October 2016 – Need for Advice

The Mortgage Market Review rightly recognised the need to establish, through advice, not what the customer thinks they want but what they genuinely need, as being a core cornerstone of the future market.  The move from the pre-MMR position of many customers merely selecting the cheapest product via a non-advised offering to receiving advice has challenged the ability of many lenders to deliver that cost effectively.

With intermediary share of completions estimated at £170 billion by the end of 2016, compared to direct completions estimated at £70 billion, perhaps it’s understandable why some lenders are starting to feel threatened.  Or is it?  The relationship between brokers and lenders should be viewed as a partnership rather than as competition.  This perception of ‘an imbalance’ is particularly skewed when uncovering the market of product transfers, which don’t appear in published figures. Estimated at an extra £100 billion of completions, with approximately 85% of this market direct and on an execution-only basis, the size of this market is significant and some are focusing to increase this further.

Genuine execution-only can be appropriate for a proportion of customers.  There are strict rules around this, and quite rightly so, in order to protect the customer.  Attempts to increase execution-only business on a widespread basis should be viewed with caution.  Financially incentivising customers not to take advice or offering a limited number of products to a customer under the guise of execution only are not just examples of extremely worrying behaviour but warrant regulatory scrutiny.

Anything that dilutes the opportunity for customers to benefit from advice (whether intermediated or direct), which includes the protections afforded by the Financial Ombudsman Scheme and Financial Services Compensation Scheme, risks moving the market significantly backwards.

Aileen Lees
AMI Senior Policy Adviser