It sounded like something out of a Werther’s Originals advert when the Financial Services Authority (FSA) announced its grandfathering approach to monitoring advice in the lifetime mortgage market. However the last suck of the toffee is nearly here for those who have not yet attained the necessary qualifications.
For those advising on lifetime mortgages prior to 31 October 2004, there were two options available if they wished to continue. Either they had to demonstrate they had been active in the market and had undertaken the necessary training to be competent, or they would have two years in which to sit an approved lifetime mortgage examination and gain a qualification.
Proving competence
Not all advisers were in a position to prove they had the necessary training and technical knowledge in place, given that record-keeping of such activity was not always what it might have been. For these advisers it was simply easier to take the exam and be able to show a clean bill of health to the FSA if it came knocking rather than having to go through the palaver or proving competency.
For the larger firms in the market, there was a clear desire to set out a professional and well-run stall in the face of the new regulator and most made a point of putting staff through the exams as they became available.
Certainly the experience of ifs School of Finance was that demand was high for the Certificate in Lifetime Mortgages (CeLTM) right from its launch and much of this came from those already in the market seeking to rubber-stamp their credentials.
There is no doubt some advisers will not have taken this route and will either be relying on the records they have of previous training, or will simply expect to be overlooked by the regulator as seasoned operators in the lifetime market.
Given the history of equity release and the much higher risk it carries in comparison to other mortgage products, it is highly unlikely that the FSA will overlook the market. Indeed given that mystery shopping exercises carried out over recent months have found less than flattering evidence of the way some business is being conducted, those unable to assert their right to be operating in the market come 31 October 2006 may find themselves in a very sticky situation.
It is difficult to know how many individuals were operating in lifetime mortgages before ‘Mortgage Day’ who have not since taken qualifications, but certainly they will be a priority for the regulator to weed out.
Interest in the market
Looking at the candidates who have been coming forward to take the CeLTM more recently, there are two interesting factors. One is that the majority are now advisers coming to the market for the first time. The numbers may not be sufficient enough to cope with the number of providers now entering the market, as some have commented, but the important thing is the interest being shown by the intermediary community.
That interest is driven in part by media activity and it has also been fascinating to see how the peaks and troughs of advisers coming forward to sit the exam have coincided with commentary in the media. The market has not yet, perhaps, gathered sufficient momentum of its own to really move forward in the way so many have forecast, but there is no doubt that it carries a huge amount of latent potential and in the coming years will gather a real head of steam. Certainly the expectation is for numbers sitting the lifetime qualification to shoot up in the years ahead.
If there is one caveat to this growth, it is the new legislation set to come over the horizon, as home reversion schemes become part of the regulated landscape. This is not to be in any way negative about reversions, but simply to point out that many advisers are likely to take stock while the legislation is put in place and see whether a joint qualification, for example, may serve their needs better in the future. Once reversions have been slotted into the picture then there should be nothing to hold back numbers looking to take on equity release qualifications.
Operation choices
The real choice facing firms looking at lifetime mortgages and the wider equity release market is how they want to operate. The options are increasing and networks to handle introduced business are being set up. Other firms are looking to get one or two staff trained to deal specifically with demand as it grows and establish a steady and growing stream of business. Then there are the bigger players, specialising in this market and hoping the long years of positioning themselves will really pay off as things develop.
What firms must not do is dabble. Given the time needed to deal with a lifetime mortgage application, the inherent dangers of poor advice and the quickly changing product and legislative backdrop, this is not an area to take half-heartedly.
The equity release market will continue to offer opportunities into the future, however the first challenge for advisers is to avoid tripping up at the first hurdle because they have failed to take grandfathering seriously and simply thought of it as a free pass into the world of regulation.
