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Weighing up the pros and cons of independence post-MCD – Tenetlime

by: Gemma Harle, MD of TenetLime
  • 22/02/2016
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Weighing up the pros and cons of independence post-MCD – Tenetlime
Brokers will be faced with losing their ‘independent’ status should they choose to defer on second charge mortgages after the MCD. But what are the benefits of keeping your independent status? Tenetlime's Gemma Harle weighs up the pros and cons.

Canvassing opinion among advisers who attended our recent Mortgage Credit Directive (MCD) events revealed an almost perfect 50/50 split between those who wanted to advise on second charge loans and those who said they’re prefer to introduce.

Many of them said that although they didn’t want to advise on second charges, they were concerned about losing their independent status if they didn’t.

That’s broadly in alignment with a recent Mortgage Solutions poll which showed that almost half of the advisers who responded regarded being independent as very important, compared to 51% who said it was ‘somewhat or not important’.

On that evidence, there is clearly no overriding desire for independence. More important from a broker perspective is getting the right customer proposition in place. That’s what should dictate their status – not just the preference for a one-word label.

Customers will carry on working with a broker for a variety of reasons, from recommendations and long-standing relationships to the quality, affordability and suitability of what they are able to offer. I suspect that whether or not they describe themselves as independent or restricted is bottom of the list.

Using a master broker

As far as benefits are concerned, brokers can still operate as whole-of-market for first charge mortgages, without limiting their access to lenders.

They can then leave second charge loans to the relevant specialists, who will adopt the responsibility for any advice liability. Some advisers, for instance, simply don’t have the time and prefer to delegate to an expert.

On the downside however, if you don’t pick a master broker carefully and carry out robust due diligence, you could unknowingly be accountable for some of their actions.

But whatever decision is made, it need not be viewed as final. After the MCD, if brokers decide to embed a second charge process, they have the option to change their business model. It is not a binding decision forever.

Consumer understanding

I am of the opinion that the independent label means nothing to the average consumer. Instead, it seems that it’s the industry and the regulator who are hung up about it.

Indeed, the perpetual use of such ‘jargon’ could actually end up pushing people away by creating a more complicated image of financial services and the advice sector.

It’s interesting that although the term ‘independent adviser’ doesn’t mean much to the general public, most of them assume that banks give completely independent and impartial advice, even when their disclosure says the opposite. This just shows how much the perception is skewed.

In some respects, the term ‘independent’ is not really appropriate to begin with, meaning anything from ‘unconventional’ and ‘disassociated’ to ‘maverick’ in some quarters. A ‘maverick adviser’ – hardly something that will inspire public confidence.

So I’m not sure, in consumer terms, what the benefits of such a label are. Ironically, being restricted is probably a more widely understood term of reference.

Either way, one word can never adequately perform the function it is expected to do. Much more important is how you describe the services you offer, both verbally and in your initial disclosure document. ‘Independent’ as a title or name doesn’t really explain anything.

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