avoid generating ill feeling. Freedom was lucky that many of the staff had been redeployed or had taken voluntary redundancy due to the changes that were taking place at Verso, from where they came. Starting a business up from scratch is difficult enough as it is, without having to contend with periphery issues over recruitment that can avert focus from the business in hand or sour relationships with third parties in the market at a time when they are trying to be fostered.
The right proposition
Before third party relationships can be courted, however, it is imperative to ensure the proposition with which they will be presented is right. It has to have unique selling points that offer something slightly different to what’s already available in the market and be packaged as part of truly compelling service that they will want to buy into.
In selling that proposition to the market, personal relationships again play their part and help in getting in front of the right people.
In reference to Freedom, it was imperative that the business established a strong distribution channel, given that it came to market without an external sales team. As such it was third parties that took the offering to brokers in the beginning, and without a proposition that distributors would be happy to sell into their brokers, it would never have got off the ground. The personal relationships in place may help in getting discussions up and running, but it is not a matter of calling in favours from colleagues and acquaintances built up over the years. It is about offering people something that will help drive their business and develop what they themselves are doing.
Over-zealous
In looking at their third party relationships many people are over-zealous in negotiating and push too hard to screw pricing and service requirements to the maximum. Clearly getting good terms on pricing and service is important, but at what cost? If a third party is left in a position where the contract is signed almost grudgingly then it does not make for a long lasting and amicable relationship. Any agreement with third parties should be mutually beneficial and anyone working under a contract they think short changes them will not deliver the type of enthusiasm or commitment for the work, which is crucially important to its success.
Having established a workable proposition and developed relationships with third parties it is then time to deliver. Empty promises are worth nothing and serve only to undo all the good work that has been done. The important point is to offer what is realistic and then stick to that. In time the offering or proposition can be developed as appropriate but at the start delivering the basics is what really matters the most.
In the mortgage market this more often than not boils down to being able to handle volumes as they grow. The temptation for any lender is to build volume as quickly as possible. However applications do not grow in a steady line if a lender has got its proposition right and can explode incredibly quickly. That is why the initial relationships that are put in place with distributors are so important. Rather than having a number of relationships that will be difficult to cater for if things go well, it is more beneficial to have fewer in place that will ensure volumes can be dealt with effectively should sales take off. If business does grow then others will want to get involved soon enough and it is better to be able to go to them with a lending operation that is running smoothly and offering great service than one creaking under the weight of the business flooding through its doors.
Indeed, even in times when there are problems, it is third parties that can prove so useful in finding the solution. If the relationship has been on a good footing since its inception and problems are raised quickly and openly then it is in both parties interest to work to a solution. It is also easier to find one when things are brought to the table sooner rather than later giving both parties time to see a way past. Too often in the commercial environment people believe that expressing a problem will be regarded as a weakness and that they have to muddle through themselves. Where firms have acted inappropriately or made foolish decisions there will be repercussions, but very few problems were ever made better by brushing them neatly under the carpet and hoping they would disappear. They don’t. They simply fester and crawl back out as bigger and uglier issues that are much harder to deal with.
Corporate entertainment
In maintaining and growing relationships with third parties, the mortgage market is certainly not afraid of corporate hospitality and it has its role to play. Certainly bringing people together can be hugely beneficial in discussing issues that are present both in the relationship and in the market more generally and helping third parties work more effectively between themselves can also be of real advantage. It also provides an opportunity to present the culture of a company and allow suppliers to meet staff and develop personal relationships, which may have previously only been conducted over the phone.
In looking to corporate entertainment it is important for firms to realise that it is not a substitute for a poor proposition. People are in business to make money and if the service and product they are being offered is no good, no amount of champagne will make them use it on an ongoing basis.
Third party relationships are the lifeblood of the market and are often based on personal relationships developed over many years. In setting them up and maintaining them effectively there is no real secret, just a need to be up front and genuinely determined to deliver on promises made. Like any relationship, they have to be worked at and have sufficient flexibility to deal with problems as they arise, but that flexibility only comes from building the trust up in the first place.
Colin Snowdon is managing director of Freedom Lending.
