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Fears grow on contracting out

New entrants into the buy- to-let market are expected to fall, with growth dependent on existing clients, according to research consultancy Charterhouse.

Around 90 per cent of intermediaries are now active in the BTL market, according to the survey, Mortgage Intermediaries – The Regulated Environment, which tracked 300 mortgage brokers.

For almost a third of these respondents, BTL makes up 5 per cent of their business, while 15 per cent say it accounts for 25 per cent.

The most active intermed- iaries in the market, handling five or more cases a month, are the most optimistic about the future, with 39 per cent bullish on the outlook for BTL compared with 16 per cent of the wider market.

Charterhouse research director Julie Irwin says: “As more lenders enter the buy-to-let market, the sector is set to become even more competitive, particularly as the focus is likely to be on remortgages and new loans for the more astute and demanding professional landlords. Customer retention is going to become an interesting challenge as it is in the residential housing sector.”

Publicity over losses suffered through contracting out of the state second pension and an FSA investigation are raising concerns among advisers.

Lawyers Beachcroft Wansbroughs partner Nigel Frudd says legislative confusion makes it hard to pin misselling cases on advisers but warns that “horrendous complexity” does not mean advisers are safe.

He says: “Although it is not clear cut, advisers could be at risk of misselling claims if it is shown they have not taken sufficient account of a client’s profile and suitability for the switch.

“Advisers need to be completely up to date with Government policy and future legislative changes to ensure they are treating customers correctly.”

Frudd also warns that adv- isers could be liable for claims if they did not advise clients to reassess their situation in reaction to Government changes, such as the 1997 decision to make rebates age-related.

PBA managing director Phil Billingham believes advisers should be concerned because the FSA could take the view that IFAs and providers should pay for any shortfalls despite the losses resulting from Government policy.

He says the FSA could suggest that advisers were naive to base advice on Government policy which has been proven in the past to be both wrong and changeable and that it was safer and more prudent to advise clients to remain contracted in.

Billingham is also worried that historically low levels of projections could be used to create an “Alice in Wonderland” situation where advisers are held liable for events outside their control while their dec- ision could still leave clients better off anyway if a longer-term outlook were taken.

He says: “We are likely to see the bizarre position of advisers being held to account for a decision that in the long run will still see the client better off.”

Financial Ombudsman Service spokeswoman Emma Par- ker says contracting out is not a big issue for the organisation at present, with fewer than five cases a month. She says that,perhaps more than any other past misselling issue, it is hugely dependent on the details of each case.

Parker says the FOS would look at an array of criteria relevant to the time that advice was given, such as age of cli- ent, marital status, Government policy, future publicised legis- lative changes and risk profile.

She says: “We will be looking to see if advisers have ignored one or more of these factors at the time advice was given. Advisers cannot be expected to have had the foresight to anticipate unforeseen changes but must have factored in all these variables.”

A recent FSA report found people who contracted out were an average of 4 a week worse off. It says underperformance must not be equated with misselling and performance risk is an inherent feature of personal pensions. But the scale of losses means it will take a closer look, including contacting a sample of companies.


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