RDR may miss mortgage market says AMI

The Association of Mortgage Intermediaries is hopeful that the Financial Services Authority’s Retail Distribution Review may have missed out mortgage intermediaries.

The Association thinks that any changes to the status of independent and professional advisers should bypass mortgage intermediaries.

A spokeswoman from AMI says: “There is some mention of mortgage intermediaries, but they have certainly missed the headlines. Although the investment market has been hit hard by the FSA’s decisions, the morgage market may be lucky to escape unscathed.”

The FSA’s key proposal from its RDR is to split the regulated investment market in two.

It says the aim is improve current standards of professionalism, provide advice for as wide a range of consumers as possible and improve consumer understanding.

The first area would be professional financial planning and advisory services – which could be offered by highly qualified advisers serving those consumers who need the full range of advice.

Within this, there could be two actual types of adviser. The most highly qualified could agree their remuneration directly with the customer and not with the product provider as is often the case with commission now. They could then call themselves ‘independent’.

Those firms not meeting these conditions might wish to use provider-driven remuneration (commission), but if they did they would not be able to call themselves independent.

The FSA would then seek to address the risks of lower professional standards and potential conflicts of interest through increased regulatory requirements. This would provide regulatory incentives to all firms to operate with higher standards.

Primary advice – providing advice on more straightforward needs using simple products.

This advice could be less costly and more easily explained to a consumer than full professional financial planning and advisory services.

Mike Yardley, group chief executive of Royal London and chair of the FSA’s Incentive Working Group, says: “Customers and intermediaries should agree remuneration and the market should move away from provider and intermediary dialogue with the investment market.”

But he adds: “This principle has scope to be applicable to as many product areas as possible, and more over, should be applied as broadly as possible.”

And Matthew Wyles, group development director at Portman, says: “Frankly, if the FSA go down that route in the investment and protection market, then it’s only a matter of time before they go down that route in the mortgage market.”

The FSA itself says that the principles of the RDR could be aimed at a wider consumer audience than the existing basic advice regime, with a wider range of products and without charge caps, building on the work of the Thoresen Review of generic advice.

Clive Briault, managing director of retail markets at the FSA, says: “We welcome the strong engagement and commitment shown by the market on this issue over the last six months.

“Tackling the root causes of the problems within the retail investment market is a challenging and complex issue and is not something that can be solved overnight.

“The proposals from industry, consumer groups, trade and professional bodies set out in our paper today have considerable merit and are worthy of further exploration and debate.

“To move this ahead, continued engagement is vital. The major changes that have been proposed could have many consequences for the market and a full and lengthy debate during the six month consultation period with consumers and industry is required.

“We will play our full part in continuing to facilitate and enable market-led change. Once it is clear that significant benefits can be achieved, this will be reflected in the final proposals.”

The RDR was launched in June last year by the FSA’s out going chief executive John Tiner. The problems in the retail market were also highlighted by FSA Chairman Callum McCarthy in a speech made at a Savings & Pensions Industry Leaders’ Summit in Gleneagles last September.

During the DP’s six month consultation period, which ends on 31 December 2007, the FSA will be actively seeking the views of industry, consumers, professional and trade bodies.

As well as undertaking further research on the impact of the ideas in the DP. The FSA aims to publish a feedback statement in Q2 2008.