Like many brokers I have spoken to in the past few days, I was a little confused by the comments from the Council of Mortgage Lenders’ chairman Martijn van der Heijden, that “hidden procuration fees” were distorting consumer choice.
Apart from some of the more unprintable responses that I have heard, it does seem strange for van der Heijden, who is also head of lending at HSBC, to lump procuration fees in the same category as branch sales incentives and targets.
They could not be more fundamentally different. Ordering your staff, on pain of death by a thousand lashes or some such punishment, to sell a certain product whether it is in the customers best interests or not is another thing entirely.
Whether or not this was a thinly veiled attack on mortgage brokers themselves, or just a general observation is not clear, but I am sure Mr van der Heijden knew exactly the response those comments would receive from the broker community.
Whilst I have much time and respect for the CML chairman, these comments are unhelpful and it is the implication in the use of the word “hidden” that causes the issue.
We all know that during the advice process, not only do independent advisers have to declare how they are paid, but a key features document is produced that shows very clearly the exact amount of the procuration fee received; so hardly hidden then.
To the public, however, comments such as this imply that there is another level of fees, secretly hidden away in the small print somewhere that help to determine where a broker sends their mortgage business, further undermining the idea of truly independent advice. This is simply not the case.
Thankfully, in the main there is very little difference between lenders where proc fees are concerned and in any case, no broker worth their salt is going to sell a mortgage based on proc fee alone. To do so, especially in this market where every client is sacrosanct, is commercial suicide for a broker business with any hope of building a decent reputation.
Whilst the word “hidden” was the poor choice then, the question is does the CML chairman actually have a more accurate general point around proc fees?
Would it just be easier to remove any question of bias once and for all and have an industry agreed proc fee level set at say, 0.35 per cent for residential and 0.5 per cent for buy-to-let, or at the very least an agreed maximum?
It is a discussion that has been going on since proc fees were first introduced and previous companies I have worked for did do this, for a time at least, for their brokers to eliminate any accusation of bias, reaping the benefit when proc fees were higher than their cap and taking the hit when these fees were actually lower.
The issue, however, is far more complex and is now governed by the top level discussions of networks and mortgage clubs, rather than the average broker who just wants to do the best possible job for their client and build a nice referral base.
Whatever the view, I have yet to see any evidence of fundamental proc fee bias in the broker community and we all need to work doubly hard to ensure that trust remains the key word for all intermediaries.
Andrew Montlake is director of Coreco