Association of Mortgage Intermediaries director general Chris Cummings says the AMI is concerned about the content of the speech made by FSA head of mortgage and credit unions Jonathan Fischel at the Mortgage Business Expo, where he implied that the regulator was introducing new disclosure requirements solely for independent mortgage intermediaries.
Fischel told delegates that whole of market advisers should acknowledge to customers that there are some deals only available direct from lenders which may be more competitive than what they can offer.
He said: “We think that in such cases, the intermediary should clarify to their customer that while they are not tied to a particular set of providers, there are certain deals only available direct from lenders and that if they want to investigate that sector of the market for themselves, they may find more competitive products.”
Fischel told delegates that the regulator did not think this was “an overly onerous disclosure” and that intermediaries should want to make such disclosure in a positive and pre-emptive way. He said intermediaries ran the risk of complaints and damage to their reputation if the customer subsequently discovered a better deal on the high street.
He said the FSA did not expect the intermediary to point to a specific product or provider and that the regulator would have no difficulty in the intermediary drawing attention to the different levels of service available from lenders.
Cummings says Fischel did not explain how tied salespeople would have to respond. He says: “To suggest that a direct deal could be more competitive fails to recognise the service provided by an intermediary. This leads to questions such as should an IFA tell an investment client that they may get a better deal by going direct? Should a tied adviser refer to the fact that their customer may get a better or more suitable product from an independent adviser?
“The mortgage market has rules relating to mandatory disclosure of status that are clear and should be sufficient on their own. The FSA should not choose to announce regulatory changes at a trade show without considering the wider ramifications of its announcement.”
Highclere Financial Services partner Alan Lakey says there have always been some deals that whole-of-market intermediaries cannot access, such as mortgage products from HSBC.
He says: “By definition, intermediaries cannot be whole of market. There needs to be clarification from the FSA on this but I do not know what that clarification can be. Would you call it most of market? Then you start getting closer to multi-tie. It is confusing.”
Independent consultant Kevin Duffy says: “What the AMI’s pronouncement brings back into consideration is the fact that the definitions used to describe multi-tie, single-tie, whole of market and fully independent are never so much in need of a complete overhaul than they are now. Each of these parties sits differently in the debate around dual pricing.”
Duffy believes that depolarisation has failed, creating ambiguity and uncertainty. He says: “I would like to see a return of a polarised world where advisers were either whole of market or single tie, so that practitioners’ behaviour in terms of dual pricing was much clearer.”
Cummings says the AMI fears the potential repercussions across the financial services market. He says: “With around 60 per cent of regulated mortgage business traditionally placed by mortgage intermediaries and this number having increased in the first quarter of this year, as the credit crunch began to bite, consumers are clearly saying that they value advice. If the regulator insists that independent intermediaries must point consumers away from them, many may feel they should buy direct.
“The FSA’s own figures show that most people who buy direct tend to visit only one lender. With thousands of mortgage products available, it is unlikely that a consumer will happen across the one most suitable for them.”
Mortgage Force managing director Rob Clifford says he thinks it is fine for advisers to make a generic statement that there may be more competitive direct products available but wholly unreasonable for them to point to a specific product.
He says: “We must be careful that brokers do not assume there is an obligation on them to point customers to certain direct products. When can we expect lenders’ branches to tell consumers that there are better deals elsewhere?”
Duffy says he personally feels that whole-of-market practitioners do have a duty of care to recommend directly available products to clients when the borrowing need is straightforward and principally price-orientated. He says: “The impartiality shown by the adviser will secure him the goodwill of the client for years to come.”
But he points out that while a mortgage may appear cheaper, it may not represent the most suitable solution if the customer’s needs are not homogeneous.
Cummings says: “A mortgage is one of the key lifetime financial decisions and consumers wish to receive advice to make the right decision. At a time of such market turbulence, does the regulator really wish to rob consumers of this protection? The unintended consequences of this could plague us for years to come, as many people who have bought a mortgage direct feel they have had advice but in the regulatory sense they have not. This leaves them exposed if the wrong mortgage has been bought, with reduced complaint rights at the Financial Ombudsman Service.”