It’s so obvious that regulation of the lettings industry is overdue, given the sums involved, that to criticise the Government’s latest announcement of legislation which will introduce measures such as a new regulator, a code or practice and mandatory qualifications, looks perverse.
But let me persevere.
There is no obvious competent regulator amongst the plethora of competing interested parties.
I have direct experience of ARLA and NALS as regulators and both unintentionally “pass” for membership businesses which on closer examination are not compliant with client accounting best practice.
The problem is that they rely on self-certification from accountants who sign off membership paperwork and some of whom either don’t know or don’t care if client funds are intact.
We have close to 300 independently owned traditional high street estate agents and letting agents within our franchise group.
We employ two full time client account auditors to keep a handle on things. This represents a cost for client accounting regulation to us as a franchisor of around £400 per office per year. To our franchisees the service is provided “free” unless they are non-compliant. So a new regulator who is going to take their job seriously will need to charge at least around £500 per year per office.
Costs could be higher still. Ireland introduced compulsory licensing of letting agents in 2012 and the fee for a sole-trader business with a principal and four other employees is 1,950 euros per year, recurring.
Consider the wider industry picture: with no common cloud based client accounting software in place for all businesses, this means that client account auditing requires a physical visit to a site to check data and reconcile to bank accounts.
We talk about the bad guys (a tiny minority) being driven out by regulation and the rest of us good guys remaining.
But what if regulation frames quite a lot of us as the bad guys? Not really bad of course, not thieves. But maybe using rents as a free overdraft by collecting it all on the 1st and paying it out to landlords on the 28th?
Or using the client account to pay wages when the completion monies did not arrive as expected? Why do agents use insurance-backed schemes for deposit protection when the interest they are receiving is so derisorily low? Unless the deposits are in a higher interest bond somewhere, maybe off-shore in the owners name?
So a thorough clean-up could have very far-reaching implications for a big group of average agents. The story of the clean-up of the financial services sector is well known but worth repeating – the regulatory hurdles, training regimes, compliance trails and costs became so burdensome that around two-thirds of independent financial advisers quit the sector.
Those that were left mainly decided to put themselves under the protection of organisations such as Mortgage Advice Bureau who could provide the regulatory and compliance framework that was too expensive and time-consuming for the smaller players to put in place for themselves.
Is this the future for our industry?
We are members of arla and we pay our accounts more than £500 a year for our audit. I can assure you both our accountants and arla take it very seriously
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Not really the bad guys! I beg to differ!!! This is exactly what needs to be stopped.
But maybe using rents as a free overdraft by collecting it all on the 1st and paying it out to landlords on the 28th?
Or using the client account to pay wages when the completion monies did not arrive as expected?
Diabolical and I am shocked that a CEO of a company can state the above as “But what if regulation frames quite a lot of us as the bad guys? Not really bad of course, not thieves.”
Mr Wilson lets be quite clear what you are saying above is theft and must be stopped!
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Client money belongs to clients. It should never pass through the business account, and should never, ever, be used as a free loan.
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We are regulated to a high standard by RICS – regulation which can involve an auditor visiting our office, examining accounts and procedures and interviewing the directors. We pay £500 + per year for this (on top of an RICS subscription of the same order)
We are about to enter a mandatory regime of further regulation by the Scottish Government, but this looks likely to be reactive, responding to complaints when they arise, rather than monitoring all firms. We await with trepidation the announcement of the annual fee for this second tier of regulation and will not be best-pleased if that fee is significant. From what we have heard so far, and from what Ian Wilson writes above, we anticipate that it will be.
We will then be paying dearly for a lesser standard of regulation, unnecessary for our RICS regulated firm, in order to clean up shoddy practice by others.
Should we pack in RICS regulation and go with the crowd?
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I think any qualifications/training needs to be applicable to both a landlord and agent. If you single out an agent, you drive up costs, which cannot be passed onto landlords because they may just consider self managing.
Agree, that there are a small minority of agents who have caused a problem, but my experience when training housing legislation is not the poor quality of agents, but the almost non existent knowledge of landlords. I remember doing some training for the London Landlord Accreditation Scheme in 2014, and out of the 27 landlords in attendance, only a handful had heard of deposit protection.
Pushing more regulation onto the agent without doing the same for self managing landlords, will only increase the chance of landlords self managing, and actually driving down the standards of the private rental sector.
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Surely Mr Wilson can’t possibly be suggesting that using client funds as a convenient no cost over draft is acceptable or even understandable? Similarly; for paying salary of staff? Surely not? Martin & Co has experienced franchisees going bust previously but one would hope that M&C would make the accounting of client funds absolutely #1 on the requirements of their franchisees! Or am I wrong?
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Clearly doesn’t refer to himself on PIE as ChumpExecutive for nothing……….
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