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Failing Mortgage Networks
(What’s the problem?)
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The past two years have been unprecedented in our industry and trading conditions have been tough by anyone’s standard. As a result we have seen some high profile casualties and subsequent questions raised in certain quarters over the validity of the mortgage network model and even mortgage and protection only advisers. However there can be no doubt that if the mortgage network model was removed as a result of the past 18 months business failings it would prove damaging to the entire industry and ultimately the consumer.
In order to try to make sense of the experience from the past 18 months we really need to look at each of the failed networks individually.
The truth is that all of the failed networks including the latest Mortgage Times, failed because of problems within their internal structure. Essentially their business model was flawed rather than either by design or because of dramatic changes within the industry, and not as a result of any deep seated flaw in the network model. Some of the failed firms operated in house packaging as a core part of its business model and benefited from the thick margins that this delivered. Then when this type of lending “nose dived” in 2008 they were too slow to respond. Alternatively it could also be said that others were over ambitious in their attempts at diversification resulting in the too much dilution of the core model. It is not always a matter of AR numbers as demonstrated by the failure of two of the largest pure mortgage networks but is related more to the financial controls within the businesses
Networks that continue to weather the storm do so by having a streamlined business
model, and a low fixed cost base which is easier to scale up and down to fluctuating
business volumes. Good management controls to make appropriate changes to their financial
model. Corporate parentage or investment, allowing them to survive losses and re-
If we are considering a world without networks a fundamental question is whether the FSA has the resources and manpower to apply appropriate regulation to what would then be thousands of small firms; I doubt it. In order to operate financial services without the advantages of professionally run and financially sound networks there would be simple, but effective regulatory supervision, requiring less resource while protecting consumers and reducing the £4m plus annual bill the FSA currently attracts, and personally I don’t think this is anything which the FSA in it’s current format could deliver.
Finally, it must be recognised that many advisers lead a solitary existence and that a good network provides inspiration and motivation to its AR’s as well as compliance support and until the human race evolves into a much more self sufficient form (urban spaceman) networks still have a strong place and future in the market place.
