Its specific references to lifetime mortgages as one of two key areas for its supervision work, along with second charge mortgages will be significant interest to those in the equity release sector.
The Financial Conduct Authority (FCA) used this Dear CEO letter to reiterate the findings of its equity release review, published earlier in the year.
It emphasised the three key areas of concern – personalisation of advice, insufficient challenging of customer assumptions, and lack of evidence to support the suitability of advice.
And it stressed that firms need to review what they currently have in place and whether it is robust enough to meet these concerns.
Are equity release practitioners being put on alert?
Perhaps, but the letter also stressed that firms are being given ‘time to assess what they need to do, and to introduce and embed any changes required’.
What was also interesting within this focus on lifetime mortgages, was the regulator making the connection between the sector and a Covid-19 world.
This was particularly in terms of how advisory firms might address any income shortfalls that have developed during 2020, and whether this may see them drawn to areas of the market ‘where they may not have the relevant experience’.
Dabblers the focus
As has already been pointed out this sounds to me like a refocus on so-called dabblers.
Historically the regulator has been concerned with advisers who only carry out a very small number of equity release cases every year, and this appears to be a warning to those who may have the permissions and authorisations to provide this advice but who are not necessarily specialists in the sector.
In other words, of course you may be able to work in this space, but are you necessarily best positioned to be doing so?
I suspect the regulator is potentially concerned advisers might be lured into a sector which they perceive as more lucrative, only to give advice which is not appropriate because they may not understand it fully.
There is also a point to be made about whether the current regulatory set-up makes the likelihood of that outcome even greater.
For instance, when mainstream mortgage advisers can already actively advise on retirement interest-only (RIO) mortgages without necessarily having any wider later life lending experience, then there might also be a danger that firms, who have the permissions, might allow their individual advisers to stray further into lifetime mortgages.
Or indeed, it might simply be a warning to advisers and firms to think very carefully about providing equity release advice, if it’s something they would never touch in a normal environment?
Potential for poor outcomes
Given the levels of business that most mainstream mortgage advice firms are currently seeing, this is perhaps an unfounded concern.
However, with a much greater need for later life lending advice, and a regulatory system that does allow mainstream intermediaries to advise on a specific later life mortgage product, there is an obvious potential for customers to get poor outcomes, especially if only one part of the product solution puzzle is being covered.
Regulatory scrutiny has always been a significant part of the equity release market, and that will not change.
Firms clearly need to think carefully about their current processes and systems, and their current activity levels, especially if equity release only tends to be a fleeting part of their overall offering.
If they are going to provide advice then they need to seek out the additional training and support available and use a sourcing system that provides up-to-date product information and criteria in its entirety.
And if they can’t, or are not willing to do that, it may be far better to have an introducer arrangement with a specialist, than take a risk with their livelihood.