The battle lines have been drawn as the issue of independence reaches the mortgage market.
“In providing independent advice, a firm should not be restricted by product provider, and should also be able to objectively consider all types of retail investment products that are capable of meeting the investment needs and objectives of a retail client.”
Thus spoke the former FSA six months before it introduced the Retail Distribution Review for IFAs. The independent versus restricted debate was fiercely contested and firms took pride in demonstrating they could consider the whole of the market.
The mortgage market has not had to confront such an issue – until now. As part of the Mortgage Credit Directive, which comes into effect this month, the second charge market will become regulated. The rules state that, where a client wishes to increase borrowing, they must be made aware that a second charge loan could be more appropriate than a remortgage or further advance. Brokers do not have to advise on seconds but, if they choose not to, they cannot describe themselves as ‘independent’.
In an ideal world, this would be a straight choice between providing advice on seconds or not. The issue, though, is that some networks have taken the choice away from their ARs by insisting that they do not provide advice on second charge loans and instead refer cases to a master broker. Some of the network chiefs this magazine has spoken to over the past week underplayed the importance of forcing their ARs to refer second charge business. Many insisted they had few firms that used the word ‘independent’ in their name.
But this misses the point. As in the IFA world, there will be brokers who pride themselves on being ‘independent’ – whether in name or when talking to customers. Of course, they could use another term to describe themselves, but the word independent has become a byword for impartiality.
The issue has also split the market down the middle, with DA firms having the freedom to decide their own destiny.
It would be no surprise if those networks that have given their ARs the freedom of choice use this as part of their recruitment strategies.
The battle lines have been drawn and the issue of independence has finally reached our shores.