How odd of the regulator to suggest there is a borrower cohort that does not need advice.
Richard Adams is managing director of Stonebridge Group
If you were looking for further evidence of the increasing importance of mortgage advice and the benefits it can deliver, in order to promote your business – and perhaps persuade ‘sceptical’ potential clients – then the FCA has supplied plenty with its latest product sales data.
In this latest quarterly data which covers the second quarter of 2018 and provides a direct comparison with the first three months of this year, the FCA revealed that the number of non-advised transactions stood at just 3% of all mortgage transactions, when compared to 4% in quarter one.
While we might be stretching the truth somewhat to suggest that pretty much all mortgages have an advice element to them, 3% of 297,813 mortgage sales completed in quarter two, is a miniscule number.
The FCA defines non-advised sales as those in which no ‘personal recommendation’ has been made, and this covers ‘execution-only’ and ‘direct offer’ transactions.
The big ‘headline’ comparison number however is that the regulator has compared the number of non-advised sales in quarter two 2018 with those a decade earlier. Back then, the number was a much more significant 35%, and this perhaps shows more clearly than ever, the sea-change that has taken place since the credit crunch.
Far fewer mortgage borrowers are willing to ‘go it alone’ and, along with the huge boost provided by the MMR for example, it’s clear that mortgage advice remains absolutely front and central for the vast majority of those seeking mortgage finance.
Which, when you consider the contents of the FCA’s Mortgages Market Study Interim Report – published earlier this year – shows just how surprising, and rather barmy, some of the assertions made it in are.
For instance, how odd of the regulator to suggest there is a borrower cohort that does not need advice, based purely on the fact that – according to some rather unconvincing data – the cost difference between a borrower going direct, as opposed to seeking advice, didn’t seem wide enough to justify the advice element.
The regulator’s fixation on cost has perhaps been done to death this year, but given this product sales data shows how many consumers value advice, and the fact that professional advice gives so many protections to the borrower that are simply not available by going direct, to suggest that some people do not need advice seems utterly at odds with the ambition to secure the best outcomes for consumers.
When looking at this combined data, we should also be mindful of another 2018 ‘zeitgeist’ – ‘robo advice’. At the start of the year, it seemed that discussions around ‘robo advice’ and when the humans were going to be usurped by the machines, were likely to dominate debate throughout 2018.
That has not really been the case because I think there has been a realisation – not least from those pushing ‘pure’ robo advice models – that the ‘human element’ is not just a flimsy part of the advice process that can be dispensed with, but it’s an absolutely crucial part which gives the consumer confidence and actually ensures they get the mortgage that’s best for them.
I don’t deny that ‘robo advice’ propositions are going to be increasingly important, as more borrowers start their mortgage journey using them, but my assertion is that unless you have a ‘hybrid model’ then you’re going to find that many potential customers jump off to a human adviser because they’re not confident enough to go through the full process purely via the ‘robo adviser’.
Having that service provision is incredibly important and – much like we’re seeing in the estate agent market – I think it will be those who can handle the ‘hybrid’ proposition that will have the most to gain in the future.
Overall, the numbers of mortgage transactions that have an advice element is incredibly pleasing, and a vote of confidence in the advice profession from consumers.
This trend will only be disturbed by some major (and unwanted) regulatory intervention which pushes customers down a direct, unadvised route – that is not what the industry needs, nor is it what will ultimately benefit consumers who not only get professional advice but protections from the FOS and FSCS simply because they’ve used an adviser.
Do we really want to move to a point where the market is re-engineered to dilute this? I sincerely hope not.
