By electing to be introducers, mortgage advisers can lighten the pressures of multi-tasking and dealing with regulatory hurdles while boosting income as well.
Of the 60,000 Cemap/ Maq-qualified mortgage advisers registered with the MCCB to provide advice (including support staff), 20,000 are in the category of firms with one to five consultants.
Around 11,000 practices will be tied or independent financial advisers – multi-skilled, multi-tasking and probably running round like headless chickens.
The FSA's consultation paper, Reforming Polarisation: A Menu For Being Open With Consumers, means these multi-tasking advisers have to contend with that hurdle as well as the more imminent mortgage and general insurance regulatory deadlines.
It is hardly surprising that many firms are deciding to elect for the third option into mortgage and general insurance regulation – being an introducer.
Most media coverage has focused on whether mortgage advisers will opt for either of the two main routes into regulation – direct with the FSA or via an appointed representative/principal arrangement. Both these options assume that mortgages represent sufficient income generation to make it worthwhile.
The reality is that many advisers, especially IFAs, still sell mortgages as an aside to the core of financial services and the majority are unlikely to charge a fee for mortgage broking. They rely on the commission generated by the protection sale and the procuration fee from the lender.
There comes a point where it is simply not worth arranging mortgages and general insurance because the costs will not be warranted.
There are many negatives in processing mortgages, such as FSA application and annual fees or principal monthly fees (perhaps 10 per cent or more of turnover), PI insurance premiums, staff costs or the adviser's own time, delays and fallout potential.
The FSA likes the idea of introducing, as the adviser is unlikely to be as specialised as the recipient adviser. It wants to polish the image of the industry into one consisting of true professionals.
Consider the other benefits of introducing – a simple phone call to make the introduction and then you step back. All that saved time can be used in more positive ways.
An agreement not to cross-sell will ensure you keep the financial services sale, which will provide added income to what you get from the specialist broker. You could end up with far more income than if you had tried to process the sale yourself.
A specialist firm worth its weight will insist that the client continues to be managed and serviced in the future. That means working for you – the introducer – to keep your clients close to the fold, at no cost to you, with all the income potential that brings.
This is why it is estimated that 10 per cent of the remaining adviser count will elect to be an introducer.
Challenge to MPPI providers
FSA regulation could unintentionally restrict access to mortgage payment protection insurance as consumers become aware that they need to protect themselves and their borrowing.
The onset of FSA regulation will have a significant impact on the distribution of MPPI. To date, only about 8,000 of the estimated 25,000 intermediaries in the market have registered for general business. A big decision faces those who are not full-time professional insurance intermediaries but are selling MPPI. For them, MPPI sales are ancillary and complementary to the primary sale. The cost and risks associated with compliance will lead to a serious reappraisal.
The FSA has published final rules which are subject to a tight timetable. There are still issues to be resolved, not least the question of capacity in the PI market. Renewals and tacit renewals also need clarification.
There are other initiatives for MPPI intermediaries to consider – the distance marketing directive and the DTI's Consumer Credit Act White Paper. The latter hardly mentions insurance but, as MPPI is a secondary purchase associated with consumer credit products such as loans and credit cards, it will be affected.
Unfortunately, it is apparent that the originating bodies of these initiatives have not collaborated in designing a co-ordinated implementation timetable. Inevitably, the costs of the lack of interplay will be borne by the MPPI market.
If there is a significant withdrawal by secondary intermediaries, the inability to position MPPI as a convenience purchase alongside the primary sale will restrict easy access to protection for consumers. Although MPPI has an image problem, it provides part of the consumer protection safety net in line with sustainable home ownership – a key objective of Government housing policy.
MPPI will assume greater importance if interest rates continue to rise and there is a downturn in the economy and labour markets. It is ironic that regulatory measures to protect consumers could have the effect of restricting consumer access to protection endorsed by the Government.
Research from the Office of the Deputy Prime Minister last year acknowledged that “unless managed by an effective safety net, borrowers may experience payment difficulties, mortgage arrears and possession”.
Even though restricted access to MPPI will affect all socio-economic groups, it is arguably lower earners who most need protection. The ODPM research shows that lack of insurance is most pronounced among single people and lone-parent households.
All the above presents a huge challenge. Clearly, there is a need for MPPI providers and intermediaries to nurture and encourage existing distribution channels after regulation as well as developing new marketing opportunities.
The end game is to ensure that consumers, who will be made increasingly aware of the need to protect themselves and their borrowing, have easy access to a range of good value products.