Is there an argument for making all agents use custodial schemes?
Thursday 20th October 2011
Here is a talking point on which it would be interesting to get your feedback.
As we all know, the cost of Client Money Protection has gone up. But is there a simple solution staring us in the face?
The cost of CMP especially affects the smaller firms. For example, a one-office business in ARLA or NAEA membership pays the same premium as businesses with many offices.
There is also a lot of confusion about CMP. For example, some agents who display the ARLA logo on their business cards have CMP and others don’t.
Then there are the unregulated agents who give the impression that they offer protection by being members of the Property Ombudsman scheme, often showing the OFT badge on their headed paper, or such bodies as the Guild of Professional Agents, Guild of Lettings Agents or UKALA.
For example, agents can make much of belonging to the Ombudsman scheme, even though it offers no redress. We’re told of one agent that flags up Ombudsman membership on its website and how it is bound by its strict code of conduct.
The reality, according to a competitor, is that this particular agent has made heavy losses and currently has a black hole in its client account running into hundreds of thousands of pounds.
Of course, all insurances have increased. For example, car insurance has gone up because of accidents caused by insured drivers. In exactly the same way, agents’ CMP has gone up because of the actions of regulated agents – not the so-called rogue ones.
So, isn’t there, as we have hinted, a simple solution?
The risks associated with client money could surely be heavily reduced for agents who place all tenants’ deposits in a custodial scheme, rather than hang on to the money themselves but pay an insurance premium.
If all an agent’s deposit money were to be held in a custodial scheme (at the moment, just the Deposit Protection Service), then it would remove much of the risk. CMP would of course still be required to cover rent monies held by the agent.
But surely such an arrangement would reduce an agent’s costs in terms of premiums, spiralling TDS fees and the cost and extent of audits. Landlords would be spared the risks associated with agents who, unknown to them, leave a scheme and the deposit becomes unprotected, with the onus for repayment plus any possible sanctions passing to them.
If all deposits were kept in custodial schemes, would agents really lose out? With interest rates so low, agents who keep client money in a ring-fenced account would barely notice the difference.
In Scotland, ONLY the custodial scheme will be allowed for tenancy deposit protection – a decision made in the interests of the consumer. Arguably, the decision in England and Wales to allow insurance-backed schemes was not in the consumer’s interest so much as the agent’s. Was this right?
The bodies which offer CMP might not want to make all their members use the custodial scheme. But surely they, via their provider, could offer a two-tier insurance by which agents using the custodial schemes paid much lower premiums than those in the insurance schemes?
Your feedback would be welcome.
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