In the last article I covered the importance of the first impression and setting out the clear process to the clients. I also mentioned how it is important advisers clearly explain the value they bring; clients need to feel they are getting value for money.
This is especially important as it is my belief that this is a fee-charging advice arena. There are many reasons for this which the adviser can explain to their clients; firstly, advisers should make sure the client knows the advice may involve no product sale at all so a client fee allows the adviser the financial freedom to do this; charging a fee also supports and demonstrates that the adviser will not be product-biased; it also shows a professional approach to advice – advisers are charging for their professional advice and expertise not product sales. Advisers need to sell themselves strongly and consistently throughout the whole process to ensure that clients recognise the value they are getting for the fee they are paying.
Last month I also mentioned the need to avoid any potential ‘bear traps’ that a client can spring – for example, if a client says they don’t want a certain product at the very beginning of the meeting. If the adviser agrees, they have already removed an option from the client without knowing what they want to achieve. The correct approach is to explain to the client that it is too early to suggest what product, if any, would be right for them. This is not a sales process to be rushed.
The objective for the first meeting should be very simple – to get to know the client, their financial position and to understand their needs, wants, fears, ambitions, etc. This initial stage is not about selling.
Factfind
The adviser’s factfind document is an important tool to help with this first meet but it should be remembered that it is just a tool. The factfind must be comprehensive so this is really about the adviser asking the right questions and then listening and learning. Clients usually enjoy talking about themselves so allow them this opportunity. It may take time – 1½ hours would not be unusual - but it is time well-invested as it helps build that relationship of trust. If an adviser comes out of a factfind meeting having done more talking than the client(s) it suggests it wasn’t a good factfind.
The factfind should include space to gather information on at least the following:-
• Personal details – name, address, ages, state of health, anticipated life expectancy. It may also include questions relating to beneficiaries, power of attorney, have they made a will, etc
• Financial details – income from all sources, expenditure, savings, investments, etc. Expenditure may be just as important as income especially if their need is to improve their income to help cover the expenditure. There may be something very simple an adviser can suggest the client do that doesn’t involve an equity release plan and still achieves some or all of the income needed. Affordability is also a factor as advisers may recommend an interest-only mortgage initially. It is also important to check whether the client expects anything to change financially, for example, are they expecting an inheritance of their own and do they want it taken into consideration? If they are planning a bit of a spending spree, what estimates have they got for this and how realistic are they?
• Property details – current value, mortgage, ownership, lease term, etc.
• Attitudes – these could be varied and quite different from the adviser’s own. The adviser will need to gather information specifically on the client’s attitude to house price inflation, debt, passing on their estate, ownership in relation to tenure, and risk in general.
• Needs and wants – what is their immediate need, what ambitions have they got, what view have they got regarding their care as they get older, how important is it to pass on value to their beneficiaries, and can they prioritise these points?
Advisers will notice that more than 50 per cent of the above factfind relates to what is called ‘soft fact’ information. These client opinions and attitudes are critical as it is these responses that largely dictate the final product advice the adviser will give.
Once the adviser has collected all the necessary information, it is good practice to summarise back to the clients what they have revealed. This is also the opportunity for the adviser to challenge and discuss some aspects with the client – what we call ‘tough love’. This may involve cautioning the client about releasing all their funds today to use for a cruise or home improvements, when they are likely to need the money in the longer-term for healthcare perhaps. Advisers may also have to discuss a client’s stated priorities, for example, they may wish to guarantee an inheritance for their beneficiaries but this could conflict with the fact they want to take a higher cash sum now, or they may not want to give up ownership of their property.
It’s important advisers discuss these potential conflicts to encourage the clients to prioritise, for example, is the round the world cruise more important than leaving an inheritance or do their concerns about giving up legal ownership really outweigh the long-term need to be able to access funds for care costs in the long term? Without this challenge, the adviser risks making assumptions which could be wrong.
It may seem obvious but an adviser should not forget they are there to advise the client on the best course of action to take based largely on the client’s opinions of the future. Advisers can be arrogant and think they know best. Financial services has seen enough mis-selling scandals as a result of adviser assumptions with regards to stock market performance, interest rate movements and house price inflation. To avoid this, it is vitally important a client’s opinions are documented thoroughly throughout the process and they are used to construct the advice and subsequent suitability report. This includes considering the classic avenues that need to be discounted before proceeding further, for example, downsizing, help from the family, using current savings and investments first, or benefits and grants
Documentation
Another aspect to consider when preparing for the first meeting is that clients like to have something tangible from an adviser to keep. It is worth thinking about what this is and in what format it is provided. Of course, a business card and Initial Disclosure Document (IDD) will be handed over immediately but what about a document telling the client about the adviser themselves and the service they provide? It could outline the adviser’s experience, qualifications and all the different aspects of advice provided which may help build referrals in the future; if it can include messages from existing clients then even better. It demonstrates the professionalism of the adviser and further helps build the client’s trust in the service they are being provided with. Other tangible options to give the client could be a generic brochure on the broad product options as produced by some providers, and the FSA’s Consumer leaflet on Equity Release called ‘Equity Release made clear’ - both help build credibility and reassure the clients.
As mentioned previously it is important advisers are clear with the clients on the process. The meeting should be all about gathering information which will then be taken away and considered. If equity release is right for the client, the adviser will then research the market fully in order to advise on the best product for them. Two important points here – advisers should be realistic with timescales (under-promising and over-delivering) and they should not skip this part. Again it is a chance to build value to the client – the adviser is the expert agent.
One important final point to make is the importance of including beneficiaries of the client wherever possible given that an equity release plan will obviously affect the likely value of any inheritance in the future. However, advisers shouldn’t forget to see the client(s) on their own at some point in the process; here the adviser can ascertain whether the client fully understands what is happening and how the process works. The mental capacity of a client is important and a potential stumbling point, and so is any suggestion that there may be any duress from beneficiaries.
Bridgewater have seen cases where relations are pushing their elderly relatives into these plans in order to release funds to clear their own debts, without much thought for their relatives long-term needs. Discussing all issues with a client on their own is therefore one way of ensuring they are happy with the decisions being made and understand it sufficiently. Needless to say the adviser should be ultra-careful in documenting all such discussions properly.
As can be seen, advisers have a fine line to tread throughout any discussion of equity release. Those who operate in a professional and sensitive manner are most likely to succeed in the sector.
In the next ‘Back to Basics’ article I’ll cover the research needed and how to go about making that advice decision.
