What MMR means for advisers and brokers

He says it will be important that disclosure documents are developed to accurately reflect the provision of services by the firm.Ultimately however, Mr Reynolds says firms must review their business, understand their responsibilities and document delivery of their services.

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries and Association of Finance Brokers, says at a basic level the rules require advisers to act in the best interest of the client and the product selected must meet the client’s needs and circumstances.

He adds that the rules define “nine core suitability requirements that must be discussed and agreed in order to give advice”.

In an ideal world, Richard Nuttall, head of policy of SimplyBiz Group, says the Mortgage Market Review would actually reduce the responsibilities on intermediaries, as income and affordability is to drop at the door of the lenders.

However, he warns that reality suggests it will probably play out that the more intense levels of assessment required will have to be carried out initially by the intermediary before a case can be submitted to the lender.

Mr Nuttall says this has two effects: firstly that there is extra due diligence (and responsibility) in carrying out these initial assessments, and secondly that it will be essential to know the criteria for each lender, as undoubtedly these will differ from one to the next.

Laurence Baxter, head of policy and research at the Chartered Insurance Institute, cites the definition of ‘advice’ under the rules as any customer-seller dialogue, including face-to-face, telephone or any other two-way interface including email, SMS, internet “live chat”, etc. It includes any personalised question and answers.

Mr Baxter says under the new regime only non-interactive purchases such as pure online or postal sales would be transacted as “execution-only”. Professional and high net worth clients with an income of more than £100,000 can opt out of advice under the new rules.

Professional customers are considered to be those who have worked in the financial services sector for at least one year in a professional capacity which requires knowledge of the transactions or services envisaged. High net worth is defined as those with a minimum annual net income of £300,000, or minimum net assets of £3m.

Post-contractual variations can be excluded from the advice requirement, but clients may need advice if more is borrowed, Mr Baxter points out.

In most situations these variations can be done on an execution-only basis such as changing rates, changing the monthly payments, switching lenders, porting the mortgage between properties, and adding/removing a contract party.

Advice is also deemed to be required for certain types of products or consumers, including equity release, right-to-buy, sale and rent-back, and customers consolidating debt.

But ultimately the new rules allow customers to reject advice and opt for an execution-only purchase, except for in sale and rent-back situations.