If there was ever a market sector that requires advisory soft skills, then it is in equity release. Advisers who offer equity release advice must recognise the underlying factors a client may be grappling with and it is crucial they listen to the customer’s views before making a recommendation.
Equity release advisers have many more considerations and wider issues to discuss than the normal residential process and this is in part why advisers must pass separate qualifications to advise in this area.
Before the adviser starts looking at available product options, they must be aware of the customer’s attitude to risk, their thoughts on house price inflation and present and future objectives, including issues such as access to medical and long-term care.
The majority of equity release products sold are lifetime mortgages. However, home reversions are a core part of the market and in many situations can be the most suitable product for clients, especially at a time of falling house price inflation.
For those advisers who are qualified and authorised to advise both on reversions and lifetime mortgages (their initial disclosure document states that they will be providing independent advice on all equity release products) there will be an expectation that the business will mirror the industry split, with at least a small proportion of recommendations being for reversion products. The FSA, in particular, will be interested to look at the lifetime mortgage/reversion split in terms of adviser sales.
With this in mind, those equity release advisers without this business split may want to look hard at their fact-find or reconsider the way in which they talk to clients, paying particular attention to their phraseology.
All good advisers know that the customer/adviser relationship is one based on trust. The client wants the trusted adviser’s expert recommendations and thoughts and is willing to be led by them. As a result, a client will follow the direction a skilled adviser recommends, implicitly or explicitly, rightly or wrongly. This is a huge responsibility for the adviser so, to protect against inappropriate advice, the adviser should be at pains to paint the whole picture objectively for the client to provide the most appropriate advice.
But are advisers clear on this responsibility?
A response we often hear from advisers when asked why they have never sold a reversion plan is: “When I talk about reversions, the customer says they do not like them.” Advisers should ask what the clients have based this opinion on.
A specific objection advisers raise regarding home reversion plans is that the client does not want to give up ownership. The real question is to what extent this is a real client objection. Could it be as a direct response to a question such as: “You don’t want to give up ownership of your home, do you?” The answer to such a leading question will more often than not be no.
A more objective way of putting this is to discuss what is important to the client and then sit back and listen to the answer. I would suggest that the name on the deeds is not as important to them as advisers think.
One area the FSA will pick up on is the short versus the long-term needs of the client and advisers must actively consider this within their recommendations.
It may seem like a good idea to recommend a lifetime mortgage now to allow the client to update the property or take a holiday but it is important to consider what needs they may have in 20 years time when they might require a stair lift, ramps or nursing care in the home.
Even when a fairly positive house price inflation assumption is used, a lifetime mortgage will eat into the equity in the property substantially, risking the customer’s ability to access further sums in later years. It is in these later years that the decision to release further equity is likely to be driven more by a critical need rather than the earlier want and so it is vital that this aspect is fully considered. The adviser is responsible for raising these often tricky questions and ensuring the customer has as many options at that point in time as possible.
In practice, equity release advisers who explain the two products objectively do not raise these issues with us as they experience far less objections of this type. They detail how the rights of the customer under both products mean they have complete security of tenure as long as they do not breach the contract terms.
Both contracts usually state that the property must be maintained and insured and both state that the property will normally be sold at the end of the plan to pay back the provider.
The suggestion I am making is not that reversion plans are better for all clients or that they are appropriate in more situations but simply that the long-term stability of the equity release advice market is reliant on qualified, objective advice appropriate to the client.
The FSA has pledged to regularly review client files and conduct firm visits to ensure its rulebook is being adhered to and advisers are treating customers fairly but advisers must also take their responsibility seriously.
The advice problems of the past, such as endowment misselling, have arisen as a result of inadequate fact-finding and incorrect assumptions of future performance, leading to narrowed adviser solutions being recommended to clients. It is important for equity release advisers not to allow their attitudes, for example on house price inflation, to cloud their appreciation and discussion of the impact on the client if a positive view turns out to be incorrect.
The adviser should always guide the client regarding their attitude to this risk and then an appropriate equity release product recommendation can be given. Remember that the client puts their trust in you to provide all the risks and options – it is a big responsibility but one that is worthwhile when done properly.