Hector Sants, chief executive of the FSA, has responded to mortgage adviser Stuart Duncan's open letter, in which he expressed his concerns about dual-pricing in the mortgage market.
Duncan's original letter can be read here, while Hector Sants's response is below:
Dear Mr Duncan,
Thank you for you e-mails of 11 May and 14 May. I take on board the points you make and would like to offer the following comments:
Dual pricing as a commercial decision
As I stated in my speech to the BSA and Jonathan Fischel reiterated in his speech on 15 May in Manchester, how a lender chooses to distribute its products is entirely a matter for the firm to decide. If a firm chooses to distribute its products through its branch network rather than through intermediaries or through intermediaries rather than a branch network, it will not be in breach of any FSA requirement for having done so. The decision on what is the most appropriate distribution channel is a commercial decision for the firm.
Dual pricing and TCF
We have always recognised that not every product on the market will be available to any one firm (because some lenders only sell direct, others offer exclusive deals etc). We do, however, expect Whole of Market (WoM) firms to know what is 'generally available' on the market, and only to make a recommendation after considering a sufficiently large number of deals to ensure that the product recommended is most suitable for consumer's needs.
Until recently, the mortgage market was very competitive and all brokers who were 'WoM' as defined above would have been able to access a deal which, if not the very best available anywhere, would have been very close to it. But now the deals brokers can access are often significantly more expensive than those available direct from lenders.
In response to these unusual market conditions (in discussions with AMI), we have suggested that advisers caveat their 'WoM' service. Consumers will often be going to a WoM broker in the belief that they will get a market leading rate (not least because WoM brokers have traditionally promoted themselves in that way).
If a broker decides that, from those available to him that they have a product that is most suitable for their client and is confident that is the case taking into account what is available across the market, then he should proceed to sell that product.
However, if a broker feels that there is likely to be a more suitable product for his client in the market that is not available through him, we think it reasonable under Principles 6 & 7 that brokers clarify to their client where relevant that, while they are not tied to a particular set of providers, there are certain deals only available direct from lenders that the client may want to investigate.
We do not think this an overly onerous requirement, and indeed would expect that brokers would want to make such a disclaimer to protect themselves from complaints should the customer discover a cheaper deal on the high street.
I want stress here that we are not requiring brokers say a better deal definitely is available, or to point to a specific product or provider.
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Have your say:
"Interesting reading, and to be fair you can not disagree with Mr Hector commercial over view.
However, intermediaries have to earn a living and intermediaries however honest will be under pressure to make the sale.
The FSA wants customers to be treated fairly. This in a simple world will not happen with Dual Pricing. Only the educated customer will know where to seek the direct deals , the uneducated customer will take the best the intermediaries can offer. Surely TCF should be protecting these customers the most.
What will happen is many intermediaries firms will go out of business and the customers will have very limited choices apart from lenders direct.
To me that is not TCF and Mr Hector is taking the easy way out." Russell Rogers, Oakwood Independent Mortgage Consultants
"What a load of side stepping rubbish, the issues and problems are still there, and the FSA has just ignored it and hope that we, (advisers) just go away. As a fee based IFA it is impossible to give advice in the mortgage market as we cannot get a Key Facts document for the direct deals, and thus cannot give compliant advice. The FSA is keen to separate advice from sales but are making it impossible for the advice to be given, makes you think that we do not fit into their long term plan?" Nigel Tinsdale, Tinsdale Investment Management
"We were at the Financial Advisers Expo at Harrogate on the same day, and our keynote speech delivered by the FSA, highlighted their intention to push on with fee for advice, we are commision bias. Therefore, when we recomend that there is nothing better in the market place our clients will still pay our fee, ( I thought we could only keep £5.00 if deal did not go through). They also mentioned again more disclosure, have we not been telling everyone for years how much we will earn for every thing we do!. will they insist lenders KFI show their chief executive's bonus, or last year's profits?
And finaly just to lenders, if 20% of my staff did 80% of all sales at a fraction of the cost and with no compliance issues (we pay for all that and police it), then I would not be giving my other 80% of staff a better product to sell!! Would you?
DO THE LENDERS FEEL THAT CONFIDENT WE WILL COME BACK TO HEEL WHEN THEY START TO FAIL?" Roger Claughton, R & A Financial Services
"I think the FSA are making a fair point, except that as a broker although we trade as "whole of market" there are always special deals that we dont have access too. They maybe from mortgage clubs that we are not part of, or alternatively direct deals from lenders. There have always been deals available from lenders, just as there have always been exclusive deals from intermediaries. At least we know what other brokers are able to offer via our research tools, on the other hand lenders have never in my experience told us exclusive deals available from there own channels. Does that mean we are not whole of market then, or indeed, does that mean is there anyone out there who is whole of market?
Therefore so far as passing on customers direct to lenders or other intermediaries, despite what the FSA suggest, we will not do it. Just as we will not invite clients to go to other brokers just because they belong to a mortgage club we don't belong to.
And if the FSA want to know why, well that's MY commercial decision." Paul Hart, Managing Director, Sovereign IMS
"In the true nature of 'Treating Customers Fairly', if we are to advise customers across the whole of market, then an IFA has a duty to inform a client if there is a more competitive product offered directly. However, all mortgage sourcing software now available as I am told, does not include those mortgage products offered directly. So how are we to know what directly offered products are available? and the details of such products for comparison purposes. Furthermore, how are we to be paid for the time spent advising the clients? which can take several hours of fact-finding and subsequent research. What about all the other products associated with mortgages? Who advises on them? and would they be based on whole of market research if handed directly to a building society/ bank. As a former science based chartered engineer, my professional view is that mortgage research cannot be conducted with the tools currently provided and any conclusions and advice must be seriously suspect with a dual- pricing structure." John D Hooper, Independent Financial Adviser & Mortgage Consultant, Bluenote Independent Associates
"So Mr. Sants is allowing commercial imperatives above the interests of the consumer. Is this his remit as head of the FSA?
Surely his duty is to - Promote and protect consumer confidence in the market - not promote and protect providers. Were not these "unusual market conditions" a result of another commercial imperative?
Was it not the FSA's mismanagement of the Lenders over the last 6 years or so allowing them to fuel asset inflation by lending ever greater income multiples on one side and ever greater loan to values on the other. While on the capital markets allowing "distressed debt" to be sliced and diced sold then repackaged and resold to inject "fresh?" funds on to the lenders balance sheets.
This principle based regime is now shown to be flexible in the extreme with policy seemingly amended on the run and being announced at trade shows." John Whipple, Ashley Law Limited
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