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Don’t bash the brokers

I have despaired over recent weeks as the Council of Mortgage Lenders, the FSA, then the Intermediary Mortgage Lenders Association and the National Housing Federation all put the boot into the mortgage intermediary market.

First up to the plate was Michael Coogan of the CML when he said: “The small broker community were causing problems by acting more like salespeople interested in cashflow rather than advisers acting in their customers’ interests.”

To add insult to injury to the small brokers, he suggested that bigger broker firms are more customer-focused.

Then up stepped the FSA, which blamed the brokers for the lenders’ failures in self-cert and other areas – preposterous in the extreme, and giving us a history lesson of its version of where it all went wrong, yet not where it failed to see and regulate sufficiently.

Imla made similar disparaging remarks about appointed reps being better quality than directly authorised brokers and preaching to us about DAs improving their quality, etc, and then the National Housing Federation made the ridiculous claim that brokers were more of a hindrance than a help to the shared-ownership market.

This was all enough to make any decent mortgage intermediary’s blood boil and feel like the world was ganging up and blaming them for everything that has gone wrong in the mortgage market.

I suspect that, for many, the mortgage intermediary is a soft target and is where they could put the blame to hide their own inadequacies. It has been a sickening and disappointing few weeks.

Not that I claim that the broker market is entirely blameless. There was some fraud going on and bad practice involving some brokers but it was a small minority and most of those have slowly but surely been weeded out by the FSA.

But for it to go wrong, there has to be a lender, there has to be a product and the product has to be underwritten. Who introduced self- cert? Who introduced fast-track underwriting? Who was responsible for the fight for market share of the lending? Who drove pricing down to levels in the prime, buy to let, self cert and adverse market where there was no pricing for risk any more before it all went wrong? The brokers?

Brokers are a conduit for distribution. They have their responsibilities but the blame for lenders’ problems cannot be put at the feet of the intermediary market.

Every business has its minority that the rest are ashamed of and who do the honest brokers’ reputation no good but to group the intermediaries in the business into a general basket of bad apples either small or large, AR or DA, is grossly inaccurate.

The CML, FSA, Imla and others seem not to have understood that the vast majority of the intermediary market is made up of small or sole traders who base their whole ethos on long-term customer relationships, with satisfied customers providing them with introductions for business.

Ironically, it was only recently that Nottingham University Research showed that mortgage brokers and financial advisers were the most trusted people among financial services firms. What the powers that be never get is the fact that small and diverse is beautiful in the adviser world and because it is so customer-focused is why the public have more trust in them than the bigger institutions with all their bonus culture and sales targets.

It is also worth noting that the whole of the mortgage intermediary market only makes up 4 per cent of the complaints made to the Financial Ombudsman Service.

Right now. the intermediary market is shrinking dramatically. This was perhaps inevitable because of the downturn in both new purchases and remortgage opportunities.

In the short term, the lenders maybe do not need the brokers in the same way they did but in the long term they would have a problem as the simple fact is that the public do like the services that brokers offer – having someone to help fix and arrange the necessary paperwork as well as the ongoing relationships.

However, the public are rate-sensitive and want the best price as well. Lenders’ dual-pricing undermines the advice process and at times puts the intermediary in a no-win situation – so does a booking system for funds, which when you get through on the stroke of the hour tells you that there are no funds available.

How often now do intermediaries do a lot of spadework for clients or potential clients, only for them either to advise the client they had better go direct or receive a phone call from the client to say their bank has a better deal on offer?

Then, of course, there is the FSA and CML going on about how proc fees influence intermediaries. Well, not me for sure, but, in any case, the proc fees are not much different between lenders anyway. The most important thing is the fact that the deal is right for the client and then there is the important issue of getting it underwritten and offered. This is far more important than any modest difference in proc fees.

Would a transfer of the retail distribution review to the mortgage market make things better for the client? Not in my opinion.

Would it mean a further erosion of advice for those of modest means, that is, the public at large? Almost certainly. In reality, this would lead to the masses going unadvised, using the internet, local branches or whatever and the process of getting advice will be diluted even more.

The bottom line is that, whether small, medium or large, the mortgage intermediary is the lifeblood of the advice process.

Whether they are AR or DA or whatever, they have more idea of the customers need for real advice than the FSA or anybody else in their ivory towers appreciates.

Many people who form these smaller firms have experience of working for or with big business. Due to the sales practices used by big firms, many left to form their own businesses based on treating customers fairly – before the FSA even suggested the terminology – and on building long-term relationships with customers. This is not only rewarding and fulfilling for the brokers but also produces satisfied customers that produce a sustainable, long-term business.

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