The Financial Services Authority consultation paper CP11/31 proposes to do away with non-advised mortgage sales because the consumer cannot understand they have not received advice.
The paper said: “For some time we have had a concern about consumers’ lack of understanding about the difference between advised and non-advised sales.
“Our research shows that consumers do not recognise or even value the distinction and therefore may not appreciate the different regulatory standards applying between the two.
“Most consumers believe that if they speak to an intermediary, they have been given ‘advice’ no matter how many times they may be told that they are not being given advice and whatever form of service disclosure they are given confirming the position.”
In CP10/28 released last summer the FSA proposed to maintain the distinction between advised and non-advised sales but to enhance sales standards in non-advised sales.
But the FSA revealed there was little support for making this a regulatory requirement as the effect would be to blur even further the distinction between the two types of sale.
In the latest paper it proposes execution only sales should be preserved but only for high net worth and professional consumers.
It said: “We are concerned that creating an execution-only sales channel could be exploited as a mechanism to circumvent our rules.
“Feedback supported the idea that an execution-only service would be appropriate for very specific consumers. In the light of this, we are therefore proposing that high net worth and professional consumers should be able to opt-out of receiving advice and purchase on an execution-only basis.”
“Vulnerable consumers” including equity release, right-to-buy, sale and rent back and those consolidating debt must always receive advice under the new rules.
The FSA said it did not want to “prevent consumers from having the freedom to make their own choice” so with the exception of SRB consumers, it said consumers who reject the advice they have been given may still go ahead and purchase the product they want on an execution-only basis.
It also said where the sale involves no interactive dialogue and is purely online or with some postal sales consumers should be allowed to purchase on an execution-only basis.
Industry commentators believe this proposal could drive more business to brokers as banks may struggle to get all of their bank-based, telephone and internet advisers trained to QCF level 3.
Banks will still be able to offer advice restricted to their own product range but will have to alert borrowers to the fact.
Robert Sinclair, director of the Association of Mortgage Intermediaries, said: “Making mortgage advice a requirement for all interactive sales unless the customer rejects the offer of advice will provide significant benefits for consumers.
“Buying a house is a substantial financial undertaking, and we have long argued that providing consumers with expert advice is a process that cannot be left to chance.
“The MMR’s proposals will ensure many more consumers are given the support and guidance they need to make better and more informed decisions.”
AMI also welcomed the level playing field for lenders and intermediaries created by ensuring all mortgage sales advisers have the same qualifications and a responsibility to determine product suitability.
“It is important that consumers are confident that at all stages they are receiving advice from qualified staff acting in their best interests,” added Sinclair.
