Referral market – why it's about to get a boost

While 2022 was another record year for the equity release market, with more than £6.3 billion being released, much of this was prior to the turmoil unleashed on the market by September’s mini budget. 

Mortgage intermediaries, who make up the largest portion of referral partners, are no doubt intimately aware of this turmoil having spent the last few months supporting customers with difficult choices, after a period of rate instability and stamp duty holiday mayhem.

However, Jason Ruse (pictured), business development director at Key Partnerships, said the firm’s latest report found that two-fifths of introducers expect the equity release side of their business to expand over the next one to three years. 

“The future for the referral market is bright and it should receive a further boost this year with the introduction of Consumer Duty rules,” he said.

Referrals - end of the hand-off

Ruse said informal hand offs will no longer be appropriate in a world that is focused on good customer outcomes, and he believes organisations will need to clearly show how they are supporting their clients.

Consumer Duty requires firms to deliver good outcomes for the client with a focus on products, price and value, consumer understanding and consumer support. Ruse said that should translate into more specialist equity release referral relationships going forward. He noted that 88% of introducers intend to maintain some referral relationships, with 45% stating they will act only as referrers, and 43% will provide some advice in-house as well. 

Referrals - existing introducers and their clients

Ruse said while mortgage advisers make up 64% of the introducer universe, other organisations impacted by Consumer Duty regulation, such as independent financial advisers, wealth managers, lawyers and legal services firms are also increasingly referring customers to specialists.

“The customers who choose to explore their equity release options following a referral mirror the company that introduced them,” he said. Ruse added that these customers in general release more property wealth than the wider market.

He said their clients are also more likely to focus on inheritance issues, with 46% of customers referred by introducers using property wealth to gift an early inheritance to family, while Ruse added that 15% see equity release as a way of managing potential IHT liabilities.

However, Ruse said not all clients are interested in IHT advice, and added that the cost-of-living is an issue in the referral market too.

He said that 31% of introducers noted clients are trying to reduce expenses, while 26% are cautious about investment decisions, and 20% are worried about retirement finances.

“More than half of introducer clients are paying off secured debts such as mortgages, which is over double the rate for the wider market at 24%, but just 19% use property wealth to clear unsecured debt compared with 33% in the wider market,” Ruse said.

Referrals - relationships driven by client demand

With clients clearly juggling more challenges and options than ever before, these needs, and desires, often drive the start of an introducer’s referral journey. 

Ruse said 30% of referral partners revealed it was interest from clients which convinced them to set up this type of relationship. 

When questioned about the benefits, he said 39% of introducers revealed they chose to set up a referral relationship for equity release as it enables them to help clients with issues they were unable to help them with previously.

Referrals - next steps for the market

With intermediaries, wealth managers and mortgage brokers being encouraged to grapple with the practicalities of setting up a referral relationship by the upcoming Consumer Duty regulation, Ruse said they are arguably stepping ahead of their contemporaries and positioning the market for growth.

“While not all clients will need or want equity release, the fact that almost one in three introducers were encouraged to set up a referral relationship due to client need is telling,” he said.

Ruse believes it also suggests that if more advisers spoke to their customers, they may find themselves better able to offer good outcomes under Consumer Duty.

Do you believe Consumer Duty will have a positive impact on the referral market this year? Let us know in the comments below.