Starting a new job is tricky enough at the best of times. However, for Richard Farr, the recently installed director of the Association of Mortgage Intermediaries (AMI), his arrival in the hotseat has certainly seen him thrown in at the deep end.
With the credit crunch – a phrase now obligatory in every mortgage conversation – in full swing, a constantly full regulatory agenda and the task of meeting as many of the trade body’s thousands of members as possible just a number of the tasks to hand, Farr has plenty to get his teeth into.
However, despite being a relative novice in the role, Farr has already set about carving a course through the choppy waters of the mortgage world. His main task to begin with has been promoting the importance of ‘Treating Customers Fairly’ (TCF) and the Financial Services Authority’s (FSA) deadline of 31 March 2008 for intermediaries to adopt these practices in their businesses.
Getting the message across
Clutching the latest results from AMI’s monthly survey of its members, it seems the message is starting to get through, albeit slowly.
“It’s great that people have started to get the message, but what I’m keen on is making sure they are doing the right thing, not starting by doing the wrong thing. When questioned, 94 per cent of them felt they had started doing some TCF so that is great news. It’s fairly encouraging that only 6 per cent haven’t started yet, but the important thing is that the FSA has said that it’s critical in the way that principles-based regulation is going forward. Plus, it’s important to remember that, even if you have started, there is still more work to be done to be ready for March.”
While Farr believes TCF as a concept is great, it is the issue of how it is measured which has caused a few ruffled feathers. While most intermediaries would argue – and rightly so – that they do everything in their power to do the best for their clients, it is all about documenting that process and this is where problems have arisen. You only have to look at the regulator’s last review of TCF, published back in May 2007, to see how this was manifesting itself.
Farr admits this is one of the biggest challenges when it comes to TCF. “In an interview, they are thinking about the customer and about their priorities and their needs and they advise accordingly. But that doesn’t demonstrate or evidence TCF. Our whole campaign is about the measures which help show TCF is getting done. That will come naturally to people who are very personable, have great industry knowledge and give good advice. But that’s where the challenge is as it is a new element to their job.”
The upper hand
However, even though the original report found that smaller firms were further behind when it came to instigating TCF compared to large firms, Farr insists that it is smaller firms who hold the upper hand. This is especially the case when it comes to implementing a TCF ‘culture’, a term which was supposed to be more elusive for smaller firms.
“It’s probably easier for a one-person firm because culture is about consistency and values. If there is only one or two of you, it’s actually quite easy to get a consistency. It’s much harder for a firm of 500 to make sure at one end someone gets the same values as at the other end.”
This leaves no room for excuses any longer and Farr will be working to ensure that as many intermediaries over the coming months will be engraining this concept in their business models. Much of the AMI response to TCF will come through its working party, which Farr heads, and meets for the first time on 28 November. Farr waxes lyrical about its many benefits for advisers which will become apparent as it holds conversations with leading figures and the regulator.
This will surely prove useful as intermediaries come to terms with the new mortgage market which will evolve out of the credit crunch. As has already been established, no conversation is currently complete without delving into the implications of US non-conforming mortgages and the global shortage of liquidity, and our focus soon moves away from TCF to the dominating topic of the day; or has been the case, the topic of the last couple of months.
For Farr, the biggest concern is that the market will inflict major damage to itself. “The problem sometimes is that something happens and there is a knee-jerk reaction that you need to regulate it. The whole remit of AMI and myself is to support regulation as it delivers great benefits and safeguards to consumers. But it is about having appropriate and relevant regulation so the worse thing you want is knee-jerk regulation.”
Old-fashioned
However, while this area is purely speculative at the moment, one aspect which is very much coming to the fore is the fact that mortgage intermediaries are not just mortgage brokers any more.
Farr even chastises me for even using the term broker. “The term ‘mortgage broker’ is quite old-fashioned. I’m involved with the Association of Mortgage Intermediaries, so mortgage intermediary is the professional term. The colloquial is mortgage adviser as that’s what a customer sitting down gets – advice.”
As brokers – sorry, intermediaries – know, other areas of financial services are becoming of greater importance. With the credit crunch squeezing new business volumes, the opportunities of general insurance and other products which offer continual benefits are coming through. This links in with the themes expressed into the Thoresen Review into generic financial advice (GFA) and the Retail Distribution Review (RDR).
But while GFA is very much concerned with empowering consumers to think about their opinions and explore them with a professional, the RDR is regarded as a threat to the way mortgage intermediaries operate.
“AMI’s take on RDR is it’s a square peg for a round hole and it doesn’t actually fit,” explains Farr. “This is an if, rather than a when, but looking back in history, it could be a when, rather than an if, because it’s sometimes easy for a regulator to say this model is working well in this sector so it must be obvious it can cascade into another area. I was at a conference with mortgage experts who hadn’t come across the RDR, and as I explained the vital points, the obvious body language was one of ‘this doesn’t fit – this is not for the mortgage market’.”
Remuneration
But for all its faults, the RDR does touch on one area which is very close to intermediaries’ hearts – and wallets. The issue of remuneration.
“Remuneration is always evolving,” Richard insists. However, the RDR focuses at the heart of how advisers earn their crust and threatens to pigeonhole how this happens. But for Farr, the fact that market forces currently dictate how an intermediary gets paid is a key cog in what he describes as ‘the most sophisticated mortgage market in the world’.
“Different players do different things with different business models and there’s room for all of them. For example, a telephone fee-free operation can be very successful and could be a proposition that somebody uses. But I think that anybody that’s in business and wants to grow their business and put on bottom line, good advice and taking the client’s needs and servicing those needs with a full gannet of products is at its heart.”
This is a sentiment that most intermediaries would agree with, and would certainly be encouraged by the regulator, especially with its focus on TCF. However, at the end of the day, it is the consumer that everyone is working towards helping and they are the key to it all, whether it is a mortgage that is being advised, life cover or debt management. But for all the work which the FSA does on making sure the adviser is giving a full service to the client, it must be remembered that sometimes the customer just wants it all sorted with as least amount of hassle as possible.
“With a regulated mortgage sale, you hear a lot about customer fatigue. It takes an hour at least to get through it and then to start thinking about what the protection needs are and there may be more than one of those. After all, customers are busy people. We are all busy people and customer fatigue can be an important factor in how far you take that advice.”
At the heart
So, much like advisers up and down the land, Richard has TCF at the heart of everything he does. This is something I’m sure you’ll see when he endeavours to see as many intermediaries as possible in the next few weeks and delivers his TCF message. As he admits when I ask him about his aims for the job: “TCF is one of my big initial goals. Overall, I want a thriving mortgage industry that continues to be innovate, that continues to create good characters and that sees intermediaries and providers work closely together to make that mortgage industry environment a better place for consumers. That’s kind of the big picture and if I play a little part in the change of all that I’ll be a happy man.”
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