IFA's and their mortgage fees.

cheeky

I have used the same IFA for 16 years, introduced via a mutual friend and been friends ever since (been to family christenings etc).

My partner and i are moving and we decided to get a mortgage with him. We went to see him and I was surprised when he produced the "key facts" and "upfront fee of £150 and commision via lender" was ticked. I questioned this and he went on about doing amount of work and not getting paid if the deal falls thru..

After the meeting my partner and i discussed this fee - I had a mortgage(endowment) before via him(i cant recall any upfront fees, though he did get £911 commision for the endowment), she has had 3 previous mortgages via other IFA's (repayment, no upfront fees). We have now declined his service due to the fee - he wasnt v happy, ranting about all the work he and his staff have done, unprofessional, our friendship...

He said that the market has changed over the years and most IFA's request a upfront fee now. Is this right? Also, what kind of commision would he get? We are looking for £240k repayment mortgage, fixed for 3 or 5 years
tia

dunstonh

This type of fee is not unusual. Mortgages are not as profitable to arrangers as they were years ago but the workload has trebbled and there is now a lifetime liability on the advice given. The low profitability and increased workload is one of the reasons why I have chosen to no longer transact mortgages myself. Whilst not everyone has introduced a service fee, the amount of £150 is not unreasonable. Often an IFA will waive fees or reduce commission if there is an existing business relationship (says he who took a 50k investment today with no initial commision from a long standing client) but that is the choice of the adviser. Employed advisers or those attached to a firm owned by someone else may not have the scope/permission to waive fees.

payless

I know brokers who don't charge fees - in fact in straightforward cases actaully share the commission ( this although is rare) & I know of those that charge upto £3000 per case on top of commission

Some say if starting to charge fees, then its easier via existing customers. £150 is amongst the lower end of those that charge fees ( in that I mean topup fees, assuming commission also taken ... by not offering you a fee only/rebate commssion option he is actually not independent) Personally I surprised he did not say, OK I should charge a fee BUT I value our long term business


most mortgages would have earned him 0.3 - 0.4 % of loan ( so say around £800) .. although do remember this is a gross income, and there arelots of costs to come off that

MortgageMamma

Quite frankly I think that quibbling over a £150 fee with an existing advisor who you trust and respect is plain silly. The man has to earn a living and he is correct in his statement that most companies charge fee's. There are those that don't but in my opinoin they have to write higher levels of business to justify this and service COULD suffer as a result.

I don't think the advisor handled the explanation of the fee's properly to you, what he should have said is, heres an estimate of what I make on the mortgage, this is my upfront fee, and with that you are paying for about 15-20 hours work depending upon the complexity.

Now if you look at this sensibly you could go off and see another broker, but they don't know you and you don't know them, you may find you don't like them and have to look elsewhere again. Your advisor friend may take the hump and it could create awkwardness in future, especially at social gatherings.

IMHO better to pay your advisor, as after all it's a professional service you are getting and the guy has his own bills to pay!

cheeky

great advise/points thank you

Yes, we were surprised he didnt waive it either as its his own business - friends, he has had business from me over 16 years investments, insurance policies, pensions, mortgage.... My parents and my partner now invest with him too!.

MortgageMamma

Yes but he has worked in the past to get paid commission for each of the policies arranged for you. Believe me if you knew the amount of work an IFA has to put into every "sale" you would understand how every penny of that commission is earned. He also has a lifetime liability for EVERYTHING he ever arranges for you. If you broke down the commission payment into man hours, overheads and taxes/insurance you would see that its not all dosh in the advisors pocket.

I think its unfair to even suggest he waives the fee because he's had a lot of business from you in the past. Do you ask for discounts off your hairdresser, milkman or window cleaner because you#ve been a long standing customer?

At the end of the day the advisor has to work for his money, perhaps it is a mistake to mix business with pleasure who knows. It might seem to you that all he does is a little bit of paperwork, you sign a form and he gets paid a wad, but believe me there is far more to it than that!

Why don't you compromise with the advisor. Go off to L & C. take your mortgage advice from them, go back to your broker with their recommendation and ask him to arrange it for you on an information only basis? (non advised) - he still gets the business. you stilll get the mortgage, and he couldnt justify the £150 fee then could he? - situation diffused!

dunstonh

I think its unfair to even suggest he waives the fee because he's had a lot of business from you in the past. Do you ask for discounts off your hairdresser, milkman or window cleaner because you#ve been a long standing customer?

I know what you are saying MM and for many that may be the case. However, most IFAs will discount. This is backed up by the FSA published figures which show the average discount is around 30-50% depending on product class. To quibble over £150 suggests that he hasnt got permission to waive it or cannot afford to waive it.

One IFA firm near me has self employed advisers attached to it who only keep 30% of the income they generate. Their business model makes the directors rich but the advisers cannot afford to offer any discount terms. Whereas an adviser/director/partner who keeps all their commission has much more scope to discount. The two advisers I am currently taking on are giving me 40% and they have no intention to discount. I discount all over the place as initial commission means nothing to me. Its the renewals and trails that I focus on.

The investments and pensions could all be earning that IFA 0.5% p.a on trail. He could lose all that now if another IFA is used as the business will almost certainly be switched to the new one. If those trails are over £150 then he has shot himself in the foot.

At the end of the day, different advisers have different business models and different commission rates. What some can do, others may not be able to. This adviser has lost £800 because he wanted a further £150.

cheeky

intersting point re "information only basis" - Maybe he did explain it badly? we dont know what he does for the money. But we do have past experience to go on and that raised the questions

One thing you are right about "dont mix business and pleasure"

MortgageMamma

cheeky wrote:

intersting point re "information only basis" - Maybe he did explain it badly? we dont know what he does for the money. But we do have past experience to go on and that raised the questions

One thing you are right about "dont mix business and pleasure"

Then why not try and save the relationship (if it matters enough) and ask for an information only sale with a commission rebate TO YOU? I do this for clients I know well all the time, and not always on an information only basis. but I can afford to do it (well. some of the time!)

If he's making £800 for sending you some forms and submittng them to a lender then there's scope for negotiation. your only problem if you do this is that it won't be an indemnified sale e.g. if you disover you have the wrong product somewhere down the line there is no recourse for you as you would sign a disclaimer. However DunstonH has a fair point, if the advisor does not receive at least 70-80% of the commission for himself he won't be in a position to discount.

My advice though is to value your past relationship with this advisor, everyone makes the wrong decision from time to time,and everyone has bad days, but before you move on and place business through a stranger try to work it out.

cheeky

MortgageMamma wrote:

Then why not try and save the relationship (if it matters enough) and ask for an information only sale with a commission rebate TO YOU? I do this for clients I know well all the time, and not always on an information only basis. but I can afford to do it (well. some of the time!)

TBH, he was so rude, aggressive, unprofessional and bullying (i had to say 3 time "you've had your say now let me have mine" and i still couldnt more than 1 sentence in...) that the business relationship is probably not viable... What will happen on a personal level, i dont know...

MortgageMamma

well his attitude was wrong if that was what he was really like, if you feel like that then perhaps its best to move on. Personally I would have a go at sorting it (even if it was just to get the last word in, I am a typical woman on that front), but if you don't want to do that, there's plenty of good brokers who would be glad for your business (and that won't bully you!)

Good luck whatever you choose.

MM