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Do retention proc fees make sense?

by: Mortgage Solutions
  • 29/06/2011
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ING Direct has revealed it is considering introducing retention proc fees for brokers. What are the arguments for and against such fees?

Tackling the issue in this week’s Market Watch are:

Julian Hartley, mortgage director of ING Direct

Maria Harris, head of national accounts at Lloyds Banking Group

Charles Morley, head of sales at Kensington


Julian Hartley, mortgage director of ING Direct

ING Direct is a new player in the intermediary market and our focus has been on building quality relationships with leading broker networks.

Quality relationships depend on you thinking ahead and putting yourself in the shoes of your new business partners.

One of the issues is payment of retention fees and, even though this isn’t something we will have to address for another 18 months or so, we are deciding on how we are going to handle this.

I appreciate that different lenders have different approaches to this, but at this point I am on the side of the fence that favours paying a fee where a broker is involved in organising the ongoing loan.

However, our first responsibility is to ensure that at renewal time we are still offering a competitive range of mortgage products and fantastic service to make us the right solution for customers – just as we were doing when the broker made the initial recommendation.

What we are also factoring into our thinking is exactly how much work is involved.

We appreciate the retention process needs to be slick to take out the cost of administration that brokers incur. The gathering of all the paperwork to move lender, including payslips and bank statements, needs to be balanced with the opportunity to move onto a new product simply and easily.

In summary, I know what side of the fence we sit on and it’s now down to working out the details.

Maria Harris, head of national accounts at Lloyds Banking Group

Halifax and BM Solutions have offered retention proc fees for more than five years, something that continues to really set us apart from the vast majority of the market.

Our approach to retention business has always been very clear. It’s win, win, win.

We offer a dedicated product transfer range, especially for existing borrowers, designed according to their circumstances and to recognise how important our existing clients are to us. A win for the customer.

Then it’s on to the intermediary. We know that they’re having enough of a tough time at the moment in a subdued market. So, why would we refuse them access to a proc fee if it turns out that the best deal for a Halifax or BM customer is to stay with us? Well, we don’t. A win for the broker.

The broker puts the application through our online system, utilising existing customer knowledge, gets fairly rewarded for their work and the customer gets a competitive new deal and stays with us. In doing so, a win for the lender.

If you put it that way, there’s no other industry where an alternative would be acceptable.

Can you imagine explaining to a BMW car salesman that he can’t claim commission on that well-earned sale of a 7-series, because the driver already drives a BMW 5-series?

No, me either. In that situation, the salesman would rightly be rewarded for retaining a valued customer.

I’m simplifying the situation, I know. However, we don’t have to over complicate things for it to make sense.

If a broker has to do the same work to get a new customer as he does to retain an existing one, he should be rewarded in the same way.

Let’s not forget that today’s intermediaries have many more factors that they need to consider when advising their clients – not least historically low reversionary rates.

It’s a tough remortgage market at the moment, a broker’s job isn’t getting any easier and, as lenders review what they need to do, we may see that the industry start to recognise that our approach makes sense.

Charles Morley, head of sales at Kensington

The debate about whether lenders should reward intermediaries for customer retention is not a new one and, the fact that it has arisen again, is actually a good sign of a market returning to a healthy state of competition.

After all, it is not that long ago that some lenders were paying customers to leave.

Less than a handful of lenders currently pay retention fees to intermediaries.

The argument for not doing so tends to come down to customer choice, in that, at the end of a deal, a broker should really offer their client a choice of all of the products available to them – not just those from their existing mortgage provider.

However, remaining with your existing lender is also a valid choice.

If best advice was based solely on the cheapest rate, then intermediaries would only ever be able to recommend a very limited number of products.

But mortgage suitability depends on many different facets, from underwriting criteria to product flexibility, and one of these facts has to be convenience for the customer.

While intermediaries will have many clients who are happy to remortgage every two or three years, there may be some who simply don’t want the hassle.

If an intermediary is able to offer these customers a new deal with their existing lender without having to remortgage, then they are offering them another choice.

While Kensington does not currently pay retention proc fees for brokers, it is certainly not something we have ruled out for the future.

Our commitment to intermediaries is clear and we are continually investigating new ways we can work with our brokers to grow our businesses and rebuild our sector.

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