Big brokers making ‘silly money’ blamed for FCA property commission crackdown

The Financial Conduct Authority wants a near ban on brokers sharing commissions with property third-parties and full commission disclosure, so leaseholders can have more powers.

A probe into 13 brokers and three firms in the wholesale market found widespread market failure, with ‘large’ commission being taken and leaseholders with few rights getting nowhere near value for money. 

Artemis Insurance Brokers managing director Ketan Patel said the problems in the market lay with the ‘big boys’, who had been making ‘silly amounts of money’. 

We all know the earnings they’ve been accustomed to, and on top of that, they charge fees.

Ketan Patel, Artemis Insurance Brokers

He said: “They are all making silly amounts of money and it is both parties – the managing agents as well as the brokers.

“We all know the earnings they’ve been accustomed to, and on top of that, they charge fees.”

Patel said he can’t even get property managing agents to sign up with him – despite offering lower premiums which could benefit leaseholders – because the bigger players give away so much commission.

He said: “I’ve tried to pick up some large portfolios and I know I’m never going to get them. I’ve never been able to pick it up because the managing agent is tied in with those brokers.”

Tip of the iceberg

RC Hodson Insurance Services founder Richard Hodson said community brokers simply didn’t have the premium to play in the game of large profit sharing on commissions with property intermediaries.

He added: “The premium isn’t there. You are talking about four, six, maybe £10,000 depending on the size of it. There wasn’t the commission there to mess around with.

“I’ve never been a massive fan of the area. To me, I always thought it was quite corrupt.

“I would now have a lot of my former colleagues who dealt with property who will be up in arms about this.

“They’ll say ‘it’s just the way it was. It’s just the practice. That’s how we did it’.

“But the big brokers were taking the mickey.

“I think this commission sharing is just the tip of the iceberg in many ways on some of the commission deals which have gone on in the past.”

Seventeen Group chief executive Paul Anscombe said the issue at stake was around how much work the property intermediaries did to earn their profit share of the commissions with the broker.

He continued: “I think it is about work transfer. If there is real work being done, then there is a case for sharing remuneration or having a fee charged for work done.

“But I think the principal of taking it away entirely kind of simplifies matters. It takes brokers out of the position of having to discuss those thorny remuneration splits, so it certainly makes it simpler in that sense.”

FCA deadlines 

The FCA wants the insurance industry to respond to its findings by 9 June.

The final rules will be published in the third quarter of this year. Insurance firms will then have three months to implement them.

FCA executive director of consumer and competition Sheldon Mills said: “We want to give leaseholders more rights and the information they need to exercise them. “Importantly, under our proposals, those selling multi-occupancy insurance will have to act in leaseholders’ best interests.

“Our review revealed large commissions paid by some brokers to freeholders and third parties, like managing agents, with little evidence of any value added to justify these payments. “We are taking action against these practices and we won’t hesitate to take further action if brokers don’t comply with our rules.”

Biba has defended broker earnings, citing the FCA’s own report in its arguments.