Reading FCA FS25/6, it is difficult not to notice an uncomfortable irony in the regulator’s conclusions around execution-only sales.
The paper rightly raises concerns about higher-risk borrowers needing advice, yet it also reflects a market reality where many low-risk, capable customers are being pushed down an advised route, often with a fee attached.
For years, large parts of the intermediary market have successfully operated fee-free models, delivering good consumer outcomes while advising from across the market. These firms have demonstrated that strong customer outcomes can be achieved without charging advice fees.
Had the whole market done this, it is hard to believe that FCA’s new execution only thinking, aimed at preventing informed customers from paying unnecessary fees would have gained traction.
The FCA’s own analysis for 2024 shows that brokers who charge a fee receive an average procuration fee of £1,131, plus an average advice fee of £510, giving a total of £1,641. This compares with an average procuration fee of £980 in the fee-free segment of the market.
Of course, most brokers also advise on protection, adding further to their overall remuneration. It will be interesting to see whether the FCA’s new found desire to help mortgage customers avoid unnecessary fees will also extend to the thorny issue of loaded life insurance premiums.
The Mortgage Market Review intentionally positioned advice as the default, following years of non-advised ‘tree walking’ by lenders that blurred the advice line in consumers’ minds.
ADVICE: NOT THE ONLY GATEWAY
While advice is undeniably essential in many scenarios, particularly where complexity or vulnerability exists, it should not be the only gateway to products for customers who are capable and confident decision-makers.
To its credit, FS25/6 strongly reinforces the importance of advice for higher-risk customers. This is especially relevant in the later life market, where decisions are often irreversible and the consequences of poor choices profound. In these cases, advice should remain non-negotiable.
That said, the later life sector presents an even bigger opportunity to challenge siloed thinking. Serviced interest mainstream products including TIO and RIO should always form part of the conversation and firms PSD should demonstrate that are more than one trick ponies. The future must be one of holistic advice, and it appears FCA is now thinking along similar lines.
It should also be remembered that all later life advisers hold CeMAP and are thus able to advise on mainstream products. Those who restrict their scope to lifetime mortgages only do so by choice, not because regulation forces them to. The siloed advice model is surely living on borrowed time.
For brokers, only time will tell whether the FCA’s apparent U-turn on execution only is a solution looking for a problem, or the other way around. What is clear is that lenders must not be allowed to blur the lines with the sort of practices that led to FCA’s MMR giving advice supremacy in the first place.
A potential relaxation and extension of Modified Affordability will be a signal of lender positioning. Changes here could help reopen a remortgage market that has largely been closed off by product transfers and regulatory barriers.
Whether major lenders embrace or ignore this remains to be seen, though my hunch is scepticism would be warranted. Intermediaries and their trade bodies should watch this space closely and challenge any contradiction between FCA’s consumer value narrative on execution only and a failure to help widen consumer choice/options in the remortgage market – lenders simply can’t have it both ways.
Phrases like ‘time will tell’ or ‘it remains to be seen’ keep percolating in my mind and whatever happens I’m certain the resilient intermediary sector will rise to the challenge. They must shout loudly about the huge value they bring to consumers, as if this gets diluted FCA will have scored an own goal.
Intermediaries and their trade bodies must focus on robust, evidence backed responses to FCA, if not they will rue that missed opportunity down the line.
