In my last article for Financial Reporter here, I welcomed many of the positive noises within DP25/2 about the value of advice, but I also warned about the potential for the FCA’s language around so-called ‘enhanced advice' to create new and damaging silos in the market.
Having had more time to digest this, my concern now goes slightly further. Because what is being presented as a way to ensure certain borrower types get enhanced advice/protection could very easily become a Trojan horse for lenders, and one that further risks undermining advisers’ place in the market and could potentially see them losing a core part of their business.
With ‘enhanced advice’ the regulator is proposing that certain products or borrower types may have more complex needs, therefore carry more risk, and require ‘more’ from advisers in the form perhaps of extra qualifications, perhaps stricter requirements to be able to advise on these individual product/borrower types.
But what about everything else that falls outside the requirement for ‘enhanced advice’?
For example, it is not difficult to imagine a world where lenders decide that only business requiring ‘enhanced advice’ merits a procuration fee. Where ‘non-enhanced’ cases, are carved out of the procuration fee model altogether.
Advisers would either have to work for free on that business or charge clients directly. And consumers would be further nudged into execution-only channels presented as cheaper, easier and ‘good enough’.
Again, we’ve already seen this happening. The advice interaction trigger removed for those remortgage borrowers deemed not to require advice because their circumstances have deemed not to change.
The big problem of course is that even if a client’s financial or personal situation appears to look the same – and I would argue there is no client whose circumstances haven’t changed in some way, shape or form, in any given two/three/five-year period anyway - everything else around them will/has changed.
Just look at the last three to five years. We have lived through the pandemic, a cost-of-living crisis, the Ukraine war, inflation shocks, the mini-Budget. I could go on.
In each case, the mortgage market shifted: products disappeared and returned, criteria evolved, affordability tightened and then loosened, rates spiked and then fell. To say that advice is not required because the client hasn’t moved job or had a child is to ignore the reality that the market itself is constantly moving. A product which looked suitable in 2020 may be wholly inappropriate in 2025, regardless of whether the borrower’s payslip has changed.
That is why advice is so vital and shouldn’t be treated as some kind of luxury item for those deemed to be only require an ‘enhanced’ adviser interaction.
It is not just about the borrower’s life; it is about the entire environment in which they are borrowing. Advisers scan the whole market, test affordability, match products to evolving needs. A lender offering an execution-only option that mirrors the client’s last deal does none of that. It strips away context and assumes stasis in a world defined by change.
The danger here is two-fold. Consumers lose protection, choice and quality of outcome. And advisers lose a core part of their business model.
We’ve been here before. When advice is positioned as unnecessary, it is the customer who suffers. History tells us that clearly. And consumers get this, which is why they have continued to use advisers in such high numbers, and opt for the protections it affords.
And yet the combination of lender pressure on acquisition costs, and a regulatory framework that may in the future carve out a new ‘enhanced advice’ requirement, has the potential to seriously damage the advice environment, which as almost all agree, works well for the vast majority of borrowers.
We’ve just recently passed the two-year anniversary of Consumer Duty being introduced – designed to improve holistic advice and deliver more positive consumer outcomes. And yet, in the last two months we’ve been presented with rules and potential future proposals which undoubtedly undermine the ability of advisers to deliver on this.
If Consumer Duty is to stand, it means the FCA must resist this drift. ‘Enhanced advice’ will by definition, create a two-, perhaps even three-tier, environment where we have ‘enhanced’, ‘advice-lite’ and ‘no advice required’ approaches being taken.
Instead of segmenting the market again in such a way, why not continue to pursue the holistic focus of Consumer Duty – higher-standard/mandatory/all-encompassing qualifications and authorisations that allows all advisers to advise on all borrower needs. It’s what the FCA appears to be suggesting when it comes to later life borrowers, so why create further silos when it looks like it wants to get rid of one of the main ones that currently exist?
Advisers have shown their value time and again. The regulator itself calls advice a ‘foundational pillar’.
Rather than succumbing to an approach which only benefits lenders who are focused on segmenting the market, eroding the value of, and access to, advice, and getting their costs down, why not create an environment where a customer’s wants and needs can be covered by better-qualified advisers in the round? That, in my view, would be a much better definition of ‘enhanced advice’.
