The perceived value of mortgage advice is selling brokers short – JLM
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We were recently asked to comment on a story in Mortgage Solutions concerning an apparent rise in the number of mortgage cases in which advisers did not charge an advice fee.
What might be the reason for this? How does it fit in with the traditional focus of advisory firms? After all, there has been an ongoing debate about drops in income based on greater levels of product transfer (PT) business, fewer purchases, and the lower income per case that might emanate from such market conditions.
Does the rise in PT business over the course of last year especially, have a lot to do with this? Perhaps.
Advisers – certainly those dealing with repeat clients – are much less likely to charge a fee for advice to those returning customers. Plus, of course, it is much harder to introduce a fee-charging structure after you have spent many years not having one, and instead relying on the procuration fee as payment.
Of course, each advice firm is different, and they will have to make their own minds up about whether it is wise to charge a fee for advice, its level, and of course, how they might justify this to the regulator.
The regulator is, of course, central to this whole debate, and much of this lack of fee-charging perhaps can be traced back to the value, or otherwise, placed upon mortgage advice in general.
Conflicting attitudes towards mortgage advice
It appears to us an interesting disconnect here.
For example, the numbers clearly tell us that consumers want advice, they feel confident in taking advice, they like the protections it affords them, and even if they are mortgage-savvy, they still want to hear from professional advisers to give them peace of mind in terms of the recommendation and the choice made.
With 85-90% of all mortgage sales being intermediated, you would think this would be a message that the regulator would be happy to push. Signposting more and more borrowers to advice because they want it, it produces excellent outcomes and it provides them with firms who are responsible for this advice, that they can pursue if the outcomes are not what they should be.
And yet, it appears the regulator has chosen to go a different route, spending a considerable amount of time and effort, signposting consumers to non-advised routes.
It is incredibly supportive of consumers having the choice of going direct and being very clear about the non-advised distribution channels available to consumers, even when most of them don’t want to do this and are not entirely sure of the protections they lose by going down this route.
Mortgage brokers covering all bases
But, then we have Consumer Duty, which appears to, on the other hand, be a recognition of the importance of advice, so much so, that it actively wants advisers not just to cover off the mortgage advice they are authorised to give, but to also signpost clients to all manner of products and services, which they are not.
Or options they have historically not been that interested, or confident, in covering.
Hence, we have a huge focus on mortgage advisers talking to clients about protection and general insurance. Not that there’s anything wrong with this, but let’s hark back to the Financial Conduct Authority’s previous focus – on ensuring non-advised routes are readily available and signposted.
Consumer Duty appears to ask advisers to cover off a range of other potential client needs, such as wealth, legal, wills, etc. At the very least, discussing this with them and introducing them to other specialists, or referring them on.
Why might this be the case? Well, we can surmise that the regulator is concerned that a consumer might only ever see one adviser in their life, and the numbers tell us that it is much more likely to be a mortgage adviser.
That being the case, it wants to try to ensure the adviser that is seen is somehow able to cover off as many other areas, because the likelihood is that consumer won’t be seeing any IFA or wealth manager or other specialist.
Now, logically that might be the right approach.
It might drive greater incomes to the mortgage advice channel as they are able to cover other areas, and even if they’re not able to provide the advice themselves, they can refer and receive referral or introducer fees.
But, for this to work, the regulator can’t really pursue a line of thinking which, on the other hand, doesn’t appear to value advice.
That effectively puts non-advised routes on the same level as advised; that suggests it’s okay for consumers to go down those non-advised routes, even if we know this is a riskier approach.
Plus, they lose all the protections of the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) by doing so.
There appears to be satisfaction with a non-advised, tick-box approach to securing a mortgage when we know it has a higher chance of not being the most suitable option for the client.
In other words, the FCA should re-engineer its approach to advice in light of the Consumer Duty. Advice should be deemed the go-to option and all the risks of non-advised should be clearly addressed.
If the regulator wants advisers to cover off as many clients’ needs as possible, it needs to start by outwardly valuing advice and making sure consumers know exactly what they are missing out on if they go non-advised.