Are low mortgage advice qualification requirements putting customers at risk?

As the mortgage industry prepares to introduce tougher rules under the senior managers regime, the debate has turned to whether it is right for brokers to be subject to lower qualification standards than financial advisers.

Banks and building societies are readying themselves for the new regime, which comes into force in March, and have successfully lobbied the Treasury to extend the rules to cover all regulated firms by 2018. Lenders argued the Government was in danger of creating a “two-tier system” for mortgage advice if it failed to include the broker market in the regime.

Under the changes, firms will be responsible for ensuring all staff are fit and proper, rather than the FCA being responsible. This check will be done on their initial appointment and followed up annually.

The aim is to make it easier for the regulator to hold management to account in the event of failings.

In light of the changes and with the continued focus on improving adviser standards, some have suggested it is time to raise mortgage brokers up to the same minimum qualification levels as regulated advisers.

Since the RDR, advisers have been required to study up to QCF level four, which is roughly equivalent to the first year of a university degree. However, mortgage advisers are only required to attain CeMap level three, equivalent to A-level.

Prolific Mortgage Finance managing director Lea Karasavvas says: “There should be a requirement for higher qualifications in the industry. You cannot have a two-tier system where banks have one set of standards and intermediaries have another.

“Brokers are advising on the biggest financial investment of people’s lifetime, and in order to do this, the calibre of the people giving that advice should be exceptionally high. One mistake in that advice could have huge financial ramifications.

“To think that in this industry right now you could know nothing about a mortgage, sit a six-week crash course and then be a fully competent adviser at the end of it. This discredits the industry and the profession. Industry knowledge is fundamental and such courses should be abolished.

“There should be more detail in the training, more structure in the qualification process and higher standards should be set as there are still brokers out there that, quite frankly, should not be advising unsupervised. Having crammed the revision to get through the exam, it is concerning that someone who could potentially not retain what they had learnt to get qualified is then able  to advise.”

Others see the driver to higher education standards as an inevitability. Middleton Finance principal Daniel Bailey says: “It is only a matter of time before we see more qualifications required for mortgage brokers. If it improves the consumer’s perception of us as mortgage brokers and raises the standard of advice then it can only be a good thing.”

Some firms have already embarked on the journey to differentiate their advisers by encouraging them to attain higher credentials.

Chadney Bulgin mortgage partner Jonathan Clark says: “As a firm operating in both mortgage and wealth management areas of business, we chose to become chartered, even before a level four qualification became mandatory for wealth advisers. The clear outcome of this for us has been a higher level of better quality business as clients actively sought out firms with chartered status. We then encouraged our mortgage advisers and mortgage paraplanners to achieve level four status by taking the DipMAP qualification. We ran study groups and met the cost of their exams, hoping to mirror the success achieved in the wealth business.”

But Clark is cautious about suggesting level four should be set as a new minimum for all mortgage advisers.

“There is already a shortage of advisers in the industry. Any compulsory qualification requirements would need to be managed very carefully so as not to put off any new entrants as this could ultimately impact on a customer’s ability to obtain proper advice.”

Technology and Technical managing director Kim North argues mortgage contracts are much simpler than many products sold by IFAs and therefore brokers should not have to attain level four. But she says: “With the pension freedoms, demand for equity release is going to be greater than ever before so I think there should be higher qualifications for this area, but not for standard mortgages.”

Association of Mortgage Intermediaries chief executive Robert Sinclair welcomes the expansion of the senior managers regime to cover the wider mortgage market. But he does not believe that consumers will be better served if the qualification bar for brokers is raised.

“We are waiting for the FCA to identify resources to undertake a review of the syllabus and learning outcomes for the benchmark mortgage qualification. This is required as it does not currently adequately address second charge, bridging and remortgage,” he says.

But he argues: “We consider that level three is the correct competence level for this market. There are already level four qualifications for those who wish to demonstrate a higher standard. However, to push the base qualification to that level means including matters such as funding, capital and portfolio risk. This is not core to competent individual advice, so we are not keen to see this escalation in a market which is working well for consumers. It would risk diverting advisers into a costly exercise to requalify.”