Key Consumer Duty developments and recent communications issued by both AMI and the FCA, with commentary on implications for mortgage intermediary firms…
I have been hearing a new clamour from the world of Equity Release that consumers need to be made aware of all the products they might be eligible for and an impetus towards the need for holistic advice. There has also been a subtle shift in language by some commentators who have moved from talking about the market for equity release products towards a broader later life lending market. In approaching this from the consumer perspective this appears eminently sensible, however I would ask all involved to take a moment and think it through.
The world of mortgage related lending is a regulated one. Government has given that job to the FCA, it being their role to authorise and monitor lenders and advisers and to provide the framework to protect consumers. In doing that job, the FCA has applied different rules and standards to the worlds of Equity Release, Retirement Interest Only (RIOs) and to conventional mortgages that may be repaid way past expected retirement ages. Each has bespoke rules to protect consumers and give guidance to firms on their roles and responsibilities. All the products and services are covered by FCA rules, FOS complaints rights and FSCS protections.
The rules set by the FCA permit lenders to select the types of products they offer. They allow advice firms to restrict their service offering by initial disclosure. They set out where advice is mandatory or where consumers can have choice in how they interact. They permit lenders to set their own rules about who they want to lend to and who they allow to advise on and recommend their products. Individual lenders can prescribe additional controls over advice partners where they choose not to distribute direct.
All participants in the market are governed by a set of FCA rules that have been consulted on, agreed and deliver a level playing field that allows open competition and no barriers to entry. More importantly in broad terms where the customer has affordability, then a conventional mortgage or a RIO is appropriate and can be advised on by all mortgage advisers. Where there is equity in a property, a need for borrowing and insufficient income to evidence affordability of repayment then Equity Release might be the best bet. This brings with it additional FCA defined examination and authorisation requirements for those who advise on its suitability.
Most advisers know how to have those discussions and get the consumer to the most appropriate outcome. My concern here is that we risk layering in cost and complexity to the majority of relatively straightforward conversations to give wider options to what is a very small number with genuine needs, albeit a growing minority.
I am concerned that the issues raised last year by the FCA about advice standards in the Equity Release market have been lost. Much of the industry debate has been about widening the scope and extent of the consumer fact-find, assessment of suitability and more product solutions. However, my analysis of the findings was that advisers should go deeper into identifying why the solution identified met the identified needs. Holistic advice appears a bit like the holy grail – much desired but much harder to attain. Few firms have the ability or desire to move to that model and the FCA rules legitimately afford protection where firms chose to limit their scope. Moving too quickly runs significant risk.
Lenders in these markets might be better served looking at the findings of the commercial lending case of Woods v Commercial First and considering if this has implication for them rather than challenging the quality of the advice being provided by firms that they agree to have on their lending panel. If they have concerns, the solution is already in their individual hands.
Chief Executive, AMI