why you should REALLY support brokers

MortgageMamma

Thanks Graeme thats a very realistic and balanced viewpoint and I agree with you - which is why one thing I would like to see is a blanket commission payrate across all mortgage products. I believe that is the only way to make it fair on the customers without forcing brokers to charge fees and consequently exclude people unable to pay those fees from the benefits of their advice.

It may seem unrealistic at this stage, especially to the professional readers of this site, but I do not understand why the Financial Services Authority do not force lenders to align commission payments so they are the same for ALL LENDERS. for example

Prime - 0.40% of loan amount for ALL LENDERS
Very Near Prime - 0.42% of loan amount for ALL LENDERS
Near Prime - 0.45% of loan amount for ALL LENDERS
Light - 0.48% of loan amount for ALL LENDERS
Medium - 0.50% of loan amount for ALL LENDERS
Heavy - 0.60% of loan amount for ALL LENDERS
Unlimited - 0.80 of loan amount for ALL LENDERS

Consumers may be wondering why those % increase dependent on the level of adverse credit. It is because the worse the credit the more complex the transaction and the more advice/time required from the broker.

Now there is another method of reducing commission bias AND ensuring some of the less meticulous advisers correctly analyse and prioritise client affordabiliy. That is to pay mortgage commissions on a monthly basis each time the client makes the mortgage payment. This means the less meticulous adviser would have to consider long term affordability before transacting the business, with particular reference to self certification mortgages which are often abused. Many brokers wouldn't like this as they prefer the cash upfront, I personally feel it would be better for the industry as it would weed out those who are in it for a quick buck and leave the dedicated advisers who are truly committed to the industry and their clients to do the job properly and slowly rebuild the profile and shattered reputation of the advice industry.

Dan_Collins_2

This has nothing to do with bad advice. It has to do with lenders and finance houses not managing them selves correctly and getting a little greedy with securitized lending, now they are feeling the pinch!

Banks own us, we cannot do anything with out them and they stick two finger up at Mr Brown when they fancy it!

payless

- and I hope Martin Lewis will consider reinforcing this message by sending it out in his weekly emails. Please help the consumers help themselves Martin. They need our advice more than ever right now.

Well it might save a few jobs at some of the Nationals and the cashback sites but those doing the "real work" ??

Its been over a month since "dual pricing" been heavily discussed .. but his article still remains unchanged ( does he understand the difference between direct lenders , and dual pricing/ direct deals )

Threads on this forum( and read a piece last weekend in press - they mentioned best buys- way off as excluded direct deals) imply the National brokers ( and those the ones mentioned more in articles/ othe press) are not telling consumers about direct deals . ( not against the regulations- but not sure its what the consumer likes "whole of Market " means )

BrokeRage

Graeme7777 wrote: »

Hi,

My opinion is that some of the mortgage brokers have made a rod for the back of the rest of the profession by providing poor advice, chasing the most lucrative commissions and by being ill-informed. It seems to me that mortgage broking is an industry with relatively low barriers to entry and fairly generous prospects. This suggests to me that this career will attract a lot of what one could call the "hard sell brigade".

I've always maintained that any job that pays staff solely on commission (I know that not all brokers are paid like that) can lend itself to abuse because the incentives exist for staff to sell as much as possible with little regard for the best interests of the customer. You only need to look at many of the job advertisements for brokers to see this: "ARE YOU A CLOSER!!!" etc. No mention is made of whether the applicant can help the borrower choose the most appropriate product to finance what is likely to be the largest purchase of his or her life.

This is a great pity I think as I believe that brokers can - and do - add a lot of value for many borrowers. And if they do that then good luck to them - they deserve to earn decent money like the rest of us who try to do a good job.

Let me say that I don't like to see anyone lose their livelihood so I wish all brokers well and I hope that they can ride out the current difficulties. There are quite a few people on this site who are VERY generous with their time and knowledge, with no reward other than the satisfaction of helping someone, and I especially wish you well.

Cheers!

That is a balanced and fair comment and would be accurate if we were talking about an unregulated industry. In a world of computers, there is no excuse for regulators to be unable to recognise mis-selling and product bias.

Speaking as a "Commission-only" salesperson, my attitude is that commission is the result of good advice, not the motive for bad advice and I did not even consider the level of commission when comparing products (until now). The other four brokers in my firm joined primarily because of the ethical approach we take when it comes to mortgage advice and I set them no targets at all.

It is utterly depressing to find myself having to charge clients a fee for advice, that would have been free a month ago, because lenders have stopped paying commissions on their best deals and will not, in most cases allow us to become involved EVEN when they have a letter of authority from the client. I feel awful that clients are paying me when I'm not able to provide a full service to them (as in the opening statement on this thread).

All of this is about incentivising the public to avoid advice and comparison when they are looking into mortgages. The approach of lenders like Woolwich, to "Pile them high, sell them cheap and target staff to flog as many other products as possible" is sickening. But of course, all of this is fine if they don't get commission.

I was party to a conversation last week where a lender asked a single man, with many assets: "How would you meet your mortgage payments if you were dead?". As regulated brokers, we have been told that we cannot recommend life cover to single borrowers without dependents, except in extreme circumstances.

I would just LOVE it if the Financial Ombudsman Service released a few tapes of recorded conversations between mortgage/loan applicants and employed, tied advisers. You would be utterly amazed!

I would bet good money that the "Are you a closer?" ads are not for independent brokers. There is a huge difference between truly independent brokers, whole of market brokers, panel based "Brokers" and tied advisers. There are actually five or six types of adviser/broker but, strangely, there are only three descriptions in the FSA's eyes. That, however is a whole subject on its own.

homer_j_3

I believe that if the EU had got their way about commission then there would have been major changes to the regulatory systems in the way advisers are perceived and operate.

I couldn't imagine for one minute that we would have all just been told to be fee based with no commission to offset.

Brokers do allow choice and will often be more comprehensive in their approach to the advice they give. I am not trying to disrespect the job that I do. What I am trying to do is get people to realise that our industry and jobs are suffering because of economy reasons, nothing to do with IDD's and consumer education.

If lending continued in the fashion that it has over the last few years then we would be seeing banks closing branches and other people losing their jobs etc. The impact on local communities would be awful.

There is 45% less money out there and the same amount of people trying to live off it.

Casualties will happen. The strongest will survive. The strongest does not always mean the best. There are great advisers out there like MM who has openly communicated on here that she has been hit hard by the down turn in the market. I too am suffering as I do not have a massive client base but there will be people who have big client bases, sales mentalities and a "food on my table before anybody elses" attitude towards business. These people will survive as they maximise their income per sale. As you say, the butcher who serves the best bacon in town have been put out of business by the big supermarket.

I think the answer is to make advisers true whole of market with no commission payment and no processing capabilities. The adviser charges a fee, researches the market, DIPs the client and packages a report together with copy documentation required for the lender. They send them to the branch for the consumer to get the mortgage. They do all this for a fee. If the adviser has recommended protection and the recommendation has been taken then the report the lender receives protects the consumer from cross selling techniques.

Anyway, it wont happen. Nothing we do or say will make a difference. The economy dictates market forces and at the moment, we are at not benefitting from it.

Kez100

is there anything stopping you doing the above - working only on a fee basis?

Charging a fee, putting everything together and then - if direct mortgage is the best on offer to the client - send him that way with a pack of things to look out for - life assurance sales when he is single, that sort of thing.

I know the FSA control you but do you have a professional institute? They should be promoting you nationally ad thinking these things through plus fighting on your behalf with the FSA .

Also, I notice no one actually answered my previous question........

Rick62

Graeme7777 wrote: »

Hi,

My opinion is that some of the mortgage brokers have made a rod for the back of the rest of the profession by providing poor advice, chasing the most lucrative commissions and by being ill-informed. It seems to me that mortgage broking is an industry with relatively low barriers to entry and fairly generous prospects. This suggests to me that this career will attract a lot of what one could call the "hard sell brigade".
quote]

I think you are right Graeme - and this is the frustration that all good brokers now have with the FSA. One of the reasons that I came into this business is that I thought that with FSA regulation the profession would become more professional and the 'hard sell brigade' would be pushed out.

This hasn't happened, in fact the FSA's actions, or lack of actions, have harmed the ethical broker the most whilst allowing the hard sell merchants to keep operating with impunity (so long as they keep the right paperwork and are not complete idiots).

The loss, obviously to us brokers, but to the general public, at a time when they need advice more than ever is it has never been harder to get it.

payless

Kez100 wrote: »

Also, your final paragraph about brokers helping people to not live on a knife edge. Really? Did brokers in the past few years refuse to place self-cert, 100% and 100%+ mortgages?

I didn't do many , and refused alot more than I processed

homer_j_3

Kez100 wrote: »

is there anything stopping you doing the above - working only on a fee basis?

Charging a fee, putting everything together and then - if direct mortgage is the best on offer to the client - send him that way with a pack of things to look out for - life assurance sales when he is single, that sort of thing.

I know the FSA control you but do you have a professional institute? They should be promoting you nationally ad thinking these things through plus fighting on your behalf with the FSA .

Also, I notice no one actually answered my previous question........

Current regulation makes it difficult. The sourcing systems are not robust enough to produce accurate illustrations. You rely on speaking to staff at lenders who are hit and miss.

That said, most of it could be done with the right processes but it would be risky - you could base your recommendation on wrong information provided by the lender.

My vision would require wholesale changes - the half way house is an option but when it goes wrong, we get people saying we are rubbish etc and it can be more damaging to have 1 case go wrong even if the other 9 went right.

MortgageMamma

Kez100 wrote: »

is there anything stopping you doing the above - working only on a fee basis?

Charging a fee, putting everything together and then - if direct mortgage is the best on offer to the client - send him that way with a pack of things to look out for - life assurance sales when he is single, that sort of thing.

I know the FSA control you but do you have a professional institute? They should be promoting you nationally ad thinking these things through plus fighting on your behalf with the FSA .

Also, I notice no one actually answered my previous question........

Sadly thats what many of us have to resort to doing, but the problem is not everybody can afford a fee. first time buyers have enormous costs to pay these days, people in debt looking for help shouldnt be charged fees. Unfortunately moving to a purely fee based model would exclude those in society who need advice most from receiving it. That in itself is not treating customers fairly.

The FSA won't promote mortgage brokers directly, but I have sent a letter to the head of small firms at the FSA this week, I've copied and pasted it below for your reference

Dear Head of Small Firms (name removed for obvious reasons!)

I am writing to you to identify a key area where I feel that the Financial Services Authority are compromising the financial awareness of consumers, with the objective that the Financial Services Authority will listen and address the matter immediately.

It is broadly acknowledged amongst the general public and independent intermediaries that the mortgage industry going through a process of change, and there is much speculation from both front line advisers such as myself, and key industry professionals, as to whether the change in the marketplace is beneficial to the consumer and indeed to ourselves as professionals.

Whilst my concerns are truly based on the wellbeing of the consumer, and Treating Customers Fairly, I am honest enough to state that there is an element of self interest in my suggestion (on behalf of intermediaries on the whole of course) but that has to be suspected as I, like many in my profession are suffering at the hands of over-zealous regulatory requirements, reduced income and two-faced “Lending partners”.

Having scrutinised the advice process which we are now obliged to follow, I have identified a weak area which should, if addressed properly, increase consumer awareness of the various advice channels and therefore demonstrate the very principle of Treating Customers Fairly on an industry-wide scale. The concept is simple, so simple that I honestly cannot believe it has not been introduced already, as it is undoubtedly a fair and consistent way of increasing awareness amongst consumers.

The “Key Facts about our Services” initial disclosure document was intended to provide this information but, without proper explanation alongside it, it is completely meaningless to many consumers. They may go to their bank or Building Society, for example, and simply not be aware that, not only could they obtain this mortgage through an intermediary, but also have it compared against other mortgages available to them. They may also not be aware of the implications of trusting one provider (whose mortgage may be good value on the surface) to supply all the protection associated with their mortgage, often at higher cost than that available elsewhere.

My suggestion is that a leaflet is published by the Financial Services Authority, in consultation with representatives from each advice category, which will inform the consumer of the different advice channels available to them, and the advantages and disadvantages of each channel. A copy of this leaflet should be given as a mandatory requirement along with the Initial Disclosure Document as a foundation for the client to consider what level of advice THEY wish to take. An informed decision is often a wise decision and I feel that this one small step could provide a solution to a number of problems at the moment. For example:

1. Consumers know what level of choice and advice they are getting before they commit to a contract and are able to question further and make informed, responsible decisions as to what level of advice they wish to take.

2. Consumers are not unfairly enticed to enter an information-only sale by lower rates and better terms only available in lender branches.

3. It clearly demonstrates TCF at the highest possible level in educating the consumer and encouraging them to seek independent advice.

4. It will raise the profile of the Financial Services Authority and their responsibilities to both consumers and professionals, helping to gainsay current accusations that they are showing favour to providers at the expense of the advice profession.

5. It will create a level playing field for intermediaries and product providers and, quite possibly, rescue a profession faced with extinction due to the “Commercial decisions” of the country’s largest lenders. It is no secret that some intermediaries believe that this is a convenient manoeuvre pre-RDR on mortgages by the FSA.

6. It proactively informs the public. It is not good enough to put it on your website and hope for the best. Even I do not understand your advice definitions on “Moneymadeclear”; what chance does the consumer have? When looking at the products on your tables and where they are available from the definition “multi-tied adviser” appears. What is a multi-tied adviser exactly and how do they differ from the FSA’s definition of Whole of Market? If “multi-tied adviser” really does exist, why are we not permitted to use such a term on an Initial Disclosure Document if the FSA are using the term on its website?

7. It helps to remove one of the main “Barriers to advice”: Ignorance.

This would be an ideal step for the Financial Services Authority to take given your recent emphasis on Financial Education and volunteer professionals helping the community, and such presentations by professionals are the ideal opportunity to pre-distribute material such as this. This is a message that needs reinforcement from both professionals and the Financial Services Authority.

I feel it is only fair to mention at this point that this letter is within the public domain, and that your response to the matter (or that of any other member of the Financial Services Authority) will be published for the benefit of consumers and intermediaries.

I request on behalf of consumers AND intermediaries that this suggestion is considered at the highest possible levels within the Financial Services Authority and look forward to receiving your initial feedback on the issue.

Yours sincerely