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Brokers and IFAs clash over proc fees

The FCA’s refusal to ban commission in the mortgage market is “inconsistent”, according to life and pensions advisers.

The regulator confirmed this week that it had found little evidence of bias, and therefore ruled out a commission ban as part of its upcoming mortgage market reviews.

However, advisers already subject to a ban as part of the RDR have questioned the decision.

Advice and Wealth Management Solutions partner Clayton Cumming says: “You have got to ask if they are still happy for there to be the potential for commission bias within mortgages because at the end of the day that’s still giving financial advice.

“If there are businesses out there that pay different levels of commission then there will be questions of bias, and there should be grounds for a change to bring these businesses into line.”

Alpha Investment and Financial Planning director Alan Solomons adds: “You need a level playing field and if there’s commission, theoretically at least there is the opportunity of bias. So what is in the customer’s best interest? This does seem inconsistent.”

However, Association of Mortgage Intermediaries chair Pat Bunton hit back: “The life and pensions firms can say that, but their market saw RDR precisely because of huge discrepancies in the amounts of commission.

“Procuration fees in the mortgage world typically vary between 35 and 40 basis points. The sort of discrepancies that happened in their sector simply don’t exist.”

Over the next year the regulator will conduct three reviews of the mortgage market: a post-MMR responsible lending review; a more general review of the mortgage market to see if it is working effectively; and a review into financial advice – including mortgages. The FCA is yet to clarify in detail what the more general mortgage market and financial advice reviews will cover and it will launch discussion papers later this year.

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  • Monk59 11th September 2015 at 4:01 pm

    What cracks me up is the FCA will have three reviews next year. And two of them have yet to be finalised . Seems someone has too much time and too much resource. What a luxury, I wonder who’s paying for this?

  • Jonathan Burridge 11th September 2015 at 3:59 pm

    On a serious note, considering the problems we face placing the most vanilla of cases, the idea that brokers might attempt to driving business to a lender that could pays 0.05% more than another is almost as ridiculous as to suggest that an IFA looks after a non “High Net Worth” client, or, wears a single cuff shirt with breast-pocket or button-down collar.

  • Arron Bardoe 11th September 2015 at 3:21 pm

    Carl makes a pertinent point.

    Currently lenders offer the same rates through brokers as direct and merely absorb the commission in to their pricing. If commission were banned, this could well see direct business with lenders increased and we know already they cannot cope with their direct sales forces as their compliance departments require 3 hour meetings.

    In frustration, some clients try to go it alone online and can end up with the wrong product, find they do not meet the criteria and perhaps sometimes do not bother at all.

    The remaining customers will come to brokers and adding fees on top means the buyer is paying more for the same product.

    Accordingly, in my view, it is likely most borrowers would end up with a worse deal were commission banned.

    This is not the same as the position with the IFA market.

  • David Smith 11th September 2015 at 3:20 pm

    Ha ha ! Your good Keith. Now I am finishing for the day so goodbye to all.

  • keith Hood 11th September 2015 at 3:08 pm

    Ha ha! This is a great thread, I thought it was going to be some boring rhubarb about proc fee’s (hmm, not sure the apostrophes is in the right place – David, can you advise?)

  • David Smith 11th September 2015 at 2:21 pm

    I will bear that in mind Jonathan. It will probably be less stressful than placing mortgages.
    Have a good weekend.

  • Jonathan Burridge 11th September 2015 at 12:08 pm

    Hi David, my comment was addressed to those IFA’s that made the comment, not, on their behalf. I apologise for my poor grammar; that’s state education for you. I am glad there are people like you around that feel it necessary to aid my continued literary improvement, even when not requested. I am forever grateful. Perhaps if broking doesn’t work for you, you could set up some form of tutoring service.

  • Carl McGovern 11th September 2015 at 11:15 am

    I have noticed a few comments on this article, quire rightly stating that there is very little difference between what each lender pays by way of a procuration fee. Between 0.35 and 0.4% seems to be pretty standard. I have successfully used the Stafford Railway Building Society on several occasions over the last few years, as they have a cut off age of 85 not the 75 or under, often applied by the bigger lenders. This particular lender takes what I would consider a sensible approach to lending to clients on pension Income, who want to borrow to age 85.

    The procuration fee they pay is a flat fee based on the size of the loan. For example between £50,000 and £200,000 it is a straight £250. In most cases of this nature there isn’t a lot of choice in terms of lenders, but this fee has never put me off using the Stafford Railway, if it makes sense for my client. I do charge a broker fee, consistent with the work involved for the case, just as an IFA would for any business they transact.

    Banning procuration fees on Mortgages, will only result in Broker fees being increased and therefore this surely has to be to the detriment of the client. Hopefully it won’t happen, but just as in the investment and Pension world, if it does happen, the show will go on.

  • David Smith 10th September 2015 at 9:39 pm

    It is admiral of Jonathan to post a reply on behalf of IFA’s but if you read his comment’s it is obvious his grasp of English literature needs some improvement. An “is”” after “that” and I think a “to” after “back these planks” would make more sense.

  • joe average 10th September 2015 at 7:51 pm

    Its not broken doesnt need fixing and probably the most positive news article i have ever seen on the fcas findings and their decisions. Ifas need not worry im sure theres no brokers out there that would risk their business for a few extra quid!!!

  • Good Mortgage Man 10th September 2015 at 4:36 pm

    What he said

  • Arron Bardoe 10th September 2015 at 2:43 pm

    While I personally did not support RDR, it seems a handful of IFAs are feeling hard done by and feel mortgage brokers should suffer their fate too.

    I would expect most IFAs understand there is no comparison, but it seems these few are ignoring the reasons for the FCA’s decision.

    I recall days when some bonds would pay 7% for high risk and high return bonds; 5% is still available today. Cash ISAs and Premium Bonds though pay nothing at all and low risk products may pay just 1% or less.

    When investigated, the FCA found evident bias albeit detracting from the large number doing the job properly. At the time of justifying RDR, the FCA explained there was clear evidence that IFAs were biased by commissions levels.

    Commissions are seldom a brokers concern with their prmary objective seeking to find a lender with the right criteria and prepared to lend the amount sought. This can on occasion give a broker a list of 2-5 lenders where it is simply a case of choosing the best priced product. Even for a broker concerned with commission levels, this is often the last consideration and even then the variance can be as little as 0.02%.

    Further, investment and pension advisers have a much higher complaints record per capita of sales even when disregarding endowment and pension sales.

    Conversely, mortgage advisers have few complaints and many of those reported by FOS relate to mortgage administration by the lender and not advice.

    If the market does need a change, it would be to see lenders all increase their proc fee rates to a uniform level of say 0.4% to reflect the work involved.

  • Codger 10th September 2015 at 2:16 pm

    I’d never heard the term “churn it & burn it” until I joined an IFA in 1995! That was matched with another gem, “of course we don’t show them the hard disclosure page”!

    All very different now for them, poor lambs!

  • Jonathan Burridge 10th September 2015 at 1:11 pm

    How do you spell “raspberry”, that the only appropriate and balanced comment needed back these planks.

  • Codger 10th September 2015 at 1:08 pm

    The ‘inevitable’ has indeed come to pass, as I predicted pre & post RDR. Now that it’s clear our remuneration carries little or no bias the ‘Retail Investment’ brigade cry foul. I’ve first hand accounts such as “we really can’t afford to do mortgages when the fees for the investment work earn us a minimum of 1.5%”. I’ve even been called a “train spotter” because we advise on & arrange mortgages. Now (of course) they cry foul! Typical!

  • Charles Evans 10th September 2015 at 1:02 pm

    To the IFA’s out there, the commissions were lost for a number of reasons, not least the standard method of kicking back some of the commission to the client as a sweetener.

  • David Smith 10th September 2015 at 12:46 pm

    I agree with Pat Bunton as there is little difference between the procuration fees paid by the lenders. One of the lowest is the Halifax but that does not stop us recommending them. The amount of business they receive from the broker fraternity is absolutely massive so the figures speak for themselves. As the saying goes “if it ain’t broke don’t fix it”. The discrepancies in the commission structure for IFA’s did need to be fixed. I will agree that it may have been better if the regulators had put pressure on the product providers to bring their commissions in line with each other but that was never going to happen.

  • keith Hood 10th September 2015 at 12:11 pm

    Pat Bunton is absolutely correct, the difference in proc fees paid by lenders is negligible and I don’t believe commission bias exists for one minute. The comments made by the two investment and pension advisors are absolute nonsense and they clearly don’t understand the first thing about the mortgage market. The challenge when considering where to place a mortgage is about criteria, rates and other terms, proc fees simply don’t come into it. I couldn’t even tell you who pays what without looking it up and I doubt many mortgage brokers could, its simply not a consideration. I don’t normally bother commenting on these articles but the comments from the two investment and pensions advisors are frankly insulting and a bit rich from a sector that had RDR imposed on it due to the huge variations in commissions that were being paid and abuses that stemmed from it -5% or more on investment bonds (and yet 3% on OEICs)? I sold investment and pension products for 20 years and unfortunately have seem endless sales that were clearly based on what the advisor was being paid rather than best advice for the client hence that sector had to have change forced upon it. The regulator is in this instance correct, there is little evidence of bias, I would say pretty much none.

  • mic2002 10th September 2015 at 12:04 pm

    Next time I’m asked to stump out to the FSCS levy to bail out investor colleagues out I’ll remember this. Thanks lads. Mortgage & Insurance Broker.

  • Chris Hulme 10th September 2015 at 11:36 am

    Not sure the IFA’s remember when they boasted about selling a product yielding them 6% instead of the one giving them 3% in the past – that’s why there is a difference in the views taken on RDR and those taken on mortgages in the MMR.

    On a £100,000 lump sum investment that’s a difference of £3000 commission to an IFA – on a £100,000 mortgage the 0.05% difference in proc fee is only £50 difference. If any brokers are (or were) risking the quality of their advice for £50 they will have left the industry or will be doing very soon.

    In addition, if IFA’s feel mortgages are so plentiful in income, please, come in, join us. You’ll probably find the proc fee barely touches the surface of the work involved.

  • James Carter 10th September 2015 at 11:31 am

    You need a level playing field ?

    We’re playing different games.

    Non-story.

  • Stuart Gregory 10th September 2015 at 11:30 am

    I would suggest that some of the Life and Pensions firms are probably thinking back to the days of adverse lenders pre-recession who offered commission of around 1% of the loan amount.

    Those days are long gone.

    Or perhaps there were other reasons why many IFA firms stopped offering mortgage advice pre-RDR and made their mortgage advisers redundant at the time?