It accepted that it was important for customers to have freedom of choice and recognised that not all customers need advice.
But it was also very concerned that creating an execution-only channel, to accommodate a minority of consumers, could be used as a means of circumventing the more rigorous advised-sales standards.
It drew a comparison, at the time, with self-certification—worried that execution-only might similarly become the norm and be used beyond the small group for which it was created.
Interestingly, lender and intermediary representatives agreed that it would be difficult to prevent an execution-only process from being gamed.
As a result, execution-only was put in a very small box, available to specific customer types and with strict controls around firms’ policies to monitor the extent to which it was used.
A very radical change
Now, however, the regulator is proposing letting execution-only out of its box and making it more generally available.
The FCA says that “the advice rules introduced under the MMR had the effect of limiting consumer access to execution-only processes more than was intended,” and that what is now proposed is not a radical change.
Anyone involved at the time will recognise this as a very radical change—almost a complete reversal of the MMR’s policy intention.
Lenders and the lender trade bodies must be delighted, but it’s worthwhile remembering some of the MMR findings.
High-risk customers unadvised
In 2007, lenders provided advice in 36 per cent of mortgages they sold, while intermediaries provided advice in 92 per cent of those that they completed.
Worse, this included, for example, that 58 per cent of credit-impaired borrowers were not given advice by lenders.
And 63 per cent of self-employed borrowers were not given advice by lenders.
The regulator was concerned by the fact that a considerable number of customers, including higher-risk customers, did not get advice if they went direct.
Is the FCA really no longer worried about this?
Impossible to contain
Once the execution-only process is out there, it will be impossible to contain.
In today’s challenging, cost-conscious market, taking the easy route is almost a no-brainer for lenders and intermediaries alike.
Lenders save on paying a procuration fee and on the cost of expensive in-house qualified advisers and compliance processes. They also get rid of redress and claims management costs.
Some brokers, similarly, will be tempted to move away from advice, which is expensive to provide and comes with exorbitant professional indemnity and compliance overheads, as well as with the ever-present spectre of the Financial Ombudsman Service.
They may lose a procuration fee, but they’ll gain a referral fee and reduce their costs and overall compliance burden.
Why not simply provide consumers with generic information, ask them to choose a deal for themselves and then arrange the mortgage on their behalf on an execution-only basis?
The FCA says that’s okay, so why not?
What the FCA really wants
Is this really what the FCA wants?
Doesn’t this risk exactly the same unintended consequence we saw following the Retail Distribution Review (RDR), which has left millions of middle earners in an advice vacuum and is now having to be retrospectively patched up?
The regulator would be far better focusing on and supporting the industry to develop technology that will deliver a fully regulated, compliant, speedy and efficient online advice process for all mortgage customers.
That would be moving forwards rather than backwards and would deliver a positive outcome for all, regulator included.