But there are times when you just have to abandon restraint. A few weeks ago, the FSA announced that it was fining Hadenglen Home Finance, a Leicestershire firm of mortgage brokers, £133,000 for “inadequate systems and controls” when selling mortgages and PPI to its customers.
Unusually, chief executive Richard Hayes was also fined £49,000 after being identified by the regulator as the person responsible for the firm’s business practices and for ensuring that its systems and controls for selling remortgages and PPI were appropriate – which they clearly were not. If he had not admitted his guilt, he would have been clobbered with a £70,000 fine.
Surprisingly, the story| did not attract much media attention. If you do a Google news search on the announcement of the fine, virtually all the stories about it were carried by trade papers and a few specialist websites. So let me try to redress the balance a little.
Hadeglen is a mortgage firm specialising in the sub-prime market. Its clients are mainly ex-council tenants who bought their own homes. What was inter-esting about the firm’s sales approach was that it decided fairly early on that it wanted to extract greater value from its existing customer base by selling them new mortgages barely a year or so after it had already “helped” them with their first homeloan.
The slight problem was that these borrowers had, in the main, three-year fixed deals with early redemption penalties of between 5 per cent and 6 per cent. Undeterred by this, the salespeople completed fact-finds to the effect that borrowers were remortgaging in order to increase their borrowings – not that there was any evidence that alternative sources of credit such as personal loans were ever discussed with clients.
The new loans not only cost borrowers a hefty redemption penalty, it also led to a fee of almost £2,000 for the “advice” given. In several cases, the combined redemption penalty and broker’s fee was greater than the clients were looking to raise.
Then there was the issue of PPI. Bizarrely, given that most MPPI sales are based on monthly premiums, in this case, the advice was to take out five-year single-premium policies.
The productivity of Hadenglen’s salesforce was quite astonishing. During the period between January 2005 and June 2006, when the FSA’s monitoring team finally began its investigation, the firm, which numbered about 12-20 salespeople, managed to sell around 2,000 remortgage contracts and 1,900 PPI policies to its customers.
It is interesting to note that last week, the FSA felt compelled to put out yet another press release about PPI sales, in which managing director of retail markets Clive Briault says: “While some progress has been made by the industry, we are extremely disappointed that some firms have still made little progress in improving their sales practices.”
The FSA is now saying that four companies are under close scrutiny on this issue, with another 20 facing the possibility of an investigation.
What has also become apparent is that despite huge fines now totalling £1.5m against the worst-offending firms, a long-running investigation by the Office of Fair Trading and a separate report now being prepared by the Competition Commission, the insurance industry seems prepared to continue with sales tactics that should have been stamped out years ago.
Not that this has prevented the Association of Finance Brokers, the secured loan arm of Aifa, from claiming the credit for “improvements in the market”. Director Robert Sinclair claims the AFB has “worked hard” to respond to earlier criticism on PPI sales. Clearly not hard enough.
Why does this matter to IFAs? The issue of PPI misselling brings massive reputation risk to all independent advisers. Yes, the banks and building societies, as the biggest single providers of loans, are the biggest culprits in this but the fact remains that PPI, both as a product and the way it is sold, remains a festering sore within the financial services industry.
Unless it is excised, it will continue to damage the credibility of thousands of IFAs who, in most other respects, are blameless.