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AMI’s view

Like an iceberg, the majority of the costs of mortgage regulation have been hidden from view as they have been swallowed up by internal considerations – IT, staff and management meetings, training, let alone opportunity cost. This is why the AMI has been on the front foot helping members to understand the implications of fee-charging and what a reasonable level of fee looks like.

Advice is not free and we do ourselves a disservice if we allow clients to think it is. I sometimes to speak to people who seem to think a number of odd things along the lines of: “Advice should be free”, “Commission is necessarily a bad thing” and “Firms that charge fees are profiteering.” In the mortgage market, we do not believe it is (yet) a crime to make a decent profit although we have to treat customers – and our employees – fairly.

How are we to achieve this? The options are the same as always. We must become more productive in core business, expand into new areas, cut costs and look for ways to increase margin. One trend in the last few years has been for increased use of technology in the mortgage market. While this has been positive from a customer’s perspective by allowing faster offers and so on, it has not always been a good experience from the intermediary’s side of the desk. Lenders want more business online as they do not need as many clerical staff inputting information but this has transferred the cost on to intermediaries without a similar increase in fees.

I do think that lenders will review commission payments at some stage. The Basel II initiative on capital adequacy will have a role to play in this. If it delivers the ability to hold less capital, some of this can be used in product pricing while the rest could be used in supporting distribution. Other options revolve around lenders taking further stakes in intermediary firms and I have heard all side of the argument on this one.

The side-effect of statutory regulation is that it has a significant economic effect. It will continue to cost the industry significant sums of money. Hopefully, some of the burden of this will be mitigated by the introduction of an instalment scheme covering FSA, FOS and FSCS fees.

I hear from many members that they cannot charge fees because no one else in their area does. But I have a feeling this is a dam about to break. The first one to go may not lose business because everyone else will follow them faster than you can say: “Good intermediaries have the right to earn a decent living.”

There is another side to this argument. There may be some competitive advantage in appealing to those people who actually do want to pay a fee. To call yourself independent, you must offer the client a fee-only option. Why not look at this as an opportunity to make a virtue from necessity? I was struck by a survey I saw not too long ago which found that tied agents were consistently good at explaining why they could meet a customer’s needs – yet IFAs repeatedly failed to properly explain the benefits of dealing with someone completely independent. Let us listen and learn.

Chris Cummings is director of the Association of Mortgage Intermediaries

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