HNW needs more work in MMR


February 1, 2012

Hugh Wade-Jones is director of Enness Private Clients

The Mortgage Market Review proposals published by the FSA at the tail end of last year were met with a lot less fury than the previous consultation paper.

Indeed given the previous proposals many were thankful that common sense appeared to have won the day on a number of high-profile – some might say ill thought out – initial suggestions, particularly in areas such as interest-only.

One of the major highlights of the MMR paper however for firms such as us was the recognition – for the very first time – that the high net worth sector was a distinct and separate entity and should be treated as such.

Up until now, high net worth clients have been treated as part of the homogenised mass of other mortgage customers however these proposals put pay to that, hopefully once and for all.

I have to admit that, while this is a huge step forward for the sector, we were not expecting it even to be addressed by the regulator. It was, and remains, a welcome surprise however that is not to say there are not further issues to be addressed and we will certainly be taking a full part in replying to the proposals.

One of the areas that many have focused on is the FSA’s proposed definition of a high net worth client and, we have gone on the record in saying that we feel the definition is slightly off on both sides of the equation. The regulator suggests that the definition might be that an individual should have income no less than £1m per annum or no less than £3m of assets.

Our belief is that the income figure is too high – £1m income is a significant amount in anyone’s language – while the £3m of assets may be too small.

There will be many individuals who have ridden the house price wave up over the last 20/30 years and have property valued over £3m but are nowhere near the £1m income sum and are not likely to be what we would call high net worth.

Therefore there is perhaps a need for a rethink on the definition although we fully support the need to strip the sector out from the rules and regulations which, although quite necessary for the mainstream mortgage market, do not make sense for high net worth individuals.

This is a pivotal moment for the sector and given that it is now being viewed as a separate sector, there is perhaps a need to review further what is required to provide advice in this area. 

Other sectors such as equity release are treated separately and require the adviser to have separate permissions and attain additional qualifications in order to conduct business.  

It’s our assertion that this could be a natural next step for the high net worth market and the time would be right for all those wanting to specialise in high net worth clients to have a distinct qualification or have to complete a separate high net worth module perhaps within the structure of the Advanced CeMAP exam. 

Certainly, we believe this is not a sector where all advisers should be automatically advising clients and attempting to place business. 

High net worth clients often take the adviser into a world of complicated tax structures, the handling of significant and varied assets, private banking institutions, foreign lending opportunities to name but a view.

Indeed one of the reasons why we believe this is a market for specialists is the very fact that few advisory practices will be competent enough to handle those arrangements. 

Far better for advisers faced with a potential high net worth client to refer them to those who conduct this sort of business day in, day out and are highly experienced and qualified to advise in this area.

All in all, we believe this is an exciting time for the high net worth market. 

It is certainly the start of a journey which sees high net worth as its own distinct entity and we are looking forward to playing a full part in shaping how the sector might establish itself in the years ahead.

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