AMI Senior Policy Adviser Stacy Penn discusses the Perception Gap in the protection market, in this article originally published in Moneyfacts…
The deep industry debate on procuration fees has 4 dimensions. What we must all remember however is that these are commercial arrangements between firms and must be left in that competitive space. It is important that individual lenders and intermediaries make their own judgements about the incentives and rewards needed to operate their risk based businesses. But there are general issues that all firms need to recognise in their negotiations.
Firstly the interview and administrative work now undertaken by intermediaries, post MMR, has increased significantly and merits lenders paying more for the increased time and effort to deliver a fully packaged case. Indeed the risks to the broker surrounding the advice and quality issues that can lead to panel suspensions or removal has raised the stakes considerably. The bringing together of two parties, borrower and lender is a defined skill. The lender argument for brokers to charge potentially VATable advice fees rather than a fair procuration fee for the exempt act of intermediation should be strangled at birth.
Secondly, the historic AR versus DA differential debate. It is the same case from an on panel broker, therefore there can be no justification for any general differential. If the lender decides to lend, then the introducer should be fairly paid and in our view created on real commercial arrangements, not based on spurious “spend on compliance” generalisations. We have seen little evidence over the years to support any differential.
Thirdly, there can be no reason why a retention procuration fee should not be part of all lenders strategies. It, retains customers, reduces their costs in transferring the loan and rewards the advice risk the broker carries when making the decision to stick. I understand the bean counters fear, but it is just plain wrong that this is not industry standard. Not all decisions should be driven by budgets.
Lastly, lenders need a profitable intermediary sector that can invest in technology to be here in the future. Subsistence living that has been the post-crisis way cannot be our long term future. This is the sustaining reason why the only way is up.