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Mind the gap on TCF deadline

I continually marvel at what consumers seem to draw from the media about the state of the economy. Motley Fool research shows that one in six people believe the UK is in recession, with many expecting the recession to continue indefinitely.

It is therefore not helpful for people to see contradictory comments on the housing slowdown. For example, the Royal Institution of Chartered Surveyors says new buy-to-let instructions have fallen for the first time since 1998 while the Council of Mortgage Lenders says the number of BTL loans has increased by 23 per cent in the last year, resulting in over one million current BTL loans.

How can we expect the poor consumer to know whether or not they should borrow more? The FSA is running a £2m advertising campaign to help the 1.4 million borrowers whose fixed rates come to an end this year.

I will be interested to see how this campaign looks because, in financial planning terms, it is not complex. The advice I give to clients at the end of a fixed deal is to get advice from a mortgage IFA or shop around for another fixed deal if they like the certainty of paying the same amount every month.

Most of the people coming to the end of a fixed deal have been as happy as Larry with their earlier mortgage choice. It is the poor people with savings or mortgages with Northern Rock that need advice. Before Northern Rock needed to seek emergency funding from the Bank of England, it had 1.5 million savers and an 18.9 per cent share of new UK lending. Who is treating these people fairly and telling them what to do, apart from IFAs?

The treating customers fairly deadline is at the end of this month. If you have not got appropriate management information or measures in place to test whether you are treating customers fairly, you may get into trouble with the regulator.

The FSA intends to contact thousands of small retail firms over the next three years in relation to TCF and letters have already being sent out by the regulator asking for a phone interview or a visit to show that TCF processes and management information have started to be applied. It is assumed that a TCF gap analysis has already been completed.

Many support companies can help with this gap analysis if you have not time to prepare what essentially is a compliance-orientated business hygiene report.

In the meantime, the FSA’s Dan Waters is expressing his concerns over “a return to the bad old days of broker funds”. Now this is an area I know a little about, having previously provided expert witness information for a court case on broker bonds.

How can IFA-branded funds outsourced to expert third-party asset managers with the credentials of, say, New Star be compared with broker funds of old, which were managed internally by the financial adviser with sky-high charges and underperformance?

Have Hargreaves Lansdown or Smith & Williamson been criticised for offering their own funds? I think not and both companies have given the big global investment houses a run for their money in performance terms.

I predict that the post-retail distribution review world will be littered with professional advisers building high-net-worth business with externally managed funds marketed under their own brands. Primary advisers dealing with the mass population will be pushing the banks’ funds which may be cheap but in many cases underperform.

I don’t know about you but I think we are treating customers more fairly by advising them to invest in “expensive” funds – as long as they perform – rather than a simplified investment with a 1 per cent annual reduction in yield that is consistently fourth quartile.

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