MOS24: Consumer Duty making becoming an AR more appealing for brokers

Speaking at the recent Mortgage Outlook Summit by Financial Reporter, a number of industry experts explored how the mortgage product market would change in 2024, including the impact of Consumer Duty on product innovation; how brokers can diversify their offering; and the outlook for the buy-to-let market.

Speaking on the panel, chaired by event partner Square 1 Media’s Alex Hammond, was Ahmed Bawa of Rosemount Financial Solutions (IFA) Ltd; Zahira Fayyaz from MFS; Hiten Ganatra from Visionary Finance and OMS’s Dale Jannels.

Some of the biggest challenges the panellists said were facing brokers this year were maintaining good communication with their customers; maintaining morale in difficult circumstances, and down valuations,.

However, one particular talking point was the feeling that operating as directly authorised advisers was becoming more challenging under Consumer Duty – citing the increased compliance pressures, particularly for smaller firms, as a key driver.

MFS’s Zahira Fayyaz said:

“When you are an AR, the kind of people you have in the background to work in the regulatory framework makes it easier for the broker to actually go and do their job - whereas when you're DA, and you don't have the right people in your organisation to deal with the compliance side […] it can make things considerably harder and take more time."

Ahmed Bawa of Rosemount Financial Solutions (IFA) Ltd agreed, adding:

“It’s going to be more and more difficult to be a sole trader or a very small company on the DA side of things.” He suggested that the regulator was more geared towards dealing with larger organisations with a clear head of compliance and said that – in his experience – some lenders also preferred dealing with larger, more well-resourced firms with more dedicated compliance functions.

Also discussed was the increased requirement to evidence recommendations – or lack of – to clients. OMS’s Dale Jannels said there was the potential for ‘an avalanche’ of cases against advisers who failed to properly document their interactions with advisers, and that brokers should be harnessing technology to make light work of this additional admin.

He added, discussing OMS’s own functionality for this purpose: “So if you’ve [sent the client documents] with an explanation of all the reasons why you sold them this mortgage but also the reasons why you didn’t sell them anything else, with confirmed electronic signatures, they get an email straight away from the system – you’re covered on that basis.”

The session went on to explore other pressures on advisers, with Bawa also noting that Consumer Duty wasn’t the only regulatory pressure making being directly authorised trickier for advisers: "There’s a huge amount of change taking place in regulation and if you read the reports, now, being a DA is getting more and more difficult. The cost of PI insurance is going up quite dramatically as well.”

Hiten Ganatra, whose firm Visionary Finance is directly authorised, agreed – adding: “PI cover has gone up by about five times over the last three years: it’s a financial burden And so you’ve got to have a commercial model that can sustain that level of cost. There’s no right answer, it just depends on your size and what you want as a safety net.”

Alex Hammond of Square 1 Media, who were partners of the event, said:

“This panel session sparked a lively debate with the 60/70 brokers in the audience and despite chairing many panels over the years, I have never had so much interaction and engagement from an audience. This shows to me that more debates like this are needed at industry events and we are delighted to work with Financial Reporter to facilitate such discussion.”