A network has questioned why the regulator did not make ‘income protection’ conversations mandatory as part of the affordability processes implemented under the Mortgage Market Review, as it issued a decree to all members to tackle protection with all new mortgage clients.
With immediate effect, Pink Network has told all advisers they must discuss income protection with their clients from their very first mortgage meeting.
Mark Graves, Pink’s director, argued that this is not about making more sales, but more of a “moral obligation” to make sure every client can make an informed choice and understand the full implications of what will happen if they lose their job or are off sick from work for any length of time.
He told FTAdviser: “We have presented this idea to brokers across the country over the past three weeks and asked our members what they thought. We received a unanimous yes, so what we have now is a network of advisers who have made a commitment to do the right thing for their clients every time.
“Why it is left for a network and its members to make this stance, rather than it being articulated in the MMR is totally beyond me.”
It is understood that the FCA did not mandate protection conversations - although it also did not prevent brokers from including a discussion as part of their own process - as it sees protection to be a free choice for the consumer and there is no guarantee the products will ultimately pay out.
Pink stated that stress testing should not just be about whether someone can afford their mortgage were interest rates to rise, but whether someone could continue to live in their home were they to lose their job or become ill.
The network’s advisers will now ask every mortgage applicant to bring in their work contract detailing their employer’s sickness and absence policy, or bring in details of any existing income protection policy, along with the usual bank statements and pay slips.
With statutory sick pay currently just £87.55 per week, Mr Graves said that this will lead to a very different conversation than if they had not asked for this information up front.
“Customers are at the heart of every decision an adviser makes, so asking a client to provide a copy of their employment contract or policy documents is a natural progression to make.
“An adviser should, in every situation, be able to point out how long the client could maintain the mortgage and put food on the table if they suffered a long term illness or lost their job.
“In my experience very few consumers will be familiar with just how little they are likely to receive from their employer in the event that they are no longer able to work.”
Pink believes that there should be no issues with affordability if the amount for income protection, life policy and mortgage comes in under the customer’s stated monthly budget for the mortgage.
It added that while not every client will need to take out a policy, they need to be given the advice that enables them to make an informed decision.
Every Pink adviser will be expected to document the conversation and the client will need to sign an insurance declaration if they have decided not to take any advice given.
Gary Little, head of operations and membership at the Society of Mortgage Professionals, said this move is long overdue.
“This protection advice, arguably, should have been introduced by the FCA under the MMR as part of its stress testing proposals.”
peter.walker@ft.com, donia.o’loughlin@ft.com
