Statistics from the Financial Services Compensation Scheme have demonstrated the difference in the number of defaults between mortgage brokers and advisers covering pensions and investments.
The FSCS stated almost 50 home finance firms – the sector which includes mortgage brokers – have been declared in default since January 2010, as well as paying out more than £2.5m in compensation in respect of over 200 claims.
This is in comparison to 507 life and pensions advisers and 387 investment advisers over the same period, in terms of which the FSCS has had to pay out £159m and £468m respectively.
|Declared in default after January 2010|
|Funding Sub-class||Number of firms||Amount|
|Life and pensions intermediation||507||£159,292,384|
Robert Sinclair, chief executive at the Association of Mortgage Intermediaries, said the data provides more evidence that mortgage brokers are not the bad guys.
He said: “However, because of the structure of the FSCS, mortgage firms are paying huge amounts for failures in pensions and related investment advice.”
“More important is the failure of the regulator and professional bodies to ban directors of these failed firms. It is one thing for a firm to fail and it to phoenix, but must be more wrong where this leaves liability in the FSCS.
“For that to happen it is more than financial failure, it is bad advice and poor controls. We need better action to prevent owners of these firms returning.”
In June, Mr Sinclair sounded a rallying call on reform of the FSCS levy, saying brokers should not be paying for misdemeanours in sectors where they do not advise.
Mr Sinclair suggested the FSCS funding review should have opened discussions on a product levy, not dismissed it as out of scope because it requires legislative change.
Daniel Bailey, mortgage broker with Derbyshire-based Middleton Finance, said the figures were not that surprising, as the market has steadily improved since 2010, adding those 50 firms which have gone probably did so between 2011 and 2013.
“FSCS fees have been rising steadily I think, and although I’m an appointed representative of a network, it has still been hard for a lot of brokers, especially when procuration fees haven’t increased much since 2008.”
A spokeswoman for the FSCS explained distribution of the levy depended on the regulatory permissions a firm had, so a mortgage broker may have also registered with the FCA to give regulated investment and pension advice and therefore be paying more.
They said: “Each firm’s contribution is calculated on the tariff base applicable to the relevant class and each contributes proportionally.”
Last May, the Financial Conduct Authority revealed it would undertake a formal review of the FSCS funding model by the end of 2016, in a move designed to limit the burden from industry claims.