June 26th, 2015
A recent review of companies offering advice for debt management, by the FCA, has resulted in severe reprimands for the worst offenders. The FCA looked into how these companies dealt with their clients, focusing on the firm’s adherence to the consumer credit rules of engagement. It found that in the majority of cases the quality of advice provided was weak, with the adviser often following a process of recommending unsuitable products as a solution.
The firms reviewed by the FCA were fee paid and non-fee paid, and the FCA found that the level of issues with the advice was equally poor across the board. The report produced by the regulator confirmed that while firms have improved their practises over the past year, many areas of concern still exist within the advice provided by the companies.
The director of retail supervision for the FCA, Linda Woodall, commented on the findings: “People who turn to debt management firms do so as a last resort. When they find themselves in this position it is vital that they are able to access suitable advice that allows them to make informed decisions about their future.”
Noting the position of such firms in the market, Woodall made clear that the FCA would continue to monitor their progress. She said, “Debt management firms play a critical role in the consumer credit market, but far too many are not meeting the standards we expect and we will be looking for significant improvement.”
Under the regulations outlined by the FCA, firms are expected to hold a clear and concise company policy that outlines the rules of engagement, when dealing with vulnerable clients. The research completed by the regulator noted that many companies have failed to take note of a change to a client’s medical health or to understand any legal issues that may have recently arisen.
The regulator also saw instances where there were no clear records of an adviser completing the adequate financial checks on a client, before recommending costly solutions. In addition, instances where the level of service being provided was not identified at the outset of an initial meeting between the client and the adviser, with no record to confirm that fee charging firms had made note that the client was made aware of free alternatives.
Worryingly, the review revealed many instances where vulnerable clients were encouraged to buy products and to take up services that would essentially prevent the debt being repaid in the long term. Simon James, a mortgage consultant for Contractor Mortgages Made Easy commented: “Securing and managing debt is a tricky process and is one that should be approached with a clear understanding of the risks and costs involved.
“In many cases, completing a debt management plan is the right move to take, but care should be taken to seek the advice of various individuals before proceeding complete a process. Tying debt to a mortgage may not always be the best decision, so seeking advice from a qualified adviser would be best to determine the most sensible course of action.”
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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