Proving compliance with Consumer Duty: Fair Value

So as a broker, just how do you demonstrate that you offer fair value to your customers? The Financial Conduct Authority (FCA) states that it is not anti-fee, but does expect to see that what you charge is clear and fair for the work that you do.

If you are an Appointed Representative (AR), there may already be a cap on the fees you can charge, and perhaps also the maximum commission you are allowed to earn when comparing a remortgage to a second charge, for example. Your network should already have done a lot of the leg work regarding lender and packager fees to ensure that all charges are fair.

For those who are Directly Authorised, there is generally far less support available. If you choose to engage a consultant or oversight compliance firm to review your processes, you can at least demonstrate this as evidence that you are reviewing your fees. But without this, what evidence can you provide to justify your fee structure?

Whatever your business model, you need to be able to demonstrate to the FCA that you offer fair value. To do this you probably need to know a lot more about your local market and your competitors than you did previously. The fees you charge must also be consistent across all comparable cases.

In the specialist market, lenders have already started keeping a log of packager and broker fees. This data is being used to generate league tables which demonstrate fair value due diligence across their distribution panels. As a broker, it could be commercially disastrous to find yourself at the top of a league table - or, indeed, to be removed from a lender’s distributor list because your fees are higher than your peers’.

Fixed fees could be the way forward. Percentage fees which claim to cover additional costs such as the valuation where an AVM has actually sufficed, or legal fees where lenders’ in-house teams are engaged at no additional cost will be very difficult to justify going forward.

Consumer Duty is an opportunity to demonstrate your professionalism in the same way, as you record your evidence of research and rationale for the recommendations that you make.

Whichever business model you use, or market sector you work in, being consistent and capable of demonstrating why higher fees have been charged for a certain cohort will be crucial. If more work is required to assist certain consumers, document it. If you chose to charge an upfront fee based on the amount of research work that a case will need, document it.

The consumer is paying for your professional services, so make sure your records accurately show what you are charging and why on a case-by-case basis, and a product-by-product basis.