Should there be a formal lender-client contact agreement?

Should there be a formal lender-client contact agreement?

JLM Mortgage Services has queried whether the time is now right for lenders to enter into a formal client contact agreement in order to ensure advisers are not cut out of the process by lenders contacting clients directly, seeking to renew mortgages without the provision of advice, and cross-selling other products.

The mortgage and protection network believes that, with intermediary distribution now delivering 80%-plus of all mortgage business to lenders, there needs to be a formal agreement in place which means lenders highlight the original adviser to the client and encourages them to secure ongoing advice and the protection it affords them.

It wants to see lenders signing up to such an agreement and committing to a process which not only directs clients back to the adviser but also means they provide client information and details to the adviser prior to any product renewal.

JLM says that a number of lenders are increasingly attempting to remove adviser influence by contacting clients up to six months before their deal ends, offering direct-only products via a tick-box format, waiving early redemption charges, and providing other incentives.

It says clients are tempted by such deals because of ease of change however lenders are not making it clear that advice is not being provided and all forms of client protection will be lost by such action. It wants to see an agreement in place that lenders will commit to doing all they can to keep clients with their original adviser to ensure a full advice service is provided and that a client’s full needs and circumstances are taken into account.

JLM argues that a client can opt out of this process but the lender should ensure they are made fully aware of what is being given up if they decide to opt out of advice.

JLM is calling on the network, mortgage club and distributor community in particular to take the lead in delivering such an agreement, arguing that many of the larger players have the power and influence to persuade lenders into committing to such a formal approach to client contact.

Sebastian Murphy, the network’s head of mortgage finance, said: “In our view it’s time to put to bed the age-old argument about who ‘owns’ the client, not least because the vast majority of lenders now receive the vast majority of their business via the intermediary channel. Instead of potentially going head to head with the adviser for repeat business, we are suggesting a much more collaborative approach, one which fully recognises the source of the initial business – the adviser – and seeks to keep them, and the provision of advice, at the heart of the relationship.

“Clients are often completely unaware of what they are getting themselves into when ticking a box to change products, or opting to go ahead with a cross-sale; we would therefore like lenders to work with us, refer clients back to their adviser and ensure they have the right deals for their current needs and circumstances. A formal agreement and commitment from a lender to do this would go a long way to ensuring client protection and sends a clear message that advice is right, proper and necessary, and it is the original adviser who is best placed to deliver this.”

Rory Joseph, director of JLM Mortgage Services, added: “If clients do not wish to return to the original adviser that placed the business then that is clearly their choice and they are well within their rights to go direct to the lender or use another intermediary. However, we would like to see that choice presented up-front to them by the lender, and one way they can do this is informing both the client and adviser about up-coming renewal opportunities and showing a clear route-map back to the original adviser. It is then up to the adviser to make contact, and the client to make their decision.

“We believe that it is the distribution sector – particularly the larger network and mortgage club players – that are in the strongest position to drive the introduction of such a formal agreement forward. After all, the levels of business and the strength of their propositions could be particularly persuasive and should send a message to their own member firms that they are on their side, and committed to keeping business with them. This collaborative approach is certainly the one we will be seeking from our lender partners and we believe others in the mortgage market can give their backing to a more formal agreement which will provide clear benefits for all by, where possible, keeping clients with their advisers.”