‘Direct only’ products could cause compliance problems

From Johnathon Godfrey

There is a practice creeping into our industry which is perpetrated by lenders in an attempt to exclude commission-based brokers from accessing their best mortgage products.

The implications of this practice are far reaching and could result in compliance issues and mis-advice cases being raised.

The products I am referring to are the ones marked ‘direct applications only’ on most mortgage sourcing systems.

For example, a high street lender’s product could come with no application fee or booking fee and even offer free valuation and legals. Such a product is flagged as direct only so no proc fees are paid to advisers.

Meanwhile, the intermediary arm of the same high street lender has an identically rated product which pays an introducer fee, but this version contains an application or booking fee. The broker submits their case to the introducing arm of the lender to be paid for their efforts.

But six months down the line, their advice is challenged on the simple premise – why wasn’t this case submitted direct to the high street lender in question, thereby saving the client the product and booking fees, and maybe even valuation and legal fees too?

And if a case is submitted direct to a lender, it is at liberty to sell any other products it deems necessary to the client.

I believe we will see more lenders adopting this method to retain custom and avoid giving proc fees to advisers.

Johnathon Godfrey,Principal, Brannon MacRae Independent, Norton