The challenge for advisers selling equity release is to give equal weighting to selling the plans with full disclosure of potential pitfalls without scaring clients off.It is a complex decision, with mature clients and their families, bringing in tax, inheritance planning and legal issues plus the need to look at the client’s financial arrangements as well as their potential eligibility for state benefits. The schemes involve considerable costs, the total of which is often unknown until the last policyholder dies. The Actuarial Profession’s Equity Release Report 2005, published in January, highlights the fact that the total housing wealth of people aged 65 and over now stands at about 1.1trillion and equity release has a significant part to play in funding many people’s retirements. It adds that the equity-release market is under-supplied and could mushroom to several times its current level. Advisers have the task of communicating the risks of equity release without dissuading clients for whom the plans seem to be the best course of action. Norwich Union product development manager Brendan Kearns says: “Striking a balance between risks and ben-efits is critical. Every time you talk about the benefits you must talk about costs but somehow not focus that much on either.” Kearns says clients can release substantial amounts of cash and often concentrate on the life-changing potential of the plans. “It is vital to drag them back. This happens from the beginning with our adverts who promote the adv-antages but also indicate that welfare benefits might be affected, that equity release is a commitment for the rest of your life and that the decision to go ahead is a very big one.” NU says this build-up/ knock-down approach is also at the heart of the many stages of advice their clients must go through. The initial fact-find can act as a reality check in examining the client’s savings, property and its value as well as offering the adviser the first chance to probe into why customers believe they need the money. Kearns says brochures are then issued and the process is effectively halted for one to two weeks. This gives the consultant time to put together a quote and recommendation and for the client to consider the consequences of entering into the arrangement. By the time this period of mutual reflection is over, the client is better prepared to make the right decision based on the true merits and drawbacks, says Kearns. “Customers consider this decision for a rightfully long time and they often become very well-educated about the pros and cons of equity release in the process,” he says. KRS business development director Dean Mirfin says people are often responding to ads they may have kept for two years before they decide to make the call. When those customers go through to the advice stage, it may be the consultant’s recommendation that they do not proceed with the plan. Mirfin says: “Sometimes we have to turn away customers for whom we really do not think it is appropriate. Only about one in three people who make an enquiry will get through the whole process and get a scheme.” For NU, Kearns reckons that about one in five customers who contact the firm with an equity-release enquiry end up buying a plan. When asset-rich, cash-poor homeowners risk getting carried away with what they might spend their equity on, families can prove an essential tool in bringing other consequences to the fore. KRS believes that all reputable advisers should involve the family. Regulation is also working in the bid to give equal weighting to selling and pointing out the risks of equity release. Kearns says: “Regulation ought to put people’s minds at ease, including the checkpoint that is the requirement to take legal advice. All in all, customers are required to go through a lot of hoops.” Mirfin points out that the key facts illustration also works to draw clients to the less positive what-ifs, such as if the value of the customer’s property falls. “You cannot understate the potential costs and, in some ways, you have to put people off,” he says. Mortgage Express product development manager Roger Hillier says mortgage conduct of business rules make it clear what bases should be covered when discussing equity release. He says: “The FSA has clearly documented steps but we have also been involved in working on the Council of Mortgage Lenders’ good practice notes which offer step-by-step guidance on the sales process.” The free guide has been available on the CML website since November and Hill-ier urges advisers to download a copy. A prevailing factor in advising clients using the most appropriate tone can also include old-fashioned gut feelings, which can prove just as vital as the more sophisticated statutory checks and balances. Mirfin says: “If someone has to think for a long time about what they would do with the money released or if an adviser has to push and probe to get the real reason why someone wants to do this,your instinct starts to tell you that this policy might not have the embedded value needed to justify the decision and it ought not be recommended. You get a gut feeling when clients are open and transparent that this is likely to be the right decision.”
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A broad consensus of industry bodies is telling the Turner Commission that the basic state pension must be increased and means-testing scrapped.
Charcol is refusing to use key fact illustrations from Mortgage Brain over concerns that it is still unable to produce accurate documents.
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A quarter (23 per cent)* of the UK’s small to medium-sized enterprises (SMEs) do not have an absence management system in place, according to new research from Jelf Employee Benefits. Despite 69 per cent* of organisations having a system in place, three-quarters (75 per cent) report that it is not providing them with sufficiently empowering absence or health data to inform an effective wellbeing programme.
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