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Advisers need to skill-up or cover their backs on later life advice – JLM

by: Rory Joseph, director and Sebastian Murphy, head of mortgage finance at JLM Mortgage Services
  • 01/12/2017
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Advisers need to skill-up or cover their backs on later life advice – JLM
The continued upward trend for the equity release market is clearly down to some significant demographic trends – such as an ageing population – but also around the increased responsibility now placed upon the retired to fund that retirement.

There’s also the lack of pension savings for many, the increased cost of living, not forgetting some mortgage-market specific issues such as the large number of interest-only mortgages with no repayment vehicles.

All have added to the growth in equity release take-up, but have also resulted in a growing appetite for non-equity release lenders to service their later life borrowers via specific products which, for instance, allow them to service the interest on their residential loans (which is also the case with certain equity release products) and many providers have raised maximum ages for loans.

 

The hybrid space

In a way what we’re seeing is a blurring of product lines between equity release and later life lending, however when it comes to the delivery of advice in this area there tends not to be so much blurring. Instead, what we tend to have is a straight demarcation between advisers – they are either ‘strict’ equity release specialist advisers or those who purely advise on residential.

As advisers that work across both sectors, one has to wonder what sort of service and recommendation clients are getting if the adviser they see is, for example, not able to advise on equity release. Or, conversely, if they’re an equity release customer who might be better served by a move back to residential – just recently we’ve worked with a number of clients where our recommendation has been to do just that. This might be because they have good pensions, have good income, and are able to service the interest on products that allow them to do this, and are going to be in a much better situation with a five-year fix around the 2% mark, rather than sticking on their current equity release product.

And of course this can work both ways, with residential borrowers perhaps being better suited to an equity release product. The point is that with advisers tending not to do both, the client has pretty much decided on their product choice via their choice of adviser, and that can’t be right when the recommendation is only going to go down one route.

One hates to use the ‘mis-selling’ tag on this one, but in an environment where CMCs might be looking at certain areas of the mortgage market in order to make up for the forthcoming PPI case shortfall, we as advisers must be mindful of this. Add in the fact that these types of customers can be deemed ‘vulnerable’ by the regulator and you’re bringing in a whole other level when it comes to determining the veracity of complaints and whether they’ll be made in the future.

 

Time to rethink

This blurring of the product lines does require action by advisers when it comes to seeing these sorts of clients. One has to feel that we can’t really have product silos when it comes to later life advice, and there certainly needs to be more education on equity release for residential advisers and later life lending for equity release advisers. The question might even be asked whether every mortgage adviser should also be authorised to provide equity release advice? Given the regulator’s previous worries about ‘dabbler’ advisers in this sector, it’s perhaps not on the agenda but as the two sectors overlap in many ways, advisers undoubtedly need to have more knowledge about the options either way.

Interestingly, the DipMAP qualification has quite a lot about equity release in it, and there’s a strong argument to suggest that advisers should not only have to meet this higher level but that the equity release/later life lending content for CeMAP is also bulked up.

Whatever happens, advisers need to be very careful around their recommendations in these areas because the client should not be recommended a different product just because the adviser isn’t authorised to advise on, what is potentially, a more suitable one. Such an approach is likely to come back and bite you.

 

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