An open letter on dual-pricing to Hector Sants from IFAonline.co.uk

Dear Mr Sants, I am writing to you on behalf of the huge number of IFAonline.co.uk readers who believe the FSA’s response to the issue of dual-pricing has been insufficient and are calling for urgent further action.

Since Stuart Duncan wrote to you on 11 May, we have received an unprecedented response from mortgage brokers and IFAs (including around 40 written responses) who agree the prevalence of dual-pricing is having an adverse impact on consumers, and risks discrediting the FSA’s principles-based approach to regulation.

I am sure you are well aware of the problems facing mortgage broker businesses across the UK and our readers do not expect the FSA to shield them from the effects of the credit crunch, which has of course damaged lending businesses also.

However, we do believe the FSA could do more to protect the interests of consumers - and ensure customers are treated fairly - at a time when financial advice is more vital than ever:

• We believe the FSA should take steps to ensure mortgage lenders are transparent and offer Key Facts Information (KFI) on all products to brokers, regardless of whether a procuration fee is paid, to guarantee consumers receive advice on all products in the marketplace. Some brokers have even suggested their clients would benefit from being allowed to take their mortgage adviser to a meeting within a bank or building society branch, and IFAonline.co.uk believes lenders should be compelled to allow this to ensure consumers are treated fairly.
• Our readers have also expressed concern the current definition of ‘whole of market’, which accepts brokers cannot advise on all products in the market place, is flawed and conflicts with the FSA’s principles-based approach and the concept of treating customers fairly. Consumers are unlikely to understand the current definition of ‘whole of market’ and this leaves the door open to a small minority of unscrupulous brokers to sell consumers unsuitable products so they may receive a higher commission. Charging a fee for mortgage advice is likely to be a tough sell due to the many costs associated with taking a new mortgage product. However, many of our readers are willing to take this step but feel lenders are hampering their efforts because of a lack of transparency when it comes to direct deals. The FSA’s current response to the dual-pricing issue - that it is a commercial matter for lenders - seems in conflict with the FSA’s stance on commission and fee-based advice for IFA firms. The RDR strongly suggests fee-based advice is the FSA’s preferred route, despite the fact that an IFA’s remuneration methods are a ‘commercial matter’ too. Why is it that IFAs and lenders are treated so differently in the way they run their businesses? Clearly the FSA’s support for fee-based advice is because of a fear that commission payments are not in the best interests of consumers. However, dual-pricing of mortgages is also not in the best interests of consumers as it discourages them from seeking advice and does not give them the same protection from the FOS. As a result of dual-pricing practices, brokers are facing a moral dilemma and they believe the issue is discrediting the FSA’s principles-based approach to regulation.
• Lastly, many of our readers want action taken as they are worried consumers will also be sold inappropriate ancillary products (such as MPPI or buildings insurance) if they choose to go direct rather than through an intermediary. As I mentioned previously, when a consumer visits a branch, they feel they are receiving advice, even though the FSA’s own definitions say they are not. If they believe they are receiving advice on their mortgage, then they will also believe they are receiving advice on any ancillary products offered, despite the fact a lender’s own products may not be the most competitive in the market. A mortgage intermediary will source products from across the market, and ensure their client purchases the most suitable product for their needs; a service they cannot possibly receive by going into a bank branch.

The whole issue of dual-pricing has provoked an unprecedented response from mortgage advisers, with a recent straw poll revealing 87% believe dual-pricing should be banned. I have also attached a range of views on the issue, sent to us by brokers, which directly express the concerns of the broker community.

To summarise, our readers are calling on the FSA to:

• take steps to ensure mortgage lenders are transparent and offer Key Facts Information on all products to brokers. Lenders should also be compelled to allow advisers into meetings with their clients.
• change the definition of ‘whole of market’ with regards to mortgage sales from brokers in the current climate to ensure consumers know what they are getting.
• take action to ensure consumers are not being sold inappropriate ancillary products to mortgages by lenders.

IFAonline.co.uk believes the FSA needs to act now to ensure consumers can readily access quality, impartial mortgage advice, both today and in the future.

We will be publishing this letter on our site and await your response.

Regards,

John Bakie and the IFAonline.co.uk team

IFAonline.co.uk will continue to monitor the situation and will publish Sants's response as soon as it is recieved. If you have anything further to add, please contact us on 020 7484 9805 or john.bakie@incisivemedia.com

If you would like to comment on this story, contact:

John Bakie
Tel: 020 7484 9805
e-mail: John.Bakie@incisivemedia.com

Have your say:

"I am with you on this, this is disgusting the way the lenders are allowed to carry on business like this, the FSA is a complete mess if they allow this to continue they won’t have any brokers to charge fees to pay their large salaries.

They should be spending more time in looking into the lenders as they just seem too able to do what ever they want regardless of the rules. The public who the FSA are supposed to protect are being left wide open to corporate abuse.

It seems that all the lenders are doing this, an example today Woolwich sent an email saying they will have a new tracker on Thursday for brokers @0.99% over base but a 3 year tie in. If you go on the their public website you can get a 0.74% tracker no tie ins. How can we advise our clients if we don’t know what is going on in the market?

I have been in the business since 1982 and have never known anything like this, I have always been proud and conscious in the way I have looked after my clients over the years, now I cannot know if I am looking after my clients correctly as I have no idea what is going on in the market place." Andy Clark

"Hector Sants has still not responded to my own letter in full and, whilst I agree with many of your points, I believe that it is dual-pricing itself which is anti-competitive and detrimental to the consumer. Dual-pricing is dual-distribution....it is making the RDR a fait accompli and, therefore, a complete waste of OUR subscriptions and of everybody's time.

If commission payments (or the lack of them) and the manner and pricing of different distribution channels is "Not a matter for the regulator" then the whole thing was just a way of caving in to big bank pressure and giving it a cloak of respectability through "Consultation". It seems to me that this is like discussing surrender terms with a besieged city while your troops are sneaking in to attack through the back door (or even hidden in a wooden horse named "RDR").

My message to Hector Sants remains: "Respond to the moral issues and clarify how direct and non-advised business meets the principles allegedly espoused by the FSA". I would now add the questions:

"Was RDR ever a real review at all and, if not, why not?" and "Whose idea was it in the first place?" The more we ask, the less response we get and that can only fuel the rapidly-mounting suspicion that surrounds this whole debacle." Stuart Duncan

"Having just read your letter I feel that I must comment and add my support. Do I think that the FSA will take a blind bit of notice? No, absolutely not.

I fear that Mr Sants and the entire FSA regime are so protected from reality by their publicly backed wages and final salary pension schemes as to be totally blinded to the commercial realities that are occurring across the broker network now. It is the banks and their complex financial derivatives that have caused the current mortgage drought – yes, we have had the good times – but to suddenly cry wolf and turn your back on a partner who sends 70% of your business to your door is short sighted in the extreme.

Let’s not forget that a broker introduced case has incurred for the lender no client acquisition costs, no compliance fees, no staff wages and no office rents to pay. Eventually they will have to address these issues as, if they expect the level of direct business to increase, these short term cost savings will come back as long term expenses. As brokers we all know that lenders do not have the capacity to process the business levels anyway, yet we accept the likes of the Abbey telling us that it takes 10 days to look a piece of post. Andy Clark in his letter mentions the Woolwich, perhaps the worst of them all for service. How can it be seen to be Treating Customers Fairly when promised callbacks are not returned, despite making notes call centre staff (in India) do nothing and are only there as ‘order takers’, that when a complaint is registered again no-one bothers to call you back? As a broker and a customer, how am I being treated fairly by ringing up to chase the progress of a case only to find out that I suddenly have no Business Development Manager as the Woolwich has not bothered to communicate this? And don’t get me started on the poor, cash strapped, lenders and their 0845 and 0870 phone line scams.

Treating Customers Fairly must also include service standards and I pity any client that goes direct and has to endure the third rate service currently exhibited by lenders. Will the FSA look at this? Again, I suspect not.

You highlighted to the FSA the issue of lenders only being able to sell one type of product. I would actually argue that most branch based advisers fail to do even this and that most settle for just a mortgage only. How can the client be treated fairly when your average branch based adviser is forced to sell an inferior, more expensive, product and in most cases does not even get this. I see more often than I care to mention clients who have gone direct and come away with no protection cover whatsoever because the adviser had wall-to-wall appointments and was too interested in getting the quick, easy, mortgage only, sale. There are some exceptions, but sadly not many. Just how is the client protected in this scenario if the worst should happen if all that they have received is a sales level of (dis) service?

Added to this is the lender’s current desire to sell, sell, sell. We had a visit last week from our TMB BDM who was encouraging us to sell their (HBOS group) general insurance by paying us an enhanced commission. This is an area that the FSA needs to look at, but as always, they are blind to the realities of these goings on and insist on relying on feedback from a small portion of our industry that have filled out a questionnaire and sent it in to their ivory towers.

I acknowledge that we have always had dual pricing of some sort. It has always been the case that I could not recommend certain lenders to my clients as they do not deal with brokers. I have occasionally lost cases to other brokers because they have had a better and exclusive deal with their network or packager. I accept that ; but in these cases I have usually been able to generate a KFI through the sourcing systems to check that the deal was all it was being sold as. Now I find myself fighting the unknown. Yesterday I could not tell a first time buyer if a Halifax product had a higher lending charge because their website does not say either way, all it does is direct you to a call centre on an 0845 number at premium rates. As such I cannot get a KFI. How can I, in all conscience, tell my client that this deal ‘appears’ to be the best and to go to the lender when that conversation can still come back to bite me if it all goes horribly wrong?

At this current time ‘Whole of Market’ is a complete fallacy, if it ever truly existed. The FSA are living in cloud cuckoo land if they insist on advice being solely fee based because, lets face it, most people looking for a mortgage in this country are not super-rich and will not want to pay a sizable fee for mortgage advice, especially when you factor in the inflated application fees that have blossomed recently. Mr Sants is clinically delusional if he sees it as being best advice for customers to walk into a bank branch and to expect to be treated fairly. We all know that banks are profit hungry and cost conscious, if their staff ( I do not like to call them advisers) can make sales without giving advice and providing the protection that that ultimately provides (and costs) then they will. Sadly, with the way things are going, that may be the only option available to Joe Public if the FSA press ahead with their current, and future, proposals.

I despair at what I see and have to wonder what our regulator’s long term aims are. They have proved incapable of supervising the Northern Rock and, despite several people resigning on golden handshakes that we can only dream of, continue to (in my view) favour the big players in the market. They did not see the current financial crisis coming, of if they did the regulation has again proved inadequate. The small brokers are being hammered by increased fees, TCF costs, FSA inspections and fines, and now a dramatic increase in our livelihoods being legally poached without seemingly a care in the world. Perhaps in your open letter you should have asked the FSA to clarify just who qualifies as a customer in their Treating Customers Fairly regime." Graham Tetley, Training & Compliance Manager, R&A Financial Services

"Congratulations to you for perusing this on behalf of consumers. Lets see what response, if any, you receive and the justification of the regulator to this new way of ripping off of the consumer." John Whipple, Ashley Law Ltd

"I run a reasonable size firm of 15 employees , all good honest people. it just makes me wonder if it is worth it and should we call it a day!" Russell Rogers, Oakwood Independent Mortgage Consultants