One of the key rules, set out in the Financial Conduct Authority’s (FCA’s) new Consumer Duty is that advice firms must ‘avoid causing foreseeable harm to retail customers’. The LIBF’s Gordon Reid looks at what that means for mortgage advice offered during the current cost-of-living crisis.
The first implication of the FCA’s new rule, is that if something is “foreseeable” you must take it into consideration – and its potential impact on your customers.
Not knowing that something was going to happen is no longer a valid reason for not considering it.
You might argue that this makes it even more challenging to get the advice right for your customers. But remember, mortgages are a long-term commitment and must therefore remain affordable for many years to come, not just now.
Financial and mortgage advice
The new Consumer Duty also emphasises the value of holistic financial advice.
While mortgage advisers may not be authorised to advise on all of the products that their customers needs, they do need to be able to identify those needs and alert customers to them.
There’s a view that responsibilities go even further. Is it enough to highlight a potential need? Or is there a need to provide information about where customers can get the advice they require to meet this need?
Mortgage advice and the cost-of-living crisis
Of course, the cost-of-living crisis makes things even more challenging. Significant increases in virtually every area of expenditure mean there is a need to fully understand a customer’s financial capacity and capability, before making a recommendation.
Previously, generic questions may have been asked about how the customer could afford an increase in interest rates. Now, you might have to be more specific and ask about more than what will happen if there are increases in the mortgage rate.
All of this means that the need to understand a wider range of options, solutions, risks and implications, has never been greater for mortgage professionals.
A longer version of this article was first published on LIBF Insights.
