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10 | Fees vs. commission
reduced proc fees with many looking to the choice. I for one, would be very surprised if fore the lender will not embark on any cross-
direct consumer market to cut costs even fur- this idea was to travel over the pond. selling activity. However, getting back to the
ther. These factors have instilled a fear, quite real world, unfortunately this is highly unlike-
naturally for those that have been trading on a Search fee ly to happen as most of these lenders bank –
proc fees basis for most of their professional The subject of fees and commission is a sensi- pardon the pun – on selling these additional
lives, that introducing the payment of upfront tive and emotive area and my thoughts are products as part of their overall business strat-
fees will result in existing and potential clients that brokers should not be afraid to imple- egy. Inevitably unless this conflict is sorted –
taking their business elsewhere. However, with ment a charging structure if they can break and there is little evidence of this happening –
lenders vastly reducing proc fees this is an area down and demonstrate exactly what service there will always be discord between the direct
that increasing numbers of brokers are having they are providing for the fee. Many brokers to consumer lender and mortgage brokers.
to seriously consider. are having to adapt to the increased amount The gradual reduction in broker numbers
of deals being sold direct to the consumer by as a result of the combination of funding
Full circle charging a form of search fee to include these issues, housing market decline and falling
It appears to me that the intermediary market direct deals as an option. A search fee could proc fees means that brokers have to increase
has turned full circle in respect to the advice comprise of a relatively small fee, maybe in their skills/knowledge/qualifications/profes-
and fee charging process. Looking back to 10 the region of £100 to £250. This ensures that sionalism in line with any possible RDR
-15 years ago I think it’s fair to say that bro- the broker still earns a small fee from the implications. It is also important to remem-
kers offered a more personal and comprehen- mortgage transaction but the important thing ber that if brokers make the transition to a fee
sive service in terms of reviewing a client's to remember is that it then gives ample charging entity, they need to be careful in
overall financial position. There was more opportunity to cross sell and pick up more how they record and handle fees so that no
client ‘hand holding’ throughout the chain lucrative earnings from say protection and errors are made in the collection/payment
when dealing with valuers, solicitors and of general insurance cover. method as this could be costly for brokers to
course lenders. Invariably this led to advisers Indeed, recent research has found that the administer.
charging a fee for their services and being in a majority (61 per cent) of mortgage intermedi-
position to justify this fee. aries have started charging their clients fees Flexible
We then embarked upon the period of for sourcing mortgages with only 4 per cent All in all brokers have to be even more flexible
unparalleled credit which enabled more totally ruling out the idea of ever charging a and more adaptable to current market condi-
clients to have access to more products at fee. The poll, conducted by RBS Intermediary tions.
higher LTV levels. This increased competition Partners at its recent Forum event in It is vital to keep positive as there are
in the lending arena even further and sudden- Sunderland found that of the 183 brokers who opportunities presenting themselves via a host
ly being a mortgage broker was a relatively responded, 44 per cent said they had been of ancillary products through honing sales
simple business. Proc fees were generous and charging fees for more than a year and a fur- techniques. There has also never been a better
with such a rapid turnover of clients there ther 16 per cent had started charging a fee in time to sit down with existing clients and
was no need to even think of charging them a the last 12 months. The research also found explore the range of potential opportunities
fee. that 5 per cent were still unsure about it, 9 especially in the protection and GI markets as
per cent hadn’t yet considered and just 4 per vast numbers of people are currently underin-
Need to revisit cent ruled out ever charging a fee. sured.
I’m not saying that brokers didn’t remain pro- From speaking to brokers this reflects the Working existing databases should be the
fessional throughout this period but it now feedback that I have received but having said prime objective for brokers who are struggling
seems that some elements of the intermediary that there is also still some apprehension over with current market conditions. Brokers that
community have to revisit these past sales what will happen if commission becomes a take clients' wider financial needs seriously
practices and business models in order to thing of the past and fee-based advice will undoubtedly place themselves in a
learn how to become holistic financial plan- becomes the norm. It is a fine line especially if stronger position and cross selling will not
ners once again. this results in consumers refusing to pay for only generate attractive recurring revenue but
This whole issue of commission was further advice and as a result make the wrong deci- also help turn them into a one-stop shop for
brought to the attention of the media recently sions to save a few quid that will ultimately clients. This can prove to be a little daunting
by the suggestion that mortgage advisers in cost them far more in the future. but support it out there particularly for
the US are required to charge clients a univer- directly authorised firms in the form of trade
sal flat fee. It has been reported that brokers Reticence bodies, mortgage clubs such as TMA and a
receive the same arrangement fee whether As you would expect the whole intermediary number of outsourcing opportunities.
they are remortgaging or arranging a mort- arena is fully aware of the reticence that exist There is no doubt that this is a topic that
gage from scratch. The fee is the same for all in some corners of the broker market. To try will run and run and I’m sure a variety of dif-
broker firms. and combat this, sourcing systems have ferent opinions will continue to be aired.
Some commentators have observed that if worked hard to make improvements to their Intermediary firms will naturally possess dif-
such a system was adopted in the UK it would technology to include provision to source fering opinions regarding the ‘to charge or not
reassure these brokers who are worried that if direct deals. Obviously this also means that to charge’ debate. There will be some who
they suddenly start charging for advice that brokers need to make themselves more aware have always charged, some who will now
clients will go elsewhere. Some form of fee- of direct lender criteria and there may also be charge, some who see the benefits of charging
charging uniformity may have some merit as some merit in trying to foster some kind of but are concerned about the consequences
if everyone had the same fee structure in place closer relationship with these lenders. and those who will dismiss it out of hand.
it would boil down to service levels but on the There is the argument that in turn direct So is there a right or wrong? The simple
flip side there is also the argument that con- lenders should accept business from brokers answer is no. Firms must judge for themselves
sumers should have the right to choose to pay on the basis that no proc fee will be paid but what works best for their individual business
for advice in the way that works best for them the lender in question gives assurance to bro- and work hard to make sure that whatever
and a like for like structure may hinder this kers that the client remains theirs and there- decision they make is the correct one.
October 2009 Mortgage Introducer www.mortgageintroducer.com
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