Brokers are beginning to question whether networks are offering value for money, and what they get for giving away slices of their commission.
Writing for Mortgage Strategy last week, Lentune Mortgage Consultancy managing director Stuart Gregory questioned whether mortgage networks care about their members.
He said: “What other industry would accept another company taking 10 per cent of your gross earnings – commission and client fees – in addition to fees you already pay them for the compliance and support service?
“If networks want to remain sustainable they need to evolve; that means looking at what other networks are doing, comparing themselves and improving their proposition as a result. Some, it seems, are happy to live off past glories, do nothing and expect their members to accept everything they are given – which may not improve year-on-year.”
Emba Group director Mike Fitzgerald says there is a growing disillusionment among brokers about the value networks add for the money they take.
He says: “Networks have quite a lot of power, but never seem to combine as a group to lobby for their members. They take the money, and they give our brokers commissions, but that is about all they do.”
Fitzgerald is seeing more and more brokers reassessing the benefits of being an appointed representative, and choosing to go directly authorised instead.
He says: “I know quite a few brokers are looking very carefully at what their networks are doing for them. Networks seem to be putting their own spin on regulation, and what they think the rules should be.
“For example, some networks don’t like their brokers doing two-year fixes and insist they should do five-year deals instead. They are almost acting like a super-FCA.”
Fitzgerald adds: “I know networks have to protect themselves but they are taking compliance a stage too far. Unless they start doing a bit more for their members, there will be a slow drift away.”
Perception Finance managing director David Sheppard takes a different view. Sheppard still sees the value in networks, thanks to the support they can provide with things like IT and compliance.
But he argues the real issue is when brokers decide to move networks. Having moved from Pink to Homeloan Partnership recently, he describes the moving process as “horrendous”.
He says: “Moving network is probably the biggest struggle any business can go through. Everything was frozen with Pink straightaway, so we were continuing to trade with no revenue at all, just eating into our savings and reserves.
“There needs to be a significant investigation of the ability to move from one network to another, and that needs to come from the FCA.”
Sheppard argues although it is important to assess whether networks are delivering value for money, this can be measured in different ways.
He says: “You can argue that a network holds quite a lot of money against what brokers write, but for me there is a need for a strong, healthy network sector as well. You don’t want it to be living hand to mouth when a big professional indemnity claim comes up and leaves networks and ARs with no money at all.”
He admits the network model could work better, but also says when quantifying the value of being in a network brokers need to think about how much extra work could be involved in going DA.
Which Network director and network consultant Gary Watts says some brokers who have gone DA are now returning to the network fold due to the increased compliance burden following the mortgage market review.
He says deciding whether a network is right for you can depend on the network itself.
He says: “Certainly we are not seeing masses of people looking to move, but what we have found is if you have an network which is IFA-based, they’re coming at it from a point of view of the compliance they need to support that side of the business, rather than the mortgage element.
“Take Sesame as an example, it just seems really unstable to brokers. If you went back two years it was almost all IFAs, but now that’s completely crumbled, and yet it is still being run with the old uber-cautious compliance regime.”
A Sesame spokesman says: “We are very bullish about the outlook for our mortgage business, which remains absolutely central to our group’s future strategy and has the support of our parent company Aviva. Our experienced team is committed to continuously improving the range and quality of services we offer to ensure our members have all the support they need.”
It never fails to amaze me why people become appointed representatives when even a large brokerage can buy in the whole compliance function and have it administered properly, by a third party, for a small fraction of what they pay to networks.
In addition, the networks negotiate overrides which are very often hidden and dictate who the agent can do business with and who the agent can’t. How can an agent give best advice if the network tells him (or her) that they cannot deal with a particular provider. Flying in the face of this article of course we see networks saying that they are making a huge loss and hence they put in their fees up. No doubt, there are some fatcats drinking the cream which is being bought from the milkman by the lowly appointed representative.