In the jaws of the loan sharks

Experts who advise millions of people on financial decisions that affect the rest of their lives often have almost no training, no formal qualifications and are regulated in only the flimsiest manner, a Jobs & Money investigation has revealed.

Almost anyone can call themselves a tax adviser, a property expert, mortgage arranger or insurance adviser, even after a decade of intense financial regulation and the establishment this year of the Financial Services Authority.

This week's announcement that the government is to probe the mortgage market highlighted how easy it is to become a mortgage adviser.

After obtaining a consumer credit licence, which requires no more than filling in a few forms, they are legally entitled to advise on mortgages, which typically eat up a quarter of most people's take-home pay. The "expert" needs neither formal training nor qualifications and can legally sell unnecessary or unwarranted plans and policies.

If you buy a £25 per month policy with a unit trust company, friendly society, or insurance company, the adviser must be registered, have passed the Financial Planning Certificate, complete a "fact-find" on the investor and hand out a "reasons why" letter with the policy recommendation. But if you take out a £500 per month mortgage, the adviser has almost no hoops to jump through.

A code of conduct for mortgage advice came into force in 1997, but it is only voluntary and has been criticised by consumer groups. The Consumers Association says: "Self-regulation... does not work. Borrowers have no real protection from bad advice and poor deals."

Labour MP Paul Flynn adds: "People are now realising their pockets are being picked. There is no independent or unbiased advice. The person selling the mortgage and associated products is too often looking to maximise commission rather than provide the best deal."

But as our guide below reveals, mortgages are not the only area where "expertise" is under the spotlight.

Tax experts

Current situation: There are no restrictions on setting up as a tax expert, taxation accountant or Inland Revenue consultant. Many services have sprung up with self assessment. Some rely on proprietary computer packages which may ignore special requirements.

Sanctions: Describing oneself as a chartered or certified account without qualifications is illegal.

Who loses? The Inland Revenue holds individual taxpayers responsible for their returns no matter who calculates the liability, so an incompetent tax adviser is no excuse - even if you face a fine or imprisonment.

Present remedies: Successfully suing an adviser requires proving a deliberate lack of due care - difficult when they can counterclaim that the taxpayer did not reveal all the documents. Even then, there is no guarantee they can pay costs and damages awarded against them.

Minimum required: Professional indemnity cover, membership of an organisation such as the Chartered Institute of Taxation which has specialist examinations. The Inland Revenue should also issue guidance to help taxpayers.

Insurance adviser

Current situation: There are no restrictions on selling insurance unless there is an investment element. Banks and building societies often try to persuade customers who are buying cover from a third party to switch to their in-house policies.

Sanctions: It is illegal to describe yourself as a broker unless you have signed up with the Insurance Brokers Registration Council. IBRC membership is to be replaced by the General Insurance Standards Council (GISC) in January. But as anyone can call themselves insurance "consultant" or "intermediary", this sanction has little meaning. The insurance ombudsman can force companies but not sellers to pay redress.

Who loses? Insurance buyers have no way of knowing if they are being offered a policy chosen from a wide range or from a handful of companies when they buy from a non-broker. They could suffer if they have to claim.

Minimum required: The British Insurance and Investment Brokers Association is lobbying to ensure the GISC has teeth. Ensuring directors of insurance sales outfits pass relevant exams can control the cowboys.

Estate agents

Current situation: Anyone can set up as an expert on buying and selling homes. "Just put up a sign and start trading. There is no need to pass any tests or have any knowledge of relevant law such as the Property Misdescriptions Act. And there is no need for professional indemnity insurance," says Hugh Dunsmore-Hardy of the National Association of Estate Agents.

Sanctions: The Estate Agents Act bans those with convictions for fraud or dishonesty, those who have been warned or banned by the Office of Fair Trading or those found guilty of a serious crime. Around eight agents a year are struck off under the act.

Who loses? Both vendors and buyers suffer if properties are badly described, or valued wrongly. They could also be hit by conflicts of interest where agents depress the price because they are acting for buyers as well. Those purchasing in the still young "buy to let" market are at high risk.

What can you do? Vendors or landlords can use the law of agency to sue bad estate agents. Buyers and renters do not have this sanction as the agent is not working on their behalf. Expulsion by the National Association of Estate Agents or the Royal Institution of Chartered Surveyors does not prevent errant agents trading.

Minimum needed: Licensing based on personal probity, competence testing, experience and professional indemnity cover.

Personal loan merchants

Current situation: Selling loans and hire purchase deals requires a consumer credit licence. This is easy to obtain with the Office of Fair Trading considering only negative criteria such as a criminal record rather than any expertise. With a licence, anyone can call themselves an "expert" - especially as sales are often directed at the financially less sophisticated. These loans are often associated with high pressure sales of home improvements or timeshares.

Sanctions: Removing the licence is the only way to control sellers. But only a small number were expelled last year and it is easy for someone struck off to become an agent of a business associate or family member.

Who loses? Consumers are sold unsuitable loans by commission driven sellers. These can feature high interest rates, tough redemption clauses or could be unaffordable leading to repossessions. It is almost impossible for borrowers to get compensation even if the credit agent is punished. They are often sold expensive insurance policies at the same time which are rarely "best advice".

Minimum required: Positive criteria for licences so loan sellers would have to prove expertise. Cooling off periods should work the other way - instead of cancelling the loan, consumers should not be able to borrow until they have thought about it and considered alternatives for 14 days.

Mortgage expert

Current situation: Anyone can set up as a mortgage broker if they have a consumer credit licence although only those approved by the FSA can sell endowment and pension-based loans. There is no professional exam requirement or compulsory professional indemnity insurance.

Sanctions: Mortgage lenders claim they regulate sellers by controlling supplies of their product -an assertion frequently disputed. The Mortgage Code Register of Intermediaries is voluntary and expulsion, the ultimate sanction, is unlikely to deter as sellers can rejoin as "an employee" of an associate or family member.

Who loses? Home buyers are sold the wrong mortgage; in some cases they are persuaded to lie about their income to get a higher multiple of their earnings to boost commission even though that increases the risk of arrears and repossession. Mortgage holders are often sold expensive and unnecessary extras such as accident and unemployment cover or accelerator schemes. There are also hidden charges such as redemption penalties.

Minimum required: Government intervention to regulate mortgage sales; compulsory examinations to force sellers to take a more professional approach, and to weed out the butchers, bakers and candlestickmakers out for a fast buck.