A ban on procuration fees could hit brokers’ most vulnerable clients, the Association of Mortgage Intermediaries (AMI) has warned.
Proc fees - paid by a lender to a broker for negotiating a loan, in this case, a mortgage - are currently under scrutiny as part of a Financial Conduct Authority consultation on remuneration in the mortgage market, which is seeking views on whether commission could lead to bad outcomes for consumers.
An increasing number of lenders have introduced proc fees following the Mortage Market Review in 2014, which left advisers with a larger workload.
The AMI’s latest Quarterly Economic Bulletin states: “In order to pay for the cost of giving advice - and the cost of advice given on applications that do not complete - removing proc fees in favour of charging the customer is likely to deprive the most vulnerable from advice they badly need.
“This is particularly troublesome in a market where the most vulnerable customers may have to take advice to purchase a product but cannot afford the advice in order to do so.”
The AMI report also warns against an uncritical embrace of ‘embellished price-comparison sites’ that still involve discussion with a broker, claiming they often fall short of the ‘robo-advice panaceas’ publicised by PR firms.
The trade body says it has found evidence of different sets of compliance standards across online advisers and suggests they should face the same scrutiny as established advisers.
Matthew Fleming-Duffy, director at Bournemouth-based Cherry Finance, said he agreed with the AMI’s verdict on proc fees.
“It would not just be the most vulnerable customers who would lose out; it would be all customers in the market,” he continued.
“Mortgages are pretty much what every consumer in the UK pays for and accessing independent advice makes sense.”
Mr Fleming-Duffy explained that his firm uses a two-tier model that levies a fee of 1 per cent for the most complex cases.
“If you remove that charge, could we survive? I don’t think we could. Our firm and I think a lot of others would crumble.
“In removing vast swathes of brokers out of the market you would see the banks recruiting more and more staff, and it comes down to who has the biggest marketing budget wins the most business.
“The FCA has to review it, and I would expect the outcome to be proc fees should stay.”
simon.allin@ft.com
