The new year is traditionally a time for wishing friends and colleagues health, wealth and prosperity but for most mortgage advisers, their remuneration is only partly within their control.
So as well as hoping 2007 meets all your expectations, I hope my insights here will help you enjoy a more rewarding year. There are a number of steps that you as brokers can take to improve remuneration for yourselves and your advisory businesses.
Don’t undersell yourself
A proc fee should not be seen as a broker’s remuneration. Rather it is lenders’ way of reimbursing brokers for acquiring business – work they would have had to have done had you as brokers not done your jobs so well.
Looked at in this light, the level of proc fees is appropriate to the level of work involved in writing a certain piece of business – whether researching the market for appropriate deals or recommending business being retained with the existing lender.
The one exception to this is the proc fee paid to packagers for sub-prime business. Given that most business is conducted by technological means there is no need to pay grossly inflated fees to packagers.
As for your own fees, like other professionals, you should also charge your clients a realistic fee for the service you provide that is appropriate to your training and experience and reflects the unsociable hours and professional advice that guides them through the complex maze of home ownership and maintains affordability.
More importantly, you should have to explain rather than justify your remuneration to your clients so nobody baulks when they see the figures.
Ensure your network is remunerated promptly by lenders
Six months ago I challenged lenders to pay networks on a weekly basis so that brokers can be paid swiftly for the business they have written. Some lenders have made a move towards paying networks promptly – it is a feature of one of the newest lenders that payment is made within a matter of days.
But it hasn’t stopped other lenders maintaining the odious policy of holding onto payments to extract the maximum investment advantage at the expense of networks and brokers. Networks need to communicate their distaste for this practice directly to lenders.
A recent Mortgage Strategy poll revealed that 82% of brokers say lenders are short-changing them when it comes to coughing up the cash for proc fees.
Provided a network’s management information systems are set up correctly and run in tandem with lenders’, this should never happen.
Ensure your network pays fees and commissions promptly
It is only fair and professional that advisers should be paid as promptly as networks. But what should be a no-brainer often does not happen for three reasons.
First, many networks’ technology cannot consolidate and redistribute fees from lenders to advisers, possibly due to inadequate legacy systems or lack of investment in broker-friendly technology.
Second, a network may not be of sufficient size (having too few sellers) to be able to afford the cash flow necessary to maintain immediate payment of proc fees. This becomes evident when brokers repeatedly chase networks for payments.
This can create a frustrating merry-go-round of chasing lenders that claim payment has already been made. The outcome is mistrust and disaffection all roundsurely the beginning of the end.
Third, some networks rely on a delay – up to 60 days in extreme cases – in remunerating advisers to create additional investment income. Typically, these networks hold onto brokers’ commission, placing it in high interest accounts and eventually paying brokers only when they cry foul.
Any network that values its relationship with brokers will know that for professional mortgage advisory firms seeking to build successful, profitable businesses, financial stability is the key.
This is backed up by a poll of 227 businesses which confirms that 31% consider credit management problems as detrimental to business success.
While it might seem acceptable to you that suppliers should be kept waiting for payment, remember that they are protected from late payers with late payment legislation. They also have other tools at their disposal such as offering prompt payment discounts and charging interest on overdue commercial debts.
But when unscrupulous financial services networks treat their distributors in this way, the only recourse is for those affected to vote with their feet.
Ensure your network invests in the appropriate technology
There are already network systems available that alert brokers of their anticipated payment on a Monday, with payment reaching their bank by Friday.
Software systems can also let advisory firms know what advisers have been doing on a weekly basis so they can award commission and pay fees promptly.
Consolidate your accounts on a regular basis
It is not only late payments from lenders and networks that can make a broker’s life miserable but also inaccurate payments.
While a lender might have paid a network promptly, that network’s in-competence can mean the correct fee is not delivered to the broker who generated the business. Instead, the money sits in a high interest deposit account, making money for the network. Interest that has been earned because of a network’s incompetence should be paid back to brokers.
Don’t become a fat cat at the expense of your colleagues
According to the Trades Union Congress, since 2000 the total remuneration for the directors of FTSE top 100 companies has gone up by 105% more than the cost of living. In contrast, pay for the rest of us has gone up by just 6% more than inflation.
So make sure your business is looking after all its employees. After all, the Confederation of British Industry points out there is a fierce battle for talent going on, and that applies just as much to para-planners as it does to administrators and advisers.
Having the right team in place makes the difference between a company’s success or failure, with repercussions for all in society, not just those at the top.
Don’t switch networks because of a golden hello that might be on offer
Any network offering a bribe for you to join it has to recoup that cost from somewhere – and it is usually made clear how in the small print.
Golden handshakes or business interruptions fees are neither sustainable nor necessary in the mortgage market. This is demonstrated by the fact that we have recruited a significant number of advisers with a transparent and open contract.
Treat your customers fairly
No lender, protection provider nor insurer can be all things to all people. A mortgage adviser’s role is to source the best deals available at any time. Most lenders and providers consider that they are babysitting clients until a better deal comes along for them.
That is why I hope 2007 will mark the death of direct sales forces that deny clients access to the best deals because they can’t offer a meaningful choice in a competitive marketplace.
We work in a prosperous industry and provide a highly desirable service to our clients. With mutual respect and the right technology in place, lenders, networks and advisers can enjoy a profitable working relationship.
On the other hand, restrictions on cash flow place enormous strains on businesses in the mortgage market.
Brokers are at the heart of the mortgage industry’s food chain so worrying about meeting the wage bill is not conducive to productivity because financial angst diverts attention from advising.
Richard Coulson is chief executive of Home of ChoiceT