In a year during which there have been some obvious challenges for mortgage advice firms, not least a significant dip in purchase volumes, it is understandable that we spend a great deal of time looking at the ways and means by which advisers can grow volume and bring in more income.
As we reach the end of 2023, it therefore makes perfect sense to start this process now, and it is an exercise in which business principals should not be afraid to go into some depth, and truly analyse what recurrent outgoings your business faces, the rationale and appropriateness of that cost in future, and whether there are opportunities to explore alternative cost-mitigation avenues.
This doesn’t mean redundancies or living on bread and water – but often simply means reviewing whether there is a new way.
Of course, if you’re an appointed representative (AR) firm of a network, then one significant outgoing will be fees applicable to be under the principal’s umbrella. This may not be a simple exercise as it won’t just be in the form of pounds and pence, but what firms also receive that wouldn’t be available to them if they were ‘on their own’.
Securing economies of scale: the network advantage for brokers
Certainly there is a vibrant and ambitious network sector in the UK which results in such ‘member pricing’ being extremely competitive: I’m not playing a violin, as the boss of a network, but it’s a fact that some networks go bust and others operate on a very thin profit margin despite scale and great propositions.
Comparative costs to AR firms can be difficult to decipher. Take, for instance, a fundamental of running an advice firm, namely access to – and the rapidly rising cost of – professional indemnity insurance (PII), and what’s received under a network, how this is paid for, and what type of cover and cost would be incurred as a directly authorised (DA) firm or indeed the cost passed onto you or charged back to you, as an AR of a network.
No one will be under any illusion over the rocketing cost of PI in recent years. There is a limited amount of PI cover to go round, and many sectors have seen average premiums of hundreds of pounds increase into average premiums of thousands of pounds. Some advisory firms pick up this unavoidable cost and some firms have it paid for them.
At Stonebridge, for example, we incur the full cost of PI premiums for all our AR firms, whereas some networks specifically segregate those PI fees annually and pass them onto individual firms. These costs can only increase and, after all, without PI an advisory firm can’t operate.
Economies of scale clearly make a difference not just in these areas but many others and firms should analyse what they pay out, what they might achieve through a different supplier, and what is available for an ‘all in’ fee via a network.
Key considerations for mortgage advice firms in 2023 and beyond
There will be some big-ticket outgoings, such as PI, office rental costs, employment salaries and benefits, or indeed FCA/FOS/FSCS fees which advisory firms cannot avoid and, if they’re a DA, any increase will need to be covered by their own business, unlike if they were part of a network.
Advisory firms shouldn’t neglect a thorough review of their regular debits that are accrued in everyday business which can certainly add up. One such example we have is in simple ID checks and verification for clients, which might not seem a big deal, but when you can cut each and every one from a couple of pounds to mere pence, this could make a real difference.
Technology/platform/sourcing system subscription levels should also be reviewed to determine whether they are being fully utilised and just how much is being spent on them. There is a phenomenal amount of competition in areas such as sourcing, CRM, and even in meeting software. Adding all those costs up may raise a few eyebrows and have Business Principals asking themselves the question if they can significantly bring these costs down by moving network, club, packager, or distributor.
While we’re not quite at the end of 2023, looking back over its course, I believe it will provide advisory firms with a raft of information in this area, and it may also give them a very good idea of what business will look like next year, and where costs can be cut. There is a growing perception that 2024 could look very similar, and if that is the case for firms, where can they achieve efficiencies in order to help their bottom line?
We talk to broker firms all the time about not just the authorisation/regulatory/compliance burden that has been taken off their shoulders by joining a network, but also the cost burden. Having access to a wide variety of income-generating opportunities is one thing, but large numbers of brokers are also paying too much for too many services and supplies.
It is only through a network or distributor that they can secure, and benefit from, the economies of scale. It is important firms understand what they might be losing out on by going it alone, or being with the wrong one.
Rob Clifford is Chief Executive of Stonebridge
