Bob Hunt is chief executive of Paradigm Mortgage Services
At our pre-MMR mortgage and protection roundtable the FCA gave a particularly interesting run-down on the market areas it is interested in and an insight into the next major areas of work for the regulator.
While not in this category, the role of packagers in the mortgage marketplace, and their use by brokers, was a topic that was raised and it would be fair to say the FCA is keen to ensure packagers do not stray into the area of advice.
Indeed, it was clear that the FCA is ‘concerned’ by what it sees as the renaissance in packaging and there was something of a warning to brokers to ensure they protect both themselves and their client when using the services of a packager.
Brokers were told to make sure they carried out significant due diligence on their packager partners because the FCA said it had received, what it called, ‘intelligence’ from consumers.
This ‘intelligence’ was suggesting that in some cases the consumer believed it was the packager providing the advice, rather than the broker.
Clearly, if this is the case, then the broker is putting him or herself in a potentially dangerous situation as, at the end of the day, they are responsible for the advice, regardless of where the client perceives it to have come from.
Brokers using packagers must therefore ensure a) there is no straying into the realms of advice by the packager, b) that the client is clear on who provides the advice, and c) that they are fully aware of the service they’re receiving from the packager at all times.
Having said all of this, I am not for one minute suggesting that brokers do not use packagers because there are clearly advantages to using these businesses.
There will be good and bad practitioners in any business but I would go as far as to say that the new breed of quality ‘packagers’ are not ‘packagers’ in the traditional sense at all. They are much more than this and, particularly in the specialist lending sector, they are able to provide a service which can secure a mortgage/loan/finance for a customer who invariably won’t fit the criteria of the mainstream lenders.
This new breed of operator is perhaps best personified by a business such as Brightstar Financial – who Paradigm have a particularly close relationship with – and could be said to be (along with a small number of others) taking packaging to a new level.
Rob Jupp, chief executive of Brightstar Financial agrees that the ‘old school’ packagers no longer have a place in today’s mortgage environment.
He said: “The role of the packager/distributor in today’s post-MMR environment has evolved and matured since those early days and now serves as a valuable asset to lenders, brokers and customers.
“Today’s reality is of a third-party specialist resource, which provides a marketing and administrative service for specialist lenders and acts as a source of knowledgeable expertise for brokers wanting to ensure they have the right options to present to a client, when the case is, in the main, either not a high-street option or requires a second charge, bridging or commercial mortgage solution.”
And there, in my opinion, are the areas where packagers can offer brokers the most value – in sectors such as specialist lending, bridging or secured loans, perhaps commercial and bridging finance.
Many clients will not fit the limited high-street options that are available and therefore being able to deal with a packager/distributor who can access those deals and has special relationships with the lenders could be the crucial difference between securing the finance or not.
With the regulator keeping a close eye on the packaging sector it is important that compliance is at the top of the agenda. Jupp recognises packagers are on the regulator’s radar.
“That is why we, along with three other packager/distributors, founded EQUIS to promote the highest standards in the distributor sector with a written Code of Practice and a commitment to the spirit as well as letter of the new regulatory framework.
“The sector helps both lenders and brokers by not only providing a mechanism which benefits both sides and the client, but also helps them to remain compliant.”
Meeting and maintaining the highest of compliance standards should be music to the ears of both brokers and the regulator.
It means authorised advisers can have full confidence in the packager they are using whilst at the same time benefiting from the clear business opportunity they provide.