There comes a point in time for many intermediaries and firms to decide if, how and when they will enter the equity release arena.
Some steadfastly sit on the side of the fence which says ‘never’. Others sit on the side which says ‘we will do this ourselves’. The last group, which leans from one side to the other really is not sure what to do, ‘but knows it ought to do something’.
The next point I make is extremely predictable, but I will make it anyway. For those who elect not to advise in this market but to capture income from it, why do some do so through multi-tie or single tie routes?
Income may be part of the reason; in particular, a single tie will probably pay more than either a multi-tie or broker proposition, but is this a false economy? I believe it is.
The argument for referring to a whole of market proposition in this market can be applied to many others, although here I restrict it to equity release.
Making important decisions
Being an astute 67-year-old, I sit pondering a couple of big decisions – what to get for dinner and whether or not I will release some equity from my home.
To keep the decision simple, I have no children or spouse to consider. I make my first important decision, I will have pasta, and I will release some equity to buy that new car and replenish my savings.
Now many would argue that I should trade down, but I don’t want to, I have lived in this house for over 25 years. That was the easy decision. Now the more complex – what pasta shall I have, and which provider and plan for my equity release solution?
I decide to get my dinner first. I arrive at the supermarket where there are a wide range of options available to me. There is penne, spinach and ricotta tortellini, egg tagliatelle, lasagne, ravioli, gnocchi, cappelleti, not to mention the sauces. Anyway I think you get the idea.
With dinner taken care of – ravioli by the way in case you were wondering – what remains is to sort out my equity release.
Contrary to popular belief, us 60-somethings use the internet and so I have been doing a lot of web surfing. I’ve also hung onto a few articles that I’ve read on the subject. Much of what I have read also talks about where to go for advice.
I have read that I should use a specialist independent adviser – what I do know though is that all they will do is the same leg work and charge me a fee for doing it. I can save money by shopping around myself – it can’t be that difficult. I will do the research though, as it’s not as though I’m just buying pasta, is it?
I look to two sources, one involves searching for providers online and I see that Prudential, Norwich Union and Bristol and West are some of the providers out there.
Having searched for some time, I come across four or five lenders offering lifetime mortgages. I want to borrow £75,000 against my £350,000 home. I look across the providers and select the lowest rate, having filtered out one provider who won’t lend to me and one who won’t lend me enough.
Satisfied with my work I rest. I’ve done well and importantly I have saved money. I’ve saved on not using an adviser and I have found the best rate available. All that remains is to call them and start thinking about what car I want to buy.
Thinking of the consequences
Three months have passed and I’m at my local, chatting to my friend Graham. In a couple of days’ time, I tell him, my new car arrives. Graham asks if I’ve won the lottery or something. I tell him what I have done, and that I did it on my own, without having to pay for an adviser.
After a lengthy explanation of what I have done, he goes quiet and then laughs. Perplexed, I ask why the laughter? What transpires is that he has just taken out a plan with the same lender.
He tried to do his own research but then gave up. He contacted two companies, one selects a solution from a panel of providers and the other was independent and looked at the whole of the market.
He first discussed his plans with the multi-tie adviser who offered him a particular deal. He then turned to the whole of market adviser. The adviser considered over 40 plans. What I didn’t realise is that on my own I couldn’t access most of the providers, as you have to go through an independent adviser to access them. I laughed back though smugly, as he still ended up with the same provider as I did anyway.
The first thing he pointed out was that the plan we ended up with was not one on the panel of the multi-tie adviser. He began laughing again as he still knew something I didn’t.
My deal with the same provider was going to cost me a further £19,000 in interest over the next 15 years because what I didn’t know was that the provider actually charges a higher interest rate for customers who deal directly with them.
Need, want and suitability
The conclusion? Shopping for pasta may be an easier pastime than shopping for equity release. Thankfully last year over 60 per cent of consumers arranged their plans through an intermediary.
What is of concern though, is a strange trend of organisations who do not directly advise themselves, setting up referral arrangements for their clients which are direct referrals to either single or multi-tie operations.
To me, the most important aspect of a client’s decision to release equity or not should be linked to the decision of need or want, and suitability.
If I, as an independent adviser, discuss the whole range of options with a client and they decide not to go ahead, I will be confident that they understood all of the options available to them and made a decision that was right for them.
When a client goes direct to product providers, or to multi-tie options, and don’t proceed, but then seek independent advice, many then go ahead with a plan. Is this because they didn’t find the best solution at the best price, or even a solution at all? In addition, how many will give up and not look further for a solution?
As I stated at the beginning, I am naturally going to extol the virtues of whole of market advice, but for me, in this market, there is a strong purpose in doing so.
In considering a proposition for your clients the first question should be, are you looking to do the best by them? If the answer is yes, the solution may not be the one that appears best financially. A higher converting proposition after all may carry the greater opportunity.
