Advisers using a panel of lenders to source mortgages could find they will lose their power to negotiate higher procuration fees once the Financial Services Authority (FSA) takes control of mortgage regulation.
Tied advisers often use estimates of business volumes to negotiate commission levels with lenders for the year ahead. Although this is permitted under the Mortgage Code, it is felt that the FSA may take a tighter approach in the belief that it encourages partial advice.
Rob Clifford, managing director of mortgageforce, said volume estimates can encourage advisers to reach panel members’ targets, rather than seek the best deal for customers. He believes this may conflict with the FSA’s model for its new regulatory regime.
‘Under the Mortgage Code, all intermediaries are required to do is inform customers they are using a panel. Nothing else is required. In reality, advisers using a panel of lenders do not trade in an equal way. Deals with panel members are commonplace. Advisers may guarantee volumes of business to individual lenders to boost procuration fees. However, in a statutory regime, will volume guarantees be allowed? I believe the FSA will see it as partiality of advice,’ he said.
Brad Baker, spokesperson for the Mortgage Code Compliance Board (MCCB), confirmed that current mortgage regulation concentrates on panel member disclosure rather than the way business is managed.
‘Our main concern is that advisers make sure customers understand the whole market is not being searched,’ he said.
Zurich’s IFA Group dismissed the need to regulate panel management. Rosemary Callender, spokesperson for Zurich Financial Services, said: ‘We do not work to targets, but do plan. We look at volumes of business generated for lenders over the past 12 months and estimate how large business volumes will be for each lender over the next 12 months. As long as advisers do not work to targets, there should be no need for the FSA to regulate panel management,’ she said.
Norwich Union subsidiary, Your Move, said the key lies in transparency. Jon Round, head of mortgage development at Norwich Union, said: ‘Bargaining with lenders to get better commission rates is not isolated to lender panels. Independent advisers could just as easily negotiate volume deals to maximise fees. It is reasonable to give volume expectations, as long as they do not interfere with customer advice.
‘We have more than 30 lenders on our panel, so it is difficult for us to guarantee hard and fast volume levels ‘ it depends on what deals are launched at the time. It is hard to envisage how panel management could be regulated. However, if advisers are transparent about their actions, there should be no need for the regulator to step in.’