However, the regulator’s proposals did not have the support of several brokers, arguing that they already explain to their customer why they have selected a certain lender and that ‘a cheaper mortgage does not mean it is always the best’.
So, this week Mortgage Solutions asked our brokers how they plan to demonstrate their value within the industry.
The FCA’s decision to make it a requirement for advisers to explain in writing why they have not chosen the cheapest deal is simply adding an extra layer of unnecessary bureaucracy, when almost all advisers already perform this task anyway.
Mortgages are multifaceted and people’s financial lives are complex and individual. There could be circumstances where a customer might purely look at the headline interest rate/monthly repayment and see it as a cheaper option without taking into consideration the other fees involved which overall would make the deal more expensive than one with a higher rate but no fees.
It is not too far-fetched to imagine that there could be, for sake of argument, four mortgages which are cheaper in price for a particular client but due to their individual circumstances do not represent the best deal. Under the FCA’s proposal the adviser will now need to fill out extra paperwork for each of the four cheaper deals they chose not to recommend, when previously it would have simply been a conversation with the client.
Choosing a product when it is not necessarily the cheapest for a client but is still best is exactly where an adviser demonstrates their value. Similarly, advisers can help explain how important protection is or advise clients to go to niche lenders to get exactly what they need. The FCA’s focus on price is worrying and misses the value an adviser brings to the table but even more concerning is the focus on easing the regulations around execution-only mortgages but that’s for another discussion.
Most advisers already go to great lengths to explain to their customer why they’ve selected a certain lender. So the question is whether they now need to spend time in the suitability letter covering all the things they’re not advising a customer to do?
By requiring an adviser to explain why they haven’t chosen the cheapest mortgage then does this open up a Pandora’s Box? Next time around will advisers be asked to explain why they didn’t choose the safest lender with the biggest balance sheet? Where does it end? This is the antithesis of keeping it simple for customers and focusing on positively explaining the reasons why recommendations have been made and lenders selected.
I believe that when customers are receiving advice then keeping it simple is really important to aid their understanding. The more you tell people all the things you didn’t do then the more you will confuse them. And that’s not a good outcome in my opinion.
An additional challenge is that not all advisers have access to every mortgage on the market. Some lenders only allow certain advisers access to advise on certain mortgages, which is why networks and mortgage clubs have different panels and exclusives. So there’s an access issue here, which could leave advisers open to criticism if it transpires there was a cheaper mortgage available elsewhere, but which they didn’t have access to.
How many cases do we write that are 100% vanilla? Even with the ones which are straightforward it is because of our knowledge of lenders criteria making the placing of the case straightforward and this is always recorded.
Maybe the regulator is suggesting, as in the investment arena, some clients will have simple requirements that can be met by a simple transaction. Others may well end up at our doorstep through a combination of lack of understanding of what to do or a lack of desire to sort it themselves or perhaps a knock back from their own bank.
Our job is to advise our clients and help them understand why our recommendation is the best solution now but also, to assist with a plan going forward. This maybe simple like the need for a longer term initially to meet affordability requirements, making over payments and then reviewing the term at the end of the ERC period. It may be guidance on the way a credit report affects the ability to borrow money.
Personally I think the broker community does all of this very well and our clients do understand what they have been recommended and the reasons why are already being documented and discussed so for us there should be no issue here – only opportunity to continue to add value and engage with clients who cannot or do not want to transact directly. For those that do make their own choices the FCA must be clear that there is no come back or liability going forward.