Financial Conduct Authority  

Three suitability concerns in equity release advice

Three suitability concerns in equity release advice

A multi-firm review by the Financial Conduct Authority (FCA) published earlier today (June 17) found firms must do more to ensure they are giving       appropriate equity release advice.

The regulator said findings from its exploratory work on later life lending were mixed, with cases where lifetime mortgages were working well and many others where it was “not clear that the advice was in the best interests of the consumer”.

In particular the financial watchdog highlighted three significant areas of concern about the suitability of advice given, which it said had increased the risk of harm to consumers.

1. Insufficient personalisation of advice

The FCA said it was “disappointed” to find evidence on file that indicated advisers had mostly used a “form-filling approach” to fact-finding.

It cited examples of advisers who had not sufficiently considered the different financial circumstances of customers, such as those in their 50s who were still working, and those who were retired and on a fixed income, and how this affected the options available to them.

It pointed to problems with determining the impact of debt consolidation, saying all too often the default assumption was that equity release would be suitable with alternative solutions discounted with little consideration. 

Some advisers had also not properly considered a customer’s financial circumstances so a customer's significant surplus income had little or no bearing on the final recommendation, the regulator said.

The regulator also found instances where advisers had relied “wholly or substantially” on the Key Facts Illustration document to show customers the long-term costs and implications of taking a lifetime mortgage.

Additionally, the FCA found examples of advisers recommending changes to property ownership so that equity could be released, such as removing from the title deeds a joint owner who did not meet lenders’ age requirements.

The watchdog said this was done “without evidence of sufficient discussion” of the consequences of changing ownership on customers.

The regulator said: "The reasons why customers consider taking equity release are diverse and reflect different personal circumstances.

"While different customers may end up with the same product, advisers must focus on the needs and circumstances of the individual in coming to a view that a particular lifetime mortgage is suitable.

"To give high quality, suitable advice, advisers need to know their customers well, and understand their circumstances, requirements and motivations."

2. Insufficient challenging of customer assumptions

According to the FCA, advisers may be contacted by customers with the assumption that a lifetime mortgage is the right solution for them.

It said that advisers should consider alternatives to a lifetime mortgage and “be prepared” to challenge customers’ initial requests where appropriate, “rather than simply take customers’ orders or preferences without question”.

The watchdog said failing to do so amounted to ‘taking orders’ from customers without taking sufficient steps to assess whether a lifetime mortgage was suitable with regard to each customer’s specific needs or circumstances.