Are Fees on the Move?

Since my last column in December, where I raised the topic of quality vs. procuration fees, the feedback has been interesting. I have also seen a number of other articles since then that have picked up on the theme putting forward similar ideas. So what should we expect from proc fees this year?

Firstly hearty congratulations to Coventry Building Society for their welcome upward movement on fees in January. Maybe they should add a new pledge to their list – “To always lead the Intermediary market with new ideas and positive outcomes” One for you to think about Mr Purvey.

Whilst we will see other lenders follow the Coventry lead during the next 12 months, I believe that some of the more interesting movements will be in the retention space. We already have Halifax, Woolwich and BM Solutions paying proc fees on product transfers, but other lenders have been reluctant to follow - or maybe could not see how the financials stacked up. This will change post MMR. The removal of non-advised sales could leave lenders with a conundrum with regards to their existing customers. In the majority of situations they will need to go through an advised sale, rather than through a decision tree matrix. This will increase time, head count and also knowledge requirements in those departments. Will lenders have the capacity to cope or will they look to the intermediary market for help? It could well become more cost effective to use the intermediary channel. The challenge will be to build systems and processes that are intermediary friendly and not smoke and mirrors, although we may have to accept this in the short term. To change systems will take time and, in the interim, Halifax, Woolwich and BM Solutions will have a distinct advantage in the management of their back books.

In the last article I wrote about how better packaging will help service and we are all agreed on this. Great strides have been made, and not just because proc fees could be amended as a result. I will though put forward a cynical question, aimed at no lender in particular, in the longrun; will that service stay at a sustainable standard? I believe that in the interim, service will improve but there is always the temptation to leave those competitive products in the market that little bit too long until service is stretched. This will take us all back to square one. We have a history of this type of practice. In the early 2000s, I remember lenders (and I was at one at the time!) stating that moving the application process online would remove service issues and provide an improved intermediary experience. Whilst it does help speed up the application, getting on to the lender’s system and I believe accuracy has improved, it has not stopped delays, backlogs etc.  We need to guard against better packaging getting consumed in the same way.

What would be interesting is if one of the lenders’ trade bodies, the CML or, more likely, IMLA put together guidance notes for its members on standardised service standards. It was once a topic for discussion within the packager community pre-credit crunch, but it dropped by the wayside - as did a number of good ideas. 

I still genuinely believe that we should be getting into a space where lenders publish metrics that are measurable not only to their own service standards but also in a generic format than means intermediaries can accurately compare service across a number of lenders as they do on products and criteria at present. This will mean with the right information, with transparent metrics, intermediaries can provide the best service to their clients.

It is achievable and we can return to the Coventry Building Society for proof of this. When they launched their intermediary pledges in 2007, many in the market felt they were unsustainable but now over 6 years later they are still as relevant as when they were launched. The contentious one was Pledge 4 and many wondered if it would be their Achilles heel. It reads –

Pledge 4 - At least 2 days' notice of product withdrawal. We will email you 2 working days in advance of any product closure to allow you time to consult with your clients and submit their application.

The fact that this has been maintained during some of the most turbulent changes in cost of funds proves that creating a transparent service metric is achievable.  Once again, Coventry leads the way. Are there any other lenders are up for the challenge?

Number of the Month – 26

The 26^th April is now less than 100 days away. We are at the stage of implementation where lenders will start to publish their interpretations of the rules and the changes they will make to affordability calculations, plausibility and document requirements. The next few months could bring information overload if we are not careful. Clear, concise and timely communication is needed to ensure a smooth transition. We all need to remember that the rule changes are meant to improve the customer outcomes.