It’s safe to say that whenever two or more people with connections, however tenuous, to the Financial Services industry are gathered together, the conversation will inevitably get round to what sector of the industry will be the ‘next mis-selling scandal’
The equity release market is often cited as the potential source of a future scandal. To its credit, the market – and by this we mean advisers, providers and regulators, has taken huge steps in the past few years, to ensure that this will not be the case.
For example, the introduction of regulation of lifetime mortgages under the MCOB rules in October 2004 to be joined next April by the regulation of the home reversion products has created a level playing field for this market. The campaign concerning home reversion products was led by the industry through SHIP – a good example of how the industry has been playing a proactive role in self policing, leading from the front and demonstrating its willingness to accept change.
The self-policing and continued drive for consumer protection and best practice goes further than that. Other measures taken by the industry providers, advisers and the regulator, to raise standards include:
• The introduction of mandatory exams within the industry. As from next August all applications to SHIP members for lifetime mortgages will only be accepted from suitably qualified advisers - advisers who have obtained the CII’s CF7 examination or Institute of Financial Services equivalent. It’s not just advisers who are taking CF7 – providers have also recognised the importance of well-trained, qualified, staff.
• SHIP’s Adviser Checklist was launched back in June 2006. It’s a simple 10-point checklist for advisers to use in this market. It’s also a useful tool for consumers to ensure that they are getting the right advice. Whilst not mandatory this checklist has been universally welcomed by many financial advisers and indeed heavily promoted by many, such as Premier Mortgage Services, to its members as good practice.
• The Financial Services Authority (FSA) ‘mystery shopper’ exercises, which have been well timed, have been a warning shot across the bows of the industry. To its credit the industry has sat up and responded positively to the early warnings to embrace the recommendations made.
• Additionally the FSA have established the Equity Release Forum that meets regularly to discuss topical subjects affecting the market and what is coming up that may influence changes in this market. This is a group that is attended by the leading organisations that represent the key stakeholders in this market; SHIP, CML, AIFIA, AMI and the ABI. This is a constructive move, which says a lot about the changing face of our regulator – recognising the unique importance of this market.
• Providers are also playing their part in educating the market and broadening discussion beyond the simple bottom line of sales figures. At GE Life, for example, we have recognised that operating in this market is not just about selling a product it is far more holistic and in many cases should embrace the wider family. To this end we have produced a ‘Warts and All’ guide on equity release aimed at the family, as well as the client, to help raise awareness of the products and the potential alternatives available.
Finally – the equity release market has remained flat for the last three or four years. Sales have been static at around £1,2bn since 2002, having risen steadily during the late 90’s and early part of this decade. This has given the industry valuable time to take stock and develop the framework and the initiatives outlined above, rather than purely concentrating on coping with the sales volumes. This means that the structures are now in place to enable themarket to develop and thrive going forward – rather than simply be in position of having to muddle through and cope with demand with little time for regulatory analysis or planning.
The next challenge is to take this message to the consumer. There is no doubt that there is significant demand for equity release and that the arguments are well understood; increased longevity, issues over pension funding, aspirational plans for retirement -all factors that mean financial flexibility and opportunity in retirement are crucial.
Add to this the growing need to manage debt in retirement and all the factors are in place to suggest that equity release will become an increasing part of financial planning in retirement in the years to come.
A well-known politician once used the expression: ‘education, education, education.’ – a useful, if rather repetitive motto for the equity release industry. Consumers need to be made aware of what the market has to offer to address today’s retirement planning issues. This way we will help consumers be better informed, grow the market and hopefully encourage more advisers to enter the market to advise in an area where there is no doubt that they can add value to their customer base.
Hopefully any talk of ‘mis-selling scandals’ will be a distant memory and that this market will be used as a model for good practice as to how to embrace change to the consumer’s benefit.
