In September, Paradigm Mortgage Services celebrated 15 years in business and five years since becoming a public company.
Bob Hunt and Christine Newell have been with the firm since its inception and seen it come through many challenges — in fact it was founded in 2007, the midst of the credit crunch.
In 2017, Hunt, Newell and since-retired head of mortgages John Coffield sat down with Mortgage Strategy to review the previous decade and the firm’s plans post-IPO.
Five years on, Paradigm has increased the number of directly authorised firms it represents, from 1,034 to 1,674, made up of more than 3,000 advisers — and it continues to thrive.
The market is so resilient — it’s built on strong blocks
Chief executive Hunt attributes the distributor’s ongoing success to three key factors: organic growth, acquisition and partnership.
“Soon after we floated, we put in place a three-year plan,” says Hunt. “We wanted to grow through acquisition but we also put strategic partnerships in place; some are with our biggest competitors.
“The first was with Tenet; as a group we sell our DFM [discretionary fund manager] services into them.
“And last year we did a deal with Fintel, formerly SimplyBiz, again to provide support to their DFM model, and they’re comfortable that we talk to their member firms that are targets for us too.
We don’t get bashed because we care about the firms we work with
“If you’ve been around a while and people trust you, you can form relationships with competitors that are mutually beneficial. They’re not experts in certain areas where we are, and vice versa, so it’s good for everyone.”
CPD academy
The year following the float, Paradigm launched The CPD Academy to help advisers reach and maintain their CPD (continuing professional development) hours under the new Insurance Distribution Directive (IDD) rules.
“We started the service in response to the IDD, saying, ‘We’ll talk to providers to see if they have intellectual collateral to put on a basic system.’ And the brokers in that market who needed to prove their IDD requirements would go on and log what they’d done,” says Hunt.
“That has grown because compliance and regulation requirements have grown.
I’d like this to continue as a family-oriented partnership business where relationships matter and employees enjoy coming to work
“We now have all of our mortgage relationship provider propositions engaged with the academy and two years ago we developed ‘the Test Zone.’”
The latter supports advisers in meeting their annual CPD and training requirements, and assists firms in certifying advisers as ‘fit and proper’ to perform their role.
Newell, the company’s mortgages technical director, says Paradigm does a lot of work for firms around regulation and compliance because small businesses struggle to keep on top of it.
“The regulator has moved completely to look at data-led initiatives. It’s much more looking at things like occasional papers, financial live surveys; bringing together how they think regulation should look,” she says.
We’ve got so much expertise in our group, and relationship managers to help all firms, so that’s where we add value
In terms of financial growth, Tatton Group, of which Paradigm is a division, has increased its operating profit from £4.5m in March 2017 to £14.5m in March this year. The group’s funds under management were £3.9bn five years ago and are now £11.3bn, while gross lending has jumped from £4.8bn to £13.15bn.
The crux of Paradigm’s success is in its relationships, according to Hunt.
“It really is a partnership between our member firms, ourselves and the providers,” he says.
“Of course, our members do pay us fees and get services, but it’s not about that.
“We very rarely see our members leave unless it’s through consolidation or retirement. And I think that’s because people like Christine [Newell] have been in the business for so long and really do add value and try to understand members’ ambitions, rather than what we can make financially.”
I would love to see the youngsters in the business come up and take the positions of myself and Bob
Having launched Paradigm in “the eye of the storm” — the financial crisis — Hunt says the business stood out by being the first to offer rebate.
“Others copied but we’re still alone in that we don’t have any conditionality on that. You don’t have to buy our IT system or put X amount of business through our pipelines. Everybody gets the same deal,” says Hunt.
That’s not the same at other distributors; not everybody gets the rebate.
“When we launched we shared our equity so 50% of the capital value of the business was in a discretionary trust, and when we floated we paid that out — we gave that equity to those firms,” adds Hunt.
Withstanding turbulence
Having overcome many challenges as a business, the Paradigm duo are unperturbed by the current turmoil and Newell believes brokers will once again withstand the turbulence.
“The market is so resilient. It’s built on strong blocks and we’re learning from everything that happens to us,” she says.
“Our brokers have never been busier; in the remortgage and product transfer market especially. That will be a bigger sector next year than the purchase market.”
Disruption in the market creates opportunities, adds Hunt.
“Intermediaries are remarkable; they shift their focus when necessary. I’ve been saying consistently, for years, it’s a great time to be an adviser,” he says. “The market changes all the time; the way we work has changed post-pandemic. You have to adapt.
It really is a partnership between our member firms, ourselves and the providers
“We’ve seen the demise of the direct-to-lender market share and, with something like 70-80% of the market being fixed-rate mortgages [83.1%, according to Bank of England figures for July] those products are all going to mature at some point. That means advisers have got a form of recurring income that will keep them going.”
The business is a great example of overcoming adversity, and Hunt and Newell say things have come full circle from the start.
“Back then, there was hardly any capital in the mortgage market and when the crunch came we suddenly saw a £350bn market falling in a short period of time, down to £140bn. And some lenders were using capital to supply their own branch network and didn’t want any more distributors. It was almost impossible to break the door down,” says Hunt.
“But those acorns [adviser firms] that we took on are now proper oak trees. The likes of Hawke Financial and LDN — these are the pillars of the future.
You don’t have to buy our IT system or put X amount of business through our pipelines. Everybody gets the same deal
“Since the float, some of the big firms have asked to work with us and some have approached our members. But they’re loyal to us now so we’ve come full circle.”
And Hunt says they have always been selective over who they work with.
“Quality must be at the heart of what they do. It comes back to what the Consumer Duty is about: what sits at the heart of a business and its culture.
“The test we looked at 15 years ago — ‘Would you recommend this adviser to your grandmother?’ — that’s the sort of question the Consumer Duty is bringing back to the fore.”
Exit questions
When it comes to the most common questions asked by broker members, Newell says there are a lot around exiting the market.
“Particularly post-Covid we’re often asked, ‘How can I prepare my firm to exit the industry?’ and ‘Is my firm worth anything?’
If you’ve been around a while and people trust you, you can form relationships with competitors that are mutually beneficial
“They might be retiring or had an epiphany during Covid about what they’re doing with their life,” she says.
“There are questions from firms wanting to merge or grow by acquisition, so we can facilitate those discussions. We also help them move into other areas of the market, like equity release and the lifetime market, and new-build. Members want to know how they can work with developers.
“We’ve got so much expertise in our group, and relationship managers to help all firms, so that’s where we add value.”
So where would Paradigm like to be in five years’ time?
“I would love to see the youngsters in the business come up and take the positions of myself and Bob, because we’ve got some very strong capability within the team,” says Newell.
“It’s about their development, and coming to take the positions of the old guard and take it to the next level.”
Hunt says: “In many ways our growth is mechanistic. We take on new firms at a regular rate — say, 12 to 14 mortgage firms a month, and nine to 11 protection firms a month.
Those acorns that we took on are now proper oak trees — the likes of Hawke Financial and LDN
“I’d like to maintain this position as we have a really professional outfit. It sounds kind of soppy but I’m proud of the reputation we have earned. We don’t get bashed because we care about the firms we work with.
“I’d like it to continue as a family-oriented partnership business where relationships matter and employees enjoy coming to work.
“Because I do and, until I get to the point where I don’t, I’ll continue coming to work.”
