Occasionally in life you may need to call upon the services of a solicitor. Very occasionally your solicitor may feel a barrister needs to be involved to suitably present your case and maximise your likelihood of achieving success. Now imagine your qualified solicitor introduces you to an unregulated and unqualified barrister. You would most likely completely ignore their advice and sack the solicitor for acting negligently.
Now imagine the solicitor in this example represents a mortgage broker, perfectly capable of arranging a conventional residential mortgage but may feel underqualified or lacking expertise in a particular area of specialist financial services i.e. bridging finance. In this instance the mortgage broker may feel it prudent to refer his client to a packager who specialises in bridging so they receive sound advice from an expert. The packager signifies a barrister in this situation, accepting professional referrals to give expert advice on a particular aspect of law, or in our instance, financial services.
Obviously a solicitor would never refer to an unregulated barrister as this is not permitted by the Solicitors Regulation Authority. You would think that similar rules handed down from the Financial Conduct Authority would exist, preventing the involvement of unregulated packagers in regulated mortgage contracts. As of writing this there is no formal preclusion, merely a warning issued by Linda Woodall speaking at Financial Services Expo in London last year that unregulated packagers are “overstepping the mark” by straying into advice and told advisers they will bear the liability for advice given by unregulated firms. Woodall continued, “I believe our regulatory position on packagers is clear. So long as the packager has no contact with the customer and runs a business-to-business operation then they do not need to be regulated. But where a packager deals with customers directly, they need to be regulated and ensure that staffs have the necessary qualifications”.
At this stage I think it is important we consider why intermediaries utilise the services of packagers for short-term lending. Whilst it is true that top packagers within bridging can offer better products and commission compared with applying directly, it does not apply to all and certainly even the best packagers cannot offer enhancements with every lender. It stands to reason therefore that the key factor for using a packager is expertise. If an intermediary knew the right lender and could be paid the same, or more, whilst maintaining product parity for their client they would apply directly.
If we assume the above to be correct then the vast majority of referrals to packagers are made on the basis of seeking expertise. If you are using an unregulated packager then their advice rests firmly on your shoulders. Given it is likely you do not understand this market how can you be sure the advice given is correct? Would you be able to defend your advice and provide a compelling suitability letter and compile a compliant file? If the answer is “no” then you really should be looking to a regulated packager for a “referral only” service.
In my opinion the existing process is not right. If you are involved in a regulated mortgage contract, be it directly with a customer or via another authorised broker, you should be regulated. This current system is ambiguous with too many grey areas. It makes sense to me that somebody heavily involved in product selection for a customer should be culpable in the event of bad advice.
I appreciate that regulated brokers experienced in bridging finance may use a packager solely for access to an improved product or proc fee and still provide the advice, but why use an unregulated firm when a regulated option exists? Regulated packagers are still very much the exception rather than the norm.
A word of warning – choose your packager partner very carefully; make sure they are regulated and willing to provide advice for their recommendations rather than banking a profit and having no future liability.
Chris Fairfax is managing director of Positive Lending
