Financial Conduct Authority 

Brokers warn consumers could bypass advice under new rules

Brokers warn consumers could bypass advice under new rules

Nearly a quarter of mortgage brokers think consumers will opt to bypass advice and arrange their mortgage through an execution-only process if the regulator’s proposed policies are implemented, research has shown.

According to Paragon’s latest confidence tracking survey, 23 per cent of mortgage intermediaries expected consumers to arrange their mortgage directly with a lender if the process is made easier by the Financial Conduct Authority.

The findings, published last week (July 30), showed that of the brokers who thought the move would cause a rise in direct policy sales, 44 per cent thought the FCA proposals would impact their own business “significantly” while 36 per cent thought it was a threat to the broker market.

However, of the 200 intermediaries polled in Q2 of this year, more than half (55 per cent) expected the impact of the changes to be “minimal” while only one in seven (15 per cent) planned to adapt their business models to accommodate the change.

In March, the watchdog stated it was concerned consumers were being “unnecessarily channelled” into advice and said its rules on advice could have been a barrier to the development of tools that help consumers choose and buy a mortgage.

In May the FCA proposed a shake up of the rules designed to increase access to execution-only products.

This included new requirements that advisers keep a record of why they recommended certain policies and an easing of advice rules which means tools that allow a consumer to search and filter based on objective factors are not necessarily giving advice.

It also proposed a modification of the “interaction trigger” — the point at which a consumer is thought to have been given advice — so consumers could chat with a lender about technology or case management without being channeled down an advice route.

Some advisers said this was a "complete u-turn" from the FCA's previous stance on mortgage advice.

John Heron, managing director of mortgages at Paragon, said: “The mortgage market is set for significant change as technological advances streamline routine processes and make inroads into product comparison and selection. 

“However, choosing a mortgage is a major financial decision and advice can be critical in helping customers look beyond the headline interest rate to understand the full cost and benefits of alternative products.

“Advice is also essential when arriving at an optimum solution for customers with complex requirements.”

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, branded the FCA paper “dangerous” and “deceitful”.

Some industry experts have also suggested the FCA’s target market for the changes — those with simple needs or ‘vanilla’ clients with high loan to income ratios and good credit scores — was a shrinking pool of consumers as lives become more and more complex.

Commenting on Paragon’s findings, Dan White, managing director at Champion Hall & White, didn’t think consumers would opt for an execution-only route as they would still want “clarification” and “professional reassurance”.

He added: “If execution-only were to be promoted, I think the FCA would be making a very big mistake and could open the industry up to the next big ‘mis-selling’ scandal.