Hello, my name is Jade Smith and I am a Business Relationship Manager at Equilaw. Most of our listeners will know me, and have hopefully listened to some of our other podcasts that we have previously recorded. Today, I am joined by Matthew Taylor, our Business Development Director, and in today’s recording we are going to discuss the topic of client vulnerability, and what steps we take to identify potentially vulnerable clients.
So, Matt, would you be able to provide a broad overview of client vulnerability at the moment, and why this is such an important topic within the Equity Release industry?
Hi Jade, and thanks for having me on today.
Vulnerability is undoubtedly a hot topic at the moment within the later life lending market, particularly due to with the demographic of client that we see. With the average age of an Equity release client being 67, we are statistically far more likely to interact with far more potentially vulnerable clients than many other areas of financial planning.
A recent FCA definition stated that a vulnerable client is someone, who due to their personal circumstances is especially susceptible to detriment, particular when a firm is not acting with appropriate levels of care.
Therefore, it is important to firstly highlight some of the personal circumstances that we are looking out for, and what we can do to apply some extra levels of care, and then on to consider how the equity release legal process can help protect these clients , as well as brokers further down the line.
Ok, I would certainly agree that vulnerability is hot topic at the moment, and I am certainly reading more in the industry press about the levels of protection firms are taking to help safeguard vulnerable clients. Would you be able to expand on what you mean by personal vulnerability?
This is difficult to categorise specifically, but what we are looking for here are considerations / issues that aren’t directly linked to a financial transaction, or the mortgage contract itself.
Areas of focus for us would be things like:
Communication Issues – Clients are deaf, hard of hearing, blind or cannot write, or where English isn’t first language. We would need to adapt our approach to ensure we can explain their legal advice in a format that they can process and confirm their understanding. Examples of this would be producing documentation in large print, or finding a translator to help out during the client’s home visit.
Also, we are also on the lookout where clients have intellectual limitations, or where they haven’t had to make a financial decision for many years, and maybe find the whole experience overwhelming. In these cases we are satisfied clients have capacity, but their understanding of the mortgage contract and particularly the more complex elements (for example, early repayment charges) is borderline, or needs to be explained in a different way. In these cases, we may book out a longer home visit appointment, or find a slightly different way of explaining some of the more complex legal advice.
Recent bereavements are also life events that we would want to be informed of when opening a file – This is normally where a spouse has passed away, but can also involve other family members. Even more pertinent if it was the deceased spouse that used to deal with paperwork. Again, we may need to change our approach to ensure the client feels comfortable interacting with us, as well as again taking extra time when dealing with some of the more complex parts of the process.
Great, are there any other factors that you would want to know about, or perhaps take particular care over?
Yes, we always need to take extra care when dealing with Third Parties – We as solicitors will have a different approach to TP contact than you as brokers, in that we would prefer not to use them. Most are well intentioned, but others aren’t and often the cause of duress. Who are they, are the benefitting from the equity release, and how long have they known the client for, will all be important questions for us to have answers to before agreeing to liaise with a third party.
Also a new area for us of in terms of potential personal vulnerability is where we are completing complex additional work alongside the client’s equity release application – We need to ensure that the client is proceeding with any additional works with full understanding of any implications. The equity release is obviously the priority, but do they understand the implications of unwinding a trust / completing a variation to a lease? For cases where we need to bring a trust to close, we involve a specialist, a senior private client lawyer who will spend time discussing with the implications with the clients and beneficiaries and ensure understanding that unwinding the trust is the best thing for the client. You can find out more about this by listening to our podcast that deals with trusts and their implications to an equity release application separately.
Ok, thank you for that Matt, I think you have explained what you term personal vulnerability very well. You mentioned financial vulnerability as well, so could you explain what you mean by that?
Sure, by financial vulnerability, I mean considerations and issues directly linked to the clients financial situation, how they plan to spend the equity release proceeds, as well as linked transactions that may be being funded by the lifetime mortgage. I suppose these are more commonly understood areas of vulnerability.
Could you explain what we are looking for here then Matt?
Again, there are few different areas that we will be interested in, but we will be looking for things like:
Existing Mortgage Litigation – Are clients being hassled by and existing lender? What stage is the litigation at? Can we help with stopping threatening letters and calls? If we can we will, and often a simple letter explaining that we are representing the client in a mortgage matter that will clear their outstanding borrowing, instantly reduces the number of letters and calls a client may receive.
Unsecured Debts – Similar to existing mortgage litigation. Are they being threatening with court proceedings and would they be proceeding with the equity release without these threats. Are they repaying someone else’s debts? These are all factors we will want to know more about, particularly if the client has indicated this is the only option for them. Again, we will be able to help with reducing some of the contact they may receive, but we will want to be certain they fully understand the long term legal implications of securing this borrowing against their property.
Use of Funds is another are we will pay special attention to, not specifically what the clients are spending the money on, but are they being consistent with what the funds are being used for, and is this in character with their spending? Are both clients telling us the same thing, and does this match with what they have told the broker? If we have any concerns about any of these points, we will investigate further.
That brings me onto Third Party Gifting as a potential use of funds, another area that we would want to pay particular attention to if we are presented with any red flags – Who is the beneficiary, and are they a family member? What are they themselves using the monies for?
We have a separate gifting process, by which clients need to sign something confirming 3 things; implications of gifting money in relation to state benefits, the fact that future care requirements may be compromised and the client’s estate will be lessened for family members. All of which will need to be confirmed before completion.
Finally, and another new area that we have seen crop up over the last year or so is financial vulnerability associated with a linked transactions. As mentioned, this is a new area for us, and mainly driven the pressure applied by certain third parties who are relevant to completion, for example pressure from an ex-spouse in relation to a divorce settlement. We recently had a file where our client was in receipt of a barrage of abusive messages from an ex-spouse, therefore were they acting accordingly? In this case, we would want to investigate further to ensure that they are.
Excellent, again some really good detail there Matt, and an interesting insight as to what a client’s solicitor is on the lookout for. You haven’t discussed Power of Attorney applications yet, do you have the same process for dealing with a client under an LPA?
Yes sure, we do have a podcast that solely deals with POA applications, so I would suggest listening to that for a full overview. However, at a very high level firstly use of funds need to be considered, and depending on who the lenders solicitors are, this will need to be either for care, or the welfare and benefit of the donor. Obviously the welfare and benefit can be vague, so we will need to investigate this further. For example, we have had a case accepted where the attorneys were buying a motorhome to take mum and dad around the country and holidays. Either way, we’ll need proof of use of funds in all cases.
Care is easy to provide as we will need to see invoices, care plans, even building works for example are more tricky. Lenders solicitors may want to see comparison quotes to ensure that the donors are not overpaying.
How the LPA is set up in regards to structure is also really important to consider. Firstly any client that does have capacity, cannot sign for their spouse as well under the POA application i.e. Mr who has capacity, cannot sign as one of the attorneys for Mrs. There needs to be another attorney to sign. Also if attorneys are signing jointly, then this may pose some logistical problems as the original paperwork will need to travel around the country unless they can be at the same face to face meeting.
We’ll also need the original POA document before completion can be set, as this is a land registry requirement and also we’ll need to complete an OPG search to make sure no restrictions have been placed on the attorneys preventing them for acting on behalf of the donors.
Lastly, we’ll also need a GP Letter or confirmation from a medical specialist to prove loss of capacity. This can be challenging at the moment, as lots of GPS are refusing to comment on capacity. Key points here are that the letter needs to state that the client cannot understand and retain information contained within the mortgage application. If necessary we can refer this out to a private firm like TSF for example, who will be able to complete this assessment remotely.
Again, some excellent information there Matt, and as you mentioned, we have a full podcast on POA applications where advisers can find out even more information. So moving on Matt, why as solicitors do you need to know about these different situations, and what underpins the advice that you give to clients?
Ok, so firstly at a high level we have to abide by the SRA Code of Conduct. We are acting with honesty, integrity and in the best interest of our client at all times. If it is clear that proceeding with the ER isn’t in the best interests of our client, we will need to advise them of this and terminate the instruction.
We also have a duty of confidentiality, which has some crossover with some of the areas I have already mentioned i.e. use of third parties and amount of contact allowed with other solicitors and linked transactions.
We also need to pay special attention to the ERC Rule 8.4. Here we are declaring that the client has capacity to understand the mortgage contract and not under any undue duress. We have also confirmed the client’s ID, and have conducted a face to face meeting.
We have to consider factors objectively and honestly, and based on what is presented to us i.e. that is why we need to know about anything that may contribute to or mask client vulnerability as early as possible.
Another important document that underpins our advice is the Solicitors Certificate. Here we are concerned with the undertakings and declarations made to the lenders solicitors. We can only make them if we know them to be true, as they are legally binding across both parties, and underpin the security of the mortgage contract between lender and client.
It is usually signed by 2 solicitors one from Equilaw and the clients mobile solicitor and confirms both are satisfied with the above points, as well and making additional declarations around capacity and duress.
Our mobile solicitor will also talk the client through a Summary of Risks document during their home visit and this allows our solicitor to assess physical and mental impairment of the client, by asking more in depth questions around the mortgage contract. The attending solicitor needs to be happy, and clients need to sign to confirm their understanding of this during their meeting.
The implications to any solicitor making those declarations if they know they are untrue is extremely serious for the individual and firm, they may be struck off, fined, imprisoned.
Very interesting Matt, I didn’t know there was so many different layers of protection for clients and how important the home visit is in terms of safeguarding potentially vulnerable clients. So, what would you do if you did have concerns over a client’s vulnerability, capacity or presence of duress?
Well, our presumed position is always no vulnerability, so we need to either prove this is incorrect or return to our previous presumption which is very similar to how capacity is assessed.
If something calls this into question, then we have to investigate to put is back in a position where we are happy to proceed.
Red flags and warning signs are really important to us in terms of picking this up as early as possible and these could really be anything to do with the some of the examples I have already mentioned, however the main ones are:
Failing to remember conversations. Inconsistent conversations. Clients being evasive, aggressive, or difficult to get hold. Third parties not wanting clients to speak to us directly and requested paperwork not being returned to us.
Further investigation can again be a simple conversation or drill down on any of the points I have mentioned already, but ultimately we may need to discuss our concerns with the broker involved, as they may have some further information or background as to why the client may be viewed as vulnerable.
We may also use information from the broker’s suitability letter to sense check what the client is telling us, particularly around use of funds, and assessing if a client is in severe financial difficultly.
We may also deploy longer face to face meeting slots with our solicitors, and ask them to make a detailed attendance specifically addressing any concerns we may have. This will be stored alongside our general advice to the client.
In the large majority of cases after spending some extra time with the client, or adapting our advice approach slightly, we can satisfy ourselves that the client isn’t vulnerable, and we have no concerns regarding capacity or duress. In these cases we can proceed to completion in a straightforward and prompt manner.
However, in the cases where we cannot satisfy ourselves of these points, the ultimate sanction would be to decline to act for the client.
Thank you Matt, very interesting and I think you have covered some really good ground today and explained some of the current challenges you are seeing in relation to client vulnerability. It’s something we’ll probably revisit in the future, as we continue to evolve this vital area of client safe guarding.
