FCA Warns Advisers It Will Look Again at Equity Release

Is This Good or Bad?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Is It Possible That Your Equity Release Adviser Has Not Provided Personalised Advice? Was Equity Release Truly the Right Decision for You & Your Family? The FCA Investigates…

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The Financial Conduct Authority has warned financial advisers that they will be looking into the equity release sector following exploratory enquiries.

After noticing a significant growth in the later life lending space and increased demand for equity release products,.

The FCA wants to ensure consumers are protected against incorrect advice.

As more and more retirees aged 55 and older head toward their golden years, unable to cater to their retirement needs,

equity release products offer them a way to have a more affordable and comfortable retirement. However, we have to ask, at what expense?

TABLE OF CONTENTS

Why Is Equity Release a Significant Life Decision?

Deciding to take out a later life mortgage or equity release product is a significant life decision, especially when you’re over 55.

It impacts your financial future at a critical point in your life.

Since using equity release is a significant life decision, the FCA1 has said that.

“This makes it particularly important that firms and advisers get their advice right.”

The Initial Inquiry

In 2020, the regulator made it known that they were concerned that certain mortgage advisers were not providing their clients with the correct level of advice.

It’s essential that a client can trust their financial adviser implicitly, and these steps from the FCA are aimed at ensuring this is possible.

Based on the review of the market by the FCA, it had mixed findings where it unfolded that in the correct cases, the lifetime mortgages were working well and in some cases, not.

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Their 3 most critical points of concern related to financial advisers were the following:

  • They did not challenge the client’s assumptions enough.
  • The advice they gave was generalised and not as personalised as it should be.
  • The suitability of their advice could not be substantiated correctly.

The FCA also found that it is far easier for a financial adviser to sell a client an equity release plan instead of a retirement interest-only mortgage.

The commission earned on an equity release plan is 10 times more than the commission earned on a retirement interest-only mortgage.

The problem in the equity release advice market is that it is far easier to qualify for an equity release product than a retirement interest-only mortgage,

Which has far more stringent qualifying criteria.

As a result, many over 55’s approach their financial advisers looking for a retirement interest-only product and end up with an equity release product instead.

The FCA’s consensus that needs to be explored is if commission bias is creating a shortfall in the advice given to consumers.

The follow-up steps that the FCA are set to take include looking into the suitability of advice, and where this falls short, they will take the correct supervisory action.

What Can Financial Organisations & Advisers Expect?

Advisors and firms must ensure the following:

  • Documents showing evidence to support their suitability of advice must be kept.
  • When advising to take out an equity release product for the first time or as a repeat client, or even making amendments to a current plan, the advice given must be adequate.
  • The correct process must be followed to obtain all the pertinent information from a client to advise them correctly.

Common Questions

Who Regulates Equity Release?

What Is the Equity Release Council?

What Is the Financial Conduct Authority (FCA)?

In Conclusion

The FCA and Equity Release Council2 has taken steps to protect the customer by making it mandatory that all equity release products allow the customer to make penalty-free part repayments.

This alteration means that the effect of compound interest reduces the costs of lifetime lending for the consumer.

Markets welcome this type of action, and some feel it should have been done a long time ago.

IT will be a tremendous change for later life lenders if it improves the sector in favour of the client and cuts out “commission bias”.

The FCA warning it will look at equity release is good news for consumers.

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