I remember the conversations in 2004 as we approached M-Day about the shape of distribution in the UK, in particular on new networks, network consolidation and the split between appointed representatives and directly authorised advisers. For many years, the market continued to grow after the regulatory shock and it seemed the speculation was simply that.
Well, maybe not.
Since M-Day, there are only a handful of networks that exist today in the same format or ownership as then. There are numerous that do not exist at all, which is not unexpected as the number of advisers has fallen from more than 30,000 to nearer to 10,000. The trend is not unique to networks as many DAs understand the term “under the radar” was a myth.
Many will declare this has been driven by the crash experienced by the mortgage market from gross lending of £360bn to £132bn. Others will point to the pressure and costs of regulation and anticipate this to increase further after the mortgage market review.
However, what we are experiencing now, and I believe it will continue at a pace, is the reshaping of distribution as a result of the lender reaction to the market, risk, regulation and simple economics.
Many have reacted to the move NatWest has made where it restricts access to its corporate range of products to advisers of certain networks and closed-distribution groups only. This may be a significant move but NatWest is not the first to do it and it is not really all that surprising.
ING Direct is probably the biggest lender that entered the market and it has been selective in choosing its distribution partners.
Platform has a preferential and differentiated product range for a select number of network partners and some bigger lenders have corporate ranges or exclusive products. In addition, and not often publicised, several building societies offer exclusive products, including 95 per cent ranges through networks or closed-distribution groups.
New entrants and existing lenders will continue to do this and I believe access will get harder if you are not with a selected corporate partner.
Intermediaries on the poor side of this deal may be critical but the mortgage market review will pass much of the burden of regulation, such as afford-ability, to lenders. Lenders are also under close scrutiny from the regulator with thematic visits on distribution.
Financial crime monitoring requires closer working relationships between lenders and distributors, who have close-quarter compliance control of advisers. Finally, the economics of distributing limited funds, with cost of funding pressures, with tighter sales team resource will have an impact.
Access to lenders and products, fee differentiation and ability to control risk and compliance will mean the gap will continue to widen, shifting distribution towards quality organisations that have what the lenders need. The mortgage distribution map will be very different from M-Day and we have not even reached the MMR implementation date.
Dev Malle is sales and marketing director at Personal Touch