A few years ago, a member of our team approached me with an expression of concern and worry: “Check this out, I think we’ve pissed someone off”. Really? I thought, what’s new about that? Let’s take a look… ah; it’s a fax from a mortgage network (one that shall remain nameless) and it went along the lines of:
Dear Y3S
You have been calling our appointed representatives touting secured loan business, which is against the terms of our contract with them. If you do it again we’ll sue you.
Kind regards
Mr Nameless
Nameless Network
Well, I thought, better put a ‘closed’ sign on the front door and switch off the lights. But of course that would be silly, so instead I filed the letter accordingly – in the bin.
Later on that day, I decided to retrieve the letter and pick up the phone to speak to Mr Nameless. “What’s the big problem?” I asked. “We know you’ve transacted a secured loan introduction that came from one of our ARs and received commission for it, and passed some of that commission to him. This contravenes blah, blah, blah…,” I waited patiently for the science bit to finish.
It was clear that this person had either just left school and had been wrongly appointed to a senior role in a network instead of the advertised role of tea boy following a CV mix-up, or I was speaking to a cleaner who had accidentally picked up the phone and was reading from the compliance manual. Either way, the person on the end of the line was clearly oblivious to the existence of such an everyday occurrence.
“Can you confirm this is the case?” I ran a quick check on our system. “No I cannot confirm this is the case at all”, I replied. “If the AR had put business our way, and I am not saying he did, or didn’t, then I am certainly not going to get him into any trouble. But what I can confirm is that actually 52 of your ARs (of which there were a few hundred) have sent enquiries to us over the years.”
Now more than slightly annoyed, Nameless required a list of the AR’ that had dealt with Y3S and if they’d completed business… Nameless wanted his cut. “Not a chance”, I said, “but how about we discuss what a great thing it is that your ARs are forward-thinking individuals who like to do the right thing by their clients, searching for the best possible deal, before going out and seeking a suitable partner to transact with”. Y3S and Nameless could work together! We could create a superb distribution model and use Y3S’s marketing skills to deliver the message efficiently and effectively to all of Nameless Network’s ARs. We could stand together like Dr Evils, pinkies in mouths, laughing uncontrollably at this stroke of genius, and the ensuing profits that would undoubtedly roll in.
Nameless didn’t care much for my idea, in fact it was clear he didn’t care much for secured loans, secured packagers or even his own ARs for that matter. What Nameless did care about was his network’s cut. Now, why he believed that I should pay his network a cut for any business transacted through Y3S by his ARs is a mystery. After all, Nameless’s duty was to ensure his AR stays on the right side of the FSA for regulated mortgage contracts and insurance. As secured loans were (and still currently are) regulated by the OFT, he had no such duty. It’s was akin to, say, me offering to buy you steak and chips in the pub, and your friend sitting next to you demanding a side order of onion rings for himself on my bill, just because I had interrupted.
I said my goodbyes and replaced the receiver. I never spoke to nameless or his network again, and he never tried to contact me for ‘the cut’. What a shame. Their ARs continue to send their enquiries to Y3S.
At this point, it is important that you understand that I have nothing against the mortgage networks. I have no axe to grind whatsoever. They do a very important job in our industry, and I salute the good ones.
Y3S completes more secured loans for mortgage brokers than any other packager. The reason for this is that we have made it our sole aim in life to ensure that we make it as easy and as pain free as possible for mortgage brokers to do business with us. Our entire modus operandi is built around service to brokers, and we have established a very large network of broker-introducers encompassing over half of the country, many of whom make enquiries with us, and some of whom actually do complete business.
You’d be forgiven for thinking that we spend our days hanging out with mortgage networks, having long lunches, crunching the numbers, slapping each other’s backs in glee, and generally being rather pleased with our position among the networks as the leading secured packager. But you’d be very wrong. In fact apart from receiving the odd threat and demand for money, such as the one described earlier, I have never ever fielded one single call from a network to discuss how they could use our established position, sourcing system, processing capabilities and marketing knowledge to push secured loans through their AR network, helping AR’s to earn more money, to earn additional revenue for the network, and crucially, providing best advice for their clients. Not one. Unbelievable, huh? I agree.
With FCA regulation of secured loans approaching fast, mortgage brokers will no longer be able to avoid comparing the cost savings that could be made through a secured loan rather than a remortgage. Thankfully there are a growing number that do. As I read through the news each day, I note that some of the networks have attempted to put together allegiances with some loan packagers and that’s a good thing, because someone in their organisation that makes the decisions is looking ahead and accepting that the humble secured loan will soon be as important as the mighty remortgage to their ARs. From my conversations with many ARs, I am very dubious about the success of these partnerships to date.
Looking through our own records I have noted that around 68% of our introducers are directly authorised. The rest are ARs of one network or another. Speaking to these ARs has revealed that regardless of their networks rules and regulations, they intend to continue introducing secured loans through the packager of their choice (not the networks choice) in the post-regulatory world. More than one AR told me “Why should I pay a third or so of my secured loan commission to my network for an unregulated product when they don’t even offer secured loans?”. Others said that there had been attempts at setting up a distribution channel, but they wouldn’t use it anyway as they had preferred their secured relationship. Following regulation the law is still on their side: competition law states that the multi-principal agreements are allowed. I know this because I appointed a lawyer who specialises in Consumer Credit to dredge through the minutiae of the law to establish the facts and produce a paper for Y3S. Whether the networks attempt to prevent this happening through clauses in their principal agreements, and how they police it is another matter.
What I do know is this: attempting to block the natural flow of an AR’s secured loan introductions to the packager of their choice with rules and regulations designed to affect their income is completely useless. They will simply find a way around it, and the network will lose out.
Besides, I have a better idea where everyone wins: ARs, secured loan packagers and networks. The ARs with whom I have discussed the idea can use the packager of their choice and want Y3S to promote it to their network heads with immediate effect.
If you are a network head and wish to discuss how to implement an effective secured loan distribution model in a post-regulatory world send us an email or call us. We’ll send a car and driver to bring you and your decision makers to Y3S for a tour of our facility and we will present our solution to you. We’ll even provide lunch. Afterwards, we’ll return you to your office or homes. Alternatively I will happily visit you at your convenience. Either way it won’t cost you a penny.
Given the radio silence of the last 12 years, I don’t expect the phone to ring off the hook, but at least I tried, right?
Matt Cottle is a director of Y3S Loans