This came to mind when reading the FCA’s Mortgage Market Study Interim Report with its apparently “cynical” focus on price as the main determinant of a good mortgage customer outcome and its apparent dismissal of the value of advice.
The analysis contained in section five of the report focuses on the degree to which customers could have got a cheaper priced deal than that recommended to them by an adviser. There is very little discussion at all about the myriad of other factors which a good adviser will take into account when making a recommendation of not just product, but lender too. I believe that there is more to value than just price. It’s not all just about the money.
Price at any cost
If the rest of our lives were lived out on this “cynical” basis, then we’d all be driving Dacia cars, flying RyanAir and buying our clothes at Sports Direct. And on an adventure holiday, we’d be first in the queue for a firm advertising “cheap bungee jumping”.
Let’s just look at the other factors that an intermediary may take into account when deciding which lender to recommend to their client.
They may consider how fast and smoothly a case may go to offer – normally a critical factor in house purchase cases. Does the broker know the lender’s systems to be able to submit the case efficiently?
Do they know its soft underwriting factors, and have a good relationship with the underwriters to discuss grey areas about the case which the sourcing system will not display?
What will be the lender’s attitude to further borrowing if it is needed? What is its reputation for treatment of customers with payment difficulties? What are the criteria around property acceptability – acknowledging that a lending decision is only partly about the acceptability of the creditworthiness of the customer ?
And, given the experience of the last few years, is it a lender who is going to stay around, or go out of business and sell on their customers to a faceless hedge fund?
These sort of factors are never going to be programmed into a price comparison site or even the most extensive sourcing system. Even the most advanced of the robo-advice models are still in the “machine learning” phase of AI development and have therefore to supplement the work of the algorithm with real human advisers.
Quality will out
So, having established that the advice process can actually add value into the lender and product selection process, what other benefits does advice provide ?
Well, properly advised customers are a better bet for lenders. They will, if the job has been done well, understand the commitment they are taking on. They will have discussed and considered the length of any fixed rate they are taking out. They will have discussed the protections they may need to maintain their lifestyle and protect their home.
Lenders should want, and I believe, do want, advised customers. In the USA this has been taken a step further, where the funder Fannie Mae will give discounted rates to borrowers who have taken an online training course to prepare to borrow, and have successfully proved themselves to be “qualified borrowers”.
I hope that many of you will take the opportunity before the end of July to explain to the regulator how there is more to value than price and the genuine value of the advice service you provide.