I visited the FA expo this week and attended a fascinating panel discussion on the effect of the credit crunch on distribution. Not surprisingly one of the predictions was for consolidation. However, what was surprising was the level and speed of expected consolidation predicted by some of the panel – John Malone of PMS predicted only 5 large mortgage distributors being in existence within 3 years. Though it may be a bold prediction, I also remember Richard Coulson of Home of Choice predicting a similar consolidation 2 years ago. While I might argue with the exact numbers and time frames of these predictions, both these individuals have a track record of spotting trends and predicting the future. It also has to be said they have some powerful arguments to back up their predictions and with current growth in Network membership, the evidence is bearing this out.
With the credit crunch, the lenders are getting more selective about who they deal with and are pricing accordingly. They are looking for the cost savings of dealing with an organisation of scale and they are also looking for organisations that can help with the client servicing and an expectation that the produce good quality business. These latter two are becoming more and more influenced by technology with those best positioned to invest are the larger, better capitalised organisations, particularly those backed by large insurers.
So can the smaller distributors respond or is their fate already sealed? Well, I believe there may be hope for the 2nd tier distributors as technology solutions are becoming more and more cost effective. Currently there is a wide choice of solutions and competition has seen prices drop along with some solution providers adding more and more value to their propositions. For the smallest firms there are now solutions on the market now as cheap as a one of fee of £2,500 per firm. While I wouldn’t say such solutions will drive the savings that the leading distributors are gaining they may help to extend the life of some of the small distributors. For those in the mid tier, the range of cost effective solutions is increasing with systems such as Momentum from Crystal, 360 from Focus and AEME from 1st Software all providing quality solutions with a breadth of functionality at a good price point. The Key from Mortgage Brain has a functional offering at a particular aggressive price that may suit the lower end of the market as well. Add to this the benefits of ASP solutions such as Intelligent Office from IntelliFlo and Senro from Solution 4, which take away the need to maintain and manage the hardware and software and smaller firms really can power their businesses effectively with minimal cost and effort.
I do still see large levels of consolidation ahead, but believe the survivors may stretch a little wider than some predict. Those that will survive will not only be those that are well backed financially but those that have a clear vision and move quickly. Companies like Positive Solutions and Home of Choice set up and grew quickly, with controlled and well focused investment, basing their business models on good technology. The market is tougher now, but the industry has proven to be resilient and adaptive and those with a clear vision and value added proposition will survive and prosper.
