The Property Ombudsman is canvassing its members’ views on Client Money Protection insurance.
The TPO does not currently require its member letting agents to hold CMP.
It does, however, require them to have Professional Indemnity insurance, to hold clients’ money in separate accounts and to abide by the TPO’s code of practice.
Bill McClintock, chairman of the TPO operating company, said: “Given that the code of practice is generally accepted as the primary standards document in the industry, the omission of such an important aspect needs to be addressed.
“This is something the board and the Ombudsman, Christopher Hamer, have been considering for some time, and recent incidents of both landlords and tenants suffering financial loss means action on CMP is now imperative.”
The consultation paper sets out various options and points out that members of ARLA, NALS, and RICS are required to have CMP.
McClintock is asking TPO members whether CMP should be made a mandatory requirement, or whether there should be an alternative fall-back position requiring all TPO member firms without CMP to disclose it in writing and actively flag its absence at the point of instruction.
McClintock said: “TPO and its codes of practice are part of a consumer protection regime with the firm objective of raising standards in the industry.
“Whilst TPO cannot force agents to sign up to the code, firms should see the codes as enhancing the reputation of the industry, and for those that are already members of TPO, the addition of a clause requiring CMP will enable them to demonstrate to landlords and tenants that their money is protected.
“TPO is a not-for-profit company and will not itself offer CMP to member firms as a new revenue stream. It is not appropriate for TPO to offer such services but I believe it is appropriate for member firms to have such cover.
“However, members now have the opportunity to express what they think should be the minimum required standard.”
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Comments
29 years in the industry and 2/3rds running my own business with ARLA membership, only recently left. Done the exams, CPD, audited accounts and everything asked of me so please don't assume to know me.
I'm not trying to convince you of anything, definitely not that insurance PREVENTS the risk and I've never said that. I'm trying to give you a logical reason for the need for CMP which is what you asked about. Likewise I never expressed a preference for TPO to provide CMP.
If being a member of a 'professional' body and providing an annual audit of the client account is the ONLY way to provide protection as you say, then why do these very same 'professional' bodies offer CMP in the first place?
Its not rocket science but yet you constantly sway off topic and only find solace in your own words. It's not a conspiracy so lighten up, and that note this really is goodbye!
You don't want to comply with the rules laid down by the prodfessional bodies, those folk who might ask you to sit an exam or turn up for 12 hours cpd.
In my opinion TPO actually increases the risk because it allows non members to avoid the one thing that provides protection against an agent misappropriating client's money; the annual audit of the Clients' Account.
You simply will not convince me that any insurance scheme prevents the risk in fact I would suggest that folk are less careful knowing they are insured and the case of insurance fraud require insurance companies to have teams and systems in place to combat that fraud.
As the old saying goes prevention is better than a cure.
I think I've expressed my point to within an inch of it's life so for the last time, as long as the risk exists, however small, then the need for protection is valid.
I'm not implying that 'not a single agent can be trusted' I'm saying that our clients should not SOLELY have to rely upon the agent being trustworthy. Hardly an allegation and by no means a smear on my colleagues not to mention that I did actually praise your integrity so you might want to read my earlier post again.
Firstly, to answer your question, NO I would not suggest we all insure against tenants that will not pay their rent as this would be theTENANTS wrongdoing and the concept of CMP is about the AGENTS wrongdoing, we digress...
Lastly, the very nature of insurance means that the cost of covering claims is passed on, do you really think your car insurance does not contain a premium due to the cause & effect of other bad drivers?Again we digress....
You posed 'I can see no logical reason why clients money needs protecting' and I was merely offering one.
Just for the record, I too do not have CMP. Like you I operate a honest business however unlike you I strongly believe that in order to fully protect the public, our clients, it should be compulsory for all agents. Unlike you I would gladly pay for it NOW if It came without all the other nonsense you get from membership to ARLA, NALS etc.
We both appear to work in the interest of our clients but we differ on how to go about it, and on that note...
You pay my 27 quid and we are all happy.
1/16000 th of 1% and you think that is signifiicant enough risk to require a whole industry to take out CMP.
Have you no understanding how small that £1,000,000 is in comparison with the £605,000,000,000 that has safely transacted in the past 5 years?
I'll take it you will also be insisting on us all insuring our landlords against tenants that won't pay their rent. The risk of that is about 3.75% a whopping 2344 times more likely.
It is very very obvious that like TPO you do not understand that I should not have the burden of someone else's dishonesty. By insisting I and the other 99.9933% of honest principals should cough up for the 0.0066% you are implying that not a single agent can be trusted. You make that allegation against me or the overwhelming majority of the industry to a third party and you will end up in court.
I have been looking for a statistic that will bring this home to both you and the TPO - any client is 1.5 times more likely to be struck by lightning in their entire lifetime than fall foul of an agent that misappropriates their money.
You concede there is risk but now you question how great it is???
JUST ONE AGENT MISAPPROPRIATING CLIENT MONEY IS ONE AGENT TOO MANY!
You completely diminish the impact of the losses yet those many thousands of pounds which you have neatly round up to a million belong to clients; real people who have lost real money.
I think you're not seeing the big picture here. You can't insure yourself against your own misdeeds, thats why CMP is not directly available to agents. CMP is for the benefit of your client NOT YOU so the subject of cost is moot.
Costs really aren't the issue here though is it, you're really a conscientious objector but regulation won't negate the need for CMP. Rogue agents will always find a way to exist and clients money will always need protecting.
Pre April2007 yes there was risk when Agents had fat old wads of deposits in Bank accounts, the office safe, the petty cash tin etc but that "risk" evaporated with TDS. The rent money, although is equated roughly to the same value as the deposits transitioned through the Client’s account as it does today with no real opportunity to make of with any.
So with TDS came CMP, both agents and landlords are already paying for the nickable bit of the client account to be insured.
S with no big pots of gold to run of with I want to know where and how anyone can get together enough client's money to run off with. A rogue staff member in a single agency might get away with a few grand but that is hardly worth taxing an entire industry for so then we come down to the odd franchise rogue that we have heard of in the past couple of years. Both Martin and Co and Belvoir to their credit reportedly covered the clients that lost out so dismiss those cases and what actual losses are we looking at? A reported £200,000 or so for Weston, £400,000 for Hussain, ??? for the one reported on LAT earlier in the year.
Given that is a total for misappropriated money in the last 5years that I know about and rounding up to £1,000,000 to give the risk argument the benefit of the doubt, that £1million is 0.0016% of the rent that has gone though agents hands in that time (£603 Billion)
So yes you are right there is a risk but such a tiny one that the costs of administering the insurance scheme will ensure the annual premium for CMP, if it were introduced will be way above the £27 annual cost of the risk.
As has already been said the risk is a perceived one based on anecdotal evidence and promoted by those who might not profit from the scheme but who will receive revenue from the necessary administration of the scheme. Even if the premium is only 27 quid a year I would object to paying to protect the consumer when one considers that the reason it is necessary is because the regulators are failing to regulate those that need regulating.
Read the post again mate.
Its not about why you would nick a single penny of clients money, its about the fact that you can if you want to - thats the RISK!!
Jeez even I got that!
They made a scenario simple, to quickly arrive at a theoretical question that highlights a RISK of misappropriation.
I got that one too!
Whoever wrote it isn't trying to convince you to get CMP, they're trying to explain why it's needed, surely you get that..
If my children need life saving attention, I would call the NHS. I contribute to that for myself and mine and am happy to stump up for those who can't pay.
There is not a single reason why I would nick a single penny of client’s money, so why should I pay for someone else who might? No-one has come up with a single valid reason why I should.
With proper client account procedures (separation of duties) it takes two people to misappropriate a penny! The reason separation of duties is not practiced is twofold; Not many principals understand what it is or its importance and secondly it requires two members of staff to operate. Most every viable Management business has two staff so it comes down to choice by business principals not to operate correctly.
Perhaps as there is a risk of a frisky negotiator getting a client’s daughter in the family way we all better start paying into a fund to support the child? Perhaps as there is a risk that a neg might run someone down on a crossing I should insure my competitor’s cars as well as my own fleet just in case they have bothered?
The TPO wanted this discussion hence the press release, strange how they only want to converse with is themselves and the government.
@John Cave
As with any insurance the aim is to protect against RISK and risk is the POTENTIAL for loss.
It's not just about how you handle client money, its the fact that you are handling the money of your client. IT'S DOES NOT BELONG TO US and it should not be relied solely upon the honour of the agent to provide it's protection.
You currently practice as every agent should and that is laudable but we do not know if that will always be the case and therein lies the risk. (please don't see this as an attack on your character as that is not my intention)
Assuming you have children, if one of them needed life saving surgery and the ONLY way you could afford to pay for it was with client money what would you do?
When someone has access to other peoples money there is always a risk that it can be misappropriated.
I am a CMP doubter, I can see no logical reason why clients money needs protecting.
You sound like a sensible, experienced and educated chap.
Assuming that Business Owners realise and acknowledge their responsiblities and act properly as an agent please explain one scenario where that Agent would need to have insurance against the loss of a single penny of Client's money.
If you can do that, Why is it reasonable for you and I to share a financial burden for an Agent who does not act as we do?
I am not required to insure my house against Fire, Theft or Flood and if I choose to can shop around for a policy that does not carry a weighting for others.
If my client account balance is a rolling zero with fleeting large balances that are protected by watertight account handling proceedure, what exactly am I insuring? That someone can steal a Zero balance?
Response to “Industry Observer”
You have fundamentally missed my point – which is that, in my opinion at least, “Deposit Legislation” in conjunction with CMP cover, potentially strikes the right balance between “enforced” Regulation that the likes of NFOPP and likewise TPO are baying for (both of whom, of course, have financial vested interests in doing so) versus “light touch” Regulation, which is right and appropriate for Consumer confidence in the business.
In context, yes your point is valid; however in this context it’s not. The TPO “consultation” is asking if CMP should be compulsory for TPO membership. Whether an Individual wishes to have TPO membership only as for instance “IO” suggests, but not additional Trade membership – is an Individual choice. Therefore being forced to take up Trade Membership in order to be able to get CMP is in effect, forced regulation by the back door – which is precisely what TPO and the respective Trade organisations are trying to push with Government. Say what you like about this or even the previous Government, but they have it bang on the money and are not bowing to TPO and Trade pressure, to compulsorily force through Regulation.
Perhaps not relevant to this debate, however I have been in business for 22 years now and was an NFOPP member for 17 of those and subsequently a TPO member when this became a requirement of NFOPP membership. However, like a substantial number of (now ex) NFOPP members, I resigned my membership last year having lost the utter will to live with the sheer nonsense and drivel that was emanating from Warwick. This being said though, as a consequence of the seismic change in the business, predominantly brought about by the ongoing recession and as you will have gathered, I still have a belief in promoting appropriate standards within the business – such as CMP.
In short though, it has to be right and delivered at the correct level – which of course starts at the “point of entry”, which is definitely not how both TPO and the Trade organisations are trying to “validate” the requirement. As is well known and as I have articulated above, their “opinion” is to force “Regulation” and as such their “definition” of this – right now...
Accordingly, what needs to happen now, is a decent counter balance from the business in general (which includes both Agents and Landlords) to ensure that the “lobbying” tactics of TPO and so on, are not the only “voice” that Government hears .. We shall see and of course, only time will tell.
I appreciate that fewer and fewer Agents are members of the Associations but being blunt think that is in part down to TPO offering them a no hassle, no obligation alternative to the Professional bodies with the very minimum barrier to entry of a redress scheme covered.
Who really wants someone blahing on about not turning up to Regional meetings and banging on about CPD?
Certainly the self serving NFoPP system tested the resolve of many long term and committed members,so there was very little chance of attracting or retaining new blood despite the apparent desire from Arbon House to fill its ranks with new and compliant members.
Let us hope that with the new teams in place for NAEA and ARLA the respective organisations will at last start to operate VIGOROUSLY, in a timely manner, in the best interests of their members when ill thought through 'suggestions' are put forward by various civil servants and quangoes etc. with very little knowledge of the profession. For the last number of years this has not been the case.
@John Cave
Not so John - if you were a TPO member with cmp you'd say quite right all members should have it. And if a member without cmp you'd say not needed leave us alone.
That's why the membership make up is so critical. If the majority of members are regulated and have cmp then that will carry the day. If not then the status quo will apply.
Except that TPO will do as they see fit never mind any consultation - and they are obviously set on this route.
@I Agree and Hawkeye
Quite right with houses in order the various associations should be more than capable of policing member behaviour. But they are not, and only a minority are members anyway.
But John Cave is right - supposing compulsory cmp for TPO membership is brought in - how on earth are thousands of existing TPO members going to get cmp unless they join NALS (this on the basis you now cannot join ARLA without the Technical Award and I assume NAEA is the same?)
Given how much retained client monies you hold, a couple of grand for a boiler, £10k for a new roof or whatever I am fairly sure that isn't going to fund your retirement in the Indian Ocean, so there is little point even thinking about nicking it.
You might have a rolling balance of £200,000 or more on any given day but with one person doing the receipts and another person doing the banking is really very, very difficult to get more than a few quid away at any one time.
I really object to notion that CMP is required because other than a few clichés and anecdotal examples no-one has provided a single argument of why it is required. Even in this Press release there is an embarrassing lack of substance for a story that is so obviously attempting to sell the notion to the industry and which no doubt will be used to lobby Government for the continued existence and bolstering of a Quango whose remit ought to be more than adequately covered by the Associations.
@examples please
I hold client money sometimes for more than a fleeting moment and this is with client approval pending payment of invoices expected to be settled. However there are many who delay passing on the rent as I have had noted to me by some clients coming my way.
You are correct in that deposits should be secured so all in all I agree insurance money being requested for no material gain other than to stop a no doubt minimal mumber of complaints.
I see this as another nail in the coffin of agency work where there is so much competition out there that fees are being cut to obtain deals and then crap service is given. I try hard not to do silly deals on fees as I have to eat as well despite the publics thoughts that we are rich beyond measure.
If the Wok Smuggler contacts me at maurice.hardy@ultimatepr.co.uk I will ensure the consultation email is sent
With PBK off being the Global God of Property and Managing Directors being sought for the Division of NFoPP one has to question how long the TPO has got left to run.
Surely the role of an MD is to gather all the revenue streams together under his/her roof and ensure that the firm is doing what it is paid to do.
With properly run Associations for Sales, Lettings and Surveying the role of the Ombudsman evaporates.
The subject of enforced TPO membership and as a consequence "regulation" by another name, is an entire seperate debate and not the topic for this article.
CMP is the topic; but not for those reasons articulated for and by Bill McClintock. In short, CMP (along with the principle of the Deposit Legistlation) is fundamental to Consumer confidence.
However for Bill McClintock to state that "It is not appropriate for TPO to offer such services but I believe it is appropriate for member firms to have such cover" is not only entirely contradictory but kills the principle dead, before it even gets started.
The reason is simple - it is currently impossible to get CMP cover unless you are either an NFOPP or NALS member; therefore to get the "compulsory" CMP cover in order to substanicate TPO membership, will require membership of either organisation.
Again, given that Agents "enforced" Trade membership is not the subject of this article - then clearly, in light of the above, Bill McClintock and TPO will have to give this more thought if they wish to garner the support that CMP deserves.
Maths is not my strong suit though I am number savvy enough to know never to trust statistics. But in the TPO's own press release on this cmp business they quote as follows:-
"At June 1, 2012, more than 21,770 offices were registered with TPO. This figure includes 11,749 sales offices and 9,301 lettings offices. TPO estimates that these figures represented 93% of sales agents and 64% of lettings agents operating within the UK."
Now bear with me and check the maths but the general consensus is that ther are around 12,000 letting agents in the UK. I assume that means total offices and web based and home based etc. The figures vary between 10,000 and 15,000 never seen a higher figure quoted.
If the TPO figures are correct that means there are 12633 estate agents in the UK and 14534 lettings agents. Is it only me that is surprised that there are now more lettings agents than estate agents?
TPO needs to be careful here though and potentially has a tiger by the tail. Given how few agents of both persuasions are actually members of regulated bodies who make TPO membership compulsory (like NAEA, ARLA and NALS for sure and RICS possibly) these membership numbers could plummet when all those TPO members who joined voluntarily have to take cmp to remain members.
And if you read the tome in the TPO press release in full it is very clear that is the TPO intention. My guess is membership will halve in both categories. After all TPO gives a veneer of respectability to otherwise totally un logo'd agents.
Why pay the extra costs when in doing so you are simply volunteering to give a client a route to complain about you and incur a financial penalty.
Looks like a possible TPO own goal to me.
"only" between not and protecting in the last sentence
"recent incidences of both landlords and tenants suffering financial loss means action on CMP is now imperative"
What incidences?
What was the financial loss in the incidences considered?
I very much doubt that is anything more that one of those statements which is probably true, it sounds true but is only really few historic cases that have featured on LAT
This might not be a profit making or income generating scheme for the TPO but unless it is free of charge it is just another additional and un-necessary expense for Agents. Unless there is a scheme to repay excess at the end of the year I very much doubt that the insured risk can be so accurately calculated that there isn’t a margin or a profit built into the scheme. The profit might not be received by TPO but unless there is a philanthropic insurance company just landed from Mars agents will be paying someone for a service that the very large majority do not need.
Given that all deposits are now registered with TDS and therefore already protected, the only client monies most agents will be holding is fleeting passage of rent through the client account as it is received from the tenant and passed to the landlord. As Agents are no longer holding client monies for more than a few days so it is ridiculous to claim that this is an important aspect of the industry; with proper client account procedure (separation of duties) there simply is no chance of money going missing.
CMP, an insurance/ a tax/ an expense, imposed on the whole industry to protect against a tiny, tiny proportion of crooks is unjustified. If TPO are so concerned about CMP then they should be lobbying for the audit process by the Professional bodies to include a check that full and proper separation procedures are being followed. That is a far more effective way of not protecting client monies but also raising standards.
I am a long time letting member of the TPO and I have no knowledge of being canvassed? When was I canvassed? How was I canvassed? Perhaps Mr McClintock would care to answer these questions? It annoys me when leading members of major organisations make sweeping statements