HLP Compliance Blog
Compliance Q & A, 8th September, 2016
This week’s question comes from William Milburn (WM), of Milburn Financial Solutions.
WM: When submitting a mortgage application, why is it necessary to complete a suitability letter within 5 working days, as occasionally the mortgage application does not go to offer?
GE: Good question, William, and one that is not easy to answer as the network requirement is above any regulatory requirement, which makes it tough for advisers to comply with, I guess.
The fact is that a suitability letter itself is not specifically required within FCA rules. So to expect you to produce a letter and do so within 5 days is a big ask. That said, the regulator has recently consulted on suitability letters, so that position might change in due course.
What the regulator does expect is for firms to ensure customers understand the recommendations made and the key reasons for the recommendations to be explained. What better way to do this and keep evidence of it than in a suitability letter?! That’s why suitability letters have remained in favour across the industry and why the regulator is contemplating a rule change. Another, equally important factor is their usefulness in defending a complaint. Rarely have I seen a complaint fail to be defended when there is a robust suitability letter on file. On the other hand, it can be much trickier when there is no letter to support the recommendation. Believe me, the investment in time to produce a letter, on the whole, is worth making. In my view it is a crucial part of the post-sale process, and a good, personalised and well-constructed letter can be a powerful thing.
So, why the five day rule? Well the key to this is that it is a crucial element for us when reviewing the file. It is generally the last piece of the jigsaw and without it the file is not complete. So, by having a five day limit it means we can technically get our hands on it and review the case sooner.
I totally understand the point therefore that the mortgage might not even proceed to offer, which means that the time taken on the letter could be an unnecessary cost. I’m not sure how often this happens for most firms. Our stats indicate that around 15% of applications do not convert to offer, so this would suggest it isn’t a huge problem.
So there are lots of reasons why not to expect a suitability letter on each case within 5 days, but equally there are sound business reasons why this helps us manage the network.