Haven’t there been some excellent debates within our industry recently? More evidence, if it were needed, that the market goes from strength to strength.
The proc fee discussion has been interesting, with lenders beginning to acknowledge that brokers are taking the advice fee risk and that the extra time spent on an application is valuable and worthy of increased payment. It has taken a little while but it is a good outcome.
It is helped by the fact that consumers are deciding in seven out of 10 cases that they would prefer to use a broker to arrange their mortgage.
Lenders’ existing direct channels are much diminished and they are left thinking about different channel economics in far greater depth than they were even 24 months ago.
I can envisage smaller lenders going ‘broker only’ in increasing numbers now, as the cost of compliance and oversight of mortgage consultant networks becomes untenable for small-scale businesses.
I believe we will end up in the next couple of years with a proc fee rate of around 45 basis points prime and 55bps buy-to-let. I do not foresee major lenders moving far from 40-50bps-plus, so I cannot support those who think proc fees should rise to 70bps. I see no reason why Lloyds Banking Group, Nationwide, RBS and Santander would take the huge profitability hit of the combined cost of another 10bps. There is nothing like a target, though.
Any new increase in fee is welcome but I stand by my comments on proc fee bias. Brokers invest hundreds of pounds in becoming trained, achieving professional qualification and improving their IT systems and client management operations. I cannot imagine why any broker would think of jeopardising all this for the sake of a few pounds.
The best way to keep consumers in a brokerage is to offer them the best products and best service we can. They will come back to a brokerage again and again, and refer other customers if they feel they have the best product and a super service. This should be the aim for all brokers.
Another discussion I have watched with interest recently is around authorised representative networks. If you want to have a pop at the future viability of a network, may I suggest you travel in a Tardis back to 2010?
Back then, you could have made a decent argument that a network taking 3-5bps of the total proc fee in a broker market of just £75bn was going to struggle unless it had vast scale. Fast-forward to 2015, when the broker market will be worth over £130bn (almost 100 per cent higher than in 2010) and even reasonable scale means those AR networks can now post decent profits at an acceptable risk. The FCA rightly will make sure the compliance oversight process for ARs is properly maintained by the network. I expect this to become increasingly audited and overseen by the regulator, for everyone.
As an aside, there is a danger of a growing economic imbalance in the way in which larger firms are expected to conduct oversight compared with the smaller firms. The bigger market networks can invest in these oversight processes and still make profits.
I like the idea of profitable networks supporting growing ARs; the market has now got this but there is a need to continue to grow it. I may return to this topic in the future.
Incidentally, there has been a lot of discussion about Aviva’s statement on Sesame Bankhall Group. In my opinion, ARs remain perfectly safe at Sesame. I have the greatest respect for Friends Life and Aviva and there is no way that they will not sort out and stand by the network. All Aviva was doing in its formal takeover prospectus was saying that the wealth liabilities were significant and needed to be quantified. Is that news to anyone? Not to me.
More earth-shattering bombshells next month.