The market the Financial Conduct Authority is targeting in its move towards execution-only mortgage sales is "shrinking fast" as consumers' financial affairs become more and more complex, industry experts have said.
In its consultation on mortgage rules out in May, the FCA proposed a shake up of the rules designed to increase access to execution-only products after it found consumers were being "unnecessarily channelled" into advice and were still not necessarily getting the best deals.
Its evidence showed almost all new customers were diverted into an advice route and the regulator suggested there would be some consumers looking to take out simple products that may not need advice.
But industry experts have said this target market was shrinking fast and that a move towards execution-only was not the kind of innovation needed in the mortgage sphere.
Peter Izard, director at Investec Private Bank, said this kind of move by the FCA should be "carefully considered".
He said: "The number of vanilla type mortgage transactions is reducing as the lending requirements of clients continually change and the options available increase. That market is shrinking fast.
"When making the largest financial decision of your life, surely most clients would benefit from advice."
Mr Izard pointed out there was a growing number of self-employed workers and first-time buyers with high loan-to-value needs all of whom would benefit from receiving advice. Later life lending and second charge lending was also on the increase.
Latest official stats from the ONS showed self-employed workers now make up more than 15 per cent of the workforce and the number of self-employed jobs increased by 76 per cent — from 471,000 to 832,000 — from Q2 of 2013 to the same quarter in 2016.
Mr Izard added: "The number of those with simple needs is shrinking. Many would say there is no such thing as a simple mortgage transaction."
Christine Newell, mortgage technical director at Paradigm, thought there was "no such thing as a straight forward case any longer".
She said: "I am firmly in the stable of promoting advice as the best course of action for anyone looking to get on the property ladder.
"Having worked in the industry for 29 years, the myriad of criteria and products — around 9,000 different deals — is way too much for a person with experience to deal with, let alone a first time purchaser."
Other mortgage experts have suggested the mortgage industry does need a change — but not a push towards execution-only.
Kevin Roberts, director of Legal & General Mortgage Club, said: "If you’re a consumer, why would you not take advice? You have access to five or six times the number products and you do not have to trawl around the market. It’s also better to get a balanced view.
"I can see how some very simple product transfers may be ‘vanilla’, but if you do make [execution only] easier then what about those people who do not quite understand it. It’s quite easy for them to think ‘price price price’ and get the wrong deal."
Mr Roberts added: "We have to make it more transparent and easier for the customer.
"For example, in the industry sometimes we will ID people four times. I think that’s more of an area for us to face and look at — but still within the advice wrapper. Make it slick.
"We need to embrace tech. But that’s not to say we have to move away from advice."
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries agreed.
He told Financial Adviser anything that encouraged people to walk away from more choice — which he said was equally as important as the advice given — was a bad thing.
He said: "The fact that the regulator has said that it’s happy some consumers will end up with not the best product is odd. It’s bonkers to think the FCA is moving away from advice."
Mr Sinclair also thought embracing technology and improving the customer experience was better for the market than pushing execution-only.
He said: "We’re going down the road of automation and technology anyway — we don’t need to cut out the advice part to make things better for the consumer.
"Cutting down the time on the transfer process or application will mean a shorter overall time for the consumer even with the advice discussion.
"What we actually need is to make the journey as good as possible without removing the advice."
Mr Sinclair thought the FCA needed to do a "complete 90 degree turn" from its recent consultation.
He said: "They need to make it clearer on what counts as execution only — we do agree it needs clarity.
"But to make a step towards execution-only is a step further and a step too far."
imogen.tew@ft.com
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