Why referrals will be key to meeting the FCA’s protection deadline – Smith
If a broker who specialises in mainstream residential mortgages comes across a commercial or bridging case they don’t feel equipped to advise on, they wouldn’t think twice about referring it to a specialist packager.
Yet that doesn’t happen anywhere near enough when it comes to protection. Either it gets squeezed in at the end of the conversation or, as is often the case, it gets ignored entirely. It’s one of those paradoxes I’ve always struggled to get my head around.
In my experience, most brokers are perfectly capable of advising on protection – they just simply have too many mortgage cases to get through, so that takes priority.
When many of us started out in this industry, you were authorised to advise on everything – pensions, investments, mortgages, the lot. Wealth split into specialisms years ago, and mortgages and protection are going the same way. For all the talk about holistic advice, that’s no bad thing, as long as you are able to refer to an expert if you need to.
Getting this right has never mattered more. According to the Financial Conduct Authority (FCA), 58% of UK adults don’t have any protection in place. Not all of them will see a mortgage broker, but many will, and that conversation is one of the best chances the industry gets to put cover in place.
If we are serious about meeting the FCA’s challenge to make “meaningful progress” towards closing the protection gap in the next 12-18 months, referral pathways will be vital.
Your First Home: confidence to build
Sponsored by Halifax Intermediaries
The work being done by the Protection Distributors Group and Association of Mortgage Intermediaries (AMI) will help raise awareness of protection in the long term, but we need results now. And there are too few protection specialists to go round, so hiring in the expertise won’t be a realistic option for many firms.
A referral pathway, on the other hand, can be set up quickly and cheaply and start paying off within weeks.
As a protection specialist, you would expect me to say this. But it works for both clients and brokers. Around 60% of our clients have some form of income protection. The industry-wide figure is around 14%, according to Iress. Not having to advise on protection also means that the referring broker is freed up to do what they do best, which is advise on the mortgage.
One of the main reasons many firms do not have referral partnerships in place is because they don’t know where to start. So what do you need to know to ensure that your client is given the best possible outcome and you maintain the relationship?
Creating referral partnerships
The first thing is spotting the opportunity and getting the timing right. Raising protection after the mortgage shows that you think it’s less important than arranging the finance, so have the conversation as early as possible in the process. It’s also important to get the handover right: introduce the referral partner by name and, with the client’s consent, pass on the relevant information early.
Fear of losing the client is one of the main reasons brokers hold back from referring. Speaking for us, we have no interest in taking a broker’s mortgage business. Most specialists with a long-term outlook will feel the same, but it’s worth being clear about where the boundaries are upfront.
Ask your referral partner to report back on how many referred clients took cover, what they took out and how many were declined. If the regulator or your network ever comes knocking, this is the information they will want to see, so keep a record of it.
When choosing a partner, the commercials are important, but they are not everything. It’s more important to check how broad your chosen partner’s panel is, if they can place clients with health conditions and if they provide support throughout the claims process.
The FCA’s market study makes it clear that its interest in protection will be more than fleeting. And it will expect us – all of us – to show we are making progress on the protection gap.
There are plenty of things the industry can do to boost uptake over the long term, which I will cover in a future article. But strong referral pathways are the quickest way to deliver what the regulator expects in the time it has given us.
If you can’t give protection the attention it deserves, hand it to someone who can. Doing nothing is no longer an option.
