Advice needed Re leaving our old Mortgage Advisor

fries

Hello All,

As per the title I/we (my girlfriend and I) need advice regarding our 'old' mortgage advisor.

Two years ago, we went to see this advisor after seeing him advertised in a publication at our work place, he was also recommended by some of our colleagues.

He suggested a mortgage and arranged life cover on a level basis (my choice) for myself and a decreasing insurance plan (including critical illness) for my girlfriend.

Anyway, it turns out that the mortgage wasn't the best deal around for our personal situation, additionally at the time because I didn't take any insurance through him (I'm covered through work and via other means) he wanted to charge us as well as gaining commission from everything else - I refused and he accepted that. These experiences prompted us to go to another advisor (much much better).

When it was time to re-remortgage he called and I politely mentioned why we were not happy with the past service and that we would not be using him again. He was initially ok and tried to talk me into staying with him. I was adamant that we would be going elsewhere. He then mentioned that we were bound to him for 5 years from the start of the insurances.

I have been looking through the paper work and sure enough it says:

" I confirm that the xxx xxx xxx company will not charge you a fee on this matter as we receive a brokerage fee from xx the provider of your decreasing mortgage protection, this is subject to the mortgage protection policy being in force for its earning period of 48 months and to our mortgage information sheet which was presented to you when we met"

We did re-mortgage and have not heard from him. However we are now moving house and the insurance is no longer appropriate for our need. Our new advisor has suggested some new policies (I have yet to discuss this with him!) and we are not sure what we can do about the old advisor?

I hope that is clear and would appreciate any advice. My first thought is just pay him for the remaining time left on the plans.

Many thanks

Fries

Jon_Davies

Couple of points on this...

Did he contact you at any time during the past 2 years? If he didn't, he was cold-calling you in this instance (in accordance with the definition by the FSA).

It is highly unlikely that they will pursue any lost commission from the policy - it continues to shock me that firms try this scare tactic. Mention the above it if applies and he'll promptly disappear.

Don't feel guilty about cancelling the policy (best approach is simply to cancel your dd with the bank). Here's why...

If they took non-indemnity they would have recieved a lump sum (between 15 and 20 times your monthly premium - think about that amount when you consider it would be a maximum of 2 hours work to apply for) and will get a bit of that clawed back. For indemnity, there would be no clawback but a cessasion of drip income (basically that 15-20x spread over the 4 years).

fries

Jon,

Thanks for your quick reply.

In answer to your question: yes he has maintained contact. Over the years we have been receiving letters/ investment recommendations and even bottles of wine/champagne.

So I guess that may make things more complicated?

Should we have told him to stop contacting us and/or sending such gifts. It all seemed voluntary on his part (we never asked for the gifts!) so were unsure what to do!

Thanks again
Fries

Jon_Davies

Well that blows my initial point out of the water!

I would still have no qualms about simply cancelling the existing policies and showing loyalty to your current broker through using him (remember to make sure you take policies that suit you and not his commission, mind!) The reason why he stayed in contact is to try and sell you stuff so don't feel guilty about taking your business elsewhere. Most brokers/IFAs build clawbacks into their business plans anyway, I know I do.

He might get stroppy but if he did a proper job for you in the first place he wouldn't be in this situation.

dunstonh

Anyway, it turns out that the mortgage wasn't the best deal around for our personal situation, additionally at the time because I didn't take any insurance through him (I'm covered through work and via other means) he wanted to charge us as well as gaining commission from everything else - I refused and he accepted that. These experiences prompted us to go to another advisor (much much better).

If you didnt take out any insurances, how did he gain commission from everything else? he may only have received commission at a paltry rate from the mortgage. It is possible he got nothing at all with some lenders.
Can you clarify if you did insurance through him or not?

Did he contact you at any time during the past 2 years? If he didn't, he was cold-calling you in this instance (in accordance with the definition by the FSA).

Cold calling is where no relationship exists. In this case, there is a relationship as he was the adviser for the mortgage.

It is highly unlikely that they will pursue any lost commission from the policy - it continues to shock me that firms try this scare tactic. Mention the above it if applies and he'll promptly disappear.

I agree that many will try and scare but some will pursue it. However, without a fee agreement with commission offset to that fee the courts are unlikely to rule in their favour. You cant have an open ended unknown liability where the commission is likely to be higher than their published fee. Did they even publish a fee two years ago?

Should we have told him to stop contacting us and/or sending such gifts. It all seemed voluntary on his part (we never asked for the gifts!) so were unsure what to do!

Thats a personal decision you choose to make or not. Personally, I think that if you were unhappy with the individual and he was sending you gifts and communications, then morally you should have told him to stop. However, it has no impact on the commission clawback.
Personally, unless you signed a fee agreement, I think you should fight your corner as this tactic is disgraceful as the commissions usually are higher than the fee you would have paid and the clawback is pro-rata so its not a 100% clawback. It flies in the face of the FSA rules on commission and fees where fees are not meant to equal the amounf of the commission or be used to put you off from going fee based.

Jon_Davies

I agree with most of your points dunston, however...

Cold calling is where no relationship exists. In this case, there is a relationship as he was the adviser for the mortgage.

Is incorrect. Advisors have to maintain the relationship through "regular contact" or that relationship ceases to exist. The FSAs current stance on "regular contact" is six monthly so if you simply contact each time the mortgage is due for review (most commonly every 2 years) you are in breach of cold-calling policy.

Plus he didn't actually do the mortgage!

HelpWhereIcan

Just a quick caution to not automatically cancel any Critical Illness plans (eg your partner's) just on the say so of your new adviser (remember, they will be receiving commission on your new plans so may have a vested interest in the old ones being cancelled).

Make sure that the old plan and the new one have been compared to make sure that the old plan does not offer more favourable definitions of the illnesses (eg will pay out at an earlier stage of an illness) or a wider range of illnesses.

You also need to check for things such as guaranteed insurability options, seperation options etc to make sure that the new plan is truly 'like for like' - contrary to popular belief, it is not all down to monthly cost when comparing plans.

Although the term (number of years left) or amount of cover may not match your new mortgage exactly, you may find that your old plan allows a top up of the cover (or a reduction in some cases), it may allow covers to be added/removed. These options may not pay your new adviser as much commission, but may be best for you.

Just saying that I am always suspicious of anyone who reccomends automatic cancellation without looking at your existing policies - just in case this is what has happened.

You have every right to change adviser whenever you wish and this can include changing policies - just make sure you don't leap out of the frying pan into the fire.

dunstonh

Is incorrect. Advisors have to maintain the relationship through "regular contact" or that relationship ceases to exist. The FSAs current stance on "regular contact" is six monthly so if you simply contact each time the mortgage is due for review (most commonly every 2 years) you are in breach of cold-calling policy.

I am not aware of that rule and it would almost certainly fail the FSA's TCF rules. Many firms have an annual review, they wouldn't be able to do that if there was a 6 month limit in there.
Also, it is easily worked round as IFAs have no ban on cold calling. It only relates to mortgages. So it would be hard to enforce.

The FSA handbook on mortgages doesnt state a 6 month period.
http://www.fsa.gov.uk/pubs/handbook/keyrules_mhr.pdf

That states:

A firm must not make a cold call unless:
• it has an established existing customer relationship; and
• the customer envisages receiving cold calls.

HelpWhereIcan

AFAIK, the definition an established customer relationship does include regular contact as Jon says, but that there is no agreed benchmark for that other than at least once a year. I have asked my own network, compliance from another network and a compliance consultant and got a different answer from each - including the 6 months Jon mentions, a phone conversation once a year and with one saying that a newsletter/xmas card counts.

I think it all ties in with the

the customer envisages receiving cold calls.

ie that the customer could reasonably be expected to anticipate your calling them because your company has a sufficient profile in their mind for them to expect to be contacted by you - solicited or otherwise.

Hence one practice principal telling me that he sends gifts etc as described here whereas my network suggests that a regular newsletter or similar once a year as being sufficient.

Jon_Davies

dunstonh wrote: »

I am not aware of that rule and it would almost certainly fail the FSA's TCF rules. Many firms have an annual review, they wouldn't be able to do that if there was a 6 month limit in there.
Also, it is easily worked round as IFAs have no ban on cold calling. It only relates to mortgages. So it would be hard to enforce.

The FSA handbook on mortgages doesnt state a 6 month period.
http://www.fsa.gov.uk/pubs/handbook/keyrules_mhr.pdf

That states:

A firm must not make a cold call unless:
• it has an established existing customer relationship; and
• the customer envisages receiving cold calls.

I don't understand how TCF can be affected in any way shape or form - so it will be "not fair" to contact at longer intervals?

I also did not refer to any "rule" during my post, simply a stance that the FSA is currently taking and we should all know that we have to react to current opinions and stances as to the interepretation of the rules.

BTW, the guidance to maintain a relationship is some form of contact each 6 months; so the yearly review point is moot - you can continue with the review but you still have to form some contact in the meantime, be this through a telephone call, newsletter etc.

Thanks for the link to the guide, I'd never seen it before

dunstonh

I don't understand how TCF can be affected in any way shape or form - so it will be "not fair" to contact at longer intervals?

Easy, lets say you agree an annual review (which is the most common method). If there was a limit of 6 months, then you wouldn't be able to contact that individual ever again as you would be 6 months out of date. So, that "rule" would prevent you contacting the individual and no contact could see you falling foul of TCF rules.

BTW, the guidance to maintain a relationship is some form of contact each 6 months; so the yearly review point is moot - you can continue with the review but you still have to form some contact in the meantime, be this through a telephone call, newsletter etc.

Have you got a link to that guidance? I cannot find anything which suggests that. Or is it guidance from your network/employer rather than FSA?