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Product transfers aren’t the easy option and proc fees should reflect that

First published by Mortgage Solutions 

With the start of a new year I suspect many advisory firms are reviewing their 2019 performance.

Where did the business achieve its aims and expectations? In what areas is it producing positive results? And conversely, which part of the business has not delivered as well as you might have expected? Are there systemic and process reasons for this, or is it a resource/conversion/expertise issue? Are individual advisers maximising their performance in order to deliver for the greater good?

Naturally, the performance of individuals within a business is always going to be a high priority; one of our own key performance indicators is obviously the income per adviser metric and whether it has generated what is expected and budgeted  for on a month-by-month basis.

What will interest all business leaders as much as it interests me, is the changing nature of the mortgage market, how the advisory recommendations and consumer choices impact on that metric, and whether a move in one direction or another can have either a detrimental or positive effect.

One area we can certainly track a shifting pattern in, is the increased number of PT business advisers are now writing. I think we’re all acutely aware of both the positives and negatives of this increasing feature of the market, not least the fact that writing increased levels of PT business is likely to mean a drop in income when comparing repeat business with the purchase or remortgage you carried out for the client previously.

Whether we like it or not (and most firms are in the latter group) the prevailing wind on procuration fee payments for PTs is that lenders will continue to pay less, certainly when compared to a remortgage.

There will be those within lenders who will argue that a product transfer takes less work by the broker and therefore the fee should reflect that. From my vantage point, the adviser should be conducting broadly the same amount of work regardless, because they need to consider and validate the PT product on offer from the lender, and while ensuring they’re aware of client needs and circumstances, compare it against the rest of the market.

If, after that work has been completed, it’s decided that the best course of advice recommendation is the existing lender’s PT, then so be it, but I’m not convinced this fully justifies a substantially lower procuration fee when the adviser has followed the full advice process to get to this end result.

The other point perhaps to be concerned about if your business is steadily increasing its PT business is around the ancillary sale opportunity, particularly when it comes to protection. It’s a simple fact of life in our sector that advisers won’t arrange as much protection with PT clients, as they might do with a typical purchase/remortgage customer, and this can clearly have an even greater impact on the income per adviser metric. You won’t need me to tell you how important diversification is in our market, and if by writing more product transfer business you might be neglecting protection or GI, then I would suspect this needs to be a priority area to review for that firm.

We certainly encourage our member firms to treat all PT cases as you would with other clients, and make sure they don’t ‘walk out of the door’ under-protected or needing to go elsewhere for products you could quite easily deliver yourself. Our focus as a network remains on supporting advisers to recognise the multiple income opportunities that sit alongside a mortgage, indeed our Revolution system is designed to do exactly that.

The business mix within any firm needs to be right, and with a product like PT, which might to some look like an ‘easy option’ could have a disproportionate impact on the overall business. It’s not for us to take that ‘easy option’ just because it’s there, and in my opinion there’s no need for lenders to treat that business as requiring less diligence and expertise when it comes to proc fee payment either. That, however, is I suspect a race (and argument) that has plenty left to run.

Rob Clifford, Chief Executive of Stonebridge

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