Comment: Handle referrals with care

Payne-Nigel

There is a potential regulatory gap when a distributor cannot compare or take responsibility for advice across sectors

When you refer clients to a specialist distributor, you want expertise you can trust. There are a few firms with the experience, size and scope of business to offer a proper service; and then there are the dabblers.

Some of these may have slick websites but how many cases are they actually dealing with and across which sectors of the market?

A firm needs sufficient volumes across all non-standard sectors to have up-to-date knowledge of the markets, the latest products and lending criteria, and, of course, regulation.

You may be surprised to learn that some distributors consist of just a handful of people who share a small office. So what happens when one of them goes on holiday or gets sick? Service, administration or compliance can slip.

Even more of a concern are those that operate in only one area of the market, particularly where a client would benefit from a product search across sectors.

Say you suggest a second charge to a borrower and refer to a second charge master broker. It finds a great deal on a low rate that compares favourably to a remortgage. All well and good.

But what happens if that case is rejected? It should be sourced again across remortgages and seconds. But if the master broker does not deal with remortgages, it may simply cascade the case to another second charge lender that will accept it – in which case a remortgage might have been a better option.

The initial broker is not responsible for the advice because they do not have permissions for seconds and they referred the client. The seconds master broker deals only in seconds, so will it pass back the client and lose the business? Is it obliged to?

There is a potential regulatory gap when a distributor cannot compare or take responsibility for advice across sectors.

Think carefully about the firm you plan to entrust your clients to. It is your reputation, and potentially your client’s home, at stake.

Nigel Payne is managing director of TFC Homeloans