Much has been written about impending mortgage regulation and, unfortunately, much of it has been ambiguous and non-specific rhetoric.
Then there are the FSA consultations and publications which, inevitably, assume an embedded level of experience and understanding about current regulation and practices.
This has not been helpful for smaller brokers who do not have the resources to fully investigate the implications to them and their businesses. It is all new to them.
Many brokers have gone along to one or more of the plethora of roadshows and workshops on mortgage regulation organised around the country. However, unless they have attended one of the sessions run by either the FSA or the MCCB, they will almost certainly have been attending a sales pitch thinly disguised as valuable information. Because of the varied agendas of the companies running these seminars, many such events have simply served to confuse and create even more ambiguity.
But I think there is a potentially bigger catastrophe awaiting those brokers who place their trust in a principal to afford them appointed representative status, especially those brokers who are simply comparing on cost – or perceived cost.
First, there is no such thing as a free lunch, so if something looks too good to be true, chances are it is.
I have come across many firms offering appointed representative status for a flat monthly fee with no noticeable additional costs. I have even seen one that says it will not charge anything if you place more than a certain number of cases with it each month. Must be good value, eh?
Well, if you believe that, then you deserve the expensive consequences.
In reality, the true costs are invariably hidden and some brokers are, at best, too naive to look any deeper. Of course, this is exactly what these companies want to happen. They will either be taking charges off the rate from the lender or provider (this is the most common trick) or in override or additional inducements from providers.
All these tricks will become harder to hide when FSA disclosure comes in but, sadly, for most brokers who have made their decision, it is likely to be difficult to extricate themselves or, more likely, inertia will take over – something I suspect these companies are counting on.
Aside from inaccurate cost comparisons, brokers are also making the sweeping assumption that their chosen firm will actually get authorised by the FSA. This is not a foregone conclusion but, by the time they – and you – find out, it is going to be very difficult to change horses and get fully authorised in time.
Equally, many firms are competing in a recruitment land grab. Those currently taking brokers on, with scant regard for the impact of the FSA's fit and proper rules, run the real risk of having to reassess their appointed representatives against harsher criteria, with the inevitable heavy losses.
Consequently, these brokers will believe that they are sorted for regulation now when, in fact, it could just be the start of their problems. It should also be noted that the likely impact of appointed representative status will also have significant implications on your general insurance and non-regulated life business in the New Year when N5 comes in.
It is probable that your new principal will be very prescriptive on where you place this business, which could impact your profitability and/or your competitiveness, so you should ensure that the whole proposition on offer to you is taken into account.
Direct authorisation holds no fears for those prepared to do the job properly and take responsibility for it. Equally, those who seek appointed representative status do so in the knowledge that they are outsourcing that particular area of expertise. But please try not to be suckered by the sales pitch and glossy brochures.
Ask the difficult questions and ensure that you compare like with like, placing a value on all aspects of your business. Remember, it is a new world of regulation past N4, with N5 and depolarisation.
You need to make sure that, before you make a decision about your business partners of the future, they have a well developed strategy that complements your business for more than just the short term.
Try to look past N4 because your choice will affect your business for years to come.
Kevin Paterson is managing director of Park Row Independent Mortgages