Clawbacks are a fact of life and brokers should be prepared
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I was interested to read your recent article about the broker who was told to pay £46,000 to leave his network (Mortgage Strategy September 28).
This is a predictable side effect of what has been going on in the broker market for some time.
The frantic quest to replace lost proc fees from dwindling mortgage business has led some firms to overlook or become blinded to the downsides of additional revenue streams.
Insurance tops the list for extra income in these difficult times. In fact, it has become the main income source for some, with mortgages becoming a loss leader in the hope of getting life commission.
But clawback is a fact of life and anyone who doesn’t take it seriously does so at their peril. If you want to protect yourself you should keep the money in a bank account and not spend it until you are out of the clawback period. If you spend it you are exposed to the risk of having to pay it back.
If your business is in a strong cash position, great. The problem arises when you rely on it to cover overheads. But the risk is still there and must be accounted for whether you are an appointed representative or a directly authorised broker. Having no intention of rebroking the business doesn’t solve this.
It seems harsh to be asked for all the money back as this assumes 100% of the policies involved will lapse but in a worst-case scenario it is possible.
I’m sure Lehman Brothers never thought the worst would happen. The company didn’t have this covered and it went bust.
I’ll be interested to see how this case works out and hope the broker involved finds a new network soon.
Christopher Jones
