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Execution-only focus is confusing if consumer benefit is the goal – Clifford

by: Rob Clifford, chief executive of Stonebridge
  • 14/02/2020
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Execution-only focus is confusing if consumer benefit is the goal – Clifford
I thought the primary objective of the Financial Conduct Authority (FCA) was consumer protection, yet like many in the industry I read the Policy Statement issued by the regulator at the end of January with astonishment.


Not, I should point out, enthralled by the content and how it is going to ensure far better mortgage outcomes for consumers, but aghast that it represents such a major and risky departure from the principles of the Mortgage Market Review (MMR). 

In reading the statement, the old Latin phrase, ‘scientia potential est’ clearly applies: “knowledge is power”.  

Or in the case of the FCA’s rule changes which are likely to encourage far greater levels of execution-only activity, “lack of knowledge is power”, particularly for the big banks who have no doubt lobbied heavily for this turn of events and could dual-price to their hearts’ content to secure more direct-from-consumer business.  


Return of former practices 

In a way – and I have been in this market for long enough to remember – it looks like the return of the regulatory classification ‘information only’.  

The new execution-only guise, like its predecessor, allows lenders and online aggregators to hide behind a process which provides minimal information via product ‘suggestions’.

Such a scenario could easily be regarded by consumers as advice and is a route that distinctly lacks consumer protection, given that regulated advice will not play a part in the consideration of suitability. 

And this is all apparently in a quest for less consumer harm, because bizarrely the regulator seems to hold a view that advisers pose a risk to unsuspecting consumers; bunkum.   

Of course, I believe that consumer detriment is at the forefront of FCA minds, but the industry is going to need help in understanding why reducing regulatory barriers to encourage execution-only activity is a way to deliver consumer benefit.  

We have a vested interest of course, but as many impartial commentators are reflecting, the potential here is that you create far greater possibility for consumer detriment, borne out of a likelihood that consumers will choose the wrong product for themselves.  

Furthermore, consumers – as happened in the old regulatory regime with the troublesome ‘information only’ category – will believe they are getting advice when they are not.

How many consumers will truly realise they will have little recourse for a wrong decision?


Undue focus on cost 

What has led us here? In its interim Mortgages Market Study report, the regulator was heavily criticised for what was seen as a fixation on price; the cheapest as the best.

It’s conclusion was largely based on best buy tables and cemented by the assertion that “30 per cent of consumers could have found an identical or better and cheaper mortgage elsewhere”.  

This was despite the regulator conceding that it did not take into account lender’s service standards, the length of time those cheaper deals were available for or the funding that might have been gone by the time the application was made.  

But it has not taken that legitimate challenge on board.

In fact it has doubled-down on it, but only for the adviser, who must now make it absolutely clear why his or her recommendation was not for the cheapest product, even though there is no regulatory model which determines what ‘cheapest’ truly means and what it should include.  

And yet, the execution-only business models will not need to tell the customers if they can secure a cheaper mortgage elsewhere, versus the one they are crossing their fingers and applying for.  

It’s not just the double-standards or undermining any sort of level playing field, but it’s completely odd.

And, incidentally, these new measures seem to encourage banks and lenders to operate dual pricing, after we’ve spent the last decade or so largely eradicating the practice, to the borrower’s advantage. 

It’s a rum do by anyone’s estimation and I would be most interested to hear the FCA’s reflective justification for it.  


Advice will prevail 

I am however heartened by the Association of Mortgage Intermediaries chief executive Robert Sinclair’s view that the bark of the policy statement is rather worse than the bite of the actual rule changes.  

Sinclair has suggested that a move to execution-only still comes with specific challenges, and that many may consider them insurmountable, especially when it will be the Ombudsman who determines if they’ve strayed into advice or not. Would they want to risk this?   

In that sense, we may not see a headlong rush to execution-only and I’m still very much of the opinion that consumers want – and need – advice and that the intermediary share of business, because of the quality of service we can offer, will stay at current levels if not pushing on to take more.  

A strong ray of sunshine here to whisk away any cloud this policy statement might have created.  


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