"Duty of care should be a holistic approach, and at all stages of the application."
A broker who usually specialises in standard clients and mainstream lenders might have one or two specialist lender options that they will turn to if their client is initially declined by the High Street. This is commonly known as the line of least resistance, and all things being equal, why wouldn’t an adviser use a lender they are most familiar with? If further details come to light that mean the product available through that lender cascades, but the client is happy to accept a further rate loading, there’s often a feeling that ‘we’ve come this far so we may as well continue’.
If this is a route that you take, or have taken, you are potentially failing your client and here’s why.
Under the FCA's 'Cheapest Rule', brokers and advisers are expected to recommend the cheapest overall mortgage that is suitable, and available to them. There may be other factors that impact on suitability of course, such as lender service lead times, but you should be able to evidence the reason. If you habitually work with just one or two specialist lenders because that’s all you know but ignore your access to a specialist distributor like Brightstar, there’s a good chance that you have not recommended the cheapest suitable product available to you from a much wider marketplace of specialist solutions.
The specialist market has become more competitive and less polarised in recent times, we are experiencing a Base Rate that is remaining static at 0.1% which means the division between minor adverse product rates and those available on the high street is getting narrower. If a broker or adviser does not have the capacity to stay on top of these changes, they need to be working with a specialist that does. They should also take into account whether access to exclusive products via a specialist distributor is being fully utilised as the customer is ultimately being penalised if brokers still insist on going direct to just one or two lenders.
The ‘Cheapest Rule’ should then be applied again if your original application to a lender hits a hurdle and is cascaded to a more expensive rate. If you haven’t gone back to research the market at this point, you are not exercising your duty of care to the customer. And, of course, if the lenders you approach are subsequently unable to lend at all to your client, you are potentially throwing away business, and losing a client for life.
The implication of not basing your recommendation on all of the options available to you is significant. If a complaint is made in the future, and it transpires that an adviser hasn’t used all the tools at their disposable to get them the best deal, FOS may take the stance that the customer should be put back into the financial position they would have been in at the outset, and this could mean a penalty of thousands or potentially hundreds of thousands of pounds.
If an adviser doesn’t have the experience or in-depth knowledge of the specialist market, they could inadvertently end up costing their client money. One of the key advantages of understanding specialist lender criteria is knowing exactly what questions to ask. So, for example, submitting an application to a lender only to find out the construction type of a property isn’t suitable to that lender, could mean your client also wastes valuable time and money on a needlessly failed transaction. And in these current times of SDLT discounts, these delays could cost a customer thousands of pounds. The FCA’s stance is that customers should only ever be submitted to a lender if they meet that lender’s criteria, and whilst sometimes information is not divulged from the clients, should the adviser be taking responsibility for not having the skills to ask pertinent questions?
Duty of care should be a holistic approach, and at all stages of the application. It is not acceptable to circumvent all available options by only recommending the lenders you are most comfortable with. Sometimes the right thing to do is to step outside of your comfort zone to achieve the best deal, in a timely and cost-effective manner for the customer. Speaking to a specialist distributor can be the quickest way of accessing all of the potential lending solutions available.
So, if you have a client who is declined by a high street lender, your best next step is to pick up the phone to a specialist distributor like Brightstar. This way, you can have confidence that you are meeting your regulatory duty of care for your client by securing them the best, and cheapest options.
