As of 6 April 2008, advisers who want to be considered ‘whole of market’ will need to have passed both the lifetime mortgage exams and the home reversion top-up or full equity release exam.
Although the Financial Services Authority (FSA) does not require the home reversion qualification exam until 2009, Safe Home Income Plans (SHIP) has rightly decreed the earlier date from which none of its members will accept home reversion submissions.
Because of this, the equity release market can look forward to a time when all advisers are qualified to give whole of market advice.
Being a home reversion provider, Retirement Plus has a vested interest in advisers passing their home reversion top up exams. To assist we ran a series of seminars across the country during the first few months of 2008 with one of them forming part of the Financial Services Scotland exhibition in Glasgow in March. In total more than 200 advisers attended the seminars and the feedback was positive.
So, bearing in mind this recent experience, we have learned a great deal about educating the equity release broker.
Priorities
One of the first issues for brokers to consider is one of priorities. There are very few out-and-out equity release brokers, as most run general practices with an emphasis on mortgages, pensions, investments and other areas of financial advice.
So information on equity release has to compete for time with all the demands of these products. This can easily lead to misinformation that has to be clarified before the educating process can begin.
In particular, brokers should note that the exams are straightforward for those already holding the lifetime mortgage qualification, so the time commitment to ensure a pass is actually very low.
Many advisers have sat the exam with very low expectations of writing much business themselves – so why have they bothered?
There is a general belief that equity release will one day fulfil its market potential and so it is better to be involved and qualified at the beginning rather than trying to join in at a later stage.
Also, while equity release may not be a solution for a great number of client requirements, it still comes up as a topic – even if only to be dismissed as not appropriate in the circumstances.
Many advisers will start dipping a toe into equity release by referring cases to specialist brokers but they still want – and need – to understand what is being recommended to their client as it often has specific applicability to other advice they may require in the future.
We’ve only just begun
Passing the exams and receiving the qualification is often where the education process starts rather than finishes.
Advisers need a tool kit of more than a piece of paper stating exam success. Exams are one thing; completed cases, satisfied customers and good procuration fees earned are quite another.
It is important that product providers in the equity release arena start to look at education in a wider context as opposed to simply the purely academic and technical. A number of areas where education and information is commonly required include the following:
Sourcing systems – The Exchange operates one of the best sourcing systems, but it may not be sufficient when looking for the finer points of product analysis.
Often case studies are important as well to draw out the finer points of detail. I attended a successful, broker-run case study analysis earlier this year where 35 brokers analysed case studies before discussing them with five product providers. The answers to the case studies were highly illuminating and reinforced concerns about product complexity.
Marketing aids –These can range from a basic A3 poster to an all-encompassing leaflet. These may seem easy to draft, but it is difficult to know what information is compliant and when it falls foul of the rules.
Factfinds and suitability letters – These really ought to cover all the FSA Mortgage Code of Business requirements to ensure that there is no subsequent audit comeback. It sounds straightforward but there is a lot of detail and the most basic of information can inadvertently slip away.
Educating the client – It is generally held that a successful equity release business pre-screens potential clients by giving them some initial information prior to main consultation, so as not to waste time, on anyone’s part.
The FSA has handouts and there are a number of generic websites; www.eacer.co.uk and www.whatisequityrelease.com are two examples where clients can be referred to research and information prior to the first meeting.
Dealing with working capital needs – One of the main problems with entry into the equity release market is the working capital strain. Equity release cases can take a long time to complete and the amount of hand-holding required is significant.
It is not unusual for a case to take 12 months from initial meeting to completion. Although the procuration fees are relatively high, they only come at the end of the process and other earnings have to cross-subsidise equity release earnings in the meantime.
Lead generation – The working capital drag is exacerbated if the adviser has to pay significant sums for lead generation. Advisers have different approaches to lead generation, from simply buying unqualified leads from an internet site to running seminars for existing clients, with every possible variant in between.
There is no magic ingredient in lead generation and no panacea which says this works and this does not. Experimentation is necessary which is often time-consuming and expensive. This is an area where product providers can work with brokers and make significant inroads.
A sense of belief
Setting out a list where education and information is required is the easy part. Much more difficult is instilling a sense of justification and belief within the adviser that equity release is a sensible option to recommend to a client and then to go on and complete the contract.
Recently, I spent time with a large, top 50 IFA firm which has always avoided equity release and instead recommended solutions such as downsizing or selling investments.
However, the need for professional holistic advice suggested that it embrace the recommendation of equity release for suitable clients. The first case brought an all too typical judgement call.
The parent wanted to release equity to improve their day-to-day standard of living but the children were concerned about their inheritance. After internal debate, the conclusion was that the children were being selfish and that the needs of their client came first.
That decision took a lot of thought and research as there is always a danger of a comeback at a later stage, similarly as there could be with any other financial products. This decision was only reached after the firm educated itself about the possible consequences of their actions and the need for a careful factfind and suitability letter.
Product providers with marketing tools and lead generation ideas did not produce this result. It was the result of a professional firm analysing the situation over a reasonable period of time.
Providers do, however, have a role in scene-setting and creating an environment where difficult decisions can be made without fear that the FSA will come knocking. It is also an area where the new SHIP lobbying effort would be well directed.
To empower advisers, who are not equity release specialists, to make difficult judgement calls, with the best interests of their clients at heart.
