Benchmark battle

17 September 2009 0:00 am

It appears to be no more than a club expounding certain principles which its members guarantee to uphold, via their product criteria for the benefit of the consumer, rather than a trade organisation with an agenda to lobby or influence its members, or the Government, to make more funding available.

Loy: I believe that Ship has a role to play in helping with the entry of new lenders to the market but it is up to lenders to sort their own funding out rather than relying on their trade body to do it for them.

Ship’s primary objective is to promote safe growth of the market and therefore their focus should be on educating the public and potential lenders of the benefits of equity release through a sustained and effective PR campaign.

Wilson: Ship was created as a voluntary body for providers of equity-release products to join, who would agree to a code of practice that would give consumers better faith in a product tarnished at that time in the early 1990s.

As the market has evolved, especially in recent years, the role has changed and Ship, under the guidance of Andrea Rozario, is now supporting providers through tough economic conditions.

Although Ship will not directly help providers raise funding, their high standards and ethics are part of their members’ business profile. They are limited in ways of actually sourcing funding lines and this must be down to the providers themselves.

Two-thirds of advisers failed to pass all the benchmarks for good advice on equity release set by consumer group Which? in a recent mystery-shopping exercise. Is the industry to blame for these failures? What is the reason for these failures?

Cassidy: Failures recorded by Which? include such fundamentals as not asking the client’s income, which is incredible in today’s regulated world. The firms concerned are likely to have serious professional indemnity insurance problems if such behaviour by their advisers has been tolerated and the financial cost, not to mention regulatory intervention, should be sufficient incentive to ensure that clients are treated fairly.

I also find it difficult to comprehend why there should have been so many basic failings if the advisers possessed the necessary qualifications to advise on equity release.

Loy: We welcome any scrutiny of equity-release advice that can help to improve standards for the benefit of the consumer but we believe that the Which? mystery-shopping exercise would have benefited from taking into account the entire advice process - including follow-up - rather than simply focusing on the fact-find.

I believe that standards of advice are high among the specialists, particularly those that are members of Specialist Advisors for Equity Release.

Wilson: The FSA has done little to monitor or sanction small brokers so there is no line in the sand being drawn.

Networks should also put their hands up as they have looked at supporting this product simply based on short-term commercial return. Without their proactive support, their members will continue to get it wrong or avoid the product.

Finally, advisers must accept their share of the blame. You cannot just deal with one or two providers in this sector, as each product is unique to a need. Advisers must be brave and decide to do it properly or refer it on, because, for a little extra commission, it is not worth being bad at something.

What is the next product innovation that will have an impact on the market? Is there an obvious gap in the market?

Cassidy: Product innovation in the present climate is a difficult call but, given the present low Libor rates, if it were possible to secure a 10-year fix at a sub-5.5 per cent rate, it would go a long way to relieving concerns of borrowers and beneficiaries, especially at a time when property values are low

Loy: The market is waiting for a more flexible drawdown product which allows small amounts to be drawn from a facility and also allows entirely flexible repayments to be made.

I believe that the introduction of this type of plan would increase the market size dramatically but there are obvious issues to overcome on how such a product could be funded and priced before it could become a reality.

In the meantime, the market would benefit from lenders increasing their LTVs as the housing market recovers and the threat of the no-negative-equity guarantee being triggered recedes.

Wilson: Ironically, the gaps in the market are ones recently created by the exit of products. So first, as the funding position improves, I would hope to see the return of the retirement plus product and redemption-free products on lifetimes.

I would like to see products where clients can pay off lump sums without penalty outside of normal main account redemption rules, as you have in the residential market. As funding improves, I hope to see gilt-linked lifelong redemption penalties become a thing of the past. Historically, they have been a necessary evil but brokers want to see the end of them.

The panel Jock Cassidy, director, Ashley Law. Tim Loy, chief executive, Age Partnership. Stuart Wilson, managing partner, Equity Advice

If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing