In a world of lenders espousing how important quality is to them, with a raft of business metrics at their fingertips in order to gauge that quality, and the almost complete reliance upon advisers, you would think they’d be able to ascertain just how important advisers are and work out a payment strategy that chimed with that.
Clearly not, of course.
Especially in a market where the product transfer (PT) continues to dominate refinancing, where the proc fee on offer for PTs from most is pitifully low, and where lenders seem brutally casual – or casually brutal – in terms of not understanding just what this means to advisers.
We’ve said that a lower rate environment – a more competitive playing field between lenders – does offer advisers the opportunity to move more borrowers to a new lender and, in doing so, secure a full procuration fee.
However, as we think any adviser would acknowledge, lenders are perhaps at their most competitive with PT offers to existing borrowers. More often than not, they do tend to be at least there or thereabouts when it comes to what is also available from the rest of the market.
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More work to find the right option for clients
We know that, of course, because we’re researching the full market. The point being that, if it really is the most suitable option for the client to pick up a PT with the existing lender, then we’re certainly going to recommend that option to them.
However, a recommendation at one point in time, prior to any completion, is only going to be half of the story, because the market moves so quickly that a constant, ongoing appraisal of the situation is required, potentially moving clients multiple times again, even if it’s just to a different PT with the same lender.
We estimate that, most of the time, we’re conducting about three times as much work as we used to with existing borrowers coming to the end of their term.
The incredibly galling thing to take of course is that if the final recommendation is a PT, then the proc fee payable from the vast majority of lenders is going to be less than half of what we would receive from a full remortgage.
Not enough adviser reward
How is that fair? Notable mentions to the likes of Halifax, Coventry Building Society, Virgin Money and Family Building Society, who clearly see the value in the extra work being carried out by the adviser community and pay a fair proc fee for it.
However, when you speak to others – particularly some of the biggest lenders in the country who espouse publicly how much they value their clients, how they are different to other financial institutions, and how they are not purely based on profit – and you get a response saying it would be difficult for them to create proc fee parity.
Who is introducing new customers to these lenders? Who is the key customer of those lenders? Who delivers upwards of 90%-plus of all mortgage borrowers to them?
An ongoing gripe
And yet, the vast majority can’t understand why most advisory firms continue to raise this repeatedly. They can’t understand that adviser income levels on mortgages are dropping continuously, at a time when costs are rising and where, on PT business, they are nowhere near meeting the average income fee required to keep on writing this business.
Is it any wonder that we have seen a fairly significant drop in adviser numbers in recent years? That is bound to continue if the current circumstances prevail.
It’s impossible to run profitably if your income is down and your costs are up.
And, what then for the lenders? Are they in a position to secure the business they will lose via advisers direct from the consumer? Of course they’re not; they’re not set up to have these direct sales forces anymore, and neither do they want the accompanying risk that comes with providing mortgage advice.
So, why not acknowledge the elephant in the room and pay the same rate across the board? It would take perhaps only one (other) top six lender to buck the trend, and many others would follow, perhaps the vast majority.
The truth is that if we can’t solve this issue on PT proc fees, and it’s clear the regulator doesn’t want to get involved and suggest parity for those reintroducing existing customers, then advisers are simply going to have to take matters into their own hands.
Will we simply not recommend lenders that won’t pay a fair amount to the adviser? Will we have something of a boycott in play here? Lenders continue to say that they can’t make proc fee parity work, and every year we hear of record-breaking profits being made by the very same institutions.
What we do know is that if we want a functioning advisory community, then something has to change. The status quo – particularly if PTs continue to dominate as they have – can’t hold, or rather, it can, but only at the cost of many advisers being unable to work, and the lenders left with a whole new distribution problem.
In lieu of any attempt to solve this by our trade body, our regulator, and the lenders themselves, then there is only one group who can make a difference, and you know who you are.
