Are you prepared for any possible changes to the procuration fee model, asks Steven Nicholas, chief executive of Tiuta plc
Watching the London Marathon on Sunday you couldn’t help but be impressed by the efforts of thousands of ‘ordinary’ men and women who put themselves through, what seems like hell, in order to make it round the course of just over 26 miles. I’m not discounting the incredible professional athletes who appear to sprint the circuit in just over two hours but there is something more worthy about the non-professionals who effectively give up their Winter to train and who eventually make it to the starting line and ultimately get the job done.
There is no denying that training and completing a Marathon requires huge amounts of dedication especially when most of the training is completed when the days are short and the nights long. Everyone I have ever encountered who has run a Marathon all talk about the difficulty in actually getting to the starting line and how this can often be a greater achievement than actually completing the race itself. Injuries account for many thousands of would-be runners not starting the race and all the hard work can be gone in an instant if an individual is not fit to compete.
Preparation and looking after one’s self is so important – not just for those crazy individuals who think a good Sunday should be spent running 26 miles – but in all walks of life. It can come across as a rather selfish notion but I think there is much to be said for the adage of ‘look out for yourself, no-one else is going to’. Considering one’s own wants and needs doesn’t have to be the solitary driver of your life but it should certainly be high on the list of considerations as well as looking out for those who are nearest and dearest to you.
In an industry sense this got me thinking about the ongoing debate regarding some mainstream lenders’ cutting procuration fees to mortgage advisers. There has been much talk about the overall impact this could have on the advisory distribution channel and whether it heralds a sea change where the fees paid to advisers gradually become less and less.
I cannot speak for other lenders but, as a lender that pays our brokers and introducers a procuration fee of 1%, we believe this method is as good a way as any to reward distribution. But just because historically lenders have paid procuration fees doesn’t mean to say that this is always going to be the case. In this sense, like the marathon runner preparing for the race, brokers/advisers/introducers are probably going to have to begin looking after themselves. This may mean a move to a more IFA-based model which is all about charging a fee.
Historically I am aware that advisers in the mortgage and loans sector have been reluctant to charge a fee for their advice. The argument that is raised time and time again from those that don’t is that their clients would not pay for their advice and therefore it would be commercial suicide to do this. However, does this argument hold up anymore?
Professional advice costs money and there is a value to it, be that a solicitor or accountant – we would not dream of not paying for their services so we should we be any different with mortgage or loan advice. Clients have got used to not having to pay but this doesn’t mean they don’t value the advice or wouldn’t pay for it in the future.
My point is that advisers who don’t charge a fee should perhaps look at how they value the service they offer. How would they be affected if overnight all lenders stopped paying proc fees? Could they survive? If their clients have never paid a fee would they (overnight) agree to pay one? I doubt they would, however for those businesses that have introduced a fee-based model and have brought their clients with them, this would be a non-issue. Preparation now would mean they were already running the race not waiting for the starting pistol to go off.
We should not forget of course that even if an adviser charges a fee and they receive procuration, they can rebate the proc fee back to the client. In this regard, there is a monetary value placed on the advice which the client accepts and pays for upfront but the adviser is also being totally transparent about the back-end provider payment which they rebate back. In this scenario everyone should be happy and it could mean the difference when it comes to the longevity of the advisory practice should a significant number of the lender community decide procuration fee payments are not a long-term option.