Advisers deserve recognition for keeping borrowers on lender books

As I write, a somewhat frenetic UK football transfer window has finally come to an end, even if there is likely to be continued speculation and movement on many players given the Saudi Arabian window closed later than others.

There is an acute nervousness and edginess about the window in general, as rumours circulate about which players are to be retained and which ones move clubs, how much should be paid, who should be allowed to leave, who can stay and on what terms.    You might note a parallel here in terms of the product transfer (PT) activity we have in our mortgage market currently, not least as some lenders have sharpened their retention rates for existing customers who they regard – based on their performance – as good assets. 

Which perhaps begs a question never asked before: what is the link between Manchester United and the Black Horse? 

The value of a retained customer 
To start at the beginning, let’s take an example of a certain player, defender Luke Shaw. When Man United retained Shaw’s services by extending his contract, they didn’t pay him less than his first contract. They, most likely, upped the value of the contract in relation to his performance since joining, and in relation to the fact he’d proved himself a good asset/risk to the club. If he hadn’t proved of value to Man United, they would have dispensed with his services, and he would have gone to another club. 

It’s the same in mortgage lending. If the lender doesn’t want to retain an existing borrower, the PT offer is priced upwards, making them uncompetitive, and thus the customer finds a new lender.  

And there is of course a cost to retaining Shaw; as part of that new contract being signed, the club are most likely to have made a payment to the player’s representatives/agents, even if this was done so begrudgingly.  

You’ll sense where I’m going here. In an interest rate environment with a high degree of change and variation in lenders’ products, I suspect all will recognise the increased level of work mortgage advisers are required to undertake, to ensure their client’s ongoing borrowing is best suited to their needs; including assessing fully whether staying with the existing lender is the most suitable.  

We accept lenders pay for distribution and not advice, but when the outcome of that full advice process does result in a recommendation to stay with the existing lender, most lenders only pay between a third and a half of what they currently pay for new business, despite the fact the cost to the lender is much less than that for new business.  

However, that is not true for all lenders, and to answer the question above about the link between Man United, or indeed any football club, and the Black Horse, well patently they both recognise the need to pay fairly for the retention of their best performing assets. United have done it with Shaw, Lloyds Banking Group do it by paying full proc fees for their PT business. 

Downplaying the work involved 
Unfortunately, an issue with retention business is the perception that, if the adviser doesn’t wish to, they can somehow leave the checks and balances they would carry out for a new case and with ‘a few clicks’ secure the PT and should therefore accept the lower proc fee that invariably comes with it. 

But, if you believe this, then the cost of acquisition for the lender is equally reduced given they are not paying an underwriter to underwrite the case, a processor to process it, a business development manager (BDM) to go and persuade the adviser to use the lender. The cost of retention is far below that of new business. 

And, even if we agree the PT advice process is a ‘slimmed-down version’, the adviser is still carrying the liability for the advice, and indeed having to monitor the PT up to completion to ensure the customer gets the best available rate and term. 

Thus, you might well argue the PT area – especially when you include Consumer Duty rules – has a greater depth now within the advice and distribution process than say two to three years ago when these existing PT proc fees were set. Times change; circumstances and environments too, and it should be apparent that the way the vast majority of lenders approach PT proc fees should also change. 

Upholding lender margins 
One other fundamental to add here is that retaining business is likely to be more profitable for a lender currently than trying to secure new business. Given this, should they not be looking at helping remunerate fairly in this area? 

Perhaps, given the current focus on PTs, and the fact that securing this business is going to help them considerably for at least the next six months while the new business market is flat, then lenders could (and should) review their current rates and pilot an increase here.  

Let’s not forget that our distribution channel is responsible for upwards of 85 per cent of all mortgage sales, and in a world in which PT activity is considerable, it should be understandable why we are crying out for PT and new business proc fee parity.

All lenders will explain they are looking to innovate and be imaginative in their propositions which of course is to be welcomed; part of that imagination should relate to proc fees as the market dynamics have moved from a new business focus to one of retaining the best assets.  

I would argue that, much like any top player at any club, it is far better to keep that asset on the books, paying them and their representation the going rate, rather than seeing that asset move elsewhere and it requiring much more money to try to replace them.  
That’s an arrangement that works for all, and it should be recognised by all lenders.