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FCA rules out mortgage advice commission ban

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The FCA has ruled out a ban on commission in its upcoming mortgage market reviews.

Over the next year the regulator will conduct three reviews of the mortgage market: a post-MMR responsible lending review; a more general review of the mortgage market to see if it is working effectively; and a review into financial advice – including mortgages.

The FCA is yet to clarify in detail what the more general mortgage market and financial advice reviews will cover and it will launch discussion papers later this year.

But responding to a question from Money Marketing sister-title Mortgage Strategy at an FCA conference in London today, acting director of supervision – retail and authorisations Linda Woodall ruled out banning commission like the regulator did for pensions and investment advice.

She said: “We didn’t find any evidence of commission bias as we did in the financial advice market, so there was nothing to address there. We still don’t have an issue with commission bias in mortgages and so there is no need to take steps in that regard.”

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Any chance of them having a ‘review’ of their decision to have a ‘review’ of the ‘reviews’?
    I’m not sure that they are re-evaluating things enough…

  2. Here’s a synopsis for them – Mortgage Market Review implemented well, some lenders have gone way too far, narrowing the market substantially for many borrowers who lenders were all-too keen to lend to in the past. End result of this will be a lot of difficulties for UK mortgage borrowers who haven’t reviewed their mortgage yet since the recession. But, they don’t realise it yet.

    I think I’ve saved the FCA about a year in that paragraph.

  3. BTW, how do I invoice them? 😉

  4. They are in a world of their own. Of course there is bias. If an adviser works on commission he/she is that agent of the lender – not of the client.

    How many would (for example) direct a client to a lender who has excellent terms but doesn’t deal with intermediaries?

    What about the usurious rates paid for equity release?

    I’m just amazed at the regulator – they realise that those still taking commission are the floggers – not advisers. So presumably their overlords at No.11 have instructed them in order to ensure that as many people as possible buy houses they can’t afford.

    I thought that was one of the contributing factors to the 2008 problems. The MMR instilled some sense, but the rate of house purchase wasn’t sufficient to bolster the economy. Ah well – here we go again – it would seem.

  5. Harry Katz, I find the amount of clients who want to run in the opposite direction as soon as you start quoting fees runs into the 100’s. They want the perception of something for nothing. Why on earth would an adviser do the legwork then refer the client to the company directly if they weren’t being paid for being an intermediary. If the only mode of payment is by payment from the product provider what alternative do they have? The fact an adviser gets paid a procuration fee doesn’t make them an agent of that company. They still have to demonstrate they chose the most suitable product for the client and that might not always be the cheapest. So what you seem to want is advisers who get nothing from advising clients but because one company has a better product you think anybody should be able to rock up get free advice and be steered to the best company regardless. The only problem with that scenario is there won’t be any advisers left because they will have gone bankrupt. In my closure letters I state that because they didn’t want to pay a fee for my service we had to choose from a selected range of providers. This has been deemed acceptable by the FCA. I can’t work for free. I repeat; not all clients want to pay fees.

  6. Harry – just how much money do you think lenders pay brokers these days? Fair enough in pre-recession times commission on adverse cases was available for 1%, but the majority of lenders now don’t pay much higher than 0.35% on the loan amount, and that’s before compliance deductions if you’re with a network. A £100k mortgage doesn’t return that much when all is taken into account – hence the need now to charge fees just to stand still each year as regulation costs go up with every review that the FCA feels like running….Don’t blame the advisers. Blame the regulation costs and the lenders lowering commission levels since 2008.

  7. @ James & Stuart.
    I never had a problem charging a fee. True sometimes this was taken as a proc – often with a rebate. However the fee was payable for the advice – whether or not the client proceeded. It also covered advising the client to go direct when this was the better option.

    This wasn’t just a factor of being in London – I also worked in Manchester for many years.

    I guess it must be about the type of clients you attract and what their expectations are. Mine knew full well that there were no free lunches.

    There were also no incidents of the mortgage not being granted. I didn’t do sub-prime or interest only and always pre validated before proceeding.

    I don’t think that made me a smart arse, just a sensible practitioner.

    • Harry, all well and good but if the client is happy with the arrangement then they are happy. They know from our discussion the lender I’ll use will pay a procuration fee and I’ll do everything needed to get that mortgage sorted for them. If they want to pay a fee I’ll point them in direction of any provider that is most suitable. This is why Trigold has a little box you tick for things such as ‘direct deals’. So I can’t be alone in this regard and having discussed this to the tenth degree all parties were happy we were acting properly and giving the client what they wanted. The FCA and other regulatory bodies are in serious danger of killing this industry if they’re not too careful. 0.35% procuration fees ain’t a lot of commission when you look at the work involved in re-mortgages especially, when the average mortgage where I’m from is less than £130k

  8. PS With a network! Heaven forbid!

  9. I would like to correct Ms Woodall. The FSA as it was also said they could not find any commission bias that existed in the market. They followed this up with a second survey and found the there “could be a perception of potential commission bias”. I love they way they use these terms which are bandied about. They really do live in their own little world

  10. Just one question (I haven’t transacted mortgages for some years now) if you decide to fore-go your proc fee, does this in effect reduce the clients mortgage payment ? or by having it, does this increase the loan amount ?
    My reason for asking is when I did transact mortgages, the answer to both was no ? so in effect the proc fee was built in to the lenders figures, and made no difference to the client cost if you gave it up, however you could rebate it in the form of a cheque to the client if you wish to offset you direct fee ?

    For what its worth I always used to charge fees on top of any proc fee, as the proc fee was so small (in most instances) it wasn’t enough to cover the work anyway !

    As a side issue with regards to mortgages the proc fee or commission issue is the least of the FCA’s worries, the whole way we lend money for mortgages in this country is criminal……… that, I would have thought is the bigger issue !! payday lenders are saints in comparison !

    • As far as I can see there are those who won’t deal through IFA’s and won’t pay an intermediary a procuration fee and there are those lenders who will. Clients are offered the choice and our preferred route is fee based but where a client is unwilling to pay a fee we have to determine if its worth our while doing it without a fee and if the procuration fee covers our time. Direct deals seem to offer better rates so the argument could be there is some sort of betterment being offered to clients when no fee is being paid. However, I think most of these deals sprung up when lenders had their own advisers and they wanted all the cake as banks and building societies do in any event. They’ve started offering deals through IFA’s but where a lender has treated me with utter contempt in the past it doesn’t take a genius to work out what happens next.
      We only do mortgages for existing clients who have used us before so I guess they like what they’ve had previously and want to use us again. Mortgages to be honest are a pain in the a**.

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