John Cassidy is a director of Ashley Law
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It came as no surprise to read both Halifax’s announcement in Money Marketing that it will pay full procuration fees for retention business and mortgage intermediaries’ endorsement of this bold move. My first thought when I heard lenders talking about retainer fees was that the level would be paltry but Halifax’s move to make the same mortgage products available to existing customers and pay the full procuration fee is a whole new ball game. However, I wondered if the lender had scored an own goal or was using the offside trap and whether lenders have considered that intermediaries’ treating customers fairly plans could be at variance to theirs, not to mention the admin headaches that could result. First, addressing the initiative, lenders clearly have the vexing issue of their profitability when they have to offer discounted and short-term fixed rates to attract new business. Needless to say many banks and building societies are conscious of the requirement to increase profitability per customer and we have seen examples of introduced business being prospected by lenders’ advisers before the ink on the mortgage offer has dried. I would also suggest that unless the terms of business between the intermediary and the lender makes a clear stipulation with regards to the ownership of customers and no cross-sell agreements, there is likely to be a degree of scepticism. There is also a question for both the lender and the intermediary as to which party would be responsible for providing the advice and if the intermediary’s participation in the process is negligible, how would he or she be in a position to justify their procuration fee? Both the lender and the intermediary have to take on board their treating customers fairly considerations. When I mentioned the lender’s own goal, I was alluding to the fact that intermediaries’ obligations are to recommend the most appropriate product to their customers, not necessarily the most convenient option, which would mean remaining with their lender. Furthermore the whole-of-market intermediary is duty bound to consider all suitable options when a customer’s present mortgage price attraction comes to an end and the intermediary may have to prove that this has been done. It seems inconceivable that lenders do not recognise intermediaries’ duty of care to deliver the best deal to their customers and perhaps the lender’s initiative may be more suited to the multi-tied partnership or those firms which operate on a panel basis – more horror stories for the executives charged with implementing treating customers fairly policies. As a director of an IFA firm which operated in the mortgage market before regulation was introduced and having had the experience of Fimbra, the PIA, the MCCB and now the FSA, I have seen the cost of increased regulation being passed onto customers and on a far greater scale, our regulatory costs have increased. It is a major concern that we should now have to consider the longer-term impact of recommending lenders which have not stated their intention to make their product range available to existing customers or, worse still, lenders which have no apparent intention of introducing the strategy of making all products available to the customer base. One of the considerations that we as intermediaries face is our ongoing obligation to look after customers, especially when there is no immediate financial incentive to do so. Failure may result in customers falling prey to another intermediary or the lender where brand and service may play a big part in a customer’s decision to take “direct” advice. Intermediaries have to be alert to lenders’ determination to retain their mortgage customer base and must have a robust customer satisfaction strategy.