Direct action

30 July 2010 8:00 am | By Paul Thomas

The rise of direct-only products is forcing more brokers to look at an upfront fee in order to offer clients advice on these types of mortgage deals.

Earlier this month, MoneySavingExpert.com’s Martin Lewis slammed lenders for holding mortgage brokers to ransom with direct-only deals.

Lewis argues this “worrying trend” will reduce access to mortgage advice, despite mortgage products becoming more complicated by stealth charges and subtle clauses. He highlights the fee-charging model as a way in which brokers are fighting back against the direct-only threat.

Abacus Financial director Matthew Fleming-Duffy is pursuing a fee-based whole-of-market model in contrast to a panel system which excludes direct-only deals. He says this allows him to offer genuine access to the entire market.

Fleming-Duffy charges the borrower an upfront fee of £99 for telephone-based advice. If the best deal is direct-only then he will send the borrower to this lender. But if it is through an intermediary lender, he will go through the normal process of submitting business.

Fleming-Duffy says this is the way in which he has chosen to adapt to the current market. He operates this alongside his traditional Bournemouth-based face-to-face brokerage, which does not advise on direct-only.

He says: “The process takes a couple of hours. It is not a big profit-maker unless we have got volume. But it fits with the market at the moment, bearing in mind that more than 50 per cent of deals are direct and in most of the best-buy tables you will find that the direct deals are at the top.”

However, Fleming-Duffy says that even though he believes his model is right for today’s market, he hopes lenders start to value their intermediary channels more in future. He says: “The type of advice we are giving is right for the market as it stands. Whether I agree the market should be this way is another question.

“It is an innovation we have come up with to say we can survive through this market. But in the long term, lenders should be paying commission and lending more via advisers.”

Simplicity Financial Services principal Rob Downham has also contemplated using a similar model but he still has reservations.
He says: “It is difficult at the moment. If we work on the basis that the market is going to be less intermediary-led, do we need to embrace this as a new reality? I am starting to come round to the fact that you have either got to go and get another job or embrace the new reality.”

’You have either got to go and get another job or embrace the new reality’

He adds: “We could just point people in the direction of a lender but if we are recommending a client goes to First Direct, for example, we have to go through the process of formally explaining why we have recommended that lender. We cannot do that for £99.

“We are considering offering a service where the client can choose between two options. Under one option we only look at the intermediary products and administer the mortgage through to completion. Under the other option we would look at direct deals but would not get involved in the administration.”

Emba group sales and marketing director Mike Fitzgerald has also considered the approach.

He says: “It is the way forward for certain people but then they are in the clutches of the bank. Are you really doing the client a good deal? If you send a person down to the bank, that bank will try and sell them contents insurance, for example. That is fine but it is very expensive.”

Some are concerned about the customer’s willingness to part with an upfront fee when they can go somewhere else to a fee-free broker.

Fleming-Duffy says: “Some consumers do not like the idea of paying £99 upfront.”

Fitzgerald remains sceptical about whether the model will become more mainstream.

He says: “There are too many questions to be answered. Some people will go down this route but I do not think it will really catch on.”

PMS executive chairman John Malone says: “Potentially it has got legs but you have to capture the client and how do you do that? One of the things we have to do, which is something we need to do through our trade body the Association of Mortgage Intermediaries, is demonstrate the value of advice that can be attained through intermediaries.”

AMI director Robert Sinclair says there will always be deals that brokers cannot access.

He says: “We can never cover the whole market but brokers can be representative of the whole market and the regulator accepts that.”

He says brokers have to tread carefully when it comes to recommending direct deals.

Sinclair adds: “They have to have an appropriate key facts illustration and the lender has to have an appropriate one their end. Therefore, brokers could fall foul of the lender’s capacity to deliver what is required.”

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