The Markets in Financial Instruments Directive, the European Commission’s initiative aimed at creating a single market and regulatory regime for investment business across Europe, prompted the Financial Services Authority to announce last November that it was rewriting its Conduct of Business rules to come into effect a year later. What does this mean for brokers?
The FSA’s rewrite removes the two-year timeframe within which brokers have to obtain an accredited mortgage qualification after embarking on advising clients.
Brokers advising within this timeframe are typically in the process of studying for one or more of their mortgage exam papers while advising clients under the watchful eye of a supervisor.
In theory, the removal of the two-year deadline means that brokers can remain unqualified indefinitely. However, the FSA says it does not expect the removal of the deadline to make a difference to how fast brokers qualify.
So, after years of campaigning for the mortgage market to be made more professional and just three years after the introduction of statutory mortgage regulation in October 2004, the qualifications debate seems to have come full circle.
Interestingly, Mifid does not cover mortgage advice but the FSA decided to rewrite the MCOB and ICOB rules in an attempt to create equality across the marketplace, says Rob Griffiths, associate director of the Association of Mortgage Intermediaries.
“We see this as retrograde step,” he says. “The idea was for brokers and firms to be fully qualified. At the moment, being barely a few years since regulation came in, I think this could endanger the confidence consumers have in their advisers.
There are two main mortgage qualifications for brokers in England – the Certificate in Mortgage Advice Paper run by the IFS School of Finance, and the Chartered Insurance Institute’s Certificate in Mortgage Advice, formally known as the Mortgage Advice Qualification.
Scottish brokers generally take the Mortgage Advice and Practice Certificate run by the Chartered Institute of Bankers in Scotland (the Scottish equivalent to the IFS).
In England, there used to be a choice between MAQ and CeMAP, with a bridging paper for advisers wanting to take Cemap who had already taken all three of the Financial Planning Certificate papers.
CeMAP is arguably brokers’ qualification of choice, although this is due more to marketing success than content. All mortgage qualifications now have the same syllabus and skill set requirements as a result of the Examination Review launched by the Financial Services Authority in 2001.
The FSA assigned the task of determining appropriate exams for certain regulated activities to the Financial Services Skills Council upon its launch in 2003 – hence the homogeneity of mortgage qualifications.
CeMAP’s origins are also key to it being brokers’ first choice of exam, says mortgageforce chief executive Rob Clifford. “We found that at one point something like 75% of brokers were taking CeMAP over other exams,” he says.
“MAQ was always seen as a top-up paper to the Financial Planning Certificate exams. It was always regarded as a mortgage module for the Independent financial adviser market. The thinking was that with CeMAP you started from scratch.”
CeMAP comprises three papers. Mark Roberts, head of the faculty of financial regulation of the IFS, says they cover an overview of regulation, the nuts and bolts of products and a synoptic module.
Thereafter, the IFS offers an advanced CeMAP qualification allowing brokers to specialise in areas such as commercial and lifetime mortgages, though its lifetime mortgage solutions module will be replaced by an equity release module in line with the introduction of statutory regulation of the sector on April 6.
The CII paper, also now known as CF6, comprises two compulsory papers – CF1, the first paper of the Certificate in Financial Planning qualification plus CF6, the pure mortgage module sub-titled ‘mortgage advice’.
In addition to these two exams the CII requires brokers to take for basic mortgage advice, it offers a range of supplementary papers from which brokers can choose depending on the type of business on which they advise.
These papers include lifetime mortgage activities (CF7), investment and risk (CF2) and long-term care insurance (CF8).
This mix and match approach offers a more tailored approach for brokers, depending on the type of business they want to advise on, says Peter Bennett, director of financial services company Fair Money.
“Now you can weigh up your job and decide which qualifications are best for it,” he says. “But the system is complex and can be difficult to understand.”
The timeframe within which brokers qualify varies, largely depending on the support they have available.
Rob Roberts, senior adviser at Chester-based Chesterton Grant Mortgages, says brokers at his firm are encouraged to qualify as soon as possible meaning that the changes due under Mifid as of November 1 will make no difference.
“The company standard is that brokers have to qualify within one year,” he says. “The MCOB changes mean we’re going to see loads of mavericks running around claiming to be brokers and that won’t help anyone.
“We’ve been big on driving professionalism so it’s quite disconcerting to think this could be the case.” Ironically, while many industry pundits have expressed their concern about the consequences of the removal of the two-year deadline for advisers to qualify, it has been several years since many qualified brokers passed their mortgage exams. This raises the question of whether refresher courses or even follow-up exams are required.
Roberts says refresher courses would be useful to help brokers getaspects of mortgage advice.
“I have a colleague in the middle of her CeMAP 2 revision and as I looked at it I realised it was different from what I recall,” he says.
“There are things in there now that weren’t there before such as home reversions. I know the basics about these products but in-depth knowledge is required for the paper now.”
Roberts says a supplementary paper would be useful, although not necessarily a formal exam.
“It is difficult for brokers in the trenches to keep abreast of changes,” Roberts says. “How do you know what changes to look for if you don’t know they’ve happened?”
But Clifford says practical experience is worth its weight in gold, unlike supplementary testing. “I don’t think there’s anything like it and technology such as sourcing helps enormously,” he says. “Arguably, brokers need less knowledge than a few years ago.”
Consumers without any financial knowledge choosing mortgages online are a case in point, he adds. But he acknowledges that refresher courses and even follow-up exams could be useful as part of a blended learning approach.
“It would be folly to argue against the value of that but as I say, there’s no substitute for practical experience,” he says.
As for specialist exam papers, brokers’ views are mixed. Roberts says his focus for now has to be on getting new industry entrants through their basic mortgage exams. Chesterton Grant recruited a training manager about seven months ago to deliver CeMAP training to its new recruits, Roberts explains.
The firm, which he says has a self-employed business regime with no basic pay, started out with four brokers three and a half years ago. Following its decision to run an inhouse training scheme it now has 24 brokers on its books, with capacity at its new premises for over 40.
“Recruits typically undertake between six and eight weeks of weekly seminars with directed reading and study,” he says. “We keep the process as short as we can.”
Mortgages Direct takes a similar approach, having launched a training academy two years ago.
“We are finding it hard to get experienced and qualified people,” says director Peter Gladdy. “And there are not enough new people coming through. We thought it was important to encourage new people into the mortgage industry.”
In addition to a 16-week training course for unqualified recruits, Gladdy says the academy runs a two-week induction course for the firm’s new starters, whether or not they are new to the industry.
“I don’t care where they’ve been,” he says. “We need to know they are doing the job properly. It’s a question of how well they were policed in their previous positions.”
Sensibly, Gladdy has ensured the firm does not fall victim to one of the classic problems with inhouse training, namely that once brokers qualify they leave for another firm with better career or salary prospects, leaving their former employer to pick up the bill for their exams and training.
“We have a clawback plan for anyone who leaves us within one year of training,” says Gladdy.
Roberts says there is no clawback for exam and training costs at his firm. Exams are not for life so it is crucial that brokers keep up-to-speed with market developments – after all, longevity of knowledge is a key focus under the FSA’s regime.
Jayne Owen, chief executive of Corporate Training Partnerships, a financial services industry training firm, says every firm should have a training and competence policy that outlines generic knowledge, i.e. what a mortgage is, details on the firm’s internal policies including expectations of brokers’ suitability and fact-finding skills, and overall advice process.
“Once a firm has this basic competence framework in place, it must assess whether its brokers know about it and whether they can achieve these things,” she says.
On top of this, it is the responsibility of firms’ supervisors to ensure brokers are up-to-speed with market developments including qualifications.
“They must do two things,” she says. “Monitor and assess brokers and develop coaching and training to bring brokers back up to an appropriate standard.”
Interestingly, most supervisors are untrained, says Owen.
“They are usually those people who don’t move fast enough or are not very good at selling,” she adds.
More worrying is the fact that many supervisors do not even possess a mortgage qualification which means you could easily envisage a scenario whereby an unqualified broker is advising clients under the supervision of an unqualified supervisor – under Mifid, for the rest of their careers. This is not the advisory utopia envisaged by the FSA in 2004, that’s for sure.
But while Bennett acknowledges that this scenario is far from ideal, he does not consider the fact that supervisors may be unqualified to be a worry.
“You could be the cleverest person in the world but a terrible supervisor, which would be a far worse situation,” he says.
He adds that in firms where supervisors do not hold qualifications, it is typical for compliance departments – or in smaller firms qualified colleagues – to check trainees’ work.
So what does this all mean for the future professionalism of the mortgage industry?
The removal of the two-year timeframe within which brokers have to qualify thankfully means little for most firms. Most seem to think that a voluntary code of conduct retaining the two-year deadline would work, driven by memories of the sweat and tears that went into preparing for statutory regulation in 2004.
As for the application of qualifications in practice, Owen says regardless of the changes under Mifid, brokers should strive to adopt a compliant approach to every client case.
“There’s always a tension between sales and compliance,” she says. “If I had a magic wand I would insist on compliant sales or no sales.”
This will of course be more time-consuming for specialist sectors such as equity release. Then again, given the apparent difficulty in attracting new blood to the broker community, raising standards in the specialist space may be some way off with firms like Ches-terton Grant instead focussing on getting recruits through basic mortgage qualifications.
Firms will also need to dedicate sufficient time to digesting the FSA’s latest consultation on reviewing its Training & Competence Sourcebook, published last week. •
Industry depends on brokers’ professionalism
Jeremy Russ is head of compliance and marketing at Beacon Homeloans
We all agree that brokers play a vital role in the mortgage industry. Not only do they provide an invaluable service to borrowers, advising them on products that are best suited to their individual requirements, but they also facilitate a unique channel to market for lenders.
For many organisations like ourselves, the relationship with borrowers exists exclusively through the intermediary channel and as such we are reliant on brokers’ ability to match our lending capacity with borrowers’ loan requirements.
Intermediaries are crucial to our business and the industry depends on their professionalism. It is vital that all customer-facing brokers are knowledgeable, compliant and professional. After all, to most consumers brokers are ambassadors for our brand and if their service fails to meet expectations it will ultimately reflect poorly on us.
I also support the education of intermediaries and the associated exam structures. Competence is a fundamental part of an adviser’s role and it is well known that those who are fully trained provide better quality advice to their customers.
As with any other industry, products, regulation and initiatives are constantly evolving in the mortgage sector. Therefore, I am in favour of encouraging continuous learning. In this regard, it is good that the Financial Services Authority has introduced the Treating Customers Fairly initiative.
Furthermore, from April 6, the sale and marketing of home reversion plans will be regulated by the FSA and anyone advising on these products must attain the appropriate qualification – the Certificate in Equity Release.
Intermediaries who choose to rest on their laurels and ignore such market developments and updated requirements does so at their peril.We insist that all intermediaries submitting business to us are at least CeMAP qualified and authorised to undertake this activity by the FSA. We also endorse the advanced CeMAP qualification that builds on the core competence of TCF and once obtained, demonstrates that a broker can provide a higher duty of care.
Intermediary training is possibly closer to our hearts (and minds) than other lenders’ as we have our own IFA arm, Beacon Asset Management. We insist that all BAM mortgage advisers are not only CeMAP qualified but are also working towards the advanced CeMAP qualification.
As well as attaining the appropriate exams we feel it is vital for advisers to have robust training and competence schemes to ensure advice given to customers is of the highest calibre.
At BAM we also have a training and competence scheme for mortgage professionals to ensure they undertake relevant continuous professional development. Internal checks and balances are in place to ensure all training is absorbed and acted upon rather than simply having lip service paid to it. An example of this is our insistence on certain client meetings being observed to ensure the quality of advice being provided is to the highest standard. Files are regularly reviewed to ensure any advice given is suitable.
Although we are an intermediary-only lender and are not required to employ CeMAP qualified personnel, we encourage our staff to strive for the qualification. About 50% of our inhouse underwriters have already attained or are working towards CeMAP. This not only builds knowledge internally but also adds value to our proposition.
Solid training is essential to the continued health of the broker sector so all brokers should step up to the challenge and work to be good brand ambassadors for the sector.
We must protect the reputation of the industry
Richard Fox is chief executive of the Society of Mortgage Professionals
As with so many things in life today the pace of change is getting quicker and the field of industry education is not immune, with qualifications for mortgage advisers changing all the time.
The main challenge is the drive to boost professionalism in the sector and to make learning materials more relevant to the standards needed to advise on this important subject.
It’s not long ago that a requirement was imposed on the industry demanding that all mortgage advisers should hold a qualification, and it is to the great credit of the industry that this requirement was not only self-imposed but also that the deadlines to achieve some sort of qualification were achieved by a large number of advisers.
The requirement for brokers to hold a qualification sits comfortably alongside the requirement that has existed for some 20 years for those advising on investment products. They were required to meet standards imposed by regulatory bodies that existed before the Financial Services Authority.
At the behest of the FSA, the Financial Services Skills Council has been carrying out a review of examination requirements across the financial services industry, determining which exams are appropriate to which regulated activities. The mortgage qualifications form one part of this review – of exams relevant to individuals advising on financial products.
Some changes have been proposed in consultation documents and it is thought that the FSA is close to identifying how these comments, together with the requirements of Mifid, may be reflected in the FSA’s training and competence regime. As usual, a lot of energy could be wasted on ‘what if’ anticipation of possible outcomes, but the industry needs to be ready to respond positively when the decision is announced.
In the meantime, mortgage advisers are responding to the decision to extend the scope of regulation to cover home reversions and the requirement for those giving advice on this subject to boost their existing qualifications by obtaining a supplementary one.
Professional bodies have responded by bringing appropriate exam modules and learning materials to market in record time. Coupled with online exams, this should ensure that large numbers of advisers are able to provide high quality advice on home reversions. The top-up exam is expected to have a two-year life while for new advisers the content will be incorporated along with the existing content for lifetime studies in a new paper covering all aspects of equity release.
I am often asked about the impact of the FSA’s so-called grandfathering arrangements. These can only apply where an individual was employed prior to October 2004, was assessed as competent under the rules of the Mortgage Code Compliance Board, and is now only engaged in substantially the same type of business.
The mortgage business is fast moving with products changing significantly over time. This makes it difficult for those without formal qualifications to feel confident they can satisfy the requirements set out above.
The FSA will obviously be paying these newly-regulated products particular attention and also checking that those firms working in the market have the appropriate regulatory permissions.
While it is easy to feel that exams and regulation are just a burden and a cost, it must never be forgotten that the greatest asset we have is the reputation of the industry with the public. Maintaining the highest standards of service, ensuring proper regard for the interests of customers, delivering well researched advice and always behaving as professionals and in an ethical manner will minimise the risk of damage to our position.
Let’s be proud of the professionalism and high standards in our sector
Alison Young is director of The Coaching Platform
The UK is the world’s leading international financial services centre, employing over one million people, or 4% of the total workforce in this industry. New technologies and business processes are often adopted first in the UK and then replicated in other parts of the world.
Of course, the main function of the sector is to encourage customers to entrust their money to firms. Therefore, ethics and standards are critical.
Generally speaking, the financial services industry has steered its people towards professional qualifications as a result of mandates from trade bodies. The approach of statutory mortgage regulation in October 2004 brought a flood of applications for recognised mortgage qualifications to be set by relevant examining bodies.
However, there are many good reasons to undertake professional qualifications other than to meet training and competence requirements in a rulebook.
If we define the potential stakeholders in the process of enhancing industry knowledge as being individuals, customers and organisations, there are benefits for all parties in driving up knowledge and skills in a structured way.
Individuals are able to declare that they have undertaken an objective assessment of their knowledge and skills. They can identify a career path for themselves. They are likely to feel more loyal towards their employers and the consequence of expanding their knowledge of the market in which they operate is likely to be an increase in their level of confidence.
Organisations will experience higher levels of staff retention, employee engagement and customer satisfaction. They will become compliant with sector best practice and more likely to become employers of choice for the most attractive potential employees in their sector.
Customers need to experience consistency, professionalism and helpfulness to have the type of customer service that will bring them back to companies to meet their subsequent needs.
Embarking on a study programme towards a recognised mortgage qualification need not be a daunting task. There is a wealth of support available. Practice test papers and intensive training courses can be provided in response to the demand for reasonably priced, practically structured and streamlined support programmes.
A good training provider should also be able to give assistance and advice regarding the approach people should take to their revision. Many of the individuals who attend our training courses have not taken any exams since leaving school so this kind of advice is invaluable.
This industry has faced a series of challenges ranging from financial scandals, rising consumer debt, interest rate increases, high levels of competition and the increased burden of regulation. In a bid to gain control over variable costs, outsourcing key functions has grown in popularity but has led to increased job insecurity. These issues have led to skills shortages and recruitment challenges for many financial services firms.
Training and development is key to the expansion and improvement of the industry. While major companies have been able to invest huge amounts in training programmes, many small firms or sole traders lack the resources to do the same.
But a key competitive advantage will be to learn quicker than your rivals. The more we learn, the more habitual learning becomes and the more easily we are able to take on wider knowledge and skills.
So let’s embrace the professional qualifications available and take pride in the fact that there is a recognised industry standard. It’s what sets us apart.