Why isn't the FSA doing more to stop lenders from offering differentially priced products?
Lenders are not obliged to deal through intermediaries. How lenders choose to price and distribute their products is a commercial matter and, contrary to some claims, lenders are not in breach of FSA rules if they choose to go down this route. There have always been certain lenders who choose not to offer their products through intermediaries, and others who differentiate pricing depending on the channel, for example those offering 'exclusives' to certain mortgage clubs or special 'internet-only' rates. It follows from this that not every product on the market will necessarily be available to any one intermediary - something which our definition of whole of market takes into account. If certain lenders decide to offer their direct customers cheaper deals, we do not see that customers' best interests would be served by preventing this.

Can I still call myself whole of market when I know that some lenders are offering better products direct?

Our definition of 'whole of market' takes account of the fact that not all products will be available to any one firm (see the previous question).

Market conditions are changing very rapidly and we can't possibly make rules to cater for this, nor would we want to under our principle-based approach to regulation. We think that a whole of market firm will need to consider thoughtfully how to handle the current situation in order to meet the best interests of its customers.

A crucial point is ensuring that consumers are clearly informed about the service being provided. So for example, if a whole of market intermediary recognises that, in current market conditions, there may be more competitive products in the market other than those available to him, and that these may be of interest to a particular customer, we think that there must be acknowledgement of this. We think that in such cases the intermediary should clarify to their customer that, while they are not tied to a particular set of providers, there are certain deals only available direct from lenders; and that if the customer want to investigate that sector of the market for themselves they may find more competitive products. However, we don't expect the intermediary to point to a specific product or provider, and we would have no difficulty in the intermediary drawing attention to different levels of service.

We do not think this an overly onerous disclosure; and indeed believe that intermediaries would want to make such a disclosure, in a positive and pre- emptive way. However, where the adviser is confident, given his knowledge of the whole market, that the product he can sell the customer is the most suitable of those generally available to the customer, then nothing further would be required.

Should the FSA give the issue greater consideration before adding new rules?

We are not introducing new regulations here. Rather, we are clarifying (as firms have asked us to do) what we think our existing requirements mean - and have always meant - for firms under market conditions such as these.

I would like to be able to advise my customers to apply for a direct product if I think this is the best option for them but because I cannot obtain a KFI I cannot do this. Is there anyway around this?

The requirement to provide consumers with a KFI has always been a central part of the mortgage regime, and advisers have always needed to ensure they have sufficient information about a product's features to be able to produce a KFI before they recommend it. We think that a recommendation without an illustration of what is being recommended will be of limited value to the customer. Also, if an adviser does not have full details of the product and how it will function, we would question how they can be satisfied it will be suitable for the customer.

However, we are aware that some systems provide details of direct to lender products and will also provide direct KFIs. Therefore, it may be possible in some cases for intermediaries to recommend products which are only available directly from the lender.
Intermediaries producing KFIs for direct products remain fully responsible for ensuring their KFI is accurate (within the given tolerances) and so if using a third party system need to be assured of its accuracy.

If I do recommend a product which the customer has to buy direct, the lender will also give the customer a separate KFI /Offer. Does this raise any difficulties? For example does it matter that the lender's KFI won't include my broker fee?

Our view is that in this instance the advice fee would not need to be included in the lender's KFI/offer. What the lender is illustrating is the cost the customer needs to pay in order to obtain the credit on offer. The advice fee is not part of that. It so happens that the customer has paid that fee as part of their route to the product, but it is not a necessary condition for the credit. Therefore, the adviser fee does not need to be included in the APR or section 8 of the KFI produced by the lender.

In this scenario, the customer is going to receive two KFIs: one from the adviser and one from the lender. As well as showing differences in fees, there may also be a difference in section 2, as the lender may be selling the product on a non-advised basis. These differences are in line with the rules, and will accurately reflect the different parts being played by the two firms in the transaction. However, the potential exists for some confusion on the customer's part, and intermediaries may be able to manage this by explaining the different roles the firms are playing and the resulting differences in the disclosures they will provide.

Can I charge a fee to advise my customers to apply for a direct product?

Yes. As long as you make the level of service you will provide and your fee charging structure clear in your IDD, your ability to charge a fee is not dependent on making a product-specific recommendation.