On the eve of mortgage regulation, the most important questions that mortgage intermediaries are asking is whether or not they can do business.
After the arduous and time-consuming task of getting authorised through the FSA – whether as a directly authorised broker or as an appointed representative of a network – the next big question is, once I have done business, will I get paid?
In the appointed rep world, there is concern over whether lenders are ready to make the change from paying proc fees directly to brokers to paying them through networks.
Falcon Group chief executive Allan Rosengren says a number of lenders have been paying proc fees through the network for a while but notes there are still some stragglers. “For instance, Alliance & Leicester seems to have dropped dead. It is very much the case that some lender management teams have recognised what needs to be done for regulation and others have not. It does not seem to depend on size of lender either,” he says.
Whitechurch IFA Network chairman Kean Seager says he has been surprised that some lenders are not yet clued up that they need to pay proc fees through a network rather than direct to an AR.
He says: “Although I would be surprised if the bigger lenders were not ready for the different delivery of proc fees, I think there may still be some lenders out there that do not really understand how the day-to-day working environment under FSA regulation will work.”
Sesame product manager for mortgages Andy Young says the firm is confident as its experience as a big FSA-regulated network will let it manage the changeover quicker than firms that have not previously had to deal with the FSA.
He says the main reason that lenders would not be ready to start paying proc fee through networks is because they have not changed over their systems from MCCB numbers to FSA numbers.
He says: “The biggest issue is the number of mortgage advisers that do not know what their FSA number is. This could be because they simply do not realise their number for trading has changed or because they do not have one yet.”
He says although lenders may have the network's number they may not yet have the network's member's number and this will be an issue because to pay the proc fees the lenders and networks need to use the adviser's FSA number to direct payment.
He says: “New networks will be the biggest worry. Even if they have their own FSA number, they may not yet have the FSA numbers of their members.”
Financial Technology Research Centre director Ian McKenna says if lenders are not set up to put business through networks they could see a dramatic reduction in business. He says: “One thing that regulation will do is put the power back in the networks' hands. Without them, lenders will find it difficult to maximise distribution.”
He says lenders need to be able to capture details that identify IFA organisations as business comes in, tying it up with payment as it goes out. “This is not as simple as it sounds when you are changing the tags and information that identify individual firms. In the early days of regulation, I expect that we will see a substantial amount of business being put through that lenders will have problems identifying which intermediaries it came from.”
He says this still happens in the investment and life and pension sectors where stray business can come through providers' books.
“This will always be the case in financial services industry. Business will stray from time to time but both lenders and intermediaries will need to be very careful in the first few months of the regulated world otherwise they could find themselves considerably out of pocket. Make sure your network is ready to pay you and that the lenders you use are set up to go through the network,” says McKenna.