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Lenders’ commercial decisions should not affect proc fee levels – JLM

by: Rory Joseph and Sebastian Murphy, is director and head of mortgage finance at JLM Mortgage Services
  • 30/11/2018
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Lenders’ commercial decisions should not affect proc fee levels – JLM
In all our years in the mortgage market, there has never been a time when the issue of procuration fees has not been an active one.


This continues to be the case and questions are constantly raised.

These include around whether they are appropriate, whether they’re at the right level, how they are portrayed to the consumer, should they be banned, are we too reliant on them – the list goes on.

The fact they have done a job in the mortgage market throughout all that time and no-one has really come up with a better alternative that recognises most customers do not wish to pay for advice, is sometimes overlooked.

In that sense, it’s the debate that keeps on giving.


Proc fees plateau

Hence, we have recent comments from L&G Mortgage Club director Kevin Roberts.

He suggested proc fees may have plateaued, lenders are feeling a squeeze, and that they might look at the cost of acquisition of business from the broker channel and “look at other acquisition channels for their business”.

That all seems eminently sensible to us as does the comment: “I don’t think we can rely on lenders to bail us out and to keep our businesses’ turnover increasing”.

This appears to have caused a slight storm in a teacup among the broker Twitterati.


Onus on advisers

Knowing how well L&G Mortgage Club value and represent the interest of brokers, we can’t help feel that Kevin’s comments may have been taken slightly out of context.

Advisers, of course, will have a certain reliance on procuration fee payments.

But we think Kevin is saying that were you to do exactly the same amount of business each year, you can’t rely on lenders continually upping proc fees to increase your profitability.

Advisers themselves have to grow business activity.

Be that advising more mortgage clients, offering more ancillary services, increasing introducer arrangements, and preferably increasing all manner of business activity that will deliver more income.


Outside forces hitting fees

We also believe that, when it comes to outside forces that might impact on the level of proc fee paid, the commercial decisions that a lender makes when setting rate margins, for example, shouldn’t be correlated with the level of fee paid to the adviser.

If a lender chooses to slash margins, to attract greater market share, so be it. That is their commercial decision.

If, for example, a supermarket chooses to sell its goods at a loss in order to increase market share or to disrupt the competition, then that is their commercial choice.

However, you cannot imagine they would use this to justify a wage freeze for their staff and suppliers.

We hope lenders would not make such a link and that they recognise the value of advisers’ work, quality of business, that using intermediary distribution delivers across a number of areas, and of course leaves the risk with the adviser.


Brokers doing more work

We also believe that more lenders are recognising that brokers are doing a far bigger job than they were even a few years ago.

This is particularly in terms of customer due diligence and lender protection, so they should be paid the right amount that reflects this greater workload.

Arguably, this is not currently the case with product transfers but we hope the direction of travel many lenders have adopted continues and that they are willing to continually assess whether the proc fees they pay are commensurate with the work involved.

Other commercial matters should perhaps be set aside when doing this.



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