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FSA must ignore lender pleas over non-advised ban

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The FSA ended 2011 on a positive note with its mortgage market review proposals striking the right balance of guarding against irresponsible lending without unduly affecting current and future borrowers.

In announcing its stand-out policy of banning most non-advised sales the regulator gave a rare nod to the value of advice and rightly highlighted consumer confusion around whether or not advice, and the protections that come with it, is being received when a mortgage is taken out.

Unfortunately a few of the big lenders are less than happy with the FSA’s plans and have been spending the festive period plotting a lobbying campaign to attempt to change the regulator’s mind. The FSA must stand firm.

For too long many lenders have blurred the lines between advice and information when dealing with customers, allowing them to make their profits without any of the pesky responsibility and consumer protection that comes with an advised sale.

Around 30 per cent of mortgage sales are non-advised but many consumers do not understand the distinction in the service they are receiving. There is no direct link between risk and advice provision, with similars level of low and high risk products sold without advice, according to an FSA table published alongside the MMR (see table below).

The FSA’s cost-benefit analysis suggests increasing professionalism amongst bank staff will lead to one off costs of between £17m to £28m. Some lenders will argue these costs will be passed on to consumers with negligible benefits.

They have already pointed to FSA statistics, also published alongside the MMR (pages 162-163), which show little difference in the default rates between advised and non-advised sales as evidence to retain the status-quo. However, impairment issues are usually triggered by a change in circumstances, such as losing your job, and should not be seen as the over-riding benchmark of service quality.

Lenders are unhappy their staff will have to gain appropriate qualifications and abide by regulatory rules such as ensuring the suitability of the product. They will have to take on the extra business risk of an advised sale in terms of the consumer’s recourse to the Financial Ombudsman Service.

But all of this is what customers expects to receive when being helped to arrange often the biggest financial commitment of their lives.

Association of Mortgage Brokers director Rob Sinclair gives the example of where a lender writes to a customer at the end of a fixed rate or incentive period. In this situation a customer probably thinks that regulation is protecting them and ensuring the lender operates in their interests. These new rules will ensure that is the case as the communications will be linked to an advised sale.

Rather than adding another layer of unnecessary bureaucracy to lenders, these proposals will enshrine the protections and rights consumers think they are already getting.

The FSA must ignore the pleading of certain big lenders and stick to its guns over its non-advised sales ban. Consumers deserve the protection and service that comes from receiving advice from qualified and competent individuals.

Paul McMillan is editor of Money Marketing - follow on twitter: @mcmillan_paul

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Readers' comments (22)

  • I agree with Paul but would like to see this taken further and applied to all financial products.

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  • I have had many clients that "new what they wanted" but after advice from me bought a different product. Or more importantly seen clients be tied into a product by a lender (without advice) when they new the client was going to move, so as to trap the client with them so they cannot shop around when they move.

    How many of your clients buy insurance online and get a "cheap as chips" policy that does not pay out at claim stage - that is because the "new what they wanted" but did not understand what they were buying.

    Mis-Buying is the new Mis-Selling!

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  • The FSA regulates the service that consumers receive. As a broker I cannot transact 'non-advice' business as, by the very nature of personal interaction, it is virtually impossible to provide information without also giving influence at the very least.
    For once the FSA are doing something to protect the industry as well as the consumer. Lenders are encouraging consumers who prefer or need advice to forego this by marketing their non-advice service with cheaper products than those available via the advice route.
    The FSA proposals allow for non-advice purchases through non personal channels ie internet purchases, so the consumers who do not need help can still buy direct!

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  • I fully understand many of the comments regarding the removal of choice. However, there is a very real risk that without this ban, bank staff will steer customers towards products that are inappropriate, without any recourse when things go wrong.

    For instance, I recently had a client who, during our meeting, stated that they were keen to have a fixed rate product because they didn't want to accept the risk of potential interest rate changes.

    However, upon visiting their local branch of HSBC, the mortgage arranger stated that they would be better going on a tracker product because interest rates were not going to increase any time soon.

    Having worked for the aforementioned lender, along with several others, it cannot be questioned that these practices are common place.

    If an advisor made these statements and then things went pear shaped, there would be reason to complain, but if you go down the non advised route, where would clients go.

    I'm not big on over regulation, but it is clear that there are certain areas that definitely need to be addressed.

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  • To Anon (3:07pm)

    In the example you give, it doesn't matter what the person arranging the mortgage calls themself. That is advice. The bank employee has made a statement that has directed a customer to a particular mortgage. The customer will absolutely have the right to complain and receive redress. The reason the bank may get away with that is that the bank will "record" the meeting with a series of notes written by the employee. The customer will not record it so the only record of the meeting is what the bank employee wrote down. And you can bet that they won't recall the customer stating that they only wanted a fixed rate.

    This proposed regulation is once again a sledgehammer to crack a nut. What should be done is to leave non-advice as an option but to make sure that the customer is clear on the service they are receiving.

    The sales process also needs close monitoring to ensure that where a sale is described as non-advised it is in fact non-advised.

    Unfortunately, those 2 things are slightly more difficult to achieve than a simple ban so banning non-advice is what is being proposed.

    I don't support this ban (and certainly not from the point of view that I am a consumer also), but in a way, the banks have demonstrated that they can't control and police their own salesforces so they have brought this on themselves.

    It's like banning cars because speed limits are difficult to enforce.

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  • The only way non-advised sales should happen is where there is no human intervention on the part of the supplying firm.

    The problem with non advised sales where there is a human involved, is that the customer will almost certainly ask "What do you think" - at which point the whole process can, and probably often does, fall down.

    However, as long as Lenders can offer access to their products in some other way, for example by direct application on the internet, then non advised sales should be able to be continued with.

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  • 'Anonymous@ 3.07' - if the HSBC arranger stated they would be better off with a tracker product then that is giving advice. It isn't provision of impartial factual information that allows a customer to make his own choice.

    Unfortunately, therein lies the problem.

    It isn't about the theory of non-advised sales but the practical application.

    If everybody actually followed the rules then there wouldn't be a need for the FSA to propose this action.

    The KFI clearly states whether advice is given or not but research shows (as for other financial services areas) customers have never realy distinguished between advised and non-advised when dealing face to face or tele-sales.

    Is the issue that there is a lack of clarity that the borrower had advise or not or that there is actual consumer detriment in the mortgage products sold.

    It is surely only the latter that is a real issue that would warrant such drastic intervention for a product that has been bought direct for generations without major concerns.

    It is hard to see how this stance can be justified for mortgages if not applied to all other products.

    The next requirement will no doubt be a mandatory advice process for a cash ISA. After all there are the same issue for fixed and variable rates, the term to lock it up for etc.

    The FSA is not a regulator of price. If a customer accepts a product that locks them in for a fixed term then they should be able to take that decision. Choosing to buy your fruit at Aldi as opposed to Tesco or Marks & Spencers will mean you pay a different price for a bunch of bananas. Equally you can pay different prices for petrol even within different Tesco stores.

    If any adviser can guarantee they will give the applicant the cheapest fixed or variable deal throughout the mortgage term then I will take my hat off to them )and pity there PI insurer).

    Let the buyer beware and let adults act for themselves when they want to. There are plenty of people who want and get advice.

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  • I agree with many of the sentiments above, banning non-advised would be an unfair restraint on the lender and customer - I am an IFA & Mortgage adviser!
    Interesting the comment about not liking having qualified staff - Difficult to find anybody with any banking qualifications working for a bank these days!

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  • @Chris Miller re Ancient Mariner

    You must have read a different story than I have about the Ancient Mariner - in the story I read the only companion he had was an Albatross and he killed that!

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  • actually i would really like to know where the "around 30% of mortgage SALES are non-advised" comes from??

    is Mr McMillan telling me that only 30% of mortgages are arranged direct / in branch, or is the number higher but actually that somewhere contrary to my own understanding, Banks are offerrign advice?

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  • Hi Phil,

    FSA stats show around 30 per cent of total mortgage sales are classified as non-advised. This does not include direct "advised" sales. See second graph on page 159 of the following FSA report:


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