driven by sales targets, with advisors financially incentivised to sell products that attract higher rates of commission or fees. The way sales staff are paid can drive misselling and product bias if conflicts are not properly managed When reviewing firms’ fair value assessments, we have seen different approaches. We have seen positive steps, for instance, some firms have completed holistic reviews of their fees charged compared against their costs and have considered the service provided in different circumstances. We have seen examples where firms have reduced or removed charges for certain products or ongoing services where these were deemed too high relative to the benefits provided. We have also seen firms put better controls in place for certain groups of consumers and remove charges for those groups if they do not offer fair value. However, we have seen instances of less considered approaches, and we remind firms that solely benchmarking against competitors does not go far enough. There is increased risk when promoting more complex products such as lifetime, if the promotion is unbalanced or biased towards a certain product. Firms should not be seeking to exploit consumers’ behavioural biases, and communications should be designed in a way that avoids foreseeable harm and aids consumer understanding.” Conclusion In setting out these views, the FCA is placing full responsibility with the advice firm. The lender is making the product available and setting a procuration fee offering. It is entirely the advice firms’ choice as to whether they offer that product, provider or take that level of compensation. The advice firm is accountable for their fair value assessment and the suitability of the product set against the consumer’s long term circumstances, not just their immediate objectives. The advice firm should know what marketing has delivered their leads. Remember a £20,000 holiday on a 7% lifetime product rate taken at age 55 will be a £160,000 deduction to the estate at age 85. Taking borrowing now that narrows options later in life that may become a necessity could deliver real regret on all sides. With conventional products usually priced off SONIA rates and lifetime from Gilts, that disparity makes advice ever more complex. Going lifetime too early in life’s journey might also deliver regret. Determining whether to take full drawdown for an amount now at a defined interest rate, or waiting until later on a flexi product which might attract a different interest rate, lies with the adviser, but the consumer must fully understand the implications of the choice. Interestingly we are seeing the FCA moving out of siloes within in its own policy work – it recently announced that in June it will launch a discussion on the future of the mortgage market, which includes lending into later life. This signals a change its previously segmented approach. The FCA has this market fully in its sight over the next two years, so firms would be well advised to proceed with caution. 09 MORTGAGE NEWSLETTER
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