Okay, so you’ve joined a gym and only been twice, given up alcohol (for a week – longer than you’ve lasted before) and haven’t had a fag since, well, yesterday (but you resisted for a whole week before that).
Let’s face it: most New Year’s resolutions last about as long as an ice cube in a cup of tea. Why bother? From a personal perspective I’ve given up with them, but from a business viewpoint I think it makes sense to set a few resolutions (I prefer to call them goals or objectives) for the year ahead. Having had just over a year to get used to regulation, now is the time to set a few objectives as far as compliance is concerned.
Self-cert
The FSA has issued some useful hints and tips as part of its review of self-cert published in November. Key points include:
Affordability – always ask clients to state monthly net income and normal expenses so their mortgage payment is shown to be affordable. Remember, affordability is not based on the initial payments, but the future amount clients have to pay. Affordability must be proven, whether income is or not.
Income – if clients have inadequate income then you cannot advise them. You must also ensure information clients give you about jobs and income is reasonable. Record this information and re-state it to clients in your suitability letter.
Your business
Record-keeping – make sure you record and explain to clients why self-cert has been recommended. If they are on PAYE then you need to demonstrate why it was appropriate.
Suitability – any recommendation given to clients must tie-up with the information given in the client review/factfind. If a client wanted a fixed rate with no penalties and you recommend a tracker with penalties then you will not have satisfied the appropriate rules.
Business plan – a year has probably gone by (if not longer) since you drafted your last business plan, so it’s time to dust it off and bring it up to date. Regularly reviewing your business plan will not only keep the regulator happy, but will also help you build your business (and make your bank manager happy).
Fast-track – never mix self-cert and fast-track. Fast-track is where a client can prove income but, due to the LTV, is not asked to do so (but may be). Self-cert is used where the income is earned but the client may have difficulty in proving it.
Key documents – review your disclosure process and ensure key documents – both the IDD and KFI – are given at the right time and are correct. Do a bit of random sampling just to make sure.
Disaster Recovery Planning – you need to have a good disaster recovery plan in place and the danger is that, over time, your recovery plan becomes outdated and forgotten. Don’t make the mistake of thinking ‘it will never happen to me’ because it can. More than 90 per cent of businesses which suffer a disaster such as an office fire never open their doors for business again, simply because they have no recovery plan in place.
Clients
Client contact – make sure you can safely contact those clients you started working with after ‘Mortgage Day’. Some of the deals you arranged last year may be due for review shortly and you will need to get in contact again with your clients. Have you got their permission to do so? If you provide advice regarding lifetime mortgages, review your practices to ensure you can adequately prove the suitability of your advice.
Protection – always ensure you fully explore a client’s protection needs and document the outcome. Not only is this a necessary part of the advisory process, but the sale of buildings and contents, Accident, Sickness, and Unemployment, life, income protection insurance and so forth can help increase considerably your income per mortgage completion.
Promotions
Financial Promotions – get your Financial Promotions right for 2006. This includes advertising, mailers, websites and anything that is deemed to be promotional. The FSA has made it clear that it intends taking a close look at Financial Promotions during 2006 so don’t say you haven’t been warned. Make sure your advertising is balanced and doesn’t contain misleading statements and ensure you use the correct risk warnings and APRs. Pay particular attention when non-conforming mortgages are being promoted and that APR figures are up-to-date and relevant.
Website – this is a good time to review your website and not only ensure it is compliant (the FSA is aware of a large number of non-compliant ‘adverse’ websites), but also ensure it is promoting your services as effectively as possible. Remember, websites are excellent at providing potential clients with additional information which you cannot hope to include in advertising, so make sure your advertising and website are as effectively integrated as possible.
Training
Training and competence – review how you can prove that your advisers and staff are competent to do their jobs. Make sure your records show suitable and appropriate training. Check that the work your advisers do is regularly monitored and consider additional qualifications – there is life after CeMAP.
So there you have it. None of the above points should be new to you and all are common sense and good business practice. The danger, however, is that as you get taken-up by the day-to-day demands of clients and chasing business so compliance procedures can start to slip and bad practices set-in.
