Mortgage advisers are more efficient at selling protection than IFAs, John Cupis tells Paul Robertson, while IFAs have decisions to make
In these days of job title inflation it is nice to meet someone with one that seriously underplays their responsibilities. John Cupis is managing director of PMS. OK, it's reasonably impressive on its own - in August PMS confirmed its position as the largest UK mortgage distributer, with £12.7bn worth of business in the first half of this year.
However, he also looks after mortgages, general insurance and protection for the entire Sesame Bankhall group, both directly authorised and the network itself, totalling around 12,000 advisers.
Cupis explained: "It just made sense when we merged all the businesses together that we looked to streamline our proposition - we had over a dozen different protection propositions. So we consolidated them all centrally."
Cupis is well aware that he was carrying out this exercise as the provider market was shrinking and consolidating. "When we went through our tender process we had to look at a range of criteria, but one of them was the provider's commitment to the intermediary sector, although we had to take a judgement on that."
Integrating PMS, Sesame and Bankhall into one unit has left Sesame a very diversified business, so the range of advisers, from wealth managers to investment specialists, or pensions specialists to mortgage advisers writing protection and general insurance is huge. This begs the question, who is selling the most protection?
"When markets are moving - and investments have been very strong over the last 12 months - what we see is protection moving around in terms of who is selling what. But what I can say is that early this year, for the first time within the Sesame network, mortgage advisers sold more protection than traditional IFAs.
Protection is now a significant part of a mortgage adviser's business," said Cupis.
Considering those who only hold mortgage and insurance permissions make up only 40% of Sesame's adviser base they are doing well. So, how are they doing it?
"If you look back at the history of protection sales, particularly in the mortgage market, many of those customers have not been sold protection. I still don't think that the mortgage book in the UK is anywhere near overprovided in terms of protection. It still is a significant opportunity for advisers," said Cupis.
"The one thing that is clear is that the mortgage market next year is going to be at best flat. One way we have seen advisers respond to this is by selling more protection.
"We have seen from our own statistics that the productivity of our mortgage advisers has gone up by 28% this year. We are likely to see that the mortgage market has declined over the last year, according to the CML figures, so that productivity has increased off the back of protection sales. So we know there are highly active advisers that have taken the opportunity," he added.
The number of protection focused advisers is set to grow, as in mid November Sesame announced the group is launching The IFA School to help attract and nurture the next generation of IFAs. The school is planning to open its doors next year, with the first phase of the programme looking to attract 15 trainee advisers. This will include people who are new to the profession, along with some with previous experience in financial services.
In fact the first graduates will not be IFAs at all. "The IFA school is launched to introduce IFAs into the market but the early graduates of that school will be focusing on the mortgage and protection sector, so it's not just for IFAs."
Interestingly, although Sesame has seen no real trend for mortgage advisers to drop out of selling mortgages, there has been a definite trend towards firms joining the network that just specialise in protection. Cupis expects this trend to continue.
Networks were, however, set up to be more than aggregators of financial products. Their core raison d'etre was originally to soften the burden of compliance with regulation. One could argue that this facet of their business is set to become even more relevant with the advent of the Retail Distribution Review (RDR).
Cupis shrugged his shoulders as the topic was brought up. With most of the industry holding strong views one way or the other, he remains sanguine.
"Our view is that whatever the regulator throws at us we will cope with. All of the indications so far are that the RDR will happen and that advisers in the investment field will be charging fees, and that commissions will be retained for mortgages, protection and general insurance products. There are two very distinct market places emerging.
"Some of the proposed costs, both of the RDR and the regulatory environment in general, will add costs to consumers, but if that's the way it goes we will just get through it."
Although he sees far reaching consequences of the new regulation, Cupis is understanding of the regulator's position.
"I don't think that intrusive regulation would be welcome, but the regulator has a tough job, it has to monitor a variety of different businesses and providers."
Fair enough, but what are the likely effects on the network's adviser client base? Cupis goes with the orthodox view that the RDR will force advisers to consider what markets they want to be in, whether they will charge fees or not.
"Once that decision is made they will then make a further decision on whether to specialise. The RDR will create opportunities for us as it allows us to demonstrate our support. But they question how many advisers will drop out of the industry completely," he added.
Sesame's guestimate of the number of advisers it expects to lose by 2012 as a result of the RDR is 15% to 20%.
"If you are an IFA predominantly selling mortgages, protection and general insurance and if you are close to retirement, then the prospects of qualifications under the RDR could be more of a concern than any prospect of charging fees.
"But what we have to be ready for is the prospect of IFAs dropping their permissions and just concentrating on mortgages and insurance.
"I think this is a decision that many advisers will make, probably, unfortunately, too near the time. But we are already having conversations to encourage advisers to think," said Cupis.
Pure protection aside, Cupis is aware the perennial understudy of the protection and health care sector, long-term care, may at last enter the limelight. The government has recently issued a statement of intent that it expects more from the private and charity sectors in this matter. Local authorites are certainly squeezed, with reduced cash from central government and a cap on council tax in the face of a growing long-term care bubble.
Cupis pointed out that long-term care falls into the same camp as the ‘what are we all going to do to help people in retirement?' one.
"If you are in or near to retirement you are facing a decreasingly less benevolent state and an increasingly poor state, that does not want to support this sector too much in future. The provision of private care is going to be ever more important. The question is how it's going to be paid for?" he said.
Essentially he sees payment through the equity people have in their houses. "Even in a depressed housing market there is a lot of equity out there and if the state won't help we are going to see a very interesting future market for equity release products."
Current challenges
But why not a more insurance or prepay based approach? "One of the challenges is in convincing people that they need to provide for the future today. Affordability in the housing market is going down and we are about to face some of the toughest austerity measures that a government has enforced, wages are not rising, we have a culture that doesn't save, that still spends.
"This is a generational thing. We have no culture in this country of paying out of private means for health services. I think that will change but it will take time, yet in other countries you have to pay to even see a GP," added Cupis.
So what of the coming year? Cupis acknowledges we are bumping along the bottom in economic terms, although some sectors will do better than others.
"If advisers have got to this point then that's fantastic and on the way out they are set to reap some benefits, there are fewer in the market and they will get a bigger share. Advisers would do well to look for other markets to keep income flowing."
On a positive note he ends: "If there is one thing that we could do next year as a business to help advisers, it is to promote the value, to clients, advisers and us, of protecting customers who we know are living with a £2.4tn protection gap. Actually that gap is going up."
