Like many equity release advisers, I have been anticipating the findings from the Financial Conduct Authority review since the regulator fired a warning shot at the industry at the end of last year.
The FCA’s overarching findings of its review, published last month, were:
- Insufficient personalisation of advice.
- Insufficient challenging of customer assumptions.
- Lack of evidence to support the suitability of advice.
It is no surprise there are things that need to be addressed when the industry has grown at such a rapid rate over a relatively short period of time.
There must be a lot of advisers out there who have not kept up with the fast pace required to maintain a high standard of advice.
Similarly, advisers new to equity release may not have anticipated the level of investment, knowledge, training and compliance that the sector calls for.
Key Points
- The FCA made some important points around advice on equity release
- Having access to a wide range of equity release plans is important
- Using equity release to consolidate debts should only be done when appropriate
I welcome the review. We, as advisers, should be delivering client-led advice. But let us be clear that advice needs to be just that: advice. Not the client leading the process by asking for a sum of money without justification.
We have to understand that the ramifications of changing property ownership are huge, and I would hope that advisers are fully aware of the potential impact.We should all be looking at each client’s needs on an individual basis and advising them on the product that is best suited for their circumstances, whether that is a mortgage, pension income product or downsizing. This holistic product view is the key to providing sound advice.
If equity release is the right solution for a client, then it is our duty to find the best plan for that client’s individual situation.
Having access to plans from across the whole of the market is the surefire way to do this. If you are tied to a panel, or even one lender, can you put your hand on your heart and say that you can find the best solution for your clients?
The requirement to have a record of the advice given to clients, whether that is over the phone or via face-to-face meetings was highlighted by the FCA. At Age Partnership we have chosen to take this a step further: we have audio recordings of all client interactions regardless of where that interaction takes place.
When you drill down into some of the FCA’s findings there are a few points that I think it is important to look at and discuss in more detail.
Recognising vulnerable clients and addressing their needs accordingly is a massive part of our responsibility as advisers. We should not just rely on what a client is telling us, but also question what they are not telling us.- Advisers recommending changes to property ownership.
We have to understand that the ramifications of changing property ownership are huge, and I would hope that advisers are fully aware of the potential impact.
At Age Partnership our internal guidance is clear: we must not actively promote or recommend changes to property deeds during the advice process.
I have had a couple of situations where clients have raised this option themselves and without changing ownership there was a potential that the clients may lose their homes.
So when reviewing these cases it is important to consider who led the discussion and what were the long-term consequences. If there has been a change in ownership, did they follow the correct process and did the clients receive appropriate independent legal advice?
- Advisers not sufficiently accounting for the different financial circumstances of customers, and the customer’s financial circumstances not being given sufficient weighting by the adviser.
This is a fundamental part of all financial advice, not just equity release. To find evidence of situations like the one the FCA has highlighted is quite a shock, and certainly something that needs to be addressed urgently.
Fact finding is just that: finding out all the facts so we can provide advice based on an individual client’s situation.
It should include a full assessment of assets, liabilities, income and expenditure, in addition to: considering whether or not a client is eligible for a potential benefit or grant; exploring if any existing assets could be used as an alternative to equity release; looking at a client’s income to assess if this could support a conventional mortgage or unsecured borrowing, if appropriate; and exploring whether surplus income could be used to service interest or overpayments, while also considering their long-term situation.
None of us like to be challenged, but it is part of our responsibility as advisers to challenge our clients when it is appropriate to do so. This includes confirming that clients have fully understood the information that has been provided to them.
When reviewing these cases it is important to consider who led the discussion and what were the long-term consequences.A combination of all of the above should form part of the fact-finding process and the advice that we provide.
- Advisers relying wholly or substantially on the Key Facts Illustration to show customers the long-term costs and implications of taking a lifetime mortgage.
Who likes jargon? Not me, and certainly not my clients. The KFI is an integral part of the recommendation documents. But the KFI is written in a technical language and, from my experience, many clients find it hard to digest.
The detail within the KFI should always be discussed with the client, and questions should be asked to confirm their understanding. In addition to a verbal discussion, I agree with the FCA that supplementing the KFI information in a format that is simplified and easy to digest is a more suitable way to provide certain details.
- The impact of debt consolidation was not properly explored.
There will always be a need for clients to use equity release to consolidate existing debts. The FCA, quite rightly, wants to ensure that equity release is being used to consolidate debts only where it is appropriate and suitable, and that clients are always fully informed of the implications.
It is not always appropriate for every client and it should be explored on an individual basis. There may be more suitable ways to consolidate debt, other than equity release. All options should be explored and it is imperative that the client understands the full long-term implications of consolidating debt.
Vulnerability was also something referenced in the FCA findings, and as a result of Covid-19 there are likely to be many more vulnerable clients looking to release equity.
Recognising vulnerable clients and addressing their needs accordingly is a massive part of our responsibility as advisers. We should not just rely on what a client is telling us, but also question what they are not telling us.
What is next for equity release advice? There has been talk of extra exams. This would be a positive move; advisers should be qualified to a higher standard so they understand other areas of financial advice in greater detail to allow more holistic advice.
Training is key, and we should all be going over and above the basic qualification to ensure we have the highest calibre of advisers in the market.
At Age Partnership all non-experienced advisers go through a 16-week training programme in our academy before they can give advice outside of the academy environment. We do this because we want our advisers to provide the highest standard of advice, and we want to ensure the longevity of the equity release market.
There is so much good work being done across the equity release sector. It is our hope that by sharing knowledge and best practice we can help advisers learn and develop, so that we can all provide the best possible advice for our clients for many years to come.
Andrew Morris is a senior equity release adviser at Age Partnership
