Experts' flunk test

Do mortgage advisers really know their fixes from their discounts? All of Britain's 55,000 mortgage advisers are being forced by regulators to pass exams by the end of this year - and disturbingly, nearly half are failing.

The exams have been ordered by industry watchdog the Mortgage Code Compliance Board in an effort to beef up advice standards and protect consumers.

No one, whether they work in bank branches, independent brokerages or estate agents, will be allowed to give mortgage advice from January 1 next year unless they have passed the exams.

The approaching deadline has prompted a last-minute rush by advisers desperate to pass the exam. But the latest figures from examining board The Chartered Insurance Institute, shows that 47% of entrants failed its Mortgage Advice Qualification in September. The Chartered Institute of Bankers' Cemap exams are believed to show similar failure rates.

Yet experts say the exams are hardly taxing for anyone who truly understands the mortgage industry. Mark Harris of Savills Mortgage Finance, says that when he took one of the exam's three-hour papers, he completed it in one hour - and was awarded a distinction.

"It's not a difficult exam, it's fairly straightforward. You are not allowed to leave the exam hall before one hour into the three-hour exam, but I finished it after 50 minutes."

Many of the questions are multiple-choice, and some require little more than basic maths. A sample question for the Mortgage Advice Qualification, run by the CII, asks advisers to calculate the redemption penalty on a £60,000 interest only loan. The penalty is 180 days' interest at a rate of 8.2%. It doesn't take much maths to work out that the answer is £2,426.30.

If mortgage advisers are unable to correctly answer such questions - and the failure rates have been the same at both bank and building society branches and at brokerages - it raises questions about whether they are up to their job.

At the Mortgage Code Compli ance Board, spokesman Brad Baker plays down the poor pass rates in recent months. "By October, 38,500 advisers had passed the exam, which represents a huge step change in raising standards.

"I don't believe the overall standard of advisers is poor. The recent failure rates are because people are not doing enough study before the exam to prepare properly. We suggest that advisers do 40 hours' study before the exam."

Rob Clifford, managing director of brokerage MortgageForce, was one of the people who helped set the questions and is a moderator for the exams. He says: "There's a very high degree of last-minute-ism by people doing the exams, who are turning up without doing preparation. There is no doubt there are quite a number of people with a questionable level of competence, but there are others who just haven't revised."

Thousands of mortgage advisers will still not have passed by the December 31 deadline, Mr Clifford says, despite the fact that individuals are allowed to re-take the exams as many times as they like.

Will these failures be rooted out of the industry or will they carry on, presumably giving poor advice to homebuyers? The omens are not too good. The MCCB says that it will not be holding a central register of mortgage advisers, as it regulates firms rather than individuals. Consumers will not therefore be able to contact the MCCB to check if their broker is authorised until the MCCB comes under super-regulator the Financial Services Authority in 2003.

Critics point to a gaping hole in the MCCB's rules, which allow an adviser to continue giving mortgage "information" rather than "advice" if they have failed to pass the exams. Buy-to-let mortgages also fall outside the remit of the regulations.

Mr Clifford says: "The information-only line is very contentious. Consumers should ask if they are getting advice or just information, which the 'adviser' can use to sidestep legal liability. Thousands of advisers will hide behind the information-only rule."

· What you can do

Great strides have been made in improving the training and competence of financial advisers, but care should always be taken to ensure that an adviser is properly regulated and authorised.

By law, most financial services firms must be authorised by the Financial Services Authority, with mortgage and general insurance firms coming on board in 2003.

The FSA's Consumer Helpline can help you check the FSA Register to find out if a firm is authorised. The helpline is on 0845 606 1234, or you can visit www.fsa.gov.uk/consumer. If the adviser is from a firm that is not authorised, he or she will be operating illegally and may be involved in fraud. All financial advisers should have the Financial Planning Certificate or its equivalent, plus qualifications such as G60 for specialist pension advice.

Various organisations can help you find a financial adviser, such as IFA Promotion on 0800-085-3250, while the Money Management National Register of Fee-based Advisers on 0870-013-1925 gives names of those in your area which offer advice for a fee rather than commission.