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A new release of life?

The FSA&#39s announcement earlier this month that it plans to introduce exams for advisers on equity-release mortgages has been welcomed by many in the industry as a step in the right direction. Although it is a product that IFAs rarely touch, it seems the industry agrees that its complexity and potential for misselling need to be reined in under new regulation before it becomes the next big scandal.

Widows Bank deputy managing director Graeme Hartop says IFAs distributing equity-release mortgages tend to be relatively small specialists rather than big mainstream firms. The bank has recently signed a deal with Saga as its sole provider for this type of product and will deliver a specially structured equity-release mortgage exclusively for Saga clients.

Hartop says: “Examinations for these products are a good idea as equity release is a very different market than anything else in financial services. It needs special expertise to be advised on properly.”

However, like many other providers, Hartop believes more IFAs will begin to enter this largely untapped market. In the past few months, he says Widows Bank has received increased interest from the IFA community. He also believes more lenders will come round to the idea.

IFA franchise True Financial Planning director John Baxter believes equity release epitomises many of the failings of the life insurance industry today and that qualifications for this market are essential.

He says: “Underqualified salespeople should not be allowed near this area of advice because of the potential detriment unsuitable advice would bring. In many ways, it is similar to drawdown in the impact of getting the advice wrong.”

Baxter believes it is a “fantastic” concept to enable elderly people to gain access to liquid funds to improve their standard of living rather than it being tied up in an asset that is only realised on their death. However, he warns that product providers need to come up with an angle to sell these products to advisers so that they are more acceptable to clients.

Baxter says: “I have come across a number of clients for whom the advice they received was wholly unsuitable but we cannot unravel it without massive penalties. Once again, it begs the question of whether the product benefited the client or the adviser because it is rarely both.”

Prudential entered the equity-release market last month and has teamed up with Northern Rock to offer a mortgage scheme with both a regular monthly cash release and the option of a cash lump sum. Pru believes research it commissioned from Incepta shows a lack of regulation is holding IFAs back from the equity-release market.

National mortgage manager John Malone says: “Our research indicates that 56 per cent of IFAs claim that poor legislation has stopped them from focusing more on this market. Also, that up to 10 per cent of homeowners aged 55 and over – 1.14 million people – will be more willing to take out an equity-release product once the market is regulated next year.

“Given this lack of regulation, it is perhaps not surprising that the strength of a provider&#39s brand is so important in this market – an issue highlighted by three out of four IFAs.”

But Charcol senior technical manager Ray Boulger does not believe that IFAs would jump into the marketplace simply because it was suddenly regulated by the FSA.

He says: “I find it surprising that 56 per cent of IFAs claim poor legislation has stopped them from entering this market. Frankly, it is an odd question to ask. The FSA has already indicated that advisers who presently do equity release will be grandfathered and not have to pass any new exam, so I would have thought if IFAs really wanted to enter the market, this was an incentive to enter ahead of regulation rather than wait.”

Boulger believes the real reason why IFAs are sitting back is that they are waiting for the market to develop or are unsure whether they want to commit to a sector that requires a very high degree of expertise. He says: “There is a lot to consider when advising on these products. You need to know not only about the equity release market itself but also about real estate and inheritance law, trusts and tax.

“I would imagine that if an IFA was not doing a lot of business in the area, they would not see getting expertise as very worthwhile. We will just have to wait and see.”


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