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FCA’s consultation paper: Removing centrality of advice ‘detriment to the public’ – analysis

  • 07/05/2019
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FCA’s consultation paper: Removing centrality of advice ‘detriment to the public’ – analysis
The Financial Conduct Authority’s consultation paper should help firms provide factual information to borrowers going through the execution-only route, helping them to choose or switch product quickly and efficiently, UK Finance director of mortgages Jackie Bennett said.


Responding to the FCA’s proposals on changes to mortgage advice and selling standards published today, Jackie Bennett said that they provide helpful clarity on the boundary between execution-only sales channels and mortgage advice.

She added: “The overwhelming majority of new loans are likely to continue being sold under an advised process, during which customers take part in a lengthy interview with the onus being on the lender or adviser to ensure that the mortgage is suitable for the borrower’s needs.

“UK Finance will be responding to this consultation in due course and will continue working with the FCA to make it easier for customers to choose the right product for them.”

Irresponsible to relax the rules around execution-only mortgages

However, Gemma Harle, managing director of the Intrinsic mortgage network,  highlighted that it seems strange that the FCA is seemingly lamenting the fact that this important decision is increasingly being taken with the addition of mortgage advice.

She said that in some respects these proposals are rational, but there is a real risk that removing the need for advice will be to the detriment of the public.

She added: “It seems somewhat irresponsible to relax the rules around execution-only mortgages. The industry is multifaceted and the products are complex and there is never a one-size-fits-all mortgage. An adviser can help someone balance what might seem cheaper with the benefits of additional features.

“Another important point is that typically lenders do not accept execution-only mortgages from an intermediary, as they want consumers to go directly through them. Given intermediaries go across the whole of market, the unintended consequences of trying to increase the number of execution-only mortgages could be that there is less choice for this type of consumer.

“However, the FCA is sensible in its suggestion to relax its definition of what constitutes advice to not include guidance tools which allow customers to search and filter available mortgages as providing customers with as much information as possible is an important part of the equation.

“Similarly, the FCA’s proposal to require advisers to explain their reasons for suggesting a more expensive mortgage instead of a cheaper one is not a particularly bad suggestion, most advisers will do this during the advice process regardless and their decision will never be led by price alone anyway.

“Naturally, the mortgage market needs to adapt and evolve but this should not be at the expense of advice. The FCA should be more attuned to what the potential ramifications of watering down the importance of advice could be for consumers if they fail to get advice and buy an unsuitable product.”


People do not need to feel pressured into paying for advice

Mark Gordon, head of mortgages at, said that it is encouraging to see that the FCA is looking at breaking down barriers for those customers best placed to directly enter the mortgage market.

“Brokers and the provision of professional advice are crucial parts of a properly functioning market, but it is also important that people do not feel pushed or pressured into paying for advice which they are not seeking, or from parties they might not feel are impartial.

“We also know that there are still a staggering 920,000 homeowners in the UK languishing on standard variable rate mortgages and many of these households could be getting a better deal. An SVR is typically around 4.5%, and can be as high as 6%.

“By comparison, the lowest two year fixed rate deal available is over three percentage points cheaper. A three percentage point lower rate on every £100,000 could mean a saving of £3,000 each year for a household.”


Cheapest is not always best

Also Ross Boyd from Dashly said that it is encouraging that the FCA is fully embracing the potential of technology within the mortgage sector and focusing on the value it can add for consumers.

He said that powered by a combination of big data, open banking and machine learning, the mortgage platforms emerging today are achieving a level of customer-centricity that was never possible before.

Boyd added: “So advanced are these platforms that the results they present to prospective borrowers can be construed as advice because they will likely trigger the customer to take action. But as one of these platforms ourselves, we stand firmly against execution-only mortgages and believe that human advice, despite the major advances in technology, remains key.

“Our view is that the mortgage market needs a ‘tech and touch’ approach, with tech empowering consumers to identify mortgage savings in a way never before possible, while brokers are on hand to provide real-life reassurance and the human touch.

“The fact that modern mortgage platforms can ingest thousands of variables each day and identify savings even if someone has to pay an early redemption charge deep into a fix is extraordinary and empowering consumers like never before.

“Brokers always have to justify their choice of recommendation and it’s well known in the industry that cheapest is not always best. Multiple factors have to be taken into account when considering a mortgage, not just its rate.”


Advisers not documenting reasons for not recommending lowest interest rate

Andy Wilson, a specialist mortgage and equity release adviser, said for advisers doing their job properly, this requirement will not result in any changes from current practices and audit documentation.

He added: “However, the FCA should also outlaw the naming of ‘Best Buy’ tables. What is a ‘best buy’ for one client may be completely different to another. Simply call them ‘lowest interest rate’ tables which is all they really are, but qualify this with some mention of the possibility this ‘cheapest’ deal may not be the best for you.”

On execution-only, Wilson said that there are significant risks also due to a lack of knowledge from advisers who may make mistakes.

Mortgage adviser David Rounsfell tweeted that there are more reasons than ever for brokers now to be on top of their game and demonstrate how advisers can add value to the mortgage process.

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