Tony Crane, founder of Crane Consulting, said he believed advice is defined under Consumer Duty as a service and therefore brokers could be both manufacturers and distributors depending on how the scope of service was defined.
“In my opinion, the decision a broker makes in terms of scope of service is fundamental in determining their Consumer Duty requirements. I think there’s an argument that if the broker offers point of sale advice only (transactional) then all ongoing monitoring post-completion falls to the manufacturer (lender).
“If on the other hand the advice includes the transaction plus a continuation of service, then some of those ongoing responsibilities will also fall to the broker,” he explained.
Crane said the reasoning for this was when Consumer Duty talks about outcomes, it is referring to the financial outcomes associated with the product or services being provided, so the outcome for a transactional arrangement would be the day the mortgage completes.
The financial outcomes would be customers receiving a transfer of funds from the lender and the lender completing on a mortgage product that meets the needs of the customer.
“In that scenario, the responsibility of the adviser to monitor ‘outcomes’ ceases the day the product completes because the ‘outcomes’ have been achieved. In that scenario, all monitoring thereafter falls to the manufacturer (lender). The reason for that is they have another financial outcome to monitor against, which is the repayment of the outstanding mortgage balance.
“In my view it’s reasonable that financial outcome isn’t covered under a transactional arrangement, but is covered if the broker proposition is the transaction plus a continuation of service,” he explained.
Crane said if the broker’s proposition was transaction-only, the considerations around assessments of vulnerability could be impacted.
He said that considering vulnerability characteristics versus the outcome it was trying to deliver, then “limiting the outcomes to those that I can deliver by completion could significantly reduce the materiality of those characteristics”.
“I think it also removes the requirement (on the adviser) to monitor those characteristics on an ongoing basis – but that would still be required of the manufacturer who has the [repayment of mortgage balance] financial outcome to report or monitor against,” Crane added.
He said he was not trying to argue that one type of advice proposition was better than the other, and for some groups and in some markets, like later life lending, then transaction-only may not be appropriate but it does “simplify things”.
“In short, I’d encourage advisers to think through the implications and consequences of all of the propositional options before deciding what they want to offer as that decision could materially change the work required,” Crane concluded.
Association of Mortgage of Intermediaries’ (AMI) CEO Robert Sinclair: “Tony makes a really interesting case and gives plenty of food for thought. There are areas where we completely agree and some areas where we wouldn’t go as far as Tony has, but what’s clear is the importance of setting out clear expectations with clients and ensuring the implications of the different servicing models have been thoroughly considered before the July deadline.”
Consumer Duty makes it ‘clear’ of need for ongoing consumer monitoring
Andrew Gething, managing director of MorganAsh, said Consumer Duty made it “clear” that there was an “obligation to monitor the consumer through the lifetime of the product”.
“If this is provided by the adviser or the manufacturer it does not matter, so long as it is being provided to the consumer and both parties agree who is providing it. Both providing a service is perfectly acceptable,” he added.
Gething continued that it was not acceptable for neither party to undertake the monitoring and assume the other is providing the servicing element.
“By the end of April, manufacturers should be making it clear to their brokers how they are managing this, and we would expect this to include how they manage vulnerability,” he noted.
An anonymous regulation source said they believed a broker would have an obligation under Consumer Duty to ensure they contact borrowers three to six months before product maturity to offer to arrange a follow-on product.
Equally, if a borrower gets in touch with a broker because they are facing financial difficulty or the mortgage is not performing, the broker would have an obligation to help the borrower contact the lender.
They added that if a broker received a lot of complaints about a specific product they should notify the manufacturer.
Brian Pitt, group chief executive officer and co-founder of Rockstead, added: “I would say that defining the service proposition to ensure the client benefits from clarity and transparency at the earliest possible point in the transaction is critical. But for me, an intermediary should be looking for a longer-term relationship with clients anyway, irrespective of regulatory responsibility.
“Frankly, if that part was fixed, then the Consumer Duty element would become secondary, because by having close contact throughout the product life, their regulatory responsibility would be covered. Of course, that relies on the broker doing a thorough job in the first place, but that’s a different story.”
