The Financial Services Authority (FSA) is in a quandary over how to define an independent mortgage adviser, with regard to the forthcoming regulatory regime.
The recently published consultation paper (CP146) has revealed that the regulator is unsure how to classify different types of mortgage intermediary. The two options proposed by the FSA in chapter 10 could either create a category of independent mortgage intermediary who would be subject to the same regulatory requirements as advisers working in the investment market, such as defined payments. Or they could allow brokers to call themselves independent, as long as they disclose which lenders they deal with at the initial client meeting.
Both definitions have caused concern. If brokers are allowed to use the title ‘independent’ regardless of whether they have access to the market or are tied to two or three lenders, it will be confusing for consumers.
But if independent brokers are linked to rules governing IFAs, they may have to work off defined payment rules and consumers may not want to pay for advice, which would reduce the number of truly independent advisers in the market.
James Mayne, head of strategic development at Britannic Money, said: ‘When you simplify the issue it boils down to this: how can a firm call itself an independent mortgage adviser when it isn’t independent and doesn’t provide independent advice? On the one hand, there is pressure to keep the title independent, because it is a unique selling point and differentiates advisers from the high street, but on the other, consumers need to know whether they are actually getting independent advice.’
Rob Clifford, managing director of mortgageforce, agreed: ‘My prediction is that defined payments for independent mortgage advice would have to be reviewed. It is worrying to think brokers may soon not be able to call themselves independent if they receive commission. Brokers are not going to mis-sell mortgages on account of £10 or £20 difference. It is different in the IFA sector where different products have different procuration fees.’
One of the problems for the FSA is the outcome of CP121, the consultation on depolarisation, which will set out how IFAs are allowed to receive payment. If a new category of independent mortgage adviser is created they could be governed by any revised changes contained in this, but it will not be published until later on this year.
Charles Ansdell, corporate relations manager at InterAlliance, said: ‘The signs are that the Government and the FSA have loosened their stance over defined payments. As long as it is clear the relationship is between the adviser and the client, there may be independent advisers who work on both fees and commission. But until the final rules are published we can’t assume anything.’