As the advisory profession grapples with the Consumer Duty rules, and how firms intend to implement them, it is interesting to see how other parts of the ‘chain’ are also getting to grips with the requirements.
Just recently, at the UK Finance lunch, its CEO, David Postings, highlighted some of the potential issues for lenders in delivering on the Duty, and it is perhaps unsurprising to hear they too are having to deal with some challenges resulting from the principles-based nature of the regulations, and what that means in practice.
Postings suggested that in the absence of clarity, lenders were likely to take “a cautious approach” and he feared this would result in “fewer people being able to access mortgage products”, and there certainly appeared to be a worry on his part that Consumer Duty, and other policies, would impinge on lenders’ ability to offer the mortgages that people need and want.
While I understand the potential for increased lender caution in this area, I’m also acutely aware that part of the FCA’s remit is to ensure existing and new borrowers have access to as wide a choice of mortgage products as possible.
Do I think Consumer Duty, and its implementation, are likely to hinder this and see lenders pulling up the product drawbridge in any meaningful way? I’m pleased to say I don’t, and a large part of this is down to the role of mortgage advisers and the responsibility they take away from lenders in terms of the advice they provide to consumers, day after day.
Of course, there is plenty within the Consumer Duty lenders are going to need to respond to, and we might well see lenders positioning themselves, and taking much more of a role when it comes to determining fair value, how adviser fees fit into this – both from their perspective and what is paid, and charged, by advisers.
Can I see this impeding product choice, competition, accessible specialist mortgages, or forays into niche areas, for example? No, I don’t.
We are fortunate in the mortgage industry at the moment that we have strong competition across many sectors and many borrower demographics, and the fact lenders are predominantly relying on intermediaries for lending volumes, means they need not be overly fearful of the Consumer Duty and what is required of them.
This appears to me an opportunity for both lenders and advisers to solidify their position in the market, not least in terms of the positive outcomes both can deliver to borrowers, but also in terms of continuing to signpost consumers to the advice channel, the customer choice it facilitates, the consumer protection it affords them, and the ability to cover off not just individual mortgage needs but other financial ones, be that protection, GI, legal, and the like.
Now, this doesn’t necessarily mean that the entire mortgage market is currently singing from the same hymn sheet, and there is still some work to do and some greater levels of collaboration to achieve, particularly in an area like representing fair value and determining which products are suitable for which borrowers, but this doesn’t appear to be a series of hurdles that won’t be overcome.
The nature of the beast
What we do know from experience, and I think this does chime with what David was saying, is that regardless of the ‘due diligence’ policy makers or regulators carry out, there is always likely to be some unforeseen circumstances or interpretation they simply hadn’t envisaged or bargained on.
That tends to be the nature of the policy/regulatory beast, but again I don’t think there is too much for advisory firms to be greatly concerned about. In fact, if the future does prove to be a more cautious one for lenders – perhaps their risk appetite shifts or the regulatory intervention and scrutiny moves up a level – then I believe advisers will play an even more pivotal role.
As mentioned, it may well be those lenders operating direct-to-consumer ‘advice’ operations feel this is a further operational and regulatory risk not worth their while, and again where is the business likely to come from to fill any consequent gap? You won’t need more than one guess for that.
So, overall, while we are in something of a period where the industry is establishing precisely what Consumer Duty means, where it fits, what it requires of advisers and firms, etc, so are other parts of the process.
I have no doubt we, as an advisory profession will get to where we need to be, and in our case, we will continue to support our Stonebridge member firms in delivering on this. In that way, we’ll be able to take advantage of the new Consumer Duty world, and work with lenders and our partners to get the best outcomes for all.
Rob Clifford is chief executive of Stonebridge