FCA’s latest Consultation Paper seeks to diminish the value of advice once again

What could possibly be wrong with the regulator’s assertion this month that it wants to make it "easier, faster and cheaper for borrowers to make changes to their mortgage"?

Well, in my view, a great deal is wrong with this. 

The launch of the Financial Conduct Authority’s (FCA’s) Consultation Paper on this, CP25/11** Mortgage Rule Review: First steps to simplify our rules and increase flexibility, is the first step on its road to doing this, but from my perspective, it is not as simple as it seems. There is plenty within this paper to give grave worries to the advice community about the lack of value placed upon advice by the regulator, and its assumption that advice is somehow unnecessary in significant numbers of mortgage transactions. 

Indeed, there is a lot in this paper that could be construed as seeking to drive consumers straight to their lender, rather than taking their wants, needs and requirements to a professional adviser, as clearly the vast majority of consumers have been doing for many years now. 

Mortgage borrowers want advice 
Here’s a simple statement of where advice might well sit within the FCA’s priorities. This is taken from the consultation paper: “The overall rationale for intervention is that certain elements of our rules may now be harming both borrowers and lenders by making mortgage sales unnecessarily complex, in turn hindering mutually beneficial transactions between lenders and borrowers and reducing potential gains for both parties.”

And here’s a doozy in the very next paragraph: “In relation to regulated advice, some evidence suggests consumers may be receiving advice when they do not want or require it”. 

Which begs the question: at what point is advice being forced upon these consumers? The answer, of course, is it is not, and instead, what is happening is that consumers continue to recognise the value of advice, and something that still doesn’t appear to register on the FCA’s hive mind, the protections that advice affords them.

Not a novel idea
We have, of course, been here before a number of times.

The regulator gets lobbied by lenders – I wonder why – regarding their belief that the need for advice in large numbers of transactions isn’t necessary. Again, dismissing the fact – provided by the stat that appears in this paper, that 97% of all non-internal mortgage transactions have advice – that consumers want advice, and they actively seek it out. 

And if you think I’m being overly sensitive here, then consider this: “Our proposed changes would make it easier for consumers to: engage with their mortgage provider without the firm having to provide mortgage advice when not needed…” 

It feels it can do this by removing the ‘interactive dialogue’ that currently exists that mandates advice after certain consumer interactions, essentially making it easier for consumers to engage with lenders without advice. 

Now, you might well argue that this doesn’t necessarily mean we’ll see much greater levels of execution-only activity directly between borrowers and lenders because they – to a lesser extent – have this option now, and still prefer overwhelmingly to secure the services of an adviser. 

But clearly removing a trigger that highlights advice is available is going to mean many more borrowers are not ‘triggered’ to consider advice.

How does it fit with better consumer outcomes? 
They will not have their up to date wants and needs assessed, their changed circumstances taken into account, they will only have the products of one lender available to them, and – once again in case the FCA are still not listening – they will lose the consumer protections afforded them by using the services of a regulated, professional adviser. 

The ‘positive consumer outcomes’ that the regular talks so much about, within a Consumer Duty context, are likely to be greatly impinged upon by a process that makes it easier for lenders to sell their products directly and not even highlight the availability of advice, and how it could and should be accessed. 

I see the opportunity for lenders to crank up the level of execution-only sales, fuelled by a regulator that actively believes this would be a measure of success for any future proposals, as clearly damaging for both advisers and their clients.

Again, we ask this question of the regulator: do they really believe the greater risk of consumers having poorer outcomes because of a lack of advice is somehow a great success story for the market? When Consumer Duty actively wants to achieve the opposite? 

This paper has all the hallmarks of the power of the lender lobby and would set back the progress made by the Mortgage Market Review (MMR), for example, in favour of a process that seriously diminishes the advice requirement and therefore the positives that come from it.

97% of new mortgage sales have been advised since 2015. Let that sink in. How is that a bad thing? 97% of all mortgage borrowers in the last 10 years have been fully protected and 97% of all mortgage borrowers have secured the benefits of having advice.

I cannot comprehend why a regulator believes this to be a negative for consumers and is actively seeking to reverse this, inevitably leading to many more having a poorer outcome and no access to the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) at the end.

Our industry, our trade bodies and all stakeholders need to push back against this in the most strident of terms.