The industry has had a little over a month to digest the contents of the FCA’s Mortgages Market Study Final Report and I suspect that, even with time under our collective belts, it will still leave many in the market with a distinct feeling of indigestion, if not full-blown heartburn.
As many commentators (including myself) have pointed out, there are any number of inconsistencies and ‘head scratchers’ within the report but it is the regulator’s approach to mortgage advice, and its suggestion that certain borrowers are being ‘channelled unnecessarily into advice’ that seems to leave the sourest of tastes in the mouth.
This sea-change in mentality – from a regulator putting advice at the heart of the mortgage process to one willing to countenance some significant changes to advice rules in order to facilitate more execution-only business – seems increasingly radical and (quite frankly) bizarre the more I think about it.
It would be even more troublesome if, for instance, the ability to secure mortgage advice was more compromised by the costs charged for that advice. But, as we know, the commission/proc fee payment structure that many firms have, means that the mortgage market is (currently) one of the few financial services areas where consumers can secure advice without having to pay for the privilege.
Now, we could enter into a long debate about the business sense of not charging fees in this marketplace – indeed we have lots of firms within the network who charge fees – but at the same time, we know that consumers can secure top-quality, professional advice (with all the protections it provides) without having to shell out one penny for it.
In that sense, it makes the FCA’s seemingly concerted push for more execution-only business downright weird. When borrowers can secure advice for no up-front charge why would they go down the execution-only route? After all, just a few years ago with the MMR, the regulator was shouting about the importance of advice from the rooftops, having introduced a system of regulation which provided far more borrowers with the opportunity to secure it?
Now, it seems to be saying, we got it wrong. Advice shouldn’t be the be all and end all, and we need to change our rules to facilitate more execution-only business, particularly for those who want to offer a ‘tech-based solution’ for these potential customers.
I’m still waiting to be told exactly who are these borrowers who don’t need advice and wouldn’t benefit from it? According to the report, they are a group who could have saved a little bit of cash, and may (only may mind you) have been able to get a better deal elsewhere, rather than the one they did get through their professionally-qualified adviser, who might well have discounted a number of deals because, for example, it was only available for a short amount of time and the lender couldn’t really handle the business it was already taking on board, and the client had a specific timeframe they were working too – and everything else that an adviser would take into account.
In other words, actually we think there are a group of borrowers who could have ‘done better’ themselves if there’d be better execution-only tools available for them to use. Which by my reckoning, completely discounts why so many borrowers want to use a professional adviser and misunderstands the importance that many people place on advice, not least the protections they get from it.
A recent article on this topic caught my eye because of a number of comments made by advisers under it. One effectively said, “I’m an IFA and I would still use a mortgage adviser”, which tells you that even sophisticated, knowledgeable borrowers who understand the market, still want advice. And another said, “Well if this does happen at least there won’t be any claims on the FSCS when this [the pursuit of more execution-only business] goes wrong.” Although the adviser then questioned whether they were just being naïve?
The point is that, despite the FCA’s protestations that it is somehow neutral between advice/execution-only business, that’s definitely not how the Final Report reads. Instead, it appears to put tech-based solutions to be used directly by consumers, over and above the advice process. How did we get to this point? And how might the regulator have got it so wrong? The next stage of this is very important – I can’t be the only one wishing perhaps that the FCA will have too much on its hands with Brexit-related issues to continue to pursue what seems like a very flawed strategy.
Richard Adams is Managing Director of Stonebridge Group