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Dawn of a new era

This month, Mortgage Exp-ress, the specialist lending arm of Bradford & Bingley, becomes the first lender to sponsor IFA Promotion.

It is symbolic of the changing market and the new age of professionalism that is fast approaching as the regulation of mortgage and general financial advice converges.

The company believes strongly in the provision of best advice and recognises that IFAs are becoming increasingly important as a mortgage distribution channel.

The message for other mortgage lenders is to ignore the IFA sector at their peril. With regulation coming into force from October 2004 under the remit of the FSA, the mortgage market is undergoing a major shake-up.

Higher standards will be required from advisers and lenders alike. Unregulated intermediaries who do not shape up will be sent running for cover – and out of business.

There are hundreds of lenders and thousands of mortgage products and, thanks in part to the vast number of column inches in the national press about home loans, many consumers want advice.

However, most people do not want to slog up and down the high street searching for the right mortgage. A bank or building society representative can only speak about their own product range – an IFA can access the whole mortgage market, just as they can with pensions and investment business.

Regulation is set to mean far greater transparency. Lenders will need to focus on the way charges are communicated. Consumers are being actively encouraged to shop around and compare deals.

An IFA is well placed to advise clients based on an up-front menu proposal when this is introduced.

It is important to remember that intermediaries are responsible for a big chunk of the mortgage market. While numbers fluctuate, the Association of Mortgage Intermediaries estimates they currently introduce as much as 55 per cent of total new mortgage business.

Regulation will mean that those who are not currently working to FSA-compliant professional standards will have to cease trading. This means the sector is ripe with opportunity for IFAs who want to get involved with such mortgage brokers to help bring them up to scratch.

There are plenty of IFAs, including some of the smallest firms, who are already doing healthy amounts of mortgage work. With the onset of regulation, they are likely to expand the amount they are doing or to employ an extra member of staff who can grow the business.

IFAP&#39s members are asked to list their top seven specialist areas. Of the 10,350 firms we represent, over half list mortgages as a preferred area.

The benefit for an IFA who wants to sell more mortgages under FSA regulation is that they are familiar with how the regime operates. They will be aware of training and competence requirements, appreciate the value of qualifications and be better geared up to cope with the extra cost that regulation brings.

When the FSA takes over regulation from the Mortgage Code Compliance Board, intermediaries will have to meet its higher running costs.

The FSA claims its set-up costs are around £5m while running costs will be £7.6m compared with the MCCB&#39s current £4.5m. So intermediaries will need to find ways to increase their efficiency or boost their business volumes or, best of all, both.

Switched on mortgage intermediaries are ready to be compliant. They are taking up membership of new trade body the AMI. This opened for business in April and is a dynamic organisation that aims to bec-ome the voice of the professional mortgage intermediary. It is a division of Aifa. Quality firms are signing up to the AMI. Clearly, there is growing convergence between IFAs and those mortgage intermediaries who are going to be regulated and in many cases they will be one and the same.

While it will mean increased costs, there is no doubt that regulation will be good for the industry as a whole, not least for consumers. For advisers, it will mean a level playing field and they will find trade bodies will offer them invaluable business support. And although some unregulated intermediaries will have to raise their game, there are already plenty of first-rate IFAs offering best mortgage advice as part of a complete financial planning service. Trade bodies can be invaluable but when it comes to winning more business from consumers, this is IFAP&#39s role.

Our combination of a phone hotline, interactive website and regular marketing campaigns creates increasing levels of leads for members, with a high conversion rate to business.

Last year, consultants Mercer reported that IFAP&#39s work grew IFA enquiries from 260,000 in 2001 to 315,000 for 2002 – a rise of 21 per cent.

Use of the hotline was up by 5 per cent and online enquires were up by 27 per cent. Looking at the product mix and based on online enquiries, it is interesting to note that while lumpsum investments business fell from 41 per cent to 37 per cent, mortgages jumped from 10 per cent to 22 per cent.

For providers, supporting the IFA sector in this way is a profitable decision. Of course there is a cost but bear in mind that IFAP gets £2.8m a year from its sponsors and in return generates £40m in commission income for IFAs and embedded value for sponsor product providers, which is undoubtedly value for money.

We have 28 sponsors but until recently all came from the pensions, savings and investment market. Lender Mortgage Express is confident that becoming an IFAP sponsor will benefit customers and bring in more business.

To the others in the lending market, the message is clear – now is the time to look at working more closely with the IFA sector and a key means of doing so is to support IFAP&#39s campaign to generate new business and raise IFAs media profile. For those who value the provision of independent advice, it is the best way of generating quality business.

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