The Lang Cat has made a number of recommendations to help advisers make better use of equity release when advising retired clients.
The policy paper, sponsored by Royal London and Responsible Life, looked at how British adults make use of housing wealth in later life and called for a number of changes to the equity release sector.
Four recommendations were made for advisers to improve consumer awareness and understanding of equity release.
Firstly, advisers were told to make sure back-office systems can accommodate housing wealth as an asset when advising clients.
It also recommended building housing wealth decumulation into cashflow recommendations where appropriate and encouraged advisers to undertake CPD to better their knowledge of equity release products and their uses.
Lastly, it said that advisory trade bodies should take a lead in actively encouraging advisers to incorporate housing wealth and equity release into advice processes.
Emily Newman, financial adviser at Jane Newman Financial Planning told FTAdviser that she agreed with the proposed recommendations.
In particular, as an equity release adviser she believed that the recommendation on CPD should become a mandatory requirement.
“For some, property wealth is one of the main aspects of their overall financial provision and I believe awareness as to how this can be accessed to improve future standards of living should be highlighted in greater detail,” she said.
Challenges in equity release
The Lang Cat argued there should be a new approach to equity release to improve people’s standard of living in retirement; to help younger generations now, to deliver more efficient tax planning and to give the economy a boost.
But a number of challenges currently exist.
Tom McPhail, director of public affairs at Lang Cat and author of the report said that the UK has almost as much wealth in housing as it does in pensions, but while there has been a number of policy initiatives on pensions in the past 20 years, housing has been largely ignored.
“Politicians and the FCA have a massive blind spot when it comes to making best use of housing wealth. The FCA regulates equity release as a mortgage, rather than as an asset to be drawn on in retirement; advisers are free to simply ignore it if they choose and this makes no sense,” he said.
Another challenge comes in the form of reservations from consumers and, in the Lang Cat’s view, a lack of pressure on advisers to actively incorporate housing wealth into their advice process.
When surveyed, it was found that advisers and consumers alike remained sceptical about equity release due to historical issues, while many consumers still have an ingrained wariness of taking on debt later in life.
In the report, one adviser commented: “If a typical client of mine ended up having to use equity release, I’d see it as I’d failed in the planning process.”
Newman’s experience with clients was different: “I do find clients can still be relatively wary of equity release products due to misconceptions and lack of understanding but overall, once discussed in greater detail and tailored to meet a client’s specific circumstances, their understanding begins to increase followed by their levels of confidence.”
This scepticism in part has contributed to a cycle of low take up with only one in 10 advisers surveyed for the report actively using equity release.
Considered a specialist activity, most were not qualified to advise on it and do not see it as part of their daily activity.
Tim Morris, independent adviser at Russell & Co said while he is not involved in this space, he does refer some clients to specialists.
In Morris’s view, CPD is vital and back office systems do need improving but he is uncomfortable with the recommendation around cashflow inclusion.
“The clients I've referred are looking to gift some of the value of their home to their children - usually for a house deposit. That's very different from relying on their home for an income,” he said.
An advice gap is also evident with consumers. Research from OpenMoney showed that only 7 per cent of UK adults paid for financial advice in the last two years.
One adviser commented: “The people who need these products aren’t the ones getting advice.”
The Lang Cat stressed this was not an issue that can be tackled on an individual basis. Instead it requires action and cooperation from advisers, the regulator, providers and government.
A number of recommendations were also made to the government, the FCA and equity release providers.
These included removing the £175,000 main residence IHT allowance and arranging a meeting between relevant government departments with industry, regulatory and consumer representatives to agree a blueprint on a well-functioning equity release market.
jane.matthews@ft.com
