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Forcing advice on clients will make them less engaged

One of the Mortgage Market Review proposals that has received little proper debate is the proposed move to a fully advised mortgage market.

I’m not talking about the technical implications of such a shift, like training costs, increased salaries or changing sales processes.

I’m talking about the fundamental requirement for consumers to have to receive advice in pretty much every case, whether they want it or not, and the potential impact this has on the balance of responsibility and ownership of decisions.

The move to a fully advised market raises a potential moral hazard.

There is a risk that consumers become less engaged if they are provided with advice they don’t want or need.

Will it cause them to pay less attention to the advice they’re given and engage less in the whole mortgage process?

The rationale for this proposal is that the Financial Services Authority believes many borrowers who have gone through a non-advised sales process in recent years mistakenly believe they have received advice.

It therefore deems that a move to a fully advised mortgage market is warranted to prevent this confusion in the future.

The simple initial advice disclosure under The Mortgage Code was easily understood by consumers

That’s fine but the real dilemma facing the FSA should be whether this confusion is best addressed by requiring all borrowers to receive advice or whether there could be better communication of the different types of sales, enabling the consumer to choose which one they want.

Confusion does not automatically lead to consumer detriment. And it can be prevented through simpler rules around disclosure.

It is questionable whether making the move to a fully advised scenario, thus removing an element of choice from consumers, is what is needed for the market to function better.

Prior to FSA regulation of the mortgage market there was an established voluntary code of practice for mortgage lenders – The Mortgage Code.

Under that regime, prospective borrowers were provided with the option of three types of service:

  • Advice and a recommendation on which mortgage is most suitable for them.
  • Information on the different types of mortgage products offered so consumers can make an informed choice of which to take.
  • Information on a single mortgage product only, if only one product is offered by the provider, or if the consumer has already made up their mind.

These different levels of service were provided at the beginning of the mortgage interview so it was clear to borrowers whether they were receiving advice or not.

It seems that this simple initial disclosure was easily understood by the industry and consumers, and I see no reason why a similar approach cannot be replicated.
In fact, the MMR should aim to raise the level of financial capability by empowering borrowers to take ownership of their personal finances and enable them to make informed decisions.

Surely providing clarity about the different sales options available will address any consumer confusion and enable borrowers to choose the most appropriate process for their needs.


Poor communication is the issue to resolve

I have been asking members which issues most concern them and consistently the response is poor service from lenders in terms of products being pulled or advisers being unable to speak to underwriters.

Marketwatch – March 2012

After a Budget that had more leaks than Thames Water, last week was busy, particularly for those working in the high net worth market. Thank goodness for the conditional exchange.


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  • Post a comment
  • Doctor S P 4th April 2012 at 11:47 am

    Having seen the results of the phenomenal “advice” given by many brokers I find the comments on here particularly amusing.

    And as much as you all say it’s because “banks mis-sell to customers”, for many on here I suspect that it’s a vain attempt to preserve your livelihoods.

    And @ Chris Gardner… spot on. “We know better than you” appears to be another overarching theme on this site lately.

  • harvey 2nd April 2012 at 11:06 am

    With the greatest respect Paul you dont represent the consumer.

  • Chris Gardner 2nd April 2012 at 9:54 am

    Hang on a second to those brokers moaning – i am a punter myself at the moment and i dont want advice – just give me the info i need and i will make up my own mind – jesus, you would think that mortgages are brain science the way you go on about how customers need protection from themselves. STOP PATRONISING US!!!

  • Mike 31st March 2012 at 5:51 pm

    Surely the weakest ‘excuse’ EVER to try and avoid regulation. Why not just say it as it is – you want to be able to continue to ‘exploit your customers’ without the inconvenience of rules & regulation! LOL

  • Dave 31st March 2012 at 1:27 pm

    What utter rubbish!

    Banks have been getting away with selling utterly unsuitable products for years. By forcing them to take responsibility is long overdue and they are cacking themselves. This move will also make individual branch advisers accountable and should cause them to think twice before selling products that are unsuitable too.

  • Lee White 31st March 2012 at 12:06 pm

    So what did Santander promise you for writing this load of rubbish…!
    Perhaps a corporate hospitality package for this years British F1 Grand Prix…?

  • Phil 31st March 2012 at 11:19 am

    It would be fine if the IDD was actually given out. I often see clients who have been elsewhere first and the client was not given an IDD.

  • Rudolph Hucker 31st March 2012 at 9:15 am

    No, no, no. You represent a trade body just like the CML. Brokers give advice. So should you.