The only way to definitively stamp out poor practice in the equity release market is to ban commission, but this could have negative side effects, according to guests on the latest FTAdviser podcast
Earlier this month the Financial Conduct Authority published the results of its review into lifetime mortgage advice, concluding it was "disappointed" by what it found.
One of the overarching conclusions the FCA reached is that there were many examples of advisers steering outcomes in favour of a lifetime mortgage and failing to discuss alternatives.
Speaking on the podcast, Simon Chalk, managing director of advice firm Later Living Now, admitted he had "mixed feelings" about commission.
He said: "You can have the Equity Release Council putting in place lots of well-intended rules and guidance and it's great and I've been part of that on the standards board but the reality is that none of it is mandatory. The only way to force it to become a better marketplace would be for the regulator to say 'we are abolishing commission'. But you have to be careful what you wish for.
"Will it deliver better outcomes for clients? It will in some cases, but it won't in others because people are going to fall between the cracks. They will do nothing and end up losing their homes or have miserable experiences in old age."
He said: "If we move to a fee-based, RDR-type model, which in many ways I would like to see happen, but we remove commission, then logically a lot of the adviser firms in this space who have already taken a right old beating, through no fault of their own, over the last 12-18 months will be gone because they will not be able to afford to operate a business profitably because this is heavily transactional."
He questioned whether investment advice or pension advice firms would be interested in moving into the equity release space if the number of equity release firms fell dramatically, leaving those who needed equity release unable to get it.
Kelly Melville-Kelly, head of policy and compliance at the Equity Release Council, said the FCA was keen to move away from a sales culture in the equity release space.
She said: "The biggest thing around commission is transparancy and commission is very transparent in our market. The customers know exactly how the adviser is going to be remunerated. It's covered in the key features We did a lot of work earlier on in the year to bring terms and definitions into line so that everyone was calling apples apples and pears pears in this market.
"Our product is no longer as it was 20 years ago or even 10 years ago. Just last year we put in a fifth product standard at the council which says that all products have to have the ability for customers to make voluntary payments subject to terms and conditions. That wasn't possible 10 years ago."