COVER FEATURE
20
A duty of care to clients
‘‘
Claims management
is the right product
in the present
uncertain economic
environment
CARL WRIGHT
DIRECTOR
CARTEL CLIENT REVIEW
In the past two years we have been at the forefront
of a dynamic emerging market in the financial
services world. This market has caused a wave of
excitement among brokers, independent financial
advisers and lenders.
The mortgage intermediary market is on its knees and
lenders are determined to polish it off with tactics such as
dual pricing. Such actions by lenders are greeted with
alarm by intermediaries at a time when their survival is at
stake. The claims management services offered by
companies such as ours offer a lifeline. Claims
management is the right product in the present uncertain
economic environment.
But we must nurture this market through its early
years, especially as some unscrupulous companies in the
field have attracted the attention of the Ministry of Justice
and the Office of Fair Trading as a result of their misleading
promises to consumers. Thankfully, the MoJ and OFT have
issued a joint statement declaring their intention to close
such firms.
While this market offers intermediaries a new world of
services and enables them to fulfil their duty of care to
clients, the broker community has to combat a serious
conflict of interest.
Mortgage networks are trying to stay afloat and avoid
falling into administration. Central to their survival is
maintaining their relationships with lenders. This has
recently been laid bare in letters being sent out to
intermediaries by several networks, pleading with them
not to offer claims management services to their clients.
This tactic is particularly outrageous considering that
some brokers have not been paid their commissions by
networks for up to four months.
Brokers are not stupid. They know that their first
allegiance is to their clients, not to networks and not to
lenders. If their clients are entitled to make claims and
seek redress, brokers will seek to assist them. They will
not be intimidated by any tactics used by networks or
lenders to persuade them otherwise.
And as many networks disappear from the financial
services landscape in the coming months they may
wonder why they didn’t adapt to the changing market
instead of marching to the beat of the dinosaurs.
It is important for intermediaries entering this market
to understand that claims management and debt
management are different solutions to different problems.
Claims management should not be seen as a solution to
debt problems. Both sectors are here to stay and will be
accommodated within the broker market.
The lack of mortgage products has created a huge void
for intermediaries and claims management is filling this.
The genie is out of the bottle and it can’t be put back so
ensure you fulfil your duty of care to your clients.
Carl Wright, director of Cartel Client Review says if firms trying
to enter the market are not successful it is down to resources rather
than lenders not wanting to admit their mistakes.
“We have an expert panel of solicitors and barristers – it’s
impossible for just anyone to turn up and be successful in this
market,” says Wright.
Cartel considers complaints relating to mortgages, secured loans,
car finance, credit cards and unsecured loans. But Wright is
reluctant to reveal specifics about how he has won claims for clients.
With so much competition in the sector he says firms that are
successful do not want to give others a helping hand.
Wright believes lenders will eventually have to accept the
existence of claims management firms and also that those networks
that do not embrace them will not win favour with their members.
“There’s an opportunity for appointed representatives to make
money and networks should be looking out for their ARs rather than
lenders,” says Wright.
A number of networks are understood to have told their
members in no uncertain terms that they do not condone the use of
claims firms. This could be down to a fear that such firms might
eventually halt new lending from lenders as their funds are taken up
by paying claims. Wright dismisses this worry and describes the
amount lenders are paying out as a pinprick on their balance sheets.
“The debt management industry has more of an impact on
lenders’ books than claims management,” says Wright. “And yet
networks don’t seem to have a problem doing business with debt
management firms.”
Intrinsic is one of the networks that does not offer claims
management as part of its proposition.
“Our members are with us for the financial proposition we
promote and provide,” says George Higginson, managing director
of commercial development at Intrinsic. “Claims management is not
part of our proposition. We say if advisers want to be involved in
that it’s got to be independent from us. It’s not covered under the
terms of our regulatory status and neither is it covered under our
professional indemnity insurance.
“If brokers want to do claims management they must do it
correctly and obtain independent cover.”
It’s not just an issue of regulation. For many networks, it’s also
a question of whether it is morally right to go after the same lenders
that provide their income.
“We don’t believe it’s appropriate that as a financial services
network selling products for major lenders we should initiate claims
against them – that’s a bit hard to swallow,” says Higginson. “If you
speak to any adviser at the moment you will find the one thing they
want is for lenders to be strong and able to provide funds to lend to
clients. I’m confused about how suing those lenders is going to help
in that regard.”
Lenders have yet to go on record as saying they will stop doing
business with brokers or networks because they also facilitate
claims management services but it’s obvious they are not overjoyed
about paying brokers’ commission with one hand and paying out for
claims with the other.
Mortgage Next is one of a number of networks that have advised
members to be wary when considering working with claims firms.
Gemma Harle, managing director of the network, warned brokers
at a recent conference to think carefully before going down this road.
“Some brokers seem to see claims business as a good source of
income but not only is this a case of biting the hand that feeds them,
they should also ask whether it’s worth risking the wrath of clients
they are seeking to help if it all goes wrong,” says Harle.
“Clients will grasp at any straw to help them out of their current
situation but even successful financial claims can take a long time
to be processed. Brokers should not regard claims as a crock of gold
because they’re not.”
Networks are in a no-win situation. If they go against lenders
they risk losing exclusive deals or business but if an increasing
number of their members want to do claims management they may
have to reconsider their position.
“We do not recommend this service at the moment although I’m
aware that some channels do,” says Sally Laker, managing director
MORTGAGE STRATEGY April 6, 2009
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