It’s also a little difficult to engage with market participants without wondering which side of the ethical line they have been operating on. In fact, there’s a possibility that some of you reading this may well be on the wrong side of that line.
But maybe we have all in some way been complicit – did we collectively do enough to weed out the bad apples? Did those of us advocating for change shout loudly enough?
– 400 adverts amended or removed for fear of being inaccurate or misleading
– Product benefits being highlighted without a balanced discussion of risk
– Firms using their FCA regulated status in a promotional manner
– Advisers not properly considering borrowers’ income and expenditure
– Advisers minimising discussions around alternatives
– Firms incentivising sales potentially at the expense of good customer outcomes
– Advisers steering outcomes in favour of lifetime mortgage products
No matter how many times you read it, it gets no better. So, what now?
Firstly, I want to recognise that there are good people in the ER market, but we have to recognise that their good work is being unpicked by the actions of others. For that reason, I think we need a period of meaningful self-reflection about how we’ve got here and to consider if the ongoing issues within the market can really be addressed.
I say “if” because the same issues keep being flagged and surely if the market really wanted to change it would have done so already. The fact it hasn’t suggests it either doesn’t want to or it doesn’t know how to, neither being good news for customers.
That period of reflection also needs to include a review on how effective the market has been at protecting consumers. I take no pleasure in saying that as the work undertaken by the ERC – and SHIP before them – has been material in rehabilitating the product, but a set of voluntary safeguards aren’t much good if the culture of the market and the mandatory advice surrounding them are both inadequate.
Points of reflection (non-exhaustive):
1. What have lenders been doing due diligence wise since the first FCA review?
2. If there is now regulatory evidence that proc-fees can/do/could create product bias, isn’t an advised fee model the logical mitigant?
3. If the market still believes it needs additional safeguards to protect customer outcomes, why isn’t the assessment of affordability one of them?
4. Having established payments are affordable, isn’t there a requirement to produce illustrations and source for non-ER product options as well?
5. How does a customer identify a good adviser from a bad one?
6. If additional safeguards haven’t stopped poor advice from being provided, what will?
7. How can drawdown products meet fair value rules if rate nor facility are guaranteed?
They may not be the right (nor popular) things to ask, but if the market wants to evidence it is listening – really listening – then these are the and sorts of questions I think it needs to face into.
Of course, the other option is to do nothing and wait for the regulator to take things out of the market’s hands. They signposted that there might be further output as part of the retirement income review so it’s not impossible that something more radical – an FCA version of George Osborne and annuities for example – could be on the cards.
Either way, this is surely the last chance saloon.
Regulatory expert responses:
Lynda Blackwell
Non executive director and consultant on regulation and risk management; ex-mortgage sector manager, FCA
There will be a lot of firms out there wiping their brows and thinking they have just dodged another bullet. Yet another weak, ‘must do better’ report from an FCA which has been allowing poor customer outcomes to continue in the sector for years now.
For how much longer will they accept promises from firms that they will do better, when the FCA’s own reviews have demonstrated repeatedly that many have no intention of doing so? Something is seriously wrong with the culture in these firms. Significant failings have been discovered just too often.
Well – don’t be lulled into thinking all’s okay and that the FCA will have moved on from this.
If I were a senior manager or on a board of a firm in this sector, I would be feeling very uncomfortable right now. Waiting for the FCA to discover issues (if they do) and then take enforcement action (if they do) is no longer how it works.
It really is time to wake up and smell the ‘Consumer Duty’ coffee. The directors (executive and non-executive) have a very clear responsibility to ensure their firms are complying with the FCA’s requirements and need to be seen to be providing effective oversight and challenge to ensure this. This is not just a compliance tick-box exercise. This is about driving wholesale cultural change throughout the firm to ensure customers, who are predominantly vulnerable and have very limited choices, are properly advised and supported and get the right solution for them
There are no more hiding places on this. Something is obviously wrong and needs to be fixed and it’s the responsibility of boards and senior management to fix it.
Don’t wait for the FCA to force you to do so: That will not end well.
Robert Sinclair, CEO, AMI
For some years AMI has been challenging the market to consider whether it has the balance right.
The downplaying of the risks, the heavy promotional spend to drive consumer engagement and customer journeys that almost always end up with a lifetime mortgage now need be addressed properly.
I fear that the Equity Release Council is in the last chance saloon on getting real traction with their membership. Their work sets out clearly what should be done, but it appears too many find adhering to their standards difficult. This sector has additional qualifications and FCA rules on top of the standard residential market. A step change in the quality of advice and better monitoring by lenders is now essential.
Consumer Duty sets new challenges and all firms involved in this market need to think through the simple messages delivered by the FCA. This article by Tony Crane asks some difficult questions, that need to be addressed with integrity.
Pat Bunton, strategic adviser, Livemore
The FCA’s latest findings raise many of the same concerns as their quality of advice thematic work published in June 2020 and are also largely aligned with the findings of the Financial Services Consumer Panel in May 2022.
It’s disappointing to see many of the same issues being highlighted again now as the market has had ample time to get this right. I can only imagine that FCA will want to take the lead in setting and policing standards in this sector going forwards and at the very least the viability of serviced interest options should always be considered, meaning a properly documented affordability assessment is a must on every case.
