We spoke to Bob Hunt, Chief Executive of Paradigm Mortgage Services, about the consequences of MMR and the relationship between lenders and advisers.
FR: Why do you think the MMR was such a pivotal moment for the mortgage intermediary community?
I think, and we recognised this beforehand, that MMR put a significant burden on lenders, particularly in their ability to sell mortgages through direct channels (branch/telephone, etc.) and by banning non-advised sales. Cumulatively this meant that lenders who had been able to conduct significant volumes direct-to-consumer were no longer able to do this. As a result, there was a qualification and training burden on in-house advisers, mortgage interviews took longer, bank advisers had less time to see consumers, and therefore less business could be written.
As a consequence, if the lender in question wanted to hit targets and maintain volume, then they were going to have to acknowledge that the bulk of this business would have to come through the intermediary channel or, as with HSBC, engage with intermediaries to at least maintain business levels.
Add into this is the fact, of course, that the public increasingly recognise the value of what mortgage intermediaries can offer, particularly in terms of being able to access the whole of market. It seems odd but until recently many consumers still felt they could get the best mortgage deal by walking into their bank or building society. The notion of ‘shopping around’ has now fully permeated financial services and therefore using an intermediary makes perfect sense because of the service on offer, and the ultimate fact that they are likely to save the borrower money.
The other point to make around MMR is of course the fact that getting a mortgage is more difficult now than it was pre-MMR – the affordability criteria has meant a big sea change, and, whereas advisers were quite used to doing this, some lenders were not. Securing a mortgage via an adviser is undoubtedly a more effective way of getting that loan than going direct.
FR: How can advisers capitalise on the opportunities that MMR now affords them?
The first point to note is that professionalism and quality still count in this marketplace. Lenders are increasingly recognising this and are rewarding based on quality, so those who are top of the quality metrics are going to do much better in this market, particularly if they are also using a distributor that is quality-focused, like ourselves.
The second point is around the opportunities that exist with each individual client – yes, they might be mortgage clients but they also have other needs, and a good intermediary will be able to cover these off, or be able to introduce to those specialists who can help. This is why we’re not just a mortgage distributor but offer protection/insurance panels, plus access to specialist lending players. We recognise that non-mainstream lending can be something of an unknown for many intermediaries which is why we work with specialist-focused businesses in order to support our members in this area.
Essentially, your mortgage distributor should be able to offer you access to opportunities you might already be aware of, and some that you might not.
FR: Paradigm as a Group appears to have fingers in many pies – what drives the provision of different services to members?
Principally we are driven by a focus on providing support to advisory firms across the entire range of financial services. It’s often very difficult for directly authorised firms to be all things to all men, and neither should they have to be. However, a business like Paradigm wants to help advisers in as many different areas as possible, whether that is compliance support or access to platforms, or in the case of mortgage advisers, a wide panel of lenders and protection and general insurance providers all offering market-leading terms. Quality advisers will always look to offer holistic advice to their clients and therefore for us, it’s about offering that breadth of service and opportunity which means that firms have no need to look elsewhere because, quite frankly, they’re getting the best of everything with Paradigm.
FR: What does a distributor like Paradigm offer members that they could simply not get on their own?
At its simplest, this is about using the scope and membership of our business to deliver products, terms, services, etc, that an individual firm would not be able to access. So, firms are not able to get market-leading terms from protection providers that we are able to secure via Paradigm Protect for our members. The same goes for access to exclusive mortgage products or the ongoing relationships, support services and deals we have in place.
What is also very important for Paradigm members, however, is that on top of the fact there are no joining costs or monthly fees, the adviser receives half of the override Paradigm earns per case in addition to their usual proc fee, thus increasing the overall fee. For Associate members this is paid out once a year as a lump sum as part of our annual rebate scheme. From Associate membership you can then be invited to become a Partner which ensures you participate in the equity of the business. Being a Partner Member means the firm receives an equity stake in Paradigm Mortgage Services, which is held for their benefit in a discretionary trust. This stake is determined in proportion to the income the firm generates via activities with Paradigm. It means they will fully participate in the value and growth of the company – after all, it's the members who generate the value in Paradigm.
FR: You’ve worked on both the lender and adviser side of the market – does each part of the market truly understand the other one?
I think for the most part it’s a very strong relationship. We have an interesting perspective because we’re essentially in the middle between both lenders and advisers. Undoubtedly, in the past, there have been issues and I suspect there will always be, because of the nature of the market and the profession. However, I certainly believe that the market works best when both lenders and advisers work together – neither side can work in isolation, and therefore the best way for everyone to succeed is to ensure the relationships are strong and the communication is open and transparent. In my view, things tend to break down when there isn’t that open communication – thankfully, this appears to be increasingly rare, and I am very positive about the future of the mortgage market.