Understandably, there is a lot of consternation about the cost of living increases we’ve seen recently, with the added worry that we are just a couple of months away from an increase in energy bills and an increase to National Insurance contributions, which is likely to add further to an inflation figure already at 5.4% in December.
Essentially, we have already been warned that inflation has yet to peak, and we are not likely to see any dip in the cost of living throughout 2022 although the outlook is brighter for next year and 2024.
This of course impacts on the mortgage market in terms of affordability, and we’ve already started to hear rumours that lenders are readjusting their calculations to factor in the likelihood that borrowers’ outgoings are rising.
However, as we know, inflation isn’t just a consumer issue, it is one that advisers and firms grapple with in much the same way. Business outgoings determine what the bottom line is going to be, and you can write as much business as is humanely possible but if you are also overpaying for goods and services yourself, then it is going to be damaging to profitability.
Of course, budgeting is absolutely vital in that regard, and while advisory firms tend to be very good at assessing their costs, there can be a sense of inertia around certain services, subscriptions, etc., that you have always paid, even if you may feel you’re not getting much out of them. It’s definitely worth regularly assessing those and cutting them out or moving to more cost-efficient options if possible.
AR firms in particular have a major consideration to make around the networks they are part of and the charging structure they accept. The fact of the matter is that different network propositions operate differing fee structures, and they sometimes need to be considered carefully because they may not turn out to be as appealing as initially thought.
For instance, there has been some growth in networks operating a fixed-fee model, whereby firms pay upfront and individually for such things as PI or the technology used or compliance, and that fee is set in stone regardless of what transpires after those payments are made.
In effect these costs are paid upfront, and they might make a considerable dent financially to the firm, given that they are paid before any case has been written with the network. Even if you are super-optimistic about your business for the year ahead, it is still something of an unknown to be paying a fixed fee when you’re still unclear about the levels of business you’ll be doing. Carry out less than anticipated or targeted and those costs already paid for can seem even more difficult to stomach.
Now, this type of fee structure might be appealing to some firms because they are ‘getting rid’ of that cost at the outset, but sometimes those costs add up, and we often hear from ARs that the individual costs outlined at the outset as covering everything the firm needs, often don’t turn out to be quite as comprehensive either. Other fees are often required for other services – fees which often come as a shock to the AR firm.
However, one of the benefits of the network market in the mortgage/protection space, is that there are differing propositions offering different fee structures. I tend to call Stonebridge a ‘PAYE network’ because the fees we charge are paid as part of the ongoing productivity of the firm. In other words, as business is placed, the fees are being paid as a natural part of that, and our firms have full transparency about what is being paid at each stage.
This suits many firms because they are not having to shell out significant amounts of money before they’ve even written a piece of business, having to come up with all their network costs in one fell swoop. You can see why this fixed fee/upfront approach might suit a network, but it doesn’t really suit the AR firm.
When it comes to any of the costs that need to be met, it is always a powerful exercise to consider what you do pay, how you pay it, when you pay it, and whether that works for your firm. Particularly in the network space, where the costs are likely to be a significant part of your outgoings because of what you receive. Ensuring that AR firms get all the services they need is one important thing, but so is the way and amount you pay for those services. If it’s not working for you then it may be time to consider your options.
Lesley Sharkey is recruitment director at Stonebridge
