MMR: Direct-only deals will not need KFI
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In its consultation paper today the Financial Services Authority has proposed that when a broker is offering a direct-only deal there will be no need for a Key Facts Illustration.
It says it wants to encourage firms to consider whether any of these deals might be the best offering for their consumers, even if they cannot provide the product themselves.
In the paper it says: “The current rules get in the way of this, because firms must provide a KFI when proposing a product and are liable for its accuracy.
“So we propose that where a firm other than the actual lender puts forward or recommends a direct-only deal, they will not be required to provide a KFI. Instead, the firm will be required to keep a record where they recommend a direct-only deal and provide the consumer with a copy of that record in a durable medium.
“The record can take the form of a KFI, but it does not need to. As there will no longer be a regulatory requirement on the firm to produce a KFI, it will not have responsibility for the KFI’s accuracy.”
It says the record need only contain the fact that the firm has recommended that the consumer take out the specific product concerned.
The consumer should get a complete and accurate KFI about the product from the lender.
June 2009 was the first time since 2005 that more people bought their mortgages direct than through intermediaries.
The FSA says since then the market seems to have stabilised,with an equal share of consumers purchasing directly as through an intermediary products that are only available direct from a lender has reduced quite considerably – from 26% in November 2009 to 17% in November 2010.
Despite this reduction, the number of products available direct means that consumers using an intermediary may, depending on that intermediary’s approach, be unaware of a number of mortgage deals that could be appropriate for them.
It says: “We propose to specify that a firm’s search does not need to extend to these products in order to use the label ‘independent’.
’In practice, as currently, a firm may use a panel of lenders in meeting the requirement for a comprehensive and fair analysis of the market, but the panel would need to be sufficiently large to ensure it is representative of the range of products available.
“To be ‘independent’ firms will also be required to offer an unbiased and unrestricted service. This means they should not be bound by any form of agreement with a lender that restricts the service they can provide.
“Where a firm does not meet these requirements, it must describe its service as restricted. In doing so, it will need to clarify whether it offers products from just one firm or a limited number of firms, and note any restrictions on the range available.”
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Readers' comments (7)
Anonymous | 16 Nov 2010 1:10 pm
THE FSA ARE DODGING THE REAL ISSUE AS ALWAYS. THEY HAVE AN OPPORTUNITY TO CLEAR UP THE CONFUSION AROUND DIRECT ONLY DEALS. EVERY CONSUMER I SPEAK TO UNDERSTAND THAT WHOLE OF MARKET IS ACTUALLY THE WHOLE OF THE MARKET. WHY WOULD THEY THINK ANYTHING ELSE!! WHY CHANGE SOMTHING THE CONSUMER UNDERSTANDS. ACCORDING TO THEIR PROPOSALS YOU WILL HAVE INDEPENDENT UNRESTRICTED ADVISORS WHO ARE IN ACTUAL FACT RESTRICTED BECAUSE THEY WON'T CONSIDER ALL THE DIRECT ONLY PRODUCTS. THE FSA ARE REALLY CLEARING THIS UP HEER. INSTEAD THE FSA SHOULD ONLY ALLOW THOSE ADVISORS WHO CONSIDER ALL DEALS REGARDLESS OF REMUNERATION THE WHOLE OF MARKET STATUS. iF YOU DON'T CONSIDER DIRECT DEALS YOU NOT WHOLE OF MARKET - ITS SIMPLE - WHY CONFUSE THINGS.
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Anonymous | 16 Nov 2010 1:34 pm
Why are you shouting????????
I think this is a good idea and clears up the issue for some 'advisers' who don't want to consider direct deals. Perhaps brokers can stop whingeing about dual pricing
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Andy Hall | 16 Nov 2010 1:42 pm
@ anonymous.
Clients are led to believe that 'whole of market' means the whole of the market, by certain AR firms who don't advertise the fact that it doesn't, and they work from a panel of lenders. This is the issue that the FSA are trying to clear up here I think.
Regarding direct only deals, there are still DA firms who don't charge a fee for advice so how could they possibly recommend a direct deal that they won't be paid for? The only option I can see is to offer a choice of service where clients can pay a fee to have direct only deals included in the advisers research or opt for the fee free service not including direct only deals. But would this really clear matters up for the client?
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Colin | 16 Nov 2010 1:42 pm
Although I liked the fee only arrangement -I agree the fee charging was getting confusing, as some charged comm+fees and implied this was better than comm only.
Instead of independent (1) or restricted (2) perhaps indies hould include direct deals, and there to be a mid class which is not restricted but excludes direct deals.
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Steven Balmer | 16 Nov 2010 5:36 pm
The reason brokers have been whinging about Dual Pricing is it effectively puts brokers at an unnatural disadvantage. Some brokers who prefer to deal in protection markets may be happy to advise a client to go direct for the time consuming and often more difficult mortgage product and clean up with a fee and protection comm's, just a numbers game then. What happens when the lender then refuses the client, does the broker charge another fee for advisig another direct product and expect the public just to accept this as value? Picking a competitive option is where the service begins with a broker, not ends.Also, why would a bank not offer to pay the same commissions previously paid to broker as a cash back or reduction in fee? Effectively they will gain a competitive edge by manipulating a free distribution channel. I urge all brokers to refuse to advise on direct products, if you do you are advising our quick demise. Some at the FSA/banks obviously feel brokers bring no value to the general public despite what is said publicly. The MMR in current form whispers brokers and the public should be assumed fraudsters while lenders dictate future windfalls for their stakeholders. This is the real issue FSA and MMR should have been dealing with, not word choice. FSA are suppose to protect the public and promote a competitive industry, not the whims of the largest lenders it seems hell bent on assisting to monopolise.
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Kay Montgomery | 17 Nov 2010 10:13 am
Well said Steve - I think you have hit the nail right on the head there
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Anonymous | 18 Nov 2010 2:23 pm
IF an AR network has an exclusive that is right for the client I assume those DA brokers who charge for whole of market advice including direct deals send them along to the AR brokers then?
When addressing protection do they include quotes from direct line, sainsburys and churchill to be truely whole of market? Probably not. It the same old problem define exactly what 'whole of market' means and go from there.
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