Retention fees could tempt lazy brokers

The thorny issue of proc fees is becoming even more prickly. Until recently my main concern was that some brokers were happy to churn their clients just to pocket the proc fees. When the time swung around for a mortgage review, a fresh home loan product and provider would be identified and the broker would enjoy another pay day.

There has always been a worry that the wrong products are being recommended just because they feature juicier proc fees for salivating intermediaries.

And despite constant denials, the Financial Services Authority found some evidence of this disturbing activity in its recent mystery shopping exercise. Brokers were found to be putting clients on sub-prime products when cheaper and more suitable mainstream mortgages were available. We all know why this happens – because sub-primes tend to offer chunkier proc fees.

But brokers have long argued that if they were paid retention fees by lenders when they guide clients back to them the temptation to churn would evaporate. Why should a broker spend time assessing a customer’s needs properly and then not be paid for their advice, even if that advice is to do nothing?

But many lenders will not pay a fee if a broker recommends that a customer sticks with them when their mortgage deal comes to an end. Lenders insist that an existing customer is already their customer so the broker doesn’t deserve to be paid when they stay put.

But a growing number of lenders are taking a different view. Woolwich and Accord Mortgages already pay retention fees to brokers and some big guns including Halifax are following suit. Paying fees for retaining customers seems strange when lenders have been claiming for years that there is no need to do this. Perhaps we should admire organisations that are happy to hold their hands up and admit they have been wrong for years.

Let’s face it, there has been a seismic shift in opinion on retention fees and I predict within months few lenders will not be paying these fees.

It costs more to bag a new client than it does to hang on to one so lenders should be able to save money if they keep their customers, even if they have to pay brokers to help them. That said, it is unlikely that lenders will not use this opportunity to cream an extra slice off consumers by hiking mortgage fees again.

And how can we be sure the people who were greedy and unscrupulous enough to take proc fees for pushing unsuitable products will not now be greedy and lazy enough to take fees for advising clients to do nothing when switching lenders would be more appropriate?