For a grizzled veteran of the equity release market, Jon Wilkey looks optimistic as he outlines the progress his area of the legal profession has made since its well documented problems in the 1980s. Although his tones are as measured as you would expect of a lawyer of his experience, his passion for his area of expertise is unmistakeable.
Wilkey is a partner at Gwyn James, a law firm based in Wales. Specialising in issues for elderly clients from early in his 20-year career, he has been ideally placed to observe the burgeoning equity release market, from its early days as the frontier of the financial advice industry.
Public confidence
Wilkey sketches the growth of the market in the 1980s as being a little like the Wild West – there were very few products and those that were on the market were not being marketed correctly. “Poor advice was being given, and it was unregulated. The 1990s were slow as a consequence, although the sector was improving – there was a code of conduct from Safe Home Income Plans being set up. But, bit by bit, from 1995, public confidence was beginning to change. From the year 2000, it has been a really exciting market, with new products and providers, and many potential providers taking an interest. Although I use the word interest as opposed to becoming actively involved.”
Caerphilly-based Wilkey’s professional interests include the tax planning, long-term care and court of protection work. As he says: “Court of protection work is such a growth area at the moment and it feeds so much into equity release.” This area of the market has become quite niche over the last 10 years and specialist bodies have been set up, both within the legal profession and outside it. Wilkey says: “Ironically, out of those areas, equity release emerged. I was finding more and more people were beginning to look at equity release and, although they were exceedingly frightened about entering into it, the interest was there. Equity release dovetails so much with tax planning and long-term care. From a legal point of view it is an interesting area.”
His assessment of the reasons for the boom in equity release are pragmatic, and he explains that the sector is designed to fill a gap. “The market has changed because of demographics,” he says. “There is more public awareness of the headline statistics showing the changes in family life and the break up of the family unit has made more and more parents focus away from the be all and end all being the ability to leave an inheritance – they are beginning to think about themselves. Many are saying: ‘If I retire at 55, I have about 30 years to think about in retirement – why should I not draw down on the capital?'”
As befits a long-term advocate of the sector, Wilkey is enthusiastic about its prospects: “It has to grow – all the demographic factors point to a definite growth for the equity release market in the future. There is no going back.” The only fly in the ointment, he believes, is what he perceives as a heavy-handed approach from the Financial Services Authority (FSA), with the potential to scare off tentative entrants to the market.
“With the FSA regulation of lifetime mortgages, and the planned regulation of reversion schemes, confidence will grow,” he says. The only danger is the ‘big stick approach’ from the FSA. It has to appreciate that, yes, the public needs confidence and, yes, regulation is needed, but there also needs to be fair play to encourage advisers to come into the market.”
Wilkey is especially interested in the meeting of legal and financial services to evolve equity release and claims his approach is holistic: “There needs to be more training, but it cannot be done in isolation – financial advisers and solicitors need to understand each other’s roles.”
Wilkey talks about Solicitors for the Elderly, a “highly respected” organisation, focusing on solicitors specialising in equity release, and says he would like to see the same kind of organi-sation in financial services. “This could either come about through the legal profession forming an alliance with financial services, or by a specialist body emerging within financial services that can encompass those two professions,” he adds. “If there is not the emergence of a prof-essional body, perhaps there could then be joint meetings and training sessions between them.” Despite his enthusiasm for the concept, he notes that there are “not currently enough practitioners to justify the training”.
Meeting of minds
This training and meeting of minds would, he believes, alleviate several current concerns in the equity release market. “The depth of advice given is important – if the market is to progress with confidence, the financial services and legal prof-essions need to understand their roles. Often, no further action is initially thought to be required other than the conveyancing process. If a solicitor begins to realise a client does not fully under-stand the implications of entering into an equity release scheme, the solicitor’s role changes. The solicitor’s duty to their client is then to ensure they know exactly what they are entering into.
“The problem I am finding is the lack of information coming from financial advisers with regards to what advice they have given to their client on their levels of taxation and the benefits they are receiving,” he says.
Wilkey continues: “I like to see the fact-find and suitability report that are given to a client and, armed with that, I know the level of information that has been given by the financial adviser and can trim my advice to fit with this. If the client refuses to give me that information I have to go through it myself and the fee they pay can, in effect, double, which can put clients off proceeding.” If the client does not understand the implications of entering into the scheme, Wilkey claims he will send the client back to their financial adviser or, if he feels “they are clearly out of their depth”, will recommend an alternative financial adviser.
Another of his major concerns is the potential for the coercion of older clients into borrowing against their property. He explains: “Advisers have to draw the line between discussing the scheme with family members and the family actually influencing decisions. Sometimes the children are thinking of ‘bringing payday forward’, and it is incumbent upon the financial adviser to ensure they have seen that client alone on at least one occasion. You have to accept that a lot of these schemes get more favourable to elderly people as they get older, when they can get somewhat confused. For example, any gift given for mitigation of Inheritance Tax (IHT) may become ineffective, which may not be appa-rent until four, five or six years down the road. The seven-year window for IHT mitigation will go back to day one.”
Wilkey realises that highlighting some of the more complex issues like this may deter some advisers from ente-ring the market, but reiterates that all that is needed is “sound education and good training between the legal profession and financial services”. And he worries about the potential for the market narrowing if advisers do not have the confidence to provide equity release themselves. “Can the distributors that are emerging, who are extremely good, actually service the whole market? We may find more and more financial advisers are referring work to distributors and entering some kind of arrangement as regards the fee. Niche companies will be in a position to service the whole of the market as a lot of financial advisers who only handle a handful of schemes a year may not have the exper-tise to see it through, and that is going to inhibit the growth of the market. This needs to be addressed.”
Wilkey is critical of solicitors who stay out of the market because of regulatory concerns, often referring to the ‘fear factor’ that people experience. “A lot of solicitors and financial advisers have the fear factor,” he says. “And there is still also a whole tranche of solicitors out there who will not touch equity release. Some dinosaurs genuinely think the situation is like the 1980s.”
Despite his irritation with those scared to dip their toe in the water of equity release, Wilkey knows that to uphold the reputation of the industry, advisers and solicitors need a solid base of knowledge and competence. Here, he feels there is something of a discrepancy between financial advisers and solicitors. “Financial advisers have to sit exams on equity release and long-term care. There are solicitors who, I feel, are not competent to give sound advice in this particular field,” he says.
And Wilkey continues his robust stance, with his final words on the topic. “Yes, there may be problems with it, yes it may not be 100% perfect, but it is a start,” he says. “Let the regulations evolve from the criticism, rather than continuously hitting the FSA. I hope the mystery shopping is a marked improvement on the last exercise. If not, we do have problems.”
