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Say goodbye to golden hellos

As we reveal on page 4, in a strongly worded letter to the financial community, Oliver Page and David Strachan, directors of FSA&#39s retail division, say they consider such payments would “be incompatible with the fundamental principle that a firm must not conduct business under arrangements that might give rise to a conflict with its duty to customers”.

They go on to point out that financial support for intermediaries should either be in commission that is disclosed to the consumer or a permissible form of indirect benefit.

The letter seems to be specifically aimed at larger networks that are holding lenders and providers to ransom for large upfront payments to be considered for restricted panels.

Why the FSA is so concerned is that these panels could result in the consumer having to pay higher monthly payments to clients to support the higher commissions that will be paid.

The FSA is clearly worried and rightly so. Monies paid out will have to be recouped from somewhere and that&#39s likely to be in higher interest rates and higher monthly repayments.

Indeed, one of the flaws in the new rules is that if a broker multi-ties to four life companies then he only has to tell the customer that he represents these four companies and does not have to disclose that the premiums being offered are all loaded by 20% to increase broker commission.

The contents of the letter have far-reaching consequences and over the coming weeks Mortgage Strategy will be looking at those in even more detail. Time will tell whether the warning letter will have any implications for branded lending operations or for those lenders that see investing in their intermediaries compliance function as a means of securing business. Watch this space.

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