The FCA is worried by the risks posed by unregulated packagers who it says are “overstepping the mark” and giving advice to clients directly. What is more, the regulator has made it clear that as the regulated firm, advisers will be on the hook for any advice given by unregulated packagers.
The regulator issued its warning at the Financial Services Expo last week. FCA director of mortgages Linda Woodall told delegates she was aware of cases where “some of the unregulated firms still active may be overstepping the mark and may be undertaking regulated activities.”
She said: “I believe our regulatory position on packagers is clear. So long as packagers have no contact with the customer and run a business-to-business operation then they do not need to be regulated. But where a packager deals with customers directly, they need to be regulated and ensure that staff have the necessary qualifications.
“It is important intermediaries realise where a packager is not regulated but offers more than a B2B service, the intermediary is ultimately responsible for any advice given to the consumer and I question if this is a good position for intermediaries to find themselves in.”
It is a concern shared by Association of Mortgage Intermediaries chief executive Robert Sinclair who in July called for packagers and specialist distributors to decide to either train their staff and become regulated or make it clear they deal exclusively with brokers.
Sinclair identified the issue of packagers straying into the regulated advice space as something that needs to be addressed before the introduction of the mortgage market review next April.
“There are some people who take fees from consumers at the moment but appear to be saying they are not regulated – in the new world this cannot prevail.”
All Types of Mortgages managing director Dale Jannels, who runs a regulated packager, says there are packagers who need to decide how they will operate in future.
Jannels says: “People need to absolutely stake their claim and outline exactly what they will be doing from next April so everybody is 100 per cent clear. At the moment it is somewhat hazy from some parties as to how they are going to be playing next year.”
Brokers say that while cases of unregulated packagers advising clients directly are rare, the rogue minority who are doing this must face a clampdown.
Perception Finance managing director David Sheppard says: “Linda Woodall is absolutely spot on – a packager should never be making direct contact with a client, unless it is for a piece of documentation, but never to deviate away from the original advice that has been given by a broker.
“While this may not be happening frequently – the FCA must have some evidence that it is has happening and if that is the case this needs to be stamped out.”
Lentune Mortgage Consultancy managing director Stuart Gregory says Woodall’s warning fits in with the FCA’s more pro-active ethos.
He says: “The FCA is focusing on making sure any mistakes made by the FSA are not repeated. It is worthwhile the FCA is setting out its stall on this issue, and to flag up the risks for brokers of using an unregulated packager.”
Trinity Financial product and communications manager Aaron Strutt says: “As brokers we would be doing most of the work in terms of gathering all of the information and relevant documents so I struggle to see why packagers would be contacting clients.”
Pink Home Loans has a packaging arm as part of the network. Managing director David Copland agrees entirely there is no place for packagers to be speaking to clients.
Copland says: “I totally agree with Linda. We have never been in a position where we have spoken to a client. Our function is to help brokers with the research process and at no stage do we interact with the client.
“This absolutely should not be happening, it is the broker’s job to liaise with the client. They are the person who at the end of the day is culpable for any advice. If a packager is getting involved, that is wrong and is something that must be stamped out entirely.”
Copland also feels that packagers should not confuse clients by training staff to provide advice.
“Packagers have a place in this market which is to assist in the research for brokers and I do not see why packagers would want to change their function by moving into the advisory sector. That has potential to confuse clients about who exactly is providing them with advice.”
Brightstar Financial chief executive and Association of Bridging Professionals chairman Rob Jupp says: “Clearly, the FCA has some evidence to back this up but my experience is one that suggests my peer group is entirely aware of the boundaries and I am confident the established firms do not ever breach those boundaries.
“Even if you did have a packager that was a bit of a free spirit, lenders would not allow a packager to do that. There is always a very clear distinction about who is giving the advice in a regulated sale and who is simply the facilitator or distributor of the relationship for that product. We always say ‘ultimately it is you who is giving the advice and you have got to be confident that solution is the best solution for your client’.”