Sesame's Cowan on the lessons from RDR

In terms of regulation I believe there are lessons which can be learned from the Retail Distribution Review (RDR).

The RDR effectively split the advice community into two segments: wealth and mortgage advisers. There is a marked difference in the depth and quality of discussion between wealth advisers and their clients today compared to, say, five years ago.

The adviser has a duty of care and responsibility to ensure that the investing client understands issues such as risk, volatility and capacity to absorb loss. In short, understanding the risks around investing sit at the very heart of that advice activity.

So progress has been made and the regulator has acknowledged that, in general, wealth advisers have raised their game; yet despite these efforts the FCA has also made it clear there is still more work to do and standards need to be raised further, with issues such as due diligence of their processes, platform and investment choices firmly in the spotlight.

Many mortgage advisory businesses are beginning to see the opportunity to become new model mortgage advisers in the same way we saw the evolution of new model wealth advisers.

When the RDR was implemented back in 2013 it was mooted that there would be no "read across" to the mortgage world. I believe this was the correct decision, but with the passage of time I am becoming increasingly concerned about the potential divergence in customer treatment around risk.

Compare and contrast the customer journey in the investment and mortgage sectors of our industry. We know the majority of mortgage advisers deliver an excellent service when helping a customer secure a mortgage, but how often does the subject of risk mitigation of this debt take place? 

The indications are that this piece of work – client understanding of risk – is not happening sufficiently or clients are not understanding or are ignoring the advice.

Of course for some mortgage advisers managing risk is an integral part of every client conversation, however for others it is a less pressing issue tagged on at the end of a meeting. This in itself creates a challenge because of the sheer time and effort data collection and production takes. Not a great customer experience.

Post RDR, we now have a regulator responsible for conduct across wealth and mortgages, but where it could be argued that different standards are applied. I believe  we should anticipate and expect the same consistent standards to apply to all advisers across the industry.

In my view it is simply unsustainable for these different approaches to risk – risk of investment failure and risk of personal tragedy and failure to repay debt – to continue.

If we accept this prognosis and want to be ahead of change and implement best practice then all mortgage advisers need to strive to embed a risk-based discussion into their client proposition. "What happens if ..... " should be part of every client meeting.

Now of course to achieve this consistently mortgage advisers will need additional support and the framework they operate in will need to change.

We need to find a way to release advice time for clients. This means lenders and product providers playing their parts to make the application processes simpler and easier for advisers and their clients. A lot of work to be done.

If we rewind the clock to the years leading up to the RDR I recall having similar conversations with wealth advisers and encouraging them to move away from their transaction-based model to one where financial planning advice and risk explanation was positioned right at the centre of their proposition to clients.

Fast forward to today and I believe many mortgage advisory businesses are beginning to see the opportunity to become new model mortgage advisers in the same way we saw the evolution of new model wealth advisers.

This encompasses a wider range of services which are offered as part of an enhanced client proposition all aimed at client satisfaction and retention.

The other stand out issue, and another reason why we are urging firms to think deeply about their business models, is due to the emerging threat created by the new financial technology and robo-advice players.

It is still early days for these developing direct-to-consumer propositions and most of them will fall by the wayside, but there is no doubt these new entrants are going to try and automate much of what mortgage advisers do today.

These new firms see an industry which is ripe for challenge and where the customer experience can be improved.

That is why we need to defend professional advice and help firms by using any new emerging technology and have it embedded in their businesses, so the experience the customer receives when they come and meet with their adviser is as streamlined and professional as possible. Quite simply we cannot allow our profession to be left behind.

To achieve all this, we will need the help of lenders and others to link up with the advisory community so we can develop a state of the art efficient advice process which enables the professional mortgage adviser to get on with the job they excel at.

This is the consistent delivery of really top class advice to their clients – including mitigating and protecting against future risks.

John Cowan is executive chairman of Sesame Bankhall Group