The whole industry, myself included, has now had some further time to digest the contents of the FCA’s Mortgages Market Study Interim Report, and to question whether initial reactions were actually on the money, or if (on reflection) we have slightly more to be worried about than we might have first thought.
Certainly, there is a strong argument to suggest that the Interim Report is trying to be all things to all market stakeholders, and that any initial ‘flattery’ we might have felt that the regulator believes this is a well-functioning market hides the fact that it appears to be rowing back from the MMR, and that it has some sizeable changes planned for the market, specifically advisers.
I can’t also help but think this is a report – albeit an interim one – that is somewhat contradictory at best, and downright schizophrenic at worst. For instance, as previously mentioned, in the report the FCA talks about how MMR has ‘increased the take up of advice’ which I would have thought is a wholly positive outcome, and one that might deem the whole shooting match a success.
But, perhaps not? Because the FCA appears concerned that lenders ‘cautiously interpreted’ the MMR, which brought in the ‘interaction trigger’ (its words not mine) ‘that requires advice to be provide for sales with interaction’. In other words, the FCA seem to think lenders gilded the lily when it comes to MMR and those that jettisoned their in-house advisers or significantly had to up their intermediary distribution ante, were somehow misinterpreting what the MMR was about.
There are so many questions to be asked here, I don’t know where to start. Firstly, from what I remember this was exactly what the architects of MMR wanted. They wanted more people securing professional advice from those who could cover the whole of the market, and not just those who only had access to their limited array of products. So, to hear, from the regulator that its intention wasn’t to send more people to advisers – with the protections it affords, the products it can offer, the service it delivers – seems odd in the extreme. No wonder there are those that suggest this is an attempt to water down MMR.
But, what might be the outcome of a regulator going cool on its own review? Is the regulator saying that lenders didn’t need to spend so long on ‘client’ interviews, which resulted in less business being written direct, which meant they looked to advisers for business, at the same time as more and more people were recognising the importance of whole-of-market advice?
Is it now saying that lenders are able to run a shortened interview? That they’re able to provide tick-box-type ‘advice’ on a very limited panel of products, when there could be many more that are way more suitable? Did lenders not need to ensure all their in-house staff dealing with clients had suitable qualifications and had to go through the same training/CPD process that advisers had to? Is the FCA saying that lenders can effectively go back to a pre-MMR situation which allows them to dedicate far more resources to directly-sourced business, with no semblance of true advice being offered? Is it really happy for a two-tier system to exist again whereby advice is not really required for its customers, at least not advice as we would know it in the intermediary market?
If that’s the case, then it’s odd in the extreme, especially when you consider the following (again from the Interim Report):
• ‘Choosing an intermediary, rather than going direct, reduces the average cost of a mortgage over the introductory period by about £600 per year.’
• ‘Three-quarters (76%) of those who have taken out a residential mortgage (or switched product) in the last three years and arranged this through a mortgage intermediary agree that the intermediary helped them to consider options they had not thought of…’
• 89% agree they [the intermediary] understood their needs, and three-quarters (75%) agree they got a better deal than they would have got on their own.’
Again, intermediaries save their clients money, and get them a ‘better deal’ than they would otherwise have got. The MMR has helped them do that in greater numbers, and that’s a seemingly bad thing?
What is even odder is this from the report:
‘The impact of advice on borrowing costs on these consumers is minimal’. Because the only concern with, and benefit of, advice is cost, right? ‘So, those who are in a position to choose a suitable mortgage without advice may be receiving advice that they don’t need and so unnecessarily incurring time and financial costs’.
Who, in their right mind, doesn’t need advice? Why is the FCA essentially saying that there’s no value in advice for certain consumers? There is always value in advice and therefore the regulator effectively suggesting that ‘you’d be better off going direct’ is not only patently nonsense, but worrying in the extreme. Cost is not the be all and end all when it comes to securing advice – it is odd that the FCA does not get this.
All in all, this may all come out in the wash and be exorcised from the final report, but the fact we have a regulator thinking this way should be a wake-up call for our entire profession. If this goes unchecked, it will end badly for all concerned.
Richard Adams is managing director of Stonebridge Group