Should mortgage brokers be obliged to charge a fee instead of commission?

Brendan Burgess

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The Irish government has to transpose the Mortgage Credit Directive into Irish law. The Department of Finance has a consultation process on some issues where the government has discretion. This is one of the most important areas and I am keen to make a submission which would reflect all sides of the argument.

Discretion 7 – Member States may ban commissions paid by the creditor to credit intermediaries (Article 7.4)

Where creditors, credit intermediaries or appointed representatives provide advisory services to consumers the remuneration structure of the staff involved must not prejudice their ability to act in the consumer’s best interest. In particular, they must not be contingent on sales targets. In order to achieve this objective, Ireland may ban commissions paid by the creditor (Banks) to the credit intermediary (Mortgage Broker).

Consultation Question 7: Do you think that banks should not be allowed to pay commission to brokers? If so, why?

Discretion 8 – Payments by consumers to a mortgage provider or credit intermediary (broker) may be forbidden or restrictions may be imposed until the conclusion of a mortgage agreement (Article 7.5)

Consultation Question 8: Do you think such payments should be forbidden or restricted? If so, why?
 
In general, I like to see consumers paying a fee for the service they get, rather than getting a commission. That is the only way to ensure that the borrower gets the best advice.

For many years, Danske bank was the cheapest lender in the Irish market, but because they did not pay commissions, most brokers never mentioned them.

At present, Bank of Ireland and Ulster Bank do not pay commissions. Not sure about ptsb.

AIB and KBC do pay commissions.

I came across a case recently, where a Bank of Ireland customer was trading up. His mortgage broker told him he would be better off moving to another lender. The broker should have advised him to apply directly to Bank of Ireland as he had a tracker which he could have kept for 5 years.

Some mortgage brokers claim that they represent all the leading mortgage providers. This is not correct.

So I think that mortgage brokers should be the same as solicitors, accountants or any other professionals. They should be paid a fee. This is the only way to ensure that the client gets best advice.
 
Should the term "mortgage advice" from a lender be outlawed?

This is a separate, but related, issue


Discretion 20 – Ireland may prohibit the use of the term ‘advice’ and ‘advisor’ (Article 22.4)

Ireland may prohibit the use of these or similar terms when the advisory services are being provided to consumers by creditors, tied credit intermediaries or appointed representatives of tied credit intermediaries.

If the use of the term ‘advice’ and ‘advisor’ is not prohibited, the following conditions on the use of the term ‘independent advice’ or ‘independent advisor’ must be imposed on creditors, credit intermediaries or appointed representatives who provide advisory services:

(a) creditors, credit intermediaries or appointed representatives must consider a sufficiently large number of credit agreements available on the market; and
(b) Creditors, credit intermediaries or appointed representatives must not be remunerated for those advisory services by one or more creditors.


Point (b) above shall apply only where the number of creditors considered is less than a majority of the market.

Consultation Question 20(a): Should the use of the terms ‘advice’ and ‘adviser’ be prohibited as outlined above? If so, why?

Ireland may also impose more stringent requirements in relation to the use of the terms
‘independent advice’ or ‘independent advisor’ by creditors, credit intermediaries or appointed representatives, including a ban on receiving remuneration from a creditor.

Consultation Question 20(b): Should Ireland impose more stringent requirements in relation to
the use of the terms ‘independent advice’ or ‘independent advisor’? If so, why?
 
Here is the actual wording of the article

4. Member States may prohibit the use of the term ‘advice’ and ‘advisor’ or similar terms when the advisory services are being provided to consumers by creditors, tied credit inter* mediaries or appointed representatives of tied credit intermedi* aries.


Where Member States do not prohibit the use of the term
‘advice and ‘advisor’, they shall impose the following conditions on the use of the term ‘independent advice’ or ‘independent advisor’ by creditors, credit intermediaries or appointed repre* sentatives providing advisory services:


(a) creditors, credit intermediaries or appointed representatives shall consider a sufficiently large number of credit agreements available on the market; and


(b) creditors, credit intermediaries or appointed representatives shall not be remunerated for those advisory services by one or more creditors.


Point (b) of the second subparagraph shall apply only where the number of creditors considered is less than a majority of the market.


Member States may impose more stringent requirements in relation to the use of the terms ‘independent advice’ or ‘inde* pendent advisor’ by creditors, credit intermediaries or appointed representatives, including a ban on receiving remuneration from a creditor.
 
I am struggling to get my head around this

1) We can ban banks and tied agents from using the term "advice".
2) If we don't ban the word "advice", then lenders and brokers must advise on a large number of products in the market.
3) If the advisors don't represent a majority of the market, they can't be paid by the creditor
 
In my view, a lender or a tied agent of that lender, should never be allowed to call themselves advisors. They are selling products.

A broker should not be allowed to use the word "independent" if they get paid commission by some lenders and not by others. They are not independent.

A broker should only be allowed use the term "independent" if they charge the client a fee. If they get paid commission, they should not be allowed to use the word "independent"

Brokers should have to prominently display on their website and their communications which lenders they represent.
 
In my view, a lender or a tied agent of that lender, should never be allowed to call themselves advisors. They are selling products.

A broker should not be allowed to use the word "independent" if they get paid commission by some lenders and not by others. They are not independent.

A broker should only be allowed use the term "independent" if they charge the client a fee. If they get paid commission, they should not be allowed to use the word "independent"

Brokers should have to prominently display on their website and their communications which lenders they represent.

The Central Bank definition of independent is offering the choice of fee or commission. The problem is, most clients idea of independent is that you are not tied to any one company.


Steven
www.bluewaterfp.ie
 
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