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Brokers must set expectations for Consumer Duty or face the consequences – Crane

by: Tony Crane, founder of Crane Consulting
  • 19/05/2023
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Brokers must set expectations for Consumer Duty or face the consequences – Crane
A while ago, I made the following comment on a report in Mortgage Solutions about Consumer Duty.

I said that I wasn’t: “Surprised that nearly half of brokers are saying they aren’t fully prepared for Consumer Duty.  

“The work is extensive, and not everyone is going to get this right first time. There are two areas that I think I’d be focusing on, first, what is my advice proposition going to be – point of sale only or point of sale plus ongoing servicing? 

“The risks, responsibilities and how those impact the costs/commercials and Consumer Duty compliance are very different depending on which proposition is on offer. The second thing I’d put near the top of my ‘to-do’ list is making sure I’m prepared for the data transfer from the manufacturers at the end of April.  

“The earlier brokers engage with the manufacturers and understand what’s going to come across and how it will be transferred and interpreted, the better.” 


Considerations raised 

Since then, I’ve had quite a few challenges and questions about what I meant in the first part of that statement.  

So, here goes, and note, the below is predicated on my belief that the advice is defined under Consumer Duty as a service and therefore brokers can be both manufacturers (of advice as a product/service) and distributors, depending on how their scope of service is defined.  

In my opinion, the decision a broker makes in terms of scope of service is fundamental in determining their Consumer Duty requirements. I think there’s an argument that if the broker offers point of sale advice only (transactional) then all ongoing monitoring post completion falls to the manufacturer (lender), if, on the other hand the advice, includes the transaction plus a continuation of service then some of those ongoing responsibilities will also fall to the broker.  

My rational for that is as follows:  

When Consumer Duty talks about “outcomes” what it’s referring to are the financial outcomes associated with the product/service being provided. So, in regard to mortgage advice under a transactional arrangement it could be argued that the “outcome” is delivered the day the mortgage completes – the financial outcomes being: 

  • Customer receiving a transfer of funds from the lender. 
  • Lender completing on a mortgage product that meets the financial needs/characteristics of the customer – e.g. an affordable fixed payment on an agreed repayment plan for a defined period of time.  

In that scenario, the responsibility of the adviser to monitor “outcomes” ceases the day the product completes because the “outcomes” have been achieved, in that scenario all monitoring thereafter falls to the manufacturer (lender).  

The reason for that is that they have a third financial outcome to monitor against: 

  • The repayment of the outstanding mortgage balance  

In my view, it’s reasonable that the third financial outcome isn’t covered under a transactional arrangement but is covered if the broker proposition is the transaction plus a continuation of service. 

Furthermore, if the proposition is transaction only, the considerations around assessment of vulnerability could also be impacted. If I’m considering characteristics of vulnerability versus the outcome I’m trying to deliver, then limiting the outcomes to those that I can deliver by completion could significantly reduce the materiality of those characteristics.  

I think it also removes the requirement (on the adviser) to monitor those characteristics on an ongoing basis – but that would still be required of the manufacturer who has the third financial outcome to report/monitor against.  

I’m not trying to argue that one type of advice proposition is better than the other, and for some groups (the vulnerable) and in some markets (later life lending, for example), transaction only may not be appropriate, but it does simplify things.  

In short, I’d encourage advisers to think through the implications/consequences of all of the propositional options before deciding what they want to offer as that decision could materially change the work required.    

Comment from Robert Sinclair, chief executive of AMI: “Tony makes a really interesting case and gives plenty of food for thought. There are areas where we completely agree and some areas where we wouldn’t go as far as Tony has, but what’s clear is the importance of setting out clear expectations with clients and ensuring the implications of the different servicing models have been thoroughly considered before the July deadline.”  

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