David Hollingworth, head of communications at London & Country
The debate over fee charging is one that has gone on for years and will no doubt smoulder for more to come. The obvious attraction to a broker would be to generate a greater income from each sale, especially in the current market. However, the charging of a broker fee could have an impact on the likelihood of the client doing business at all.
It is more important to look at the impact of fee charging from the customer’s point of view.
The argument for paying a fee for advice is to remove any possibility of commission bias, by charging a fee and rebating any procuration fee.
Commission bias is not likely to rear its head in the mortgage industry, as most lenders pay at a very similar level. In addition, procuration fees are nothing like of the same order as those that can be found in the investment world and so the chance for customer detriment is markedly reduced.
In fact, an insistence on charging a fee could have unintended consequences that would far outweigh the potential for a procuration fee to affect the advice.
This comes back to the affect on borrowers’ buying habits and whether borrowers will continue to seek advice on their mortgages if they cannot avoid a fee.
It could ironically lead to more people buying on a non-advised basis, whether online or by simply approaching their bank. The chance of them purchasing an inferior product would be significantly increased. With a tougher market and steep product fees, the risk is that borrowers’ price tolerance is breached and results in limiting the advice market.
Also answering in this week’s Market Watch are:
