Brokers offer clients value for money

Kevin Paterson takes a weekly look at the latest developments in the market and brings you what\'s hot and what\'s not in the world of mortgages

A self-styled financial guru called Paul Lewis who hosts a programme called Money Box on BBC Radio 4 recently commented that brokers who receive commission are an added cost and untrustworthy.

The assertion runs contrary to the overwhelming weight of public opinion, which Lewis seems to have conveniently ignored. Indeed, a recent survey of most trusted occupations published in a national tabloid newspaper revealed that financial advisers had improved their trust rating with the public by 15% in the past two years. Meanwhile, a recent Which? survey rated financial advisers fifth in a list of seven professions – above estate agents and politicians.

Granted, being ranked above estate agents and politicians in a survey of trusted professionals is not exactly a ringing endorsement of our sector but I remember when we were the lowest form of life, as measured by public esteem.

This considerably improved picture proves that the public gets worthwhile mileage out of financial advisers and that there is an increasing need for their services.

It is too simplistic and flawed to draw the conclusion that because a broker earns a commission from the sale of a product it is more expensive than it needs to be and the advice the client is getting is somehow corrupt.

Commission-based sales underpin almost all transactions in life, from car sales to house sales. There is usually a margin built in for distribution and given the complex nature of many financial products, I would have thought that building in a pricing element to help cover the cost of advice should be regarded as a good thing.

See Comment, page 64

Pointing the finger at charges
The recently published Annual Review 2006/07 from the Financial Ombudsman Service highlights an increase in complaints about the mortgage industry of 11%, with the vast majority of these being about charges.

Complaints ranged from exit charges to the fairness of mortgage arrears administration charges and, more worryingly, fees charged by brokers for arranging and setting up mortgages for clients – the same fees that pay for the service required by clients because of their lack of awareness and understanding.

Unsurprisingly, more than half the 94,392 complaints received are in relation to endowments, no doubt driven by ambulance-chasing firms’ relentless attack on the industry, although this is apparently decreasing as deadlines are exceeded.

Payment protection insurance complaints are up by almost 40%, with many clients citing the ways policies were sold as the main reason for their complaints. I am sure this number will keep on increasing for some time as claim chasers get a foothold in this well publicised soft target.

What is particularly concerning is that more than half the total of complaints relate to 10 of the UK’s top financial groups, while more than 80% of the firms covered by the FOS had no complaints referred during the past year.

All firms are on the FSA’s radar
The Financial Services Authority warned recently that directly authorised small firms could not escape regulation. And about time too, because too many advisers have seen becoming directly authorised as a loophole and a way of avoiding what they see as onerous compliance requirements – a result of the size of their host firms.

The regulator doesn’t believe this to be the case and cites a number of interesting statistics to back this up.

First, it says the number of new DA firms rose by an average of 29 per month in the past year (almost 360 over the year), with only a quarter coming from networks. But how many came from other larger DA firms? That would be a far more revealing statistic.

The FSA also says the 3% decline in appointed representatives could be accounted for by the demise of two large networks. However, the networks that collapsed were DA firms – Berkeley Berry Birch and Millfield – so this is misleading.

The FSA implies that the decline is more indicative of healthy growth in the sector than a migration away from networks or large DA firms.

I’m not sure where the regulator thinks the growth is coming from, as there is no easy way into the industry these days. If anything, the number of advisers is shrinking rather than increasing.