Brokers charging a fee – should they?

A broker charging a fee-for-service/advice is a hot topic of conversation at the moment so I thought I’d share my insight. [note: I am talking about charging a fee for advice in addition to receiving a commission – not in replacement of commission]

I think that until a client has to reach into their pocket and pay you some money you really don’t know if they value your advice and time. At the moment a mortgage broker doesn’t have to charge a client a fee and I think that’s a double-edged sword. Obviously, the benefit is the service is free which makes it easy to sell. On the other hand the downside is that the client doesn’t necessarily have to consider the value you provide. Research (as discussed in a great book, Predicably Irrational – highly recommend) suggests that two price points; free and 1 cent – are perceived as completely different by most humans – even though the difference in dollar terms is only 1 cent.

Also, I believe that charging a client for advice increases a brokers’ self confidence in the value they deliver as a broker. Good brokers deliver heaps of value and I think many brokers underestimate the value they provide.

For this reason, I believe charging a fee for certain services is a good thing – not because of the incremental revenue but because of the stronger relationship it creates with clients. It forces the client to recognise the value you provide. And it forces the broker (you) to clearly communicate their value proposition. This result is a stronger (stickier) client relationship. The downside of doing so in this environment is the extra compliance with NCCP – providing a credit quote, etc.

If we start charging fees we’ll look more like professional advisors and less like sales people. What’s your experience?