The banks and insurance companies are also having their own reaction. The idea of factory-gate pricing has been with us for a while. It came at the outset of stakeholder pensions and the pension providers advertising low annual management charges unless the advisers were greedy enough to want to be paid, when the AMC would be 1 per cent. That was fair enough because the AMC was to be used to pay the provider and the adviser.
Most recently, however, the banks have introduced a similar idea with mortgage rates and arrangement fees. Mortgage rates have been put up, using the excuse of the credit crunch. Arrangement fees have increased dramatically over the last couple of years to amazingly high levels.
It is difficult to see how the banks can justify fees of up to 3 per cent of the loan. At the same time, they seem to be positioning themselves to stop paying procurement fees to introducers.
The banks are perfectly within their rights to choose the rates that they make available to their own clients and to intermediaries but their stance in this is making it very difficult for mortgage brokers. When the mortgage sourcing system highlights several direct rates being far better value than the best introduced rate, the lenders are forcing brokers into the position of needing to charge fees or higher fees than they were previously, otherwise brokers will run the risk of future claims if it were proved that they did not advise the most beneficial rates to clients.
The banks have been historically opportunistic both with lending and savings rates by not passing on the full benefits of rate shifts, as they are with their sales procedures, which are going to need to change under the RDR proposals. They will not be able to be tied or multi-tied while still calling their employees advisers.
Another cause for concern for the banks will be the effect of the case against them by the Office of Fair Trading relating to bank charges. It is difficult to see how they can realistically believe that their appeal will change the original verdict.
I actually thought that they could have worked with the original verdict because the judge said he did not feel that the level of charges was unfair. All he did was to confirm that the OFT had the right to challenge the charges in the future.
This will cost them a lot of money and also probably change the way they cost their accounts in the future. I cannot think that there will be much sympathy for them.
The IFA Centre, Hove,