Your independent broker? Maybe

Is your independent mortgage broker really independent? According to the rules set down by the Financial Services Authority (FSA), a broker is classified as independent when offering a fee-only service (avoiding any conflict of interests that may arise from the commission brokers earn from lenders) and when that broker represents the whole of the market.

Why, then, do so many mortgage brokers, legitimately calling themselves independent, offer only a fraction of the mortgages on the market? The problem begins with networks; umbrella organisations which help smaller brokers to cope with a diverse market which - in the case of mortgages - spans 4,000 loans from 120 lenders. Networks will often offer a more manageable 'panel' of lenders for its brokers to choose from: Sesame, a big network, offers them the option of covering the whole 120 lenders on the market or working from a panel of 17. Legal & General runs a mortgage network with a panel of 20 lenders for about 100 broker firms. In both cases, the brokers using these services are allowed to be called 'independent'.

But does this really still count as independent advice? It does according to the FSA, which only needs to be satisfied that the broker or network is representing the whole of the market, not necessarily covering all of it.

It is a system that has its critics. 'The FSA has allowed companies to claim that they offer the entire mortgage market provided they can show their panel is representative - maybe with as little as 17 lenders,' says Simon Hughes, of Conran Financial Services, in London, which operates panel-free. 'It is far easier and cheaper for a broker to limit the number of mortgages available: there is less research to be done and they can also reduce staff training. Great for lenders and brokers, but not for the consumer.'

More confusing still, some mortgage broking companies which have opted not to be classified as independent may in fact represent more of the market than those that are classified as independent. London & Country, a firm of mortgage brokers which decided to forego its independent status, preferring to operate on the commission-only basis favoured by its customers, placed business with 77 different lenders last year - three times the diversity of 'independent' brokers using the Legal & General panel.

'The truth is that it's down to semantics and the FSA's definition of independence,' says James Cotton, of London & Country. 'In this case, the whole of the market doesn't mean what the person on the street thinks it means.'

Robin Gordon-Walker, a spokesman for the FSA, appears to acknowledge that all is not as it seems in the world of mortgage sales. 'You can offer the whole of the market, but not be independent. You can also be independent while not covering the whole of the market.' He argues that while Legal & General may only offer 20 lenders (though it does give brokers the option to secure a mortgage outside the panel, something not allowed by all networks), the lenders it represents are some of the largest. 'The big 12 lenders may well cover 70 per cent of mortgages, so in that sense it is representative,' he argues. 'There isn't much point having a small lender on your panel that you only use once a year.'

The fact that the top 12 do have the market sewn up is not surprising if the networks continue to rely so much on the bigger lenders, and the FSA is happy for this to continue. Melanie Green, from Which?, the consumer organisation, believes it is a mistake to ignore the smaller lenders. 'Our experience is often that smaller lenders tend to have the better deals and it's important to have access to them,' she says. And while mortgage deals offered by high-street banks with big marketing budgets are easy to hear about, isn't it precisely the smaller lenders that we expect to hear about from our independent advisers?

So how should you check if your mortgage adviser is truly independent in the dictionary definition? Hughes recommends the simple expedient of asking. 'The broker does have a legal obligation to tell you. Ask if your broker is a member of a network or offers mortgages from a panel of lenders. If they say yes, you can be assured they cannot cover the entire UK market, albeit that they are allowed to say that they do.'

'People are pushing the merits of independent advice,' adds Cotton, 'but when independence doesn't necessarily mean independent advice, it can be misleading.'