Brokers warned over non-compliant ads

Mortgage Talk managing director Andrew Frankish said: "While the recent FSA regulations governing the selling of mortgage products and services are becoming well known, there is another side to the rules that has received much less publicity. In fact, the vast majority of members of the public - and even some brokers - will be unaware that the FSA has also tightened up the rules relating to advertising financial services.

"For mortgage brokers, the scope of what is deemed to be compliant within the scope of a printed advert is very restrictive, with the result that some brokers are now experiencing a reduction in the leads generated by their adverts. The irony is that those brokers that are operating within the letter and spirit of the new regulations are being penalised by the fact that their adverts contain potentially negative detail that customers are dissuaded by. And yet, there are still plenty of brokers that are benefiting from business derived from non-compliant adverts.

"Just imagine the following example. Broker A is aware of the regulations, and ensures that his newspaper advert advises potential customers that he may charge a fee for his services. Broker B, either through ignorance or deliberately, fails to mention this fact in his advert. Customers, seeing both adverts side by side, are almost inevitably going to choose broker B's services in preference, on the basis that they would rather not pay for advice that they believe they could receive free.

"According to the FSA however, financial services promotions are a major element of the new regime. As such, broker firms must be aware of the consequences for all their outstanding promotions. For promotions that are updated annually, such as Yellow Pages adverts, the FSA is allowing a one-year transitional period from 31st October 2004. For publications that are updated more frequently, such as magazine and newspaper adverts, a three month transitional period has been agreed, and brokers booking slots in these types of publications should consider this when scheduling their promotions.

"Of course, we all know that firms should arrange to amend their promotions to reflect the new regulations at the first available opportunity. In fact, firms that have applied to the FSA are not authorised to advise or arrange mortgages for clients until they have receipt of their Part IV permission letter, even though this is not necessarily followed by all.

"The worse thing is that, because some firms are not abiding by the regulations for whatever reason, we are not participating on a level playing field. This means that the brokers that are FSA compliant with their adverts are actually losing out to those that are flouting the rules. However, retribution is at hand, because the FSA has determined that the adverts produced by these very brokers can be used as a form of checking protocol themselves.

"In practice, the FSA is looking closely at the adverts that brokers produce, and is using these as a catalyst for appraising compliance. With this in mind, brokers would be well advised to examine the FSA rules relating to adverts very carefully indeed, and make sure that they are fully compliant without delay. Otherwise, the ultimate sanction is that they are not authorised to arrange or even advise on mortgages. And that, as I hardly need to point out, is a very serious situation indeed."