Advisers accuse FCA of u-turn on mortgage advice

This came after the FCA announced it was concerned some consumers were being ‘unnecessarily channeled’ into advice in its Mortgages Market Study published in March.

The FCA has since launched a review of the advice market and has asked whether its policies are driving too many people to seek advice.

Some advisers felt its March statement was a u-turn on the advice requirement laid out in the 2014 MMR which stipulated regulated mortgage advice should be provided with every face to face mortgage sale, whether conducted by a lender directly or an intermediary.

Michelle Leyland, director at South Yorkshire Money, said she "absolutely did not" agree with the FCA’s remark that too many people were receiving advice and said it felt like the regulator had done a "complete 180".

She added: "The FCA was saying execution-only is bad and clients must take advice. Now, it seems it’s saying clients are almost forced into taking it."

Nick Morrey, product technical manager at John Charcol, said many banks and lenders started training people to give advice following the MMR due to the requirements laid out within it.

He said: "It's surprising the FCA would turn around and say too many people had been given advice when they have spent all this time ordering brokers to give the best advice."

Advisers were also concerned customers would be left with the wrong policy for them if there was a move towards more customers taking the execution-only route.

Mr Morrey said: "I would not be expected to become a black cab driver or a teacher or a doctor overnight because I’m not an expert in that area. 

"As brokers, we take a lot of factors into account when advising on a policy and those who are not experts will not necessarily know what’s going to happen to interest rates or the different types of product available.

"Many consumers may just go for the cheapest option without understanding it may not be the most suitable or considering future plans."

Ruth Whitehead, managing director of Ruth Whitehead Associates, agreed a mortgage was one of the most serious and important financial decisions of a person’s life and said she would 'generally recommend' everybody who takes out a mortgage to seek advice.

Ms Whitehead said she herself had taken out mortgage advice to make sure she got the best deal.

But others said although the move from the FCA could be perceived as a shift, the changing industry required regulation to adapt and evolve.

Carl Shave, director at Just Mortgage Brokers, said: "The mortgage industry is changing and evolving all the time so are we really surprised something different is now coming to light?

"It is a change of opinion from the FCA but that's not surprising considering the change in the industry. The market has evolved."

The FCA's review also flagged that fears over breaching protocol had led to a stifling of innovation in the industry and intermediaries felt they could be seen as giving regulated advice if they gave generic information that led to a mortgage contract.

Mr Shave said the struggle to fuel innovation, such as around robo-advice, had lead to the regulator’s change of opinion.

He said: "I think the FCA are bringing this forward because of new technology. Companies are trying out new systems and want consumers to get instant answers.

"I don’t think the FCA can get their head around where that falls in regulation — they can’t pigeon hole it."

Following 2014’s MMR, it was unclear to many intermediaries and lenders where the line between information and advice lay and whether robo-advice would count as advice in regulatory terms.

Ms Leyland said she believed this to be the cause of the apparent polarisation in the industry, where the majority of direct lenders offered exclusively a non-advised route and the intermediary channels offered advice-only.

She added: "Although face-to-face advice will always be preferable, there are some clients that would benefit from a simpler mortgage transaction. But the worry is identifying where the consumer would benefit from advice. The system would need foolproof robust questioning with options for human intervention."

Chief executive of the Association of Mortgages Intermediaries, Robert Sinclair, agreed help from the FCA to better explain the boundaries of their rules would assist firms in not labelling all interactions as 'advice'.

He said: "Should the FCA go further and loosen the boundaries to make execution-only more simple and encourage innovation, there would need to be greater clarity and balanced warnings of the loss of protections for the consumer."

An FCA spokesperson said the regulator was willing to allow the market, be it brokers, intermediaries or lenders direct, to refer customers in a way which allows them to exercise their choice.

The spokesperson added: "We remain vigilant about advice and the need for advice but that should not be at the expense of innovation for consumers who have the ability and the knowledge to execute themselves or be advised by a broker.

"If our rules are pushing people into unnecessary advice or acting as a barrier to innovation that is something we need to think about."

The FCA's consultation on potential changes to mortgage regulation is expected to be published in the final quarter of this year.

imogen.tew@ft.com