Until 2013, the client’s advisor was paid by the mortgage provider from the interest paid by the client. Since then, the client pays a fee for the advice to the consultant. The purpose of this is to increase transparency about the costs of advice and about the costs of the mortgage: customer interest is key. Even though the consultancy fee is in many cases deductible for income tax, it is still a substantial expense, in practice often an amount of € 2,000 – € 3,000 for a new mortgage (Dutch borrower, Dutch lender).
The market asked for an advice product without advice. That sounds contradictory. From the supervision of financial services and from a process that is designed as efficiently as possible for mortgage lenders, a number of steps are taken with regard to customer identification, the collection of evidence (for example, employer’s statement, valuation report) requires the use of a financial adviser. As customers take a greater role in collecting and registering that necessary data and documentation, the role of the financial advisor is limited to “pass-through”. The advisor only checks for a minimum number of points determined by the legislator, which means that the amount of work per transaction is considerably less than “normal” and therefore the rate for this service can be considerably lower than the above-mentioned range. This type of service is called “execution-only”; the customer does a lot himself, including the selection of the mortgage lender and thus saves on transaction costs. Life is expensive enough, especially if you buy a new home!
Evidence is growing that unfortunately not everyone is able to bear that responsibility. The process is – with all due respect, those electing to do it are not stupid – simply not easy, contains many details that cannot all be attributed to an interest rate but can make a lot of difference at a later stage of life and there are dependencies on others parties in the process that can result in you not meeting deadlines in the purchase contract, resulting in major damage. Two examples:
- Because the renovation may turn out to be more expensive and there is room in the value, a customer increases the mortgage by € 50,000. If the costs are better than expected, she wants to be able to repay the unused space without penalty. Still annoying if you find out after the signature that your hip internet bank does not allow anything penalty-free and you have chosen a fixed interest for 20 years.
- A consumer who did not match the validity period of his mortgage offer to the transfer date cannot recover the damage from his broker. The mortgage was concluded on an execution-only basis, so according to the Dutch Kifid complaints institute, the brokerage firm had no obligation to point out the error to the client.
Unfortunately, there are many similar stories. A small chance with a big impact can still take a bite out of your financial future.
Sad is that the difference between feeling confident and gambling is small. Imagine you save € 1,500 reimbursement without advice (on balance you pay € 1,000-1,500); due to the tax effect, a cost item of up to € 1,000. You must have earned this back on average after 7 years (in which many homeowners will continue to flow) or a cost item of € 12 per month. I don’t have to think about that cost for long.
We take our role as advisor seriously. Customers without experience and qualified advice (also fine if done by another professional) must go to someone other than Your Financials for execution-only.