Clients need guidance in the product maze

If it\'s not chancellor Gordon Brown it\'s the Financial Services Authority. Just when the industry thought it could predict where the next U-turn would come from, the regulator springs a surprise.

It announced last Tuesday that it is planning to tear up its Conduct of Business rules – stretching to 700 pages – and introduce the catchily-titled NEWCOB in November next year. This will be half the size of COB.

The thinking behind this is to move away from a prescriptive approach and towards a more flexible principles-based regime.

While this change won’t really affect mortgage brokers it’s a sign that the FSA is not averse to changing its mind.

The move will also bring rules for investment advisers more into line with those contained in Mortgages Conduct of Business and Insurance Conduct of Business. For example, Key Features documents for invest- ments will be referred to as Key Facts.

Treating Customers Fairly, which obviously affects mortgage business as much as investment, is also one of the principles that will form part of the regulator’s new approach.

Who knows when the FSA could decide to change the mortgage rules? After all, few expected it to regulate mortgage advice.

The FSA should be congratulated for taking a flexible approach and adapting its rules but the fear is that more change will lead to increased confusion and higher costs for the financial services industry and, in turn, customers.

The next major announcement most intermediaries and lenders are awaiting from the FSA is the outcome of its report on exit fees.

The practice of lenders charging extortionate exit fees – which they tend to raise without giving any explanation – has been scru- tinised by the regulator which is due to release its findings any time now.

But fees of all sorts can be costly and it can be difficult for consumers to be convinced that a lower rate doesn’t always represent the cheapest deal.

Research from moneyfacts.co.uk recently investigated whether a discounted interest rate is enough to make a product a good deal.

Analysis from moneysupermarket.com claims fee-free deals are only beneficial for mortgages under 57,000. It says this means these deals are only likely to be relevant for those looking to remortgage or people who have paid off a substantial chunk of their mortgage already.

After this threshold it is always worth paying the application fee so people should ensure they shop around for the best rate and fee combination.

It’s vital for brokers to explain to their clients that they have to look at the overall cost of a mortgage, especially with new entrants such as ING Direct launching with high-profile campaigns and plans to shake up the market.

Rather than worry about the threat of new lenders which deal direct with consumers, brokers should see this as the perfect time to sell the benefits of advice.

The more mortgages that are available the more the public needs guidance. Choice is good but it can lead people to make wrong decisions they end up having to pay for.