The FSA’s first attempt at the Mortgage Market Review was roundly criticised, so much so that Adair Turner took a personal interest, thinking it important enough to write the introduction to the latest Consultation Paper. This time, the proposals have received general acceptance, but will still mean major changes for firms. This is the first blog in the series on the MMR and, here, I will focus on responsible lending.

Forget the proposed new rules for a moment; our experience through engagement with major lenders is that the standards expected of firms has already increased.

One of our clients is currently facing major challenges around its advised sales process for mortgages. We have worked extensively with this bank to redesign, rebuild and embed a far more rigorous suitability assessment.

This has not been a simple task due to the FSA’s increased expectations. We have taken these higher standards and created a bespoke mortgage advice suitability assessment which was submitted to the FSA and approved for use.

Our experience demonstrates that firms now need to be able to evidence the following:

• Income must be verified

• A comprehensive assessment of expenditure must be undertaken, including ‘reasonably foreseeable’ changes

• Account must be taken of market expectations of future interest rate rises

• There must be a plausible repayment strategy

• Records must be maintained, enabling the mortgage file to provide a ‘stand-alone’ assessment of product suitability

Our experience in the mortgage market, and the more intrusive approach by the regulator, has led me to conclude that the high suitability standards set for investment business are now being carried across into the mortgage world.

That is, the standard of ‘know your customer’ (KYC) information and the suitability requirement in COBs are now expected in MCOBs.

What does this practically mean for firms and what am I telling my clients?

I am telling them to:

• Ensure detailed KYC is obtained on each customer

• Verify their income

• Undertake a detailed assessment of their expenditure

• Provide a detailed suitability letter to your customers outlining the rationale for your advice

These additional measures clearly come with a cost.

• The level of training required for staff selling mortgages will need to be raised

• The level of assurance and monitoring required will increase

• The standard of MI required by firms to demonstrate quality and highlight exceptions will increase

• Since the regulator is focusing on a more extensive and holistic product life cycle approach, firms should be concentrating on the design, the development and the management of mortgage products

The regulator is adopting a ‘show me’ mentality: ensure that you have the answers to provide them with the assurance that quality and customers’ needs are central to your mortgage proposition.

If you weren’t convinced of the merits of improving your systems and controls from a customer perspective, then argue for change from a profit and loss point of view. The increased activity amongst claims management companies in the mortgage advice arena will drive this home in the coming years.

One of the firms I have been working with has experienced a high number of complaints in relation to the treatment of customers in arrears and lending into retirement. In fact, if you look at claims management websites, their mortgages sections are already well developed and come second only to PPI claims.

Since the MCOBs were introduced, there has been a requirement for lenders to take account of the affordability of the loan throughout the term of the mortgage. However, the regulation allowed lenders to place reliance on information provided by customers unless they had reason to doubt it.

The proposed new regulations are certainly more stringent, requiring a more onerous assessment of the customer which will ensure mortgages being taken on are affordable today and tomorrow. This requires lenders to verify income and make a comprehensive assessment of income and expenditure.

Read my next blog to find out more.

If financial advisers thought that they would be unaffected by the Financial Services Authority’s (FSA) latest intervention in product regulation, they will be disappointed. The regulator not only plans to tighten rule relating to the development of products, but also their distribution to customers.

The implications for financial advisers and planners are not exactly clear at this stage, but it could affect the number and range of products that they can sell, who they can sell them to and how. This environment is likely to favour firms with good client relationships, a deep understanding of their needs and effective segmentation processes in place.

From principles to rules

It is ten years since the FSA first launched its Treating Customers Fairly (TCF) initiative aimed at restoring customer confidence in the financial services industry. This was refined in 2006 with a list of six consumer outcomes to clarify the TCF objectives that firms should be working towards. Back then, FSA chairman Callum McCarthy hoped that this principles-based initiative would be sufficient to ‘incentivise’ providers of financial services to ‘act responsibly’.

Although the best firms have responded well to the spirit of the TCF regime over the past decade, others have paid insufficient attention to its principles. This was made glaringly obvious by the recent payment protection insurance (PPI) scandal and continues to be emphasised as the FSA’s spotlight falls on the mis-selling of mortgage products as part of the Mortgage Market Review.

Similarly, the FSA’s recent consultation document as part of the Structured Products Review states that firms are still too focused on their commercial position, potentially at the expense of customer outcomes.

Having placed too much faith in firms to put customers first by building good products and distributing them fairly, the regulator is now taking a much firmer line, by codifying the TCF principles in a set of rules that define the responsibilities of product providers and distributors. The FSA is also considering further options for intervention in future.

The FSA’s discussion paper DP 11/1 ‘Product Intervention’ makes it clear that the Financial Conduct Authority (FCA) will not only intervene in product pricing and design but will also tackle provider prudence, set limits on sales to certain customer categories and expect advisers to meet additional competence requirements.

All these activities fall within the FSA’s wide definition of ‘product’, which includes selling strategy and distribution. What’s more, the regulator’s increasingly intrusive powers also look set to be broadly exercised. This view was cemented in the July 2011 product intervention feedback statement FS 11/03, which explains that the FSA’s approach ‘should be viewed as covering all aspects of product governance… and not just product design’.

Financial planning implications

This will inevitably have implications for independent financial advisers (IFAs) and financial planning firms. For example, DP 11/1 states that providers might choose to sell products with or without advice, and whether they should be sold by IFAs, their own sales forces or other tied agents.

The number and range of products offered to mass-market customers is likely to decline as a result of EU and FSA regulatory pressure to introduce more plain vanilla, easily understood products without opaque terms and conditions. However, this may make it more difficult for IFAs to meet the demands of sophisticated investors who want more than the standard product solutions.

Too often, saving and investment products are sold on a transactional basis so it makes sense for the FSA and the future Financial Conduct Authority (FCA) to seek a holistic approach to financial planning. Advisers that decide to sell products classified as complex by the FCA will have to provide evidence that they are being targeted at sophisticated investors who fully understand the cost implications and potential risks of these products. They must also show that a complex product is more appropriate and likely to provide a better outcome for a particular customer than a simpler, cheaper product. However, the regulator reserves the right to impose product bans in future to prevent significant consumer detriment, as well as banning certain features or combinations of features.

Those firms who have a customer-centric business will find increasing intervention by the FCA comparatively easy to deal with. They will have answers to questions about their recommendation process as well as the paperwork and the figures to show that fairness prevails, and customer detriment is neither the aim nor the outcome of their practices.

Changing models

Changing to a customer-centric business model is simply good practice for all advisers, as well as a regulatory requirement according to the principles of TCF, but it will involve implementation costs relating to training and competence, risk management, and systems and controls. Small firms are likely to find this a barrier to entering the FCA regulated market, but those that adapt will profit. Enlightened firms will seek strong alliances with similar businesses as a way of building scale.

Overall, most firms will target the mass affluent market, where they can achieve scale through the sale of model portfolios. For some firms, this will involve a shift away from the development and marketing of niche products aimed at sophisticated investors. These are the ones which have the potential to generate super profits but lack a broad customer base.

The higher standard of fiduciary duty expected of advisers under the RDR works in tandem with the requirements for firms to change the way they engage with customers under a regime of product regulation. Firms will be required, from every angle, to develop advisory solutions to meet customer needs, involving them in the financial planning and decision making process.

The new intrusive regulatory methods soon to hit the statute books will also reinforce this trend. Firms that fundamentally redesign their culture to profit from a customer-centric strategy will be in a better position to demonstrate that they are providing customers with suitable products that avoid customer detriment.

This should help to build financial services brands that customers can trust, rather than allowing the principle of caveat emptor to dominate the development of products and their distribution to investors.

By Paul Scott, Director of Consulting

The first task is the most obvious but also the most critical: write a good CV. This is particulary important as this is a company’s first impression of you! You will find it easier to write everything you have done down first, then go through and add dates, company names and job titles. Be specific; include the countries in which you gained your experience and make sure there are no unexplained gaps in your history, detailing the month as well as the year is recommended.

Next add in your education. Include the date you started and graduated for every qualification including qualifications you received before you went to university (equivalent to UK A-Levels). You must include grades! All too often we receive CVs with no grades – some of these candidates had excellent results but had neglected to write it down. Employers always immediately assume the worst if you fail to include your grade.

Companies are very keen on extra languages so list any you know along with the level of competency but beware of over exaggeration. If you say you speak fluent German do not be surprised to find a German speaker interviewing you, potentially in German! Also detailing your interests outside work, extracurricular activities and achievements make you appear a more rounded individual.

You cannot underestimate how important your CV is and how the smallest thing can make the difference between interview and rejection. As an example let’s take the Global HQ of one of the largest mobile phone companies in the world. Every year they receive around 100,000 CVs, that’s 237 every single day. Do you think they’ll spend 10 minutes reading each CV (39.5 hours a day)? Unfortunately not! The head of recruitment told me they start reading from the top of a CV and the first mistake seen results in deletion. In short – take your time and get your CV right!

Once you have a generic CV tailor it for each application you make, aim for 2-3 pages; don’t waffle but don’t leave important project information out. Underneath your name is a section of prime CV space, utilise it fully by adding a profile, no longer than 4 sentences, explaining why you are interested in the role but more importantly why you would be a perfect fit. Use quantifiable reasons and real experiences that are relevant. The company should want to interview you after reading just your profile.

Now would be a good time to plan your approach to companies and recruiters. Work out what you actually want to do and find out as much as you can about the industry and type of work. If possible speak to people you know who do this type of role already or see if there are blogs or forums online for people in this industry area. You need to be as sure as possible that this is actually what you want to do.

With recruiters it is always best to meet them, so you can get a better idea of what jobs they have that would suit you and you can decide if you like them – it should be a partnership after all. Just as with buying a house or a car not everything suits everyone. Take time to think about the size of company you want to work for, what culture you want them to have, but be open-minded as often in life we do not know what we want until we see it! It is never a waste of time to attend a first interview for a firm you are not sure about, after the first round you can always say no, from a position of knowledge rather than preconception, and you have gained some valuable interview practice.

Ensure you find out about the typical interview process for each company you interview with. If a case study or some form of testing is involved you have time to get practising far in advance of your interview. This will give you the best shot at success on the day!

Remember it is always better to submit one application a day that has been carefully thought about and tailored, than sending ten impersonal ones. Keep in contact with recruiters that you find helpful throughout the process and update them on how your job search is going. Ask them how they are finding the market at the moment and how you could improve your application if you are unsuccessful at any stage.

If you are interested in getting your job search started, then send your CV to us today to mcrecruitment@huntswood.com , so we can help you find what you are looking for.

Personality:these tests use a variety of situations and assess how you would react, how you work with others, what frustrates you and how you cope with pressure. Typically, a question is formed of a statement and you are required to select the most appropriate from options ranging from strongly agree to strongly disagree.

Logical reasoning:the aim of this test is to assess your problem solving ability. The tests revolve around recognising patterns and working out what is next in the sequence. You will normally be given a row of 4 pictures and 5 possible answers. An example is below:

Numerical reasoning:in this test you are provided with data normally presented as tables, charts andgraphs: the aim is for you to perform calculations to answer a set of questions given.All the information you need can be obtained by manipulating this data. Some erroneous data is also usually provided to assess who can sort the relevant from irrelevant information.

Verbal reasoning:in this test you will be required to quickly read a sample of text and answer questions which are most commonly ‘true’, ‘false’ or ‘cannot say’ based ONLY on the text you have just read.This test not only shows your ability to quickly assimilate information and understand its meaning, but also the competency with which you speak English, should you be non-native, as the test commonly contains business terminology.

When looking at the types of test and what they can achieve it makes sense for consultancies to use at least one type. It enables them to benchmark candidates against one another and against their own standards. The vast majority of candidates coming straight from university will always be subjected to at least one of these as they are being hired on both their academic ability and their potential.

With some consultancies senior candidates, who have experience either in consulting or industry, are also asked to complete a test and this is not always received well! On occasion candidates at this level are not enthusiastic about completing tests, and it has been known for individuals to withdraw themselves from processes to avoid tests. The view, which is a common one, is that they have proven themselves during their career and therefore should not be tested further.

One could take the view that asking a Partner level candidate to take a numerical reasoning test shows a lack of trust in their ability, a lack of respect for their seniority and insulting, given what they have achieved. After all, no one gets to that level in consulting without being able to add and subtract…. They may also think that if they’re doing the same job now as they would be doing in the new company they don’t need testing. If they’re doing it now, they can do it after they move.

These are all very valid reasons for a candidate feeling put-out that they have been asked to do a test. However, if a candidate can do a job, and they are confident in their own abilities, why would they object to a test? Fear is probably the most common reason, followed swiftly by pride. Pride (as it often does) can get in the way of so much. I believe it is quite damaging to have the view “why should I do that? I’m a Partner don’t you know!” Don’t forget that all the current Partners at the firm have taken this test at some point too and they thought it was a valuable exercise!

The reality is that, over time, the skills needed for a role change, the responsibilities evolve and people need to adapt to this change. A common misconception is that testing is there to catch you out, to trip you up, to try and make you look incompetent. The reason for testing is to assess someone’s strengths and weaknesses; very few excel at both words and numbers – knowing which you need to work on is about helping you do a better job and helping you develop yourself.

It makes sure you have the core analytical skills needed. It is expensive, in all sorts of ways, and for all involved, to hire someone only for them to leave 4 months later. This never looks good on a CV and it’s another method of checking you’re right for the company and they’re right for you.

The personality test is not a ‘pass’ or ‘fail’. It is not there to assess a skill but is used far more frequently to construct project teams that will work well together. We all know what it’s like working with someone you really don’t get on with and this test is trying to prevent that, therefore it’s something you should be pleased to do.

If you’re joining a company to lead a new team and all your direct charges have taken a specific test. It is far more beneficial to undergo the same process, know what they have been through and therefore understand how they think, what motivates them and, consequently, how to build them in to a better, more successful team. During selection for the Royal Marines there is a Potential Royal Marine Course and a Potential Officer Course. During the latter, officers are required to carry double the weight than the marines and also meet higher standards in the Commando tests. If you are leading a team you should want to do something (like take the test) that demonstrates you’re at least as capable as everyone else.

Relevant testing is beneficial; it gives confidence to your prospective employers but also to yourself. You know you can do the job, they think you can do the job (or they wouldn’t have invited you this far) so why shoot yourself in the foot? Prepare, practice, ace the test and go get that new job!

The likelihood is that some lenders will therefore move advice ‘in house’ as they will carry the can in any event.

Overall the MMR has turned out to have reached a somewhat more comfortable place than the previous document, with most stakeholders viewing the outcome as acceptable although some people will ask, “Aren’t lenders doing this already?”

The Review requires lenders to only grant mortgages where there is a reasonable chance of repayment out of income and without relying on future house price rises.

Lenders will also be required to take account of market expectations of future increases in interest rates. They can’t just take a guess at it either but must use published material such as the forward sterling rate published on the Bank of England’s website.

Self certification mortgages and fast tracked mortgages will be banned, which is a significant move because at the height of the property market almost half of all mortgages were done on this basis.

Interest only loans and lending into retirement remain, although with much tighter criteria. Without an alternative way of paying back the mortgage, Lenders can only grant an interest only mortgage if the borrower could afford the same loan on a capital and interest basis. This is presumably because during the boom many people took interest only loans to borrow greater amounts relative to their income.

Those close to retirement will still be able to get a mortgage but they must demonstrate sufficient income to support the loan by, for example, providing pension projections.

The FSA has taken another look at the present paperwork too. The Initial Disclosure Document will be dumped and the Key Features Illustration will be made available at a more appropriate time in the process to avoid customer overload. The IDD will be replaced by an obligation to disclose information that will help a consumer distinguish between one firm and another, e.g. what it’s product range is and how it will be remunerated, which strikes me as a bit vague.

The document goes on to say that the FSA’s former plan to require intermediaries to use the RDR classification of ‘independent’ or ‘restricted’ has been dropped. In my view this is a disappointing aspect of the review as clients will find the advice landscape much more confusing. Investment and Mortgage advisors make up the majority of the intermediary landscape and the RMR was the opportunity to have them all playing by the same rules.

About John
John is a special advisor to Huntswood providing the latest insight on consumer issues and regulatory changes. He is a former Chairman of the FSA’s Consumer Panel and is a Non-Executive Director of the Gas and Electricity Markets Authority. He was appointed by the Treasury as a Commissioner to the Equitable Life Commission and was a member of the Treasury’s Retail Financial Services Group.

He was a Non-Executive Director of the Financial Ombudsman Service and holds a number of director roles in the corporate and charity sectors. Previously a BBC presenter, he is now a respected commentator on financial services.

About Huntswood
Founded in 1996 by David Brownlow and Philip Eaton, Huntswood is a professional services organisation helping businesses to manage regulatory challenges while optimising business performance.

Huntswood offers a range of complementary propositions which focus on customer service delivery, consulting, recruitment and learning and development.

Huntswood’s background and reputation within the financial services sector has led to the natural migration and diversification of services offered. As well as financial services, Huntswood also delivers solutions to the telecommunication, healthcare, travel and utilities sectors, in both the public and private sector, as well as regulators and trade associations.

Dedicated facilities in Reading and North Lanarkshire also enable Huntswood to provide high quality, fully integrated off-site solutions to their customers.

Every company should be asking themselves, “are we looking at TCF implementation holistically in our work streams? Are our current TCF activities a part of our strategic planning? Are we achieving the six TCF outcomes in the right way?”

Many would answer, “we are creating satisfied customers but we’re not embodying TCF outcomes in all our interactions with our customers.” This was the case for our client, the retail division of a UK bank, who needed to apply a different TCF strategy to truly engage with their customers.

To meet this challenge, it was necessary to develop a multi–work stream programme across a huge range of areas: governance and stakeholder management, product design, marketing, post-sale service and customer service, management information, people and communication.  By incorporating all these areas into the project, Huntswood had a great deal of clarity on how TCF was previously being addressed and were able to detect relevant weaknesses in the processes, such as significant flaws in TCF MI.

After Huntswood evaluated the situation, it was identified that TCF needed to be implemented as a commercial opportunity through the business, rather than a regulatory hindrance. Of course the main objective of the process was to meet the FSA requirements, but thanks to the implementation of a holistic programme the client was able to use TCF to significantly strengthen its relationships with customers.

Download the following case study, and learn more about how to improve TCF compliance in your business.

By Erika Raigoso, Digital Marketing Assistant, Huntswood

Huntswood was approached by a company which handled information requests under the Freedom of Information Act (FOI), but due to a public awareness campaign, they were overwhelmed by a rising number of requests which lead to delays, complaints and huge backlogs.

With this in mind, Huntswood implemented a new triage approach to clearing the backlog as well as bringing in expert case handlers and a project manager to fix the immediate crisis. This was suplimented by a bespoke training program to achieve a long-term solution to the authorities’ challenges.

Phil Fox, Director of Operations says “the triage approach adopted by Huntswood had demonstrated a complete understanding and experience of complaint handling through aligning their knowledge to the client’s processes and procedures. The backlog was significantly reduced, leaving the client’s in-house team in a more steady position.”

Would you like to understand how similar transformations could be achieved for your organisation? In the current climate, losing new and current clients is not an option, but now is the time to review and improve your customer experience.

By Erika Raigoso.

How do you measure how you are doing compared to your competitors in the market place? How do you know if you can exploit a weakness in the landscape or if you have to play catch-up? You have to benchmark, of course, but that’s easier said than done. How do you go about benchmarking customer service, something infinitely less tangible than sales data or other industry statistics?

Paul Scott, Huntswood’s Director of Consulting, remarks that, “Often companies do not know how to benchmark their customer service and so do not. However, there are plenty of techniques and strategies they can use to advance their customer service strategy.”

1. Get your consultant to compare you against their other clients. This is one of the most common “traditional” methods. It is also one of the least effective. Consultants can take the information they’ve gathered from their various other clients and figure out how you rank against them. They’ll anonymise this data, of course.

The problem is that the data your consultant has is probably not very well suited to you. Consultants are brought in for specific reasons, so the data they have on their other clients is specific to those reasons, and probably doesn’t match up to your needs. It’s like trying to shove a round peg into a square hole;the consultant might not have many clients that fit your profile. Finally, how old is their data? Our bet is it is older than they are presenting it to be. This is just a well-kept secret of this type of benchmarking. Shhh… we didn’t say anything.

2.Go digging on the Internet. They say everything is available online. And if you are looking to buy something, that’s probably true. But reports are a bit harder to find, tend to be out of date and tend not to fit your profile. No matter how much of an internet fan you are, this just tends to be how it is.

3. Join a benchmarking club or society. This is definitely a viable option, but not too many companies like to do this. After all, they’re helping their competitors out, too. Consultancies considering this option have a similar problem, only this time they are asking if their client would want to share this data

4. Go undercover and see for yourself. Though not the most statistically representative method, this is one of our favorite methods at Huntswood. Send some qualified professionals of your own to go purchase your competitors’ products. We’ve undertaken this kind of benchmarking for one of our financial services clients. We send over fifty FPC accredited (or equivalent) associates out to sign up for credit cards. This certification was important because it meant that they could identify when the companies were doing things right… and when they weren’t.

It is surprising what you can learn from benchmarking. For instance, in the example above, we learned that none of the surveyed credit card companies was doing customer service right. Front line employees were nice enough, but were generally just following orders and checking off boxes, which will lower your customer service rating. But this information also helped us identify where our client could excel ahead of the competition, exactly like good benchmarking should.

 How do you benchmark? Let us know in the comments section

]]> http://blog.huntswood.com/2011/11/15/four-ways-to-benchmark-customer-experience/feed/ 0 Huntswood http://blog.huntswood.com/2011/11/14/publishing-fos-decisions-%e2%80%93-clarification-or-punishment/ http://blog.huntswood.com/2011/11/14/publishing-fos-decisions-%e2%80%93-clarification-or-punishment/#comments Mon, 14 Nov 2011 11:30:52 +0000 Huntswood http://blog.huntswood.com/?p=890 ]]> The Financial Ombudsman Service has just released its discussion paper on the publication of its decisions. This a major concern for the industry at the moment and divides opinion.

Certainly, firms want greater clarity over FOS decision making, but how will publishing decisions achieve this? It will require an easily searchable database which firms and consumers can use to flush out a point or a case that is similar to theirs.

FOS prefers that only Ombudsman decisions are published and not those of its adjudicators, which is just as well as there are around 3,600 adjudications each week at present.  Imagine trying to search that database in a few years’ time; even if just the Ombudsman decisions are published, there will be around 400 every week to add to the list. Is this still too many cases to create a valuable resource?

I suppose it depends on what you see as the purpose of publication in the first place. The unique aspect of the Ombudsman’s role is to take into account relevant FSA regulations but always to decide cases on what is fair and reasonable in the circumstances of each case. This is very much a matter of judgement, so in my mind the main reason for publishing decisions is to demonstrate what the Ombudsman regards as ‘fair’ and ‘reasonable’.

Then both firms and consumers stand a better chance of understanding what the Ombudsman’s decision is likely to be in their case, leading to more complaints being settled without having to go to the Ombudsman at all.

If this was the sole objective, I think publication could be restricted simply to the handful of cases which clarified the Ombudsman’s view of fair and reasonable. This would be far fewer than 500 a week and focused on what is important to stakeholders.

However the FOS seems to have a number of other objectives in mind, not least of which is that the Government’s draft Financial Services bill says they must publish decisions as part of a wider political agenda for transparency.

Publishing will also ensure that the true account of each case reaches the public rather than distorted versions from other sources and it will provide a check on the quality and consistency of the Ombudsman’s work.

What the Ombudsman does not state as an objective, but recognises as an outcome, is that firms who lose could be punished.

In its consultation, the FOS proposes that consumers should not be identified in any published decisions, but the names of firms involved should be published and it acknowledges that this may cause reputational damage.

The FOS has struggled to convince the industry that it acts in a neutral and even handed manner and this will not encourage that view.  It gives a number of practical reasons for not keeping the firm’s name confidential but will the industry accept them? Do you think firm’s names should be published if customer’s names aren’t? We’d like your views.

About John
John is a special advisor to Huntswood providing the latest insight on consumer issues and regulatory changes. He is a former Chairman of the FSA’s Consumer Panel and is a Non-Executive Director of the Gas and Electricity Markets Authority. He was appointed by the Treasury as a Commissioner to the Equitable Life Commission and was a member of the Treasury’s Retail Financial Services Group.

He was a Non-Executive Director of the Financial Ombudsman Service and holds a number of director roles in the corporate and charity sectors. Previously a BBC presenter, he is now a respected commentator on financial services.

About Huntswood
Founded in 1996 by David Brownlow and Philip Eaton, Huntswood is a professional services organisation helping businesses to manage regulatory challenges while optimising business performance.

Huntswood offers a range of complementary propositions which focus on customer service delivery, consulting, recruitment and learning and development.

Huntswood’s background and reputation within the financial services sector has led to the natural migration and diversification of services offered. As well as financial services, Huntswood also delivers solutions to the telecommunication, healthcare, travel and utilities sectors, in both the public and private sector, as well as regulators and trade associations.

Dedicated facilities in Reading and North Lanarkshire also enable Huntswood to provide high quality, fully integrated off-site solutions to their customers.

Under the RDR there will only be two types of advisor for investment products: there will be fully independent advisors that must be fee based and able to make recommendations on a comprehensive and fair analysis of the relevant market with the ability to provide unbiased, unrestricted advice and there will be advisors that will be providing ‘limited advice’ and, therefore, must say so.

But does this match what the customer anticipates when they see an advisor? I think the nature of the relationship can be quite complex. When a customer first meets an advisor they can have a wide variety of expectations which might make up the basis of the contract between the advisor and the client.

At one extreme the customer can say, “I already understand everything there is to know about this product and I am prepared to buy it without any input from you.” The regulator and the industry define this as ‘execution only’ and responsibility for the purchase rests almost entirely on the customer.

At the other end of the spectrum, the customer is entitled to say, “I don’t want to bother trying to understand the possible products and choices, and I’m prepared to pay you to make the right decision for me. I will provide whatever information you want to help you make your recommendation.” In these circumstances, if the advisor accepts the job on that basis, the responsibility for the decision rests almost entirely on the shoulders of the advisor.

And, in between, lies a vast number of variations such as, “I am prepared to spend a reasonable amount of time trying to understand this and expect you to explain it to me simply” and, “I will make some of the preliminary choices but expect you to make a final recommendation about what is best for me.”

What is the state of mind of the purchaser before buying? And what level of responsibility is the advisor prepared to accept? If the advisor is prepared to take full responsibility for the choice and let the customer remain in ignorance about what they purchase, then- if it goes wrong- the advisor will be liable, although the advisor is likely to want a hefty fee for taking all the responsibility.

Perhaps what this demands is a closer understanding between advisor and customer of how much responsibility each is prepared to take on. At the moment, if any part of the discussion results in the advisor making a recommendation they will be liable for the outcome of the whole discussion, even if along the way the consumer has understood the explanation and made decisions about product choices which lead to the eventual advisor’s recommendation.

Without greater understanding of what the customer expects and the advisor is prepared to provide, we are likely to continue to dispute the adequacy of advice.

About John
John is a special advisor to Huntswood providing the latest insight on consumer issues and regulatory changes. He is a former Chairman of the FSA’s Consumer Panel and is a Non-Executive Director of the Gas and Electricity Markets Authority. He was appointed by the Treasury as a Commissioner to the Equitable Life Commission and was a member of the Treasury’s Retail Financial Services Group.

He was a Non-Executive Director of the Financial Ombudsman Service and holds a number of director roles in the corporate and charity sectors. Previously a BBC presenter, he is now a respected commentator on financial services.

About Huntswood
Founded in 1996 by David Brownlow and Philip Eaton, Huntswood is a professional services organisation helping businesses to manage regulatory challenges while optimising business performance.

Huntswood offers a range of complementary propositions which focus on customer service delivery, consulting, recruitment and learning and development.

Huntswood’s background and reputation within the financial services sector has led to the natural migration and diversification of services offered. As well as financial services, Huntswood also delivers solutions to the telecommunication, healthcare, travel and utilities sectors, in both the public and private sector, as well as regulators and trade associations.

Dedicated facilities in Reading and North Lanarkshire also enable Huntswood to provide high quality, fully integrated off-site solutions to their customers.