What do you look for in a broker?

MortgageMamma wrote:

So how do you guys feel about brokers who gain the competitive edge by rebating commission on some of their larger mortgages? There is at least one I know of that does this. Surely you must see the value in using someone who does this on a full advised basis as you would be getting the best mortgage to suit your needs, all servicing and paperwork dealt with, someone to lean on, plus a bit of cash in your back pocket.

I doubt there are many of these brokers about but, assuming it became commonplace for brokers to do this, do you think this would lead to a significant increase in clients? Do you think the lenders would catch on, realise they are losing direct business and reduce proc fee's further? or do you think they would embrace the idea and move further away from the direct branch sales model to making the intermediary channels more attractive?

I'm in a very thoughtful mood of late!

A firm that is local to me (and that tried to recruit me:cool: ) does exactly that. They are what advisers (particularly IFAs) will know of as New Model Advisers.

They have heavily segmented (cherry picked?) their client base and deal mainly with High Net Worth clients. On the investment side, they do not take upfront commission, working on a combination of 'retainer fee' and/or renewal commissions. All/most upfront commission is sacrificed to increase allocation rates etc on investments and to reduce premiums on protection plans.

With a mortgage, they have a fee structure that ranges between £250 and £750 (depending on case size etc) and all commission payable above those amounts is paid back to the customer.

Great for some. For those with a large investment portfolio that needs regular servicing they offer exceptional service and great terms coupled with very extensive expertise. The mortgage side is a service that they offer, but is by no means an 'earner' for them.

Here's the rub, they will not look at someone with an amount to invest below a certain level (one that made me gasp) and have basically encouraged their customers that do not fit this profile to obtain advice elsewhere.

IMO, if this is the approach you plan to take, you have to do it knowing that
you are aiming at high net worth and will need to offer real investment expertise to justify the monthly retainer fee the firm charges (Other than the mortgage, they make a flat charge and say - we will look at everything you need doing on an ongoing basis for a fee of £x pa and will not take upfront commission for anything). You will not be able to offer a service to everyone and will need exceptional contacts with the 'right' solicitors and accountants.

They are a great firm, and one I was very tempted to join (at one point I felt very Tom Cruise in the film 'The Firm':rotfl: ), but had just started my own practice and wanted to see what I could do with it. Still somtimes think that I should have, but then I would not have been doing the £65000 first time buyer mortgage I arranged this evening.:A :rolleyes:

silvercar wrote:

So not only do we search for fee-free brokers, we now need to search out rebating brokers!

It actually makes sense, if broker's commission is on a percentage basis then you are getting twice as much for a straightforward £400k mortgage as for a straightforward £200k mortgage. If you give some of this commission back to your client, he/ she is going to recommend you to his/her mates, giving you more (big) business.

Ah - that would be fine, but what if the £200k mortgage invloved more time and effort? Just because it is a smaller mortgage does not equate to less time and effort. It could well be a more complex case which needs more time to get agreed with a lender

kenshaz wrote:

Ah -but what if a £100000 mortgage was more complicated than the £200000,just because it is a larger mortgage does not equate to more time and effort,so why should commission be related to loan amount? Swings and roundabouts.

That was exactly my point - thanks for agreeing Ken

kenshaz wrote:

Ah -but what if a £100000 mortgage was more complicated than the £200000,just because it is a larger mortgage does not equate to more time and effort,so why should commission be related to loan amount? Swings and roundabouts.

You answer your own question. It is swings and roundabouts. Win some lose some. If you do some larger mortgages and some smaller ones it will balance out.

However, whatever we may agree or disagree with relating to the commissions paid by a lender, the broker has no control over the amount thus has to accept the basis on which it is paid to them.

Also, what a lot of people forget/don't realise, the commission payment illustrated in section 13 of the KFI (quote) is the gross amount paid by the lender, not the amount necessarily received by the broker.

Also I cannot understand why people constantly refer to the commission as 'being charged by the broker'. The lenders pay commission to the broker as it is far cheaper for them to accept broker business than to deal direct with a customer. The commission is not paid for by the customer in any way and is not reflected in the lender's charges/costs/rates. That is why intermediray business is on the increase year on year. More and more lenders are now introducing 'intermediary only' products and channels such as HBOS, Yorkshire Building Society, Britannia Building Society to name but a few.

With mortgage regulation becoming ever tighter and the consequence of mis-advice greater, lenders are becoming more and more keen to shift the responsibility of the sale to a broker, again costing them less in PI insurance, resources etc.

Far from becoming less and less, broker introduced business on an 'advised' basis is being encouraged and actively sought on a far greater scale these days than it ever was before. The FSA are actively discouraging 'non advised or execution only' sales and I believe that such will be eventually phased out. After all how can you call yourself an adviser if you don't give advice? Because of this there will only be a limited lifespan of the 'cashback' brokerages offering a return of some of the proc fee for placing the case to the lender on a 'non-advice' basis. A large number of lenders are also actively working to abolish 'non-advice' mortgage business as it can leave them somewhat exposed.

Back to the original topic, what to look for in a broker. Well I think the following are quite important (excuse the duplication of some points):

Fees Free
True Whole of Market
No link or association to a corperate company with whom there will be the inevitable preferential dealing (surveying, insurances etc etc)
Honesty
Integrity
A good business track record
Solid industry related professional experience

It is important to investigate the market experience of the individual you are dealing with. Many large companies are used as 'training grounds' for newly qualified advisers, in fact it has become one of the best routes into the industry. Just because the firm may be a well recognised brand, you could actually be the first ever case that the individual adviser has ever dealt with. Having previous experience of managing teams of brokers within a corperate organisation it is well known that the staff turnover in any big firm will be quite high.

It also depends on your own level of knowledge and needs.

I guess the answer to this question is there is no right or wrong answer, it will depend completely on what level of service you are looking for.

Arch-Angel wrote:

Exactly! This is why I've always argued for "shopping for a broker" as opposed to "shopping around for a mortgage via several brokers". However, Andrew, if a product does not pay the broker commission (your earlier point on broker's commission is noted) should the broker be paid in your opinion? Or is this something to factor into the business plan?

I can only cite how I myself conduct business, and go by my own experience.

I personally factor into my annual business plan a contingency for the following (amongst many other things):

1) Mortgage Applications that are declined and unplaceable
2) Mortgage applications that do not complete (purchase falls through etc)
3) Clients who will go elsewhere
4) Mortgages with non-commission lenders that I cannot beat

I won't bore you with the exact percentages or figures I use but that is the general gist of what I account for.

I treat every potential client the same and will commit time and resources to conducting a full fact find and carrying out research on their behalf.

If it transpires that the most suitable (not always the cheapest) is via a lender that does not pay commissions then I have no problem in telling the client that is the case. I do not, however, take it past this stage with the client and give them the necessary contact details to complete the transaction themselves.

I keep myself up to date with the products offered by such lenders (as they don't always appear on the sourcing system) and will happily tell the client of their existance if I cannot beat them. After all, the majority of people these days will already know what is on offer from the likes of HSBC etc.

I have a very blunt and 'to the point' approach which most clients seem to appreciate, and have always been completely transparent when it comes to remuneration etc. I actually tend on average to conclude business with around 85% of people who approach me so it is never really a big issue for me.

In reality I have to say that I spend more time on this site than I do working for clients from which I will receive no income.

Andy