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No lifetime guarantee

Imagine for a second that you need financial advice on your pension and post-retirement options. What would you be looking for from your prospective IFA?

My guess is that you would be seeking out someone who is first of all a superb all-rounder. Someone with a solid background in financial planning, expertise in tax-related issues and qualified at least to AFPC level. A G60 would be a minimum requirement.

Doubtless, you will receive sound advice on what to do in the period before you retire and immediately thereafter. But what happens if, a few years later, you realise that you could do with a few extra grand a year?

There you are, mildly cash-strapped, yet at the same time living in a big property that is all paid for and probably worth several hundred thousand pounds. The chances are that you might want to explore what you can do to realise some of that capital while continuing to live in your home.

If so, prepare for a shock, because the chances are that your financial adviser, who you have continued to see every year for the occasional tweak to your overall investment portfolio, will hold up their hands and tell you that they are unable to advise you any further.

If you are lucky, your adviser will refer you to a firm specialising in equity-release products which will try to help you further. More likely, your adviser will mutter a few words about equity release and tell you that this is not an area in which they are an expert.

This, at least for now, appears to be the situation for the vast majority of pension experts in the UK.

Last week, I was at a breakfast meeting organised by Standard Life Bank on the subject of equity release and lifetime mortgages. It became clear that most advisers asked about equity-release products tend to run in the opposite direction.

According to figures from Safe Home Income Plans, the umbrella organisation covering product providers specialising in this area, sales of equity-release products have remained stable at 1bn for several years now.

Moreover, from a high of 70 per cent of sales being IFA-generated, the total is now closer to 50 per cent. In other words, IFAs are not only refusing to give advice on this issue, they will not even refer a client to someone who can.

There may well be several reasons for this. The products themselves may be inappropriate for the client at that time or the IFA is able to determine other ways in which a client may be able to boost their income. But it is hard to avoid the impression that, in some cases at least, many IFAs feel this is a minefield they would rather not enter.

Anecdotal evidence suggests this is the case. A few weeks ago, researching an article on the subject, I spoke to a number of IFAs and the majority told me they will not advise a client in this area. One of them said this is because equity release is “the next mis-selling scandal”. By that, he did not mean the products were toxic in themselves, simply that, having been burned in the past by other scandals, he did not want to be put in a situation a decade or two down the line where someone might want to lodge a complaint against him for reasons that could not even be foreseen today.

If so, this is a tragedy. In the coming 10 years, millions of recently retired people are likely to find themselves facing potential shortfalls in their finances. Even for those who are not in serious difficulty, the opportunity to boost their income should not be ignored.

What clients need is not just someone who can advise on the necessary strategies before retirement but also what they can do after they stop work. Refusing to advise in this market means that the field is left open to direct salespeople. It also means there is less competition in the market between providers.

What it requires is for IFAs to obtain additional qualifications that will enable them to advise on this issue. They also need to build new skill sets or enhance old ones, such as an empathetic understanding of client needs and an ability to take into account the feelings of close relatives, who may not be enamoured by the idea of their inheritance being cut back dramatically.

None of this is impossible. The FSA’s most recent review of equity-release advice, for example, found that while many non-specialist IFA firms were not meeting desired standards when advising clients, those that “have committed to the lifetime mortgage market by putting in place effective systems and controls and effective training and competence arrangements were found to be meeting, and in some areas exceeding, regulatory requirements”.

What this suggests to me is that it is possible for advisers with the right attitude to enter the market and prosper in it while meeting all regulatory requirements. For now, many of you will be thinking this is not an important area to be active in. How many of you will be feeling the same way in 10 years time?

nic@inspiredmoney.co.uk

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