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‘Equity release is misselling timebomb waiting to go off’

Equity release is a misselling “timebomb waiting to go off” and a lack of understanding of investment risk is a threat to advisers, warns independent complaint handling consultant Adam Samuel.

Samuel, formerly a complaints’ handler at the Insurance Ombudsman, says equ-ity-release plans are an obv- ious area of concern, partic- ularly as they are similar in design to home-income plans which were banned by Lautro in the late 1980s.

Echoing concerns first exp-ressed by the FSA late last year, Samuel says equity-release clients get poor value deals and people investing their lump sum in equities could lose most of their assets if the market falls.

Samuel has written a book on consumer complaint handling called, Consumer Complaints And Compensation: A Guide For The Financial Services Market, which offers advice to firms on compliance, complaint handling and compensation and how to avoid these problems.

He says advisers and product providers do not fully understand investment risk, particularly that individuals can have differing risk profiles across different parts of their portfolio, for example, preferring no investment risk on their mortgages, medium risk on pensions and higher risk on the investment element of their portfolio.

Samuel says this lack of understanding is clearly ref-lected in potential structured capital at-risk products misselling claims.

He says he cannot understand how structured prod- ucts with downside gearing could be recommended to anyone, given that they are high- risk products with a negative gearing element, adding that high-risk investors would not want to pay for a partial cap- ital guarantee as they would be better suited to pure equ- ity exposure.

Samuel says: “The standard of complaint handling varies immensely across the industry and too many people are taught to empathise with the customer but do not understand the nuts and bolts of the issues.”

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