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Paul McGerrigan: The effect of the FAMR

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Paul McGerrigan: The effect of the FAMR

Paul McGerrigan, Chief Executive of, discusses the Financial Advice Market Review and what it means for the second mortgage market.

As we are now almost half way through August, the holiday season is in full swing. Whilst all parents out there are looking forward to the end of the school holidays, our regulators have had a busy summer – after all, there’s only a few months to go until implementation of MCD.

•    One area that has received extra publicity over the last few weeks is that of advice. This is thanks to a recent announcement regarding a joint FCA & Treasury - Financial Advice Market Review (FAMR) “advice gap” for those people who do not have significant wealth

•    ensure the regulatory and legislative environment allows and encourages firms to innovate and grow their business models to include affordable and accessible financial advice

•    consider ways to encourage people to seek financial advice, addressing unnecessary barriers that currently deter them

The FAMR will include all areas of the financial services market, including mortgages, both first and second charges.

For the second mortgage market, ‘Advised’ sales is something that has progressively become more important over time but until now has not been a requirement. With the advent of the MCD Directive due to go live 21st March 2016, second mortgages will finally become an ‘advised’ sale. As a result all the rigour around the process, the documentation and the communication with the customer, if not already in place, must be enhanced to ensure a strict adherence to the regulatory requirements.

So post MCD all second mortgage sales will have to be advised. An advised sale is defined by the FCA as having characteristics such as:

•    an explanation of why the particular product or provider would meet the customer's demands and needs
•    providing a customer with a recommendation tailored to their needs

This means that anyone discussing a secured loan with a customer will have to be qualified to do so, ensuring that they have the knowledge and skills to understand the customer’s needs, their own products and alternatives that may be available to the customer.

Advice means that the customer can make an educated choice and is more likely to be satisfied with the product they buy – a great step forward. It will also raise standards in the whole market, encouraging advisers to consider whether the customer’s needs are genuinely met by the products they offer. As firms and individuals will potentially be liable for unsuitable advice, there will always be an incentive to ensure that staff at all levels of the organisation remain focused.

The FAMR will report its findings ahead of the 2016 budget; in other words at the same time as the MCD is implemented. It will be an interesting end to Q1.

By Paul McGerrigan, Chief Executive of

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