Regulation affecting distribution has been drip-fed to the market throughout 2010 by the Financial Services Authority, including confirmation of the approved persons register across the whole mortgage sales market in a drive towards increasing professional standards.
Together with a crackdown on income verification and affordability outlined in the July MMR consultation paper on responsible lending, some pundits suggest that there is already significant regulatory change underway to the way mortgages are distributed.
Robert Sinclair, director of the Association of Mortgage Intermediaries, said the paper would have to make decisions about “what advised versus non-advised looks like”, but added that it was too early to speculate where the FSA would draw the line.
Another possible area the FSA could target was how consumers pay for advice, said Sinclair, and the future of procuration fees. And the third possible topic was paperwork delivered at the backend of the mortgage application process.
He said: “I think we’ll have some discussion around whether the Key Facts and Information document is sufficient and whether we’ll see suitability letters playing a stronger role.”
Executive director of the Intermediary Mortgage Lenders Association, Peter Williams, said there was very little indication of what would be in November’s paper from the FSA, adding that the market still needs to adjust to the regulation on approved persons already announced.
Jonathan Cornell, an industry consultant, said: “I’d tend to agree with Robert on the advised versus non-advised question. I think the FSA seems not to be keen on the number of people receiving non-advice who think they’re getting advice. 90% plus of intermediary sales are advised, whereas something like 30-40% of bank sales are non-advised.
“Non-advised shouldn’t be banned, but lenders shouldn’t be able to get away with leading people to believe they’ve had advice when they haven’t.”
Many in the market believe the introduction of the approved persons register will create further fallout in the mortgage advice sector.
Mark Hobbs, chief executive of New Leaf Advice Centre, a broker based in Southend, said: “I think we’ll see 40% of all brokers gone by March when the deadline for registering is. There are still loads of advisers without their CeMAP and with problems in their credit background, or who’ll fall by the wayside in the criminal record bureau check. It’s going to be decimation.”
But Cornell added: “Undoubtedly some people won’t make it through the approved persons regime but I think the suggestions that this could be 20% plus of the industry are exaggerated. The number of drop outs will be significantly lower, maybe 5% to10%.
“The thing to remember is that if people are leaving the industry, then there are fewer advisers serving the greater public.”
And some are concerned that there may be changes in store that the industry hasn’t considered.
Sinclair said: “The key thing with this regulation is that it has to fit in with the broader EU vision. Judging the FSA’s track record, they’re also bound to throw in a curve ball, but as yet, we don’t know what that might be.”
In an attempt to influence the FSA and its views on distribution, mortgage trade bodies have been working together to define the current status quo.
Earlier this week the Council of Mortgage Lenders, AMI and IMLA’s codified statement of lender and broker roles and responsibilities was submitted to key stakeholders for review, and the trade bodies intend to publish it in October, a month ahead of the distribution paper.
Though its contents have not yet been disclosed, Sinclair said he was “very pleased” with how the trade bodies had worked together to outline distribution relationships.
A statement from the CML said: “The work to arrive at an agreed document continues with the draft text now with a wider group of stakeholders. There is consensus on all the key issues and we are moving forward within plan. We anticipate publishing the document in October once we have final agreement.”
Gemma Harle, managing director of network TenetLime, said that the biggest challenge in a post MMR world will be the battle for customer ownership.
She said: “Customers need to understand and value the advice they receive and all parties need to move on from a transaction based relationship. Advice in the public’s mind cannot become the preserve of product providers.
“Client ownership and retention will play an increasingly important part in financial services as it will determine who ultimately has the balance of power in financial sales.”
