Fee Charging For Beginners, Should Mortgage Brokers Charge a Fee And if so, How do we Break The Newsgary
Although about 80% of mortgage brokers who talk to us now charge a fee, there still seems to be some debate on the best way to pass this information on to a client. Whether or not to charge fees at all is still a very personal matter with some advisers fiercely opposed to it, whether on moral grounds “We already get paid a proc fee and insurance commission” or fearing that it might cause a reduction in business “Why should people come to me for a mortgage if they can walk into a bank and get the same mortgage for free?”
From experience I’ve found that with some people the moral argument is almost impossible to veto. All I can say is that since almost all other professionals tend to charge a fee, solicitors, accountants, mechanics, vicars (for weddings), the question isn’t solely a mortgage broker one but applies to all professions. All, most people are actually questioning is the make up of the total charge in which case, why would part of it being taken as a fee be any worse than a retail mark-up on apples or cars? The second part of the argument for charging a fee of course is that in order to maintain a healthy business, the figures have to stack up and unless a business has access to large amounts of high net worth mortgages or very high volumes of lower level mortgages then that business is in danger of being unsustainable with its clients then losing that avenue to advice which might well amount to many of them paying thousands of pounds more for their mortgage than they need to or even worse not being able to buy the house they need at all!
In terms of fee charging and client retention I think the argument is much more straightforward research across many professional services, not just mortgage broking, consistently indicating that clients are much more likely to act on advice that they have paid for, rather than advice they have been given by someone who they could perceive as “a salesman”.
Having spoken to literally thousands of mortgage brokers over the years Which Network has been in business shows that it isn’t so much a case of the right way or the wrong way to structure a fee as whichever way feels the most comfortable to you and works with your clients is the right way. The two most common forms of fee charging however tend to be either in two stages with an initial “administration” payment of between £50 and £200, followed by a final fee charged either on offer or on completion of the mortgage. Again, the following figures are only the most popular range and I appreciate everyone is different but looking at feedback from our clients, this tends to be somewhere between £250 and £495 for most “standard” mortgages and £350 to £750 for complex situations such as buy to let or where a client has some adverse credit history. This is only the broadest of guidelines however and providing the FCA would regard your charges as reasonable, as I mentioned earlier in the article, whatever works for you is right for you.
What you might not realise though is that research has also shown that how you write a price down has a huge effect on how that figure is received and generally the shorter and less punctuation in a price, the better it is received i.e.
With the above totals about 60% of people would perceive the top figure to be less than the other two. I suppose one logical factor in this is because of the way mathematics works generally we’re conditioned to think a longer number is bigger?
The other area of the research was anchor points in pricing. By this I mean that if you look at the figures below
Not only would most people go for the middle figure since often unconsciously we tend to consider this as not too high and not too low but, in a test, where this was 80%, because of the structures of the other numbers, 15% actually went for the premium price with only 5% going for the lowest price. I can only think this has something to do with the .80 VS .20 scenario subconsciously registering with us.
And finally, if you are charging for two services at once, the individuals researched were much happier to pay when there was a price differential between the two prices
- £250 + £250
- £320 + £180
Considering the above case for example the set B) totals appear to be much more acceptable than the set A) totals. Although I must admit as some people reading this will have noticed since this effect is a lot more subtle than the other issues above I have also cheated a bit by adding beneficial anchor points into the set B) prices.
So now hopefully this will help you to make the decision regarding the jump to fee charging, should you decide that is the way forward for your business of course or if you’re already there, give you some idea on how to make the process as painless slightly less painful for your clients.