MMR review: FCA flags advice risk in overly rigid use of rules

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Most customers are receiving suitable mortgage advice but some firms rely too heavily on tightly structured processes, which force their advisers to bend information to give supposedly 'suitable advice', the regulator has found.

In grading how well the Market Market Review (MMR) rules, introduced last April as mortgage advisers' equivalent to the standrd-raising Retail Distribution Review, are being applied, the Financial Conduct Authority (FCA) was generally positive.

However it said it found some advisers - "despite good intentions" - were being forced to deliberately change client information so they could get around their firm's systems which would have otherwise prevented them from giving what they deemed 'suitable advice'.

The issue was particularly apparent in lenders which entered the market for the first time following the MMR to compete with conventional mortgage advisers.

The FCA said it found "no evidence of systemic customer detriment" in its market study but warned some firms were relying too heavily on "highly structured" processes, while others had "little or no structure" in place resulting in inconsistent quality of advice.

Tight structure

Some lenders were found to be relying too heavily on things like point-of-sale application systems, often resulting in "lengthy, stilted and repetitive conversations with consumers" which limited the adviser's ability to engage with their client effectively.

The FCA said: "Standardising the way that advisers gather the necessary information from the customer about their needs and circumstances alongside clear guidance, policies or frameworks that help inform advisers’ decisions ensures they are provided with adequate support to make judgements. 

"It also provides firms with greater control over recommendations.

"However there is a downside if advisers have little or no flexibility to apply judgement to take account of a customer’s individual needs and circumstances.2

It said it identified "isolated examples" of mystery shops where advisers in lenders, despite good intentions, appeared deliberately to misrepresent customers’ needs and circumstances.
 
Alternatively they manipulated systems to circumvent internal policies or controls, because the system otherwise prevented them from presenting what they believed to be suitable options to the customer.
 
"In some cases advisers in lenders appeared to rely entirely on systems to drive their recommendation," the FCA found.
 
By contrast, other firms which delivered advice without structures in place had a higher chance of unsuitable recommendations, according to the regulator.

"The best performing firms demonstrated that it is possible to strike an appropriate balance," it said.

The FCA found 59% of advice given to customers was 'suitable' and a further 38% lacked sufficient or relevant information to explain the basis for the advice. A "small number" of cases was deemed unsuitable by the FCA.

It said it will now work with the industry to address the issues, having already given individual feedback to firms visited as part of the study.

Acting director of supervision Linda Woodall said: "A mortgage is a significant undertaking for anyone. It is vital that customers are able to get suitable advice and a positive experience when deciding on their options. Some firms were able to provide this, but not all.

"Although we welcome the considerable work of those firms delivering advice for the first time, and particularly those that have proactively identified issues within their own processes, there is still scope for improvement. We'll continue working with firms to ensure they deliver good outcomes for consumers."

The FCA based its judgement on tools such as mystery shopping, file reviews, on-site visits and consumer research. It also assessed some examples of more complex or specialist advice.

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