29th July 2019
The launch of the FCA’s consultation into guidance proposals for the treatment of vulnerable customers looks set to raise some significant questions for the financial sector over the coming months, with research by the financial management company, Altus, suggesting that as many as 50% of people in the UK show signs of potential vulnerability. The regulator has affirmed its commitment to the principles of “fair treatment” within the financial sector and of its intention to create a sense of obligation towards vulnerable consumers that is “deeply embedded in the culture of firms”. However, it has also emphasised the need for a greater degree of “consistency”, with some firms deemed to be “ clearly failing… the needs of vulnerable customers” at the present time, potentially “leading to harm”. The Executive Director of Strategy and Competition at the FCA, Christopher Woolard, has already spoken of the regulators determination to “take action” in cases where the conduct of firms is felt to compromise the fair treatment of clients and to drive up service standards (as well as good client outcomes) accordingly- an admirable stance.
Yet, from the perspective of an industry whose custom base is proportionately more likely to experience vulnerabilities than (perhaps) some other financial sectors, the need to engage with this process (and to be seen to do so) should be regarded as nothing short of essential, particularly given the time and effort which the equity release sector has had to expend to dispel historically rooted concerns about the ‘safety’ and suitability of its products over the years. Indeed, according to recent research by the equity release lender, More 2 Life, almost 90% of advisers believe that greater educational resources and guidance are needed to help intermediaries recognise the signs of vulnerable equity release customers and to interact with them more effectively. Current identification methods are based on asking clients about their personal circumstances or by assessing their ability to understand product information, with evidence of mental ill-health, low literacy, numeracy or financial capability, severe or long-term illness and chronic debt issues also referenced as potential signs of vulnerability. Which, given the current absence of training, is fine. Yet, according to the More 2 Life survey, only 17% of respondents currently believe that it is ‘easy’ to spot a potentially vulnerable customer, although 53% are reported as saying that susceptible customers have accounted for between 1-10% of all previous clients- a not inconsiderable figure.
Moreover, when we consider that cases involving ‘vulnerable’ family members being ‘talked into’ equity release options represents one of the most frequent causes of complaint in relation to lifetime mortgage products (according to the Financial Ombudsman Service), it does occasion some pause for thought. And while no one is suggesting that cases such as these represent anything even remotely close to standard industry practice, publicised incidences of confused or vulnerable clients being left crippled by rolling interest amounts or of adviser-led meetings being conducted without a family member present run the risk of inciting opposition or becoming grist to the mill for the likes of (radio presenter and all-round opponent of equity release) Andrew Castle to harp on about if they are left unchecked. In other words, a public relations disaster. The FCA has already raised concerns about the ‘complexity’ of equity release mortgages in its 2017 paper on the ageing population, and the widening scrutiny of conduct which the guidance consultation is sure to herald will mean that advisers will need to ensure that all product features are clearly explained, understood and documented going forward, especially in relation to (so-called) ‘dilapidations’ clauses, compound interest charges and early repayment fees etc.
Which is not to single out the sector for unwarranted criticism; far from it. At least it already has a mechanism in place for identifying vulnerable clients. Nevertheless, a clearer understanding of vulnerability and of the extra care that is needed when dealing with these clients must be prioritised if this process is to be truly effective. Indeed, a training tool has already been launched by Just Group and the Society of Later Life Advisers to help cross-sector advisers identify and support vulnerable customers- the first of its kind. However, the founder of TFS Mental Capacity Assessors, Tim Farmer, has warned of the difficulties that advisers face in assessing vulnerability, even after training, due to its ‘fluctuating’ nature; switching from “potential vulnerability to vulnerable to being highly vulnerable” on a day-to-day basis. As a result, he has recommended that advisers “get to know (their clients) better” (thereby accentuating the desirability of face-to-face advice) and use a third party assessor to counter any claims or challenges that arise later.
Which is why the equity release sector could (arguably) be regarded as being in a better place to meet the challenges of the FCA consultation than some other financial industries, with customers already obliged to seek independent legal advice, and to consider a range of alternative options, before they are allowed to proceed with a regulated loan. Moreover, if the industry was to consider the compulsory use of Lasting Power or Enduring Power of Attorney documents to strengthen existing precautions, it could actively protect vulnerable homeowners from a potential loss of mental capacity and ensure that any release of equity is done for the right reasons and in a correct legal manner. Meanwhile, given the stifling levels of scrutiny that the industry has had to endure over the years (both from the FCA and assorted media sources), there is an argument for suggesting that the self-regulatory counter measures which the industry has already undertaken have raised standards to a level which (within this context at least) far exceeds other sectors. Indeed, this is a highly sensitive issue and one that needs to be handled with care, yet with a degree of investment and application there is absolutely no reason why equity release advisers shouldn’t assume a leading role in the treatment of vulnerable clients and propel an already booming sector to the forefront of mainstream financial products. In short, advisers should see the FCA consultation as an opportunity.
