The checklist is designed to give brokers advising on equity release more direction and outlines 12 key points to consider during the sales process.
The Equity Release Council stated the list does not replace a full fact find or suitability letter but will help brokers assess customer suitability for equity release.
Member brokers will be required to follow the guidelines from January 1 2014 but chairman Nigel Waterson stated most advisers will be well equipped to handle the changes.
“For years there’s been a checklist under the SHIP standards board but since we have expanded our membership we thought that it needed an update,” he told Mortgage Solutions.
“We expect our adviser members to follow these rules. Questions about whether the client has spoken to family are important as most of the complaints concerning equity release come from sons and daughters. This addresses that issue.”
Following recent expansion the council now has 218 individual brokers under its wing across 53 adviser firms, a figure Waterson is keen to grow.
“We now have more members from the advice sector than any other. Providers are still big supporters but nobody buys equity release without it being intermediated. We want advisers in the camp rather than outside.”
The 12 point checklist is:
1) Have you fully discussed with the customer alternatives to equity release including trading down, grants, use of savings and financial assistance from any family and so on – both for the current point in time and how any of these alternatives may be relevant in the future?
2) Have you established or referred for investigation the customer’s eligibility for state benefits and the effect equity release benefits may have on them?
3) Have you considered the customer’s tax position in making this recommendation?
4) Has the customer been advised to speak to their family and any other material beneficiaries of their will, and to consult an independent legal adviser?
5) Have you discussed the customer’s health and life expectancy and taken into account the effect of positive and negative changes in house values? Have you explained the impact this could have on their will and estate planning and how any released funds may impact on their ability to fund for later life financial requirements such as long term care funding?
6) (Prior to any recommendations) have you provided the customer with a fair and balanced overview of the pros and cons of both lifetime mortgages and reversion plans?
7) Are you sure the contract you have recommended is the most suitable lifetime mortgage or reversion plan and have you advised that any other outstanding mortgage will need to be redeemed on completion?
8) Have you explained clearly that it is inadvisable that the funds released are reinvested into any medium or long term investments?
9) Have all fees and risks associated with the product recommended been fully explained, for example:
– Impact of any compound interest;
– Any early repayment charges;
– If reversion not receiving the full market value for the percentage sold;
– If the product is not from Equity Release Council member and the product does not comply with the Equity Release Council’s Code of Conduct, what protections the customer is foregoing;
– That the opportunity to move the mortgage in the future will be restricted to properties acceptable to the lender. This may rule out moving to age restricted or sheltered accommodation, depending on the lender’s policy at the time.
10) Have you reviewed the customer’s needs and objectives, future plans and ongoing commitments including moving home? (This includes income requirements as well as property maintenance and insurance).
11) Have you ensured that the amount released does not exceed the customer’s current requirements and is appropriate to their attitude to risk? This includes debt consolidation, if applicable.
12) Has the customer put together a realistic expenditure budget plan for the funds released? This includes making use of drawdown facilities, if applicable.
An additional question also asks if a broker has provided a client with a copy of the suitability report and has confirmed both their receipt and acceptance of the document.
Simon Chalk, equity release technical manager at Age Partnership, said the new rules would embed high standards into the industry.
“It effectively compels advisers to do what is widely accepted and established as constituting best practice. In this regard, existing advisers won’t have major adjustments to make to their processes,” he said.
“Inevitably clients’ costs will increase and time to completion will be extended in some cases, so we should help clients in setting their realistic expectations. On the plus side, the sector once more proves it takes its responsibilities seriously in protecting customers and delighting them.”
