Quest for quality by Tom Baigrie
These are tough times for mortgage brokers. There is plenty of custom but not so much lending money to broke.
None will have experienced quite these conditions before and all will have already focused on maximising their earnings from each mortgage they can place. I imagine adding protection to the package will be the easiest way of doing that.
The issue for me is around the quality of sales. With the portals and major providers interested only in volume without regulatory risk, the early focus will be on price and easy-to-sell mortgage payment protection insurance. We can expect a high proportion of protection sales to be non-advised, even while the mortgage sale remains advised. How that is treating customers fairly is beyond me and the FSA should ban that practice forthwith.
More positively, I suspect many new protection sellers will realise that advice is the best way to maximise revenue from each opportunity. If so, advised sales might get a boost, which will eventually move the focus on to quality benefits and thus income protection. That product remains agonisingly hard to sell profitably and the market is crying out for easy-to-sell comprehensive cover that the responsible can use to replace MPPI. I hear tell that one is on the way this year.
Having once made a similar business shift to the one mortgage brokers are making now, I can perhaps offer some relevant advice. Very few salespeople make secondary sales effectively. The secondary sale will rarely prove a scaleable revenue stream unless it is flogged indiscriminately because the moment business in the primary area picks up, it slips in the secondary one.
The Government remains in the ridiculous position of having one department recommending MPPI to homebuyers while another department investigates it. The FSA and Financial Ombudsman Service are much more consistent in their loathing of secondary sales. Recent financial services history shows that if something is hard to manage and hard to make compliant, then it is best not done.
The trick for those seeking to offer protection seriously must be to analyse the possible profit that can be made. Taking your gross, halving it and then deducting your costs would be my rule of thumb for the cautious.
In assessing your costs, allow for near one-on-one support for each seller as protection is no more easy to complete than mortgages. In my experience, a 20 per cent margin is a dream and 5 to10 per cent more the norm.
I suspect the best mortgage broker management teams will be editing their sales teams to make more profit from fewer sales while fighting for money to broke and referring protection business to a specialist who pays them well for each lead.
The worst will be flogging a bit of MPPI and term life and ignoring far greater potential profit.
Tom Baigrie is managing director at Baigrie Davies Lifesearch.