Five years ago, the Financial Services Authority attempted to implement a regulatory regime which made mortgage lenders responsible for checking the quality of mortgage intermediary advice. After much argument from the industry the idea was thrown out. But the rumour now is it's back and could slip back in as a requirement under TCF.
Anyone who remembers the original proposals for MCOB regulations in 2001– CP98: The draft mortgage sourcebook – may recall a little clause in the proposals suggesting lenders ought to be responsible for ensuring the quality of advice given to consumers is suitable, and lenders would be penalised if it is found to be lacking.
Unsurprisingly, the industry pointed out this would unfairly penalise lenders who could have no control over the quality of adviser standards at independent intermediary firms, and the concept was this time dropped.
But the general idea, it seems, has always been hovering in the background, and industry sources now say providers from all sectors of the market are being put under pressure again to consider whether the advice given by an adviser is good enough and, if not, why they did nothing to prevent the sale of the attached product or products.
This time, it seems, the pressure is being applied through TCF albeit the FSA argues it is taking a high level approach, as the Appendix of Dp06/04 says in its selection of a distribution channel, providers should “consider keeping the quality of its distribution under review at a strategic, high level and act when it has concerns”.
Could this be the phrase which is forcing some product providers to reconsider their connections with the IFA and financial intermediary sector?
It seems this little inclusion within TCF requirements has frightened some firms into believing it may need to keep a closer eye on the quality of financial advice where it is not already owned by the provider.
It’s a move which is likely to upset advisers where any provider attempts to question the quality of advice given to clients, as it sends a negative message to consumers and suggests there may be a problem where there is none.
This little TCF “should” requirement could, partly, be behind Standard Life’s decision in December to send consumers information checking they had been given full information when deciding to surrender their with-profits policies – although many advisers also believe it was motivated in part by the need to hold onto business.
One firm is thought to have gone one stage further and is questioning whether it might be safer in the future to cut the financial adviser out of the loop altogether and head back into building direct sales forces, for TCF regulatory purposes.
It’s all supposition at this stage and it would be wrong to think providers will start demanding detailed information about the advice given to clients, but this may be part of a wider trend set to emerge from life offices, in particular.
With the pressure of distribution costs, there is talk suggesting providers are increasingly looking at building distribution tools or routes which cut out advice, and put worksite marketing straight into the client’s office.
Whether it will actually happen has yet to be seen. But the drive of technology and platforms is said to be contributing greatly to this prospect as worksite marketing platforms related to pensions, for example, have already taken off in Germany and other European countries. And attendees of the recent Adnitor Platform awards were discussing whether this use of technology could soon arrive in the UK.
Many intermediaries strongly believe a shift back to direct sales is unlikely, but given the two elements together – TCF and technology – are being talked up by life offices as placing pressure on their market positions, firms have to question whether they are completely confident about the prospect of a declining direct sales market.
If you have any comments you would like to add to this article or would like to speak to its author about a similar subject, telephone Julie Henderson on 020 7034 2679 or email [email protected].IFAonline
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