In February 2024, I wrote about how mortgage brokers were being squeezed from all angles.
Costs were up, taxes had risen and we were expected to provide ever more value to our clients, under the watchful eye of lenders scrutinising broker fees for “fair value” on behalf of the Financial Conduct Authority.
Fast-forward several months and the underlying pressures remain, raising a fundamental question: what does it mean to be “fair” to brokers?
A question of parity
I was speaking recently with the director of intermediaries of a top 10 lender. We were discussing why mortgage brokers were, for some reason, not viewed in the same light as other professions and why recruiting new blood was proving so hard.
It’s 2024, and brokers deserve to be treated as professionals
For me, we occupy a unique space in the professional services sector. Unlike other professions, such as legal or accountancy, brokers are largely compensated on a success-only basis. Lawyers and accountants charge for their time and expertise irrespective of outcomes. Whether or not a case is won or a tax return results in a refund, the client pays.
Mortgage brokers, on the other hand, often pour hours of expertise, advice and paperwork into cases that don’t materialise.
Imagine a solicitor preparing an extensive case only to be told they won’t get paid unless the judge rules in their favour. Or an accountant compiling detailed accounts but receiving no fee because the client decides not to file. This is the reality brokers face daily.
The cost of ‘no’
Abortive work is a significant burden on brokers. This isn’t just numbers on a spreadsheet; it represents real hours lost to application forms, lender queries and client handholding.
Yet there’s no safety net. A broker can work tirelessly, only for the client to decide to stay with their current lender or pause their purchase indefinitely.
It’s time to ask whether brokers themselves are receiving fair value for their services
Other professions have established models to mitigate this. Solicitors charge hourly rates or offer menu-based fees. Accountants’ invoices land regardless of the result of their calculations. Even in industries where success fees are common, such as recruitment, clients often pay retainers upfront.
So why does the mortgage sector cling to a model that expects brokers to bear the financial risk?
The remuneration dilemma
The solution isn’t straightforward. The industry’s reliance on commission-based pay structures is deeply ingrained. Procuration fees and broker fees form the backbone of broker earnings but, as I’ve highlighted before, these are increasingly out of step with the work involved.
Abortive work is a significant burden on brokers. It represents real hours lost to application forms, lender queries and client handholding
Proc fees haven’t seen meaningful increases in years, despite the mounting complexity of applications and the greater regulatory scrutiny brokers now face.
Lenders often point to the importance of brokers in their distribution strategies. Yet their remuneration structures don’t reflect this. Product transfers, for example, remain poorly rewarded despite often requiring the same level of diligence as new applications.
Aligning with other professions
If the mortgage industry wishes to elevate its status to match other professional services, it’s time to rethink its approach to remuneration. Lenders and brokers alike need to explore models that acknowledge and compensate the expertise and effort brokers provide, even when outcomes aren’t successful.
This could include introducing retainers or partial fees, payable upfront, for clients seeking mortgage advice. Admin fees could be charged for rate tracking, rewrites, property swaps and ID checks. I’m sure other brokers have considered these but shied away for fear of losing market share.
Mortgage brokers, for some reason, are not viewed in the same light as other professions
Alternatively, lenders might consider a tiered proc fee structure, rewarding brokers not just for volume but for the quality and completeness of applications.
A ‘fair value’ conversation
Regulators’ focus on “fair value” should extend beyond broker fees charged to consumers. It’s time to ask whether brokers themselves are receiving fair value for their services.
Let’s start the conversation. It’s 2024, and brokers deserve to be treated as professionals.
Malcolm Davidson is managing director of UK Moneyman
This article featured in the December 2024/January 2025 edition of Mortgage Strategy.
If you would like to subscribe to the monthly print or digital magazine, please click here.
Publisher: Source link
