The problem or otherwise of ‘dual pricing’ needs to be analysed from a consumer perspective.
The majority of lenders, intermediaries and their respective trade bodies are failing in proper analysis of this paramount task. There is a real danger of polarisation between lenders and intermediaries, with both having strong business cases, both for and against the practice.
From a lender perspective, eager to control quality distribution channels, in a limited lending market and conscious of the need to retain staff, not make redundancies, whilst seeking to employ their physical and human resources to the full, provides a compelling argument. The view of UK intermediaries, financially struggling, reducing in numbers daily, facing universal decimation from an estimated 55,000 in 2007 to 11,000 in 2011, is equally powerful.
There is a clear problem for intermediaries from a survival perspective. There is a problem for lenders from a resource perspective, but respectfully and aimed at both sides – so what?
The risk in accepting either of these polar opposites is that the most important stakeholder in the equation, the consumer, the one constant factor supporting both the direct retail mortgage market and the intermediary channel, often gets lost in discussions. Of course, brokers have proved their salt and have adapted their models accordingly. Established, national brokers, offering fee-free mortgages have seen their market depleted and any perusal of trading accounts from Companies House demonstrate their fee – free business model is failing with unsustainable losses. They will not continue. It is clear to us, that customers requiring whole of market advice are willing to pay a professional fee for a transparent service and intermediary business strategies have re-focused accordingly.
National lenders offering direct to public deals have also needed to adapt. For the first time in their history, they have been forced to enter into an open debate regarding issues such as ‘advised’ versus a ‘non-advised’ service, the remuneration packages of bank staff, based on sales performance or product penetration, as well as a true assessment of the actual, real cost of client acquisition. To the lender’s credit, to obtain and process client applications at less than 0.4% of the total loan amount is no mean feat, bearing in mind they have trained and paid staff, supported a Branch and computerised network, taken on the full liability for complaints, allocated resource to deal with their volume (Santander now receive 2,000 per day) combined with the finance and effectiveness of multi-media advertising through TV, Radio and Internet have national to capitulate and revise their direct and dual price offerings.
It is no surprise that lenders whose financial models failed and are now indebted to the UK tax payer, continue to predominantly occupy the dual pricing space.
If national lenders, having assessed their own business models and decided they wish to ‘subsidise’ differential pricing – then why not? The fundamental question, has to be does the consumer benefit from this exercise.
As difficult as it may be for us as a business, we have to agree that dual pricing is good for the UK consumer. The customer deserves competition. No-one can deny them that right. They also deserve discounts where and when available, particularly in a recession, where as Tesco would “Every Little Helps!” If a lender, passes on savings to a customer due to not paying commission to intermediaries then why not? In choosing this commercial route, a lender could not possibly be in breach of Treating Customers Fairly as they are clearly benefitting the consumer.
The real concern which requires proper independent scrutiny by the trade press, trade bodies and consumer watchdogs, is whether, through the process of dual pricing and differentiation of pricing, there are in fact true savings to the client?
A customer could only truly know this with the abolition of non-advised and restricted advice services. UK customers can only assess true savings when a fully advised model applies to all. It is the only way they can make a truly informed choice given the inherent complications of comparing UK mortgage products.
As a london mortgage broker, the issue for us is not dual pricing, but dual approaches to advising and arranging mortgage contracts, as non-advised sales or advising only on the Bank’s products, creates a fundamental ambiguity for the client. To pretend clients understand when they receive no advice or advice on a lender’s own suite of products is disingenuous.
Lenders offering solely internal products and particularly when they are information based, do not make it sufficiently clear they are not whole of market. Whilst they may offer a ‘discount’ direct through Branch, this may not be the most suitable and affordable mortgage. The client may receive a saving, but if they went to another provider down the High Street, an even greater saving could be made. This cannot be right and there lies the true problem as dual pricing, may not serve the very customer it purports to benefit. It is not dual pricing but more dual approaches, with intermediaries providing an advised whole of market service based on needs and requirements and lenders being allowed to effectively offer information only.
Capital Fortune would welcome a mandatory requirement that all Banks provide the consumer with an Initial Disclosure Documents stating “There are thousands of mortgage products on the market and we offer just a small selection of our own products and only with this particular Bank. We cannot advise you generally on whether our products are the most affordable or suitable to meet your needs and we are not liable for the choice you make based on the information given, as we cannot give whole of market advice”
Such a risk warning would put the customer on clear notice of what is happening. Yes costs are reduced. Yes discounts are being provided, but despite this, the customer needs to be informed both in writing and through oral disclosure that they still may be worse off and that better deals may exist elsewhere. Until the FCA are empowered to take this bold step, will the British customer be truly enabled to make an informed choice. The ability for consumers to choose their own distribution channel, direct or intermediary, is important. The proper and full ability to make an informed choice on the actual product they are purchasing, has to however, remain the paramount consideration.
The risk of fundamental ambiguity, is further compounded by Banks using terms such as Mortgage Adviser or Financial Adviser, which in common parlance and in layman’s terms truly indicates the customer is receiving advice, when this may not in fact be the case. This practice should be outlawed and immediately.
Significant research indicates that UK Banks are not trusted institutions. The FCA has an overriding duty to promote systemic confidence and whilst it overlooks the issue of non – advised sales and the sale of own products, without proper caveat, there remains a risk to the sector as a whole. The number of complaints to the Financial Ombudsman Service is a key indicator of levels of dissatisfaction and cannot be ignored.
Dual pricing by retention or otherwise is accepted and even welcomed. Dual and ambiguous messages to the public are not.