Last week saw Home of Choice set up a strategic alliance with IFA network IN Partnership for the mortgage network’s members to introduce business to financial advisers.
Both businesses will operate under their own brand names but will share a centralised technology platform to organise introduced business.
Home of Choice executive deputy chairman Richard Coulson explains that the combination of wealth management and mortgage specialists offers advisers the best choice of mortgage, protection and investment services.
He says: “This partnership creates a compelling proposition. The strategic alliance goes beyond compatible skills in strengthening both businesses and supporting our respective growth plans.”
IN Partnership chief executive Kevin McDonagh adds: “The alliance allows Home of Choice brokers to introduce clients to IN Partnership’s full financial planning advice and leading investment and pension products.
“Our two businesses are already working on opportunities for joint initiatives, including joint recruitment campaigns. We are looking forward to a very close relationship to deliver a full range of services.”
Last month, The Mortgage Times Vision Network got FSA permission to operate an investment and pension multi-tie and says it is running over 100 training events this year for members who want to diversify from mortgages.
Director Chris May says Vision has been planning the move for two years and expects the network to grow from its current 600 firms to 1,200 by the end of this year and 1,500 by the end of 2009.
Pink Home Loans managing director David Copland also says expanding into the investment market is on the agenda, although he will not reveal what route the network may take.
He says: “The credit crunch has prompted networks to look at other income.”
Compliance consultant Adam Samuel says there are no inherent compliance risks with these sorts of partnerships but IFA networks may be taking on considerable financial difficulties.
He says: “IFA networks need to be aware of any financial burdens they may be taking on through partnerships with mortgage networks.”
Samuel says IFAs have often bought mortgage firms in the past but warns that now may not be the right time for diversification.
He says: “These are not stable businesses. Mortgage businesses are going very cheap at the moment. It is one thing to be cheap, it is another to be risky.”
Reynolds Porter Chamberlain partner Jonathan Davies says while there may be uncertainty over whether these partnerships will be able to operate post-RDR, networks should not be overly concerned at the moment.
He says: “Considering the FSA’s turn-round from the initial proposals in the discussion paper to the recent interim report, it is futile to speculate what the final RDR proposals will be.
“I suspect there will be a long implementation period for firms and networks to make the necessary changes, so it should not be too much of a consideration now.”
However, Davies warns there are legal risks involved over whether alliances will be capable of delivering the full service they are promising to consumers.
He explains: “Obviously, networks want to offer a full range of services but with a wider range comes more responsibility. Networks must ensure that their members have the skills to deliver the service they are promoting.”
Former PFS public affairs director John Ellis agrees and adds that IFAs entering into partnerships with mortgage brokers must make sure that the advice they are giving is not compromised.
He says: “There is an aspect of risk associated with these partnerships and the credit crunch has brought this into greater focus. IFAs need to take responsibility for the integrity of their offerings.”
His comments are in line with an FSA warning that the number of mortgage fraud cases will increase following several years of lenders focusing on volume rather than quality of business.
Speaking at the Mortgage Business Expo in Manchester last week, FSA head of financial crime policy and intelligence Bob Ferguson said he believes there is more latent mortgage fraud sitting unrecognised on the books of lenders.
He commented: “If the market has a cycle then fraud is going to have a cycle also. We have already heard that the focus of lending has been on business acquisition and volume rather than quality. In that kind of environment, of easy credit and volume lending, fraudsters are going to gravitate towards your sector.”
But Hamptons managing director Jonathan Cornell says as long as IFA networks carry out the necessary due diligence before entering into partnerships, the chances of encountering mortgage fraud are limited.
He says: “It is quite natural to see brokers forging relationships with IFAs. If you are careful about who you do business with, then there is not much reputational risk involved.
“It looks like the majority of brokers being kicked out of the industry for mortgage fraud tend to be sole traders. If brokers are part of a network, then they have got someone looking after compliance issues for them meaning there is less chance that there will be mortgage fraud going on.”
Cornell adds that alliances will also provide extra benefits for clients.
“I think it is very positive. If brokers work closely with IFAs our clients will have better access to a broader range of products,” he says.