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Proc fees must be fair and reasonable

The issue of proc fees seems to have fallen off the radar. It’s interesting to ponder why this subject has disappeared from view. Could it be that regulation and the disclosure of fees paid by lenders has lulled us into a false sense of security?

In the run-up to regulation the usual suspects were predicting doom following M-Day and falling proc fees was just one of their many predictions that did not come to pass. I can’t recall many people, if any, saying that proc fees would be rising.

At the epicentre of the proc fee debate is a simple litmus test. The test, which takes about 10 seconds if applied with some thought beforehand, is simply this – is the fee being paid reasonable in terms of the work put into securing the deal and providing the customer with the service that is required, and can it be justified if challenged by the customer?

It is clear that any business has to derive a certain amount of income from a customer to ensure the costs and margins required. That goes for any business, whether intermediary or lender.

And you know as well as I do that in most cases this is equivalent to a cash sum based on the mortgage value. This cash sum can be made up of a mixture of fees paid by the lender and fees paid by the customer.

Lenders operate fairly complex models that show product profitability given certain business conditions. One of the key components in these models is of course the level of proc fee being paid.

Some lenders will try to tell you that the fee being paid is not attributable to the product – it comes out of another mystery accounting line such as profits or general cashflow. I’ll let you make your own minds up on that one.

We live and work in a commercial world. We are all grown-ups here and we understand how the system works. I guess the rather old- fashioned phrase ‘a fair days work for a fair day’s pay’ is apt.

There will always be some who go on about the days when distribution was free. Those days are long gone and they will never return. Perhaps those who talk in these terms are thinking about an intermediary-free world?

So, are proc fees fair and reasonable? If you don’t think the fee you are receiving passes the test above, next time you are visited by a lender’s BDM challenge them as to what the lender’s policy really is.

Open and honest communication is the best way forward. The relationship between lender and intermediary is crucial to both sides. It’s just a shame that some lenders don’t realise that. Simon biddle

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