‘Effective referrals could be the answer to maximising opportunities’

The first factor is the reduction in transactional activity within the residential mortgage market. As a result, brokers are looking at how they can diversify their business model to support a wider range of customers, while also driving sustainable revenue for their company.

Another consideration is the changing needs of consumers.

The borrowing profile of some customers has been impacted by recent economic factors and a range of issues, including the Covid-19 pandemic affecting self-employed accounts and interest rate rises impacting the commerciality of buy-to-let, with landlords now looking at limited company structures.

Elsewhere, increased product transfers are creating a second charge opportunity for some people who need additional borrowing, while the cost of living crisis is also resulting in more older borrowers looking at equity release as a solution to raise funds. 

There are only two questions where protection is concerned — will I write this myself or refer it?

And then, of course, there is the consumer duty. Its focus on good customer outcomes means advisers now need to take a more holistic approach to signposting or referring customers to a potential solution, which is particularly important when it comes to protection.

With “avoiding foreseeable harm” as one of the duty’s cross-cutting rules, I believe there are only two considerations for a mortgage advice business where protection is concerned — namely, will I write this myself or refer it?

Choosing the right partner

The steps taken to find a business with which to partner may depend on the market sector or the number of referrals a company is looking to make.

If it is an occasional referral, one solution could be to use the services of a mortgage club with an established referral panel in place covering a wide range of areas and customer needs, and the necessary due diligence already completed.

This means the terms of business will be in place and they will have conducted an assessment based on their target market, as well as having undertaken fair value assessments.

If there is a particular area an adviser has started to see an increased customer need for, and which requires specific qualifications or authorisation such as second charges or equity release, then a more targeted approach when looking for a partner may be required. 

Likewise, it is also worth advisers considering the opportunity to establish reciprocal referral arrangements in an area in which they currently operate or specialise. 

In all circumstances, advisory companies will need to ensure they have conducted due diligence, though the elements may depend on the business being referred to.

Is there an agreement in place outlining the terms of the referral arrangement, for instance?

Have boundaries around the services being offered, which is likely to include having a “no cross-sell clause” in place, been clarified?  

Reviewing the service proposition

An adviser will need to review the service proposition the referral partner is offering and ensure they are comfortable with the level of advice fees being charged from a fair value perspective.

Once the referral arrangement has been agreed, it is important to maximise the business opportunity that has been created by promoting the wider range of services now being offered.

Steps advisers can take include amending their website to show customers they can be the first port of call for any aspects of their financial needs they would like advice and support on.

Creating an effective referral eco-system around a business could be the answer to maximising the opportunities for advisers and clients alike within this volatile market.

Stephanie Charman is strategic relationships director at Sesame Bankhall Group