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Weed them and reap

The FSA’s second review of the equity-release market saw the unprecedented move by the regulator of asking advisers who only write a small amount of equity-release business to stop and refer them on to specialist firms.

The regulator’s exercise, which involved 75 mystery shops and visits to 23 firms, found a great variation of standards among intermediaries.

The report says: “In some cases, standards were unacceptable, particularly in firms where lifetime mortgages are not a significant part of their business. These firms tend to write occasional business in this area without developing the necessary systems and controls, knowledge and skills to give customers the quality of advice that FSA standards require.”

The review also found that advisers failed to explore in depth the impact of taking out a lifetime mortgage on their clients’ future options.

Key Retirement Solutions business development director Dean Mirfin hopes advisers will finally take notice of the findings and is pleased the FSA has approved of how the specialist equity-release advisers are operating.

He supports the call for adviser firms which only do a small amount of equity release to cease activities or pass leads on to experts.

Mirfin says: “The dabblers in this market are still not doing anything like the amount of business they should be and the advice is suffering as a result. This cannot be allowed to continue, they should be referring business on.”

He does not understand why these advisers are taking risks when it only makes up a small part of their business. He suggests it is partly because it is additional income for advisers and it is hard for intermediaries to turn away business.

He says: “It is the first time that I have seen such an endorsement of referring business by the FSA.”

Perhaps a more alarming result was the discovery that in around a third of cases, advisers still failed to issue the initial disclosure document. Mirfin says he finds this frightening. “This can only be deliberate. Non-compliance is the only way of looking at it. Issuing the document is a straightforward process. If you are not doing it, then it is out of choice. They cannot say they did not know they had to do this.”

He believes that the only way the regulator can drive out those players who are not serious is by continuing to police the equity-release advice market.

Ship has an important role to play in ensuring that only competent advisers enter the sector and Mirfin says Ship’s move to allow only members to take business from advisers who have passed the equity-release exam will help to do this.

The 10-point checklist released by Ship will also help advisers in how to be compliant.

Mirfin thinks the FSA will clamp down on advisers found to be non-compliant.

He adds: “I think it will have put off some people who were thinking of entering the sector. Knowledge decays very quickly unless you are writing equity-release business everyday.”

GE Life equity-release product manager Simon Little welcomes the regulator’s findings and thinks it will encourage advisers to “get serious or get out” of the equity-release market.

He is disappointed by the findings over initial disclosure documents but does not think it is a problem that specific to the equity-release sector.

Little says: “Those IFAs that are starting to get interested will start to get some pretty good guidance. We want more IFAs to enter the sector but only those who operate in a professional manner. We cannot say that we need to get more advisers in regardless as to whether they are poor quality or not.”

He believes that the industry needs a combination of providers and distributors working together to address the problems.

Little says Age Concern has reported a 50 per cent increase in enquiries on equity release in the past 12 months. He says: “We have got a lot of interest from consumers and that is not going to go away. The industry has galvanised itself and it is presenting fantastic opportunities for IFAs to get referral business because you are going to get to meet the client’s family.

“We need to weed out those advisers that are not truly committed to the market. I think Ship has shown they can take the lead by introducing mandatory exams and the 10-point checklist for advisers.”

In Retirement Services has set up a hotline for IFAs who have questions or concerns over equity release.

Head of business development Frank McCann says he believes advisers who were thinking about entering the market will not have been put off by the FSA’s findings.

He says: “It might cause them to stop and think but I do not think there is anything wrong with that. If you are serious about it, then you need to invest time and money into getting the systems and processes right.”

McCann finds the mystery-shopping results encouraging but does agree it is concerning how many advisers are failing to provide consumers with an initial disclosure document.

Crown Equity Release operations director Russell Baldwin believes the advice market should be more inclusive and training should be more widely available to advisers who want to enter the sector.

He says: “IFAs seem either to have a good understanding of equity release or no understanding. There is very little in between. The product providers need to do more on the educational side for IFAs.”

But Baldwin warns against making the advice sector “too vanilla” because some of the more unusual cases might not be dealt with by mainstream advisory firms.

He says: “The FSA have a role to make things simple and straightforward. Awareness and education is the key to improving advice standards in the sector.”

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