Examining the issue in this week’s Market Watch are:
Stephen Smith, director of housing at Legal & General
Terry McCutcheon, chief executive officer of Finance Planning Group
David Copland, chief executive of Pink Home Loans
Stephen Smith, director of housing at Legal & General
One of the most noticeable changes between the early and the later FSA Consultation Papers has been the gradual move away from a “one size fits all” approach. There is no longer discussion (at least from the FSA) on LTV caps or restrictions on equity release when a new mortgage is taken out.
However, there is one area where a “one answer” solution seems still to hold – in the requirement for all sales to be advised (apart from a few, minor exclusions).
My problem with what is proposed is that the FSA, having correctly diagnosed a problem, that of customers, typically, as the statistics show, in bank branches, having a conversation with a real person, leaving that meeting thinking they had advice, when actually, they have just experienced a non-advised sale.
A clear problem – to which there could be a number of solutions. But the FSA has gone for one solution – make all sales advised.
We tend to have to live with the regulation we get for quite a few years – it will probably be a decade between MCOB and the eventual implementation of the MMR changes. So we ought to be convinced that what is set in a tablet of stone really is what we want – for the next ten years at least. And I am not convinced that business models and consumer expectations won’t change markedly over this time.
A “one answer” approach could restrict our flexibility to run our businesses and restrict how we can meet customer needs and wishes. I don’t wish to prolong a process which has already been going on for a long time, but given that the FSA have said they will not be rushing to implement these changes until the market shows signs of recovery, perhaps this is a topic on which we should consult more.
More ideas for solutions to the issue the FSA identified, and more discussion as to how these changes can work in practice.
What we have in front of us now is not quite right, yet.
Terry McCutcheon, CEO of Finance Planning Group
The principle of the MMR is that all mortgages come with a full set of advice and we believe that this is what customers should get across the board.
There might be some organisations which seek exemptions and opt-outs but they are more likely to have their own interests at heart. The customer is the first consideration, and advice is key to ensure people are making the right decision for their circumstances.
Advice doesn’t have to cost the customer more money or take up a huge amount of time. With a mortgage it is so crucial to get it right every step of the way. It’s the biggest debt that most people will ever have, therefore a small error of judgement can have a huge impact.
It makes saving money on energy bills, switching credit cards or consolidating personal loans, although worthy, seem insignificant by comparison. We don’t think that a customer can have ‘too much’ advice because ‘too much’ never caused anyone financial detriment. However, ‘too little’ or no advice most certainly did.
Even in situations which lenders might see as routine require a financial adviser’s guiding hand to ensure that the client has thought the situation through and understands the wider impact on their finances.
Opt-outs are primarily being sought to streamline internal processes and save money, but this is not what the MMR is all about.
Would the Government allow certain types of cars or people making short journeys special permission to break the national speed limit? I think not. The same consistent principle should apply to mortgages.
A non-advised sale is ultimately a bad one.
David Copland, chief executive of Pink Home Loans
Broadly I agree with the proposal that the FSA has tabled. There are circumstances where an opt-out is the right option and I think that the overriding statement that firms must have a policy to manage and monitor their execution-only business is spot on.
As always questions will be raised about the detail, especially vulnerable customers such as those needing equity release, right-to-buy, sale & rent-back and those consolidating debt all of whom will need advice. I cannot see any grounds for argument here.
However will a signed statement from the client suffice and still not be subject to some sort of claim in the future?
The other exceptions who can reject advice are high-net worth clients, professional consumers and non-interactive sales – but this needs more thought, for example how you define a high net worth client. Is it based on assets, income or a combination of both? Should a client who has inherited their wealth or won the jackpot on the lottery be able to opt out?
Similarly, what defines a professional client? More often than not, because they are so busy doing their day job they have a greater reliance on their mortgage adviser and pay little attention to the detail. Perhaps a MENSA test is required?
That brings me on to non-interactive sales, which I assume means internet sales, which I think is okay, unless the sale takes the client through a decision tree. There will then be concerns that the client is being led and that opens another can of worms.
