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Heir of competence

No fewer than 65,000 advisers have passed accredited mortgage qualifications. With the onset of FSA regulation, advisers will have an obligation to demonstrate that they remain competent to give advice. Anyone employing advisers will have an obligation to review their competence.

Unfortunately, the FSA has not stated what it will consider necessary to “review competence”. Each principal needs to come to their own conclusions as to what meets their obligations. The same applies to staff within lenders and networks&#39 appointed representatives.

Whatever the processes, a clear audit trail to demonstrate the action taken will be essential. Online training and testing systems are an ideal way to achieve this. The Financial Services Training College is adapting a version of its Ensure package for the mortgage market and the CII is offering its Mortgage Assess product.

I recently had the opportunity to look at a system specifically designed to meet the needs of the mortgage market in the regulated environment. Competent Adviser has been created by a team with an awesome pedigree – Chris Heard, former chief executive of Mortgage Trust and twice chairman of the Intermediary Mortgage Lenders Association, James Mayne, a specialist compliance consultant retained by Imla as compliance adviser, and Gillian Tait, a specialist trainer who has guided over 1,000 advisers through their mortgage qualifications.

Initially, the system examines an adviser&#39s competence with a range of tests. Having identified the candidate&#39s ability or otherwise, it then creates a programme of activity to address any shortcomings, monitors how the individual undertakes this work and re-examines them to determine if the knowledge gap has been addressed. This is a typical approach for this type of system but what I found exceptional in this package was the quality of mortgage content, which is hardly surprising given the design team and the depth of the reporting tools.

Once an adviser has taken the tests, the compliance manager can create a wide range of reports in seconds to identify the level of competence of not just individuals but whole salesforces.

Completed exams can be viewed all the way down to the incorrect answers given by individuals. This creates a wealth of information from which the compliance officer can gain a detailed understanding of where potential problems may exist and how to address them.

Investment IFAs regulated by IFA networks can be expected to seek mortgage authorisation via their current network. However, tens of thousands of mortgage advisers who restrict themselves to current non-regulated activities may be reluctant to seek direct authorisation.

The FSA is suggesting that there are no reasons for non-regulated advisers to join mortgage networks and that direct FSA authorisation will be a user-friendly process. How many advisers believe this? I expect the majority will want a third party between themselves and the regulator.

Mortgage networks are emerging everywhere. Several are existing mortgage distribution operations and packagers with established infrastructures and financial resources. Others, however, appear rather opportunistic and their resources, financial and otherwise, may be questionable.

In the coming months, we will see a land grab as the mortgage networks vie to attract users. Equally, in a relatively short period of time after FSA regulation starts, say, 12 to 18 months, I would expect to see major consolidation, with probably no more than a dozen mortgage networks lasting long term. With a massive potential influx of new members, an essential issue for any network which wants to be a long-term survivor will be ensuring the quality of the advisers they take on.

Although it is early days in the battle among the various T&C system providers, Competent Adviser has already notched up some very significant contract wins. Network Data announced before Christmas that it was adopting the system to manage its requirements for over 750 users.

Head of compliance Kevin Sandland told me last week that of all the systems that his organisation looked at, Competent Adviser “was the one system that really focused on the needs of the mortgage market rather than others, which seemed adapted from more general financial services systems”.

Mortgage Intelligence is to put Competent Adviser at the heart of its T&C activity. According to network training manager Alison Beeston, undertaking the tests within this package “will be part of the process of assessing knowledge for all advisers joining our network”.

There are countless instances where just one or two rogue advisers have been the downfall of significant investment advice firms or networks. It is reasonable to expect the same will be true of mortgage advisers.

The FSA stresses its risk-based approach to regulation. Looking for advisers to have installed a system of this type with the full reporting functionality it contains might be valuable criteria for the regulator to apply when assessing such risk. Indeed, the online reporting elements have the potential for the principal organisation to allow the FSA access to the system. It could examine a firm&#39s T&C regime without leaving Canary Wharf.

Although it could be used by a small firm with one or two advisers, the real market for this product is big organisations. For mortgage networks, lenders and major advice firms, a system of this type would appear to me to be an essential requirement and ensure that they do not have to spend vast amounts of time explaining to the FSA how they have met their obligations to ensure the ongoing competence of any of their members or employees advising the public.

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