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Ship sets a course

The industry is unanimously opposed to the absence of any clear plans to regulate home-reversion schemes.

The regulatory no man&#39s land in which home reversion resides needs to be managed by providers and advisers to ensure that customers not only receive appropriate advice but also the product which is most suitable for their needs.

Lifetime mortgages will be regulated by the FSA this year but so far there are no proposals to regulate home-reversion plans where policyholders sell all or a proportion of their home in return for a lump sum.

The concern is that once other equity-release schemes come under the jurisdiction of the FSA, reversion schemes will be perceived as unsuitable or inappropriate and that protection provided by the FSA will form the basis of the recommendation rather than product suitability – to the detriment of the client.

As the popularity of equity release grows, it will become increasingly important to work towards a level regulatory playing field. The current regulatory inconsistency puts IFAs in a potentially challenging position in the advisory setting.

IFAs can talk about lifetime mortgages against the backdrop of regulation but as soon as they discuss whether home-reversion schemes are the best option, they are forced to step outside the safeguards of a regulated market and will need to notify the clients of this difference.

Telling clients that one product is regulated and the other is not can be a difficult message for advisers to give clients.

The regulation of lifetime mortgages might, in some circumstances, lend the products an added legitimacy that may bias clients towards them when, in fact, once all the alternatives have been considered, a home reversion could be the better option. This is why Norwich Union has spent a lot of time lobbying on the issue of regulating home-reversion schemes.

We have spoken to the Treasury and the FSA and continue to work within our capacity as a member of Safe Home Income Plans to move towards regulation.

One of the key barriers facing the industry is that within the current legislative framework it is not possible to bring home reversion under similar regulations as lifetime mortgages.

Part of the reticence surrounding regulating the whole of the equity-release market is the relatively few complaints over the schemes.

However, evidence of consumer detriment should not be at the heart of consumer protection. In addition, we would argue that we have not yet seen the impact of having a partially regulated market.

Full regulation is the optimum outcome but in the interim, Ship is looking to establish some form of voluntary regulation. This will work by replicating the key elements of the FSA rules on lifetime mortgages and using these as a basis for a template.

So far, Ship has concentrated on product design standards while a new voluntary code would cover the sales process, sales literature and complaints. This will not be as strong as full regulation but it will have to suffice until such time as we do get primary legislation to facilitate home reversion regulation.

We expect advisers will be grateful for any best practice framework even if it is voluntary.

At Norwich Union, we have always treated the sale of equity release as though it was regulated and would reassure IFAs with worries over dealing with home-reversion schemes and lifetime mortgages that they can take three steps to advise with confidence.

First, financial advice is essential. You should establish a clear picture of a client&#39s financial position to enable you to identify all of their financial needs and understand the implications of taking out equity release, in particular with regards to any impact on means-tested state benefits or your client&#39s tax position.

You should explore all the options available to them, including alternatives such as downsizing.

You should then establish which type of equity-release product type – reversion or lifetime mortgage – would be the most appropriate solution to your client&#39s needs.

Proper record-keeping will also give advisers added peace of mind.

Second, only choose a product from a provider who is a member of Ship.

A Ship plan guarantees that homeowners cannot lose their home whatever happens to its value, interest rates or stockmarkets while the plan is in force. Also, the homeowner&#39s own solicitor oversees the transaction. A Ship equity-release plan cannot be set up until the solicitor has signed a certificate confirming that details of the plan have been explained to and understood by the homeowner.

Ship member companies must provide fair, easy-to-understand information about their plans.

Third, encourage the involvement of the family. Obviously, this cannot be insisted upon but if you encourage family involvement from the beginning, not only will they be able to support the sales process but you will also minimise the risk of complaints once the plan ends.

Eventual full regulation will be good for consumers, providers and IFAs. Where appropriate, advisers will be able to present equity release to a growing number of clients without the hindrance of difficult conversations about why key parts of the market remain unregulated and consumers will be confident that they will have the right product for their needs.

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