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Brokers back Ami over harm from proc fee ban

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.”

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  • Vinny Parker 25th April 2017 at 1:42 pm

    Another issue I see is the retention products that almost all lenders are now allowing. This is a positive move for the industry, but it may become a burden to a busy broker. I am not a greedy broker and I work extremely hard, but I cannot make a mortgage pay with a proc fee of 0.20% (less my network’s fee). On these occasions I will have to charge a fee or not see the customer at all. The industry/FCA needs to consider streamlining the retention product business to ensure brokers continue to help these customers and the lenders need to consider a more appropriate proc fee like Halifax & Virgin currently do. Halifax have allow retention products for years with a standard proc fee so they are obviously making it profitable business. Lenders are able to streamline what they need to see, surely brokers should be able to do the same (within reason) if the borrowing, etc are to stay the same. We all want to do the best for our customers, but there are only so many hours in a day. The industry needs to realise this and stop carrying out knee-jerk reactions to situations, instead they should consult with experienced brokers to find positive solutions that ensure the customer always gets the best outcome.

  • Vinny Parker 25th April 2017 at 1:33 pm

    I have only recently started charging a broker fee. This is not out of greed, but out of necessity, anyone can be a busy fool. If you are arranging loan £500k+ mortgages in the south east I agree that proc fees are pretty tasty and there may not be the need to charge fees, but most of us arrange much more modest mortgages. Also, the smaller mortgage customers are generally the ones that need the most help and advice. What is your solution Alistair for these customers? The options are to not do the business at all or to do it at a loss and take that advice burden on for the rest of our lives? Our workload has increased dramatically, the regulatory burden only ever increases (FSCS with pensions) and lenders are still pretty incompetent on occasions and their underwriters do not liaise with brokers like they should. The only options I see are increased proc fees or charging customers on a ‘case by case’ basis if it warrants it. Otherwise these customers will end up at their banks receiving poor advice from a single provider and in many cases told they cannot get a mortgage at all.

    • Des Platt 27th April 2017 at 7:32 pm

      Excellent comment Vinny. Outside of the South East, Alastair McKee’s comment is nonesense.

  • Paul Smulovitch 19th April 2017 at 10:49 am

    The reason charging is essential for brokers is quite simple. firstly because as a professional person we are worth it. Secondly if a deal doesn’t complete then a significant amount of time and effort is spent with no income earned. No other job would you work for effectively nothing. And thirdly if you do a mortgage for 50k a 0.35% proc fee making £175 does not cover the cost of compliance let alone an kind of profit. There is very little difference in proc fees from lenders and if its made compulsory to show clients sourcing then it would eliminate any bias or just standardise poc fees lenders pay as all pay a set %. But brokers must remain able to charge fees to stay in business.

    • Anonymous 19th April 2017 at 11:58 am

      The ‘scale’ for charging client fees for us starts at £150,000, as below that a procuration fee alone is too high a risk of inviability. The ‘scale’ also includes ‘non-disclosure’ of adverse financial data & ‘Further Advance’ applications!