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Martins View On Using Mortgage Brokers...

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  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    quite a lot of advisors put their own interpretation on it rather then read the handbook.

    Err,

    Just thought I'd point out that advisors who "reinterpret" the FSA's regulations to suit themselves are likely to find themseleves in trouble sooner or later.

    The FSA has already issued a warning after it found recently that almost 50% of advisors ( 50%!!!:eek:)were not following the regulations about explaining their status and fees properly at the beginning of the session with the client.

    I was quite shocked to hear it was that bad, but from what you say - and what Beena has said - looks like it is indeed pretty bad.

    Expect a crackdown soon if there's no improvement.

    Text of FSA warning
    Trying to keep it simple...;)
  • dunstonh
    dunstonh Posts: 119,624 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker

    Dunstobh says:
    "an IFA must offer a fee only option to use the term independent. This is not the case with mortgage advisors."

    With all due respect this is wrong.

    Sorry, before yesterday I thought the IFA and IMA rules were similar. However, after seeing a number of IDDs and searching the web before making that post, I thought I was wrong as I saw a few IDDs where people have used "independent" in their wording but dont offer a fee option. I guess the FSA was right when they said that mortgage advisor IDDs are a bit of mess right now. No wonder the FSA are currently focusing on websites and IDDs.
    I am sceptical though, I have looked at one of the Initial Disclosure Documents for one of the advisors that have posted on here, and they want to charge a fee of 1% of the mortgage amount, so on my almost £200,000 mortgage that would be £2000.
    Surely the commission is not going to greater than this, is it ?

    Depends on the lender. If the commission is 2% (possible with poor quality lending) then the fee would be cheaper. 1% fee is reasonable when a cap is put on it at a certain level. If you feel that fee is unreasonable, then you find one where the is reasonable. It is no different to deciding where to buy any retail product.
    The more I read about this on theses boards, the more Martins simple advice about using an adviser that doesn't charge a fee seems sensible.

    It is clarification of that fee that matters. Your initial posts suggested that you believed that independents MUST charge a fee. This is not correct. They can offer the fee option but you dont have to pick it. In theory, an independent mortgage advisor should be better as you have the choice to go with either fees or commission and you can ask them to price up both options and they have to give you the choice of which you prefer. A whole of market mortgage advisor does not have to do that.

    I just felt that you were automatically eliminating the first advisor on the mis-information from the second advisor. That wouldnt be fair. It should be based on service. If however, the first one was charging and keeping commission, that would be fair enough for disregarding them and that is the point of Martins comments. There is no need to pay twice.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • HelpWhereIcan
    HelpWhereIcan Posts: 1,343 Forumite
    dunstonh wrote:
    Sorry, before yesterday I thought the IFA and IMA rules were similar. However, after seeing a number of IDDs and searching the web before making that post, I thought I was wrong as I saw a few IDDs where people have used "independent" in their wording but dont offer a fee option. I guess the FSA was right when they said that mortgage advisor IDDs are a bit of mess right now. No wonder the FSA are currently focusing on websites and IDDs.

    The link provided by Ed actually starts:

    "The Financial Services Authority (FSA) has told investment adviser firms that many of them are not giving customers the right information about their services at the right time. "

    I think it is important to be clear on that wording before assuming that it infers criticism of mortgage advisers.

    The whole Multi-tie issue has really muddied the waters for customers on the investment side and, I feel, creates as much confusion as the 'whole of market/independent' issue as highlighted here. For this reason I think it a little unfair to imply that the situation is different for IFAs or that they are not affected by the IDD review.

    I think Martin and notiesmortgagegirl have offered the best advice to Beena. In mortgages, the term independent is largely irrelevant and the questions Martin gives to ask are probably as much as people can do to try and cut through the confusion created by the introduction of the term 'whole of market' and it's frankly ludicrous definition.

    Why someone with a panel of 20 (which can include IFAs) should get away with being called whole of market I do not know. I put it down to the FSA bowing to the power of some of the larger networks who have long standing commercial relationships to protect. In other words, loyalty to a panel of lenders leads to higher commission rates albeit at the expense of customer choice. Just my opinion.

    Beena, you are right that it may be possible to 'make a bit of money' on larger loans by choosing an adviser that will do it for a flat fee and rebate the larger commission amount to you. However, I do not agree that this is the basis on which you should choose an adviser. Providing it does not cost you more than doing it yourself you should choose your adviser based on the advice and service they offer you. Whether they get paid by commission or by a fee (and then rebate the commission to you) is, IMO, less important than them having access to every lender (barr HSBC etc) and every product in the market. You should then select whether you are more comfortable with them being paid by a fee or commission.
    dunstonh wrote:
    It is clarification of that fee that matters. Your initial posts suggested that you believed that independents MUST charge a fee. This is not correct. They can offer the fee option but you dont have to pick it. In theory, an independent mortgage advisor should be better as you have the choice to go with either fees or commission and you can ask them to price up both options and they have to give you the choice of which you prefer. A whole of market mortgage advisor does not have to do that.

    Quite right. IMHO 1% is a lot to pay for a straight forward case, particularly if this is on top of any commission from the lender. However, the value judgement as to whether the advice and service you receive is worth the money is yours.

    I will admit to being biased in that I am truly whole of market (ie no panel of a certain number of lenders) and I offer all my customers the option of paying a fee (with commission rebated) or me receiving commission. However, I feel that it is the most transparent way and the way the FSA actually envisioned things, but I would say that wouldn't I.
    I am an IFA (and boss o' t'swings idst)
    You should note that this site doesn't check my status as an IFA, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • dunstonh
    dunstonh Posts: 119,624 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker

    The link provided by Ed actually starts:

    "The Financial Services Authority (FSA) has told investment adviser firms that many of them are not giving customers the right information about their services at the right time. "

    I think it is important to be clear on that wording before assuming that it infers criticism of mortgage advisers.

    Actually, the FSA is reported to be very unhappy with mortgage advisors in general (not in large enough numbers to give concern) and at a recent compliance meeting, we were told that the FSA was considering bringing mortgage regulation in line with investment regulation.

    As it happens, I wasnt inferring any bias between IFAs and mortgage advisors. I just searched out a number of IDDs on the web for mortgage related advisors specifically and that is why it was worded that way. Indeed, I have just arranged to employ a mortgage advisor and although I wont personally do mortgages, as owner of the company, I will need to make sure the compliance side is correct and that involves amending the IDDs. I personally think that the FSA has given far too little information on how to create IDDs and its only recently that examples have appeared.

    The FSA basically said, go and create the IDD but we are not going to give examples. Then they criticise the IDDs created for being wrong. Now at least we have some examples to compare against.

    Depolarisation and having three classifications (investment, mortgage and general) and each of those classifications allowing different levels to the others (i.e. one independent, one tied etc) has created massive confusion. I started thinking I knew about mortgage authorisation, then found information that made me doubt that and it turns out that I was correct to begin with. If that is happening to someone like me with 18 years in financial services, then how do we expect the consumer to understand it.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Actually, the FSA made exapmles available in May 2003.
    This is where the current batch of IDD's cam from

    http://www.fsa.gov.uk/pubs/cp/cp186_vol1.pdf

    Annexe 4

    The problems all stem, in my opinion, form the use of the term "independent"
    It infers the same status as in the financial advisor world, when in fact it does not.

    "Directly Authorised" or "an appointed representataive of XYZ" would be a better way of dividing the two types of mortgage advisor.

    Being an appointed rep whilst describing oneself as independent seems to be a bit of an oxymoron.

    Could it be argued that an appointed rep will be biased towards lenders that his principal has negotiated uplifted procuration fees with - a situation that a directly authorised "one man band- sole trader" cant ever a hope to achieve due to lack of volume sales.

    Perhaps the term independent should be reserved for directly authorised brokers only, at least they only have two master to serve - the FSA and their client, not a principal as well ?

    What do you think ?
  • HelpWhereIcan
    HelpWhereIcan Posts: 1,343 Forumite
    Could it be argued that an appointed rep will be biased towards lenders that his principal has negotiated uplifted procuration fees with - a situation that a directly authorised "one man band- sole trader" cant ever a hope to achieve due to lack of volume sales.

    Perhaps the term independent should be reserved for directly authorised brokers only, at least they only have two master to serve - the FSA and their client, not a principal as well ?

    What do you think ?

    Don't see how. Directly Authorised firms will always look to place a case through the club that pays the best proc fee for a particular lender. Afterall, a DA firm can place a case through any route they like and could be accused of the same bias if they find a club that is paying particularly well on a certain lender.

    My principal does not dictate who I place business through in any way, shape or form. They give me access to the whole of the market in it's truest sense of the word and impose more rigorous checks on my business (compliance wise) than any one man DA firm could ever hope to.

    I personally feel that the difference in proc fee between 2 lenders for the same set of circumstances is not enough to risk the loss of the goodwill and future business of a client. You always get caught in the end if you proc fee chase and I would argue that the DA firm has more opportunity to do so than the AR (due to access to different clubs etc) and believe that being AR or DA does not affect how honest you are when it comes to dealing with customers.

    Now if you are an AR of a firm that has a 'whole of market' panel of a certain number of lenders, that is a different matter. The access to only certain lenders is, IMO, what should disqualify someone from calling themselves whole of market/independent (which should mean the same thing), not whether a firm chooses to be directly authorised or not.
    I am an IFA (and boss o' t'swings idst)
    You should note that this site doesn't check my status as an IFA, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Well put "helpwhereican"
    A very good point.
    Better than mine, I have to say.

    I think the problem I have is the perception that a non independent (one who works on proc fee alone, aims best advice, and accepts the size of the proc fee, whatever it is, big or small, given that they all average out at about £500 at the end of the day) is not "whole of market" when clearly they can be, as long as they dont work off a restricted panel.

    Having said all that, if I look back at my last 5 years of mortgage cases, I probably only used about 15 lenders in total, simply becasue they had the best rates, lowest fees, highest income multiples, easy to deal with (from both mine and the customer facing point of view) high street presence, and all well known brands.
    I think I only used an adverse lender once or twice in all that time, given that Bristol and West will do quite a lot of adverse but without a punative interest rate.

    So perhaps even "whole of market" is a bit irrelevent, given that we never actually use it.
    Or do we.
    What about a seperate thread to do a quick straw poll, and see how many different lenders we individually used last year, set against the number of cases.
    That, I reckon, would be a very interesting and revealing read !!
  • I personally feel that the difference in proc fee between 2 lenders for the same set of circumstances is not enough to risk the loss of the goodwill and future business of a client. You always get caught in the end if you proc fee chase and I would argue that the DA firm has more opportunity to do so than the AR (due to access to different clubs etc) and believe that being AR or DA does not affect how honest you are when it comes to dealing with customers.


    Totally agree HWIC!
    I am a fee charging WoM Mortgage broker.
    I now no longer give information and opinion within the Mortgage boards, because a number of posters who, having approached me professionally, agreed my fee-which has been been made very clear at the outset, taken my advice (normally cancelling a [home visit] meeting at short notice) have then approached one of the fee-free brokers on here to arrange the very same deal I have advised.
    Whilst I totally concur with the ethos of "money saving"- abusing the goodwill of a professional who provides a quality service is taking it too far! :mad:
  • Helpwherican, can you explain something to me:
    Your signature says "fees free" but your home page says the client can choose to pay a fee.
    So could you actually alter your signature to use the word independnet if you wanted too ?

    Not having a go, just confused !
  • HelpWhereIcan
    HelpWhereIcan Posts: 1,343 Forumite
    Helpwherican, can you explain something to me:
    Your signature says "fees free" but your home page says the client can choose to pay a fee.
    So could you actually alter your signature to use the word independnet if you wanted too ?

    Not having a go, just confused !

    Simple answer is that when mortgage regulation came in and I was looking at setting the practice up, I looked at the options available to me and the way that regulation would work.

    I felt that the important thing in the future of advice is transparency and honesty with the customer. Some people are naturally commission averse and would prefer to pay a fee, others are happy to let you receive commission as long as you are upfront about how much you will get etc. I wanted to offer my customers the choice. I want their business on a long term basis and do not see it as fair (for my practice/client bank) to charge a fee on top of any commission. That way they are more likely to pass on referrals etc and my business grows 'organically' rather than always having to chase new leads and customers.

    The fact that it allows me to use the term 'independent' is a bonus as it is a term that people recognise. However, I chose the model based on what I thought was best for my customers and the business, rather than the ability to use the term independent - if that makes sense.

    Edited to add

    I would say that I have only had 4 people elect to pay a fee rather than me receive commission. Most people seem to prefer that we work for commission. Just my experience.

    Edited to add
    .Having said all that, if I look back at my last 5 years of mortgage cases, I probably only used about 15 lenders in total, simply becasue they had the best rates, lowest fees, highest income multiples, easy to deal with (from both mine and the customer facing point of view) high street presence, and all well known brands.

    I do not think you would be alone in this. The difference I think comes because there will be times when those same lenders will not be competitive, either through pricing or policy/service, and the ability to get any alternative without changing a panel will always help. For example, I have used the Chesham Building Society once in the last 2 years, but it was nice to be able to get the deal for the customer.
    I am an IFA (and boss o' t'swings idst)
    You should note that this site doesn't check my status as an IFA, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
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