Seek your knowledge from a master broker

In those circumstances, advisers might seek to use the services of a specialist broker who could ensure the client has access to all available deals and other benefits that a non-specialist might be unable to offer. 

As the number of niche sectors grows, demand could increase for specialists that can share product knowledge, provide access to lender propositions, and source and advise those borrowers for whom a more specialist mortgage is required. 

Solutions, you will find

In the majority of cases most conventional brokers will pick up the phone and ring their chosen master broker in order to source a particular deal for their client. This is because the deal required generally does not fit the normal high-street/mainstream lending offering and therefore an alternative needs to be found. 

Master brokers can help find the most appropriate solution and in some circumstances recommend a combination of solutions that the conventional broker might not have thought of. 

They will have a good idea of which lender will be most likely to assist and they will also have a good handle on the potential rates and fees involved even after a few minutes of chatting through the case.

Benefits, there are

Increasingly there are a number of further benefits to using a master broker. For instance, most now have their own sourcing systems for bridging loans, second-charge or niche residential mortgages, and can also consider allowing conventional brokers access to these for a relevant licence fee. 

In the past 12 to 18 months more master brokers and specialist operators have recognised the need for such systems, which can be used to drill down into the often more complex requirements of certain borrowers, and to provide a range of solutions.

In terms of process, after the master broker provides a solution, the conventional adviser would then present the broker’s suggestions to their client, and decide which deal would provide the most suitable outcome. They would proceed further with the deal and complete the master broker’s application form. 

In some circumstances, this standard application form can be used by a number of different lenders, saving time if the case needs to be re-brokered with another lender. This is a significant benefit for the adviser, who otherwise might have to go through the same process with multiple lenders across different products. With the master broker’s support this is not necessary, plus the master broker also acts as a packager in the true sense of the service and manages the case through to completion in many of these scenarios.

Since the implementation of the Mortgage Credit Directive (MCD), most master brokers have to become Financial Conduct Authority-approved and authorised to give advice. This means they can offer to deal with clients directly and pay a small introduction fee to the relevant introducing broker rather than acting as a traditional packager. 

Some broker firms post-MCD decided not to offer advice on specialist areas such as bridging and second charges, and this is where master brokers can come into their own by being able to act as a trusted partner to deal with these clients directly.

Using a master broker means that a broker can access niche areas of the market without having to build those relationships themselves. However, it is not always right for everyone and some experienced brokers I know would prefer to have complete control of their business processes. 

Adding a third-party to the equation can pose additional challenges and for some advisers can muddy the waters in terms of what the client might anticipate. 

This is why the adviser will need to ensure a careful handover of the client is achieved so that they are provided with full transparency and clearly understand how a master broker is involved in the transaction and who is ultimately responsible for the advice and product they are expecting. 

Communication in this situation is absolutely key otherwise complaints can rise purely down to poor explanations of the process. 

Important, transparency is

Advisers should be able to explain how the process is going to work and why, in this particular scenario, there are options to use the services of a specialist or master broker rather than providing the advice themselves. 

Information that can help smooth the path might include an explanation of the specialist lending landscape, the different lenders active in these markets, and the fact that these types of niche lenders often like to distribute their products through specialist brokers because they have more control on volumes and quality. The adviser can also explain that by opting for this route, the client is gaining access to lenders and products that might not ordinarily be available, as many master brokers are used to pilot lenders’ product ranges and processes before they consider a whole-of-market launch.

There are many advantages for a conventional broker to choose the master broker route, notably there is generally a no cross-sale policy and the relationship between a master broker and a conventional broker is highly prized. This may not come overnight, but those advisers who can develop a strong relationship, with both parties trusting each other, should be able to greatly enhance their product and service proposition, especially for clients who might not fit the ‘traditional’ bill. 

Access to lenders that a firm may only use occasionally allows the conventional broker to concentrate on maintaining their regular relationships without having to spend time on business development where the cost of doing so far outweighs the reward. 

Other advantages include the master broker’s sourcing capability and understanding of lender criteria. In some circumstances, lender underwriters can base themselves out of the offices of master brokers so they are onsite and can quickly respond to potential business queries, creating a good service proposition. 

There is also a choice given on how a firm can interact with a master broker, either as a conventional packager or by referring their client for the full advice process.

Search your feelings

Finding a good master broker can be quite daunting. Brokers receive many emails from these firms – and cold calls in some instances – asking for business. 

There is much to choose from, but choice is mostly done by word-of-mouth, by recommendation from a mortgage club or via a panel available through a network.

If a broker considers using a master broker, they need to carry out some due diligence to ensure they are able to provide a good service to their clients. They need to check the fees that the master broker is going to charge in order to ascertain if these are reasonable compared to the rest of the market and that their processes are robust and they are financially stable.

The fees charged are a particularly important part of choosing a master broker. In the second-charge mortgage sector there has been much written about the traditional fee levels charged since introduction of the MCD. 

In light of second-charge loans being added to the Mortgage Conduct of Business rules, we have seen movement from master brokers – fee propositions have (and are) changing as master brokers recognise that large percentage-based fee levels might not be acceptable in this new environment. It means that advisers need to understand what those fees are, how they add up, and how they might affect the product recommended. 

Where distributors can help is that they have already carried out due diligence on these master brokers and lenders, and if a firm begins to have a problem at all with any of the panel providers they can also step in to help sort it out quickly. Most clubs and networks have a solution for their members.

It is important to put the ground work in and ensure you are comfortable with the arrangement before formalising. 

There is no shortage of competition, and many propositions are quite different – make sure you understand what you are signing up to before putting pen to paper.

Christine Newell is Mortgages Technical Director at Paradigm Mortgage Services

Key points

It is difficult for financial advisers to keep up to speed with all the changes and developments taking place.

Master brokers can then help find the most appropriate solution.

The fees charged are a particularly important part of choosing a master broker.