IFAs lose if FSA shifts advice burden to lenders

Mortgage lenders are less likely to use IFAs if the Financial Services Authority (FSA) shifts responsibility for advice onto them, warns Michael Coogan, director general of the Council of Mortgage Lenders (CML).

Speaking on the latest edition of IFAonline.tv – entitled the Great Homeowner Debate – about the FSA’s continuing efforts to place responsibility on lenders for the advice given by mortgage intermediaries, Coogan says: “Lenders would not be happy to take responsibility for an advice process they have no control over.”

He points out lenders and mortgage IFAs do not have a legal agency relationship but adds the relationship is not an “arms length” one either.

When the FSA first proposed the implementation of mortgage regulation on intermediaries, consultation documents suggested lenders would also be responsible for the advice given by advisers who are not representatives of the lender, however, the proposal was thrown out before regulations were introduced on October 31st, 2004.

Despite this, the FSA is still looking at whether lenders should carry the regulatory responsibility, say IFAonline.tv panellists.

Coogan suggests the FSA will look at the “customer experience” of advice in future and look at how to address situations where consumers are sold the wrong products or given incorrect advice.

He states: “I don’t think the FSA is confident with addressing it directly with enforcement action against firms so the plan will be to look at [placing regulatory responsbility on] the lenders.”

The FSA will decide whether the relationship between lenders and IFAs is appropriate for the 21st century and Coogan suggests if the regulator were to shift responsibility for advice onto the lender, “lenders will use less IFAs”.

Furthermore, Harry Katz, principal at Norwest Consultants, believes the development would result in lenders effectively dictating what IFAs can and cannot do.

“It would take the advice process away,” he adds.

If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email emily.perryman@incisivemedia.com.