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The ones that got away

Nearly half of equity-release plans were sold direct by providers last year, highlighting a missed opportunity for advisers, says Nicola York

IFAs are potentially losing out on huge volumes of equity-release business due to advisers’ reluctance to enter the market.

Two recent surveys show that equity release is being held back by a shortage of advisers, forcing customers to buy direct from providers.

Safe Home Income Plans has published the findings of a member survey which shows the main issues facing the market in 2006.

Chief among concerns is ensuring full compliance with the regulatory standards for sales. The second most important challenge facing the industry is the shortage of IFAs giving advice in this area.

Key Retirement Solutions has released data from 2005 which appears to back up these concerns. Its statistics show that 41 per cent of equity-release plans were sold direct by providers.

This has sparked concerns that consumers may not have been sold the most appropriate product for them.

Aifa deputy director general Fay Goddard says the proportion of direct sales is very worrying. She does not think equity release should be allowed to be sold without independent advice.

“If there is a genuine consumer demand and a lack of advice available, we have to question why this is happening. I believe the supply of advisers will increase in line with consumer demand,” says Goddard.

Ship chairman Jon King says there is demand for advice but consumers struggle to find IFAs who can deal with equity release. But he points out that the market is growing and says there are opportunities for IFAs to make money. By 2020, he says 40 per cent of the UK population will be old enough to take out one of these plans.

But why is there a shortage of IFAs willing to specialise in equity release? There are several reasons cited by industry commentators.

Goddard says equity release is not something for IFAs to undertake on a whim. “This is not a market that you dip in and out of. You have to be able to invest a lot of time in this business. It involves high levels of competence and a great deal of training. We recommend that advisers take the lifetime mortgage qualification,” she says.

King also encourages advisers to take the exam, not only to boost their confidence and knowledge but to be able to promote themselves as a qualified adviser to clients.

Churchill Investments head of research Warren Perry says equity release is a very emotive issue and advisers worry that the family may dispute the advice later on. It is also an expensive market to enter.

Perry says: “The costs of PI insurance have rocketed over the past few years. If an adviser has got the option, then they are probably going to decide that it is not commercially viable to give advice on equity release.”

KRS business development director Dean Mirfin takes a positive slant on the 41 per cent of people who bought equity-release schemes direct from providers last year. “It shows there is a hell of a lot of market to grab hold of. We need to get that 41 per cent to go through advisers. The rewards are great for advisers who decide to go into this advice area,” he says.

But Mirfin warns that it is not an area to enter lightly due to the risks involved and the fact that the FSA is monitoring the market very closely. “It is a field which is seen as being risky and complex. Unless you are satisfied and confident enough with that, then you should not enter because you will be putting all your business at risk,” he says.

The implications of a shortage of advisers are wide reaching, according to Mirfin. He says the main losers are consumers and there is something “inherently wrong” if they fail to understand that proper advice is needed.

“I am not criticising the advice given out by providers but customers need to understand the full picture and they might not be getting that from providers,” says Mirfin.

Norwich Union product development manager Brendan Kearns says: “Our vision is that everyone planning their finances in retirement should at least consider it as an option and IFAs need to be doing more to offer it to consumers.”

Kearns thinks the lengthy sales process, the necessity to involve family members and the comparatively small amount that advisers can earn from equity-release sales is deterring them from entering the market.

He says: “They may feel they are exposing themselves to some risk so they shy away from it. The industry must work to educate them in order to give them confidence to advise on the issue.”

Kearns quotes figures from Norwich Union which suggest that fewer than 10 per cent of those eligible are taking out equity-release schemes, 25 per cent are considering it and 65 per cent are not considering it at all. IFAs are therefore missing out on a huge opportunity to advise the 65 per cent of the eligible population and offer them the option of such schemes.

Key Retirement Solutions says it has few competitors and would welcome more into the market because it benefits consumers.

KRS business development director Dean Mirfin says, even if an IFA does not want to advise on equity release, they should enter into a partnership with a firm which will take on this business.

He says: “IFAs are just letting sales walk away. They may as well capture them and get a cut of the profits by working in partnership with an equity-release specialist.

“Our message to advisers is to be involved one way or another. Do not just turn business away.”

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