Bob's Blog

FCA changes could have harmful consequences

07 Feb 2020

When asked to consider the potential threats within the mortgage market I tend to automatically think about those that advisory firms have to face.

Whether it’s the threat to firms from a growing administrative burden or inefficiencies, or distribution threats from (amongst others) lenders and price comparison websites attempting to take business share away from intermediaries.

When asked about these general threats, not once have I ever thought one of the major threats was to consumers from their advisers. How could you? Why would you?

This is a tightly-regulated marketplace where the vast majority of the rules for advisers to follow are prescribed; in a very true sense, providing the consumer with a quality service is vital to a firm’s survival, and I’ve rarely come across an adviser that didn’t have their client’s best interests at heart.

Wanting to ensure that the mortgage (and other products perhaps) which the client ends up with are suitable and affordable, that they meet their wants and needs not just now but for the future, and ultimately providing them with a quality outcome and the protections that regulated advice affords.

Others clearly see this differently. Most notably, and recently, the FCA itself who in its Mortgages Market Study work and the recently-published Policy Statement on ‘Mortgage advice and selling standards’ suggest that customers, who might have begun their journey looking for an execution-only mortgage but were diverted to advice (under the terms of the MMR) are somehow experiencing some kind of ‘harm’ because of this.

The conclusion of harm comes from its much-challenged research that suggested those clients who do receive advice could actually have chosen as cheap a mortgage as they ended up with via an adviser.

After all, price (when it comes to mortgages) is everything, isn’t it? And there’s no real difference between advice and execution-only, is there? And the fact that the FCA called execution-only inherently riskier than advice in December and changed its mind in January should be overlooked, shouldn’t it?

And advisers should be explaining in minute detail why they didn’t recommend the cheapest mortgage but those offering execution-only don’t need to highlight the fact that the customer could get a cheaper product elsewhere?

And advisers should definitely consider the needs and circumstances of their customers but those offering execution-only don’t have to?

And execution-only providers can suggest products to customers but this shouldn’t be taken as advice by the customer even though they might be well within their rights to think that they’ve received advice?

And lenders can of course dual-price to their heart’s content, offering vastly cheaper options via execution-only, when compared to their intermediary offering?

And vulnerable customers who might believe they’re getting the right mortgage by going via an execution-only channel are of course totally protected in this scenario, and there’s no need to put any special measures in place for them when they don’t get advice?

I could go on and on. The Policy Statement certainly has enough in it to go on about.

Fundamentally, however, where – after these new rules have been introduced and implemented and execution-only has been made much easier to deliver – is the consumer left? Where is the greater harm to that consumer?

Is it from the heavily-regulated adviser, taking into account all the considerations of affordability and suitability of the client, looking at the whole of the market, ensuring the eligibility for those products, considering price alongside other factors like service and time requirements, etc.

Or is it from those offering execution-only? Where none of the above takes place? Where there are no protections – a fact that many, many execution-only consumers completely fail to grasp?

How do I know this? Research conducted by the FCA said so. Where consumers can very easily be lulled into thinking they have received advice when that’s not been the case, and we all know the can of worms that opens up.

So, when I look at the potential harms that could be wrought upon the mortgage market, upon consumers who want a mortgage/refinance deal but have specific circumstances and are dealing with potentially complex options, upon the notion of good consumer outcomes, upon the protections that they might think they deserve to get but won’t, where do I see them coming from?

I’ll tell you something for nothing – it’s not from advisers.

And it is a real shame that, in this regard, the FCA have not just contrived this ‘harm’ but have put in place rules which are much more likely to create damage than stop it.

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