Poll
Blog: Is Revenue a dirty word?
By Rob Derry or Brunel Mortgages and Loans,
With the FSA wanting to do away with commissions as they believe they promote product bias & poor advice among brokers and with commissions on finance products “somewhat below” the levels they used to be, brokers are going to have to charge fees for their services.
There is an argument that this is going to lead to only those that can afford a fee being able to access advice or broker-only products. This is not necessarily the case as fees can be added to loans. However, for the intermediary there is a bigger discussion: How will I stay in business without commission?
We are a fee-charging business and we have been for many years now. Of course back in the 1990s and early 2000s, we could live off the commissions paid for arranging secured loans and mortgages. This is no longer the case and we acted to counter the decline in lender-derived income way before the credit crunch.
However, there are still many brokers who will not charge a fee, do not like us charging a fee and are generally anti-fees. How will they survive if the FSA gets their way and removes commissions entirely? Indeed, how are they putting bread on the table today? On a High Street mortgage you’re lucky to be getting around 0.35%, that’s £525 on a £150k mortgage. You need to do six of those a month before your revenues are going anywhere north of £35k per annum. Out of that there is fuel, stationery, phone bills, compliance costs, annual FSA fees and all of the other usual business expenses. And once all that is paid, you’ve got to live out of what is left.
Secured loans are a great example of the need to charge fees to the customer.
And yet, a large percentage of brokers appear unwilling to embrace secured loans. By using a packager, like ourselves, we take all of the up-front cost risk. No valuation fees are payable. We charge a fee on completion and split that with the broker. We don’t start deducting disbursements – the commission from the lender covers that for us. If it’s a small loan we lose out. If it’s a high value property we lose out. If it doesn’t complete we lose out. The introducing broker suffers no risk, but receives up to 7.5% on completion.
Take a customer wishing to raise £20k over and above their £130k mortgage. If they are on a low reversionary rate, a remortgage will increase their monthly payment beyond that of retaining their current mortgage and having a secured loan. This sort of case study appears all of the time. We have done our fair share of these as well.
On that £150k remortgage, the broker will be looking at around £500 in revenues. With a £20k secured loan, you’re looking at up to £1,500 and STILL saving your customer money.
So why do so many brokers shun secured loans? And why do so many brokers still fear charging fees? Where do they think the income comes from? The customer benefits from their advice and our expertise – why shouldn’t we all charge for that? Solicitors charge for their work and the customer does not argue with that. The lender charges an arrangement or product fee and the customer does not argue with that. Generally, broker fees are not disputed either as they underline the value that we bring to the process.
Free advice undermines the value that intermediaries add to the process and with commissions disappearing, the word “free” when referring to advice MUST mean that the advice is not independent and is in fact, selling.
In the end, if you don’t charge a fee you don’t value your own service. If you don’t value your service, how can you expect your customer to do so?
Do you agree? Disagree? Send your comments to [email protected]
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