Carl Higgins is copliance director at blackandwhite.co.uk
Time has a habit of marching on by doesn’t it? Is statutory regulation two years on already? One could be forgiven for forgetting how far we have progressed, as an industry, working within the framework of Financial Services Authority (FSA) regulation. But what has regulation meant for customers? Is it now a case of information overload, and is it reasonable for customers to genuinely understand the mountain of paperwork they are now confronted with? If the green lobby knew that we chop down a tree for every new mortgage application they would be horrified.
Countdown to regulation
We all remember vividly the countdown to regulation and all of the stomach acid that went with it. Doomsayers were on every other page of the mortgage press. Miles of column inches were spent on which route to authorise, which network offering would be better and bigger, everyone seemed to jostle for top spot without giving any clear direction or advice unless it was following their own agenda. It seems that the early hype is long forgotten as we settle into the regulated world as we know it today. We might even be tempted to call it ‘normality’.
It is certain that the regulatory regime has improved awareness and standards within businesses but is the perception the same from the customer’s viewpoint? Many customers (and brokers) remain shocked at the sheer volume of documentation produced and sheer volume of ‘cover your ass’ information that is now required.
The regulator claims a recent survey concluded that ‘customers are actively shopping around for mortgages’ and those customers who receive Key Facts Illustrations (KFIs) from mortgage firms ‘understand the risks and features of the mortgages they take out’. This quotation trumpets the success of the FSA rules and the often perceived ‘unfriendly’ prescriptive layout of documentation while industry pundits still claim the language used and sheer volume of paperwork can and does confuse customers.
Daunting
Any industry professional will be familiar with the changes in documentary requirements since the days of MCCB rules, so there is no need to preach to the converted. In principle, industry wide common formats for paperwork allow ease of comparison between providers of products and the status of the intermediary. However, we are left to wonder if the volume of paperwork alone is not enough to encourage the customer to look for an easier choice with less daunting amounts of print and does this drive a less than compliant culture?
We are a customer-centric company – customer service is paramount to our success. Principles six and seven and ‘Treating Customers Fairly’ (TCF) should drive us all to understand what it is a customer wants and indeed expects from our company. This is of course among other things; speed, accuracy and efficiency. All intermediary firms owe it to their customers to achieve and maintain these goals, but certain elements of the service are beyond our control. For the avoidance of doubt, I’m talking about prescriptive and excessive documentation.
As mentioned earlier, we must take into account the information needs of our customers. We wholly support this principle but we are acutely aware that a more complicated sale, with additional products, will produce even more information documents with which to enlighten or confuse the customer. The paperwork load now stretches into three figures, not a few dozen pages.
There simply comes a point where the more thorough the intermediary is, the more potential there is for information overload. Duplication of information between a KFI and Initial Disclosure Document (IDD), demands and needs and suitability letters is frustrating to the broker and potentially confusing to the customer. From a compliance perspective, the more complex the process, the more chance for error, and that could have damaging consequences down the line.
Business by attrition
Let’s not forget that if a broker completes a full financial review and completes all necessary applications and proposals and then proceeds to present the relevant documents to a customer, this could be taking up six-eight hours of the client’s time. Let’s not compare the mortgage industry to some other rogue improvement traders, but there is a real danger that brokers could be perceived to be winning business by attrition – three hours for a first sit factfind is a long time.
Is it therefore reasonable to expect a customer to read and understand the complex information laid before them? In their current formats, let’s assume no, in most cases, and it is down to the broker to take time explaining the detail carefully. We have seen evidence that some intermediaries limit their advice to mortgages only, in the interests of time and paperwork. How can this be justified under TCF in a customer-centric industry? Do you simply leave customers exposed without life and payment protection cover, because it’s now just too hard?
The FSA desperately needs to undertake a process of continual improvement to monitor the impact on consumers and businesses. Surely there could be a better solution. Brokers and lenders must work together as an industry and utilise the voice of organisations like the Association of Mortgage Intermediaries (AMI). We must lobby the regulator for a ‘quality not quantity’ approach to regulatory documents. The FSA must address the issue of documentation if it helps them meet statutory objectives. As an intermediary, our opinion is the one thing we do have in our control. Speak to your customers and lobby trade organisations to take action. We can be one voice. And let’s hope the green lobby don’t find out how many more trees we are chopping down or they will chaining themselves to the doors.
