The caller who interrupts your dinner to try and sell you a conservatory is still very much the norm, but for over 18 months now the Financial Services Authority (FSA) has banned the mortgage world’s cold-calling practices. While this move was positively welcomed by some, others continue to question the benefits it brings to consumers.
Yet, it appears the rule itself is causing confusion and is not as restrictive as many brokers believe it to be. Total cold-calling, where no prior contact has been made, is indeed banned, but there is some leeway when it comes to calling clients.
The complaint many intermediaries raise is that they cannot call their own customers unless written permission is given. Rod Murdison, proprietor of Murdison & Browning, says: “It’s a bizarre bit of legislation and a unique rule for the financial services market. If a customer is not financially astute, then they rely on me to call them. I can imagine a whole host of brokers are breaking the rule from time to time and calling clients. It’s an unworkable and illogical rule. The FSA will only find out if there’s a complaint and I don’t see a client complaining about their own adviser.”
Clear and unambiguous?
Though Robin Gordon-Walker, spokesperson for the FSA, maintains the rule on cold-calling is ‘clear and unambiguous’, many brokers seem to have got the wrong end of the stick. The rule states a firm cannot cold-call unless the customer has an established existing relationship with the firm and the relationship is such that the customer can envisage receiving a call from them. Gordon-Walker says: “If a broker has already sold a client a mortgage, then that’s a clear relationship where they have had business dealings and a broker can make a call.”
While clearing up this confusion may alleviate some brokers’ complaints, a number of concerns remain, not least over firms who disregard the rule. Thomas Reeh, chief executive of blackandwhite.co.uk, is angered by the lack of compliance and feels the FSA has managed to push cold-calling underground. He says: “blackandwhite used to have an extensive outbound call centre. Regulation forced us to make 40 people redundant and it was a bitter pill to swallow. It’s staggering the extent to which companies have ignored regulation and are using offshore companies to get round it. They are blatantly outbounding and it gives the industry a bad name.”
However, the FSA has no control over offshore companies as they come under the regulations of the countries they are based in, leaving the FSA unable to act.
While the FSA’s ability to enforce its own rules has been questioned recently, it remains defiant. Gordon-Walker asserts: “We can only respond to the information received from tips and whistleblowers, so we can’t be sure we know of every breach going on. But wherever we get a tip, we’ll look into it. We have a number of powers for a breach of the rules that have the force of the law, but what action we take is dependent of the circumstances and the seriousness of the incident.”
But for Reeh, the rule is leaving certain customers at a disadvantage. He explains: “One of the failings of the FSA is it has banned phoning customers who are interested in debt consolidation. An A or B grade client is quite savvy about financial services, whereas an everyday C or D grade customer is frightened to death by finances. They don’t understand it and won’t review their finances. An inbound phone call to ask for advice is quite a proactive thing to do, so an outbound call is a very good thing for C or D grade customers to offer the advice and prompting they need. Consumers are suffering because they aren't switching mortgages.”
Lead generation
This argument may not sway all, but in the absence of cold-calling, the question of how to generate new client business is still very much an issue. Inevitably, this is where the role of lead generation comes up. Ian Middleton, director of partnership development for blackandwhite, believes calling a customer should still be allowed as long as they are not used to sell. “I think it’s okay if interest is generated by a call purely offering advice and the details are passed on to a specialist.”
Though lead generation companies have come under fire for not being regulated themselves, Stuart Glendinning, managing director of Moneysupermarket.com, whose distribution arm paaleads.com supplies leads, doesn’t believe they need to be. He argues: “Lead generation does have to comply with rules and there are things we can and can’t do. It would be madness to regulate the lead generation industry. The companies that already comply would have the cost and burden of regulation and the others that ignore those rules already would continue to do so.”
This perhaps reflects the situation of cold-calling intermediaries and is a sign of what Glendinning terms ‘regulatory creep’. “The FSA is constantly expanding the remit and creating cost burdens to deliver benefits to the consumer that are at best questionable,” he says.
But Glendinning does recommend intermediaries to be careful when choosing a lead generation company. Paaleads.com generates its leads over the internet and customers have to actively put in their details in order to be contacted by a broker. Glendinning advises that good pointers for assessing the quality of the leads include whether a company clearly identifies where the leads are sourced from, if the collection of customers’ details is transparent in its results, and whether the firm wants money upfront or after receipt of the leads.
Added cost burden
But even as lead generation creates a way for brokers to find new business, Murdison points out the added cost to the broker for buying leads will inevitably fall on the client. He adds: “Lead companies are there to service a need because the broker needs business. But it’s created an extra layer of expense for the broker and the public. Who’s going to repay me for paying that extra cost? It’ll be the public and that’s when I could have covered the cost more cheaply on my own phone bill. It’s ironic this legislation is supposed to help the public, because it was never explained to me what great evil mortgage brokers do in the first place. I don’t get paid until a contract completes.”
Yet Gordon-Walker believes the ban has had the right effect on the industry, despite claims that the market is now missing a vital stimulus. “We consulted on points and try to get the balance right, as if the rules are too restrictive it will hamper the market,” he explains. “We believe it strikes the right balance for protecting customers and the industry by and large felt it was right, though not everyone will agree.”
However, despite its best intentions, the FSA may have left customers more open to scams, as it is the unscrupulous merchants who are the ones left cold-calling. But brokers can take comfort in knowing they are allowed to maintain their current client base without fear of breaking regulation, even if their customers still have to face the conservatory floggers.
