What mortgage brokers need to know before choosing a packager

Entering a new partnership is always risky. After all, it’s often an agreement with the relative unknown. Clients have put their trust in their broker, expecting a certain level of service at an agreed cost. If that is not met chances are they will walk…straight to the Ombudsman in some cases.

But with risk also comes return, be it the added value the client receives by being served by a specialist, or the referral fee trickling into the broker’s bank account.

Unfortunately not all partnerships always work out. In broker-specialist terms, this means brokers sometimes get stung with hidden charges for the business they refer, or they fail to receive commission in full or in part.

So what should a broker do before agreeing to partner up with a specialist?

Choose a partner which mirrors your values

Zing Mortgages director Paul Flavin recently paired with Fluent Money for his second charge business. The partnership came after a period of trying and testing and meeting with distributors.

“We work massively on customer service. We had to find someone to match that customer service element,” he said.

Flavin’s firm only ever works with one partner and one back-up option, which he gets to know as best as he can in order to understand their proposition and find a common footing.

“You’ve got to go and meet those companies, see what they can do to deliver and build a level of trust. If you can’t build that level of trust you risk losing customers,” he said.

A low fee for specialist services is not always the best

But, importantly, “the rate is not the driver, the customer service is the driver,” he added. The fees are high, about 0.5% seems average, but the firms “have a lot of expenses themselves so it’s justified”, according to Flavin. “If you are just shopping around for the lowest fee there will be other fees that come up that you weren’t aware of.”

Get a list of upfront charges to share with your client

For Flavin the get-to-know-you process is all about being transparent. His firm demanded Fluent explained its proposition and listed all its charges, so they could pass them on upfront to their clients, which is another issue some brokers are grappling with, according to Flavin.

He said: “Sometimes the trouble is advisers are embarrassed about the fees and try to wash over them with the client. This is when the trouble starts.”

Connect Mortgages owner Liz Syms said sometimes the problem with fees lay in a misunderstanding on the part of the broker.

Understand your cut

Lenders would quote a fee like 0.8% in the illustration to the client and give the broker 0.5% back in commission and keep 0.3% as a fee but brokers might think they are owed the full 0.8%, she explained. “They might think the packager is holding some money back but actually they are not.”

Connect charges a flat fee of £199 based on a successful introduction and no additional fees. Syms suggested this is at the lower end of the fee spectrum, although some packagers were known to charge introductory fees of as little as £99, while others’ fees were as high as £500. Sometimes there is a completion fee of 0.5% to 1% on top, with more complex cases such as bridging and commercial typically being more expensive.

Syms said she was unaware of any recurring problems between brokers and specialist partners. “Most packagers I am aware of are transparent. I would be surprised if there was underhanded behaviour going on, certainly from the mainstream packagers,” she said.

Spotting bad packagers

However, she cautioned brokers about ‘fake’ packagers. “In the bridging market sometimes what we’ve seen is that someone would present as a packager but actually they aren’t and what they then do is go to a packager anyway, creating an additional mark up,” she said.

“You want to make sure you are dealing with a packager who has that packaging arrangement with the lender,” cautioned Syms. “Make sure the firm you are approaching has the specialism in the area you need help with. You want that added value, otherwise you may as well go directly to the lender.”

Brokers should also be mindful not all packagers offer a whole of market proposition and some may therefore not point out there is a cheaper option available elsewhere because they don’t deal with that lender, she said.