U4: T9 - THE ROLE OF THE MORTGAGE ADVISOR

Question 1

What are the 4 stages of the advice process?

Answer 1

1) Factfind
2) Research
3) Present
4) Implement

Question 2

What 2 key things should the advisors fact find uncover?

Answer 2

1) How much the potential borrower can afford each month
2) Type of mortgage

Question 3

An ESIS must be provided for all:

A) MCD regulated mortgages
B) regulated mortgages

Answer 3

A) MCD regulated mortgages

New mortgages taken out post 21Mar2016

Question 4

A KFI must be provided for all:

A) MCD regulated mortgages
B) regulated mortgages

Answer 4

B) regulated mortgages

Old regulated mortgages taken out pre 21Mar2016

Question 5

Define Ethics?

Answer 5

Conscious decisions taken by individuals and groups based on moral values; distinguishing right from wrong and choosing to do what we believe to be right.

Question 6

In terms of ethical advice, what 4 things does the advisor need to establish?

Answer 6

1. Attitude to risk
2. Customer needs
3. Customer circumstances
4. Customer’s objective s

Question 7

Which 7 FCA principles for business are relevant for fair treatment of customers?

Answer 7

Principle 1: A firm must conduct its business with integrity.

Principle 2: A firm must conduct its business with due skill, care and diligence.

Principle 3: A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management.

Principle 6: A firm must pay due regard to the interest of its customers, and treat them fairly.

Principle 7: A firm must pay due regard to the information needs of its clients, and communicate information to them in a way that is clear, fair and not misleading.

Principle 8: A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.

Principle 9: A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.

Question 8

In relation to the six fair treatment of customers outcomes.

Here are some hints:

a) Consumers should be confident of what?
b) Products and services marketed and sold in the retail market must be designed to do what?
c) Before, during and after the point of sale, consumers must be provided with what?
d) Where consumers receive advice, what criteria must be met?
e) How must products perform? What can consumers expect of the associated service?
f) What must firms ensure once a sale has been completed?

Answer 8

a) Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.

b) Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.

c) Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

d) Where consumers receive advice, the advice is suitable and takes account of their circumstances.

e) Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.

f) Consumers do not face unreasonable post‐sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.

Question 9

What will be the three elements of Consumer Duty?

Answer 9

1) A Consumer Principle – setting out the overall standards of behaviour expected from firms.

2) ‘Cross‐cutting Rules’ – clarifying the Consumer Principle’s overarching expectations of firm conduct and its practical application.

3) Four outcomes – rules and guidance to provide detailed expectations relating to four specific outcomes for the firm–customer relationship. The four outcomes are:

— Communications equip consumers to make effective, timely and properly informed decisions about financial products and services.
— Products and services are specifically designed to meet the needs of consumers, and sold to those whose needs they meet.
— Customer service meets the needs of consumers, enabling them to realise the benefits of products and services and act in their interests without undue hindrance.
— The price of products and services represents fair value for consumers.

Question 10

State the six outcomes for the fair treatment of customers?

Answer 10

Outcome 1. Fair Treatment. …
Outcome 2. Products designed to meet needs. …
Outcome 3. Clear information. …
Outcome 4. Suitable advice. …
Outcome 5. Products perform to expectations. …
Outcome 6. No unreasonable post sale barriers.

Question 11

The primary requirement of the advice process is that:

a) the product recommended should be the best fit to the customer’s needs from the range available.
b) the amount of time the adviser invests in the customer should be reflected in the commission earned.
c) the customer should be sold the product they ask for.
d) the recommendation should be suitable for the customer’s needs.

Answer 11

d) the recommendation should be suitable for the customer’s needs.

Question 12

If a mortgage adviser asks a customer about the age at which they expect to retire, this is most likely to be so that the adviser can:

a) ascertain whether the type of property the customer is interested in buying is suitable for them.
b) recommend an appropriate term for the mortgage.
c) ensure that the customer can afford the repayments from their pension income.
d) establish whether the customer is good at long‐term planning.

Answer 12

b) recommend an appropriate term for the mortgage.

The adviser is most likely to ask about retirement plans to help them suggest an appropriate term for the mortgage, since many lenders are reluctant to agree to borrowing that will not be repaid before the customer retires.

Question 13

Why might an adviser want to know about a customer’s future career plans or expectations of promotion, as well as their current situation?

Answer 13

Information about future expectations of earnings might influence the type of product that the adviser would recommend (for example, a low‐start mortgage might be suitable for a trainee in a job with a recognised career path and expectation of a higher salary on qualification).

Question 14

What are the four key pieces of information that an adviser needs from their customer in order to provide a recommendation that meets the customer’s needs?

Answer 14

The adviser needs to know the:
customer’s needs
circumstance
objectives
and attitude to risk.

Question 15

In what section of the FCA Handbook are the rules relating to fair treatment of customers set out?

Answer 15

There are no rules relating to fair treatment of customers. However, guidance is provided in the regulatory guide The Responsibilities of Providers and Distributors for the Fair Treatment of Customers (RPPD) and in the ‘six outcomes’ for consumers.

Question 16

Which of the FCA Principles for Businesses most closely reflects the FCA’s objective of securing fair treatment for customers?

Answer 16

Principle 6: a firm must pay due regard to the interest of its customers, and treat them fairly.

Question 17

What are the ordering of the following 4 stages of the advice process?

Implement
Research
Factfind
Present

Answer 17

1. FactFind
2. Research
3. Present
4. Implement

Question 18

Which of the following are covered during the factfind process? Select all that apply.

A) Customer’s income and outgoings.
B) Customer’s employment.
C) Recommended mortgage product.
D) Customer’s attitude to interest rate rises.
E) Customer’s medical history.
F) Customer’s ideal mortgage term.

Answer 18

A) Customer’s income and outgoings.
B) Customer’s employment.
D) Customer’s attitude to interest rate rises.
F) Customer’s ideal mortgage term.

The recommended product is determined as a result of, rather than during, the factfind process. The customer’s medical history is not directly relevant to this process.

Question 19

When identifying the solution to a customer’s mortgage needs, the adviser must:

A) find the lowest-cost solution.
B) be prepared to explain to the customer all the potential solutions.
C) be able to show clearly how the product meets the client’s precise needs and objectives.

Answer 19

C) be able to show clearly how the product meets the client’s precise needs and objectives.

The adviser must identify the most suitable product to meet the customer’s precise needs, objectives, preferences and affordability, as identified through the factfind. This may not be the lowest-cost product and there is no requirement for the adviser to detail all the products they considered.

Question 20

Fill in the gaps.

When presenting information about the recommended mortgage product, information should be presented in
____________ that the customer can easily ____________, without unnecessary use of technical ____________

Answer 20

Language, Understand, Jargon

When presenting information about the recommended mortgage product, information should be presented in language that the customer can easily understand, without unnecessary use of technical jargon.

Question 21

Ben is advising a customer on a suitable mortgage to buy her next house. It is sufficient for Ben to provide the customer with a key features illustration. True or false?

Answer 21

False.

Any new mortgage is an MCD regulated mortgage, so Ben must provide the customer with a European Standardised Information Sheet (ESIS).

Question 22

Which of the following apply once a mortgage application has been submitted? Select all that apply.

A) The lender is responsible for underwriting the application.

B) The adviser may be required to collect further information or documentation from the customer.

C) The lender is responsible for explaining the underwriting process to the customer.

D) The lender usually explains the offer documentation to the customer.

Answer 22

A) The lender is responsible for underwriting the application.

B) The adviser may be required to collect further information or documentation from the customer.

The adviser usually explains the underwriting process and offer documentation.

Question 23

From a regulatory perspective, ethical advice is best achieved:

A) through tight regulations.
B) by regulatory guidelines and good examples.
C) by allowing firms to set their own rules.

Answer 23

B) by regulatory guidelines and good examples.

It is almost impossible to impose ethical values through legislation and detailed rules. Instead, the regulator provides guidelines as to what constitutes ethical behaviour and promotes examples of good practice. While firms must take responsibility for their own behaviour, they should be advised as to what the regulator expects.

Question 24

Which of the FCA’s Principles for Businesses listed below is of least relevance to the fair treatment of customers?

Principle 2: A firm must conduct its business with due skill, care and diligence.

Principle 6: A firm must pay due regard to the interests of its customers, and treat them fairly.

Principle 10: A firm must arrange adequate protection for clients’ assets when it is responsible for them.

Answer 24

Principle 10: A firm must arrange adequate protection for clients’ assets when it is responsible for them.

While Principle 10 is important, Principles 2 and 6 are more directly relevant to the fair treatment of customers.

Question 25

The FCA requirements for the fair treatment of customers are:

A) established by detailed rules in each of the main sourcebooks.
B) based on six outcomes.
C) contained in a fair treatment of customers sourcebook.

Answer 25

B) based on six outcomes.

The fair treatment of customers is driven by principles rather than rules, and is based on six outcomes.

Question 26

The fair treatment of customers means that an adviser:

A) must recommend the most appropriate product from their range.
B) must always recommend the type of product the customer stated they require.
C) may recommend a product in which the customer has not expressed an interest.

Answer 26

C) may recommend a product in which the customer has not expressed an interest.

If the adviser does not have a suitable product within the range they offer, no recommendation should be made. In doing what is best for the client, the adviser may recommend a product entirely different from the one in which the client initially expressed an interest.

Question 27

The primary requirement of the advice process is that:

A) the product recommended should be the best fit to the customer’s needs from the range available.

B) the recommendation should be suitable for the customer’s needs.

C) the amount of time the adviser invests in the customer should be reflected in the commission earned.

D) the customer should be sold the product they ask for.

Answer 27

B) the recommendation should be suitable for the customer’s needs.

Question 28

If a mortgage adviser asks a customer about the age at which they expect to retire, this is most likely to be so that the adviser can:

A) establish whether the customer is good at long‑term planning.
B) ascertain whether the type of property the customer is interested in buying is suitable for them.
C) ensure that the customer can afford the repayments from their pension income.
D) recommend an appropriate term for the mortgage.

Answer 28

D) recommend an appropriate term for the mortgage.

Many lenders are reluctant to agree to borrowing that will not be repaid before the customer retires.

Question 29

Why might an adviser want to know about a customer’s future career plans or expectations of promotion, as well as their current situation?

A) It might influence a mortgage lender’s decision.
B) It might influence the price of a product.
C) It might influence the type of product the adviser would recommend.

Answer 29

C) It might influence the type of product the adviser would recommend.

Question 30

What are the four key pieces of information that an adviser needs from their customer in order to provide a recommendation that meets the customer’s needs?

A) Needs, circumstances, objectives and attitude to risk.
B) Wants, circumstances, objectives and attitude to risk.
C) Needs, wants, circumstances and attitude to risk.

Answer 30

A) Needs, circumstances, objectives and attitude to risk.

Question 31

There are no FCA rules relating to fair treatment of customers. True or false?

Answer 31

True

Question 32

Which of the FCA Principles for Businesses most closely reflects the FCA’s objective of securing fair treatment for customers?

A) Principle 4.
B) Principle 5.
C) Principle 6.

Answer 32

C) Principle 6.

Principle 6: a firm must pay due regard to the interest of its customers, and treat them fairly.