Under the Financial Services and Markets Act, the Financial Services Authority (FSA) has not been given the responsibility for regulating mortgage advice provided by lenders, brokers and other advisers. The reason for this is likely to be one of cost and resource and has left many industry commentators speculating on the prudence of this.
However, the proposals set out in CP98, the consultation paper proposing the new mortgage regulations, focus heavily on regulating the level of information given throughout the entire mortgage lifecycle from pre-sale to redemption. And, while in today’s market lenders book most of their business through advisers, the proposals will make them reluctant guardians. This is because they will be responsible for the quality of information provided to all their customers, regardless of the channel through which they sell.
While lenders complain they lack the resource or expertise to be able to do this effectively, it looks unlikely that any radical changes from CP98 will be made. The FSA is fixed on ensuring the transition to the new regime is as smooth as possible when it comes into effect no later than 31 August 2002.
Mortgage advisers will therefore be increasingly under the spotlight from lenders, who will be unforgiving to those that make mistakes. Reputations have never been so acutely at stake ‘ advisers must ensure they are in compliance with the eventual final legislation at every step of the way.
Still, this should all be worthwhile. Mortgages can provide lucrative business for advisers. That said, only around 50,000 advisers have signed up to take the approved examinations so far, and apparently only half of these have actually passed them. At least 10,000 advisers are yet to decide whether they will even enter the market.
At present there are around 1.5 million mortgage transactions a year, yet only 25,000 authorised mortgage advisers. This provides each intermediary a potential market of around 60 customers each. On the basis of an average basic commission of £300 per mortgage, £18,000 can be accumulated even before the cross-selling opportunities are considered. Clearly there are plenty of incentives for the remaining advisers to ensure they are qualified to advise by August 2002, and make sure they get a piece of this action.
However, the worry in the market is that the onset of regulation and the fraught application process will prevent many advisers signing up. Many advisers do not relish the prospects of the mortgage market. The complicated sales process has caused them to shy away, seeing it as too much hassle for not enough money.
It is small wonder that mortgage sales are not at the forefront of every adviser’s mind. Even if all goes to plan, selling mortgages is not an easy process. First, as if the sale itself on the customer’s premises was not hard enough, look at what follows. Initial quotes have to be attained, lenders selected, application documents be completed, references chased, valuations organised, documents must be presented to the chosen lender, offers chased, solicitors selected and completion chased from all parties. All these have to be fulfilled before an adviser can even think about chasing the lender for fees.
Traditionally mortgages sales have been a burden and regulation is not looking to make life any easier for advisers. It is, after all, designed to look after the interests of consumers and not industry players. So how will the new mortgage regulations impact on advisers?
The most driving piece of regulation is for clear and comparable information to be made available to consumers throughout the lifetime of their mortgage. As part of this advisers must provide customers with:
• A standardised disclosure document before sale, so customers are better able to shop around between lenders.
• Post-sale information requirements, so customers remain informed about the mortgage and are made aware of any changes in costs.
In addition to improving the information given to potential borrowers, the FSA is consulting on rules requiring lenders to keep customers informed of any changes to their mortgage.
In the mortgage industry there are often many different parties to interface with ‘ lenders, underwriters, solicitors and intermediaries. Each of these will be underpinned by their own archaic paper-based processes.
Furthermore, while lenders are charged with overseeing these standards, it is often, ironically, their systems that are least up-to-date and most to blame for failing to adhere to the correct documentation procedure.
At present even simple loan amendments can sometimes be embarrassing for the lenders and advisers concerned ‘ not to mention frustrating for the customer, due to the vast interchange of paper-based amendment forms between customer, adviser and provider.
And what are the consequences for intermediaries if they get it wrong? As yet no-one knows. But there is likely to be a fine-based system that will make mistakes costly for the intermediary.
The poor track record of support from lenders’ administration departments makes the prospect of being regulated by them unattractive to intermediaries.
However, there is a solution for those advisers who wish to sell mortgages but want to avoid the stress of interacting directly with the lender. Business Service Providers (BSP) provide a value-added combination of managed services, application service prov- ision and third-party administration services ‘ they address the needs of advisers wishing to make a more lucrative living out of selling mortgages.
BSPs have to sit the same MCCB examinations as advisers in order to operate. Unlike an adviser who should concentrate on sales, a BSP ensures the correct documents are being processed at every stage of the transaction. As specialists they keep much tighter control over the whole administration process and ensure it is carried out according to regulation.
Above traditional packagers, BSPs can provide intermediaries with an individual, tailored, efficient service. For example, an adviser can expect to receive a quote over the phone within minutes. This means a quotation in principle can be provided to a customer while the adviser is still on the customer’s premises. Such levels of service will please the lender, now responsible for regulating an adviser ‘s service.
An adviser can simply provide a quote, gain commitment to proceed and then arrange for the application forms to be completed. Once sent to the BSP, the adviser is free to focus on cross-selling other products, or even to move onto other prospects, rather than getting tied up in administration and regulation. This can be done safe in the knowledge that an experienced team is looking after what can be a long, complex, multi-party completion process.
Although a great many processes are being handled invisibly, the adviser is always kept up-to-date. They are informed at different stages of the case’s progression throughout the process. In this way they can provide good customer service by notifying the customer and thereby providing assurance that things are progressing as they happen.
When choosing a BSP there are some key considerations to make. First, look for evidence of top class personal customer service. Take a close look at their staff. How highly trained are they and how many years experience do they have in the mortgage market? Are they certified to practice by the MCCB?
Also, take a look at some of the technology being employed ‘ especially their customer relationship management (CRM) systems. Are these focused on the mortgage industry, for instance? Is it just a front-end system with a delayed batch processed link to a legacy back office system? A system needs to be able to effortlessly and efficiently handle the processing of mortgage applications right up to offer stage and beyond, through the lifetime of the product.
The BSP, its staff and its systems must all be focused on mortgages to provide advisers with an excellent personal service and ensure they comply with the eventual regulation. A simple, large call centre operation on its own is no longer good enough.
Contact management information is another technological bonus, which should also be made available to intermediaries. Although some intermediaries choose to retain all customer information in their own possession, others prefer to outsource this too. In this case an intermediary must investigate how accessible the customer information is. Those advisers heading for a paperless office can really benefit from such a value added service.
In summary, the cross-selling opportunities make mortgages a clear door opener for advisers and there is a huge market out there which remains untapped. So make the most of the current healthy housing market, but make sure you do not get saddled with the regulatory burden.
While mortgage advice will not be regulated the information provided by intermediaries will be.
The time savings offered by BSPs enable brokers to spend more time cross-selling to clients.
Providing application services and third-party administration, BSPs can help brokers ease the regulatory burden.