The mortgage industry is divided over how brokers could best offer fees for their services, particularly when advising on direct-only deals, following the publication of further mortgage market review proposals last week.
The FSA’s latest consultation paper says mortgage advisers will be able to call themselves independent if they do not offer a fee-charging option or take into account direct-only deals but they must fully disclose their range of products to customers.
However, the regulator is making conditions easier for brokers to advise on direct-only deals by removing the requirement to provide the customer with a key facts illustration. Brokers are instead required to keep a record of where they have sent the customer and must provide them with something that shows this in “a durable medium”.
The current proposals could lead to more brokers who consider direct-only deals adopting a fee-charging model.
John Charcol senior technical manager Ray Boulger says it is impossible at present for brokers to advise on direct products in a compliant way but the new proposals will make this possible.
He says: “The problem has always been having to issue a KFI. Under the current rules, it is impossible to compliantly recommend a specific direct-only deal because we would have to include our fee in the KFI. The combination of proposals is very helpful because it means those brokers who want to offer direct-only deals can do so.
“But it is important to have enough information of the specific deal to be able to recommend it. It is not just a case of having some information about the rate.”
Boulger says brokers must price their services at an appropriate level when advising on direct-only products.
He says: “If you charge too much, you risk losing the client but equally you do not want to undersell your services. What you charge depends on a whole number of factors. It is perfectly reasonably to charge a fee if the customer decides to go direct but, in the real world, I am sure some customers will not accept that.”
Private Finance director Melanie Bien says fee-charging is something brokers have to consider.
She says: “It is something they do have to look at. Clients are more aware that some lenders do offer deals direct-only and are more likely to ask brokers if they can access those as well.
“Brokers have to look at how they can charge in a cost-effective way. They are running a business, so they will want to make something back from it.”
Simplicity Financial Services principal Chris Downham believes market forces will determine if more brokers adopt a fee-charging model.
He says: “It will depend entirely on what happens in the market. I think fewer advisers will be looking at offering direct deals than, say, four months ago because things have improved a bit.
“You have got to make a call and stick to it. We currently charge a small fee, £200, and we will source the whole market. If there is a deal that is considerably better outside of our reach, we will tell the customer to go there.”
London & Country head of communications David Hollingworth says: “A few people might consider fee-charging but I do not think it will change substantially the way people do business. In the end, you will still just be sending people off down the road.
“The question is, will people pay a fee for that kind of service? When you go to a broker, normally you are getting that service right down to the bitter end as opposed to just discussing a deal and going on your way.
“It is certainly advice but what kind of fee would you be able to charge someone to send them down the road? Is that a service people think is worth paying a fee for?”
Hollingworth says the measures might benefit those who already charge fees.
He says: “It may provide some flexibility for the type of broker who has already made that move but I do not think it will lead everyone to consider that option.”
Emba group sales and marketing director Mike Fitzgerald agrees that few will switch to a fee-based approach.
He says: “I agree with paying an IFA a fee and getting the commission rebated but the FSA has said there is no product commission bias and I firmly agree with that.
“We definitely will not start charging fees and the majority of people will not.”
First Action Finance head of communications Jonathan Cornell believes the changes will not change brokers’ business models because it is difficult to advise on products not available to intermediaries.
He says: “I cannot see things changing. The direct-only changes are good for those who already advise on direct products. But I think most brokers are quite reticent about recommending products that are available only with the lender where they do not fully understand the underwriting criteria.”