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PROC FEES: A SYSTEM CORRUPTED BY THE MINORITY?

By Robert Collins

I enjoyed a lender golf function at Wentworth Yesterday with one of the high street banks. The invite came about because the commercial manager that I know there had been calling me to find out why they hadn’t been receiving much business from me.

The simple answer that I gave him was that I did not believe that his bank was after broker introduced business and that I only considered them in cases where there was a particular quirk that meant that I could not obtain comparable terms from his competition.

He assured me that this wasn’t the case, and that they serviced lots of brokers – hence the invite to the function and a chance to discuss in detail their lending proposition over a few holes.

Being a keen golfer, I was more than happy to oblige, and there is a high likelihood (but no guarantee) that new business will be placed with the bank. There is also a good possibility that referrals will also be fed back to me for cases that the bank can’t place within their own product suite. All in all, it seemed like a good outcome for both parties.

But, was this money well spent by the bank? I guess from their side, one additional deal placed by me will more than offset any of the monies spent on my entertainment today.

This calculation seems to be more pertinent when you factor in that this particular bank doesn’t pay introducer fees to brokers. This was really the genesis of the conversation around the lack of interest in broker business – to my simple mind, no introducer fees means that the bank is really chasing direct business.

Commercial business is non-regulated, but I (and I am sure the majority of commercial brokers) operate on the basis that trying to find the best possible lending solutions for commercial clients will mean happy borrowers, more repeat business, more referrals and will be the basis for a good, long-term business.

That being said, if two lenders are offering the same basic product, but one is paying an introducer fee and one isn’t, the choice for the broker becomes more muddied. But, if the client is not receiving a disadvantage in loan terms, an introducer would be foolish not to take the payment.

Unfortunately, as the all too recent events of the credit crunch have shown, markets that rely on an ‘honours’ system can be corrupted by a minority of participants that use loopholes or blind spots to their own advantage.

I am not saying that commercial mortgage brokers are going to undermine the financial system, but I do wonder sometimes if clients are getting the best advice from their brokers and if all options are being considered, not just the lenders with the best proc fees.

With so many changes to the mortgage market in recent times, I do not think that a review of the commercial market will happen soon, but I am sure that it will happen at some point in the medium term to ensure that the TCF concept is entrenched across all commercial market participants.