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The price is right?

Is adviser charging the way to go in order to stamp product bias out of the mortgage industry? Should proc fees be scrapped altogether?

The FSA is certainly considering it as a viable option.

Speaking at an FSA Mortgage Conference yesterday, FSA director of retail policy & conduct risk Dan Waters said: “We’re left with questions about whether we should take a firmer view on remuneration arrangements and on excessive fees for certain products.

“The retail distribution review aims to reduce the conflicts of interest inherent in remuneration practices in the investment market.

“The proposal we have put forward and expect to consult on is adviser charging, which ends the setting of commission levels by providers and is intended to deliver a knock-out blow to product bias.

“We must consider whether such a structural intervention in the mortgage market might deliver similar benefits to consumers.”

What do you think? In principle adviser charging could work for IFAs, but is it the right way forward for brokers?

Will clients be prepared to pay a separate charge for mortgage advice? Is this the right time to be introducing a new remuneration structure when many brokers are struggling to keep their businesses afloat?

Should more of the RDR apply to mortgage brokers, such as higher qualifications and professional standards as the Council of Mortgage Lenders has suggested?

Let us know your thoughts below.


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There are 23 comments at the moment, we would love to hear your opinion too.

  1. A very annoyed whole of market adviser! 13th May 2009 at 5:24 pm

    Why don’t you just kill all brokers income altogether hey?? Mortgages are thin on the ground as it is; if they scrap a proc it does not open the doors to other business as clients would not pay an up front arrangement fee when they can go to lenders direct – surely and this is pointed to the FSA if they do then clients are not getting the best advice and being treated fairly as if lenders sold insurances etc they can only offer 1 product in most cases!

  2. Torild Bastien, Iver Mortgage Company 13th May 2009 at 5:29 pm

    Fees vs Commission – Mortgage Brokers
    I am sure the lenders will love that and this was why the comments were made to the FSA in the first place. FSA will have to decide if they feel advice should be an option for all or only for the better off. We are regulated and the rules says that we must recommend the most cost effective product and complaints should make bad brokers see sense. Naming and shaming and compensations should be tried first before they kill off the mortgage market as we know it. I view myself as a professional and recommend the best product to my clients and prove that in my file and D/N letter.

  3. Morgage proc fees
    There are very few lenders now that pay increased procuration fees; this linked with the research process and suitablity report requirements must deter all but the foolhardy into thinking they can put their own needs before that of their client. Mortgage brokers should be remunerated for their unbiased professional advice..if its obvious through ongoing compliance and spot checks there are still rogues acting in their own best interests they should be struck off….you cannot penalise the many because of the few

  4. The price is right?
    Great idea in theory, but in reality consumers don’t like paying for advice. The only way this would work is if a fee was added to all mortgages, whether or not the consumer went direct, otherwise it would encourage them to go direct, where the chances are, they would not get good advice. If they go direct the FSA should get the fee, if they go via an adviser, the adviser should get it. It simply is not a viable option otherwise. I think the lenders have too much lobbying power with the FSA.

  5. Price is right ?
    The FSA have proved their incompetence in so many ways already. Removing procuration fees will simply encourage consumers to go to the banks and to choose products without advice – great for the cheating, greedy banks but bad for the consumer.
    Get rid of the FSA altogether and consumers will save a packet. As for the CML – what do they do ? They became redundant 4 years ago – self-serving morons trying to justify their useless existence.

  6. Douglas Shillinglaw 13th May 2009 at 5:59 pm

    Proc Fees for mortgage brokers
    Most brokers place cases for clients to obtain the lowest interest rate relating to the particular product type wanted ie. Fixed or Variable with acceptable tie-in period, etc. Some brokers do not charge a fee so rely on the proc fee to make a living. If lenders stop paying proc fees & clients will not pay a fee (especially for lower loan amounts), how does the FSA expect a broker to earn money? Removing proc fees means less brokers so clients may not have anybody to discuss whole of market options with. Does the FSA want clients to deal direct with lender via websites without advice?

  7. Missing the point
    As we charge the same whether the lender pays a proc fee/commision or not, I am ambivalent on the subject. We offset any commission payable against teh fee we quote for our services.
    However and mroe importantly, the debate completely misses the point in that a large number of Whole of Market brokers want to ensure their clients get the ebst deal and don’t mind whetehr it is deemed a “direct deal” or a broker only deal. They wish to be able to confirm a client is getting the best deal. However lenders are flouting the FSA rules and the FSA allow them to get away with it in that lenders will not provide a KFI if the client requests it without obtaining a committment (often involving payment) from the client. They will not provide KFIs on their direct deals to advisers working as agents in LAW (see AIFA’s recent comments on the law of agency which is being ignored and the ignorance of lenders tacitly supported by FSA inacction) This makes it impossible for a true agent of the client to obtain comparisons to enable confirmation the deal available is correct for a client.
    Shame on the FSA, but then they are a quango with appointees from the Treasury and Golden brun, so I’m not surprised.

  8. Scrapping Mortgage Procuration fees
    Clearly once again the good old FSA have no actual working knowledge of the mortgage market and how it works at present.There is very little differential between the level of procuaration fees paid by lenders to intermediaries and this only really existed in any volume amongst sub prime lenders and sub prime products which of course are an endangered species these days.All these ridiculous proposals will do is kill the intermediary market stone dead with respect to mortgages and take away the route to independent advice for clients and drive them to the banks and building societies.The FSA needs to get out and about and look at case files of intermediaries if they think product bias based on procuration fees exists in the mortgage market as it quite clearly does not.

  9. The Price is Right
    Look, the FSA are still harping on at small intermediaries when they have taken their eyes of the ball and failed in regulating the big players i.e the Banks etc. who the majority of complaints made about and are the large institution for whom this legislation would be fantastic. Again the FSA are looking after their cronies and once the dust has settled on the MPs and their expenses, the microscope should be well and truly placed over the relationships between the FSA and the Banks. Do the FSA really think that the integrity of independent brokers can be bought by a few ‘pieces of silver’? To make an extra £20 – £30 ON A MORTGAGE CASE WOULD NOT SWAY THE MAJORITY OF US, but multiply that by huge banks selling 1,000 of mortgages and that can be a lot of money. Yes, START regulating the large banks, but leave the small mortgage brokers alone to do the job of looking after their clients. If the FSA remove the proc fee, the public will be left at the mercy of the FSAs friends – the Banks who will have a feeding frenzy. Then wait for the next scandle to hit when the FSA will be shown up for what they really are. Roll on the general election when the Torries have said they will get rid of this cronies club the FSA.

  10. The price is right
    What absolute nonsense, the FSA needs to realise that the major danger to clients is the biased advise they get from banks et all, in the misselling of MPPI the banks were the magor culprits, I have recently seen a client who was charged £5341.08 including interest on a £10k loan .
    The ordinary broker takes whatever proc fee is on offer from the best product for the client and whats more we have to evidence it, normally somewhere between 2.5 and 3.5% of the loan.
    FSA please leave the small broker alone and concentrate your major focus on the major culprits in most anti client matters. THE BANKS

  11. The FSA and the mortgage market
    FIVE years after it started regulating the mortgage market the FSA is now looking at how this market should be structured. On Monday we had Lord Turner tell the conference that mortgages were complex and needed a lot more research, consultation and discussion before the FSA could come up with a structure with which to move forward.
    Dan Waters now seems to be following this lead with similar comments on remuneration.
    Two years ago I was saying to the FSA that they didn’t understand the mortgage market on a macro scale, as they had no idea about the securitising of mortgages and neither did they have any idea about the micro end of the market, in that they did not comprehend how a small brokerage worked.
    Now, having been forced to look at things properly after the almost total collapse of confidence in this market, they appear to be saying that they didn’t understand mortgages in the first place.
    Difficult to know what to suggest but using bureaucrats to create more ‘tick box’ regulation by laying down rules about the LTV and Income Multiples will mean that the big lenders will be able to act even more like a cartel then they do already.
    As far as remuneration is concerned their appear only two options. Insist that IFA’s and brokers have to charge clients or lay down standard ‘procuration’ fees.
    The possible third way (sorry this really isn’t going back to Blair and New Labour) could be a mixture of both to reflect the different amounts of work involved in differing circumstances.
    The problem with IFA’s and brokers having to rely on fees is that the lenders will just market themselves as the cheaper option. When they have been prepared to fleece the public on PPI how much more will be the incentive to do the same again for loans supported by a mortgage deed.
    If this is the way things go then IFA’s and brokers will be limited to the more ‘up market’ clients while those really needing their help, in the widest sense, will be swept up by the high street lenders. Still this is the way that the FSA has been going for a long time, supporting those that are paying more of their salaries, (with the occasional fine that the big institutions just shrug off as a business expense) rather than the 20,000 or so small businesses that are genuinely trying to do right by their clients.

  12. proc fees
    As a whole of market broker I am compelled to recommend the best mortgage for my client. As I well know from FSA visits they go through files to ensure I am doing this & not being driven by the highest proc fees. In any event even most sub prime proc fees now stand at around 0.50% compared to 1% – 2% pre credit crunch, so it’s not like there’s much incentive to chase proc fees in the first place. As per other comments if advisors are not acting in the best interests of clients then the FSA can issue sanctions including shutting down the broker. That’s fair enough. So the call for scrapping proc fees is either based on ignorance of the facts or there’s a mandate to remove or dramatically reduce broker numbers to divert consumers direct to banks who are the principle source of the current mess we find ourselves in. Also where does a FTB having to part with fees of £500+ (which would be the minimum a sole trader broker could survive on if there’s no proc fee) on top of all other buying costs sit with TCF?. It seems our only hope is for the Tories to win the election & scrap the FSA (and HIP’s) and bring some sanity back to doing business.

  13. definition of the word procuration
    Definition of the word procuration 1. The act of procuring; procurement. 2. The management of another’s affairs. 3. The instrument by which a person is empowered to transact the affairs of another; a proxy. Paying particular attention to no 3 you could look at this from 2 perspectives client or bank. Due to the fact that I get it from the bank they have empowerd me to act on their behalf representing my client – What is so fundamentally wrong with a bank paying me a fee for doing their work. factfind / research / recommenndation / money laundering / affordability / completing application/ etc etc etc etc etc etc etcfd etc

  14. scrapping mortgage proc fees
    Why don’t the FSA have done with it and ban all mortgage brokers and leave their buddies, the banks, to monopolise. They are the real villains yet the FSA seem adamant to do everything they can to force out the independent broker and leave the general public at the mercy of the banking monsters. Aren’t the FSA supposed to protect the public, not deliver them on a plate. If the FSA are to do anything with proc fees why don’t they simply standardise them so that they all pay the same percentage, rather than remove them altogether? Clients don’t like to pay fees and forcing brokers to charge all clients will round the public up nicely and herd them into the welcoming Banks. The FSA need to get a grip and concentrate their efforts on the real criminals, the Banks.

  15. Fees!!!
    The fees charged by some lenders for B-T-L…3.25%-3.50%……..I think these ought to be checked out..TCF????? One rule for one another rule for the others!!!

  16. The price is right?
    I personally would like to see standard procuration fees introduced for different types of business, eg, residential, buy to let, equity release, etc. And it wouldn’t be a bad thing is they were increased in the same way that the lenders have increased their product booking/arrangement fees, or the FSA have increased their fees and the CCL renewal fees, which have shot up from £725 to £970! It’s apparent that what is sauce for the goose is not sauce for the gander!

    As a small broker, generally advising your average ‘Mr & Mrs Smith’ client, I know that they would be unwilling and unable to pay advice fees to match the procuration fees currently being paid by the lenders. I provide unbiased best advice to my clients, preferring to build long term relationships with them, which in turn leads to referrals and further business.

    Q) If procuration fees were removed would the lenders reduce their arrangement fees or rates to reflect the saving to them? I think not!

  17. 14th May 2009 at 9:13 am

    FSA being manipulated by the banks ?
    I do believe that unbiased and good quality mortgage planning advice has a value and is worth charging a fee for but, if there are no proc fees to bolster the income for an independent adviser then you have 3 choices – work for little money, charge a higher fee (does that really benefit the public) or quit and get a job in a bank !! I do agree that different levels of proc fees can lead low quality advisers to recommend ‘less suitable’ products so why not have standard industry wide proc fees that remove this potential bias ? One other question I have is why are the FSA looking at proc fees which are paid for a definied service of advising and arranging a mortgage but not looking at the banks arrangement fees or adviser salaries? I remember a few years ago the average fee was a few hundred quid but now they are closer to a £1000 in many cases. Does this not need looking at too or have the banks told the FSA that they don’t need to look at this whilst they are so busy wiping out the only independent, client focused distribution market we have so that the banks can compete on price not value ? My worry is if the banks gain control the publics finances and associated advice will be very poor in the future!

  18. The price is right
    Nobody in their right mind would pay a broker a fee to obtain a mortgage that they could get from a bank down the road for free. If the FSA want to close down the mortgage broker sector, this is the way to do it. Time for the FSA to be managed by people with business acumen and not by bureaucrats.

  19. The price is right?
    As an independent adviser, unsurprisingly I’m going to agree with many / all of the other comments here. If we wish to ‘treat customers fairly’, it’s only right & proper that they should have choice. Customers should have access to qualified, professional, impartial advisers, & the introduction of fees is likely to add a barrier to them obtaining this. This is likely to mean that they will either look to the internet, or to the banks, neither of which is likely to offer the best & most balanced solution for their needs. Those advisers who can be proved to be chasing the highest proc fees should be closed down, & standardised industry wide proc fees introduced. At a time when something like 300 advisers have had to close their doors recently, how can the FSA justify that by adding a nail in the coffin of many others that it’s acting in the interests of the consumer?!

  20. Where’s the hat?
    At times like this, you can’t help but wonder whether the FSA’s thinking hat has worn off or missing altogether. Some may say it was never there!

    There’s already a provision for adviser charging for mortgages. The FSA introduced a purely fee-based option for all independent mortgage advisers to offer their customers. How many customers have actually taken this route in the last four-and-a-half years? I suspect none!

    Why would any customer want to pay more for mortgage advice when they have already been paying through the lender? Proc fees are accounted for by the lenders within their interest rate and/or arrangement fees. If the proc fees were scrapped, would the lenders pass this saving to the customers? I think we all know the answer to this and the customers would end up shelling out more. Would this be TCF?

    The adviser charging could work for IFAs for some investment business, but it certainly doesn’t work for mortgages. I agree that standardisation of proc fees amongst all lenders would be a much fairer way to ensure there’s no product bias. Not to mention the survival of the independent mortgage brokers, which is vital for customers’ access to the whole of market.

  21. TCF? TAF! Treat advisers fairly
    Although mortgages are a small part of my business, they are important to me. A few questions to be asked: If advsers will not be allowed a proc fee, will the arrangement fee reduce for adviser introdused cases only? Will the bank adviser have to explain to the client exactly how his remuneration is affected by him/ her arranging the mortgage – how much bonus/ target etc he/ she will receive by way of cash or other means? If the answer to both of these questions is YES, then we, the independent advisers, are being treated fairly. If not, then its just another case of handing the banks customers to follow the £billions they have been given. I guess that the vast majority od advisers are totally compliant and do recommend the most suitable mortgage, but we are being penalised for the wrong-doings of very few (who it is the job of the FSA to catch i might add).

  22. Price is Right
    I have just read that Nottingham University Business school has put together the latest Trust Index on behalf of the Financial Services Research Forum which measures how trusting consumers are of the industry.
    It found that brokers and advisers received the highest rating on trust and trustworthiness at 81.67% Banks faired less well.
    So why does the CML want us to be held to book for being biased on proc fees when it is obvious we aren’t? Why does the FSA want to consider removing proc fees when the general public are happy and confident that we give good, impartial advice?
    Is it a concern transmitted to them by their CRONIES in the banking sector? Lets have a witch hunt of the FSA and see where they get their ideas from and who they are answering to in the background.
    Lets see what their alterior motives are for trying to destroy the only honest and truly client focused advising group? – Remember ‘Fred the Shred’???

  23. FSA vs Procuration Fees
    Its fair to say that despite all that is said about the FSA, nobody has ever acused them of allowing the best interests of consumers to come before the banks interests. The FSA are, without any possible doubt, acting in the best interests of the banks in the vast majority of cases, a fact that the Consumer protection groups are only just beginning to wake up to. Bamks are responsible for around 90% of customer complaints. Any responsible, unbiased, regulator would be looking very carefully at the appalling advice given to customers by the banks. As has been said before, brokers are regulated and have a duty to justify their recommendations to the regulator. Procuration fee bias is a red herring given to the willing lackeys at the FSA by the bank friendly Lord Turner. Regulator …. DO YOUR JOB for a change!

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