Have I been entirely successful in that enterprise? Well, some get it, others less so.
For the former group there is a recognition of a joint effort here – lender and distributor partner (whether network or club) working together to influence quality.
For others, they may track the quality of the business they receive but that might not necessarily turn into greater rewards for better quality business. Neither might it mean penalising those who submit poorer quality business.
For what it’s worth, when the relationship does follow the former rather than the latter, we often have lenders paying matched gross fees to distributors, regardless of the regulatory status of firms they support. More on that later.
But this is not the majority and we therefore have some way to run, which is why I have read with interest the recent news stories that look at the issue of lenders paying larger procuration fees for better quality business.
Putting a focus on quality
This is as relevant for distribution businesses as it is for individual firms. If we as a distributor are focusing our members’ minds on quality, supporting them in a variety of ways to achieve this.
In turn, the quality of that business submitted means it doesn’t cost lenders as much to process and administer the mortgage, then there is a strong argument for an increased fee to be paid.
Whereas at the moment, and this will certainly broaden out the debate, what we currently have is a situation, for example, where networks are paid a larger fee than mortgage clubs because lenders deem them to be achieving what I’ve set out above, while at the same time, not acknowledging that some clubs are also doing this.
Again, the irony might be, that the very networks they are paying larger fees to may not actually be delivering the better quality business, or indeed influencing the quality of the business written by their appointed representative (AR) firms in a way that justifies paying extra. Instead, they are paying it out for volume and where there are quality issues, the volume overrides this (excuse the pun).
I should add that, in my experience, very few adviser firms deliberately set out to write poor-quality business. From the management information we receive from our lender partners there is a very strong argument to suggest that instances of poor practice from advisory firms are getting less and less.
Quality is usually good
At this point, you might want to ask, why that is the case? I would suggest that it is businesses like our own and the support on offer to firms – training, CPD, test zones, workshops/seminars, one-to-ones, business development managers (BDMs), helpdesks, I could go on – that has made a huge difference.
Not to mention compliance-based support, in terms of regulatory onsite visits, virtual visits, file checking, acting upon provider/lender management information (MI) to address quality standards at adviser and firm level.
All this adds to that quality improvement that lenders are seeing, and it’s safe to say that is not just coming via ARs. I would hope lenders who work with us would be able to acknowledge that, and it is quite simply, provable via the way our directly authorised (DA) member firms work and the business they submit. And yet, on average, lenders are paying 10 basis points less for it.
Overall, I’m struggling to think of a) a good argument against not paying more for business which requires less resource and work at the lender level and ultimately makes them more on the bottom line, and b) not, at least, looking at the quality of the work that comes through the DA channel and justifying why those firms who are directly authorised should be paid less for it?
A change to the structure
I am aware some lenders who operate a differential on remuneration to clubs also have a tiered proc fee structure for networks, the highest level being based on volume and value. We would be delighted to work in a scheme that rewards quality and volume within such a tiered structure and for this to be monitored and reviewed quarterly.
Now, this doesn’t mean I expect lenders to act with any urgency here – not because of a defeatist attitude but more to do with pragmatism. However, what does tend to focus minds is regulatory change and, the end of July, brings plenty of this in the form of Consumer Duty.
It affords lenders the opportunity to review current practices in light of the Duty, and dare I say it, have to potentially justify their rationale in taking a differential stance when it comes to AR/DA procuration fee levels. In that sense, I do genuinely look forward to hearing what that rationale might be.
