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Kevin Duffy on mortgages

Watching the Oscars recently put me in mind of Michael Douglas&#39s infamous Wall Street mantra: “Greed is good.” In my last article, I extolled the virtues of a well run mortgage practice in so far as profit margins are generally of the double-digit kind, which makes many brokerages more productive than even the likes of HBOS and HSBC on a pound-for-pound basis. If greed means building cash reserves for future contingencies, then I will have more of it, not least because the costs of life after N4 necessitate it.

Hamptons has just finished its application to the FSA. I have previously said that where a practitioner can afford it, principal status makes a poor relation of appointed representation. Our estimated cost for authorisation over the next year is £300,000 so you might think I am now more dispassionate about being a principal. No way – and 25,000 other applicants so far clearly feel the same way.

What is being reinforced as we approach the March 31 deadline is that the most valuable feature in managing and developing any business is control. Why would any business want to disinherit itself of those internal facets which it can ordinarily control – its product menu, training and development, compliance function and its terms of procurement, to name but a few?

Every trade journal I read of late features various IFAs and networks embellishing their mission statements. Salesforces are being projected to grow by anything between 30 and 300 per cent in the next two years. How do these businesses intend to fulfil such ambitions? Is somebody cloning mortgage brokers in a garden shed? Anecdotal evidence suggests the consultant population will contract after N4 as some practitioners opt for the temporarily lesser-scrutinised non-regulated world and others re-establish themselves as introducers.

For those brokers yet to enter into nuptials, there are still over 25 potential offerings available to them. But the options have receded as some packagers have reneged on launching networks, possibly as a result of the final rules of conduct, which legislate for a far more intensive regulatory regime than was initially imagined.

BM Solutions is often an industry punchbag but, on reflection, its crystal ball was clearer than most. We are indeed seeing a flight to quality. Operating costs after N4 are going to be more expensive so why would any business occupy too much of its time with its lesser trading partners?

Back to another Oscar winner – Jack Nicholson in A Few Good Men and his searing line: “You can&#39t handle the truth.” My suspicions are that more than a handful of over-ambitious packagers, networks and clubs will be in denial of some kind before N4. Muscular predators such as Zurich will emerge stronger but many players will be left holding fewer cards than they originally bid for.

Kevin Duffy is managing director at Hamptons International Mortgages


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