sider trail commission
Trail commission is a topic that repeatedly comes up and always sparks some debate. This comes as no surprise as both lenders and brokers have reason to consider the virtues of trail commission. From a broker’s perspective there are advantages to be had in the longer term but challenges in the early days. The biggest problem for many brokers would be the transition from upfront payment of a procuration fee to an ongoing trail. If it were to happen overnight the cash flow implications would be too significant for many to bear due to the time it would take to build up the income stream to an acceptable level. However, trail would provide embedded value for a broker’s business by building an income stream. It would give a steadier income when the market experiences ups and downs and avoid the need for the broker to be starting each year from scratch to generate income.
Lenders typically face difficulty in adapting systems to
introduce new commission structures and this is often cited as a barrier to entry. Their motivation for introducing trail commission would be reduced exposure to churn of customers. Of course that is at the heart of the argument against the use of trail commission. What a lender may call churn a borrower would call shopping around for a better deal. The danger therefore is that trail could lead to consumers losing out on a better deal as the broker does not want to disturb their trail commission. For it to work brokers would still need to be adding value to their clients and ensuring that they don’t lose sight of what’s important to them. In a nutshell they would want to be sure of getting the best deal for them. Anything that could compromise the consumer’s interests would not work and would also come under scrutiny from the regulator.
Overall, a more workable model would be part upfront, part trail and quality could be rewarded by linking trail to the performance of asset. The debate will come up again as the continuing
David Hollingworth, communications director, London & Country
constraints in the market make it highly unlikely we’ll see any radical changes to remuneration models in a hurry.
Following the recent heated debate regarding trail commission which was started by a piece on the BBC Radio 4 Moneybox programme and in advance of the Retail Distribution Review, it got me thinking. What if all mortgage advice changed to a fee based model? First of all, it’s ‘hands up time’. I’ve never been a fan of
free mortgage advice even going back to my days with Cheltenham & Gloucester when I dealt with brokers each day, all panicking over when the commission would get released so they could get paid.
What seemed to be a perfectly fine business model during the boom years has become a millstone around the neck of mortgage advisers. If you weren’t fee free, you weren’t any good seemed to be the mantra at the time. However, now as there are fewer advisers around following the downturn, can free advice be justified? For me, it’s quite simple – when asked by prospective clients whether I give free advice, I try and quantify their thoughts. Do they mean will I answer any queries they have free of charge, or are they asking me whether I charge for my experience in locating the right mortgage for them? I help my clients and I regularly go above and beyond their expectations. However, having been let down by clients when I began trading when not charging initial fees (when I was seen as a “Mortgage Citizens Advice Bureau” to provide enough information to go direct to the lender instead) you alter your mindset very quickly.
Changing to a fees based model in mortgage advice would help our industry – it would show the true value of our work and enhance the perception of it. No longer would we been seen in some quarters as commission chasers. Think of this – why do clients come to brokers? Two reasons – either they’ve used a broker successfully in the past or they’ve tried to locate a mortgage themselves and failed. We have to see the value in our service to clients and stop selling ourselves short. Our service is professional, comprehensive and thorough. Be proud of what you do.
Stuart Gregory, managing director, Lentune Mortgage Consultancy
sense. Do you want to be a part of the next Bigger Issue? Email
nia@thepublishinggroup.co.uk morTgage inTroducer OCTOBER 2011 29
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