Remember the good old days when you were either a tied adviser of a mortgage lender or you were an adviser who had the ability to look at all the mortgage deals available on the market. Pretty straightforward stuff. Well we are now moving to a new world where advisers can be independent, represent the whole of the market, be multi-tied… Confused? You are not alone.
I have received quite a few communications from advisers looking for clarification and guidance in this area, particularly with regard to 'independence'.
In this article, I will look at what maintaining independent status involves. The confusion mainly surrounds how an independent adviser should be remunerated. Many seem unclear as to whether to ask clients to pay a fee upfront and then reimburse the proc fee from the lender or whether to take a proc fee but instead only charge a fee. Others seem to believe to offer an independent mortgage advice service advisers must offer the client a choice between paying a fee and not paying a fee, receiving a proc fee from the lender instead. MCOB 4.3 provides the necessary rules and guidance in this area.
Unless acting as an adviser tied to a mortgage lender, your service to your clients will probably not be much different to how it is now. Of course, offering a whole of market solution is vital for anyone purporting to be an independent adviser and as long as an adviser offers the client the option to pay a fee and the adviser can receive a fee only, then the term independent can be maintained without contravening FSA rules. The key here is to ensure your Key Facts documents clearly establish the service you are offering and the fee you will receive.
At the cost of having to charge the public a fee for standard mortgage advice you could drop the word 'independent' and continue to offer a whole of the market mortgage solution. As before the public will continue to buy from an adviser they trust and one who will have chosen what he or she believes to be the best option for them from the mortgage products available across the whole of the marketplace. In reality the word independent holds little emotive sway.
If an adviser wishes to maintain this independent status, for exactly how much to charge a client we cannot look to the FSA to offer any hard and fast rules. The FSA even goes so far as to state in MCOB 12.2.1 that the level of charges under a regulated mortgage contract is not typically a matter for regulation. What you must do though is ensure adherence with Principle 6 to the effect that an adviser is required to pay due regard to the interests of its customers and treat them fairly.
The FSA believes customers should be protected from unfair and excessive charging practices. Therefore when establishing how much to charge the client for the independent mortgage service as per the guidance offered by MCOB 12.5.3 a firm should consider the amount charged for similar products on the market, the degree to which the charge is an abuse of trust that the customer has placed in the firm and the nature and extent of the disclosure of the charges to the customer.
So now you are clear on how much you can charge. No? I thought not. And you then have a further issue to confront over the potential for refund of these charges – an area I will cover at a later date.
What MCOB says on the subject
When providing information or giving advice to a customer on regulated mortgage contracts a firm must not hold itself out as acting independently unless it intends to: provide that service wholly or predominantly based on the whole of the market; and enable the customer to pay a fee for the provision of that service MCOB 4.3.9
A firm wishing to hold itself out as independent will need to give a customer a purely fee-based option for paying its fees. However, the firm may in addition provide the customer with other payment options such as a combination of fees and commission.