"Increasingly, advisers are frightened of their own shadows, especially in the wake of consumer credit transferring to FCA supervision."
The FCA is currently consulting on the competitive effect of certain types of remuneration in the mortgage market as well as seeking views on whether commission could be construed as causing consumer detriment through being misleading.
Procuration fees are also under scrutiny as part of this review. However the AMI is concerned that under a proc fee ban the consumer would pick up the cost of giving advice – and the cost of advice given on applications that do not complete.
In its Quarterly Economic Bulletin, the AMI said: "This is particularly troublesome in a market where the most vulnerable customers may have to take advice to purchase a product but cannot afford the advice in order to do so."
The Association added that referral fees "also pose difficulties" under the consultation, despite the fact that the structure "serves customer needs well and allows advisers to remain commercially viable".
The AMI added: "Increasingly, advisers are frightened of their own shadows, especially in the wake of consumer credit transferring to FCA supervision. AMI members report feeling increasingly uncomfortable discussing a client’s financial situation fully without having the full scope of permissions available across mortgage, consumer credit, debt consolidation, retirement and investment. For example, it may be hard to discuss remortgage to pay off debt without potentially straying into consumer credit, pension income and equity release depending on the customer’s individual circumstances."
The AMI says "this is set to get worse" with the introduction of the Lifetime ISA which is likely to be brought up in wider financial planning conversations.
The AMI says it would like to see clarity issued by the regulator on what components of the interaction between adviser and client constitutes advice across all of the areas of need that the average consumer has.
It concluded: "These dynamics are intrinsic to assessing the need for referral fees in the market. A more holistic approach to advising a client is to be welcomed. But this must be balanced with an economically sustainable environment in which it can be compliantly provided without undue risk that FCA or Financial Ombudsman Service will ascribe responsibility where none was understood."
