Rob Sinclair: FSA should be praised over MMR advice stance
Last week’s editorial from Money Marketing editor Paul McMillan rightly commended the Mortgage Market Review and, in particular, the proposals to deliver greater clarity around verbal interaction. However, I was surprised by some of the comment that followed.
The FSA proposals follow their detailed and unbiased research findings that most consumers think they have had advice following non-advised mortgage interactions. In addition, the consumer lobby have confirmed that is their view of what has been going on.
Many of those who commented rightly said that where the customer genuinely knows what mortgage they want then they should not be forced into an advice process.
The FSA and AMI agrees. Indeed the MMR goes much further. Those that could be genuinely assessed as high net worth can excuse themselves from any involvement at all in the regulated process. The rules will not apply to them at all, with no need to undertake any of the detailed procedures that will ensure compliance. It will be up to lenders if they want to provide such a facility.
Those who genuinely know the product they want or are “professionals” can go down the “execution only” route. Rightly, this would tend to be automated as the customer will have to know the details of the mortgage they want. Amount, term, repayment type, rate type – e.g. fixed, variable, tracker, capped; the fee option, and the Early Repayment Charge periods and amounts etc. This replaces the non-advised alternative with a much clearer description and a requirement to advise the consumer of what benefits they are foregoing. Responsible firms surely cannot see this as wrong.
Where there is interaction, it is likely that the customer will get assistance, guidance and responses to questions, following fact finding, that will provide them with a recommended solution. This is advice and should be provided by a suitably qualified, competent individual from a firm that should be happy to stand behind the work they have done and the solutions proffered. It is the FSA’s contention that as most customers think they have had advice, then this is what should be provided.
But the proposals go deeper as the FSA has thought deeply about the realities of the types of transactions that exist and are considering the consumer perspective in a holistic way. So, where a lender is writing to a customer, say at the end of a fixed rate or incentive period, their customers would probably think that regulation is protecting them and ensuring that the lender operates in the customers interests. These new proposals enshrines such protection into rules.
I see little difference between mortgaging and re-mortgaging, as we are not advising on the merits of property purchase, but on the mortgage that operates in the best interests of the customer. Accordingly, I think it is cleaner to capture all transactions under the same set of rules.
As Paul presciently set out, the FSA will come under pressure on these issues, but I hope that some of the lenders, the consumer groups and the broker community will stand in support of the proposals.
It is widely recognised that this is a significant change and will impact the way that some lenders operate, particularly in some of their larger telephone and retention operations. However, the consumer benefit should not be underestimated and the broker community stands ready to support lenders in delivering this change.
The work that many good IFA firms do in reviewing their clients investment portfolios on a periodic basis, could now be replicated in the mortgage market by brokers being even more involved at the maturity of existing deals and working with lenders to ensure that the customer still has the most appropriate product available to them.
Rob Sinclair is a director at the Association of Mortgage Intermediaries