Advisers will have to fit into one of three distinct categories when advising clients on mortgage contracts from June 2004.
The FSA has distinguished between three types of selling process in its plans for regulation of the mortgage sales process: advised sales, non-advised sales involving a filter-question system, and non-advised execution only sales.
Advised sales will follow the definition of advice set out in the Financial Services and Markets Act, such as advice on the merits of entering into a particular mortgage. Non-advised/filter-question sales will be applicable where a lender or intermediary uses filtering questions to narrow down the selection of mortgages for the consumer with information, but does not make a recommendation. Execution-only sales apply to when the consumer has decided which mortgage he wants and no filtering questions are used nor advice given by the firm.
The FSA has the power to make rules about matters such as suitability for non-advised sales, provided it can satisfy the requirements imposed by the FSMA.
Adding that it has taken account of results from a cost-benefit analysis carried out last year, a spokesman for the FSA says: “Given our assessment of the impact and probability of consumer detriment in the mortgage market we have concluded that it would not be proportionate to propose an extension of advice-type rules to non-advised sales.”
But Ruth Whitehead, principal of North London-based Ruth Whitehead Associates, says: “I can't see that it was necessary to invent a whole new system for mortgages. It's an advisory system which advisers are already used to and it will be easy to live with.”