Are you ready to disclose proc fees from every lender in the market? TMA

by: Lauren Bagley
  • 22/06/2015
  • 0
Are you ready to disclose proc fees from every lender in the market? TMA
What are the implications of MCD requirements that will oblige all advisers to disclose potential commission levels to clients? Lauren Bagley, marketing manager at TMA assesses the impact on brokers.

At the Financial Services Expo last month, the FCA brought to light the implications of the Mortgage Credit Directive (MCD) on mortgage advisers.

One revelation that few people in the room were aware of was the upcoming requirement post March 2016 to provide clients with details of all potential commission levels advisers could have received on all regulated mortgage contracts that could be offered to the customer, not just on the product applied for.

The implications of this means that you will need to show your customer the proc fee available on every product from every lender on a network’s panel; or, if you are a DA, on every product from every lender available through the mortgage club(s) that you use. The challenge seems greater for DAs, especially if you use more than one mortgage club because you will have to reveal the proc fees for each of the clubs.

The objective of the MCD seems to be to show that your advice is not being biased by the payment you will receive from the lender. By comparing proc fees, in theory the customer has the option not to take the initial advice that you present them with, but to opt for another product or lender where the proc fee is lower. On the other hand, if you have a structure that charges a percentage of the loan and refunds the proc fee to the customer, what happens then? You could have a scenario where the customer opts to take the mortgage with the most attractive fee.

To make it clear, you only need to hand over this information if the client asks for it, but you will have an obligation to tell the client that it’s available and that they can ask for it if they so choose.

An even greater challenge still at the other end of the scale is that in order for an adviser to continue to call themselves ‘independent’, they will have to be entirely fee charging (i.e. no commission is received). They will all also have to access to a product range that is genuinely free of restrictions (i.e. including all lenders and direct deals). This ultimately means that we may also see an end to the word ‘independent’ to describe intermediary services, whether in corporate and/or trading names.

What these new rules may do is dissuade DA advisers from swapping from club-to-club – purely for simplicity, as keeping track of the amount of information that they may need to produce for their customers could be a huge administrative burden for advisers.

Mortgage clubs should be able to support firms with this requirement going forward by communicating up to date information but this small, rather hidden piece of the new regulation could actually change the shape of the adviser market by playing a role in how many and which mortgage clubs DA firms deal with.

Lauren Bagley is marketing manager at TMA

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