History is an interesting and exacting beast, which tends to regurgitate tried and tested processes on a regular basis.
It is fair to say that, during the last few years, lenders seem to have sighed with some relief that they no longer needed to rely upon intermediary support quite so much, prompted largely by the dramatic downturn in business volumes and not helped by punitive regulatory requirements.
This has been their cue to cut fees with some haste and increase margins. Indeed, many of the lenders that we have spoken to of late mention, with some glee, that they have never had it so good.
This is fair enough, as we all like to make hay whilst the sun shines.
However, this has been impacted by low production levels and requirements, the shedding of staff and the quiet times which have beset us all during the recession.
Yet, what happens when the market starts to show signs of returning and the very same lenders start to flex their muscles and seek out increased market share again?
We see this happening right now with some lenders that have products and funds to shift but are struggling to get their wares to the wider market again, having cut their relationships with intermediaries in a sometimes very blunt and unhelpful way.
There is the need to rebuild bridges.
Even though it is fair to assume that fee levels will not reach their old levels, it is an economic fact that business-to-business relationships have to be managed in a fair and mutually rewarding way.
This will include payment for delivery of quality business and I fail to see where the problem is with that, as long as it is transparent and at a fair price for a fair job done.
In recent weeks, we have experienced conversations with lenders that are quite clearly not writing enough business to satisfy their masters’ demands.
Some, that are also deposit takers, are flush with funds which they are finding it difficult to shift quickly enough.
As a result, it has been possible to look at specific areas of the market and design products that fit with the lender’s financial and regulatory requirements. These have provided intermediaries with competitive products with reasonable procuration fees that do not harm the consumer by adversely distorting the cost to them.
If we look more carefully at the mainstream high street lenders, they have tended to remain reasonably loyal to their intermediary partnerships where procuration fees and customer products have remained fairly static and competitive.
In addition, the borrowing public are generally more streetwise now than a year or so back. They recognise that they can get to the best lender and product more quickly using an adviser than by having to trudge from bank to building society where the adviser can only offer their own product range.
Worse is when such an adviser conducts a credit search based upon their own offering and do not always advise the customer of the affect this can have on their credit score.
If it is the case that consumers are using advisers more regularly and lenders are seeking to increase their distribution, procuration fees need to remain part of the process.
Of course, in this I reasonably assume that the intermediary will always recommend the best product for the customer and not be guided by the level of procuration fee.
Finally, there is the need to comment on the obvious alternative, which is to transfer the burden of payment entirely to the consumer.
This is a vexed subject, but one where many commentators seem to feel the future lies.
Yet, I have to ask if this makes any sense at all.
If lenders are already making good profits from current margins and will make more, no doubt, if and when interest rates increase, is it reasonable that they pay nothing for business introductions and for the customer to foot the intermediary bill?
This proposed practice led, I believe, to the term ‘factory gate pricing’ and I worry that customers might choose the cheapest broker offering and suffer the quality of service this may deliver.
Remember, cheap does not mean best. You get what you pay for.
Dale Jannels, is managing director of AToM
