New standards at the double amid double standards elsewhere

Kevin Duffy

October 25, 2017

Kevin Duffy (pictured) is managing director of Mortgage Force

I didn’t know whether to laugh or cry when I saw the draft outline of the new senior persons regime (which I will cover below under the related matter of broker behaviour).

Nope. It was when I read last week that certain industry “experts” and opportunistic journalists were questioning the professionalism and integrity of those mortgage brokers who deign to charge a borrower a client fee whilst having also rightfully disclosed that he is receiving a procuration fee from the lender selected .

“Double-dipping” screamed the pathetically sensationalist headline. More like a case of double standards, methinks.

It’s embarrassing to even have to explain to these philistines how it is that almost 80% of UK brokers now choose to directly and justly remunerate themselves for their work and advice.

And I am certainly not going to name our ill-informed detractors and give their ignorance any additional oxygen with which to exhale further tosh.

This non-story ends here.

But if they still don’t ‘get it’ after reading this piece then they can call me directly and we’ll go and have a chat about it, perhaps at the gym. Flat whites, waffles, gloves, gumshields and headgear all provided free of charge.

It is no coincidence either that some of these rent-a-quotes run IFA practices – yep…. you’ve got it – the lot that lumber the rest of us with unholy FSCS scheme levies every year when it’s been proven that monkeys throwing darts at a cork board of fund selections is only a marginally less wealth-generating exercise for the poor investor.

The lesson commences here:

A typical mortgage (despite the nauseatingly over-hyped march of the digital machines!) still takes circa five hours to complete, from initial factfind and enquiry to completion.

And for now, let’s put to one side the fact that many industry sages have suggested that £200 per hour is a perfectly reasonable charge rate for a fully qualified broker.

So. First. Let’s do the maths. But on a lower tariff of £150 per hour. Five hours x £150 = £750. The average loan size is circa £160,000 and let’s assume an average procuration fee of 35 basis points to allow for the variances between DA and AR tariffs. That’s £560. Or put another way, that’s a shortfall of almost 200 quid BEFORE the broker actually achieves a BREAK EVEN on his time spent. Not to mention his premises, paraplanner, P.I. and regulatory fees etc.! Nil Profit. And no recurring income from the transaction either.

Second. Can some of these headline grabbers also explain to me why the act of a lender paying a broker for the introduction should negate the need for the actual client to obligate the broker for his work and independent advice to the client?

The two pieces of work (and the two ‘customers’ of the broker are entirely different).

And furthermore, we simply don’t have time here to script the 2000 words needed to outline precisely how procuration fees in themselves are still way below the level that they should be given what brokers now do on behalf of lenders <client origination /screening/f2f meeting/packaging/various verifications & validations etc>

I even saw that one senior editor no less (of a seemingly respected and longstanding trade journal!?) saw it fit to sensationalise this ‘malpractice’ in his editorial.

My, it must have been a slow news week.

Lazy and under-researched journalism I’m afraid , itself prompted by a sanctimonious broker or IFA sat somewhere in his office wondering when he might grow a pair and actually charge a client for his hard work and on so many occasions a hard won and niche solution.

Perhaps next month I will write a piece on how certain IFA’s charge annual management fees of up to 1% on their “funds under management”?

Yes…you’ve got it……! Those funds which are rarely managed by the IFA himself who has simply placed investments on a platform or with a fund manager who does the real job. And yet certain (but thankfully not all) IFA’s have the audacity to deduct such fees year on year, often regardless of how they have performed!!

Some (and again, I stress, not all) IFA’S even continue to patronise and condescend to mortgage brokers as though the IFA community was somehow more intellectually gifted and blue-blooded. As though brokers were the industry’s stigmatized equivalent of double- glazing salesmen.

I could go further and ask these snobs why it is that only 0.2% of all ombudsmen cases stem from the intermediary mortgage sector ……but then again our work is something that Janet and John could do whilst Rover the dog made everyone the tea.

The final word on this belongs to author, poet and lifecoach DE Navarro: “The tunnel under the wall of intellectual snobbery is the only way back to common sense reality, but most won’t find it because it’s beneath them.”

Anyhow. My enjoyable rant complete, it’s a convenient segway into the wider subject of broker behaviour (erstwhile or otherwise).

We thankfully have the SPR consultation process now under way.

I was highly critical of the regulator back in 2004 for not implementing this when M-day came and albeit with hindsight much of the pain we endured from 2008 through 2012 might have been avoided.

But finally we are going to see some genuine accountability from folk in positions of influence.

We can all trust Bob Sinclair and Pat Bunton at AMI to deliver a cogent piece of work back to the FCA, but to permit that, we as brokers also need to be speaking up as once the rules are set they will be tougher to amend or remove than your average incompetent French football manager.

As things stand, I personally believe that the regulator has some challenges coming in the realms of self-employed workers, staff (& whistleblower) compromise agreements, the possibility of management bonuses being subject to clawback periods (no bad thing!!), and whether the various phoenix-owned businesses across the sector enjoy an amnesty from day one.

Equally, and with specific regard to the matter of managerial bonuses being subject to abeyance or clawback, is there a resultant possibility that the exceptional degrees of product innovation and perfectly acceptable and measured risk-taking, which have characterised the growth of our sector, might now recede?

That would not amount to what the FCA likes to call “constructive and helpful consumer outcomes” i.e. by 2020 we could be back to 2009 again with the shelves containing only products classified as plain vanilla and light vanilla…?

There is an unhelpful political backdrop here also.

The government already feels that the FCA was lily-livered in not choosing to nail the beleaguered RBS and HBOS over that duo’s own behaviours both before and amid the years of the financial crisis.

On which subject, and please forgive this at first curious parallel, but did you know that 20 years after Diana’s death 38% of us still suspect foul play.

Furthermore, 15% of us regard global warming as a hoax contrived to enrich big business.

But you know. One idea is so far-fetched that it simply can’t compete with these theories or other fake theories discussed daily on the World Wide Web.

It’s the idea that bankers and policymakers responsible for the 2008 crash have yet been properly called to account and punished. Get this …….ONLY 1% BELIEVE THAT THEY HAVE!!!

As we perhaps still today seek to understand Brexit, Corbynmania, Trump’s victory, and Wenger’s unsackability, we must recognise that notwithstanding us being a full decade on from the financial crisis, public anger has not passed.

And those emotions are now shaping how folk behave and vote on anything or anyone that passes as ‘strong and stable’ or ‘in the public interest’.

People are perhaps rightly more cynical and won’t be manipulated or deceived any more.

In that context it is hoped that the skilled person review lands in a place which is fair and reasonable to all and which brings an end to almost two decades of less than acceptable standards.

It’s ironic. This is a once in a generation chance to cleanse, which Generation Rent can actually become the beneficiaries of.

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