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Adviser
Community
The Independent Resource for the Financial Adviser Community.
Mortgage Market Revue (MMR)
(An Industry Point of View)
Article by Gary Watts
Director – Which Network Ltd
The Mortgage Marketing Review (MMR) currently being carried out by the FSA seems to be everywhere at the minute. Just Google it, open a magazine or speak to anyone at any industry function and you’ll hear opinions and warnings about it. Comments range from “I don’t think it will affect the way I do business much” to “it’s the end of the road for Mortgage Intermediaries” with most opinions unfortunately leaning, wrongly towards the latter.
Very much a reaction to the recent financial crisis and following recession the MMR is part of the FSA’s strategy to clean up and stabilise the mortgage market which is seen as one of the factors causing the crisis. When trying to get a practical view of the issue the problem seems to be that while there are a great deal of academic papers on the subject, definitive guides on how it might affect Mortgage Brokers and Financial Advisers (mortgage professionals) at a working level are on the whole much thinner on the ground. Hopefully this article will help a little from a practical viewpoint.
The article has been separated into two sections, changes which will have a direct influence on the way intermediaries work, and indirect factors such as product changes which are equally important but may be considered as one step removed from the actual business.
Suggestions which directly affect mortgage professionals are:-
Increasing Capital requirements – There is a possibility that changes to capital adequacy regulations will require intermediaries to hold a bigger sum in reserve, however it is doubtful if this will serve any purpose other than putting more marginal brokers out of business since complaints where the client has been financially disadvantaged are invariably handled by the intermediaries compulsory PI cover.
Increased training – Possibly higher levels of proof of training would be a better description, as the current loose requirements to show levels of continued professional development have meant that a number of brokers are not up to date with the latest regulatory changes and recommendations for best practice.
Requiring all mortgage advisers to be personally accountable to the FSA – This means that essentially all advisers conducting mortgage business will have to be individually entered on the FSA register. This may lead to long lead times in getting registered as was the case following “M day” with initial backlogs because of the increased load on the FSA’s systems. It will however mean that intermediaries who have not carried out their business properly and would not be allowed on the FSA register will not be able to carry on working “under the radar” as an RI (registered individual) of a registered broker.
Changing the names of advice categories – It is recommended that the term “whole of market” be replaced with “independent” and single and tied advisers will all come under the heading of “restricted”. This seems to make sense as most clients will not have any idea what a “tied” adviser is.
Non advised sales – are likely to go completely, which is broadly welcomed as this generally leaves the client with less protection, and research has shown that a number of people sold these products were not aware that the sales procedure had been any different to the norm. This does however give rise to the question of how a client can be classed as having a suitable degree of protection when they apply for a mortgage directly from a lender who does not offer a full range of products and can only advise on their own mortgages. In this situation, it is very unlikely that the client will have sufficient knowledge to know what is the best type of mortgage for them, and yet is allowed to be sold a less appropriate product just because they were unfortunate enough to walk into a bank with a limited range of products and not to approach an independent mortgage professional.
Rolling up broker fees – There is a suggestion that clients should not be allowed to roll up broker and other fees into their mortgage, however the main result of this would be to disadvantage borrowers with lower wages. Since any fees charged are much more significant for smaller mortgages this would leave the industry in a situation where the more affluent borrowers who are more accustomed to paying for such services and have more free capital would willingly pay the fee enabling them to find the cheapest mortgage. Less affluent borrowers who in many cases just wouldn’t have the money to pay a fee would be forced to rely on advertising from lenders, hearsay and generalised advice to find a mortgage. This could hardly be classed as being in the general public’s best interest.
