At the beginning of each year the Financial Services Authority (FSA) publishes its annual Financial Risk Outlook which is the background against which it sets its priorities for the year. The FSA hopes everyone involved in supplying and consuming financial services will get better acquainted with the up-and-coming market risks and, therefore, be better informed when taking their own business or personal financial decisions. The problem for ordinary folk (like me, you and your clients) is that, when we read terms like ‘macroeconomic stability and growth’, ‘a significant and sustained rise in oil prices’ and ‘a large and disorderly depreciation of the US dollar’, either our eyes glaze over altogether or we tend to think: “This has got nothing to do with the way I run my mortgage firm.”
I would, however, urge you to be aware of what the document contains and, if you don’t want to read the whole of it, the Executive Summary appears on pages 10-19 of the pdf file, downloadable from the FSA’s website. In particular, take a look at the section entitled: ‘Helping retail consumers achieve a fair deal’. We already know that the subject of ‘Treating Customers Fairly’ (TCF) lies close to the FSA’s heart – so any further information on what this means should be very useful. Two topics in this section are particularly relevant to mortgage and general insurance (MGI) firms: high levels of debt and the increasing complexity of financial products.
Here are some highlights that I think will be useful for MGI firms to take note of when advising clients. Regarding high levels of debt, the document acknowledges that, ‘Even in the current benign economic environment we are seeing signs of growing distress among consumers, including more insolvencies, more late payments on credit cards, and a rise in mortgage repossession orders’. Should low unemployment and interest rates rise significantly more individuals will struggle to keep up debt repayments. While this situation indicates a healthy market for the non-conforming sector in the future, we should also take note of the FSA’s reminder about advisers taking sufficient account of the customer’s ability to repay any additional borrowing, and also the need to provide the relevant disclosure documentation to the borrower – as highlighted by the recent mystery shopper exercise.
When thinking about the increasing complexity of products, this brings in the matter of risks, costs and benefits – about which advisers should provide their customers with clear explanations. Protection products get particular mention including the difficulty of comparing the benefits of products with detailed exclusions and/or claims procedures. The effect of protection products on the customer’s entitlement to state benefits should be clearly understood, and some individuals may need to review their protection insurance regularly to decide if it is still the best option.
Introducing GI
Q1: I am a mortgage broker with three advisers advising on some general insurance (GI) products, usually mortgage-related. My firm is an appointed representative (AR) for a medium-sized mortgage and general insurance network. I am thinking of changing to becoming an introducer of GI rather than advising. What do I need to do to change?
Bill answers: The first thing to do is to discuss your plans with your network and obtain their support, as they may not be happy with you only introducing. Your network may also have relationships with providers or other third-parties to whom you might be able to introduce. If they don’t have such arrangements they might want to work with you to set up an arrangement. This will all have an impact on your advisers of course as their income might be impacted.
Good or bad network?
Q2: I belong to a network with whom I believe I have a good business relationship and to my knowledge we are providing a good quality advice service to our clients which is generally compliant. There are always areas to improve upon or adjust to current approaches so I am not complacent. However I have read what the FSA has had to say about network controls recently and I have no concrete proof if my network is doing a good job. The FSA information mentioned ARs taking responsibility too – what did they mean?
Bill answers: In simple terms what I believe they meant was that the FSA expect AR firms to act responsibly and compliantly and not just expect their Principal to do everything for them. When applying for authorisation ARs are committing to much the same compliance with the rules and principles for business as their Principal has, so it is reasonable therefore for the FSA to expect AR firms to take a professional and business-like approach to their regulatory responsibilities. You may want to talk to your network compliance department and seek feedback as to what else you and your firm can do to ensure you are meeting all obligations, TCF, etc.
Logging complaints
Q3: We have recently sent out a mailing to several thousand households, which was signed off by our Principal as meeting the Financial Promotions requirements well before being issued. As a result we have had approx. 25 people contact us to complain they received the mailing, nothing else. We have recorded each one in our complaint log and recently supplied the information to our Principal which made us stand out as having more complaints than any other firm in the network over the period. Would we have been better off not recording them as complaints?
Bill answers: I think you have taken a very responsible approach to a difficult area. Strictly speaking they were complaints about your actions and therefore recordable as legitimate complaints. Providing you have replied within your complaints procedure and explained the situation to your Princpal, I suggest you need not be concerned. Better to record too much than little or nothing.
