A recent levy by the Financial Services Compensation Scheme is so large that network bosses may be forced to pass on the cost to their members, Mortgage Strategy has learned.
Networks have different fee models, but many aim to insulate members from unexpected regulatory bills.
However, the FSCS has recently hit mortgage brokers with levy bills that are unusually large for two reasons.
First, the ‘home finance intermediaries’ class has been hit by a £15m supplementary levy to pay for “unforeseen compensation costs” in the 2016/17 financial year.
Around £10.5m of this was due to FSCS claims against Fuel Investments Limited after the firm advised clients to remortgage their UK homes to free up money for high-risk property investments.
Second, mortgage brokers are partly picking up the bill for a massive wave of claims in the life and pension intermediation sector.
An FSCS statement on 16 January said it expected the rising trend in these complex claims to continue, with the levy predicted to raise £171m, exceeding the annual limit for that class and triggering the contribution from all levypayers.
Brokers and networks were sent FSCS bills for the extra cash in late January and early February, asking them to pay within 30 days.
Networks are divided on how to handle the issue.
LSL Property Services director of mortgage services David Copland says LSL networks Pink and First Complete are still deciding how to handle the levy.
He says: “We haven’t made our minds up on what we are going to do. But we constantly make our ARs aware of the costs of regulation.”
Copland says the LSL networks would normally not charge members extra for regulatory levies, as these are covered by membership fees, but the size of recent FSCS bills means one-off charges have been necessary.
He says: “The problem is it’s now happening on a regular basis and it doesn’t allow you to plan. They tell you someone’s messed up and then four weeks later you get the bill.”
First Complete and Pink sales operations director Toni Smith says: “We fundamentally disagree with the way the FSCS levy is charged.
“Our advisers are not licensed to sell pensions products but are expected to pay for poor advice on pensions.
“To that end, we would like the current FCA consultation to reconsider how the levy is calculated to separate the dual life and pensions pot. As a business, we are also considering how to absorb the latest levy and are in communication with advisers in our network about this issue.
“Over the longer period, there is no doubt that this constant increase in FSCS costs will need to be factored in to every network’s business model.”
Mortgage Strategy understands other networks are also talking about passing on the latest levy.
Some networks’ structures mean brokers always have to pay a share of FSCS levies.
TenetLime managing director Gemma Harle says the network does not include FSCS levies in its membership fees, so its brokers will have to pay some of the latest bill.
However, TenetLime will soften the blow for its members.
Harle says: “We discount the FSCS levy charge for our members and also offer the ability for them to spread the payment over a period of time.”
Sesame’s business model also means FSCS charges are passed on, although the network similarly lets brokers pay their levy share in instalments.
Personal Touch Financial Services also typically passes on FSCS levies.
A spokeswoman says: “As with most other networks, our regulatory costs are separate to network costs. As such although the additional levy, although highly unwelcome, will be treated as a disbursement.”
But some networks will not pass on the latest levy.
Mortgage Advice Bureau chief executive Peter Brodnicki says the network will swallow the latest bill.
He says: ““Historically we have taken the decision to absorb all FSCS fees and levies, and have done so again with the latest levy.”
A Stonebridge spokesman says: “It’s always factored all regulatory charges into the one existing network charge for firms and has no plans to change this.”
Openwork has been approached for comment.