Direct debate

Believe it or not but almost four years have passed since ‘Mortgage Day’ and the debate still rages on over the pros and cons of firms being directly authorised (DA) or an appointed representative (AR).

In those years since ‘M Day’ we have continued to see movement of firms from DA to AR and vice versa and there are still firms looking at switching their status as regulatory implications and the challenge of business continue to take effect.

Since regulation was introduced the FSA has cast a considerable shadow, in terms of compliance and procedures, over the mortgage market and given the flood of recent enforcement action news stories it certainly seems that it is now making a real show of its fight against tacking those working outside regulatory boundaries.


What is also clear is that the FSA will be undertaking a greater number of visits to ensure that all firms have ‘Treating Customers Fairly’ (TCF) initiatives firmly embedded into their business. It is evident that the messages being put out by the FSA are being heard and while justifiable enforcement action has been taken on those firms deemed to have broken the rules it is generally accepted that most firms do want to keep their regulatory house in order.

TCF is an integral part of all firms’ offerings but it is also as important to make sure that firms treat their own businesses fairly by ensuring that employees are fully qualified and have personal development plans in place. Current market conditions demand that maximising earnings from each and every client meeting should be a priority and having fully qualified, highly skilled and motivated staff will certainly help to achieve this.


Brokers need to adapt and evaluate how they are structuring their advice and sales processes. There is no doubt that borrowers are becoming increasingly financially savvy. More are using online search engines to aid them in their search for the best available mortgage deal which is ultimately leading the greater numbers placing deals direct. This is fact and as much as we may not like this or the dual pricing issues that we have been forced to cope with, the state of the market demands that we have measures in place to deal with these elements.

This is backed up by a recent report from the Council of Mortgage Lenders which illustrates that while intermediaries remain a vital part of the mortgage market they are seeing their share of the market erode slightly due to those borrowers placing cases direct to providers.

The report states that in the first quarter of 2008, intermediaries took a record share of the UK mortgage market, with over 80 per cent of first-time buyers choosing to visit an adviser. However, the proportion of potential borrowers visiting an intermediary has declined, with 77.9 per cent of first-time buyers visiting an intermediary in the three months to June 2008.

The proportion of home movers using the services of a mortgage broker also fell from 63.5 per cent to 60.8 per cent in the second quarter, while the most drastic reduction was seen amongst remortgagors, with just 64.7 per cent visiting a mortgage broker, compared with 74.6 per cent in the first quarter of 2008. These figures may not come as any surprise and certainly do not diminish the importance of brokers but they do further emphasise the need for directly authorised brokers to be in a position where they can truly maximise all their client interaction.


Brokers need to look forward and try to evaluate how their business model will sit if there is a further shift in lender attitudes to the payment of procuration fees. This means that directly authorised intermediaries who may have previously discounted the option of moving to a fee charging business model, should undertake a proper evaluation of this option and should not be dismissed out of hand. Brokers need to take the time to research how this will affect their clients and their business. It is an area that must not be ignored in the current climate and for forward thinking brokers it is one that has been looked at thoroughly and in some cases business models shifted accordingly.

DAs embracing technology will give themselves a better chance of navigating the troubled water of the current financial climate. For example a detailed integration between a client management system, sourcing engine, Key Facts Illustration generation, agreement-in-principle and electronic application and submission process can drastically reduce the amount of data entry that is necessary for an adviser when reviewing a client’s options on expiry of a product therefore saving on time and resource

It is important intermediaries look at all potential enhancements available – whilst obviously keeping an eye on costings and how these particular enhancements can add value to their business in terms of speed, efficiency and potential financial benefits.


Aligning themselves to the right partners and choosing these partners wisely is another very important factor. It is vital to have a good relationship and trust in these affiliations. It is not necessarily wise for brokers to put all their eggs in one basket but they should have a handful of close business partners with all the attributes needed to support and develop the firm. If there are other options out there make sure thorough due diligence is undertaken on those potential partners and it is important not to cut any corners or rush any decisions when doing so.

In a tightening market it would be remiss of DA firms not to look at their business from all angles, including overheads. They should ask themselves the questions that don’t necessary provide the easy answers. The obvious one is to look at employees and staffing levels. Is the firm getting the most out of the staff currently on the payroll? Are there staff development procedures in place? Are they working as efficiently as they should? Would a small investment in this development result in increased sales and efficiency?

There is also the location of the business to consider. Is the high rent being paid for a high street location really worth it? Is the business getting the passing trade that the price of the location demands? Are there any other makeover techniques that could be used to make the location more profitable?


The majority of mortgage intermediaries are certainly feeling the pinch in the current financial climate but there is still a great deal of support in the market for directly authorised firms in the form of trade bodies, mortgage clubs and a number of outsourcing opportunities. Flexibility and the freedom of choice are key to directly authorised offerings and such firms remain in prime position to explore new sectors and develop relationships with high quality business partners in order to gain access to additional income streams.

The market demands that, as an industry, we knock on doors to new sectors, evaluate all aspects of the market and in doing so new services, new revenue and new business alliances could spawn. Investigating how best to maximise ancillary sales is one particular area being looked at by many intermediaries but unfortunately is one that remains on the horizon for many more. In terms of generating extra revenue streams brokers must ask themselves if they are really committed to cross-selling services and products as this is not something that should be entered into half heartedly.

I mentioned the help and support out there for DAs and this is evident in a number of good mortgage club offerings that are available. At TMA we believe adding value to any broker’s proposition is of paramount importance. Being a member of a club should result in a sense of belonging and a real feeling of partnership between the intermediary, the club and the provider partners. It should offer a real sense of added value and in these uncertain times this reassurance and confidence could prove the difference between survival and success.

The current mortgage market may not currently be a bed of roses for DAs, or ARs come to that, but speaking on behalf of DAs it is certainly far from the bed of nails than some commentators would lead you to believe.