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Client fees versus proc fee rises – Marketwatch

  • 24/09/2014
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Client fees versus proc fee rises – Marketwatch
Charging clients fees for advice on retail investments became a reality for IFAs in 2012 under the Retail Distribution Review which placed a ban on commission being paid by investment providers.

Mortgage brokers escaped this structural shift but the argument still rumbles on over whether intermediaries should rely less on proc. fees from lenders and more on their clients paying for the service provided.

Charles Haresnape, managing director of Aldermore and chairman of the Intermediary Mortgage Lenders Association, reignited the discussion when he spoke at the IMLA Great Mortgage Debate in London last week.

While Haresnape admitted a proc. fee should make up some of an adviser’s income he said brokers should stop ‘banging the proc. fee drum’ and start charging the correct rate for the job they are doing like every other profession.

We asked our panel of experts if they agreed with Haresnape’s views that clients and not lenders should digging deeper into their pockets.

Payam Azadi, director of brokerage Niche Advice Limited, says individuals should consider which business model works well for them but an inbalance needs to be addressed.

Nigel Stockton, financial services director at Countrywide, thinks the client fees and proc fee payments are two different discussions which shouldn’t be looked at as one more favourable than the other.

Colin Chapman, director of Genesis Financial Services, says while charging a fee is justified because of the complexity of the servive offered, there are other ways to earn a decent living.

azadi-payamPayam Azadi is director of brokerage Niche Advice Limited

It’s interesting to see how lenders control business volumes with procuration fees. Whenever the lenders want more business from brokers they seem to increase them.

If they want the business direct or when they are simply trying to stem the flow of applications they look to decrease procuration fees labelling them as compliance and quality of business initiatives. Under the MMR if the quality of your business is not good enough, then you are simply not going to get an offer and eventually this will be flagged by the lender.

Procuration fees play an important role in not only rewarding brokers for their valuable service but also in a lender’s marketing strategy. Ultimately it’s down to individual lenders and brokers to determine their own business models, but at a time when more is been asked from both the industry needs to be looking at increasing its margins together.

Fundamentally, I believe procuration fees have not risen in line with the lenders more rigourous expectations from brokers over the last few years and this re-balancing act is long overdue.

stockton-nigelNigel Stockton is financial services director at Countrywide

The arguments about broker fee charging and lenders level of proc. fees are completely and entirely independent in my view and it is slightly disingenuous linking the two together. The primary reason for this is that different parties are involved.

It is quite right that the customer pays a fee to the broker for the service that they provide. I always say that you wouldn’t go to a dentist and not expect to be charged for the service the dentist has provided. For good brokers it is exactly the same, the broker is a professional with CeMap qualifications and provides a customer with choice and convenience.

The proc. fee is given to the broker for the service the adviser has provided to the lender. Lenders are now more reliant on brokers to deliver profitability and share in their mortgage books than at any time since 2008.

The broker is taking responsibility for the advice and usually the compliance and oversight for that decision. I believe brokers will carry out between 60% and 65% of the total mortgage market distribution this year.

Lenders’ increased reliance on brokers and the complexity of the task they are now fulfilling for them, will be reflected in their commission payment. I would expect lenders to increase their proc. fees over the next 18 months. Linking them to customer fees is neither helpful nor relevant.

colin-chapman-genesisColin Chapman is director of Genesis Financial Services

To charge or not to charge is a conundrum I have been battling with over the last few years. Our business model has always been based upon not charging a fee but the significant increase in what lenders expect of us and the real value of independent advice probably is justification enough to charge a fee.

That said the actual implementation of changing to a fee based structure is one that doesn t sit terribly comfortably with me at present. We virtually always win business off those other brokers when going head to head because we don’t charge a fee. Looking at the bigger picture rather than the short -term financial gain with fee, we gain a new client for the longer term, who will then recommend someone else.

If you can combine with the proc. fee with some life cover, buildings and contents and perhaps a solicitor referral then you can easily get a case earnings to in excess of £1000 – not a bad living if you are a volume writer.

I think that some lenders could do with following the Coventry’s lead and increase proc fees to 0.40% as a minimum, especially for residential cases which are the more time consuming transaction.

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