As mortgage availability improves and last year’s concerns over the threat of dual pricing recede in the rear view mirror, some brokers’ attention (in the blogosphere at least) seems to be turning to anticipating the cost implications of meeting the MMR requirements when it is implemented next year.
Clues are already evident in the information that some lenders are now requesting to help them assess (and prove assessment of) affordability.
Some brokers are voicing concerns about how long it will take to collate that evidence for each client and the costs of the additional admin.
Others however are much more sanguine. These are the brokers who recognise that new obligations and increased costs are only a problem if they don’t result in increased value added. Value that can be charged on to clients.
Learning from the best
Among the thousands of mortgage brokers that The Source deals with, are some who have made weathering the numerous regulatory and market shocks of the past decade look effortless.
I thought it might be worthwhile sharing the best of the anticipatory MMR solutions we see emerging among them. If these illustrate anything, it is that the simplest solutions are often the best, and are often right in front of us.
Keep it simple. Don’t overlook the easy wins.
If you start from the premise that fee free mortgage advice is dead, and focus on how to adapt your business to make money, you’re halfway there.
It’s a path that has already been trodden by IFAs in the wake of the RDR and in many cases, made to work to their advantage… E.g. Greater leverage resulting in a larger share of the overall fee going to the IFA whilst still reducing overall costs to the client.
For many years I have advocated the value of all Mortgage Advisers charging clients for the knowledge they possess, acquired over years of experience, with trial and error in many cases teaching them things that no sourcing system will ever be able to teach. If ever there was a time for this type of service surely it is now?
Dealing with IFAs and Mortgage Brokers of all shapes and sizes gives us a great perspective on the different approaches being adopted and here’s one of the best of them: The three stage sales process
This is probably not, I suspect, a million miles away from what most advisers currently do but formalising it and placing a value on each stage can help adapt your business to the changing environment, I cannot take credit for this, we work with intermediaries and this is what many of the more successful ones are doing. I simply recognised the fact and understood.
The Three Stage Sales Process
Stage One: Sourcing
Helping your client to source a mortgage deal from across the whole market (not just the intermediary routes) is the starting point. Many brokers have shied away from this for fear of losing the case to a lender direct deal, but instead of fearing this outcome, embrace it by highlighting to your client that for a fee of say £149 you will collect all the relevant details from them and source the most appropriate solution from across the whole market including all deals, whether they are lender direct deals or not. Present their options in a nicely bound professionally produced report.
Stage Two: Placement
When giving the client a choice, they can simply take your solution (for which they have paid you) and make their own arrangements or they could place the business with you if it is an intermediary route (for which your fee is covered by the proc fee), or – you could offer the client a third alternative = a coaching facility with a lender direct deal.
Today most lenders are still looking for reasons not to lend, so a case would in most instances have to be presented in the right way to get through; clients are not necessarily best placed to do this themselves without help, which is where your coaching service comes in. You can ensure that they say and do all the right things, making sure they present all the right pieces of information and do not volunteer additional unwanted information that could jeopardise their case. You can help them to complete the paperwork and to understand what the lender is looking for including what pitfalls there may be.
The most Important part of this service however, is helping your client understand that they will probably only get one shot at this. Rejected applications are registered on the Hunter system as are previous credit searches thus reducing your clients attractiveness to another lender should they get rejected, for something that might well have unnecessarily stopped their application. A fee of £199 is not unreasonable for this service and whilst not at the same level as previous procuration fee levels, is, when combined with stage one at least a decent recompense for the time spent.
Stage Three: Protection
Your client will need one or more insurance solutions, whether this is buildings and contents insurance, life insurance, income protection or some other type of policy. This is a sourcing service you can provide which is once again paid for by the commission you receive from the insurer thus minimising the cost to your client and saving them time and money. They could of course reject this and source their own policy but as we all know insurance is not that simple and very often requires advice – something the price comparison sites can’t really provide.
Of course your client could simply reject one or all three stages of the service you offer but you will never know if you don’t try.
I recently tested this theory on a friend of mine who is still active in the mortgage advice sector. Interestingly he was already doing part of this, but after we talked it through he was excited about the prospect of extending his service proposition to take in the additional areas highlighted here. He resolved to try them out on two client interviews he had planned.
The following day I got an excited call from my friend to say that the new service worked like a dream and more importantly it made perfect sense to the client who was more than happy to pay for the expertise on offer.
Diversify by all means but don’t undervalue your core services
Much has been written about the need to diversify to survive and I would generally agree. Work your general insurance business, explore all the parallel opportunities like debt management and IVA referrals, and up-skill your permissions to encompass other areas of expertise like pension and investment advice.
Any of these can be great extensions to your business model, but don’t undervalue the core skills and expertise you have already built up in your business. Don’t undervalue yourself and your knowledge.
Kevin Paterson is managing director of Source Insurance