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News: Mortgage advisers warned over poor advice

The Financial Services Authority has called on firms giving mortgage advice to improve their processes after new findings showed that only one third of the firms it sampled had robust processes in place to provide customers with suitable advice.

The FSA reviewed 252 firms of differing sizes through mystery shopping, visits and questionnaires between June and October last year to establish a baseline of the process by which advice is delivered in the mortgage industry.

Scope for improvement was found in all aspects of the advice process. Some of the poorer areas identified were the assessment of customer needs, including affordability; training and competence; overall systems and controls; and record keeping.

Clive Briault, managing director of retail markets at the FSA, said: “Poor processes increase the risk of unsuitable advice being given. It is essential that firms have robust processes in place, so that they treat their customers fairly and provide suitable advice.”

Although there were examples of good advice and good sales practice in firms of all sizes and types, but findings differed depending on the size of the firm. Generally the FSA discovered that:

  • Banks and building societies had good processes in place but sometimes staff did not apply them.
  • Most large financial advisers had robust processes in place but these were sometimes not followed.
  • Among small financial advisers three-quarters did not have proper processes in place, leading to the risk of unsuitable advice being given.

“It is crucial that customer needs are assessed properly,” said Mr Briault. “Customers should consider what they can afford both now and in the future, taking into account any likely changes to their circumstances."

The FSA has produced good and poor practice guides as well as providing key actions to the firms that were visited. However, the failings were significant in a number of firms and it has referred several to enforcement.

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