Mortgage - the dual pricing effect

Dual Pricing - what effect is it having on the mortgage market from a consumers perspective and what effect is it having from the mortgage brokers viewpoint? To give you an indication as to what dual pricing is we'll take a look at the dictionary definition which states that 'dual pricing is the selling of identical products in different markets at different prices.  In effect, in laymans terms, what the banks and lenders are doing is offering their most competitive products direct to the consumer themselves therefore negating the need to use intermediaries and mortgage brokers.

From the consumers perpective what do they do? They pick up their mortgage calculator, work out what repayments they can afford, go along to their bank, have that amount reinforced and bingo, if they meet the criteria they are given the mortgage.  Is this an advised mortgage though? Has the consumer thoroughly had their financial situation looked at by a skilled mortgage broker, or have they simply been offered the cheapest but perhaps not the best deal?  At a time when financial advice is needed the most, in the midst of an economic crisis, the consumer is not being provided the best truly 'independent' advice that can be offered.  The likelihood is that they will be 'sold to' by a bank adviser/salesperson rather than provided financial advice. The other likelihood is that they will also be 'sold' protection products that they don't need to achieve some target somewhere. Of course, there is the benefit of being provided a cheaper mortgage deal and to be brutally honest, although its not part of TCF, thats pretty much all the majority of consumers care about in the current economic situation.

Almost 70% of all mortgage business was introduced prior to the credit crunch and the introduction of dual pricing, so for the lenders to bite the hand that feeds them as it were, by negating the need for intermediaries and mortgage brokers throughout the difficult period was, silly, to say the least. Of course, the lenders were swift in stating that dual pricing wasn't a conspiracy however, most mortgage brokers will certainly remember which banks and lenders stood by them. The question to be asked is why the lenders would offer the same mortgage products through mortgage brokers if they are so poorly priced in comparison to the same product provided by them? Is it simply greed?

From the perspective of the mortgage broker, dual pricing, although in its 2nd year now, and expected to be a stealthy killer of the mortgage broker and the industry as a whole, has not yet destroyed the market as expected.  Many of the mortgage brokers we speak to have simply moved towards offering a more rounded financial advice offering, covering investments and pensions as well and the consumer appears in most cases to be responding. Although, to survive, many brokers are now providing a fee based mortgage service, it hasn't been to the absolute detriment of the mortgage industry, suprisingly. Every mortgage broker and intermediary has an opinion as to the validity of dual pricing and of course, it doesn't champion TCF in any way, shape or form but what the consumer has to weigh up is whether the lack of advice can be justified for a cheaper mortgage and for many, the reality is - it does.

Financial 'advice' or just another sale?

With the RDR looming in 2012 the onus is now on IFA's and financial advisers to mantain their qualifications at a higher level than previously. Simple FPC3 or CEFA qualifications just won't cut it any more and Diploma or Chartered status will now be almost a prerequsite. This is a smart move by the FSA partly designed to clean up the financial services industry and bring a regocgnised standard to the financial services industry. Advisory organisations will have to decide whether they want to go down the route of qualifiying their advisory sales force in order to make them truely 'independent' or stay as they are and be labelled as a 'sales' force.

Financial adviser or Sales man? What is the essential difference between a financial 'adviser' and a sales person. As a recruitment consultant working in the financial services recruitment industry I see a hell of a lot of different roles that all encompass the same specifications - the sale of financial products - whether on a self employed basis working through various providers (usually the ones with the best commissions) or as an employed adviser selling the products of your employer. Most roles will all involve some sort of up selling.

So how do you differentiate from an adviser providing true 'advice' or one selling you the product that best fits their needs or acheives their target. My advice - no pun intended, would be to construct a checklist of questions that you can use to validate whether or not the adviser is offering you advice in your best interests. Of course, before you interview financial advisers or IFA's to find out what they can offer, you need to ask yourself some questions first to determine exactly what you need. Is it a full financial overhaul or a lifelong financial plan with long term goals, is it just a mortgage or protection policy. The answers you give will help you determine who's services you will require. The questions to ask should resemble something along the lines of the below:

• What experience do you have? - find out how long they have been practicing, which companies they have worked for previously - it will give you an idea as to whether they will have the right experience.
  
• What are your qualifications? - will help you determine whether or not they have the right qualifications to be able to assist you
  
• What services do you provide? - Some may be able to offer pension tranfers, some may not, some may offer mortgages but can't do investment business - there are a few variations and the question is a valid one to determine if they can help you.
• How do I pay for your services? - A vital question to ask - since the RDR was announced more and more advisers are offering fee based services alone, rather than commission based - the advice offered is more likly to be impartial and true financial 'advice' as there is no benefit to the financial adviser pushing products from one provider (usually with the biggest commission rates!)

A simple list of just a few questions, but they will help the client to decide if the financial adviser is more of a 'salesman' then a true financial planner. In some cases, the advice and financial products offered by a financial adviser will be absolutely spot on, whether with the provider paying the best commission or not, so don't discount out of hand the financial advisers that will take the 'salesman' route after the RDR but if you are looking for truely impartial. independent financial advice then I would suggest a reputable IFA.