Would it be useful to have an industry-recognised benchmark fee for mortgage advice that brokers can base their charges around in order to help consumers compare costs?
Offering their opinion in this week’s Market Watch are:
Robert Sinclair, director at AMI
The Which? research attempts to measure a market not yet formed. A fully fee-based market is not yet established in the investment world and is not due until 2013.
This 2011 research also looks to me as though some advisers were specifically pricing to avoid work that they may not want to do. This may be a particular feature of the future market in order to allow firms to retain their independent label and not venture into fringe areas or customer groups outside their core offering.
In a mortgage market where we have the option to offer commission-only options, fee-only options or fees with commission offset, then the consumer has the best of all worlds: choice.
In previous regulatory regimes, we had specified commission rates (LAUTRO rates), which were found by the Office of Fair Trading and Competition Commission to be anti-competitive.
I would see any attempt to impose or introduce a benchmark fee as risking a similar anti-competitive charge. The risk is that firms would concentrate around any benchmark fee and not deliver a competitive market.
In this modern world, where customers have a wealth of data and people arguing their interests on the internet, how to ask about costs and fees and the types of responses to expect is a key focus of most consumer sites.
Where I am confused is that Which? identifies itself as a core part of the consumer lobby.
It has long argued against commission and advocated the move to a fee-charging world that would be more competitive. It now wants transparent fee menus that risk replicating the previous model; I do not see this as helpful.
The mortgage world already delivers great transparent choice, a fact well recognised in the Mortgage Market Review by the FSA.
There has been no evidence of provider or product bias and firms are well aware of their legally imposed duty to disclose commissions that may compromise their duty to act in their customers’ interests. Adding menus and tariffs just delivers bureaucracy and cost to a market that already works well.
We would not want a market where both the adviser and the customer end up watching the clock, thinking about the income/cost equation rather than the delivery of the best advice solution.
Jonathan Clark, mortgage partner at Chadney Bulgin
The recent review by Which? has highlighted the huge variation in fees charged by IFAs when asked to quote for a straight-forward investment transaction and has led it to suggest that an industry standard ‘framework’ for such fees could help the consumer.
With the introduction of fees by most mortgage brokers in the last couple of years, could a similar structure benefit their customers?
The majority of mortgage brokers now charge ‘advice’ fees, but I have heard of fees as low as £99 and as high as £2,500 being levied for a broadly similar mortgage transaction of £250,000, so our industry clearly has widely differing views on what should or could be charged.
At an initial meeting, a good (and compliant) mortgage adviser will spend a few minutes going through their initial disclosure document, which amongst other things, will clearly tell the customer what fees will be charged, at what stage they will become payable and if they are refundable under any circumstances.
If a client has objections to the fee(s) that cannot be overcome, they are free to terminate the meeting and seek advice elsewhere.
An investment IFA will also have to publish a similar scale of fees, but can usually move between initial/renewal income and a flat fee or any combination inbetween the two and this can potentially be more complex and, in some cases, difficult for many clients to quantify.
In the last few years, procuration fees have generally reduced, house price inflation has all but gone, mortgages are proving increasingly difficult to place and ever-tougher regulation is finally weeding out the cowboys.
Therefore, provided that brokers act in a clear, professional manner, I feel that the current ‘free market’ is entirely appropriate.
Andrew Frankish, managing director of Mortgage Talk
As the market has evolved over recent years, more and more brokers have become dependent on fee charging to form part of their overall income.
We believe fee charging to be important, but only when it is justified by a satisfactory level of service.
In principle, having guidance around a “range of fees” for the mortgage arena could be a good thing to minimise the often obscene variations in fees charged, as is demonstrated very well in the Which? report.
However we must be careful that issuing a range of fees document does not mean that all brokers believe that they have the “right” to charge a fee, even when they are not worth it or don’t earn it.
We are strong believers in charging an appropriate fee, using your IDD discussion with your client to explain what they should expect in return for the fee, and then allowing the client to decide whether or not they wish to transact business with a particular adviser, based on the value that they will receive for the fee.
The danger with this route could be that a minimum broker fee could materialise, even brokers who do not warrant it (due to a basic or even poor service provided).
This would mean that genuine brokers who charge a fair price for their service would be forced to increase their service to differentiate what they provide, thus disadvantaging the client.
We believe that any professional who charges a fee should earn their fee and a mortgage advisor should be no different. Providing the consumer with guidance around this is key to allowing them to make informed choices based on their knowledge of what is available in the market.