MORTGAGE ADVICE AND SALES PROCESS

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1 PROFESSIONAL INDEPENDENT ADVISERS LTD MORTGAGE ADVICE AND SALES PROCESS Lifetime mortgages are covered in separate procedures, and subject to additional T&C requirements. This material explains the FSA rules and requirements when you are carrying on regulated mortgage business with your customers. It covers the mortgage advice process from your first contact with a customer up to sending the mortgage application to the lender. It includes the different types of advice and information you can give. PROFESSIONAL INDEPENDENT ADVISERS LTD 1 Mortgage Advice and Sales Process

2 MORTGAGE ADVICE AND SALES PROCESS 1. Introduction 2. Treating Customers Fairly (TCF) 3. Business Source 4. Independence in the mortgage market 5. Mortgage Introducers 6. Arranging Contact with Prospective Customers / Cold Calling 7. Communications with Customers 8. Advised Sale Process - overview PROFESSIONAL INDEPENDENT ADVISERS LTD 2 Mortgage Advice and Sales Process

3 MORTGAGE ADVICE AND SALES PROCESS 1. Introduction The FSA rules require that customers are adequately informed about the nature of service which they may receive from a firm and the scope of products which will be made available to them. Sales may be made on an advised or non advised basis. Where advice is given we need to ensure that the customer receives suitable advice based on their personal circumstances, demands and needs. Home finance is the new term used to describe all regulated arrangements involving the use of land to secure monies including mortgages, lifetime mortgages, home purchase plans and home reversion plans. Throughout this document we have used the term mortgage rather than home finance, unless we have explicitly stated otherwise. PROFESSIONAL INDEPENDENT ADVISERS LTD 3 Mortgage Advice and Sales Process

4 2.Treating Customers Fairly (TCF) The aim of TCF is to encourage a change in behaviour by advisers to ensure consumers are confident they will receive fair treatment no matter whom they do business with. This is not a new requirement, as this principle has existed for many years: FSA Principle 6 A firm must pay due regard to the interests of its customers and treat them fairly. TCF is a continuous process and is not something you put in place and forget about. FSA confirms that rules cannot cover everything so advisers must work within the rules and ask themselves what is sufficient to deliver fair treatment to their customers. FSA state that firms should be focussed on delivering six consumer outcomes: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture. Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly. Consumers are provided with clear information and are kept appropriately informed before, during, and after point of sale. Where consumers receive advice, the advice is suitable and takes account of their circumstances. Consumers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and also as they have been led to expect. Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint. FSA good and poor practice examples of TCF: FSA issues examples of good practices when it finds them during thematic reviews. A number of these are included in this document. Good practice examples: Fact finds enable adviser to probe areas of need/priority, customer objectives and expectations Advisers talking customers through disclosure documents, rather than relying on them to read and digest them. Interest-only mortgage customers received comparisons so they could tell how much it would cost to convert to repayment later on PROFESSIONAL INDEPENDENT ADVISERS LTD 4 Mortgage Advice and Sales Process

5 Poor practice examples: Inaccurate information given to customers about the firm s remuneration or failing to bring to the customer s attention the importance of disclosure documents. Inadequate and out of date know your customer information for customers who have an ongoing relationship with he firm. Remember: TCF isn t anything new or to be afraid of, as you will already be demonstrating you are treating your customers fairly in many aspects of the work you have been doing for years. For more information on the TCF please refer to our web site. PROFESSIONAL INDEPENDENT ADVISERS LTD 5 Mortgage Advice and Sales Process

6 3. Business Source Professional Independent Advisers Ltd receives business from: Existing customers Referrals Introductions from third party businesses. Business transacted includes personal and commercial mortgages including Buy-to-Let. The FSA rules are only applicable to regulated mortgage contracts which is defined as follows There are two elements to the definition of mortgage contract or lifetime mortgage contract. To be a regulated mortgage contract the arrangement has to be: A loan to an individual or trustee(s); A first charge secured on a UK residential property; and At least 40% of the property must be occupied by: A beneficiary of the trust; The borrower; or A member of the borrower s immediate family, which is defined as: Spouse; A person (whether or not of the opposite sex) whose relationship with that person has the characteristics of the relationship between husband and wife; or Parent, brother, sister, child, grandparent or grandchild. The 40% rule means some buy-to-let arrangements and some commercial premises where there is a flat above a shop can be regulated. Example Purchase of house for students partly to help offspring to have somewhere to live and partly as an investment. If offspring is to be in residence from outset, this would be a regulated buy-to-let. If offspring may become resident at some future date, e.g. gets a place at the local university or college, it is not a regulated buy-to-let. Example Mixed property. The ground floor is a corner shop and there is a flat above of the same size. This would be a regulated mortgage because of the 40% rule if the owner or a member of his immediate family lived in the flat. It would not be a regulated mortgage if the person living in the flat was, for example, employed to run the shop for the owner. PROFESSIONAL INDEPENDENT ADVISERS LTD 6 Mortgage Advice and Sales Process

7 4. Independence in the mortgage market FSA Rules MCOB 4.3.7R states a firm must not hold itself out as acting independently unless that service... [is]... based on the whole market and... the customer [can] pay a fee So, FSA defines an Independent Mortgage Adviser as being a business which: Offers a whole-of-market choice to its customers; and Gives them the option of paying a fee for its services. You cannot call yourself independent if you do not meet these two criteria. TCF consumer outcome Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture. PROFESSIONAL INDEPENDENT ADVISERS LTD 7 Mortgage Advice and Sales Process

8 5. Mortgage Introducers This section covers some specific guidance on introducers in the mortgage area. KEY POINTS Make sure your introducers ONLY make the initial introduction and don t get involved any further otherwise they d be arranging, which is a regulated activity. If you re not independent, your introducer will need to tell the customer what s in it for him. The introducer shouldn t accept any customer money payable to lenders or intermediaries. He must tell the customer who he introduces to your firm s name. He must get the customer s express consent for you to call (usually safest in writing). Anyone can introduce clients. However, there are extra disclosure requirements if you are not independent see below for more details. If you are independent (ie you offer a whole-of-market service, with a fee-only payment option) your introducer doesn t need to give the prospective customer any more information than your name. If you are not independent in that you don t offer a fee-only payment option with a whole-ofmarket service, your introducer will need to tell the prospective customer the following: Details of any payment received for making the introduction; Details of any other benefit he might get for making the introduction examples include reciprocal business arrangements, training, and office space; and Whether he is part of the same business (firm or group of companies) as yourself. He can do this verbally. But you might want to consider requiring him to keep a written record of what he said, because you may want to check he s giving out the necessary information. Cold Calling Cold calling is banned on mortgages as the FSA wants to make sure that, when customers are dealing with Firm A, they give their active consent before being called about a mortgage by someone from Firm B. The most important point to remember, if you are receiving introductions, is that you have some proof your customer has given express consent. The safest way to do that is to get your introducer to ask the customer to sign a simple consent form on the introducer s headed paper: I give my consent for Professional Independent Advisers Ltd to telephone me, in order to advise me about arranging a new mortgage. A blanket statement, which does not specify which firm will call, is not acceptable under the cold calling rules. The express consent statement has to be prominent and drawn to the customer s PROFESSIONAL INDEPENDENT ADVISERS LTD 8 Mortgage Advice and Sales Process

9 attention it can t be hidden away within a longer document. If you buy leads from telephone-based market research agencies, or from web-based lead generation firms, they may have other methods of recording the necessary express consent. For example, a website could collect customers' postcodes (to decide which mortgage broker to refer them to) and then ask them to click 'yes' if they give their consent for your firm to ring them about a mortgage. If you sign-up to any lead generation firms, it's important you check that they obtain the leads in a way that allows you to follow them up without breaking the cold calling rules. Other options include: Your introducer just gives out your business card or similar, i.e. the customer calls you; Your introducer passes details of the customer s address or to you and you write / saying contact us if you are interested. There is no regulatory requirement to have an introducer agreement in place for mortgage business. But, if you regularly make or receive mortgage introductions, it is Professional Independent Advisers Ltd policy to have an agreement in place to safeguard our own interests. PROFESSIONAL INDEPENDENT ADVISERS LTD 9 Mortgage Advice and Sales Process

10 6. Arranging Contact With Prospective Customers / Cold Calling KEY POINTS Unsolicited calls, in person or by telephone: banned in the mortgage market from 31 October unless you have a genuine ongoing customer relationship, and the customer expects you to call as part of that relationship Generally you ll need to get express written consent from old mortgage customers before you can ring them to suggest switching to a new mortgage deal. Get into the habit of obtaining written consent from customers you arrange mortgages for, if you want to be able to call them again in the future If you receive mortgage business from introducers or lead generation firms, make sure they obtain express consent from customers for your firm to call them about a mortgage. In regulatory jargon, cold calling is an unsolicited real-time financial promotion. When the FSA says real-time it means there is a simultaneous dialogue between yourself and the customer. In practice, this usually involves a face-to-face or telephone conversation ( does not count as real-time). As you can probably guess, an unsolicited (or cold ) call involves you visiting or ringing the customer without their prior consent. If you have express consent (also called active or positive consent) from your customer to initiate contact, you aren t cold calling. FSA Rules MCOB 3.7.3R states A firm must not make an unsolicited real time qualifying credit promotion unless the customer has an established existing customer relationship with the firm and the relationship is such that the customer envisages receiving unsolicited real time qualifying credit promotions. The FSA feels cold-calling is inappropriate, because it doesn t want mortgage customers to be exposed to the kind of high-pressure sales tactics that are notorious in certain other industries. The danger is that customers could feel pressured into buying inappropriate or very poor value products. Most of you will be familiar with the archetypal double-glazing salesman. Do you have an ongoing relationship with your customers? Do they expect you to call them from time-to-time? If you don t & they don t, you don t have an ongoing relationship with them. That s quite likely for customers you have previously arranged mortgages for as you may have only done that one piece of business with them. So, if you want to contact them, you will need evidence of their express consent beforehand. If all you have done for a particular customer is arrange a mortgage three years ago, you can t realistically argue that you have an ongoing relationship. PROFESSIONAL INDEPENDENT ADVISERS LTD 10 Mortgage Advice and Sales Process

11 FSA sees your part in advising and arranging a new mortgage as (usually) a one-off transaction. During the period in which you are actually arranging the mortgage, common sense suggests that there is an ongoing customer relationship so unsolicited calls during this period won t usually count as cold calling. But, in many cases, there won t be any regular contact between you (the intermediary) and the customer, once the mortgage completes. Of course, if you have a wider advisory relationship with customers, perhaps you regularly advise them on their general financial planning needs, then there should be no problem. You can make unsolicited calls, providing that your customer would expect you to do so as part of the ongoing relationship you have. I ARRANGED A MORTGAGE FOR A CUSTOMER THREE YEARS AGO, AND TOLD HIM I D DIARISE THE DATE ON WHICH THE FIXED-RATE DEAL EXPIRES. SURELY I CAN RING UP TO DISCUSS SWITCHING TO A NEW MORTGAGE? Unfortunately, you can t do this unless: You have maintained an ongoing relationship with that customer which involves you being expected make unsolicited calls; or You have evidence of the customer s express consent for you to call him when the fixed rate mortgage expires (which is unlikely). In most cases, it is likely that you ll need to write to old mortgage customers to get their written permission to call (or to ask them to make the initial contact). PROFESSIONAL INDEPENDENT ADVISERS LTD 11 Mortgage Advice and Sales Process

12 7. Communications with Customers KEY POINTS Must be clear, fair and not misleading Where FSA specifies certain terms, you must use them You need to know where to send customers their documents FSA Rules PRIN, Principle 7 states A firm must pay due regard to the information needs of its customers, and communicate information to them in a way which is clear, fair and not misleading. MCOB 2.2.6R states When a firm communicates information to a customer, it must take reasonable steps to communicate in a way that is clear, fair and not misleading. What these rules mean is that you have an obligation to be honest and straightforward in any communication with your customers. TCF Consider talking customers through product features rather than relying on them to read the literature alone. This way you can ensure they understand what they are buying. As part of these requirements, and to help consumers compare different products and providers, FSA has imposed standard wording for four specific terms: Early repayment charge; Higher lending charge; Lifetime mortgage; and Home reversion plan. In each of these cases you must stick to the prescribed wording in any communications with your customers. This means you shouldn t be using alternative terms like redemption penalties, or mortgage indemnity guarantees. TCF consumer outcome Consumers are provided with clear information and are kept appropriately informed before, during and after point of sale. PROFESSIONAL INDEPENDENT ADVISERS LTD 12 Mortgage Advice and Sales Process

13 More than one customer? FSA Rules MCOB 2.2.2G states where customers have different addresses, a firm should send [information] to each address. If the customers share the same address it will be sufficient to send a single copy of the information addressed to each of the customers. In other words, mortgages are often arranged in two or more names. Sometimes those customers live at different addresses. The FSA considers that you should duplicate the information to all the addresses involved. Obviously, the customers may only want you to send documents to one address. If your customer wants that, we suggest that you keep a note on the file to that effect. You should make a note of all communications with the customer, whether verbal or written, on the customer file. Advertising Please refer to the separate guidance available via our procedures website PROFESSIONAL INDEPENDENT ADVISERS LTD 13 Mortgage Advice and Sales Process

14 8. Advised Sale Process Overview Mortgage advisers are required to sequentially; a. Provide details to the customer relating to status, level of service, fees or remuneration together with other information relevant to the firm as detailed below. b. Obtain information from the customer relating to personal circumstances, needs and demands. (Factfinding). Remember that your customer has the right to expect an efficient and timely service from you. This means you need to make it clear what you do or do not have control over in the mortgage process. During the factfind phase you may well discover that the customer has specific time constraints or deadlines to meet it is your responsibility to make sure that these are met, assuming there are no external factors that you can t control. TCF good practice example Customer told adviser that remortgage needed to complete on a specific date to avoid both the early repayment charges and the reversion to the existing lender s SVR, which was substantially higher. Adviser instructed solicitors and lenders of the timescales involved. Diarised regular checks to ensure completion was on track. Kept the customer informed. c. Research the market for a suitable product. d. Provide the customer with a key facts illustration relevant to the product recommended. e. Obtain an application and submit to selected lender. f. Provide the customer with a suitability letter. This section details the systems and processes by which Professional Independent Advisers Ltd will ensure that our regulatory obligations and industry best practice is adhered to. Scope of Service The scope of service provided to a customer must be based on a selection from one of the following : a. the whole market b. a limited number of mortgage lenders c. a single mortgage lender In practice, to retain our status as independent, Professional Independent Advisers Ltd will be providing predominantly a whole of market service unless a customer requests otherwise. PROFESSIONAL INDEPENDENT ADVISERS LTD 14 Mortgage Advice and Sales Process

15 NB: The additional criteria for a firm wishing to be viewed as independent is that it must provide the customer with the option of purely paying a fee for the provision of service. This is discussed further under Fees below. PROFESSIONAL INDEPENDENT ADVISERS LTD 15 Mortgage Advice and Sales Process

16 Initial Disclosure Requirements KEY POINTS You must disclose What kind of service you offer How you get paid What your regulatory status is There is certain information which must be provided to a customer on initial contact whether this occurs by telephone or face to face meeting. Firms are required to provide specified information in the form of an initial disclosure document (IDD) or combined initial disclosure document (CIDD) where insurance business is also being recommended. These documents must be provided in a durable medium. The FSA definition of durable medium is as follows: durable medium (in accordance with article 2(f) of the Distance Marketing Directive and article 2(12) of the Insurance Mediation Directive ) (in relation to information addressed personally to a recipient) in a form which: a. is capable of being used by the recipient; b. enables the recipient to store the information in a way accessible for future reference for a period of time adequate for the purposes of the information; and c. allows the unchanged reproduction of the information; and includes paper, floppy disks, CD-ROMs, DVDs and the hard drive of the recipient's computer on which electronic mail is stored, but not Internet websites unless they fulfil the criteria in (a),(b) and (c). TCF good practice example Advisers talking customers through disclosure documents, rather than relying on them being read and digested. Initial Contact On initial contact with a customer when you anticipate giving advice or personalised information you must: a. Advise the customer whether you will be giving advice or information. PROFESSIONAL INDEPENDENT ADVISERS LTD 16 Mortgage Advice and Sales Process

17 b. Advise the customer how Professional Independent Advisers Ltd will be remunerated, offering the option of the customer paying a fee or the firm receiving commission from the lender. c. Good practice suggests your business card showing your full name, job title, the name of your business, plus your contact address and telephone number is also issued. d. Provide an IDD, or CIDD where advice will also be provided on insurance business. This does not apply where you have already provided an IDD or CIDD and the document is still accurate and appropriate, you do not anticipate altering or replacing the service described or the initial contact is made by telephone. However if the customer is merely telephoning the firm with a view to making an appointment then the information above can be provided at the time of the meeting. If a customer has been provided with an IDD or CIDD but subsequently requires different services from those originally anticipated a new IDD or CIDD must be issued reflecting the service required. Where it is anticipated that advice or a personal recommendation is to be made over the telephone then the following information must be given to the customer before proceeding: a. Your details and the fact that you are representing Professional Independent Advisers Ltd. b. The scope of service to be provided. c. Whether or not you will be providing advice. d. That the information given will be provided in writing. A call record must be completed in respect of each call made or received indicating the information provided and the service required. It will be necessary to complete a factfind at this time if you are to commence research prior to giving advice or a personal recommendation. If it is ascertained that the customer is eligible for a regulated mortgage contract, then that customer must be provided with an IDD or CIDD within five business days of the telephone conversation. PROFESSIONAL INDEPENDENT ADVISERS LTD 17 Mortgage Advice and Sales Process

18 Suitability A firm must take reasonable steps to ensure that it does not make a personal recommendation to a customer to enter into a regulated mortgage contract, or to vary an existing regulated mortgage contract, unless the regulated mortgage contract is, or after the variation will be, suitable for that customer. The assessment of suitability will be based on the information obtained during the factfind process, which will either be completed over the telephone during the initial contact or at the first meeting with the customer and must always be completed in full. Your assessment of suitability must address the following questions: 1. Can the customer afford a mortgage? If the answer is no, you must not recommend a mortgage; 2. What mortgages are appropriate to the customer s needs and circumstances? If you do not have access to an appropriate type of mortgage you must not recommend a mortgage; and 3. Of the appropriate mortgages available through you, which is the most suitable? Mortgages & the money laundering regime Don t forget that the Money Laundering regime doesn t just cover proceeds from crime, it also covers issues such as tax evasion. So, if you have any concerns about your customer s income claims or his source of funds for deposit etc, you should fill out a Money Laundering suspicion report and pass it to your money laundering officer. Affordability Is the mortgage affordable? YES NO Adviser considers the appropriate types of mortgages Customer must not be advised to take out a mortgage Adviser has access to appropriate types of mortgage Adviser does not have access to appropriate types of mortgage A recommendation is made regarding the most suitable mortgage(s) based either on price or other grounds Customer must not be advised to take out a mortgage from the firm PROFESSIONAL INDEPENDENT ADVISERS LTD 18 Mortgage Advice and Sales Process

19 KEY POINTS It s your responsibility if the customer can t afford the mortgage you recommend, it can t be suitable. You re not expected to forecast changes in interest rates, but payment stability is likely to be an important factor for a customer who is stretching himself. You must take account of predictable increases in costs (e.g. end of discount) or reductions in disposable income (e.g. baby due soon). The closer your customer is to his upper borrowing limit, the more important it is for you to make an in-depth affordability assessment, and to keep a detailed file note explaining why you feel he can afford the mortgage. Think very carefully before advising customers to consolidate debts you must point out the downsides and consider whether alternative solutions would be wiser. When deciding if a mortgage is affordable, you must explain that you are basing your assessment on: 1. Current rates, which may rise in the future; and 2. The customer s current circumstances, which may change. You can generally base your assessment of affordability on information from the customer, unless you have reason to doubt it. High Risk Mortgages Pointing out the risks In our opinion, these include: Self-certified mortgages Sub-prime arrangements Mortgages running into retirement Uncovered interest-only mortgages Foreign currency mortgages. And any arrangement which involves debt consolidation because of current financial difficulties can also be considered as risky. PROFESSIONAL INDEPENDENT ADVISERS LTD 19 Mortgage Advice and Sales Process

20 Self-certification mortgages KEY POINTS Advisers must assess a customer s ability to pay and consider whether the income is credible. Inflating incomes can result in criminal charges for both you and your customer so, if in doubt, check the customer s claims. A good adviser can often find alternatives to self-cert which may well be cheaper and more suitable. If you recommend a self-cert, your client file must show why it was the most suitable option and explain what alternatives were considered and why they were eliminated. There have been recent allegations of financial fraud surrounding the application process for self-certification mortgages. The FSA has a statutory objective to reduce financial crime, and in that connection they have recently written to major lenders to determine the adequacy of controls in this area. The FSA message to the mortgage firms is - do not assist your clients in committing a criminal offence by: encouraging clients to lie about their income in order to obtain a larger mortgage; or turning a blind eye to a self-certification of income when you know it to be false, or there are reasonable grounds to doubt its accuracy. If an existing client of yours applies for a self-certified mortgage you should check that the stated income is consistent with what you already know about him or her. If it is a new customer use your common sense and if in doubt ask questions. Debt Consolidation Where one of the major purposes of the mortgage is to consolidate existing debts, you must also consider the following in assessing suitability: 1. The costs associated with extending the period for repaying existing debts; 2. If it is appropriate to secure any existing unsecured debt; and 3. Whether it would be better for a customer already in payment difficulties to negotiate an arrangement with their existing creditors. PROFESSIONAL INDEPENDENT ADVISERS LTD 20 Mortgage Advice and Sales Process

21 Mortgages into Retirement KEY POINTS A mortgage, including a realistic means of ensuring continuing payment after retirement, should be affordable to be suitable It s usually a bad idea to arrange a mortgage running past retirement particularly given reduction in income FOS has a history of upholding complaints relating to mortgages running into retirement Default recommendation should be to selected retirement date If the loan you are arranging does run past retirement, we recommend you do one or both of the following: Issue an extra KFI to show how much the same loan would cost it ran to the customer s retirement age Issue a closure letter to confirm the customer s understanding of the implications (including any intentions to repay earlier) and confirming the monthly costs of the shorter term in your letter. Appropriate Mortgages KEY POINTS Ensuring suitable advice involves: Gathering sufficient information; Assessing affordability; Assessing suitability; and Making a recommendation that fits. The default recommendation (unless there are valid reasons to the contrary) is: Capital & interest repayment; and Cheapest, allowing for any customer dictated requirements. There are a range of factors you should consider when assessing if a mortgage is appropriate to the customer s needs and circumstances. These include the customer s preference or need for: 1. Payment stability, especially having regard to the impact of future interest rate changes; PROFESSIONAL INDEPENDENT ADVISERS LTD 21 Mortgage Advice and Sales Process

22 2. Reduced payments at the outset; and 3. Product features such as payment holidays, cashbacks etc. To identify the most suitable of the appropriate mortgages you have available, you can use price as a basis. In this case, price means the least expensive mortgage based on those elements of price the customer told you were most important. Depending on what the customer told you, this could be, for example, the overall cost, the lowest cost over a given period or the absence of early repayment charges. You can recommend a mortgage on a basis other than price, for example because another lender has a more flexible underwriting approach. If you do this, you still need to have reasonable grounds to conclude that the mortgage is the most suitable of those that you offer. Where you give advice you must keep, for three years, a record: 1. Of the information you gained from the customer, including that relating to their needs and circumstances; and 2. That explains why any recommendation given is suitable for the customer, including (if this is the case) the reasons you used a criterion other than price to identify the mortgage recommended. PROFESSIONAL INDEPENDENT ADVISERS LTD 22 Mortgage Advice and Sales Process

23 Research You should carry out enough research to show that the product and provider you recommend is more suitable for your customer than anything else you could have recommended. If you use a sourcing engine, this should allow you to satisfy the requirement to carry out adequate research for mortgages, but currently not for home purchase plans or equity release. TCF consumer outcome Consumers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and also as they have been led to expect. You must keep details of why a particular provider and product have been recommended on the customer file for a period of at least three years from the date on which you made the recommendation. We suggest you keep these records indefinitely for all sales. We recommend you keep a print out of the list of suitable deals generated from the sourcing engine you use, to help you show that the one you have recommended meets the FSA s suitability requirements. Your file note should explain why you recommended the particular arrangement you selected in preference to the other deals on your printed shortlist. You don t need to keep Illustrations or Financial Information Statements for the deals you have considered, but rejected. If you do not use a recognised sourcing system, you should keep a note of your research method on the customer file. Whilst there is no rule about how long an illustration or financial information statement is valid for, you should consider the fact that the mortgage market is fast moving and new deals become available at short notice. For example if you take more than a week to go back to your customer with your initial recommendation, a more suitable or better-priced product may have become available. PROFESSIONAL INDEPENDENT ADVISERS LTD 23 Mortgage Advice and Sales Process

24 Key Facts Illustration FSA Rules MCOB 5.2.1G states before a customer submits an application, he [must be] supplied with information [about] the features the price and any linked deposits, any linked borrowing and any tied products. You must give customers personalised product information, in the form of a Key Facts Illustration (KFI), before the customer commits to the transaction. It enables customers to compare different products easily and so helps them to shop around. It also ensures they receive the information they need to help them decide whether to apply for a particular mortgage. You should, however, ensure that you are familiar with the content of the KFI even if a lender or a mortgage sourcing system produces the KFI for you. In most instances KFIs will be produced from the Mortgage 2000 / Trigold facility. Where this is not possible the KFI must be obtained from the lenders website. You should reassure yourself that it accurately reflects the terms and conditions of the product you are recommending or providing information about in a way that is clear, fair and not misleading. You will be required to enter certain information relating to the firm on the KFI before providing the document to the customer. A sample KFI can be found in Appendix? You must stress to a customer the importance of reading and understanding the KFI. Typically in a face-to-face meeting you will use the KFI to explain the features of a mortgage, prompting a customer to ask questions. You must provide a customer with a KFI in certain circumstances: 1. When you recommend a particular mortgage to a customer; 2. When you provide written information that is specific to the amount the customer wants to borrow on a particular mortgage; 3. Without unnecessary delay, if a customer requests written information that is specific to the amount they wish to borrow on a particular mortgage; or 4. Before the customer applies for a particular mortgage. A customer must always have the opportunity to consider the terms and conditions of a mortgage in the form of a KFI before committing themselves to an application. You cannot take fees from a customer or submit a formal application for a mortgage to a lender before you give the customer a KFI for that particular mortgage. If you provide a KFI and there are any material changes to the mortgage before the customer makes an application, you must give him a new KFI before submitting the application. A material change could be for example: change of product, change of amount to be borrowed, additional charges etc. PROFESSIONAL INDEPENDENT ADVISERS LTD 24 Mortgage Advice and Sales Process

25 If you obtain a KFI for a customer from a lender, that firm is responsible for its accuracy. Otherwise you are responsible. A tolerance of 1% or 1 (whichever is the greater) applies to some figures on the KFI where you do not get them directly from the lender. You can rely on a third party, such as a mortgage sourcing system provider, to provide you with KFIs that meet this tolerance, and still comply with the rules on accuracy. However, this is only as long as you can show that it was reasonable for you to rely on information provided to you by the sourcing system provider. You do not need to provide a KFI if, based on discussions with a customer, he is not eligible, does not wish to continue an enquiry or does not give you enough personal details to enable you to provide one. You must not provide a KFI for a mortgage for which the customer is clearly ineligible. You should not issue a standard KFI when the mortgage is clearly not a regulated mortgage (for example, a buy-to-let mortgage and the tenant is not related to the borrower). If you are unsure about whether a mortgage enquiry is about a regulated mortgage then you should obtain further information to enable you to assess this. Unless you have reasonable evidence that the contract is not regulated, you should provide the customer with a KFI. PROFESSIONAL INDEPENDENT ADVISERS LTD 25 Mortgage Advice and Sales Process

26 Provision of Information Checklist A Provision of Information Checklist will be completed at this stage to evidence that you have covered all appropriate areas with the customer. You should explain that the checklist enables the customer to satisfy himself that all relevant information has been explained to him. As you cover each item on the Checklist, obtain the customer s confirmation that it has been explained to his satisfaction and, if so, tick the relevant point on the Checklist. When all points have been explained, ask the customer to sign the form to confirm that he is satisfied that each point has been covered. If dealing by post, the Information Checklist will be sent to the customer after the relevant information has been provided. The covering letter must advise the customer to check that all points on the list have been covered to his satisfaction and to contact Professional Independent Advisers Ltd if any queries arise. This will be retained on the mortgage transaction file. Mortgage Applications A mortgage application must not be completed and submitted to the lender until the customer has received and understood the KFI issued in respect of that regulated mortgage contract. If in the course of the transaction a different lender is selected the customer must be issued with a new KFI relevant to the new arrangement before an application is submitted to the new lender. You must ensure the mortgage application is submitted to the lender with all required enclosures, ie; customer verification documents P60s 3 years accounts etc Suitability Letters All customers must be issued with a suitability letter immediately following submission of the application form to the lender. The suitability letter must clearly reflect the suitability of the recommendation to the customer s current and prospective circumstances and attitude to risk. A template for the letter is contained on Mortgage Brian/ Trigold. However this must be edited and personalised to make it relevant to the individual customer. PROFESSIONAL INDEPENDENT ADVISERS LTD 26 Mortgage Advice and Sales Process

27 Summary of Sales Process Initial Contact with Client Initial Disclosure Document Know your customer (Fact find) Research Key Features Illustration Application Suitability Letter Issue TCF Questionnaire Fees To regarded as independent it is necessary for the customer to be offered a choice of not paying a fee for the services provided, in which case we would obtain and retain the procuration fee provided by the lender, or to pay a fee in accordance with our disclosed fee structure. Customer choice will be reflected in the IDD issued to the customer, where an indication of the fees to be charged will be stated. If a percentage of loan is to be charged then a cash example will be given. If an hourly rate is to be charged then this will expressed and a typical example of total cost given. A non refundable administration fee may also be charged. No fees may be collected from a customer until you have provided a KFI. PROFESSIONAL INDEPENDENT ADVISERS LTD 27 Mortgage Advice and Sales Process

28 Back Office Processing To ensure we are keeping appropriate records of all transactions the following procedures apply: A customer file will be opened on the system immediately an enquiry is received. Full details of the initial enquiry will be recorded including the type of customer, nature of the enquiry, and customer requirements. The appropriate disclosures will be made as above. The issue of Terms of Business and IDD will be recorded as appropriate Unless the customer is merely making an appointment for a meeting, then customer details will be obtained at this stage using the factfind. Alternatively this will be completed at the face to face meeting. Based on this information supplied by the customer a suitable product will be selected using the sourcing tool. Production and provision of the KFI to the customer will be recorded. Issue of suitability letter will be recorded. Receipt and submission to lender of application, together with appropriate supporting items as above, will be will be recorded. Copies of all records will be retained either in hard copy on the customer file or on the system individual customer record as appropriate. PROFESSIONAL INDEPENDENT ADVISERS LTD 28 Mortgage Advice and Sales Process

29 Monitoring To ensure we are dealing with customers and handling transactions in accordance with the Rules and to the highest standards as expected by Professional Independent Advisers Ltd, the following activities will be undertaken; Full training will be provided to all consultants and back office staff covering as appropriate to their job description Mortgage selection and the market Analysing customers needs The FSA Rules as applied to mortgages The internal recording and processing system, including use the sourcing system. Administrators will ensure all processing steps have been completed and appropriate documentation issued by completion of the transaction checklist. At least a 10% sample of each consultants customer files will be reviewed on a monthly basis. High Risk Cases with have a 100% check (Self Cert/In to retirement) The accuracy of KFIs will be reviewed on a 1:20 basis Consultants knowledge and application will be reviewed in accordance with the T&C Plan. PROFESSIONAL INDEPENDENT ADVISERS LTD 29 Mortgage Advice and Sales Process