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FSA probe finds interest mismatch over release

FSA mystery shoppers claim that most advisers do not assess suitability for equity release and point to an interest gap between recommended sch-emes and product investment.

After 42 mystery shops of life firms, IFAs and mortgage brokers, the FSA found that 70 per cent of advisers did not gather enough relevant material about their customers to assess their suitability for equity release.

The FSA is particularly concerned that advisers are recommending customers borrow money at around 7 per cent and invest in products that yield about 3.5 per cent after char-ges, without explaining the consequences.

Advisers are recommending that consumers borrow on their property to invest without properly explaining the implications of such a transaction. More than 60 per cent of the mystery shoppers also reported that their adviser had not explained the downside of equity release.

The FSA has not ruled out taking action following the investigation. The assessment of the equity-release market continues and more statistics are expected from the regulator in the near future.

The Council of Mortgage Lenders says the regulator’s exercise was limited and should not be taken to represent the sector as a whole but acknowledges that consumers need to have confidence in the industry.

FSA managing director of retail markets Clive Briault says: “We will be carrying out further work in this area and we expect senior management to ensure their advisers are giving appropriate advice and to deal with any concerns that we identify.”

Key Retirement Solutions managing director Colin Taylor says: “We welcome the FSA monitoring the market. As a result of these findings, we are reviewing our 15-page fact-find and particularly what we do with IHT and income. We recommend that every- one should be taking this as an opportunity to check their processes.”

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