Using an IFA

jonfreedman

My question is about fees for using Independent Financial Advisers to arrange a mortgage.

I am a first time buyer about to start looking for a mortgage. Is it worth speaking to more than one IFA before making a decision? If so, how does it work with fees? The adviser I eventually use to buy the mortgage may be paid on commission, so there is no extra charge for me there, but what about the advisers I speak to who I don't end up using to buy a product? Will they charge me a seperate fee?

Thanks for any advice, especially from our two resident IFAs!

payless

Thanks for any advice, especially from our two resident IFAs

There are IFAs on this board- although  not sure thats who you directed your question to -
( I am not an IFA , as I do not offer investment advice-
but specialise in my own areas of expertise) I believe DD is an IFA, and not sure about MortgageMan's actual status  ( would assume that whilst his firm deals mainly in mortgages , they would also have an IFA department)

Firstly , not all IFAs are mortgage advisers, and not all mortgage advisers are IFAs.
Mortgage advise is currently "reguated " by The Mortgage Code"

The FSA is taking over regulation of more of the industry- Mortgages end Oct 2004,  and various (non investment) insurances ( most life insurance and home insurance)  in mid Jan 2005. IMHO  this should help the industry and give a clearer and safer position for the public

In a very basic way -
Once this is in place , I suppose the easy way to see things , is advisers apply for "licences" in a modular basis"
the 3 main areas ( that are likely to be of interest to the general public) being

Investment
Mortgages
Insurances (non investment)


some will take all licences , other only 1 or 2.

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Some advisers will be independent ( market range, and offer a fee option) , others may offer a limited panel  / and/or commission only

Some advisers have decided not to apply direct to FSA but will be representatives of a "network", with the network getting authorisation from FSA.

Out of interest I am going to be FSA direct, and advise on Mortgages and (non investment) insurances ( and whilst still expecting most clients to prefer the commission route, I will also offer a fee option if the client prefers)

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Anyway ,  as far as your question - in most cases you will find advisers willing to give initial advice for free, with no obligation, but obviously check first.

jonfreedman

Thanks for this Payless.

I had not realised there was a distinction between Mortgage Advisers and IFAs.

Could you tell me in general terms what is the difference between Mortgage Advisers, Mortgage Brokers and IFAs, and what would be the advantages/ disadvantages of using each one to arrange a Mortgage?

payless

what would be the advantages/ disadvantages of using each one to arrange a Mortgage

Mortgage broker and adviser generally means the same thing- perhpas the term mortgage intermediary covers it better.

Currently as far as the mortgage, being an IFA does not automatically entitle the firm to give mortgage advice - they still need registration with The Mortgage Code as a mortgage intermediary.

If "licenced for both" an IFA would be able to also offer investment advice at same time, and suppose you could say having a current FSA registration shows the firm is of good status , although most mortgage intermediaries planning to be directly authorised will now also have rec'd "Grant of Permission" or Minded to Accept Letters.

So I would say its more ensuring the intermediary offers you the required level of service and product ranges , rather than what they are called. Perhaps also checking how they plan to operate within the new regulations form next month

payless

http://www.fsa.gov.uk/consumer/

http://www.mortgagecode.org.uk/aboutus/ourrole.asp?area=con&version=0

martinhp

As an IFA and Mortgage specialist I thought I would add my pennies worth

Some do charges fees, some do not. What you have to consider is, if seeking advice from a non fee charging IFA will they discuss lenders that pay a small commission or in some cases, none at all.

I do have a fee charging structure but it is on a case-by-case basis. Some clients are very simple, not much work involved. Others are far more 'tricky'. I will offer my clients deals with no commission thus a fee is payable and deals that do pay commission thus a reduced fee or none at all. But I also offer advice not just on the mortgage; I also show client s (who want to know) how to build property portfolios, etc. So I deal with mainly the more complicated side of mortgage advice. Any fee charged is only payable if an offer is produced. No offer then no fee. I like to think this is a fair system. some may not :-/

Mortgageman

What you have to consider is, if seeking advice from a non fee charging IFA will they discuss lenders that pay a small commission or in some cases, none at all.

What Martin said - but it doesn't only apply to non fee charging IFAs.

Things are going to change very soon (see Payless's excelent posts) , but at the moment you should only pay a fee if the adviser / intermediary then refunds all of the proc fee.

You should shop around a few brokers jsut like you would anyone, compare their costs and make a decision from there.

So, to answer your questions directly -

Is it worth speaking to more than one IFA before making a decision

Yes, very much so

but what about the advisers I speak to who I don't end up using to buy a product? Will they charge me a seperate fee?

I think, under current rules they can charge you an admin fee - there are guidelines too how much it will be, and it is a small amount (I have in my head £10, but I haven't checked). It's pretty unusual for anyone to charge this fee, and certainly any reputable broker will not charge you until you process the application through them (if at all)

dunstonh

Wow, for a thread that was started today, there is very little left to say as the responses have been excellent.

To confuse things a little for you ;D

Some IFA firms will have a mortgage advisor working within them who will not be an IFA and may not be whole of market. So do not assume anything.

I would say the most important thing is making sure the advisor has "whole of market" available. Some firms charge absolutely disgraceful amounts when dealing with mortgages and sell all sorts of inappropriate insurances to go with it. From local experience these are usually not IFAs or Tied agents but mortgage advisors.

Indeed, i saw a person on friday who was ripped off with charges for the mortgage broker who then used a "higher risk provider" who usually pays big introducers fees and sold non regulated life cover and CI but lied on the application form about the health of the client. Therefore in the event of claim, the insurance company would refuse to pay out. In addition, the broker started the cover 3 months before the mortgage and told the client that it had to be like that (which was complete rubbish). AND (yes it continues), the sums assured do not match the term or the amount or the mortgage.

What did that so called mortgage advisor earn for all that.

Mortage: £800 (commission from lender)
Fees: £495 (paid by client)
Insurance: £2600
total: £3895

That is a scare story but I can give you a new one of those a week. A lot of these mortgage advisors are going to go out of business once the FSA are involved and the sooner the better.

Oh btw, I have cancelled all the insurances on the above, rebrokered them to be considerably cheaper with health situation fully disclosed which will give this mortgage idiot a lovely £2600 clawback just before christmas ;D I have also put in a formal complaint to his network although being non regulated at this stage, i only really expect return of premiums paid if we are lucky.

There are going to be some very good mortgage advisors out there but what did tend to happen is that all the bad tied advisors that have been made redundant over the last few years, with the closure of many of the direct sales forces, who couldnt get a job elsewhere on the regulated side due to their poor complaints record, ended up being mortgage and general insurance salesmen instead.

So, if you can get an IFA who is mortgaged licenced with a whole of market option, then that would be the best option. I would suggest, like the others you investigate costs from a couple. If you are going to purchase your insurances from them, then there is no way you should be paying any brokers fee. If its just the mortgage, then a brokers fee is more acceptable.

payless

DD , I feel you , like me , work very honestly. I agree that some less than honest "advisers" have be able to trade in the unregulated area of "life cover" and appear to have got away with some qestionable practices under current mortgage regulation. I have seen questionable advice cross all types of advisers -  That said  I would that  I have come across some of the worst mortgage advice from IFAs, or mortgage advisers working form them.

These included

1. A small local practice that claimed to offer whole of market, but had placed 100% of his business for previous 12m to just 1 lender- and all on 2 year fixed rates. I spoke to him when he was looking for someone to assist in compliance - only to find he wanted that person to pretend to have been on his books for 2 yrs, as he had never passed the required qualifications ,and no one ever had asked for proof.

2. A large practice (now part of a major group) , who according to the client "forged" signatures on a "fee agreement" after she declined their endowment advice.

3. A national mortgage brokerage owned by a major IFA, how recommended a client pay a £2000 redemption penalty to move off a great fixed rate to a discount , claiming best way to raise cash ( never mentioned a further advance) and was charging another £2000 for the advice

Thats not to say IFAs are bad ( I was one for long enough) just that there are good and bad in all industries, some are dishonest,some perhaps not willing to turn down business , when its not their area of expertise.

dunstonh

I wonder if it comes down to size (erm... watch it  :P ).

I am financially responsible for my own advice as it is my company.   A complaint damages me and my business plus i have a £5000 excess on claims.     Plus i am on the minimum premium for the PI cover.  Complaints would hit me in the pocket hard.

When you get firms with multiple IFAs, there is perhaps less buy in to the business side as 1 - its not their business and 2 - they are not financially responsible for the advice.  A local multi branch firm near me has the situation where the firm takes 70% of the commission earned on "walk in" business and 30% of the commission on "self generated" business.  They also pay £200 pm each for the cost of compliance but they have no liablity to the excess on the claim.  Because they are only getting a relatively small amount of the earned commission, they tend to be much more sales minded than i would be.   This is just what the directors want though as more sales means more income for them.   However, the more sales minded someone is, the more they tend to push the limits to what is classed as acceptable.

I know 2 other IFAs who are also the sole advisor of their own company and their advice and service is also of high quality.    The IFAs i know that are part of larger firms tend to be more of the old insurance agent style.

Generalisations are always going to throw up exceptions though.  

Payless, i am sure you agree, that regulation of mortgage and general insurance under FSA is going to be one of the best things to happen for ages.  It would be even better if the FSA move the goal posts and backdate their responsibility for complaints as has been done in the past.  If it helps get rid of these incompetent advisors (of any type) then that is a good thing.   Only down side of these changes is that they are so damn confusing to the members of the public.  

payless

that regulation of mortgage and general insurance under FSA is going to be one of the best things to happen for ages

Its a shame if the industry was not able to look after itself, but yes FSA regulation should certainly make things a better place for consumers , albeit the extra paperwork and costs to firms (particularly small firms, such as you and I) will have an initial impact , and of course one way or another this will impact on consumer costs