Legal & General has told advisers they will now need to make sure their clients are aware of how long interest might roll up for on lifetime mortgage products they take out through the provider.
The change is one of a number L&G is making to its products ahead of the first consumer duty deadline for providers in April.
In a newsletter update sent last week (February 16), and seen by FTAdviser, L&G said advisers will need to help it provide more clarity on interest roll-up risk, especially for those customers taking a product at a younger age for a longer period.
In the scenario that a client wants to spend their lifetime mortgage income on discretionary expenses - such as vehicles or holidays - advisers must, if they are not already, take clients' personal circumstances into account and show them how interest might roll up over time, it said.
“We’ve emphasised that our target market includes customers who understand the impact that compounding interest will have on the value of their estate, have considered and rejected other forms of borrowing and downsizing, and are willing to take financial advice and pay the fees associated with entry into the product,” said L&G.
The provider also said two of its lifetime mortgage products, the ‘Flexible Lifetime Mortgage’ and the ‘Optional Payment Lifetime Mortgage’, “could be more clearly differentiated”.
In line with the Financial Conduct Authority’s requirement to identify target markets for products, the lender has defined its flexible lifetime mortgage as being for clients with limited or uncertain income, or for those who are not confident that they can commit to regular payments.
Meanwhile, its optional lifetime mortgage is for people who have enough income to be confident that they can make regular payments covering some or all of their monthly interest, for at least some of the mortgage term.
L&G said advice firms should review its new target market descriptions of financial products as part of their distributor advice, guidance and compliance governance process.
“Please share this new content within your firm as needed, and amend your advice and compliance processes appropriately,” said the provider.
While providers need to comply with the regulator’s consumer duty by April, advice firms have until July to implement the changes.
At FTRC's Empowering Advice Through Technology event in Kings Cross last month (January 26), Dawn Mealing, head of advice policy and proposition at Fidelity Wealth Management, said the challenge for IFAs is that they all have to comply with the consumer duty by the end of July.
“Manufacturers have deadlines in April and July. IFAs have to take into account prices for both their services and those of manufacturers to calculate fair value,” she explained.
“That means advisers have only got three and a half months to consider fair value, make an assessment, and then make changes.
“And I bet your bottom dollar most providers won’t be ready until the end of April.”
ruby.hinchliffe@ft.com
