Nigel Payne is managing director of Assurant Intermediary
Ranked consistently as one of the world’s wealthiest people and widely regarded as one of the most successful investors in the world, Warren Buffet is often called the “Sage of Omaha”. I figure if his philosophies work for him, there might be some value in looking at a few of them and seeing how they can apply to intermediaries as they set themselves up for next year.
“Rule 1 – Never Lose Money; Rule 2 – Never forget Rule 1”
Cash is king in any business. I have seen a tremendous number of brokers diversify their income streams in 2010. Many have prudently re-engineered their business models away from being reliant on mortgage proc fees so much so that now the majority of their income is from cross sales and fees. Does that mean that everyone is maximizing every opportunity that comes their way? Sadly no. If you haven’t done so already, ask yourself what are your competitors doing to earn income that you aren’t? But also ensure that your decisions are based on sound business knowledge – after all, no-one wants to lose money!
“Someone is sitting in the shade today because someone planted a tree a long time ago”
Relate these words to the sale of general insurance products and consider how one policy sale today builds up your income stream for the next five years. The compound effect of regular commission adds real value to your business, more so arguably than the one-off proc fee from arranging a mortgage. Just two sales a week for 52-weeks a year compounded with renewals from previous years grows and grows, and in a short space of time, you have generated a real sustainable income. While a lot of brokers have been planting trees and some have sowed veritable forests, I’m still surprised at how many have yet to start.
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”
Never a truer word for what has happened in the UK mortgage market. Enough said!
“Be fearful when others are greedy; be greedy when others are fearful”
Would you have preferred to buy a business at the price they were going for back in 2007 or at today’s market rate? Acquisition activity has been high this year in the mortgage sector as multiples have, perhaps, reverted to more sensible levels and unsurprisingly there are plenty of people looking to exit. Those with the cash and who are brave enough are seeing the opportunity.
“The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable”
Do we really know our staff, customers and business partners well enough? What drives each of them will be different. Maybe we experienced greed and folly as drivers amongst clients in the boom times, but I think it reasonable to assume that fear is perhaps occupying the number one spot for many now. Intermediaries should be taking every opportunity they can to find a way to reach out to their clients, discuss their fears, and provide advice and guidance as to the financial solutions available to help them. And we should also all be reviewing our business models and plans for 2011 to ensure we’ve got the capability – and flexibility – to meet the challenges of the coming months head on.
“It takes a lifetime to build a reputation and five minutes to ruin it”
Remember Gerald Ratner who was responsible for one of the most famous gaffes in corporate history? His speech mocking his firm’s products effectively killed the company. The same principle applies to every single one of your customers. Each is as precious as the other regardless of the amount of business they represent. Treat one poorly and word of mouth could spread, having a nasty ripple effect on your business. Equally, if you don’t treat your customers fairly and you fall foul of the regulator, a fine can also damage your reputation as well as your bottom line!
“Risk comes from not knowing what you are doing”
Just ask your compliance manager! The events of the past couple of years have served to emphatically underline the importance of properly understanding the risks facing your business and the appropriate systems in place to respond to changing circumstances. While many might think about it in terms of compliance with regulation, beware of viewing risk management in isolation. Demonstrating sound risk management practices doesn’t just help with your professional indemnity premiums; it also provides the discipline to help your business ride the economic storms and protects your competitive position.
“Never invest in a business you cannot understand”
I’m not advocating that you just stick to your knitting, but diversification into a new market with new customers can be very brave or very fool hardy depending on your approach. Given market conditions, diversification is essential to repair and build income streams – but do your research. Know what you’re getting into or what the customer is looking for and how they like to do business, for example. Make sure you understand a proposed new product line inside out and get training if necessary to ensure you can sell it appropriately. Bottom line, if you don’t feel you really ‘get it’ then look for another avenue to follow.
