Second charge advice – what is it?

Second charge advice

Sometimes, even with the very best intentions it’s possible to get things wrong. Despite having the best will in the world to conform to FCA regulation and offer seconds via an advised process, there is a real chance that specialist loan brokers and mortgage brokers could fall short. I think this could be partly due to the difficulty in shrugging of the historic sales process and partly due to not fully grasping the message coming out from the FCA following the thematic review on advice.

Brokers in the second charge market have traditionally operated a non-advised model which largely entails finding out what the customer wants and delivering on that. The broker will ask the client questions such as ‘would you like a fixed or variable rate?’, ‘how much would you like to borrow’ and ‘what kind of term would you like?’ And would then source a product based on these findings. Mortgage brokers have often adopted this approach when using our loan packaging service.

The advised model, of course, works differently to this and the feedback from the FCA clearly suggests that the customer doesn’t really get a say in what type of product they’d prefer. Indeed, rather than asking the client about what they would like, the broker should ask the client questions which will reveal their financial circumstances and plans for the loan and by doing so should be able to deduce what type of product is most suitable.

By asking open questions brokers are able to gain a greater understanding of the client’s needs and as a result determine the most suitable option which could result in a different loan amount, term, product type or repayment method than a customer may have requested under the old sales process.

The shift to advised sales may be a bigger change than some advisers think, especially those new to giving advice. Forget tick box fact finds. What is clear is that the regulator expects you, as the expert, to use your experience and knowledge to ensure an appropriate recommendation is made – this, and not the consumer’s preferences, should be what guides you do the most suitable product.

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