Those that work in public relations and marketing are often obsessed with ‘the message’. The most difficult part of any announcement or statement can be working out what ‘the message’ actually is, especially if there is conflicting information that needs to be put ‘out there’.
Of course, there is no guaranteeing that the press or consumer or whoever ‘the message’ is aimed at will actually take away the same message. It’s often been a charge made against the media that they are only looking for the negative and that positive messages are often overlooked. This could be defined as ‘good news is no news’. Having said that, it is normal for those releasing information into the public sphere to ‘go large’ on the positives and use this as ‘the message’. Normal, but not always the case, you understand.
The whole nature of message building struck me while looking at the Financial Services Authority’s (FSA) recent public announcements and press releases following its non-conforming review. The review looked at both broker and lender behaviour in the non-conforming market and was a follow-up project to its 2005 work, with expansion this time into lender policy and the whole end-to-end process of non-conforming advice.
Unnecessarily negative
No doubt you will already be aware of the main headlines to have come out of this review, and they are likely to have been negative. Typical lender-focused headlines have included: ‘FSA in non-conforming crackdown’, ‘Non-conforming mortgage lenders fail FSA review’; ‘FSA savages non-conforming mortgage providers’. Mortgage brokers have not been spared either. Consider: ‘FSA takes action against non-conforming firms’ and ‘No improvement in non-conforming practices’.
There is no doubting that the results of the review contained some disappointing news. Yet, you could be forgiven for thinking there were no positives at all. But consider this sentence three paragraphs in to the FSA’s press release: ‘While the research found no significant evidence of non-conforming mortgages being sold incorrectly...’
Surely the fact that the FSA did not identify any ‘significant evidence’ that non-conforming products were being sold incorrectly to prime customers is a major positive and should have been pushed more as a key part of this review? We live in a media age that is obsessed with financial services ‘mis-selling’ and yet here the regulator found no evidence of any such action by intermediaries or lenders. Remember that the FSA views this sector as high-risk and there have always been fears voiced that some intermediaries look for the higher non-conforming commissions on offer, rather than recommend a prime mortgage to a prime customer.
Disappointing
Of course, some of the results of the review were particularly disappointing. Looking at intermediaries in particular, the FSA found that in over a third of the files reviewed there was ‘inadequate assessment of consumers’ ability to afford the mortgage’, plus in over a half there was ‘inadequate assessment of customer’s suitability’. Again, in over half of the files, ‘customers had self-certified their income but it was not clear in many cases why they had been advised to do this’. Other particular concerns raised included insufficient needs analysis to make a recommendation and in cases of lending into retirement, insufficient attention had been paid to post-retirement income and post-retirement affordability.
We were also surprised and concerned to see the numbers of consumers who were paying early repayment charges to remortgage. While, this does not necessarily indicate poor advice, it is important that advisers have the necessary documentation to clearly show the reasons for the advice.
We can never defend poor record-keeping and this is not the first review that advisers have been warned to improve their practices in this area. Advisers must hold sufficient evidence on file to confirm they have considered all areas within the advice process and this will also give them the ability to defend advice in the future should they need to do so. Sound record-keeping is vital to ensuring the FSA has all the evidence it needs to report a fair market. This would be the most positive message and the best outcome we can expect the FSA to deliver.
Following the review, five of the 34 firms visited by the FSA have had enforcement action taken against them. Again, this is disappointing, but it also shows that the FSA is willing to take action against firms who have not improved their practices.
Good fundamentals
Overall, AMI is disappointed with the way the FSA presented the results as we believe the fundamentals of the review, in relation to selling, were good. It is in these situations that the regulator needs to learn to say positive messages positively. This sector can ill-afford the reputational damage that can occur by constant and consistent negative messages being released, especially at a time when interest rates are hardening. It is therefore essential the entire industry, and that includes the FSA, works towards maintaining consumer confidence in the market.
AMI will be working with members to address the concerns raised from the review and our message will be for firms to analyse the examples of good and bad practice highlighted by the FSA, and ensure they extinguish the negatives and concentrate on bringing the positives into their businesses.
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