23rd September 2019
Research conducted by the Liverpool Victoria insurance group has revealed that a jaw-dropping 70% of advisers currently feel uncomfortable about advising clients on equity release products, despite 61% (six out of ten respondents) acknowledging that they expect ER to become part of the financial mainstream over the next five to ten years. The study found that 26% of the 206 advisers who were surveyed found it challenging to establish whether equity release was appropriate for their client’s needs, while 21% admitted that the complex nature of products inhibited their ability to explain products properly to customers. In addition, 18% said that they felt there was a lack of personal knowledge about ER products, while 16% said they were uncomfortable about explaining the costs involved, leaving a mere 25% of advisers who described themselves as sufficiently confident to advise on these options. Which, given the remarkable rates of demand and growth experienced across the equity release sector in the past few years, is a deeply troubling conclusion and one which raises some fundamental issues.
Firstly, the research highlights what can only be described as an unfortunate lack of product knowledge amongst brokers, whilst also raising the distinct possibility that this deficit could deter customers from achieving satisfactory or suitable financial outcomes as a result; the very definition of compromised advice. Indeed, the managing director of ER provider Fluent Lifetime, Aaron Conlon, has already warned that an inability to advise on equity release could “come back to haunt” advisers in the future by helping to “create a bubble of questionable recommendations which might well lead to regulatory issues and Financial Ombudsman Service claims, (especially) if advisers are proved not to be giving equal consideration to all the possibilities for a customer”. This is hard to argue against. Moreover, as the need to improve standards of knowledge and confidence throughout the industry become more pressing, research conducted by Canada Life Home Finance has found that 40% of independent financial advisers feel that greater support is needed in order to help raise the number of IFA’s who are qualified to advise on equity release, with around 12.5% (or one in eight) independent advisers found to lack the relevant qualifications at present. This could be viewed as disappointing, especially when one considers the short amount of time and cost required to obtain one of the two industry recognised ER qualifications.
In addition, research conducted by equity release specialists, Pure Retirement, has discovered that only around 9,000 (or approximately one quarter) of overall advisers are qualified to offer ER in the UK, with just 500 to 1,000 found to be doing so on a monthly basis. Yet, with approximately 700,000 people reaching retirement age each year in the UK and only around 35,000 advisers currently registered with the Financial Conduct Authority, this research also highlights a worrying disparity between the growing numbers of potential clients and the relative paucity of advisers who are qualified to advise on one of the fastest growing later-life products on the market; a shortfall which could ultimately de-rail the distribution of ER products and undermine standards of advice. So why, after seven consecutive years of market growth within the sector, has this situation been allowed to develop?
One possible explanation could be attributed to what some critics have described as a culture of conservatism within parts of the broker/adviser sector and of an unwillingness to embrace options which fall outside of core business models, especially specialist products. Indeed, research conducted by Alliance & Leicester Intermediary Mortgages way back in 2006 revealed that 45% of intermediaries would not consider selling equity release under any circumstances, with a lack of confidence or a feeling that it simply wasn’t worth their while being cited as the primary reasons. This, of course, is very old news; opinions and the sheer profitability of the equity release market have shifted considerably since that research was concluded. Yet, many within the ER sector feel that some of the arguments that were used at this time still hold true today. For example, regulatory constraints and the time-consuming support of day-to-day business are frequently cited by brokers as being incompatible with the demands of complex new markets and the effort which is needed to familiarise themselves with product options.
Yet, with 75% of ER qualified advisers reporting that they use their qualifications on a weekly basis (according to the Canada Life research) and demand for products growing demonstrably by the year, there can be little reason to believe that a refusal to engage with ER could be based on commercial decisions. Or that an integration of equity release services into core business models would be anything other than entirely beneficial to both practices and clients, especially for those brokers who wish to offer a more holistic or better balanced standard of advice to their custom-bases. So, the key to improving the availability of advice isn’t just about raising confidence levels or even updating the equity release adviser exam which underpins the whole process (although an overhaul of mortgage advice qualifications is on the cards). It’s also about confronting and challenging some of the pre-conceived prejudices or notions of wasted effort that have permeated some within the advisory sector. Put simply, a failure to do so represents a betrayal of client needs and an abandonment of their best interests.
