As more and more lenders start rewarding brokers for retaining customers, there remain strong opinions on both sides of the retention fee fence.
Mortgage bigwigs, including Edeus chief executive Michael Bolton, believe brokers who accept retention fees from lenders risk being caught up in a misselling scandal down the line.
In the other camp, people such as Accord Mortgages managing director Linda Will claim that such fees even the playing field.
Accord Mortgages started offering brokers a 0.2 per cent fee for retaining customers in June 2006 and was among the first lenders to offer such a reward.
Accord’s fee now matches its proc fee for new business and BM Solutions and mortgage giant Halifax, among others, have started offering similar incentives.
But Bolton, speaking at last month’s Money Marketing Live, says retention fees are just a smokescreen and brokers should be wary because a lot of retention products are likely to be in breach of the treating customers fairly regime.
Will says it is coincidence that most critics, such as Bolton, happen to be lenders not yet offering retention fees. In her opinion, retention fees simply reward brokers for the work they do if their whole-of-market searches find that the client’s current deal is still the best they can get.
She says: “If the broker does the job and decides that, all things being equal, the best thing to do is keep the client where they are, why shouldn’t they be paid?”
London & Country mortgage specialist James Cotton says: “A retention fee simply means whichever route the broker chooses as the best option for the client they are being paid for the work they have done.”
Cotton admits that there are “some brokers who are out to make a quick buck” but says a misselling scandal is unlikely to occur because most take their TCF mandate seriously.
He says if the basis of the misselling argument is that brokers will not look around to get their client the best deal because they will get paid to keep it where it is, then the entire mortgage market is set for a misselling scandal because it is a commission-based industry.
Will says that since introducing the fees, customer retention has doubled and that retaining business is much more efficient than teeing up new business and means the company can protect its margins.
But she quashes the idea that retention fees are stopping brokers shopping around.
Will says: “If brokers were not doing their job, then we would keep all the business we have done. Currently, we are keeping around 40 per cent which convinces me that brokers are doing their shopping around job well.”
Retention fees have stirred up the age-old question of who owns the client – the lender or the broker? Bolton feels that retention fees are another way lenders are trying to muscle in on brokers’ business.
He says: “Lenders are only introducing retention fees because they want the remortgage market to disappear. If this continues, in time, consumers are going to think that brokers do not exist.”
Savills Private Finance director Melanie Bien says brokers want to keep control of their clients and often get frustrated when, at the end of the client’s two-year fixed deal, for example, the lender sends them a letter directly explaining what new deals they have.
She fears cutting out the intermediary stage will fool a lot of clients into signing onto another contract with the same lender without looking for a better deal on the open market.
According to Bolton, trail commission would ensure that brokers are not taken for a ride by lenders offering incentives to keep clients on their books.
He says: “If you do have a retention relationship with a lender, make sure you have some sort of contract in place which obligates the lender to pay you if they keep that client for the next ten years. Make sure you get the lender to give you some trail commission.”
Despite what many people are saying, it looks like more lenders could end up following in the footsteps of Accord and Halifax and introduce retention fees. Research by Troika found that 79 per cent of lenders believe the use of retention fees will become an industry standard.