FCA again told biases switch consumers off to warnings

FCA again told biases switch consumers off to warnings

Biases held by the customer may affect their ability to assess product risks or mortgage features objectively and rationally, the regulator has noted.

In a 46-page paper published today (9 July), the FCA concluded that as a result of pre-held biases, mortgage customers may not properly engage in discussions with their adviser about the right home loan for their needs.

The paper stated consumers partially switch themselves off to adviser’s questions where they are unsure about the process or why they are being asked about certain things.

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Research undertaken for the FCA by ESRO, which consisted of interviews and focus groups, found customers often undertake their own research on rates, repayment methods and product terms before seeking mortgage advice.

It found that a number of customers had formed an initial preference for fixed rate products before seeking advice. They thought that interest rates were likely to rise in the near future, and so perceived that fixed rates were the best option, ESRO found.

The FCA concluded that customers often develop an early view about which type of mortgage product will best meet their needs – and often place strong emphasis on this initial choice throughout the advice process.

“Some also mistakenly believe the adviser’s role is only to find a product which meets their initial preferences and initial target monthly payment, and do not expect advisers to challenge them, or to spend significant amounts of time discussing their needs, circumstances or priorities.

“Many advisers place a great deal of weight on customer’s initial preferences – and in some cases, allow these to determine the recommendation, rather than taking reasonable steps to obtain all relevant information and assess suitability in light of the customer’s actual needs and circumstances.”

The regulator noted that advisers must still assess a customer’s needs and the appropriateness of this in light of their individual circumstances by applying judgement.

The research also highlighted that some customers confuse questions designed to support advice with those designed to assess creditworthiness, particularly when receiving advice from lenders.

They worry that they may be ‘caught out’ or declined the finance they require if they answer a question ‘incorrectly’, the research found.

Customers may not always volunteer all relevant information to the adviser, or may downplay information on their likely future circumstances, for example, their intention to have a family.

The regulator stated that some advisers took customers’ initial preferences at face value or asked them to choose specific types of mortgage products without assessing their needs and circumstances.

“Although customers are responsible for their own decisions, advisers must assess each customer’s needs and circumstances and use their judgement, knowledge and skill to recommend suitable mortgage products.”

The Mortgage Market Review findings come less than a month after the FCA was told by researchers Oxera that consumers tend to place too much weight on past performance when assessing funds, even if they are warned that it is unrelated to future returns.