Good and poor practice

Examples of good practices

• Advisers were encouraged to study for and pass the optional Advanced Ce-Map qualification to improve their knowledge and the quality of their advice.
• An induction course included training on firm systems, sales process and compliance. They also assessed the adviser's knowledge of mortgages to help identify development needs. This was followed up with role plays before meeting clients and initial observations of live interviews before letting the adviser see clients on their own.

Examples of poor practices

• Advisers did not hold the necessary qualifications and provided advice to clients unsupervised.
• Advisers appointed an unqualified person to complete fact finds and discuss mortgage products with clients without monitoring to check they did not stray into giving advice.
• A firm documented procedures but had not implemented these in any way.

Examples of good practices

General

• A gap analysis was used to identify weaknesses in the fact finding process. The firm put in place procedures to improve these areas.
• One firm identified that customers tended to focus on the cheapest monthly payment or maximum amount available to borrow. As part of their sales process they would highlight other issues and features a customer needed to consider and demonstrate the effect on the overall costs by using the BBC mortgage calculator to compare the costs over the longer term.
• Detailed notes were kept on the client file of all communication with the client and the provider. The firm is able to use this information in their assessment of complaints and therefore back up any decisions made. It also meant if the adviser was unavailable other employees could quickly identify what was happening with any customer.

Affordability

• A detailed budget planner was used within a fact find and from this the firm identified a net disposable income figure. This was then discussed with the customer and agreement reached as to how much of this figure the customer was willing to commit towards the mortgage. The adviser then used this to discuss the options for reducing the mortgage term for the client.
  

Examples of poor practices

Affordability

• Affordability was assessed based on the customers' income and costs of servicing debt only. No account was taken of other regular expenses incurred by the customer.
• No income and expenditure assessment was carried out prior to recommendation. Reliance was placed on the customer stating they could afford the payments.
• Industry average figures sourced from internet websites were used to determine the customer's affordability without checking that this represented an accurate figure for the individual customer in question and did not assess whether the client lay significantly outside the average.

Lending into retirement

• Where mortgage terms run past the customers' stated retirement age, no assessment was undertaken on what the income in retirement would be which meant the firm was unable to assess whether the customer could maintain these payments.

Self certification mortgages

• No explanation available to explain why a self certification mortgage was recommended to the customer, particularly given the reduced choice or potentially less competitive rates which would be available.

Interest-only mortgages

• A recommendation based purely on affordability, despite there being sufficient budget to have recommended capital and interest and with no further explanation as to why this was appropriate.
• No clear repayment strategy identified for the capital amount.

Sub-prime mortgages

• Reliance on the packager to carry out the credit check and provide a list of potentially suitable products/lenders. The firm was not given access to any of the credit information prior to making the recommendation. This led to the risk of customers not getting the most suitable mortgage as, due to the lack of knowledge about the customer's credit history, the firm was unable to verify whether the products suggested by the packager were suitable.

Examples of good practices

• Where suitability letters were being issued to clients to explain the reason for the recommendation and how the product and repayment method met the customers needs, the firm included a copy of the sourcing print out showing the most competitive products.
• Disclosure documents were issued to customers at the appropriate time and firms recorded when these were given to customers which helped provide a clear time line for the sales process.
• Simple diagrams were used to help explain how different mortgage product types (e.g. fixed, discount rates, as well as repayment methods) worked. With a full discussion on the risks and benefits of these, we felt the client had a better understanding of the suitability of the recommendation.
• A fact sheet was issued at the first interview with a client which explained in plain language the meaning of the technical jargon associated with mortgages.

Examples of poor practices

• Where firms were issuing suitability letters which contained standard paragraphs, some details were not relevant to the advice or product recommended. Sometimes this led to contradictory statements being made which made the letter unclear.
• Where the adviser recommended a client add fees to the mortgage, no discussion had taken place regarding the impact in the longer term on the interest charged.
• When consolidating debts for a client, some firms did not consider the implications for the client of securing previously unsecured debts to their property and extending the repayment term.
• Where a recommendation on the repayment method was rejected by the client, no record was kept on file to demonstrate whether the actual product taken was on an advised or non-advised basis. In the majority of cases the KFI still indicated the firm was recommending the product.

Examples of good practices

• Comprehensive diary systems to ensure clients were contacted prior to the end of a mortgage product term with a view to reviewing their circumstances and making a further recommendation.
• A questionnaire to clients after the mortgage had been completed to assess whether the client was satisfied with the service received. The firm used this information to measure progress against their treating customers fairly benchmark. The information from this was then used to highlight weaknesses and adjustments made to the process.
• A letter to the client more than six months before the end of the mortgage product to remind them it is due to be reviewed, and follow this up with a call nearer the time to arrange an appointment.
• A firm identified a trend with complaints relating to one adviser. They reviewed all of this adviser’s other business and ensured that the shortcomings were not repeated in the future.

Examples of poor practices

• In one firm, where there was more than one adviser, complaints about advice given were investigated by one individual even where they had provided the advice.

Examples of good practices

• A risk-based approach to the monitoring of advisers, based on experience, market knowledge, business levels etc., with levels of supervision agreed.
• Regular observations/ role plays and file checks on advisers to identify training needs and risks to the firm. This was recorded in the advisers training and competence file and updated regularly to demonstrate where remedial action had been carried out.
• A traffic light system was used to identify the level of supervision required for an adviser. This ranged from extensive file check and regular meetings for a Red adviser to low levels of checking less regular meetings for Green. The firm had a series of measures to assess which level was appropriate for the advisers.
• A system where files were checked and remedial action was recorded on the training and competence file, monthly management meetings were carried out to discuss performance and issues arising from the supervision and weekly adviser meetings held as training events on products or industry issues.
• Use of outside compliance consultants to monitor the quality of advice provided. The findings and market changes are discussed at regular meeting between the advisers.

Examples of poor practices

• Unable to show a training and competence system was actually being implemented within the firm.
• Where an external compliance consultant was used for monitoring advice, a number of shortcomings were found in the advisers’ knowledge and some files were not being looked at by the consultant.
• Management information collected on a monthly basis but not used
• Individual advisers were self supervising. This led to the firm not picking up weaknesses in their processes.
• File checks being regularly undertaken but the focus was on the completeness of the files rather than the quality of the advice being provided.
• Failure to implement the recommendations of an outside compliance firm which continued to put the firm at risk of providing poor quality advice and a potential increase in complaints.