Reading the Financial Conduct Authority’s (FCA) Mortgages Market Study final report last month, I had to constantly remind myself that this was put together by the same regulator that delivered the Mortgage Market Review (MMR).
That would be the very same MMR which effectively put advice at the heart of the overall mortgage process and ushered in a new era for both the lending and intermediary community.
This ultimately resulted in the significant increase we have seen in both consumers who take advice and therefore the writing of mortgage business by intermediaries.
But, reading the final report, I’m tempted to question my own sanity on this one as this document is so lukewarm about the provision and benefits of advice.
Indeed, you half-expect a series of measures to be announced that significantly roll-back on the MMR and the central role advice plays, instead delivering us into another new era in which execution-only via online tools is the norm and seemingly the preferred choice of the FCA.
Was the greater use of advice merely a massive ‘unintended consequence’ of MMR all along?
Was the MMR not supposed to play out like this? Have the architects of MMR now left and are those who remain at the regulator intent on undoing this work?
It certainly reads like this in much of the report.
The report outlines how there are groups of borrowers who post-MMR have ‘unnecessarily’ been channeled into advice.
It suggests that those who use an adviser often end up paying more for their mortgages, and that advisers are somehow gaming the system and choosing products for clients based on how quickly they can secure their procuration fee rather than the cheapest deal.
At the same time, it seems totally enamoured of delivering an online mortgage process for customers via ‘tools’ which require no advice and can deliver far greater levels of execution-only business.
This, despite the fact that by doing so, these very same borrowers lose all the protections they secure by using an adviser, and there is a very good chance they’ll therefore end up with the wrong product.
Advice remains vital
You might argue that, in the later-life lending space, for example, this is not relevant.
The final report was merely focused on residential mortgages, but I would point out that RIO mortgages are firmly housed – regulatory speaking – within the mainstream residential space.
And of course we have mortgages with a greater maximum age for older borrowers also firmly placed here.
Only equity release, at present, is deemed to be outside these realms and – unless we hear otherwise – it will remain there. Hopefully the FCA will continue to acknowledge that advice in this space remains absolutely vital.
‘Confusing and worrying’
And yet, there is a nagging doubt that’s impossible to shake from reading the final report.
That, despite its protestations that intervention isn’t currently warranted, all paths lead to it, especially if the industry cannot deliver what the FCA wants to see.
Namely, these ‘tools’ to ensure customers can not only find out what product they are eligible for at the start of the process, but allow them to go through that entire process without any need for advice.
And, as advisers, if that does not worry you then nothing will.
In many ways it is a truly bizarre document that I find both confusing and worrying.
Difficult to stomach
From an advice perspective, what happens next?
Well the FCA’s plan is to consult on changes to its advice rules and guidance in Q2 this year, which suggests that the ‘clean bill of health’ the mortgage patient was supposed to have been given last year was not so clear cut as many professed it to be.
Indeed, this is on top of the fact that in this report the FCA continues to say the mortgage market works well for the vast majority of borrowers.
So, it would seem that, while we must always anticipate that a regulator will choose to regulate, what it says and what it does are very different beasts.
It’s commitment to the interim report might be seen as laudable by some, but it simply comes across as out of touch and, disconcertingly, lacking value for advice and advisers.
It is likely to mean further changes to intermediary businesses and the way advisers work. That feels incredibly unsatisfactory and will be very difficult for much of the profession to stomach.