Key Consumer Duty developments and recent communications issued by both AMI and the FCA, with commentary on implications for mortgage intermediary firms…
With robo-advice still in its infancy in the mortgage sector, but many firms claiming to have new fintech propositions, it is worth looking at the investment market which is further ahead in its development. There are undoubtedly lessons to be learned here as a recent FCA review has identified.
The regulator looked at investment firms providing automated services, i.e. where customers do not interact with human financial advisers, and found a number of issues with disclosures, suitability and overall governance.
Service and scope disclosures were found to be unclear, in particular whether the firm’s service was advised or non-advised. Cost disclosures were also misleading as firms compared their fees against competitors’ services but not on a like-for-like basis (e.g. benchmarking the cost of a non-advised service against the cost of a competitor’s advised offering), and without any explanation in this difference.
The blurring of advised and non-advised extended to the transaction itself, as in some cases the service recommended a different transaction to the one that actually took place at the end of the process. This was because customers could disregard the advice, but there were no safeguards or risk warnings to prevent or challenge this, which created uncertainty about whether the business was transacted as advised, execution-only or on an insistent client basis. Where a human adviser did intervene, the nature of the intervention wasn’t adequately recorded.
Identifying and supporting vulnerable consumers was also a weakness of these automated services, as they were unable to identify vulnerability based on the information gathered. Some offerings even relied on the customer to self-identify as vulnerable, which is wholly inappropriate. Firstly, individuals will not know whether they are “vulnerable” nor be familiar with the term. Second, due to the nature of some circumstances which make consumers vulnerable, they are unlikely to want to disclose this due to stigma, concern about how it may affect their access to the service, or if this might be disclosed to others. There are already various regulatory resources on vulnerability for firms to use, which the FCA will add to with proposed guidance on how to identify and treat vulnerable customers due early next year.
Any firms who are offering or considering offering online advice should read the full findings as many of the issues identified cut across all sectors. There is a clear expectation from the FCA that firms providing automated services (whether advised or non-advised) meet the same regulatory standards as “traditional” or advisory services. The FCA has reiterated that the rules on suitability apply regardless of the medium through which the service is offered. The concept of a level playing field is one that AMI has always supported. Perhaps other FCA departments could take note when considering any deregulation of mortgage advice in favour of online execution-only, as their own thematic work identifies the risk of consumer detriment is very real.
Senior Policy Adviser