What do you look for in a broker?

jamesd

This question is interesting enough that it seems like a good idea to split it from the original thread.

MortgageMamma wrote:

Just out of curiosity (for my own market research reasons) Arch Angel, when you begin looking for a broker, as you have mentioned you will be doing in the near future, what will you look for in your adviser?

Will you do your own research on the internet?

Assuming the broker is fee's free, so will likely only recommend a lender who will pay a procuration fee, would you be prepared to agree to pay fee's if the mortgage/company selected do not pay procuration fee's to mortgage intermediaries? (for example, Britannia, HSBC, Direct Line)

Or would you rather keep fee's free, and be recommended the best mortgage excluding these companies then do your own research?

I know its a lot to ask you to think about but, I just want some insight as to how people value "true whole of market" as opposed to "whole of market if it pays commission" following a heated discussion with my business partner.

If the broker did not evaluate every mortgage on the market, including those not on their panel(s) or not paying procuration fees, I would consider that they have failed to offer the best possible advice and failed to conduct themselves in a professional manner. Simply consider how you'd react to a lawyer ignoring some laws or doctor ignoring some treatments...

Absent that, the poor second best is a clear disclosure of the lenders who are not being considered, so they can be investigated independently.

Since this is completely unrepresentative of the standard of conduct that can be expected from many brokers today, it's probably clear that I'm very unimpressed with the standard of regulation in this area.

Today the picture is simple: you cannot trust a broker to be your agent, offering you the best advice for your situation.

Beyond expecting actual professional conduct, I want a broker I actually know and trust, which means having had some previous chance to get to know them and the quality of their work.

This comment on the current state of the market is not intended to reflect upon the conduct of any broker here. You're also limited by the market conditions in which you must operate.

kenshaz

I expect a mortgage broker to search the market for me,advise on the best deals,carries more clout with lenders and puts me ahead of the game.

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They should not be overpriced and they should be mainstream with a solid reputation,whole of market,operate on a cut price basis,doesn't charge customers a fee,just takes commission.

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I also expect a broker to understand that the consumer must have the right to make comparisons,and realize that a percentage of the work is unfruitful and this is relative to the high rewards received in procuration fees .

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I would also expect them to be professional ,effective ,efficient,showing no self interest,impartial,allowing the consumer time to decide without aggressive marketing in the guise of a consumer.

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No cold calls

MortgageMamma

Thanks for your comments JamesD and Kenshaz.

So - I know this will cause some debate but I have to ask - Am I right in thinking that you think a broker should take on a case, search the true whole of market, and recommend a lender and product that does not pay commission, without remuneration? How would you feel personally as the consumer in doing that?

Off to do school run but back soon

dwight-van-man

In my previous life as a broker, my company offered two levels of service: fees free but our search 'limited' to only those lenders who paid a commission, or a true whole of market search, including Direct Line, Britannia etc etc with a broker fee being charged of 0.4%. The reasons for this were always fully explained to the client upfront, puting the emphasis on best advice and in most cases, we didn't charge the broker fee if the best lender did pay a proc fee, so the client was always the winner.

In reality, we reverted to fee free, searching only those lenders paying a proc fee after about nine months because we were half a block down from another fee free broker who would source from a maximum 10 lenders, but in the client's eyes, we charged a fee and he didn't. I lost count of the number of clients I followed up to find they had taken a deal with this other broker which was not the best for them purely because he was 'fee-free'. Lesson learned? The client will always look for the bottom line regardless of the quality of the product. Enlightened souls here apart, obviously. Sadly though, you are in the minority...

kenshaz

dwight-van-man wrote:

In my previous life as a broker, my company offered two levels of service: fees free but our search 'limited' to only those lenders who paid a commission, or a true whole of market search, including Direct Line, Britannia etc etc with a broker fee being charged of 0.4%. The reasons for this were always fully explained to the client upfront, puting the emphasis on best advice and in most cases, we didn't charge the broker fee if the best lender did pay a proc fee, so the client was always the winner.

In reality, we reverted to fee free, searching only those lenders paying a proc fee after about nine months because we were half a block down from another fee free broker who would source from a maximum 10 lenders, but in the client's eyes, we charged a fee and he didn't. I lost count of the number of clients I followed up to find they had taken a deal with this other broker which was not the best for them purely because he was 'fee-free'. Lesson learned? The client will always look for the bottom line regardless of the quality of the product. Enlightened souls here apart, obviously. Sadly though, you are in the minority...

Some important points,and proves how vulnerable,and trusting some members of society can be ,therefore a need exists to protect and educate,fully understand all aspects,the ethos is the same in respect to the purchase of all products ,be it a washing machine or a mortgage ,shop around ,do your research.
Ask questions,evaluate the advice,seek other opinions.
It is the suitability of that product for the client,which can be sourced with the same result by different brokers for different remunerations

MortgageMamma

So, this was my discussion with a business associate

In my opinion it is unfair on the client if a fee's free brokerage calls themselves whole of market, but they do not take into consideration the mortgage lenders who do not pay procuration fee's to broker, such as HSBC, Britannia, direct line, egg etc

However, from a fee's free whole of market broker's perspective - should he/she take this more ethical and client friendly approach, how much time and money would he/she spend, speaking to the client, doing the factfind, entering details onto sourcing system then sourcing the mortgage and presenting it to the client? then the client walks away to the relevant lender and places the business direct - no payment for brokers services, this could affect a brokers business significantly if it was a regular thing - particularly as procuration fee's from lenders on most prime cases are very low anyway

So where do you draw the line?

As DVM says, offer the clients a choice - some may not even understand the options

Amend the IDD document to state EXACTLY what level of service is being offered - rather than just "we research and recommend from the whole of market"

Perhaps though overall the FSA's definintion of whole of market is to blame for this? Could it be the only fair way to deal with this is that the industry naturally moves towards fee charging and commission rebates?

dwight-van-man

The other side of the arguement is that htese lenders have made a business decision not to accept business from brokers. They don't want broker business and their systems couldn't support the volumes. I don't know how easy it is even to assist a client with an application to HSBC, Egg etc. I do remember trying to place a case with Britannia and they wouldn't even accept my request as a broker to send an application form direct to the client (this was two years ago so things may have changed...) Perhaps the wording used should be 'whole of available market' with an explanation that some lenders don't accept broker business, then leave it to the client to decide....

You've also got to look at sourcing systems. Use of the filters on Trigold, MBL etc has a major influence in the end result. For example, checking the 'overpayment' and 'redraw' filters will remove every lender except my employer, the point being even if the lenders in question did actually appear on sourcing systems to enable comparison, they could be easliy filtered out in favour of those who paid fees.

Fee Free or not, if the client wants to know how representative of the market their broker is, they should be asking at the outset how many lenders the broker has placed business with over the last year. If the answer is five, well maybe its time to take your business elsewhere...

jamesd

MortgageMamma wrote:

So - I know this will cause some debate but I have to ask - Am I right in thinking that you think a broker should take on a case, search the true whole of market, and recommend a lender and product that does not pay commission, without remuneration? How would you feel personally as the consumer in doing that?

I have no objection to a broker not being remunerated in that situation provided that both parties are aware of this at the start of the discussion.

Obviously I'd want the broker to have incorporated this into some form of viable business model.

MortgageMamma wrote:

So, this was my discussion with a business associate

In my opinion it is unfair on the client if a fee's free brokerage calls themselves whole of market, but they do not take into consideration the mortgage lenders who do not pay procuration fee's to broker, such as HSBC, Britannia, direct line, egg etc?

I agree and consider it to be misrepresenting the service that is really being provided if they do not do this. Even if the FSA definitions allow it.

MortgageMamma wrote:

However, from a fee's free whole of market broker's perspective - should he/she take this more ethical and client friendly approach, how much time and money would he/she spend, speaking to the client, doing the factfind, entering details onto sourcing system then sourcing the mortgage and presenting it to the client? then the client walks away to the relevant lender and places the business direct - no payment for brokers services, this could affect a brokers business significantly if it was a regular thing - particularly as procuration fee's from lenders on most prime cases are very low anyway

The broker must make a business decision. If it is usually the case that the lenders not paying fees are not the best for many customers, the decision may be quite easy: few customers will cause work that doesn't result in payment and their number will be lost in those who ask for advice and go elsewhere anyway.

If the number of customers who must be advised to go to a lender who will not pay the broker is too high, whatever that means, then the terms of business and IDD must be modified to incorporate some fallback fee. Presumably there is a reduced compliance workload in this situation, though I assume that justification still needs to be complete so there is some significant work involved.

In such a fallback fee situation, I'd expect the broker to disclose if the reason a non-commission lender was not the best was primarily the cost of the fallback fee they would have to pay their broker.

Given dwight-van-man's experience and Martin's own recommendation to use a fees free broker, without qualification that this may exclude some deals that may be better for the consumer, I hope that it's not necessary to add a fees component.

I suppose that it would be helpful if Martin assisted with this by clearly mentioning this issue and the excluded lenders in his articles.

MortgageMamma wrote:

Amend the IDD document to state EXACTLY what level of service is being offered - rather than just "we research and recommend from the whole of market"

Since this is partly marketing, and in my opinion a signficant positive marketing message, I suggest doing this but avoiding the words "whole of market" which the FSA has, frankly, devalued tremendously, to the point where the phrase is actively misleading, in my opinion. I suggest "every lender in the market, including those who do not pay commission or sell via brokers" to distinguish true full market service from FSA "whole of market".

That is, set things up to make it clear that you're truly offering full professional service standards, not merely some compromise between the minimum you're allowed to do and a compromise that's almost as good most of the time.

MortgageMamma wrote:

Perhaps though overall the FSA's definintion of whole of market is to blame for this? Could it be the only fair way to deal with this is that the industry naturally moves towards fee charging and commission rebates?

I feel that the FSA at present is not doing the best job it can to promote both good service and growth of the market for brokers, because of it's current low standard. Knowing that you can't really trust most brokers just isn't good for business. Its role is relatively recent so I hope that this is just a transitory situation and it will move to more professional definitions in time.

homer_j_3

Have you actually looked at the products that the lenders that dont pay proc fees? If so how do they compare to the products that you normally recommend who do pay proc fees?

The reason that I ask is that is if it was to work out at 1% of the business that you write, you may be able to justify it in your business plan that you do that deal without reward on the basis that it is best for the client and that you are looking to build your business on returning customers - remember it cost 10 times more to get a new customer than to retain an existing one (or something like that).

You may even cover the cost of this free bit of work through the recomendation of insurances if they are required?

Clearly your decision for doing this would be purely on the basis that the other business you can write which doesnt need to be referred to non proc fee paying lenders being able to cover the ones that do over a period of time. No point offering 2 levels of service in my eyes as you face what Dwight said imho.

EdInvestor

You may even cover the cost of this free bit of work through the recomendation of insurances if they are required?

Groan. This sounds like what typically happens when people retire.They toddle along to the advisor who reminds them about the 25% tax-free cash they can get from their pension fund.

Then s/he sells them

a) A cheap(ish) annuity for the money still in the fund

and

b)A massively expensive (7% upfront commission and huge internal annual charges :eek: ) investment bond for the 25%.



Surely it must be possibly to devise a system where the interest of the "advisor" is aligned with the client, not the provider?

Otherwise we are just talking salesmen, regardless of whether a broker is independent, tied, whole of market, whatever, and the FSA's blurring of the boundaries is correct, because otherwise consumers are just being misled.

MortgageMamma

But then, if all advisers charged fee's, how would the clients with the smaller investments/mortgages/insurance requirements react? I'd like to bet that a lot of them would take their chances and shop direct if their was a fee charging structure - think about the knock on effects of that? both on the clients and the advisers