Brokers have backed procuration fees as being better for consumers than charging for advice as the issue was thrust back into the spotlight last week by the Association of Mortgage Intermediaries.
The Financial Conduct Authority is currently looking at the fairness of proc fees as part of a wider market study on mortgage advice remuneration. The FCA wants to know if commercial arrangements between lenders, brokers and other players lead to conflicts of interest that harm consumers. It will publish a report on the issue this summer.
But Ami warns that any move by the regulator to ban mortgage sales commission would harm consumers.
The latest Ami quarterly review says: “In order to pay for the cost of giving advice – and the cost of advice given on applications that do not complete – removing proc fees in favour of charging the customer is likely to deprive the most vulnerable from advice they badly need.
“This is particularly troublesome in a market where the most vulnerable customers may have to take advice to purchase a product but cannot afford the advice in order to do so.”
The regulator has already taken action on commission payments by banning them for retail investment through the Retail Distribution Review of 2013.
Maxwell Moore director Jonathan Moore agrees that any move to ban proc fees would be bad news for customers because it would increase the cost of acquiring a mortgage.
He says: “I can see why there are people wanting to go down that route because, wherever you’ve got income coming from the lenders via proc fees, there is always the risk that a dodgy broker would be more inclined to recommend a lender that gives the biggest proc fee.”
London Money director Martin Stewart says: “Having been an IFA when the RDR removed commission from the market, the risk is there are a lot of people priced out of financial advice.
“But my personal view is that is not where the murkiness is in the market. It is in the cross-pollination between the networks, the exclusives, the incentives, the stuff that gets sorted out on the golf course. That’s where the FCA needs to look.”
One 77 Mortgages managing director Alastair McKee says a pure proc fee model is fairest for clients and even brokers who charge client fees in addition to proc fees will have to change their model.
He says: “In life everything is driving towards bringing costs down, but the broker hasn’t evolved.
“I personally think ‘Why should you charge the client a fee when you already get paid by the lender?’ Most proc fees are already pretty tasty.”