What does the future hold for DAs, asks Phil Whitehouse, head of TMA
In the last week or two, it has been widely reported that there has been a 12.4% drop in the number of Directly Authorised (DA) advisers over the last year, from 1,726 firms to just 1,512. DAs reading stats that show a fall in the number of firms might be forgiven for thinking they are becoming a rare commodity, but as with all numbers, statistics can be misleading.
While it’s never good news to have a drop in numbers, especially because of people leaving the market, interestingly this drop is in the number of firms whose primary business is giving mortgage advice. Over the same period DA firms that provide ‘financial advice’ as their main regulated activity increased from 5,084 to 5,142 a net gain of 1.1% or 58 firms.
It does lead one to question why there has been this switch and it could well be because DA firms are diversifying into the wider spectrum of the financial advice and not just giving mortgage advice. For the last three or four years, both mortgage clubs and networks have stressed the importance of diversifying into insurance, protection and wider financial advice, and common sense also dictates that if one part of the market is struggling it makes sense to focus on other areas if at all possible.
Of course the only constant is change these days and there are always new challenges on the horizon but usually these can be balanced with new opportunities for businesses that can adapt to the new working environment.
In terms of upcoming challenges, we have the MMR, the reduction in proc fees, the challenge of even getting a mortgage placed and Tesco is apparently close to offering mortgage products. This move by Tesco could indeed be a threat to mortgage intermediaries as even if products are available through intermediaries it is likely, in my opinion, to be through a small panel. The opportunities lie in the ways that good DAs can look at either working with such super-brands or look at ways of protecting their client data base. In doing so they could well come up with new opportunities and ways of working that will make them more successful rather than less.
There has been quite an amount of distress regarding the reduction in proc fees but, as an example of how things evolve and change it is good to take a look back a few years where, in the 70s and 80s there was no such thing as a mortgage broker who did nothing other than mortgages and no such thing as a proc fee. Mortgages were used purely as a means of getting customers so that financial advisers could sell them other products that were profitable. I highlight this just to illustrate how opportunities evolve and how even in the most challenging of times there are ways to make money.
Back in the 70s and 80s there were also no such things as mortgage clubs. With the rise of the mortgage market there has also been an increase in help for advisers working in this space, providing everything from exclusive rates, access to lenders they couldn’t otherwise get, help and support on different product areas and how to diversify and access to compliance support.
So what will the future look like? Survival for DAs could well be to take advantage of the help and support available to them and to stick with the traditional mortgage intermediary role, but it is very likely that they will also need to cross sell a range of products from each transaction. The next evolution is already to consider charging for your advice.
To survive DAs will also need to regularly examine their business model and entire processes to ensure they are as effective as possible and suitable for the market at that particular time.
A good mortgage club will also adapt and will be able to assist in a range of support services and not just the availability of a lending panel. Going forward mortgage intermediaries may choose to work even more closely with their chosen mortgage club who may even act on the intermediaries’ behalf to arrange submission of business to certain lenders as the drive from volume to quality gathers pace.
So whether DA firms choose mortgage advice as their main activity or the provision of financial services there is room in the market for all to survive and prosper if they work at their proposition to combat the threats that will come along and diversify to make the most of opportunities.