MS Leader: Step in the right direction

Recent proc fee cuts have clearly rattled brokers - this week’s straw poll shows 80% expect further falls on the back of Lloyds Banking Group and Nationwide’s reductions.

Only time will tell whether this is fatalism or just a shrewd assessment of the direction the market is going in.

But as our lead story this week reveals, a major lender is rethinking its proc fee strategy and plans to take into account the quality of business submitted rather than simply whether it’s from directly authorised firms or appointed representatives. This could have far-reaching consequences for brokers.

Unlike the recent cuts where DA brokers lost out while ARs’ proc fees were unchanged, this may not be such a bad thing. A system that takes into account various factors, from compliance and packaging to case quality, could have a number of merits. Currently lenders potentially pay a higher fee to a lousy AR who packages cases badly and has dubious compliance and a lower fee to a great DA firm. This is patently unfair and makes no sense for lenders from a regulatory perspective either.

DA brokers would also need to prove the worth of their compliance support, which could alter the relationship clubs have with brokers. Instead of DA firms using a variety of clubs it could lead to them committing to one.

Obviously there could be negative consequences from all of this. What happens to DA firms that are shy of commitment and like doing their own thing? If brokers were forced to adopt a model similar to networks, would it be good for market diversity?

But if it helps brokers command proc fees based on what they do rather than whether they are DA or an AR, then it seems a step in the right direction.