Why we must not be fooled by lender motives on advice – Murphy

At the time, I said CP25/11 looked like a workaround designed to meet a lender agenda. Unfortunately, with the Policy Statement PS25/11, which outlines the rules now published, that view has only hardened.

The speed with which CP25/11 became PS25/11 last month should give everyone pause for thought. We are told this is about consumer choice, about removing ‘friction’ in the process, about giving (existing) borrowers more control. But let’s not kid ourselves. This is primarily a move by those lenders who distribute directly to bring down their cost of acquisition.

In a number of conversations over recent months, representatives from a number of these lenders have been explicit in their views to JLM – that it is cheaper for them to acquire customers through direct or execution-only channels than via advisers and therefore, of course, they are going to pursue a strategy that seeks to increase this type of business.

Cutting lender costs

Strip out the procuration fee, strip out compliance responsibility, strip out the long-term risk of advice, and it is no surprise they like a direction of travel that makes advice less accessible. But to dress it up as a win for consumers, as this latest FCA policy statement suggests, is misleading at best.

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Already, we are seeing the thin end of the wedge in terms of what this will undoubtedly lead to – the return (and growth) of dual pricing. Cheaper rates via direct channels. We’re already seeing it.

It’s not about better outcomes, it’s about nudging customers down the path that costs lenders less. The danger is obvious: a two-tier market in which advised borrowers are penalised on price and non-advised borrowers are left without protection.

The inconsistency here is staggering. In pensions, the regulator insists that more advice is needed. However, in mortgages, we are told a significant cohort of borrowers can apparently do without it, actively don’t want it, even though this is likely to be the single biggest financial commitment of their lives. How can two long-term financial products be treated so differently?

Let’s also remember what DP25/2 said only weeks after CP25/11. It described advice as a ‘foundational pillar’ of regulation. It highlighted how 97% of mortgages since 2015 have been advised. It noted high consumer satisfaction with brokers. And it recognised that advisers often go above and beyond what is required of them to deliver the right outcomes. That doesn’t sound like a sector crying out for less advice.

And yet PS25/11 casually removed the advice interaction trigger, giving lenders the green light to expand execution-only. If the FCA truly believes what it wrote in DP25/2, then this change is not just inconsistent, it is damaging.

It undermines the Consumer Duty principles that advisers have been working hard to embed: holistic, outcome-focused, joined-up advice.

Consumers want advice

Consumers have already spoken with their feet over the past 10 to 20 years. They want advice. They want access to the whole of market. They want the protections of the Financial Ombudsman Service (FOS) and Financial Services Compensation Scheme (FSCS). None of that applies to execution-only. Removing advice from the process doesn’t give them more choice; it strips away the very safeguards they value most.

The government, especially one seemingly so willing to accept any idea that supposedly increases GDP, and the FCA should stop and think. They must not be fooled by lenders’ true motives on this one. Execution-only and dual pricing are not about delivering a greater consumer benefit or choice. They are about lowering acquisition costs to increase profit. We have heard it ourselves from the horse’s mouth.

If we forget that, if we allow this narrative to dominate, then we risk repeating past mistakes. And once again, it will be consumers – not those lenders who offer direct/execution-only options – who will ultimately come away worse off. If Consumer Duty does mean anything, the government and the FCA must not allow lender profits to be put before strong consumer outcomes and much-needed protection.