Each week, we also round-up the best comments, emails and letters to the site and pick one reader contribution as our Star Letter. This week’s award goes to:
Client fees versus proc fee rises – Marketwatch
In a perfect world an adviser fee would reflect the number of hours of work by the adviser, the hours worked by support staff, the complexity of the case, the size of the loan (more risk to the broker) and so on.
The proc fee, however large, would then be reimbursed to the client. In reality however it rarely works like that. Other factors step in to mitigate the actual fee that ought to be charged.
The client, assuming historical pricing models still remain, is one such factor (many clients express surprise at having to pay anything – ‘don’t you get paid by the lender?’ being common); competitor pricing is another; the level of fee that is deemed acceptable by the client; undervaluing by us of our worth to the client, and also advisers performing many tasks ‘for free’ such as submitting a decision to lend in principle request. Nothing is ‘free’, it simply means if the client isn’t paying it is at our cost instead of theirs.
The rise of access to mortgage advice on the internet also threatened brokers although the need for all sales to be advised since MMR has helped a little on that point.
Higher net worth clients may be more inclined to pay an hourly charge and value experience and qualifications, especially the professional ones who often work in a fee charging environment themselves, but to the average client having to pay large fees for services that they traditionally got ‘for free’ does not sit well. For me, subsidising the mortgage income by assuming you will get other sales is a non-starter.
The mortgage service should earn enough to pay its own way. There is arguably an issue of TCF too if you are dependent on cross sales on all mortgage cases to achieve profitability.
The proc fees on mortgage have not, across the board, increased substantially but the workload to obtain a mortgage offer has, along with the cost of living! If we do not earn more per case we will be reducing profitability. Consequently I am proposing to increase my mortgage fees from the new year to reflect this.
Andy Wilson
