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Cover Get ready for consumer duty now
DOING YOUR DUTY
“It’s time to get our houses in order,” the Mortgage Business Expo in London hears, as the new consumer duty aims to ramp up protection for customers on the mortgage journey
It’s one of the biggest shake-ups in financial services regulation in more than a decade. The new consumer duty has major implications for the mortgage sector and the way it markets itself. Yet industry experts at Mortgage Business Expo in London were pragmatic – and even positive – about the opportunities it presents for greater clarity.
Under the new regulations, which come into force over a phased rollout in 2023 and 2024, the Financial Conduct Authority (FCA) sets out higher and clearer standards of consumer protection, requiring firms always to put their customers’ needs first.
You might think that’s a given – and certainly, many upstanding financial services professionals wouldn’t dream of doing anything else. But the changes coming in reflect concerns about how some consumers, particularly the vulnerable, have been treated for years – subjected, for example, to scaremongering cold calls, texts, and misleading marketing.
“We have definitely seen an increase in complaints to the FCA over the last couple of months over the cost of living and using scare tactics to try to get people to borrow money, not just for equity release but other high[-interest] loans,” Kelly Melville-Kelly, head of risk, policy, and compliance at the Equity Release Council, told the Mortgage Business Expo at the Business Design Centre in Islington. “A big part of what we do is we set standards in the equity-release industry. So the consumer journey is of vital importance to us.”
Ryan Berry, owner of Cornerhouse Media, a financial lead-generation company, identified the need for greater consideration. “I feel that the marketing aspect, particularly on the lead-generation side, is the one bit that hasn’t been thought out all of the time,” Berry said. “I’m sick and tired of seeing ads that say homeowners over 55 are rushing to dot, dot, dot,” he said. “And [I hate] this idea of creating business through fear, through terrible advertising – online sites that purport to offer a calculator but really are just data collection that goes through to a broker.”
He added, “I would hope that the diversions of ads
Ryan Berry
“Consumer duty finally codifies what marketing should be, what a consumer journey should be, and therefore the duty that we need to put in place for customers and brokers alike” – RYAN BERRY
will start to fade out over time, but we need brokers to be on board with that as well. This is a very important topic for us because a lot of lead generation has acted as if treating customers fairly is not a concept, as if standard marketing practice is not a concept that we need to think about. Consumer duty finally codifies what marketing should be, what a consumer journey
Dominik Lipniki
should be, and therefore the duty that we need to put in place for customers and brokers alike.”
There was agreement from Dominik Lipniki, owner of Your Mortgage Decisions, a nationwide mortgage and protection brokerage, and of Access Equity Release, which offers specialist advice. He pointed out that it was a long-standing issue. “Going back 20 years,” Lipniki reflected, “we used to buy leads, and you know how murky that was sometimes – how hit-and-miss that was, and how much more difficult it was to do due diligence and to maintain those high standards. It’s a lot easier now, but you’ve got to just put those processes in place. I think it should be welcomed.”
The consumer duty undoubtedly means a significant shift for firms and, indeed, the team at the FCA. Some may view it as an extra pressure in already trying times, but the authority is clearly keen that it be viewed as an opportunity for a fairer basis for competition and the flexibility of an outcomes-based approach, aimed at driving growth and innovation.
It requires businesses to deliver good outcomes for retail customers consistently, in terms of products and services, price and value, consumer understanding, and support. Businesses must consider how they behave at every stage of the customer journey, and the needs, characteristics, and objectives of their customers. The regulation takes into account activities such as lead generation, by which potential customers are sought and identified for a business. Its processes and outcomes must be evidenced and documented.
Thomas Brett, head of mortgage & lending at Contact State, which aims to stop fraudulent data practices and set a new standard in consumer data exchange, explained that the FCA will require businesses to have a consumer duty plan in place. Large firms will need it signed off by their boards; smaller firms will need to write it and sign off on it themselves. Brett pointed to a 100 per cent increase in homeowners searching online for their next mortgage, and referred to a survey of 5,000 people that suggested 73 per cent have had a negative cold-calling experience in the last 12 months, posing a risk for those doing things correctly.
“I’m a firm believer in lead generation as a force for good,” Brett said. “It gets so many customers the advice they need and deserve, and it’s a hugely important route to market for thousands of customers. It can help when you’re starting a business, to prop up your own marketing, but lots of established firms are also built on external lead generation – leaving it to the experts, as it were. However, this needs to be completed safely and be a fair customer journey that is signposted and signed off by the relevant people.” He added, “The biggest question you need to ask yourself is, ‘Will my marketing or external lead-generating partners pass the new consumer duty regulations?’”
From 31 July 2023, the duty will apply to all new products and services, and all existing products and services that remain on sale or open for renewal. The duty will then come into full force 12 months later, applying to all closed products and services. The FCA believes that boards and senior management have a critical role to play in overseeing firms’ implementation of the duty. Failure to comply may lead to FCA enforcement action, resulting in fines and associated damage to reputation, but it has indicated that it is committed to working closely with the industry during the implementation period and beyond to get it right.
Thomas Brett
“I think it’s the biggest change we’ve had for quite a long time,” acknowledged Melville-Kelly. “And I think if you’ve underestimated what you need to do for it, you need to look at it again. It’s TCF [treating customers fairly] on steroids. It’s taking TCF, what we’ve had, and taking it that step farther. And it’s not just about doing the right thing at the right time. For me, it’s about doing the right thing all of the time. And I think that’s a significant change for people.”
Lipniki believed the change would have a big impact on marketing “in terms of advertising – how the leads are developed, where you purchase the leads from, taking that responsibility and making sure that the marketing is right and complies,” he stated. “Thinking about vulnerable clients, clearly thinking about the target group that you want to advertise to and get the leads for, and really taking that responsibility from start to finish – so, before you talk to them, but also post-sale and throughout the whole process, seeing it as one whole process rather than individual steps. I think it’s important that client journey be positive, well informed, ethical.”
He drew on his own professional experience. “I know my client services team,” he said. “The last thing they want to do is speak to a client who is not expecting the call, who’s been promised a rate they can’t get or a quote they can’t get, or one who’s been bullied into applying. I think ultimately you know the sort of standards that you’d expect from your mortgage or equity-release adviser when they speak to a client, when they give advice. Well, it’s now time to do that from the start for those firms that haven’t. I’m sure there’s loads of brokers out there who will do the right thing and will do due diligence. Now it’s not just doing the due diligence, but it’s also monitoring it throughout to maintain that high standard.”
Berry believed that changes in practice were already becoming evident. “One thing that has changed a little bit is the transparency on the lead-buyer side,” he said. “So what we want to know is the entire process that they have – how the advisers work, typical sales techniques. We can echo that in our marketing as well. Whereas before, it might have typically been, ‘Hey, we want these leads for roughly this age and a certain volume per month,’ now it’s actually, ‘Let’s have a joint project here and work together more closely.’ And that can only be a positive.”
Melville-Kelly supported a move toward greater openness within financial services. “I do think that there’ll be a lot more transparency, and I think that will drive activity,” she said. “The more people understand this market, the more, I think, it will kick away some of the misconceptions that people have had in the past. So that, to me, is a good thing. There’s always more that you can do in this industry. What the consumer duty also asks of us is, as well as doing all of this good stuff, is to make sure that we’re buying good, ethical leads and doing our due diligence. It’s about testing any of the marketing that we do, you know, so it’s not enough just to do it – you actually have to test it on a continuous basis, to make sure it’s hitting that right demographic, that people understand it, and that they’re making informed decisions. We have to make sure that customers continue to understand the product that they have at certain life points. So it’s not just about pre-point, it’s post-sale and beyond. There’s a lot for firms to take on board and a lot to put in place.”
The argument for consumer duty is that if the industry and its regulators get this right, everyone wins – from the consumers who receive the right products and services at a fair price to the firms that will retain loyal customers and, by good reputation, attract new ones. In turn, the FCA will need to step in less often, and the wider economy ultimately benefits. That, at least, is the theory.
Brett told the Mortgage Business Expo that regulated, online consumer journeys would become the norm in future. “The FCA has made it very clear that consumer duty rules will be prevalent for the whole customer journey,” he emphasised. “So it’s certainly time to get our houses in order when it comes to marketing. We don’t want everyone tarred with the same brush. By certifying data transfer, we can help eliminate these issues and make marketing and lead generation safer for buyer and customer – and profitable.” M I
