How will 'fair value' affect adviser fees?

In the weeks and months ahead you’re going to read a lot about ‘fair value’ and what it means across financial services, but specifically, what it means in the mortgage advice space.

Under the up-and-coming Consumer Duty rules, regulated firms are expected to ‘undertake fair value assessments as a way of demonstrating if the price a consumer pays for a product or service is reasonable compared to the overall benefits they can expect to receive’.

There seems to be a basic assumption here, and not just from consumer groups, that a fair value assessment of the fees advisers are charging clients is going to come up with a result that fees are too high and need to be cut.

In fact, and this might be particularly pertinent for mortgage advisers who are charging fees for their work, a fair value assessment might actually reveal that the fees are not too expensive and, for the work involved, etc, they could/should actually be raised.

Now, of course, not every mortgage advice firm charges client fees and, while it is more common in specialist sectors of the market such as later life lending, that’s not always the case for the mainstream which relies more heavily on procuration fees and commission.

However, many firms do charge fees and as long as they are able to justify the service they charge and that the fee is commensurate with that work, then there seems little doubt they should be able to continue doing this.

What we may actually find though for many fee-charging firms is that their fee structure hasn’t moved much over the years. A firm still charging the £400 it did back in 2016 might wish to determine whether they should still be charging the same amount now, particularly given the likelihood that their costs within the business will have risen – perhaps significantly – since then.

One area of the mortgage market which might require a thorough review of fee-charging is that of product transfers. We’ve talked before about the disconnect between the amount of work required by advisers now before you get to a PT recommendation, and how almost all lenders are not willing to pay the same procuration fee regardless of that.

In terms of charging the client a fee, firms might still be approaching this in the same way. Do you charge a lesser fee when the recommendation is to stay with the existing lender?

Perhaps that is based on a past where the PT was often deemed to be something of a last resort for the client, if you were unable to remortgage them away to a better rate? PT rates tended not to be at the keener edge, and as a result, the adviser might have reflected that in less of a fee.

However now that PT rates are at least as competitive as other remortgage rates, the option to stick with the existing lender is much more likely. But, as advisers will know, you only get to that recommendation by doing the same amount of work as for any other remortgaging client.

You can only know the PT is the most suitable, if you’ve carried out your factfind, researched the market, gone through the alternatives with the client, taken all the steps necessary to justify your recommendation etc. And, while some advisers might still feel like they are somehow short-changing the client by recommending the PT, this ‘adviser guilt’ should not be the case.

So, when assessing the adviser fee you charge – whether it is for a purchase, remortgage, PT, etc – make sure you are fully taking into account all work involved in getting your client the product they want, need and is most suitable for them. A PT recommendation does not necessarily mean the adviser fee gets discounted, neither should you be frightened of upping your general fee if you feel your work justifies it.

‘Fair value’ is going to be different to each adviser and firm, depending on a whole host of circumstances, costs, resources, etc – accurately done an assessment might well point the way to a reappraisal and that doesn’t necessarily have to mean a cut.