There is a lot to be positive about – no evidence of procuration fee bias among advisers being the prime example.
However, there is also an underlying feeling that a number of key Mortgage Market Review (MMR) tenets are being unpicked and undone, including the principle and inherent qualities of independent, professional advice.
That should worry us all.
Clearly, there will be a lot more to come on this, but we’d like to focus on one of the key measures announced in the report, namely the FCA’s intention to pursue a broker comparison tool for consumers.
If done correctly this has the potential to be positive and yet, conversely, could also end up being a tool which does not help the people it was meant to and damages advisory firms as well.
How would it work?
The idea of a Trust Pilot-style website and portal for consumers to get an idea of the quality of all mortgage advice firms would, we think, be welcome.
But, judging by the FCA’s response to questions at FSE Manchester earlier this month, there appears to be little idea about how such a site would work.
What metrics would the comparisons be based upon? Who would produce it? What would the level of FCA involvement be? What FCA data (if any) would be utilised?
The list goes on.
What we think the FCA has to understand with such a project is what consumers want to know about their mortgage advice firm.
What is important to their choice? Is it the quality metrics that lenders have on the advisory firms that use them? We very much doubt it.
Instead, for us, there are a couple of fundamentals.
First, they’re going to want to know what type of lender access the firm has? Is it purporting to be whole of market but actually places all its business through a handful of lenders? In other words, will they get the independent advice they’re seeking, or are they likely to be pushed down one of a limited number of channels?
Second, what is the fee structure of the business? Will they pay a separate fee for the advice they receive, or does the firm work purely for the procuration fee? Are there separate fee models for different business areas – equity release, for instance? Is the fee a percentage or fixed? Again, these are important determining factors for the consumer when choosing any service provider.
The problem of course – and this is an issue throughout the entire mortgage market – is transparency.
As mentioned, a firm could purport to be whole of market but the evidence of their business says otherwise.
They could say they don’t charge a fee but when a customer is in front of them, it’s a different story.
So, what we need with such a tool is a source of data and an over-arching organisation to check the facts. Would the FCA be willing to use its data to clarify what the firm is saying is true? It would surely have to. Will it define what it means, for example, to be independent?
One simple way would be to check if the firm had dealt with the top 25 lenders over the space of the last 12 months.
It would be an easy test to apply and would give some clarity to any self-certified data from the advisory firm.
Who has control?
The other big questions are around who puts this together?
It’s unlikely to be an FCA service. Or is it? And how might the results of the comparison tool be presented?
What we wouldn’t want to see is the big firms using their scale to secure an unfair advantage, especially in a market which has lots of smaller firms.
The site would need to fairly compare the biggest of firms against the smallest.
The danger is that the comparison data could be manipulated to skew the results in favour of larger firms.
Or that those with bigger pockets could somehow elevate their firm’s status, paying for prominent positions.
Other regulatory bodies offer up their own register as a consumer search tool – we’re thinking specifically of solicitors or accountants.
However, the FCA register does not work in this way. Could it be repurposed to rank firms and provide comparisons? Probably.
Would the FCA want to do this? Who knows – it doesn’t seem like they do at this moment.
What we have to guard against is that any comparison tool, not policed properly or where the data is down to the firm and nobody else, ends up seriously damaging certain firms.
Maintaining competition in our market is vital – this could end up being anti-competitive and could hasten us towards a market where we have small numbers of very large firms dominating.
That would be a very bad outcome for the vast majority of the market, especially consumers, and we should do all we can to ensure that does not happen.