Rebalancing risk shouldn’t mean sidelining advice – Murphy

In many ways, Nikhil Rathi’s latest speech, covered in Mortgage Solutions here, is a clear signal that the FCA wants lenders to be bolder again. The message is that taking on more risk will help unlock growth, widen access, and benefit consumers.

That might sound appealing to certain larger-scale lenders, but it also feels at odds with so much of what the regulator has been saying over the past two years, not least in the context of Consumer Duty.

If lenders are being encouraged to take more risk, then who’s carrying the responsibility when things go wrong? Especially if that “rebalancing risk” message essentially leads to more execution-only/direct mortgage business.

There’s also a philosophical contradiction here. We’ve seen the FCA lean towards deregulation on several fronts recently, making it easier for borrowers to avoid advice altogether, with this summer’s removal of the advice interaction trigger.

At the same time, it also clarified stress test rules, and according to Rathi, lenders have told the regulator this has allowed them to offer borrowers an extra £30,000 on average.

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That is good news because it might well mean the difference between being able to purchase a home or remortgage to another lender or not, but at the same time, this feels like a situation that requires advice because of what it means for those borrowers – especially if they’ve simply walked into the branch of the lender allowing them to do this or they’ve made a phone call direct.

Who will tell them what this might mean for them? Who will be able to tell them that other options/products/lenders might be more suitable? Will they fully understand what an extra £30,000 means for their repayments, their total interest over 30 years, or their vulnerability to rate rises? Without advice, they’re effectively being invited to shoulder the risk.

In that sense, there appears to be a clear disconnect between the regulator’s ambition for greater risk-taking and its understanding of customer impact.

The advisory profession exists precisely to bridge that gap. Advisers explain affordability, taking a long-term view of the client’s financial wellbeing, not just the transaction in front of them.

And yet, this same regulator has made it increasingly difficult for remortgaging customers to engage with advisers, pandering to the lender lobby to ‘simplify’ the process, but in doing so, stripping out the very advice that ensures positive outcomes.

Financial education announcement is a plus but doesn’t replace advice

Of course, there are further positives to unpack. The announcement that financial education, including mortgages, will form part of the school curriculum is a step in the right direction. Helping children to understand the fundamentals of how mortgages work can only be a good thing.

But even with a strong working knowledge, there is a vast difference between being able to describe a mortgage and being able to select the right one for your circumstances.

Education and advice are not the same. The protections advisers provide, from stress testing through to ensuring long-term suitability, simply cannot be replaced by classroom learning or online literacy tools.

Advice is ‘essential infrastructure’

Rathi also spoke about financial capability and “reaching those excluded from the system and encouraging those who opt out to re-engage”.

That’s an interesting choice of words, given this is the same regulator that has argued in the past that many consumers don’t want, or need, mortgage advice. It’s hard to reconcile those two ideas.

Financial capability is not just about understanding money. It’s about having the tools and the confidence to make good financial decisions, and that’s what advisers already deliver every day. They improve financial capability in practice, by ensuring consumers make informed choices and by being accountable for the outcomes of those choices.

So, yes, let’s celebrate the renewed focus on financial education. But let’s also recognise the irony in a regulator that talks about inclusion, empowerment and skills while seemingly ignoring the one profession that consistently delivers all three.

Advisers are not a barrier to financial capability – they are its foundation. If the FCA genuinely wants a fair, inclusive market, it needs to stop treating advice as optional and start recognising it as essential infrastructure.