This week, Mortgage Solutions asked: Would you forgo procuration fees in favour of client fees to reflect the effort that goes into your work?
Moving away from procuration fees and relying solely on client fees would be an effective method of ensuring our remuneration reflects the time and work that goes into each case. In my opinion, however, this method would likely have an undesirable effect on our business and the market in general.
If we consider the investment arena where commission is now a thing of the past, it has become very difficult for people of relatively modest means to obtain sound independent financial advice.
Solely charging fees means the cost of obtaining advice rises and effectively shuts out a portion of consumers who are unable to pay.
We believe everyone should have access to quality financial advice and on that basis, we would not consider moving to such a structure.
Given the average loan size for most brokers outside of London and the South East, I would say that an average of 0.3 per cent as a procuration fee does not reflect the work that goes into each case.
High loans generate higher procuration fees, but often smaller cases require significant amounts of time and effort to bring them to completion. There are also cases where, having committed time to a client, we conclude that it is not in their best interest to start or increase a mortgage.
In order to achieve a fairer outcome, it is our view that procuration fees should be increased and standardised so that all lenders pay the same or very similar rates for a particular type of business.
We are comfortable that the procuration fee should remain for several reasons.
Firstly, a mortgage broker’s role now encompasses doing the majority of the upfront work for the lender. This saves lenders considerable time and costs in the process, as the fee represents a small percentage of the savings made on the overhead costs of having tied mortgage advisers in-house.
We must also consider if clients are being treated fairly and if there is potential for abuse from a small minority who may recommend deals based on the size of the procuration fee.
We would encourage all lenders to adopt a consistent approach to different types of mortgages and to work with the regulator to standardise fees. This ensures brokers focus on comparing the deals on offer alone.
Although we have successfully charged for our time for many years, it does come with its own set of challenges, and our industry could do more to promote the benefits of independent advice to clients.
Brokers and online comparison sites that rely solely on the procuration fees and associated commissions give clients the impression that obtaining a mortgage hasn’t cost them anything. This discourages them to explore the benefits and options associated with fee-based deals and often leads to an inferior solution.
The answer is not easy and raises further questions. Does our industry need an overhaul of charges to make costs and charges more transparent and consistent? Would this raise the credibility and lead to more transparent offers from lenders who would then compete on a level playing field?
The client should always come first. However, highly qualified and proficient independent brokers can only be expected to remain as gatekeepers ensuring customers are treated fairly if they are remunerated appropriately.
I’m conflicted because I look at the way things are now compared to how they were done before the mortgage industry became regulated. I used to rely on the procuration fee a lender would provide because, in my opinion, I could do a mortgage within a few hours.
However, we are now in a heavily regulated industry which has put us in a situation whereby mortgages are expected to take longer to complete. In that time, procuration fees have only gone up by a little bit, which is good if you get a case of £200,000 to £250,000 and advise the client on their insurance. If it’s a much lower mortgage, you won’t make much money. For a £1m mortgage though, I would say I was overpaid.
If it’s done properly the procuration fees often don’t pay, unless you’re taking on high value cases. Because of the length of time it takes, with a low mortgage we might have to start asking clients for fees.
I chose not to take client fees before regulation but now I take a fee from both the lender and client which varies depending on the case and how much I’ll get from the lender.
However, we get into a situation where the client may not want to pay. Many don’t want to because they think we get paid by the lender, but they don’t realise changes to regulation has lengthened the time it takes to do the job.
I just try to get that balance.