Advised-only sales: the lender’s dilemma
In a speech last week, he argued that while lenders could sell non-advised products and stay in the rules of the Mortgage Market Review, they would be worried about possible consumer confusion over the meaning of advice – and consequently a barrage of complaints in a few years’ time.
But if lenders do decide the risk is too great, what will they do? Sinclair suggested lenders could outsource sales to trained mortgage brokers, who would take responsibility for these advised sales.
For this week’s Marketwatch, our commentators are:
Association of Mortgage Intermediaries chief executive Robert Sinclair, who suggests outsourcing sales to brokers would reduce both costs and risks to lenders
Saffron Building Society chief executive Jon Hall, whose instinct is that non-advised sales will become a rarity sooner rather than later
PricewaterhouseCoopers Regulatory Practice director David Morey, who says with the right infrastructure, brokers could take on the role
Robert Sinclair, chief executive, Association of Mortgage Intermediaries
We are seeing a move away from non-advised as an initial response by some lenders to the principles set out in MMR.
Some lenders will view training all their non-advised staff as too costly. In addition, where they might be trying to use the carve-out in the rules on administrative or simple contract variations they are not convinced they can stay the right side of not giving advice.
So to reduce the risks, why not outsource the job? This could be by passing it to intermediary or support services firms who have well developed call-centres already. These could be white-labelled to look like the lender, or identified as a ‘supporting’ provider. In other cases this could be offered on a face-to-face basis by firms with national coverage.
Calls currently directed internally might be sent to a third party or some of the current lender staff could be transferred to broker firms to deliver the lender’s products on a white-labelled basis.
I think some lenders will seriously look at this as a means of reducing their costs and also moving the risks outside of their business. It is not the new FCA that worries them as much as the possibility that in a few years’ time the Ombudsman will ask what discussions took place and then interpret that there was an advice relationship despite the intention at the time.
Jon Hall, chief executive, Saffron Building Society
It’s already evident that lenders are becoming increasingly concerned about non-advised sales, because of the potential for confusion in the minds of consumers.
Having weathered the endowment and PPI storms, not to mention the debate from interest-only mortgage sales, lenders are inevitably wary of doing anything that may expose them to future malpractice claims. The general thrust of the Mortgage Market Review is clear for all to see: the regulator would much prefer that borrowers receive professional advice rather than be left to their own devices.
Which makes perfectly good sense. Mortgages are a big financial commitment made on a relatively infrequent basis. Mortgages can also be complicated – it’s therefore right and proper that borrowers have access to professional advice.
Most lenders will ensure that customers have access to advice provided either via a qualified member of staff or via a professional mortgage broker – for some smaller lenders using an intermediary might be the only option. Some lenders, like Saffron, are already used to working with brokers; for others it will be an option under consideration.
My instinct is that non-advised sales will become a rarity sooner rather than later. Although lenders may technically be allowed to do it, I suspect most will play safe and ensure borrowers receive professional advice.
Which has to be viewed as a positive development for the market.
David Morey, director, Regulatory Practice, PricewaterhouseCoopers
In the run up to the implementation of new mortgage rules in 2014 we expect to see a range of strategic responses to the Mortgage Market Review which affect distribution models, and channel choices, in this market.
The fact that the vast majority of sales will need to be advised is likely to lead to a general migration from non-advised sales to advised in advance of 2014. Whilst some customers may seek execution-only sales after MMR implementation, the banks are likely to want to narrow down the delivery risk (i.e. the risk that these customers somehow perceive that they have in fact received advice).
It might be possible that some lenders seek to outsource this sales activity to specialist brokers, although brokers would typically need to establish the underlying infrastructure and capability to undertake this, possibly under a white-labelling model.
In undertaking this sales activity, the broker’s regulatory disclosure of its service proposition will be key in providing clarity to the customer. Other lenders may opt to centralise execution only sales within a focused unit.
Perhaps the more interesting challenges will relate to the completion of i) advised sales which readily demonstrate and evidence appropriate customer outcomes and ii) the enhanced affordability assessments needed.