We’d be treating all the population fairly. While this rather communist theoretical scenario may have its merits, it is, of course, riddled with problems, as is ‘Treating Customers Fairly’ (TCF).
For a start, brokers are in business to make money. Any business school would teach that the objective is to maximise the profit gained from each customer. A bit like lenders offering great deals for new customers only, or keeping clients and brokers on revenue earning 0870 numbers.
Now, when we arrange a mortgage, we have to state pretty early on what we intend to charge. The charge is for two things. The advice on what the best rate, term, and repayment method is for the client, and the actual processing of the proposal. Most of us have experienced cases where the application has flown through and others where it’s been a complete nightmare, possibly with no remuneration at the end of it all.
So, we set our charge – commission and/or a fee – before we have any real idea how much work is going to be involved. The answer could be to simply charge an hourly rate and send the client a bill at the end, a bit like an accountant. But while this may work for a small number of clients and brokers, I can’t see it catching on. So we set a fixed cost and cross-subsidise the bad with the good.
Then there’s another problem. The client earning a £100,000 per year, wanting a £350,000 mortgage on his million-pound house is likely to be far less work than a first-time buyer wanting 90 per cent loan-to-value on a £200,000 purchase, at five times income. So surely, to treat both fairly, the first-time buyers should be charged a big fee on top of the mortgage ? Rather contra-Robin Hood. Or perhaps we could sell the first-time buyers some extra products to boost the profitability of the transaction, say an endowment or an accident, sickness and unemployment insurance policy?
I’ve yet to see a business model that can treat all customers fairly, although there are plenty of models that treat all customers equally unfairly.
To paraphrase George Orwell’s Animal Farm, all animals (customers) are equal – some are just more equal than others.
Yours sincerely
Paul Ormerod
Caliber Financial Management Ltd
download our news ticker
get the daily news delivered to your inbox
find the latest industry jobs
