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Mortgage edge – Mark Howell

Mortgage clubs can help reduce costs by offering support services at reduced rates to intermediaries – the ability to bulk-buy or aggregate applies to the mortgage product and to support services such as sourcing systems.

Can mortgage clubs add value to the directly authorised intermediary?

An article in Money Marketing last week raised questions about the usage of mortgage clubs by directly auth- orised intermediaries.

Harry Katz of Norwest Consultants suggested that because of the disclosure of third-party fees on the key facts illustration, mortgage clubs blurred the distinction between directly authorised and appointed representative intermediaries to consumers.

Does Mr Katz suggest that directly authorised intermediaries are able to offer better advice and recommendation than appointed representatives? One reason may be independence or choice. Several networks, including my own, offer independent whole-of-market advice, including the option to shop off-panel if a product is more suitable to the client’s needs.

Let us be clear though, consumers who seek professional mortgage advice are much more likely to be better off, regardless of the regulatory status of their adviser, than if they had not sought advice.

Mortgage clubs have evolved and offer thousands of directly authorised firms enhanced products, many of which are exclusive and cannot be sourced from the lender direct, and many additional services that benefit the consumer and the intermediary.

Some of these services include mortgage desk support, a vital tool in the research process.

Some clubs are active in product design, designing rate-leading products. An example would be where Pink Home Loans campaign for white knight products by designing bank base-rated over Libor or standard variable rate products, simplifying mortgages to the consumer. A lone adviser would find it difficult to influence a lender in this fashion.

Mortgage clubs can help reduce costs by offering support services at reduced rates to intermediaries – the ability to bulk-buy or aggregate applies to the mortgage product and to support services such as sourcing systems.

They can offer increased financial support, by having the ability to offer higher commission (again through their aggregating power) and some have the financial stability to pay fees within 24 hours of legal completion, improving cashflow for intermediaries.

Using a club can often make life simpler. Having a big panel of lenders under one roof means you have one-point of contact, often via a helpdesk and an online support service via a website.

This personal service is enhanced via other examples such as case tracking, packaging services and generic application forms so completing paperwork becomes more efficient.

As we become more familiar with electronic trading, it is still very often a simple case of clicking a box to select your club route. All of these reasons mean you can spend more time on what is important: like writing business.

I feel this gives a fairly compelling viewpoint of the benefits of using a good mortgage club. Lenders will have their reasons for wanting smaller intermediaries to go through clubs and this will vary from lender to lender but some reasons may be risk, cost and ultimately the knowledge that an intermediary could be better off by dealing with them via a club.

Mortgage clubs are evolving and will continue to evolve as the market continues to change shape. We see mortgage clubs offering compliance services both to intermediaries wanting to become appointed representatives and those that are directly authorised. Aggregators such as Pink Home Loans, Mortgage Intelligence, Mortgage Next and others will continue to change their business models as long as the intermediary’s needs continue to change.

Another question raised is the explanation of a third party on the KFI. This, to me, is quite simply explained. As an independent financial adviser, you are acting on behalf of a consumer to find them the best product for their circumstances. If a mortgage club distribution route offers your customer the best product choice then you have an obligation to use that product. As a directly authorised IFA, you have the choice to shop around and so using a mortgage club is neither restrictive nor threatening to you.

What about the additional fee in the KFI? The product in question should be the best for your client and as such the third party provider is entitled to earn a fee for providing this product. This unfortunately raises more questions about the KFI than it does the validity of third parties charging a fee.

It is interesting to note that the FSA requires the disclosure of this third-party cost which could potentially cover sourcing systems, research assistance, lead generation assistance and other costs that, if sourced separately, would not be disclosed.

All in all, mortgage clubs are an integral and vital part of the directly authorised intermediaries choice of product and service providers.

Mark Howell is marketing manager of Pink Home Loans

What is the mortgage club doing for its payment? I now have to establish my share of the procuration fee and how much the club receives and put this in my mortgage report although I am at a loss to describe the role of the club

Last week’s issue of Money Marketing highlighted the situation that IFAs dealing with mortgages have to use mortgage clubs.

Like many others, I received my variation of permission as a directly authorised IFA to carry out mortgage and general insurance business. I need no urging to remind both existing and potential clients of the value of dealing with an independent adviser.

Although I felt weighed down with the regulatory overload that we have all had to cope with, I felt that perhaps all this would be to the good and many of the less attractive industry practices would be swept away under the FSA’s new broom.

To my disappointment, this does not seem to be the case at all. Restrictive practices seem now to be riding on the back of the new regulation.

I have now been told that most of lenders that I use will not deal with small intermediaries unless business is put through a mortgage club – please define small. The reasons given are:It’s compliance.It’s more efficient and helps administration.

To both these propositions, I refer to the “male cow’s effluent”. As an independent, they generously permit me to choose which club I would like to put the business through whereas tied intermediaries can only choose one club.

The choice of club boils down to two main options – either the club will pay me the procuration fee or the procuration fee will be paid direct by the lender.

No prizes for guessing which option I have chosen. In which case, I do not understand the above assertions:The fee is paid directly to me.I submit the cases directly to them and deal with them directly on all administration matters.Before dealing with a new lender I have to fill in a registration form anyway.Do I not have authorisation from Olympus?

Can somebody therefore please be kind enough to explain what role or purpose the club serves? Bear in mind that the name of the club appears in the key facts illustration in the procuration fee section.

Put this in context. I have gone to great lengths to explain to my client that I am independent and I am giving them completely independent and impartial advice.

On reading the KFI – as all conscientious clients should and no doubt do – they suddenly see that not only I but some strange and hitherto unnamed third party is sharing the bounty. How am I to respond to this when questioned?

What is the club doing for its payment? I now have to establish exactly what my share of the procuration fee is and how much the club receives and put this in my mortgage report although I am still at a loss to describe the role of the club.

It is as well to realise that I often rebate some of my procuration fee but the club slice has to be exempt from the calculation. This situation denigrates the KFI and my status as independent. The club’s role can most politely be described as spurious.

General insurance is often connected to mortgage business and this sector continues with possibly the worst restrictive practices.

Before regulation, small intermediaries habitually had their arms twisted to provide minimum levels of business, irrespective of the merits of the products, in order to have an agency.

If these amounts were not forthcoming, the agency was closed without further reference. leaving advisers and clients in the lurch.

I had hoped that with general insurance regulation all this would change. Fat chance. It seems to be getting worse. How does this square with FSA principles of an open, free and transparent market?

Let us hope that the FSA directs its efforts to more practical considerations rather than foisting ever greater mountains of paper on us all.

Harry Katz is principal of Norwest Consultants


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