An issue that has been on the boil since regulation was first announced is the use of the word independent. This single word has provoked more discussion than perhaps any other aspect of regulation in both the IFA and mortgage intermediary market.
If you wish to call your firm an independent mortgage intermediary in the new FSA world, here is what you must do:
Fees. You must offer clients the option to pay a fee for your services. This means they are entitled to a rebate of any commission paid by the lender. In working out the right fee level, you should take account of the lost commission income and any administrative work you undertake in managing the rebate process.
It is my view that most people do not appreciate the time cost of advice. Most clients will look for a cheaper alternative and you are free to provide it.
Fees and commission. A solution to the problem is a fees and commission split. The client pays a lower fee and you keep the lender's commission.
Commission only. Of course, some clients may not wish to pay a fee at all and are happy for you to work solely on a commission basis. This is their choice.
The key, as with much else in regulation, is full and accurate disclosure. Provide the client with the options and record the what and the why in a suitability letter.
The second aspect of independence is access to lenders. The FSA requires:
Whole-of-market choice of lenders or
A panel representative of the market.
Naturally, the panel must be properly constituted and regularly reviewed but it is an entirely feasible and welcome option for many.
Chris Cummings is a director of the Association of Intermediaries