Friday, October 24, 2008

Past Confessions, Comparison Websites and Mortgages

One of my previous employers was a company called Moneyfacts, a financial data provider who were in the business of gathering and selling information relating to financial products (mortgages, savings, loans & the like). It gave me a few unique insights into various aspects of the consumer end of the financial services industry that I thought were worthy of posts.

Moneyfacts began it's life in the late eighties as a regular newsletter listing all the mortgages/savings accounts and loans provided by the major banks and building societies. As the range of products expanded, the publication grew from a being a small newsletter to become a serious of monthly magazines, eventually backed up by comparison websites. They also provided best buy tables detailing the best products in certain categories. What I'm going to cover in this post is the role of comparison sites in the sale of mortgages.

By the time I came to work there, Moneyfacts had been eclipsed by several competitors, notably MoneyExtra and MoneySupermarket the reason for this was due to a business model (Moneyfacts eventually went the same way) based on selling customer leads to mortgage brokers*, it works like this.

The customer searchches for a mortgage, entering the criteria they are looking for, on the subsequent results screen is a list of matching products. Next each mortgage is a Proceed button, clicking it takes you a screen where you can hoose to contact the lender direct or to speak to a third party mortgage "expert" (a broker).

The brokers themselves would bid for specific leads. The winning broker would receive details of the website applicant and attempt to sell a product roughly in line with what they specified on the website. The expansion of comparison websites lead to a huge increase in the number of mortgages sold through brokers including some of the more questionable mortgage products.

I'm not particularly sure if there's anything particularly wrong with this business model. IFA's have been around for years although the comparison websites seriously increased the amount of business they received. As far as solutions go, I'm not sure, the big problem is that a lot of IFA's are more like salesmen selling products from a specific range of providers rather than actual advisors they have to be transparent on commission, but I wonder if this is enough.

As a start, I think it's important that sales staff on commission are no longer referred to as Independent Financial Advisers, both the "independent" and "adviser" words are misleading and should be reserved for people who genuinely provide imartial recommendations for a fee. This will do far more than putting this information on a "Key Facts Statement". Further to this, I think that the comparison websites should follow up on this and make sure that consumers are made clear that they are being sent to sales people, not experts. This may clip the wings of some financial businesses but is, I think, necessary to restore that finance remains honest.

* By a mortgage broker, I mean an Independent Financial Advisor (IFA) who sells mortgage products.


Paulie said...

Maybe I'm missing something here but the problem seems obvious to me?

Surely the idea of an IFA is that the build their reputation by referral and they have to be seen to understand your whole situation and act in your interests?

Andreas Paterson said...

Traditionally, IFA's worked like solicitors in that they offered you their time and advice and recommended products to you.

More recently it's changed so often they work on commission. They don't directly charge you for their services but when you finally sign up for a pension, mortgage etc they get commission. For mortgages it's a fixed fee, for pensions it's a percentage of your contributions.