The FCA has published findings from its 2019 exploratory work into later life lending. These focus on the equity release sales and advice process, following a review of advice files from 13 of the largest and most experienced firms in the sector. The three significant areas of concern were: insufficient personalisation of advice; insufficient challenging of customer assumptions; and lack of evidence to support the suitability of advice. The FCA acknowledges that, when sold correctly, equity release products result in good outcomes. However, the fact that it felt the need to publish findings from a piece of discovery work is significant and unusual, as it is clearly concerned about the extent and frequency of potential poor consumer outcomes due to inappropriate processes and unsuitable advice.
Since publication, the Equity Release Council has added steps to its advice checklist. This appears to miss the point that the FCA found evidence of firms taking a tick-box approach to fact finding, whereas a firm must delve into and explore a customer’s circumstances in greater depth and provide evidence and clear justification as to why a recommendation was made. A customer centric approach is imperative; firms need to put themselves in their customer’s shoes when designing sales processes and review all parts of the customer journey. This is a case of ‘the customer not always being right’ – the customer may think they know what they want, but it is the job of the adviser to educate, guide and challenge them where appropriate. FCA is concerned that the costs of compounding interest over a long period of time can make equity release an expensive way to meet a short term borrowing need, while the costs of ending these contracts or repaying early if personal circumstances change can also be significant. In its review, the FCA was concerned that the advice given to take out equity release products could not always be shown to be in the best interests of all consumers given their personal circumstances.
The FCA has given firms individual feedback, but it has also published these findings as it wants all firms to digest and take action where necessary. It is aware that firms are keen to address the issues and want to get this right. Many may question why the challenge of holistic advice and regulatory siloes is not called out in the review. It is important to understand that the comments are specific concerns the regulator has on the quality of advice given and not the way that the market is split, as this was never the intention and focus of this work. Changing the structure in itself would not address the basic flaws on how people are advised.
It does not see initial disclosure which limits the scope of service as an indemnity clause for driving a consumer to a particular solution. Where there are other products that may be appropriate but not available within the firm, then the consumer must be advised and if necessary signposted elsewhere. Advisers must be aware of what else in available across the market. Similarly, regulated firms should not be relying on an independent legal review to validate their recommendation. The recommendation and solution must stand alone. Firms need to be clear they are being measured by the rules and guidance set by the FCA and not be deflected by any other standards.
The FCA will be undertaking further work in the lifetime mortgage market to monitor progress. Despite low volumes of complaints to FOS and low overturn rates, there should be no complacency, as this review uncovered baseline advice issues.
Robert Sinclair, AMI