Brokers, should we charge fees?

In my opinion, the debate as to whether to charge fees will forever rage on, because it really does depend on preference and style of working.?

It is a very common hotly debated topic within the financial services industry amongst intermediaries.

Some brokers and packagers do not charge upfront fees, therefore relying on the case going through to completion and being rewarded with the client fee & lender commission at the end.?

Whereas other brokers and packagers do charge upfront fees such as appraisal or application fees.

There is no right and wrong way of charging fees but consider the following points discussed in this article before you decide IF and WHEN to charge a fee.?

These are the top 3 reasons why we believe charging a fee is perfectly normal and actually essential.?

→ Time?

→ Knowledge?

→ Costs & Overheads

Your time, your dime?

All lenders, Master Brokers & Packagers will tell you that their time is constantly consumed by window shoppers and rate shoppers.?

Those that shop around hoping that one lender/packager/broker may come up with a better deal for their client whether it be rate, criteria or commission.?

It should always be the best intention for the broker to find the client the best deal at all times, however, if the time is being invested into producing terms for the client, this time needs to go down as billable hours.?

Consider this: We don’t question solicitors’ upfront fees, or lenders’ arrangement fees that are in addition to the interest and in some instances even exit fees (not to be confused with ERC’s) when the loan is redeemed.?

Why then is it such an issue for a broker to charge an application fee??

If we’re spending time on a case then we're not spending that time elsewhere meaning that this time and attention invested in making your deal the best, needs to be costed.

Today everybody wants our attention - existing and NEW clients.?

The fee is not just? the cost of applying for the loan but invariably as a form of commitment from the client or introducing broker.?

Paying a fee to the broker or master broker who will be looking after your case is a commitment to each other that both parties will be committed to seeing through the case to completion.?

If you don’t pay a fee but another client does, where might that broker choose to spend their time??

Knowledge?

We’re not just exchanging our time for money. As master brokers, we have a wealth of knowledge in the industry, many connections and access to decision makers and solutions that clients will benefit from. You are not just paying us for the time it takes to assess and submit your enquiry. You are also paying for the years of accumalated industry experience, knowledge and expertise that provides us with the tools to help you.

Specialist cases in particular require for more attention and nurturing throughout their lifecycle.? Cases such as large portfolio lending, development finance, complicated HMO’s, commercial finance and even bridging cases needing quick turnarounds all come under this banner. ? The need for broker intervention is far greater and requires experience and knowledge not all possess.

There are many variables brokers need to consider when recommending lenders and products to their clients – Invariably it's the client’s circumstances that dictate the choice of lenders and products available.?

Whether it is LTV, income, adverse credit, employment, property type, timescale, lender’s risk appetite etc, these are all the factors that require know-how and must be considered when placing a deal.?

Even when executing the so-called ‘Vanilla’ cases we must consider the above information, albeit the client may well have far more options to choose from.??

Finally, each lender will have their own unique way of working and specific requirements for applying for the loan or mortgage. This means that the technical knowledge of the application process and the experience of working with that lender is paramount.?

This knowledge and experience does not come for free.?

Costs and overheads?

At the end of the day we are business people and we must therefore ensure our business remains commercially viable.

Some of us run small businesses and some large. Each will have their own associated costs outside of time:

• Licensing?
• Staff
• Systems/technology?
• Location?
• Capacity?
• Premises and running costs to mention a few.?

Despite us being pro fees, we do feel there is a fine line that mustn’t be crossed. What is fair is fair.?

No one should be expected to pay upfront fees to any broker/packager to assess a case just to see where it fits. That’s the free part - a free initial assessment of the case to find the most suitable lender is important to see if the case “has legs”.?

If though, having had the case assessed and terms issued and the client decides they would like to proceed, why should an appraisal/application fee not be applicable at that point?

Of course, the level of fees charged upfront should vary.? Simple applications should generate a smaller upfront fee whereas more complex applications warrant a higher upfront fee.??

The fee level itself should also vary from region to region. Some businesses will set their fees based on the going rate in the open market whilst others will set them based on their cost base (i.e. if they have a large payroll and offices to maintain, this may influence their fee structure).

As mentioned above, every business will have costs associated with running their business and providing their service.?

With this, we have explained the top 3 reasons why we believe charging fees is essential to broking.?

Let’s talk about refunds?

Honest and well established brokers and packagers who understand the laws of packaging, will happily refund upfront fees s

→ A down valuation

→ Negative findings on the property inspection

→ Something out of the clients control that may cause themselves or the lender to abort the transaction

As long as there is transparency in your fee structure, i.e. you detail what is to be charged and when, and as long as the fees are not excessive, then you are justified in charging an upfront fee if you have a refund policy.?

The choice is yours?

This debate does not have a right or wrong answer. What we hope to have put across to you is that the choice is yours.?

Whether you choose to waive the fee to your client as a sales incentive, or you choose to charge, the decision is yours. You are running a business and what you do within that business is down to you.?

Fee or no fee, the common mission we must all share as brokers is to achieve the best possible outcome for the client.? The value is in the service you deliver and the solutions you provide.?

If you achieve the best result for your client and they have paid for that service, then that is money well spent in our opinion.? Regardless of your views on charging fees, if the client is willing to pay and is happy with your service then everybody wins.

How would you proceed in business following this debate? Which side of the fence do you sit on?

Working with GMSL means you can split the fee with us and we do all the work! If the case is too complex or not within your area of expertise, lighten the load by working alongside us. Your trusted specialist master broker.?

We have brokers and introducers earning from ￡5,000 to ￡26,000 per deal in commission from referring business. I might add that not all the fees earned are billed to the client. We have preferential rates and commission structures directly from the lenders meaning that wherever possible, we try to reduce the client’s fee (or completely remove it) if the lender highly compensates us.?

You win. We win.?

Reach out to our team to discuss any case stuck in your pipeline today.?