The report asserted that “further work is needed to improve standards” after it revealed the outcome for 38% of the advice recommendations were unclear with just 3% judged unsuitable.
It also concluded no systemic consumer detriment was uncovered and 59% of the advice provided was assessed as suitable. However, the report still said many firms giving advice needed to “focus on delivering consistently good outcomes for customers”.
Appointed Representatives of many large intermediary networks came under fire for delivering advice with ‘little or no structure’ according to the report. Coupled with ‘limited oversight and and controls this resulted in variable and inconsistent levels of advice and a propensity for unclear or unsuitable recommendations.’
The report said ‘needs and circumstances were often assumed or missed. The quality of advice and recommendations depended on the skill, knowledge and approach of individual advisers, with mixed results arising from advisers adopting different approaches.’
The report expressed concern that weaknesses in oversight and controls may prevent these firms from identifying and mitigating the risks of poor customer outcomes arising from this business model.
The thematic review, Embedding the Mortgage Market Review: Advice and Distribution, was pre-planned and part of the long-running implementation and assessment of the Mortgage Market Review, which became law on 26 April 2014.
The research was based on 40 investigative telephone interviews of two to three hours each and six focus groups.
The report found some firms are failing to take reasonable steps to do a thorough fact-find and establish customer background before making recommendations.
Much criticism is levied at firms using ‘highly structured’ advice processes resulting in ‘lengthy, stilted and repetitive conversations with consumers which limited the adviser’s ability to engage effectively and properly assess needs and circumstances.’
By contrast, other firms delivered advice with little or no structure, resulting in an inconsistent quality of advice and a higher chance of unsuitable recommendations. The best performing firms have demonstrated that it is possible to strike an appropriate balance, said the FCA.
The FCA said some advisers allowed consumer fixation on top line rates to stand without asking enough questions and using their own skills and knowledge to push beyond consumer bias.
Linda Woodall, acting director of supervision at the FCA, confirmed the individual firms visited have already had FCA feedback and actions.
“We’ll continue working with firms to ensure they deliver good outcomes for consumers,” she said. Some firms assessed had already independently identified issues with their advice processes, and were making changes to improve their service to consumers, she said.
Robert Sinclair, chief executive of AMI, said: “This report is a further important milestone in the MMR journey.”
He continued: “AMI recognises that it is critical that all lenders and intermediaries focus on all the lessons to improve the total performance across the industry and ensure the best possible results for customers.”
AMI confirmed it will ask the regulator for further clarification on its expectations and be working with the CML and IMLA in partnership with its member firms to fully understand this report and engineer the required changes to processes and practice.
The FCA’s thematic review into responsible lending began in April 2015.
Further assessment of the mortgage market starts in autumn this year with a wider assessment of barriers to competition with a further consumer study in early 2016.
Visit the FCA website for the full consumer report.
