A shameful piece of regulation

MSE_Martin
MSE_Martin Posts: 8,273
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Finally mortgage broker regulation is coming into play, but there’s a big anomaly.  London & Country Mortgages is a broker which compares mortgages across the whole of the market.  Unlike the other big mortgage companies, it doesn’t charge a fee, just takes some cash from the lender.  Under the new FSA rules because it doesn’t charge a fee it can’t call itself Independent.  What a pitiful load of nonsense!


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Martin Lewis, Money Saving Expert.
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  • dunstonh
    dunstonh Posts: 115,681
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    Are you sure you have read it correctly?

    After depolaristion, IFAs are not allowed to call themselves independent if they do not offer the option for the client to pay a fee for their advice.   So, if they offer the client the option of fee or commission, then they can carry on calling themselves independent.

    If your only option of remuneration is commission, then you will not be able to call yourself independent.  

    From 31st Oct, the same applies to mortgages. From 14th Jan, general insurance becomes regulated but there is no specific definition of how to call yourself independent.

    The two ares of concern to me are not what you highlight as really its a nothing issue which will effect no-one but that you do not need to be independent to call yourself an independent mortgage broker and there is no definition for independent general insurance.

    A large panel mortgage advisor who has a panel "which is a fair representation of the market as a whole" can call themselves independent.

    General insurance, by having no definition, is going to be open to abuse by people acting and talking like they are independent when they are not.
    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.
  • payless
    payless Posts: 6,960
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    Yes, no fee brokers ( not just L&C but the thousands of no fee brokers ) just  need to offer a fee service - and in those cases rebate any commission earned, and if offering a marketplace ( or representation of the marketplace- now thats another story)- they can still be independent

    Might change they way we need to promote ourselves - its all about giving the consumer choice on how to pay for advice and transparency to the industry

    I can see how a large firm such as L&C could use this to their own commercial advantage.
    Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.
  • payless
    payless Posts: 6,960
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    representation of the marketplace- now thats another story

    Brokers can't be expected to tell customers of "exclusives" available via other brokers , but whilst these exclusives exist I do question whether any broker can say they advise on every deal available hence term " whole of the market " has a slightly different defination to what people might expect.

    Personally I would like to see brokers say , this is a list of providers we have access to and name the top 5 in % terms used in previous year.

    Also some lenders do not normally deal with brokers, or may be trying it out with one or two brokers -

    What annoys me most is one particular lender who has effectively said to me that unless brokers provide a certain volume level that they will not be supported- efectively blackmailing and saying "give us cases" even if we are not the best or we will take away your opportunity to place buisness with us .
    ( guess who refuses to be blackmailed)
    Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.
  • I just wanted to post quickly - I haven't really got the time today to give this subject the attention it deserves - I just wanted to make a few points.

    Our issue is really route to market - if you offer customers the option of charging a fee, then you have to make the fee clear in your adverts / marketing , which means we lose our USP

    It's not really a problem for us - we can either move to offering a fee based / comission rebate service, with the lowest fee (as we always work on low margins) or keep the fee free banner - we're already pretty sure of what we are doing, but here is probably not the time or place to discuss it - I will let the people on this board know first of course.

    Independent is, at the end of the day, just a word. I think there will be the need for journalists like Martin to teach consumers that this particular word has lost a lot of it's value - not because of the fee thing, but because of the panel thing - I've had a chat with a few people in the industry, who reckon you can succesfully argue that the top 5 lenders are a representative panel - doesn't sound too independent to me!

    Don't forget, this regulation is going to hit the fee charging brokers more than anyone - they are going to have to increase there fee by 0.35 basis points, just to remain where they already are (because at the moment they keep the comission, but post reg they will have to rebate it) so it will be interesting to see what it will do.

    On the whole, I think it's going to be good for the consumers - all they need to do is follow the true moneysaving principle of shopping around - there should now be more clarity.

    This has turned in to a much larger post than I originally intended - I just wanted to add my pennys worth anyway.
    I work for a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, 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.
    ( I have ammeded this signature slightly, as I do not actively provide mortgage advice. However, I support and adhere to the moneysavingexpert mortgage broker code of conduct)
  • representation of the marketplace- now thats another story

    What annoys me most is one particular lender who has effectively said to me that unless brokers provide a certain volume level that they will not be supported- efectively blackmailing and saying "give us cases" even if we are not the best or we will take away your opportunity to place buisness with us .
    ( guess who refuses to be blackmailed)

    Is the answer all IFAs?
    ...............................I have put my clock back....... Kcolc ym
  • payless
    payless Posts: 6,960
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    Is the answer all IFAs?

    Not all IFAs are mortgage advisers, and not all mortgage advisers are IFAs

    discussed http://forum.moneysavingexpert.com/cgi-bin/yabb/YaBB.cgi?board=Mortgages;action=display;num=1096277219
    --

    But back to your point- I don't know. Whilst they allow me to transact business with them I will use them , if they are the most suitable for that client, but I won't be blackmailed into placing business with anyone.

    If they play silly, then I will take them off my list - if I can still call myself independent (representation of market) then I will ( and make a point of saying that , that particular lender is not included and why)
    Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.
  • Finally mortgage broker regulation is coming into play, but there’s a big anomaly. London & Country Mortgages is a broker which compares mortgages across the whole of the market. Unlike the other big mortgage companies, it doesn’t charge a fee, just takes some cash from the lender. Under the new FSA rules because it doesn’t charge a fee it can’t call itself Independent. What a pitiful load of nonsense!
    DISCLAIMER: I have worked on this piece of regulation for a major high street mortgage lender for over a year. I know inside and out the FSA rulebook, known as PS186.

    It is not mortgage brokers who are being regulated, it si the whole of the market. The main impact as customers will see things is in the disclosure segment of mortgage origination. Basically, the illustrations, offers and payment notices. A broker will only be dealing with the illustration. Anyway, enough with the technicalities.

    A broker will have to give a customer a document which is called an "Initial Disclosure Document" (IDD) and on this IDD it will tell the customer if they charge for advice, or receive commission from the lender (and not charge the customer directly). It will also tell them if they are selecting mortgages from a portion of the market, or the entire market. This is what makes a broker independant. It is nothing to do with how they charge the customer whatsoever... if they get commission and charge no fee but select from the entire market - they can be considered independant. This is for the benefit of the customer, and is as clear as day.

    Illustrations from a broken (called "Key Facts Illustrations" from now on) will also detail exactly how much commission the broker will receive for selling the particular mortgage. Enducements (such as free golfing days out for hitting targets) will also have to be disclosed.

    So, please, please do not thing that just becasue a broker does not charge a fee directly to the customer they are not independant. The fee situation does not relate to the independance situation at all.

    Feel free to bounce any questions my way ... happy to answer as best I can. PS186 (Volume 2) is 500 pages long, so there are plenty of questions to be answered!

    Regards,
    Mr Mortgage (sorry, I had to create a new account to protect my identity on this one, don't want to rile my employer - I can't speak offocially for them).
    Titch :)
  • payless
    payless Posts: 6,960
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    This is what makes a broker independant. It is nothing to do with how they charge the customer whatsoever

    Not sure I agree fully with the above, it is one of the 2 factors

    http://www.fsa.gov.uk/mgi/guide_part2.pdf  ( a summary of the rule book/ guide for small firms - although would be interested if you feel this version is different to the full rule book)


    sect 2.2.4   I think makes it very clear

    What must I do if I want to describe myself as ‘independent’?
    2.2.4. If you wish to describe yourself as ‘independent’ you must intend to:
    (1) offer a whole of market service; and
    (2) give the consumer the option of paying a fee that will be the only remuneration
    you receive for the service (MCOB 4.3.7R). If the consumer exercises this option, you will have to pay them any commission you receive on the mortgage
    sale

    So as well as offering the "whole market" all they need to do is also offer the option to pay a fee, no always charge one
    Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.
  • I have never liked the use of the term "Independent" in relation to Financial Advisers as it has a "positive" connotation. I would prefer to call the present IFAs Financial Advisers and the one's who are not "IFAs" Sales Staff for Norwich Union or whoever.
    ...............................I have put my clock back....... Kcolc ym

  • Not sure I agree fully with the above, it is one of the 2 factors

    http://www.fsa.gov.uk/mgi/guide_part2.pdf ( a summary of the rule book/ guide for small firms - although would be interested if you feel this version is different to the full rule book)


    sect 2.2.4 I think makes it very clear

    What must I do if I want to describe myself as ‘independent’?
    2.2.4. If you wish to describe yourself as ‘independent’ you must intend to:
    (1) offer a whole of market service; and
    (2) give the consumer the option of paying a fee that will be the only remuneration
    you receive for the service (MCOB 4.3.7R). If the consumer exercises this option, you will have to pay them any commission you receive on the mortgage
    sale

    So as well as offering the "whole market" all they need to do is also offer the option to pay a fee, no always charge one
    It seems you are correct. However, that PDF file is nothing like the rule book... the rules are here: http://www.fsa.gov.uk/pubs/policy/ps186/
    Volume 1 is rather dull, providing a hundred or so pages of overview - whereas the reat guts are in volume 2 - all 500 pages of it. It's meaty stuff.

    The independence thing which incluces a fee must be a relatively new inclusion (perhaps between Consultation Paper and Policy Statements - basically a CP is issued, feedback from lenders given and eventually a PS is made when banks have already done most of their preparation based on the CP!). I have dealt mainly with post-sales and servicing issues, so this could have slipped through my net. However, "independence" is pretty subjective, IMO. If a broker selects from the whole of the market and does not charge you a fee (and they will clearly tell you this on the IDD) then you know what you are getting and are free to make a decision to proceed fully aware of what is being offered.

    In a nutshell, PS186 attempts to make everything clear to a customer. The IDD spells out exactly what services the customer is being offered. The KFI (new style quote) shows in great detail a particular mortgage which is in the same format across all lenders so the customer can easily compare mortgages. If you want to see what a KFI looks like, check out the Bradford and Bingley Marketplace web site - it looks like they have introduced their KFI early (no FSA references, and two sections missed out - they are not allowed to introduce these until M-Day). It's very good - it will tell you how much per pound you will repay, it shows very clearly the ERCs associated with the mortgage (Early Repayment Charges).

    In short - the customer will have a much better idea of what they are being offered and can make the choice which is best for them. "Independence" really does not have much to do with it, an independant broker will not have access to all products on the market anyway - you may have to go to Charcol to get certain exclusives, anyway.
    Titch :)
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