As we approach full regulation of secured loans, for many mortgage brokers the plan has always been to refer any seconds cases to a loan broker. While there is a lot to be said for offering a more holistic service to your clients and advising on both firsts and seconds, one can also understand why some brokers prefer to pass the case on to an expert instead.
I’ve no doubt many brokers have been planning to do this once seconds come fully under the Financial Conduct Authority’s (FCA) jurisdiction in March next year.
However, a recent reminder from the regulator may have made them change their minds. In case anyone missed it in the small print, the FCA has confirmed that any broker who chooses to restrict their advice to only firsts or only seconds will no longer be able to call themselves independent or whole of market – nor will they be able to use such terms in their marketing and branding.
As many brokers pride themselves on their whole of market status this will come as a blow to those advisers who were planning on operating a referral model for second charges.
So what options do they have?
Well, they’ll first need to ask themselves just how important the independent label is. If they are willing to sacrifice it then referring clients to a loan broker is certainly still an option. And it has its benefits. In doing so the broker relinquishes all responsibility for the client with the loan broker taking sole responsibility for the advice.
If, however, the broker does want to keep his independent status he should look into using a loan broker in a packager capacity. This means the advice would still come from the broker but the packager would offer all of the underwriting support and assistance needed to ensure a compliant sale. The second charge packaging model already exists so brokers have nothing to fear apart from choosing the right one.