What the FSA is telling consumers

An FSA consumer guide to financial advice gives some useful indications about the priorities of the regulator and intermediaries are well advised to get acquainted with it, says Bill Warren

Towards the end of August, the Financial Services Authority published the latest in its series of consumer publications, the FSA guide to financial advice, subtitled on the front cover, Asking the right questions.

With so many other FSA documents to read, do mortgage advisers need to pay this latest publication much attention? Mortgage advisers, IFAs and general insurance advisers would be well advised to get acquainted with what the FSA guide to financial advice contains for two reasons. First, the FSA is guiding consumers in a certain way and so thinks that the issues contained in the booklet are important. This will be reflected in its approach to advisers. Second, the watchdog is telling consumers the questions they should be asking of their financial advisers so we ought to be making sure we can answer those questions accurately.

Of course, nothing in the advice booklet will be new to authorised advisers but it’s the emphasis it gives to certain subjects that is helpful to understand.

Disclosure emerges as the dominant theme in the booklet. In fact, the Key Facts logo appears no less that 25 times in the main body of the text that contains practical information on getting advice, with each appearance of the logo flagging up a reference to disclosure documentation. The product ranges covered are packaged investment products, stakeholder products – including stakeholder pensions and Child Trust Funds – mortgages and insurance.

The emphasis on Key Fact documents is all about encouraging the consumer to shop around, both for the financial product they are seeking and, before they get to that stage, for the adviser they decide to consult. The vast majority of Key Facts mentions are reference documentation an adviser must produce about themselves and their services so the consumer can compare service offerings and costs.

For those of us involved in mortgage advice and sales, the product-oriented Key Facts Illustration (and more importantly its accuracy and who is responsible for this) has always created controversy so the guideis a useful reminder that ensuring the Initial Disclosure Document is accurate is equally important.

Pages 26 and 27 of the booklet set out a table of useful tips to help consumers get the best out of advisers. Much of this content covers investment and stakeholder products, with some sections relevant to mortgages and insurance.

Unsurprisingly, the first tip is to shop around, with a recommendation to talk to two or three advisers before choosing one.

In the case of mortgages, a reminder is included that consumers can contact lenders direct without going through an adviser. Preparation for the meeting with the chosen adviser is then recommended, including the listing of financial aims and all other relevant information. Next, during the meeting, consumers are advised to take notes and ask questions about everything they don’t understand. And they are advised not to sign anything unless it has been read and understood. The final section covers questions for consumers to ask their adviser about the recommended product including charges, competitiveness of the product and whether it is the best deal. Of particular relevance to mortgage consumers is to ask what happens if they can’t keep up with payments.

There is a small section on buying without advice with a boxed caveat on page 24 to the effect that if you choose your own product without advice and it turns out to be unsuitable, there will be less cause for complaint.

This can in no way be construed as the FSA endorsing the concept of visiting an adviser before you buy a financial product but it contains an underlying optimistic message for mortgage advisers that once consumers start to shop around as the FSA so strongly recommends they do, they will realise the huge complexity and range of mortgage products on offer and this could well lead them down the adviser route. In what continues to be a slow market for intermediaries, let’s hope so.