We should rethink how proc fees are paid
Sebastian Riemann (pictured) is a financial consultant at Libra Financial Planning
The importance of market feedback simply cannot be overstated. Likewise, listening to those at the forefront of the action will offer the policy makers a true insight as to their clients’ (the brokers) sentiments and preferences.
This may be directly linked to the consumer experience, even though at first glance this link is not so easily established.
Ask any broker in the marketplace, they will by and large choose similar areas they feel are important to them. Rarely is price or rate one of them. Things such as service, speed, support and being able to rely on the lender are paramount to most of us.
But in order for us to deliver the advice that lenders prefer not to give directly, we also have other areas that need to be looked at. The regulator is fully aware that firms need to remain profitable.
Contrary to some beliefs, most of us are here to make a decent and honest living, and enjoy helping our clients achieve their dreams and goals. In order for us to offer a great service we do need to be paid fairly for our time and effort.
It was decided some time ago that proc fees are not distorting the advice given by firms. Yet large differentials remain. In general the amount we are paid hasn’t changed in over 10 years, there are of course the odd exceptions.
We are still required to use payment channels, based on models derived from the mid 90’s, but more so by the established lenders. These are typically driven as a percentage of the loan as opposed to a fixed costs which would be a fairer application of the system.
Most contemporary lenders are not so restrictive on the other hand. We have also had positive movements on product transfers, where lenders are rewarding our efforts to retain their clients and keep them profitable.
Some are more generous than others even though the work from an advice point of view remains similar in nature. Yes, the process can be quicker and compliance departments interpret the requirements differently, but we are still responsible for the advice whichever way you look at it.
All the risk but half the reward in my opinion.
So whilst on the subject of procuration fees, a high street lender has today announced a pilot scheme increasing the restrictions on the maximum procuration fees payable.
By my calculations this will affect residential loans in excess of £1.7m and buy-to-let loans over £1.3m. Product transfers would need to be at a whooping £3m for it to have an impact.
I’m not sure who would have raised concerns around this, but at a guess it will only affect a minute percentage of brokers in the United Kingdom. Surely, in an uncertain market, and with so many other areas of concern, it would be better to look after the many as opposed to the few. The real winners won’t be sitting in front of clients.
Maybe its time for an overhaul on the payment systems if the current model isn’t up to scratch.
This isn’t a vote winner, however procuration fees should be linked to quality or be levelled out so that they are the same for everyone. The only alternative, in my opinion, is to follow the line of financial advisers by removing procuration fees altogether.
Yes there would be losers in my back stop proposal, most notably those that need the advice the most, but if we can’t be adults about self-regulating the way we get paid then maybe its time to take a different approach.