A wider discussion around the risks of mortgage debt should increase protection sales.

There is no regulatory requirement for mortgage brokers and advisers to discuss protection or go through the wider risks clients face when taking on mortgage debt.

However, when advising clients on investments, various steps must be taken to ensure they are taking an appropriate level of risk and that they understand the impact of market volatility. Could the same approach to mortgage advice increase the take up of protection? And should it be mandatory for mortgage brokers and advisers to discuss the risks of taking on mortgage debt in a wider sense than affordability checks?

The future of mortgage advice 

Sesame Bankhall Group executive chairman John Cowan says that from a regulatory perspective, a client receives far more attention when investing their funds compared to a client who is taking on debt.

“The question is whether this position is fair and sustainable long term,” he says. “Customer feedback indicates a very high level of client satisfaction with mortgage advisers, yet many do not have a well-developed and consistent client risk proposition when arranging a mortgage.” 

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Cowan believes mortgage advisers are well placed to educate every client on the risks associated with taking on a mortgage. “Some mortgage advisers I have met already conduct a thorough exercise, where risk education is a central part of their advice journey with clients, and “What happens if?” is part of every client meeting. I believe we can all learn from these firms.  

“For me this is what the future mortgage business model looks like – one which advises on all the risks associated with taking on debt.” 

Firms such as Primis and the Mortgage Advice Bureau have embedded a focus on protection into their culture and sales process. MAB offers all customers a protection review and its protection proposition director Andy Walton says almost 90 per cent of those accept. Primis does not make protection conversations a prescriptive part of the sales process but expects its advisers to do so. 

Primis protection manager Steve Berry says: “We believe that every pound of lending is a pound that needs protecting. Our advisers have these conversations because it’s the right thing to do, financially and morally, not because their network tells them to.  We strongly believe the adviser has a duty of care to protect families.”

A mandatory conversation? 

Opinion is divided as to whether a wider focus on risk through the protection conversation should be enforced by the regulator. Zurich UK Life head of retail propositions Peter Hamilton believes a formal requirement to hold or facilitate a protection conversation with mortgage clients would be a good thing.

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“A mortgage is a huge commitment, and it’s right that customers should be aware of the risks they run. If they choose not to insure against the risk of losing their house through the financial impact of death, serious illness or long- term disability, at least that choice should be an informed one,” he says.

“Inevitably there is a chance that such a requirement could be seen and applied by some as a ‘box ticking’ exercise, but on balance, the potential benefits should outweigh this.” 

However, Walton is concerned that regulatory intervention via specific wording may disrupt the way that MAB and other firms already fit protection discussions into their business models. 

Processes have become longer, leaving less time to discuss individual protection needs

Legal & General head of intermediary protection Richard Kateley points to research by Mintel, which found independent advice mortgage protection sales saw a drop of nearly 10 per cent in 2017.

“The report concluded that this was due to a wider trend of advisers moving away from the protection sale,” he says. “This decline has, in part, been placed on the introduction of the Mortgage Market Review in 2014, which saw the implementation of a more rigorous mortgage application process in order to thoroughly assess an individual’s ability to afford a mortgage. As such, processes have become longer, leaving less time for advisers to discuss individuals’ protection needs.”

MMR – help or hindrance? 

Royal London proposition lead agrees that the mortgage advice process has become elongated, but says this is due to lenders and brokers ensuring customers can afford and sustain a mortgage over the long term. She says protection providers can help by streamlining their processes, enabling advisers to bring protection into the mortgage fact find without dragging the process out further. 

For Masons Financial Planning director Dean Mason, not having enough time can never be an excuse for sidelining protection. “Brokers and advisers should be holistic and meticulous in their approach to the clients’ financial wellbeing. Without a full and frank discussion around protection they are not doing this. The only warnings currently used are ‘your home will repossessed’ and such like, so I believe something official around having adequate protection would help,” he says. 

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Walton believes there should be more ongoing service in protection, just like pensions and investments post-RDR. “Because we get paid on commission, very little comes through as regular income so it’s all about a ‘one hit wonder’ kind of sale. Pensions and investments are constantly reviewed and that’s what we should be doing on protection.”