With CP146 the Treasury highlighted fears that the number of independent advisers might fall, because many consumers will be reluctant to pay a fee for advice.
But, actually, whether the number of independent advisers rises or falls will depend entirely on the final shape of the regulatory environment and adviser’s own ambitions and plans for their businesses. It will not depend on a drop in demand for quality fee-based independent advice.
While fees may not be the best choice for every client, it should be expected that there will continue to be a healthy demand in this area. The UK mortgage market is one of the most innovative in the world and every reputable broker knows match-ing a mortgage to a customer’s circumstances is more than the headline rate. It requires a professional service supported by extensive expertise and resources. Good advice may cost hundreds but can save thousands.
During the CP146 consultation, there is likely to be a variety of views on what the term ‘independent’ will come to mean from a regulatory perspective. Certainly the requirements to be met in respect of fees for brokers in order for them to call themselves independent needs careful consideration, and no doubt the Financial Services Authority (FSA) will be canvassing views on the subject.
One other cause for concern is that as CP146 currently stands, home reversion schemes will be excluded from mortgage regulation. This means non-authorised advisers ‘ who may not have the skills and training to compare and contrast these schemes against regulated equity release schemes ‘ could still sell these schemes.
There is a clear danger some people will opt for a home reversion scheme where an equity release product may be better suited to their circumstances. This highlights the need for independent advice from regulated advisers who can present all options to clients, who in this area are likely to include some who are vulnerable. It is expected this sector will expand rapidly, particularly in view of declining pension income, and it is important the regulatory structure does not result in mis-buying or mis-selling.
As unauthorised businesses will have lower costs and may offer their so-called services more cheaply, there is a real danger vulnerable pensioners will sign up for a home reversion scheme without knowing there are other, often better, ways to achieve their objectives.
While there is still ground to cover before the final face of regulation emerges, the industry should embrace the consultation process as an opportunity rather than a challenge. Ultimately, both the FSA and the intermediary industry need to ensure that in the end the winners are the borrowers.
Ricky Okey is general manager of Charcol