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This is part 5 of a series I’m calling ‘How to start a Lifestyle Financial Planning business from scratch’. If you are new here, welcome! For context, it would make sense for you to start with part 1 which can be found by clicking HERE.

Last week I told you all about the fun I had whilst selling gas and electricity to businesses through the delightful medium of cold calling.

So, let’s continue…

Experience

It was June 2007 when I passed my final exam to become a fully qualified Mortgage Adviser. 💪🏻

I had no experience though, and every Mortgage Adviser vacancy I could find required a minimum of 2 years’ experience.😕

That created an interesting problem, how was I supposed to get any experience if nobody would give me a chance to get that experience? 🤔

Hmm, it was a real humdinger. Have you ever come across a situation like that? Frustrating, isn’t it?😡

Instead of sitting around and waiting for things to happen, I went for a job working for a sub-prime secured loan brokerage in Sheffield because I’d heard they had just started a small Mortgage Advising arm to the business and I thought I might be able to get my foot in the door if I started out working in their sub-prime secured loans department.

Selling sub-prime secured loans in 2007 was as easy as shooting fish in a barrel – but it didn’t sit right with me ethically.

Here’s how it worked

Bob wants a new shiny thing so that he can paint a picture of success to his friends, family, colleagues and neighbours.

Bob owns his own home and the word around the campfire is that property values are on a never-ending rise and consequently, mortgage lenders are dishing out cheap credit so fast, they can’t create it quick enough!🏠📈💷

Bob calls his bank and asks if he can get a piece of the action by increasing the mortgage on his home, unfortunately Bob is declined.😔

Bob is not happy about this and decides to try other high street banks.

Unfortunately they all refuse to lend him any more money.

Lucky for Bob, my company has bought his data and happen to know he is desperate for credit. So, we call him out of the blue and offer him a lifeline. 📞🗣

We offer him a loan, but it would be secured against his house so that in the event he doesn’t pay, we have some collateral. This is called a secured loan, or sometimes a ‘second charge’.

It’s called a second charge because his mortgage company have what’s known as a ‘first charge’ on his property, that means that if Bob doesn’t pay, they have first dibs on the house, which they can repossess and sell to get their money back. If there’s any money left – then the secured loan is paid.

It’s called a ‘sub-prime’ second charge because Bob is high risk (for whatever underlying reason), and because of this, most lenders would decline to lend to him.

Consequently, our secured loan comes at a much higher rate of interest and there is a chunky application fee too! 🙈

Let’s say the application fee for Bob is….£3,000😮

Bob isn’t overly perturbed by the high fee, he’s seen it all before. Besides, we will let him add the fee onto the loan anyway, and we will also allow him to repay the loan over a period of 400,000 years (😂) and as such, that £3,000 fee will only cost him something like £2 per month!👌🏻

…which equates to just 7p a day!👍🏻

(Disclaimer: Clearly all these figures are just for comedic value and are not representative of t’owd Bob’s actual loan agreement 🙄).

Bob has a momentary wobble. The line goes quiet….Whoever speaks next – loses! 🤐 But me and Bob both know he is drinking in the last chance saloon, and we both know his ego will get the better of him eventually.

Sure enough, after a few seconds of silence Bob agrees to proceed with the loan and he cannot thank us enough for our ‘help’.🤝

Thank us?

For our ‘help’?

That’s like inviting a thief into your house, showing them where your most valuable items are kept and then thanking them on the way out for leaving you a spoon!🙌🏼

Commission

Oh, you know that £3,000 fee I mentioned earlier? Well, it wasn’t a mandatory fee. But if we could get Bob to go ahead and agree to the fee then we would receive 10% of it as commission!💷💷💷

The sales floor was full of guys and gals in their early 20’s –  it was like a student common room full of people hungry for commission – and they cared not a jot how they got it!

The customers didn’t seem to care either! Let’s face it, they were in the last chance saloon and they badly needed new shiny things – and as for the fee, well, it was added to the loan anyway…so who cares!

PPI

Naturally, these people must all need PPI right?🤷🏻‍♂️

Of course they did!🤑

It didn’t matter if they were retired.

Frankly – it wouldn’t have mattered if they were dead! 😳 They were alllllll having it! And it just so happened to pay a handsome commission too. 😐

As soon as we sold a ‘widget’ we would get a round of applause from our colleagues and the sales ‘adviser’ would go and write their sale on the board, it was a twisted form of art, akin to Duchamp’s fountain!

The top sales folk were paraded around like national heroes and sent away on lavish trips abroad. ✈️

Business was booming! It was going so well in fact, that the 2 co-founders of the business won numerous industry awards for ‘innovation’ and ‘entrepreneurialism’ and were featured in several local papers and heralded as shining lights in the finance industry.😐

I remember how they both used to rock up in their Bentleys 🚘 🚙 – I’m not even making this up!

Sell or be sold

The truth is, I wasn’t all that great at selling sub-prime secured loans.🤦🏻‍♂️

Having just passed my Mortgage Adviser exams I was on a bit of a moral high and I used to talk customers out of taking a loan more often than I sold them one.

I remember having a 1 to 1 with my manager and I told her how I felt morally conflicted, she said something like; “Well, you need to decide whether you really want to get that trainee Mortgage Adviser roll, because they are watching you closely – they need to know you can sell”.

Broker fee:

I eventually got that trainee Mortgage Adviser roll.

Another massive reality check awaited me.

Again, this was ‘sub-prime’ Mortgage sales.

The clients we dealt with were a step away from being referred to my old team for a sub-prime secured loan, and they typically had one or more of the following issues:

  • They couldn’t prove their income (good start)
  • They had been declared bankrupt in the past 6 years (standard)
  • They were not permanent UK residents
  • They relied heavily or exclusively on tax credits/benefits
  • They wanted to borrow more that the value of their home (Think – Northern Rock)

Much to my surprise at the time, it turned out that if someone could not prove their income, did not have the right to remain in the UK indefinitely and had recently been declared bankrupt – then the obvious solution was to lend them 125% of the value of their property at a double digit rate of interest, on a Mortgage deal that carried a rather weighty £5,000+ fee.

The cherry on the top was our ability to charge a broker fee of which I would earn a percentage in commission. This fee was often in excess of £5,000 (naturally, you could add both these fees to the Mortgage).

Imagine that….£10,000+ in fees for a Mortgage?!😮

To top it all off, it was often possible for the customer to take some or all of the Mortgage on an interest only basis, meaning they would JUST pay the interest and not actually pay any of the debt off, so at the end of the agreed term they would STILL owe the same amount as they had borrowed originally – plus all the fees.

I mean – what could possibly go wrong?!😐

It was an absolute joke.

Naturally none of these people took out any insurance, how could they? They had no frickin money!

They probably couldn’t even afford the Mortgage – how were we to know? Most of these Mortgages were agreed with NO evidence of income.

It was a ticking time bomb until…

September 2007 – Olympus has fallen

I had finally earned enough money to go on my first holiday in 7 years.🏖

I remember one evening, whilst sat waiting for my girlfriend to get ready I was watching Sky News (as you do on holiday when there’s only 2 English TV channels available) and the headline came up that Northern Rock were in trouble.📉🗑

Honestly, at the time I didn’t have much of an understanding regarding the underlying causes of the credit crunch. Many years after the event I stumbled across this fantastic animated video which brilliantly explains how it all unfolded.

Over the next 6 months business was tough.⏳

This new sub-prime Mortgage Brokerage I had been working for was struggling big time, and I knew it.

The endless meetings between the 2 chaps with the Bentleys and the business consultant who was heading up the brokerage were a giveaway.

It looked like I would be heading for the exit door, until a surprise phone call gave me a lifeline.

More on that next week.

(Disclaimer: If you click any link in this email, you will be departing from the regulatory email of Clarity Lifestyle Financial Planning. Neither Clarity Lifestyle Financial Planning nor Intrinsic are responsible for the accuracy of the information contained within the linked site).

Until next time…

If you are looking for a collaborative partner to help you and your family succeed financially, then hit me at planning@claritylfp.co.uk and let’s see if we get along!

Financial Planner | Financial Adviser | Investment Advice | Pension Advice | Insurance Advice | West Yorkshire