Equity release is in the spotlight at present and it is likely to stay there for years to come.
The advice sector needs to boost levels of understanding and competence and achieve the twin aims of regulatory compliance and first-class customer service.
The market will continue to grow because faith in traditional pensions has crumbled while property values have continued to rise.
The location of the nation’s wealth has shifted, with more people coming to rely on the value locked up in their homes to fund future lifestyle expenditure, even to the extent of using it as a substantial part of retirement provision.
Equity held within property is also increasingly being released to pay for care in old age. As people are living beyond the point where standard financial plans can cater for their needs, there is a call for a fresh source of funds and the increased value of bricks and mortar is the logical solution.
This is an area of opportunity for the mortgage and financial advice sectors but extreme care is needed.
Pensions and long term care are highly emotive issues and incompetent or incomplete advice will cause huge damage to the market’s already battered reputation.
It is nearly two years since the FSA told the market that the quality of advice on equity-release products must improve. The regulator has since fired another warning shot across the bows of the mortgage advice community, stating that processes should be improved, especially n smaller firms.
It is fair to expect mortgages in general and equity release in particular to remain the subject of intense scrutiny for the foreseeable future.
The FSA’s direct involvement in the market expands further in April when homereversion schemes will come within its regulation. Such plans represent only a portion of the equityrelease market and the market itself has been calling for them to be properly policed. But any increase in regulation gives rise to potential non-compliance. Again, we need to be on our guard to ensure that the standing of the market as a whole remains sound.
Qualifications will play a significant role in helping customers identify advisers with the knowledge required to provide suitable advice.
IFA Promotion says the number of advisers citing lifetime mortgages as a speciality is now over 2,000, suggesting a surge in demand from older customers looking to free capital from their property.
IFAP says: “This number has increased month on month almost constantly for the last two years and as more people start to explore ways to supplement their pensions, this trend is likely to continue.” It has also seen a rise in the number of enquiries for specialist advice on equity release.
Advisers wanting to be involved in lifetime mortgages must have a relevant qualification such as the Chartered Insurance Institute’s certificate in lifetime mortgage advice (CF7). This can be married to the certificate in long-term care insurance (CF8) to help the adviser develop a holistic approach to serving the needs of his or her client base.
The CII has also anticipated the arrival of home-reversion plans within the regulatory embrace with the launch of a new exam unit, HR1, which will serve as a top-up for those who already hold CF7.
It is essential that advisers who are qualified in lifetime mortgages ensure that they are also suitably skilled regarding home reversion.
This is at the top of the regulatory agenda and firms will not be able to advise unless their staff can demonstrate their competence. It is incumbent on all advisers who are serious about giving their clients the best possible service to get their knowledge up to speed.
Advisers completing the new unit will need to demonstrate an understanding of the circumstances in which a homereversion plan might be appropriate, how these are influenced by consumers’ preferences and financial needs, the impact on consumers’ future options and the key features of these plans and the alternatives.
The ability to analyse on the suitability, advantages, disadvantages and potential risks to consumers associated with taking out these plans will also be tested.
Professional financial advisers often find them-selves involved with the consequences of social and demographic change. Longevity and its attendant financial pressures are a prime example but one also thinks of the impact of the increase in divorce rates, the greater need for inheritance tax mitigation strategies and growth in planning for school and university fees.
In each case, advisers have identified developing markets and acted accordingly. The acquisition of qualifications to bolster the provision of advice to lifetime mortgage clients will continue this trend.
We may see the emergence of more dedicated firms focusing on equity release or there may be a growth in the provision of holistic financial planning. Alternatively, we may see more advisers cross-refer business to each other according to their niche specialities.
But the shape of the market is not important. What really matters is that professional advisers take responsibility for the quality of the service they provide, incorporating qualifications into their training and development regimes.
This will aid compliance and enhance marketing potential but, crucially, it will ensure clients are guided in the right direction at a time in their lives when high-quality advice has never been so important.