‘Treating Customers Fairly’ (TCF) does not look like it is going to be a soft option or something that brokers can just choose not to do.
In the last few weeks we have seen a number of questions being raised as to what the industry is doing to combat financial crime. We also have seen industry figures state we should name and shame the worst offenders.
The Financial Services Authority (FSA) has also joined in and has become more vocal in how it is going to clamp down on brokers that do not implement TCF; it is also clear that fines look likely to increase until the penny finally drops.
In the post-credit crunch world, fines are something that we will be less equipped to pay, as not only are we seeing less activity in the mortgage market, but for many brokers the amount of money they are earning through procuration fees is decreasing due to the demise of the non-conforming market.
This can then become a real issue as there are also fewer clients at a time when your activity needs to increase due to lower fees.
A tool to help your business
All this is well and good but I am not sure TCF was designed to be a big stick to hit people with. Yes, of course, you need to be even more vigilant than ever in looking after your clients.
But – and it is a big but – TCF is not just something you should do because it has been dictated by the FSA, but is something that will actually help you retain clients and get referrals. TCF, if used wisely, is a tool that will help your business to grow.
Most good firms of brokers are no doubt treating their customers fairly, in the true sense of the expression, already. The FSA initiative just means that you have to formalise the process and there is a lot of advice in the market as to the best way of making sure you are compliant.
The process isn’t rocket science; it is just a case of thinking of how you would want to be treated as a client. If necessary, take advice to make sure your procedures are robust.
The sales part of your process should lead you down the path of what extra things you could do to make sure that your clients would not only want to come back to you in the future but would also recommend you to their friends, family and colleagues. By taking this approach and putting TCF at the heart of your business, you will actually help your business to grow, or at the very least, help it to prosper during these more difficult times.
At Linear we decided to agree on a ‘Customer Charter’ which consisted of ten ‘golden rules’, which would accurately describe our culture and our ethics in a relatively concise format.
Our biggest difficulty was trying to keep the number down to just ten points. We then tightened our sales procedure and the checks that we carry out to make sure that our process is as water-tight as possible and rolled it out to our staff.
Back to basics
In a number of ways, TCF brings back many of the procedures that used to be in place before leads were easier to come by.
Doing basic things such as following through on commitments you have made to your clients – in other words actually doing what you say you are going to do and making sure you are clear about any follow up actions you have agreed, such as carrying out six months reviews regarding life assurance needs.
By applying these really basic TCF principles not only to the clients you complete business with, but also those who you could not help at the time, you will not only meet FSA guidelines, but should also find that you have a warm source of new clients on a rolling basis throughout the year.
The ‘factfind’ has become sacrosanct, in that any information you record is your personal footprint regarding TCF. You are making a commitment to act on that information, not only today but for the future as well.
Making our clients feel the sales process revolves around their best interests as opposed to ours, dispels any thought of distrust at the outset. This creates the right environment to discuss all the client’s needs, not just the mortgage, and over time it will help to dispel some of the more negative perceptions of our industry.
Remuneration
Exactly how mortgage brokers get remunerated, has been an ongoing discussion for years and this also has the potential to come under TCF, although the ethics of brokers receiving a procuration fee versus an introducer fee were discussed well before TCF was introduced.
The national media in particular has never been a fan of procuration fees feeling that a broker may be influenced by high procuration fees and would therefore give their clients a mortgage from a less suitable lender because they pay a higher fee, rather than giving their client best advice and receiving a lower fee.
However, in reality there is not a great enough disparity between the amounts that different lenders pay for this to be an issue. The really contentious issue was the procuration fees for non-conforming cases that used to pay so well. As these cases are becoming less of an issue as each day passes, arguments against procuration fees are on more shaky ground.
Upfront fees are not a realistic alternative as few potential mortgage borrowers are prepared to pay an fee for their mortgage advice; more usually borrowers expect to be able to meet with an adviser and get advice without it costing them anything, so you could argue that taking away the procuration fee would actually result in more borrowers taking out inappropriate mortgages as fewer would seek advice.
Whatever your point of view, one thing is clear: following TCF guidelines makes a clear statement that the advice given and the decisions taken are in the best interests of your clients. Transparency in declaring what income you will earn from the provider will further dispel any myths that your business is just there to make what it can from clients.
TCF is a tool to prove that best practice is carried out and best advice given and can be used to increase your clients’ confidence in you.
The first deadline is looming large on 31 March and your management information must be up to scratch. Even with the necessary procedures you need to follow there is no reason why you should not embrace the changes that TCF brings to your business.
Regulation should not been considered as just administration or a hindrance, as it will create sales opportunities that can be utilised in what are turning out to be difficult trading conditions.
