“It has been an interesting first six months, but here we are and we have survived,” says Sara McLeish, chief executive of Legal & General Financial Advice.
“We wanted to start in one area and understand more about giving advice, so lifetime mortgages is our starting point.”
The division has 18 advisers who are all lifetime mortgage specialists providing advice solely on L&G’s lifetime mortgage offering.
Ms McLeish says: “We only recommend L&G products; a conscious decision because these are really long-term products and we only want to recommend and stand behind our own products.
“We have a really broad range of products and they are very good value for money, so we are confident in being sole tie, we have access to the full range of mortgage products and they are competitively priced.”
Starting fresh
LGFA marks a return to the advice market for L&G after many years.
When the decision was made to re-enter the world of advice, Ms McLeish says it was decided it would be done from scratch, rather than by acquiring an advice business.
“We built our own technology and found new premises,” she adds.
“It is really hard to bring in a different culture then try and mould it [into an existing business]. It is much easier to start from scratch and set the tone yourself and create the kind of culture you want to create.”
Customer demand was one of the main reasons for starting LGFA, as more people are entering retirement age wanting to clear debt and outstanding mortgage balances.
Customer research carried out by the company also found that customers wanted to go to L&G for advice on equity release – additionally evidenced by the number of customers calling the company thinking they could get equity release advice.
Ms McLeish adds: “We knew from listening to them they wanted to come to a trusted brand, [or the same brand that] they had their pensions or life insurance with.”
Equity opportunities
Despite the “growth potential” seen in the equity release market, Ms McLeish says there are still not enough advisers talking about it or the options available.
One of Ms McLeish’s priorities for the rest of the year is to hire new advisers and up-skill mortgage brokers and existing advisers to provide equity release advice.
“Lifetime mortgages are not for everyone, but for the people they are right for, it can absolutely transform lives,” she adds.
One of the options LGFA offers is the ability to pay some or all of the monthly interest.
Ms McLeish says: “This means the interest does not compound, and every month you are clearing the interest you owe on that loan so it stays at [that same amount] for as long as you can continue to make the payments.”
FCA warning
A recent Financial Conduct Authority report on equity release sales and advice processes identified the short-term benefits of an equity release mortgage – such as consolidating debts and freeing up cash – being wiped out by the long-term cost of equity release, as one of the poor outcomes in the equity release market.
The regulator said: “In most cases interest rolls-up (rather than being paid monthly), meaning interest compounds over many years, so the debt can end up being several times the amount borrowed.
“This can be particularly damaging where consumers actually have surplus income that they could have used to repay the debts, rather than consolidating them.”
The FCA added despite the fact that giving high-quality, suitable advice requires advisers to know their customers well and understand their circumstances, requirements and motivations, it was disappointed to find evidence showing some advisers adopting a form-filling approach to fact finding.
Responding to the review, Ms McLeish says: “We were not included in the sample because we had not yet started by the time it was undertaken, but it absolutely picked on all the areas we were focused on when we designed our business.”
Covid-19 impact
The Covid-19 crisis has placed new pressures on people’s finances and there is anecdotal evidence of more interest in equity release.
While reinforcing the need and value of advice, the crisis has also led to the temporary replacement of face-to-face interactions with virtual and more phone conversations, meaning advisers are having to call on their softer skills even more during conversations, to identify vulnerable clients.
For LGFA, a face-to-face advice model had to adapt quickly to and move to a wholly telephone-based model.
Ms McLeish adds: “[From when the business started] we have invested a lot into vulnerable customer training for everyone in our business, [including] call centre and customer service agents and advisers.
“Vulnerability can present itself in many different forms. For us it is rarely age-related. It can often be to do with financial distress... and multiple vulnerabilities can present themselves at the same time and change over time.”
As the market recovers from the overall slowdown that occurred in the second quarter of this year, Ms McLeish says the market might see a different type of demand in the coming months, from more customers who have to supplement their income as a result of the economic impact of coronavirus, or may need to help family members financially.
Ima Jackson-Obot is deputy features editor at Financial Adviser and FTAdviser
