A mortgage network has hit out at firms charging customers thousands of pounds for equity release advice, claiming they are not treating customers fairly (TCF).
JLM Mortgage Services has accused some advice firms of profiteering by levying fees of between 2 per cent and 5 per cent for equity release advice, with the broker pocketing a procuration fee from the lender on top.
This can cost the consumer many thousands of pounds, depending on the size of the loan, the firm alleged.
JLM – which is independent and has 43 advisers spread across seven appointed representative firms - charges a fixed fee of £1,295 for equity release advice and said percentage-based fees should only be levied for ‘ultra-complex’ advice work.
It said vulnerable customers might be unaware of the level of fees that are payable in such a situation and called for more education around equity release fee options.
Rory Joseph, director of JLM Mortgage Services, said: "The practise of charging an equity release client a percentage-based fee for advice certainly doesn't seem to be within the spirit of TCF, and we would go so far as to say it is profiteering.
“Fees charged at a percentage of the loan are not suitable for equity release advice; indeed we would suggest they are only suitable for ultra-complex work, which quite frankly equity release is not.”
But Dean Mirfin, chief product officer at advisory firm Key Retirement, said advisers needed to charge a minimum fee to make giving advice viable.
Key Retirement charges a minimum fee of £995 or 1.95 per cent, and Mr Mirfin claimed most customers using their model – 79 per cent of those advised between January and September - would have paid more if they had been charged JLM’s flat fee.
He said: “If you are borrowing £50,000 or less, you pose a much lower risk than someone coming and borrowing £2m.
“It is not just about the cost of personal indemnity insurance (PI), but also risk and effort. If you do very large cases, it typically involves more behind-the-scenes work. High value cases are scrutinised in a lot more detail.
“Our cost of PI is based not just on how many customers we transact, but how much we lend. It is absolutely right and proportionate that those carrying more risk contribute more. Customers do not object to that principle.”
Mr Mirfin said there would be more of an issue regarding TCF if the majority of borrowers were subsidising those taking out larger loans.
simon.allin@ft.com
